Bucyrus International, Inc.

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Bucyrus International, Inc.

P. O. Box 500
South Milwaukee, Wisconsin 53172
U.S.A.
(414) 768-4400
Fax: (414) 768-5060

Public Company
Incorporated: 1927
Employees: 1,166
Sales: $231.92 million (1995)
Stock Exchanges: NASDAQ
SICs: 3532 Mining Machinery

Bucyrus International, Inc. is a leading manufacturer of equipment and machines for the global surface mining industry. In 1995 it ranked fifth among U.S. mining machinery manufacturers in total sales. Bucyrus’s principal products are electric mining shovels for loading minerals, mining overburden, and rock into trucks or conveyors in copper, coal, and iron mining operations; walking draglines for removing overburden from coal seams in surface coal operations, phosphate and bauxite mining, and land reclamation projects; and rotary blast hole drills for boring large holes in mineral deposits or rock for the placement of the explosives to loosen minerals at mining sites. In addition to supplying its traditional customers in the U.S. coal, copper, iron ore, and phosphate surface mining industry, Bucyrus derived about two-thirds of its shipments from foreign orders for mining projects in the Far East, South America, Australia, and Europe in the mid-1990s.

Digging In: 1880-1921

The birth of the excavating machine industry in the United States was directly tied to the construction of the infrastructure spurred by the nation’s rapidly expanding geographical boundaries during the nineteenth century. Dredging rivers, harbors, and canals and laying railroad lines required reliable and efficient digging equipment, and during the 1880s a fledgling U.S. excavating machinery industry rose to meet the need. In 1880 a prosperous Ohio business magnate named Daniel P. Eells saw the opportunity to create a profitable new business sideline for the many railroads to which he had business associations. By purchasing the idle Bucyrus Machine Company of Bucyrus, Ohio, Eells and his associates founded the Bucyrus Foundry and Manufacturing Company, which quickly began producing hand cars, locomotive drive wheels, car wheels and axles, and related components for the expanding railroad industry.

Eells’s business took a decisive turn when both the Northern Pacific and Ohio Central Railroads placed orders for steam shovels for their railroad construction operations in 1882. By deploying a sales force and advertising in trade journals, by 1898 Bucyrus’s annual output had risen to 24 shovels, and its No. 10 shovel was being hailed by an industry newspaper as “the largest and most powerful steam shovel ever built in this country.” Within a year, steam shovels accounted for 80 percent of Bucyrus’s business, and Eells and associates decided to transfer the company’s assets to a new entity, Bucyrus Steam Shovel and Dredge Co. Because the demand for its standard shovels and dredges was unpredictable, however, Bucyrus increasingly began developing a reputation as a designer/manufacturer of specialized excavating equipment for mining and public works projects.

In 1891, seeking to attract businesses to southeastern Wisconsin, the county of South Milwaukee offered Bucyrus an offer it couldn’t refuse: a 15-acre plant site and $50,000 toward construction of a new factory. Bucyrus signed on, but despite the new expanded facilities, by 1895 a national depression and Bucyrus’s own troubles with its new Milwaukee labor force had pushed it to the brink of bankruptcy. Eell’s son Howard was named the receiver in a court-arranged reorganization that offered Bucyrus’s creditors a viable, ongoing business in the form of a new corporation that assumed the assets of the failing company. Realizing that expanded production was the only way to make Bucyrus solvent, Bucyrus increased the output of its new plant threefold between 1897 and 1901. Production innovations such as a new steel foundry, the use of special-alloy steels, and the adoption of new heat-treating techniques began to enhance Bucyrus’s reputation as a manufacturer of high-quality steel excavating equipment. Significant technological advances enabled Bucyrus to introduce such innovations as the first 180-degree revolving steam shovel; the first back-acting shovel, which could dig below its own level and toward the cab; and, in 1910-11, the first Bucyrus dragline machines, the first Bucyrus tank-tread-style “crawler” shovels and draglines, and the first Bucyrus machines powered by an internal combustion gasoline engine. By the early years of the new decade heavy-duty railroad shovels were accounting for 62 percent of Bucyrus’s output, dredges 29 percent, and railroad wrecking cranes and pile drivers nine percent.

In 1904 a recently created federal agency called the Isthmus Canal Commission ordered a 70-ton and two 95-ton Bucyrus shovels for the punishing excavation work that would eventually produce the historic Panama Canal. More orders followed, and between 1904 and 1907 the Bucyrus shovels delivered to the massive undertaking were accounting for a third of all large shovels sold by the firm. Almost all the earth and rock moved during the peak phase of the Canal project was performed by Bucyrus machines. The Panama Canal project not only gave the company priceless public relations opportunities, including a famous photo with President Theodore Roosevelt perched on a Bucyrus machine, it also gave the company invaluable experience in mass-production manufacturing, enabling it to vie with Marion Steam Shovel for dominance in the manufacture of heavy shovels. For the period 1905-07 alone, Bucyrus’s corporate profits totaled half a million dollars, and by 1911 its net worth had leaped to $2.3 million.

Bucyrus management quickly capitalized on its Panama Canal success. In 1910, it entered the small revolving steam shovel market by purchasing Vulcan Steam Shovel, acquired a new manufacturing site in Evansville, Indiana, and agreed to purchase the Atlantic Equipment Co. In 1911 the fusion of Bucyrus, Vulcan, and Atlantic produced a new corporation, Bucyrus Company. In the same year W. W. Coleman replaced Howard Eells as company president and led Bucyrus through its brief incarnation as a munitions manufacturer in World War I. In 1915, in a joint venture with three other companies named the Mississippi Valley Products Co., Bucyrus began work on its first order for high-explosive shell blanks for the British government. The war also precipitated a boom in U.S. nonmilitary construction and mining work, which enhanced sales of Bucyrus’s commercial products. Bucyrus created the Wisconsin Gun Company with three other Milwaukee firms to produce artillery barrel and breech mechanisms to meet this demand without interrupting its burgeoning nonmilitary production. By the war’s end, Bucyrus annual sales had reached $6.6 million, and by 1922 Bucyrus had definitively surpassed Marion to become the dominant supplier of large mining stripping equipment and medium-sized quarry and mine excavating machines.

Dominance by Diversity

Despite buoyant sales and a growing domestic and overseas market, sales of Bucyrus’s small revolving shovels lagged throughout the 1920s. But just as Bucyrus’s purchase of Vulcan had enabled it to enter this lucrative new market in 1910, its decision in 1929 to acquire the Erie Steam Shovel Co., then the largest U.S. producer of small excavating machines, catapulted it to the top of the small shovel industry.

While the management of the new Bucyrus-Erie Company was reconciling the two firms’ corporate structures and streamlining their overlapping product lines, it expanded again, adding a British manufacturing affiliate in 1930 with the purchase of Ruston & Hornsby, Ltd., the leading British excavating machinery maker, and in 1931 purchasing a controlling interest in Monighan Manufacturing of Chicago, a producer of walking dragline machines. To survive the Depression, management cut back on its work force, closed the Evansville plant, loosened credit arrangements with customers, and minimized product development and plant improvements. Despite the devastation of the Depression, Bucyrus’s tight-ship financial system, the assets accumulated through three decades of success, and holdover back orders from pre-Depression days enabled it to survive the early hardships of the 1930s. In 1932 Coleman announced that Bucyrus was determined to “go after all possible business with courage and the conviction that better times are ahead.” Because of its austerity measures, Bucyrus was able to complete the acquisition of the Armstrong Drill Company of Iowa (a manufacturer of churn-type drills) in 1933, and healthy exports combined with a 1935 contract to supply industrial tractor producer International Harvester with tractor parts enabled Bucyrus to post 1937 profits of $2.1 million.

Bucyrus intentionally limited its involvement in munitions production during World War II. As in World War I, the conflict stimulated domestic and military-related sales of its commercial products, and Bucyrus excavators were purchased in dramatically increased numbers for mining domestic coal and minerals, export to U.S. war allies, and use by U.S. armed forces. Between 1940 and 1944, shipments of Bucyrus excavators totaled more than $44 million, and by 1945 three thousand shovels, draglines, and cranes had been sold directly to the military or U.S. allies. Still, nongovernment production stayed above 40 percent, and Bucyrus’s only armaments work was for gun carriages and mounts.

Company Perspectives:

Bucyrus International ranks as one of the world’s leading manufacturers of surface mining equipment. This reputation is the result of over 100 years of providing quality equipment and support to fulfill our customers needs. We continue to solicit feedback from the industry and use this valued input to aid our efforts in providing machinery of optimum design and manufacturing standards. Superior performance is measured by how well we service our customers. Every department is aware that our most important product is customer service. This service takes many forms: concise and complete machine and parts quotations, engineered machine shipments, timely machine erections, and quality produced components. From South Milwaukee to around the world, we are dedicated to ensuring satisfaction. Bucyrus has a commitment to provide the very best surface mining machines that can be manufactured.

Despite Coleman’s conviction that the postwar economic boom would play out in two years, by 1947 he admitted that “the demand for Bucyrus-Erie products [was] beyond its capacity to produce.” With the outbreak of the Korean War, any fears Bucyrus management had about declining demand were abandoned, and it concentrated on two problems that had bedeviled it in the prewar years: the rising strength of unions and the need to adjust its product lines and plant capacity to meet changing demand. Bucyrus initially took a hard-line stand with national unions, but damaging strikes in the late 1940s softened management’s posture, and by the early 1950s the company was more willing to tolerate national union representatives in new labor contract negotiations.

Between 1945 and 1950, demand for smaller excavating machines had grown to $450 million, but Bucyrus represented only 12 percent of the excavating machinery industry’s manufacturing capacity in this segment. Bucyrus therefore undertook a plant expansion program that by 1951 had increased its capacity by 25 percent and then followed it with the purchase of the National Erie Corporation, a steel foundry and machine shop less than a mile from Bucyrus’s Erie plant. By combining and expanding the two Erie facilities Bucyrus increased its capacity by 50 percent. Bucyrus also expanded its product lines, changing some of the basic designs which had remained the same since the 1930s, and introduced ever bigger, more sophisticated versions of standard models capable of handling larger and larger loads. In 1953 it discontinued dredging equipment production and first began producing rotary blast hole drills, a brand new technology that would remain an integral part of its product line into the 1990s. By 1955, Bucyrus had grown into an industry behemoth employing five thousand people and generating shipments of $72 million a year.

The construction of the St. Lawrence Seaway and the passage of the Federal Highway Act in the 1950s meant intensified demand for Bucyrus shovels and excavators. Bucyrus unveiled a new plant in Richmond, Indiana, in 1955, and the number of foreign markets placing orders had grown to 48. W. W. Cole-man’s retirement in 1956 fell just before a national recession produced layoffs at Bucyrus plants and the company’s first net loss in more than a quarter century. Bucyrus promptly closed the new Richmond plant, slashed inventories, and consolidated and streamlined operations in South Milwaukee, Erie, and Evansville.

By 1963, Bucyrus had bounced back, and for the next decade and a half it would experience breakneck growth and record profits. Bucyrus soon claimed subsidiaries in Brazil, Japan, and Mexico; manufacturing operations on six continents; new plants in Idaho, Pennsylvania, and Racine, Wisconsin; and a backlog so congested it had to reject an offer by NASA to bid on the huge crawler transports for the Apollo moon mission.

The growth in offshore oil drilling offered Bucyrus a valuable new market in marine crane manufacture, and in 1969 Bucyrus unveiled its crowning engineering achievement, the 4250-W coal shovel. Said to be the largest mobile land vehicle ever built, the “Big Muskie” was powered by ten 1,250 horsepower motors and its bucket loaded 325 tons of material in a single pass. By 1971, Bucyrus had soared past the $185 million mark in shipments, and the onset of the energy crisis in 1973 seemed to augur even larger equipment sales to the coal mining industry. In 1973 Bucyrus arranged the third major U.S. equipment sale to the People’s Republic of China with a $19 million deal for mining shovels and blast hole drills.

Demand was rapidly outstripping Bucyrus’s ability to meet deadlines, and in 1974 management decided to expand its manufacturing facilities 200 percent, by relying on subcontracting and foreign manufacture. With Bucyrus factories virtually on a wartime footing, its workforce was expanded by 80 percent between 1974 and 1975, and in the same two-year period shipments climbed 35 percent to $353 million. The pace continued until by 1979 Bucyrus had broken past the $550 million mark in annual shipments. Bucyrus’s production capacity had doubled, sales had grown sevenfold, and profits had skyrocketed 2500 percent since 1962. The boom years of the 1970s seemed to put Bucyrus on solid financial ground as it prepared to celebrate its first centennial.

Disaster: 1980-1996

The celebrations surrounding the anniversary, however, masked a marked dropoff in sales. Confronted with a mature market, Bucyrus began diversifying, buying Western Gear, a California aerospace firm, in 1982, and closing its plants in Idaho and Pennsylvania. With profits still sinking, Bucyrus formed a holding company named Becor Western in 1984 to ward off a hostile takeover. By 1987, however, Becor’s consultants reported that“profitability was not likely to improve until 1990, if then” and that Western Gear was an insupportable drain on the corporate purse. Becor’s management then made a fateful decision: they decided to sell Western and, in concert with their investment bankers, Goldman, Sachs and Co., execute a leveraged buyout (LBO) of Bucyrus, a move that made the corporation a private company and therefore promised management greater flexibility in steering the company to financial safety. The LBO also promised high cash distributions to shareholders and tax advantages stemming from the service of the debt on the LBO’s bonds. It was in the assumption of massive debt—needed to give management the wherewithal to buy Bucyrus out—however, that the inherent risk of the LBO lay.

Shareholders approved the plan, which was completed in February 1988, with Becor broken up into Bucyrus-Erie and a new holding company named B-E Holdings. Damaged by Goldman, Sach’s hefty fees, the LBO debt almost immediately began to bury Bucyrus. By the end of 1988, corporate debt had risen to $100 million and equity had plummeted to $16 million. Within a year, B-E Holdings was paying out $21 million annually just to service the interest on its debt. Worse yet, promising new orders only made matters worse. The LBO’s financial projections were based on the assumption that Bucyrus would lose money in 1990 and 1991. Unanticipated profits only meant that Bucyrus would have to pay even higher levels of debt interest. Bucyrus returned to the financial market to raise more funds in order to avoid paying higher levels of debt interest. Rather than plow the money into much-needed working capital, however, the new influx of cash was applied to debt payment, and Bucyrus was caught in a vicious cycle of acquiring new debt to pay off old.

Following heated negotiations with its creditors, in 1993 Bucyrus proposed a restructuring plan in which it would file for a Chapter 11 bankruptcy but arrange with its creditors before- hand to trade them a combined 87 percent share of Bucyrus stock in return for forgiving $135 million in debt. All Bucyrus’s creditors agreed to this so-called prepackaged bankruptcy except Jackson National Bank, which claimed in a lawsuit that false statements about Bucyrus’s true financial health had fraudulently seduced it into lending Bucyrus $60 million. Jackson’s suit threatened to torpedo Bucyrus’s only hope of emerging from bankruptcy intact, and as it headed toward federal court its losses continued to mount. In February 1994, Bucyrus officially filed for bankruptcy, with a ten-month window to secure the judgment before new tax laws went into effect forcing it into further, probably fatal levels of debt. After ten months of deliberation the federal court announced that Bucyrus had been awarded the debt-for-equity bankruptcy it sought and could retain control of its own fate. The worst crisis in its history was over.

Ironically, Bucyrus remained not only a viable but a significant player in the world excavation machinery business before its slide toward bankruptcy began to seem inevitable. The opening of the South African mining machinery market promised greater sources of new sales, and, more importantly, a 1988 contract to provide mining machines to China had been followed by an even larger Chinese order in 1993. And China held the potential of becoming the largest customer for the mining machine industry in the world. If the U.S. market for new mining machinery was exhausted, a large untapped international market seemed capable of offsetting the loss, and between 1994 and 1995 Bucyrus’s net sales actually increased almost 20 percent to $232 million.

In July 1995, three senior Bucyrus executives quietly resigned, and a management consulting group shepherded the company during a search for a new CEO. In March 1996, W. R. Hildebrand became president and CEO. He announced the goal of making Bucyrus a customer-driven, employee-empowered enterprise with a modernized accounting system and a new computerized data system. With exports accounting for almost 70 percent of all shipments and new foreign markets offering Bucyrus a chance to grow itself back to health, in May 1996, shareholders officially approved the rebirth of Bucyrus-Erie as Bucyrus International.

Principal Subsidiaries

Bucyrus-Erie Company of Canada Ltd;. Bucyrus Europe Ltd.; Bucyrus (Australia) Proprietary Ltd.; Minserco, Inc. (United States); Boonville Mining Services, Inc. (United States); Bucyrus (Brasil) Ltda.; Bucyrus India Private Ltd.; Bucyrus (Africa) (Proprietary) Ltd.; Bucyrus Chile Ltda.; Bucyrus (Mauritius) Ltd.