UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 Form 10-Q (Mark
  One)x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30,
2006ORo
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to
__________ Commission file number
000-50858 BUCYRUS INTERNATIONAL, INC.(Exact Name of Registrant as Specified in its
Charter)  DELAWARE

39-0188050(State or Other Jurisdiction of

(I.R.S. EmployerIncorporation or Organization)

Identification No.)  P. O. BOX 5001100 MILWAUKEE AVENUESOUTH MILWAUKEE, WISCONSIN53172(Address of Principal Executive
Offices)(Zip Code)  (414) 768-4000(Registrants Telephone Number, Including
Area Code)    Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
o

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer x Accelerated
filer o
Non-accelerated filer o

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

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

Class

Outstanding August 2, 2006Class A Common Stock, $.01 par value

31,517,481BUCYRUS INTERNATIONAL, INC. AND
SUBSIDIARIES

INDEX

Page No.PART
  I.
FINANCIAL
  INFORMATION:Item
  1 -
Financial
  Statements (Unaudited)Consolidated Condensed Statements of
  Earnings - Quarters and six months ended June 30, 2006 and 2005

4Consolidated Condensed Statements of
  Comprehensive Income - Quarters and six months ended June 30, 2006 and 2005

5Consolidated Condensed Balance Sheets -
  June 30, 2006 and December 31, 2005

6-7Consolidated Condensed Statements of Cash
  Flows - Six months ended June 30, 2006 and 2005

8-9Notes to Consolidated Condensed Financial Statements

10-16Item
  2 -
Managements
  Discussion and Analysis of Financial Condition and Results of Operations

17-26Item
  3 -
Quantitative
  and Qualitative Disclosures About Market Risk

27Item
  4 -
Controls
  and Procedures

28Forward-Looking
  Statements

29PART
  II.
OTHER
  INFORMATION:Item
  1 -
Legal
  Proceedings

30Item
  1A
-
  Risk Factors

30Item
  2 -
Unregistered
  Sales of Equity Securities and Use of Proceeds

30Item
  3 -
Defaults
  Upon Senior Securities

30Item
  4 -
Submission
  of Matters to a Vote of Security Holders

30-31Item
  5 -
Other
  Information

31Item
  6 -
Exhibits

31Signature
  Page

32PART I
FINANCIAL INFORMATION

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIESITEM 1 - FINANCIAL STATEMENTSCONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited)
(Dollars in Thousands, Except Per Share Amounts)

Quarter
  Ended June 30,

Six Months
  Ended June 30,2006

2005

2006

2005Sales

$
181,804

$
140,037

$
347,457

$
245,558Cost of
products sold


134,870


109,043


259,650


185,538Gross profit


46,934


30,994


87,807


60,020Selling,
general and administrative
  expenses


18,078


12,141


33,538


24,446Research
and development expenses


3,051


1,460


4,973


2,810Amortization of intangible assets


449


450


901


903Operating earnings


25,356


16,943


48,395


31,861Interest
expense


601


1,110


1,246


2,362Other
(income) expense  net


(3
)

92


119


115Earnings
before income taxes


24,758


15,741


47,030


29,384Income tax
expense


3,200


5,517


10,950


10,035Net
earnings

$
21,558

$
10,224

$
36,080

$
19,349Net
earnings per share data:Basic:Net earnings per share

$
.69

$
.34

$
1.15

$
.64Weighted average shares


31,284,624


30,440,985


31,238,416


30,272,511Diluted:Net earnings per share

$
.68

$
.33

$
1.14

$
.62Weighted average shares


31,615,978


31,245,990


31,571,657


31,209,929See notes to consolidated condensed financial
statements.

4

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

Quarter
  Ended June 30,

Six Months
  Ended June 30,2006

2005

2006

2005Net earnings

$
21,558

$
10,224

$
36,080

$
19,349Other
  comprehensive income (loss)-Foreign currency translation adjustments


(984
)

781


(933
)

(2,992
)Comprehensive
  income

$
20,574

$
11,005

$
35,147

$
16,357See notes to consolidated condensed financial
statements

5

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

June 30, 
  2006

December
  31, 
  2005ASSETSCURRENT
  ASSETS:Cash and cash equivalents

$
10,128

$
12,451Receivables  net


154,369


155,547Inventories


155,614


133,476Deferred income taxes


19,051


18,363Prepaid expenses and other


4,255


6,982Total Current Assets


343,417


326,819OTHER
  ASSETS:Goodwill


47,306


47,306Intangible assets  net


33,619


34,565Deferred income taxes


14,452


10,355Other assets


8,046


8,767Total Other Assets


103,423


100,993PROPERTY,
  PLANT AND EQUIPMENT:Cost


169,434


140,938Less accumulated depreciation


(80,921
)

(76,783
)Total Property, Plant and Equipment


88,513


64,155TOTAL ASSETS

$
535,353

$
491,9676

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

June 30,
  2006

December 31,
  2005LIABILITIES AND
  COMMON SHAREHOLDERS INVESTMENTCURRENT
  LIABILITIES:Accounts
payable

$
75,895

$
65,873Accrued
expenses


40,031


40,874Liabilities to
  customers on uncompleted contracts and warranties


36,715


35,239Income
taxes


14,062


11,943Current
  maturities of long-term debt and other short-term obligations


272


1,339Total Current
  Liabilities


166,975


155,268LONG-TERM
  LIABILITIES:Postretirement
  benefits


14,749


14,257Pension and
  other


35,205


34,567Total Long-Term
  Liabilities


49,954


48,824LONG-TERM DEBT,
  less current maturities


58,373


66,975COMMON  SHAREHOLDERS INVESTMENT:Common stock

  par value $.01 per share, authorized 75,000,000 shares, issued 31,626,081
  shares and 30,991,820 shares, respectively


316


310Additional
  paid-in capital


304,397


298,079Unearned stock
  compensation





(466
)Treasury stock

  108,600 shares, at cost


(851
)

(851
)Accumulated
  deficit


(17,669
)

(50,963
)Accumulated
  other comprehensive loss


(26,142
)

(25,209
)Total Common
  Shareholders Investment


260,051


220,900TOTAL LIABILITIES
  AND COMMON SHAREHOLDERS
  INVESTMENT

$
535,353

$
491,967See notes to
consolidated condensed financial statements.

7

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

Six Months Ended June 30,2006

2005Net Cash
  Provided By Operating Activities

$
31,296

$
5,733Cash Flows From
  Investing ActivitiesPurchases of
  property, plant and equipment


(26,426
)

(8,015
)Proceeds from
  sale of property, plant and equipment


342


112Other


(105
)

(86
)Net cash used in
  investing activities


(26,189
)

(7,989
)Cash Flows From
Financing ActivitiesNet borrowings
  from (repayments of) revolving credit facility


(8,603
)

85,853Repayment of
  senior secured term loan





(98,750
)Net increase
  (decrease) in long-term debt and other bank borrowings


(1,066
)

687Payment of
  financing expenses





(533
)Proceeds from
  issuance of common stock


756


3,661Tax benefit from
  exercise of stock options


4,353


Dividends paid


(2,763
)

(2,315
)Net cash used in
  financing activities


(7,323
)

(11,397
)Effect of
  exchange rate changes on cash


(107
)

(178
)Net decrease in
  cash and cash equivalents


(2,323
)

(13,831
)Cash and cash
  equivalents at beginning of period


12,451


20,617Cash and cash
  equivalents at end of period

$
10,128

$
6,7868

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

Six Months Ended June 30,2006

2005Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest

$
1,408

$
2,848Income taxes -
  net of refunds


8,191


7,621Supplemental Disclosure of Noncash Investing
  ActivityCapital expenditures related to expansion program
  included in accounts payable

$
4,451


See notes to consolidated
condensed financial statements.

9

BUCYRUS
INTERNATIONAL, INC. AND SUBSIDIARIESITEM 1 - FINANCIAL
STATEMENTSNOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

1.
In the opinion of Bucyrus International, Inc. (the Company),
  the consolidated condensed financial statements contain all adjustments
  (consisting only of normal recurring accruals) necessary to present fairly
  the financial results for the interim periods.  Certain items are included in these statements based on
  estimates for the entire year.  Actual
  results in future periods may differ from the estimates.  The Companys operations are classified as
  one operating segment.2.
Certain notes and other information have been
  condensed or omitted from these interim consolidated condensed financial
  statements.  Therefore, these
  statements should be read in conjunction with the Companys 2005 Annual
  Report to Shareholders and Annual Report on Form 10-K filed with the
  Securities and Exchange Commission on March 15, 2006.3.
Inventories consist of the following:June 30,
  2006

December
  31,
  2005(Dollars
  in Thousands)Raw materials and parts

$
46,673

$
36,526Work in process


21,093


12,896Finished products  (primarily replacement parts)


87,848


84,054$
155,614

$
133,4764.
On March 8, 2006, the Companys Board of Directors
  authorized a three-for-two split of the Companys Class A common stock.  The stock split was paid on March 29, 2006
  to Company shareholders of record on March 20, 2006.  The Companys Class A common stock began
  trading on a split-adjusted basis on March 30, 2006.  All references in the accompanying
  consolidated condensed financial statements and notes thereto to net earnings
  per share and the number of shares have been adjusted to reflect this stock
  split.10

5.
The following is a reconciliation of the numerators
  and the denominators of the basic and diluted net earnings per share of
  common stock calculations for the quarters and six months ended June 30, 2006
  and 2005:Quarters
  Ended June 30,

Six Months
  Ended June 30,2006

2005

2006

2005(Dollars
  in Thousands, Except Per Share Amounts)Net earnings

$
21,558

$
10,224

$
36,080

$
19,349Weighted average
  shares outstanding


31,284,624


30,440,985


31,238,416


30,272,511Basic net
  earnings per share

$
.69

$
.34

$
1.15

$
.64Weighted average
  shares outstanding


31,284,624


30,440,985


31,238,416


30,272,511Effect of
  dilutive stock options, nonvested shares, stock appreciation rights and performance
  shares


331,354


805,005


333,241


937,418Weighted average
  shares  outstanding - diluted


31,615,978


31,245,990


31,571,657


31,209,929Diluted net
  earnings per share

$
.68

$
.33

$
1.14

$
.626.
The Company adopted Statement of Financial
  Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS
  123R), on January 1, 2006 using the modified prospective application
  method.  Adoption of SFAS 123R did not
  have a material effect on the Companys financial statements.  Previously, the Company accounted for
  stockbased compensation arrangements in accordance with Accounting
  Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,
  as allowed by Statement of Financial Accounting Standards No. 123, Accounting
  for Stock-Based Compensation (SFAS 123).
  For the quarter and six months ended June 30, 2005, there would have
  been no effect on net earnings and net earnings per share if the fair
  value-based method provided by SFAS 123 had been applied for all outstanding
  and unvested awards in those periods.
  Total stock compensation expense recognized was $1.2 million and $1.7
  million for the quarter and six months ended June 30, 2006, respectively, and
  $45,000 and $90,000 for the quarter and six months ended June 30, 2005.SFAS 123R required a classification change in the
  statement of cash flows whereby the income tax benefit from stock option
  exercises is reported as a financing cash flow rather than as an operating
  cash flow as previously reported.  The
  $4.4 million excess tax benefit classified as a financing cash inflow for the
  six months ended June 30, 2006 would have been classified as an operating
  cash inflow prior to the adoption of SFAS 123R.  SFAS 123R also required any remaining debit in common shareholders
  investment related to unearned stock compensation be reclassified to the
  appropriate equity accounts.11

On April 25, 2006, the Company issued 37,800
  nonvested shares to certain employees pursuant to the Bucyrus International,
  Inc. 2004 Equity Incentive Plan (the 2004 Incentive Plan).  These shares cliff vest on December 31,
  2009.  The vesting period may be
  accelerated based on the attainment of certain defined financial goals of the
  Company.  A summary of the status of
  the Companys nonvested shares as of June 30, 2006 and changes during the six
  months ended June 30, 2006 is as follows:Shares

Weighted-Average
  Grant Date
  Fair Value Per ShareNonvested at January 1, 2006


34,200

$
20.00Granted on February 16, 2006


180,750


39.76Granted on April 25, 2006


37,800


57.00Forfeited on May 31, 2006


(20,100
)

39.76Nonvested at June 30, 2006


232,650


39.66The grant date fair values were based on the fair
  market value, as defined in the 2004 Incentive Plan, of the Companys Class A
  common stock on the date of grant.  At
  June 30, 2006, there was $7.9 million of unrecognized compensation cost
  related to the nonvested shares granted under the 2004 Incentive Plan.  This cost is expected to be recognized on
  a straight-line basis over a weighted-average period of 3.3 years.On April 25, 2006, the Company also issued 75,600
  stock appreciation rights to certain employees pursuant to the 2004 Incentive
  Plan.  The grant date fair value of
  the rights was $28.27 per right using the Black Sholes pricing model.  The assumptions used in this model were as
  follows:Risk-free interest rate

4.37%Expected volatility

43.25%Expected life

7 yearsDividend yield

.43%The risk-free interest rate was based on the current
  U.S. Treasury rate for a bond of seven years, the expected life of the
  rights.  The expected volatility was
  based on the historical activity of the Companys Class A common stock.  The expected life was based on the average
  of the vesting term of four years and the original contract term of ten
  years.  The expected dividend yield
  was based on the annual dividend of $.23 per share, which had been paid on
  the Companys Class A common stock prior to the stock split.At June 30, 2006, a total of 396,900 stock
  appreciation rights were outstanding pursuant to the 2004 Incentive
  Plan.  The weighted-average grant date
  fair value of these rights was $21.35 per right.  The rights vest over four years and can be settled in shares
  only.  At June 30, 2006, there was
  $7.4 million of unrecognized compensation cost related to the rights, which
  is expected to be recognized on a straight-line basis over a period of 3.5
  years.  A total of 40,200 rights
  issued during the first quarter of 2006 were forfeited in the second quarter
  of 2006.On April 25, 2006, the Company also designated 9,600
  shares of its Class A common stock for issuance to certain employees if
  specific performance levels are attained by the Company.  The grant date fair value of the
  performance shares was $57.00 per share and was based on the fair market
  value, as defined in the 2004 Incentive Plan, of the Companys Class A common
  stock on12

the date of grant. At June 30, 2006, a total of
  51,975 performance shares have been designated for issuance and the
  weighted-average grant date fair value of these shares was $42.94 per share.
  Any performance shares credited to employees will cliff vest on December 31,
  2009. At June 30, 2006, there was $2.0 million of unrecognized compensation
  cost related to the performance shares, which is expected to be recognized on
  a straight-line basis over a period of 3.5 years. A total of 5,025
  performance shares previously designated for issuance were forfeited in the
  second quarter of 2006.No options to purchase Company shares were granted
  or exercised during the second quarter of 2006. At June 30, 2006,
  options were outstanding to purchase 9,600 shares of the Companys Class A
  common stock at a weighted average exercise price of $8.33 per share.7.
Intangible assets consist of the following:June 30,
  2006

December
  31, 2005Gross
  Carrying
  Amount

Accumulated
  Amortization

Gross
  Carrying
  Amount

Accumulated
  Amortization(Dollars
  in Thousands)Amortized
  intangible assets:Engineering
  drawings

$
25,500

$
(11,181
)
$
25,500

$
(10,543
)Bill of
material
  listings


2,856


(1,252
)

2,856


(1,181
)Software


2,288


(2,006
)

2,288


(1,892
)Other


682


(341
)

773


(309
)$
31,326

$
(14,780
)
$
31,417

$
(13,925
)Unamortized
  intangible assets:Trademarks/Trade
  names

$
12,436




$
12,436Intangible
  pension asset


4,637





4,637$
17,073




$
17,073The estimated future amortization expense of
intangible assets as of June 30, 2006 is as follows:

(Dollars
  in Thousands)2006 (remaining six months)


$
8922007



1,7212008



1,5542009



1,4182010



1,4182011



1,418Future



8,125$
16,54613

8.
EnvironmentalThe Companys operations and properties are subject
  to a broad range of federal, state, local and foreign laws and regulations
  relating to environmental matters, including laws and regulations governing
  discharges into the air and water, the handling and disposal of solid and
  hazardous substances and wastes, and the remediation of contamination
  associated with releases of hazardous substances at the Companys facilities
  and at off-site disposal locations. These laws are complex, change frequently
  and have tended to become more stringent over time. Future events, such as
  compliance with more stringent laws or regulations, more vigorous enforcement
  policies of regulatory agencies or stricter or different interpretations of
  existing laws, could require additional expenditures by the Company, which
  may be material.Environmental problems have not interfered in any
  material respect with the Companys manufacturing operations to date. The
  Company believes that its compliance with statutory requirements respecting
  environmental quality will not materially affect its capital expenditures,
  earnings or competitive position. The Company has an ongoing program to
  address any potential environmental problems.Product
  WarrantyThe Company recognizes the cost associated with its
  warranty policies on its products as revenue is recognized. The amount
  recognized is based on historical experience. The following is a
  reconciliation of the changes in accrued warranty costs for the six months
  ended June 30, 2006 and 2005:Six Months Ended June 30,2006

2005(Dollars
  in Thousands)Balance at January 1

$
5,977

$
5,452Provision


4,599


1,346Claims incurred


(1,115
)

(954
)Balance at June 30

$
9,461

$
5,844Product
  LiabilityThe Company is normally subject to numerous product
  liability claims, many of which relate to products no longer manufactured by
  the Company or its subsidiaries, and other claims arising in the ordinary
  course of business. The Company has insurance covering most of these claims,
  subject to varying deductibles up to $3.0 million, and has various limits of
  liability depending on the insurance policy year in question. It is the view
  of management that the final resolution of these claims and other similar
  claims which are likely to arise in the future will not individually or in
  the aggregate have a material effect on the Companys financial position,
  results of operations or cash flows, although no assurance to that effect can
  be given.Asbestos
  LiabilityThe Company has been named as a co-defendant in
  approximately 300 personal injury liability cases alleging damages due to
  exposure to asbestos and other substances, involving approximately 580
  plaintiffs. The cases are pending in courts in various states. In all of
  these cases, insurance carriers have accepted or are expected to accept
  defense. These cases are in14

various pre-trial stages. The Company does not
  believe that costs associated with these matters will have a material effect
  on its financial position, results of operations or cash flows, although no
  assurance to that effect can be given.Other
  LitigationA wholly owned subsidiary of the Company is a
  defendant in a suit pending in the United States District Court for the
  Western District of Pennsylvania, brought on June 15, 2002, relating to
  an incident in which a dragline operated by an employee of a Company
  subsidiary tipped over. The owner of the dragline has sued an unaffiliated
  third party on a negligence theory for property damages and business
  interruption losses in a range of approximately $25.0 million to $27.0
  million. The unrelated third party has brought a third-party action against
  the Companys subsidiary. The Companys insurance carriers are defending the
  claim, but have not conceded that the relevant policies cover the claim. At
  this time discovery is ongoing and it is not possible to evaluate the outcome
  of the claim nor the range of potential loss, if any.A wholly owned Australian subsidiary of the Company
  is a defendant in a suit pending in the Supreme Court of Queensland in
  Australia, brought on May 5, 2002, relating to a contractual claim. The
  plaintiff, pursuant to a contract with the Companys subsidiary, agreed to
  erect a dragline sold by the Company to a customer for use at its mine site.
  The plaintiff asserts various contractual claims related to breach of
  contract damages and other remedies for approximately AUS $2.4 million (US
  $1.8 million) related to its claim that it is owed amounts for services
  rendered under the contract. The Companys subsidiary has asserted
  counterclaims against the plaintiff in connection with certain aspects of the
  work performed. This matter is anticipated to go to trial in late 2006 or
  early 2007. The Company has established a reserve for its estimate of the
  resolution of this matter.9.
Statement of Financial Accounting Standards No. 130,
  Reporting Comprehensive Income, requires the reporting of comprehensive
  income (loss) in addition to net earnings from operations. Comprehensive
  income (loss) is a more inclusive financial reporting method that includes
  disclosure of financial information that historically has not been recognized
  in the calculation of net earnings. The Company reports comprehensive income
  (loss) and accumulated other comprehensive income (loss) which includes net
  earnings, foreign currency translation adjustments and minimum pension
  liability adjustments. Information on accumulated other comprehensive loss is
  as follows:Cumulative
  Translation
  Adjustments

Minimum
  Pension
  Liability
  Adjustments

Accumulated
  Other
  Comprehensive
  Loss(Dollars
  in Thousands)Balance at December 31, 2005

$
(5,896
)
$
(19,313
)
$
(25,209
)Changes  Six months ended June 30, 2006


(933
)




(933
)Balance at June 30, 2006

$
(6,829
)
$
(19,313
)
$
(26,142
)10.
The Company has several pension and retirement plans
  covering substantially all of its employees in the United States. The Company
  also provides certain health care benefits to age 65 and life insurance
  benefits for certain eligible retired United States employees.15

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

Quarters Ended June 30,

Six Months Ended June 30,2006

2005

2006

2005(Dollars in Thousands)Service cost

$
616

$
552

$
1,232

$
1,104Interest
  cost


1,302


1,310


2,604


2,620Expected
  return on plan assets


(1,334
)

(1,116
)

(2,668
)

(2,232
)Amortization
  of prior service cost


114


52


228


104Amortization
  of actuarial loss


523


402


1,046


804Net cost

$
1,221

$
1,200

$
2,442

$
2,400The components
of other net periodic postretirement benefits cost (health care and life
insurance) consisted of the following:

Quarters Ended June 30,

Six Months Ended June 30,2006

2005

2006

2005(Dollars in Thousands)Service cost

$
237

$
210

$
474

$
420Interest
  cost


273


311


546


622Amortization
  of prior service cost


(63
)

(60
)

(126
)

(120
)Amortization
  of actuarial loss


79


91


158


182Net cost

$
526

$
552

$
1,052

$
1,104During the
first six months of 2006, the Company contributed approximately $3.1 million to
its pension plans and $.6 million for the payment of benefits from its
postretirement benefit plan. The Company presently anticipates contributing an
additional $6.5 million to its pension plans and $.6 million for the payment of
benefits from its postretirement benefit plan during the remainder of 2006.


16

BUCYRUS INTERNATIONAL, INC. AND SUBSIDIARIESITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Business

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

The
market for OEM machines is closely correlated with customer expectations of
sustained strength in prices of surface mined commodities. Growth in demand for
these commodities is a function of, among other things, economic activity,
population increases and continuing improvements in standards of living in many
areas of the world. In 2003 and 2004, market prices for copper, coal, iron ore
and oil increased and continued to be strong in 2005 and the first half of
2006. Factors that could support sustained demand for these key commodities in
2006 and future years include continued economic growth in China, India and the
developing world, and renewed economic strength in industrialized countries.
Inquiries for the Companys machines remain at a high level. The highest
interest has been in the oil sands of Western Canada, and inquiries related to
coal, copper and iron ore mines in other areas of the world have also remained
strong.

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

The
Company continues to forecast increased sales activity for both aftermarket
parts sales and OEM machine sales relative to prior periods. The Company
anticipates that the current commodity demand will continue for at least the
next three to five years. Recent strong order volume has caused the Company to
hire new employees and additional hiring is expected. As sustained order
strength continues, the Company is taking steps to increase its manufacturing
capacity. In early 2005, the Company entered into an agreement to lease a
facility to be used for expansion of the Companys manufacturing operations.
Also, on July 20, 2006, the Company announced that it will undertake the third
phase of its multi-phase expansion program at its South Milwaukee facility. The
first phase of the expansion, which was announced on August 24, 2005, will
provide 110,000 square feet of new space for welding and machining of large
electric mining shovel components. Phase one is expected to be fully completed
in the fourth quarter of 2006 with initial manufacturing to begin ahead of
schedule in August 2006.

17

The
second phase, announced on February 16, 2006, will expand the Companys new
facility north of Rawson Avenue to over 350,000 square feet of welding,
machining and outdoor hard-goods storage space. Construction is expected to be
completed in mid-2007 and is currently ahead of the original schedule. The
aggregate cost of phase one and two of the expansion project is expected to be
approximately $54 million.

The
third phase of the expansion project was approved in support of the Companys
ongoing efforts to meet the continued growth of demand for its machines and
their components. Phase three will include the renovation of manufacturing
buildings and offices at the Companys existing facilities south of Rawson
Avenue in South Milwaukee. Its focus is on modernizing and improving
manufacturing and administrative efficiencies and includes renovation as well
as expansion of existing buildings and the addition of new machine tools. The
steps for accomplishing phase three are scheduled to maximize manufacturing
throughput during the renovation and construction processes. Phase three
construction is scheduled to be completed by the fourth quarter of 2007 and is
expected to cost approximately $58 million.

A
substantial portion of the Companys sales and operating earnings is
attributable to operations located outside the United States. The Company
generally sells its OEM machines, including those sold directly to foreign
customers, and most of its aftermarket parts in United States dollars. A
portion of the Companys aftermarket parts sales are also denominated in the
local currencies of Australia, Brazil, Canada, Chile, South Africa and the
United Kingdom. Aftermarket services are paid for primarily in local currency
which is naturally hedged by the Companys payment of local labor in local
currency. In the aggregate, approximately 75% of the Companys 2005 sales were
priced in United States dollars.

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

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

Key Measures

On-Time
Delivery and Lead Times

Due
to the high fixed cost structure of the Companys customers, it is critical
that they avoid equipment downtime. On-time delivery and reduced lead time of
aftermarket parts and services allow customers to reduce downtime and are
therefore key measures of customer service, and the Company believes they are
fundamental drivers of aftermarket customer demand. The Companys on-time
delivery percentage in the aftermarket, based on achieved promised delivery
dates to customers, was 87% for the first six months of 2006 and 93% for the
year 2005. Lead times for deliveries of aftermarket parts have increased
slightly in the first six months of 2006 as compared to the year 2005. Lead
times are expected to increase due to the expected increase in sales volume and
capacity constraints.

The Company
maintained on-time deliveries and reduced lead times in recent years by
focusing on the development of key shop floor metrics, improved communication
between sales, manufacturing and shipping, daily or weekly meetings to resolve
issues, changing of shipment methods and the hiring of an additional
supervisory person dedicated to on-time delivery. In 2006, lead times have
increased slightly due to increased demand and capacity constraints. The
information to accomplish much of these improvements is available from the
Companys enterprise resource planning (ERP) system.

18

Productivity

Sales
per full time equivalent employee is a measure of the Companys operational
efficiency. Sales per full time equivalent employee were $.3 million for the
first six months of 2006 and 2005. The Company has experienced productivity
increases in recent years, primarily due to the application of worldwide sales
and inventory ERP systems and personnel upgrades which, collectively, allowed
sales to grow with minimal changes in headcount.

Warranty
Claims

Product
quality is another key driver of customer satisfaction and, as a result, sales.
Management uses actual warranty claims incurred as a percentage of total sales
as one objective benchmark to evaluate product quality. During the first six
months of 2006 and the year 2005, actual warranty claims incurred as a
percentage of total sales were less than 1%.

Backlog

A
strong backlog is a tool which allows more accurate sales forecast and production
planning. Due to the high cost of some OEM products, backlog is subject to
volatility, particularly over relatively short periods. A portion of the
Companys backlog is related to multi-year contracts that will generate revenue
in future years. The following table shows backlog at June 30, 2006 and
December 31, 2005 as well as the portion of backlog which is or was expected to
be recognized as sales within twelve months of these dates:

June 30,
  2006

December
  31,2005(Dollars in Thousands)Next 12
  months

$
442,056

$
413,131Total


715,855


658,612The increase
in the Companys backlog at June 30, 2006 was primarily due to an increase in
new machine orders, which totaled $178.2 million and $179.3 million for the
quarter and six months ended June 30, 2006. Inquiries for the Companys
machines remain at a high level.

Inventory

Inventory
is one of the Companys significant assets. As of June 30, 2006, the Company
had $155.6 million in inventory. Raw materials and work in process inventory
have increased in support of increased sales volume. Inventory turned at a rate
of approximately 3.5 times as of June 30, 2006 compared with 3.1 for the year
2005. Inventory turns is calculated based on cost of sales and the average
inventory balance during the prior twelve months. The Company believes that it
has appropriately recorded at the lower of cost or market any slow moving or
obsolete inventory in its financial statements. The factors that could reduce
the carrying value of the Companys inventory include reduced demand for
aftermarket parts due to decreased sales volumes attributable to new or
improved technology or customers discontinuing the use of the Companys older
model machines, which could render inventory obsolete or excess. With the
exception of the normal inventory obsolescence provision recorded in the
ordinary course of business, the Company does not anticipate recording any
significant inventory impairments.

19

Results of Operations

Quarter And Six
Months Ended June 30, 2006 Compared to
Quarter And Six Months Ended June 30, 2005

Sales

Sales
for the quarter and six months ended June 30, 2006 were $181.8 million and
$347.5 million, respectively, compared with $140.0 million and $245.6 million
for the quarter and six months ended June 30, 2005, respectively. Sales of
aftermarket parts and services for the second quarter of 2006 were $128.0
million, an increase of 50.5% from $85.1 million for the second quarter of
2005. Sales of aftermarket parts and services for the six months ended June 30,
2006 were $240.3 million, an increase of 47.5% from $162.9 million for the six
months ended June 30, 2005. The increases in aftermarket sales in 2006 reflect
the Companys continuing initiatives and strategies to capture additional
market share. Also, aftermarket shares continue to increase as the existing
installed fleet of machines operates at very high utilization levels due to the
current demand and increased prices for commodities. Aftermarket sales
increased in both the United States and international markets. Machine sales
for the second quarter of 2006 were $53.8 million, a decrease of 2.2% from
$54.9 million for the second quarter of 2005. The decrease in new machine sales
was primarily due to the manufacturing of one dragline being substantially
completed at the end of the first quarter of 2006. Machine sales for the six
months ended June 30, 2006 were $107.2 million, an increase of 29.7% from $82.7
million for the six months ended June 30, 2005. The increase in new machine
sales resulted from the sustained strength in prices of commodities that are
surface mined by the Companys machines. Approximately $.6 million and $1.0
million of the increases in sales for the quarter and six months ended June 30,
2006, respectively, was attributable to a weakening United States dollar, which
primarily impacted aftermarket sales (see Foreign Currency Fluctuations
below).

Gross
Profit

Gross
profit for the second quarter of 2006 was $46.9 million or 25.8% of sales
compared with $31.0 million or 22.1% of sales for the second quarter of 2005.
Gross profit for the six months ended June 30, 2006 was $87.8 million or 25.3%
of sales compared with $60.0 million or 24.4% of sales for the six months ended
June 30, 2005. The increase in gross profit was primarily due to an increased
sales volume and higher gross margins on aftermarket sales. Gross profit for
the six months ended June 30, 2006 and 2005 was reduced by $2.7 million of
additional depreciation expense as a result of the purchase price allocation to
plant and equipment in connection with acquisitions involving the Company.
Approximately $.1 million and $.3 million of the increase in gross profit for
the quarter and six months ended June 30, 2006, respectively, was attributable
to a weakening United States dollar, which primarily impacted aftermarket sales
(see Foreign Currency Fluctuations below).

Selling,
General and Administrative Expenses

Selling,
general and administrative expenses for the quarter ended June 30, 2006 were
$18.1 million or 9.9% of sales compared with $12.1 million or 8.7% of sales for
the quarter ended June 30, 2005. Selling, general and administrative expenses
for the six months ended June 30, 2006 were $33.5 million or 9.7% of sales
compared to $24.4 million or 10.0% of sales for the six months ended June 30,
2005. Selling, general and administrative expenses for the quarter and six
months ended June 30, 2006 included $1.2 million and $1.7 million,
respectively, related to non-cash stock-based employee compensation compared to
$45,000 and $90,000 for the quarter and six months ended June 30, 2005. In
2006, the Company also had increased selling and administrative expenses,
primarily in the aftermarket support areas, when compared to 2005. Foreign
currency transaction losses for the quarter and six months ended June 30, 2006
were $.7 million and $.4 million, respectively, compared with gains of $.5
million and $1.3 million for the quarter and six months ended June 30, 2005,
respectively.

20

Research and
Development Expenses

Research
and development expenses for the quarter and six months ended June 30, 2006
were $3.1 million and $5.0 million, respectively, compared with $1.5 million
and $2.8 million for the quarter and six months ended June 30, 2005,
respectively. The increase in 2006 was in part due to the continuing
development of electrical and machine upgrade systems.

Amortization
of Intangible Assets

Amortization
of intangible assets, consisting primarily of engineering drawings, bill of
material listings and software, was $.4 million and $.9 million for the quarter
and six months ended June 30, 2006, respectively, compared with $.5 million and
$.9 million for the quarter and six months ended June 30, 2005, respectively.

Operating
Earnings

Operating
earnings for the second quarter of 2006 were $25.4 million or 13.9% of sales,
compared with $16.9 million or 12.1% of sales for the second quarter of 2005.
Operating earnings for the six months ended June 30, 2006 were $48.4 million or
13.9% of sales, compared with $31.9 million or 13.0% of sales for the six
months ended June 30, 2005. Operating earnings for the quarter and six months
ended June 30, 2006 increased from 2005 due to increased gross profit
resulting from an increased sales volume.

Interest
Expense

Interest
expense for the quarter and six months ended June 30, 2006 was $.6 million and $1.2
million, respectively, compared with $1.1 million and $2.4 million for the
quarter and six months ended June 30, 2005, respectively. The decrease in
interest expense in 2006 was primarily due to reduced borrowings. Also, $.2
million of interest was capitalized during the second quarter of 2006 as a part
of the cost of the Companys expansion program.

Income
Taxes

Income
tax expense for the quarter and six months ended June 30, 2006 was $3.2 million
and $11.0 million, respectively, compared with $5.5 million and $10.0 million
for the quarter and six months ended June 30, 2005, respectively. U.S. and
foreign taxes are calculated at applicable statutory rates. Income tax expense
for the quarter ended June 30, 2006 was reduced by a net income tax benefit of
approximately $3.7 million related to foreign tax credits. The foreign tax
credits resulted from the completion of the Companys evaluation of its
potential to claim additional foreign tax credits generated in previous tax
periods. Not including this item, the lower effective tax rate in 2006 was due
to the mix of domestic and foreign earnings. At June 30, 2006, the Company had
available approximately $10.7 million of federal net operating loss
carryforwards compared to $14.3 million at December 31, 2005. The carryforwards
are useable at the rate of $3.6 million per year.

21

Foreign
Currency Fluctuations

The
following table summarizes the approximate effect of changes in foreign
currency exchange rates on the Companys sales, gross profit and operating
earnings for the quarter and six months ended June 30, 2006 and 2005, in each
case compared to the same quarter in the prior year:

Quarters Ended June 30,

Six Months Ended June 30,2006

2005

2006

2005(Dollars in Thousands)Increase in sales

$
594

$
1,738

$
1,037

$
3,803Increase in gross profit


97


426


323


835Increase (decrease) in operating earnings


(24
)

257


136


40822

EBITDA

Earnings
before interest, taxes, depreciation and amortization (EBITDA) for the
quarter and six months ended June 30, 2006 was $29.1 million and $55.7 million,
respectively, compared with $20.3 million and $38.6 million for the quarter and
six months ended June 30, 2005, respectively. EBITDA is presented (i) because
the Company uses EBITDA to measure its liquidity and financial performance and
(ii) because the Company believes EBITDA is frequently used by securities
analysts, investors and other interested parties in evaluating the performance
and enterprise value of companies in general, and in evaluating the liquidity
of companies with significant debt service obligations and their ability to
service their indebtedness. The EBITDA calculation is not an alternative to
operating earnings under accounting principles generally accepted in the United
States of America (GAAP) as an indicator of operating performance or of cash
flows as a measure of liquidity. The following table reconciles Net Earnings as
shown in the Consolidated Condensed Statements of Earnings to EBITDA and
reconciles EBITDA to Net Cash Provided by (Used in) Operating Activities as
shown in the Consolidated Condensed Statements of Cash Flows:

Quarters
  Ended
  June 30,

Six Months
  Ended
  June 30,2006

2005

2006

2005(Dollars in Thousands)Net earnings

$
21,558

$
10,224

$
36,080

$
19,349Interest income


(127
)

(149
)

(241
)

(358
)Interest expense


601


1,110


1,246


2,362Income taxes


3,200


5,517


10,950


10,035Depreciation


3,133


2,920


6,240


5,784Amortization (1)


705


691


1,411


1,379EBITDA (2)


29,070


20,313


55,686


38,551Changes in
  assets and liabilities


(38,056
)

(23,271
)

(14,234
)

(21,022
)Non-cash stock
  compensation expense


1,166


45


1,744


90(Gain) loss on
  sale of fixed assets


13


(129
)

55


153Interest income


127


149


241


358Interest expense


(601
)

(1,110
)

(1,246
)

(2,362
)Income tax
  expense


(3,200
)

(5,517
)

(10,950
)

(10,035
)Net cash
  provided by (used in) operating activities

$
(11,481
)
$
(9,520
)
$
31,296

$
5,733Net cash used in
  investing activities

$
(18,751
)
$
(5,388
)
$
(26,189
)
$
(7,989
)Net cash
  provided by (used in) financing activities

$
31,980

$
(12,213
)
$
(7,323
)
$
(11,397
)(1)
Includes amortization of intangible assets and debt
  issuance costs.(2)
EBITDA is reduced by severance expense for the
  quarters ended June 30, 2006 and 2005 and the six months ended June 30, 2006
  and 2005 of $469,000, $60,000, $741,000 and $73,000, respectively.23

Liquidity
and Capital Resources

Stock Split and
Dividend Policy

On
March 8, 2006, the Companys Board of Directors authorized a three-for-two
split of the Companys Class A common stock. The stock split was paid on March
29, 2006 to Company shareholders of record on March 20, 2006. The Companys
Class A common stock began trading on a split-adjusted basis on March 30, 2006.
The Companys Board of Directors also authorized, and shareholders approved at
the 2006 annual meeting of shareholders, an increase in the number of
authorized shares of the Companys Class A common stock to 75,000,000 shares.
This increase in authorized shares became effective upon filing the Companys
Amended and Restated Certificate of Incorporation with the State of Delaware on
May 3, 2006.

In
addition, the Companys Board of Directors authorized a 30% increase in the
quarterly dividend to the amount of $.05 per share per quarter for dividends
payable after the date of the stock split. On July 20, 2006, a cash dividend of
$.05 per share was declared and is to be paid on August 21, 2006 to
shareholders of record on August 3, 2006.

Cash
Requirements

During
the remainder of 2006, the Company anticipates strong cash flows from
operations due to continued strength in aftermarket parts sales as well as
continued high demand for new machines. In expanding markets, customers are
generally contractually obligated to make progress payments under purchase
contracts for machine orders and certain large parts orders. As a result, the
Company does not anticipate significant outside financing requirements to fund
production of these machines and does not believe that new machine sales will
have a negative effect on its liquidity. If additional borrowings are necessary
during the remainder of 2006, the Company believes it has sufficient capacity
under its revolving credit facility (see Financing Cash Flows below).

On
July 20, 2006, the Company announced that it will undertake the third phase of
its multi-phase expansion program at its South Milwaukee facility. The first
phase of the expansion program, which was announced on August 24, 2005,
includes the construction of a new facility on the grounds of the Companys
South Milwaukee campus north of Rawson Avenue and is expected to be completed
during the fourth quarter of 2006. The second phase, announced on February 16,
2006, will expand the Companys new facility north of Rawson Avenue and is
expected to be completed in mid-2007. The aggregate cost of phase one and two
is expected to be approximately $54 million. Phase three of the expansion
program will include the renovation of manufacturing buildings and offices, as
well as the addition of new machine tools, at its existing facilities south of
Rawson Avenue and is expected to be completed by the fourth quarter of 2007 at
a cost of approximately $58 million. The Company intends to finance the
expansion program through working capital and funds available under its
existing revolving credit facility, and is exploring the availability of governmental
grants and other programs.

At
June 30, 2006, the Company had contractual obligations of approximately $26.2
million with respect to the expansion program. As of June 30, 2006, there have
been no other material changes to the contractual obligations with respect to
purchase obligations and operating leases and rental and service agreements as
presented in the Companys 2005 Annual Report to Shareholders.

The
Companys capital expenditures for the six months ended June 30, 2006 were
$30.9 million compared with $8.0 million for the six months ended June 30,
2005. Included in capital expenditures for the six months ended June 30, 2006
was $21.2 million related to the expansion program, of which $4.5 million was
paid in July 2006. The remaining expenditures consist primarily of production
machinery at the Companys main manufacturing facility. The Company expects a
continued increase in capital expenditures during the remainder of 2006 as it
increases manufacturing capacity and upgrades and

24

replaces manufacturing equipment to support increased
sales activity. The Company believes cash flows from operating activities and funds
available under its revolving credit facility will be sufficient to fund
capital expenditures during the remainder of 2006.

At
June 30, 2006, there were $46.5 million of standby letters of credit
outstanding under all Company bank facilities.

The
Company believes that cash flows from operations will be sufficient to fund its
cash requirements for the next twelve months. The Company also believes that
cash flows from operations will be sufficient to repay any borrowings under its
revolving credit facility. During the first six months of 2006, the Company
reduced its borrowings under the revolving credit facility by $8.6 million.

Sources
and Uses of Cash

The
Company had $10.1 million of cash and cash equivalents as of June 30, 2006. All
of this cash is located at various foreign subsidiaries and will be used for
working capital purposes. Cash receipts in the United States are applied
against the Companys revolving credit facility.

Operating
Cash Flows

During
the first six months of 2006, the Company generated cash from operating
activities of $31.3 million compared to $5.7 million in the first six months of
2005. The increase in cash flows from operating activities was driven primarily
by increased sales activity.

Receivables

The
Company recognizes revenues on machine orders using the
percentage-of-completion method. Accordingly, accounts receivable are generated
when revenue is recognized, which can be before the funds are collected or in
some cases, before the customer is billed. As of June 30, 2006, the Company had
$154.4 million of receivables compared to $155.5 million of receivables at
December 31, 2005. Receivables at June 30, 2006 and December 31, 2005
included $53.7 million and $68.2 million, respectively, of revenues from
long-term contracts which were not billable at these dates.

Liabilities to
Customers on Uncompleted Contracts and
Warranties

Customers
generally make down payments at the time of the order for a new machine as well
as progress payments throughout the manufacturing process. In accordance with
SOP No. 81-1, these payments are recorded as Liabilities to Customers on
Uncompleted Contracts and Warranties.

Financing
Cash Flows

On
May 27, 2005, the Company entered into a credit agreement with GMAC Commercial
Finance LLC as lead lender. The credit agreement provides for a five year
$120.0 million revolving credit facility that may, at the Companys request and
with the lenders approval, be increased to $150.0 million. Interest on
borrowed amounts is subject to quarterly adjustments to prime or LIBOR rates as
defined in the credit agreement. Borrowings under the revolving credit facility
are subject to a borrowing base formula based on the value of eligible
receivables and inventory. At June 30, 2006, the Company had $54.9 million of
borrowings under its revolving credit facility at a weighted average interest
rate of 7.4%. The amount available for borrowings under the revolving credit
facility at June 30, 2006 was $24.4 million.

25

The
credit agreement contains covenants limiting the discretion of management with
respect to key business matters and places significant restrictions on, among
other things, the Companys ability to incur additional indebtedness, create
liens or other encumbrances, make certain payments or investments, loans and
guarantees, and sell or otherwise dispose of assets and merge or consolidate
with another entity. All of the Companys domestic assets and the receivables
and inventory of the Companys Canadian subsidiary are pledged as collateral
under the revolving credit facility. In addition, the outstanding capital stock
of the Companys domestic subsidiaries as well as the majority of the capital
stock of the Companys foreign subsidiaries are pledged as collateral. The
Company is also required to maintain compliance with certain financial
covenants, including a leverage ratio (as defined). The Company was in
compliance with all applicable covenants as of June 30, 2006.

Registration
of Securities

On
June 30, 2006, the Company filed an automatic shelf registration statement with
the Securities and Exchange Commission, which will allow the Company to issue
and sell, from time to time in one or more offerings, an indeterminate amount
of the Companys debt securities, common stock, preferred stock or warrants as
the Company deems prudent or necessary to raise capital at a later date. The
shelf registration statement became effective immediately upon filing.

Critical
Accounting Policies and Estimates

See
Critical Accounting Policies and Estimates discussed in the Managements
Discussion and Analysis section of the Companys 2005 Annual Report to
Shareholders. There have been no material changes to these policies.

26

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

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

Interest
Rates

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

At
June 30, 2006, a sensitivity analysis was performed for the Companys floating
rate debt obligations. Based on this sensitivity analysis, the Company has
determined that a 10% change in the Companys weighted average interest rate at
June 30, 2006 would have the effect of changing the Companys interest expense
on an annual basis by approximately $.4 million.

Foreign
Currency

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

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

Based
on the Companys derivative instruments outstanding at June 30, 2006, a 10%
change in foreign currency exchange rates would not have a material effect on
the Companys financial position, results of operations or cash flows.

27

BUCYRUS
INTERNATIONAL, INC. AND SUBSIDIARIESITEM 4 - CONTROLS AND PROCEDURES

As
of the end of the period covered by this Report, an evaluation was carried out
under the supervision and with the participation of the Companys management,
including its President and Chief Executive Officer and its Chief Financial
Officer and Secretary, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act)). Based upon
their evaluation of these disclosure controls and procedures, the President and
Chief Executive Officer and the Chief Financial Officer and Secretary concluded
that the disclosure controls and procedures were effective as of the end of the
quarter ended June 30, 2006 to ensure that material information relating to the
Company, including its consolidated subsidiaries, was made known to them by
others within those entities, particularly during the period in which this
Report was being prepared.

There
were no changes in the Companys internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the quarter ended June 30, 2006 that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.

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

28

FORWARD-LOOKING
STATEMENTS

This
report contains statements that constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements may be identified by the use of predictive, future
tense or forward-looking terminology, such as believes, anticipates,
expects, estimates, intends, may, will or similar terms. You are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and that actual
results may differ materially from those contained in the forward-looking
statements as a result of various factors, some of which are unknown. The
factors that could adversely affect the Companys actual results and
performance include, without limitation:


customers stockpiles and
  production capacity, including customers ability to procure tires for loading
  trucks, as well as production and consumption rates of copper, coal, iron,
  oil and other ores and minerals;
the Companys plant capacity;
raw material supply and
  subcontractor capacity;
the cash flows of customers;
consolidation among customers
  and suppliers;
work stoppages at customers,
  suppliers or providers of transportation;
the timing, severity and
  duration of customer and industry buying cycles;
unforeseen patent, tax,
  product, environmental, employee health or benefit, or contractual
  liabilities that affect the Company;
litigation;
nonrecurring restructuring and
  other special charges incurred by the Company;
changes in accounting or tax
  rules or regulations that affect the Company;
changes in the relative values of
  currencies;
the Companys leverage and debt
  service obligations;
the Companys success in
  recruiting and retaining key managers and employees; and
labor costs and labor
  relations.The
review of important factors above is not exhaustive, and should be read in
conjunction with the other cautionary statements included in this report and in
the Companys 2005 Annual Report to Shareholders and Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 15, 2006. All forward-looking
statements attributable to the Company are expressly qualified in their
entirety by the foregoing cautionary statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

29

PART
II
OTHER INFORMATION

Item 1.
Legal Proceedings.Not applicable.Item 1A.
Risk Factors.Not applicable.Item 2.
Unregistered Sales of Equity Securities and Use of
  Proceeds.Not applicable.Item 3.
Defaults Upon Senior Securities.Not applicable.Item 4.
Submission of Matters to a Vote of Security Holders.At the Companys annual meeting of shareholders on
  May 3, 2006, the two continuing directors who were managements nominees for
  re-election were elected to the Companys Board of Directors for terms
  expiring at the 2009 annual meeting of shareholders. The directors were
  re-elected with the following votes:Directors Name

For

WithheldRobert L. Purdum

7,864,944

11,909,805Timothy W. Sullivan

17,474,153

2,300,596Edward G. Nelson, Theodore C. Rogers and Robert C.
  Scharp continue as directors whose terms expire in 2007 and Ronald A.
  Crutcher, Robert W. Korthals and Gene E. Little continue as directors whose
  terms expire in 2008. On July 20, 2006, Paul W. Jones was appointed by the
  Board of Directors to fill a vacant term expiring in 2009.At the meeting, shareholders approved an amendment
  to the Companys Restated Certificate of Incorporation to increase the number
  of authorized shares of Class A common stock from 41,000,000 to 75,000,000
  shares by the following vote:For

15,880,469Against

2,800,682Abstained

3,295Non Vote

1,090,303Shareholders also approved an amendment to the
  Companys 2004 Equity Incentive Plan to increase the number of shares of the
  Companys common stock reserved for issuance under the Plan from 1,000,000 to
  2,000,000 shares of Class A common stock by the following vote:For

13,373,356Against

5,306,459Abstained

4,631Non Vote

1,090,30330

Shareholders also ratified the selection of Deloitte
  & Touche LLP to serve as independent registered public accountants of the
  Company for fiscal 2006 by the following vote:For

17,490,603Against

2,283,760Abstained

386Item 5.
Other Information.Not applicable.Item 6.
Exhibits.See Exhibit Index on last page of this report.31

SIGNATURES

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

BUCYRUS INTERNATIONAL, INC.(Registrant)Date August 8, 2006
/s/ Timothy W. SullivanTimothy W. SullivanPresident and Chief Executive OfficerDate August 8, 2006
/s/ Craig R. MackusCraig R. MackusChief Financial Officer and Secretary32

BUCYRUS
INTERNATIONAL, INC.
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2006

Exhibit
Number

Description31.1

Certification of
  President and Chief Executive Officer pursuant to Section 302 of the
  Sarbanes-Oxley Act and Rules 13a-14(a)/15d-14(a).31.2

Certification of Chief
  Financial Officer and Secretary pursuant to Section 302 of the Sarbanes-Oxley
  Act and Rules 13a-14(a)/15d-14(a).32

Certification pursuant
  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002.EI-1