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Bucyrus International (NASDAQ:BUCY)

Q4 2010 Earnings Call

February 18, 2011 9:00 am ET

Executives

Timothy Sullivan - Chief Executive Officer, President and Director

Craig Mackus - Chief Financial Officer and Secretary

Shelley Hickman -

Analysts

Jerry Revich - Goldman Sachs Group Inc.

Seth Weber - RBC Capital Markets, LLC

Robert Wertheimer - Morgan Stanley

Christopher Weltzer - Robert W. Baird

Charles Brady - BMO Capital Markets U.S.

Ben Elias - Sterne Agee & Leach Inc.

Andy Kaplowitz - Barclays Capital

Ingrid Aja - Merrill Lynch

Will Gabrielski - Gleacher & Company, Inc.

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2010 Bucyrus International Inc. Earnings Conference Call. My name is Katina, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Ms. Shelley Hickman, Director, Global Communications. Please proceed.

Shelley Hickman

Thank you, Katrina. Good morning, and thank you for joining us for Bucyrus International Inc. Fourth Quarter and Full Year 2010 Earnings Teleconference. In a few moments, I'll turn the call over to Mr. Tim Sullivan, President and Chief Executive Officer of Bucyrus; and Mr. Craig Mackus, Bucyrus' Chief Financial Officer.

As we begin, I want to remind you that Bucyrus desires to apply the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain statements in this conference call are subject to factors that could cause actual results to differ from those expressed or implied by those statements. For a further description, I refer you to our filings with the SEC. Any forward-looking statements speak only as of today, and there is no obligation to update these statements to reflect future events or circumstances.

Now I'll turn the conference over to Tim.

Timothy Sullivan

Thanks, Shelley, and I'd like to offer you my welcome as well, and thanks for joining us this morning. Craig is going to go through some of the detailed financial results for the year, then I'm going to highlight why I believe that not only was the performance in fiscal 2010 an outstanding performance by our company, but somewhat understated with some of the recent activities early in 2011. So Craig, I'll turn it over to you.

Craig Mackus

Thanks, Tim. Before I begin, I would like to remind everyone that our financial results for 2010 include the net assets and results of operations of Terex since the February 19 date of acquisition, as well as the preliminary acquisition accounting adjustments and acquisition costs incurred related to the Terex acquisition. As a result, our financial results for the quarter and the year ended December 31, 2010, are not necessarily comparative to the results for the same period last year or as of December 31, 2009, and may not be indicative of future results.

Sales for the fourth quarter of 2010, which included $416 million for Terex were $1.2 billion, an increase of $591 million or 92% compared to the fourth quarter of 2009. Original equipment sales, which include $256 million for Terex, increased $382 million or 117% compared to the fourth quarter of 2009 and aftermarket sales, which included $160 million for Terex, increased $210 million or 65% compared to the fourth quarter of 2009.

Sales for 2010, which included $1 billion for Terex, were $3.7 billion, an increase of $999 million or 38% compared to 2009. Original equipment sales, which included $541 million for Terex, increased $528 million or 39% compared to 2009. And aftermarket sales, which included $492 million for Terex, increased $471 million or 36% compared to 2009. The increase in non-Terex original equipment sales for the fourth quarter of 2010 was primarily in electric mining shovels and room and pillar equipment, partially offset by a decrease in longwall equipment. For the full year 2010, there was an increase in electric mining shovel sales and a decrease in all underground mining product lines, particularly longwall systems in the Czech Republic.

The increase in non-Terex aftermarket sales for the fourth quarter of 2010 was in the underground segment and was in all markets, except the Chinese markets. For the full year 2010, aftermarket sales decreased slightly from 2009. There was a decrease in the Surface Mining segment, with the largest decreases being in the United States and African markets and an increase in the Underground segment, consisting of increases across all markets, except for the United States market. The decreases in the United States market were primarily due to a major dragline and repair project in 2009 that was not repeated in 2010 and lower longwall orders in 2010.

Gross margin after adjusting for amortization of Terex acquisition accounting adjustments was 29.9% for the fourth quarter of 2010 and 29.7% for 2010 compared to 31.9% and 30.4% for the same periods last year. The lower gross margin in 2010 was primarily due to lower gross margins on the Terex business compared with historical Bucyrus and the mix of products sold. This was partially offset by lower absorption losses at our manufacturing locations in 2010. We are starting to see the benefits of our forecasted integration benefit savings from the Terex acquisition. Material cost increases have not affected margins yet. The inventory acquisition accounting adjustment has been fully expensed, as of December 31, 2010.

Operating earnings for the fourth quarter of 2010 were $208 million, which included $79 million for Terex before amortization of acquisition adjustments compared to $115 million for the fourth quarter last year and were $535 million for the 2010, which included $166 million for Terex before amortization of purchase accounting adjustments compared to $475 million for 2009.

Operating earnings for the fourth quarter and full year 2010 were reduced by amortization of acquisition accounting adjustments and acquisition costs related to the acquisition of Terex mining of $14 million and $88 million, respectively. Operating earnings for the fourth quarter and full year of 2010 were also reduced by $15 million of costs related to the pending merger with Caterpillar.

Lower underground mining equipment sales for 2010 have negatively impacted operating earnings compared to 2009. Interest expense of $21 million and $72 million for the quarter and full year of 2010, respectively, compared to $7 million and $27 million for the same periods last year. The increase reflects the new $1 billion secured term loan, which was used to purchase Terex. Interest expense for 2011 is expected to approximate $75 million to $80 million.

The effective tax rate for 2010 was 31.5% compared to 30.1% for 2009. The higher rate in 2010 was primarily due to nondeductible acquisition costs related to the Terex acquisition and pending merger with Caterpillar.

Net earnings for the fourth quarter and full year 2010 were $130 million and $316 million, respectively, compared to $81 million and $313 million for the same periods last year. Net earnings were reduced by amortization of acquisition accounting adjustments related to the acquisition of Terex of $6 million and $45 million for the fourth quarter and full year of 2010, respectively. Fully diluted net earnings per share for the fourth quarter and full year of 2010 were $1.58 and $3.88, respectively, compared to $1.07 and $4.12 for the same periods last year. Amortization of Terex accounting adjustments is expected to approximate $7 million, $5 million after-tax in future quarters.

Adjusted EBITDA for the fourth quarter of 2010 was $256 million, an increase of 87% from $137 million for the fourth quarter of 2009, and for 2010 was $721 million, an increase of 31% from $549 million for 2009. Adjusted EBITDA was 21% and 20% of sales for the fourth quarter and full year 2010, respectively, compared to 21% for the same period last year.

Adjusted EBITDA excludes the impact of non-cash stock compensation expense, gain or loss on disposal of fixed assets, inventory fair value, acquisition, accounting adjustment charge, the cost of products sold, Terex acquisition cost and cost associated with the pending merger with Caterpillar.

At December 31, 2010, our total backlog was $2.7 billion, $1.9 billion of which is expected to be recognized within the next 12 months. This represents a 44% increase from December 31, 2009, total backlog and $1.9 billion and a 50% increase from the 12-month backlog of $1.3 billion. Backlog at December 31, 2010, includes $698 million for Terex.

New orders for the fourth quarter 2010, which includes $572 million for Terex, were $1.4 billion, an increase of $824 million or 140% compared to the fourth quarter of 2009. Original equipment new orders for the fourth quarter of 2010, which includes $365 million for Terex or $740 million, compared to $290 million for the fourth quarter of 2009.

New orders for electric mining shovels and blasthole drills increased and new orders for longwall equipment decreased for the fourth quarter of 2010 compared to the fourth quarter last year. Aftermarket new orders for the fourth quarter 2010, which included $207 million for Terex, were $673 million compared to $298 million for the fourth quarter of 2009. Excluding Terex, aftermarket new orders increased 56% compared to the fourth quarter of 2009.

New orders for the full year of 2010, which included $1.4 billion for Terex, were $4.2 billion, an increase of $2.1 billion or 106% compared to 2009. Original equipment new orders for 2010, which included $870 million for Terex, were $2.3 billion compared to $856 million for 2009. In addition to Terex, the increase was in electric mining shovels, blasthole drills and all underground mining product lines. Aftermarket new orders for 2010, which included $557 million for Terex, were $1.9 billion compared to $1.2 billion for 2009. Excluding Terex, aftermarket new orders increased 16% compared to 2009.

Total new orders were favorably impacted by approximately $68 million for the full year of 2010 due to the effects of the weaker U.S. dollar on orders and beginning of period backlog denominated in foreign currencies. Foreign exchange impact in the fourth quarter 2010 new orders was minimal.

Our cash balance increased to $474 million at December 31 from $353 million at September 30 and $101 million at December 31, 2009. Net cash provided by operations increase was $139 million and $480 million for the fourth quarter and full year of 2010. Receivables increased by $84 million from September 30, 2010, due to increased sales volume in the fourth quarter of 2010. Inventory decreased approximately $85 million from September 30, and inventory turns improved to 2.4x at December 31, 2010. Our total debt at December 31, 2010, remained at $1.5 billion. We do not have any borrowings under our revolving credit facility at December 31, 2010. Now I'll turn it back to Tim for additional comments.

Timothy Sullivan

Thanks, Craig. I started this call by saying it was an outstanding performance for the year. I think that's an understatement. You consider the fact that we had the Terex integration, the CAT acquisition announcement during the year, I can tell you that there were a significant number of other distractions during the year, and our management team remained focused, hung together and I think reached an outstanding result for fiscal 2010.

I'd like to just comment on a couple of the financial highlights, then I'll talk about the market and update you as to where we are with both the Terex integration and the CAT acquisition. If you look at the sales for the quarter, 32% higher year-over-year with 69% of that coming from Terex. So obviously, we got out of the blocks well with the Terex product lines. They were very well accepted in the marketplace. And I think our team did a fine job moving that machinery to the marketplace and receiving acceptance from our traditional Bucyrus legacy customers.

If you look at the margin for the year, again an outstanding result and our team to be complimented, I think, for what they were able to achieve on the gross margin side, almost 30% with a 57% OE mix. And most of you that have followed us for several years realize that, that's an incredible number considering the mix of OE to aftermarket in that revenue number.

Adjusted EBITDA margin for the quarter of 20.7% with the lower margin, relatively lower margin Terex products in that mix, so truly I think a very, very good result for the year. I mentioned that there was, I think, one surprise in the numbers. Our backlog at the end of the year was stated at $2.7 billion. That did not include Reliance. Reliance was booked after the first of the year. And with a couple of other carryover orders that were not booked before December 31, that backlog number in the first two weeks of January actually ballooned to approximately $3.2 billion. So obviously that $2.7 billion number, plus the Reliance business that has now been booked into backlog give us a nice good headstart for a strong 2011 performance.

Our plants with that backlog should perform exceptionally well this year. Craig mentioned that our absorption performance in 2010 exceeded what we had in 2009. I think we can expect the same type of absorption performance in all of our plants as we go through 2011.

Let me talk a little bit about the market and give you just a few facts about what's happening. We really see that the commodity market has, as we said many times, sustainability for several years. Let me talk about just a couple of commodities and give you some of the dynamics that are in the marketplace today. Copper, now trading at around $4.50 a pound, obviously, at an extremely high level. If you look at the first 10 months of 2010, copper usage was up 7.5% compared to the same period of time in 2009. The biggest difference though between 2010, 2009, during that same first 10 months of 2010, we had a 400,000-metric-ton deficit in copper compared to a 32,000-metric-ton surplus in 2009. So you can see why copper is at $4.50 a pound. And we've talked about this on previous calls as well.

Let me give you another statistic here that I think is very telling as to why we think that copper will remain a strong-priced commodity as we move through the next couple of years. You look at the world production of copper in that first 10 months of 2010, it was effectively unchanged versus 2009. If you look at the production in Chile, the largest producer of copper, production only grew 0.7% in 2010 over 2009. But when you compare that to the production that came out of Chile in 2007, it's still 2.4% below 2007 production levels. Why is that happening? Well, there's a couple of things and the biggest thing though being the yields. These copper mines are becoming a lot more mature. A lot more rock has to be moved to achieve typical production levels, which means a lot more machinery. And that's why we're very bullish on copper, not just in Chile but literally in all the copper productions around the world.

Iron ore, big demand obviously, and demand continues to increase. Pricing is strong. Obviously, that will relate to increased steel prices as we move forward. We've all read and heard and seen the issues with the flooding in the largest coking coal exporter in the world, Australia. Queensland has taken a lot of production off the market because of the flooding, and it's going to take really a good portion of 2011 to return to just what I would consider to be normal production levels. The shortage of coking coal, the increased pricing on iron ore, all that relates to a lot of pricing pressure on steel, which I'll touch on here in just a minute.

Last but not least, steam coal. This is interesting as well. I think we all talk about China. We talk about the demand in China. China is now producing and burning, I should say, 3 billion tons of coal per year. We burn slightly more than 1 billion tons of coal here in the United States. So China is now burning 3x the amount of coal that we burn as a country. 80% of the power generation comes from coal in China, but the phenomena that we pay attention to and that you're reading about quite a bit now is the fact that China has become a net importer of coal. Last year, they imported approximately 150 metric tons of coal. It's projected that, that would be doubled this year to 300 metric tons. And if you'd compare that and look at what that really means, that's the total coal production of Australia. If you double that again perhaps next year or in the next two years to 600 metric tons, that really then comes to the full seaborne coal trade of all exporting countries. So when you read about the fact that our U.S. coal producers are looking to establish ports on the West Coast United States to ship PRB coal, Powder River Basin coal from Wyoming, that's the reason why. I think we're very bullish on coal for not only the medium and the short term, but for the long term as well. So just a couple of stats to kind of give you an idea of why this commodity market just remains very, very strong and obviously driving a lot of the demand for our machinery.

I did mention the fact that steel pricing would be going up, it is going up. I think as in all previous years, our teams are on top of that around the world for all of our products. We think we will be able to effectively buy steel forward enough to protect our cost bases and be able to pass those cost increases on, as we sell our machinery and spare parts. But steel prices will be going up this year, as a result of the shortage of coking coal and the increased cost in iron ore.

As we look at what we will be doing as a company this year, our CapEx spending is going to be about the same as what it's been this year, about $100 million. We were actually short of that in 2010, but that's about the rate that we'll be spending to continue bolstering our performance, our efforts and our brick and mortar as a company.

Now let me give you just a brief update on the Terex acquisition. It has gone exceedingly well. I think the fact that this management team and the combined management team, with the DBT Group from four years ago, we knew how to do it and we did it very quickly. We're actually well ahead of achieving our $100 million synergies that we have projected. We announced the deal effectively about a year ago this week. I think it was February 19, so we're about a year into this. We've achieved 40% versus the projected 15% achievement at the end of 2010 for the synergies in the Terex deal, and we expect to keep that accelerating to the point that by the end of 2011 we will have achieved the full $100 million synergies on the Terex deal. And as in most of these deals, as I think all of you know, we've also found other opportunities as we've gotten deeper into the Terex product line. It's been a tremendously successful acquisition. And like I said in some of my opening remarks, tremendous success in placing these machines with our traditional customers around the world this year and that’s a testimonial, I think, to not only the products being great products and they are very, very good products, but the fact that the Terex management team has melded in very, very nicely with the DBT and legacy Bucyrus teams to form a very solid company and a good entrance into the marketplace.

The CAT acquisition is on track. I think we mentioned when we announced that acquisition back in November that we would be looking for a six- to seven-month-type window. All filings are in place. We're moving through obviously all the government approvals and all the normal things that happen through those types of acquisitions. But that whole process is on track and moving forward.

I think with that, I am not offering guidance for 2011 for obvious reasons. The CAT acquisition, we fully expect to have that closed sometime around midyear. And for that reason, we are not offering guidance for 2011. And Shelley, why don't we open up for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Ann Duignan representing JPMorgan.

Ingrid Aja - Merrill Lynch

It's Ingrid Aja, standing in for Ann. I was wondering if you can just talk about your backlog by region and what specific end markets are expected to drive the OE orders for 2011? I know you're not giving guidance but kind of maybe a little color on that?

Timothy Sullivan

Yes, we typically don't break down backlog by region. It's effectively, I think I can tell you that all our international markets are very, very strong. We don't have any particular region that's outperforming any of the other regions. I think all the international regions are quite strong. The domestic market in the U.S. remains relatively weak, as we recover, as the U.S. or the economy recovers. But I think there's no particular region that sticks out. This is pretty much across the board. And obviously, I mentioned that the Reliance orders, that's quite a large order, that pertains to India. But it's evenly split pretty much across all international regions.

Ingrid Aja - Merrill Lynch

And then I was wondering if I could get a little more color on the input cost prices. You had mentioned buying forward steel. Is this similar kind of to what you had done in the past, in 2008 I think it was? And is there some lag between input prices and output price increases?

Timothy Sullivan

Yes. We tend to try to stay ahead of it. Obviously, we want certainty on our manufacturing cost, so we do buy forward knowing on what our production schedules look like. That's the beauty of a backlog. We know what's in the backlog and what we need to buy forward. And I think we stay ahead of it as we move through the production cycles on all of our product lines. So the real push is to make sure we've got good cost certainty, and we're able to pass on those cost increases as we move forward.

Operator

Your next question comes from the line of Jerry Revich representing Goldman Sachs.

Jerry Revich - Goldman Sachs Group Inc.

Looks like, Tim, you got better bookings out of your legacy surface business this quarter than you anticipated four months ago. And based on your January comments, sounds like the trends are still looking pretty good there. Can you talk about which regions drove the upside? Or did the inquiries just turn into orders faster than you anticipated?

Timothy Sullivan

Yes. We had I think some nice surprises towards the end of the year. I think we had some of the initial surface business coming out of Mongolia for instance came our way. We were very successful in that market and here in the fourth quarter, so that's a bit of a surprise. I think as you know, the industry, things kind of ebb and flow. We weren't as strong on the underground side of the business in 2010. We think just the opposite in 2011. We've got a lot of underground prospects for this year, and it's just kind of the ebb and flow of the various mining projects that are coming on stream. So it was kind of a timing thing. We don't see any particular region that's soft right now, except for the U.S. market. Everything else is very, very strong and driving good bookings.

Jerry Revich - Goldman Sachs Group Inc.

And Tim, the range of CapEx increases that you're seeing for your customers on 2012 based on the quotation activity, can you just share with us how that's looking like based on the flow that's in front of you?

Timothy Sullivan

I think most of the big multinationals have come out with some of their plans on CapEx. They're all very strong. Everyone is spending a lot of money. Obviously, the demand’s up as we all know, but I mentioned that's why I gave the story on copper. The yields continue to drop in copper, which means that people need to spend a lot more money on machinery just to get the same production. So CapEx is up across the board for all of the big multinationals. Again, a little soft in the U.S. market, but up everywhere else.

Jerry Revich - Goldman Sachs Group Inc.

And Tim, relative to 2011 total industry CapEx growth of 25% on the OE side, which of your businesses do you expect to deliver stronger sales growth in that 25%? And do you think any of the three businesses is going to be weaker than that in 2011?

Timothy Sullivan

Well, I think the nice upside surprise that we had in the second half of 2010 was the demand for the Terex products. That is primarily due to places like Mongolia that don't have electrified pits yet or not to the extent that other more mature markets have. Now I think, as I mentioned, I think the Underground business is going to be a lot stronger this year than it was in 2010. A lot of prospects for underground, particularly longwalls. I think there's also good demand for our legacy products. So in summary, an upside surprise a little bit on the Terex product line in the second half of 2010, but I think it's going to be pretty balanced this year, with maybe a little bit more demand on the underground side.

Jerry Revich - Goldman Sachs Group Inc.

And lastly, Craig, can you give us an update on your Terex mining facility optimization progress? Have you transferred the RH 400 to Milwaukee yet? And how is the transition of the drills to Denison tracking?

Craig Mackus

That's in process, the RH 400. We have approved some capital expenditures to bring it here. We've moved some people here. We've got all the engineering drawing and things moved here, so that is ready to begin very, very quickly here in the Milwaukee area. The drill process, that just started around late summer of last, last year and that is also in the process yet. In both cases, we haven't actually started making the product in the new facility, but we're just on the cusp of being able to achieve that.

Operator

The next question comes from the line of Charlie Brady representing BMO Capital Markets.

Charles Brady - BMO Capital Markets U.S.

I just want to clarify a comment on material cost. In the prepared remarks, Craig, you'd said they haven't hurt margins yet, emphasis on yet. And then Tim, you spoke about being able to manage it such that it wasn't going to hurt the cost structure. So I'm just trying to understand, are you expecting to hold the margins here regardless of where the pricing on raw material is going? Or can you just clarify that?

Timothy Sullivan

Exactly. We expect to hold the margins. Craig is just being a conservative guy. We've always been able to pretty well control margins with the material cost, and our guys are very good at that. We expect that to continue.

Charles Brady - BMO Capital Markets U.S.

There's another Ex-Im Import Bank financed power job in South Africa. Can you comment on what you think the status is of that right now? And is this likely to be another similar potential like the Reliance?

Timothy Sullivan

Yes. That is for a power plant in South Africa, and it looks like the Ex-Im Bank has approved at least the first vote. And typically now on any carbon emission-type of application, it's a three-vote process versus a two-vote process. The first vote is the environmental criteria. The second vote is really the financial viability of the project, and the final vote is after it's reviewed by Congress. So it's a three-vote process. They're over the first hurdle. And obviously, we don't sell power plants, but we do sell machinery that mines coal for power plants. And there is not an application yet for mining machinery in front of Ex-Im Bank, but they would be tied to the same carbon emission standards that the power plant was. We can tell you that this particular power plant will require a dragline. There's a dragline as a minimal piece of equipment, to mine the coal for that power plant. So there's only two of us that do that. Obviously, Joy Global and Bucyrus provide draglines. So as that power plant progresses through the approval process at Ex-Im Bank, we're watching it very carefully because obviously, there will be some machinery associated with that power plant.

Charles Brady - BMO Capital Markets U.S.

Will that dragline be one of the larger-sized draglines?

Timothy Sullivan

Yes, we think so. We've actually had some discussions with them, and it will be one of the larger draglines.

Charles Brady - BMO Capital Markets U.S.

With regard to the Australian flooding, is there any aftermarket opportunity for you guys down there?

Timothy Sullivan

You know, there is, and that's the sad part of those situations. When you have floods like that, typically we do have machinery that is affected and there is usually some aftermarket opportunities because of that.

Operator

The next question comes from the line of Seth Weber representing RBC Capital Markets.

Seth Weber - RBC Capital Markets, LLC

Can you talk about whether you're seeing any good traction bundling the Terex and the Bucyrus products together, selling either trucks and shovels or the hydraulics and the electrics together?

Timothy Sullivan

Yes, absolutely. And that's been I think some of the success in the Terex products. I've mentioned the Mongolia project. We effectively were able to bundle electric mining shovels, hydraulic excavators and trucks. The drills have not been purchased yet. We're still talking about the drills, but we've like our chances on the drills. Reliance is another good example. We were able to get the dragline and electric mining shovel business, and the carry-on was we were successful then in selling them their first initial fleet of trucks. So all the things that you read about, that we tell you about on the attributes of bringing companies together like Bucyrus and Terex are absolutely real in the marketplace.

Seth Weber - RBC Capital Markets, LLC

Do you think that there's any transition going on more towards the hydraulic excavator and less towards the smaller electric shovels?

Timothy Sullivan

Yes. That's been historical though. I mean, that's not anything really too new. I think the interesting thing about the hydraulic excavators though is that they've grown in size and their operating cost continues to go down. And that's why you've seen that the hydraulic excavators are already up to what we would classify as the 295, 395-sized shovels, and you don't hear us talk about a lot of those sales. We have some, but not as many as we've had in past years and that's the same for our competitor. So the hydraulic excavators just keep getting better, and they become somewhat of a competitive advantage against the electric mining shovels that are smaller.

Seth Weber - RBC Capital Markets, LLC

On the underground business, if you think that revenues should accelerate there, do you think that the segment can operate at a 20%-plus EBIT margin for 2011?

Timothy Sullivan

Yes, absolutely.

Seth Weber - RBC Capital Markets, LLC

And then just lastly, Tim, any change that you're seeing out of China with respect to their policies towards the coal industry?

Timothy Sullivan

No. It's classified as a protected industry, so it's a challenge for us. I think the good news for us though is we do have products that they don't have. And I'll give you a good example. We have fully-automated underground plow systems. And when the Chinese began to mine coal, they started their mining of underground coal in their medium seams, which is more of the high production-type seams. They're not small, but they're not large. And what's happening now as they progress forward, they're starting to go into the smaller seams. The one- to two-meter seams, which are very thin by underground longwall standards and those can only be effectively mined with plow systems. We're the only company in the world that has plow systems. So if you look at that market for us, I think over the next two or three years, we see a lot more opportunity for us on our ability to full imports into China because they really have not knocked off that technology yet, and we don't think they will for several years. So the political situation, the protection moniker on the coal mining and power generation industry has not changed. But going forward, we like our chances a little bit better than we probably have in the last four or five years.

Operator

The next question comes from the line of Andy Kaplowitz representing Barclays Capital.

Andy Kaplowitz - Barclays Capital

So you booked Reliance and the Mongolian awards after the quarter ended. Are you seeing any evidence that your large customers are starting to get a little antsy and pushing lead times a little bit, trying to jigger for slots as we did in '07 and '08? Is there anything like that going on yet or not yet?

Timothy Sullivan

Let me clarify first. The Mongolia award actually did come in the fourth quarter. Reliance was in January. And yes, that's exactly what's going on. And I think there's such a high demand now for machinery. And the fact that many of us as suppliers have full production schedules that people are starting to talk to us about slotting which was, as you correctly said, very evident in 2007, 2008.

Andy Kaplowitz - Barclays Capital

And what has that done to lead times, Tim? I mean, has it changed them materially already? Or are we just starting to see that?

Timothy Sullivan

No, lead times are out. I mean, I will tell you right now that all truck suppliers were effectively sold out for 2011, and most of us were sold out into the first half of 2012. So lead times are out significantly on both off-the-highway trucks and hydraulic excavators. We're full up, as are our competitors. So lead times in those two products for sure are well and truly out in to 2012 and that's growing day by day. Some of the more legacy products, we still have some slots available in 2011, but not many.

Andy Kaplowitz - Barclays Capital

And then Tim, if you could compare your pricing power now versus '07 and '08, it's just an interesting dynamic because your customers are raising CapEx guidance all the time, yet we came off a weak base. So how would you compare your pricing power now versus then?

Timothy Sullivan

Well, I think you saw some of that in the fourth quarter. I mean, we were able to maintain some pretty high gross margins in the quarter, with a very large OE mix. So I think it's all based in supply and demand and there is pricing discipline on commodities. And there's pricing discipline on machinery as well. So we feel pretty confident that, that will continue.

Andy Kaplowitz - Barclays Capital

Craig, if I could ask one thing. Goodwill moved up in the quarter quite a bit. Is that just sort of closing out the Terex acquisition or?

Craig Mackus

That's exactly right. After an acquisition, we have basically one year to complete all your reviews and appraisals and of all your fixed assets, hard assets and your intangible assets, and this was our finalization of all the purchase accounting adjustments related to Terex.

Andy Kaplowitz - Barclays Capital

And Tim, you might not give me an answer to this but what about your plans and Craig's plans, any update there?

Timothy Sullivan

Well, we're done at closing. And I think that's for certain. And what happens after that, I don't know what Craig’s going to do. I think he's going to ride off into the sunset, I don’t know. We could definitely write a book. Maybe we'll co-author a book, Craig.

Operator

The next question comes from the line of Chris Weltzer representing Robert W. Baird.

Christopher Weltzer - Robert W. Baird

Can you just quantify -- were you able to book the entire Reliance order in the first quarter?

Timothy Sullivan

Yes, draglines, electric mining shovels and trucks.

Christopher Weltzer - Robert W. Baird

So roughly $600 million-ish?

Timothy Sullivan

No. That booking is approaching $400 million.

Christopher Weltzer - Robert W. Baird

And so were you able to recognize any of the revenue associated with that in the fourth quarter at all? Or is there going to be a large sort of drop-through of revenue stuff you already been working on in the first quarter?

Craig Mackus

Since we didn't book it, we did not have any revenue in the fourth quarter, which is one of the reasons we're a little bit short on our guidance for revenue. We ended up at a lower range, and we had assumed we might get Reliance by the end of the year and get some revenue. But we did not get Reliance, so we did not get to that revenue. So whatever we have will start in the first quarter of 2011.

Christopher Weltzer - Robert W. Baird

Is there any way you can sort of help us with the size of the sort of the one-time drop-through you're going to get now that the order’s booked in the first quarter?

Craig Mackus

It probably will be similar to what we would have had in the fourth quarter, so in between $25 million and $50 million. And the $600 million outlook, that included the option machines that Reliance has not bought yet. So that is -- they'll buy additional electric mining shovels and trucks at a later date.

Christopher Weltzer - Robert W. Baird

I know you're not giving revenue guidance, but is there a way you can help us with where you ended up with shovel production rates in 2010 and what you might be thinking about for 2011 at this point?

Timothy Sullivan

Yes. I think because we're moving the RH 400 here through this year, we've got a few other things that we're doing in the plant. And obviously, we're starting the Reliance draglines later this year. We're probably going to be about at the same level on electric mining shovels as we were in 2010 this year in our plan.

Christopher Weltzer - Robert W. Baird

And then will there be more CAT-related acquisition costs in the first quarter, second quarter maybe? Any idea of the sort of scale of those?

Craig Mackus

We will, but I won't comment on it. That remains to be seen. We have continuing legal cost and some other cost. But the biggest portion will come upon closing.

Christopher Weltzer - Robert W. Baird

What sort of magnitude of price increases are you seeing on the, sort of, the high alloy steels that you buy at this point?

Timothy Sullivan

It's really steel across the board. All thicknesses, all sizes, it's all different. The thicker, wider plate that we buy for some of our legacy products here in Milwaukee, we tend to get the higher increases on those, that plate. That's the least competitive plate that's out there. But it's just all over the board. I mean, the increases in some respects are minimal, 4% or 5% to as high as 20%. I mean, those are the types of things that we're faced with managing.

Operator

The next question comes from the line of Ben Elias representing Sterne Agee.

Ben Elias - Sterne Agee & Leach Inc.

Just a couple of questions around the new plow that you introduced in July. I was wondering what the interest level or order activity as you, let's say, that the underground prospects look pretty good for 2011?

Timothy Sullivan

I think there is a lot of discussion on plows here in the Eastern U.S. especially in the coking coal operations. Obviously, you've read about the fact that there's more consolidation with coal mining companies in that region, which usually when those things happen, CapEx kind of gets put in the back burner for at least a few months while people work through the acquisition process. But we're pretty bullish about the fact that we're going to see more of those automated plow systems in Central Appalachia as we move forward. Having said that, probably the largest demand right now for those systems is in Eastern Europe and in China with a universal good market for that product line, as we move forward. Typically, what happens, like I mentioned in the China scenario, people go after the medium seam coal first. And then as those reserves begin to run out, they go after the thinner seams, and that really is where the plow technology really plays to our advantage.

Ben Elias - Sterne Agee & Leach Inc.

Are there any orders right now? Or are you working on any impending orders or any other new business that you signed recently, that included the plow?

Timothy Sullivan

Yes, internationally, but not domestically in the U.S.

Ben Elias - Sterne Agee & Leach Inc.

Just want to circle back on trucks. On the previous conference calls before the CAT acquisition, you talked about how you wanted to almost double production for the Terex trucks and then possibly invest in CapEx to further double that. What's the production rate right now on the trucks? You did say that all truck manufactures have sold out for mid-2012. So just wondering where your production rates were there?

Timothy Sullivan

We're producing as many as we can but obviously with the CAT acquisition pending right now, that will be a decision I think that they will make post-closing. But we're making obviously everything we possibly can in our plant right now without spending CapEx to increase capacity.

Ben Elias - Sterne Agee & Leach Inc.

So you’re at 100% capacity then? Because I think earlier you were at about 50%.

Timothy Sullivan

We were less than 50%, but yes we're at 100% now.

Ben Elias - Sterne Agee & Leach Inc.

One final sort of question if I could, just long term, Caterpillar, the acquisition should be done sometime midyear. But what do you think the sort of normalized annual shovel demand is likely to be 2014 through '16?

Timothy Sullivan

Electric mining shovel demand I think is probably still going to be in that average of 40 to 50 a year. I think there's still a lot of requirements for large electric mining shovels, and I think that will be sustainable through that period of time.

Operator

Your next question comes from the line of Will Gabrielski representing Gleacher.

Will Gabrielski - Gleacher & Company, Inc.

First of all on the oil sands. Any update there on the level of order activity that you're seeing? And how's that progressing versus what you might have thought at the beginning of the year?

Timothy Sullivan

Yes. It's strong. I think that ebbs and flows as all of our business does in this industry. But oil stayed up and everything I'm reading is it's not coming down. So I think that there's continued expansion planned up there. They're going as quickly as they can based on trying to make sure that they maintain some discipline on their cost structure with the capital that they're spending. But that's still going to be a good market for many years to come. I think it’s, oil’s, again repeating myself, but oil is a strong commodity, and they can produce oil at a fairly low cost out of that area.

Will Gabrielski - Gleacher & Company, Inc.

On Mongolia, I'm just curious, you guys obviously had a nice run of awards here. What would you say the main deciding factor has been? And forgive me for asking this, can we rule out the fact that some of your sales guys may have been a little more aggressive to get deals closed and get paid for the year before the deal with CAT closes?

Timothy Sullivan

No, I don't think so. I mean you realize that these orders don’t happen quickly. I mean, these are things that are worked on over a long period of time. We've had a team on the ground on Mongolia for over two years, and it's a very good team. And I think that, congratulations to them, I think they're technically very strong. They're mining engineers and they've done a fine job, I think, convincing the customer base in that area that we have superior machinery and that we're able to support them going forward.

Will Gabrielski - Gleacher & Company, Inc.

The backlog, the comment that you had made about $3.2 billion here early in 2011. Is that also including what you were burning off year-to-date as well? Or is that just year end plus what you've booked?

Timothy Sullivan

No, that's primarily year end and plus what we booked and doesn't really count what we've burned off here in the month of January and obviously through February so far.

Operator

The next question comes from the line of Robert Wertheimer representing Morgan Stanley.

Robert Wertheimer - Morgan Stanley

My main question is just on the hydraulic excavator. The sold out condition – are there supply-chain constraints? What do you think you can do with sort of debottlenecking in the transition you're doing? And where can you end up sort of in '11? And if you're willing to, thereafter versus where Terex was at peak?

Timothy Sullivan

We, like the trucks, we're shipping every possible excavator we can without a lot of influx of CapEx spending in our Dortmund facility. Yes, but there are a few supply-chain issues with that product line, but they're not significant and not unmanageable at this juncture. We expect that, that product line will continue to have a lot of high demand over the next two or three years, and I'm sure that Caterpillar will be addressing that as they move forward.

Robert Wertheimer - Morgan Stanley

And are you able to surpass [indiscernible]?

Timothy Sullivan

Sorry, that question was garbled.

Robert Wertheimer - Morgan Stanley

Are you able to surpass Terex's peak with the capacity you have now?

Timothy Sullivan

Yes.

Operator

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to turn the call back to Mr. Tim Sullivan for closing remarks.

Timothy Sullivan

Thank you. Well, just in closing, obviously, it was a great result for 2010. And repeating myself from my earlier comment, considering all the distractions, all the things that we as a management team had to deal with in 2010, it's just an outstanding result. And I think, congratulations to this management team. I have never been more proud of a group of individuals in my life as far as being able to stay focused and achieving the results that we did in 2010. It's the best management team not only in this industry but I think in many industries. I think we've come together as a very good team to achieve those types of results. We'll be having our Annual Shareholders Meeting I think April 21 here in Milwaukee in our new corporate headquarters, and maybe some of you can join us there. We'll obviously be having a call in conjunction with that meeting. I think we're up against the holiday weekend with Easter being that weekend, so the call may be scheduled a little bit differently than normal. But we will be talking to you again in April and thank you again for joining us today and your interest in our company.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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