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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

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 001-00871

 

 

BUCYRUS INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

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

P. O. BOX 500

1100 MILWAUKEE AVENUE

SOUTH MILWAUKEE, WISCONSIN

(Address of Principal Executive Offices)

53172

(Zip Code)

(414) 768-4000

(Registrant’s Telephone Number, Including Area Code)

 

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding November 3, 2009
Common Stock, $.01 par value		75,133,869

 

 

 

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Bucyrus International, Inc.

INDEX

 

						Page No.
PART I.		FINANCIAL INFORMATION:
		Item 1 -		Financial Statements (Unaudited)		3
				Consolidated Condensed Statements of Earnings – Quarters and nine months ended September 30, 2009 and 2008		3
				Consolidated Condensed Statements of Comprehensive Income – Quarters and nine months ended September 30, 2009 and 2008		4
				Consolidated Condensed Balance Sheets – September 30, 2009 and December 31, 2008		5
				Consolidated Condensed Statements of Cash Flows – Quarters and nine months ended September 30, 2009 and 2008		7
				Notes to Consolidated Condensed Financial Statements		8
		Item 2 -		Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
		Item 3 -		Quantitative and Qualitative Disclosures About Market Risk		41
		Item 4 -		Controls and Procedures		42
PART II.		OTHER INFORMATION:
		Item 1 -		Legal Proceedings		43
		Item 1A -		Risk Factors		43
		Item 2 -		Unregistered Sales of Equity Securities and Use of Proceeds		43
		Item 3 -		Defaults Upon Senior Securities		43
		Item 4 -		Submission of Matters to a Vote of Security Holders		43
		Item 5 -		Other Information		43
		Item 6 -		Exhibits		43
		Signature Page				44

 

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PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Bucyrus International, Inc.

Consolidated Condensed Statements of Earnings (Unaudited)

 

		Quarter Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Dollars in thousands, except per share amounts)
Sales		$	675,767			$	646,002			$	2,005,947			$	1,783,991
Costs of products sold			451,924				463,671				1,406,657				1,285,979
Gross profit			223,843				182,331				599,290				498,012
Selling, general and administrative expenses			71,405				66,285				195,473				185,149
Research and development expenses			11,279				8,910				29,855				27,420
Amortization of intangible assets			4,593				4,183				14,198				15,214
Operating earnings			136,566				102,953				359,764				270,229
Interest income			(1,109	)			(1,475	)			(3,539	)			(5,605	)
Interest expense			6,802				7,897				20,328				24,524
Other expense			56				768				5,699				2,304
Earnings before income taxes			130,817				95,763				337,276				249,006
Income tax expense			38,750				31,596				106,028				81,441
Net earnings		$	92,067			$	64,167			$	231,248			$	167,565
Net earnings per share data
Basic:
Net earnings per share		$	1.24			$	0.86			$	3.11			$	2.25
Weighted average shares			74,459,337				74,339,888				74,454,844				74,335,712
Diluted:
Net earnings per share		$	1.21			$	0.85			$	3.05			$	2.23
Weighted average shares			76,191,084				75,266,063				75,724,333				75,248,961

See notes to consolidated condensed financial statements.

 

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Bucyrus International, Inc.

Consolidated Condensed Statements of

Comprehensive Income (Unaudited)

 

		Quarter Ended September 30,							Nine Months Ended September 30,
		2009			2008				2009			2008
		(Dollars in thousands)
Net earnings		$	92,067		$	64,167			$	231,248		$	167,565
Other comprehensive income (loss):
Currency translation adjustments			27,899			(31,896	)			62,455			(31,674	)
Change in pension and postretirement unrecognized costs, net of income tax expense (benefit) of $454, ($373), $933 and ($1,430), respectively			852			(844	)			1,645			(3,198	)
Derivative fair value changes, net of income tax expense (benefit) of $515, ($4,289), $9,994 and ($7,456), respectively			475			(5,831	)			18,258			(14,537	)
Other comprehensive income (loss)			29,226			(38,571	)			82,358			(49,409	)
Comprehensive income		$	121,293		$	25,596			$	313,606		$	118,156

See notes to consolidated condensed financial statements.

 

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Bucyrus International, Inc.

Consolidated Condensed Balance Sheets (Unaudited)

 

		September 30, 2009				December 31, 2008
		(Dollars in thousands, except per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	143,497			$	102,396
Receivables – net			645,227				636,486
Inventories			667,151				616,710
Deferred income taxes			40,772				53,133
Prepaid expenses and other			27,631				26,045
Total Current Assets			1,524,278				1,434,770
OTHER ASSETS:
Goodwill			344,236				330,211
Intangible assets – net			227,180				230,451
Other assets			68,364				68,823
Total Other Assets			639,780				629,485
PROPERTY, PLANT AND EQUIPMENT:
Cost			661,904				609,647
Less accumulated depreciation			(156,341	)			(121,251	)
Total Property, Plant and Equipment			505,563				488,396
TOTAL ASSETS		$	2,669,621			$	2,552,651

 

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Bucyrus International, Inc.

Consolidated Condensed Balance Sheets (Unaudited) (Continued)

 

		September 30, 2009				December 31, 2008
		(Dollars in thousands, except per share amounts)
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES:
Accounts payable		$	184,037			$	229,173
Accrued expenses			167,450				209,453
Liabilities to customers on uncompleted contracts and warranties			172,852				252,304
Income taxes			82,553				70,091
Current maturities of long-term debt and short-term obligations			12,802				69,291
Total Current Liabilities			619,694				830,312
LONG-TERM LIABILITIES:
Deferred income taxes			68,307				52,895
Pension, postretirement and other			213,797				218,181
Total Long-Term Liabilities			282,104				271,076
LONG-TERM DEBT, less current maturities			503,048				501,755
COMMON STOCKHOLDERS’ INVESTMENT:
Common stock – par value
$0.01 per share, authorized 200,000,000 shares, issued 75,351,069 shares and 75,079,266 shares, respectively			754				751
Additional paid-in capital			685,512				678,226
Treasury stock – 217,200 shares			(851	)			(851	)
Accumulated earnings			593,960				368,340
Accumulated other comprehensive loss			(14,600	)			(96,958	)
Total Common Stockholders’ Investment			1,264,775				949,508
TOTAL LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT		$	2,669,621			$	2,552,651

See notes to consolidated condensed financial statements.

 

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Bucyrus International, Inc.

Consolidated Condensed Statements of Cash Flows (Unaudited)

 

		Nine Months Ended September 30,
		2009				2008
		(Dollars in thousands)
Net Cash Provided By Operating Activities		$	133,943			$	84,062
Cash Flows From Investing Activities
Purchases of property, plant and equipment			(41,647	)			(62,223	)
Proceeds from disposal of property, plant and equipment			1,424				2,796
Purchases of investments			(9,311	)			(4,996	)
Proceeds from sale of investments			8,121				6,011
Other			(715	)			115
Net cash used in investing activities			(42,128	)			(58,297	)
Cash Flows From Financing Activities
Net repayments of revolving credit facilities			(55,157	)			(15,130	)
Repayments of term loan facility			(4,359	)			(3,865	)
Proceeds from long-term debt and other bank borrowings			1,171				7,203
Repayments of long-term debt and other bank borrowings			(249	)			(3,649	)
Payments under capital lease agreements			(413	)			(980	)
Tax (expense) benefit related to share-based payment awards			(197	)			1,566
Dividends paid			(5,583	)			(5,576	)
Other			347				—
Net cash used in financing activities			(64,440	)			(20,431	)
Effect of exchange rate changes on cash			13,726				(3,602	)
Net increase in cash and cash equivalents			41,101				1,732
Cash and cash equivalents at beginning of period			102,396				61,112
Cash and cash equivalents at end of period		$	143,497			$	62,844
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest		$	20,230			$	21,434
Income taxes – net of refunds		$	73,678			$	50,632
Supplemental Disclosure of Non-cash Investing Activities
Capital expenditures included in accounts payable		$	312			$	—

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)

1. Nature of Operations

Bucyrus International, Inc. (the “Company”) is a leading designer, manufacturer and marketer of high productivity mining equipment. The Company operates in two business segments: surface mining and underground mining. Major markets for the surface mining industry are copper, coal, oil sands and iron ore. The major market for the underground mining industry is coal. Most of the Company’s surface mining customers are large multinational corporations with operations in the various major surface mining markets throughout the world. Most of the Company’s underground mining customers are multinational coal mining corporations but tend to be smaller in size than the Company’s surface mining customers. The Company has more customers overall in its underground mining segment than in its surface mining segment. In addition to the manufacture of original equipment, an important part of the Company’s business consists of aftermarket sales, such as supplying parts, maintenance and repair services and technical advice, as well as refurbishing and relocating older, installed original equipment. The Company has manufacturing facilities in Australia, China, Germany and the United States and service and sales centers in Australia, Brazil, Canada, Chile, China, the Czech Republic, England, Germany, India, Mexico, Peru, Poland, Russia, South Africa and the United States.

2. Basis of Presentation

In the opinion of Company management, the consolidated condensed financial statements contain all adjustments necessary to present fairly the financial results for all periods presented. Certain items are included in these statements based on estimates for the entire year. Actual results in future periods may differ from the estimates.

Certain notes and other information have been condensed or omitted from these interim consolidated condensed financial statements. Therefore, these statements should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009.

3. Derivative Financial Instruments

On January 1, 2009, the Company adopted new accounting guidance regarding disclosures about derivative instruments and hedging activities. The new guidance requires enhanced disclosures regarding an entity’s derivatives and hedging activities.

The Company enters into contracts for certain derivative financial instruments to mitigate foreign exchange rate risk of specific foreign currency denominated transactions and to manage and preserve the economic value of cash flows in non-functional currencies. The Company also enters into contracts for certain derivative financial instruments to mitigate interest rate risk. The Company has designated substantially all of these contracts as either cash flow hedges or fair value hedges. The Company does not use derivative financial instruments for trading or other speculative purposes.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

The contractual amounts of the Company’s outstanding foreign currency forward contracts at September 30, 2009, by currency, were as follows:

 

		Buy			Sell
		(Dollars in thousands)
United States dollar		$	12,446		$	18,315
Australian dollar			6,899			14,822
Brazilian real			—			4,047
British pounds sterling			15,886			2,094
Chilean peso			20,031			—
Czech koruna			548			—
Euro			240,770			28,414
Peruvian sol			—			390
Polish zloty			—			1,871
Russian ruble			675			3,837
South African rand			—			2,745
		$	297,255		$	76,535

Based upon September 30, 2009 exchange rates, all of the Company’s outstanding contracts were recorded at fair value.

The Company conducts its business on a multinational basis in a wide variety of foreign currencies and hedges foreign currency exposures arising from various receivables, liabilities and expected inventory purchases. Derivative instruments that are utilized to hedge the foreign currency risk associated with anticipated inventory purchases in foreign currencies are designated as cash flow hedges. Gains and losses on these instruments, to the extent that they have been effective, are deferred in accumulated other comprehensive income (loss) and recognized in earnings when the related inventory is sold. Ineffectiveness related to these hedge instruments that was recognized in the Consolidated Condensed Statements of Earnings consisted of losses of $0.7 million and $4.1 million for the quarter and nine months ended September 30, 2009, respectively. The maturity of these instruments generally does not exceed 24 months. The Consolidated Condensed Statements of Earnings also include $0.7 million of gains and $3.1 million of losses for the quarter and nine months ended September 30, 2009, respectively, as a result of the discontinuance of cash flow hedges because the original forecasted transaction did not occur within the original specified time period or the two-months thereafter. The accumulated other comprehensive loss, net of tax, related to foreign currency forward contracts was $5.6 million at September 30, 2009. The Company estimates that $0.4 million of gains included in the $5.6 million loss will be reclassified into earnings over the next 12 months.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

To manage a portion of its exposure to changes in LIBOR-based interest rates on its variable rate debt, the Company has entered into interest rate swap agreements to effectively fix the interest payments on $477.4 million ($375.0 million plus €70.0 million) of its term loan. All of the swaps in place at September 30, 2009 have been designated as cash flow hedges of LIBOR-based interest payments. The effective portion of the change in fair value of the derivatives is recorded in accumulated other comprehensive income (loss), while any ineffective portion is recorded as an adjustment to interest expense. The differential paid or received on the interest rate swap is recognized as an adjustment to interest expense. Interest rate swaps in place at September 30, 2009 were as follows:

 

Amount			Interest Rate (1)		Maturity Date
(Dollars in thousands)
$	150,000		4.8800%		May 4, 2010 (2) (3)
$	50,000		5.0940%		May 4, 2010 (3)
$	50,000		2.1750%		January 30, 2012
$	50,000		2.4000%		January 28, 2013
$	50,000		2.5975%		January 28, 2014
$	21,945		1.9600%		March 31, 2012
$	14,630		2.2800%		March 31, 2013
$	36,575		2.5180%		March 31, 2014
$	21,945		2.4900%		March 31, 2014
$	25,000		2.2100%		April 1, 2014
$	7,315		2.4900%		April 1, 2014

 

(1)	Excludes applicable spread of 1.50% to 1.75%.

(2)	This swap, together with a $150 million interest rate swap entered into in 2007, which was terminated in 2008, effectively fixes the interest rate at 4.88%.

(3)	The Company has purchased, effective May 4, 2010, $200 million of interest rate swaps to extend the maturity to May 4, 2014 at the interest rate of 2.99%.

The Company recognized interest expense of $0.7 million and $1.9 million for the quarter and nine months ended September 30, 2009, respectively, related to the ineffective portion of its interest rate swaps. The accumulated other comprehensive loss related to interest rate swaps was $6.8 million, net of tax, at September 30, 2009. The Company estimates that $3.5 million of this loss, net of tax, will be reclassified into earnings over the next 12 months.

The fair value of the Company’s cash flow hedges related to foreign currency forward contracts and interest rate swaps and the accounts in the Consolidated Condensed Balance Sheet in which the gross amounts are included at September 30, 2009 were as follows:

 

		Prepaid Expenses and Other			Other Long- Term Assets			Accrued Expenses			Pension, Postretirement Benefits and Other
		(Dollars in thousands)
Interest rate swaps		$	—		$	—		$	4,173		$	10,603
Foreign currency forward contracts			3,884			—			3,045			1,395
Total designated		$	3,884		$	—		$	7,218		$	11,998

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

The gross derivative gains and losses included in the Consolidated Condensed Statements of Comprehensive Income and the Consolidated Condensed Statements of Earnings related to cash flow hedges for the quarter and nine months ended September 30, 2009 were as follows:

 

		Gain / (Loss) Recognized in Other Comprehensive Income
		Quarter Ended September 30, 2009				Nine Months Ended September 30, 2009
		(Dollars in thousands)
Interest rate swaps		$	(6,226	)		$	3,468
Foreign currency forward contracts			7,216				24,784
Total		$	990			$	28,252

 

		Gain / (Loss) Reclassified From Other Comprehensive Income								Statement of Earnings Line Item
		Quarter Ended September 30, 2009				Nine Months Ended September 30, 2009
		(Dollars in thousands)
Interest rate swaps		$	(682	)		$	(1,916	)		Interest expense
Foreign currency forward contracts			6,855				6,855			Sales
Foreign currency forward contracts			(2,695	)			(8,713	)		Cost of products sold
Foreign currency forward contracts			(1,345	)			(2,068	)		Selling, general and administrative expenses
Foreign currency forward contracts			855				(2,593	)		Other expense
Total		$	2,988			$	(8,435	)
		Gain / (Loss) Recognized in Earnings Due to Ineffectiveness and Amounts Excluded From Effectiveness Testing								Statement of Earnings Line Item
		Quarter Ended September 30, 2009				Nine Months Ended September 30, 2009
		(Dollars in thousands)
Foreign currency forward contracts		$	128			$	128			Sales
Foreign currency forward contracts			(689	)			(3,704	)		Cost of products sold
Foreign currency forward contracts			(127	)			(523	)		Other expense
Total		$	(688	)		$	(4,099	)

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

The gross gains and losses from derivatives not designated as hedging instruments included in the Consolidated Condensed Statements of Earnings for the quarter and nine months ended September 30, 2009 were as follows:

 

		Gain / (Loss)								Statement of Earnings Line Item
		Quarter Ended September 30, 2009				Nine Months Ended September 30, 2009
		(Dollars in thousands)
Foreign currency forward contracts		$	1,312			$	1,312			Sales
Foreign currency forward contracts			(2,589	)			(3,743	)		Selling, general and administrative expenses
Total		$	(1,277	)		$	(2,431	)

Derivative instruments are subject to significant concentrations of credit risk to the banking industry. The Company manages counterparty credit risk by only entering into derivative contracts with large commercial financial institutions. The maximum amount of loss, not considering netting arrangements, if any, which the Company would incur if counterparties to derivative instruments fail to meet their obligations was $6.5 million at September 30, 2009. At September 30, 2009, the Company had no knowledge of any of counterparty default.

The Company also has cross-currency foreign currency-denominated debt obligations that are designated as hedges of the foreign currency exposure associated with its net investments in non-U.S. operations. The currency effects of the debt obligations are reflected in other comprehensive income (loss) where they offset translation gains and losses recorded on the Company’s net investments in Germany. The Company recognized losses of $3.7 million and $5.7 million in other comprehensive income (loss) related to net investment hedges in the quarter and nine months ended September 30, 2009, respectively.

The Company also uses natural hedges to mitigate risks associated with foreign currency exposures. For example, oftentimes the Company has non-functional currency denominated receivables from customers for which the exposure is partially mitigated by a corresponding non-functional currency payable to a vendor.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

4. Comprehensive Income (Loss)

Comprehensive income (loss) is required to be reported in addition to net income (loss). 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 reports comprehensive income (loss) and accumulated other comprehensive loss in the Consolidated Statements of Common Stockholders’ Investment. Accumulated other comprehensive loss, net of income taxes, was as follows:

 

		September 30, 2009				December 31, 2008
		(Dollars in thousands)
Currency translation adjustments		$	31,234			$	(31,221	)
Pension and postretirement benefit unrecognized costs			(33,388	)			(35,033	)
Derivative fair value adjustment			(12,446	)			(30,704	)
Accumulated other comprehensive loss		$	(14,600	)		$	(96,958	)

5. Inventories

Inventories consisted of the following:

 

		September 30, 2009			December 31, 2008
		(Dollars in thousands)
Raw materials and parts		$	91,524		$	103,586
Work in process			248,141			242,224
Finished products (primarily replacement parts)			327,486			270,900
		$	667,151		$	616,710

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

6. Goodwill and Intangible Assets

Intangible assets consisted of the following:

 

		September 30, 2009							December 31, 2008
		Gross Carrying Amount			Accumulated Amortization				Gross Carrying Amount			Accumulated Amortization
		(Dollars in thousands)
Amortized intangible assets:
Technology		$	123,195		$	(24,747	)		$	115,580		$	(15,972	)
Customer relationships			119,189			(14,147	)			115,400			(9,333	)
Engineering drawings			25,500			(15,325	)			25,500			(14,369	)
Other			5,855			(4,776	)			5,855			(4,646	)
		$	273,739		$	(58,995	)		$	262,335		$	(44,320	)
Unamortized intangible assets – Trademarks/Trade names		$	12,436						$	12,436

Changes in the carrying amount of goodwill for the nine months ended September 30, 2009 were as follows:

 

		Surface Mining			Underground Mining
		(Dollars in thousands)
Balance at January 1, 2009		$	47,306		$	282,905
Currency translation			—			14,025
Balance at September 30, 2009		$	47,306		$	296,930

The estimated future amortization expense of intangible assets as of September 30, 2009 was as follows (dollars in thousands):

 

2009 (remaining three months)		$	4,884
2010			19,537
2011			19,537
2012			19,537
2013			19,537
2014			19,537
Future			112,175
		$	214,744

7. Long-Term Debt and Financing Arrangements

The Company’s credit facilities include a secured revolving credit facility of $357.5 million, an unsecured German revolving credit facility of €65.0 million, each of which mature on May 4, 2012, and a term loan facility of $400.0 million plus €75.0 million with a maturity date of May 4, 2014. The entire secured revolving credit facility may be used for letters of credit. At September 30, 2009 the Company had no borrowings under its secured or unsecured revolving credit facilities. At December 31, 2008, the Company classified the entire secured revolving credit facility balance of $55.2 million as current maturities of long-term debt and short-term obligations because it intended to repay the outstanding balance within 12 months.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

At September 30, 2009, the amount potentially available for borrowing under the secured revolving credit facility was $285.3 million, after taking into account $72.2 million of issued letters of credit. The amount potentially available for borrowing under the unsecured German credit facility at September 30, 2009 was $54.3 million (€37.1 million), after taking into account $40.9 million (€27.9 million) of issued letters of credit. At September 30, 2009, the Company had borrowings of $499.5 million ($392.0 million plus €73.5 million) under its term loan facility. To manage a portion of its exposure to changes in LIBOR-based interest rates, the Company has entered into interest rate swap agreements that effectively fix the interest payments on $477.4 million ($375.0 million plus €70.0 million) of outstanding borrowings under its term loan facility at a weighted average interest rate of 3.4%, plus the applicable spread. The remaining $22.1 million of outstanding term loan borrowings at September 30, 2009 were at a weighted average interest rate of 1.9%, plus the applicable spread.

8. Common Stockholders’ Investment

On April 30, 2008, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation increasing the number of authorized shares of common stock from 75 million to 200 million. Also on April 30, 2008, the Company announced a two-for-one split of its common stock in the form of a 100% stock dividend. The stock dividend was paid on May 27, 2008 to stockholders of record on May 13, 2008 and the Company’s common stock began trading on a split-adjusted basis on May 28, 2008. All previously reported net earnings per share and number of shares in the accompanying consolidated condensed financial statements and notes thereto have been adjusted to reflect this stock split.

At September 30, 2009, the Company’s issued and outstanding shares consisted only of common stock. Holders of common stock are entitled to one vote per share on all matters to be voted on by the Company’s common stockholders.

9. Stock-Based Compensation

The Company recognizes compensation expense for nonvested shares, stock appreciation rights (“SARs”) and stock options over the requisite service period for vesting of the award. Total stock-based compensation expense included in the Company’s Consolidated Condensed Statements of Earnings was $2.6 million and $7.6 million for the quarter and nine months ended September 30, 2009, respectively, and $1.1 million and $5.1 million for the quarter and nine months ended September 30, 2008, respectively.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

During the first nine months of 2009, the Company granted nonvested shares to certain employees pursuant to the Bucyrus International, Inc. Omnibus Incentive Plan 2007 (the “Omnibus Plan”). These shares fully cliff vest on December 31, 2012. Nonvested share activity during the nine months ended September 30, 2009 was as follows:

 

		Number of Shares			Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2009		206,688			$	31.59
Granted		301,350			$	13.80
Forfeited		(10,200	)		$	21.29
Vested		—				—
Nonvested at September 30, 2009		497,838			$	21.03

Compensation expense related to nonvested shares was $1.0 million and $2.8 million for the quarter and nine months ended September 30, 2009, respectively, and $0.4 million and $2.0 million for the quarter and nine months ended September 30, 2008, respectively. At September 30, 2009, there was $5.2 million of unrecognized compensation expense related to nonvested share grants. This cost is expected to be recognized over a weighted-average period of approximately 2.5 years. The grant date fair value was based on the fair market value of the Company’s common stock on the date of grant. At September 30, 2009, the Company expected approximately 429,000 shares to vest and these shares had an aggregate intrinsic value of $15.3 million and a weighted-average remaining contractual term of 2.3 years.

Premium nonvested shares granted pursuant to the Omnibus Plan partially vest if specific performance levels are attained by the Company. Any premium nonvested shares credited to employees will fully cliff vest on December 31, 2009, provided the employee remains employed by the Company until such date. Premium nonvested share activity during the nine months ended September 30, 2009 was as follows:

 

		Number of Shares			Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2009		178,498			$	21.72
Granted		—				—
Forfeited		(3,600	)		$	28.50
Vested		—				—
Nonvested at September 30, 2009		174,898			$	21.47

Compensation expense related to premium nonvested shares was $0.1 million and $0.4 million for the quarter and nine months ended September 30, 2009, respectively, and $0.1 million and $0.4 million for the quarter and nine months ended September 30, 2008, respectively. At September 30, 2009, there was $0.1 million of unrecognized compensation expense related to premium nonvested share grants. This cost is expected to be recognized in 2009. The grant date fair value was based on the fair market value of the Company’s common stock on the date of grant. At September 30, 2009, the Company expected 174,898 shares to vest and these shares had an aggregate intrinsic value of $6.2 million and a weighted-average remaining contractual term of three months.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

During the first nine months of 2009, the Company granted SARs to certain employees pursuant to the Omnibus Plan. The SARs vest incrementally and can be settled in shares only. SAR activity during the nine months ended September 30, 2009 was as follows:

 

		Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2009		1,207,540			$	14.20
Granted		1,223,100			$	7.53
Forfeited		(40,750	)		$	10.73
Exercised		(10,360	)		$	13.95
Outstanding at September 30, 2009		2,379,530			$	10.84
Vested and exercisable at September 30, 2009		393,775			$	11.55

Compensation expense related to SARs was $1.5 million and $4.4 million for the quarter and nine months ended September 30, 2009, respectively, and $0.6 million and $2.7 million for the quarter and nine months ended September 30, 2008, respectively. At September 30, 2009, there was $10.8 million of unrecognized compensation expense related to SARs that are vested or expected to vest. This expense is expected to be recognized over a weighted-average period of approximately 2.6 years. The grant date fair value of the SARs was calculated using the Black-Scholes pricing model. The assumptions used in this model were as follows:

 

Risk-free interest rate		2.82	%
Expected stock price volatility		58.0	%
Expected life		6.5 years
Dividend yield		0.70	%

The risk-free interest rate was based on the U.S. Government Treasury strips rate on the date of grant and with a maturity equal to the expected life of the SARs. The expected stock price volatility was based on the historical activity of the Company’s common stock. The expected life was calculated using the simplified method for “plain-vanilla” issuances. The expected dividend yield was based on the annual dividends which have been paid on the Company’s common stock.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

10. Pension Benefits

Pension expense consisted of the following:

 

		Quarter Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Dollars in thousands)
Service cost		$	2,519			$	2,993			$	5,116			$	4,086
Interest cost			3,228				4,542				9,464				9,031
Expected return on assets			(1,217	)			(3,565	)			(4,567	)			(5,165	)
Amortization of:
Prior service cost			187				398				437				348
Actuarial loss			1,232				556				2,285				857
Net periodic benefit cost		$	5,949			$	4,924			$	12,735			$	9,157

11. Net Earnings Per Share

The reconciliation of the numerators and the denominators of the basic and diluted net earnings per share of common stock calculations for the quarters and nine months ended September 30, 2009 and 2008 was as follows:

 

		Quarter Ended September 30,						Nine Months Ended September 30,
		2009			2008			2009			2008
		(Dollar in thousands, except per share amounts)
Net earnings		$	92,067		$	64,167		$	231,248		$	167,565
Weighted average shares outstanding			74,459,337			74,339,888			74,454,844			74,335,712
Basic net earnings per share		$	1.24		$	0.86		$	3.11		$	2.25
Weighted average shares outstanding			74,459,337			74,339,888			74,454,844			74,335,712
Effect of dilutive stock options, nonvested shares, stock appreciation rights and performance shares			1,731,747			926,175			1,269,489			913,249
Weighted average shares outstanding – diluted (1)			76,191,084			75,266,063			75,724,333			75,248,961
Diluted net earnings per share		$	1.21		$	0.85		$	3.05		$	2.23

 

(1)

Grants of stock appreciation rights representing approximately an additional 329,000 shares and 696,000 shares for the quarter and nine months ended September 30, 2009, respectively, were outstanding but were not included in the computation of diluted net earnings per share because their effect would have been antidilutive.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

12. Segment Information

The Company has two reportable segments, surface mining and underground mining.

The accounting policies of the Company’s segments are the same as those described in Note A to the Company’s 2008 consolidated financial statements. The operating earnings for each segment do not include interest expense, other expense and a provision for income taxes. Corporate expenses consist primarily of costs related to employees who provide services across both of the Company’s segments. There are no significant intersegment sales. Identifiable assets are those used in the operations of each segment.

Segment information for the quarters and nine months ended September 30, 2009 and 2008 was as follows:

 

		Quarter Ended September 30, 2009
		Sales			Operating Earnings				Depreciation and Amortization			Capital Expenditures			Total Assets
		(Dollars in thousands)
Surface mining		$	312,893		$	78,180			$	6,054		$	7,353		$	1,058,074
Underground mining			362,874			72,597				8,781			2,853			1,611,547
Total operations			675,767			150,777				14,835			10,206			2,669,621
Corporate			—			(14,211	)			—			—			—
Consolidated total		$	675,767			136,566				14,835		$	10,206		$	2,669,621
Interest income						(1,109	)			—
Interest expense						6,802				—
Other expense						56				784
Earnings before income taxes					$	130,817			$	15,619
		Quarter Ended September 30, 2008
		Sales			Operating Earnings				Depreciation and Amortization			Capital Expenditures			Total Assets
		(Dollars in thousands)
Surface mining		$	337,148		$	72,269			$	4,733		$	12,346		$	1,010,100
Underground mining			308,854			39,874				8,092			5,551			1,354,032
Total operations			646,002			112,143				12,825			17,897			2,364,132
Corporate			—			(9,190	)			—			—			—
Consolidated total		$	646,002			102,953				12,825		$	17,897		$	2,364,132
Interest income						(1,475	)			—
Interest expense						7,897				—
Other expense						768				768
Earnings before income taxes					$	95,763			$	13,593

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

		Nine Months Ended September 30, 2009
		Sales			Operating Earnings				Depreciation and Amortization			Capital Expenditures			Total Assets
		(Dollars in thousands)
Surface mining		$	979,938		$	224,417			$	17,314		$	25,626		$	1,058,074
Underground mining			1,026,009			165,113				26,319			8,917			1,611,547
Total operations			2,005,947			389,530				43,633			34,543			2,669,621
Corporate			—			(29,766	)			—			—			—
Consolidated total		$	2,005,947			359,764				43,633		$	34,543		$	2,669,621
Interest income						(3,539	)			—
Interest expense						20,328				—
Other expense						5,699				2,600
Earnings before income taxes					$	337,276			$	46,233
		Nine Months Ended September 30, 2008
		Sales			Operating Earnings				Depreciation and Amortization			Capital Expenditures			Total Assets
		(Dollars in thousands)
Surface mining		$	922,985		$	190,872			$	14,813		$	46,589		$	1,010,100
Underground mining			861,006			103,421				27,696			15,634			1,354,032
Total operations			1,783,991			294,293				42,509			62,223			2,364,132
Corporate			—			(24,064	)			—			—			—
Consolidated total		$	1,783,991			270,229				42,509		$	62,223		$	2,364,132
Interest income						(5,605	)			—
Interest expense						24,524				—
Other expense						2,304				2,304
Earnings before income taxes					$	249,006			$	44,813

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

13. Contingencies

Environmental, product warranty and liability and legal matters as of September 30, 2009 were as follows:

Environmental

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 the Company's 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 required 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.

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 have a material adverse effect on its financial position, results of operations or cash flows, although no assurance to that effect can be given. The Company has an ongoing program to proactively address potential environmental problems.

Over the past three years, expenditures for ongoing compliance, remediation, monitoring and cleanup have been immaterial. The Company believes that expenditures for compliance and remediation will not have a material adverse effect on its financial position, results of operations or cash flows, although no assurance to that effect can be given.

Product Warranty

The Company recognizes the cost associated with its warranty policies on its products as revenue is recognized. The amount recognized is based on historical experience. The changes in accrued warranty costs for the nine months ended September 30, 2009 and 2008 were as follows:

 

		2009				2008
		(Dollars in thousands)
Balance at January 1		$	53,586			$	70,909
Provision			13,421				10,837
Charges			(17,149	)			(12,774	)
Currency translation			3,157				(2,302	)
Balance at September 30		$	53,015			$	66,670

Product Liability

The Company is 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 in federal and state courts. Such claims are generally related to

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

property damage and to personal injury. The Company’s products are operated by its employees and its customers’ employees and independent contractors at various work sites in the United States and abroad. In the United States, workers’ claims against employers related to workplace injuries are generally limited by state workers’ compensation statutes, but such limitations do not apply to equipment suppliers. The Company has insurance covering most of these claims and has various limits of liability depending on the insurance policy year in question. At the time a liability associated with a claim becomes probable and can be reasonably estimated, the Company accrues for the liability by a charge to earnings. For all other cases, an estimate of the costs associated with the matters cannot be made due to the inherent uncertainties in the litigation process; however, the Company believes that the final resolution of these 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 its financial position, results of operations or cash flows, although no assurance to that effect can be given.

Asbestos Liability

The Company has been named as a co-defendant in numerous personal injury liability cases alleging damages due to exposure to asbestos and other substances. The Company has insurance covering most of these cases and has various limits of liability depending on the insurance policy year in question. At the time a liability associated with a case becomes probable and can be reasonably estimated, the Company accrues for the liability by a charge to earnings. For all other cases, an estimate of the costs associated with the matters cannot be made due to the inherent uncertainties in the litigation process; however, the Company does not believe that these costs will have a material adverse effect on its financial position, results of operations or cash flows, although no assurance to that effect can be given.

Other Litigation

The Company is involved in various other litigation arising in the normal course of business. The Company does not believe that its recovery or liability, if any, under any such pending litigation will have a material effect on its financial position, results of operations or cash flows, although no assurance to that effect can be given.

14. Fair Value Measurements

On January 1, 2008, the Company adopted new accounting guidance regarding fair value measurements. The new guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The new guidance classifies the inputs used to measure fair value into the following hierarchy:

 

Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2		Unadjusted quoted prices in active markets for similar assets or liabilities, or
		Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
		Inputs other than quoted prices that are observable for the assets or liabilities
Level 3		Unobservable inputs for the assets or liabilities

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

The Company has determined that its financial assets and liabilities are level 2 in the fair value hierarchy. The Company’s financial assets and liabilities that were accounted for at fair value at September 30, 2009 were as follows (dollars in thousands):

 

Assets:
Foreign currency exchange contracts (1)		$	—
Interest rate swaps (2)			6,516
Total assets at fair value		$	6,516
Liabilities:
Foreign currency exchange contracts (1)		$	5,758
Interest rate swaps (2)			14,775
Total liabilities at fair value		$	20,533

 

(1)	Based on observable market transactions of forward currency prices.

(2)	Based on observable market transactions of forward LIBOR or EURIBOR rates.

15. Subsequent Events

The Company has evaluated subsequent events after the balance sheet date through November 9, 2009, the financial statements issuance date, for appropriate accounting and disclosure.

16. Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance regarding business combinations. The guidance defines how acquirers recognize and measure the consideration transferred, assets acquired, liabilities assumed, noncontrolling interests, and goodwill acquired at their fair values as of the acquisition date. The guidance is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. The Company adopted the guidance effective January 1, 2009 and it did not have a material effect on the Company’s financial position or results of operations.

In May 2009, the FASB issued new accounting guidance regarding management’s assessment of subsequent events. The guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, the guidance outlines (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The guidance is effective prospectively for interim or annual financial periods ending after June 15, 2009. The Company adopted the guidance in June 2009 and it did not have a material effect on the Company’s financial position or results of operations.

 

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Bucyrus International, Inc.

Notes to Consolidated Condensed Financial Statements (Unaudited)—(Continued)

 

In June 2009, the FASB issued the Accounting Standards Codification (“Codification”). The Codification is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The use of the Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the Codification in September 2009 and it did not have a material effect on the Company’s financial position or results of operations.

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion and analysis and information contained elsewhere in this report contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of predictive, future tense or forward-looking terminology, such as “believes,” “anticipates,” “expects,” “estimates,” “intends,” “may,” “will” or similar terms. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those contained in the forward-looking statements as a result of various factors, some of which are unknown. The factors that could cause our actual results to differ materially from those anticipated in such forward-looking statements and could adversely affect our actual results of operations and financial condition include, without limitation:

 

•

the cyclical nature of the sale of original equipment due to fluctuations in market prices for coal, copper, oil, iron ore and other minerals, changes in general economic conditions, changes in interest rates, changes in customers’ replacement or repair cycles, consolidation in the mining industry and competitive pressures;

 

•

changes in global financial markets and global economic conditions;

 

•

our customers deferring, delaying or canceling capital investments due to volatility and tightening of credit markets, unprecedented financial market conditions and a global recession;

 

•

disruption of our plant operations due to equipment failures, natural disasters or other reasons;

 

•

our ability to attract and retain skilled labor;

 

•

our production capacity;

 

•

our ability to purchase component parts or raw materials from key suppliers at acceptable prices and/or on the required time schedule;

 

•

our dependence on the commodity price of coal and other conditions in the coal market;

 

•

our reliance on significant customers;

 

•

the loss of key customers or key members of management;

 

•

the risks and uncertainties of doing business in foreign countries, including emerging markets, and foreign currency risks;

 

•

the highly competitive nature of the mining industry;

 

•

our ability to continue to offer products containing innovative technology that meets the needs of our customers;

 

•

costs and risks associated with changing tax legislation, environmental laws and all other regulatory compliance;

 

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•

costs and risks associated with regulatory compliance and changing regulations affecting the mining industry and/or electric utilities;

 

•

product liability, environmental and other potential litigation;

 

•

work stoppages at our company, our customers, our suppliers or providers of transportation;

 

•

our ability to satisfy underfunded pension and postretirement obligations;

 

•

our ability to protect intellectual property; and

 

•

the availability of operating cash to service our indebtedness

The foregoing factors do not constitute an exhaustive list of factors that could cause actual results to differ materially from those anticipated in forward-looking statements. This should be read in conjunction with other cautionary statements and risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Preamble

All references to the “Company,” “us,” “we” and “our” in the following discussion and analysis means, unless the context indicates otherwise, Bucyrus International, Inc. together with its consolidated subsidiaries.

Business

We are a leading designer and manufacturer of high productivity mining equipment for the extraction of coal, copper, oil sands, iron ore and other minerals in major mining centers throughout the world. In addition to the manufacture of original equipment, we also provide the aftermarket replacement parts and service for this equipment. All of our products and services are marketed under the Bucyrus name. We have manufacturing facilities in Australia, China, Germany and the United States and service and sales centers in Australia, Brazil, Canada, Chile, China, the Czech Republic, England, Germany, India, Mexico, Poland, Peru, Russia, South Africa and the United States. The largest markets for our original equipment and aftermarket parts and service have historically been in Australia, Canada, China, Germany, India, South Africa, South America and the United States. In the future, we expect that the United States, Australia, Brazil, Canada, China, India and Russia will be increasingly important markets for our surface mining equipment and that the United States, China, Russia, Eastern Europe and India will be increasingly important markets for our underground mining equipment.

A substantial portion of our sales and operating earnings is attributable to our operations located outside the United States. We generally sell our surface mining original equipment, including that sold directly to foreign customers, and most of our aftermarket parts in United States dollars. Our underground mining original equipment is generally sold in either United States dollars or euros. A portion of our aftermarket parts sales are also denominated in the local currencies of Australia, Brazil, Canada, South Africa and the United Kingdom. Aftermarket services are paid for primarily in local currency, which is naturally hedged by our payment of local labor in local currency.

 

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In our surface mining segment, overall quoting activity for our original equipment in the third quarter of 2009 increased slightly compared to the second quarter of 2009. We believe the increase in quoting activity primarily related to the strengthening of the oil sands and copper markets. We currently expect quoting activity for our surface mining original equipment to increase during the fourth quarter of 2009 compared with the third quarter of 2009.

We currently expect our surface mining aftermarket parts and service quoting activity during the fourth quarter of 2009 to remain generally consistent with the first nine months of 2009.

In our underground mining segment, overall quoting activity for our original equipment in the third quarter of 2009 was generally higher than the first and second quarter 2009 levels. We believe this increase was primarily due to improving coal prices and improving access to capital for our customers. We currently expect quoting activity for our underground mining original equipment during the fourth quarter of 2009 to remain consistent with third quarter 2009 levels.

Quoting activity for our underground mining aftermarket parts and service for the third quarter of 2009 was consistent with the second quarter of 2009. We currently expect our underground mining aftermarket parts and service quoting activity during the fourth quarter of 2009 to remain generally consistent with the third quarter of 2009.

Backlog

Our backlog level, which represents unfilled orders for our products and services, allows us to more accurately forecast our upcoming sales and plan our production accordingly. Our backlog also provides us with a relatively predictive level of expected sales and cash flows for the next 12 months. Due to the high cost of some of our original equipment, our backlog is subject to volatility, particularly over relatively short periods. A portion of our surface mining backlog is related to multi-year contracts that will generate revenue in future years.

During the quarter ended September 30, 2009 there were no cancellations of previously placed surface mining and underground mining original equipment orders. Approximately $28 million of orders in our underground mining original equipment backlog at December 31, 2008 were cancelled during the nine months ended September 30, 2009. The cancellations were primarily with customers in Central Appalachia of the United States. There were no refundable or nonrefundable down payments involved with any of these cancellations. There were no cancellations of our surface mining original equipment orders during the nine months ended September 30, 2009.

We have transferred certain original equipment orders previously scheduled to ship in 2009 to our 2010 shipping schedule due to the delay of capital equipment expenditures by certain of our large multinational customers. Through September 30, 2009, we have transferred approximately $200 million of planned 2009 original equipment shipments to 2010, primarily at the request of certain of our customers. We do not currently anticipate transferring shipment of additional 2009 original equipment orders to 2010, and we believe that increased sales of our aftermarket parts and service in 2009 will offset the decline in original equipment sales. We do not expect this transfer of orders to have a material adverse effect on our cash levels or liquidity

 

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in 2009. Inventory levels for the fourth quarter of 2009 are not expected to increase because of this transfer of orders since most raw materials have already been received or have been delayed to match the 2010 shipping schedule.

Our backlog at September 30, 2009 and December 31, 2008, as well as the portion of our backlog which is expected to be recognized within 12 months of these dates, was as follows:

 

		September 30, 2009			December 31, 2008			% Change
		(Dollars in thousands)
Surface Mining:
Total		$	1,127,219		$	1,367,242		(17.6	)%
Next 12 months		$	731,481		$	906,884		(19.3	)%
Underground Mining:
Total		$	809,465		$	1,135,212		(28.7	)%
Next 12 months		$	571,620		$	806,074		(29.1	)%
Total:
Total		$	1,936,684		$	2,502,454		(22.6	)%
Next 12 months		$	1,303,101		$	1,712,958		(23.9	)%

New Orders

New orders were as follows:

 

		Quarter Ended September 30,									Nine Months Ended September 30,
		2009			2008			% Change			2009			2008			% Change
		(Dollars in thousands)
Surface Mining:
Original equipment		$	107,495		$	202,341		(46.9	)%		$	235,668		$	657,521		(64.2	)%
Aftermarket parts and service			186,023			159,191		16.9	%			504,188			778,980		(35.3	)%
			293,518			361,532		(18.8	)%			739,856			1,436,501		(48.5	)%
Underground Mining:
Original equipment			207,931			467,092		(55.5	)%			329,474			964,207		(65.8	)%
Aftermarket parts and service			126,132			151,086		(16.5	)%			370,847			448,541		(17.3	)%
			334,063			618,178		(46.0	)%			700,321			1,412,748		(50.4	)%
Total:
Original equipment			315,426			669,433		(52.9	)%			565,142			1,621,728		(65.2	)%
Aftermarket parts and service			312,155			310,277		0.6	%			875,035			1,227,521		(28.7	)%
		$	627,581		$	979,710		(35.9	)%		$	1,440,177		$	2,849,249		(49.5	)%

The decrease in surface mining original equipment new orders for the quarter and nine months ended September 30, 2009 compared to the same periods for 2008 was primarily due to a decline in electric mining shovel and blasthole drill new orders. Capital spending by our customers continues to be negatively impacted by the effect of current global economic conditions on commodities and credit markets.

 

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The increase in surface mining aftermarket parts and service new orders for the quarter ended September 30, 2009 compared to the same period for 2008 was primarily in Australia due to current market conditions. Surface mining aftermarket parts and service new orders for nine months ended September 30, 2009 have declined in most markets compared to the same period for 2008 as a result of current global economic conditions; however, new orders have increased in China and Southern Africa. The increase in China was primarily the result of increased demand for coal resulting in higher Bucyrus equipment utilization rates, which required increased maintenance. The increase in Southern Africa was primarily the result of lower than normal new orders from some of our larger customers during the nine months ended September 30, 2008 compared to the same period for 2009. New orders for our surface mining aftermarket parts and service increased approximately 8% in the third quarter of 2009 compared to the second quarter of 2009. Included in surface mining aftermarket parts and service new orders for the nine months ended September 30, 2009 was $23.4 million related to multi-year contracts that will generate revenue in future years, compared to $278.3 million in the first nine months of 2008. Multi-year contracts vary in size and are not typically received on a regular basis.

Total surface mining new orders for the nine months ended September 30, 2009 were negatively impacted by approximately $26 million due to the effect of the stronger U.S. dollar on orders denominated in foreign currencies compared to the same period in 2008.

The decrease in underground mining original equipment new orders for the quarter ended September 30, 2009 compared to the same period for 2008 was primarily due to the timing of larger longwall new orders with customers in the United States, Germany and China during the third quarter of 2008 and reduced new orders in all product lines in 2009 as a result of current global economic conditions. The decrease in underground mining original equipment new orders for the nine months ended September 30, 2009 compared to the same period for 2008 was primarily due to the sale of five complete longwall systems to a customer in the Czech Republic in the first quarter of 2008 and the sale of multiple complete longwall systems to customers in the United States in 2008. Longwall and room and pillar new orders have been negatively impacted in 2009 as a result of current global economic conditions causing delays in capital spending by our customers and reduced coal prices.

The decrease in underground mining aftermarket parts and service new orders for the third quarter of 2009 compared to the same period for 2008 was primarily in the United States and Germany. The decrease in aftermarket new orders in the United States coincides with the decreased new orders for longwall systems in 2009 as discussed above, as United States customers tend to order aftermarket packages at the time they place a longwall system order. The decrease in aftermarket new orders in Germany was due to reduced coal production by our customers in 2009. The decrease in underground mining aftermarket parts and service new orders for the nine months ended September 30, 2009 compared to the same period for 2008 was in all markets, primarily a result of current global economic conditions causing customers to postpone longwall face extension projects that require large amounts of capital.

Total underground mining new orders for the nine months ended September 30, 2009 were negatively impacted by approximately $48 million due to the stronger U.S. dollar on orders denominated in foreign currencies compared to the same period in 2008.

 

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Results of Operations

Quarter and Nine Months Ended September 30, 2009 Compared to Quarter and

Nine Months Ended September 30, 2008

 

		Quarter Ended September 30,
		2009						2008						% Change
		Amount			% of Sales			Amount			% of Sales
		(Dollars in thousands)
Sales		$	675,767		—			$	646,002		—			4.6	%
Gross profit		$	223,843		33.1	%		$	182,331		28.2	%		22.8	%
Selling, general and administrative Expenses		$	71,405		10.6	%		$	66,285		10.3	%		7.7	%
Operating earnings		$	136,566		20.2	%		$	102,953		15.9	%		32.6	%
Net earnings		$	92,067		13.6	%		$	64,167		9.9	%		43.5	%
		Nine Months Ended September 30,
		2009						2008						% Change
		Amount			% of Sales			Amount			% of Sales
		(Dollars in thousands)
Sales		$	2,005,947		—			$	1,783,991		—			12.4	%
Gross profit		$	599,290		29.9	%		$	498,012		27.9	%		20.3	%
Selling, general and administrative Expenses		$	195,473		9.7	%		$	185,149		10.4	%		5.6	%
Operating earnings		$	359,764		17.9	%		$	270,229		15.1	%		33.1	%
Net earnings		$	231,248		11.5	%		$	167,565		9.4	%		38.0	%

 

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Sales

Sales consisted of the following:

 

		Quarter Ended September 30,									Nine Months Ended September 30,
		2009			2008			% Change			2009			2008			% Change
		(Dollars in thousands)
Surface Mining:
Original equipment		$	119,800		$	155,554		(23.0	)%		$	417,103		$	437,631		(4.7	)%
Aftermarket parts and service			193,093			181,594		6.3	%			562,835			485,354		16.0	%
			312,893			337,148		(7.2	)%			979,938			922,985		6.2	%
Underground Mining:
Original equipment			215,758			186,037		16.0	%			613,348			512,653		19.6	%
Aftermarket parts and service			147,116			122,817		19.8	%			412,661			348,353		18.5	%
			362,874			308,854		17.5	%			1,026,009			861,006		19.2	%
Total:
Original equipment			335,558			341,591		(1.8	)%			1,030,451			950,284		8.4	%
Aftermarket parts and service			340,209			304,411		11.8	%			975,496			833,707		17.0	%
		$	675,767		$	646,002		4.6	%		$	2,005,947		$	1,783,991		12.4	%

The decrease in surface mining original equipment sales for the quarter and nine months ended September 30, 2009 compared to the same periods for 2008 was primarily due to decreased electric mining shovel sales, which was partially offset by increased percentage of completion revenue recognized from the manufacture and assembly of walking draglines in Australia and Canada.

The increase in surface mining aftermarket parts and service sales for the quarter ended September 30, 2009 compared to the same period for 2008 was primarily in the Chilean market with moderate increases in the Canadian and Chinese markets, offset by a decline in the Australian and Peruvian markets. The increase in surface mining aftermarket parts and service for the nine months ended September 30, 2009 compared to the same period for 2008 was primarily in the Chilean, United States, Chinese and Australian markets with a moderate increase in the Canadian market, offset by a moderate decline in the Peruvian market. The largest increase for the quarter and nine months ended September 30, 2009 compared to the same periods for 2008 was in the Chilean market and was primarily the result of improved copper prices and increased machine utilization by some of our customers in this region. The increase in the United States market for the nine months ended September 30, 2009 compared to the same period for 2008 was primarily driven by increased capital spending by customers in the southwest region. The increase in the Chinese market for the quarter and nine months ended September 30, 2009 compared to the same periods for 2008 was primarily due to increased part sales for original equipment sold to this market in recent prior periods. The decrease in the Australian market for the quarter ended September 30, 2009 compared to the same period for 2008 was due to current market conditions, and the increase in the Australian market for the nine months ended September 30, 2009 compared to the same period for 2008 was due to two large dragline

 

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projects. The increase in the Canadian market for the quarter ended September 30, 2009 compared to the same period for 2008 was due to large scheduled maintenance projects on electric mining shovels at several large Canadian customers and the increase in this market for the nine months ended September 30, 2009 compared to the same period for 2008 was primarily the result of backlog reductions related to prior period new orders. The decrease in the Peruvian market for the quarter and nine months ended September 30, 2009 compared to the same periods for 2008 was the result of the expiration of a multi-year parts and service contract during 2008.

Total surface mining sales for the quarter and nine months ended September 30, 2009 were negatively impacted by approximately $6.2 million and $34.9 million, respectively, due to the effect of the stronger U.S. dollar on sales denominated in foreign currencies compared to the same periods for 2008.

The increase in underground mining original equipment sales for the quarter and nine months ended September 30, 2009 compared to the same periods for 2008 was the result of increases in all product lines.

The increase in underground mining aftermarket parts and service sales for the quarter and nine months ended September 30, 2009 compared to the same periods for 2008 was primarily due to increased longwall replacement projects in the United States market as well as increased sales in the Czech Republic market as the result of an acquisition in the fourth quarter of 2008, offset by a decline in the Southern African market due to a large longwall extension order in 2008. Many of the longwall replacement projects in the United States were ordered in 2008 as a result of mine conditions making it more economical to extend the lives of existing longwall systems instead of buying new systems. Sales for the third quarter of 2009 also increased in the Australian market as a result of large rebuild orders from customers to extend the lives of their existing Bucyrus mining equipment.

Total underground mining sales for the quarter and nine months ended September 30, 2009 were negatively impacted by approximately $11.6 million and $65.9 million, respectively, due to the effect of the stronger U.S. dollar on sales denominated in foreign currencies compared to the same periods for 2008.

Gross Profit

Gross profit and gross margin were as follows:

 

		Quarter Ended September 30,											Nine Months Ended September 30,
		2009				2008				% Change			2009				2008				% Change
		(Dollars in thousands)
Gross profit		$	223,843			$	182,331			22.8	%		$	599,290			$	498,012			20.3	%
Gross margin			33.1	%			28.2	%		N/A				29.9	%			27.9	%		N/A

 

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Gross profit was affected by purchase accounting adjustments as a result of the acquisition of DBT GmbH (“DBT”) in 2007 as follows:

 

		Quarter Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Dollars in thousands)
(Increase) decrease due to purchase accounting adjustments		$	(483	)		$	(629	)		$	(1,432	)		$	11,262
Gross margin increase (reduction)			—				0.1	%			0.1	%			(0.6	)%

The increase in gross profit for the quarter ended September 30, 2009 compared to the same period for 2008 was primarily due to the mix of original equipment sales in both of our surface and underground mining segments and increased underground mining segment sales. The increase in year-to-date 2009 gross profit was primarily due to increased sales in both our surface and underground mining segments and the mix of original equipment sales in our surface mining segment. Excluding the effect of the DBT purchase accounting adjustments, gross profit was 33.0% of sales for the third quarter of 2009 compared to 28.1% of sales for the third quarter of 2008 and 29.8% of sales for the nine months ended September 30, 2009 compared to 28.5% of sales for the nine months ended September 30, 2008. The increase in gross margin for the quarter and nine months ended September 30, 2009 compared to the same periods last year was primarily due to the mix of margins on original equipment orders, raw material cost reductions, improved efficiencies in our manufacturing operations, and moving some subcontract work back into our facilities.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were as follows:

 

		Quarter Ended September 30,											Nine Months Ended September 30,
		2009				2008				% Change			2009				2008				% Change
		(Dollars in thousands)
Selling, general and administrative expenses		$	71,405			$	66,285			7.7	%		$	195,473			$	185,149			5.6	%
Percent of sales			10.6	%			10.3	%		N/A				9.7	%			10.4	%		N/A

Selling, general and administrative expenses included $1.6 million and $5.3 million, respectively, of severance expense for the quarter and nine months ended September 30, 2009 compared to $0.3 million of severance income and $0.9 million of severance expense for the same periods of 2008. Selling general and administrative expenses for the quarter and nine months ended September 30, 2009 included a $3.3 million loss on the sale of certain assets in Poland.

Research and Development Expenses

Research and development expenses for the third quarter of 2009 were $11.3 million, or 1.7% of sales, compared to $8.9 million, or 1.4% of sales, for the third quarter of 2008. These expenses for the nine months ended September 30, 2009 were $29.9 million, or 1.5% of sales, compared to $27.4 million, or 1.5% of sales, for the nine months ended September 30, 2008.

 

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Amortization of Intangible Assets

Amortization of intangible assets acquired in the DBT acquisition was $4.2 million for the third quarter of 2009, compared to $3.8 million for the third quarter of 2008, and were $12.9 million for the nine months ended September 30, 2009, compared to $14.1 million for the nine months ended September 30, 2008. Amortization of intangible assets acquired in the DBT acquisition is expected to be approximately $4.3 million to $4.8 million per quarter through April 2019.

Operating Earnings

Operating earnings were as follows:

 

		Quarter Ended September 30,											Nine Months Ended September 30,
		2009				2008				% Change			2009				2008				% Change
		(Dollars in thousands)
Surface mining		$	78,180			$	72,269			8.2	%		$	224,417			$	190,872			17.6	%
Underground mining			72,597				39,874			82.1	%			165,113				103,421			59.7	%
Total operations			150,777				112,143			34.5	%			389,530				294,293			32.4	%
Corporate			(14,211	)			(9,190	)		(54.6	)%			(29,766	)			(24,064	)		(23.7	)%
Consolidated total		$	136,566			$	102,953			32.6	%		$	359,764			$	270,229			33.1	%

The increase in operating earnings for the third quarter of 2009 was primarily due to increased gross profit as a result of higher sales in both of our segments and improved gross margins as discussed above. Operating earnings for our underground mining segment were reduced by purchase accounting adjustments related to the acquisition of DBT of $3.5 million and $11.0 million for the quarter and nine months ended September 30, 2009, respectively, compared to $3.1 million and $24.8 million for the quarter and nine months ended September 30, 2008, respectively.

Interest Expense

Interest expense for the third quarter of 2009 was $6.8 million compared to $7.9 million for the third quarter of 2008 and was $20.3 million for the nine months ended September 30, 2009 compared to $24.5 million for the nine months ended September 30, 2008. The decrease in interest expense in 2009 was primarily due to lower interest rates on our term loan debt.

Other Expense

Other expense for the third quarter of 2009 was $0.1 million compared to $0.8 million for the third quarter of 2008 and was $5.7 million for the nine months ended September 30, 2009 compared to $2.3 million for the nine months ended September 30, 2008. The increase for the first nine months of 2009 was primarily due to $3.1 million of losses that were reclassified from accumulated other comprehensive income into earnings due to the discontinuance of cash flow hedges. The cash flow hedges were concurrently settled and extended because an original

 

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forecasted transaction did not occur within the original specified time period as a result of customer requested delays of two orders in our underground mining segment. We anticipate that the losses will be recovered in 2010 when the hedges come due.

Net Earnings

Net earnings were as follows:

 

		Quarter Ended September 30,									Nine Months Ended September 30,
		2009			2008			% Change			2009			2008			% Change
		(Dollars in thousands, except per share amounts)
Net earnings		$	92,067		$	64,167		43.5	%		$	231,248		$	167,565		38.0	%
Fully diluted net earnings per share		$	1.21		$	0.85		42.4	%		$	3.05		$	2.23		36.8	%

Net earnings were reduced (increased) by amortization of purchase accounting adjustments related to the acquisition of DBT as follows:

 

		Quarter Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Dollars in thousands)
Inventory fair value adjustment charged to cost of product sold		$	—			$	—			$	—			$	12,088
Amortization of intangible assets			4,183				3,796				12,927				14,054
Depreciation of fixed assets			(654	)			(655	)			(1,936	)			(1,337	)
Operating earnings			3,529				3,141				10,991				24,805
Income tax benefit			1,229				1,042				3,705				8,117
Total		$	2,300			$	2,099			$	7,286			$	16,688

Foreign Currency Fluctuations

The following table summarizes the approximate effect of changes in foreign currency exchange rates on our sales, gross profit and operating earnings for the quarter and nine months ended September 30, 2009, in each case compared to the same period in the prior year:

 

		Quarter Ended September 30,							Nine Months Ended September 30,
		2009				2008			2009				2008
		(Dollars in thousands)
(Decrease) increase in sales		$	(17,796	)		$	26,103		$	(100,801	)		$	49,329
(Decrease) increase in gross profit		$	(5,921	)		$	6,667		$	(27,624	)		$	10,619
(Decrease) increase in operating earnings		$	(3,329	)		$	4,214		$	(17,362	)		$	5,351

 

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EBITDA

EBITDA was as follows:

 

		Quarter Ended September 30,											Nine Months Ended September 30,
		2009				2008				% Change			2009				2008				% Change
		(Dollars in thousands)
EBITDA		$	152,129			$	115,778			31.4	%		$	400,298			$	312,738			28.0	%
EBITDA as a percent of sales			22.5	%			17.9	%		N/A				20.0	%			17.5	%		N/A

EBITDA is defined as net earnings before interest income, interest expense, income taxes, depreciation and amortization. EBITDA includes the impact of non-cash stock compensation expense, severance expenses, loss on disposal of fixed assets and the inventory fair value purchase accounting adjustment charged to cost of products sold. EBITDA is a measurement not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. EBITDA is presented because (i) we use EBITDA to measure our liquidity and financial performance and (ii) we believe EBITDA is frequently used by securities analysts, investors and other interested parties in evaluating the performance and enterprise value of companies in general, and in evaluating the liquidity of companies with significant debt service obligations and their ability to service their indebtedness. The following table reconciles net earnings as reported in our Consolidated Condensed Statements of Earnings to EBITDA and reconciles EBITDA to net cash provided by operating activities as reported in our Consolidated Condensed Statements of Cash Flows:

 

		Quarter Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Dollars in thousands)
Net earnings		$	92,067			$	64,167			$	231,248			$	167,565
Interest income			(1,109	)			(1,475	)			(3,539	)			(5,605	)
Interest expense			6,802				7,897				20,328				24,524
Income tax expense			38,750				31,596				106,028				81,441
Depreciation			10,241				8,642				29,434				27,295
Amortization (1)			5,378				4,951				16,799				17,518
EBITDA (2)			152,129				115,778				400,298				312,738
Changes in assets and liabilities			14,117				(141,714	)			(154,827	)			(134,136	)
Non-cash stock compensation expense			2,608				1,082				7,598				5,061
Loss on disposal of fixed assets (3)			3,315				194				3,691				759
Interest income			1,109				1,475				3,539				5,605
Interest expense			(6,802	)			(7,897	)			(20,328	)			(24,524	)
Income tax expense			(38,750	)			(31,596	)			(106,028	)			(81,441	)
Net cash provided by (used in) operating activities		$	127,726			$	(62,678	)		$	133,943			$	84,062
Net cash used in investing activities		$	(7,865	)		$	(12,921	)		$	(42,128	)		$	(58,297	)
Net cash (used in) provided by financing activities		$	(86,016	)		$	2,782			$	(64,440	)		$	(20,431	)

 

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(1)	Includes amortization of intangible assets and debt issuance costs.

(2)

Certain charges that were deducted in calculating EBITDA for each of the periods presented is presented in the following table. These items include (a) non-cash stock compensation expense related to our equity incentive plans, (b) severance expenses for personnel changes in the ordinary course, (c) loss on disposals of fixed assets in the ordinary course, and (d) the inventory fair value purchase accounting adjustment related to the acquisition of DBT charged to cost of products sold. We believe this table, when reviewed in connection with our presentation of EBITDA, provides additional information that is useful to our management and investors for measuring comparative operating performance between time periods and among companies. In addition to EBITDA, our management assesses the charges presented in this table when preparing our annual operating budget and financial projections. Specifically, we believe that this table allows our management and investors to assess our operating performance during the periods these charges were incurred, on a consistent basis with the periods during which these charges were not incurred.

 

		Quarter Ended September 30,							Nine Months Ended September 30,
		2009			2008				2009			2008
		(Dollars in thousands)
Non-cash stock compensation expense		$	2,608		$	1,082			$	7,598		$	5,061
Severance expenses			1,582			(306	)			5,263			884
Loss on disposal of fixed assets			3,315			194				3,691			759
Inventory fair value adjustment charged to cost of products sold			—			—				—			12,088
		$	7,505		$	970			$	16,552		$	18,792

 

(3)	Reflects losses on the disposal of fixed assets in the ordinary course and a $3.3 million loss in the quarter ended September 30, 2009 related to the sale of certain assets in Poland.

Liquidity and Capital Resources

Description of Credit Facilities

Our credit facilities include a secured revolving credit facility of $357.5 million, an unsecured German revolving credit facility of €65.0 million, each of which mature on May 4, 2012, and a term loan facility of $400.0 million plus €75.0 million with a maturity date of May 4, 2014. The entire secured revolving credit facility may be used for letters of credit. At September 30, 2009, we had no borrowings under our secured or unsecured revolving credit facilities. At December 31, 2008, we classified the entire secured revolving credit facility balance of $55.2 million as current maturities of long-term debt and short-term obligations because we intended to repay the outstanding balance within 12 months.

Borrowings under our secured revolving credit facility bear interest, payable no less frequently than quarterly, at (1) LIBOR plus between 1.25% and 1.75% (based on our total

 

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leverage ratio) for U.S. dollar denominated LIBOR loans, (2) a base rate determined by reference to the greater of the U.S. prime lending rate and the federal funds rate plus between 0.25% and 0.75% (based on our total leverage ratio) for U.S. dollar denominated base rate loans and (3) EURIBOR plus between 1.25% and 1.75% (based on our total leverage ratio) for Euro denominated loans. The interest rates under our secured revolving credit facility are subject to change based on the total leverage ratio. The unsecured German revolving credit facility bears interest, payable no less frequently than quarterly, at EURIBOR plus 1.75%. Under each revolving credit facility, we have agreed to pay a commitment fee based on the unused portion of such facilities, payable quarterly, at rates ranging from 0.25% to 0.50% depending on the total leverage ratio, and when applicable, customary letter of credit fees. Borrowings under our term loan facility bear interest, payable no less frequently than quarterly, at (a) LIBOR plus 1.50% for U.S. dollar denominated LIBOR loans, (2) the base rate plus 0.50% for U.S. dollar denominated base rate loans and (3) EURIBOR plus 1.75% for Euro denominated loans.

At September 30, 2009, the amount potentially available for borrowing under our secured revolving credit facility was $285.3 million, after taking into account $72.2 million of issued letters of credit. The amount potentially available for borrowing under our unsecured German credit facility at September 30, 2009 was $54.3 million (€37.1 million), after taking into account $40.9 million (€27.9 million) of issued letters of credit. At September 30, 2009, we had borrowings under our term loan facility of $499.5 million ($392.0 million plus €73.5 million). To manage a portion of our exposure to changes in LIBOR-based interest rates, we have entered into interest rate swap agreements that effectively fix the interest payments on $477.4 million ($375.0 million plus €70.0 million) of outstanding borrowings under our term loan facility at a weighted average interest rate of 3.4%, plus the applicable spread. The remaining $22.1 million of outstanding term loan borrowings at September 30, 2009 were at a weighted average interest rate of 1.9%, plus the applicable spread.

Our credit facilities contain operating and financial covenants that, among other things, could limit our ability to obtain additional sources of capital. Our financial covenants require that we maintain a total leverage ratio, calculated on a trailing four-quarter basis, of not more than 3.50 to 1.00. The total leverage ratio is calculated as the ratio of consolidated indebtedness (which is net of cash) to consolidated operating profit (which excludes, among other things, certain non-cash charges, as discussed more fully in the credit facilities). At September 30, 2009, we were in compliance with all covenants and other requirements in our credit facilities.

At September 30, 2009, there were approximately $169.0 million of standby letters of credit outstanding under all of our bank facilities.

Cash Requirements

Our cash balance increased to $143.5 million at September 30, 2009 from $104.6 million at June 30, 2009 and from $102.4 million at December 31, 2008. The increase was primarily the result of increased cash receipts from customers. We have contributed $26.1 million to our United States pension plans during the nine months ended September 30, 2009, including $10.4 million in the third quarter.

Our customers generally are contractually obligated to make progress payments under purchase contracts for machine orders and certain large parts orders. As a result, we do not anticipate significant outside financing requirements to fund production of our original

 

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equipment and do not believe that original equipment sales will have a material adverse effect on our liquidity, although the issuance of letters of credit reduces the amount available for borrowings under our revolving credit facilities. If additional borrowings are necessary during the fourth quarter of 2009, we believe we have sufficient capacity under our existing revolving credit facilities.

Inventory increased to $667.2 million at September 30, 2009 from $616.7 million at December 31, 2008. The increase was primarily in our underground mining segment due to an unsold order in work-in-process inventory that is expected to be sold in the near term, a build up of work-in-process on orders that were delayed per our customers’ requests during the second quarter, and a build up of work-in-process on aftermarket rebuild orders in Australia. Our underground mining segment finished goods have also increased to support new longwall shearer production in the United States. Inventory in our surface mining segment has increased to a lesser extent due to ordering raw materials for original equipment orders in advance of the current production schedule, including for orders that have been transferred to 2010. Inventory also increased due to the effect of the weaker dollar on inventories valued in foreign currencies. Consolidated inventory turns were 3.0 at September 30, 2009.

Capital expenditures for the nine months ended September 30, 2009 were $34.5 million compared to $62.2 million for the nine months ended September 30, 2008. Included in capital expenditures for the nine months ended September 30, 2009 and 2008 were $9.6 million and $33.1 million, respectively, related to our surface mining expansion program and additional renovations of our South Milwaukee, Wisconsin facilities. We expect our capital expenditures in 2009 to be approximately $55 million, which includes approximately $2.8 million to complete the expansion of our facility in Wyoming, approximately $6.7 million for the completion of phase three of our South Milwaukee, Wisconsin expansion and approximately $5.6 million for the additional renovations at our South Milwaukee, Wisconsin facility. We are closely monitoring our capital spending in relation to current economic conditions and business levels. We believe cash flows from operating activities and funds available under our revolving credit facilities will be sufficient to fund our expected capital expenditures during the fourth quarter of 2009.

At September 30, 2009, we had contractual obligations of approximately $2.1 million with respect to our surface mining expansion and renovation programs. There have been no other material changes to the contractual obligations as presented in our Form 10-K for the year ended December 31, 2008.

In addition to the obligations noted above, we currently anticipate estimated cash funding requirements for interest, dividends and income taxes of approximately $7 million, $2 million and $55 million to $60 million, respectively, during the fourth quarter of 2009.

During the fourth quarter of 2009, we anticipate continued positive cash flows from operations. We believe that cash flows from operations and our existing revolving credit facilities will be sufficient to fund our cash requirements for the fourth quarter of 2009. We also believe that cash flows from operations will be sufficient to repay any borrowings under our revolving credit facilities, as necessary, and all scheduled term loan payments.

Receivables

We recognize revenues on most original equipment orders using the percentage-of-completion method. Accordingly, accounts receivable are generated when revenue is

 

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recognized, which can be before the funds are collected or in some cases, before the customer is billed. At September 30, 2009, we had $645.2 million of accounts receivable compared to $636.5 million at December 31, 2008. Receivables at September 30, 2009 and December 31, 2008 included $335.4 million and $209.7 million, respectively, of revenues from long-term contracts recognized using percentage of completion accounting that were not billable at these dates. We anticipate increased invoicing and collection of these receivables over the next several quarters.

Included in our September 30, 2009 accounts receivable balance was an additional $90.5 million related to order delays, of which we expect to collect approximately $1.5 million during the fourth quarter of 2009. Customer requested delays of sold orders, poor conditions in global financial markets or global or regional recessionary economic conditions could cause us difficulty in collecting outstanding accounts receivable.

Liabilities to Customers on Uncompleted Contracts and Warranties

Customers generally make down payments at the time of the order for a new machine as well as progress payments throughout the manufacturing process and these payments are recorded as Liabilities to Customers on Uncompleted Contracts and Warranties.

Critical Accounting Policies and Estimates

See Critical Accounting Policies and Estimates in the Management’s Discussion and Analysis section of our 2008 Annual Report to Stockholders. There have been no material changes to these policies.

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our market risk is impacted by changes in interest rates and foreign currency exchange rates.

Interest Rates

Our interest rate exposure relates primarily to floating rate debt obligations in the United States. We manage borrowings under our credit agreement through the selection of LIBOR based borrowings, EURIBOR based borrowings, or prime-rate based borrowings. To manage a portion of our exposure to changes in LIBOR-based interest rates on our variable rate debt, we have entered into interest rate swap agreements that effectively fix the interest payments on $477.4 million ($375.0 million plus €70.0 million) of our outstanding borrowings under our term loan facility. A sensitivity analysis was performed for our floating rate debt obligations as of September 30, 2009. Based on this analysis, we have determined that a 10% change in the weighted average interest rate as of September 30, 2009 would not have a material effect on our interest expense on an annual basis.

Foreign Currency

We sell most of our surface mining original equipment, including equipment sold directly to foreign customers, in United States dollars, and we sell most of our underground mining original equipment in either United States dollars or euros. We sell most of our underground mining aftermarket parts in either United States dollars or euros, with some aftermarket parts sales denominated in the local currencies of various foreign markets. We sell most of our surface mining aftermarket parts in United States dollars, with some aftermarket parts sales denominated in the local currencies of various foreign markets. Both surface mining and underground mining aftermarket services are paid primarily in local currency, with a natural partial currency hedge through payment for local labor in local currency. The value, in United States dollars, of our investments in our foreign subsidiaries and of dividends paid to us by those subsidiaries will be affected by changes in exchange rates. We enter into currency hedges to help mitigate currency exchange risks.

Currency controls, devaluations, trade restrictions and other disruptions in the currency convertibility and in the market for currency exchange could limit our ability to timely convert sales earned abroad into United States dollars, which could adversely affect our ability to service our United States dollar indebtedness, fund our United States dollar costs and finance capital expenditures and pay dividends on our common stock.

Based on our derivative instruments outstanding at September 30, 2009, a 10% change in foreign currency exchange rates would not have a material effect on our financial position, results of operations or cash flows.

 

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Item 4.

Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer and Secretary, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2009. Based upon their evaluation of these disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer and Secretary concluded that the disclosure controls and procedures were effective as of September 30, 2009 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings.

Not applicable.

 

Item 1A.

Risk Factors.

Not applicable.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

 

Item 3.

Defaults Upon Senior Securities.

Not applicable.

 

Item 4.

Submission of Matters to a Vote of Security Holders.

Not applicable

 

Item 5.

Other Information.

Not applicable.

 

Item 6.

Exhibits.

See Exhibit Index on last page of this report.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		BUCYRUS INTERNATIONAL, INC.
		(Registrant)
		/S/    MARK J. KNAPP
Date: November 9, 2009		Mark J. Knapp Corporate Controller Principal Accounting Officer
		/S/    CRAIG R. MACKUS
Date: November 9, 2009		Craig R. Mackus Chief Financial Officer and Secretary Principal Financial Officer
		/S/    TIMOTHY W. SULLIVAN
Date: November 9, 2009		Timothy W. Sullivan President and Chief Executive Officer

 

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EXHIBIT INDEX

 

Exhibit Number		Description
10.1		Severance Agreement between Kenneth W. Krueger and Bucyrus International, Inc., dated September 3, 2009 (incorporated by reference herein to Exhibit 10.1 to the Company’s Form 8-K filed on September 4, 2009).
31.1		Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rules 13a-14(a)/15d-14(a).
31.2		Certification of Chief Financial Officer and Secretary pursuant to Section 302 of the Sarbanes-Oxley Act and Rules 13a-14(a)/15d-14(a).
32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

 

*

Furnished as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Condensed Statements of Earnings for the quarters and nine months ended September 30, 2009 and 2008, (ii) the Consolidated Condensed Statements of Comprehensive Income for the quarters and nine months ended September 30, 2009, (iii) the Consolidated Condensed Balance Sheets as of September 30, 2009 and December 31, 2008, (iv) the Consolidated Condensed Statements of Cash Flows for the quarters and nine months ended September 30, 2009 and 2008, and (iv) Notes to Consolidated Condensed Financial Statements.