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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 1-871
BUCYRUS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 39-0188050
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P. O. BOX 500
1100 MILWAUKEE AVENUE
SOUTH MILWAUKEE, WISCONSIN 53172
(Address of Principal (Zip Code)
Executive Offices)
(414) 768-4000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ X ] No [ ]
As of March 25, 1999, 1,442,350 shares of common stock of the Registrant
were issued and outstanding. Of the total outstanding shares of common stock
on March 25, 1999, 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 Company is currently wholly-owned by
American Industrial Partners Acquisition Company, LLC ("AIPAC").
The Company designs, manufactures and markets large excavation machinery
used for surface mining, and supplies replacement parts and service for such
machines. The Company's principal products are large walking draglines,
electric mining shovels and blasthole drills, which are used by customers who
mine coal, iron ore, copper, phosphate, bauxite and other minerals throughout
the world.
This Report includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Discussions
containing such forward-looking statements may be found in this section, as
well as in ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS and elsewhere within this Report.
Forward-looking statements include statements regarding the intent, belief or
current expectations of the Company, primarily with respect to the future
operating performance of the Company or related industry developments. When
used in this Report, terms such as "anticipate," "believe," "estimate,"
"expect," "indicate," "may be," "objective," "plan," "predict," and "will be"
are intended to identify such statements. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ from those
described in the forward-looking statements as a result of various factors,
many of which are beyond the control of the Company. Forward-looking
statements are based upon management's expectations at the time they are made.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from such expectations ("Cautionary
Statements") are 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.
Industry Overview
The large-scale surface mining equipment manufactured and serviced by the
Company is used primarily in coal, copper and iron ore mines throughout the
world. Growth in demand for these commodities is a function of population
growth and continuing improvements in standards of living in many areas of the
world. The market for new surface mining equipment is somewhat cyclical in
nature due to market fluctuations for these commodities; however, the
aftermarket for parts and services is more stable because these expensive,
complex machines are typically kept in continuous operation for 15 to 30 years
and require regular maintenance and repair throughout their productive lives.
The largest markets for this mining equipment have been in Australia,
Canada, China, India, South Africa, South America and the United States.
Together, these markets typically account for approximately 90% of all new
machines sold, although in any given year markets in other countries may
assume greater importance.
Markets Served
The Company's products are used in a variety of different types of mining
operations, including gold, phosphate, bauxite and oil sands, as well as for
land reclamation. The Company manufactures surface mining equipment primarily
for large companies and quasi-governmental entities engaged in the mining of
coal, iron ore and copper throughout the world. Until the late 1980's, coal
mining accounted for the largest percentage of industry demand for the
Company's machines, and it continues to be one of the largest users of
replacement parts and services. In recent years, however, copper mining
operations have accounted for an increasingly greater share of new machine
sales.
Copper. The Indonesia recession that started in the later half of
1997 and spread to many Asian countries has reduced the demand for
copper. With the lower demand for copper metal in that part of the world
and production of new copper mines increasing the copper supply, an
imbalance of supply over demand occurred in 1998. The price of copper
declined from $1.18 per pound in May 1997 to $0.64 at the end of 1998.
The Chilean Copper Commission (the "Commission") stated that the Western
World will have an excess of copper through the year 2000. However, the
Commission is forecasting a demand of 13.82 million tonnes in the year
2003 and a supply of 13.64 million tonnes that should cause the price of
copper to recover.
Iron Ore. Iron ore is the only source of primary iron and is mined
in more than 50 countries. Five countries produce more than two-thirds
of the over one billion tonnes produced annually. China is first
followed by Brazil, Australia, Russia and the United States. Estimated
iron ore production in 1998 declined 1.7%, which was the result of
depressed economies in Asia. The price of iron ore has declined as a
result of the lower demand. However, the International Iron and Steel
Institute is estimating a 9% increase in steel consumption by the year
2005. This increase will drive the demand for iron ore, and in the long
term increase prices.
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 blasthole drills, electric mining shovels and draglines.
Rotary Blasthole Drills. Most surface mines require breakage or
blasting of rock, overburden, or ore by explosives. To accomplish this,
it is necessary to bore out a pattern of holes into which the explosives
are placed. Rotary blasthole drills are used to drill these holes and
are usually described in terms of the diameter of the hole they bore.
The average life of a blasthole drill is 15 to 20 years.
The Company offers a line of rotary blasthole drills ranging in hole
diameter size from 9.0 inches to 17.5 inches and ranging in price from
approximately $1,500,000 to $2,800,000 per drill, depending on machine
size and variable features.
In an effort to enhance drill sales and expand its market position,
the Company introduced the Model 39R diesel hydraulic blasthole drill in
1996, the Company's third drill model and first diesel hydraulic
blasthole 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.
Mining shovels are characterized in terms of weight and dipper
capacity. The Company offers a full line of electric mining shovels,
weighing from 400 to 1,000 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. 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 wholly-owned domestic subsidiaries, Minserco, Inc. ("Minserco")
and Boonville Mining Services, Inc. ("BMSI"), provide repair and maintenance
services throughout North America. Minserco, which maintains offices in
Florida, Kentucky, Texas and Wyoming, provides comprehensive structural and
mechanical engineering, non-destructive testing, repairs and rebuilds of
machine components, product and component upgrades, contract maintenance,
turnkey erections and machine moves. Minserco's services are provided almost
exclusively to maintenance and repair of Bucyrus machines operating in North
America. BMSI, 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, Argentina and Peru are the primary
targets for MARCs because it is difficult and expensive for mining companies
to establish the necessary infrastructures for ongoing maintenance and repair
in remote locations.
The Bennett & Emmott Acquisition
On February 10, 1999, the Company announced that it has agreed to
purchase Bennett & Emmott (1986) Ltd. ("Bennett & Emmott"), a privately owned
Canadian company with extensive experience in the field repair and service of
heavy machinery for the surface mining industry. In addition to the surface
mining industry, Bennett & Emmott services a large number of customers in the
pulp and paper, sawmill, oil and natural gas industries in Western Canada, the
Northwest Territories and the Yukon. The company provides design and
manufacturing services, as well as in-house and field repair and testing of
electrical and mechanical equipment. Bennett & Emmott also distributes
compressors, generators and related products.
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
1998 and 1997, one customer accounted for approximately 19% and 14%,
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 by Company personnel and through independent
distributors, the Company's foreign subsidiaries and offices and 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.
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 1998, price increases
from inflation had a relatively minor impact on the Company's reported net
sales; however, the strong United States dollar negatively affected net sales
reported by the Company's foreign subsidiaries.
Foreign Operations
A substantial portion of the Company's net sales and operating earnings
is attributable to operations located abroad. Over the past five years, over
75% of the Company's new machine sales have been in international markets.
The Company's foreign sales, consisting of exports from the United States and
sales by consolidated foreign subsidiaries, totaled $223,203,000 in 1998,
$235,750,000 in 1997 and $191,888,000 in 1996. Approximately $235,529,000 of
the Company's backlog of firm orders at December 31, 1998 represented orders
for export sales compared with $178,237,000 at December 31, 1997 and
$133,115,000 at December 31, 1996.
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 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 higher
margin aftermarket sales of parts and services, but also gives the Company an
advantage in securing new machine orders.
The Company and its domestic subsidiaries normally price their products,
including direct sales of new equipment to foreign customers, in U.S. dollars.
Foreign subsidiaries normally procure and price aftermarket replacement parts
and repair services in the local currency. Approximately 70% of the Company's
net sales are priced in U.S. dollars. The value, in U.S. dollars, of the
Company's investments in its foreign subsidiaries and of dividends paid to the
Company by those subsidiaries will be affected by changes in exchange rates.
The Company does not normally enter into currency hedges, although it may do
so with regard to certain individual contracts.
Further segment and geographical information is included in ITEM 8 -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Competition
There are a limited number of manufacturers of new surface mining
equipment. The Company is one of two manufacturers of electric mining shovels
and draglines. The Company's only competitor in electric mining shovels and
draglines is Harnischfeger Corporation, although electric mining shovels also
compete against hydraulic shovels of which there are at least six other
manufacturers. In rotary blasthole drills, the Company competes with at least
three other manufacturers, including Harnischfeger Corporation. Methods of
competition are diverse and include product design and performance, service,
delivery, application engineering, pricing, financing terms and other
commercial factors.
For most owners of the Company's machines, the Company is the primary
replacement source for large, heavily engineered, integral components;
however, the Company encounters intense competition for sales of smaller, less
sophisticated, consumable replacement parts and repair services in certain
markets. The Company's competition in parts sales consists primarily of
smaller independent firms called "will-fitters" that produce copies of the
parts manufactured by the Company and other original equipment manufacturers.
These copies are generally sold at lower prices than genuine parts produced by
the manufacturer. Outside North America, customers mainly rely upon the
Company's subsidiaries, distributors or direct sales from the United States
for aftermarket parts and services.
The Company has a variety of programs to attract large volume customers
for its replacement parts. Although will-fitters engage in significant price
competition in parts sales, the Company possesses clear non-price advantages
over will-fitters. The Company's engineering and manufacturing technology and
marketing expertise exceed that of its will-fit competitors, who are in many
cases unable to duplicate the exact specifications of genuine Bucyrus parts.
Moreover, use of parts not manufactured by the Company can void the warranty
on a new Bucyrus machine, which generally runs for one year on new equipment,
with certain components being warranted for longer periods.
Raw Materials and Supplies
The Company purchases from outside vendors the semi- and fully-processed
materials (principally structural steel, castings and forgings) required for
its manufacturing operations, and other items, such as electrical equipment,
that are incorporated directly into the end product. The Company's foreign
subsidiaries purchase components and manufacturing services both from local
subcontractors and from the Company. Certain additional components are
sometimes purchased from subcontractors, either to expedite delivery schedules
in times of high demand or to reduce costs. Moreover, in countries where
local content preferences or requirements exist, local subcontractors are used
to manufacture a substantial portion of the components required in the
Company's foreign manufacturing operations. Although the Company is not
dependent upon any single supplier, there can be no assurance that the Company
will continue to have an adequate supply of raw materials or components
necessary to enable it to meet the demand for its products. Competitors are
believed to be subject to similar conditions.
Manufacturing
A substantial portion of the design, engineering and manufacturing of the
Company's machines is done at the Company's South Milwaukee, Wisconsin plant.
The size and weight of these mining machines dictates that the machines be
shipped to the job site in sub-assembled units where they are assembled for
operation with the assistance of Company technicians. Planning and on-site
coordination of machine assembly is a critical component of the Company's
service to its customers. Moreover, to reduce lead time and assure that
customer delivery requirements are met, the Company maintains an inventory of
sub-assembled units for frequently utilized components of various types of
equipment.
The Company manufactures and sells replacement parts and components and
provides comprehensive aftermarket service for its entire line of mining
machinery. The Company's large installed base of surface mining machinery
provides a steady stream of parts sales due to the long useful life of the
Company's machines, averaging 20 to 30 years for draglines and 15 to 20 years
for electric mining shovels and blasthole drills. Parts sales and aftermarket
services comprise a substantial portion of the Company's net sales. 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.
Backlog
The backlog of firm orders was $262,457,000 at December 31, 1998 and
$216,021,000 at December 31, 1997. Approximately 45% of the backlog at
December 31, 1998 is not expected to be filled during 1999.
Inventories
Inventories at December 31, 1998 were $113,226,000 compared with
$115,015,000 at December 31, 1997. At December 31, 1998 and December 31,
1997, finished goods inventory (primarily replacement parts) totalling
$71,308,000 and $76,996,000, respectively, were held to meet delivery
requirements of customers. At December 31, 1997, inventories included
$6,925,000 of the fair value adjustment recorded in connection with the
acquisition of the Company by AIPAC.
Patents, Licenses and Franchises
The Company has a number of United States and foreign patents, patent
applications and patent licensing agreements. It does not consider its
business to be materially dependent upon any patent, patent application,
patent license agreement or group thereof.
Research and Development
Expenditures for design and development of new products and improvements
of existing mining machinery products, including overhead, aggregated
$8,247,000 in 1998, $7,384,000 in 1997 and $6,930,000 in 1996. All
engineering and product development costs are charged to Engineering and Field
Service Expense as incurred.
Environmental Factors
Environmental problems have not interfered in any material respect with
the Company's manufacturing operations. The Company believes that its
compliance with statutory requirements respecting environmental quality will
not materially affect its capital expenditures, earnings or competitive
position. The Company has an ongoing program to address any potential
environmental problems.
Current federal and state legislation regulating surface mining and
reclamation may affect some of the Company's customers, principally with
respect to the cost of complying with, and delays resulting from, reclamation
and environmental requirements. The Company's products are used for
reclamation as well as for mining, which has a positive effect on the demand
for such products and replacement parts therefor.
Employees
At December 31, 1998, the Company employed approximately 1,800 persons.
The four-year contract with the union representing hourly workers at the South
Milwaukee, Wisconsin facility and the four-year contract with the union
representing hourly workers at the Memphis, Tennessee facility expire in
April, 2001 and August, 2002, respectively.
Seasonal Factors
The Company does not consider a material portion of its business to be
seasonal.
ITEM 2. PROPERTIES
The Company's principal manufacturing plant in the United States is
located in South Milwaukee, Wisconsin, and is owned by the Company. This
plant comprises approximately 1,038,000 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 blasthole drills, are well-
maintained, in good condition and in regular use.
The Company leases a facility in Memphis, Tennessee, which has
approximately 110,000 square feet of floor space and is used as a central
parts warehouse. The current lease is for five years commencing in July 1996
and contains an option to renew for an additional five years.
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 Argentina, Australia, Brazil, Canada, Chile, China,
England, India and South Africa.
ITEM 3. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
Joint Prosecution
On September 25, 1997, the Company and Jackson National Life Insurance
Company ("JNL") commenced an action against Milbank, Tweed, Hadley & McCloy
("Milbank") in the Milwaukee County Circuit Court (the "Milwaukee Action").
The Company sought damages against Milbank arising out of Milbank's alleged
malpractice, breach of fiduciary duty, common law fraud, breach of contract,
unjust enrichment and breach of the obligation of good faith and fair dealing.
JNL sought damages against Milbank arising out of Milbank's alleged tortious
interference with contractual relations, abuse of process and common law
fraud. On December 31, 1998, the Company and JNL settled the Milwaukee
Action, which was thereafter dismissed by the agreement of the parties on
February 24, 1999. The amounts to be received by the Company in connection
with the settlement of the Milwaukee Action are included in Other Income in
the Consolidated Statements of Operations.
West Machine and Tool Works
On September 23, 1997, Minserco 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 disputed the Findings of Fact and Conclusions of Law
entered by the Texas Court and had 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. On June 19, 1998, the
Company and Minserco settled the Minserco Litigation, and all claims against
either the Company or Minserco were dismissed with prejudice.
Product Liability
The Company is normally subject to numerous product liability claims,
many of which relate to products no longer manufactured by the Company or its
subsidiaries, and other claims arising in the ordinary course of business.
The Company has insurance covering most of said claims, subject to varying
deductibles ranging from $300,000 to $3,000,000, and has various limits of
liability depending on the insurance policy year in question. It is the view
of management that the final resolution of said claims and other similar
claims which are likely to arise in the future will not individually or in the
aggregate have a material effect on the Company's financial position or
results of operations, although no assurance to that effect can be given.
Environmental and Related Matters
The Company's operations and properties are subject to a broad range of
federal, state, local and foreign laws and regulations relating to
environmental matters, including laws and regulations governing discharges
into the air and water, the handling and disposal of solid and hazardous
substances and wastes, and the remediation of contamination associated with
releases of hazardous substances at Company facilities and at off-site
disposal locations. These laws are complex, change frequently and have tended
to become more stringent over time. Future events, such as compliance with
more stringent laws or regulations, more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
could require additional expenditures by the Company, which may be material.
Certain environmental laws, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), provide for
strict, joint and several liability for investigation and remediation of
spills and other releases of hazardous substances. Such laws may apply to
conditions at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which wastes or
other contamination attributable to an entity or its predecessors come to be
located.
The Company was one of 53 entities named by the United States
Environmental Protection Agency ("EPA") as potentially responsible parties
("PRPs") with regard to the Millcreek dumpsite, located in Erie County,
Pennsylvania, which is on the National Priorities List of sites for cleanup
under CERCLA. The Company was named as a result of allegations that it
disposed of foundry sand at the site in the 1970s. Both the United States
government and the Commonwealth of Pennsylvania initiated actions to recover
cleanup costs. The Company has settled with both with respect to its
liability for past costs. In addition, 37 PRPs, including the Company, have
received Administrative Orders issued by the EPA pursuant to Section 106(a) of
CERCLA to perform site capping and flood control remediation at the Millcreek
site. The Company is one of 18 parties responsible for a share of the
estimated $7,000,000 in costs, which share is presently proposed as per capita
but may be subject to reallocation before the conclusion of the case.
In December 1990, the Wisconsin Department of Natural Resources ("DNR")
conducted a pre-remedial screening site inspection on property owned by the
Company located at 1100 Milwaukee Avenue in South Milwaukee, Wisconsin.
Approximately 35 acres of this site were allegedly used as a landfill by the
Company until approximately 1983. The Company disposed of certain
manufacturing wastes at the site, primarily foundry sand. The DNR's Final
Site Screening Report, dated April 16, 1993, summarized the results of
additional investigation. A DNR Decision Memo, dated July 21, 1991, which was
based upon the testing results contained in the Final Site Screening Report,
recommended additional groundwater, surface water, sediment and soil sampling.
To date, the Company is not aware of any initiative by the DNR to require any
further action with respect to this site. Consequently, the Company has not
regarded, and does not regard, this site as presenting a material contingent
liability. There can be no assurance, however, that additional investigation
by the DNR will not be conducted with respect to this site at some later date
or that this site will not in the future require removal or remedial actions
to be performed by the Company, the costs of which could be material,
depending on the circumstances.
Prior to 1985, a wholly-owned, indirect subsidiary of the Company
provided comprehensive general liability insurance coverage for affiliate
corporations. The subsidiary issued such policies for occurrences during the
years 1974 to 1984, which policies could involve material liability. Claims
have been made under certain of these policies for certain potential CERCLA
liabilities of former subsidiaries of the Company. It is possible that other
claims could be asserted in the future with respect to such policies. While
the Company does not believe that liability under such policies will result in
material costs, this cannot be guaranteed.
Along with multiple other parties, the Company or its subsidiaries are
currently PRP's under CERCLA and analogous state laws at three additional
sites at which the Company and/or its subsidiaries (including the above
referenced insurance subsidiary by insurance claim) may incur future costs.
The Company believes that one of these cases has been settled. While CERCLA
imposes joint and several liability on responsible parties, liability for each
site is likely to be apportioned among the parties. The Company does not
believe that its potential liability in connection with these sites or any
other discussed above, either individually or in the aggregate, will have a
material adverse effect on the Company's business, financial condition or
results of operations. However, the Company cannot guarantee that it will not
incur cleanup liability in the future with respect to sites formerly or
presently owned or operated by the Company, or with respect to off-site
locations, the costs of which could be material.
While no assurance can be given, the Company believes that expenditures
for compliance and remediation will not have a material effect on its capital
expenditures, results of operations or competitive position.
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 1998.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Substantially all of the Company's common stock is held by AIPAC and
there is no established public trading market therefor. The Company does not
have a recent history of paying dividends and has no present intention to pay
dividends in the foreseeable future.
In 1998, the Company sold 12,800 shares of its common stock to certain of
its executive officers at a price of $100 per share. The number of shares
purchased by the named executive officers was as follows: Mr. Light, 5,000
shares at a cost of $500,000; Mr. Hildebrand, 4,000 shares at a cost of
$400,000; Mr. Mackus, 500 shares at a cost of $50,000; Mr. Phillips, 750
shares at a cost of $75,000; Mr. Smoke, 750 shares at a cost of $75,000; and
Mr. Sullivan, 750 shares at a cost of $75,000. Exemption from registration of
the shares sold under the Securities Act of 1933 (the "Securities Act") is
claimed under Section 4(2) of the Securities Act because the offer and sale
thereof was restricted to a limited number of individuals, all of whom were
members of management of the Company, without any advertising or other selling
efforts commonly associated with a "public offering".
ITEM 6. SELECTED FINANCIAL DATA
Predecessor (b) Predecessor(b)
Year ended September 24- January 1- Years Ended December 14- January 1-
December 31, December 31, September 23, December 31, December 31, December 13,
1998(a) 1997(a) 1997 1996 1995 1994 1994
(Dollars In Thousands, Except Per Share Amounts)
Consolidated Statements
of Operations Data:
Net sales $315,838 $ 95,212 $211,465 $263,786 $231,921 $ 7,810 $186,174
Earnings (loss)
before extra-
ordinary gain
and cumulative
effects of changes
in accounting
principles $ (8,264) $ (7,158) $ (4,874) $ 2,878 $(18,772) $ (552) $(22,833)
Earnings (loss)
per share of
common stock
before extra-
ordinary gain
and cumulative
effects of changes
in accounting
principles (c):
Basic $ (5.75) $ (5.00) $ (.48) $ .28 $ (1.84) $ (.05) $ (2.46)
Diluted $ (5.75) $ (5.00) $ (.47) $ .28 $ (1.84) $ (.05) $ (2.46)
Adjusted
EBITDA (d) $ 35,967 $ 9,936 $ 18,704 $ 19,247 $ 8,256 $ 392 $ 12,883
Cash dividends per
common share $ - $ - $ - $ - $ - $ - $ -
Consolidated Balance
Sheets Data:
Total assets $417,195 $406,107 N/A $172,895 $174,038 $179,873 N/A
Long-term debt $202,308 $174,612 N/A $ 66,627 $ 58,021 $ 53,170 N/A
(a) As a result of purchase accounting due to the acquisition of the Company by AIPAC on September 24, 1997, the
financial statements of the Company subsequent to this date are not comparable to the financial statements of the
Predecessor.
(b) Upon emergence from bankruptcy and the implementation of fresh start reporting as of December 14, 1994, the
financial statements 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 G to the Consolidated Financial Statements
for further discussion of this change in the Company's capital structure.
(d) Earnings before extraordinary gain, 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Acquisitions
On August 21, 1997, the Company entered into an Agreement and Plan of
Merger (the "AIP Agreement") with AIPAC, which is wholly-owned by American
Industrial Partners Capital Fund II, L.P., and Bucyrus Acquisition Corp.
("BAC"), a wholly-owned subsidiary of AIPAC. On August 26, 1997, pursuant to
the AIP Agreement, BAC commenced an offer to purchase for cash 100% of the
outstanding shares of common stock of the Company at a price of $18.00 per
share (the "AIP Tender Offer"). Consummation of the AIP Tender Offer occurred
on September 24, 1997, and BAC was merged with and into the Company on
September 26, 1997 (the "AIP Merger"). The Company was the surviving entity
in the AIP Merger. The purchase of the Company's outstanding shares of common
stock by AIPAC resulted in a change in control of voting interest.
On August 26, 1997, the Company consummated the acquisition (the "Marion
Acquisition") of certain assets and liabilities of The Marion Power Shovel
Company, a subsidiary of Global Industrial Technologies, Inc. ("Global"), and
of certain subsidiaries and divisions of Global that represented Global's
surface mining equipment business in Australia, Canada and South Africa
(collectively referred to herein as "Marion"). The cash purchase price for
Marion was $36,720,000, which includes acquisition expenses of $1,695,000.
The Company financed the Marion Acquisition and related expenses by utilizing
an unsecured bridge loan (the "Bridge Loan") provided by a former affiliate of
the Company, in the amount of $45,000,000. The Bridge Loan was repaid in full
on September 24, 1997 with a portion of the proceeds from the sale of the
Private Notes (see below).
On September 24, 1997, the Company completed the private placement of
$150,000,000 aggregate principal amount of its 9-3/4% Senior Notes due 2007
(the "Private Notes") in a transaction under Rule 144A of the Securities Act
of 1933, as amended (the "Act"). Following the completion of the sale of the
Private Notes, the Company purchased and cancelled its 10.5% Secured Notes due
December 14, 1999 (the "Secured Notes") at a cost of $67,414,000 including
accrued interest, utilizing a portion of the proceeds from the sale of the
Private Notes. On December 18, 1997, the Company completed the exchange of
$150,000,000 aggregate principal amount of its 9-3/4% Senior Notes due 2007
(the "Senior Notes") for the Private Notes. The Senior Notes were registered
under the Act.
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, upon emergence from bankruptcy
in 1994, total assets were recorded at their assumed reorganization value,
with the reorganization value allocated to identifiable tangible and
intangible assets on the basis of their estimated fair value, and liabilities
were adjusted to the present values of amounts to be paid where appropriate.
The consolidated financial statements include the related amortization charges
associated with the fair value adjustments.
Liquidity and Capital Resources
Liquidity
Working capital and current ratio are two financial measurements which
provide an indication of the Company's ability to meet its short-term
obligations. These measurements at December 31, 1998, 1997 and 1996 were as
follows:
1998 1997 1996
(Dollars in Thousands)
Working capital $129,568 $120,883 $ 78,814
Current ratio 3.1 to 1 2.9 to 1 2.9 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 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 and
inventory fair value adjustment charged to cost of products sold ("Adjusted
EBITDA"). Since cash flow from operations is very important to the Company's
future, the Adjusted EBITDA calculation provides a summary review of cash flow
performance. In addition, the Company is required to maintain certain minimum
EBITDA levels as defined under its bank credit agreement (see below). The
Adjusted EBITDA calculation is not an alternative to operating income under
generally accepted accounting principles as an indicator of operating
performance or to cash flows as a measure of liquidity. The following table
reconciles Earnings (Loss) Before Income Taxes to Adjusted EBITDA:
Predecessor
Year Ended September 24- January 1- Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
(Dollars in Thousands)
Earnings (loss)
before income
taxes $ (5,861) $ (7,441) $ (2,233) $ 4,636
Nonrecurring
items (1) - - 10,051 -
Depreciation 10,331 2,678 3,125 3,882
Amortization 5,701 1,435 770 1,142
Non-cash stock
compensation - - 677 668
(Gain) loss on
sale of fixed
assets 11 (3) (275) 362
Inventory fair
value adjustment
charged to cost
of products
sold 6,925 8,350 283 -
Interest expense 18,860 4,917 6,306 8,557
________ ________ ________ ________
Adjusted EBITDA $ 35,967 $ 9,936 $ 18,704 $ 19,247
(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.
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, 1998 and 1997 were $49,950,000 and $22,215,000, respectively, at
a weighted average interest rate of 8.0% and 8.7%, respectively. The increase
in direct borrowings from December 31, 1997 was primarily due to increased
working capital requirements and increased capital expenditures. The issuance
of standby letters of credit under the Revolving Credit Facility and certain
other bank facilities reduces the amount available for direct borrowings under
the Revolving Credit Facility. At December 31, 1998 and 1997, there were
$2,750,000 and $3,556,000, respectively, 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, 1998 was $14,988,000.
The Company has outstanding $150,000,000 of its Senior Notes which were
issued pursuant to an indenture dated as of September 24, 1997 among the
Company, the Guarantors and Harris Trust and Savings Bank, as Trustee (the
"Senior Notes Indenture"). The Senior Notes mature on September 15, 2007.
Interest thereon is payable each March 15 and September 15.
Both the Revolving Credit Facility and the Senior Notes Indenture contain
certain covenants which may affect the Company's liquidity and capital
resources. Also, both the Revolving Credit Facility and the Senior Notes
Indenture contain numerous covenants that limit the discretion of management
with respect to certain business matters and place significant restrictions
on, among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments
or investments, loans and guarantees, and to sell or otherwise dispose of
assets and merge or consolidate with another entity.
The Revolving Credit Facility also contains a number of financial
covenants that require the Company (A) to maintain certain financial ratios,
including: (i) ratio of adjusted funded debt to EBITDA (as defined);
(ii) fixed charge coverage ratio; and (iii) interest coverage ratio; and (B)
to maintain a minimum net worth and other covenants which limit the ability of
the Company and the Guarantors to incur liens; merge, consolidate or dispose
of assets; make loans and investments; incur indebtedness; engage in certain
transactions with affiliates; incur contingent obligations; enter into joint
ventures; enter into lease agreements; pay dividends and make other
distributions; change its business; redeem the Senior Notes; and make capital
expenditures.
The Senior Notes Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Guarantors to: (i) incur
additional indebtedness; (ii) pay dividends or make other distributions with
respect to capital stock; (iii) make certain investments; (iv) use the
proceeds of the sale of certain assets; (v) enter into certain transactions
with affiliates; (vi) create liens; (vii) enter into certain sale and
leaseback transactions; (viii) enter into certain mergers and consolidations
or a sale of substantially all of its assets; and (ix) prepay the Senior
Notes. Such covenants are subject to important qualifications and
limitations. In addition, the Senior Notes Indenture defines "EBITDA"
differently than "EBITDA" under the Revolving Credit Facility.
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, 1998, the Company had approximately $5,000,000 of open
capital appropriations of which approximately $1,000,000 is related to the new
computer system being installed by the Company. In 1996, a machine shop
modernization program began at the Company's South Milwaukee, Wisconsin
manufacturing facility that involved a $20,000,000 investment in the latest
technology in the machine tool industry. The Company has spent approximately
$7,000,000 to date on this program but is currently reevaluating it to
determine if the program should be continued. In 1999, the Company expects to
reduce its capital appropriations to historical levels not including the
effects of the new computer system.
Capitalization
The long-term debt to equity ratio at December 31, 1998 and 1997 was
1.7 to 1 and 1.3 to 1, respectively. The long-term debt to total
capitalization ratio at both December 31, 1998 and 1997 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 combined amounts for the
period September 24 to December 31, 1997 and for the Predecessor period
January 1 to September 23, 1997.
Net Sales
Net sales for 1998 were $315,838,000 compared with $306,677,000 for 1997.
Net sales of repair parts and services for 1998 were $208,570,000 which is an
increase of 5.2% from 1997. This increase is primarily due to the Marion
Acquisition. Machine sales for 1998 were $107,268,000, which is a decrease
of 1.1% from 1997. Net sales of electric mining shovels decreased 15.6%,
while net sales of blasthole drills decreased by 38.2%. These decreases were
offset by increased dragline sales.
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 was
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 was an
increase of 1.0% from 1996. Net sales of electric mining shovels increased
20.0%, while net sales of blasthole drills decreased 40.8% There was an
overall decline in worldwide blasthole drill sales activity in 1997.
Other Income
Other income for 1998 increased primarily as a result of a favorable
legal settlement.
Cost of Products Sold
Cost of products sold for 1998 was $263,211,000 or 83.3% of net sales
compared with $256,744,000 or 83.7% of net sales for 1997 and $215,126,000 or
81.6% of net sales for 1996. Included in cost of products sold for 1998 and
1997 were charges of $6,925,000 and $8,633,000, respectively, as a result of
fair value adjustments to inventory being charged to cost of products sold as
the inventory is sold. The fair value adjustment was made as a result of the
acquisition of the Company by AIPAC. Excluding the effects of the inventory
fair value adjustment, cost of products sold as a percentage of net sales for
1998, 1997 and 1996 was 81.1%, 80.9% and 81.6%, respectively. Also included
in cost of products sold for 1998 and 1997 was $4,450,000 and $1,266,000,
respectively, of additional depreciation expense as a result of the fair value
adjustment to plant and equipment in connection with the acquisition of the
Company by AIPAC.
Engineering and Field Service, Selling, Administrative and Miscellaneous
Expenses
Engineering and field service, selling, administrative and miscellaneous
expenses for 1998 were $46,332,000 or 14.7% of net sales compared with
$39,968,000 or 13.0% of net sales in 1997 and $36,470,000 or 13.8% of net
sales in 1996. The increases for 1998 were primarily due to increased
expenses to support the Marion business acquired and increased non-cash
amortizations of goodwill, intangible assets and financing fees that were
recorded in connection with the acquisition of the Company by AIPAC.
Interest Expense
Interest expense for 1998 was $18,860,000 compared with $11,223,000 for
1997 and $8,557,000 for 1996. Included in interest expense for 1998 and 1997
was $14,544,000 and $4,022,000, respectively, related to the Senior Notes that
were issued at the time the Company was acquired by AIPAC. Included in
interest expense for 1997 and 1996 was $5,064,000 and $7,783,000,
respectively, related to the Secured Notes. The Company purchased and
cancelled the previously outstanding Secured Notes on September 24, 1997.
Nonrecurring Items
Nonrecurring items in 1997 consist of $6,690,000 of expense incurred to
cash out the outstanding options to purchase shares of the Company's common
stock and outstanding stock appreciation rights in connection with the
acquisition of the Company by AIPAC, and $3,361,000 of loan fees incurred in
connection with the Bridge Loan that was utilized to finance the Marion
Acquisition. The Bridge Loan was subsequently repaid on September 24, 1997
and the loan fees were expensed.
Income Taxes
Income tax expense consists primarily of foreign taxes at applicable
statutory rates. For United States tax purposes, there were losses for which
no income tax benefit was recorded.
Net Earnings (Loss)
The net loss for 1998 was $8,264,000 compared with a net loss of
$12,032,000 for 1997 and net earnings of $2,878,000 for 1996. Included in the
net loss for 1998 and 1997 was $6,267,000 and $7,864,000, respectively, (net
of income taxes) of the inventory fair value adjustment related to purchase
accounting. Non-cash depreciation and amortization charges were $16,032,000
in 1998 compared with $8,008,000 in 1997 and $5,024,000 in 1996. Also
included in the net loss for 1997 was $6,690,000 of expense to cash out the
outstanding stock options and stock appreciation rights in connection with the
acquisition of the Company by AIPAC and $3,361,000 of Bridge Loan fees which
were expensed when the Bridge Loan was repaid.
Backlog and New Orders
The Company's consolidated backlog at December 31, 1998 was $262,457,000
compared with $216,021,000 at December 31, 1997 and $158,727,000 at
December 31, 1996. Machine backlog at December 31, 1998 was $113,702,000,
which is an increase of 17.0% from December 31, 1997. The increase was
primarily in electric mining shovels. During the second quarter of 1997, the
Company executed a contract with an Australian mining company for the sale of
a Model 2570WS dragline which is scheduled for completion by December 31,
1999. Included in backlog at December 31, 1998 and 1997 was $27,273,000 and
$51,644,000, respectively, related to this machine. Repair parts and service
backlog at December 31, 1998 was $148,755,000, which is an increase of 25.1%
from December 31, 1997. The increase was primarily due to new MARCs at
foreign locations.
New orders for 1998 were $362,274,000, which is a decrease of .5% from
1997. New machine orders for 1998 were $123,815,000, which is a decrease of
20.9% from 1997. Included in new machine orders for 1997 was approximately
$57,000,000 for the aforementioned 2570WS dragline. New machine orders for
electric mining shovels have increased while new machine orders for blasthole
drills have decreased. As a result of a decline in copper and coal prices
from historically high levels, the demand for machines from these market
segments has been low. In addition, economic and political problems in Asia
have negatively impacted demand for the Company's machines. New repair parts
and service orders for 1998 were $238,459,000, which is an increase of 15.0%
from 1997. The increase was primarily due to new MARCs at foreign locations
and the Marion Acquisition.
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 was not material.
Year 2000 Issues
Many computer software applications, hardware and equipment and embedded
chip systems identify dates using only the last two digits of the year. These
products may be unable to distinguish between dates in the year 2000 and dates
in the year 1900. That inability (referred to herein as the "Year 2000
Issue"), if not addressed, could cause applications, equipment or systems to
fail or provide incorrect information after December 31, 1999, or when using
dates after December 31, 1999. The Company uses a number of computer software
programs, operating systems and types of equipment with computer chips in its
internal operations, including applications used in its financial business
systems, order entry and manufacturing systems, manufacturing processes and
administrative functions. To the extent that these contain source code or
computer chips that are unable to interpret appropriately the upcoming
calendar year 2000 and distinguish it from the year 1900, some level of
modification or possible replacement will be necessary.
State of Readiness
The Company has assessed and continues to assess the impact of the Year
2000 Issue on its operations. The Company's assessments have focused on the
three major elements of the Year 2000 Issue: Information Technology ("IT")
systems; Non-IT systems; and third party relationships.
IT Systems
The Company is in the process of replacing its existing computer system.
While the primary purpose of this replacement is to improve the efficiency and
effectiveness of the Company's computer system, Year 2000 Issues are also
being addressed as a part of the IT system replacement. The IT system
replacement for South Milwaukee operations is expected to be completed during
the third quarter of 1999 and implementation of the plan for domestic
subsidiary operations is expected to be completed by the end of 1999. All
computers and software used for the purpose of internal office information
management have been upgraded and are Year 2000 compliant. IT systems used by
the Company's foreign operations have been reviewed and are Year 2000
compliant or will receive minor upgrades to make them Year 2000 compliant by
the end of 1999.
Non-IT Systems
A review of all of the Company's communication systems, elevators, HVAC
systems and equipment and processes used in manufacturing operations to assess
and address Year 2000 Issues is complete and the Company believes that such
systems, equipment and processes are compliant or will be remediated to the
extent necessary to assure Year 2000 compliance.
Third-Party Relationships
The Company's engineering department has reviewed all Company products
for Year 2000 compliance. A service advisory bulletin has been developed for
customers which provides information regarding Year 2000 compliance of
existing products manufactured by the Company. This bulletin describes the
service, if any, that will need to be performed to become compliant. In
addition, the Company conducted a survey of all major suppliers. All critical
suppliers have indicated that their products (incorporated into the Company's
products) are Year 2000 compliant, or that their ability to deliver raw
materials, supplies or services to the Company will not be adversely impacted
by the Year 2000 Issue. Certain other key suppliers have either not responded
or have programs underway to ensure compliance.
Risks and Contingency Plans
Although the Company believes its efforts will adequately address Year
2000 Issues internally, it is possible that the Company will be adversely
affected by problems encountered by its suppliers. There can be no assurance
that, despite any supplier's certification of its ability to do so, the
supplier will be able to provide goods and services in a manner that
satisfactorily address Year 2000 Issues. The most likely worst case scenario
would be a failure by the Company or one or more of its vendors or suppliers
to adequately and timely address the Year 2000 Issue, with the result being
the interruption of manufacturing of the Company's products for an
undeterminable period of time. The degree of sales loss impact would depend
on the severity of the disruption, the time required to correct it, whether
the sales loss was temporary or permanent and the degree to which the
Company's competitors were also impacted by the disruption.
Although the Company believes that its IT systems replacement will
adequately address all material Year 2000 Issues, the Company is in the
process of developing contingency plans that will be designed to mitigate the
impact on the Company if its Year 2000 compliance efforts are not successful.
These contingency plans will include the arranging of alternative computer
hardware and software sources. Based on the results of the Company's survey
of its major suppliers, the Company is developing contingency plans (including
the identification of potential alternative suppliers) where necessary.
The Company does not expect to develop contingency plans relating to its
products previously sold to customers.
Costs to Address the Company's Year 2000 Issues
The Company does not believe that Year 2000 Issues have adversely
impacted the timetable for implementation or the cost of its previously
planned IT system replacement. The estimated incremental cost of the domestic
IT system replacement is approximately $2,900,000 of which $1,400,000 has been
expended as of December 31, 1998. All maintenance and training costs are
being expensed as incurred while all application development costs and the
cost of new hardware and software are being capitalized and depreciated in
accordance with the Company's depreciation policy. All of these costs will be
funded from operating cash flows.
General
The Company believes it is taking reasonable steps which, when fully
implemented, will prevent major business interruptions and will minimize the
Company's risk of exposure to liability to third parties due to the Year 2000
Issue. There can be no assurance, however, that the Company will be
successful in its efforts. Further, the costs of the Company's efforts to
address the Year 2000 Issue and the dates on which the Company believes it
will complete the projects described above are based upon management's best
estimates. There also can be no assurance that these estimates will prove to
be accurate, and the actual cost and progress on these projects could differ
materially from those currently anticipated.
The Company's project time lines and budgets were derived based on
information the Company believes to be reliable and by making numerous
assumptions regarding future events. Specific factors that could cause actual
results to differ include, but are not limited to, (i) the Company's ability
to assess, remediate, test and implement all relevant computer hardware and
software and embedded technology, (ii) the Company's reliance on third-party
assurances and the variability of definitions of "Year 2000 compliance" which
may be used by such third parties, (iii) the adequacy of the Company's
contingency plans, to the extent such contingency plans are developed, and
(iv) similar uncertainties. If the Company's Year 2000 compliance efforts, as
well as the efforts of the Company's suppliers, individually and in the
aggregate, are not successful, it could have a material adverse effect on the
Company's financial position, cash flows and results of operations.
The statements in this Year 2000 Issues section regarding future planning
and events and the timetables and costs associated therewith are "forward
looking statements" within the meaning of the Securities and Exchange Act of
1934.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk is impacted by changes in interest rates and
foreign currency exchange rates.
Interest Rates
The Company's interest rate exposure relates primarily to debt
obligations in the United States. The Company manages its borrowings under
the Revolving Credit Facility through the selection of LIBOR based borrowings
or prime-rate based borrowings. If market conditions warrant, interest rate
swaps may be used to adjust interest rate exposures, although none have been
used to date.
At December 31, 1998, a sensitivity analysis was performed for the debt
obligations that have interest rate risk. Based on this sensitivity analysis,
the Company has determined that a 10% change in the Company's weighted average
interest rate at December 31, 1998 would not have a material effect on the
Company's financial position, results of operations or cash flows.
Foreign Currency
The Company manages foreign currency exchange rate exposure by utilizing
some natural hedges to mitigate some of its transaction and commitment
exposures, and may utilize forward contracts in certain situations.
Based on the Company's overall foreign currency exchange rate exposure at
December 31, 1998, a 10% change in foreign currency exchange rates will not
have a material effect on the Company's financial position, results of
operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)
Predecessor
Year Ended September 24- January 1- Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
REVENUES:
Net sales $315,838 $ 95,212 $211,465 $263,786
Other income 6,704 346 1,289 1,003
________ ________ ________ ________
322,542 95,558 212,754 264,789
________ ________ ________ ________
COSTS AND EXPENSES:
Cost of products sold 263,211 85,229 171,515 215,126
Engineering and field service, selling,
administrative and miscellaneous expenses 46,332 12,853 27,115 36,470
Interest expense 18,860 4,917 6,306 8,557
Nonrecurring items - - 10,051 -
________ ________ ________ ________
328,403 102,999 214,987 260,153
________ ________ ________ ________
Earnings (loss) before income taxes (5,861) (7,441) (2,233) 4,636
Income taxes 2,403 (283) 2,641 1,758
________ ________ ________ ________
Net earnings (loss) $ (8,264) $ (7,158) $ (4,874) $ 2,878
Net earnings (loss) per share of common stock:
Basic $(5.75) $(5.00) $ (.48) $ .28
Diluted $(5.75) $(5.00) $ (.47) $ .28
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Predecessor
Year Ended September 24- January 1- Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
Net earnings (loss) $ (8,264) $ (7,158) $ (4,874) $ 2,878
Other comprehensive income (loss) -
foreign currency translation adjustments (4,756) (3,619) (1,439) (765)
________ ________ ________ ________
Comprehensive income (loss) $(13,020) $(10,777) $ (6,313) $ 2,113
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,
1998 1997 1998 1997
LIABILITIES AND COMMON
ASSETS SHAREHOLDERS' INVESTMENT
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 8,821 $ 15,071 Accounts payable and
Receivables 61,727 49,443 accrued expenses $ 54,950 $ 51,906
Inventories 113,226 115,015 Liabilities to customers on
Prepaid expenses and uncompleted contracts and
other current assets 6,381 4,496 warranties 3,168 8,316
Income taxes 950 2,070
Short-term obligations 513 583
Current maturities of long-
term debt 1,006 267
________ ________ ________ ________
Total Current Assets 190,155 184,025 Total Current Liabilities 60,587 63,142
OTHER ASSETS: LONG-TERM LIABILITIES:
Restricted funds on Liabilities to customers
deposit 476 1,056 on uncompleted contracts
Goodwill 71,835 65,929 and warranties 5,414 3,850
Intangible assets - net 42,573 44,796 Postretirement benefits 14,188 14,665
Other assets 11,526 12,677 Deferred expenses
________ ________ and other 14,585 17,585
________ ________
126,410 124,458
34,187 36,100
PROPERTY, PLANT AND EQUIPMENT: LONG-TERM DEBT, less
Land 2,933 2,414 current maturities 202,308 174,612
Buildings and improvements 10,546 9,202
Machinery and equipment 97,481 87,723 COMMON SHAREHOLDERS'
Less accumulated INVESTMENT:
depreciation (10,330) (1,715) Common stock - par value
________ ________ $.01 per share,
authorized 1,700,000
100,630 97,624 shares, issued and
outstanding 1,443,100
shares at December 31,
1998; authorized 1,000
shares, issued and
outstanding 1,000 shares
at December 31, 1997 14 -
Additional paid-in
capital 144,296 143,030
Note receivable from
shareholder (400) -
Accumulated deficit (15,422) (7,158)
Accumulated other
comprehensive income (8,375) (3,619)
________ ________
120,113 132,253
________ ________ ________ ________
$417,195 $406,107 $417,195 $406,107
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Note Accumulated
Additional Unearned Receivable Other
Common Paid-In Stock From Accumulated Comprehensive
Stock Capital Compensation Shareholder Deficit Income
Balance at January 1, 1996 $ 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)
Merger with Bucyrus
Acquisition Corp. (105) (57,739) 2,138 - 21,320 2,561
Capital contribution - 143,030 - - - -
Net loss - - - - (7,158) -
Translation adjustments - - - - - (3,619)
______ ________ ________ ________ ________ ________
Balance at December 31, 1997 - 143,030 - - (7,158) (3,619)
Stock split 14 (14) - - - -
Issuance of common stock
(12,800 shares) - 1,280 - (400) - -
Net loss - - - - (8,264) -
Translation adjustments - - - - - (4,756)
______ _______ ________ ________ ________ ________
Balance at December 31, 1998 $ 14 $144,296 $ - $ (400) $(15,422) $ (8,375)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Predecessor
Year Ended September 24- January 1- Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
Cash Flows From Operating Activities
Net earnings (loss) $ (8,264) $ (7,158) $ (4,874) $ 2,878
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation 10,331 2,678 3,125 3,882
Amortization 5,701 1,435 770 1,142
Non-cash stock compensation expense - - 677 668
Nonrecurring items - - 10,051 -
In kind interest on the Secured Notes
due December 14, 1999 - - - 7,783
(Gain) loss on sale of property, plant
and equipment 11 (3) (275) 362
Changes in assets and liabilities, net of
effects of acquisitions:
Receivables (13,597) 10,725 (19,534) 3,021
Inventories (2,824) 12,891 (11,100) 2,026
Other current assets (1,167) 3,432 (1,434) (1,114)
Other assets (1,771) (405) (385) (1,145)
Current liabilities other than income
taxes, short-term obligations and
current maturities of long-term debt (7,525) (6,237) 17,210 (5,332)
Income taxes (1,280) (1,097) 1,181 (1,991)
Long-term liabilities other than
deferred income taxes (3,761) (456) (2,012) (2,093)
________ ________ ________ ________
Net cash provided by (used in)
operating activities (24,146) 15,805 (6,600) 10,087
________ ________ ________ ________
Cash Flows From Investing Activities
Payment to cash out stock options and
stock appreciation rights - (6,944) - -
Decrease in restricted funds on deposit 580 23 - 1,798
Purchases of property, plant and equipment (12,803) (2,859) (4,331) (4,996)
Proceeds from sale of property, plant
and equipment 1,428 510 1,227 1,058
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 (10,795) (193,617) (45,940) (2,140)
________ ________ ________ ________
Cash Flows From Financing Activities
Proceeds from issuance of project
financing obligations - - 5,672 5,402
Reduction of project financing obligations - (8,102) - (8,104)
Net increase (decrease) in other bank
borrowings (70) 20,837 500 (1,350)
Payment of acquisition and refinancing expenses (293) (13,426) (1,476) -
Payment of bridge loan fees - - (3,361) -
(Payment of) proceeds from bridge loan - (45,000) 45,000 -
Capital contribution - 143,030 - -
Proceeds from issuance of long-term debt 28,785 150,000 1,706 849
Payment of long-term debt (350) (65,785) - -
Proceeds from issuance of common stock 880 - - -
________ ________ ________ ________
Net cash provided by (used in)
financing activities 28,952 181,554 48,041 (3,203)
________ ________ ________ ________
Effect of exchange rate changes on cash (261) (352) 417 (131)
________ ________ ________ ________
Net increase (decrease) in cash
and cash equivalents (6,250) 3,390 (4,082) 4,613
Cash and cash equivalents at
beginning of period 15,071 11,681 15,763 11,150
________ ________ ________ ________
Cash and cash equivalents at end of period $ 8,821 $ 15,071 $ 11,681 $ 15,763
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 18,080 $ 662 $ 4,046 $ 491
Income taxes - net of refunds 3,569 587 1,218 3,246
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bucyrus International, Inc. and Subsidiaries (Continued)
(Dollars in Thousands)
Supplemental Schedule of Non-Cash Investing and Financing Activities
(A) In 1997, the Company purchased all of the common stock of Von's Welding,
Inc. In conjunction with the acquisition, liabilities were assumed as
follows:
1997
Fair value of assets acquired $ 1,979
Cash paid (908)
________
Liabilities assumed $ 1,071
(B) In 1997, the Company purchased certain assets and liabilities of the
surface mining and equipment business of Global Industrial Technologies,
Inc. In conjunction with the acquisition, liabilities were assumed as
follows:
1997
Fair value of assets acquired $ 52,406
Cash paid (36,720)
________
Liabilities assumed $ 15,686
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bucyrus International, Inc. and Subsidiaries
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
Bucyrus International, Inc. (the "Company") is a Delaware corporation
and a leading manufacturer of surface mining equipment, principally
walking draglines, electric mining shovels and blasthole drills, and
related replacement parts. Major markets for the surface mining
industry are coal mining, copper and iron ore mining, and phosphate
production.
Basis of Presentation
The consolidated financial statements as of December 31, 1998 and
1997 and for the year ended December 31, 1998 and the period
September 24, 1997 to December 31, 1997 were prepared under a basis
of accounting that reflects the fair value of the assets acquired and
liabilities assumed, and the related expenses and all debt incurred
in connection with the acquisition of the Company by American
Industrial Partners Acquisition Company, LLC ("AIPAC") on
September 24, 1997 (see Note B). The Predecessor consolidated
financial statements for 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 Company are not comparable to the Predecessor
consolidated financial statements.
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions, profits and
accounts have been eliminated.
Cash Equivalents
All highly liquid investments with maturities of three months or less
when purchased are considered to be cash equivalents. The carrying
value of these investments approximates fair value.
Restricted Funds on Deposit
Restricted funds on deposit represent cash and temporary investments
used to support the issuance of standby letters of credit and other
obligations. The carrying value of these funds approximates fair
value.
Inventories
In connection with the acquisition of the Company by AIPAC,
inventories were adjusted to estimated fair value. Inventories are
stated at lower of cost (first-in, first-out method) or market
(replacement cost or estimated net realizable value). Advances from
customers are netted against inventories to the extent of related
accumulated costs. Advances in excess of related costs and earnings
on uncompleted contracts are classified as a liability to customers.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price paid by AIPAC
for the outstanding shares of common stock of the Company over the
fair value of the net assets of the Company on the date of
acquisition and is being amortized on a straight-line basis over 30
years. Accumulated amortization was $3,174,000 and $591,000 at
December 31, 1998 and 1997, respectively.
Intangible assets were recorded at estimated fair value in connection
with the acquisition of the Company by AIPAC and consist of
engineering drawings, bill-of-material listings, software, trademarks
and tradenames which are being amortized on a straight-line basis
over 10 to 30 years. Accumulated amortization was $2,852,000 and
$628,000 at December 31, 1998 and 1997, respectively.
The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining estimated useful life of
goodwill and intangible assets may warrant revision or that the
remaining balance of each may not be recoverable. When factors
indicate that goodwill and intangible assets should be evaluated for
possible impairment, the Company uses an estimate of the undiscounted
cash flows over the remaining life of the goodwill and intangible
assets in measuring whether they are recoverable.
Property, Plant and Equipment
In connection with the acquisition of the Company by AIPAC, property,
plant and equipment were adjusted to estimated fair value.
Depreciation is provided over the estimated useful lives of
respective assets using the straight-line method for financial
reporting and accelerated methods for income tax purposes. Estimated
useful lives used for financial reporting purposes range from ten to
forty years for buildings and improvements and three to seventeen
years for machinery and equipment.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated
into U.S. dollars using year-end exchange rates. Revenues and
expenses are translated at average rates during the year.
Adjustments resulting from this translation are deferred and
reflected as a separate component of Common Shareholders' Investment.
Effective January 1, 1998, the Company no longer considers Brazil's
economy to be highly inflationary. The effect of this change on the
Company's consolidated financial statements was not material. The
Company also defers gains and losses resulting from exchange rate
changes on intercompany obligations that are considered to be of a
long-term nature and not to be repaid in the foreseeable future.
Revenue Recognition
Revenue from long-term sales contracts is recognized using the
percentage-of-completion method. At the time a loss on a contract
becomes known, the amount of the estimated loss is recognized in the
consolidated financial statements. Revenue from all other sales is
recognized as products are shipped or services are rendered.
Included in the current portion of liabilities to customers on
uncompleted contracts and warranties are advances in excess of
related costs and earnings on uncompleted contracts of $92,000 and
$3,501,000 at December 31, 1998 and 1997, respectively.
NOTE B - ACQUISITIONS
Acquisition by American Industrial Partners
On August 21, 1997, the Company entered into an Agreement and Plan of
Merger (the "AIP Agreement") with AIPAC, which is wholly-owned by
American Industrial Partners Capital Fund II, L.P. ("AIP"), and
Bucyrus Acquisition Corp. ("BAC"), a wholly-owned subsidiary of
AIPAC. On August 26, 1997, pursuant to the AIP Agreement, BAC
commenced an offer to purchase for cash 100% of the outstanding
shares of common stock of the Company at a price of $18.00 per share
(the "AIP Tender Offer"). Consummation of the AIP Tender Offer
occurred on September 24, 1997, and BAC was merged with and into the
Company on September 26, 1997 (the "AIP Merger"). The Company was
the surviving entity in the AIP Merger and is currently wholly-owned
by AIPAC. The purchase of all of the Company's outstanding shares of
common stock by AIPAC resulted in a change in control of voting
interest.
Approximately $189,622,000 was required to purchase all of the
outstanding shares of the Company's common stock. BAC received
$143,030,000 of the necessary funds to purchase the shares of the
Company's common stock as an equity contribution from AIPAC. The
remainder of the consideration required to consummate the AIP Tender
Offer and pay related expenses was funded by a bridge loan from AIPAC
to BAC, which was repaid in full on September 26, 1997.
The AIP Agreement also provided that each outstanding option to
purchase shares of the Company's common stock and each outstanding
stock appreciation right granted under the Company's Non-Employee
Directors' Stock Option Plan (the "Directors' Stock Option Plan"),
the 1996 Employees' Stock Incentive Plan (the "1996 Employees' Plan)
and any other stock-based incentive plan or arrangement of the
Company, whether or not then exercisable or vested, would be
cancelled (see Note G). In consideration of such cancellation, the
holders of such options and stock appreciation rights received for
each share subject to such option or stock appreciation right an
amount in cash equal to the excess of the offer price of $18 per
share over the per share exercise price of such option or the per
share base price of such stock appreciation right, as applicable,
multiplied by the number of shares subject to such option or stock
appreciation right. Included in nonrecurring items in the
Consolidated Statement of Operations is $6,690,000 of expense
incurred to cash out the outstanding options and stock appreciation
rights.
The acquisition of the Company by AIPAC was accounted for as a
purchase and, accordingly, the assets acquired and liabilities
assumed were adjusted to their estimated fair values. The final
allocation of the purchase price is as follows:
(Dollars in Thousands)
Working capital $ 127,232
Property, plant and equipment 100,855
Intangible assets (including
goodwill of $75,009) 120,397
Other long-term assets and liabilities (205,454)
Total cash purchase price $ 143,030
Marion Acquisition
On August 26, 1997, the Company consummated the acquisition (the
"Marion Acquisition") of certain assets and liabilities of The Marion
Power Shovel Company, a subsidiary of Global Industrial Technologies,
Inc. ("Global"), and of certain subsidiaries and divisions of Global
that represented Global's surface mining equipment business in
Australia, Canada and South Africa (collectively referred to herein
as "Marion"). The purchase price for Marion was $36,720,000, which
includes acquisition expenses of $1,695,000. The net assets acquired
and results of operations since the date of acquisition are included
in the Company's consolidated financial statements.
The Company financed the Marion Acquisition and related expenses by
utilizing an unsecured bridge loan (the "Bridge Loan") provided by a
former affiliate of the Company, in the amount of $45,000,000. The
Bridge Loan was repaid in full on September 24, 1997 with a portion
of the proceeds from the 9-3/4% Senior Notes due 2007 (see Note F).
The Bridge Loan had an interest rate of 10.625% and the total
interest expense incurred by the Company was $385,000. The Company
incurred $3,361,000 of loan fees in connection with the Bridge Loan.
The subsequent expensing of these fees when the Bridge Loan was
repaid are included in nonrecurring items in the Consolidated
Statement of Operations.
The acquisition of Marion by the Company was accounted for as a
purchase and, accordingly, the assets acquired and liabilities
assumed by the Company were recorded at their estimated fair values.
The assets acquired and liabilities assumed in the Marion Acquisition
were revalued in connection with the AIP Merger.
During 1998, the Company finalized the allocations of the purchase
prices relating to the acquisition of the Company by AIPAC and the
Marion Acquisition. The adjustments primarily related to warranty,
employee benefits and a litigation settlement and resulted in a net
increase to liabilities and goodwill of $8,488,000.
Pro Forma Results of Operations
The following unaudited pro forma results of operations assumes that
the Company had been acquired by AIPAC and the Company acquired
Marion on January 1, 1996. Such information reflects adjustments to
reflect additional interest expense and depreciation expense,
amortization of goodwill and the effects of adjustments made to the
carrying value of certain assets and liabilities.
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 (10,297) (19,438)
Net loss per share of
common stock (7.20) (13.59)
The pro forma financial information presented above is not
necessarily indicative of either the results of operations that would
have occurred had the acquisitions been effective on January 1, 1996
or of future operations of the Company.
NOTE C - RECEIVABLES
Receivables at December 31, 1998 and 1997 include $12,470,000 and
$6,186,000, 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
$918,000 and $734,000 at December 31, 1998 and 1997, respectively.
NOTE D - INVENTORIES
Inventories consist of the following:
1998 1997
(Dollars in Thousands)
Raw materials and parts $ 16,987 $ 14,896
Costs relating to
uncompleted contracts 4,503 4,861
Customers' advances offset
against costs incurred on
uncompleted contracts (2,296) (2,976)
Work in process 22,724 21,238
Finished products (primarily
replacement parts) 71,308 76,996
________ ________
$113,226 $115,015
In connection with the acquisition of the Company by AIPAC,
inventories were adjusted to estimated fair value. This adjustment
was charged to cost of products sold as the inventory was sold. At
December 31, 1997, the remaining estimated fair value adjustment
included in inventory was $6,925,000, all of which was charged to
cost of products sold in 1998. The charge to cost of products sold
in 1997 was $8,633,000.
NOTE E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
1998 1997
(Dollars in Thousands)
Trade accounts payable $ 28,407 $ 24,364
Wages and salaries 5,970 6,261
Interest 4,965 4,308
Other 15,608 16,973
________ ________
$ 54,950 $ 51,906
NOTE F - LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
1998 1997
(Dollars in Thousands)
9-3/4% Senior Notes due 2007 $150,000 $150,000
Revolving credit facility 49,950 22,215
Construction Loans at
Bucyrus International
(Chile) Limitada 2,400 2,664
Other 964 -
________ ________
203,314 174,879
Less current maturities of
long-term debt (1,006) (267)
________ ________
$202,308 $174,612
The Company has outstanding $150,000,000 of 9-3/4% Senior Notes due
2007 (the "Senior Notes") which were issued pursuant to an indenture
dated as of September 24, 1997 among the Company, certain of its
domestic subsidiaries (the "Guarantors"), and Harris Trust and
Savings Bank, as Trustee (the "Senior Notes Indenture"). The Senior
Notes mature on September 15, 2007. Interest thereon is payable each
March 15 and September 15. The Senior Notes Indenture contains
certain covenants that, among other things, limit the ability of the
Company and the Guarantors to: (i) incur additional indebtedness;
(ii) pay dividends or make other distributions with respect to
capital stock; (iii) make certain investments; (iv) sell certain
assets; (v) enter into certain transactions with affiliates; (vi)
create liens; (vii) enter into certain sale and leaseback
transactions; and (viii) enter into certain mergers and
consolidations. Such covenants are subject to important
qualifications and limitations.
The Company also entered into a 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,
1998 and 1997 were $49,950,000 and $22,215,000, respectively, at a
weighted average interest rate of 8.0% and 8.7%, respectively. The
issuance of standby letters of credit under the Revolving Credit
Facility and certain other bank facilities reduces the amount
available for direct borrowings under the Revolving Credit Facility.
At December 31, 1998 and 1997, there were $2,750,000 and $3,556,000,
respectively, 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 1998
was $43,454,000 at a weighted average interest rate of 8.6%, and the
maximum borrowing outstanding was $57,075,000. The average borrowing
under the Revolving Credit Facility during the period September 24,
1997 to December 31, 1997 was $28,512,000 at a weighted average
interest rate of 8.7%, and the maximum borrowing outstanding during
this period was $36,350,000. The amount available for direct
borrowings under the Revolving Credit Facility at December 31, 1998
was $14,988,000.
Maturities of long-term debt are the following for each of the next
five years:
(Dollars in Thousands)
1999 $ 1,006
2000 50,853
2001 787
2002 521
2003 147
At December 31, 1998, the Senior Notes were bid at 74%. Based on
this information, management believes the fair value of the Senior
Notes is approximately $111,000,000.
NOTE G - COMMON SHAREHOLDERS' INVESTMENT
On March 17, 1998, the Company's Board of Directors authorized a
stock split which increased the number of authorized shares of common
stock of the Company from 1,000 shares to 1,600,000 shares.
Simultaneous with this authorization, AIPAC cancelled 9.976% of its
interest in its 1,000 shares of common stock of the Company and
received 1,430,300 shares for their remaining interest (the "Stock
Split"). Subsequently, the Company's Board of Directors increased
the number of authorized shares of common stock of the Company to
1,700,000 shares. Also in 1998, certain members of management of the
Company purchased 12,800 shares of common stock of the Company which
increased the number of issued and outstanding common shares to
1,443,100 at December 31, 1998.
In 1998, the Company's Board of Directors adopted the Bucyrus
International, Inc. 1998 Management Stock Option Plan (the "1998
Option Plan") which authorizes the granting of stock options to key
employees for up to a total of 200,000 shares of common stock of the
Company at exercise prices to be determined in accordance with the
provisions of the 1998 Option Plan. Options granted under the 1998
Option Plan are targeted to vest on the last day of the plan year at
the rate of 25% of the aggregate number of shares of common stock
underlying each series of options per year, provided that the Company
attains specified EBITDA targets. In the event that the EBITDA
target is not attained in any plan year, the options scheduled to
vest at the end of that plan year will vest according to a pro rata
schedule set forth in the 1998 Option Plan. Notwithstanding the
foregoing, all options granted under the 1998 Option Plan shall vest
automatically on the ninth anniversary of the date of the grant,
regardless of performance criteria, and expire and terminate no later
than ten years after the date of grant.
The following table sets forth the activity and outstanding balances
of options exercisable for shares of common stock under the 1998
Option Plan:
Options Available For
Outstanding Future Grants
At plan inception - 150,400
Increase in shares available
for future grants - 49,600
Granted on March 17, 1998
($100 per share) 115,850 (115,850)
Granted on July 31, 1998
($100 per share) 3,350 (3,350)
Granted on December 21, 1998
($100 per share) 59,767 (59,767)
Options forfeited
($100 per share) (2,900) 2,900
_______ _______
Balances at December 31, 1998 176,067 23,933
At December 31, 1998, none of the options outstanding were vested.
The options had a weighted average remaining contractual life of 9.5
years.
In 1995, the Company's Board of Directors adopted the Directors'
Stock Option Plan. As discussed in Note B, options granted under the
Directors' Stock Option Plan were cancelled upon the acquisition of
the Company by AIPAC. The Directors' Stock Option Plan provided for
the automatic grant of non-qualified stock options to non-employee
members of the Board of Directors for up to 60,000 shares of the
Company's common stock at an exercise price based on the last sale
price of the common stock on the date of grant. The following table
sets forth the activity and outstanding balances of options
exercisable for shares of common stock under the Directors' Stock
Option Plan:
Options Available For
Outstanding Future Grants
Balances at January 1, 1996 8,000 52,000
Granted on February 8, 1996
($9.25 per share) 8,000 (8,000)
Granted on March 11, 1996
($9.00 per share) 4,000 (4,000)
_______ _______
Balances at December 31, 1996
($6.00 - $9.25 per share) 20,000 40,000
Granted on February 5, 1997
($7.50 per share) 12,000 (12,000)
Granted on April 30, 1997
($9.375 per share) 2,000 (2,000)
Cashed out pursuant to the
acquisition of the Company
by AIPAC (34,000) -
Cancelled pursuant to the
acquisition of the Company
by AIPAC - (26,000)
_______ _______
Balances at December 31, 1997 - -
At December 31, 1996, all of the options outstanding were exercisable
at a weighted average exercise price of $7.90 per share and had a
weighted average remaining contractual life of 8.7 years. The
weighted average exercise price of options granted in 1996 was $9.17
per share.
In 1996, the Company's Board of Directors adopted the 1996 Employees'
Plan. As discussed in Note B, options and stock appreciation rights
granted under the 1996 Employees' Plan were cancelled upon the
acquisition of the Company by AIPAC. The 1996 Employees' Plan
authorized the granting to key employees of: (a) stock options, which
may be either incentive stock options or non-qualified stock options,
at an exercise price per share not less than 55% of the fair market
value of the Company's common stock on the date of grant; (b) stock
appreciation rights at a grant price of not less than 100% of the
fair market value of the Company's common stock on the date of grant;
(c) restricted stock; and (d) performance shares. The 1996
Employees' Plan provided that up to a total of 1,000,000 shares of
the Company's common stock, subject to adjustment under plan
provisions, would be available for the granting of awards thereunder.
The following table sets forth the activity and outstanding balances
of grants under the 1996 Employees' Plan:
Available For
Granted Future Grants
At plan inception - 1,000,000
Non-qualified stock options
granted on March 11, 1996
($5.0875 per share) 200,000 (200,000)
Restricted stock granted on
March 11, 1996 300,000 (300,000)
Non-qualified stock options
granted on November 7, 1996
($8.75 per share) 30,000 (30,000)
Stock appreciation rights
granted on November 7, 1996
($8.75 per share) 50,000 (50,000)
_______ _________
Balances at December 31, 1996 580,000 420,000
Non-qualified stock options
granted on February 5, 1997
($7.50 per share) 323,000 (323,000)
Options forfeited ($7.50
per share) (11,000) 11,000
Non-qualified stock options and
stock appreciation rights
cashed out pursuant to the
acquisition of the Company
by AIPAC (592,000) -
Lapse of restrictions on
restricted stock (33,333) -
Restricted stock purchased
pursuant to the acquisition
of the Company by AIPAC (266,667) -
Cancelled pursuant to the
acquisition of the Company
by AIPAC - (108,000)
_______ _________
Balances at December 31, 1997 - -
At December 31, 1996, options for 200,000 shares were exercisable at
an exercise price of $5.0875 per share. The weighted average
exercise price of the options granted in 1996 was $5.57 per share.
The weighted average remaining contractual life of the options at
December 31, 1996 was 9.3 years. The remaining contractual life of
the stock appreciation rights at December 31, 1996 was 9.8 years.
Certain grants under the 1996 Employees' Plan resulted in additional
compensation expense to the Company. Stock compensation expense
recognized for the years ended December 31, 1997 and 1996 was
$677,000 and $668,000, respectively.
The Company accounted for the 1998 Option Plan, the Directors' Stock
Option Plan and the 1996 Employees' Plan in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," as allowed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Had compensation expense for these plans been determined
consistent with SFAS 123, the Company's net earnings (loss) and net
earnings (loss) per share would have been reduced to the following
pro forma amounts:
Predecessor
Year Ended September 24- January 1 - Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
(Dollars in Thousands,
Except Per Share Amounts)
Net earnings
(loss):
As reported $ (8,264) $ (7,158) $ (4,874) $ 2,878
Pro forma (8,698) (7,158) (4,648) 2,688
Net earnings
(loss) per
share of
common stock:
Basic
As reported (5.75) (5.00) (.48) .28
Pro forma (6.05) (5.00) (.45) .26
Diluted
As reported (5.75) (5.00) (.47) .28
Pro forma (6.05) (5.00) (.45) .26
In 1997, the fair value of stock options granted under the Directors'
Stock Option Plan and the 1996 Employees' Plan was equal to the cash
paid for each outstanding stock option in the AIP Tender Offer.
The weighted average grant date fair value of stock options granted
in 1998 under the 1998 Option Plan was $76 per option. The exercise
price of these stock options was equal to the fair value of the
common stock on the date of grant. The fair value was established by
the Company's Board of Directors as the price for which the Company
will buy or sell its common stock. The weighted average grant-date
fair value of stock options granted in 1996 and 1995 under the
Directors' Stock Option Plan was $4.93 and $4.44 per option,
respectively. The weighted average grant-date fair value of stock
options granted under the 1996 Employees' Plan whose exercise price
was less than the market price of the Company's common stock on the
date of grant was $6.55 per option. The weighted average grant-date
fair value of stock options granted under the 1996 Employees' Plan
whose exercise price was equal to the market price of the Company's
common stock on the date of grant was $6.00 per option. The grant-
date fair value of the restricted stock was $9.00 per share. The
grant-date fair value of the stock appreciation rights was $6.00 per
right. The fair value of grants was estimated on the date of grant
using the minimum value method in 1998 and the Black-Scholes option
pricing model in 1996 and 1995 with the following weighted average
assumptions:
1998 Directors' 1996
Option Plan Stock Option Plan Employees' Plan
1998 1996 1995 1996
Risk-free interest rate 5.5% 6.48% 6.41% 6.34%
Expected dividend yield 0% 0% 0% 0%
Expected life 5 years 7 years 7 years 5.6 years
Calculated volatility N/A 67.07% 73.92% 66.10%
NOTE H - INCOME TAXES
Deferred taxes are provided to reflect temporary differences between
the financial and tax basis of assets and liabilities using presently
enacted tax rates and laws. A valuation allowance is recognized if
it is more likely than not that some or all of the deferred tax
assets will not be realized.
Earnings (loss) before income taxes consists of the following:
Predecessor
Year Ended September 24- January 1 - Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
(Dollars in Thousands)
United States $ (8,132) $ (5,038) $ (8,876) $ 232
Foreign 2,271 (2,403) 6,643 4,404
_________ _________ _________ _________
Total $ (5,861) $ (7,441) $ (2,233) $ 4,636
The provision for income tax expense (benefit) consists of the
following:
Predecessor
Year Ended September 24- January 1 - Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
(Dollars in Thousands)
Foreign income taxes:
Current $ 3,387 $ 1,010 $ 2,697 $ 1,902
Deferred (1,119) (1,343) 6 (430)
_________ _________ _________ _________
Total 2,268 (333) 2,703 1,472
_________ _________ _________ _________
Other (state and
local taxes):
Current 135 50 (62) 274
Deferred - - - 12
_________ _________ _________ _________
Total 135 50 (62) 286
_________ _________ _________ _________
Total income
tax expense
(benefit) $ 2,403 $ (283) $ 2,641 $ 1,758
Total income tax expense (benefit) differs from amounts expected by
applying the Federal statutory income tax rate to earnings (loss)
before income taxes as set forth in the following table:
Predecessor
Year Ended September 24- January 1- Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
Tax Tax Tax Tax
Expense Expense Expense Expense
(Benefit) Percent (Benefit) Percent (Benefit) Percent (Benefit) Percent
(Dollars in Thousands)
Tax expense (benefit)
at Federal statutory
rate $ (2,051) (35.0)% $ (2,604) (35.0)% $ (782) (35.0)% $ 1,622 35.0%
Valuation allowance
adjustments 531 9.1 1,681 22.6 2,761 123.6 (81) (1.7)
Impact of foreign
subsidiary income,
tax rates and tax
credits 2,925 49.9 425 5.7 616 27.6 7 .2
State income taxes
net of Federal
income tax benefit 20 .3 (14) (.2) (11) (.5) 136 2.9
Nondeductible
goodwill
amortization 904 15.4 207 2.8 - - - -
Other items 74 1.3 22 .3 57 2.6 74 1.5
________ ______ ________ ______ ________ ______ ________ ______
Total income
tax expense (benefit) $ 2,403 41.0% $ (283) (3.8)% $ 2,641 118.3% $ 1,758 37.9%
Significant components of deferred tax assets and deferred tax
liabilities are as follows:
December 31,
1998 1997
(Dollars in Thousands)
Deferred tax assets:
Postretirement benefits $ 5,966 $ 6,805
Inventory valuation
provisions 7,183 1,836
Accrued and other
liabilities 9,480 9,614
Research and development
expenditures 7,688 8,436
Tax loss carryforward 31,265 28,392
Tax credit carryforward 479 479
Other items 229 314
__________ __________
Total deferred tax assets 62,290 55,876
Deferred tax liabilities:
Excess of book basis over
tax basis of property,
plant and equipment and
intangible assets (40,046) (43,682)
Legal settlement (1,970) -
Valuation allowance (17,994) (11,033)
__________ __________
Net deferred tax asset $ 2,280 $ 1,161
The classification of the net deferred tax assets and liabilities is
as follows:
December 31,
1998 1997
(Dollars in Thousands)
Current deferred tax asset $ 1,577 $ 1,095
Long-term deferred tax asset 962 96
Current deferred tax liability (60) (28)
Long-term deferred tax
liability (199) (2)
__________ __________
Net deferred tax asset $ 2,280 $ 1,161
Due to the recent history of domestic net operating losses, a
valuation allowance has been used to reduce the net deferred tax
assets (after giving effect to deferred tax liabilities) for domestic
operations to an amount that is more likely than not to be realized.
In conjunction with the application of the purchase method of
accounting for the 1997 acquisition of the Company by AIPAC, assets
and liabilities were adjusted to estimated fair value for book
purposes, but there were no changes in tax basis. In 1998, the
valuation allowance increased by $6,961,000. The increase was
primarily the result of final purchase adjustments to the fair value
of assets and liabilities.
As of December 31, 1998, the Company has available approximately
$78,100,000 of federal net operating loss carryforwards ("NOL") from
the years 1988 through 1998, expiring in the years 2003 through 2018,
to offset against future federal taxable income. Because both the
1997 acquisition of the Company by AIPAC and the 1994 consummation of
the Second Amended Joint Plan of Reorganization of B-E Holdings, Inc.
and the Company as modified on December 1, 1994 (the "Amended Plan")
resulted in an "ownership change" within the meaning of Section 382
of the Internal Revenue Code, the use of the majority of such NOL is
subject to certain annual limitations. The total NOL available to
offset federal taxable income in 1999 is approximately $24,800,000.
Additionally, the Company has available for federal income tax
purposes approximately $479,000 of alternative minimum tax credit
carryforward which carries forward indefinitely. However, because
the credit arose prior to the effective date of the Amended Plan, it
will be subject to the annual limitations discussed above and will
not be usable until the year 2010.
The Company also has a significant amount of state NOL's (which
expire in the years 1999 through 2013) available to offset future
state taxable income in states where it has significant operations.
Since the majority of states in which the Company files its state
returns follow rules similar to federal rules, it is expected that
the usage of state NOL's will be limited to approximately
$65,800,000.
Cumulative undistributed earnings of foreign subsidiaries that are
considered to be permanently reinvested, and on which U.S. income
taxes have not been provided by the Company, amounted to
approximately $21,900,000 at December 31, 1998. It is not
practicable to estimate the amount of additional tax which would be
payable upon repatriation of such earnings; however, due to foreign
tax credit limitations, higher effective U.S. income tax rates and
foreign withholding taxes, additional taxes could be incurred.
NOTE I - PENSION AND RETIREMENT PLANS
The Company has several pension and retirement plans covering
substantially all employees. The following tables set forth the
domestic plans' funded status and amounts recognized in the
consolidated financial statements at December 31, 1998 and 1997:
Years Ended December 31,
1998 1997
(Dollars in Thousands)
Change in benefit obligation:
Benefit obligation at
beginning of year $ 72,004 $ 67,237
Service cost 1,883 1,750
Interest cost 5,058 4,929
Amendments 94 2,408
Settlements - (63)
Curtailments - (36)
Actuarial loss 3,265 1,014
Benefits paid (5,085) (5,235)
________ ________
Benefit obligation
at end of year 77,219 72,004
________ ________
Years Ended December 31,
1998 1997
(Dollars in Thousands)
Change in plan assets:
Fair value of plan assets
at beginning of year 68,950 63,718
Actual return on plan assets 4,316 9,700
Employer contributions 1,901 767
Benefits paid (5,085) (5,235)
________ ________
Fair value of plan assets
at end of year 70,082 68,950
________ ________
Net amount recognized:
Funded status (7,137) (3,054)
Unrecognized net
actuarial loss 6,927 1,991
________ ________
Net pension liability $ (210) $ (1,063)
Amounts recognized in
consolidated balance
sheets:
Prepaid benefit costs $ 3,599 $ 5,558
Accrued benefit liabilities (3,809) (6,621)
________ ________
Net pension liability $ (210) $ (1,063)
Weighted-average assumptions
at end of year:
Discount rate 6.875% 7.25%
Expected return on
plan assets 9% 9%
Rate of compensation
increase 4.5% to 5% 4.5% to 5%
Predecessor
Year Ended September 24- January 1- Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
(Dollars in Thousands)
Components of
net periodic
benefit cost:
Service cost $ 1,883 $ 486 $ 1,264 $ 1,554
Interest cost 5,058 1,355 3,574 4,431
Expected return
on plan assets (5,987) (1,599) (8,101) (7,697)
Recognized net
actuarial
loss - - 4,170 2,527
________ ________ ________ ________
Total benefit
cost $ 954 $ 242 $ 907 $ 815
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $26,729,000,
$19,833,000 and $19,575,000, respectively, at December 31, 1998.
These amounts were $20,537,000, $13,483,000 and $13,076,000,
respectively, at December 31, 1997.
The Company has 401(k) Savings Plans available to substantially all
United States employees. Matching employer contributions are made in
accordance with plan provisions subject to certain limitations.
Matching employer contributions made were $972,000, $862,000
(including $626,000 for the Predecessor) in 1997 and $801,000 in
1996.
NOTE J - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care benefits to age 65 and life
insurance benefits for certain eligible retired United States
employees. Substantially all current employees may become eligible
for those benefits if they reach early retirement age while working
for the Company. The majority of the costs of such benefits are
funded as they are incurred.
The following table sets forth the plan's status and amounts
recognized in the consolidated financial statements at December 31,
1998 and 1997:
Years Ended December 31,
1998 1997
(Dollars in Thousands)
Change in benefit obligation:
Benefit obligation at
beginning of year $ 16,645 $ 14,869
Service cost 410 426
Interest cost 1,008 1,089
Plan participants'
contributions 82 68
Amendments (2,542) -
Effect of Marion Acquisition - 296
Net actuarial loss 1,159 1,906
Benefits paid (1,843) (2,009)
________ ________
Benefit obligation
at end of year 14,919 16,645
________ ________
Change in plan assets:
Fair value of plan assets
at beginning of year - -
Actual return on plan assets - -
Employer contributions 1,761 1,941
Plan participants'
contributions 82 68
Benefits paid (1,843) (2,009)
________ ________
Fair value of plan assets
at end of year - -
________ ________
Net amount recognized:
Funded status (14,919) (16,645)
Unrecognized net
actuarial loss 1,429 270
Unrecognized prior
service cost (2,358) -
________ ________
Accrued postretirement
benefit liability $(15,848) $(16,375)
Weighted-average assumptions
at end of year:
Discount rate 6.875% 7.25%
Expected return on
plan assets n/a n/a
Rate of compensation
increase n/a n/a
For measurement purposes, an 8% gross health care trend rate was used
for benefits for 1999. Trend rates were assumed to decrease
gradually to 5% in 2002 and remain at that level thereafter.
Predecessor
Year Ended September 24- January 1- Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
(Dollars in Thousands)
Components of
net periodic
benefit cost:
Service cost $ 410 $ 124 $ 302 $ 323
Interest cost 1,008 316 774 1,039
Recognized net
actuarial
loss - - 41 -
Amortization
of prior
service cost (184) - - -
________ ________ ________ ________
Net periodic
benefit cost $ 1,234 $ 440 $ 1,117 $ 1,362
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage point
change in assumed health care cost trend rates would have the
following effects:
One Percentage One Percentage
Point Increase Point Decrease
(Dollars in Thousands)
Effect on total of service
and interest cost components $ 123 $ (106)
Effect on postretirement
benefit obligation 1,001 (885)
NOTE K - RESEARCH AND DEVELOPMENT
Expenditures for design and development of new products and
improvements of existing mining machinery products, including
overhead, aggregated $8,247,000 in 1998, $7,384,000 (including
$5,043,000 for the Predecessor) in 1997 and $6,930,000 in 1996. All
engineering and product development costs are charged to engineering
and field service expense as incurred.
NOTE L - CALCULATION OF NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Basic net earnings per share of common stock were computed by
dividing net earnings (loss) by the weighted average number of shares
of common stock outstanding. Diluted net earnings (loss) per share
of common stock were calculated after giving effect to dilutive
securities. The following is a reconciliation of the numerators and
the denominators of the basic and diluted net earnings (loss) per
share of common stock calculations:
Predecessor
Year Ended September 24- January 1- Year Ended
December 31, December 31, September 23, December 31,
1998 1997 1997 1996
(Dollars in Thousands,
Except Per Share Amounts)
Basic
Net earnings
(loss) $ (8,264) $ (7,158) $ (4,874) $ 2,878
Weighted
average shares
outstanding 1,436,648 1,430,300 10,259,260 10,234,574
Net earnings
(loss) per
share $ (5.75) $ (5.00) $ (.48) $ .28
Diluted
Net earnings
(loss) $ (8,264) $ (7,158) $ (4,874) $ 2,878
Weighted
average shares
outstanding -
basic 1,436,648 1,430,300 10,259,260 10,234,574
Effect of dilutive
securities -
stock options,
stock appreciation
rights and
restricted
stock - - 174,840 28,070
__________ __________ __________ __________
Weighted
average shares
outstanding -
diluted 1,436,648 1,430,300 10,434,100 10,262,644
Net earnings
(loss) per
share $ (5.75) $ (5.00) $ (.47) $ .28
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
the 1,430,300 shares now owned by AIPAC as a result of the Stock
Split (see Note G).
NOTE M - SEGMENT AND GEOGRAPHICAL INFORMATION
The Company designs, manufactures and markets large excavation
machinery used for surface mining and supplies replacement parts and
services for such machines. The Company manufactures its machines
and replacement parts at one location. There is no significant
difference in the production process for machines and replacement
parts. The Company's products are sold primarily to large companies
and quasi-governmental entities engaged in the mining of coal, iron
ore and copper throughout the world. New equipment and replacement
parts and services are sold in North America primarily by Company
personnel and through independent distributors and its domestic
subsidiaries, and overseas by Company personnel and through
independent distributors and the Company's foreign subsidiaries and
offices.
Due to the relatively low number of new machines sold each year, the
profitability of each machine sale is evaluated on an order by order
basis with specific margin goals being established prior to the sale
of the machine. Historically, there has been very little variance
between the estimated margin on a machine sale and the actual margin
achieved. The sales of replacement parts and services occur on a
consistent basis throughout the year. The gross margins on
replacement parts and service sales are regularly reviewed by the
Company's chief operating decision maker to assess performance. Over
the past several years, the sale of replacement parts and services
has accounted for approximately two-thirds of the Company's annual
net sales. Operating expenses and assets are managed on a macro
basis and are not allocated to machines or replacement parts and
services as part of performance assessment.
Based on the above, the Company's operations are classified as one
operating segment.
The following table summarizes the Company's net sales:
Years Ended December 31,
1998 1997 1996
(Dollars in Thousands)
Machines $107,268 $108,425 $107,396
Parts and services 208,570 198,252 156,390
________ ________ ________
$315,838 $306,677 $263,786
Financial information by geographical area is set forth in the
following table. Each geographic area represents the origin of the
financial information. Long-lived assets of subsidiaries are those
related to the operations of those subsidiaries. United States
assets consist of all other long-lived assets.
Sales to
External Long-Lived
Customers Assets
(Dollars in Thousands)
1998
United States $170,605 $ 90,181
South America 36,260 7,451
Australia, Far East and
South Africa 89,571 2,124
Other Foreign 19,402 874
________ ________
$315,838 $100,630
1997
United States $183,995 $ 86,780
South America 31,057 7,894
Australia, Far East and
South Africa 68,177 2,523
Other Foreign 23,448 427
________ ________
$306,677 $ 97,624
1996
United States $175,675 $ 28,179
South America 27,602 4,676
Australia, Far East and
South Africa 40,896 1,315
Other Foreign 19,613 1,857
________ ________
$263,786 $ 36,027
In 1998 and 1997, one customer accounted for approximately 19% and
14%, respectively, of the Company's consolidated net sales. In 1996,
a different customer accounted for approximately 14% of the Company's
consolidated net sales. The Company is not dependent upon any one
customer.
NOTE N - COMMITMENTS, CONTINGENCIES AND CREDIT RISKS
Joint Prosecution
On September 25, 1997, the Company and Jackson National Life
Insurance Company ("JNL") commenced an action against Milbank, Tweed,
Hadley & McCloy ("Milbank") in the Milwaukee County Circuit Court
(the "Milwaukee Action"). The Company sought damages against Milbank
arising out of Milbank's alleged malpractice, breach of fiduciary
duty, common law fraud, breach of contract, unjust enrichment and
breach of the obligation of good faith and fair dealing. JNL sought
damages against Milbank arising out of Milbank's alleged tortious
interference with contractual relations, abuse of process and common
law fraud. On December 31, 1998, the Company and JNL settled the
Milwaukee Action, which was thereafter dismissed by the agreement of
the parties on February 24, 1999. The amounts to be received by the
Company in connection with the settlement of the Milwaukee Action are
included in Other Income in the Consolidated Statements of
Operations.
West Machine and Tool Works
On September 23, 1997, Minserco, Inc. ("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
disputed the Findings of Fact and Conclusions of Law entered by the
Texas Court and had 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. On June 19, 1998, the Company and Minserco settled the
Minserco Litigation, and all claims against either the Company or
Minserco were dismissed with prejudice.
Environmental
Expenditures for ongoing compliance with environmental regulations
that relate to current operations are expensed or capitalized as
appropriate. Expenditures that relate to an existing condition
caused by past operations and which do not contribute to current or
future revenue generation are expensed. Liabilities are recorded
when environmental assessments indicate that remedial efforts are
probable and the costs can be reasonably estimated. Estimates of the
liability are based upon currently available facts, existing
technology and presently enacted laws and regulations. These
liabilities are included in the Consolidated Balance Sheets at their
undiscounted amounts. Recoveries are evaluated separately from the
liability and, if appropriate, are recorded separately from the
associated liability in the Consolidated Balance Sheets.
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.
Other Litigation
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.
Commitments
The Company has obligations under various operating leases and rental
and service agreements. The expense relating to these agreements was
$7,157,000 in 1998, $7,240,000 (including $5,157,000 for the
Predecessor) in 1997 and $5,658,000 in 1996. Future minimum annual
payments under noncancellable agreements are as follows:
(Dollars in Thousands)
1999 $ 4,130
2000 3,958
2001 3,746
2002 3,204
2003 2,757
After 2003 4,223
$ 22,018
Credit Risks
A significant portion of the Company's consolidated net sales are to
customers whose activities are related to the coal, copper and iron
ore mining industries, including some who are located in foreign
countries. The Company generally extends credit to these customers
and, therefore, collection of receivables may be affected by the
mining industry economy and the economic conditions in the countries
where the customers are located. However, the Company closely
monitors extension of credit and has not experienced significant
credit losses. Also, most foreign sales are made to large, well-
established companies. The Company generally requires collateral or
guarantees on foreign sales to smaller companies.
NOTE O - QUARTERLY RESULTS - UNAUDITED
Quarterly results are as follows:
Quarters Ended at End of
March June September December
(Dollars in Thousands,
Except Per Share Amounts)
Net sales:
1998 $ 73,700 $ 80,041 $ 76,149 $ 85,948
1997 - - 10,429 84,783
1997 - Predecessor 59,886 83,876 67,703 -
Gross profit(1):
1998 $ 7,119 $ 16,503 $ 15,412 $ 13,593
1997 - - 2,992 6,991
1997 - Predecessor 11,881 15,620 12,449 -
Net earnings (loss)(1):
1998 $ (9,069) $ (293) $ (868) $ 1,966
1997 - - 1,269 (8,427)
1997 - Predecessor(2) 915 2,508 (8,297) -
Basic net earnings (loss)
per common share(1):
1998 $ (6.33) $ (.20) $ (.60) $ 1.37
1997 - - .89 (5.89)
1997 - Predecessor .09 .24 (.81) -
Diluted net earnings (loss)
per common share(1):
1998 $ (6.33) $ (.20) $ (.60) $ 1.37
1997 - - .89 (5.89)
1997 - Predecessor .09 .24 (.78) -
Weighted average shares
outstanding - basic
(in thousands):
1998 1,432 1,438 1,438 1,439
1997 - - 1,430 1,430
1997 - Predecessor 10,242 10,268 10,268 -
Weighted average shares
outstanding - diluted
(in thousands):
1998 1,432 1,438 1,438 1,439
1997 - - 1,430 1,430
1997 - Predecessor 10,283 10,407 10,623 -
(1) Due to the acquisition of the Company by AIPAC, the results of the
Company are not comparable to the results of the Predecessor.
(2) Included in the Predecessor net loss for the period ended September 23,
1997 were $10,051,000 of nonrecurring items. See Note B.
NOTE P - SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION
The Company's payment obligations under the Senior Notes are
guaranteed by certain of the Company's wholly-owned subsidiaries (the
"Guarantor Subsidiaries"). Such guarantees are full, unconditional
and joint and several. Separate financial statements of the
Guarantor Subsidiaries are not presented because the Company's
management has determined that they would not be material to
investors. The following supplemental financial information sets
forth, on an unconsolidated basis, statement of operations, balance
sheet and statement of cash flow information for the Company (the
"Parent Company"), for the Guarantor Subsidiaries and for the
Company's non-guarantor subsidiaries (the "Other Subsidiaries"). The
supplemental financial information reflects the investments of the
Company in the Guarantor and Other Subsidiaries using the equity
method of accounting. Parent Company amounts for net earnings (loss)
and common shareholders' investment differ from consolidated amounts
as intercompany profit in subsidiary inventory has not been
eliminated in the Parent Company statement but has been eliminated in
the Consolidated Totals.
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Operations
For the Year Ended December 31, 1998
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
Revenues:
Net sales $206,633 $ 35,444 $145,468 $(71,707) $315,838
Other income 9,100 3 954 (3,353) 6,704
________ ________ ________ ________ ________
215,733 35,447 146,422 (75,060) 322,542
________ ________ ________ ________ ________
Costs and Expenses:
Cost of products sold 177,511 31,550 124,619 (70,469) 263,211
Engineering and field
service, selling,
administrative
and miscellaneous
expenses 29,673 1,939 14,720 - 46,332
Interest expense 18,503 728 2,982 (3,353) 18,860
________ ________ ________ ________ ________
225,687 34,217 142,321 (73,822) 328,403
________ ________ ________ ________ ________
Earnings (loss) before
income taxes and equity
in net earnings of
consolidated subsidiaries (9,954) 1,230 4,101 (1,238) (5,861)
Income taxes 38 492 1,873 - 2,403
________ ________ ________ ________ ________
Earnings (loss) before
equity in net earnings of
consolidated subsidiaries (9,992) 738 2,228 (1,238) (8,264)
Equity in net earnings of
consolidated subsidiaries 2,966 - - (2,966) -
________ ________ ________ ________ ________
Net earnings (loss) $ (7,026) $ 738 $ 2,228 $ (4,204) $ (8,264)
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Operations
For the Period September 24, 1997 to December 31, 1997
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
Revenues:
Net sales $ 64,060 $ 8,047 $ 38,196 $(15,091) $ 95,212
Other income 890 - 242 (786) 346
________ ________ ________ ________ ________
64,950 8,047 38,438 (15,877) 95,558
________ ________ ________ ________ ________
Costs and Expenses:
Cost of products sold 58,115 7,057 35,530 (15,473) 85,229
Engineering and field
service, selling,
administrative
and miscellaneous
expenses 7,759 621 4,473 - 12,853
Interest expense 4,840 92 771 (786) 4,917
________ ________ ________ ________ ________
70,714 7,770 40,774 (16,259) 102,999
________ ________ ________ ________ ________
Earnings (loss) before
income taxes and equity
in net earnings (loss) of
consolidated subsidiaries (5,764) 277 (2,336) 382 (7,441)
Income taxes (benefit) 73 111 (467) - (283)
________ ________ ________ ________ ________
Earnings (loss) before equity
in net earnings (loss) of
consolidated subsidiaries (5,837) 166 (1,869) 382 (7,158)
Equity in net earnings
(loss) of consolidated
subsidiaries (1,703) - - 1,703 -
________ ________ ________ ________ ________
Net earnings (loss) $ (7,540) $ 166 $ (1,869) $ 2,085 $ (7,158)
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Operations
For the Period January 1, 1997 to September 23, 1997 - Predecessor
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
Revenues:
Net sales $126,962 $ 23,836 $ 84,658 $(23,991) $211,465
Other income 1,696 1 274 (682) 1,289
________ ________ ________ ________ ________
128,658 23,837 84,932 (24,673) 212,754
________ ________ ________ ________ ________
Costs and Expenses:
Cost of products sold 107,735 20,240 67,278 (23,738) 171,515
Engineering and field
service, selling,
administrative
and miscellaneous
expenses 16,190 1,871 9,024 30 27,115
Interest expense 5,818 248 922 (682) 6,306
Nonrecurring items 10,051 - - - 10,051
________ ________ ________ ________ ________
139,794 22,359 77,224 (24,390) 214,987
________ ________ ________ ________ ________
Earnings (loss) before
income taxes and equity
in net earnings of
consolidated subsidiaries (11,136) 1,478 7,708 (283) (2,233)
Income taxes (benefit) (412) 576 2,477 - 2,641
________ ________ ________ ________ ________
Earnings (loss) before
equity in net earnings of
consolidated subsidiaries (10,724) 902 5,231 (283) (4,874)
Equity in net earnings of
consolidated subsidiaries 6,133 - - (6,133) -
________ ________ ________ ________ ________
Net earnings (loss) $ (4,591) $ 902 $ 5,231 $ (6,416) $ (4,874)
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Operations
For the Year Ended December 31, 1996 - Predecessor
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
Revenues:
Net sales $174,677 $ 32,235 $ 88,232 $(31,358) $263,786
Other income 1,531 1 582 (1,111) 1,003
________ ________ ________ ________ ________
176,208 32,236 88,814 (32,469) 264,789
________ ________ ________ ________ ________
Costs and Expenses:
Cost of products sold 149,383 27,308 70,133 (31,698) 215,126
Engineering and field
service, selling,
administrative
and miscellaneous
expenses 21,220 1,967 13,266 17 36,470
Interest expense 8,384 433 851 (1,111) 8,557
________ ________ ________ ________ ________
178,987 29,708 84,250 (32,792) 260,153
________ ________ ________ ________ ________
Earnings (loss) before
income taxes and equity
in net earnings of
consolidated subsidiaries (2,779) 2,528 4,564 323 4,636
Income taxes (benefit) (401) 985 1,174 - 1,758
________ ________ ________ ________ ________
Earnings (loss) before
equity in net earnings of
consolidated subsidiaries (2,378) 1,543 3,390 323 2,878
Equity in net earnings of
consolidated subsidiaries 4,933 - - (4,933) -
________ ________ ________ ________ ________
Net earnings (loss) $ 2,555 $ 1,543 $ 3,390 $ (4,610) $ 2,878
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Balance Sheets
December 31, 1998
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 60 $ 8,761 $ - $ 8,821
Receivables 32,414 3,926 25,387 - 61,727
Intercompany receivables 77,179 1,855 1,365 (80,399) -
Inventories 67,052 4,728 43,056 (1,610) 113,226
Prepaid expenses and
other current assets 763 596 5,022 - 6,381
________ ________ ________ _________ ________
Total Current Assets 177,408 11,165 83,591 (82,009) 190,155
OTHER ASSETS:
Restricted funds on deposit - - 476 - 476
Goodwill 71,835 - - - 71,835
Intangible assets - net 42,441 132 - - 42,573
Other assets 9,556 - 1,970 - 11,526
Investment in subsidiaries 25,725 - - (25,725) -
________ ________ ________ _________ ________
149,557 132 2,446 (25,725) 126,410
PROPERTY, PLANT AND
EQUIPMENT - net 75,286 14,894 10,450 - 100,630
________ ________ ________ _________ ________
$402,251 $ 26,191 $ 96,487 $(107,734) $417,195
LIABILITIES AND COMMON
SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 42,501 $ 1,597 $ 11,185 $ (333) $ 54,950
Intercompany payables - 22,906 54,808 (77,714) -
Liabilities to customers
on uncompleted contracts
and warranties 2,526 - 642 - 3,168
Income taxes 186 28 736 - 950
Short-term obligations 513 - - - 513
Current maturities of
long-term debt 168 - 838 - 1,006
________ ________ ________ _________ ________
Total Current Liabilities 45,894 24,531 68,209 (78,047) 60,587
LONG-TERM LIABILITIES:
Liabilities to customers
on uncompleted contracts
and warranties 4,839 - 575 - 5,414
Postretirement benefits 13,645 - 543 - 14,188
Deferred expenses and other 13,052 206 1,327 - 14,585
________ ________ ________ _________ ________
31,536 206 2,445 - 34,187
LONG-TERM DEBT, less
current maturities 200,746 - 1,562 - 202,308
COMMON SHAREHOLDERS'
INVESTMENT 124,075 1,454 24,271 (29,687) 120,113
________ ________ ________ _________ ________
$402,251 $ 26,191 $ 96,487 $(107,734) $417,195
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Balance Sheets
December 31, 1997
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 103 $ 14,968 $ - $ 15,071
Receivables 27,583 3,695 18,856 (691) 49,443
Intercompany receivables 53,751 1,763 847 (56,361) -
Inventories 67,958 1,890 46,888 (1,721) 115,015
Prepaid expenses and
other current assets 978 354 3,164 - 4,496
________ ________ ________ ________ ________
Total Current Assets 150,270 7,805 84,723 (58,773) 184,025
OTHER ASSETS:
Restricted funds on deposit - - 1,056 - 1,056
Goodwill 65,929 - - - 65,929
Intangible assets - net 44,570 226 - - 44,796
Other assets 10,101 33 2,543 - 12,677
Investment in subsidiaries 34,093 - - (34,093) -
________ ________ ________ ________ ________
154,693 259 3,599 (34,093) 124,458
PROPERTY, PLANT AND
EQUIPMENT - net 83,218 3,563 10,843 - 97,624
________ ________ ________ ________ ________
$388,181 $ 11,627 $ 99,165 $(92,866) $406,107
LIABILITIES AND COMMON
SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 38,858 $ 2,362 $ 10,550 $ 136 $ 51,906
Intercompany payables 105 6,042 49,055 (55,202) -
Liabilities to customers
on uncompleted contracts
and warranties 7,086 31 1,199 - 8,316
Income taxes 359 59 1,652 - 2,070
Short-term obligations 409 - 174 - 583
Current maturities of
long-term debt - - 267 - 267
________ ________ ________ ________ ________
Total Current Liabilities 46,817 8,494 62,897 (55,066) 63,142
LONG-TERM LIABILITIES:
Liabilities to customers
on uncompleted contracts
and warranties 3,270 - 580 - 3,850
Postretirement benefits 14,099 - 566 - 14,665
Deferred expenses and other 15,820 412 1,353 - 17,585
________ ________ ________ ________ ________
33,189 412 2,499 - 36,100
LONG-TERM DEBT, less
current maturities 172,215 - 2,397 - 174,612
COMMON SHAREHOLDERS'
INVESTMENT 135,960 2,721 31,372 (37,800) 132,253
________ ________ ________ ________ ________
$388,181 $ 11,627 $ 99,165 $(92,866) $406,107
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Cash Flows
For the Year Ended December 31, 1998
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
Net Cash Provided By
(Used In) Operating
Activities $(22,339) $ 3,140 $ (4,947) $ - $(24,146)
________ ________ ________ ________ ________
Cash Flows From Investing
Activities
Decrease in restricted
funds on deposit - - 580 - 580
Purchases of property,
plant and equipment (8,055) (3,183) (1,565) - (12,803)
Proceeds from sale of
property, plant and
equipment 46 - 1,382 - 1,428
Dividends paid to parent 958 - (958) - -
________ ________ ________ ________ ________
Net cash used in
investing activities (7,051) (3,183) (561) - (10,795)
________ ________ ________ ________ ________
Cash Flows From Financing
Activities
Net (increase) decrease
in other bank borrowings 104 - (174) - (70)
Payment of acquisition
and refinancing expenses (293) - - - (293)
Proceeds from issuance of
long-term debt 28,785 - - - 28,785
Payment of long-term debt (86) - (264) - (350)
Proceeds from issuance
of common stock 880 - - - 880
________ ________ ________ ________ ________
Net cash used in
financing activities 29,390 - (438) - 28,952
________ ________ ________ ________ ________
Effect of exchange rate
changes on cash - - (261) - (261)
________ ________ ________ ________ ________
Net decrease in cash
and cash equivalents - (43) (6,207) - (6,250)
Cash and cash equivalents
at beginning of year - 103 14,968 - 15,071
________ ________ ________ ________ ________
Cash and cash equivalents
at end of year $ - $ 60 $ 8,761 $ - $ 8,821
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Cash Flows
For the Period September 24, 1997 to December 31, 1997
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
Net Cash Provided by
Operating Activities $ 6,079 $ 440 $ 9,286 $ - $ 15,805
________ ________ ________ ________ ________
Cash Flows From Investing
Activities
Payment to cash out stock
options and stock
appreciation rights (6,944) - - - (6,944)
Decrease in restricted
funds on deposit - - 23 - 23
Purchases of property,
plant and equipment (1,234) (497) (1,128) - (2,859)
Proceeds from sale of
property, plant and
equipment 235 - 275 - 510
Acquisition of Bucyrus
International, Inc. (189,622) - - - (189,622)
Receivable from Global 6,346 - (1,071) - 5,275
________ ________ ________ ________ ________
Net cash used in investing
activities (191,219) (497) (1,901) - (193,617)
________ ________ ________ ________ ________
Cash Flows From Financing
Activities
Reduction of project
financing obligations (8,102) - - - (8,102)
Net increase (decrease)
in other bank borrowings 22,231 (459) (935) - 20,837
Payment of acquisition
and refinancing expenses (13,426) - - - (13,426)
Payment of bridge loan (27,024) - (17,976) - (45,000)
Capital contribution 143,030 - - - 143,030
Proceeds from issuance of
long-term debt 150,000 - - - 150,000
Payment of long-term debt (65,785) - - - (65,785)
Change in intercompany
accounts (17,976) - 17,976 - -
________ ________ ________ ________ ________
Net cash provided by (used in)
financing activities 182,948 (459) (935) - 181,554
________ ________ ________ ________ ________
Effect of exchange rate
changes on cash - - (352) - (352)
________ ________ ________ ________ ________
Net (decrease) increase
in cash and cash
equivalents (2,192) (516) 6,098 - 3,390
Cash and cash equivalents
at beginning of period 2,192 619 8,870 - 11,681
________ ________ ________ ________ ________
Cash and cash equivalents
at end of period $ - $ 103 $ 14,968 $ - $ 15,071
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Cash Flows
For the Period January 1, 1997 to September 23, 1997 - Predecessor
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
Net Cash Provided by (Used
In) Operating Activities $ (9,085) $ 804 $ 1,681 $ - $ (6,600)
________ ________ ________ ________ ________
Cash Flows From Investing
Activities
Purchases of property,
plant and equipment (985) (144) (3,202) - (4,331)
Proceeds from sale of
property, plant and
equipment 5 - 1,222 - 1,227
Purchase of Von's Welding,
Inc., net of cash
acquired (841) - - - (841)
Purchase of surface mining
and equipment business
of Global Industrial
Technologies, Inc. (15,827) - (20,893) - (36,720)
Receivable from Global (6,346) - 1,071 - (5,275)
Change in intercompany
accounts (1,846) - 1,846 - -
Dividends paid to parent 150 - (150) - -
________ ________ ________ ________ ________
Net cash used in investing
activities (25,690) (144) (20,106) - (45,940)
________ ________ ________ ________ ________
Cash Flows From Financing
Activities
Proceeds from issuance
of project financing
obligations 5,672 - - - 5,672
Net increase in other
bank borrowings 36 (190) 654 - 500
Payment of acquisition
and refinancing expenses (1,476) - - - (1,476)
Payment of bridge loan fees (3,361) - - - (3,361)
Proceeds from bridge loan 27,024 - 17,976 - 45,000
Proceeds from issuance
of long-term debt - - 1,706 - 1,706
________ ________ ________ ________ ________
Net cash provided by (used in)
financing activities 27,895 (190) 20,336 - 48,041
________ ________ ________ ________ ________
Effect of exchange rate
changes on cash - - 417 - 417
________ ________ ________ ________ ________
Net (decrease) increase
in cash and cash
equivalents (6,880) 470 2,328 - (4,082)
Cash and cash equivalents
at beginning of period 9,072 149 6,542 - 15,763
________ ________ ________ ________ ________
Cash and cash equivalents
at end of period $ 2,192 $ 619 $ 8,870 $ - $ 11,681
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Cash Flows
For the Year Ended December 31, 1996 - Predecessor
(Dollars in Thousands)
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
Net Cash Provided by
Operating Activities $ 5,839 $ 1,140 $ 3,108 $ - $ 10,087
________ ________ ________ ________ ________
Cash Flows From Investing
Activities
Decrease in restricted
funds on deposit - - 1,798 - 1,798
Purchases of property,
plant and equipment (1,929) (96) (2,971) - (4,996)
Proceeds from sale of
property, plant and
equipment 855 - 203 - 1,058
Dividends paid to parent 1,550 (1,250) (300) - -
________ ________ ________ ________ ________
Net cash provided by
(used in) investing
activities 476 (1,346) (1,270) - (2,140)
________ ________ ________ ________ ________
Cash Flows From Financing
Activities
Proceeds from issuance
of project financing
obligations 5,402 - - - 5,402
Reduction of project
financing obligations (8,104) - - - (8,104)
Net decrease in other
bank borrowings (3) - (1,347) - (1,350)
Proceeds from issuance
of long-term debt - - 849 - 849
________ ________ ________ ________ ________
Net cash used in
financing activities (2,705) - (498) - (3,203)
________ ________ ________ ________ ________
Effect of exchange rate
changes on cash - - (131) - (131)
________ ________ ________ ________ ________
Net increase (decrease)
in cash and cash
equivalents $ 3,610 $ (206) $ 1,209 $ - $ 4,613
Cash and cash equivalents
at beginning of year 5,462 355 5,333 - 11,150
________ ________ ________ ________ ________
Cash and cash equivalents
at end of year $ 9,072 $ 149 $ 6,542 $ - $ 15,763
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Bucyrus International, Inc.:
We have audited the accompanying consolidated balance sheets of Bucyrus
International, Inc. (Delaware Corporation) as of December 31, 1998 and 1997
and the related consolidated statements of operations, comprehensive income
(loss), common shareholders' investment and cash flows for the year ended
December 31, 1998, the period from September 24, 1997 to December 31, 1997,
the period from January 1, 1997 to September 23, 1997, and the year ended
December 31, 1996. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bucyrus
International, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year ended December 31, 1998, the period
from September 24, 1997 to December 31, 1997, the period from January 1, 1997
to September 23, 1997, and the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the index at
item 14(a)2 is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
for the year ended December 31, 1998, the period from September 24, 1997 to
December 31, 1997, the period from January 1, 1997 to September 23, 1997, and
the year ended December 31, 1996 has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
/w/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 3, 1999
Bucyrus International, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
For the Year Ended December 31, 1998,
Periods Ended December 31, 1997 and September 23, 1997
and the Year Ended December 31, 1996
(Dollars in Thousands)
Charges
Balance At (Credits) (Charges) Balance At
Beginning To Costs Credits End
Of Period And Expenses To Reserves(1) Of Period
Allowance for possible losses:
Year ended December 31, 1998:
Notes and accounts receivable - current $ 734 $ 27 $ 157 $ 918
Period September 24, 1997 to December 31, 1997:
Notes and accounts receivable - current $ 684 $ 112 $ (62) $ 734
Predecessor
Period January 1, 1997 to September 23, 1997:
Notes and accounts receivable - current $ 539 $ (8) $ 153 $ 684
Year ended December 31, 1996:
Notes and accounts receivable - current $ 667 $ (19) $ (109) $ 539
(1) Includes uncollected receivables written off, net of recoveries, and translation adjustments at the foreign
subsidiaries. The period January 1, 1997 to September 23, 1997 includes $158,000 of allowance for possible
losses acquired in connection with the Marion Acquisition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors
Directors of the Company are elected annually and hold office until the
next annual meeting of shareholders and until their successors are duly
elected and qualified. The executive officers of the Company serve at the
discretion of the Company's Board of Directors (the "Board").
The following table sets forth, for each of the six directors of the
Company, information regarding their names, ages, principal occupations, and
other directorships in certain companies held by them, and their length of
continuous service as a director of the Company. Except as otherwise noted,
each director has engaged in the principal occupation or employment and has
held the offices shown for more than the past five years. Unless otherwise
indicated, each director listed above is a citizen of the United States and
the address of such person is the Company's principal executive offices.
There are no family relationships among the directors and executive officers
of the Company.
Name Age Principal Occupation and Directorships
W. Richard Bingham 63 Mr. Bingham is a director, the
President, Treasurer and Assistant
Secretary of American Industrial
Partners Corporation. He co-founded
AIP Management Co. and has been a
director and officer of AIP Management
Co. since 1989. Mr. Bingham is also a
director of Dearfield Associates, Great
Lakes Carbon Corporation, RBX Group,
Stanadyne Automotive and Sweetheart
Holdings. He formerly served on the
boards of Avis, Inc., ITT Life
Insurance Corporation and Valero Energy
Corporation. Mr. Bingham has been a
director of the Company since September
1997.
Willard R. Hildebrand 59 Mr. Hildebrand was President and Chief
Executive Officer of the Company from
March 11, 1996 to December 14, 1998.
Mr. Hildebrand was President and Chief
Executive Officer of Great Dane
Trailers, Inc. (a privately held
manufacturer of a variety of truck
trailers) from 1991 to 1996. Prior to
1991, Mr. Hildebrand held a variety of
sales and marketing positions with
Fiat-Allis North America, Inc. and was
President and Chief Operating Officer
from 1985 to 1991. Mr. Hildebrand has
been a director of the Company since
March 1996.
Stephen R. Light 52 Mr. Light has served as President and
Chief Executive Officer since he joined
the Company on December 14, 1998.
Mr. Light was Vice President and
General Manager - Operations of P&H
Mining Equipment Division, Harnishfeger
Industries from 1997 to 1998. From
1986 to 1997, Mr. Light held various
positions in manufacturing, operations
and marketing with Emerson Electric
Company/ESCO Electronics Corporation.
Mr. Light has been a director of the
Company since January 5, 1999.
Kim A. Marvin 37 Mr. Marvin is a director, the Secretary
and a Vice President of American
Industrial Partners Acquisition
Company, LLC. Mr. Marvin joined the
San Francisco office of American
Industrial Partners in 1997 from the
Mergers & Acquisitions Department of
Goldman, Sachs & Co. where he had been
employed since 1994. Mr. Marvin has
been a director of the Company since
September 1997.
Robert L. Purdum 63 Mr. Purdum is a director and a Managing
Director of American Industrial
Partners Corporation. Mr. Purdum
became the Non-Executive Chairman of
the Company's Board following the AIP
Merger. Mr. Purdum retired as Chairman
of Armco, Inc. in 1994. From November
1990 to 1993, Mr. Purdum was Chairman
and Chief Executive Officer of Armco,
Inc. Mr. Purdum has been a director of
AIP Management Co. since joining
American Industrial Partners in 1994.
Mr. Purdum is also a director of
Holophane Corporation and Berlitz
International, Inc. Mr. Purdum has
been a director of the Company since
November 1997.
Theodore C. Rogers 64 Mr. Rogers is a director, the Chairman
of the Board and the Secretary of
American Industrial Partners
Corporation. He co-founded American
Industrial Partners and has been a
director and officer of the firm since
1989. He is currently a director of
Derby International, Inc., Easco
Corporation, Great Lakes Carbon
Corporation, RBX Group, Stanadyne
Automotive, Steel Heddle Group,
Sunshine Materials Inc. and Sweetheart
Holdings. Mr. Rogers has been a
director of the Company since November
1997.
Mr. Lawrence W. Ward, Jr. served as a director of the Company from
September 26, 1997 through January 5, 1999.
Executive Officers
Set forth below are the names, ages and present occupations of all
executive officers of the Company. Executive officers named therein are
elected annually and serve at the pleasure of the Board. Mr. Light is
employed under an employment agreement, the initial term of which expires on
December 31, 2000, when it automatically renews for additional one-year terms
subject to the provisions of the agreement. Messrs. Mackus, Phillips and
Smoke are each employed under one-year employment agreements which
automatically renew for additional one-year terms subject to the provisions
thereof. See ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Employment Agreements.
Employed by
the Company
Name Age, Position and Background Since
Stephen R. Light Mr. Light, age 52, has served 1998
as President and Chief Executive Officer
since he joined the Company on
December 14, 1998. Mr. Light was
Vice President and General Manager -
Operations of P&H Mining Equipment
Division, Harnishfeger Industries
from 1997 to 1998. From 1986 to 1997,
Mr. Light held various positions in
manufacturing, operations and marketing
with Emerson Electric Company/ESCO
Electronics Corporation. Mr. Light
has been a director of the Company
since January 5, 1999.
John F. Bosbous Mr. Bosbous, age 46, has served as 1984
Treasurer since March 1998.
Mr. Bosbous was Assistant Treasurer
from 1988 to 1998, and Assistant to
the Treasurer from August 1984 to
February 1998.
Frank P. Bruno Mr. Bruno, age 62, has served as 1997
Vice President - Human Resources
since December 1, 1997. Mr. Bruno
was a consultant to the Company
from 1996 to 1997. From 1984 to 1995,
Mr. Bruno held various positions in
Human Resources and Administration
with Eagle Industries, Inc.
Craig R. Mackus Mr. Mackus, age 47, has served as 1974
Secretary since May 1996 and as
Controller since February 1988.
Mr. Mackus was Division Controller
and Assistant Corporate Controller
from 1985 to 1988, Manager of
Corporate Accounting from 1981
to 1982 and 1984 to 1985, and
Assistant Corporate Controller of
Western Gear Corporation from
1982 to 1984.
Michael G. Onsager Mr. Onsager, age 44, has served as 1976
Vice President - Engineering since
September 1996. He was Chief
Engineer - Advanced Technology
Development from 1995 to September
1996, Assistant Chief Engineer from
1990 to 1993 and 1994 to 1995, and
Parts Product Manager from 1993 to
1994.
Thomas B. Phillips Mr. Phillips, age 53, has served as 1970
Executive Vice President - Operations
since June 1998. He was Vice
President - Materials from March 1996
to June 1998, Director of Materials
from 1986 to 1996, Manufacturing
Manager from June 1986 to
October 1986, and Materials
Manager from 1983 to 1986.
Daniel J. Smoke Mr. Smoke, age 49, has served as Vice 1996
President and Chief Financial Officer
since he joined the Company in
November 1996. Mr. Smoke was Vice
President Finance and Chief Financial
Officer of Folger Adam Company from
1995 to 1996. From 1994 to 1995,
Mr. Smoke was self-employed. From 1986
to 1994, Mr. Smoke held a variety of
financial and operating positions with
Eagle Industries, Inc.
Mr. Timothy W. Sullivan served as the Executive Vice President -
Marketing of the Company through December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Directors of the Company are not compensated for their service as
directors, except Mr. Purdum who is paid $12,500 per month, regardless of
whether meetings are held or the number of meetings held. Directors are
reimbursed for out-of-pocket expenses.
Summary Compensation Table
The following table sets forth certain information for each of the last
three fiscal years concerning compensation awarded to, earned by or paid to
each person who served as the Company's Chief Executive Officer during fiscal
1998 and each of the four most highly compensated executive officers other
than the Chief Executive Officer who were in office on December 31, 1998. The
persons named in the table are sometimes referred to herein as the "named
executive officers".
Annual Long-Term Compensation
Compensation(1) Awards Payouts
Restricted Securities LTIP All Other
Name and Stock Underlying Payouts Compensation
Principal Position Year Salary($) Bonus($) Awards($)(2) Options(#) ($)(3) ($)(4)
Stephen R. Light(5) 1998 $ 27,693 - - 59,767 - -
President and Chief
Executive Officer
Willard R. Hildebrand (5) 1998 462,498 110,250 - 28,000 - $ 9,050
President and Chief 1997 400,008 258,750 - - $1,800,000 3,153,803
Executive Officer 1996 323,816 200,000 $2,700,000 200,000 - 265,931
Craig R. Mackus 1998 138,542 17,178 - 7,500 - 5,788
Secretary and 1997 132,914 47,680 - 30,000 - 320,456
Controller 1996 123,000 26,975 - - - 4,090
Thomas B. Phillips 1998 148,075 23,153 - 11,250 - 6,212
Executive Vice 1997 128,500 47,914 - 30,000 - 320,175
President-Operations 1996 119,168 26,976 - - - 4,299
Daniel J. Smoke 1998 187,710 32,280 - 14,250 - 70,349
Vice President and 1997 175,008 104,534 - - - 745,794
Chief Financial 1996 26,390 - - 80,000 - 29,255
Officer
Timothy W. Sullivan 1998 159,134 - - 11,250 - 5,888
Executive Vice 1997 153,666 58,685 - 30,000 - 320,245
President-Marketing 1996 128,004 34,644 - - - 4,260
_______________
(1) Certain personal benefits provided by the Company to the named executive officers are not included in the above
table as permitted by SEC regulations because the aggregate amount of such personal benefits for each named
executive officer in each year reflected in the table did not exceed the lesser of $50,000 or 10% of the sum of
such officer's salary and bonus in each respective year.
(2) Represents the market value on the date of grant of 300,000 shares of restricted common stock ("Restricted Stock")
granted under the 1996 Employees' Stock Incentive Plan (the "Employees' Stock Incentive Plan"). 100,000 shares of
Restricted Stock were awarded under a Restricted Stock Agreement which provided that 33,333 shares would vest on
March 11, 1997, 33,333 would vest on March 11, 1998, and 33,334 would vest on March 11, 1999. The remaining
200,000 shares of Restricted Stock were awarded under a Time Accelerated Restricted Stock Agreement, which
provided for vesting in eight years (assuming continued employment, with certain exceptions) and provided for
earlier release in the third, fourth and fifth years if certain earnings targets were reached by the Company.
Both the Restricted Stock Agreement and the Time Accelerated Restricted Stock Agreement provided for accelerated
vesting of all shares awarded thereunder in the event of a change-in-control as defined therein. Such accelerated
vesting occurred in 1997 as a result of the AIP Merger. All such shares were acquired by AIPAC pursuant to the
AIP Tender Offer at a price of $18.00 per share. Dividends were payable on the Restricted Stock at the same rate
as on unrestricted shares. On December 31, 1997, no shares of Restricted Stock were held by Mr. Hildebrand.
(3) Represents that value realized by Mr. Hildebrand upon the purchase in the AIP Tender Offer of the 200,000 unvested
shares of Restricted Stock granted to Mr. Hildebrand in 1996 under the Time Accelerated Restricted Stock Agreement
(see Note (2) above). For purposes of the above table, and to avoid double-counting of compensation, the value
realized is measured as the total consideration received for such shares ($3,600,000) minus the compensation
reported under "Restricted Stock Awards" for 1996 in the above table attributable to such 200,000 shares
($1,800,000).
(4) "All Other Compensation" includes the following: (i) the employer match under the Company's 401(k) savings plan
for 1998, 1997 and 1996, respectively: Mr. Hildebrand ($5,000, $4,750 and $4,750), Mr. Mackus ($5,000, $4,750 and
$3,690), Mr. Phillips ($5,000, $4,081 and $3,262), Mr. Smoke ($5,000 and $4,750) and Mr. Sullivan ($5,000, $4,750
and $3,840); (ii) life insurance premium payments for 1998, 1997 and 1996, respectively: Mr. Hildebrand ($4,050,
$4,050 and $2,775), Mr. Mackus ($788, $706 and $400), Mr. Phillips ($1,212, $1,094 and $1,037), Mr. Smoke ($1,111,
$1,044 and $87) and Mr. Sullivan ($888, $495 and $420); (iii) payments made in 1996 under their respective
employment agreements to Mr. Hildebrand ($258,406 including a relocation allowance of $187,021 and a pension
benefit of $71,385) and to Mr. Smoke (a relocation allowance of $64,238 in 1998 and $29,168 in 1997), (iv) the
value realized by each of the named executive officers on September 24, 1997 upon the cancellation of their
respective stock options and stock appreciation rights ("SARs") in connection with the AIP Merger (measured by the
difference between the option/SAR exercise price and $18.00, times the number of options/SARs held) Mr. Hildebrand
($2,582,500), Mr. Mackus ($315,000), Mr. Phillips ($315,000), Mr. Smoke ($740,000) and Mr. Sullivan ($315,000);
and (v) the value realized by Mr. Hildebrand: (A) upon the vesting of 33,333 shares of Restricted Stock granted to
him in 1996 under the Restricted Stock Agreement (see Note 2 above), based upon the $7.875 fair market value of
such shares on the date of vesting, March 11, 1997 ($262,497); and (B) upon the purchase in the AIP Tender Offer
of the 66,667 unvested shares of Restricted Stock granted to him in 1996 under the Restricted Stock Agreement (see
Note (2) above) ($1,200,006). For purposes of the above table, and to avoid double-counting of Mr. Hildebrand's
compensation, the total of his "Other Annual Compensation" for 1997 ($1,462,503) is reduced by the compensation
reported under "Restricted Stock Awards" for 1996 in the above table attributable to such 100,000 shares
($900,000) in arriving at the value realized.
(5) Mr. Hildebrand was President and Chief Executive Officer from March 11, 1996 through December 14, 1998. Mr. Light
became the President and Chief Executive Officer on December 14, 1998. Compensation earned by Mr. Light in 1998
was paid in 1999.
1998 Management Stock Option Plan
On March 17, 1998, the Board adopted the 1998 Management Stock Option
Plan (the "1998 Option Plan") as part of the compensation and incentive
arrangements for certain management employees of the Company and its
subsidiaries. The 1998 Option Plan provides for the grant of stock options to
purchase up to an aggregate of 200,000 shares of common stock of the Company
at exercise prices to be determined in accordance with the provisions of the
1998 Option Plan. Options granted under the 1998 Option Plan are targeted to
vest on the last day of the plan year at the rate of 25% of the aggregate
number of shares of common stock underlying each series of options per year,
provided that the Company attained a specified target of EBITDA in that plan
year ($40,209,000 in 1998, $50,399,000 in 1999, and yet to be determined for
the years 2000 and 2001). In the event that the EBITDA goal is not attained
in any plan year, the options scheduled to vest at the end of that plan year
will vest according to a pro rata schedule set forth in the 1998 Option Plan,
provided that if less than 90% of the EBITDA goal is achieved, then no portion
of the options shall vest at the end of that plan year. In the event that the
EBITDA goal is surpassed in any plan year, the surplus shall be applied first
to offset any EBITDA deficit from prior plan years, and second to accelerate
vesting of up to one-quarter of the options scheduled to vest in 2001
according to a pro rata schedule set forth in the 1998 Option Plan.
Notwithstanding the foregoing, all options granted under the 1998 Option
Plan shall vest automatically on the ninth anniversary of the date of the
grant, regardless of performance criteria or, in the event of a Company Sale
(as defined in the 1998 Option Plan), immediately prior to such sale. Options
granted pursuant to the 1998 Option Plan may be forfeited or repurchased by
the Company at fair market value in the event of the participating employee's
termination, and if not previously forfeited or exercised, expire and
terminate no later than ten years after the date of grant or, in the event of
a Company Sale, upon the consummation of such sale.
Option Grants Table
The following table sets forth information concerning the grant of stock options under the Company's
1998 Option Plan during 1998 to the named executive officers.
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Price Appreciation
Underlying Options for Ten Year Option
Options Granted to Exercise or Term(3)
Granted Employees in Base Price Expiration
Name (#) 1998(1) ($/share)(2) Date 5% 10%
S. R. Light 59,767 33.4% $100.00 12/21/08 $3,759,344 $9,526,860
W. R. Hildebrand 28,000 15.6% $100.00 03/17/08 $1,761,200 $4,463,200
C. R. Mackus 7,500 4.2% $100.00 03/17/08 $ 471,750 $1,195,500
T. B. Phillips 11,250 6.3% $100.00 03/17/08 $ 707,625 $1,793,250
D. J. Smoke 14,250 8.0% $100.00 03/17/08 $ 896,325 $2,271,450
T. W. Sullivan 11,250 6.3% $100.00 03/17/08 $ 707,625 $1,793,250
(1) A total of 178,967 options were granted to employees under the 1998 Option Plan during 1998.
(2) The exercise price of each option granted was equal to 100% of the fair value of the Company's common
stock on the date of grant. The fair value was established by the Company's Board of Directors as the
price for which the Company will buy or sell its common stock.
(3) The option values presented were calculated based on a per share price of $100.00 on the date of grant
at assumed 5% and 10% annualized rates of appreciation for the term of the grant. The actual value,
if any, that an optionee could realize upon exercise depends on the excess of the market price of the
common stock over the option exercise price on the date the option is exercised. There was no
assurance at the time of grant that the actual value which may be realized by an optionee upon the
exercise of an option will be at or near the value estimated under the model described above.
Aggregate Option Exercises in 1998 and Year-End Option Values
The following table sets forth information regarding the exercise of stock options by each of the
named executive officers during 1998 and the fiscal year-end value of the unexercised stock options held by
such officers.
Value of Unexercised
Number of Securities In-The-Money
Shares Underlying Unexercised Options at End of
Acquired Options at End of Fiscal Year 1998 (1)
On Value Fiscal Year 1998 (#) ($)
Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
S. R. Light 0 N/A 0 59,767 $ 0 $ 0
W. R. Hildebrand 0 N/A 0 28,000 0 0
C. R. Mackus 0 N/A 0 7,500 0 0
T. B. Phillips 0 N/A 0 11,250 0 0
D. J. Smoke 0 N/A 0 14,250 0 0
T. W. Sullivan 0 N/A 0 11,250 0 0
(1) Substantially all of the Company's common stock is held by AIPAC and there is no established public
trading market therefor. At December 31, 1998, the fair value of the common stock is determined to be
$100 per share which is equivalent to the fair market value on the date of grant. The fair value was
established by the Company's Board of Directors as the price for which the Company will buy or sell its
common stock.
Pension Plan Table
The following table sets forth the estimated annual benefits payable on a
straight life annuity basis (prior to offset of one-half of estimated Social
Security benefits) to participating employees, including officers, upon
retirement at normal retirement age for the years of service and the average
annual earnings indicated under the Company's defined benefit pension plan.
Years of Service
Remuneration 35 30 25 20 15
$125,000 $ 76,563 $ 65,625 $ 54,688 $ 43,750 $ 32,813
150,000 91,875 78,750 65,625 52,500 39,375
175,000 107,188 91,875 76,563 61,250 45,938
200,000 122,500 105,000 87,500 70,000 52,500
225,000 137,813 118,125 98,438 78,750 59,063
250,000 153,125 131,250 109,375 87,500 65,625
300,000 183,750 157,500 131,250 105,000 78,750
400,000 245,000 210,000 175,000 140,000 105,000
450,000 275,625 236,250 196,875 157,500 118,125
500,000 306,250 262,500 218,750 175,000 131,250
Covered compensation for purposes of the Company's defined benefit
pension plan consists of the average of a participant's highest total salary
and bonus (excluding compensation deferred pursuant to any non-qualified plan)
for a consecutive five year period during the last ten calendar years of
service prior to retirement.
The years of credited service under the defined benefit pension plan for
each of the named executive officers are as follows: Mr. Hildebrand (1),
Mr. Smoke (1), Mr. Mackus (18), Mr. Phillips (21) and Mr. Sullivan (19).
Mr. Light is not currently a member of the Company's pension plan. He will
become a member on the first anniversary of his employment with the Company.
Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as
amended, limit the annual benefits which may be paid from a tax-qualified
retirement plan. As permitted by the Employee Retirement Income Security Act
of 1974, the Company has supplemental plans which authorize the payment out of
general funds of the Company of any benefits calculated under provisions of
the applicable retirement plan which may be above the limits under these
sections.
Board Compensation Report on Executive Compensation
The Board is responsible for the compensation packages offered to the
Company's executive officers, including the Chief Executive Officer (the
"CEO") and the named executive officers.
Executive Compensation
The Board, in consultation with the CEO, establishes base salaries for
the executive officers of the Company which the Company believes are
commensurate with their respective responsibilities, position and experience.
Consideration is also given to the compensation levels of similarly situated
personnel of other companies in the industry where such information is
available. When making adjustments in base salaries, the Board generally
considers the foregoing factors as well as corporate financial performance.
In individual cases where appropriate, the Board also considers nonfinancial
performance measures, such as increases in market share, manufacturing
efficiency gains, improvements in product quality and improvements in
relations with customers, suppliers and employees. Executive officers' base
salaries are reviewed annually. The Board generally begins its review by
analyzing the current base salaries of the executive officers. Based on such
review, the corporate performance of the Company, the individual contributions
of the executive officers, and the factors discussed above, the Board will
approve such compensation.
Executive officers and other Company employees participated in the 1998
Management Incentive Plan. Under the 1998 Management Incentive Plan, the
Board established a management incentive budget based on budgeted earnings
before interest expense, taxes, depreciation and amortization ("EBITDA") and,
in consultation with the CEO, established target incentive bonus percentages
of between 10% and 35% of base salary for executive officers (other than the
CEO, whose target incentive bonus percentage is established pursuant to his
employment agreement - see "Chief Executive Officer Compensation," below) and
certain employees. These targeted percentages were adjustable pursuant to a
formula based on a range of values whereby the target incentive bonus
percentage would be zero (and no bonuses would be paid) if actual EBITDA was
less than 80% of budgeted EBITDA, and a maximum bonus of two times the target
incentive bonus percentage would be paid if actual EBITDA was 150% or more of
budgeted EBITDA. In 1998, the Company's actual EBITDA did not exceed budgeted
EBITDA, and the target incentive bonus percentages were decreased by
approximately 50%. Various employees, including the named executive officers,
will receive bonuses under the 1998 Management Incentive Plan in 1999.
Chief Executive Officer Compensation
The base salary and certain awards under the Company's 1996 Employees'
Stock Incentive Plan for Mr. Hildebrand, the Company's CEO from March 11, 1996
to December 14, 1998, were established by negotiation between the Company and
Mr. Hildebrand at the time he was hired in 1996 and are set forth in an
employment agreement between the Company and Mr. Hildebrand. See CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Employment Agreements;
Mr. Hildebrand. The factors recited in the first paragraph above under
"Executive Compensation" were considered by the Board in these negotiations.
Mr. Hildebrand also participated in the 1998 Management Incentive Plan on
the same basis as the other employees who participated. Mr. Hildebrand's
target incentive bonus percentage of 50% of base salary was established
pursuant to his employment agreement. No individual performance adjustment
was made for Mr. Hildebrand.
International Revenue Code Section 162(m)
Under Section 162(m) of the Internal Revenue Code, the tax deduction by
certain corporate taxpayers, such as the Company, is limited with respect to
compensation paid to certain executive officers unless such compensation is
based on performance objectives meeting specific regulatory criteria or is
otherwise excluded from the limitation. The compensation package of
Mr. Hildebrand does not so qualify, nor does the 1996 Management Incentive
Plan meet the regulatory criteria for exclusion from the limitation. Where
practical, the Board intends to qualify compensation paid to the Company's
executive officers in order to preserve the full deductibility thereof under
Section 162(m), although the Board reserves the right in individual cases to
cause the Company to enter into compensation arrangements which may result in
some compensation being nondeductible under Code Section 162(m).
BOARD OF DIRECTORS OF
BUCYRUS INTERNATIONAL, INC.
W. Richard Bingham
Willard R. Hildebrand
Stephen R. Light
Kim A. Marvin
Robert L. Purdum
Theodore C. Rogers
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial owners of more than five
percent of the Company's common stock as of March 25, 1999:
Amount and Nature
Name and Address of of Beneficial Ownership Percent of Class
Beneficial Owner (# of Shares) Class
AIPAC 1,430,300 99.2%
One Maritime Plaza
Suite 2525
San Francisco, CA 9411
The following table sets forth the beneficial ownership of the Company's
common stock by each director, each of the named executive officers and by all
directors and executive officers of the Company as a group as of March 25,
1999:
Amount and Nature
Name of of Beneficial Ownership (1) Percent of Class
Beneficial Owner (# of Shares) Class (2)
W. R. Bingham 0 (3) *
W. R. Hildebrand 4,000 *
S. R. Light 5,000 *
K. A. Marvin 0 (3) *
R. L. Purdum 0 (3) *
T. C. Rogers 0 (3) *
C. R. Mackus 500 *
T. B. Phillips 750 *
D. J. Smoke 750 *
T. W. Sullivan 0 *
All directors and
executive officers
as a group (12 persons) 11,800 *
(1) Amounts indicated reflect shares as to which the beneficial owner
possesses sole voting and dispositive powers.
(2) Asterisk denotes less than 1%.
(3) Messrs. Bingham, Marvin, Purdum and Rogers are officers of AIPAC which
is the beneficial owner of 1,430,300 shares of common stock of the
Company. Messrs. Bingham, Marvin, Purdum and Rogers each disclaim
beneficial ownership of all such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Agreements
The Company has employment agreements with all of the named executive
officers. These agreements govern the compensation, benefits and treatment
upon termination under various circumstances, including voluntary termination
by either party, or termination by reason of retirement, death or disability,
or in the event of a change of control, as those terms are defined in the
agreements. Each employment agreement automatically renews for a one-year
term upon the expiration of its initial term and any subsequent terms, unless
two months written notice is given by either party of intent to terminate at
the end of that term. Each employment agreement may be terminated by either
the Company or the executive at any time by giving notice as required under
the agreement, provided, however, that if the named executive officer is
terminated by the Company without cause at any time, or if the executive
terminates his employment with good reason in connection with a change in
control, as those terms are defined in the agreement, then the executive will
be entitled to certain severance benefits as described in that executive's
individual agreement. Finally, each agreement imposes confidentiality
restrictions on the executive and places restrictions on the executive's
involvement in activities that may compete with the Company both during
employment and following termination. Violation of such confidentiality and
non-competition provisions, or other termination for cause, as defined in the
agreements, may result in forfeiture of severance and other benefits that may
otherwise accrue. Individual compensation, benefits and other salient
features of each agreement are described below.
Mr. Light
On December 9, 1998, the Company entered into an employment agreement
with Mr. Light to serve as the Company's President and Chief Executive Officer
and to serve on the Company's Board of Directors. The term of such agreement
shall continue until December 31, 2000, and may be extended for additional
one-year periods. Mr. Light's base salary is $450,000 per year, subject to
increase at the discretion of the Board, and he is eligible to participate in
an annual performance bonus plan (the "Bonus Plan"). Mr. Light's employment
agreement provides that his annual cash incentive bonus shall be equal to 50%
of his base salary upon the achievement of targeted performance goals, up to a
maximum of 100% of his base salary in the event of exceptional performance, as
determined in accordance with the Bonus Plan. Mr. Light is entitled to
participate in the Company's employee benefit plan for senior executives and
is provided other fringe benefits, such as club membership, vacation, use of a
Company car and a supplemental long-term disability policy. Mr. Light's
employment agreement also contains particular indemnification, termination and
compensation provisions in the event of potential legal action by Mr. Light's
former employer.
In addition, Mr. Light was required to purchase 5,000 shares of the
Company's common stock at a price of $100 per share. Mr. Light paid the
Company $100,000 of the purchase price of such stock and executed a low
interest promissory note to the Company in the amount of $400,000 for the
balance. Principal and interest payments on the note are due on April 1 of
each of 2000, 2001 and 2002. Such annual principal payments shall be in an
amount not less than 50% of Mr. Light's pre-tax bonus in that year, and any
remaining principal or interest shall be due on March 31, 2003. Such
promissory note is secured by Mr. Light's pledge of these shares of stock to
the Company as collateral pursuant to a pledge agreement entered into
contemporaneously with the promissory note and the employment agreement.
Pursuant to Mr. Light's employment agreement, Mr. Light was also granted
options under the 1998 Option Plan to purchase an additional number of shares
to provide Mr. Light with a total equity stake of 4% of the Company's Common
Stock on a fully diluted basis. Such options vest over a three-year period
beginning on January 1, 1999.
Mr. Hildebrand
Mr. Hildebrand served as President and Chief Executive Officer under an
employment agreement with the Company dated March 11, 1996, as amended
March 5, 1998. Mr. Hildebrand's employment agreement, the initial term of
which expires on March 11, 2000, contemplated that the Company and
Mr. Hildebrand would use their mutual best efforts to identify and select a
replacement for Mr. Hildebrand to assume the responsibilities of Chief
Executive Officer of the Company no later than December 31, 1998. On
December 9, 1998, Mr. Light assumed those responsibilities. Pursuant to
Mr. Hildebrand's employment agreement, he will remain employed as the Vice
Chairman of the Company until the end of the initial term of his employment
agreement. In his capacity as Vice Chairman, Mr. Hildebrand's
responsibilities will be limited to advising the Chief Executive Officer of
the Company on strategic planning and international business development ideas
and will not require Mr. Hildebrand to devote more than 5 days per month to
the business and affairs of the Company. The amendment dated March 5, 1998
also requires that Mr. Hildebrand serve as a director of the Company for the
duration of his employment under the agreement.
As Vice Chairman, Mr. Hildebrand's base salary will be $120,000 per year.
For the period January 1, 1997 to September 30, 1997, Mr. Hildebrand's base
salary under his employment agreement was $400,000 per year, which was
increased to $450,000 effective October 1, 1997. Mr. Hildebrand's base salary
was subject to increase at the discretion of the Board, and he was eligible to
participate in the Bonus Plan, which, in Mr. Hildebrand's case, provided for
an annual cash incentive bonus equal to 50% of base salary in the event of
achievement of targeted performance and a maximum of 100% of base salary in
the event of exceptional performance, as determined in accordance with the
Bonus Plan. As Vice Chairman, Mr. Hildebrand shall not be entitled to receive
any annual bonus. Under his employment agreement, Mr. Hildebrand is entitled
to participate in the Company's employee benefit plan for senior executives
and is provided other fringe benefits, such as club membership, vacation and
the use of a Company car, except that in his current position of Vice
Chairman, he shall not be entitled to vacation time. Mr. Hildebrand's
employment agreement further provided for one time payments to compensate him
for lost retirement benefits and to reimburse him for costs associated with
the relocation of his residence.
In addition, pursuant to his original employment agreement,
Mr. Hildebrand was granted 300,000 shares of Restricted Stock and options for
200,000 shares of the Company's common stock at 55% of its grant date market
price, all of which were redeemed for $18.00 per share in connection with the
AIP Merger. Pursuant to the March 5, 1998 amendment to his employment
agreement, Mr. Hildebrand was offered (i) up to 4,000 shares of common stock
of the Company for $100.00 per share, and (ii) options to purchase seven times
the number of shares of common stock purchased in (i) above at a price of
$100.00 per share pursuant to the Option Plan.
Mr. Smoke
Mr. Smoke serves as Vice President and Chief Financial Officer under an
employment agreement with the Company dated November 7, 1996, as amended
March 17, 1998. For the period January 1, 1997 to November 6, 1997,
Mr. Smoke's base salary under his employment agreement was $175,000 per year,
which was increased to $185,000 effective November 7, 1997, for so long as he
remains the Vice President and Chief Financial Officer. Mr. Smoke's base
salary is subject to increase at the discretion of the Board, and he is
eligible to participate in the Bonus Plan, which, in Mr. Smoke's case,
provides for an annual cash incentive bonus equal to 35% of base salary in the
event of achievement of targeted performance and a maximum of 70% of base
salary in the event of exceptional performance, as determined in accordance
with the Bonus Plan. Mr. Smoke is entitled to participate in the Company's
employee benefit plan for senior executives and is provided other fringe
benefits, such as club membership, vacation and the use of a Company car.
Mr. Smoke's employment agreement also provides for payments to reimburse him
for costs associated with the relocation of his residence until September 30,
1998.
In addition, pursuant to his original employment agreement, Mr. Smoke was
granted options for 30,000 shares of the Company's common stock, as well as
stock appreciation rights to 50,000 shares, all of which were redeemed for
$18.00 per share in connection with the AIP Merger. Pursuant to the March 17,
1998 amendment to his employment agreement, Mr. Smoke was offered (i) up to
750 shares of common stock of the Company for $100.00 per share, and (ii)
options to purchase seven times the number of shares of common stock purchased
in (i) above at a price of $100.00 per share pursuant to the Option Plan.
Others
Messrs. Mackus and Phillips each serve under similar one-year employment
agreements with the Company dated May 21, 1997. Each of these agreements
provides for the executive's position and base salary, which is subject to
merit increases in accordance with the Company's normal salary merit increase
review policy. In addition, the executive is entitled to participate in such
employee and fringe benefits plans as the Company provides to other similarly
situated management employees.
Secured Promissory Note and Pledge Agreement
In connection with Mr. Light's employment, he was required to purchase
5,000 shares of the Company's common stock at an aggregate purchase price of
$500,000. Mr. Light borrowed the sum of $400,000 from the Company to pay a
portion of this purchase price and issued a promissory note to the Company in
such amount, secured by his shares of common stock of the Company. The
interest rate due on such loan is 4.52% per annum. The amount outstanding as
of March 25, 1999 was $400,000.
Consulting Agreement
Prior to Mr. Bruno's becoming an officer of the Company, the Company had
retained Mr. Bruno as a consultant in connection with the Marion Acquisition
and paid Mr. Bruno $60,000 in consulting fees, plus expenses, for services
rendered between April 1997 and November 1997.
Cancellation of Stock Options and SARs
Upon the effective date of the AIP Merger, all issued and outstanding
stock options and SARs were cancelled and, regardless of whether such stock
options or SARs had then vested or were exercisable, each holder of stock
options or SARs received cash per share equal to $18.00 less the "strike
price" of such stock options or SARs. The aggregate cost to the Company of
this treatment of stock options and SARs was approximately $6,944,000.
The Company's directors and executive officers received an aggregate of
approximately $10,300,000 in the AIP Tender Offer and the AIP Merger in
consideration for their shares of common stock, stock options, Restricted
Stock and SARs. The named executive officers received the following payments:
Mr. Hildebrand, $7,982,500; Mr. Mackus, $315,000; Mr. Phillips, $315,000,
Mr. Smoke, $740,000; and Mr. Sullivan, $315,000.
Management Services Agreement
AIP provides substantial ongoing financial and management services to the
Company utilizing the extensive operating and financial experience of AIP's
principals. AIP will receive an annual fee of $1,450,000 for providing
general management, financial and other corporate advisory services to the
Company, payable semiannually 45 days after the scheduled interest payment
date for the Senior Notes, and will be reimbursed for out-of-pocket expenses.
The fees will be paid to AIP pursuant to a management services agreement among
AIP, the Company and the Guarantors and will be subordinated in right of
payment to the Senior Notes.
AIP Transaction Fee
At the close of the AIP Merger, AIP was paid a fee of $4,000,000 and
reimbursed for out-of-pocket expenses in connection with the negotiation of
the AIP Agreement and for providing certain investment banking services to the
Company including the arrangement and negotiation of the terms of the Senior
Notes and for other financial advisory and management consulting services.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page No.
(a) 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations for the 28
year ended December 31, 1998, periods ended
December 31, 1997 and September 23, 1997
and for the year ended December 31, 1996.
Consolidated Statements of Comprehensive Income (Loss) 29
Consolidated Balance Sheets as of December 31, 30-31
1998 and 1997.
Consolidated Statements of Common Shareholders' 32-33
Investment for the year ended December 31, 1998,
periods ended December 31, 1997 and September 23,
1997 and for the year ended December 31, 1996.
Consolidated Statements of Cash Flows for the 34-37
year end December 31, 1998, periods ended
December 31, 1997 and September 23, 1997 and
the year ended December 31, 1996.
Notes to Consolidated Financial Statements 38-78
for the year ended December 31, 1998, periods
ended December 31, 1997 and September 23, 1997
and for the year ended December 31, 1996.
Report of Arthur Andersen LLP 79
2. FINANCIAL STATEMENT SCHEDULE
Report of Arthur Andersen LLP 79
Schedule II - Valuation and Qualifying 80
Accounts and Reserves
All other schedules are omitted because they are inapplicable, not
required by the instructions or the information is included in the
consolidated financial statements or notes thereto.
3. EXHIBITS
The exhibits listed in the accompanying Exhibit Index are filed as a
part of this Annual Report on Form 10-K.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BUCYRUS INTERNATIONAL, INC.
(Registrant)
By /s/S. R. Light March 26, 1999
Stephen R. Light, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S. R. Light and D. J. Smoke, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/ W. RICHARD BINGHAM March 26, 1999
W. Richard Bingham, Director
/s/ WILLARD R. HILDEBRAND March 26, 1999
Willard R. Hildebrand, Director
/s/ STEPHEN R. LIGHT March 26, 1999
Stephen R. Light, President,
Chief Executive Officer and Director
/s/ KIM A. MARVIN March 29, 1999
Kim A. Marvin, Director
/s/ ROBERT L. PURDUM March 29, 1999
Robert L. Purdum, Director
/s/ THEODORE C. ROGERS March 26, 1999
Theodore C. Rogers, Director
/s/ DANIEL J. SMOKE March 25, 1999
Daniel J. Smoke, Vice President
and Chief Financial Officer
(Principal Financial Officer)
/s/ CRAIG R. MACKUS March 25, 1999
Craig R. Mackus, Secretary
and Controller
(Principal Accounting Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Registrant does not furnish an annual report or proxy soliciting
material to its security holders.
BUCYRUS INTERNATIONAL, INC.
EXHIBIT INDEX
TO
1998 ANNUAL REPORT ON FORM 10-K
Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
2.1 Agreement and Plan of Exhibit 1 to
Merger dated August 21, Registrant's
1997, between Registrant, Tender Offer
American Industrial Solicitation/
Partners Acquisition Recommendation
Company, LLC and Bucyrus Statement on
Acquisition Corp. Schedule 14D-9
filed with the
Commission on
August 26, 1997.
2.2 Certificate of Merger Exhibit 2.2 to
dated September 26, 1997, Registrant's
issued by the Secretary Current Report
of State of the State of on Form 8-K
Delaware. filed with the
Commission on
October 10, 1997.
2.3 Asset Purchase Agreement Exhibit 2.3 to
dated July 21, 1997, by Registration
and among The Marion Power Statement on
Shovel Company, Marion Form S-4 of
Power Shovel Pty Ltd, Registrant,
Intool International B.V., Boonville Mining
Global-GIX Canada Inc., Services, Inc.,
and Global Industrial Minserco, Inc. and
Technologies, Inc. (Sellers) Von's Welding, Inc.
and Registrant, Bucyrus (SEC Registration
(Australia) Proprietary No. 333-39359)
Ltd., Bucyrus (Africa)
(Proprietary) Limited and
Bucyrus Canada Limited
(Buyers).
[OMITTED PROVISIONS SUBJECT
TO CONFIDENTIAL TREATMENT
BY ORDER OF THE SECURITIES
AND EXCHANGE COMMISSION.]
2.4 Second Amended Joint Plan Exhibit 2.1 to
of Reorganization of B-E Registrant's
Holdings, Inc. and Bucyrus- Current Report
Erie Company under Chapter on Form 8-K,
11 of the Bankruptcy Code, filed with the
as modified December 1, Commission and
1994, including Exhibits. dated December 1,
1994.
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Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
2.5 Order dated December 1, Exhibit 2.2 to
1994 of the U.S. Bankruptcy Registrant's
Court, Eastern District of Current Report
Wisconsin, confirming the on Form 8-K
Second Amended Joint Plan filed with the
of Reorganization of B-E Commission and
Holdings, Inc. and Bucyrus- dated December 1,
Erie Company under Chapter 1994.
11 of the Bankruptcy Code,
as modified December 1, 1994,
including Exhibits.
3.1 Restated Certificate Exhibit 3.1 to
of Incorporation of Registrant's
Registrant. Current Report
on Form 8-K
filed with the
Commission on
October 10, 1997.
3.2 By-laws of Registrant. Exhibit 3.2 to
Registrant's
Current Report
on Form 8-K
filed with the
Commission on
October 10, 1997.
3.3 Amendment to By-laws of Exhibit 3.2 to
Registrant effective Registrant's
November 5, 1997. Quarterly Report
on Form 10-Q for
the quarter ended
September 30, 1997.
3.4 Certificate of Amendment Exhibit 3.4 to
to Restated Certificate Registrant's
of Incorporation adopted Annual Report on
March 17, 1998. Form 10-K for
the year ended
December 31, 1997.
3.5 Amendment to By-laws of X
Registrant effective
December 16, 1998.
3.6 Certificate of Amendment to X
Restated Certificate of
Incorporation adopted
December 16, 1998.
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Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
4.1 Indenture of Trust dated Exhibit 4.1 to
as of September 24, 1997 Registration
among Registrant, Boonville Statement on
Mining Services, Inc., Form S-4 of
Minserco, Inc. and Von's Registrant,
Welding, Inc. and Harris Boonville Mining
Trust and Savings Bank, Services, Inc.,
Trustee. Minserco, Inc. and
Von's Welding, Inc.
(SEC Registration
No. 333-39359)
4.2 Form of Guarantee of Included as
Boonville Mining Services, Exhibit E
Inc., Minserco, Inc. and to Exhibit 4.1
Von's Welding, Inc. dated above.
as of September 24, 1997
in favor of Harris Trust
and Savings Bank as Trustee
under the Indenture.
4.3 Form of Registrant's Exhibit 4.3 to
9-3/4% Senior Note due 2007. Registration
Statement on
Form S-4 of
Registrant, Boonville
Mining Services, Inc.,
Minserco, Inc. and
Von's Welding, Inc.
(SEC Registration
No. 333-39359)
10.1 Credit Agreement, dated Exhibit 10.1 to
September 24, 1997 between Registrant's
Bank One, Wisconsin and Current Report
Registrant. on Form 8-K
filed with the
Commission on
October 10, 1997.
10.2 Management Services Agreement Exhibit 10.2 to
by and among Registrant, Registration
Boonville Mining Services, Statement on
Inc., Minserco, Inc. and Form S-4 of
Von's Welding, Inc. and Registrant,
American Industrial Partners. Boonville Mining
Services, Inc.,
Minserco, Inc. and
Von's Welding, Inc.
(SEC Registration
No. 333-39359)
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Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
10.3 Registration Agreement dated Exhibit 10.3 to
September 24, 1997 by and Registration
among Registrant, Boonville Statement on
Mining Services, Inc., Form S-4 of
Minserco, Inc. and Von's Registrant,
Welding, Inc. and Salomon Boonville Mining
Brothers, Inc., Jefferies & Services, Inc.,
Company, Inc. and Donaldson, Minserco, Inc. and
Lufkin & Jenrette Securities Von's Welding, Inc.
Corporation. (SEC Registration
No. 333-39359)
10.4 Joint Prosecution Agreement Exhibit 9 to
dated as of August 21, 1997 Registrant's
by and among Registrant and Tender Offer
Jackson National Life Solicitation/
Insurance Company. Recommendation
Statement on
Schedule 14D-9
filed with the
Commission on
August 26, 1997.
10.5 Settlement Agreement dated Exhibit 10 to
as of August 21, 1997, by Registrant's
and between Jackson National Tender Offer
Life Insurance Company and Solicitation/
Registrant. Recommendation
Statement on
Schedule 14D-9
filed with the
Commission on
August 26, 1997.
10.6 Letter Agreement dated Exhibit 10.15
March 7, 1997 between to Registrant's
Jefferies & Company, Inc. Quarterly Report
and Registrant. on Form 10-Q for
the quarter ended
June 30, 1997.
10.7 Letter Agreement dated Exhibit 10.16
July 30, 1997 between to Registrant's
Jefferies & Company, Inc. Quarterly Report
and Registrant. on Form 10-Q for
the quarter ended
June 30, 1997.
10.8 Employment Agreement Exhibit 10.27 to
between Registrant and Registrant's
W. R. Hildebrand dated Annual Report on
as of March 11, 1996. Form 10-K for
the year ended
December 31, 1995.
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Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
10.9 Employment Agreement Exhibit 10.38 to
between Registrant and Registrant's
D. J. Smoke dated as of Annual Report on
November 7, 1996. Form 10-K for
the year ended
December 31, 1996.
10.10 Employment Agreement Exhibit 10.17 to
between Registrant and Registrant's
C. R. Mackus dated as of Quarterly Report
May 21, 1997. on Form 10-Q for
the quarter ended
June 30, 1997.
10.11 Employment Agreement Exhibit 10.18 to
between Registrant and Registrant's
M. G. Onsager dated as of Quarterly Report
May 21, 1997. on Form 10-Q for
the quarter ended
June 30, 1997.
10.12 Employment Agreement Exhibit 10.19 to
between Registrant and Registrant's
T. B. Phillips dated as of Quarterly Report
May 21, 1997. on Form 10-Q for
the quarter ended
June 30, 1997.
10.13 Employment Agreement Exhibit 10.20 to
between Registrant and Registrant's
T. W. Sullivan dated as of Quarterly Report
May 21, 1997. on Form 10-Q for
the quarter ended
June 30, 1997.
10.14 Annual Management Incentive Exhibit 10.14 to
Plan for 1997, adopted by Registrant's
Board of Directors Annual Report on
February 5, 1997. Form 10-K for
year ended
December 31, 1997.
10.15 Amendment No. 1 dated Exhibit 10.15 to
March 5, 1998 to Employment Registrant's
Agreement dated March 11, Annual Report on
1996 between Registrant Form 10-K for
and W. R. Hildebrand. year ended
December 31, 1997.
10.16 Amendment No. 1 dated Exhibit 10.16 to
March 17, 1998 to Employment Registrant's
Agreement dated November 7, Annual Report on
1996 between Registrant Form 10-K for
and D. J. Smoke. year ended
December 31, 1997.
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Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
10.17 1998 Management Stock Option Exhibit 10.17 to
Plan. Registrant's
Annual Report on
Form 10-K for
year ended
December 31, 1997.
10.18 Employment Agreement X
between Registrant and
F. P. Bruno dated as of
December 1, 1997.
10.19 Employment Agreement X
between Registrant and
S. R. Light dated as of
December 9, 1998.
10.20 Secured Promissory Note X
between Stephen R. Light
and the Registrant
dated December 18, 1998.
10.21 Pledge Agreement between X
Stephen R. Light and the
Registrant dated
December 18, 1998.
21.1 Subsidiaries of Registrant. Exhibit 21.1 to
Registration
Statement on
Form S-4 of
Registrant,
Boonville Mining
Services, Inc.,
Minserco, Inc. and
Von's Welding, Inc.
(SEC Registration
No. 333-39359)
24.1 Powers of Attorney X*
27.1 Financial Data Schedule X
(Edgar filing only.)
99.1 Management Agreement, Exhibit 99.2 to
dated July 21, 1995, Registrant's
between Registrant Current Report on
and Miller Associates. Form 8-K, dated
July 25, 1995.
99.2 Amendment dated Exhibit 99.2(a)
December 21, 1995 to to Registrant's
Management Agreement Annual Report on
with Miller Associates Form 10-K for
dated July 21, 1995. the year ended
December 31, 1995.
*Included as part of the signature pages to this Annual Report on Form 10-K.
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