Industrial Services Of America, Inc. Business Information, Profile, and History

Company Perspectives:

Our objective is to reduce your waste expense, increase your recycling revenues, recommend equipment and finance options and utilize our technology division to better prepare your company for the Second Industrial Revolution. As the first public company in the waste industry, our personnel are committed and focused to deliver quality service and total satisfaction to our customers.

History of Industrial Services Of America, Inc.

Industrial Services of America, Inc. is multi-faceted waste management and recycling company based in Louisville, Kentucky. The company operates in four main segments: metals recycling, solid waste management services, waste equipment sales, and software and hardware support services. ISA's metals recycling business, ISA Recycling, consists of two recycling facilities that handle ferrous, non-ferrous, and fiber waste. The recycling division also brokers deals between buyers and sellers of scrap metal around the world. The company's solid waste management business, Computerized Waste Systems (CWS) provides waste disposal services, including contract negotiations with independent hauling companies, centralizing dispatch services, and centralized billing for large, multiple-location companies. CWS's main clients are Home Depot and Office Depot. ISA's WESSCO (Waste Equipment Sales and Services Company) division leases, sells, and services equipment for the waste handling and recycling industries. The company's fourth and newest division, iR2, is a provider of information technology solutions to ISA's other divisions and to external clients, both domestic and international.

Beginnings: From Detroit to Louisville

The company that would eventually be called Industrial Services of America was founded by Harry Kletter, the son of immigrant parents who had come to the United States from Russia and Austria. Kletter grew up on Detroit's east side, where his father had established his own business to clean up foreclosure properties, preparing them to be resold. When he collected scrap materials from these foreclosure sites, he often hauled them to his brother's salvage yard, also in Detroit. In the late 1930s, Kletter's father, along with Harry and his brother Sam, started a new business--a scrap company called Illinois Waste Materials Co. With the onset of World War II and the growing demand for steel, the scrap industry flourished, and the Kletters' business flourished along with it. In 1945, however, Kletter was taken away from the family enterprise when he joined the Navy.

Returning from his Navy duty, Kletter first located in Detroit with his family, but soon moved to Cincinnati. In the early 1950s, Kletter started his own scrap business--Tri-City Baling Company--in Louisville, Kentucky. He later changed the company's name to Tri-City Industrial Services. Tri-City bought, processed, and sold ferrous and non-ferrous scrap metal. Kletter proved an aggressive entrepreneur with a hunger for expansion and diversification. In 1956, just three years after establishing his company, he formed Tri-City Trash and Sanitation Company, a waste-hauling business. In 1961, he moved into manufacturing by acquiring Anchorpac, a maker of compactors for the waste industry. Kletter broadened his manufacturing base in 1965, forming the Tri-Pak division to produce a complete line of waste-handling equipment: containers, hoists, and transfer stations, in addition to the compactors the company was already producing.

Part of Tri-City's rapid expansion was due to what started out as a hobby for Kletter. In the 1950s, the company founder took up aviation, negotiating flying lessons as part of a deal he was making for some scrap airplanes and engines. Eventually receiving his pilot's license, Kletter was able to travel more broadly than he otherwise would have. In the September 2000 issue of Recycling Today, he explained how this increased mobility affected his business. "If we had not flown, we would never have grown the way we did," he said. "We were everywhere so easily in the '50s. We were able to get to remote places and make deals for pipeline scrap and surplus."

Whatever the cause for its growth, Tri-City was soon established as one of the leaders in its field. In 1969, it became the first company in the waste industry to go public, when it acquired and merged with Alson Manufacturing, a publicly held, but inactive, corporate shell. Upon merging with Alson, Tri-City changed its name to Industrial Services of America, Inc.

1970-80: Ups and Downs

In 1979, ISA acquired Computerized Waste Systems (CWS), a Boston company that managed solid waste and recycling services for companies. At the time of the acquisition, CWS had a limited client base. What it did have, however, was a good concept and the software program needed to implement it. ISA relocated CWS to Louisville and quickly set about building the business. Soon, the company began acquiring significant new clients, including Home Depot, which contracted with CWS to provide waste management services for its locations all over the United States. Companies using CWS's services phoned their service requests to a central call center in Louisville. From that center, the company dispatched its network of third-party vendors, which included waste-hauling companies, recycling companies, and equipment manufacturing and maintenance companies.

The early 1980s proved difficult for ISA. As the country slid into an industrial recession, the scrap business fell off dramatically. ISA, which was highly leveraged at the time, was hit hard. Ultimately, the company filed for Chapter 11 reorganization and sold off a number of its assets as part of the necessary restructuring. Among the assets it sold were Tri-Pak, the equipment manufacturing division, which by that time had several production facilities around the United States, and Tri-City Trash and Sanitation Company, its hauling business. Another asset ISA sold at that time was a non-ferrous scrap processing facility, which adjoined its headquarters in Louisville. Although the company did not sell its scrap yard, it did close it down for a time.

These divestitures allowed ISA to emerge from bankruptcy in 1985. They also left the company tightly focused on its most profitable, highest growth business: waste management services. The mid-1980s also saw the formation of a new ISA division to sell, lease, and service a range of solid waste handling and disposal equipment. While ISA no longer produced its own equipment, its reputation in the industry left it ideally positioned as a representative for other manufacturers. The division formed to handle that business, Waste Equipment Sales and Services Company, was commonly known by its acronym: WESSCO.

1990: Acquisitions and Leadership Changes

By the mid-1990s, ISA was again ready to expand. In 1995, it upgraded its facilities, increasing productivity by adding new scrap processing and recycling equipment. The company also refurbished its offices.

In 1997, the company acquired The Metal Center, a metals recycling facility operated by TMG Enterprises, of Louisville. The business, which purchased, processed, and sold non-ferrous scrap metal, was renamed ISA Recycling. This acquisition was particularly interesting in that until the mid-1980s, The Metal Center had been a part of ISA; it was one of the assets the company sold off to emerge from bankruptcy. The business had grown under its interim ownership and had made improvements in the form of new, state-of-the-art recycling equipment. When ISA re-acquired it, it had more than $10 million in annual revenues.

In 1998, Harry Kletter, who had led ISA through the more than 30 years since its founding, stepped down from his post as president. He retained his positions of CEO and chairman. The office of president was filled by Sean Garber, a five-year veteran of the waste industry. Garber had joined ISA in 1996, coming from a vice-president's position at OmniSource Corp., a metal recycling business in Fort Wayne.

Garber's plans were to pursue new acquisitions in the waste and recycling fields, as well as to expand its existing businesses. One of his first moves toward expanding ISA's recycling capabilities was the acquisition of a metals recycling operation previously owned by R.J. Fitzpatrick Smelters. The facility, located in Seymour, Indiana, had estimated annual revenues of $4 million a year. "We are growing ISA's metal recycling capabilities to capitalize on the profit potential of the metal business," Garber said in an August 1998 press release, adding, "Fitzpatrick Smelters' operations in scrap metal, ferrous and non-ferrous materials make an excellent fit with our core capabilities."

ISA's revenues increased significantly in 1998, jumping up 44 percent from the previous year's. This increase stemmed from double-digit growth in both the waste management services division and the recycling division. But despite the higher revenues, the company was adversely affected by a drop in commodity prices in the ferrous and non-ferrous markets and a decline in domestic steel production. With this steel industry slowdown, many of the mills that bought product from ISA severely curtailed their scrap purchasing, leaving the company with a glut of inventory. The excess inventory, which was devalued by the falling commodity prices, hurt ISA's bottom line, and the company posted a year-end loss of $543,000.

ISA rebounded in 1999, however. Not only did the company enjoy record annual revenues, but it moved back into profitability, posting a net income of $827,000. Sales increased in all of the company's business segments, most significantly in management services segment, which grew by 24 percent.

New Century, New Directions

In early 2000, Kletter resigned from his position as CEO of ISA. Rather than replace him with a new CEO, the company

Management changes aside, ISA started the new century on a progressive note. In mid-2000, the company announced that it was forming a new division to leverage information technology opportunities. Named iR2, which stood for "Second Industrial Revolution," the new division offered software development and support to ISA's other divisions with the aim of streamlining the transaction processing and increasing overall efficiency and capability. IR2 also offered hardware and software consulting services to external clients, primarily in the waste and recycling industry. Later in 2000, the company ventured a step further into the new economy when it announced that it planned to begin selling waste management products and services online via the Ariba B2B eCommerce Platform. The Ariba system was a large e-commerce network that brought together business buyers and sellers from around the world.

Also in 2000, ISA formed a new service division to work in tandem with its recycling business: ISA Brokerage. The brokerage served as an intermediary for large-scale buyers and sellers of scrap, negotiating deals for customers in North American, Europe, Asia, and India.

As ISA upgraded and expanded its service offerings, so too did it upgrade and expand its facilities. In 2001, the company completed the first phase of a major renovation that included a new call center and expanded Internet platform for the CWS division. Phase 2 and Phase 3, upon completion, would add a waste equipment sales and leasing showroom for the WESSCO division and expand the company's iR2 division to enable Internet hosting and other technical services to its customers in the waste and recycling industries.

As ISA positioned itself for the 21st century, it appeared to be placing a great deal of emphasis on its management services businesses. According to company sources, however, the physical operations side of the business--the scrap yard and recycling facilities--were also potential targets for growth. During the 1990s, consolidation in the scrap industry, followed by a plunge in commodity prices, had caused a number of scrap yards across the United States to be shut down. The vacuum's created by these closures appeared to be likely areas of expansion for ISA Recycling. Further plans for the recycling division included using the scrap yard and recycling facility as a "model" where potential customers could view waste handling and recycling equipment in action.

Principal Competitors: Allied Waste Industries, Inc.; Avalon Holdings Corporation; Casella Waste Systems, Inc.; Envirosource, Inc.; IMCO Recycling Inc.; Metal Management, Inc.; Republic Services, Inc.; Safety-Kleen Corp.; Waste Connections, Inc.; Waste Holdings, Inc.; Waste Management, Inc.

Chronology

• Key Dates:
• 1953: Harry Kletter forms Tri-City Scrap Baling Company.
• 1956: Tri-City Waste and Sanitation Company is founded.
• 1965: Tri-Pak is formed as a division of Tri-City.
• 1969: Tri-City becomes a publicly held company and changes its name to Industrial Services of America (ISA).
• 1979: ISA acquires Computerized Waste Systems.
• 1980: Bankruptcy reorganization forces ISA to sell Tri-Pak, Tri-City Waste and Sanitation, and a metals recycling facility in Louisville.
• 1997: ISA re-acquires "The Metal Center" in Louisville.
• 2001: ISA completes Phase 1 of a major facilities renovation.