10-K 1 r10k636as1.txt ANNUAL REPORT ON FORM 10-K 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 For the fiscal year ended December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-871 BUCYRUS INTERNATIONAL, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 39-0188050 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) P. O. BOX 500 1100 MILWAUKEE AVENUE SOUTH MILWAUKEE, WISCONSIN 53172 (Address of Principal (Zip Code) Executive Offices) (414) 768-4000 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X] As of June 30, 2002 and March 26, 2003, 1,435,600 shares of common stock of the Registrant were outstanding. Of the total outstanding shares of common stock on June 30, 2002 and March 26, 2003, 1,430,300 were held of record by Bucyrus Holdings, LLC, which is controlled by American Industrial Partners Capital Fund II, L.P. and may be deemed an affiliate of Bucyrus International, Inc., and 4,800 shares were held by directors and officers of the Company. There is no established public trading market for such stock. Documents Incorporated by Reference: None PART I FORWARD-LOOKING STATEMENTS This Report includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing such forward-looking statements may be found in ITEM 1 - BUSINESS, in ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and elsewhere within this Report. Forward-looking statements include statements regarding the intent, belief or current expectations of Bucyrus International, Inc. (the "Company"), primarily with respect to the future operating performance of the Company or related industry developments. When used in this Report, terms such as "anticipate," "believe," "estimate," "expect," "indicate," "may be," "objective," "plan," "predict," and "will be" are intended to identify such statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ from those described in the forward-looking statements as a result of various factors, many of which are beyond the control of the Company. Forward-looking statements are based upon management's expectations at the time they are made. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from such expectations ("Cautionary Statements") are described generally below and disclosed elsewhere in this Report. All subsequent written or oral forward- looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the Cautionary Statements. Factors that could cause actual results to differ materially from those contemplated include: Factors affecting customers' purchases of new equipment, rebuilds, parts and services such as: production capacity, stockpiles, and production and consumption rates of coal, copper, iron and other ores and minerals; the cash flows of customers; the cost and availability of financing to customers and the ability of customers to obtain regulatory approval for investments in mining projects; consolidations among customers; work stoppages at customers or providers of transportation; and the timing, severity and duration of customer buying cycles. Factors affecting the Company's general business, such as: unforeseen patent, tax, product, environmental, employee health or benefit, or contractual liabilities; nonrecurring restructuring and other special charges; changes in accounting or tax rules or regulations; reassessments of asset valuations for such assets as receivables, inventories, fixed assets and intangible assets; leverage and debt service; success in recruiting and retaining managers and key employees; and wage stability and cooperative labor relations; plant capacity and utilization. ITEM 1. BUSINESS The Company, formerly known as Bucyrus-Erie Company, was incorporated in Delaware in 1927 as the successor to a business which commenced in 1880. The Company is currently substantially wholly-owned by Bucyrus Holdings, LLC ("Holdings"). Holdings is controlled by American Industrial Partners Capital Fund II, L.P. The Company designs, manufactures and markets large excavation machinery used for surface mining, and has a comprehensive aftermarket business that supplies replacement parts and service for such machines. The Company's principal products are large walking draglines, electric mining shovels and blasthole drills, which are used by customers who mine coal, iron ore, copper, oil sands, diamonds, phosphate, bauxite and other minerals throughout the world. Industry Overview The large-scale surface mining equipment manufactured and serviced by the Company is used primarily in coal, copper, oil sands and iron ore mines throughout the world. Growth in demand for these commodities is a function of, among other things, population growth and continuing improvements in standards of living in many areas of the world. The market for new surface mining equipment is cyclical in nature due to market fluctuations for these commodities; however, the aftermarket for parts and services is more stable because these expensive, complex machines are typically kept in continuous operation for 15 to 30 years and require regular maintenance and repair throughout their productive lives. The largest markets for this mining equipment have been in Australia, Canada, China, India, South Africa, South America and the United States. Together, these markets typically account for approximately 90% of all new machines sold, although in any given year markets in other regions may assume greater importance. Markets Served The Company's products are used in a variety of different types of mining operations, including coal, copper, iron ore, gold, phosphate, bauxite, diamonds and oil sands, as well as for land reclamation. The Company manufactures surface mining equipment primarily for large companies and certain governmental entities engaged in mining 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. Since then, however, copper and more recently oil sands mining operations have accounted for an increasing share of new machine sales. Copper. The copper industry has seen a consolidation of large producers in recent years. A number of the smaller North American high- cost producers closed their facilities as new mines in South America started producing copper at lower costs. The price of copper dropped to an eleven-year low in early 1999 but increased later in 1999 and during 2000 due to increasing world demand. In 2001, the price of copper dropped again due to reduced demand and increased inventory levels. Copper prices have recovered in recent months and are forecasted to increase in 2003. Oil Sands. A unique geological formation of oil sands exists in the Athabasca region of northern Alberta, Canada. Although these sands were discovered many years ago, oil companies did not actively pursue exploiting these potential oil reserves in earnest until the Arab oil embargo of 1973. Various methods to mine the sands, separate the oil from the sands and process the resultant bitumen into crude oil were tried between 1973 and 1993 with varying degrees of success. The commercial viability of mining these reserves remained in question until two pioneering companies began employing electric mining shovels to exploit these reserves. Since the implementation of these new extraction methods, the cost to produce a barrel of oil has dropped to less than $10. This has made the exploitation of these reserves very economical. Since 1993, both companies have engaged in major expansions of their previous operations. There is further expansion planned and numerous additional entities are in the permitting stage or considering future development. The Company expects that the Athabasca oil sands will evolve into a major market for electric mining shovels in years to come. Coal. There are two types of coal: steam coal used to generate electricity and coking coal used in the process of producing steel. The largest producers are China, the United States, India, Australia, Russia and South Africa. In the United States, environmental legislation has caused demand for high sulfur coal to be reduced, particularly in the eastern United States. The result has been the idling of numerous mines. Demand for low sulfur coal mined in the western United States, primarily the Powder River Basin area in Wyoming, has increased significantly. Draglines and mining shovels are used to extract coal in the western United States, increasing potential demand for the Company's parts and service. In addition, demand for coal has improved due to increases in the price of oil and natural gas in recent years. Iron Ore. Iron ore is the only source of primary iron and is mined in more than 50 countries. In recent years, the five largest producers, accounting for approximately 75% of world production, have been China, Brazil, Australia, Russia and India. The Company's excavation machines are used for land reclamation as well as for mining, which has a positive effect on the demand for its products and replacement parts and expands the Company's potential customer base. Current federal and state legislation regulating surface mining and reclamation may affect some of the Company's customers, principally with respect to the cost of complying with, and delays resulting from, reclamation and environmental requirements. OEM Products The Company's line of original equipment manufactured products includes a full range of rotary blasthole drills, electric mining shovels and draglines. Rotary Blasthole Drills. Many surface mines require breakage or blasting of rock, overburden, or ore by explosives. To accomplish this, it is necessary to bore out a pattern of holes into which the explosives are placed. Rotary blasthole drills are used to drill these holes and are usually described in terms of the diameter of the hole they bore. The average life of a blasthole drill is approximately 15 years. The Company offers a line of rotary blasthole drills ranging in hole diameter size from 6.0 inches to 17.5 inches and ranging in price from approximately $600,000 to $2,800,000 per drill, depending on machine size and variable features. Electric Mining Shovels. Mining shovels are primarily used to load coal, copper ore, iron ore, other mineral-bearing materials, overburden, or rock into trucks. There are two basic types of mining shovels, electric and hydraulic. Electric mining shovels are able to handle larger shovels or "dippers", allowing them to load greater volumes of rock and minerals, while hydraulic shovels are smaller and more maneuverable. The electric mining shovel offers the lowest cost per ton of mineral mined as compared to hydraulic shovels. Its use is determined by size of operation, the availability of electricity and expected mine life. The Company manufactures only electric mining shovels. The average life of an electric mining shovel is approximately 20 years. Electric mining shovels are characterized in terms of hoisting capability and dipper capacity. The Company offers a full line of electric mining shovels, with available hoisting capability of up to 120 tons for the 495 model shovel. Dipper capacities range from 12 to 80 or more cubic yards. Prices range from approximately $3,000,000 to approximately $10,000,000 per shovel. Draglines. Draglines are primarily used to remove overburden, which is the earth located over a coal or mineral deposit, by dragging a large bucket through the overburden, carrying it away and depositing it in a "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 $70,000,000 per dragline. The average life of a dragline is 20 to 30 years. Draglines are one of the industry's largest and most expensive type of equipment, but offer the customer the lowest cost per ton of material moved. While sales are sporadic, each dragline represents a significant sales opportunity. Aftermarket Parts and Services The Company has a comprehensive aftermarket business that supplies replacement parts and services for the surface mining industry. The Company's aftermarket services include complete equipment management under Maintenance and Repair Contracts ("MARCs"), maintenance and repair labor, technical advice, refurbishment and relocation of older, installed machines, particularly draglines. The Company also provides engineering, manufacturing and servicing for the consumable rigging products that attach to dragline buckets (such as dragline teeth and adapters, shrouds, dump blocks and chains) and shovel dippers (such as dipper teeth, adapters and heel bands). In general, the Company realizes higher margins on sales of parts and services than it does on sales of new machines. Moreover, because the expected life of large, complex mining machines ranges from 15 to 30 years, the Company's aftermarket business is inherently more stable and predictable than the fluctuating market for new machines. Over the life of a machine, net sales generated from aftermarket parts and services can exceed the original purchase price. A substantial portion of the Company's international repair and maintenance services are provided through its global network of wholly-owned foreign subsidiaries and overseas offices operating in Argentina, Australia, Brazil, Canada, Chile, China, England, India, Peru and South Africa. Minserco, Inc. ("Minserco"), a wholly-owned subsidiary of the Company with offices in Florida, Kentucky, Texas and Wyoming, provides repair and maintenance services. These services include comprehensive structural and mechanical engineering, non-destructive testing, repairs and rebuilds of machine components, product and component upgrades, contract maintenance, turnkey erections, machine moves and dragline operation. To meet the increasing aftermarket demands of large mining customers, the Company offers comprehensive MARCs. Under these contracts, the Company provides all replacement parts, regular maintenance services and necessary repairs for the excavation equipment at a particular mine with an on-site support team. In addition, some of these contracts call for Company personnel to operate the equipment being serviced. MARCs are highly beneficial to the Company's mining customers because they promote high levels of equipment reliability and performance, allowing the customer to concentrate on mining production. MARCs typically have terms of three to five years with standard termination and renewal provisions, although some contracts allow termination by the customer for any cause. New mines in areas such as Argentina, Australia, Canada, Chile and Peru are the Company's 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. Acquisition On April 30, 1999, the Company's wholly-owned subsidiary, Bucyrus Canada Limited, consummated the acquisition of certain assets of Bennett & Emmott (1986) Ltd. ("Bennett & Emmott"), a privately owned Canadian company with extensive experience in the field repair and service of heavy machinery for the surface mining industry. In addition to the surface mining industry, Bennett & Emmott serviced a large number of customers in the pulp and paper, sawmill, oil and natural gas industries in Western Canada, the Northwest Territories and the Yukon. The company provides design and manufacturing services, as well as in-house and field repair and testing of electrical and mechanical equipment. Bennett & Emmott also distributes compressors, generators and related products. This acquisition strengthened the Company's position in the oil sands area of Western Canada. Customers The Company does not consider itself dependent upon any single customer or group of customers; however, on an annual basis a single customer may account for a large percentage of sales, particularly new machine sales. In 2002, 2001 and 2000, one customer accounted for approximately 12%, 11% and 11%, respectively, of the Company's consolidated net sales. Marketing, Distribution and Sales In the United States, new mining machinery is primarily sold directly by Company personnel. Outside of the United States, new equipment is sold by Company personnel, through independent sales representatives and through the Company's subsidiaries and offices located in Argentina, Australia, Brazil, Canada, Chile, China, England, India, Peru and South Africa. Aftermarket parts and services are primarily sold directly by Company personnel and through independent sales representatives, the Company's foreign subsidiaries and offices and Minserco. The Company believes that marketing through its own global network of subsidiaries and offices offers better customer service and support by providing customers with direct access to the Company's technological and engineering expertise. Typical payment terms for new equipment require a down payment, and invoicing is generally done as the machine is completed 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 2002, price increases from inflation had a relatively minor impact on the Company's reported net sales; however, the strong United States dollar continues to negatively affect net sales reported by certain of the Company's foreign subsidiaries. Foreign Operations A substantial portion of the Company's net sales and operating earnings is attributable to operations located outside the United States. Over the past five years, over 80% 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, totalled $212,669,000 in 2002, $209,108,000 in 2001 and $213,972,000 in 2000. Approximately $199,234,000 or 81.1% of the Company's backlog of firm orders at December 31, 2002 represented orders for export sales compared with $201,872,000 or 88% at December 31, 2001 and $148,258,000 or 90% at December 31, 2000. The Company's largest foreign markets are in Australia, Canada, Chile, China, India, Peru and South Africa. The Company also employs direct marketing strategies in developing markets such as Indonesia, Jordan, Mauritania and Russia. In recent years, Australia and South Africa have emerged as strong producers of coking coal. Chile and Peru are producers of copper. The Company expects that India, Russia and China will become major coal producing regions in the future. In India, the world's second most populous country, the demand for coal as a major source of energy is expected to increase substantially over the next several decades. New machine sales in foreign markets are supported by the Company's established network of foreign subsidiaries and overseas offices that directly market the Company's products and provide ongoing services and replacement parts for equipment installed abroad. The availability and convenience of the services provided through this worldwide network not only promotes higher margin aftermarket sales of parts and services, but also gives the Company an advantage in securing new machine orders. The Company and its domestic subsidiaries normally price their products, including direct sales of new equipment to foreign customers, in U.S. dollars. Foreign subsidiaries normally procure and price aftermarket replacement parts and repair services in the local currency. Approximately 70% of the Company's net sales are priced in U.S. dollars. The value, in U.S. dollars, of the Company's investments in its foreign subsidiaries and of dividends paid to the Company by those subsidiaries will be affected by changes in exchange rates. The Company does not normally enter into currency hedges, although it may do so with regard to certain individual contracts. Further segment and geographical information is included in ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Competition There are a limited number of manufacturers of new surface mining equipment. The Company is one of two manufacturers of electric mining shovels and draglines. The Company's only competitor in electric mining shovels and draglines is the P&H division of Joy Global, Inc., although electric mining shovels may also compete against hydraulic shovels of which there are primarily four other manufacturers. In rotary blasthole drills, the Company competes with at least three other manufacturers, including the P&H Division of Joy Global, Inc. Methods of competition are diverse and include capital cost, operating costs, product productivity, design and performance, reliability, service, delivery, financing terms and other commercial factors. For most owners of the Company's machines, the Company is the primary replacement source for large, highly engineered, integral components; however, the Company encounters intense competition for sales of generally smaller, less sophisticated, consumable replacement parts and repair services in certain markets. The Company's competition in parts sales consists primarily of 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. 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, 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 ensure 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, approximately 20 years for electric mining shovels and approximately 15 years for blasthole drills. Parts sales and aftermarket services comprise a substantial portion of the Company's net sales. Although a majority of the Company's operating profits are derived from sales of parts and services, the long-term prospects of the Company depend upon maintaining a large installed equipment base worldwide. Therefore, the Company remains committed to improving the design and engineering of its existing line of machines, as well as developing new products. Backlog The backlog of firm orders was $245,695,000 at December 31, 2002 and $229,752,000 at December 31, 2001. Approximately 62% of the backlog at December 31, 2002 is not expected to be filled during 2003. Inventories Inventories at December 31, 2002 were $114,312,000 compared with $102,008,000 at December 31, 2001. At December 31, 2002 and December 31, 2001, finished goods inventory (primarily replacement parts) totalled $80,986,000 and $75,525,000, respectively. Patents, Licenses and Franchises The Company has a number of United States and foreign patents, patent applications and patent licensing agreements. It does not consider its business to be materially dependent upon any patent, patent application, patent license agreement or group thereof. Research and Development Expenditures for design and development of new products and improvements of existing mining machinery products, including overhead, aggregated $6,512,000 in 2002, $5,900,000 in 2001 and $7,299,000 in 2000. All engineering and product development costs are charged to Engineering and Field Service Expense as incurred. Environmental Factors Environmental problems have not interfered in any material respect with the Company's manufacturing operations to date. 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, 2002, the Company employed approximately 1,600 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, 2005 and September, 2005, 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. This plant comprises approximately 1,026,000 square feet of floor space. A portion of this facility houses the Company's corporate offices. The major buildings at this facility are constructed principally of structural steel, concrete and brick and have sprinkler systems and other devices for protection against fire. The buildings and equipment therein, which include machine tools and equipment for fabrication and assembly of the Company's mining machinery, including draglines, electric mining shovels and blasthole drills, are well-maintained, in good condition and in regular use. On January 4, 2002, the Company completed a sale and leaseback transaction for a portion of the land and buildings in South Milwaukee. The term of the lease is twenty years with options for renewals. The remainder of the land and buildings in South Milwaukee continue to be owned by the Company. The Company leases a facility in Memphis, Tennessee, which has approximately 90,000 square feet of floor space and is used as a central parts warehouse. The current lease is for three years commencing in July 2001. The Company also has administrative and sales offices and, in some instances, repair facilities and parts warehouses, at certain of its foreign locations, including Argentina, Australia, Brazil, Canada, Chile, China, England, India, Peru and South Africa. ITEM 3. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES 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 up 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, results of operations or cash flows, although no assurance to that effect can be given. To the date of this Report, the Company has been named as a co-defendant in 278 personal injury liability asbestos cases, involving approximately 1,400 plaintiffs, which are pending in various state courts. In all of these cases, insurance carriers have accepted or are expected to accept the defense of such cases. These cases are in preliminary stages and the Company does not believe that costs associated with these matters will have a material effect on the Company's financial position, results of operations or cash flows, although no assurance to that effect can be given. Environmental and Related Matters The Company's operations and properties are subject to a broad range of federal, state, local and foreign laws and regulations relating to environmental matters, including laws and regulations governing discharges into the air and water, the handling and disposal of solid and hazardous substances and wastes, and the remediation of contamination associated with releases of hazardous substances at Company facilities and at off-site disposal locations. These laws are complex, change frequently and have tended to become more stringent over time. Future events, such as compliance with more stringent laws or regulations, more vigorous enforcement policies of regulatory agencies or stricter or different interpretations of existing laws, could require additional expenditures by the Company, which may be material. Certain environmental laws, such as the Federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), provide for strict, joint and several liability for investigation and remediation of spills and other releases of hazardous substances. Such laws may apply to conditions at properties presently or formerly owned or operated by an entity or its predecessors, as well as to conditions at properties at which wastes or other contamination attributable to an entity or its predecessors come to be located. The Company was one of 53 entities named by the United States Environmental Protection Agency ("EPA") as potentially responsible parties ("PRPs") with regard to the Millcreek dumpsite, located in Erie County, Pennsylvania, which is on the National Priorities List of sites for cleanup under CERCLA. The Company was named as a result of allegations that it disposed of foundry sand at the site in the 1970's. 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 PRP's, including the Company, received Administrative Orders issued by the EPA pursuant to Section 106a of CERCLA to perform site capping and flood control remediation at the Millcreek site. The Company was one of eighteen parties responsible for a share of the cost of such work, and shared such cost per capita to date; however, such cost may be subject to reallocation. In 2002, final remedial work in the form of installation of a municipal golf course as cover was completed and the cost thereof was paid. EPA has certified completion and its approval thereof. The former remediation contractor, IT Corporation, commenced suit against the Millcreek Dumpsite Group, an unincorporated association including the Company and other cooperating Millcreek PRP's (the "Group"), for breach of contract claims in an amount in excess of $1,000,000. The Group is defending and negotiating settlement of IT's claim. At December 31, 2002, the Company does not believe that its remaining potential liability in connection with this site will have a material effect on the Company's financial position, results of operations or cash flows, although no assurance can be given to that effect. The Company has also been named as a PRP in two additional CERCLA matters. EPA named the Company as a PRP with respect to the clean up of the Chemical Recovery Systems, Inc. ("CRS") site in Elyria, Ohio. On December 20, 2002, EPA offered the Company a de minimis settlement in the amount of $6,800 to resolve its liabilities under CERCLA Sections 106, 107 and 113. The Company accepted EPA's settlement offer and is awaiting notification from EPA that the settlement is effective. As of December 31, 2002, the Company does not believe that its remaining potential liability in connection with this site will have a material effect on the Company's financial position, results of operations or cash flows, although no assurance can be given to that effect. EPA also named the Company as a PRP in the Tremont City, Ohio, Landfill matter. The EPA identified the Company as a PRP based upon past operations of The Marion Power Shovel Company, the assets of which the Company acquired in 1997. The Company responded that it had not operated The Marion Power Shovel Company, that the periods of operation of the Tremont City Landfill expired many years prior to 1997 and that, accordingly, the Company had none of the information requested by EPA. The Company gave notice of this matter and potential claim to the sellers under indemnification provisions of the Asset Purchase and Sale Agreement. In 2002, the Company received notice that the sellers had filed Chapter 11 Bankruptcy. The Company has filed timely claims in that proceeding. Although the Company has not regarded, and does not regard, this site as presenting a material contingent liability, there can be no assurances to that effect because EPA has not responded to the Company nor has EPA withdrawn its identification of the Company as a PRP. 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. It is possible that 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. The Company has previously been named as a potentially responsible party under CERCLA and analogous state laws at other sites throughout the United States. The Company believes it has determined its cleanup liabilities with respect to these sites and it does not believe that any such remaining liabilities, if any, either individually or in the aggregate, will have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company cannot, however, guarantee that it will not incur additional liabilities with respect to these sites in the future, the costs of which could be material, nor can the Company 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 disposal locations, the costs of which could be material. While no assurance can be given, the Company believes that expenditures for compliance and remediation will not have a material effect on its capital expenditures, results of operations or competitive position. 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, results of operations or cash flows, 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 2002. 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 Holdings and there is no established public trading market therefor. The Company does not have a recent history of paying dividends and has no present intention to pay dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31, 2002 2001 2000 1999 1998 (Dollars In Thousands, Except Per Share Amounts) Consolidated Statements of Operations Data: Net sales $289,598 $290,576 $280,443 $318,635 $315,838 Net loss $(10,786) $(10,463) $(32,797) $(22,575) $ (8,264) Net loss per share of common stock: Basic $ (7.51) $ (7.29) $ (22.76) $ (15.65) $ (5.75) Diluted $ (7.51) $ (7.29) $ (22.76) $ (15.65) $ (5.75) Adjusted EBITDA (a) $ 29,002 $ 31,236 $ 9,583 $ 20,742 $ 35,967 Cash dividends per common share $ - $ - $ - $ - $ - Consolidated Balance Sheets Data: Total assets $346,878 $355,745 $367,766 $416,987 $417,195 Long-term debt $207,804 $222,188 $217,813 $214,009 $202,308 (a) Earnings before interest expense, income taxes, depreciation, amortization, (gain) loss on sale of fixed assets, loss on fixed asset impairment and inventory fair value adjustment charged to cost of products sold. Adjusted EBITDA for the year ended December 31, 2001 includes $8,704,000 of income from the sale of shares the Company received as a result of the demutualization of The Principal Financial Group.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Acquisition In connection with acquisitions involving the Company in 1997, assets and liabilities were adjusted to their estimated fair values. The consolidated financial statements include the related amortization charges associated with the fair value adjustments. Liquidity and Capital Resources Liquidity Working capital and current ratio are two financial measurements which provide an indication of the Company's ability to meet its short-term obligations. These measurements at December 31, 2002, 2001 and 2000 were as follows: 2002 2001 2000 (Dollars in Thousands) Working capital $106,022 $114,336 $101,342 Current ratio 2.5 to 1 3.0 to 1 2.4 to 1 The decrease in working capital and current ratio in 2002 was primarily due to increased accounts payable and accrued expenses. The increase in working capital and current ratio in 2001 was primarily due to reduced accounts payable and the reclassification of borrowings under the revolving term loan at Bucyrus Canada Limited from current to long-term liabilities (see below). The Company is presenting below a calculation of earnings (loss) before interest expense, income taxes, depreciation, amortization and loss on sale of fixed assets ("Adjusted EBITDA"). Adjusted EBITDA is presented (i) because the Company believes EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry; and (ii) because the Company is required to maintain certain minimum EBITDA levels as defined under the Loan and Security Agreement (and previously the Credit Agreement (see below)). EBITDA as defined under these agreements does not differ materially from Adjusted EBITDA as calculated below. The Adjusted EBITDA calculation is not an alternative to operating income under generally accepted accounting principles as an indicator of operating performance or to cash flows as a measure of liquidity. The following table reconciles Loss Before Income Taxes to Adjusted EBITDA: Years Ended December 31, 2002 2001 2000 (Dollars in Thousands) Loss before income taxes $ (5,739) $ (7,053) $(29,732) Depreciation 10,666 11,240 11,393 Amortization 4,748 5,414 5,821 Loss on sale of fixed assets 655 750 7 Interest expense 18,672 20,885 22,094 ________ ________ ________ Adjusted EBITDA(1)(2) $ 29,002 $ 31,236 $ 9,583 (1) Adjusted EBITDA for the years ended December 31, 2002, 2001 and 2000 was reduced by restructuring charges of $1,308,000, $899,000 and $2,689,000, respectively, primarily related to severance payments and related matters. (2) Adjusted EBITDA for the year ended December 31, 2001 includes $8,704,000 of income from the sale of shares the Company received as a result of the demutualization of The Principal Financial Group (see below). On March 7, 2002, the Company entered into a Loan and Security Agreement with GMAC Business Credit, LLC (the "Loan and Security Agreement") which provides the Company with an $85,000,000 senior secured revolving credit facility. On January 9, 2003, the Loan and Security Agreement was amended to reduce the maximum availability of the revolving credit facility to $76,000,000. The Loan and Security Agreement, as amended, expires on January 8, 2005. Proceeds from the Loan and Security Agreement were used to repay in full all outstanding borrowings under the previous Credit Agreement and Bucyrus Canada Limited revolving term loan (see below). Outstanding borrowings under the Loan and Security Agreement bear interest equal to either the prime rate plus an applicable margin (2% to 2.25%) or LIBOR plus an applicable margin (3.5% to 3.75%) and are subject to a borrowing base formula based on receivables and inventory. Borrowings at December 31, 2002 were $54,023,000 at a weighted average interest rate of 6.3% and were classified as long-term debt. Substantially all of the domestic assets of the Company (excluding real property) and the receivables and inventory of the Company's Canadian subsidiary are pledged as collateral under the Loan and Security Agreement. In addition, all outstanding capital stock of the Company and its domestic subsidiaries as well as 65% of the capital stock of the Company's foreign subsidiaries are pledged as collateral. At March 26, 2003, the amount available for borrowings under the Loan and Security Agreement was $15,055,000. This amount must be reduced by $5,000,000 which is the minimum availability the Company must maintain at all times. The Company previously had a Credit Agreement with Bank One, Wisconsin (the "Credit Agreement") which provided 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 were at variable interest rates and were subject to a borrowing base formula based on receivables, inventory and machinery and equipment. Direct borrowings under the Revolving Credit Facility at December 31, 2001 were $63,100,000 at a weighted average interest rate of 5.3%. At December 31, 2002 and 2001, there were $2,199,000 and $1,200,000, respectively, of standby letters of credit outstanding under all Company bank facilities. The Company has outstanding $150,000,000 of its 9-3/4% Senior Notes due 2007 (the "Senior Notes") which were issued pursuant to an indenture among the Company, certain of its domestic subsidiaries (the "Guarantor Subsidiaries"), and BNY Midwest Trust Company, as Trustee (the "Senior Notes Indenture"). The Senior Notes mature on September 15, 2007 and interest thereon is payable each March 15 and September 15. During 2000, Holdings acquired $75,635,000 of the Company's $150,000,000 issue of Senior Notes. Holdings has agreed as part of the Loan and Security Agreement, and previously the Credit Agreement, to defer the receipt of interest on these Senior Notes during the life of the two agreements. At December 31, 2002 and 2001, $18,436,000 and $11,062,000, respectively, of interest was accrued and payable to Holdings. An amendment to the Credit Agreement dated March 20, 2001 required Holdings to contribute to equity of the Company a portion of the accrued interest. As a result, on March 20, 2001, the Company recorded an equity contribution from Holdings and a corresponding reduction in interest payable to Holdings in the amount of $2,171,000, which represented accrued interest as of June 30, 2000 on the Senior Notes acquired by Holdings. In addition, in 2001 Holdings made a cash capital contribution to the Company in the amount of $1,093,000. Both the Loan and Security Agreement and the Senior Notes Indenture contain certain covenants which may affect the Company's liquidity and capital resources. Also, both the Loan and Security Agreement 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 Loan and Security Agreement also contains a number of financial covenants that require the Company (A) to maintain certain financial ratios, including: (i) leverage ratio (as defined); and (ii) fixed charge coverage ratio; and (B) to maintain minimum levels of EBITDA (as defined). Other covenants exist which limit the ability of the Company 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. At December 31, 2002, the Company was in compliance with all covenants. The Senior Notes Indenture contains certain covenants that, among other things, limit the ability of the Company and the Guarantor Subsidiaries 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. At December 31, 2002, the Company was in compliance with all covenants. A failure to comply with the obligations contained in the Loan and Security Agreement or the Senior Notes Indenture could result in an Event of Default (as defined) under the Loan and Security Agreement 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. On April 30, 2002, Bucyrus Canada Limited, a wholly-owned subsidiary of the Company, entered into a new C$3,510,000 mortgage loan. The term of the mortgage loan is 15 years at an initial rate of 7.55% which is fixed for the first five years. The balance outstanding at December 31, 2002 was C$3,425,000. The mortgage loan is collateralized by the land, buildings and certain building attachments owned by Bucyrus Canada Limited. The net book value of this collateral at December 31, 2002 was C$4,283,000. Previously, Bucyrus Canada Limited had a C$15,000,000 credit facility with The Bank of Nova Scotia. On March 7, 2002, the outstanding balance of C$9,083,000 under the C$10,000,000 revolving term loan portion of this credit facility was paid in full with proceeds from the Loan and Security Agreement. The balance outstanding under the revolving term loan portion at December 31, 2001 was C$9,125,000. On April 30, 2002, Bucyrus Canada Limited paid the remaining non-revolving term loan portion of the credit facility in full with proceeds from the new mortgage loan. The balance outstanding under the non-revolving term loan portion at December 31, 2001 was C$3,960,000. The new mortgage loan contains a number of financial covenants which, among other items, require Bucyrus Canada Limited to maintain certain financial ratios on an annual basis. At December 31, 2002, Bucyrus Canada Limited was in compliance with all applicable covenants. In December 2001, the Company, as a policyholder, received an allocation of 369,918 shares as a result of the demutualization of The Principal Financial Group. Net proceeds from the sale of these shares by the Company were $8,704,000 and is recognized as Other Income in the Consolidated Statement of Operations for the year ended December 31, 2001. Of the net proceeds, $2,974,000 was received on January 2, 2002 for shares sold in 2001 and is included in Receivables in the Consolidated Balance Sheet at December 31, 2001. On January 4, 2002, the Company completed a sale and leaseback transaction for a portion of its land and buildings in South Milwaukee, Wisconsin. The term of the lease is twenty years with options for renewals. Net proceeds received from this transaction were $7,157,000 less $500,000 required as a security deposit. Contractual Obligations and Commercial Commitments The following table sets forth the Company's contractual obligations and commercial commitments as of December 31, 2002: 5 Years 1 Year 2 - 3 4 and Total or Less Years Years Thereafter (Dollars in Thousands) Long-term debt $208,235 $ 431 $ 54,669 $ 282 $152,853 Short-term obligations 495 495 - - - Operating leases and rental and service agreements 34,145 5,680 8,110 1,777 18,578 ________ ________ ________ ________ ________ Total $242,875 $ 6,606 $ 62,779 $ 2,059 $171,431 Operating Losses The Company is highly leveraged and low sales volumes in recent years have had an adverse effect on the Company's liquidity. While the Company believes that current levels of cash and liquidity, together with funds generated by operations and funds available from the Loan and Security Agreement, will be sufficient to permit the Company to satisfy its debt service requirements and fund operating activities for the foreseeable future, there can be no assurances to this effect and the Company continues to closely monitor its operations. 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 performance will be sufficient for the Company to maintain compliance with the financial covenants under the Loan and Security Agreement and the Senior Notes Indenture, satisfy its debt service obligations and fund operating activities under all circumstances. At this time, the Company continues to believe that future cash flows will be sufficient to recover the carrying value of its long-lived assets, including goodwill and other intangible assets. Capital Resources At December 31, 2002, the Company had approximately $831,000 of open capital appropriations. The Company's capital expenditures for the year ended December 31, 2002 were $5,457,000 compared with $4,127,000 for the year ended December 31, 2001. Included in capital expenditures for 2002 were amounts related to the construction of a new facility in Gillette, Wyoming. In the near term, the Company anticipates spending close to current levels. Capitalization The long-term debt to total capitalization ratio at December 31, 2002 and 2001 was 1.0 to 1 and .9 to 1, respectively. Total capitalization is defined as total common shareholders' investment plus long-term debt plus current maturities of long-term debt and short-term obligations. Results of Operations Net Sales Net sales for 2002 were $289,598,000 compared with $290,576,000 for 2001. Net sales of repair parts and services for 2002 were $242,047,000, which was an increase of 7.1% from 2001. Net machine sales for 2002 were $47,551,000, which was a decrease of 26.3% from 2001. The changes between periods were primarily due to fluctuations in volume. The decrease in machine sales for 2002 was primarily in blasthole drills and draglines. Net sales for 2001 were $290,576,000 compared with $280,443,000 for 2000. Net sales of repair parts and services for 2001 were $226,024,000 which was an increase of 6.9% from 2000. Net machine sales for 2001 were $64,552,000, which was a decrease of 6.3% from 2000. The changes between years were primarily due to fluctuations in volume. Other Income Other income for 2001 includes $8,704,000 from the aforementioned sale of shares of The Principal Financial Group. Cost of Products Sold Cost of products sold for 2002 was $233,516,000 or 80.6% of net sales compared with $243,791,000 or 83.9% of net sales for 2001 and $239,134,000 or 85.3% of net sales for 2000. The decrease in cost of products sold as a percentage of net sales for 2002 was primarily due to the improved mix of aftermarket sales. The decrease in the cost of products sold percentage for 2001 when compared to 2000 was primarily due to reduced warranty expense and favorable manufacturing variances resulting from higher manufacturing activity. Included in cost of products sold in 2000 was approximately $1,300,000 of costs associated with the closing of the manufacturing facility in Boonville, Indiana which was effective June 30, 2000. Cost of products sold in 2000 was reduced by a $1,800,000 favorable adjustment related to commercial issues. Also included in cost of products sold for 2002, 2001 and 2000 was $5,127,000, $5,248,000 and $5,038,000, respectively, of additional depreciation expense as a result of the fair value adjustment to plant and equipment in connection with acquisitions involving the Company. Engineering and Field Service, Selling, Administrative and Miscellaneous Expenses Engineering and field service, selling, administrative and miscellaneous expenses for 2002 were $43,449,000 or 15.0% of net sales compared with $42,095,000 or 14.5% of net sales in 2001 and $50,161,000 or 17.9% of net sales in 2000. Included in the amounts for 2002 and 2001 was $655,000 and $750,000, respectively, of losses on disposals of fixed assets. Also, due to a reduction in new orders, the Company continues to reduce a portion of its manufacturing production workforce through layoffs and reduce the number of its salaried employees. As a result, restructuring charges of $1,308,000, $899,000 and $2,689,000 were included in the amounts for 2002, 2001 and 2000, respectively. These charges primarily related to severance payments and related matters. As a result of the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," goodwill and intangible asset amortization expense decreased by $2,645,000 in 2002 when compared to 2001. This decrease was partially offset by an increase in expenses related to the Loan and Security Agreement. Interest Expense Interest expense for 2002 was $18,672,000 compared with $20,885,000 for 2001 and $22,094,000 for 2000. The decrease in interest expense in 2002 when compared to 2001 was primarily due to declining interest rates and reduced borrowings under the Loan and Security Agreement and Revolving Credit Facility. The decrease in interest expense in 2001 when compared to 2000 was primarily due to declining interest rates on borrowings under the Revolving Credit Facility. Included in interest expense for 2002, 2001 and 2000 was $14,625,000 related to the Senior Notes. The interest expense in 2002, 2001 and 2000 on the Senior Notes includes $7,374,000, $7,374,000 and $5,859,000, respectively, related to the Senior Notes acquired by Holdings. Holdings has agreed as part of the Loan and Security Agreement, and previously the Credit Agreement, to defer the receipt of interest on these Senior Notes during the life of the two agreements. Income Taxes Income tax expense consists primarily of foreign taxes at applicable statutory rates. For United States tax purposes, the Company recorded a federal income tax benefit of $421,000 in 2002 related to the carryback of a portion of the 2001 alternative tax net operating loss to obtain a refund of the entire alternative minimum tax paid for 2000. Net Loss The net loss for 2002 was $10,786,000 compared with net losses of $10,463,000 for 2001 and $32,797,000 for 2000. The net loss in 2001 was reduced by $8,704,000 of income from the sale of shares of The Principal Financial Group. Excluding the effects of this sale of shares, the reduced net loss in 2002 when compared to 2001 was primarily due to the improved mix of aftermarket sales. The improvement in 2001 when compared to 2000 was due to the aforementioned sale of shares and improvements in margin as a result of increased volume and cost reduction efforts. Non-cash depreciation and amortization charges were $15,414,000 in 2002 compared with $16,654,000 in 2001 and $17,214,000 in 2000. New Orders and Backlog New orders for 2002 were $305,541,000, which was a decrease of 14.2% from 2001. New machine orders for 2002 were $49,442,000, which was a decrease of 33.4% from 2001. The decrease was primarily in electric mining shovels. Copper prices remain at low levels compared to the mid 1990's which has negatively impacted demand for the Company's machines. However, the Company did receive an order in 2002 for a walking dragline to be used in coal mining in North Dakota. New repair parts and service orders for 2002 were $256,099,000, which was a decrease of 9.1% from 2001. New repair parts and service orders in 2001 included two long-term maintenance and repair contracts, a machine move and a long-term mining contract. Revenues related to these contracts will be recognized over multiple years. The Company's consolidated backlog at December 31, 2002 was $245,695,000 compared with $229,752,000 at December 31, 2001 and $164,408,000 at December 31, 2000. Machine backlog at December 31, 2002 was $34,429,000, which is an increase of 5.8% from December 31, 2001. Repair parts and service backlog at December 31, 2002 was $211,266,000, which is an increase of 7.1% from December 31, 2001. A portion of this backlog is related to multi-year contracts which will generate revenue in future years. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk is impacted by changes in interest rates and foreign currency exchange rates. Interest Rates The Company's interest rate exposure relates primarily to debt obligations in the United States. The Company manages its borrowings under the Loan and Security Agreement through the selection of LIBOR based borrowings or prime-rate based borrowings. The Company's Senior Notes are at a fixed interest rate. If market conditions warrant, interest rate swaps may be used to adjust interest rate exposures, although none have been used to date. At December 31, 2002, a sensitivity analysis was performed for the debt obligations that have interest rate risk. Based on this sensitivity analysis, the Company has determined that a 10% change in the Company's weighted average interest rate at December 31, 2002 would have the effect of changing the Company's interest expense on an annual basis by approximately $300,000. Foreign Currency Changes in foreign exchange rates can impact the Company's financial position, results of operations and cash flow. The Company manages foreign currency exchange rate exposure by utilizing some natural hedges to mitigate some of its transaction and commitment exposures, and may utilize forward contracts in certain situations. Based on the Company's derivative instruments outstanding at December 31, 2002, a 10% change in foreign currency exchange rates will not have a material effect on the Company's financial position, results of operations or cash flows. New Accounting Pronouncements In July 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activity. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Adoption of SFAS 146 is not expected to have a material effect on the Company's consolidated financial position, results of operations or cash flows. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45 requires that a guarantor must recognize, at the inception of a guarantee, a liability for the fair value of the obligation that it has undertaken in issuing a guarantee. Interpretation No. 45 also addresses the disclosure requirements that a guarantor must include in its financial statements for guarantees issued. The disclosure requirements in this interpretation are effective for financial statements ending after December 15, 2002. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has not completed its evaluation of Interpretation No. 45 and has not assessed the impact the adoption may have on its financial position, results of operations or cash flows. Critical Accounting Policies and Estimates The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying footnotes. Future events and their affects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to the financial statements. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial techniques. The Company evaluates these significant factors as facts and circumstances dictate. Historically, actual results have not differed significantly from those determined using estimates. The following are the accounting policies that most frequently require the Company to make estimates and judgements and are critical to understanding the Company's financial condition, results of operations and cash flows: Revenue Recognition - Revenue from long-term sales contracts, such as for the manufacture of Company machines, is recognized using the percentage-of- completion method. The Company also has long-term maintenance and repair contracts with customers to supply parts and service over a period of years. Revenue is recognized in the period in which the parts are supplied or services provided. The customer is billed monthly and deferred revenues are recorded based on payments received. Revenue from all other types of sales is recognized as products are shipped or services are rendered. At the time a loss on a contract becomes known, the amount of the estimated loss is recognized in the consolidated financial statements. Goodwill and Intangible Assets - The Company accounts for goodwill and intangible assets in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). As a result, goodwill is not subject to amortization, but instead is subject to an evaluation for impairment at least annually by applying a two-step fair-value- based test. Additionally, intangible assets with indefinite lives are also not amortized but are subject to an evaluation for impairment at least annually by applying a lower-of-cost-to-market test. Intangible assets with finite lives continue to be amortized. For goodwill, the fair value of the Company's reporting units exceeds the carrying amounts and an impairment charge is not currently required. The Company has also completed an impairment analysis of its indefinite life intangible assets in accordance with the provisions of SFAS 142 and has determined that an impairment charge is not required. Long-Lived Assets - The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of property, plant, equipment and other long-lived assets may warrant revision or that the remaining balance of each may not be recoverable. The Company accounts for any impairment of long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Warranty - Sales of the Company's products generally carry typical manufacturers' warranties based on terms that are generally accepted in the Company's marketplaces. The Company records provisions for estimated warranty and other related costs at the time of sale based on historical warranty loss experience and periodically adjusts these provisions to reflect actual experience. 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 up to $3,000,000, and has various limits of liability depending on the insurance policy year in question. The Company establishes product liability reserves for the self-insured portion of any known outstanding matters based on the likelihood of loss and the Company's ability to reasonably estimate such loss. The Company makes estimates based on available information and the Company's best judgment after consultation with appropriate experts. The Company periodically revises estimates based upon changes to facts or circumstances. Pension and Other Post-Retirement Benefits - The Company has two major defined benefit pension plans which are separately funded and also provides certain health care benefits to age 65 and life insurance benefits for certain eligible retired United States employees. Several statistical and judgmental factors which attempt to anticipate future events are used in calculating the expense and liability related to these plans. These factors include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases and health care cost trend rates, as determined by the Company within certain guidelines. In addition, the Company's actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate these factors. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, longer or shorter life spans of participants and changes in actual costs of health care. These differences may result in a significant impact to the amount of pension and other post-retirement benefit expenses recorded by the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENTS OF OPERATIONS Bucyrus International, Inc. and Subsidiaries (Dollars in Thousands, Except Per Share Amounts) Years Ended December 31, 2002 2001 2000 REVENUES: Net sales $289,598 $290,576 $280,443 Other income 300 9,142 1,214 ________ ________ ________ 289,898 299,718 281,657 ________ ________ ________ COSTS AND EXPENSES: Cost of products sold 233,516 243,791 239,134 Engineering and field service, selling, administrative and miscellaneous expenses 43,449 42,095 50,161 Interest expense 18,672 20,885 22,094 ________ ________ ________ 295,637 306,771 311,389 ________ ________ ________ Loss before income taxes (5,739) (7,053) (29,732) Income taxes 5,047 3,410 3,065 ________ ________ ________ Net loss $(10,786) $(10,463) $(32,797) Net loss per share of common stock: Basic $ (7.51) $ (7.29) $ (22.76) Diluted $ (7.51) $ (7.29) $ (22.76) See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Bucyrus International, Inc. and Subsidiaries (Dollars in Thousands) Years Ended December 31, 2002 2001 2000 Net loss $(10,786) $(10,463) $(32,797) ________ ________ ________ Other comprehensive loss: Foreign currency translation adjustments (569) (6,300) (6,147) Minimum pension liability adjustment (13,948) (15,245) - ________ ________ ________ Other comprehensive loss (14,517) (21,545) (6,147) ________ ________ ________ Comprehensive loss $(25,303) $(32,008) $(38,944) See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS Bucyrus International, Inc. and Subsidiaries (Dollars in Thousands, Except Per Share Amounts)
December 31, December 31, 2002 2001 2002 2001 LIABILITIES AND COMMON SHAREHOLDERS' INVESTMENT ASSETS (DEFICIENCY IN ASSETS) CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents $ 4,189 $ 7,218 Accounts payable and Receivables 52,770 55,554 accrued expenses $ 59,216 $ 47,760 Inventories 114,312 102,008 Liabilities to customers on Prepaid expenses and uncompleted contracts and other current assets 6,186 5,827 warranties 7,850 6,008 ________ ________ Income taxes 3,443 1,205 Short-term obligations 495 566 Total Current Assets 177,457 170,607 Current maturities of long- term debt 431 732 OTHER ASSETS: ________ ________ Restricted funds on deposit 1,485 582 Total Current Liabilities 71,435 56,271 Goodwill 55,860 55,660 Intangible assets - net 37,662 39,601 LONG-TERM LIABILITIES: Other assets 11,935 12,092 Liabilities to customers ________ ________ on uncompleted contracts and warranties 2,000 2,000 106,942 107,935 Postretirement benefits 12,751 13,277 Deferred expenses, PROPERTY, PLANT AND EQUIPMENT: pension and other 42,583 33,775 Land 1,850 2,294 Interest payable to Buildings and improvements 7,395 11,755 Holdings 18,436 11,062 Machinery and equipment 97,320 101,681 ________ ________ Less accumulated depreciation (44,086) (38,527) 75,770 60,114 ________ ________ LONG-TERM DEBT, less 62,479 77,203 current maturities 207,804 222,188 COMMITMENTS AND CONTINGENCIES - Note O COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS): Common stock - par value $.01 per share, authorized 1,700,000 shares, issued 1,444,650 shares 14 14 Additional paid-in capital 147,715 147,715 Treasury stock, at cost - 9,050 shares (851) (851) Accumulated deficit (101,202) (90,416) Accumulated other comprehensive loss (53,807) (39,290) ________ ________ (8,131) 17,172 ________ ________ ________ ________ $346,878 $355,745 $346,878 $355,745 See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS) Bucyrus International, Inc. and Subsidiaries (Dollars in Thousands)
Notes Accumulated Additional Receivable Other Common Paid-In Treasury From Accumulated Comprehensive Stock Capital Stock Shareholders Deficit Loss Balance at December 31, 1999 $ 14 $ 144,451 $ (196) $ (524) $ (37,997) $(11,598) Purchase of treasury stock (6,550 shares) - - (655) 524 - - Net loss - - - - (32,797) - Utilization of net operating loss carryforwards by Bucyrus Holdings, LLC - - - - (9,159) - Translation adjustments - - - - - (6,147) ______ ________ ________ ________ _________ ________ Balance at December 31, 2000 14 144,451 (851) - (79,953) (17,745) Capital contributions from Bucyrus Holdings, LLC - 3,264 - - - - Net loss - - - - (10,463) - Translation adjustments - - - - - (6,300) Minimum pension liability adjustment - - - - - (15,245) ______ ________ ________ ________ _________ ________ Balance at December 31, 2001 14 147,715 (851) - (90,416) (39,290) Net loss - - - - (10,786) - Translation adjustments - - - - - (569) Minimum pension liability adjustment - - - - - (13,948) ______ ________ ________ ________ _________ ________ Balance at December 31, 2002 $ 14 $147,715 $ (851) $ - $(101,202) $(53,807) See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Bucyrus International, Inc. and Subsidiaries (Dollars in Thousands) Years Ended December 31, 2002 2001 2000 Cash Flows From Operating Activities Net loss $(10,786) $(10,463) $(32,797) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 10,666 11,240 11,393 Amortization 4,748 5,414 5,821 Loss on sale of property, plant and equipment 655 750 7 Gain on sale of The Principal Financial Group shares - (8,704) - Changes in assets and liabilities: Receivables 1,329 3,860 (75) Inventories (10,953) (5,843) 19,972 Other current assets (825) (12) (953) Other assets 1,004 (1,431) (1,650) Current liabilities other than income taxes, short- term obligations and current maturities of long-term debt 9,618 157 (4,920) Income taxes 2,186 (546) 1,007 Long-term liabilities other than deferred income taxes 2,063 4,269 1,596 ________ ________ ________ Net cash provided by (used in) operating activities 9,705 (1,309) (599) ________ ________ ________ Cash Flows From Investing Activities Decrease in restricted funds on deposit (903) (32) (461) Proceeds from sale of The Principal Financial Group shares 2,974 5,730 - Purchases of property, plant and equipment (5,457) (4,127) (3,501) Proceeds from sale of property, plant and equipment 745 536 1,449 Net proceeds from sale and leaseback transaction 6,657 - - Purchase of Bennett & Emmott (1986) Ltd. (200) - - ________ ________ ________ Net cash provided by (used in) investing activities 3,816 2,107 (2,513) ________ ________ ________ Cash Flows From Financing Activities Net proceeds from (repayments of) revolving credit facilities (14,809) (1,052) 5,100 Net increase (decrease) in other bank borrowings (71) 271 (150) Proceeds from issuance of long-term debt 925 1,237 - Payment of long-term debt (801) (1,641) (2,251) Payment of refinancing expenses (2,047) - - Capital contribution from Bucyrus Holdings, LLC - 1,093 - Purchase of treasury stock - - (131) ________ ________ ________ Net cash provided by (used in) financing activities (16,803) (92) 2,568 ________ ________ ________ Effect of exchange rate changes on cash 253 (436) (877) ________ ________ ________ Net increase (decrease) in cash and cash equivalents (3,029) 270 (1,421) Cash and cash equivalents at beginning of year 7,218 6,948 8,369 ________ ________ ________ Cash and cash equivalents at end of year $ 4,189 $ 7,218 $ 6,948 Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest $ 11,258 $ 14,297 $ 18,367 Income taxes - net of refunds 2,749 1,522 1,551 Supplemental Schedule of Non-Cash Investing and Financing Activities On March 20, 2001, the Company recorded an equity contribution from Bucyrus Holdings, LLC ("Holdings"), the Company's parent, and a corresponding reduction in interest payable to Holdings, in the amount of $2,171,000, which represented accrued interest as of June 30, 2000 on the 9-3/4% Senior Notes due 2007 acquired by Holdings. See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Bucyrus International, Inc. and Subsidiaries NOTE A - SUMMARY OF ACCOUNTING POLICIES Nature of Operations Bucyrus International, Inc. (the "Company"), a majority-owned subsidiary of Bucyrus Holdings, LLC ("Holdings"), is a Delaware corporation and a leading manufacturer of surface mining equipment, principally walking draglines, electric mining shovels and blasthole drills. Major markets for the surface mining industry are coal, copper, oil sands and iron ore. The Company also has a comprehensive aftermarket business that includes replacement parts, maintenance and other services. The largest markets for the Company's products and services are in Australia, Canada, China, India, South Africa, South America and the United States. Basis of Presentation and Use of Estimates The consolidated financial statements as of December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and 2000 were prepared under a basis of accounting that reflects the fair value of the assets acquired and liabilities assumed, and the related expenses and all debt incurred, in connection with the acquisition of the Company by Holdings in 1997. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 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 and intangible assets are being accounted for in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142")(see Note D). Through 2001, goodwill was being amortized on a straight-line basis over 30 years. During 2000, goodwill was reduced by $9,159,000 to reflect the utilization of previously unrecognized federal net operating loss carryforwards which existed at the date the Company was acquired by Holdings (see Note I). Accumulated amortization was $10,191,000 at December 31, 2001. Intangible assets consist of engineering drawings, bill-of-material listings, software, trademarks and trade names and are being amortized on a straight-line basis over 10 to 20 years. At December 31, 2002 and 2001, intangible assets also included $3,259,000 and $3,551,000, respectively, related to an adjustment to record an additional minimum pension liability (see Note J). Property, Plant and Equipment Depreciation is provided over the estimated useful lives of respective assets using the straight-line method for financial reporting and accelerated methods for income tax purposes. Estimated useful lives used for financial reporting purposes range from ten to forty years for buildings and improvements and three to seventeen years for machinery and equipment. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of property, plant and equipment may warrant revision or that the remaining balance of each may not be recoverable. The Company accounts for any impairment of long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Foreign Currency Translation The assets and liabilities of foreign subsidiaries are translated into U.S. dollars using year-end exchange rates. Revenues and expenses are translated at average rates during the year. Adjustments resulting from this translation are deferred and reflected as a separate component of Common Shareholders' Investment. Gains and losses from foreign currency transactions are included in Engineering and Field Service, Selling, Administrative and Miscellaneous Expenses in the Consolidated Statements of Operations. Transaction losses totalled $1,022,000, $780,000 and $277,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Certain of the Company's intercompany advances to foreign subsidiaries are evaluated as not likely to be repaid in the foreseeable future. Transaction gains and losses on these advances are deferred and reflected as a component of Common Shareholders' Investment (Deficiency in Assets). Comprehensive Income (Loss) Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires the reporting of comprehensive income (loss) in addition to net income (loss) from operations. Comprehensive income (loss) is a more inclusive financial reporting method that includes disclosure of financial information that historically has not been recognized in the calculation of net income (loss). The Company has chosen to report comprehensive loss and accumulated other comprehensive loss which encompasses net loss, foreign currency translation adjustments and minimum pension liability adjustments in the Consolidated Statements of Common Shareholders' Investment (Deficiency in Assets). Information on accumulated other comprehensive loss is as follows: Minimum Accumulated Cumulative Pension Other Translation Liability Comprehensive Adjustments Adjustments Loss (Dollars in Thousands) Balance at December 31, 1999 $(11,598) $ - $(11,598) Changes - Year ended December 31, 2000 (6,147) - (6,147) ________ ________ ________ Balance at December 31, 2000 (17,745) - (17,745) Changes - Year ended December 31, 2001 (6,300) (15,245) (21,545) ________ ________ ________ Balance at December 31, 2001 (24,045) (15,245) (39,290) Changes - Year ended December 31, 2002 (569) (13,948) (14,517) ________ ________ ________ Balance at December 31, 2002 $(24,614) $(29,193) $(53,807) Revenue Recognition Revenue from long-term sales contracts, such as for the manufacture of Company machines, is recognized using the percentage-of-completion method. The Company also has long-term maintenance and repair contracts with customers to supply parts and service over a period of years. Revenue is recognized in the period in which the parts are supplied or services provided. The customer is billed monthly and deferred revenues are recorded based on payments received. Revenue from all other types of sales is recognized as products are shipped or services are rendered. 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 $4,201,000 and $3,249,000 at December 31, 2002 and 2001, respectively. Shipping and Handling Fees and Costs Revenue received from shipping and handling fees is reflected in net sales. Shipping fee revenue was insignificant for all periods presented. Shipping and handling costs are included in cost of products sold. Financial Instruments Based on Company estimates, the carrying amounts of cash equivalents, receivables, accounts payable, accrued liabilities and variable rate debt approximated fair value at December 31, 2002 and 2001. The Company's Senior Notes (see Note G) were bid at 40% and 30% at December 31, 2002 and 2001, respectively. Based on this information, management believes the fair value of the Senior Notes was $60,000,000 and $45,000,000 at December 31, 2002, and 2001, respectively. Derivative Financial Instruments The Company manages foreign currency exchange rate exposure by utilizing some natural hedges to mitigate some of its transactions and commitment exposures, and may utilize forward contracts in certain situations. Accounting for Stock Options The Company accounts for stock options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") as allowed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). New Accounting Pronouncements In July 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activity. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Adoption of SFAS 146 is not expected to have a material effect on the Company's consolidated financial position, results of operations or cash flows. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45 requires that a guarantor must recognize, at the inception of a guarantee, a liability for the fair value of the obligation that it has undertaken in issuing a guarantee. Interpretation No. 45 also addresses the disclosure requirements that a guarantor must include in its financial statements for guarantees issued. The disclosure requirements in this interpretation are effective for financial statements ending after December 15, 2002. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has not completed its evaluation of Interpretation No. 45 and has not assessed the impact the adoption may have on its financial position, results of operations or cash flows. NOTE B - RECEIVABLES Receivables at December 31, 2002 and 2001 include $2,896,000 and $959,000, respectively, of revenues from long-term contracts which were not billable at that date. Billings on long-term contracts are made in accordance with the payment terms as defined in the individual contracts. Current receivables are reduced by an allowance for losses of $1,158,000 and $1,134,000 at December 31, 2002 and 2001, respectively. NOTE C - INVENTORIES Inventories consist of the following: 2002 2001 (Dollars in Thousands) Raw materials and parts $ 15,509 $ 13,646 Work in process 17,817 12,837 Finished products (primarily replacement parts) 80,986 75,525 ________ ________ $114,312 $102,008 NOTE D - GOODWILL AND INTANGIBLE ASSETS On June 30, 2001, the FASB issued SFAS 142. SFAS 142 establishes accounting and reporting standards associated with goodwill and other intangible assets. With the adoption of SFAS 142, goodwill is no longer subject to amortization, but instead is subject to an evaluation for impairment at least annually by applying a two-step fair-value-based test. Additionally, intangible assets with indefinite lives are also no longer amortized but are subject to an evaluation for impairment at least annually by applying a lower-of- cost-or-market test. Intangible assets with finite lives continue to be amortized. The Company adopted SFAS 142 on January 1, 2002. For goodwill, the fair value of the Company's reporting units exceeds the carrying amounts and an impairment charge is not required. The Company has also completed an impairment analysis of its indefinite life intangible assets in accordance with the provisions of SFAS 142 and has determined that an impairment charge is not required. The following table summarizes the effects of SFAS 142 on the Company's net loss and loss per share for the prior periods presented: Years Ended December 31, 2002 2001 2000 (Dollars In Thousands, Except Per Share Amounts) Reported net loss $(10,786) $(10,463) $(32,797) Goodwill amortization, net of tax - 2,162 2,355 Trademarks/Trade names amortization, net of tax - 483 483 ________ ________ ________ Adjusted net loss $(10,786) $ (7,818) $(29,959) Basic and diluted loss per share: Reported net loss $ (7.51) $ (7.29) $ (22.76) Goodwill amortization - 1.50 1.63 Trademarks/Trade names amortization - .34 .34 ________ ________ ________ Adjusted net loss per share $ (7.51) $ (5.45) $ (20.79) Intangible assets consist of the following: December 31, 2002 December 31, 2001 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization (Dollars in Thousands) Amortized intangible assets: Engineering drawings $ 25,500 $ (6,719) $ 25,500 $ (5,443) Bill of material listings 2,856 (752) 2,856 (610) Software 2,288 (1,206) 2,288 (977) ________ ________ ________ ________ $ 30,644 $ (8,677) $ 30,644 $ (7,030) Unamortized intangible assets: Trademarks/Trade names $ 12,436 $ 12,436 Intangible pension asset 3,259 3,551 ________ ________ $ 15,695 $ 15,987 The aggregate intangible amortization expense for the year ended December 31, 2002 was $1,647,000. The estimated annual amortization expense in each of the years 2003 through 2006 is $1,647,000. The estimated amortization expense in 2007 is $1,585,000. During the year ended December 31, 2002, goodwill increased by $200,000 as the result of contingent consideration paid in connection with the acquisition of certain assets of Bennett & Emmott (1986) Ltd. in 1999. NOTE E - SALE AND LEASEBACK On January 4, 2002, the Company completed a sale and leaseback transaction for a portion of its land and buildings in South Milwaukee, Wisconsin. The Company is leasing back the property under an operating lease over a period of twenty years with options for renewals. Net proceeds received from this transaction were $7,157,000 less $500,000 required as a security deposit. No gain or loss was recognized on this transaction. NOTE F - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: 2002 2001 (Dollars in Thousands) Trade accounts payable $ 30,607 $ 27,538 Wages and salaries 5,917 4,918 Pension 3,706 692 Other 18,986 14,612 ________ ________ $ 59,216 $ 47,760 NOTE G - LONG-TERM DEBT AND FINANCING ARRANGEMENTS Long-term debt consists of the following: 2002 2001 (Dollars in Thousands) 9-3/4% Senior Notes due 2007 $150,000 $150,000 Revolving credit facility 54,023 63,100 Mortgage loan at Bucyrus Canada Limited 2,178 - Revolving term loan at Bucyrus Canada Limited - 5,732 Non-revolving term loan at Bucyrus Canada Limited - 2,488 Other 2,034 1,600 ________ ________ 208,235 222,920 Less current maturities of long-term debt (431) (732) ________ ________ $207,804 $222,188 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 among the Company, certain of its wholly-owned domestic subsidiaries (the "Guarantor Subsidiaries"), and BNY Midwest Trust Company, as Trustee (the "Senior Notes Indenture"). The Senior Notes mature on September 15, 2007 and interest thereon is payable each March 15 and September 15. During 2000, Holdings acquired $75,635,000 of the Company's $150,000,000 issue of Senior Notes. Holdings has agreed as a part of the Loan and Security Agreement (see below), and previously the Credit Agreement (see below), to defer the receipt of interest on these Senior Notes during the life of the two agreements. At December 31, 2002 and 2001, $18,436,000 and $11,062,000, respectively, of interest was accrued and payable to Holdings. The amendment to the Credit Agreement dated March 20, 2001 required Holdings to contribute to equity of the Company a portion of the accrued interest. As a result, on March 20, 2001, the Company recorded an equity contribution from Holdings and a corresponding reduction in interest payable to Holdings in the amount of $2,171,000, which represented accrued interest as of June 30, 2000 on the Senior Notes acquired by Holdings. The Senior Notes Indenture contains certain covenants that, among other things, limit the ability of the Company and the Guarantor Subsidiaries to: (i) incur additional indebtedness; (ii) pay any dividends or make any 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. At December 31, 2002, the Company was in compliance with these covenants. On March 7, 2002, the Company entered into a Loan and Security Agreement with GMAC Business Credit, LLC (the "Loan and Security Agreement") which provides the Company with an $85,000,000 senior secured revolving credit facility. On January 9, 2003, the Loan and Security Agreement was amended to reduce the maximum availability of the revolving credit facility to $76,000,000. The Loan and Security Agreement, as amended, expires on January 8, 2005. Proceeds from the Loan and Security Agreement were used to repay in full all outstanding borrowings under the previous Credit Agreement and Bucyrus Canada Limited revolving term loan (see below). Outstanding borrowings under the Loan and Security Agreement bear interest equal to either the prime rate plus an applicable margin (2% to 2.25%) or LIBOR plus an applicable margin (3.5% to 3.75%) and are subject to a borrowing base formula based on receivables and inventory. Borrowings at December 31, 2002 were $54,023,000 at a weighted average interest rate of 6.3%. The average borrowings under the Loan and Security Agreement (and previously the Credit Agreement) during 2002 was $61,628,000 at a weighted average interest rate of 5.9%, and the maximum borrowing outstanding was $69,333,000. Substantially all of the domestic assets of the Company (excluding real property) and the receivables and inventory of the Company's Canadian subsidiary are pledged as collateral under the Loan and Security Agreement. In addition, all outstanding capital stock of the Company and its domestic subsidiaries as well as 65% of the capital stock of the Company's foreign subsidiaries are pledged as collateral. The Loan and Security Agreement contains covenants which, among other things, require the Company to maintain certain financial ratios and minimum levels of EBITDA, as defined. At December 31, 2002, the Company was in compliance with these covenants. The amount available for borrowings under the Loan and Security Agreement at December 31, 2002 was $19,314,000. This amount must be reduced by $5,000,000 which is the minimum availability the Company must maintain at all times. The Company previously had a Credit Agreement with Bank One, Wisconsin (the "Credit Agreement") which provided 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 were at variable interest rates and were subject to a borrowing base formula based on receivables, inventory and machinery and equipment. Direct borrowings under the Revolving Credit Facility at December 31, 2001 were $63,100,000 at a weighted average interest rate of 5.3%. The average borrowing under the Revolving Credit Facility during 2001 was $68,642,000 at a weighted average interest rate of 7.7%, and the maximum borrowing outstanding was $73,375,000. The average borrowing under the Revolving Credit Facility during 2000 was $64,512,000 at a weighted average rate of 9.9%, and the maximum borrowing outstanding was $71,200,000. At December 31, 2002 and 2001, there were $2,199,000 and $1,200,000, respectively, of standby letters of credit outstanding under all Company bank facilities. A failure to comply with the obligations contained in the Loan and Security Agreement or the Senior Notes Indenture could result in an Event of Default (as defined) under the Loan and Security Agreement 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. While the Company believes that current levels of cash and liquidity, together with funds generated by operations and funds available from the Loan and Security Agreement, will be sufficient to permit the Company to satisfy its debt service requirements for the foreseeable future, there can be no assurance that the Company's performance will be sufficient for the Company to maintain compliance with the financial covenants under the Loan and Security Agreement and satisfy its debt service obligations under all circumstances. On April 30, 2002, Bucyrus Canada Limited, a wholly-owned subsidiary of the Company, entered into a new C$3,510,000 mortgage loan. The term of the mortgage loan is 15 years at an initial rate of 7.55% which is fixed for the first five years. The balance outstanding at December 31, 2002 was C$3,425,000. The mortgage loan is collateralized by the land, buildings and certain building attachments owned by Bucyrus Canada Limited. The net book value of this collateral at December 31, 2002 was C$4,283,000. Previously, Bucyrus Canada Limited had a C$15,000,000 credit facility with The Bank of Nova Scotia. On March 7, 2002, the outstanding balance of C$9,083,000 under the C$10,000,000 revolving term loan portion of this credit facility was paid in full with proceeds from the Loan and Security Agreement. On April 30, 2002, Bucyrus Canada Limited paid the remaining non-revolving term loan portion of the credit facility in full with proceeds from the new mortgage loan. The new mortgage loan contains a number of financial covenants which, among other items, require Bucyrus Canada Limited to maintain certain financial ratios on an annual basis. At December 31, 2002, Bucyrus Canada Limited was in compliance with all applicable covenants. Maturities of long-term debt after giving effect to the new Loan and Security Agreement are as follows for each of the next five years: (Dollars in Thousands) 2003 $ 431 2004 317 2005 54,352 2006 282 2007 150,177 NOTE H - COMMON SHAREHOLDERS' INVESTMENT In 2001, Holdings made capital contributions to the Company in the amount of $1,093,000 of cash and $2,171,000 of accrued interest on Senior Notes owned by Holdings (see Note G). In 1998, the Company's Board of Directors adopted the Bucyrus International, Inc. 1998 Management Stock Option Plan (the "1998 Option Plan") which authorizes the granting of stock options to key employees for up to a total of 200,000 shares of common stock of the Company at exercise prices to be determined in accordance with the provisions of the 1998 Option Plan. Other than the options granted on August 1, 2001, all other options granted under the 1998 Option Plan are targeted to vest on the last day of the plan year at the rate of 25% of the aggregate number of shares of common stock underlying each series of options per year, provided that the Company attains specified EBITDA goals. In the event that the EBITDA goal is not attained in any plan year, the options scheduled to vest at the end of that plan year will vest according to a pro rata schedule set forth in the 1998 Option Plan. Options granted under the 1998 Option Plan on August 1, 2001 are targeted to vest at the rate of 25% of the total option shares covered by the grant per year for the four (4) years subsequent to the date of the grant. Notwithstanding the foregoing, all options granted under the 1998 Option Plan shall vest automatically on the ninth anniversary of the date of the grant, regardless of performance criteria or, in the event of a Company Sale (as defined in the 1998 Option Plan), immediately prior to such sale provided such sale occurs prior to the fourth anniversary of the grant of options. Options granted pursuant to the 1998 Option Plan may be forfeited or repurchased by the Company at fair value, as defined, 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. The following table sets forth the activity and outstanding balances of options exercisable for shares of common stock under the 1998 Option Plan: Options Available For Outstanding Future Grants Balances at January 1, 2000 78,300 121,700 Options forfeited ($100 per share) (19,950) 19,950 ________ ________ Balances at December 31, 2000 58,350 141,650 Options forfeited (1,750) 1,750 ($100 per share) Granted on August 1, 2001 ($1 per share) 143,400 (143,400) ________ ________ Balances at December 31, 2001 200,000 0 Options forfeited ($100 per share) (500) 500 ________ ________ Balances at December 31, 2002 199,500 500 At December 31, 2002, 33,234 of the options outstanding were vested. The outstanding options had a weighted average exercise price of $28.84 per share and a weighted average remaining contractual life of 7.6 years. The Company accounted for the 1998 Option Plan in accordance with APB 25, as allowed by SFAS 123. Had compensation expense for this plan been determined consistent with SFAS 123, the Company's net loss and net loss per share would have been reduced to the following pro forma amounts: Years Ended December 31, 2002 2001 2000 (Dollars in Thousands, Except Per Share Amounts) Net loss: As reported $(10,786) $(10,463) $(32,797) Pro forma (11,069) (10,721) (32,957) Net loss per share of common stock (basic and diluted): As reported (7.51) (7.29) (22.76) Pro forma (7.71) (7.47) (22.87) The weighted average grant date fair value of stock options granted in 2001 under the 1998 Option Plan was $.80 per option. No options were granted in 2002 or 2000. The fair value of grants was estimated on the date of grant using the minimum value method with the following weighted average assumptions: 1998 Option Plan 2001 Risk-free interest rate 4.7% Expected dividend yield 0% Expected life 5 years Calculated volatility N/A 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. Loss before income taxes consists of the following: Years Ended December 31, 2002 2001 2000 (Dollars in Thousands) United States $(18,039) $(12,719) $(34,193) Foreign 12,300 5,666 4,461 ________ ________ ________ Total $ (5,739) $ (7,053) $(29,732) The provision for income tax expense consists of the following: Years Ended December 31, 2002 2001 2000 (Dollars in Thousands) Foreign income taxes: Current $ 4,505 $ 2,581 $ 2,433 Deferred 857 737 33 ________ ________ ________ Total 5,362 3,318 2,466 ________ ________ ________ Federal income taxes: Current (421) - 424 Deferred - - - ________ ________ ________ Total (421) - 424 ________ ________ ________ Other (state and local taxes): Current 106 92 175 Deferred - - - ________ ________ ________ Total 106 92 175 ________ ________ ________ Total income tax expense $ 5,047 $ 3,410 $ 3,065 Total income tax expense differs from amounts expected by applying the federal statutory income tax rate to loss before income taxes as set forth in the following table:
Years Ended December 31, 2002 2001 2000 Tax Tax Tax Expense Expense Expense (Benefit) Percent (Benefit) Percent (Benefit) Percent (Dollars in Thousands) Tax expense (benefit) at federal statutory rate $ (2,008) (35.0)% $ (2,469) (35.0)% $(10,406) (35.0)% Valuation allowance adjustments 3,099 54.0 2,750 39.0 9,828 33.0 Impact of foreign subsidiary income, tax rates and tax credits 4,833 84.2 2,902 41.1 2,201 7.4 State income taxes net of federal income tax benefit 69 1.2 60 .9 114 .4 Nondeductible goodwill amortization - - 757 10.7 824 2.8 Extraterritorial income exclusion (665) (11.6) (560) (7.9) - - Alternative minimum tax (421) (7.3) - - 424 1.4 Other items 140 2.4 (30) (.5) 80 .3 ________ ______ ________ ______ ________ ______ Total income tax expense $ 5,047 87.9% $ 3,410 48.3% $ 3,065 10.3%
Significant components of deferred tax assets and deferred tax liabilities are as follows: December 31, 2002 2001 (Dollars in Thousands) Deferred tax assets: Postretirement benefits $ 5,592 $ 5,785 Minimum pension liability adjustment 11,677 6,098 Inventory valuation provisions 5,971 6,181 Accrued and other liabilities 4,866 4,500 Research and development expenditures 3,752 3,413 Tax loss carryforward 22,031 27,176 Tax credit carryforward 479 900 Other items 1,293 727 ________ ________ Total deferred tax assets 55,661 54,780 Deferred tax liabilities: Excess of book basis over tax basis of property, plant and equipment and intangible assets (30,356) (33,460) Valuation allowance (24,539) (19,697) ________ ________ Net deferred tax asset $ 766 $ 1,623 The classification of the net deferred tax assets and liabilities is as follows: December 31, 2002 2001 (Dollars in Thousands) Current deferred tax asset $ 565 $ 1,429 Long-term deferred tax asset 1,080 863 Current deferred tax liability (478) (279) Long-term deferred tax liability (401) (390) ________ ________ Net deferred tax asset $ 766 $ 1,623 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 2002, the valuation allowance increased by $4,842,000 to offset an increase in net deferred tax assets for which no tax benefit was recognized. During 2000, Holdings elected to be treated as a corporation for income tax purposes. As a result, the Company, along with its domestic subsidiaries, and Holdings began filing consolidated federal income tax returns. The consolidated tax liability of the affiliated group was allocated based on each company's positive contribution to consolidated federal taxable income. As discussed in Note G, during 2000, Holdings acquired $75,635,000 of the Company's $150,000,000 issue of Senior Notes. This transaction resulted in taxable income which was offset by the use of previously unrecognized net operating loss carryforwards ("NOL"). Approximately $9,159,000 of the NOL utilized existed at the date the Company was acquired by Holdings. As a result, the utilization of the NOL and the reversal of the valuation allowance was accounted for as a reduction in goodwill and a distribution to Holdings. As of December 31, 2002, the Company has available approximately $55,100,000 of federal NOL from the years 1990 through 1999 and 2001, expiring in the years 2005 through 2019 and 2021, respectively, to offset against future federal taxable income. Because both the 1997 acquisition of the Company by Holdings and the 1994 consummation of the Second Amended Joint Plan of Reorganization of B-E Holdings, Inc. and the Company as modified on December 1, 1994 (the "Amended Plan") resulted in an "ownership change" within the meaning of Section 382 of the Internal Revenue Code, the use of the majority of such NOL is subject to certain annual limitations. The total NOL available to offset federal taxable income in 2003 is approximately $33,700,000. As of December 31, 2002, the Company also has a federal alternative minimum tax credit carryforward of $479,000 which carries forward indefinitely. However, because the credit arose prior to the effective date of the Amended Plan, it will not be usable until the year 2010. The Company also has a significant amount of state NOL (which expire in the years 2002 through 2014, 2016 and 2017) 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 will be limited to approximately $73,000,000. 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 $20,830,000 at December 31, 2002. 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 following tables set forth the domestic plans' funded status and amounts recognized in the consolidated financial statements at December 31, 2002 and 2001: Years Ended December 31, 2002 2001 (Dollars in Thousands) Change in projected benefit obligation: Projected benefit obligation at beginning of year $ 77,962 $ 71,912 Service cost 1,609 1,439 Interest cost 5,401 5,270 Amendments - 3,551 Actuarial loss 3,023 2,020 Benefits paid (5,988) (6,230) ________ ________ Projected benefit obligation at end of year 82,007 77,962 ________ ________ Change in plan assets: Fair value of plan assets at beginning of year 59,851 69,896 Actual loss on plan assets (6,339) (4,993) Employer contributions 692 1,178 Benefits paid (5,988) (6,230) ________ ________ Fair value of plan assets at end of year 48,216 59,851 ________ ________ Net amount recognized: Funded status (33,791) (18,111) Unrecognized prior service cost 2,366 2,571 Unrecognized net actuarial loss 31,207 17,413 ________ ________ Net amount recognized $ (218) $ 1,873 Amounts recognized in consolidated balance sheets: Long-term prepaid benefit costs $ 3,928 $ 5,289 Accrued benefit liabilities (36,598) (22,212) Intangible asset 3,259 3,551 Accumulated other comprehensive loss 29,193 15,245 ________ ________ Net amount recognized $ (218) $ 1,873 Weighted-average assumptions at end of year: Discount rate 6.75% 7.25% Expected return on plan assets 9% 9% Rate of compensation increase 3.75% - 4% 4.5% Years Ended December 31, 2002 2001 2000 (Dollars in Thousands) Components of net periodic benefit cost: Service cost $ 1,609 $ 1,439 $ 1,590 Interest cost 5,401 5,270 5,274 Expected return on plan assets (5,155) (6,090) (6,847) Amortization of prior service cost 206 (86) (91) Recognized net actuarial loss 723 - 24 ________ ________ ________ Total benefit cost (credit) $ 2,784 $ 533 $ (50) The Company was required to record an additional minimum pension liability of $32,452,000 and $18,796,000 at December 31, 2002 and 2001, respectively. This liability represented the amount by which the accumulated benefit obligation exceeded the sum of the fair market value of plan assets and accrued amounts previously recorded. The additional liability was offset by an intangible asset of $3,259,000 and $3,551,000 at December 31, 2002 and 2001, respectively, which was equal to the previously unrecognized prior service cost. The remaining amount of $29,193,000 and $15,245,000 at December 31, 2002 and 2001, respectively, was recorded as a component of Accumulated Other Comprehensive Loss in Common Shareholders' Investment (Deficiency in Assets). At December 31, 2002 and 2001, a long-term pension liability of $32,903,000 and $21,520,000, respectively, including the minimum liability, was included in Deferred Expenses and Other in the Consolidated Balance Sheet. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $82,007,000, $80,886,000 and $48,216,000, respectively, at December 31, 2002. These amounts were $77,962,000, $76,773,000 and $59,851,000, respectively, at December 31, 2001. 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 $720,000, $743,000 and $848,000 in 2002, 2001 and 2000, respectively. 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 following tables set forth the plan's status and amounts recognized in the consolidated financial statements at December 31, 2002 and 2001: Years Ended December 31, 2002 2001 (Dollars in Thousands) Change in benefit obligation: Benefit obligation at beginning of year $ 16,027 $ 13,031 Service cost 557 409 Interest cost 1,054 929 Plan participants' contributions 119 95 Net actuarial loss 395 3,368 Benefits paid (2,116) (1,805) ________ ________ Benefit obligation at end of year 16,036 16,027 ________ ________ Change in plan assets: Fair value of plan assets at beginning of year - - Employer contributions 1,997 1,710 Plan participants' contributions 119 95 Benefits paid (2,116) (1,805) ________ ________ Fair value of plan assets at end of year - - ________ ________ Net amount recognized: Funded status (16,036) (16,027) Unrecognized net actuarial loss 3,673 3,359 Unrecognized prior service credit (1,998) (2,219) ________ ________ Net amount recognized $(14,361) $(14,887) Amounts recognized in consolidated balance sheets: Accrued benefit liability $ 1,610 $ 1,610 Long-term benefit liability 12,751 13,277 ________ ________ Net amount recognized $ 14,361 $ 14,887 Weighted-average assumptions at end of year - discount rate 6.75% 7.25% For measurement purposes, a 10% gross health care trend rate was used for benefits for 2002. Trend rates were assumed to decrease gradually to 5% in 2007 and remain at that level thereafter. Years Ended December 31, 2002 2001 2000 (Dollars in Thousands) Components of net periodic benefit cost: Service cost $ 557 $ 409 $ 420 Interest cost 1,054 929 970 Recognized net actuarial loss 81 - - Amortization of prior service cost (221) (221) (221) ________ ________ ________ Net periodic benefit cost $ 1,471 $ 1,117 $ 1,169 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects: One Percentage One Percentage Point Increase Point Decrease (Dollars in Thousands) Effect on total of service and interest cost components $ 150 $ (130) Effect on postretirement benefit obligation 1,207 (1,064) NOTE L - RESEARCH AND DEVELOPMENT Expenditures for design and development of new products and improvements of existing mining machinery products, including overhead, aggregated $6,512,000 in 2002, $5,900,000 in 2001 and $7,299,000 in 2000. All engineering and product development costs are charged to engineering and field service expense as incurred. NOTE M - CALCULATION OF NET LOSS PER SHARE OF COMMON STOCK Basic and diluted net loss per share of common stock was computed by dividing net loss by the weighted average number of shares of common stock outstanding. Stock options outstanding were not included in the per share calculations because they did not have a dilutive effect. The following is a reconciliation of the numerators and the denominators of the basic and diluted net loss per share of common stock calculations: Years Ended December 31, 2002 2001 2000 (Dollars in Thousands, Except Per Share Amounts) Basic and Diluted Net loss $ (10,786) $ (10,463) $ (32,797) Weighted average shares outstanding 1,435,600 1,435,600 1,441,158 Net loss per share $ (7.51) $ (7.29) $ (22.76) NOTE N - SEGMENT AND GEOGRAPHICAL INFORMATION The Company designs, manufactures and markets large excavation machinery used for surface mining and supplies replacement parts and services for such machines. The Company manufactures its machines and replacement parts primarily at one location. There is no significant difference in the production process for machines and replacement parts. The Company's products are sold primarily to large companies and quasi-governmental entities engaged in the mining of coal, iron ore, oil sands and copper throughout the world. New equipment and replacement parts and services are sold in North America primarily by Company personnel and its domestic subsidiaries, and overseas by Company personnel and through independent sales representatives and the Company's foreign subsidiaries and offices. Due to the relatively low number of new machines sold each year, the profitability of each machine sale is evaluated on an order by order basis with specific margin goals being established prior to the sale of the machine. Historically, there has been very little variance between the estimated margin on a machine sale and the actual margin achieved. The sales of replacement parts and services occur on a consistent basis throughout the year. The gross margins on replacement parts and service sales are regularly reviewed by the Company's chief operating decision maker to assess performance. Over the past several years, the sale of replacement parts and services has accounted for approximately 80% of the Company's annual net sales. Operating expenses and assets are managed on a macro basis and are not allocated to machines or replacement parts and services as part of performance assessment. Based on the above, the Company's operations are classified as one operating segment. The following table summarizes the Company's net sales: Years Ended December 31, 2002 2001 2000 (Dollars in Thousands) Machines $ 47,551 $ 64,552 $ 68,925 Parts and services 242,047 226,024 211,518 ________ ________ ________ $289,598 $290,576 $280,443 Financial information by geographical area is set forth in the following table. Each geographic area represents the origin of the financial information. Sales to External Long-Lived Customers Assets (Dollars in Thousands) 2002 United States $140,326 $ 51,964 Australia 33,357 247 South America 56,079 4,732 Canada 32,204 4,550 Other Foreign 27,632 986 ________ ________ $289,598 $ 62,479 2001 United States $153,805 $ 66,075 Australia 35,870 269 South America 49,132 5,334 Canada 30,910 4,719 Other Foreign 20,859 806 ________ ________ $290,576 $ 77,203 2000 United States $151,841 $ 73,390 Australia 33,598 342 South America 44,257 5,780 Canada 26,459 5,245 Other Foreign 24,288 1,796 ________ ________ $280,443 $ 86,553 The Company does not consider itself to be 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 2002, 2001 and 2000, one customer accounted for approximately 12%, 11% and 11%, respectively, of the Company's consolidated net sales. NOTE O - COMMITMENTS, CONTINGENCIES AND CREDIT RISKS 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 Warranty The Company recognizes the cost associated with its warranty policies on its products at the time of sale. The amount recognized is based on historical experience. The following is a reconciliation of the changes in accrued warranty costs for the year ended December 31, 2002: (Dollars in Thousands) Balance at January 1, 2002 $ 2,951 Provision 3,793 Charges (3,147) ________ Balance at December 31, 2002 $ 3,597 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 up 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, results of operations or cash flows, although no assurance to that effect can be given. Asbestos Liability The Company has been named as a co-defendant in 278 personal injury liability asbestos cases, involving approximately 1,400 plaintiffs, which are pending in various state courts. In all of these cases, insurance carriers have accepted or are expected to accept the defense of such cases. These cases are in preliminary stages and the Company does not believe that costs associated with these matters will have a material effect on the Company's financial position, results of operations or cash flows, 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, results of operations or cash flows, 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 $5,940,000 in 2002, $3,616,000 in 2001 and $4,170,000 in 2000. Future minimum annual payments under noncancellable agreements, including the sale and leaseback agreement (see Note E), are as follows: (Dollars in Thousands) 2003 $ 5,680 2004 4,737 2005 3,373 2006 1,777 2007 1,446 After 2007 17,132 ________ $ 34,145 Management Services Agreement American Industrial Partners ("AIP") provides substantial ongoing financial and management services to the Company utilizing the extensive operating and financial experience of AIP's principals. Pursuant to a management services agreement among AIP, the Company and the Guarantor Subsidiaries, AIP provides general management, financial and other corporate advisory services to the Company for an annual fee of $1,450,000 and is reimbursed for out-of-pocket expenses. Payment of the annual fee is subordinated in right of payment to the Loan and Security Agreement. At December 31, 2002 and 2001, $4,364,000 of fees was deferred and payable to AIP under this agreement and is included in Deferred Expenses, Pension and Other in the Consolidated Balance Sheets. In addition, at December 31, 2002, $725,000 of fees under this agreement was currently payable and is included in Accrued Expenses in the Consolidated Balance Sheet. AIP has agreed to waive its right to receive interest on unpaid management fees as defined in the current Management Services Agreement through December 31, 2002. If the lenders under the Loan and Security Agreement were to permit retroactive accretion of interest, there may be a retroactive amount due to AIP of $1,051,000 as of December 31, 2002. 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 letters of credit on foreign sales to smaller companies. NOTE P - RESTRUCTURING Due to a reduction in new orders, the Company continues to reduce a portion of its manufacturing production workforce through layoffs and also reduce the number of its salaried employees. These activities resulted in restructuring charges of $1,308,000, $899,000 and $2,689,000 during the years ended December 31, 2002, 2001 and 2000, respectively. Such charges primarily relate to severance payments and related matters and are included in Engineering and Field Service, Selling, Administrative and Miscellaneous Expenses in the Consolidated Statement of Operations. Substantially all of these restructuring charges were paid in the year incurred. NOTE Q - OTHER INCOME In December 2001, the Company, as a policyholder, received an allocation of 369,918 shares as a result of the demutualization of The Principal Financial Group. Net proceeds from the sale of these shares by the Company were $8,704,000 and is recognized as Other Income in the Consolidated Statement of Operations for the year ended December 31, 2001. Of the net proceeds $2,974,000 was received on January 2, 2002 for shares sold in 2001 and is included in Receivables in the Consolidated Balance Sheet at December 31, 2001. NOTE R - SUPPLEMENTAL CONSOLIDATING CONDENSED FINANCIAL INFORMATION The Company's payment obligations under the Senior Notes are guaranteed by 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. The Company has determined that it is not practicable to allocate goodwill, intangible assets and deferred income taxes to the Guarantor Subsidiaries and Other Subsidiaries. Parent Company amounts for net earnings (loss) and common shareholders' investment differ from consolidated amounts as intercompany profit in subsidiary inventory has not been eliminated in the Parent Company statement but has been eliminated in the Consolidated Totals. Bucyrus International, Inc. and Subsidiaries Consolidating Condensed Statements of Operations For the Year Ended December 31, 2002 (Dollars in Thousands)
Parent Guarantor Other Consolidated Company Subsidiaries Subsidiaries Eliminations Total Revenues: Net sales $148,559 $ 46,890 $155,481 $(61,332) $289,598 Other income 2,993 3 1,320 (4,016) 300 ________ ________ ________ ________ ________ 151,552 46,893 156,801 (65,348) 289,898 ________ ________ ________ ________ ________ Costs and Expenses: Cost of products sold 122,167 46,500 125,127 (60,278) 233,516 Engineering and field service, selling, administrative and miscellaneous expenses 24,218 1,940 17,291 - 43,449 Interest expense 19,403 1,368 1,917 (4,016) 18,672 ________ ________ ________ ________ ________ 165,788 49,808 144,335 (64,294) 295,637 ________ ________ ________ ________ ________ Earnings (loss) before income taxes and equity in net earnings of consolidated subsidiaries (14,236) (2,915) 12,466 (1,054) (5,739) Income taxes (benefit) (8) 24 5,031 - 5,047 ________ ________ ________ ________ ________ Earnings (loss) before equity in net earnings of consolidated subsidiaries (14,228) (2,939) 7,435 (1,054) (10,786) Equity in net earnings of consolidated subsidiaries 4,496 - - (4,496) - ________ ________ ________ ________ ________ Net earnings (loss) $ (9,732) $ (2,939) $ 7,435 $ (5,550) $(10,786)
Bucyrus International, Inc. and Subsidiaries Consolidating Condensed Statements of Operations For the Year Ended December 31, 2001 (Dollars in Thousands)
Parent Guarantor Other Consolidated Company Subsidiaries Subsidiaries Eliminations Total Revenues: Net sales $151,036 $ 51,080 $144,616 $(56,156) $290,576 Other income 12,757 51 851 (4,517) 9,142 ________ ________ ________ ________ ________ 163,793 51,131 145,467 (60,673) 299,718 ________ ________ ________ ________ ________ Costs and Expenses: Cost of products sold 130,495 49,354 120,023 (56,081) 243,791 Engineering and field service, selling, administrative and miscellaneous expenses 24,511 937 16,647 - 42,095 Interest expense 20,697 1,679 3,026 (4,517) 20,885 ________ ________ ________ ________ ________ 175,703 51,970 139,696 (60,598) 306,771 ________ ________ ________ ________ ________ Earnings (loss) before income taxes and equity in net earnings of consolidated subsidiaries (11,910) (839) 5,771 (75) (7,053) Income taxes 511 23 2,876 - 3,410 ________ ________ ________ ________ ________ Earnings (loss) before equity in net earnings of consolidated subsidiaries (12,421) (862) 2,895 (75) (10,463) Equity in net earnings of consolidated subsidiaries 2,033 - - (2,033) - ________ ________ ________ ________ ________ Net earnings (loss) $(10,388) $ (862) $ 2,895 $ (2,108) $(10,463)
Bucyrus International, Inc. and Subsidiaries Consolidating Condensed Statements of Operations For the Year Ended December 31, 2000 (Dollars in Thousands)
Parent Guarantor Other Consolidated Company Subsidiaries Subsidiaries Eliminations Total Revenues: Net sales $159,376 $ 37,866 $137,408 $(54,207) $280,443 Other income 5,177 4 726 (4,693) 1,214 ________ ________ ________ ________ ________ 164,553 37,870 138,134 (58,900) 281,657 ________ ________ ________ ________ ________ Costs and Expenses: Cost of products sold 142,589 35,593 115,134 (54,182) 239,134 Engineering and field service, selling, administrative and miscellaneous expenses 34,421 1,225 14,515 - 50,161 Interest expense 21,476 1,889 3,422 (4,693) 22,094 ________ ________ ________ ________ ________ 198,486 38,707 133,071 (58,875) 311,389 ________ ________ ________ ________ ________ Earnings (loss) before income taxes and equity in net earnings of consolidated subsidiaries (33,933) (837) 5,063 (25) (29,732) Income taxes 848 74 2,143 - 3,065 ________ ________ ________ ________ ________ Earnings (loss) before equity in net earnings of consolidated subsidiaries (34,781) (911) 2,920 (25) (32,797) Equity in net earnings of consolidated subsidiaries 2,009 - - (2,009) - ________ ________ ________ ________ ________ Net earnings (loss) $(32,772) $ (911) $ 2,920 $ (2,034) $(32,797)
Bucyrus International, Inc. and Subsidiaries Consolidating Condensed Balance Sheets December 31, 2002 (Dollars in Thousands)
Parent Guarantor Other Consolidated Company Subsidiaries Subsidiaries Eliminations Total ASSETS CURRENT ASSETS: Cash and cash equivalents $ - $ 24 $ 4,165 $ - $ 4,189 Receivables 20,100 6,006 26,664 - 52,770 Intercompany receivables 76,916 347 24,222 (101,485) - Inventories 63,648 7,493 49,705 (6,534) 114,312 Prepaid expenses and other current assets 845 311 5,030 - 6,186 ________ ________ ________ _________ ________ Total Current Assets 161,509 14,181 109,786 (108,019) 177,457 OTHER ASSETS: Restricted funds on deposit 758 - 727 - 1,485 Goodwill 55,660 - 200 - 55,860 Intangible assets - net 37,662 - - - 37,662 Other assets 10,135 - 1,800 - 11,935 Investment in subsidiaries 13,525 - - (13,525) - ________ ________ ________ _________ ________ 117,740 - 2,727 (13,525) 106,942 PROPERTY, PLANT AND EQUIPMENT - net 45,098 6,866 10,515 - 62,479 ________ ________ ________ _________ ________ $324,347 $ 21,047 $123,028 $(121,544) $346,878 LIABILITIES AND COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 40,390 $ 2,103 $ 17,009 $ (286) $ 59,216 Intercompany payables 117 27,915 70,855 (98,887) - Liabilities to customers on uncompleted contracts and warranties 4,584 286 2,980 - 7,850 Income taxes 335 29 3,079 - 3,443 Short-term obligations - - 495 - 495 Current maturities of long-term debt 126 44 261 - 431 ________ ________ ________ _________ ________ Total Current Liabilities 45,552 30,377 94,679 (99,173) 71,435 LONG-TERM LIABILITIES: Liabilities to customers on uncompleted contracts and warranties 2,000 - - - 2,000 Postretirement benefits 12,381 - 370 - 12,751 Deferred expenses, pension and other 41,240 335 1,008 - 42,583 Interest payable to Holdings 18,436 - - - 18,436 ________ ________ ________ _________ ________ 74,057 335 1,378 - 75,770 LONG-TERM DEBT, less current maturities 204,023 1,226 2,555 - 207,804 COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS) 715 (10,891) 24,416 (22,371) (8,131) ________ ________ ________ _________ ________ $324,347 $ 21,047 $123,028 $(121,544) $346,878
Bucyrus International, Inc. and Subsidiaries Consolidating Condensed Balance Sheets December 31, 2001 (Dollars in Thousands)
Parent Guarantor Other Consolidated Company Subsidiaries Subsidiaries Eliminations Total ASSETS CURRENT ASSETS: Cash and cash equivalents $ - $ 28 $ 7,190 $ - $ 7,218 Receivables 24,407 7,146 24,001 - 55,554 Intercompany receivables 79,336 1,127 12,529 (92,992) - Inventories 53,365 9,025 43,237 (3,619) 102,008 Prepaid expenses and other current assets 542 282 5,003 - 5,827 ________ ________ ________ _________ ________ Total Current Assets 157,650 17,608 91,960 (96,611) 170,607 OTHER ASSETS: Restricted funds on deposit 42 - 540 - 582 Goodwill 55,660 - - - 55,660 Intangible assets - net 39,601 - - - 39,601 Other assets 10,203 - 1,889 - 12,092 Investment in subsidiaries 7,103 - - (7,103) - ________ ________ ________ _________ ________ 112,609 - 2,429 (7,103) 107,935 PROPERTY, PLANT AND EQUIPMENT - net 60,172 5,904 11,127 - 77,203 ________ ________ ________ _________ ________ $330,431 $ 23,512 $105,516 $(103,714) $355,745 LIABILITIES AND COMMON SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable and accrued expenses $ 30,732 $ 2,533 $ 14,730 $ (235) $ 47,760 Intercompany payables 44 27,771 60,532 (88,347) - Liabilities to customers on uncompleted contracts and warranties 2,800 522 2,686 - 6,008 Income taxes 234 29 942 - 1,205 Short-term obligations - - 566 - 566 Current maturities of long-term debt 237 8 487 - 732 ________ ________ ________ _________ ________ Total Current Liabilities 34,047 30,863 79,943 (88,582) 56,271 LONG-TERM LIABILITIES: Liabilities to customers on uncompleted contracts and warranties 2,000 - - - 2,000 Postretirement benefits 12,863 - 414 - 13,277 Deferred expenses, pension and other 32,032 249 1,494 - 33,775 Interest payable to Holdings 11,062 - - - 11,062 ________ ________ ________ _________ ________ 57,957 249 1,908 - 60,114 LONG-TERM DEBT, less current maturities 213,226 352 8,610 - 222,188 COMMON SHAREHOLDERS' INVESTMENT 25,201 (7,952) 15,055 (15,132) 17,172 ________ ________ ________ _________ ________ $330,431 $ 23,512 $105,516 $(103,714) $355,745
Bucyrus International, Inc. and Subsidiaries Consolidating Condensed Statements of Cash Flows For the Year Ended December 31, 2002 (Dollars in Thousands)
Parent Guarantor Other Consolidated Company Subsidiaries Subsidiaries Eliminations Total Net Cash Provided By Operating Activities $ 4,579 $ 683 $ 4,443 $ - $ 9,705 ________ ________ ________ ________ ________ Cash Flows From Investing Activities Decrease in restricted funds on deposit (716) - (187) - (903) Proceeds from the sale of The Principal Financial Group shares 2,974 - - - 2,974 Purchases of property, plant and equipment (2,697) (1,598) (1,162) - (5,457) Proceeds from sale of property, plant and equipment 363 2 380 - 745 Net proceeds from sale and leaseback transaction 6,657 - - - 6,657 Purchase of Bennett & Emmott (1986) Ltd. - - (200) - (200) Dividends paid to parent 99 - (99) - - ________ ________ ________ ________ ________ Net cash provided by (used in) investing activities 6,680 (1,596) (1,268) - 3,816 ________ ________ ________ ________ ________ Cash Flows From Financing Activities Net proceeds from (repayments of) revolving credit facilities (9,077) - (5,732) - (14,809) Net increase (decrease) in other bank borrowings - - (71) - (71) Proceeds from issuance of long-term debt - 925 - - 925 Payment of long-term debt (236) (16) (549) - (801) Payment of refinancing expenses (1,946) - (101) - (2,047) ________ ________ ________ ________ ________ Net cash provided by (used in) financing activities (11,259) 909 (6,453) - (16,803) ________ ________ ________ ________ ________ Effect of exchange rate changes on cash - - 253 - 253 ________ ________ ________ ________ ________ Net decrease in cash and and cash equivalents - (4) (3,025) - (3,029) Cash and cash equivalents at beginning of year - 28 7,190 - 7,218 ________ ________ ________ ________ ________ Cash and cash equivalents at end of year $ - $ 24 $ 4,165 $ - $ 4,189
Bucyrus International, Inc. and Subsidiaries Consolidating Condensed Statements of Cash Flows For the Year Ended December 31, 2001 (Dollars in Thousands)
Parent Guarantor Other Consolidated Company Subsidiaries Subsidiaries Eliminations Total Net Cash Provided By (Used In) Operating Activities $ (3,626) $ 600 $ 1,717 $ - $ (1,309) ________ ________ ________ ________ ________ Cash Flows From Investing Activities Decrease (increase)in restricted funds on deposit 308 - (340) - (32) Proceeds from sale of The Principal Financial Group shares 5,730 - - - 5,730 Purchases of property, plant and equipment (1,990) (968) (1,169) - (4,127) Proceeds from sale of property, plant and equipment 23 - 513 - 536 Dividends paid to parent 200 - (200) - - ________ ________ ________ ________ ________ Net cash provided by (used in) investing activities 4,271 (968) (1,196) - 2,107 ________ ________ ________ ________ ________ Cash Flows From Financing Activities Proceeds from (repayments of) revolving credit facilities (1,350) - 298 - (1,052) Net (increase) decrease in other bank borrowings (52) - 323 - 271 Proceeds from issuance of long-term debt - 360 877 - 1,237 Payment of long-term debt (336) - (1,305) - (1,641) Capital contribution from Holdings 1,093 - - - 1,093 ________ ________ ________ ________ ________ Net cash provided by (used in) financing activities (645) 360 193 - (92) ________ ________ ________ ________ ________ Effect of exchange rate changes on cash - - (436) - (436) ________ ________ ________ ________ ________ Net increase (decrease) in cash and cash equivalents - (8) 278 - 270 Cash and cash equivalents at beginning of year - 36 6,912 - 6,948 ________ ________ ________ ________ ________ Cash and cash equivalents at end of year $ - $ 28 $ 7,190 $ - $ 7,218
Bucyrus International, Inc. and Subsidiaries Consolidating Condensed Statements of Cash Flows For the Year Ended December 31, 2000 (Dollars in Thousands)
Parent Guarantor Other Consolidated Company Subsidiaries Subsidiaries Eliminations Total Net Cash Provided By (Used In) Operating Activities $ (6,332) $ 3,201 $ 2,532 $ - $ (599) ________ ________ ________ ________ ________ Cash Flows From Investing Activities Increase in restricted funds on deposit (350) - (111) - (461) Purchases of property, plant and equipment (1,903) (210) (1,388) - (3,501) Proceeds from sale of property, plant and equipment 54 522 873 - 1,449 Dividends paid to parent 4,130 (3,500) (630) - - ________ ________ ________ ________ ________ Net cash provided by (used in) investing activities 1,931 (3,188) (1,256) - (2,513) ________ ________ ________ ________ ________ Cash Flows From Financing Activities Net proceeds from revolving credit facility 5,100 - - - 5,100 Net decrease in other bank borrowings (98) - (52) - (150) Payment of long-term debt (470) - (1,781) - (2,251) Purchase of treasury stock (131) - - - (131) ________ ________ ________ ________ ________ Net cash provided by (used in) financing activities 4,401 - (1,833) - 2,568 ________ ________ ________ ________ ________ Effect of exchange rate changes on cash - - (877) - (877) ________ ________ ________ ________ ________ Net increase (decrease) in cash and cash equivalents - 13 (1,434) - (1,421) Cash and cash equivalents at beginning of year - 23 8,346 - 8,369 ________ ________ ________ ________ ________ Cash and cash equivalents at end of year $ - $ 36 $ 6,912 $ - $ 6,948
Report of Deloitte & Touche LLP, Independent Auditors Deloitte & Touche LLP 411 E. Wisconsin Avenue Milwaukee, Wisconsin 53202-4496 Tel: (414) 271-3000 www.deloitte.com Deloitte & Touche To the Shareholders and Board of Directors of Bucyrus International, Inc.: We have audited the accompanying consolidated balance sheet of Bucyrus International, Inc. and subsidiaries (the "Company"), a majority-owned subsidiary of Bucyrus Holdings, LLC, as of December 31, 2002, and the related consolidated statements of operations, comprehensive loss, shareholders' investment (deficiency in assets), and cash flows for the year then ended. Our audit also included the financial statement schedule for the year ended December 31, 2002 listed in the Index at Item 15(a)2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the 2002 financial statements and financial statement schedule based on our audit. The Company's financial statements and financial statement schedules as of December 31, 2001, and for each of the two years in the period ended December 31, 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that such 2001 and 2000 financial statement schedules, in relation to the 2001 and 2000 basic consolidated financial statements taken as a whole, fairly stated in all material respects the financial data required to be set forth therein, in their report dated February 8, 2002 (except with respect to the matter discussed in Note F as to which the date is March 7, 2002). We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, such 2002 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such 2002 financial statement schedule, when considered in relation to the basic 2002 consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As described in Note D to the consolidated financial statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("Statement No. 142"). _________ Deloitte Touche Tohmatsu ________ 2 As discussed above, the financial statements of the Company as of December 31, 2001, and for each of the two years in the period ended December 31, 2001, were audited by other auditors who have ceased operations. As described in Note D, these financial statements have been revised to include the transitional disclosures required by Statement No. 142 which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note D with respect to 2001 and 2000 included (i) agreeing the previously reported net loss to the previously issued financial statements and the adjustments to reported net loss representing amortization expense (including any related tax effects) recognized in those periods related to goodwill and intangible assets that are no longer being amortized as a result of initially applying Statement No. 142 (including any related tax effects) to the Company's underlying records obtained from management; and (ii) testing the mathematical accuracy of the reconciliation of adjusted net loss to reported net loss and the related loss per share amounts. In our opinion, the disclosures for 2001 and 2000 in Note D are appropriate. However, we were not engaged to audit, review or apply any procedures to the 2001 and 2000 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 financial statements taken as a whole. /s/Deoitte & Touche LLP February 7, 2003 This report set forth below is a copy of a previously issued audit report by Arthur Andersen LLP. This report has not been reissued by Arthur Andersen LLP in connection with its inclusion in this Form 10-K. During the year ended December 31, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). As discussed in Note D of the Notes to Consolidated Financial Statements, the Company has presented the transitional disclosures for the years ended December 31, 2001 and 2000 required by SFAS 142. The Arthur Andersen LLP report does not extend to these transitional disclosures. These disclosures are reported on by Deloitte & Touche LLP as stated in their report appearing herein. ANDERSEN 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) and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of operations, comprehensive loss, common shareholders' investment and cash flows for the three years ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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. and subsidiaries as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the three years ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. 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 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 three years ended December 31, 2001 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 February 8, 2002 (except with respect to the matter discussed in Note F, as to which the date is March 7, 2002.) Bucyrus International, Inc. and Subsidiaries Schedule II - Valuation and Qualifying Accounts and Reserves For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in Thousands)
Charges Balance At (Credits) (Charges) Balance At Beginning To Costs Credits End Of Period And Expenses To Reserves(1) Of Period Allowance for possible losses: Year ended December 31, 2002: Notes and accounts receivable - current $1,134 $ 47 $ (23) $1,158 Year ended December 31, 2001: Notes and accounts receivable - current $1,159 $ 14 $ (39) $1,134 Year ended December 31, 2000: Notes and accounts receivable - current $1,090 $ 3 $ 66 $1,159 (1) Includes uncollected receivables written off, net of recoveries, and translation adjustments at the foreign subsidiaries.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE (a) On June 24, 2002, the Company filed a Current Report on Form 8-K (the "Current Report") to report the dismissal of Arthur Andersen LLP ("Andersen") as the Company's independent public accountants and the engagement of Deloitte & Touche LLP to serve as the Company's independent public accountants for the fiscal year ending December 31, 2002. As reported in the Current Report (i) there were no disagreements between the Company and Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Andersen's satisfaction, would have caused Andersen to make reference to the subject matter in connection with Andersen's report on the Company's consolidated financial statements for such years; and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K. (b) Not applicable because, as disclosed under (a) above, there were no "disagreements" or "reportable events" as defined in Item 304(a) of regulation S-K in connection with the dismissal of Andersen. 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 seven 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 67 Mr. Bingham is a general partner of American Industrial Partners Corporation. He co-founded American Industrial Partners and has been a director and officer of the firm since 1988. Mr. Bingham is also a director of Great Lakes Carbon Corporation, Stanadyne Automotive Corporation, MBA Polymers, Inc., Fundimak y Subsidiaries S.A. de C.V. (Sanluis) and Williams Controls, Inc. He formerly served on the boards of Avis, Inc., ITT Life Insurance Corporation, Sweetheart Holdings and Valero Energy Corporation. Mr. Bingham has been a director of the Company since September 1997. Wayne T. Ewing 69 Mr. Ewing is a coal industry management consultant doing business as The Ewing Company since 1997. Mr. Ewing was Senior Vice President for Coal Operations from 1995 to 1996 and Executive Vice President Marketing from 1993 to 1995 with Kerr-McGee Coal Corporation. From 1963 to 1993, Mr. Ewing held various executive positions with Peabody Holding Company. Mr. Ewing has been a director of the Company and a non-executive vice chairman of the Company's Board since February 1, 2000. Willard R. Hildebrand 63 Mr. Hildebrand was President and Chief Executive Officer of the Company from March 11, 1996 to December 14, 1998 upon which he became a non-executive vice chairman of the Company's Board until March 11, 2000. 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 is currently a director of Qualitor, Inc. Mr. Hildebrand has been a director of the Company since March 1996. Kim A. Marvin 41 Mr. Marvin is a Managing Director of American Industrial Partners Corporation. Mr. Marvin joined American Industrial Partners in 1997 from the Mergers & Acquisitions Department of Goldman, Sachs & Co. where he had been employed since 1994. Mr. Marvin is also a director of Consoltex Group, Great Lakes Carbon Corporation and Stanadyne Corporation. Mr. Marvin has been a director of the Company since September 1997. Robert L. Purdum 67 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 Berlitz International, Inc. Mr. Purdum has been a director of the Company since November 1997. Theodore C. Rogers 68 Mr. Rogers has served as Chief Executive Officer of the Company since December 23, 1999. Mr. Rogers also served as President of the Company from December 1999 to August 2000. Mr.Rogers is a General Partner of American Industrial Partners. He co-founded American Industrial Partners and has been a director and officer of the firm since 1988. He is also a director of Consultex Group, Inc., Great Lakes Carbon Corporation and Stanadyne Automotive Corporation. Mr. Rogers has been a director of the Company since November 1997. Timothy W. Sullivan 49 Mr. Sullivan has served as President and Chief Operating Officer of the Company since August 14, 2000. Mr. Sullivan rejoined the Company on January 17, 2000 as Executive Vice President. From January 1999 through December 1999 Mr. Sullivan served as President and Chief Executive Officer of United Container Machinery, Inc. From 1986 through 1998 Mr. Sullivan held various positions with the Company; Executive Vice President - Marketing from June 1998 through December 1998, Vice President Marketing and Sales from April 1995 through May 1998, 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. Mr. Sullivan has been a director of the Company since August 2000. 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. Messrs. Bruno and Mackus are each employed under one-year employment agreements which automatically renew for additional one-year terms subject to the provisions thereof. See ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Employment Agreements. Name Age, Position and Background Theodore C. Rogers Mr. Rogers, age 68, has served as Chief Executive Officer since December 23, 1999. Mr. Rogers also served as President from December 1999 to August 2000. Mr. Rogers co-founded American Industrial Partners and has been an officer and director of the firm since 1988. Mr. Rogers was President, Chairman, Chief Executive Officer and Chief Operating Officer of NL Industries. Mr. Rogers has been a director of the Company since November 1997. John F. Bosbous Mr. Bosbous, age 50, has served as Treasurer since March 1998. Mr. Bosbous was Assistant Treasurer from 1988 to 1998, and Assistant to the Treasurer from August 1984 to February 1988. Frank P. Bruno Mr. Bruno, age 66, has served as Vice President - Human Resources since December 1, 1997. Mr. Bruno was a consultant 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 51, has served as Vice President- Finance since October 2002, as 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. Thomas B. Phillips Mr. Phillips, age 57, has served as Executive Vice President since August 2000. Mr. Phillips rejoined the Company on January 10, 2000 as Vice President- Operations. From September, 1999 through January, 2000 Mr. Phillips served as a Consultant and Assistant to the President at United Container Machinery, Inc. From 1983 through 1999 Mr. Phillips held various positions with the Company; Executive Vice President - Operations from June 1998 through April 1999, Vice President - Materials from March 1996 to June 1998, Director of Materials from 1986 to 1996, Manufacturing Manager from June 1986 to October 1986 and Materials Manager from 1983 to 1986. Timothy W. Sullivan Mr. Sullivan, age 49, has served as President and Chief Operating Officer of the Company since August 2000. Mr. Sullivan rejoined the Company on January 17, 2000 as Executive Vice President. From January 1999 through December 1999 Mr. Sullivan served as President and Chief Executive Officer of United Container Machinery, Inc. From 1986 through 1998 Mr. Sullivan held various positions with the Company; Executive Vice President - Marketing from June 1998 through December 1998, Vice President Marketing and Sales from April 1995 through May 1998, 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. Mr. Sullivan has been a director of the Company since August 2000. ITEM 11. EXECUTIVE COMPENSATION Compensation of Directors Directors of the Company are not compensated for their service as directors, except Mr. Purdum who is paid $12,500 per month, regardless of whether meetings are held or the number of meetings held, and Mr. Ewing who is paid an annual fee of $25,000. Directors are reimbursed for out-of-pocket expenses. Summary Compensation Table The following table sets forth certain information for each of the last three fiscal years concerning compensation awarded to, earned by or paid to each person who served as the Company's Chief Executive Officer during fiscal 2002 and each of the four most highly compensated executive officers other than the Chief Executive Officer who were in office on December 31, 2002. The persons named in the table are sometimes referred to herein as the "named executive officers".
Long-Term Annual Compensation Compensation(1) Awards Securities All Other Name and Underlying Compensation Principal Position Year Salary($) Bonus($) Options(#) ($)(2) Theodore C. Rogers (3) 2002 - - - - Chief Executive Officer 2001 - - - - 2000 - - - - Frank P. Bruno 2002 $144,089 $ 58,183 - $ 6,248 Vice President- 2001 138,150 39,690 11,974 5,721 Human Resources 2000 133,602 26,578 - 4,651 Craig R. Mackus 2002 163,212 66,411 - 6,730 Vice President-Finance 2001 154,728 44,580 13,408 5,666 and Secretary 2000 148,902 29,768 - 4,905 Thomas B. Phillips(4) 2002 221,279 129,108 - 7,399 Executive Vice 2001 207,004 85,862 35,850 6,546 President 2000 185,001 56,250 - 94,653 Timothy W. Sullivan(5) 2002 379,173 640,000 - 6,310 President and Chief 2001 329,169 240,000 71,700 6,060 Operating Officer 2000 259,126 200,000 - 120,234 _______________ (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) "All Other Compensation" includes the following: (i) the employer match under the Company's 401(k) savings plan for 2002, 2001 and 2000, respectively: Mr. Bruno ($5,513, $4,575 and $3,990), Mr. Mackus ($6,000, $5,250 and $4,467), Mr. Phillips ($6,000, $5,250 and $5,250), and Mr. Sullivan ($5,500, $5,250 and $5,250); (ii) imputed income from life insurance for 2002, 2001 and 2000, respectively: Mr. Bruno ($735, $1,146 and $661), Mr. Mackus ($730, $416 and $438), Mr. Phillips ($1,399, $1,296 and $1,374) and Mr. Sullivan ($810, $810 and $742); (iii) relocation allowance paid to Mr. Sullivan for 2000 ($114,242); (iv) supplemental pension payment to Mr. Phillips for 2000 ($85,000) and severance of $3,029 paid before his return to the Company in January 2000. (3) Mr. Rogers became the Chief Executive Officer on December 23, 1999. No compensation has been paid to Mr. Rogers during his tenure as Chief Executive Officer. (4) Mr. Phillips rejoined the Company in January 2000 as Vice President - Operations. (5) Mr. Sullivan rejoined the Company in January 2000 as Executive Vice President.
1998 Management Stock Option Plan On March 17, 1998, the Board adopted the 1998 Management Stock Option Plan (the "1998 Option Plan") as part of the compensation and incentive arrangements for certain management employees of the Company and its subsidiaries. The 1998 Option Plan provides for the grant of stock options to purchase up to an aggregate of 200,000 shares of common stock of the Company at exercise prices to be determined in accordance with the provisions of the 1998 Option Plan. Other than options granted on August 1, 2001, all other options granted under the 1998 Option Plan are targeted to vest on the last day of the plan year at the rate of 25% of the aggregate number of shares of common stock underlying each series of options per year, provided that the Company attained a specified target of EBITDA in that plan year. In the event that the EBITDA goal is not attained in any plan year, the options scheduled to vest at the end of that plan year will vest according to a pro rata schedule set forth in the 1998 Option Plan, provided that if less than 90% of the EBITDA goal is achieved, then no portion of the options shall vest at the end of that plan year. In the event that the EBITDA goal is surpassed in any plan year, the surplus shall be applied first to offset any EBITDA deficit from prior plan years, and second to accelerate vesting of up to one-quarter of the options scheduled to vest in 2001 according to a pro rata schedule set forth in the 1998 Option Plan. Options granted under the 1998 Option Plan on August 1, 2001 are targeted to vest at the rate of 25% of the total option shares covered by the grant per year for the four (4) years subsequent to the date of the grant. A total of 33,234 of the options granted under the 1998 Option Plan have vested as of the date of this report. Notwithstanding the foregoing, all options granted under the 1998 Option Plan shall vest automatically on the ninth anniversary of the date of the grant, regardless of performance criteria or, in the event of a Company Sale (as defined in the 1998 Option Plan), immediately prior to such sale provided such sale occurs prior to the fourth anniversary of the grant of options. Options granted pursuant to the 1998 Option Plan may be forfeited or repurchased by the Company at fair value, as defined, 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. The information in the following table is presented as of December 31, 2002 with respect to shares of the Company's Common Stock that may be issued pursuant to the 1998 Option Plan, which was not approved by the Company's shareholders: (a) (b) (c) Number of Securities Remaining Number of Available for Securities to Future Issuance be Issued Upon Weighted-Average Under Equity Exercise of Exercise Price Compensation Outstanding of Outstanding Plans (Excluding Options, Options, Securities Warrants and Warrants and Reflected in Plan Category Rights Rights Column (a)) Equity compensation plans approved by shareholders 199,500 $ 28.84 500 Equity compensation plans not approved by shareholders N/A N/A N/A _______ _______ ___ Total 199,500 $ 28.84 500 Additional information about the 1998 Option Plan is set forth in Note H to the Company's audited financial statements appearing in this Report. Option Grants Table There were no options granted to the named executive officers in 2002 under the Company's 1998 Option Plan. Aggregate Option Exercises in 2002 and Year-End Option Values The following table sets forth information regarding the exercise of stock options by each of the named executive officers during 2002 and the fiscal year-end value of the unexercised stock options held by such officers.
Value of Unexercised Number of Securities In-The-Money Shares Underlying Unexercised Options at End of Acquired Options at End of Fiscal Year 2002 (1) On Value Fiscal Year 2002 (#) ($) Exercise Realized Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable T. C. Rogers 0 N/A 0 0 0 0 F. P. Bruno 0 N/A 2,994 15,080 0 0 C. R. Mackus 0 N/A 3,352 17,556 0 0 T. B. Phillips 0 N/A 8,963 26,887 0 0 T. W. Sullivan 0 N/A 17,925 53,775 0 0 (1) Substantially all of the Company's common stock is owned by Holdings and there is no established public trading market therefor. Under the 1998 Option Plan, the fair value of a share of common stock is established by the board of directors as the price at which the Company will buy or sell its common stock. The fair value as of December 31, 2002, as so established, was $1 per share, which is equal to or less than the stock option exercise price for all of the options listed in the above table. Accordingly, none of the options listed in the above table was "in-the-money" on December 31, 2002.
Defined Benefit Pension Plan The Company maintains a defined benefit pension plan (the "Pension Plan") for salaried employees, including certain of the named executive officers. Defined Benefit Formula Historically, the Pension Plan used a Defined Benefit Formula to determine the annual benefits payable to employees upon normal retirement age. 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 upon retirement at normal retirement age for the years of service and the average annual earnings indicated under the defined benefit formula. 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 Cash Balance Formula Effective January 1, 2000, the Pension Plan was converted to a cash balance formula for all employees except for those who, on December 31, 1999, were either age 60 and above or age 55 with 10 years or more years of credited service. The actuarial equivalent of benefits earned as of December 31, 1999 was used to establish an opening account balance. Each month a percentage of the employee's earnings is credited to the account in accordance with the following table: Service at the Beginning of Year Pay Credits Less than 5 4.0% 5 but less than 10 4.5% 10 but less than 15 5.0% 15 but less than 20 5.5% 20 but less than 25 6.0% 25 but less than 30 6.5% 30 or more 7.0% In addition, employees hired prior to January 1, 1999 receive transition pay-based credits of 1.5% to 2.5% for the next five years. Each account is also credited with interest using the average annual rate of U.S. 30-year Treasury Securities for the November preceding the plan year. Upon termination of employment, the employee may receive benefits in the form of a lump sum equal to the value of the cash balance account or a monthly annuity equal to the actuarial equivalent of the cash account balance. General Covered compensation for purposes of the 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. Supplemental Plan 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 a supplemental plan which authorizes 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. Mr. Rogers does not participate in the Pension Plan. Mr. Bruno's benefits under the Pension Plan will be determined under the Defined Benefit Formula described above. The years of credited service under the Pension Plan for Mr. Bruno is five (5). The Pension Plan benefits payable to Messrs. Mackus, Phillips and Sullivan will be determined under the cash balance formula described above. The years of credited service under the Pension Plan for Messrs. Mackus, Phillips and Sullivan are 23, 26 and 23, respectively. The estimated annual benefits payable under the Pension Plan at normal retirement age (as determined under the Pension Plan) to Messrs. Mackus, Phillips and Sullivan are $80,047, $65,194 and $78,036, respectively. In making these estimates, the assumtions were (i) that 2002 pay remains level to normal retirement age; (ii) that the 2002 compensation limit of $200,000 remains level to normal retirement age; (iii) that the interest crediting rate for all years is 5.12% - the November, 2001 30-year Treasury rate, which is the rate used for the 2002 plan year; and the projected cash balance at normal retirement age was converted to an annuity using an interest rate of 5.12% and the 1983 Group Annuity Mortality Table for Males and Females. Board Compensation Report on Executive Compensation The Board is responsible for the compensation packages offered to the Company's executive officers, including the Chief Executive Officer (the "CEO") and the named executive officers. Executive Compensation The Board, in consultation with the CEO, establishes base salaries for the executive officers of the Company which the Company believes are commensurate with their respective responsibilities, position and experience. Consideration is also given to the compensation levels of similarly situated personnel of other companies in the industry where such information is available. When making adjustments in base salaries, the Board generally considers the foregoing factors as well as corporate financial performance. In individual cases where appropriate, the Board also considers nonfinancial performance measures, such as increases in market share, manufacturing efficiency gains, improvements in product quality and improvements in relations with customers, suppliers and employees. Executive officers' base salaries are reviewed annually. The Board generally begins its review by analyzing the current base salaries of the executive officers. Based on such review, the corporate performance of the Company, the individual contributions of the executive officers, and the factors discussed above, the Board will approve such compensation. Executive officers and other Company employees participated in the 2002 Management Incentive Plan. Under the 2002 Management Incentive Plan, the Board established a management incentive budget based on achievement in several critical areas that combine to determine the overall Company performance and in consultation with the CEO, established target incentive bonus percentages of between 10% and 50% of base salary for executive officers (other than the CEO, who is not a participant) and certain employees. These targeted percentages were adjustable pursuant to a formula based on a range of values whereby the target incentive bonus percentage would be zero (and no bonuses would be paid) if actual achievement was less than 80% of budgeted goals, and a maximum bonus of two times the target incentive bonus percentage would be paid if actual achievement was 120% or more of budgeted goals. In 2002, the Company's actual achievement in certain categories did meet or exceed budgeted goals, and bonuses were awarded under this plan. Chief Executive Officer Compensation Mr. Rogers does not receive any compensation directly from the Company. Internal Revenue Code Section 162(m) Under Section 162(m) of the Internal Revenue Code, the tax deduction by certain corporate taxpayers, such as the Company, is limited with respect to compensation paid to certain executive officers unless such compensation is based on performance objectives meeting specific regulatory criteria or is otherwise excluded from the limitation. Where practical, the Board intends to qualify compensation paid to the Company's executive officers in order to preserve the full deductibility thereof under Section 162(m), although the Board reserves the right in individual cases to cause the Company to enter into compensation arrangements which may result in some compensation being nondeductible under Code Section 162(m). BOARD OF DIRECTORS OF BUCYRUS INTERNATIONAL, INC. W. Richard Bingham Wayne T. Ewing Willard R. Hildebrand Kim A. Marvin Robert L. Purdum Theodore C. Rogers Timothy W. Sullivan ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial owners of more than five percent of the Company's common stock as of March 26, 2003: Amount and Nature Name and Address of of Beneficial Ownership Percent of Class Beneficial Owner (# of Shares) Class Bucyrus Holdings, LLC 1,430,300 99.6% One Maritime Plaza Suite 2525 San Francisco, CA 94111 The following table sets forth the beneficial ownership of the Company's common stock by each director, each of the named executive officers and by all directors and executive officers of the Company as a group as of March 26, 2003: Amount and Nature Name of of Beneficial Ownership (1) Percent of Class Beneficial Owner (# of Shares) Class (2) W. R. Bingham 0 (3) * W. T. Ewing 0 * W. R. Hildebrand 4,000 * K. A. Marvin 0 (3) * R. L. Purdum 0 (3) * T. C. Rogers 0 (3) * F. P. Bruno 300 * C. R. Mackus 500 * T. B. Phillips 0 * T. W. Sullivan 0 * All directors and executive officers as a group (11 persons) 4,800 * (1) Amounts indicated reflect shares as to which the beneficial owner possesses sole voting and dispositive powers. (2) Asterisk denotes less than 1%. (3) Messrs. Bingham and Rogers are members of Holdings which is the beneficial owner of 1,430,300 shares of common stock of the Company. Messrs. Marvin and Purdum are managing directors of American Industrial Partners Corporation, Holdings' general partner. Messrs. Bingham, Marvin, Purdum and Rogers each disclaim beneficial ownership of all such shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Employment Agreements The Company has employment agreements with certain 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 Mr. Hildebrand was entitled to participate in the Company's retirement programs. Under the retirement programs, Mr. Hildebrand is entitled to receive a retirement amount equal to the non-vested accrued portion of the benefit from the Company's salaried employee retirement benefit plan and supplemental retirement benefit plan. In 2002, Mr. Hildebrand received payments totalling $19,957 under these retirement programs. In addition, 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 1998 Option Plan. Mr. Sullivan In August 2000, the Company entered into an agreement with Mr. Sullivan to serve as President of the Company. Simultaneous with that agreement, Mr. Sullivan was elected to the Board of Directors and assumed the additional position as Chief Operating Officer. The agreement provides for a base salary which is subject to increase at the discretion of the Board. Mr. Sullivan is eligible to participate in the 2002 Management Incentive Plan and is the only named executive officer to participate in the Company's Incentive Program for Sales and Marketing Personnel, pursuant to which Mr. Sullivan will be entitled to receive a bonus based on the outcome of sales of machines and parts. In addition, Mr. Sullivan is entitled to participate in employee and fringe benefit plans that the Company provides to similarly situated management employees. Others Messrs. Bruno and Mackus each serve under one-year employment agreements with the Company dated December 1, 1997 and May 21, 1997, respectively. 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. On March 5, 2002, the Company entered into a Termination Benefit Agreement with Mr. Phillips which is intended to provide benefits to the executive only in the event of a change of control or ownership of the Company or any of its subsidiaries prior to December 31, 2005. Consulting Agreement On January 1, 2002, the Company entered into a new one year Consulting Agreement with Mr. Ewing which renews automatically for an additional twelve (12) months unless either party gives sixty (60) days prior written notice of termination. The Consulting Agreement with Mr. Ewing provides for Mr. Ewing to perform certain consulting assignments for the Company at a rate of $1,500 per day plus reimbursement of reasonable expenses. During the term of the Consulting Agreement, Mr. Ewing will be entitled to receive bonuses for the sale of Company machines into the North American coal industry. In addition, Mr. Ewing will be entitled to a bonus if the incremental standard parts margin generated on Company parts sales to the North American coal industry in each calendar year are above an established base. Management Services Agreement American Industrial Partners ("AIP") provides substantial ongoing financial and management services to the Company utilizing the extensive operating and financial experience of AIP's principals. Pursuant to a management services agreement among AIP, the Company and the Guarantor Subsidiaries, AIP provides general management, financial and other corporate advisory services to the Company for an annual fee of $1,450,000 and is reimbursed for out-of-pocket expenses. Payment of a substantial portion of this fee has been deferred and is subordinated in right of payment to the Loan and Security Agreement. In 2002, $725,000 of fees was paid to AIP under this agreement. At December 31, 2002 and 2001, $5,089,000 and $4,364,000, respectively, of fees was payable to AIP under this agreement. PART IV ITEM 14. CONTROLS AND PROCEDURES The Company has established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the financial reports and to other members of senior management and the Board of Directors. Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the principal executive officer and principal financial officer of the Company have concluded that the disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their most recent evaluation. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Page No. (a) 1. FINANCIAL STATEMENTS Consolidated Statements of Operations for 28 the years ended December 31, 2002, 2001 and 2000. Consolidated Statements of Comprehensive Loss 29 for the years ended December 31, 2002, 2001 and 2000. Consolidated Balance Sheets as of December 31, 30-31 2002 and 2001. Consolidated Statements of Common Shareholders' 32 Investment (Deficiency in Assets) for the years ended December 31, 2002 2001 and 2000. Consolidated Statements of Cash Flows for the 33-34 years ended December 31, 2002, 2001 and 2000. Notes to Consolidated Financial Statements 35-70 for the years ended December 31, 2002, 2001 and 2000. Report of Deloitte & Touche LLP 71 Report of Arthur Andersen LLP 72 2. FINANCIAL STATEMENT SCHEDULE Schedule II - Valuation and Qualifying 73 Accounts and Reserves All other schedules are omitted because they are inapplicable, not required by the instructions or the information is included in the consolidated financial statements or notes thereto. 3. EXHIBITS The exhibits listed in the accompanying Exhibit Index are filed as a part of this Annual Report on Form 10-K. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of 2002. 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/ T. C. Rogers March 27, 2003 Theodore C. Rogers, Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints T. C. Rogers and C. R. Mackus, 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 24, 2003 W. Richard Bingham, Director /s/ Wayne T. Ewing March 24, 2003 Wayne T. Ewing, Director /s/ W. R. Hildebrand March 24, 2003 Willard R. Hildebrand, Director /s/ Kim A. Marvin March 28, 2003 Kim A. Marvin, Director /s/ Robert L. Purdum March 24, 2003 Robert L. Purdum, Director /s/ T. C. Rogers March 27, 2003 Theodore C. Rogers, Director /s/ T. W. Sullivan March 24, 2003 Timothy W. Sullivan, Director /s/ Craig R. Mackus March 24, 2003 Craig R. Mackus, Vice President-Finance and Secretary (Principal Accounting and Financial Officer) CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT I, Theodore C. Rogers, certify that: 1. I have reviewed this Annual Report on Form 10-K of Bucyrus International, Inc. 2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the "Evaluation Date"); and c) presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/Theodore C. Rogers Theodore C. Rogers Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT I, Craig R. Mackus, certify that: 1. I have reviewed this Annual Report on Form 10-K of Bucyrus International, Inc. 2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the "Evaluation Date"); and c) presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 24, 2003 /s/Craig R. Mackus Craig R. Mackus Vice President-Finance and Secretary SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT The Registrant does not furnish an annual report or proxy soliciting material to its security holders. BUCYRUS INTERNATIONAL, INC. EXHIBIT INDEX TO 2002 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 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 11 on Form 8-K, of the Bankruptcy Code, as filed with the modified December 1, 1994, Commission and including Exhibits. dated December 1, 1994. 2.4 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 11 1994. of the Bankruptcy Code, as modified December 1, 1994, including Exhibits. 3.1 Restated Certificate Exhibit 3.6 to of Incorporation of Registrant's Registrant. Annual Report on Form 10-K for the year ended December 31, 1998. 3.2 By-laws of Registrant. Exhibit 3.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. 3.3 Certificate of Amendment Exhibit 3.3 to Certificate of to Registrant's Formation of Bucyrus Quarterly Report Holdings, LLC, effective on Form 10-Q March 25, 1999. filed with the Commission on May 15, 2000. 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) (a) Letter dated Exhibit 4.1(a) February 15, 2000 to Registrant's evidencing change of Quarterly Report Indenture Trustee. on Form 10-Q filed with the Commission on November 6, 2000. 4.2 Form of Guarantee of Included as Boonville Mining Services, Exhibit E Inc., Minserco, Inc. and to Exhibit 4.1 Von's Welding, Inc. dated above. as of September 24, 1997 in favor of Harris Trust and Savings Bank as Trustee under the Indenture. 4.3 Form of Registrant's Exhibit 4.3 to 9-3/4% Senior Note due 2007. Registration Statement on Form S-4 of Registrant, Boonville Mining Services, Inc., Minserco, Inc. and Von's Welding, Inc. (SEC Registration No. 333-39359) 10.1 Credit Agreement, dated Exhibit 10.1 to September 24, 1997 between Registrant's Bank One, Wisconsin and Current Report Registrant. on Form 8-K filed with the Commission on October 10, 1997. (a) First amendment dated Exhibit 10.1(a) July 21, 1998 to Credit to Registrant's Agreement. Quarterly Report on Form 10-Q filed with the Commission on November 16, 1998. (b) Second amendment dated Exhibit 10.1(b) September 30, 1998 to to Registrant's Credit Agreement. Annual Report on Form 10-K for the year ended December 31, 1998. (c) Third amendment dated Exhibit 10.1(c) April 20, 1999 to Credit to Registrant's Agreement. Quarterly Report on Form 10-Q filed with the Commission on August 12, 1999. (d) Fourth amendment dated Exhibit 10.1(a) September 30, 1999 to to Registrant's Credit Agreement. Quarterly Report on Form 10-Q filed with the Commission on November 12, 1999. (e) Fifth amendment dated Exhibit 10.1(e) March 14, 2000 to Credit to Registrant's Agreement. Annual Report on Form 10-K for the year ended December 31, 1999. (f) Sixth amendment dated Exhibit 10.1(f) September 8, 2000 to Credit to Registrant's Agreement. Quarterly Report on Form 10-Q filed with the Commission on November 6, 2000. (g) Seventh amendment dated Exhibit 10.1(g) March 20, 2001 to Credit to Registrant's Agreement. Annual Report on Form 10-K for the year ended December 31, 2000. (h) Eighth amendment dated Exhibit 10.1(h) January 4, 2002 to Credit to Registrant's Agreement. Annual Report on Form 10-K for the year ended December 31, 2001. (i) Ninth amendment dated Exhibit 10.1(i) January 22, 2002 to Credit to Registrant's Agreement. Annual Report on Form 10-K for the year ended December 31, 2001. 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) 10.4 Employment Agreement Exhibit 10.17 to between Registrant and Registrant's C. R. Mackus dated as of Quarterly Report May 21, 1997. on Form 10-Q for the quarter ended June 30, 1997. 10.5 Annual Management Incentive Exhibit 10.14 to Plan for 1997, adopted by Registrant's Board of Directors Annual Report on February 5, 1997. Form 10-K for the year ended December 31, 1997. 10.6 1998 Management Stock Option Exhibit 10.17 to Plan. Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. 10.7 Employment Agreement Exhibit 10.18 to between Registrant and Registrant's F. P. Bruno dated as of Annual Report on December 1, 1997. Form 10-K for the year ended December 31, 1998. 10.8 Consulting Agreement Exhibit 10.19 between Registrant and to Registrant's Wayne T. Ewing dated Annual Report on February 1, 2000. Form 10-K for the year ended December 31, 1999. 10.9 Letter Agreement Exhibit 10.7 between Registrant and to Registrant's T. W. Sullivan Quarterly Report dated August 8, 2000. on Form 10-Q filed with the Commission on August 14, 2000. 10.10 Agreement of Debt Exhibit 10.21 Conversion between to Registrant's Registrant and Annual Report on Bucyrus Holdings, LLC Form 10-K for dated March 22, 2001. the year ended December 31, 2000. 10.11 Consulting Agreement Exhibit 10.8 between Registrant and to Registrant's Willard R. Hildebrand Quarterly Report dated July 25, 2001. on Form 10-Q filed with the Commission on November 14, 2001. 10.12 Agreement to Purchase and Exhibit 10.18 Sell Industrial Property to Registrant's between Registrant and Annual Report on InSite Real Estate Form 10-K for Development, L.L.C. the year ended dated October 25, 2001. December 31, 2001. 10.13 Industrial Lease Agreement Exhibit 10.19 between Registrant and to Registrant's InSite South Milwaukee, L.L.C. Annual Report on dated January 4, 2002. Form 10-K for the year ended December 31, 2001. 10.14 Termination Benefits Agreement Exhibit 10.20 between Registrant and to Registrant's John F. Bosbous dated Annual Report on March 5, 2002. Form 10-K for the year ended December 31, 2001. 10.15 Termination Benefits Agreement Exhibit 10.21 between Registrant and to Registrant's Thomas B. Phillips dated Annual Report on March 5, 2002. Form 10-K for the year ended December 31, 2001. 10.16 Loan and Security Agreement Exhibit 10.22 by and among Registrant, to Registrant's Minserco, Inc., Boonville Annual Report on Mining Services, Inc. and Form 10-K for GMAC Business Credit, LLC, the year ended and Bank One, Wisconsin dated December 31, 2001. March 7, 2002. (a) First amendment dated X December 31, 2002 to Loan and Security Agreement. (b) Second amendment dated X January 9, 2003 to Loan and Security Agreement. (c) Letter agreement as of X December 31, 2002 to Loan and Security Agreement. 10.17 Board of Directors X Resolution dated December 16, 1998 amending the 1998 Management Stock Option 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) 99.1 Letter from Registrant Exhibit 99.1 to Securities and to Registrant's Exchange Commission Annual Report on dated March 27, 2002 Form 10-K for with respect to the year ended representations December 31, 2001. received from Arthur Andersen LLP.