<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                   FORM 10-K
                                        

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 for the fiscal year ended DECEMBER 31, 1997 or
    Transition Report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

                         Commission File No. 333-08871

                           MCII HOLDINGS (USA), INC.
             (Exact name of registrant as specified in its charter)


           Delaware                                                         
(State or other jurisdiction of                      86-0830781             
 incorporation or organization)         (I.R.S. Employer Identification No.)

               10 East Golf Road, Des Plaines, Illinois  60016
            (Address of principal executive offices)  (Zip Code)

     Registrant's telephone number, including area code:  (847) 299-9900


      Securities registered pursuant to Section 12(b) of the Act:  None

      Securities registered pursuant to Section 12(g) of the Act:  None


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X    No ___

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
           [X]
     The aggregate market value of the voting stock held by non-affiliates of
the registrant:  None as of March 15, 1998.

     The number of shares outstanding of the registrant's Common Stock:  1,000
shares as of March 15, 1998.

                      DOCUMENTS INCORPORATED BY REFERENCE
                                      None

                           REDUCED DISCLOSURE FORMAT
     The registrant meets the conditions set forth in General Instruction
I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.



<PAGE>   2



                               TABLE OF CONTENTS


                                     PART I


      ITEM 1.  BUSINESS .............................................   1
      ITEM 2.  PROPERTIES ...........................................  16
      ITEM 3.  LEGAL PROCEEDINGS ....................................  16
      ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..  16


                                    PART II


      ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
                 RELATED STOCKHOLDER MATTERS ........................  17
      ITEM 6.  SELECTED FINANCIAL DATA ..............................  17
      ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                 CONDITION AND RESULTS OF OPERATIONS ................  17
      ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 
                 MARKET RISK ........................................  20
      ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..........  20
      ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                 ON ACCOUNTING AND FINANCIAL DISCLOSURE .............  20


                                    PART III


      ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS
                  OF THE REGISTRANT .................................  20
      ITEM 11.  EXECUTIVE COMPENSATION ..............................  20
      ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT .............................  20
      ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......  20


                                    PART IV


      ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND
                  REPORTS ON FORM 8-K ...............................  21



     Certain information included in this Report on Form 10-K may constitute
forward-looking statements that involve a number of risks and uncertainties.
From time to time, information provided by MCII Holdings (USA), Inc. or
statements made by its employees may contain other forward-looking statements.
Factors that could cause actual results to differ materially from the
forward-looking statements include, but are not limited to: general economic
conditions including inflation, currency and interest rate fluctuations, trade
restrictions, and general debt levels; competitive factors including price
pressures, technological developments, and products offered by competitors;
inventory risks due to changes in market demand or business strategies; and
changes in effective tax rates.  Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
made. MCII Holdings (USA), Inc. undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, or otherwise.







<PAGE>   3


                                     PART I

ITEM 1. BUSINESS


THE COMPANY

     MCII Holdings (USA), Inc. ("MCII Holdings" or the "Company") is a leading
designer, manufacturer and marketer of intercity coaches and related
replacement parts for the North American market.  The Company's Motor Coach
Industries International, Inc. ("MCII") subsidiary began manufacturing
intercity coaches and distributing replacement parts in Canada in 1933 and in
the U.S. in 1963.  Since the late 1970s, the Company has consistently
maintained a market share in excess of 50% in the U.S. and Canadian coach
markets.  The Company's established market position and product longevity have  
led to an installed base of approximately 75% of the estimated 30,000
industry-wide fleet of coaches operating in the U.S. and Canada. The Company's
Dina Autobuses, S.A. de C.V. ("Autobuses") subsidiary began manufacturing
intercity coaches and distributing replacement parts in Mexico in 1951. The     
Company has an installed base of approximately 65% of the estimated 34,000
industry-wide fleet of coaches operating in Mexico.  The Company's large
installed customer base creates a high level of customer loyalty leading to new
coach purchases and demand for its replacement parts.


MCII

     MCII manufactures and offers a full range of coach models. MCII currently
offers four lines of coaches targeted for both the economy and luxury markets,
including its recently introduced Renaissance(R) line of European-styled
super-luxury coaches.  In addition, the Company is currently in the process of
developing a new family of coach models, the G Coach models, that it    
anticipates would be ready to market to Greyhound Lines, Inc. ("GLI") in late
1998 and other customers in 1999 or 2000. MCII sells coaches to a highly
diversified customer base, including line operators, tour operators and suburban
operators, and has negotiated long-term supply contracts with GLI and Coach
USA, Inc. ("CUI").  MCII operates manufacturing facilities in Winnipeg,
Manitoba and Pembina, North Dakota.  In 1997, MCII's coach business represented
60.9% of the Company's revenues and 58.5% of the Company's operating income.

     MCII's Universal Coach Parts, Inc. ("UCP") subsidiary is the largest
manufacturer and distributor of replacement parts for intercity coaches and
transit buses in North America.  UCP provides the Company a stable revenue      
stream and is a natural complement to its coach manufacturing operations.  UCP
has developed a proprietary line of parts marketed under the COACH GUARD(R) and
DIESEL GUARD(TM) names.  In 1997, UCP's replacement parts business represented
26.1% of the Company's revenues and 20.0% of the Company's operating income.



                                      1


<PAGE>   4



Autobuses

     On January 31, 1997, MCII Holdings' parent company, Consorcio G Grupo
Dina, S.A. de C.V. ("Dina"), contributed Autobuses to MCII Holdings. 
Management of the Company believes that separate audited historical financial
statements for Autobuses are not required on the basis of the application of
the significance test prescribed under the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Accordingly, the Company did
not file a current report on Form 8-K with separate audited historical 
financial statements for Autobuses with the SEC.

     Autobuses manufactures three coach models for sale in the Mexican and 
Latin American markets and a line of economy coaches for sale by Hausman Bus    
Sales, Inc. ("HBSI"), the Company's wholly-owned sales subsidiary, in the U.S.
and Canadian markets.  During 1992, Autobuses contracted with Marcopolo S.A. --
Carrocerias e Omnibus of Brazil, a Brazilian motor coach manufacturer 
("Marcopolo"), for technology with respect to the assembly and mounting of
Marcopolo's European-style coach bodies, technical training and access to all 
future Marcopolo models. Under this agreement, Autobuses has the exclusive
right in Mexico to assemble and sell coaches with Marcopolo designed bodies. 
Further, Autobuses has the nonexclusive right to sell the Marcopolo designed
bodies in North American countries other than Mexico.  The Marcopolo agreement
will expire by its terms in 2001, but may be extended upon mutual agreement of
the parties.  In 1996, Autobuses began developing a new low cost family of
coaches, the F Coach models, based on its own proprietary technology. 
Autobuses began delivering the first model of the F Coach family, the F-11, in
Mexico in early 1998. Autobuses currently has an approximate 30% share of the
Mexican coach market. Autobuses' modern manufacturing plant, located in Cuidad
Sahagun, Mexico, and the favorable Mexican labor market enable the Company to
produce buses at substantially lower costs in Mexico than in the U.S. or
Canada.  In 1997, Autobuses represented 13.0% of the Company's revenues and
21.5% of the Company's operating income.


BUSINESS STRATEGY

     The Company's business objective is to maximize profitability and maintain
its leading market position in the North American coach market.  The Company
plans to achieve these objectives by pursuing the following strategies:

Capitalize on New Coach Product Lines

     The Company has recently developed and has begun marketing a new, high-end
coach as it seeks to capitalize on the increased demand by tour and charter
operators for more highly styled and technologically advanced products.  The
Renaissance(R) coach is a newly designed luxury coach with European styling
targeted for the U.S. and Canadian tour and charter bus markets.  Tour and
charter operators are increasingly demanding a highly styled product to satisfy
the tastes of charter customers and foreign tourists who have grown accustomed
to this design in their home countries.  The Renaissance(R) coach, introduced
in October 1997, offers increased customer amenities, such as a patented spiral
staircase, advanced audio systems, extra large luggage racks and large lavatory.
It has been both well received by customers and critically acclaimed by the     
industry, as evidenced by its winning the Machine Design and  Structural
Dynamics Research Corporation 1996 Concurrent Engineering Award for  new
product design.  The Renaissance(R) coach was engineered to maximize 
manufacturing efficiencies by requiring fewer parts and reducing assembly man
hours.

     The Company is also in the process of developing two new coach products.
The G Coach model is a line-haul coach being developed with GLI for use as its
principal coach.  The G Coach, anticipated to be introduced to GLI in late
1998, benefits from the many technological innovations and cost reduction
advancements gained from the Renaissance(R) design and development process.
The Company is also developing, and has introduced in Mexico, the first model
of a new low-cost family of coaches, the F Coach family.  As these new products
gain increased acceptence in the North American coach market and older models
are no longer demanded, the Company believes that it can streamline its
manufacturing operations while still offering North America's broadest product
line.  




                                      2


<PAGE>   5


Expand Proprietary Product Designs to International Markets

     Autobuses' introduction of the F Coach in early 1998 was its first
proprietary coach design for the Mexican market.  The Company has plans to
market this low-cost product throughout Latin America.


Leverage Lower Cost Mexican Manufacturing Operations

     The Company's business strategy seeks to capitalize on the modern, lower
cost manufacturing capabilities available to it at its Cuidad Sahagun, Mexico 
plant to increase market share by producing low cost, high quality products for
sale throughout North and South America.  The Company's extensive U.S. and 
Canadian coach distribution and service organizations provide the necessary 
channels to sell coaches produced in Mexico and realize significant cost 
savings.  Since 1995, the Company has delivered 560 units in the U.S. and 
Canada of its lower-priced Mexican-manufactured Viaggio(R) 1000 coach, 
primarily to smaller domestic fleet operators or other independent coach 
operators.  As the Company introduces new products, it intends to further 
utilize its lower cost, higher capacity Mexican manufacturing operations.

Further Rationalize Operations

     Management believes that the consolidation of MCII and Autobuses under a
single holding company will present opportunities to realize savings from
combining the purchasing of common components such as engines, axles, tires and
transmissions.  Since the combination, the Company has secured long-term
agreements with suppliers on more favorable terms and with lower prices. The
Company anticipates that the gradual rationalization of its engineering and
coordination of its various new coach, used coach and replacement parts sales
forces will also improve efficiency and reduce selling costs.

     The Company believes it can further reduce costs through process and
manufacturing re-engineering and overhead reductions. The Company continues to
re-engineer its manufacturing process and component designs with an emphasis on
increased parts standardization.  The Company believes that parts
standardization will result in faster parts service to the customer and
increased profitability and market penetration due to a higher quality product.


HISTORICAL BACKGROUND

     MCII is the leading manufacturer of intercity coaches in the U.S. and
Canada and began manufacturing intercity coaches and distributing replacement   
parts in Canada in 1933 and in the U.S. in 1963.  On August 4, 1994, Dina
acquired all of the issued and outstanding stock of MCII for $311.6 million. On
June 3, 1996, Dina contributed its ownership interest in MCII to MCII Holdings.
Dina owns all of the outstanding common stock of MCII Holdings. Approximately
48% of the outstanding shares of capital stock of Dina are owned by Grupo
Empresarial G, S.A. de C.V., a holding company wholly-owned by the members of
the Gomez Flores family.  Members of the Gomez Flores family, collectively,
also hold approximately 3.2% of the capital stock of Dina directly.



                                      3

<PAGE>   6



     Dina 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 coaches, trucks and tractor trailers.  On November 27, 1989, Dina
acquired the assets of Diesel Nacional and acquired majority ownership of its
operating subsidiaries from Diesel Nacional.

     In January, 1997, Dina contributed 99.99% of the capital stock of 
Autobuses to MCII Holdings.  This change in structure made Autobuses and its
two subsidiaries, Autopartes Hidalguenses, S.A. de C.V. and Carrocera Sahagun,
S.A. de C.V., subsidiaries of MCII Holdings.  Autobuses subsequently
established MCII Buses (USA), Inc. as its third subsidiary.


GEOGRAPHIC SEGMENTS

     Due to the distinct nature of the two geographic markets in which the
Company operates, namely the U.S. and Canada as well as Mexico, the operations
of MCII and Autobuses are discussed separately below.


MCII

     The following table provides MCII's new coach sales and MCII's sales of  
Autobuses manufactured Viaggio(R) 1000 coaches for the last three years:



<TABLE>
<CAPTION>
                                       Year Ended December 31,
                                     ----------------------------
                                       1997      1996      1995
                                     --------  --------  --------
<S>                                   <C>       <C>       <C>
MCII new coach sales...............   1,283     1,320     1,007
MCII sales of Viaggio(R) 1000(1)       222       226       112
</TABLE>

--------------------------
     (1) Represents sales of Viaggio(R) 1000 coaches, manufactured by Autobuses
and sold by the Company's wholly-owned subsidiary, HBSI, to the Company's
customers in the U.S. and Canadian markets.

     MARKET.  MCII currently has an installed base of approximately 75% of an 
industry-wide fleet of over 30,000 coaches in operation in the U.S. and Canada, 
having an average age of approximately twelve years.  Coaches are used
primarily to transport passengers between cities at regularly scheduled
intervals ("line-haul operations") or on tour or charter trips.  Line-haul
operators and tour and charter operators purchase coaches tailored to meet the
needs of their targeted customers.  Tour and charter operators typically desire
coaches that offer more extensive amenities and options than the coaches
produced for line-haul operators. Certain state and municipal transportation
agencies, such as the New Jersey Transit Corporation ("NJTC"), New York City
Transit Authority ("NYCTA") and Denver Regional Transportation District
("DRTD"), also utilize intercity coaches to transport passengers who have a
relatively long daily commute.

     The coach business in the U.S. 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, coach operators tend to accelerate fleet replacement and
increase fleet size.


                                      4



<PAGE>   7


     BACKLOG.   MCII's coach backlog was 845 units as of December 31, 1997,
which included 160 units for GLI, compared with 577 units as of December 31,
1996, which included 27 units for GLI.

     PRODUCTS.   MCII currently produces four models, under the trademark of
MCI.  The Company's principal product line has evolved over the last 20 years 
and consists of two standard model 40-foot long vehicles and a 45-foot long 
vehicle.  The Model 102D3 is a 40-foot long, 102-inch wide European-styled 
vehicle.  The MC-12 model is a lower-priced, line-haul coach, 40-feet long and
96 inches wide, produced principally for GLI.  The Company's third model, the
Model 102DL3, is a 45-foot long, 102-inch wide European-styled coach with
increased passenger and baggage capacity and a standard configuration of 55
seats, giving it an increased passenger capacity of 17% over the 40-foot models,
which capacity generally enables operators to reduce their operating cost per
passenger mile.  The wide array of options available on the Model 102D3 and the
Model 102DL3 allow the Company to market these models to both line-haul
operators and tour and charter operators.  MCII's latest model is the 45-foot
long, 102-inch wide Renaissance(R) coach.  Introduced in October 1997, the
Renaissance(R) has a seating capacity of 54 to 56 passengers and features
European styling and luxury designed to serve the high end of the tour and
charter market.  The Renaissance(R) coach's standard features include a patented
spiral staircase, zoned temperature controls, tiered theater seating, extra
luggage room, large lavatories and advanced entertainment center, with a
six-monitor video cassette system, six-CD changer, AM/FM/PA cassette and
34-speaker stereo system that afford an overall level of luxury not previously
available in the domestic market.  In addition, the Renaissance(R) model offers
the most advanced mechanical features in the tour and charter market, including
a universal engine compartment, below-floor cooling system, all air disc brakes
with six-wheel anti-lock system and a rear axle system designed to provide
enhanced maneuverability and safety.  The Company primarily markets the
Renaissance(R) coach to tour and charter operators.

     The two 40-foot coach models generally sell in a price range of $240,000
to $325,000, and the 45-foot coach generally sells in a price range of $290,000
to $340,000.  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 for these models is
24 months.  The Renaissance(R) model generally sells in a price range of
$350,000 to $380,000 and has a 30-month warranty period.

     MCII also markets the Viaggio(R) 1000, a versatile model manufactured in
Mexico by Autobuses, which is utilized by both line-haul operators and tour and
charter operators.  The Viaggio(R) 1000 generally sells in a price range of 
$240,000 to $270,000.  The standard warranty period for the Viaggio(R) 1000 in 
the U.S. market is 24 months.

     MCII is currently in the process of developing a lower-priced, durable
line-haul model, known as the G Coach, which management anticipates offering in
41-foot, 45-foot and 11-meter versions.  This new model is being jointly
developed with GLI for use as the principal line-haul coach in its fleet.  The
introduction of the 41-foot line-haul model is expected in late 1998 for GLI.

     MARKETING.    In the U.S. and Canada, the Company's coaches are marketed
through HBSI's direct-sales force representatives who make regular visits to
both current and potential customers and attend major industry trade shows to
market the MCI and Viaggio(R) 1000 coaches.  Management believes that the
attentiveness and visibility of the Company's sales force among coach operators
solidify the Company's reputation and enhance its sales position.  MCII uses
independent contractors to market its coaches overseas.



                                      5

<PAGE>   8



     CUSTOMERS.  The customer base in the intercity coach industry in the U.S.
and Canada is highly diversified.  The largest coach transportation companies
in the U.S., GLI and CUI, currently have fleets of over 2,000 coaches and 3,400
coaches, respectively, or a combined 18% of the 30,000 industry-wide fleet in
the U.S. and Canada.  Thus, the remaining 82% of the market is composed of
smaller to mid-size operators.  The primary customers for intercity coaches are
independent coach operators, national coach fleet operators, including GLI and
CUI, and government agencies that use coaches for public transit services,
including NJTC, NYCTA and DRTD.  While management estimates that in the past 
three years the average order size (excluding GLI and CUI orders) for any
single operator has been approximately 2.7 units, order size has ranged from
one coach up to approximately 180 coaches.

     Independent Operators.  Management estimates that in the U.S. and Canada,
independent regional operators (i.e., operators other than GLI and CUI) of
regular route or tour and charter operations account, on average, for
approximately 60% of the Company's annual coach sales.  Management believes
that purchasing decisions by these buyers are based upon a number of factors,
including reliability, service and parts availability, operating costs, price,
resale value, financing terms, curbside appeal and interior amenities.

     GLI.  GLI is a nationwide regular route operator in the U.S. GLI's fleet
totals over 2,000 coaches. For the years ended 1997, 1996 and 1995, GLI
accounted for 9.5%, 11.1%, and 10.2%, respectively, of the Company's
consolidated revenue.

     Management believes that important purchase criteria for GLI 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 December 31, 2007, and may be terminated by
either party at the end of any calendar year upon 180 days prior notice, that
provides that GLI will purchase from MCII at least 80% of its annual
requirements for new coaches. The Company delivered 205 and 228 coaches to GLI
in 1997 and 1996, respectively.  No assurance can be given regarding GLI's
future ability or need to purchase coaches from MCII.

     CUI.  From its inception in September 1995, CUI has grown to become the
largest provider of coach charter, tour and sightseeing services and one of the
five largest non-municipal providers of commuter and transit coach services in
the U.S.  CUI operates across the U.S., serving a broad customer base with a
growing fleet of over 3,400 coaches.  CUI continues to implement a growth
strategy that concentrates on acquisitions of coach operators, internal growth
and economies of scale.  For the years ended 1997 and 1996, sales to CUI
accounted for 7.6% and 0.9%, respectively, of the Company's consolidated
revenue.  Effective June 9, 1997, CUI signed an agreement with MCII pursuant 
to which CUI agreed that MCII will be the primary supplier (estimated to be at
75%) of CUI's annual new coach requirements for the period through 1999.  For 
the years ended 1997 and 1996, the Company sold 189 and 20 units, respectively,
to CUI.

     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.



                                      6

<PAGE>   9



     For example, MCII sold 700 coaches to NJTC that were delivered in 1982 
through 1984, 415 coaches to NJTC that were delivered in 1987 and 1988 and
60 compressed natural gas coaches to NJTC which will be delivered in 1998 
under an alternative fuel program.  NJTC uses these coaches for public
transport of passengers with relatively long daily commutes or in intercity
service.  Because over 90% of NJTC's fleet consists of MCI coaches, management
believes it will have a competitive advantage when NJTC's next purchase is
made.  However, there can be no assurance that NJTC will order new coaches,
when such order will occur or that MCII will be awarded the contract.  In
addition, the Company has received an order to deliver 120 coaches in 1998 and
60 coaches in 1999 to the NYCTA.

     COMPETITION.  MCII has two principal competitors in the U.S. and Canadian
coach market: Prevost, a subsidiary of Volvo, which management believes to be
the largest of its competitors, and Van Hool.  Both of these competitors have
significant manufacturing, financial, research and development and marketing
resources.

     The bases for competition in the U.S. and Canadian coach market are
price, quality, financing and trade-in options, product styling and
aftermarkets parts and service capability.  The Company believes that it enjoys
a competitive advantage in the market due to its quality products, wide array
of options and amenities offered on its coaches and strong aftermarkets parts
and service capability.  An additional factor contributing to the Company's
market share is the convenience and cost efficiencies that 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 who rely on MCII for a
variety of support services.

     DISTRIBUTION.  The Company does not use distributors in the U.S. or
Canada.

     FINANCING.  MCII sells coaches for cash, but in many cases 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 provides new and used coach financing to its intercity coach
customers through two entities - MCII Funding Inc. ("MFI") and BusLease, Inc.
("BLI").   MFI is a financing company established in 1997 as a subsidiary of
MCII Financial Services, Inc. ("MFS") in which MCII owns a minority interest. 
MFS was established in 1997, in a related party transaction (see Note 23 to
the Notes to Consolidated Financial Statements). BLI is MCII's wholly-owned
financing subsidiary.  Both MFI and BLI provide conditional sales contracts and
operating leases to the Company's coach customers.  MFI provides access to a
lower cost of capital through an established revolving line of credit and is
negotiating a securitization program.  MFI is often able to offer a lower cost
financing option to the Company's customers that qualify under the portfolio
requirements of the program.  In the event that a customer does not qualify for
financing from MFI, BLI offers an alternative source of financing.  In Canada,
Motor Coach Industries Limited provides some financing to those customers who
are unable to access outside lending agencies.

     Periodically, BLI sells contract receivables to financial institutions and
provides a limited guarantee to those institutions against losses on such
contracts with respect to debtor default.



                                      7

<PAGE>   10



     USED COACHES.  MCII provides used coach brokerage and dealership services
through HBSI.  The used coach operations provided revenues for the years 1997,
1996 and 1995 of $50.4 million, $52.6 million and $47.2 million, respectively.
The size of the used coach business is dependent upon several factors,
including the size of the entire coach fleet, new coach orders that 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 in the U.S. and Canada changes ownership every 12 years, creating an
average used coach volume of about 2,500 units per year.  Sales of used coaches
were 496 units, 571 units and 583 units, respectively, for the years 1997,
1996 and 1995.

     Due to the Company's installed base of coaches, maintenance and repair
capabilities, customer network and industry knowledge, HBSI is able to purchase
and resell a substantial volume of used coaches.  Management believes that the
Company's capacity to accept used coaches in support of new coach sales and
resell them through its distribution system provides the Company 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 U.S.
sales agent for new coaches.

     REPLACEMENT PARTS. Management believes that UCP is a leading supplier of
original equipment manufacturer ("OEM") quality replacement parts for the
combined intercity coach and transit bus aftermarkets in the U.S. and Canada.
UCP offers over 160,000 items necessary for coach and bus repair and regularly
scheduled maintenance.  UCP has six strategically located distribution outlets
in the U.S. and Canada that allow UCP to promptly (if necessary, within 24
hours) deliver replacement parts nationwide.  Management believes that UCP's
breadth of product line and geographic scope are unmatched in the industry.  In
addition to the core intercity coach and transit bus parts business, UCP also
distributes parts for school buses and certain diesel engines.

     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.  UCP maintains a
strong market position in the U.S. and Canadian replacement parts markets due
to the large installed base of MCII vehicles.  Despite the fact that the
Company no longer manufactures transit buses, UCP continues to supply
replacement parts to the Canadian transit bus market and provides OEM
replacement parts for transit buses previously manufactured in the U.S. by the
Company.  In 1996, the Company further strengthened its competitive position by
purchasing certain assets of The Flxible Corporation ("Flxible"), a former
transit but competitor.  This purchase enables UCP to provide replacement parts
for transit buses previously manufactured by Flxible.

     Management believes that UCP's current strength is in providing OEM parts
that are either manufactured by the Company or acquired by it from the original
equipment manufacturer.  UCP offers a wide selection of replacement and repair
parts to the Company's customers.  In an effort to leverage further the
competitive strength of its replacement parts business and distribution
facilities, UCP has developed its own brand of alternate, non-OEM parts under
the COACH GUARD(R) name.  More than 75 products have been introduced for this
segment since its inception in 1993.  UCP also markets diesel engine parts
under the name DIESEL GUARD(TM).  In addition, UCP has developed a line of
remanufactured parts and components.  Management believes that the availability
of remanufactured products will permit UCP to access new markets that are
currently served by local and regional parts rebuilders.


                                      8



<PAGE>   11



     For sales of replacement parts, UCP utilizes 13 full-time field
representatives, as well as telemarketing salespersons.  The sales force makes
regular visits to both current and potential customers, attends major industry
trade shows, responds to advertisements for bids to supply replacement parts
and uses telemarketing techniques.

     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, the Company supplies and manages most of
GLI's inventory of replacement parts.

     Management believes that the demand for transit parts is a function of the
number of transit buses currently in operation, the average level of usage for
each bus and the average age of the bus fleet.  Management believes that
purchasers of transit parts are more price-sensitive and less service sensitive
than customers in the coach aftermarket because 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, in the U.S. a 
large percentage of transit parts purchases are conducted on a public bid basis.
Customers in the U.S. 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.

     The replacement parts business is highly fragmented and competitive.
Management believes that UCP's largest competitors are Prevost, Mohawk and ABC
Bus, Inc., for coach replacement parts, and the major transit manufacturers,
BIA, New Flyer and Neopart (the parts operation of Neoplan), for transit bus
replacement parts. The remaining competitors include other coach manufacturers,
diesel engine manufacturers, niche marketers and local vendors.  Management
believes that the factors influencing the choice of parts suppliers include a
supplier's proximity to the customer, the number of replacement parts offered,
level of technical knowledge and support and, to a lesser extent, price.

     In the replacement parts business, UCP has improved responsiveness to
customer demands through development of its information systems.  UCP has
installed remote order entry terminals in over 260 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.




                                      9

<PAGE>   12



AUTOBUSES

     The following table sets forth Autobuses' intercity coach sales, the total
number of unit sales of intercity coaches in Mexico, Autobuses' share of those 
sales and Autobuses' export sales for the periods indicated:


<TABLE>
<CAPTION>
                                           Year Ended December 31,
                                         ------------------------------
                                             1997      1996      1995
                                             ----      ----      ----
<S>                                           <C>       <C>       <C>
Autobuses' Mexican intercity coach sales      232        40        16
Total Mexican market sales.............       772       313       174
Autobuses' market share................       30%       13%        9%
Autobuses' export sales (1)............       234       270       132
</TABLE>

-------------------------
(1)  These figures primarily represent sales of Viaggio(R) 1000 coaches to the
     U.S.

Source:  Asociacion Nacional de Productores de Autobuses, Camiones y
Tractocamiones (National Association of Coach, Truck and Tractortrailer
Producers or "ANPACT") for 1997, 1996 and 1995.

     MARKET.  Autobuses currently has an installed base of approximately 65%
of an industry-wide fleet of 34,000 intercity coaches operating in Mexico,
having an average age of 17 years.  Over 90% of passenger travel from city to
city in Mexico is by intercity coach. Coaches are an integral part of the
transportation system in Mexico given the nation's under-developed railway
system and the high cost of air travel.

     Prior to 1990, bus fares in the Mexican intercity coach market were
controlled by the government which resulted in mostly economy-class service
with 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, competition with airline rates, interest rates and
government actions that may have both short-term and long-term effects on
demand.

     BACKLOG.  Autobuses' coach backlog as of December 31, 1997 and 1996 was
781 units and 464 units, respectively.


                                      10


<PAGE>   13



     PRODUCTS.  Autobuses produces coaches for the Mexican market under the
Dina brand name.  The Paradiso and Viaggio(R), which are trademarks of
Marcopolo used under license by Autobuses, serve primarily the needs of the
executive and first class markets.  Autobuses offers the Viaggio(R) in three
distinct models having an average unit sales price exceeding $111,000, the
Viaggio(R) 1000, 2 axle model, the Viaggio(R) 1000, 3 axle model, and the
Viaggio(R) 850, 2 axle model.

     In 1996, in an effort to be more cost effective, Autobuses began
developing a new, low cost family of coaches, the F Coach models, targeted for
the first and second class coach markets in Mexico and Latin America.  The F
Coach family, which will be available in 11-meter and 12-meter versions, will
use proprietary technology and be competitively priced in the $105,000 to
$130,000 range.  Autobuses finished testing the first model of the F-Coach
family, the F-11, in August 1997, and began delivery of the F-11 in early 1998.
Autobuses expects to complete testing on the second model of the F-Coach
family, the F-12 in the second half of 1998 and plans to begin delivery of the
F-12 shortly thereafter.  As of December 31, 1997, Autobuses has incurred
expenses of $6.1 million and $1.6 million in connection with the development of
the F-11 and F-12, respectively, and expects to spend an additional combined
total of approximately $1.9 million on the F-Coach models in 1998.

     Autobuses' coaches can be tailored to directly meet the needs of the
customer through a wide array of seating options and amenities.  The Company
believes 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.

     CUSTOMERS.  Autobuses sells coaches to customers in the U.S. through the
Company's subsidiary, HBSI, and directly to customers in Mexico.  Autobuses'
customer base in Mexico includes major fleet operators such as Transportes del
Pacifico, El Expresso Mexico, Promotora Terrestre Mexicana, Mexico-Puebla,
Estrella Roja, Autotransportes Transpars, Transportes Rodulfo Figueroa and
Turibus Platino.

     In 1993, Autobuses entered into a thirty-year contract with Grupo Estrella
Blanca S.A. de C.V. ("Estrella Blanca") pursuant to which Estrella Blanca
agreed to purchase coaches exclusively from Autobuses so long as Autobuses
priced its coaches competitively with the Mexican coach market. Due to the
crisis in the Mexican economy and Estrella Blanca's distressed financial
condition, Autobuses made no sales to Estrella Blanca in 1995, 1996 or 1997 but
was paid in full by Fobaproa, a trust established by the Mexican government to
assist financially distressed vital service entities in Mexico, for the coaches
delivered to Estrella Blanca in 1994.  Following the financial recovery of
Estrella Blanca, in 1997 Autobuses and Estrella Blanca agreed to extend the
contract for the sale of coaches until 2027.

     COMPETITION.  As of December 31, 1997, Autobuses competes against two
other major companies --Mexicana de Autobuses (MASA), which is currently being
reorganized under the Mexican bankruptcy laws, and Omnibus Integrales.
Autobuses' market share was 30% in 1997 compared with 13% and 9% in 1996 and
1995, respectively.

     The bases for competition in the intercity coach market are original sales
price, parts availability and U.S.-manufactured componentry.  Autobuses
believes it enjoys a competitive advantage due to its domestic production
facilities, its U.S.-designed components, the ability to tailor bodies to
customer specifications by offering a wide array of seating options and other
amenities, the well-established Dina brand names, nationwide replacement parts
availability and the imposition of tariffs on new coach imports by companies
located in countries that are not subject to the terms of NAFTA.


                                      11


<PAGE>   14
'


     DISTRIBUTION.  Except for sales in the U.S. by HBSI, coaches and transit
buses are currently sold by Autobuses directly to end users without the use of
distributors.

     PRODUCTION.  Autobuses assembles coaches at its plant in Cuidad Sahagun,
Mexico.  In addition to Marcopolo bodies, Autobuses uses several suppliers,
primarily in the U.S., for materials, components and other parts.  Purchases
from these suppliers provide substantially all of Autobuses' requirements for
diesel engines, transmissions, suspensions, axles, brakes, electronic
components, glass parts and most components for bodies.  Autobuses operates one
line at its plant with the capacity to produce 1,800 coaches annually.


MANUFACTURING AND RAW MATERIALS/COMPONENTS

     The Company's manufacturing/assembling operations utilize raw material and
components supplied by diverse North American and international sources.  Major
component parts, such as engines, axles, transmissions, suspension, seats and
air conditioners, are provided by original equipment manufacturers.
Recognizing that savings in purchasing and logistic costs can be achieved by
identifying, creating and taking advantage of similarities among the components
used to manufacture/assemble the various coaches which it produces, the Company
has implemented a six-step strategic purchasing program.  First, the Company
has formed a team of professional buyers to procure common components for the
Company's MCII and Autobuses operations.  Second, the team has joined efforts
with the Company's engineering team to identify and create commonalities among
different products and better utilize technologies from the Company's business
units.  Third, the engineering and procurement teams have implemented a program
to consolidate the supplier base by using suppliers as full service suppliers
in order to provide the Company with a complete modular just in time system.
The Company is negotiating long term strategic partnerships with such
suppliers.  Fourth, the Company is consolidating raw material purchases from its
suppliers.  Fifth, the Company has implemented a program to source products
from international markets, principally Latin America and South Asia.  Sixth,
the Company out-sources products to manufacturing areas mainly in Mexico for
metal fabrication and plastic components.  The Company anticipates that this
six-step program will reduce the Company's current purchasing and logistic 
costs.

     For certain materials and major components, the Company relies primarily
on a limited number of suppliers, namely Meritor for axles, Detroit Diesel for
engines, Allison Transmission for transmissions, Carrier for air conditioning
units and Atlas Alloys for stainless steel.  Alternate suppliers used to a
lesser extent or available for use are Dana Corporation and Eaton Corporation
for axles, Cummins and Caterpillar for engines, Eaton Fuller and ZF
Friedrichshafen AGA for transmissions, Thermoking for air conditioning units
and Namasco Ltd. and others for stainless steel.  Although there are additional
alternate suppliers, the Company's customers demand the component parts that
are currently assembled into its coaches.  The Company also relies on component
parts and design technology provided by Marcopolo in the assembly of its
Viaggio(R) and Paradiso coach models.

RESEARCH AND DEVELOPMENT

     The Company devotes significant resources to developing new products
and proprietary technology in order to expand the breath of its product line,
lower its production costs, improve quality and serve the needs of its
customers in the coach markets.  The Company conducts engineering, testing and
design at three facilities located in Winnipeg, Manitoba, Roswell, New Mexico
and Cuidad Sahagun, Mexico.  In addition, the Company contracts with other
engineering, testing and design companies.  The Company spent $6.7 million,
$7.3 million and $2.9 million in the fiscal years ended December 31, 1997, 1996
and 1995, respectively, on research and development.


                                      12





<PAGE>   15


     Current research and development projects for the Company's coach
operations include the G Coach family and the F Coach family.  The Company has
incurred costs of $4.4 million and $7.7 million as of December 31, 1997 for the
development of the G Coach and F Coach family, respectively, and expects to
spend an additional $12.5  million and $1.9 million, respectively, for the
completion of such projects.


TRADEMARKS AND PATENTS

     The Company, through its wholly-owned subsidiary, MCII, owns numerous
trademarks, representing goodwill in the businesses using the trademarks, and
owns a number of patents which MCII believes give it a competitive advantage in
the marketplace.  U.S. 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 the Company include the well
known MCI marks and the Renaissance(R) mark.  The marks COACH GUARD(R) and
DIESEL GUARD(TM) are in use in the replacement parts operations.  COACH
GUARD(R) has been registered and filings have been made to register DIESEL
GUARD(TM).  The Company owns numerous patents protecting, among other things,
various aspects of the MCI coaches.  Patents are granted for a term of 17
years.  The Company has the right to use the GLI 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 U.S., Canada and Mexico.

     Dina has registered certain trademarks in Mexico, including the names
DINA, DIMEX and Citus. Paradiso is a registered trademark of Marcopolo, which
is used under license from Marcopolo.  Viaggio(R) is a registered trademark of
Autobuses in the U.S.  The Company has received approval for patents covering
its "torsilastic" advanced suspension system for coaches and various components
used in 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, 1997, the Company had approximately 4,800 employees.
The Company had approximately 1,400 employees in the U.S., 2,300 employees in
Canada and 1,100 employees in Mexico.  The hourly workers at most locations
are organized and represented by unions.  Approximately 2,500 employees of the
total work force are represented by labor unions.  The largest contracts are
with the International Association of Machinists and Aerospace Workers (the
"IAM") in Winnipeg, Manitoba and Pembina, North Dakota.  The Company has
entered into an agreement with the IAM in Pembina, North Dakota which will
expire on September 30, 2000.  The Company successfully negotiated an agreement
with the IAM in Winnipeg, Manitoba which will expire in January 2000.  MCII's
subsidiaries have historically enjoyed satisfactory relations with both union
and nonunion employees.

     Approximately 800 Mexican employees are represented by the Independent
Union of Workers in the Automotive and Related Industries (the "Automotive
Workers Union").  In accordance with Mexican law, the salary provisions of
these agreements are renegotiated every year and the benefits provisions every
two years.  The salary and benefits provisions were renegotiated in February
1998. On February 7, 1998, the Company announced it had reached an agreement
with the labor union.  The negotiations included a general increase in union
salaries of 27% plus 2.5% in benefits.

     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 for Autobuses with the Automotive Workers Union.  The collective
bargaining agreements are scheduled to expire on February 7, 2000.  Supervisory
personnel at the Company's manufacturing plants are no longer covered by the
union agreements.



                                      13


<PAGE>   16


GOVERNMENT REGULATION

     The operations of, and the products manufactured by, the Company's
subsidiaries are subject to various U.S. federal and state and Canadian federal
and provincial laws and agency regulations.  In the U.S., 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% U.S. content.  In Canada,
regulations include various environmental acts that 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.  The Company 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
Department of Transportation ("DOT") promulgate handicapped accessibility
standards for coaches. On March 20, 1998, DOT issued a notice of proposed
rulemaking (NPRN) setting forth proposed final regulations regarding coach
accessibility requirements.  The proposed rules, which are expected to be
issued as final rules in September 1998, require that all coaches delivered two
years or more after issuance of the final rules (three years for "small"
operators) must be handicapped accessible.  Further, the proposed rules will
require certain operators to have at least 50% of their fleet accessible by
2006, and 100% by 2012.  The proposed rules, if finalized in their current
form, could have a material adverse effect on an operator's business and
possibly on the Company's coach business.

     Sales of coaches to the public sector in the U.S. are typically to
local transit authorities, paid for in part by federal grants administered by
the FTA and subject to the Buy America Act.  The Buy America Act generally
prohibits the use of federal funds for coach procurements unless (1) the cost
of the coach components manufactured in the U.S. equals or exceeds 60% of the
cost of all components and (2) final assembly of the coach occurs in the U.S.
While the Company believes that its manufacturing processes comply with the Buy
America requirements for coach sales that are subject to that act, the Company
cannot predict whether any future changes made by the Federal Transit
Administration to the Buy America regulations would have any material effect on
the Company.

     The operations and products of the Company are subject to Mexican federal
and state laws and regulations relating to the protection of the environment.
The fundamental environmental law in the Mexican federal system is the Ley
General de Equilibrio Ecologico y Proteccion al Ambiente (the General Law of
Ecological Balance and Environmental Protection, or the "Ecological Law").
Under the Ecological Law, rules have been promulgated concerning water
pollution, air pollution, noise pollution and hazardous substances.
Additionally, the Mexican federal government has enacted regulations concerning
the importation and exportation of hazardous materials and hazardous wastes.
The Ministry of the Environment, in conjunction with other governmental
entities, state and municipal governments and with the participation of the
social and private sectors, is the Mexican federal agency in charge of
overseeing compliance with the federal environmental laws.  The Ministry of the
Environment has the authority to enforce the Mexican federal environmental
laws.  As part of its enforcement powers, the Ministry of the Environment can
bring administrative and criminal proceedings against companies that violate
environmental laws, and it also has the power to close 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.  At this time, management of the Company is not aware of any
pending legislation which might, if passed, result in material costs to the
Company.  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.



                                      14


<PAGE>   17


     All of the engines used on the Company's coaches comply with current U.S.
and Mexican government emissions standards.

     After the implementation of NAFTA in 1994, the Mexican Auto-Transportation
Decree was replaced with a transitional system of quotas which 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 9% for components and 8% for engines.  These
tariffs will be phased out over a ten-year period with respect to new U.S. and
Canadian 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 coach parts and components will be
phased out over a ten-year period.  The present prohibition on importing used
coaches into Mexico will be maintained under NAFTA for 15 years and then will 
be eliminated over a ten-year transition period, permitting the importation of 
used coaches into Mexico with model ages not exceeding ten years.  Dina products
imported by MCII for sale in the U.S. and Canada are subject to various U.S. 
and Canadian laws and regulations.


                                      15



<PAGE>   18



ITEM 2. PROPERTIES

     The Company owns manufacturing and assembly plants in the U.S., Canada
and Mexico.  Additionally, the Company owns or leases various replacement parts
and repair facilities in the U.S. and Canada.   The Company also owns or leases
other properties in Mexico, including a vehicle and parts distribution center
in Vallejo.

     The following table is a summary of the approximate square footage of the
Company's facilities as of December 31, 1997:


<TABLE>
<CAPTION>
                            U.S.   Canada     Mexico      Total
                            ----   ------     ------      -----
    Facility Type
    -------------     
<S>                     <C>        <C>      <C>        <C>
Manufacturing             186,000  767,000  1,359,000  2,312,000
Replacement parts       1,087,000  104,000    125,000  1,316,000
Modification or repair    134,000        0          0    134,000
                        ---------  -------  ---------  ---------
  Total square feet     1,407,000  871,000  1,484,000  3,762,000
                        =========  =======  =========  =========
      Ownership
      ---------
Owned property            782,000  811,000  1,359,000  2,952,000
Leased property           625,000   60,000    125,000    810,000
                        ---------  -------  ---------  ---------
  Total square feet     1,407,000  871,000  1,484,000  3,762,000
                        =========  =======  =========  =========
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

     MCII Holdings and certain of its subsidiaries are parties either as
plaintiffs or defendants to various actions, proceedings and pending claims,
certain of which involve claims for compensatory, punitive or other damages.
Litigation is subject to many uncertainties and it is possible that some of the
legal actions, proceedings or claims referred to above could be decided against
MCII Holdings.  Although the ultimate amount for which MCII Holdings may be
held liable with respect to matters where MCII Holdings is a defendant is not
ascertainable, MCII Holdings believes that any resulting liability will not
materially affect its financial condition or results of operations.

     MCII Holdings' Canadian income tax returns for 1982 through 1992 are
currently under review by Revenue Canada, which is reviewing certain profit
allocation procedures between certain of the Company's Canadian and U.S.
subsidiaries and may seek to impute additional Canadian income.  MCII Holdings
is of the opinion that Revenue Canada's arguments are without merit.  See Note
14 to the Consolidated Financial Statements for a further discussion of this
matter.

     Manufacturers and sellers of defective products in Mexico may be subject
to liability for loss and injury caused by such products under Mexican law.
The Company does not carry product liability insurance for product sales in
Mexico. Although the Company has never had a product liability claim brought
against its Mexican operations and the Mexican laws providing for such
liability appear to have been seldom utilized, no assurance can be given that
the Company may not be exposed to future product liability claims in Mexico
and, if such claims are successful, that the Company will have sufficient
resources to pay such claims.  


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     This item has been omitted pursuant to General Instruction I of Form 10-K
which provides for a reduced format.


                                      16


<PAGE>   19



                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Not applicable.

ITEM 6. SELECTED FINANCIAL DATA

     This item has been omitted pursuant to General Instruction  I of Form 10-K
which provides for a reduced format.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND       
        RESULTS OF OPERATIONS

        Pursuant to General Instruction I of Form 10-K, which provides for a
reduced disclosure format, the following is management's discussion and
analysis of financial condition and results of operations on Form 10-K pursuant
to Item 303 of Regulation S-K. The following discussion should be read in
conjunction with MCII Holdings' consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.

RESULTS OF OPERATIONS

GENERAL

        The Company is a leading designer, manufacturer and marketer of
intercity coaches and related replacement parts for the North American market.
The Company has achieved a strong market position through enhanced product
design and quality, a used coach business that supports trade-in activity and a
significant replacement parts and service business that supports coaches in the
Company's primary markets, as well as buses used in transit and school bus
transportation.

OVERVIEW

        During the three year period from 1995 through 1997, the U.S. and
Canadian markets experienced increased product demand. Although flooding
conditions in 1997 limited total production at the Company's manufacturing
facilities in the U.S. and Canada and the introduction of the new Renaissance(R)
coach added significant start-up costs in 1997, MCII's U.S. and Canadian
business experienced improved results of operations throughout the three year 
period, ending the three year period with its highest revenues and net income
in 1997.

        During the last three years, the December 1994 devaluation of the
Mexican Peso has caused a severe economic depression in the Mexican markets. In
order to cope with the depressed Mexican market, Autobuses has reduced
employment levels and increased its emphasis on export sales made primarily to
the U.S. (through MCII's HBSI subsidiary).  Despite these adverse circumstances,
Autobuses ended the three year period with its highest net income in 1997.

1997 COMPARED WITH 1996

        General. Revenues for 1997 were $739.8 million, an increase of $72.7
million, or 11%, from revenues of $667.1 million in 1996. The improvement in
revenues resulted mainly from increased sales experienced by Autobuses ($35.0
million) and UCP ($34.2 million). The overall gross margin, defined as sales
less cost of sales (exclusive of depreciation and amortization), as a
percentage of sales, was 26.2% for 1997, compared with 24.1% for 1996. The
Company improved gross margins in its MCII coach manufacturing operations
through improved cost control efforts and at Autobuses through improved cost
control efforts and increased sales and production volume.

        Operating income was $78.5 million in 1997, an increase of $18.6
million, or 31%, from operating income of $59.8 million in 1996.  Operating
income increased in all of the Company's operations, but the most significant
increase occurred at Autobuses ($12.9 million) due to higher sales in Mexico
and the benefits achieved from cost control efforts. MCII's 1997 results
included expenses of $7.3 million for new product start-up costs offset
somewhat by a $2.1 million reduction in corporate office relocation costs to
$0.9 million.

        Based on the reasons noted above, income from continuing operations was
$38.2 million in 1997, compared with $27.7 million in 1996. Net income for 1996
was $21.8 million, which reflected an additional $5.0 million expense incurred
for MCII's discontinued transit manufacturing business and $0.9 million of debt
issuance costs due to early retirement of the Company's main credit facility.

        MCII. The flooding of the Red River in 1997 closed access roads to
MCII's manufacturing operations in the U.S. and Canada and limited production
during part of the second quarter of 1997. Production difficulties were also
encountered with the introduction of the new Renaissance(R) coach. As a result,
new coach sales were 1,283 in 




                                      17


<PAGE>   20
\
1997, compared with 1,320 in 1996. Used coach sales declined to 496 in 1997,
compared with 571 in 1996, as 75 units from the Company's used coach inventory
were leased, at customer favorable terms, to customers encountering new coach
delivery delays. MCII's revenues of $644.0 million in 1997 increased from 1996
by 6% as coach manufacturing revenues increased 1% against the prior year due to
an improved mix of sales, and UCP's revenues of $193.4 million in 1997 increased
from 1996 by 21%, due largely to the 1996 acquisition of the Flxible business.

         Gross margin percentages for MCII improved to 24.3% in 1997 from 23.5%
in 1996 due to cost improvements on coaches which resulted in coach
manufacturing margins improving to 27.6% in 1997, versus 24.5% in 1996.  MCII's
operating income of $61.6 million in 1997 was a $5.7 million increase over
MCII's operating income in 1996. Operating income from MCII's coach
manufacturing operations increased $4.6 million in 1997, due to improved
operating cost control efforts which more than offset $7.3 million in new
product start-up costs and $0.9 million of additional corporate office
relocation costs.  Operating income from UCP increased $1.1 million in 1997,
due to higher sales volume.
                    
         Autobuses.  Following the 1994 devaluation of the Mexican Peso and
ensuing severe economic recession, Autobuses reorganized its operations.
Autobuses' streamlined organization positioned it to benefit from the recovery
of the Mexican economy in 1997. In 1997, Autobuses' sales in Mexico increased
to 232 units, compared with sales of 40 units in 1996, while unit sales through
MCII were largely unchanged.  In addition, Autobuses, in a new business
initiative, leased 440 transit bus units during 1997, including 240 units to a
related party.  Autobuses' 1997 revenues of $95.7 million increased by $35.0
million, or 58%, over 1996 revenues. 

         Increased sales volume and improved cost control efforts improved gross
profit margins to 38.7% in 1997 from 30.6% in 1996. The combination of
favorable factors noted above lead to operating income of $16.9 million in
1997, compared with operating income of $4.0 million in 1996.

         Interest Expense. Interest expense increased $5.8 million to $21.9
million in 1997, reflecting higher debt levels at MCII (greater use of
revolving bank credit facilities) and Autobuses (pre-export loans and notes). 
Dina allocated net interest income of $1.4 million to Autobuses in 1997,
compared with Dina's allocation of net interest expense of $1.5 million to
Autobuses in 1996.

         Income Taxes. The effective income tax rate declined to 35.8% in 1997
from 40.0% in 1996 primarily due to the application of net loss
carryforwards to Autobuses' 1997 Mexican income.  The Company had generated net
loss carryforwards in prior years as a result of economic difficulties
encountered in the early 1990s.  In 1997, Autobuses incurred a taxable loss,
while generating income for book purposes. The Company had not previously
recognized the carryforward benefit of carryforward losses due to the
uncertainty of  realizability. In 1997, the Company was able to offset these
losses against the current year's income.  Consequently, Autobuses' 1997
Mexican profits for book purposes were recorded with no income tax.


1996 COMPARED WITH 1995

         General. Revenues for 1996 were $667.1 million, an increase of $140.0
million, or 27%, from revenues of $527.1 million in 1995. The improvement in the
Company's revenues reflected an increase of $98.0 million from MCII's coach
manufacturing operations and an increase of $23.3 million from Autobuses, as
product demand in the U.S. and Canada increased. Overall gross margin, defined
as sales less cost of sales (exclusive of depreciation and amortization), as a
percentage of sales, was 24.1% for 1996, compared with 25.2% for 1995. The
decline of gross margin resulted from declines in gross margins at UCP and
Autobuses.

         Operating income was $59.8 million in 1996, an increase of $16.2
million, or 37%, from operating income of $43.7 million in 1995. The increase
resulted from an increase of $18.3 million from MCII's coach manufacturing
operations due to higher sales volume.  MCII's results included Corporate
office relocation costs of $3.0 million in 1996.

         Income from continuing operations was $27.7 million in 1996, compared
with $8.3 million in 1995. The overall increase resulted from an increase of
income from MCII's coach manufacturing operations. Net income for 1996 was $21.8
million, which reflects an additional $5.0 million expense incurred for MCII's
discontinued transit 




                                      18

<PAGE>   21

manufacturing business and $0.9 million of debt issuance costs due to early
retirement of the Company's main credit facility.

         MCII.  MCII's revenues of $606.4 million in 1996 increased by $116.7 
million, or 24%, over revenues in 1995. New coach sales were 1,320 in 1996,
compared with 1,007 in 1995, due to increased customer demand in the U.S. 

         Gross margin percentages were stable at 23.5% in 1996, as compared with
23.9% in 1995. MCII's operating income increased to $55.9 million in 1996, a
$17.6 million increase over 1995.  Operating income from MCII's coach
manufacturing operations increased $18.3 million in 1996, due to the strength
of higher sales volume and improved cost control efforts.  UCP's operating
income declined to $14.6 million in 1996, a $0.7 million decrease from 1995.

         Autobuses. Autobuses' 1996 revenues increased by $23.3 million to $60.7
million, a 63% improvement over its revenues in 1995. This increase resulted
from unit sales in the U.S. through MCII of 226 units in 1996, more than double
the 112 units sold in the U.S. through MCII in 1995. However, Autobuses' Mexican
sales remained severely depressed at 40 units, compared with 16 units in 1995.

         Increased sales volume did not improve gross profit margins in 1996 as
the costs of restructuring Autobuses' operations continued to be high. Gross
margins declined to 30.6% in 1996 from 42.1% in 1995, causing a decline in
operating income to $4.0 million in 1996 from $5.4 million in 1995.

         Interest Expense. Interest expense declined by $18.9 million to $16.0
million in 1996.  Dina allocated net interest expense of $1.5 million to
Autobuses in 1996, compared with Dina's allocation of net interest expense of
$20.8 million to Autobuses in 1995.

         Income Taxes. The Company's effective income tax rate declined to 40.0%
in 1996 from 67.3% in 1995. The high effective tax rate in 1995 occurred
because losses in Mexico at Autobuses were not accorded tax benefit treatment
due to the lack of assurance that the resulting tax benefit would be realized.

Year 2000 Compliance

         The Company has developed a plan to ensure that its systems have the
ability to process transactions in the year 2000.  The Company believes that it
has identified the applications which will need to be modified to properly
utilize dates beyond December 31, 1999.  Both internal and external resources
will be utilized to reprogram and test software for Year 2000 compliance.

         It is anticipated that the Year 2000 project will be completed no
later than July 1999.  The estimated total cost of making the systems Year
2000 compliant is approximately $2.0 million.  This cost will be expensed as
incurred except for the installation of new applications which are already Year
2000 compliant.

         Based on present information, the Company believes that it will be
able to achieve Year 2000 compliance through a combination of modifications to
some existing systems and the purchase of other systems that are already Year
2000 compliant.  However, no assurance can be given that these efforts will be
successful.  The Company is also in the process of responding to customer
surveys and evaluating whether significant suppliers and customers are Year
2000 compliant.  The Company believes that the expenses and capital
expenditures associated with achieving Year 2000 compliance will not have a
material effect on its financial results in either 1998 or 1999.





                                      19


<PAGE>   22

ITEM 7A. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     MCII Holding's consolidated financial statements and Reports of Independent
Accountants are set forth at pages F-1 to F-33.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE

     Not applicable.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     This item has been omitted pursuant to General Instruction I of Form 10-K
which provides for a reduced format.


ITEM 11. EXECUTIVE COMPENSATION

     This item has been omitted pursuant to General Instruction I of Form 10-K
which provides for a reduced format.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     This item has been omitted pursuant to General Instruction I of Form 10-K
which provides for a reduced format.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     This item has been omitted pursuant to General Instruction I of Form 10-K
which provides for a reduced format.



                                      20
<PAGE>   23



                                    PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


    (a)  LIST OF DOCUMENTS FILED

    1.   FINANCIAL STATEMENTS

         Reports of Independent Accountants

         Statements of Consolidated Income,
         years ended December 31, 1997, 1996 and 1995

         Balance Sheets, December 31, 1997 and 1996

         Statements of Consolidated Changes in Stockholder's Equity,
         years ended December 31, 1997, 1996 and 1995

         Statements of Consolidated Cash Flows,
         years ended December 31, 1997, 1996 and 1995

         Notes to Consolidated Financial Statements
    
    2.   FINANCIAL STATEMENT SCHEDULES

         Report of Independent Accountants

         Schedule I -- Condensed Financial Information of Registrant

         All other schedules are omitted because they are not applicable or the
         required information is presented in the consolidated financial
         statements or notes thereto.

    3.   EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT NO.         DESCRIPTION
-----------         -----------
    <S>      <C>

    3.1      Restated Certificate of Incorporation of the Company (incorporated
             by reference to Exhibit 3.2 to Dina's Registration Statement on 
             Form F-1/S-1, File No. 333-08843)

    3.2      Bylaws of the Company (incorporated by reference to Exhibit 3.3 to
             Dina's Registration Statement on Form F-1/S-1, File No. 333-08843)

    4.1      Credit Agreement, dated as of September 30, 1996, among 
             Transportation Manufacturing Operations, Inc., the Lenders named 
             therein and NBD Bank, as Administrative Agent (incorporated by 
             reference to Exhibit 4.3 to Dina's Registration Statement on Form 
             F-1/S-1, File No. 333-08843)

    4.2      Amendment No. 1 to Credit Agreement, dated as of December 17, 1996,
             by and between Transportation Manufacturing Operations, Inc. and 
             NBD Bank, as Administrative Agent, Swing Line Bank and Issuing 
             Lender (incorporated by reference to Exhibit 4.2 to the Company's 
             Form 10-K for the fiscal year ended December 31, 1996) 

</TABLE>

                                      21


<PAGE>   24




<TABLE>
<S>          <C>

    4.3      Amendment No. 2 to Credit Agreement, dated as of May 23, 1997,
             among Transportation Manufacturing Operations, Inc., the Guarantors
             named therein, the Lenders named therein, The First National       
             Bank of Chicago, as Swing Line Bank and an Issuing Lender, and as
             Administrative Agent, and NBD Bank, as Swing Line Bank and an
             Issuing Lender, and as the resigning Administrative Agent

    4.4      Amendment No. 3 to Credit Agreement, dated as of September 25,
             1997, among Transportation Manufacturing Operations, Inc., the
             Lenders named therein, The First National Bank of Chicago, as
             Administrative Agent, and The Bank of New York, as Co-Agent

    4.5      Note Agreement, dated as of November 15, 1994, among Transportation
             Manufacturing Operations, Inc. and the Purchasers named therein 
             governing the 9.02% Senior Notes due 2002 (incorporated by 
             reference to Exhibit 3.23 to Grupo Dina's Form 20-F for the year 
             ended December 31, 1994)

    4.6      Amendment to Note Agreement, dated as of April 7, 1995, among
             Transportation Manufacturing Operations, Inc. and the Purchasers
             named therein (incorporated by reference to Exhibit 4.4 to 
             Dina's Registration Statement on Form F-1/S-1, File No. 333-08843)

    4.7      Amendment to Note Agreement, dated as of October 30, 1997, among
             Transportation Manufacturing Operations, Inc. and the Holders named
             therein

    4.8      Intercreditor Agreement, dated as of September 30, 1996, by and
             among the Lenders under the Credit Agreement dated as of September
             30, 1996, NBD Bank, and the holders of the 9.02% Senior Notes due 
             2002 (incorporated by reference to Exhibit 4.6 to Dina's 
             Registration Statement on Form F-1/S-1, File No. 333-08843)

    4.9      Indenture, dated as of April 30, 1996, between Grupo Dina and IBJ
             Schroder Bank & Trust Company, as Trustee, relating to the 9.02% 
             Senior Notes due 2002 (incorporated by reference to Exhibit 4.6 to
             the Company's Form 10-K for the fiscal year ended December 31, 
             1996)

    4.10     Form of 9.02% Senior Note due 2002 (incorporated by reference to
             Exhibit 2.4 to Dina's Annual Report on Form 20-F for the year 
             ended December 31, 1995).

    10       Employment Agreement, dated as September 30, 1996, between
             Transportation Manufacturing Operations, Inc. and James P. 
             Bernacchi (incorporated by reference to Exhibit 10.24 to Dina's 
             Registration Statement on Form F-1/S-1, File No. 333-08843)

    12       Computation of ratio of earnings to fixed charges

    27       EDGAR Financial Data Schedule

</TABLE>




                                      22



<PAGE>   25



               (b)  REPORTS ON FORM 8-K THAT HAVE BEEN FILED DURING THE LAST
          QUARTER OF THE PERIOD COVERED BY THIS REPORT:

               On November 28, 1997, the Company filed a Current Report on
          Form 8-K, dated November 26, 1997, reporting the commencement of a
          consent solicitation by Dina and the Company of holders of the
          9.02% Senior Notes due 2002 (the "Senior Notes") to approve a
          proposed amendment to the indenture for the Senior Notes to increase
          the amount of debt that MCII, a wholly owned subsidiary of the 
          Company, and its consolidated subsidiaries could incur.

               On December 19, 1997, the Company filed a Current Report on Form
          8-K, dated December 12, 1997, reporting a change in the Company's
          certifying accountant.










                                      23

<PAGE>   26



                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


DATE:  April 15, 1998         MCII HOLDINGS (USA), INC. (Registrant)


                              By:  /s/ Guillermo Kareh Aarun
                                 ------------------------------------
                                 Chief Executive Corporate Officer and Secretary

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of  the
Registrant and in the capacities and on the dates indicated.


        Signature            Title                          Date
        ---------            -----                          ----

 /s/ Rafael Gomez Flores    Chairman of the Board,         April 15, 1998
--------------------------  President and Director
     Rafael Gomez Flores     (Principal Executive Officer)                


/s/ Robert M. Popowich      Vice President, Chief          April 15, 1998
--------------------------  Financial Officer, and
    Robert M. Popowich      Treasurer - U.S., Mexico, 
                            and Canada (Principal 
                            Financial and Accounting 
                                      Officer)                          


/s/ Gamaliel Garcia Cortes            Director             April 15, 1998
--------------------------
    Gamaliel Garcia Cortes                                                 


/s/ Guillermo Kareh Aarun   Director, Chief Executive      April 15, 1998
--------------------------  Corporate Officer and
    Guillermo Kareh Aarun        Secretary                                 


/s/ Stephen P. Glennon                Director             April 15, 1998
--------------------------
    Stephen P. Glennon                                                   



                                      24


<PAGE>   27


Report of Independent Public Accountants

To the Stockholder of MCII Holdings (USA), Inc.:

   We have audited the accompanying consolidated balance sheets of MCII Holdings
   (USA), Inc. and its subsidiaries (the "Company") as of December 31, 1997 and
   the related consolidated statements of income, changes in stockholder's
   equity and cash flows for the year then ended, and for the year ended
   December 31, 1995 (as restated for acquisition of affiliate, see Note 2).
   These financial statements are the responsibility of the Company's
   management. Our responsibility is to express an opinion on these consolidated
   financial statements based on our audits.

   We conducted our audits in accordance with generally accepted auditing
   standards. Those standards require that we plan and perform the audit to
   obtain reasonable assurance about whether the consolidated financial 
   statements are free of material misstatement. An audit includes examining, on
   a test basis, evidence supporting the amounts and disclosures in the
   consolidated financial statements. An audit also includes assessing the
   accounting principles used and significant estimates made by management, as
   well as evaluating the overall financial statement presentation. We believe
   that our audits provide a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
   present fairly, in all material respects, the consolidated financial position
   of the Company as of December 31, 1997, and the consolidated results of its
   operations and cash flows for the year then ended, and for the year ended
   December 31, 1995 in conformity with generally accepted accounting
   principles.

   As discussed in Note 2, in January 1997, Consorcio G Grupo Dina, S.A. de C.V.
   ("Dina"), the Company's parent, contributed to the Company substantially all
   of the shares of Autobuses, also a subsidiary of Dina. This transaction 
   represents a combination of entities under common control, and, accordingly,
   has been accounted for on an "as-if" pooling-of-interest basis.


   Arthur Andersen LLP

   Chicago, IL
   March 23, 1998








<PAGE>   28



Report of Independent Accountants

To the Stockholder of MCII Holdings (USA), Inc.:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, changes in stockholder's equity and cash
flows (as restated for acquisition of affiliate, see Note 2) present fairly, in
all material respects, the financial position of MCII Holdings (USA), Inc. and
its subsidiaries (the Company) at December 31, 1996, and the results of their
operations and their cash flows for the year in conformity with generally
accepted accounting principles.  These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit.  We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.  We believe that
our audit provides a reasonable basis for the opinion expressed above.



Price Waterhouse LLP

Chicago, Illinois

February 28, 1997 (except with respect to the restatement discussed in Note 2,
as to which the date is March 23, 1998)




<PAGE>   29




PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                          MCII HOLDINGS (USA), INC.
     (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)

                      STATEMENTS OF CONSOLIDATED INCOME

<TABLE>
<CAPTION>


                                                                       Year Ended December 31,
                                                             -----------------------------------------
(000 omitted)                                                   1997            1996            1995
                                                                             (Restated)      (Restated)
------------------------------------------------------------------------------------------------------                           
Revenues:
<S>                                                         <C>             <C>             <C>
   Sales                                                    $  735,210      $  658,823      $  520,641
   Finance income                                                4,573           8,261           6,412
                                                            ----------      ----------      ----------
                                                               739,783         667,084         527,053
                                                            ----------      ----------      ----------
Operating costs and expenses:
   Cost of sales (exclusive of items shown separately          
   below)                                                      546,107         506,199         394,144
   Depreciation and amortization                                22,035          17,618          15,494
   Interest expense, finance operations                          2,394           3,605           2,658
   Research and development expenses                             6,655           7,346           2,925
   New product start-up costs                                    7,333               -               -
   Provision for relocation of Corporate office                    886           3,000               -
   Selling, general and administrative expenses                 75,920          69,483          68,182
                                                            ----------      ----------      ----------
                                                               661,330         607,251         483,403
                                                            ----------      ----------      ----------
Operating Income                                                78,453          59,833          43,650
                                                            ----------      ----------      ----------

Other income and (expense):
   Interest (expense)-net                                      (21,859)        (16,029)        (34,954)
   Other income                                                  2,920           2,197           1,567
   Gain (loss) on equity investments                                 -          (1,200)         10,522
   Foreign exchange gain (loss)                                    (85)          1,347           4,675
                                                            ----------      ----------      ----------
                                                               (19,024)        (13,685)        (18,190)
                                                            ----------      ----------      ----------
Income before income taxes                                      59,429          46,148          25,460
Income taxes                                                    21,268          18,474          17,129
                                                            ----------      ----------      ----------
Income from Continuing Operations                               38,161          27,674           8,331
Discontinued operations:
   (Loss) on disposal of transit manufacturing, net of
     tax benefit of $3,130                                           -          (5,000)              -
                                                            ----------      ----------      ----------

Income before extraordinary item                                38,161          22,674           8,331

Extraordinary (charge) for early retirement of debt, net
   of tax benefit of $550                                            -            (851)              -
                                                            ----------      ----------      ----------

Net Income                                                  $   38,161      $   21,823      $    8,331
                                                            ==========      ==========      ==========
</TABLE>

       The accompanying notes are an integral part of these statements.


                                    F-1


<PAGE>   30





                          MCII HOLDINGS (USA), INC.
     (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)

                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                             December 31,      December 31,
(000 omitted)                                                   1997              1996
                                                                               (Restated)
-------------------------------------------------------------------------------------------                                   
                                         ASSETS
<S>                                                          <C>                <C>
Current Assets:
   Cash and cash equivalents                                 $  13,997          $   9,403
   Receivables, less allowance of $3,244 and $2,924             88,543             52,667
   Receivables from affiliates                                  16,293                  -
   Current portion of notes receivable                           6,625              4,615
   Inventories                                                 257,795            188,714
   Deferred income taxes                                        14,430             12,308
   Other current assets                                          7,591              3,715
                                                             ---------          ---------
         Total Current Assets                                  405,274            271,422
Property, plant, and equipment, net                            106,845             93,493
Notes receivable                                                42,465             27,574
Investments in affiliates                                       15,253              1,974
Deferred income taxes                                                -              2,832
Intangible assets                                              227,367            236,954
Other assets                                                    23,469              8,531
                                                             ---------          ---------
         Total Assets                                        $ 820,673          $ 642,780
                                                             =========          =========
            LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
   Accounts payable                                          $  67,580          $  42,557
   Payables to affiliates                                            -                 24
   Accrued compensation and other benefits                      12,380             11,641
   Accrued warranties                                           10,020              9,543
   Accrued income taxes                                          7,251              7,163
   Self insurance reserves                                       5,610              5,325
   Net liabilities of discontinued operations                    2,229                 89
   Other current liabilities                                    25,111             18,998
   Current portion of long-term debt                            44,418                148
                                                             ---------          ---------
         Total Current Liabilities                             174,599             95,488
Long-term debt                                                 268,833            210,520
Pensions and other benefits                                     14,037             11,858
Other deferred items and self insurance reserves                24,370             17,785
Deferred income taxes                                            6,916                  -
                                                             ---------          ---------
         Total Liabilities                                     488,755            335,651
                                                             ---------          ---------

Commitments and contingent liabilities                               

Stockholder's Equity:                                         
   Common stock, $.01 par value, 1,000 shares authorized,     
     issued, and outstanding and additional capital            411,524            407,488
   Accumulated deficit                                         (58,590)           (84,303)
   Unfunded pension loss, net                                     (577)              (423)
   Cumulative translation adjustments                          (20,439)           (15,633)
                                                             ---------          ---------
         Total Stockholder's Equity                            331,918            307,129
                                                             ---------          ---------
         Total Liabilities and Stockholder's Equity          $ 820,673          $ 642,780
                                                             =========          =========
</TABLE>

       The accompanying notes are an integral part of these statements.

                                     F-2


<PAGE>   31




                          MCII HOLDINGS (USA), INC.
     (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)

          STATEMENTS OF CONSOLIDATED CHANGES IN STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                                                         Unfunded         Cumulative
                                                 Common    Additional    Accumulated      Pension        Translation
(000 omitted)                                    Stock       Capital        Deficit        Loss           Adjustment       Total
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1995                                                             
<S>                                             <C>         <C>          <C>             <C>               <C>           <C>
  as previously reported                        $    -      $317,465     $ (37,114)      $    -            $ (7,539)     $272,812
Adjustment for as if pooling of interests            -        55,156       (47,343)           -              (9,369)       (1,556)
                                                ------      --------      --------       ------            --------      --------
BALANCE, JANUARY 1, 1995 (RESTATED)                  -       372,621       (84,457)           -             (16,908)      271,256
                                                                                    
Net income                                                                   8,331                                          8,331
Unrealized translation loss                                                                                   2,336         2,336
Capital contribution                                          46,555                                                       46,555
                                                ------      --------      --------       ------            --------      --------
BALANCE, DECEMBER 31, 1995 (RESTATED)                -       419,176       (76,126)           -             (14,572)      328,478

Net income                                                                  21,823                                         21,823
Unrealized translation loss                                                                                  (1,061)       (1,061)
Unfunded pension loss                                                                      (423)                             (423)
Capital contribution                                           1,342                                                        1,342
Return of capital to parent company                          (13,030)                                                     (13,030)
Dividends on common stock                                                  (30,000)                                       (30,000)
                                                ------      --------      --------       ------            --------      --------
BALANCE, DECEMBER 31, 1996 (RESTATED)                -       407,488       (84,303)        (423)            (15,633)      307,129

Net income                                                                  38,161                                         38,161
Unrealized translation loss                                                                                  (4,806)       (4,806)
Unfunded pension loss                                                                      (154)                             (154)
Dividends on common stock                                                  (12,448)                                       (12,448)
Capital contribution                                           4,036             -                                          4,036
                                                ------      --------      --------       ------            --------      --------
BALANCE, DECEMBER 31, 1997                      $    -      $411,524     $ (58,590)      $ (577)           $(20,439)     $331,918
                                                ======      ========     =========       ======            ========      ========
</TABLE>     

       The accompanying notes are an integral part of these statements.


                                     F-3

<PAGE>   32


                          MCII HOLDINGS (USA), INC.
     (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)

                    STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                               -----------------------
(000 omitted)                                                         1997              1996              1995
                                                                                     (Restated)        (Restated)
----------------------------------------------------------------------------------------------------------------
Cash Flows Provided (Used) By Operating Activities:                                
 <S>                                                              <C>               <C>               <C>
 Net Income                                                        $  38,161         $  21,823         $   8,331
  Adjustments to reconcile net income to net cash                                                               
  provided (used) by operations:                                                                                
     Depreciation and amortization                                    22,035            17,618            15,494
     Deferred income taxes                                             1,373            (4,812)              415
     Discontinued operations                                               -             5,000                 -
     Extraordinary items                                                   -               851                 -
     Provision for relocating corporate office                           886             3,000                 -
     Gain on sale of property and notes receivable                       (92)           (1,664)           (1,945)
     Gain on equity investment                                             -             1,200           (10,522)
     Other noncash items, net                                          2,378             5,403             6,775 
     Change in operating assets and liabilities                     (117,326)           (4,099)          (82,235)
                                                                   ---------         ---------         ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                     (52,585)           44,320           (63,687)
                                                                   ---------         ---------         ---------
                                                          
Cash Flows Provided (Used) By Investing Activities:
  Capital expenditures                                               (32,096)          (25,609)          (12,559)
  Investments in assets held for lease                               (56,375)          (54,538)          (45,667)
  Proceeds from sale of property and assets held for lease            57,372            50,880            62,139
  Notes receivable from customers                                    (49,580)          (40,344)          (26,483)
  Collections of notes receivable                                     15,696            18,844            21,095
  Proceeds from sale of notes receivable                              17,381            24,934             8,209
  Purchase of, investment in, businesses                                   -           (12,200)          (17,742)
  Investment in affiliates                                           (25,708)                -                 -
  Proceeds from sale of business                                           -             1,295                 -
  Discontinued operations, net changes                                 2,140             6,400            24,210
                                                                   ---------         ---------         ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                     (71,170)          (30,338)           13,202
                                                                   ---------         ---------         ---------
                                                                     
Cash Flows Provided (Used) By Financing Activities:                  
  Additional long-term borrowings                                          -            68,000                 - 
  Payment of long-term borrowings                                       (149)          (68,148)              (74)
  Net change in bank credit facilities                               136,910            (7,000)           22,000 
  Termination of interest rate swap position                               -             4,733             4,950 
  Payment of debt issuance costs                                           -            (3,330)                - 
  Extraordinary charge for early retirement of debt                        -              (851)                - 
  Increasing (decreasing) capital                                      4,036             1,342            46,555 
  Dividends paid to parent company                                   (12,448)          (30,000)                - 
                                                                   ---------         ---------         ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                     128,349           (35,254)           73,431 
                                                                   ---------         ---------         ---------
                                                                                                                 
NET INCREASE (DECREASE) IN CASH                                        4,594           (21,272)           22,946 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                         9,403            30,675             7,729 
                                                                   ---------         ---------         ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR                           $  13,997         $   9,403         $  30,675 
                                                                   =========         =========         =========
</TABLE>

       The accompanying notes are an integral part of these statements.


                                     F-4







<PAGE>   33

                            MCII HOLDINGS (USA), INC.
                          (A WHOLLY OWNED SUBSIDIARY OF
                      CONSORCIO G GRUPO DINA, S.A. DE C.V.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     (1996 AND 1995 HAVE BEEN RESTATED TO INCLUDE AUTOBUSES - See Note 2)


1.       BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

         The accompanying consolidated financial statements include the accounts
of Motor Coach Industries International, Inc. ("MCII Holdings" or the
"Company"), which is wholly owned by Consorcio G Grupo Dina, S.A. de C.V.
("Dina"), a Mexican corporation. The Company is a manufacturer of motor         
coaches, and a manufacturer and distributor of motor coach and transit bus
replacement parts, with manufacturing facilities in the United States, Canada,
and Mexico. Sales are made predominately to a diversified customer base,
including independent operators, national fleet operators, government agencies,
and others.

         The accompanying consolidated financial statements have been prepared
in accordance with United States generally accepted accounting principles.
Intercompany accounts and transactions between MCII Holdings and its
subsidiaries have been eliminated. Certain reclassifications have been made to
the financial statements of prior periods to conform to 1997 classifications.
Described below are those accounting policies that are particularly significant
to the Company.

MANAGEMENT ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
and expenses, as well as contingent assets and liabilities disclosed in the
financial statements. Actual results could differ from those amounts reported or
disclosed.


                                      F-5
<PAGE>   34


PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the financial
statements of MCII Holdings and its majority and wholly-owned subsidiaries:


<TABLE>
<CAPTION>
                                                                                         Participation (%)

<S>                                                                                          <C> 
Motor Coach Industries International, Inc. ("MCII")                                            100.0

Transportation Manufacturing Operations, Inc. ("TMO")                                          100.0
(a direct subsidiary of MCII)

Dina Autobuses, S.A. de C.V. ("Autobuses")                                                      99.99
</TABLE>


         In January 1997, the Company acquired from Dina 99.99% of the shares of
Autobuses. This event represented a combination of entities under common control
and has been accounted for on an "as-if" pooling-of-interest basis, with the
accompanying financial statements and related footnotes restated for all periods
presented, see Note 2.


CASH EQUIVALENTS

         The Company considers all highly liquid investments with maturities of
three months or less, when purchased, to be cash equivalents.

FOREIGN CURRENCY TRANSACTIONS

         As a means of reducing exposure to fluctuations in foreign currency
exchange rates, the Company enters into foreign exchange forward contracts to
hedge certain firm and anticipated purchase commitments settled in foreign
currencies (principally the Canadian dollar). The Company does not engage in
foreign currency speculation. The contracts do not subject the Company to risk
due to exchange rate movements as gains and losses on the contracts offset gains
and losses on the transactions being hedged. Foreign currency transactions which
are not hedged are converted at the exchange rates in effect at the date of the
transaction. Any gain or loss resulting from the translation of such
transactions is included in the income statement and were not material in any
year.


                                      F-6
<PAGE>   35


         The assets and liabilities of the Company's Canadian operations are
translated into U.S. dollars at current exchange rates, and revenues and
expenses are translated at average exchange rates for the years 1997, 1996, and
1995. Resulting translation adjustments are reflected as a separate component of
stockholders' equity. This same approach has been applied to the Company's
Mexican operations for the years 1996 and 1995. However, the application of
Statement of Financial Accounting Standards ("SFAS") No. 52 "Foreign Currency
Translation" requires that the Mexican economy be judged a highly inflationary
economy for 1997 and that the Company's Mexican operations be remeasured as if
the U.S. dollar was the functional currency during 1997. This treatment caused
the resulting translation loss for the 1997 period ($540,000) to be included in
the income statement rather than as a separate component of stockholder's
equity.

INTANGIBLES

         Intangibles, which consist primarily of goodwill, are carried at cost
less accumulated amortization of $21,288,000 at December 31, 1997 and
$15,294,000 at December 31, 1996. Intangibles are amortized primarily on the
straight-line method over the periods of expected benefit, generally, but not   
in excess of 40 years. The Company evaluates the carrying value of goodwill and
other long-lived assets at each reporting period for possible impairment in
accordance with the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."

INVENTORIES

         Inventories are generally stated at the lower of cost or market. Cost
is generally determined on a first-in, first-out basis.

NOTES RECEIVABLE

         Notes receivable are collateralized by coaches. Substantially all notes
carry market floating rates of interest based on the creditworthiness of each
individual purchaser. The allowance for uncollectible contracts is adjusted
periodically based on an evaluation of individual contract collectibility.

PENSIONS AND OTHER BENEFITS

         Trusteed, noncontributory pension plans cover substantially all
employees in the United States and Canada. Benefits for the noncontributory
plans are based primarily on final average salary and years of service. Net
periodic pension cost for the Company is based on the provisions of SFAS No. 87,
"Employers' Accounting for Pensions." Funding policies provide that payments to
pension trusts shall be at least equal to the minimum funding required by
applicable regulations.

         In Mexico, all permanent employees are granted the right, under law, to
receive seniority premiums equal to 12 days' salary for each year of service
when separated from the Company. The estimated cost of such seniority premiums
is accrued as an expense as the benefit is earned and paid at the time of
separation from the Company's service.

                                      F-7
<PAGE>   36
         Certain employees in the U.S. and Canada are covered under defined
benefit post retirement plans that provide medical and life insurance for
eligible retirees and dependents. The net periodic postretirement benefit cost
for the Company is based on the provisions of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."

PROPERTY, PLANT, AND EQUIPMENT

         Property, plant, and equipment are stated at cost. Depreciation is
provided principally by use of the straight-line method at annual rates as
follows:

         Buildings and leasehold improvements                 3% to 25%
         Assets held for lease                               10% to 20%
         Machinery and equipment                              8% to 33%


RESEARCH AND DEVELOPMENT

         Research and development expenses, net of contributions, are charged to
income as incurred.

         Autobuses has a trust arrangement to earmark deductible funds for
research and development of technology. Autobuses is authorized to make use of
these funds for specific purposes and the fund may be increased by future
contributions or by fund earnings. The fund was established in 1990 and no
subsequent cash contributions were made. The balance of the fund at December 31,
1997 and 1996 was $1,723,000 and $1,104,000, respectively, and was included in
other assets.


REVENUE RECOGNITION

         Sales are generally recognized on shipment of product to customers.
Price allowances are recorded at the time of sale. An allowance for losses on
receivables is maintained at an amount that management considers appropriate in
relation to the outstanding receivables portfolio. Allowances for losses on
receivables are charged to expense as appropriate. When receivables are
determined to be uncollectible, they are charged against the allowance for
losses on receivables. Beginning in 1997 the Company delivered coaches with
related revenues of $6,918,000 and earnings before taxes of $1,187,000 that were
omitted from revenues and income because they involved guaranteed residual
values of approximately $3,700,000. In accordance with the Emerging Issues Task
Force Issue 95-1, these coaches are being accounted for on a lease basis and
will be recognized in revenues and income over periods ranging from 2 to 15
years.

START-UP COSTS

         Start-up costs on major projects are charged to expense as incurred.
During 1997, start-up costs related to the production of new coach models were
$7,333,000.

                                      F-8
<PAGE>   37

WARRANTY

         In the United States and Canada, an accrual for warranty claims is made
at the time of sale. This accrual is based on management's estimate of future
warranty liabilities and is charged to operations. Actual warranty expenditures
are charged to the accrual as incurred. The accrual is reviewed periodically for
adequacy in light of actual experience and adjustments are recorded if
necessary.

         In Mexico most warranty costs are paid by the suppliers of components.
Accordingly, the exposure for warranty is not material.


2.       TRANSFER OF ENTITIES UNDER COMMON CONTROL

         In January 1997, MCII Holdings acquired from its parent company, Dina,
99.99% of the shares of Autobuses. This change in structure was accomplished by
Dina contributing 99.99% of the capital stock of Autobuses ($30,363,000 in net
assets as of December 31, 1996) to MCII Holdings, thereby making Autobuses and
its two subsidiaries, Autopartes Hidalguense, S.A. de C.V. and Carrocera
Sahagun, S.A. de C.V., subsidiaries of MCII Holdings.

         The transaction was a transfer of entities under common control, which
requires the acquisition to be accounted for as a pooling of interests.
Accordingly, the financial statements for all periods reflect the results of
operations, financial condition, cash flows, and changes in stockholder's
equity of MCII Holdings and Autobuses as if the companies had been consolidated
for all periods presented.

        A reconciliation of a condensed income statement between amounts
previously reported for 1996 and 1995 and as restated is as follows:


                                     F-9
<PAGE>   38

<TABLE>
<CAPTION>
                                                       Previously
                                                        Reported           Autobuses       Eliminations        Total
                                                        --------           ---------       ------------        -----
                                                                                  (000 omitted)
<S>                                                     <C>              <C>               <C>               <C> 
                        1996
Revenues                                                 $ 661,293         $ 64,148          $(58,357)        $ 667,084
                                                         ---------         --------          ---------        ---------

Income from Continuing Operations                           22,784            7,757            (2,867)           27,674

Discontinued Operations                                     (5,000)               -                 -            (5,000)


Extraordinary Item                                            (851)               -                 -              (851)
                                                         ---------         --------          --------         ---------      

Net Income                                               $  16,933         $  7,757          $ (2,867)        $  21,823
                                                         =========         ========          ========          ========

                        1995
Revenues                                                 $ 516,337         $ 36,934          $(26,218)        $ 527,053
                                                         ---------         --------          --------         ---------

Income from Continuing Operations                           18,258           (8,860)           (1,067)            8,331

Discontinued Operations                                          -                -                 -                 -

Extraordinary Item                                               -                -                 -                 -
                                                         ---------         --------          --------         ---------

Net Income                                               $  18,258         $ (8,860)         $ (1,067)        $   8,331
                                                         =========         ========          ========         =========
</TABLE>


3.       PROVISION FOR THE RELOCATION OF CORPORATE HEADQUARTERS

         In December 1996, the Company provided $3,000,000 for the costs
associated with the decision to relocate the Company's corporate headquarters
from Phoenix, Arizona to Des Plaines, Illinois. An additional $886,000 was
provided in 1997 based on a revised estimate of the likelihood that the Phoenix
office would be subleased. At December 31, 1997, the remaining $2,441,000 of
reserves are included in the Consolidated Balance Sheet under the captions,
"other current liabilities" ($626,000) and "other deferred items and insurance
reserves" ($1,815,000). Substantially all of the severance and other relocation
costs were paid in 1997 and the lease costs will be paid through 2003.


                                      F-10
<PAGE>   39


4.       LOSS OR GAIN ON EQUITY INVESTMENT

         In 1993, the Company purchased a 10% ownership interest in Mexicana de
Autobuses, S.A. de C.V. ("MASA"), a Mexican coach manufacturing company, for
$6,000,000. In December 1994, the Company distributed the MASA shares to Dina as
a dividend. In December 1995, the Company repurchased the MASA shares directly
from Dina for $1,200,000. In 1996, the Company evaluated the realizability of
its investment in MASA, and, due to the continuing operating losses of MASA and
prolonged weakness in the Mexican economy, wrote off the investment, resulting
in a pre-tax loss of $1,200,000.

         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, resulting in a pre-tax gain of $10,522,000.


5.       DISCONTINUED OPERATIONS

         In 1993, the Board of Directors approved a plan of disposition for the
transit bus manufacturing segment of the Company. This decision was based on
management's review of market activities, business prospects, competitive
bidding, evaluation of backlogs, economic value analysis, and opportunities for
cost reduction, which indicated that the transit bus manufacturing business
might not achieve acceptable profitability in the foreseeable future. As a
result of this decision, a charge to discontinued operations of $53,629,000
($87,202,000 before taxes) was recorded in 1993 to reflect the estimated loss on
disposal of the transit manufacturing segment.

         In November 1994, the Company sold the fixed assets and certain of the
inventory of the transit bus manufacturing business, as well as the right to
manufacture, remanufacture, and distribute transit buses previously made by the
Company, for aggregate consideration of $14,947,000, of which $4,877,000 was in
the form of a note receivable and the remainder was in cash. Additionally, the
purchaser, for a period of five years from the sale date, has agreed not to
distribute parts to transit buses previously made by the Company. The Company
retained all other assets and all of the remaining liabilities of the transit
manufacturing business.

         Based on further analysis of the estimated loss to be incurred on the
disposal, additional provisions were made in 1994 and 1996 of $3,500,000
($5,385,000 before taxes) and $5,000,000 ($8,130,000 before taxes),
respectively.


                                      F-11
<PAGE>   40



         The summarized balance sheet of the discontinued transit bus
manufacturing segment at December 31 was as follows:

<TABLE>
<CAPTION>
                                                                                  1997                      1996
                                                                                  ----                      ----
                                                                                          (000 OMITTED)

        <S>                                                                    <C>                       <C>  
         Assets:
              Notes receivable                                                  $ 2,233                   $ 3,372
              Other current assets                                                   82                       815
              Deferred taxes and other assets                                     4,034                     5,538
                                                                                -------                   ------- 
                                                                                  6,349                     9,725
                                                                                -------                   ------- 
         Liabilities:
              Other current liabilities                                           7,582                     8,711
              Other liabilities                                                     996                     1,103
                                                                                -------                   ------- 
                                                                                  8,578                     9,814
                                                                                -------                   ------- 

         Net Liabilities                                                        $ 2,229                   $    89
                                                                                =======                   ======= 

</TABLE>

6.       ACQUISITIONS

         In October 1996, the Company purchased certain assets of The Flxible
Corporation ("Flxible") that were being sold through bankruptcy proceedings.
Flxible was a manufacturer of transit buses and a distributor of related
replacement parts. The purpose of the purchase was to utilize the assets to
become the OEM parts distributor for the existing fleet of Flxible transit
buses. The transaction was accounted for as a purchase of assets. The fair value
of the assets acquired was $9,774,000 in inventories and $2,426,000 in property,
plant, and equipment. The total purchase price of $ 12,200,000 was funded from
the Company's bank credit facility.

        In November 1995, the Company purchased, for $2,021,000, a 70% ownership
interest in Nanjing Starley Transportation Company Limited, an intercity coach
operation which provides regularly scheduled passenger service in China.  The 
investment was accounted for under the equity method and 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.  The Company's investment
was liquidated in 1997 without any significant gain or loss.

        In April 1995, the Company acquired substantially all of the net assets
of Billingsley Parts and Equipment, Inc., a distributor 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.



                                      F-12
<PAGE>   41


7.       CASH FLOW EFFECT OF CHANGES IN OPERATING ASSETS AND LIABILITIES

         Change in operating assets and liabilities consisted of:

<TABLE>
<CAPTION>
                                                      1997            1996            1995
                                                      ----            ----            ----
                                                                 (000 OMITTED)

<S>                                                <C>             <C>             <C>  
Decrease (Increase) in operating assets:
     Receivables                                   $ (25,839)      $ (21,894)      $  (2,237)
     Inventories                                     (69,006)         (4,414)        (13,739)
     Other operating assets                           (2,854)          3,525          (3,413)
                                                   ---------       ---------       ---------
                                                     (97,699)        (22,783)        (19,389)
                                                   ---------       ---------       ---------
Increase (Decrease) in operating liabilities:
     Accounts payable                                 26,525          12,724          (7,030)
     Accrued income taxes                              2,916          (4,549)          3,800
     Other operating liabilities                     (49,068)         10,509         (59,616)
                                                   ---------       ---------       ---------
                                                     (19,627)         18,684         (62,846)
                                                   ---------       ---------       ---------

Net Cash Flow Effect                               $(117,326)      $  (4,099)      $ (82,235)
                                                   =========       =========       =========
</TABLE>




8.       INVENTORIES

         Inventories at December 31 consisted of the following:

<TABLE>
<CAPTION>
                                                 1997             1996
                                                 ----             ----
                                                    (000 OMITTED)
<S>                                           <C>             <C>
Raw materials                                 $  48,938       $  47,397
Work in process                                  61,230          33,860
Finished goods                                  170,879         126,809
                                              ---------       ---------
                                                281,047         208,066
Excess quantity and obsolescence reserve        (23,252)        (19,352)
                                              ---------       ---------
                                              $ 257,795       $ 188,714
                                              =========       =========
</TABLE>



                                      F-13
<PAGE>   42


9.       PROPERTY, PLANT, AND EQUIPMENT

         Property, plant, and equipment at December 31 consisted of the
following:

<TABLE>
<CAPTION>
                                                      1997              1996
                                                      ----              ----
                                                           (000 OMITTED)

<S>                                                <C>             <C>  
Land                                                $   5,309       $   5,411
Buildings and leasehold improvements                   43,261          39,121
Assets held for lease                                  28,386          21,861
Machinery and equipment                                58,218          47,800
                                                    ---------       ---------
                                                      135,174         114,193
Less accumulated depreciation and amortization        (28,329)        (20,700)
                                                    ---------       ---------

                                                    $ 106,845       $  93,493
                                                    =========       =========
</TABLE>


         Depreciation and amortization expense for property, plant, and
equipment was $14,072,000, $9,964,000 and $7,654,000, respectively, for the
years ended December 31, 1997, 1996, and 1995.


10.      NOTES RECEIVABLE

         Notes receivable at December 31 consisted of the following:

<TABLE>
<CAPTION>
                                                   1997           1996
                                                   ----           ----
                                                      (000 OMITTED)

<S>                                            <C>            <C>  
Notes receivable, at contract amount            $ 50,359       $ 33,474
Less allowance for uncollectible contracts        (1,269)        (1,285)
                                                --------       --------
Notes receivable, net                             49,090         32,189
Less current portion                              (6,625)        (4,615)
                                                --------       --------

Long-term notes receivable                      $ 42,465       $ 27,574
                                                ========       ========
</TABLE>


         Scheduled annual maturities of notes receivable at December 31, 1997
were:

<TABLE>
<CAPTION>
        1998                 1999                 2000                 2001                 2002              THEREAFTER
        ----                 ----                 ----                 ----                 ----              ----------
    <S>                  <C>                  <C>                  <C>                  <C>                  <C> 
     $6,625,000           $6,277,000           $6,290,000           $5,975,000           $6,039,000           $19,153,000
</TABLE>


                                      F-14
<PAGE>   43

11.      LONG-TERM DEBT

         Long-term debt at December 31 was a follows:

<TABLE>
<CAPTION>
                                           1997             1996
                                           ----             ----
                                               (000 OMITTED)
<S>                                    <C>             <C>  
United States bank credit facility      $ 135,000       $  85,000
Canadian bank credit facility              12,033              --
Bancomext export loan facility              6,496              --
Pre-Export Notes, due to 1999              34,203              --
Term notes payable, due to 2002           125,000         125,000
Note payable at 7%, due to 2001               519             668
                                        ---------       ---------
                                          313,251         210,668
Less current portion                      (44,418)           (148)
                                        ---------       ---------

Long-term debt                          $ 268,833       $ 210,520
                                        =========       =========
</TABLE>



         The United States bank credit facility was increased in September 1997
to provide up to $170,000,000 for borrowing purposes, of which up to $35,000,000
is available for issuance of standby letters of credit. The facility previously
provided $125,000,000 for borrowing purposes. Borrowings are available under the
bank credit facility on a revolving basis through November 30, 1999. This
facility replaced a former bank credit facility in October 1996 in a refinancing
which resulted in an extraordinary charge for the write off of related debt
issuance costs of $851,000 ($1,401,000 before taxes). At December 31, 1997, the
Company was contingently liable under standby letters of credit in the amount of
$9,730,000. The interest rates applicable to borrowings under this agreement
are, at the Company's option, indexed to the bank prime rate or the 30-day
London Interbank Offered Rate ("LIBOR"), plus appropriate spreads over such
indices during the period of each borrowing agreement. The average 30-day LIBOR
rate was 6.5% for 1997 and 6.8% at December 31, 1997. The average base rate
applicable to borrowings of less than 30 days was 8.5% for 1997 and was 8.6% at
December 31, 1997. The agreements also provide for commitment fees. Such spreads
and fees can change based on changes in the Company's financial ratios.
Annually, with the participating banks' consent, the term of the agreements may
be extended for one year.

                                      F-15
<PAGE>   44



         The Canadian bank credit facility was increased in July 1997 to provide
up to Cdn$30,000,000 (equivalent to U.S. $20,976,000 at December 31, 1997       
exchange rates) for borrowing purposes, of which Cdn$4,000,000 is reserved for
certain specific purposes. Borrowings are available under the bank credit
facility on a revolving basis through October 1, 1999. The interest rates
applicable to borrowings under this agreement are, at the Company's option,
indexed to the bank prime rate or the 30-day London Interbank Offered Rate
("LIBOR"), plus appropriate spreads over such indices during the period of each
borrowing agreement. The average interest rate was 5.3% for 1997 and 6.3% at
December 31, 1997. The agreements also provide for commitment fees. Such
spreads and fees can change based on changes in the Company's financial ratios.
Annually, with the participating banks' consent, the term of the agreements may
be extended for one year.

         In September 1996, the National Bank Foreign Trade S.N.C. ("Bancomext")
provided a $20,000,000 credit facility to Autobuses to be used in conjunction
with export sales. The facility carries variable 90 day interest rates, which
ranged between 9.5% and 9.8% in 1997, and terminated March 29, 1998. However,
the Company is currently in negotiations to extend the payment date and,
therefore, the debt was not paid as of March 23, 1998. Accordingly, the debt is
classified as short-term.

         On December 4, 1997, an indirect subsidiary of the Company completed
the placement of $35,000,000 of Guaranteed Pre-Export Notes with international
investors. The securities were issued in two Series: Series 1 Notes, of which
$13,000,000 were issued, carry a 10.0% coupon and have a maturity date of
December 3, 1998; and Series 2 Notes, of which $22,000,000 were issued, carry a
10.5% coupon and have a maturity date of March 31, 1999. The notes were issued
at discounts amounting to $797,000 at December 31, 1997.

         The Company has $125,000,000 of term notes payable which are due in
annual installments of $25,000,000 beginning in November 1998 and extending
through November 2002. Interest on the notes is at a fixed rate of 9.02%.
However, the Company entered into an interest rate swap agreement in November
1994 which effectively changed the interest rate on the notes to LIBOR plus
1.14%. The Company terminated $62,500,00 of the swap in 1995 and the remainder
of the swap in 1996 in exchange for an aggregate cash consideration of
$9,683,000 which is being amortized as a reduction of interest expense over the
remaining life of the notes. As a result, the effective interest rate on the
$125,000,000 borrowing is at a fixed rate of 7.3% for 1997 through 2002.


         The Company's long-term debt agreements include various restrictive
covenants including financial covenants, the most restrictive of which is the   
debt to equity ratio. The Company is in compliance for these covenants except
the Canadian bank credit facility. The Company has obtained a waiver for this
out of compliance condition. At December 31, 1997, $151,000 of stockholders'
equity was available for the payment of dividends by TMO.

         Annual maturities of long-term debt in the next five years will
approximate:

<TABLE>
<CAPTION>
        1998                 1999                 2000                 2001                 2002              THEREAFTER
        ----                 ----                 ----                 ----                 ----              ----------
   <S>                  <C>                   <C>                  <C>                  <C>                        
    $44,418,000          $193,609,000          $25,148,000          $25,076,000          $25,000,000               -
</TABLE>

         Interest paid in the years ended December 31, 1997, 1996, and 1995 was
$26,067,000, $21,362,000, and $38,374,000, respectively.


                                      F-16

<PAGE>   45



12.      GUARANTEE OF PARENT COMPANY DEBT AND PLEDGE OF ASSETS

         On June 3, 1996 the Company became contingently liable for payments of
principal and interest on Senior Secured Discount Notes of Dina due 2002 with an
aggregate principal amount of $206,499,680 ("Discount Notes"). It is intended
that all payments with respect to the Discount Notes be paid by Dina, and that
payments be made by the Company only in the event of a failure to pay by Dina.

         The Company's obligation under the Discount Notes is secured by a
pledge of the common stock of its wholly owned subsidiary, MCII. The indenture
governing the Discount Notes provides for certain restrictive covenants with
which the Company is currently in compliance.

         The Discount Notes bear interest at an annual rate of 12% through
maturity, on a zero coupon basis through November 15, 1998 and, thereafter,
payable in cash. If, however, the Discount Notes do not achieve minimum debt
ratings by November 15, 1999, the interest rate increases to 15% from such date
through maturity. As of December 31, 1997, the book value of the Discount Notes
was $189,253,000 and the fair value was $206,500,000.


                                      F-17
<PAGE>   46


13.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following disclosures of the estimated fair value of financial
instruments have been determined by the Company using available market
information and valuation methodologies described below. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein may not be indicative of
the amounts that the Company could realize in a current market exchange. The use
of different market assumptions or valuation methodology may have a material
affect on the estimated fair value amounts.

         The carrying values of cash and cash equivalents, receivables, and
accounts payable approximate fair values due to the short-term maturities of
these instruments. The carrying amounts and estimated fair values of the
Company's other financial instruments at December 31 were as follows:

<TABLE>
<CAPTION>
                                                    1997                            1996  
                                                    ----                            -----     
                                          CARRYING         FAIR            CARRYING         FAIR
                                           AMOUNT          VALUE            AMOUNT          VALUE
                                           ------          -----            ------          -----
                                                               (000 OMITTED)
<S>                                     <C>             <C>             <C>             <C>    
 Notes receivable                        $  49,090       $  49,188       $  32,189       $  32,184
 Debt                                     (313,251)       (317,054)       (210,668)       (209,710)
 Foreign exchange forward contracts           --              (306)           --                22
</TABLE>



         The methods and assumptions used to estimate the fair values of the
financial instrument are summarized as follows:

         Notes receivable - Estimated by discounting the future cash flows using
rates currently used for notes of similar terms and maturities.

         Debt - Estimated by discounting the future cash flows using rates
currently available for debt of similar terms and maturity.

         Foreign exchange forward contracts (used for hedging purposes) -
Estimated using quoted exchange rates.



                                      F-18
<PAGE>   47

14.      INCOME TAXES

         The U.S. operations of MCII are included in the consolidated and other
applicable U.S. income tax returns of the Company. Tax returns for the Company's
Canadian and Mexican subsidiaries are filed separately in Canada and Mexico.
Individual units are charged or credited an amount equal to the tax payments
made or tax reductions realized by MCII Holdings as a result of including that
unit within the appropriate income tax return.

         United States, Canadian, and Mexican income before income taxes was as
follows:

<TABLE>
<CAPTION>
                      1997          1996          1995
                      ----          ----          ----
                                (000 OMITTED)
<S>               <C>           <C>           <C>  
United States      $ 21,753      $ 21,874      $ 12,979
Canada               23,671        19,477        22,916
Mexico               14,005         4,797       (10,435)
                   --------      --------      --------
                   $ 59,429      $ 46,148      $ 25,460
                   ========      ========      ========
</TABLE>


         Income tax expense (benefit) for the years ended December 31 was
comprised of the following:

<TABLE>
<CAPTION>
                                 1997           1996           1995
                                 ----           ----           ----
                                            (000 OMITTED)
<S>                          <C>            <C>            <C>  
Current:
   United States:
   Federal                    $  8,435       $ 11,098       $  3,864
   State                         1,806          1,685          1,108
   Foreign                       9,654         10,503         11,742
                              --------       --------       --------
                                19,895         23,286         16,714
                              --------       --------       --------
Deferred:
   United States:
   Federal                        (351)        (2,812)           373
   State                          (195)          (236)            79
   Foreign                       1,919         (1,764)           (37)
                              --------       --------       --------
                                 1,373         (4,812)           415
                              --------       --------       --------

Total income tax expense      $ 21,268       $ 18,474       $ 17,129
                              ========       ========       ========
</TABLE>



                                      F-19
<PAGE>   48


         A reconciliation of the provision for income taxes and the amount that
would be computed using statutory federal income tax rates on income before
income taxes is set forth below:

<TABLE>
<CAPTION>
                                         1997           1996           1995
                                         ----           ----           ----
                                                    (000 OMITTED)
<S>                                  <C>            <C>           <C> 
Computed income tax provision at
  Statutory rate of 35%               $ 20,800       $ 16,152       $  8,911
State income taxes                       1,057            942            773
Canadian tax differences                 1,126          1,258            637
Mexican tax differences                 (3,970)        (1,772)         3,144
Foreign dividend received                1,160           --            2,039
Intangible amortization                  1,425          1,367          1,652
Other, net                                (330)           527            (27)
                                      --------       --------       --------

Total income tax expense              $ 21,268       $ 18,474       $ 17,129
                                      ========       ========       ========
</TABLE>

                                      F-20

<PAGE>   49


         Deferred income tax assets and liabilities included in the Consolidated
Balance Sheet at December 31 consisted of the following:

<TABLE>
<CAPTION>
                                               1997           1996
                                               ----           ----
                                                  (000 OMITTED)
<S>                                         <C>            <C>
  Deferred tax assets:
  Property , plant, and equipment           $  8,315       $  2,466
  Pension and other benefits                   6,228          5,775
  Allowances and reserves for losses          13,920         11,447
  Net operating loss carryforward             15,554         18,028
  Alternative minimum tax carryforward         8,065          7,051
  Deferred state income taxes                  1,431          1,517
  Inventories                                    929          4,729
  Other                                        3,295          2,094
                                            --------       --------
Total gross deferred tax assets               57,737         53,107
   Valuation allowance                       (33,707)       (33,915)
                                            --------       --------
Total gross deferred tax assets               24,030         19,192
                                            --------       --------

Deferred tax liabilities:
  Property , plant, and equipment             (8,615)          --
  Intangibles                                 (4,608)        (3,282)
  Installment sales                             (489)          (108)
  Other                                       (2,804)          (662)
                                            --------       --------
Total gross deferred tax liabilities         (16,516)        (4,052)
                                            --------       --------
Net deferred tax asset                      $  7,514       $ 15,140
                                            ========       ========
</TABLE>


         SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than not that
some portion or all of the deferred tax asset will not be realized. A valuation
reserve was established against the deferred tax assets in Mexico, primarily
loss carryforwards, that might not be realized.  The Mexican net operating
losses expire between 1999 and 2007.

         Income taxes paid in the years ended December 31, 1997, 1996, and 1995
were $10,814,000 $13,093,000 and $4,702,000, respectively.

         The Company's U.S. federal income tax returns have been examined
through 1990 and are currently being examined for 1991, 1992, 1993, and 1994.


                                      F-21
<PAGE>   50


         The Company's Canadian income tax returns for 1982 through 1992 are
currently under review by Revenue Canada. Authorities have proposed imputing
additional income related to transactions with a U.S. based subsidiary of the
Company. A formal reassessment has been issued by Revenue Canada on the 1985
return. A notice of objection has been filed by the Company for 1985. In the
event of an adverse judgment, the additional income taxes for 1982 through 1992
could amount to $25,000,000 plus interest of approximately $44,000,000 and, in
addition, the Company may be subject to potential reassessments for the years
subsequent to 1992 on the same basis which could result in additional income
taxes and interest. These amounts are all before recoveries of U.S. federal
income taxes which may be available to offset a portion of any additional taxes
paid to Canada as these years are still open for U.S. federal income tax
purposes. In accordance with SFAS No. 109, "Accounting for Income Taxes," a
portion of any ultimate liability owed as a result of this issue would be
treated as an adjustment of Dina's purchase price on acquiring the Company,
resulting in an increase of purchase goodwill. (If the ultimate liability was
$69,000,000, then approximately $48,000,000 would be a purchase accounting
adjustment.) Based on its review of current relevant information, including the
advice of outside counsel, the Company is of the opinion that Revenue Canada's
arguments are without merit and that any liability from this matter will not be
material to its financial condition or results of operations.

         The Company has not provided for U.S. federal income taxes and foreign
withholding taxes on the undistributed earnings of non-U.S. subsidiaries. The
undistributed earnings are intended to be reinvested indefinitely and were
approximately $67,000,000. If these earnings were distributed, foreign
withholding taxes would be imposed; however, foreign tax credits would become
available to substantially reduce any resulting U.S. income tax liability.


                                      F-22
<PAGE>   51


15.      PENSION BENEFITS

         Net periodic pension cost for the three years ended December 31
included the following components:

<TABLE>
<CAPTION>
                                                          UNITED STATES
                                                          -------------
                                              1997           1996          1995
                                              ----           ----          ----
                                                         (000 OMITTED)
<S>                                        <C>           <C>            <C> 
Service cost benefits earned
     during the period                      $ 1,028       $   996       $   797
Interest cost on projected
     benefit obligation                       1,087           896           827
Actual return on plan assets                 (2,406)       (1,019)       (1,592)
Net amortization and deferral                 1,955           726         1,127
Curtailment gains and settlement costs          623           618           842
                                            -------       -------       -------

Net pension cost                            $ 2,286       $ 2,217       $ 2,001
                                            =======       =======       =======


<CAPTION>
                                                         CANADA  
                                                         ------  
                                             1997         1996           1995
                                             ----         ----           ----
                                                      (000 OMITTED)
<S>                                        <C>           <C>            <C> 
Service cost benefits earned
     during the period                    $   475       $   452       $   375
Interest cost on projected
     benefit obligation                       435           415           401
Actual return on plan assets                 (597)         (559)         (494)
Net amortization and deferral                  19             3             1
Other items, primarily defined
     Contribution plans, curtailment
     gains and settlement cost                950           846           610
                                          -------       -------       -------

Net pension cost                          $ 1,282       $ 1,157       $   893
                                          =======       =======       =======

</TABLE>




                                      F-23
<PAGE>   52
         The following tables indicate the plans' funded status and amounts
recognized in the Consolidated Balance Sheet at December 31:


<TABLE>
<CAPTION>
                                                                     UNITED STATES
                                                                     -------------
                                                     1997                                       1996  
                                                     ----                                       ----            
                                        ASSETS EXCEED        ACCUMULATED         ASSETS EXCEED        ACCUMULATED
                                         ACCUMULATED          BENEFITS            ACCUMULATED          BENEFITS
                                          BENEFITS         EXCEED ASSETS           BENEFITS          EXCEED ASSETS
                                          --------         -------------           --------          -------------
                                                                     (000 OMITTED)
<S>                                     <C>                  <C>                  <C>                  <C>          
Actuarial present value of:                                                                          
     vested benefit obligation           $  8,315             $  3,017             $  6,839             $  2,757
                                         ========             ========             ========             ========
                                                                                                     
     Accumulated benefit obligation      $  9,671             $  3,227             $  7,934             $  2,961
                                         ========             ========             ========             ========
                                                                                                     
Projected benefit obligation             $ 12,739             $  3,775             $ 10,121             $  3,422
Market value of plan assets,                                                                         
     primarily equity and fixed                                                                      
     income securities                     13,049                  195               10,025                  209
                                         --------             --------             --------             --------
Plan assets over (under) projected                                                                   
     benefit obligation                       310               (3,580)                 (96)              (3,213)
Unrecognized transition asset                 (45)                --                    (54)                --
Unrecognized prior service                                                                           
     cost (credit)                             (3)               1,203                   (5)               1,716
Unrecognized net (gain) loss               (1,762)               1,393               (1,089)               1,111
Additional minimum liability                 --                 (2,048)                --                 (2,367)
                                         --------             --------             --------             --------
                                                                                                     
Accrued pension cost                     $ (1,500)            $ (3,032)            $ (1,244)            $ (2,753)
                                         ========             ========             ========             ========
</TABLE>


                                      F-24
<PAGE>   53

<TABLE>
<CAPTION>
                                                CANADA
                                             ASSETS EXCEED
                                         ACCUMULATED BENEFITS
                                         --------------------
                                        1997              1996
                                        ----              ----
                                             (000 OMITTED)
<S>                                    <C>           <C>  
Actuarial present value of:
     vested benefit obligation           $ 5,040      $ 4,355
                                         =======      =======

     Accumulated benefit obligation      $ 5,081      $ 4,378
                                         =======      =======

Projected benefit obligation             $ 6,095      $ 5,582
Market value of plan assets,
     primarily equity and fixed
     income securities                     6,433        5,810
                                         -------      -------
Plan assets over (under) projected
     benefit obligation                      338          228
Unrecognized transition asset                  6           (4)
Unrecognized prior service cost               41           47
Unrecognized net (gain) loss                 313          382
                                         -------      -------

Prepaid pension cost                     $   698      $   653
                                         =======      =======
</TABLE>



         Weighted average assumptions used were:

<TABLE>
<CAPTION>
                                                           UNITED STATES                                 CANADA  
                                                           -------------                              ------------
                                                 1997          1996          1995           1997          1996          1995
                                                 ----          ----          ----           ----          ----          ----
<S>                                            <C>           <C>           <C>             <C>           <C>         <C>
Discount rate for obligation                     7.0%          7.5%          7.5%           7.0%          7.5%          8.5%
Rate of increase in compensation                 5.0%          5.0%          4.5%           4.0%          4.5%          5.0%
Long-term rate of return on assets               9.5%          9.5%          9.5%           9.5%          9.5%          9.0%
</TABLE>





                                      F-25
<PAGE>   54



16.      SENIORITY BENEFITS


         Net periodic pension cost for the three years ended December 31
included the following components:

<TABLE>
<CAPTION>
                                    1997        1996        1995
                                    ----        ----        ----
                                             (000 OMITTED)

<S>                               <C>         <C>         <C> 
Service cost benefits earned
     during the period             $  82       $ 123       $   8
Interest cost on projected
     benefit obligation              101         473          (2)
Actual return on plan assets        (178)       (644)       (172)
Net amortization and deferral        (62)          1         (22)
                                   -----       -----       -----

Net pension cost                   $ (57)      $ (47)      $(188)
                                   =====       =====       =====
</TABLE>


         The following tables indicate the plans' funded status and amounts
recognized in the Consolidated Balance Sheet at December 31:


<TABLE>
<CAPTION>
                                          ACCUMULATED BENEFITS
                                          --------------------
                                          1997           1996
                                          ----           ----
                                             (000 OMITTED)
<S>                                      <C>          <C>  
Actuarial present value of:
     Accumulated benefit obligation      $ 2,706       $ 1,363
                                         =======       =======

Projected benefit obligation             $ 2,866       $ 2,489
Market value of plan assets,
     primarily equity and fixed
     income securities                     3,723         2,574
                                         -------       -------
Plan assets over (under) projected
     benefit obligation                      857            85
Unrecognized transition (liability)       (1,254)         (432)
                                         -------       -------

Accrued pension cost                     $  (397)      $  (347)
                                         =======       =======
</TABLE>


                                      F-26
<PAGE>   55



17.      POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

         The net periodic postretirement benefit cost for the years ended
December 31 included the following components:

<TABLE>
<CAPTION>
                                                1997          1996          1995
                                                ----          ----          ----
                                                          (000 OMITTED)

<S>                                           <C>          <C>           <C> 
Service cost benefits attributed
     to service during the period             $   555       $   538       $   416
Interest cost on the accumulated
     postretirement benefit obligation            480           451           401
Net amortization and deferral                      (8)          (71)          (45)
Curtailment gain                                   --          (665)           --
                                              -------       -------       -------

Net periodic postretirement benefit cost      $ 1,026       $   253       $   772
                                              =======       =======       =======
</TABLE>


         As a result of a workforce reduction in the Company's New Mexico
engineering facility, a curtailment gain of $665,000 was realized during 1996.

         The status of the plans at December 31 was as follows:

<TABLE>
<CAPTION>
                                                     1997          1996
                                                     ----          ----
                                                         (000 OMITTED)
<S>                                                <C>          <C> 
Retirees                                           $   786       $   709
Fully eligible active plan participants              1,958         1,737
Other active plan participants                       5,136         3,910
                                                   -------       -------
Accumulated postretirement benefit obligation        7,880         6,356
Unrecognized prior service cost                         18            21
Unrecognized net gain (loss)                           (23)          505
                                                   -------       -------

Accrued postretirement benefit cost                $ 7,875       $ 6,882
                                                   =======       =======
</TABLE>



                                      F-27
<PAGE>   56


         The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation ("APBO") was 10.0% in 1997,
gradually declining to 5.0% by the year 2002 and remaining at that level
thereafter for retirees below the age 65, and 7.0% in 1997, gradually declining
to 5.0% 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, 1997 by
approximately 20% and the net periodic postretirement benefit cost by
approximately 23%.

         The assumed discount rate used in determining the APBO was 7.0% in 1997
and 7.5% in 1996.


18.      LEASE OBLIGATIONS

         Certain warehouses, offices, and equipment are leased under leases
expiring through the year 2007 with some of the leases providing for renewal
options. Leases which expire are generally renewed or replaced by similar
leases.

         At December 31, 1997, future minimum rental payments with respect to
noncancellable operating leases with terms in excess of one year were as
follows:
<TABLE>
<CAPTION>
        1998                 1999                 2000                 2001                 2002              THEREAFTER
        ----                 ----                 ----                 ----                 ----              ----------
    <S>                  <C>                  <C>                  <C>                  <C>                   <C>  
     $2,172,855           $1,856,756           $1,627,877           $1,280,780           $1,215,159            $488,813
</TABLE>


         Total rental expenses for the years ended December 31, 1997, 1996, and
1995 were $3,384,000 , $3,440,000 and $3,106,000, respectively.


20.      FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

         The Company enters into foreign exchange forward contracts to hedge
certain firm and anticipated purchase commitments which are settled in Canadian
dollars. These contracts are purchased to reduce the impact of Canadian dollar
currency fluctuations on operating results. The Company does not engage in
Canadian dollar currency speculation. The contracts do not subject the Company
to risk due to exchange rate movements because gains and losses on the contract
are offset by gains and losses on the materials being purchased. At December 31,
1997 and 1996, the Company had approximately $7,558,000 and $17,855,000,
respectively, of Canadian dollar exchange forward contracts outstanding. The
Company's theoretical risk in these transactions is the cost of replacing, at
current rates, these contracts in the event of default by the other party to the
contract. Management believes the risk of incurring such losses is remote
because the contracts are entered into with major financial institutions.


                                      F-28
<PAGE>   57



         As an adjunct to its coach business, the Company has entered into
repurchase and first loss agreements with certain companies which provide
financing for coaches sold by the Company, pursuant to which the Company agrees
to either repurchase coaches from such companies or guarantee the payment of
certain obligations of coach owners or operators. The amounts of such repurchase
agreements as of December 31, 1997 and 1996 were approximately $23,000,000 and
$26,000,000, respectively. Additionally, as a result of certain sales of notes
receivable and leases, the Company is obligated to reimburse the purchaser of
such notes and leases for any losses as a result of defaults up to $7,000,000 as
of December 31, 1997 and 1996. The Company has experienced no material losses in
respect to such obligations and losses under existing agreements are not
expected to have a material affect on the Company's financial statements.


21.      LITIGATION

         Certain entities of the Company are plaintiffs or defendants to various
actions, proceedings and pending claims. Some of the foregoing involve or may
involve claims for compensatory, punitive, or other damages in material amounts.
Litigation is subject to many uncertainties and it is possible that some of
these legal actions, proceedings, and pending claims could be decided against
the Company. Although the amount of liability at December 31, 1997 with respect
to these matters is not ascertainable, the Company believes that any resulting
liability would not materially affect the Company's financial condition or
results of operations.


22.      COMMITMENTS AND CONTINGENCIES

         As a part of the Company's marketing strategy for the 1997 introduction
of the new EL model intercity coach, the "Renaissance", it has entered into
trade-in agreements, in 1996, whereby certain customers may trade-in, at
predetermined values, their recently purchased D or DL model coaches when
purchasing a new EL model. Under the terms of the agreements, the Company has
committed to trade-in values ranging from 91% of the original invoice price for
an 18 month old coach to 73% for a 36 month old coach; such trade-in values
being estimated by management to approximate fair market value for such coaches
at the time of the trade-in. At December 31, 1997 the Company's commitment
under this program ranged from a high of $16,152,000 to a low of $14,525,000.

         During 1997, flooding along the Red River caused significant operating
disruptions at the Company's Pembina, North Dakota and Winnipeg, Manitoba
facilities. As a result, the Company has and will file insurance claims seeking
recovery of various out-of-pocket costs and business interruption losses.
Partial recoveries of $500,000 were included in 1997's results of operations.
Additional recoveries, which may be substantial, are expected and will be
recognized in operating results when received from the insurance companies.


                                      F-29
<PAGE>   58


         During 1996, the Company completed a research and development project
in connection with the development of the E coach, which had been undertaken
with the cooperation of the Government of Canada and the Province of Manitoba.
Agreements entered into between the parties for this project provided for
payment of matching contributions and specified that the contributions may be
repayable if, during the first five years following project completion, the
ratio of Canadian employees to total employees of the Company falls below 40%. 
The Company recorded $1,479,000 and $3,305,000 from the contribution program in
1996 and 1995, respectively, which was applied against research and development
expenses.  As of December 31, 1997, the total amount of such contributions was
$7,373,000 and the Company had met the employee ratio commitment.
 

23.      NONCONSOLIDATED AFFILIATE

         In 1997 a new company was formed, MCII Financial Services, Inc.
("MFS"). The Company acquired 250,000 shares , or 25%, of voting common stock of
MFS and 15,000,000 shares of non-voting preferred stock of MFS for $250,000 and
$15,000,000 respectively. The remaining 750,000 shares, or 75%, of the voting
common stock were acquired by the indirect controlling shareholders of the
Company. MFS will operate independently from the Company and will provide
conditional sales contracts and operating leases to the Company's customers. MFS
is expected to have better access to funding on competitive terms.

         MFS's initial transaction was the purchase of $19,406,000 of loans and
$12,742,000 of leases from certain subsidiaries of the Company. The Company has
guaranteed the full and prompt collection of the loans sold to MFS. The Company
received a fairness opinion from an independent third party as to the basis for
the selling price of these assets. No gain was recognized on the transaction.
MFS will in the future engage in loan and leasing activities involving the
Company and others in the motor coach and other industries.

         The Company will account for its minority interest in MFS on the equity
method as MFS reports its results.



                                      F-30
<PAGE>   59



24.      RELATED PARTY TRANSACTIONS

         Related party transactions for the years ended December 31 were as
follows:


<TABLE>
<CAPTION>
                                            1997         1996         1995
                                            ----         ----         ----
                                                     (000 OMITTED)
<S>                                      <C>          <C>          <C> 
Purchases from affiliated companies:
   Goods                                  $15,044      $ 4,815      $ 1,423
   Services                                21,587        8,229        2,292
   Allocated interest expense               6,978        3,172       22,099
                                          -------      -------      -------
                                          $43,609      $16,216      $25,814
                                          =======      =======      =======

Sales to affiliated companies:
   Goods                                  $ 2,973      $   968      $ 2,279
   Services                                 7,384        4,443        9,510
   Allocated interest income                8,376        1,720        1,255
                                          -------      -------      -------
                                          $18,733      $ 7,131      $13,044
                                          =======      =======      =======
</TABLE>

         Related party balances included in the December 31 balance sheet were:

                                                         1997        1996
                                                         ----        ----
                                                             (000 OMITTED)

Affiliated companies receivables (payables) - net      $16,293      $   (24)
                                                       =======      =======


         Dina's interest income and expense is allocated to its subsidiaries
based on relative monthly intercompany balances.

         During 1997, Autobuses temporarily owned less than 5% of Arrendador
Financiera Dina S.A. de C.V. ("AF Dina") while Dina owned the majority of AF
Dina.  At December 31, 1997, Autobuses had notes payable to AF Dina of
$10,673,000 (included above as part of the net receivable of $16,293,000).

         During 1997, Autobuses put 240 transit bus units, with a sales value of
$9,340,000, out on lease to Transportes y Services Terrestres G S.A. de C.V.
("TSTG"). TSTG is controlled by members of the group consisting of the indirect
controlling shareholders of the Company.



                                      F-31
<PAGE>   60



25.      BUSINESS SEGMENT AND GEOGRAPHIC DATA

BUSINESS SEGMENT DATA

         The Company's management views the Company's principal business
activities as consisting of two business segments -- MCII and Autobuses.

         Data for these two segments of the years ending December 31 are as
follows:

<TABLE>
<CAPTION>
                                      1997          1996          1995
                                      ----          ----          ----
                                                 (000 OMITTED)
<S>                                 <C>           <C>           <C>     
Revenues:
     MCII                           $644,040      $606,382      $489,699
     Autobuses                        95,743        60,702        37,354
                                    --------      --------      --------
                                    $739,783      $667,084      $527,053
                                    ========      ========      ========

Operating income:
     MCII                           $ 61,578      $ 55,879      $ 38,298
     Autobuses                        16,875         3,954         5,352
                                    --------      --------      --------
                                    $ 78,453      $ 59,833      $ 43,650
                                    ========      ========      ========

Depreciation and amortization:
     MCII                           $ 18,683      $ 16,658      $ 14,618
     Autobuses                         3,352           960           876
                                    --------      --------      --------
                                    $ 22,035      $ 17,618      $ 15,494
                                    ========      ========      ========

Capital expenditures:
     MCII                           $ 15,058      $ 12,978      $ 12,559
     Autobuses                        17,038        12,631            --
                                    --------      --------      --------
                                    $ 32,096      $ 25,609      $ 12,559
                                    ========      ========      ========

Assets:
     MCII                           $683,135      $588,540
     Autobuses                       137,538        54,240
                                    --------      --------
                                    $820,673      $642,780
                                    ========      ========
</TABLE>

         There are no material intersegment transactions.

         Major customers are generally defined as those which individually
account for more that 10% of the Company's revenue.  For the years ended 1997,
1996 and 1995, Greyhound Lines, Inc. accounted for 9.5%, 11.1%, and 10.2%,
respectively, of the Company's consolidated revenues.  For the years ended 1997
and 1996, sales to Coach USA, Inc.  accounted for 7.6% and 0.9%, respectively,
of the Company's consolidated revenues.


                                      F-32
<PAGE>   61

GEOGRAPHICAL DATA

<TABLE>
<CAPTION>
                           1997         1996          1995
                           ----         ----          ----
                                    (000 OMITTED)
<S>                     <C>           <C>           <C>     
Revenues:
     United States      $610,915      $579,139      $445,732
     Canada               82,898        82,157        70,605
     Mexico               45,970         5,788        10,716
                        --------      --------      --------
                        $739,783      $667,084      $527,053
                        ========      ========      ========

Operating income:
     United States      $ 51,554      $ 45,005      $ 31,496
     Canada               10,985         9,648         6,843
     Mexico               15,914         5,180         5,311
                        --------      --------      --------
                        $ 78,453      $ 59,833      $ 43,650
                        ========      ========      ========

Assets:
     United States      $541,981      $443,339
     Canada              159,624       159,404
     Mexico              119,068        40,037
                        --------      --------
                        $820,673      $642,780
                        ========      ========
</TABLE>




                                      F-33