Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Michael Gallo with C. L. King & Associates.
Michael Gallo - C. L. King & Associates
The question I have is just on the backlog, I mean obviously you had the cancellation of a couple of shovels in the quarter and the markets are evolving and evolving quickly. How do you get comfortable that the backlog is relatively secure? Then also, as kind of a second part to that question, do you anticipate any issues in collecting receivables as we come through the combination of a credit crunch on top of a more difficult environment, particularly for some of the higher costs to producers.
Mike Sutherlin
I will answer the backlog issue and then let Mike deal with the collections part.
In today’s world, we are obviously in constant and repetitive discussions with customers about projects, project flow, project funding. Because our equipment is often purchased later in the life of the project, we are also able to see the spending rates that the customer has on those projects and so we have a lot of different barometers that we look at. The frequency of that check in process is much more intense today than it was even six months ago.
We had two customers that went through this fleet rationalization process. One was primarily an iron ore based customer who retained all of their shovel slots in our backlog. The other one was a copper customer that we had one cancellation from, but then validated the rest of the shovels we had in backlog.
If you look at the risk in the market and the risk in backlog being driven somewhat by the commodity, somewhat by maybe the financial leverage of the customer, and somewhat by those two factors primarily, you would have to say that the fleet rationalization programs that we went through probably took away some of the higher risk elements that we have in backlog and it really gave us a lot more confidence. But, we are constantly talking to customers and revalidating and rechecking and reassessing the viability of those orders.
Certainly we don’t want to deliver a shovel that isn’t going to be paid for or the other remainder. We typically will have 70% of cash by the time we ship, but there is still the remainder that’s out and we certainly don’t want to start building the shovel that doesn’t have the ability to ship at the end. Some of the shovels are the same model, but unique in terms of features and options and configuration and so we are very cautious about starting to build on a shovel without having some additional validity from the customer about the ability to take at the end of the bill process.
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