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Bucyrus International Inc. (NASDAQ:BUCY)

Q3 FY08 Earnings Call

October 24, 2008, 09:00 AM ET

Executives

Kent B. Henschen - Director of Corporate Communications

Timothy W. Sullivan - President and CEO

Craig R. Mackus - CFO and Secretary

Analysts

Alex Blanton - Ingalls & Snyder LLC

Charles Brady - BMO Capital Markets

Andy Kaplowitz - Barclays Capital

Ann Duignan - JP Morgan

Kent Green - Boston American Assets

Jerry Revich - Goldman Sachs

Robert Wertheimer - Morgan Stanley

Paul Bodnar - Longbow Research

Seth Weber - Banc of America

Robert McCarthy - Robert W. Baird

Steve Barger - KeyBanc Capital Markets

Barry Bannister - Stifel Nicolaus & Company, Inc.

Mark Caruso - Millennium Partners

Operator

Good day, ladies and gentlemen and welcome to the Third Quarter 2008 Bucyrus International, Inc. Earnings Conference Call. My name is Madge and I will be your coordinator for today.

At this time, all participants will be in a listen-only mode. We will be conducting a question and answer session towards the end of this conference. [Operator Instructions]. As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call Mr. Kent Henschen, Director of Corporate Communications. Please proceed, sir.

Kent B. Henschen - Director of Corporate Communications

Thank you, Madge. Good morning everyone. Thanks for joining us this morning for our third quarter 2008 earnings release teleconference. In a few minutes, I'll turn the call over to Tim Sullivan, President and Chief Executive Officer of Bucyrus and Craig Mackus, our Chief Financial Officer.

But as is our custom I'll begin today by reviewing the forward-looking statements and cautionary factors. This call contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of predictive, future tense or forward-looking terminology such as believes, anticipates, expects, estimates, intents, may, will or similar terms. You are cautioned that any such forward-looking statements are not guarantees of future performance and involves significant risks and uncertainties and that actual results may different materially from those contained in the forward-looking statements as a result of various factors, some of which are unknown.

Bucyrus's policy on forward-looking statements including a list of factors that could cause actual results to differ materially from those anticipated in forward-looking statements, as well as risk factors related to Bucyrus are included in Bucyrus's 2007 Form 10-K filed with the Securities and Exchange Commission on February 29, 2008. And any other cautionary statements described and other reports filed by Bucyrus with the Securities and Exchange Commission are forward-looking statements attributable to Bucyrus are expressly qualified in their entirety by the foregoing cautionary statements. Bucyrus undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. I'll now turn the call over to Tim.

Timothy W. Sullivan - President and Chief Executive Officer

Good morning everyone, welcome, and thank you for joining us this morning. Craig is going to give you a rundown on the financials and I'll give you some market update after that.

Craig R. Mackus - Chief Financial Officer and Secretary

Okay. Thanks Tim. I'll go through the third quarter like you normally do here. But before we begin that, I'd like to remind everyone that our 2007 results include the DBT results of operations since the May 4, 2007 date of acquisition and as a result, the financial results for the first nine months of 2008 are not necessarily comparative to the financial results for the first nine months of 2007 and may not be indicative of future results. Also, you should be aware of the non-cash purchase accounting charges which affect reported net earnings. I will address this later.

Sales for the third quarter 2008 were $646 million, an increase of $145.7 million or 29.1% from the $500.3 million for the third quarter of 2007. Original equipment sales were $341.6 million, an increase of $54.3 million or 18.9% from $287.3 million for the third quarter of 2007. And aftermarket products and service sales were $304.4 million, an increase of $91.4 million or 42.9% from $213 million for the third quarter of 2007.

The first nine months of 2008 sales were $1.78 billion, an increase of $718.6 million or 67.4% from $1.07 billion for the first nine months of 2007. Original equipment sales were $950.3 million, an increase of $395.7 million or 71.3% from $554.6 million for the first nine months of 2007 and aftermarket products and service sales were $833.7 million, an increase of $322.9 million or 63.2% from $510.8 million for the first nine months of 2007.

Surface mining sales for the quarter and nine months ended September 30, 2008 increased in both original equipment and aftermarket products and services from the comparable periods in 2007 and was the result of the continued strong demand for our products and services throughout the world and the positive impact of recently completed capacity improvements at our principle surface mining, manufacturing facility in South Milwaukee, Wisconsin. The highest demand for our products and services continued to be driven by high global commodity prices during the first nine months of 2008 and strong global markets for commodities that are mined by our machines including coal, copper, iron ore, and oil sands.

Increase in surface mining, original equipment sales for the third quarter of 2008 was in three product lines such as electric mine shovels, draglines and blast-hole drills and for the first nine of months of 2008 it was in electric mining shovels and the draglines. Surface mining aftermarket products and service sales for the third quarter and first nine months of 2008 increased to nearly all global markets compared to the same periods last year. Expansion of our surface mining facilities in South Milwaukee is substantially complete which will allow for the annual shovel production capacity of at least 24 shovels and almost doubled manufactured parts capacity from 2006 levels.

Underground mining sales for the quarter and nine months ended also increased in both original equipment and aftermarket products and service from the comparable periods in 2007 and reflects strong global coal prices and demand. Increase in underground mining original equipment sales was primarily due to strong equipment orders since the fourth quarter of 2007. Market conditions continued to be strong in Eastern Europe and the United States.

Gross profit for the third quarter of 2008 was $182.3 million or 28.2% of sales compared to $123.6 million or 24.7% of sales for the third quarter of 2007. Gross profit for the third quarter of 2008 was increased by $0.6 million approach as economy adjustments as a result of the acquisition of DBT in 2007 compared to a $9 million reduction for the third quarter of 2007. This had the effect of increasing gross margins for the third quarter of 2008 by 0.1 percentage point and decreasing gross margin for the third quarter of last year by 1.8 percentage points.

Gross profit for the first nine months of 2008 was $498 million or 27.9% of sales compared to $272 million or 25.5% of sales for the first nine months of 2007. Gross profits for the first nine months of 2008 was reduced by $11.3 million of purchase accounting adjustments as a result of the acquisition of DBT in 2007 compared to $15.1 million for the first nine months of 2007. This had the effect of reducing gross margin for the first nine months of 2008 by 0.6 percentage points compared to 1.4 percentage point for the first nine months of 2007.

The increase in gross profit was primarily due to the acquisition of DBT and increased surface mining sales. Surface mining original equipment sales which have lower gross margins were 46% of total surface sales for the third quarter of 2008 compared to 48% for the third quarter of 2007 and were 47% of total surface mining sales for the 9 months ended September 30, 2008 compared to 43% for the first 9 months of 2007.

The availability of raw material and raw material cost increases have not had a significant impact on gross margins or our surface mining manufacturing schedule or operating performance. Underground mining original equipment sales which have lower gross margins were 60% of total underground mining sales for the third quarter of 2008 compared to 66% for the third quarter of 2007.

Selling, general, and administrative expenses for the third quarter of 2008 were 10.3% of sales compared to 11.2% of sales for the third quarter of 2007 and 11.5% of sales for the second quarter of 2008. These expenses for the first 9 months of 2008 were 10.4% of sales compared to 11.1% of sales for the first 9 months of 2007. Operating earnings for the third quarter of 2008 were $103 million compared to $51 million for the third quarter of 2007 and were $270.2 million for the first 9 months of 2008 compared to $124.5 million for the first 9 months of 2007.

Operating earnings for our underground operations were reduced by amortization of purchase accounting adjustments related to acquisition DBT of $3.1 million and $24.8 million for the third quarter and first 9 months of 2008 respectively compared to $20.2 million and $30.7 million for the third quarter and first nine months of 2007.

The overall increase and the consolidated operating earnings for first nine months of 2008 was primarily due to the acquisition of DBT and increased gross profit resulting from increased surface mining sales volume. The recent increasing value of the U.S. dollar has had minimal impact on our results through September 30th.

Net earnings for the third quarter 2008 were $64.2 million or $0.86 per share compared to $28.6 million or $0.39 per share for the third quarter 2007. Net earning for the first nine months of 2008 were $167.6 million or $2.25 per share compared to $74.2 million or $1.08 per share for the first nine months 2007. Net earnings were reduced by net of tax depreciation and amortization of purchase accounting adjustments related to the acquisition of DBT of $2.1 million and $16.7 million for the third quarter and first nine months of 2008 respectively compared to $14 million and $20.4 million for the third quarter and first nine months of 2007.

Depreciation and amortization of future purchase accounting adjustments related to the acquisition of DBT is expected to be as follows; for fixed assets, approximately $600,000 credit, $400,000 net of tax that would be favorable per quarter through April 2011, intangible assets approximately $3.8 million per quarter, $2.5 million net of tax through April of 2019. The write up of inventory was fully amortized as of June 30, 2008.

EBITDA for the third quarter of 2008 was $115.8 million, an increase of 64.1% from $70.6 million for the third quarter of 2007. As a percent of sales, EBITDA for the third quarter was 17.9% compared to 14.1% for the third quarter of 2007. EBITDA for the first nine months of 2008 was $312.7 million, an increase of 95% from $160.4 million for the first nine months of 2007.

As a percent of sales, EBITDA for the first nine months of 2008 was 17.5% compared to 15.1% for the first nine months of 2007. And EBITDA as the find of net earnings before interest income, interest expense, income taxes, depreciation and amortization. EBITDA does include with the impact of reductions for non-cash stock comp expense, severance expenses, loss in sales expenses, and the inventory per value purchase accounting adjustment, charge of cost of products sold which we itemized in the EBITDA reconciliation in our press release.

At September 30, 2008, our total backlog was about $2.5 billion; which represents a 73.9% and 27.8% increase from December 31, 2007 total backlog and $1.4 billion of backlog as of 12/31. Our total backlog at June 30th was $2.2 billion. One thing in the press release on the backlog for the surface segment, we have total backlog and next 12 months backlog. That number for the next 12 months backlog is actually... should be the reciprocal of that amount, should be approximately $781,000. That number that's in there is the amount beyond the next 12 months not the next 12 months. This will be... it should be $781 million is what the correct number.

New orders for the third quarter of two... for the third quarter and the first ten months of 2008 were $939.7 million and $2.8 billion respectively compared to $332.1 million and $1 billion for the third quarter and first nine months last year respectively. Included in our surface mining aftermarket products and service, new orders for the first nine months of 2008 were $278 million related to multi year contracts that will generate revenue in future years.

At September 30, 2008, our total debt was $516.8 million compared to $536 million at December 31, 2007. Our cash balance was $63 million at September 30, 2008 compared to $61 million at December 31, 2007. Receivables have increased to $554 million at September 30, 2008 from $500.5 million at June 30th primarily due to the recognition of un-build receivables and unsold original equipment that is still being manufactured. Collections of receivables are expected to increase over the next two quarters based on scheduled payments from customers. Inventory returns remain at three times.

The recent worldwide credit crisis has had minimal impact on our cash investments and debt instruments. We're pleased to announce that earlier this month, Standard & Poor's Ratings Services raised our credit rating to BB from BB minus and Moody's raised the rating to BA2 from BA3.

Capital expenditures for the first nine months of 2008 were $62 million which includes $33 million related to the expansion and additional renovation of our facilities in South Milwaukee. We expect our total capital expenditures for 2008 to be between $100 million and $110 million. And now I'll turn it back to Tim to discuss our current market conditions.

Timothy W. Sullivan - President and Chief Executive Officer

Thanks Craig. Thank you. Let me begin by just stating that we are very pleased with the results of the quarter. It's a solid quarter; it's inline with our plan for the year. We did have a little bit of an issue with some timing in the underground segment, but that was fairly minor and that is obviously some business that's going to shift into the fourth quarter.

New orders, very gratifying approach to $1 billion; our backlog now is over $2.5 billion, up around $300 million over our previous backlog number. I want to reiterate to everyone, anything on our backlog is non-cancelable. Orders that are in backlog are non-cancelable. They are solid orders that we expect to ship, and that's always been our policy and that will continue to be our policy.

Margins, we're able to maintain a decent marginal level at 28.2%. I want to reiterate also that we expect margins to improve as we continue through our full integration of the DBT business and as we continue to achieve the types of new efficiencies that we are picking up in on our plant and obviously some firming also in market pricing. We have and we will continue to effectively pass on any and all material cost increases that we see to the end user of our products.

Let me concentrate today a little bit on the market. I think obviously there's been a lot of consternation and that's the understatement of the century in the market here in the last month plus. I just returned from China and unusual to my trips to China, I spend quite a bit of time talking with a lot of various entities both in China and people that do business in China. Let me give you a couple of quotes from my notes. I met with the Chinese Academy of Special Services, that's the think tank that basically plans all economic planning for China. And this is the comment that was made by the head of the Academy of Special Services the coming two decades for sure will witness China's growing demand for more energy, services to drive its economic growth until 2018. 2018 could be a pivotal year; we believe that that's when industrialization and urbanization may begin to level off, however, up until that time we see continued very robust growth with our economy".

BHP Billiton came out with comments just yesterday, asked about the down turn and the imminent GDP growth in China. The Premier of China came out last week and basically said that, GDP growth in China would dip below 10% and probably be in the 8% and 9% range. If you look at an 8% to 9% GDP growth rate, I think that's still an extremely strong growth rate. BHP Billiton was quoted yesterday, we remain confident that the on going industrialization and urbanization of China and other developing economies will continue to drive strong longer term demand for our products.

They have not backed down from their analysis and prediction of the fact that the developing countries are going to continue at, yes, lower GDP growth rates but yet still incredibly high GDP growth rates compared to developed countries. They also went to on state that, a unit of GDP growth in a developing countries such as China is five times more important when it comes to metal demand than a unit of GDP growth in a developed country. And that will I think emphasize the fact that the kind of commodity demand that we're seeing right now not only just in China but in Brazil, India, Russia falls within those types of parameters.

If you look back also, I looked back at the BHP Billiton's Marius Kloppers's presentation that he gave after their fiscal year end, this was around the middle part of August. And I would recommend that she pulled that up on the internet site and particularly pay attention to the slides 24, 25 and 26. Those slides are concentrated on the Chinese economy specifically and in there, they state that the Chinese economic growth is predominantly domestically driven and that the fixed asset investment in the 11 economic regions is forecasted approximately 60% of the total urban investment in China by 2025.

By 2025, China will have 221 cities with a million or more inhabitants. And obviously, that's only 17 years away and many of those 221 cities will have a much greater number of inhabitants than 1 million. In touring China last week I went to Guanjo, which is a major city, nothing has slowed down. Construction cranes are all over the horizon, things are not slowing down in China to any great extent from the urbanization the industrialization, that is again domestically driven.

There's another slide in the BHP Billiton presentation that pertains to annual steel consumption. And I would suggest you take a good look at that and see the type of steel consumption that is happening in China in comparison to United States, it's absolutely dramatic. Will there be some slowing of that? Of course there will be obviously with a little bit of a drop in the GDP. But if you're looking at the overall fall off in steel production in China, it's a fall off to say that they are only expecting maybe a 2% increase in production in 2009. Only a 2% increase in production in steel at the China market.

Let me talk a little bit about India. India also has announced here in the last week that their GDP will fall by a huge 0.2%, down to a level of 7.7% GDP growth for 2009. We see no fall off in activity in India, it is still a strong market, and there is still a huge demand for energy in India. If you talk about the actual coal needs of both China and India, there is actually a major shortages in both countries right now. Actually, in China they had to start up some of the township mines that they were trying to close as they nationalized to a more national level of 12 large coal producing companies. Because of the severe coal shortage, they've had to restart some of the township mines that they closed last year.

They've had to stop shut down Shenhua new coal to liquid plant in Shendong to make sure that the power plants are getting enough coal. Having said that, just this week Shenhua and Sasol from South Africa announced yet another coal to liquids initiative and a new CTO plant.

In India, we continue to see the typical brownouts, blackouts due to the coal shortage. We continue to see very robust machine activity in that market. This week, Valley [ph] announced that they have no intentions of cutting back or curtailing their CapEx spending for 2009. The only developing country that's shown any near-term concern for us has been Russia. I mentioned when I gave the presentation in Las Vegas that Russia had cut back some of their ordering due to the lack of credit availability both in Russia and in Western Europe. We see that as a temporary situation. Russia is still trying to increase their coal production by 18% to fill the void created by the exportation of natural gas to Western Europe.

There has been an ease in the commodity prices, obviously that's been well reported. But I think what you need to pay attention to is what we have out there with commodity prices. Each and every commodity price that we sell into is still two to five times higher than what it was three years ago. And people are talking about the fact that they may be bottoming out with that right now. The constraints that we've talked about remain in place in the industry. We still have tire shortages, we still have port issues, we still have people issues trying to find enough people to man the mines, to man the manufacturing facilities, to build the equipment, to sell equipment to the mines. There is approximately a two to three year delay in increase in copper production. Copper prices have come down significantly, but as again, if you look at where they were just five years ago, there's still a three times more than what they were three years ago.

One other phenomenon that is playing out right now with our demand for machinery for copper mines, the overall world yield in copper mines is falling fairly dramatically. It's moving down, which means that to get the same amount of production in any given Brownfield copper mine, more machinery is required. For instance, I'll give you an example, the Escadena mine site that had record production last year is struggling to maintain that same production for this fiscal year. They need to buy four new shovels and a fleet of trucks just to maintain the production output that they were able to enjoy last fiscal year. That's the type of yield fall off that we're seeing in some of the Brownfield copper mines around the world which obviously is going to continue to drive demand for shovels.

The fall off in oil price has had on effect obviously on some of the new projects in the oil sands, but we see continued requirements for not only expansion of machinery for the existing in oil sands, but obviously replacement for some of the older units that were put in place back in the early part of the last decade. We think that that's enough activity even without or the potential delay I should say of some of the oil sands projects to continue to create enough demand for our electric mining shovels as we move forward.

So, all in all, I could go on here probably for another half hour or longer talking about the robustness of the market. We see no fall off in demand for our equipment. We expect that we will continue to see strong booking activity as we move through the four quarter and in to 2009.

Our LOI backlog that I talked about, that is not necessarily moved into backlog yet because these are orders or these are LOIs, letters of intent that will be translated into firm contracts as we get certainty on costs of materials. There has been no fall off in our LOI backlog and we fully expect that we can move all those prospects into firm orders over the coming quarters.

I guess it's... suffice it to say, from a market standpoint, I am not cautious at all. I'm actually quite bullish about where we're at and I also want to remind everyone, this is hard to realize because people look at these things daily. Things move very slowly. Things move very slowly in our industry. We are always the last company into any cycle, we are always the last company out. Things do not change rapidly within our industry. Things move fairly slowly, we're dealing with multi-million dollar projects, multi-million dollar machines. These things are thought out very carefully before they are approved to move forward and again we're confident with the market.

Just a couple other comments before I turn over to questions, just to confirm and I confirmed this in Las Vegas, we have fully integrated DBT into our operations and I mentioned that would not really be a point of discussion going forward. We're quite pleased with the efforts of our underground group to adopt some of our management, the philosophies and practices. That's going very well and I'm very encouraged by improvement of margins, control of SG&A expenses, and just basically good solid management being brought to bare in our the underground segment.

I can also confirm that the South Milwaukee expansion is effectively completed. We're doing some upgrades, some aesthetic upgrades but as we rolled through into 2009 and we will give guidance for 2009 come February, we're looking for good things from the efficiency standpoint out of our South Milwaukee operations.

I will close my comments by talking a little bit about guidance. We typically don't do anything after we basically reconfirm or change guidance at mid-year but considering the current markets situation, we thought probably the best thing for us is to make sure that everyone understands clearly where we think we're going to end up the year.

We are moving our revenue guidance up to $2.4 billion to $2.425 billion. So we're moving it up somewhat just to make sure that everyone is aware of that and also we're moving our EBITDA guidance up... sorry we're moving that up to $2.425 billion at the top. I hope --

Craig R. Mackus - Chief Financial Officer and Secretary

$2.425 billion to $2.475 billion.

Timothy W. Sullivan - President and Chief Executive Officer

Okay. Sorry. That's right. And 445 to 465, $445 million to $465 million on EBITDA, adjusted EBITDA. All right, with that, I'll turn it over to questions.

Question And Answer

Operator

[Operator Instructions]. And your first question comes from the line of Alex Blanton from Ingalls & Snyder LLC. Please proceed.

Alex Blanton - Ingalls & Snyder LLC

Well, I'm sorry I got on the call a little bit late and I've got to get off and get a new one soon but I just wanted to ask you about this matter of cancellations that you mentioned. What happens to orders where peoples financing situation or debt situation has deteriorated to the point where you really doubt whether they can pay for the equipment? What would you do in that case with an order from a company like that?

Craig R. Mackus - Chief Financial Officer and Secretary

We don't have customers like that quite frankly. The customers we sell to are large multinationals that finance most its equipment with internal cash flow and or governments. The equipment we sold to India for instance is also to the Government of India and where we sell to countries like Morocco, Mauritania, those are all government backed mining entities.

So, I think we're kind of in an unique situation where virtually every customer that we deal with around the world does not necessarily require external financing or if they do, it's backed by some fairly strong obviously financial base of themselves either with a private entity or obviously the government if they are a public entity.

Alex Blanton - Ingalls & Snyder LLC

So you've vetoed all of your orders to make sure that you're not doing business with people who are shaky that could cancel these orders because they just can't pay for them? Is that what you're saying?

Craig R. Mackus - Chief Financial Officer and Secretary

That's correct.

Alex Blanton - Ingalls & Snyder LLC

Okay. So who's getting that business or is there any?

Craig R. Mackus - Chief Financial Officer and Secretary

There isn't any. Our competitor has the same situation as us. I think the only situation is like I said, I think we've seen some cautious approach in Russia because they do rely a lot more in outside financing. I think some of the smaller, room and pillar operators in the coal and Eastern U.S. would be a lot more cautious because they tend to rely on outside financing. But all in all, if you look at the bulk of what we sell and what our competitor sells, it's to a very strong conservatively based customer.

Alex Blanton - Ingalls & Snyder LLC

Now what is the situation regarding delays? I mean if worldwide demand should fall, and people want to delay a project for any reason, environmental, demand wise or whatever, what are the provisions for that in the contract? Do you have... do you allow that?

Craig R. Mackus - Chief Financial Officer and Secretary

No.

Alex Blanton - Ingalls & Snyder LLC

You don't?

Craig R. Mackus - Chief Financial Officer and Secretary

No. These things are multi million dollar piece of the machinery. People do not order them without full Board approval, full environmental impact study is complete. That's why we have kind of the LOI, I called the LOI pipeline. That's where people will and intent. But once it becomes an order, it's an order. And that's... and it's non-cancelable and if there is a potential issue and we can help somebody by delaying something a month or two that's fine. But that's pretty rare.

Alex Blanton - Ingalls & Snyder LLC

Okay. And now does this cover all of the products you sell, is that what you're saying here?

Craig R. Mackus - Chief Financial Officer and Secretary

Yes.

Alex Blanton - Ingalls & Snyder LLC

I mean we're talking of underground mining equipment and smaller machines and so forth?

Craig R. Mackus - Chief Financial Officer and Secretary

Yes.

Alex Blanton - Ingalls & Snyder LLC

So you don't allow cancellations and you don't allow delays?

Craig R. Mackus - Chief Financial Officer and Secretary

Correct.

Alex Blanton - Ingalls & Snyder LLC

But there must be situations that arise in which these things are inevitable, are there penalties?

Craig R. Mackus - Chief Financial Officer and Secretary

There are no penalties. Things cannot be cancelled, things cannot be delayed and quite frankly I have been in this business for 32 years, and it is never happened.

Alex Blanton - Ingalls & Snyder LLC

Okay, thank you.

Operator

And your next question comes from the line of Charlie Brady from BMO Capital, please proceed.

Charles Brady - BMO Capital Markets

Thanks, good morning Tim, good morning Craig.

Timothy W. Sullivan - President and Chief Executive Officer

Good morning.

Charles Brady - BMO Capital Markets

With respect to SG&A as a percent of the revenues and the outlook for DBT, any change on that I guess in this quarter from my knowledge it is a little bit higher than I would have thought. Anything in the quarter that might have driven that higher, unusual and do you still have your sort of target for DBT exiting the year around from where you said previously.

Timothy W. Sullivan - President and Chief Executive Officer

Yes DBT will be under ten by the end of the year and Craig, we got to hold onto those list of things, why don't you give them those.

Craig R. Mackus - Chief Financial Officer and Secretary

The few of the things that were unusual for the quarter and none of them were all that significant going, you add them up. They do tend to accumulate to a little bit higher number compared to how we have been running last couple of quarters. But we had some expenses in the quarter for the mine expo. We had expense of exhibit, so those quarters are I means that's of course that is expense of sort of one time in the quarter and we finished the SAP final installation in Germany that went live on July 1. So we had some expenses in the third quarter with a higher than normal.

We have hired a couple of more people on the surface side to handle the growth rate that we're seeing on the surface side revenue. So we have added some on the surface side. We're still controlling on the underground side but surface we need some additional resources. We have a slightly higher incentive expense that maybe compared to couple of the other quarters. Our performance has been absolutely had a little bit of an increase there, not significant, but a small amount. And then we've had some temporary timing losses on hedged contracts that we have. These are expected to reverse in the next couple of periods going forward. These are hedged contracts that we have that have some temporary expense related to them.

But nothing significant, just a number of smaller things. But we expect to do well follow in the fourth quarter closely to where we have been running in the last couple of quarters.

Charles Brady - BMO Capital Markets

Thanks. And Tim, I wondered if you can conduct with your market, your comments here, the outlook for the dragline market, has that outlook changed at all given where commodity prices have gone?

Timothy W. Sullivan - President and Chief Executive Officer

No, not really. As a matter of fact, I think we may see some movement here in the fourth quarter.

Charles Brady - BMO Capital Markets

Thanks. I'll get back in queue.

Operator

And you're next question comes from the line of Andy Kaplowitz from Barclays Capitals. Please proceed.

Andy Kaplowitz - Barclays Capital

Good morning guys.

Timothy W. Sullivan - President and Chief Executive Officer

Good morning.

Andy Kaplowitz - Barclays Capital

Just a quick question on currency. I mean you mentioned it doesn't affect your business on September 30th and obviously from raising your guidance, it looks like it doesn't affect in the 4Q, but as we go forward here, as the dollar continues to strengthen, how should we look at your business?

Timothy W. Sullivan - President and Chief Executive Officer

Well Craig mentioned that part of our issue with the third quarter was this anomaly that we have with some of our hedge contracts. We do we think effectively hedge, in certain markets the effect of the dollar. But what's interesting about that is that when the dollar does strengthen, it obviously has a bit of an adverse effect on our surface business and the things that we manufactured in the United States. We have a balancing effect because of our manufacturing that we do have in Germany.

So, it's pretty interesting that and if you look at the amount that we ship from both localities, it's really similar. So we have almost the balancing effect now between our European euro-based costs for manufacture and our U.S. based U.S. dollar cost base for manufacture. So, there is a bit of balancing effect and where we don't see that we're getting balanced effectively, we do use hedge contracts to make sure that we stay ahead of the game.

Andy Kaplowitz - Barclays Capital

Great, Tim. And one more question if I could. When you look at the surface aftermarket business and really the whole aftermarket business, but with surface you've been running strong orders for the last couple of quarters and this quarter is still pretty good, may be down a little bit, and so I guess I'm just wondering as we go forward here, if we enter a modestly weaker period in terms of orders, how sticky are the aftermarket orders going forward? Do you still expect that the surface and the underground aftermarket to be strong even if you know OEM goes down a little bit?

Timothy W. Sullivan - President and Chief Executive Officer

Yes. And we've seen no fall off whatsoever in the aftermarket and keep mind that we've had over 30 draglines re-commissioned now over the last five years. And we're talking then... just larger installed base machinery with what we put out there in the marketplace. We've seen no fall off. That's probably the least of our worries. We have got almost $30 billion installed base machinery out there and you've got coal demand, the level that I mentioned in my market comments. That's the least of our worries. We expect to have a continued good stream of aftermarket opportunities.

Andy Kaplowitz - Barclays Capital

Okay great. Thanks, I'll get back in queue.

Operator

And you next question comes from the line of Ann Duignan from JP Morgan, please proceed.

Ann Duignan - JP Morgan

Hi, good morning. It's Ann Duignan, JP Morgan.

Timothy W. Sullivan - President and Chief Executive Officer

Good morning.

Ann Duignan - JP Morgan

Good morning. You commented a little bit earlier that each percent of GDP in developing countries is worth five times that of a developed country, if it... wouldn't that be the same on the downturn that if you're seeing China's slow from the profit and GDP growth to 8 or 9 that it would have five times the impact at downturn with the U.S. GDP?

Timothy W. Sullivan - President and Chief Executive Officer

Yes. That would be the case.

Ann Duignan - JP Morgan

So, wouldn't you think it's inevitable that demand for hard commodities would slow in that environment?

Timothy W. Sullivan - President and Chief Executive Officer

Yes, it will to some extent.

Ann Duignan - JP Morgan

And so what would the natural impact beyond your business? Maybe not this quarter or next quarter, but if you look out across 2010, how would that or could that filter its way into your business?

Timothy W. Sullivan - President and Chief Executive Officer

Well, we're actually looking into 2010 right now. And this too in '09 is pretty full. We still got a little bit to do on the underground side but they were pretty full for the year. I think the biggest thing that we've got is that as these grades fall off, you've got kind of an insurance policy to some extent that you're going to continue to sell machinery into the commodity market even if there is a fall off to some extent in demand but the market was struggling just to meet the demand that we did have in China.

I mean, we weren't keeping up with the demand, that's why the prices were so high. I think we're going to see a normalization of demand and pricing is going to probably give us a chance to balance out supply and demand a little bit here over the next couple of years.

Ann Duignan - JP Morgan

Is there no macro back up which you can foresee any cyclical down turn in your business?

Timothy W. Sullivan - President and Chief Executive Officer

Not over the next two to three years. Again we're still trying to work our way through some of the bottlenecks and constraints in the industry and the dynamics and the deposits in the Brownfield sites, is working in our favor for more machinery. I think in the near term, the next two to three years and obviously we will get lot more visibility on what looks beyond that as we move into 2009. But we remain pretty bullish about our situation. These constraints that we've been dealing with in over the last three years or so, have been pretty severe and they really held back a lot of the demand for our equipment because people couldn't buy... they didn't want to buy shovels, they couldn't get trucks or tires for trucks. They didn't want to buy equipment if they couldn't get port facilities to handle the coal exports, particularly in places like Australia or copper in South America.

So, I see playing out the next two or three years is that demand for our equipment will continue and I think at a fairly strong level. And then as the balance of supply and demand comes into play here as we work through these constraints and bottlenecks which will be easier to deal with to some extent as the GDP growth does ease somewhat in the developing countries, we'll see what happens.

Ann Duignan - JP Morgan

Okay. And just a follow up on your after market orders, sequentially they fell on the surface side down 40%, underground down 13, is that just normal seasonality or is there anything more there that we... could this be the beginning of a trend?

Craig R. Mackus - Chief Financial Officer and Secretary

No, it is just mostly timing. And it's also because of note since earlier periods we had large maintenance repair contract booking, which we highlighted out the year-to-date effect of that. It's about 278 million, so we have that in the prior periods which did not occur in the third quarter.

Ann Duignan - JP Morgan

Okay. So you don't think that's a beginning of the trend, either?

Craig R. Mackus - Chief Financial Officer and Secretary

No.

Timothy W. Sullivan - President and Chief Executive Officer

No.

Unidentified Analyst

Okay, thank you. I'll get back in line.

Operator

And your next question comes from the line of Kent Green from Boston American. Please proceed.

Kent Green - Boston American Assets

You particularly talked about the dragline business and orders out there, could you give us an update on that particularly from India, I think there was ordered several smaller draglines?

Timothy W. Sullivan - President and Chief Executive Officer

Yes. India's talking about 3 plus 1, I think right now. Three plus an option for a fourth or they may even just come out with an order for four. We expect some movements on that in the fourth quarter. We also said that recently that we saw some new activity in large draglines and we think that that could come to fruition to some extent here in the fourth quarter as well.

Kent Green - Boston American Assets

And then just a little bit of clarification on the orders that shifted underground into the fourth quarter, was that a significant shift?

Timothy W. Sullivan - President and Chief Executive Officer

No, I don't think so. I don't think we weren't that far off I think as far as, where we wanted to be in the third quarter. But it was just a fairly minor shift, somewhat of a timing issue there at the end of September.

Kent Green - Boston American Assets

And then on the Russian financing slow down, was that hit, has any of these orders in the backlog for the next 6 months or so?

Timothy W. Sullivan - President and Chief Executive Officer

No. That's what I tried to say earlier. People don't buy until they've got everything in place including the finance and what happened with the one order that we actually had cut in half was the Russian company was going to finance half of the order with internal cash flow and the other half with the external financing. They were not able to secure the financing at the rates that was acceptable to them, so they delayed the placement of the order for the second half of that large order until they can get financed that they think is acceptable. The rates that they were getting were they said just completely unacceptable.

So, we got half the order that they're going to finance with their internal cash flow and the other half will come later when I guess when the credit markets improve a little bit.

Kent Green - Boston American Assets

And then there's a lot of companies are sorting out their domestic versus their international orders that you may have a lot to do about the developing countries versus developed countries. Has the... has that shifted and say underground mining also cause I know that lot of the orders were for the domestic market?

Timothy W. Sullivan - President and Chief Executive Officer

Actually not. I think this year 2008, a lot of our activity was more export. I think our competitor probably did a little bit better domestically this year than we did. We had strong business from Eastern Europe and Russia this year. We also had some strong business some South America.

It kind of ebbs and flows, do I think that Russia is going to continue to be a strong market through 2009? It's probably not going to be at the level it was in 2008. But frankly, I see a little bit of the resurgence in the domestic market for us as we remove to 2009.

Kent Green - Boston American Assets

Thank you.

Operator

And your next question comes from the line of Jerry Revich from Goldman Sachs. Please proceed.

Jerry Revich - Goldman Sachs

Good morning.

Timothy W. Sullivan - President and Chief Executive Officer

Good morning.

Jerry Revich - Goldman Sachs

You're clearly very bullish on outlook and the last time we saw a period of commodity price pull back. You made a very accretive acquisition; can you please update us on your priority of uses of cash at this point?

Craig R. Mackus - Chief Financial Officer and Secretary

Well, yes. I'm going to reconfirm. We don't plan to buyback stock. And as you know, we keep a pretty low dividend. We plan to use whatever excess cash we generate to grow our business both organically and through strategic acquisitions. We are looking at some bolt on opportunities, but I think that's our strategy. Our strategy is to use the cash we generate to grow the company both organically and through acquisition.

Jerry Revich - Goldman Sachs

Okay. And over the course of this entire commodity cycle, you've matched higher equipment prices with higher steel cost, can you step us through at which point could you stand to benefit from the decline in steel cost and how you expect the pricing side of the equation to shake out?

Timothy W. Sullivan - President and Chief Executive Officer

Yes. I'd like to say that we're going to see some easing in our steel prices. We don't see it. The steel that we buy is pretty special to both underground and surface. And as we stated today, we're seeing no easing in the steel prices for any of the products that we build. We're going to just keep monitoring it and keep making sure that we have cost certainty and make sure that we price accordingly when we sell to the market place.

Jerry Revich - Goldman Sachs

And Tim we appreciate that this is not your base case for the outlook, but if we just think of fair case scenario where we see further economic weakness for a long period of time, can you step us through your trough management plans and the scalable parts of your cost structure, that type of scenario plays out may not be in the near term but obviously it will play out eventually?

Timothy W. Sullivan - President and Chief Executive Officer

Yes, well let me state first that we've got obviously some really good certainty on what 2009 will be. We're starting to develop pretty good certainty around 2010. So, it's going to be a while before we have to really have to think about that.

Do we know what to do? Yes, we do. I guess that I have been in the industry a long time. Obviously we know how to ramp down and make sure that we do well as the market... if the market falls off to any great extent. I have to keep reminding people, we have the largest installed base of mining machinery in the world at $30 billion; that is more than three times what it was 3 or 4 years ago before our acquisition of DBT and before the large movements to install more machines into the marketplace.

We can live nicely off of a $30 billion installed base of mining machinery with the aftermarket stream. Literally, we would not have to sell another machine and this company would do just fine. So that doesn't mean we wouldn't make changes. Obviously, we've ramped down things like R&D but we're in a very good position whether we have a good market or even a market turn on us.

Jerry Revich - Goldman Sachs

Okay. And to just follow up on earlier question about potential delays there, we've heard a couple of your oil sands customer's announced delays in their CapEx plans, sounds like that's not going to impact any deliveries that you may have to those customers, is it... are we interpreting your comments correctly?

Timothy W. Sullivan - President and Chief Executive Officer

Yeah. The delays you're reading about are primarily the new... either new expansions which quite frankly I've not read of any delays on any existing operations for expansions. It's really the delays in the new projects. There's tremendous amount of capital that's required to start up on oil sands operation. Once it's up and running, they basically can add capacity at fairly reasonable levels compared to what it cost to start up an oil sands operations.

So, the only delays that you are reading about right now, the new Greenfield opportunities and those required a lot of capital and obviously they're not going to go forward to those types of projects unless they feel like they've got a pretty good solid oil price out there.

Jerry Revich - Goldman Sachs

So it's not a situation where some of your order book is from customers on those Greenfield opportunities?

Timothy W. Sullivan - President and Chief Executive Officer

None, none yet.

Jerry Revich - Goldman Sachs

Thank you.

Operator

And your next question comes from the line of Robert Wertheimer from Morgan Stanley. Please proceed.

Robert Wertheimer - Morgan Stanley

Hi, good morning, everybody.

Timothy W. Sullivan - President and Chief Executive Officer

Good morning.

Robert Wertheimer - Morgan Stanley

Could you please differentiate the market growth and the market strength in China with your sort of progress in going to market in China and how things are shaping up your business adequate?

Timothy W. Sullivan - President and Chief Executive Officer

Yeah, we're getting some activity and some sales in China. I think, we're going to see some of that as we roll out some of our announcements in the fourth quarter here. China has established a policy where it liked to buy local machinery as much possible.

The good news for us Westerners is that they can't keep up with the demand and they have to go off that policy here recently to buy-in fully imported Western equipment. So that's gratifying from that stand point. But we still have to establish a beach head of significance to sell into the China market, in China. And hopefully, we're getting closer while we announce the Vainon [ph] joint venture here a few months back. We plan to do more of those types of things to get a presence in China.

Robert Wertheimer - Morgan Stanley

Are local Chinese companies ramping up capacity to deal with that shortage or not?

Timothy W. Sullivan - President and Chief Executive Officer

To some extent, I don't think they're ramping up to the extent that we have for instance. They've been a little slow to increase capacity. I think they've concentrated more on just trying to get product out the door.

So, and that what's you're seeing, that's why we're seeing some new activity in the China market for fully imported machinery.

Robert Wertheimer - Morgan Stanley

If I can ask just two follow ups, just to be crystal clear, the order you mentioned in Russia, you talked about at Mine Expo, that wasn't per say cut in half as it was could have been twice as big, right? They never made an order and then cut it back?

Timothy W. Sullivan - President and Chief Executive Officer

Yeah.

Robert Wertheimer - Morgan Stanley

And then last, you've been pretty clear on cancellations not happening, but can you remind us sort of the progress payments and down payments for shovels and draglines?

Timothy W. Sullivan - President and Chief Executive Officer

Everything we sell is progress built, on a percent of completion basis. So literally everything we sell with the exception of aftermarket and even some of the big aftermarket contracts do have progress payments in them. But we stay virtually cash neutral in our business here when we sell machinery to the market place because of the progress building.

Robert Wertheimer - Morgan Stanley

Perfect. Thank you.

Operator

And your next question comes from the line of Paul Bodnar from Longbow Research. Please proceed.

Paul Bodnar - Longbow Research

All of my questions have been answered but just a follow up to earlier. What percent of either your backlog or just deliveries and if going to somewhere like Russia or the East United States for more marginal credit type line because it looks more into demand difficulty and then financing?

Timothy W. Sullivan - President and Chief Executive Officer

In '08, it was pretty strong. I think going through '09, it's going to be less. And again, it is a result of I think what we've been talking about in some of the credit issues.

Paul Bodnar - Longbow Research

So in terms of the backlog, it's going to be like a 20% type thing?

Timothy W. Sullivan - President and Chief Executive Officer

No. Not at all.

Paul Bodnar - Longbow Research

Not even close?

Timothy W. Sullivan - President and Chief Executive Officer

Yes, not even close. It's in single digits. Its even I think we flushed through most of our Russian business already, but it's in single digits.

Paul Bodnar - Longbow Research

Okay. Thanks a lot.

Operator

And your next question comes from the line of Seth Weber from Banc of America, please proceed.

Seth Weber - Banc of America

Hi. Thanks. Good morning. Couple of clarifications, I guess. Just as a follow up to that last question, Tim is that some of these lower tier operators in the Eastern U.S., are they also kind of single digits as a percentage of your backlog?

Timothy W. Sullivan - President and Chief Executive Officer

Yes, those are primarily room and pillar customers and as you know, we're not as competitive as we want to be in that market.

Seth Weber - Banc of America

Right, okay. And separate clarification when you talk about establishing a beach head in China, would that potentially include an acquisition?

Timothy W. Sullivan - President and Chief Executive Officer

Yes it could.

Seth Weber - Banc of America

Okay, I mean is that... that's sound like a bit of a change of strategy here for you. I think historically, you talked about wanting to go in that market with a JV.

Timothy W. Sullivan - President and Chief Executive Officer

Well we're looking at all options. And you look at the company like Catapult, I think they've done every type of financial transaction that you can possibly think of in China and I think part of that reason and part of that strategy is to figure out which works best. And so we're looking at all opportunities that we have there.

Seth Weber - Banc of America

Okay. And just if you could again remind us, when you're taking deposits of on piece on equipment orders upfront, do you take... does the deposits get larger for some of these emerging economy players or some of the more challenged operators, is there a sliding scale?

Timothy W. Sullivan - President and Chief Executive Officer

No, we're pretty an equal opportunity seller. No it's... I think the approach we take is reasonable and I think people understand that and we're pretty even handed about that.

Seth Weber - Banc of America

Okay. And last question, any thoughts as to what CapEx could be for 2009?

Timothy W. Sullivan - President and Chief Executive Officer

We're putting that together right now, and the CapEx that we do spend will be to improve efficiencies more probably in our manufacturing facilities. We may do a little bit more in some of our service opportunities that we have out in certain markets where we might not be as fully capable as we want to be. But, no we rolled that out, that's what we do between now and at the end of the year. And we rolled that out in early February.

Seth Weber - Banc of America

Okay, thanks very much.

Timothy W. Sullivan - President and Chief Executive Officer

I guess to answer your question, its not going to be simple maintenance. Simple maintenance level, it's going... its likely going to be higher than that.

Seth Weber - Banc of America

But probably down from 2008?

Timothy W. Sullivan - President and Chief Executive Officer

Somewhat yes.

Seth Weber - Banc of America

Okay. Thank you.

Operator

And your next question comes from the line of Robert McCarthy from Robert W. Baird, please proceed.

Robert McCarthy - Robert W. Baird

Good morning guys.

Timothy W. Sullivan - President and Chief Executive Officer

Hi Rob.

Robert McCarthy - Robert W. Baird

Yes, there's nothing left but small clarifications at this point. Tim, when you talked about demand reaccelerating in China, are you talking about underground or surface?

Timothy W. Sullivan - President and Chief Executive Officer

A little bit of both.

Robert McCarthy - Robert W. Baird

A little bit of both?

Timothy W. Sullivan - President and Chief Executive Officer

Obviously, we've got the underground as a much larger portion of the coal mining in China. But I think you're going to see us as we roll through this quarter that we've got something of both.

Robert McCarthy - Robert W. Baird

Good. And is that nice set way, you're talking about the potential for dragline orders in the fourth quarter, you've said that you're looking for fourth quarter to bring another solid order total. Can we infer from this that even if the dragline activity doesn't come to fruition in the fourth quarter that you still expect to report substantial bookings?

Timothy W. Sullivan - President and Chief Executive Officer

Yes.

Robert McCarthy - Robert W. Baird

And when we were at Mine Expo, you really did sound like you were very close to closing something on the acquisition front. Has that moved away from you or did something go away or is it just normal pace of closing maybe delayed by all of the market turmoil?

Timothy W. Sullivan - President and Chief Executive Officer

Yes, I know. We're still close.

Robert McCarthy - Robert W. Baird

Okay. And when do you expect to actually consummate that joint venture in China?

Timothy W. Sullivan - President and Chief Executive Officer

It probably is going to get done this quarter. It may slip into something like the early part of the first quarter. But I'm hopeful we could have this quarter?

Robert McCarthy - Robert W. Baird

You might running to any regulatory or structural barriers to getting it done, have you?

Timothy W. Sullivan - President and Chief Executive Officer

No. It's just the typical process...

Robert McCarthy - Robert W. Baird

Of negotiating in that part of the world. Okay, thanks Tim.

Operator

And your next questions comes from the line of Steve Barger from KeyBanc Capital Markets. Please proceed.

Steve Barger - KeyBanc Capital Markets

Hi, good morning.

Timothy W. Sullivan - President and Chief Executive Officer

Good morning.

Steve Barger - KeyBanc Capital Markets

Yeah. There is not much left. But can you tell us about the cadence of orders in the quarter, did you book a lot at my next phone, didn't drop off after that? I know your business is lumpy but any change in this the near term tone of things?

Timothy W. Sullivan - President and Chief Executive Officer

No. But I think a lot of the sentiment that we were feeling in the third quarter is going to relay to the fourth quarter.

Steve Barger - KeyBanc Capital Markets

Okay, great. And Craig just to clarify, you said that the next 12 months in surface is 781, is that correct?

Craig R. Mackus - Chief Financial Officer and Secretary

That's Correct.

Steve Barger - KeyBanc Capital Markets

And so even though that is slightly down sequentially, is that the function of those timing issues that you were talking about?

Craig R. Mackus - Chief Financial Officer and Secretary

No, I think it's more a function that we're working to the backlog on the draglines.

Steve Barger - KeyBanc Capital Markets

Okay.

Craig R. Mackus - Chief Financial Officer and Secretary

It seems so draglines so as we recognize revenue on a quarter-to-quarter basis the number would tend to come down hopefully to be offset by parts or shall be open in the surface side.

Steve Barger - KeyBanc Capital Markets

Okay, great. Thanks very much.

Operator

And your next question comes from the line of Barry Bannister from Stifel Nicolaus. Please proceed.

Barry Bannister - Stifel Nicolaus & Company, Inc.

Hey guys. I guess my first question is more something I don't know that you can really answer but I mean, you used to use Lehman as your banker. Presumably now it's Barclays. And Barclays is going to be out there, looking to establish its reputation so I don't know that their capital will be completely unavailable. When I look back on the Bucyrus's history, you went private in an OBO or private equity transaction in February 4, 1988, went public again then went private again in September 24, 1997, and went public again. And you know maybe third time is the charm. By my calculations you're trading at less than four times EBITDA and if you never sold another shovel again and just serve the world from installed base of machines ands we never grew our energy consumptions and the machine count never grew and the output of mines never increased, you'd be making over $2 of shares so you could live on that annuity. So what's stopping you from looking at all your options, you mentioned earlier in the question about your usage of cash but what about the usage of capital structure?

Timothy W. Sullivan - President and Chief Executive Officer

Yeah, that's a great question, isn't it. I mean this is absolutely unbelievable where we're at right now based on installed base machinery we've got and even in a, what I believe is still a strong market for us.

Barry Bannister - Stifel Nicolaus & Company, Inc.

Alright.

Timothy W. Sullivan - President and Chief Executive Officer

You want to be part of the team?

Barry Bannister - Stifel Nicolaus & Company, Inc.

I guess there's no way to answer that just as don't know this more.

Timothy W. Sullivan - President and Chief Executive Officer

I don't know how to answer that one Barry but it's an intriguing question, how's that?

Barry Bannister - Stifel Nicolaus & Company, Inc.

I understand. Now earlier question, the first question was about your non-cancelable backlog and the letters of credit, presumably you have a letter of credit that you could collect on the machine if they were to cancel it but is that the full recourse, the full cost of machine or just a portion of the cost of machine? How does that work?

Timothy W. Sullivan - President and Chief Executive Officer

No, when we have a letter of credit the full cost of machine.

Barry Bannister - Stifel Nicolaus & Company, Inc.

Okay, great. Well, that's all I had. Thanks, guys.

Operator

And your last question comes from the line of Mark Caruso from Millennium Partners. Please proceed.

Mark Caruso - Millennium Partners

Good morning, guys. I just had two quick questions. One was I want to see, a couple of years ago we saw a Central App pricing falling to the 50s and we saw things ease up a little bit. So I want to see how you compare that time versus now considering the marginal costs has moved up and the financial crisis have been putting pressure on some of the smaller producers and I just want to see how you're thinking about the U.S. coal market here as prices keep coming down?

Timothy W. Sullivan - President and Chief Executive Officer

Yeah, what's happening is we've had a bit of a spike in Central App primarily with some of the export opportunities that they've got through the European market as South Africa has been trying to fill the void in India. There's going to be an easing down obviously in some of that pricing overtime. But even the most aggressive projections on price reduction that I've seen that go out to 2011, 2012 still don't show that coal price coming down to what it was back in 2005. So, any floor that we're seeing on any of the projections so far, obviously it's a little bit early as we've gone through some of these readjustments in GDP growth.

These are not huge readjustments in my opinion and I don't see that we're going down to 2005 pricing levels in any commodities over the next couple of years. It is not... my opinion is based on everything I'm looking at and all the projections I'm getting from the analysts that deal in commodity pricing.

Mark Caruso - Millennium Partners

So you're worried about a slow down in U.S. coal demand for equipment?

Timothy W. Sullivan - President and Chief Executive Officer

No, matter of fact I think I made a comment already that we're going to see probably a pretty good U.S. market for ourselves here for 2009.

Mark Caruso - Millennium Partners

Got you and then going back on the oil sands comments, there's a lot of stuff that is getting pushed out because the economics are lot more margin able and while the oil sands guides are free cash flow negative. So, I guess one of the things I'm trying to figure out is, what's in backlog now, is that you're expecting to get delivery next year, because the lot of the projects beyond Greenfield are getting pushed out or cancelled because cost of runs are going up 50%.

So I just want to make sure that you guys feel that you're adequately protected in the case of that. Because I know Petro-Canada announced a 50% cost increase. Some quarters pushed out Voyager, and Statoil in the year, pushed out some extensions so I just want to make sure that you guys are protected in the event that we see more on that?

Timothy W. Sullivan - President and Chief Executive Officer

Yeah. We're protected and just maybe reconfirm we went back to all of our customers that have orders, all of our customers that have otherwise and reassessed the entire situation here in the last week. Just... there's more on the LOI front than it was in the order front because our orders are strong and no cancelable. But now we're fine.

Mark Caruso - Millennium Partners

Got you, thanks.

Operator

And I would now like to turn the call over to your host Mr. Sullivan for closing remarks.

Timothy W. Sullivan - President and Chief Executive Officer

I would just like to thank everyone again for joining us today, sorry we ran over time a little bit obviously, somewhat unusual times that we're dealing with. I don't know what else I could say there, than what I said previously. I think the markets although the GDP growth of some of the developing countries are coming down somewhat. With all the bottlenecks and all the issues that we've had trying to get product to market here over the last three years, we don't see a fall off in demand for our equipments and we absolutely don't see a fall off in demand for our after market opportunities in the near-term. And we expect to finish the year strong and obviously we'll be giving you some good guidance for 2009, when next we've a call which I think is scheduled for around the second week of February.

Thanks again for joining us. As always, keep in tune with our website. We will be trying to announce anything of a substantive nature as far as machine bookings or otherwise as we move to the fourth quarter.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day. .

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Source: Bucyrus International Inc. Q3 2008 Earnings Call Transcript
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