Morrison Knudsen Corporation Business Information, Profile, and History

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History of Morrison Knudsen Corporation

Morrison Knudsen Corporation (MK) has long stood as one of the world's largest engineering and construction organizations. A 1954 feature article in Time identified cofounder Harry Morrison as "the man who has done more than anyone else to change the face of the earth." Such words reflect the magnitude and scope of the company's projects, ranging from work on the Hoover Dam to the construction of the then largest building in the world, the Vehicle Assembly Building at the Kennedy Space Center, to the building of portions of the transAlaska pipeline. Today, MK is active in more than 35 countries, serving the environmental, heavy civil, industrial, mining, operations and maintenance, power, process, transportation, and logistics markets.

Dams Marked Early Years

The company's origin dates back to Idaho's Boise Valley at the turn of the century, when Morris Hans Knudsen and Harry W. Morrison teamed up to exploit business opportunities introduced by the National Reclamation Act of 1902. The U.S. government was subsidizing projects to irrigate vast tracts of desert. Knudsen, a native of Denmark, moved to Idaho with his wife in 1905. He became well known for his skill using horses and basic scrapers to haul dirt. Morrison, a native of Illinois, moved to Idaho in 1904 as a concrete superintendent for water reclamation projects. In 1912 Morrison and Knudsen collaborated on their first job, a subcontract for approximately $14,000 worth of work at a pumping station along the Snake River near Grand View, Idaho. This and other early jobs generated little, if any, profit. The first financially successful endeavor for the duo was the 1914 construction of Three-Mile Falls Dam in Oregon. In addition to yielding a profit, the Three-Mile job established the company as a legitimate player in dam construction, which became one of the company's hallmarks. (By the 1980s MK had built more than 150 dams, including Brownlee, one of three dams erected across the Snake River in Hells Canyon for Idaho Power; Karadj, near Teheran, Iran; San Luis, in California, with a crest length of more than three miles; and Hungry Horse and Yellowtail, both in Montana.)

One of the most significant milestones in the growth of Morrison-Knudsen Company was, in fact, construction of yet another dam, the Hoover (Boulder) Dam, contracted in 1931. The magnitude of the job led to the 1932 incorporation of Morrison-Knudsen Company, Inc. The project was massive, drawing on 5,000 workers. It called for 4.5 million yards of concrete (enough to pave a four-lane highway from Seattle to Miami, according to company sources) and reached a height of 726 feet upon completion. To handle such a formidable task, Morrison brought together a consortium of different companies, Six Companies, Inc., thus introducing the now commonplace practice of joint-venture construction. The dam was completed in 1935, two years ahead of schedule.

Having survived the Great Depression, due, in part, to its success with the Hoover Dam project, MK was prepared to meet the business demands of World War II. The company joined other contractors in a joint venture known as Contractors, Pacific Naval Air Bases. Building airfield facilities on Midway and Wake islands in late 1941, more than 1,200 company workers were captured by the Japanese. On the Hawaiian island of Oahu, MK was also engaged in the construction of 20 huge naval fuel-storage vaults, each 250 feet high and 100 feet in diameter. MK launched its company magazine, the eMKayan, in March 1942, a strategic time to reinforce public relations.

These and other World War II projects established long-lasting ties for MK in the area of military contracting. In addition to extensive building contracts in Vietnam, the company procured a substantial amount of business outside of active battle zones. The Distant Early Warning (DEW) Line, a chain of bases and radar installations, was constructed and maintained across northern Canada, as was the "White Alice" communications system in Alaska. In the 1960s MK became a leading builder of missile facilities, including the first U.S. underground Titan missile installation at the Lowry Air Force Base in Colorado. The company sponsored a joint venture for the Aeropropulsion Systems Test Facility, an advanced jet engine center for the U.S. Air Force, which was completed in 1984. The company also was involved in the reconstruction of Kuwait following the 1991 Gulf War. According to U.S. News and World Report, such an expensive national reconstruction effort had not been launched since the Marshall Plan molded a new Europe after World War II.

Postwar Diversification

While World War II initiated new business, the war's end also brought reconstruction projects and expansion opportunities in new domains. In 1950 MK bought the Cleveland-based industrial builder H.K. Ferguson Company, which aided greatly in the trend toward rebuilding the American infrastructure. The 1950s also marked the establishment of the company's engineering subsidiary, International Engineering Company, Inc., which was designed primarily to implement public works in less industrialized nations (its first project was a dam in India). By the mid-1950s, the firm had been commissioned by ten foreign governments. The company had by this time established a notable presence in a number of international markets, working on projects in such distant lands as Afghanistan, China, Iran, and Saudi Arabia. A Time magazine article in May 1954 titled "Builders Abroad--Ambassadors with Bulldozers" emphasized the impact of the construction industry on world economy. The magazine cover featured a portrait of Harry Morrison with the subheading, "To tame rivers and move mountains."

The company further diversified in the 1960s, establishing itself as one of the major contractors to the developing space program. In addition to other contracts for the American space program, in 1966 the company contracted the Vehicle Assembly Building (VAB) in Florida. The world's largest building at the time, it was used to assemble the Apollo and Saturn V rockets, for which MK also constructed the launching pads.

The Vietnam War in the 1960s and early 1970s also stimulated business, when the U.S. government engaged the company as the sponsor of a joint venture--called RMK-BRJ--that consisted of MK International, Raymond International, Brown & Root, and J.A. Jones Construction Company. Under the command of the U.S. Naval Facilities Engineering Command, RMK-BRJ constructed bridges, highways, jet airfields, hospitals, deepwater ports, communications facilities, water supply systems, power plants, supply depots, and other facilities from 1962 to 1972. The venture, which employed more than 50,000 people, resulted in roughly $1.9 billion of business.

Tremendous Growth Under McMurren, 1970--84

The challenges of the Vietnam era forged the business skills of William H. McMurren, who was elected president and chief executive officer in 1970. McMurren served for 14 years and carried the company into the 1980s under a new program of expansion and diversification. McMurren first established his abilities as a manager while directing missile site construction during the early 1960s. From 1970 to 1984, when he died at the age of 57, McMurren enhanced the traditional construction abilities of MK and extended activities to engineering, construction management, mining, real estate, manufacturing, and shipbuilding.

Indeed, the late 1970s and early 1980s marked a period of unprecedented growth for MK. The company expanded into mining, a logical offshoot of its heavy civil engineering operations. MK explored for precious metals, coal, lignite, and limestone mines throughout the United States and in various foreign countries. Notable examples included the 1973 Rio Blanco Copper mine in Chile, hewn out of solid rock in the forbidding landscape of the Andes Mountains; the Cerrejon Coal Project, a $2 billion turnkey project in northeastern Colombia; and the 1989 joint venture with Eastmaque Gold Mines, Ltd. to operate and develop the Cargo Muchacho Project in southeastern California (known as the American Girl Joint Venture). MK also delved into shipmaking, acquiring full ownership of National Steel and Shipbuilding Company (NASSCO) of San Diego in 1979. One of its first projects was the construction of a fast-combat support ship for the Navy, with an open contract for further orders.

MK also moved into environment-related industries of hazardous waste handling and storage and energy plant repair, modification, and improvement. By 1987 the company had carried out design and construction management of remedial actions programs at 24 abandoned uranium processing sites nationwide for the Department of Energy. It also worked on waste-to-energy plants in Florida; Charlotte, North Carolina; and Fayetteville, Arkansas.

Also chartered to broaden MK's base was the new venture Morrison-Knudsen Services, designed to maintain and operate military facilities in Alabama, Arizona, and California. Finally, the company focused particular energy on its railroad business, rebuilding transit cars and, by the late 1980s, serving as the sole domestic manufacturer of the cars. By the early 1980s MK's varied initiatives, fostered by McMurren, had bolstered the company's potential on numerous fronts.

The firm's growth, however, was hampered by a harsh economic climate in the mid-1980s, prompting the company to restructure its operations. On May 3, 1985, stockholders approved a plan of reorganization and agreement of merger wherein Morrison-Knudsen Co., Inc. became a wholly owned operating subsidiary of Morrison Knudsen Corporation. Other subsidiaries included Morrison-Knudsen Engineers, Morrison-Knudsen International Company, and MK-Ferguson Company (National Steel and Shipbuilding Company remained a subsidiary of Morrison-Knudsen Company). The new company structure was designed to accommodate growing complexities in the engineering and construction industries. The short-term result of the reorganization bordered on disaster. In 1988 MK suffered a loss of $3.35 per share from continuing operations and an $8.17 per share loss from discontinued operations, in part because of a $42 million pretax loss on the disposition of its interest in the shipbuilding operation of NASSCO.

Agee Hired As Chairman and CEO in 1988

Due, in large part, to such slippage, the company initiated another round of reorganization in 1988, appointing William J. Agee to replace W.J. Deasy as chairman and CEO. Agee's principal responsibility was to reverse the negative trend in MK earnings while at the same time resuscitate his own business reputation, which had suffered in the media since the early 1960s.

As chief financial officer at Boise Cascade Corporation, Agee had been instrumental in heading the company in the direction of urban renewal, an area that was trendy, though not especially prudent, according to Richard Stern in a June 1992 Forbes article. Boise Cascade's financial woes, which included defaulted real estate sales and inadequate reserves for South American bonds owned by a subsidiary, did not reach their peak, however, until after Agee had left the company. In 1972 he joined Bendix Corporation as chief financial officer, becoming chairman in 1977. In 1980 he drew criticism for his relationship with a young protégée, Mary Cunningham, who rose to the position of vice-president of strategic planning at Bendix before the age of 30. In 1982 Agee and Cunningham married. In that same year, Agee launched a hostile bid to take over Martin Marietta Corporation, the missile and technology company. Marietta fought back by buying Bendix shares in what was called a "Pac-Man defense," a reference to the video-game character that defends itself by swallowing its enemies to become stronger. Finally, Allied Corporation intervened, absorbing Bendix and dismissing the Agee couple.

Upon joining MK, Agee effected an immediate strategy to rescue the company from debt and heavy losses. He cut the payroll, stopped bidding for small projects, and rebuilt the company's international business. He made MK's transportation-construction business the top-ranked company in the United States, while other main lines improved, but less dramatically. Agee also strengthened MK's balance sheet, cutting debt from $300 million to almost nothing and amassing $100 million in cash. Other financial figures also looked promising: in February 1990 the company reported 1989 net income of $32.2 million, or $2.81 per share, on revenue of $2.2 billion, representing an all-time record for net income from continuing operations of the engineering and construction and rail systems segments, and surpassing the 1981 record by over $3 million. Net income for 1990 rose to $34.5 million on revenue of $1.7 billion. By 1991 the company reported a second quarter backlog of $4.1 billion, up from $3.4 billion for the same period during the previous year. Agee's restructuring, however controversial, had dramatically transformed MK's financial fortunes.

A large part of the change was attributable to MK's emphasis on the transportation sector, especially design and construction of transit cars. Ken Fisher, president and CEO at Fisher Investments, identified excellent investment opportunities in a 1992 portfolio letter, recognizing that MK had built up its rapid transit system business from less than one percent of its total revenues to 40 percent. The company's success in its emphasis on the transportation industry was further illustrated by the position it assumed at the forefront of a revival of interest in rail transportation in the United States. Sensitive to current trends, Agee envisioned not only high-speed rail between cities, but also commuter transit in every major U.S. city.

To that end, the company won various contracts around the country. It contracted the construction of tunnels and substations for the Bay Area Rapid Transit system in northern California and tunnels and underground stations for the Washington, D.C. "Metro" subway system. In November 1991, MK was approved by the Honolulu City Council to design, build, operate, maintain, and supply vehicles for a $1.7 billion, 15.6-mile elevated rapid transit system serving Honolulu. In January 1992 the company became managing director for a consortium to develop a high-speed rail system linking Houston, Dallas-Fort Worth, Austin, and San Antonio. A less high-tech project was the Hornell plant, located near Elmira, New York, that started remanufacturing 750 transit cars in the early 1980s. The plant lost significant earnings that year, but subsequently managed to improve profits. In March 1992 MK announced an agreement with Caterpillar, Inc. to use state-of-the-art Caterpillar engines in its generation of new locomotives.

MK was also involved in the controversial bidding for a Los Angeles transit project in 1992. The bidding pitted MK and the Japanese-based Sumitomo Corporation against each other for a Los Angeles County transportation contract to build the $122 million Green Line Cars. Although the MK bid was approximately $5 million cheaper for the County of Los Angeles, Sumitomo won the bid, allegedly due to greater experience in the industry. Ray Grabinski of the transportation commission explained to ABC News that "this wasn't the difference between a Honda and a Ford Taurus. This was the difference between a Honda and a mechanic saying he can build you a car." A national uproar ensued, arguing in favor of American jobs and fueling a rash of anti-Japanese sentiments. In January county transportation officials canceled their contract and convened a special panel to standardize rail car design and build the vehicles locally, possibly drawing on a multicompany venture to implement it. Though MK did not win back that contract, it found business further north, in San Francisco, where it contracted with the Bay Area Rapid Transit (BART) to renovate an abandoned steel warehouse in the area as a manufacturing site for 88 Caltrans cars by 1994. The so-called "California car" was designed as a double-decker model for commuter systems and longer-distance routes inside the state.

A less controversial, though highly publicized, deal was also made with Metra, the Chicago area commuter rail agency, in January 1992. The contract called for MK to build 173 new rail cars and to refurbish 140 existing cars. The tab, worth $378 million, constituted the largest transit-car order for the company and one of the biggest in U.S. history. According to the contract, MK was to reopen one section of the Pullman freight car plant on Chicago's South Side and begin hiring in late 1992, with final deliveries scheduled for late 1995. Since employment was particularly low on the South Side, where USX Corp.'s South Works steel mill had recently closed, skilled workers were in abundance. Nevertheless, labor disputes erupted when MK won the contract over Montreal's Bombardier, Inc.; Bombardier had committed itself to a United Auto Workers' facility, while MK had not promised union ties.

Mass-Transit Contracts Led to 1996 Bankruptcy, Takeover by Washington Construction

Agee had correctly foreseen a resurgence of rail transit, but MK's mass-transit business quickly unraveled. After losing the Honolulu rapid-transit contract in 1992, the Texas high-speed rail project fell apart the following year because of financial difficulties. It also soon became clear that MK had gained its prominent position in the industry by seriously underbidding its contracts. This risky practice was compounded by the company's difficulties in fulfilling the contracts. By early 1995 MK was a year late in delivering 113 transit cars to the California Transportation Dept., and had encountered numerous production problems in attempting to fulfill its Chicago contract. Around this same time, the company announced a $310 million loss for 1994, largely as a result of the mass-transit unit's debacles; and with the red ink mounting and the company's creditors threatening to cut off its financing, MK's board fired Agee in early February 1995, citing in part alleged financial improprieties committed by Agee and accounting irregularities.

In early March 1995 the board named Robert A. Tinstman, who had been the head of MK's mining unit, the new CEO. To bolster the company's sinking credibility with lenders, clients, and the media, the board brought in Robert S. Miller, Jr., as the new chairman in April of that year. Miller had been a key financial architect of the early 1980s bailout of Chrysler Corporation. With $350 million in debt, MK appeared on the brink of bankruptcy and/or possible dismemberment.

Through astute maneuvering, however, Tinstman and Miller were able to keep MK largely intact, with one key exception--the railcar unit, the root of the company's difficulties, was offloaded to MK's creditors in late 1995. MK would once again concentrate on its historic core areas: heavy construction, environmental cleanup, engineering projects, and mining. Also in 1995 the company settled numerous shareholder lawsuits and reached agreement with its creditors on a rollover of debt into 1996.

Having gained some breathing room, Tinstman and Miller had enough time to convince Dennis R. Washington to rescue Morrison Knudsen by acquiring it. Following a prepackaged bankruptcy filing that was filed in June 1996, MK emerged from bankruptcy in September of that year and was then acquired by Washington Construction Group, Inc. Originally known as Kasler Holding Company, Washington Construction was owned by Dennis Washington and was the largest builder of roads and bridges in California. After Washington Construction acquired the much larger MK, it then adopted the name of the acquired company, Morrison Knudsen Corporation. Washington held an initial 37 percent stake in the new MK. The deal also had MK swap its debt for equity, with the company's creditors emerging with 45 percent of the company. The remaining equity was held by people who had held shares in Washington Construction. Dennis Washington became chairman of the new MK, Miller was named vice-chairman, while Tinstman served as president and CEO.

Results for fiscal years 1997 and 1998 appeared to confirm that MK was safely on the road to recovery. Revenue increased from $1.68 billion in 1997 to $1.86 billion in 1998, while net income rose from $32 million to $37.6 million. In January 1999 the company announced a consolidation of two of its operating groups--Heavy Civil Construction (which worked on infrastructure projects) and Mining--into a new unit called the Morrison Knudsen Constructors Group. This left MK with two main units, the other being the Engineers and Constructors Group, which specialized in engineering, construction, maintenance, and environmental services. In February 1999 Tinstman retired from MK and Washington added the presidency and CEO position to his duties as chairman. The following month MK and British Nuclear Fuels Ltd. completed a joint acquisition of Westinghouse Electric Company from CBS Corporation. Westinghouse was a world leader in commercial nuclear power technology, was involved in the nuclear defense industry, and was involved in the development of new nuclear plant technology, including the under-design AP600, an advanced, passive nuclear power plant.

Principal Subsidiaries: Broadway Insurance Company, Ltd. (Bermuda); Centennial Engineering, Inc.; Industrial Constructors Corporation; MK Ferguson of Oak Ridge Company; Morrison Knudsen B.V. (Netherlands); Morrison Knudsen Deutschland GmbH (Germany); National Projects, Inc.

Principal Operating Units: Engineers and Constructors Group; Morrison Knudsen Constructors Group.