BUCYRUS INTERNATIONAL INC - 10-K Annual Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 1-871

BUCYRUS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 39-0188050
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

P. O. BOX 500
1100 MILWAUKEE AVENUE
SOUTH MILWAUKEE, WISCONSIN 53172
(Address of Principal (Zip Code)
Executive Offices)

(414) 768-4000
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]

As of June 30, 2002 and March 26, 2003, 1,435,600 shares of common stock
of the Registrant were outstanding. Of the total outstanding shares of common
stock on June 30, 2002 and March 26, 2003, 1,430,300 were held of record by
Bucyrus Holdings, LLC, which is controlled by American Industrial Partners
Capital Fund II, L.P. and may be deemed an affiliate of Bucyrus International,
Inc., and 4,800 shares were held by directors and officers of the Company.
There is no established public trading market for such stock.

Documents Incorporated by Reference: None

PART I

FORWARD-LOOKING STATEMENTS

This Report includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Discussions
containing such forward-looking statements may be found in ITEM 1 - BUSINESS,
in ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS and elsewhere within this Report. Forward-looking
statements include statements regarding the intent, belief or current
expectations of Bucyrus International, Inc. (the "Company"), primarily with
respect to the future operating performance of the Company or related industry
developments. When used in this Report, terms such as "anticipate,"
"believe," "estimate," "expect," "indicate," "may be," "objective," "plan,"
"predict," and "will be" are intended to identify such statements. Readers
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ from those described in the forward-looking statements as a
result of various factors, many of which are beyond the control of the
Company. Forward-looking statements are based upon management's expectations
at the time they are made. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
such expectations ("Cautionary Statements") are described generally below and
disclosed elsewhere in this Report. All subsequent written or oral forward-
looking statements attributable to the Company or persons acting on behalf of
the Company are expressly qualified in their entirety by the Cautionary
Statements.

Factors that could cause actual results to differ materially from those
contemplated include:

Factors affecting customers' purchases of new equipment, rebuilds,
parts and services such as: production capacity, stockpiles, and
production and consumption rates of coal, copper, iron and other ores and
minerals; the cash flows of customers; the cost and availability of
financing to customers and the ability of customers to obtain regulatory
approval for investments in mining projects; consolidations among
customers; work stoppages at customers or providers of transportation;
and the timing, severity and duration of customer buying cycles.

Factors affecting the Company's general business, such as:
unforeseen patent, tax, product, environmental, employee health or
benefit, or contractual liabilities; nonrecurring restructuring and other
special charges; changes in accounting or tax rules or regulations;
reassessments of asset valuations for such assets as receivables,
inventories, fixed assets and intangible assets; leverage and debt
service; success in recruiting and retaining managers and key employees;
and wage stability and cooperative labor relations; plant capacity and
utilization.

ITEM 1. BUSINESS

The Company, formerly known as Bucyrus-Erie Company, was incorporated in
Delaware in 1927 as the successor to a business which commenced in 1880. The
Company is currently substantially wholly-owned by Bucyrus Holdings, LLC
("Holdings"). Holdings is controlled by American Industrial Partners Capital
Fund II, L.P.

The Company designs, manufactures and markets large excavation machinery
used for surface mining, and has a comprehensive aftermarket business that
supplies replacement parts and service for such machines. The Company's
principal products are large walking draglines, electric mining shovels and
blasthole drills, which are used by customers who mine coal, iron ore, copper,
oil sands, diamonds, phosphate, bauxite and other minerals throughout the
world.

Industry Overview

The large-scale surface mining equipment manufactured and serviced by the
Company is used primarily in coal, copper, oil sands and iron ore mines
throughout the world. Growth in demand for these commodities is a function
of, among other things, population growth and continuing improvements in
standards of living in many areas of the world. The market for new surface
mining equipment is cyclical in nature due to market fluctuations for these
commodities; however, the aftermarket for parts and services is more stable
because these expensive, complex machines are typically kept in continuous
operation for 15 to 30 years and require regular maintenance and repair
throughout their productive lives.

The largest markets for this mining equipment have been in Australia,
Canada, China, India, South Africa, South America and the United States.
Together, these markets typically account for approximately 90% of all new
machines sold, although in any given year markets in other regions may assume
greater importance.

Markets Served

The Company's products are used in a variety of different types of mining
operations, including coal, copper, iron ore, gold, phosphate, bauxite,
diamonds and oil sands, as well as for land reclamation. The Company
manufactures surface mining equipment primarily for large companies and
certain governmental entities engaged in mining throughout the world. Until
the late 1980's, coal mining accounted for the largest percentage of industry
demand for the Company's machines, and it continues to be one of the largest
users of replacement parts and services. Since then, however, copper and more
recently oil sands mining operations have accounted for an increasing share of
new machine sales.

Copper. The copper industry has seen a consolidation of large
producers in recent years. A number of the smaller North American high-
cost producers closed their facilities as new mines in South America
started producing copper at lower costs. The price of copper dropped to
an eleven-year low in early 1999 but increased later in 1999 and during
2000 due to increasing world demand. In 2001, the price of copper
dropped again due to reduced demand and increased inventory levels.
Copper prices have recovered in recent months and are forecasted to
increase in 2003.

Oil Sands. A unique geological formation of oil sands exists in the
Athabasca region of northern Alberta, Canada. Although these sands were
discovered many years ago, oil companies did not actively pursue
exploiting these potential oil reserves in earnest until the Arab oil
embargo of 1973. Various methods to mine the sands, separate the oil
from the sands and process the resultant bitumen into crude oil were
tried between 1973 and 1993 with varying degrees of success. The
commercial viability of mining these reserves remained in question until
two pioneering companies began employing electric mining shovels to
exploit these reserves. Since the implementation of these new extraction
methods, the cost to produce a barrel of oil has dropped to less than
$10. This has made the exploitation of these reserves very economical.
Since 1993, both companies have engaged in major expansions of their
previous operations. There is further expansion planned and numerous
additional entities are in the permitting stage or considering future
development. The Company expects that the Athabasca oil sands will
evolve into a major market for electric mining shovels in years to come.

Coal. There are two types of coal: steam coal used to generate
electricity and coking coal used in the process of producing steel. The
largest producers are China, the United States, India, Australia, Russia
and South Africa. In the United States, environmental legislation has
caused demand for high sulfur coal to be reduced, particularly in the
eastern United States. The result has been the idling of numerous mines.
Demand for low sulfur coal mined in the western United States, primarily
the Powder River Basin area in Wyoming, has increased significantly.
Draglines and mining shovels are used to extract coal in the western
United States, increasing potential demand for the Company's parts and
service. In addition, demand for coal has improved due to increases in
the price of oil and natural gas in recent years.

Iron Ore. Iron ore is the only source of primary iron and is mined
in more than 50 countries. In recent years, the five largest producers,
accounting for approximately 75% of world production, have been China,
Brazil, Australia, Russia and India.

The Company's excavation machines are used for land reclamation as well
as for mining, which has a positive effect on the demand for its products and
replacement parts and expands the Company's potential customer base. Current
federal and state legislation regulating surface mining and reclamation may
affect some of the Company's customers, principally with respect to the cost
of complying with, and delays resulting from, reclamation and environmental
requirements.

OEM Products

The Company's line of original equipment manufactured products includes a
full range of rotary blasthole drills, electric mining shovels and draglines.

Rotary Blasthole Drills. Many surface mines require breakage or
blasting of rock, overburden, or ore by explosives. To accomplish this,
it is necessary to bore out a pattern of holes into which the explosives
are placed. Rotary blasthole drills are used to drill these holes and
are usually described in terms of the diameter of the hole they bore.
The average life of a blasthole drill is approximately 15 years.

The Company offers a line of rotary blasthole drills ranging in hole
diameter size from 6.0 inches to 17.5 inches and ranging in price from
approximately $600,000 to $2,800,000 per drill, depending on machine size
and variable features.

Electric Mining Shovels. Mining shovels are primarily used to load
coal, copper ore, iron ore, other mineral-bearing materials, overburden,
or rock into trucks. There are two basic types of mining shovels,
electric and hydraulic. Electric mining shovels are able to handle
larger shovels or "dippers", allowing them to load greater volumes of
rock and minerals, while hydraulic shovels are smaller and more
maneuverable. The electric mining shovel offers the lowest cost per ton
of mineral mined as compared to hydraulic shovels. Its use is determined
by size of operation, the availability of electricity and expected mine
life. The Company manufactures only electric mining shovels. The
average life of an electric mining shovel is approximately 20 years.

Electric mining shovels are characterized in terms of hoisting
capability and dipper capacity. The Company offers a full line of
electric mining shovels, with available hoisting capability of up to 120
tons for the 495 model shovel. Dipper capacities range from 12 to 80 or
more cubic yards. Prices range from approximately $3,000,000 to
approximately $10,000,000 per shovel.

Draglines. Draglines are primarily used to remove overburden, which
is the earth located over a coal or mineral deposit, by dragging a large
bucket through the overburden, carrying it away and depositing it in a
"spoil pile". The Company's draglines weigh from 500 to 7,500 tons, and
are typically described in terms of their "bucket size", which can range
from nine to 220 cubic yards. The Company currently offers a full line
of models ranging in price from $10,000,000 to over $70,000,000 per
dragline. The average life of a dragline is 20 to 30 years.

Draglines are one of the industry's largest and most expensive type
of equipment, but offer the customer the lowest cost per ton of material
moved. While sales are sporadic, each dragline represents a significant
sales opportunity.

Aftermarket Parts and Services

The Company has a comprehensive aftermarket business that supplies
replacement parts and services for the surface mining industry. The Company's
aftermarket services include complete equipment management under Maintenance
and Repair Contracts ("MARCs"), maintenance and repair labor, technical
advice, refurbishment and relocation of older, installed machines,
particularly draglines. The Company also provides engineering, manufacturing
and servicing for the consumable rigging products that attach to dragline
buckets (such as dragline teeth and adapters, shrouds, dump blocks and chains)
and shovel dippers (such as dipper teeth, adapters and heel bands).

In general, the Company realizes higher margins on sales of parts and
services than it does on sales of new machines. Moreover, because the
expected life of large, complex mining machines ranges from 15 to 30 years,
the Company's aftermarket business is inherently more stable and predictable
than the fluctuating market for new machines. Over the life of a machine, net
sales generated from aftermarket parts and services can exceed the original
purchase price.

A substantial portion of the Company's international repair and
maintenance services are provided through its global network of wholly-owned
foreign subsidiaries and overseas offices operating in Argentina, Australia,
Brazil, Canada, Chile, China, England, India, Peru and South Africa.
Minserco, Inc. ("Minserco"), a wholly-owned subsidiary of the Company with
offices in Florida, Kentucky, Texas and Wyoming, provides repair and
maintenance services. These services include comprehensive structural and
mechanical engineering, non-destructive testing, repairs and rebuilds of
machine components, product and component upgrades, contract maintenance,
turnkey erections, machine moves and dragline operation.

To meet the increasing aftermarket demands of large mining customers, the
Company offers comprehensive MARCs. Under these contracts, the Company
provides all replacement parts, regular maintenance services and necessary
repairs for the excavation equipment at a particular mine with an on-site
support team. In addition, some of these contracts call for Company personnel
to operate the equipment being serviced. MARCs are highly beneficial to the
Company's mining customers because they promote high levels of equipment
reliability and performance, allowing the customer to concentrate on mining
production. MARCs typically have terms of three to five years with standard
termination and renewal provisions, although some contracts allow termination
by the customer for any cause. New mines in areas such as Argentina,
Australia, Canada, Chile and Peru are the Company's primary targets for MARCs
because it is difficult and expensive for mining companies to establish the
necessary infrastructures for ongoing maintenance and repair in remote
locations.

Acquisition

On April 30, 1999, the Company's wholly-owned subsidiary, Bucyrus Canada
Limited, consummated the acquisition of certain assets of Bennett & Emmott
(1986) Ltd. ("Bennett & Emmott"), a privately owned Canadian company with
extensive experience in the field repair and service of heavy machinery for
the surface mining industry. In addition to the surface mining industry,
Bennett & Emmott serviced a large number of customers in the pulp and paper,
sawmill, oil and natural gas industries in Western Canada, the Northwest
Territories and the Yukon. The company provides design and manufacturing
services, as well as in-house and field repair and testing of electrical and
mechanical equipment. Bennett & Emmott also distributes compressors,
generators and related products. This acquisition strengthened the Company's
position in the oil sands area of Western Canada.

Customers

The Company does not consider itself dependent upon any single customer
or group of customers; however, on an annual basis a single customer may
account for a large percentage of sales, particularly new machine sales. In
2002, 2001 and 2000, one customer accounted for approximately 12%, 11% and
11%, respectively, of the Company's consolidated net sales.

Marketing, Distribution and Sales

In the United States, new mining machinery is primarily sold directly by
Company personnel. Outside of the United States, new equipment is sold by
Company personnel, through independent sales representatives and through the
Company's subsidiaries and offices located in Argentina, Australia, Brazil,
Canada, Chile, China, England, India, Peru and South Africa. Aftermarket
parts and services are primarily sold directly by Company personnel and
through independent sales representatives, the Company's foreign subsidiaries
and offices and Minserco. The Company believes that marketing through its own
global network of subsidiaries and offices offers better customer service and
support by providing customers with direct access to the Company's
technological and engineering expertise.

Typical payment terms for new equipment require a down payment, and
invoicing is generally done as the machine is completed such that a
substantial portion of the purchase price is received by the time shipment is
made to the customer. Sales contracts for machines are predominantly at fixed
prices, with escalation clauses in certain cases. Most sales of replacement
parts call for prices in effect at the time of order. During 2002, price
increases from inflation had a relatively minor impact on the Company's
reported net sales; however, the strong United States dollar continues to
negatively affect net sales reported by certain of the Company's foreign
subsidiaries.

Foreign Operations

A substantial portion of the Company's net sales and operating earnings
is attributable to operations located outside the United States. Over the
past five years, over 80% of the Company's new machine sales have been in
international markets. The Company's foreign sales, consisting of exports
from the United States and sales by consolidated foreign subsidiaries,
totalled $212,669,000 in 2002, $209,108,000 in 2001 and $213,972,000 in 2000.
Approximately $199,234,000 or 81.1% of the Company's backlog of firm orders at
December 31, 2002 represented orders for export sales compared with
$201,872,000 or 88% at December 31, 2001 and $148,258,000 or 90% at
December 31, 2000.

The Company's largest foreign markets are in Australia, Canada, Chile,
China, India, Peru and South Africa. The Company also employs direct
marketing strategies in developing markets such as Indonesia, Jordan,
Mauritania and Russia. In recent years, Australia and South Africa have
emerged as strong producers of coking coal. Chile and Peru are producers of
copper. The Company expects that India, Russia and China will become major
coal producing regions in the future. In India, the world's second most
populous country, the demand for coal as a major source of energy is expected
to increase substantially over the next several decades.

New machine sales in foreign markets are supported by the Company's
established network of foreign subsidiaries and overseas offices that directly
market the Company's products and provide ongoing services and replacement
parts for equipment installed abroad. The availability and convenience of the
services provided through this worldwide network not only promotes higher
margin aftermarket sales of parts and services, but also gives the Company an
advantage in securing new machine orders.

The Company and its domestic subsidiaries normally price their products,
including direct sales of new equipment to foreign customers, in U.S. dollars.
Foreign subsidiaries normally procure and price aftermarket replacement parts
and repair services in the local currency. Approximately 70% of the Company's
net sales are priced in U.S. dollars. The value, in U.S. dollars, of the
Company's investments in its foreign subsidiaries and of dividends paid to the
Company by those subsidiaries will be affected by changes in exchange rates.
The Company does not normally enter into currency hedges, although it may do
so with regard to certain individual contracts.

Further segment and geographical information is included in ITEM 8 -
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Competition

There are a limited number of manufacturers of new surface mining
equipment. The Company is one of two manufacturers of electric mining shovels
and draglines. The Company's only competitor in electric mining shovels and
draglines is the P&H division of Joy Global, Inc., although electric mining
shovels may also compete against hydraulic shovels of which there are
primarily four other manufacturers. In rotary blasthole drills, the Company
competes with at least three other manufacturers, including the P&H Division
of Joy Global, Inc. Methods of competition are diverse and include capital
cost, operating costs, product productivity, design and performance,
reliability, service, delivery, financing terms and other commercial factors.

For most owners of the Company's machines, the Company is the primary
replacement source for large, highly engineered, integral components; however,
the Company encounters intense competition for sales of generally smaller,
less sophisticated, consumable replacement parts and repair services in
certain markets. The Company's competition in parts sales consists primarily
of independent firms called "will-fitters" that produce copies of the parts
manufactured by the Company and other original equipment manufacturers. These
copies are generally sold at lower prices than genuine parts produced by the
manufacturer.

The Company has a variety of programs to attract large volume customers
for its replacement parts. Although will-fitters engage in significant price
competition in parts sales, the Company possesses clear non-price advantages
over will-fitters. The Company's engineering and manufacturing technology and
marketing expertise exceed that of its will-fit competitors, who are in many
cases unable to duplicate the exact specifications of genuine Bucyrus parts.
Moreover, use of parts not manufactured by the Company can void the warranty
on a new Bucyrus machine, which generally runs for one year, with certain
components being warranted for longer periods.

Raw Materials and Supplies

The Company purchases from outside vendors the semi- and fully-processed
materials (principally structural steel, castings and forgings) required for
its manufacturing operations, and other items, such as electrical equipment,
that are incorporated directly into the end product. The Company's foreign
subsidiaries purchase components and manufacturing services both from local
subcontractors and from the Company. Certain additional components are
sometimes purchased from subcontractors, either to expedite delivery schedules
in times of high demand or to reduce costs. Moreover, in countries where
local content preferences or requirements exist, local subcontractors are used
to manufacture a substantial portion of the components required in the
Company's foreign manufacturing operations. Although the Company is not
dependent upon any single supplier, there can be no assurance that the Company
will continue to have an adequate supply of raw materials or components
necessary to enable it to meet the demand for its products. Competitors are
believed to be subject to similar conditions.

Manufacturing

A substantial portion of the design, engineering and manufacturing of the
Company's machines is done at the Company's South Milwaukee, Wisconsin plant.
The size and weight of these mining machines dictates that the machines be
shipped to the job site in sub-assembled units where they are assembled for
operation with the assistance of Company technicians. Planning and on-site
coordination of machine assembly is a critical component of the Company's
service to its customers. Moreover, to reduce lead time and ensure that
customer delivery requirements are met, the Company maintains an inventory of
sub-assembled units for frequently utilized components of various types of
equipment.

The Company manufactures and sells replacement parts and components and
provides comprehensive aftermarket service for its entire line of mining
machinery. The Company's large installed base of surface mining machinery
provides a steady stream of parts sales due to the long useful life of the
Company's machines, averaging 20 to 30 years for draglines, approximately
20 years for electric mining shovels and approximately 15 years for blasthole
drills. Parts sales and aftermarket services comprise a substantial portion
of the Company's net sales.

Although a majority of the Company's operating profits are derived from
sales of parts and services, the long-term prospects of the Company depend
upon maintaining a large installed equipment base worldwide. Therefore, the
Company remains committed to improving the design and engineering of its
existing line of machines, as well as developing new products.

Backlog

The backlog of firm orders was $245,695,000 at December 31, 2002 and
$229,752,000 at December 31, 2001. Approximately 62% of the backlog at
December 31, 2002 is not expected to be filled during 2003.

Inventories

Inventories at December 31, 2002 were $114,312,000 compared with
$102,008,000 at December 31, 2001. At December 31, 2002 and December 31,
2001, finished goods inventory (primarily replacement parts) totalled
$80,986,000 and $75,525,000, respectively.

Patents, Licenses and Franchises

The Company has a number of United States and foreign patents, patent
applications and patent licensing agreements. It does not consider its
business to be materially dependent upon any patent, patent application,
patent license agreement or group thereof.

Research and Development

Expenditures for design and development of new products and improvements
of existing mining machinery products, including overhead, aggregated
$6,512,000 in 2002, $5,900,000 in 2001 and $7,299,000 in 2000. All
engineering and product development costs are charged to Engineering and Field
Service Expense as incurred.

Environmental Factors

Environmental problems have not interfered in any material respect with
the Company's manufacturing operations to date. The Company believes that its
compliance with statutory requirements respecting environmental quality will
not materially affect its capital expenditures, earnings or competitive
position. The Company has an ongoing program to address any potential
environmental problems.

Current federal and state legislation regulating surface mining and
reclamation may affect some of the Company's customers, principally with
respect to the cost of complying with, and delays resulting from, reclamation
and environmental requirements. The Company's products are used for
reclamation as well as for mining, which has a positive effect on the demand
for such products and replacement parts therefor.

Employees

At December 31, 2002, the Company employed approximately 1,600 persons.
The four-year contract with the union representing hourly workers at the South
Milwaukee, Wisconsin facility and the three-year contract with the union
representing hourly workers at the Memphis, Tennessee facility expire in
April, 2005 and September, 2005, respectively.

Seasonal Factors

The Company does not consider a material portion of its business to be
seasonal.

ITEM 2. PROPERTIES

The Company's principal manufacturing plant in the United States is
located in South Milwaukee, Wisconsin. This plant comprises approximately
1,026,000 square feet of floor space. A portion of this facility houses the
Company's corporate offices. The major buildings at this facility are
constructed principally of structural steel, concrete and brick and have
sprinkler systems and other devices for protection against fire. The
buildings and equipment therein, which include machine tools and equipment for
fabrication and assembly of the Company's mining machinery, including
draglines, electric mining shovels and blasthole drills, are well-maintained,
in good condition and in regular use. On January 4, 2002, the Company
completed a sale and leaseback transaction for a portion of the land and
buildings in South Milwaukee. The term of the lease is twenty years with
options for renewals. The remainder of the land and buildings in South
Milwaukee continue to be owned by the Company.

The Company leases a facility in Memphis, Tennessee, which has
approximately 90,000 square feet of floor space and is used as a central parts
warehouse. The current lease is for three years commencing in July 2001.

The Company also has administrative and sales offices and, in some
instances, repair facilities and parts warehouses, at certain of its foreign
locations, including Argentina, Australia, Brazil, Canada, Chile, China,
England, India, Peru and South Africa.

ITEM 3. LEGAL PROCEEDINGS AND OTHER CONTINGENCIES

Product Liability

The Company is normally subject to numerous product liability claims,
many of which relate to products no longer manufactured by the Company or its
subsidiaries, and other claims arising in the ordinary course of business.
The Company has insurance covering most of said claims, subject to varying
deductibles up to $3,000,000, and has various limits of liability depending on
the insurance policy year in question. It is the view of management that the
final resolution of said claims and other similar claims which are likely to
arise in the future will not individually or in the aggregate have a material
effect on the Company's financial position, results of operations or cash
flows, although no assurance to that effect can be given.

To the date of this Report, the Company has been named as a co-defendant
in 278 personal injury liability asbestos cases, involving approximately 1,400
plaintiffs, which are pending in various state courts. In all of these cases,
insurance carriers have accepted or are expected to accept the defense of such
cases. These cases are in preliminary stages and the Company does not believe
that costs associated with these matters will have a material effect on the
Company's financial position, results of operations or cash flows, although no
assurance to that effect can be given.

Environmental and Related Matters

The Company's operations and properties are subject to a broad range of
federal, state, local and foreign laws and regulations relating to
environmental matters, including laws and regulations governing discharges
into the air and water, the handling and disposal of solid and hazardous
substances and wastes, and the remediation of contamination associated with
releases of hazardous substances at Company facilities and at off-site
disposal locations. These laws are complex, change frequently and have tended
to become more stringent over time. Future events, such as compliance with
more stringent laws or regulations, more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
could require additional expenditures by the Company, which may be material.

Certain environmental laws, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), provide for
strict, joint and several liability for investigation and remediation of
spills and other releases of hazardous substances. Such laws may apply to
conditions at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which wastes or
other contamination attributable to an entity or its predecessors come to be
located.

The Company was one of 53 entities named by the United States
Environmental Protection Agency ("EPA") as potentially responsible parties
("PRPs") with regard to the Millcreek dumpsite, located in Erie County,
Pennsylvania, which is on the National Priorities List of sites for cleanup
under CERCLA. The Company was named as a result of allegations that it
disposed of foundry sand at the site in the 1970's. Both the United States
government and the Commonwealth of Pennsylvania initiated actions to recover
cleanup costs. The Company has settled with both with respect to its
liability for past costs. In addition, 37 PRP's, including the Company,
received Administrative Orders issued by the EPA pursuant to Section 106a of
CERCLA to perform site capping and flood control remediation at the Millcreek
site. The Company was one of eighteen parties responsible for a share of the
cost of such work, and shared such cost per capita to date; however, such cost
may be subject to reallocation. In 2002, final remedial work in the form of
installation of a municipal golf course as cover was completed and the cost
thereof was paid. EPA has certified completion and its approval thereof. The
former remediation contractor, IT Corporation, commenced suit against the
Millcreek Dumpsite Group, an unincorporated association including the Company
and other cooperating Millcreek PRP's (the "Group"), for breach of contract
claims in an amount in excess of $1,000,000. The Group is defending and
negotiating settlement of IT's claim. At December 31, 2002, the Company does
not believe that its remaining potential liability in connection with this
site will have a material effect on the Company's financial position, results
of operations or cash flows, although no assurance can be given to that
effect.

The Company has also been named as a PRP in two additional CERCLA
matters. EPA named the Company as a PRP with respect to the clean up of the
Chemical Recovery Systems, Inc. ("CRS") site in Elyria, Ohio. On December 20,
2002, EPA offered the Company a de minimis settlement in the amount of $6,800
to resolve its liabilities under CERCLA Sections 106, 107 and 113. The
Company accepted EPA's settlement offer and is awaiting notification from EPA
that the settlement is effective. As of December 31, 2002, the Company does
not believe that its remaining potential liability in connection with this
site will have a material effect on the Company's financial position, results
of operations or cash flows, although no assurance can be given to that
effect.

EPA also named the Company as a PRP in the Tremont City, Ohio, Landfill
matter. The EPA identified the Company as a PRP based upon past operations of
The Marion Power Shovel Company, the assets of which the Company acquired in
1997. The Company responded that it had not operated The Marion Power Shovel
Company, that the periods of operation of the Tremont City Landfill expired
many years prior to 1997 and that, accordingly, the Company had none of the
information requested by EPA. The Company gave notice of this matter and
potential claim to the sellers under indemnification provisions of the Asset
Purchase and Sale Agreement. In 2002, the Company received notice that the
sellers had filed Chapter 11 Bankruptcy. The Company has filed timely claims
in that proceeding. Although the Company has not regarded, and does not
regard, this site as presenting a material contingent liability, there can be
no assurances to that effect because EPA has not responded to the Company nor
has EPA withdrawn its identification of the Company as a PRP.

In December 1990, the Wisconsin Department of Natural Resources ("DNR")
conducted a pre-remedial screening site inspection on property owned by the
Company located at 1100 Milwaukee Avenue in South Milwaukee, Wisconsin.
Approximately 35 acres of this site were allegedly used as a landfill by the
Company until approximately 1983. The Company disposed of certain
manufacturing wastes at the site, primarily foundry sand. The DNR's Final
Site Screening Report, dated April 16, 1993, summarized the results of
additional investigation. A DNR Decision Memo, dated July 21, 1991, which was
based upon the testing results contained in the Final Site Screening Report,
recommended additional groundwater, surface water, sediment and soil sampling.
To date, the Company is not aware of any initiative by the DNR to require any
further action with respect to this site. Consequently, the Company has not
regarded, and does not regard, this site as presenting a material contingent
liability. There can be no assurance, however, that additional investigation
by the DNR will not be conducted with respect to this site at some later date
or that this site will not in the future require removal or remedial actions
to be performed by the Company, the costs of which could be material,
depending on the circumstances.

Prior to 1985, a wholly-owned, indirect subsidiary of the Company
provided comprehensive general liability insurance coverage for affiliate
corporations. The subsidiary issued such policies for occurrences during the
years 1974 to 1984, which policies could involve material liability. It is
possible that claims could be asserted in the future with respect to such
policies. While the Company does not believe that liability under such
policies will result in material costs, this cannot be guaranteed.

The Company has previously been named as a potentially responsible party
under CERCLA and analogous state laws at other sites throughout the United
States. The Company believes it has determined its cleanup liabilities with
respect to these sites and it does not believe that any such remaining
liabilities, if any, either individually or in the aggregate, will have a
material adverse effect on the Company's business, financial condition,
results of operations or cash flows. The Company cannot, however, guarantee
that it will not incur additional liabilities with respect to these sites in
the future, the costs of which could be material, nor can the Company
guarantee that it will not incur cleanup liability in the future with respect
to sites formerly or presently owned or operated by the Company, or with
respect to off-site disposal locations, the costs of which could be material.

While no assurance can be given, the Company believes that expenditures
for compliance and remediation will not have a material effect on its capital
expenditures, results of operations or competitive position.

Other

The Company is involved in various other litigation arising in the normal
course of business. It is the view of management that the Company's recovery
or liability, if any, under pending litigation is not expected to have a
material effect on the Company's financial position, results of operations or
cash flows, although no assurance to that effect can be given.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 2002.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Substantially all of the Company's common stock is held by Holdings and
there is no established public trading market therefor. The Company does not
have a recent history of paying dividends and has no present intention to pay
dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

Years Ended December 31,
2002 2001 2000 1999 1998
(Dollars In Thousands, Except Per Share Amounts)

Consolidated Statements of
Operations Data:
Net sales $289,598 $290,576 $280,443 $318,635 $315,838
Net loss $(10,786) $(10,463) $(32,797) $(22,575) $ (8,264)
Net loss per share of
common stock:
Basic $ (7.51) $ (7.29) $ (22.76) $ (15.65) $ (5.75)
Diluted $ (7.51) $ (7.29) $ (22.76) $ (15.65) $ (5.75)
Adjusted EBITDA (a) $ 29,002 $ 31,236 $ 9,583 $ 20,742 $ 35,967
Cash dividends per
common share $ - $ - $ - $ - $ -

Consolidated Balance
Sheets Data:
Total assets $346,878 $355,745 $367,766 $416,987 $417,195
Long-term debt $207,804 $222,188 $217,813 $214,009 $202,308

(a) Earnings before interest expense, income taxes, depreciation, amortization, (gain) loss on sale of
fixed assets, loss on fixed asset impairment and inventory fair value adjustment charged to cost of
products sold. Adjusted EBITDA for the year ended December 31, 2001 includes $8,704,000 of income
from the sale of shares the Company received as a result of the demutualization of The Principal
Financial Group.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Acquisition

In connection with acquisitions involving the Company in 1997, assets and
liabilities were adjusted to their estimated fair values. The consolidated
financial statements include the related amortization charges associated with
the fair value adjustments.

Liquidity and Capital Resources

Liquidity

Working capital and current ratio are two financial measurements which
provide an indication of the Company's ability to meet its short-term
obligations. These measurements at December 31, 2002, 2001 and 2000 were as
follows:

2002 2001 2000
(Dollars in Thousands)

Working capital $106,022 $114,336 $101,342
Current ratio 2.5 to 1 3.0 to 1 2.4 to 1

The decrease in working capital and current ratio in 2002 was primarily
due to increased accounts payable and accrued expenses. The increase in
working capital and current ratio in 2001 was primarily due to reduced
accounts payable and the reclassification of borrowings under the revolving
term loan at Bucyrus Canada Limited from current to long-term liabilities (see
below).

The Company is presenting below a calculation of earnings (loss) before
interest expense, income taxes, depreciation, amortization and loss on sale of
fixed assets ("Adjusted EBITDA"). Adjusted EBITDA is presented (i) because
the Company believes EBITDA is frequently used by securities analysts,
investors and other interested parties in the evaluation of companies in its
industry; and (ii) because the Company is required to maintain certain minimum
EBITDA levels as defined under the Loan and Security Agreement (and previously
the Credit Agreement (see below)). EBITDA as defined under these agreements
does not differ materially from Adjusted EBITDA as calculated below. The
Adjusted EBITDA calculation is not an alternative to operating income under
generally accepted accounting principles as an indicator of operating
performance or to cash flows as a measure of liquidity. The following table
reconciles Loss Before Income Taxes to Adjusted EBITDA:

Years Ended December 31,
2002 2001 2000
(Dollars in Thousands)

Loss before income taxes $ (5,739) $ (7,053) $(29,732)
Depreciation 10,666 11,240 11,393
Amortization 4,748 5,414 5,821
Loss on sale of fixed assets 655 750 7
Interest expense 18,672 20,885 22,094
________ ________ ________

Adjusted EBITDA(1)(2) $ 29,002 $ 31,236 $ 9,583

(1) Adjusted EBITDA for the years ended December 31, 2002, 2001 and
2000 was reduced by restructuring charges of $1,308,000, $899,000 and
$2,689,000, respectively, primarily related to severance payments and related
matters.

(2) Adjusted EBITDA for the year ended December 31, 2001 includes
$8,704,000 of income from the sale of shares the Company received as a result
of the demutualization of The Principal Financial Group (see below).

On March 7, 2002, the Company entered into a Loan and Security Agreement
with GMAC Business Credit, LLC (the "Loan and Security Agreement") which
provides the Company with an $85,000,000 senior secured revolving credit
facility. On January 9, 2003, the Loan and Security Agreement was amended to
reduce the maximum availability of the revolving credit facility to
$76,000,000. The Loan and Security Agreement, as amended, expires on
January 8, 2005. Proceeds from the Loan and Security Agreement were used to
repay in full all outstanding borrowings under the previous Credit Agreement
and Bucyrus Canada Limited revolving term loan (see below). Outstanding
borrowings under the Loan and Security Agreement bear interest equal to either
the prime rate plus an applicable margin (2% to 2.25%) or LIBOR plus an
applicable margin (3.5% to 3.75%) and are subject to a borrowing base formula
based on receivables and inventory. Borrowings at December 31, 2002 were
$54,023,000 at a weighted average interest rate of 6.3% and were classified as
long-term debt. Substantially all of the domestic assets of the Company
(excluding real property) and the receivables and inventory of the Company's
Canadian subsidiary are pledged as collateral under the Loan and Security
Agreement. In addition, all outstanding capital stock of the Company and its
domestic subsidiaries as well as 65% of the capital stock of the Company's
foreign subsidiaries are pledged as collateral. At March 26, 2003, the amount
available for borrowings under the Loan and Security Agreement was
$15,055,000. This amount must be reduced by $5,000,000 which is the minimum
availability the Company must maintain at all times.

The Company previously had a Credit Agreement with Bank One, Wisconsin
(the "Credit Agreement") which provided the Company with a $75,000,000 senior
secured revolving credit facility (the "Revolving Credit Facility") with a
$25,000,000 sublimit for standby letters of credit. Borrowings under the
Revolving Credit Facility were at variable interest rates and were subject to
a borrowing base formula based on receivables, inventory and machinery and
equipment. Direct borrowings under the Revolving Credit Facility at
December 31, 2001 were $63,100,000 at a weighted average interest rate of
5.3%.

At December 31, 2002 and 2001, there were $2,199,000 and $1,200,000,
respectively, of standby letters of credit outstanding under all Company bank
facilities.

The Company has outstanding $150,000,000 of its 9-3/4% Senior Notes due
2007 (the "Senior Notes") which were issued pursuant to an indenture among the
Company, certain of its domestic subsidiaries (the "Guarantor Subsidiaries"),
and BNY Midwest Trust Company, as Trustee (the "Senior Notes Indenture"). The
Senior Notes mature on September 15, 2007 and interest thereon is payable each
March 15 and September 15. During 2000, Holdings acquired $75,635,000 of the
Company's $150,000,000 issue of Senior Notes. Holdings has agreed as part of
the Loan and Security Agreement, and previously the Credit Agreement, to defer
the receipt of interest on these Senior Notes during the life of the two
agreements. At December 31, 2002 and 2001, $18,436,000 and $11,062,000,
respectively, of interest was accrued and payable to Holdings. An amendment
to the Credit Agreement dated March 20, 2001 required Holdings to contribute
to equity of the Company a portion of the accrued interest. As a result, on
March 20, 2001, the Company recorded an equity contribution from Holdings and
a corresponding reduction in interest payable to Holdings in the amount of
$2,171,000, which represented accrued interest as of June 30, 2000 on the
Senior Notes acquired by Holdings. In addition, in 2001 Holdings made a cash
capital contribution to the Company in the amount of $1,093,000.

Both the Loan and Security Agreement and the Senior Notes Indenture
contain certain covenants which may affect the Company's liquidity and capital
resources. Also, both the Loan and Security Agreement and the Senior Notes
Indenture contain numerous covenants that limit the discretion of management
with respect to certain business matters and place significant restrictions
on, among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments
or investments, loans and guarantees, and to sell or otherwise dispose of
assets and merge or consolidate with another entity.

The Loan and Security Agreement also contains a number of financial
covenants that require the Company (A) to maintain certain financial ratios,
including: (i) leverage ratio (as defined); and (ii) fixed charge coverage
ratio; and (B) to maintain minimum levels of EBITDA (as defined). Other
covenants exist which limit the ability of the Company to incur liens; merge,
consolidate or dispose of assets; make loans and investments; incur
indebtedness; engage in certain transactions with affiliates; incur contingent
obligations; enter into joint ventures; enter into lease agreements; pay
dividends and make other distributions; change its business; redeem the Senior
Notes; and make capital expenditures. At December 31, 2002, the Company was
in compliance with all covenants.

The Senior Notes Indenture contains certain covenants that, among other
things, limit the ability of the Company and the Guarantor Subsidiaries to:
(i) incur additional indebtedness; (ii) pay dividends or make other
distributions with respect to capital stock; (iii) make certain investments;
(iv) use the proceeds of the sale of certain assets; (v) enter into certain
transactions with affiliates; (vi) create liens; (vii) enter into certain sale
and leaseback transactions; (viii) enter into certain mergers and
consolidations or a sale of substantially all of its assets; and (ix) prepay
the Senior Notes. Such covenants are subject to important qualifications and
limitations. At December 31, 2002, the Company was in compliance with all
covenants.

A failure to comply with the obligations contained in the Loan and
Security Agreement or the Senior Notes Indenture could result in an Event of
Default (as defined) under the Loan and Security Agreement or an Event of
Default (as defined) under the Senior Notes Indenture that, if not cured or
waived, would permit acceleration of the relevant debt and acceleration of
debt under other instruments that may contain cross-acceleration or cross-
default provisions.

On April 30, 2002, Bucyrus Canada Limited, a wholly-owned subsidiary of
the Company, entered into a new C$3,510,000 mortgage loan. The term of the
mortgage loan is 15 years at an initial rate of 7.55% which is fixed for the
first five years. The balance outstanding at December 31, 2002 was
C$3,425,000. The mortgage loan is collateralized by the land, buildings and
certain building attachments owned by Bucyrus Canada Limited. The net book
value of this collateral at December 31, 2002 was C$4,283,000. Previously,
Bucyrus Canada Limited had a C$15,000,000 credit facility with The Bank of
Nova Scotia. On March 7, 2002, the outstanding balance of C$9,083,000 under
the C$10,000,000 revolving term loan portion of this credit facility was paid
in full with proceeds from the Loan and Security Agreement. The balance
outstanding under the revolving term loan portion at December 31, 2001 was
C$9,125,000. On April 30, 2002, Bucyrus Canada Limited paid the remaining
non-revolving term loan portion of the credit facility in full with proceeds
from the new mortgage loan. The balance outstanding under the non-revolving
term loan portion at December 31, 2001 was C$3,960,000. The new mortgage loan
contains a number of financial covenants which, among other items, require
Bucyrus Canada Limited to maintain certain financial ratios on an annual
basis. At December 31, 2002, Bucyrus Canada Limited was in compliance with
all applicable covenants.

In December 2001, the Company, as a policyholder, received an allocation
of 369,918 shares as a result of the demutualization of The Principal
Financial Group. Net proceeds from the sale of these shares by the Company
were $8,704,000 and is recognized as Other Income in the Consolidated
Statement of Operations for the year ended December 31, 2001. Of the net
proceeds, $2,974,000 was received on January 2, 2002 for shares sold in 2001
and is included in Receivables in the Consolidated Balance Sheet at
December 31, 2001.

On January 4, 2002, the Company completed a sale and leaseback
transaction for a portion of its land and buildings in South Milwaukee,
Wisconsin. The term of the lease is twenty years with options for renewals.
Net proceeds received from this transaction were $7,157,000 less $500,000
required as a security deposit.

Contractual Obligations and Commercial Commitments

The following table sets forth the Company's contractual obligations and
commercial commitments as of December 31, 2002:

5 Years
1 Year 2 - 3 4 and
Total or Less Years Years Thereafter
(Dollars in Thousands)

Long-term debt $208,235 $ 431 $ 54,669 $ 282 $152,853
Short-term
obligations 495 495 - - -
Operating leases and
rental and service
agreements 34,145 5,680 8,110 1,777 18,578
________ ________ ________ ________ ________

Total $242,875 $ 6,606 $ 62,779 $ 2,059 $171,431

Operating Losses

The Company is highly leveraged and low sales volumes in recent years
have had an adverse effect on the Company's liquidity. While the Company
believes that current levels of cash and liquidity, together with funds
generated by operations and funds available from the Loan and Security
Agreement, will be sufficient to permit the Company to satisfy its debt
service requirements and fund operating activities for the foreseeable future,
there can be no assurances to this effect and the Company continues to closely
monitor its operations.

The Company is subject to significant business, economic and competitive
uncertainties that are beyond its control. Accordingly, there can be no
assurance that the Company's performance will be sufficient for the Company to
maintain compliance with the financial covenants under the Loan and Security
Agreement and the Senior Notes Indenture, satisfy its debt service obligations
and fund operating activities under all circumstances. At this time, the
Company continues to believe that future cash flows will be sufficient to
recover the carrying value of its long-lived assets, including goodwill and
other intangible assets.

Capital Resources

At December 31, 2002, the Company had approximately $831,000 of open
capital appropriations. The Company's capital expenditures for the year ended
December 31, 2002 were $5,457,000 compared with $4,127,000 for the year ended
December 31, 2001. Included in capital expenditures for 2002 were amounts
related to the construction of a new facility in Gillette, Wyoming. In the
near term, the Company anticipates spending close to current levels.

Capitalization

The long-term debt to total capitalization ratio at December 31, 2002 and
2001 was 1.0 to 1 and .9 to 1, respectively. Total capitalization is defined
as total common shareholders' investment plus long-term debt plus current
maturities of long-term debt and short-term obligations.

Results of Operations

Net Sales

Net sales for 2002 were $289,598,000 compared with $290,576,000 for 2001.
Net sales of repair parts and services for 2002 were $242,047,000, which was
an increase of 7.1% from 2001. Net machine sales for 2002 were $47,551,000,
which was a decrease of 26.3% from 2001. The changes between periods were
primarily due to fluctuations in volume. The decrease in machine sales for
2002 was primarily in blasthole drills and draglines.

Net sales for 2001 were $290,576,000 compared with $280,443,000 for 2000.
Net sales of repair parts and services for 2001 were $226,024,000 which was an
increase of 6.9% from 2000. Net machine sales for 2001 were $64,552,000,
which was a decrease of 6.3% from 2000. The changes between years were
primarily due to fluctuations in volume.

Other Income

Other income for 2001 includes $8,704,000 from the aforementioned sale of
shares of The Principal Financial Group.

Cost of Products Sold

Cost of products sold for 2002 was $233,516,000 or 80.6% of net sales
compared with $243,791,000 or 83.9% of net sales for 2001 and $239,134,000 or
85.3% of net sales for 2000. The decrease in cost of products sold as a
percentage of net sales for 2002 was primarily due to the improved mix of
aftermarket sales. The decrease in the cost of products sold percentage for
2001 when compared to 2000 was primarily due to reduced warranty expense and
favorable manufacturing variances resulting from higher manufacturing
activity. Included in cost of products sold in 2000 was approximately
$1,300,000 of costs associated with the closing of the manufacturing facility
in Boonville, Indiana which was effective June 30, 2000. Cost of products
sold in 2000 was reduced by a $1,800,000 favorable adjustment related to
commercial issues. Also included in cost of products sold for 2002, 2001 and
2000 was $5,127,000, $5,248,000 and $5,038,000, respectively, of additional
depreciation expense as a result of the fair value adjustment to plant and
equipment in connection with acquisitions involving the Company.

Engineering and Field Service, Selling, Administrative and Miscellaneous
Expenses

Engineering and field service, selling, administrative and miscellaneous
expenses for 2002 were $43,449,000 or 15.0% of net sales compared with
$42,095,000 or 14.5% of net sales in 2001 and $50,161,000 or 17.9% of net
sales in 2000. Included in the amounts for 2002 and 2001 was $655,000 and
$750,000, respectively, of losses on disposals of fixed assets. Also, due to
a reduction in new orders, the Company continues to reduce a portion of its
manufacturing production workforce through layoffs and reduce the number of
its salaried employees. As a result, restructuring charges of $1,308,000,
$899,000 and $2,689,000 were included in the amounts for 2002, 2001 and 2000,
respectively. These charges primarily related to severance payments and
related matters. As a result of the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," goodwill
and intangible asset amortization expense decreased by $2,645,000 in 2002 when
compared to 2001. This decrease was partially offset by an increase in
expenses related to the Loan and Security Agreement.

Interest Expense

Interest expense for 2002 was $18,672,000 compared with $20,885,000 for
2001 and $22,094,000 for 2000. The decrease in interest expense in 2002 when
compared to 2001 was primarily due to declining interest rates and reduced
borrowings under the Loan and Security Agreement and Revolving Credit
Facility. The decrease in interest expense in 2001 when compared to 2000 was
primarily due to declining interest rates on borrowings under the Revolving
Credit Facility. Included in interest expense for 2002, 2001 and 2000 was
$14,625,000 related to the Senior Notes. The interest expense in 2002, 2001
and 2000 on the Senior Notes includes $7,374,000, $7,374,000 and $5,859,000,
respectively, related to the Senior Notes acquired by Holdings. Holdings has
agreed as part of the Loan and Security Agreement, and previously the Credit
Agreement, to defer the receipt of interest on these Senior Notes during the
life of the two agreements.

Income Taxes

Income tax expense consists primarily of foreign taxes at applicable
statutory rates. For United States tax purposes, the Company recorded a
federal income tax benefit of $421,000 in 2002 related to the carryback of a
portion of the 2001 alternative tax net operating loss to obtain a refund of
the entire alternative minimum tax paid for 2000.

Net Loss

The net loss for 2002 was $10,786,000 compared with net losses of
$10,463,000 for 2001 and $32,797,000 for 2000. The net loss in 2001 was
reduced by $8,704,000 of income from the sale of shares of The Principal
Financial Group. Excluding the effects of this sale of shares, the reduced
net loss in 2002 when compared to 2001 was primarily due to the improved mix
of aftermarket sales. The improvement in 2001 when compared to 2000 was due
to the aforementioned sale of shares and improvements in margin as a result of
increased volume and cost reduction efforts. Non-cash depreciation and
amortization charges were $15,414,000 in 2002 compared with $16,654,000 in
2001 and $17,214,000 in 2000.

New Orders and Backlog

New orders for 2002 were $305,541,000, which was a decrease of 14.2% from
2001. New machine orders for 2002 were $49,442,000, which was a decrease of
33.4% from 2001. The decrease was primarily in electric mining shovels.
Copper prices remain at low levels compared to the mid 1990's which has
negatively impacted demand for the Company's machines. However, the Company
did receive an order in 2002 for a walking dragline to be used in coal mining
in North Dakota. New repair parts and service orders for 2002 were
$256,099,000, which was a decrease of 9.1% from 2001. New repair parts and
service orders in 2001 included two long-term maintenance and repair
contracts, a machine move and a long-term mining contract. Revenues related
to these contracts will be recognized over multiple years.

The Company's consolidated backlog at December 31, 2002 was $245,695,000
compared with $229,752,000 at December 31, 2001 and $164,408,000 at
December 31, 2000. Machine backlog at December 31, 2002 was $34,429,000,
which is an increase of 5.8% from December 31, 2001. Repair parts and service
backlog at December 31, 2002 was $211,266,000, which is an increase of 7.1%
from December 31, 2001. A portion of this backlog is related to multi-year
contracts which will generate revenue in future years.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's market risk is impacted by changes in interest rates and
foreign currency exchange rates.

Interest Rates

The Company's interest rate exposure relates primarily to debt
obligations in the United States. The Company manages its borrowings under
the Loan and Security Agreement through the selection of LIBOR based
borrowings or prime-rate based borrowings. The Company's Senior Notes are at
a fixed interest rate. If market conditions warrant, interest rate swaps may
be used to adjust interest rate exposures, although none have been used to
date.

At December 31, 2002, a sensitivity analysis was performed for the debt
obligations that have interest rate risk. Based on this sensitivity analysis,
the Company has determined that a 10% change in the Company's weighted average
interest rate at December 31, 2002 would have the effect of changing the
Company's interest expense on an annual basis by approximately $300,000.

Foreign Currency

Changes in foreign exchange rates can impact the Company's financial
position, results of operations and cash flow. The Company manages foreign
currency exchange rate exposure by utilizing some natural hedges to mitigate
some of its transaction and commitment exposures, and may utilize forward
contracts in certain situations.

Based on the Company's derivative instruments outstanding at December 31,
2002, a 10% change in foreign currency exchange rates will not have a material
effect on the Company's financial position, results of operations or cash
flows.

New Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or
disposal plan. Examples of costs covered by SFAS 146 include lease
termination costs and certain employee severance costs that are associated
with a restructuring, discontinued operations, plant closing, or other exit or
disposal activity. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. Adoption of SFAS 146
is not expected to have a material effect on the Company's consolidated
financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 requires that a
guarantor must recognize, at the inception of a guarantee, a liability for the
fair value of the obligation that it has undertaken in issuing a guarantee.
Interpretation No. 45 also addresses the disclosure requirements that a
guarantor must include in its financial statements for guarantees issued. The
disclosure requirements in this interpretation are effective for financial
statements ending after December 15, 2002. The initial recognition and
measurement provisions of this interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. The Company
has not completed its evaluation of Interpretation No. 45 and has not assessed
the impact the adoption may have on its financial position, results of
operations or cash flows.

Critical Accounting Policies and Estimates

The preparation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions about future events that
affect the amounts reported in the financial statements and accompanying
footnotes. Future events and their affects cannot be determined with absolute
certainty. Therefore, the determination of estimates requires the exercise of
judgment. Actual results could differ from those estimates, and such
differences may be material to the financial statements. The process of
determining significant estimates is fact specific and takes into account
factors such as historical experience, current and expected economic
conditions, product mix, and in some cases, actuarial techniques. The Company
evaluates these significant factors as facts and circumstances dictate.
Historically, actual results have not differed significantly from those
determined using estimates.

The following are the accounting policies that most frequently require
the Company to make estimates and judgements and are critical to understanding
the Company's financial condition, results of operations and cash flows:

Revenue Recognition - Revenue from long-term sales contracts, such as for
the manufacture of Company machines, is recognized using the percentage-of-
completion method. The Company also has long-term maintenance and repair
contracts with customers to supply parts and service over a period of years.
Revenue is recognized in the period in which the parts are supplied or
services provided. The customer is billed monthly and deferred revenues are
recorded based on payments received. Revenue from all other types of sales is
recognized as products are shipped or services are rendered. At the time a
loss on a contract becomes known, the amount of the estimated loss is
recognized in the consolidated financial statements.

Goodwill and Intangible Assets - The Company accounts for goodwill and
intangible assets in accordance with Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). As a
result, goodwill is not subject to amortization, but instead is subject to an
evaluation for impairment at least annually by applying a two-step fair-value-
based test. Additionally, intangible assets with indefinite lives are also
not amortized but are subject to an evaluation for impairment at least
annually by applying a lower-of-cost-to-market test. Intangible assets with
finite lives continue to be amortized. For goodwill, the fair value of the
Company's reporting units exceeds the carrying amounts and an impairment
charge is not currently required. The Company has also completed an
impairment analysis of its indefinite life intangible assets in accordance
with the provisions of SFAS 142 and has determined that an impairment charge
is not required.

Long-Lived Assets - The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of property, plant, equipment and other long-lived assets may warrant revision
or that the remaining balance of each may not be recoverable. The Company
accounts for any impairment of long-lived assets in accordance with Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."

Warranty - Sales of the Company's products generally carry typical
manufacturers' warranties based on terms that are generally accepted in the
Company's marketplaces. The Company records provisions for estimated warranty
and other related costs at the time of sale based on historical warranty loss
experience and periodically adjusts these provisions to reflect actual
experience.

Product Liability - The Company is normally subject to numerous product
liability claims, many of which relate to products no longer manufactured by
the Company or its subsidiaries, and other claims arising in the ordinary
course of business. The Company has insurance covering most of said claims,
subject to varying deductibles up to $3,000,000, and has various limits of
liability depending on the insurance policy year in question. The Company
establishes product liability reserves for the self-insured portion of any
known outstanding matters based on the likelihood of loss and the Company's
ability to reasonably estimate such loss. The Company makes estimates based
on available information and the Company's best judgment after consultation
with appropriate experts. The Company periodically revises estimates based
upon changes to facts or circumstances.

Pension and Other Post-Retirement Benefits - The Company has two major
defined benefit pension plans which are separately funded and also provides
certain health care benefits to age 65 and life insurance benefits for certain
eligible retired United States employees. Several statistical and judgmental
factors which attempt to anticipate future events are used in calculating the
expense and liability related to these plans. These factors include
assumptions about the discount rate, expected return on plan assets, rate of
future compensation increases and health care cost trend rates, as determined
by the Company within certain guidelines. In addition, the Company's
actuarial consultants also use subjective factors such as withdrawal and
mortality rates to estimate these factors. The actuarial assumptions used by
the Company may differ materially from actual results due to changing market
and economic conditions, higher or lower withdrawal rates, longer or shorter
life spans of participants and changes in actual costs of health care. These
differences may result in a significant impact to the amount of pension and
other post-retirement benefit expenses recorded by the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF OPERATIONS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)

Years Ended December 31,
2002 2001 2000
REVENUES:
Net sales $289,598 $290,576 $280,443
Other income 300 9,142 1,214
________ ________ ________

289,898 299,718 281,657
________ ________ ________
COSTS AND EXPENSES:
Cost of products sold 233,516 243,791 239,134
Engineering and field
service, selling,
administrative and
miscellaneous expenses 43,449 42,095 50,161
Interest expense 18,672 20,885 22,094
________ ________ ________

295,637 306,771 311,389
________ ________ ________

Loss before income taxes (5,739) (7,053) (29,732)

Income taxes 5,047 3,410 3,065
________ ________ ________

Net loss $(10,786) $(10,463) $(32,797)

Net loss per share
of common stock:

Basic $ (7.51) $ (7.29) $ (22.76)

Diluted $ (7.51) $ (7.29) $ (22.76)

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)

Years Ended December 31,
2002 2001 2000

Net loss $(10,786) $(10,463) $(32,797)
________ ________ ________

Other comprehensive
loss:
Foreign currency
translation
adjustments (569) (6,300) (6,147)
Minimum pension
liability adjustment (13,948) (15,245) -
________ ________ ________

Other comprehensive loss (14,517) (21,545) (6,147)
________ ________ ________

Comprehensive loss $(25,303) $(32,008) $(38,944)

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands, Except Per Share Amounts)

December 31, December 31,
2002 2001 2002 2001

LIABILITIES AND COMMON
SHAREHOLDERS' INVESTMENT
ASSETS (DEFICIENCY IN ASSETS)
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 4,189 $ 7,218 Accounts payable and
Receivables 52,770 55,554 accrued expenses $ 59,216 $ 47,760
Inventories 114,312 102,008 Liabilities to customers on
Prepaid expenses and uncompleted contracts and
other current assets 6,186 5,827 warranties 7,850 6,008
________ ________ Income taxes 3,443 1,205
Short-term obligations 495 566
Total Current Assets 177,457 170,607 Current maturities of long-
term debt 431 732
OTHER ASSETS: ________ ________
Restricted funds on
deposit 1,485 582 Total Current Liabilities 71,435 56,271
Goodwill 55,860 55,660
Intangible assets - net 37,662 39,601 LONG-TERM LIABILITIES:
Other assets 11,935 12,092 Liabilities to customers
________ ________ on uncompleted contracts
and warranties 2,000 2,000
106,942 107,935 Postretirement benefits 12,751 13,277
Deferred expenses,
PROPERTY, PLANT AND EQUIPMENT: pension and other 42,583 33,775
Land 1,850 2,294 Interest payable to
Buildings and improvements 7,395 11,755 Holdings 18,436 11,062
Machinery and equipment 97,320 101,681 ________ ________
Less accumulated
depreciation (44,086) (38,527) 75,770 60,114
________ ________
LONG-TERM DEBT, less
62,479 77,203 current maturities 207,804 222,188

COMMITMENTS AND
CONTINGENCIES - Note O

COMMON SHAREHOLDERS'
INVESTMENT (DEFICIENCY
IN ASSETS):
Common stock - par
value $.01 per share,
authorized 1,700,000
shares, issued
1,444,650 shares 14 14
Additional paid-in
capital 147,715 147,715
Treasury stock, at cost -
9,050 shares (851) (851)
Accumulated deficit (101,202) (90,416)
Accumulated other
comprehensive loss (53,807) (39,290)
________ ________

(8,131) 17,172
________ ________ ________ ________

$346,878 $355,745 $346,878 $355,745

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT (DEFICIENCY IN ASSETS)
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)

Notes Accumulated
Additional Receivable Other
Common Paid-In Treasury From Accumulated Comprehensive
Stock Capital Stock Shareholders Deficit Loss

Balance at December 31, 1999 $ 14 $ 144,451 $ (196) $ (524) $ (37,997) $(11,598)

Purchase of treasury
stock (6,550 shares) - - (655) 524 - -
Net loss - - - - (32,797) -
Utilization of net operating
loss carryforwards by
Bucyrus Holdings, LLC - - - - (9,159) -
Translation adjustments - - - - - (6,147)
______ ________ ________ ________ _________ ________

Balance at December 31, 2000 14 144,451 (851) - (79,953) (17,745)

Capital contributions from
Bucyrus Holdings, LLC - 3,264 - - - -
Net loss - - - - (10,463) -
Translation adjustments - - - - - (6,300)
Minimum pension liability
adjustment - - - - - (15,245)
______ ________ ________ ________ _________ ________

Balance at December 31, 2001 14 147,715 (851) - (90,416) (39,290)

Net loss - - - - (10,786) -
Translation adjustments - - - - - (569)
Minimum pension liability
adjustment - - - - - (13,948)
______ ________ ________ ________ _________ ________

Balance at December 31, 2002 $ 14 $147,715 $ (851) $ - $(101,202) $(53,807)

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Bucyrus International, Inc. and Subsidiaries
(Dollars in Thousands)

Years Ended December 31,
2002 2001 2000

Cash Flows From Operating Activities

Net loss $(10,786) $(10,463) $(32,797)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation 10,666 11,240 11,393
Amortization 4,748 5,414 5,821
Loss on sale of
property, plant and
equipment 655 750 7
Gain on sale of The
Principal Financial
Group shares - (8,704) -
Changes in assets and
liabilities:
Receivables 1,329 3,860 (75)
Inventories (10,953) (5,843) 19,972
Other current assets (825) (12) (953)
Other assets 1,004 (1,431) (1,650)
Current liabilities other
than income taxes, short-
term obligations and
current maturities of
long-term debt 9,618 157 (4,920)
Income taxes 2,186 (546) 1,007
Long-term liabilities
other than deferred
income taxes 2,063 4,269 1,596
________ ________ ________

Net cash provided by (used in)
operating activities 9,705 (1,309) (599)
________ ________ ________

Cash Flows From Investing Activities

Decrease in restricted funds on
deposit (903) (32) (461)
Proceeds from sale of The Principal
Financial Group shares 2,974 5,730 -
Purchases of property, plant
and equipment (5,457) (4,127) (3,501)
Proceeds from sale of property,
plant and equipment 745 536 1,449
Net proceeds from sale and
leaseback transaction 6,657 - -
Purchase of Bennett & Emmott
(1986) Ltd. (200) - -
________ ________ ________

Net cash provided by (used in)
investing activities 3,816 2,107 (2,513)
________ ________ ________

Cash Flows From Financing Activities

Net proceeds from (repayments of)
revolving credit facilities (14,809) (1,052) 5,100
Net increase (decrease)
in other bank borrowings (71) 271 (150)
Proceeds from issuance of
long-term debt 925 1,237 -
Payment of long-term debt (801) (1,641) (2,251)
Payment of refinancing expenses (2,047) - -
Capital contribution from
Bucyrus Holdings, LLC - 1,093 -
Purchase of treasury stock - - (131)
________ ________ ________

Net cash provided by (used in)
financing activities (16,803) (92) 2,568
________ ________ ________

Effect of exchange rate
changes on cash 253 (436) (877)
________ ________ ________
Net increase (decrease) in
cash and cash equivalents (3,029) 270 (1,421)

Cash and cash equivalents at
beginning of year 7,218 6,948 8,369
________ ________ ________

Cash and cash equivalents at
end of year $ 4,189 $ 7,218 $ 6,948

Supplemental Disclosures of
Cash Flow Information

Cash paid during the period for:
Interest $ 11,258 $ 14,297 $ 18,367
Income taxes - net of refunds 2,749 1,522 1,551

Supplemental Schedule of Non-Cash Investing and Financing Activities

On March 20, 2001, the Company recorded an equity contribution from Bucyrus
Holdings, LLC ("Holdings"), the Company's parent, and a corresponding
reduction in interest payable to Holdings, in the amount of $2,171,000, which
represented accrued interest as of June 30, 2000 on the 9-3/4% Senior Notes
due 2007 acquired by Holdings.

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bucyrus International, Inc. and Subsidiaries

NOTE A - SUMMARY OF ACCOUNTING POLICIES

Nature of Operations

Bucyrus International, Inc. (the "Company"), a majority-owned
subsidiary of Bucyrus Holdings, LLC ("Holdings"), is a Delaware
corporation and a leading manufacturer of surface mining equipment,
principally walking draglines, electric mining shovels and blasthole
drills. Major markets for the surface mining industry are coal,
copper, oil sands and iron ore. The Company also has a comprehensive
aftermarket business that includes replacement parts, maintenance and
other services. The largest markets for the Company's products and
services are in Australia, Canada, China, India, South Africa, South
America and the United States.

Basis of Presentation and Use of Estimates

The consolidated financial statements as of December 31, 2002 and
2001 and for the years ended December 31, 2002, 2001 and 2000 were
prepared under a basis of accounting that reflects the fair value of
the assets acquired and liabilities assumed, and the related expenses
and all debt incurred, in connection with the acquisition of the
Company by Holdings in 1997.

The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses. Actual results could differ from
those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions, profits and
accounts have been eliminated.

Cash Equivalents

All highly liquid investments with maturities of three months or less
when purchased are considered to be cash equivalents. The carrying
value of these investments approximates fair value.

Restricted Funds on Deposit

Restricted funds on deposit represent cash and temporary investments
used to support the issuance of standby letters of credit and other
obligations. The carrying value of these funds approximates fair
value.

Inventories

Inventories are stated at lower of cost (first-in, first-out method)
or market (replacement cost or estimated net realizable value).
Advances from customers are netted against inventories to the extent
of related accumulated costs. Advances in excess of related costs
and earnings on uncompleted contracts are classified as a liability
to customers.

Goodwill and Intangible Assets

Goodwill and intangible assets are being accounted for in accordance
with Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142")(see Note D).

Through 2001, goodwill was being amortized on a straight-line basis
over 30 years. During 2000, goodwill was reduced by $9,159,000 to
reflect the utilization of previously unrecognized federal net
operating loss carryforwards which existed at the date the Company
was acquired by Holdings (see Note I). Accumulated amortization was
$10,191,000 at December 31, 2001.

Intangible assets consist of engineering drawings, bill-of-material
listings, software, trademarks and trade names and are being
amortized on a straight-line basis over 10 to 20 years. At
December 31, 2002 and 2001, intangible assets also included
$3,259,000 and $3,551,000, respectively, related to an adjustment to
record an additional minimum pension liability (see Note J).

Property, Plant and Equipment

Depreciation is provided over the estimated useful lives of
respective assets using the straight-line method for financial
reporting and accelerated methods for income tax purposes. Estimated
useful lives used for financial reporting purposes range from ten to
forty years for buildings and improvements and three to seventeen
years for machinery and equipment.

The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining estimated useful life of
property, plant and equipment may warrant revision or that the
remaining balance of each may not be recoverable. The Company
accounts for any impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets."

Foreign Currency Translation

The assets and liabilities of foreign subsidiaries are translated
into U.S. dollars using year-end exchange rates. Revenues and
expenses are translated at average rates during the year.
Adjustments resulting from this translation are deferred and
reflected as a separate component of Common Shareholders' Investment.
Gains and losses from foreign currency transactions are included in
Engineering and Field Service, Selling, Administrative and
Miscellaneous Expenses in the Consolidated Statements of Operations.
Transaction losses totalled $1,022,000, $780,000 and $277,000 for the
years ended December 31, 2002, 2001 and 2000, respectively. Certain
of the Company's intercompany advances to foreign subsidiaries are
evaluated as not likely to be repaid in the foreseeable future.
Transaction gains and losses on these advances are deferred and
reflected as a component of Common Shareholders' Investment
(Deficiency in Assets).

Comprehensive Income (Loss)

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires the reporting of comprehensive income
(loss) in addition to net income (loss) from operations.
Comprehensive income (loss) is a more inclusive financial reporting
method that includes disclosure of financial information that
historically has not been recognized in the calculation of net income
(loss). The Company has chosen to report comprehensive loss and
accumulated other comprehensive loss which encompasses net loss,
foreign currency translation adjustments and minimum pension
liability adjustments in the Consolidated Statements of Common
Shareholders' Investment (Deficiency in Assets). Information on
accumulated other comprehensive loss is as follows:

Minimum Accumulated
Cumulative Pension Other
Translation Liability Comprehensive
Adjustments Adjustments Loss
(Dollars in Thousands)

Balance at December 31, 1999 $(11,598) $ - $(11,598)
Changes - Year ended
December 31, 2000 (6,147) - (6,147)
________ ________ ________

Balance at December 31, 2000 (17,745) - (17,745)
Changes - Year ended
December 31, 2001 (6,300) (15,245) (21,545)
________ ________ ________

Balance at December 31, 2001 (24,045) (15,245) (39,290)
Changes - Year ended
December 31, 2002 (569) (13,948) (14,517)
________ ________ ________

Balance at December 31, 2002 $(24,614) $(29,193) $(53,807)

Revenue Recognition

Revenue from long-term sales contracts, such as for the manufacture
of Company machines, is recognized using the percentage-of-completion
method. The Company also has long-term maintenance and repair
contracts with customers to supply parts and service over a period of
years. Revenue is recognized in the period in which the parts are
supplied or services provided. The customer is billed monthly and
deferred revenues are recorded based on payments received. Revenue
from all other types of sales is recognized as products are shipped
or services are rendered. At the time a loss on a contract becomes
known, the amount of the estimated loss is recognized in the
consolidated financial statements.

Included in the current portion of liabilities to customers on
uncompleted contracts and warranties are advances in excess of
related costs and earnings on uncompleted contracts of $4,201,000 and
$3,249,000 at December 31, 2002 and 2001, respectively.

Shipping and Handling Fees and Costs

Revenue received from shipping and handling fees is reflected in net
sales. Shipping fee revenue was insignificant for all periods
presented. Shipping and handling costs are included in cost of
products sold.

Financial Instruments

Based on Company estimates, the carrying amounts of cash equivalents,
receivables, accounts payable, accrued liabilities and variable rate
debt approximated fair value at December 31, 2002 and 2001. The
Company's Senior Notes (see Note G) were bid at 40% and 30% at
December 31, 2002 and 2001, respectively. Based on this information,
management believes the fair value of the Senior Notes was
$60,000,000 and $45,000,000 at December 31, 2002, and 2001,
respectively.

Derivative Financial Instruments

The Company manages foreign currency exchange rate exposure by
utilizing some natural hedges to mitigate some of its transactions
and commitment exposures, and may utilize forward contracts in
certain situations.

Accounting for Stock Options

The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB 25") as allowed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").

New Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"). SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred
rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by SFAS 146 include lease termination costs
and certain employee severance costs that are associated with a
restructuring, discontinued operations, plant closing, or other exit
or disposal activity. SFAS 146 is to be applied prospectively to
exit or disposal activities initiated after December 31, 2002.
Adoption of SFAS 146 is not expected to have a material effect on the
Company's consolidated financial position, results of operations or
cash flows.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." Interpretation No.
45 requires that a guarantor must recognize, at the inception of a
guarantee, a liability for the fair value of the obligation that it
has undertaken in issuing a guarantee. Interpretation No. 45 also
addresses the disclosure requirements that a guarantor must include
in its financial statements for guarantees issued. The disclosure
requirements in this interpretation are effective for financial
statements ending after December 15, 2002. The initial recognition
and measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31,
2002. The Company has not completed its evaluation of Interpretation
No. 45 and has not assessed the impact the adoption may have on its
financial position, results of operations or cash flows.

NOTE B - RECEIVABLES

Receivables at December 31, 2002 and 2001 include $2,896,000 and
$959,000, respectively, of revenues from long-term contracts which
were not billable at that date. Billings on long-term contracts are
made in accordance with the payment terms as defined in the
individual contracts.

Current receivables are reduced by an allowance for losses of
$1,158,000 and $1,134,000 at December 31, 2002 and 2001,
respectively.

NOTE C - INVENTORIES

Inventories consist of the following:

2002 2001
(Dollars in Thousands)

Raw materials and parts $ 15,509 $ 13,646
Work in process 17,817 12,837
Finished products (primarily
replacement parts) 80,986 75,525
________ ________

$114,312 $102,008

NOTE D - GOODWILL AND INTANGIBLE ASSETS

On June 30, 2001, the FASB issued SFAS 142. SFAS 142 establishes
accounting and reporting standards associated with goodwill and other
intangible assets. With the adoption of SFAS 142, goodwill is no
longer subject to amortization, but instead is subject to an
evaluation for impairment at least annually by applying a two-step
fair-value-based test. Additionally, intangible assets with
indefinite lives are also no longer amortized but are subject to an
evaluation for impairment at least annually by applying a lower-of-
cost-or-market test. Intangible assets with finite lives continue to
be amortized. The Company adopted SFAS 142 on January 1, 2002. For
goodwill, the fair value of the Company's reporting units exceeds the
carrying amounts and an impairment charge is not required. The
Company has also completed an impairment analysis of its indefinite
life intangible assets in accordance with the provisions of SFAS 142
and has determined that an impairment charge is not required. The
following table summarizes the effects of SFAS 142 on the Company's
net loss and loss per share for the prior periods presented:

Years Ended December 31,
2002 2001 2000
(Dollars In Thousands, Except Per Share Amounts)

Reported net loss $(10,786) $(10,463) $(32,797)
Goodwill amortization,
net of tax - 2,162 2,355
Trademarks/Trade names
amortization,
net of tax - 483 483
________ ________ ________

Adjusted net loss $(10,786) $ (7,818) $(29,959)

Basic and diluted loss
per share:
Reported net loss $ (7.51) $ (7.29) $ (22.76)
Goodwill amortization - 1.50 1.63
Trademarks/Trade names
amortization - .34 .34
________ ________ ________
Adjusted net loss
per share $ (7.51) $ (5.45) $ (20.79)

Intangible assets consist of the following:

December 31, 2002 December 31, 2001
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
(Dollars in Thousands)
Amortized intangible
assets:
Engineering drawings $ 25,500 $ (6,719) $ 25,500 $ (5,443)
Bill of material
listings 2,856 (752) 2,856 (610)
Software 2,288 (1,206) 2,288 (977)
________ ________ ________ ________

$ 30,644 $ (8,677) $ 30,644 $ (7,030)

Unamortized intangible
assets:
Trademarks/Trade names $ 12,436 $ 12,436
Intangible pension
asset 3,259 3,551
________ ________

$ 15,695 $ 15,987

The aggregate intangible amortization expense for the year ended
December 31, 2002 was $1,647,000. The estimated annual amortization
expense in each of the years 2003 through 2006 is $1,647,000. The
estimated amortization expense in 2007 is $1,585,000.

During the year ended December 31, 2002, goodwill increased by
$200,000 as the result of contingent consideration paid in connection
with the acquisition of certain assets of Bennett & Emmott (1986)
Ltd. in 1999.

NOTE E - SALE AND LEASEBACK

On January 4, 2002, the Company completed a sale and leaseback
transaction for a portion of its land and buildings in South
Milwaukee, Wisconsin. The Company is leasing back the property under
an operating lease over a period of twenty years with options for
renewals. Net proceeds received from this transaction were
$7,157,000 less $500,000 required as a security deposit. No gain or
loss was recognized on this transaction.

NOTE F - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

2002 2001
(Dollars in Thousands)

Trade accounts payable $ 30,607 $ 27,538
Wages and salaries 5,917 4,918
Pension 3,706 692
Other 18,986 14,612
________ ________

$ 59,216 $ 47,760

NOTE G - LONG-TERM DEBT AND FINANCING ARRANGEMENTS

Long-term debt consists of the following:

2002 2001
(Dollars in Thousands)

9-3/4% Senior Notes due 2007 $150,000 $150,000
Revolving credit facility 54,023 63,100
Mortgage loan at Bucyrus
Canada Limited 2,178 -
Revolving term loan at
Bucyrus Canada Limited - 5,732
Non-revolving term loan at
Bucyrus Canada Limited - 2,488
Other 2,034 1,600
________ ________

208,235 222,920
Less current maturities of
long-term debt (431) (732)
________ ________

$207,804 $222,188

The Company has outstanding $150,000,000 of 9-3/4% Senior Notes due
2007 (the "Senior Notes") which were issued pursuant to an indenture
among the Company, certain of its wholly-owned domestic subsidiaries
(the "Guarantor Subsidiaries"), and BNY Midwest Trust Company, as
Trustee (the "Senior Notes Indenture"). The Senior Notes mature on
September 15, 2007 and interest thereon is payable each March 15 and
September 15. During 2000, Holdings acquired $75,635,000 of the
Company's $150,000,000 issue of Senior Notes. Holdings has agreed as
a part of the Loan and Security Agreement (see below), and previously
the Credit Agreement (see below), to defer the receipt of interest on
these Senior Notes during the life of the two agreements. At
December 31, 2002 and 2001, $18,436,000 and $11,062,000,
respectively, of interest was accrued and payable to Holdings. The
amendment to the Credit Agreement dated March 20, 2001 required
Holdings to contribute to equity of the Company a portion of the
accrued interest. As a result, on March 20, 2001, the Company
recorded an equity contribution from Holdings and a corresponding
reduction in interest payable to Holdings in the amount of
$2,171,000, which represented accrued interest as of June 30, 2000 on
the Senior Notes acquired by Holdings.

The Senior Notes Indenture contains certain covenants that, among
other things, limit the ability of the Company and the Guarantor
Subsidiaries to: (i) incur additional indebtedness; (ii) pay any
dividends or make any other distributions with respect to capital
stock; (iii) make certain investments; (iv) use the proceeds of the
sale of certain assets; (v) enter into certain transactions with
affiliates; (vi) create liens; (vii) enter into certain sale and
leaseback transactions; (viii) enter into certain mergers and
consolidations or a sale of substantially all of its assets; and (ix)
prepay the Senior Notes. Such covenants are subject to important
qualifications and limitations. At December 31, 2002, the Company
was in compliance with these covenants.

On March 7, 2002, the Company entered into a Loan and Security
Agreement with GMAC Business Credit, LLC (the "Loan and Security
Agreement") which provides the Company with an $85,000,000 senior
secured revolving credit facility. On January 9, 2003, the Loan and
Security Agreement was amended to reduce the maximum availability of
the revolving credit facility to $76,000,000. The Loan and Security
Agreement, as amended, expires on January 8, 2005. Proceeds from the
Loan and Security Agreement were used to repay in full all
outstanding borrowings under the previous Credit Agreement and
Bucyrus Canada Limited revolving term loan (see below). Outstanding
borrowings under the Loan and Security Agreement bear interest equal
to either the prime rate plus an applicable margin (2% to 2.25%) or
LIBOR plus an applicable margin (3.5% to 3.75%) and are subject to a
borrowing base formula based on receivables and inventory.
Borrowings at December 31, 2002 were $54,023,000 at a weighted
average interest rate of 6.3%. The average borrowings under the Loan
and Security Agreement (and previously the Credit Agreement) during
2002 was $61,628,000 at a weighted average interest rate of 5.9%, and
the maximum borrowing outstanding was $69,333,000. Substantially all
of the domestic assets of the Company (excluding real property) and
the receivables and inventory of the Company's Canadian subsidiary
are pledged as collateral under the Loan and Security Agreement. In
addition, all outstanding capital stock of the Company and its
domestic subsidiaries as well as 65% of the capital stock of the
Company's foreign subsidiaries are pledged as collateral. The Loan
and Security Agreement contains covenants which, among other things,
require the Company to maintain certain financial ratios and minimum
levels of EBITDA, as defined. At December 31, 2002, the Company was
in compliance with these covenants. The amount available for
borrowings under the Loan and Security Agreement at December 31, 2002
was $19,314,000. This amount must be reduced by $5,000,000 which is
the minimum availability the Company must maintain at all times.

The Company previously had a Credit Agreement with Bank One,
Wisconsin (the "Credit Agreement") which provided the Company with a
$75,000,000 senior secured revolving credit facility (the "Revolving
Credit Facility") with a $25,000,000 sublimit for standby letters of
credit. Borrowings under the Revolving Credit Facility were at
variable interest rates and were subject to a borrowing base formula
based on receivables, inventory and machinery and equipment. Direct
borrowings under the Revolving Credit Facility at December 31, 2001
were $63,100,000 at a weighted average interest rate of 5.3%. The
average borrowing under the Revolving Credit Facility during 2001 was
$68,642,000 at a weighted average interest rate of 7.7%, and the
maximum borrowing outstanding was $73,375,000. The average borrowing
under the Revolving Credit Facility during 2000 was $64,512,000 at a
weighted average rate of 9.9%, and the maximum borrowing outstanding
was $71,200,000.

At December 31, 2002 and 2001, there were $2,199,000 and $1,200,000,
respectively, of standby letters of credit outstanding under all
Company bank facilities.

A failure to comply with the obligations contained in the Loan and
Security Agreement or the Senior Notes Indenture could result in an
Event of Default (as defined) under the Loan and Security Agreement
or an Event of Default (as defined) under the Senior Notes Indenture
that, if not cured or waived, would permit acceleration of the
relevant debt and acceleration of debt under other instruments that
may contain cross-acceleration or cross-default provisions. While
the Company believes that current levels of cash and liquidity,
together with funds generated by operations and funds available from
the Loan and Security Agreement, will be sufficient to permit the
Company to satisfy its debt service requirements for the foreseeable
future, there can be no assurance that the Company's performance will
be sufficient for the Company to maintain compliance with the
financial covenants under the Loan and Security Agreement and satisfy
its debt service obligations under all circumstances.

On April 30, 2002, Bucyrus Canada Limited, a wholly-owned subsidiary
of the Company, entered into a new C$3,510,000 mortgage loan. The
term of the mortgage loan is 15 years at an initial rate of 7.55%
which is fixed for the first five years. The balance outstanding at
December 31, 2002 was C$3,425,000. The mortgage loan is
collateralized by the land, building