Annual Reports

 
Quarterly Reports

  • 10-Q (May 10, 2011)
  • 10-Q (Nov 9, 2010)
  • 10-Q (Aug 6, 2010)
  • 10-Q (May 7, 2010)
  • 10-Q (Nov 9, 2009)
  • 10-Q (Aug 10, 2009)

 
8-K

 
Other

Bucyrus International 10-Q 2007

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
Form 10-Q
Table of Contents

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 June 30, 2007

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 000-50858

 


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

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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

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 August 6, 2007
Class A Common Stock, $.01 par value   37,393,602

 



Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

 

             Page No.

PART I.

 

FINANCIAL INFORMATION:

  
  Item 1 -   Financial Statements (Unaudited)   
    Consolidated Condensed Statements of Earnings – Quarters and six months ended June 30, 2007 and 2006    3
    Consolidated Condensed Statements of Comprehensive Income – Quarters and six months ended June 30, 2007 and 2006    4
    Consolidated Condensed Balance Sheets – June 30, 2007 and December 31, 2006    5
    Consolidated Condensed Statements of Cash Flows – Six months ended June 30, 2007 and 2006    7
    Notes to Consolidated Condensed Financial Statements    9
  Item 2 -   Management’s Discussion and Analysis of Financial Condition and Results of Operations    20
  Item 3 -   Quantitative and Qualitative Disclosures About Market Risk    36
  Item 4 -   Controls and Procedures    37

PART II.

 

OTHER INFORMATION:

  
  Item 1 -   Legal Proceedings    38
  Item 1A -   Risk Factors    38
  Item 2 -   Unregistered Sales of Equity Securities and Use of Proceeds    38
  Item 3 -   Defaults Upon Senior Securities    38
  Item 4 -   Submission of Matters to a Vote of Security Holders    38
  Item 5 -   Other Information    39
  Item 6 -   Exhibits    39
  Signature Page    40

 

2


Table of Contents

PART I

FINANCIAL INFORMATION

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

     Quarter Ended June 30,     Six Months Ended June 30,  
     2007     2006     2007     2006  

Sales

   $ 374,801     $ 181,804     $ 565,162     $ 347,457  

Costs of products sold

     278,504       134,870       416,787       259,650  
                                

Gross profit

     96,297       46,934       148,375       87,807  

Selling, general and administrative expenses

     42,937       18,078       64,131       33,538  

Research and development expenses

     4,614       3,051       7,162       4,973  

Amortization of intangible assets

     4,452       449       4,898       901  
                                

Operating earnings

     44,294       25,356       72,184       48,395  

Interest expense

     6,976       601       8,425       1,246  

Other income

     (2,009 )     (258 )     (2,297 )     (391 )

Other expense

     600       255       865       510  
                                

Earnings before income taxes

     38,727       24,758       65,191       47,030  

Income tax expense

     10,965       3,200       19,566       10,950  
                                

Net earnings

   $ 27,762     $ 21,558     $ 45,625     $ 36,080  
                                

Net earnings per share data

        

Basic:

        

Net earnings per share

   $ .81     $ .69     $ 1.39     $ 1.15  

Weighted average shares

     34,374,666       31,284,624       32,860,879       31,238,416  

Diluted:

        

Net earnings per share

   $ .80     $ .68     $ 1.38     $ 1.14  

Weighted average shares

     34,703,458       31,615,978       33,164,269       31,571,657  

See notes to consolidated condensed financial statements.

 

3


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF

COMPREHENSIVE INCOME (UNAUDITED)

(DOLLARS IN THOUSANDS)

 

     Quarter Ended June 30,     Six Months Ended June 30,  
     2007     2006     2007     2006  

Net earnings

   $ 27,762     $ 21,558     $ 45,625     $ 36,080  

Other comprehensive income -

        

Foreign currency translation adjustments

     1,389       (984 )     1,893       (933 )

Pension liability adjustment, net of income taxes

     599       —         599       —    

Derivative fair value adjustments, net of income taxes

     (192 )     —         (192 )     —    
                                

Comprehensive income

   $ 29,558     $ 20,574     $ 47,925     $ 35,147  
                                

See notes to consolidated condensed financial statements.

 

4


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

    

June 30,

2007

   

December 31,

2006

 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 31,234     $ 9,575  

Receivables – net

     492,904       162,535  

Inventories

     494,124       176,277  

Deferred income taxes

     12,642       11,725  

Prepaid expenses and other

     45,471       16,408  
                

Total Current Assets

     1,076,375       376,520  
                

OTHER ASSETS:

    

Goodwill

     223,216       47,306  

Intangible assets – net

     419,236       28,097  

Deferred income taxes

     32,630       16,117  

Other assets

     37,464       7,523  
                

Total Other Assets

     712,546       99,043  
                

PROPERTY, PLANT AND EQUIPMENT:

    

Cost

     451,624       210,604  

Less accumulated depreciation

     (95,322 )     (85,455 )
                

Total Property, Plant and Equipment

     356,302       125,149  
                

TOTAL ASSETS

   $ 2,145,223     $ 600,712  
                

 

5


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 

    

June 30,

2007

   

December 31,

2006

 

LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 151,427     $ 83,603  

Accrued expenses

     129,337       44,121  

Liabilities to customers on uncompleted contracts and warranties

     173,367       32,233  

Income taxes

     36,464       9,978  

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

     11,335       331  
                

Total Current Liabilities

     501,930       170,266  
                

LONG-TERM LIABILITIES:

    

Liabilities to customers on uncompleted contracts and warranties

     23,572       940  

Postretirement benefits

     17,972       17,313  

Pension and other

     155,396       33,530  

Deferred income taxes

     191,695       401  
                

Total Long-Term Liabilities

     388,635       52,184  
                

LONG-TERM DEBT, less current maturities

     552,892       82,266  

COMMON STOCKHOLDERS’ INVESTMENT:

    

Class A common stock – par value $0.01 per share, authorized 75,000,000 shares, issued 37,501,910 shares and 31,685,767 shares, respectively

     375       317  

Additional paid-in capital

     668,055       306,981  

Treasury stock – 108,600 shares, at cost

     (851 )     (851 )

Accumulated earnings

     55,789       13,451  

Accumulated other comprehensive loss

     (21,602 )     (23,902 )
                

Total Common Stockholders’ Investment

     701,766       295,996  
                

TOTAL LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT

   $ 2,145,223     $ 600,712  
                

See notes to consolidated condensed financial statements.

 

6


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(DOLLARS IN THOUSANDS)

 

     Six Months Ended June 30,  
     2007     2006  

Net Cash Provided By Operating Activities

   $ 12,851     $ 31,296  
                

Cash Flows From Investing Activities

    

Purchases of property, plant and equipment

     (38,142 )     (26,426 )

Proceeds from sale of property, plant and equipment

     272       342  

Acquisition of DBT GmbH

     (723,064 )     —    

Other

     (59 )     (105 )
                

Net cash used in investing activities

     (760,993 )     (26,189 )
                

Cash Flows From Financing Activities

    

Net repayments of revolving credit facility

     (51,039 )     (8,603 )

Proceeds from term loan facility

     825,000       —    

Payment of term loan facility

     (325,000 )     —    

Proceeds from other bank borrowings and long-term debt

     3,508       —    

Payments of other bank borrowings and long-term debt

     (719 )     (1,066 )

Payment of refinancing expenses for new credit facilities

     (15,734 )     —    

Proceeds from issuance of common stock

     336,325       756  

Tax benefit from exercise of stock options

     128       4,353  

Dividends paid

     (3,157 )     (2,763 )
                

Net cash provided by (used in) financing activities

     769,312       (7,323 )
                

Effect of exchange rate changes on cash

     489       (107 )
                

Net increase (decrease) in cash and cash equivalents

     21,659       (2,323 )

Cash and cash equivalents at beginning of period

     9,575       12,451  
                

Cash and cash equivalents at end of period

   $ 31,234     $ 10,128  
                

 

7


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(CONTINUED)

(DOLLARS IN THOUSANDS)

 

     Six Months Ended June 30,
     2007    2006

Supplemental Disclosures of Cash Flow Information

     

Cash paid during the period for:

     

Interest

   $ 6,521    $ 1,408

Income taxes – net of refunds

     30,370      8,191

Supplemental Disclosure of Noncash Investing Activity

     

Capital expenditures related to expansion program included in accounts payable

   $ 500    $ 4,451

Supplemental Schedule of Non-Cash Investing and Financing Activities

On May 4, 2007, the Company purchased certain assets and assumed certain liabilities of DBT GmbH. In conjunction with the acquisition, liabilities were assumed as follows:

 

     2007  

Fair value of assets acquired

   $ 1,356,529  

Cash paid

     (723,064 )

Fair value of Company common stock issued

     (21,782 )

Receivable for cash settlement adjustments

     15,583  
        

Liabilities assumed

   $ 627,266  
        

See notes to consolidated condensed financial statements.

 

8


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 1 - FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

 

1. Bucyrus International, Inc. (the “Company”) is one of the world’s leading manufacturers of large-scale excavation equipment used in surface mining and, as a result of its acquisition of DBT GmbH (“DBT”) on May 4, 2007, is also a leading designer, manufacturer and marketer of high technology system solutions for underground coal mining. Therefore, the Company now operates in two business segments: surface mining and underground mining. 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, Poland and the United States and service and sales centers in Australia, Brazil, Canada, Chile, China, England, India, Mexico, Peru, Russia, South Africa and the United States.

 

2. In the opinion of Company management, the consolidated condensed financial statements contain all adjustments 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. Certain reclassifications have been made to the 2006 consolidated condensed financial statements to conform to the presentation in 2007.

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 2006 Annual Report to Stockholders and Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007 and the Company’s prospectus supplement filed with the Securities and Exchange Commission on May 9, 2007 in connection with the recent public offering of its Class A common stock (see Note 6).

 

3. On May 4, 2007, the Company completed its acquisition of DBT from RAG Coal International AG (“RAG Coal”). DBT is based in Lünen, Germany. Through the Company’s acquisition subsidiary, DBT Holdings GmbH, the Company acquired DBT for $710 million in cash, subject to certain closing adjustments, and 471,476 shares of the Company’s common stock with an initial market value of $21.8 million. Expenses related to the acquisition totaled $13.1 million. The net assets acquired and results of operations since the date of acquisition are included in the Company’s consolidated financial statements.

The acquisition of DBT enabled the Company to expand its product portfolio to include underground mining equipment and aftermarket support for that equipment, which enhances its capability to serve a larger segment of the global mining equipment market. The acquisition also increases the Company’s strategic presence in markets that it expects will experience substantial mining growth over the next several years.

 

9


Table of Contents

The acquisition of DBT was accounted for under the purchase method of accounting. Under purchase accounting, the total purchase price was allocated to the tangible and intangible assets and liabilities assumed based on their respective fair values as of the date of the DBT acquisition. The principles of purchase accounting require extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. Accordingly, the purchase price allocation is preliminary and will be adjusted upon completion of the final valuation of the acquired assets. Such adjustments could be significant. The final valuation is expected to be completed as soon as practicable but no later than 12 months after the date of the DBT acquisition.

The preliminary purchase price was determined as follows (dollars in thousands):

 

Cash

   $ 710,000  

Receivable for cash settlement adjustments

     (15,583 )

Issuance of common shares

     21,782  

Liabilities assumed

     441,038  

Deferred tax impact of purchase accounting

     186,228  

Transaction costs

     13,064  
        

Total purchase price

   $ 1,356,529  
        

Major categories of liabilities assumed include liabilities to customers on uncompleted contracts of $92.3 million, pension liabilities of $117.2 million, warranty liabilities of $75.0 million and trade accounts payable of $55.9 million.

The preliminary allocation of the purchase price was as follows (dollars in thousands):

 

Current assets

   $ 545,251

Property, plant and equipment

     205,851

Intangible assets (including goodwill of $175,910)

     572,908

Other long-term assets

     32,519
      

Total purchase price

   $ 1,356,529
      

Pro Forma Results of Operations

The following unaudited pro forma results of operations assumes that the Company acquired DBT on January 1, 2006 and 2007 and includes the effects of the Company’s refinancing (see Note 5) and equity offering (see Note 6). The pro forma results include adjustments to reflect additional interest expense, depreciation expense and amortization of intangibles as well as the effects of adjustments made to the carrying value of certain assets.

 

10


Table of Contents
     Three Months Ended June 30,    Six Months ended June 30,
     2007    2006    2007    2006
     (Dollar in thousands, except per share amounts)

Sales

   $ 467,218    $ 552,835    $ 925,675    $ 1,039,357

Net earnings

   $ 28,742    $ 50,789    $ 47,847    $ 71,345

Net earnings per share:

           

Basic

   $ .77    $ 1.37    $ 1.29    $ 1.93

Diluted

   $ .77    $ 1.36    $ 1.28    $ 1.91

Inventory has been adjusted to its estimated fair market value as required by Statement of Financial Accounting Standards No. 141, “Business Combinations”. This adjustment primarily relates to finished parts which are being valued at their selling price, less cost to sell, less a selling profit. As this adjustment is directly attributed to the transaction and will not have a continuing impact, it is not reflected in the pro forma results of operations presented above. However, this inventory adjustment is resulting in a charge to cost of products sold in the period subsequent to the consummation of the acquisition of DBT during which the related inventories are sold. The estimated charge, net of tax, is approximately $21.6 million and is expected to be amortized as a charge to cost of sales during the 12 months following the closing of the DBT acquisition.

The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition of DBT been effective on January 1, 2006 and 2007 or of future operations of the Company. Also, the pro formal financial information does not reflect the costs which the Company may incur to integrate DBT, and these costs may be material.

 

4. Inventories consist of the following:

 

    

June 30,

2007

  

December 31,

2006

     (Dollars in thousands)

Raw materials and parts

   $ 98,814    $ 45,392

Work in process

     182,026      30,794

Finished products (primarily replacement parts)

     213,284      100,091
             
   $ 494,124    $ 176,277
             

 

5. The Company entered into new credit facilities, as amended and restated on May 25, 2007, to finance the acquisition of DBT and refinance certain existing indebtedness. The new credit facilities include a secured revolving credit facility of $375.0 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. The credit facilities replaced the Company’s previous $200.0 million revolving credit facility.

 

11


Table of Contents

Borrowings under the secured revolving credit facility bear interest, payable no less frequently than quarterly, at (1) LIBOR plus between 1.25% and 1.75% (based on the Company’s total 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 the Company’s total leverage ratio) for U.S. dollar denominated base rate loans and (3) EURIBOR plus between 1.25% and 1.75% (based on the Company’s total leverage ratio) for Euro denominated loans. The interest rates under the secured revolving credit facility are subject to change based on the Company’s total leverage ratio. Under each revolving credit facility, the Company has 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 the 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 June 30, 2007, the Company had borrowings under the secured revolving credit facility of $27.1 million at a weighted average interest rate of 5.9%. The amount available for additional borrowings under the secured revolving credit facility was $177.5 million (taking into account $170.4 million of issued letters of credit). At June 30, 2007, the Company also had borrowings under the term loan facility of $501.5 million at a weighted average rate of 6.7% and had borrowings under the German revolving credit facility of $3.5 million at a weighted average rate of 7.1%.

The Company’s obligations under the credit facilities are guaranteed, on a joint and several basis, by certain of its domestic subsidiaries. In addition, the Company’s obligations under the secured revolving credit facility and the term loan facility are secured by a security interest in substantially all of its consolidated tangible and intangible domestic assets (subject to certain exceptions), as well as 100% of the outstanding capital stock of its domestic subsidiaries and 65% of the voting stock and 100% of the non-voting stock of certain of its first-tier foreign subsidiaries.

The credit facilities contain operating and financial covenants that, among other things, could limit the Company’s ability to obtain additional sources of capital. The financial covenants require the Company to maintain a total leverage ratio, calculated on a trailing four-quarter basis, of not more than 4.00 to 1.00 through the end of the quarter ending December 31, 2008 and not more than 3.50 to 1.00 for each measurement period thereafter. 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). As of June 30, 2007, the Company was in compliance with all covenants and other requirements under its credit facilities.

 

12


Table of Contents
6. On May 15, 2007, the Company sold 5,306,100 shares of its Class A common stock in an underwritten public offering at a price to the public of $66.35 per share, from which it received net proceeds of $336.3 million. The Company used the net proceeds from this equity offering to repay a portion of its new term loan facility used to initially finance the acquisition of DBT.

 

7. The following is a reconciliation of the numerators and the denominators of the basic and diluted net income per share of common stock calculations for the quarters and six months ended June 30, 2007 and 2006.

 

     Quarter Ended June 30,    Six Months Ended June 30,
     2007    2006    2007    2006
     (Dollar in thousands, except per share amounts)

Net earnings

   $ 27,762    $ 21,558    $ 45,625    $ 36,080
                           

Weighted average shares outstanding

     34,374,666      31,284,624      32,860,879      31,238,416
                           

Basic net earnings per share:

   $ .81    $ .69    $ 1.39    $ 1.15
                           

Weighted average shares outstanding

     34,374,666      31,284,624      32,860,879      31,238,416

Effect of dilutive stock options, nonvested shares, stock appreciation rights and performance shares

     328,792      331,354      303,390      333,241
                           

Weighted average shares outstanding – diluted

     34,703,458      31,615,978      33,164,269      31,571,657
                           

Diluted net earnings per share

   $ .80    $ .68    $ 1.38    $ 1.14
                           

 

13


Table of Contents
8. Intangible assets (other than goodwill) consist of the following:

 

     June 30, 2007     December 31, 2006  
    

Gross

Carrying

Amount

  

Accumulated

Amortization

   

Gross

Carrying

Amount

  

Accumulated

Amortization

 
     (Dollars in thousands)  

Amortized intangible assets:

          

Engineering drawings

   $ 25,500    $ (12,456 )   $ 25,500    $ (11,818 )

Technology

     115,000      (1,597 )     

Bill of material listings

     2,856      (1,395 )     2,856      (1,324 )

Software

     2,288      (2,235 )     2,288      (2,121 )

Customer relationships

     127,000      (1,058 )     

Backlog

     8,000      (1,333 )     —        —    

Other

     693      (485 )     700      (420 )
                              
   $ 281,337    $ (20,559 )   $ 31,344    $ (15,683 )
                              

Unamortized intangible assets – Trademarks/Trade names

   $ 158,458      $ 12,436   
                  

The estimated future amortization expense of intangible assets as of June 30, 2007 is as follows (dollars in thousands):

 

2007 (remaining six months)

   $ 12,798

2008

     20,156

2009

     17,351

2010

     17,351

2011

     17,351

2012

     17,351

Future

     158,420
      
   $ 260,778
      

Additional preliminary goodwill of $175.9 million was recorded in the second quarter of 2007 as part of the acquisition of DBT and was recorded as part of the underground mining segment.

 

14


Table of Contents
9. As described in Note 1, as a result of the acquisition of DBT on May 4, 2007, the Company now has two reportable segments: surface mining and underground mining. Prior to the acquisition of DBT, all of the Company’s operations were in surface mining and were classified as one operating segment. The new underground mining segment refers to the operations of DBT. As a result, disclosures of segment information for the prior quarter and on a year-to-date basis are not presented since the Company’s underground mining segment did not exist prior to the acquisition of DBT on May 4, 2007.

These two business segments are strategic business units that offer distinctive products and services. They are managed separately because of their unique technology, marketing and distribution requirements.

The operating income (loss) of segments does not include interest expense, other income and expense and a provision for income taxes. There are no significant intersegment sales. Identifiable assets are those used in the operations in each segment.

The following table presents segment information as of and for the quarter ended June 30, 2007:

 

     Sales   

Operating

Earnings

   

Depreciation

and

Amortization

  

Capital

Expenditures

  

Total

Assets

     (Dollars in thousands)

Surface mining

   $ 213,595    $ 34,876     $ 5,121    $ 17,564    $ 726,697

Underground mining

     161,206      11,466       7,619      3,208      1,418,526
                                   

Total operations

     374,801      46,342       12,740      20,772      2,145,223

Corporate

     —        (2,048 )     —        —        —  
                                   

Consolidated Total

   $ 374,801      44,294     $ 12,740    $ 20,772    $ 2,145,223
                             

Interest expense

        (6,976 )        

Other income (including interest income of $759)

        2,009          

Other expense

        (600 )        
                   

Earnings before income taxes

      $ 38,727          
                   

 

10.

To manage a portion of the Company’s exposure to changes in LIBOR-based interest rates on its variable rate debt, the Company entered into two interest rate swap agreements that effectively fixes the interest payments on $200.0 million of its outstanding borrowings under its term loan facility. The first swap matures on May 4, 2010 and currently fixes the variable portion of the interest rate on term loan facility borrowings in the notional amount of $150.0 million at 4.88%, plus the applicable spread based on terms of the credit facility. The second swap also matures on May 4, 2010 and currently fixes the interest rate at 5.094%, plus the applicable spread in the notional amount of $50.0 million. The swaps have been designed as cash flow hedges of LIBOR-based interest payments. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), the effective portion of the change in fair value of the derivatives is recorded in “Accumulated Other Comprehensive

 

15


Table of Contents
 

Income,” while any ineffective portion is recorded as an adjustment to interest expense. The differential paid or received on the interest rate swaps will be recognized as an adjustment to interest expense.

The Company also uses forward foreign exchange contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. The Company has designed these hedges as either cash flow hedges or fair value hedges under SFAS No. 133.

 

11. Environmental

The Company is subject to increasingly stringent environmental and occupational health and safety laws and regulations in the countries in which it operates, including laws and regulations governing emissions to air, discharges to water and the generation, handling, storage, transportation, treatment and disposal of, or exposure to, hazardous materials. The Company cannot assure that it has always on a historical basis complied, or will continue to comply, with these requirements. If the Company is not in compliance with these laws and regulations, it may incur remediation obligations or other costs in excess of amounts reserved, or fines, penalties or suspension of production. The Company may be adversely impacted by costs, liabilities or claims with respect to existing or subsequently acquired operations, under either present laws and regulations or those that may be adopted or imposed in the future.

The Company’s operations are also subject to laws requiring the cleanup of contaminated property. If a release of hazardous substances occurs, or has occurred, at or from any of our current or former properties or at a landfill or another location where the Company has disposed of hazardous materials, the Company may be held liable for the contamination, and the amount of such liability could be material.

The Company may incur environmental liabilities relating to DBT’s current properties or properties that had been formerly owned or operated by DBT that may not be covered by indemnification under the DBT purchase agreement, or with respect to which indemnification may be limited by the DBT purchase agreement, and there can be no assurance that RAG Coal would be able to satisfy such indemnification obligation at the time the Company makes a claim or at all.

In addition, increased environmental regulation of the mining industry in North America and overseas could increase costs to the Company or to its customers and adversely affect the sales of its products and future operating results. These requirements may change in the future in a manner that could require the Company to make capital and other expenditures, which could have a material adverse effect on its business, results of operations and financial condition.

 

16


Table of Contents

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 six months ended June 30, 2007 and 2006:

 

     Six Months Ended June 30,  
     2007     2006  
     (Dollars in thousands)  

Balance at January 1

   $ 5,788     $ 5,977  

Effect of DBT acquisition

     75,037       —    

Provision

     6,545       4,599  

Charges

     (8,091 )     (1,115 )
                

Balance at June 30

   $ 79,279     $ 9,461  
                

Product and Asbestos Liability

The selling and servicing of complex, large scale equipment used in a variety of locations and climates, and integrating a variety of manufactured and purchased components entails an inherent risk of lawsuits and liability relating to the operation and performance of the equipment and the health and safety of the workers who operate and come into contact with the equipment. For example, the Company has been named as a co-defendant in personal injury liability cases alleging damages caused by exposure to asbestos and other substances, and the particular circumstances of many of these cases are difficult to assess because the claims allege exposure to a variety of substances from various sources over varying historical periods and assert the culpability of multiple defendants.

DBT is also subject to various product liability and personal injury claim including those relating to alleged asbestos and silicosis exposure. These types of claims, as well as product liability claims in general, can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. While the Company maintains product liability and other insurance to cover varying levels of claims of this nature, including varying levels of coverage for the historical periods during which the pending claims of which the Company is aware allege asbestos exposure, those policies are subject to deductibles and recovery limitations, and there are limitations on events covered by these policies. 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.

 

17


Table of Contents

Other Litigation

One of the Company’s wholly owned subsidiaries 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 one of the Company’s subsidiaries 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. As of June 30, 2007, discovery was ongoing and it is not possible to evaluate the outcome of the claim nor the range of potential loss, if any. Therefore, the Company has not recorded any liability with respect to this litigation.

 

12. Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” requires the reporting of comprehensive income in addition to net earnings from operations. Comprehensive income 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 and accumulated other comprehensive income, which includes net earnings, foreign currency translation adjustments, pension liability adjustments and derivative fair value adjustments. Information on accumulated other comprehensive loss is as follows:

 

    

Cumulative

Translation

Adjustment

   

Pension

Liability

Adjustments

   

Derivative

Fair Value

Adjustments

   

Accumulated

Other

Comprehensive

Loss

 
     (Dollars in thousands)  

Balance at December 31, 2006

   $ (4,681 )   $ (19,221 )   $ —       $ (23,902 )

Changes - Six months ended June 30, 2007

     1,893       599       (192 )     2,300  
                                

Balance at June 30, 2007

   $ (2,788 )   $ (18,622 )   $ (192 )   $ (21,602 )
                                

 

13. The Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN No. 48”) on January 1, 2007. As a result of the implementation of FIN No. 48, the Company recognized a net decrease to retained earnings of $.1 million. At the adoption date of January 1, 2007, the Company had $.6 million of unrecognized tax benefits, all of which would affect its effective tax rate if recognized. At June 30, 2007, the Company had $1.3 million of unrecognized tax benefits, an increase of $.6 million from March 31, 2007. The Company does not presently expect any reasonably possible material changes to the estimated amount of liability associated with its uncertain tax positions during the next twelve months.

 

18


Table of Contents

The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Periods subject to examination for the Company’s federal tax return are the 1990 through 2006 tax years. In addition, open tax years related to state and foreign jurisdictions remain subject to examination but are not considered material.

The Company is continuing its practice of recognizing interest and/or penalties related to income tax matters as a component of income tax expense. At the date of adoption of FIN No. 48, the Company had accrued $.3 million of interest and penalties.

The Company is currently in the process of evaluating the acquired FIN No. 48 liability in connection with the acquisition of DBT and its impact upon the overall purchase price allocation. DBT files income tax returns in Germany and other foreign jurisdictions.

 

19


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

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:

 

   

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 the required time schedule;

 

   

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

 

   

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 our industry;

 

   

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

 

   

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, suppliers or providers of transportation;

 

20


Table of Contents
   

our ability to satisfy underfunded pension obligations;

 

   

our ability to effectively and efficiently integrate the operations of DBT and realize expected levels of sales and profit from this acquisition;

 

   

potential risks, material weaknesses in financial reporting and liabilities of DBT unknown to us;

 

   

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

 

   

our reliance on significant customers;

 

   

our experience in the underground mining business, which is less than some of our competitors; and

 

   

our increased levels of debt and debt service obligations relating to our acquisition of DBT.

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, and should be read in conjunction with the other cautionary statements and risk factors included in our 2006 Annual Report to Stockholders and Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007, our prospectus supplement filed with the Securities and Exchange Commission on May 9, 2007 and other cautionary statements described in our subsequent reports filed with the Securities and Exchange Commission. 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, including DBT GmbH (“DBT”). All references to “Bucyrus” in the following discussion and analysis are to our surface mining business and all references to “DBT” are to our underground mining business.

Impact of DBT Acquisition

On May 4, 2007, we consummated the acquisition of DBT for a total purchase price of $731.0 million, including $710.0 million in cash and the issuance of 471,476 shares of our common stock with an initial market value of $21.8 million, subject to certain closing adjustments. The DBT acquisition has more than doubled the size of our company based on sales and earnings before interest income, interest expense, income taxes, depreciation and amortization (“EBITDA”). On a pro forma combined basis, as if the DBT acquisition had been consummated on January 1, 2006, our 2006 sales would have been $1.9 billion, compared to Bucyrus’ 2006 sales of $738.0 million. Similarly, our 2006 pro forma combined EBITDA would have been $252.9 million, compared to Bucyrus’ 2006 EBITDA of $116.0 million. Our pro forma combined EBITDA includes adjustments necessary to conform DBT’s financial statements, which are prepared in accordance with International Financial Reporting Standards

 

21


Table of Contents

(“IFRS”), to United States generally accepted accounting principles (“U.S. GAAP”), and to Bucyrus’ accounting policies. Our pro forma combined backlog as of December 31, 2006 would have been approximately $1.4 billion, compared to Bucyrus’ $894.7 million as of such date.

The strategic benefits to us from consummating the DBT acquisition include:

 

   

The expansion of our product portfolio to include underground mining equipment and aftermarket support for that equipment, which enhances our capability to serve a larger segment of the global mining equipment market.

 

   

An increase in our pro forma combined worldwide installed original equipment base as of December 31, 2006 to an approximate replacement value of $22.0 billion from Bucyrus’ approximate replacement value of $12.6 billion as of such date. We believe that this increased installed base provides us with significantly greater opportunities to market our aftermarket parts and services. Parts typically earn a higher gross margin than our original equipment sales. Additionally, DBT’s aftermarket service business has lower market share than that of Bucyrus, which we believe presents an opportunity for growth.

 

   

An increased strategic presence in markets that we expect will experience substantial mining growth over the next several years, such as China and Russia. Additionally, we anticipate building upon Bucyrus’ presence in India, another market that we believe has high growth potential, to increase DBT’s share of the underground mining market in that country.

 

   

DBT’s advanced engineering and technology.

While we believe that there are opportunities to consolidate some of DBT’s international sales offices with Bucyrus’ sales offices and to realize increased operating efficiencies at DBT by reducing its levels of selling, general and administrative expenses and research and development expenses, these potential cost saving and synergistic opportunities may take at least several quarters to begin to implement, and any potential benefits from these actions may not be realized for at least several quarters following implementation. We expect to more fully analyze DBT’s internal organizational and operating structure and, where possible, identify appropriate opportunities for further integration and synergies over the longer term.

We expect the DBT acquisition to impact our future results of operation and financial condition in a number of ways, including the following:

 

   

Our reliance on coal as the principal commodity mined by the customers purchasing our equipment will increase from 53% of Bucyrus’ historical 2006 sales to approximately 79% on a pro forma 2006 combined basis. Approximately 96% of DBT’s 2006 sales were derived from sales to coal mining customers. This means that our future results of operations will be more dependent on coal commodity price levels and conditions in, and other factors affecting, the coal markets. Accordingly, our future results of operations may be subject to more pronounced cyclicality than prior to the DBT acquisition.

 

22


Table of Contents
   

As a result of the DBT acquisition, growth in our future results of operations will likely become more dependent upon increasing our sales to emerging markets such as China, Russia and India. This means we will increase our exposure to the uncertainties and risks associated with the developing governmental, legal and economic systems in those countries, as well as nationalism initiatives, tariffs and the other risks of competing in foreign markets. Additionally, to be in a position to compete more cost effectively in the underground mining market in China, we are expanding our manufacturing capacity in China. This expansion process will likely take at least 12 to 18 months to complete, and we expect that it likely will take at least several quarters after completion until we can begin realizing its anticipated potential benefits.

 

   

DBT’s revenue mix is weighted more towards original equipment sales than to aftermarket parts and services sales compared to Bucyrus’ revenue mix. In 2006, 73% of DBT’s revenue was from sales of original equipment and 27% from aftermarket sales. Bucyrus’ 2006 revenue mix was 35% from original equipment sales and 65% from aftermarket sales. On a pro forma combined basis for 2006, our revenue mix would have been 58% from original equipment sales and 42% from aftermarket sales. Since aftermarket parts sales generally have higher gross margins than original equipment sales, this means that we will likely report lower gross margins in the future than we have in the past. However, we believe that this circumstance affords us an opportunity over time to increase the relative percentage of DBT’s aftermarket sales through DBT’s incorporation of the successful strategies and techniques that we have previously implemented at Bucyrus to substantially increase Bucyrus’ level of aftermarket sales. In addition, DBT’s increased level of original equipment sales in 2005 and 2006 is expected to result in increased aftermarket sales in future years.

 

   

As a percent of 2006 sales, and taking into account certain pro forma reclassification adjustments, DBT’s selling, general and administrative expenses were 15.2%, compared to 9.9% in 2006 for Bucyrus. This means that we will likely report higher selling, general and administrative expenses, as a percent of sales, in the future than we have in the past. However, we believe that this circumstance affords us an opportunity to reduce the relative level of DBT’s selling, general and administrative expenses to further enhance our combined profitability over the longer term.

 

   

We will be subject to higher foreign currency exchange risk because DBT transacts a substantial percentage of its business in Euros, while we sell most of our products in United States dollars, and we will be reporting our combined consolidated results in United States dollars. This means that our future results of operations may be subject to increased volatility based on relative changes in foreign currency exchange rates, particularly the Euro/dollar exchange rate.

 

   

We substantially increased our debt levels and debt service obligations to finance the DBT acquisition. Our total long-term debt as of June 30, 2007 was $552.9 million compared to $82.3 million as of December 31, 2006.

 

23


Table of Contents

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. As a result of our recently completed DBT acquisition, we now operate in two business segments: surface mining (Bucyrus) and underground mining (DBT). We now have manufacturing facilities in Australia, China, Germany, Poland and the United States and service and sales centers in Australia, Brazil, Canada, Chile, China, England, India, Mexico, 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, Brazil, Canada, China and India will be increasingly important markets for our surface mining equipment and that the United States and the emerging markets of China, Russia and India will be increasingly important markets for our underground mining equipment.

The market for our original equipment is closely correlated with customer expectations of sustained strength in prices of 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. Market prices for coal, copper, iron ore and oil generally continue to be strong in 2007. Factors that could support sustained demand for these key commodities during the remainder of 2007 include continued expected economic growth in China, India and the developing world, as well as renewed economic strength in industrialized countries. As of June 30, 2007, inquiries for our surface mining equipment in all product lines remained at a high level despite the recent moderation in commodity prices, while inquiries for our underground mining equipment had returned to pre-2006 normalized levels. As of June 30, 2007, interest in our surface mining equipment continued to be strong in the oil sands region of Western Canada, and inquiries related to coal, copper and iron ore mines in other areas of the world have also remained strong.

Our aftermarket parts and service sales tend to be more consistent than our equipment sales. Our original equipment is typically kept in continuous operation from eight to 40 years by our customers, requiring regular maintenance and repair throughout their productive lives. The size of our installed base of surface mining equipment as of December 31, 2006 was approximately $12.6 billion based on estimated replacement value. On a pro forma basis giving effect to the acquisition of DBT, our combined installed base of both surface mining and underground mining equipment as of December 31, 2006 was estimated to be approximately $22.0 billion based on estimated replacement value. Our ability to provide on-time delivery of reliable parts and prompt service are important drivers of our aftermarket sales. As of June 30, 2007, surface mining aftermarket orders and inquiries continued to remain at high levels as the existing installed fleet of our surface mining original equipment was operating at very high utilization levels due to the current demand and increased prices for related mined commodities.

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. DBT’s 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, Chile, 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.

 

24


Table of Contents

In our surface mining business, as of June 30, 2007, we anticipate increased sales activity for both aftermarket parts sales and original equipment sales for the remainder of 2007 relative to 2006. We expect Bucyrus’ original equipment sales to increase in 2007 compared to 2006, driven by customer expectations of sustained strength in the coal, copper, oil sands and iron ore markets, ongoing and rapid industrialization in China and other parts of the developing world, demand for minerals in the developed world and the rising cost of non-coal energy sources. While we expect that the current commodity demand will continue for the near term, original equipment sales may lag behind such increases in commodity prices because of the time needed to acquire the appropriate mining permits and establish the relevant infrastructure. We also expect our aftermarket sales to increase in 2007 compared to 2006 as customers continue the trend of utilizing our parts and services in a broader range of applications on their installed base of equipment. Strong sales volume and demand as of June 30, 2007 has caused us to hire new employees, and additional hiring is expected during the remainder of 2007.

In our underground mining business, as of December 31, 2006, we anticipate increased sales activity in 2007 for DBT’s aftermarket parts sales as we enhance our selling efforts for these parts and as our customers continue to use our parts and services on our large installed base of original equipment. We anticipate decreased sales activity for our underground mining original equipment in 2007 relative to 2006 because 2006 sales benefited greatly from an influx of original equipment orders from customers that had previously deferred original equipment purchases during the prior period of weaker coal commodity prices.

In response to sustained order strength for surface mining equipment, we are in the process of completing a multi-phase capacity expansion of Bucyrus’ manufacturing facilities in South Milwaukee. The first phase of our expansion provided 110,000 square feet of new space for welding and machining of large electric mining shovel components north of Rawson Avenue and was substantially complete at the end of the third quarter of 2006. The second phase of our expansion program further expanded our new facility north of Rawson Avenue from 110,000 square feet to over 350,000 square feet of welding, machining and outdoor hard-goods storage space. Construction was completed in April 2007. The aggregate cost of phase one and two of our expansion program was approximately $54 million, which was financed by borrowings under our then existing revolving credit facility. The third phase of Bucyrus’ expansion program, which we announced in July 2006, is intended to help us meet the continued growth of demand for our surface mining equipment and their components. The third phase includes the renovation and expansion of manufacturing buildings and offices at our existing facilities south of Rawson Avenue. Our focus is on modernizing our facilities and improving manufacturing and administrative efficiencies. The steps for accomplishing phase three are scheduled to maximize manufacturing throughput during both the renovation and construction processes. We expect that phase three construction will cost approximately $58 million. The third phase is being financed by borrowings under our current credit facilities. Assuming that we are able to attract and retain the necessary skilled labor, the expansion, when completed, is expected to enable Bucyrus to increase its annual shovel production capacity from 10 machines in 2006 to 16 machines in 2007 and ultimately to 24 machines in 2008, as well as approximately double Bucyrus’ manufactured parts capacity. Bucyrus’ expansion also will help provide it with added flexibility to increase dragline production should demand for shovels decline or demand for draglines increase. In addition, we expect that Bucyrus’ expansion will provide for improved efficiency and improved workflow. We expect Bucyrus’ capacity expansion to be substantially completed by the end of the first quarter of 2008.

 

25


Table of Contents

In addition, we are expanding our underground mining equipment manufacturing capacity in China. This expansion will allow for increased production of several types of mobile equipment for underground mining. The expansion process will likely take at least 12 to 18 months to complete and we expect that it likely will take at least several quarters after completion until we can begin realizing its anticipated potential benefits.

Over the past three years, we have increased Bucyrus’ gross profits by reducing manufacturing overhead variances, achieving productivity gains, improving equipment margins and increasing higher margin aftermarket parts and services business.

Installed Base

Our pro forma combined installed original equipment base of approximately $22.0 billion (calculated by estimated replacement value) as of December 31, 2006, provides the foundation for our future aftermarket sales. Over the life of certain machines, customer purchases of aftermarket parts can exceed the original purchase price of the machine. Additionally, we generally realize higher gross margins on sales of our aftermarket parts than on sales of our original equipment. Moreover, because these machines tend to operate continuously in all market conditions, with expected lives ranging from eight to 40 years, and have predictable parts and maintenance needs, our aftermarket business has historically been more stable and predictable than the market for our original equipment, which is closely correlated with expectations of sustained strength in commodity markets.

Backlog and New Orders

Our relative backlog level allows us to more accurately forecast our upcoming sales and plan our production accordingly. Our backlog also provides us with a predictive level of expected 2007 future sales and cash flows. Due to the high cost of some original equipment, our backlog is subject to volatility, particularly over relatively short periods. A portion of our backlog is related to multi-year contracts that will generate revenue in future years. The following table shows our backlog as of June 30, 2007 and December 31, 2006, as well as the portion of our backlog which is or was expected to be recognized within 12 months of these dates:

 

     June 30, 2007    December 31, 2006
     (Dollars in thousands)

Surface Mining:

     

Next 12 months

   $ 667,355    $ 593,828

Total

   $ 994,628    $ 894,749

Underground Mining:

     

Next 12 months

   $ 465,508      —  

Total

   $ 469,057      —  

Total

     

Next 12 months

   $ 1,132,863    $ 593,828

Total

   $ 1,463,685    $ 894,749

 

26


Table of Contents

New orders related to surface mining operations for the first six months of 2007 were $298.5 million and $205.3 million for original equipment and aftermarket parts and service sales, respectively. New orders related to underground mining operations for the period May 4, 2007 to June 30, 2007 were $127.3 million and $62.2 million for original equipment and aftermarket parts and service sales, respectively. Included in surface mining original equipment orders for the second quarter of 2007 was the sale of a dragline and related equipment with a price in excess of $100.0 million that we expect will be delivered by 2010. Since we recognize revenue on a percentage of completion basis, the impact of this order will be recognized over a period of several years.

Pro forma new orders related to underground mining operations for the six months ended June 30, 2007 were $285.9 million and $167.8 million for original equipment and aftermarket parts and service sales, respectively. Pro forma new orders related to underground mining operations for the six months ended June 30, 2006 were $467.2 million and $152.3 million for original equipment and aftermarket parts and service sales, respectively.

DBT’s total backlog as of December 31, 2006 was $514.3 million, and the Bucyrus/DBT pro forma combined total backlog as of December 31, 2006 was $1.4 billion.

Results of Operations

Quarter and Six Months Ended June 30, 2007 Compared to Quarter and Six Months Ended June 30, 2006

The results of operations of DBT since the date of acquisition are included in the financial information presented below which, as a result of the shortened reporting period, may not be indicative of future results.

 

     Quarter Ended June 30,     Six Months Ended June 30,  
     2007     2006     2007     2006  
     Amount    % of
Sales
    Amount    % of
Sales
    Amount    % of
Sales
    Amount    % of
Sales
 
     (Dollars in thousands)     (Dollars in thousands)  

Sales

   $ 374,801    —       $ 181,804    —       $ 565,162    —       $ 347,457    —    

Gross profit

     96,297    25.7 %     46,934    25.8 %     148,375    26.3 %     87,807    25.3 %

Selling, general and administrative expenses

     42,937    11.5       18,078    9.9       64,131    11.3       33,538    9.7  

Operating earnings

     44,294    11.8       25,356    13.9       72,184    12.8       48,395    13.9  

Net earnings

     27,762    7.4       21,558    11.9       45,625    8.1       36,080    10.4  

Sales

Sales for the second quarter of 2007 were $374.8 million, an increase of $193.0 million, or 106.2%, from $181.8 million for the second quarter of 2006. Original equipment sales were $189.0 million, an increase of $135.2 million, or 251.6%, from $53.8 million for the second quarter of 2006. Aftermarket parts and service sales were $185.8 million, an increase of $57.8 million, or 45.1%, from $128.0 million for the second quarter of 2006. Sales for the six months ended June 30, 2007 were $565.2 million, an increase of $217.7 million, or 62.7% from $347.5 million for the six months ended June 30, 2006. Original equipment sales were $267.4 million, an increase of $160.2 million, or 149.4%, from $107.2 million for the six months ended June 30, 2006. Aftermarket parts and service sales were $297.8 million, an increase of $57.5 million, or 23.9%, from $240.3 million for the six months ended June 30, 2006. Surface mining sales for

 

27


Table of Contents

second quarter of 2007 were $213.6 million, an increase of $31.8 million, or 17.5%, from $181.8 for the second quarter of 2006. Surface mining original equipment sales were $85.7 million, an increase of $31.9 million, or 59.5%, from $53.8 million for the second quarter of 2006, and aftermarket parts and service sales were $127.9 million, a decrease of $.1 million, or .1%, from $128.0 million for the second quarter of 2006. Surface mining sales for the six months ended June 30, 2007 were $404.0 million, an increase of $56.5 million, or 16.3%, from $347.5 million for the six months ended June 30, 2006. Surface mining original equipment sales were $164.1 million, an increase of $56.9 million, or 53.1%, from $107.2 million for the six months ended June 30, 2006, and aftermarket parts and service sales were $239.9 million, a decrease of $.4 million, or .2%, from $240.3 million for the six months ended June 30, 2006. The overall increase in surface mining sales is the result of sustained demand and increased prices of commodities that are surface mined by Bucyrus machines. Capacity constraints continue to have an impact on surface mining sales. The ongoing expansion of Bucyrus’ South Milwaukee facilities is expected to be completed by the first quarter of 2008. Underground mining sales for the second quarter and first six months of 2007 were $161.2 million and consisted of $103.3 million and $57.9 million of original equipment and aftermarket parts and service sales, respectively. Underground mining sales were at the level expected when DBT was acquired.

Gross Profit

Gross profit for the second quarter of 2007 was $96.3 million, or 25.7% of sales, compared with $46.9 million, or 25.8% of sales, for the second quarter of 2006. Gross profit for the six months ended June 30, 2007 was $148.4 million, or 26.3% of sales, compared with $87.8 million, or 25.3% of sales, for the six months ended June 30, 2006. Gross profit for the second quarter and first six months of 2007 was reduced by $6.2 million of amortization of purchase accounting adjustments as a result of the acquisition of DBT. Excluding this amortization, the gross profit percentage for the second quarter and first six months of 2007 in each case would have been 27.3%. The increases in gross profit were primarily due to the acquisition of DBT and increased surface mining original equipment sales, as well as improved gross margins on both surface mining original equipment and aftermarket parts and services.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the second quarter of 2007 were $42.9 million, or 11.5% of sales, compared with $18.1 million, or 9.9% of sales, for the second quarter of 2006. Selling, general and administrative expenses for the six months ended June 30, 2007 were $64.1 million, or 11.3% of sales, compared with $33.5 million, or 9.7% of sales, for the six months ended June 30, 2006. The increase in selling, general and administrative expenses was primarily due to the acquisition of DBT. Excluding the impact of the acquisition of DBT, the dollar amount of selling, general and administrative expenses in the second quarter of 2007 approximated the dollar amount of selling, general and administrative expenses recognized in recent quarters. Foreign currency transaction gains for the quarter and six months ended June 30, 2007 were $1.1 million and $.7 million, respectively, compared with losses of $0.7 million and $.4 million, respectively, for the quarter and six months ended June 30, 2006.

Research and Development Expenses

Research and development expenses for the quarter and six months ended June 30, 2007 were $4.6 million and $7.2 million, respectively, compared with $3.1 million and $5.0 million for the quarter and six months ended June 30, 2006, respectively. The increases were due to the acquisition of DBT as well as the continuing development of Bucyrus’ electrical and machine upgrade systems.

 

28


Table of Contents

Operating Earnings

Operating earnings were $44.3 million for the second quarter of 2007, an increase of 74.7% from $25.4 million for the second quarter of 2006. Operating earnings for the six months ended June 30, 2007 were $72.2 million, an increase of 49.2% from $48.4 million for the six months ended June 30, 2006. Included in second quarter and first six months operating earnings for 2007 was $11.5 million related to the operations of DBT, which is net of $10.5 million of purchase accounting adjustments. In addition to operating earnings related to DBT operations, operating earnings for the quarter and six months ended June 30, 2007 increased primarily due to increased gross profit resulting from increased sales volume.

Interest Expense

Interest expense was $7.0 million for the second quarter of 2007 compared with $.6 million for the second quarter of 2006. Interest expense for the six months ended June 30, 2007 was $8.4 million compared with $1.2 million for the six months ended June 30, 2006. The increase in interest expense in 2007 was due to increased debt levels related to the financing of the acquisition of DBT. See “Description of New Credit Facilities” below.

Income Taxes

Income tax expense for the second quarter of 2007 was $11.0 million compared with $3.2 million for the second quarter of 2006. Income tax expense for the six months ended June 30, 2007 was $19.6 million compared with $11.0 million for the six months ended June 30, 2006. The effective rate for the second quarter of 2007 was 28.3%, which is lower than the statutory rate as a result of the implementation of the financing structure and certain one-time adjustments related to the acquisition of DBT. Income tax expense for the second quarter of 2006 was reduced by a net income tax benefit of approximately $3.7 million related to foreign tax credits. The foreign tax credits resulted from the completion of Bucyrus’ evaluation of its potential to claim additional foreign tax credits generated in previous tax periods.

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 six months ended June 30, 2007 and 2006, in each case compared to the same period in the prior year:

 

    

Quarter Ended

June 30,

    Six Months Ended
June 30,
     2007    2006     2007    2006
     (Dollars in thousands)

Increase in sales

   $ 1,896    $ 594     $ 3,209    $ 1,037

Increase in gross profit

   $ 563    $ 97     $ 428    $ 323

Increase (decrease) in operating earnings

   $ 469    $ (24 )   $ 395    $ 136

 

29


Table of Contents

EBITDA

EBITDA for the second quarter was $57.7 million, an increase of 98.4% from $29.1 million for the second quarter of 2006. As a percent of sales, EBITDA for the second quarter of 2007 was 15.4%, compared to 16.0% for the second quarter of 2006. Included in second quarter and first six months EBITDA for 2007 was $20.3 million related to the operations of DBT. EBITDA for the six months ended June 30, 2007 was $89.8 million, an increase of 61.3% from $55.7 million for the six months ended June 30, 2006. As a percent of sales, EBITDA for the six months ended June 30, 2007 was 15.9% compared to 16.0% for the six months ended June 30, 2006. 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 sales of fixed assets and the inventory fair value purchase accounting adjustment charged to cost of products sold. EBITDA is presented (i) because we use EBITDA to measure our liquidity and financial performance and (ii) because 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 EBITDA calculation is not an alternative to operating earnings under U.S. GAAP as an indicator of operating performance or of cash flows as a measure of liquidity. The following table reconciles Net Earnings as shown in the Consolidated Condensed Statements of Earnings to EBITDA and reconciles EBITDA to Net Cash Provided by Operating Activities as shown in the Consolidated Condensed Statements of Cash Flows:

 

30


Table of Contents
    

Quarter Ended

June 30,

   

Six Months

Ended June 30,

 
     2007     2006     2007     2006  
     (Dollars in thousands)  

Net earnings

   $ 27,762     $ 21,558     $ 45,625     $ 36,080  

Interest income

     (759 )     (127 )     (971 )     (241 )

Interest expense

     6,976       601       8,425       1,246  

Income tax expense

     10,965       3,200       19,566       10,950  

Depreciation

     7,688       3,133       11,436       6,240  

Amortization (1)

     5,052       705       5,763       1,411  
                                

EBITDA (2)

     57,684       29,070       89,844       55,686  

Changes in assets and liabilities

     (38,273 )     (38,056 )     (53,330 )     (14,234 )

Non-cash stock compensation expense

     1,365       1,166       3,057       1,744  

Loss on sale of fixed assets

     205       13       300       55  

Interest income

     759       127       971       241  

Interest expense

     (6,976 )     (601 )     (8,425 )     (1,246 )

Income tax expense

     (10,965 )     (3,200 )     (19,566 )     (10,950 )
                                

Net cash provided by (used in) operating activities

   $ 3,799     $ (11,481 )   $ 12,851     $ 31,296  
                                

Net cash used in investing activities

   $ (745,276 )   $ (18,751 )   $ (760,993 )   $ (26,189 )
                                

Net cash provided by (used in) financing activities

   $ 759,170     $ 31,980     $ 769,312     $ (7,323 )
                                

(1) Includes amortization of intangible assets and debt issuance costs.
(2) The following table shows certain charges that were deducted in calculating EBITDA for each of the periods presented. These items include (a) non-cash stock compensation expense related to Bucyrus’ equity incentive plans, (b) severance expenses for personnel changes in the ordinary course, (c) loss on sales of fixed assets in the ordinary course, and (d) the inventory fair value purchase accounting adjustment 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.

 

31


Table of Contents
    

Quarter Ended

June 30,

  

Six Months Ended

June 30,

     2007    2006    2007    2006
     (Dollars in thousands)

Non-cash stock compensation expense

   $ 1,365    $ 1,166    $ 3,057    $ 1,744

Severance expenses

     757      469      1,230      741

Loss on sales of fixed assets

     205      13      300      55

Inventory fair value adjustment charged to cost of products sold

     5,631      —        5,631      —  
                           
   $ 7,958    $ 1,648    $ 10,218    $ 2,540
                           

Description of Liquidity and Capital Resources

Description of New Credit Facilities

We entered into new credit facilities, as amended and restated on May 25, 2007, to finance the DBT acquisition and refinance certain existing indebtedness. The new credit facilities include a secured revolving credit facility of $375.0 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. The credit facilities replaced our previous $200.0 million revolving credit facility.

Borrowings under the 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 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 the secured revolving credit facility are subject to change based on the total leverage ratio. 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 the 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 June 30, 2007, we had borrowings under the secured revolving credit facility of $27.1 million at a weighted average interest rate of 5.9%. The amount available for additional borrowings under the secured revolving credit facility was $177.5 million (taking into account $170.4 million of issued letters of credit). At June 30, 2007, we had borrowings under the term loan facility of $501.5 million at a weighted average rate of 6.7% and had borrowings under the German revolving credit facility of $3.5 million at a weighted average rate of 7.1%. To manage a portion of our exposure to changes in LIBOR-based interest rates, we have entered into two interest rate swap agreements that effectively fix the interest payments on $200.0 million of our outstanding borrowings under our term loan facility.

 

32


Table of Contents

Our obligations under the credit facilities are guaranteed, on a joint and several basis, by certain of our domestic subsidiaries. In addition, our obligations under the secured revolving credit facility and the term loan facility are secured by a security interest in substantially all of our consolidated tangible and intangible domestic assets (subject to certain exceptions), as well as 100% of the outstanding capital stock of our domestic subsidiaries and 65% of the voting stock and 100% of the non-voting stock of certain of our first-tier foreign subsidiaries.

The 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 4.00 to 1.00 through the end of the quarter ending December 31, 2008 and not more than 3.50 to 1.00 for each measurement period thereafter. 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). As of June 30, 2007, we were in compliance with all covenants and other requirements in our credit facilities.

Our credit facilities require us to prepay outstanding loans with 100% of the net proceeds of the incurrence of certain debt and the making of certain asset sales and 50% (subject to step-downs based on our total leverage ratio) of our excess cash flow.

Equity Offering

On May 15, 2007, we sold 5,306,100 shares of our Class A common stock in a firmly underwritten public offering at a price to the public of $66.35 per share, from which we received net proceeds of $336.3 million. We used the net proceeds from this equity offering to repay a portion of our new term loan facility used to initially finance the acquisition of DBT.

Cash Requirements

During the remainder of 2007, we anticipate strong cash flows from operations due to continued strength in both surface mining and underground mining aftermarket parts sales, as well as continued high demand for our surface mining original equipment. In expanding markets, customers 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 the original equipment and do not believe that original equipment sales will have a material negative effect on our liquidity, although the issuance of letters of credit reduces the amount available for borrowings under our revolving credit facility. If additional borrowings are necessary during the remainder of 2007, we believe we have sufficient capacity under our revolving credit facility. See “Description of New Credit Facilities” above.

Capital expenditures for the six months ended June 30, 2007 were $35.6 million compared with $30.9 million for the six months ended June 30, 2006. Included in capital expenditures was $3.2 related to the operations of DBT. Also included in capital expenditures for the six months ended June 30, 2007 and 2006 were $16.8 million and $21.2 million, respectively, related to Bucyrus’ expansion program. The remaining expenditures consisted

 

33


Table of Contents

primarily of production machinery at Bucyrus’ main manufacturing facility in South Milwaukee, Wisconsin. Including the requirements of DBT subsequent to the May 4, 2007 closing date of the DBT acquisition, we expect combined Bucyrus/DBT capital expenditures in 2007 to be between $85.0 million and $95.0 million, which includes Bucyrus’ continued expansion in South Milwaukee and the upgrade and replacement of its manufacturing equipment to support our increased surface mining sales activity. We believe cash flows from operating activities and funds available under our revolving credit facility will be sufficient to fund our expected capital expenditures during the remainder of 2007.

The following table summarizes our contractual obligations as of June 30, 2007:

 

     Total   

1 Year

or Less

  

2-3

Years

  

4-5

Years

   Thereafter
     (Dollars in thousands)

Debt obligations

   $ 564,227    $ 11,335    $ 14,495    $ 39,623    $ 498,774

Purchase obligations (1)

     7,733      2,639      3,307      1,787      —  

Leases and rental and service agreements

     53,439      13,359      16,138      7,543      16,399

Expansion project – phase three (2)

     12,102      12,102      —        —        —  
                                  

Total

   $ 637,501    $ 39,435    $ 33,940    $ 48,953    $ 515,173
                                  

(1) Obligations related to purchase orders entered into in the ordinary course of business are excluded from the above table. Any amounts for which we are liable for goods or services received under purchase orders are reflected in the Consolidated Condensed Balance Sheets as accounts payable.
(2) We are in the midst of a multi-phase expansion program at our South Milwaukee facility. Phases one and two have been completed, and we estimate that the cost of phase three will be approximately $58 million. We are financing the expansion program through working capital and funds available under our existing revolving credit facility as well as governmental grants and other programs.

As of June 30, 2007, there were approximately $170.4 million of standby letters of credit outstanding under our new revolving credit facilities.

We believe that cash flows from operations and our revolving credit facilities will be sufficient to fund our cash requirements for the next 12 months. We also believe that cash flows from operations will be sufficient to repay any borrowings under our revolving credit facility as necessary.

Operating Cash Flows

During the first six months of 2007, we generated cash from operating activities of $12.9 million compared to $31.3 million for the first six months of 2006. The decrease in cash flows from operating activities was primarily the result of increased inventory levels to support current and projected sales increases.

 

34


Table of Contents

Receivables

We recognize revenues on most original equipment 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 June 30, 2007, we had $492.9 million of accounts receivable compared to $162.5 million of accounts receivable as of December 31, 2006. Receivables as of June 30, 2007 and December 31, 2006 included $184.2 million and $77.0 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 AICPA Statement of Position No. 81-1 “Accounting for Performance of Construction–Type and Certain Production-Type Contracts”, 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 2006 Annual Report to Stockholders. There have been no material changes to these policies.

 

35


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

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 or prime-rate based borrowings. In addition interest rate swaps are used to adjust interest rate exposures. At June 30, 2007, a sensitivity analysis was performed for our floating rate debt obligations. Based on this sensitivity analysis, we have determined that a 10% change in the weighted average interest rate as of June 30, 2007 would have the effect of changing our interest expense on an annual basis by approximately $2.2 million.

Foreign Currency

As a result of the DBT acquisition, we are now subject to substantially higher foreign currency exchange risk because DBT sells a significant amount of its products in Euros, while Bucyrus sells most of its products in United States dollars, and we will be reporting our combined consolidated results in United States dollars. As a result, an increase in the value of the United States dollar or the Euro, relative to other nations’ currencies, would decrease the United States dollar or Euro equivalent of DBT’s sales earned without decreasing the United States dollar or Euro value of the expenses associated with its sales.

Additionally, most of our aftermarket parts sales in Australia, South Africa, Brazil and the United Kingdom are denominated in the currencies of those nations, and the majority of our service sales are denominated in these and other local currencies. Although a portion of the expenses of providing overseas services are denominated in local currencies, the cost of goods associated with overseas sales are generally incurred in United States dollars and Euros. As a result, an increase in the value of the United States dollar or the Euro relative to these nations’ currencies would decrease the United States dollar or Euro equivalent of aftermarket sales earned abroad without decreasing the United States dollar or Euro value of a portion of the expenses associated with overseas sales.

Currency controls, devaluations, trade restrictions and other disruptions in currency convertibility and in the market for currency exchange could limit our ability to convert revenues earned abroad into United States dollars or Euros in a timely way. This could adversely affect our ability to service our United States dollar or Euro indebtedness, fund our United States dollar or Euro costs, finance capital expenditures and pay dividends on our common stock. Therefore, our future results of operations may be subject to increased volatility.

Based on the derivative instruments outstanding at June 30, 2007, a 10% change in foreign currency exchange rates would not have a material effect on our consolidated financial condition, results of operations or cash flows.

 

36


Table of Contents

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIES

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 June 30, 2007. 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 June 30, 2007 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.

As a result of the acquisition of DBT, there were 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 quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As part of our ongoing integration activities, we are continuing to incorporate our controls and procedures into this recently acquired business and to augment our existing controls to reflect the risks inherent in an acquisition of this magnitude and complexity.

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.

 

37


Table of Contents

PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings.

Not applicable.

 

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in Item 1A. of our Form 10-Q for the quarterly period ended March 31, 2007.

 

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

In connection with our offering of registered equity securities that closed on May 15, 2007, the Company filed a registration statement on Form S-3 (Registration No. 333-135555) with the Securities and Exchange Commission on June 30, 2006, which was automatically effective and which relates to the public offering from time to time of securities of the Company pursuant to Rule 415 of the Securities Act of 1933, as amended. Pursuant to the registration statement, the Company issued 5,306,100 shares of its Class A common stock. The offering was marketed through a group of underwriters, including Lehman Brothers Inc. as sole-book running manager. The offering has since terminated.

The Company received gross proceeds of approximately $352.1 million for the sale of shares in the offering, approximately $15.0 million of which was applied to underwriting discounts and commissions, and approximately $0.8 million of which constituted net costs and was applied to legal, accounting and other costs. After deducting the expenses described above, the net proceeds to the Company from its sale of Class A shares in the offering was approximately $336.3 million. The net proceeds of the offering were used to repay a portion of the Company’s new term loan facility used to initially finance the DBT acquisition.

 

Item 3. Defaults Upon Senior Securities.

Not applicable.

 

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

Our 2007 annual meeting of stockholders was held on April 25, 2007 (the “Annual Meeting”). At the Annual Meeting, the following matters were voted on in person or by proxy and approved by our stockholders:

 

   

The election of Edward G. Nelson, Theodore C. Rogers and Robert C. Scharp to our Board of Directors for three-year terms to expire at our 2010 annual meeting of shareholders and until their successors are duly elected and qualified. The directors remaining in office until 2008 are Ronald A. Crutcher, Robert W. Korthals and Gene E. Little, and the directors remaining in office until 2009 are Paul W. Jones, Robert L. Purdum and Timothy W. Sullivan.

 

38


Table of Contents
   

The ratification of the appointment of Deloitte & Touche LLP to serve as our independent registered public accounting firm.

 

   

The amendment to, and restatement of, the Bucyrus International, Inc. 2004 Equity Incentive Plan, which was renamed the “Bucyrus International, Inc. Omnibus Incentive Plan 2007.”

As of the March 13, 2007 record date for the Annual Meeting, 31,609,389 shares of Class A Common Stock were outstanding and eligible to vote and 27,549,267 shares voted in person or by proxy. Following are the final votes on the matters presented for shareholder approval at the Annual Meeting:

Election of Directors

 

   

For

 

Withheld

Name

 

Votes

 

Percentage(1)

 

Votes

 

Percentage(1)

Edward G. Nelson

  21,389,876   77.64%   6,159,391   22.36%

Theodore C. Rogers

  24,467,715   88.81%   3,081,552   11.19%

Robert C. Scharp

  24,880,408   90.31%   2,668,850   9.69%

Ratification of Deloitte & Touche LLP

 

For

 

Against

 

Abstain

Votes

 

Percentage(1)

 

Votes

 

Percentage(1)

 

Votes

 

Percentage(1)

24,925,622

  90.48%   2,618,237   9.50%   5,408   .02%

Amendment and Restatement of 2004 Equity Incentive Plan

 

For

 

Against

 

Abstain

 

Broker Non-Vote

Votes

 

Percentage(1)

 

Votes

 

Percentage(1)

 

Votes

 

Percentage(1)

 

Votes

 

Percentage(1)

18,713,588

  67.93%   7,319,968   26.57%   10,307   .04%   1,505,404   5.46%

(1) Based on a total of all shares actually voted in person or by proxy at the Annual Meeting.

 

Item 5. Other Information.

Not applicable.

 

Item 6. Exhibits.

See Exhibit Index on last page of this report.

 

39


Table of Contents

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 August 8, 2007

  

Mark J. Knapp

Corporate Controller

Principal Accounting Officer

  

/s/ Craig R. Mackus

Date August 8, 2007

  

Craig R. Mackus

Chief Financial Officer and Secretary

Principal Financial Officer

  

/s/ Timothy W. Sullivan

Date August 8, 2007

  

Timothy W. Sullivan

President and Chief Executive Officer

 

40


Table of Contents

BUCYRUS INTERNATIONAL, INC.

EXHIBIT INDEX

TO

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2007

 

Exhibit
Number
 

Description

4.1   Amended and Restated Credit Agreement, dated as of May 25, 2007, by and among Bucyrus International Inc. as Borrower, certain subsidiaries of Borrower, as foreign borrowers, the several lenders from time to time parties thereto, Lehman Brothers, Inc. as Sole Lead Arranger and Sole Bookrunner, JPMorgan Chase Bank, N.A. and La Salle Bank National Association as syndication Agents, National City Bank and M&I Marshall & Ilsley Bank as documentation agents, Lehman Brothers Bankhaus AG as German agent and Lehman Commercial Paper Inc. as Administrative Agent (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K dated May 25, 2007 and filed with the Securities and Exchange Commission on August 6, 2007).
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.

 

EI-1

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki