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Bucyrus International 10-Q 2005

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32



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, 2005

OR

 

 

o 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 000-50858

 

 

 

BUCYRUS INTERNATIONAL, INC.

 


 

(Exact Name of Registrant as Specified in its Charter)


 

 

 

 

 

 

 

DELAWARE

 

39-0188050

 


 

 

 


 

(State of Incorporation)

 

(I.R.S. Employer

 

 

Identification No.)


 

 

 

P. O. BOX 500

1100 MILWAUKEE AVENUE

SOUTH MILWAUKEE, WISCONSIN

53172

 


 

(Address of Principal Executive Offices)

(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 o

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

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).      Yes o     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 4, 2005



Class A Common Stock, $.01 par value

20,496,401





BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

 

 

 

 

Page No.

 

 

 


PART I.

FINANCIAL INFORMATION:

 

 

 

 

 

 

 

Item 1 - Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

Consolidated Condensed Statements of Operations - Quarters and nine months ended September 30, 2005 and 2004

 

4

 

 

 

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income (Loss) - Quarters and nine months ended September 30, 2005 and 2004

 

5

 

 

 

 

 

 

 

Consolidated Condensed Balance Sheets - September 30, 2005 and December 31, 2004

 

6-7

 

 

 

 

 

 

 

Consolidated Condensed Statements of Cash Flows - Nine months ended September 30, 2005 and 2004

 

8

 

 

 

 

 

 

 

Notes to Consolidated Condensed Financial Statements

 

9-15

 

 

 

 

 

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16-24

 

 

 

 

 

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

Item 4 - Controls and Procedures

 

26

 

 

 

 

 

Forward-Looking Statements

 

27

 

 

 

 

PART II.

OTHER INFORMATION:

 

 

 

 

 

 

 

Item 1 - Legal Proceedings

 

28

 

 

 

 

 

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

 

28

 

 

 

 

 

Item 3 - Defaults Upon Senior Securities

 

28

 

 

 

 

 

Item 4 - Submission of Matters to a Vote of Security Holders

 

28

 

 

 

 

 

Item 5 - Other Information

 

28

 

 

 

 

 

Item 6 - Exhibits

 

28

 

 

 

 

 

Signature Page

 

29




PART I
FINANCIAL INFORMATION

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in Thousands, Except Per Share Amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

Nine Months Ended September 30,

 

 

 


 


 

 

 

2005

 

2004

 

2005

 

2004

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

157,358

 

$

111,509

 

$

402,916

 

$

325,604

 

Cost of products sold

 

 

120,930

 

 

87,194

 

 

306,468

 

 

256,845

 

 

 



 



 



 



 

Gross profit

 

 

36,428

 

 

24,315

 

 

96,448

 

 

68,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

13,931

 

 

13,237

 

 

38,377

 

 

41,499

 

Research and development expenses

 

 

1,583

 

 

1,270

 

 

4,393

 

 

3,904

 

Amortization of intangible assets

 

 

449

 

 

412

 

 

1,352

 

 

1,235

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

 

20,465

 

 

9,396

 

 

52,326

 

 

22,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

1,278

 

 

2,054

 

 

3,640

 

 

10,345

 

Other expense – net

 

 

123

 

 

149

 

 

238

 

 

867

 

Loss on extinguishment of debt

 

 

 

 

7,316

 

 

 

 

7,316

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes

 

 

19,064

 

 

(123

)

 

48,448

 

 

3,593

 

Income tax expense

 

 

6,287

 

 

885

 

 

16,322

 

 

3,987

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

12,777

 

$

(1,008

)

$

32,126

 

$

(394

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) per share

 

$

.63

 

$

(.06

)

$

1.59

 

$

(.03

)

Weighted average shares

 

 

20,434,239

 

 

17,671,362

 

 

20,266,788

 

 

13,943,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss) per share

 

$

.61

 

$

(.06

)

$

1.54

 

$

(.03

)

Weighted average shares

 

 

20,852,568

 

 

17,671,362

 

 

20,822,104

 

 

13,943,044

 

See notes to consolidated condensed financial statements.

4



BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

Nine Months Ended September 30,

 

 

 


 


 

 

 

2005

 

2004

 

2005

 

2004

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

12,777

 

$

(1,008

)

$

32,126

 

$

(394

)

Other comprehensive (loss)-

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

3,632

 

 

1,705

 

 

640

 

 

(2,338

)

 

 



 



 



 



 

Comprehensive income (loss)

 

$

16,409

 

$

697

 

$

32,766

 

$

(2,732

)

 

 



 



 



 



 

See notes to consolidated condensed financial statements

5



BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(Dollars in Thousands, Except Per Share Amounts)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 


 


 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,270

 

$

20,617

 

Receivables – net

 

 

131,182

 

 

90,802

 

Inventories

 

 

150,069

 

 

110,815

 

Deferred income taxes

 

 

9,331

 

 

9,607

 

Prepaid expenses and other

 

 

5,759

 

 

7,205

 

 

 



 



 

Total Current Assets

 

 

303,611

 

 

239,046

 

 

 



 



 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

Goodwill

 

 

47,306

 

 

47,306

 

Intangible assets – net

 

 

35,509

 

 

36,935

 

Deferred income taxes

 

 

6,575

 

 

7,651

 

Other assets

 

 

8,219

 

 

8,191

 

 

 



 



 

 

 

 

97,609

 

 

100,083

 

 

 



 



 

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

133,533

 

 

120,724

 

Less accumulated depreciation

 

 

(75,037

)

 

(67,044

)

 

 



 



 

 

 

 

58,496

 

 

53,680

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

459,716

 

$

392,809

 

 

 



 



 

6



BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (Continued)
(Dollars in Thousands, Except Per Share Amounts)

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 


 


 

LIABILITIES AND COMMON SHAREHOLDERS’ INVESTMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

93,544

 

$

59,446

 

Liabilities to customers on uncompleted contracts and warranties

 

 

20,328

 

 

8,221

 

Income taxes

 

 

6,028

 

 

2,880

 

Current maturities of long-term debt and other short-term obligations

 

 

1,792

 

 

6,342

 

 

 



 



 

Total Current Liabilities

 

 

121,692

 

 

76,889

 

 

 



 



 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

Postretirement benefits

 

 

14,134

 

 

13,700

 

Pension and other

 

 

32,205

 

 

38,242

 

 

 



 



 

 

 

 

46,339

 

 

51,942

 

 

 



 



 

LONG-TERM DEBT, less current maturities

 

 

88,227

 

 

96,910

 

 

 

 

 

 

 

 

 

COMMON SHAREHOLDERS’ INVESTMENT:

 

 

 

 

 

 

 

Common stock – par value $.01per share, authorized 41,000,000 shares, issued 20,568,801 shares and 20,095,977 shares, respectively

 

 

206

 

 

201

 

Additional paid-in capital

 

 

296,907

 

 

289,930

 

Unearned restricted stock compensation

 

 

(536

)

 

(671

)

Treasury stock – 72,400 shares, at cost

 

 

(851

)

 

(851

)

Accumulated deficit

 

 

(71,217

)

 

(99,850

)

Accumulated other comprehensive loss

 

 

(21,051

)

 

(21,691

)

 

 



 



 

 

 

 

203,458

 

 

167,068

 

 

 



 



 

 

 

$

459,716

 

$

392,809

 

 

 



 



 

See notes to consolidated condensed financial statements.

7



BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 


 

 

 

2005

 

2004

 

 

 


 


 

Net Cash Provided By Operating Activities

 

$

13,419

 

$

5,992

 

 

 



 



 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(13,552

)

 

(3,804

)

Proceeds from sale of property, plant and equipment

 

 

263

 

 

90

 

Payment for purchase of company

 

 

(85

)

 

(559

)

Other

 

 

11

 

 

54

 

 

 



 



 

Net cash used in investing activities

 

 

(13,363

)

 

(4,219

)

 

 



 



 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

Net borrowings from (repayment of) revolving credit facility

 

 

84,675

 

 

(37,420

)

Proceeds from (repayment of) senior secured term loan

 

 

(98,750

)

 

100,000

 

Retirement of Senior Notes

 

 

 

 

(155,560

)

Payment of deferred interest on Senior Notes owned by Bucyrus Holdings, LLC

 

 

 

 

(23,660

)

Net increase in other long-term debt and bank borrowings

 

 

843

 

 

516

 

Payment of financing expenses

 

 

(589

)

 

(4,753

)

Net proceeds from issuance of common stock

 

 

3,884

 

 

129,821

 

Dividends paid

 

 

(3,489

)

 

 

 

 



 



 

Net cash provided by (used in) financing activities

 

 

(13,426

)

 

8,944

 

 

 



 



 

Effect of exchange rate changes on cash

 

 

23

 

 

(74

)

 

 



 



 

Net increase (decrease) in cash and cash equivalents

 

 

(13,347

)

 

10,643

 

Cash and cash equivalents at beginning of period

 

 

20,617

 

 

6,075

 

 

 



 



 

Cash and cash equivalents at end of period

 

$

7,270

 

$

16,718

 

 

 



 



 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

 

2005

 

2004

 

 

 


 


 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

 

$

3,910

 

$

38,574

 

Income taxes - net of refunds

 

 

9,086

 

 

5,518

 

See notes to consolidated condensed financial statements.

8



BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

 

 

1.

In the opinion of Bucyrus International, Inc. (the “Company”), the consolidated condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial results for the interim periods. Certain items are included in these statements based on estimates for the entire year. Actual results in future periods may differ from the estimates. The Company’s operations are classified as one operating segment.

 

 

2.

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 2004 Annual Report to Shareholders and Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2005.

 

 

3.

Inventories consist of the following:


 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 


 


 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

Raw materials and parts

 

$

36,323

 

$

21,583

 

Work in process

 

 

24,806

 

 

7,633

 

Finished products (primarily replacement parts)

 

 

88,940

 

 

81,599

 

 

 

 

 

 

 

 

 

 

 



 



 

 

 

$

150,069

 

$

110,815

 

 

 

 

 

 

 

 

 

 

 



 



 

9



 

 

4.

The following is a 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, 2005 and 2004:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

 


 


 

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 


 


 


 


 

 

 

 

(Dollars in Thousands, Except Per Share Amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

12,777

 

$

(1,008

)

$

32,126

 

$

(394

)

 

 

 

 



 



 



 



 

 

 

Weighted average shares outstanding

 

 

20,434,239

 

 

17,671,362

 

 

20,266,788

 

 

13,943,044

 

 

 

 

 



 



 



 



 

 

 

Basic net earnings (loss) per share

 

$

.63

 

$

(.06

)

$

1.59

 

$

(.03

)

 

 

 

 



 



 



 



 

 

 

Weighted average shares outstanding

 

 

20,434,239

 

 

17,671,362

 

 

20,266,788

 

 

13,943,044

 

 

Effect of dilutive stock options and restricted stock

 

 

418,329

 

 

 

 

555,316

 

 

 

 

 

 



 



 



 



 

 

Weighted average shares outstanding - diluted

 

 

20,852,568

 

 

17,671,362

 

 

20,822,104

 

 

13,943,044

 

 

 

 

 



 



 



 



 

 

 

Diluted net earnings (loss) per share

 

$

.61

 

$

(.06

)

$

1.54

 

$

(.03

)

 

 

 

 



 



 



 



 


 

 

 

The weighted average shares outstanding used to compute the diluted loss per share for the quarter and nine months ended September 30, 2004 exclude outstanding options to purchase 862,400 shares of the Company’s common stock as of September 30, 2004. The options were excluded because their inclusion would have been antidilutive.

10



 

 

5.

The Company accounts for stock–based compensation arrangements in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” as allowed by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). The following table illustrates the effect on net earnings and net earnings per share as if the fair value-based method provided by SFAS 123 had been applied for all outstanding and unvested awards in each period:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

Nine Months Ended

 

 

 

 

September 30,

 

September 30,

 

 

 

 


 


 

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 


 


 


 


 

 

 

 

(Dollars in Thousands, Except Per Share Amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported net earnings (loss)

 

$

12,777

 

$

(1,008

)

$

32,126

 

$

(394

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Stock-based employee compensation expense recorded, net of related tax effects

 

 

 

 

2,590

 

 

 

 

10,031

 

 

Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects

 

 

 

 

(567

)

 

 

 

(575

)

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma net earnings

 

$

12,777

 

$

1,015

 

$

32,126

 

$

9,062

 

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

.63

 

$

(.06

)

$

1.59

 

$

(.03

)

 

Diluted

 

 

.61

 

 

(.06

)

 

1.54

 

 

(.03

)

 

Pro forma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

.63

 

 

.06

 

 

1.59

 

 

.65

 

 

Diluted

 

 

.61

 

 

.06

 

 

1.54

 

 

.62

 


 

 

 

Options to purchase 101,548 and 471,568 shares of the Company’s Class A common stock were exercised during the quarter and nine months ended September 30, 2005, respectively.

 

 

 

In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R eliminates the alternative of accounting for share-based compensation under Accounting Principles Board Opinion No. 25. SFAS 123R generally requires the recognition of the cost of employee services for share-based compensation based on the grant date fair value of the equity or liability instruments issued. The effective date for the Company is the beginning of fiscal year 2006. The Company is currently assessing the impact of the adoption of SFAS 123R but does not believe the impact of the adoption of this statement will be material to the Company’s financial statements.

11



 

 

6.

Intangible assets consist of the following:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2005

 

December 31, 2004     

 

 

 

 


 


 

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

 

 


 


 


 

 


 

 

 

 

(Dollars in Thousands)

 

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineering drawings

 

$

25,500

 

$

(10,224

)

$

25,500

 

$

(9,268

)

 

Bill of material listings

 

 

2,856

 

 

(1,145

)

 

2,856

 

 

(1,038

)

 

Software

 

 

2,288

 

 

(1,835

)

 

2,288

 

 

(1,663

)

 

Other

 

 

769

 

 

(269

)

 

864

 

 

(173

)

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

31,413

 

$

(13,473

)

$

31,508

 

$

(12,142

)

 

 

 



 



 



 



 

 

Unamortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks/Trade names

 

$

12,436

 

 

 

 

$

12,436

 

 

 

 

 

Intangible pension asset

 

 

5,133

 

 

 

 

 

5,133

 

 

 

 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

17,569

 

 

 

 

$

17,569

 

 

 

 

 

 

 



 

 

 

 



 

 

 

 


 

 

 

The aggregate intangible amortization expense for the quarter and nine months ended September 30, 2005 was $.4 million and $1.4 million, respectively. The aggregate intangible amortization expense for the quarter and nine months ended September 30, 2004 was $.4 million and $1.2 million, respectively.

 

 

 

The estimated future amortization expense of intangible assets as of September 30, 2005 is as follows:


 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

2005 (remaining three months)

 

 

$

450

 

 

2006

 

 

 

1,800

 

 

2007

 

 

 

1,739

 

 

2008

 

 

 

1,572

 

 

2009

 

 

 

1,418

 

 

2010

 

 

 

1,418

 

 

Future

 

 

 

9,543

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

$

17,940

 

 

 

 

 



 

 

12



 

 

7.

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 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 materially affect its capital expenditures, earnings or competitive position. The Company has an ongoing program to address any potential environmental problems.

 

 

 

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 following is a reconciliation of the changes in accrued warranty costs for the nine months ended September 30, 2005 and 2004:


 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 


 

 

 

2005

 

2004

 

 

 


 


 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

Balance at January 1

 

$

5,452

 

$

4,311

 

Provision

 

 

2,137

 

 

2,809

 

Charges

 

 

(1,219

)

 

(1,772

)

 

 



 



 

 

 

 

 

 

 

 

 

Balance at September 30

 

$

6,370

 

$

5,348

 

 

 



 



 


 

 

 

Product Liability

 

 

 

The Company is normally subject to numerous product liability claims, many of which relate to products no longer manufactured by the Company or its subsidiaries, and other claims arising in the ordinary course of business. The Company has insurance covering most of these claims, subject to varying deductibles up to $3.0 million, and has various limits of liability depending on the insurance policy year in question. It is the view of management that the final resolution of 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 the Company’s financial position, results of operations or cash flows, although no assurance to that effect can be given.

13



 

 

 

Asbestos Liability

 

 

 

The Company has been named as a co-defendant in approximately 308 personal injury liability cases alleging damages due to exposure to asbestos and other substances, involving approximately 1,498 plaintiffs. The cases are pending in courts in nine states. In all of these cases, insurance carriers have accepted or are expected to accept defense. These cases are in various pre-trial stages. The Company does not believe that costs associated with these matters will have a material effect on its financial position, results of operations or cash flows, although no assurance to that effect can be given.

 

 

 

Other Litigation

 

 

 

A wholly owned subsidiary of the Company is a defendant in a suit pending in the United States District Court for the Western District of Pennsylvania, brought on June 15, 2002, relating to an incident in which a dragline operated by an employee of a Company subsidiary tipped over. The owner of the dragline has sued an unaffiliated third party on a negligence theory for property damages and business interruption losses in a range of approximately $25.0 million to $27.0 million. The unrelated third party has brought a third-party action against the Company’s subsidiary. The Company’s insurance carriers are defending the claim, but have not conceded that the relevant policies cover the claim. At this time discovery is ongoing and it is not possible to evaluate the outcome of the claim nor the range of potential loss, if any.

 

 

 

A wholly-owned Australian subsidiary of the Company is a defendant in a suit pending in the Supreme Court of Queensland in Australia, brought on May 5, 2002, relating to a contractual claim. The plaintiff, pursuant to a contract with the Company’s subsidiary, agreed to erect a dragline sold by the Company to a customer for use at its mine site. The plaintiff asserts various contractual claims related to breach of contract damages and other remedies for approximately AUS $3.6 million related to its claim that it is owed amounts for services rendered under the contract. The Company’s subsidiary has asserted counterclaims against the plaintiff in connection with certain aspects of the work performed. This matter is anticipated to go to trial in late 2006. The Company has established a reserve for its estimate of the resolution of this matter.

 

 

8.

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” requires the reporting of comprehensive income (loss) in addition to net earnings from operations. Comprehensive income (loss) is a more inclusive financial reporting method that includes disclosure of financial information that historically has not been recognized in the calculation of net earnings. The Company reports comprehensive income (loss) and accumulated other comprehensive income (loss) which includes net earnings, foreign currency translation adjustments and minimum pension liability adjustments. Information on accumulated other comprehensive loss is as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative
Translation
Adjustments

 

Minimum
Pension
Liability
Adjustments

 

Accumulated
Other
Comprehensive  
Loss

 

 

 

 


 


 


 

 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2004

 

$

(5,307

)

$

(16,384

)

$

(21,691

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes – Nine months ended September 30, 2005

 

 

640

 

 

 

 

640

 

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2005

 

$

(4,667

)

$

(16,384

)

$

(21,051

)

 

 

 



 



 



 

14



 

 

9.

The Company has several pension and retirement plans covering substantially all of its employees in the United States. The Company also provides certain health care benefits to age 65 and life insurance benefits for certain eligible retired United States employees.

 

 

 

The components of net periodic pension cost consisted of the following:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

 


 


 

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 


 


 


 


 

 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

506

 

$

420

 

$

1,610

 

$

1,307

 

 

Interest cost

 

 

1,350

 

 

1,269

 

 

3,970

 

 

3,911

 

 

Expected return on plan assets

 

 

(1,675

)

 

(1,211

)

 

(3,907

)

 

(3,733

)

 

Amortization of prior service cost

 

 

235

 

 

51

 

 

339

 

 

153

 

 

Amortization of actuarial loss

 

 

377

 

 

372

 

 

1,181

 

 

944

 

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cost

 

$

793

 

$

901

 

$

3,193

 

$

2,582

 

 

 

 



 



 



 



 


 

 

 

The components of other net periodic postretirement benefits cost (health care and life insurance) consisted of the following:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

 


 


 

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 


 


 


 


 

 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

276

 

$

193

 

$

696

 

$

578

 

 

Interest cost

 

 

180

 

 

285

 

 

802

 

 

856

 

 

Amortization of prior service cost

 

 

(67

)

 

(56

)

 

(187

)

 

(166

)

 

Amortization of actuarial loss

 

 

52

 

 

84

 

 

234

 

 

252

 

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cost

 

$

441

 

$

506

 

$

1,545

 

$

1,520

 

 

 

 



 



 



 



 


 

 

 

During the first nine months of 2005, the Company contributed approximately $2.0 million to its pension plans and $1.0 million for the payment of benefits from its postretirement benefit plan. The Company presently anticipates contributing an additional $.5 million to its pension plans and $.4 million for the payment of benefits from its postretirement benefit plan during the remainder of 2005.

 

 

10.

The American Jobs Creation Act of 2004, which was signed into law on October 24, 2004, includes a provision for a one-time dividends received deduction of 85% of certain qualified cash dividends that are received from controlled foreign corporations before December 31, 2005. The Company is in the process of evaluating the repatriation provisions, but has not yet determined the amount or range of possible amounts to be repatriated, or the tax effect of such repatriation, and expects to complete its evaluation by the end of 2005.

15



BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

          Business

          The Company designs, manufactures and markets large excavation machinery used for surface mining, and provides comprehensive aftermarket services, supplying replacement parts and offering maintenance and repair contracts and services for these machines. The Company manufactures its original equipment (“OEM”) products and the majority of aftermarket parts at its facility in South Milwaukee, Wisconsin. The Company’s principal OEM products are draglines, electric mining shovels and rotary blasthole drills, which are used primarily by customers who mine copper, coal, oil sands and iron ore throughout the world. In addition, the Company provides aftermarket services in mining centers throughout the world, including Argentina, Australia, Brazil, Canada, Chile, China, India, Peru, South Africa and the United States. The largest markets for mining equipment have historically been in Australia, Canada, South Africa, South America and the United States. In the future, Brazil, Canada, China and India are expected to be increasingly important markets.

          The market for OEM machines is closely correlated with customer expectations of sustained strength in prices of surface mined commodities. Growth in demand for these commodities is a function of, among other things, economic activity, population increases and continuing improvements in standards of living in many areas of the world. In 2002, the market prices of many surface-mined commodities were generally weak. In 2003 and 2004, market prices for copper, coal, iron ore and oil increased and have continued to be strong in 2005. Factors that could support sustained demand for these key commodities in 2005 and future years include continued economic growth in China, India and the developing world and renewed economic strength in industrialized countries. In the past quarter, inquiries for new machines continued to increase from prior quarters. The highest interest has been in the oil sands of Western Canada. Inquiries related to coal, copper and iron ore mines in other areas of the world have also increased.

          The Company’s aftermarket parts and service operations, which have accounted for approximately 70% of sales over the past ten years, tend to be more consistent than OEM machine sales. However, recent pronounced strength in commodity markets has positively affected total aftermarket sales, although total aftermarket sales remained at approximately 70% of sales during the nine months ended September 30, 2005. The Company’s complex machines are typically kept in continuous operation from 15 to 40 years, requiring regular maintenance and repair throughout their productive lives. The size of the Company’s installed base of surface mining equipment and its ability to provide on-time delivery of reliable parts and prompt service are important drivers of aftermarket sales. Aftermarket orders and inquiries continue to increase as the existing installed fleet of machines operates at very high utilization levels due to the current demand and increased prices for commodities.

          The Company continues to forecast increased sales activity for both aftermarket parts sales and OEM machine sales relative to prior periods. The Company anticipates that the current commodity demand will continue for at least the next three to five years. The Company maintains ongoing efforts to improve efficiency and contain costs and continually evaluates all opportunities for reductions to operating costs. Recent strong order volume has caused the Company to hire new employees, and additional hiring is expected. As sustained order strength continues, the Company is taking steps to increase its manufacturing capacity. During the first quarter of 2005, the Company entered into an agreement to lease a facility to be used for expansion of the Company’s manufacturing operations. This facility is currently operating at 60% of its capacity and the Company plans to operate the facility at close to 100% of its capacity by the first quarter of 2006. Also, on August 24, 2005, the Company announced that it is

16



proceeding with plans to expand its manufacturing facilities in South Milwaukee, Wisconsin. The initial phase of the expansion program will include the construction of a new facility on the grounds of the Company’s South Milwaukee campus north of Rawson Avenue at an approximate cost of $22 million.

          A substantial portion of the Company’s sales and operating earnings is attributable to operations located outside the United States. The Company generally sells its OEM machines, including those sold directly to foreign customers, and most of its aftermarket parts in United States dollars. A portion of the Company’s aftermarket parts sales are also denominated in the local currencies of Australia, Brazil, Canada, Chile, South Africa and the United Kingdom. Aftermarket services are paid for primarily in local currency which is naturally hedged by the Company’s payment of local labor in local currency. Historically, approximately 70% of the Company’s sales are priced in United States dollars.

          Over the past three years, the Company increased gross profits by improving manufacturing overhead variances, achieving productivity gains, growing its high margin aftermarket parts and services business and increasing the prices of its products. To date, increasing prices of steel and other raw materials have not had a significant impact on the Company’s gross profit due to the higher selling prices of its products.

          Following is a discussion of key measures which contributed to the Company’s operating results.

Key Measures

          On-Time Delivery and Lead Times

          Due to the high fixed cost structure of the Company’s customers, it is critical that they avoid equipment downtime. On-time delivery and reduced lead time of aftermarket parts and services allow customers to reduce downtime and are therefore key measures of customer service, and the Company believes they are fundamental drivers of aftermarket customer demand. The Company’s on-time delivery percentage in the aftermarket, based on achieved promised delivery dates to customers, was 94% for the year 2004 and 92% for the first nine months of 2005. Lead times for deliveries were approximately the same in the first nine months of 2005 as compared to the year 2004, although some suppliers are now increasing lead times for materials which may affect parts delivery lead times in the future.

          The Company increased on-time deliveries and reduced lead times in recent years by focusing on the development of key shop floor metrics, improved communication between sales, manufacturing and shipping, daily or weekly meetings to resolve issues, changing of shipment methods and the hiring of an additional supervisory person dedicated to on-time delivery. The information to accomplish many of these improvements is available from the Company’s enterprise resource planning (“ERP”) system.

          Productivity

          Sales per full time equivalent employee is a measure of the Company’s operational efficiency. Sales per full time equivalent employee were $.3 million for the first nine months of 2005 and $.2 million for the first nine months of 2004. The Company has experienced productivity increases in recent years, primarily due to the application of worldwide sales and inventory ERP systems and personnel upgrades which, collectively, allowed sales to grow with minimal changes in headcount.

          Warranty Claims

          Product quality is another key driver of customer satisfaction and, as a result, sales. Management uses warranty claims as a percentage of total sales as one objective benchmark to evaluate product quality. During the year 2004 and the first nine months of 2005, warranty claims as a percentage of total sales were less than 1%.

17



          Backlog

          Backlog is a tool which allows management to forecast sales and production requirements. Due to the high cost of some OEM products, backlog is subject to volatility, particularly over relatively short periods. A portion of the Company’s backlog is related to multi-year contracts that will generate revenue in future years. The following table shows backlog at September 30, 2005 and December 31, 2004 as well as the portion of backlog which is or was expected to be recognized within twelve months of these dates:

 

 

 

 

 

 

 

 

 

 

September 30,
2005

 

December 31,
2004

 

 

 


 


 

 

 

(Dollars in Thousands)

 

 

 

 

 

 

 

 

 

Next 12 months

 

$

344,378

 

$

231,455

 

Total

 

 

590,230

 

 

436,317

 

The increase in the Company’s backlog at September 30, 2005 was primarily in aftermarket parts and service and was due to the improved market conditions in which the Company sells its products.

          Inventory

          Inventory is one of the Company’s significant assets. As of September 30, 2005, the Company had $150.1 million in inventory. Raw materials and work in process inventory have increased in anticipation of future increased sales activity. Inventory turned at a rate of approximately 3.0 times during the first nine months of 2005 and the year 2004. Inventory turned at a rate of approximately 2.9 times during the first six months of 2005. Inventory turns is calculated based on cost of sales and the average inventory balance during the prior twelve months. The Company believes that it has appropriately recorded at the lower of cost or market any slow moving or obsolete inventory in its financial statements. The factors that could reduce the carrying value of the Company’s inventory include reduced demand for aftermarket parts due to decreased sales volumes attributable to new or improved technology or customers discontinuing the use of the Company’s older model machines, which could render inventory obsolete or excess. With the exception of the normal inventory obsolescence provision recorded in the ordinary course of business, the Company does not anticipate recording any significant inventory impairments.

Results of Operations

 

 

 

Quarter And Nine Months Ended September 30, 2005 Compared to Quarter And Nine Months Ended September 30, 2004

          Sales

          Sales for the quarter and nine months ended September 30, 2005 were $157.4 million and $402.9 million, respectively, compared with $111.5 million and $325.6 million for the quarter and nine months ended September 30, 2004, respectively. Sales of aftermarket parts and services for the third quarter of 2005 were $112.9 million, an increase of 30.1% from $86.7 million for the third quarter of 2004. Sales of aftermarket parts and services for the nine months ended September 30, 2005 were $275.7 million, an increase of 15.2% from $239.4 million for the nine months ended September 30, 2004. The increases in aftermarket sales in 2005 reflect the Company’s initiatives and strategies to capture additional market share as well as continued strong commodity prices. Aftermarket sales increased in both United States and international markets. Machine sales for the third quarter of 2005 were $44.5 million, an increase of 79.6% from $24.8 million for the third quarter of 2004. Machine sales for the nine months ended

18



September 30, 2005 were $127.2 million, an increase of 47.5% from $86.2 million for the nine months ended September 30, 2004. The increase in machine sales for the quarter and nine months ended September 30, 2005 was primarily due to increased electric mining shovel sales and the recognition of sales on two draglines that were sold in 2004. Approximately $2.4 million and $6.2 million of the increases in sales for the quarter and nine months ended September 30, 2005, respectively, was attributable to a weakening United States dollar, which primarily impacted aftermarket sales (see “Foreign Currency Fluctuations” below).

          Gross Profit

          Gross profit for the third quarter of 2005 was $36.4 million or 23.1% of sales compared with $24.3 million or 21.8% of sales for the third quarter of 2004. Gross profit for the nine months ended September 30, 2005 was $96.4 million or 23.9% of sales compared with $68.8 million or 21.1% of sales for the nine months ended September 30, 2004. The increase in gross profit was primarily due to an increased sales volume and higher gross margins on both machines and aftermarket sales. Gross profit for the quarter and nine months ended September 30, 2005 was reduced by $.4 million and $1.1 million, respectively, of training costs related to the Company’s new leased manufacturing facility. Gross profit for the nine months ended September 30, 2005 and 2004 was also reduced by $4.0 million of additional depreciation expense as a result of the purchase price allocation to plant and equipment in connection with acquisitions involving the Company. Approximately $.4 million and $1.2 million of the increase in gross profit for the quarter and nine months ended September 30, 2005, respectively, was attributable to a weakening United States dollar, which primarily impacted aftermarket sales (see “Foreign Currency Fluctuations” below).

          Selling, General and Administrative Expenses

          Selling, general and administrative expenses for the quarter ended September 30, 2005 were $13.9 million or 8.9% of sales compared with $13.2 million or 11.9% of sales for the quarter ended September 30, 2004. Selling, general and administrative expenses for the nine months ended September 30, 2005 were $38.4 million or 9.5% of sales compared to $41.5 million or 12.7% of sales for the nine months ended September 30, 2004. Selling, general and administrative expenses for the quarter and nine months ended September 30, 2005 included $45,000 and $135,000, respectively, related to non-cash stock-based employee compensation compared to $2.6 million and $10.0 million for the quarter and nine months ended September 30, 2004. Selling expenses for the quarter and nine months ended September 30, 2005 increased by $1.6 million and $4.0 million, respectively, from 2004 primarily due to increased sales efforts and higher foreign costs as a result of the weakened U.S. dollar, but remained relatively constant as a percentage of sales. Foreign currency transaction gains (losses) for the quarter and nine months ended September 30, 2005 were $(.1) million and $1.2 million, respectively, compared with gains of $.4 million and $1.2 million for the quarter and nine months ended September 30, 2004, respectively. The Company incurred approximately $.4 million of consulting expenses during the nine months ended September 30, 2005 related to Sarbanes-Oxley Section 404 compliance and expects to incur an additional $.7 million in the fourth quarter.

          Research and Development Expenses

          Research and development expenses for the quarter and nine months ended September 30, 2005 were $1.6 million and $4.4 million, respectively, compared with $1.3 million and $3.9 million for the quarter and nine months ended September 30, 2004, respectively.

19



          Amortization of Intangible Assets

          Amortization of intangible assets, consisting primarily of engineering drawings, bill of material listings and software, was $.4 million and $1.4 million for the quarter and nine months ended September 30, 2005, respectively, compared with $.4 million and $1.2 million for the quarter and nine months ended September 30, 2004, respectively.

          Operating Earnings

          Operating earnings for the third quarter of 2005 were $20.5 million or 13.0% of sales, compared with $9.4 million or 8.4% of sales for the third quarter of 2004. Operating earnings for the nine months ended September 30, 2005 were $52.3 million or 13.0% of sales, compared with $22.1 million or 6.8% of sales for the nine months ended September 30, 2004. Operating earnings for the quarter and nine months ended September 30, 2005 increased from 2004 due to increased gross profit resulting from increased sales volume and higher gross margins on both machines and aftermarket sales. Operating earnings for the quarter and nine months ended September 30, 2004 were reduced by $2.6 million and $10.0 million, respectively, of non-cash stock compensation expense. Approximately $.4 million and $.8 million of the increase in operating earnings for the quarter and nine months ended September 30, 2005, respectively, was attributable to a weakening United States dollar (see “Foreign Currency Fluctuations” below).

          Interest Expense

          Interest expense for the quarter and nine months ended September 30, 2005 was $1.3 million and $3.6 million, respectively, compared with $2.1 million and $10.3 million for the quarter and nine months ended September 30, 2004, respectively. The decrease in interest expense in 2005 was due to the refinancing of the Company’s capital structure in connection with its initial public offering which was completed on July 28, 2004.

          Other Expense - Net

          Other expense - net was $.1 million and $.2 million of expense for the quarter and nine months ended September 30, 2005, respectively, compared with $.1 million and $.9 million of expense for the quarter and nine months ended September 30, 2004, respectively. Debt issuance cost amortization was $.3 million and $.7 million for the quarter and nine months ended September 30, 2005, respectively, compared with $.3 million and $1.1 million for the quarter and nine months ended September 30, 2004, respectively. These amounts include costs related to the Company’s credit facilities (see “Liquidity and Capital Resources - Financing Cash Flows” below).

          Income Taxes

          Income tax expense for the quarter and nine months ended September 30, 2005 was $6.3 million and $16.3 million, respectively, compared with $.9 million and $4.0 million for the quarter and nine months ended September 30, 2004, respectively. Income tax expense for the quarter and nine months ended September 30, 2004 consisted primarily of foreign taxes at applicable statutory rates since U.S. income tax expense was reduced by federal net operating loss carryforwards that were not previously recognized due to a valuation allowance. In the fourth quarter of 2004, all of the remaining valuation allowance was reversed. In 2005, U.S. taxable income exceeded available net operating loss carryforwards and income tax expense was recorded. Foreign taxes continue to be recorded at applicable statutory rates. At September 30, 2005, the Company had approximately $14.3 million of federal net operating loss carryforwards. The carryforwards are useable at the rate of $3.6 million per year.

20



Foreign Currency Fluctuations

          The following table summarizes the approximate effect of changes in foreign currency exchange rates on the Company’s sales, gross profit and operating earnings for the quarter and nine months ended September 30, 2005 and 2004, in each case compared to the same period in the prior year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

 


 


 

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 


 


 


 


 

 

 

 

(Dollars in Thousands)

 

 

 

Increase in sales

 

$

2,355

 

$

2,581

 

$

6,158

 

$

9,826

 

 

Increase in gross profit

 

 

382

 

 

496

 

 

1,217

 

 

1,774

 

 

Increase in operating earnings

 

 

352

 

 

180

 

 

760

 

 

349

 

EBITDA

          Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the quarter and nine months ended September 30, 2005 was $23.9 million and $62.4 million, respectively, compared with $12.5 million and $31.6 million for the quarter and nine months ended September 30, 2004, respectively. EBITDA is presented (i) because the Company uses EBITDA to measure its liquidity and financial performance and (ii) because the Company believes 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 EBITDA calculation is not an alternative to operating earnings under accounting principles generally accepted in the United States of America (“GAAP”) as an indicator of operating performance or of cash flows as a measure of liquidity. The following table reconciles Net Earnings (Loss) as shown in the Consolidated Condensed Statements of Operations to EBITDA and reconciles EBITDA to Net Cash Provided by (Used in) Operating Activities as shown in the Consolidated Condensed Statements of Cash Flows:

21



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 


 


 

 

 

2005

 

2004

 

2005

 

2004

 

 

 


 


 


 


 

 

 

(Dollars in Thousands)

 

 

Net earnings (loss)

 

$

12,777

 

$

(1,008

)

$

32,126

 

$

(394

)

Interest income

 

 

(121

)

 

(149

)

 

(479

)

 

(263

)

Interest expense

 

 

1,278

 

 

2,054

 

 

3,640

 

 

10,345

 

Income taxes

 

 

6,287

 

 

885

 

 

16,322

 

 

3,987

 

Depreciation

 

 

2,971

 

 

2,725

 

 

8,755

 

 

8,228

 

Amortization (1)

 

 

705

 

 

712

 

 

2,084

 

 

2,368

 

Loss on extinguishment of debt

 

 

 

 

7,316

 

 

 

 

7,316

 

 

 



 



 



 



 

EBITDA (2)

 

 

23,897

 

 

12,535

 

 

62,448

 

 

31,587

 

Changes in assets and liabilities

 

 

(8,750

)

 

(28,212

)

 

(29,772

)

 

(21,830

)

Non-cash stock compensation expense (3)

 

 

45

 

 

2,590

 

 

135

 

 

10,031

 

(Gain) loss on sale of fixed assets

 

 

(62

)

 

260

 

 

91

 

 

273

 

Interest income

 

 

121

 

 

149

 

 

479

 

 

263

 

Interest expense

 

 

(1,278

)

 

(2,054

)

 

(3,640

)

 

(10,345

)

Income tax expense

 

 

(6,287

)

 

(885

)

 

(16,322

)

 

(3,987

)

 

 



 



 



 



 

Net cash provided by (used in) operating activities

 

$

7,686

 

$

(15,617

)

$

13,419

 

$

5,992

 

 

 



 



 



 



 

Net cash used in investing activities

 

$

(5,374

)

$

(1,945

)

$

(13,363

)

$

(4,219

)

 

 



 



 



 



 

Net cash provided by (used in) financing activities

 

$

(2,029

)

$

27,507

 

$

(13,426

)

$

8,944

 

 

 



 



 



 



 


 

 

(1)

Includes amortization of intangible assets and debt issuance costs.

 

 

(2)

EBITDA for the quarter and nine months ended September 30, 2004 is reduced by expenses pursuant to a management services agreement with American Industrial Partners (“AIP”) as well as fees paid to AIP or its affiliates and advisors for services performed for the Company outside the scope of the management services agreement of $.1 million and $1.3 million, respectively. The management services agreement was terminated in July 2004. EBITDA is also reduced by restructuring charges (severance) for the quarters ended September 30, 2005 and 2004 and nine months ended September 30, 2005 and 2004 of $251,000, $31,000, $324,000 and $201,000, respectively.

 

 

(3)

Non-cash stock compensation expense for the quarter and nine months ended September 30, 2004 represents the charge recorded related to stock options issued prior to the completion of the Company’s initial public offering on July 28, 2004. At the time of the initial public offering, the plan required certain modifications to the determination of fair market value for these previously issued options. In accordance with EITF Issue No. 87-23, no further compensation expense was recorded subsequent to July 28, 2004 related to stock options issued under this plan prior to the Company’s initial public offering. Under existing accounting standards, provision for compensation expense related to the 24,000 shares of restricted stock issued under the Bucyrus International, Inc. 2004 Equity Incentive Plan in September 2004 will be approximately $.2 million annually over the four years subsequent to the date of issuance.

Liquidity and Capital Resources

          Cash Requirements

          During the remainder of 2005, the Company anticipates strong cash flows from operations due to continued strength in aftermarket parts sales as well as increased demand for new machines. In expanding markets, customers are generally contractually obligated to make progress payments under purchase contracts for machine orders. As a result, the Company does not anticipate significant outside financing requirements to fund production of these machines and does not believe that new machine sales will have a negative long-term effect on its liquidity. If additional borrowings are necessary during the remainder of 2005, the Company believes it has sufficient capacity under its revolving credit facility (see “Financing Cash Flows” below).

22



          As of September 30, 2005, there have been no material changes to the contractual obligations with respect to purchase obligations and operating leases and rental and service agreements as presented in the Company’s 2004 Annual Report to Shareholders. There have also been no material changes to the contractual obligations with respect to long-term debt and short-term obligations as presented in the Company’s Form 10-Q for the quarterly period ended June 30, 2005.

          On August 24, 2005, the Company announced that it is proceeding with plans to expand its manufacturing facilities in South Milwaukee, Wisconsin. The initial phase of the expansion program will include the construction of a new facility on the grounds of the Company’s South Milwaukee campus north of Rawson Avenue at an approximate cost of $22 million. The construction of this new facility is expected to be completed during the third quarter of 2006. At September 30, 2005, the Company had not yet incurred any contractual obligations with respect to this project. During the month of October 2005, the Company entered into contractual obligations of approximately $5.5 million with respect to this project. The Company intends to finance the expansion program through working capital and funds available under its existing revolving credit facility, and is exploring the availability of governmental grants and other programs.

          The Company’s capital expenditures for the nine months ended September 30, 2005 were $13.6 million compared with $3.8 million for the nine months ended September 30, 2004. Included in capital expenditures for the nine months ended September 30, 2005 was $2.9 million related to the new leased manufacturing facility in Milwaukee. The remaining expenditures consist primarily of production machinery at the Company’s main manufacturing facility. The Company expects a continued increase in capital expenditures during the remainder of 2005 as it increases manufacturing capacity and upgrades and replaces manufacturing equipment to support increased sales activity. The Company believes cash flows from operating activities will be sufficient to fund capital expenditures in 2005.

          At September 30, 2005, there were $24.0 million of standby letters of credit outstanding under all Company bank facilities.

          The Company believes that cash flows from operations will be sufficient to fund its cash requirements for the next twelve months.

          The Company intends to pay quarterly cash dividends of $0.575 per share (equal to $.23 per year). A quarterly cash dividend of $1.2 million was declared on July 14, 2005 and paid on August 15, 2005.

          Sources and Uses of Cash

          While the Company had $7.3 million of cash and cash equivalents as of September 30, 2005, this cash is located at various foreign subsidiaries and is used for working capital purposes. Cash receipts in the United States are applied against the Company’s revolving credit facility.

Operating Cash Flows

          During the first nine months of 2005, the Company generated cash from operating activities of $13.4 million compared to $6.0 million in the first nine months of 2004. The increase in cash flows from operating activities was driven primarily by increased sales activity.

23



          Receivables

          The Company recognizes revenues on its machine orders using the percentage-of-completion method. Accordingly, accounts receivable are generated when revenue is recognized, which can be before the funds are collected or in some cases, before the customer is billed. As of September 30, 2005, the Company had $131.2 million of receivables compared to $90.8 million of receivables at December 31, 2004. Receivables at September 30, 2005 and December 31, 2004 included $54.5 million and $31.4 million, respectively, of revenues from long-term contracts which were not billable at these dates.

          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. In accordance with SOP No. 81-1, these payments are recorded as Liabilities to Customers on Uncompleted Contracts and Warranties. The increase of $12.1 million from December 31, 2004 to September 30, 2005 was due to the receipt of customer payments on certain long-term machine contracts for which the related revenue has yet to be recognized.

          Financing Cash Flows

          On May 27, 2005, the Company entered into a new credit agreement with GMAC Commercial Finance LLC as lead lender. The credit agreement provides for a five year $120.0 million revolving credit facility that may, at the Company’s request and with the lender’s approval, be increased to $150.0 million. The credit agreement provides that interest on borrowed amounts would initially be set at either the prime rate plus .25% or LIBOR plus 1.25%, with quarterly adjustments to interest rates beginning after nine months. Proceeds from this new revolving credit facility were used to pay in full the previously outstanding senior secured term loan. Borrowings under the revolving credit facility are subject to a borrowing base formula based on the value of eligible receivables and inventory. At September 30, 2005, the Company had $84.7 million of borrowings under its revolving credit facility at a weighted average interest rate of 5.5%. The amount available for borrowings under the revolving credit facility at September 30, 2005 was $17.1 million.

          The credit agreement contains covenants limiting the discretion of management with respect to key business matters and places significant restrictions on, among other things, the Company’s ability to incur additional indebtedness, create liens or other encumbrances, make certain payments or investments, loans and guarantees, and sell or otherwise dispose of assets and merge or consolidate with another entity. All of the Company’s domestic assets and the receivables and inventory of the Company’s Canadian subsidiary are pledged as collateral under the revolving credit facility. In addition, the outstanding capital stock of the Company’s domestic subsidiaries as well as the majority of the capital stock of the Company’s foreign subsidiaries are pledged as collateral. The Company is also required to maintain compliance with certain financial covenants, including a leverage ratio (as defined). The Company was in compliance with all applicable covenants as of September 30, 2005.

Critical Accounting Policies and Estimates

          See Critical Accounting Policies and Estimates discussed in the Management’s Discussion and Analysis section of the Company’s 2004 Annual Report to Shareholders. There have been no material changes to these policies.

24



BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rates

          The Company’s interest rate exposure relates primarily to floating rate debt obligations in the United States. The Company manages its borrowings under its credit facilities through the selection of LIBOR-based borrowings or prime-rate based borrowings. If market conditions warrant, interest rate swaps may be used to adjust interest rate exposures, although none have been used to date.

          At September 30, 2005, a sensitivity analysis was performed for the Company’s floating rate debt obligations. Based on this sensitivity analysis, the Company has determined that a 10% change in the Company’s weighted average interest rate at September 30, 2005 would have the effect of changing the Company’s interest expense on an annual basis by approximately $.5 million.

Foreign Currency

          The Company sells new machines, including those sold directly to foreign customers, and most of its aftermarket parts in United States dollars. A limited amount of aftermarket parts sales are denominated in the local currencies of Australia, Canada, Chile, South Africa, Brazil and the United Kingdom which subjects the Company to foreign currency risk. Aftermarket sales and a portion of the labor costs associated with such activities are denominated or paid in local currencies. As a result, a relatively strong United States dollar could decrease the United States dollar equivalent of the Company’s sales without a corresponding decrease of the United States dollar value of certain related expenses. The Company utilizes some foreign currency derivatives to mitigate foreign exchange risk.

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

          Based on the Company’s derivative instruments outstanding at September 30, 2005, a 10% change in foreign currency exchange rates would not have a material effect on the Company’s financial position, results of operations or cash flows.

25



BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 4 - CONTROLS AND PROCEDURES

          As of the end of the period covered by this Report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, Controller and Secretary, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon their evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Chief Financial Officer, Controller and Secretary concluded that the disclosure controls and procedures were effective as of the end of the quarter ended September 30, 2005 to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Report was being prepared.

          There were no changes in the Company’s 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 quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

          It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

26



FORWARD-LOOKING STATEMENTS

          This report contains 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 adversely affect the Company’s actual results and performance include, without limitation:

 

 

 

 

customers’ production capacity, stockpiles, and production and consumption rates of copper, coal, iron, oil and other ores and minerals;

 

 

 

 

the cash flows of customers;

 

 

 

 

consolidation among customers and suppliers;

 

 

 

 

work stoppages at customers, suppliers or providers of transportation;

 

 

 

 

the timing, severity and duration of customer and industry buying cycles;

 

 

 

 

unforeseen patent, tax, product, environmental, employee health or benefit, or contractual liabilities that affect the Company;

 

 

 

 

litigation;

 

 

 

 

nonrecurring restructuring and other special charges incurred by the Company;

 

 

 

 

changes in accounting or tax rules or regulations that affect the Company;

 

 

 

 

changes in the relative values of currencies;

 

 

 

 

the Company’s leverage and debt service obligations;

 

 

 

 

the Company’s success in recruiting and retaining key managers and employees;

 

 

 

 

labor costs and labor relations; and

 

 

 

 

the Company’s plant capacity.

          The review of important factors above is not exhaustive, and should be read in conjunction with the other cautionary statements included in this report and in the Company’s 2004 Annual Report to Shareholders and Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2005. All forward-looking statements attributable to the Company are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

27



PART II
OTHER INFORMATION

 

 

Item 1.

Legal Proceedings.

 

 

 

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.

28



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)

 

 

 

 

Date

November 11, 2005

 

/s/ Timothy W. Sullivan

 


 


 

 

 

Timothy W. Sullivan

 

 

 

President and Chief Executive Officer

 

 

 

 

Date

November 11, 2005

 

/s/ Craig R. Mackus

 


 


 

 

 

Craig R. Mackus

 

 

 

Chief Financial Officer, Controller and Secretary

 

 

 

Principal Accounting Officer

29



BUCYRUS INTERNATIONAL, INC.
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2005

 

 

 

Exhibit
Number

 

Description


 


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, Controller 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.

El-1


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