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, 2001
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 ]
As of March 25, 2002, 1,435,600 shares of common stock of the Registrant
were outstanding. Of the total outstanding shares of common stock on
March 25, 2002, 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 somewhat cyclical in nature due to market fluctuations for
these commodities; however, the aftermarket for parts and services is more
stable because these expensive, complex machines are typically kept in
continuous operation for 15 to 30 years and require regular maintenance and
repair throughout their productive lives.
The largest markets for this mining equipment have been in Australia,
Canada, China, India, South Africa, South America and the United States.
Together, these markets typically account for approximately 90% of all new
machines sold, although in any given year markets in other 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 the mining of coal, iron ore, oil
sands and copper throughout the world. Until the late 1980's, coal mining
accounted for the largest percentage of industry demand for the Company's
machines, and it continues to be one of the largest users of replacement parts
and services. In recent years, however, copper and oil sands mining
operations have accounted for an increasingly greater share of new machine
sales.
Copper. The copper industry has seen a consolidation of large
producers in recent years. To balance supply against demand, 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 rise in 2002 and 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 with varying degrees of success between 1973 and 1993. 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 as low as
$10. Clearly 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
there are two new "greenfield" operations in various phases of
construction. 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 the mining of coal to shift from east of the Mississippi River to
the Powder River Basin in the west, where the sulfur content is much
lower providing a cleaner burning coal. This has resulted in the closing
of many mines and idling most of the equipment. Some draglines and
electric mining shovels have been employed in the western mines. The
demand for coal is improving due to increases in the price of oil and
natural gas in recent years. This improved demand has resulted in price
increases for coal.
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. Demand for iron ore has declined
recently due to a decrease in steel prices.
The Company's excavation machines are used for land reclamation as well
as for mining, which has a positive effect on the demand for its products and
replacement parts and expands the Company's potential customer base. Current
federal and state legislation regulating surface mining and reclamation may
affect some of the Company's customers, principally with respect to the cost
of complying with, and delays resulting from, reclamation and environmental
requirements.
OEM Products
The Company's line of original equipment manufactured products includes a
full range of rotary blasthole drills, electric mining shovels and draglines.
Rotary Blasthole Drills. Most surface mines require breakage or
blasting of rock, overburden, or ore by explosives. To accomplish this,
it is necessary to bore out a pattern of holes into which the explosives
are placed. Rotary blasthole drills are used to drill these holes and
are usually described in terms of the diameter of the hole they bore.
The average life of a blasthole drill is 15 to 20 years.
The Company offers a line of rotary blasthole drills ranging in hole
diameter size from 9.0 inches to 17.5 inches and ranging in price from
approximately $1,500,000 to $2,800,000 per drill, depending on machine
size and variable features.
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. Its use is determined by size of operation and the
availability of electricity. The Company manufactures only electric
mining shovels. The average life of an electric mining shovel is 15 to
20 years.
Mining shovels are characterized in terms of weight and dipper
capacity. The Company offers a full line of electric mining shovels,
weighing from 400 to 1,400 tons and having dipper capacities from 12 to
90 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 larger 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.
Acquisitions
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 services a large number of customers in the pulp and paper,
sawmill, oil and natural gas industries in Western Canada, the Northwest
Territories and the Yukon. The company provides design and manufacturing
services, as well as in-house and field repair and testing of electrical and
mechanical equipment. Bennett & Emmott also distributes compressors,
generators and related products. This acquisition strengthened the Company's
position in the oil sands area of Western Canada.
On August 26, 1997, the Company consummated the acquisition (the "Marion
Acquisition") of certain assets and liabilities of The Marion Power Shovel
Company, a subsidiary of Global Industrial Technologies, Inc. ("Global"), and
of certain subsidiaries and divisions of Global that represented Global's
surface mining equipment business in Australia, Canada and South Africa
(collectively referred to herein as "Marion"). The cash purchase price for
Marion was $36,720,000, which includes acquisition expenses of $1,695,000.
On August 21, 1997, the Company entered into an Agreement and Plan of
Merger (the "AIP Agreement") with Holdings and Bucyrus Acquisition Corp.
("BAC"), a wholly-owned subsidiary of Holdings. On August 26, 1997, pursuant
to the AIP Agreement, BAC commenced an offer to purchase for cash 100% of the
outstanding shares of common stock of the Company at a price of $18.00 per
share (the "AIP Tender Offer"). Consummation of the AIP Tender Offer occurred
on September 24, 1997, and BAC was merged with and into the Company on
September 26, 1997 (the "AIP Merger"). The Company was the surviving entity
in the AIP Merger. The purchase of the Company's outstanding shares of common
stock by Holdings resulted in a change in control of voting interest.
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
2001, 2000 and 1999, one customer accounted for approximately 11%, 11% and
16%, 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, and to a lesser extent through a northern Minnesota
distributor who supplies customers in the iron ore mining regions of the Upper
Midwest. Outside of the United States, new equipment is sold by Company
personnel, through independent distributors and through the Company's
subsidiaries and offices located in 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 distributors, 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 on a percentage of completion basis such that a
substantial portion of the purchase price is received by the time shipment is
made to the customer. Sales contracts for machines are predominantly at fixed
prices, with escalation clauses in certain cases. Most sales of replacement
parts call for prices in effect at the time of order. During 2001, 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 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, totaled
$209,108,000 in 2001, $213,972,000 in 2000 and $250,735,000 in 1999.
Approximately $201,872,000 or 88% of the Company's backlog of firm orders at
December 31, 2001 represented orders for export sales compared with
$148,258,000 or 90% at December 31, 2000 and $165,762,000 or 89% at
December 31, 1999.
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, Morocco
and Russia. In recent years, Australia and South Africa have emerged as
strong producers of metallurgical 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 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 Joy Global, Inc., although electric mining shovels also compete
against hydraulic shovels of which there are at least five other
manufacturers. In rotary blasthole drills, the Company competes with at least
three other manufacturers, including Joy Global, Inc. Methods of competition
are diverse and include product design and performance, service, delivery,
application engineering, pricing, financing terms and other commercial
factors.
For most owners of the Company's machines, the Company is the primary
replacement source for large, heavily engineered, integral components;
however, the Company encounters intense competition for sales of smaller, less
sophisticated, consumable replacement parts and repair services in certain
markets. The Company's competition in parts sales consists primarily of
smaller independent firms called "will-fitters" that produce copies of the
parts manufactured by the Company and other original equipment manufacturers.
These copies are generally sold at lower prices than genuine parts produced by
the manufacturer. Outside North America, customers mainly rely upon the
Company's subsidiaries, distributors or direct sales from the United States
for aftermarket parts and services.
The Company has a variety of programs to attract large volume customers
for its replacement parts. Although will-fitters engage in significant price
competition in parts sales, the Company possesses clear non-price advantages
over will-fitters. The Company's engineering and manufacturing technology and
marketing expertise exceed that of its will-fit competitors, who are in many
cases unable to duplicate the exact specifications of genuine Bucyrus parts.
Moreover, use of parts not manufactured by the Company can void the warranty
on a new Bucyrus machine, which generally runs for one year on new equipment,
with certain components being warranted for longer periods.
Raw Materials and Supplies
The Company purchases from outside vendors the semi- and fully-processed
materials (principally structural steel, castings and forgings) required for
its manufacturing operations, and other items, such as electrical equipment,
that are incorporated directly into the end product. The Company's foreign
subsidiaries purchase components and manufacturing services both from local
subcontractors and from the Company. Certain additional components are
sometimes purchased from subcontractors, either to expedite delivery schedules
in times of high demand or to reduce costs. Moreover, in countries where
local content preferences or requirements exist, local subcontractors are used
to manufacture a substantial portion of the components required in the
Company's foreign manufacturing operations. Although the Company is not
dependent upon any single supplier, there can be no assurance that the Company
will continue to have an adequate supply of raw materials or components
necessary to enable it to meet the demand for its products. Competitors are
believed to be subject to similar conditions.
Manufacturing
A substantial portion of the design, engineering and manufacturing of the
Company's machines is done at the Company's South Milwaukee, Wisconsin plant.
The size and weight of these mining machines dictates that the machines be
shipped to the job site in sub-assembled units where they are assembled for
operation with the assistance of Company technicians. Planning and on-site
coordination of machine assembly is a critical component of the Company's
service to its customers. Moreover, to reduce lead time and 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 and 15 to 20 years
for electric mining shovels and blasthole drills. Parts sales and aftermarket
services comprise a substantial portion of the Company's net sales.
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 $229,752,000 at December 31, 2001 and
$164,408,000 at December 31, 2000. Approximately 53% of the backlog at
December 31, 2001 is not expected to be filled during 2002.
Inventories
Inventories at December 31, 2001 were $102,008,000 compared with
$101,126,000 at December 31, 2000. At December 31, 2001 and December 31,
2000, finished goods inventory (primarily replacement parts) totalled
$75,525,000 and $75,924,000, 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
$5,900,000 in 2001, $7,299,000 in 2000 and $7,646,000 in 1999. 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, 2001, 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 four-year contract with the union
representing hourly workers at the Memphis, Tennessee facility expire in
April, 2005 and August, 2002, respectively.
Seasonal Factors
The Company does not consider a material portion of its business to be
seasonal.
ITEM 2. PROPERTIES
The Company's principal manufacturing plant in the United States is
located in South Milwaukee, Wisconsin. 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 ranging from $300,000 to $3,000,000, and has various limits of
liability depending on the insurance policy year in question. It is the view
of management that the final resolution of said claims and other similar
claims which are likely to arise in the future will not individually or in the
aggregate have a material effect on the Company's financial position or
results of operations, although no assurance to that effect can be given.
To the date of this Report, the Company has been named as a co-defendant
in 275 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 or results of operations, although no assurance
to that effect can be given.
Environmental and Related Matters
The Company's operations and properties are subject to a broad range of
federal, state, local and foreign laws and regulations relating to
environmental matters, including laws and regulations governing discharges
into the air and water, the handling and disposal of solid and hazardous
substances and wastes, and the remediation of contamination associated with
releases of hazardous substances at Company facilities and at off-site
disposal locations. These laws are complex, change frequently and have tended
to become more stringent over time. Future events, such as compliance with
more stringent laws or regulations, more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
could require additional expenditures by the Company, which may be material.
Certain environmental laws, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), provide for
strict, joint and several liability for investigation and remediation of
spills and other releases of hazardous substances. Such laws may apply to
conditions at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which wastes or
other contamination attributable to an entity or its predecessors come to be
located.
The Company was one of 53 entities named by the United States
Environmental Protection Agency ("EPA") as potentially responsible parties
("PRPs") with regard to the Millcreek dumpsite, located in Erie County,
Pennsylvania, which is on the National Priorities List of sites for cleanup
under CERCLA. The Company was named as a result of allegations that it
disposed of foundry sand at the site in the 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. Final remedial work in the form of the installation of a
municipal golf course as cover is substantially complete and is expected to be
fully performed in 2002. The remaining parties have shared such cost per
capita to date but such cost may be subject to reallocation before the
conclusion of the case. 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, 2001, 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 or results of operations, although no assurance
can be given to that effect.
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 or
results of operations. 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 or results of operations,
although no assurance to that effect can be given.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 2001.
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
Predecessor
September 24- January 1-
Years Ended December 31, December 31, September 23,
2001 2000 1999 1998 1997 1997(a)
(Dollars In Thousands, Except Per Share Amounts)
Consolidated Statements
of Operations Data:
Net sales $290,576 $280,443 $318,635 $315,838 $ 95,212 $211,465
Net earnings (loss) $(10,463) $(32,797) $(22,575) $ (8,264) $ (7,158) $ (4,874)
Net earnings (loss)
per share of
common stock (b):
Basic $ (7.29) $ (22.76) $ (15.65) $ (5.75) $ (5.00) $ (.48)
Diluted $ (7.29) $ (22.76) $ (15.65) $ (5.75) $ (5.00) $ (.47)
Adjusted
EBITDA (c) $ 31,236 $ 9,583 $ 20,742 $ 35,967 $ 9,936 $ 18,704
Cash dividends per
common share $ - $ - $ - $ - $ - $ -
Consolidated Balance
Sheets Data:
Total assets $355,745 $367,766 $416,987 $417,195 $406,107 N/A
Long-term debt $222,188 $217,813 $214,009 $202,308 $174,612 N/A
(a) As a result of purchase accounting due to the acquisition of the Company by Holdings on September 24, 1997, the
financial statements of the Company subsequent to this date are not comparable to the financial statements of
the Predecessor.
(b) Net loss per share of common stock for the period September 24, 1997 to December 31, 1997 is calculated on a
retroactive basis to reflect a stock split on March 17, 1998.
(c) Earnings before interest expense, income taxes, depreciation, amortization, non-cash stock compensation, (gain)
loss on sale of fixed assets, loss on fixed asset impairment, nonrecurring items 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
On April 30, 1999, the Company's wholly-owned subsidiary, Bucyrus Canada
Limited, consummated the acquisition of certain assets of Bennett & Emmott.
The cash purchase price for Bennett & Emmott was $7,050,000, including
acquisition expenses. Bucyrus Canada Limited financed the Bennett and Emmott
acquisition and related expenses primarily by utilizing a new credit facility
with The Bank of Nova Scotia.
In connection with acquisitions involving the Company, 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, 2001, 2000 and 1999 were as
follows:
2001 2000 1999
(Dollars in Thousands)
Working capital $114,336 $101,342 $122,194
Current ratio 3.0 to 1 2.4 to 1 2.6 to 1
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 decrease in working capital and current ratio in
2000 was primarily due to a decrease in inventories as a result of the sale of
two stock shovels in the fourth quarter of 2000 and reduced finished parts
inventories.
The Company is presenting below a calculation of earnings (loss) before
interest expense, income taxes, depreciation, amortization, loss on sale of
fixed assets and loss on fixed asset impairment ("Adjusted EBITDA"). Since
cash flow from operations is very important to the Company's future, the
Adjusted EBITDA calculation provides a summary review of cash flow
performance. In addition, the Company is required to maintain certain minimum
EBITDA levels as defined under the 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,
2001 2000 1999
(Dollars in Thousands)
Loss before income taxes $ (7,053) $(29,732) $(20,196)
Depreciation 11,240 11,393 11,200
Amortization 5,414 5,821 5,648
Loss on sale of fixed
assets and loss on
fixed asset impairment(1) 750 7 4,392
Interest expense 20,885 22,094 19,698
________ ________ ________
Adjusted EBITDA(2)(3) $ 31,236 $ 9,583 $ 20,742
(1) The 1999 amount includes a fixed asset impairment charge of
$4,372,000 at the manufacturing facility in Boonville, Indiana.
(2) Adjusted EBITDA for the years ended December 31, 2001, 2000 and
1999 was reduced by restructuring charges of $899,000, $2,689,000 and
$1,212,000, respectively, primarily related to severance payments and related
matters.
(3) 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. The Loan and Security Agreement expires on January 2, 2003.
Outstanding borrowings 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. The Company must maintain at all times a minimum availability of
$5,000,000. 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. Proceeds from the Loan and
Security Agreement were used to repay in full all outstanding borrowings under
the Revolving Credit Facility and Bucyrus Canada Limited revolving term loan
(see below).
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 and 2000 were $63,100,000 and $64,450,000, respectively, at
a weighted average interest rate of 5.3% and 10.0%, respectively. At
December 31, 2001 and 2000, there were $1,200,000 and $12,391,000,
respectively, of standby letters of credit outstanding under all Company bank
facilities. The amount available for direct borrowings under the Revolving
Credit Facility at December 31, 2001 was $8,444,000, which was net of
$2,900,000 that was used for the March 15, 2002 interest payment on the Senior
Notes (see below). The Credit Agreement contained a number of financial
covenants and other covenants with respect to the Company's liquidity and
capital resources. At December 31, 2001, the Company was in compliance with
these covenants.
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. 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
agreement. At December 31, 2001 and 2000, $11,062,000 and $5,859,000,
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. 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.
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, 2001, the Company was in compliance with these
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.
In 1999, Bucyrus Canada Limited entered into a C$15,000,000 credit
facility with The Bank of Nova Scotia which was used to acquire certain assets
of Bennett & Emmott. The C$10,000,000 revolving term loan portion of this
facility incurred interest at the bank's prime lending rate plus 1.50%. The
amount outstanding under the revolving term loan portion was C$9,124,693 and
C$8,145,000 at December 31, 2001 and 2000, respectively. On March 7, 2002,
proceeds from the Loan and Security Agreement were used to repay The Bank of
Nova Scotia revolving term loan in full and this portion of the facility was
terminated. As a result, borrowings under the revolving term loan were
classified as long-term at December 31, 2001. The C$5,000,000 non-revolving
term loan portion is payable in monthly installments to 2004 and bears
interest at the bank's prime lending rate plus 2%. The amount outstanding
under the non-revolving term loan portion was C$3,960,000 and C$4,400,000 at
December 31, 2001 and 2000, respectively. This credit facility contains
covenants which, among other things, require Bucyrus Canada Limited to
maintain a minimum current ratio and tangible net worth. At December 31,
2001, Bucyrus Canada Limited was in compliance with these covenants.
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.
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, funds available from the Loan and Security Agreement
and funds received from the sale of shares in The Principal Financial Group
and sale and leaseback of the South Milwaukee land and buildings, 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 currently exploring additional financing
alternatives to extend or replace the Loan and Security Agreement.
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.
Capital Resources
At December 31, 2001, the Company had approximately $1,579,000 of open
capital appropriations. The Company's capital expenditures for the year ended
December 31, 2001 were $4,127,000 compared with $3,501,000 for the year ended
December 31, 2000. In the near term, the Company anticipates spending close
to current levels.
Capitalization
The long-term debt to equity ratio at December 31, 2001 and 2000 was
12.9 to 1 and 4.7 to 1, respectively. The increase in 2001 was primarily due
to the adjustment to record a minimum pension liability. Excluding this
adjustment, the long-term debt to equity ratio would have been 6.9 to 1. The
long-term debt to total capitalization ratio at December 31, 2001 and 2000 was
.9 to 1 and .8 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 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.
Net sales for 2000 were $280,443,000 compared with $318,635,000 for 1999.
Net sales of repair parts and services for 2000 were $211,518,000, which was
an increase of 3.5% from 1999. Net machine sales for 2000 were $68,925,000,
which was a decrease of 39.6% from 1999. The decrease in machine sales was
primarily due to low demand for new machines which the Company believes is
attributable to low mineral prices and to a reduction in dragline volume of
$22,911,000 as a result of the completion of a dragline in Australia in 1999.
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 2001 was $243,791,000 or 83.9% of net sales
compared with $239,134,000 or 85.3% of net sales for 2000 and $267,323,000 or
83.9% of net sales for 1999. The decrease in the cost of products sold
percentage for 2001 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 2001, 2000 and
1999 was $5,248,000, $5,038,000 and $4,856,000, 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 2001 were $42,095,000 or 14.5% of net sales compared with
$50,161,000 or 17.9% of net sales in 2000 and $53,631,000 or 16.8% of net
sales in 1999. Included in the amount for 2001 was $750,000 of losses on
disposals of fixed assets. Also, due to a reduction in new orders, the
Company has reduced a portion of its manufacturing production workforce
through layoffs and also reduced the number of its salaried employees. As a
result, restructuring charges of $899,000, $2,689,000 and $1,212,000 were
included in the amounts for 2001, 2000 and 1999, respectively. These charges
primarily related to severance payments and related matters. Included in
engineering and field service, selling, administrative and miscellaneous
expenses in 1999 was a fixed asset impairment charge of $4,372,000 related
primarily to the manufacturing facility in Boonville, Indiana, which saw
declining operating results in the second half of 1999 as volume declined.
The charge represents the difference between book value and estimated fair
value based on expected proceeds. In 2000, the Company closed its
manufacturing facility in Boonville, Indiana.
Interest Expense
Interest expense for 2001 was $20,885,000 compared with $22,094,000 for
2000 and $19,698,000 for 1999. The decrease in interest expense in 2001 was
primarily due to reduced interest rates on borrowings under the Revolving
Credit Facility. The increase in interest expense in 2000 compared to 1999
was primarily due to increased borrowings and higher interest rates under the
Revolving Credit Facility. Included in interest expense for 2001, 2000 and
1999 was $14,625,000 related to the Senior Notes. The interest expense in
2001 and 2000 on the Senior Notes includes $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 agreement.
Income Taxes
Income tax expense consists primarily of foreign taxes at applicable
statutory rates.
Net Loss
The net loss for 2001 was $10,463,000 compared with net losses of
$32,797,000 for 2000 and $22,575,000 for 1999. The improvement in 2001 was
due to the $8,704,000 of income from the sale of shares of The Principal
Financial Group and improvements in margin as a result of increased volume and
cost reduction efforts. The incremental loss for 2000 was primarily
attributable to lower volumes. Non-cash depreciation and amortization charges
were $16,654,000 in 2001 compared with $17,214,000 in 2000 and $16,848,000 in
1999.
New Orders and Backlog
New orders for 2001 were $355,920,000, which was an increase of 38.2%
from 2000. New machine orders for 2001 were $74,255,000, which was an
increase of 46.3% from 2000. The increase was in electric mining shovels.
New repair parts and service orders for 2001 were $281,665,000, which was an
increase of 36.2% from 2000. The increase for 2001 was primarily due to
orders received related to 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. While copper prices remain
at low levels compared to the mid 1990's, coal has maintained a higher price
compared with recent years.
The Company's consolidated backlog at December 31, 2001 was $229,752,000
compared with $164,408,000 at December 31, 2000 and $187,278,000 at
December 31, 1999. Machine backlog at December 31, 2001 was $32,538,000,
which is an increase of 42.5% from December 31, 2000. Repair parts and
service backlog at December 31, 2001 was $197,214,000, which is an increase of
39.3% from December 31, 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk is impacted by changes in interest rates and
foreign currency exchange rates.
Interest Rates
The Company's interest rate exposure relates primarily to debt
obligations in the United States. The Company manages its borrowings under
the Revolving Credit Facility and Loan and Security Agreement through the
selection of LIBOR based borrowings or prime-rate based borrowings. The
Company also has certain other 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, 2001, 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, 2001 would have the effect of changing the
Company's interest expense on an annual basis by approximately $400,000.
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,
2001, 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 Pronouncement
On June 30, 2001 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 142 establishes accounting and
reporting standards associated with goodwill and other intangible assets.
With the adoption of SFAS 142, goodwill will no longer be subject to
amortization, but instead will be subject to an evaluation for impairment at
least annually by applying a two-step fair-value-based test. Additionally,
intangible assets with indefinite lives will also no longer be amortized but
will be subject to an evaluation for impairment at least annually by applying
a lower-of-cost-or-market test. Intangible assets with finite lives will
continue to be amortized. The Company adopted SFAS 142 on January 1, 2002.
For goodwill, the Company must complete Step 1 of the goodwill transition
impairment test by June 30, 2002; if the fair value of the Company's reporting
units is below the carrying amounts, Step 2 of the goodwill transition
impairment test must be completed, and an impairment loss recognized, by
December 31, 2002. The adoption of SFAS 142 is expected to decrease goodwill
amortization expense in 2002 by $2,162,000. The Company is in the process of
completing an impairment analysis of its recorded intangible assets in
accordance with the provisions of SFAS 142. Intangible asset amortization
expense in 2002 will decrease by approximately $483,000.
Critical Accounting Policies
The Company's accounting policies are more fully described in Note A of
the Notes to Consolidated Financial Statements. As disclosed in Note A, the
preparation of financial statements in conformity with generally accepted
accounting principles 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 inevitably will
differ from those estimates, and such differences may be material to the
financial statements.
The most significant accounting estimates inherent in the preparation of
the Company's consolidated financial statements include estimates as to the
recovery of receivables, anticipated repayment dates of intercompany advances
to foreign subsidiaries, realizability of inventories, property, plant and
equipment and intangible assets, as well as those used in the estimation of
margin on the Company's contracts accounted for using the percentage-of-
completion method. Significant assumptions are also used in the determination
of liabilities related to product liability, warranty obligations and pension
and postretirement benefits. 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 re-evaluates these significant factors as
facts and circumstances dictate. Historically, actual results have not
differed significantly from those determined using the estimates described
above.
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,
2001 2000 1999
REVENUES:
Net sales $290,576 $280,443 $318,635
Other income 9,142 1,214 1,821
________ ________ ________
299,718 281,657 320,456
________ ________ ________
COSTS AND EXPENSES:
Cost of products sold 243,791 239,134 267,323
Engineering and field
service, selling,
administrative and
miscellaneous expenses 42,095 50,161 53,631
Interest expense 20,885 22,094 19,698
________ ________ ________
306,771 311,389 340,652
________ ________ ________
Loss before income taxes (7,053) (29,732) (20,196)
Income taxes 3,410 3,065 2,379
________ ________ ________
Net loss $(10,463) $(32,797) $(22,575)
Net loss per share
of common stock:
Basic $(7.29) $(22.76) $(15.65)
Diluted $(7.29) $(22.76) $(15.65)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Years Ended December 31,
2001 2000 1999
Net loss $(10,463) $(32,797) $(22,575)
________ ________ ________
Other comprehensive
loss:
Foreign currency
translation
adjustments (6,300) (6,147) (3,223)
Minimum pension
liability adjustment (15,245) - -
________ ________ ________
Other comprehensive loss (21,545) (6,147) (3,223)
________ ________ ________
Comprehensive loss $(32,008) $(38,944) $(25,798)
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,
2001 2000 2001 2000
LIABILITIES AND COMMON
ASSETS SHAREHOLDERS' INVESTMENT
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 7,218 $ 6,948 Accounts payable and
Receivables 55,554 58,797 accrued expenses $ 47,760 $ 57,528
Inventories 102,008 101,126 Liabilities to customers on
Prepaid expenses and uncompleted contracts and
other current assets 5,827 5,993 warranties 6,008 5,459
________ ________ Income taxes 1,205 1,677
Short-term obligations 566 295
Total Current Assets 170,607 172,864 Current maturities of long-
term debt 732 6,563
OTHER ASSETS: ________ ________
Restricted funds on
deposit 582 550 Total Current Liabilities 56,271 71,522
Goodwill - net 55,660 57,821
Intangible assets - net 39,601 38,180 LONG-TERM LIABILITIES:
Other assets 12,092 11,798 Liabilities to customers
________ ________ on uncompleted contracts
and warranties 2,000 2,412
107,935 108,349 Postretirement benefits 13,277 13,869
Deferred expenses,
PROPERTY, PLANT AND EQUIPMENT: pension and other 33,775 10,375
Land 2,294 3,206 Interest payable to
Buildings and improvements 11,755 11,654 Holdings 11,062 5,859
Machinery and equipment 101,681 100,356 ________ ________
Less accumulated
depreciation (38,527) (28,663) 60,114 32,515
________ ________
LONG-TERM DEBT, less
77,203 86,553 current maturities 222,188 217,813
COMMON SHAREHOLDERS'
INVESTMENT:
Common stock - par
value $.01 per share,
authorized 1,700,000
shares, issued
1,444,650 shares 14 14
Additional paid-in
capital 147,715 144,451
Treasury stock, at cost -
9,050 shares (851) (851)
Accumulated deficit (90,416) (79,953)
Accumulated other
comprehensive loss (39,290) (17,745)
________ ________
17,172 45,916
________ ________ ________ ________
$355,745 $367,766 $355,745 $367,766
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT
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 January 1, 1999 $ 14 $144,296 $ - $ (400) $(15,422) $ (8,375)
Issuance of common
stock (1,550 shares) - 155 - (124) - -
Purchase of treasury
stock (2,500 shares) - - (196) - - -
Net loss - - - - (22,575) -
Translation adjustments - - - - - (3,223)
______ ________ ________ ________ ________ ________
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)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)
Years Ended December 31,
2001 2000 1999
Cash Flows From Operating Activities
Net loss $(10,463) $(32,797) $(22,575)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation 11,240 11,393 11,200
Amortization 5,414 5,821 5,648
Loss on sale of
property, plant and
equipment 750 7 20
Gain on sale of The
Principal Financial
Group shares (8,704) - -
Loss on fixed asset
impairment - - 4,372
Changes in assets and
liabilities, net of
effects of acquisitions:
Receivables 3,860 (75) 134
Inventories (5,843) 19,972 (11,539)
Other current assets (12) (953) 551
Other assets (1,431) (1,650) (817)
Current liabilities other
than income taxes, short-
term obligations and
current maturities of
long-term debt 157 (4,920) 11,801
Income taxes (546) 1,007 213
Long-term liabilities
other than deferred
income taxes 4,269 1,596 (3,762)
________ ________ ________
Net cash used in
operating activities (1,309) (599) (4,754)
________ ________ ________
Cash Flows From Investing Activities
(Increase) decrease in restricted
funds on deposit (32) (461) 387
Proceeds from sale of The Principal
Financial Group shares 5,730 - -
Purchases of property, plant
and equipment (4,127) (3,501) (6,792)
Proceeds from sale of property,
plant and equipment 536 1,449 215
Purchase of Bennett & Emmott
(1986) Ltd. - - (7,050)
________ ________ ________
Net cash provided by (used
in) investing activities 2,107 (2,513) (13,240)
________ ________ ________
Cash Flows From Financing Activities
Net proceeds from (repayments of)
revolving credit facilities (1,052) 5,100 9,400
Net increase (decrease)
in other bank borrowings 271 (150) (69)
Proceeds from issuance of
long-term debt 1,237 - 9,986
Payment of long-term debt (1,641) (2,251) (1,172)
Capital contribution from
Bucyrus Holdings, LLC 1,093 - -
Proceeds from issuance of
common stock - - 31
Purchase of treasury stock - (131) (196)
________ ________ ________
Net cash provided by (used in)
financing activities (92) 2,568 17,980
________ ________ ________
Effect of exchange rate
changes on cash (436) (877) (438)
________ ________ ________
Net increase (decrease) in
cash and cash equivalents 270 (1,421) (452)
Cash and cash equivalents at
beginning of year 6,948 8,369 8,821
________ ________ ________
Cash and cash equivalents at
end of year $ 7,218 $ 6,948 $ 8,369
Supplemental Disclosures of
Cash Flow Information
Cash paid during the period for:
Interest $ 14,297 $ 18,367 $ 19,727
Income taxes - net of refunds 1,522 1,551 2,624
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bucyrus International, Inc. and Subsidiaries
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
Bucyrus International, Inc. (the "Company") is a Delaware corporation
and a leading manufacturer of surface mining equipment, principally
walking draglines, electric mining shovels and blasthole drills.
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.
Basis of Presentation and Use of Estimates
The consolidated financial statements as of December 31, 2001 and
2000 and for the years ended December 31, 2001, 2000 and 1999 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 Bucyrus Holdings, LLC ("Holdings") in 1997.
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions, profits and
accounts have been eliminated.
Cash Equivalents
All highly liquid investments with maturities of three months or less
when purchased are considered to be cash equivalents. The carrying
value of these investments approximates fair value.
Restricted Funds on Deposit
Restricted funds on deposit represent cash and temporary investments
used to support the issuance of standby letters of credit and other
obligations. The carrying value of these funds approximates fair
value.
Inventories
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
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 H). Accumulated amortization was
$10,191,000 and $8,029,000 at December 31, 2001 and 2000,
respectively.
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 30 years. Accumulated
amortization was $9,094,000 and $6,964,000 at December 31, 2001 and
2000, respectively. At December 31, 2001, intangible assets also
include $3,551,000 related to an adjustment to record an additional
minimum pension liability (see Note I).
On June 30, 2001 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 142 establishes
accounting and reporting standards associated with goodwill and other
intangible assets. With the adoption of SFAS 142, goodwill will no
longer be subject to amortization, but instead will be subject to an
evaluation for impairment at least annually by applying a two-step
fair-value-based test. Additionally, intangible assets with
indefinite lives will also no longer be amortized but will be subject
to an evaluation for impairment at least annually by applying a
lower-of-cost-or-market test. Intangible assets with finite lives
will continue to be amortized. The Company adopted SFAS 142 on
January 1, 2002. For goodwill, the Company must complete Step 1 of
the goodwill transition impairment test by June 30, 2002; if the fair
value of the Company's reporting units is below the carrying amounts,
Step 2 of the goodwill transition impairment test must be completed,
and an impairment loss recognized, by December 31, 2002. The
adoption of SFAS 142 is expected to decrease goodwill amortization
expense in 2002 by $2,162,000. The Company has completed an
impairment analysis of its recorded intangible assets in accordance
with the provisions of SFAS 142 and has concluded that an impairment
charge related to intangible assets with indefinite lives is not
required. The Company is in the process of completing an impairment
analysis of its recorded intangible assets in accordance with the
provisions of SFAS 142. Intangible asset amortization expense in
2002 will decrease by approximately $483,000.
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 impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," and recorded an impairment of fixed asset charge of
$4,372,000 in the fourth quarter of 1999. The impairment related
primarily to the manufacturing facility in Boonville, Indiana, which
saw declining operating results in the second half of 1999 as volume
declined. The charge represented the difference between book value
and estimated fair value based on expected proceeds. The Company
closed its manufacturing facility in Boonville, Indiana during the
second quarter of 2000.
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.
In addition, 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.
Revenue Recognition
Revenue from long-term sales contracts is recognized using the
percentage-of-completion method. Revenue on service contracts is
recognized pursuant to the contract as the services are provided. At
the time a loss on a contract becomes known, the amount of the
estimated loss is recognized in the consolidated financial
statements. Revenue from all other types of sales is recognized as
products are shipped or services are rendered. Included in the
current portion of liabilities to customers on uncompleted contracts
and warranties are advances in excess of related costs and earnings
on uncompleted contracts of $3,249,000 and $3,321,000 at December 31,
2001 and 2000, 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.
NOTE B - 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. The cash
purchase price for Bennett & Emmott was $7,050,000, including
acquisition expenses. The net assets acquired and results of
operations since the date of acquisition are included in the
Company's consolidated financial statements.
Bucyrus Canada Limited financed the Bennett & Emmott acquisition and
related expenses primarily by utilizing a new credit facility with
The Bank of Nova Scotia (see Note F). The acquisition was accounted
for as a purchase and, accordingly, the assets acquired were recorded
at their estimated fair values. The allocation of the purchase price
was as follows:
(Dollars in Thousands)
Inventory $ 2,001
Property, plant and equipment 5,032
Other 17
________
Total cash purchase price $ 7,050
NOTE C - RECEIVABLES
Receivables at December 31, 2001 and 2000 include $959,000 and
$9,039,000, 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
$1,134,000 and $1,159,000 at December 31, 2001 and 2000,
respectively.
NOTE D - INVENTORIES
Inventories consist of the following:
2001 2000
(Dollars in Thousands)
Raw materials and parts $ 13,646 $ 12,287
Costs relating to
uncompleted contracts - 1,181
Customers' advances offset
against costs incurred on
uncompleted contracts - (1,207)
Work in process 12,837 12,941
Finished products (primarily
replacement parts) 75,525 75,924
________ ________
$102,008 $101,126
NOTE E - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
2001 2000
(Dollars in Thousands)
Trade accounts payable $ 27,538 $ 30,349
Wages and salaries 4,918 5,670
Interest 2,335 3,095
Other 12,969 18,414
________ ________
$ 47,760 $ 57,528
Other accrued expenses at December 31, 2000 include $2,914,000
payable to an affiliate related to a management services agreement.
(See Note N for classification at December 31, 2001.)
NOTE F - LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
2001 2000
(Dollars in Thousands)
9-3/4% Senior Notes due 2007 $150,000 $150,000
Revolving credit facility 63,100 64,450
Revolving term loan at
Bucyrus Canada Limited 5,732 5,434
Non-revolving term loan at
Bucyrus Canada Limited 2,488 2,936
Other 1,600 1,556
________ ________
222,920 224,376
Less current maturities of
long-term debt (732) (6,563)
________ ________
$222,188 $217,813
The Company has outstanding $150,000,000 of 9-3/4% Senior Notes due
2007 (the "Senior Notes") which were issued pursuant to an indenture
dated as of September 24, 1997 among the Company, certain of its
domestic subsidiaries (the "Guarantor Subsidiaries"), and BNY Midwest
Trust Company, as Trustee (the "Senior Notes Indenture"). The Senior
Notes mature on September 15, 2007. 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 (and
previously the Credit Agreement (see below)) to defer the receipt of
interest on these Senior Notes during the life of the agreement. At
December 31, 2001 and 2000, $11,062,000 and $5,859,000, 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
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, 2001, 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. The Loan and Security Agreement
expires on January 2, 2003. Outstanding borrowings 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. The Company must maintain at all times a minimum
availability of $5,000,000. 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. Proceeds from the Loan and Security
Agreement were used to repay in full all outstanding borrowings under
the Revolving Credit Facility and Bucyrus Canada Limited revolving
term loan (see below).
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
and 2000 were $63,100,000 and $64,450,000, respectively, at a
weighted average interest rate of 5.3% and 10.0%, respectively. At
December 31, 2001 and 2000, there were $1,200,000 and $12,391,000,
respectively, of standby letters of credit outstanding under all
Company bank facilities. The Credit Agreement contained covenants
which, among other things, required the Company to maintain certain
financial ratios and a minimum net worth. At December 31, 2001, the
Company was in compliance with these covenants. 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. The average borrowing under the Revolving Credit
Facility during 1999 was $52,407,000 at a weighted average interest
rate of 8.3%, and the maximum borrowing outstanding was $65,350,000.
The amount available for direct borrowings under the Revolving Credit
Facility at December 31, 2001 was $8,444,000, which is net of
$2,900,000 that was used for the March 15, 2002 interest payment on
the Senior Notes.
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, funds available from the
Loan and Security Agreement and funds received from the sale of
shares in The Principal Financial Group (see Note Q) and sale and
leaseback of the South Milwaukee land and buildings (see Note R),
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. The Company is currently exploring additional
financing alternatives to extend or replace the Loan and Security
Agreement.
In 1999, Bucyrus Canada Limited entered into a C$15,000,000 credit
facility with The Bank of Nova Scotia which was used to acquire
certain assets of Bennett & Emmott. The C$10,000,000 revolving term
loan portion of this facility incurred interest at the bank's prime
lending rate plus 1.50%. The amount outstanding under the revolving
term loan portion was C$9,124,693 and C$8,145,000 at December 31,
2001 and 2000, respectively. On March 7, 2002, proceeds from the
Loan and Security Agreement were used to repay The Bank of Nova
Scotia revolving term loan in full and this portion of the facility
was terminated. As a result, borrowings under the revolving term
loan were classified as long-term at December 31, 2001. The
C$5,000,000 non-revolving term loan portion is payable in monthly
installments to 2004 and bears interest at the bank's prime lending
rate plus 2%. The amount outstanding under the non-revolving term
loan portion was C$3,960,000 and C$4,400,000 at December 31, 2001 and
2000, respectively. This credit facility contains covenants which,
among other things, requires Bucyrus Canada Limited to maintain a
minimum current ratio and tangible net worth. At December 31, 2001,
Bucyrus Canada Limited was in compliance with these 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)
2002 $ 732
2003 69,453
2004 2,079
2005 195
2006 149
At December 31, 2001, the Senior Notes were bid at 30%. Based on
this information, management believes the fair value of the Senior
Notes is approximately $45,000,000.
NOTE G - 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 F).
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, and expire and terminate no later
than ten years after the date of grant.
The following table sets forth the activity and outstanding balances
of options exercisable for shares of common stock under the 1998
Option Plan:
Options Available For
Outstanding Future Grants
Balances at January 1, 1999 176,067 23,933
Granted on June 23, 1999
($100 per share) 3,750 (3,750)
Granted on September 1, 1999
($100 per share) 4,927 (4,927)
Options forfeited
($100 per share) (106,444) 106,444
________ ________
Balances at December 31, 1999 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
At December 31, 2001, none of the options outstanding were vested.
The options had a weighted average remaining contractual life of
8.6 years.
The Company accounted for the 1998 Option Plan in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," as allowed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Had compensation expense for 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,
2001 2000 1999
(Dollars in Thousands,
Except Per Share Amounts)
Net loss:
As reported $(10,463) $(32,797) $(22,575)
Pro forma (10,721) (32,957) (22,753)
Net loss per share
of common stock
(basic and diluted):
As reported (7.29) (22.76) (15.65)
Pro forma (7.47) (22.87) (15.77)
The weighted average grant date fair value of stock options granted
in 2001 and 1999 under the 1998 Option Plan was $.80 and $75 per
option, respectively. No options were granted in 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 1999
Risk-free interest rate 4.7% 5.8%
Expected dividend yield 0% 0%
Expected life 5 years 5 years
Calculated volatility N/A N/A
NOTE H - INCOME TAXES
Deferred taxes are provided to reflect temporary differences between
the financial and tax basis of assets and liabilities using presently
enacted tax rates and laws. A valuation allowance is recognized if
it is more likely than not that some or all of the deferred tax
assets will not be realized.
Loss before income taxes consists of the following:
Years Ended December 31,
2001 2000 1999
(Dollars in Thousands)
United States $(12,719) $(34,193) $(23,730)
Foreign 5,666 4,461 3,534
________ ________ ________
Total $ (7,053) $(29,732) $(20,196)
The provision for income tax expense consists of the following:
Years Ended December 31,
2001 2000 1999
(Dollars in Thousands)
Foreign income taxes:
Current $ 2,581 $ 2,433 $ 2,369
Deferred 737 33 (113)
________ ________ ________
Total 3,318 2,466 2,256
________ ________ ________
Federal income taxes:
Current - 424 -
Deferred - - -
________ ________ ________
Total - 424 -
________ ________ ________
Other (state and
local taxes):
Current 92 175 123
Deferred - - -
________ ________ ________
Total 92 175 123
________ ________ ________
Total income
tax expense $ 3,410 $ 3,065 $ 2,379
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,
2001 2000 1999
Tax Tax Tax
Expense Expense Expense
(Benefit) Percent (Benefit) Percent (Benefit) Percent
(Dollars in Thousands)
Tax expense (benefit) at federal
statutory rate $ (2,469) (35.0)% $(10,406) (35.0)% $ (7,069) (35.0)%
Valuation allowance adjustments 2,750 39.0 9,828 33.0 5,450 27.0
Impact of foreign subsidiary income,
tax rates and tax credits 2,902 41.1 2,201 7.4 2,865 14.2
State income taxes net of federal
income tax benefit 60 .9 114 .4 256 1.3
Nondeductible goodwill amortization 757 10.7 824 2.8 875 4.3
Extraterritorial income exclusion (560) (7.9) - - - -
Other items (30) (.5) 504 1.7 2 -
________ ______ ________ ______ ________ ______
Total income tax expense $ 3,410 48.3 $ 3,065 10.3% $ 2,379 11.8%
Significant components of deferred tax assets and deferred tax
liabilities are as follows:
December 31,
2001 2000
(Dollars in Thousands)
Deferred tax assets:
Postretirement benefits $ 5,785 $ 6,004
Inventory valuation
provisions 6,181 6,844
Accrued and other
liabilities 4,500 5,960
Research and development
expenditures 3,413 4,591
Tax loss carryforward 27,176 27,765
Tax credit carryforward 900 903
Ot