November 2002 AGGMAN Management

Expanding Into New Horizons

From the coal mining of yesterday to the construction materials of today, Knife River Corp. continues to build the foundation of America through vertical integration

By Angie Moehlman

Hawaiian Cement, a Knife River Corporation company with headquarters in Aiea, Hawaii, primarily supplies cement to all of the Hawaiian islands, but the company also provides ready-mix concrete and aggregates, especially in the form of sand for the state’s beaches and golf courses.

In the aggregates industry, 10 years may not seem like a long time, but it has been a sufficient amount of time for Knife River Corp., Bismarck, N.D., to become one of the top 10 sand and gravel companies in the United States. On May 1, 1992, Knife River first made its entrance into the construction materials industry, and through a disciplined acquisition strategy and a successful internal growth philosophy, continues to build the foundations and roads of America. “This year is Knife River’s 10th anniversary of helping to build the framework of the transportation and the building industry of the United States,” said Terry Hildestad, president and chief executive officer of Knife River.

Knife River yesterday
Eighty-five years ago, Knife River started as a coal mining company in North Dakota. Its initial mining operation was a shallow underground mine, affording small payloads, but Knife River’s coal production continued to grow until it produced 230,000 tons annually in the 1920s. As the electric industry expanded in the 20th century, Knife River also grew to meet the nation’s need for coal. After the 1980s, however, electric utilities stopped building coal-fired power plants, and the need for coal decreased. With successful mining operational skills already under its belt, Knife River turned toward other mineral extraction opportunities where it could use its mining expertise. Knife River entered the construction materials industry with the purchase of a small aggregate mining operation in California’s San Joaquin Valley, KRC Aggregate. According to Hildestad, the company learned several key lessons from that first aggregate property.
“We learned that employees that are willing to stay on with the business — committed employees — are very key to the success of an acquisition program,” said Hildestad. “Another important lesson learned from the purchase of that first business was that being vertically integrated is a key success factor.”

Knife River Today
Today, Knife River has more than 40 aggregate companies and has plans to continue adding more to its corporate family. Knife River has built up more than 1 billion tons of aggregate reserves and has operations in Alaska, California, Hawaii, Minnesota, Montana, Oregon, and Wyoming. By being vertically integrated in the aggregates and construction materials industry, Knife River has realized the success of having quality products and quality outlets for those products. Knife River found its niche with aggregates in the construction materials industry, and is continuing to seek greater involvement in the industry.
“The growth opportunities we envisioned with aggregates has become a reality in the construction materials industry,” said Hildestad. “At first, we worked toward vertical integration…of adding value to aggregates through ready mix and asphalt. A couple of our operations were also involved in cement distribution. Then we moved into asphalt lay-down services. All of the integration benefited our initial strategy of mining quality aggregate reserves.”
Knife River is ranked in the top 10 publicly traded aggregate companies in the United States. It had revenues of more than $800 million and a net income of $43.2 million last year and has a goal to reach $900 million in revenue this year. Through vertical integration, Knife River has managed to reach a large portion of the construction materials industry and profit from its wide variety of resources and services.
“We mine the rocks, we crush them, we mix them with other products to make concrete or asphalt, and then we build a strong America by producing roads, parking lots, building foundations, and driveways,” said Hildestad at a leadership conference for Knife River’s parent company, MDU Resources Group.
A key factor in Knife River’s success is its external growth strategy. Knife River lets the companies that it acquires keep their own individual identities, and believes that this makes the company stronger as a whole. “We add value where we can add value by being part of a larger company,” said Hildestad. “At the same time, we let them run the way they used to run as individual companies. We let them keep their own separate identity.” Knife River implements a disciplined acquisition strategy when it procures new companies. The five-point strategy is applied to companies that have the following attributes:
• Seasoned management team;
• Adequate, long-lived reserves;
• Environmentally sound business practices;
• Market leaders with a strong reputation for quality products and services; and
• Locations in areas of the country with above-average population growth.
Letting acquired companies keep their own separate identities has strengthened Knife River as a whole. “Customers like the stability of the companies we acquire, and keeping their name is part of that stability,” said Hildestad. “It’s also been good for the employees because I think it is an example of how we are going to merge the company into our operations. To the greatest extent possible, we try to leave our subsidiaries alone. After all, we acquired them because they already were successful. Why reinvent the wheel?”
In addition to acquiring successful companies, Knife River also implements an internal growth strategy known as operational excellence based on a study of best practices and benchmarking. Knife River is constantly examining its operations, searching for best practices and effective methodology. The company has identified key result areas and is measuring performance and exchanging information across the corporation to determine best practices and make necessary changes.
“For example, we have some operations that are particularly good at asphalt paving production. We will take those key individuals and have them visit other subsidaries and review their operations,” said Hildestad. “It is a learning experience for everyone.”
Knife River assembles its operational people from across the country at least once a year to share their best practices at an educational conference.
The company also practices responsible environmental and community stewardship. Knife River purchases companies that already have environmentally-sound business practices in place. Hildestad said that the aggregate industry as a whole is doing a lot for the environment. “Everyone is using recycled asphalt pavement (RAP) and we recycle asphalt and concrete whenever possible. We have good reclamation practices and I think our industry is a responsible leader in that area,” said Hildestad.
Knife River companies are integral parts of the communities they serve, and often contribute to them. “All of the companies that we have are key parts of the communities and have been for a number of years. If I had to summarize our mission statement, it would be to build strong communities,” said Hildestad.
Hildestad has noticed several factors playing a part in shaping the aggregates industry today. “One big change affecting all industries, not just the aggregates industry, is technology. Equipment is more efficient and specs are improving all of the time. It is more difficult for operations who do not invest in new technology to compete,” said Hildestad.
Hildestad also noted the consolidation in the industry. “There are a lot of companies that have decided to invest in the industry because it is such a key component of the infrastructure of the country. There has been money invested in the business and it has caused a lot of the smaller players to sell to the larger players as part of the consolidation effort.”

Knife River tomorrow
Knife River is looking forward to continuing to grow, broadening its diversity and enhancing its operations. “Overall, there will be more of the same in the future,” said Hildestad. “We are looking to grow in two ways: internal growth through operational excellence and aggressive growth through a disciplined acquisition program. We expect that 10 years from now, we will be doing a lot of the same things, only on an even larger scale than today.”

Morse Bros., Inc., uses a train load-out system at one of its aggregate mining sites. Knife River Corp. acquired Morse Bros. in 1998.

Angie Moehlman is assistant editor for AggMan.

November 2002 Management Expanding Into New Horizons State by State				Expanding Into New Horizons From the coal mining of yesterday to the construction materials of today, Knife River Corp. continues to build the foundation of America through vertical integration By Angie Moehlman Hawaiian Cement, a Knife River Corporation company with headquarters in Aiea, Hawaii, primarily supplies cement to all of the Hawaiian islands, but the company also provides ready-mix concrete and aggregates, especially in the form of sand for the state’s beaches and golf courses. In the aggregates industry, 10 years may not seem like a long time, but it has been a sufficient amount of time for Knife River Corp., Bismarck, N.D., to become one of the top 10 sand and gravel companies in the United States. On May 1, 1992, Knife River first made its entrance into the construction materials industry, and through a disciplined acquisition strategy and a successful internal growth philosophy, continues to build the foundations and roads of America. “This year is Knife River’s 10th anniversary of helping to build the framework of the transportation and the building industry of the United States,” said Terry Hildestad, president and chief executive officer of Knife River. Knife River yesterday Eighty-five years ago, Knife River started as a coal mining company in North Dakota. Its initial mining operation was a shallow underground mine, affording small payloads, but Knife River’s coal production continued to grow until it produced 230,000 tons annually in the 1920s. As the electric industry expanded in the 20th century, Knife River also grew to meet the nation’s need for coal. After the 1980s, however, electric utilities stopped building coal-fired power plants, and the need for coal decreased. With successful mining operational skills already under its belt, Knife River turned toward other mineral extraction opportunities where it could use its mining expertise. Knife River entered the construction materials industry with the purchase of a small aggregate mining operation in California’s San Joaquin Valley, KRC Aggregate. According to Hildestad, the company learned several key lessons from that first aggregate property. “We learned that employees that are willing to stay on with the business — committed employees — are very key to the success of an acquisition program,” said Hildestad. “Another important lesson learned from the purchase of that first business was that being vertically integrated is a key success factor.” Knife River Today Today, Knife River has more than 40 aggregate companies and has plans to continue adding more to its corporate family. Knife River has built up more than 1 billion tons of aggregate reserves and has operations in Alaska, California, Hawaii, Minnesota, Montana, Oregon, and Wyoming. By being vertically integrated in the aggregates and construction materials industry, Knife River has realized the success of having quality products and quality outlets for those products. Knife River found its niche with aggregates in the construction materials industry, and is continuing to seek greater involvement in the industry. “The growth opportunities we envisioned with aggregates has become a reality in the construction materials industry,” said Hildestad. “At first, we worked toward vertical integration…of adding value to aggregates through ready mix and asphalt. A couple of our operations were also involved in cement distribution. Then we moved into asphalt lay-down services. All of the integration benefited our initial strategy of mining quality aggregate reserves.” Knife River is ranked in the top 10 publicly traded aggregate companies in the United States. It had revenues of more than $800 million and a net income of $43.2 million last year and has a goal to reach $900 million in revenue this year. Through vertical integration, Knife River has managed to reach a large portion of the construction materials industry and profit from its wide variety of resources and services. “We mine the rocks, we crush them, we mix them with other products to make concrete or asphalt, and then we build a strong America by producing roads, parking lots, building foundations, and driveways,” said Hildestad at a leadership conference for Knife River’s parent company, MDU Resources Group. A key factor in Knife River’s success is its external growth strategy. Knife River lets the companies that it acquires keep their own individual identities, and believes that this makes the company stronger as a whole. “We add value where we can add value by being part of a larger company,” said Hildestad. “At the same time, we let them run the way they used to run as individual companies. We let them keep their own separate identity.” Knife River implements a disciplined acquisition strategy when it procures new companies. The five-point strategy is applied to companies that have the following attributes: • Seasoned management team; • Adequate, long-lived reserves; • Environmentally sound business practices; • Market leaders with a strong reputation for quality products and services; and • Locations in areas of the country with above-average population growth. Letting acquired companies keep their own separate identities has strengthened Knife River as a whole. “Customers like the stability of the companies we acquire, and keeping their name is part of that stability,” said Hildestad. “It’s also been good for the employees because I think it is an example of how we are going to merge the company into our operations. To the greatest extent possible, we try to leave our subsidiaries alone. After all, we acquired them because they already were successful. Why reinvent the wheel?” In addition to acquiring successful companies, Knife River also implements an internal growth strategy known as operational excellence based on a study of best practices and benchmarking. Knife River is constantly examining its operations, searching for best practices and effective methodology. The company has identified key result areas and is measuring performance and exchanging information across the corporation to determine best practices and make necessary changes. “For example, we have some operations that are particularly good at asphalt paving production. We will take those key individuals and have them visit other subsidaries and review their operations,” said Hildestad. “It is a learning experience for everyone.” Knife River assembles its operational people from across the country at least once a year to share their best practices at an educational conference. The company also practices responsible environmental and community stewardship. Knife River purchases companies that already have environmentally-sound business practices in place. Hildestad said that the aggregate industry as a whole is doing a lot for the environment. “Everyone is using recycled asphalt pavement (RAP) and we recycle asphalt and concrete whenever possible. We have good reclamation practices and I think our industry is a responsible leader in that area,” said Hildestad. Knife River companies are integral parts of the communities they serve, and often contribute to them. “All of the companies that we have are key parts of the communities and have been for a number of years. If I had to summarize our mission statement, it would be to build strong communities,” said Hildestad. Hildestad has noticed several factors playing a part in shaping the aggregates industry today. “One big change affecting all industries, not just the aggregates industry, is technology. Equipment is more efficient and specs are improving all of the time. It is more difficult for operations who do not invest in new technology to compete,” said Hildestad. Hildestad also noted the consolidation in the industry. “There are a lot of companies that have decided to invest in the industry because it is such a key component of the infrastructure of the country. There has been money invested in the business and it has caused a lot of the smaller players to sell to the larger players as part of the consolidation effort.” Knife River tomorrow Knife River is looking forward to continuing to grow, broadening its diversity and enhancing its operations. “Overall, there will be more of the same in the future,” said Hildestad. “We are looking to grow in two ways: internal growth through operational excellence and aggressive growth through a disciplined acquisition program. We expect that 10 years from now, we will be doing a lot of the same things, only on an even larger scale than today.” Morse Bros., Inc., uses a train load-out system at one of its aggregate mining sites. Knife River Corp. acquired Morse Bros. in 1998. Angie Moehlman is assistant editor for AggMan.