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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________
Form 10-K
ANNUAL REPORT
PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Year Ended December 31, 1994
Commission File Number: 1-871
________________________________________________
BUCYRUS-ERIE COMPANY
DELAWARE 39-0188050
P. O. BOX 500
1100 MILWAUKEE AVENUE
SOUTH MILWAUKEE, WISCONSIN 53172
(414) 768-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
Common Stock, par value $.01 per share
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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 14, 1995, was approximately $25,212,080 (based on the
last sale price of the Company's Common Stock as reported by The NASDAQ Stock
Market, Inc.).
ITEM 1. BUSINESS
Bucyrus-Erie Company (the "Company") was incorporated in Delaware in
1927 as the successor to a business which commenced in 1880. On February 4,
1988, the Company became a wholly-owned subsidiary of B-E Holdings, Inc.
("Holdings"), a Delaware corporation, pursuant to an Agreement and Plan of
Merger dated as of July 28, 1987, as amended, among Holdings, the Company and
B-E Merger Sub, Inc., a wholly-owned subsidiary of Holdings (the "1988
Merger"). The Company was a wholly-owned subsidiary of Holdings until
December 14, 1994 when Holdings was merged with and into the Company pursuant
to the terms of the Second Amended Joint Plan of Reorganization of B-E
Holdings, Inc. and Bucyrus-Erie Company under chapter 11 of the Bankruptcy
Code, as modified December 1, 1994 (the "Amended Plan"). 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
blast hole drills, which are used by customers who mine coal, iron ore,
copper, phosphate, bauxite and other minerals throughout the world.
The Restructuring
On February 22, 1993, the Company and Holdings announced their
intention to pursue a restructuring of their capital structures (the
"Restructuring") and commenced negotiations for a prepackaged chapter 11
financial restructuring with certain of their secured and unsecured creditors.
On January 12, 1994, the Company's Registration Statement on Form S-4 bearing
Registration No. 33-73904, which included the Disclosure Statement and Proxy
Statement-Prospectus (the "Disclosure Statement") for the solicitation of
votes for the prepackaged joint plan of reorganization of Holdings and the
Company under chapter 11 of the Bankruptcy Code (the "Prepackaged Plan"), was
declared effective by the Securities and Exchange Commission. The
solicitation process for acceptance of the Prepackaged Plan was completed on
February 14, 1994. On February 18, 1994 (the "Petition Date"), Holdings and
the Company commenced voluntary petitions under chapter 11 of the Bankruptcy
Code (Case Nos. 94-20786-RAE and 94-20787-RAE, respectively) in the U.S.
Bankruptcy Court, Eastern District of Wisconsin (the "Bankruptcy Court"). On
June 20, 1994, the Bankruptcy Court directed the Company and Holdings to
resolicit acceptances from their creditors and stockholders using amended
disclosure materials. During the second and third quarters of 1994, the
Company and Holdings held discussions with interested parties regarding
possible modifications to the Prepackaged Plan which resulted in the
formulation of the Amended Plan.
The solicitation process for acceptance of the Amended Plan was
completed on October 31, 1994 and on December 1, 1994 the Bankruptcy Court
confirmed the Amended Plan. On December 14, 1994 (the "Effective Date"), the
Amended Plan became effective and the Company and Holdings consummated the
Restructuring through the implementation of the Amended Plan. None of the
Company's or Holdings' subsidiaries were involved in the bankruptcy
proceedings. The Amended Plan provided for payment in full of the allowed
claims of the Company's vendors, suppliers and other trade creditors. The
claims of current and retired employees of the Company were not affected by
the Amended Plan and they will continue to receive full benefits under
existing pension and welfare plans.
The purpose of the Restructuring is to improve and enhance the long-
term viability of the Company by adjusting its capitalization to reflect
current and projected operating performance levels. Specifically, the Amended
Plan was designed to reduce the Company's overall indebtedness and its
corresponding debt service obligations by exchanging all outstanding senior
unsecured debt securities for common equity.
On the Effective Date, Holdings merged with and into the Company
pursuant to the Amended Plan and the Agreement and Plan of Merger dated as of
December 14, 1994 between Holdings and the Company (the "Merger Agreement").
Pursuant to the Amended Plan and the Merger Agreement, the Company issued
10,170,417 shares of its common stock, par value $.01 per share (the "Common
Stock"). The Company issued 10,000,004 shares of Common Stock to holders of
Holdings' and the Company's unsecured debt securities and Holdings' equity
securities in exchange for such securities, and 170,413 shares of Common Stock
were issued to Bell Helicopter Textron, Inc. ("Bell Helicopter") in settlement
of a lawsuit against the Company. See ITEM 3. LEGAL PROCEEDINGS AND OTHER
CONTINGENCIES.
On the Effective Date pursuant to the Amended Plan, the Company
issued an aggregate principal amount of $52,072,000 of Secured Notes due
December 14, 1999 (the "Secured Notes") to South Street Corporate Recovery
Fund I, L.P., South Street Leveraged Corporate Recovery Fund, L.P., and South
Street Corporate Recovery Fund I (International), L.P. (collectively, the
"South Street Funds") in exchange for the Company's outstanding Series A
10.65% Senior Secured Notes due July 1, 1995 and Series B 16.5% Senior Secured
Notes due January 1, 1996 (collectively, the "Old South Street Notes")and the
Company's obligations under a sale and leaseback financing arrangement. See
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES. Pursuant to the
Amended Plan, the Company entered into a Credit Agreement with Bank One,
Milwaukee, National Association ("Bank One"). See ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
LIQUIDITY AND CAPITAL RESOURCES.
MARKETS, PRINCIPAL PRODUCTS AND METHODS OF DISTRIBUTION
The surface mining industry consists of three primary markets: coal
mining, hard rock mining and phosphate production. Coal mining historically
has accounted for approximately 70% of industry demand for the Company's
machines and replacement parts, with hard rock mining accounting for 20% and
phosphate and other applications accounting for the remaining 10%. In recent
years, the share of hard rock mining has been increasing. Steam coal
production for power generation represents approximately 85% of total coal
mining activity. The demand for steam coal is based largely on the demand for
electric power and the price and availability of competing sources of such
power including oil, natural gas and nuclear power. Because steam coal is
mined both in underground and in surface mines, the relative cost of competing
mining methods is an important variable affecting equipment demand.
Prior to the 1973 Arab oil embargo, the mining machinery industry could
have been characterized as a cyclical, long-term growth industry. Its
cyclical characteristic resulted from the cost relationship among competing
fuel alternatives and mineral use and its long-term growth characteristic
resulted from increases in overall energy consumption and mineral use tied to
worldwide economic growth. However, with the oil embargo came an
unprecedented increase in the demand for coal mining equipment. As a result,
mining machinery production capacity was expanded dramatically, reflecting
expectations that oil prices would continue to rise and tend to increase
demand for substitute natural resources, including coal in particular.
Consequently, the industry experienced dramatic growth through the early and
mid-1970's. By the late 1970's, the installed base of mining machinery had
increased substantially. However, at that time, macroeconomic conditions
began to change. The effects of a worldwide recession, escalating interest
rates, energy conservation efforts and an increase in the world's supply of
oil, together with the large installed base of recently manufactured mining
machinery, resulted in a sharp drop in demand for new mining machinery. More
recently, the coal segment of the U.S. market has been severely impacted by
the Clean Air Act causing numerous mid-western higher sulfur coal mines to be
closed or to have outputs drastically curtailed; many machines have been shut
down while a few have been relocated to lower sulfur mines in eastern
Appalachia and Wyoming's Powder River Basin where excess production capacity
and stagnant demand has driven coal prices downward. Consequently, meaningful
new machine shipments to domestic coal customers cannot be expected until
after the mid 1990's. Major potential international coal mining markets for
the Company's equipment and replacement parts have been negatively impacted by
the worldwide economic slump as evidenced by Japanese steelmakers imposing
price cuts on Australian coking coal producers as well as tonnage reductions
during negotiations in 1993 and 1994. In the longer term it is anticipated
that growing electricity demand around the world and increasing depths of
available coal will continue to drive demand for the Company's machines.
Lately there have been positive increases in coal prices in Europe and Japan
looks to be poised to increase coal prices in 1995 for the first time in
several years.
While iron ore demand decreased with the worldwide recession of 1992 and
1993, and Japanese and European iron ore buyers lowered ore contract prices
significantly in 1992 and again in 1993, there was a marked increase in iron
ore production in late 1994 that should be sustained through 1995.
Furthermore, the Company anticipates that some iron ore producers will
continue to invest in replacing aged electric mining shovel and blast hole
drill fleets in an effort to reduce ore production costs. Copper prices have
increased significantly and it appears as if they may stabilize at this level
in the near term. This increase in copper prices has resulted in continued
demand from this market segment for electric mining shovels and blast hole
drills.
The Company's line of mining machinery includes a full range of large
walking draglines, electric mining shovels and blast hole drills. Walking
draglines and electric mining shovels are used in a broad range of
applications, including removal of overburden in mining operations, loading of
coal, iron and copper ore, other minerals such as phosphate, bauxite, gold and
silver, and a variety of other digging and loading applications. Blast hole
drills are used for boring holes to be used in blasting rock and ore in mines.
Draglines have the highest average price per unit of the Company's machine
categories. Draglines are primarily used to remove overburden located over a
coal or mineral deposit. To accomplish this, the machine drags a large bucket
through the overburden and deposits such overburden in a remote spoil pile.
Draglines are typically described in terms of their "bucket size", which can
range from 9 to 220 cubic yards. The Company's draglines weigh from 500 to
7,500 tons. The Company currently offers a full line of models ranging in
price from $5,000,000 to $40,000,000.
Electric mining shovels are primarily used to load coal, copper ore, iron
ore, other mineral-bearing materials, overburden and rock into some form of
haulage system such as truck or conveyor. Shovels are characterized in terms
of their weight and dipper capacity. The Company offers a full line of
electric mining shovels, weighing from 400 to 1,000 tons and having dipper
capacities from 12 to 80 cubic yards. Prices range from $3,000,000 to
$7,000,000 per shovel.
Most surface mines require breakage 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. Blast hole drills are used to
drill the holes, and these machines are usually described in terms of the
diameter of the hole which they bore. The Company offers a full line of blast
hole drills ranging in hole diameter size from 6.0 inches to 17.5 inches and
in selling price from approximately $300,000 to $2,000,000, depending on
machine size and variable features.
Because of their size and weight, the Company's mining machines are
shipped in sub-assembled units to the job site, where they are assembled for
operation with the assistance of Company technicians. A number of the
Company's smaller dragline products are modular, permitting shortened machine
field assembly time and more economical teardown and movement of machines
between non-contiguous mine sites. The planning and on-site coordination of
machine erection is a critical component of the Company's service to its
customers.
In addition, the Company manufactures and sells replacement parts and
components for its mining machines and supplies comprehensive after-sales
service for its entire line of mining machinery. The average useful life of
draglines is 20 to 30 years, and of shovels and drills is up to 20 years. The
Company has a large installed base of surface mining machinery, which has
provided a stream of parts sales. These sales comprise a substantial portion
of the Company's revenues. The Company also provides after-sales service for
certain equipment of other original equipment manufacturers ("OEMs"). In
general, the Company realizes higher margins on sales of parts than it does on
sales of new mining machines. In recent years, gross margins on machines have
been low to negative because of lower prices resulting from overcapacity,
although gross margins on replacement parts have been positive. Accordingly,
most or all of the Company's operating profits are derived from parts sales.
In the United States, mining machinery is sold directly by Company
personnel and through a distributor. Outside of the United States, this
equipment is sold by Company personnel, through independent distributors and
through the Company's subsidiaries located in Australia, Brazil, Canada,
Chile, England, India, Mauritius and South Africa. The Company's mining
machines range in price up to $40,000,000. Typical payment terms for large
draglines and electric mining shovels require a down payment and periodic
progress payments, so that a substantial portion of the price is received by
the time shipment is made to the customer. Sales contracts for machines are
predominantly at fixed prices which, where possible, reflect estimated future
cost increases. The primary market for the Company's replacement parts and
service is provided by the owners of the Company's equipment. Most sales of
replacement parts call for prices in effect at the time of order. Recently,
prices from the Company's vendors have remained stable and, coupled with fixed
and stable prices to the Company's customers, have resulted in minor
inflationary increases on the Company's reported net shipments.
A wholly-owned subsidiary of the Company, Minserco, Inc. ("Minserco"),
provides mining services in the following areas: comprehensive structural and
mechanical engineering, non-destructive testing, rebuilt machine components,
product and component upgrades, contract maintenance and turnkey repair,
erection and machine moves. Minserco has completed a number of large projects
and has others in process in the United States and select overseas locations.
Another wholly-owned subsidiary, Boonville Mining Services, Inc. ("BMSI"),
operates as a separate, independent enterprise and provides replacement parts
and repair and rebuild services for surface mining machinery.
COMPETITION
The Company encounters strong competition from a small number of
manufacturers in the sales of its mining machinery products in both domestic
and foreign markets. The Company manufactures walking draglines, with its
principal competitors being Harnischfeger Corporation and Marion Power Shovel
Company, a division of Indresco Inc. The Company manufactures electric mining
shovels, with its principal competitor in this line being Harnischfeger
Corporation. The Company produces large diameter rotary blast hole drills,
and has several competitors in this product line. Methods of competition are
diverse and include product design and performance, service, delivery,
application engineering, pricing, financing terms and other commercial
factors.
For most Bucyrus-Erie machine owners, the Company is the primary source
for replacement parts. The Company, however, encounters strong competition in
parts sales in both domestic and foreign markets and intense competition in
some domestic markets. The Company's competition in parts sales consists
primarily of "will-fitters," which are smaller firms that produce copies of
the parts manufactured by the Company and other OEMs, and which generally sell
such parts at prices lower than those of the OEMs. 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 believes that it possesses certain non-price advantages over will-
fitters. Will-fitters are in many cases unable to duplicate the exact
specifications of genuine Company parts and because the use of parts not
manufactured by the Company can void the warranty on a Company machine. The
Company generally provides a one year warranty on its machines, with certain
components being under warranty for longer periods. The Company also believes
that its engineering and manufacturing technology and marketing expertise
exceeds that of its will-fit competitors.
CUSTOMERS
The Company's customers include most of the large surface mining operators
around the world. A substantial portion of the Company's customers is engaged
in the surface mining of coal which, in turn, is used to produce electric
power. Other customers include companies engaged in the surface mining of
iron ore, copper, phosphate, bauxite and other minerals. In 1994, one
customer, BHP Minerals International Inc., received approximately 20% of the
Company's consolidated net shipments. In 1993 and 1992, no customer received
shipments of greater than 10% of the Company's consolidated net shipments.
The Company is not dependent upon any one customer.
BACKLOG
The backlog of firm orders for the Company was $72,346,000 at December 31,
1994 and $74,023,000 at December 31, 1993. As of December 31, 1994,
approximately 11% of the backlog is not expected to be filled during 1995.
MATERIALS
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,
which are incorporated directly into the end product, and the foreign
subsidiaries of the Company purchase components and manufacturing services
from local subcontractors and some components from the Company. Certain
additional components are sometimes purchased from subcontractors, either to
improve deliveries in times of high demand or to reduce costs. Because of
numerous factors resulting in preference for local content in certain
countries, local subcontractors are normally used to manufacture a substantial
portion of the components required in the Company's foreign manufacturing
operations. The Company believes that its competitors are subject to the same
conditions as the Company.
INVENTORIES
Inventories of the Company on December 31, 1994 were $82,393,000 (42% of
net shipments) compared with $63,671,000 (32% of net shipments) on
December 31, 1993. In accordance with the principles of fresh start reporting
as required by AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code", inventory as of the
Effective Date was recorded at estimated fair value. The fair value
adjustment totaled $10,427,000 and is being charged to cost of products sold
as the inventory is sold. The fair value adjustment remaining in the December
31, 1994 inventory balance was $10,065,000. At December 31, 1994 and December
31, 1993, $51,889,000 and $37,863,000, respectively, were held as finished
goods inventory (primarily replacement parts) to meet delivery requirements of
customers.
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 by the Company for design and development of new products and
improvements of existing mining machinery products, including overhead,
aggregated $5,622,000 in 1994 including $2,573,000 of research and development
activities directly related to shipments. Expenditures for 1993 were
$6,939,000 including $2,042,000 for research and development activities
directly related to shipments. The corresponding expenditures for 1992 were
$7,420,000 and $4,116,000, respectively. The Company expenses all engineering
and product development costs as incurred with amounts charged to Cost of
Products Sold, if such activities are directly related to specific customer
contracts, or to Product Development Expense.
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
As of December 31, 1994, the Company employed 1,059 persons. Three-year
contracts with unions representing hourly workers at the South Milwaukee,
Wisconsin and Memphis, Tennessee facilities expire in August, 1997 and August,
1995, respectively.
SEASONAL FACTORS
The Company does not consider a material portion of its business to be
seasonal.
FOREIGN OPERATIONS
The Company's products are manufactured by subcontractors and licensees in
eight countries other than the United States and are sold internationally by
the Company's and its subsidiaries' sales personnel, manufacturers'
representatives and distributors.
In 1981, the Company entered into a licensing agreement with Mitsui
Engineering and Shipbuilding Co., Ltd. ("M.E.S."), a leading Japanese
shipbuilder and manufacturer of steel structures, heavy machinery and chemical
plants, for the manufacture and sale by M.E.S. of Company designed electric
mining shovels. In December, 1985, the Company entered into a licensing
agreement with China National Non-Ferrous Metals Industry Corporation
("C.N.N.C.") which provides for the manufacture and sale by C.N.N.C. of
Bucyrus-Erie 195-BI electric mining shovels. This agreement was amended in
April, 1994 to include certain components of the 195-BII model.
In 1994, the Company's foreign sales in all segments, consisting of
exports from the United States and sales by consolidated foreign subsidiaries,
totaled $132,000,000. The corresponding figures in 1993 and in 1992 were
$139,000,000 and $156,000,000, respectively. Approximately $60,000,000 of the
Company's backlog of firm orders on December 31, 1994 represented orders for
export shipments, as compared with approximately $60,000,000 on December 31,
1993 and $76,000,000 on December 31, 1992. The Company and its U.S.
subsidiaries normally price their products in U.S. dollars. Foreign
subsidiaries normally procure and price their products in their local
currency. Accordingly, in the usual case there are no material foreign
currency transaction gains and losses borne by the Company. The Company
believes that profitability of its export sales does not vary materially from
the profitability of its domestic sales. A substantial portion of the
Company's consolidated net sales and operating earnings is attributable to
operations located abroad. In recent years, approximately 60 to 70% of the
Company's consolidated net sales were to customers located outside the United
States. Foreign operations are subject to special risks that can materially
affect sales and earnings of the Company, including currency exchange rate
fluctuations, government expropriation, exchange controls, political
instability and other risks. A portion of the Company's consolidated net
sales is to customers in South Africa, where such risks may be greater. 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. Further information regarding
foreign operations is included in ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
CLASSES OF SIMILAR PRODUCTS
Net shipments by the Company by class of similar products for the past
three years were as follows:
1994 1993 1992
(Dollars in Millions)
Shovels and
Draglines $164.5 85% $167.7 84% $198.2 82%
Drills 27.5 14 29.1 15 42.5 17
ITEM 2. PROPERTIES
The Company's principal manufacturing plant in the United States is
located in South Milwaukee, Wisconsin and is owned in fee. This plant
comprises approximately 1,038,000 square feet of floor space. A portion of
this facility houses the corporate offices of the Company. 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 blast hole drills,
are well maintained, in good condition and in regular use.
The Company leases a facility in Memphis, Tennessee, having approximately
110,000 square feet of floor space, which is used as a central parts
warehouse. The current lease is for five years commencing in July, 1991 and
contains an option to renew for an additional ten years.
BMSI leases a facility in Boonville, Indiana which has approximately
60,000 square feet of floor space on a 5.84 acre parcel of land. The facility
has the manufacturing capability of large machining, gear cutting, heavy
fabricating, rebuilding, and stress relieving. The major manufacturing
buildings are constructed principally of structural steel with metal siding.
ITEM 3. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
CHAPTER 11 PLAN OF REORGANIZATION
On February 18, 1994, the Company and Holdings commenced voluntary
petitions under chapter 11 of the Bankruptcy Code in the Bankruptcy Court
(Case Nos. 94-20786-RAE and 94-20787-RAE). On December 1, 1994, the
Bankruptcy Court issued an order confirming the Amended Plan, and on
December 14, 1994, the Amended Plan became effective and the Company and
Holdings consummated the Restructuring contemplated by the Amended Plan.
BANKRUPTCY CODE SECTION 503(b) CLAIM FOR REIMBURSEMENT OF PROFESSIONAL FEES
Jackson National Life Insurance Company ("JNL"), the holder of
approximately 41.58% of the Company's Common Stock, has filed a claim against
the Company for reimbursement of professional fees and disbursements incurred
in connection with the Company's chapter 11 proceedings pursuant to Section
503(b) of the Bankruptcy Code in the amount of approximately $3,300,000. The
basis of the claim by JNL is the asserted benefit which the work of the
professionals retained by JNL in the Company's chapter 11 case conferred upon
the creditors of the Company generally. On March 15, 1995, the Company's
Board of Directors designated a committee of independent directors (the
"Special Committee"), comprised of Messrs. Bartlett, Mork, Poole and Victor,
to determine steps to be taken by the Company with respect to JNL's Section
503(b) claim. The Special Committee unanimously determined that the Company
should file an objection to JNL's Section 503(b) claim. On March 31, 1995,
the Company filed an objection to JNL's Section 503(b) claim with the
Bankruptcy Court on the basis that JNL has failed to satisfy the standards
prevailing under the Bankruptcy Code for an award of expenses under Section
503(b) of the Bankruptcy Code. A scheduling conference regarding JNL's
Section 503(b) claim was held on April 5, 1995 in the Bankruptcy Court. A
status conference has been scheduled for June 2, 1995. JNL has publicly
announced that, if JNL's Section 503(b) claim were allowed by the Bankruptcy
Court, JNL would consider receiving shares of the Company's Common Stock from
the Company in lieu of requiring payment in cash. The Company and the Special
Committee have been advised by counsel to the Company that in such counsel's
opinion JNL's Section 503(b) claim is without merit; however, the outcome of
this matter cannot presently be determined.
CONTINGENT LIABILITIES RELATING TO SALES OF ASSETS AND SUBSIDIARIES AND
PRODUCT LIABILITY
The Company has assumed or retained certain liabilities relating to
divested assets and subsidiaries, including, among others, product liability
claims relating to Brad Foote Gear Works, Inc. ("Brad Foote"), Western Gear
Machinery Co., Sky Climber, Inc. and its former construction machinery
business.
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. At
December 31, 1994, there were 19 product liability claims in various courts of
law pending against the Company or one of its subsidiaries or for which the
Company was responsible as a result of its divestiture agreements. The
Company has insurance covering most of said claims, subject to varying
deductibles, ranging from $300,000 to $3,000,000, and normally is not a factor
in the final disposition of claims. It has various limits of liability
depending on the insurance policy year in question. The Company expects, in
light of its past experience in defending similar claims, 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
adverse effect on the Company and its subsidiaries considered as a whole,
although no assurance to that effect can be given.
In February, 1989, Bell Helicopter sued the Company, the Company's
inactive subsidiary, Brad Foote (which is now known as BWC Gear, Inc.
("BWC")), and the purchaser of all of the assets of Brad Foote (the "BF
Purchaser") in the District Court of Tarrant County, Texas, over allegedly
defective gear boxes which were manufactured by BWC and the BF Purchaser under
Bell Helicopter purchase orders that were originally placed with BWC, but
which were assigned by BWC to the BF Purchaser as part of the sale of assets
of Brad Foote. Bell Helicopter sought compensatory damages of approximately
$30,350,000 plus punitive damages (the "Bell Helicopter Claim"). On January
26, 1994, BWC, the Company, Holdings and Bell Helicopter entered into a
settlement agreement and release (the "Bell Settlement Agreement"), pursuant
to which, Bell Helicopter agreed effective as of December 23, 1993 to settle
the Bell Helicopter Claim in consideration of receiving an allowed claim
against the Company in the amount of $3,350,000 in the chapter 11 bankruptcy
proceedings. Pursuant to the Amended Plan, on the Effective Date, Bell
Helicopter received $350,000 in cash and 170,413 shares of the Company's
Common Stock in respect of its allowed claim. On the Effective Date, the
Company was released from all liability in respect of the Bell Helicopter
Claim.
CONTINGENT ENVIRONMENTAL CLAIMS
The Company is one of 53 entities who have been named by the U.S.
Environmental Protection Agency ("EPA") as potentially responsible parties
("PRPs") with regard to the Millcreek dumpsite, Erie County, Pennsylvania,
which is on the National Priorities List of sites for cleanup under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). The Company was so named as a result of allegations
that it disposed of foundry sand at said site in the 1970's. The U.S.
Department of Justice ("DOJ") filed suit in the U.S. District Court for the
Western District of Pennsylvania in October, 1989, against the Millcreek site
owners and the haulers who allegedly transported waste to the site, for
recovery of past cleanup costs incurred at the site, currently estimated by
the EPA to be approximately $12,000,000. The Company, along with a number of
other defendants, has reached agreement in principle on a settlement of the
aforementioned cost recovery action which would have obligated the Company to
pay approximately $600,000. The government increased its estimate of future
operation and maintenance costs, and the settling defendants are negotiating
with the government over methods of payment of these increased costs. Thirty-
seven PRPs, including the Company, have received Administrative Orders issued
by the EPA pursuant to Section 106(a) of CERCLA to perform the soil capping
portion of the remediation at the Millcreek site. Based on the number of
substantial corporations among the PRPs identified by the EPA as connected with
the Millcreek dump site and the potential availability of at least some
insurance coverage, the Company believes that it will have no material
liability with respect to resolution of this situation, although no assurance
to that effect can be given.
In December, 1990, the Wisconsin Department of Natural Resources ("WDNR")
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, including primarily foundry sand. The
results of the site inspection did not indicate that the site presented a
substantial threat to health or safety or to the environment. To date, the
Company has received no further communications from the WDNR regarding this
site and is not aware of any initiative by the WDNR 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 WDNR
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, depending on the
circumstances, be significant.
JNL LAWSUIT
On September 24, 1993, JNL filed an amended complaint in a civil action in
the United States District Court, Southern District of New York, against
Goldman, Sachs & Co. ("Goldman Sachs"), Broad Street Investment Fund, L.P.
("Broad Street"), individually and as class representatives, Greycliff
Partners, Ltd., Mikael Salovaara, Alfred C. Eckert III, South Street Corporate
Recovery Fund I, L.P., South Street Leveraged Corporate Recovery Fund, L.P.,
South Street Corporate Recovery Fund I (International), L.P. (Messrs.
Salovaara and Eckert, Greycliff Partners, Ltd., such South Street funds and
Greycliff Partners are collectively referred to as the "Greycliff
Defendants"), Firstar Trust Company, National Association ("Firstar"), as
trustee and class representative, State Street Bank and Trust Company of
Connecticut, National Association ("State Street"), as trustee and Does 1-100.
On October 27, 1993, JNL amended its complaint to name the Company, Holdings
and Messrs. William B. Winter, then Chairman of the Board of the Company,
Phillip W. Mork, the Company's President and a Director, Norbert J. Verville,
the Company's Vice President - Finance and Treasurer and then a Director, and
Ray G. Olander, the former Vice Chairman and Director of the Company, as
additional defendants. On March 7, 1995, JNL again amended its complaint
(such amended complaint is referred to as the "JNL Complaint") to name David
M. Goelzer, the Company's Vice President, Secretary and General Counsel,
Messrs. Winter, Verville and Olander (collectively with Mr. Goelzer, the
"Management Defendants"), State Street, the Greycliff Defendants and Does 1-
100, as defendants (collectively, the "Defendants").
The JNL Complaint seeks unspecified money damages and other equitable
relief in connection with (i) JNL's purchase of the Company's Resettable
Senior Notes (the "Resettable Notes") and (ii) certain of the Defendants'
alleged orchestration of a series of financings for the Company and Holdings,
including the 1988 Merger, a 1989 exchange offer by the Company, the
transactions relating to the Old South Street Notes, the Company's sale and
leaseback financing arrangement and the issuance of the Resettable Notes and
certain other related transactions (collectively, the "Becor Transactions")
which are alleged to have had the effect of rendering the Company insolvent,
incapable of competing in its markets and unable to pay its creditors,
including JNL. The JNL Complaint alleges that the Defendants accomplished the
Becor Transactions through violations of federal securities laws and
fraudulent conveyance statutes, common law fraud, negligent misrepresentation
and breaches of fiduciary and other duties by the Management Defendants. On
December 17, 1993, Firstar filed cross-claims against each of the Company and
Holdings seeking judgment on the principal of, interest on and other amounts
due and owing under the Company's 10% Senior Notes (interest rate reset to 16%
as of January 1, 1993) due 1996 (the "10% Senior Notes") and Holdings' Series
A 12-1/2% Senior Debentures due 2002 (the "Series A Debentures"), and filed a
notice of motion for summary judgment on such cross-claims.
As a result of the Company's and Holdings' chapter 11 petitions,
prosecution of the claims asserted in the JNL Complaint was stayed against the
Company and Holdings as of the Petition Date. On the Effective Date, pursuant
to the Amended Plan, JNL exchanged the Resettable Notes for 4,057,203 shares
of the Company's Common Stock. In February, 1995, pursuant to a stipulation
among JNL, the Company and Holdings, the District Court formally dismissed the
JNL Complaint as it relates to the Company and Holdings. Firstar's cross-
claims in respect of the 10% Senior Notes and the Series A Debentures were
discharged pursuant to the Amended Plan. In November, 1994, JNL entered into
a settlement agreement with Goldman Sachs and Broad Street, two defendants
named in JNL's amended complaints filed on September 24, 1993 and October 27,
1993. The terms of such settlement agreement were not disclosed. Mr. Mork
was released by JNL in November, 1994 and was not named as a defendant in the
JNL Complaint. The Management Defendants have rights to indemnification from
the Company for any costs and expenses incurred by them in connection with the
JNL Complaint pursuant to the Amended Plan and the Company's Restated Bylaws.
The Company has been informed by counsel to the Management Defendants that in
said counsel's opinion it is probable that the Management Defendants have
meritorious defenses to all claims asserted in the JNL Complaint; however, the
outcome of this matter cannot currently be determined.
DRESSER INDUSTRIES LAWSUIT
BMSI is a defendant in an amended complaint filed in the Marion County Common
Pleas Court, Marion County, Ohio on September 24, 1992 by Dresser Industries,
Inc. and Indresco Inc. ("Plaintiffs"), alleging that BMSI's purchase of
drawings and other assets of C&M of Indiana, a division of Construction and
Mining Services, Inc., and BMSI's use of these and other drawings allegedly
acquired subsequently, constitute a misappropriation of Plaintiffs' trade
secrets relating to Marion Power Shovel Company, a division of Indresco Inc.
Plaintiffs seek $40 million in compensatory damages, $80 million in punitive
damages, an injunction against future use of Plaintiffs' trade secrets, and
costs and reasonable attorneys fees. The Company has been advised by counsel
to BMSI that in said counsel's opinion the claims against BMSI can be said to
be greatly exaggerated. No claim has been asserted directly against the
Company. BMSI has denied all of the claims asserted in Plaintiffs' amended
complaint and intends to vigorously defend against those claims. The Company
has been informed by counsel to BMSI that in said counsel's opinion BMSI will
be able to assert meritorious defenses to this action; however, the outcome of
this matter cannot currently be determined. The Company does not believe it
is probable that BMSI will have material liability in this suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As noted above, during September, 1994 and October, 1994, the Company and
Holdings solicited acceptances of the Amended Plan from their creditors and
stockholders. On October 31, 1994, the solicitation period expired, and all
classes of the Company's and Holdings' debt securities and Holdings'
stockholders voting on the Prepackaged Plan voted to accept the Prepackaged
Plan, other than the holders of Holdings' Series B Convertible Preferred
Stock, Goldman Sachs and Broad Street. Following execution of a settlement
agreement among Goldman Sachs, Broad Street and JNL (the terms of which were
not disclosed), Goldman Sachs and Broad Street withdrew their objections to
confirmation of the Amended Plan. On December 1, 1994, the Amended Plan was
confirmed by the Bankruptcy Court and on December 14, 1994 the Amended Plan
became effective and the Company and Holdings consummated the Restructuring
through the implementation of the Amended Plan.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was issued on December 14, 1994 pursuant to the
Amended Plan and the Merger Agreement in exchange for all of the Company's and
Holdings' outstanding unsecured debt securities and Holdings' outstanding
equity securities. Since December 22, 1994, the Company's Common Stock has
been traded over the counter under the trading symbol BCYR. Prior to
December 23, 1994, there was no established public trading market for the
Company's Common Stock. Based solely on information provided to the Company
by the National Association of Securities Dealers, Inc., for the period from
December 23, 1994 through December 31, 1994: (a) 24,185 shares of the
Company's Common Stock were traded over the counter, and (b) the high sale
price for the Company's Common Stock was $7 3/4 per share and the low sale
price was $6 per share.
As of March 14, 1995, there were 2,220 stockholders of record of the
Company's Common Stock.
Prior to the Effective Date, the Company was a wholly-owned subsidiary of
Holdings and no dividends were declared on its common equity during its two
most recent fiscal years. Since the Effective Date, no dividends were
declared on the Company's Common Stock.
The Credit Agreement, as defined in ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, prohibits the
Company from making any dividends or other distributions upon the Company's
Common Stock, other than dividends payable solely in the Company's Common
Stock or other equity securities of the Company. The Indenture relating to
the Secured Notes prohibits the Company from declaring or paying any dividend
or making any distribution in respect of the Company's Common Stock (other
than dividends or distributions payable solely in shares of its Common Stock
or in options, warrants or other rights to acquire its Common Stock), if at
the time thereof an Event of Default (as defined in such Indenture) or an
event that with the lapse of time or the giving of notice, or both, would
constitute an Event of Default (as defined in such Indenture) shall have
occurred and be continuing.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars In Thousands Except Per Share Amounts)
Reorganized
Company (b) Predecessor Company (c)
December 14 - January 1 -
December 31, December 13, Years Ended December 31,
1994 1994 1993 1992 1991 1990
Consolidated Statements
of Operations Data:
Net shipments $ 7,810 $186,174 $198,464 $242,468 $249,053 $240,866
Loss before
extraordinary gain
and cumulative
effects of changes
in accounting
principles $ (552) $(22,833) $(40,692) $(16,747) $(15,735) $(13,010)
Net earnings (loss) $ (552) $119,647 $(51,990) $(16,747) $(15,735) $(14,013)
Net earnings (loss)
attributable
to common
shareholders $ (552) $ 78,946 $(52,629) $(19,138) $(19,473) $(16,901)
Loss per share
before extra-
ordinary gain
and cumulative
effects of changes
in accounting
principles $ (.05) $ (2.46) $ (4.56) $ (2.64) $ (2.47) $ (2.05)
Net earnings (loss)
per share $ (.05) $ 12.91 $ (5.82) $ (2.64) $ (2.47) $ (2.21)
Net earnings (loss)
per share
attributable
to common
shareholders $ (.05) $ 8.52 $ (5.89) $ (3.01) $ (3.06) $ (2.66)
Cash dividends per
common share $ - $ - $ - $ - $ - $ -
Consolidated Balance
Sheets Data:
Total assets $177,954 N/A $184,900 $204,090 $205,436 $231,227
Long-term debt $ 53,169 N/A $ 769(a) $ 165(a) $158,219 $157,436
Redeemable
preferred stock N/A N/A $ 30,302 $ 29,310 $ 26,342 $ 22,805
(a) Amounts are net of $201,979 at December 31, 1993 and $197,334 at December 31, 1992, of long-term debt
classified as a current liability as discussed in ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(b) As a result of the reorganization and implementation of fresh start reporting as of the Effective Date
the financial statements of the Reorganized Company are not comparable to the financial statements of
the Predecessor Company. See ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for additional
information.
(c) See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information describes the Company's operations as set
forth in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA and ITEM 6.
SELECTED FINANCIAL DATA. Upon consummation of the Amended Plan, an
extraordinary gain of $142,480,271 was recognized which represented
forgiveness of debt, including accrued interest, write-off of associated
financing fees and settlement of the Bell Helicopter claim, reduced by the
estimated fair value of the Common Stock issued to the holders of Holdings'
and the Company's unsecured debt securities and Bell Helicopter. Holdings and
the Company have accounted for the reorganization by using the principles of
fresh start reporting, as required by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Under the principles of fresh start reporting, 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. In addition, the accumulated deficit of
$60,136,850 and cumulative foreign currency adjustments of $3,217,977 were
eliminated. As a result of the implementation of fresh start reporting, the
financial statements of the Reorganized Company (the survivor of the merger of
Holdings with and into the Company) after consummation of the Amended Plan are
not comparable to the financial statements of prior periods. The financial
statements presented for prior periods are not the Company's, but instead are
those of Holdings (Holdings is referred to as the "Predecessor Company"), the
former parent of the Company. The acquisition of the Company by Holdings on
February 4, 1988 was accounted for as a purchase and, accordingly, the assets
and liabilities of Holdings were recorded at their estimated fair values as of
the acquisition date. The excess of the related purchase cost over the fair
value of identifiable net assets was allocated to goodwill. The Predecessor
Company consolidated financial statements included the related depreciation
and amortization charges associated with the fair value adjustments since the
date of the acquisition.
LIQUIDITY AND CAPITAL RESOURCES
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, 1994, 1993 and 1992 were as
follows:
1994 1993 1992
(Reorganized (Predecessor Company)
Company)
Working capital (deficiency)
(in millions) $ 77.8 $(164.0) $(121.9)
Current ratio 2.6 to 1 .4 to 1 .5 to 1
The increase in working capital and the current ratio for the year ended
December 31, 1994 was primarily due to the forgiveness of debt, principal and
interest, upon consummation of the Amended Plan. The decrease in working
capital and the current ratio for the year ended December 31, 1993 was
primarily due to the accrual of interest expense. Due to the Restructuring,
the accrued interest on Holdings' and the Company's unsecured debt securities
was not paid.
The table below summarizes the Company's cash position at December 31,
1994:
Restricted Unrestricted
Location Cash Cash Total
United States $ - $ 9,543,633 $ 9,543,633
Foreign Subsidiaries 18,898 5,848,035 5,866,933
Equipment Assurance Limited 3,655,866 816,911 4,472,777
___________ ___________ ___________
$ 3,674,764 $16,208,579 $19,883,343
Of the $9,543,633 of unrestricted cash in the United States,
approximately $3,400,000 is required for payment of expenses that were
incurred in connection with the Restructuring (primarily legal and
professional fees) and approximately $2,700,000 is required to be refunded to
the Internal Revenue Service for an excess refund received in 1993. A portion
of the unrestricted cash at the foreign subsidiaries and Equipment Assurance
Limited ("EAL"), an off-shore insurance subsidiary of the Company, is not
readily repatriatable because it is required for working capital purposes at
these respective locations.
The following table reconciles Loss Before Income Taxes, Extraordinary
Gain and Cumulative Effects of Changes in Accounting Principles to earnings
before reorganization items, inventory fair value adjustment charged to cost
of products sold, interest, taxes, depreciation and amortization ("Adjusted
EBITDA"):
Reorganized
Company Predecessor Company
December 14 - January 1 -
December 31, December 13, Years Ended December 31,
1994 1994 1993 1992
Loss before
income taxes,
extraordinary
gain and
cumulative
effects of
changes in
accounting
principles $ (427,114) $(21,438,431) $(39,775,632) $(15,807,117)
Reorganization
items - 9,337,797 4,387,266 -
Inventory fair
value adjustment
charged to cost
of products
sold 362,246 - - -
Non cash expenses:
Depreciation 145,060 7,356,734 7,614,551 7,874,227
Amortization
of goodwill,
intangible assets
and other items 23,032 3,678,806 4,444,693 4,987,856
Deferred rent
(interest) on sale
and leaseback
financing
arrangement
(Predecessor
Company) and
payment in kind
interest on the
Secured Notes
(Reorganized
Company) 258,190 7,286,686 5,749,264 2,178,611
Amortization of
debt discount - 71,179 473,969 4,378,419
____________ ____________ ____________ ____________
Cash available
for use before
non-cash interest
expense, income
taxes and
cumulative
effects of
changes in
accounting
principles 361,414 6,292,771 (17,105,889) 3,611,996
Cash interest
expense (1) 25,981 6,552,825 28,841,951 21,589,194
____________ ____________ ____________ ____________
Adjusted EBITDA $ 387,395 $ 12,845,596 $ 11,736,062 $ 25,201,190
(1) Includes all accrued but unpaid interest prior to the Petition Date.
Contractual interest of $20,250,230 on the unsecured debt of the Predecessor
Company did not accrue subsequent to the Petition Date. Excludes amortization
of debt discount, deferred rent (interest) on the sale and leaseback financing
arrangement and interest on the Secured Notes that will be paid in kind.
On the Effective Date pursuant to the Amended Plan, the Company issued
an aggregate principal amount of $52,072,000 of Secured Notes due December 14,
1999 to the South Street Funds in exchange for the Old South Street Notes and
the Company's obligations under a sale and leaseback financing arrangement.
Interest on the Secured Notes accrues at a rate of 10.5% per annum until
December 14, 1995. Thereafter, interest accrues at a rate of 10.5% per annum,
if paid in cash, or 13.0% per annum, if paid in kind. The Credit Agreement
(as defined below) requires accrued interest on the Secured Notes, which
aggregated $258,000 through December 31, 1994, to be paid in kind prior to
January 1, 1996, and thereafter restricts the cash payment of principal and
interest on the Secured Notes unless certain ratios and conditions are met.
Otherwise, interest on the Secured Notes is payable in kind at the discretion
of the Company during the term of the Secured Notes. The Secured Notes are
secured by a security interest on substantially all of the Company's property
(other than real estate) in favor of Harris Trust and Savings Bank, as
Collateral Agent (the "Collateral Agent"), which is subordinated to the
security interest in favor of Bank One securing up to $16,000,000 in
indebtedness and other amounts owing under the Credit Agreement (as defined
below). The Company has also granted a security interest in favor of the
Collateral Agent in the shares of the Company's U.S. subsidiaries and 65% of
the shares of certain non-U.S. subsidiaries (collectively, the "Pledged
Shares").
Pursuant to the Amended Plan, the Company entered into a Credit
Agreement dated as of December 14, 1994, with Bank One (the "Credit
Agreement"). The Credit Agreement contains a credit facility for working
capital and general corporate purposes (the "Loan Facility") and a letter of
credit facility (the "L/C Facility"). Under the Loan Facility, the Company
may borrow up to $5,000,000 through December 31, 1995, and from January 1,
1996 through December 31, 1996, the Company may borrow up to $2,500,000,
provided that it meets certain earnings before interest, taxes, depreciation
and amortization tests, as defined. Borrowings under the Loan Facility mature
on December 31, 1996 and interest is payable at the Company's option either at
a rate equal to Bank One's reference rate plus 0.75% per annum or an adjusted
LIBOR rate plus 2.75% per annum. Under the L/C Facility, Bank One has agreed
to issue letters of credit for the benefit of the Company through December 31,
1996 in an aggregate amount not in excess of $15,000,000 minus the then
outstanding aggregate borrowings by the Company under the Loan Facility,
provided that no letter of credit may expire after December 31, 1997.
Borrowings under the Credit Agreement are secured by a security interest on
substantially all of the Company's property (other than real estate),
including the Pledged Shares, which, to the extent described above, is senior
to the security interest created in favor of the Collateral Agent. As of
December 31, 1994, the Company did not have any borrowings outstanding under
the Loan Facility and $6,373,000 of the L/C Facility was being used.
The agreements relating to the Secured Notes and the Credit Agreement
permit project financing which enables the Company to borrow money to pay
costs associated with the manufacture of mining machinery or other products
pursuant to binding purchase contracts. Project financing borrowings are
secured by the inventory being financed and any accounts receivable relating
to such inventory. Project financing borrowings mature not later than the
date of the final payment by the customer under the applicable purchase
contract. As of December 31, 1994, the Company had $6,237,000 of outstanding
project financing borrowings.
The Company believes that, as a result of the Restructuring, current and
projected levels of liquidity, together with funds generated by operations,
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.
The Company had outstanding letters of credit and guarantees of
$9,578,000 at December 31, 1994. Of this amount, $6,373,000 is related to the
Credit Agreement with the remainder provided by various banks and insurance
companies.
As required under various agreements, EAL has pledged $3,655,866 of its
cash to secure its reimbursement obligations for outstanding letters of credit
and a subsidiary's bank debt at December 31, 1994. This collateral amount is
classified as Restricted Funds on Deposit in the Consolidated Balance Sheets.
At December 31, 1994, the Company had approximately $1,039,000 of open
approved capital appropriations. The Company does not anticipate any
substantial increase in the level of annual capital expenditures in 1995.
The Company provides certain health care benefits to age 65 and life
insurance benefits for certain eligible retired United States employees.
Substantially all of Company's employees may become eligible for those
benefits if they reach early retirement age while working for the Company.
The Company funds the majority of the costs of such benefits as they are
incurred. The Company's obligation for these benefits as of December 31, 1994
was $13,237,000.
PROFITABILITY MEASUREMENTS
Ratios of returns on net shipments, assets employed and shareholders'
investment are not meaningful at this time for the Company due to losses
incurred.
CAPITALIZATION
As a result of the Restructuring, the long-term debt to equity ratio as
of December 31, 1994 was 1.0 to 1. Financial ratios for prior periods are not
meaningful at this time for the Company due to losses incurred.
RESULTS OF OPERATIONS
Net Shipments and Net Earnings (Loss)
Net shipments for 1994 were $193,984,451 compared with $198,464,139 for
1993. Shipments of repair parts and services increased 1.6% from 1993 and
machine shipments decreased 12.0%. The decrease in machine shipments was
primarily due to reduced electric mining shovel shipments. The pricing for
machines and repair parts has been stable during these periods.
Net shipments for 1993 were $198,464,139 compared with $242,468,428 for
1992. Shipments of repair parts and services decreased 5.3% from 1992 and
machine shipments decreased 39.0%. The decrease in repair parts and service
shipments was primarily due to decreased repair parts shipments at foreign
locations. This decrease was due to lower demand for replacement parts. The
decrease in machine shipments was primarily due to an absence of dragline
shipments in 1993. The pricing for machines and repair parts has continued to
remain steady with the changes primarily related to volume.
Net earnings for 1994 were $119,094,721 compared with a net loss of
$51,989,651 for 1993. The increase in earnings for 1994 was primarily due to
reduced interest expense of $20,870,323, an extraordinary gain on debt
discharge of $142,480,271 and a net charge in 1993 of $11,297,385 for the
cumulative effects of changes in accounting principles as a result of adoption
of Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("SFAS 106") and Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), partially offset by an increase in reorganization items of $4,950,531
in 1994. Also included in net earnings (loss) were non-cash depreciation and
amortization charges of $11,203,632 and $12,059,244 for 1994 and 1993,
respectively.
Net loss for 1993 was $51,989,651 compared with a net loss of
$16,747,090 for 1992. Included in net loss for 1993 was a net charge of
$11,297,385 for the cumulative effects of changes in accounting principles as
a result of adoption of SFAS 106 and SFAS 109. Also included in net losses
for 1993 and 1992 were non-cash depreciation and amortization charges of
$12,059,244 and $12,862,083, respectively. The increase in net loss was
primarily due to reduced gross margin from lower repair parts volume,
restructuring costs and increased interest expense.
The Company's consolidated backlog on December 31, 1994 was $72,346,000
compared with $74,023,000 on December 31, 1993 and $92,386,000 on December 31,
1992. Machine backlog is down .8% from December 31, 1993. Repair parts and
service backlog is down 3.1% from December 31, 1993, primarily due to a
reduction at domestic locations.
New orders for 1994 increased 6.8% from 1993. New machine orders for
1994 were 18.1% higher than 1993, primarily due to increased demand in copper
markets. New repair parts and service orders for 1994 increased 3.4% from
1993, primarily due to increases at foreign locations.
The Company believes expansion of coal and iron ore production in China
and coal production in India, new copper projects in South America and
replacement of old equipment in iron ore mines should provide near term
machine sales potential. Continued upgrading of existing machines along with
movement of existing large draglines by operators to new mine sites and normal
drill and shovel parts demand should result in steady shipments of repair
parts worldwide in the next twelve months. Although the movement and
upgrading of existing draglines should positively impact parts sales in 1995,
these options continue to further reduce the worldwide demand for new
draglines. In addition, the United States coal market continues to be
negatively impacted by the effects of The Clean Air Act.
Interest, Royalties and Miscellaneous
Interest, royalties and miscellaneous for 1994 was $3,054,956 compared
with $1,735,239 for 1993. The increase was primarily due to a favorable
insurance settlement of $1,350,000 in 1994.
Interest, royalties and miscellaneous for 1993 was $1,735,239 compared
with $4,349,186 for 1992. The decrease was primarily due to the reversal of
$794,000 of reserves of EAL resulting from an evaluation of the adequacy of
these reserves in the fourth quarter of 1993 compared with a reversal of
$1,500,000 in 1992, $1,022,757 of interest income on federal income tax
refunds in 1992 and a reduction in interest income of $440,548 resulting from
lower invested cash balances.
Cost of Products Sold
Cost of products sold for 1994 was $163,892,682 or 84.5% of shipments
compared with $166,921,197 or 84.1% of shipments for 1993 and $200,723,826 or
82.8% of shipments for 1992. The changes in the cost of products sold
percentages were primarily the result of the mix of products sold.
Included in cost of products sold for 1994 was $362,000 as a result of
the fair value adjustment to inventory. This adjustment was made in
accordance with the principles of fresh start reporting and is being charged
to cost of products sold as the inventory is sold. The Company expects the
remaining adjustment of $10,065,000 to be charged to cost of products sold
during 1995.
Included in cost of products sold were foreign currency translation
losses of $212,860 for 1994 compared with $695,011 for 1993 and $245,916 for
1992. The losses occurred primarily in Brazil and were the result of applying
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation".
Product Development, Selling, Administrative and Miscellaneous Expenses
Product development, selling, administrative and miscellaneous expenses
for 1994 were $31,479,612 or 16.2% of shipments compared with $33,601,363 or
16.9% of shipments in 1993 and $33,754,681 or 13.9% of shipments in 1992. The
decrease in 1994 from 1993 was primarily due to reduced product development
expense as a result of increased work on specific customer contracts. The
percentage increase in 1993 compared with 1992 was primarily due to decreased
shipments in 1993.
Interest Expense
Interest expense for 1994 was $14,194,861 compared with $35,065,184 for
1993. The decrease was primarily due to not accruing interest subsequent to
the Petition Date on Holdings' and the Company's unsecured debt securities
which included the Company's 10% Senior Notes, the Company's Resettable Senior
Notes, the Company's 9% Sinking Fund Debentures and Holdings' Series A 12-1/2%
Senior Debentures.
Interest expense for 1993 was $35,065,184 compared with $28,146,224 for
1992. The increase was primarily due to an increase in the annual interest
rates on the 10% Senior Notes to 16% per annum and on the Resettable Senior
Notes to 15% per annum resulting in an increase in interest expense of
$4,477,680 and $1,500,000, respectively, an increase in rent of $3,570,653,
which, for accounting purposes, is classified as interest, on a sale and
leaseback financing arrangement and an increase in interest of $1,257,889 on
the Old South Street Notes, partially offset by a reduction in debt discount
amortization of $3,904,450. Of the $35,065,184 of interest expense for 1993,
$33,927,205 was accrued and unpaid interest on debt securities that were in
default.
Reorganization Items
Reorganization items represent the expenses incurred as a result of the
commencement of the Restructuring and the Company's efforts to reorganize
under chapter 11 of the Bankruptcy Code. Reorganization items in 1994 consist
of $8,023,309 of legal and professional fees, $41,121,683 to adjust debt and
redeemable preferred stock to the amount of the allowed claims in the Amended
Plan and a $1,112,927 write-off of capitalized financing costs. These
expenses were partially offset by $365,317 of interest income earned from the
Petition Date through December 13, 1994 on accumulated cash balances of
Holdings and the Company. In 1993, reorganization items consist entirely of
legal and professional fees.
Income Taxes
The provision for income taxes reflects the effects of applying SFAS 109
in 1994 and 1993 and Statement of Financial Accounting Standards No. 96,
"Accounting for Income Taxes", in 1992 and the recognition of foreign tax
expense at applicable statutory rates. The cumulative effect of adopting SFAS
109 on the Predecessor Company's financial statements was a tax benefit of
$446,724 ($.05 per share) which has been included in the Consolidated
Statement of Operations for the year ended December 31, 1993. In 1992, the
Company reversed a portion of prior years' accruals for income taxes at an
inactive subsidiary which was determined to be no longer necessary as a result
of favorable settlements of state tax disputes during the year, resulting in a
$2,000,000 reduction of income tax expense.
A more detailed discussion of income taxes can be found in ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE I.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BUCYRUS-ERIE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Reorganized
Company Predecessor Company
December 14 - January 1 -
December 31, December 13, Years Ended December 31,
1994 1994 1993 1992
REVENUES:
Net shipments $ 7,810,105 $186,174,346 $198,464,139 $242,468,428
Interest, royalties and miscellaneous 79,385 2,975,571 1,735,239 4,349,186
____________ ____________ ____________ ____________
7,889,490 189,149,917 200,199,378 246,817,614
____________ ____________ ____________ ____________
COSTS AND EXPENSES:
Cost of products sold - Notes C and L 6,886,084 157,006,598 166,921,197 200,723,826
Product development, selling, administrative,
and miscellaneous expenses - Note L 1,146,349 30,333,263 33,601,363 33,754,681
Interest expense (Predecessor contractual
interest not recognized in 1994 -
$20,250,230) - Note G 284,171 13,910,690 35,065,184 28,146,224
Reorganization items - Notes A and B - 9,337,797 4,387,266 -
____________ ____________ ____________ ____________
8,316,604 210,588,348 239,975,010 262,624,731
____________ ____________ ____________ ____________
Loss before income taxes, extraordinary
gain and cumulative effects of changes
in accounting principles (427,114) (21,438,431) (39,775,632) (15,807,117)
Income taxes - Note I 125,276 1,394,729 916,634 939,973
____________ ____________ ____________ ____________
Loss before extraordinary gain and
cumulative effects of changes in
accounting principles (552,390) (22,833,160) (40,692,266) (16,747,090)
Extraordinary gain - Note A - 142,480,271 - -
Cumulative effects of changes in
accounting principles for:
Postretirement benefits - Note K $ - $ - $(11,744,109) $ -
Income taxes - Note I - - 446,724 -
____________ ____________ ____________ ____________
Net earnings (loss) (552,390) 119,647,111 (51,989,651) (16,747,090)
Redeemable preferred stock dividends -
Note H - (40,453) 50,459 (1,868,912)
Preferred stock accretion - Note H - (105,548) (689,481) (522,004)
Reorganization item - preferred stock -
Notes A and H - (40,554,805) - -
____________ ____________ ____________ ____________
Net earnings (loss) attributable
to common shareholders $ (552,390) $ 78,946,305 $(52,628,673) $(19,138,006)
Net earnings (loss) per share of common
stock - Note M:
Loss before extraordinary gain and
cumulative effects of changes
in accounting principles $( .05) $(2.46) $(4.56) $(2.64)
Extraordinary gain - 15.37 - -
Cumulative effects of changes in
accounting principles for:
Postretirement benefits - - (1.31) -
Income taxes - - .05 -
______ ______ ______ ______
Net earnings (loss) (.05) 12.91 (5.82) (2.64)
Preferred stock dividends, accretion and
reorganization item - (4.39) (.07) (.37)
______ ______ ______ ______
Net earnings (loss) attributable to
common shareholders $( .05) $ 8.52 $(5.89) $(3.01)
See notes to consolidated financial statements.
BUCYRUS-ERIE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1994 1993 1994 1993
(Reorganized (Predecessor (Reorganized (Predecessor
(Company) (Company) Company) Company)
LIABILITIES AND SHAREHOLDERS'
ASSETS - Notes B and G INVESTMENT (DEFICIENCY IN ASSETS)
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents Accounts payable and
- Notes C and O $ 16,208,579 $ 13,696,244 accrued expenses - Notes B,
Restricted funds on F, J and K $ 31,703,558 $ 53,665,642
deposit - Note C - 512,173 Liability to customers on
Receivables - Notes D uncompleted contracts,
and O 26,219,945 25,731,294 warranties and other -
Inventories - Notes C Notes A and C 7,238,504 8,196,401
and E 82,393,121 63,671,237 Income taxes-Notes B and I 2,819,743 448,493
Prepaid expenses and Current maturities of long-
other assets 1,855,961 1,630,226 term debt - Note G 7,123,272 4,954,196
____________ ____________ ____________ ____________
Total Current Assets 126,677,606 105,241,174 48,885,077 67,264,732
OTHER ASSETS: Long-term debt classified
Restricted funds on as a current liability -
deposit - Note C 3,674,764 6,024,659 Notes A and G - 201,979,324
Goodwill - Note C - 17,003,213 ____________ ____________
Intangible assets - Note C 9,497,149 7,780,263
Other assets - Note I 2,414,087 2,480,555 Total Current Liabilities 48,885,077 269,244,056
____________ ____________
DEFERRED LIABILITIES:
15,586,000 33,288,690 Income taxes - Notes
B and I 122,331 157,544
PROPERTY, PLANT AND EQUIPMENT Liabilities to customers
- Note C: on uncompleted contracts
Land 1,521,678 2,132,556 and warranties - Note C 3,260,814 4,587,014
Buildings and improvements 5,262,122 18,985,480 Postretirement benefits -
Machinery and equipment 29,113,022 66,393,652 Notes B and K 11,828,446 15,590,236
Less accumulated Deferred expenses
depreciation (206,457) (41,141,094) and other - Note B 7,070,735 7,298,284
____________ ____________ ____________ ____________
35,690,365 46,370,594 22,282,326 27,633,078
LONG-TERM DEBT, less
amounts classified as
current liabilities -
Notes A, B and G 53,169,481 768,728
COMMITMENTS AND CONTINGENCIES -
Notes A, G and O
PREFERRED STOCK - Notes A,
B and H:
Series A Redeemable - par
value $.01 per share,
liquidation preference
$25 per share, 2,412,792
shares issued and
outstanding (aggregate
liquidation/redemption
preference $70,088,379) - 30,301,570
Series B - par value $.01
per share, issued and
outstanding 6,291,805
shares - 62,918
COMMON SHAREHOLDERS' INVESTMENT
(DEFICIENCY IN ASSETS) -
Notes A, B and H:
Reorganized Company:
Common Stock - par value $.01
per share, authorized
20,000,000 shares, issued
and outstanding 10,170,417
shares 101,704 -
Additional paid-in
capital 53,898,296 -
Accumulated deficit (552,390) -
Cumulative foreign currency
translation adjustments 169,477 -
Predecessor Company:
Class C - par value $.01
per share, issued and
outstanding 9,176,427
shares - 91,764
Class D - par value $.01
shares, issued and
outstanding 88,154 shares - 882
Warrants - issued and
outstanding 6,392 - 971
Accumulated deficit - (138,994,351)
Cumulative foreign currency
translation adjustments - (4,209,158)
____________ ____________
53,617,087 (143,109,892)
____________ ____________ ____________ ____________
$177,953,971 $184,900,458 $177,953,971 $184,900,458
See notes to consolidated financial statements.
BUCYRUS-ERIE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reorganized
Company Predecessor Company
December 14 - January 1 -
December 31, December 13, Years Ended December 31,
1994 1994 1993 1992
Cash Flows From Operating Activities
Net earnings (loss) $ (552,390) $119,647,111 $(51,989,651) $(16,747,090)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation 145,060 7,356,734 7,614,551 7,874,227
Amortization of goodwill, intangible assets
and other items 23,032 3,678,806 4,444,693 4,987,856
Deferred rent (interest) on sale and leaseback
financing arrangement - 7,286,686 5,749,264 2,178,611
Payment in kind interest on the Secured Notes 258,190 - - -
Amortization of debt discount - 71,179 473,969 4,378,419
Loss (gain) on sale of property, plant
and equipment 5,105 37,372 (42,022) 145,393
Non-cash reorganization items - 1,679,805 - -
Extraordinary gain - (142,480,271) - -
Cumulative effects of changes in
accounting principles - - 11,297,385 -
Changes in assets and liabilities:
Decrease (increase) in receivables 4,318,474 (4,616,173) 944,456 (2,156,599)
(Increase) decrease in inventories (61,102) (7,539,570) 2,193,570 (2,302,307)
(Increase) decrease in other current assets (73,296) 124,866 772,295 (1,999,034)
Decrease (increase) in other assets 14,629 505,013 (621,953) (746,345)
(Decrease) increase in current liabilities
other than income taxes and current
maturities of long-term debt (5,162,406) 17,548,053 22,301,377 (16,770,104)
Increase (decrease) in income taxes 301,696 543,127 (1,566,057) (1,724,874)
Decrease in deferred liabilities
other than income taxes (153,879) (2,112,065) (7,390,729) (2,863,872)
____________ ____________ ____________ ____________
Net cash provided by (used in)
operating activities (936,887) 1,730,673 (5,818,852) (25,745,719)
____________ ____________ ____________ ____________
Cash Flows From Investing Activities
(Increase) decrease in restricted funds
on deposit (205) 2,862,843 3,273,815 (5,711,880)
Purchases of property, plant and equipment (190,460) (2,615,888) (2,989,482) (3,750,148)
Proceeds from sale of property, plant
and equipment - 125,263 284,054 52,233
____________ ____________ ____________ ____________
Net cash provided by (used in)
investing activities (190,665) 372,218 568,387 (9,409,795)
____________ ____________ ____________ ____________
Cash Flows From Financing Activities
Payment of current maturities of long-term debt - (833,843) (1,137,847) (1,195,518)
Proceeds from issuance of long-term
project financing obligations 1,619,525 7,891,323 8,516,241 -
Reduction of long-term project
financing obligations - (6,933,696) (4,856,362) -
(Payments of) proceeds from other obligations - (375,834) 375,834 -
Proceeds from issuance of long-term debt - - - 16,750,000
Proceeds from sale and leaseback
financing arrangement - - - 18,250,000
Proceeds from exercise of warrants - 64 29,039 -
Proceeds from exercise of stock options - - 753 -
____________ ____________ ____________ ____________
Net cash provided by (used in)
financing activities 1,619,525 (251,986) 2,927,658 33,804,482
____________ ____________ ____________ ____________
Effect of exchange rate changes on cash (4,840) 174,297 (466) 171,601
____________ ____________ ____________ ____________
Net increase (decrease) in cash
and cash equivalents 487,133 2,025,202 (2,323,273) (1,179,431)
Cash and cash equivalents at beginning
of period 15,721,446 13,696,244 16,019,517 17,198,948
____________ ____________ ____________ ____________
Cash and cash equivalents at end of period $ 16,208,579 $ 15,721,446 $ 13,696,244 $ 16,019,517
============ ============ ============ ============
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period for:
Interest on long-term debt and
bank borrowings $ 19,595 $ 344,895 $ 4,209,125 $ 21,653,287
Reorganization items (1) 484,380 4,582,027 3,600,258 -
Income taxes (2) 12,257 (259,426) 380,087 1,743,726
(1) The 1994 amount for the Predecessor Company is net of interest income received of $365,317.
(2) These amounts are net of federal and state income tax refunds of $908,299 (including $838
for the Reorganized Company) in 1994, $1,071,261 in 1993 and $870,655 in 1992.
Supplemental Schedule of Non-Cash Investing and Financing Activities
(A) Prior to the Petition Date, the Company increased the carrying amount of the Series A redeemable preferred stock by
amounts representing the estimated fair value of the pre-petition dividends not declared or paid, but which were payable
under mandatory redemption features. The Company also recorded preferred stock discount accretion on these securities prior
to the Petition Date. As of the Petition Date, the Company increased the carrying amount of the Series A redeemable
preferred stock to the amount of the allowed claim in the Prepackaged Plan. The amounts as reflected in the consolidated
financial statements were as follows:
Predecessor Company
January 1 -
December 13, Years Ended December 31,
1994 1993 1992
Redeemable preferred stock dividends at net book value $ 129,257 $ 301,600 $ 2,446,187
Redeemable preferred stock accretion 105,548 689,481 522,004
Write-up of redeemable preferred stock issued at a discount to
amount of allowed claim in the Amended Plan 40,554,805 - -
____________ ____________ ____________
$ 40,789,610 $ 991,081 $ 2,968,191
(B) Pursuant to the Amended Plan, the Reorganized Company issued shares of New Common Stock in exchange for the unsecured
debt securities of Holdings and Bucyrus and the equity securities of Holdings. Also, as of the Effective Date, the
Reorganized Company adopted the principles of fresh start reporting. See Notes A and B of the Notes to the Consolidated
Financial Statements.
See notes to consolidated financial statements.
BUCYRUS-ERIE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
Periods Ended December 31, 1994 and December 13, 1994 and
Years Ended December 31, 1993 and 1992
Cumulative
Foreign
Additional Currency
Common Stock Paid-In Accumulated Translation
Class A Class C Class D New Warrants Capital Deficit Adjustments
Predecessor Company
Balance at
January 1, 1992 $ 63,547 $ - $ - $ - $ 636,962 $ - $ (66,935,022) $ (156,846)
Conversion of
Class A common
stock to Class
C common stock
6,354,724
shares) (63,547) 63,547
Net loss (16,747,090)
Preferred stock
accretion (522,004)
Preferred stock
dividends (2,446,187)
Translation
adjustments (2,895,418)
_________ _________ _________ _________ _________ ___________ _____________ ___________
Balance at
December 31, 1992 - 63,547 - - 636,962 - (86,650,303) (3,052,264)
Exercise of
warrants
(2,903,832
shares) 29,039 (440,961) 440,961
Expiration of
warrants (195,030) 195,030
Conversion of
Class C common
stock to Class
D common stock
(88,154 shares) (882) 882
Exercise of
options
(6,025 shares) 60 693
Net loss (51,989,651)
Preferred stock
accretion (423,169) (266,312)
Preferred stock
dividends (213,515) (88,085)
Translation
adjustments (1,156,894)
_________ _________ _________ _________ _________ ___________ _____________ ___________
Balance at
December 31,
1993 $ - 91,764 $ 882 $ - $ 971 - (138,994,351) (4,209,158)
Exercise of
warrants (6,392
shares) 64 (971) 971
Conversion of
Class C common
stock to Class
D common stock
(20,926 shares) (209) 209
Net earnings 119,647,111
Preferred stock
accretion (105,548)
Preferred stock
dividends (129,257)
Reorganization
item -
preferred stock (40,554,805)
Translation
adjustments 991,181
Cancellation of
former equity
and elimination
of accumulated
deficit and
cumulative
foreign currency
translation
adjustments (91,619) (1,091) (971) 60,136,850 3,217,977
Issuance of new
common stock
(10,170,417
shares) $ 101,704 53,898,296
_________ _________ _________ _________ _________ ___________ _____________ ___________
Balance at
December 13,
1994 $ - $ - $ - $ 101,704 $ - $53,898,296 $ - $ -
BUCYRUS-ERIE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS) (CONTINUED)
Periods Ended December 31, 1994 and December 13, 1994 and
Years Ended December 31, 1993 and 1992
Cumulative
Foreign
Additional Currency
Common Paid-In Accumulated Translation
Reorganized Company Stock Capital Deficit Adjustments
Balance at December 14, 1994 $ 101,704 $53,898,296 $ - $ -
Net loss - December 14
to December 31, 1994 (552,390)
Translation adjustments -
December 14 to
December 31, 1994 169,477
_________ ___________ __________ _________
Balance at December 31, 1994 $ 101,704 $53,898,296 $ (552,390) $ 169,477
See notes to consolidated financial statements.
BUCYRUS-ERIE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Periods Ended December 31, 1994 and December 13, 1994 and
Years Ended December 31, 1993 and 1992
Note A - Reorganization:
On February 18, 1994 (the "Petition Date"), B-E Holdings, Inc.
("Holdings") and its wholly-owned subsidiary, Bucyrus-Erie Company
("Bucyrus"), commenced voluntary petitions under chapter 11 of the
Bankruptcy Code and filed a prepackaged joint plan of reorganization
in the United States Bankruptcy Court, Eastern District of Wisconsin
(the "Bankruptcy Court"). No subsidiaries of Holdings or Bucyrus
were included in the filing.
On December 1, 1994 (the "Confirmation Date"), the Bankruptcy Court
entered an order confirming the Second Amended Joint Plan of
Reorganization of Holdings and Bucyrus as modified on December 1,
1994 (the "Amended Plan"). The effective date of the Amended Plan
was December 14, 1994 (the "Effective Date"). During the period from
the Petition Date through December 13, 1994, the business and affairs
of Holdings and Bucyrus were conducted as debtors-in-possession by
their respective officers and directors, subject to the supervision
and orders of the Bankruptcy Court.
On the Effective Date, Holdings merged with and into Bucyrus (the
survivor of such merger is referred to as the "Reorganized Company")
pursuant to the Amended Plan and the Agreement and Plan of Merger
dated as of December 14, 1994 between Holdings and Bucyrus (the
"Merger Agreement"). Pursuant to the Amended Plan and the Merger
Agreement, the Reorganized Company issued 10,170,417 shares of its
common stock, par value $.01 per share (the "New Common Stock"). The
Reorganized Company issued 10,000,004 shares of New Common Stock to
holders of Holdings' and Bucyrus' unsecured debt securities and
Holdings' equity securities in exchange for such securities as
described below:
For each $1,000
principal amount of: The holder received:
10% Senior Notes (interest
rate reset to 16% as of
January 1, 1993) due
1996 of Bucyrus . . . . . . 67.1374 shares of New Common Stock
Resettable Senior Notes
due 1996 of Bucyrus . . . . 67.62005 shares of New Common Stock
9% Sinking Fund Debentures
due 1999 of Bucyrus . . . . 63.0427 shares of New Common Stock
Series A 12-1/2% Senior
Debentures due 2002
of Holdings . . . . . . . . 17.4228 shares of New Common Stock
For each 100 shares of:
Series A 12-1/2% Cumulative
Exchangeable Preferred
Stock, par value $.01 per
share, of Holdings. . . . . 6.6477 shares of New Common Stock
Series B Convertible
Preferred Stock, par
value $.01 per share,
of Holdings . . . . . . . . 0.5153 shares of New Common Stock
Class C Common Stock, par
value $.01 per share,
of Holdings . . . . . . . . 0.5153 shares of New Common Stock
Class D Common Stock, par
value $.01 per share,
of Holdings . . . . . . . . 0.5153 shares of New Common Stock
The Reorganized Company issued 170,413 shares of New Common Stock and
paid $350,000 in cash to Bell Helicopter Textron, Inc. ("Bell
Helicopter") in settlement of Bell Helicopter's claims against
Bucyrus and an inactive subsidiary of Bucyrus asserted in a civil
action.
Also on the Effective Date pursuant to the Amended Plan, the
Reorganized Company issued an aggregate principal amount of
$52,072,000 of Secured Notes due December 14, 1999 (the "Secured
Notes") in exchange for the outstanding Series A 10.65% Senior
Secured Notes due July 1, 1995 of Bucyrus, the outstanding Series B
16.5% Senior Secured Notes due January 1, 1996 of Bucyrus, the
obligations of Bucyrus under its sale and leaseback financing
arrangement and accrued interest, the sum of said items being
$54,571,403. The Reorganized Company also entered into a new credit
agreement with Bank One, Milwaukee, National Association ("Bank
One"). See Note G for further discussion of the new debt and credit
agreements of the Reorganized Company.
Upon consummation of the Amended Plan, an extraordinary gain on debt
discharge of $142,480,271 was recognized, which consists of the
following:
Carrying value of unsecured debt securities
of Holdings and Bucyrus $158,349,756
Accrued interest on unsecured debt
securities of Holdings and Bucyrus 31,662,581
Concession on Series A and B Senior Secured
Notes and obligation under sale and leaseback
financing arrangement 2,499,403
Settlement of Bell Helicopter claim 3,000,000
Write-off previously recorded capitalized
financing costs (309,053)
____________
195,202,687
Estimated fair value of New Common Stock
issued for unsecured debt securities
and Bell Helicopter claim 52,722,416
____________
Total Extraordinary Gain $142,480,271
For financial statement purposes, there was no income tax expense
recognized.
Reorganization items included in the Consolidated Statements of
Operations consist of the following:
January 1 to Year Ended
December 13, 1994 December 31, 1993
Legal and professional
fees - pre and
post-petition $ 8,023,309 $ 4,387,266
Net adjustment of debt
to amount of allowed
claim in the
Prepackaged Plan 566,878 -
Interest income (365,317) -
Write-off previously
recorded capitalized
financing costs 1,112,927 -
____________ ____________
Total $ 9,337,797 $ 4,387,266
Write-up of redeemable
preferred stock issued
at a discount to amount
of allowed claim in the
Prepackaged Plan $ 40,554,805 $ -
Note B - Financial Reporting Relating to Reorganization Proceedings:
Holdings and Bucyrus have accounted for the reorganization by using
the principles of fresh start reporting, as required by AICPA
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Under the
principles of fresh start reporting, 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 total reorganization value assigned to the assets was calculated
by using market capitalization and net present value discounted cash
flow valuation methodologies. In the market capitalization approach,
ranges of reorganization value were developed by multiplying
representative levels of the Reorganized Company's revenues and
earnings before interest, taxes, depreciation and amortization
("EBITDA") by the risk adjusted trading multiples of the guideline
companies, taking into account perceived differences such as
operating margins, historical revenue growth and cyclicality,
profitability, industry capital structure, geographic location and
market position between the guideline companies and the Reorganized
Company. In the net present value discounted cash flow approach, the
unleveraged, after-tax cash flows of the Reorganized Company and
estimated terminal value were calculated using projections for the
period from 1995 to 1998. The terminal value was determined based on
a weighting of multiples of the Reorganized Company's projected 1998
revenues and EBITDA, plus growth to each at 4.5 percent;
additionally, consideration was also given to a model which
capitalizes terminal year debt-free net cash flow. The resulting
amounts were discounted to present value at rates selected to
approximate the Reorganized Company's adjusted weighted average cost
of capital. The market capitalization and net present discounted
cash flow approaches were then compared, and the value of excess cash
and certain non-operating assets was added and certain nonoperating
liabilities subtracted to arrive at a reorganization equity value of
$54,000,000 for the Reorganized Company which resulted in a
reorganization value assigned to the assets of $181,389,776.
As a result of the implementation of fresh start reporting, the
financial statements of the Reorganized Company after consummation of
the Amended Plan are not comparable to the financial statements of
prior periods.
The effect of the Amended Plan and the implementation of fresh start
reporting on the Consolidated Balance Sheet as of December 13, 1994
was as follow:
Confirmation of Amended Plan Reorganized
December 13, 1994 Fresh Company
Preconfirmation Reorganization Start Balance
Balance Sheet Adjustments Adjustments Sheet
Assets
Current Assets:
Cash and cash
equivalents $ 13,731,446 $ 1,990,000 (1) $ 15,721,446
Receivables 30,459,539 30,459,539
Inventories 71,882,724 $ 10,427,499 (7) 82,310,223
Prepaid expenses and
other assets 1,802,419 (6,714)(8) 1,795,705
____________ ____________ ____________ ____________
Total Current Assets 117,876,128 1,990,000 10,420,785 130,286,913
Restricted funds
on deposit 6,014,506 (2,340,000)(2) 3,674,506
Goodwill 16,623,174 (16,623,174)(9) -
Intangible assets 6,041,899 3,478,282 (10) 9,520,181
Other assets 351,486 (309,053)(3) 2,371,210 (8) 2,413,643
Property, plant and
and equipment 42,039,880 (6,545,347)(11) 35,494,533
____________ ____________ ____________ ____________
$188,947,073 $ (659,053) $ (6,898,244) $181,389,776
============ ============ ============ ============
Liabilities and
Shareholders'
Investment (Deficiency
in Assets)
Current Liabilities:
Accounts payable and
accrued expenses $ 35,990,490 $ 1,853,282 (12) $ 37,843,772
Liabilities to customers
on uncompleted contracts,
warranties and other 6,032,585 6,032,585
Income taxes 1,235,773 1,432,280 (8) 2,668,053
Current maturities of
long-term debt 5,500,910 5,500,910
____________ ____________ ____________
Total Current
Liabilities 48,759,758 3,285,562 52,045,320
Income taxes 213,562 (91,231)(8) 122,331
Liabilities to
customers on
uncompleted
contracts and
warranties 3,260,814 3,260,814
Postretirement
benefits 15,496,980 (3,657,305)(13) 11,839,675
Deferred expenses
and other 7,032,934 180,098 (12) 7,213,032
Long-term debt 836,604 52,072,000 (4) 52,908,604
Liabilities subject
to compromise:
Exchanged for equity 193,362,337 (193,362,337)(5) -
Exchanged for debt 54,571,403 (54,571,403)(5) -
Preferred stock 71,154,098 (71,154,098)(6) -
Common stock 92,710 8,994 (14) 101,704
Additional paid-in
capital 971 123,867,520 (15) (69,970,195)(15) 53,898,296
Accumulated deficit (202,617,121) 142,480,271 (16) 60,136,850 (17) -
Cumulative foreign
currency translation
adjustments (3,217,977) 3,217,977 (17) -
____________ ____________ ____________ ____________
$188,947,073 $ (659,053) $ (6,898,244) $181,389,776
(1) Restricted cash that became unrestricted less $350,000 cash paid to Bell Helicopter.
(2) Restricted cash that became unrestricted.
(3) Write-off capitalized financing costs.
(4) Record new Secured Notes.
(5) Discharge or exchange of debt ($208,564,317), accrued interest ($36,019,423) and Bell Helicopter
claim ($3,350,000).
(6) Exchange of preferred stock for New Common Stock.
(7) Adjust inventory to estimated fair value.
(8) Adjust deferred tax assets and liabilities to estimated fair value.
(9) Write-off of goodwill.
(10) Adjust intangible assets to the extent of available reorganization value.
(11) Adjust property, plant and equipment to the extent of available reorganization value.
(12) Adjust pension liability to excess of projected benefit obligation over plan assets.
(13) Adjust postretirement benefits liability to amount of accumulated postretirement benefit obligation.
(14) Record exchange of Holdings' common stock ($92,710) and issuance of New Common Stock ($101,704).
(15) Adjust equity to $54,000,000.
(16) Extraordinary gain on debt discharge.
(17) Eliminate balances as of Effective Date.
Note B - Financial Reporting Relating to Reorganization Proceedings:
(Continued)
Interest income earned from the Petition Date through December 13,
1994 on accumulated cash balances of Holdings and Bucyrus, and
expenses resulting from the reorganization of Holdings and Bucyrus,
were recorded as earned and incurred, respectively, and reported
separately as reorganization items in the accompanying Consolidated
Statements of Operations. Interest expense subsequent to the
Petition Date on the unsecured debt securities of Holdings and
Bucyrus, excluding debt of the foreign subsidiaries, was not accrued.
In addition, liabilities and the redeemable preferred stock subject
to compromise under the bankruptcy proceedings were reported at the
amount of the allowed claims in the Amended Plan.
Note C - Summary of Accounting Policies:
Basis of Presentation
The Reorganized Company has accounted for the reorganization by using
the principles of fresh start reporting as required by SOP 90-7.
Accordingly, the financial statements of the Reorganized Company are
not comparable to the financial statements of prior periods. The
Predecessor consolidated financial statements are those of Holdings
which include the accounts and operating results of its wholly-owned
subsidiary, Bucyrus.
The acquisition of Bucyrus by Holdings on February 4, 1988 was
accounted for as a purchase and, accordingly, the assets and
liabilities of Holdings were recorded at their estimated fair values
as of the acquisition date. The excess of the related purchase cost
over the fair value of identifiable net assets was allocated to
goodwill. The Predecessor Company consolidated financial statements
included the related depreciation and amortization charges associated
with the fair value adjustments since the date of the acquisition.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of all subsidiaries. All significant intercompany
transactions, profits and accounts are eliminated. The foreign
subsidiaries' accounts are translated into U.S. dollars in accordance
with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation". In addition to the translation adjustments
reported in the Consolidated Balance Sheets, cost of products sold
includes translation losses of $213,000 (including a translation gain
of $2,000 for the Reorganized Company) in 1994, $695,000 in 1993 and
$246,000 in 1992.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less
when purchased are considered to be cash equivalents. The carrying
amount reported in the Consolidated Balance Sheets for cash and cash
equivalents approximates its fair value.
Restricted Funds on Deposit
Restricted funds on deposit represent cash and temporary investments
used to support the issuance of standby letters of cred