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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 1-871
BUCYRUS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 39-0188050
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P. O. BOX 500
1100 MILWAUKEE AVENUE
SOUTH MILWAUKEE, WISCONSIN 53172
(Address of Principal (Zip Code)
Executive Offices)
(414) 768-4000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ X ] No [ ]
As of March 25, 1998, 1,438,100 shares of common stock of the Registrant
were issued and outstanding. Of the total outstanding shares of common stock
on March 25, 1998, 1,430,300 were held of record by American Industrial
Partners Acquisition Company, LLC, which may be deemed an affiliate of Bucyrus
International, Inc. There is no established public trading market for such
stock.
Documents Incorporated by Reference. None.
PART I
ITEM 1. BUSINESS
Bucyrus International, Inc. (the "Company"), formerly known as Bucyrus-
Erie Company, was incorporated in Delaware in 1927 as the successor to a
business which commenced in 1880.
The AIP Merger
On August 21, 1997, the Company entered into an Agreement and Plan of
Merger (the "AIP Agreement") with American Industrial Partners Acquisition
Company, LLC ("AIPAC"), which is wholly-owned by American Industrial Partners
Capital Fund II, L.P. ("AIP"), and Bucyrus Acquisition Corp. ("BAC"), a
wholly-owned subsidiary of AIPAC. On August 26, 1997, pursuant to the AIP
Agreement, BAC commenced an offer to purchase for cash 100% of the outstanding
shares of common stock of the Company (the "Common Stock") at a price of
$18.00 per share (the "AIP Tender Offer"). Consummation of the AIP Tender
Offer occurred on September 24, 1997, and BAC was merged with and into the
Company on September 26, 1997 (the "AIP Merger"). The Company was the
surviving entity in the AIP Merger and is currently wholly-owned by AIPAC.
The purchase of all of the Company's outstanding shares of common stock by
AIPAC resulted in a change in control of voting interest.
The Marion Acquisition
On August 26, 1997, the Company consummated the acquisition (the "Marion
Acquisition") of certain assets and liabilities of The Marion Power Shovel
Company, a subsidiary of Global Industrial Technologies, Inc. ("Global"), and
of certain subsidiaries and divisions of Global that represented Global's
surface mining equipment business in Australia, Canada and South Africa
(collectively referred to herein as "Marion"). The cash purchase price for
Marion was $36,720,000, which includes acquisition expenses of $1,695,000.
The 1994 Reorganization
The Company was a wholly-owned subsidiary of B-E Holdings, Inc.
("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").
On February 22, 1993, the Company and Holdings announced their intention
to pursue a reorganization of their capital structures (the "Reorganization")
and commenced negotiations for a prepackaged chapter 11 financial
reorganization with certain of their secured and unsecured creditors, and on
February 18, 1994, Holdings and the Company commenced voluntary petitions
under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court, Eastern
District of Wisconsin (the "Bankruptcy Court"). On December 14, 1994 (the
"Effective Date"), the Amended Plan became effective and the Company and
Holdings consummated the Reorganization 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.
The purpose of the Reorganization was 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
shares of Common Stock to holders of Holdings' and the Company's unsecured
debt securities and Holdings' equity securities in exchange for such
securities. Also on the Effective Date, the Company issued an aggregate
principal amount of $52,072,000 of Secured Notes due December 14, 1999 (the
"Secured Notes") in exchange for the Company's previously outstanding debt
obligations. In 1996, 97.2% of the Secured Notes were purchased by Jackson
National Life Insurance Company ("JNL"), a former affiliate of the Company.
Industry Overview
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 large-scale surface mining equipment manufactured and serviced by the
Company is used primarily in coal, copper, and iron ore mines throughout the
world. Growth in demand for these commodities is a function of population
growth and continuing improvements in standards of living in many areas of the
world. The market for new surface mining equipment is somewhat cyclical in
nature due to market fluctuations for these commodities; however, the
aftermarket for parts and services is more stable because these expensive,
complex machines are typically kept in continuous operation for 15 to 30 years
and require regular maintenance and repair throughout their productive lives.
The largest markets for this mining equipment have been in Australia,
Canada, China, India, Russia, South Africa, South America, and the United
States. Together, these markets typically account for approximately 90% of
all new machines sold, although in any given year markets in other countries
may assume greater importance.
Markets Served
The Company's products are used in a variety of different types of mining
operations, including gold, phosphate, bauxite, and oil sands, as well as for
land reclamation. The Company manufactures surface mining equipment primarily
for large companies and quasi-governmental entities engaged in the mining of
coal, iron ore, and copper throughout the world. Until the late 1980's, coal
mining accounted for the largest percentage of industry demand for the
Company's machines, and it continues to be one of the largest users of
replacement parts and services. In recent years, however, copper and iron ore
mining operations have accounted for an increasingly greater share of new
machine sales. Nevertheless, while the copper and iron ore mining industries
have accounted for the majority of new machine sales in recent years, the
increasing worldwide demand for coal is expected to continue and the Company
expects that coal mining will account for an increasing percentage of new
machine sales over the next several years.
Copper. From 1995 to 1996, copper consumption increased by 2.5% in
the United States, with European countries such as France, Germany, Italy
and Britain experiencing similar growth. This growth in demand was
attributable to both general economic growth as well as increased use of
copper in high-tech industrial production. Unusual trading activity led
to a sharp decline in copper prices in mid-1996 from historically high
levels; however, since then, copper prices recovered, but then declined
in the fourth quarter of 1997 partially due to financial problems of
countries in the Far East. According to Metal Bulletin Research, an
industry periodical, copper consumption is expected to grow at
approximately 2.5% in 1998.
Iron Ore. Although 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 an increase in iron ore production in late 1994 that was
sustained through 1995 when global consumption increased, creating
additional demand for steel. In 1995, iron ore was the most widely
traded non-energy commodity in both value and volume, and the iron ore
market passed the one billion tons level, setting a new record for the
worldwide industry. Prices for iron ore began to recover slightly in
1995 and 1996, climbing back to 1992 levels. In 1997, AME Mineral
Economic analysts predicted that iron ore production will rise 10% by the
year 2000.
Coal. The demand for steam coal, which represents approximately 85%
of total coal mining activity, is based largely on the demand for
electric power and the price and availability of competing sources of
energy such as oil, natural gas, and nuclear power. Initially, the 1973
Arab oil embargo resulted in an unprecedented increase in the demand for
coal production, reflecting expectations that oil prices would continue
to rise. Eventually the effects of a worldwide recession, escalating
interest rates, energy conservation efforts, and an increase in the
world's supply of oil resulted in a sharp drop in demand for coal. More
recently, coal production in the United States has been impacted by the
Clean Air Act, causing higher sulfur coal mines to be closed or to have
outputs drastically curtailed. Many machines have been shut down and a
few have been relocated to lower sulfur coal mines in eastern Appalachia
and Wyoming's Powder River Basin where excess production capacity and
stagnant demand have driven coal prices downward. Nevertheless, the
increase in demand for coal in developing countries with rapidly growing
populations, such as India and China, has stimulated coal mining
production worldwide and is eventually expected to increase both domestic
and foreign demand for excavation equipment. The Energy Information
Administration is forecasting an increase in world energy demand and an
increase in world coal consumption.
The Company's excavation machines are used for land reclamation as well
as for mining, which has a positive effect on the demand for its products and
replacement parts and expands the Company's potential customer base. Current
federal and state legislation regulating surface mining and reclamation may
affect some of the Company's customers, principally with respect to the cost
of complying with, and delays resulting from, reclamation and environmental
requirements.
OEM Products
The Company's line of original equipment manufactured products includes a
full range of rotary blast hole drills, electric mining shovels, and
draglines.
Rotary Blast Hole Drills. Most surface mines require breakage or
blasting of rock, overburden, or ore by explosives. To accomplish this,
it is necessary to bore out a pattern of holes into which the explosives
are placed. Rotary blast hole drills are used to drill these holes, and
are usually described in terms of the diameter of the hole they bore.
The average life of a blast hole drill is 15 to 20 years.
The Company offers a line of rotary blast hole drills ranging in
hole diameter size from 9.0 inches to 17.5 inches and ranging in price
from approximately $1,500,000 to $2,800,000 per drill, depending on
machine size and variable features.
In an effort to enhance drill sales and expand its market position,
the Company introduced the Model 39R diesel hydraulic blast hole drill in
1996, the Company's third drill model and first diesel hydraulic blast
hole drill. This innovative machine breaks new ground in maneuverability
and the ability to drill in difficult terrain, as well as offering
extraordinary drill productivity and functions unavailable in other
manufacturers' models.
Electric Mining Shovels. Mining shovels are primarily used to load
coal, copper ore, iron ore, other mineral-bearing materials, overburden,
or rock into trucks. There are two basic types of mining shovels,
electric and hydraulic. Electric mining shovels are able to handle
larger shovels or "dippers", allowing them to load greater volumes of
rock and minerals, while hydraulic shovels are smaller and more
maneuverable. The Company manufactures only electric mining shovels.
The average life of an electric mining shovel is 15 to 20 years.
Shovels are characterized in terms of weight and dipper capacity.
The Company offers a full line of electric mining shovels, weighing from
400 to 1,000 tons and having dipper capacities from 12 to 80 cubic yards.
Prices range from approximately $3,000,000 to approximately $9,000,000
per shovel.
Draglines. Draglines are primarily used to remove overburden, which
is the earth located over a coal or mineral deposit, by dragging a large
bucket through the overburden, carrying it away and depositing it in a
remote spoil pile. The Company's draglines weigh from 500 to 7,500 tons,
and are typically described in terms of their "bucket size", which can
range from nine to 220 cubic yards. The Company currently offers a full
line of models ranging in price from $10,000,000 to over $60,000,000 per
dragline. The average life of a dragline is 20 to 30 years.
Draglines are the industry's largest and most expensive type of
equipment, and while sales are sporadic, each dragline represents a
significant sales opportunity.
Aftermarket Parts and Services
The Company has a comprehensive aftermarket business that supplies
replacement parts and services for the surface mining industry. Although the
vast majority of the Company's sales of aftermarket parts and services has
been in support of the large installed equipment base of Bucyrus machines
worldwide, the Company also manufactures parts and provides services for other
manufacturers' installed equipment. The Company's aftermarket services
include maintenance and repair labor, technical advice, refurbishment, and
relocation of older, installed machines, particularly draglines. The Company
also provides engineering, manufacturing, and servicing for the consumable
rigging products that attach to dragline buckets (such as dragline teeth and
adapters, shrouds, dump blocks, and chains) and shovel dippers (such as dipper
teeth, adapters, and heel bands).
In general, the Company realizes higher margins on sales of parts and
services than it does on sales of new machines. Moreover, because the
expected life of large, complex mining machines ranges from 15 to 30 years,
the Company's aftermarket business is inherently more stable and predictable
than the fluctuating market for new machines. Over the life of a machine, net
sales generated from aftermarket parts and services can exceed the original
purchase price.
A substantial portion of the Company's international repair and
maintenance services are provided through its global network of wholly-owned
foreign subsidiaries and overseas offices operating in Australia, Brazil,
Canada, Chile, China, England, India, Mauritius, and South Africa. The
Company's two domestic subsidiaries, Minserco, Inc. ("Minserco") and Boonville
Mining Services, Inc. ("BMSI"), provide repair and maintenance services
throughout North America. Minserco, which maintains offices in Florida,
Kentucky, Texas, and Wyoming, provides comprehensive structural and mechanical
engineering, non-destructive testing, repairs and rebuilds of machine
components, product and component upgrades, contract maintenance, turnkey
erections, and machine moves. Minserco's services are provided almost
exclusively to maintenance and repair of Bucyrus machines operating in North
America. BMSI, located in Boonville, Indiana, manufactures replacement parts
and provides repair and rebuild services both for Bucyrus machines and other
manufacturers' equipment. The majority of BMSI's business is located in North
America.
To comply with the increasing aftermarket demands of larger mining
customers, the Company offers comprehensive Maintenance and Repair Contracts
("MARCs"). Under these contracts, the Company provides all replacement parts,
regular maintenance services, and necessary repairs for the excavation
equipment at a particular mine with an on-site support team. In addition,
some of these contracts call for Company personnel to operate the equipment
serviced. MARCs are highly beneficial to the Company's mining customers
because they promote high levels of equipment reliability and performance,
allowing the customer to concentrate on mining production. MARCs typically
have terms of three to five years with standard termination and renewal
provisions, although some contracts allow termination by the customer for any
cause. New mines in areas such as Chile and Argentina are the primary targets
for MARCs because it is difficult and expensive for mining companies to
establish the necessary infrastructures for ongoing maintenance and repair in
remote locations.
Customers
The Company does not consider itself dependent upon any single customer
or group of customers; however, on an annual basis a single customer may
account for a large percentage of sales, particularly new machine sales. In
1997 and 1995, one customer accounted for approximately 14% and 22%,
respectively, of the Company's consolidated net sales. In 1996, a different
customer accounted for approximately 14% of the Company's consolidated net
sales.
Marketing, Distribution and Sales
In the United States, new mining machinery is primarily sold directly by
Company personnel, and to a lesser extent through a northern Minnesota
distributor who supplies customers in the iron ore mining regions of the Upper
Midwest. Outside of the United States, new equipment is sold by Company
personnel, through independent distributors and through the Company's
subsidiaries and offices located in Australia, Brazil, Canada, Chile, China,
England, India, Mauritius, and South Africa. Aftermarket parts and services
are primarily sold directly through the Company's foreign subsidiaries and
offices and through the Company's domestic subsidiaries, Minserco and BMSI.
The Company believes that marketing through its own global network of
subsidiaries and offices offers better customer service and support by
providing customers with direct access to the Company's technological and
engineering expertise.
With the exception of the MARC business, all the Company's sales are on a
project-by-project basis. Typical payment terms for new equipment require a
down payment, and invoicing is done on a percentage of completion basis such
that a substantial portion of the purchase price is received by the time
shipment is made to the customer. Sales contracts for machines are
predominantly at fixed prices, with escalation clauses in certain cases. Most
sales of replacement parts call for prices in effect at the time of order.
During 1997, price increases from inflation had a relatively minor impact on
the Company's reported net sales.
Foreign Operations
A substantial portion of the Company's net sales and operating earnings
is attributable to operations located abroad. Over the past five years, over
70% of the Company's new machine sales have been in international markets.
The Company's foreign sales, consisting of exports from the United States and
sales by consolidated foreign subsidiaries, totaled $235,750,000 in 1997,
$191,888,000 in 1996 and $169,077,000 in 1995. Approximately $178,237,000 of
the Company's backlog of firm orders on December 31, 1997 represented orders
for export sales compared with $133,115,000 on December 31, 1996 and
$94,554,000 on December 31, 1995.
The Company's largest foreign markets are in Australia, Chile, China, and
South Africa. The Company also employs direct marketing strategies in
developing markets such as Brazil, India, Indonesia, Jordan, Morocco, and
Russia. In recent years, Australia and South Africa have emerged as strong
producers of metallurgical coal, while Chile and South Africa have continued
to be leading producers of other minerals, primarily copper and gold,
respectively. The Company expects that India, Russia and China will become
major coal producing regions in the future. In India, the world's second most
populous country, the demand for coal as a major source of energy is expected
to increase over the next several decades.
New machine sales in foreign markets are supported by the Company's
established network of foreign subsidiaries and overseas offices that directly
market the Company's products and provide ongoing services and replacement
parts for equipment installed abroad. The availability and convenience of the
services provided through this worldwide network not only promotes high margin
aftermarket sales of parts and services, but also gives the Company an
advantage in securing new machine orders.
The Company and its domestic subsidiaries normally price their products,
including direct sales of new equipment to foreign customers, in U.S. dollars.
Foreign subsidiaries normally procure and price aftermarket replacement parts
and repair services in the local currency. Approximately 70% of the Company's
net sales are priced in U.S. dollars. The value, in U.S. dollars, of the
Company's investments in its foreign subsidiaries and of dividends paid to the
Company by those subsidiaries will be affected by changes in exchange rates.
The Company does not normally enter into currency hedges, although it may do
so with regard to certain individual contracts.
Further information regarding foreign operations is included in ITEM 8 -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Competition
There are a limited number of manufacturers of new surface mining
equipment. The Company is one of two manufacturers of electric mining shovels
and draglines. The Company's only competitor in electric mining shovels and
draglines is Harnischfeger Corporation, although electric mining shovels also
compete against hydraulic shovels of which there are at least six other
manufacturers. In rotary blast hole drills, the Company competes with at
least three other manufacturers, including Harnischfeger Corporation. Methods
of competition are diverse and include product design and performance,
service, delivery, application engineering, pricing, financing terms, and
other commercial factors.
For most owners of the Company's machines, the Company is the primary
replacement source for large, heavily engineered, integral components;
however, the Company encounters intense competition for sales of smaller, less
sophisticated, consumable replacement parts and repair services in certain
markets. The Company's competition in parts sales consists primarily of
smaller independent firms called "will-fitters", that produce copies of the
parts manufactured by the Company and other original equipment manufacturers.
These copies are generally sold at lower prices than genuine parts produced by
the manufacturer. Outside North America, customers mainly rely upon the
Company's subsidiaries to provide aftermarket parts and services.
The Company has a variety of programs to attract large volume customers
for its replacement parts. Although will-fitters engage in significant price
competition in parts sales, the Company possesses clear non-price advantages
over will-fitters. The Company's engineering and manufacturing technology and
marketing expertise exceed that of its will-fit competitors, who are in many
cases unable to duplicate the exact specifications of genuine Bucyrus parts.
Moreover, use of parts not manufactured by the Company can void the warranty
on a new Bucyrus machine, which generally runs for one year on new equipment,
with certain components being warranted for longer periods.
Raw Materials and Supplies
The Company purchases from outside vendors the semi- and fully-processed
materials (principally structural steel, castings, and forgings) required for
its manufacturing operations, and other items, such as electrical equipment,
that are incorporated directly into the end product. The Company's foreign
subsidiaries purchase components and manufacturing services both from local
subcontractors and from the Company. Certain additional components are
sometimes purchased from subcontractors, either to expedite delivery schedules
in times of high demand or to reduce costs. Moreover, in countries where
local content preferences or requirements exist, local subcontractors are used
to manufacture a substantial portion of the components required in the
Company's foreign manufacturing operations. Although the Company is not
dependent upon any single supplier, there can be no assurance that the Company
will continue to have an adequate supply of raw materials or components
necessary to enable it to meet the demand for its products. Competitors are
believed to be subject to similar conditions.
Manufacturing
A substantial portion of the design, engineering, and manufacturing of
the Company's machines is done at the Company's South Milwaukee, Wisconsin
plant. The size and weight of these mining machines dictates that the
machines be shipped to the job site in sub-assembled units where they are
assembled for operation with the assistance of Company technicians. Planning
and on-site coordination of machine assembly is a critical component of the
Company's service to its customers. Moreover, to reduce lead time and assure
that customer delivery requirements are met, the Company maintains an
inventory of sub-assembled units for frequently utilized components of various
types of equipment.
The Company manufactures and sells replacement parts and components and
provides comprehensive aftermarket service for its entire line of mining
machinery. The Company's large installed base of surface mining machinery
provides a steady stream of parts sales due to the long useful life of the
Company's machines, averaging 20 to 30 years for draglines and 15 to 20 years
for electric mining shovels and blast hole drills. Parts sales and
aftermarket services comprise a substantial portion of the Company's net
sales. The Company also provides aftermarket service for certain equipment of
other original equipment manufacturers through BMSI.
Although a majority of the Company's operating profits are derived from
sales of parts and services, the long-term prospects of the Company depend
upon maintaining a large installed equipment base worldwide. Therefore, the
Company remains committed to improving the design and engineering of its
existing line of machines, as well as developing new products. In 1996, a
machine shop modernization program began at the Company's South Milwaukee,
Wisconsin manufacturing facility that involves a $20,000,000 investment in the
latest technology in the machine tool industry. The program is aimed at
reduced lead times, quicker turnaround, reduced in-process inventory, and
overall cost reduction.
Backlog
The backlog of firm orders for the Company was $216,021,000 at
December 31, 1997 and $158,727,000 at December 31, 1996. Approximately 35% of
the backlog at December 31, 1997 is not expected to be filled during 1998.
Inventories
Inventories of the Company at December 31, 1997 were $115,015,000
compared with $70,889,000 at December 31, 1996. At December 31, 1997 and
December 31, 1996, finished goods inventory (primarily replacement parts)
totalling $76,996,000 and $44,148,000, respectively, were held to meet
delivery requirements of customers. The increase in inventory primarily
reflects the purchase of Marion during 1997.
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 $7,384,000 in 1997, $6,930,000 in 1996 and $5,739,000 in 1995. All
engineering and product development costs are charged to Product Development
Expense as incurred.
Environmental Factors
Environmental problems have not interfered in any material respect with
the Company's manufacturing operations. The Company believes that its
compliance with statutory requirements respecting environmental quality will
not materially affect its capital expenditures, earnings or competitive
position. The Company has an ongoing program to address any potential
environmental problems.
Current federal and state legislation regulating surface mining and
reclamation may affect some of the Company's customers, principally with
respect to the cost of complying with, and delays resulting from, reclamation
and environmental requirements. The Company's products are used for
reclamation as well as for mining, which has a positive effect on the demand
for such products and replacement parts therefor.
Employees
At December 31, 1997, the Company employed 1,531 persons. The four-year
contract with the union representing hourly workers at the South Milwaukee,
Wisconsin facility and the three-year contract with the union representing
hourly workers at the Memphis, Tennessee facility expire in April, 2001 and
August, 1998, respectively.
Seasonal Factors
The Company does not consider a material portion of its business to be
seasonal.
ITEM 2. PROPERTIES
The Company's principal manufacturing plant in the United States is
located in South Milwaukee, Wisconsin, and is owned by the Company. This
plant comprises approximately 1,038,000 square feet of floor space. A portion
of this facility houses the Company's corporate offices. The major buildings
at this facility are constructed principally of structural steel, concrete,
and brick and have sprinkler systems and other devices for protection against
fire. The buildings and equipment therein, which include machine tools and
equipment for fabrication and assembly of the Company's mining machinery,
including draglines, electric mining shovels, and blast hole drills, are well-
maintained, in good condition, and in regular use.
The Company leases a facility in Memphis, Tennessee, which has
approximately 110,000 square feet of floor space and is used as a central
parts warehouse. The current lease is for five years commencing in July 1996
and contains an option to renew for an additional five years.
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.
The Company also has administrative and sales offices and, in some
instances, repair facilities and parts warehouses, at certain of its foreign
locations, including Australia, Brazil, Canada, Chile, China, England, India,
and South Africa.
ITEM 3. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
Joint Prosecution
The Company and JNL entered into a joint prosecution agreement (the
"Joint Prosecution Agreement") dated as of August 21, 1997 relating to various
claims the Company and JNL have or may have resulting from the Reorganization
against the law firm of Milbank, Tweed, Hadley & McCloy ("Milbank") for
disgorgement of fees (the "Disgorgement Claim") and other claims
(collectively, the "Milbank Claims"). All proceeds of the Milbank Claims will
be allocated as follows: (i) first, to pay, or to reimburse the prior payment
of, all bona fide third-party costs, expenses and liabilities incurred on or
after September 1, 1997 in connection with prosecuting the Milbank Claims (the
"Joint Prosecution") including, without limitation, the reasonable fees and
disbursements of counsel and other professional advisors, which are to be
advanced by JNL; (ii) the next $8,675,000 of proceeds from the Milbank Claims,
if any, will be paid to JNL, provided that the Company will retain 10% of the
proceeds of the Disgorgement Claim, if any, and will direct payment to JNL of
the balance of such proceeds; and (iii) all additional proceeds of the Milbank
Claims will be divided equally between JNL and the Company. Notwithstanding
the foregoing, the Company shall also receive the benefit of any reduction of
any obligation it may have to pay Milbank's outstanding fees, if any. JNL
will indemnify the Company in respect of any liability resulting from the
Joint Prosecution other than in respect of legal fees and expenses incurred
prior to September 1, 1997. The Joint Prosecution may involve lengthy and
complex litigation and there can be no assurance whether or when any recovery
may be obtained or, if obtained, whether it will be in an amount sufficient to
result in the Company receiving any portion thereof under the formula
described above.
Consistent with the Joint Prosecution Agreement, on September 25, 1997,
the Company and JNL commenced an action against Milbank (the "Milwaukee
Action") in the Milwaukee County Circuit Court. The Company seeks damages
against Milbank arising out of Milbank's alleged malpractice, breach of
fiduciary duty, common law fraud, breach of contract, unjust enrichment and
breach of the obligation of good faith and fair dealing. JNL seeks damages
against Milbank arising out of Milbank's alleged tortious interference with
contractual relations, abuse of process and common law fraud. The Company and
JNL seek to recover actual and punitive damages from Milbank. The Milwaukee
Action may involve lengthy and complex litigation and there can be no
assurance whether or when any recovery may be obtained or, if obtained,
whether it will be in an amount sufficient to result in the Company receiving
any portion thereof under the formula described above.
On December 18, 1997, the Bankruptcy Court approved a compromise among
the Company, JNL, Milbank and the United States Trustee pursuant to which
Milbank paid to the Company the sum of approximately $1,863,000, representing
the full amount of fees and expenses paid by the Company to Milbank during the
Reorganization. Pursuant to the Joint Prosecution Agreement, the Company paid
90% of this amount (approximately $1,677,000) to JNL. In return, the Company
and JNL withdrew their motions seeking disgorgement of the funds paid to
Milbank during the Reorganization. The Company retained all of its rights to
pursue the Milwaukee Action and any other separate action.
Settlement of 503(b) Claim
During the pendency of the Reorganization, JNL filed a claim (the "503(b)
Claim") against the Company with the Bankruptcy Court for reimbursement of
approximately $3,300,000 of professional fees and disbursements incurred in
connection with the Reorganization pursuant to Section 503(b) of the
Bankruptcy Code. By order dated June 3, 1996, the Bankruptcy Court awarded
JNL the sum of $500. JNL appealed the decision to the United States District
Court for the Eastern District of Wisconsin (the "District Court"). On June
26, 1997, the District Court denied the appeal as moot but returned the matter
to the Bankruptcy Court for further proceedings with leave to appeal again
after further determination by the Bankruptcy Court. On July 11, 1997, JNL
moved the Bankruptcy Court for relief from the final judgment entered on the
503(b) Claim. Pursuant to a Settlement Agreement between the Company and JNL
dated as of August 21, 1997, JNL settled and released the Company from the
503(b) Claim in consideration of a payment to JNL by the Company of $200,000,
and the 503(b) claim was dismissed with prejudice on October 23, 1997.
West Machine and Tool Works
On September 23, 1997, Minserco, a wholly-owned subsidiary of the
Company, was found liable to BR West Enterprises, Inc. d/b/a West Machine and
Tool Works ("West") in litigation pending in the United States District Court
for the Eastern District of Texas (the "Texas Court"), for damages claimed
with regard to an alleged joint venture agreement (the "Minserco Litigation").
On October 29, 1997, a final judgment was entered in the approximate amount of
$4,300,000, including attorney's fees and costs. Minserco strongly disputes
the Findings of Fact and Conclusions of Law entered by the Texas Court and has
appealed the case to the United States Court of Appeals for the Fifth Circuit.
On November 5, 1997, the Company was sued by West in the Texas Court on
substantially similar grounds asserted in the Minserco Litigation in an
apparent attempt to hold the Company liable for the damages awarded to West in
the Minserco Litigation. The new complaint also seeks punitive damages in an
unspecified amount. It is the view of management that the Company's ultimate
liability, if any, in these actions is not expected to have a material effect
on the Company's financial position or results of operations, although no
assurance to that effect can be given.
Product Liability
The Company is normally subject to numerous product liability claims,
many of which relate to products no longer manufactured by the Company or its
subsidiaries, and other claims arising in the ordinary course of business.
The Company has insurance covering most of said claims, subject to varying
deductibles ranging from $300,000 to $3,000,000, and has various limits of
liability depending on the insurance policy year in question. It is the view
of management that the final resolution of said claims and other similar
claims which are likely to arise in the future will not individually or in the
aggregate have a material effect on the Company's financial position or
results of operations, although no assurance to that effect can be given.
Environmental and Related Matters
The Company's operations and properties are subject to a broad range of
federal, state, local and foreign laws and regulations relating to
environmental matters, including laws and regulations governing discharges
into the air and water, the handling and disposal of solid and hazardous
substances and wastes, and the remediation of contamination associated with
releases of hazardous substances at Company facilities and at off-site
disposal locations. These laws are complex, change frequently and have tended
to become more stringent over time. Future events, such as compliance with
more stringent laws or regulations, or more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
could require additional expenditures by the Company, which may be material.
Certain environmental laws, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), provide for
strict, joint and several liability for investigation and remediation of
spills and other releases of hazardous substances. Such laws may apply to
conditions at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which wastes or
other contamination attributable to an entity or its predecessors come to be
located.
The Company was one of 53 entities named by the United States
Environmental Protection Agency ("EPA") as potentially responsible parties
("PRPs") with regard to the Millcreek dumpsite, located in Erie County,
Pennsylvania, which is on the National Priorities List of sites for cleanup
under CERCLA. The Company was named as a result of allegations that it
disposed of foundry sand at the site in the 1970s. Both the United States
government and the Commonwealth of Pennsylvania initiated actions to recover
cleanup costs. The Company has settled with both with respect to its
liability for past costs. In addition, 37 PRPs, including the Company, have
received Administrative Orders issued by the EPA pursuant to Section 106(a) of
CERCLA to perform site capping and flood control remediation at the Millcreek
site. The Company is one of 18 parties responsible for a share of the
estimated $7,000,000 in costs, which share is presently proposed as per capita
but may be subject to reallocation before the conclusion of the case.
In December 1990, the Wisconsin Department of Natural Resources ("DNR")
conducted a pre-remedial screening site inspection on property owned by the
Company located at 1100 Milwaukee Avenue in South Milwaukee, Wisconsin.
Approximately 35 acres of this site were allegedly used as a landfill by the
Company until approximately 1983. The Company disposed of certain
manufacturing wastes at the site, primarily foundry sand. The DNR's Final
Site Screening Report, dated April 16, 1993, summarized the results of
additional investigation. A DNR Decision Memo, dated July 21, 1991, which was
based upon the testing results contained in the Final Site Screening Report,
recommended additional groundwater, surface water, sediment and soil sampling.
To date, the Company is not aware of any initiative by the DNR to require any
further action with respect to this site. Consequently, the Company has not
regarded, and does not regard, this site as presenting a material contingent
liability. There can be no assurance, however, that additional investigation
by the DNR will not be conducted with respect to this site at some later date
or that this site will not in the future require removal or remedial actions
to be performed by the Company, the costs of which could be material,
depending on the circumstances.
Prior to 1985, a wholly-owned, indirect subsidiary of the Company
provided comprehensive general liability insurance coverage for affiliate
corporations. The subsidiary issued such policies for occurrences during the
years 1974 to 1984, which policies could involve material liability. Claims
have been made under certain of these policies for certain potential CERCLA
liabilities of former subsidiaries of the Company. It is possible that other
claims could be asserted in the future with respect to such policies. While
the Company does not believe that liability under such policies will result in
material costs, this cannot be guaranteed.
Along with multiple other parties, the Company or its subsidiaries are
currently PRP's under CERCLA and analogous state laws at three additional
sites at which the Company and/or its subsidiaries (including the above
referenced insurance subsidiary by insurance claim) may incur future costs.
The Company believes that one of these cases has been settled. While CERCLA
imposes joint and several liability on responsible parties, liability for each
site is likely to be apportioned among the parties. The Company does not
believe that its potential liability in connection with these sites or any
other discussed above, either individually or in the aggregate, will have a
material adverse effect on the Company's business, financial condition or
results of operations. However, the Company cannot guarantee that it will not
incur cleanup liability in the future with respect to sites formerly or
presently owned or operated by the Company, or with respect to off-site
locations, the costs of which could be material.
While no assurance can be given, the Company believes that expenditures
for compliance and remediation will not have a material effect on its capital
expenditures, earnings or competitive position.
The Company has also been named as a defendant in eight pending premises
liability asbestos cases which are proceeding in the state courts of Indiana
and in federal court, and has been named as a defendant in one product
liability asbestos case. In all these cases, insurance carriers have accepted
the defense of such cases. These cases are in preliminary stages and while
the Company does not believe that costs associated with these matters will be
material, it cannot guarantee that this will be the case.
Other
The Company is involved in various other litigation arising in the normal
course of business. It is the view of management that the Company's recovery
or liability, if any, under pending litigation is not expected to have a
material effect on the Company's financial position or results of operations,
although no assurance to that effect can be given.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Substantially all of the Company's common stock is held by AIPAC and
there is no established public trading market therefor. The Company does not
have a recent history of paying dividends and has no present intention to pay
dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Successor (a) Predecessor (b) Predecessor(b)
September 24- January 1- Years Ended December 14- January 1- Year Ended
December 31, September 23, December 31, December 31, December 13, December 31,
1997 1997 1996 1995 1994 1994 1993
(Dollars In Thousands, Except Per Share Amounts)
Consolidated Statements
of Operations Data:
Net sales $ 95,212 $211,465 $263,786 $231,921 $ 7,810 $186,174 $198,464
Earnings (loss)
before extra-
ordinary gain
and cumulative
effects of changes
in accounting
principles $ (7,158) $ (4,874) $ 2,878 $(18,772) $ (552) $(22,833) $(40,692)
Earnings (loss)
per share of
common stock
before extra-
ordinary gain
and cumulative
effects of changes
in accounting
principles (c):
Basic $ (5.00) $ (.48) $ .28 $ (1.84) $ (.05) $ (2.46) $ (4.56)
Diluted $ (5.00) $ (.47) $ .28 $ (1.84) $ (.05) $ (2.46) $ (4.56)
Adjusted EBITDA (d) $ 9,936 $ 18,704 $ 19,247 $ 8,256 $ 392 $ 12,883 $ 11,694
Cash dividends per
common share $ - $ - $ - $ - $ - $ - $ -
Consolidated Balance
Sheets Data:
Total assets $406,107 N/A $172,895 $174,038 $179,873 N/A $188,811
Long-term debt $174,612 N/A $ 66,627 $ 58,021 $ 53,170 N/A $ 769(e)
Redeemable
preferred stock N/A N/A N/A N/A N/A N/A $ 30,302
(a) As a result of purchase accounting due to the acquisition of the Company by AIPAC on September 24, 1997, the
financial statements of the Successor are not comparable to the financial statements of the Predecessor.
(b) As a result of the Reorganization and implementation of fresh start reporting as of December 14, 1994, the
effective date of the Amended Plan, the financial statements of the Company subsequent to this date are not
comparable to the financial statements of the Predecessor prior to this date.
(c) Net loss per share of common stock for the period September 24, 1997 to December 31, 1997 is calculated on a
retroactive basis to reflect a stock split on March 17, 1998. See Note H to the Consolidated Financial Statements
for further discussion of this change in the Company's capital structure.
(d) Earnings before extraordinary gain, cumulative effects of changes in accounting principles, interest expense,
income taxes, depreciation, amortization, non-cash stock compensation, (gain) loss on sale of fixed assets,
nonrecurring items, restructuring expenses, reorganization items, and inventory fair value adjustment charged to
cost of products sold.
(e) Amounts are net of $201,979 at December 31, 1993 of long-term debt classified as a current liability.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended. Discussions containing such forward-looking
statements may be found in this section, as well as in ITEM 1 - BUSINESS and
elsewhere within this Report. Forward-looking statements include statements
regarding the intent, belief or current expectations of the Company, primarily
with respect to the future operating performance of the Company or related
industry developments. When used in this Report, terms such as "anticipate,"
"believe," "estimate," "expect," "indicate," "may be," "objective," "plan,"
"predict," and "will be" are intended to identify such statements. Readers
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ from those described in the forward-looking statements as a
result of various factors, many of which are beyond the control of the
Company. Forward-looking statements are based upon management's expectations
at the time they are made. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
such expectations ("Cautionary Statements") are disclosed in this Report. All
subsequent written or oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements.
On August 26, 1997, the Company consummated the Marion Acquisition. The
Company financed the Marion Acquisition and related expenses by utilizing an
unsecured bridge loan (the "Bridge Loan") provided by a former affiliate of
the Company, in the amount of $45,000,000. The Bridge Loan was repaid in full
on September 24, 1997 with a portion of the proceeds from the sale of the
Private Notes (see below).
On September 24, 1997, the Company completed the private placement of
$150,000,000 aggregate principal amount of its 9-3/4% Senior Notes due 2007
(the "Private Notes") in a transaction under Rule 144A of the Securities Act
of 1933, as amended (the "Act"). Following the completion of the sale of the
Private Notes, the Company purchased and cancelled its Secured Notes at a cost
of $67,414,000 including accrued interest, utilizing a portion of the proceeds
from the sale of the Private Notes.
On November 13, 1997, the Company commenced an Exchange Offer of up to
$150,000,000 of its 9-3/4% Senior Notes due 2007 (the "Senior Notes") in
exchange for a like amount of Private Notes. The Senior Notes were registered
under the Act. The Exchange Offer expired at 5:00 p.m. New York time on
December 18, 1997. The holders of 100% ($150,000,000) of Private Notes
elected to exchange their Private Notes for Senior Notes prior to the
expiration time. Accordingly, the Company has zero dollars ($0) principal
amount of Private Notes issued and outstanding and $150,000,000 principal
amount of Senior Notes issued and outstanding.
In connection with the acquisition of the Company by AIPAC and the Marion
Acquisition, the assets and liabilities of the acquired companies have been
adjusted to their estimated fair values. Also, in connection with the
Reorganization, total assets were recorded at their assumed reorganization
value, with the reorganization value allocated to identifiable tangible and
intangible assets on the basis of their estimated fair value, and liabilities
were adjusted to the present values of amounts to be paid where appropriate.
The consolidated financial statements include the related amortization charges
associated with the fair value adjustments.
Liquidity and Capital Resources
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, 1997, 1996 and 1995 were as
follows:
1997 1996 1995
(Dollars in Thousands)
Working capital $120,883 $ 78,814 $ 65,330
Current ratio 2.9 to 1 2.9 to 1 2.2 to 1
The increase in working capital for the year ended December 31, 1997 was
primarily due to the acquisition of Marion and to the adjustment of assets and
liabilities to fair value as a result of the acquisition of the Company by
AIPAC. The increase in working capital and the current ratio for the year
ended December 31, 1996 was primarily due to a decrease in liabilities to
customers on uncompleted contracts and warranties and a decrease in
outstanding project financing borrowings.
Equipment Assurance Limited has pledged $1,056,000 of its cash to secure
its reimbursement obligations for outstanding letters of credit at
December 31, 1997. This collateral amount is classified as restricted funds
on deposit in the Consolidated Balance Sheets.
The Company is presenting below a calculation of earnings (loss) before
interest expense, income taxes, depreciation, amortization, non-cash stock
compensation, (gain) loss on sale of fixed assets, nonrecurring items,
restructuring expenses, reorganization items and inventory fair value
adjustment charged to cost of products sold ("Adjusted EBITDA"). Since cash
flow from operations is very important to the Company's future, the Adjusted
EBITDA calculation provides a summary review of cash flow performance. In
addition, the Company is required to maintain certain minimum EBITDA levels as
defined under the Revolving Credit Facility (see below). The Adjusted EBITDA
calculation is not an alternative to operating income under generally accepted
accounting principles as an indicator of operating performance or to cash
flows as a measure of liquidity. The following table reconciles Earnings
(Loss) Before Income Taxes to Adjusted EBITDA:
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
(Dollars in Thousands)
Earnings (loss)
before income
taxes $ (7,441) $ (2,233) $ 4,636 $(16,258)
Nonrecurring
items (1) - 10,051 - -
Restructuring
expenses - - - 2,577
Reorganization
items - - - 919
Depreciation 2,678 3,125 3,882 3,671
Amortization 1,435 770 1,142 1,194
Non-cash stock
compensation - 677 668 -
(Gain) loss on
sale of fixed
assets (3) (275) 362 (166)
Inventory fair
value adjustment
charged to cost
of products
sold 8,350 283 - 10,065
Interest expense 4,917 6,306 8,557 6,254
________ ________ ________ ________
Adjusted
EBITDA (2) $ 9,936 $ 18,704 $ 19,247 $ 8,256
(1) Nonrecurring items consist of $6,690,000 of expense to cash out the
outstanding stock options and stock appreciation rights in connection with the
acquisition of the Company by AIPAC and $3,361,000 of loan fees incurred in
connection with the Bridge Loan that was utilized to purchase Marion. The
loan fees were expensed when the Bridge Loan was repaid.
(2) Adjusted EBITDA for the year ended December 31, 1995 is reduced by
a charge of $4,416,000 to cost of products sold for the scrapping and disposal
of excess inventory which related to certain older and discontinued machine
models.
Revolving Credit Facility
The Company entered into a new three-year credit agreement with Bank One,
Wisconsin on September 24, 1997 which provides the Company with a $75,000,000
senior secured revolving credit facility (the "Revolving Credit Facility")
with a $25,000,000 sublimit for standby letters of credit. Borrowings under
the Revolving Credit Facility bear interest at variable rates and are subject
to a borrowing base formula based on receivables, inventory and machinery and
equipment. Direct borrowings under the Revolving Credit Facility at
December 31, 1997 were $22,215,000 at a weighted average interest rate of
8.7%. The issuance of standby letters of credit reduces the amount available
for direct borrowings under the Revolving Credit Facility. At December 31,
1997, there were $3,556,000 of standby letters of credit outstanding under the
Revolving Credit Facility. The Revolving Credit Facility is secured by
substantially all of the assets of the Company, other than real property and
35% of the stock of its foreign subsidiaries, and is guaranteed by certain of
the Company's domestic subsidiaries (the "Guarantors") who have also pledged
substantially all of their assets as security. The amount available for
direct borrowings under the Revolving Credit Facility at December 31, 1997 was
$42,282,000.
Senior Notes Indenture
The Company has outstanding $150,000,000 of its Senior Notes which were
issued pursuant to an indenture dated as of September 24, 1997 among the
Company, the Guarantors, and Harris Trust and Savings Bank, as Trustee (the
"Senior Notes Indenture"). The Senior Notes mature on September 15, 2007.
Interest thereon is payable each March 15 and September 15, commencing on
March 15, 1998.
Certain Covenants
Both the Revolving Credit Facility and the Senior Notes Indenture contain
certain covenants which may affect the Company's liquidity and capital
resources. Also, both the Revolving Credit Facility and the Senior Notes
Indenture contain numerous covenants that limit the discretion of management
with respect to certain business matters and place significant restrictions
on, among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments
or investments, loans and guarantees, and to sell or otherwise dispose of
assets and merge or consolidate with another entity.
The Revolving Credit Facility also contains a number of financial
covenants that require the Company (A) to maintain certain financial ratios,
including: (i) ratio of adjusted funded debt to EBITDA (as defined);
(ii) fixed charge coverage ratio; and (iii) interest coverage ratio; and (B)
to maintain a minimum net worth and other covenants which limit the ability of
the Company and the Guarantors to incur liens; merge, consolidate or dispose
of assets; make loans and investments; incur indebtedness; engage in certain
transactions with affiliates; incur contingent obligations; enter into joint
ventures; enter into lease agreements; pay dividends and make other
distributions; change its business; redeem the Senior Notes; and make capital
expenditures.
The Senior Notes Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Guarantors to: (i) incur
additional indebtedness; (ii) pay dividends or make other distributions with
respect to capital stock; (iii) make certain investments; (iv) use the
proceeds of the sale of certain assets; (v) enter into certain transactions
with affiliates; (vi) create liens; (vii) enter into certain sale and
leaseback transactions; (viii) enter into certain mergers and consolidations
or a sale of substantially all of its assets; and (ix) prepay the Senior
Notes. Such covenants are subject to important qualifications and
limitations. In addition, the Senior Notes Indenture defines "EBITDA"
differently than "EBITDA" under the Revolving Credit Facility.
A failure to comply with the obligations contained in the Revolving
Credit Facility or the Senior Notes Indenture could result in an Event of
Default (as defined) under the Revolving Credit Facility or an Event of
Default (as defined) under the Senior Notes Indenture that, if not cured or
waived, would permit acceleration of the relevant debt and acceleration of
debt under other instruments that may contain cross-acceleration or cross-
default provisions.
The Company believes that current levels of cash and liquidity, together
with funds generated by operations and funds available from the Revolving
Credit Facility, will be sufficient to permit the Company to satisfy its debt
service requirements and fund operating activities for the foreseeable future.
The Company is subject to significant business, economic and competitive
uncertainties that are beyond its control. Accordingly, there can be no
assurance that the Company's financial resources will be sufficient for the
Company to satisfy its debt service obligations and fund operating activities
under all circumstances.
Capital Resources
At December 31, 1997, the Company had approximately $6,004,000 of open
capital appropriations. Of this amount, approximately $3,409,000 relates to
the installation of Marion equipment being transferred to the Company's South
Milwaukee, Wisconsin manufacturing facility and to BMSI. In 1996, a machine
shop modernization program began at the Company's South Milwaukee, Wisconsin
manufacturing facility that involves a $20,000,000 investment in the latest
technology in the machine tool industry. The program is aimed at reduced lead
times, quicker turnaround, reduced in-process inventory, and overall cost
reduction. The Company has spent approximately $5,700,000 to date on this
program with the remaining amount to be spent in the next several years.
Capitalization
The long-term debt to equity ratio at December 31, 1997 and 1996 was
1.3 to 1 and 1.8 to 1, respectively. The long-term debt to total
capitalization ratio at December 31, 1997 and 1996 was .6 to 1. Total
capitalization is defined as total common shareholders' investment plus long-
term debt plus current maturities of long-term debt and short-term
obligations.
Results of Operations
The amounts presented below for 1997 include amounts for the period
September 24 to December 31, 1997 (Successor) and for the period ended
September 23, 1997 (Predecessor).
Net Sales
Net sales for 1997 were $306,677,000 compared with $263,786,000 for 1996.
Net sales of repair parts and services for 1997 were $198,252,000, which is an
increase of 26.8% from 1996. The increase in repair parts and service net
sales was primarily due to the acquisition of Marion as well as increased
repair parts sales at foreign locations as a result of higher demand for
replacement parts. Machine sales for 1997 were $108,425,000, which is an
increase of 1.0% from 1996. Net sales of electric mining shovels increased
20.0%, while net sales of blast hole drills decreased 40.8% There was an
overall decline in worldwide blast hole drill sales activity in 1997.
Net sales for 1996 were $263,786,000 compared with $231,921,000 for 1995.
Net sales of repair parts and services for 1996 were $156,390,000, which was
an increase of .6% from 1995. This increase consisted of an increase in sales
at Minserco, a mining service subsidiary of the Company, offset by a decrease
in sales of repair parts, primarily at foreign locations. Machine sales for
1996 were $107,396,000, which was an increase of 40.4% from 1995. The
increase in machine sales was primarily due to increased electric mining
shovel sales, primarily in copper markets.
Cost of Products Sold
Cost of products sold for 1997 was $256,744,000 or 83.7% of net sales
compared with $215,126,000 or 81.6% of net sales for 1996 and $205,552,000 or
88.6% of net sales for 1995. Included in cost of products sold for 1997 and
1995 were charges of $8,633,000 and $10,065,000, respectively, as a result of
fair value adjustments to inventory being charged to cost of products sold as
the inventory is sold. The fair value adjustment in 1997 was made as a result
of the acquisition of the Company by AIPAC. The adjustment in 1995 was made
in accordance with the principles of fresh start reporting adopted in 1994
upon the emergence of the Company from bankruptcy. Also included in cost of
products sold for 1995 was a charge of $4,416,000 for the scrapping and
disposal of excess inventory which related to certain older and discontinued
machine models. Excluding the effects of the inventory fair value adjustment
and excess inventory charge, cost of products sold as a percentage of net
sales for 1997, 1996 and 1995 was 80.9%, 81.6% and 82.4%, respectively. The
increase in gross margin percentage was primarily due to improved margins on
machine sales.
Product Development, Selling, Administrative and Miscellaneous Expenses
Product development, selling, administrative and miscellaneous expenses
for 1997 were $39,968,000 or 13.0% of net sales compared with $36,470,000 or
13.8% of net sales in 1996 and $34,172,000 or 14.7% of net sales in 1995.
Interest Expense
Interest expense for 1997 was $11,223,000 compared with $8,557,000 for
1996. Included in interest expense for 1997 is $4,022,000 related to the
Senior Notes and $385,000 related to the Bridge Loan used to purchase Marion.
The Company had the option of paying interest on the formerly outstanding
Secured Notes in cash at 10.5% or in kind (issuance of additional Secured
Notes) at 13%. For the period January 1 to September 23, 1997, interest was
accrued at 10.5% since the Company paid this interest in cash. For 1996,
interest was accrued at 13%. Following the completion of the sale of the
Private Notes, the Company purchased and cancelled the Secured Notes.
Interest expense for 1996 was $8,557,000 compared with $6,254,000 for
1995. The increase was primarily due to an increase in the interest rate on
the Secured Notes from 10.5% to 13% effective December 14, 1995 for interest
paid in kind in 1996. Also, interest on the Secured Notes was accrued on a
higher principal balance in 1996 since all interest paid to date had been paid
in kind.
Nonrecurring Items
Nonrecurring items in 1997 consist of $6,690,000 of expense incurred to
cash out the outstanding options to purchase shares of the Company's common
stock and outstanding stock appreciation rights in connection with the
acquisition of the Company by AIPAC, and $3,361,000 of loan fees incurred in
connection with the Bridge Loan that was utilized to finance the Marion
Acquisition. The Bridge Loan was subsequently repaid on September 24, 1997
and the loan fees were expensed.
Restructuring Expenses
Restructuring expenses of $2,577,000 in 1995 consist of employee
severance expenses recorded to reflect the cost of reduced employment and the
severance costs related to the resignation of three officers of the Company.
Reorganization Items
Reorganization items of $919,000 in 1995 represent legal and professional
fees incurred as a result of the Company's efforts to reorganize under
chapter 11 of the Bankruptcy Code.
Income Taxes
Income tax expense consists primarily of foreign taxes at applicable
statutory rates. For United States tax purposes, there were losses for which
no income tax benefit was recorded.
Net Earnings (Loss)
The net loss for 1997 was $12,032,000 compared with net earnings of
$2,878,000 for 1996. Included in the net loss for 1997 was $6,690,000 of
expense to cash out the outstanding stock options and stock appreciation
rights in connection with the acquisition of the Company by AIPAC and
$3,361,000 of Bridge Loan fees which were expensed when the Bridge Loan was
repaid. Also included in the net loss for 1997 was $7,864,000 (net of income
taxes) of the inventory fair value adjustment related to purchase accounting.
Net earnings for 1996 was $2,878,000 compared with a net loss of
$18,772,000 for 1995. During 1995, the Company undertook a restructuring of
its corporate headquarters and foreign subsidiaries and completed an
evaluation of its inventories and other items. The Company, in evaluating its
inventory, determined that excess levels existed for certain older and
discontinued machine models. Accordingly, a charge of $4,416,000 was made in
1995 for the eventual scrapping and disposal of this inventory. Severance
costs of $2,577,000 were also recorded to reflect the cost of reduced
employment at the corporate headquarters and foreign subsidiaries, and the
resignation of three former officers. In addition, a $1,018,000 charge
resulting from the reestimation of certain customer warranty reserves was
recorded in 1995 and a $919,000 charge was made for reorganization items
related to issues continuing from the bankruptcy proceedings. Net loss for
1995 also included $8,633,000 (net of income taxes) of the inventory fair
value adjustment related to fresh start reporting.
Backlog and New Orders
The Company's consolidated backlog at December 31, 1997 was $216,021,000
compared with $158,727,000 at December 31, 1996 and $118,024,000 at
December 31, 1995. Machine backlog at December 31, 1997 was $97,155,000,
which is an increase of 98.2% from December 31, 1996. The Company has
executed a contract with an Australian mining company for the sale of a
Model 2570WS dragline which is scheduled for completion by December 31, 1999.
Included in backlog at December 31, 1997 was $51,644,000 related to this
machine. Repair parts and service backlog at December 31, 1997 was
$118,866,000, which is an increase of 8.3% from December 31, 1996.
New orders for 1997 were $363,971,000, which is an increase of 19.5% from
1996. New machine orders for 1997 were $156,560,000, which is an increase of
72.8% from 1996. Included in new machine orders for 1997 was approximately
$57,000,000 for the aforementioned Model 2570WS dragline. New machine orders
for electric mining shovels have increased while new machine orders for blast
hole drills have decreased. There was an overall decline in worldwide blast
hole drill orders in 1997 which was anticipated as a result of lower demand
from copper mines. New repair parts and service orders for 1997 were
$207,411,000, which is a decrease of 3.0% from 1996.
Market Risk
The Company's market risk is impacted by changes in interest rates,
foreign currency exchange rates, and certain commodity prices.
The Company's interest rate exposure relates primarily to debt
obligations in the United States. The Company manages its borrowings under
the Revolving Credit Facility through the selection of LIBOR based borrowings
or prime-rate based borrowings. If market conditions warrant, interest rate
swaps may be used to adjust interest rate exposures.
The Company manages foreign currency exchange rate exposure by utilizing
some natural hedges to mitigate some of its transaction and commitment
exposures, and may utilize forward contracts in certain situations.
The Company manages commodity price exposure primarily through contracts
with its vendors.
Based on the Company's overall interest rate, foreign currency exchange
rate, and commodity price exposures at December 31, 1997, management of the
Company believes that a short-term change in any of these exposures will not
have a material effect on the Company's financial position or results of
operations.
Year 2000 Issues
The Company is in the process of implementing a plan to improve its
existing computer system. While the primary purpose of the change is to
improve the efficiency and effectiveness of the Company's system, year 2000
issues are also being addressed at this time. Implementation of the plan is
expected to be completed by the first quarter of 1999, primarily through the
redeployment of internal company staff. The Company has not finalized cost
estimates relating to this project.
Translation of Brazil Financial Statements
The Company has operations in Brazil, whose economy has been considered
highly inflationary by management through December 31, 1997 for purposes of
translating Brazilian financial statements from Brazilian Reals into U.S.
dollars. Effective January 1, 1998, the Company no longer considers Brazil's
economy to be highly inflationary. The effect of this change on the
consolidated financial statements is not expected to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
REVENUES:
Net sales $ 95,212 $211,465 $263,786 $231,921
Other income 346 1,289 1,003 1,295
________ ________ ________ ________
95,558 212,754 264,789 233,216
________ ________ ________ ________
COSTS AND EXPENSES:
Cost of products sold 85,229 171,515 215,126 205,552
Product development, selling, administrative
and miscellaneous expenses 12,853 27,115 36,470 34,172
Interest expense 4,917 6,306 8,557 6,254
Nonrecurring items - 10,051 - -
Restructuring expenses - - - 2,577
Reorganization items - - - 919
________ ________ ________ ________
102,999 214,987 260,153 249,474
________ ________ ________ ________
Earnings (loss) before income taxes (7,441) (2,233) 4,636 (16,258)
Income taxes (283) 2,641 1,758 2,514
________ ________ ________ ________
Net earnings (loss) $ (7,158) $ (4,874) $ 2,878 $(18,772)
Net earnings (loss) per share of common stock:
Basic $(5.00) $ (.48) $ .28 $(1.84)
Diluted $(5.00) $ (.47) $ .28 $(1.84)
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)
December 31, December 31,
1997 1996 1997 1996
(Successor) (Predecessor) (Successor) (Predecessor)
LIABILITIES AND COMMON
ASSETS SHAREHOLDERS' INVESTMENT
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 15,071 $ 15,763 Accounts payable and
Receivables 49,443 32,085 accrued expenses $ 51,906 $ 33,765
Inventories 115,015 70,889 Liabilities to customers on
Prepaid expenses and uncompleted contracts and
other current assets 4,496 2,504 warranties 8,316 3,579
Income taxes 2,070 1,469
Short-term obligations 583 3,186
Current maturities of long-
term debt 267 428
________ ________ ________ ________
Total Current Assets 184,025 121,241 Total Current Liabilities 63,142 42,427
OTHER ASSETS: LONG-TERM LIABILITIES:
Restricted funds on Deferred income taxes 2 148
deposit 1,056 1,079 Liabilities to customers
Goodwill 65,929 - on uncompleted contracts
Intangible assets - net 44,796 8,545 and warranties 3,850 3,277
Other assets 12,677 6,003 Postretirement benefits 14,665 11,064
________ ________ Deferred expenses
and other 17,583 11,891
124,458 15,627 ________ ________
PROPERTY, PLANT AND EQUIPMENT: 36,100 26,380
Land 2,414 2,752 LONG-TERM DEBT, less
Buildings and improvements 9,202 6,698 current maturities 174,612 66,627
Machinery and equipment 87,723 33,959
Less accumulated COMMON SHAREHOLDERS'
depreciation (1,715) (7,382) INVESTMENT:
________ ________ Common stock - par value
$.01 per share,
97,624 36,027 authorized, issued
and outstanding 1,000
shares at December 31,
1997 - -
Common stock - par value
$.01 per share, issued
and outstanding
10,534,574 shares at
December 31, 1996 - 105
Additional paid-in
capital 143,030 57,739
Unearned stock compensation - (2,815)
Accumulated deficit (7,158) (16,446)
Cumulative translation
adjustment (3,619) (1,122)
________ ________
132,253 37,461
________ ________ ________ ________
$406,107 $172,895 $406,107 $172,895
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Additional Unearned Cumulative
Common Paid-In Stock Accumulated Translation
Stock Capital Compensation Deficit Adjustment
Predecessor
Balance at January 1, 1995 $ 102 $ 53,898 $ - $ (552) $ 169
Issuance of common stock
(64,157 shares) - 361 - - -
Net loss - - - (18,772) -
Translation adjustments - - - - (526)
______ ________ ________ ________ ________
Balance at December 31, 1995 102 54,259 - (19,324) (357)
Grants under stock
compensation plans 3 3,480 (3,483) - -
Amortization of unearned
stock compensation - - 668 - -
Net earnings - - - 2,878 -
Translation adjustments - - - - (765)
______ ________ ________ ________ ________
Balance at December 31, 1996 105 57,739 (2,815) (16,446) (1,122)
Amortization of unearned
stock compensation - - 677 - -
Net loss - - - (4,874) -
Translation adjustments - - - - (1,439)
______ ________ ________ ________ ________
Balance at September 23, 1997 105 57,739 (2,138) (21,320) (2,561)
Successor
Merger with Bucyrus
Acquisition Corp. (105) (57,739) 2,138 21,320 2,561
Capital contribution - 143,030 - - -
Net loss - - - (7,158) -
Translation adjustments - - - - (3,619)
______ ________ ________ ________ ________
Balance at December 31, 1997 $ - $143,030 $ - $ (7,158) $ (3,619)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
Cash Flows From Operating Activities
Net earnings (loss) $ (7,158) $ (4,874) $ 2,878 $(18,772)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Inventory obsolescence provision - - - 4,416
Depreciation 2,678 3,125 3,882 3,671
Amortization 1,435 770 1,142 1,194
Non-cash stock compensation expense - 677 668 -
Nonrecurring items - 10,051 - -
In kind interest on the Secured Notes
due December 14, 1999 - - 7,783 5,691
(Gain) loss on sale of property, plant
and equipment (3) (275) 362 (166)
Changes in assets and liabilities, net of
effects of acquisitions:
Receivables 10,725 (19,534) 3,021 (9,651)
Inventories 12,891 (11,100) 2,026 3,769
Other current assets 3,432 (1,434) (1,114) 564
Other assets (405) (385) (1,145) (578)
Current liabilities other than income
taxes, short-term obligations and
current maturities of long-term debt (6,237) 17,210 (5,332) 8,073
Income taxes (1,097) 1,181 (1,991) 740
Long-term liabilities other than
deferred income taxes (456) (2,012) (2,093) (1,035)
________ ________ ________ ________
Net cash provided by (used in)
operating activities 15,805 (6,600) 10,087 (2,084)
________ ________ ________ ________
Cash Flows From Investing Activities
Payment to cash out stock options and
stock appreciation rights (6,944) - - -
Decrease in restricted funds on deposit 23 - 1,798 798
Purchases of property, plant and equipment (2,859) (4,331) (4,996) (3,006)
Proceeds from sale of property, plant
and equipment 510 1,227 1,058 263
Acquisition of Bucyrus International, Inc. (189,622) - - -
Purchase of Von's Welding, Inc.,
net of cash acquired - (841) - -
Purchase of surface mining equipment
business of Global Industrial
Technologies, Inc. - (36,720) - -
Receivable from Global Industrial
Technologies, Inc. 5,275 (5,275) - -
________ ________ ________ ________
Net cash used in investing activities (193,617) (45,940) (2,140) (1,945)
________ ________ ________ ________
Cash Flows From Financing Activities
Proceeds from issuance of project
financing obligations - 5,672 5,402 6,012
Reduction of project financing obligations (8,102) - (8,104) (7,117)
Net increase (decrease) in other bank
borrowings 20,837 500 (1,350) 304
Payment of acquisition and
refinancing expenses (13,426) (1,476) - -
Payment of bridge loan fees - (3,361) - -
(Payment of) proceeds from bridge loan (45,000) 45,000 - -
Capital contribution 143,030 - - -
Proceeds from issuance of long-term debt 150,000 1,706 849 -
Payment of long-term debt (65,785) - - -
________ ________ ________ ________
Net cash provided by (used in)
financing activities 181,554 48,041 (3,203) (801)
________ ________ ________ ________
Effect of exchange rate changes on cash (352) 417 (131) (229)
________ ________ ________ ________
Net increase (decrease) in cash
and cash equivalents 3,390 (4,082) 4,613 (5,059)
Cash and cash equivalents at
beginning of period 11,681 15,763 11,150 16,209
________ ________ ________ ________
Cash and cash equivalents at end of period $ 15,071 $ 11,681 $ 15,763 $ 11,150
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 662 $ 4,046 $ 491 $ 289
Income taxes - net of refunds 587 1,218 3,246 1,270
Supplemental Schedule of Non-Cash Investing and Financing Activities
(A) In 1997, the Company purchased all of the common stock of Von's Welding,
Inc. In conjunction with the acquisition, liabilities were assumed as
follows:
1997
Fair value of assets acquired $ 1,979
Cash paid (908)
________
Liabilities assumed $ 1,071
(B) In 1997, the Company purchased certain assets and liabilities of the
surface mining and equipment business of Global Industrial Technologies,
Inc. In conjunction with the acquisition, liabilities were assumed as
follows:
1997
Fair value of assets acquired $ 47,969
Cash paid (36,720)
________
Liabilities assumed $ 11,249
(C) On June 27, 1995, the Company issued 64,157 shares of common stock as
payment in full of $361 of liabilities for certain legal and professional
fees incurred in connection with the Company's reorganization under
chapter 11 of the Bankruptcy Code.
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bucyrus International, Inc. and Subsidiaries
NOTE A - ACQUISITIONS
Acquisition by American Industrial Partners
On August 21, 1997, Bucyrus International, Inc. (the "Company")
entered into an Agreement and Plan of Merger (the "AIP Agreement")
with American Industrial Partners Acquisition Company, LLC ("AIPAC"),
which is wholly-owned by American Industrial Partners Capital Fund
II, L.P. ("AIP"), and Bucyrus Acquisition Corp. ("BAC"), a wholly-
owned subsidiary of AIPAC. On August 26, 1997, pursuant to the AIP
Agreement, BAC commenced an offer to purchase for cash 100% of the
outstanding shares of common stock of the Company (the "Common
Stock") at a price of $18.00 per share (the "AIP Tender Offer").
Consummation of the AIP Tender Offer occurred on September 24, 1997,
and BAC was merged with and into the Company on September 26, 1997
(the "AIP Merger"). The Company was the surviving entity in the AIP
Merger and is currently wholly-owned by AIPAC. The purchase of all
of the Company's outstanding shares of common stock by AIPAC resulted
in a change in control of voting interest.
Approximately $189,622,000 was required to purchase all of the
outstanding shares of the Company's common stock. BAC received
$143,030,000 of the necessary funds to purchase the shares of the
Company's common stock as an equity contribution from AIPAC. The
remainder of the consideration required to consummate the AIP Tender
Offer and pay related expenses was funded by a bridge loan from AIPAC
to BAC, which was repaid in full on September 26, 1997.
The AIP Agreement also provided that each outstanding option to
purchase shares of the Company's common stock and each outstanding
stock appreciation right granted under the Company's Non-Employee
Directors' Stock Option Plan (the "Directors' Stock Option Plan"),
the 1996 Employees' Stock Incentive Plan (the "1996 Employees' Plan)
and any other stock-based incentive plan or arrangement of the
Company, whether or not then exercisable or vested, would be
cancelled (see Note H). In consideration of such cancellation, the
holders of such options and stock appreciation rights received for
each share subject to such option or stock appreciation right an
amount in cash equal to the excess of the offer price of $18 per
share over the per share exercise price of such option or the per
share base price of such stock appreciation right, as applicable,
multiplied by the number of shares subject to such option or stock
appreciation right. Included in nonrecurring items in the
Consolidated Statement of Operations is $6,690,000 of expense
incurred to cash out the outstanding options and stock appreciation
rights.
The acquisition of the Company by AIPAC was accounted for as a
purchase and, accordingly, the assets acquired and liabilities
assumed were adjusted to their estimated fair values. The
preliminary allocation of the purchase price is as follows:
(Dollars in Thousands)
Working capital $ 133,625
Property, plant and equipment 98,222
Intangible assets (including
goodwill of $66,521) 111,910
Other long-term assets and liabilities (200,727)
---------
Total cash purchase price $ 143,030
Marion Acquisition
On August 26, 1997, the Company consummated the acquisition (the
"Marion Acquisition") of certain assets and liabilities of The Marion
Power Shovel Company, a subsidiary of Global Industrial Technologies,
Inc. ("Global"), and of certain subsidiaries and divisions of Global
that represented Global's surface mining equipment business in
Australia, Canada and South Africa (collectively referred to herein
as "Marion"). The purchase price for Marion was $36,720,000, which
includes acquisition expenses of $1,695,000. The net assets acquired
and results of operations since the date of acquisition are included
in the Company's consolidated financial statements.
The Company financed the Marion Acquisition and related expenses by
utilizing an unsecured bridge loan (the "Bridge Loan") provided by a
former affiliate of the Company, in the amount of $45,000,000. The
Bridge Loan was repaid in full on September 24, 1997 with a portion
of the proceeds from the 9-3/4% Senior Notes due 2007 (see Note G).
The Bridge Loan had an interest rate of 10.625% and the total
interest expense incurred by the Company was $385,000. The Company
incurred $3,361,000 of loan fees in connection with the Bridge Loan.
The subsequent expensing of these fees when the Bridge Loan was
repaid are included in nonrecurring items in the Consolidated
Statement of Operations.
The acquisition of Marion by the Company was accounted for as a
purchase and, accordingly, the assets acquired and liabilities
assumed by the Company were recorded at their estimated fair values.
The cash purchase price of $36,720,000 has been allocated to working
capital on a preliminary basis.
The assets acquired and liabilities assumed in the Marion Acquisition
were revalued in connection with the AIP Merger.
Pro Forma Results of Operations
The following unaudited pro forma results of operations assumes that
the Company had been acquired by AIPAC and the Company acquired
Marion on January 1, 1996. Such information reflects adjustments to
reflect additional interest expense and depreciation expense,
amortization of goodwill and the effects of adjustments made to the
carrying value of certain assets and liabilities.
The pro forma results for the year ended December 31, 1997 include
Marion's historical results for the year ended December 31, 1997 and
the pro forma results for the year ended December 31, 1996 include
Marion's historical results for the year ended October 31, 1996.
Year Ended December 31,
1997 1996
(Dollars in Thousands,
Except Per Share Amounts)
(Unaudited)
Net sales $ 346,913 $ 373,411
Net loss (9,656) (18,797)
Net loss per share of
common stock (6.75) (13.14)
The pro forma financial information presented above is not
necessarily indicative of either the results of operations that would
have occurred had the acquisitions been effective on January 1, 1996
or of future operations of the Company.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
The Company is a Delaware corporation and a leading manufacturer of
surface mining equipment, principally walking draglines, electric
mining shovels and blast hole drills, and related replacement parts.
Major markets for the surface mining industry are coal mining, copper
and iron ore mining, and phosphate production.
Basis of Presentation
The Successor consolidated financial statements as of December 31,
1997 and for the period September 24, 1997 to December 31, 1997 were
prepared under a new basis of accounting that reflects the fair value
of the assets acquired and liabilities assumed, and the related
expenses and all debt incurred in connection with the acquisition of
the Company by AIPAC on September 24, 1997. The Predecessor
consolidated financial statements for periods prior to September 24,
1997 were prepared using the Company's previous basis of accounting
which was based on the principles of fresh start reporting adopted in
1994 upon emergence from bankruptcy. Accordingly, the consolidated
financial statements of the Successor are not comparable to the
Predecessor consolidated financial statements.
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions, profits and
accounts have been eliminated.
Cash Equivalents
All highly liquid investments with maturities of three months or less
when purchased are considered to be cash equivalents. The carrying
value of these investments approximates fair value.
Restricted Funds on Deposit
Restricted funds on deposit represent cash and temporary investments
used to support the issuance of standby letters of credit and other
obligations. The carrying value of these funds approximates fair
value.
Inventories
In connection with the acquisition of the Company by AIPAC,
inventories were adjusted to estimated fair value. Inventories are
stated at lower of cost (first-in, first-out method) or market
(replacement cost or estimated net realizable value). Advances from
customers are netted against inventories to the extent of related
accumulated costs. Advances in excess of related costs and earnings
on uncompleted contracts are classified as a liability to customers.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price paid by AIPAC
for the outstanding shares of common stock of the Company over the
fair value of the net assets of the Company on the date of
acquisition and is being amortized on a straight-line basis over 30
years.
Intangible assets were recorded at estimated fair value in connection
with the acquisition of the Company by AIPAC. At December 31, 1997,
intangible assets consist of engineering drawings, bill-of-material
listings, software, trademarks and tradenames which are being
amortized on a straight-line basis over 10 to 30 years. Intangible
assets at December 31, 1996 consisted of engineering drawings and
bill-of-material listings which were being amortized on a straight-
line basis over 20 years. At December 31, 1997 and 1996, accumulated
amortization for intangible assets was $628,000 and $975,000,
respectively.
Property, Plant and Equipment
In connection with the acquisition of the Company by AIPAC, property,
plant and equipment were adjusted to estimated fair value.
Depreciation is provided over the estimated useful lives of
respective assets using the straight-line method for financial
reporting and accelerated methods for income tax purposes. Estimated
useful lives used for financial reporting purposes range from ten to
forty years for buildings and improvements and three to seventeen
years for machinery and equipment.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated
into U.S. dollars using year-end exchange rates. Revenues and
expenses are translated at average rates during the year.
Adjustments resulting from this translation, except for one foreign
subsidiary in Brazil which operates in a highly inflationary economy,
are deferred and reflected as a separate component of Common
Shareholders' Investment. For the one subsidiary in Brazil operating
in a highly inflationary economy, adjustments resulting from the
translation of financial statements are reflected in the Consolidated
Statements of Operations. Effective January 1, 1998, the Company
will no longer consider Brazil's economy to be highly inflationary.
The effect of this change on the Company's consolidated financial
statements is not expected to be material.
Revenue Recognition
Revenue from long-term sales contracts is recognized using the
percentage-of-completion method. At the time a loss on a contract
becomes known, the amount of the estimated loss is recognized in the
consolidated financial statements. Included in the current portion
of liabilities to customers on uncompleted contracts and warranties
are advances in excess of related costs and earnings on uncompleted
contracts of $3,501,000 and $575,000 at December 31, 1997 and 1996,
respectively.
NOTE C - RESTRUCTURING EXPENSES
Restructuring expenses of $2,577,000 for the year ended December 31,
1995 consist of employee severance expenses recorded to reflect the
cost of reduced employment and the severance costs related to the
resignation of three officers of the Company.
NOTE D - RECEIVABLES
Receivables at December 31, 1997 and 1996 include $6,186,000 and
$6,830,000, respectively, of revenues from long-term contracts which
were not billable at that date. Billings on long-term contracts are
made in accordance with the payment terms as defined in the
individual contracts.
Current receivables are reduced by an allowance for losses of
$734,000 and $539,000 at December 31, 1997 and 1996, respectively.
NOTE E - INVENTORIES
Inventories consist of the following:
1997 1996
(Dollars in Thousands)
Raw materials and parts $ 14,896 $ 10,628
Costs relating to
uncompleted contracts 4,861 4,183
Customers' advances offset
against costs incurred on
uncompleted contracts (2,976) (1,816)
Work in process 21,238 13,746
Finished products (primarily
replacement parts) 76,996 44,148
________ ________
$115,015 $ 70,889
In connection with the acquisition of the Company by AIPAC,
inventories were adjusted to estimated fair value. This adjustment
is being charged to cost of products sold as the inventory is sold.
At December 31, 1997, the remaining estimated fair value adjustment
included in inventory was $6,925,000. The charge to cost of products
sold for 1997 and 1995 was $8,633,000 and $10,065,000, respectively.
During 1995, the Company completed an evaluation of its inventory and
recorded a charge of $4,416,000 to cost of products sold for the
scrapping and disposal of excess inventory which related to certain
older and discontinued machine models.
NOTE F - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
1997 1996
(Dollars in Thousands)
Trade accounts payable $ 24,364 $ 14,270
Wages and salaries 6,261 5,495
Interest 4,308 165
Service and erection 1,308 2,138
Other 15,665 11,697
________ ________
$ 51,906 $ 33,765
NOTE G - LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
1997 1996
(Dollars in Thousands)
9-3/4% Senior Notes due 2007 $150,000 $ -
Revolving credit facility 22,215 -
Secured Notes due
December 14, 1999 - 65,785
Bridge Loan Account at
Bucyrus Europe at
floating interest rate
(8.625% at December 31,
1996) - 428
Construction Loans at
Bucyrus Chile, Ltda. 2,664 842
________ ________
174,879 67,055
Less current maturities of
long-term debt (267) (428)
________ ________
$174,612 $ 66,627
The Company has outstanding $150,000,000 of 9-3/4% Senior Notes due
2007 (the "Senior Notes") which were issued pursuant to an indenture
dated as of September 24, 1997 among the Company, certain of its
domestic subsidiaries (the "Guarantors"), and Harris Trust and
Savings Bank, as Trustee (the "Senior Notes Indenture"). The Senior
Notes mature on September 15, 2007. Interest thereon is payable each
March 15 and September 15, commencing on March 15, 1998. The Senior
Notes Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Guarantors to: (i) incur
additional indebtedness; (ii) pay dividends or make other
distributions with respect to capital stock; (iii) make certain
investments; (iv) sell certain assets; (v) enter into certain
transactions with affiliates; (vi) create liens; (vii) enter into
certain sale and leaseback transactions; and (viii) enter into
certain mergers and consolidations. Such covenants are subject to
important qualifications and limitations.
Following the issuance of the Senior Notes, the Company purchased and
cancelled its 10.5% Secured Notes due December 14, 1999 (the "Secured
Notes").
The Company also entered into a new three-year credit agreement with
Bank One, Wisconsin on September 24, 1997 which provides the Company
with a $75,000,000 senior secured revolving credit facility (the
"Revolving Credit Facility") with a $25,000,000 sublimit for standby
letters of credit. Borrowings under the Revolving Credit Facility
bear interest at variable rates and are subject to a borrowing base
formula based on receivables, inventory and machinery and equipment.
Direct borrowings under the Revolving Credit Facility at December 31,
1997 were $22,215,000 at a weighted average interest rate of 8.7%.
The issuance of standby letters of credit reduce the amount available
for direct borrowings under the Revolving Credit Facility. At
December 31, 1997, there were $3,556,000 of standby letters of credit
outstanding under the Revolving Credit Facility. The Revolving
Credit Facility contains covenants which, among other things, require
the Company to maintain certain financial ratios and a minimum net
worth. The Revolving Credit Facility is secured by substantially all
of the assets of the Company, other than real property and assets of
foreign subsidiaries. The average borrowing under the Revolving
Credit Facility during the period September 24, 1997 to December 31,
1997 was $28,512,000, the weighted average interest rate for this
period was 8.7% and the maximum borrowing outstanding during the
period was $36,350,000. The amount available for direct borrowings
under the Revolving Credit Facility at December 31, 1997 was
$42,282,000.
Interest on the Secured Notes accrued at a rate of 10.5% per annum
until December 14, 1995. Thereafter, interest accrued at a rate of
10.5% per annum if paid in cash, or 13.0% per annum if paid in kind.
Interest expense was accrued at 10.5% for 1997 and 13% for 1996.
Maturities of long-term debt are the following for each of the next
five years:
(Dollars in Thousands)
1998 $ 267
1999 838
2000 22,919
2001 570
2002 285
As required under various agreements, Equipment Assurance Limited, an
off-shore insurance subsidiary of the Company, has pledged $1,056,000
of its cash to secure its reimbursement obligations for outstanding
letters of credit at December 31, 1997 and December 31, 1996. This
collateral amount is classified as restricted funds on deposit in the
Consolidated Balance Sheets.
During 1997, there were several trades of the Senior Notes, which are
publicly held. Based on these trades, management believes that the
carrying value of the Senior Notes approximates fair value.
NOTE H - COMMON SHAREHOLDERS' INVESTMENT
In connection with the acquisition of the Company by AIPAC, all of
the previously authorized shares of Common Stock were retired. The
Company's new shareholders then authorized the issuance of 1,000
shares of $.01 par value common stock, all of which were owned by
AIPAC at December 31, 1997.
On March 17, 1998, the Company's Board of Directors authorized a
stock split which increased the number of authorized shares of common
stock of the Company to 1,600,000 shares. Simultaneous with this
authorization, AIPAC cancelled 9.976% of its interest in its 1,000
shares of common stock of the Company and received 1,430,300 shares
for their remaining interest (the "Stock Split"). Also on this date,
certain members of management of the Company purchased 7,800 shares
of common stock of the Company which increased the number of issued
and outstand