UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 1-871
BUCYRUS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 39-0188050
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P. O. BOX 500
1100 MILWAUKEE AVENUE
SOUTH MILWAUKEE, WISCONSIN 53172
(Address of Principal (Zip Code)
Executive Offices)
(414) 768-4000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ X ] No [ ]
As of March 25, 1998, 1,438,100 shares of common stock of the Registrant
were issued and outstanding. Of the total outstanding shares of common stock
on March 25, 1998, 1,430,300 were held of record by American Industrial
Partners Acquisition Company, LLC, which may be deemed an affiliate of Bucyrus
International, Inc. There is no established public trading market for such
stock.
Documents Incorporated by Reference. None.
<PAGE>
PART I
ITEM 1. BUSINESS
Bucyrus International, Inc. (the "Company"), formerly known as Bucyrus-
Erie Company, was incorporated in Delaware in 1927 as the successor to a
business which commenced in 1880.
The AIP Merger
On August 21, 1997, the Company entered into an Agreement and Plan of
Merger (the "AIP Agreement") with American Industrial Partners Acquisition
Company, LLC ("AIPAC"), which is wholly-owned by American Industrial Partners
Capital Fund II, L.P. ("AIP"), and Bucyrus Acquisition Corp. ("BAC"), a
wholly-owned subsidiary of AIPAC. On August 26, 1997, pursuant to the AIP
Agreement, BAC commenced an offer to purchase for cash 100% of the outstanding
shares of common stock of the Company (the "Common Stock") at a price of
$18.00 per share (the "AIP Tender Offer"). Consummation of the AIP Tender
Offer occurred on September 24, 1997, and BAC was merged with and into the
Company on September 26, 1997 (the "AIP Merger"). The Company was the
surviving entity in the AIP Merger and is currently wholly-owned by AIPAC.
The purchase of all of the Company's outstanding shares of common stock by
AIPAC resulted in a change in control of voting interest.
The Marion Acquisition
On August 26, 1997, the Company consummated the acquisition (the "Marion
Acquisition") of certain assets and liabilities of The Marion Power Shovel
Company, a subsidiary of Global Industrial Technologies, Inc. ("Global"), and
of certain subsidiaries and divisions of Global that represented Global's
surface mining equipment business in Australia, Canada and South Africa
(collectively referred to herein as "Marion"). The cash purchase price for
Marion was $36,720,000, which includes acquisition expenses of $1,695,000.
The 1994 Reorganization
The Company was a wholly-owned subsidiary of B-E Holdings, Inc.
("Holdings") until December 14, 1994 when Holdings was merged with and into
the Company pursuant to the terms of the Second Amended Joint Plan of
Reorganization of B-E Holdings, Inc. and Bucyrus-Erie Company under chapter 11
of the Bankruptcy Code, as modified December 1, 1994 (the "Amended Plan").
On February 22, 1993, the Company and Holdings announced their intention
to pursue a reorganization of their capital structures (the "Reorganization")
and commenced negotiations for a prepackaged chapter 11 financial
reorganization with certain of their secured and unsecured creditors, and on
February 18, 1994, Holdings and the Company commenced voluntary petitions
under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court, Eastern
District of Wisconsin (the "Bankruptcy Court"). On December 14, 1994 (the
"Effective Date"), the Amended Plan became effective and the Company and
Holdings consummated the Reorganization through the implementation of the
Amended Plan. None of the Company's or Holdings' subsidiaries were involved
in the bankruptcy proceedings. The Amended Plan provided for payment in full
of the allowed claims of the Company's vendors, suppliers and other trade
creditors. The claims of current and retired employees of the Company were
not affected by the Amended Plan.
The purpose of the Reorganization was to improve and enhance the long-
term viability of the Company by adjusting its capitalization to reflect
current and projected operating performance levels. Specifically, the Amended
Plan was designed to reduce the Company's overall indebtedness and its
corresponding debt service obligations by exchanging all outstanding senior
unsecured debt securities for common equity.
On the Effective Date, Holdings merged with and into the Company pursuant
to the Amended Plan and the Agreement and Plan of Merger dated as of
December 14, 1994 between Holdings and the Company (the "Merger Agreement").
Pursuant to the Amended Plan and the Merger Agreement, the Company issued
shares of Common Stock to holders of Holdings' and the Company's unsecured
debt securities and Holdings' equity securities in exchange for such
securities. Also on the Effective Date, the Company issued an aggregate
principal amount of $52,072,000 of Secured Notes due December 14, 1999 (the
"Secured Notes") in exchange for the Company's previously outstanding debt
obligations. In 1996, 97.2% of the Secured Notes were purchased by Jackson
National Life Insurance Company ("JNL"), a former affiliate of the Company.
Industry Overview
The Company designs, manufactures and markets large excavation machinery
used for surface mining, and supplies replacement parts and service for such
machines. The Company's principal products are large walking draglines,
electric mining shovels and blast hole drills, which are used by customers who
mine coal, iron ore, copper, phosphate, bauxite and other minerals throughout
the world.
The large-scale surface mining equipment manufactured and serviced by the
Company is used primarily in coal, copper, and iron ore mines throughout the
world. Growth in demand for these commodities is a function of population
growth and continuing improvements in standards of living in many areas of the
world. The market for new surface mining equipment is somewhat cyclical in
nature due to market fluctuations for these commodities; however, the
aftermarket for parts and services is more stable because these expensive,
complex machines are typically kept in continuous operation for 15 to 30 years
and require regular maintenance and repair throughout their productive lives.
The largest markets for this mining equipment have been in Australia,
Canada, China, India, Russia, South Africa, South America, and the United
States. Together, these markets typically account for approximately 90% of
all new machines sold, although in any given year markets in other countries
may assume greater importance.
Markets Served
The Company's products are used in a variety of different types of mining
operations, including gold, phosphate, bauxite, and oil sands, as well as for
land reclamation. The Company manufactures surface mining equipment primarily
for large companies and quasi-governmental entities engaged in the mining of
coal, iron ore, and copper throughout the world. Until the late 1980's, coal
mining accounted for the largest percentage of industry demand for the
Company's machines, and it continues to be one of the largest users of
replacement parts and services. In recent years, however, copper and iron ore
mining operations have accounted for an increasingly greater share of new
machine sales. Nevertheless, while the copper and iron ore mining industries
have accounted for the majority of new machine sales in recent years, the
increasing worldwide demand for coal is expected to continue and the Company
expects that coal mining will account for an increasing percentage of new
machine sales over the next several years.
Copper. From 1995 to 1996, copper consumption increased by 2.5% in
the United States, with European countries such as France, Germany, Italy
and Britain experiencing similar growth. This growth in demand was
attributable to both general economic growth as well as increased use of
copper in high-tech industrial production. Unusual trading activity led
to a sharp decline in copper prices in mid-1996 from historically high
levels; however, since then, copper prices recovered, but then declined
in the fourth quarter of 1997 partially due to financial problems of
countries in the Far East. According to Metal Bulletin Research, an
industry periodical, copper consumption is expected to grow at
approximately 2.5% in 1998.
Iron Ore. Although iron ore demand decreased with the worldwide
recession of 1992 and 1993, and Japanese and European iron ore buyers
lowered ore contract prices significantly in 1992 and again in 1993,
there was an increase in iron ore production in late 1994 that was
sustained through 1995 when global consumption increased, creating
additional demand for steel. In 1995, iron ore was the most widely
traded non-energy commodity in both value and volume, and the iron ore
market passed the one billion tons level, setting a new record for the
worldwide industry. Prices for iron ore began to recover slightly in
1995 and 1996, climbing back to 1992 levels. In 1997, AME Mineral
Economic analysts predicted that iron ore production will rise 10% by the
year 2000.
Coal. The demand for steam coal, which represents approximately 85%
of total coal mining activity, is based largely on the demand for
electric power and the price and availability of competing sources of
energy such as oil, natural gas, and nuclear power. Initially, the 1973
Arab oil embargo resulted in an unprecedented increase in the demand for
coal production, reflecting expectations that oil prices would continue
to rise. Eventually the effects of a worldwide recession, escalating
interest rates, energy conservation efforts, and an increase in the
world's supply of oil resulted in a sharp drop in demand for coal. More
recently, coal production in the United States has been impacted by the
Clean Air Act, causing higher sulfur coal mines to be closed or to have
outputs drastically curtailed. Many machines have been shut down and a
few have been relocated to lower sulfur coal mines in eastern Appalachia
and Wyoming's Powder River Basin where excess production capacity and
stagnant demand have driven coal prices downward. Nevertheless, the
increase in demand for coal in developing countries with rapidly growing
populations, such as India and China, has stimulated coal mining
production worldwide and is eventually expected to increase both domestic
and foreign demand for excavation equipment. The Energy Information
Administration is forecasting an increase in world energy demand and an
increase in world coal consumption.
The Company's excavation machines are used for land reclamation as well
as for mining, which has a positive effect on the demand for its products and
replacement parts and expands the Company's potential customer base. Current
federal and state legislation regulating surface mining and reclamation may
affect some of the Company's customers, principally with respect to the cost
of complying with, and delays resulting from, reclamation and environmental
requirements.
OEM Products
The Company's line of original equipment manufactured products includes a
full range of rotary blast hole drills, electric mining shovels, and
draglines.
Rotary Blast Hole Drills. Most surface mines require breakage or
blasting of rock, overburden, or ore by explosives. To accomplish this,
it is necessary to bore out a pattern of holes into which the explosives
are placed. Rotary blast hole drills are used to drill these holes, and
are usually described in terms of the diameter of the hole they bore.
The average life of a blast hole drill is 15 to 20 years.
The Company offers a line of rotary blast hole drills ranging in
hole diameter size from 9.0 inches to 17.5 inches and ranging in price
from approximately $1,500,000 to $2,800,000 per drill, depending on
machine size and variable features.
In an effort to enhance drill sales and expand its market position,
the Company introduced the Model 39R diesel hydraulic blast hole drill in
1996, the Company's third drill model and first diesel hydraulic blast
hole drill. This innovative machine breaks new ground in maneuverability
and the ability to drill in difficult terrain, as well as offering
extraordinary drill productivity and functions unavailable in other
manufacturers' models.
Electric Mining Shovels. Mining shovels are primarily used to load
coal, copper ore, iron ore, other mineral-bearing materials, overburden,
or rock into trucks. There are two basic types of mining shovels,
electric and hydraulic. Electric mining shovels are able to handle
larger shovels or "dippers", allowing them to load greater volumes of
rock and minerals, while hydraulic shovels are smaller and more
maneuverable. The Company manufactures only electric mining shovels.
The average life of an electric mining shovel is 15 to 20 years.
Shovels are characterized in terms of weight and dipper capacity.
The Company offers a full line of electric mining shovels, weighing from
400 to 1,000 tons and having dipper capacities from 12 to 80 cubic yards.
Prices range from approximately $3,000,000 to approximately $9,000,000
per shovel.
Draglines. Draglines are primarily used to remove overburden, which
is the earth located over a coal or mineral deposit, by dragging a large
bucket through the overburden, carrying it away and depositing it in a
remote spoil pile. The Company's draglines weigh from 500 to 7,500 tons,
and are typically described in terms of their "bucket size", which can
range from nine to 220 cubic yards. The Company currently offers a full
line of models ranging in price from $10,000,000 to over $60,000,000 per
dragline. The average life of a dragline is 20 to 30 years.
Draglines are the industry's largest and most expensive type of
equipment, and while sales are sporadic, each dragline represents a
significant sales opportunity.
Aftermarket Parts and Services
The Company has a comprehensive aftermarket business that supplies
replacement parts and services for the surface mining industry. Although the
vast majority of the Company's sales of aftermarket parts and services has
been in support of the large installed equipment base of Bucyrus machines
worldwide, the Company also manufactures parts and provides services for other
manufacturers' installed equipment. The Company's aftermarket services
include maintenance and repair labor, technical advice, refurbishment, and
relocation of older, installed machines, particularly draglines. The Company
also provides engineering, manufacturing, and servicing for the consumable
rigging products that attach to dragline buckets (such as dragline teeth and
adapters, shrouds, dump blocks, and chains) and shovel dippers (such as dipper
teeth, adapters, and heel bands).
In general, the Company realizes higher margins on sales of parts and
services than it does on sales of new machines. Moreover, because the
expected life of large, complex mining machines ranges from 15 to 30 years,
the Company's aftermarket business is inherently more stable and predictable
than the fluctuating market for new machines. Over the life of a machine, net
sales generated from aftermarket parts and services can exceed the original
purchase price.
A substantial portion of the Company's international repair and
maintenance services are provided through its global network of wholly-owned
foreign subsidiaries and overseas offices operating in Australia, Brazil,
Canada, Chile, China, England, India, Mauritius, and South Africa. The
Company's two domestic subsidiaries, Minserco, Inc. ("Minserco") and Boonville
Mining Services, Inc. ("BMSI"), provide repair and maintenance services
throughout North America. Minserco, which maintains offices in Florida,
Kentucky, Texas, and Wyoming, provides comprehensive structural and mechanical
engineering, non-destructive testing, repairs and rebuilds of machine
components, product and component upgrades, contract maintenance, turnkey
erections, and machine moves. Minserco's services are provided almost
exclusively to maintenance and repair of Bucyrus machines operating in North
America. BMSI, located in Boonville, Indiana, manufactures replacement parts
and provides repair and rebuild services both for Bucyrus machines and other
manufacturers' equipment. The majority of BMSI's business is located in North
America.
To comply with the increasing aftermarket demands of larger mining
customers, the Company offers comprehensive Maintenance and Repair Contracts
("MARCs"). Under these contracts, the Company provides all replacement parts,
regular maintenance services, and necessary repairs for the excavation
equipment at a particular mine with an on-site support team. In addition,
some of these contracts call for Company personnel to operate the equipment
serviced. MARCs are highly beneficial to the Company's mining customers
because they promote high levels of equipment reliability and performance,
allowing the customer to concentrate on mining production. MARCs typically
have terms of three to five years with standard termination and renewal
provisions, although some contracts allow termination by the customer for any
cause. New mines in areas such as Chile and Argentina are the primary targets
for MARCs because it is difficult and expensive for mining companies to
establish the necessary infrastructures for ongoing maintenance and repair in
remote locations.
Customers
The Company does not consider itself dependent upon any single customer
or group of customers; however, on an annual basis a single customer may
account for a large percentage of sales, particularly new machine sales. In
1997 and 1995, one customer accounted for approximately 14% and 22%,
respectively, of the Company's consolidated net sales. In 1996, a different
customer accounted for approximately 14% of the Company's consolidated net
sales.
Marketing, Distribution and Sales
In the United States, new mining machinery is primarily sold directly by
Company personnel, and to a lesser extent through a northern Minnesota
distributor who supplies customers in the iron ore mining regions of the Upper
Midwest. Outside of the United States, new equipment is sold by Company
personnel, through independent distributors and through the Company's
subsidiaries and offices located in Australia, Brazil, Canada, Chile, China,
England, India, Mauritius, and South Africa. Aftermarket parts and services
are primarily sold directly through the Company's foreign subsidiaries and
offices and through the Company's domestic subsidiaries, Minserco and BMSI.
The Company believes that marketing through its own global network of
subsidiaries and offices offers better customer service and support by
providing customers with direct access to the Company's technological and
engineering expertise.
With the exception of the MARC business, all the Company's sales are on a
project-by-project basis. Typical payment terms for new equipment require a
down payment, and invoicing is done on a percentage of completion basis such
that a substantial portion of the purchase price is received by the time
shipment is made to the customer. Sales contracts for machines are
predominantly at fixed prices, with escalation clauses in certain cases. Most
sales of replacement parts call for prices in effect at the time of order.
During 1997, price increases from inflation had a relatively minor impact on
the Company's reported net sales.
Foreign Operations
A substantial portion of the Company's net sales and operating earnings
is attributable to operations located abroad. Over the past five years, over
70% of the Company's new machine sales have been in international markets.
The Company's foreign sales, consisting of exports from the United States and
sales by consolidated foreign subsidiaries, totaled $235,750,000 in 1997,
$191,888,000 in 1996 and $169,077,000 in 1995. Approximately $178,237,000 of
the Company's backlog of firm orders on December 31, 1997 represented orders
for export sales compared with $133,115,000 on December 31, 1996 and
$94,554,000 on December 31, 1995.
The Company's largest foreign markets are in Australia, Chile, China, and
South Africa. The Company also employs direct marketing strategies in
developing markets such as Brazil, India, Indonesia, Jordan, Morocco, and
Russia. In recent years, Australia and South Africa have emerged as strong
producers of metallurgical coal, while Chile and South Africa have continued
to be leading producers of other minerals, primarily copper and gold,
respectively. The Company expects that India, Russia and China will become
major coal producing regions in the future. In India, the world's second most
populous country, the demand for coal as a major source of energy is expected
to increase over the next several decades.
New machine sales in foreign markets are supported by the Company's
established network of foreign subsidiaries and overseas offices that directly
market the Company's products and provide ongoing services and replacement
parts for equipment installed abroad. The availability and convenience of the
services provided through this worldwide network not only promotes high margin
aftermarket sales of parts and services, but also gives the Company an
advantage in securing new machine orders.
The Company and its domestic subsidiaries normally price their products,
including direct sales of new equipment to foreign customers, in U.S. dollars.
Foreign subsidiaries normally procure and price aftermarket replacement parts
and repair services in the local currency. Approximately 70% of the Company's
net sales are priced in U.S. dollars. The value, in U.S. dollars, of the
Company's investments in its foreign subsidiaries and of dividends paid to the
Company by those subsidiaries will be affected by changes in exchange rates.
The Company does not normally enter into currency hedges, although it may do
so with regard to certain individual contracts.
Further information regarding foreign operations is included in ITEM 8 -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Competition
There are a limited number of manufacturers of new surface mining
equipment. The Company is one of two manufacturers of electric mining shovels
and draglines. The Company's only competitor in electric mining shovels and
draglines is Harnischfeger Corporation, although electric mining shovels also
compete against hydraulic shovels of which there are at least six other
manufacturers. In rotary blast hole drills, the Company competes with at
least three other manufacturers, including Harnischfeger Corporation. Methods
of competition are diverse and include product design and performance,
service, delivery, application engineering, pricing, financing terms, and
other commercial factors.
For most owners of the Company's machines, the Company is the primary
replacement source for large, heavily engineered, integral components;
however, the Company encounters intense competition for sales of smaller, less
sophisticated, consumable replacement parts and repair services in certain
markets. The Company's competition in parts sales consists primarily of
smaller independent firms called "will-fitters", that produce copies of the
parts manufactured by the Company and other original equipment manufacturers.
These copies are generally sold at lower prices than genuine parts produced by
the manufacturer. Outside North America, customers mainly rely upon the
Company's subsidiaries to provide aftermarket parts and services.
The Company has a variety of programs to attract large volume customers
for its replacement parts. Although will-fitters engage in significant price
competition in parts sales, the Company possesses clear non-price advantages
over will-fitters. The Company's engineering and manufacturing technology and
marketing expertise exceed that of its will-fit competitors, who are in many
cases unable to duplicate the exact specifications of genuine Bucyrus parts.
Moreover, use of parts not manufactured by the Company can void the warranty
on a new Bucyrus machine, which generally runs for one year on new equipment,
with certain components being warranted for longer periods.
Raw Materials and Supplies
The Company purchases from outside vendors the semi- and fully-processed
materials (principally structural steel, castings, and forgings) required for
its manufacturing operations, and other items, such as electrical equipment,
that are incorporated directly into the end product. The Company's foreign
subsidiaries purchase components and manufacturing services both from local
subcontractors and from the Company. Certain additional components are
sometimes purchased from subcontractors, either to expedite delivery schedules
in times of high demand or to reduce costs. Moreover, in countries where
local content preferences or requirements exist, local subcontractors are used
to manufacture a substantial portion of the components required in the
Company's foreign manufacturing operations. Although the Company is not
dependent upon any single supplier, there can be no assurance that the Company
will continue to have an adequate supply of raw materials or components
necessary to enable it to meet the demand for its products. Competitors are
believed to be subject to similar conditions.
Manufacturing
A substantial portion of the design, engineering, and manufacturing of
the Company's machines is done at the Company's South Milwaukee, Wisconsin
plant. The size and weight of these mining machines dictates that the
machines be shipped to the job site in sub-assembled units where they are
assembled for operation with the assistance of Company technicians. Planning
and on-site coordination of machine assembly is a critical component of the
Company's service to its customers. Moreover, to reduce lead time and assure
that customer delivery requirements are met, the Company maintains an
inventory of sub-assembled units for frequently utilized components of various
types of equipment.
The Company manufactures and sells replacement parts and components and
provides comprehensive aftermarket service for its entire line of mining
machinery. The Company's large installed base of surface mining machinery
provides a steady stream of parts sales due to the long useful life of the
Company's machines, averaging 20 to 30 years for draglines and 15 to 20 years
for electric mining shovels and blast hole drills. Parts sales and
aftermarket services comprise a substantial portion of the Company's net
sales. The Company also provides aftermarket service for certain equipment of
other original equipment manufacturers through BMSI.
Although a majority of the Company's operating profits are derived from
sales of parts and services, the long-term prospects of the Company depend
upon maintaining a large installed equipment base worldwide. Therefore, the
Company remains committed to improving the design and engineering of its
existing line of machines, as well as developing new products. In 1996, a
machine shop modernization program began at the Company's South Milwaukee,
Wisconsin manufacturing facility that involves a $20,000,000 investment in the
latest technology in the machine tool industry. The program is aimed at
reduced lead times, quicker turnaround, reduced in-process inventory, and
overall cost reduction.
Backlog
The backlog of firm orders for the Company was $216,021,000 at
December 31, 1997 and $158,727,000 at December 31, 1996. Approximately 35% of
the backlog at December 31, 1997 is not expected to be filled during 1998.
Inventories
Inventories of the Company at December 31, 1997 were $115,015,000
compared with $70,889,000 at December 31, 1996. At December 31, 1997 and
December 31, 1996, finished goods inventory (primarily replacement parts)
totalling $76,996,000 and $44,148,000, respectively, were held to meet
delivery requirements of customers. The increase in inventory primarily
reflects the purchase of Marion during 1997.
Patents, Licenses and Franchises
The Company has a number of United States and foreign patents, patent
applications and patent licensing agreements. It does not consider its
business to be materially dependent upon any patent, patent application,
patent license agreement or group thereof.
Research and Development
Expenditures by the Company for design and development of new products
and improvements of existing mining machinery products, including overhead,
aggregated $7,384,000 in 1997, $6,930,000 in 1996 and $5,739,000 in 1995. All
engineering and product development costs are charged to Product Development
Expense as incurred.
Environmental Factors
Environmental problems have not interfered in any material respect with
the Company's manufacturing operations. The Company believes that its
compliance with statutory requirements respecting environmental quality will
not materially affect its capital expenditures, earnings or competitive
position. The Company has an ongoing program to address any potential
environmental problems.
Current federal and state legislation regulating surface mining and
reclamation may affect some of the Company's customers, principally with
respect to the cost of complying with, and delays resulting from, reclamation
and environmental requirements. The Company's products are used for
reclamation as well as for mining, which has a positive effect on the demand
for such products and replacement parts therefor.
Employees
At December 31, 1997, the Company employed 1,531 persons. The four-year
contract with the union representing hourly workers at the South Milwaukee,
Wisconsin facility and the three-year contract with the union representing
hourly workers at the Memphis, Tennessee facility expire in April, 2001 and
August, 1998, respectively.
Seasonal Factors
The Company does not consider a material portion of its business to be
seasonal.
ITEM 2. PROPERTIES
The Company's principal manufacturing plant in the United States is
located in South Milwaukee, Wisconsin, and is owned by the Company. This
plant comprises approximately 1,038,000 square feet of floor space. A portion
of this facility houses the Company's corporate offices. The major buildings
at this facility are constructed principally of structural steel, concrete,
and brick and have sprinkler systems and other devices for protection against
fire. The buildings and equipment therein, which include machine tools and
equipment for fabrication and assembly of the Company's mining machinery,
including draglines, electric mining shovels, and blast hole drills, are well-
maintained, in good condition, and in regular use.
The Company leases a facility in Memphis, Tennessee, which has
approximately 110,000 square feet of floor space and is used as a central
parts warehouse. The current lease is for five years commencing in July 1996
and contains an option to renew for an additional five years.
BMSI leases a facility in Boonville, Indiana which has approximately
60,000 square feet of floor space on a 5.84 acre parcel of land. The facility
has the manufacturing capability of large machining, gear cutting, heavy
fabricating, rebuilding, and stress relieving. The major manufacturing
buildings are constructed principally of structural steel with metal siding.
The Company also has administrative and sales offices and, in some
instances, repair facilities and parts warehouses, at certain of its foreign
locations, including Australia, Brazil, Canada, Chile, China, England, India,
and South Africa.
ITEM 3. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
Joint Prosecution
The Company and JNL entered into a joint prosecution agreement (the
"Joint Prosecution Agreement") dated as of August 21, 1997 relating to various
claims the Company and JNL have or may have resulting from the Reorganization
against the law firm of Milbank, Tweed, Hadley & McCloy ("Milbank") for
disgorgement of fees (the "Disgorgement Claim") and other claims
(collectively, the "Milbank Claims"). All proceeds of the Milbank Claims will
be allocated as follows: (i) first, to pay, or to reimburse the prior payment
of, all bona fide third-party costs, expenses and liabilities incurred on or
after September 1, 1997 in connection with prosecuting the Milbank Claims (the
"Joint Prosecution") including, without limitation, the reasonable fees and
disbursements of counsel and other professional advisors, which are to be
advanced by JNL; (ii) the next $8,675,000 of proceeds from the Milbank Claims,
if any, will be paid to JNL, provided that the Company will retain 10% of the
proceeds of the Disgorgement Claim, if any, and will direct payment to JNL of
the balance of such proceeds; and (iii) all additional proceeds of the Milbank
Claims will be divided equally between JNL and the Company. Notwithstanding
the foregoing, the Company shall also receive the benefit of any reduction of
any obligation it may have to pay Milbank's outstanding fees, if any. JNL
will indemnify the Company in respect of any liability resulting from the
Joint Prosecution other than in respect of legal fees and expenses incurred
prior to September 1, 1997. The Joint Prosecution may involve lengthy and
complex litigation and there can be no assurance whether or when any recovery
may be obtained or, if obtained, whether it will be in an amount sufficient to
result in the Company receiving any portion thereof under the formula
described above.
Consistent with the Joint Prosecution Agreement, on September 25, 1997,
the Company and JNL commenced an action against Milbank (the "Milwaukee
Action") in the Milwaukee County Circuit Court. The Company seeks damages
against Milbank arising out of Milbank's alleged malpractice, breach of
fiduciary duty, common law fraud, breach of contract, unjust enrichment and
breach of the obligation of good faith and fair dealing. JNL seeks damages
against Milbank arising out of Milbank's alleged tortious interference with
contractual relations, abuse of process and common law fraud. The Company and
JNL seek to recover actual and punitive damages from Milbank. The Milwaukee
Action may involve lengthy and complex litigation and there can be no
assurance whether or when any recovery may be obtained or, if obtained,
whether it will be in an amount sufficient to result in the Company receiving
any portion thereof under the formula described above.
On December 18, 1997, the Bankruptcy Court approved a compromise among
the Company, JNL, Milbank and the United States Trustee pursuant to which
Milbank paid to the Company the sum of approximately $1,863,000, representing
the full amount of fees and expenses paid by the Company to Milbank during the
Reorganization. Pursuant to the Joint Prosecution Agreement, the Company paid
90% of this amount (approximately $1,677,000) to JNL. In return, the Company
and JNL withdrew their motions seeking disgorgement of the funds paid to
Milbank during the Reorganization. The Company retained all of its rights to
pursue the Milwaukee Action and any other separate action.
Settlement of 503(b) Claim
During the pendency of the Reorganization, JNL filed a claim (the "503(b)
Claim") against the Company with the Bankruptcy Court for reimbursement of
approximately $3,300,000 of professional fees and disbursements incurred in
connection with the Reorganization pursuant to Section 503(b) of the
Bankruptcy Code. By order dated June 3, 1996, the Bankruptcy Court awarded
JNL the sum of $500. JNL appealed the decision to the United States District
Court for the Eastern District of Wisconsin (the "District Court"). On June
26, 1997, the District Court denied the appeal as moot but returned the matter
to the Bankruptcy Court for further proceedings with leave to appeal again
after further determination by the Bankruptcy Court. On July 11, 1997, JNL
moved the Bankruptcy Court for relief from the final judgment entered on the
503(b) Claim. Pursuant to a Settlement Agreement between the Company and JNL
dated as of August 21, 1997, JNL settled and released the Company from the
503(b) Claim in consideration of a payment to JNL by the Company of $200,000,
and the 503(b) claim was dismissed with prejudice on October 23, 1997.
West Machine and Tool Works
On September 23, 1997, Minserco, a wholly-owned subsidiary of the
Company, was found liable to BR West Enterprises, Inc. d/b/a West Machine and
Tool Works ("West") in litigation pending in the United States District Court
for the Eastern District of Texas (the "Texas Court"), for damages claimed
with regard to an alleged joint venture agreement (the "Minserco Litigation").
On October 29, 1997, a final judgment was entered in the approximate amount of
$4,300,000, including attorney's fees and costs. Minserco strongly disputes
the Findings of Fact and Conclusions of Law entered by the Texas Court and has
appealed the case to the United States Court of Appeals for the Fifth Circuit.
On November 5, 1997, the Company was sued by West in the Texas Court on
substantially similar grounds asserted in the Minserco Litigation in an
apparent attempt to hold the Company liable for the damages awarded to West in
the Minserco Litigation. The new complaint also seeks punitive damages in an
unspecified amount. It is the view of management that the Company's ultimate
liability, if any, in these actions is not expected to have a material effect
on the Company's financial position or results of operations, although no
assurance to that effect can be given.
Product Liability
The Company is normally subject to numerous product liability claims,
many of which relate to products no longer manufactured by the Company or its
subsidiaries, and other claims arising in the ordinary course of business.
The Company has insurance covering most of said claims, subject to varying
deductibles ranging from $300,000 to $3,000,000, and has various limits of
liability depending on the insurance policy year in question. It is the view
of management that the final resolution of said claims and other similar
claims which are likely to arise in the future will not individually or in the
aggregate have a material effect on the Company's financial position or
results of operations, although no assurance to that effect can be given.
Environmental and Related Matters
The Company's operations and properties are subject to a broad range of
federal, state, local and foreign laws and regulations relating to
environmental matters, including laws and regulations governing discharges
into the air and water, the handling and disposal of solid and hazardous
substances and wastes, and the remediation of contamination associated with
releases of hazardous substances at Company facilities and at off-site
disposal locations. These laws are complex, change frequently and have tended
to become more stringent over time. Future events, such as compliance with
more stringent laws or regulations, or more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
could require additional expenditures by the Company, which may be material.
Certain environmental laws, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), provide for
strict, joint and several liability for investigation and remediation of
spills and other releases of hazardous substances. Such laws may apply to
conditions at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which wastes or
other contamination attributable to an entity or its predecessors come to be
located.
The Company was one of 53 entities named by the United States
Environmental Protection Agency ("EPA") as potentially responsible parties
("PRPs") with regard to the Millcreek dumpsite, located in Erie County,
Pennsylvania, which is on the National Priorities List of sites for cleanup
under CERCLA. The Company was named as a result of allegations that it
disposed of foundry sand at the site in the 1970s. Both the United States
government and the Commonwealth of Pennsylvania initiated actions to recover
cleanup costs. The Company has settled with both with respect to its
liability for past costs. In addition, 37 PRPs, including the Company, have
received Administrative Orders issued by the EPA pursuant to Section 106(a) of
CERCLA to perform site capping and flood control remediation at the Millcreek
site. The Company is one of 18 parties responsible for a share of the
estimated $7,000,000 in costs, which share is presently proposed as per capita
but may be subject to reallocation before the conclusion of the case.
In December 1990, the Wisconsin Department of Natural Resources ("DNR")
conducted a pre-remedial screening site inspection on property owned by the
Company located at 1100 Milwaukee Avenue in South Milwaukee, Wisconsin.
Approximately 35 acres of this site were allegedly used as a landfill by the
Company until approximately 1983. The Company disposed of certain
manufacturing wastes at the site, primarily foundry sand. The DNR's Final
Site Screening Report, dated April 16, 1993, summarized the results of
additional investigation. A DNR Decision Memo, dated July 21, 1991, which was
based upon the testing results contained in the Final Site Screening Report,
recommended additional groundwater, surface water, sediment and soil sampling.
To date, the Company is not aware of any initiative by the DNR to require any
further action with respect to this site. Consequently, the Company has not
regarded, and does not regard, this site as presenting a material contingent
liability. There can be no assurance, however, that additional investigation
by the DNR will not be conducted with respect to this site at some later date
or that this site will not in the future require removal or remedial actions
to be performed by the Company, the costs of which could be material,
depending on the circumstances.
Prior to 1985, a wholly-owned, indirect subsidiary of the Company
provided comprehensive general liability insurance coverage for affiliate
corporations. The subsidiary issued such policies for occurrences during the
years 1974 to 1984, which policies could involve material liability. Claims
have been made under certain of these policies for certain potential CERCLA
liabilities of former subsidiaries of the Company. It is possible that other
claims could be asserted in the future with respect to such policies. While
the Company does not believe that liability under such policies will result in
material costs, this cannot be guaranteed.
Along with multiple other parties, the Company or its subsidiaries are
currently PRP's under CERCLA and analogous state laws at three additional
sites at which the Company and/or its subsidiaries (including the above
referenced insurance subsidiary by insurance claim) may incur future costs.
The Company believes that one of these cases has been settled. While CERCLA
imposes joint and several liability on responsible parties, liability for each
site is likely to be apportioned among the parties. The Company does not
believe that its potential liability in connection with these sites or any
other discussed above, either individually or in the aggregate, will have a
material adverse effect on the Company's business, financial condition or
results of operations. However, the Company cannot guarantee that it will not
incur cleanup liability in the future with respect to sites formerly or
presently owned or operated by the Company, or with respect to off-site
locations, the costs of which could be material.
While no assurance can be given, the Company believes that expenditures
for compliance and remediation will not have a material effect on its capital
expenditures, earnings or competitive position.
The Company has also been named as a defendant in eight pending premises
liability asbestos cases which are proceeding in the state courts of Indiana
and in federal court, and has been named as a defendant in one product
liability asbestos case. In all these cases, insurance carriers have accepted
the defense of such cases. These cases are in preliminary stages and while
the Company does not believe that costs associated with these matters will be
material, it cannot guarantee that this will be the case.
Other
The Company is involved in various other litigation arising in the normal
course of business. It is the view of management that the Company's recovery
or liability, if any, under pending litigation is not expected to have a
material effect on the Company's financial position or results of operations,
although no assurance to that effect can be given.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Substantially all of the Company's common stock is held by AIPAC and
there is no established public trading market therefor. The Company does not
have a recent history of paying dividends and has no present intention to pay
dividends in the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Successor (a) Predecessor (b) Predecessor(b)
September 24- January 1- Years Ended December 14- January 1- Year Ended
December 31, September 23, December 31, December 31, December 13, December 31,
1997 1997 1996 1995 1994 1994 1993
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Net sales $ 95,212 $211,465 $263,786 $231,921 $ 7,810 $186,174 $198,464
Earnings (loss)
before extra-
ordinary gain
and cumulative
effects of changes
in accounting
principles $ (7,158) $ (4,874) $ 2,878 $(18,772) $ (552) $(22,833) $(40,692)
Earnings (loss)
per share of
common stock
before extra-
ordinary gain
and cumulative
effects of changes
in accounting
principles (c):
Basic $ (5.00) $ (.48) $ .28 $ (1.84) $ (.05) $ (2.46) $ (4.56)
Diluted $ (5.00) $ (.47) $ .28 $ (1.84) $ (.05) $ (2.46) $ (4.56)
Adjusted EBITDA (d) $ 9,936 $ 18,704 $ 19,247 $ 8,256 $ 392 $ 12,883 $ 11,694
Cash dividends per
common share $ - $ - $ - $ - $ - $ - $ -
Consolidated Balance
Sheets Data:
Total assets $406,107 N/A $172,895 $174,038 $179,873 N/A $188,811
Long-term debt $174,612 N/A $ 66,627 $ 58,021 $ 53,170 N/A $ 769(e)
Redeemable
preferred stock N/A N/A N/A N/A N/A N/A $ 30,302
<FN>
(a) As a result of purchase accounting due to the acquisition of the Company by AIPAC on September 24, 1997, the
financial statements of the Successor are not comparable to the financial statements of the Predecessor.
(b) As a result of the Reorganization and implementation of fresh start reporting as of December 14, 1994, the
effective date of the Amended Plan, the financial statements of the Company subsequent to this date are not
comparable to the financial statements of the Predecessor prior to this date.
(c) Net loss per share of common stock for the period September 24, 1997 to December 31, 1997 is calculated on a
retroactive basis to reflect a stock split on March 17, 1998. See Note H to the Consolidated Financial Statements
for further discussion of this change in the Company's capital structure.
(d) Earnings before extraordinary gain, cumulative effects of changes in accounting principles, interest expense,
income taxes, depreciation, amortization, non-cash stock compensation, (gain) loss on sale of fixed assets,
nonrecurring items, restructuring expenses, reorganization items, and inventory fair value adjustment charged to
cost of products sold.
(e) Amounts are net of $201,979 at December 31, 1993 of long-term debt classified as a current liability.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended. Discussions containing such forward-looking
statements may be found in this section, as well as in ITEM 1 - BUSINESS and
elsewhere within this Report. Forward-looking statements include statements
regarding the intent, belief or current expectations of the Company, primarily
with respect to the future operating performance of the Company or related
industry developments. When used in this Report, terms such as "anticipate,"
"believe," "estimate," "expect," "indicate," "may be," "objective," "plan,"
"predict," and "will be" are intended to identify such statements. Readers
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ from those described in the forward-looking statements as a
result of various factors, many of which are beyond the control of the
Company. Forward-looking statements are based upon management's expectations
at the time they are made. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
such expectations ("Cautionary Statements") are disclosed in this Report. All
subsequent written or oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements.
On August 26, 1997, the Company consummated the Marion Acquisition. The
Company financed the Marion Acquisition and related expenses by utilizing an
unsecured bridge loan (the "Bridge Loan") provided by a former affiliate of
the Company, in the amount of $45,000,000. The Bridge Loan was repaid in full
on September 24, 1997 with a portion of the proceeds from the sale of the
Private Notes (see below).
On September 24, 1997, the Company completed the private placement of
$150,000,000 aggregate principal amount of its 9-3/4% Senior Notes due 2007
(the "Private Notes") in a transaction under Rule 144A of the Securities Act
of 1933, as amended (the "Act"). Following the completion of the sale of the
Private Notes, the Company purchased and cancelled its Secured Notes at a cost
of $67,414,000 including accrued interest, utilizing a portion of the proceeds
from the sale of the Private Notes.
On November 13, 1997, the Company commenced an Exchange Offer of up to
$150,000,000 of its 9-3/4% Senior Notes due 2007 (the "Senior Notes") in
exchange for a like amount of Private Notes. The Senior Notes were registered
under the Act. The Exchange Offer expired at 5:00 p.m. New York time on
December 18, 1997. The holders of 100% ($150,000,000) of Private Notes
elected to exchange their Private Notes for Senior Notes prior to the
expiration time. Accordingly, the Company has zero dollars ($0) principal
amount of Private Notes issued and outstanding and $150,000,000 principal
amount of Senior Notes issued and outstanding.
In connection with the acquisition of the Company by AIPAC and the Marion
Acquisition, the assets and liabilities of the acquired companies have been
adjusted to their estimated fair values. Also, in connection with the
Reorganization, total assets were recorded at their assumed reorganization
value, with the reorganization value allocated to identifiable tangible and
intangible assets on the basis of their estimated fair value, and liabilities
were adjusted to the present values of amounts to be paid where appropriate.
The consolidated financial statements include the related amortization charges
associated with the fair value adjustments.
Liquidity and Capital Resources
Working capital and current ratio are two financial measurements which
provide an indication of the Company's ability to meet its short-term
obligations. These measurements at December 31, 1997, 1996 and 1995 were as
follows:
1997 1996 1995
(Dollars in Thousands)
Working capital $120,883 $ 78,814 $ 65,330
Current ratio 2.9 to 1 2.9 to 1 2.2 to 1
The increase in working capital for the year ended December 31, 1997 was
primarily due to the acquisition of Marion and to the adjustment of assets and
liabilities to fair value as a result of the acquisition of the Company by
AIPAC. The increase in working capital and the current ratio for the year
ended December 31, 1996 was primarily due to a decrease in liabilities to
customers on uncompleted contracts and warranties and a decrease in
outstanding project financing borrowings.
Equipment Assurance Limited has pledged $1,056,000 of its cash to secure
its reimbursement obligations for outstanding letters of credit at
December 31, 1997. This collateral amount is classified as restricted funds
on deposit in the Consolidated Balance Sheets.
The Company is presenting below a calculation of earnings (loss) before
interest expense, income taxes, depreciation, amortization, non-cash stock
compensation, (gain) loss on sale of fixed assets, nonrecurring items,
restructuring expenses, reorganization items and inventory fair value
adjustment charged to cost of products sold ("Adjusted EBITDA"). Since cash
flow from operations is very important to the Company's future, the Adjusted
EBITDA calculation provides a summary review of cash flow performance. In
addition, the Company is required to maintain certain minimum EBITDA levels as
defined under the Revolving Credit Facility (see below). The Adjusted EBITDA
calculation is not an alternative to operating income under generally accepted
accounting principles as an indicator of operating performance or to cash
flows as a measure of liquidity. The following table reconciles Earnings
(Loss) Before Income Taxes to Adjusted EBITDA:
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
(Dollars in Thousands)
Earnings (loss)
before income
taxes $ (7,441) $ (2,233) $ 4,636 $(16,258)
Nonrecurring
items (1) - 10,051 - -
Restructuring
expenses - - - 2,577
Reorganization
items - - - 919
Depreciation 2,678 3,125 3,882 3,671
Amortization 1,435 770 1,142 1,194
Non-cash stock
compensation - 677 668 -
(Gain) loss on
sale of fixed
assets (3) (275) 362 (166)
Inventory fair
value adjustment
charged to cost
of products
sold 8,350 283 - 10,065
Interest expense 4,917 6,306 8,557 6,254
________ ________ ________ ________
Adjusted
EBITDA (2) $ 9,936 $ 18,704 $ 19,247 $ 8,256
(1) Nonrecurring items consist of $6,690,000 of expense to cash out the
outstanding stock options and stock appreciation rights in connection with the
acquisition of the Company by AIPAC and $3,361,000 of loan fees incurred in
connection with the Bridge Loan that was utilized to purchase Marion. The
loan fees were expensed when the Bridge Loan was repaid.
(2) Adjusted EBITDA for the year ended December 31, 1995 is reduced by
a charge of $4,416,000 to cost of products sold for the scrapping and disposal
of excess inventory which related to certain older and discontinued machine
models.
Revolving Credit Facility
The Company entered into a new three-year credit agreement with Bank One,
Wisconsin on September 24, 1997 which provides the Company with a $75,000,000
senior secured revolving credit facility (the "Revolving Credit Facility")
with a $25,000,000 sublimit for standby letters of credit. Borrowings under
the Revolving Credit Facility bear interest at variable rates and are subject
to a borrowing base formula based on receivables, inventory and machinery and
equipment. Direct borrowings under the Revolving Credit Facility at
December 31, 1997 were $22,215,000 at a weighted average interest rate of
8.7%. The issuance of standby letters of credit reduces the amount available
for direct borrowings under the Revolving Credit Facility. At December 31,
1997, there were $3,556,000 of standby letters of credit outstanding under the
Revolving Credit Facility. The Revolving Credit Facility is secured by
substantially all of the assets of the Company, other than real property and
35% of the stock of its foreign subsidiaries, and is guaranteed by certain of
the Company's domestic subsidiaries (the "Guarantors") who have also pledged
substantially all of their assets as security. The amount available for
direct borrowings under the Revolving Credit Facility at December 31, 1997 was
$42,282,000.
Senior Notes Indenture
The Company has outstanding $150,000,000 of its Senior Notes which were
issued pursuant to an indenture dated as of September 24, 1997 among the
Company, the Guarantors, and Harris Trust and Savings Bank, as Trustee (the
"Senior Notes Indenture"). The Senior Notes mature on September 15, 2007.
Interest thereon is payable each March 15 and September 15, commencing on
March 15, 1998.
Certain Covenants
Both the Revolving Credit Facility and the Senior Notes Indenture contain
certain covenants which may affect the Company's liquidity and capital
resources. Also, both the Revolving Credit Facility and the Senior Notes
Indenture contain numerous covenants that limit the discretion of management
with respect to certain business matters and place significant restrictions
on, among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments
or investments, loans and guarantees, and to sell or otherwise dispose of
assets and merge or consolidate with another entity.
The Revolving Credit Facility also contains a number of financial
covenants that require the Company (A) to maintain certain financial ratios,
including: (i) ratio of adjusted funded debt to EBITDA (as defined);
(ii) fixed charge coverage ratio; and (iii) interest coverage ratio; and (B)
to maintain a minimum net worth and other covenants which limit the ability of
the Company and the Guarantors to incur liens; merge, consolidate or dispose
of assets; make loans and investments; incur indebtedness; engage in certain
transactions with affiliates; incur contingent obligations; enter into joint
ventures; enter into lease agreements; pay dividends and make other
distributions; change its business; redeem the Senior Notes; and make capital
expenditures.
The Senior Notes Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Guarantors to: (i) incur
additional indebtedness; (ii) pay dividends or make other distributions with
respect to capital stock; (iii) make certain investments; (iv) use the
proceeds of the sale of certain assets; (v) enter into certain transactions
with affiliates; (vi) create liens; (vii) enter into certain sale and
leaseback transactions; (viii) enter into certain mergers and consolidations
or a sale of substantially all of its assets; and (ix) prepay the Senior
Notes. Such covenants are subject to important qualifications and
limitations. In addition, the Senior Notes Indenture defines "EBITDA"
differently than "EBITDA" under the Revolving Credit Facility.
A failure to comply with the obligations contained in the Revolving
Credit Facility or the Senior Notes Indenture could result in an Event of
Default (as defined) under the Revolving Credit Facility or an Event of
Default (as defined) under the Senior Notes Indenture that, if not cured or
waived, would permit acceleration of the relevant debt and acceleration of
debt under other instruments that may contain cross-acceleration or cross-
default provisions.
The Company believes that current levels of cash and liquidity, together
with funds generated by operations and funds available from the Revolving
Credit Facility, will be sufficient to permit the Company to satisfy its debt
service requirements and fund operating activities for the foreseeable future.
The Company is subject to significant business, economic and competitive
uncertainties that are beyond its control. Accordingly, there can be no
assurance that the Company's financial resources will be sufficient for the
Company to satisfy its debt service obligations and fund operating activities
under all circumstances.
Capital Resources
At December 31, 1997, the Company had approximately $6,004,000 of open
capital appropriations. Of this amount, approximately $3,409,000 relates to
the installation of Marion equipment being transferred to the Company's South
Milwaukee, Wisconsin manufacturing facility and to BMSI. In 1996, a machine
shop modernization program began at the Company's South Milwaukee, Wisconsin
manufacturing facility that involves a $20,000,000 investment in the latest
technology in the machine tool industry. The program is aimed at reduced lead
times, quicker turnaround, reduced in-process inventory, and overall cost
reduction. The Company has spent approximately $5,700,000 to date on this
program with the remaining amount to be spent in the next several years.
Capitalization
The long-term debt to equity ratio at December 31, 1997 and 1996 was
1.3 to 1 and 1.8 to 1, respectively. The long-term debt to total
capitalization ratio at December 31, 1997 and 1996 was .6 to 1. Total
capitalization is defined as total common shareholders' investment plus long-
term debt plus current maturities of long-term debt and short-term
obligations.
Results of Operations
The amounts presented below for 1997 include amounts for the period
September 24 to December 31, 1997 (Successor) and for the period ended
September 23, 1997 (Predecessor).
Net Sales
Net sales for 1997 were $306,677,000 compared with $263,786,000 for 1996.
Net sales of repair parts and services for 1997 were $198,252,000, which is an
increase of 26.8% from 1996. The increase in repair parts and service net
sales was primarily due to the acquisition of Marion as well as increased
repair parts sales at foreign locations as a result of higher demand for
replacement parts. Machine sales for 1997 were $108,425,000, which is an
increase of 1.0% from 1996. Net sales of electric mining shovels increased
20.0%, while net sales of blast hole drills decreased 40.8% There was an
overall decline in worldwide blast hole drill sales activity in 1997.
Net sales for 1996 were $263,786,000 compared with $231,921,000 for 1995.
Net sales of repair parts and services for 1996 were $156,390,000, which was
an increase of .6% from 1995. This increase consisted of an increase in sales
at Minserco, a mining service subsidiary of the Company, offset by a decrease
in sales of repair parts, primarily at foreign locations. Machine sales for
1996 were $107,396,000, which was an increase of 40.4% from 1995. The
increase in machine sales was primarily due to increased electric mining
shovel sales, primarily in copper markets.
Cost of Products Sold
Cost of products sold for 1997 was $256,744,000 or 83.7% of net sales
compared with $215,126,000 or 81.6% of net sales for 1996 and $205,552,000 or
88.6% of net sales for 1995. Included in cost of products sold for 1997 and
1995 were charges of $8,633,000 and $10,065,000, respectively, as a result of
fair value adjustments to inventory being charged to cost of products sold as
the inventory is sold. The fair value adjustment in 1997 was made as a result
of the acquisition of the Company by AIPAC. The adjustment in 1995 was made
in accordance with the principles of fresh start reporting adopted in 1994
upon the emergence of the Company from bankruptcy. Also included in cost of
products sold for 1995 was a charge of $4,416,000 for the scrapping and
disposal of excess inventory which related to certain older and discontinued
machine models. Excluding the effects of the inventory fair value adjustment
and excess inventory charge, cost of products sold as a percentage of net
sales for 1997, 1996 and 1995 was 80.9%, 81.6% and 82.4%, respectively. The
increase in gross margin percentage was primarily due to improved margins on
machine sales.
Product Development, Selling, Administrative and Miscellaneous Expenses
Product development, selling, administrative and miscellaneous expenses
for 1997 were $39,968,000 or 13.0% of net sales compared with $36,470,000 or
13.8% of net sales in 1996 and $34,172,000 or 14.7% of net sales in 1995.
Interest Expense
Interest expense for 1997 was $11,223,000 compared with $8,557,000 for
1996. Included in interest expense for 1997 is $4,022,000 related to the
Senior Notes and $385,000 related to the Bridge Loan used to purchase Marion.
The Company had the option of paying interest on the formerly outstanding
Secured Notes in cash at 10.5% or in kind (issuance of additional Secured
Notes) at 13%. For the period January 1 to September 23, 1997, interest was
accrued at 10.5% since the Company paid this interest in cash. For 1996,
interest was accrued at 13%. Following the completion of the sale of the
Private Notes, the Company purchased and cancelled the Secured Notes.
Interest expense for 1996 was $8,557,000 compared with $6,254,000 for
1995. The increase was primarily due to an increase in the interest rate on
the Secured Notes from 10.5% to 13% effective December 14, 1995 for interest
paid in kind in 1996. Also, interest on the Secured Notes was accrued on a
higher principal balance in 1996 since all interest paid to date had been paid
in kind.
Nonrecurring Items
Nonrecurring items in 1997 consist of $6,690,000 of expense incurred to
cash out the outstanding options to purchase shares of the Company's common
stock and outstanding stock appreciation rights in connection with the
acquisition of the Company by AIPAC, and $3,361,000 of loan fees incurred in
connection with the Bridge Loan that was utilized to finance the Marion
Acquisition. The Bridge Loan was subsequently repaid on September 24, 1997
and the loan fees were expensed.
Restructuring Expenses
Restructuring expenses of $2,577,000 in 1995 consist of employee
severance expenses recorded to reflect the cost of reduced employment and the
severance costs related to the resignation of three officers of the Company.
Reorganization Items
Reorganization items of $919,000 in 1995 represent legal and professional
fees incurred as a result of the Company's efforts to reorganize under
chapter 11 of the Bankruptcy Code.
Income Taxes
Income tax expense consists primarily of foreign taxes at applicable
statutory rates. For United States tax purposes, there were losses for which
no income tax benefit was recorded.
Net Earnings (Loss)
The net loss for 1997 was $12,032,000 compared with net earnings of
$2,878,000 for 1996. Included in the net loss for 1997 was $6,690,000 of
expense to cash out the outstanding stock options and stock appreciation
rights in connection with the acquisition of the Company by AIPAC and
$3,361,000 of Bridge Loan fees which were expensed when the Bridge Loan was
repaid. Also included in the net loss for 1997 was $7,864,000 (net of income
taxes) of the inventory fair value adjustment related to purchase accounting.
Net earnings for 1996 was $2,878,000 compared with a net loss of
$18,772,000 for 1995. During 1995, the Company undertook a restructuring of
its corporate headquarters and foreign subsidiaries and completed an
evaluation of its inventories and other items. The Company, in evaluating its
inventory, determined that excess levels existed for certain older and
discontinued machine models. Accordingly, a charge of $4,416,000 was made in
1995 for the eventual scrapping and disposal of this inventory. Severance
costs of $2,577,000 were also recorded to reflect the cost of reduced
employment at the corporate headquarters and foreign subsidiaries, and the
resignation of three former officers. In addition, a $1,018,000 charge
resulting from the reestimation of certain customer warranty reserves was
recorded in 1995 and a $919,000 charge was made for reorganization items
related to issues continuing from the bankruptcy proceedings. Net loss for
1995 also included $8,633,000 (net of income taxes) of the inventory fair
value adjustment related to fresh start reporting.
Backlog and New Orders
The Company's consolidated backlog at December 31, 1997 was $216,021,000
compared with $158,727,000 at December 31, 1996 and $118,024,000 at
December 31, 1995. Machine backlog at December 31, 1997 was $97,155,000,
which is an increase of 98.2% from December 31, 1996. The Company has
executed a contract with an Australian mining company for the sale of a
Model 2570WS dragline which is scheduled for completion by December 31, 1999.
Included in backlog at December 31, 1997 was $51,644,000 related to this
machine. Repair parts and service backlog at December 31, 1997 was
$118,866,000, which is an increase of 8.3% from December 31, 1996.
New orders for 1997 were $363,971,000, which is an increase of 19.5% from
1996. New machine orders for 1997 were $156,560,000, which is an increase of
72.8% from 1996. Included in new machine orders for 1997 was approximately
$57,000,000 for the aforementioned Model 2570WS dragline. New machine orders
for electric mining shovels have increased while new machine orders for blast
hole drills have decreased. There was an overall decline in worldwide blast
hole drill orders in 1997 which was anticipated as a result of lower demand
from copper mines. New repair parts and service orders for 1997 were
$207,411,000, which is a decrease of 3.0% from 1996.
Market Risk
The Company's market risk is impacted by changes in interest rates,
foreign currency exchange rates, and certain commodity prices.
The Company's interest rate exposure relates primarily to debt
obligations in the United States. The Company manages its borrowings under
the Revolving Credit Facility through the selection of LIBOR based borrowings
or prime-rate based borrowings. If market conditions warrant, interest rate
swaps may be used to adjust interest rate exposures.
The Company manages foreign currency exchange rate exposure by utilizing
some natural hedges to mitigate some of its transaction and commitment
exposures, and may utilize forward contracts in certain situations.
The Company manages commodity price exposure primarily through contracts
with its vendors.
Based on the Company's overall interest rate, foreign currency exchange
rate, and commodity price exposures at December 31, 1997, management of the
Company believes that a short-term change in any of these exposures will not
have a material effect on the Company's financial position or results of
operations.
Year 2000 Issues
The Company is in the process of implementing a plan to improve its
existing computer system. While the primary purpose of the change is to
improve the efficiency and effectiveness of the Company's system, year 2000
issues are also being addressed at this time. Implementation of the plan is
expected to be completed by the first quarter of 1999, primarily through the
redeployment of internal company staff. The Company has not finalized cost
estimates relating to this project.
Translation of Brazil Financial Statements
The Company has operations in Brazil, whose economy has been considered
highly inflationary by management through December 31, 1997 for purposes of
translating Brazilian financial statements from Brazilian Reals into U.S.
dollars. Effective January 1, 1998, the Company no longer considers Brazil's
economy to be highly inflationary. The effect of this change on the
consolidated financial statements is not expected to be material.
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 95,212 $211,465 $263,786 $231,921
Other income 346 1,289 1,003 1,295
________ ________ ________ ________
95,558 212,754 264,789 233,216
________ ________ ________ ________
COSTS AND EXPENSES:
Cost of products sold 85,229 171,515 215,126 205,552
Product development, selling, administrative
and miscellaneous expenses 12,853 27,115 36,470 34,172
Interest expense 4,917 6,306 8,557 6,254
Nonrecurring items - 10,051 - -
Restructuring expenses - - - 2,577
Reorganization items - - - 919
________ ________ ________ ________
102,999 214,987 260,153 249,474
________ ________ ________ ________
Earnings (loss) before income taxes (7,441) (2,233) 4,636 (16,258)
Income taxes (283) 2,641 1,758 2,514
________ ________ ________ ________
Net earnings (loss) $ (7,158) $ (4,874) $ 2,878 $(18,772)
Net earnings (loss) per share of common stock:
Basic $(5.00) $ (.48) $ .28 $(1.84)
Diluted $(5.00) $ (.47) $ .28 $(1.84)
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
December 31, December 31,
1997 1996 1997 1996
(Successor) (Predecessor) (Successor) (Predecessor)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND COMMON
ASSETS SHAREHOLDERS' INVESTMENT
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 15,071 $ 15,763 Accounts payable and
Receivables 49,443 32,085 accrued expenses $ 51,906 $ 33,765
Inventories 115,015 70,889 Liabilities to customers on
Prepaid expenses and uncompleted contracts and
other current assets 4,496 2,504 warranties 8,316 3,579
Income taxes 2,070 1,469
Short-term obligations 583 3,186
Current maturities of long-
term debt 267 428
________ ________ ________ ________
Total Current Assets 184,025 121,241 Total Current Liabilities 63,142 42,427
OTHER ASSETS: LONG-TERM LIABILITIES:
Restricted funds on Deferred income taxes 2 148
deposit 1,056 1,079 Liabilities to customers
Goodwill 65,929 - on uncompleted contracts
Intangible assets - net 44,796 8,545 and warranties 3,850 3,277
Other assets 12,677 6,003 Postretirement benefits 14,665 11,064
________ ________ Deferred expenses
and other 17,583 11,891
124,458 15,627 ________ ________
PROPERTY, PLANT AND EQUIPMENT: 36,100 26,380
Land 2,414 2,752 LONG-TERM DEBT, less
Buildings and improvements 9,202 6,698 current maturities 174,612 66,627
Machinery and equipment 87,723 33,959
Less accumulated COMMON SHAREHOLDERS'
depreciation (1,715) (7,382) INVESTMENT:
________ ________ Common stock - par value
$.01 per share,
97,624 36,027 authorized, issued
and outstanding 1,000
shares at December 31,
1997 - -
Common stock - par value
$.01 per share, issued
and outstanding
10,534,574 shares at
December 31, 1996 - 105
Additional paid-in
capital 143,030 57,739
Unearned stock compensation - (2,815)
Accumulated deficit (7,158) (16,446)
Cumulative translation
adjustment (3,619) (1,122)
________ ________
132,253 37,461
________ ________ ________ ________
$406,107 $172,895 $406,107 $172,895
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
<CAPTION>
Additional Unearned Cumulative
Common Paid-In Stock Accumulated Translation
Stock Capital Compensation Deficit Adjustment
<S> <C> <C> <C> <C> <C>
Predecessor
Balance at January 1, 1995 $ 102 $ 53,898 $ - $ (552) $ 169
Issuance of common stock
(64,157 shares) - 361 - - -
Net loss - - - (18,772) -
Translation adjustments - - - - (526)
______ ________ ________ ________ ________
Balance at December 31, 1995 102 54,259 - (19,324) (357)
Grants under stock
compensation plans 3 3,480 (3,483) - -
Amortization of unearned
stock compensation - - 668 - -
Net earnings - - - 2,878 -
Translation adjustments - - - - (765)
______ ________ ________ ________ ________
Balance at December 31, 1996 105 57,739 (2,815) (16,446) (1,122)
Amortization of unearned
stock compensation - - 677 - -
Net loss - - - (4,874) -
Translation adjustments - - - - (1,439)
______ ________ ________ ________ ________
Balance at September 23, 1997 105 57,739 (2,138) (21,320) (2,561)
Successor
Merger with Bucyrus
Acquisition Corp. (105) (57,739) 2,138 21,320 2,561
Capital contribution - 143,030 - - -
Net loss - - - (7,158) -
Translation adjustments - - - - (3,619)
______ ________ ________ ________ ________
Balance at December 31, 1997 $ - $143,030 $ - $ (7,158) $ (3,619)
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
<CAPTION>
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net earnings (loss) $ (7,158) $ (4,874) $ 2,878 $(18,772)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Inventory obsolescence provision - - - 4,416
Depreciation 2,678 3,125 3,882 3,671
Amortization 1,435 770 1,142 1,194
Non-cash stock compensation expense - 677 668 -
Nonrecurring items - 10,051 - -
In kind interest on the Secured Notes
due December 14, 1999 - - 7,783 5,691
(Gain) loss on sale of property, plant
and equipment (3) (275) 362 (166)
Changes in assets and liabilities, net of
effects of acquisitions:
Receivables 10,725 (19,534) 3,021 (9,651)
Inventories 12,891 (11,100) 2,026 3,769
Other current assets 3,432 (1,434) (1,114) 564
Other assets (405) (385) (1,145) (578)
Current liabilities other than income
taxes, short-term obligations and
current maturities of long-term debt (6,237) 17,210 (5,332) 8,073
Income taxes (1,097) 1,181 (1,991) 740
Long-term liabilities other than
deferred income taxes (456) (2,012) (2,093) (1,035)
________ ________ ________ ________
Net cash provided by (used in)
operating activities 15,805 (6,600) 10,087 (2,084)
________ ________ ________ ________
Cash Flows From Investing Activities
Payment to cash out stock options and
stock appreciation rights (6,944) - - -
Decrease in restricted funds on deposit 23 - 1,798 798
Purchases of property, plant and equipment (2,859) (4,331) (4,996) (3,006)
Proceeds from sale of property, plant
and equipment 510 1,227 1,058 263
Acquisition of Bucyrus International, Inc. (189,622) - - -
Purchase of Von's Welding, Inc.,
net of cash acquired - (841) - -
Purchase of surface mining equipment
business of Global Industrial
Technologies, Inc. - (36,720) - -
Receivable from Global Industrial
Technologies, Inc. 5,275 (5,275) - -
________ ________ ________ ________
Net cash used in investing activities (193,617) (45,940) (2,140) (1,945)
________ ________ ________ ________
Cash Flows From Financing Activities
Proceeds from issuance of project
financing obligations - 5,672 5,402 6,012
Reduction of project financing obligations (8,102) - (8,104) (7,117)
Net increase (decrease) in other bank
borrowings 20,837 500 (1,350) 304
Payment of acquisition and
refinancing expenses (13,426) (1,476) - -
Payment of bridge loan fees - (3,361) - -
(Payment of) proceeds from bridge loan (45,000) 45,000 - -
Capital contribution 143,030 - - -
Proceeds from issuance of long-term debt 150,000 1,706 849 -
Payment of long-term debt (65,785) - - -
________ ________ ________ ________
Net cash provided by (used in)
financing activities 181,554 48,041 (3,203) (801)
________ ________ ________ ________
Effect of exchange rate changes on cash (352) 417 (131) (229)
________ ________ ________ ________
Net increase (decrease) in cash
and cash equivalents 3,390 (4,082) 4,613 (5,059)
Cash and cash equivalents at
beginning of period 11,681 15,763 11,150 16,209
________ ________ ________ ________
Cash and cash equivalents at end of period $ 15,071 $ 11,681 $ 15,763 $ 11,150
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 662 $ 4,046 $ 491 $ 289
Income taxes - net of refunds 587 1,218 3,246 1,270
</TABLE>
<PAGE>
Supplemental Schedule of Non-Cash Investing and Financing Activities
(A) In 1997, the Company purchased all of the common stock of Von's Welding,
Inc. In conjunction with the acquisition, liabilities were assumed as
follows:
1997
Fair value of assets acquired $ 1,979
Cash paid (908)
________
Liabilities assumed $ 1,071
(B) In 1997, the Company purchased certain assets and liabilities of the
surface mining and equipment business of Global Industrial Technologies,
Inc. In conjunction with the acquisition, liabilities were assumed as
follows:
1997
Fair value of assets acquired $ 47,969
Cash paid (36,720)
________
Liabilities assumed $ 11,249
(C) On June 27, 1995, the Company issued 64,157 shares of common stock as
payment in full of $361 of liabilities for certain legal and professional
fees incurred in connection with the Company's reorganization under
chapter 11 of the Bankruptcy Code.
See notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bucyrus International, Inc. and Subsidiaries
NOTE A - ACQUISITIONS
Acquisition by American Industrial Partners
On August 21, 1997, Bucyrus International, Inc. (the "Company")
entered into an Agreement and Plan of Merger (the "AIP Agreement")
with American Industrial Partners Acquisition Company, LLC ("AIPAC"),
which is wholly-owned by American Industrial Partners Capital Fund
II, L.P. ("AIP"), and Bucyrus Acquisition Corp. ("BAC"), a wholly-
owned subsidiary of AIPAC. On August 26, 1997, pursuant to the AIP
Agreement, BAC commenced an offer to purchase for cash 100% of the
outstanding shares of common stock of the Company (the "Common
Stock") at a price of $18.00 per share (the "AIP Tender Offer").
Consummation of the AIP Tender Offer occurred on September 24, 1997,
and BAC was merged with and into the Company on September 26, 1997
(the "AIP Merger"). The Company was the surviving entity in the AIP
Merger and is currently wholly-owned by AIPAC. The purchase of all
of the Company's outstanding shares of common stock by AIPAC resulted
in a change in control of voting interest.
Approximately $189,622,000 was required to purchase all of the
outstanding shares of the Company's common stock. BAC received
$143,030,000 of the necessary funds to purchase the shares of the
Company's common stock as an equity contribution from AIPAC. The
remainder of the consideration required to consummate the AIP Tender
Offer and pay related expenses was funded by a bridge loan from AIPAC
to BAC, which was repaid in full on September 26, 1997.
The AIP Agreement also provided that each outstanding option to
purchase shares of the Company's common stock and each outstanding
stock appreciation right granted under the Company's Non-Employee
Directors' Stock Option Plan (the "Directors' Stock Option Plan"),
the 1996 Employees' Stock Incentive Plan (the "1996 Employees' Plan)
and any other stock-based incentive plan or arrangement of the
Company, whether or not then exercisable or vested, would be
cancelled (see Note H). In consideration of such cancellation, the
holders of such options and stock appreciation rights received for
each share subject to such option or stock appreciation right an
amount in cash equal to the excess of the offer price of $18 per
share over the per share exercise price of such option or the per
share base price of such stock appreciation right, as applicable,
multiplied by the number of shares subject to such option or stock
appreciation right. Included in nonrecurring items in the
Consolidated Statement of Operations is $6,690,000 of expense
incurred to cash out the outstanding options and stock appreciation
rights.
The acquisition of the Company by AIPAC was accounted for as a
purchase and, accordingly, the assets acquired and liabilities
assumed were adjusted to their estimated fair values. The
preliminary allocation of the purchase price is as follows:
(Dollars in Thousands)
Working capital $ 133,625
Property, plant and equipment 98,222
Intangible assets (including
goodwill of $66,521) 111,910
Other long-term assets and liabilities (200,727)
---------
Total cash purchase price $ 143,030
Marion Acquisition
On August 26, 1997, the Company consummated the acquisition (the
"Marion Acquisition") of certain assets and liabilities of The Marion
Power Shovel Company, a subsidiary of Global Industrial Technologies,
Inc. ("Global"), and of certain subsidiaries and divisions of Global
that represented Global's surface mining equipment business in
Australia, Canada and South Africa (collectively referred to herein
as "Marion"). The purchase price for Marion was $36,720,000, which
includes acquisition expenses of $1,695,000. The net assets acquired
and results of operations since the date of acquisition are included
in the Company's consolidated financial statements.
The Company financed the Marion Acquisition and related expenses by
utilizing an unsecured bridge loan (the "Bridge Loan") provided by a
former affiliate of the Company, in the amount of $45,000,000. The
Bridge Loan was repaid in full on September 24, 1997 with a portion
of the proceeds from the 9-3/4% Senior Notes due 2007 (see Note G).
The Bridge Loan had an interest rate of 10.625% and the total
interest expense incurred by the Company was $385,000. The Company
incurred $3,361,000 of loan fees in connection with the Bridge Loan.
The subsequent expensing of these fees when the Bridge Loan was
repaid are included in nonrecurring items in the Consolidated
Statement of Operations.
The acquisition of Marion by the Company was accounted for as a
purchase and, accordingly, the assets acquired and liabilities
assumed by the Company were recorded at their estimated fair values.
The cash purchase price of $36,720,000 has been allocated to working
capital on a preliminary basis.
The assets acquired and liabilities assumed in the Marion Acquisition
were revalued in connection with the AIP Merger.
Pro Forma Results of Operations
The following unaudited pro forma results of operations assumes that
the Company had been acquired by AIPAC and the Company acquired
Marion on January 1, 1996. Such information reflects adjustments to
reflect additional interest expense and depreciation expense,
amortization of goodwill and the effects of adjustments made to the
carrying value of certain assets and liabilities.
The pro forma results for the year ended December 31, 1997 include
Marion's historical results for the year ended December 31, 1997 and
the pro forma results for the year ended December 31, 1996 include
Marion's historical results for the year ended October 31, 1996.
Year Ended December 31,
1997 1996
(Dollars in Thousands,
Except Per Share Amounts)
(Unaudited)
Net sales $ 346,913 $ 373,411
Net loss (9,656) (18,797)
Net loss per share of
common stock (6.75) (13.14)
The pro forma financial information presented above is not
necessarily indicative of either the results of operations that would
have occurred had the acquisitions been effective on January 1, 1996
or of future operations of the Company.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
The Company is a Delaware corporation and a leading manufacturer of
surface mining equipment, principally walking draglines, electric
mining shovels and blast hole drills, and related replacement parts.
Major markets for the surface mining industry are coal mining, copper
and iron ore mining, and phosphate production.
Basis of Presentation
The Successor consolidated financial statements as of December 31,
1997 and for the period September 24, 1997 to December 31, 1997 were
prepared under a new basis of accounting that reflects the fair value
of the assets acquired and liabilities assumed, and the related
expenses and all debt incurred in connection with the acquisition of
the Company by AIPAC on September 24, 1997. The Predecessor
consolidated financial statements for periods prior to September 24,
1997 were prepared using the Company's previous basis of accounting
which was based on the principles of fresh start reporting adopted in
1994 upon emergence from bankruptcy. Accordingly, the consolidated
financial statements of the Successor are not comparable to the
Predecessor consolidated financial statements.
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions, profits and
accounts have been eliminated.
Cash Equivalents
All highly liquid investments with maturities of three months or less
when purchased are considered to be cash equivalents. The carrying
value of these investments approximates fair value.
Restricted Funds on Deposit
Restricted funds on deposit represent cash and temporary investments
used to support the issuance of standby letters of credit and other
obligations. The carrying value of these funds approximates fair
value.
Inventories
In connection with the acquisition of the Company by AIPAC,
inventories were adjusted to estimated fair value. Inventories are
stated at lower of cost (first-in, first-out method) or market
(replacement cost or estimated net realizable value). Advances from
customers are netted against inventories to the extent of related
accumulated costs. Advances in excess of related costs and earnings
on uncompleted contracts are classified as a liability to customers.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price paid by AIPAC
for the outstanding shares of common stock of the Company over the
fair value of the net assets of the Company on the date of
acquisition and is being amortized on a straight-line basis over 30
years.
Intangible assets were recorded at estimated fair value in connection
with the acquisition of the Company by AIPAC. At December 31, 1997,
intangible assets consist of engineering drawings, bill-of-material
listings, software, trademarks and tradenames which are being
amortized on a straight-line basis over 10 to 30 years. Intangible
assets at December 31, 1996 consisted of engineering drawings and
bill-of-material listings which were being amortized on a straight-
line basis over 20 years. At December 31, 1997 and 1996, accumulated
amortization for intangible assets was $628,000 and $975,000,
respectively.
Property, Plant and Equipment
In connection with the acquisition of the Company by AIPAC, property,
plant and equipment were adjusted to estimated fair value.
Depreciation is provided over the estimated useful lives of
respective assets using the straight-line method for financial
reporting and accelerated methods for income tax purposes. Estimated
useful lives used for financial reporting purposes range from ten to
forty years for buildings and improvements and three to seventeen
years for machinery and equipment.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated
into U.S. dollars using year-end exchange rates. Revenues and
expenses are translated at average rates during the year.
Adjustments resulting from this translation, except for one foreign
subsidiary in Brazil which operates in a highly inflationary economy,
are deferred and reflected as a separate component of Common
Shareholders' Investment. For the one subsidiary in Brazil operating
in a highly inflationary economy, adjustments resulting from the
translation of financial statements are reflected in the Consolidated
Statements of Operations. Effective January 1, 1998, the Company
will no longer consider Brazil's economy to be highly inflationary.
The effect of this change on the Company's consolidated financial
statements is not expected to be material.
Revenue Recognition
Revenue from long-term sales contracts is recognized using the
percentage-of-completion method. At the time a loss on a contract
becomes known, the amount of the estimated loss is recognized in the
consolidated financial statements. Included in the current portion
of liabilities to customers on uncompleted contracts and warranties
are advances in excess of related costs and earnings on uncompleted
contracts of $3,501,000 and $575,000 at December 31, 1997 and 1996,
respectively.
NOTE C - RESTRUCTURING EXPENSES
Restructuring expenses of $2,577,000 for the year ended December 31,
1995 consist of employee severance expenses recorded to reflect the
cost of reduced employment and the severance costs related to the
resignation of three officers of the Company.
NOTE D - RECEIVABLES
Receivables at December 31, 1997 and 1996 include $6,186,000 and
$6,830,000, respectively, of revenues from long-term contracts which
were not billable at that date. Billings on long-term contracts are
made in accordance with the payment terms as defined in the
individual contracts.
Current receivables are reduced by an allowance for losses of
$734,000 and $539,000 at December 31, 1997 and 1996, respectively.
NOTE E - INVENTORIES
Inventories consist of the following:
1997 1996
(Dollars in Thousands)
Raw materials and parts $ 14,896 $ 10,628
Costs relating to
uncompleted contracts 4,861 4,183
Customers' advances offset
against costs incurred on
uncompleted contracts (2,976) (1,816)
Work in process 21,238 13,746
Finished products (primarily
replacement parts) 76,996 44,148
________ ________
$115,015 $ 70,889
In connection with the acquisition of the Company by AIPAC,
inventories were adjusted to estimated fair value. This adjustment
is being charged to cost of products sold as the inventory is sold.
At December 31, 1997, the remaining estimated fair value adjustment
included in inventory was $6,925,000. The charge to cost of products
sold for 1997 and 1995 was $8,633,000 and $10,065,000, respectively.
During 1995, the Company completed an evaluation of its inventory and
recorded a charge of $4,416,000 to cost of products sold for the
scrapping and disposal of excess inventory which related to certain
older and discontinued machine models.
NOTE F - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
1997 1996
(Dollars in Thousands)
Trade accounts payable $ 24,364 $ 14,270
Wages and salaries 6,261 5,495
Interest 4,308 165
Service and erection 1,308 2,138
Other 15,665 11,697
________ ________
$ 51,906 $ 33,765
NOTE G - LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
1997 1996
(Dollars in Thousands)
9-3/4% Senior Notes due 2007 $150,000 $ -
Revolving credit facility 22,215 -
Secured Notes due
December 14, 1999 - 65,785
Bridge Loan Account at
Bucyrus Europe at
floating interest rate
(8.625% at December 31,
1996) - 428
Construction Loans at
Bucyrus Chile, Ltda. 2,664 842
________ ________
174,879 67,055
Less current maturities of
long-term debt (267) (428)
________ ________
$174,612 $ 66,627
The Company has outstanding $150,000,000 of 9-3/4% Senior Notes due
2007 (the "Senior Notes") which were issued pursuant to an indenture
dated as of September 24, 1997 among the Company, certain of its
domestic subsidiaries (the "Guarantors"), and Harris Trust and
Savings Bank, as Trustee (the "Senior Notes Indenture"). The Senior
Notes mature on September 15, 2007. Interest thereon is payable each
March 15 and September 15, commencing on March 15, 1998. The Senior
Notes Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Guarantors to: (i) incur
additional indebtedness; (ii) pay dividends or make other
distributions with respect to capital stock; (iii) make certain
investments; (iv) sell certain assets; (v) enter into certain
transactions with affiliates; (vi) create liens; (vii) enter into
certain sale and leaseback transactions; and (viii) enter into
certain mergers and consolidations. Such covenants are subject to
important qualifications and limitations.
Following the issuance of the Senior Notes, the Company purchased and
cancelled its 10.5% Secured Notes due December 14, 1999 (the "Secured
Notes").
The Company also entered into a new three-year credit agreement with
Bank One, Wisconsin on September 24, 1997 which provides the Company
with a $75,000,000 senior secured revolving credit facility (the
"Revolving Credit Facility") with a $25,000,000 sublimit for standby
letters of credit. Borrowings under the Revolving Credit Facility
bear interest at variable rates and are subject to a borrowing base
formula based on receivables, inventory and machinery and equipment.
Direct borrowings under the Revolving Credit Facility at December 31,
1997 were $22,215,000 at a weighted average interest rate of 8.7%.
The issuance of standby letters of credit reduce the amount available
for direct borrowings under the Revolving Credit Facility. At
December 31, 1997, there were $3,556,000 of standby letters of credit
outstanding under the Revolving Credit Facility. The Revolving
Credit Facility contains covenants which, among other things, require
the Company to maintain certain financial ratios and a minimum net
worth. The Revolving Credit Facility is secured by substantially all
of the assets of the Company, other than real property and assets of
foreign subsidiaries. The average borrowing under the Revolving
Credit Facility during the period September 24, 1997 to December 31,
1997 was $28,512,000, the weighted average interest rate for this
period was 8.7% and the maximum borrowing outstanding during the
period was $36,350,000. The amount available for direct borrowings
under the Revolving Credit Facility at December 31, 1997 was
$42,282,000.
Interest on the Secured Notes accrued at a rate of 10.5% per annum
until December 14, 1995. Thereafter, interest accrued at a rate of
10.5% per annum if paid in cash, or 13.0% per annum if paid in kind.
Interest expense was accrued at 10.5% for 1997 and 13% for 1996.
Maturities of long-term debt are the following for each of the next
five years:
(Dollars in Thousands)
1998 $ 267
1999 838
2000 22,919
2001 570
2002 285
As required under various agreements, Equipment Assurance Limited, an
off-shore insurance subsidiary of the Company, has pledged $1,056,000
of its cash to secure its reimbursement obligations for outstanding
letters of credit at December 31, 1997 and December 31, 1996. This
collateral amount is classified as restricted funds on deposit in the
Consolidated Balance Sheets.
During 1997, there were several trades of the Senior Notes, which are
publicly held. Based on these trades, management believes that the
carrying value of the Senior Notes approximates fair value.
NOTE H - COMMON SHAREHOLDERS' INVESTMENT
In connection with the acquisition of the Company by AIPAC, all of
the previously authorized shares of Common Stock were retired. The
Company's new shareholders then authorized the issuance of 1,000
shares of $.01 par value common stock, all of which were owned by
AIPAC at December 31, 1997.
On March 17, 1998, the Company's Board of Directors authorized a
stock split which increased the number of authorized shares of common
stock of the Company to 1,600,000 shares. Simultaneous with this
authorization, AIPAC cancelled 9.976% of its interest in its 1,000
shares of common stock of the Company and received 1,430,300 shares
for their remaining interest (the "Stock Split"). Also on this date,
certain members of management of the Company purchased 7,800 shares
of common stock of the Company which increased the number of issued
and outstanding common shares to 1,438,100. In addition, on
March 17, 1998, the Company's Board of Directors adopted the Bucyrus
International, Inc. 1998 Management Stock Option Plan which
authorizes the granting of stock options to key employees for up to a
total of 150,400 shares of common stock of the Company. As of
March 25, 1998, 113,850 of these stock options have been granted.
In 1995, the Company's Board of Directors adopted the Directors'
Stock Option Plan. As discussed in Note A, options granted under the
Directors' Stock Option Plan were cancelled upon the acquisition of
the Company by AIPAC. The Directors' Stock Option Plan had 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
Common Stock at an exercise price based on the last sale price of the
Common Stock on the date of grant. The following summary shows
activity and outstanding balances of options exercisable for shares
of Common Stock under the Directors' Stock Option Plan:
Options Available For
Outstanding Future Grants
At plan inception - 60,000
Granted on February 16, 1995
($6.00 per share) 8,000 (8,000)
_______ _______
Balances at December 31, 1995 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 A, 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 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 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 Common Stock,
subject to adjustment under plan provisions, would be available for
the granting of awards thereunder.
The following summary shows 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. Compensation related to future
periods was reported as an offset within Common Shareholders'
Investment in the Consolidated Balance Sheets. 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 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
January 1 -
September 23, Years Ended December 31,
1997 1996 1995
(Dollars in Thousands,
Except Per Share Amounts)
Net earnings (loss): As reported $ (4,874) $2,878 $(18,772)
Pro forma (4,648) 2,688 (18,808)
Net earnings (loss)
per share of common
stock:
Basic As reported (.48) .28 (1.84)
Pro forma (.45) .26 (1.84)
Diluted As reported (.47) .28 (1.84)
Pro forma (.45) .26 (1.84)
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 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 market price of the 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 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
Black-Scholes option pricing model with the following weighted
average assumptions:
Directors' 1996
Stock Option Plan Employees' Plan
1996 1995 1996
Risk-free interest rate 6.48% 6.41% 6.34%
Expected dividend yield 0% 0% 0%
Expected life 7 years 7 years 5.6 years
Calculated volatility 67.07% 73.92% 66.10%
NOTE I - 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:
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
(Dollars in Thousands)
United States $ (5,038) $ (8,876) $ 232 $ (22,749)
Foreign (2,403) 6,643 4,404 6,491
_________ _________ _________ _________
Total $ (7,441) $ (2,233) $ 4,636 $ (16,258)
The provision for income tax expense (benefit) consists of the
following:
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
(Dollars in Thousands)
Foreign income taxes:
Current $ (1,676) $ 2,697 $ 1,902 $ 4,080
Deferred 1,343 6 (430) (1,717)
_________ _________ _________ _________
Total (333) 2,703 1,472 2,363
_________ _________ _________ _________
Other (state and
local taxes):
Current 50 (62) 274 163
Deferred - - 12 (12)
_________ _________ _________ _________
Total 50 (62) 286 151
_________ _________ _________ _________
Total income tax
expense (benefit) $ (283) $ 2,641 $ 1,758 $ 2,514
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:
<PAGE>
<TABLE>
<CAPTION>
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
Tax Tax Tax Tax
Expense Expense Expense Expense
(Benefit) Percent (Benefit) Percent (Benefit) Percent (Benefit) Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax benefit at
Federal statutory
rate $ (2,604) (35.0)% $ (782) (35.0)% $ 1,622 35.0% $ (5,690) (35.0)%
Valuation allowance
adjustments 1,681 22.6 2,761 123.6 (81) (1.7) 7,189 44.2
Impact of foreign
subsidiary income,
tax rates and tax
credits 425 5.7 616 27.6 7 .2 419 2.6
State income taxes
net of Federal
income tax benefit (14) (.2) (11) (.5) 136 2.9 27 .2
Nondeductible
reorganization
items - - - - - - 322 2.0
Nondeductible
goodwill
amortization 207 2.8 - - - - - -
Other items 22 .3 57 2.6 74 1.5 247 1.5
________ ______ ________ ______ ________ ______ ________ ______
Total income
tax expense (benefit) $ (283) (3.8)% $ 2,641 118.3% $ 1,758 37.9% $ 2,514 15.5%
</TABLE>
<PAGE>
Significant components of deferred tax assets and deferred tax
liabilities are as follows:
December 31,
1997 1996
(Dollars in Thousands)
Deferred tax assets:
Postretirement benefits $ 6,805 $ 4,777
Inventory valuation
provisions 1,836 3,978
Accrued and other
liabilities 9,614 7,286
Research and development
expenditures 8,436 8,711
Tax loss carryforward 28,392 27,644
Tax credit carryforward 479 479
Other items 314 524
__________ __________
Total deferred tax assets 55,876 53,399
Deferred tax liabilities:
Excess of book basis over
tax basis of property,
plant and equipment and
intangible assets (43,682) (9,008)
Valuation allowance (11,033) (41,637)
__________ __________
Net deferred tax asset
recognized in the
Consolidated
Balance Sheets $ 1,161 $ 2,754
The classification of the net deferred tax assets and liabilities is
as follows:
December 31,
1997 1996
(Dollars in Thousands)
Current deferred tax asset $ 1,095 $ 493
Long-term deferred tax asset 96 2,439
Current deferred tax liability (28) (30)
Long-term deferred tax
liability (2) (148)
__________ __________
Net deferred tax asset $ 1,161 $ 2,754
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 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. As a result, deferred tax
liabilities increased and the valuation allowance was decreased by
$32,478,000 for the period January 1, 1997 through September 23,
1997. For the period September 24, 1997 through December 31, 1997,
the valuation allowance increased by $1,874,000 to offset an increase
in net deferred tax assets for which no tax benefit was recognized.
As of December 31, 1997, the Company has available approximately
$72,800,000 of federal net operating loss carryforwards ("NOL") from
the years 1988 through 1997, expiring in the years 2003 through 2012,
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 such NOL is subject to
certain annual limitations. The total NOL available to offset
federal taxable income in 1998 is approximately $10,800,000.
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 1998 through 2012) 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
$64,600,000.
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 $21,600,000 at December 31, 1997. 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 J - PENSION AND RETIREMENT PLANS
The Company has several pension and retirement plans covering
substantially all employees. The plan covering domestic salaried and
certain non-union hourly employees provides pension benefits that are
based on final average pay formulas. The funding policy for that
plan is to contribute amounts at least equal to the minimum annual
amount required by applicable regulations. Plans covering hourly and
certain union members generally provide benefits of stated amounts
for each year of service. Contributions to these plans are funded
based on normal cost plus amortization of unfunded past service cost
over 30 to 40 years. In addition, the Company has certain unfunded
supplemental retirement plans for which benefits are payable out of
the general funds of the Company.
The following tables set forth the domestic plans' funded status and
amounts recognized in the consolidated financial statements at
December 31, 1997 and 1996:
Status of All Plans
1997 1996
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
(Dollars in Thousands)
Actuarial present
value of benefit
obligations:
Accumulated
benefit
obligation:
Vested $ (46,928) $ (12,498) $ (54,487) $ (362)
Non-vested (4,539) (985) (4,357) -
_________ _________ _________ _________
Total accumulated
benefit
obligation $ (51,467) $ (13,483) $ (58,844) $ (362)
Projected benefit
obligation
for services
rendered to
date $ (51,467) $ (20,537) $ (66,760) $ (478)
Plan assets at
fair value,
primarily listed
stocks and
corporate and U.S.
government bonds 55,873 13,076 63,718 -
_________ _________ _________ _________
Projected benefit
obligation less
than (in excess
of) plan assets 4,406 (7,461) (3,042) (478)
Unrecognized net
loss 1,152 840 2,219 14
_________ _________ _________ _________
Net pension asset
(liability)
recognized in the
Consolidated
Balance Sheets $ 5,558 $ (6,621) $ (823) $ (464)
In connection with the acquisition of the Company by AIPAC, the net
pension assets and liabilities were adjusted to reflect the
difference between the projected benefit obligation and the plans'
assets.
The weighted average discount rate, rate of increase in future
compensation levels, and expected long-term rate of return on assets
used to develop the projected benefit obligation at December 31, 1997
were 7.25%, 4.5% and 9%, respectively. The corresponding rates used
at December 31, 1996 were 7.5%, 4.5% and 9%, respectively. The
change in the discount rate resulted in a $1,842,000 increase in the
projected benefit obligation.
The foreign subsidiaries do not have a material pension liability at
December 31, 1997 and 1996.
Net domestic periodic pension cost includes the following components:
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
(Dollars in Thousands)
Service cost $ 486 $ 1,264 $ 1,554 $ 1,308
Interest cost 1,355 3,574 4,431 4,259
Actual return on
plan assets (1,599) (8,101) (7,697) (10,483)
Net amortization
and deferral - 4,170 2,527 6,219
________ ________ ________ ________
Net periodic
pension cost $ 242 $ 907 $ 815 $ 1,303
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 $862,000 (including
$626,000 for the Predecessor) in 1997, $801,000 in 1996 and $611,000
in 1995.
NOTE K - 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,
1997 and 1996:
1997 1996
(Dollars in Thousands)
Accumulated postretirement
benefit obligation:
Retirees $ (8,633) $ (8,165)
Fully eligible active
plan participants (1,042) (746)
Other active plan
participants (6,970) (5,958)
________ ________
(16,645) (14,869)
Unrecognized net loss 270 2,280
________ ________
Accrued postretirement
benefit cost recognized
in the Consolidated
Balance Sheets $(16,375) $(12,589)
In connection with the acquisition of the Company by AIPAC, the
liability for postretirement benefits other than pensions was
adjusted to the accumulated postretirement benefit obligation.
Net periodic postretirement benefit cost includes the following
components:
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
(Dollars in Thousands)
Service cost $ 124 $ 302 $ 323 $ 266
Interest cost 316 774 1,039 1,064
Amortization of loss - 41 - -
________ ________ ________ ________
Net periodic post-
retirement benefit
cost $ 440 $ 1,117 $ 1,362 $ 1,330
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation at December 31, 1997
and 1996 was 7.25% and 7.5%, respectively. The decrease in the
discount rate resulted in a $317,000 increase in the accumulated
postretirement benefit obligation. The assumed health care cost
trend rate used in measuring the accumulated postretirement benefit
obligation was 9% at December 31, 1997, declining 1% each year
thereafter to 5% in the year 2002 and beyond. A 1% increase in the
assumed health care cost trend rate for each year would increase the
accumulated postretirement benefit obligation at December 31, 1997 by
$1,184,000 and would increase the net periodic postretirement benefit
cost for 1997 by $137,000.
NOTE L - RESEARCH AND DEVELOPMENT
Expenditures for design and development of new products and
improvements of existing mining machinery products, including
overhead, aggregated $7,384,000 (including $5,043,000 for the
Predecessor) in 1997, $6,930,000 in 1996 and $5,739,000 in 1995. All
engineering and product development costs are charged to product
development expense as incurred.
NOTE M - CALCULATION OF NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
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 H).
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"), which
simplified earnings per share computations, making them comparable
with international reporting standards. SFAS 128 specifies the
computation, presentation, and disclosure requirements for net
earnings (loss) per share of common stock and replaces primary and
fully diluted net earnings (loss) per share of common stock with
basic and diluted net earnings (loss) per share of common stock. As
a result, the Company's net earnings (loss) per share of common stock
for the Predecessor were recalculated in accordance with SFAS 128.
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:
Successor Predecessor
September 24- January 1-
December 31, September 23, Years Ended December 31,
1997 1997 1996 1995
(Dollars in Thousands,
Except Per Share Amounts)
Basic
Net earnings (loss) $ (7,158) $ (4,874) $ 2,878 $ (18,772)
Weighted average
shares outstanding 1,430,300 10,259,260 10,234,574 10,203,462
Net earnings (loss)
per share $ (5.00) $ (.48) $ .28 $ (1.84)
Diluted
Net earnings (loss) $ (7,158) $ (4,874) $ 2,878 $ (18,772)
Weighted average
shares outstanding -
basic 1,430,300 10,259,260 10,234,574 10,203,462
Effect of dilutive
securities -
stock options,
stock appreciation
rights and
restricted stock - 174,840 28,070 -
__________ __________ __________ __________
Weighted average
shares outstanding -
diluted 1,430,300 10,434,100 10,262,644 10,203,462
Net earnings (loss)
per share $ (5.00) $ (.47) $ .28 $ (1.84)
NOTE N - FOREIGN OPERATIONS, EXPORT SALES AND SIGNIFICANT CUSTOMERS
The Company designs, manufactures and sells products in a single
industry segment, Energy and Industrial Products. Operations are
conducted in the United States and through subsidiaries located
throughout the world.
Financial information by geographical area is summarized in the
following table. Each geographic area represents the origin of the
financial information presented. Transfers between geographic areas
represent intercompany export sales of goods produced in the United
States and are accounted for based on established sales prices
between the related companies. In computing operating earnings for
non-United States subsidiaries, no allocations of interest or income
taxes have been made. Eliminations for operating earnings (loss)
include elimination of general corporate expenses. Identifiable
assets of subsidiaries are those related to the operations of those
subsidiaries. United States assets consist of all other operating
assets.
Transfers
Sales to Between Operating
Unaffiliated Geographic Total Earnings Identifiable
Customers Areas Net Sales (Loss) Assets
(Dollars in Thousands)
1997
United States $ 183,995 $ 32,004 $ 215,999 $ (4,133) $ 314,169
South America 31,057 - 31,057 (764) 27,598
Australia, Far
East and South
Africa 68,177 - 68,177 6,845 47,451
Other Foreign 23,448 171 23,619 1,745 19,352
Eliminations - (32,175) (32,175) (2,144) (2,463)
_________ _________ _________ _________ _________
$ 306,677 $ - $ 306,677 $ 1,549 $ 406,107
1996
United States $ 175,675 $ 24,451 $ 200,126 $ 7,830 $ 118,375
South America 27,602 - 27,602 2,270 19,358
Australia, Far
East and South
Africa 40,896 134 41,030 4,190 22,135
Other Foreign 19,613 (14) 19,599 1,126 15,556
Eliminations - (24,571) (24,571) (2,223) (2,529)
_________ _________ _________ _________ _________
$ 263,786 $ - $ 263,786 $ 13,193 $ 172,895
1995
United States $ 132,320 $ 29,847 $ 162,167 $ (17,689) $ 119,791
South America 29,954 - 29,954 3,326 18,775
Australia, Far
East and South
Africa 46,923 - 46,923 4,151 18,127
Other Foreign 22,724 289 23,013 2,208 20,342
Eliminations - (30,136) (30,136) (2,000) (2,997)
_________ _________ _________ _________ _________
$ 231,921 $ - $ 231,921 $ (10,004) $ 174,038
Export sales from United States operations, excluding sales to
affiliates, amounted to $113,068,000 in 1997, $103,777,000 in 1996
and $69,476,000 in 1995.
In 1997 and 1995, one customer accounted for approximately 14% and
22%, respectively, of the Company's consolidated net sales. In 1996,
a different customer accounted for approximately 14% of the Company's
consolidated net sales. The Company is not dependent upon any one
customer.
NOTE O - COMMITMENTS, CONTINGENCIES AND CREDIT RISKS
Joint Prosecution
The Company and its former affiliate, Jackson National Life Insurance
Company ("JNL"), entered into a joint prosecution agreement (the
"Joint Prosecution Agreement") dated as of August 21, 1997 relating
to various claims the Company and JNL have or may have resulting from
the Company's reorganization in 1994 under Chapter 11 of the United
States Bankruptcy Code (the "Reorganization") against the law firm of
Milbank, Tweed, Hadley & McCloy ("Milbank") for disgorgement of fees
(the "Disgorgement Claim") and other claims (collectively, the
"Milbank Claims"). All proceeds of the Milbank Claims will be
allocated as follows: (i) first, to pay, or to reimburse the prior
payment of, all bona fide third-party costs, expenses and liabilities
incurred on or after September 1, 1997 in connection with prosecuting
the Milbank Claims (the "Joint Prosecution") including, without
limitation, the reasonable fees and disbursements of counsel and
other professional advisors, which are to be advanced by JNL; (ii)
the next $8,675,000 of proceeds from the Milbank Claims, if any, will
be paid to JNL, provided that the Company will retain 10% of the
proceeds of the Disgorgement Claim, if any, and will direct payment
to JNL of the balance of such proceeds; and (iii) all additional
proceeds of the Milbank Claims will be divided equally between JNL
and the Company. Notwithstanding the foregoing, the Company shall
also receive the benefit of any reduction of any obligation it may
have to pay Milbank's outstanding fees, if any. JNL will indemnify
the Company in respect of any liability resulting from the Joint
Prosecution other than in respect of legal fees and expenses incurred
prior to September 1, 1997. The Joint Prosecution may involve
lengthy and complex litigation and there can be no assurance whether
or when any recovery may be obtained or, if obtained, whether it will
be in an amount sufficient to result in the Company receiving any
portion thereof under the formula described above.
Consistent with the Joint Prosection Agreement, on September 25,
1997, the Company and JNL commenced an action against Milbank (the
"Milwaukee Action") in the Milwaukee County Circuit Court. The
Company seeks damages against Milbank arising out of Milbank's
alleged malpractice, breach of fiduciary duty, common law fraud,
breach of contract, unjust enrichment and breach of the obligation of
good faith and fair dealing. JNL seeks damages against Milbank
arising out of Milbank's alleged tortious interference with
contractual relations, abuse of process and common law fraud. The
Company and JNL seek to recover actual and punitive damages from
Milbank. The Milwaukee Action may involve lengthy and complex
litigation and there can be no assurance whether or when any recovery
may be obtained or, if obtained, whether it will be in an amount
sufficient to result in the Company receiving any portion thereof
under the formula described above.
On December 18, 1997, the United States Bankruptcy Court approved a
compromise among the Company, JNL, Milbank and the United States
Trustee pursuant to which Milbank paid to the Company the sum of
approximately $1,863,000, representing the full amount of fees and
expenses paid by the Company to Milbank during the Reorganization.
Pursuant to the Joint Prosecution Agreement, the Company paid 90% of
this amount (approximately $1,677,000) to JNL. In return, the
Company and JNL withdrew their motions seeking disgorgement of the
funds paid to Milbank during the Reorganization. The Company
retained all of its rights to pursue the Milwaukee Action and any
other separate action.
Settlement of 503(b) Claim
During the pendency of the Reorganization, JNL filed a claim (the
"503(b) Claim") against the Company with the United States Bankruptcy
Court, Eastern District of Wisconsin (the "Bankruptcy Court") for
reimbursement of approximately $3,300,000 of professional fees and
disbursements incurred in connection with the Reorganization pursuant
to Section 503(b) of the Bankruptcy Code. By order dated June 3,
1996, the Bankruptcy Court awarded JNL the sum of $500. JNL appealed
the decision to the United States District Court for the Eastern
District of Wisconsin (the "District Court"). On June 26, 1997, the
District Court denied the appeal as moot but returned the matter to
the Bankruptcy Court for further proceedings with leave to appeal
again after further determination by the Bankruptcy Court. On
July 11, 1997, JNL moved the Bankruptcy Court for relief from the
final judgment entered on the 503(b) Claim. Pursuant to a Settlement
Agreement between the Company and JNL dated as of August 21, 1997,
JNL settled and released the Company from the 503(b) Claim in
consideration of a payment to JNL by the Company of $200,000, and the
503(b) Claim was dismissed with prejudice on October 23, 1997.
West Machine and Tool Works
On September 23, 1997, Minserco, Inc., a wholly-owned subsidiary of
the Company, was found liable to BR West Enterprises, Inc. d/b/a West
Machine and Tool Works ("West") in litigation pending in the United
States District Court for the Eastern District of Texas (the "Texas
Court"), for damages claimed with regard to an alleged joint venture
agreement (the "Minserco Litigation"). On October 29, 1997, a final
judgment was entered in the approximate amount of $4,300,000,
including attorney's fees and costs. Minserco strongly disputes the
Findings of Fact and Conclusions of Law entered by the Texas Court
and has appealed the case to the United States Court of Appeals for
the Fifth Circuit. On November 5, 1997, the Company was sued by West
in the Texas Court on substantially similar grounds asserted in the
Minserco Litigation in an apparent attempt to hold the Company liable
for the damages awarded to West in the Minserco Litigation. The new
complaint also seeks punitive damages in an unspecified amount. It
is the view of management that the Company's ultimate liability, if
any, in these actions is not expected to have a material effect on
the Company's financial position or results of operations, although
no assurance to that effect can be given.
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
$7,240,000 (including $5,157,000 for the Predecessor) in 1997,
$5,658,000 in 1996 and $5,351,000 in 1995. Future minimum annual
payments under noncancellable agreements are as follows:
(Dollars in Thousands)
1998 $ 5,704
1999 2,712
2000 1,898
2001 1,464
2002 982
After 2002 1,176
$13,936
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 P - 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:
1997 - Successor $ - $ - $ 10,429 $ 84,783
1997 - Predecessor 59,886 83,876 67,703 -
1996 - Predecessor 61,456 69,364 68,077 64,889
Gross profit(1):
1997 - Successor $ - $ - $ 2,992 $ 6,991
1997 - Predecessor 11,881 15,620 12,449 -
1996 - Predecessor 11,793 12,004 12,785 12,078
Net earnings (loss)(1):
1997 - Successor $ - $ - $ 1,269 $ (8,427)
1997 - Predecessor(2) 915 2,508 (8,297) -
1996 - Predecessor 298 612 1,495 473
Basic net earnings (loss)
per common share(1):
1997 - Successor $ - $ - $ .89 $ (5.89)
1997 - Predecessor .09 .24 (.81) -
1996 - Predecessor .03 .06 .14 .05
Diluted net earnings (loss)
per common share(1):
1997 - Successor $ - $ - $ .89 $ (5.89)
1997 - Predecessor .09 .24 (.78) -
1996 - Predecessor .03 .06 .15 .05
Weighted average shares
outstanding - basic
(in thousands):
1997 - Successor - - 1,430 1,430
1997 - Predecessor 10,242 10,268 10,268 -
1996 - Predecessor 10,235 10,235 10,235 10,235
Weighted average shares
outstanding - diluted
(in thousands):
1997 - Successor - - 1,430 1,430
1997 - Predecessor 10,283 10,407 10,623 -
1996 - Predecessor 10,237 10,250 10,282 10,281
(1) Due to the acquisition of the Company by AIPAC, the results of the
Successor are not comparable to the results of the Predecessor.
(2) Included in the net loss for the period ended September 23, 1997 were
$10,051,000 of nonrecurring items. See Note A.
NOTE Q - 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.
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Operations
For the Period September 24, 1997 to December 31, 1997 - Successor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
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
Product development,
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)
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Operations
For the Period January 1, 1997 to September 23, 1997 - Predecessor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
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
Product development,
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)
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Operations
For the Year Ended December 31, 1996 - Predecessor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
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
Product development,
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
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Operations
For the Year Ended December 31, 1995 - Predecessor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales $145,661 $ 20,809 $ 99,890 $(34,439) $231,921
Other income 1,424 23 836 (988) 1,295
________ ________ ________ ________ ________
147,085 20,832 100,726 (35,427) 233,216
________ ________ ________ ________ ________
Costs and Expenses:
Cost of products sold 140,666 18,980 79,986 (34,080) 205,552
Product development,
selling, administrative
and miscellaneous
expenses 18,536 2,757 12,809 70 34,172
Interest expense 5,985 405 852 (988) 6,254
Restructuring expenses 2,440 96 41 - 2,577
Reorganization items 919 - - - 919
________ ________ ________ ________ ________
168,546 22,238 93,688 (34,998) 249,474
________ ________ ________ ________ ________
Earnings (loss) before
income taxes and equity
in net earnings of
consolidated
subsidiaries (21,461) (1,406) 7,038 (429) (16,258)
Income taxes (benefit) 999 (550) 2,065 - 2,514
________ ________ ________ ________ ________
Earnings (loss) before
equity in net earnings of
consolidated
subsidiaries (22,460) (856) 4,973 (429) (18,772)
Equity in net earnings of
consolidated
subsidiaries 4,117 - - (4,117) -
________ ________ ________ ________ ________
Net earnings (loss) $(18,343) $ (856) $ 4,973 $ (4,546) $(18,772)
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Balance Sheets
December 31, 1997 - Successor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Balance Sheets (Continued)
December 31, 1997 - Successor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
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:
Deferred income taxes - - 2 - 2
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 1,351 - 17,583
________ ________ ________ ________ ________
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
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Balance Sheets
December 31, 1996 - Predecessor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents $ 9,072 $ 149 $ 6,542 $ - $ 15,763
Receivables 15,028 4,941 12,116 - 32,085
Intercompany receivables 20,886 623 1,969 (23,478) -
Inventories 43,343 1,438 28,554 (2,446) 70,889
Prepaid expenses and
other current assets 366 144 1,994 - 2,504
________ ________ ________ ________ ________
Total Current Assets 88,695 7,295 51,175 (25,924) 121,241
OTHER ASSETS:
Restricted funds on
deposit - - 1,079 - 1,079
Intangible assets - net 8,545 - - - 8,545
Other assets 3,845 - 2,158 - 6,003
Investment in
subsidiaries 30,769 - - (30,769) -
________ ________ ________ ________ ________
43,159 - 3,237 (30,769) 15,627
PROPERTY, PLANT AND
EQUIPMENT - net 27,226 954 7,847 - 36,027
________ ________ ________ ________ ________
$159,080 $ 8,249 $ 62,259 $(56,693) $172,895
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Balance Sheets (Continued)
December 31, 1996 - Predecessor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
LIABILITIES AND COMMON
SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 22,219 $ 2,205 $ 9,361 $ (20) $ 33,765
Intercompany payables 785 5,579 16,141 (22,505) -
Liabilities to customers
on uncompleted contracts
and warranties 2,101 197 1,281 - 3,579
Income taxes 357 63 1,049 - 1,469
Short-term obligations 2,788 - 398 - 3,186
Current maturities of
long-term debt - - 428 - 428
________ ________ ________ ________ ________
Total Current
Liabilities 28,250 8,044 28,658 (22,525) 42,427
LONG-TERM LIABILITIES:
Deferred income taxes - - 148 - 148
Liabilities to customers
on uncompleted contracts
and warranties 2,638 - 639 - 3,277
Postretirement benefits 10,610 - 454 - 11,064
Deferred expenses
and other 10,937 233 721 - 11,891
________ ________ ________ ________ ________
24,185 233 1,962 - 26,380
LONG-TERM DEBT, less
current maturities 65,785 - 842 - 66,627
COMMON SHAREHOLDERS'
INVESTMENT 40,860 (28) 30,797 (34,168) 37,461
________ ________ ________ ________ ________
$159,080 $ 8,249 $ 62,259 $(56,693) $172,895
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Cash Flows
For the Period September 24, 1997 to December 31, 1997 - Successor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
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)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Cash Flows
For the Year Ended December 31, 1996 - Predecessor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
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 period 5,462 355 5,333 - 11,150
________ ________ ________ ________ ________
Cash and cash equivalents
at end of period $ 9,072 $ 149 $ 6,542 $ - $ 15,763
</TABLE>
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Consolidating Condensed Statements of Cash Flows
For the Year Ended December 31, 1995 - Predecessor
(Dollars in Thousands)
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
<S> <C> <C> <C> <C> <C>
Net Cash Used In
Operating Activities $ (929) $ (1,084) $ (71) $ - $ (2,084)
________ ________ ________ ________ ________
Cash Flows From Investing
Activities
Decrease in restricted
funds on deposit - - 798 - 798
Purchases of property,
plant and equipment (1,919) (258) (829) - (3,006)
Proceeds from sale of
property, plant and
equipment 45 - 218 - 263
Dividends paid to parent 1,171 - (1,171) - -
________ ________ ________ ________ ________
Net cash used in
investing activities (703) (258) (984) - (1,945)
________ ________ ________ ________ ________
Cash Flows From Financing
Activities
Proceeds from issuance
of project financing
obligations 6,012 - - - 6,012
Reduction of project
financing obligations (7,117) - - - (7,117)
Net (increase) decrease
in other bank
borrowings 361 - (57) - 304
________ ________ ________ ________ ________
Net cash used in
financing activities (744) - (57) - (801)
________ ________ ________ ________ ________
Effect of exchange rate
changes on cash - - (229) - (229)
________ ________ ________ ________ ________
Net decrease in cash
and cash equivalents (2,376) (1,342) (1,341) - (5,059)
Cash and cash equivalents
at beginning of period 7,838 1,697 6,674 - 16,209
________ ________ ________ ________ ________
Cash and cash equivalents
at end of period $ 5,462 $ 355 $ 5,333 $ - $ 11,150
</TABLE>
<PAGE>
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, 1997 and 1996
and the related consolidated statements of operations, common shareholders'
investment and cash flows for the period from September 24, 1997 to
December 31, 1997 and the period from January 1, 1997 to September 23, 1997
and the years ended December 31, 1996 and 1995. 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, 1997 and 1996, and the results of its
operations and its cash flows for the period from September 24, 1997 to
December 31, 1997 and the period from January 1, 1997 to September 23, 1997
and the years ended December 31, 1996 and 1995 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 period from September 24, 1997 to December 31, 1997 and the period
from January 1, 1997 to September 23, 1997 and the years ended December 31,
1996 and 1995 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.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 30, 1998.
(except with respect to the matters discussed in Notes H
and M, as to which the date is March 17, 1998)
<PAGE>
<TABLE>
Bucyrus International, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
For the Periods Ended December 31, 1997 and September 23, 1997
and the Years Ended December 31, 1996 and 1995
<CAPTION>
Charges
Balance At (Credits) (Charges) Balance At
Beginning To Costs Credits End
Of Period And Expenses To Reserves(1) Of Period
<S> <C> <C> <C> <C>
Allowance for possible losses:
Successor
Period September 24, 1997 to
December 31, 1997:
Notes and accounts receivable - current $ 684,000 $ 112,000 $ (62,000) $ 734,000
Predecessor
Period January 1, 1997 to
September 23, 1997:
Notes and accounts receivable - current $ 539,000 $ (8,000) $ 153,000 $ 684,000
Year ended December 31, 1996:
Notes and accounts receivable - current $ 667,000 $ (19,000) $ (109,000) $ 539,000
Year ended December 31, 1995:
Notes and accounts receivable - current $ 691,000 $ (4,000) $ (20,000) $ 667,000
<FN>
(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.
</TABLE>
<PAGE>
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 62 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 RBX Corporation, Stanadyne,
Sunshine Materials Inc. and Sweetheart
Holdings Inc. 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 58 Mr. Hildebrand has been the President
and Chief Executive Officer of the
Company since March 11, 1996.
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.
Kim A. Marvin 35 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 62 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, Berlitz
International, Inc., and Kettering
University. Mr. Purdum has been a
director of the Company since November
1997.
Theodore C. Rogers 63 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
Easco Corporation, RBX Corporation,
Stanadyne, Sunshine Materials Inc. and
Sweetheart Holdings Inc. Mr. Rogers
has been a director of the Company
since November 1997.
Lawrence W. Ward, Jr. 45 Mr. Ward is a director and the
President of American Industrial
Partners Acquisition Company, LLC.
Mr. Ward has been an employee of
American Industrial Partners since
1992. From 1989 to 1992, he was Vice
President and Chief Financial Officer
of Plantronics, Inc., a
telecommunications equipment company.
Mr. Ward is currently a director of
Easco Corporation, Day International
Group and RBX Corporation. Mr. Ward
has been a director of the Company
since September 1997.
Mr. Kenneth A. Pereira served as a director of the Company from September 26,
1997 through November 5, 1997.
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. Hildebrand is
employed under an employment agreement, the initial term of which expires on
March 11, 2000, when it automatically renews for additional one-year terms
subject to the provisions of the agreement. See ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Employment Agreements.
Messrs. Mackus, Phillips, Smoke, and Sullivan are each employed under one-year
employment agreements which automatically renew for additional one-year terms
subject to the provisions thereof.
Employed by
the Company
Name Age, Position, and Background Since
Willard R. Hildebrand Mr. Hildebrand, age 58, has served 1996
as President and Chief Executive
Officer since he joined the Company
in March 1996. Biographical
information for Mr. Hildebrand
is set forth above under "Directors".
John F. Bosbous Mr. Bosbous, age 45, 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 61, 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 46, 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 43, 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 52, has served as 1970
Vice President - Materials since
March 1996. He was 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 48, 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.
Timothy W. Sullivan Mr. Sullivan, age 44, has served as 1976
Vice President - Marketing since
April 1995. He was the Director of
Business Development in 1994,
Director of Parts Sales and Subsidiary
Operations from 1990 to 1994, and
Product Manager of Electric Mining
Shovels and International Sales from
1986 to 1990.
Section 16 Beneficial Ownership Reporting Compliance
Prior to the AIP Merger, the Company was subject to the
requirements of Section 16(a) of the Securities Exchange Act of 1934, which
required the Company's directors and executive officers, and persons who owned
more than 10% of a registered class of the Company's equity security, to file
with the Securities and Exchange Commission ("SEC") and with The Nasdaq Stock
Market reports of ownership and changes in ownership of common stock and other
equity securities of the Company. Directors, executive officers and greater
than 10% shareholders were required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on review of such reports furnished to the Company or
written representations that no other reports were required, the Company
believes that, during the 1997 fiscal year, all filing requirements applicable
to its directors, executive officers and greater than 10% beneficial owners
were complied with except two reports on Form 5, each covering one
transaction, which were filed late by Mr. Victor and Mr. Radecki, each a
former director of the Company.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Prior to the AIP Merger, directors of the Company, other than full
time employees, received $2,500 each month for the period January 1997 through
September 1997, regardless of whether meetings were held or the number of
meetings held. Mr. Armour Swanson, as former Chairman of the Board, received
$5,000 each month for the period May 1997 through September 1997. Former
directors Messrs. Stark and Swansen declined to accept any fees. For the
period January 1997 through April 1997, Messrs. Swansen's and Stark's $2,500
monthly fees were paid to Miller Associates, of which Mr. Frank Miller, the
former CEO of the Company, is President. No fees were paid for attendance of
committee meetings during 1997. Directors were also reimbursed for out-of
pocket expenses.
Current 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.
Each director who was not a full time employee of the Company
received an option for 2,000 shares of the Company's Common Stock at an option
price of $7.50 per share on February 5, 1997, in accordance with the terms of
the Company's Non-Employee Directors' Stock Option Plan. The Non-Employee
Directors' Stock Option Plan further provided that each person who was not a
director on the effective date of the plan automatically received an option
for 2,000 shares of Common Stock when first elected as a non-employee director
of the Company. Pursuant thereto, Mr. Armour Swanson was granted an option
for 2,000 shares of Common Stock on April 30, 1997 at an option price of
$9.375 per share. Notwithstanding the above, Messrs. Stark and Swansen
declined to accept any options under such plan.
All of the stock options held by directors under the Non-Employee
Directors' Stock Option Plan were cancelled in connection with the AIP Merger
and each holder of stock options received cash per share equal to $18.00 less
the exercise price of such stock options.
Summary Compensation Table
The following table sets forth certain information for each of the
last three fiscal years concerning compensation awarded to, earned by or paid
to each person who served as the Company's Chief Executive Officer during
fiscal 1997 and each of the four most highly compensated executive officers
other than the Chief Executive Officer who were in office on December 31,
1997. The persons named in the table are sometimes referred to herein as the
"named executive officers".
<PAGE>
<TABLE>
<CAPTION>
Annual Long-Term Compensation
Compensation(1) Awards Payouts
Restricted Securities All Other
Name and Stock Underlying LTIP Compensation
Principal Position Year Salary($) Bonus($) Awards($)(2) Options(#) Payouts(3) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C>
Willard R. Hildebrand 1997 $400,008 $258,750 - - $1,800,000 $3,153,803
President and Chief 1996 323,816 200,000 $2,700,000 200,000 - 265,931
Executive Officer
Craig R. Mackus 1997 132,914 47,680 - 30,000 - 320,456
Secretary and 1996 123,000 26,975 - - - 4,090
Controller 1995 114,900 10,000 - - - 3,732
Thomas B. Phillips 1997 128,500 47,914 - 30,000 - 320,175
Vice President - 1996 119,168 26,976 - - - 4,299
Materials 1995 104,202 10,000 - - - 3,833
Daniel J. Smoke 1997 175,008 104,534 - - - 745,794
Vice President and 1996 26,390 - - 80,000 - 29,255
Chief Financial
Officer
Timothy W. Sullivan 1997 153,666 58,685 - 30,000 - 320,245
Vice President - 1996 128,004 34,644 - - - 4,260
Marketing 1995 114,932 10,000 - - - 4,124
<FN>
_______________
(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 1997, 1996 and 1995,
respectively: Mr. Hildebrand ($4,750 and $4,750), Mr. Mackus ($4,750,
$3,690 and $3,403), Mr. Phillips ($4,081, $3,262 and $2,961), Mr. Smoke
($4,750), and Mr. Sullivan ($4,750, $3,840 and $3,798); (ii) life
insurance premium payments for 1997, 1996 and 1995, respectively:
Mr. Hildebrand ($4,050 and $2,775), Mr. Mackus ($706, $400 and $329),
Mr. Phillips ($1,094, $1,037 and $872), Mr. Smoke ($1,044 and $87), and
Mr. Sullivan ($495, $420 and $326); (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 $29,168), (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 ($900,000)
in arriving at the value realized.
</TABLE>
Option Grants Table
The following table sets forth information concerning the grant of
stock options under the Company's 1996 Employees' Stock Incentive Plan during
1997 to the named executive officers. No options were granted in 1997 to
Mr. Hildebrand or Mr. Smoke.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Price Appreciation
Underlying Options for Ten Year Option
Options Granted to Exercise or Term(4)
Granted Employees in Base Price Expiration
Name (#)(1) 1997(2) ($/share)(3) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
C. R. Mackus 30,000 9.3% $ 7.50 02/05/07 $ 141,501 $ 358,592
T. B. Phillips 30,000 9.3% $ 7.50 02/05/07 $ 141,501 $ 358,592
T. W. Sullivan 30,000 9.3% $ 7.50 02/05/07 $ 141,501 $ 358,592
<FN>
(1) The options reflected in the table are non-qualified incentive stock options under the Internal
Revenue Code and were granted on February 5, 1997.
(2) A total of 323,000 options were granted to employees under the 1996 Employees' Stock Incentive Plan
during 1997.
(3) The exercise price of each option granted was equal to 100% of the fair market value of the Common
Stock (as defined in the Plan) on the date of grant.
(4) The option values presented were calculated based on a per share price of $7.50 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 depended on the excess of the market price of the
Common Stock over the option exercise price on the date the option was exercised. There was no
assurance at the time of grant that the actual value which would have been realized by an optionee
upon the exercise of an option would have been at or near the value estimated under the model
described above. However, it should be noted that all of the stock options held by employees,
including the named executive officers, under the 1996 Employees' Stock Incentive Plan were cancelled
in connection with the AIP Merger and each holder of stock options received cash per share equal to
$18.00 less the "strike price" of such stock options.
</TABLE>
<PAGE>
1998 Management Stock Option Plan
On March 17, 1998, the Board adopted the 1998 Management Stock
Option Plan (the "Option Plan") as part of the compensation and incentive
arrangements for certain management employees of the Company and its
Subsidiaries. The Option Plan provides for the grant of stock options to
purchase up to an aggregate of 150,400 shares of Common Stock of the Company
at exercise prices to be determined in accordance with the provisions of the
Option Plan. Options granted under the 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 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 Option Plan.
Notwithstanding the foregoing, all options granted under the 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 Option Plan), immediately prior to such sale. Options
granted pursuant to the 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. On March 17, 1998,
113,850 options were granted under the Option Plan. See ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Stock Sale and Stock Options Grants.
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).
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AIPAC holds 1,430,300 of the Company's outstanding shares of common
stock. AIPAC's business address is One Maritime Plaza, Suite 2525, San
Francisco, California, 94111.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
The Company entered into a Management Agreement with Miller
Associates on July 21, 1995, pursuant to which the Company engaged Miller
Associates to provide certain management services, including those of Frank
W. Miller as Interim President and Chief Executive Officer and James D. Annand
as Interim Chief Financial Officer. Mr. Miller is the President of Miller
Associates.
The Management Agreement provided that Messrs. Miller and Annand
and certain other employees of Miller Associates (the "Project Team") would
provide management services and expertise to the Company and manage the
operations of the Company commencing on August 2, 1995 until terminated by the
Company as described below. Pursuant to the Management Agreement, the Company
agreed to pay Miller Associates a monthly fee of $65,000 for each of August
and September 1995 and $55,000 for each month thereafter until the Company
hired a new chief executive officer and such person commenced employment with
the Company. The Company also agreed to reimburse Miller Associates for all
reasonable out-of-pocket expenses incurred by Miller Associates in connection
with the Project Team's performance under the Management Agreement. The
Management Agreement further provided that neither Mr. Miller or Mr. Annand,
nor any other employee of Miller Associates, would be considered an employee
of the Company and that Miller Associates would be responsible for payment of
compensation, disability benefits and unemployment insurance, and for the
payment and withholding of payroll taxes. The Management Agreement was
terminated with the hiring of Mr. Hildebrand as President and Chief Executive
Officer on March 11, 1996. As provided by the Management Agreement, following
the termination thereof, Mr. Annand remained as Interim Chief Financial
Officer through August 1996. The total cost to the Company in 1996 for these
services was approximately $268,000.
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. Hildebrand serves 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, contemplates that the Company and
Mr. Hildebrand will 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. Once a
replacement assumes the responsibilities of Chief Executive Officer,
Mr. Hildebrand will remain employed as the Vice Chairman of the Company until
the end of the initial term of his employment agreement, if not already
expired. In his capacity as Vice Chairman, Mr. Hildebrand's responsibilities
would be limited to advising the Chief Executive Officer of the Company on
strategic planning and international business development ideas and would 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.
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, for so long
as he remains the President and Chief Executive Officer. At such time as a
replacement is found, if Mr. Hildebrand becomes the Vice Chairman, his base
salary would be reduced to $120,000 per year. Mr. Hildebrand's base salary is
subject to increase at the discretion of the Board, and he is eligible to
participate in the Company's Management Incentive Plan ("Bonus Plan"), which,
in Mr. Hildebrand's case, provides 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, provided, however, that if
Mr. Hildebrand becomes the Vice Chairman, he shall not be entitled to receive
any annual bonus. 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 if Mr. Hildebrand assumes the duties of Vice Chairman, he shall
not be entitled to vacation time. Mr. Hildebrand's employment agreement also
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 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 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.
Finally, Mr. Smoke's employment agreement 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 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.
Messrs. Mackus, Phillips and Sullivan 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.
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.
Mr. Charles Macaluso, who was a member of the Board until April 30,
1997, entered into a consulting agreement with the Company pursuant to which
he was paid fees equal to the fees paid to the Company's continuing directors
until September 24, 1997. These fees totalled $12,500 in 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.
AIP Transaction
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.
Financial Advisory Agreement
The Company entered into a Letter Agreement (the "Letter
Agreement") dated March 7, 1997 with Jefferies & Company ("Jefferies")
pursuant to which Jefferies would act as the Company's exclusive financial
advisor in connection with the Marion Acquisition. Mr. Radecki, a former
director of the Company, is an Executive Vice President of Jefferies. The
Company has agreed, pursuant to the Letter Agreement, to pay Jefferies a one-
time retainer fee and a fee for each fairness opinion that Jefferies issues.
The Company will, in addition, pay Jefferies a success fee and all reasonable
out-of-pocket expenses incurred by Jefferies in connection with the Letter
Agreement. The Letter Agreement also contains standard indemnification
provisions whereby the Company will indemnify and hold harmless Jefferies and
certain related parties from liabilities arising out of the Letter Agreement.
The Company paid Jefferies a total of $360,000 in 1997 pursuant to the Letter
Agreement.
The Company also retained Jefferies to act as its exclusive
financial advisor with respect to the AIP Merger pursuant to a letter
agreement dated July 30, 1997 (the "Jefferies Engagement Letter"), between
Jefferies and the Company. The Jefferies Engagement Letter provided for the
payment to Jefferies by the Company of a retainer advisory fee of $250,000
with respect to the AIP Merger, payable upon execution, and a "success fee" of
$1,250,000, payable upon successful consummation of the AIP Merger and related
transactions. The Company also agreed to reimburse Jefferies for their out-
of-pocket expenses, including fees and expenses of their legal counsel. In
the event the Company terminated Jefferies' services and completed a
transaction similar to the AIP Merger within one year of such termination, the
Company agreed to pay to Jefferies the "success fee" referred to above upon
consummation of the other transaction. Under the Jefferies Engagement Letter,
Jefferies was also retained to render its opinion as to the fairness of the
AIP Merger to the Company's shareholders (the "Fairness Opinion") for a fee of
$250,000. In addition, the Company agreed to indemnify Jefferies against
certain liabilities, including liabilities arising under federal securities
laws. The Company paid Jefferies a total of $1,758,000 in 1997 pursuant to
the Jefferies Engagement Letter.
Stock Sale and Stock Option Grants
On March 17, 1998, the Company sold 7,800 shares of 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. 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. Also on March 17, 1998, a total of 113,850 stock options were
granted to officers and certain other employees of the Company with each
option representing the right to purchase one share of Common Stock at a price
of $100.00, subject to the vesting and other provisions of the Option Plan.
See ITEM 11. EXECUTIVE COMPENSATION - 1998 Management Stock Option Plan. Of
the options granted, Mr. Hildebrand received 28,000, Mr. Mackus received
7,500, Mr. Phillips received 11,250, Mr. Smoke received 14,250 and
Mr. Sullivan received 11,250.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page No.
(a) 1. FINANCIAL STATEMENTS
Consolidated Statements of 28
Operations for the periods
ended December 31, 1997 and
September 23, 1997 and for
the years ended December 31,
1996 and 1995.
Consolidated Balance Sheets as 29-30
of December 31, 1997 and 1996.
Consolidated Statements of 31-32
Common Shareholders' Investment
(Deficiency in Assets) for the
periods ended December 31, 1997
and September 23, 1997 and for
the years ended December 31,
1996 and 1995.
Consolidated Statements of 33-35
Cash Flows for the periods
ended December 31, 1997 and
September 23, 1997 and the
years ended December 31, 1996
and 1995.
Notes to Consolidated Financial 36-81
Statements for the periods
ended December 31, 1997 and
September 23, 1997 and for the
years ended December 31, 1996
and 1995.
Report of Arthur Andersen LLP 82
2. FINANCIAL STATEMENT SCHEDULE
Report of Arthur Andersen LLP 82
Schedule II - Valuation and Qualifying 83
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
A Current Report on Form 8-K was filed on October 10, 1997 to report
consummation of the AIP Merger under Item 1. Change in Control of
Registrant and to report consummation of the private offering of the
Private Notes under Item 5. Other Events.
A Current Report on Form 8-K was filed on January 20, 1998 to report
consummation of Exchange Offer of the Company's 9-3/4% Senior Notes
due 2007 for a like amount of the Company's Private Notes under Item
5. Other Events.
<PAGE>
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/W. R. Hildebrand March 25, 1998
Willard R. Hildebrand, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints W. R. Hildebrand 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, 1998
W. Richard Bingham, Director
/s/ WILLARD R. HILDEBRAND March 25, 1998
Willard R. Hildebrand, President,
Chief Executive Officer and Director
/s/ KIM A. MARVIN March 25, 1998
Kim A. Marvin, Director
/s/ ROBERT L. PURDUM March 26, 1998
Robert L. Purdum, Director
/s/ THEODORE C. ROGERS March 25, 1998
Theodore C. Rogers, Director
/s/ LAWRENCE W. WARD, JR. March 25, 1998
Lawrence W. Ward, Jr., Director
/s/ DANIEL J. SMOKE March 25, 1998
Daniel J. Smoke, Vice President
and Chief Financial Officer
(Principal Financial Officer)
/s/ CRAIG R. MACKUS March 25, 1998
Craig R. Mackus, Secretary
and Controller
(Principal Accounting Officer)
<PAGE>
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.
<PAGE>
BUCYRUS INTERNATIONAL, INC.
EXHIBIT INDEX
TO
1997 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.
EI-1
<PAGE>
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 X
to Restated Certificate
of Incorporation adopted
March 17, 1998.
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)
EI-2
<PAGE>
Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
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 3.2 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)
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)
EI-3
<PAGE>
Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
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.
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.
EI-4
<PAGE>
Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
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 X
Plan for 1997, adopted by
Board of Directors
February 5, 1997.
10.15 Amendment No. 1 dated X
March 5, 1998 to Employment
Agreement dated March 11,
1996 between Registrant
and W. R. Hildebrand.
10.16 Amendment No. 1 dated X
March 17, 1998 to Employment
Agreement dated November 7,
1996 between Registrant
and D. J. Smoke.
10.17 1998 Management Stock Option X
Plan.
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)
EI-5
<PAGE>
Incorporated
Exhibit Herein By Filed
Number Description Reference Herewith
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.
EI-6
EXHIBIT 3.4
1997 FORM 10-K
BUCYRUS INTERNATIONAL, INC.
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
___________________________________________________________________
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
___________________________________________________________________
Bucyrus International, Inc., a Delaware corporation,
(hereinafter, the "Corporation), does hereby certify as follows:
FIRST: That the Board of Directors of said
corporation adopted a resolution by unanimous written consent of its
directors, filed with the minutes of the Board, proposing and
declaring advisable the following amendment to the Certificate of
Incorporation of said corporation:
RESOLVED, that the Corporation's Certificate of
Incorporation shall be amended by striking out the
existing Article FOURTH thereof in its entirety, and
substituting in lieu thereof the following:
FOURTH: (1) The total number of shares of
stock which the Corporation shall have authority to
issue is One Million Six Hundred Thousand (1,600,000)
shares of Common Stock, par value $0.01 per share.
(2) Each share of Common Stock of
the Corporation held of record on the day preceding the
filing date (within the meaning of Section 103 of the
General Corporation Law of the State of Delaware) of
this Amendment with the Secretary of State of the State
of Delaware shall be and hereby is automatically
reclassified and converted, without further action, into
One Thousand Six Hundred (1,600) shares of Common Stock
of the Corporation.
SECOND: That in lieu of a meeting and vote of the
sole stockholder, the stockholder has given written consent to said
amendment in accordance with the provisions of section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly
adopted in accordance with the applicable provisions of sections 242
and 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Bucyrus International, Inc. has
caused this Certificate of amendment of Restated Certificate of
Incorporation to be signed on its behalf by its undersigned
President and Chief Financial Officer and attested by its
undersigned Secretary, as of this seventeenth day of March 1998.
BUCYRUS INTERNATIONAL, INC.
By: /s/Daniel J. Smoke
Daniel J. Smoke
Vice President and
Chief Financial Officer
ATTEST:
/s/Craig R. Mackus
Craig R. Mackus
Secretary
EXHIBIT 10.14
1997 FORM 10-K
B.O.D. APPROVED: February 5, 1997
BY: /s/W. R. Hildebrand for BOD
COMPENSATION COMMITTEE
BUCYRUS INTERNATIONAL, INC.
ANNUAL MANAGEMENT INCENTIVE PLAN SUMMARY
FISCAL 1997
I. OBJECTIVES:
The objectives of the Annual Incentive Plan (the "Plan") are to:
1) attract, retain and motivate senior executives and
other key management personnel of Bucyrus
International, Inc. (the "Company");
2) provide direct incentives for participants in the
planning process to achieve the Company's strategic
and financial goals, and thereby enhance shareholder
value;
3) emphasize "Pay-For-Performance" by having a meaningful
portion of participants' total compensation at risk;
4) inspire participants to pursue innovatively and
aggressively individual, team, Subsidiary,
Departmental and Company goals, and
5) target all Company management and key professional
employees (domestic and international, regardless of
position to be eligible to share in a portion of the
Management Incentive Program but not preclude the
possibility of rewarding all salaried personnel as
total Company results improve.
II. ADMINISTRATION:
The Plan is administered by the Compensation Committee (the
"Committee") of the Board of Directors.
The Committee may issue such rules and guidelines as it deems
necessary for administration of the Plan. All actions of the
Committee will be subject to the approval of the Board of
Directors.
III. ELIGIBILITY:
The following employees are potentially eligible to participate in
the Plan;
o Employees reporting directly to a Subsidiary or
Division General Manager or equivalent.
o All Corporate Managers/Supervisors or staff personnel
who are participants in the Business Plan Process and
have completed Standards of Performance (SOP's) -
Form - C.
o All salaried employees, exempt or non-exempt.
IV. PARTICIPATION:
As part of the Business Plan and Budgeting Process, the Corporate
Operating Committee (C.O.C.) will select and submit for approval,
those who will participate in the Business Plan Process. Final
approval will be by the Chief Executive Officer (C.E.O.)
V. TARGET INCENTIVE AWARDS:
As part of the Business Plan, the C.E.O. will establish for each
individual a "Target Incentive Award" by determining a multiplier
to be used in conjunction with the individual's base salary. The
multipliers (and therefore the "Target Incentive Award") will vary
according to the nature and extent of the participant's ability to
affect the attainment of the Company's strategy, goals and
objectives. For non-participants in the Business Plan Process (as
defined), a bonus pool based upon a percentage of base salaries
will be established for various levels of performance and
categories of personnel.
VI. PERFORMANCE OBJECTIVES:
As part of the Business Plan Process, "Performance Objectives"
will be established by the Committee for the following areas:
o Overall Corporate performance.
o Subsidiary and/or individual performance objectives.
Coincident with the establishment of Performance Objectives, the
Committee will establish for each participant an apportionment from
these two areas based upon an appraisal of the relative impact of the
participant's position on the Corporate, Subsidiary and/or Individual
Performance Objectives. In addition, the apportionment may be
influenced by the Committee's desire to emphasize particular Company
objectives. These Performance Objectives will be subject to final
approval of both the C.E.O. and B.O.D.
VI. PERFORMANCE OBJECTIVES:
FISCAL 1997 PERFORMANCE OBJECTIVES:
For Fiscal Year 1997, the C.O.C. has established and the Board of
Directors has approved the following Performance Objectives.
Corporate:
o Corporate-wide earnings before depreciation,
amortization, interest and taxes; (EBITDA) and,
o Operating Cash Flow before Cap Expenditure (EBITDA +/-
changes in Working Capital, before CapEx).
Subsidiary:
o Subsidiary E.B.I.T. less Corporate charges and
allocations plus subsidiary contribution to South
Milwaukee plant margins.
o Subsidiary Operating Cash Flow (before Corporate
allocations and before interest and taxes before
CapEx).
Individual:
o Standard of Performance Objectives (S.O.P) as approved
by the C.E.O. and documented in the Form C's.
For Fiscal 1997, the Plan Weighting Table below represents the minimum
percentage allocations for O.C.F. performance for participants in the
Business Plan Process.
CORPORATE INDIVIDUAL
PARTICIPANTS PLAN (% OR LESS)
President
& C.E.O. 90% 10%
Corporate
Vice Presidents/Staff Directors 60% 40%
Other Managers & Directors 40% 60%
Subsidiary Managers & Staff 40% 60%
VII. TARGET AWARD MULTIPLIER:
The Target Award for all Plan Participants will be increased or
decreased based upon EBITDA and OPERATING CASH FLOW performance as
compared to the 1997 BUSINESS PLAN and a resultant multiplier. Seventy-
five(75%) of the multiplier will be impacted by EBITDA and twenty-
five(25%) of the multiplier will be impacted by OPERATING CASH FLOW.
The TARGET AWARD MULTIPLIER will be calculated as follows:
DEGREE OF
ACHIEVEMENT OF AWARD
PERFORMANCE PERFORMANCE PAYMENT
OBJECTIVE MEASUREMENT MULTIPLIER
130% Maximum 2.00
100% Target (goal) 1.00
80% Threshold .33
< 80% Unacceptable 0
_________
IMPORTANT
_________
Below 80% achievement level for EBITDA, the Compensation Committee has
the discretion to not pay any individual performance incentives under
either the Corporate or Subsidiary Plan, if in its judgement such
payment would have an adverse impact on the Corporation.
NOTE: For levels of achievement which are below Maximum and above
Threshold and which fall between the levels listed above,
the multiplier will be prorated accordingly.
Example: A level of achievement of 115% of the Corporate EBITDA
objective and 95% of the OPERATING CASH FLOW objective would
yield a multiplier of 1.33 (1.0 +15/30(0.75) - 5/20(0.17)).
A level of achievement of 105% of the EBITDA objective and
110% of the OPERATING CASH FLOW objective would yield a
multiplier of 1.21 (1.0 +5/30(0.75) +10/30(0.25)).
VIII. SUBSIDIARY MULTIPLIER:
A similar multiplier will be calculated for all subsidiaries to be
applied to the individual portion of the target award but
utilizing the following factors:
DEGREE OF PERFORMANCE LIMITS MULTIPLIER
150% Maximum 2.00
100% Target 1.00
90% Threshold 0.33
< 90% Unacceptable 0
The measure of performance will be actual Subsidiary Operating
Income plus South Milwaukee parts margin contribution from the
Subsidiary with an adjustment for non-planned and non-controllable
Corporate charges for corporate purposes all in comparison to the
1997 BUSINESS PLAN. The C.E.O. is authorized to make adjustments
to this multiplier including to the zero level base upon
individual performance considerations and in consideration of
OPERATING CASH FLOW considerations.
This multiplier will be applied to the individual portion of the
TARGET AWARD(60% for 1997)
IX. INDIVIDUAL MULTIPLIER:
Multipliers to be applied to the Individual Performance Goals
(FORM A) will be determined on a subjective basis by the employees
immediate Manager and approved by the C.E.O. Individual
Multipliers will generally vary from 80% to 120% but could be more
at the discretion of the immediate Manager & C.E.O.
X. PAYMENT OF AWARDS EARNED:
Payment of each participant s award will be made in cash as soon
as possible following the determination of the amount of the award
earned (but no later than March 15, 1998), less any amounts
required to be withheld for taxes. The Compensation Committee has
the discretion to authorize quarterly payouts (in arrears) of
bonuses earned.
XI. TERMINATION OF EMPLOYMENT:
If a participant ceases to be employed by the Company before
payment of his/her award with respect to a fiscal year by reason
of death, disability or retirement, his/her award will be reduced
pro-rata for the number of weeks before the end of the fiscal
year, if any, in which the participant's employment terminates.
If the participant's employment with the Company ceases for any
other reason prior to payment of the award, no award will be paid.
Also, an employee must be employed not less than six months as of
12/31/97 to be eligible to participate on a pro-rata basis.
XII. MISCELLANEOUS:
All Target Award Multipliers and Personal Objectives are based
upon the financial objectives as the Company is structured on
January 1. The Company reserves the right to change these
financial objectives should any divestitures or acquisitions occur
during the year.
The Plan will be unfunded, and all awards will be paid from the
general assets of the Company.
By adopting this Plan, the Company is not precluded from adopting
other forms of incentive compensation.
The establishment of the Plan or participation by an employee in
the Plan will not entitle an employee to continue in the employ of
the Company or affect the Company's right to terminate at will the
employment of an employee.
Amounts payable under the Plan are not subject to alienation, in
any manner whatsoever, by participants.
This plan does not supersede any contractual obligations
previously made between the Company and any of its key employees.
A participant's performance must be satisfactory, regardless of
Company performance, before he or she may be granted an incentive
award.
XIII. AMENDMENT:
The Compensation Committee may amend or terminate the Plan at any
time. No amendment or termination will affect the right of a
participant to payment of amounts which are determined prior to
such amendment or termination.
XIV. EFFECTIVE DATE:
The Plan will be effective as of January 1, 1997, and will
continue in effect until terminated by the Compensation Committee
of the Board of Directors.
XV. OTHER AWARDS:
The Plan includes a formalized program to reward outstanding
achievements and contributions to the success of the Company by
individual employees who are not eligible participants of the
Management Incentive Compensation Plan.
All non-union exempt and non-exempt employees are eligible to be
candidates for these special awards.
At the conclusion of each fiscal year, a General Manager,
Subsidiary/Division Manager or Corporate Supervisor/Manager can
recommend an employee for special recognition to the Compensation
Committee. Awards of one to four weeks salary can be granted
depending on the Committee's evaluation. This program is designed
to reward special performance or efforts for 1%-2% of the eligible
workforce outside of the Management Incentive Compensation Plan.
The Plan also includes the possibility of other awards to all
salaried employees. In all cases the OTHER AWARDS category will
be an allocation from the award pool. The Corporate Award Pool
will be calculated utilizing the 1997 Business Plan Incentive
award budget and the multiplier as calculated in paragraph VII.
XVI. AWARD CALCULATION:
The following is the manner in which incentive awards will be
calculated.
STEP 1 -- Employee's 1997 basic salary.
STEP 2 -- Determine the individual's assigned Target Award
Incentive multiplier (refer to paragraph V).
STEP 3 -- Multiply (resultants of Step 1 and Step 2).
STEP 4 -- Determine the TARGET AWARD MULTIPLIER (Refer to
Paragraph VII).
STEP 5 -- Multiply (resultants of Step 3 and Step 4). This
is the individual's Target Award for 1997.
STEP 6 -- Multiply the Target Award(Step 5) by the
appropriate factor from the 1997 Performance
objectives Table(Paragraph VI). This is the
portion of the award due to total Corporate
performance.
STEP 7 -- Multiply the Target Award by the Subsidiary
and/or Individual plan factor also from the
table in Paragraph VI to determine that portion
of the award measured on personal or subsidiary
performance factors.
STEP 8 -- Multiply the individual performance amount by
the Subsidiary Multiplier (Paragraph VIII) or
the Individual Multiplier (Paragraph IX). This
determines that portion of the award based upon
individual performance.
STEP 9 -- Determine the final award by adding the results
from Step 6 and Step 8. This amount may be
adjusted by Management with the authority of the
C.E.O. with justification due to such things as
non controllable events, absenteeism for
extended periods, reassignments, portion of the
year in eligible positions, to force the total
incentive cost to allocate within approved
amounts, or any other reason deemed appropriate.
AWARD CALCULATION EXAMPLE:
J. Smith has a salary of $50,000. He/she has been assigned a
Target Incentive Award multiplier of 10% by the Committee.
J. Smith's Target Incentive is to be calculated based upon 40% due
to Corporate Results and 60% due to individual results. At the
end of the year, Company results were at Maximum or 130% of target
for both EBITDA and OPERATING CASH FLOW.
ON-TARGET INCENTIVE AWARD
Individual's Salary X Individual's Personal Multiplier = Incentive
if all areas "on-target".
$50,000 X 0.10 = $5,000 (NOTE: This is used as the base in all
incentive calculations.)
INDIVIDUAL AWARD PORTION
$5,000 X 2.0 (award payment multiplier) = $10,000
$10,000 X 0.4(Corporate portion) or $4,000 plus $10,000 x
0.6(Individual portion) or $6,000 x 1.0(Individual Multiplier as
on target) or $6,000.
TOTAL INCENTIVE AWARD $10,000
<PAGE>
GRAPH - DESCRIPTION:
Graph showing relationship between INCENTIVE BONUS POOL ($MM) (shown on X-axis
with range of values $0 to $3.2MM) and E.B.I.T.D.A. ($MM) (shown on Y-axis
with range of values $19.1MM to $31.1MM).
Three plotted points are as follows: Point A -- Incentive Bonus Pool of
$0.528MM corresponds to $19.1MM E.B.I.T.D.A., Point B -- Incentive Bonus Pool
of $1.6MM corresponds to $23.9MM BUDGET E.B.I.T.D.A.; Point C -- Incentive
Bonus Pool of $3.2MM corresponds to $31.1MM E.B.I.T.D.A. Straight lines drawn
from Point A to Point B, and from Point B to Point C.
Narrative on table is as follows:
"FISCAL 1997
PRELIMINARY MANAGEMENT INCENTIVE PLAN
1997 WEIGHT = 75%
GROSS PLAN OF $25.5MM E.B.I.T.D.A. ACCRUES $1.6MM OF INCENTIVE FOR $23.9MM
E.B.I.T.D.A. NET
FORM - C PARTICIPANTS PAID ON BASE SALARY ONLY"
EXHIBIT 10.15
1997 FORM 10-K
AMENDMENT NO. 1
to
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 dated March 5, 1998 (this "Amendment") to EMPLOYMENT AGREEMENT
made and entered into March 11, 1996 (the "Original Agreement") by and between
BUCYRUS INTERNATIONAL, INC., a Delaware corporation formerly known as
Bucyrus-Erie Company, and WILLARD R. HILDEBRAND.
TERMS used in this Amendment that are defined in the Original Agreement and
not defined otherwise in this Amendment shall have the meanings assigned to
such terms in the Original Agreement.
THE COMPANY and the Executive desire to amend and modify various provisions of
the Original Agreement:
NOW, THEREFORE, the parties hereby agree as follows:
1. Term.
1.1 The "Initial Term" shall continue until March 11, 2000.
1.2 The "Term" shall include a "Full-Time Period" and may also include a
"Part-Time Period".
1.3 The Full-Time Period shall continue until the earlier to occur of (i)
such date, if any, as the Company and the Executive mutually agree in writing
that a new person is ready to assume the responsibilities of Chief Executive
Officer of the Company or (ii) the date of termination of Executive's
employment under the Agreement. The Executive and the Company will use their
mutual best efforts to identify and select no later than December 31, 1998 a
new person to assume the responsibilities of Chief Executive Officer of the
Company.
1.4 The Part-Time Period shall commence on such date, if any, as the Company
and the Executive mutually agree in writing that a new person is ready to
assume the responsibilities of Chief Executive Officer of the Company and
shall continue until the date of termination of Executive's employment under
the Agreement.
2. Office.
2.1 During the Full-Time Period, the Executive shall hold the office of
President and Chief Executive Officer of the Company.
2.2 During the Part-Time Period, the Executive shall hold the office of Vice
Chairman of the Company.
2.3 During both the Full-Time Period and the Part-Time Period, the Executive
and/or his Permitted Transferees (as defined in the Stockholders Agreement
referred to in Section 8.2 below) shall serve as a director of the Company,
provided that the Executive and/or his Permitted Transferees (as defined in
the Stockholders Agreement referred to in Section 8.2 below) maintains
ownership of the shares of Company Common Stock referenced in Section 8.1
hereof.
3. Duties.
3.1 During the Full-Time Period, the Executive shall have the duties set
forth in Section 2 of the Original Agreement.
3.2 During the Part-Time Period, (i) the Executive's duties shall be limited
to advising the Chief Executive Officer of the Company on strategic planning
and international business development issues, and (ii) the Executive shall
not be required to devote more than 5 days per month to the business and
affairs of the Company.
4. Base Salary and Bonuses.
4.1 During the Full-Time Period, the Executive shall be paid the Base Salary
and Bonuses provided for in Section 3 of the Original Agreement; provided,
however, that, effective as of October 1, 1997, the Executive's Base Salary
shall be increased to $450,000 per annum, with a retroactive payment to be
made by the Company to the Executive as soon as reasonably practicable.
4.2 During the Part-Time Period, the Executive shall be paid a Base Salary
of $120,000 per annum, but shall not be entitled to receive any annual bonus.
5. Benefit Plan.
During both the Full-Time Period and the Part-Time Period, the Executive shall
be entitled to the benefits provided for in Sections 7 and 8 of the Original
Agreement, provided that during the Part-Time period the Executive shall not
be entitled to receive any vacation benefits.
6. Termination.
6.1 In the event of the termination of the Executive's employment during the
Term, (i) the Executive shall be entitled to the severance benefits and
payments provided for in Section 9(b) of the Original Agreement if such
termination is by the Executive other than by reason of his death or
disability, (ii) the Executive shall be entitled to the severance benefits and
payments provided for in Section 9(d) of the Original Agreement if such
termination is by reason of the Executive's death or Disability or is by the
Company without Cause, provided, that if such termination of employment occurs
during the Part-Time Period, the Executive shall not be entitled to receive
any payment pursuant to Section 9(d)(ii) of the Original Agreement (other than
any bonus payable with respect to the Final Year) and (iii) the Executive
shall be entitled to the severance benefits and payments provided for in
Section 9(e) of the Original Agreement if such termination is by the Company
for Cause.
6.2 The provisions of Section 9(f) of the Original Agreement shall apply
during both the Full-Time Period and the Part-Time Period.
7. Change in Control.
The provisions of Section 10(b) and 10(c) of the Original Agreement shall
apply with respect to (i) the Change in Control of the Company that resulted
from the acquisition of the Company by American Industrial Partners effective
September 26, 1997 (the "AIP Change in Control") and (ii) any subsequent
Change in Control of the Company that takes place during the Full-Time Period.
For purposes of any Change in Control of the Company other than the AIP Change
in Control, the definition of a "Change in Control of the Company" in
Section 10(a)(ii) of the Original Agreement shall be modified as follows:
(i) Clause (A) shall be modified by replacing the phrase "on the
date of this Agreement" with "on September 26, 1997", and by
changing "20%" to "50%".
(ii) The first clause of Clause (D) shall be modified to read
"During any period of two consecutive years (but not
including any period of time prior to September 26, 1997),";
and
(iii) Clauses (E) and (F) shall be deleted.
For purposes of the definition of "Good Reason" in Section 10(a)(v) of the
Original Agreement, the phrase "Effective Date" in Clauses (B), (C) and (D)
shall mean the date of this Amendment.
8. Options.
8.1 It is proposed that the Executive subscribe for and purchase up to 4,000
shares of the Company's Common Stock at a price of $100 per share.
8.2 If the Executive subscribes for and purchases shares of the Company's
Common Stock as described in Section 8.1, (i) the Executive will be granted
options ("Options") under the Company's 1997 Management Stock Option Plan (the
"Option Plan") and (ii) the Executive will enter into a Stockholders Agreement
(the "Stockholders Agreement") with the Company, American Industrial Partners
Acquisition Company, LLC, and certain other Management Stockholders.
8.3 The Options will have an Exercise Price of $100 per share, and the
number of Option Shares issuable upon exercise of the Options shall be seven
times the number of shares of Common Stock that the Executive subscribes for
and purchases as described in Section 8.1.
8.4 Notwithstanding anything in the Original Agreement, the Stockholders
Agreement, the Option Plan, or any Option to the contrary in the event of the
termination of the Executive's employment during the Term by the Company
without Cause, the unvested portion of any Options held by the Executive that
would otherwise have vested through the later of (i) March 11, 2000, or (ii)
one year following the effective date of the Executive's termination of
employment with the Company (the "Severance Vesting Date"), shall immediately
vest, and all vested Options held by Executive (including those vesting
pursuant to this clause) shall remain exercisable through the Severance
Vesting Date. In determining the extent of such Option vesting, (i) it shall
be assumed for purposes of the Option Plan that all performance-based targets
for the Plan Year in which Executive's employment terminates and all
subsequent Plan Years through the Severance Vesting Date are achieved at the
100% level, and (ii) with respect to the Plan Year in which the Severance
Vesting Date occurs, such Option vesting shall be pro rata through the
Severance Vesting Date.
8.5 The provisions of Sections 5 and 6 of the Original Agreement, having
previously been performed, are hereby deleted.
EXCEPT AS provided in this Amendment, the Original Agreement continues in full
force and effect in accordance with its terms.
BUCYRUS INTERNATIONAL, INC.
By: /s/Robert L. Purdum /s/W. R. Hildebrand
ROBERT L. PURDUM WILLARD R. HILDEBRAND
Its Chairman of the Board
EXHIBIT 10.16
1997 FORM 10-K
AMENDMENT NO. 1
to
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 dated March 17, 1998 (this "Amendment") to EMPLOYMENT
AGREEMENT made and entered into November 7, 1996 (the "Original Agreement") by
and between BUCYRUS INTERNATIONAL, INC., a Delaware corporation formerly known
as Bucyrus-Erie Company, and DANIEL J. SMOKE.
TERMS used in this Amendment that are defined in the Original Agreement and
not defined otherwise in this Amendment shall have the meanings assigned to
such terms in the Original Agreement.
THE COMPANY and the Executive desire to amend and modify various provisions of
the Original Agreement:
NOW, THEREFORE, the parties hereby agree as follows:
1. Base Salary.
Effective as of November 7, 1997, the Executive's Base Salary shall be
increased to $185,000 per annum, with a retroactive payment to be made by the
Company to the Executive as soon as reasonably practicable.
2. Relocation Allowance.
After the Executive joined the Company, he relocated from Holland, Michigan,
and, in connection with such relocation, the Executive has been attempting to
sell his former residence in Holland, Michigan. The Company shall continue to
cover the Executive's sale of his former residence in Holland, Michigan under
the Company's Relocation of Salaried Employees Policy, and continue to
reimburse the Executive for his reasonable costs in connection with the sale
of his former permanent residence in Holland, Michigan, under the Company's
Relocation of Salaried Employees Policy, until September 30, 1998,
irrespective of any shorter time limits that may be provided for in such
Policy or the Original Agreement.
3. Change in Control.
3.1 The provisions of Section 10(b) and 10(c) of the Original Agreement
shall apply with respect to (i) the Change in Control of the Company that
resulted from the acquisition of the Company by American Industrial Partners
effective September 26, 1997 (the "AIP Change in Control") and (ii) any
subsequent Change in Control of the Company that takes place during the Term.
3.2 For purposes of any Change in Control of the Company other than the AIP
Change in Control:
(a) The definition of a "Change of Control of the Company" in Section
10(a)(ii) of the Original Agreement shall be modified as follows:
(i) Clause (A) shall be modified by replacing the phrase "on the date
of this Agreement" with "on September 26, 1997" and by changing "20%" to
"50%";
(ii) The first clause of Clause (D) shall be modified to read "During
any period of two consecutive years (but not including any period of
time prior to September 26, 1997,)"; and
(iii) Clauses (E) and (F) shall be deleted.
(b) The definition of "Qualifying Termination" in Section 10(a)(vi) of the
Original Agreement shall be modified by deleting clause (C) and inserting the
word "or" before clause (B).
(c) The provisions of Section 10(b) of the Original Agreement shall be
modified as follows:
(i) The reference to six (6) months in line 1 is changed to twelve
(12) months; and
(ii) The following proviso shall be added at the end of Section 10(b):
"provided, however, that if the Qualifying Termination is by the
Executive without Good Reason, the Severance Benefit shall be for a
period of twelve (12) months rather than eighteen (18) months."
3.3 For purposes of the definition of "Good Reason" in Section 10(a)(v) of
the Original Agreement, the phrase "Effective Date" in Clauses (B) and (C)
shall mean the date of this Amendment.
4. Options.
4.1 It is proposed that the Executive subscribe for and purchase up to 750
shares of the Company's Common Stock at a price of $100.00 per share.
4.2 If the Executive subscribes for and purchases shares of the Company's
Common Stock as described in Section 4.1, (i) the Executive will be granted
options ("Options") under the Company's 1998 Management Stock Option Plan (the
"Option Plan") and (ii) the Executive will enter into a Stockholders Agreement
(the "Stockholders Agreement") with the Company, American Industrial Partners
Acquisition Company, LLC, and certain other Management Stockholders.
4.3 The Options will have an Exercise Price of $100.00 per share, and the
number of Option Shares issuable upon exercise of the Options shall be seven
times the number of shares of Common Stock that the Executive subscribes for
and purchases as described in Section 4.1.
4.4 Notwithstanding anything in the Original Agreement, the Stockholders
Agreement, the Option Plan, or any Option to the Contrary, in the event of the
termination of the Executive's employment during the Term by the Company
without Cause, the unvested portion of any Options held by the Executive that
would otherwise have vested through the later of (i) January 1, 2000, or (ii)
one year following the effective date of the Executive's termination of
employment with the Company (the "Severance Vesting Date") shall immediately
vest, and all vested Options held by Executive (including those vesting
pursuant to this clause) shall remain exercisable through the Severance
Vesting Date, whereupon such Options shall terminate in full. In determining
the extent of such Option vesting, (a), it shall be assumed that all
performance-based targets for the Plan Year in which Executive's employment
terminates and all subsequent Plan Years through the Severance Vesting Date
are achieved at the 100% level, and (b) with respect to the Plan Year in which
the Severance Vesting Date occurs, such Option vesting shall be pro rata
through the Severance Vesting Date.
4.5 The provisions of Sections 5 and 6 of the Original Agreement, having
previously been performed, are hereby deleted and Section 10(d) of the
Original Agreement is deleted. Section 10(c) of the Original Agreement shall
be modified as follows:
(a) Clause (i) shall be modified by replacing the phrase "the Stock
Options and Stock Appreciation Rights granted to Executive under the Stock
Incentive Plan ("Options and SARs")" with "any Options granted to Executive
under the Option Plan ("Options")";
(b) Clause (i) shall be modified by deletion of the words "and SARs"
from line 11.
EXCEPT AS provided in this Amendment, the Original Agreement continues in full
force and effect in accordance with its terms.
BUCYRUS INTERNATIONAL, INC.
By: /s/ W. R. Hildebrand /s/Daniel J. Smoke
Its President & CEO DANIEL J. SMOKE
EXHIBIT 10.17
1997 FORM 10-K
BUCYRUS INTERNATIONAL, INC.
1998 MANAGEMENT STOCK OPTION PLAN
This 1998 Management Stock Option Plan (this "Plan") is hereby
adopted by the Board of Directors of Bucyrus International, Inc. (the
"Company") as of the 5th day of March, 1998.
ARTICLE I
PURPOSE OF PLAN
The Plan is adopted by the Board for certain management employees
of the Company and its Subsidiaries as a part of the compensation and
incentive arrangements for such employees. The Plan is intended to advance
the best interests of the Company by allowing such employees to acquire an
ownership interest in the Company, thereby motivating them to contribute to
the success of the Company and to remain in the employ of the Company and its
Subsidiaries. The availability of stock options under the Plan will also
enhance the Company's ability to attract and retain individuals of exceptional
talent to contribute to the sustained progress, growth and profitability of
the Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan, except where the context clearly
indicates otherwise, the following terms shall have the meanings set forth
below:
"Affiliate" means, with respect to any Person, any other Person
who, either directly or through one or more intermediaries, Controls, is
Controlled by or is under common Control with, such first Person.
"Board" means the Board of Directors of the Company.
"Cause" means (a) with respect to any Participant with an
employment agreement that defines "Cause," the definition set forth in such
employment agreement and (b) with respect to any other Participant, (i) such
Participant's (1) willful failure to timely comply in all material respects
with the lawful directives of the Board (as set at a meeting of the Board in
accordance with the Company's bylaws) or such Participant's supervisory
personnel (provided such directives are consistent with such Participant's
position with the Company) or (2) gross negligence or willful misconduct in
the performance of the material duties or responsibilities of his or her
position with the Company or any Subsidiary; (ii) reasonable evidence to
indicate that such Participant has committed (1) any felony, (2) any other
criminal act or act of material dishonesty, disloyalty, or misconduct (other
than minor traffic offenses and similar acts) or (3) any act of moral
turpitude that is materially injurious to the property, operations, business
or reputation of the Company or any Subsidiaries (as determined by the Board
in its reasonable good faith discretion); (iii) the use or imparting by such
Participant of any material confidential or proprietary information of the
Company or any Subsidiary in violation of any confidentiality or proprietary
agreement to which such Participant is a party; or (iv) such Participant's
willful failure to comply in any material respect with the terms of this Plan
or the Stockholders Agreement.
"CEO" means the President and Chief Executive Officer of the
Company.
"Closing Date" means September 26, 1997.
"Code" means the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Commission" means the United States Securities and Exchange
Commission.
"Committee" means the Compensation Committee or such other
committee of the Board as the Board may designate to administer the Plan or,
if for any reason the Board has not designated such a committee, the Board.
The Committee, if other than the Board, shall be composed of two or more
directors as appointed from time to time by the Board. At any time when the
Company is subject to the reporting requirements of Section 13 or Section
15(d) of the Securities Exchange Act, this Plan shall be administered by a
committee consisting solely of two or more directors who are "Non-Employee
Directors" within the meaning of Rule l6b-3 under the Securities Exchange Act.
In addition, at any time and to the extent that compensation payable under
this Plan is subject to Section 162(m) of the Code, each director who is a
member of such committee shall also be an "outside director" within the
meaning of Section 162(m) of the Code.
"Common Stock" means the Company's common stock, par value $0.01
per share.
"Company" means Bucyrus International, Inc., a Delaware
corporation.
"Company Sale" means a transaction involving one or more
independent third parties pursuant to which such party or parties (i) acquire
(whether by merger, consolidation or transfer or issuance of capital stock)
capital stock of the Company (or any surviving or resulting corporation)
possessing the voting power to elect a majority of the board of directors of
the Company (or such surviving or resulting corporation) or (b) acquire all or
substantially all of the Company's assets determined on a consolidated basis.
"Control" (including, with correlative meaning, all conjugations
thereof) means with respect to any Person, the ability of another Person to
control or direct the actions or policies of such first Person, whether by
ownership of voting securities, by contract or otherwise.
"Disability" means (a) with respect to a Participant who is
covered by any long-term disability insurance provided by the Company or any
of its Subsidiaries, the occurrence of those events or the existence of those
conditions that constitute "permanent disability" under the terms of such
insurance policy, and (b) with respect to any Participant that is not covered
by any long-term disability insurance provided by the Company or any of its
Subsidiaries, illness, accident, injury, physical or mental incapacity or
other disability which has existed for at least six months and which has
continuously during such period prevented, and can reasonably be expected to
continue to prevent, such Participant from carrying out effectively his duties
and obligations to the Company and its Subsidiaries as determined in good
faith by the Board.
"Employee" means any full-time employee of the Company or any of
its Subsidiaries.
"Exercise Price" means the purchase price of an Option Share upon
exercise of an Option.
"Fair Market Value" as of any date means (a) with respect to
publicly traded Common Stock, the market trading price of such Common Stock,
(b) with respect to non-publicly traded Common Stock, the fair market value of
such Common Stock (expressed on a per-share basis) as of such date, as
determined in good faith by the Committee taking into consideration the
enterprise multiples paid by equity sponsors at the time of termination
utilizing the trailing four quarters EBITDA less net debt outstanding as of
the then-immediately preceding quarter end, plus such other factors as the
Committee may deem appropriate, and (c) with respect to any Option (or portion
thereof), the excess of (i) the product of the amount described in clause (a)
or (b) above (as applicable) multiplied by the number of Option Shares
issuable upon exercise of the Option (or portion thereof), over (ii) the
aggregate Exercise Price of the Option (or portion thereof).
"Management Agreement" means the Management Services Agreement,
dated as of September 24, 1997, among the Company, its Subsidiaries and
American Industrial Partners, a Delaware general partnership.
"Management Stockholder" means a management Stockholder under the
Stockholder Agreement.
"Option" means any option to purchase shares of Common Stock under
the Plan.
"Option Shares" means (a) any shares of Common Stock (or other
shares of capital stock of the Company) issued or issuable by the Company upon
exercise of any Option, and (b) any shares of the capital stock of the Company
issued or issuable in respect of any of the securities described in clause (a)
above, by way of stock dividend, stock split, merger, consolidation,
reorganization or other recapitalization.
"Participant" means any Employee who is selected to participate in
the Plan in accordance with Article III of the Plan.
"Performance Vesting Period" shall mean the period from January 1,
1998 through December 31, 2001, unless a different period is specified by the
Committee in the Option Certificate (as defined in Section 5.2 below) relating
to any Option.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.
"Plan" means this 1998 Management Stock Option Plan, as amended or
supplemented from time to time in accordance with its terms.
"Qualified Public Offering" means any primary or secondary public
offering of Common Stock pursuant to an effective registration statement under
the Securities Act, other than pursuant to a registration statement filed in
connection with a transaction of the type described in Rule 145 of the
Securities Act or for the purpose of issuing securities pursuant to an
employee benefit plan, having an aggregate offering value (before
underwriters' discounts and selling commissions) of at least $30 million.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Stockholders Agreement" means the Stockholders Agreement dated as
of March 17, 1998 among the Company and its stockholders.
"Subsidiary" means any corporation of which the Company owns,
directly or through one or more Subsidiaries, securities possessing the voting
power to elect a majority of the board of directors of such corporation.
"Transfer" means, with respect to any Option, the gift, sale,
assignment, transfer, pledge, hypothecation or other disposition (whether for
or without consideration and whether voluntary, involuntary or by operation of
law) of such Option or any interest therein.
ARTICLE III
ADMINISTRATION
The CEO shall be responsible for the routine administration of the
Plan, subject to the review and approval of the Committee. Subject to the
requirements and limitations of the Plan, the CEO shall have the authority to
recommend to the Committee those Employees who shall be Participants and the
number of Options to be granted to each Participant. Subject to the
requirements and the limitations of the Plan, the Committee shall have the
sole and complete responsibility and authority to: (a) approve the award of
and grant Options under this Plan; (b) determine the terms and conditions of
Options granted under this Plan; (c) interpret the Plan and adopt, amend and
rescind administrative guidelines and other rules and regulations relating to
the Plan; (d) correct any defect or omission or reconcile any inconsistency in
the Plan or in any Option granted hereunder; and (e) make all other
determinations and take all other actions necessary or advisable for the
implementation and administration of the Plan. All authority not expressly
granted to the CEO hereunder shall remain vested in the Committee. The
Committee's determinations on matters within its authority shall be conclusive
and binding upon the Participants, the Company and all other Persons. All
expenses associated with the administration of the Plan shall be borne by the
Company.
ARTICLE IV
OPTION SHARES AVAILABLE FOR GRANT UNDER THE PLAN
4.1 Option Shares. The aggregate number of shares of Common
Stock with respect to which Options may be granted under the Plan shall not
exceed 150,400 shares; provided, however, that such number of shares shall be
subject to adjustment in accordance with the provisions of Section 10.3 below.
4.2 Status of Option Shares. The shares of Common Stock for
which Options may be granted under the Plan may be either authorized and
unissued shares, treasury shares or a combination thereof, as the Committee
shall determine and shall be reserved by the Company for issuance as provided
in the Plan. To the extent any outstanding Options expire or are terminated
prior to exercise, the Option Shares in respect of which such Options were
issued shall remain available for reissuance to employees of the Company and
its Subsidiaries pursuant to this Plan or any other plan or agreement approved
by the Board.
ARTICLE V
GRANT OF OPTIONS
5.1 Option Terms and Conditions. The terms and conditions of
each Option granted under this Plan shall be as determined by the Committee in
consultation with the CEO.
5.2 Option Certificate. Each Option granted hereunder to a
Participant shall be evidenced by a certificate setting forth certain basic
terms of the Option. The certificate shall be substantially in the form
attached hereto as Annex l (or in such other form as the Committee may from
time to time adopt) (the "Option Certificate"), and shall be signed by the CEO
or such other officer of the Company as the Committee shall designate. For
purposes of the Plan, no Option shall be deemed to be outstanding until it has
been granted to a Participant by the Committee and an Option Certificate has
been executed and delivered by the Company, and an Option shall cease to be
outstanding when it is repurchased by the Company, terminates or is exercised
pursuant to the Plan.
5.3 Joinder Agreement. As a condition to exercising any Options
hereunder, each Participant who is not a Management Stockholder shall be
required to execute a Joinder Agreement substantially in the form attached
hereto as Annex III (the "Joinder") and thereby become a party to the
Stockholders Agreement with respect to any Option Shares issued in connection
with such exercise.
ARTICLE VI
EXERCISE OF OPTIONS
6.1 Right to Exercise. Except as may otherwise be determined by
the Committee, Options may not be Transferred other than by will or the laws
of descent and distribution and, during the lifetime of the Participant,
Options may be exercised only by such Participant (or his legal guardian or
legal representative). Any Transfer or attempted Transfer of an Option
contrary to this Section 6.1 shall be void, and the Company shall not record
such Transfer on its books or treat any purported transferee of such Option as
the owner of such Option for any purpose. In the event of the death of a
Participant, exercise of Options granted hereunder shall be made only by the
executor or administrator of the estate of the deceased Participant or the
Person or Persons to whom the deceased Participant's rights under the Option
shall pass by will or the laws of descent and distribution.
6.2 Procedure for Exercise. Any Participant may exercise all or
any portion of any of such Participant's outstanding Options, to the extent
such Options have vested as provided in the Option Certificate, at any time
and from time to time prior to the expiration of such Options, by completing,
signing and delivering to the Company (to the attention of the Company's
Secretary) the Option Certificate together with a notice of exercise
substantially in the form attached hereto as Annex II (or in such other form
as the Committee may from time to time adopt and provide to the Participant)
(the "Exercise Notice"), accompanied (in the case of a Participant who is not
a Management Stockholder) by a Joinder to the Stockholder Agreement in the
form attached as Annex III together with the related Option Certificate(s) and
payment in full of the Exercise Price. Payment of the Exercise Price shall be
made in cash (including check, bank draft or money order); provided, that a
Participant may, in lieu of paying the Exercise Price in cash, deliver an
Exercise Notice with respect to a specified number of Option Shares (the
"Specified Option Shares") and indicate in the Exercise Notice that such
Participant intends to effect a cashless exercise thereof and be entitled to
receive in respect of the exercise of the Option therefor, Option Shares with
an aggregate Fair Market Value equal to the excess of (i) the aggregate Fair
Market Value of the Specified Option Shares, over (ii) the aggregate Exercise
Price that otherwise would be payable hereunder in cash upon exercise of the
Option for the Specified Option Shares. Notwithstanding anything in this
Section 6.2 to the contrary, in the event that any Option Certificate granted
to a Participant is lost, stolen or destroyed, the Participant may, in lieu of
delivering such Option Certificate at the time of exercise, deliver an
affidavit as to its loss, theft or destruction and any indemnity that the
Company may reasonably request. A Participant's right to exercise the Option
shall be subject to the satisfaction of all conditions set forth in the
Exercise Notice. If a Participant exercises any Options for less than all of
the Option Shares covered by the relevant Option Certificate, the Company
shall issue a new Option Certificate to such Participant in respect of the
portion of such Option remaining unexercised.
6.3 Securities Laws Restrictions on Transfer of Option Shares.
Each Participant exercising an Option will be required to represent to the
Company in the Exercise Notice that when such Participant exercises his or her
Option such Participant will be purchasing Option Shares for his or her own
account for investment and not on behalf of others or otherwise with a view
toward distributing them. Each Participant is advised that federal and state
securities laws govern and restrict each Participant's right to Transfer, or
offer to Transfer, any Option Shares unless such Participant's Transfer, or
offer to Transfer, is registered under the Securities Act and state securities
laws, or such Transfer, or offer to Transfer, is exempt from registration or
qualification thereunder. Each Participant is further advised that the
Stockholders Agreement, to which each Participant will become a party upon
exercise of such Participant's Options, imposes additional restrictions on the
transfer of Option Shares, and that the stock certificates for any Option
Shares issued in connection with such exercise will bear such legends as the
Company deems necessary or desirable in connection with the Securities Act or
other rules, regulations or laws.
6.4 Withholding of Taxes. The Company shall be entitled, if
necessary or desirable, to withhold from any amounts due and payable by the
Company to such Participant (or secure payment from such Participant in lieu
of withholding) the amount of any withholding or other tax due from the
Company with respect to any Option Shares issuable under the Plan, and the
Company may defer such issuance unless indemnified to its satisfaction.
6.5 Listing, Registration and Compliance with Laws and
Regulations. Options granted under the Plan shall be subject to the
requirement that if at any time the Committee shall make a good faith
determination that the listing, registration or qualification of Option Shares
upon any securities exchange or under any state or federal securities or other
law or regulation, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition to or in connection with the
granting of the Options or the issuance or purchase of Option Shares
thereunder, no Options may be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not reasonably acceptable to the
Committee. The Company shall in good faith, and to the extent consistent with
its reasonable business judgment, exercise all reasonable efforts to obtain
any such listing, registration, qualification or approval. The holders of
such Options shall supply the Company with such certificates, representations
and information as the Company shall request and shall otherwise cooperate
with the Company in obtaining such listing, registration, qualification,
consent or approval. Any period of time during which an Option may not be
exercised by reason of the first sentence of this Section 6.5 is referred to
herein as an "Option Exercise Suspension Period." If the expiration date of
the Option as set forth in the related Option Certificate shall fall within an
applicable Option Exercise Suspension Period, the term of the Option shall
automatically be extended until the date that is 45 days following the end of
the Option Exercise Suspension Period. The Company shall provide affected
Optionees with timely notice of the commencement and termination of any Option
Exercise Suspension Period. Except as may otherwise be provided in the
Stockholders Agreement, the Company shall be under no obligation to register
any Option Shares.
ARTICLE VII
TERMINATION AND REPURCHASE OF OPTIONS
7.1 Expiration Date of Options. Except as may otherwise be
provided by the Committee, in no event shall any part of any Option be
exercisable after 5:00 p.m. Central Standard Time on the tenth anniversary of
the date of grant of the option.
7.2 Termination for Cause. Upon the termination of a
Participant's employment with the Company or any Subsidiary for Cause, any
Options held by the Participant, regardless of the extent vested or unvested,
shall immediately expire and be forfeited in its entirety to the extent not
exercised prior to the date of such termination.
7.3 Termination by the Company without Cause. Upon a
Participant's termination of employment by the Company or any Subsidiary
without Cause, (a) except as may otherwise be provided in any applicable
employment agreement between the Company and the Participant (a "Participant
Employment Agreement"), the unvested portion of any Options held by the
Participant shall immediately expire, (b) if such termination occurs prior to
a Qualified Public Offering, the Company shall repurchase the unexercised
vested portion of any such Options (including any Options that vest pursuant
to a Participant Employment Agreement) at a price equal to the Fair Market
Value thereof, and (c) if such termination occurs after a Qualified Public
Offering, except as may otherwise be provided in a Participant Employment
Agreement, the unexercised vested portion of any such Options shall remain
exercisable for a period of 90 days following the date of such termination of
employment, whereupon such Options shall terminate in full.
7.4 Voluntary Termination by the Participant; Death or
Disability. Upon a Participant's voluntary termination of employment with the
Company or any Subsidiary or upon termination of such employment by reason of
the Participant's death or Disability, (a) the unvested portion of any Options
held by the Participant shall immediately expire, (b) if such termination
occurs prior to a Qualified Public Offering, the Company shall repurchase the
unexercised vested portion of any such Options at a price equal to the lower
of (i) the Fair Market Value thereof or (ii) the excess of (x) the Exercise
Price of such Options as increased at the rate of 6% per year from the date of
grant through the date of termination of employment over (y) the Exercise
Price of the Options, and (c) if such termination occurs after a Qualified
Public Offering, except as may otherwise be provided in a Participant
Employment Agreement, the unexercised vested portion of any such Options shall
remain exercisable for a period of 90 days following the date of such
termination of employment, whereupon such Options shall terminate in full.
Notwithstanding the foregoing, the Committee shall have the discretion to
permit vested Options held by retirees to remain outstanding following the
date of retirement for a period specified by the Committee.
7.5 Payment of Repurchase Price. The aggregate purchase price
of the vested portion of any Options to be repurchased by the Company pursuant
to this Article VII shall be paid, either (i) in cash by delivery of a check
or wire transfer of funds, or (ii) prior to the first Company Sale following
the Closing Date, at the sole discretion of the Company, by delivery of a
subordinated note of the Company with interest thereon accruing at the rate of
eight percent (8%) per annum, with all accrued interest and principal payable
two years from the date of issuance (the "Subordinated Note"); provided,
however, in the event that during the term of the Subordinated Note the
Participant accepts employment with Harnischfeger Corp., the term of the
Subordinated Note shall be extended for an additional two years following
expiration of the original term. The Subordinated Note shall be expressly
subordinated to all other indebtedness for borrowed money of the Company.
Notwithstanding anything to the contrary herein, the Company shall not be
obligated to repurchase the vested portion of any Options pursuant to this
Article VII to the extent (a) the Company is prohibited from purchasing such
shares by any agreements for borrowed money (each, a "Debt Instrument")
entered into by the Company or any of its Subsidiaries or by applicable law;
(b) a default has occurred under any Debt Instrument and is continuing; (c)
the repurchase of such vested Options would, in the opinion of the Board,
result in the occurrence of an event of default under any Debt Instrument or
create a condition which would, with notice or lapse of time or both, result
in such an event of default; or (d) the purchase of such vested Options would,
in the reasonable opinion of the Board, materially impair the Company's
ability to meet its obligations under any Debt Instrument in connection with
its business and operations. The Company shall provide affected Optionees
with timely notice of the existence and lapse of any of the conditions
described in the foregoing clauses (a)-(d).
ARTICLE VIII
MISCELLANEOUS
8.1 Rights of Participants. Nothing in this Plan shall
interfere with or limit in any way any right of the Company or any of its
Subsidiaries to terminate any Participant's employment at any time (with or
without Cause), nor confer upon any Participant any right to continued
employment by the Company or any of its Subsidiaries for any period of time or
to continue such employee's present (or any other) rate of compensation.
Transfer of an Employee from the Company to a Subsidiary, from a Subsidiary to
the Company and from one Subsidiary to another shall not be considered a
termination of such Employee's employment for purposes of this Plan. No
Employee shall have a right to be selected as a Participant or, having been so
selected, to be selected again as a Participant.
8.2 Amendment, Suspension and Termination of Plan. The
Committee may not suspend, terminate or materially amend the Plan or any
portion thereof at any time without stockholder approval to the extent such
approval is required by law, agreement or the rules of any exchange upon which
the Common Stock is listed. Notwithstanding the foregoing, no suspension,
termination or amendment of or to the Plan may adversely affect the rights of
any holder of Options with respect to Options issued hereunder prior to the
date of such suspension, termination or amendment without the consent of such
holder.
8.3 Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split, share
combination or other change affecting the shares of Common Stock, the
Committee shall make such adjustments in the number and type of shares
authorized by the Plan, the number and type of shares covered by outstanding
Options and the Exercise Prices specified therein and any other adjustments to
the Option as the Committee, reasonably and in good faith, determines to be
appropriate and equitable in order to prevent the dilution or enlargement of
the rights granted hereunder or under any outstanding Options.
8.4 Construction of Plan. The validity, construction,
interpretation, administration and effect of the Plan shall be determined in
accordance with the local law, and not the law of conflicts, of the State of
Delaware.
8.5 Indemnification. The Company will, and will cause each of
its Subsidiaries to, indemnify the CEO and the members of the Committee
against all costs and expenses reasonably incurred by them in connection with
any action, suit or proceeding to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder or any Option Shares issued pursuant to
the exercise of an Option, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding; provided, however, that any such Person shall
be entitled to the indemnification rights set forth in this Section 8.5 only
if such Person has acted in good faith and in a manner that such Person
reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such conduct was unlawful, and provided
further that upon the institution of any such action, suit or proceeding such
Person shall give the Company written notice thereof and an opportunity, at
its own expense, to handle and defend the same before such Person undertakes
to handle and defend it on his or her own behalf.
<PAGE>
Annex I
THIS OPTION AND THE OPTION SHARES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE. THIS OPTION IS ISSUED PURSUANT TO
THE BUCYRUS INTERNATIONAL, INC. 1998 MANAGEMENT STOCK OPTION PLAN ADOPTED AS
OF MARCH 5, 1998 BY THE BOARD OF DIRECTORS OF THE ISSUER (THE "PLAN") AND THIS
OPTION IS SUBJECT TO THE TERMS SET FORTH IN THE PLAN.
____________________________________________________________________
OPTION TO PURCHASE [______] SHARES OF
COMMON STOCK OF
BUCYRUS INTERNATIONAL, INC.
OPTION NO. [___]
DATE OF GRANT: MARCH 17, 1998
VOID AFTER MARCH 17, 2008
____________________________________________________________________
This certifies that [____________] is entitled, upon the due exercise
hereof, to purchase up to [_____] shares of Common Stock, par value $0.01 per
share (the "Option Shares") of Bucyrus International, Inc., a Delaware
corporation (the "Company") at a price (the "Exercise Price") of $100 per
Option Share. This option (this "Option") is issued pursuant to the Bucyrus
International, Inc. 1998 Management Stock Option Plan adopted as of March 5,
1998 by the Company's Board of Directors (the "Plan") and is subject in its
entirety to the terms and conditions of the Plan, as amended from time to
time, all of which are hereby incorporated in the terms of this Option.
Capitalized terms which are used but not defined herein shall have the
respective meanings ascribed to them in the Plan.
The Option shall vest and become exercisable as provided in Schedule 1
attached hereto.
The Participant may exercise all or any portion of a vested Option by
executing and delivering to the Company an Exercise Notice and a Joinder to
Stockholders Agreement (copies of which may be obtained from the Company)
together with full payment of the aggregate Exercise Price for all Option
Shares being so purchased, such payment to be made (if payable in cash) by
cash, check, bank draft or money order made payable to "Bucyrus International,
Inc." Except as otherwise expressly provided by the Plan, this Option shall
be deemed to have been exercised and the Option Shares issuable upon such
exercise shall be deemed to have been issued as of the close of business on
the date upon which all of the foregoing items are received by the Company.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, share combination or similar
change affecting the Common Stock of the Company, the number and, if
applicable, the type of Option Shares issuable upon exercise of this Option
and the Exercise Price therefor shall be adjusted as provided in the Plan.
THIS OPTION MAY NOT BE TRANSFERRED EXCEPT TO THE LIMITED EXTENT PROVIDED
IN SECTION 6.1 OF THE PLAN.
Prior to the exercise of this Option as permitted by the Plan, the
Participant shall not, with respect to the Option Shares issuable upon the due
exercise hereof, be entitled to any of the rights of a stockholder of the
Company including, without limitation, the right as a stockholder to (i) vote
on or consent to any proposed action of the Company, (ii) receive dividends or
other distributions made to stockholders, (iii) receive notice of or attend
any meetings of stockholders of the Company, or (iv) receive notice of any
other proceedings of the Company.
IN WITNESS WHEREOF, the Company has executed this Option as of the date
first above written.
BUCYRUS INTERNATIONAL, INC.
[SEAL] By: ________________________________
Its: ________________________________
Attest: ____________________
<PAGE>
Schedule 1
OPTION VESTING
The Option shall vest as set forth below. Capitalized terms have
the meanings assigned to such terms either in the Plan or in Section 7 below.
1. Performance-Based EBITDA Targets. The Option shall vest
based on the Company's actual EBITDA performance during each of the Company's
1998 through 2001 fiscal years (each, a "Plan Year" and, in the aggregate, the
"Performance Vesting Period") as compared with the EBITDA Target for such Plan
Year. The EBITDA Targets for each Plan Year are as follows:
Plan Year EBITDA Target
1/1/98 - 12/31/98 $40,209,000
1/1/99 - 12/31/99 50,399,000
1/1/00 - 12/31/00 *
1/1/01 - 12/31/01 *
* To be determined by the Company in consultation with the Chief
Executive Officer based on the Company's business plan.
The actual percentage achievement of the EBITDA Target for a Plan Year is
referred to as the "Performance Level" for that Plan Year. The Performance
Level for each Plan Year shall be determined by the Committee within a
reasonable period of time after the Company's audited financial statements for
such Plan Year become available.
2. Normal Option Vesting. The Option is targeted to vest at
the rate of 25% of the total Option Shares in each Plan Year (the "Base Option
Vesting Amount"). No portion of the Base Option Vesting Amount for any Plan
Year will vest unless the Performance Level for such Plan Year is greater than
90% of the EBITDA Target. The entire Base Option Vesting Amount for any Plan
Year will vest effective as of the last day of such Plan Year if the
Performance Level for such Plan Year is equal to or greater than 100%. If the
Performance Level for any Plan Year is between 90% and 100%, the Base Option
Vesting Amount will vest pro rata effective as of the last day of such Plan
Year as follows:
Performance Level in Plan Year % of Total Option Shares Vesting
in Plan Year
90% or below 0%
91% 2.5%
92% 5.0%
93% 7.5%
94% 10.0%
95% 12.5%
96% 15.0%
97% 17.5%
98% 20.0%
99% 22.5%
100% or above 25.0%
If the Performance Level for a Plan Year falls between two whole
number percents, the Percentage of Total Option Shares Vesting in such Plan
Year shall be adjusted pro rata. The number of Option Shares vesting in any
Plan Year will be rounded to the nearest whole share.
3. Performance Level in Excess of 100% in a Plan Year. If the
Performance Level in any Plan Year exceeds 100%, the amount of actual EBITDA
for such Plan Year in excess of the EBITDA Target for such Plan Year (the
"EBITDA Surplus") will be applied first to "make-up" any portion of the Base
Option Vesting Amount that failed to vest in any prior Plan Year by reason of
a Performance Level less than 100%, and second to "surplus" accelerated
vesting of up to one-quarter of the Option Shares that would otherwise have
been eligible for vesting as part of the Base Option Vesting Amount for the
2001 Plan Year, each as described below. For purposes of this Section 3, the
term "EBITDA Deficit" shall mean the amount by which, in any Plan Year, the
Company's actual EBITDA for such Plan Year falls short of the EBITDA Target
for such Plan Year.
(a) Make-Up Vesting. If there is an EBITDA Surplus for
any Plan Year, the amount of such EBITDA Surplus will first be applied to
offset the amount of any EBITDA Deficit for the immediately preceding Plan
Year, whereupon (i) the Performance Level for such preceding Plan Year shall
be recalculated, (ii) the Optionee shall be deemed to vest, effective as of
the last day of the Plan Year as to which such surplus was achieved, in the
appropriate additional number of Option Shares for such preceding Plan Year in
accordance with Section 2 above, and (iii) such EBITDA Surplus shall be
reduced by the amount of such offset. Any remaining EBITDA Surplus shall then
be applied sequentially to any EBITDA Deficit for any earlier Plan Years,
until the amount of such EBITDA Surplus has been reduced to zero. In no event
shall any EBITDA Surplus (i) be used to achieve a Performance Level for any
prior Plan Year in excess of 100% or (ii) be carried over to reduce any EBITDA
Deficit in any subsequent Plan Year.
(b) Surplus Vesting. If, after the application of Section
3(a) above, any EBITDA Surplus achieved as to the 1998, 1999 or 2000 Plan
Years remains, the "Surplus Vesting Percentage" shall be calculated by
dividing the amount of any such remaining EBITDA Surplus by the EBITDA Target
for such Plan Year, whereupon Option Shares that would otherwise have been
eligible for vesting as part of the Base Option Vesting Amount for the 2001
Plan Year shall vest, effective as of the last day of the Plan Year as to
which such EBITDA surplus was achieved, according to the following schedule:
Surplus Vesting Percentage % of Total Option Shares Subject to
Surplus Vesting
1% 0.625%
2% 1.250%
3% 1.875%
4% 2.500%
5% 3.125%
6% 3.750%
7% 4.375%
8% 5.000%
9% 5.625%
10% or more 6.250%
If the Surplus Vesting Percentage for a Plan Year falls between two whole
number percents, the Percentage of Total Option Shares Subject to Surplus
Vesting shall be adjusted pro rata. The number of Option Shares vesting in any
Plan Year will be rounded to the nearest whole share. The Base Option Vesting
Amount for the 2001 Plan Year shall be reduced by the amount of any Option
Shares subject to surplus vesting in any prior Plan Year, and for purposes of
calculating the number of Option Shares vesting based on performance during
the 2001 Plan Year, the vesting table set forth in Section 2 shall be adjusted
proportionately, such that the full number of Option Shares remaining in the
Base Option Vesting Amount for the 2001 Plan Year will vest only if the
Performance Level for the 2001 Plan Year is 100% or more. In no event shall
any EBITDA Surplus for any Plan Year be carried over to any subsequent Plan
Year.
4. Full Vesting on Company Sale; Termination of Option;.
Notwithstanding the foregoing, if a Company Sale is consummated prior to the
end of the 2001 Plan Year, 100% of the Option Shares shall automatically vest
immediately prior to consummation of such Company Sale. In connection with a
Company Sale, the Company may, in its discretion, either (i) upon not less
than 30 days notice prior to consummation of such Company Sale (or such lesser
notice period as shall otherwise be reasonable under the circumstances),
permit the Participant to exercise all or part of the Option in advance of
such Company Sale or (ii) provide for the deemed exercise of all or part of
the Option and payment in cash or other property therefor. In either such
event, unless otherwise determined by the Company in its discretion, any
Option or part thereof not so exercised or deemed exercised in connection with
such Company Sale shall expire upon the consummation of such Company Sale.
5. Nine Year Cliff Vesting. Notwithstanding the foregoing, but
subject to Section 6 below, any Option Shares that fail to vest by reason of
the vesting provisions of Sections 1 through 4 above shall nonetheless vest on
the ninth anniversary of the date of grant of the Option.
6. Termination of Employment. Notwithstanding anything to the
contrary herein or in the Plan, except as may otherwise be provided in any
applicable employment agreement between the Company and the Participant, all
Options held by a Participant shall cease to vest as of the date such
Participant's employment with the Company or any Subsidiary terminates for any
reason and under any circumstances.
7. Definitions. For purposes of this Schedule 1, the terms set
forth below shall be defined as follows:
"EBITDA" means, with reference to any period, Net Income for such
period adjusted (a) by adding thereto the amount of all (i) debt interest
expense to the extent included in determining Net Income for such period, (ii)
depreciation and amortization expenses and non-cash charges, including,
without limitation, (A) the non-cash portion of any expenses incurred during
such period pursuant to Financial Accounting Standards Board Statement No.
106, (B) purchase accounting adjustments that occur as a result of the
application of Accounting Principles Board Opinion No. 16 and (C) non-cash
charges for compensation costs recognized pursuant to Accounting Principles
Board Opinion No. 25 (as permitted under Financial Accounting Standards Board
Statement No. 123) in connection with Options granted to employees of the
Company and its Subsidiaries to the extent included in determining Net Income
for such period, (iii) all income taxes to the extent included in determining
Net Income, and (iv) the management fee payable under the Management Agreement
and all directors' fees, in each case, to the extent included in determining
Net Income for such period, and (b) by subtracting therefrom (i) all interest
income to the extent included in determining Net Income for such period, and
(ii) all tax credits to the extent included in determining Net Income for such
period.
The Committee will make equitable adjustments to the EBITDA Targets from time
to time to reflect (i) acquisitions and dispositions made by the Company and
its subsidiaries during the Performance Vesting Period and (ii) the
establishment of accounting reserves prior to January l, 1998 and, in each
case, the anticipated effect on the EBITDA Targets resulting therefrom.
"Net Income" means, with reference to any period, the net income
(or deficit) of the Company and its Subsidiaries for such period, after
deducting all operating expenses, provisions for taxes, reserves and all other
proper deductions, all determined in accordance with generally accepted
accounting principles applied on a consolidated basis and on a basis
consistent with prior periods after eliminating all intercompany transactions
and after deducting portions of income properly attributable to minority
interests, if any, in the stock and surplus of Subsidiaries; provided,
however, that there shall be excluded (a) any aggregate net gain or net loss
during such period arising from the sale, exchange or other disposition of
capital assets, (b) any net income or gain from the collection of the proceeds
of insurance policies (other than proceeds of business interruption insurance
for lost income to the extent such loss reduced Net Income for such period and
proceeds of other insurance in respect of claims or losses to the extent such
claims or losses reduced Net Income for such period), (c) any gain or loss
arising from the acquisition of any securities, or the extinguishment, under
generally accepted accounting principles, of any indebtedness of the Company
or any of its Subsidiaries, or (d) any net income or gain or net loss during
such period from any change in accounting principles originally used as a
basis for the computation of EBITDA or from any extraordinary items.
<PAGE>
Annex II
EXERCISE NOTICE
This Exercise Notice (this "Notice") is given by the undersigned
participant ("Participant") to Bucyrus International, Inc., a Delaware
corporation (the "Company") in connection with the Participant's exercise of
an Option granted pursuant to the Company's 1998 Management Stock Option Plan,
adopted as of March 5, 1998 (the "Plan") to purchase Option Shares (as defined
in the Plan). Capitalized terms used but not defined herein shall have the
respective meanings ascribed to them in the Plan.
1. Purchase and Sale of Option Shares.
(a) Upon delivery to the Company of this Notice and the Option
Certificate to which it relates, the Company will sell and issue to
Participant the Option Shares that Participant elects to purchase hereunder.
Participant will deliver to the Company herewith the aggregate Exercise Price
for the Option Shares purchased hereunder (if payable in cash) by check, bank
draft or money order made payable to "Bucyrus International, Inc."
(b) In connection with the purchase and sale of the Option
Shares hereunder, Participant represents and warrants to the Company that:
(i) The Option Shares to be acquired by Participant
pursuant to Participant's exercise of the Option will be acquired for
Participant's own account and not with a view to, or intention of,
distribution thereof in violation of the Securities Act, or any
applicable state securities laws, and the Option Shares will not be
disposed of in contravention of the Securities Act or any applicable
state securities laws;
(ii) Participant is sophisticated in financial matters and
is able to evaluate the risks and benefits of the investment in the
Option Shares;
(iii) Participant is able to bear the economic risk of his
or her investment in the Option Shares for an indefinite period of time
because the Option Shares have not been registered under the Securities
Act and, therefore, cannot be sold unless subsequently registered under
the Securities Act or an exemption from such registration is available;
(iv) Participant has had an opportunity to ask questions
and receive answers concerning the terms and conditions of the Option
Shares and has had full access to such other information concerning the
Company as he or she has requested; and
(v) Participant is a resident and domiciliary of the state
or other jurisdiction hereinafter set forth opposite such Participant's
signature and Participant has no present intention of becoming a
resident of any other state or jurisdiction. If Participant is a
resident and domiciliary of a state that requires the Company to
ascertain certain other information regarding the Participant, the
Company may attach a page to this Notice containing additional
representations to be made by Participant in connection with such
Participant's investment in Option Shares, and by signing this Notice,
Participant shall be deemed to have made such additional representations
to the Company.
(c) Participant further acknowledges and agrees that:
(i) neither the issuance of the Option Shares to
Participant nor any provision contained herein shall entitle
Participant to remain in the employment of the Company and its
Subsidiaries or affect any right of the Company to terminate
Participant's employment at any time for any reason;
(ii) the Company shall have no duty or obligation to
disclose to Participant and Participant shall have no right to be
advised of, any material information regarding the Company and its
Subsidiaries in connection with the repurchase of Option Shares
upon the termination of Participant's employment with the Company
and its Subsidiaries or as otherwise provided hereunder; and
(iii) the Company shall be entitled to withhold from
participant from any amounts due and payable by the Company to
Participant (or secure payment from Participant in lieu of
withholding) the amount of any withholding or other tax due from
the Company with respect to the Option Shares and the Company may
defer issuance of the Option Shares until indemnified to its
satisfaction.
(d) The Company and Participant acknowledge and agree that
the Option Shares issued hereunder are issued as a part of the
compensation and incentive arrangements between the Company and
Participant.
2. Restriction on Option Shares. Participant acknowledges that
the Option Shares being purchased hereunder are being issued pursuant to the
Plan, the terms and conditions of which are incorporated herein as if set
forth fully herein, and that such Option Shares are subject to certain
restrictions on transfer, rights of repurchase and other provisions set forth
in the Plan and the Stockholders Agreement. Purchaser acknowledges that the
certificates evidencing such Option Shares shall be imprinted with a legend
providing notice of such restrictions substantially in the form set forth in
the Stockholders Agreement.
* * * * *
IN WITNESS WHEREOF, the Participant has executed this Notice as of the
date written below.
No. of Shares of Common Stock: _________________
Aggregate Exercise Price Therefor: _________________
Cashless Exercise: Yes ____ No ____
________________________________ _________________________________
Signature of Participant Date
________________________________ _________________________________
Print Participant's Name Participant's Social Security No.
Participant's Residence Address: Mailing Address, if different
from Residence Address:
________________________________ _________________________________
Street Street
________________________________ _________________________________
City State Zip Code City State Zip Code
Acknowledged Receipt of Notice as of _________________________.
BUCYRUS INTERNATIONAL, INC.
By: _____________________________
Its: _____________________________
<PAGE>
Annex III
FORM OF JOINDER TO THE
STOCKHOLDERS AGREEMENT
This Joinder (this "Agreement") is made as of the date written below by
the undersigned (the "Joining Party") in favor of and for the benefit of
Bucyrus International, Inc. and the other parties to the Stockholders
Agreement, dated as of March 17, 1998 (the "Stockholders Agreement").
Capitalized terms used but not defined herein shall have the meanings given
such terms in the Stockholders Agreement.
The Joining Party hereby acknowledges, agrees and confirms that, by his
or her execution of this Joinder, the Joining Party will be deemed to be a
party to the Stockholders Agreement and shall have all of the rights and
obligations of a Management Stockholder thereunder as if he or she had
executed the Stockholders Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Stockholders Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder as of the
date written below.
Date: ___________________ __________________________________
Name:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,071
<SECURITIES> 0
<RECEIVABLES> 50,177
<ALLOWANCES> (734)
<INVENTORY> 115,015
<CURRENT-ASSETS> 184,025
<PP&E> 99,339
<DEPRECIATION> (1,715)
<TOTAL-ASSETS> 406,107
<CURRENT-LIABILITIES> 63,142
<BONDS> 174,612
0
0
<COMMON> 0
<OTHER-SE> 132,253
<TOTAL-LIABILITY-AND-EQUITY> 406,107
<SALES> 306,677
<TOTAL-REVENUES> 308,312
<CGS> 256,744
<TOTAL-COSTS> 256,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 104
<INTEREST-EXPENSE> 11,223
<INCOME-PRETAX> (9,674)
<INCOME-TAX> 2,358
<INCOME-CONTINUING> (12,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,032)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
