(Grupo TMM, S.A., issued the following news release on October 28.)
MEXICO CITY — Grupo TMM, S.A., a Latin American multi-modal transportation and logistics company and owner of the controlling interest in Mexico’s busiest railway, TFM, reported revenues from consolidated operations of $230.1 million for the third quarter of 2003, compared to $224.6 million for the same period of 2002. Improved revenues were reported across all divisions, except Specialized Maritime. The company continued to be negatively impacted in the third quarter by devaluation of the peso and by reduced levels of automotive manufacturing in Mexico. Peso devaluation was 8.2 percent quarter over quarter.
Operating profit for the third quarter decreased 4.3 percent compared to the same period of 2002, due mainly to the slowdown of the Mexican automotive industry and to increased fuel costs.
Revenues from consolidated operations for the first nine months of 2003 were $678.0 million, compared to $688.4 million for the same period of 2002. Operating profit for the nine months decreased 19.6 percent compared to the same period of 2002.
The company had a net loss of $29.9 million, or approximately 53 cents per share, in the third quarter. Year-to-date net income was a loss of $20.4 million, or 36 cents per share. Net profit in the third-quarter and nine-month periods was impacted by one time charges totaling $10.9 million, including, $2.8 million for costs associated with employee severances; $2.4 million for amortization of warrants issued in connection with the convertible note paid earlier in the year; and $5.7 million in net book loss from the sale of the Anahuac tanker vessel. TFM’s net income for the nine months was impacted by a one time charge of $18.3 million as part of VAT recovery expenses and by $38.5 million associated with the declining value of deferred tax credits primarily due to peso devaluation, $19.2 million of which was booked in the third quarter.
In the nine-month period, unconsolidated TMM reduced financial obligations by $60.9 million, and TFM reduced debt by $45.3 million.
At TFM, the company’s rail subsidiary, nine-month revenue was negatively impacted by $45.7 million primarily due to declining auto production shipments and by continued peso devaluation of 8.2 percent for the quarter and 12 percent for the nine months. Revenue growth at TFM returned in the third quarter.
In the third quarter, the company’s Specialized Maritime reported decreased revenues due to the elimination of the maritime car carrier business. Absent this event, revenues would have increased quarter over quarter by 9 percent. Gross profit and operating profit for the division improved, increasing operating margin by 3.5 percent. The division recently added three extra vessels through a bidding process with PEMEX, which has improved revenue by $840,000 per month starting in August. The business unit is currently involved in a bidding process, which will be concluded in early November, for an additional eight offshore vessels. Chemical parcel tanker volume and revenue improved quarter over quarter by approximately 41 percent and 32 percent respectively.
TMM’s Logistics division’s revenues increased in the third quarter compared to the same period of 2002 by 18.2 percent, due to new line-feeding operations with the Mexican automobile industry, additional volume in its trucking operations, increased RoadRailer and trailer movements and terminal expansions. Margins were impacted by imbalances of cargo, the introduction of new equipment and one-time start-up costs.
In the Ports and Terminals division, revenues, gross profit and operating profit increased during the third quarter of 2003 primarily due mainly to seasonal passenger activity at Acapulco, in spite of a decrease in automobile handling.
Javier Segovia, president of TMM said, “While issues surrounding our debt, the termination of the Acquisition Agreement with Kansas City Southern and the VAT lawsuit have been in the forefront, we achieved revenue improvement in all of our divisions, except Specialized Maritime, which did experience substantial margin improvements. Consolidated SG & A was reduced across all operations by $3.9 million net of restructuring costs during the last four months.
“We are actively engaged in a dialogue with bondholders organized in an ad hoc committee and with their advisors,” Segovia continued, “which we hope will lead to a successful resolution. The restructuring will allow us to focus on operations and successfully execute our business plan.
“The termination by TMM’s board of directors of the Acquisition Agreement with Kansas City Southern for the company’s interest in TFM formalizes TMM’s shareholders’ decision to exercise the full extent of their rights and not approve the transaction. We remain confident that once all of the substantive issues are reviewed through arbitration, the company will be able to pursue all reasonable alternatives to restructure Grupo TMM and improve the company’s financial profile.
“Additionally, the courts in Mexico have resolved TFM’s Valued Added Tax lawsuit and instructed the government to award TFM a tax certificate in an amount consistent with Article 22 of the Mexican Fiscal Code. Even though the Fiscal attorney has sought a revision and further clarification, we remain confident in the integrity of the Mexican legal system and in the eventual outcome.”
“Finally,” Segovia concluded, “Grupo TFM has requested adherence to the specific process provided in the Purchase-Sales Agreement of TFM’s stock for the exercising of the Mexican government’s Put option for the 20 percent equity interest in TFM it retains. Grupo TFM and its partners acknowledges its commitment to acquire this remaining equity at TFM.”
ASSET SALES AND LEGAL PROCEEDINGS
On April 22, the company announced it had entered into agreements to place its interest in Grupo TFM (“TFM”) under common control with Kansas City Southern (“KCS”) for $200 million in cash and 18 million shares of KCS common stock. TMM would have received an additional cash payment, not to exceed $180 million, upon the successful completion of certain events.
Previously, the company announced, that at its General Ordinary Shareholders’ meeting on August 18 shareholders unanimously did not approve the sale of TMM’s interests in Grupo TFM to KCS. As was made public, approval of the company’s stockholders was required under the terms of the Acquisition Agreement for the sale to proceed. As a result of the unanimous vote, TMM’s board of directors formally notified KCS of the termination of the proposed sale.
Subsequently, the Mexican Foreign Investment Commission was also formally notified by TFM of the termination of the application before the Commission to permit KCS’s participation in more than 49 percent of TFM’s equity. On August 25, the Mexican Foreign Investment Commission notified TFM that its resolution to close the administrative process had been initiated before the Commission.
On August 29, TFM announced it had given notice to KCS of the exercise of its right to repurchase shares representing an aggregate 51 percent interest in Mexrail, Inc. (“Mexrail”) that were sold to KCS in May 2003. The shares were being held in a voting trust pending the receipt of approval of the United States Surface Transportation Board (“STB”) of KCS’s application to assume control of Mexrail. Under the terms of the Stock Purchase Agreement entered into in April 2003, TFM had the unilateral right to repurchase the shares of Mexrail for the same amount received by TFM in May 2003 upon closing of the sale of the shares to KCS.
On September 4, the company announced that KCS had initiated a lawsuit in Delaware state court seeking a preliminary injunction against TMM, seeking to impose restrictions on TMM pending the outcome of arbitration or other dispute resolution process under the Acquisition Agreement. On October 22, the court granted the preliminary injunction to KCS requiring the parties to preserve the status quo pending resolution of the arbitration process. TMM had previously requested KCS to commence the arbitration process as quickly as possible, and expects that process to begin in the next few weeks.
On September 23, the U.S. STB issued a decision finding no need to rule on the transfer back to TFM of the 51 percent interest in Mexrail. On October 1, the company announced that TFM completed the repurchase of the shares in Mexrail from KCS, upon which TFM again owned 100 percent of Mexrail. The repurchase effectively unwound the prior sale to KCS and did not affect the operations of TFM or Mexrail.
The company’s board of directors has also directed management to pursue all reasonable alternatives to restructure TMM’s outstanding indebtedness and improve the company’s financial profile.
LIQUIDITY AND DEBT PROFILE
During late 2002 and early 2003, TMM presented various offers to holders of its bonds due on May 15, 2003, and November 15, 2006, in order to extend the maturity date of the issues through a Bond Exchange.
After numerous extensions and amendments of the company’s exchange offer, with the goal of encouraging its creditors to grant TMM the necessary time to finalize the sale of assets and be able to fulfill its obligations, the company was unable to obtain the percentage of support required for the Bond Exchange to be completed on terms that were commercially reasonable for the company.
The company remains committed to honoring its financial obligations while preserving its businesses, and has re-initiated the negotiation process with its creditors, engaging Miller, Buckfire, Lewis and Ying LLC to assist in the restructuring of the company’s debt. With the company’s support, an informal committee of holders of its Notes has been formed. The committee is now represented by a substantive amount of the principal holders of the Notes. The law firm of Akin, Gump, Strauss, Hauer & Feld LLP, and the financial advisory firm of Houlihan Lokey Howard & Zukin have been retained to represent the committee.
On August 22, the company announced it had completed the refinancing of the outstanding amounts under its existing receivables securitization program. After giving effect to the amendments to the transaction, there will be approximately $54 million of outstanding certificates issued by the securitization trust. The new certificates require monthly amortization of principal and interest and mature in three years. This refinancing improves the company’s overall liquidity by allowing the release of excess cash retained in the securitization trust and significantly improves the maturity profile of the payments due under the receivables securitization program, which had become payable in June.
In the nine-month period of 2003, TMM reduced its financial obligations by approximately $60.9 million primarily from the debt repayment from the net proceeds of certain asset sales, and TFM reduced its debt by approximately $45.3 million. As a result, consolidated debt reduction was approximately $106.2 million.
VAT LAWSUIT
On August 26, the company announced that TFM was formally notified by the Mexican Federal Tribunal of Fiscal and Administrative Justice (“Fiscal Court”) of its resolution regarding TFM’s Value Added Tax (VAT) Lawsuit initiated by TFM in 1997 (valued at $2,111 million pesos as of December 1996).
The resolution is the result of the unanimous vote of the nine magistrates present at the public session, and was issued in compliance with the June 11, 2003, ruling (amparo) of the Court of the First Circuit (the “Federal Court”). With this new resolution, the Fiscal Court has resolved to vacate its previous resolution of December 6, 2002, considering the “ficta denial” (negativa ficta) claimed by TFM, and has also resolved that TFM proved its claim. The Fiscal Court has ordered the issuance of the VAT Certificate to TFM under the terms established by article 22 of the Mexican Fiscal Code.
On October 3, the Tax Attorney of the Mexican Government filed for a review of the ruling.
TFM PUT
Grupo TFM has requested a federal judge in Mexico to provide an appropriate interpretation of the Purchase-Sale Agreement of TFM’s common stock, requesting adherence to the specific process provided in the Agreement and its Amendments for the exercising of the Mexican government’s Put option for the 20 percent equity interest in TFM it retains.
Since none of the steps of this process have been completed; and the real value of the shares of TFM owned by the government cannot be determined because TFM has not received reimbursement of a Value Added Tax, although ordered by the Mexican Fiscal Court on August 13, there can be no condition that applies in order for the Mexican government to request that TFM acquire the equity stake held at TFM by the government.
Grupo TFM acknowledges its commitment to acquire the equity interest that the Mexican government holds in TFM and has informed the government of its desire to comply once the pending steps from the original Agreement are completed.
TMM’s management will discuss earnings and provide a corporate update on Wednesday, October 29 at 11:00 a.m. Eastern Time. To participate in the call, please dial 800-240-2134 (domestic) or 212-329-1451 (international) at least five minutes prior to the start of the call. A simultaneous Webcast of the meeting will be available at http://www.actioncast.acttel.com , Event ID: 17893. The company suggests that Internet participants access the site at least five minutes prior to the start of the conference call to download and install any software required to run the presentation. A replay of the conference call will be available through November 5 at 11:59 p.m. EST, by dialing 800-405-2236 or 303-590-3000, and entering conference ID 555517. On the Internet a replay will be available for 30 days at http://www.actioncast.acttel.com, Event ID: 17893.
Headquartered in Mexico City, Grupo TMM is a Latin American multimodal transportation company. Through its branch offices and network of subsidiary companies, TMM provides a dynamic combination of ocean and land transportation services. TMM also has a significant interest in Transportacion Ferroviaria Mexicana (TFM), which operates Mexico’s Northeast railway and carries over 40 percent of the country’s rail cargo. Visit Grupo TMM’s web site at www.grupotmm.com and TFM’s web site at www.tfm.com.mx. Both sites offer Spanish/English language options.