Kitchell Corporation History

Address:

1707 E. Highland Avenue
Phoenix, Arizona 85016
U.S.A.

Telephone: (602) 264-4411
Fax: (602) 631-9112

Private Company
Incorporated: 1950
Employees: 558
Revenues: $170 million
SICs: 1542 General Contractors--Nonresidential Buildings; 1541 General Contractors Industrial Buildings

Company History:

Kitchell Corporation is one of the most prominent construction companies operating in the western part of the United States. Among the ten largest private firms in Arizona, and one of the top 75 construction companies within the United States, Kitchell has tackled construction projects from Delaware to California. With most of its operations located in two states, Arizona and California, the company has carved out a number of highly profitable niche markets, including the construction of corrections facilities, retail stores and malls, advanced technology facilities, schools, and hospitals. Some of Kitchell's most high-profile projects are located in California, such as Scripps Memorial Hospital in La Jolla, and the Santa Barbara Research Center for Hughes Aircraft Company.

The founder of Kitchell Corporation, Sam Kitchell, was born in 1923 in Hingham, Massachusetts. Educated at Amherst College, Kitchell served in the U.S Navy during World War II as the commander of an anti-submarine boat. Soon after the war ended, he was hired by Anchorage Homes, a company that manufactured prefabricated houses. After two years the company went bankrupt and Kitchell was out of a job. When his wife had their third child, Kitchell decided that he needed a more stable position within the construction industry. After hearing that there was a construction boom in the southwestern part of the United States, he packed up his wife and children and traveled to Phoenix, Arizona.

At first, Kitchell worked for a local architectural firm as a supervisor of construction projects. He also worked for a building contractor for a time as an estimator before meeting a Phoenix businessman, James B. Phillips, who had sold a business and was looking for a new investment. Kitchell convinced Phillips that the construction industry was a good place to invest, and the businessman provided $10,000 to begin a new construction company. The two partners incorporated Kitchell-Phillips Contractors, Inc. in January 1950.

For three months, no one in the company drew any salary. Kitchell worked as the firm's estimator and his wife served as the company's secretary. By the end of year, however, Kitchell and Phillips had negotiated contracts to build a number of Safeway retail stores and a few schools near the city of Phoenix. These negotiations resulted in sales amounting to $800,000. The two men were also aided by the onset of the Korean War. Kitchell-Phillips Contractors secured projects for the American military at Luke Air Force Base and the Yuma Army Test Station. The most important of these wartime contracts was the rehabilitation and improvement of the Tank Training Command. Located at Camp Irwin in the Mojave Desert in California, the size of the contract doubled to nearly $2 million by the end of 1952.

The 1950s were boom years for Kitchell Corporation. During this time, Kitchell instituted its first profit-sharing plan for employees. In 1953 the company entered the real estate development business by forming a partnership with Utah Construction and Mining Company. The partnership was formed specifically to develop and lease an office building in Phoenix for Mountain States Telephone and Telegraph Company. Kitchell pioneered the highly innovative lift-slab method of construction on this building. According to this methodology, all the concrete floor slabs would be poured in the basement, then lifted up to their final height and welded to steel columns. Another office building for Mountain States was constructed in Albuquerque, New Mexico, not long after the one in Phoenix had been tackled.

In 1955 the company started its involvement in retail development by building a shopping center, Park Central Mall, on what was then the northern edge of Phoenix's city limits. A year later Kitchell constructed the Motorola Research Laboratory, a highly sophisticated research facility that was the first building equipped with concrete tilt-slab walls in the state of Arizona. At approximately the same time, Kitchell started its first health care project, an expansion of Good Samaritan Hospital. Based in Phoenix, the Good Samaritan Group was so impressed with the results of the addition to the hospital that it contracted Kitchell to work on 12 more health care-related projects.

In 1957 Kitchell Corporation was contracted by Harry Lenart, a broker who made a fortune on Wall Street, to construct a small office building on the corner of Scottsdale and Camelback roads in the sleepy town of Scottsdale, Arizona. On an empty field that had been used by the local Jaycee club for years as a rodeo ground, Kitchell not only constructed the building for Lenart, but also constructed a grocery store and a Goldwaters department store (founded by Barry Goldwater). Later, Kitchell would build numerous other office buildings, retail stores, and parking facilities for Lenart. By the end of the 1950s, Kitchell Corporation had achieved a volume in construction activities that approximated a total of $6 million. With more contracts arriving all the time, and prospects for the construction industry in the 1960s looking even brighter than the 1950s, Kitchell Corporation purchased its own office complex near Sky Harbor Airport, just outside of Phoenix.

The 1960s began on a positive note for the company. Morgan Guaranty Trust Company of New York became interested in Kitchell's promising future and invested one million dollars in stock and convertible debentures. Morgan's assumption was that Kitchell's quick growth and future prospects would ultimately lead to a stock offering when the company went public. Thus a new holding company was formed, and the contracting operation became its wholly-owned subsidiary. Sam Kitchell then bought out his partner Jim Phillips and renamed the firm Kitchell Corporation. Along with all of these organizational changes, the company continued to look for additional development projects. One of the most important developments during this time included an agreement to become a regional franchisee of Rodeway Inns, a Phoenix-based motel chain. Kitchell soon became known as a developer of motels throughout Arizona, California, west Texas, and New Mexico.

By the mid-1960s, however, Kitchell was struggling. Two of the company's largest and most important contracting projects, the 91st Avenue Sewage Treatment Plant and the Maricopa County Complex, both located in Phoenix, were plagued by cost overruns and mismanagement. A strike by local construction workers that lasted nearly three months, coupled with a glut on the real estate market caused by overbuilding, only exacerbated Kitchell's financial worries. This progression of events forced the company to sell all its previously acquired assets in the Mountain States Telephone and Telegraph Company building, along with all its holdings in Rodeway Inns.

To improve the company's financial picture, Sam Kitchell implemented a reorganization of the company that included promoting many employees from within and hiring new talent from outside the firm. A strategy emphasizing project controls, accountability systems, and development programs for personnel was put into place with great effect. One of the significant changes to company operations involved the notion of hiring a contractor as a construction manager, a step that the company felt would help it meet project budgetary and schedule factors. Immediately the company began to return to profitable and sustained growth. By the late 1960s, Kitchell Corporation was once again involved in creating a new subsidiary to develop and manage hotels. Called Doubletree Inns, the company's new venture developed, constructed, and managed new hotels in the states of Arizona, California, and Washington.

By 1969, Kitchell Corporation had reversed its fortunes. The company reported new construction projects amounting to approximately $20 million, and was listed in the Engineering News Record as one of the 400 leading contracting firms in the United States.

During the early 1970s, Sam Kitchell repurchased the stock and debentures held by Morgan Guaranty. At the same time, the company acquired Arizona Refrigeration Supplies, an air conditioning and refrigeration business, for $400,000. Kitchell, who fell ill and required a triple coronary bypass in 1975, then offered the managing team of Arizona Refrigeration the option to buy a controlling interest in the company that had acquired it earlier. When Arizona Refrigeration concluded the purchase, and after Kitchell Corporation had reacquired the remaining shares of stock owned by outside investors, employees became the sole owners of Kitchell Corporation.

Kitchell's construction management system was hugely successful, and led to numerous projects in the mid- and late 1970s. New high-technology clients such as Armour-Dial Laboratory, Honeywell, and Digital Equipment were added to the company's growing list of customers. Twelve of the largest hospital projects built in Phoenix during this time were contracted by Kitchell, as well as eight of the largest regional shopping centers in Arizona. Under the auspices of a newly formed contract consulting company, Kitchell CEM (Capital Expenditure Managers), the firm supervised the construction of fifteen school sites within the Amphitheatre School District in Tucson, Arizona.

In 1977 a division office of Kitchell Contractors was opened in Orange County, California, and one year later a real estate subsidiary, Kitchell Development Company, was created in order to implement a more comprehensive approach to the company's real estate development opportunities. By the end of 1978, company sales surpassed the $60 million mark. A year later, Kitchell Corporation reported that new construction work amounted to $145 million and that the company was listed as the 110th largest contracting firm in America. Also in 1979, Kitchell sold its controlling interest in Doubletree Inns, which boasted 2,300 hotel/motel rooms at the time.

During the 1980s, Kitchell Corporation developed a five-year strategic expansion plan. This plan included establishing a presence in the states of Washington and Texas. Initially, the company's Texas office achieved some notable success, but the foreclosure on an office building in downtown Dallas that Kitchell was constructing portended future difficulties. By 1984 the Texas office was closed and the company turned its attention to developing its operations in Arizona and California. Over the years, the California office had grown so large that management thought it wise to create two separate corporations, one in Arizona and one in California.

In 1980 Kitchell CEM won the first contract in over 20 years to build a correctional facility in Arizona. Kitchell's management performed so well during this project that Kitchell was asked to enter into a joint venture with a correctional planner from California to manage the state's prison expansion program. In 1984 Kitchell assumed control of the entire project. It methodically reduced the cost of correctional facility construction and the per-bed cost for the state of California. With U.S. federal courts requiring states to expand their prison facilities, the demand for Kitchell CEM's services grew proportionally. Soon the company was providing specialized services and systems, such as site studies, design review, and cost and schedule control measures, to help other state governments build and manage correctional facilities.

During the mid-1980s Kitchell Corporation was involved in highly prestigious construction projects such as Scripps Memorial Hospital in La Jolla, California, and the Mayo Clinic in Scottsdale, Arizona. The company was also involved in building numerous high-technology facilities for companies such as Burroughs, Hughes Aircraft Company, Motorola, and International Rectifier. Most of these high-tech projects were located in the state of California. The company was also contracted to remodel many of the retail malls that it had built during its earlier years, and in the late 1980s it renovated a well-known retail center in Salt Lake City, Utah, named Trolley Square. In 1988 and 1989, Kitchell Development Company expanded into the rapidly growing market for office and industrial parks. By the end of the decade, the company had ascended to become one of the 50 leading construction management firms in the United States.

Despite the onset of a real estate recession, the early 1990s were the most profitable ever for Kitchell Corporation. In 1990 Kitchell Contractors-Arizona built and managed a wide range of projects, including a renovation of a 1.5-million-square-foot shopping mall in Portland, Oregon, and the shops at Arizona Center for the Rouse Company in downtown Phoenix. Kitchell Contractors built the AMI Irvine Medical Center, the TRW Military Electronics Plant, and a high-tech facility for Western Digital Company in California. These contracts resulted in the company's most successful year of business in the state of California. Arizona Refrigeration Supplies, although it started out slowly, garnered over $35 million in sales by 1991, and its stores were spread across Arizona, Texas, California, Virginia, and New Mexico.

In 1993, Kitchell formed a strategic alliance with Hochtief AG, the world's 14th largest contractor. Headquartered in Essen, Germany, Hochtief garnered a 35 percent minority interest in Kitchell, while the remainder of stock continued to be held by employees.

The following year, Kitchell CEM won its 12th consecutive contract from the California Department of Corrections. This success led to new correctional facilities contracts in Idaho, Indiana, Iowa, Delaware, and Washington, as well as a host of projects with both city and county governments. Also in 1994, Kitchell opened a regional office in Las Vegas and a development office in California. It expanded its retail development projects to several other western states as well.

By 1995 Kitchell had consolidated its contracting operations in Phoenix rather than continuing a separate, full-service office in southern California. The company had a total of 558 employees, almost all of whom owned part of the company through an innovative profit sharing/stock option program. Regarded as well managed, Kitchell has been able to create certain market segments for itself within the construction industry. As long as management continued to provide such highly specialized construction management services for complex projects, its continuing success seemed assured.

Principal Subsidiaries: Kitchell Contractors Arizona; Kitchell Contractors-California; Kitchell Development Company; Arizona Refrigeration Supplies; Kitchell CEM.

Kitchell Corporation History

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