Rust International Inc. Business Information, Profile, and History

History of Rust International Inc.

With operations in North and South America, Europe, and the Pacific Rim, Rust International Inc. is the world's leading environmental restoration firm and America's largest provider of scaffolding and maintenance. The company helps other firms and governmental agencies become more efficient, conform to environmental standards, build new facilities and maintain old ones, dispose of waste, and remediate environmental hazard sites. By the mid-1990s, Rust International had cleaned up over 10,000 contaminated sites, including one-third of all commercial Superfund projects and 4,350 radioactive waste sites. The company emerged from a comprehensive reorganization in 1993. Touted as the "new Rust," this firm combined segments of three subsidiaries of WMX Technologies, Inc. (formerly Waste Management, Inc.), the world's largest waste handling company: Chemical Waste Management, Wheelabrator Technologies, and The Brand Companies. While the majority (52 percent) of Rust International's shares were owned by Chemical Waste Management, and another large stake (37 percent) was held by Wheelabrator Technologies, the company returned to the public arena in 1993 with the sale of 11 percent of its stock on the New York Stock Exchange.

Named for the three brothers who founded the company in Birmingham, Alabama, in 1905, the Rust Engineering Company built a reputation for high quality industrial and civil design. The company continued under the control of the Rust family through World War II, when it garnered contracts with the federal government to build armament facilities. By the end of the global conflict, Rust Engineering had offices in Birmingham, Pittsburgh, New York City, and Washington D.C. At this time, the company began shifting its focus from building the national arsenal to determining the disposition of war plants during peacetime. During the Cold War, Rust again applied its experience to the construction of several defense facilities.

Rust's defense work led to contracts with the National Aeronautics and Space Administration (NASA), created in 1958 to coordinate research and development in the country's "space race" with the Soviet Union. Beginning in 1961, Rust built facilities and provided consulting support services for NASA. Although government contracts contributed significantly to Rust's operations in the 1950s, the company also designed facilities for an increasingly diverse variety of industries, including steel and paper manufacturing. By the end of the 1970s, Rust had designed and built over 160 pulp, paper, and newsprint mills throughout the United States as well as in New Zealand, Mexico, Canada, and Turkey. Activity in this water-intensive industry also prompted the company's expansion into water pollution control facilities during this time.

Rust's acquisition by Litton Industries Inc., through a 1967 exchange of stock, launched a lengthy period of subsidiary status for the engineering company. In 1969, Rust secured the North American rights to the patented von Roll technologies, Swiss mechanical processes that Rust applied to highly efficient incinerator designs. The licensing agreement helped launch Rust's expansion into such environmental services as pollution control, cogeneration, and refuse-to-energy plants. One of a myriad of Litton acquisitions during the late 1960s, Rust was divested to Wheelabrator-Frye Inc. in 1972.

Rust became the primary operating business of Wheelabrator-Frye's Engineering and Erection Services division, which helped build the company's first waste-to-energy plant in Saugus, Massachusetts, and reported sales of over $80 million in 1974. Wheelabrator-Frye's acquisition of The M. W. Kellogg Company in 1978 doubled the Engineering division's revenues and quadrupled its earnings. When Kellogg Rust Inc., a holding company that directed the two subsidiaries' international activities, was formed in 1981, the division emerged as Wheelabrator's largest business segment and one of the world's top engineering and erection organizations.

The 1980s were characterized by corporate consolidation. In 1983, Wheelabrator merged with The Signal Companies and was renamed Signal Environmental Systems. Rust, as a result, became a part of a multi-tiered conglomerate. Kellogg Rust continued to grow, as it performed many of ultimate parent Signal's engineering functions. The development of cheaper, more efficient plant designs enabled Kellogg Rust to build its second waste-fueled plant during the first half of the decade.

In 1985, when The Signal Companies merged with chemical giant Allied Corporation, the new combine determined that Wheelabrator and its Kellogg Rust subsidiaries were among 35 non-core units that would be spun off. Wheelabrator took back its name, and the 35 businesses were combined under a holding company--The Henley Group--which was divested as a new conglomerate. The Kellogg Rust holding company was dissolved the following year and its construction activities were divided between the two primary entities. Wheelabrator and its Rust International Corp. subsidiary were spun off from The Henley Group through a public offering in 1987.

Throughout this period of corporate wrangling, landfill space dwindled and, therefore, grew more expensive. As a result, Rust's sophisticated incinerators became a more economically viable option for communities in need of large-scale waste disposal. For its part, parent Wheelabrator sponsored public hearings, worked with environmental advocacy groups, and lead tours of incinerators to demonstrate the environmental and economic advantages of incineration over landfills.

In the late 1980s, Wheelabrator and Rust forged a relationship with their former rival, Waste Management, Inc. By this time, Waste Management had grown from a Chicago-area private garbage hauler into the world's largest waste services company. However, Waste Management had also garnered a reputation for carelessness and even criminal irresponsibility. While the company had established an incineration division, its lack of engineering knowledge and experience, as well as its unfavorable public image, had hindered its progress in the incineration business. In 1988, Wheelabrator exchanged 22 percent of its equity for Waste Management's entire waste incineration business, thereby eliminating one of Wheelabrator's competitors and simultaneously associating Waste Management with the positive public image Wheelabrator had long cultivated. Waste Management Inc. increased its investment in Wheelabrator's carefully crafted reputation with the acquisition of a majority stake in 1990.

The new parent announced its plans to consolidate its remediation and construction capabilities as well as boost its stock value through the amalgamation of several subsidiaries in 1992. Called the "new Rust," the entity combined Rust International with segments of Chemical Waste Management Inc. (Waste Management's toxic waste abatement subsidiary) and The Brand Companies Inc. Rodney C. Gilbert, formerly president of Wheelabrator, was elected president and chief executive officer of the new entity. Gilbert had started with Rust in 1958, became president of the company in 1982, and had advanced to the leading post at Wheelabrator three years later. The reorganization created a "seamless organization" of six companies that could "address virtually any need in the areas of project management and environmental engineering as well as infrastructure design and environmental consulting," according to Waste Management chairperson and CEO Dean Buntrock. Under the reorganization, Rust Engineering Co. handled process and waste-to-energy engineering; Rust Environment & Infrastructure Inc., a new operation, was formed from the former SEC Donahue; and its counterpart, Rust Remedial Services Inc., performed chemical cleanups.

However, environment-related activities were only half of the new Rust's story. Rust Industrial Services evolved from The Brand Companies Inc., which was acquired by Waste Management in 1988. Formed in 1961 to manufacture insulation, Brand grew quickly on the basis of its asbestos removal services. In its new incarnation, Rust Industrial Services performed industrial cleaning, built scaffolding, and provided plant maintenance services. Rust Construction Services managed contractors and construction, and Rust Limited, based in London, oversaw international business. Moreover, a seventh unit, Rust Federal Services, was created late in 1993 to manage government contracts. The consolidation increased employment in the Rust organization almost sixfold, from 4,000 to 23,000 worldwide, calling attention to one of the company's few potential problems: integrating a varied work force.

In 1992, Rust International, Inc. generated $1.4 billion in revenue and commanded a backlog of $902 million. Anticipated annual environmental industry growth of 15 to 20 percent during this time necessitated internal development and acquisition of new technologies. Toward that end, Rust established a research center affiliated with Clemson University to investigate new methods of toxic and radioactive waste remediation. In addition, Rust used a $350 million loan from its new parent (renamed WMX Technologies in 1993) to embark on a global acquisition spree. The purchase or creation of seven engineering companies in Australia, Great Britain, Hong Kong, Sweden, Mexico, and Germany increased Rust's international work force from ten to 1,500 employees. By early 1994, Rust had established 20 principal offices outside the United States. Five domestic acquisitions in 1993 alone contributed primarily to the Industrial Services Division, and Rust's purchase of Sky Climber Inc.'s ten distribution centers brought that division into the commercial scaffolding market.

In the mid-1990s, Rust characterized itself as "a single-source provider of services for large, full-scale environmental projects." Its range of services, as well as its long history of government contracting, led to several significant government contracts within the first year after the reorganization, including two Total Environmental Restoration Contracts with the Army Corps of Engineers and a total of at least $940 million in Army and Air Force obligations. The Department of Energy, another frequent client, recognized Rust as its single most cost-effective contractor.

Although governmental contracts were likely to provide a lucrative source of income for Rust during the 1990s, CEO Gilbert planned to maintain an even balance between public and private sector contracts. Shortly after its formation, the new Rust won an important contract to reformulate processes at all seven of Hoechst Celanese Corp.'s American plants to produce more "environmentally friendly" products. In fact, Rust ranked as one of America's top ten design/build contractors, with expertise in aerospace, pulp and paper, chemicals, foods and beverages, manufacturing, metals, and petrochemicals. The company's prospects were considered very good in an era when global environmental concerns have become a top priority. Analysts predicted that remediation would be the fastest-growing portion of environmental industry in the last years of the twentieth century.

Principal Subsidiaries: Rust Engineering Co.; Rust Construction Services; Rust Environment & Infrastructure Inc.; Rust Remedial Services Inc.; Rust Industrial Services; Rust Limited; Rust Federal Services.