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The Washington Companies

 


Address:
101 International Way
Missoula, Montana 59807
U.S.A.

Telephone: (406) 523-1300
Fax: (406) 523-1398
http://www.washcorp.com

Statistics:
Private Company
Incorporated: 1964 as Washington Construction
Employees: 4,400
Sales: $744 million (1998 est.)
NAIC: 48831 Port and Harbor Operations; 48833 Navigational Services to Shipping; 483111 Deep Sea and Freight Transportation; 482111 Line-Haul Railroads; 23411 Highway and Street Construction; 23493 Industrial Nonbuilding Structure


Company Perspectives:


The Washington Companies, bearing the name of founder Dennis R. Washington, are a group of separate business entities sharing a common philosophy&mdashø provide the highest quality services at the least cost. This is accomplished by maintaining concentration within a core of related industries. Resources are focused and integrated for cost containment and financial strength, creating excellence and a consistent competitive edge.


Key Dates:


1964: Dennis R. Washington founds Washington Construction.
1973: Company acquires heavy equipment hauler Western Transport Crane (Westran, Inc.); founds Equipco to repair and maintain construction equipment.
1979: Washington Corporations is founded to offer administrative services to the growing empire of Washington Companies.
1985: Dennis Washington enters the mining business with the purchase of Anaconda Mining Company.
1987: Rail transportation is added to the Washington fold with the acquisition of Burlington Northern Railroad's southern Montana route.
1996: Company acquires a 38 percent stake in Morrison Knudsen Corporation.


Company History:

The Washington Companies is an association of distinct business entities owned by Dennis R. Washington. The group got its start in 1964 when Dennis Washington founded a construction firm. Since then it has steadily grown, as he acquired or launched related enterprises. The Washington Companies now operates in construction, transportation, machinery, and mining sectors. The Washington Marine Group exists as a sub-association of businesses within The Washington Companies. These businesses--which include C.H. Cates and Sons Ltd., Seaspan International Ltd., Kingcome Navigation Company, Norsk Pacific Steamship Company, Seaspan Coastal Intermodal, Vancouver Shipyards, and Victoria Shipyards&mdashe involved in coastal and deep sea transportation, ship repair, and shipbuilding. Similarly, the Washington Rail Group--consisting of Montana Rail Link, Inc., I & M Rail Link, Inc., and Southern Railway of British Columbia Ltd.&mdash′ovides rail transportation. In addition to these two major sub-associations of companies, Washington's holdings also include Envirocon, Inc. (which specializes in environmental remediation), Montana Resources, Inc. (a mining company), Morrison Knudsen Corporation (a diversified engineering and construction company), and Westran, Inc. (trucking company). Each of the Washington Companies operates individually, but can rely on the collective Companies for resources.

Humble Beginnings

Dennis Washington's childhood was often chaotic. The future founder of The Washington Companies contracted polio as a young boy, and lived with a number of different relatives after his parents divorced. After graduating from high school in Missoula, Montana, Washington set off for Alaska and found a job in heavy construction. For two years, he was part of a team that built a pulp mill. He returned to Montana soon after, and worked for King and McLaughlin, a construction company owned by his uncle. He rose through the ranks, and by the time he was 23 he oversaw Montana's largest highway construction project.

Early Years of Washington Construction: The 1960s

Despite his success at King and McLaughlin, Washington wanted the satisfaction of owning his own company. He took out a loan for $30,000 from a local Caterpillar dealer, and founded Washington Construction in 1964. His first contract was a daunting one. Commissioned by the U.S. Forest Service to build a new parking lot at the visitor's center in Glacier National Park, Washington had to work in August snows atop the Continental Divide. It was a success. For the next few years, Washington received additional contracts from the forest service, primarily to repair flooded or damaged roads in remote wooded areas.

Federal funding for the Forest Service dwindled in the late 1960s, and Washington was forced to diversify his operations to include highway construction. Although this sector of the construction industry was fiercely competitive, Washington had little choice. 'It was something I had to do to stay in business,' he would explain later. Luckily, the nation was in the midst of the federally funded interstate highway boom, and Washington's business grew along with the miles of asphalt. By 1969 he was the largest contractor in the state of Montana.

Diversification in the 1970s

In the early 1970s, Washington anticipated that the interstate highway system would lose funding, just as the Forest Service had a few years earlier. 'I said to myself, `Dennis ... [i]f you're going to survive, you're going to have to get into something where you can use your experitse and equipment and not be totally dependent on government programs,' Washington explained. Thus, Washington Construction branched out into new areas once again, particularly dam building and mining. In 1972, the company won a large phosphate mining contract near Soda Springs, Idaho. The revenue earned through this venture fueled additional expansion in the 1970s.

Washington Construction continued to win federal, state, and local highway projects. However, these jobs were scattered geographically, making it difficult and expensive for the company to move its heavy equipment from place to place. To remedy this problem, Washington acquired Western Transport Crane and Rigging--now known as Westran, Inc.--in 1973. The Missoula-based Western Transport provided highway truck freight brokerage, as well as contract hauling of bulk materials. Just as Washington purchased Western Transport to move his company's cumbersome equipment, he founded Equipco that same year to repair and maintain his construction equipment. Although Equipco would later offer its services to other companies, its primary function was to repair Washington's specialized machinery.

Washington continued to diversify his holdings. In 1976, he acquired Modern Machinery Co., which sold heavy equipment to the construction, mining, and logging industries. Modern Machinery also supplied parts and services. At the time Washington purchased Modern Machinery, the subsidiary consisted of a single dealership in Spokane, Washington. However, during the late 1970s Washington quickly added new dealerships in Boise and Pocatello, Idaho, as well as in Missoula and Billings, Montana.

With his roster of companies growing at a rapid rate, Washington instituted the structure that has characterized The Washington Companies for much of its history. Instead of personally overseeing each of his acquired companies' day-to-day operations, Washington ensured that the businesses had a strong president and the capacity to make individual decisions. 'Always bring in the best experts around to run a business you don't understand,' he told Forbes on May 15, 1989. However, it was necessary that he provide some sort of centralized administrative, legal, tax, business development, and real estate assistance. Washington Corporations was founded in 1979 to carry out such tasks. Headquartered in Missoula, Washington Corporations offered an array of services to The Washington Companies.

Expansion in the 1980s

A new chapter in the history of The Washington Companies opened in 1985, when Dennis Washington took a calculated risk and acquired the mining operations of the former Anaconda Mining Company (owned by Atlantic Richfield) in Butte, Montana. Although Butte's copper mines had once produced unparalleled wealth, soft commodity prices and high copper production prices in the early 1980s had led Atlantic Ritchfield to close the famed mine. It lay dormant for three years until one of The Washington Companies--Montana Resources, Inc.--bought it. Before Montana Resources reopened the mine in August 1986, Washington vowed to make the enterprise profitable. His primary strategy was to cut costs. Hiring 325 non-union workers desperate for employment in the economically depressed city of Butte (the mine had previously been run by 600 union workers), Washington mined copper around the clock. His sense of timing was perfect. Within three years, the price of copper had doubled, and he had cleared $100 million from his original investment.

Washington used his profits from the mine as a platform to expand further into new areas of business. Focusing on the transportation industry, he purchased Burlington Northern Railroad's southern Montana route in 1987. With over 1,000 miles of track extending from Huntley, Montana, to Sandpoint, Idaho, this line was a vital link in freight transportation across Montana. Washington renamed the line Montana Rail Link, which held the distinction of being the largest privately held railroad in the United States. Just as he had strived to reduce cost at the Butte mine, Washington attempted to reduce labor costs at Montana Rail Link. Although he did not end union involvement, he did reduce the number of union contracts from 14 to two. As a result, his rail line was able to compete more effectively with trucking companies for freight hauling contracts. 'We've got lumber companies that haven't used the rails in 30 years,' one of Washington's employees told Forbes.

With his holdings becoming increasingly far flung Washington sought to consolidate some of his overlapping enterprises. In 1987, he merged his original company--Washington Construction--with two of his later acquisitions--Industrial Constructors and Conda Mining&mdashø form Washington Contractors Group, Inc.

Recognizing an opportunity in the fledgling industry of environmental cleanup, Washington founded Envirocon, Inc. in 1988. He already possessed much of the equipment and construction skills required to conduct environmental remediation and waste management. For instance, in 1987 his construction company had conducted a massive cleanup of uranium tailings in Grand Junction, Colorado, for the Department of Energy. Envirocon would carve out a niche for itself in the removal of hazardous and radioactive materials, soil excavation, decontamination, demolition, mine reclamation, and soil and groundwater reclamation. The company quickly found clients in both the public and private sectors.

Washington also continued to add industries related to the transportation sector. In 1989 he bought Coast Engine & Equipment Company, which primarily specialized in rebuilding powerplants and components for the rail and marine transportation industries. More importantly, Washington ventured directly into the marine transportation market with his 1992 acquisition of C.H. Cates and Sons, a Canadian tugboat company. Founded in 1886, Cates provided ship docking services to most vessels using the Port of Vancouver. Cates also offered Washington an entrance into international markets. In 1994, Southern Railway of British Columbia was added to the roster of The Washington Companies. This short-line had run between Vancouver and Fraser Valley since 1887.

The 1990s: Continued Growth in New Spheres

In 1992, Washington attempted to take Washington Contractors Group--the consolidated enterprise that contained the first of the Washington Companies--public. However, he could not find underwriters for the $59 million offering. Instead, he oversaw the merger of Washington Contractors Group with Kasler Corporation of California. A solid company that specialized in highway and bridge construction, Kasler brought considerable revenue to the merger. Washington Construction Group, Inc. emerged from the union. A public company, Washington Construction Group quickly grew to become a leading contractor in the western United States.

Washington continued his buying spree in 1994 when he rounded out his growing marine transportation division with Seaspan International Ltd., the largest tug and barge company in Canada. Seaspan had thrived by transporting products to and from industries along the entire west coast of North America. Its most common cargo included forest products, as well as those from the petroleum, chemical, and mineral industries. By acquiring Seaspan, Washington also gained several Seaspan-owned shipyard and drydock companies. Foremost among these was Vancouver Shipyards Co. Ltd., which designed, built, maintained, and repaired all types of oceanfaring vessels--ranging from cruise ships to tugs to ice breakers. Washington's $135 million acquisition of Seaspan was fully completed in 1996.

In June 1995, Washington again bolstered his position in the marine transportation sector with his purchase of the Bahamian corporation Norsk Pacific Steamship Company, Limited for $20 million. The third largest company in the British Columbian barge market, Norsk carried newsprint and other paper products from Northwest paper and pulp mills to San Francisco, Long Beach, and San Diego, California. Moreover, Norsk also owned a substantial terminal division that ran waterfront terminals, warehouses, and transfer stations at Seattle and Long Beach's large ports.

The year 1996 brought Washington's largest acquisition, when he gained a 38 percent stake in Morrison Knudsen Corporation. With 1996 revenues topping $1.5 billion, the Boise, Idaho-based Morrison Knudsen employed over 23,000 employees and had divisions spanning the United States and 35 foreign countries. As both a diversified engineering and construction company, the publicly traded Morrison Knudsen served environmental, process, power, industrial, transportation, mining, and construction markets worldwide. Its past projects included the construction of both the Hoover Dam and the space shuttle hangar at Cape Canaveral, Florida. However, the company had been experiencing financial woes and had filed for bankruptcy before its merger with rival Washington.

Upon merging his Washington Construction Group with Morrison Knudsen, Washington gained an entrance to global markets. Ironically, Washington had worked as a young subcontractor for Morrison Knudsen, and had even met one of the company's founders. 'I looked at him with awe,' Washington explained to Barron's, adding 'And now I have a chance to represent his company and restore its past glory.'

Unlike the hands-off strategy he employed in his other acquisitions, Washington chose to head Morrison Knudsen, acting as the company's president, chief executive officer, and chairman of the board. 'I want to be identified with Morrison Knudsen,' Dennis Washington told Barron's, adding, 'I want to know the key players in the company so that I can have constructive input. It's pretty hard to fit in the back seat when you want to drive.' His leadership proved effective. Soon after taking the helm, he made the bold move of committing Morrison Knudsen to fixed-cost, rather than its traditional cost-plus contracts. (Cost-plus contracts are those in which the contractor is paid for all costs incurred for the project along with an additional amount for his services. Fixed-cost contracts are those in which the contractor receives a set amount for his work, irrespective of the ultimate costs incurred. Thus a fixed-cost contract imposes a greater degree of risk on a contractor because cost overruns could erode his profit margin. At the same time, however, a contractor who is able to keep his costs down stands to reap a greater benefit.) Washington's maneuver was a resounding success. One year after the merger was completed, the price of shares in the combined companies nearly doubled.

Washington continued to develop his presence in the transportation sector as well. In 1997, he spearheaded the purchase of Kingcome Navigation. This Vancouver, British Columbia-based company operated log barges and towing vessels. The bulk of its business was in providing fiber transportation for MacMillan Bloedel Ltd. A year later, The Washington Companies rounded out its marine transit sector by purchasing the Coastal Marine Operations of Canadian Pacific Railway. Rechristened by Washington as the Seaspan Coastal Intermodal Company, this commercial truck and ferry service to Vancouver Island was logically folded into Washington's empire.

Creating Structure in the Late 1990s

In 1998, Washington oversaw the formation of two umbrella organizations within the rubric of The Washington Companies. The Washington Marine Group was formalized to link the northwest marine companies into a cohesive network. Similarly, the Washington Rail Group was launched to develop and protect common interests among the railroad holdings. As the century drew to a close, Washington strove to ensure synchronization among his numerous and diverse companies.

The sheer number of Dennis Washington's many holdings presented the greatest challenge at the close of 1999. Nevertheless, Washington had taken care during his long spate of acquisitions to build upon core areas. Despite the vastness of his empire, The Washington Companies tended to be concentrated in four key industries: construction, mining, marine transportation, and rail transit. Moreover, Washington had ensured that each of the many companies he owned were headed by strong and competent leaders. In a sense, Washington's greatest challenge was to let each of the far-flung Washington Companies run itself.

Principal Subsidiaries: Montana Rail Link, Inc.; I & M Rail Link, Inc.; Southern Railway of British Columbia Ltd.; Seaspan International Ltd.; Cates Tugs; Kingcome Navigation; Westran, Inc.; Washington Corporations; Equipco; Modern Machinery, Inc.; Montana Resources, Inc.; Envirocon, Inc.; Coast Engine and Equipment Co.; Morrison Knudsen Corporation (38%)

Principal Operating Units: Washington Marine Group; Washington Rail Group.

Principal Competitors: Cyprus Amax Minerals Company; Granite Construction; Phelps Dodge Corporation.





Further Reading:


Einhorn, Cheryl Strauss, 'Mountain Man's American Dream,' Barron's, September 30, 1996.
Ludwick, Jim, 'Kasler Executives Argue Against Lopsided Merger,' Missoulian, June 13, 1993.
Rigdon, Joan, 'Old-Fashioned Empire Building,' Rocky Mountain News, June 23, 1998.
Schreiner, John, 'U.S. Magnate Now Buys B.C.'s Tug Master,' National Post, January 11, 1996.
Smith, Ellit Blair, 'Montana Billionaire's Legacy Is Biggest Burden,' USA Today, October 27, 1997.
Stern, Richard, 'Denny's Always the Low-Cost Producer,' Forbes, May 15, 1989.
'U.S. Owner to Shed Canada Tugs, Barges in Anti-Trust Action,' Wall Street Journal, January 15, 1997.

Source: International Directory of Company Histories, Vol. 33. St. James Press, 2000.




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