As filed with the Securities and Exchange Commission on July 25, 1996
Registration Statement No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
Form F-1/S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONSORCIO G GRUPO DINA, S.A. DE C.V.
(Exact name of co-registrant as specified in its Charter)
CONSORTIUM G DINA GROUP, INC.
(Translation of co-registrant name into English)
United Mexican States 3711 Not Applicable
(State or other jurisdiction (Primary standard (I.R.S. Employer
of incorporation industrial classification Identification No.)
or organization) code number)
Tlacoquemecatl 41
Colonia del Valle
03100, Mexico, D.F.
Mexico
(525) 420-3900
(Address and telephone number of co-registrant's principal executive offices)
MCII HOLDINGS (USA), INC.
(Exact name of co-registrant as specified in its Charter)
Delaware 3711 86-0830781
(State or other jurisdiction (Primary standard (I.R.S. Employer
of incorporation industrial classification Identification No.)
or organization) code number)
Dial Tower
1850 North Central Avenue
Phoenix, Arizona 85004
(602) 207-5000
(Address and telephone number of co-registrant's principal executive offices)
------------------------
RANDALL H. DOUD, ESQ.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
(212) 735-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service of co-registrants)
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, check the following box: |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
==============================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Aggregate Amount of
Securities to be Registered Registered Price Offering Registration
Per Unit Price (1) Fee
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Senior Secured Discount
Exchange Notes due 2002 $206,499,680 100% $206,499,680 $71,207
==============================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
The co-registrants hereby amend this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
co-registrants shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
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[FLAG] Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any jurisdiction in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such jurisdiction.
Subject to Completion
Preliminary Prospectus Dated July 25, 1996
Offer for all Outstanding Senior Secured Discount Notes due 2002
in Exchange for Senior Secured Discount Exchange Notes due 2002
of
CONSORCIO G GRUPO DINA, S.A. DE C.V.
and
MCII HOLDINGS (USA), INC.
The Exchange Offer will expire at 5:00 P.M., New York City time,
on __________, 1996, unless extended
Consorcio G Grupo Dina, S.A. de C.V., a Mexican corporation ("Grupo
Dina"), and MCII Holdings (USA), Inc., a Delaware corporation and a
wholly-owned subsidiary of Grupo Dina ("MCII Holdings" and, together with
Grupo Dina, the "Issuers"), hereby offer, upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange
an aggregate principal amount of up to $206,499,680 of Senior Secured
Discount Exchange Notes due 2002 (the "New Notes") of the Issuers, which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of the issued and
outstanding Senior Secured Discount Notes due 2002 (the "Old Notes" and,
with the New Notes, the "Notes"), of the Issuers from the holders thereof.
The terms of the New Notes are identical in all material respects to the
Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes and except that, if the Exchange Offer is
not consummated by December 30, 1996, the Old Notes will bear additional
interest as described herein. See "Description of the Notes." The Old
Notes were issued on June 3, 1996 pursuant to an offering exempt from
registration under the Securities Act in which Old Notes were exchanged
for 10 1/2% Guaranteed Notes due 1997 (the "Eurobonds") of Grupo Dina.
The Issuers are jointly and severally liable with respect to payments
of principal and interest on the Notes. It is intended that all payments
in respect of the Notes will be paid by Grupo Dina, and that payments will
be made by MCII Holdings only in the event of a failure to pay by Grupo
Dina. MCII Holdings will have subrogation rights against Grupo Dina if
MCII Holdings is required to make any payments under the Notes. Such
subrogation rights will be subordinated to the prior payment in full of
the Notes. Holders of the New Notes, by their acceptance of the New Notes,
will agree to report the New Notes as indebtedness of Grupo Dina which is
guaranteed by MCII Holdings for all tax purposes. In addition, Grupo Dina
and MCII Holdings have treated the Old Notes, and intend to treat the New
Notes, as debt of Grupo Dina guaranteed by MCII Holdings for all tax
purposes. The Notes will be redeemable at the option of Grupo Dina, in
whole or in part, at any time on or after November 15, 1998, at a
redemption price of 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date. The Old Notes are, and
the New Notes will be, dated as of, and accrue interest from, November 18,
1995 and will bear interest at the rate of 12% per annum through maturity;
provided, that, if the Notes are not rated either BB- or better by
Standard & Poor's Corporation ("S&P") or Ba3 or better by Moody's
Investors Service, Inc. ("Moody's") at November 15, 1999 the per annum
interest rate shall be increased on such date to 15% until maturity. Prior
to and including the interest payment due on November 15, 1998, the Notes
will accrue interest on a zero coupon basis and, accordingly, the
principal value of the Notes will accrete from US$705.65 as of November
18, 1995 for each US$1,000 in principal amount to US$1,000 at November 15,
1998. Thereafter, all interest will be payable in cash semiannually on May
15 and November 15 of each year, commencing May 15, 1999. See "Description
of the Notes."
(Cover continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR
OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is __________, 1996.
(Cover continued from previous page)
The Old Notes are, and the New Notes will be, general senior
obligations of the Issuers. MCII Holdings' obligation under the Old Notes
is, and under the New Notes will be, secured by (i) a pledge of the common
stock ("MCII Shares") of Motor Coach Industries International, Inc.
("MCII"), a Delaware corporation which is a direct subsidiary of MCII
Holdings, (ii) a pledge of all certificates representing any of the
pledged MCII Shares, and (iii) a perfected first priority security
interest in any cash or Cash Equivalents (as defined herein) deposited
with the Trustee (as defined herein). Under certain circumstances,
collateral in the form of MCII Shares may be released by the Trustee and
sold by MCII Holdings. The obligation of Grupo Dina in respect of the New
Notes will rank pari passu with the Old Notes and with all other
outstanding unsecured and unsubordinated obligations of Grupo Dina,
present or future, other than obligations which are mandatorily preferred
by statute or operation of law. The obligation of MCII Holdings in respect
of the New Notes will rank pari passu with the Old Notes and, by reason of
its being secured by collateral, will effectively rank senior to any
outstanding unsecured obligations of MCII Holdings. See "Description of
the Notes."
For each Old Note accepted for exchange, the holder of such Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on
or after consummation of the Exchange Offer.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Issuers contained in the Registration Agreement dated
June 3, 1996 among the Issuers and the other signatories thereto (the
"Registration Agreement"). See "The Exchange Offer--Consequences of
Exchanging Old Notes" for a discussion of the Issuers' belief, based on
interpretations by the staff of the Securities and Exchange Commission
(the "SEC") as set forth in no-action letters issued to third parties, as
to the transferability of the New Notes upon satisfaction of certain
conditions. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that, by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker- dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that starting on the Expiration Date
(as defined herein) and ending on the close of business on the first
anniversary of the Expiration Date, they will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "Plan of Distribution."
The Issuers will not receive any proceeds from the Exchange Offer.
The Issuers will pay expenses in connection with the Exchange Offer
estimated to be approximately $______. Tenders of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration
Date. In the event the Issuers terminate the Exchange Offer and do not
accept for exchange any Old Notes, the Issuers will promptly return the
Old Notes to the holders thereof. See "The Exchange Offer."
There is no existing trading market for the New Notes, and there can
be no assurance regarding the future development of a market for the New
Notes, or the ability of holders of the New Notes to sell their New Notes
or the price at which such holders may be able to sell their New Notes.
The Issuers do not intend to apply for listing or quotation of the New
Notes on any securities exchange or stock market.
AVAILABLE INFORMATION
The Issuers have filed with the SEC a Registration Statement (the
"Registration Statement") under the Securities Act with respect to the New
Notes being offered by this Prospectus. This Prospectus does not contain
all the information set forth in the Registration Statement and the
exhibits thereto, to which reference is hereby made. Any statements made
in this Prospectus concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy
of such documents filed as an exhibit to the Registration Statement.
Grupo Dina is subject to the information and reporting requirements
of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange
Act"), applicable to foreign private issuers. In accordance therewith
Grupo Dina files reports and other information with the SEC. MCII Holdings
is not currently subject to the information and reporting requirements of
the Exchange Act. As a result of the Exchange Offer, MCII Holdings will
become subject to the informational requirements of the Exchange Act
applicable to domestic issuers and as such will be required to file with
the SEC periodic reports, but would not be required to file proxy or
information statements.
Reports and other information filed by Grupo Dina or MCII Holdings
with the SEC can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at 13th
Floor, 7 World Trade Center, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the SEC (such as MCII Holdings). In addition, reports
and other information filed by Grupo Dina may be inspected at the offices
of the New York Stock Exchange (the "NYSE"), 11 Wall Street, New York, New
York 10005, on which American Depositary Shares ("ADSs") representing
shares of Grupo Dina stock are listed. Reports and information of a public
nature filed by Grupo Dina are available for review at the offices of the
Bolsa Mexicana de Valores (the "Mexican Stock Exchange").
Each of the Issuers is required under the Indenture among the Issuers
and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"),
pursuant to which the Old Notes have been, and the New Notes will be,
issued (the "Indenture"), to furnish the Trustee with copies of all
reports required to be filed by it with the SEC under the Exchange Act,
including annual reports in English, which will include a review of
operations and annual audited financial statements prepared, with respect
to Grupo Dina, in conformity with generally accepted accounting principles
in Mexico ("Mexican GAAP") together with a reconciliation of net income
and total stockholders' equity to generally accepted accounting principles
in the United States ("U.S. GAAP") and, with respect to MCII Holdings, in
conformity with U.S. GAAP. Upon receipt thereof, the Trustee will promptly
mail such reports to all holders of the New Notes.
ENFORCEABILITY OF CIVIL LIABILITIES
AGAINST FOREIGN PERSONS
Most of the directors and officers of Grupo Dina and MCII Holdings,
as well as certain of the experts named herein, reside in Mexico and all
or a substantial portion of the assets of these persons and of Grupo Dina
are located in Mexico. As a result, it may not be possible for investors
to effect service of process in the United States upon such persons or to
enforce against them or Grupo Dina in U.S. courts judgments predicated
upon the civil liability provisions of the U.S. federal securities laws.
Grupo Dina has been advised by its Mexican counsel, Ritch, Heather y
Mueller, S.C., that there is doubt as to the enforceability, in original
actions in Mexican courts, of liabilities predicated solely on the U.S.
federal securities laws and as to the enforceability in Mexican courts of
judgments of U.S. courts obtained in actions predicated upon the civil
liability provisions of the U.S. federal securities laws.
Under Mexican law, in the event that proceedings are brought in
Mexico seeking to enforce obligations under the New Notes, such
obligations may be paid in Pesos at the rate of exchange in effect on the
date and in the place payment occurs. Such rate is currently determined by
Banco de Mexico (the "Bank of Mexico") and published in the Diario Oficial
de la Federacion every business day in Mexico.
The names of certain of Grupo Dina's coaches -- DINA(R), DIMEX(R),
Avante(R), Avante Plus(R) and Dorado(R) -- are registered trademarks of
Grupo Dina. The names of Grupo Dina's other coaches -- Paradiso(R) and
Viaggio(R) -- are registered trademarks of Marcopolo S.A. ("Marcopolo").
MCI(R) is a registered trademark of MCII. MCII has applied for but not yet
received trade name protection for the name "MCII" and trademark
protection for "COACHGUARD" and "DIESEL GUARD."
PRESENTATION OF CERTAIN INFORMATION
On January 1, 1993, the Mexican Congress approved the establishment
of a new currency unit, the New Peso, which replaced the previous currency
unit (the "Old Peso") at the rate of one New Peso per one thousand Old
Pesos. Effective January 1, 1996, the New Peso was replaced by the Peso,
at the rate of one Peso per one New Peso, as Mexico's currency unit. In
this Prospectus, references to "$", "US$" and "Dollars" are to United
States Dollars, references to "C$" are to Canadian dollars and references
to "Ps" or "Pesos" are to Pesos. All New Peso amounts for periods prior to
January 1, 1996 and all Old Peso amounts for periods prior to January 1,
1993, have been expressed in Pesos. Certain amounts (including percentage
amounts) which appear in this Prospectus have been rounded.
Grupo Dina maintains its financial books and records in Pesos and
prepares its consolidated financial statements in conformity with Mexican
GAAP, which differs in certain respects from U.S. GAAP. Notes 1, 23 and 24
to the audited consolidated financial statements of Grupo Dina contained
elsewhere in this Prospectus provide a description of the principal
differences between Mexican GAAP and U.S. GAAP, as they relate to Grupo
Dina, and a reconciliation to U.S. GAAP of net income and total
stockholders' equity.
The Mexican Institute of Public Accountants has issued Bulletin B-10,
"Recognition of the Effects of Inflation on Financial Information," and
Bulletin B-12, "Statement of Changes in Financial Position." Bulletin B-10
outlines the inflation accounting methodology employed by companies
reporting under Mexican GAAP. Inflation adjusted accounting is mandatory
for Mexican companies. The third amendment to Bulletin B-10, which has
been effective since January 1, 1990, calls for all financial information
(including historical statements) to be presented in constant Pesos as of
the date of the most recent balance sheet. The intended effect of such
restatements is to present all information for comparable periods in
comparable monetary units and thereby eliminate the distorting effect of
inflation in the financial statements. Unless otherwise stated herein, all
of the financial information included in this Prospectus is presented in
constant Pesos as of March 31, 1996.
EXCHANGE RATES
For the convenience of the reader, this Prospectus contains
translations of certain Peso amounts into Dollars at specified exchange
rates published by the Bank of Mexico. Unless otherwise indicated, Dollar
equivalent information is based on the exchange rate reported by the Bank
of Mexico on March 31, 1996, which was Ps 7.5375 = US$1.00. The exchange
rate reported as of December 31, 1995, was Ps 7.7396 = US$1.00. The noon
buying rate (the "Noon Buying Rate") in New York City for cable transfers
payable in Pesos, as certified by the Federal Reserve Bank of New York for
customs purposes on July 24, 1996 was 7.6070 Pesos = US$1.00. The Noon
Buying Rates on March 31, 1996 and December 31, 1995 were Ps 7.5375 =
US$1.00 and Ps 7.7396 = US$1.00, respectively. No representation is made
that the Peso or Dollar amounts set forth in this Prospectus could be
converted into Dollars or Pesos, as the case may be, at any particular
exchange rate or at all.
SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements and the notes thereto appearing elsewhere in this Prospectus.
As used herein, unless the context otherwise requires, "Grupo Dina" means
Consorcio G Grupo Dina, S.A. de C.V. and its consolidated subsidiaries,
"MCII Holdings" means MCII Holdings (USA), Inc., a wholly-owned subsidiary
of Grupo Dina, and "MCII" means Motor Coach Industries International, Inc.
and its consolidated subsidiaries. Unless otherwise defined herein,
capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Prospectus. See "Risk Factors" for a
discussion of certain factors that should be considered in connection with
the Exchange Offer.
Consorcio G Grupo Dina, S.A. de C.V.
Grupo Dina is one of the leading suppliers of medium-duty and
heavy-duty trucks in Mexico in the combined Class 5, 6, 7 and 8 truck
market. Grupo Dina is a domestic manufacturer of European-style intercity
coaches in Mexico and a major supplier of intercity coaches used primarily
in the executive and first-class service segments of the Mexican intercity
transportation market. Grupo Dina also manufactures and distributes
replacement parts for trucks and coaches and plastic components for truck,
coach, bus and other industries. See "Business of Grupo Dina." The
principal executive offices of Grupo Dina are located at Tlacoquemecatl 41
Colonia Del Valle, 03100, Mexico D.F., Mexico, (525) 420-3900.
MCII Holdings (USA), Inc.
MCII Holdings is a Delaware corporation and a wholly-owned subsidiary
of Grupo Dina. MCII Holdings is a limited purpose corporation and will
conduct virtually no operations for so long as the Notes are outstanding.
Until such time as the MCII Shares are sold in accordance with the terms
set forth herein, MCII Holdings' wholly owned subsidiary will be MCII.
MCII Holdings, through its wholly owned subsidiary, MCII, designs,
manufactures, assembles and markets intercity coaches and replacement
parts for coaches and transit buses, principally in the United States and
Canada. See "Business of MCII Holdings." The principal executive offices
of MCII Holdings are located at Dial Tower, 1850 North Central Avenue,
Phoenix, Arizona 85004, (602) 207-5000.
The Exchange Offer
Securities Offered............ Up to $206,499,680 aggregate principal
amount of Senior Secured Discount Exchange
Notes due 2002, which have been registered
under the Securities Act. The terms of
the New Notes and the Old Notes are
identical in all material respects, except
for certain transfer restrictions and
registration rights relating to the Old
Notes and except that, if the Exchange
Offer is not consummated by December 30,
1996, the Old Notes will bear additional
interest as described herein. See
"Description of the Notes-- Registration
Rights."
The Exchange Offer............ The New Notes are being offered in
exchange for a like princi- pal amount of
Old Notes. The issuance of the New Notes
is intended to satisfy obligations of the
Issuers contained in the Registration
Agreement. For procedures for tendering,
see "The Exchange Offer."
Tenders, Expiration Date;
Withdrawal
The Exchange Offer will expire at 5:00
p.m., New York City time, on
__________, 1996, or such later date
and time to which it is extended. The
tender of Old Notes pursuant to the Ex-
change Offer may be withdrawn at any
time prior to the Expira- tion Date.
Any Old Note not accepted for exchange
for any reason will be returned without
expense to the tendering holder thereof
as promptly as practicable after the
expiration or termination of the
Exchange Offer.
Certain Tax Consequences...... The exchange of Old Notes for New Notes
pursuant to the Ex- change Offer will not
be subject to Mexican or U.S. income tax.
See "Tax Considerations."
Use of Proceeds............... There will be no proceeds to the
Issuers from the exchange pursuant to
the Exchange Offer.
Exchange Agent................ IBJ Schroder Bank & Trust Company is
serving as exchange agent (the "Exchange
Agent") in connection with the Exchange
Offer.
Consequences of Exchanging Old Notes
Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Old
Notes and the restrictions on transfer of such Old Notes as set forth in
the legend thereon as a consequence of the issuance of the Old Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuers do not currently anticipate
that they will register Old Notes under the Securities Act. See
"Description of the Notes--Registration Rights." Based on interpretations
by the staff of the SEC as set forth in no-action letters issued to third
parties, the Issuers believe that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by holders thereof (other than any holder which
is an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes
are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the
distribution of such New Notes. However, the Issuers do not intend to
request the SEC to consider, and the SEC has not considered, the Exchange
Offer in the context of a no-action letter and there can be no assurance
that the staff of the SEC would make a similar determination with respect
to the Exchange Offer as in such other circumstances. Each holder, other
than a broker- dealer, must acknowledge that it is not engaged in, and
does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New
Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that such Old Notes were acquired
by such broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the state securities laws, the New Notes may not
be offered or sold in any state unless they have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with. The offer and sale of the
New Notes to "qualified institutional buyers" (as such term is defined
under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under the state securities laws. The Issuers
currently do not intend to register or qualify the sale of the New Notes
in any state where an exemption from registration or qualification is
required and not available. See "The Exchange Offer--Consequences of
Exchanging Old Notes" and "Description of the Notes--Registration Rights."
Summary Description of the New Notes
The terms of the New Notes and the Old Notes are identical in all
material respects, except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if the
Exchange Offer is not consummated by December 30, 1996, the Old Notes will
bear additional interest as described under "Description of the Notes --
Registration Rights." Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on
or after consummation of the Exchange Offer.
Securities Offered............ Up to US$206,499,680 aggregate principal
amount of Senior Secured Discount Exchange
Notes due 2002, which have been registered
under the Securities Act, each with an
initial accreted value as of November 18,
1995 of US$705.65 for each US$1,000 in
principal amount.
Payment of Interest........... The Old Notes are, and the New Notes will
be, dated as of, and accrue interest from,
November 18, 1995 and will bear interest
at the rate of 12% per annum through
maturity; provided, that, if the Notes are
not rated either BB- or better by S&P or
Ba3 or better by Moody's at November 15,
1999 the per annum interest rate shall be
increased on such date to 15% until
maturity. Prior to and including the
interest payment due on November 15, 1998,
the Notes will accrue interest on a zero
coupon basis and, accordingly, the
accreted value of the Notes will accrete
from US$705.65 as of November 18 1995 for
each US$1,000 in principal amount to
US$1,000 at November 15, 1998. Thereaf-
ter, all interest will be payable in cash
semiannually on May 15 and November 15 of
each year, commencing May 15, 1999.
Repayment of Principal........ Principal of the Notes will be payable in
full on November 15, 2002.
Optional Redemption........... The Notes will be redeemable at the option
of Grupo Dina, in whole or in part, at any
time on or after November 15, 1998 at 100%
of the principal amount thereof plus
accrued and unpaid interest.
Security...................... MCII Holdings' obligation under the Old
Notes is, and under the New Notes will be,
secured by (i) a pledge of MCII Shares and
(ii) a perfected first priority security
interest in any cash or Cash Equivalents
deposited with the Trustee under the
Indenture governing the New Notes. Under
certain circumstances, collateral in the
form of MCII Shares may be released by the
Trustee and sold by MCII Holdings. See
"Description of the Notes."
Change of Control............. Upon a Change of Control, each holder of
New Notes shall have the right to require
Grupo Dina and MCII Holdings to repur-
chase all or any part of the outstanding
New Notes at a purchase price equal to the
Accreted Value thereof, if on or prior to
November 15, 1998, and equal to the
aggregate principal amount thereof, plus
accrued and unpaid interest, if any,
thereafter. See "Description of the
Notes--Change of Control."
Ranking....................... The obligation of Grupo Dina in respect of
the New Notes will rank pari passu with
the Old Notes and with all other outstand-
ing unsecured and unsubordinated
obligations of Grupo Dina, present or
future, other than obligations which are
mandatorily preferred by statute or by
operation of law. The obligation of MCII
Holdings in respect of the New Notes will
rank pari passu with the Old Notes and, by
reason of its being secured by collateral,
effectively senior to any outstanding
unsecured obligations of MCII Holdings.
Form and Denominations........ New Notes will generally be issued in
denominations of US$1,000 and integral
multiples of US$1,000.
Covenants..................... The indenture governing the Notes provides
for certain affirma- tive and negative
covenants by MCII Holdings and to a lesser
extent by Grupo Dina for the benefit of
the holders of Notes.
Use of Proceeds............... The Issuers will not receive any proceeds
from the Exchange Offer.
Exchange Offer; Registration
Rights........................ Holders of New Notes are not entitled to
any registration rights with respect to
the New Notes. Pursuant to the
Registration Agreement, the Issuers
agreed to file, at their cost, a
registration statement with respect to
the Exchange Offer. The Registration
Statement of which this Prospectus is a
part constitutes the registration
statement for the Exchange Offer. See
"Description of the Notes--Registration
Rights."
Governing Law................. The Notes and any controversy arising
thereunder will be governed by the laws of
the State of New York.
Risk Factors
Prospective purchasers of the New Notes should consider carefully all
of the information set forth in this Prospectus and, in particular, should
evaluate the specific factors set forth under "Risk Factors" before making
a decision to tender their Old Notes in the Exchange Offer.
Grupo Dina
Summary Financial Data
The following summary consolidated financial data as of and for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995 were derived from
the audited consolidated financial statements of Grupo Dina. The summary
consolidated financial data as of and for the three months ended March 31,
1995 and 1996 were derived from the unaudited consolidated financial
statements of Grupo Dina. The unaudited financial statements for the three
months ended March 31, 1995 and 1996 include all adjustments, consisting
of only normal recurring adjustments, that management considers necessary
for fair presentation of the financial position and results of operations
for the periods then ended. Results of operations for the three months
ended March 31, 1996 are not necessarily indicative of results which may
be expected for the entire year. The following summary consolidated
financial data should be read in conjunction with "Selected Financial Data
of Grupo Dina", "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Grupo Dina" and the consolidated
financial statements of Grupo Dina and notes thereto included elsewhere in
this Prospectus. The consolidated financial statements of Grupo Dina are
prepared in accordance with Mexican GAAP, which differs in certain
respects from U.S. GAAP.
GRUPO DINA
CONSOLIDATED FINANCIAL INFORMATION
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1991 1992(2) 1993 1994 1995
---- ------- ---- ---- ----
(IN MILLIONS, EXCEPT SHARE, PER SHARE AND PER ADS
INCOME STATEMENT INFORMATION:
MEXICAN GAAP:
NET SALES PS 3,966.6 PS 4,542.1 PS 4,920.6 PS 4,066.3 PS 4,456.8
OPERATING INCOME 594.1 474.7 514.2 (274.5) (64.9)
NET INCOME (LOSS),
MAJORITY INTEREST(4) 571.0 487.1 437.6 (953.9) (498.0)
NET INCOME (LOSS) PER
SHARE, MAJORITY INTEREST 6.48 2.87 2.25 (4.23) (1.93)
NET INCOME (LOSS) PER
ADS, MAJORITY INTEREST 25.93 11.47 8.98 (16.92) (7.72)
CASH DIVIDENDS PER SHARE(5) 0 1.05 0.39 0.15 0
CASH DIVIDENDS PER ADS(5) 0 4.21 1.57 0.57 0
WEIGHTED AVERAGE
SHARES OUTSTANDING 88,082,620 169,833,640 194,866,714 225,490,658 258,026,136
U.S. GAAP:
NET SALES PS 3,966.6 PS 4,542.1 PS 4,920.6 PS 4,066.3 PS 4,456.8
NET INCOME (LOSS)(4) 524.4 434.1 377.1 (503.0) (267.3)
NET INCOME (LOSS) PER ADS 23.82 10.21 7.76 (8.92) (4.16)
WEIGHTED AVERAGE
ADSS OUTSTANDING 22,020,655 42,458,410 48,716,679 56,372,665 64,506,534
NUMBER OF NEW UNITS SOLD:
COACHES 984 1,165 1,818 804 1,176
TRUCKS 11,233 12,631 11,365 10,463 2,520
GRUPO DINA
CONSOLIDATED FINANCIAL INFORMATION
------------------------------------
THREE MONTHS
ENDED
MARCH 31
-------------------------------------
1995 1996 1996(1)
---- ---- ------
(IN MILLIONS, EXCEPT SHARE, PER
SHARE AND PER ADS
INCOME STATEMENT INFORMATION: INFORMATION)(2)
MEXICAN GAAP:
NET SALES PS 1415.4 PS 1,257.8 US$ 166.9
OPERATING INCOME 9.0 35.2 4.7
NET INCOME (LOSS),
MAJORITY INTEREST(4) (435.6) 94.0 12.6
NET INCOME (LOSS) PER
SHARE, MAJORITY INTEREST (1.69) 0.36 0.05
NET INCOME (LOSS) PER
ADS, MAJORITY INTEREST (6.75) 1.46 0.19
CASH DIVIDENDS PER SHARE(5) 0 0 0
CASH DIVIDENDS PER ADS(5) 0 0 0
WEIGHTED AVERAGE
SHARES OUTSTANDING 258,026,136 258,026.136 258,026,136
U.S. GAAP:
NET SALES PS 1,415.4 PS 1,257.8 US$ 166.9
- - -
NET INCOME (LOSS)(4) - - -
NET INCOME (LOSS) PER ADS
WEIGHTED AVERAGE 64,506,534 64,506,534 64,506,534
ADSS OUTSTANDING
NUMBER OF NEW UNITS SOLD:
COACHES 281 323 323
TRUCKS 826 512 512
DECEMBER 31, MARCH 31,
------------------------------------------------------- ---------------------------
1991 1992 1993 1994 1995 1995 1996 1996(1)
---- ---- ---- ---- ---- ---- ---- -------
BALANCE SHEET INFORMATION:
MEXICAN GAAP:
PROPERTY, PLANT AND EQUIPMENT,
NET PS 532.8 PS 699.2 PS 904.4 PS 1,367.8 PS 1,542.3 PS 1,437.8 PS 1,551.1 US $205.8
TOTAL ASSETS 2,452.9 2,849.4 3,795.9 7,734.9 7,363.4 7,891.7 6,943.6 921.2
TOTAL LONG-TERM DEBT 523.5 892.1 822.2 4,107.1 4,342.6 5,073.3 4,002.3 531.0
TOTAL STOCKHOLDERS' EQUITY, 776.3 975.4 1,980.0 1,844.1 1,741.5 1,276.4 1,724.0 228.7
MAJORITY INTEREST(6)
U.S. GAAP:
TOTAL ASSETS (7) 2,452.9 2,849.3 3,795.9 8,643.4 7,363.4 7,891.7 6,943.6 921.2
TOTAL STOCKHOLDERS' EQUITY, 557.5 710.8 1,654.8 2,114.2 1,860.4 - - -
MAJORITY INTEREST(6)
- - ------------------------
(1) Translations of Pesos into U.S. dollars have been made at the rate
of Ps 7.5375 to US$1.00. Such translations are provided solely for
the convenience of the reader and do not reflect the financial
information in accordance with generally accepted accounting
principles for foreign currency translation.
(2) In February 1992, Grupo Dina's coach assembly lines were shut down
for a three-month period for planned modernization and expansion.
Production resumed in April 1992 on a limited basis for a
three-month period, with full production commencing in August 1992.
(3) Each Common and Series L ADS represents four shares of Common and
Series L Stock, respectively.
(4) Net income for the years ended December 31, 1991, 1992, 1993, 1994
and 1995 is shown after elimination of the income attributable to
the minority interest in Camiones. Under U.S. GAAP, income before
extraordinary credits for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 and net income for the corresponding periods
are identical.
(5) Dividends are calculated on the basis of the Pesos amount and the
number of outstanding shares of Common and Series L Stock or Common
and Series L ADSs, as the case may be, on the date the dividends
were declared.
(6) Stockholders' equity for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 is shown after elimination of the income
attributable to the minority interests in Camiones.
(7) Total assets under U.S. GAAP as of December 31, 1994 differ from
Mexican GAAP because of "pushdown" accounting for goodwill.
MCII Holdings
Summary Financial Data
MCII Holdings was incorporated in connection with the issuance of the
Old Notes and carries out its opera- tions through MCII and MCII's
subsidiaries. MCII Holdings was formed for the purpose of holding MCII as
its wholly owned subsidiary. On May 28, 1996, Grupo Dina transferred to
MCII Holdings all 100 shares of MCII, $.01 par value common stock, in
exchange for which MCII Holdings issued to Grupo Dina all 1,000 shares of
its $.01 par value common stock. As a result of this exchange between
entities under common control, the transaction was accounted for at
historical cost in a manner similar to that in a pooling of interests and,
therefore, all prior financial statements presented have been restated as
if the exchange took place at the beginning of such periods. The following
summary consolidated financial data as of and for the twelve months ended
December 31, 1991, 1992, 1993, the seven months ended July 31, 1994, the
five months ended December 31, 1994 and the twelve months ended December
31, 1995 were derived from the audited financial statements of MCII
Holdings. The summary consolidated financial data as of and for the three
months ended March 31, 1995 and 1996 has been derived from the unaudited
consolidated financial statements of MCII Holdings. The unaudited
financial statements for the three months ended March 31, 1995 and 1996
include all adjustments, consisting of only normal recurring adjustments,
that management considers necessary for fair presentation of the financial
position and results of operations for the periods then ended. Results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of results which may be expected for the entire year.
The Dial Corp. ("Dial") sold MCII pursuant to an initial public
offering on August 12, 1993. As a result, for periods prior to August 12,
1993, the summary consolidated financial data of MCII Holdings set forth
below represent the combined operating results and activities of Dial's
transportation manufacturing and replacement parts segment now conducted
by MCII Holdings, excluding the Canadian transit bus manufacturing
business formerly conducted by Dial that is not owned by MCII Holdings. In
accordance with U.S. GAAP, the assets and liabilities of the
transportation manufacturing and replacement parts business have been
reflected in the consolidated financial statements of MCII Holdings on the
basis of Dial's historical costs. Operating results and activities
subsequent to August 12, 1993 mean the consolidated results and activities
of MCII Holdings and its subsidiaries. On August 8, 1994, Grupo Dina
acquired all of the issued and outstanding common stock of MCII (the
"Merger"). The Merger was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16 and therefore, the assets and
liabilities of MCII were stated at their estimated fair values as of the
acquisition date ("purchase accounting"). The excess of the consideration
paid by Grupo Dina over the estimated fair value of the net assets
acquired was recorded as goodwill in MCII's financial statements. As a
result of the application of purchase accounting, the financial statements
before and after the Merger may not be comparable in all material
respects. For financial reporting purposes, the Merger was accounted for
effective August 1, 1994. Therefore, all financial information for periods
prior to August 1, 1994, is labeled as "Predecessor." The following
summary financial data should be read in conjunction with "Selected
Financial Data of MCII Holdings", "Management's Discussion and Analysis of
Financial Condition and Results of Operations of MCII Holdings" and the
consolidated financial statements of MCII Holdings and notes thereto
included elsewhere in this Prospectus.
PREDECESSOR
--------------------------------------------------------
YEAR ENDED DECEMBER 31
-------------------------------------
SEVEN FIVE
MONTHS MONTHS YEAR
ENDED ENDED ENDED
JULY 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1994 1994 1995
------------ ------------ ---------- ---------- ------------ ------------
INCOME STATEMENT INFORMATION:
REVENUES:
SALES.............................. US$311.4 US$337.0 US$394.1 US$271.8 US$191.8 US$509.9
FINANCE INCOME.....................
8.0 7.0 4.9 1.3 2.6 6.4
------------ ------------ ---------- ---------- ------------ ------------
319.4\ 344.0 399.0 273.1 194.4 516.3
------------ ------------ ---------- ---------- ------------ ------------
OPERATING COSTS AND EXPENSES:
COST OF SALES (EXCLUSIVE OF ITEMS
SHOWN SEPERATELY BELOW)......... 237.5 253.6 303.1 203.5 151.6 397.4
PROVISION FOR RELOCATION OF
MANUFACTURING FACILITIES........ 9.6
DEPRECIATION AND AMORTIZATION...... 4.6 5.0 4.5 3.3 5.8 14.6
INTEREST EXPENSE, FINANCE
OPERATIONS...................... 3.4 2.5 .8 0.3 0.7 2.7
RESEARCH AND DEVELOPMENT EXPENSES.. 2.5 2.3 1.4 1.3 0.5 2.9
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.......................... 34.9 38.0 43.9 27.8 26.6 60.4
------------ ------------ ---------- ----------- ------------ ------------
292.5 301.4 353.7 236.2 185.2 478.0
------------ ------------ ---------- ----------- ------------ ------------
OPERATING INCOME...................... 26.9 42.6 45.3 36.9 9.2 38.3
OTHER COSTS AND EXPENSES:
MERGER RELATED EXPENSES............ 11.3
INTEREST EXPENSE................... .8 .7 1.5 1.8 2.5 13.4
OTHER (INCOME)..................... (1.7) (1.4) (0.2) (0.2) (0.5)
GAIN FROM SALE OF MARKETABLE
SECURITIES........................ (10.5)
MINORITY INTERESTS................. 1.8 2.4 2.0 0.4
------------ ------------ ---------- ----------- ------------ ------------
2.6 1.4 2.1 13.3 2.3 2.4
------------ ------------ ---------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES............ 24.3 41.2 43.2 23.6 6.9 35.9
INCOME TAXES.......................... 10.0 15.7 16.6 11.5 4.0 17.6
------------ ------------ ---------- ----------- ------------ ------------
INCOME FROM CONTINUING OPERATIONS..... 14.3 25.5 26.6 12.1 2.9 18.3
------------ ------------ ---------- ----------- ------------ ------------
DISCONTINUED OPERATIONS............... (30.2) (46.6) (60.4) (3.5)
------------ ------------ ---------- ----------- ------------ ------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.......................... (15.9) (21.1) (33.8) 8.6 2.9 18.3
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE(1)............ (2.9)
------------ ------------ ---------- ----------- ------------ ------------
NET INCOME (LOSS) US$(15.9) US$(24.0) US$(33.8) US$ 8.6 US$ 2.9 US$ 18.3
============ ============ ========== =========== ============ ============
NUMBER OF NEW COACHES DELIVERED.......... 602 776 897 628 431 1,169
Three Months Ended
MARCH 31 MARCH 31
1995 1996
------------- -------------
(IN MILLIONS, EXCEPT NUMBER OF
NEW COACHES DELIVERED)
INCOME STATEMENT INFORMATION:
REVENUES:
SALES.............................. US$123.4 US$140.6
FINANCE INCOME.....................
1.0 1.5
------------- -------------
124.4 142.1
------------- -------------
OPERATING COSTS AND
EXPENSES:
COST OF SALES (EXCLUSIVE OF ITEMS
SHOWN SEPERATELY BELOW)......... 94.6 112.3
PROVISION FOR RELOCATION OF
MANUFACTURING FACILITIES........
DEPRECIATION AND AMORTIZATION...... 3.3 4.1
INTEREST EXPENSE, FINANCE
OPERATIONS...................... 0.6 0.7
RESEARCH AND DEVELOPMENT EXPENSES.. 0.4 1.9
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.......................... 14.9 15.0
------------- -------------
113.8 134.0
------------- -------------
OPERATING INCOME...................... 10.6 8.1
OTHER COSTS AND EXPENSES:
MERGER RELATED EXPENSES............
INTEREST EXPENSE................... 2.9 3.4
OTHER (INCOME)..................... (0.2) (0.2)
GAIN FROM SALE OF MARKETABLE
SECURITIES........................
MINORITY INTERESTS.................
------------- -------------
2.7 3.2
------------- -------------
INCOME BEFORE INCOME TAXES............ 7.9 4.9
INCOME TAXES.......................... 3.7 2.5
------------- -------------
INCOME FROM CONTINUING OPERATIONS..... 4.2 2.4
------------- -------------
DISCONTINUED OPERATIONS...............
------------- -------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.......................... 4.2 2.4
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE(1)............
------------- -------------
NET INCOME (LOSS) US$ 4.2 US$ 2.4
============= =============
NUMBER OF NEW COACHES DELIVERED.......... 269 313
PREDECESSOR
----------------------------------------------
DECEMBER 31,
----------------------------------------------
1991 1992 1993
---- ---- ----
BALANCE SHEET INFORMATION:
TOTAL ASSETS.............................................. US$279.3 US$322.7 US$286.0
WORKING CAPITAL........................................... 28.0 84.7 70.3
LONG-TERM DEBT, INCLUDING CURRENT PORTION................. 2.6 .8 90.5
DECEMBER 31, MARCH 31,
----------------------- -----------------------
1994 1995 1995 1996
---- ---- ---- ----
BALANCE SHEET INFORMATION:
TOTAL ASSETS.............................................. US$558.9 US$614.0 US$589.5 US$621.0
WORKING CAPITAL........................................... 103.3 156.7 138.9 150.6
LONG-TERM DEBT, INCLUDING CURRENT PORTION................. 195.0 217.8 203.8 217.8
<FN>
- - ---------------------
(1) Initial application of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
(2) Stockholders' equity for periods prior to August 1993 represent
Dial's investment and advances in the transportation, manufacturing
and replacement parts segment now conducted by MCII Holdings.
RISK FACTORS
The following factors should be considered carefully by holders
tendering Old Notes pursuant to the Exchange Offer, although the Risk
Factors set forth below (other than "--Consequences of Failure to Exchange
and Requirements for Transfer of New Notes") are generally applicable to
the Old Notes as well as the New Notes. In addition, tendering holders
should consider, among other things, certain considerations with respect
to investments in securities which are obligations of a United States
company and a Mexican company, not normally associated with investments in
securities of United States companies, including those set forth below.
Consequences of Failure to Exchange and Requirements for Transfer of New Notes
Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Old
Notes and the restrictions on transfer of such Old Notes as set forth in
the legend thereon as a consequence of the issuance of the Old Notes
pursuant to exemption from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to the Securities Act and
applicable state securities laws. The Issuers do not currently anticipate
that they will register Old Notes under the Securities Act. Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Issuers believe that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by holders thereof (other than
any such holder which is an "affiliate" of the Issuers within the meaning
of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such New Notes. However, the Issuers do
not intend to request the SEC to consider, and the SEC has not considered,
the Exchange Offer in the context of a no-action letter and there can be
no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each
holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of New Notes
and has no arrangement or understanding to participate in a distribution
of New Notes. If any holder is an affiliate of any of the Issuers, is
engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant
to the Exchange Offer, such holder (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker- dealer as a result of market-making activities or
other trading activities. The Issuers have agreed that starting on the
Expiration Date and ending on the close of business on the first
anniversary of the Expiration Date, they will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "Plan of Distribution." However, to comply with the state securities
laws, the New Notes may not be offered or sold in any state unless they
have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with. The
offer and sale of the New Notes to "qualified institutional buyers" (as
such term is defined under Rule 144A of the Securities Act) is generally
exempt from registration or qualification under the state securities laws.
The Issuers currently do not intend to register or qualify the sale of the
New Notes in any state where an exemption from registration or
qualification is required and not available. See "The Exchange
Offer--Consequences of Exchanging Old Notes."
Mexican Governmental, Economic and Political Factors
Grupo Dina is a Mexican corporation. Grupo Dina has a significant
portion of its manufacturing facilities and assets situated in Mexico.
Beginning in 1987, Mexico embarked on a series of economic reforms,
including the privatization of numerous state-owned commercial ventures,
tax reform, reduction of trade barriers, deregulation of commercial
activity, renegotiation of external debt and substantial reduction of the
public sector deficit. However, although the stated policy of the Mexican
government since 1983 has been to sell non-strategic, state- owned
enterprises, the Mexican government has exercised and continues to
exercise a significant influence over many aspects of the Mexican economy.
Accordingly, Mexican governmental actions concerning the economy or
regulating certain industries could have a significant effect on private
sector entities including Grupo Dina, and on market conditions, prices,
and the performance of Mexican securities, including the New Notes.
The Mexican economy has experienced gradual improvement in a number
of areas from 1988 to 1994. However, during the early 1980s, and currently
in 1995, the Mexican economy experienced low or negative rates of growth,
high rates of interest, inflation, unemployment and large devaluations of
its currency. The devaluation of the New Peso since December 1994 led to
significant changes in the markets for Grupo Dina's products. As a result
of the current Mexican recession, the demand in the domestic market for
products has decreased substantially. The value of Grupo Dina's assets and
their respective levels of earnings are expected to continue to be
affected by such events, inflation, interest rates, future currency
fluctuations, taxation, new regulatory environments, and other political,
economic or diplomatic developments affecting Mexico.
On December 1, 1994, Ernesto Zedillo Ponce de Leon was installed as
President of Mexico. President Zedillo's administration has indicated that
the Mexican government will continue to pursue the market-oriented
economic policies followed by the previous administration. Nevertheless,
there can be no assurance that the Zedillo administration, or any future
administrations, will continue to pursue market-oriented economic
policies.
Certain political and economic events which occurred in Mexico during
1994 and created economic uncertainty have continued into 1995. These
events included an armed uprising in Chiapas where a good understanding
between the parties has been achieved to work towards a definitive
solution of the problem. These events also included assassinations of
prominent Mexican public figures, including the initial presidential
candidate of the Partido Revolucionario Institucional (the "PRI"), the
political party that has dominated the Government of Mexico for over 65
years. Additionally, the exchange rate policy followed by the Mexican
Government in recent years was abandoned in December 1994. Previously, the
Bank of Mexico permitted the exchange rate between the New Peso and the
Dollar to fluctuate within a specified band, with only a minor daily
adjustment to the upper limit of the band. However, the above-referenced
political events, combined with reduced access to international financial
markets and increasing interest rates in the United States, put strong
pressures on the Bank of Mexico's ability to adhere to this exchange rate
policy. A decrease in capital inflows to Mexico, coupled with a large
current account deficit, led to diminishing foreign exchange reserves,
ultimately resulting in the Bank of Mexico, in December 1994, allowing the
New Peso to float freely. Between December 19, 1994 and December 31, 1994,
the New Peso depreciated from Ps 3.46 per US$1.00 to Ps 5.00 per US$1.00,
a 44% decline. Between January 1, 1995 and September 30, 1995, the New
Peso devalued approximately 28% against the Dollar, decreasing from
approximately Ps 4.995 per US$1.00 to approximately Ps 6.3848 per US$1.00.
Since this period the value of the Peso against the Dollar has been
subject to significant volatility. The exchange rate reported by the Bank
of Mexico was 7.7396 Pesos per US$1.00 at December 31, 1995 and 7.4050
Pesos per US$1.00 at April 19, 1996.
In an effort to ease the financial crisis, the international
community (including the International Monetary Fund, the World Bank, the
Bank for International Settlements, the Inter-American Development Bank, a
syndicate of commercial banks and certain Latin American governments), led
by the United States, agreed to provide to the Government of Mexico a
financial aid package (the "Aid Package") of approximately US$51 billion,
which was subsequently reduced to US$26.6 billion. The Aid Package imposed
stringent financial conditions on the Government. Under the terms of the
Aid Package, Mexico committed to cut Government spending and have a
surplus in 1995, pursue a tight monetary policy and allow the real supply
of domestic credit to contract, make publicly available on a timely basis
key fiscal and financial data on money and credit aggregates,
international reserves, the evolution of public sector debt, and other
measures of economic performance and continue privatizations and other
structural reforms. No assurance can be given that the Aid Package will
fully achieve its purpose and restore investors' confidence in the
economy.
The events occurring during 1994 and 1995 resulted in an economic
recession in Mexico characterized by a strong contraction in demand for
many products and services, including those of Grupo Dina, reduced
availability of credit, high domestic interest rates, high inflation,
instability of foreign exchange policies, high unemployment and the loss
of international investor confidence in Mexico. The annual rate of
inflation as measured by changes in the Mexican National Consumer Price
Index ("NCPI") was 52.0% in 1995. Mexico's gross domestic product "(GDP")
grew at an annual rate 3.5% during 1994, 0.7% during 1993 and 2.8% during
1992. Mexico's GDP declined by 6.6% during 1995. Although Grupo Dina has
no Dollar-denominated debt with Mexican banks, Grupo Dina cannot provide
any assurance that actions by the Mexican Government or future
developments in the Mexican economy, over which it has no control, will
not continue to adversely affect operations, financial conditions or
results.
In response to the adverse economic situation that developed at the
end of 1994, the administration of President Zedillo announced a series of
initiatives. In January 1995, President Zedillo announced an emergency
economic plan and a new accord among the Mexican Government and business
and labor leaders called, the Acuerdo de Unidad Para Superar la Emergencia
Economica (the "AUSEE").
* On March 9, 1995, the Mexican Government announced an economic
plan called the Programa de Accion para Reforzar el AUSEE (the
"PARAUSEE"), which strengthened key aspects of the AUSEE. It
consisted of the following principal elements:
* The Mexican Government would seek to increase public sector
revenues. This was to be accomplished by increasing the value
added tax rate, effective April 1, 1995, from 10% to 15%, and
increasing the prices for gasoline, fuel oil, natural gas and
electricity.
* The adoption of fiscal measures to increase the Mexican
Government's primary surplus and promote private sector savings.
These measures included reductions in the number of public sector
employees and postponement of new infrastructure projects, as well
as investment incentives for the private sectors.
* A 10% raise in the minimum wage, effective as of the beginning of
1995. A further 12% increase was implemented as of April 1, 1995.
* The adoption of a monetary policy the goal of which was to
stabilize the New Peso and thereby induce capital inflows. This
policy was implemented by means of strict controls on domestic
credit with the intention of creating a significant decrease in
the monetary base in real terms.
* The continuation of a floating exchange rate policy. Although the
Bank of Mexico remained authorized to intervene in the foreign
exchange market, in order to minimize volatility and promote an
orderly foreign exchange market, the Mexican Government announced it
would promote market- based mechanisms for stabilizing the exchange
rate. On March 19, 1995, the Bank of Mexico approved the
establishment of forward and option contracts for over-the-counter
transactions in the New Peso, and trading of New Peso futures
contracts on the Chicago Mercantile Exchange began on April 25,
1995. Pursuant to its authorization, the Bank of Mexico intervened
in the foreign exchange markets when the New Peso suffered further
devaluations on November 9 and 10, 1995.
* The adoption of measures to stabilize the Mexican banking sector.
These measures included increasing the funds available for
capitalization of insolvent banks and for providing temporary
capital to banks with short term needs, increasing the level of
loan loss provisions and adopting various reforms to the legal
ownership structure which are intended to encourage increased
foreign investment.
* A policy of sharing the burden of the economic adjustment among
all sectors of society, but protecting the poorest segments of the
population.
On May 31, 1995, President Zedillo announced the development plan for
his administration called the Plan Nacional de Desarrollo (the "PND"),
which established economic, political and social goals for the period from
1995 to 2000.
On October 29, 1995, the Mexican Government signed a new pact with
labor and business leaders aimed at reviving the country's shrinking
economy while controlling prices. Under the new pact, known as the Alianza
para la Recuperacion Economica ("ARE"), the Government will increase
gasoline, diesel and electricity prices 7% in December 1995 and 1.2% per
month during 1996 (except during April of 1996, during which such prices
will be increased by 6%). The ARE also includes wage hike targets of 10%
for Mexico's minimum wage on December 4, 1995, plus an additional 10% in
April 1996. Other wage increases are to be negotiated on a case-by-case
basis. The ARE, which is scheduled to last until December 31, 1996, also
includes a series of tax incentives aimed at boosting private investment
throughout 1996. For example, companies will be able to take 100% tax
deductions on increases in investments they make in 1996 that surpass the
amounts reached in 1995.
Economic plans of the Mexican Government in the past have not, in
certain respects, fully achieved their objectives, and there can be no
assurance that the PARAUSEE, the PND, the ARE and the other economic plans
of the Mexican Government will achieve their stated goals or as to their
effect on the Mexican economy or what effect these plans or the
implementation thereof will have on Grupo Dina's businesses, financial
condition or results of operations.
The Mexican Government's economic policies and any significant future
devaluation of the Peso against the Dollar could adversely affect the
Dollar value of an investment in securities the primary obligor of which
is a Mexican company.
In response to these developments, the Mexican Stock Exchange has
experienced increased volatility, including a 25% decline in the Mexican
Stock Exchange Index (the leading market index, based upon the share
prices of 30 major Mexican issuers) from December 31, 1993 to May 31,
1995. From December 31, 1994 to June 20, 1996, the Mexican Stock Exchange
Index increased 34%.
In recent months, the press in Mexico and internationally has
reported on various allegations that some prominent Mexican business
persons received improper preferential treatment under the Salinas
administration. Grupo Dina cannot assess the accuracy of these reports as
they may relate to other Mexican businesses or predict the action that the
current administration may take, if any, in a particular case, but Grupo
Dina and its controlling shareholders, one of whom has been mentioned in
some of the reports, deny that they have received any improper benefits
and believe that such reports will not adversely affect Grupo Dina.
Industry Cyclicality
As in other countries, unit sales of new trucks in Mexico have
historically been subject to substantial cyclical variation based on
general economic conditions. Over the past two decades the Mexican truck
industry has been subject to several cycles, influenced by overall levels
of economic activity, changes in the availability of credit, fluctuations
in interest rates and governmental actions. During the mid-1970's
(1973-1976), sales of Class 6, 7 and 8 trucks averaged 25,000 units per
year. Sales declined to 17,867 units in 1977, then progressively increased
to 54,463 units in 1981. With the balance of payments crisis in 1982 and
subsequent economic contraction, sales declined from 27,957 units in 1982
to 10,305 units in 1983 before recovering to an average of 18,323 units
per year during 1984 and 1985. As a result of economic volatility and
adjustments in Mexico between 1986 and 1988, sales declined to an average
of 6,925 units per year during the 1986 to 1989 period. After experiencing
approximately 60% annual sales growth rates in 1990 (15,382 units) and
1991 (25,199 units), the Mexican truck industry leveled, to an average of
30,000 units per year for the 1992 to 1994 period. In 1995, unit sales
declined to 5,219 as a result of the current economic situation in Mexico.
The Mexican coach industry also has historically been subject to
substantial cyclical variation based on general economic conditions. The
Mexican coach industry experienced annual increases in unit sales from
1987 (217 units) to 1993 (4,318 units). In 1994, there were 2,297 unit
sales but due to Mexico's current economic condition, unit sales in 1995
declined to 174, excluding exports. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Grupo Dina."
The United States and Canadian intercity coach industries also have
historically been subject to substantial cyclical variation based on
general economic conditions. During the 1984 to 1990 period MCII Holdings
delivered an average of 1,152 units per year, with the high and low
delivery years being 1989 (1,367 units) and 1986 (870 units),
respectively. In 1991, however, MCII's deliveries declined to 602 units as
a weak economic environment and reduced travel by foreigners in the United
States resulted in lower bookings for tour and charter operations as well
as a decline in ridership on regularly scheduled intercity passenger
services. This downturn was exacerbated by the 1990 strike and bankruptcy
proceeding involving Greyhound Lines, Inc. ("GLI") which caused
significant disruption in the United States coach industry. After emerging
from bankruptcy in 1991, GLI began ordering coaches from MCII Holdings and
took delivery of over nearly 1,000 units during 1992 to 1995. The GLI
deliveries, along with a general economic improvement in the U.S. and
Canada, resulted in annual improvements in MCII's total deliveries during
the 1992 to 1995 period, with 1995 unit deliveries totalling 1,169. There
can be no assurance that such upturn will continue or that it will have a
material positive effect on MCII's business, financial condition and
results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of MCII Holdings."
North American Free Trade Agreement
The North American Free Trade Agreement ("NAFTA"), which is designed
to reduce trade barriers among the United States, Canada and Mexico and
thereby integrate the North American economy, became effective on January
1, 1994. NAFTA is expected to remove, over a transition period which
commenced in January 1994, most customs duties imposed on goods traded
among the three countries, remove or limit many investment restrictions,
liberalize trade in services, provide a specialized means for settlement
of, and remedies for, trade disputes arising under NAFTA, and result in
new laws and regulations to further these goals. The Mexican government's
objectives in seeking a free trade agreement included improving access to
the United States and Canadian markets for Mexican exporters and promoting
increased foreign investment in Mexico. As a result of the ratification of
NAFTA, Grupo Dina anticipates that it will, over a period of time, face
the potential for increased competition from U.S. and Canadian truck
suppliers as tariff restrictions on new truck imports are eliminated over
a ten-year period and non- tariff restrictions are eliminated over a
five-year period. See "Business Strategy of Grupo Dina" and "Business of
Grupo Dina--Regulation." In addition, Grupo Dina expects that its combined
Grupo Dina and MCII coach operations will face substantial competition in
the U.S., Canadian and other markets in which it will compete. See
"Business of Grupo Dina--Strategy" and "Business of Grupo
Dina--Regulation."
Currency Fluctuations and Exchange Controls
Significant future devaluation of the Peso, or the imposition of
restrictive exchange control policies by the Mexican government, could
adversely affect the value of the New Notes and/or the ability of Grupo
Dina to obtain or transfer Dollars in order to satisfy its
Dollar-denominated obligations. The Peso was subject to large devaluations
before 1988. Effective November 11, 1991, the dual exchange control system
was abolished by the Mexican government in favor of a policy designed to
control the rate of devaluation. The daily rate of devaluation of the Peso
against the Dollar was reduced to Ps 0.0002 per day (approximately 2.4%
per year), to be controlled through open market transactions effected by
the Bank of Mexico. Effective October 21, 1992, the daily devaluation rate
was increased to Ps 0.0004 per day (approximately 4.8% per year).
The depletion of international reserves, coupled with other adverse
political and economic events described above, and the Bank of Mexico's
decision in December 1994 to abandon the above exchange rate policy in
favor of the present floating exchange rate policy had an adverse effect
on the results of operations of Grupo Dina. The value of the Peso, as
indicated by its volatility in late 1994 and 1995 may be subject to
significant future devaluation. Significant future devaluations of the
Peso can result in substantial fluctuation in Grupo Dina's foreign
exchange positions and, therefore, its results of operations as reported
under Mexican GAAP.
While the Mexican government does not currently restrict, on the date
of this Prospectus, and has not recently restricted, the right or ability
of Mexican or foreign persons or entities to convert Pesos to Dollars, no
assurance can be given that the Mexican government will not institute
restrictive exchange rate policies in the future which have existed at
certain times in the past.
Inflation
During most of the 1980s, Mexico experienced high levels of
inflation. This led to high interest rates, devaluations of the Peso and
substantial government controls over exchange rates and prices, which at
times adversely affected operating revenues and margins. As a result of
the devaluation of the Peso, inflation has increased substantially in
Mexico during the current year. The annual rates of inflation, as measured
by changes in the NCPI were 11.9%, 8.0%, 7.1% and 52.0% for the years
1992, 1993, 1994 and 1995, respectively. Annual inflation is expected to
decline to approximately 28% by the end of 1996, according to the Bank of
Mexico. If inflation in Mexico does not continue to decline, the Mexican
economy and, consequently, the performance of Grupo Dina may continue to
be adversely affected.
The economic instability that began at the end of 1994 led to sharply
higher interest rates in 1995, both domestically and externally, on
Mexican public and private sector debt and reduced opportunities for
refinancing or refunding maturing debt issues. High interest rates in
Mexico have an effect on financing costs and thus on Grupo Dina's results
of operations.
Product Liability; Lack of Insurance
Manufacturers and sellers of defective products in Mexico may be
subject to liability for loss and injury caused by such products under
Mexican law. Grupo Dina does not carry product liability insurance.
Although Grupo Dina has never had a product liability claim brought
against it and the Mexican laws providing for such liability appear to
have been seldom utilized, no assurance can be given that Grupo Dina may
not be exposed to future product liability claims, however, if any such
claims are successful, Grupo Dina considers that it will have sufficient
resources to pay such claims. Grupo Dina through MCII Holdings has
purchased insurance covering its exposure to product liability claims
relating to all coaches sold by Grupo Dina through MCII Holdings in the
United States and Canada.
MCII Holdings is subject to various product liability claims for
personal injuries and property damage allegedly relating to the use of
products manufactured or sold by it. MCII Holding's management considers
litigation of this nature to be in the ordinary course of its business.
The ultimate outcome of these claims, or potential future claims, cannot
presently be determined. MCII maintains product liability insurance in
customary amounts; however, there can be no assurance that such insurance
will be available in the future or on terms acceptable to MCII.
Holding Company Structure
MCII Holdings conducts virtually no operations. MCII Holdings'
operations are conducted through MCII. MCII Holdings' ability to pay
interest on the Notes when interest thereon becomes payable in cash, and
to pay the principal of the Notes at maturity, will be dependent on MCII's
ability to pay dividends, or to otherwise loan, advance or transfer funds,
to MCII Holdings in amounts sufficient to service MCII Holdings' debt
obligations. MCII is currently a party to various debt agreements under
which it had outstanding at March 31, 1996, borrowings of US$217.0 million
which restrict MCII's ability to pay dividends, or otherwise loan, advance
or transfer funds, to MCII Holdings. In addition, MCII's current debt
agreements restrict the amount of borrowings that MCII may incur.
In addition, MCII Holdings' rights, and the rights of MCII Holdings'
creditors, including the holders of the New Notes, to participate in the
assets of MCII upon any liquidation or reorganization of MCII or otherwise
will be subordinated to the prior claims of the creditors, including trade
creditors, of MCII, except to the extent that MCII Holdings may itself be
a creditor with recognized claims against MCII. As a result, holders of
the Notes may recover less ratably than creditors of MCII or its
subsidiaries in the event of the liquidation or reorganization of MCII.
MCII Canadian Tax Liability
The Canadian income tax returns of MCII's subsidiary, Motor Coach
Industries Limited, a Canadian corporation ("MCIL"), for the years 1982
through 1992 are currently under review by Revenue Canada, the Canadian
tax authority, which is reviewing the profit allocation procedures between
MCIL and Motor Coach Industries, Inc. ("MCI"), a wholly owned subsidiary
of MCII. Revenue Canada's position is that, under such procedures,
insufficient income was allocated to MCIL, the Canadian tax-paying entity,
and that, as a result, Canadian income taxes were underpaid. A formal
reassessment has been issued by Revenue Canada with respect to the 1985
return. A notice of objection has been filed by MCII for 1985. In the
event of an adverse judgment, the additional income taxes for 1982 through
1992 could amount to up to $25,000,000 plus interest of approximately
$25,000,000 and, in addition, MCII 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. Although MCII is still in the process
of obtaining additional information, based upon its review of current
relevant information, including the advice of outside counsel, MCII is of
the opinion that Revenue Canada's arguments are without merit and that any
liability from this matter will not be material to its financial condition
or results of operations.
Governmental Regulations and Environmental Matters
The number and types of trucks and coaches which can be imported into
Mexico and thus compete with Grupo Dina's products are regulated through a
system of compensatory quotas, which under the provisions of NAFTA will be
phased out over a five-year period, and tariffs, which under provisions of
NAFTA will be phased out over a ten-year period. See "--North American
Free Trade Agreement."
Grupo Dina's operations and products are subject to Mexican federal
and state laws and regulations relating to protection of the environment.
Grupo Dina has voluntarily undertaken a program designed to cause its
operations and products to exceed standards required by current Mexican
federal and state environmental laws. However, it is possible that changes
in Mexican federal or state environmental laws, or their interpretation or
enforcement, could result in material costs to Grupo Dina. See "Business
of Grupo Dina--Environmental Matters."
MCII Holdings' operations and products are subject to various laws
and regulations applicable in the United States, Canada and other
countries, including, in the United States, the Clean Air Act and other
environmental regulations, United States federal motor vehicle safety
standards, and the Americans with Disabilities Act, and in Canada, various
environmental acts and Canadian motor vehicle safety regulations. The cost
of compliance with future regulations cannot be predicted with any degree
of certainty and may significantly affect MCII's operations and financial
results. See "Business of MCII Holdings'--Government Regulation."
The Americans with Disabilities Act required, among other things,
that the U.S. Department of Transportation (the "DOT") promulgate
handicapped accessibility standards for coaches. Although the DOT has not
issued proposed regulations for public comment, there are indications that
the regulations (which are expected to be issued for comment in December
1996 and finalized in 1997) might require each coach in an operator's
fleet to be handicapped accessible, rather than permitting the operation
of a limited number of accessible coaches. Requiring complete fleet
accessibility could have a material adverse effect on an operator's
business and possibly on MCII's coach business. The final regulations will
be applicable to operators with larger fleets two years after issuance of
the final regulations and applicable to operators with smaller fleets
three years after issuance of the final regulations. No prediction can be
made concerning the final content of the regulations promulgated by the
DOT, nor the effect these regulations may have on MCII Holdings' business,
financial condition and operating results.
Differences in Corporate Disclosure and Accounting Standards
A principal objective of the securities laws of the United States,
Mexico and other countries is to promote full and fair disclosure of all
material corporate information. It should be realized, however, that there
may be less publicly available information about foreign issuers of
securities listed in the United States than is regularly published by or
about domestic issuers of listed securities.
In addition, Grupo Dina prepares its financial statements in
accordance with Mexican GAAP, which differs from U.S. GAAP in a number of
respects. For example, most Mexican companies must incorporate the effects
of inflation directly in accounting records and in their published
financial statements. Thus, Mexican financial statements and reported
earnings may differ from those of companies in other countries in this and
other respects. For a discussion of the principal differences between
Mexican GAAP and U.S. GAAP and for a reconciliation to U.S. GAAP of net
income and total stockholders' equity, see notes 1, 23 and 24 to the
audited consolidated financial statements of Grupo Dina contained
elsewhere in this Prospectus.
Lack of a Public Market for the Notes
The New Notes are being offered to the holders of the Old Notes. The
Old Notes were issued on June 3, 1996 to a small number of institutional
investors and are eligible for trading in the Private Offering, Resale and
Trading through Automated Linkages (PORTAL) Market, the National
Association of Securities Dealers' screenbased, automated market for
trading of securities eligible for resale under Rule 144A. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for the remaining untendered Old Notes could be adversely
affected. There is no existing trading market for the New Notes, and there
can be no assurance regarding the future development of a market for the
New Notes, or the ability of holders of the New Notes to sell their New
Notes or the price at which such holders may be able to sell their New
Notes. The Issuers do not intend to apply for listing or quotation of the
New Notes on any securities exchange or stock market.
Customer Concentration in the Coach Business
Grupo Dina and MCII Holdings have historically sold a significant
percentage of new coaches each year to a limited number of large coach
operators. In 1994, Grupo Estrella Blanca, Grupo Tres Estrellas de Oro and
Grupo Mexico Pachuca together accounted for over 10% of Grupo Dina's unit
sales of coaches. However, because of the current economic situation in
Mexico, these Mexican large coach operators were not significant customers
during 1995 and are not expected to be such in 1996. The lack of orders
from these customers resulted in lower unit sales during 1995. In 1994 and
1995, GLI purchased 282 and 111 new coaches from MCII Holdings, accounting
for 27% and 10% of MCII Holdings' unit sales of coaches, respectively. See
"Business of Grupo Dina--Coach Segment--Customers" and "Business of MCII
Holdings--Coach--Customers."
Risk of Fraudulent Conveyance Liability
In addition to constraints imposed by loan covenants of MCII, MCII's
ability to make distributions to MCII Holdings (which would be necessary
to pay cash interest on, or to repay, the New Notes) may be limited by
state law restrictions on the declaration of dividends, and by state and
federal fraudulent transfer laws. If a court were to find that, at the
time that MCII made a distribution to MCII Holdings, MCII (i) was
insolvent, (ii) was rendered insolvent by reason of such payment, (iii)
was engaged in a business or transaction for which the assets remaining
with MCII constituted unreasonably small capital, or (iv) intended to
incur, or believed that it would incur, debts beyond its ability to pay as
such debts matured, such court could avoid the distribution and order that
it be returned to MCII or to a fund for the benefit of MCII's creditors.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the jurisdiction which is being applied.
Generally, however, MCII would be considered insolvent if the sum of
MCII's debts is greater than all of MCII's property at a fair valuation or
if the present fair salable value of MCII's assets is less than the amount
that will be required to pay its probable liability on its existing debts
(including contingent liabilities) as they become absolute and matured.
Under Mexican bankruptcy law, the granting of a security interest in
assets of a debtor to secure previously unsecured obligations of such
debtor may be voided to the extent such security interest is granted
during a period in which the debtor could be considered insolvent and the
beneficiary of such security interest knew or should have known the
debtor's condition. Such legal provision could be invoked by a Mexican
trustee in respect of the security interest created by MCII Holdings in
the MCII Shares, which were previously directly owned by Grupo Dina.
Payment of Judgments in Pesos
Under Mexican monetary law, in the event that proceedings were
brought in Mexico seeking to enforce in Mexico Grupo Dina's obligations
under the Notes, Grupo Dina would not be required to discharge such
obligations in Mexico in a currency other than Mexican currency. Under
such law, an obligation in a currency other than Mexican currency, which
is payable in Mexico, may be satisfied in Mexican currency at a rate of
exchange in effect on the date and in the place payment occurs. Such rate
is currently determined by the Bank of Mexico every business day in Mexico
and published the following business day in the Diario Oficial de la
Federacion.
USE OF PROCEEDS
The Issuers will not receive any proceeds from the Exchange Offer.
EXCHANGE RATES
From 1982 through November 10, 1991, Mexican residents and companies
were entitled to purchase and obligated to sell foreign currencies for
certain purposes at a controlled rate of exchange (the "Controlled Rate")
that was set daily by the Bank of Mexico. For all transactions to which
the Controlled Rate did not apply, foreign currencies could also be
purchased, if they were available, or sold at the free-market exchange
rate (the "Free Market Rate"), which was generally higher than the
Controlled Rate.
The Controlled Rate and the Free Market Rate were held nearly
constant against the Dollar from December 1987 through December 1988. From
January 1, 1989 to May 28, 1990, the price of one Dollar at the Controlled
Rate increased at a regular rate of 0.001 New Pesos per day, 0.0008 New
Pesos per day from May 29 to November 12, 1990 and 0.0004 New Pesos per
day from November 13, 1990 to November 11, 1991. The Bank of Mexico
intervened from time to time in the foreign exchange market to minimize
temporary disparities between the free- market rate and the Controlled
Rate.
Effective November 11, 1991, the Mexican government ended exchange
controls. As a result, all conversions between New Pesos and Dollars now
occur at market rates. At the same time, the Mexican government announced
that it expected the exchange rate to be depreciated within a prescribed
range of 0.0002 New Pesos per dollar per day, equivalent to a maximum
devaluation of the New Peso against the Dollar of approximately 2.4% per
year. On October 21, 1992, the Mexican government announced the prescribed
range to be 0.0004 New Pesos per Dollar per day, equivalent to a
devaluation of approximately 4.8% per year.
In December 1994, the Bank of Mexico allowed the New Peso to float
freely. Between December 19, 1994 and December 31, 1994, the New Peso
depreciated from Ps 3.46 per Dollar to Ps 5.00 per Dollar, a 44% decline.
Between January 1, 1995 and September 30, 1995, the New Peso has devalued
approximately 28% against the Dollar, decreasing from approximately Ps
4.995 per US$1.00 to approximately Ps 6.3848 per US$1.00. Since this
period the value of the New Peso against the Dollar has been subject to
significant volatility. Pursuant to the PARAUSEE, the Mexican government
announced the continuation of its floating exchange rate policy, with the
Bank of Mexico still authorized to intervene in the foreign exchange
market, in order to minimize volatility. Pursuant to this authorization,
the Bank of Mexico intervened when the New Peso suffered further
devaluations on November 9 and 10, 1995. The exchange rate reported by the
Bank of Mexico was 7.7396 Pesos per US$1.00 at December 31, 1995, and was
7.4050 Pesos per US$1.00 at April 19, 1996.
The Mexican government does not currently restrict the ability of
Mexican or foreign persons or entities to convert New Pesos to Dollars, or
vice versa. Except for the period from September through December 1982
during the Mexican financial crisis, the Bank of Mexico consistently has
made foreign currency available to Mexican private sector entities such as
Grupo Dina to meet their foreign currency obligations. Nevertheless, in
the event of renewed shortages of foreign currency, there can be no
assurance that the Bank of Mexico would continue to make foreign currency
available to private sector companies.
Effective January 1, 1996, the New Peso was replaced by the Peso, at
a rate of one Peso per one New Peso, as Mexico's currency unit.
RATIO OF EARNINGS TO FIXED CHARGES
Grupo Dina
The following table sets forth Grupo Dina's consolidated ratios of
earnings to fixed charges for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 and for the three-month period ended March 31, 1996,
in accordance with Mexican GAAP and U.S. GAAP. Earnings for this purpose
consist of earnings before provision for income tax and asset tax but
after provision for employee statutory profit sharing (for U.S. GAAP
purposes only) plus fixed charges. Grupo Dina has no equity in losses of
less than 50%-owned persons accounted for on the equity method, interest
capitalized during the periods, equity in earnings of less than 50%-owned
persons accounted for on the equity method or minority interest in losses
of majority-owned subsidiaries. Fixed charges for this purpose consist of
interest expense plus amortization of deferred charges for debt issuance
costs. Fixed charges do not take into account the gain on monetary
position associated with Grupo Dina's indebtedness or the exchange gains
or losses attributable to Grupo Dina's indebtedness.
Year Ended Three Months Ended
December 31 March 31, 1996
---------------- --------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Mexican GAAP........ 4.91 6.90 5.41(2.76) 0.35 2.20
U.S. GAAP........... 4.39 6.27 5.45(2.82) 0.35 2.20
(A) Grupo Dina's earnings were not sufficient to cover fixed charges for
the year ended December 31, 1994 by Ps (2.76), under Mexican GAAP and
by Ps (2.82) under U.S. GAAP.
MCII Holdings
The following table sets forth MCII Holdings' consolidated ratio of
earnings to fixed charges for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 and for the three months ended March 31, 1996. In
computing the ratio of earnings to fixed charges: (i) earnings have been
based on income from continuing operations before income taxes and fixed
charges and (ii) fixed charges consist of interest and the amortization of
debt issuance costs. For the period prior to its initial public offering
on August 12, 1993, MCII and its subsidiaries were owned by Dial and
relied on funds provided by Dial to fund its operations and capital
expenditures. The intercompany advances provided by Dial are reflected in
the financial statements as non-interest bearing. Therefore, for the years
ended December 31, 1991 and 1992 and for the period from January 1, 1993
through August 12, 1993, MCII and its subsidiaries had minimal amounts of
outside financing and therefore, a minimum of interest expense. Subsequent
to MCII's initial public offering, MCII incurred significant indebtedness
to fund its working capital needs as well as to finance capital
expenditures, to purchase the MCIL minority interest in February 1994 and
to pay a US$34 million cash dividend to Grupo Dina in December 1994. As a
result, a comparison of the ratio of earnings to fixed charges for the
periods prior to and subsequent to the initial public offering may not be
meaningful.
Year Ended Three Months Ended
December 31 March 31, 1996
---------------- --------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
U.S. GAAP....... 6.8 13.7 19.9 6.8 3.2 2.2
SELECTED FINANCIAL DATA OF GRUPO DINA
The following selected consolidated financial data as of and for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995 were derived from
the audited consolidated financial statements of Grupo Dina. The selected
consolidated financial data as of and for the three months ended March 31,
1995 and 1996 were derived from the unaudited consolidated financial
statements of Grupo Dina. The unaudited financial statements for the three
months ended March 31, 1995 and 1996 include all adjustments, consisting
of only normal recurring adjustments, that management considers necessary
for fair presentation of the financial position and results of operations
for the periods then ended. Results of operations for the three months
ended March 31, 1996 are not necessarily indicative of results which may
be expected for the entire year. The following selected consolidated
financial data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Grupo
Dina" and the consolidated financial statements of Grupo Dina and notes
thereto included elsewhere in this Prospectus. The consolidated financial
statements of Grupo Dina are prepared in accordance with Mexican GAAP,
which differs in certain respects from U.S. GAAP.
GRUPO DINA
CONSOLIDATED FINANCIAL INFORMATION
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------
1991 1992(2) 1993 1994 1995 1995 1996 1996(1)
---- ---- ---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT SHARE, PER SHARE AND PER ADS
INFORMATION)(2)
INCOME STATEMENT INFORMATION:
MEXICAN GAAP:
NET SALES Ps3,966.6 Ps4,542.1 Ps4,920.6 Ps4,066.3 Ps4,456.8 Ps1415.4 Ps1,257.8 US$166.9
OPERATING INCOME 594.1 474.7 514.2 (274.5) (64.9) 9.0 35.2 4.7
NET INCOME (LOSS), 571.0 487.1 437.6 (953.9) (498.0) (435.6) 94.0 12.6
MAJORITY INTEREST(4)
NET INCOME (LOSS) PER 6.48 2.87 2.25 (4.23) (1.93) (1.69) 0.36 0.05
SHARE, MAJORITY INTEREST
NET INCOME (LOSS) PER 25.93 11.47 8.98 (16.92) (7.72) (6.75) 1.46 0.19
ADS, MAJORITY INTEREST
CASH DIVIDENDS PER 0 1.05 0.39 0.15 0 0 0 0
SHARE(5)
CASH DIVIDENDS PER 0 4.21 1.57 0.57 0 0 0 0
ADS(5)
WEIGHTED AVERAGE 88,082,620 169,833,640 194,866,714 225,490,658 258,026,136 258,026,136 258,026.136 258,026,136
SHARES OUTSTANDING
U.S. GAAP:
NET SALES Ps3,966.6 Ps4,542.1 Ps4,920.6 Ps4,066.3 Ps4,456.8 Ps1,415.4 Ps1,257.8 US$166.9
NET INCOME (LOSS)(4) 524.4 434.1 377.1 (503.0) (267.3) - - -
NET INCOME (LOSS) PER ADS 23.82 10.21 7.76 (8.92) (4.16) - - -
WEIGHTED AVERAGE
ADSS OUTSTANDING 22,020,655 42,458,410 48,716,679 56,372,665 64,506,534 64,506,534 64,506,534 64,506,534
NUMBER OF NEW UNITS SOLD:
COACHES 984 1,165 1,818 804 1,176 281 323 323
TRUCKS 11,233 12,631 11,365 10,463 2,520 826 512 512
DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1996(1)
---- ---- ---- ---- ---- ---- ---- ----
BALANCE SHEET INFORMATION:
MEXICAN GAAP:
PROPERTY, PLANT AND 532.8 699.2 904.4 1,367.8 1,542.3 1,437.8 1,551.1 $205.8
EQUIPMENT, NET
TOTAL ASSETS 2,452.9 2,849.4 3,795.9 7,734.9 7,363.4 7,891.7 6,943.6 921
TOTAL LONG-TERM DEBT 523.5 892.1 822.2 4,107.1 4,342.6 5,073.3 4,002.3 531.0
TOTAL STOCKHOLDERS' EQUITY 776.3 975.4 1,980.0 1,844.1 1,741.5 1,276.4 1,724.0 228.7
MAJORITY INTEREST(6)
U.S. GAAP:
TOTAL ASSETS (7) 2,452.9 2,849.3 3,795.9 8,643.4 7,363.4 7,891.7 6,943.6 921.2
TOTAL STOCKHOLDERS' EQUITY 557.5 710.8 1,654.8 2,114.2 1,860.4 - - -
MAJORITY INTEREST(6)
<FN>
- - -----------------------
(1) Translations of Pesos into U.S. dollars have been made at the rate of
Ps 7.5375 to US$1.00. Such translations are provided solely for the
convenience of the reader and do not reflect the financial
information in accordance with generally accepted accounting
principles for foreign currency translation.
(2) In February 1992, Grupo Dina's coach assembly lines were shut down
for a three-month period for planned modernization and expansion.
Production resumed in April 1992 on a limited basis for a three-month
period, with full production commencing in August 1992.
(3) Each Common and Series L ADS represents four shares of Common and
Series L Stock, respectively.
(4) Net income for the years ended December 31, 1991, 1992, 1993, 1994
and 1995 is shown after elimination of the income attributable to the
minority interest in Camiones. Under U.S. GAAP, income before
extraordinary credits for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 and net income for the corresponding periods are
identical.
(5) Dividends are calculated on the basis of the Pesos amount and the
number of outstanding shares of Common and Series L Stock or Common
and Series L ADSs, as the case may be, on the date the dividends were
declared.
(6) Stockholders' equity for the years ended December 31, 1991, 1992,
1993, 1994 and 1995 is shown after elimination of the income
attributable to the minority interests in Camiones.
(7) Total assets under U.S. GAAP as of December 31, 1994 differ from
Mexican GAAP because of "pushdown" accounting for goodwill.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF GRUPO DINA
The following discussion encompasses the consolidated financial
results of Grupo Dina and its subsidiaries (collectively, "the Company").
The major subsidiaries include Camiones, Autobuses, Plasticos Automotrices
Dina S.A. de C.V. ("Plasticos") (hereinafter referred to collectively as
the "Mexican subsidiaries") and MCII Holdings.
This discussion should be read in conjunction with the audited
consolidated financial statements of Grupo Dina and the notes thereto
included elsewhere in this Prospectus. Grupo Dina prepares its financial
statements in accordance with Mexican GAAP, which differs in certain
respects from U.S. GAAP. To better comprehend Management's Discussion and
Analysis, see Notes 23 and 24 to the consolidated financial statements for
a discussion of the principal differences between Mexican GAAP and U.S.
GAAP and a reconciliation of net income and stockholders' equity to U.S.
GAAP.
Under Mexican accounting principles, Bulletin B-10 of the Mexican
Institute of Certified Public Accountants, as amended, requires that all
prior years financial statements presented be restated to constant
currency. Bulletin B-10 does not address the restatement of financial
statements of foreign subsidiaries included in the consolidated totals.
The Company's management has presented the consolidated financial
statements restated by the inflation rate for 1995 of 52%. Because MCII
Holdings' financial statements are originally prepared in dollars, and
inflation and devaluation of the Peso against the dollar have been
disparate in recent years, the comparison between years of constant Peso
amounts, as presented herein, may be different from a comparison of dollar
amounts.
Overview
The Company's performance in 1995 has been significantly impacted by
the downturn in the Mexican economy during the year and a substantial
devaluation of the Peso against the U.S. dollar in December 1994 and a
more gradual devaluation during 1995. The Company reported a net loss for
the year ended 1995 of Ps 498.0 million, or Ps 1.93 per share, compared
with a net loss of Ps 953.9 million or Ps 4.23 per share, for 1994. The
Company reported net income of Ps 437.6 million, or Ps 2.25 per share, for
1993.
Net loss before taxes and employee profit sharing in 1995 was Ps
336.2 million which compares with net loss before taxes and employee
profit sharing of Ps 878.8 million for 1994, compared to net income before
taxes and profit sharing in 1993 of Ps 577.8 million. Accounting for the
majority of the 1994 loss was the devaluation of the Peso which resulted
in a net foreign exchange loss of Ps 592.1 million. In addition, in
response to the downturn in the Mexican economy and the Peso devaluation,
the 1994 loss included Ps 303.8 million in nonrecurring charges relating
to the restructuring of the Mexican subsidiaries and special provisions
for certain losses on inventories and receivables. Excluding the foreign
exchange loss and the nonrecurring charges, 1994 resulted in income before
taxes and profit sharing of Ps 17.1 million compared to Ps 573.4 million
for 1993.
Net sales in 1995 were Ps 4,456.8 million compared to Ps 4,066.4
million for 1994, an increase of Ps 390.4 million. Net sales during 1994
decreased Ps 854.2 million (or 17.3%), compared to 1993 net sales of Ps
4,920.6 million. Gross profit margin for 1995 was 21.5%, compared to 18.4%
and 21.1% for the same periods in 1994 and 1993, respectively.
The current condition of the Mexican economy is a major concern of
the Company. The timing for recovery of the economy and the stabilization
of the Peso remain uncertain. Factors which could impact the timing
include the government's success in managing the crisis, and reinstilling
confidence in the long-term growth of the Mexican economy.
The economic recession has adversely impacted sales of the Company in
1995. Unit sales in 1995 of trucks, coaches and transit buses in Mexico,
including exportations compared with 1994, were:
Unit Sales for Three Months Ended
Year Ended March 31,
1994 1995 1995 1996
Trucks 10,463 2,520 826 512
Intercity Coaches 297 21 12 10
Transit Buses 77 34 51 1
The above annual unit sales reflect declines of 75.9% for trucks and
93.0% for intercity coaches and for the three months ended March 31, 1996
represent declines of 38.0% for trucks and 16.7% for intercity coaches.
Until such time as the economy recovers and stabilizes, the adverse
impacts on Company sales may continue.
As the timing remains uncertain for the recovery, management is
continually reviewing the strategic alternatives available to respond to
the economic environment. Management has already responded in part by
taking actions to restructure the work force, revise union agreements and
temporarily suspend production at Camiones, Autobuses and Plasticos
subsidiaries. Other strategic alternatives include:
a) continuing cost reduction measures
b) reviews of the wage component of union contracts
c) intense marketing to other Latin American countries, including
specifically Chile, Colombia and Ecuador, as well as the United
States
d) more favorable payment terms being extended to the Company's
distributors
e) selective disposition of investments which no longer meet strategic
and financial objectives
Results of Operations
First Quarter 1996 Compared to First Quarter 1995
During the first quarter of 1996, consolidated net sales were Ps.
1,257.8 million compared to Ps. 1,415.4 million reported during the first
quarter of 1995. MCII Holdings' Dollar-denominated sales represented
approximately 84% and 77% of Grupo Dina's consolidated sales during the
first quarters of 1996 and 1995, respectively. The decrease in Grupo
Dina's consolidated net sales for the first quarter of 1996 was
principally due to a 42% reduction in truck sales and a 11% reduction in
coach sales for the Mexican operations.
Gross profit during the first quarter 1996 totaled Ps. 197.9 million,
compared to Ps. 266.8 million during the prior year period. This decrease
in gross profit was mainly attributable to a 38% reduction in unit truck
sales as explained below.
Consolidated operating income was Ps. 35.3 million, compared to an
operating income of Ps. 9.0 million reported during the first quarter
1995. Grupo Dina's Mexican operations reported an operating loss of Ps.
21.3 million during the first quarter of 1996, compared to an operating
loss of Ps. 83.4 million during the same quarter of the prior year.
Although the decrease in sales from Grupo Dina's Mexican operations
impacted the company's operating income, the loss in gross profit was more
than offset by stringent cost reduction programs which have substantially
reduced selling, general and administrative expenses. Grupo Dina's cost
reduction programs reduced selling, general and administrative expenses by
37% to Ps. 162.6 million during the first quarter of 1996. This compares
to selling, general and administrative expenses of Ps. 95.2 million,
reported during the first quarter of 1995.
Operating income from MCII Holdings during the first quarter of 1996
was Ps. 65.6 million, compared to Ps. 103.0 million during the prior year
period. This decrease is primarily attributable to increased research and
development expenses.
Pretax income during the first quarter of 1996 was Ps. 127.6 million,
compared to a pretax loss of 392.2 million during the same period of the
prior year. The reduced loss is principally due to the improvement in a
gain on the foreign exchange rate.
During the first quarter of 1996, Grupo Dina recorded a net income of
Ps. 94.0 million, or Ps. 0.36 per share, compared to a net loss of Ps.
435.6 million or Ps. (1.69) per share, both based on 258 million weighted
average shares outstanding during the first quarters of 1995 and 1996.
Truck Segment
The truck segment sold 512 trucks during the first quarter 1996,
compared to 826 trucks sold during the first quarter of 1995, resulting in
a market share of 21% versus 33% market share during the same period of
the prior year.
During the first quarter of 1996, truck inventories decreased by 43%
from the levels recorded at March 31, 1995. At March 31, 1996 Grupo Dina
had approximately 635 trucks in inventory which it believes represents the
minimum inventory level required to adequately service expected future
sales.
Coach Segment
Grupo Dina's Mexican coach division sold 61 intercity coaches during
the first quarter of 1996 versus 37 intercity coaches during the first
quarter of 1995. Mexican industry sales of intercity coaches have declined
57% from 104 units sold during the first quarter of 1995 to 45 units sold
during the first quarter of 1996. Group Dina's share of the Mexican
intercity coach market increased from 12% at March 31, 1995 to 22% at
March 31, 1996. Grupo Dina's coach segment exports to MCII Holdings for
the U.S. market totaled 25 intercity coaches in the first quarter of 1995
and 51 during the first quarter of 1996.
1995 Compared to 1994 (in constant Pesos at March 31, 1996)
The Company reported a net loss of Ps 498.0 million in 1995, compared
with a net loss of Ps 953.9 million for 1994. The 1995 results included Ps
341.2 million of exchange loss and Ps 515.1 million of interest expenses,
and a gain in net monetary position of Ps 375.3 million. In addition, due
to the low level of sales in Mexico, the Company had an operating loss of
Ps 64.9 million during 1995, which compares with an operating loss of Ps
274.6 million in the same period of 1994. Additionally, the Company
reported an increase in "Other Income" of Ps 42.8 million when compared
with 1994 figures, due mainly to a gain on sale of marketable securities
held by MCII Holdings, which were sold in October. Given the low level of
economic activity and despite actions taken to reduce costs and expenses,
the Company does not anticipate an improvement in its operating results.
However, because of the high inflation experienced throughout 1995 and
anticipated for 1996, the Company expects to continue registering monetary
gains.
On December 20, 1994, the Bank of Mexico allowed the Peso to undergo
a significant devaluation against the dollar. The Peso to dollar exchange
rate at 1994 year-end was Ps 4.995 compared to Ps 3.107 at December 31,
1993, a 60.8% decline. At December 31, 1995, the Peso/dollar exchange rate
was Ps 7.7396 per dollar.
The devaluation's impact on the Company has been, and will continue
to be, significant. Due to the decline in the buying power of the Peso,
the effective cost to the Company of importing raw materials and the cost
of servicing the Company's dollar-denominated debt have increased. The
Peso devaluation has also resulted in an increase in interest and
inflation rates in Mexico. With interest rates in 1995 exceeding 55% and
inflation of 52%, credit availability in Mexico has tightened and loan
defaults have increased dramatically. As a result of the unfavorable
exchange, interest and inflation rates, and with high unemployment and
related social unrest, the constraints on the Mexican economy and,
therefore, on the Company's Mexican operations are, and will continue for
some time to be, substantial.
The following discussion of the Company's principal segments is
based, in part, on Note 25 to the Consolidated Financial Statements of the
Company and excludes the effects of the nonrecurring charges as discussed
above.
Truck Segment
Net sales for the truck segment during 1995 were Ps 760.4 million
compared to sales of Ps 2,469.9 million for 1994. The decline in truck
sales reflects a 75.9% reduction in units sold, from 10,463 in 1994 to
2,520 units sold in 1995. This decline is attributable to a sharp decline
in demand because of the contraction of the Mexican economy, which caused
an overall market decline of 76.7%. The Company<180>s market share in the
truck segment in 1995 is 34% compared with 35% in 1994. Given the low
level of sales for this market, market shares swing significantly from
month to month whenever a medium size order is completed by any of the
market participants. Therefore, the Company believes market share figures
are less relevant in this environment.
Gross profit margins on trucks decreased from 17.6% for 1994 to 13.2%
for 1995. The decrease was mainly attributable to a lower production level
during 1995, which resulted in unabsorbed fixed plant costs of Ps 93.5
million, or 12.3% of sales.
Operating loss for this segment was Ps 196.5 million in 1995 compared
with Ps 1.4 million of operating profit in 1994. This decline resulted
from the reduction in margins partially offset by a 45% reduction in G, S
& A expenses.
Coach Segment
The coach segment has operations in Mexico and, beginning in August
1994 upon the acquisition of MCII, in the United States and Canada. Due to
the impact of the operations of MCII Holdings on the Company as a whole
and on the coach segment in particular, the following discussion of the
coach segment is presented in two parts: 1) an overview of the operating
results as presented in the segment information contained in Note 25 to
the consolidated financial statements of the Company contained herein,
followed by 2) a detailed discussion of Mexican and U.S./Canada coach
operations on a pro forma basis reflecting full-year presentations of MCII
Holdings operations.
Overview. Net sales for the coach segment during 1995 were Ps 3,663.5
million, an increase of Ps 2,093.7 million from the prior year. The
increase in coach sales reflects a 35.9% decrease in sales in Mexico, more
than offset by MCII Holdings sales of Ps 3,645.9 million. Gross profit
margins on coaches increased from 18.6% in 1994 to 20.0% in 1995. In
addition, the Mexican gross margin reflects an increase due to export
sales in 1995. The coach segment generated an operating profit of Ps 302.9
million in 1995, which compares with an operating loss of Ps 220.6 million
in 1994. The 1995 results are comprised of net operating income on the
Mexican operation of Ps 17.3 million and Ps 285.7 million at MCII
Holdings.
Expanded Discussion of Coach Segment Using Pro Forma Data. Due to the
impact of the operations of MCII Holdings, through its wholly owned
subsidiary, MCII, selected operating results for the Company's coach
segment are presented on a pro forma basis giving effect to the
acquisition of MCII as if it occurred January 1, 1994. This presentation
allows a more meaningful comparison of the ongoing operations of the coach
segment in both Mexico and the U.S./Canada. Moreover, since the structure
of the operations of MCII continue as they were before the acquisition,
management believes that the pro forma data is meaningful in understanding
future operations.
Pro forma Table for Coach Segment for 1995 and 1994 as if MCII
Acquisition Occurred January 1, 1994:
1995 1994
-------- ------
(In millions of Ps)
Net sales Ps 3,663.5 Ps 3,111.6
Gross profit 792.5 585.8
Operating expense 512.5 447.7
Operating Income, excluding
Other Charges 279.9 138.1
Net Sales. As depicted in the above table, net sales for the coach
segment in 1995 were Ps 3,663.5 million, an increase of Ps 551.9 million,
or 17.7%, from 1994. Net sales of the Mexican operation declined 35.9%, to
Ps 17.7 million, as intercity coaches and transit buses sold decreased
from 374 units in 1994 to 57 in 1995. This decline was a result of the
collapse in the Mexican economy and a consolidation of coach operators
beginning in late 1993 and the shifting of some sales of the Viaggio model
in the United States through MCII. Sales by the entire Mexican coach
industry in 1995 declined 93% from 1994. During 1995, the Company's
positioning within the Mexican market declined to a market share of 12%
from 16% in 1994. The Mexican economic crisis and the consolidation of
operators had a significant impact on this market-share decline. The
Company's principal customer group, Estrella Blanca and its affiliates who
represented approximately 69% of the Company's coach sales in Mexico in
1993, and 38% in 1994, generated no sales in 1995. Back in 1993 Estrella
Blanca acquired four smaller operators, and then combined its coach lines
and restructured route coverage.
MCII sales in 1995 totaled Ps 3,645.9 million reflecting an increase
of 36.8%, compared to Ps 2,664.7 million for 1994. This increase was
driven by increases in volume and average sales price and by an increase
in the exchange rate used to translate dollar figures to Pesos. New unit
sales were 1,119 (1,007 MCII models and 112 Dina Viaggio models) in 1995
compared to 1,059 (all MCII models) in 1994.
Gross profit margins. The coach gross profit margins presented in the
table above increased from 18.8% to 21.6%. The Mexican operation's gross
margin was 24.9%, compared to 3.7% for the prior year. The margins reflect
a low level of production in Mexico, with the ensuing lack of absorption
of fixed costs. MCII margins slightly diminished from 21.4% in 1994 to
19.6% in 1995. The decline in the MCII margin percentage was primarily due
to a larger percentage of sales of the Viaggio model, which generates a
lower margin in the United States as the manufacturing profit is
recognized in the Mexican coach segment and higher distribution costs in
the replacement parts division. In addition, the 1995 margin was impacted
by increased research and development expense incurred for the development
of a new tour and charter model.
Operating income. In 1995, the coach segment operating income of Ps
302.9 million is comprised of net operating income of Ps 17.3 million and
nonrecurring credits of Ps 23.0 million of the Mexican operation and
operating income of the MCII operation of Ps 285.6 million. The Mexican
coach operation reported operating income of Ps 17.3 million for 1995,
compared to operating loss of Ps 115.2 million for 1994. The constrained
operating results in Mexico resulted from the contracted market for
coaches.
At the MCII operations, operating income increased from Ps 253.3
million in 1994 to Ps 285.6 million in 1995, reflecting the increase in
the exchange rate as reported above. In dollar terms operating income
declined primarily due to reductions in margins.
Comprehensive Financing Results
Net loss includes the effects of Comprehensive Result of Financing,
of provisions for certain taxes and employee profit sharing, and of the
equity in earnings of associated companies. During 1995, the net loss of
Ps 498.0 million included net financing expense of Ps 274.6 million and
net expense from taxes and profit sharing of Ps 174.3 million. As is
customary under Mexican GAAP, four items are presented within
Comprehensive Result of Financing: interest income, interest expense,
foreign exchange gain or loss and monetary position gain or loss.
For 1995, interest expense of Ps 515.1 million represented an
increase of 122% over 1994. This increase reflects the MCII acquisition in
which the debt of MCII was assumed and the issuance by Grupo Dina of 8%
Convertible Subordinated Debentures due 2004 (the "Debentures") to finance
a portion of the purchase of MCII common stock.
The 1995 loss on foreign exchange of Ps 341.1 million resulted from
the continued devaluation of the Peso throughout 1995 as explained
previously, compared to the exchange loss for 1994 of Ps 592.1 million.
Net monetary position reflects the difference between monetary assets
and liabilities at a point in time. Monetary assets and liabilities are
those whose real purchasing power fluctuates with the general price-level
index because they are fixed in terms of the monetary unit to be received
or paid. Inflation diminishes the purchasing power of monetary assets,
such as accounts receivable, and reduces the real value of monetary
liabilities, such as accounts payable. A net monetary asset position
results in losses in times of inflation and in gains in times of
deflation. A net monetary liability position results in gains in times of
inflation and in losses in times of deflation. During 1995, the Company
had a gain of Ps 375.2 million from its monetary position, an increase
over the Ps 50.7 million gain in 1994 as inflation was 52% in 1995
compared to 7.1% in 1994.
The following table sets forth the change in the percentage of the
NCPI for each of the years ended for which financial information is
presented:
Period Ended Inflation
December 31, 1992............................... 11.9%
December 31, 1993............................... 8.0%
December 31, 1994............................... 7.1%
December 31, 1995............................... 52.0%
Tax and Profit Sharing Provisions
Income and asset taxes and employee profit sharing expenses totaled
Ps 174.3 million for 1995 compared to Ps 87.9 million in 1994. Income tax
expense, net of tax benefits utilized, was Ps 137.4 million for 1995, an
increase from Ps 30.9 million for 1994. The income tax provision is
determined on the basis of separate taxable income of each company and,
for 1995, primarily reflects MCII income tax expense of Ps 124.0 million.
The provision for asset tax in Mexico is a type of minimum tax based
on the average of the majority of restated assets less certain
liabilities, as defined by law, and is paid only to the extent it exceeds
net income tax expense. The 1995 asset tax, net of refundable taxes,
decreased to a Ps 19.1 million expense from a Ps 39.5 million expense in
1994.
Equity of Affiliated Companies
The equity in results of affiliated companies represents the
Company's share of 1995 and 1994 earnings in its finance affiliate and in
Grupo Dina distributors.
1994 Compared to 1993
The Company reported a net loss for 1994 of Ps 953.9 million compared
to net income of Ps 437.6 million for 1993. The 1994 net loss included a
total of Ps 592.1 million net foreign exchange loss resulting from the
devaluation of the Peso during 1994. The net loss also included Ps 303.8
million in nonrecurring charges resulting from corporate downsizing and
from special provisions for certain losses on inventories and receivables.
Net sales during 1994 were Ps 4,066.4 million, a decrease of approximately
17.4% compared to 1993, and the gross profit margin dropped to 18.4%
compared to 21.1% a year ago. Operating expenses as a percentage of net
sales increased from 10.7% in 1993 to 17.7% in 1994.
The following discussion of the Company's principal segments are
based in part on Note 25 to the Consolidated Financial Statements and
excludes the effects of the nonrecurring charges as discussed above.
Truck Segment
Net sales for the truck segment in 1994 totaled Ps 2,466.9 million, a
decrease of Ps 321.8 million or 11.5% from 1993 levels. The decline in
truck sales reflects a 7.9% decrease in units sold from 11,365 units in
1993 to 10,463 units in 1994. This decline is attributable to the
difficult economic environment in Mexico which prevented any growth in the
entire industry during 1994, as well as increased competition from Ford
Motor Company's entrance into the market. Nevertheless, the Company's
truck segment continued to lead the market with a 35% market share.
Gross profit margins on trucks decreased from 20.4% in 1993 to 17.6%
in 1994 reflecting higher fixed costs per unit as a result of lower
volumes.
Operating income for the truck segment totaled Ps 47.0 million,
excluding the segment's portion of nonrecurring charges, or 1.9% of net
sales for the segment, compared to the prior year's Ps 257.9 million, or
9.2% of net sales. This decline resulted from the decrease in truck
margins and sales, partially offset by lower selling and administrative
expenses.
Coach Segment
The coach segment has operations in Mexico and, beginning in August
1994 upon the acquisition of MCII, in the U.S. and Canada. Due to the
impact of the operations of MCII Holdings on the Company as a whole and on
the coach segment in particular, the following discussion of the coach
segment is presented in two parts: 1) an overview of the operating results
as presented in the segment information contained in Note 25 to the
financial statements, followed by 2) a detailed discussion of Mexican and
U.S./Canada coach operations on a pro forma basis reflecting full-year
presentations of MCII operations.
Overview. Net sales for the coach segment were Ps 1,569.9 million in
1994, a decrease of Ps 538.0 million, or 25.5% from the prior year. The
1994 decline in coach sales reflects a 77% decrease in sales in Mexico,
partially offset by the acquisition of MCII with sales of Ps 1,133.4
million for the five months ended December 31, 1994. Gross profit margins
on coaches decreased from 20.2% in 1993 to 14.4% in 1994. This decline
reflects the pressures on margins in Mexico during 1994, partially offset
by gross margin contributed by MCII for the five months ended December 31,
1994. The coach segment had operating income of Ps 23.6 million, excluding
nonrecurring charges, compared to the prior year's operating income of Ps
276.1 million. The 1994 results are comprised of a net operating loss on
the Mexican operation of Ps 28.5 million, partially offset by operating
earnings at MCII for the five months ended December 1994 of Ps 52.1
million.
Expanded Discussion of Coach Segment Using Pro Forma Data. Due to the
impact of the operations of MCII, selected operating results for the
Company's coach segment are presented on a pro forma basis giving effect
to the acquisition of MCII as if it occurred January 1, 1993. This
presentation allows a more meaningful comparison of the ongoing operations
of the coach segment in both geographic areas of Mexico and the
U.S,/Canada. Moreover, since the structure of the operations of MCII
continue as they were before the acquisition, management believes that the
pro forma data is meaningful in understanding future operations.
Pro forma Table for Coach Segment for 1994 and 1993 as if MCII
Acquisition Occurred January 1, 1993:
1994 1993
----------------------- -------
(In millions of Ps)
Net sales Ps 3,111.6 Ps 4,271.9
Gross profit 585.8 916.4
Operating expense 447.7 416.9
Operating Income, excluding
Nonrecurring Charges 138.1 499.5
Net Sales. As depicted in the above table, net sales for the coach
segment in 1994 were Ps 3,111.6 million, a decrease of Ps 1,160.3 million,
or 27.2%, from 1993. Net sales of the Mexican operation declined 79%, to
Ps 446.8 million, as intercity coaches and transit buses sold in Mexico
decreased from 1,818 units in 1993 to 373 in 1994. This decline was a
result of a contraction in the Mexican coach market which was prompted by
a softening of the economy and by a consolidation of coach operators
beginning in late 1993. Sales of the entire Mexican industry in 1994
declined 47% from 1993 and 40% compared to 1992. During 1994, the
Company's positioning within the Mexican market declined to a market share
of 16% from 42% in 1993. The consolidation of operators had a significant
impact on this market-share decline. The Company's principal customer
group, Estrella Blanca and its affiliates who represented approximately
69% of the Company's coach sales in Mexico in 1993, acquired four smaller
operators and then combined its coach lines and restructured route
coverage. During 1994, sales to this customer comprised 38% of the
Company's coach sales in Mexico.
MCII sales on a pro forma basis for the year-ended 1994 totaled Ps
2,664.7 million reflecting an increase of 23.1%, compared to Ps 2,164.1
million for 1993. This increase was driven primarily by the sale of 1,059
new units, 162 (18%) more than 1993, and, to a lesser extent, by an
improved sales mix of higher-priced models.
Gross profit margins. The coach gross profit margins presented in the
table above indicate a decrease from a 21.5% margin in 1993 to 18.8% in
1994. The Mexican operation's gross margin was 3.7%, compared to 21.3% for
the prior year. The margin decline reflects the 1994 contraction in the
Mexican coach market which resulted in higher per unit overhead costs due
to lower production volume. MCII margins remained steady at 21.8% for both
1994 and 1993.
Operating income (loss). The coach segment operating income,
excluding nonrecurring charges, of Ps 138.1 million is comprised of net
operating losses of the Mexican operation of Ps 115.2 million offset by
operating income of the MCII operation for the year-ended 1994 of Ps 253.3
million. The operating losses in Mexico resulted from the contracted
market for coaches. The Mexican coach operation operating loss of Ps 115.2
million, compared to income of Ps 220.3 million for 1993, resulted from
the decline in coach margins and sales, partially offset by lower selling
and administrative expenses which experienced a 25.3% decrease.
At the MCII operations, operating income increased slightly from Ps
226.3 million in 1993 to Ps 253.3 million in 1994, reflecting the increase
in sales, partially offset by higher selling and administrative expenses
which resulted primarily from the increase in production levels, and
business improvement and development costs.
Comprehensive Financing Results
Net income includes the effects of comprehensive result of financing,
of provisions for certain taxes and employee profit sharing, and of the
equity in earnings of associated companies. During 1994, the net loss of
Ps 953.9 million included net costs of financing of Ps 641.2 million, net
expense from taxes and profit sharing of Ps 87.9 million and Ps 4.4
million in earnings of associated companies accounted for under the equity
method. As is customary under Mexican GAAP, four items are presented
within comprehensive result of financing: interest income, interest
expense, foreign exchange gain or loss and monetary position gain or loss.
For 1994, interest expense of Ps 232.2 million represented an
increase of Ps 106.8 million, or 85%, over 1993. This increase reflects
the MCII acquisition in which the debt of MCII was assumed and the
issuance by Grupo Dina of Debentures to finance a portion of the purchase
of MCII common stock.
The 1994 loss on the foreign exchange rate of Ps 592.1 million
resulted from the devaluation of the Peso in December 1994 as explained
previously, compared to the slight exchange gain for 1993 of Ps 4.4
million.
During 1994, the Company recorded a gain of Ps 50.7 million from its
monetary position, an increase over the Ps 42.8 million gain in 1993.
Tax and Profit Sharing Provisions
Income and asset taxes and employee profit sharing expenses totaled
Ps 87.9 million for 1994 compared to Ps 126.4 million in 1993. Income tax
expense, net of tax benefits utilized, was Ps 37.4 million for 1994, a
decrease from the Ps 96.0 million for 1993. The income tax provision is
determined on the basis of separate taxable income of each company and,
for 1994, primarily reflects MCII income tax expense for the five months
since its acquisition, of Ps 30.8 million.
The provision for asset tax in Mexico is a type of minimum tax based
on the average of the majority of restated assets less certain
liabilities, as defined by law, and is paid only to the extent it exceeds
net income tax expense. The 1994 asset tax, net of refundable taxes,
increased to a Ps 37.7 million expense from a Ps 7.0 million benefit in
1993, reflecting the lack of income tax expense in Mexico after the
utilization of loss carryforwards.
Employee profit sharing expense is based on taxable income (loss) of
each of the Mexican subsidiaries before reductions from utilization of tax
benefits and, due to Mexican subsidiaries with taxable income, the Company
had a Ps 12.8 million expense for employee profit sharing even though the
Company on a consolidated basis reported a net loss for 1994.
Equity of Affiliated Companies
The equity in results of affiliated companies represents the
Company's share of 1994 earnings in its finance affiliate and in Grupo
Dina distributors.
Liquidity and Capital Resources
The Peso's devaluation since December 1994 and the resulting
contraction of the Mexican economy during 1995 led to sharp decreases
within Mexico in the demand for trucks and coaches including those of the
Company. The sharp reduction in sales has led to liquidity shortfalls for
Grupo Dina. The Peso devaluation has also made access to the United States
and international capital markets, which had been a source of liquidity in
the past, extremely difficult. During 1995, the major source of cash and
cash equivalents was the collection of sales and accounts receivable at
the beginning of the year. These cash and cash equivalents have been used
to finance Grupo Dina's operations throughout 1995. In 1995, Grupo Dina
experienced difficulties collecting on its accounts receivable from
Estrella Blanca, a major purchaser of coaches until 1994. In January 1996,
Grupo Dina restructured all its accounts receivable from Estrella Blanca
and Tres Estrellas through a global restructuring agreement. As a result
of this global restructuring, all balances payable to Grupo Dina were
renegotiated using as a reference "Units of Investment" (UDIS) which value
changes based on the Mexican inflation rate. The principal balance,
increased for inflation, will be payable in equal monthly installments
over six years beginning July 1, 1997. These balances bear interest at a
rate of 10% over the monthly reference value of UDIS payable beginning
February 29, 1996. This agreement will be prepared individually for each
specific company.
In addition, Grupo Dina is in the process of negotiating a transfer
of its balances receivable from Estrella Blanca and Tres Estrellas to
Fondo Bancario de Proteccion al Ahorro (Banking Fund for the Protection of
Savings) and use the resources obtained from this transfer in the
capitalization of a related party, so that this company may obtain
additional financing to sell Grupo Dina products in the future. These
transactions are in the process of being formalized and are expected to be
concluded by the end of July 1996.
At the same time, Grupo Dina has mitigated the impact of these
liquidity shortfalls in two important ways. First, Grupo Dina has
undertaken severe cost reduction measures, pursuant to its cost reduction
strategy, including worker lay-offs. See "Business of Grupo Dina --
Strategy." Second, Grupo Dina will avoid material capital expenditures for
the foreseeable future. As a result of Grupo Dina's major investment in
the modernization of its plant and equipment in recent years, major
capital expenditures are unnecessary.
Net working capital (current assets less current liabilities) at
March 31, 1996 was Ps 1,867.2 million compared to Ps 2,193.1 million at
December 31, 1995, a decrease of 15%. At December 31, 1995, net working
capital was Ps 2,193.1 million compared to Ps 2,698.5 million a year ago.
This 19% decrease in net working capital resulted primarily from a Ps
290.3 million decrease in the level of inventory, a Ps 213.4 million
decrease in accounts receivable and the Ps 195.3 million decrease in the
net investment in discontinued operations. The current ratio (current
assets to current liabilities) was 3.1:1 at year end 1995 compared to
2.7:1 a year ago. Excluding inventory and discontinued operations from
current assets and current liabilities presents an acid test ratio at
year-end of 1.1:1, which indicates the Company's ability at year-end to
pay off short-term obligations without relying on the sale of inventories
or the liquidation of the discontinued operations. Nevertheless, cash
flows are constrained by the economic environment in Mexico and thus the
Company is negotiating with suppliers to extend the terms of payments.
The Company restructured certain accounts receivable, granting
concessions to its customers. In the truck segment, the restructuring has
extended the collection period from a range of 30 to 60 days to 60 to 180
days. In the Mexican coach operation, the concessions granted were to the
operation's principal customer and converted portions of this customer's
receivables into long-term receivables while also collateralizing them
with coaches and an equity interest in the customer. Management has
established loss reserves for these amounts which it believes to be
adequate. While the time frame for collection may be over an extended
period and may place additional cash flow pressures on the Company,
management believes they will be realized.
Management regularly reviews and forecasts cash flow requirements.
For 1996, due to the severe decrease in demand for trucks and coaches in
the Mexican market, management anticipates having an operating loss in
Mexico. The cash needs due to this expected operating loss may be funded
from various sources, including reductions in working capital investments
such as inventories and receivables, and selective asset dispositions.
Currently, the Company is in the process of consolidating substantially
all functions, both administrative and operational, into its Sahagun
facilities. As part of this process the Mexico City corporate office
building was sold in October for approximately US$5 million. As of
year-end 1995, the Company had available in the U.S. short- term lines of
credit of Ps 338.2 million while none were available in Mexico. Because of
the current economic situation's impact on Mexican banks, the extension of
these short-term lines of credit in Mexico is restricted. While Grupo Dina
received cash and other asset dividends from MCII totaling US$40 million
in 1994 and none in 1995, future dividends or loans to Grupo Dina are
constrained by loan covenants of MCII, as outlined below.
Most of the Company's operations involve the assembly of components
that are manufactured by others. Thus, large capital expenditures normally
associated with heavy equipment manufacturing are not required of the
Company. As of March 31, 1996, the Company did not have any material
commitments for capital expenditures. The Company currently expects
capital expenditures in Mexico of US$ 6 million in 1996 and US$ 10 million
in 1997 for plant and systems reengineering and production start up of new
cabin models. Capital expenditures in the U.S. are expected to range from
US$15 to US$25 million annually during the next two years for plant and
systems reengineering and production start up of new coach models.
Anticipated capital expenditures in Mexico will be contingent upon the
timing and extent of a recovery in the Mexican economy.
For capital resources, the Company has customarily accessed both debt
and equity markets. In August 1994, in conjunction with the acquisition of
MCII, Grupo Dina issued no par Series L shares, listed on the NYSE in the
form of Series L ADSs, and Debentures due in 2004, which are convertible
into Series L ADSs. The Series L ADSs and the Debentures were issued in
exchange for 51% and 49%, respectively, of the MCII common stock.
Grupo Dina's ratio of long term debt to total capital (long term debt
plus total stockholders equity, including minority interest) at March 31,
1996 was 69.4% as compared to 70.8% at December 31,1995 and 68.2% at
December 31, 1994, the increase mainly due to the devaluation of the Peso
since the total long term debt is expressed in dollars. The long term debt
balance at December 31, 1994 of Ps 4.1 billion is an increase of Ps 3.3
billion over year end 1993. This increase reflects the issuance of the
Debentures and the long term debt of MCII as well as the revaluation of
the Eurobonds to reflect the Peso devaluation.
The long-term debt used by MCII in its operations is comprised of a
bank credit facility and term notes payable. The bank credit facility is
with a group of banks, with Citibank, N.A. as agent, which have agreed to
make available up to US$125 million. The bank credit facility is unsecured
and provides funding on a revolving credit basis through July 31, 1998.
The facility is used to provide working capital financing, to issue
standby letters of credit (up to US$35 million) to support performance
bond obligations and to fund other corporate needs. Loan covenants under
the bank credit facility include, among others, limitations on dividend
payments, investments, sales of assets, transactions with affiliates, and
minimum net worth, leverage and fixed charge coverage requirements. In
November 1994, MCII issued term notes payable as private placement debt
totaling US$125.0 million. These notes are unsecured debt and contain
various covenants, including, among others, limitations on dividend
payments, investments, sales of assets, transactions with affiliates, and
minimum net worth, leverage and current ratio requirements. Loan covenants
of MCII result in constraints on dividends, loans and other cash flows
that otherwise could be extended to the Company, thereby restricting the
Company's ability to access funds from this subsidiary.
The principal of the Notes (together with all interest accrued and
unpaid thereon) may be accelerated upon certain events of default,
including, among others, the failure to pay principal and interest due on
the Notes, the failure to comply with certain of the covenants or
agreements in the Indenture if such failure continues beyond the
applicable notice period, the failure by MCII Holdings or any of its
subsidiaries to pay certain debts when due within the applicable grace
period or the acceleration of such debt, a default under the indenture
governing the Debentures or the fiscal agency agreement governing the
Eurobonds, and the occurrence of a Change of Control (as defined below).
The Notes are redeemable at the option of Grupo Dina at any time on
or after November 15, 1998 at 100% of the principal amount thereof plus
accrued and unpaid interest. Upon a Change of Control, holders of New
Notes will have the right to require Grupo Dina and MCII Holdings to
repurchase all or a portion of their Notes at a purchase price equal to
the Accreted Value thereof, if on or prior to November 15, 1995, and equal
to the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, thereafter. See "Description of the Notes."
The Indenture includes covenants which place restrictions on MCII
Holdings' ability to, among other things, (i) incur debt; (ii) issue
preferred stock; (iii) make certain payments, including MCII Holdings'
ability to pay divi- dends on its capital stock; (iv) incur liens; (v)
dispose of the capital stock of MCII and (vi) consolidate or merge with
any person, or sell, lease, convey, transfer or otherwise dispose of all
or substantially all of its assets, or acquire all or substantially all of
the assets or capital stock of any other person. In the case of Grupo
Dina, the covenants under the Indenture restrict its ability to, among
other things, (i) make certain payments, including Grupo Dina's ability to
pay dividends on its capital stock; (ii) incur liens and (iii) sell,
lease, convey, transfer or otherwise dispose of its securities, property
or other assets. MCII Holdings' obligation under the New Notes is secured
by, among other things, a pledge of the shares it holds of MCII. See
"Description of the Notes."
The principal of the Debentures (together with all interest accrued
and unpaid thereon) may be accelerated upon certain events of default,
including, among others, the failure to pay principal and interest due on
the Debentures, the failure in the performance of any other covenant of
Grupo Dina in the related indenture beyond the applicable notice period
and the default under certain other types of indebtedness of Grupo Dina.
In addition, the indenture includes certain restrictions on Grupo Dina's
ability to consolidate with, or merge into, or sell, lease, transfer or
convey its properties or assets substantially as an entirety to another
person. Under certain circumstances, Grupo Dina may redeem the Debentures,
in whole or in part, at defined redemption prices.
At March 31, 1996, the Company is in compliance with its debt
covenants. While management believes its cash flows and borrowing capacity
will be sufficient to satisfy operating and debt service needs for the
near-term, these sources and operating needs could also be impacted
negatively by a prolonged downturn in the Mexican economy. Moreover, the
Company's continued compliance with debt covenants, its access to debt and
equity markets and the declaration of future dividends also may be
impacted by the downturn and management's response thereto.
Recently Issued Accounting Pronouncements
For U.S. GAAP financial statements, Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," is required in 1996.
SFAS No. 121 requires that long-lived assets be reviewed for impairment
whenever events or circumstances indicate that the carrying amount of the
asset may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest charges) from an asset to be held and
used in operations is less than the carrying value of the assets, an
impairment loss must be recognized in the amount of the difference between
the carrying value and the fair value. Assets to be disposed of must be
valued at the lower of carrying value or fair value less cost to sell. In
management's opinion, SFAS No. 121 has not had a material impact on the
Company's financial position under U.S. GAAP.
Impact of Governmental Policies
In addition to the discussion relating to the Peso devaluation
presented above, the Mexican government will continue to have a
significant impact on the Company as a result of any fiscal or political
changes which it might implement. Now that NAFTA has been implemented, and
after the recovery from the current economic recession, management expects
that cross-border trade and tourism between Mexico and the U.S. will
steadily increase. This trend should generate additional truck sales in
Mexico as Mexican truck operators seek to compete with their U.S. and
Canadian counterparts by, among other strategies, upgrading their
equipment and as U.S. and Canadian truck operators, operating in Mexico
through joint ventures, invest in vehicles especially adapted to Mexican
road conditions. However, management expects competition to increase as
U.S. automakers, with a presence in the Mexican automobile market may also
enter the truck market. Sales of intercity coaches may also be favorably
impacted by increased cross-border tourism.
Contingencies
MCII Holdings is in the process of obtaining information in order to
quantify any potential liability related to certain U.S. and Canadian tax
contingencies. The time frame for ultimate resolution of this matter is
uncertain; however, based on information currently available, management
believes that any resulting liability will not be material to the
Company's financial condition or results of operations.
SELECTED FINANCIAL DATA OF MCII HOLDINGS
MCII Holdings was incorporated in connection with the issuance of the
Old Notes and carries out its operations through MCII and MCII's
subsidiaries. MCII Holdings was formed for the purpose of holding MCII as
its wholly owned subsidiary. On May 28, 1996, Grupo Dina transferred to
Holdings all 100 shares of MCII, $.01 par value common stock, in exchange
for which MCII Holdings issued to Grupo Dina all 1,000 shares of its $.01
par value common stock. As a result of this exchange between entities
under common control, the transaction was accounted for at historical cost
in a manner similar to that in a pooling of interests and, therefore, all
prior financial statements presented have been restated as if the exchange
took place at the beginning of such periods. The following selected
consolidated financial data as of and for the twelve months ended December
31, 1991, 1992, 1993, the seven months ended July 31, 1994, the five
months ended December 31, 1994 and the twelve months ended December 31,
1995 were derived from the audited financial statements of MCII Holdings.
The selected consolidated financial data as of and for the three months
ended March 31, 1995 and 1996 has been derived from the unaudited
consolidated financial statements of MCII Holdings. The unaudited
financial statements for the three months ended March 31, 1995 and 1996
include all adjustments, consisting of only normal recurring adjustments,
that management considers necessary for fair presentation of the financial
position and results of operations for the periods then ended. Results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of results which may be expected for the entire year.
The Dial Corp. ("Dial") sold MCII pursuant to an initial public
offering on August 12, 1993. As a result, for periods prior to August 12,
1993, the summary consolidated financial data of MCII Holdings set forth
below represent the combined operating results and activities of Dial's
transportation manufacturing and replacement parts segment now conducted
by MCII Holdings, excluding the Canadian transit bus manufacturing
business formerly conducted by Dial that is not owned by MCII Holdings. In
accordance with U.S. GAAP, the assets and liabilities of the
transportation manufacturing and replacement parts business have been
reflected in the consolidated financial statements of MCII Holdings on the
basis of Dial's historical costs. Operating results and activities
subsequent to August 12, 1993 mean the consolidated results and activities
of MCII Holdings and its subsidiaries. On August 8, 1994, Grupo Dina
acquired all of the issued and outstanding common stock of MCII (the
"Merger"). The Merger was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16 and therefore, the assets and
liabilities of MCII were stated at their estimated fair values as of the
acquisition date ("purchase accounting"). The excess of the consideration
paid by Grupo Dina over the estimated fair value of the net assets
acquired was recorded as goodwill in MCII's financial statements. As a
result of the application of purchase accounting, the financial statements
before and after the Merger may not be comparable in all material
respects. For financial reporting purposes, the Merger was accounted for
effective August 1, 1994. Therefore, all financial information for periods
prior to August 1, 1994, is labeled as "Predecessor." The following
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations
of MCII Holdings" and the consolidated financial statements of MCII
Holdings and notes thereto included elsewhere in this Prospectus.
PREDECESSOR
--------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------- THREE MONTHS ENDED
SEVEN FIVE
MONTHS MONTHS YEAR
ENDED ENDED ENDED
JULY 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1991 1992 1993 1994 1994 1995 1995 1996
---------- --------- --------- ---------- ---------- ---------- ----------- ---------
(IN MILLIONS, EXCEPT NUMBER OF NEW COACHES DELIVERED)
INCOME STATEMENT INFORMATION:
REVENUES:
SALES........................ US$311.4 US$337.0 US$394.1 US$271.8 US$191.8 US$509.9 US$123.4 US$140.6
FINANCE INCOME............... 8.0 7.0 4.9 1.3 2.6 6.4 1.0 1.5
319.4 344.0 399.0 273.1 194.4 516.3 124.4 142.1
OPERATING COSTS AND EXPENSES:
COST OF SALES (EXCLUSIVE OF
ITEMS SHOWN SEPARATELY
BELOW ....................... 237.5 253.6 303.1 203.5 151.6 397.4 94.6 112.3
PROVISION FOR RELOCATION OF
MANUFACTURING FACILITIES..... 9.6
DEPRECIATION AND AMORTIZATION 4.6 5.0 4.5 3.3 5.8 14.6 3.3 4.1
INTEREST EXPENSE,
FINANCE OPERATIONS.......... 3.4 2.5 .8 0.3 0.7 2.7 0.6 0.7
RESEARCH AND DEVELOPMENT
EXPENSES.................... 2.5 2.3 1.4 1.3 0.5 2.9 0.4 1.9
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES..... 34.9 38.0 43.9 27.8 26.6 60.4 14.9 15.0
292.5 301.4 353.7 236.2 185.2 478.0 113.8 134.0
OPERATING INCOME............... 26.9 42.6 45.3 36.9 9.2 38.3 10.6 8.1
OTHER COSTS AND EXPENSES:
MERGER RELATED EXPENSES....... 11.3
INTEREST EXPENSE.............. .8 .7 1.5 1.8 2.5 13.4 2.9 3.4
OTHER (INCOME)................ (1.7) (1.4) (0.2) (0.2) (0.5) (0.2) (0.2)
GAIN FROM SALE OF MARKETABLE
SECURITIES.................... (10.5)
MINORITY INTERESTS........... 1.8 2.4 2.0 0.4
2.6 1.4 2.1 13.3 2.3 2.4 2.7 3.2
INCOME BEFORE INCOME TAXES..... 24.3 41.2 43.3 23.6 6.9 35.9 7.9 4.9
INCOME TAXES................... 10.0 15.7 16.6 11.5 4.0 17.6 3.7 2.5
INCOME FROM CONTINUING
OPERATIONS..................... 14.3 25.5 26.6 12.1 2.9 18.3 4.2 2.4
DISCONTINUED OPERATIONS........ (30.2) (46.6) (60.4) (3.5)
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE..................... (15.9) (21.1) (33.8) 8.6 2.9 18.3 4.2 2.4
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE(1)...... (2.9)
NET INCOME (LOSS) US$(15.9) US$(24.0) US$(33.8) US$8.6 US$2.9 US$18.3 US$4.2 US$2.4
NUMBER OF NEW COACHES
DELIVERED...................... 602 776 897 628 431 1,169 269 313
PREDECESSOR
DECEMBER 31, DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET INFORMATION:
TOTAL ASSETS.................. US$279.3 US$322.7 US$286.0 US$558.9 US$614.0 US$589.5 US$621.0
WORKING CAPITAL............... 28.0 84.7 70.3 103.3 156.7 138.9 150.6
LONG-TERM DEBT, INCLUDING 2.6 .8 90.5 195.0 217.8 203.8 217.8
CURRENT PORTION.................
STOCKHOLDERS' EQUITY(2)....... 158.3 235.9 98.4 272.8 294.8 278.3 297.7
<FN>
- - -------------------
(1) Initial application of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
(2) Stockholders' equity for periods prior to August 1993 represent Dial's
investment and advances in the transportation, manufacturing and
replacement parts segment now conducted by MCII Holdings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF MCII HOLDINGS
The following discussion should be read in conjunction with the
historical financial statements of MCII Holdings and notes thereto
included elsewhere in this Prospectus and the information set forth under
"Selected Historical Consolidated Financial Data of MCII Holdings."
Overview
MCII Holdings, through its wholly owned subsidiary, MCII, operates in
two principal business seg- ments--coach manufacturing and support, and
replacement parts. MCII's coach manufacturing and support segment designs,
manufactures, assembles and markets new coaches in the United States and
Canada, and supports its product offerings with new and used coach
dealership marketing services and, on a limited basis, coach financing.
During 1995, MCII Holdings' coach manufacturing and support segment also
began purchasing from Grupo Dina the Viaggio, an intercity coach
manufactured by Grupo Dina, for resale in the United States. MCII
Holdings' replacement parts distribution operation provides OEM-quality
replacement parts for intercity coaches and transit buses in the United
States and Canada which were manufactured by MCII Holdings or, in the case
of transit buses, MCII Holdings' predecessor or successors. MCII Holdings'
replacement parts operation also provides selected replacement parts for
non-MCII Holdings manufactured coaches, transit buses, school buses, and
diesel engines.
MCII's coach manufacturing business is highly cyclical, while its
replacement parts distribution business has certain counter cyclical
characteristics. During times of general economic weakness, many coach
manufacturing customers may postpone fleet replacement programs and, in
some cases, reduce the size of their fleets. As economic recovery occurs,
these customers tend to accelerate fleet replacement programs and, in some
cases, increase the size of their fleets. The replacement parts business
is affected by somewhat different factors than the coach manufacturing
business. Deferrals of new coach or transit bus purchases can have a
favorable impact on replacement parts sales as the resultant older fleet
requires increased maintenance and more parts. Reduced usage of an aging
fleet and overall fleet downsizing, however, may cause replacement parts
sales to decline.
On August 12, 1993, Dial sold, through an initial public offering, 20
million shares of MCII pursuant to an underwriting agreement dated August
5, 1993. Dial's transportation manufacturing and service parts
subsidiaries were transferred to MCII immediately after and in connection
with the public offering of MCII shares.
In November 1993, the Board of Directors approved a plan of
disposition of the transit manufacturing segment. This decision was based
upon management's review of market activities, business prospects,
competitive bidding, evaluation of backlogs, economic value analysis, and
opportunities for cost reduction, which indicated that the transit
manufacturing business may not achieve acceptable profitability in the
foreseeable future. As a result of this decision, a charge to discontinued
operations of US$87.2 million (US$53.6 million after-tax) was recorded in
the third quarter of 1993 to reflect the estimated loss on disposal of the
transit manufacturing segment. During 1994, based upon further analysis of
the estimated loss to be incurred on the disposal, an additional provision
of US$5.4 million (US$3.5 million after-tax) was recorded.
In November 1994, MCII Holdings sold the fixed assets and certain of
the inventory of the transit manufacturing business for aggregate
consideration of US$14.9 million, consisting of US$10.0 million in cash
and a US$4.9 million note receivable. As part of the transaction, the
purchaser agreed not to distribute parts for transit buses previously made
by MCII Holdings for a period of five years. MCII Holdings retained all
other assets and remaining liabilities of the transit manufacturing
business, consisting primarily of accounts receivable, inventory, warranty
reserves, and reserves for employee benefits.
On November 4, 1993, the Board of Directors authorized an offer by
MCII (the "MCIL Offer") to acquire the approximately 2.6 million common
shares (31% of the total outstanding common shares) of MCIL that MCII did
not own, at a price of C$16.00 per share. MCII subsequently agreed to make
an additional payment of C$1.00 per share upon successful completion of
the Merger. The MCIL Offer closed on February 18, 1994, with over 92% of
the publicly held stock being tendered to MCII. MCII exercised its
statutory right to purchase the remaining publicly held stock and now owns
100% of MCIL (collectively the "MCIL Acquisition"). The acquisition was
accounted for as a purchase and all outstanding assets and liabilities of
MCIL were recorded at their estimated fair market value on the date of the
acquisition. The excess of the purchase price over the fair value of net
assets acquired was US$11.9 million and is recorded as goodwill, which is
being amortized over 40 years using the straight line method.
On August 8, 1994, Grupo Dina acquired all of the issued and
outstanding common stock of MCII for aggregate consideration of US$311.6
million. The transaction was effected through the exchange of 54.2 million
Series L shares of Grupo Dina for 51% of the outstanding shares of MCII
and US$164.0 million of the Debentures for the remaining 49% of the
outstanding shares. The Merger was accounted for as a purchase and
"push-down accounting" was applied, with the result that purchase
accounting adjustments were reflected in the financial statements of MCII
and its subsidiaries. Application of push-down accounting resulted in an
adjustment of all outstanding assets and liabilities of MCII to their
estimated fair market value on the date of the acquisition. The excess of
the consideration paid by Grupo Dina over the estimated fair value of the
assets acquired was US$236.1 million and is recorded as goodwill, which is
being amortized over 40 years using the straight line method. The
application of push down accounting has resulted in an increase in
depreciation expense due to the step-up in basis of property, plant and
equipment, and an increase in amortization expense due to the creation of
the goodwill.
Results of Operations
First Quarter 1996 Compared to First Quarter 1995
General. Revenues for the first quarter ended March 31, 1996 were
US$142.1 million, an increase of 14.2% from US$124.4 million for first
quarter 1995. The increase is due to increases in both the coach
manufacturing and support segment and the replacement parts segment. The
overall gross margin, defined as sales less cost of sales (exclusive of
depreciation and amortization), as a percent of sales was 20.2% compared
to 23.4% for first quarter 1995.
Operating income was US$8.1 million in first quarter 1996 compared to
US$10.6 million in first quarter 1995. The decrease is primarily
attributable to increased research and development expenses and
depreciation and amortization expenses.
Income from continuing operations was US$2.4 million, a decrease of
US$1.8 million from the US$4.2 million for first quarter 1995.
Coach Manufacturing and Support. Coach manufacturing and support
sales (excluding finance income) for first quarter 1996 increased 11.5% to
US$101.7 million, reflecting sales of 292 new units (258 MCIs and 34
Viaggios), compared to US$90.0 million for the same period of 1995 which
was driven by sales of 269 new units (264 MCIs and 5 Viaggios). Also
contributing to the increase was an increase in the average sales price of
new coaches sold. In addition to the sold units in first quarter 1996, 21
units were delivered under leases which are not reflected in sales. Taking
into account these units, new coach deliveries increased 16%, from 269 to
313 units.
In the first quarter 1996, the gross margin percentage was 19.5%
compared to 23.3% for first quarter 1995. The decrease in margin
percentage reflects an increase in the volume of Viaggios sold, which
sales produced a 6.4% margin for MCII Holdings, and lower margins on used
coach sales as a result of sales of slower moving inventory.
Order backlog as of March 31, 1996 was 450 units, which included 130
units for GLI, compared to 439 units at March 31, 1995, which included 102
units for GLI.
Replacement Parts. Replacement parts revenues were US$38.9 million in
the first quarter of 1996 compared to US $33.4 million in 1995. The 16.5%
increase is primarily attributable to sales in the new diesel and school
bus product lines, increased sales of remanufactured parts and sales
promotion programs introduced in 1996.
Gross margin percentage decreased to 21.7% in 1996 from 23.5% in
1995. The lower gross margins are primarily due to product mix, including
remanufactured parts which have a lower margin, and promotional pricing.
Depreciation and Amortization. Depreciation and amortization expenses
increased to US$4.1 million in the first quarter of 1996, a 24% increase
over the US$3.3 million recorded in 1995. The increase is attributable to
an increase in coaches held for lease and property, plant and equipment
additions.
Research and Development. Research and development expenses increased
to US$1.9 million, a US$1.5 million increase over the US$383,000 recorded
in 1995 reflecting increased expenditures for the new tour and charter
coach model to be released in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained constant at US$15.0 million in 1996 and
1995.
Interest Expense. Interest expense increased 14% to US$3.3 million in
1996 from US$2.9 million in 1995. The increase is primarily due to
increased debt balances primarily to support higher levels of coaches held
for lease.
Income Taxes. MCII Holdings' effective income tax rates in the first
quarter of 1996 and 1995, excluding non-deductible good-wil amortization,
were comparable at 41.8% and 41.6%, respectively.
1995 Compared to 1994
General. Revenues for 1995 were US$516.3 million, up 10.4% from
US$467.5 million for 1994. The increase is primarily attributable to an
increase in new and used coach sales. The overall gross margin, defined as
sales less cost of sales (exclusive of depreciation and amortization) as a
percent of sales, was 22.1% for 1995 compared to 23.4% for 1994.
Operating income was US$38.3 million and US$46.0 million in 1995 and
1994, respectively. Excluding the additional depreciation and amortization
which resulted from the Merger, operating income would have been US$44.7
million in 1995 compared to US$48.7 million in 1994. On an adjusted basis,
the overall operating margin declined from 10.4% in 1994 to 8.7% in 1995.
Income from continuing operations was US$18.3 million, up 22.0% from
US$15.0 million during 1994. Income from continuing operations in 1995
included an after-tax gain from the sale of an investment in GLI common
stock of US$6.9 million while 1994 included expenses of US$8.6 million
after tax related to the Merger. Excluding these items, income from
continuing operations would have been US$11.4 million and US$23.6 million
for 1995 and 1994, respectively.
Coach Manufacturing and Support. Coach manufacturing and support
sales (excluding finance income) were US$369.4 million reflecting 1,119
new units sold (of which 112 units were Grupo Dina's Viaggio model) in
1995 compared to US$328.9 million based on 1,059 new units sold (of which
none were Viaggio models) in 1994. This increase in sales was due to an
increase in the average sales price of new coaches and a change in the mix
of units sold as higher-priced 45-foot models comprised a larger
percentage of units sold while lower-priced GLI models comprised a smaller
percentage. GLI purchased 282 units in 1994 compared to 111 units in 1995.
Also, in 1995 50 units were delivered to GLI under intermediate-term
leases and, as such, these units were not included in sales for 1995.
Including these 50 units, total new coach deliveries in 1995 were 1,169
units compared to 1,059 units for 1994. Gross margins decreased to 23.0%
in 1995 from 23.7% in 1994. The decrease in gross margin percentage
resulted primarily from an increase in sales of lower-margin units. Grupo
Dina manufactured Viaggio units, which only produced a 6.6% margin for
MCII as the manufacturing profit accrues to the benefit of Grupo Dina.
Replacement Parts. Replacement parts revenues increased by 4.3% to
US$140.5 million in 1995 from US$134.7 million in 1994. The introduction
of a line of diesel engine parts and increased school bus parts sales and
sales to GLI contributed to the increase in replacements parts revenues.
The increase in school bus parts sales is primarily attributable to the
April 1995 acquisition of a school bus parts distribution company. Gross
margin as a percent of revenues decreased to 23.2% in 1995 from 24.9% in
the preceding year. The reduction in gross margin percentage primarily
resulted from higher distribution costs in 1995 compared to 1994
reflecting an increase in capacity to accommodate anticipated growth from
diesel engine and school bus parts sales.
Depreciation and Amortization. Depreciation and amortization
increased from US$9.1 million during 1994 to US$14.6 million during 1995.
The increase is due to the depreciation and amortization related to the
revaluation of fixed assets and recognition of goodwill, which occurred
due to the Merger with Grupo Dina.
Research and Development Expenses. For 1995 research and development
expenses were US$2.9 million, or US$1.2 million higher than 1994. The
increase is due to higher spending in 1995 for the development of a new
"tour and charter" model which management expects to introduce in early
1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to US$60.4 million for 1995 from US$54.4
million for 1994. During 1995, MCII experienced increased payroll and
consulting expenses as a result of the introduction of the diesel engine
and school bus parts lines and implementation of a new information system
for use in new coach manufacturing. However, as a percentage of revenues,
selling, general and administrative expenses in 1995 were consistent with
1994 at 11.7% and 11.6%, respectively.
Interest Expense. Interest expense for 1995 was US$13.4 million
compared to US$4.3 million in the preceding year. The increase is a result
of additional borrowings outstanding and a higher average interest rate
during 1995 compared to 1994.
Other Income. For 1995, other income increased $10.6 million
primarily as a result of the gain on sale of an investment in GLI common
stock.
Income Taxes. MCII Holdings' effective combined income tax rates,
excluding the effect of non-deductible goodwill amortization,
non-deductible foreign dividend received, merger related costs in 1994,
and a lower Canadian capital gains rate on the GLI investment gain 1995,
were 40.2% and 40.7% for 1995 and 1994, respectively.
1994 Compared to 1993
General. MCII Holdings' revenues in 1994 were US$467.5 million, up
17.2% from US$399.0 million in the prior year. Both segments of the
Company contributed to this increase, with coach manufacturing posting the
strongest gains primarily due to shipments of 162 more units in 1994
compared with 1993. The gross margin percentage remained relatively
constant at 23.4% and 23.1% in 1994 and 1993, respectively.
Operating income increased slightly to US$46.0 million in 1994 from
US$45.4 million in 1993. Excluding the effects of the Merger and the MCIL
Acquisition, operating income improved by US$4.9 million in 1994, an
increase of 9.7% compared to 1993. The adjusted operating margin fell
slightly to 10.6% in 1994 from 11.4% in 1993.
Income from continuing operations was US$15.0 million, down 43.6%
from US$26.6 million in 1993. However, excluding the effects of the Merger
and the MCIL Acquisition, income from continuing operations increased
US$0.6 million compared to 1993. The improvement in income from continuing
operations primarily reflects stronger operating results which is
partially offset by higher interest expense in 1994 and a one-time net tax
benefit of US$928,000 in 1993.
Net income for 1994 was US$11.5 million, compared to a US$33.8
million loss in 1993. Net income in 1994 includes a US$3.5 million
provision (after tax) for the additional estimated losses to be incurred
on the disposal of MCII Holdings' transit business. The 1993 net loss
includes a US$53.6 million charge recognized upon discontinuance of the
transit manufacturing segment as well as transit manufacturing operating
losses of US$6.8 million.
Coach Manufacturing and Support. Coach manufacturing and support
sales (excluding finance income) increased 22.8% to US$328.9 million based
on 1,059 new units delivered in 1994 from US$267.9 million based on 897
units delivered in the prior year. The sales improvement reflects stronger
volume in new coach sales to independent operators which also results in a
favorable mix of models with higher sales prices primarily due to the
lower percentage of lower-cost GLI units, and stronger used coach volume.
Gross margins were 23.7% and 22.0% in 1994 and 1993, respectively. The
improvement reflects lower 1993 margins primarily resulting from higher
engineering costs incurred on production start-up for the 45-foot coach
model and as a result of increased warranty expense in 1993 due to
difficulties with a then new cooling system, while margins were improved
in 1994 primarily due to efficiencies achieved through higher line rates,
partially offset by lower margins in the used and custom coach segments.
Replacement Parts. Replacement parts revenue improved US$8.5 million,
or 6.7%, to US$134.7 million in 1994 compared with US$126.2 million in
1993. The improvement in revenues reflects volume increases of 9% and 14%
to transit customers and GLI, respectively. Gross margins decreased
slightly to 24.9% from 25.4% in 1993.
Depreciation and Amortization. Depreciation and amortization
increased to US$9.1 million during 1994 from US$4.5 million during 1993.
The increase is principally due depreciation and amortization related to
the revaluation of fixed assets and recognition of goodwill, which
occurred as a result of the MCIL Acquisition and the Merger.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by US$10.5 million or 23.9% in 1994 from
US$43.9 million in 1993. The increase results from higher revenues and
additional costs incurred as a stand-alone company for a full year in 1994
compared with only five months in 1993. When viewed as a percentage of
revenues, selling, general and administrative expenses remained relatively
constant at 11.6% and 11.0% in 1994 and 1993, respectively.
Merger Related Expenses. In connection with the Merger in 1994, MCII
Holdings incurred US$11.3 million of Merger related expenses for the cash
settlement of all outstanding stock options and the acceleration of
vesting on all unvested restricted stock (US$6.8 million) and for
professional fees, printing, travel and other costs related to the
transaction (US$4.5 million).
Interest Expense. Interest expense was US$4.3 million and US$1.5
million in 1994 and 1993, respectively. The increase in interest expense
results primarily from higher average external debt during 1994. Prior to
the initial public offering of MCII in August 1993, Dial provided funding
for MCII Holdings' operations and capital expenditures, and such Dial
advances were reflected in the financial statements on an interest-free
basis. Subsequent to the initial public offering, MCII has utilized
external financing to meet its cash needs.
Income Taxes. MCII Holdings' effective combined income tax rates,
excluding the effect of non-deductible goodwill amortization and
Merger-related costs, as well as a one time deferred tax benefit of US$1.3
million resulting from a 1% increase in the U.S. corporate tax rate in
1993, were 41.6% and 41.4% for 1994 and 1993, respectively.
Seasonality
Generally, MCII Holdings' results of operations are somewhat
seasonal, as quarterly sales and earnings in the intercity coach business
have been stronger in the second quarter and weaker in the third quarter
since operators have tended to request delivery just prior to their
busiest travel season and not prior to non-peak seasons. In addition, MCII
Holdings traditionally shuts down its plants in the third quarter for
routine maintenance and employee vacations, thus reducing the number of
production days in the quarter.
The following table sets forth the condensed quarterly operating
results of MCII Holdings. In the opinion of management, such quarterly
information has been prepared on the same basis as MCII Holdings' annual
audited consolidated financial statements and includes all adjustments
consisting of normal recurring adjustments, necessary to present fairly
the information for the periods when read in conjunction with the
consolidated financial statements and notes thereto. The operating results
for any one quarter are not necessarily indicative of the results to be
achieved for a full year or any future quarter.
(In millions of Dollars)
Jun Dec Jun Sep Dec
Mar 31, 30, Sep 30, 31, Mar 31, 30, 30, 31, Mar 31
1994 1994 1994(a) 1994 1995 1995 1995 1995 1996
----- ----- ----- ----- ----- ----- ---- ----- -------
Revenues 105.9 132.7 110.1 118.7 124.4 145.6 96.6 149.7 142.1
Operating 12.1 22.1 9.0 2.9 10.6 17.8 1.4 8.5 8.1
Income
Income From 6.6 12.7 (4.1) (0.1) 4.2 8.1 (1.8) 7.8 2.4
Continuing
Operations
Discontinued (3.5)
Operations
Net Income 6.6 12.7 (7.6) (0.1) 4.2 8.1 (1.8) 7.8 2.4
(Loss)
<FN>
- - -------------------------
(a) The unaudited data for the quarter ended September 30, 1994
includes the recognition of Merger related expenses (US$11.3
million pre-tax).
Liquidity and Capital Resources
MCII Holdings has historically relied primarily on internally
generated funds, funds available through credit facilities, and, for the
periods prior to August 1993, funds provided by Dial to finance its
operations and capital expenditures. MCII Holdings' working capital
requirements can vary greatly from period to period, depending on the
volume of production, the timing of deliveries of coaches, and to a lesser
extent, replacement parts, the payment terms offered to customers and the
level of MCII Holdings' financing activities. However, MCII Holdings
believes that its cash flows from operations and the availability of
additional borrowings under credit facilities will be sufficient to
satisfy its working capital and capital expenditure requirements for the
foreseeable future.
Cash flows used in operating activities were US$0.3 million and
US$12.6 million for 1995 and 1994, respectively. Cash flows from operating
activities were primarily impacted by changes in operating assets and
liabilities which used cash of US$26.0 million and US$33.6 million over
such periods respectively. The cash flows used for operating assets and
liabilities were primarily affected by increases in inventories. In 1995,
the increase in inventories was a result of product line expansion and an
increase in used coach inventory. The product line expansion included
diesel engine and school bus products in the parts segment and the Grupo
Dina produced Viaggio in the new coach segment while the increase in used
coaches was due to a greater mix of higher value (newer model) coaches.
During the 1994 period, the increase was primarily related to an increase
in parts inventories to improve customer service levels and an increase in
coach manufacturing inventories due to higher line rates.
Cash flows provided by or (used) in investing activities were US$7.2
million and US$(54.5) million for 1995 and 1994, respectively. In 1995,
the cash provided by investing activities was principally due to
realization of US$24.2 million through the disposition of assets of the
discontinued operations, partially offset by US$12.6 million of capital
expenditures. In 1994 investment activities were primarily the purchase of
the remaining 31% of MCI Ltd., a net increase of US 37.2 million in coach
financings, partially offset by a US$24.0 million reduction in the
investment in discontinued oeprations.
Cash flows provided by financing activities were US$16.7 million and
US$68.2 million for 1995 and 1994, respectively. Cash flows provided
during 1995 and 1994, were primarily related to the net additional
borrowing on the long term credit facility to fund MCII Holdings'
operating and investing cash flow needs and dividends to Grupo Dina.
The long-term debt used by MCII Holdings in its operations is
comprised of a bank credit facility and term notes payable. The bank
credit facility is with a group of banks, with Citibank, N.A. as agent,
which have agreed to make available up to US$125 million. The bank credit
facility is unsecured and provides funding on a revolving credit basis
through July 31, 1998. The facility is used to provide working capital
financing, to issue standby letters of credit (up to US$35 million) to
support performance bond obligations and to fund other corporate needs.
Loan covenants under the bank credit facility include, among others,
limitations on dividend payments, investments, sales of assets,
transactions with affiliates, and minimum net worth, leverage and fixed
charges coverage requirements. In November 1994, MCII issued term notes
payable as private placement debt totaling US$125.0 million. These notes
are unsecured debt and contain various covenants, including, among others,
limitations on dividend payments, investments, sales of assets,
transactions with affiliates, and minimum net worth, leverage and current
ratio requirements. Loan covenants of MCII result in constraints on
dividends, loans and other cash flows that otherwise could be extended to
MCII Holdings, thereby restricting MCII Holdings' ability to access funds
from this subsidiary.
MCII's capital expenditures were US$2.1 million, US$12.6 million,
US$6.8 million and US$5.5 million for the quarter ended March 31, 1996,
and the years ended December 31, 1995, 1994 and 1993, respectively.
Although MCII did not have any material commitments for capital
expenditures as of March 31, 1996, MCII expects to make capital
expenditures at levels ranging from US$15 to US$25 million per year during
the next three years. The increase over historical levels is for plant
reengineering and systems, as well as machinery, tooling and production
start up expenditures for the expected introduction of new coach models.
Most of MCII's operations involve the assembly of components manufactured
by others and, therefore, large capital expenditures associated with heavy
manufacturing operations generally are not required in MCII's business.
THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Issuers will accept for exchange Old
Notes which are properly tendered on or prior to the Expiration Date and
not withdrawn as permitted below. As used herein, the term "Expiration
Date" means 5:00 p.m., New York City time, on __________, 1996; provided,
however, that if the Issuers, in their sole discretion, have extended the
period of time for which the Exchange Offer is open, the term "Expiration
Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, $206,499,680 aggregate principal
amount of the Old Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about _______, 1996, to
all holders of Old Notes known to the Issuers. The Issuers' obligation to
accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth below under "--Certain Conditions to the
Exchange Offer."
The Issuers expressly reserve the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is
open, and thereby delay acceptance for exchange of any Old Notes, by
giving oral or written notice of such extension to the holders thereof as
described below. During any such extension, all Old Notes previously
tendered will remain subject to the Exchange Offer and may be accepted for
exchange by the Issuers. Any Old Notes not accepted for exchange for any
reason will be returned without expense to the tendering holder thereof as
promptly as practicable after the expiration or termination of the
Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof or
denominations of less than $1,000 as provided under the Indenture.
The Issuers expressly reserve the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any of the
events specified below under "--Certain Conditions to the Exchange Offer."
The Issuers will give oral or written notice of any extension, amendment,
non-acceptance or termination to the holders of the Old Notes as promptly
as practicable, such notice in the case of any extension to be issued by
means of a press release or other public announcement no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
Procedures for Tendering Old Notes
The tender to the Issuers of Old Notes by a holder thereof as set
forth below and the acceptance thereof by the Issuers will constitute a
binding agreement between the tendering holder and the Issuers upon the
terms and subject to the conditions set forth in this Prospectus and in
the accompanying Letter of Transmittal. Except as set forth below, a
holder who wishes to tender Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter
of Transmittal, including all other documents required by such Letter of
Transmittal, to IBJ Schroder Bank & Trust Company, as Exchange Agent, at
the address set forth below under "--Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes
must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book- entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust
Company (the "Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES,
LETTERS OF TRANSMITTAL AND ALL OTHER RE- QUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE ISSUERS.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Old Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
herein). In the event that signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantees must be by a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or by a commercial bank or trust company having
an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by
the Issuers in their sole discretion, duly executed by, the registered
Holder with the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time
of receipt) and acceptance of Old Notes tendered for exchange will be
determined by the Issuers in their sole discretion, which determination
shall be final and binding. The Issuers reserve the absolute right to
reject any and all tenders of any particular Old Notes not properly
tendered or to not accept any particular Old Notes which acceptance might,
in the judgment of the Issuers or their counsel, be unlawful. The Issuers
also reserve the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration
Date (including the Letter of Transmittal and the instructions thereto) by
the Issuers shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes for
exchange must be cured within such reasonable period of time as the Issuer
shall determine. Neither the Issuers, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Note, for exchange, nor
shall any of them incur any liability for failure to give such
notification.
If the Letter of Transmittal is signed by a person or persons other
than the registered holder or holders of Old Notes, such Old Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders
that appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Issuers, proper evidence satisfactory
to the Issuers of their authority to so act must be submitted.
By tendering, each holder will represent to the Issuers that, among
other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person receiving
such New Notes, whether or not such person is the holder, and that neither
the holder nor such other person has any arrangement or understanding with
any person to participate in the distribution of the New Notes. In the
case of a holder that is not a broker-dealer, each such holder, by
tendering, will also represent to the Issuers that such holder is not
engaged in, or intends to engage in, a distribution of the New Notes. If
any holder or any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Issuers, or is engaged in or
intends to engage in or has an arrangement or understanding with any
person to participate in a distribution of such New Notes to be acquired
pursuant to the Exchange Offer, such holder or any such other person (i)
could not rely on the applicable interpretations of the staff of the SEC
and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not he deemed to admit that
it is an "underwriter' within the meaning of the Securities Act.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Issuers will accept, promptly after the Expiration Date, all
Old Notes properly tendered and will issue the New Notes promptly after
acceptance of the Old Notes. See "-- Certain Conditions to the Exchange
Offer." For purposes of the Exchange Offer, the Issuers shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Issuers have given oral or written notice thereof to the Exchange Agent,
with written confirmation of any oral notice to be given promptly
thereafter.
For each Old Note accepted for exchange, the holder of such Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive any payment in respect of accrued interest on such Old Notes
otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer. If the Exchange
Offer is not consummated by December 30, 1996, the Old Notes will bear
additional interest as described under "Description of the Notes --
Registration Rights."
In all cases, issuance of New Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a
timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any
tendered Old Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Notes are submitted for a
greater principal amount that the holder desired to exchange, such
unaccepted or non- exchanged Old Notes will be returned without expense to
the tendering holder thereof (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below,
such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after
the expiration or termination of the Exchange Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes
of the Exchange Offer within two business days after the date of this
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Old
Notes by causing the Book-Entry Transfer Facility to transfer such Old
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures
for transfer. However, although delivery of Old Notes may be effected
through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at one of the addresses
set forth below under "-- Exchange Agent" on or prior to the Expiration
Date.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must
be received by the Exchange Agent at one of the addresses set forth below
under "-- Exchange Agent." Any such notice of withdrawal must specify the
name of the person having tendered the Old Notes to be withdrawn, identify
the Old Notes to be withdrawn (including the principal amount of such Old
Notes), and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if different from
that of the withdrawing holder. If certificates for Old Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to
the release of such certificates the withdrawing holder must also submit
the serial numbers of the particular certificates to be withdrawn and
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book entry transfer
described above, any notice of withdrawal must specify the name and number
of the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the
Issuers, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes
which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to
the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book Entry Transfer Facility
for the Old Notes) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described under
"--Procedures for Tendering Old Notes" above at any time on or prior to
the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, the
Issuers shall not be required to accept for exchange, or to issue New
Notes in exchange for, any Old Notes and may terminate or amend the
Exchange Offer, if at any time before the acceptance of such Old Notes for
exchange or the exchange of the New Notes for such Old Notes, any of the
following events shall occur:
(a) there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order of decree shall
have been issued by, any court or governmental agency or other
governmental regulatory or administrative agency or commission, (i)
seeking to restrain or prohibit the making or consummation of the
Exchange Offer or any other transaction contemplated by the Exchange
Offer, or assessing or seeking any damages as a result thereof, or
(ii) resulting in a material delay in the ability of the Issuers to
accept for exchange or exchange some or all of the Old Notes pursuant
to the Exchange Offer; or any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have
been taken, proposed or threatened, by any government, governmental
authority, agency or court, domestic or foreign, that in the sole
judgment of the Issuers might directly or indirectly result in any of
the consequences referred to in clauses (i) or (ii) above or, in the
sole judgment of the Issuers, might result in the holders of New
Notes having obligations with respect to resales and transfers of New
Notes which are greater than those described in the interpretation of
the SEC referred to on the cover page of this Prospectus, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or
general limitation on prices for, or trading in, securities on any
national securities exchange or in the over-the-counter market, (ii)
any limitation by any governmental agency or authority which may
adversely affect the ability of the Issuer to complete the
transactions contemplated by the Exchange Offer, (iii) a declaration
of a banking moratorium or any suspension of payments in respect of
banks in the United States or any limitation by any governmental
agency or authority which adversely affects the extension of credit
or (iv) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective
change) shall have occurred or be threatened in the business,
properties, assets, liabilities, financial condition, operations,
results of operations or prospects of the Issuers and its
subsidiaries taken as a whole that, in the sole judgment of the
Issuers, is or may be adverse to the Issuers, or the Issuers shall
have become aware of facts that, in the sole judgment of the Issuers,
have or may have adverse significance with respect to the value of
the Old Notes or the New Notes;
which in the reasonable judgment of the Issuers in any case, and
regardless of the circumstances (including any action by the Issuers)
giving rise to any event described above, makes it inadvisable to proceed
with the Exchange Offer and/or with such acceptance for exchange or with
such exchange.
The foregoing conditions are for the sole benefit of the Issuers and
may be asserted by the Issuers regardless of the circumstances giving rise
to any such condition or may be waived by the Issuers in whole or in part
at any time and from time to time in its sole discretion. The failure by
the Issuers at any time to exercise any of the foregoing rights shall not
be deemed a waiver of any such right and each such right shall be deemed
an ongoing right which may be asserted at any time and from time to time.
In addition, the Issuers will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939 (the "TIA").
Exchange Agent
IBJ Schroder Bank & Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should
be directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices
of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows: Delivery To: IBJ Schroder Bank & Trust Company
By Mail:
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Dept.
By Overnight Courier or Hand:
One State Street
New York, New. York 10004
Attention: Securities Processing Window, SC-1
By Facsimile:
(212) 858-2611
For Information Call:
(212) 858-2103
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
Fees and Expenses
The Issuers will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the
Exchange Offer and paid by the Issuers are estimated in the aggregate to
be $--------.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Issuer to register New Notes in the name of, or request that
Old Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
Consequences of Exchanging Old Notes
Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
provisions in the Indenture regarding transfer and exchange of the Old
Notes and the restrictions on transfer of such Old Notes as set forth in
the legend thereon as a consequence of the issuance of the Old Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuers do not currently anticipate
that they will register Old Notes under the Securities Act. See
"Description of the Notes -- Registration Rights." Based on
interpretations by the staff of the SEC, as set forth in no-action letters
issued to third parties, the Issuers believe that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by holders thereof (other than
any such holder which is an "affiliate" of the Issuers within the meaning
of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes.
However, the Issuers do not intend to request the SEC to consider, and the
SEC has not considered, the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the SEC would make
a similar determination with respect to the Exchange Offer as in such
other circumstances. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If any holder is an affiliate
of the Issuers, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, such holder (i) could
not rely on the applicable interpretations of the staff of the SEC and
(ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
In addition, to comply with the state securities laws, the New Notes may
not be offered or sold in any state unless they have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with. The offer and sale of the
New Notes to "qualified institutional buyers" (as such term is defined
under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under the state securities laws. The Issuers
currently do not intend to register or qualify the sale of the New Notes
in any state where an exemption from registration or qualification is
required and not available.
BUSINESS OF GRUPO DINA
General
Grupo Dina is a holding company organized in 1989 in the United
Mexican States as a limited liability company with variable capital
(sociedad anonima de capital variable or S.A. de C.V.). It operates its
businesses through three primary subsidiaries: Dina Camiones, S.A.de C.V.
("Camiones"), the truck operation, Dina Autobuses, S.A. de C.V.
("Autobuses"), the Mexican coach operation, and MCII Holdings and its
subsidiaries, the United States and Canadian coach operation.
Grupo Dina and its subsidiaries (collectively, "the Company") operate
in two principal business segments -- truck manufacturing and intercity
coach manufacturing. The Company is one of the leading suppliers of
medium-duty and heavy-duty trucks and tractor trailers in Mexico and of
intercity coaches in North America. In 1994, approximately 28.1% of the
Company's revenues resulted from sales of medium-duty trucks, 26.6% from
heavy-duty trucks and 38.8% from the coach operations. In 1995,
approximately 6.4% of the Company's revenues resulted from sales of
medium-duty trucks, 3.3% from heavy-duty trucks and 82.2% from the coach
operations.
The truck segment assembles and markets class 5, 6, and 7 trucks
(medium-duty trucks) and class 8 trucks (heavy-duty trucks). The
technology, design and components of the trucks are principally purchased
from third parties. In addition, the Company manufactures plastic
components and distributes replacement parts for trucks and coaches.
The coach segment manufactures, assembles and markets intercity
coaches. Historically, its sales have been in Mexico, using primarily
purchased designs and technology. In 1994, the coach segment expanded by
entering the United States and Canadian coach markets through the
acquisition of MCII. MCII Holdings' coach operation includes designing,
manufacturing, assembling and marketing of intercity coaches, as well as
providing replacement parts for the intercity coach and transit bus
markets. MCII Holdings represented 38.3% and 45% of the Company's
consolidated assets at year-end 1994 and 1995, respectively. MCII Holdings
represented 76% and 78% of revenues for the year ended December 31, 1995
and as of March 31, 1996, respectively.
Historical Background
The Company business traces its origins to the establishment of
Diesel Nacional, S.A. ("Diesel Nacional") in 1951, which was formed by the
Mexican government with minority ownership by Mexican and Italian private
investors. Diesel Nacional manufactured trucks, tractor trailers and
coaches. In 1988, the Mexican government, consistent with its policy of
privatization of certain sectors of the Mexican economy, announced an
auction for the sale of Diesel Nacional's businesses. On November 27,
1989, Grupo Dina, which was formed for the purpose, acquired majority
ownership of its operating subsidiaries from Diesel Nacional. The total
consideration paid was $84 million.
On August 8, 1994, Grupo Dina acquired MCII. MCII is the leading
manufacturer of intercity coaches in the United States and Canada. MCII,
through its Canadian subsidiary, began manufacturing intercity coaches and
distributing replacement parts in Canada in 1932 and in the United States
in 1963.
Minority ownership reflected in the consolidated financial statements
of the Company represents 7.4% of the capital stock of Camiones which is
owned by Navistar International Transportation Corp. ("Navistar").
Capitalization of the Company reflects the manner in which it has
accessed both debt and equity markets in the past. In November 1992, Grupo
Dina issued the Eurobonds with a principal of US$150.0 million, the net
proceeds of which were used to prepay bank borrowings and for working
capital.
In April 1993, Grupo Dina made an initial public offering of
33,966,810 no par common shares of which 10,190,043 shares were sold in
Mexico and listed on the Mexican Stock Exchange and 23,776,767 shares in
the form of ADSs were sold in the United States and other countries and
listed on the NYSE. The net proceeds of US$129.8 were utilized for plant
and equipment.
In August 1994, in conjunction with the acquisition of MCII, Grupo
Dina issued no par Series L shares and the Debentures. The Series L
shares, which have limited voting rights, are listed on the Mexican Stock
Exchange with the related ADSs listed on the NYSE. The Debentures, with a
face value of US$163,993,000 and convertible into Series L ADSs, are also
listed on the NYSE. The Series L ADSs and Debentures were issued in
exchange for 51% and 49%, respectively, of the MCII common stock for an
aggregate consideration of US$311.6 million.
In November 1994, MCII issued term notes payable as private placement
debt totaling US$125 million. These notes are unsecured debt and are due
in annual installments beginning in November 1998 and extending through
November 2002. In addition, under an August 1994 agreement, MCII has an
unsecured credit facility with a group of banks. Borrowings are available
on a revolving basis for up to US$125 million through July 31, 1998.
On May 24, 1996, the Company completed its offer to exchange
Eurobonds for Old Notes, pursuant to which US$206,499,680 aggregate
principal amount of Old Notes were issued and exchanged for US$143,040,000
aggregate principal amount of Eurobonds. The Old Notes were exchanged at
an aggregate principal amount equal to 1.417 times the principal amount of
the Eurobonds. Concurrently with such exchange offer, the Company
completed its solicitation of consents from the holders of the Eurobonds
in connection with proposed amendments to the Eurobonds and the related
fiscal agency agreement dated as of November 18, 1992 (the "Fiscal Agency
Agreement") and a waiver to any defaults thereunder for the purpose of
rescinding the obligations of certain guarantors and eliminating most of
the restrictive covenants under the Fiscal Agency Agreement. The Company
executed a supplemental fiscal agency agreement dated as of May 28, 1996
giving effect to such amendments and waiver. In connection with the such
exchange offer, Grupo Dina contributed its ownership interest in MCII to
MCII Holdings, and MCII Holdings pledged such interest for the benefit of
holders of Notes.
Business Strategy of Grupo Dina
General
Grupo Dina's principal business strategy is to capitalize on its
strengths and its market position as one of the leading suppliers of
medium-duty and heavy-duty trucks in the Combined Class 5, 6, 7 and 8
truck market in Mexico and as one of the most important suppliers of
intercity coaches in the Mexican market. Grupo Dina believes that its
strengths are its quality products, up-to-date technology, brand name
recognition, quality research and development capabilities, the high
degree of automation at its production facilities, low cost base,
nationwide and developing Latin American distribution networks, and access
to the United States market through its MCII subsidiary. Grupo Dina faces
significant competition from Mexican and other assemblers in the Class 7
and 8 truck markets and the intercity coach market, including competition
from companies which may have substantial financial resources. To meet
this competition, and to continue to achieve a substantial market share,
Grupo Dina is attempting to increase its manufacturing efficiency in order
to lower unit costs and has introduced new product models, improved
product quality and incorporated state-of-the-art technology (in
particular relating to emission controls and fuel efficiency) in its
products. Grupo Dina believes that successful implementation of its
business strategy will aid it in competing effectively both within and
outside of Mexico.
Grupo Dina evaluates from time to time opportunities to expand its
business both within and outside of Mexico. The Merger with MCII has
created the largest intercity coach manufacturer in North America,
offering economies of scale and strategic benefits to Grupo Dina. MCII
Holdings' existing distribution network and service organization aids
Grupo Dina in selling coaches in the United States and Canada. In
addition, Grupo Dina coaches can be exported through MCII Holdings'
nascent Far Eastern export activities. The merged operations are gradually
reducing the cost of components, such as engines, axles, transmissions and
other drive train components. In addition, fixed design and engineering
expenses are being spread over a larger base of operations, and both
companies are benefiting from technology transfers and improvement in
manufacturing techniques. The combined companies are seeking to leverage
off of MCII Holdings' replacement parts business to achieve greater
replacement part sales in Mexico volume discounts from vendors.
Grupo Dina believes that, given current economic conditions
prevailing in Mexico, it must increase the availability of financing to
its customers in order to maintain its competitive position in the
medium-duty and heavy- duty truck and intercity coach markets. To this
end, Arrendadora Financiera Dina, S.A. de C.V. ("AF Dina") has created a
number of financing options at competitive rates. See "--Sales Financing."
Because of the Mexican recession, Grupo Dina is directing its efforts
to develop markets in Central and South America as well as in Europe and
Asia. These efforts have resulted in an export volume of 754 trucks and
131 coaches in 1995 (compared with 521 trucks and no coaches during the
same period in 1994). Truck exports sales have been made to Chile,
Colombia, Ecuador, Bolivia, Venezuela and El Salvador, and Grupo Dina was
recently authorized by the Argentinean government to begin sales in
Argentina as well as in the other Mercosur countries. In the case of
coaches, the export sales have been made to the United States through
MCII's sales force.
Trucks
Truck sales are highly correlated with the state of the economy. The
1995 recession has significantly reduced the demand for trucks. Grupo Dina
expects a slight economic recovery in 1996 and growth in the demand for
medium-duty and heavy-duty trucks in Mexico beginning in 1997, given the
need in Mexico to replace an aging fleet and government regulations.
Since 1993 Grupo Dina has spent over Ps 110.3 million (US$14.6
million) to improve truck production efficiency and to reduce costs. Grupo
Dina has expanded manufacturing capacity to enable consolidation of all
production on a more efficient single shift configuration. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations of Grupo Dina--Liquidity and Capital Resources." Given the
current economic situation in Mexico, Grupo Dina only produced 1,599
medium-duty and heavy-duty truck units in 1995, compared to 10,761 units
in 1994 and 10,029 units in 1993. The estimated plant capacity is 30,000
units per year using two full shifts per day. Under normal circumstances,
and for the foreseeable future, Grupo Dina will only run one full shift
per day.
In recent years, Grupo Dina has increased its production efficiency
through modification of its production line configuration and inventory
management systems as well as major changes in its union contracts, such
as the removal of provisions linking production levels to the number of
workers. Grupo Dina has also implemented a number of steps to increase its
manufacturing efficiency so as to lower unit costs. These steps include
the adoption of an advanced inventory system, enhanced automation of the
manufacturing process and new training programs for manufacturing
employees. In response to Mexico's current economic situation, Grupo Dina
has cut its truck plant headcount by approximately 18%. See "--Grupo
Dina's Truck Business--Manufacturing Operations."
Grupo Dina has been seeking to increase its market penetration in the
Mexican truck market using various strategies, which include expanding its
product lines (including chassis for urban buses) by offering premium
products and a variety of options, customizing its Class 8 trucks for
large fleet operations, strengthening its distribution network through the
establishment and training of new dealerships, and otherwise improving its
marketing capabilities through an increase in its internal sales force
and, in conjunction with AF Dina and other financial institutions, through
an increase in the availability of financing for its customers, including
certain operating lease programs.
To date, only Mexican manufacturers have imported medium-duty and
heavy-duty trucks into Mexico. Imports of used trucks are generally not
permitted. In addition, Grupo Dina presently enjoys the benefit of a 10%
tariff for the NAFTA countries (20% tariff for non-NAFTA countries) that
is imposed by Mexico on truck imports. Grupo Dina has benefitted from
protection from competition to the extent these restrictions have limited
imports of trucks into Mexico. Grupo Dina anticipates that, as a result of
NAFTA, it will over time face the potential for increased competition from
U.S. and Canadian truck suppliers, as tariff restrictions on new truck
imports are thereby eliminated over a ten-year period and non-tariff
restrictions are eliminated over a five-year period. Grupo Dina also
expects that, over time, NAFTA will result in gradual reductions in costs
for parts and components used in the manufacture of its products, a
substantial portion of which are imported from the United States. There is
currently no program or negotiation which would have the effect of
reducing import tariffs relating to non-NAFTA countries. Over the long
term, Grupo Dina expects the Mexican truck market to expand as a result of
increased trade due to the implementation of NAFTA. Grupo Dina believes
its strategy of increasing domestic production capacity, lowering unit
costs, improving product quality and continuing technological and product
innovation will position it to compete effectively with both existing
competitors and potential new competitors in the medium-duty and
heavy-duty truck markets. See "Risk Factors--Government Regulations and
Environmental Matters" and "--North American Free Trade Agreement and
Potential Competition" and "--Regulation."
Camiones has agreements with Navistar International Corp.
("Navistar") that allow Camiones to use Navistar technology and parts.
Camiones has notified its distributors of its decision not to continue its
relationship with Navistar. Camiones is in the process of obtaining
alternative sources of parts and technology and developing its own
technology as an alternative solution. See "Truck Segment--Production."
Truck Segment
In 1993, Grupo Dina began exporting trucks to certain Latin American
countries. Grupo Dina has increased exports to these countries from
approximately 429 units in 1993, to 521 units in 1994 and 754 units for
1995. Grupo Dina believes that there are important export opportunities
for certain of its truck models in Central and South America and the
Caribbean and that there may be further export opportunities in Asia,
Africa and elsewhere. Therefore, Grupo Dina its continuing its efforts to
establish a dealer presence in some of these countries. An international
sales group is responsible for developing Grupo Dina's truck export
business.
Sales of replacement parts for its trucks has increased from Ps 99.2
million in 1993, to Ps 193.4 in 1994, Ps 159.0 in 1995, and 37.9 for the
three months ended March 31, 1996. Grupo Dina believes that the
opportunity exists for further increases in truck replacement part sales.
Coaches
Grupo Dina's business strategy for increasing unit sales and market
share in Mexico has been based on marketing two distinct lines of coaches:
the more expensive European-style Paradiso and Viaggio model coaches for
the executive and first class segments of the intercity coach market; and
the less expensive U.S.-style Avante Plus and Dorado model coaches
concentrated in the first-class segment of the intercity coach market.
Grupo Dina has broadened this strategy and introduced in April 1994 a new
European-style coach, the Viaggio 850, for its entry into the economy
class segment of the intercity coach market. In 1993, the economy class
segment of the Mexican intercity coach market represented approximately
26% of the total Mexican intercity coach market. With the introduction of
the Viaggio 850, Grupo Dina will for the first time offer a complete line
of coaches for all segments of the Mexican intercity coach market. Grupo
Dina is also seeking to improve its market penetration through the
launching of a sales effort designed to encourage new coach purchases by
the smaller fleet operators and/or other independent coach operators which
historically have purchased used coaches from the larger fleet operators.
Grupo Dina invested a total of Ps 89.1 million (US$11.8 million) in
1993 and 1994 to increase coach production capacity, improve manufacturing
efficiency and improve product quality. Grupo Dina now has the ability to
accommodate the assembly of the Viaggio 850 model in its Mexican plant
facilities and has the option to relocate to Mexico some of the coach
assembly operations currently undertaken in the U.S. by MCII. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations of Grupo Dina-Liquidity and Capital Resources." Advanced
technology used in Grupo Dina's coaches includes a Grupo Dina-built
chassis, its own "torsilastic" advanced suspension system, which was
co-designed with The B.F. Goodrich Company ("B.F. Goodrich"), and engines
that meet current emission standards of the Mexican and U.S. governments.
Grupo Dina believes that its coaches enjoy a cost competitive to
similar products produced by North American and other manufacturers.
Accordingly, Grupo Dina anticipates recent and planned reductions in
restrictions on coach exports to NAFTA countries will create export
opportunities. Together with MCII, Grupo Dina is the largest coach
manufacturer in North America, with products that comply with Mexican,
Canadian and United States legal requirements established under NAFTA.
Because of the economic recession affecting the Mexican coach market,
Grupo Dina has started an export program to penetrate the United States
market with its Viaggio model, which meets all DOT standards and is very
cost competitive. Grupo Dina plans to base its United States market export
program on MCII's sales network. Grupo Dina believes that there is a
significant opportunity for export sales of its coaches in Central and
South America, Asia and elsewhere. Development of an export business will
require, among other things, establishment of a dealer and servicing
presence in these new markets.
Grupo Dina plans to leverage its leadership position in the United
States spare parts market and to expand this business in Mexico.
Since 1994, the Mexican intercity coach industry has shrunk
significantly because of the economic situation and the consolidation of
the industry brought about by an aggressive acquisition strategy followed
by the largest intercity coach operators. Grupo Dina expects that this
market trend will continue during 1996 with a gradual recovery after 1997,
due to the need to replace an aging fleet, and the increased use of such
coaches by charter, sightseeing tour and shuttle operators, major
corporations and other specialized users and the implementation in late
1994 of the new Mexican emission, length and weight regulations. As
outlined above, Grupo Dina is stepping up its export efforts to the U.S.
and other markets to address this situation. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Grupo
Dina."
Sales Financing
Grupo Dina believes that its competitive position in the medium-duty
and heavy-duty truck and intercity coach markets would be enhanced by
increasing the availability of financing to its customers. To this end,
Grupo Dina has been working with some United States investment banking
firms and Mexican development banks and with AF Dina to provide
specialized financing for Grupo Dina's truck and coach sales. The
financing of Grupo Dina trucks and coaches by AF Dina has been, and is
expected to continue to be, on customary "arms' length" commercial terms
comparable to those offered by other financial institutions. See "Certain
Transactions."
For the years ended December 31, 1993 and 1994, AF Dina provided
US$44.3 million and US$72.3 million, respectively, in financing for the
sales of Grupo Dina trucks, and US$45.8 million and US$33.2 million,
respectively, for the sales of Grupo Dina coaches.
As of the date of this Prospectus, Grupo Dina owns 10% of the equity
of AF Dina, which is the maximum ownership in finance companies by
non-financial Mexican companies permitted under Mexican law. However,
Grupo Dina has filed a request with corresponding Mexican authorities to
grant permission for MCII to be the holder of 99.9% of AF Dina's stock.
Grupo Dina feels confident this request will be granted. To date, of the
remaining equity, approximately 70% is owned by members of the Gomez
Flores family and the balance is owned by other investors including
management of AF Dina.
As AF Dina developed its business in 1993, Grupo Dina guaranteed
certain AF Dina borrowings. For this support, AF Dina pays Grupo Dina an
annual fee ranging from 1.25% to 1.75% of the borrowings guaranteed,
depending upon the amount so guaranteed. At March 31, 1996, Grupo Dina has
extended loan guarantees for funding provided to AF Dina by one Mexican
bank of approximately Ps 20 million.
Business Segments
The following table provides the total unit sales of trucks and
coaches in Mexico and the Company's share of those sales for the periods
indicated:
Quarter Ended
Year Ended December 31, March 31,
1993 1994 1995 1996
Trucks (Classes 5 through 8)
Company.......................... 10,936 9,942(6) 1,766(6) 280(6)
Total Mexican industry........... 28,277(1) 28,341(2) 5,219 1,327
Company market share............. 39% 35% 34% 21%
Intercity Coaches
Company(3)....................... 1,818 297(4) 21(7) 10(7)
Total Mexican industry(5)........ 4,318 2,040(8) 174 45
Company market share............. 42% 15% 12% 22%
Transit Buses
Company.......................... -- 77 34 --
Total Mexican industry........... -- 258 59 10
Company market share............. -- 30% 58% 0%
(1) Includes 1,788 gasoline powered Class 7 trucks produced by Chrysler
Corporation ("Chrysler"). The Company's share of the diesel powered
segment of the truck market in 1993 was 42%.
(2) Includes 1,413 gasoline powered Class 7 trucks produced by Chrysler.
The Company's share of the diesel powered segment of the truck market
in 1994 was 37%.
(3) Dina introduced its chassis-based Paradiso model in June 1992, its
chassis-based Viaggio 1000 model in June 1993 and its chassis-based
Viaggio 850 in April 1994.
(4) This figure does not include sales of 77 transit buses first
introduced in November 1994.
(5) Includes executive, first-class and economy service coaches.
(6) This figure does not include export sales of 521 trucks in 1994 and
754 in 1995 and 51 in 1996.
(7) This figure does not include export sales of 2 coaches and
intercompany sales to MCII of 129 coaches in 1995.
(8) This figure does not include sales of 77 transit buses of Dina and
181 Masa coaches.
Source: Asociacion Mexicana de la Industria Automotriz (Mexican Automotive
Industry Association or "AMIA") for 1992 and Asociacion Nacional de
Productores de Autobuses, Camiones y Tractocamiones (National Association
of Coach, Truck and Tractortrailer Producers or "APsACT") for 1993 and
1994.
In the United States and Canada, exact market statistics are not
available. However, based on data available, management believes that,
with the acquisition of MCII, the Company leads the intercity coach market
in the United States with a market share of approximately 60% and is the
largest distributor of replacement parts to the intercity coach and
transit bus industries in the United States and Canada.
Truck Segment
Market. Trucks are the principal method of transporting freight in
Mexico. Truck transport is more important in Mexico than in some other
countries due to the lack of a well-developed, modern rail system or
significant domestic seaborne shipping. In addition, a substantial number
of medium duty truck chassis are fitted with bus-type bodies and used in
urban transit systems.
In the industry, trucks are classified according to established
weight categories. There are eight principal classifications, Class 1 to
Class 8, with each classification indicating an increased gross vehicle
weight. Of the truck classifications which Camiones sells, classes 5, 6
and 7 trucks are considered medium-duty trucks, while Class 8 trucks are
considered heavy-duty.
Camiones' truck sales are predominantly in Mexico; however, in 1993
Camiones started exporting trucks to other Latin American countries where
management believes there are important opportunities for certain of its
truck models. Due to the economic crisis in Mexico, there has been a
significant decline in the demand for medium-duty and heavy-duty trucks.
As a response of this crisis, the Company's strategy has been to focus its
efforts on exporting trucks outside of the Mexican market. Export sales
have largely been made to Central and South America. Additional efforts
have been made to export to Africa, Asia and Europe. Even if the Mexican
economy were to improve, Grupo Dina expects to continue its strategy of
developing export opportunities throughout the world, as management
foresees this as a basic necessity for future growth and improvement of
the Company's financial situation. An example of Grupo Dina's progress
with respect to this strategy is the authorization granted to the Company
by the Argentinean government, by which the Company can start operations
in that country with the ability to expand its operations from there to
the rest of the Mercosur countries. In addition, a distribution contract
with Saudi Arabia has been executed as part of this growth strategy with
similar efforts being made in other European and Asian countries.
Another market segment is that of truck replacement parts. Since
trucks in Mexico generally are driven to the end of their useful life,
management believes there is a significant market for truck replacement
parts in Mexico.
Products. Camiones manufactures trucks in classes 5 though 8 under
the brand names of "DINA," for sale in Mexico, and "DIMEX," for export,
both names of which are registered trademarks. Approximately 80% of the
trucks sold in 1994 were built using Navistar design and technology, the
remaining 20% of trucks were built using proprietary technology and
design. See "--Production."
Camiones' trucks are assembled using a range of components and
specialized bodies and are thus capable of being highly customized.
Engines, transmissions, axles, and a substantial percentage of other
components are selected according to customer specifications, with United
States-designated components being the clear preference of Mexican truck
operators in the Class 5, 6, 7 and 8 markets. Camiones provides a limited
use warranty for all of its trucks and currently provides the longest
warranty available in the Mexican market. Warranties on engines are
provided by suppliers.
Customers. The customer base for medium and heavy-duty trucks in
Mexico is composed of private fleet owners, common carriers (which provide
freight services to the public), urban transit operators (which use trucks
with passenger bodies for urban bus services), governmental entities and
others. Of class 8 trucks, over 60% are sold to common carriers who are
typically members of the Camara Nacional de Carga, the national
association of common carriers ("Canacar"). Canacar negotiates purchases
on behalf of its members to achieve the most favorable terms.
Camiones' base of truck customers is reflected in 1995 truck sales of
approximately 50% to private fleet companies and 50% to common carriers,
urban transit operators, governmental entities and others.
Competition. During 1995, Camiones primarily competed against three
other major companies in Mexico --the Mexican subsidiary of Daimler Benz
A.G. of Germany ("Mercedes Benz"), Chrysler Corporation, Ford Motor
Company and Kenworth which markets class 8 trucks. Camiones' 1994 market
share of 35% represents a slight decline from 39% for 1993 and 1992. As of
December 31, 1995, Camiones' market share stood at 34%. Grupo Dina
considers that this market share does not accurately reflect the reality
of the market, because of the low level of the total truck sales and the
lack of consistency in sales. The bases for competition in the medium-duty
truck market are principally sale price and parts availability.
As a result of the implementation of the North American Free Trade
Agreement ("NAFTA") on January 1, 1994, the Company expects over time that
it could face increased competition from United States and Canadian truck
suppliers as restrictions on new truck imports are eliminated over a
five-year period, which commenced in 1994, and restrictions on used truck
imports are eliminated over a ten-year period, which will commence in
2009. In 1994, independent parties may import up to 15% of the Mexican
truck production by class. However, such percentage is scheduled to
increase to 20% in 1996 and then to 30% in 1997. Commencing in 1999, such
import limitation is scheduled to be eliminated. Management expects that,
over a period of time, NAFTA will generally result in gradual reductions
in costs for parts and components used in the manufacture of its products.
In addition, management expects the Mexican truck market to expand as a
result of increased trade subsequent to NAFTA. Management believes its
strategy of increasing domestic production capacity, lowering unit costs,
improving product quality and continuing technological and product
innovation will position it to compete effectively against both existing
competitors and potential new competitors in the medium- and heavy-duty
truck markets.
Distribution. Trucks are currently sold primarily through independent
distributors. As of March 31, 1996, the 15 largest distributors accounted
for approximately 86.2% of net sales of trucks. As of March 31, 1996,
Camiones' distributor network was composed of 32 independent distributors
and branches who, under agreement, are dedicated exclusively to Dina truck
sales, and who also sell replacement parts and provide maintenance and
repair service. While fleet sales are negotiated directly by Camiones,
such sales are booked through the distributors in order to register
warranties and better provide aftermarket service. For more details about
dealers' relationship see "Production." While, the Company is having
conversations with certain distributors and will begin in the near future
to consider revising their exclusivity agreements, Camiones maintains good
relations with its distributors and actively supports their marketing,
training, service and sales efforts. The Company owns minority interests
in certain of its distributors.
Production. Upon the purchase of the truck operations from the
government in 1989, management decided to exit the major component
manufacturing business, which included capital-intensive machining
operations, and to focus on developing efficient assembly capabilities.
Camiones assembles the trucks at its plant in Ciudad Sahagun, Mexico,
using parts and components purchased from various suppliers. Of the eight
principal classifications for trucks, Camiones manufactures trucks in
Class 5 (16,001-19,500 lbs. gross vehicle weight, or "GVW"), Class 6
(19,501-26,000 lbs. GVW), Class 7 (26,001-33,000 lbs. GVW) and Class 8
(over 33,000 lbs. GVW). Class 5, 6 and 7 trucks are considered to be
medium-duty trucks, while Class 8 trucks, which are characterized
primarily by "cabs" consisting of a separate engine and drive compartment
section to which trailers are attached, are considered heavy-duty trucks.
Camiones assembles trucks of its own design, which currently
represent 20% of its product line and also has agreements with Navistar
that allow Camiones to assemble and sell trucks in Mexico using Navistar
technology and parts. Pursuant to several agreements with Navistar,
Camiones has the right to assemble and sell current year models of the
9400 tractor truck and the QSP Series of medium-duty trucks, as well as to
install Navistar medium- duty diesel engines, using technical information
supplied by Navistar. Camiones must pay fees to Navistar under these
agreements based on a percentage of net sales, by Camiones, of the
corresponding product, net of purchases of components by Camiones from
Navistar. Pursuant to the terms of a June 1994 extension agreement between
Camiones and Navistar, such agreements are scheduled to expire on March
31, 1998. In view of its decision not to continue its relationship with
Navistar after expiration of the agreements, Camiones has notified its
distributors of its decision and is exploring different alternatives to
replace the Navistar technology, including negotiations for the possible
purchase of state-of-the-art parts and technology through other
international manufacturers of trucks and components, and the development
of its own technology as an alternative solution. Camiones expects to
reach a decision concerning the alternative to be pursued by it by the end
of 1996. The transition to alternate technology, whether obtained from a
new supplier or developed internally, will likely initially entail
additional capital expenditures and production disruption.
In addition, Navistar is a minority shareholder in Camiones and
currently holds approximately 7.4% of the capital stock of Camiones.
Pursuant to a shareholders' agreement (the "Camiones Shareholders'
Agreement") between Navistar and Camiones, Navistar has the right to
appoint a member of the board of directors of Camiones and one member of
the executive committee of the board of directors. The Camiones
Shareholders' Agreement imposes restrictions on the transfer of the common
shares of Camiones, and Navistar and Camiones each hold a right of first
refusal with respect to any transfers of such shares by the other party.
Although Grupo Dina and Navistar have in the past held discussions
concerning possible transactions involving Camiones, including a possible
purchase of Camiones by Navistar, no such discussions are being pursued at
this time.
Dina trucks are assembled using a wide range of components and
bodies. Engines, transmissions and axles, as well as a substantial
percentage of other components, are supplied by, or by Mexican affiliates
of, United States manufacturers such as Detroit Diesel Corporation,
Cummins Engine Company, Fuller Manufacturing Co., Dana Corp., Eaton Corp.
and Rockwell International Corporation. United States-designed components
are the clear preference of Mexican truck operators in the Class 5, 6, 7
and 8 markets. Other than Navistar, Camiones is not materially dependent
on any single supplier. Management does not foresee any material shortages
of raw materials or energy sources.
Coach Segment
The coach industry is comprised of coaches designed for passenger
travel between cities, "intercity coaches," and for passenger
transportation within urban areas, "transit buses." Due to the distinct
nature of the two markets in which the Company operates, Mexico and the
United States/Canada, the operations of Autobuses are discussed below and
the operations of MCII Holdings are discussed in "Business of MCII
Holdings," below.
The Company's Mexican coach subsidiary, Autobuses, is a leading
producer of intercity coaches in Mexico and, in October 1994, entered the
transit bus market.
Market. Over 90% of passenger travel from city to city in Mexico is
by intercity coach. Coaches are essential due to the under-developed
railway system and high cost of air travel. During the last three years,
intercity coaches sold in the Mexican market were 174 in 1995, 2,040 in
1994, 4,318 in 1993 and 3,809 in 1992 of which Autobuses sold 12%, 15%,
42% and 31%, respectively. As of March 31, 1996, 45 intercity coaches were
sold in the Mexican market of which Autobuses sold 10, or 22% of the total
Mexican market. In addition, Grupo Dina has exported to MCII in the United
States 129 coaches and to buyers in South America 2 coaches in 1995 and 51
during the first quarter of 1996.
Prior to 1990, bus fares of the Mexican intercity coach market were
controlled by the government which resulted in mostly economy-class
service, which has more stops and fewer coach amenities. In 1990, the
Mexican government discontinued the regulation of bus fares, resulting in
the development of two new classes of service, executive and first class,
which have more direct routes and greater amenities. Autobuses provides
coaches for all three classes of service. The intercity coach industry in
Mexico has been subject to significant cyclical volatility. Industry
cycles are influenced by overall levels of economic activity, by interest
rates and by government actions which may have both short-term and
long-term effects on demand.
Products. Autobuses produces for the Mexican coach market coaches
under the brand names Avante Plus, Dorado, Paradiso and Viaggio. The
Avante Plus and Dorado, which names are trademarks of Autobuses, are
integral-frame models and are produced primarily to meet the demands of
the first-class coach market. The Paradiso and Viaggio, which names are
trademarks of Marcopolo S.A. -- Carrocerias e Omnibus ("Marcopolo") of
Brazil used under license by Autobuses, are chassis-construction models
and serve primarily the needs of the executive and first class markets. In
April 1994, Autobuses introduced a new model Viaggio (Viaggio 850)
targeted at the economy coach market.
In 1994 and 1995, sales of units designed by Autobuses (Avante Plus
and Dorado models) comprised approximately 10% and 0% of Autobuses'
Mexican coach sales respectively with a unit sales price exceeding Ps
780,000. During the same periods, sales of units using Marcopolo
technology (the Paradiso and Viaggio models) comprised approximately 90%
and 100% of Mexican coach sales respectively with a unit sales price
exceeding Ps 1,000,000. In November 1994, approval was received from the
U.S. Department of Transportation (the "DOT") for the export of the
Viaggio 1000 model intercity coach to the United States. During 1995 and
for the first quarter of 1996, exports of these units were 129 and 51,
respectively.
Autobuses' coaches can be tailored to directly meet the needs of the
customer through a wide array of seating options and amenities. The
coaches have a reputation for high quality and durability in the industry.
The limited use warranty provided for all of its coaches is currently for
one year or 200,000 kilometers, whichever occurs first. Warranties on
engines are provided by suppliers.
In October 1994, Autobuses entered into the transit bus market
segment with the introduction of its new line of integral-frame transit
buses, the Citus and Quadro. As of December 31, 1995, sales of the Citus
and Quadro comprised approximately 34 units with a unit sales price
exceeding Ps 290,000. As a result, Autobuses now has a presence in all the
segments of the coach and bus markets in Mexico. However, due to the
economic crises, management has decided to suspend temporarily the
production of the integral urban buses because of its high production
cost. In the meantime, Autobuses is looking for alternatives to produce
these integral buses with a less expensive production cost. To satisfy the
urban bus market, Grupo Dina, through Camiones, will continue
manufacturing its chassis for the urban transportation market in which
Camiones is a leader.
Customers. The customer base for intercity coaches is centralized in
a handful of dominant fleet operators. Principal operators include Grupo
Estrella Blanca ("Estrella Blanca"), Grupo Tres Estrellas de Oro ("Tres
Estrellas"), Mexico Pachuca and to a much lesser extent Grupo Toluca,
Flecha Amarilla and Autobuses de Oriente. These seven groups are the
largest intercity coach operators in Mexico and currently represent
approximately 60% of the Mexican coach fleet. The remaining customer base
is represented by several smaller operating groups and many individual
customers.
Autobuses' customer base is equally concentrated. For 1992 and 1993,
Tres Estrellas, a related party to Autobuses during 1992 (see Certain
Transactions" below) and Estrella Blanca (which acquired Tres Estrellas in
1993) accounted for approximately 74% of consolidated net coach sales in
1992 and 70% in 1993. In 1994, these two entities accounted for
approximately 10% of consolidated net coach sales. No sales have been made
to these companies in 1995 because of the reduction in demand for
intercity transportation, the rationalization of their fleet and because
Tres Estrellas de Oro has been on strike for almost all of 1995.
Competition. During 1995, Autobuses competed against four other major
companies --Mercedes Benz, Mexicana de Autobuses (MASA), Trailers de
Monterrey (TRAMOSA), and Omnibus Integrales. Autobuses' market share of
12% represents a decline from the 15%, 42% and 31% for 1994, 1993 and
1992, respectively. This decline reflects a decrease in orders received
from Estrella Blanca and Tres Estrellas, as well as a general contraction
in the coach operator market due to the economic downturn which began in
1994. During the 1988-1990 period, Autobuses' market share in the
intercity coach market averaged 71.8%. In 1991 and 1992, market share
decreased to 39% and 31%, respectively, as competitors entered the market
for the first time and as Autobuses shut down coach operations for three
months to install a new production line.
The basis for competition in the market place are original sales
price, parts availability, and United States- manufactured componentry.
Autobuses believes it enjoys a competitive position due to its domestic
production facilities, its United States-designed components, the ability
to tailor bodies to customer specifications by offering a wide array of
seating options and other amenities, the well-established Dina brand names
and nationwide replacement parts availability.
As a result of the implementation of NAFTA on January 1, 1994,
restrictions on new coach imports will be eliminated over a ten-year
period, which commenced in 1994, non-tariff restrictions on new
chassis-based coach imports will be eliminated over a five-year period,
which commenced in 1994, and restrictions on used coach imports will be
eliminated over a ten-year period, which will commence in 2009. Management
expects that, over time, NAFTA will generally result in greater
competition but could also have the effect of gradual reductions in costs
for United States parts and components used in the manufacture of its
products.
Distribution. Coaches and transit buses are currently sold by
Autobuses without the use of distributors.
Production. Autobuses uses two basic types of coach construction,
integral frame and chassis-based. Integral-frame coaches combine both the
powertrain and the body as a single unit. Chassis-based coaches contain a
separate platform (i.e., frame, engine, transmission, axles, suspension
and wheels) to which a customized body is added. The body of a
chassis-based coach can be tailored to customer length, width and height
specifications.
The technology used in the chassis and suspension system of
Autobuses' chassis and integral-frame models has been designed or
co-designed by Autobuses. However, strategic alliances and purchased
technology have become increasingly important in the Mexican coach
operation. During 1992, Autobuses contracted with Marcopolo for technology
with respect to the assembly and mounting of Marcopolo's European-style
coach bodies, for technical training and access to all future Marcopolo
models. Under the agreement, Autobuses has the exclusive right in Mexico
to assemble and sell coaches with Marcopolo bodies, while Autobuses has
granted Marcopolo an exclusive right in Brazil to sell coaches using the
Dina chassis. Also, under the agreement Autobuses purchases the components
for Marcopolo bodies necessary to assemble and mount the bodies on
chassis. Further, Autobuses has the non-exclusive right to sell the
Marcopolo bodies in other North, Central and South American countries
other than Mexico. Autobuses must pay Marcopolo royalties based on the
value of the parts and components of the bodies it imports. The agreement
will expire by its terms in 2001, but may be extended upon mutual
agreement of the parties. In addition to the Marcopolo bodies, Autobuses
uses several suppliers, primarily in the United States, for materials,
components and other parts. Purchases from these suppliers provide
substantially all of its requirements for diesel engines, transmissions,
suspensions, axles, brakes, electronic components, glass parts
and most components for bodies.
In addition, Autobuses in 1994 entered into a contract with Navistar
to provide its Navistar New Generation Diesel, EPA '94 engine for urban
transportation to the Company's new line of transit buses. This contract
expires May 12, 1997 and can be extended for an additional three years by
the parties. As a result of this contract, management believes Autobuses
complies with the standards set by both the Ministry of the Environment,
Natural Resources and Fisheries (the "Ministry of the Environment") in
Mexico and the Environmental Protection Agency in the United States.
By focusing the business on assembling from purchased parts,
Autobuses does not have the large investment in plant and equipment
required of a heavy manufacturing operation. The level of manufacturing
integration has been managed to improve access to the lowest cost sources
of material, parts and components and to reduce inventory carrying
requirements. Autobuses is not materially dependent on any single supplier
other than Marcopolo. Management does not foresee any material shortages
of raw materials or energy sources.
Research and Development
The Company maintains in-house research and development capabilities
to develop technology on its own and in conjunction with others and also
obtains technology from third parties.
Grupo Dina has a trust arrangement with Banca Cremi, S.A., as
trustee, to earmark deductible funds for research and development of
technology. Grupo Dina will be authorized to make use of these funds for
specific purposes, and the fund may be increased by future contributions
in accordance with the provisions of the contract, or by interest,
dividends and capital gains earned by the fund. The fund was established
in 1990 and no subsequent cash contributions were made. During 1993, Ps
19.4 million was used for research and development and is included in
expenses. There were no expenditures for research and development in 1992,
1994 and 1995. However, these funds will be used for developing new
technology alternatives.
Trademarks and Patents
Grupo Dina has registered certain trademarks, including the name
DINA, DIMEX, Citus, Quadro and the names of its Avante, Avante Plus and
Dorado coach models. The names of its Paradiso and Viaggio coach models
are registered trademarks of Marcopolo which are used under license from
Marcopolo. The Company has received approval for patents covering its
"torsilastic" advanced suspension system for coaches, its MTC brand of
truck suspensions and various components used in trucks and coaches. The
Company operates under licenses for numerous patents relating to its
products and their manufacture held by third parties and pays royalties
under these licenses. While many of these patents are considered to be
important to particular products, no particular patent or group of related
patents is considered by the Company to be essential to its business as a
whole.
Employees
As of December 31, 1994 and 1995, the Company had 6,307 and 5,388
employees, respectively. As of March 31, 1996, the Company had 5,690
employees, the change from year end 1995 in mainly due to an increase in
MCII employees during the first quarter of 1996. The decrease in employees
during 1995 reflects one of the measures taken by the Company in response
to the economic downturn in Mexico, as the Company announced in December
1994 a reduction in office and plant personnel in Mexico of approximately
38%. On January 1996, the Company laid off 150 employees from Camiones. On
May 27, 1996, Grupo Dina filed for an arbitration procedure before the
labor authorities requesting, after completion of the arbitration
procedure, to lay-off 250 union workers from Camiones.
Approximately 1,500 Mexican employees are represented by the
Independent Union of Workers in the Automotive and Related Industries (the
"Automotive Workers Union"), which entered into new, more flexible
collective bargaining agreements with each of the Company's Mexican
operating subsidiaries in February 1992. In accordance with Mexican law,
the salary provisions of these agreements are renegotiated every year and
the benefits provisions every two years. The salary and benefits
provisions were renegotiated in February 1994. The Company experienced a
labor strike in Mexico in early 1992 and in February 1994 which resulted
in a loss of one day's production in each case. These strikes were
resolved when the Company entered into collective bargaining agreements
with the Automotive Workers Union. Supervisory personnel at the Company's
manufacturing plants are no longer covered by the union agreements.
During February 1995, the Company entered into negotiations with its
unions in Mexico to review the wage component of the contract. On February
6, 1995, the Company announced it had reached an agreement with the labor
union. The negotiations included a general increase in union salaries of
7% plus 3% for productivity. In addition, both parties agreed to a
temporary shut-down of the plants for an initial duration of 60 working
days which was renewed until December 14, 1995 based on consumption of
existing inventories and the improvement of the economic situation in
Mexico.
Grupo Dina, following its cost reduction strategy, has filed for new
collective bargaining agreements for both Autobuses and Camiones in order
to do so before the Automotive Workers Union files for new salary increases
and because of various other considerations. As a result of these efforts,
the prior collective agreement, which was to expire on February 7, 1996,
was extended for another two years.
This cost reduction strategy basically seeks the reduction of
operation costs by increasing manpower and energy efficiency to improve
the manufacturing process.
Environmental Matters
The operations and products of the Company are subject to Mexican
federal and state laws and regulations relating to the protection of the
environment. The fundamental environmental law in the Mexican federal
system is the Ley General de Equilibrio Ecologico y Proteccion al Ambiente
(the General Law of Ecological Balance and Environmental Protection, or
the "Ecological Law"). Under the Ecological Law, rules have been
promulgated concerning water pollution, air pollution, noise pollution and
hazardous substances. Additionally, the Mexican federal government has
enacted regulations concerning the importation and exportation of
hazardous materials and hazardous wastes. The Mexican federal agency in
charge of overseeing compliance with the federal environmental laws, in
conjunction with other governmental entities, state and municipal
governments and with the participation of the social and private sectors,
is the Ministry of the Environment. The Ministry of the Environment has
the authority to enforce the Mexican federal environmental laws. As part
of its enforcement powers, the Ministry of the Environment can bring
administrative and criminal proceedings against companies that violate
environmental laws, and also has the power to close noncomplying
facilities.
It is possible that changes in Mexican federal and state
environmental laws, or their interpretation or enforcement, could result
in material costs to the Company. Although not required to do so under
current environmental laws, in 1993 the Company installed an industrial
and sanitary water treatment facility at its plants.
Because of environmental concerns in Mexico City, gasoline and diesel
powered trucks currently may operate only four days per week. Trucks
utilizing natural gas or liquid propane gas may operate five days per
week, giving them a slight advantage over gasoline and diesel powered
trucks. It is possible to convert a gasoline engine to utilize natural
gas. The Company has entered into a contract with Hercules to provide gas
engines for certain of its trucks. All of the engines used on the
Company's trucks and coaches comply with current Mexican and U.S.
government emission standards.
Government Regulation
After the implementation of NAFTA in 1994 by U.S., Mexican and
Canadian authorities, the Mexican Auto-Transportation Decree was
eliminated, and replaced with a transitional system of quotas which will
be phased out over five years. Commencing in 1994, NAFTA permits Mexican
manufacturers to import up to 50% of their Mexican production, while
non-Mexican manufacturers will be permitted to import a specified
percentage of total Mexican production--15% in 1994 and 1995, 20% in 1996
and 30% in 1997 and 1998, on the basis of an auction system. Commencing in
1999, such import limitation is scheduled to be eliminated. NAFTA permits
Mexico to maintain quotas on parts and components for a ten-year period.
Under NAFTA, Mexican import tariffs for 1994 were 18% for trucks, 9% for
components and 8% for engines. These tariffs will be phased out over a
ten-year period with respect to new United States and Canadian trucks and
coaches that satisfy NAFTA's U.S., Canadian and Mexican regional content
requirements (50% regional content required to qualify for reduced tariffs
in 1994 to 1998, 55% in 1999 to 2002 and 60% thereafter). In addition,
under NAFTA Mexican import tariffs on truck and coach parts and components
will be phased out over a ten-year period. The present prohibition on
importing used trucks and coaches into Mexico will be maintained under
NAFTA for fifteen years and then will be eliminated over a ten-year
transition period, permitting the importation of used trucks and coaches
into Mexico with model ages not exceeding 10 years. Dina products imported
by MCII for sale in U.S. and Canada are subject to various U.S. and
Canadian laws and regulations.
Properties
The Company owns four manufacturing and assembly plants in Mexico,
one in Canada and one in the U.S. Additionally, the Company owns or leases
various replacement parts and repair facilities in the U.S. and Canada.
The following table is a summary of the approximate square footage of the
Company's facilities as of December 31, 1995.
Mexico U.S. Canada Total
Facility Type
Manufacturing 7,600,000 186,000 767,000 8,553,000
Replacement Parts --- 486,000 104,000 590,000
Modification or repair --- 174,000 --- 174,000
-------- ------- ------- ----------
Total square feet 7,600,000 846,000 871,000 9,317,000
========= ======= ======= =========
Ownership
Owned property 7,600,000 426,000 811,000 8,837,000
Leased property --- 420,000 60,000 480,000
---------- ------- ------ ----------
Total square feet 7,600,000 846,000 871,000 9,317,000
========= ======= ======= =========
The Company also owns or leases other properties in Mexico, including
a vehicle and parts distribution center in Vallejo.
Legal Proceedings
In the ordinary course of its business, the Company is party to
various employment and other legal actions, as plaintiff or defendant. The
Company is not involved in any litigation or arbitration proceedings
which, if determined adversely to the Company, individually or in the
aggregate would, in management's opinion, have a material adverse effect
on the Company or its operations, nor, so far as it is aware, are any such
proceedings threatened.
Manufacturers and sellers of defective products in Mexico may be
subject to liability for loss and injury caused by such products under
Mexican law. The Company does not carry product liability insurance for
product sales in Mexico, but does carry such insurance for U.S. and
Canadian sales. Although the Company has never had a product liability
claim brought against its Mexican operations and the Mexican laws
providing for such liability appear to have been seldom utilized, no
assurance can be given that the Company may not be exposed to future
product liability claims in Mexico and, if such claims are successful,
that the Company will have sufficient resources to pay such claims.
BUSINESS OF MCII HOLDINGS
General
Grupo Dina acquired ownership of MCII in August 1994. In connection
with the issuance of the Notes, MCII became a wholly owned subsidiary of
MCII Holdings and MCII Holdings became a wholly owned subsidiary of Grupo
Dina.
MCII Holdings will not engage in any activities, for so long as the
Notes are outstanding, other than its participation in the exchange of Old
Notes for Eurobonds and Exchange Offer, acquiring, owning, holding,
pledging, and otherwise dealing with the MCII Shares (as defined below);
acquiring, owning and holding the capital stock of Autobuses, should
Autobuses become a subsidiary of MCII Holdings, and any other transactions
provided for in the Indenture. Article III of MCII Holdings' Restated
Certificate of Incorporation (the "MCII Holdings Certifi- cate of
Incorporation") limits MCII Holdings' activities to the above activities
and to any activities incidental to and necessary or convenient for the
accomplishment of such purposes. Article V of the MCII Holdings
Certificate of Incorporation requires that at least one of MCII Holdings'
directors not be a stockholder, director, officer, em- ployee, associate
customer, supplier, or relative of any stockholder, director, officer or
employee of Grupo Dina, MCII or any affiliate of Grupo Dina or MCII.
Article V also provides that the board of directors of MCII Holdings (the
"MCII Holdings Board of Directors") shall consist of no more than five
members. Article VI of MCII Holdings' Certificate of Incorporation
prohibits MCII Holdings, without the unanimous affirmative vote of the
MCII Holdings Board of Directors, including the affirmative vote of its
independent director, from (1) dissolving or liquidating or (2) merging or
consolidating with any corporation unless that corporation has a
certificate of incorporation containing provisions identical to Articles
III, V, VI, VII, VIII and XI(c) of the MCII Holdings Certificate of
Incorporation. Article VII requires MCII Holdings to maintain corporate
records separate from Grupo Dina, MCII and any other company. Article
XI(c) provides that the right of any director or officer of MCII Holdings,
other than any independent director, to be indemnified by MCII Holdings
shall be subordinated in all respects to the obligations of MCII Holdings
under the Indenture. Article VIII of the MCII Holdings Certificate of
Incorporation prohibits MCII Holdings, without the unanimous affirmative
vote of the MCII Holdings Board of Directors, from amending or repealing
Articles III, V, VI, VII, VIII and XI(c).
MCII Holdings will enter into a management agreement with MCII
pursuant to which MCII or an affiliate thereof will provide
administrative, accounting and clerical serves and office space to MCII
Holdings. MCII Holdings has not engaged in operations prior to the
transaction described herein and does not anticipate having any other
major assets other than its interest in the MCII Shares and the capital
stock of Autobuses.
Steps have been taken in order to assure holders of Notes that any
voluntary or involuntary petition for relief under Title 11 of the United
States Code or any other Federal, state or foreign bankruptcy, insolvency
or similar law ("Insolvency Laws") with respect to Grupo Dina will not
result in a similar voluntary petition with respect to MCII Holdings so
long as MCII Holdings is solvent and does not reasonably foresee becoming
insolvent, which determination shall be made after giving effect to the
subrogation rights of MCII Holdings in respect of the Notes. These steps
include (1) the creation of MCII Holdings as a separate, special purpose
subsidiary, pursuant to the MCII Holdings Certificate of Incorporation,
(2) obtaining an agreement from each of Grupo Dina and MCII Holdings to do
all things within its power to satisfy the legal requirements applicable
for the recognition of MCII Holdings as a corporate entity separate and
apart from Grupo Dina and (3) obtaining an agreement from Grupo Dina to
cause at least one of MCII Holdings' directors to be an independent
director as required by the MCII Holdings Certificate of Incorporation and
not to interfere with or prevent MCII Holdings from maintaining its
separate corporate identity. MCII Holdings has no intent to file, and
Grupo Dina has advised MCII Holdings that it has no intent to cause the
filing of, a voluntary petition under the Insolvency Laws with respect to
MCII Holdings so long as MCII Holdings is solvent and does not reasonably
foresee becoming insolvent, which determination shall be made after giving
effect to the subrogation rights of MCII Holdings in respect of the Notes.
MCII Holdings, through its wholly owned subsidiary, MCII, designs,
manufactures, assembles and markets intercity coaches and replacement
parts for intercity coaches and transit buses. MCII is the leading
manufacturer of intercity coaches in the United States, with a market
share consistently in excess of 50%. Management believes that MCII is the
largest distributor of replacement parts to the combined intercity coach
and transit bus industries in the United States and Canada.
Revenues and operating income from continuing operations for each of
the segments for the last three years are as follows:
Five Months Seven Months Year
Year Ended Ended Ended Ended
December 31, December 31, July 31, December 31,
------------ ------------ ------------ ------------
1995 1994 1994 1993
---- ---- ---- ----
(in millions)
Revenues:
Coach manufacturing
and support US$375.8 US$137.9 US$194.9 US$272.8
Replacement parts....... 140.5 56.4 78.2 126.2
------- ------- -------- -------
516.3 194.3 273.1 399.0
Operating income:
Coach manufacturing
and support 23.3 2.1 24.7 25.2
Replacement parts....... 15.0 7.0 12.2 20.2
------- ------- -------- -------
38.3 9.1 36.9 45.4
Coach
MCII Holdings is the industry leader in the design, manufacture,
assembly and marketing of intercity coaches and their replacement parts in
the United States and Canada. MCII Holdings, through its indirect
subsidiary, Motor Coach Industries Limited, a Canadian corporation
("MCIL"), began manufacturing intercity coaches and providing replacement
parts in Canada in 1932, and began manufacturing these products in the
United States with the incorporation of Motor Coach Industries, Inc.
("MCI") in 1963. In 1995, MCII began marketing in the United States an
intercity coach manufactured by Grupo Dina. This coach, the Viaggio, is
used primarily for tour and charter service and intercity regularly
scheduled passenger service. MCII's coaches are used primarily for
intercity regularly scheduled passenger service, tour and charter service
and suburban commuting. Management believes that MCII's coaches have a
reputation for solid construction, durability, ease of maintenance and
comfort.
Market. MCII Holdings' management believes that there is currently an
industry-wide fleet of over 30,000 intercity coaches in operation in the
United States and Canada, having an average age of approximately nine
years. Coaches are used primarily to transport passengers between cities
at regularly scheduled intervals ("line-haul operations") or on special
tour or charter trips. Certain state and municipal transportation
agencies, such as New Jersey Transit, utilize intercity coaches to
transport passengers who have a relatively long daily commute.
The coach business in the United States and Canada is highly
cyclical. During times of general economic weakness, many coach operators
postpone fleet replacement programs and may even reduce the size of their
fleets. As economic recovery occurs, they tend to accelerate fleet
replacement and may increase fleet size.
Backlog. MCII Holdings' coach backlog was 450 units at March 31,
1996, which included 130 units for Greyhound Lines, Inc. ("GLI"), compared
to 439 units at March 31, 1995, which included 102 units for GLI. No
material part of MCII Holdings' backlog at March 31, 1996 is attributable
to government orders.
Products. MCII Holdings currently produces, under the trademark of
MCI, three integral-frame models. Two of MCII Holdings' models are
standard 40-foot long vehicles and the third is a 45-foot long vehicle.
The Model 102D3 is a 40-foot long, 102-inch wide European-styled vehicle.
The Model 102DL3 is a 45-foot long, 102- inch wide model with increased
passenger and baggage capacity, with a standard configuration of 55 seats,
giving it an increased passenger capacity of 17% over the 40-foot models
which generally enables operators to reduce their operating cost per
passenger mile. The MC-12 model is a lower-priced, line-haul coach,
40-feet long and 96 inches wide, produced principally for GLI.
The two 40-foot coach models generally sell in a price range of
US$240,000 to US$325,000 and the 45-foot coach sells in a range of
US$290,000 to US$350,000. These prices depend on width, options, special
features and volume purchased. Substantially all of MCII's coaches are
built to order with over 2,000 options available. The standard warranty
period is 24 months.
MCII Holdings also markets the Viaggio, a body-on-chassis constructed
model manufactured by Grupo Dina. The Viaggio, which name is a trademark
of Marcopolo S.A. -- Carrocerias e Omnibus of Brazil used under license by
Grupo Dina, sells in a range of US$225,000 to US$270,000. The standard
warranty period for the U.S. market is 24 months.
MCII Holdings is currently in the process of developing two new coach
models to replace its current product offerings. The first model, which
management expects to introduce in early 1997, will consist of a 45-foot
luxury tour and charter model. The second model will consist of a
lower-priced, durable line-haul model, which management anticipates
offering in 41-foot, 45 foot and 11 meter versions. The introduction of
the 41-foot line-haul model is expected in late 1998. These development
efforts will result in significant product development and capital
expenditures being made over the next few years.
Marketing. In the United States and Canada MCII Holdings relies on
its direct-sales force to market the MCI and Viaggio coaches, with 18
full-time new coach sales representatives who make regular visits to both
current and potential customers and attend major industry trade shows.
Management believes that the attentiveness and visibility of MCII
Holdings' sales force among coach operators solidify MCII Holdings'
reputation and enhance its sales position. MCII Holdings uses agents to
market its coaches overseas. MCII Holdings does not use distributors in
the United States or Canada.
Customers. The customer base in the intercity coach industry in the
United States and Canada is highly diversified. The largest coach
transportation company in the United States, GLI, currently has a fleet of
over 2,000 coaches, or 7% of the 30,000 industry-wide fleet. Thus, the
remaining 94% of the market is comprised of smaller to mid-size operators.
The primary customers for intercity coaches are independent coach
operators, national coach fleet operators, including GLI and Greyhound
Lines of Canada, Ltd. ("GLOC"), government agencies that use coaches for
public transit services, international customers and custom coach
converters. While management estimates that in the past three years the
average order size (excluding GLI orders) for any single operator has been
approximately 2.7 units, order size has ranged from one coach up to
approximately 100 coaches.
Independent Operators. Management estimates that in the United
States, independent regional operators (i.e., operators other than GLI and
GLOC) of regular route or tour and charter operations account, on average,
for approximately 75% of MCII Holdings' annual coach sales. Management
believes that purchasing decisions by these buyers are based upon a number
of factors, including service and parts availability, operating costs,
resale value, financing terms, curbside appeal and interior amenities. In
1995, MCII Holdings sold coaches to 317 different independent operators of
whom only 42 purchased five or more coaches.
GLI and GLOC. GLI is a nationwide regular route operator in the
United States and GLOC is a regular route operator throughout most of
Canada. GLI's fleet totaled over 2,000 coaches at March 31, 1996.
Management believes that GLOC currently operates approximately 500
coaches. For the years ended 1995, 1994 and 1993, GLI and GLOC accounted
for 11%, 17% and 23%, respectively, of consolidated revenue. No sales were
made to GLI or GLOC in the first quarter of 1996.
Management believes that important purchase criteria for GLI and GLOC
include life cycle costs, reliability, availability of replacement parts
and support, passenger comfort, interior amenities and purchase price.
MCII and GLI have an agreement, which extends through March 18, 1998,
which provides that GLI will purchase from MCII at least 75% of its annual
requirements for new coaches of the type produced (or planned, at the time
ordered, to be produced) by MCII Holdings. MCII Holdings and GLOC have
entered into a similar agreement which runs through 2002. Pursuant to
those agreements, GLI purchased 111 coaches from MCII Holdings in 1995 and
placed orders for 151 MCII Holdings coaches to be delivered in 1996 of
which 21 were delivered under operating leases as of March 31, 1996. GLOC
purchased 34 coaches in 1995 and placed orders for 7 MCII Holdings coaches
to be delivered in 1996 of which none were delivered as of March 31, 1996.
No assurance can be given regarding GLI's and GLOC's future ability or
need to purchase coaches from MCII.
Government Agencies. Government-funded public transportation agencies
utilize a variety of commuter, wheelchair-lift compatible and other
specialty coaches. Management believes that the primary buying criterion
for such customers is initial price for a given set of design
specifications, with overall lifecycle costs as a secondary concern. The
demand from such customers varies widely from year to year as government
agencies periodically make large procurements, every three to six years on
average, and in any given year, such customers may represent over 10% of
MCII's sales of new coaches.
MCII sold 700 coaches to the New Jersey Transit Authority ("NJTA")
which were delivered in 1982 through 1984, and 415 coaches to NJTA which
were delivered in 1987 and 1988. NJTA uses these coaches for public
transport of passengers with relatively long daily commutes or in
intercity service. MCII Holdings believes NJTA is preparing to replace the
coaches purchased in 1982 through 1984. Because over 90% of NJTA's fleet
consists of MCII Holdings coaches, management believes it will have a
competitive advantage when NJTA's next purchase is made. However, there
can be no assurance that NJTA will order new coaches, when such order will
occur or that MCII Holdings will be awarded the contract.
Government contracts generally contain provisions permitting the
purchaser to terminate the contract at will. Such contracts provide that
the purchaser must reimburse the manufacturer for completed product and
pay the manufacturer's cost of termination. It is MCII Holdings'
experience that this type of provision is rarely exercised.
Coach Converters. The coach conversion market involves the
customizing of a coach interior for personal or corporate use. MCII
Holdings sells coach shells to coach conversion companies and, until 1996,
customized coaches for sale to the final user. In 1996, MCII Holdings
exited the business of customizing coaches for sale to the final user by
selling Custom Coach Corporation ("Custom Coach"), MCII Holdings' former
coach conversion subsidiary. Custom Coach served the high end of the coach
conversion market, focusing on motor homes for commercial and personal
applications, executive style coaches for business travel, specialized
units for training and entertainer bunkhouse units. Over the past three
years, MCII Holdings has averaged sales of 17 units, including sales to
Custom Coach, to the conversion market.
Export. The majority of MCII Holdings' coaches are sold in the United
States and Canada, however, MCII Holdings has sold units to other
countries, principally Taiwan. In 1992, the last year in which MCII
Holdings had a significant level of exports, 108 units were delivered to
Taiwan.
Competition. MCII Holdings has two principal competitors in the
United States and Canadian coach market: Prevost, a subsidiary of Volvo,
which management believes to be the largest of its competitors, and Van
Hool. MCII Holdings has maintained a strong market position in the new
coach market in the face of lower prices by competitors, which management
believes is primarily due to customer loyalty stemming from a quality
product and strong aftermarket parts and service capability. An additional
factor contributing to customer loyalty is the convenience and cost
efficiencies which operators derive from managing and servicing a fleet of
coaches manufactured and supported by a single supplier. These
efficiencies may exist for both larger, multi-site operators as well as
smaller, independent operators, which rely on MCII Holdings for a variety
of support services.
Financing. MCII Holdings primarily sells coaches for cash,
occasionally offers terms (generally net 30 days) to its most creditworthy
customers, and provides long-term financing as a necessary adjunct to its
coach manufacturing business. Demand for new coach financing from MCII is
primarily dependent upon the annual level of new coach sales as well as
the availability of alternative sources of financing. MCII Holdings had
US$42.1 million of contract receivables at March 31, 1996.
MCII provides new and used coach financing to its intercity coach
customers principally through its financing subsidiary, MCI Acceptance
Corp. ("MCIAC"). MCIAC provides financing primarily at a floating rate of
interest for three to five years, in the case of used coaches, and seven
to 10 years in the case of new coaches. MCII, through its leasing
subsidiary BusLease, Inc., also provides coaches to customers under
operating leases. The leases require security deposits and usually have a
duration of three to seven years.
Periodically, MCIAC sells contract receivables to financial
institutions and provides a limited guarantee to those institutions
against losses related to such contracts with respect to debtor defaults.
Used Coaches
MCII Holdings provides used coach brokerage and dealership services
through Hausman Bus Sales Inc. ("HBSI"), which was acquired in 1989. The
used coach operations provided revenues for the three months ended March
31, 1996 and for the years 1995, 1994, and 1993 of US$13.4 million,
US$47.2 million, US$46.8 million and US$31.2 million, respectively. During
that period, the used coach operation accounted for US$15.0 million to
US$25.0 million of MCII's inventories. The size of the used coach business
is dependent upon several factors, including the size of the entire coach
fleet, new coach orders which generate trade-ins and the level of changes
in the fleet composition of coach operators. Management estimates that the
existing industry-wide fleet of over 30,000 coaches changes ownership
every 12 years, creating an average used coach volume of about 2,500 units
per year.
Due to MCII Holdings' installed base of coaches, its maintenance and
repair capabilities, customer network and industry knowledge, HBSI is able
to repurchase and resell a substantial volume of used coaches. Management
believes that MCII Holdings' capacity to accept used coaches in support of
new coach sales and resell them through its distribution system provides
MCII Holdings with a competitive advantage. Management believes that
HBSI's largest competitor in the dealership business is ABC Bus, Inc.,
which also serves as Van Hool's United States sales agent for new coaches.
Research and Development. As part of MCII Holdings' new coach
development project it received US$7.5 million in contributions from the
Government of Canada and the Province of Manitoba. These contributions
have been applied against research and development expenses. Contributions
may be repayable should the project not be completed, or, for the first
five years following project completion, should the ratio of Canadian
employees to total employees of MCII be less then 40%.
Replacement Parts
Management believes that MCII Holdings is a leading supplier of
original equipment manufacturer ("OEM") quality replacement parts for the
combined intercity coach and transit bus aftermarkets in the United States
and Canada. MCII Holdings offers over 58,000 items necessary for coach and
bus repair and regularly scheduled maintenance. MCII Holdings has six
strategically located distribution outlets in the United States and Canada
which allow MCII Holdings to promptly (if necessary, within 24 hours)
deliver replacement parts nationwide. Management believes that MCII
Holdings' breadth of product line and geographic scope are unmatched in
the industry. In addition to the core intercity coach and transit bus
parts business, MCII Holdings also distributes parts for school buses and
diesel engines.
In the replacement parts business, MCII Holdings has improved
responsiveness to customer demands through the development of its
information systems. MCII Holdings has installed remote order entry
terminals in over 250 customer locations in order to minimize lead times
and to accelerate the delivery process. Management believes that the
installation of these electronic order entry terminals at customer
locations expedites replacement parts orders and strengthens customer
loyalty.
MCII Holdings' competitive position in the parts business is further
enhanced by the large installed base of its vehicles. The approximately
23,000 coaches and 33,000 transit buses in the United States and Canada
produced by MCII Holdings create a core demand for MCII Holdings parts,
approximately 20% of which are proprietary to MCII Holdings and may not be
purchased elsewhere. Despite the fact that MCII Holdings no longer
manufactures transit buses, MCII Holdings continues to supply replacement
parts to the Canadian transit bus market, and until November 1999, will
provide OEM replacement parts for transit buses previously manufactured in
the United States by MCII Holdings.
Product Line. The replacement parts business is segmented into high
quality parts supplied by an OEM which may fit coaches made by other
manufacturers, and non-OEM parts, which are marketed primarily on a value
basis. Management believes that MCII Holdings' current strength is in
providing OEM parts that are either manufactured by MCII Holdings or
acquired by MCII Holdings from the original equipment manufacturer. MCII
Holdings' Universal Coach Parts ("UCP") subsidiary in the United States
and MCIL in Canada offer a wide selection of replacement and repair parts
to MCII Holdings' coach customers. In an effort to leverage further the
competitive strength of its replacement parts business and distribution
facilities, UCP has developed its own brand of alternate, non-OEM parts
under the COACHGUARD name. More than sixty products have been introduced
for this segment since its inception in 1993. MCII Holdings has also
developed a line of remanufactured parts and components, which were
introduced in the first six months of 1994. Management believes that the
availability of remanufactured products will permit MCII Holdings to
access new markets that are currently served by local and regional parts
rebuilders.
In 1994, MCII Holdings began marketing diesel engine parts under the
name DIESEL GUARD and also began targeting the school bus parts market. As
a result of its focus on the school bus market, MCII Holdings purchased
the operations of a school bus parts distributor in April 1995 for US$2.9
million.
Marketing. For sales of replacement parts, MCII Holdings utilizes 13
full-time field representatives, as well as telemarketing salespersons.
The sales force makes regular visits to both current and potential
customers, attends major industry trade shows, responds to advertisements
for bids to supply replacement parts and uses telemarketing techniques. In
addition, customer orders are facilitated through the use, by the sales
force and certain of MCII Holdings' larger customers, of remote order
entry terminals to minimize lead time. Management believes that MCII
Holdings' efficiency and responsiveness allow customers to minimize
inventory holding costs and to increase fleet utilization ratios.
Coach Parts Customers. Customers served by MCII Holdings include both
purchasers of MCII Holdings coaches as well as purchasers of non-MCII
coaches such as Grupo Dina's Viaggio coach model. Management believes that
customers place considerable emphasis on the quality of parts purchased as
well as the speed and efficiency provided by their parts suppliers. Under
an agreement with GLI, which is terminable by either party upon 180 days
notice but not before April 30, 1997, MCII Holdings supplies and manages
most of GLI's inventory of replacement parts.
Transit Parts Customers. Management believes that the demand for
transit parts is a function of the number of transit buses currently in
operation, the average level of usage for each bus and the average age of
the bus fleet. Management believes that purchasers of transit parts are
more price-sensitive and less service sensitive than customers in the
coach aftermarket, as the opportunity cost to the transit authority of a
transit bus out of operation is less significant than the lost revenue of
a line-haul coach operator. As a result, a large percentage of transit
parts purchases are conducted on a public bid basis. Customers often
choose to make a major purchase of parts inventory upon the procurement of
additional new transit buses to ensure the availability of parts and to
minimize cost through volume purchasing.
Competition. The replacement parts business is highly fragmented and
competitive. Management believes that MCII Holdings' largest competitors
are Prevost and Mohawk, for coach replacement parts, and the other major
transit manufacturers-Flexible, BIA and Neopart (the parts operation of
Neoplan), for transit bus replacement parts. The remaining competitors
include other coach manufacturers, diesel engine manufacturers, niche
marketers and local vendors. Management believes that the factors
influencing the choice of parts suppliers include a supplier's proximity
to the customer, the number of replacement parts offered, level of
technical knowledge and support and, to a lesser extent, minimum price. In
addition, management believes that the installed base of vehicles
manufactured by MCII Holdings, its predecessors and successors also
provides MCII Holdings a distinct competitive advantage.
Management estimates that MCII Holdings has consistently captured a
significant share of the replacement parts business in its core intercity
coach and transit bus parts segments (excluding engines, transmissions and
related parts).
Discontinued Operations
In November 1993, the Board of Directors of MCII approved a plan of
disposition of the transit manufacturing segment. This decision was based
upon management's review of market activities, business prospects,
competitive bidding, evaluation of backlogs, economic value analysis, and
opportunities for cost reduction, which indicated that the transit
manufacturing business may not achieve acceptable profitability in the
foreseeable future. In November 1994, MCII sold the fixed assets and
certain of the inventory of the transit manufacturing business, as well as
the right to manufacture, remanufacture and distribute transit buses
previously made by MCII. Additionally, the purchaser, for a period of five
years from the sale date, has agreed not to distribute parts to transit
buses previously made by MCII. MCII retained all other assets and all of
the remaining liabilities of the transit manufacturing business. As of
March 31, 1996, the remaining net assets of the transit manufacturing
business totaled US$11.2 million and were comprised principally of
receivables.
International
MCII has pursued expansion opportunities in selected international
markets, with both direct sales efforts and joint ventures. In 1995, MCII
Holdings invested 10 used coaches in a joint venture with a Chinese
company to provide bus transportation for long-distance passengers and
tourists in China.
Raw Materials/Components
MCII Holdings' manufacturing operations utilize raw materials
supplied by diverse sources and component parts provided by other original
equipment manufacturers, which are assembled into intercity coaches. For
axles, stainless steel tubing, transmissions and engines, MCII Holdings
relies on limited sources of supply, although alternative sources of all
such components, other than axles, are available.
Government Regulation
The operations of, and the products manufactured by, MCII Holdings'
subsidiaries are subject to various United States federal and state and
Canadian federal and provincial laws and agency regulations. In the United
States, these regulations include the Clean Air Act and other
environmental acts which regulate coach engine emissions and plant
operations; federal motor vehicle safety standards which establish minimum
safety standards for various components of coaches; the Americans with
Disabilities Act which specifies accessibility standards for the
physically challenged; and Buy America legislation prohibiting the use of
federal funds for coaches with less than 60% United States content. In
Canada, regulations include various environmental acts which regulate
coach plant operations and Canadian motor vehicle safety regulations which
establish minimum safety standards for various coach components. Although
the Canadian government has not adopted accessibility standards for the
physically challenged, such standards are currently the subject of several
official studies. MCII Holdings cannot accurately predict future expenses
or liability which might be incurred as a result of such laws and
regulations.
The Americans with Disabilities Act requires, among other things,
that the U.S. Department of Transportation (the "DOT") promulgate
handicapped accessibility standards for coaches. Although the DOT has not
issued proposed regulations for public comments, there are indications
that the regulations (which are expected to be issued for comment in
December 1996 and finalized in 1997) might require each coach in an
operator's fleet to be handicapped accessible, rather than permitting the
operation of a limited number of accessible coaches. Requiring complete
fleet accessibility could have a material adverse effect on an operator's
business and possibly on MCII Holdings' coach business. The final
regulations will be applicable to operators with larger fleets 2 years
after issuance of the final regulations and applicable to operators with
smaller fleets 3 years after issuance of the final regulations.
Patents and Trademarks
MCII Holdings, through its wholly owned subsidiary, MCII, owns
numerous trademarks representing goodwill in the businesses using the
marks and own a number of patents which MCII believes give it a
competitive advantage in the marketplace. United States trademark
registrations are for a term of 10 years, renewable every 10 years so long
as the trademarks are used in the regular course of trade. The trademarks
owned and used by MCII Holdings include the well known MCI marks. The
marks COACH GUARD and DIESEL GUARD are in use in the replacement parts
operations and filings have been made to register these trademarks. MCII
Holdings owns numerous patents protecting, among other things, various
aspects of the MCI coaches. Patents are granted for a term of 17 years.
MCII Holdings has the right to use the Greyhound name and the "Image of
the Running Dog" for the manufacture and sale of intercity coaches,
transit buses and replacement parts in all countries other than the United
States, Canada and Mexico.
Employees
MCII Holdings had approximately 3,300 employees, as of March 31,
1996, with approximately 1,300 in the United States and 2,000 employees in
Canada. The hourly workers at most locations are organized and represented
by unions. Approximately 2,100 employees of the total work force are
represented by labor unions. The largest contracts are with the
International Association of Machinists and Aerospace Workers (the "IAM")
in Winnipeg, Manitoba and Pembina, North Dakota. The IAM contracts with
Winnipeg/Pembina expire September 30, 1997. MCII's subsidiaries have
historically enjoyed satisfactory relations with both union and nonunion
employees.
Legal Matters
MCII and certain of its subsidiaries are parties either as plaintiffs
or defendants to various actions, proceedings and pending claims, certain
of which involve claims for compensatory, punitive or other damages.
Litigation is subject to many uncertainties and it is possible that some
of the legal actions, proceedings or claims referred to above could be
decided against
MCII. Although the ultimate amount for which MCII may be held liable
with respect to matters where MCII is a defendant is not ascertainable,
MCII Holdings believes that any resulting liability will not materially
affect its financial condition or results of operations.
MCII's Canadian income tax returns for 1982 through 1992 are
currently under review by Revenue Canada, which is reviewing certain
profit allocation procedures between MCIL and MCI and may seek to impute
additional Canadian income to MCIL. MCII is of the opinion that Revenue
Canada's arguments are without merit. See "Risk Factors -- MCII Canadian
Tax Liability."
Properties
Coach. MCII Holdings conducts its coach manufacturing operations
through subsidiaries located both in the United States and Canada. The
operations in Winnipeg produce metal bus components, shells and fiberglass
parts and subassemblies for intercity coaches. Once assembled, outer
shells of coaches are transported by truck- hauled flatbed trailers to its
Pembina, North Dakota plant. In Pembina, the manufacturing process is
completed by installing components such as engines, transmissions, axles,
wheels, tires, electrical components, air conditioning systems and
passenger seats, as well as completing final paint scheme requirements.
Finished units are distributed from the Pembina facility to customers
throughout the United States and are returned to Winnipeg for sale and
delivery to Canadian customers. With the Winnipeg/Pembina complex in full
production, MCII Holdings is capable of producing approximately 1,200 to
1,300 coach units per year.
Parts. MCII Holdings distributes products from six locations,
strategically located across the United States and Canada, with sites in
Dayton, New Jersey; Chicago, Illinois; Los Angeles, California;
Huntsville, Texas; Winnipeg, Manitoba; and Newcastle, Ontario.
Other Properties. MCII Holdings leases its headquarters in Phoenix
and has other leases on warehouses and parking lots. MCII leases
approximately 226,000 square feet in New Mexico. In addition, MCII has
assigned leases to another party on 224,000 square feet in New Mexico on
which it remains liable for any missed lease payments upon default by the
assignee.
MCII Holdings believes that its facilities are adequate for its
present needs and that its properties are generally in good condition,
well maintained and suitable for their intended use. The following table
is a summary of MCII's primary facilities as of March 31, 1996.
Location/
Ownership
Manufacturing and Assembly U.S. Canada Building Segment
Plants: sq. ft.
1149 St. Matthews Ave.......... - Owned 128,000 Coach
Winnipeg, Canada
841 & 850 Erin Street.......... - Owned 78,000 Coach
Winnipeg, Canada
400 Archibald Street........... - Owned 36,000 Coach
Winnipeg, Canada
1475 Clarence Ave.............. - Owned 381,000 Coach
Winnipeg, Canada
552 W. Stutsman Ave............ Owned - 186,000 Coach
Pembina, ND
140 Otter Street............... - Owned 144,000 Coach
Winnipeg, Canada
Modification or Repair
Facilities:
10 E. Golf Road................ Owned - 60,000 Coach
Des Plaines, IL Support
9846 Atlantic Ave.............. Leased - 16,000 Coach
Southgate, CA Support
14 Harmon Dr................... Leased - 28,000 Coach
Blackwood, NJ Support
1250 Slocum Street............. Leased - 30,000 Coach
Dallas, TX Support
Replacement Parts Facilities:
1558 Wilson Place.............. - Leased 60,000 Parts
Winnipeg, Canada
105 E. Oakton.................. Owned - 180,000 Parts
Des Plaines, IL
55 Howard Street............... Leased - 75,000 Parts
Des Plaines, IL
9 Nicholas Court............... Leased - 106,000 Parts
Dayton, NJ
7030 East Slauson.............. Leased - 50,000 Parts
Los Angeles, CA
Huntsville, TX................. Leased - 75,000 Parts
260 Toronto Street............. - Owned 44,000 Parts
Newcastle, Ontario
Other
The Dial Tower................. Leased - 12,000 Corporate
Phoenix, AZ
Roswell Industrial Air Center.. Leased - 226,000 Coach
Roswell, NM
MANAGEMENT
Directors and Executive Officers
Grupo Dina
Grupo Dina is managed by its board of directors (the "Grupo Dina
Board of Directors"), which currently consists of twelve directors and
five alternate directors. The directors (together with the alternate
directors) are generally elected once a year at Grupo Dina's annual
ordinary meeting of stockholders. Directors and alternate directors are
generally elected by majority vote; however, Grupo Dina's corporate
charter and by-laws (Estatutos Sociales) provide that any stockholder or
group of stockholders who own ten percent of the outstanding common stock
are entitled to appoint one director and one alternate director. Two of
the directors and one alternate director are elected by the holders of
Grupo Dina Series L Stock.
Alternate directors participate and are entitled to vote at the Grupo
Dina Board of Directors' meetings only when principal directors are
absent. Each alternate director may substitute for any of the principal
directors. Grupo Dina's executive officers are appointed by the Grupo Dina
Board of Directors and hold office at the discretion of the Grupo Dina's
Board of Directors.
In accordance with Mexican law, Grupo Dina also has one or more
statutory auditors. The primary role of a statutory auditor is to report
to Grupo Dina's stockholders at the annual ordinary general meeting of
stockholders regarding the accuracy of the financial information presented
to the stockholders by the Grupo Dina Board of Directors. A statutory
auditor is also authorized (I) to call ordinary or extraordinary general
meetings, (ii) to place items on the agenda for meetings of stockholders
or of the Grupo Dina Board of Directors, (iii) to attend meetings of
stockholders and of the Grupo Dina Board of Directors and (iv) generally
to monitor the affairs of Grupo Dina.
Grupo Dina may have an executive committee, the members of which must
be directors and appointed at the stockholders' meeting. Currently, no
executive committee has been appointed. The members of the Grupo Dina
Board of Directors and the alternate directors, as well as the statutory
auditor, are as follows:
Current
Position
Name Position Held Since Alternate
Rafael Gomez Flores....... Chairman 1992(1) Jose Luis Olvera Caballero
Alejandro Cumming Soliveras Director 1992 Humberto Gonzalez Hernandez
Wilfrido Gonzalez Balboa.. Director 1992 Gamaliel Garcia Cortes
David Ibarra Munoz........ Director 1992 Hector Arangua Morales
Luis German Carcova....... Director 1995
Guillermo Gomez Flores.... Director 1994
Luis Huante Rodriguez..... Director 1994
Antonio Mijares Ricci..... Director 1994
Hector Larios Santillan... Director 1996
Juan Gargallo Costa....... Director 1996
Francoise Bouffard........ Director 1996
Guillermo Kareh Aarun..... Secretary 1993
Francisco Javier
Soni Ocampo Deputy 1996 Carlos Mendez Rodriguez
Statutory
Auditor
Martin Josephi Wellman Series L 1995
Director
James Bernacchi Series L 1996 Jerry Bost
Director
- - -------------------
(1) Rafael Gomez Flores has been a Director of Grupo Dina since 1989. He
succeeded O. Raymundo Gomez Flores as Chairman of the Board in 1992.
Grupo Dina's executive officers are as follows:
Current Position
Name Position Held Since
---- -------- --------------
Rafael Gomez Flores Chief Executive Officer 1996
Gamaliel Garcia Cortes Commercial Director 1995
Jose Luis Olvera Caballero Director of Finance 1994
James P. Bernacchi Chief Operating Officer 1996
Alberto Halliuis Morfin General Manager - Spare Parts 1995
Valente Espinoza Director of Acquisitions 1995
Guillermo Kareh Aarun Director of Legal Affairs 1995
and Human Resources
MCII Holdings
The following table sets forth certain information (ages as of July 1,
1996) concerning the directors and executive officers of MCII Holdings. All
directors serve until their resignation or removal.
Name Age Position
Rafael Gomez Flores.............. 39 President and Director
Jose Luis Olvera Caballero....... 42 Vice President, Chief Financial
Officer and Director
Guillermo Kareh Aarun............ 40 General Counsel, Secretary and
Director
Gamaliel Garcia.................. 42 Vice President and Director
Stephen P. Glennon............... 52 Director
Jeff W. Sanders.................. 34 Controller
Kristin Schloemer................ 46 Assistant Secretary
Albert J. Abram.................. 39 Treasurer
Mr. Gomez Flores has been President and Director of MCII Holdings
since May 1996, Director of Grupo Dina since 1991 and Chairman of the
Board of Directors of Grupo Dina since 1992. Rafael Gomez Flores and
Guillermo Gomez Flores, Director of Grupo Dina, are brothers.
Mr. Olvera Caballero has been a Director of MCII Holdings since May
1996, and Director of Finance of Grupo Dina since 1994. Mr. Olvera
Caballero was Managing Partner of Price Waterhouse Mexico from 1991 to
1994.
Mr. Kareh Aarun has been General Counsel, Secretary and Director of
MCII Holdings since May 1996 and General Counsel of Grupo Empresarial G,
S.A. de C.V., an affiliate of Grupo Dina, since 1993. Mr. Kareh Aarun
served as General Counsel of Procter & Gamble Mexico from 1993 to 1996.
Mr. Garcia has been Vice President and Director of MCII Holdings
since May 1996. Mr. Garcia was General Manager of Premium International
from 1991 to 1995.
Mr. Glennon has been Director of MCII Holdings since May 1996. Mr.
Glennon was designated as an independent director of MCII Holdings by the
holder of at least a majority of the Old Notes pursuant to the Indenture.
Mr. Glennon has been CEO of Glennon Associates since 1991, Director of New
Water Street Corp. since 1993 and Director of Arden Group, Inc. since
1994.
Mr. Sanders has been Controller of MCII Holdings since May 1996 and
director of financial reporting and then controller of MCII since its
formation in 1993. Prior to being employed by MCII, Mr. Sanders was
employed by the accounting firm of Deloitte & Touche LLP from 1985 to 1993
in various positions, including senior manager in the audit department.
Ms. Schloemer has been Assistant Secretary and in-house counsel of
MCII Holdings since May 1996 and has served as in-house counsel fo MCII
since its formation in 1993. Prior to employment with MCII, Ms. Schloemer
was employed in the law department of The Dial Corp from 1981 to 1993 in
various positions, working primarily on matters relating to Dial's bus
manufacturing and bus parts distribution businesses..
Mr. Abram has been Treasurer of MCII Holdings since May 1996 and has
served as assistant treasurer and then treasurer of MCII since its
formation in 1993. Prior to being employed by MCII, Mr. Abram was employed
by The Dial Corp or subsidiaries of The Dial Corp beginning in 1985 in
various capacities in the treasury function.
Compensation of Directors and Officers of Grupo Dina
The aggregate amount of compensation paid by Grupo Dina to all
individuals serving as executive officers of the registrant during 1995
was Ps 23.8 million. Grupo Dina did not accrue any pension or retirement
benefits for its directors or executive officers in 1995.
Currently, members of Grupo Dina's Board of Directors who are not
employees of Grupo Dina or its subsidiaries receive as compensation an
annual fee equivalent to US$10,000.
Compensation of Directors of MCII Holdings
Mr. Glennon, independent director of MCII Holdings designated by the
holders of the Old Notes pursuant to the Indenture, receives annual
compensation equal to $10,000 for his services as an independent Director
of MCII Holdings. The other directors of MCII Holdings, who are employees
of MCII or any subsidiary thereof, do not receive additional compensation
by reason of their membership on, or attendance at meetings of, the Board.
MCII Holdings Executive Compensation
MCII Holdings is a holding company with no business operations of its
own and, accordingly, engages in its business through MCII and its
subsidiaries. The officers of MCII Holdings receive no compensation for
their services to MCII Holdings. Accordingly, the following table sets
forth certain compensation awarded to, earned by or paid to the Chief
Executive Officer of MCII and the four most highly paid executive officers
of MCII and its subsidiaries, other than the Chief Executive Officer, who
served as executive officers of MCII at December 31, 1995 for services
rendered in all capacities to MCII and its subsidiaries during 1995 and
the two prior fiscal years.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Award
-------------------------------- -------------------------
Name and Principal
Position Other Securities
Annual Restricted Under-
Compen- Stock lying LTIP All Other
Salary Bonus sation Awards Options Payouts Compensation
Year $ $ $(1) $(2) #(3) $(4) $(5)
---------- ----- ------ ------- -------- ------- ------- ---------
George W. Aucott(6)... 1995 420,000 794,000 1,213,910 0 0 0 1,455,663
Chief Executive 1994 377,865 571,367 19,106 0 0 209,887 6,354
Officer and 1993 161,763 285,400 237,691 175,183 55,000 0 740
Chairman of the
Board, MCII
John R. Nasi(7)....... 1995 346,667 571,300 506,682 0 0 0 2,596,390
President and Chief 1994 326,667 416,600 45,724 0 0 203,882 9,000
Operating Officer, 1993 306,667 225,100 476,088 150,162 93,716 0 14,045
MCII
Truman W. Netherton(8) 1995 237,900 229,600 11,759 0 0 0 7,137
Group Executive 1994 226.667 208,675 113,564 0 0 369,920 4,500
Vice President, 1993 214,333 147,200 5,778 116,438 57,447 0 7,157
North American
Coach Group
Jerry W. Bost......... 1995 210,093 199,000 3,845 0 0 0 6,320
President and Chief 1994 195,333 148,358 92,052 0 0 80,898 5,860
Executive Officer, 1993 166,669 93,000 49,390 97,031 43,710 0 2,205
Universal Coach
Parts, Inc.
James P. Bernacchi.... 1995 136,800 147,000 6,124 0 0 0 3,155
Executive Vice 1994 119,267 93,250 37,378 0 0 0 0
President Procurement 1993 110,733 63,200 41,366 32,344 14,061 0 470
and Manufacturing
Transportation
Manufacturing
Operations, Inc..
<FN>
- - ----------------------
(1) Perquisites are less than the lower of 10% salary and bonus or
$50,000, except that (i) the amount for Mr. Aucott in 1993 includes
perquisites for moving expenses ($49,940), financial counseling
($5,886), country club dues ($4,558) and personal use of company car
($2,635), and (ii) the amount for Mr. Bernacchi in 1993 includes
perquisites for moving expenses ($27,161), personal use of company
car ($964) and country club dues ($75). The amount for Mr. Aucott in
1995 represents a gross-up of the taxes due for reimbursed financial
counseling expenses ($5,840), reimbursed travel expenses ($2,036) and
supplemental pension plan funding ($1,206,034). The amount for Mr.
Nasi in 1995 represents a gross-up of the taxes due for reimbursed
counseling expenses ($8,494) and supplemental pension plan funding
($498,188). The amount for Mr. Netherton in 1995 represents a
gross-up of the taxes due for reimbursed financial counseling
expenses ($2,716) and travel expenses ($9,043). The amount for Mr.
Bost in 1995 represents a gross-up of the taxes due for reimbursed
financial counseling expenses ($2,716) and travel expenses ($1,129).
The amount for Mr. Bernacchi in 1995 represents a gross-up of the
taxes due for reimbursed financial counseling expenses ($1,816) and
travel expenses ($4,308).
(2) There were no restricted stock holdings at December 31, 1995.
(3) There were no stock options at December 31, 1995.
(4) Represents pro rata payment of outstanding awards under the MCII's
incentive plans for the 1992-1994, 1993-1995 and 1994-1996 cycles.
(5) The amount for Mr. Aucott in 1995 represents payments by MCII under
401(k) plans ($9,000), supplemental pension plan funding ($1,442,451)
and life insurance payments ($4,212). The amount for Mr. Nasi in 1995
represents payments by MCII under 401(k) plans ($9,000) and
supplemental pension plan funding ($595,848) and payment under the
MCII executive severance plan ($1,991,542). The amount for Mr.
Netherton in 1995 represents payments by MCII under 401(k) plans
($7,137). The amount for Mr. Bost in 1995 represents payments by MCII
under 401(k) plans ($6,320). The amount for Mr. Bernacchi in 1995
represents payments by MCII under 401(k) plans ($3,155).
(6) Mr. Aucott became empoyed by MCII in July 1993. His employment
terminated on March 31, 1996.
(7) Mr. Nasi served as Chief Executive Officer of MCII until August 1993.
His employment terminated on April 1, 1996.
(8) Mr. Netherton's employment terminated on June 30, 1996.
Years of Service
Renumeration 10 15 20 25
------ ------ ------ ------
$100,000....................$ 15,350 $ 23,025 $ 30,700 $ 38,375
$200,000.................... 32,850 49,275 65,700 82,125
$300,000.................... 50,350 75,525 100,700 125,875
$400,000.................... 67,850 101,775 135,700 169,625
$500,000.................... 85,350 128,025 170,700 213,375
$600,000.................... 102,850 154,275 205,700 257,125
$700,000.................... 120,350 180,525 240,700 300,875
$800,000.................... 137,850 206,775 275,700 344,625
$900,000.................... 155,350 233,025 310,700 388,375
The above table shows the estimated annual retirement benefit payable
on a straight life annuity basis to participating employees, including
officers, in the earnings and years of service classifications indicated,
under MCII's retirement plans which cover most officers and other salaried
employees on a non- contributory basis. MCII's plans provide for the
payment of benefits to an employee's surviving spouse or other
beneficiary.
Covered compensation includes salary and bonus. The calculation of
retirement benefits under the plans generally is based upon average annual
earnings for the highest five consecutive years. The credited years of
service for Messrs. Aucott, Nasi, Netherton, Bost and Bernacchi are 2, 14,
4, 3 and 7, respectively. Mr. Aucott's average annual earnings for the 29
months ended December 31, 1995 were $838,462. Mr. Bost's average annual
earnings for the 39 months ended December 31, 1995 were $303,061. Mr.
Netherton's average annual earnings for the 54 months ended December 31,
1995 were $404,332. Mr. Nasi's average annual earnings for the five years
ended December 31, 1995 were $478,428 and Mr. Bernacchi's were $145,909.
Section 401(a)(17) and 415 of the Internal Revenue Code of 1986, as
amended, limit the annual benefits which may be paid from a tax-qualified
retirement plan. As permitted by the Employee Retirement Income Security
Act of 1974 ("ERISA"), MCII has supplemental plans which authorize the
payment out of the general funds of MCII of any benefits calculated under
provisions of the applicable retirement plan which may be above the limits
under these sections.
The basis on which benefits under the plans are computed are: years
of service, age at retirement and compensation. The benefits listed in the
above Pension Plan Table are not subject to any deduction or other offset
amounts.
MCII Benefit Plans.
The following are descriptions of certain agreements and benefit
plans provided to management employees of MCII and its subsidiaries.
MCII Employment Agreements and Arrangements. MCII entered into a
three year employment agreement with Mr. Aucott providing for a base
salary of $350,000 per year, an annual incentive award under the MCII
annual management incentive plan with a target amount of 60% of base
salary and a long- term incentive award under the PUIP with a target
amount of 60% of base salary.
Letter Agreements. Grupo Dina and MCII entered into letter agreements
(the "New Letter Agreements"), with each of George Aucott, James
Bernacchi, Jerry Bost and Truman Netherton (col- lectively, the
"Executives"). Each of the New Letter Agreements, which are all
substantially similar, pro- vide, among other things, that, for 18 months
following consummation of the Merger, as long as such Executive remains
employed by Grupo Dina or any of its subsidiaries or affiliates, such
Executive's compensation package will not be reduced and will remain
competitive with compensation packages for executives (exclusive of bonus,
stock options, restricted stock and other incentive or severance
arrangements) in positions substantially similar to such Executive's
position at the time of the Merger who are employed by similarly situated
United States corporations. In addition, the New Letter Agreements provide
that, for 18 months following consummation of the Merger, as long as an
Executive remains employed by Grupo Dina or any of its subsidiaries or
affiliates, such Executive will be entitled to partici- pate in a
management incentive plan substantially similar to MCII's existing
management incentive plan and that, as long as such Executive remains
employed by Grupo Dina or any of its subsidiaries or affiliates, such
Executive will be entitled to an annual cash payment through the year
2000. The amount of the cash payment to be made to each Executive was
established in such Executive's New Letter Agreement and determined based
on a percentage of such Executive's total current compensation package.
In addition, pursuant to the New Letter Agreements, the Executives
have agreed to waive any rights they may have under MCII's existing
Executive Severance Plan (as defined below), except in the event of
involuntary termination of employment without Cause (as defined in the
Executive Severance Plan) within 18 months following the Merger. Each
Executive's employment with MCII may be terminated at any time by either
MCII or the employee. However, in the event any Executive's employment is
terminated involuntarily within 18 months after the Merger for a reason
other than for Cause (as defined in the Executive Severance Plan), such
Executive is entitled to severance benefits in accordance with the terms
of the Executive Severance Plan.
MCII Executive Severance Plans. MCII adopted an executive severance
plan ("Executive Sever- ance Plan") covering a number of employees,
including Mr. Nasi, providing severance benefits in the event of
termination of employment for reasons other than death, disability or
normal retirement, within 18 months after a change in control of MCII.
Under the plan, in the event of such termination, Mr. Nasi would receive
three times salary, bonuses and other benefits and three years' credit for
pension service. In addition, the Executive Severance Plan provided that
if Mr. Nasi elected to terminate his employment during April 1996, Mr. Nasi
would be entitled to receive two times salary, bonus and other benefits,
and two years' credit for pension service, in each case net of any amounts
paid under any other severance agreement or arrangement.
Grupo Dina Management Stock Sales Plan
At an extraordinary general stockholders' meeting held on October 9,
1992, the stockholders of Grupo Dina approved the issuance of 8,234,360
shares of common stock with a current aggregate book value of
approximately Ps 37.8 million (US$5.06 million, based on an exchange rate
as of June 3, 1996 of Ps 7.4747=US$1.00) which have been subscribed for
and fully paid by the trust (the Grupo Dina Management Trust") established
to implement Grupo Dina's Management Stock Sales Plan. The Grupo Dina
Management Trust purchased the shares of common stock on October 14, 1992
at a price of Ps 3.04 (US$0.98) per share of common stock. Executive
officers of Grupo Dina were awarded options to purchase common stock from
the Grupo Dina Management Trust which are exercisable over the course of
the next ten years in accordance with guidelines established by a
technical committee, which includes representatives of Grupo Dina's
principal stockholder. The common stock will be purchased by officers at
the same price the trust paid for the common stock. As of March 31, 1996,
6,358,417 shares of common stock remained in the Grupo Dina Management
Trust.
OWNERSHIP OF COMMON STOCK
Grupo Dina
The capital stock of Grupo Dina consists of one series of voting
stock, the common stock, and one class of limited voting stock, the Series
L Stock. The following table sets forth, at July 22, 1996, informa- tion,
known to Grupo Dina, with respect to beneficial owners of more than 5% of
the outstanding shares and beneficial ownership of outstanding shares by
all officers and directors as a group.
Percent of
Title of Number of Shares Outstanding
Class Name of Owner Owned(1) Common Stock(1)
Common Grupo Empresarial G, S.A. de C.V. 127,912,420 62.8%
Common Rafael Gomez Flores 1,666,287 0.8%
Common O. Raymundo Gomez Flores 1,666,309 0.8%
Common Armando Gomez Flores 1,666,308 0.8%
Common Alfonso Miguel Gomez Flores 1,666,309 0.8%
Common Guillermo Gomez Flores 1,666,289 0.8%
Common Grupo Dina Management Trust 6,238,056 3.1%
Common All officers and directors as a
group(2) 9,955,993 4.9%
Series L Frost-Nevada, Limited
Partnership (3) 2,099,703 12.3%
Series L Goldman, Sachs & Co. (4) 3,416,493 21.7%
Series L All officers and directors as a
group(5) 516,944 1.0%
- - -------------
(1) 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 G, S.A. de C.V. ("Empresarial"),
each such family member may be deemed to be the beneficial owner of
such shares in addition to the shares owned of record by such family
member.
(2) Includes all shares held of record by officers and directors of Grupo
Dina as well as all shares held in the Grupo Dina Management Trust.
However, such shares do not include shares held of record by
Empresarial which members of the Gomez Flores family may be deemed to
beneficially own.
(3) Based upon the information contained in Amendment No. 5 dated June
19, 1996 to a Schedule 13D filed by Frost-Nevada, Limited Partnership
("F-N LP"), Frost-Nevada Corporation ("F-N Corp."), F-N LP's general
partner, and Phillip Frost, M.D., the sole stockholder of F-N Corp.,
each of F-N Corp. and Dr. Frost may be deemed to be the beneficial
owner of these shares.
(4) Based upon the information contained in Amendment No. 3 dated
February 13, 1996 to a Schedule 13G filed by Goldman, Sachs & Co. and
Goldman Sachs Group, L.P.
(5) Includes shares owned by certain individuals who as of the date of
this Prospectus are no longer officers or directors.
Empresarial is a holding company owned by the members of the Gomez
Flores family listed in the table above. Approximately 62.8% of the
outstanding shares of common stock of Grupo Dina are owned by Empresarial
and therefore may be deemed to be beneficially owned by members of the
Gomez Flores family. Consequently, as of the date of this Prospectus,
Empresarial and, through it, those family members have the power to elect
all of Grupo Dina's directors other than the two directors entitled to be
elected by the holders of Series L Stock and as otherwise discussed in
"Management" and to determine the outcome of any actions requiring
stockholder approval, including the declaration, amount and payment of
dividends by Grupo Dina. Through Empresarial, the Gomez Flores family is
engaged in a wide range of business activities in Mexico, including real
estate development and residential and commercial real estate construction
and food related businesses.
There are no arrangements known to management, the operation of which
may at a subsequent date result in a change in control of the Grupo Dina.
MCII Holdings
All of the outstanding common stock of MCII Holdings is owned by
Grupo Dina.
CERTAIN TRANSACTIONS
In the ordinary course of its business, Grupo Dina engages in a
variety of transactions with Empresarial and other affiliates of the Gomez
Flores family. Empresarial and members of the Gomez Flores family, who in
turn control Empresarial, are the controlling shareholders of Grupo Dina.
The principal transactions with such related parties during the period
from January 1, 1993 through March 31, 1996 are as follows:
(i) In the ordinary course of its business, Grupo Dina sells
coaches to the major intercity coach operating groups in Mexico. In
1992, Empresarial acquired a 21% interest in Grupo Empresarial de
Occidente, S.A. de C.V., which controlled 39% of Grupo Tres Estrellas
de Oro, one of the major intercity coach operating groups. During
1992, Grupo Tres Estrellas de Oro purchased 503 coaches from Grupo
Dina, representing net sales of Ps 648.5 million. In 1993,
Empresarial sold its interest in Grupo Empresarial de Occidente. In
connection with such sale, Tres Estrellas and Estrella Blanca agreed
with Autobuses that Autobuses will supply all of their requirements
of new coaches for a period of 30 years at commercially competitive
prices. The agreement provides for a minimum annual purchase
requirement of 400.
(ii) On October 13, 1993, Grupo Dina advanced to Empresarial
US$30 million at a rate of 11.1%, which was paid on November 15,
1993.
(iii) Members of the Gomez Flores family own in the aggregate
approximately 80% of the outstanding capital stock of AF Dina, a
company which provides financing for sales of Grupo Dina's trucks and
coaches as well as other products not related to the businesses of
Grupo Dina. Grupo Dina owns 12% of the outstanding capital stock of
AF Dina. Grupo Dina may provide assistance to AF Dina in the form of
guarantees of its borrowings.
Since the Merger, MCII has engaged in transactions with Grupo Dina in
the normal course of business. Such transactions are disclosed as part of
MCII Holdings' consolidated financial statements included elsewhere in
this Prospectus.
DESCRIPTION OF THE NOTES
The New Notes offered hereby will be issued pursuant to the Indenture
among Grupo Dina, MCII Holdings and IBJ Schroder Bank & Trust Company, as
Trustee, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part. The following
summary, which describes certain provisions of the Indenture and the
Notes, does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the TIA and all of the provisions of the
Indenture and the Notes, including the definitions therein of terms not
defined in this Prospectus. Certain terms used in this section are defined
below for purposes of this section under "-- Certain Definitions." New
Notes are identical in all material respects to the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old
Notes and except that, if the Exchange Offer is not consummated by
December 30, 1996, the Old Notes will bear additional interest as
described under "-- Registration Rights" below.
General
The Notes will be dated as of, and accrue interest from, November 18,
1995 and will bear interest initially at the rate of 12% per annum through
maturity; provided, that, if the Notes are not rated either BB- or better
by S&P or Ba3 or better by Moody's at November 15, 1999, the per annum
interest rate shall be increased on such date to 15%, until maturity.
Prior to and including the interest payment due on November 15, 1998, the
Notes will accrue interest on a zero coupon basis and, accordingly, the
principal value of each New Note will accrete from US$705.65 at November
18, 1995 for each US$1,000 in principal amount to US$1,000 at November 15,
1998. Thereafter, all interest will be payable in cash semiannually on May
15 and November 15 of each year (each a "Cash Interest Payment Date"),
commencing May 15, 1999. Interest on the Notes will be paid to the Persons
who are registered holders of Notes at the close of business on the first
day of the month in which such interest payment date occurs. The Notes
will be transferable and exchangeable initially at the office of the
Trustee and will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple thereof. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Additional interest may be payable on the Notes under the circumstances
described below under "--Registration Rights."
Grupo Dina and MCII Holdings will be jointly and severally liable
with respect to payments of principal and interest on the Notes. It is
intended that all payments in respect of the Notes will be paid by Grupo
Dina, and that payments will be made by MCII Holdings only in the event of
failure to pay by Grupo Dina. MCII Holdings will have subrogation rights
against Grupo Dina if MCII Holdings is required to make any payments under
the Notes. Such subrogation rights will be subordinated to the prior
payment in full of the Notes and the Eurobonds. Holders of the Notes, by
their acceptance of the Notes, will agree to report the Notes as
indebtedness of Grupo Dina which is guaranteed by MCII Holdings for all
tax pur- poses. In addition, Grupo Dina and MCII Holdings intend to treat
the Notes as debt of Grupo Dina guar- anteed by MCII Holdings for all tax
purposes.
The principal amount of the Notes will be payable on November 15,
2002. The Notes will be general senior obligations of Grupo Dina and MCII
Holdings. The obligation of MCII Holdings will be secured by (i) a pledge
of the MCII Shares and (ii) a perfected first priority security interest
in any cash deposited with the Trustee in accordance with the covenant
described under "--Certain Cove- nants--Limitation on Restricted Payments
by MCII Holdings" below. MCII Holdings may sell the MCII Shares and MCII
may issue and sell additional MCII stock in accordance with the covenant
described under "--Certain Covenants--Limitation on Issuance and Sale of
Capital Stock of MCII" below. The obligation of Grupo Dina in respect of
the New Notes will rank pari passu with the Old Notes and with all other
outstanding unsecured and unsubordinated obligations of Grupo Dina,
present or future, other than obligations which are mandatorily preferred
by statute or operation of law. The obligation of MCII Holdings in respect
of the New Notes will rank pari passu with the Old Notes and, by reason of
the security interests referred to above, will effectively rank senior to
any outstanding unsecured obligations of MCII Holdings. MCII Holdings will
not incur indebtedness for borrowed money except for indebtedness
subordinated to the Notes as described under "--Certain
Covenants--Limitation on MCII Holdings Debt" below.
Under the terms of the Indenture, Grupo Dina or MCII Holdings, as the
case may be, may be obligated or have the option to repurchase the Notes.
Selection of Notes to be repurchased pursuant to the Indenture will be
made by lot, pro rata or by such other method as the Trustee shall deem to
be fair and appropriate. The Indenture provides that if any Note is to be
redeemed in part only, the notice of redemption relating to such Note
shall state the portion of the principal amount (in integral multiples of
US$1,000) to be redeemed and that on and after the date fixed for
redemption, upon surrender of such Note, a new Note or Notes in principal
amount equal to the unredeemed portion thereof may be issued in the name
of the holder thereof, or the Trustee may note such partial redemption
upon such security. Grupo Dina or MCII Holdings will comply with any
tender offer rules under the Exchange Act which may then be applicable,
including Rule 14e-1, in connection with any offer made by Grupo Dina or
MCII Holdings to repurchase the Notes. To the extent that the provisions
of any securities laws or regulations conflict with provisions of this
covenant, Grupo Dina or MCII Holdings will comply with the applicable
securities laws and regulations and shall not be deemed to have breached
its obligations under this covenant by virtue thereof.
For each Old Note accepted for exchange the holder of such Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note.
All Old Notes and New Notes will be treated as a single class of
securities under the Indenture.
Security for the Notes
The Notes will be secured by (i) pledge of the MCII Shares held by
MCII Holdings and (ii) a perfected first priority security interest in any
cash deposited with the Trustee in accordance with the covenant described
under "--Certain Covenants--Limitation on Restricted Payments by MCII
Holdings" below. MCII Holdings may sell the MCII Shares and MCII may issue
and sell additional MCII stock in accordance with the covenant described
under "--Certain Covenants--Limitation on Issuance and Sale of Capital
Stock of MCII" below.
Optional Redemption
The Notes may be redeemed, in whole or in part, at the option of
Grupo Dina, upon not less than 30 nor more than 60 days' notice mailed to
each holder of Notes at its address at any time on or after November 15,
1998, at a price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the redemption date. In addition,
the Notes may be redeemed, in whole but not in part, at the option of
Grupo Dina or MCII Holdings at any time at 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, through the redemption
date in the event of certain changes affecting withholding taxes. See
"--Tax Redemption" below.
Change of Control
A Change of Control will constitute an Event of Default under the
Indenture (i) if within 30 days after such Change of Control neither Grupo
Dina nor MCII Holdings, as the case may be, has notified the Trustee in
writing of such Change of Control and mailed a notice to holders of Notes
stating (A) that Grupo Dina or MCII Holdings is making an offer to all
holders of the New Notes to purchase all Notes properly tendered (a
"Change of Control Offer") at a purchase price (the "Change of Control
Purchase Price") equal to the aggregate Accreted Value thereof on the date
of purchase, if on or prior to November 15, 1998, and equal to the
aggregate principal amount thereof, plus accrued and unpaid interest, if
any, thereafter, to the date of purchase (subject to the right of holders
of record on the relevant record date to receive interest due on the
relevant Cash Interest Payment Date); (B) the purchase date (which will be
no earlier than 30 days nor later than 60 days from the date such notice
is mailed) (the "Change of Control Purchase Date"); and (C) the
instructions, determined by Grupo Dina or MCII Holdings, consistent with
the Indenture, that a holder must follow in order to tender its Notes; or
(ii) neither Grupo Dina nor MCII Holdings, as the case may be, purchases
all Notes properly tendered in accordance with the Change of Control Offer
on such Change of Control Purchase Date.
The failure of Grupo Dina or MCII Holdings, as the case may be, to
make the Change of Control Offer or to pay the Change of Control Purchase
Price on the Change of Control Purchase Date will result in the Trustee
and the holders of the Notes having the rights described under "--Events
of Default" below. Grupo Dina's or MCII Holdings' ability to pay cash to
the holders of the Notes upon a repurchase may be limited by Grupo Dina's
or MCII Holdings' then existing financial resources, and there can be no
assurances that Grupo Dina or MCII Holdings will have the financial
resources necessary to repurchase the Notes upon a Change of Control.
The provisions under the Indenture relating to Grupo Dina's or MCII
Holdings' obligation to make an offer to repurchase Notes as a result of a
Change of Control may be waived or modified with the written consent of
the holders of a majority in principal amount of the Notes.
Certain Covenants
The Indenture contains covenants including, among others the
following:
Limitation on MCII Holdings Debt. Excluding the Notes, MCII Holdings
may not, directly or indirectly, create, incur, issue, assume, suffer to
exist, Guarantee or in any other manner become directly or indirectly
liable with respect to or become responsible for (collectively, to
"incur") any Debt. Notwithstanding the foregoing, MCII Holdings may incur
Debt subordinated to the Notes provided that the Notes are rated BBB- or
better by S&P and Baa3 or better by Moody's at the time of and immediately
after the incurrence of such subordinated Debt.
Limitation on Subsidiary Debt and Preferred Stock. MCII Holdings will
not permit MCII or any other Subsidiary to, directly or indirectly, incur
any Debt or issue Preferred Stock if it would result in the aggregate
amount of Subsidiary Debt exceeding at any time the sum of (i) the
Adjusted Subsidiary Debt Amount and (ii) the Debt, if any, of Autobuses,
if Autobuses shall become a direct Subsidiary of MCII Holdings; provided,
however, that if (x) the total principal amount of Notes outstanding on
November 15, 1998 and (y) the aggregate amount of Subsidiary Debt exceeds
the Maximum Permitted Debt Amount at November 15, 1998, then to the extent
that Notes are not prepaid on such date, MCII Holdings shall cause its
Subsidiaries to reduce Debt on and after November 15, 1998 for so long as
and to the extent necessary to ensure that the aggregate amount of Notes
outstanding and the aggregate amount of Subsidiary Debt does not at any
time exceed the Maximum Permitted Debt Amount for so long as any Notes
shall be outstanding. For purposes of the foregoing, the Maximum Permitted
Debt Amount means US$420 million; provided, however, that upon
contribution by Grupo Dina of 100% of the issued and outstanding Capital
Stock of Autobuses to MCII Holdings or MCII, the Maximum Permitted Debt
Amount shall mean US$440 million. For purposes of the foregoing, Debt
shall exclude Permitted Debt, and for purposes of the preceding sentence,
but not the first sentence, of this paragraph, Debt shall exclude
additional Debt in an amount not to exceed 80% of MCII Receivables.
Notwithstanding the foregoing, if Autobuses becomes a direct Subsidiary of
MCII Holdings, no other Subsidiary of MCII Holdings shall Guarantee or
otherwise be responsible for the Debt, if any, of Autobuses.
Limitation on Restricted Payments by MCII Holdings. The Indenture
prohibits any MCII Holdings Restricted Payments; provided, however, that
MCII Holdings may declare and pay dividends, so long as at the time of
such dividend and after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing, as follows: (i) in the one
year period following the Expiration Date, MCII Holdings may declare and
pay one or more dividends on its Capital Stock aggregating not more than
US$25 million and (ii) MCII Holdings may declare and pay dividends on its
Capital Stock in an amount (excluding dividends under clause (i)) equal to
the greater of (a) US$3 million per calendar year and (b) 50% of the
Consolidated Net Income of MCII since January 1, 1996 (treated as one
accounting period), provided that, in the event of a dividend permitted
under clause (b) but not under clause (a), MCII Holdings has on deposit
with the Trustee for the benefit of the holders an amount of cash and/or
Cash Equivalents not less than the cash interest due on the Notes then
outstanding within the six month period following the payment of such
dividend and (iii) subject to compliance by MCII Holdings with the
"Limitation on Issuance and Sale of Capital Stock of MCII" covenant, MCII
Holdings may declare and pay any dividend in an amount not to exceed the
amount of Required Proceeds from the sale of Capital Stock of MCII not
required for the repurchase of Notes pursuant to such covenant.
In addition, MCII Holdings may declare and pay any dividend not
permitted under clauses (i) and (ii), provided that (1) it shall have
first offered to apply up to the difference between the amount of such
dividend and the maximum amount then permitted under clause (ii) (the
"Extraordinary Dividend Amount") to the repurchase of Notes pursuant to a
Qualifying Offer. To the extent that the aggregate Accreted Value or the
principal amount (together with accrued interest, if any) of Notes
tendered pursuant to such Qualifying Offer is less than the amount of the
Extraordinary Dividend Amount, MCII Holdings may declare and pay as a
dividend the portion of such Extraordinary Dividend Amount that is not
required in order to purchase Notes so tendered. MCII Holdings may reduce
the Extraordinary Dividend Amount offered to repurchase Notes by the
amount, if any, it shall have paid in the 180 days preceding the
commencement of the relevant Qualifying Offer to purchase or otherwise
retire Notes other than in satisfaction of this or any other covenant
under the Indenture.
Limitation on MCII Holdings Liens. MCII Holdings will not, directly
or indirectly, incur any Lien of any kind on or with respect to any
property or assets now owned or hereafter acquired, or any interest herein
or any income or profits therefrom, for the benefit of any Debt that is
subordinated to the Notes. If MCII Holdings acquires the Capital Stock of
Autobuses, MCII Holdings will not, directly or indirectly, incur any Lien
of any kind on or with respect to the Capital Stock of Autobuses.
Limitation on the Issuance and Sale of Capital Stock of MCII. MCII
Holdings will not convey, sell, assign, transfer or otherwise dispose of,
and will not permit MCII to issue and sell, Capital Stock of MCII (an
"MCII Shares Sale"); provided, however, that MCII may issue and sell, or
MCII Holdings may convey, sell, assign, transfer, or otherwise dispose of,
MCII Capital Stock, other than Redeemable Stock or Preferred Stock, if
immediately after giving effect to such an MCII Shares Sale (i) MCII
Holdings shall continue to hold a Majority of the Voting Stock of MCII and
(ii) MCII Holdings or MCII, as the case may be, makes a Qualifying Offer
to apply 80% of the Net Proceeds of such MCII Shares Sale (such 80% the
"Required Proceeds") to purchase Notes properly tendered pursuant to such
Qualifying Offer. To the extent that the aggregate Accreted Value or the
principal amount (together with accrued interest, if any) of the Notes
tendered pursuant to such Qualifying Offer is less than the amount of the
Required Proceeds, MCII Holdings and MCII may use such portion of the
Required Proceeds that is not required in order to purchase Notes so
tendered for any purpose whatsoever. Notwithstanding the foregoing, (i) no
Capital Stock of MCII may be sold without the affirmative vote of the
holders of at least 662/3% of the outstanding aggregate principal amount
of the Notes unless the implied value of 100% of the Capital Stock of MCII
(based upon the price per share to be realized in the proposed sale) would
exceed the aggregate Accreted Value of the Notes then outstanding; (ii)
MCII Holdings shall not permit MCII at any time to issue and sell
Redeemable Stock or Preferred Stock; and (iii) in the event that the
Capital Stock of Autobuses is contributed to MCII or any Subsidiary of
MCII, no additional Capital Stock, Redeemable Stock or other securities
shall be issued in respect of such contribution.
The Trustee will execute any and all necessary documents to permit
the release of the Lien on the Capital Stock of MCII to be sold pursuant
to this covenant.
Transactions with Affiliates. The Indenture provides that, subject to
certain exceptions, including, without limitation, any agreement entered
into on or before the date of the Indenture, MCII Holdings will not, and
will not permit any Subsidiary to, directly or indirectly, conduct any
business or enter into or suffer to exist any transaction or series of
transactions (including, without limitation, the purchase, sale, transfer,
lease or exchange of any assets or property or the rendering of any
service) with, or for the benefit of, Grupo Dina or any Affiliate of Grupo
Dina (other than MCII Holdings or a Subsidiary) on terms that are not in
the best interest of MCII Holdings or such Subsidiary, as the case may be,
or on terms that are less favorable to MCII Holdings or such Subsidiary,
as the case may be, than those which might be obtained at the time of such
transaction from a Person who is not such an Affiliate. Any business,
transaction or series of related transactions involving aggregate payments
in excess of US$5 million will require affirmative approval from the Board
of Directors of MCII Holdings and a favorable written fairness opinion
from an independent appraisal or investment banking firm, except that MCII
may maintain up to US$30 million in inventory representing bus and bus
parts purchases from Grupo Dina without affirmative approval from the
Board of Directors of MCII Holdings or a favorable written fairness
opinion from an independent appraisal firm.
Notwithstanding the foregoing, MCII Holdings or any Subsidiary
thereof may repurchase and cancel the New Notes at any time.
Limitation on Mergers, Consolidations or Sales of Assets. The
Indenture provides that, without the unanimous affirmative vote of all
members of the Board of Directors of MCII Holdings, MCII Holdings will
not, in any transaction or series of transactions, consolidate or merge
with or into any Person, or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of its assets, or acquire
all or substantially all of the assets or Capital Stock or other ownership
interest of, any other Person; provided, however, that the following shall
not be subject to this covenant: (a) any MCII Shares Sale in accordance
with the covenant described under "--Limitation on Issuance and Sale of
Capital Stock of MCII" above and (b) any acquisition by MCII Holdings of
the Capital Stock of Autobuses. In addition, any such transaction by MCII
Holdings receiving the unanimous affirmative vote of all members of the
Board of Directors of MCII Holdings may only be consummated if: (1) the
entity formed by or surviving any such consolidation or merger (if MCII
Holdings is not the surviving entity) or the Person to which such sale,
conveyance, assignment, transfer, lease or other disposition of all or
substantially all of MCII Holdings' Property is made (the "Surviving
Person") shall be a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia; and
(2) every such successor or assign shall, as a part of such consolidation,
merger, conveyance, assignment, transfer, sale, lease or disposition and
in consideration thereof enter into and execute an instrument supplemental
to the Indenture whereby such successor or assign covenants: (i) to pay
punctually when due the principal of and interest and Additional Amounts,
if any, on the Notes; and (ii) to observe and perform each and every
covenant and agreement of MCII Holdings contained in the Notes and the
Indenture as fully and completely as if it had itself executed the Notes
and the Indenture as MCII Holdings.
MCII Holdings will not permit MCII, in any transaction or series of
transactions, to consolidate with or merge with or into, or sell, convey,
assign, transfer, lease or otherwise dispose of all or substantially all
of its assets to, any Person unless: (i) MCII shall be the surviving
Person (the "Surviving Person"), or the Surviving Person (if other than
MCII) formed by such consolidation or into which MCII is merged or to
which the assets of MCII are transferred shall be a corporation organized
and existing under the laws of the United States or any State thereof or
the District of Columbia; (ii) the Surviving Person (if other than MCII)
shall expressly assume all of the obligations of MCII; and (iii)
immediately before and immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing;
provided, however, that no transaction or series of transactions which
would otherwise constitute a disposition of substantially all the assets
of MCII shall be treated as such for purposes of the Indenture, including
this covenant, unless such disposition also constitutes a disposition of
all or substantially all the assets used in the bus manufacturing business
of Grupo Dina and its Subsidiaries. For the purposes of the preceding
sentence, Grupo Dina and its Subsidiaries will be considered as a single
entity.
Limitation on Business of MCII Holdings. MCII Holdings may not engage
in any business other than (i) holding the MCII Shares and, if MCII
Holdings acquires the Capital Stock of Autobuses, holding the Capital
Stock of Autobuses, (ii) pledging the MCII Shares as collateral under the
Notes, (iii) satisfying its obligations under the Notes in the event of a
failure to pay by Grupo Dina, (iv) making investments in Cash Equivalents
and (v) any other transactions expressly provided for in the Indenture.
Corporate Separateness of MCII Holdings. Pursuant to MCII Holdings'
Certificate of Incorporation and the Indenture, for so long as any Notes
shall be outstanding, (i) MCII Holdings' Board of Directors will consist
of not more than three members, at least one of which will be selected by
the holders of a Majority of the Notes and (ii) MCII Holdings will not be
authorized, without the unanimous consent of the Board of Directors, to
(A) dissolve or liquidate, in whole or in part, or institute proceedings
to be adjudicated bankrupt or insolvent, (B) consent to the institution of
bankruptcy or insolvency proceedings against it, (C) file a petition
seeking or consent to reorganization or relief under any applicable
federal, state or foreign law relating to bankruptcy, (D) consent to the
appointment of a receiver, liquidator, assignee, trustee or sequestrator
(or other similar official) of MCII Holdings or a substantial part of its
property, (E) make a general assignment for the benefit of creditors, (F)
admit in writing its inability to pay its debts generally as they come due
or (G) take any corporate action in furtherance of the actions set forth
in clauses (A) through (F) of this paragraph. In addition, no director
will be under any duty to nor may be required by Grupo Dina to consent to
the institution of bankruptcy or insolvency proceedings against MCII
Holdings so long as it is solvent and does not reasonably foresee becoming
insolvent, which determination shall be made after giving effect to the
subrogation rights of MCII Holdings in respect of the Notes. The Indenture
provides that, for so long as any Notes are outstanding, (i) each of Grupo
Dina and MCII Holdings shall do all things within its power to satisfy the
legal requirements applicable from time to time for the recognition of
MCII Holdings as a corporate entity separate and apart from Grupo Dina (or
any Person subsequently controlling Grupo Dina) and (ii) each of Grupo
Dina and MCII Holdings shall fulfill its obligations under, and shall not
waive any of its rights provided by, the Corporate Separateness Agreement.
Reports to Holders of the Notes. Each of Grupo Dina and MCII Holdings
shall file with the Trustee and provide holders of the Notes, within 15
days after it files them with the Commission, copies of its annual report
and the information, documents and other reports which Grupo Dina and MCII
Holdings are required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. Notwithstanding that Grupo Dina and MCII
Holdings may or may not be required to become or to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Grupo
Dina and MCII Holdings shall continue to provide the holders of the Notes
with the annual reports and the information, documents and other reports
which are specified in Section 13 and 15(d) of the Exchange Act,
including, in the case of MCII Holdings, quarterly reports and all other
reports required of issuers that are not foreign private issuers as
defined under Rule 3b-4 of the Exchange Act.
Impairment of Security Interest. MCII Holdings shall not take or
knowingly or negligently omit to take any action, which action or omission
might or would have the result of materially impairing the security
interest with respect to the Collateral for the benefit of the Trustee and
the holders of the Notes, and MCII Holdings shall not, and shall not
permit any of its Subsidiaries to, grant to any Person other than the
Trustee and the holder of Notes, any interest whatsoever in any
Collateral.
Limitation on Restricted Payments By Grupo Dina. The Indenture
prohibits any Grupo Dina Restricted Payments until such time as Grupo Dina
or any of its Subsidiaries shall have made one or more Qualifying Offers
to purchase New Notes representing at least 75% of the Original Principal
Amount of the New Notes, such amount to be reduced by the principal amount
of any Notes purchased or otherwise retired by Grupo Dina or any of its
Subsidiaries other than pursuant to a Qualifying Offer.
Limitation on Grupo Dina Liens. Grupo Dina will not, directly or
indirectly, incur any Lien of any kind on or with respect to any property
or assets now owned or hereafter acquired, or any interest therein or any
income or profits therefrom, for the benefit of any Debt that is
subordinated to the New Notes.
Limitation on Asset Sales by Grupo Dina. The Indenture provides that
the following covenant shall be in effect until such time as Grupo Dina or
any of its Subsidiaries shall have made one or more Qualifying Offers to
purchase Notes representing at least 75% of the Original Principal Amount
of the Notes, such amount to be reduced by the principal amount of any
Notes purchased or otherwise retired by Grupo Dina or any of its
Subsidiaries other than pursuant to a Qualifying Offer.
Grupo Dina shall not, and shall not permit any of its Subsidiaries
(other than MCII Holdings or any Subsidiary of MCII Holdings) to, directly
or indirectly, consummate any Asset Sale with Net Proceeds thereof
exceeding US$10 million unless (i) Grupo Dina or such Subsidiary, as the
case may be, receives consideration (the "Asset Sale Proceeds") at least
equal to the fair market value of the property subject to such Asset Sale
and (ii) at least 75% of the consideration therefor received by Grupo Dina
or such Subsidiary consists of cash, Cash Equivalents and/or liquid
securities which Grupo Dina or such Subsidiary, as the case may be, plans
in good faith to convert into cash within the 180-day period following
such Asset Sale.
In addition, within 365 days of the receipt of any Asset Sale
Proceeds, Grupo Dina or any Subsidiary may (i) reinvest such Asset Sale
Proceeds (or any portion thereof) in additional assets used in the truck
and bus manufacture and supply business (or in any other business directly
related or incidental thereto) or (ii) purchase or otherwise retire
Euronotes, Notes or the Debentures; provided that the amount applied to
purchase Debentures does not exceed US$20 million, such amount to be
reduced by the amounts applied by Grupo Dina or any of its Subsidiaries to
repurchase or otherwise retire Debentures since the date of original
issuance of Notes; and provided further that not more than 25% of any
Asset Sale Proceeds of any Asset Sale or series of related Asset Sales may
be applied to purchase Debentures. Any proceeds that are not so reinvested
or applied to retire such Debt within such period shall constitute "Excess
Asset Sale Proceeds."
Each time the aggregate amount of Excess Asset Sale Proceeds equals
or exceeds US$10 million, Grupo Dina shall make a Qualifying Offer to
repurchase Notes with the Excess Asset Sale Proceeds.
Waiver of Certain Covenants
Subject to certain exceptions, the Indenture provides that Grupo Dina
and/or MCII Holdings may omit in any instance to comply with any covenant
or condition set forth in the foregoing covenants if before the time for
such compliance the holders of at least a majority of the outstanding
aggregate principal amount of New Notes shall either waive such compliance
in such instance or generally waive compliance with such covenants or
condition, but no such waiver shall extend to or affect such covenants or
condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of Grupo Dina, MCII Holdings and
the duties of the Trustee under the Indenture in respect of any such
covenant or condition shall remain in full force and effect.
Events of Default
The following, in addition to the events described under "--Change of
Control," constitute "Events of Default" with respect to the Notes
pursuant to the Indenture:
(1) failure to pay interest on any of the Notes when due
if such failure continues for 30 days;
(2) failure to pay principal or premium, if any, on any
of the Notes when due at maturity, upon acceleration, optional
redemption, required purchase or otherwise;
(3) failure to comply with any of the covenants and
agreements in the Indenture (other than the obligations specified in
clauses (1) and (2) above) if such failure exists for more than 45
days following notice from the Trustee or holders of 331/3% of the
outstanding principal amount of Notes;
(4) Debt of MCII Holdings or any Subsidiary thereof is
not paid when due within the applicable grace period or is
accelerated by the holders thereof and, in either case, the total
amount of such unpaid or accelerated Debt exceeds US$20 million;
(5) certain events of bankruptcy, insolvency or
reorganization;
(6) any judgment or decree aggregating more than US$20
million entered against MCII Holdings or any Subsidiary thereof
remains unsatisfied or unstayed for more than 60 days;
(7) any unwaived and uncured Event of Default under the
indentures relating to the Subordinated Debentures or any outstanding
Euronotes; and
(8) the Indenture or any of the security documents ceases
to be in full force and effect or ceases to create in favor of the
Trustee a valid and perfected first priority Lien on the Collateral.
If an Event of Default specified in clause (4) or clause (7) above
occurs under the Indenture, and if the relevant lender whose Debt was
accelerated later rescinds such acceleration (or such acceleration is
later cured), then any cross acceleration of the Debt under the Notes
shall be automatically rescinded (or cured) as well.
If an Event of Default (other than certain events of bankruptcy,
insolvency or reorganization of MCII Holdings) occurs, the Trustee or the
holders of at least 331/3% in principal amount of the outstanding Notes
may declare the principal of and accrued but unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of
MCII Holdings occurs and is continuing, the principal of and interest on
the Notes will automatically become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any
holders of the Notes. Under certain circumstances, the holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, if an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under
the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity
or security against any loss, liability or expense. Except to enforce the
right to receive payment of principal, premium (if any) or interest when
due, no holder of a Note may pursue any remedy with respect to the
Indenture or the Notes unless (i) such holder has previously given the
Trustee notice that an Event of Default is continuing, (ii) holders of at
least 25% in principal amount of the outstanding Notes have requested the
Trustee to pursue the remedy, (iii) such holders have offered the Trustee
reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have
not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a
majority in principal amount of the outstanding Notes are given the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder of a
Note or that would involve the Trustee in personal liability.
The Indenture provides that if an Event of Default occurs and is
continuing and is known to the Trustee, the Trustee must mail to each
holder of the New Notes notice of the Event of Default within 90 days
after it occurs. Except in the case of a Event of Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice
if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the
Notes. In addition, each of Grupo Dina and MCII Holdings is required to
deliver to the Trustee, within 120 days after the end of each fiscal year,
a certificate indicating whether the signers thereof know of any Event of
Default that occurred during the previous year. Each of Grupo Dina and
MCII Holdings also is required to deliver to the Trustee, within 30 days
after the occurrence thereof, written notice of any event which would
constitute an Event of Default, its status and what action Grupo Dina or
MCII Holdings, as the case may be, is taking or proposes to take in
respect thereof.
Modification of Indenture
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the holders of at least a
majority of the outstanding aggregate principal amount of such Notes, and
any past Event of Default or noncompliance with any provision thereof may
be waived with the consent of the holders of at least a majority of the
outstanding aggregate principal amount of such Notes. See "--Waiver of
Certain Covenants" and "--Events of Default." Without the consent of any
holder of Notes, Grupo Dina and MCII Holdings may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency or
to make any change that does not adversely affect the rights of any holder
of Notes. Without the consent of the holder of each Note affected, an
amendment, supplement or waiver with respect to the Indenture may not:
reduce the principal amount of Notes the holders of which must consent to
an amendment, supplement or waiver; reduce the rate of or extend the time
for payment of interest on any Note; reduce the principal amount of or
extend the maturity date of any Note; reduce the amount payable upon the
redemption of any Note or change the time at which any Note may or shall
be redeemed; make any Note payable in money other than that stated in the
Note; make any change in the provisions concerning waiver of Events of
Default by holders of the Notes; adversely affect the ranking of the
Notes; permit the creation of any Lien on the Collateral or any part
thereof (other than the Lien of the Indenture and the other security
documents) or terminate the Lien of the Indenture or the other security
documents as to the Collateral or any part thereof or deprive the holders
of the Notes of the security afforded by the Lien of the Indenture and the
other security documents or any part thereof, in each case other than as
contemplated by the Indenture.
Additional Amounts
All payments by Grupo Dina in respect to the Notes shall be made free
and clear of and without withholding or deduction for or on account of any
present or future taxes, duties, assessments, or other governmental
charges of whatsoever nature imposed or levied by or on behalf of Mexico,
or any political subdivision or authority thereof or therein having power
to tax, unless Grupo Dina is compelled by law to deduct or withhold such
taxes, duties, assessments, or governmental charges under relevant law or
by the interpretation or administration thereof. In such event, Grupo Dina
shall pay such additional amounts (including the Additional Amounts)
("Additional Amounts") as may be necessary to ensure that the net amounts
receivable by the holders of Notes after such withholding or deduction
shall equal the respective amounts of principal and interest which would
have been received in respect of Notes in the absence of such withholding
or deduction. No Additional Amounts shall be payable in respect of any
Note presented for payment with respect to:
(a) any tax, duty, assessment or other governmental charge which
would not have been so imposed but for (i) the existence of any
present or former connection between such holder (or between a
fiduciary, settlor, beneficiary, member or shareholder of, or a
person having a power over, such holder, if such holder is an estate,
a trust, a partnership or a corporation) and Mexico, including,
without limitation, such holder (or such fiduciary, settlor,
beneficiary, member, shareholder or person having such a power) being
or having been a citizen or resident or treated as a resident thereof
or having been engaged in a trade or business therein or being or
having been present therein or having had a permanent establishment
therein, (ii) the failure of such holder to comply with any
requirement under the income tax laws or regulations of Mexico to
establish entitlement to exemption from such tax, assessment or other
governmental charge or (iii) payment of principal or interest or the
retirement, redemption, exchange or transfer being made in Mexico;
(b) any tax, duty, assessment or other governmental charge which
would not have been so imposed but for the presentation by the holder
of such Note for payment on a date more than 10 days after the date
on which such payment became due and payable or the date on which
payment thereof is duly provided for, whichever occurs later;
(c) any estate, inheritance, gifts, sales, transfer, personal
property, interest equalization or any similar tax, assessment or
governmental charge;
(d) any tax, duty, assessment or other governmental charge which
is payable otherwise than by withholding from payment of principal of
or interest on such Note;
(e) any tax, duty, assessment or other governmental charge which
is payable by a holder that is not the beneficial owner of such Note
or a portion thereof, or that is a fiduciary or partner- ship, but
only to the extent that a beneficial owner or member of the
partnership would not have been entitled to the payment of an
Additional Amount had the beneficial owner or member received
directly its beneficial or distributive share of the payment; or
(f) any combination of items (a), (b), (c), (d) and (e).
For the purposes of the foregoing, the holding of or the receipt of
any payment with respect to a Note shall not constitute a connection
between the holder (or between a fiduciary, settlor, beneficiary, member
or shareholder of, or a person having a power over, such holder if such
holder is an estate, a trust, a partnership or a corporation) and Mexico.
In the event that Additional Amounts actually paid with respect to
the Notes are based on rates of deduction or withholding of Mexican taxes
in excess of the appropriate rate applicable to the holder or beneficial
owner of such Notes, and, as a result thereof, such holder or beneficial
owner is entitled to make a claim for a refund or credit of such excess,
then such holder or beneficial owner will, by accepting the Notes, be
deemed to have assigned and transferred all right, title and interest to
any such claim for a refund or credit of such excess to Grupo Dina.
However, by making such assignment, the holder or beneficial owner makes
no representation or warranty that Grupo Dina will be entitled to receive
such claim for a refund or credit and incurs no other obligation with
respect thereto (including without limitation executing any other
instrument of transfer or incurring any expense in connection with this
transfer). Any reference herein or in the Notes to principal and/or
interest shall be deemed also to refer to any Additional Amounts which may
be payable under the covenant referred to in this provision.
To the extent MCII Holdings becomes obligated to pay principal or
interest on the Notes, it will pay such Additional Amounts as may be
necessary to ensure that the net amounts receivable by the holders of
Notes (including the Additional Amounts) after any withholding or
deduction shall equal the respective amounts of principal and interest
which would have been received in respect of Notes in the absence of such
withholding or deduction.
Tax Redemption
If, as a result of any amendment to, or change in, the laws (or any
regulation or rulings thereunder) of Mexico or any political subdivision
or taxing authority thereof or therein affecting taxation, or any
amendment to or change in an official interpretation or application of
such laws or regulations, which amendment or change of such laws or
regulations becomes effective on or after the date of original issuance of
Notes, Grupo Dina or MCII Holdings would be obligated, for reasons outside
its control, to pay Additional Amounts in excess of those attributable to
the maximum Mexican withholding tax applicable on the date of original
issuance of Notes (15%) imposed on interest payments (See "Tax Consider-
ations--Mexican Taxation"), then, at Grupo Dina's option, or at MCII
Holdings' option if it becomes obligated to pay Additional Amounts on the
Notes, the Notes may be redeemed in whole, but not in part, at any time,
on giving not less than 30 nor more than 60 days' notice at 100% of the
principal amount thereof, plus accrued and unpaid interest, if any,
through the redemption date; provided, however, that (i) no such notice of
redemption may be given earlier than 90 days prior to the earliest date on
which Grupo Dina or MCII Holdings, as the case may be, would be obligated
to pay such Additional Amounts, and (ii) at the time such notice of
redemption is given, such obligation to pay such Additional Amounts
remains in effect.
Prior to the publication of any notice of redemption pursuant to this
provision, Grupo Dina or MCII Holdings, as the case may be, will deliver
to the Trustee (i) a certificate signed by a duly authorized
representative stating that Grupo Dina or MCII Holdings, as the case may
be, is entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent of the right of Grupo Dina or
MCII Holdings, as the case may be, so to redeem have occurred, and (ii) an
opinion of independent Mexican legal counsel of recognized standing to the
effect that Grupo Dina or MCII Holdings, as the case may be, has or will
become obligated to pay such Additional Amounts as a result of such change
or amendment. Such notice, once delivered by Grupo Dina or MCII Holdings,
as the case may be, to the Trustee, will be irrevocable.
Certain Definitions
"Accreted Value" for any Note means as of any date prior to November
15, 1998, the sum of (a) US$705.65, which is the initial principal value
as of November 18, 1995 of such Note, and (b) the portion of the excess of
such Note over such initial principal value which shall have been accreted
thereon through such date, such amount to be so accreted on a daily basis
at the rate of 12% per annum of the initial principal value of the Notes,
compounded semi-annually on each May 15 and November 15 from November 18,
1995 through the date of determination computed on the basis of a 360-day
year of twelve 30-day months, and as of any date of determination on or
after November 15, 1998, US$1,000.
"Adjusted Subsidiary Debt Amount" means the maximum amount of
consolidated Debt of MCII which in the aggregate would not cause the ratio
of MCII's consolidated Debt to MCII's Consolidated Capitalization to
exceed 0.5 to 1.00; provided, that for purposes of any such determination,
Debt shall be deemed to exclude Contingent Liabilities.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means, with respect to any Person, any sale, lease,
conveyance, transfer or other disposition (or series of related sales,
leases, conveyances, transfers or dispositions) of any securities (whether
or not upon issuance but excluding securities issued by such Person),
Property or other assets (each referred to for the purposes of this
definition as a "disposition") by such Person or any of its Subsidiaries,
whether for cash or other consideration, other than (i) a disposition by a
Wholly-Owned Subsidiary of such Person to such Person or another
Wholly-Owned Subsidiary of such Person, (ii) a disposition by such Person
to a Wholly-Owned Subsidiary of such Person, (iii) an exchange of assets
for like kind assets, provided the assets received are to be used in the
lines of business engaged in by such Person or any of its consolidated
Subsidiaries or reasonably related extensions of such lines of business,
(iv) a disposition pursuant to a merger or consolidation of MCII Holdings
permitted by the Indenture, (v) a disposition of inventory in the ordinary
course of business, or (vi) a disposition of assets in one or a series of
related transactions which in the reasonable opinion of such Person, are
obsolete and no longer useful in the business of such Person or any
Subsidiary.
"Board of Directors" means the Board of Directors of Grupo Dina, MCII
Holdings or MCII, as the case may be, or, if the context so requires, any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a legal holiday in the
United States or Mexico.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Debt represented by
such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the maturity thereof shall be the
date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests
(including partnership interests), rights to purchase, warrants, options,
participations or other equivalents of or interest in (however designated)
equity of such Person, including any warrants, common shares or Preferred
Stock, but excluding any debt securities convertible into such equity;
provided, however, that Capital Stock shall not include Redeemable Stock.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank having, or which is the
principal banking subsidiary of a bank holding company having, a long-term
unsecured debt rating of at least "A" or the equivalent thereof from S&P
or "A2" or the equivalent thereof from Moody's with maturities of not more
than six months from the date of acquisition by such Person, (iii)
repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (ii)
above, (iv) commercial paper issued by any Person incorporated in the
United States rated at least A-1 or the equivalent thereof by S&P or at
least P-1 or the equivalent thereof by Moody's and in each case maturing
not more than six months after the date of acquisition by such Person, and
(v) investments in money market funds substantially all of whose assets
are comprised of securities of the types described in clauses (i) through
(iv) above.
"Change of Control" means:
(i) with respect to Grupo Dina (a) any Person (other than Permitted
Holders) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act) of a Majority of the Voting Stock of Grupo Dina;
(b) Persons who constitute a majority of the Board of Directors of Grupo
Dina are not nominated by the Permitted Holders; or (c) Grupo Dina
consolidates with or merges into any Person, or conveys, transfers or
leases all or substantially all of its Property, or any Person
consolidates with or merges into Grupo Dina, in any such event pursuant to
a transaction upon consummation of which none of the events described in
clauses (a) or (b) of this clause (i) shall have occurred in respect of
such surviving entity; and
(ii) with respect to MCII Holdings (a) Grupo Dina or the Permitted
Holders fail to be the beneficial owner, directly or indirectly, of at
least a Majority of the Voting Stock of MCII Holdings; or (b) MCII
Holdings consolidates with or merges into any Person, or conveys,
transfers or leases all or substantially all of its Property, or any
Person consolidates with or merges into MCII Holdings, in any such event
pursuant to a transaction upon consummation of which the event described
in clause (a) of this clause (ii) shall have occurred in respect of such
surviving entity.
"Collateral" means (i) the MCII Shares, (ii) all certificates
representing any of the pledged MCII Shares and (iii) any cash or Cash
Equivalents deposited with the Trustee in accordance with the covenant
described under "--Certain Covenants--Limitation on Restricted Payments by
MCII Holdings" below.
"Consolidated Capitalization" means (without duplication) the sum of
(i) the Consolidated Net Worth of MCII and its Subsidiaries determined in
accordance with GAAP decreased by the amount of any intangible created or
acquired after August 8, 1994 and included in such Consolidated Net Worth
and (ii) the total amount of the consolidated long-term Debt (including
the current portion thereof) of MCII and its Subsidiaries as determined in
accordance with GAAP.
"Consolidated Net Income" means for any period the gross revenues of
a Person and its Subsidiaries for such period less all expenses and other
proper charges (including taxes on income), determined on a consolidated
basis in accordance with GAAP, but excluding (i) earnings of any
Subsidiary for the periods preceding the date of acquisition of such
Subsidiary by such Person, (ii) any gains or income resulting from the
write-up of assets or changes in accounting principles, (iii) the net
income (or loss) of any Person, the net income of which is not
consolidated with the income of such Person and its Subsidiaries in
accordance with GAAP except to the extent of the amount of dividends or
other distributions actually paid to such Person or any of its
Subsidiaries by such Person during such period, (iv) any gain or loss
realized upon the sale or other disposition of any Property of such Person
or its consolidated Subsidiaries (including pursuant to any sale/leaseback
transaction) other than sales of inventory in the ordinary course of
business, and (v) any extraordinary gain or loss.
"Consolidated Net Worth" of any Person means the stockholders' equity
of such Person and its Subsidiaries, as determined on a consolidated basis
in accordance with GAAP, less (to the extent included in stockholders'
equity) amounts attributable to Redeemable Stock of such Person or its
Subsidiaries.
"Contingent Liabilities" means, without duplication, any repurchase
or reimbursement obligations in respect of (i) Residual Value Guarantees,
Trade-in Value Guarantees and contracts entered into by MCII or any
Subsidiary obligating it to repurchase motor coach finance contracts, and
the related collateral, upon the occurrence of certain events, in each
case in the ordinary course of business and consistent with past practice,
(ii) surety bonds and other instruments that guarantee performance by MCII
or its Subsidiaries of a contract entered into (other than in connection
with borrowing money or obtaining credit) in the ordinary course of
business consistent with past practice (collectively, "Surety Bonds"),
(iii) letters of credit issued for purposes similar to Surety Bonds, and
(iv) letters of credit issued for the account of MCII or any Subsidiary in
the ordinary conduct of business of MCII and its Subsidiaries. At such
time as any Contingent Liability, in the case of clause (i), becomes
operative or (ii), in the case of clauses (ii) - (iv), is drawn upon by
any beneficiary thereof and a reimbursement or similar obligation of MCII
or such Subsidiary becomes effective, such Contingent Liability shall
cease to be a Contingent Liability but shall continue to constitute Debt.
Any (x) rate protection agreement (including any interest rate swap
agreement) with respect to Debt then outstanding or anticipated to be
incurred and (y) currency exchange agreement with respect to foreign
currency-denominated revenues and expenses anticipated during the term of
such currency exchange agreement or Debt which is denominated in foreign
currency and otherwise permitted under the Indenture shall not constitute
Contingent Liabilities.
"Currency Exchange Protection Agreement" means in respect of a Person
any foreign exchange contract, currency swap agreement or other similar
agreement to which such Person is a party or a beneficiary.
"Debt" means, with respect to any Person, (i) all (A) obligations of
such Person for borrowed money (including obligations evidenced by notes,
indentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable) or which have been incurred in
connection with the acquisition of Property, (B) obligations under
capitalized leases which in accordance with GAAP would be classified upon
a balance sheet of such Person as liabilities of such Person, (C)
Limited-recourse Amounts incurred after August 12, 1993, (D) obligations
of such Person under Contingent Liabilities or under a conditional sale or
title retention agreement, (E) obligations of such Person issued or
assumed as a full or partial payment for Property whether or not secured
by a purchase money mortgage or under notes payable or drafts accepted
representing extensions of credit and (F) obligations secured by any Lien
on any Property owned or held by such Person subject thereto, whether or
not the obligations secured thereby shall have been assumed by such
Person, (ii) any Debt (as described within clause (i)) of any partnership
or joint venture of which such Person or any Subsidiary thereof is a
general partner or joint venturer which is not expressly non-recourse to
such Person or Subsidiary, (iii) all Debt (as described within clause (i))
of others with respect to which such Person has become liable by way of a
Guarantee and (iv) all renewals, extensions and modifications of the
foregoing.
"GAAP" means (i) in the case of a United States Person, United States
generally accepted accounting principles; and (ii) in the case of a
Mexican Person, Mexican generally accepted accounting principles.
"Grupo Dina Restricted Payment" means, whether directly or
indirectly, (i) the declaration or payment of any dividend on or any
distribution in respect of any Capital Stock or Redeemable Stock of Grupo
Dina or to Grupo Dina's stockholders in their capacity as such (other than
dividends or distributions payable solely in shares of Capital Stock),
(ii) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock or Redeemable Stock of Grupo Dina or any Affiliate of
Grupo Dina (except any such transfers to Grupo Dina or a Subsidiary of
Grupo Dina) or (iii) the purchase, redemption or other acquisition or
retirement for value prior to its stated maturity of any Debt of Grupo
Dina which is subordinate to the New Notes.
Notwithstanding the foregoing, the following shall not constitute
Grupo Dina Restricted Payments: (1) the purchase or other retirement of
the Debentures after the date of the original issuance of New Notes for
cash and/or a principal amount of subordinated Debt not eligible for
exchange pursuant to clause (2) below aggregating up to US$20 million
(including repurchases pursuant to the covenant described under "--Certain
Covenants--Limitation on Asset Sales by Grupo Dina"), (2) an exchange of
Capital Stock or subordinated Debt of Grupo Dina for outstanding
subordinated Debt of Grupo Dina provided such new subordinated Debt has an
average life equal to or greater than the remaining average life and
matures on or after the maturity of any subordinated Debt which is being
refinanced, (3) any retirement of equity securities of Grupo Dina in
connection with a reorganization, recapitalization, reclassification,
merger or consolidation in which the stockholders of Grupo Dina receive in
exchange for, or in substitution of the shares of Grupo Dina's Capital
Stock held by them, Capital Stock, excluding Redeemable Stock and
Preferred Stock, of a newly-formed corporation or partnership which,
immediately following such reorganization, reclassification, merger or
consolidation, is the parent entity of Grupo Dina, and (4) any dividend or
distribution on, or any purchase, redemption or other acquisition or
retirement for value of, any Capital Stock of Grupo Dina or securities
convertible into or exercisable or exchangeable for such Capital Stock, in
consideration of the consolidation or merger of Grupo Dina with or into
any other Person if such consolidation or merger is otherwise permitted
under the Indenture, provided that the only consideration issued by the
surviving Person with respect to any such dividend, distribution,
purchase, redemption or other acquisition or retirement shall be in the
form of Capital Stock (excluding Redeemable Stock and Preferred Stock) of
such surviving Person.
"Guarantee" means, with respect to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
Debt, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course
of business) or discounted or sold with recourse by such Person, or in
respect of which such Person is otherwise directly or indirectly liable,
including, without limitation, (i) any such obligation in effect
guaranteed by such Person through any agreement, (contingent or otherwise)
to purchase, repurchase or otherwise acquire such obligation or any
security therefor, (ii) any obligation to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise), (iii) any obligation
to maintain the solvency or any balance sheet or other financial condition
of the obligor of such obligation, or (iv) any obligation to make such
payment for any products, materials or supplies or for any transportation
or services regardless of the non-delivery or non-furnishing thereof, in
any such case if the purpose or intent of such agreement is to provide
assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of
such obligation will be protected against loss in respect thereof.
"Guarantee" shall include any other contract which, in economic effect, is
substantially equivalent to the foregoing types of Guarantees. The amount
of any Guarantee shall be equal to the outstanding principal amount of the
obligation Guaranteed or such lesser amount to which the maximum exposure
of the guarantor shall have been specifically limited.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Exchange
Protection Agreement.
"Interest Rate Agreement" means, with respect to any Person, any
interest rate swap agreement, forward rate agreement, interest rate cap or
collar agreement or other financial agreement or arrangement designed to
protect such Person or its Subsidiaries against fluctuations in interest
rates, as in effect from time to time.
"Lien", with respect to any Property, means any mortgage, security
interest, pledge, lien or other encumbrance other than (i) mechanics' and
similar liens arising in the ordinary course of business in respect of
obligations not due or being contested in good faith; (ii) Liens arising
from deposits with or the giving of any form of security to any
governmental authority required as a condition to the transaction of
business or exercise of any privilege, franchise or license; (iii) Liens
for taxes, assessments or governmental charges or levies not yet
delinquent or which, if delinquent, are being contested in good faith;
(iv) Liens (including judgment liens) arising from legal proceedings being
contested in good faith and, in the case of judgment liens, so long as
execution thereof is stayed or (v) any extension, renewal or replacement
(or successive extensions, renewals or replacements), in whole or in part,
of any Lien referred to in the foregoing clauses (i) through (iv),
inclusive.
"Limited-recourse Amount" means, with respect to any non-recourse or
limited recourse sale of receivables (including sales with a first-loss
guaranty), that portion of assets retained by MCII or any of its
Subsidiaries and representing the amount of overcollateralization or the
amount of recourse, first-loss or other credit reserves or obligations
provided in such transaction.
"Majority" means a majority of the class or group of classes of
Voting Stock that can elect a majority of the Board of Directors of Grupo
Dina or MCII Holdings, as the case may be.
"MCII Holdings Restricted Payment" means, whether directly or
indirectly, (i) the declaration or payment of any dividend on or any
distribution in respect of any Capital Stock or Redeemable Stock of MCII
Holdings or to MCII Holdings' stockholders in their capacity as such
(other than dividends or distributions payable solely in shares of its
Capital Stock); (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock or Redeemable Stock of MCII
Holdings or any Affiliate of MCII Holdings (except any such transfers to
MCII Holdings or any Subsidiary of MCII Holdings); (iii) any investment
(other than investments in Cash Equivalents and in Subsidiaries) in any
Person or (iv) any principal payment on, or the redemption, repurchase,
defeasance or other acquisition or retirement for value prior to any
scheduled principal payment, scheduled sinking fund payment or stated
maturity of, Debt of MCII Holdings which is subordinate to the New Notes
other than from the proceeds of Debt which is equally subordinated to the
New Notes and which has an average life equal to or greater than the
remaining average life and matures on or after the maturity of the Debt
which is refinanced.
Notwithstanding the foregoing, the following shall not constitute
MCII Holdings Restricted Payments: (1) the payment of any dividend within
60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions hereof;
(2) any retirement of equity securities of MCII Holdings in connection
with a reorganization, recapitalization, reclassification, merger or
consolidation in which the stockholders of MCII Holdings receive in
exchange for, or in substitution of, the shares of MCII Holdings' Capital
Stock held by them, Capital Stock, excluding Redeemable Stock and
Preferred Stock, of a newly-formed corporation or partnership which,
immediately following such reorganization, reclassification, merger or
consolidation, is the parent entity of MCII Holdings and (3) any dividend
or distribution on, or any purchase, redemption or other acquisition or
retirement for value of, any Capital Stock of MCII Holdings or securities
convertible into or exercisable or exchangeable for such Capital Stock, in
consideration of the consolidation or merger of MCII Holdings with or into
any other Person if such consolidation or merger is otherwise permitted
under the Indenture.
"MCII Receivables" means the recorded value of, or the book value of,
any receivables of, or lease obligations due to, MCII or any of its
Subsidiaries arising in the ordinary course of business from sales or
leases of motor coaches to Persons other than Affiliates of Grupo Dina all
as determined in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by any
Person in respect of any transaction, net of the direct costs relating to
such transaction (including, without limitation, legal, accounting and
investment banking fees, and sales commission) and, in the case of an
Asset Sale, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Debt
secured by a Lien on the asset or assets that are the subject of such
Asset Sale and any reserve for adjustments in respect of the sale price of
such asset or assets. Net Proceeds shall exclude any non-cash proceeds
received, but shall include such proceeds when and as converted to cash.
Notwithstanding the foregoing, (i) for purposes of determining the Net
Proceeds of any issuance or sale of any Capital Stock of MCII, and for
purposes of determining the amount of Required Proceeds to be offered to
purchase Notes in connection with any Qualifying Offer following such
issuance or sale of any Capital Stock of MCII, the fair market value of
all non-cash proceeds shall be deemed to be cash proceeds and (ii) such
issuance or sale of any Capital Stock of MCII shall be deemed not to be an
Asset Sale for purposes of this definition.
"Original Principal Amount" means $206,499,680.
"Permitted Debt" means any and all of the following: (i) Debt owed to
MCII or any Subsidiary, provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Subsidiary ceasing
to be a Subsidiary or any subsequent transfer of such Debt (other than to
another Subsidiary) shall be deemed, in each case, to constitute the
incurrence of such Debt by the obligor; (ii) Hedging Obligations
consisting of Interest Rate Agreements and Currency Exchange Protection
Agreements; and (iii) Contingent Liabilities.
"Permitted Holders" means Grupo Empresarial G, S.A. de C.V. or any
successor corporation controlled by other Permitted Holders, Rafael Gomez
Flores, O. Raymundo Gomez Flores, Armando Gomez Flores, Alfonso Miguel
Gomez Flores, Guillermo Gomez Flores, and the heirs thereof, and the Grupo
Dina Management Trust.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or
any other entity.
"Preferred Stock" of any Person means Capital Stock of such Person of
any class or classes (however designated) that ranks prior, as to the
payment of dividends and/or as to the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person;
provided, however, that Preferred Stock shall not include Redeemable
Stock.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed,
or tangible or intangible, including, without limitation, Capital Stock in
any other Person (but excluding Capital Stock or other securities issued
by such Person).
"Qualifying Offer" means any offer made by Grupo Dina or a Subsidiary
thereof to all holders of Notes to purchase for cash New Notes properly
tendered at a purchase price equal to the Accreted Value thereof on the
date of repurchase, if on or prior to November 15, 1998, and equal to the
principal amount thereof, plus accrued and unpaid interest, if any,
thereafter, to the date of repurchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
Cash Interest Payment Date) provided that the purchase date is no earlier
than 30 nor later than 60 days from the date notice of the offer is mailed
and the offeror purchases all New Notes properly tendered in accordance
with such offer on such purchase date subject to proration in the event
that the number of New Notes tendered exceeds the number of New Notes for
which the offer is made.
"Redeemable Stock" of any Person means any equity security of such
Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or otherwise (including on
the happening of an event), is or could become required to be redeemed for
cash or other Property or is or could become redeemable for cash or other
Property at the option of the holder thereof, in whole or in part, on or
prior to the first anniversary of the stated maturity of the New Notes; or
is or could become exchangeable at the option of the holder thereof for
Debt at any time, in whole or in part, on or prior to the first
anniversary of the stated maturity of the New Notes; provided, however,
that Redeemable Stock shall not include any security by virtue of the fact
that it may be exchanged or converted at the option of the holder for
Capital Stock of such Person having no preference as to dividends or
liquidation over any other Capital Stock of such Person.
"Residual Value Guarantees" means any agreement entered into by MCII
or any of its Subsidiaries to promote the sale of any bus or coach,
pursuant to which MCII or any of its Subsidiaries is guarantying at some
future time any minimum value (which may be determined by a formula) of
such bus or coach as specified in such agreement regardless of the actual
fair market value of such bus or coach at such future time.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50%
of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly
or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
"Trade-In Value Guarantees" means any agreement entered into by MCII
or any of its Subsidiaries to promote the sale of any bus or coach,
pursuant to which MCII or any of its Subsidiaries is obligated to accept
such bus or coach for trade-in in connection with the sale of such bus or
coach at a value specified in such agreement (which may be determined by a
formula) regardless of the actual fair market value of such bus or coach
at the time of such trade-in.
"Voting Stock" of a Person means all classes of Capital Stock of such
Person then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of
which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be
held by such other Persons) is owned by a Person or one or more Wholly
Owned Subsidiaries of such Person.
Registration Rights
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Pursuant to the Registration Agreement, holders
of Old Notes are entitled to certain registration rights. Under the
Registration Agreement, the Issuers have agreed, for the benefit of the
holders of the Old Notes, that they will, at their cost, (i) by October 1,
1996, file a registration statement with the SEC with respect to the
Exchange Offer and (ii) by November 30, 1996, cause such registration
statement to be declared effective under the Securities Act. The
Registration Statement of which this Prospectus is a part constitutes the
registration statement for the Exchange Offer.
In the event that (i) any change in law or applicable interpretations
of the staff of the SEC do not permit the Issuers to effect the Exchange
Offer, (ii) for any other reason the registration statement with respect
to the Exchange Offer is not declared effective by November 30, 1996,
(iii) any holder of Notes so requests because it is not eligible to
participate in the Exchange Offer, or (iv) any initial purchaser so
requests with respect to Notes held by it following the consummation of
the Exchange Offer because it does not receive freely tradeable New Notes
in exchange for Old Notes, then, the Issuers will, at their cost, (a) as
promptly as practicable, file a shelf registration statement covering
resales of the Old Notes (the "Shelf Registration Statement"), (b) cause
the Shelf Registration Statement to be declared effective under the
Securities Act and (c) use its best efforts to keep effective the Shelf
Registration Statement until three years after its effective date or until
one year after such effective date if such Shelf Registration Statement is
filed at the request of the holders of the Old Notes. The Issuers will, in
the event the filing of the Shelf Registration Statement becomes
necessary, provide to each holder of the Old Notes copies of the
prospectus which is a part of the Shelf Registration Statement, notify
each such holder when the Shelf Registration Statement for the Old Notes
has become effective and take certain other actions as are required to
permit unrestricted resales of the Notes. A holder of Old Notes who sells
such Old Notes pursuant to the Shelf Registration Statement generally
would be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Agreement which are applicable to such a holder (including
certain indemnification obligations).
In the event that the Exchange Offer is not consummated or the Shelf
Registration Statement is not declared effective on or prior to December
30, 1996, interest will accrue (in addition to stated interest on the
Notes) from and including the next day following December 30, 1996. In
each case such additional interest (the "Special Interest") will be
payable in cash semiannually in arrears each May 15 and November 15 at a
rate per annum equal to 0.50% of the principal amount of the Notes. The
aggregate amount of Special Interest payable pursuant to the above
provisions will in no event exceed 1.50% per annum of the principal amount
of the Notes. Upon the consummation of the Exchange Offer or the
effectiveness of the Shelf Registration Statement, as the case may be,
after December 30, 1996, the Special Interest payable on the Notes from
the date of such effectiveness or consummation, as the case may be, will
cease to accrue from the date of such consummation or effectiveness, as
the case may be.
In the event that the Shelf Registration Statement is declared
effective pursuant to the paragraph preceding the immediately preceding
paragraph, if Grupo Dina or MCII Holdings fails to keep such Registration
Statement continuously effective for the period required by the
Registration Agreement, then from such time as the Shelf Registration
Statement is no longer effective until the earlier of (i) the date that
the Shelf Registration Statement is again deemed effective, (ii) the date
that is the third anniversary of the date of the original issuance of the
Notes or (iii) the date as of which all of the Notes are sold pursuant to
the Shelf Registration Statement, Special Interest shall accrue at a rate
per annum equal to 0.50% of the principal amount of the Notes (1.00%
thereof if the Shelf Registration Statement is no longer effective for 30
days or more) and shall be payable in cash semiannually in arrears each
May 15 and November 15.
The summary herein of certain provisions of the Registration
Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Registration Agreement, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus constitutes a part.
Book-Entry, Delivery and Form
The New Notes may be issued in the form of one or more global
securities (collectively, the "Global Note"). The Global Note will be
deposited with, or on behalf of, the Depository and registered in the name
of the Depository or its nominee. Except as set forth below, the Global
Note may be transferred, in whole and not in part, only to the Depository
or another nominee of the Depository. Investors may hold their beneficial
interests in the Global Note directly through the Depository if they have
an account with the Depository or indirectly through organizations which
have accounts with the Depository.
The Depository has advised the Issuers as follows: The Depository is
a limited-purpose trust company and organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository was created to hold securities of
institutions that have accounts with the Depository ("partici- pants") and
to facilitate the clearance and settlement of securities transactions
among its participants in such securities through electronic book-entry
changes in the accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depository's
participants include securities brokers and dealers (which may include the
Initial Purchasers), banks, trust companies, clearing corporations and
certain other organizations. Access to the Depository's book-entry system
is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on
its book-entry and transfer system, the principal amount of the Notes
represented by the Global Note to the accounts of participants. Ownership
of beneficial interests in the Global Note will be shown on, and the
transfer of those ownership interests will be effected only through,
records maintained by the Depository (with respect to participants'
interests) and such participants (with respect to the owners of beneficial
interests in the Global Note other than participants). The laws of some
jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer or pledge beneficial interests in
the Global Note.
So long as the Depository, or its nominee, is the registered holder
and owner of the Global Note, the Depository or such nominee, as the case
may be, will be considered the sole legal owner and holder of the related
New Notes for all purposes of such New Notes and the Indenture. Except as
set forth below, owners of beneficial interests in the Global Note will
not be entitled to have the New Notes represented by the Global Note
registered in their names, will not receive or be entitled to receive
physical delivery of certificated New Notes in definitive form and will
not be considered to be the owners or holders of any New Notes under the
Global Note. Accordingly, each person owning a beneficial interest in the
Global Note must rely on the procedures of the Depository and, if such
person is not a participant, on the procedures of the participant through
which such person owns its interests, to exercise any right of a holder of
New Notes under the Global Note. The Issuers understand that under
existing industry practice, in the event an owner of a beneficial interest
in the Global Notes desires to take an action that the Depository, as the
Holder of the Global Note, is entitled to take, the Depositary would
authorize the participants to take such action, and that the participants
would authorize beneficial owners owning through such participants to take
such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Payment of principal of and interest on New Notes represented by the
Global Note registered in the name of and held by the Depository or its
nominee will be made to the Depository or its nominee, as the case may be,
as the registered owner and holder of the Global Note.
The Issuers expect that the Depository or its nominee, upon receipt
of any payment of principal of or interest on the Global Note, will credit
participants' accounts with payment in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note
as shown on the records of the Depository or its nominee. The Issuers also
expect that payments by participants to owners of beneficial interests in
the Global Note held through such participants will be governed by
standing instructions and customary practices and will be the
responsibility, of such participants. The Issuers will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global
Note for any New Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for other
aspects of the relationship between the Depositor and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated
New Notes in definitive form, the Global Note may not be transferred
except as a whole by the Depository to a nominee of such Depository or by
a nominee of such Depository to such Depository or another nominee of such
Depository.
Although the Depository has agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Note among
participants of the Depository, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Trustee nor the Issuers will have
any responsibility for the performance by the Depository or its
participants or indirect participants of their respective obligation under
the rules and procedures governing their operations.
Certificated Notes
The New Notes represented by the Global Note are exchangeable for
certificated New Notes in definitive form of like tenor as such New Notes
in denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Issuers that it is unwilling or unable to continue
as Depository for the Global Note or if at any time the Depository ceases
to be a clearing agency registered under the Exchange Act, (ii) the
Issuers in their discretion at any time determines not to have any of the
New Notes represented by the Global Note, (iii) a default entitling the
holders of the New Notes to accelerate the maturity thereof has occurred
and is continuing or (iv) the holder of the New Notes so requests. Any New
Note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated New Notes issuable in authorized
denominations and registered in such names as the Depository will direct.
TAX CONSIDERATIONS
GENERAL
The following is a general summary of certain anticipated Mexican and
U.S. federal income tax consequences of the exchange of Old Notes for New
Notes pursuant to the Exchange Offer and the ownership and disposition of
the New Notes by holders who acquire the New Notes pursuant to the Ex-
change Offer. Holders of the New Notes, by their acceptance of the New
Notes, will agree to report the New Notes as indebtedness of Grupo Dina
which is guaranteed by MCII Holdings. In addition, Grupo Dina and MCII
Holdings intend to treat the New Notes as debt of Grupo Dina guaranteed by
MCII Holdings for all tax purposes. This summary does not purport to be a
comprehensive description of all of the tax considerations that may be
relevant to the Exchange Offer and the New Notes and is based on present
law. No tax consequences are described other than those arising under the
laws of Mexico and the United States.
EACH PROSPECTIVE HOLDER OF NEW NOTES SHOULD CONSULT ITS TAX ADVISOR
AS TO THE MEXICAN, UNITED STATES, OR OTHER TAX CONSEQUENCES OF THE
EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES,
INCLUDING THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAX LAWS.
MEXICAN TAXATION
This summary of certain Mexican tax considerations deals only with
holders of Old Notes that are not residents of Mexico for Mexican tax
purposes and that do not conduct a trade or business through a permanent
establishment in Mexico (a "Foreign Holder"). For purposes of Mexican
taxation, an individual is a resident of Mexico if he has established his
home in Mexico, unless he has resided in another country for more than 183
days, whether consecutive or not, in any one calendar year and can
demonstrate that he is a resident of that country for tax purposes. A
legal entity is a resident of Mexico if its principal administrative
office is located in Mexico. A Mexican citizen or a legal entity with its
corporate domicile in Mexico and established under Mexican law is presumed
to be a resident of Mexico unless such person or entity can demonstrate
the contrary.
The Exchange Offer
The disposition of the Old Notes in exchange for New Notes by Foreign
Holders pursuant to the Exchange Offer will not be subject to Mexican
income tax including, without limitation, Mexican withholding tax.
New Notes
Interest and Additional Amounts. Payments of interest and Additional
Amounts made by the Grupo Dina in respect of the New Notes to a Foreign
Holder will generally be subject to a Mexican withholding tax at a rate of
15% if, as expected, certain conditions are satisfied. Pursuant to
recently enacted legislation, such rate has been reduced to 4.9% (the
"Special Rate") if the effective beneficiary of such payments of interest
resides in a country that has an income tax treaty with Mexico and certain
other conditions are satisfied. Grupo Dina anticipates that these
conditions will be satisfied by the registration of the New Notes with the
SEC. Payments of interest made with respect to the New Notes by Grupo Dina
to non-Mexican pension or retirement funds will be exempt from Mexican
withholding taxes, provided that any such fund (i) is duly incorporated
pursuant to the laws of its country of origin, (ii) is exempt from income
tax in such country, and (ii) is registered with the Mexican Ministry of
Finance (Secretaria de Hacienda y Credito Publico) for that purpose.
Apart from the Special Rate, other reduced rates of Mexican
withholding tax may apply with respect to payments of interest and
Additional Amounts. The United States and Mexico have signed a Convention
for the Avoidance of Double Taxation (the "Tax Treaty"). The Tax Treaty
entered into force as of January 1, 1994. Pursuant to the Tax Treaty, the
Mexican withholding tax rate has been reduced to no more than 10% (4.9%
effective January 1, 1999) (the "Treaty Rate") for certain holders who are
residents of the United States (within the meaning of the Tax Treaty)
under certain circumstances therein. Generally, if the New Notes are
listed and regularly and substantially traded on a "recognized securities
exchange" for the purposes of the Tax Treaty, then the withholding tax
rate will be reduced to no more than 10% (4.9% effective January 1, 1999)
for holders who are residents of the United States (within the meaning of
the Tax Treaty). It is not currently contemplated that the New Notes will
initially be listed on a "recognized securities exchange"; the New Notes
may later be listed on such an exchange. The United States and Mexico have
also entered into an agreement that covers the exchange of information
with respect to tax matters. In addition to the Tax Treaty, Mexico has
entered into and is negotiating other tax treaties that may reduce the
amount of Mexican withholding tax to which the New Notes may be subject.
Prospective holders of the New Notes should consult their tax advisors to
the applicability of such treaties.
Grupo Dina has agreed, subject to specified exceptions and
limitations, to pay Additional Amounts in respect of the above-mentioned
Mexican withholding taxes to the holders of the New Notes. If Additional
Amounts are paid in respect of such Mexican withholding taxes, any refunds
of such Additional Amounts will be for the account of Grupo Dina. See
"Description of the Notes--Additional Amounts."
There are certain regulations or administrative pronouncements
specifying procedures which must be carried out by the Grupo Dina or
holders of New Notes to establish that a rate of Mexican withholding tax
lower than the statutory rate of 15% should apply to payments of interest
and Additional Amounts in respect of the New Notes. Grupo Dina may request
certain information or documentation from Foreign Holders or take such
other actions as it considers necessary to enable Grupo Dina to establish
the appropriate Mexican withholding tax rate (including the Special Rate
or the Treaty Rate) applicable to such holders or beneficial owners. In
the event that the specified information or documentation concerning the
residence of any holder or beneficial owner, if requested, is not
provided, Grupo Dina will remain obli- gated to any Additional Amounts
with respect to Mexican withholding taxes as set forth under "Description
of the Notes -- Additional Amounts."
Payments of Principal; Sale or Disposition. Payments of principal
(except for original issue dis- count) with respect to the New Notes made
by Grupo Dina to Foreign Holders will not be subject to Mexi- can income
or other taxes (whether in the form of withholding or otherwise).
Other Mexican Taxes. Other than the withholding tax described above,
no Mexican taxes will be imposed on the ownership, transfer or disposition
of New Notes by Foreign Holders. There are no Mexican stamp, issue,
registration or similar taxes or duties payable by Foreign Holders of New
Notes, and Foreign Holders of New Notes will not be liable for Mexican
estate, gift inheritance or similar tax with respect to the New Notes,
although gratuitous transfers of New Notes to residents of Mexican may, in
certain circumstances, result in a Mexican tax imposed upon the
transferee.
UNITED STATES TAXATION
The following summary of U.S. federal income tax consequences is
limited to U.S. Holders (as defined below) who hold the Old Notes and will
hold the New Notes as "capital assets" within the meaning of Section 1221
of the Internal Revenue Code of 1986 (the "Code") and whose "functional
currency" within the meaning of Section 985 of the Code is the U.S.
Dollar. This summary does not address all U.S. federal tax considerations
that may be relevant to a U.S. Holder. Certain holders (including, but not
limited to, insurance companies, tax-exempt organizations, financial
institutions, persons subject to the alternative minimum tax) may be
subject to special rules not discussed herein. In addition, the discussion
below also does not address the effect of any state or local tax laws. The
term "U.S. Holder" means any holder who is a citizen or resident of the
United States, a corporation organized under the laws of the United States
or any state thereof, or any person that is subject to United States
federal income taxation on a net income basis in respect of the Old Notes
and the New Notes.
The Exchange Offer
The exchange of Old Notes pursuant to the Exchange Offer will not be
treated as a taxable event for U.S. federal income tax purposes because
the New Notes do not differ materially from the Old Notes. Rather, the New
Notes received by a holder will be treated as a continuation of the Old
Notes in the hands of such holder. As a result, there will be no U.S.
federal income tax consequences to holders who exchange Old Notes for New
Notes pursuant to the Exchange Offer and any such holder will have the
same tax basis and holding period in the New Notes as it had in the Old
Notes immediately before the exchange.
The New Notes
Original Issue Discount. The Old Notes were issued with original
issue discount ("OID") for federal income tax purposes. Each U.S. Holder
of the Old Notes generally will be required to include OID in income as it
accrues under a constant yield method in advance of cash payments
attributable to such income (regardless of whether the U.S. Holder is a
cash or accrual basis taxpayer). Inasmuch as the New Notes are a
continuation of the Old Notes, the exchange of Old Notes for New Notes
pursuant to the Exchange Offer will not affect the amount of OID
includible in income by a U.S. Holder and the amount of OID with respect
to the New Notes will be the same as the amount of OID with respect to the
Old Notes, as described below.
The amount of OID with respect to the New Notes will be the same as
the amount of OID with respect to the Old Notes, i.e., the excess of the
"stated redemption price at maturity" of the Old Notes over the "issue
price" of the Old Notes. The "stated redemption price at maturity" will
include all cash payments required to be made on the New Note and the Old
Note with respect to which New Note is a continuation, whether denominated
as principal or interest. The issue price of the New Notes will equal the
issue price of the Old Notes. Due to the fact that Old Notes were publicly
traded, the issue price of the Old Notes would be fair market value.
Each U.S. Holder of a New Note will be required to include in gross
income an amount equal to the sum of the daily potions of OID for each day
during the taxable year in which the New Note is held. The daily portions
of OID are determined by allocating to each day in an accrual period
(e.g., each six- month period ending each November 15 and May 15 or the
short initial period ending May 15, 1996) the pro rata portion of the OID
that is allocable to the accrual period. Subject to the rules, described
below regarding acquisition premium, the amount of OID that is allocable
to an accrual period will be determined by multiplying the adjusted issue
price of the Old Note at the beginning of an accrual period by a fraction
of the yield to maturity of such Old Note based on the length of the
accrual period. The adjusted issue price of a Old Note at the beginning of
an accrual period will be equal to its original issue price increased by
all previously accrued OID and reduced by the amount of all previous
payments. Interest payments will not be taxable, but will be treated as a
payment of previously accrued OID.
The amount of OID allocable to an accrual period will be reduced if
the Old Notes are considered to have been issued with "acquisition
premium", which will result if a holder held Old Notes with an adjusted
tax basis in excess of the issue price of such Old Notes immediately after
the issuance over the issue price of the Old Notes and the denominator is
the stated redemption price at maturity of the Old Notes. Alternatively, a
holder of Old Notes may elect to compute OID accruals by treating its
adjusted tax basis in the Old Notes as the issue price of the Old Notes.
The Trustee will report annually to the IRS and the U.S. Holders of
New Notes the amount of OID accrued with respect to a New Note.
Effect of Mexican Withholding Taxes. As discussed, above, cash
interest payments with respect to the New Notes will be subject to Mexican
withholding taxes and Grupo Dina will pay additional Amounts so that U.S.
Holders of New Notes will receive the same amounts that would have been
payable had such withholding taxes not been imposed. U.S. Holders of New
Notes should be treated as actually receiving any amount withheld by Grupo
Dina from payments of cash interest with respect to a New Note and then as
having paid over such amount to the Mexican taxing authorities. As a
result, the amount of the interest payment includible in income by a U.S.
Holder will be greater than the amount of cash actually received (or
receivable) by such U.S. Holder from Grupo Dina with respect to such
payment.
Pursuant to the characterization of the New Notes as indebtedness of
Grupo Dina which is guaranteed by MCII Holdings, payments of interest and
Additional Amounts by Grupo Dina will be foreign source interest income
for foreign tax credit purposes. Such income generally will constitute
"high withholding tax interest" for foreign tax credit purposes unless and
until the Mexican withholding tax rate applicable to the U.S. Holder is
imposed at a rate below 5% (such as during any period in which the Special
Rate is in effect) in which case such income generally will constitute
"passive income" or, in the case of certain U.S. Holders, "financial
services income". Mexican withholding taxes paid should be treat- ed as
foreign income taxes eligible as a credit against such U.S. Holder's
United States federal income tax liability, subject to generally
applicable limitations and conditions, or, at the election of such U.S.
Holder, as a deduction in computing such U.S. Holder's taxable income. A
U.S. Holder should consult its tax advisor regarding the availability of
foreign tax credits. If the New Notes are characterized as indebtedness of
MCII Holdings, as opposed to indebtedness of Grupo Dina which is
guaranteed by MCII Holdings, interest payments will be U.S. source income,
thus possibly adversely affecting a U.S. Holder's ability to utilize any
foreign tax credits with respect to Mexican withholding taxes.
Sale or Disposition. A U.S. Holder of a New Note generally will
recognize gain or loss upon the sale, exchange, retirement or other
taxable disposition of a New Note equal to the difference between the
amount realized on such sale, exchange, retirement or other taxable
disposition and the U.S. Holder's adjusted tax basis in the New Note. Such
gain or loss generally will be capital gain or loss, and will be long-term
if the New Note is held for more than one year. A U.S. Holder's holding
period for the New Notes will include its holding period for the Old
Notes.
The foregoing does not discuss special rules that may affect the
treatment of purchasers that ac- quire New Notes other than at the time of
original issuance at the issue price, including (but limited to) those
provisions of the Code relating to the treatment of "market discount," and
"amortizable bond premium."
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result
of market-making activities or other trading activities. The Issuers have
agreed that, starting on the Expiration Date and ending on the close of
business on the first anniversary of the Expiration Date, they will make
this Prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any such resale. In addition, until
___________, 1996, all dealers effecting transactions in the New Notes may
be required to deliver a prospectus.
The Issuer will not receive any proceeds from any sale of New Notes
by broker-dealers. New Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or
to or through brokers or dealers who may receive compensation in the form
of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes
that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
document in the Letter of Transmittal. The Issuers have agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one
counsel for the holders of the Notes) other than commissions or
concessions of any brokers or dealers and will indemnify the holders of
the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of
the New Notes will be passed upon for the Issuers by Skadden, Arps, Slate,
Meagher & Flom, New York, U.S. counsel to the Issuers. The validity of the
New Notes and certain other matters of Mexican law relating to the New
Notes will be passed upon for the Issuers by Ritch, Heather y Mueller,
S.C., Mexico City, Mexico, Mexican counsel to the Issuers. Skadden, Arps,
Slate, Meagher & Flom may rely, as to matters of Mexican law, on the
opinions of Ritch, Heather y Mueller, S.C.
EXPERTS
The consolidated financial statements of Grupo Dina as of December
31, 1995 and 1994 and for each of the years in the three-year period ended
December 31, 1995 and of MCII Holdings as of December 31, 1995 and for the
year then ended, included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen, independent
public accountants, as indicated in their reports with respect thereto,
and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing. The financial statements of MCII as of
December 31, 1994 and for the five month period ended December 31, 1994,
the seven month period ended July 31, 1994 and the year ended December 31,
1993 included in this prospectus and in the registration statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and in the registration statements and have
been so included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
Page
Audited Financial Statements:
Report of Independent Public Accountants F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995 F-4
Consolidated Statements of Income (Loss) for the years ended
December 31, 1993, 1994 and 1995 F-5
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1993, 1994 and 1995 F-6
Consolidated Statements of Changes in Financial Position for
the years ended December 31, 1993, 1994 and 1995 F-7
Notes to Consolidated Financial Statements as of
December 31, 1993, 1994 and 1995 F-8
Unaudited Financial Statements:
Consolidated Balance Sheets (unaudited) and related
financial information (unaudited) as of December 31, 1995
and March 31, 1996 F-39
Consolidated Statements of Income (Loss) (unaudited) and
related financial information
(unaudited) for the three months ended March 31, 1995
and 1996 F-40
Notes to Consolidated Financial Statements (unaudited) F-42
MCII HOLDINGS (USA), INC.
Audited Financial Statements:
Reports of Independent Public Accountants F-47
Consolidated Balance Sheet as of December 31, 1995 and 1994 F-50
Statement of Consolidated Income for the year ended
December 31, 1995, the five month period ended
December 31, 1994, the seven month period
ended July 31, 1994 and the year ended December 31, 1993 F-51
Statement of Consolidated Changes in Stockholder's Equity
for the year ended December 31, 1995, the five month
period ended December 31, 1994, the seven month period
ended July 31, 1994 and the year ended December 31, 1993 F-52
Statement of Consolidated Cash Flows for the year ended
December 31, 1995, the five month period ended
December 31, 1994, the seven month period ended
July 31, 1994 and the year ended December 31, 1993 F-53
Notes to Consolidated Financial Statements F-54
Unaudited Financial Statements:
Consolidated Balance Sheets (unaudited) as of March 31, 1996
and December 31, 1995 F-76
Statement of Consolidated Income (unaudited) for the three
months ended March 31, 1995 and 1996 F-77
Statement of Consolidated Changes in Stockholder's Equity
(unaudited) for the three months ended March 31, 1995
and 1996 F-78
Statement of Consolidated Cash Flows (unaudited) for the
three months ended March 31, 1995 and 1996 F-79
Notes to Consolidated Financial Statements (unaudited) F-80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Consorcio G Grupo Dina, S.A. de C.V.:
We have audited the consolidated balance sheets of CONSORCIO G
GRUPO DINA, S.A. DE C.V. (incorporated in Mexico) and subsidiaries
(collectively referred to as the "Company") as of December 31, 1994 and
1995 and the related consolidated statements of income (loss),
stockholders' equity and changes in financial position for each of the
three years in the period ended December 31, 1995. These financial
statements have been prepared in accordance with generally accepted
accounting principles in Mexico, and therefore have been expressed in
Mexican pesos with purchasing power as of March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Motor Coach
Industries International, Inc. (MCII) as of December 31, 1994 and for the
five month period then ended, a subsidiary acquired by the Company on
August 8, 1994, which statements reflect assets and revenues of 38.5% and
27.9%, respectively of the consolidated totals as of December 31, 1994 and
for the year then ended. Those statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it
relates to the amounts included for Motor Coach Industries International,
Inc., is based solely on the report of the other auditors.
We have conducted our audits in accordance with generally accepted
auditing standards in Mexico, which are substantially the same as those
followed in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. 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.
As explained in Note 3 to the accompanying consolidated financial
statements, during 1995 the Company changed its accounting to reflect the
goodwill related to the acquisition of its subsidiary, MCII, under
"pushdown" accounting rules. Accordingly, the goodwill is now considered an
asset of the subsidiary. This change resulted in an increase in goodwill of
Ps.982,366,110 and a corresponding increase in "cumulative translation
adjustment", an increase in amortization expense of Ps.55,718,988, a
decrease in exchange loss charged to operations of Ps.274,976,048 and a
decrease in the gain on monetary position of Ps.551,064,850.
The devaluation of the Mexican peso in December, 1994 and the
resulting financial crisis in Mexico has had an unfavorable impact on the
Company's operations. During 1994 and 1995 the demand for inter-city
passenger buses suffered a severe decline in Mexico and in 1995, there was
also a significant decline in the demand for trucks. Notes 1, 2, 4, 14 and
28 b) and c) to the accompanying consolidated financial statements describe
the actions taken by the Company to expand its operations in the United
States and restructure its long-term financing, as well as other actions
taken by management.
Accounting practices used by the Company in preparing the
accompanying financial statements conform with accounting principles
generally accepted in Mexico, but do not conform with accounting principles
generally accepted in the United States. A description of these differences
and a partial reconciliation as permitted by Form 20-F of consolidated net
income (loss) and stockholders' equity to U.S. generally accepted
accounting principles is set forth in Notes 19, 20, 23 and 24.
In our opinion, based on our audits and the report of other
auditors for the financial statements of MCII as of December 31,1994 and
for the five month period then ended, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Consorcio G Grupo Dina, S.A. de C.V. and its subsidiaries as of
December 31, 1994 and 1995 and the consolidated results of their operations
and changes in their financial position for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles in Mexico.
Also, in our opinion, the translated amounts in the accompanying
financial statements translated into U.S. dollars have been computed on the
basis set forth in Note 1.
Arthur Andersen
February 29, 1996
(except with respect to the matters discussed in Note 28 b) and c),
as to which the date is April 22, 1996 and the restatements
to constant pesos as of March 31, 1996, as discussed in Notes 1 and 3,
as to which date is July 19, 1996
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING POWER
AS OF MARCH 31, 1996
(Thousands of Mexican pesos and thousands of U.S. dollars)
1994 1995 1995
Assets
CURRENT ASSETS:
Cash and cash equivalents Ps. 439,397 Ps. 284,334 $ 37,723
Notes and accounts receivable, net 949,192 735,779 97,616
Inventories, net 2,140,184 1,849,822 245,416
Prepaid expenses 52,800 40,929 5,430
Investment in and advances to
discontinued operations 663,252 318,872 42,304
Total current assets 4,244,825 3,229,736 428,489
LONG-TERM NOTES AND ACCOUNTS RECEIVABLE, net 505,546 500,211 66,363
INVESTMENT IN EQUITY SECURITIES 78,804 27,473 3,645
PROPERTY, PLANT AND EQUIPMENT, net 1,367,798 1,542,207 204,605
OTHER ASSETS 193,964 234,553 31,118
DEFERRED INCOME TAXES 259,377 244,943 32,496
GOODWILL 1,084,554 1,584,314 210,191
Ps. 7,734,868 Ps. 7,363,437 $ 976,907
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Bank loans and current portion of long-term debt Ps. 141,300 Ps. 14,827 $ 1,967
Notes and accounts payable to suppliers 492,131 353,766 46,934
Other payables and accrued expenses 577,556 461,625 61,244
Investment in and advances to discontinued operations 271,311 122,274 16,222
Dividends payable 50,984 - -
Income taxes, asset tax and employee profit sharing 12,871 84,128 11,161
Total current liabilities 1,546,153 1,036,620 137,528
LONG-TERM DEBT 4,107,264 4,342,594 576,132
RESERVE FOR EMPLOYEES' SEVERANCE BENEFITS 92,624 79,483 10,545
OTHER DEFERRED ITEMS AND INSURANCE RESERVES 69,615 117,083 15,533
STOCKHOLDERS' EQUITY:
Majority interest-
Capital stock 196,545 196,545 26,076
Capital stock-unsubscribed (35,754) (35,754) (4,743)
Restatement of capital stock 182,582 182,582 24,223
Additional paid-in capital 1,527,927 1,527,927 202,710
Reserve for repurchase of shares 115,445 115,445 15,316
Accumulated earnings (losses) 259,812 (193,608) (25,686)
Cumulative effect of restatement (415,903) (772,508) (102,489)
Cumulative translation adjustment 13,519 720,909 95,643
Total majority stockholders' equity 1,844,173 1,741,538 231,050
Minority interest 75,039 46,119 6,119
Total stockholders' equity 1,919,212 1,787,657 237,169
Ps. 7,734,868 Ps. 7,363,437 $ 976,907
The accompanying notes are an integral part of these consolidated balance sheets.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS
ENDED DECEMBER 31, 1993, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF MARCH 31, 1996
(Thousands of Mexican pesos and thousands of U.S. dollars, except per share data)
1993 1994 1995 1995
NET SALES Ps. 4,920,633 Ps. 4,066,403 Ps. 4,456,770 $ 591,280
COST OF GOODS SOLD 3,880,508 3,318,258 3,500,193 464,371
Gross profit 1,040,125 748,145 956,577 126,909
OPERATING EXPENSES:
Selling 167,391 264,501 231,573 30,723
Administrative 358,477 454,368 694,708 92,167
525,868 718,869 926,281 122,890
OTHER CHARGES - 303,829 95,192 12,629
Operating income (loss) 514,257 (274,553) (64,896) (8,610)
COMPREHENSIVE RESULT OF FINANCING:
Interest income 109,561 132,513 206,360 27,378
Interest expense (125,365) (232,251) (515,050) (68,332)
Exchange gain (loss), net 4,404 (592,159) (341,163) (45,262)
Gain on net monetary position 42,804 50,685 375,263 49,786
31,404 (641,212) (274,590) (36,430)
OTHER INCOME, net 32,131 36,872 79,679 10,571
COST OF IDLE PLANT - - (76,423) (10,139)
Income (loss) before the following
provisions (credits), and results
of affiliated companies 577,792 (878,893) (336,230) (44,608)
PROVISIONS (CREDITS) FOR:
Income tax 103,026 157,454 137,685 18,267
Asset tax 16,652 39,592 19,044 2,527
Employee profit sharing 37,483 12,789 - -
Tax arising from temporary differences (5,582) 6,529 17,848 2,368
Utilization of tax loss carryforwards (1,458) (126,620) (285) (39)
Refundable asset tax (23,662) (1,844) - -
126,459 87,900 174,292 23,123
Income (loss) before participation in results of
affiliated companies 451,333 (966,793) (510,522) (67,731)
EQUITY IN RESULTS OF AFFILIATED
COMPANIES - 4,482 (2,484) (329)
Net income (loss) Ps. 451,333 Ps. (962,311) Ps. (513,006) $ (68,060)
NET INCOME (LOSS) APPLICABLE TO:
Majority interest Ps. 437,639 Ps. (953,980) Ps. (497,933) $ (66,060)
Minority interest 13,694 (8,331) (15,073) (2,000)
Net income Ps. 451,333 Ps. (962,311) Ps. (513,006) $ (68,060)
INCOME (LOSS) PER SHARE:
Majority interest Ps. 2.25 Ps. (4.23) Ps. (1.93) $ (0.26)
Minority interest 0.07 (0.04) (0.06) (0.01)
Net income (loss) per share Ps. 2.32 Ps. (4.27) Ps. (1.99) $ 0.27)
Weighted average shares outstanding 194,867 225,491 258,026 258,026
(000's)
The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF MARCH 31, 1996
(Thousands of Mexican pesos)
Capital Stock Additional
Number Paid-in
of Shares Authorized Unsubscribed Restatement Capital
--------- ---------- ------------ ----------- -------
BALANCE AS OF DECEMBER 31, 1992 169,833,640 Ps. 105,832 Ps. - Ps. 141,391 Ps. -
Increase in capital stock 33,966,810 21,167 - 17,856 671,844
Transfer to reserve for
repurchase of shares - - - - -
Dividends declared - - - - -
Changes in equity in real terms - - - - -
BALANCE AS OF DECEMBER 31, 1993 203,800,450 126,999 - 159,247 671,844
Increase in capital stock 54,225,686 69,546 (35,754) 23,335 856,083
Dividends declared - - - - -
Changes in equity in real terms - - - - -
BALANCE AS OF DECEMBER 31, 1994 258,026,136 196,545 (35,754) 182,582 1,527,927
Change in accounting policy - - - - -
Cancellation of dividends declared - - - - -
Changes in equity in real terms - - - - -
BALANCE AS OF DECEMBER 31, 1995 258,026,136 Ps. 196,545 Ps. (35,754) Ps. 182,582 Ps. 1,527,927
Reserve for Accumulated Cumulative Cumulative
Repurchase Earnings Effect of Translation
of Shares (Losses) Restatement Adjustment
--------- -------- ----------- ----------
BALANCE AS OF DECEMBER 31, 1992 Ps. - Ps. 1,044,613 Ps. (316,433) Ps. -
Increase in capital stock - - - -
Transfer to reserve for
repurchase of shares 115,445 (115,445) - -
Dividends declared - (76,538) - -
Changes in equity in real terms - 437,639 (67,335) -
BALANCE AS OF DECEMBER 31, 1993 115,445 1,290,269 (383,768) -
Increase in capital stock - - - -
Dividends declared - (76,477) - -
Changes in equity in real terms - (953,980) (32,135) 13,519
BALANCE AS OF DECEMBER 31, 1994 115,445 259,812 (415,903) 13,519
Change in accounting policy - - - 982,366
Cancellation of dividends declared - 44,513 - -
Changes in equity in real terms - (497,933) (356,605) (274,976)
BALANCE AS OF DECEMBER 31, 1995 Ps. 115,445 Ps. (193,608) Ps. (772,508) Ps. 720,909
Minority
Interest Total
-------- -----
BALANCE AS OF DECEMBER 31, 1992 Ps. 87,143 Ps. 1,062,546
Increase in capital stock - 710,867
Transfer to reserve for
repurchase of shares - -
Dividends declared (7,217) (83,755)
Changes in equity in real terms 11,298 381,602
BALANCE AS OF DECEMBER 31, 1993 91,224 2,071,260
Increase in capital stock - 913,210
Dividends declared (7,930) (84,407)
Changes in equity in real terms (8,255) (980,851)
BALANCE AS OF DECEMBER 31, 1994 75,039 1,919,212
Change in accounting policy - 982,366
Cancellation of dividends declared - 44,513
Changes in equity in real terms (28,920) (1,158,434)
BALANCE AS OF DECEMBER 31, 1995 Ps. 46,119 Ps. 1,787,657
The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING POWER
AS OF MARCH 31, 1996
(Thousands of Mexican pesos and thousands of U.S. dollars)
1993 1994 1995 1995
---- ---- ---- ----
OPERATIONS:
Income (loss) net Ps. 451,333 Ps. (962,311) Ps. (513,006) $ (68,060)
Add (deduct)- Non-cash items-
Depreciation 53,310 81,350 103,387 13,716
Tax arising from timing differences (5,582) 6,529 17,848 2,368
Deferred income taxes - 13,457 (3,414) (453)
Other deferred items and insurance reserves - - 47,468 6,298
Provision for doubtful accounts receivable 4,077 19,280 43,667 5,793
Provision for slow-moving inventories 5,221 17,502 68,205 9,049
Provision for employees' severance benefits 7,946 12,928 14,745 1,956
Participation in results of associated companies - (4,482) 2,484 330
Restructuring charges - 257,827 92,304 12,246
Amortization of goodwill - 19,700 108,641 14,413
Change in operating assets and liabilities-
Decrease (increase) in-
Notes and accounts receivable (618,774) 68,554 114,797 15,230
Inventories 132,113 (84,336) (65,732) (8,721)
Prepaid expenses (24,733) (912) 11,871 1,575
Investment in and advances to
discontinued operations - 203,817 195,343 25,916
Income taxes and employee profit
sharing 19,831 (41,998) 71,257 9,454
Other assets 26,934 47,430 (40,589) (5,385)
Increase (decrease) in-
Notes and accounts payable to suppliers 321,995 (377,946) (138,365) (18,357)
Other payables and accrued expenses (36,701) 16,659 (115,931) (15,380)
Dividends payable - 50,984 (50,984) (6,764)
Pension plan funding and payments of
severance benefits (8,722) (4,593) (27,886) (3,700)
Resources generated by (applied to) operations 328,248 (660,561) (63,890) (8,476)
INVESTMENTS:
Notes and accounts receivable (long-term) - (373,219) (20,164) (2,675)
Additions to property, plant and equipment (313,553) (106,621) (502,557) (66,675)
Net book value of retirements 12,449 45,609 249,414 33,090
Investment in shares - (74,322) 29,830 3,958
Goodwill - (1,097,258) - -
Net assets from acquisition of subsidiary - (808,046) - -
Long-term portion of receivable from the trust for
stock sales plan 11,035 (2,598) (1,065) (141)
Net cash applied to investment activities (290,069) (2,416,455) (244,542) (32,443)
FINANCING:
Increase (decrease) in short-term bank loans (275,653) 134,285 (78,153) (10,369)
Increase (reduction) in current and long-term debt
due to restatement in constant pesos (91,890) (54,170) (1,452,904) (192,757)
Increase in peso terms of US dollar debt due to
exchange rate changes - 815,670 1,456,009 193,169
Proceeds from long-term debt - 1,003,634 183,905 24,399
Payments on principal of long-term debt (237) (295) - -
Dividends (declared) canceled (76,538) (76,477) 44,512 5,905
Dividends declared by subsidiaries to
minority shareholders (7,217) (7,930) - -
Increase in capital stock 39,023 57,128 - -
Additional paid-in capital 671,844 856,083 - -
Net cash generated by financing activities 259,332 2,727,928 153,369 20,347
Cash balance from acquisition of subsidiary - 107,698 - -
Cash and cash equivalents at beginning
of year 383,276 680,787 439,397 58,295
Cash and cash equivalents at end of year Ps. 680,787 Ps. 439,397 Ps. 284,334 $ 37,723
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income and asset taxes paid Ps. 68,991 Ps. 127,523 Ps. 61,497 $ 8,159
Employee profit sharing paid Ps. 18,668 Ps. 33,274 Ps. 8,214 $ 1,090
Interest paid Ps. 129,791 Ps. 159,685 Ps. 335,667 $ 44,533
The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993, 1994 AND 1995
EXPRESSED IN CURRENCY WITH PURCHASING
POWER AS OF MARCH 31, 1996
(Stated in thousands of Mexican pesos and thousands of U.S. dollars)
1. Activities, Basis of Consolidation and Presentation
The financial statements of Consorcio G Grupo Dina, S.A. de C.V.
and the subsidiaries in which it is the controlling stockholder
(collectively, "the Company") are presented on the basis of generally
accepted accounting principles in Mexico ("Mexican GAAP"). Certain
accounting practices applied by the Company that conform with Mexican GAAP,
do not conform with generally accepted accounting principles in the United
States ("U.S. GAAP"). See Notes 23 and 24 for explanation of differences
and reconciliation of net income and stockholders' equity to U.S. GAAP.
Consorcio G Grupo Dina, S.A. de C.V. is a subsidiary of Grupo
Empresarial G, S.A. de C.V. and is the controlling stockholder of a group
of companies engaged in the manufacture and sale of trucks and buses. As
discussed in Note 2, during 1994 Motor Coach Industries International, Inc.
("MCII"), a U.S. Corporation, was acquired. MCII manufactures and sells
coaches and coach parts in the United States (U.S.) and Canada.
Because of the severe decline in demand for buses during 1994 and
1995, and the reduction in demand for trucks in 1995, DINA laid off plant
workers and employees. The utilization of plant capacity also decreased and
the bus and truck plants were closed for significant periods of time. The
depreciation of the plants during the shut-down period is presented as
"cost of idle plant" and the severance expense related to the layoffs are
included in "restructuring charges" (see Note 26), in the accompanying
consolidated statements of income (loss).
Consolidated financial statements include the financial statements
of Consorcio G Grupo Dina, S.A. de C.V. and its subsidiaries. The major
subsidiaries are Dina Camiones, S.A. de C.V., Dina Autobuses, S.A. de C.V.,
Plasticos Automotrices Dina, S.A. de C.V., Dina Comercializadora, S.A. de
C.V. (collectively DINA or the Mexican subsidiaries) and Motor Coach
Industries International, Inc. and its subsidiaries (MCII or the U.S.
subsidiary). The consolidated statements of income (loss) and changes in
financial position include the transactions of MCII as of the date of
acquisition. All significant intercompany transactions and balances have
been eliminated in the accompanying consolidated financial statements.
U.S. dollar amounts shown in the financial statements have been
included solely for the convenience of the reader and are translated from
Mexican pesos, as a matter of arithmetic computation only, at the rate
quoted by the Banco de Mexico for March 31, 1996 of 7.5375 Mexican pesos
per U.S. dollar. Such translation should not be construed as a
representation that the peso amounts have been or could be converted into
U.S. dollars at this or any other rate.
Certain amounts in the financial statements at December 31, 1994
and 1993 have been reclassified in order to conform with the presentation
of the financial statements at December 31, 1995.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates.
2. Acquisition of MCII
On August 8, 1994, DINA acquired all of the outstanding shares of
MCII for an aggregate consider- ation of $311,627. The transaction was made
through the exchange of 54,225,462 Series "L" shares of DINA for 51% of the
outstanding shares of MCII, with the remaining 49% of the outstanding
shares exchanged for a face amount of $163,993 of 8% convertible
subordinated debentures. To guarantee the convertibility of this debt,
24,624,278 Series "L" shares and 32,749,940 common shares were placed in
treasury.
The acquisition was accounted for as a purchase which resulted in
a preliminary adjustment of all outstanding assets and liabilities of MCII
to their estimated fair value on the date of the acquisition. MCII is also
in the process of obtaining additional information to quantify the
potential liability related to certain U.S. and Canadian tax contingencies.
MCII does not expect a significant liability. Once those amounts have been
quantified, the contingencies may be recorded as an additional purchase
accounting adjustment. The excess of the consideration exchanged by DINA
over the estimated fair value of the net assets acquired, based upon the
preliminary purchase accounting adjustment, was $234,064 and is being
amortized for Mexican GAAP over 20 years using the straight-line method.
The amount amortized from the acquisition date to December 31, 1994 and for
1995 was Ps.19,700 and Ps.108,641, respectively, and is included in
administration expenses.
3. Significant Accounting Policies
The accompanying financial statements are presented in "Mexican
pesos" (Ps.), which is the name of the "new Mexican pesos" (NPs.) as of
January 1, 1996.
The significant accounting policies followed by the Company, which
are in accordance with Mexican GAAP, are summarized below:
Change in Accounting Policy-
Beginning in 1995, Bulletin A-8 issued by the Mexican Institute of
Public Accountants became effective. This bulletin requires that if there
are no accounting principles in Mexico which specifically address a
transaction, international accounting standards, or the accounting
principles of the country most closely related to the Company's operations,
must be used. Therefore, as of 1995, the Company began using "pushdown"
accounting to reflect the acquisition of MCII. The goodwill related to the
purchase is now considered an asset of MCII, and is converted to pesos
using the method explained below. This change resulted in an increase in
the peso amount of goodwill of Ps.982,366 and a corresponding increase in
"cumulative translation adjustment" in stockholders' equity. In addition,
amortization of goodwill increased by Ps.55,719 for 1995, which was
recorded in the fourth quarter of 1995. The increase in goodwill in pesos
in the consolidated financial statements also resulted in an increase in
the amount of exchange loss which can be included in the "cumulative
translation adjustment" rather than results of operations. This change
resulted in a reduction of exchange loss of Ps.274,976 compared to the
amount computed without using "pushdown" accounting. The gain on monetary
position decreased by Ps.551,065 because the debt is now included on MCII's
financial statements and the U.S. inflation index was applied.
Basis of Conversion of Financial Statements of U.S. Subsidiary-
The accounts of MCII are prepared in U.S. dollars as the
functional currency and have been converted to Mexican pesos in conformity
with International Accounting Standards No. 21 (now incorporated as a
supple- ment to Mexican GAAP) "The Effects of Changes in Foreign Exchange
Rates and Translation of Financial Statements in Foreign Currency", which,
as applied to MCII, does not differ significantly from U.S. Statement of
Financial Accounting Standards N-52 "Foreign Currency Translation".
The conversion to Mexican pesos was as follows:
- - - The effects of inflation on the financial information as described
below have been recognized using the consumer price index for the
U.S.
- - - All of the balance sheet accounts, except for capital stock, have
been converted using the exchange rate in effect at the balance
sheet date.
- - - The capital stock was converted at the exchange rate in effect at
the date of the acquisition of MCII.
- - - The statement of income was converted at the average exchange rate
for the applicable month.
The accounts of MCII were also converted to Mexican GAAP for
inclusion in the consolidated financial statements of the Company presented
in Mexican GAAP. See Note 23 for differences between U.S. and Mexican GAAP.
Recognition of the Effects of Inflation on the Financial Statements-
The consolidated financial statements of the Company have been
prepared in accordance with Bulletin B-10, "Recognition of the Effects of
Inflation on Financial Information," as amended, issued by the Mexican
Institute of Public Accountants, which recognizes the effects of inflation,
and, accordingly, the financial statements have been restated to the
purchasing power of the Mexican peso as of March 31, 1996, using the
Mexican National Consumer Price Index (the "NCPI"), published by the Banco
de Mexico. In this manner, the financial statements are comparable with
those of previous years, as all are stated in currency of the same
purchasing power.
To recognize the effects on inflation in terms of Mexican pesos
with purchasing power as of yearend, the procedures were as follows:
- - - Balance sheet:
Inventory costs include labor, material and factory overhead.
Inventories are stated at the lower of replacement cost or
realizable value. Cost of sales are stated utilizing the
replacement cost at time of sale.
Property, plant and equipment are restated to net replacement
cost, as determined by independent appraisers or using inflation
indices for the U.S. subsidiary. Depreciation is calculated based
on those values and the useful lives as determined by the
appraisers.
The goodwill amortization is computed using the straight-line
method over 20 years.
Capital stock and retained earnings are restated applying the
NCPI. The restatement represents the amount necessary to maintain
stockholders' equity in terms of the purchasing power of the
amount originally invested or retained.
The cumulative effect of restatement primarily represents the gain
or loss from holding nonmonetary assets, and is determined by
comparing the replacement values versus the value obtained from
applying factors derived from the NCPI, in the restatement of
nonmonetary assets (mainly inventories and property, plant and
equipment).
- - - Statement of income:
Revenues and expenses which are associated with a monetary item
(cash, trade receivables, liabilities, etc.) are restated from the
month in which they arise through yearend, based on factors
derived from the NCPI.
Costs and expenses associated with nonmonetary items are restated
through yearend, as a function of the restatement of the
nonmonetary asset which is being consumed or sold.
The comprehensive result of financing represents the sum of
interest earned and incurred, exchange gains and losses and the
gain or loss from monetary position, which is the result of
maintaining monetary assets and liabilities whose real purchasing
power is affected by inflation. During each of the three years
ended December 31, 1993, 1994 and 1995 monetary liabilities
exceeded monetary assets; consequently, there was a gain from
monetary position during each of those years.
- - - The statement of changes in financial position presents the
changes in constant currency, based on the financial position as
of the beginning of the year, restated to currency of the current
yearend.
Cash Equivalents-
Cash equivalents consist of unsecured short-term investments from
banks at fixed rates plus accrued interest, with a maturity of less than 3
months.
Investment in Equity Securities-
The investment in equity securities in which the Company has
significant influence are recorded under the equity method. Investments in
which the Company holds 10% or less of the outstanding shares are recorded
at cost (as restated).
Income Taxes and Employee Profit Sharing-
The provisions for income taxes and employee profit sharing are
calculated based on taxable income, which differs from book income due to
certain permanent and temporary differences in the recognition of income
and expenses for tax and book purposes. Deferred taxes and deferred
employee profit sharing are not provided for recurring temporary
differences which are expected to be replaced by temporary differences of a
similar nature and amount.
Transactions in Foreign Currency-
Transactions in foreign currency are recorded at the rate of
exchange in effect at the date of the transaction. Foreign currency assets
and liabilities are adjusted to the rate of exchange at the end of the
year. Any gain or loss resulting from the translation is included in the
income statement.
Warranty Expense-
Most of DINA's warranty costs are paid by the suppliers of engines
and other purchased parts. A warranty reserve has been established for the
estimated amounts to be incurred which are not covered by DINA's suppliers.
MCII establishes an accrual for warranty claims at the time of
sale, based on management's estimate of future warranty liabilities. Actual
warranty expenditures are charged to the accrual as incurred, and
periodically the accrual is reviewed for adequacy in light of actual
experience and adjustments are recorded if necessary.
Earnings per Share-
The Company issued 10,000 shares in 1989, 1,853,480 shares on
January 18, 1990 and 6,216,484 shares on August 29, 1991. On March 31 and
April 1 of 1993, 33,966,810 shares were issued in an initial public
offering. On August 8, 1994, 54,225,686 shares were issued in connection
with the acquisition of MCII. Except for 1,200,000 shares of the January
18, 1990 issuance and the shares exchanged for shares of MCII, all of the
shares were issued in exchange for cash. The Company determined its
earnings per share based on the weighted average number of shares
outstanding during the years ended December 31, 1993, 1994 and 1995.
4. Foreign Currency Position
Since the devaluation of the Mexican peso in December 1994, there
has been significant instability in the financial and exchange rate
markets.
At December 31, 1995, the DINA's assets and liabilities
denominated in foreign currency are represented principally by U.S. dollars
and were converted at the exchange rate of 7.7396 Mexican pesos per U.S.
dollar. The assets and liability of MCII are denominated in U.S. dollars
and Canadian dollars. The Company's foreign currency position expressed in
thousands of U.S. dollars was as follows:
DINA MCII Total
(a)
Assets-
Current $ 21,758 $ 229,626 $ 251,384
Long-term (includes goodwill
of MCII) 16,015 377,803 393,818
37,773 607,429 645,202
Liabilities-
Current 16,133 72,793 88,926
Long-term 300,847 239,828 540,675
316,980 312,621 629,601
Net asset (liability) position in
foreign currency $ (279,207) $ 294,808 $ 15,601
_________________
(a) For the purpose of this information amounts are presented in
accordance with U.S. GAAP.
As explained in Note 22, MCII enters into foreign exchange forward
contracts to hedge certain firm and anticipated purchase commitments which
are settled in Canadian dollars, amounting to $52,902,000 Canadian dollars.
At February 29, 1996, the unaudited foreign currency position was
similar to that at December 31, 1995, and the exchange rate was 7.6296
Mexican pesos per U.S. dollar.
Significant transactions in foreign currency undertaken by DINA
during 1994 and 1995 were as follows:
1994 1995
Export sales $ 23,498 $ 58,085
Purchases other than fixed assets (182,883) (26,513)
Interest paid (26,252) (34,313)
Technical support (3,505) (638)
Net $ (189,142) $ (3,379)
5. Cash and Cash Equivalents
Cash and cash equivalents include:
1994 1995
Cash Ps. 19,789 Ps. 5,868
Unsecured short-term investments from banks
at fixed rates of interest with maturities less
than 3 months 419,608 278,466
Ps. 439,397 Ps. 284,334
6. Notes and Accounts Receivable
Notes and accounts receivable include:
1994 1995
Trade Ps. 747,216 Ps. 603,513
Current portion of long-term notes receivable 124,159 63,045
Less- Allowance for doubtful accounts (83,829) (58,544)
787,546 608,014
Short-term portion of receivable from
trust for stock sales plan 4,123 2,712
Refundable income tax 50,265 15,831
Refundable asset tax 2,158 6,928
Refundable value added tax 29,978 16,118
Other 75,122 86,176
Ps. 949,192 Ps. 735,779
The changes in the allowance for doubtful accounts were as follows:
1993 1994 1995
Beginning balance Ps. 3,100 Ps. 6,756 Ps. 150,029
Acquisition of MCII - 14,550 -
Provision 4,077 129,431 125,180
Charge-offs (193) - (1,710)
Recoveries - (263) (127)
Effect of inflation (228) (445) (60,743)
Ending balance Ps. 6,756 Ps. 150,029 Ps. 212,629
The balance of the allowance for doubtful accounts is as follows:
1993 1994 1995
Current Ps. 6,756 Ps. 83,829 Ps. 58,544
Long-term - 66,200 154,085
Total Ps. 6,756 Ps. 150,029 Ps. 212,629
7. Inventories
Inventories consist of the following:
1994 1995
Finished goods Ps. 1,162,272 Ps. 1,032,271
Work in process 305,186 352,530
Raw materials 840,355 666,598
Merchandise in transit and advances to suppliers 64,308 23,124
2,372,121 2,074,523
Less- Allowance for obsolete and slow-moving
items (231,937) (224,701)
Ps. 2,140,184 Ps. 1,849,822
The changes in the allowance for obsolete and slow-moving items were as follows:
1993 1994 1995
Beginning balance Ps. 18,966 Ps. 22,302 Ps. 231,937
Acquisition of MCII - 97,159 -
Provision 5,221 132,247 78,997
Sales of obsolete
inventory (327) (14,559) (44,280)
Effect of inflation (1,558) (5,212) (41,953)
Ending balance Ps. 22,302 Ps. 231,937 Ps. 224,701
8. Long-Term Notes and Accounts Receivable
Long-term notes and accounts receivable include:
1994 1995
Notes receivable Ps. 562,149 Ps. 649,049
Less- Allowance for doubtful
accounts (66,200) (154,085)
495,949 494,964
Receivable from trust for stock sales plan 9,597 5,247
Ps. 505,546 Ps. 500,211
The maturity of notes receivable, net of reserves, is as follows:
Year
1996 Ps 63,045
1997 51,006
1998 82,085
1999 83,360
2000 and thereafter 278,513
Total 558,009
Less-current portion (63,045)
Long-term notes receivable Ps. 494,964
Notes Receivable-
DINA-
In January 1996, DINA restructured all its accounts receivable
from Autobuses Estrella Blanca, S.A. de C.V. (EB), Autotransportes Tres
Estrellas de Oro, S.A. de C.V. (TEO) and both companies' licensees, though
a global restructuring agreement. As a result of this global restructuring,
all balances payable to DINA were renegotiated using as a reference "Units
of Investment" (UDIS) which value changes based on the Mexican inflation
rate. The principal balance, increased for inflation, will be payable in
equal monthly installments over six years beginning July 1, 1997. These
balances will bear interest at a rate of 10% over the monthly reference
value of UDIS payable beginning February 29, 1996. This agreement will be
prepared individually for each specific company and/or licensee.
At December 31, 1995, the account receivable from TEO and its
licensees amounts to US$25 million and was translated to Mexican pesos at
the exchange rate of $4.50 per US dollar, included in the above mentioned
restructuring. The difference between the exchange rate at year end and
$4.50 was recorded as expense and a reserve established at December 31,
1995.
These accounts receivable are guaranteed with the buses acquired,
as well as with the shares of EB and TEO, which will allow DINA to operate
the related units to ensure the collection of its receivables. The
accompanying financial statements include the effect of this restructuring
at December 31, 1995 and the related accounts receivable have been
classified as long-term.
In addition to the restructuring, DINA initiated procedures with
Fondo Bancario de Proteccion al Ahorro (Banking Fund for the Protection of
Savings (FOBAPROA)), to transfer its balances receivable from EB and TEO to
FOBAPROA, and use the resources obtained from this transfer in the
capitalization of Arrendadora Financiera Dina, S.A. de C.V. (related
party), so that this company may obtain additional financing to sell DINA
products in the future. These transactions are in the process of being
formalized and are expected to be concluded by the end of May 1996.
FOBAPROA has verbally agreed to purchase the receivables at a discount of
20.5%, which is equivalent to $59,213. The accompanying financial
statements include a reserve for this amount. The Company's management does
not expect any changes in the percent of discount.
The account receivable from Union de Credito para el
Autotransporte, S.A. de C.V., which acted as an intermediary between DINA
and EB and its licensees, was ceded to DINA together with the underlying
rights, effective retroactively as of December 31, 1995 and is included in
the above mentioned restructuring and has also been classified under
long-term receivables at December 31, 1995.
The notes receivable, net of reserves, due to DINA from its
intercity bus customers, restructured as of December 31, 1995 are as
follows:
Autobuses Estrella Blanca, S.A. de C.V. Ps. 131,254
Autotransportes Tres Estrellas de Oro, S.A. de C.V.
(Tres Estrellas de Oro) 17,387
Licensees of Tres Estrellas de Oro 80,991
Total restructured Ps. 229,632
MCII-
During the year ended December 31, 1995 and the five month period
ended December 31, 1994, MCII sold $42,366 and $21,486 of its notes
receivable for $44,126 and $22,386 respectively. MCII has agreed to
repurchase, for the unpaid balance, any contract for which there has been a
material breach of any warranty, representation, covenant or other
obligation of MCII as specified in the contract. In the case of default by
a debtor, the purchaser, after taking possession of the underlying
collateral equipment, may permit MCII to remarket the equipment. MCII is
required to reimburse the purchaser for any losses as a result of defaults
up to an aggregate of $8,467 at December 31, 1995.
On October 13, 1993, the Company advanced to Grupo Empresarial G
$30,000 at a rate of 11%, which was paid on November 15, 1993. During 1994
and 1995, the Company advanced Ps. 10,814 and Ps. 3,415, respectively to
Grupo Empresarial G, unsecured, which bears interest at 3% over the average
bank cost of funds.
Receivable from Trust for Stock Sales Plan-
In 1992, the Company created a trust with Inverlat, to establish a
stock sales plan for the executives of DINA. The trust is managed in
accordance with instructions set forth by a Technical Committee, which
consists of the principal stockholders and certain executives of the
Company.
The initial contribution was used to subscribe and pay for
8,234,360 common shares without par value, at a price of Ps.3.04 per share.
At December 31, 1992, the trust completed the sale of the shares
to the executives of DINA subject to the following conditions:
- The sale will be in equal installments over ten years. The
payment to the trust must be made within 365 days of the
signing of the sales contract for each year.
- The contract automatically expires should the executive cease
to be employed at any of the Group's companies, and the
employee will forego the right to receive any remaining shares
under the contract.
The consolidated financial statements of the Company reflect the
account receivable from the trust at its present value which at December
31, 1995 was Ps.7,959, of which Ps.5,247 is long term.
The account receivable from the trust is recorded as an asset.
Furthermore, no compensation expense has been or will be recorded in
connection with this program.
9. Property, Plant and Equipment
Property, plant and equipment consist of the following:
1994 1995
Buildings and improvements Ps. 972,924 Ps. 1,094,557
Machinery and equipment 774,354 772,039
Transportation equipment 133,314 296,000
Furniture and fixtures 117,753 93,998
1,998,345 2,256,594
Less- Accumulated depreciation (744,791) (816,513)
1,253,554 1,440,081
Land 114,244 102,126
Ps. 1,367,798 Ps. 1,542,207
The average annual depreciation rates are as follows:
1994 1995
Buildings and improvements 3% to 25% 3% to 25%
Machinery and equipment 6% to 33% 8% to 33%
Transportation equipment 9% to 20% 4% to 20%
Furniture and fixtures 11% 8%
10. Discontinued Operations of MCII
In November 1993, the Board of Directors of MCII approved a plan
of disposition of the transit manufacturing segment of MCII. This decision
was based upon management's review of market activities, business
prospects, competitive bidding, evaluation of backlogs, economic value
analysis, and opportunities for cost reduction, which indicated that the
transit manufacturing business would not achieve acceptable profitability
in the foreseeable future. As a result of this decision, this segment was
classified as discontinued operations in 1993.
In November 1994, MCII sold the fixed assets and certain of the
inventory of the transit manufacturing business, as well as the right to
manufacture, remanufacture and distribute transit buses previously made by
MCII, for an aggregate consideration of $14,947, of which $4,877 was in the
form of a note receivable and the remainder was in cash. Additionally, the
purchaser, for a period of five years from the sale date, has agreed not to
distribute parts for transit buses previously manufactured by MCII. MCII
retained all other assets and all of the remaining liabilities of the
transit manufacturing business.
The summarized balance sheet of the of transit manufacturing
segment at December 31, 1994 and 1995 was as follows (stated in thousands
of U.S. dollars):
1994 1995
Assets-
Accounts receivable $ 32,257 $ 18,247
Inventories 20,878 -
Other current assets 3,997 2,548
Deferred taxes and other assets 23,509 17,230
$ 80,641 $ 38,025
Liabilities and investment and advances-
Accounts payable $ 1,598 $ 378
Other current liabilities 28,460 12,858
Other liabilities 2,929 1,345
MCII's investment and advances 47,654 23,444
$ 80,641 $ 38,025
The following is a summary of the operating results of the transit
manufacturing segment for the five month period ended December 31, 1994 and
the year ended December 31, 1995:
1994 1995
Revenues $ 50,767 $ 24,278
Operating cost and expenses 51,283 24,881
(516) (603)
Income tax benefit 199 232
Losses charged to discontinued operations
reserve $ (317) $ (371)
11. Research and Development of Technology
Two subsidiaries of the Company have a trust arrangement to
earmark deductible funds for research and development of technology for the
companies. The companies will be authorized to make use of these funds for
specific purposes, and the fund may be increased by future contributions in
accordance with the provisions of the contract, or by interest, dividends
and capital gains earned by the fund.
The fund was established in 1990 and no subsequent cash
contributions were made. During 1993, Ps.20,018 was used for research and
development and is included in expenses. There were no expenditures for
research and development in 1994 and 1995. The balance of the fund as of
December 31, 1995 was Ps.19,496 and is included in other assets.
MCII has undertaken a research and development project with the
cooperation of the Government of Canada and the Province of Manitoba.
Agreements were entered into between the parties for the research and
development project which includes commitments for contributions. During
the five month period ended December 31, 1994 and the year ended December
31, 1995 MCII recorded $698 and $3,305, respectively from the contribution
programs, which has been applied against research and development expenses.
Contributions may be repayable should the project not be completed. As of
December 31, 1995, the amount of such contributions totaled $6,033.
12. Bank Loans
Short-term bank loans were as follows:
Average Weighted
Weighted Amount Average
Balance at Average Outstanding Interest Rate
End of the Interest During the During the
Year Rate Year (a) Year (b)
1994 Ps. 141,300 23.63% Ps. 176,782 19.99%
1995 Ps. 14,827 60.03% Ps. 35,282 61.06%
(a) Average amounts outstanding were calculated by dividing the
average monthly borrowings by the number of months during the
year.
(b) The weighted average interest rates were calculated by dividing
the total interest expense during the year by the average amounts
outstanding as calculated in (a) above.
13. Other Payables and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
1994 1995
Taxes other than income tax Ps. 86,708 Ps. 119,037
Commissions 2,873 10,085
Interest payable 60,281 89,581
Warranty reserve 43,216 45,124
Other 384,478 197,798
Ps. 577,556 Ps. 461,625
14. Long-Term Debt
An analysis of long-term debt is as follows:
1994 1995
Eurobonds Ps. 1,233,711 Ps. 1,257,878
Subordinated convertible
debentures 1,348,792 1,375,213
Bank credit facility 575,732 771,499
Term notes payable 1,028,093 1,048,232
Other 2,273 14,827
Less-
Discount on issuance of
subordinated convertible
debentures (79,951) (110,228)
Current maturities of
long-term debt (1,386) (14,827)
Ps. 4,107,264 Ps. 4,342,594
As of December 31, 1995, MCII had available short-term lines of
credit totaling Ps.338,193.
Eurobonds-
On November 18, 1992 Eurobonds through Guaranteed Notes with a
principal amount of $150,000 were issued. The 10.5% Guaranteed Notes are
due November 18, 1997 with interest payable semi-annually in arrears on May
18 and November 18. See Note 28 c) for explanation of Exchange Offer for
these Eurobonds.
The terms of the Eurobonds restrict the disposition of the stock
of subsidiaries and fixed assets unless the proceeds are subsequently
reinvested, and limit the pledging of assets or granting of guarantees on
additional debt. The Eurobonds are guaranteed by each of Dina Camiones,
S.A. de C.V., Dina Autobuses, S.A. de C.V. and Dina Comercializadora, S.A.
de C.V., subsidiaries of the Company.
As of the date of issuance of these financial statements, the
Company is in compliance with these restrictions.
Subordinated Convertible Debentures-
On August 8, 1994, DINA issued subordinated convertible debentures
for $163,993, with a discount of $14,759, due in August 2004, with interest
payable semi-annually at 8%, net of certain taxes. DINA has the option of
redeeming the debentures after three years and before 5 years with a
prepayment penalty, if the market price of the American Depositary shares
(ADS) of Series "L" stock of the Company exceeds $22.86 for a specified
period of time. The debentures are convertible at the option of the holder
to 56.88 ADSs per one thousand dollars of principal amount. The discount
will be amortized through August 2004 on a straight-line basis.
Bank Credit Facility-
Long-term bank credits are available to MCII from participating
banks under an agreement (the "Bank Credit Facility") which provides up to
$125,000 for borrowing purposes, of which up to $35,000 is available for
issuance of standby letters of credit. Borrowings were available at
December 31, 1995 on a revolving basis until July 31, 1998. At December 31,
1995, there were borrowings of $92,000 outstanding under the Bank Credit
Facility and $6,920 of standby letters of credit were issued.
Canadian revolving credit loans are available to a subsidiary of
MCII which provide for loans up to the Canadian equivalent of $7,329, of
which no amounts were outstanding at December 31, 1995. Borrowings were
available at December 31, 1995 on a revolving basis until January 31, 1996,
with outstanding borrowings then converting into a term loan repayable in
36 equal monthly installments.
The interest rates applicable to borrowings under these agreements
are, at MCII's option, indexed to the bank prime rate or the London
Inter-banking Offering Rate ("LIBOR"), plus appropriate spreads over such
indices during the period of each borrowing agreement. The agreements also
provide for commitment fees. Such spreads and fees can change based upon
changes in MCII's financial ratios. Annually, with the participating banks'
consent, the term of the agreements may be extended for one year.
Term Notes Payable-
MCII has $125,000 of term notes payable which are due in annual
installments of $25,000 beginning in November 1998 and extending through
November 2002. Interest on the notes is at a fixed rate of 9.02%, however,
MCII has entered into an interest rate swap agreement which effectively
changes the interest rate on the notes to LIBOR plus 1.14%. During 1995,
MCII terminated $62,500 of the swap in exchange for $4,950 which will be
amortized as a reduction of interest expense over the remaining life of the
notes. As a result, the effective interest rate on $62,500 of the notes is
at LIBOR plus 1.14% and $62,500 is at a fixed rate of 7.44%.
MCII long-term debt agreements include various restrictive
covenants and require the maintenance of certain defined financial ratios
with which MCII is in compliance.
At February 29, 1996, the Company has guaranteed revolving lines
of credit on behalf of a related company in an amount of Ps.21,453. There
are also other guarantees between affiliates for Ps.15,727.
Long-term debt maturities are as follows:
1994 1995
1996 Ps. 887 Ps. -
1997 1,809,443 1,257,878
1998 205,619 981,145
1999 205,619 209,646
2000 and thereafter 1,885,696 1,893,925
Ps. 4,107,264 Ps. 4,342,594
15. Stockholders' Equity
On March 23, 1995 the stockholders voted to cancel the dividends
declared in August 1994, unpaid as of December 31, 1994, which totaled
Ps.44,513.
At December 31, 1994 and 1995, capital stock consisted of the
following:
Number of Shares
Common Series "L" Amount
Nominative shares without par
value, represented by fixed
capital not subject to withdrawal
and of free subscription 203,800,450 - Ps. 126,999
Nominative shares with no par
value, sub-series 2/94 and 1/94,
represented by variable capital,
freely subscribable, and which
may not exceed 10 times fixed
capital. Series L shares have
limited voting rights and may
not exceed 25% of capital 32,749,940 78,849,964 69,546
236,550,390 78,849,964 196,545
Less- Unissued shares (32,749,940) (24,624,278) (35,754)
Capital stock outstanding 203,800,450 54,225,686 Ps. 160,791
In accordance with the by-laws of the Company, foreign investors
may purchase up to 49% of the shares of the Company.
Dividends paid by the Mexican subsidiaries are not subject to
income taxes, as long as they are paid from "net taxable income" ("UFIN").
For the minority stockholders, dividends not paid from UFIN must include a
34% income tax. The majority stockholders are not subject to income tax
withholding because the Company is a tax controlled entity under the rules
of consolidation for tax purposes. If capital is reduced, the excess of the
reduction over price-level adjusted paid-in capital will be taxable as a
dividend in accordance with the formula prescribed by Mexican tax law.
The annual net income of each Mexican subsidiary is subject to a
legal requirement that 5% thereof be transferred to a legal reserve each
year until the reserve equals 20% of capital stock. This reserve is not
available for distribution to stockholders during the existence of the
Company, except in the form of a stock dividend.
16. Tax Environment
DINA-
Income and Asset Tax-
DINA is subject to income and asset taxes. Income tax is computed
by taking into consideration the taxable and deductible effects of
inflation, such as depreciation calculated on restated asset values, the
deduction of purchases in lieu of cost of sales, which permit the deduction
of current costs, and taxable income is increased or reduced by the effects
of inflation on certain monetary assets and liabilities through the
inflationary component. Income taxes are calculated in terms of currency
when the transaction occurred and not in terms of currency at the end of
the period.
The objective of the Mexican Income Tax Law is to tax or to allow
the tax deduction of the interest in- come/expense and/or the foreign
exchange gain/loss in real terms, that is, deducting from the nominal
amount its inflationary component in a calculation similar to that used to
determine the comprehensive financing result in the Statement of Income.
The asset tax is computed at an annual rate of 1.8% (2% through
1994) of the average of the majority of restated assets less certain
liabilities, and the tax is paid only to the extent that it exceeds the
income tax of the period. Any required payment of asset tax can be offset
against the excess of income tax over asset tax in the following ten years.
The provisions for income taxes and employee profit sharing have
been determined on the basis of the separate taxable income (loss) of each
individual company. Grupo Empresarial G (the Company's parent) is permitted
by the Mexican tax authorities to file a consolidated return.
Employee Profit Sharing-
Employee profit sharing is calculated based on taxable income,
after certain adjustments, primarily depreciation, the tax gain or loss on
monetary position and exchange gains or losses when realized. The
difference between the statutory rate of 10% and the actual provision
represents timing differences in the recording of employee profit sharing.
Under Mexican GAAP, recording the effect of these timing differences is not
required.
Tax Loss Carryforwards and Recoverable Asset Tax-
At December 31, 1995 DINA had the following tax loss carryforwards
and recoverable asset tax, which will be indexed for inflation through the
date used to offset future taxable income or income tax payable,
respectively:
Tax Loss
Year of Expiration Carryforward Asset Tax
1999 Ps. - Ps. 12,315
2000 - 9,568
2001 3,657 7,652
2002 20,424 12,811
2003 4,480 7,626
2004 854,024 13,920
2005 196,077 28,463
Ps. 1,078,662 Ps. 92,355
MCII-
MCII's U.S. subsidiaries are included in MCII's consolidated U.S.
federal and other applicable income tax returns. Taxable income of MCII's
Canadian subsidiaries is included in separate tax returns filed in Canada.
MCII is also subject to various state income taxes.
The deferred tax asset of Ps.244,943 represents the future tax
benefit to be received from deductions for U.S. tax purposes.
At December 31, 1995 MCII had $34,713 of tax loss carryforwards
which will expire as follows:
Tax Loss
Year of Expiration Carryforwards
2007 $ 2,690
2008 6,261
2009 22,988
2010 2,774
$ 34,713
17. Provision (Benefit) for Income Tax
The following items represent the principal differences between
Mexican income tax computed at the statutory tax rate and the Company's
Mexican Subsidiaries' provision for income tax for 1993:
Statutory tax rate 34.75%
Permanent differences:
Gain from monetary position (7.57)
Inflationary component 5.98
Non-deductible items 1.35
Other 5.21
Temporary differences:
Depreciation (11.99)
Cost of sales vs. purchases,
labor and overhead (1.00)
Advance payments from customers (28.21)
Reserves 1.63
Advance payments to suppliers 7.83
Subsidiaries with tax losses 9.85
Effective tax rate 17.83%
During 1994 and 1995, the Company's Mexican subsidiaries recorded
a book loss but no net income tax benefit. The Company's U.S. subsidiary
recorded income tax expense, which under Mexican GAAP does not include
temporary differences. Therefore, these differences must be shown in the
reconciliation of the statutory rate to the effective rate.
1 9 9 4 1 9 9 5
---------------------------------------- -------------------------------------------
DINA MCII Total DINA MCII Total
Tax (benefit) expense at statutory rate Ps.(319,417) Ps.20,592 Ps.(298,825) Ps.(232,911) Ps. 103,147 Ps.(129,764)
Permanent differences-
Gain from monetary position (14,752) (7,297) (22,049) (65,102) 14,462 (50,640)
Inflationary component 22,238 - 22,238 107,891 - 107,891
Non-deductible items 5,936 - 5,936 41,061 - 41,061
Intangible amortization - 8,977 8,977 - 11,718 11,718
State income taxes - 2,317 2,317 - 5,484 5,484
Canadian tax differences - 3,097 3,097 - 4,518 4,518
Temporary differences-
Depreciation (16,346) - (16,346) (11,528) - (11,528)
Cost of sales vs. purchases,
labor and overhead 8,652 - 8,652 74,212 - 74,212
Reserves 55,718 - 55,718 43,096 - 43,096
Net operating losses of discon-
tinued operations - 5,460 5,460 - - -
Other (32,311) (2,312) (34,623) (1,195) (15,307) (16,502)
Tax loss carryforwards which
will be used in the future 296,939 - 296,939 49,790 - 49,790
Subsidiaries with taxable
income 119,963 - 119,963 - - -
Intercompany sales taxable to
Mexican subsidiary - - - 8,349 - 8,349
Income tax provision 126,620 30,834 157,454 13,663 124,022 137,685
Utilization of tax loss
carryforwards (126,620) - (126,620) (285) - (285)
Ps. - Ps.30,834 Ps. 30,834 Ps. 13,378 Ps. 124,022 Ps. 137,400
United States and Canadian income before income taxes for the five
month period ended December 31, 1994 and the year ended December 31, 1995
were as follows:
1994 1995
United States $ 4,649 $ 12,979
Canada 2,195 22,916
$ 6,844 $ 35,895
MCII's U.S. federal income tax returns have been examined through
1990 and are currently being examined for 1991, 1992 and the seven month
period ended July 1993.
MCII's Canadian income tax returns for 1982 through 1992 are
currently under review by Revenue Canada. Authorities have proposed
imputing additional income relating to transactions with a U.S. based
subsidiary of MCII. A formal reassessment has been issued by Revenue Canada
on the 1985 return. A notice of objection has been filed by MCII for 1985.
In the event of an adverse judgment, the additional income taxes for 1982
through 1992 could amount to up to $25,000 plus interest of approximately
$25,000 and, in addition MCII 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. Although MCII is in the process of obtaining additional
information, based upon its review of current relevant information,
including the advice of outside counsel, MCII is of the opinion that
Revenue Canada's arguments are without merit and that any liability from
this matter will not be material to its financial condition or results of
operations.
18. Commitments
The Company leases certain property and equipment used in its
operations under capital and operating leases with a net book value as of
December 31, 1995 of Ps.88,865.
Rental expense was Ps.4,603, Ps.10,729 and Ps.25,157 for the years
ended December 31, 1993, 1994 and 1995.
At December 31, 1995, the aggregate minimum rental commitments
under non-cancelable leases were approximately as follows:
Capital Operating
Leases Leases
1996 Ps. 2,676 Ps. 23,537
1997 2,155 17,964
1998 2,013 11,659
1999 2,013 9,736
2000 and thereafter 1,678 21,401
Total 10,535 Ps. 84,297
Less- Interest 5,967
Present value of net minimum
lease payments 4,568
Less- Current installments 4,568
Long-term obligation at
December 31, 1995 Ps. -
19. Pension Plan Costs
DINA-
Under Mexican Labor Law, companies are liable for severance
payments to employees terminated under certain circumstances. Additionally,
there is a liability under the union contracts for voluntary retirements by
plant employees with 5 or more years of service.
The Company provides retirement pensions, seniority premiums,
incidental related death benefits and defined benefit pension plans that
cover substantially all employees of DINA. Seniority premiums are paid to
employees who leave the Company after fifteen years of service and are
based on number of years of service. For union employees, additional
seniority premiums are a part of the union contracts. The union contracts
also define the provision of the pension plans for union employees. The
benefits are revised periodically for all covered employees mainly in
conjunction with union negotiations.
The largest subsidiaries established irrevocable trusts to cover
the employees' accrued benefits. No contributions were made during 1993,
1994 or 1995. The Company follows the funding recommendations of its
actuaries. At December 31, 1995, the balance of this fund amounts to
Ps.43,934 and the assets of the trust consist of stock traded on the
Mexican Stock Exchange (31%) and certain fixed-rate investments (69%).
MCII-
Trusted, non-contributory and contributory pension plans cover
substantially all employees. Benefits for the non-contributory plans are
based primarily on final average salary and years of service. Funding
policies provide that payments to pension trusts shall be at least equal to
the minimum funding required by applicable regulations. Contributions and
cost for the contributory plans are determined as a percentage of each
covered employee's regular wages.
The following rates, which include inflation, were used in
determining the actuarial present value of accumulated plan benefits for
the Company's pension plans:
December 31,
1994 1995
1993 DINA MCII DINA MCII
Discount rate 9% 9% 8% 25% 8%
Salary increase rate 8% 8% 5% 20% 5%
Return on assets 11% 11% 9% 30% 9%
The components of net periodic pension cost consist of the following:
December 31,
1994 1995
1993 DINA MCII Total DINA MCII Total
Service cost Ps. 5,743 Ps. 6,787 Ps. 3,091 Ps. 9,878 Ps.3,462 Ps.8,160 Ps.11,622
Interest on projected
benefit obligation 6,102 5,710 2,434 8,144 3,175 8,551 11,726
Actual return on plan
assets (6,143) (5,884) (1,902) (7,786) (11,216) (14,525) (25,741)
Amortization of unrecognized
obligations 2,244 897 1,796 2,693 (828) 17,966 17,138
Net cost for the year Ps. 7,946 Ps. 7,510 Ps. 5,419 Ps.12,929 Ps.(5,407) Ps.20,152 Ps.14,745
Pension liability is as follows:
December 31,
--------------------------------------------------------------------------------------------------
1993 1994 1995
-------- ----------------------------------------- --------------------------------------------
MCII MCII
----------------------- -----------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
DINA Benefits Assets Total DINA Benefits Assets Total
---- -------- ------ ----- ---- -------- ------ -----
Vested benefit obligation Ps.1,520 Ps.13,199 Ps.58,988 Ps.23,548 Ps.95,735 Ps.19,544 Ps.73,343 Ps.12,159 Ps.105,046
Non-vested benefit obligation 15,671 14,359 10,618 896 25,873 4,320 11,648 1,024 16,992
Accumulated benefit obligation 17,191 27,558 69,606 24,444 121,608 23,864 84,991 13,183 122,038
Additional benefits related to
future compensation increases 50,608 42,267 21,195 1,340 64,802 19,451 22,700 1,987 44,138
Projected benefit obligation 67,799 69,825 90,801 25,784 186,410 43,315 107,691 15,170 166,176
Fair value of plan assets (46,088) (54,886) (98,064) (831) (153,781) (43,934) (117,109) (1,358) (162,401)
Unfunded projected benefit
obligation Ps.21,711 Ps.14,939 Ps.(7,263) Ps.24,953 Ps.32,629 Ps. (619) Ps.(9,418) Ps.13,812 Ps.3,775
20. Post-Retirement Benefits Other Than Pensions
MCII has defined benefit post-retirement plans that provide
medical and life insurance for eligible retirees and dependents. The net
periodic post-retirement benefit cost for MCII is based upon the provisions
of SFAS No. 106 "Employers' Accounting for Post-retirement Benefits Other
than Pensions".
The net periodic post-retirement benefit cost for the five month
period ended December 31, 1994 and the year ended December 31, 1995
included the following components:
1994 1995
Service cost benefits attributed to
service during the period Ps. 1,112 Ps. 2,897
Interest cost on the accumulated
post-retirement benefit obligation 957 2,792
Net amortization and deferral (30) (313)
Net periodic post-retirement benefit cost Ps. 2,039 Ps. 5,376
The status of the plans at December 31, 1994 and 1995 was as follows:
1994 1995
Accumulated post-retirement benefit
obligation-
Retirees Ps. 9,385 Ps. 9,836
Other fully eligible active plan
participants 10,856 11,950
Other active plan participants 27,617 30,910
47,858 52,696
Unrecognized prior service cost 346 285
Unrecognized net gain 994 2,760
Accrued post-retirement benefit cost Ps. 49,198 Ps. 55,741
The assumed health care cost trend rate used in measuring the
accumulated post-retirement benefit obligation ("APBO") was 12% in 1995,
gradually declining to 5% by the year 2002 and remaining at that level
thereafter for retirees below age 65, and 8.5% in 1995, gradually declining
to 5% by the year 2002 and remaining at that level thereafter for retirees
above age 65. A one percentage point increase in the assumed health care
cost trend rate for each year would increase the APBO as of December 31,
1995 by approximately 21% and the net periodic post-retirement benefit cost
would increase by approximately 25%.
The assumed discount rate used in determining the APBO was 7.5% in
1994 and 1995.
21. Litigation and Contingencies
Certain U.S. entities 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, 1995 with respect to these matters is not ascertainable, the Company's
management and its outside counsel believe that any resulting liability
would not materially affect the financial condition or results of
operations of the Company.
22. Financial Instruments with Off-Balance Sheet Risk and Fair
Value of Financial Instruments
Financial Instruments with Off-Balance Sheet Risk-
MCII enters into foreign exchange forward contracts to hedge
certain firm and anticipated purchase commitments which are settled in
Canadian dollars. These contracts are purchased to reduce the impact of
Canadian dollar currency fluctuations on operating results. MCII does not
engage in Canadian dollar currency speculation and the contracts do not
subject MCII to risk due to exchange rate movements as gains and losses on
the contracts offset gains and losses on the materials being purchased. At
December 31, 1995 and 1994, MCII had approximately $52,902,000 and
$68,068,000 Canadian dollar exchange forward contracts outstanding. MCII's
theoretical risk in these transactions is the cost of replacing, at current
market rates, these contracts in the event of default by the other party.
Management believes the risk of incurring such losses is remote as the
contracts are entered into with major financial institutions.
As a necessary adjunct to its new and used coach business MCII has
entered into repurchase and first loss agreements with certain companies
which provide financing for coaches, pursuant to which MCII agrees to
either repurchase coaches from such companies or guarantees the payment of
certain obligations of coach owners or operators. The amount of such
agreements as of December 31, 1994 and 1995 was approximately $4,787 and
$3,462, respectively. Additionally, as a result of certain sales of notes
receivables and leases during 1994 and 1995 MCII is required to reimburse
the purchaser of such notes and leases for any losses as a result of
defaults up to $5,936 as of December 31, 1994 and $9,536 as of December 31,
1995. MCII has experienced no material losses in respect to such
agreements, and losses under existing agreements are not expected to exceed
the amount reserved for such losses.
On December 28, 1994, MCII sold $24,425 of accounts receivables to
a major financial institution with recourse. At December 31, 1995, none of
the receivables sold remained outstanding. As a result, MCII had no
exposure under the recourse provisions.
At December 31, 1994 MCII had an interest rate swap outstanding
with a commercial bank which effectively changed the interest rate on
MCII's $125,000 term notes payable to LIBOR plus 1.14%. In June 1995, MCII
settled $62,500 notional principal amount of the swap, resulting in
proceeds to the Company of $4,950 which are being amortized as an
adjustment to interest expense of the term notes over the remaining life of
the notes. Under the terms of the swap agreement, MCII receives interest of
7.88% and pays interest at LIBOR. At December 31, 1995, the notional amount
on which the interest is calculated is $62,500 and matures ratably at the
same time the related term notes mature. The counterparty to the agreement
has the right to designate a cash settlement of the swap 10 days prior to
the maturity date of MCII's Bank Credit Facility. The maturity date of the
Bank Credit Facility as of December 31, 1995, is July 31, 1998, but is
expected to be extended annually by mutual agreement. In the event of a
cash settlement designated by the counterparty, MCII intends to defer the
proceeds received, or payments made, as a result of the settlement and
immediately enter into a new swap agreement. The deferred settlement would
then be amortized over the remaining life of the new swap, thus preserving
the effective change in the interest rate on the term notes payable at
LIBOR plus 1.14%. MCII is exposed to credit loss in the event of
non-performance by the other party; however, MCII does not anticipate
non-performance as the counter party is a major financial institution.
Fair Value of Financial Instruments-
The estimated fair value amounts have been determined by the
Company using available market information and valuation methodologies
described below. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein may not be indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions on valuation methodologies may have a material effect on
the estimated fair value amounts. The carrying values of cash and cash
equivalents, receivables, bank overdrafts and accounts payable approximate
fair values due to the short-term maturities of these instruments. The
carrying amounts and estimated fair values of the Company's other financial
instruments at December 31, 1995 are as follows:
1994 1995
---------------------------- --------------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
------- ----- ------- -----
Notes receivable $ 37,312 $ 37,284 $ 35,631 $ 35,658
Investment in equity instrument - - 1,200 1,200
Debt (195,000) (194,337) (217,816) (229,678)
Interest rate swap - (663) - 5,891
Subordinated convertible debentures (163,993) (121,354) (163,993) (59,857)
Eurobonds (150,000) (135,000) (150,000) (109,500)
Foreign exchange forward
contracts - (4,486) - 84
The methods and assumptions used to estimate the fair values of
the financial instruments are summarized as follows:
Notes receivable- Estimated by discounting the future cash flows
using rates currently used for notes of similar terms and maturities.
Investment in equity instrument- Estimated at its carrying value
as the investment was acquired December 28, 1995.
Debt- Estimated by discounting the future cash flows, using rates
currently available for debt of similar terms and maturity. The fair value
of long-term debentures and Eurobonds, which are traded, is based on the
market value at yearend.
Interest rate swap- Estimated by discounting future cash flows
using rates currently available. Represents the unrealized gain or (loss)
if the agreement had been settled at year-end. The swap agreement
specifically hedges portions of the Company's term notes payable. As market
interest rates fluctuate, the unrealized gain or loss on the swap moves to
offset the change in fair value of that portion of the term notes payable.
Foreign exchange forward contracts (used for hedging purposes)-
Estimated using quoted exchange rates.
23. Differences Between Mexican and U.S. GAAP
Note 24 presents a reconciliation of net income (loss) and
stockholders' equity to U.S. GAAP. However, this reconciliation to U.S.
GAAP does not include the reversal of the restatement of the financial
statements to comprehensively recognize the effects of inflation, as
required under Mexican GAAP Bulletin B-10, "Recognition of the Effects of
Inflation on Financial Information," as amended. The application of
Bulletin B-10 represents a comprehensive measure of the effects of price
level changes in the inflationary Mexican economy and, as such, is
considered a more meaningful presentation than historical cost-based
financial reporting for both Mexican and U.S. accounting purposes.
The principal differences between Mexican GAAP and U.S. GAAP are
described below together with an explanation, where appropriate, of the
method used in the determination of the adjustments that affect net income
(loss) and total stockholders' equity.
Cash Flow Information-
Under Mexican GAAP, the Company presents consolidated statements
of changes in financial position.
Bulletin B-12 specifies the appropriate presentation of the
statement of changes in financial position when the financial statements
have been restated in constant pesos in accordance with the third amendment
to Bulletin B-10 and prior years' presentations have been restated
accordingly. Bulletin B-12 identifies the generation and application of
resources representing differences between beginning and ending financial
statement balances in constant pesos. The Bulletin also requires that
monetary and foreign exchange gains and losses not be treated as
nonmonetary items in the determination of resources provided by operations.
The changes in the consolidated financial statement balances
included in this statement constitute cash flow activity stated in constant
pesos (including monetary and foreign exchange gains and losses, which are
considered cash gains and losses in the constant peso financial
statements).
In accordance with Mexican GAAP, the reduction in current and
long-term debt due to restatement in constant pesos is presented in the
consolidated statements of changes in financial position as a resource used
by financing activities and the gain from monetary position and exchange
gains and losses are presented as components of operating activities. Under
U.S. GAAP, Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows," does not provide guidance with respect to inflation
adjusted financial statements.
Deferred Income Taxes-
Under Mexican GAAP, deferred taxes are provided only for
non-recurring temporary differences, which are defined as items which will
reverse and not be replaced by a similar item. Under U.S. GAAP, which
requires the liability method of accounting, deferred income taxes are
recognized for the tax consequenc- es of all temporary differences, both
recurring and non-recurring, between the financial statement carrying
amounts, which have been adjusted for inflation and appraised values, and
the tax bases of assets and liabilities. The deferred taxes related to
restatements of assets to appraised values or for the NCPI have been
considered as a part of the provision. Deferred income taxes under U.S.
GAAP arise principally due to the deduction of purchases and production
costs remaining in inventory for book purposes which are charged to expense
for tax purposes, differences due to indexation of depreciation, and the
recording of tax loss carryforwards as deferred tax assets, which is
prohibited under Mexican GAAP.
Cost of Pension Plans and Other Employee Benefits-
On January 1, 1989, Statement of Financial Accounting Standards
No. 87 ("SFAS No. 87"), "Employers' Accounting for Pensions", became
effective for pension plans outside the United States. The Company has
prepared a study of pension costs under U.S. GAAP (see Note 19). Under
Mexican GAAP, the requirement to record liabilities for employee benefits
using actuarial computations was required beginning in 1994.
The Companies in Mexico have no post-retirement health care
insurance or other benefit plans, other than the pension plan referred to
in Note 19. Therefore, Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Post-retirement Benefits Other Than Pensions"
and Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Post-employment Benefits" would have no effect on financial
position of the Company's Mexican subsidiaries. See Note 20 for discussion
of post-retirement benefits of U.S. subsidiaries.
Stock Sales Plan-
Under Mexican GAAP, the net present value of the receivable from
the trust for the stock sales plan is recorded as an asset (see Note 8).
Under U.S. GAAP, this receivable is deducted from stockholders' equity to
reflect the reduction in the capitalization of the Company.
As of December 31, 1993, the date of grant, the market value of
the shares, based on the selling price of the shares in a public offering
was significantly higher than the purchase price of the shares. For Mexican
GAAP, no compensation expense has been or will be recorded by the Company
for these share transactions. Under U.S. GAAP, compensation expense must be
recognized to the extent of the difference between the selling price of the
shares and their fair market value on the date of grant, accrued over the
respective service periods specified in the grant.
Minority Interest-
Under Mexican GAAP, Bulletin B-8, minority interest in
subsidiaries must be included as a component of stockholders' equity.
Consequently, minority interest in the income of subsidiaries is not
presented as an expense in the statement of income. Under U.S. GAAP,
minority interest in subsidiaries is shown below liabilities on the balance
sheet, and is not part of stockholders' equity.
Amortization of Goodwill-
Under Mexican GAAP, the amortization period for goodwill is
limited to 20 years, whereas under U.S. GAAP, goodwill may be amortized
over up to 40 years.
Pushdown Accounting-
Under U.S. GAAP, the purchase adjustments related to the
acquisition of a business must be "pushed- down" to the financial
statements of the business acquired. Prior to 1995, Mexican GAAP did not
require pushdown accounting Under Bulletin A-8 which become effective for
1995, if there are no Mexican accounting principles which specifically
apply, international accounting standards, or the accounting principles of
the country most applicable to the Company's operations must be applied.
Therefore, in 1995 the financial statements reflect the effects of
"pushdown accounting" and there is no longer a reconciling item for U.S.
GAAP.
Under Mexican GAAP, since pushdown accounting was not used for
1994, the goodwill which arose from the purchase of MCII was recorded on
DINA's balance sheet and is restated for Mexican inflation. Under U.S.
GAAP, the goodwill is "pushed down" to MCII'S balance sheet. When the U.S.
dollar amount of goodwill was translated to Mexican pesos at the yearend
exchange rate, it was significantly higher than at the acquisition date,
due to the devaluation. A higher peso amount results for U.S. GAAP
purposes.
The segment data and geographic data under U.S. GAAP pushdown
accounting for 1994 reflects the goodwill related to the acquisition of
MCII as an identifiable asset of the buses segment rather than as
corporate, and the goodwill was considered a U.S. asset rather than an
asset of Mexico.
Cumulative Translation Adjustment and Investment in MCII as a
Designated Hedge-
Under both U.S. and Mexican GAAP, an investment in a foreign
company may be considered to be a "designated hedge" against debt
denominated in the same foreign currency. DINA has designated the
investment in MCII as a hedge against the U.S. dollar convertible
debentures which were issued to partially finance the acquisition.
Accordingly, the exchange losses on this debt up to the amount of the
translation gain related to the investment is recorded as a part of the
cumulative translation adjustment in stockholders' equity. Under U.S. GAAP,
since the goodwill was considered to be part of the investment in 1994, the
translation gain recorded as cumulative translation adjustment is higher
than under Mexican GAAP. Therefore, the exchange loss on the related debt
which was considered to be hedged by the investment was higher under U.S.
GAAP in 1994.
24. Reconciliation of Mexican GAAP to U.S. GAAP
Net income (loss) and stockholders' equity, adjusted to take into
account the material differences between Mexican GAAP and U.S. GAAP, except
for the comprehensive effects of price level changes, are as follows:
(Thousands of Mexican pesos and thousands of U.S. dollars, except for share data)
Year Ended December 31,
---------------------------------------------------------------------
1993 1994 1995 1995
---- ---- ---- ----
NET INCOME (LOSS):
Net income (loss) applicable to majority
interest under Mexican GAAP Ps. 437,639 Ps. (953,980) Ps. (497,933) $ (66,060)
Approximate U.S. GAAP adjustments:
Deferred income tax (117,927) 239,884 121,022 16,056
Deferred employee profit sharing 36,133 25,939 35,273 4,680
Compensation expense for stock sales plan (12,882) (12,043) (8,270) (1,097)
Effect of amortizing goodwill over 40 years - 12,859 59,750 7,926
Additional exchange loss recorded as
cumulative translation adjustment
under U.S. GAAP - 185,645 - -
Effects of inflation accounting on
U.S. GAAP adjustments 26,176 (4,123) 16,314 2,164
Effects on minority interest of
U.S. GAAP adjustments 7,915 2,810 6,545 868
(60,585) 450,971 230,634 30,597
Approximate net income (loss) under
U.S. GAAP Ps. 377,054 Ps. (503,009) Ps. (267,299) $ (35,463)
Weighted average common shares
outstanding 194,866,714 225,490,658 258,026,136 258,026,136
Approximate net income (loss) per share
under U.S. GAAP Ps. 1.93 Ps. (2.23) Ps. (1.04) $ (0.14)
December 31,
---------------------------------------------------
1994 1995 1995
---- ---- ----
STOCKHOLDERS' EQUITY:
Majority stockholders' equity under Mexican GAAP Ps. 1,844,173 Ps. 1,741,537 $ 231,050
Approximate U.S. GAAP adjustments:
Deferred income tax 78,297 199,318 26,444
Deferred employee profit sharing (100,174) (64,901) (8,610)
Pension plan accumulated costs (25,280) (25,280) (3,354)
Receivable from trust for stock sales plan (21,621) (13,577) (1,801)
Goodwill under pushdown accounting 322,212 - -
Effects on minority interest of U.S. GAAP
adjustments 16,754 23,299 3,090
270,188 118,859 15,769
Approximate stockholders' equity
under U.S. GAAP Ps. 2,114,361 Ps. 1,860,396 $ 246,819
Deferred Income Taxes and Employee Profit Sharing-
The effect of temporary differences that generated deferred tax
and employee profit sharing liabilities under U.S. GAAP are as follows:
Deferred Income Taxes Deferred Employee Profit Sharing
---------------------------------- --------------------------------
December 31, December 31,
---------------------------------- --------------------------------
1994 1995 1994 1995
---- ---- ---- ----
Current-
Reserves Ps. 45,530 Ps. 79,451 Ps. 13,392 Ps. 19,762
Inventories (268,183) (103,600) (78,877) (30,470)
Long term-
Property, plant and equipment (49,184) (78,287) (44,236) (55,790)
Tax loss carryforwards 309,356 367,036 - -
Asset taxes recoverable 86,221 127,521 - -
Other 42,875 15,640 9,547 1,597
166,615 407,761 (100,174) (64,901)
Less- Valuation reserve for tax loss
carryforwards (88,318) (208,443) - -
Total net asset (liability) Ps. 78,297 Ps. 199,318 Ps. (100,174) Ps. (64,901)
The Company records all of deferred tax and employee profit
sharing in results of operations. If the deferred effects related to the
restatement of fixed assets and inventories had been recorded directly to
equity in "Cumulative effect of restatement", the adjustment to net income
(loss) under U.S. GAAP for deferred taxes would have been Ps.50,863,
Ps.86,614 and Ps.128,206 and for employee profit sharing, Ps.14,533,
Ps.24,925 and Ps.37,708 for 1993, 1994 and 1995, respectively.
Cash Flow Information-
As explained in Note 23, the Company presents consolidated
statements of changes in financial position.
The changes in the consolidated financial statement balances
included in this statement constitute cash flow activity stated in constant
pesos (including monetary and unrealized foreign exchange gains and losses,
which are considered cash gains and losses in the constant peso financial
statements), except that the acquisition of property and equipment under
capital lease obligations, which is a non-cash investing and financing
activity, is included as a resource used by investment activities. These
amounts are not significant.
In accordance with Mexican GAAP, the reduction in current and
long-term debt due to restatement in constant pesos is presented in the
statement of changes in financial position as a resource used by financing
activities and the gain from monetary position is presented as a component
of operating activities. Statement of Financial Accounting Standards No. 95
("SFAS No. 95"), "Statement of Cash Flows", however, does not provide
guidance with respect to inflation adjusted financial statements. If the
gain from monetary position and the unrealized exchange loss on the
long-term dollar denominated debt was treated as a component of financing
activities, the statement of changes in financial position would have been
as follows:
1993 1994 1995
---- ---- ----
Resources generated by (applied to) operations Ps. 281,040 Ps. (322,905) Ps. (293,333)
Net cash applied to investment activities Ps. (290,069) Ps.(2,212,638) Ps. (49,200)
Net cash generated by financing activities Ps. 306,541 Ps. 2,186,454 Ps. 187,469
Realizability of Long-Lived Assets-
The Company continually evaluates the carrying value and the
economic useful lives of its long-term assets, including property plant and
equipment, based on the Company's operating results and anticipated future
cash flows. The estimated future cash flows of the Company's Mexican
operations are highly sensitive to the future stability of the Mexican
economy, including interest rates, exchange rates and availability of funds
to purchasers of DINA's products. The Company will adjust the carrying
value and related amortization period if and when appropriate.
25. Summary Financial Data by Business Segment and
Geographic Data
The presentation below sets forth certain financial information
regarding the Company's Industry Segments: trucks, buses, engines and
plastic parts. Inter-segment transactions have been eliminated.
Operating income is total net sales less cost of goods sold and
operating expenses. In computing operating income, none of the following
items has been added or deducted: general corporate expense, comprehensive
financing results, income taxes, asset tax or employee profit sharing.
Identifiable assets are those assets that are used in the
Company's operations in each industry segment. Corporate assets are
principally cash and properties.
Year Ended December 31,
------------------------------------------------------
1993 1994 1995
---- ---- ----
Net sales-
Trucks Ps. 2,788,724 Ps. 2,466,875 Ps. 760,352
Buses 2,107,857 1,569,886 3,663,547
Engines 17,256 7,782 -
Plastic parts 6,588 8,373 16,231
Corporate services 208 13,487 16,640
Ps. 4,920,633 Ps. 4,066,403 Ps. 4,456,770
Operating income (loss)-
Trucks Ps. 257,924 Ps. 1,409 Ps. (196,600)
Buses 276,128 (220,629) 302,919
Engines (18,998) (7,350) -
Plastic parts (3,124) (26,663) (19,849)
Corporate services 2,327 (21,320) (151,366)
Ps. 514,257 Ps. (274,553) Ps. (64,896)
Depreciation-
Trucks Ps. 23,176 Ps. 24,662 Ps. 23,935
Buses 13,140 40,793 67,233
Engines 6,980 3,663 -
Plastic parts 4,086 3,542 5,120
Corporate services 5,928 8,690 7,099
Ps. 53,310 Ps. 81,350 Ps. 103,387
Capital expenditures-
Trucks Ps. 29,054 Ps. 22,058 Ps. 37,837
Buses 73,436 44,496 436,038
Engines 3,425 531 -
Plastic parts 9,730 17,987 22,340
Corporate services 197,908 21,548 6,343
Ps. 313,553 Ps. 106,620 Ps. 502,558
Identifiable assets-
Trucks Ps. 1,880,946 Ps. 1,720,983 Ps. 1,046,530
Buses 1,040,583 3,973,838 4,397,599
Engines 100,763 102,791 -
Plastic parts 101,618 101,082 139,427
Corporate services 671,985 1,836,174 1,779,881
Ps. 3,795,895 Ps. 7,734,868 Ps. 7,363,437
Operating income (loss) by segments does not include a deduction
for employee profit sharing, which, under U.S. GAAP is considered
compensation expense and under U.S. GAAP, the cost of idle plant is an
operating expense. The amounts of operating income (loss), less employee
profit sharing by segment, are as follows:
Year Ended December 31,
------------------------------------------------------
1993 1994 1995
---- ---- ----
Trucks Ps. 229,830 Ps. (11,380) Ps. (212,159)
Buses 266,735 (220,628) 245,040
Engines (18,998) (7,351) -
Plastic parts (3,124) (26,663) (22,834)
Corporate services 2,331 (21,320) (151,366)
Ps. 476,774 Ps. (287,342) Ps. (141,319)
During 1993 DINA had sales of buses in excess of 10% of total
consolidated net sales to the following customers, all of which are
affiliated with the same group, as follows:
Grupo Estrella Blanca Ps. 1,232,899
Grupo Tres Estrellas de Oro 229,122
During 1994 and 1995, there were no sales in excess of 10% total
consolidated net sales to any one customer.
Geographic Data-
Following the Company's August 1994 purchase of MCII, the Company
operates in three principal geographic regions-Mexico, the United States
and Canada. Net sales and operating income (loss) for the year ended
December 31, 1994 and 1995 and assets at December 31, 1994 and 1995 by
geographic region were as follows:
1994
----------------------------------------------------------------------
United
Mexico States Canada Total
------ ------ ------ -----
Net sales Ps. 2,932,926 Ps. 1,052,433 Ps. 81,044 Ps. 4,066,403
Operating income (loss) Ps. (326,596) Ps. 44,148 Ps. 7,895 Ps. (274,553)
Assets Ps. 4,848,371 Ps. 2,128,792 Ps. 757,705 Ps. 7,734,868
1995
----------------------------------------------------------------------
United
Mexico States Canada Total
------ ------ ------ -----
Net sales Ps. 810,935 Ps. 3,147,449 Ps. 498,386 Ps. 4,456,770
Operating income (loss) Ps. (350,552) Ps. 234,666 Ps. 50,990 Ps. (64,896)
Assets Ps. 3,830,029 Ps. 2,511,432 Ps.1,021,976 Ps. 7,363,437
26. Other Charges
Other charges for DINA presented in the consolidated statements of
income (loss) are as follows:
1994 1995
---- ----
Provision for uncollectible accounts receivable primarily due to sale
of Dina's buses with invoices denominated in U.S. dollars Ps. 110,151 Ps. 81,513
Provision for obsolete inventories and inventories outside the sales
program principally for Dina Autobuses 114,745 10,792
Severance expense related to restructuring and lay-offs 78,933 2,887
Ps. 303,829 Ps. 95,192
27. Gain on Sale of Marketable Securities
In January 1995, MCII purchased 6,004,144 shares of Greyhound
Lines, Inc. (GLI) through a rights offering of GLI's Common Stock. In
October 1995, the investment was sold, resulting in a pre-tax gain of
$10,522 which in shown is the accompanying consolidated statements of
income (loss) in "other income, net".
28. Subsequent Events
(a) Temporary Suspension of Plant Operations of Dina Camiones-
Dina Camiones, due to the decrease in demand for its products,
agreed to a flexible suspension of production of trucks with the
labor union for the period from January 24, 1996 to July 23, 1996.
During this period, the Company will be obligated to pay 60% of
nominal salaries, including benefits, and the union will provide
the number of personnel required based on the production and sales
needs.
(b) Restructuring of Dina's Accounts Receivable-
In January 1996, DINA restructured all of its accounts and notes
receivable from Autobuses Estrella Blanca, S.A. de C.V.,
Autotransportes Tres Estrellas de Oro, S.A. de C.V. and both
companies' licensees, giving effect to the restructuring as of
December 31, 1995 and classifying these accounts as long term. See
Note 8 for an explanation of the restructuring and its effects.
(c) Debt Exchange Offer-
On April 22, 1996, the Company initiated an "Exchange Offer" with
the holders of the Eurobonds in the amount of US$150 million (see
Note 14), requesting the exchange of the Eurobonds currently
outstanding for new Eurobonds, which would include the offering of
new notes with a face value of 1.417 times the existing face
value, an extension of the maturity date from November 18, 1997 to
November 15, 2002 and an increase in the interest rate from 10.5%
to 12%. In the event of certain changes in the ratings of the
notes, the interest rate could increase to 15% after November 15,
1999. In addition, interest would not be paid during the first 3
years the new notes are effective and would be capitalized and due
upon maturity using a "zero coupon" basis.
The new notes will be issued jointly with Consorcio G Grupo Dina,
S.A. de C.V. as primary obligor. In the event of non-payment, MCII
Holdings (USA), Inc., a subsidiary 100% owned by Consorcio G Grupo
Dina, S.A. de C.V., incorporated on April 19, 1996 with the sole
purpose of holding the total number of shares of MCII, will
guarantee the debt.
The Exchange Offer includes certain changes in the existing terms
of the Eurobonds, including guarantees and certain commitments and
is subject to the exchange of a minimum amount of US$120 million.
The Company has obtained verbal consent from the principal
Eurobond holders, who hold approximately US$120 million.
Therefore, the Company's management believes that at least this
amount will be restructured under the conditions above. Whether
the other note holders are interested in exchanging their notes
will not be known until May 17, 1996. The issuance and exchange of
the new notes is subject to the approval of the Mexican National
Banking and Securities Commission. The Company's management
believes that the possibility of completing the Exchange Offer are
favorable.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND MARCH 31, 1996
(UNAUDITED)
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF MARCH 31, 1996
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
December 31, March 31,
______________________ _______________________________
1995 1996 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . Ps. 284,334 Ps. 81,379 $ 10,797
Notes and accounts receivable, net . . 735,779 848,228 112,534
Inventories, net . . . . . . . . . . . 1,849,822 1,713,436 227,322
Prepaid expenses . . . . . . . . . . . 40,929 52,701 6,992
Investment in and advances to
discontinued operations . . . . . . . 318,872 237,469 31,504
Total current assets . . . . . . . 3,229,736 2,933,213 389,149
LONG TERM NOTES AND ACCOUNTS
RECEIVABLE, net . . . . . . . . . . . . 500,211 533,275 70,750
INVESTMENT IN EQUITY SECURITIES . . . . . 27,473 32,383 4,296
PROPERTY, PLANT AND EQUIPMENT, net. . . . 1,542,207 1,551,103 205,785
OTHER ASSETS . . . . . . . . . . . . . . 234,553 222,315 29,494
DEFERRED INCOME TAXES . . . . . . . . . . 244,943 215,851 28,637
GOOD WILL . . . . . . . . . . . . . . . . 1,584,314 1,551,714 205,866
Ps. 7,363,437 Ps. 7,039,854 $ 933,977
=============== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans and current portion
of long-term debt . . . . . . . . . Ps. 14,827 Ps. 64,902 Ps. 8,611
Notes and accounts payable to suppliers. 353,766 345,984 45,902
Other payables and accrued expenses . . 461,625 554,485 73,564
Investment in and advances to
discontinued operations . . . . . . . 122,274 96,284 12,774
Income taxes, asset tax and
employee profit sharing . . . . . . . . 84,128 4,336 574
Total current liabilities . . . . . 1,036,620 1,065,991 141,425
LONG-TERM DEBT . . . . . . . . . . . . . 4,342,594 4,002,356 530,993
RESERVE FOR EMPLOYEES' SEVERANCE BENEFITS . 79,483 80,267 10,648
OTHER DEFERRED ITEMS AND INSURANCE
RESERVES . . . . . . . . . . . . . . . . 117,083 124,067 16,460
STOCKHOLDERS' EQUITY:
Majority interest--
Capital Stock . . . . . . . . . . . . . . 196,545 196,545 26,076
Capital Stock Unsubscribed . . . . . . . (35,754) (35,754) (4,743)
Restatement of capital stock . . . . . . 182,582 182,582 24,223
Additional paid-in capital . . . . . . . 1,527,927 1,527,927 202,710
Reserve for repurchase of shares . . . . 115,445 115,445 15,316
Accumulated earnings (losses) . . . . . . (193,608) (99,596) (13,213)
Cumulative effect of restatement. . . . . (772,508) (855,638) (113,517)
Cumulative translation adjustment . . . . 720,909 692,503 91,873
Total majority stockholders' equity . . 1,741,538 1,724,014 228,725
Minority interest . . . . . . . . . . . . 46,119 43,159 5,726
Total stockholders' equity . . . . . . 1,787,657 1,767,173 234,451
Ps. 7,363,437 Ps. 7,039,854 $ 933,977
================= ============== ===========
The accompanying notes are an integral part of these balance sheets.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(UNAUDITED)
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF MARCH 31, 1996
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
Three Months ended March 31,
____________________________________________________
1995 1996 1996
---- ---- ----
NET SALES . . . . . . . . . . . . . . . . Ps. 1,415,412 Ps. 1,257,819 $ 166,875
COST OF GOODS SOLD . . . . . . . . . . . 1,148,595 1,059,969 140,626
Gross profit . . . . . . . . . . . . . 266,817 197,850 26,249
OPERATING EXPENSES:
Selling . . . . . . . . . . . . . . . . 112,353 48,213 6,396
Administrative . . . . . . . . . . . . 145,483 114,383 15,176
257,836 162,596 21,572
Operating income (loss) . . . . . . . 8,981 35,254 4,677
COMPREHENSIVE FINANCING:
Interest income . . . . . . . . . . . . 59,620 30,030 3,984
Interest expense . . . . . . . . . . . (148,563) (106,388) (14,114)
Exchange gain (loss), net . . . . . . . (587,392) 35,492 4,709
Gain on net monetary position . . . . . 284,977 97,392 12,921
(391,358) 56,526 7,500
OTHER INCOME, net . . . . . . . . . . . . (9,796) 35,866 4,758
Income (loss) before the following
provisions (credits), and results of
affiliated companies . . . . . . . . (392,173) 127,646 16,935
PROVISIONS (CREDITS) FOR:
Income tax . . . . . . . . . . . . . . 45,859 24,440 3,242
Asset tax . . . . . . . . . . . . . . . 7,876 6,446 856
Employee profit sharing . . . . . . . . 0 78 10
Tax arising from temporary differences. 0 4,397 584
53,735 35,361 4,692
Income (loss) before participation in
results of affiliated companies . . . (445,908) 92,285 12,243
EQUITY IN RESULTS OF AFFILIATED
COMPANIES . . . . . . . . . . . . . . . (29) 0 0
Net Income (loss) Ps. (445,937) Ps. 92,285 $ 12,243
NET INCOME (LOSS) APPLICABLE TO:
Majority interest . . . . . . . . . . . Ps. (435,647) Ps. 94,012 $ 12,473
Minority interest . . . . . . . . . . . (10,290) (1,727) (230)
Net income (loss) . . . . . . . . . . Ps. (445,937) Ps. 92,285 $ 12,243
INCOME (LOSS) PER SHARE:
Majority interest . . . . . . . . . . . Ps. (1.69) Ps. 0.36 $ 0.05
Minority interest . . . . . . . . . . (0.04) (0.01) 0.00
Net income (loss) per share . . . . . Ps. (1.73) Ps. 0.35 $ 0.05
Weighted average shares outstanding
(000's) . . . . . . . . . . . . . . . 258,026 258,026 258,026
The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF MARCH 31, 1996
(UNAUDITED)
(THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
Three Months ended March 31,
___________________________________________________________
1995 1996 1996
OPERATIONS:
Net income (loss) . . . . . . . . . . . Ps. (445,937) Ps. 92,285 $ 12,243
Add (deduct) Non cash items--
Depreciation . . . . . . . . . . . . . 33,839 32,419 4,301
Deferred income tax . . . . . . . . . . (26,071) 36,066 4,784
Amortization Goodwill and others. . . . 24,467 29,076 3,858
Provision for doubtful accounts
receivable . . . . . . . . . . . . . 47,903 9,103 1,208
Provision for slow-moving inventories . 26,998 322 43
Change in operating assets and liabilities--
Decrease (increase) in--
Notes and accounts receivable . . . . . (133,454) (116,521) (15,459)
Inventories . . . . . . . . . . . . . . (512,985) 189,571 25,150
Prepaid expenses . . . . . . . . . . . (17,019) (11,773) (1,562)
Income taxes and employee profit
sharing . . . . . . . . . . . . . . . (33,691) (79,790) (10,586)
Other assets . . . . . . . . . . . . . (162,741) 8,041 1,067
Increase (decrease) in--
Notes and accounts payable to
suppliers . . . . . . . . . . . . . . 82,846 (7,771) (1,031)
Other payables and accrued
expenses . . . . . . . . . . . . . . 35,676 92,875 12,322
Investment in and Advances to
discontinued operations . . . . . . . 206,307 55,407 7,351
Pension plan funding and payments of
severance benefits . . . . . . . . . . 8,245 (6,123) (812)
Resources generated by (applied
to) operations . . . . . . . . . . . (865,617) 323,187 42,877
INVESTMENT:
Notes and accounts receivables(Long-Term) . (63,209) (41,994) (5,571)
Additions to property, plant and
equipment . . . . . . . . . . . . . . . . (62,551) (83,071) (11,022)
Net book value of retirements . . . . . . . 9,439 156 21
Long-term portion of receivable from
the trust for stock sales plan . . . . . (1,413) (983) (130)
Net cash applied to investment
activities . . . . . . . . . . . . . . (117,734) (125,892) (16,702)
FINANCING:
(Decrease) increase in short-term
bank loans . . . . . . . . . . . . . . (21,888) 50,076 6,644
Reduction in current and long-term
debt due to restatement in
constant pesos . . . . . . . . . . . . (531,538) (343,194) (45,532)
Proceeds from long-term debt . . . . . . 62,365 0 0
Increase in peso terms of US Dollar debt
due to exchange rate changes . . . . . . 1,355,430 (107,132) (14,213)
Net cash (applied to) generated
by financing activities . . . . . . 864,369 (400,250) (53,101)
Cash and cash equivalents at
beginning of period . . . . . . . . . . 439,397 284,334 37,723
Cash and cash equivalents at end
of period . . . . . . . . . . . . Ps. 320,415 Ps. 81,379 $ 10,797
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income and asset taxes paid . . . . . . . Ps. 12,686 Ps. 3,113 $ 413
Interest paid . . . . . . . . . . . . . Ps. 55,056 Ps. 60,265 $ 7,995
The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
AS OF DECEMBER 31, 1995 AND MARCH 31, 1996
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF MARCH 31, 1996
(Stated in thousands of Mexican pesos)
(1) Basis of Presentations:
a) The consolidated condensed financial statements of Consorcio G
Grupo Dina, S. A. de C. V. and subsidiaries (the "Company")
included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). In the opinion of
management, these unaudited consolidated condensed financial
statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly the Company's
financial position as of March 31, 1996, and the results of
operations for the three months ended March 31, 1995 and 1996.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles in Mexico and the U.S. have been
condensed or omitted pursuant to the rules and regulations of
the SEC.
b) These unaudited financial statements should be read in
conjunction with the audited financial statements and the notes
thereto included elsewhere in this Prospectus. The Company has
made no significant changes in accounting policies during the
three months ended March 31, 1996.
c) U.S. dollar amounts shown in the financial statements have been
included solely for the convenience of the reader and are
translated from Mexican pesos, as a matter of arithmetic
computation only, and are translated from Mexican pesos, at the
interbank rate for March 31, 1996 of Ps. 7.5375 per U.S. dollar.
Such translation should not be construed as a representa- tion
that the peso amounts have been or could have been converted
into U.S. dollars at this or any other rate.
(2) Earnings per share:
There were no changes in the number of shares outstanding for
the three months ended March 31, 1995 and 1996.
(3) Foreign currency position:
As of March 31, 1996, the Company's assets and liabilities
denominated in foreign currency, represented by U.S. dollars, converted at
an exchange rate of 7.5375 pesos, are as follows (in thousands of U.S.
dollars):
Assets........................................... $ 588,796
Liabilities--
Current........................................ $ (67,385)
Long-term...................................... (556,708) (624,093)
-------- --------
Net liability position in foreign currency... $ (35,297)
=========== ===========
(4) Notes and accounts receivable:
Notes and accounts receivable include:
December 31, March 31,
1995 1996
-------------- -------------
Trade................................ Ps. 603,513 Ps. 764,157
Current Portion of Long-Term Notes
Receivable......................... 63,045 -
Less-Allowance for doubtful accounts. (58,544) (58,080)
-------------- -------
608,014 706,077
Short-term portion of receivable from
trust for stock sales plan.......... 2,712 2,503
Refundable income tax................ 15,831 5,493
Refundable asset tax................. 6,928 -
Refundable value added tax........... 16,118 2,074
Other................................ 86,176 132,081
------------- -------------
Ps. 735,779 Ps. 848,228
============= =============
(5) Inventories:
Inventories consist of the following:
December 31, March 31,
1995 1996
-------------- -------------
Finished goods....................... Ps. 1,032,271 Ps. 1,004,507
Work in process...................... 352,530 352,657
Raw materials........................ 666,598 531,330
Merchandise in transit and advances to
suppliers 23,124 32,646
-------------- -------------
2,074,523 1,921,140
Less-Allowance for obsolete and
slow-moving items.................. (224,701) (207,704)
-------------- --------------
0Ps. 1,849,822 Ps. 1,713,436
(6) Property, plant and equipment:
Property, plant and equipment include:
December 31, March 31,
1995 1996
-------------- --------------
Buildings and improvements........... Ps. 1,094,557 Ps. 953,444
Machinery and equipment.............. 772,039 912,453
Transportation equipment............. 296,000 342,476
Furniture and fixtures............... 93,998 72,944
-------------- --------------
2,256,594 2,281,317
Less Accumulated depreciation........ (816,513) (829,032)
1,440,081 1,452,285
Land............................... 102,126 98,818
-------------- --------------
Ps. 1,542,207 Ps. 1,551,103
(7) Bank loans and long-term debt:
An analysis of bank loans and long-term debt is as follows:
December 31, March 31,
1995 1996
-------------- --------------
Bank loans
Banca Confia......................... Ps. - Ps. 11,915
Bancomer............................. - 2,600
Banorte.............................. - -
Credit Commercial de France.......... - 50,356
Other................................ 14,827 31
-------------- --------------
Ps 14,827 Ps. 64,902
============== ==============
Long-term debt
Eurobonds................................ Ps. 1,257,878 Ps. 1,130,625
Subordinated Convertible Debentures...... 1,375,213 1,236,090
Bank Credit Facility..................... 771,499 693,450
Term Notes Payable....................... 1,048,232 942,188
Other.................................... 14,827 3
Less -
Discount on Issuance of Subordinated
Convertible Debentures (110,228) -
Current Maturities of Long-term debt (14,827) -
--------------- -------------
Ps. 4,342,594 Ps. 4,002,356
============== =============
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
AS OF DECEMBER 31, 1995 AND MARCH 31, 1996
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF MARCH 31, 1996
(Stated in thousands of Mexican pesos)
Eurobonds
On November 18, 1992 Eurobonds through Guaranteed Notes with a
principal amount of $150,000 were issued. The 10.5% Guaranteed Notes are
due November 18, 1997 with interest payable semi-annually in arrears on May
18 and November 18. See Note 8 for explanation of Exchange Offer for these
Eurobonds.
The terms of the Eurobonds restrict the disposition of the stock
of subsidiaries and fixed assets unless the proceeds are subsequently
reinvested, and limit the pledging of assets or granting of guarantees on
additional debt. The Eurobonds are guaranteed by each of Dina Camiones,
S.A. de C.V., Dina Autobuses, S.A. de C.V. and Dina Comercializadora, S.A.
de C.V., subsidiaries of the Company.
Subordinated convertible debentures
On August 8, 1994, DINA issued subordinated convertible
debentures for $163,993, with a discount of $14,759, due in August 2004,
with interest payable semi-annually at 8%, net of certain taxes. DINA has
the option of redeeming the debentures after three years and before 5 years
with a prepayment penalty, if the market price of the American Depositary
shares (ADS) of Series "L" stock of the company exceeds $22.86 for a
specified period of time. The debentures are convertible at the option of
the holder 56.88 ADSs per one thousand dollars of principal amount. The
discount will be amortized through august 2004 on a straight- line basis.
Bank credit facility
Long-term bank credits are available to MCII from participating
banks under an agreement (the "Bank Credit Facility") which provides up to
$125,000 for borrowing purposes, of which up to $35,000 is available for
issuance of standby letters of credit. Borrowings were available at
December 31, 1995 on a revolving basis until January 31, 1998. At December
31, 1995, there were borrowings of $92,000 outstanding under the Bank
Credit Facility and $6,920 of standby letters of credit were issued.
Canadian revolving credit loans are available to a subsidiary of
MCII which provide for loans up to the Canadian equivalent of $7,329, of
which no amounts were outstanding at December 31, 1995. Borrowings were
available at December 31, 1995 on a revolving basis until January 31, 1996,
with outstanding borrowings then converting into a term loan repayable in
36 equal monthly installments.
The interest rates applicable to borrowings under these
agreements are, at MCII's option, indexed to the bank prime rate or the
London Inter-banking Offering Rate ("LIBOR"), plus appropriate spreads over
such indices during the period of each borrowing agreement. The agreements
also provide for commitment fees. Such spreads and fees can change based
upon changes in MCII's financial ratios. Annually, with the participating
banks' consent, the term of the agreements may be extended for one year.
Term notes payable
MCII has $125,000 of term notes payable which are due in annual
installments of $25,000 beginning in November 1998 and extending through
November 2002. Interest on the notes is at a fixed rate of 9.02%, however,
MCII has entered into an interest rate swap agreement which effectively
changes the interest rate on the notes to LIBOR plus 1.14%. During 1995,
MCII terminated $62,500 of the swap in exchange for $4,950 which will be
amortized as a reduction of interest expense over the remaining life of the
notes. As a result, the effective interest rate on $62,500 of the notes is
at LIBOR plus 1.4% and $62,500 is at a fixed rate of 7.44%.
MCII long-term debt agreements include various restrictive
covenants and require the maintenance of certain defined financial rations
with which MCII is in compliance.
(8) Subsequent Event:
Debt exchange offer
On April 22, 1996, the Company initiated an "Exchange Offer"
with the holders of the Eurobonds in the amount of US$150 million (see Note
14), requesting the exchange of the Eurobonds currently outstanding for new
Eurobonds, which would include the offering of new notes with a face value
of 1,417 times the existing face value, an extension of the maturity date
from November 18, 1997 to November 15, 2002 and an increase in the interest
rate from 10.5% to 12%. In the event of certain changes in the ratings of
the notes, the interest rate could increase on 15% after November 15, 1999.
In addition, interest would not be paid during the first 3 years the new
notes are effective and would be capitalized and due upon maturity using a
"zero coupon" basis.
The new notes will be issued jointly with Consorcio G. Grupo
Dina, S.A. de C.V. as primary obligor. In the event of non-payment, MCII
Holdings (USA), Inc., a subsidiary 100% owned by Consorcio G. Grupo Dina,
S.A. de C.V., incorporated on April 19, 1996 with the sole purpose of
holding the total number of shares of MCII, will guarantee the debt.
The Exchange Offer includes certain changes in the existing
terms of the Eurobonds, including guarantees and certain commitments and is
subject to the exchange of a minimum amount of US$120 million. The Company
has obtained verbal consent to the exchange of a minimum amount of US$120
million. The Company has obtained verbal consent from the principal
Eurobond holders, who hold approximately US$120 million. Therefore, the
Company's management believes that at least this amount will be
restructured under the conditions above. whether the other note holders are
interested in exchanging their notes will not be known until May 17, 1996.
The issuance and exchange of the new notes is subject to the approval of
the Mexican National Banking and Securities Commission. The Company's
management believes that the possibility of completing the exchange Offer
are favorable.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
MCII Holdings (USA), Inc.:
We have audited the accompanying consolidated balance sheet of MCII
HOLDINGS (USA), INC. (a wholly owned subsidiary of Consorcio G Grupo Dina,
S.A. de C.V.) and subsidiaries (the Company) as of December 31, 1995, and
the related consolidated statements of income, changes in stockholder's
equity and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial state-
ments. 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 audit provides 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 MCII Holdings (USA), Inc. and subsidiaries as of December 31,
1995, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Phoenix, Arizona,
February 19, 1996
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Motor Coach Industries International, Inc.
We have audited the accompanying consolidated balance sheet of Motor Coach
Industries International, Inc. and its subsidiaries (a wholly-owned
subsidiary of Consorcio G Grupo Dina, S.A. de C.V.) (the "Company") as of
December 31, 1994, and the related consolidated statements of income,
changes in stockholder's equity and cash flows for the five month period
ended December 31, 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial state-
ments. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Motor Coach Industries
International, Inc. and its subsidiaries at December 31, 1994, and the
results of their operations and their cash flows for the five month period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Phoenix, Arizona
February 24, 1995
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Motor Coach Industries International, Inc.
We have audited the accompanying consolidated statements of income, changes
in stockholder's equity and cash flows for the seven month period ended
July 31, 1994 and for the year ended December 31, 1993, of Motor Coach
Industries International, Inc. and its subsidiaries (a wholly-owned
subsidiary of Consorcio G Grupo Dina, S.A. de C.V.) (the "Predecessor").
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial state-
ments. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows for the
seven month period ended July 31, 1994 and the year ended December 31, 1993
of Motor Coach Industries International, Inc. in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Phoenix, Arizona
February 24, 1995
MCII HOLDINGS (USA), INC
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
CONSOLIDATED BALANCE SHEET
December 31 December 31
(000 omitted, except share data) 1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 30,607 $ 6,941
Receivables, less allowance of $1,903 and 34,936 26,523
$1,209
Current portion of notes receivable 4,722 4,791
Inventories 146,718 121,381
Deferred income taxes 8,570 5,173
Other current assets 4,073 4,590
Total current assets 229,626 169,399
Property, plant and equipment 75,021 55,582
Notes receivable 30,909 32,521
Investment in and advances to discontinued
operations 11,311 42,821
Deferred income taxes 14,350 10,663
Intangibles 242,923 242,333
Other assets 9,902 5,597
$614,042 $558,916
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdrafts $ 504 $ 5,734
Accounts payable 24,722 25,314
Accrued compensation and other benefits 13,101 10,014
Accrued warranties 5,381 4,726
Accrued income taxes 11,924 2,878
Insurance reserves 5,337 5,586
Due to Grupo DINA 367
Other current liabilities 11,605 11,849
Total current liabilities 72,941 66,101
Long-term debt 217,668 195,000
Pensions and other benefits 8,866 9,863
Other deferred items and insurance reserves 13,146 8,464
Deferred income taxes 6,613 6,676
Commitments and contingent liabilities
(Notes G, I, L, M, N, O)
Stockholder's equity:
Common stock, $.01 par value, 1,000
shares authorized and issued
Additional capital 317,465 317,465
Deficit (18,856) (37,114)
Cumulative translation adjustments (3,801) (7,539)
Total stockholder's equity 294,808 272,812
$614,042 $558,916
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED INCOME
Predecessor
-------------------------
Five Months Seven
Year Ended Ended Months Ended Year Ended
December 31, December 31, July 31, December 31,
(000 omitted) 1995 1994 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Sales $ 509,925 $ 191,789 $ 271,797 $ 394,112
Finance income 6,412 2,584 1,297 4,908
516,337 194,373 273,094 399,020
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below) 397,395 151,614 203,538 303,075
Depreciation and amortization 14,618 5,841 3,279 4,547
Interest expense, finance operations 2,658 693 291 775
Research and development expenses 2,915 492 1,238 1,420
Selling, general and administrative expenses 60,412 26,614 27,825 43,850
477,998 185,254 236,171 353,667
--------- --------- ---------
Operating income 38,339 9,119 36,923 45,353
--------- --------- --------- ---------
Other (income) and expense:
Interest expense 13,435 2,464 1,812 1,508
Other (income) (469) (189) (225) (1,423)
Gain from sale of marketable securities (Note Q) (10,522)
Merger related expenses (Note B) 11,294
Minority interests 378 2,021
--------- --------- --------- ---------
2,444 2,275 13,259 2,106
--------- --------- --------- ---------
Income before income taxes 35,895 6,844 23,664 43,247
Income taxes 17,637 3,958 11,522 16,606
--------- --------- --------- ---------
Income from continuing operations 18,258 2,886 12,142 26,641
--------- --------- --------- ---------
Discontinued operations:
Loss of transit manufacturing operations, net of tax
benefit of $2,934 (6,793)
Loss on disposal of transit manufacturing, net of tax
benefit of $1,885 and $33,573 (3,500) (53,629)
--------- --------- --------- ---------
0 0 (3,500) (60,422)
--------- --------- --------- ---------
Net income (loss) $ 18,258 $ 2,886 $ 8,642 $ (33,781)
========= ========= ========= =========
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED CHANGES IN STOCKHOLDER'S EQUITY
Dial Investment
and
(000 omitted) Advances Common Stock Additional Capital Deficit
- - --------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1993 (Predecessor) $ 235,863 $ $ $
Net Income 12,090
Dial investment and advances, net (88,730)
Unrealized translation loss (957)
Conversion of a portion of advances from Dial
to a Senior Note due to Dial (42,000)
MCII's acquisition of Transportation
Manufacturing Operations, Inc. (116,266) 201 118,354
Increase in deferred tax assets as a result of
step-up in income tax basis of net assets 28,627
Net loss
Unrealized translation loss
Dividends on common stock (1,008)
Common stock issued in connection with employee
benefit plan 1 419
---------------- --------------- --------------- ----------------
Balance, December 31, 1993 (Predecessor) 0 202 147,400 (46,879)
Net income 8,642
Common stock issued in connection with employee
benefit plan 1,140
Unrealized translation loss
Dividends on common stock
---------------- --------------- --------------- ----------------
Balance, July 31, 1994 (Predecessor) 0 202 148,540 40,254
Effect of push-down purchase accounting adjust-
ments due to Dina's acquisition of MCII (202) 168,925 40,254
Net income 2,886
Unrealized translation loss
Dividends on common stock (40,000)
---------------- --------------- --------------- ----------------
Balance, December 31, 1994 0 0 317,465 (37,114)
Net income 18,258
Unrealized translation gain
---------------- --------------- --------------- ----------------
Balance, December 31, 1995 $ 0 $ 0 $ 317,465 $ (18,856)
================ =============== =============== ================
Cumulative
Translation
(000 omitted) Adjustment Total
- - ------------------------------------------------------------------------------
Balance, January 1, 1993 (Predecessor) $ $ 235,863
Net Income 12,090
Dial investment and advances, net (88,730)
Unrealized translation loss (957)
Conversion of a portion of advances from Dial
to a Senior Note due to Dial (42,000)
MCII's acquisition of Transportation
Manufacturing Operations, Inc. (2,289) 0
Increase in deferred tax assets as a result of
step-up in income tax basis of net assets 28,627
Net loss (45,871) (45,871)
Unrealized translation loss (65) (65)
Dividends on common stock (1,008)
Common stock issued in connection with employee
benefit plan 420
--------- ---------
Balance, December 31, 1993 (Predecessor) (2,354) (98,369)
Net income 8,642
Common stock issued in connection with employee
benefit plan 1,140
Unrealized translation loss (2,733) (2,733)
Dividends on common stock (2,017) (2,017)
--------- ---------
Balance, July 31, 1994 (Predecessor) (5,087) 103,401
Effect of push-down purchase accounting adjust-
ments due to Dina's acquisition of MCII (751) 208,226
Net income 2,886
Unrealized translation loss (1,701) (1,701)
Dividends on common stock (40,000)
--------- ---------
Balance, December 31, 1994 (7,539) 272,812
Net income 18,258
Unrealized translation gain 3,738 3,738
--------- ---------
Balance, December 31, 1995 $ (3,801) $ 294,508
========= =========
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED CASH FLOWS
Five Predecessor
Year Months Seven
Ended Ended Months Year
Decem- Decem- Ended Ended
ber 31, ber 31, July 31, December 31,
(000 omitted) 1995 1994 1994 1993
CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES:
Net income $ 18,258 $ 2,886 $ 8,642 $ (33,781)
Adjustments to reconcile net
income to net cash used by
operations:
Depreciation and amortization 14,618 5,841 3,279 4,547
Deferred income taxes 1,019 (1,760) 1,187 (3,595)
Discontinued operations 3,500 60,422
Loss (gain) on sale of property
and notes receivable (1,945) 180 (69) (1,979)
Gain on sale of marketable
securities (10,522)
Other noncash items, net 4,335 (1,524) (1,145) (1,453)
Change in operating assets
and liabilities:
Receivables (8,649) (2,536) 3,280 393
Inventories (24,384) (11,662) (16,706) (2,914)
Due to Grupo DINA 367
Accounts payable (770) 4,780 (10,825) 10,261
Accrued income taxes 6,064 (4,788) (3,567) 4,292
Other current liabilities 1,868 1,022 9,031 4,888
Other assets and liabili-
ties, net (534) (3,211) (1,566) (6,343)
Net cash used by operating
activities (275) (10,772) (1,827) 34,738
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures (12,559) (4,915) (1,936) (5,472)
Investment in assets held for
lease (45,667) (689) (6,846)
Investments in, or purchases
of, businesses or market-
able securities (17,742) (34,616) (6,000)
Proceeds from sale of market-
able securities 23,716
Proceeds from sale of property
and notes receivable 40,675 3,559 1,452 77,150
Investment in notes receivable (26,483) (18,090) (19,739) (31,496)
Collections of notes
receivable 21,095 2,029 1,050 27,642
Investment in discontinued
operations, net 24,210 23,671 489 (43,933)
Net cash provided (used) by
investing activities 7,245 5,565 (60,146) 17,891
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net change in bank overdrafts (5,230) (680) (730) (8,077)
Additional long-term borrowings 125,000
Payments of long-term
borrowings (74) (42,000) (766)
Net change in bank credit
facilities 22,000 (49,000) 70,533 48,467
Dividends on common stock (34,000) (2,017) (1,008)
Common stock issued 1,140 420
Dial investment and advances,
net (88,730)
Net cash provided (used) by
financing activities 16,696 (680) 68,926 49,694)
Net increase (decrease) in cash
and cash equivalents 23,666 (5,887) 6,953 2,935
Cash and cash equivalents,
beginning of period 6,941 12,828 5,875 2,940
Cash and cash equivalents, end
of period $ 30,607 $ 6,941 $ 12,828 $ 5,875
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF
CONSORCIO G GRUPO DINA, S.A. DE C.V.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts
of MCII Holdings (USA), Inc. and subsidiaries ("Holdings" or the
"Company"). Financial statements of the Company as of and for
any period prior to the August 8, 1994 acquisition described
below are designated as Predecessor .
Holdings was formed for the purpose of holding Motor Coach
Industries International, Inc. ("MCII") as its wholly owned
subsidiary. On May 28, 1996, Dina transferred to Holdings all 100
shares of MCII $.01 par value common stock, in exchange for which
Holdings issued to Dina all 1,000 shares of its $.01 par value
common stock. As a result of this exchange between entities
under common control, the transaction was accounted for at
historical cost in a manner similar to that in a pooling of
interests and, therefore, all prior financial statements present-
ed have been restated as if the exchange took place at the
beginning of such periods.
On August 8, 1994, Consorcio G Grupo Dina, S.A. de C. V.
("Dina") acquired all of the issued and outstanding common stock
of Motor Coach Industries International, Inc. ( MCII ). As a
result of this transaction, the assets and liabilities of MCII
were stated at estimated fair value as of the acquisition date,
and the excess of the consideration paid by Dina over the esti-
mated fair value of the net assets acquired was recorded as
goodwill. For financial reporting purposes, the Company account-
ed for the transaction effective August 1, 1994. See Note B for
further discussion.
On August 12, 1993, The Dial Corp ( Dial ) sold, through an
initial public offering, 20 million shares of MCII pursuant to an
underwriting agreement dated August 4, 1993 (the Distribution ).
Dial s transportation manufacturing and service parts subsidiar-
ies, which now comprise MCII s wholly owned subsidiary, Transpor-
tation Manufacturing Operations, Inc. ( TMO ), were transferred
to MCII immediately after and in connection with the public
offering of MCII shares. As a result, the financial statements
of the Company reflect the consolidated results of operations and
financial condition of MCII and subsidiaries subsequent to August
12, 1993 and the combined results of operations and financial
condition of the companies which formerly comprised TMO prior to
August 12, 1993.
The Company is a manufacturer of coaches, and a manufacturer
and distributor of coach and transit bus replacement parts, with
manufacturing facilities in the United States and Canada. Sales
are made predominately in the United States and Canada to a
diversified customer base, including independent coach operators,
national coach fleet operators, government agencies and others.
The financial statements have been prepared in accordance
with generally accepted accounting principles. 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, liabili-
ties, 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.
However, management does not believe that such differences, if
any, would be material to the Company s financial condition or
results of operations. Intercompany accounts and transactions
between Holdings and its subsidiaries have been eliminated.
Certain reclassifications have been made to the financial
statements of prior periods to conform to 1995 classifications.
Described below are those accounting policies that are particu-
larly significant to the Company, including those selected from
acceptable alternatives.
CASH EQUIVALENTS
The Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost
is generally determined on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Deprecia-
tion is provided principally by use of the straight-line method
at annual rates as follows:
Buildings and leasehold improvements . . . . . . 3% to 25%
Assets held for lease . . . . . . . . . . . . . . 9% to 20%
Machinery and equipment . . . . . . . . . . . . 8% to 33%
NOTES RECEIVABLE
Notes receivable are collateralized by coaches. Substan-
tially all contracts carry 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.
INTANGIBLES
Intangibles (primarily goodwill) are carried at cost less
applicable amortization of $6,381,000 at December 31, 1995 and
$2,824,000 at December 31, 1994. Intangibles are primarily
amortized on the straight-line method over the periods of expect-
ed benefit, but not in excess of 40 years.
WARRANTY
At the time of sale, an accrual for warranty claims, which
is based upon management's estimate of future warranty liabili-
ties, is recorded and charged to operations. Actual warranty
expenditures are charged to the accrual as incurred, and periodi-
cally the accrual is reviewed for adequacy in light of actual
experience and adjustments are recorded if necessary.
RESEARCH AND DEVELOPMENT
Research and development expenses, net of contributions, are
charged to income as incurred.
FOREIGN CURRENCY EXCHANGE
The Company enters into foreign exchange forward contracts
to hedge certain firm and anticipated purchase commitments
settled in foreign currencies as a means of reducing exposure to
fluctuations in foreign exchange rates. The Company does not
engage in foreign currency speculation. The contracts do not
subject the Company to risk due to exchange rate movements as
gains and losses on the contracts offset gains and losses on the
transactions being hedged. Foreign currency transactions which
are not hedged are converted at the exchange rate in effect at
the date of the transaction. Any gain or loss resulting from the
translation is included in the income statement.
PENSIONS AND OTHER BENEFITS
Trusteed, noncontributory and contributory pension plans
cover substantially all employees. Benefits for the noncontribu-
tory 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 Statement of Financial Accounting Standards
("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 regula-
tions. Contributions and cost for the contributory pension plans
are determined as a percentage of each covered employee's regular
wages.
The Company has defined benefit post retirement plans that
provide medical and life insurance for eligible retirees and
dependents. The net periodic postretirement benefit cost for the
Company is based upon the provisions of SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions".
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued State-
ment of Financial Accounting Standards ( SFAS ) No. 121, Ac-
counting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of, which the Company is required to
adopt in 1996. SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever events or circumstances indicate
that the carrying amount of the asset may not be recoverable. If
the sum of the expected future cash flows (undiscounted and
without interest charges) from an asset to be held and used in
operations is less than the carrying value of the assets, an
impairment loss must be recognized in the amount of the differ-
ence between the carrying value and the fair value. Assets to be
disposed of must be valued at the lower of carrying value or fair
value less cost to sell. In management s opinion, adoption of
SFAS No. 121 will not have a material impact on the Company s
financial position.
B. ACQUISITION BY DINA
PURCHASE ACCOUNTING ADJUSTMENTS
On August 8, 1994, Dina acquired all of the issued and
outstanding common stock of MCII. The acquisition was accounted
for as a purchase and "push down accounting" was applied, with
the result that purchase accounting adjustments were reflected in
the accounting of MCII and its subsidiaries.
Application of push down purchase accounting resulted in a
preliminary adjustment of all outstanding assets and liabilities
of the Company to their estimated fair value on the date of the
acquisition. The Company is also in the process of obtaining
additional information to quantify the potential liability
related to certain preacquisition U.S. and Canadian tax contin-
gencies. Once those amounts have been quantified, the contingen-
cies may be recorded as an additional purchase accounting adjust-
ment. The excess of the consideration paid by Dina over the
estimated fair value of the net assets acquired, based upon the
preliminary purchase accounting adjustment, was $236,064,000 and
is being amortized over 40 years using the straight line method.
The following table reflects the changes made in the accounts of
MCII and its subsidiaries as a result of applying push down
accounting:
(000 OMITTED)
Assets:
Inventories . . . . . . . . . . $ (1,200)
Property, plant and equipment. . 7,383
Deferred income taxes . . . . . (34,021)
Intangibles . . . . . . . . . . 236,064
$ 208,226
Liabilities and Equity:
Stockholders' equity . . . . . $ 208,226
The purchase accounting adjustments described above have
resulted in an increase in depreciation expense due to the step-
up in the basis of property, plant and equipment, and an increase
in amortization expense due to the creation of the intangible. As
a result of these adjustments, the increase in depreciation and
amortization expense for 1995 and 1994 was $6,450,000 and
$2,655,000, respectively.
MERGER RELATED EXPENSES
In connection with the 1994 acquisition of MCII by Dina, the
Company incurred $11,294,000 of merger-related expenses. These
expenses were for the cash settlement of all outstanding stock
options and the acceleration of vesting on all unvested restrict-
ed stock ($6,831,000) and for professional fees, printing, travel
and other costs related to the transaction ($4,463,000).
C. ACQUISITIONS
In November 1995, the Company purchased a 70% ownership
interest in Nanjing Starley Transportation Company Limited, an
intercity coach operation which provides regularly scheduled
passenger service in China, for $2,021,000. The investment,
which is being accounted for under the equity method, was made by
contributing ten refurbished used coaches valued at $1,071,000
and payment of related fees, duties and shipping costs of
$950,000.
In April 1995, the Company acquired substantially all of the
net assets of Billingsley Parts and Equipment, Inc., a distribu-
tor of school bus parts. The acquisition was accounted for as a
purchase in which total consideration was $2,890,000, of which
$2,000,000 was paid in cash and the remainder in the form of a
note payable.
In February 1994, the Company acquired the remaining 31% of
the outstanding stock of its then 69% owned Canadian coach
manufacturing subsidiary, Motor Coach Industries Limited
("MCIL"), for $34,290,000. The acquisition was accounted for as
a purchase and the excess of the purchase price over the estimat-
ed fair value of net assets acquired was $11,933,000. Such
excess is being amortized over 40 years using the straight line
method. As a result of this acquisition, no additional charge to
minority interests will be recorded in the Statement of Consoli-
dated Income subsequent to the acquisition date.
The following table reflects the changes made in the ac-
counts of MCIL as a result of applying push down purchase ac-
counting:
(000 OMITTED)
Assets:
Property, plant and equipment. . . $15,500
Intangibles . . . . . . . . . . . 11,933
$27,433
Liabilities and Equity:
Deferred income taxes . . . . . . $ 6,425
Pensions and other benefits. . . . 235
Stockholders' equity . . . . . . . 20,773
$27,433
The purchase accounting adjustments described above have
resulted in an increase in depreciation expense due to the step-
up in the basis of property, plant and equipment, and an increase
in amortization expense due to the creation of the intangible.
As a result of these adjustments, depreciation and amortization
expenses for 1995 and 1994 increased by $1,879,000 and
$1,598,000, respectively.
D. DISCONTINUED OPERATIONS
In November 1993, the Board of Directors approved a plan of
disposition of the transit bus manufacturing segment. This
decision was based upon management's review of market activities,
business prospects, competitive bidding, evaluation of backlogs,
economic value analysis, and opportunities for cost reduction,
which indicated that the transit bus manufacturing business may
not achieve acceptable profitability in the foreseeable future.
As a result of this decision, a charge to discontinued operations
of $87,202,000 ($53,629,000 after-tax) was recorded in the third
quarter of 1993 to reflect the estimated loss on disposal of the
transit manufacturing segment. During 1994, based upon further
analysis of the estimated loss to be incurred on the disposal, an
additional provision of $5,385,000 ($3,500,000 after-tax) was
recorded, resulting in a total charge to discontinued operations
of $92,587,000 ($57,129,000 after-tax).
In November 1994, the Company sold the fixed assets and
certain of the inventory of the transit bus manufacturing busi-
ness, as well as the right to manufacture, remanufacture and
distribute transit buses previously made by the Company, for
aggregate consideration of $14,947,000, of which $4,877,000 was
in the form of a note receivable and the remainder was in cash.
Additionally, the purchaser, for a period of five years from the
sale date, has agreed not to distribute parts to transit buses
previously made by the Company. The Company retained all other
assets and all of the remaining liabilities of the transit
manufacturing business.
The summarized balance sheet of the transit manufacturing
segment at December 31 was as follows:
1995 1994
(000 OMITTED)
Assets:
Accounts receivable . . . . . . . . . . $18,247 $32,257
Inventories . . . . . . . . . . . . . . 20,878
Other current assets . . . . . . . . . 2,548 3,997
Deferred taxes and other assets . . . . 5,097 18,676
$25,892 $75,808
Liabilities and equity:
Accounts payable . . . . . . . . . . . $378 $1,598
Other current liabilities . . . . 12,858 28,460
Other liabilities . . . . . . . . . . . 1,345 2,929
The Company's investment and advances . 11,311 42,821
$25,892 $75,808
The following is a summary of the operating results of the
transit manufacturing segment for the years ended December 31:
1995 1994 1993
(000 OMITTED)
Revenues . . . . . . . . . . . . $24,278 $166,235 $126,364
Operating costs and expenses . . 24,881 177,009 141,683
Income tax benefit . . . . . . . (603) (10,774) (15,319)
232 4,148 5,087
Losses charged to discontinued $ (371) $(6,626) $(10,232)
operations reserve, net of
tax benefit of $232, $4,148
and $2,153 . . . . . . . . . 371 6,626 3,439
Net loss from operations . . . . .$ - $ - $ (6,793)
The cumulative loss on disposal of the transit manufacturing
segment, recorded in 1994 and 1993, included the following
components:
(000 OMITTED)
Write-down of assets to estimated liquidation value . . . $53,860
Provision for shut-down costs and other reserves . . . . 20,327
Provision for operating losses during phase-out period . . 18,400
92,587
Tax benefit . . . . . . . . . . . . . . . . . . . . . . . (35,458)
$57,129
E. INVENTORIES
Inventories at December 31 consisted of the following:
1995 1994
(000 OMITTED)
Raw materials . . . . . . . . . . $ 26,219 $ 18,586
Work in process . . . . . . . . . 36,371 30,196
Finished goods . . . . . . . . . 98,979 84,315
161,569 133,097
Excess quantity and obsolescence
reserve . . . . . . . . . . . . (14,851) (11,716)
$146,718 $121,381
F. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consisted of
the following:
1995 1994
(000 OMITTED)
Land . . . . . . . . . . . . . . . . . . $ 3,459 $ 3,192
Buildings and leasehold improvements . . 31,947 24,323
Assets held for lease . . . . . . . . . 21,361 8,109
Machinery and equipment . . . . . . . . 27,896 22,974
84,663 58,598
Less accumulated depreciation and
amortization . . . . . . . . . . . . . (9,642) (3,016)
$75,021 $55,582
Depreciation and amortization expense for property, plant
and equipment was $7,778,000 for the year ended December 31,
1995, $3,263,000 for the five month period ended December 31,
1994, $2,839,000 for the seven month period ended July 31, 1994,
and $3,358,000 for the year ended December 31, 1993.
G. NOTES RECEIVABLE
Notes receivable at December 31 consisted of the following:
1995 1994
(000 OMITTED)
Notes receivable, net of allowance for
uncollectible contracts of $890
and $750 . . . . . . . . . . . . . . . $35,631 $37,312
Less current portion . . . . . . . . . . (4,722) (4,791)
Long-term notes receivable . . . . . . . $30,909 $32,521
During the year ended December 31, 1995, the five month
period ended December 31, 1994, the seven month period ended
July 31, 1994 and the year ended December 31, 1993, the Company
sold $42,366,000, $21,486,000, $23,097,000, and $72,511,000 of
its notes receivable for $44,126,000, $22,386,000, $23,642,000,
and $74,490,000, respectively. The Company has agreed to repur-
chase, for the unpaid balance, any contract for which there has
been a material breach of any warranty, representation, covenant
or other obligation of the Company as specified in the contract.
In the case of default by a debtor, the purchaser, after taking
possession of the underlying collateral equipment, may permit the
Company to remarket the equipment. The Company is required to
reimburse the purchaser for any losses as a result of defaults up
to an aggregate of $8,467,000 at December 31, 1995.
Scheduled annual maturities of notes receivable at December
31, 1995 are $4,722,000, (1996), $4,455,000 (1997), $5,068,000
(1998), $5,127,000 (1999), $3,716,000 (2000), and $13,433,000
(thereafter).
H. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
1995 1994
(000 OMITTED)
Borrowings under bank credit facility . . . $ 92,000 $ 70,000
Term notes payable, due to 2002 . . . . . . 125,000 125,000
Note payable at 7% due to 2001 . . . . . . 816
217,816 195,000
Less current portion . . . . . . . . . . . 148
Long-term debt . . . . . . . . . . . . . . $217,668 $195,000
Long-term bank credits are available to the Company from
participating banks under an agreement (the "Bank Credit Facili-
ty") which provides up to $125,000,000 for borrowing purposes, of
which up to $35,000,000 is available for issuance of standby
letters of credit. Borrowings were available at December 31,
1995 on a revolving basis until July 31, 1998. At December 31,
1995, there were borrowings of $92,000,000 outstanding under the
Bank Credit Facility, and $6,920,000 of standby letters of credit
were issued.
Canadian revolving credit loans are available to a subsid-
iary of the Company which provide for loans up to the Canadian
equivalent of $7,329,000 of which no amounts were outstanding at
December 31, 1995. Borrowings were available at December 31,
1995 on a revolving basis until January 31, 1996, with outstand-
ing borrowings then converting into a term loan repayable in 36
equal monthly installments.
The interest rates applicable to borrowings under these
agreements are, at the Company's option, indexed to the bank
prime rate or the London Interbank Offered Rate ("LIBOR"), plus
appropriate spreads over such indices during the period of each
borrowing agreement. The agreements also provide for commitment
fees. Such spreads and fees can change based upon changes in the
Company's financial ratios. Annually, with the participating
banks' consent, the term of the agreements may be extended for
one year.
The Company has $125,000,000 of term notes payable which are
due in annual installments of $25,000,000 beginning in November
1998 and extending through November 2002. Interest on the notes
is at a fixed rate of 9.02%. However, the Company entered into
an interest rate swap agreement in November 1994 which effective-
ly changed the interest rate on the notes to LIBOR plus 1.14%.
During 1995, the Company terminated $62,500,000 of the swap in
exchange for $4,950,000 which is being amortized as a reduction
of interest expense over the remaining life of the notes. As a
result, the effective interest rate is at LIBOR plus 1.14% on
$62,500,000 of the notes and at a fixed rate of 7.44% on the
remaining $62,500,000.
The Company's long-term debt agreements include various
restrictive covenants and require the maintenance of certain
defined financial ratios with which the Company is in compliance.
Annual maturities of long-term debt due in the next five
years will approximate $148,000 (1996), $148,000 (1997),
$117,148,000 (1998), $25,148,000 (1999), $25,148,000 (2000) and
$50,076,000 (thereafter).
Interest paid in the year ended December 31, 1995, the five
months ended December 31, 1994, the seven months ended July 31,
1994 and the year ended December 31, 1993, was $15,920,000,
$3,559,000, $5,007,000, and $1,937,000, respectively.
At December 31, 1995, no stockholder s equity was available
for the payment of dividends by Holdings.
I. INCOME TAXES
Prior to August 1993, Dial charged or credited the U.S.
operations of the Predecessor an amount equal to the tax payments
made or tax reductions realized by Dial as a result of including
the Predecessor s U.S. tax results and credits in Dial s consoli-
dated federal tax return. Subsequent to August 1993, eligible
subsidiaries are included in the consolidated and other applica-
ble income tax returns of MCII. Taxable income of the Company s
Canadian subsidiaries is included in separate tax returns filed
in Canada.
Income tax expense (benefit) was comprised of the following:
YEAR FIVE MONTHS SEVEN YEAR
ENDED ENDED MONTHS ENDED
DECEMBER DECEMBER ENDED JULY DECEMBER
31, 1995 31, 1994 31, 1994 31, 1993
(000 OMITTED)
Current
U.S. Federal . $ 3,864 $ 2,267 $ 3,442 $13,249
State . . . . 1,108 537 1,699 2,007
Foreign . . . 11,646 2,914 5,194 4,945
16,618 5,718 10,335 20,201
Deferred
U.S. Federal . 373 (246) 1,220 (3,479)
State . . . . 79 (69) (22) (689)
Foreign . . . 567 (1,445) (11) 573
1,019 (1,760) 1,187 (3,595)
Total income tax $17,637 $ 3,958 $11,522 $16,606
expense . . . . . .
Deferred income tax assets and liabilities included in the
Consolidated Balance Sheet at December 31 consisted of the
following:
1995 1994
(000 OMITTED)
Deferred tax assets:
Pensions and other benefits . . . . . $ 4,979 $ 4,573
Allowances and reserves for losses . . 8,739 8,414
Net operating loss carryforward . . . 12,150 4,833
Deferred state income taxes . . . . . 1,222 1,144
Other . . . . . . . . . . . . . . . . 546 683
Total gross deferred tax assets . . . . . 27,636 19,647
Deferred tax liabilities:
Property, plant and equipment . . . . (8,186) (9,364)
Intangibles . . . . . . . . . . . . . (2,439) (615)
Installment sales . . . . . . . . . . (606) (413)
Other . . . . . . . . . . . . . . . (98) (95)
Total gross deferred tax liabilities . . (11,329) (10,487)
Net deferred tax asset . . . . . . . . . . $16,307 $ 9,160
Income taxes paid (recovered) in the year ended December 31,
1995, in the five month period ended December 31, 1994, in the
seven month period ended July 31, 1994, and in the year ended
December 31, 1993, amounted to $4,606,000, $6,783,000,
$(1,268,000) and $16,028,000, respectively.
At December 31, 1995, the Company had net operating loss
carry forwards as follows:
EXPIRING IN
NET OPERATING LOSS YEAR ENDING
CARRY FORWARDS DECEMBER 31,
(000 OMITTED)
$ 2,690 2007
6,261 2008
22,988 2009
2,774 2010
$ 34,713
United States and Canadian income before income taxes was as
follows:
YEAR FIVE MONTHS SEVEN YEAR ENDED
ENDED ENDED DECEM- MONTHS END- DECEMBER
DECEMBER BER 31, 1994 ED JULY 31, 31, 1993
31, 1995 1994
(000 OMITTED)
United States . $12,979 $4,649 $12,123 $31,288
Canada . . . . 22,916 2,195 11,541 11,959
$35,895 $6,844 $23,664 $43,247
A reconciliation of the provision for income taxes and the
amount that would be computed using statutory federal income tax
rates on income before income taxes is set forth below:
YEAR END- FIVE MONTHS SEVEN YEAR END-
ED DECEM- ENDED DECEM- MONTHS ED DECEM-
BER 31, BER 31, ENDED JULY BER 31,
1995 1994 31, 1994 1993
(000 OMITTED)
Computed income tax
provision at
statutory fed-
eral income tax
rate of 35% . . . . $12,563 $ 2,395 $ 8,283 $15,136
Minority interests. . 132 707
State income taxes. . 773 304 1,090 857
Canadian tax differ-
ences . . . . . . . 637 524 775 608
Foreign dividend
received . . . . . 2,039
Intangible amortiza-
tion . . . . . . . 1,652 543 53
Merger related ex-
penses . . . . . . 1,563
Increase in deferred
taxes due to 1%
rate change (1,287)
Other, net . . . . . (27) 192 (374) 585
Provision for income
taxes . . . . . . . $17,637 $ 3,958 $11,522 $16,606
The Predecessor's U.S. federal income tax returns have been
examined through 1990 and are currently being examined for 1991,
1992 and the seven months ended July 1993.
The Predecessor's Canadian income tax returns for 1982
through 1992 are currently under review by Revenue Canada.
Authorities have proposed imputing additional income relating to
transactions with a U.S. based subsidiary of the Company. A
formal reassessment has been issued by Revenue Canada on the 1985
return. A notice of objection has been filed by the Company for
1985. In the event of an adverse judgment, the additional income
taxes for 1982 through 1992 could amount to up to $25,000,000
plus interest of approximately $25,000,000 and, in addition, the
Company 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. Although the
Company is still in the process of obtaining additional informa-
tion, based upon its review of current relevant information,
including the advice of outside counsel, the Company is of the
opinion that Revenue Canada's arguments are without merit and
that any liability from this matter will not be material to its
financial condition or results of operations.
J. PENSION BENEFITS
Net periodic pension cost included the following components:
UNITED STATES
YEAR ENDED FIVE MONTHS SEVEN YEAR ENDED
DECEMBER ENDED DEC. MONTHS END- DECEMBER
31, 1995 31, 1994 ED JULY 31, 31, 1993
1994
(000 omitted)
Service cost benefits
earned during the
period . . . . . . . $ 797 $ 389 $ 545 $ 842
Interest cost on pro-
jected benefit obli-
gation . . . . . . . 827 269 377 528
Actual return on plan
assets . . . . . . . . (1,592) (135) (189) (332)
Net amortization and
deferral . . . . . . 1,127 (78) (109) 97
Other items, primarily
defined contribution
plans and settlement
costs . . . . . . . 842 162 227 146
Net pension cost . . . $ 2,001 $ 607 $ 851 $ 1,281
CANADA
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED
DECEMBER 31, ENDED DEC. ENDED JULY DECEMBER 31,
1995 31, 1994 31, 1994 1993
(000 omitted)
Service cost benefits
earned during the
period . . . . . . . $ 375 $ 134 $ 188 $ 315
Interest cost on pro-
jected benefit obli-
gation . . . . . . . 401 143 200 350
Actual return on plan
assets . . . . . . . (494) (187) (261) (416)
Net amortization and
deferral . . . . . . 1 (3) (4) 1
Other items, primarily
defined contribution
plans and settlement
costs . . . . . . . 610 223 313 437
Net pension cost . . . $ 893 $ 310 $ 436 $ 687
The following tables indicate the plans' funded status and
amounts recognized in the Consolidated Balance Sheet at December
31:
UNITED STATES
-------------------------------------------------------------------
1995 1994
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
-------- ------------- -------- -------------
(000 OMITTED)
Actuarial present value of
benefit obligations:
Vested benefit obligation ........... $ 5,035 $ 1,450 $ 4,134 $ 2,863
======= ======= ======= =======
Accumulated benefit
obligation ........................ $ 6,422 $ 1,572 $ 5,424 $ 2,972
======= ======= ======= =======
Projected benefit
obligation ........................ $ 8,048 $ 1,809 $ 6,955 $ 3,135
Market value of plan assets,
primarily equity and fixed
income securities .................. 8,935 162 6,990 101
------- ------- ------- -------
Plan assets over (under)
projected benefit
obligation .......................... 887 (1,648) 35 (3,034)
Unrecognized transition asset .......... (63) (73)
Unrecognized prior service
cost reduction ...................... (12) 1,260 (14) 30
Unrecognized net (gain) loss ........... (1,531) 190 (356) 47
Additional minimum liability ........... (1,233) (37)
------- ------- ------- -------
Accrued pension cost ................... $ (719) $(1,431) $ (408) $(2,994)
======= ======= ======= =======
CANADA
----------------------------------
ASSETS EXCEED ACCUMULATED BENEFITS
----------------------------------
1995 1994
-------- --------
Actuarial present value of
benefit obligations:
Vested benefit obligation ................. $ 3,711 $ 3,038
======= =======
Accumulated benefit obligation ............ $ 3,713 $ 3,039
======= =======
Projected benefit obligation .............. $ 4,794 $ 4,085
Market value of plan assets,
primarily equity and fixed
income securities ......................... 5,030 4,933
------ ------
Plan assets over projected
benefit obligation ....................... 236 848
Unrecognized transition asset ............. (6) (9)
Unrecognized prior service cost
reduction ................................ 51 54
Unrecognized net (gain) loss .............. 201 (542)
------ ------
Prepaid pension cost ...................... $ 482 $ 351
======= =======
Weighted average assumptions used were:
UNITED STATES CANADA
------------------ ------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Discount rate for obligation ........ 7.5% 7.5% 7.5% 8.5% 8.5% 7.5%
Rate of increase in compensation .... 4.5% 4.5% 4.5% 5.0% 5.0% 4.5%
Long-term rate of return on assets .. 9.5% 9.5% 9.5% 9.0% 9.0% 9.0%
K. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The net periodic postretirement benefit cost included the
following components:
Year Ended Five Months Seven Months Year Ended
December 31, Ended Dec. 31, Ended July 31, December 31, 1993
1995 1994 1994
---- ---- ----
(000 omitted)
Service cost benefits attributed
to service during the period............... $ 416 $ 188 $ 262 $ 405
Interest cost on the accumulated
postretirement benefit obliga- tion........ 401 162 227 314
Net amortization and deferral................. (45) (5) (6) (34)
--- -- -- ---
Net periodic postretirement
benefit cost............................... $ 772 $ 345 $ 483 $ 685
======= ======= ======= =======
The status of the plans at December 31 was as follows:
1995 1994
---- ----
(000 omitted)
Retirees........................................... $1,173 $1,141
Fully eligible active plan participants............ 1,425 1,320
Other active plan participants..................... 3,686 3,358
------- -------
Accumulated postretirement benefit obligation...... 6,284 5,819
Unrecognized prior service cost.................... 34 42
Unrecognized net gain.............................. 329 121
-------- --------
Accrued postretirement benefit cost................ $6,647 $5,982
====== ======
The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation ("APBO") was
12% in 1995, gradually declining to 5% by the year 2002 and
remaining at that level thereafter for retirees below age 65, and
8.5% in 1995, gradually declining to 5% by the year 2002 and
remaining at that level thereafter for retirees above age 65. A
one-percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 by
approximately 21%, and the net periodic postretirement benefit
cost by approximately 25%.
The assumed discount rate used in determining the APBO was
7.5% in 1995, 1994 and 1993.
L. LEASE OBLIGATIONS
Certain plants, warehouses, offices and equipment are
leased under leases expiring through the year 2007 and some
provide for renewal options. Leases which expire are generally
renewed or replaced by similar leases.
At December 31, 1995, future minimum rental payments with
respect to noncancellable operating leases with terms in excess
of one year were as follows: $2,806,000 (1996), $2,142,000
(1997), $1,390,000 (1998), $1,161,000 (1999), $985,000 (2000) and
$1,567,000 (thereafter).
Minimum rental expense for the year ended December 31, 1995,
the five month period ended December 31, 1994, the seven month
period ended July 31, 1994 and the year ended December 31, 1993,
was $3,106,000, $1,211,000, $1,829,000 and $2,612,000, respec-
tively.
M. LITIGATION AND CONTINGENCIES
Certain entities of the Company are plaintiffs or defendants
to various actions, proceedings and pending claims. Some of the
foregoing involve or may involve claims for compensatory, puni-
tive 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,
1995 with respect to these matters is not ascertainable, the
Company believes that any resulting liability would not material-
ly affect the Company's financial condition or results of opera-
tions.
N. GOVERNMENT ASSISTANCE
The Company has undertaken a research and development
project with the cooperation of the Government of Canada and the
Province of Manitoba. Agreements were entered into between the
parties for the research and development project which includes
commitments for contributions. During 1995, 1994 and 1993, the
Company recorded $3,305,000, $698,000 and $361,000, respective-
ly, from the contribution programs, which has been applied
against research and development expenses. Contributions may be
repayable should the project not be completed or, for the first
five years following project completion, should the ratio of
Canadian employees to total employees of the Company be less than
40%. As of December 31, 1995, the amount of such contributions
totaled $6,032,503.
O. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FAIR
VALUE OF FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company enters into foreign exchange forward contracts
to hedge certain firm and anticipated purchase commitments which
are settled in Canadian dollars. These contracts are purchased
to reduce the impact of Canadian dollar currency fluctuations on
operating results. The Company does not engage in Canadian
dollar currency speculation. The contracts do not subject the
Company to risk due to exchange rate movements as gains and
losses on the contracts offset gains and losses on the materials
being purchased. At December 31, 1995 and 1994, the Company had
approximately $52,902,000 and $68,068,000, respectively, of
Canadian dollar exchange forward contracts outstanding. The
Company's theoretical risk in these transactions is the cost of
replacing, at current market rates, these contracts in the event
of default by the other party. Management believes the risk of
incurring such losses is remote as the contracts are entered into
with major financial institutions.
At December 31, 1994, the Company had an interest rate swap
outstanding with a commercial bank which effectively changed the
interest rate on the Company's $125,000,000 of term notes payable
to LIBOR plus 1.14%. In June 1995, the Company settled
$62,500,000 notional principal amount of the swap, resulting in
proceeds to the Company of $4,950,000 which are being amortized
as an adjustment to interest expense over the remaining life of
the notes. Under the terms of the swap agreement, the Company
receives interest of 7.88% and pays interest at LIBOR. At
December 31, 1995, the notional amount on which the interest is
calculated is $62,500,000 and matures ratably at the same time
the related term notes mature. The counter party to the agree-
ment has the right to designate a cash settlement of the swap 10
days prior to the maturity date of the Company's Bank Credit
Facility. The maturity date of the Bank Credit Facility as of
December 31, 1995, is July 31, 1998, but is expected to be
extended annually by mutual agreement. In the event of a cash
settlement designated by the counterparty, the Company intends to
defer the proceeds received, or payments made, as a result of the
settlement and immediately enter into a new swap agreement. The
deferred settlement would then be amortized over the remaining
life of the new swap, thus preserving the effective change in the
interest rate on the term notes payable at LIBOR plus 1.14%. The
Company is exposed to credit loss in the event of non-performance
by the other party, however, the Company does not anticipate
non-performance as the counter party is a major financial insti-
tution.
As a necessary adjunct to its new and used coach business,
the Company has entered into repurchase and first loss agreements
with certain companies which provide financing for coaches sold
by the Company, pursuant to which the Company agrees to either
repurchase coaches from such companies or guarantees the payment
of certain obligations of coach owners or operators. The amount
of such agreements as of December 31, 1995 and 1994 was approxi-
mately $3,462,000 and $4,787,000, respectively. Additionally, as
a result of certain sales of notes receivable and leases during
1995 and 1994, the Company is obligated to reimburse the purchas-
er of such notes and leases for any losses as a result of de-
faults up to $9,526,000 as of December 31, 1995 and $5,936,000 as
of December 31, 1994. The Company has experienced no material
losses in respect of such obligation, and losses under existing
agreements are not expected to exceed amounts reserved for such
losses.
On December 28, 1994, the Company sold $24,425,000 of
accounts receivables to a major financial institution with
recourse. At December 31, 1995 none of the receivables sold
remained outstanding. As a result, the Company had no exposure
under the recourse provisions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of
financial instruments have been determined by the Company using
available market information and valuation methodologies de-
scribed 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, receiv-
ables, bank overdrafts and accounts payable approximate fair
values due to the short-term maturities of these instruments.
The carrying amounts and estimated fair values of the Company's
other financial instruments at December 31 were as follows:
1995 1994
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(000 omitted)
Notes receivable........................ $ 35,631 $ 35,658 $ 37,312 $ 37,284
Investment in equity security........... 1,200 1,200 - -
Debt .......................... (217,816) (229,678) (195,000) (194,337)
Interest rate swap ..................... - 5,891 - (663)
Foreign exchange forward contracts...... - 84 - (1,486)
The methods and assumptions used to estimate the fair values
of the financial instruments are summarized as follows:
Notes receivable - Estimated by discounting the future cash flows
using rates currently used for notes of similar terms and maturi-
ties.
Investment in equity security - Estimated at its carrying value
as the investment was acquired December 28, 1995. See Note P.
Debt - Estimated by discounting the future cash flows, using
rates currently available for debt of similar terms and maturity.
Interest rate swap - Estimated by discounting future cash flows
using rates currently available. Represents the unrealized gain
or (loss) if the agreement had been settled at year-end. The
swap agreement specifically hedges portions of the Company's term
notes payable. As market interest rates fluctuate, the unreal-
ized gain or loss on the swap moves to offset the change in fair
value of that portion of the term notes payable.
Foreign exchange forward contracts (used for hedging purposes) -
Estimated using quoted exchange rates.
P. RELATED PARTY TRANSACTIONS
In 1993, the Company purchased a 10% ownership interest in
Mexicana de Autobuses, S.A. de C.V. ( MASA ), a coach manufactur-
ing company in Mexico, for $6,000,000. In December 1994, the
Company distributed the MASA shares to Dina as a dividend. In
December 1995, the Company repurchased the MASA shares from Dina
for $1,200,000. Since MASA shares are not publicly traded and
have no readily determinable fair value, the investment is
accounted for at cost and included in other noncurrent assets.
In January 1995, the Company began purchasing coaches from
Dina for resale in the United States. Through December 1995, the
Company had purchased 129 coaches at a total cost of $27,289,000
and had resold or leased 112 of the coaches.
In addition, during 1995 the Company purchased from Dina
production materials and tooling totaling $1,423,000. Sales to
Dina of production materials, after-market parts and used coaches
during the same period totaled $2,279,000.
Q. GAIN ON SALE OF MARKETABLE SECURITIES
In January 1995, the Company purchased 6,004,144 shares of
Greyhound Lines, Inc. ( GLI ) through a rights offering of GLI s
Common Stock. In October 1995, the investment was sold, result-
ing in a pre-tax gain of $10,522,000.
R. BUSINESS SEGMENT AND GEOGRAPHIC DATA
BUSINESS SEGMENT DATA
The Company s principal business activities are categorized
into two business segments for financial reporting purposes --
coach manufacturing and support and distribution of replacement
parts.
Year Ended Five Months Seven Months Year Ended
December 31, Ended Dec. 31, Ended July 31, December 31,
1995 1994 1994 1993
---- ---- ---- ----
(000 omitted)
Revenues:
Coach manufacturing and support............ $375,837 $137,942 $194,873 $272,845
Replacement parts.......................... 140,500 56,431 78,221 126,175
--------- ---------- ---------- ----------
$516,337 $194,373 $273,094 $399,020
======== ======== ======== ========
Operating income:
Coach manufacturing and support............ $ 23,326 $ 2,118 $ 24,715 $ 25,143
Replacement parts.......................... 15,013 7,001 12,208 20,210
---------- -------- --------- ---------
$ 38,339 $ 9,119 $ 36,923 $ 45,353
======== ======= ======== ========
Depreciation and amortization:
Coach manufacturing and support............ $ 10,710 $ 4,268 $ 2,644 $ 3,617
Replacement parts.......................... 3,908 1,573 635 930
---------- -------- --------- ---------
$ 14,618 $ 5,841 $ 3,279 $ 4,547
======== ======= ======= =======
Capital Expenditures:
Coach manufacturing and support............ $ 10,595 $ 4,052 $ 1,158 $ 4,712
Replacement parts.......................... 1,964 863 778 760
---------- --------- --------- ---------
$ 12,559 $ 4,915 $ 1,936 $ 5,472
======== ======= ======= =======
Year Ended December 31,
1995 1994
---- ----
Assets:
Coach manufacturing and support $411,493 $348,381
Replacement parts 191,238 167,714
Discontinued operations 11,311 42,821
------ ------
$614,042 $558,916
======== ========
Major customers are defined as those which individually
accounted for more than 10% of the Company s revenue. The
Company s only major customer was during the seven months ended
July 31, 1994 and the year ended December 31, 1993 when Greyhound
Lines, Inc. accounted for 21% and 23%, respectively, of the
Company s consolidated revenues.
GEOGRAPHIC DATA
Year Ended Five Months Seven Months Year Ended
December 31, Ended Dec. 31, Ended July 31, December 31,
1995 1994 1994 1993
---- ---- ---- ----
(000 omitted)
Revenues:
United States.......... $445,732 $180,478 $247,974 $365,713
Canada................. 70,605 13,895 25,120 33,307
---------- ---------- ---------- ----------
$516,337 $194,373 $273,094 $399,020
======== ======== ======== ========
Operating Income:
United States.......... $ 31,496 $ 7,736 $ 34,060 $ 40,935
Canada................. 6,843 1,383 2,863 4,418
---------- ----------- ----------- -----------
$ 38,339 $ 9,119 $ 36,923 $ 45,353
========= ========== ======== ========
Year Ended December 31,
1995 1994
---- ----
Assets:
United States................ $430,087 $412,209
Canada....................... 183,955 146,707
$614,042 $558,916
======== ========
S. TRANSACTIONS WITH THE DIAL CORP
Prior to August 1993, Dial s executive, financial,
legal, tax and other corporate staff departments performed
certain services for the Company at charges which were intended
to provide no profit to Dial. Expenses incurred by Dial and
allocated to the Company were primarily determined based on
specific identification of the applicable expenses. Those
expenses which were not susceptible to specific identification
were allocated based on formulas which served to allocate expens-
es on a proportional basis. Management is of the opinion that
such methods of expense allocation were reasonable and the
allocated expenses approximate or are less than what such expens-
es would have been on a stand-alone basis. The Company also had
intercompany advances to and from Dial which have been reflected
in the Consolidated Financial Statements on an interest-free
basis. Allocated expenses from Dial were $980,000 in 1993.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
CONSOLIDATED BALANCE SHEET
(unaudited)
March 31 Dec 31,
(000 omitted, except number of shares) 1996 1995
- - ------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $9,071 $30,607
Receivables, less allowance of $2,015 45,948 34,936
Current portion of notes receivable 5,441 4,722
Inventories 150,900 146,718
Deferred income taxes 9,545 8,570
Other current assets 3,623 4,073
----- -----
Total current assets 224,528 229,626
Property, plant and equipment 55,091 54,959
Assets held for lease 28,316 20,062
Notes receivable 36,955 30,909
Investment in and advances to
discontinued operations 11,203 11,311
Deferred income taxes 13,248 14,350
Intangibles 241,868 242,923
Other assets 9,804 9,902
----- -----
$621,013 $614,042
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdrafts $ 4,661 $ 504
Accounts payable 28,091 24,722
Accrued compensation and other benefits 10,573 13,101
Accrued warranties 3,929 5,381
Accrued income taxes 5,042 11,924
Insurance reserves 5,348 5,337
Due to Grupo DINA 1,230 367
Other current liabilities 15,041 11,605
------ ------
Total current liabilities 73,915 72,941
Long-term debt 217,668 217,668
Pensions and other benefits 9,548 8,866
Other deferred items and insurance reserves 15,792 13,146
Deferred income taxes 6,382 6,613
Stockholder's equity:
Common stock, $.01 par value, 1,000
shares authorized and issued
Additional capital 317,465 317,465
Deficit (16,425) (18,856)
Cumulative translation adjustments (3,332) (3,801)
------ ------
Total stockholder's equity 297,708 294,808
------- -------
$621,013 $614,042
======== ========
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE
C.V.)
STATEMENT OF CONSOLIDATED INCOME
(unaudited)
Three Months Ended
March 31, March 31,
(000 omitted) 1996 1995
Revenues:
Sales $140,594 $123,377
Finance income 1,475 1,051
142,069 124,428
Operating costs and expenses:
Cost of sales (exclusive of items
shown separately below) 112,459 94,558
Depreciation and amortization 4,119 3,349
Interest expense, finance opera-
tions 690 572
Research and development expenses 1,934 383
Selling, general and administra-
tive expenses 14,980 14,957
133,982 113,819
Operating income 8,087 10,609
Other (income) and expense:
Interest expense 3,338 2,879
Other (income) (211) (234)
3,127 2,645
Income before income taxes 4,960 7,964
Income taxes 2,529 3,740
Net income $ 2,431 $ 4,224
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED CHANGES IN STOCKHOLDER'S EQUITY
(unaudited)
Unrealized
Gain on Cumulative
Additional Marketable Translation
(000 omitted) Common Stock Capital Deficit Securities Adjustment Total
- - -----------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 $ $ 317,465 $ (37,114) $ $ (7,539) $ 272,812
Net income 4,224 4,224
Unrealized gain on marketable securities 955 955
Unrealized translation gain 340 340
-------- ---------- ----------- ------- --------- --------
Balance, march 31, 1995 $ 0 $ 317,465 $ (32,890) $ 955 $ (7,199) $ 278,331
======== ========== =========== ======= ========= ========
Balance, January 1, 1996 $ $ 317,465 $ (18,856) $ $ (3,801) $ 294,808
Net income 2,431 2,431
Unrealized translation gain 469 469
-------- ---------- ----------- ------- --------- --------
Balance, March 31, 1996 $ 0 $ 317,465 $ (16,425) $ 0 $ (3,332) $ 297,708
======== ========== =========== ======= ========= ========
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENT OF CONSOLIDATED CASH FLOWS
(unaudited)
Three Months Ended
March 31, March 31,
(000 omitted) 1996 1995
CASH FLOWS PROVIDED (USED) BY OPERAT-
ING ACTIVITIES:
Net income $ 2,431 $ 4,224
Adjustments to reconcile net income
to net cash used by operations:
Depreciation and amortization 4,119 3,349
Deferred income taxes (733) (678)
Loss (gain) on sale of property
and notes receivable (233) (267)
Other noncash items, net 639 503
Change in operating assets and
liabilities:
Receivables (11,108) (20,160)
Inventories (3,413) (26,301)
Due to Grupo DINA 863 5,626
Accounts payable 3,369 8,347
Accrued income taxes (6,882) 1,203
Other current liabilities (533) (4,496)
Other assets and liabilities,
net 1,219 (1,285)
Net cash used by operating activities (10,262) 29,935
CASH FLOWS PROVIDED (USED) BY INVEST-
ING ACTIVITIES:
Capital expenditures (2,057) (2,754)
Investment in assets held for lease (9,362) (1,374)
Investments in, or purchases of,
businesses or marketable
securities 0 (12,570)
Proceeds from sale of property and
notes receivable 1,693 606
Investment in notes receivable (9,866) (7,800)
Collections of notes receivable 1,248 14,032
Investment in discontinued opera-
tions, net 108 31,752
Net cash provided by investing
activities (18,236) 21,892
CASH FLOWS PROIDED (USED) BY FINANCING
ACTIVITIES:
Net change in bank overdrafts 4,157 4,555
Termination of interest rate swap
position 2,805 0
Net change in bank credit
facilities 0 8,749
Net cash provided by financing
activities 6,962 13,304
Net increase (decrease) in cash and (21,536) 5,261
cash equivalents
Cash and cash equivalents, beginning 30,607 6,941
of period
Cash and cash equivalents, end of pe- $ 9,071 $ 12,202
riod
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF
CONSORCIO G GRUPO DINA, S.A. DE C.V.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(A) BASIS OF PREPARATION
These financial statements should be read in connection with the
Company's 1995 audited financial statements included elsewhere in
this Registration Statement.
Accounting policies utilized in the preparation of the financial
information herein presented are the same as set forth in the
Company's annual financial statements except as modified for
interim accounting policies which are within the guidelines set
forth in Accounting Principles Board Opinion No. 28. The interim
financial information is unaudited. In the opinion of manage-
ment, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position
as of March 31, 1996, and the results of operations for the three
months ended March 31, 1996 and 1995, have been included.
Interim results of operations are not necessarily indicative of
the results of operations for the full year.
(B) INVENTORIES
Inventories consisted of the March 31, December 31,
following: 1996 1995
(000's omitted)
Raw material $ 20,793 $ 26,219
Work in process 40,217 36,371
Finished goods 105,275 98,979
166,285 161,569
Excess quantity and obsoles-
cence reserve (15,385) (14,851)
$ 150,900 $ 146,718
(C) SUPPLEMENTARY INFORMATION: REVENUES AND
OPERATING INCOME OF PRINCIPAL BUSINESS SEGMENTS
Three Months Ended
March 31 March 31,
1996 1995
(000's omitted)
Revenues:
Coach manufacturing and support $ 103,184 $ 91,041
Replacement parts 38,885 33,387
$ 142,069 $124,428
Operating income:
Coach manufacturing and support $ 3,849 $ 7,351
Replacement parts 4,238 3,258
$ 8,087 $ 10,609
(D) RELATED PARTY TRANSACTIONS
Transactions between the Company and Dina were as follows:
Three Months Ended
March 31 March 31,
1996 1995
(000's omitted)
Purchases from Dina:
Coaches for resale $11,385 $ 5,626
Production materials and tooling 1,660 54
$13,045 $ 5,680
Sales to Dina:
Production materials and after-
market parts $ 578 $ 6
The purchase of coaches for resale during the three month periods
ended March 31, 1996 and 1995, were for 51 and 25 units, respec-
tively.
No dealer, salesperson or other
individual has been authorized to
give any information or make any $206,499,680
representation not contained in
this Prospectus in connection with
the offer made by this Prospectus.
If given or made, such information
or representations must not be re-
lied upon as having been
authorized by the Issuer. This
Prospectus does not constitute an
offer or a solicitation in any
jurisdiction where, or to any
person to whom, it is unlawful to
make such offer or solicitation.
Neither the delivery of this
Prospectus nor any sale made Consorcio G Grupo Dina,
hereunder shall, under any S.A. de C.V.
circumstances, cre- ate an
implication that the information
herein is correct as of any time
subsequent to the date hereof or MCII Holdings (USA), Inc.
that there has been no change of
the Issuers since such date.
TABLE OF CONTENTS
Page
Available Information...... iii
Enforceability of Civil
Liabilities Against
Foreign Persons.......... iii
Presentation of Certain
Information.............. iv
Summary.................... 1
Risk Factors............... 9
Use of Proceeds............ 17 Senior Secured Discount
Exchange Rates............. 17 Exchange Notes
Ratio of Earnings to Due 2002
Fixed Charges............ 18
Selected Financial
Data of Grupo Dina....... 20
Management's Discussion
and Analysis of Financial
Condition and Results
of Operations of Grupo
Dina..................... 22
Selected Financial Data
of MCII Holdings......... 35
Management's Discussion
and Analysis of Financial
Condition and Results
of Operations of MCII
Holdings................ 37
The Exchange Offer......... 44 PROSPECTUS
Business of Grupo Dina..... 51
Business of MCII Holdings
Management............... 65
Ownership of Common Stock.. 82
Certain Transactions....... 83
Description of the Notes... 84
Tax Considerations......... 104
Plan of Distribution....... 109
Legal Matters.............. 109 __________, 1996
Experts.................... 109
Index to Financial
Statements............... F-1
Until ___________, 1996 (__
days after the date of this
Prospectus), all dealers effecting
transactions in the New Notes,
whether or not participating in
the Exchange Offer, may be
required to deliver a Prospectus.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is a table of the registration fee for the Securities
and Exchange Commission, and estimates of all other expenses to be
incurred in connection with the issuance and distribution of the
securities described in this Registration Statement:
SEC Registration fee................ $ 71,207
Exchange Agent fees and expenses.... *
Printing and engraving expenses..... *
Legal fees and expenses............. *
Accounting fees and expenses........ *
Miscellaneous....................... *
---------
Total............................ $ *
=========
*To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
(a) Grupo Dina.
Under Mexican law, when an officer or director of a corporation acts
within its scope of his authority, the corporation will indemnify him or
her for any resulting liabilities or expenses.
(b) MCII Holdings
Section 145 of the General Corporation Law of the State of Delaware
(the "Delaware Corporation Law") empowers a Delaware corporation to
indemnify any persons who are, or are threatened to be made, parties to
any threatened, pending or completed legal action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of such corporation), by reason of the fact that
such person is or was an officer, director, employee or agent of such
corporation, or is or was serving as the request of such corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his conduct was unlawful.
A Delaware corporation may indemnify officers and directors against
expenses (including attorneys' fees) in an action by or in the right of
the corporation under the same conditions, except that no indemnification
is permitted without judicial approval if the officer or director is
adjudged to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
Article VII of the By-laws of MCII Holdings, a copy of which is filed
as Exhibit 3.3 to this Registration Statement, allows MCII Holdings to
maintain director and officer liability insurance on behalf of any person
who is or was a director or officer of MCII Holdings or such person who
serves or served as a director, officer, employee or agent, of another
corporation, partnership or other enterprise, at the request of MCII
Holdings. Article VII of the MCII Holdings By-Laws provides for
indemnification of the officers and directors of MCII Holdings to the
fullest extent permitted by applicable law. Article XI(c) of the Restated
Certificate of Incorporation, a copy of which is filed as Exhibit 3.2 to
this Registration Statement, provides that the right of any director or
officer of MCII Holdings, other than any independent director, to be
indemnified by MCII Holdings shall be subordinated in all respects to the
obligations of MCII Holdings under the Indenture with respect to the
Notes.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law,
Article Sixth of the Restated Certificate of Incorporation of MCII
Holdings provides that no director of MCII Holdings shall be personally
liable to MCII Holdings or its shareholders for monetary damages for any
breach of his fiduciary duty as a director; provided, however, that such
clause shall not apply to any liability of a director (1) for any breach
of his duty of loyalty to MCII Holdings or its stockholders, (2) for acts
or omissions that are not in good faith or involve intentional misconduct
or a knowing violation of the law, (3) under Section 174 of the Delaware
Corporation Law, or (4) for any transaction from which the director
derived an improper personal benefit.
Item 15. Recent Sales of Unregistered Securities
On May 28, 1996, MCII Holdings issued 1,000 shares of common stock to
Grupo Dina in exchange for Grupo Dina's contribution to MCII Holdings of
all of the outstanding shares of common stock of MCII. The transaction was
exempt from the registration requirements of the Securities Act in
reliance on Section 4(2) of the Securities Act on the basis that such
transaction did not involve a public offering.
On June 3, 1996, the co-registrants issued $206,499,680 aggregate
principal amount of the Old Notes in exchange for $143,040,000 aggregate
principal amount of Eurobonds. The Old Notes have not been registered
under the Securities Act of 1933, and were offered to "qualified
instituted buyers" in the United States in reliance on Rule 144A under the
Exchange Act and in transactions outside the United States in accordance
with Regulation S under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit No. Description
3.1 -- Bylaws (Estatutos Sociales) of Grupo Dina, which
includes its Articles of Incorporation, together with
an English translation, filed as Exhibit 1.1 to Grupo
Dina's Annual Report on Form 20-F for the year ended
December 31, 1994 and incorporated by reference
herein.
3.2* -- Restated Certificate of Incorporation of MCII Holdings
3.3* -- Bylaws of MCII Holdings
4.1 -- Deposit Agreement, dated as of April 1, 1993, among
Grupo Dina, Morgan Guaranty Trust Company of New
York, as Depositary, and all registered holders from
time to time of American Depositary Receipts in
respect of common stock issued thereunder, including
the form of American Depositary Receipts, filed as
Exhibit 4.2 to Grupo Dina's Registration Statement on
Form F-1 (No. 33-53380) and incorporated by reference
herein.
4.2 -- Deposit Agreement, dated as of August 8, 1994, among
Grupo Dina, Morgan Guaranty Trust Company of New
York, as Depositary, and all registered holders from
time to time of American Depositary Receipts in
respect of Series L Stock issued thereunder,
including the form of American Depositary Receipts,
filed as Exhibit 2.2 to Grupo Dina's Annual Report on
Form 20-F for the year ended December 31, 1994 and
incorporated by reference herein.
4.3 -- Indenture, dated as of August 8, 1994, between Grupo
Dina and Bankers Trust Company, as Trustee, relating
to the Debentures, including the form of Deben- ture,
filed as Exhibit 2.3 to Grupo Dina's Annual Report on
Form 20-F for the year ended December 31, 1994 and
incorporated by reference herein.
4.4 -- Indenture, dated as of April 30, 1996, between Grupo
Dina and IBJ Schroder Bank & Trust Company, as
Trustee, relating to the Notes, including the form of
Old Note and New Note, filed as Exhibit 2.4 to Grupo
Dina's Annual Report on Form 20-F for the year ended
December 31, 1995 and incorporated by reference
herein.
5.1+ -- Opinion of Ritch, Heather y Mueller, S.C.,
Mexican counsel to the co-registrants, regarding
the legality of the New Notes.
5.2+ -- Opinion of Skadden, Arps, Slate, Meagher & Flom, U.S.
counsel to the co- registrants, regarding the
legality of the New Notes.
10.1 -- Research, Engineering and Maintenance Contract dated
March 12, 1987 between Navistar and Camiones for the
"S" Series of medium duty trucks, filed as Exhibit
10.1 to Grupo Dina's Registration Statement on Form
F-1 (No. 33- 53380) and incorporated by reference
herein.
10.2 -- Supply Contract dated March 12, 1987 between Navistar
and Camiones for the "S" Series of medium duty
trucks, filed as Exhibit 10.2 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.3 -- Research, Engineering, and Maintenance Contract dated
November 21, 1989 between Navistar and Camiones for
the "9400" Series of heavy duty trucks, filed as
Exhibit 10.3 to Grupo Dina's Registration Statement
on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.4 -- Supply Contract dated November 21, 1989 between
Navistar and Camiones for the "9400" Series of heavy
duty trucks, filed as Exhibit 10.4 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.5 -- Research, Engineering and Maintenance Contract dated
November 20, 1990 between Navistar and Camiones for
the "7.3", "DT/DTA-360" and "DT/DTA- 466" Series of
diesel engines, filed as Exhibit 10.5 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.6 -- Supply Contract dated November 20, 1990 between
Navistar and Camiones for the "7.3", "DT/DTA-360" and
DT/DTA-466" Series of diesel engines, filed as
Exhibit 10.6 to Grupo Dina's Registration Statement
on Form F-1 (No. 33- 53380) and incorporated by
reference herein.
10.7 -- Supply Contract for bus bodies dated February 20,
1992 between Marcopolo and Autobuses, filed as
Exhibit 10.7 to Grupo Dina's Registration Statement
on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.8 -- Technology and Supply Contract dated February 21,
1992 between Marcopolo and Autobuses for bus bodies,
filed as Exhibit 10.8 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and incorporated
by reference herein.
10.9 -- Amendment dated April 22, 1993 to Technology and
Supply Contract dated February 21, 1992 between
Marcopolo and Autobuses, filed as Exhibit 3.9 to
Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1995 and incorporated by reference
herein.
10.10 -- Licensing Agreement dated February 23, 1981 between
Budd and Plasticos and amendments thereto, filed as
Exhibit 10.10 to Grupo Dina's Registration Statement
on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.11 -- Shareholders and Subscription Agreement dated October
12, 1987 among the Company, Navistar and Chrysler,
filed as Exhibit 10.13 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and incorporated
by reference herein.
10.12 -- Form of Camiones Distribution Contract, together with
English translation, filed as Exhibit 3.12 to Grupo
Dina's Annual Report on Form 20-F for the year ended
December 31, 1994 and incorporated by reference
herein.
10.13 -- Form of Commercial Agency Agreement for heavy duty
trucks for Camiones, filed as Exhibit 10.16 to Grupo
Dina's Registration Statement on Form F-1 (No.
33-53380) and incorporated by reference herein.
10.14 -- Commercial Brokers Contract dated January 2, 1991
between Autobuses and Grupo Dina, filed as Exhibit
10.17 to Grupo Dina's Registration Statement on Form
F-1 (No. 33-53380) and incorporated by reference
herein.
10.15 -- Fiscal Agency Agreement dated November 18, 1992 among
Grupo Dina, Camiones and Autobuses, as Guarantors,
and Bankers Trust Company, as Fiscal Agent, filed as
Exhibit 10.18 to Grupo Dina's Registration Statement
on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.16 -- Supplemental Fiscal Agency Agreement, dated as of May
28, 1996, among the Company, Camiones and Autobuses,
as Guarantors, and Bankers Trust Company, as Trustee,
filed as Exhibit 3.16 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1995 and
incorporated by reference herein.
10.17 -- Agreement dated June 7, 1994 among Navistar, Navistar
International Transportation Corp., Camiones and
Grupo Dina, filed as Exhibit 4.3 to Grupo Dina's
Registration Statement on Form F-1 and F-4 (No.
33-79392) and incorporated by reference herein.
10.18 -- Contract dated October 11, 1994, between Grupo Dina
and Navistar, filed as Exhibit 3.17 to the Company's
Annual Report on Form 20-F for the year ended
December 31, 1994 and incorporated by reference
herein.
10.19 -- Supply Contract entered into on November 28, 1994
between Autobuses and Navistar for the "T-444E",
"T-444NG", "DT 466" and "530" engines, filed as
Exhibit 3.18 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.20 -- Distribution Agreement dated September 2, 1994
between Autobuses and Dina Comercializadora, S.A. de
C.V., together with an English translation, filed as
Exhibit 3.19 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.21 -- Distribution Agreement dated September 2, 1994
between Camiones and Dina Comercializadora, S.A. de
C.V., together with an English translation, filed as
Exhibit 3.20 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.22 -- Bus Purchase Requirements Agreement by and among GLI
Operating Company, Greyhound Lines, Inc.,
Transportation Manufacturing Corporation and Motor
Coach Industries, Inc., as amended by: a letter
agreement dated June 15, 1987 from GLI Holding
Company to The Greyhound Corporation; Amendment to
Bus Purchase Requirements Agreement; entered into as
of June 30, 1988 by and among GLI Operating Company,
Transportation Leasing Co., Transportation
Manufacturing Corporation and Motor Coach Industries
Inc.; Term Sheet/Agreement in Principle dated July
13, 1988 among GLI Holding Company and The Greyhound
Corporation; Claims Treatment Agreement made and
entered into in of August, 1991 among Greyhound
Lines, Inc., the other Debtors signatory thereto and
The Greyhound Corporation; and Amendment Number 2 to
Bus Purchase Requirements Agreement executed as of
December 21, 1994 by Greyhound Lines, Inc.,
Transportation Leasing Co., Motor Coach Industries,
Inc. and Transportation Manufacturing Corporation,
filed as Exhibit 3.21 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.23 -- U.S. $125,000,000 Amended and Restated Credit
Agreement dated as of August 8, 1994, as amended by
First Amendment to Amended and Restated Credit
Agreement dated as of November 14, 1994, filed as
Exhibit 3.22 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.24 -- September 22, 1995 Second Amendment to US$125,000,000
Amended and Restated Credit Agreement dated as of
August 8, 1994, filed as Exhibit 3.24 to Grupo Dina's
Annual Report on Form 20-F for the year ended
December 31, 1995 and incorporated by reference
herein.
10.25 -- $125,000,000 9.02% Senior Notes Due November 15, 2002
Note Agreement, as amended by letter agreement, filed
as Exhibit 3.23 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.26 -- Parts Purchase and Supply Agreement entered into as
of May 1, 1994 by and between Greyhound Lines, Inc.
and Universal Coach Parts, Inc., as amended by
Amendment No.1 entered into as of May 1, 1994, filed
as Exhibit 3.24 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1994 and
incorporated by reference herein.
10.27 -- Limited Recourse Chattel Paper Purchase Agreement
dated as of March 31, 1994 between MCI Acceptance
Corp. and The CIT Group/Equipment Financing, Inc. and
related Guaranty dated as of March 31, 1994; and
Amendment No. 1 dated May 15, 1995 and related
Guaranty dated as of May 15, 1995, filed as Exhibit
3.26 to Grupo Dina's Annual Report on Form 20-F for
the year ended December 31, 1994 and incorporated by
reference herein.
10.28 -- Registration Agreement, dated June 3, 1996, among the
Company, MCII Holdings and Salomon Brothers Inc,
Alliance Capital Management Corporation and John
Hancock Mutual Life Insurance Company, filed as
Exhibit 3.28 to Grupo Dina's Annual Report on Form
20-F for the year ended December 31, 1995 and
incorporated by reference herein.
12.1* -- Computation of ratio of earnings to fixed charges of
Grupo Dina.
12.2* -- Computation of ratio of earnings to fixed charges of
MCII Holdings.
21.1 -- List of Subsidiaries of Grupo Dina, filed as Exhibit
21.1 to Grupo Dina's Annual Report on Form 20-F for
the year ended December 31, 1995 and incorporated by
reference herein.
21.2* -- List of Subsidiaries of MCII Holdings.
23.1 -- Consent of Ritch, Heather y Meuller, S.C. (included
in Exhibit 5.1).
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom
(included in Exhibit 5.2).
23.3* -- Consent of Arthur Andersen.
23.4* -- Consent of Deloitte & Touche LLP.
24.1* -- Powers of Attorney.
25.1* -- Statement of Eligibility and Qualification on Form
T-1 of IBJ Schroder Bank & Trust Company, as trustee
under the Indenture relating to the Notes (bound
separately).
27* -- Financial Data Schedule of MCII Holdings.
99.1+ -- Form of Letter of Transmittal.
_________________________________________
* Filed herewith
+ To be filed by amendment
(b) Financial Statement Schedules
The required Schedules II, V, VII and X are included in the notes to
the audited financial statements of Grupo Dina. No other Schedules are
required.
Item 17. Undertakings
(a) The undersigned Co-Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more that 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) In the case of Grupo Dina, to file a post-effective amendment to
the registration statement to include any financial statements
required by Rule 3-19 at the start of any delayed offering or
throughout a continuous offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Co-Registrants pursuant to the foregoing provisions, or
otherwise, the Co-Registrants have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by any of the Co- Registrants
of expenses incurred or paid by a director, officer or controlling
person of such Co-Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Co-Registrants will, unless in the opinion of their counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
them is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
co-registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form F-1 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mexico, D.F., Mexico, on July
25, 1996. CONSORCIO G GRUPO DINA, S.A. DE C.V.
By: /s/ JOSE LUIS OLVERA CABALLERO
-------------------------------
Jose Luis Olvera Caballero
Director of Finance
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman, Director and July 25, 1996
- - ---------------------------------- Chief Executive Officer
Rafael Gomez Flores (Principal Executive Officer)
/s/ JOSE LUIS OLVERA CABALLERO Director of Finance July 25, 1996
- - ---------------------------------- (Principal Financial and
Jose Luis Olvera Caballero Accounting Officer)
* Director July 25, 1996
- - ----------------------------------
Alejandro Cumming Soliveras
* Director July 25, 1996
- - ----------------------------------
Luis German Carcova
* Director July 25, 1996
- - ----------------------------------
Guillermo Gomez Flores
* Director July 25, 1996
- - ----------------------------------
Luis Huante Rodriguez
* Director July 25, 1996
- - ----------------------------------
Antonio Mijares Ricci
* Director July 25, 1996
- - ----------------------------------
Juan Gargallo Costa
*By: /s/ JOSE LUIS OLVERA CABALLERO
- - -----------------------------------
Jose Luis Olvera Caballero
Attorney-in-Fact
By: /s/ JEFF W. SANDERS Authorized Representative July 25, 1996
---------------------------- in the United States
Jeff W. Sanders
Controller, MCII Holdings
Pursuant to the requirements of the Securities Act of 1933, the
co-registrant has duly caused this Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Mexico, D.F., Mexico, on July 25, 1996.
MCII HOLDINGS (USA), INC.
By: /s/ GUILLERMO KAREH AARUN
------------------------------
Guillermo Kareh Aarun
Director, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
* President and Director July 25, 1996
- - --------------------------------- (Principal Executive Officer)
Rafael Gomez Flores
/s/ JOSE LUIS OLVERA CABALLERO Vice President and Chief July 25, 1996
- - --------------------------------- Financial Officer and
Jose Luis Olvera Caballero Director
(Principal Financial
Officer)
/s/ JEFF W. Sanders Controller July 25, 1996
- - ---------------------------------
Jeff W. Sanders
/s/ GUILLERMO KAREH Aarun Director, General Counsel July 25, 1996
- - --------------------------------- and Secretary
Guillermo Kareh Aarun
* Director July 25, 1996
- - ---------------------------------
Stephen P. Glennon
*By: /s/ GUILLERMO KAREH AARUN
-----------------------------
Guillermo Kareh Aarun
Attorney-in-Fact
Registration No. 333-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM F-1/S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Consorcio G Grupo Dina, S.A. de C.V.
(Exact name of co-registrant as specified in its charter)
MCII Holdings (USA), Inc.
(Exact name of co-registrant as specified in its charter)
EXHIBIT INDEX
Exhibit No. Description Page No.
3.1 Bylaws (Estatutos Sociales) of Grupo Dina, which includes its
Articles of Incorporation, together with an English translation,
filed as Exhibit 1.1 to Grupo Dina's Annual Report on Form 20-F
for the year ended December 31, 1994 and incorporated by reference
herein.
3.2* Restated Certificate of Incorporation of MCII Holdings
3.3* Bylaws of MCII Holdings
4.1 Deposit Agreement, dated as of April 1, 1993, among Grupo
Dina, Morgan Guaranty Trust Company of New York, as Depositary,
and all registered holders from time to time of American
Depositary Receipts in respect of common stock issued thereunder,
including the form of American Depositary Receipts, filed as
Exhibit 4.2 to Grupo Dina's Registration Statement on Form F-1
(No. 33-53380) and incorporated by reference herein.
4.2 Deposit Agreement, dated as of August 8, 1994, among Grupo
Dina, Morgan Guaranty Trust Company of New York, as
Depositary, and all registered holders from time to time of
American Depositary Receipts in respect of Series L Stock
issued thereunder, including the form of American Depositary
Receipts, filed as Exhibit 2.2 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994 and
incorporated by reference herein.
4.3 Indenture, dated as of August 8, 1994, between Grupo Dina and
Bankers Trust Company, as Trustee, relating to the Debentures,
including the form of Debenture, filed as Exhibit 2.3 to Grupo
Dina's Annual Report on Form 20-F for the year ended December 31,
1994 and incorporated by reference herein.
4.4 Indenture, dated as of April 30, 1996, between Grupo Dina and IBJ
Schroder Bank & Trust Company, as Trustee, relating to the Notes,
including the form of Old Note and New Note, filed as Exhibit 2.4
to Grupo Dina's Annual Report on Form 20-F for the year ended
December 31, 1995 and incorporated by reference herein.
5.1+ Opinion of Ritch, Heather y Mueller, S.C., Mexican counsel to the
co-registrants, regarding the legality of the New Notes.
5.2+ Opinion of Skadden, Arps, Slate, Meagher & Flom, U.S. counsel
to the co-registrants, regarding the legality of the New Notes.
10.1 Research, Engineering and Maintenance Contract dated March 12,
1987 between Navistar and Camiones for the "S" Series of medium
duty trucks, filed as Exhibit 10.1 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.2 Supply Contract dated March 12, 1987 between Navistar and Camiones
for the "S" Series of medium duty trucks, filed as Exhibit 10.2 to
Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.3 Research, Engineering,and Maintenance Contract dated November 21,
1989 between Navistar and Camiones for the "9400" Series of heavy
duty trucks, filed as Exhibit 10.3 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and incorporated by reference
herein.
10.4 Supply Contract dated November 21, 1989 between Navistar and
Camiones for the "9400" Series of heavy duty trucks, filed as
Exhibit 10.4 to Grupo Dina's Registration Statement on Form F-1
(No. 33-53380) and incorporated by reference herein.
10.5 Research, Engineering and Maintenance Contract dated November 20,
1990 between Navistar and Camiones for the "7.3", "DT/DTA-360" and
"DT/DTA-466" Series of diesel engines, filed as Exhibit 10.5 to
Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.6 Supply Contract dated November 20, 1990 between Navistar and
Camiones for the "7.3", "DT/DTA-360" and DT/DTA-466" Series of
diesel engines, filed as Exhibit 10.6 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and
incorporated by reference herein.
10.7 Supply Contract for bus bodies dated February 20, 1992 between
Marcopolo and Autobuses, filed as Exhibit 10.7 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380) and incorporated
by reference herein.
10.8 Technology and Supply Contract dated February 21, 1992 between
Marcopolo and Autobuses for bus bodies, filed as Exhibit 10.8 to
Grupo Dina's Registration Statement on Form F-1 (No. 33- 53380)
and incorporated by reference herein.
10.9 Amendment dated April 22, 1993 to Technology and Supply Contract
dated February 21, 1992 between Marcopolo and Autobuses, filed as
Exhibit 3.9 to Grupo Dina's Annual Report on Form 20-F for the
year ended December 31, 1995 and incorporated by reference herein.
10.10 Licensing Agreement dated February 23, 1981 between Budd and
Plasticos and amendments thereto, filed as Exhibit 10.10 to Grupo
Dina's Registration Statement on Form F-1 (No. 33- 53380) and
incorporated by reference herein.
10.11 Shareholders and Subscription Agreement dated October 12, 1987
among the Company, Navistar and Chrysler, filed as Exhibit 10.13
to Grupo Dina's Registration Statement on Form F-1 (No. 33- 53380)
and incorporated by reference herein.
10.12 Form of Camiones Distribution Contract, together with English
translation, filed as Exhibit 3.12 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994 and incorporat-
ed by reference herein.
10.13 Form of Commercial Agency Agreement for heavy duty trucks for
Camiones, filed as Exhibit 10.16 to Grupo Dina's Registration
Statement on Form F-1 (No. 33-53380) and incorporated by
reference herein.
10.14 Commercial Brokers Contract dated January 2, 1991 between
Autobuses and Grupo Dina, filed as Exhibit 10.17 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380) and incorpo-
rated by reference herein.
10.15 Fiscal Agency Agreement dated November 18, 1992 among Grupo Dina,
Camiones and Autobuses, as Guarantors, and Bankers Trust Company,
as Fiscal Agent, filed as Exhibit 10.18 to Grupo Dina's
Registration Statement on Form F-1 (No. 33-53380) and incorporated
by reference herein.
10.16 Supplemental Fiscal Agency Agreement, dated as of May 28, 1996,
among the Company, Camiones and Autobuses, as Guarantors, and
Bankers Trust Company, as Trustee, filed as Exhibit 3.16 to Grupo
Dina's Annual Report on Form 20-F for the year ended December 31,
1995 and incorporated by reference herein.
10.17 Agreement dated June 7, 1994 among Navistar, Navistar
International Transportation Corp., Camiones and Grupo Dina, filed
as Exhibit 4.3 to Grupo Dina's Registration Statement on Form F-1
and F-4 (No. 33-79392) and incorporated by reference herein.
10.18 Contract dated October 11, 1994, between Grupo Dina and Navistar,
filed as Exhibit 3.17 to the Company's Annual Report on Form 20-F
for the year ended December 31, 1994 and incorporated by reference
herein.
10.19 Supply Contract entered into on November 28, 1994 between
Autobuses and Navistar for the "T-444E", "T-444NG", "DT 466" and
"530" engines, filed as Exhibit 3.18 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994 and incorporated
by reference herein.
10.20 Distribution Agreement dated September 2, 1994 between Autobuses
and Dina Comercializadora, S.A. de C.V., together with an English
translation, filed as Exhibit 3.19 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994 and incorporated
by reference herein.
10.21 Distribution Agreement dated September 2, 1994 between Camiones
and Dina Comercializadora, S.A. de C.V., together with an English
translation, filed as Exhibit 3.20 to Grupo Dina's Annual Report
on Form 20-F for the year ended December 31, 1994 and incorporated
by reference herein.
10.22 Bus Purchase Requirements Agreement by and among GLI Operating
Company, Greyhound Lines, Inc., Transportation Manufacturing
Corporation and Motor Coach Industries, Inc., as amended by: a
letter agreement dated June 15, 1987 from GLI Holding Company
to The Greyhound Corporation; Amendment to Bus Purchase
Requirements Agreement; entered into as of June 30, 1988 by
and among GLI Operating Company, Transportation Leasing Co.,
Transportation Manufacturing Corporation and Motor Coach
Industries Inc.; Term Sheet/Agreement in Principle dated July
13, 1988 among GLI Holding Company and The Greyhound
Corporation; Claims Treatment Agreement made and entered
into in of August, 1991 among Greyhound Lines, Inc., the other
Debtors signatory thereto and The Greyhound Corporation; and
Amendment Number 2 to Bus Purchase Requirements Agreement
executed as of December 21, 1994 by Greyhound Lines, Inc.,
Transpor- tation Leasing Co., Motor Coach Industries, Inc. and
Transportation Manufacturing Corporation, filed as Exhibit
3.21 to Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1994 and incorporated by reference herein.
10.23 U.S. $125,000,000 Amended and Restated Credit Agreement dated as
of August 8, 1994, as amended by First Amendment to Amended and
Restated Credit Agreement dated as of November 14, 1994, filed as
Exhibit 3.22 to Grupo Dina's Annual Report on Form 20-F for the
year ended December 31, 1994 and incorporated by reference herein.
10.24 September 22, 1995 Second Amendment to US$125,000,000 Amended and
Restated Credit Agreement dated as of August 8, 1994, filed as
Exhibit 3.24 to Grupo Dina's Annual Report on Form 20-F for the
year ended December 31, 1995 and incorporated by reference herein.
10.25 $125,000,000 9.02% Senior Notes Due November 15, 2002 Note
Agreement, as amended by letter agreement, filed as Exhibit 3.23
to Grupo Dina's Annual Report on Form 20-F for the year ended
December 31, 1994 and incorporated by reference herein.
10.26 Parts Purchase and Supply Agreement entered into as of May 1, 1994
by and between Greyhound Lines, Inc. and Universal Coach Parts,
Inc., as amended by Amendment No.1 entered into as of May 1, 1994,
filed as Exhibit 3.24 to Grupo Dina's Annual Report on Form 20-F
for the year ended December 31, 1994 and incorporated by reference
herein.
10.27 Limited Recourse Chattel Paper Purchase Agreement dated as of
March 31, 1994 between MCI Acceptance Corp. and The CIT
Group/Equipment Financing, Inc. and related Guaranty dated as
of March 31, 1994; and Amendment No. 1 dated May 15, 1995 and
related Guaranty dated as of May 15, 1995, filed as Exhibit
3.26 to Grupo Dina's Annual Report on Form 20-F for the year
ended December 31, 1994 and incorporated by reference herein.
10.28 Registration Agreement, dated June 3, 1996, among the Company,
MCII Holdings and Salomon Brothers Inc, Alliance Capital
Management Corporation and John Hancock Mutual Life Insurance
Company, filed as Exhibit 3.28 to Grupo Dina's Annual Report on
Form 20-F for the year ended December 31, 1995 and incorporated by
reference herein.
12.1* Computation of ratio of earnings to fixed charges of Grupo
Dina.
12.2* Computation of ratio of earnings to fixed charges of MCII
Holdings.
21.1 List of Subsidiaries of Grupo Dina, filed as Exhibit 21.1 to Grupo
Dina's Annual Report on Form 20-F for the year ended December 31,
1995 and incorporated by reference herein.
21.2* List of Subsidiaries of MCII Holdings.
23.1 Consent of Ritch, Heather y Meuller, S.C. (included in Exhibit
5.1).
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included in
Exhibit 5.2).
23.3* Consent of Arthur Andersen.
23.4* Consent of Deloitte & Touche LLP.
24.1* Powers of Attorney.
25.1* Statement of Eligibility and Qualification on Form T-1 of IBJ
Schroder Bank & Trust Company, as trustee under the Indenture
relating to the Notes (bound separately).
27* Financial Data Schedule of MCII Holdings.
99.1+ Form of Letter of Transmittal.
_________________________________
* Filed herewith
+ To be filed by amendment