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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 1-871
BUCYRUS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 39-0188050
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P. O. BOX 500
1100 MILWAUKEE AVENUE
SOUTH MILWAUKEE, WISCONSIN 53172
(Address of Principal (Zip Code)
Executive Offices)
(414) 768-4000
(Registrant's Telephone Number, Including Area Code)
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 ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ X ] No [ ]
As of March 24, 2000, 1,442,150 shares of common stock of the Registrant
were outstanding. Of the total outstanding shares of common stock on
March 24, 2000, 1,430,300 were held of record by American Industrial Partners
Acquisition Company, LLC, which may be deemed an affiliate of Bucyrus
International, Inc., and 5,550 shares were held by directors and officers of
the Company. There is no established public trading market for such stock.
Documents Incorporated by Reference: None
PART I
ITEM 1. BUSINESS
Bucyrus International, Inc. (the "Company"), formerly known as Bucyrus-
Erie Company, was incorporated in Delaware in 1927 as the successor to a
business which commenced in 1880. The Company is currently substantially
wholly-owned by American Industrial Partners Acquisition Company, LLC
("AIPAC").
The Company designs, manufactures and markets large excavation machinery
used for surface mining, and supplies replacement parts and service for such
machines. The Company's principal products are large walking draglines,
electric mining shovels and blasthole drills, which are used by customers who
mine coal, iron ore, copper, phosphate, bauxite and other minerals throughout
the world.
This Report includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Discussions
containing such forward-looking statements may be found in this section, as
well as in ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS and elsewhere within this Report.
Forward-looking statements include statements regarding the intent, belief or
current expectations of the Company, primarily with respect to the future
operating performance of the Company or related industry developments. When
used in this Report, terms such as "anticipate," "believe," "estimate,"
"expect," "indicate," "may be," "objective," "plan," "predict," and "will be"
are intended to identify such statements. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ from those
described in the forward-looking statements as a result of various factors,
many of which are beyond the control of the Company. Forward-looking
statements are based upon management's expectations at the time they are made.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from such expectations ("Cautionary
Statements") are described generally below and disclosed elsewhere in this
Report. All subsequent written or oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by the Cautionary Statements.
Factors that could cause actual results to differ materially from those
contemplated include:
Factors affecting customers' purchases of new equipment, rebuilds,
parts and services such as: production capacity, stockpiles, and
production and consumption rates of coal, copper, iron, gold and other
ores and minerals; the cash flows of customers; the cost and availability
of financing to customers and the ability of customers to obtain
regulatory approval for investments in mining projects; consolidations
among customers; work stoppages at customers or providers of
transportation; and the timing, severity and duration of customer buying
cycles.
Factors affecting the Company's general business, such as: unforseen
patent, tax, product, environmental, employee health or benefit, or
contractual liabilities; nonrecurring restructuring and other special
charges; changes in accounting or tax rules or regulations; reassessments
of asset valuations for such assets as receivables, inventories, fixed
assets and intangible assets; leverage and debt service; our success in
recruiting and retaining managers and key employees; and our wage
stability and cooperative labor relations; plant capacity and
utilization.
Industry Overview
The large-scale surface mining equipment manufactured and serviced by the
Company is used primarily in coal, copper and iron ore mines throughout the
world. Growth in demand for these commodities is a function of population
growth and continuing improvements in standards of living in many areas of the
world. The market for new surface mining equipment is somewhat cyclical in
nature due to market fluctuations for these commodities; however, the
aftermarket for parts and services is more stable because these expensive,
complex machines are typically kept in continuous operation for 15 to 30 years
and require regular maintenance and repair throughout their productive lives.
The largest markets for this mining equipment have been in Australia,
Canada, China, India, South Africa, South America and the United States.
Together, these markets typically account for approximately 90% of all new
machines sold, although in any given year markets in other countries may
assume greater importance.
Markets Served
The Company's products are used in a variety of different types of mining
operations, including gold, phosphate, bauxite and oil sands, as well as for
land reclamation. The Company manufactures surface mining equipment primarily
for large companies and quasi-governmental entities engaged in the mining of
coal, iron ore and copper throughout the world. Until the late 1980's, coal
mining accounted for the largest percentage of industry demand for the
Company's machines, and it continues to be one of the largest users of
replacement parts and services. In recent years, however, copper mining
operations have accounted for an increasingly greater share of new machine
sales.
Copper. In 1999, the copper industry saw a consolidation of large
producers. To balance supply against demand, a number of the smaller
North American high-cost producers closed their facilities as new mines
in South America started producing copper at lower costs. The price of
copper in 1999 dropped to an eleven-year low of $0.61 per pound in March
and then increased to $0.80 by the end of the year as supply and demand
became more closely balanced.
Coal. There are two types of coal, steam coal used to generate
electricity and coking coal used in the process of producing steel. The
largest producers are China, the United States, India, Australia, Russia
and South America. In the United States, environmental legislation has
caused the mining of coal to shift from east of the Mississippi River to
the Powder River Basin in the west, where the sulfur content is much
lower providing a cleaner burning coal. This has resulted in the closing
of many mines and idling most of the equipment. Some draglines and
electric mining shovels have been employed in the western mines. The
growing demand for coal is in the developing countries with rapid growing
populations.
Iron Ore. Iron ore is the only source of primary iron and is mined
in more than 50 countries. The five largest producers, accounting for
76% of world production, are China, Brazil, Australia, Russia and India.
The Company's excavation machines are used for land reclamation as well
as for mining, which has a positive effect on the demand for its products and
replacement parts and expands the Company's potential customer base. Current
federal and state legislation regulating surface mining and reclamation may
affect some of the Company's customers, principally with respect to the cost
of complying with, and delays resulting from, reclamation and environmental
requirements.
OEM Products
The Company's line of original equipment manufactured products includes a
full range of rotary blasthole drills, electric mining shovels and draglines.
Rotary Blasthole Drills. Most surface mines require breakage or
blasting of rock, overburden, or ore by explosives. To accomplish this,
it is necessary to bore out a pattern of holes into which the explosives
are placed. Rotary blasthole drills are used to drill these holes and
are usually described in terms of the diameter of the hole they bore.
The average life of a blasthole drill is 15 to 20 years.
The Company offers a line of rotary blasthole drills ranging in hole
diameter size from 9.0 inches to 17.5 inches and ranging in price from
approximately $1,500,000 to $2,800,000 per drill, depending on machine
size and variable features.
Electric Mining Shovels. Mining shovels are primarily used to load
coal, copper ore, iron ore, other mineral-bearing materials, overburden,
or rock into trucks. There are two basic types of mining shovels,
electric and hydraulic. Electric mining shovels are able to handle
larger shovels or "dippers", allowing them to load greater volumes of
rock and minerals, while hydraulic shovels are smaller and more
maneuverable. The Company manufactures only electric mining shovels.
The average life of an electric mining shovel is 15 to 20 years.
Mining shovels are characterized in terms of weight and dipper
capacity. The Company offers a full line of electric mining shovels,
weighing from 400 to 1,300 tons and having dipper capacities from 12 to
85 cubic yards. Prices range from approximately $3,000,000 to
approximately $10,000,000 per shovel.
Draglines. Draglines are primarily used to remove overburden, which
is the earth located over a coal or mineral deposit, by dragging a large
bucket through the overburden, carrying it away and depositing it in a
remote spoil pile. The Company's draglines weigh from 500 to 7,500 tons,
and are typically described in terms of their "bucket size", which can
range from nine to 220 cubic yards. The Company currently offers a full
line of models ranging in price from $10,000,000 to over $60,000,000 per
dragline. The average life of a dragline is 20 to 30 years.
Draglines are the industry's largest and most expensive type of
equipment, and while sales are sporadic, each dragline represents a
significant sales opportunity.
Aftermarket Parts and Services
The Company has a comprehensive aftermarket business that supplies
replacement parts and services for the surface mining industry. The Company's
aftermarket services include maintenance and repair labor, technical advice,
refurbishment and relocation of older, installed machines, particularly
draglines. The Company also provides engineering, manufacturing and servicing
for the consumable rigging products that attach to dragline buckets (such as
dragline teeth and adapters, shrouds, dump blocks and chains) and shovel
dippers (such as dipper teeth, adapters and heel bands).
In general, the Company realizes higher margins on sales of parts and
services than it does on sales of new machines. Moreover, because the
expected life of large, complex mining machines ranges from 15 to 30 years,
the Company's aftermarket business is inherently more stable and predictable
than the fluctuating market for new machines. Over the life of a machine, net
sales generated from aftermarket parts and services can exceed the original
purchase price.
A substantial portion of the Company's international repair and
maintenance services are provided through its global network of wholly-owned
foreign subsidiaries and overseas offices operating in Argentina, Australia,
Brazil, Canada, Chile, China, England, India, Mauritius, Peru and South
Africa. The Company's two wholly-owned domestic subsidiaries, Minserco, Inc.
("Minserco") and Boonville Mining Services, Inc. ("BMSI"), provide repair and
maintenance services throughout North America. Minserco, which maintains
offices in Florida, Kentucky, Texas and Wyoming, provides comprehensive
structural and mechanical engineering, non-destructive testing, repairs and
rebuilds of machine components, product and component upgrades, contract
maintenance, turnkey erections and machine moves. Minserco's services are
provided almost exclusively to maintenance and repair of Bucyrus machines
operating in North America. BMSI sells replacement parts and provides repair
and rebuild services both for Company machines and other manufacturers'
equipment.
To comply with the increasing aftermarket demands of larger mining
customers, the Company offers comprehensive Maintenance and Repair Contracts
("MARCs"). Under these contracts, the Company provides all replacement parts,
regular maintenance services and necessary repairs for the excavation
equipment at a particular mine with an on-site support team. In addition,
some of these contracts call for Company personnel to operate the equipment
being serviced. MARCs are highly beneficial to the Company's mining customers
because they promote high levels of equipment reliability and performance,
allowing the customer to concentrate on mining production. MARCs typically
have terms of three to five years with standard termination and renewal
provisions, although some contracts allow termination by the customer for any
cause. New mines in areas such as Chile, Argentina and Peru are the primary
targets for MARCs because it is difficult and expensive for mining companies
to establish the necessary infrastructures for ongoing maintenance and repair
in remote locations.
The Bennett & Emmott Acquisition
On April 30, 1999, the Company's wholly-owned subsidiary, Bucyrus Canada
Limited, consummated the acquisition of certain assets of Bennett & Emmott
(1986) Ltd. ("Bennett & Emmott"), a privately owned Canadian company with
extensive experience in the field repair and service of heavy machinery for
the surface mining industry. In addition to the surface mining industry,
Bennett & Emmott services a large number of customers in the pulp and paper,
sawmill, oil and natural gas industries in Western Canada, the Northwest
Territories and the Yukon. The company provides design and manufacturing
services, as well as in-house and field repair and testing of electrical and
mechanical equipment. Bennett & Emmott also distributes compressors,
generators and related products. This acquisition strengthens the Company's
position in the oil sands area of Western Canada.
Customers
The Company does not consider itself dependent upon any single customer
or group of customers; however, on an annual basis a single customer may
account for a large percentage of sales, particularly new machine sales. In
1999, 1998 and 1997, one customer accounted for approximately 16%, 19% and
14%, respectively, of the Company's consolidated net sales.
Marketing, Distribution and Sales
In the United States, new mining machinery is primarily sold directly by
Company personnel, and to a lesser extent through a northern Minnesota
distributor who supplies customers in the iron ore mining regions of the Upper
Midwest. Outside of the United States, new equipment is sold by Company
personnel, through independent distributors and through the Company's
subsidiaries and offices located in Argentina, Australia, Brazil, Canada,
Chile, China, England, India, Mauritius, Peru and South Africa. Aftermarket
parts and services are primarily sold directly by Company personnel and
through independent distributors, the Company's foreign subsidiaries and
offices and the Company's two domestic subsidiaries, Minserco and BMSI. The
Company believes that marketing through its own global network of subsidiaries
and offices offers better customer service and support by providing customers
with direct access to the Company's technological and engineering expertise.
Typical payment terms for new equipment require a down payment, and
invoicing is done on a percentage of completion basis such that a substantial
portion of the purchase price is received by the time shipment is made to the
customer. Sales contracts for machines are predominantly at fixed prices,
with escalation clauses in certain cases. Most sales of replacement parts
call for prices in effect at the time of order. During 1999, price increases
from inflation had a relatively minor impact on the Company's reported net
sales; however, the strong United States dollar continues to negatively affect
net sales reported by the Company's foreign subsidiaries.
Foreign Operations
A substantial portion of the Company's net sales and operating earnings
is attributable to operations located abroad. Over the past five years, over
75% of the Company's new machine sales have been in international markets.
The Company's foreign sales, consisting of exports from the United States and
sales by consolidated foreign subsidiaries, totaled $250,735,000 in 1999,
$223,203,000 in 1998 and $235,750,000 in 1997. Approximately $165,762,000 of
the Company's backlog of firm orders at December 31, 1999 represented orders
for export sales compared with $235,529,000 at December 31, 1998 and
$178,237,000 at December 31, 1997.
The Company's largest foreign markets are in Australia, Canada, Chile,
China, India, Peru and South Africa. The Company also employs direct
marketing strategies in developing markets such as Indonesia, Jordan, Morocco
and Russia. In recent years, Australia and South Africa have emerged as
strong producers of metallurgical coal. Chile and Peru are producers of
copper. The Company expects that India, Russia and China will become major
coal producing regions in the future. In India, the world's second most
populous country, the demand for coal as a major source of energy is expected
to increase over the next several decades.
New machine sales in foreign markets are supported by the Company's
established network of foreign subsidiaries and overseas offices that directly
market the Company's products and provide ongoing services and replacement
parts for equipment installed abroad. The availability and convenience of the
services provided through this worldwide network not only promotes higher
margin aftermarket sales of parts and services, but also gives the Company an
advantage in securing new machine orders.
The Company and its domestic subsidiaries normally price their products,
including direct sales of new equipment to foreign customers, in U.S. dollars.
Foreign subsidiaries normally procure and price aftermarket replacement parts
and repair services in the local currency. Approximately 70% of the Company's
net sales are priced in U.S. dollars. The value, in U.S. dollars, of the
Company's investments in its foreign subsidiaries and of dividends paid to the
Company by those subsidiaries will be affected by changes in exchange rates.
The Company does not normally enter into currency hedges, although it may do
so with regard to certain individual contracts.
Further segment and geographical information is included in ITEM 8 -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Competition
There are a limited number of manufacturers of new surface mining
equipment. The Company is one of two manufacturers of electric mining shovels
and draglines. The Company's only competitor in electric mining shovels and
draglines is Harnischfeger Corporation, although electric mining shovels also
compete against hydraulic shovels of which there are at least five other
manufacturers. In rotary blasthole drills, the Company competes with at least
three other manufacturers, including Harnischfeger Corporation. Methods of
competition are diverse and include product design and performance, service,
delivery, application engineering, pricing, financing terms and other
commercial factors.
For most owners of the Company's machines, the Company is the primary
replacement source for large, heavily engineered, integral components;
however, the Company encounters intense competition for sales of smaller, less
sophisticated, consumable replacement parts and repair services in certain
markets. The Company's competition in parts sales consists primarily of
smaller independent firms called "will-fitters" that produce copies of the
parts manufactured by the Company and other original equipment manufacturers.
These copies are generally sold at lower prices than genuine parts produced by
the manufacturer. Outside North America, customers mainly rely upon the
Company's subsidiaries, distributors or direct sales from the United States
for aftermarket parts and services.
The Company has a variety of programs to attract large volume customers
for its replacement parts. Although will-fitters engage in significant price
competition in parts sales, the Company possesses clear non-price advantages
over will-fitters. The Company's engineering and manufacturing technology and
marketing expertise exceed that of its will-fit competitors, who are in many
cases unable to duplicate the exact specifications of genuine Bucyrus parts.
Moreover, use of parts not manufactured by the Company can void the warranty
on a new Bucyrus machine, which generally runs for one year on new equipment,
with certain components being warranted for longer periods.
Raw Materials and Supplies
The Company purchases from outside vendors the semi- and fully-processed
materials (principally structural steel, castings and forgings) required for
its manufacturing operations, and other items, such as electrical equipment,
that are incorporated directly into the end product. The Company's foreign
subsidiaries purchase components and manufacturing services both from local
subcontractors and from the Company. Certain additional components are
sometimes purchased from subcontractors, either to expedite delivery schedules
in times of high demand or to reduce costs. Moreover, in countries where
local content preferences or requirements exist, local subcontractors are used
to manufacture a substantial portion of the components required in the
Company's foreign manufacturing operations. Although the Company is not
dependent upon any single supplier, there can be no assurance that the Company
will continue to have an adequate supply of raw materials or components
necessary to enable it to meet the demand for its products. Competitors are
believed to be subject to similar conditions.
Manufacturing
A substantial portion of the design, engineering and manufacturing of the
Company's machines is done at the Company's South Milwaukee, Wisconsin plant.
The size and weight of these mining machines dictates that the machines be
shipped to the job site in sub-assembled units where they are assembled for
operation with the assistance of Company technicians. Planning and on-site
coordination of machine assembly is a critical component of the Company's
service to its customers. Moreover, to reduce lead time and assure that
customer delivery requirements are met, the Company maintains an inventory of
sub-assembled units for frequently utilized components of various types of
equipment.
The Company manufactures and sells replacement parts and components and
provides comprehensive aftermarket service for its entire line of mining
machinery. The Company's large installed base of surface mining machinery
provides a steady stream of parts sales due to the long useful life of the
Company's machines, averaging 20 to 30 years for draglines and 15 to 20 years
for electric mining shovels and blasthole drills. Parts sales and aftermarket
services comprise a substantial portion of the Company's net sales.
Although a majority of the Company's operating profits are derived from
sales of parts and services, the long-term prospects of the Company depend
upon maintaining a large installed equipment base worldwide. Therefore, the
Company remains committed to improving the design and engineering of its
existing line of machines, as well as developing new products.
Backlog
The backlog of firm orders was $187,278,000 at December 31, 1999 and
$262,457,000 at December 31, 1998. Approximately 49% of the backlog at
December 31, 1999 is not expected to be filled during 2000.
Inventories
Inventories at December 31, 1999 were $125,132,000 compared with
$113,226,000 at December 31, 1998. At December 31, 1999 and December 31,
1998, finished goods inventory (primarily replacement parts) totalling
$94,469,000 and $78,852,000, respectively, were held to meet delivery
requirements of customers. Effective in 1999, certain parts inventories
previously classified as raw materials are now classified as finished products
(primarily replacement parts). The December 31, 1998 finished goods inventory
balance has been restated to reflect this reclassification.
Patents, Licenses and Franchises
The Company has a number of United States and foreign patents, patent
applications and patent licensing agreements. It does not consider its
business to be materially dependent upon any patent, patent application,
patent license agreement or group thereof.
Research and Development
Expenditures for design and development of new products and improvements
of existing mining machinery products, including overhead, aggregated
$7,646,000 in 1999, $8,247,000 in 1998 and $7,384,000 in 1997. All
engineering and product development costs are charged to Engineering and Field
Service Expense as incurred.
Environmental Factors
Environmental problems have not interfered in any material respect with
the Company's manufacturing operations. The Company believes that its
compliance with statutory requirements respecting environmental quality will
not materially affect its capital expenditures, earnings or competitive
position. The Company has an ongoing program to address any potential
environmental problems.
Current federal and state legislation regulating surface mining and
reclamation may affect some of the Company's customers, principally with
respect to the cost of complying with, and delays resulting from, reclamation
and environmental requirements. The Company's products are used for
reclamation as well as for mining, which has a positive effect on the demand
for such products and replacement parts therefor.
Employees
At December 31, 1999, the Company employed approximately 1,800 persons.
The four-year contract with the union representing hourly workers at the South
Milwaukee, Wisconsin facility and the four-year contract with the union
representing hourly workers at the Memphis, Tennessee facility expire in
April, 2001 and August, 2002, respectively.
Seasonal Factors
The Company does not consider a material portion of its business to be
seasonal.
ITEM 2. PROPERTIES
The Company's principal manufacturing plant in the United States is
located in South Milwaukee, Wisconsin, and is owned by the Company. This
plant comprises approximately 1,026,000 square feet of floor space. A portion
of this facility houses the Company's corporate offices. The major buildings
at this facility are constructed principally of structural steel, concrete and
brick and have sprinkler systems and other devices for protection against
fire. The buildings and equipment therein, which include machine tools and
equipment for fabrication and assembly of the Company's mining machinery,
including draglines, electric mining shovels and blasthole drills, are well-
maintained, in good condition and in regular use.
The Company leases a facility in Memphis, Tennessee, which has
approximately 110,000 square feet of floor space and is used as a central
parts warehouse. The current lease is for five years commencing in July 1996
and contains an option to renew for an additional five years.
The Company also has administrative and sales offices and, in some
instances, repair facilities and parts warehouses, at certain of its foreign
locations, including Argentina, Australia, Brazil, Canada, Chile, China,
England, India, Peru and South Africa.
ITEM 3. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
Joint Prosecution
On September 25, 1997, the Company and Jackson National Life Insurance
Company ("JNL") commenced an action against Milbank, Tweed, Hadley & McCloy
("Milbank") in the Milwaukee County Circuit Court (the "Milwaukee Action").
The Company sought damages against Milbank arising out of Milbank's alleged
malpractice, breach of fiduciary duty, common law fraud, breach of contract,
unjust enrichment and breach of the obligation of good faith and fair dealing.
JNL sought damages against Milbank arising out of Milbank's alleged tortious
interference with contractual relations, abuse of process and common law
fraud. On December 31, 1998, the Company and JNL settled the Milwaukee
Action, which was thereafter dismissed by the agreement of the parties on
February 24, 1999. The amounts received by the Company in connection with the
settlement of the Milwaukee Action are included in Other Income in the
Consolidated Statements of Operations for the year ended December 31, 1998.
Product Liability
The Company is normally subject to numerous product liability claims,
many of which relate to products no longer manufactured by the Company or its
subsidiaries, and other claims arising in the ordinary course of business.
The Company has insurance covering most of said claims, subject to varying
deductibles ranging from $300,000 to $3,000,000, and has various limits of
liability depending on the insurance policy year in question. It is the view
of management that the final resolution of said claims and other similar
claims which are likely to arise in the future will not individually or in the
aggregate have a material effect on the Company's financial position or
results of operations, although no assurance to that effect can be given.
Environmental and Related Matters
The Company's operations and properties are subject to a broad range of
federal, state, local and foreign laws and regulations relating to
environmental matters, including laws and regulations governing discharges
into the air and water, the handling and disposal of solid and hazardous
substances and wastes, and the remediation of contamination associated with
releases of hazardous substances at Company facilities and at off-site
disposal locations. These laws are complex, change frequently and have tended
to become more stringent over time. Future events, such as compliance with
more stringent laws or regulations, more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
could require additional expenditures by the Company, which may be material.
Certain environmental laws, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), provide for
strict, joint and several liability for investigation and remediation of
spills and other releases of hazardous substances. Such laws may apply to
conditions at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which wastes or
other contamination attributable to an entity or its predecessors come to be
located.
The Company was one of 53 entities named by the United States
Environmental Protection Agency ("EPA") as potentially responsible parties
("PRPs") with regard to the Millcreek dumpsite, located in Erie County,
Pennsylvania, which is on the National Priorities List of sites for cleanup
under CERCLA. The Company was named as a result of allegations that it
disposed of foundry sand at the site in the 1970s. Both the United States
government and the Commonwealth of Pennsylvania initiated actions to recover
cleanup costs. The Company has settled with both with respect to its
liability for past costs. In addition, 37 PRPs, including the Company, have
received Administrative Orders issued by the EPA pursuant to Section 106(a) of
CERCLA to perform site capping and flood control remediation at the Millcreek
site. The Company is one of 18 parties responsible for a share of the
estimated $7,000,000 in costs, which share is presently proposed as per capita
but may be subject to reallocation before the conclusion of the case.
In December 1990, the Wisconsin Department of Natural Resources ("DNR")
conducted a pre-remedial screening site inspection on property owned by the
Company located at 1100 Milwaukee Avenue in South Milwaukee, Wisconsin.
Approximately 35 acres of this site were allegedly used as a landfill by the
Company until approximately 1983. The Company disposed of certain
manufacturing wastes at the site, primarily foundry sand. The DNR's Final
Site Screening Report, dated April 16, 1993, summarized the results of
additional investigation. A DNR Decision Memo, dated July 21, 1991, which was
based upon the testing results contained in the Final Site Screening Report,
recommended additional groundwater, surface water, sediment and soil sampling.
To date, the Company is not aware of any initiative by the DNR to require any
further action with respect to this site. Consequently, the Company has not
regarded, and does not regard, this site as presenting a material contingent
liability. There can be no assurance, however, that additional investigation
by the DNR will not be conducted with respect to this site at some later date
or that this site will not in the future require removal or remedial actions
to be performed by the Company, the costs of which could be material,
depending on the circumstances.
Prior to 1985, a wholly-owned, indirect subsidiary of the Company
provided comprehensive general liability insurance coverage for affiliate
corporations. The subsidiary issued such policies for occurrences during the
years 1974 to 1984, which policies could involve material liability. Claims
have been made under certain of these policies for certain potential CERCLA
liabilities of former subsidiaries of the Company. It is possible that other
claims could be asserted in the future with respect to such policies. While
the Company does not believe that liability under such policies will result in
material costs, this cannot be guaranteed.
Along with multiple other parties, the Company or its subsidiaries are
currently PRP's under CERCLA and analogous state laws at three additional
sites at which the Company and/or its subsidiaries (including the above
referenced insurance subsidiary by insurance claim) may incur future costs.
The Company believes that one of these cases has been settled. While CERCLA
imposes joint and several liability on responsible parties, liability for each
site is likely to be apportioned among the parties. The Company does not
believe that its potential liability in connection with these sites or any
other discussed above, either individually or in the aggregate, will have a
material adverse effect on the Company's business, financial condition or
results of operations. However, the Company cannot guarantee that it will not
incur cleanup liability in the future with respect to sites formerly or
presently owned or operated by the Company, or with respect to off-site
locations, the costs of which could be material.
While no assurance can be given, the Company believes that expenditures
for compliance and remediation will not have a material effect on its capital
expenditures, results of operations or competitive position.
During 1999 and in early 2000, the eight pending premises liability
asbestos cases in the state courts of Indiana and in federal court, and the
one product liability asbestos case, reported in the Company's 1998 Annual
Report on Form 10-K, were settled or dismissed. During 1999 and 2000 (to the
date of this Report), the Company has been named as a co-defendant in 152
personal injury liability asbestos cases which are pending in state court in
New York County, New York. In all these cases, insurance carriers have
accepted the defense of such cases. These cases are in preliminary stages and
while the Company does not believe that costs associated with these matters
will be material, it cannot guarantee that this will be the case.
Other
The Company is involved in various other litigation arising in the normal
course of business. It is the view of management that the Company's recovery
or liability, if any, under pending litigation is not expected to have a
material effect on the Company's financial position or results of operations,
although no assurance to that effect can be given.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Substantially all of the Company's common stock is held by AIPAC and
there is no established public trading market therefor. The Company does not
have a recent history of paying dividends and has no present intention to pay
dividends in the foreseeable future.
In 1999, the Company sold 1,550 shares of its common stock to certain of
its executive officers at a price of $100 per share. Exemption from
registration of the shares sold under the Securities Act of 1933 (the
"Securities Act") is claimed under Section 4(2) of the Securities Act because
the offer and sale thereof was restricted to a limited number of individuals,
all of whom were members of management of the Company, without any advertising
or other selling efforts commonly associated with a "public offering".
ITEM 6. SELECTED FINANCIAL DATA
Predecessor
September 24- January 1- Years Ended
Years Ended December 31, December 31, September 23, December 31,
1999(a) 1998(a) 1997(a) 1997 1996 1995
(Dollars In Thousands, Except Per Share Amounts)
Consolidated Statements
of Operations Data:
Net sales $318,635 $315,838 $ 95,212 $211,465 $263,786 $231,921
Net earnings (loss) $(22,575) $ (8,264) $ (7,158) $ (4,874) $ 2,878 $(18,772)
Net earnings (loss)
per share of
common stock (b):
Basic $ (15.65) $ (5.75) $ (5.00) $ (.48) $ .28 $ (1.84)
Diluted $ (15.65) $ (5.75) $ (5.00) $ (.47) $ .28 $ (1.84)
Adjusted
EBITDA (c) $ 20,742 $ 35,967 $ 9,936 $ 18,704 $ 19,247 $ 8,256
Cash dividends per
common share $ - $ - $ - $ - $ - $ -
Consolidated Balance
Sheets Data:
Total assets $416,987 $417,195 $406,107 N/A $172,895 $174,038
Long-term debt $214,009 $202,308 $174,612 N/A $ 66,627 $ 58,021
(a) As a result of purchase accounting due to the acquisition of the Company by AIPAC on September 24, 1997, the
financial statements of the Company subsequent to this date are not comparable to the financial statements of
the Predecessor.
(b) Net loss per share of common stock for the period September 24, 1997 to December 31, 1997 is calculated on a
retroactive basis to reflect a stock split on March 17, 1998. See Note G to the Consolidated Financial
Statements for further discussion of this change in the Company's capital structure.
(c) Earnings before interest expense, income taxes, depreciation, amortization, non-cash stock compensation, (gain)
loss on sale of fixed assets, loss on fixed asset impairment, nonrecurring items, restructuring expenses,
reorganization items and inventory fair value adjustment charged to cost of products sold.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Acquisitions
On August 21, 1997, the Company entered into an Agreement and Plan of
Merger (the "AIP Agreement") with AIPAC, which is wholly-owned by American
Industrial Partners Capital Fund II, L.P., and Bucyrus Acquisition Corp.
("BAC"), a wholly-owned subsidiary of AIPAC. On August 26, 1997, pursuant to
the AIP Agreement, BAC commenced an offer to purchase for cash 100% of the
outstanding shares of common stock of the Company at a price of $18.00 per
share (the "AIP Tender Offer"). Consummation of the AIP Tender Offer occurred
on September 24, 1997, and BAC was merged with and into the Company on
September 26, 1997 (the "AIP Merger"). The Company was the surviving entity
in the AIP Merger. The purchase of the Company's outstanding shares of common
stock by AIPAC resulted in a change in control of voting interest.
On August 26, 1997, the Company consummated the acquisition (the "Marion
Acquisition") of certain assets and liabilities of The Marion Power Shovel
Company, a subsidiary of Global Industrial Technologies, Inc. ("Global"), and
of certain subsidiaries and divisions of Global that represented Global's
surface mining equipment business in Australia, Canada and South Africa
(collectively referred to herein as "Marion"). The cash purchase price for
Marion was $36,720,000, which includes acquisition expenses of $1,695,000.
The Company financed the Marion Acquisition and related expenses by utilizing
an unsecured bridge loan (the "Bridge Loan") provided by a former affiliate of
the Company, in the amount of $45,000,000. The Bridge Loan was repaid in full
on September 24, 1997 with a portion of the proceeds from the sale of the
Private Notes (see below).
On September 24, 1997, the Company completed the private placement of
$150,000,000 aggregate principal amount of its 9-3/4% Senior Notes due 2007
(the "Private Notes") in a transaction under Rule 144A of the Securities Act
of 1933, as amended (the "Act"). Following the completion of the sale of the
Private Notes, the Company purchased and cancelled its 10.5% Secured Notes due
December 14, 1999 (the "Secured Notes") at a cost of $67,414,000 including
accrued interest, utilizing a portion of the proceeds from the sale of the
Private Notes. On December 18, 1997, the Company completed the exchange of
$150,000,000 aggregate principal amount of its 9-3/4% Senior Notes due 2007
(the "Senior Notes") for the Private Notes. The Senior Notes were registered
under the Act.
On April 30, 1999, the Company's wholly-owned subsidiary, Bucyrus Canada
Limited, consummated the acquisition of certain assets of Bennett & Emmott.
The cash purchase price for Bennett & Emmott was $7,050,000, including
acquisition expenses. Bucyrus Canada Limited financed the Bennett and Emmott
acquisition and related expenses primarily by utilizing a new credit facility
with The Bank of Nova Scotia.
In connection with these acquisitions, the assets and liabilities of the
acquired companies were adjusted to their estimated fair values. Also, upon
emergence from bankruptcy in 1994, total assets were recorded at their assumed
reorganization value, with the reorganization value allocated to identifiable
tangible and intangible assets on the basis of their estimated fair value, and
liabilities were adjusted to the present values of amounts to be paid where
appropriate. The consolidated financial statements include the related
amortization charges associated with the fair value adjustments.
Liquidity and Capital Resources
Liquidity
Working capital and current ratio are two financial measurements which
provide an indication of the Company's ability to meet its short-term
obligations. These measurements at December 31, 1999, 1998 and 1997 were as
follows:
1999 1998 1997
(Dollars in Thousands)
Working capital $122,194 $129,568 $120,883
Current ratio 2.6 to 1 3.1 to 1 2.9 to 1
The Company is presenting below a calculation of earnings (loss) before
interest expense, income taxes, depreciation, amortization, non-cash stock
compensation, (gain) loss on sale of fixed assets, loss on fixed asset
impairment, nonrecurring items and inventory fair value adjustment charged to
cost of products sold ("Adjusted EBITDA"). Since cash flow from operations is
very important to the Company's future, the Adjusted EBITDA calculation
provides a summary review of cash flow performance. In addition, the Company
is required to maintain certain minimum EBITDA levels as defined under its
bank credit agreement (see below). EBITDA as defined under the bank credit
agreement does not differ materially from Adjusted EBITDA as calculated below.
The Adjusted EBITDA calculation is not an alternative to operating income
under generally accepted accounting principles as an indicator of operating
performance or to cash flows as a measure of liquidity. The following table
reconciles Earnings (Loss) Before Income Taxes to Adjusted EBITDA:
Predecessor
September 24- January 1-
Years Ended December 31, December 31, September 23,
1999 1998 1997 1997
(Dollars in Thousands)
Earnings (loss)
before income
taxes $(20,196) $ (5,861) $ (7,441) $ (2,233)
Nonrecurring
items (1) - - - 10,051
Depreciation 11,200 10,331 2,678 3,125
Amortization 5,648 5,701 1,435 770
Non-cash stock
compensation - - - 677
(Gain) loss on
sale of fixed
assets and loss
on fixed asset
impairment(2) 4,392 11 (3) (275)
Inventory fair
value adjustment
charged to cost
of products
sold - 6,925 8,350 283
Interest expense 19,698 18,860 4,917 6,306
________ ________ ________ ________
Adjusted EBITDA $ 20,742 $ 35,967 $ 9,936 $ 18,704
(1) Nonrecurring items consist of $6,690,000 of expense to cash out the
outstanding stock options and stock appreciation rights in connection with the
acquisition of the Company by AIPAC and $3,361,000 of loan fees incurred in
connection with the Bridge Loan that was utilized to purchase Marion. The
loan fees were expensed when the Bridge Loan was repaid.
(2) Includes a fixed asset impairment charge of $4,372,000 at the
manufacturing facility in Boonville, Indiana.
The Company has a credit agreement with Bank One, Wisconsin which
provides the Company with a $75,000,000 senior secured revolving credit
facility (the "Revolving Credit Facility") with a $25,000,000 sublimit for
standby letters of credit. The credit agreement, as amended, expires on
July 3, 2001. Borrowings under the Revolving Credit Facility bear interest at
variable rates and are subject to a borrowing base formula based on
receivables, inventory and machinery and equipment. Direct borrowings under
the Revolving Credit Facility at December 31, 1999 and 1998 were $59,350,000
and $49,950,000, respectively, at a weighted average interest rate of 8.9% and
8.0%, respectively. The increase in direct borrowings from December 31, 1998
was primarily due to increased working capital requirements. The issuance of
standby letters of credit under the Revolving Credit Facility and certain
other bank facilities reduces the amount available for direct borrowings under
the Revolving Credit Facility. At December 31, 1999 and 1998, there were
$5,295,000 and $8,712,000, respectively, of standby letters of credit
outstanding under all Company bank facilities. The Revolving Credit Facility
is secured by substantially all of the assets of the Company, other than real
property and 35% of the stock of its foreign subsidiaries, and is guaranteed
by certain of the Company's domestic subsidiaries (the "Guarantors") who have
also pledged substantially all of their assets as security. The amount
available for direct borrowings under the Revolving Credit Facility at
December 31, 1999 was $7,422,000, which is net of $7,313,000 that was used for
the March 15, 2000 interest payment on the Senior Notes.
The Company has outstanding $150,000,000 of its Senior Notes which were
issued pursuant to an indenture dated as of September 24, 1997 among the
Company, the Guarantors and Harris Trust and Savings Bank, as Trustee (the
"Senior Notes Indenture"). The Senior Notes mature on September 15, 2007.
Interest thereon is payable each March 15 and September 15.
Both the Revolving Credit Facility and the Senior Notes Indenture contain
certain covenants which may affect the Company's liquidity and capital
resources. Also, both the Revolving Credit Facility and the Senior Notes
Indenture contain numerous covenants that limit the discretion of management
with respect to certain business matters and place significant restrictions
on, among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments
or investments, loans and guarantees, and to sell or otherwise dispose of
assets and merge or consolidate with another entity.
The Revolving Credit Facility also contains a number of financial
covenants that require the Company (A) to maintain certain financial ratios,
including: (i) ratio of adjusted funded debt to EBITDA (as defined);
(ii) fixed charge coverage ratio; and (iii) interest coverage ratio; and (B)
to maintain a minimum net worth and other covenants which limit the ability of
the Company and the Guarantors to incur liens; merge, consolidate or dispose
of assets; make loans and investments; incur indebtedness; engage in certain
transactions with affiliates; incur contingent obligations; enter into joint
ventures; enter into lease agreements; pay dividends and make other
distributions; change its business; redeem the Senior Notes; and make capital
expenditures.
The Senior Notes Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Guarantors to: (i) incur
additional indebtedness; (ii) pay dividends or make other distributions with
respect to capital stock; (iii) make certain investments; (iv) use the
proceeds of the sale of certain assets; (v) enter into certain transactions
with affiliates; (vi) create liens; (vii) enter into certain sale and
leaseback transactions; (viii) enter into certain mergers and consolidations
or a sale of substantially all of its assets; and (ix) prepay the Senior
Notes. Such covenants are subject to important qualifications and
limitations. In addition, the Senior Notes Indenture defines "EBITDA"
differently than "EBITDA" under the Revolving Credit Facility. At
December 31, 1999, the Company was in compliance with these covenants.
A failure to comply with the obligations contained in the Revolving
Credit Facility or the Senior Notes Indenture could result in an Event of
Default (as defined) under the Revolving Credit Facility or an Event of
Default (as defined) under the Senior Notes Indenture that, if not cured or
waived, would permit acceleration of the relevant debt and acceleration of
debt under other instruments that may contain cross-acceleration or cross-
default provisions. At December 31, 1999, the Company was in violation of
certain financial covenants under the Revolving Credit Facility. On March 14,
2000, the Revolving Credit Facility was amended to, among other items, waive
these covenant violations. The amendment also granted the Company a period of
time during 2000 whereby the Company will not be subject to certain of the
financial covenants contained in the Revolving Credit Facility. Subsequent to
this period of time, the Company will be subject to revised financial
covenants under the Revolving Credit Facility, which management believes are
achievable. As a result, borrowings continue to be presented as long-term.
In 1999, Bucyrus Canada Limited entered into a C$15,000,000 credit
facility with The Bank of Nova Scotia. Proceeds from this facility were used
to acquire certain assets of Bennett & Emmott. The C$10,000,000 revolving
term loan portion of this facility expires on December 31, 2000 and bears
interest at the bank's prime lending rate plus 1.50%. The C$5,000,000 non-
revolving term loan portion is payable in monthly installments over five years
and bears interest at the bank's prime lending rate plus 2%. This credit
facility contains covenants which, among other things, requires Bucyrus Canada
Limited to maintain a minimum current ratio and tangible net worth. At
December 31, 1999, Bucyrus Canada Limited was in compliance with these
covenants.
The Company believes that current levels of cash and liquidity, together
with funds generated by operations and funds available from the Revolving
Credit Facility, will be sufficient to permit the Company to satisfy its debt
service requirements and fund operating activities for the foreseeable future.
The Company is subject to significant business, economic and competitive
uncertainties that are beyond its control. Accordingly, there can be no
assurance that the Company's financial resources will be sufficient for the
Company to satisfy its debt service obligations and fund operating activities
under all circumstances.
Capital Resources
At December 31, 1999, the Company had approximately $1,190,000 of open
capital appropriations. The Company's capital expenditures for the year ended
December 31, 1999 were $6,792,000 compared with $12,803,000 for the year ended
December 31, 1998. In the near term, the Company currently anticipates
spending closer to the 1999 level or lower.
Capitalization
The long-term debt to equity ratio at December 31, 1999 and 1998 was
2.3 to 1 and 1.7 to 1, respectively. The long-term debt to total
capitalization ratio at December 31, 1999 and 1998 was .7 to 1 and .6 to 1,
respectively. Total capitalization is defined as total common shareholders'
investment plus long-term debt plus current maturities of long-term debt and
short-term obligations.
Results of Operations
The amounts presented below for 1997 include combined amounts for the
period September 24 to December 31, 1997 and for the Predecessor period
January 1 to September 23, 1997.
Net Sales
Net sales for 1999 were $318,635,000 compared with $315,838,000 for 1998.
Net sales of repair parts and services for 1999 were $204,428,000, which was a
decrease of 2.0% from 1998. Net machine sales for 1999 were $114,207,000,
which was an increase of 6.5% from 1998. The 1999 increase was due to
dragline volume and reflects the net sales on orders received for three
partial draglines in India in 1998 and one dragline in Australia in 1997.
Net sales for 1998 were $315,838,000 compared with $306,677,000 for 1997.
Net sales of repair parts and services for 1998 were $208,570,000 which was an
increase of 5.2% from 1997. This increase was primarily due to the Marion
Acquisition. Machine sales for 1998 were $107,268,000, which was a decrease
of 1.1% from 1997. Net sales of electric mining shovels decreased 15.6%,
while net sales of blasthole drills decreased by 38.2%. These decreases were
offset by increased dragline sales.
Other Income
Other income for 1998 includes an amount related to a favorable legal
settlement.
Cost of Products Sold
Cost of products sold for 1999 was $267,323,000 or 83.9% of net sales
compared with $263,211,000 or 83.3% of net sales for 1998 and $256,744,000 or
83.7% of net sales for 1997. The increase in the cost of products sold
percentage for 1999 was primarily due to unfavorable manufacturing variances
resulting from lower manufacturing activity associated with lower bookings and
due to the mix of the aftermarket items shipped. In 1998, the Company reduced
cost of sales by $1,210,000 as a result of a change in the Company's short-
term disability plan. Included in cost of products sold for 1998 and 1997
were charges of $6,925,000 and $8,633,000, respectively, as a result of fair
value adjustments to inventory being charged to cost of products sold as the
inventory was sold. The fair value adjustments were made as a result of the
acquisition of the Company by AIPAC. Excluding the effects of the inventory
fair value adjustment, cost of products sold as a percentage of net sales for
1998 and 1997 was 81.1% and 80.9%, respectively. Also included in cost of
products sold for 1999, 1998 and 1997 was $4,856,000, $4,450,000 and
$1,266,000, respectively, of additional depreciation expense as a result of
the fair value adjustment to plant and equipment in connection with
acquisitions involving the Company.
Engineering and Field Service, Selling, Administrative and Miscellaneous
Expenses
Engineering and field service, selling, administrative and miscellaneous
expenses for 1999 were $53,631,000 or 16.8% of net sales compared with
$46,332,000 or 14.7% of net sales in 1998 and $39,968,000 or 13.0% of net
sales in 1997. Included in the 1999 amount was a fixed asset impairment
charge of $4,372,000 recorded in the fourth quarter. The impairment relates
primarily to the manufacturing facility in Boonville, Indiana, which saw
declining operating results in the second half of 1999 as volume declined.
The charge represents the difference between book value and estimated fair
value based on expected proceeds. Subsequent to year-end, the Company decided
to close its manufacturing facility in Boonville, Indiana by the end of the
second quarter of 2000. Also included in the 1999 amount was $1,212,000 of
severance expense. The 1998 amount was reduced by $563,000 as a result of a
change in the Company's short-term disability plan.
Interest Expense
Interest expense for 1999 was $19,698,000 compared with $18,860,000 for
1998 and $11,223,000 for 1997. Included in interest expense for 1999, 1998
and 1997 was $14,625,000, $14,544,000 and $4,022,000, respectively, related to
the Senior Notes that were issued at the time the Company was acquired by
AIPAC. Also included in interest for 1999 was $400,000 of interest expense
related to debt incurred for the acquisition and operation of Bennett &
Emmott. Included in interest expense for 1997 was $5,064,000 related to the
Secured Notes. The Company purchased and cancelled the previously outstanding
Secured Notes on September 24, 1997.
Nonrecurring Items
Nonrecurring items in 1997 consist of $6,690,000 of expense incurred to
cash out the outstanding options to purchase shares of the Company's common
stock and outstanding stock appreciation rights in connection with the
acquisition of the Company by AIPAC, and $3,361,000 of loan fees incurred in
connection with the Bridge Loan that was utilized to finance the Marion
Acquisition. The Bridge Loan was subsequently repaid on September 24, 1997
and the loan fees were expensed.
Income Taxes
Income tax expense consists primarily of foreign taxes at applicable
statutory rates. For United States tax purposes, there were losses for which
no income tax benefit was recorded.
Net Earnings (Loss)
The net loss for 1999 was $22,575,000 compared with net losses of
$8,264,000 for 1998 and $12,032,000 for 1997. Included in the net loss for
1998 and 1997 was $6,267,000 and $7,864,000, respectively, (net of income
taxes) of the inventory fair value adjustment related to purchase accounting.
Non-cash depreciation and amortization charges were $16,848,000 in 1999
compared with $16,032,000 in 1998 and $8,008,000 in 1997. Also included in
the net loss for 1997 was $6,690,000 of expense to cash out the outstanding
stock options and stock appreciation rights in connection with the acquisition
of the Company by AIPAC and $3,361,000 of Bridge Loan fees which were expensed
when the Bridge Loan was repaid.
Backlog and New Orders
The Company's consolidated backlog at December 31, 1999 was $187,278,000
compared with $262,457,000 at December 31, 1998 and $216,021,000 at
December 31, 1997. Machine backlog at December 31, 1999 was $40,997,000,
which is a decrease of 63.9% from December 31, 1998. During 1999, there was a
decrease in both electric mining shovel and dragline backlog. During the
second quarter of 1997, the Company executed a contract with an Australian
mining company for the sale of a Model 2570WS dragline which is scheduled for
completion early in the year 2000. Included in backlog at December 31, 1999
and 1998 was $2,376,000 and $27,273,000, respectively, related to this
machine. During the fourth quarter of 1998, the Company sold four electric
mining shovels and three blasthole drills to a customer in Peru for a new
copper mine in that country. Also, during the fourth quarter of 1998, the
Company sold three partial draglines to a customer in India. Repair parts and
service backlog at December 31, 1999 was $146,281,000, which is a decrease of
1.7% from December 31, 1998.
New orders for 1999 were $243,456,000, which was a decrease of 32.8% from
1998. New machine orders for 1999 were $41,502,000, which was a decrease of
66.5% from 1998. Included in 1998 machine orders was the aforementioned order
for four electric mining shovels and three blasthole drills to a customer in
Peru. New repair parts and service orders for 1999 were $201,954,000, which
was a decrease of 15.3% from 1998. Both the new machine orders and the parts
and service orders continue to be affected by the softness in coal prices in
Australia and South Africa, the low worldwide price of copper and the lower
demand for other minerals. Recently, copper prices have increased from
approximately $.60 per pound to $.80 per pound. Also, there has been
increased activity in the oil sands area of Western Canada where the Company
recently acquired Bennett & Emmott. In 1999, the Company received an order in
the form of a ten year shovel parts supply agreement with a customer in
Western Canada.
Year 2000
The Company did not experience any significant malfunctions or errors in
the information or non-information technology systems when the date changed
from 1999 to 2000 ("Y2K"), and has not experienced any significant problems
with suppliers' or customers' ability to function as a result of the date
change. Because it is possible that the full impact of the date change has
not been fully recognized, the Company will continue to monitor the Y2K
situation. The Company believes, however, that any potential problems are
likely to be minor, short-term and correctable.
From the beginning of fiscal 1998 through fiscal 1999, the Company
incurred approximately $4,800,000 in capital costs and approximately $700,000
in expenses for Y2K readiness matters. The primary components of these costs
were external consulting and hardware and software upgrades as well as
internal costs, primarily payroll costs of Company employees.
Subsequent Event
Due to a reduction in new orders, the Company has reduced a portion of
its manufacturing production workforce through a layoff and has also reduced
the number of its salaried employees. These activities will result in a
restructuring charge of approximately $2,600,000 in the first quarter of 2000.
Such amount primarily relates to severance payments and related matters.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk is impacted by changes in interest rates and
foreign currency exchange rates.
Interest Rates
The Company's interest rate exposure relates primarily to debt
obligations in the United States. The Company manages its borrowings under
the Revolving Credit Facility through the selection of LIBOR based borrowings
or prime-rate based borrowings. If market conditions warrant, interest rate
swaps may be used to adjust interest rate exposures, although none have been
used to date.
At December 31, 1999, a sensitivity analysis was performed for the debt
obligations that have interest rate risk. Based on this sensitivity analysis,
the Company has determined that a 10% change in the Company's weighted average
interest rate at December 31, 1999 would not have a material effect on the
Company's financial position, results of operations or cash flows.
Foreign Currency
The Company manages foreign currency exchange rate exposure by utilizing
some natural hedges to mitigate some of its transaction and commitment
exposures, and may utilize forward contracts in certain situations.
Based on the Company's overall foreign currency exchange rate exposure at
December 31, 1999, a 10% change in foreign currency exchange rates will not
have a material effect on the Company's financial position, results of
operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)
Predecessor
September 24- January 1-
Years Ended December 31, December 31, September 23,
1999 1998 1997 1997
REVENUES:
Net sales $318,635 $315,838 $ 95,212 $211,465
Other income 1,821 6,704 346 1,289
________ ________ ________ ________
320,456 322,542 95,558 212,754
________ ________ ________ ________
COSTS AND EXPENSES:
Cost of products sold 267,323 263,211 85,229 171,515
Engineering and field service, selling,
administrative and miscellaneous expenses 53,631 46,332 12,853 27,115
Interest expense 19,698 18,860 4,917 6,306
Nonrecurring items - - - 10,051
________ ________ ________ ________
340,652 328,403 102,999 214,987
________ ________ ________ ________
Loss before income taxes (20,196) (5,861) (7,441) (2,233)
Income taxes 2,379 2,403 (283) 2,641
________ ________ ________ ________
Net loss $(22,575) $ (8,264) $ (7,158) $ (4,874)
Net loss per share of common stock:
Basic $(15.65) $(5.75) $(5.00) $ (.48)
Diluted $(15.65) $(5.75) $(5.00) $ (.47)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Predecessor
September 24- January 1-
Years Ended December 31, December 31, September 23,
1999 1998 1997 1997
Net loss $(22,575) $ (8,264) $ (7,158) $ (4,874)
Other comprehensive income (loss) -
foreign currency translation adjustments (3,223) (4,756) (3,619) (1,439)
________ ________ ________ ________
Comprehensive loss $(25,798) $(13,020) $(10,777) $ (6,313)
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)
December 31, December 31,
1999 1998 1999 1998
LIABILITIES AND COMMON
ASSETS SHAREHOLDERS' INVESTMENT
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 8,369 $ 8,821 Accounts payable and
Receivables 61,023 61,727 accrued expenses $ 64,640 $ 54,950
Inventories 125,132 113,226 Liabilities to customers on
Prepaid expenses and uncompleted contracts and
other current assets 5,502 6,381 warranties 4,876 3,168
Income taxes 353 950
Short-term obligations 445 513
Current maturities of long-
term debt 7,518 1,006
________ ________ ________ ________
Total Current Assets 200,026 190,155 Total Current Liabilities 77,832 60,587
OTHER ASSETS: LONG-TERM LIABILITIES:
Restricted funds on Liabilities to customers
deposit 89 476 on uncompleted contracts
Goodwill 69,335 71,835 and warranties 4,367 5,414
Intangible assets - net 40,357 42,573 Postretirement benefits 13,984 14,188
Other assets 11,375 11,526 Deferred expenses
________ ________ and other 12,645 14,585
________ ________
121,156 126,410
30,996 34,187
PROPERTY, PLANT AND EQUIPMENT: LONG-TERM DEBT, less
Land 3,287 2,933 current maturities 214,009 202,308
Buildings and improvements 12,531 10,546
Machinery and equipment 99,558 97,481 COMMON SHAREHOLDERS'
Less accumulated INVESTMENT:
depreciation (19,571) (10,330) Common stock - par value
________ ________ $.01 per share,
authorized 1,700,000
95,805 100,630 shares, issued 1,444,650
and 1,443,100 shares at
December 31, 1999 and
1998, respectively 14 14
Additional paid-in
capital 144,451 144,296
Treasury stock - 2,500
shares, at cost (196) -
Notes receivable from
shareholders (524) (400)
Accumulated deficit (37,997) (15,422)
Accumulated other
comprehensive
income (loss) (11,598) (8,375)
________ ________
94,150 120,113
________ ________ ________ ________
$416,987 $417,195 $416,987 $417,195
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Notes Accumulated
Additional Unearned Receivable Other
Common Paid-In Treasury Stock From Accumulated Comprehensive
Stock Capital Stock Compensation Shareholders Deficit Income (Loss)
Balance at January 1, 1997 $ 105 $ 57,739 $ - $ (2,815) $ - $(16,446) $ (1,122)
Amortization of unearned
stock compensation - - - 677 - - -
Net loss - - - - - (4,874) -
Translation adjustments - - - - - - (1,439)
______ ________ ________ ________ ________ ________ ________
Balance at September 23, 1997 105 57,739 - (2,138) - (21,320) (2,561)
Merger with Bucyrus
Acquisition Corp. (105) (57,739) - 2,138 - 21,320 2,561
Capital contribution - 143,030 - - - - -
Net loss - - - - - (7,158) -
Translation adjustments - - - - - - (3,619)
______ ________ ________ ________ ________ ________ ________
Balance at December 31, 1997 - 143,030 - - - (7,158) (3,619)
Stock split 14 (14) - - - - -
Issuance of common stock
(12,800 shares) - 1,280 - - (400) - -
Net loss - - - - - (8,264) -
Translation adjustments - - - - - - (4,756)
______ ________ ________ ________ ________ ________ ________
Balance at December 31, 1998 14 144,296 - - (400) (15,422) (8,375)
Issuance of common
stock (1,550 shares) - 155 - - (124) - -
Purchase of treasury
stock (2,500 shares) - - (196) - - - -
Net loss - - - - - (22,575) -
Translation adjustments - - - - - - (3,223)
______ ________ ________ ________ ________ ________ ________
Balance at December 31, 1999 $ 14 $144,451 $ (196) $ - $ (524) $(37,997) $(11,598)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Predecessor
September 24- January 1-
Years Ended December 31, December 31, September 23,
1999 1998 1997 1997
Cash Flows From Operating Activities
Net loss $(22,575) $ (8,264) $ (7,158) $ (4,874)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 11,200 10,331 2,678 3,125
Amortization 5,648 5,701 1,435 770
Non-cash stock compensation expense - - - 677
Nonrecurring items - - - 10,051
(Gain) loss on sale of property, plant
and equipment 20 11 (3) (275)
Loss on fixed asset impairment 4,372 - - -
Changes in assets and liabilities, net of
effects of acquisitions:
Receivables 134 (13,597) 10,725 (19,534)
Inventories (11,539) (2,824) 12,891 (11,100)
Other current assets 551 (1,167) 3,432 (1,434)
Other assets (817) (1,771) (405) (385)
Current liabilities other than income
taxes, short-term obligations and
current maturities of long-term debt 11,801 (7,525) (6,237) 17,210
Income taxes 213 (1,280) (1,097) 1,181
Long-term liabilities other than
deferred income taxes (3,762) (3,761) (456) (2,012)
________ ________ ________ ________
Net cash provided by (used in)
operating activities (4,754) (24,146) 15,805 (6,600)
________ ________ ________ ________
Cash Flows From Investing Activities
Payment to cash out stock options and
stock appreciation rights - - (6,944) -
Decrease in restricted funds on deposit 387 580 23 -
Purchases of property, plant and equipment (6,792) (12,803) (2,859) (4,331)
Proceeds from sale of property, plant
and equipment 215 1,428 510 1,227
Acquisition of Bucyrus International, Inc. - - (189,622) -
Purchase of Von's Welding, Inc.,
net of cash acquired - - - (841)
Purchase of surface mining equipment
business of Global Industrial
Technologies, Inc. - - - (36,720)
Receivable from Global Industrial
Technologies, Inc. - - 5,275 (5,275)
Purchase of Bennett & Emmott (1986) Ltd. (7,050) - - -
________ ________ ________ ________
Net cash used in investing activities (13,240) (10,795) (193,617) (45,940)
________ ________ ________ ________
Cash Flows From Financing Activities
Proceeds from issuance of project
financing obligations - - - 5,672
Reduction of project financing obligations - - (8,102) -
Net increase (decrease) in other bank
borrowings (69) (70) 20,837 500
Payment of acquisition and refinancing expenses - (293) (13,426) (1,476)
Payment of bridge loan fees - - - (3,361)
(Payment of) proceeds from bridge loan - - (45,000) 45,000
Capital contribution - - 143,030 -
Proceeds from issuance of long-term debt 19,386 28,785 150,000 1,706
Payment of long-term debt (1,172) (350) (65,785) -
Proceeds from issuance of common stock 31 880 - -
Purchase of treasury stock (196) - - -
________ ________ ________ ________
Net cash provided by financing activities 17,980 28,952 181,554 48,041
________ ________ ________ ________
Effect of exchange rate changes on cash (438) (261) (352) 417
________ ________ ________ ________
Net increase (decrease) in cash
and cash equivalents (452) (6,250) 3,390 (4,082)
Cash and cash equivalents at
beginning of period 8,821 15,071 11,681 15,763
________ ________ ________ ________
Cash and cash equivalents at end of period $ 8,369 $ 8,821 $ 15,071 $ 11,681
Supplemental Disclosures of
Cash Flow Information
Cash paid during the period for:
Interest $ 19,727 $ 18,080 $ 662 $ 4,046
Income taxes - net of refunds 2,624 3,569 587 1,218
Supplemental Schedule of Non-Cash Investing and Financing Activities
(A) In 1997, the Company purchased all of the common stock of Von's Welding,
Inc. In conjunction with the acquisition, liabilities were assumed as
follows:
1997
Fair value of assets acquired $ 1,979
Cash paid (908)
________
Liabilities assumed $ 1,071
(B) In 1997, the Company purchased certain assets and liabilities of the
surface mining and equipment business of Global Industrial Technologies,
Inc. In conjunction with the acquisition, liabilities were assumed as
follows:
1997
Fair value of assets acquired $ 52,406
Cash paid (36,720)
________
Liabilities assumed $ 15,686
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bucyrus International, Inc. and Subsidiaries
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
Bucyrus International, Inc. (the "Company") is a Delaware corporation
and a leading manufacturer of surface mining equipment, principally
walking draglines, electric mining shovels and blasthole drills, and
related replacement parts. Major markets for the surface mining
industry are coal mining, copper and iron ore mining, and phosphate
production.
Basis of Presentation
The consolidated financial statements as of December 31, 1999 and
1998 and for the years ended December 31, 1999 and 1998 and the
period September 24, 1997 to December 31, 1997 were prepared under a
basis of accounting that reflects the fair value of the assets
acquired and liabilities assumed, and the related expenses and all
debt incurred in connection with the acquisition of the Company by
American Industrial Partners Acquisition Company, LLC ("AIPAC") on
September 24, 1997 (see Note B). The Predecessor consolidated
financial statements for the period prior to September 24, 1997 were
prepared using the Company's previous basis of accounting which was
based on the principles of fresh start reporting adopted in 1994 upon
emergence from bankruptcy. Accordingly, the consolidated financial
statements of the Company are not comparable to the Predecessor
consolidated financial statements.
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions, profits and
accounts have been eliminated.
Cash Equivalents
All highly liquid investments with maturities of three months or less
when purchased are considered to be cash equivalents. The carrying
value of these investments approximates fair value.
Restricted Funds on Deposit
Restricted funds on deposit represent cash and temporary investments
used to support the issuance of standby letters of credit and other
obligations. The carrying value of these funds approximates fair
value.
Inventories
In connection with the acquisition of the Company by AIPAC,
inventories were adjusted to estimated fair value. Inventories are
stated at lower of cost (first-in, first-out method) or market
(replacement cost or estimated net realizable value). Advances from
customers are netted against inventories to the extent of related
accumulated costs. Advances in excess of related costs and earnings
on uncompleted contracts are classified as a liability to customers.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price paid by AIPAC
for the outstanding shares of common stock of the Company over the
fair value of the net assets of the Company on the date of
acquisition and is being amortized on a straight-line basis over 30
years. Accumulated amortization was $5,674,000 and $3,174,000 at
December 31, 1999 and 1998, respectively.
Intangible assets were recorded at estimated fair value in connection
with the acquisition of the Company by AIPAC and consist of
engineering drawings, bill-of-material listings, software, trademarks
and tradenames which are being amortized on a straight-line basis
over 10 to 30 years. Accumulated amortization was $5,067,000 and
$2,852,000 at December 31, 1999 and 1998, respectively.
The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining estimated useful life of
goodwill and intangible assets may warrant revision or that the
remaining balance of each may not be recoverable. When factors
indicate that goodwill and intangible assets should be evaluated for
possible impairment, the Company uses an estimate of the undiscounted
cash flows over the remaining life of the goodwill and intangible
assets in measuring whether they are recoverable.
Property, Plant and Equipment
In connection with the acquisition of the Company by AIPAC, property,
plant and equipment were adjusted to estimated fair value.
Depreciation is provided over the estimated useful lives of
respective assets using the straight-line method for financial
reporting and accelerated methods for income tax purposes. Estimated
useful lives used for financial reporting purposes range from ten to
forty years for buildings and improvements and three to seventeen
years for machinery and equipment.
The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining estimated useful life of
property, plant and equipment may warrant revision or that the
remaining balance of each may not be recoverable. The Company
accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," and has recorded an impairment of fixed asset charge of
$4,372,000 in the fourth quarter of 1999. The impairment relates
primarily to the manufacturing facility in Boonville, Indiana, which
saw declining operating results in the second half of 1999 as volume
declined. The charge represents the difference between book value
and estimated fair value based on expected proceeds. Subsequent to
year-end, the Company decided to close its manufacturing facility in
Boonville, Indiana by the end of the second quarter of 2000.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated
into U.S. dollars using year-end exchange rates. Revenues and
expenses are translated at average rates during the year.
Adjustments resulting from this translation are deferred and
reflected as a separate component of Common Shareholders' Investment.
Revenue Recognition
Revenue from long-term sales contracts is recognized using the
percentage-of-completion method. At the time a loss on a contract
becomes known, the amount of the estimated loss is recognized in the
consolidated financial statements. Revenue from all other types of
sales is recognized as products are shipped or services are rendered.
Included in the current portion of liabilities to customers on
uncompleted contracts and warranties are advances in excess of
related costs and earnings on uncompleted contracts of $1,789,000 and
$92,000 at December 31, 1999 and 1998, respectively.
Accounting Pronouncements
During 1998, the Company adopted Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The Company's accounting for the costs
of computer software developed or obtained for internal use is
consistent with the guidelines established in the SOP and, as a
result, the adoption of this statement did not have a material effect
on the Company's financial position or results of operations.
In 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS 133"). SFAS 133 is now effective
for fiscal years beginning after June 15, 2000. SFAS 133 establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement, and requires that the Company must formally document,
designate and assess the effectiveness of transactions that receive
hedge accounting. The Company may implement SFAS 133 as of the
beginning of any fiscal quarter. SFAS 133 cannot be applied
retroactively. Based on the Company's current transactions involving
derivative instruments and hedging, management believes adoption of
SFAS 133 will not have a material effect on its financial position or
results of operations.
NOTE B - ACQUISITIONS
Acquisition by American Industrial Partners
On August 21, 1997, the Company entered into an Agreement and Plan of
Merger (the "AIP Agreement") with AIPAC, which is wholly-owned by
American Industrial Partners Capital Fund II, L.P. ("AIP"), and
Bucyrus Acquisition Corp. ("BAC"), a wholly-owned subsidiary of
AIPAC. On August 26, 1997, pursuant to the AIP Agreement, BAC
commenced an offer to purchase for cash 100% of the outstanding
shares of common stock of the Company at a price of $18.00 per share
(the "AIP Tender Offer"). Consummation of the AIP Tender Offer
occurred on September 24, 1997, and BAC was merged with and into the
Company on September 26, 1997 (the "AIP Merger"). The Company was
the surviving entity in the AIP Merger and is currently substantially
wholly-owned by AIPAC. The purchase of all of the Company's
outstanding shares of common stock by AIPAC resulted in a change in
control of voting interest.
Approximately $189,622,000 was required to purchase all of the
outstanding shares of the Company's common stock. BAC received
$143,030,000 of the necessary funds to purchase the shares of the
Company's common stock as an equity contribution from AIPAC. The
remainder of the consideration required to consummate the AIP Tender
Offer and pay related expenses was funded by a bridge loan from AIPAC
to BAC, which was repaid in full on September 26, 1997.
The AIP Agreement also provided that each outstanding option to
purchase shares of the Company's common stock and each outstanding
stock appreciation right granted under the Company's Non-Employee
Directors' Stock Option Plan (the "Directors' Stock Option Plan"),
the 1996 Employees' Stock Incentive Plan (the "1996 Employees' Plan)
and any other stock-based incentive plan or arrangement of the
Company, whether or not then exercisable or vested, would be
cancelled (see Note G). In consideration of such cancellation, the
holders of such options and stock appreciation rights received for
each share subject to such option or stock appreciation right an
amount in cash equal to the excess of the offer price of $18 per
share over the per share exercise price of such option or the per
share base price of such stock appreciation right, as applicable,
multiplied by the number of shares subject to such option or stock
appreciation right. Included in nonrecurring items in the
Consolidated Statement of Operations is $6,690,000 of expense
incurred to cash out the outstanding options and stock appreciation
rights.
The acquisition of the Company by AIPAC was accounted for as a
purchase and, accordingly, the assets acquired and liabilities
assumed were adjusted to their estimated fair values. The final
allocation of the purchase price was as follows:
(Dollars in Thousands)
Working capital $ 127,232
Property, plant and equipment 100,855
Intangible assets (including
goodwill of $75,009) 120,397
Other long-term assets and liabilities (205,454)
_________
Total cash purchase price $ 143,030
Marion Acquisition
On August 26, 1997, the Company consummated the acquisition (the
"Marion Acquisition") of certain assets and liabilities of The Marion
Power Shovel Company, a subsidiary of Global Industrial Technologies,
Inc. ("Global"), and of certain subsidiaries and divisions of Global
that represented Global's surface mining equipment business in
Australia, Canada and South Africa (collectively referred to herein
as "Marion"). The purchase price for Marion was $36,720,000, which
includes acquisition expenses of $1,695,000. The net assets acquired
and results of operations since the date of acquisition are included
in the Company's consolidated financial statements.
The Company financed the Marion Acquisition and related expenses by
utilizing an unsecured bridge loan (the "Bridge Loan") provided by a
former affiliate of the Company, in the amount of $45,000,000. The
Bridge Loan was repaid in full on September 24, 1997 with a portion
of the proceeds from the 9-3/4% Senior Notes due 2007 (see Note F).
The Bridge Loan had an interest rate of 10.625% and the total
interest expense incurred by the Company was $385,000. The Company
incurred $3,361,000 of loan fees in connection with the Bridge Loan.
The subsequent expensing of these fees when the Bridge Loan was
repaid are included in nonrecurring items in the Consolidated
Statement of Operations.
The acquisition of Marion by the Company was accounted for as a
purchase and, accordingly, the assets acquired and liabilities
assumed by the Company were recorded at their estimated fair values.
The assets acquired and liabilities assumed in the Marion Acquisition
were revalued in connection with the AIP Merger.
During 1998, the Company finalized the allocations of the purchase
prices relating to the acquisition of the Company by AIPAC and the
Marion Acquisition. The adjustments primarily related to warranty,
employee benefits and a litigation settlement and resulted in a net
increase to liabilities and goodwill of $8,488,000.
Pro Forma Results of Operations
The following unaudited pro forma results of operations assumes that
the Company had been acquired by AIPAC and the Company acquired
Marion on January 1, 1996. Such information reflects adjustments to
reflect additional interest expense and depreciation expense,
amortization of goodwill and the effects of adjustments made to the
carrying value of certain assets and liabilities.
Years Ended December 31,
1997 1996
(Dollars in Thousands,
Except Per Share Amounts)
(Unaudited)
Net sales $ 346,913 $ 373,411
Net loss (10,297) (19,438)
Net loss per share of
common stock (7.20) (13.59)
The pro forma financial information presented above is not
necessarily indicative of either the results of operations that would
have occurred had the acquisitions been effective on January 1, 1996
or of future operations of the Company.
Bennett & Emmott Acquisition
On April 30, 1999, the Company's wholly-owned subsidiary, Bucyrus
Canada Limited, consummated the acquisition of certain assets of
Bennett & Emmott (1986) Ltd. ("Bennett & Emmott"), a privately owned
Canadian Company with extensive experience in the field repair and
service of heavy machinery for the surface mining industry. The cash
purchase price for Bennett & Emmott was $7,050,000, including
acquisition expenses. The net assets acquired and results of
operations since the date of acquisition are included in the
Company's consolidated financial statements.
Bucyrus Canada Limited financed the Bennett & Emmott acquisition and
related expenses primarily by utilizing a new credit facility with
The Bank of Nova Scotia (see Note F). The acquisition was accounted
for as a purchase and, accordingly, the assets acquired were recorded
at their estimated fair values. The allocation of the purchase price
was as follows:
(Dollars in Thousands)
Inventory $ 2,001
Property, plant and equipment 5,032
Other 17
________
Total cash purchase price $ 7,050
NOTE C - RECEIVABLES
Receivables at December 31, 1999 and 1998 include $14,936,000 and
$12,470,000, respectively, of revenues from long-term contracts which
were not billable at that date. Billings on long-term contracts are
made in accordance with the payment terms as defined in the
individual contracts.
Current receivables are reduced by an allowance for losses of
$1,090,000 and $918,000 at December 31, 1999 and 1998, respectively.
NOTE D - INVENTORIES
Inventories consist of the following:
1999 1998
(Dollars in Thousands)
Raw materials and parts $ 13,470 $ 9,443
Costs relating to
uncompleted contracts 1,000 4,503
Customers' advances offset
against costs incurred on
uncompleted contracts - (2,296)
Work in process 16,193 22,724
Finished products (primarily
replacement parts) 94,469 78,852
________ ________
$125,132 $113,226
Effective August 1, 1999, certain parts inventories previously
classified as raw materials and parts are now classified as finished
products (primarily replacement parts). Reclassifications have been
made to the December 31, 1998 inventory balances to present them on a
basis consistent with the current year.
Included in cost of products sold for 1998 and 1997 were charges of
$6,925,000 and $8,633,000, respectively, as a result of fair value
adjustments to inventory being charged to cost of products sold as
the inventory was sold. The fair value adjustments were made as a
result of the acquisition of the Company by AIPAC.
NOTE E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
1999 1998
(Dollars in Thousands)
Trade accounts payable $ 36,374 $ 28,407
Wages and salaries 5,873 5,970
Interest 5,062 4,965
Other 17,331 15,608
________ ________
$ 64,640 $ 54,950
NOTE F - LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
1999 1998
(Dollars in Thousands)
9-3/4% Senior Notes due 2007 $150,000 $150,000
Revolving credit facility 59,350 49,950
Revolving term loan at
Bucyrus Canada Limited 6,150 -
Non-revolving term loan at
Bucyrus Canada Limited 3,296 -
Construction Loans at
Bucyrus International
(Chile) Limitada 1,562 2,400
Other 1,169 964
________ ________
221,527 203,314
Less current maturities of
long-term debt (7,518) (1,006)
________ ________
$214,009 $202,308
The Company has outstanding $150,000,000 of 9-3/4% Senior Notes due
2007 (the "Senior Notes") which were issued pursuant to an indenture
dated as of September 24, 1997 among the Company, certain of its
domestic subsidiaries (the "Guarantors"), and Harris Trust and
Savings Bank, as Trustee (the "Senior Notes Indenture"). The Senior
Notes mature on September 15, 2007. Interest thereon is payable each
March 15 and September 15. The Senior Notes Indenture contains
certain covenants that, among other things, limit the ability of the
Company and the Guarantors to: (i) incur additional indebtedness;
(ii) pay dividends or make other distributions with respect to
capital stock; (iii) make certain investments; (iv) sell certain
assets; (v) enter into certain transactions with affiliates; (vi)
create liens; (vii) enter into certain sale and leaseback
transactions; and (viii) enter into certain mergers and
consolidations. Such covenants are subject to important
qualifications and limitations. At December 31, 1999, the Company
was in compliance with these covenants.
The Company has a credit agreement with Bank One, Wisconsin which
provides the Company with a $75,000,000 senior secured revolving
credit facility (the "Revolving Credit Facility") with a $25,000,000
sublimit for standby letters of credit. The credit agreement, as
amended, expires on July 3, 2001. Borrowings under the Revolving
Credit Facility bear interest at variable rates and are subject to a
borrowing base formula based on receivables, inventory and machinery
and equipment. Direct borrowings under the Revolving Credit Facility
at December 31, 1999 and 1998 were $59,350,000 and $49,950,000,
respectively, at a weighted average interest rate of 8.9% and 8.0%,
respectively. The issuance of standby letters of credit under the
Revolving Credit Facility and certain other bank facilities reduces
the amount available for direct borrowings under the Revolving Credit
Facility. At December 31, 1999 and 1998, there were $5,295,000 and
$8,712,000, respectively, of standby letters of credit outstanding
under all Company bank facilities. The Revolving Credit Facility
contains covenants which, among other things, require the Company to
maintain certain financial ratios and a minimum net worth. At
December 31, 1999, the Company was in violation of certain financial
covenants under the Revolving Credit Facility. On March 14, 2000,
the Revolving Credit Facility was amended to, among other items,
waive these covenant violations. The amendment also granted the
Company a period of time during 2000 whereby the Company will not be
subject to certain of the financial covenants contained in the
Revolving Credit Facility. Subsequent to this period of time, the
Company will be subject to revised financial covenants under the
Revolving Credit Facility, which management believes are achievable.
As a result, borrowings continue to be presented as long-term. The
Revolving Credit Facility is secured by substantially all of the
assets of the Company, other than real property and 35% of the stock
of its foreign subsidiaries. The average borrowing under the
Revolving Credit Facility during 1999 was $52,407,000 at a weighted
average rate of 8.3%, and the maximum borrowing outstanding was
$65,350,000. The average borrowing under the Revolving Credit
Facility during 1998 was $43,454,000 at a weighted average interest
rate of 8.6%, and the maximum borrowing outstanding was $57,075,000.
The average borrowing under the Revolving Credit Facility during the
period September 24, 1997 to December 31, 1997 was $28,512,000 at a
weighted average interest rate of 8.7%, and the maximum borrowing
outstanding during this period was $36,350,000. The amount available
for direct borrowings under the Revolving Credit Facility at
December 31, 1999 was $7,422,000, which is net of $7,313,000 that
is to be used for the March 15, 2000 interest payment on the Senior
Notes.
In 1999, Bucyrus Canada Limited entered into a credit facility with
The Bank of Nova Scotia. Proceeds from this facility were used to
acquire certain assets of Bennett & Emmott. The C$10,000,000
revolving term loan portion of this facility expires on December 31,
2000 and bears interest at the bank's prime lending rate plus 1.50%.
The C$5,000,000 non-revolving term loan portion is payable in monthly
installments over five years and bears interest at the bank's prime
lending rate plus 2%. This credit facility contains covenants which,
among other things, requires Bucyrus Canada Limited to maintain a
minimum current ratio and tangible net worth. At December 31, 1999,
Bucyrus Canada Limited was in compliance with these covenants.
Maturities of long-term debt are the following for each of the next
five years:
(Dollars in Thousands)
2000 $ 7,518
2001 60,568
2002 886
2003 478
2004 2,077
At December 31, 1999, the Senior Notes were bid at 72%. Based on
this information, management believes the fair value of the Senior
Notes is approximately $108,000,000.
NOTE G - COMMON SHAREHOLDERS' INVESTMENT
On March 17, 1998, the Company's Board of Directors authorized a
stock split which increased the number of authorized shares of common
stock of the Company from 1,000 shares to 1,600,000 shares.
Simultaneous with this authorization, AIPAC cancelled 9.976% of its
interest in its 1,000 shares of common stock of the Company and
received 1,430,300 shares for their remaining interest (the "Stock
Split"). Subsequently, the Company's Board of Directors increased
the number of authorized shares of common stock of the Company to
1,700,000 shares.
In 1998, the Company's Board of Directors adopted the Bucyrus
International, Inc. 1998 Management Stock Option Plan (the "1998
Option Plan") which authorizes the granting of stock options to key
employees for up to a total of 200,000 shares of common stock of the
Company at exercise prices to be determined in accordance with the
provisions of the 1998 Option Plan. Options granted under the 1998
Option Plan are targeted to vest on the last day of the plan year at
the rate of 25% of the aggregate number of shares of common stock
underlying each series of options per year, provided that the Company
attains specified EBITDA targets. In the event that the EBITDA
target is not attained in any plan year, the options scheduled to
vest at the end of that plan year will vest according to a pro rata
schedule set forth in the 1998 Option Plan. Notwithstanding the
foregoing, all options granted under the 1998 Option Plan shall vest
automatically on the ninth anniversary of the date of the grant,
regardless of performance criteria, and expire and terminate no later
than ten years after the date of grant.
The following table sets forth the activity and outstanding balances
of options exercisable for shares of common stock under the 1998
Option Plan:
Options Available For
Outstanding Future Grants
At plan inception - 150,400
Increase in shares available
for future grants - 49,600
Granted on March 17, 1998
($100 per share)