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Wednesday, July 28, 2004 - Page updated at 12:00 A.M.
Construction giant back to core business after paying heavy price
By BOB FICK
But in 1995, Morrison Knudsen stood on the brink of ruin after misguided efforts to diversify beyond construction and engineering. Nine years later, after taking two trips through bankruptcy court and a new name Washington Group International the Boise company is bigger and regaining its reputation.
"When you get back to your knitting, you can focus on your core business and spread out from there," said Philadelphia-based business consultant John Reddish. "They're coming back."
Sweeping dams, long power transmission lines and huge industrial plants are still part of the company's portfolio, which also includes destroying weapons of mass destruction, cleaning up and managing radioactive waste and even analyzing isotopes protecting and powering the Mars rovers.
But shipbuilding, railroad and transit-car manufacturing, and real-estate development, businesses that helped land the company in bankruptcy, are gone.
Wall Street appears satisfied with the company's progress. Washington Group's stock is trading at about $31 a share, midway through its 52-week range of $21.74 to $40.20. Its market capitalization is about $800 million.
"This is a company that has a pretty darn good résumé," said Sanjay Shrestha, an analyst with First Albany. "Does the company have enough to take it to the next level? What I've seen out of bankruptcy, they are kicking on all cylinders."
Although it had a solid reputation in construction and engineering, Morrison Knudsen moved into real estate and shipbuilding in the 1980s, hoping to gain some protection from the vagaries of its core businesses. Both new ventures went sour in a matter of years.
Then William Agee, former Bendix chairman, was hired as CEO in 1988. He moved Morrison into another losing direction, building railroad cars. A big shift into rail mass transit never happened.
Agee was ousted in 1995, and Morrison Knudsen ended up in bankruptcy court for the first time. It was rescued by Washington Construction Group, which paid $380 million for the company in 1996. The combined business was renamed Washington Group International.
Stephen Hanks, then chief financial officer and now Washington Group's CEO, has overseen Morrison Knudsen's return to its roots.
"Were the problems of the early 1990s a wake-up call? Absolutely," Hanks said. "Did they refocus us on what we're good at? Absolutely."
Washington Group's chairman is Montana construction magnate Dennis Washington, whose much smaller company bailed out Morrison Knudsen.
"We wanted to build a foundation of talented people as good as any other company in our industry," Washington said in a statement. "We also wanted to diversify into markets that tend to offset each other in their normal economic cycles."
Under Washington and Hanks, the company purchased Westinghouse Government Services Group in 1999 and a year later brought Raytheon's engineering and construction division.
But the Raytheon purchase cost more than Washington Group could afford, saddling it with debt. The company landed in bankruptcy court again in 2001, emerging the next year.
Resolution of that case gave the company a debt-free balance sheet and protection from federal taxes on its first $80 million of annual operating profits for the next decade.
The company has also expanded into power, government and industrial processing fueled by the technological expertise the new acquisitions provided. It offered the cyclical balance Washington had sought: government work to pick up the slack in times when heavy construction is down, and energy contracts in times when sluggish economies rein in industrial projects.
Washington Group has 27,000 employees worldwide, operating in more than 30 countries. Its overseas projects have included destroying weapons of mass destruction in Russia and Ukraine and contracts to rebuild Afghanistan and Iraq.
Its roots go back 92 years to Harry Morrison and Morris Knudsen. Their construction company gained the national stage when Morrison organized the joint venture and oversaw construction of Hoover Dam. The San Francisco Bay Bridge followed, as did the Grand Coulee Dam, the largest private enterprise hydroelectric project for the Aluminum Co. of Canada and the Trans-Alaska Pipeline.
The projects were big and made a difference in the way people lived. In 1954, Time magazine called Harry Morrison the one builder in history who had done the most to change the face of the Earth.
The company also was known to back government in times of war a reputation dramatically enhanced in 1941 when its 1,150 workers building airstrips on Wake Island joined Marines to try holding off a Japanese attack.
They failed. Most went to prison camps in China. But 98, kept behind to finish the runways, were killed by the Japanese after digging their own graves nearly two years later.
The company has more than 100 people in Iraq overseeing hundreds of millions of dollars in reconstruction work.
Morrison was drawn to Iraq in part by oil and natural gas. Hanks expects more than $100 billion to be spent over the next decade to convert natural gas from the region into a liquid that can be shipped elsewhere.
"If the coalition is successful, then Western companies and it's not just U.S. companies, but European companies, even companies from Korea and Japan will have a long-term future in providing services in that part of the world," Hanks said. "And we want to be a part of it. In fact, we have to be a part of it. If this company is going to continue to grow, we've got to go where the world's markets are."
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