Sevenson Environmental Services, Inc.

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Sevenson Environmental Services, Inc.

2749 Lockport Road, P.O. Box 396
Niagara Falls, New York 14302
U.S.A.
Telephone: (716) 284-0431
Fax: (716) 284-1796
Web site: http://www.sevenson.com

Public Company
Incorporated: 1947 as Albert Elia Building Company, Inc.
Employees: 236
Sales: $126.5 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: SEVN
NAIC: 562211 Hazardous Waste Treatment and Disposal

With its headquarters in Niagara Falls, New York, Sevenson Environmental Services, Inc., is a leading environmental cleanup contractor, successfully completing more than 900 projects in the United States, Puerto Rico, and Canada. The company is run by the third generation of the Elia family. Sevenson went public in 1989, but members of the Elia family retain most of the company’s stock. Although Sevenson does a good deal of government work, most of its efforts have been devoted to private sector cleanups. The company provides field services for the remediation of land and water contaminated by hazardous materials, offering onsite treatment, containment, or removal. It also decontaminates or disposes of equipment and facilities affected by hazardous waste. Furthermore, Sevenson has become involved in the redevelopment of brownfields, buying contaminated properties, and then cleaning and reselling them at a profit. Overall, it has a sterling reputation for performing quality work in a timely fashion. Sevenson is a tight-knit company with remarkably little turnover, a situation that has contributed to its success.

Construction Roots: 1917

The Elia family became involved in environmental cleanup work through the construction business. The firm’s forefather was Albert Elia, a Niagara Falls, New York, architect who started up a general construction business to produce his designs for residential and commercial buildings. His four sons would then become involved in the construction business, taking on outside work in addition to their father’s projects. In 1947 the sons incorporated the business as Albert Elia Building Company, Inc., specializing in residential building construction to meet the post-World War II housing shortage. In the 1950s the company also took on industrial, institutional, and heavy civil construction, eventually growing into one of New York’s largest general contractors.

In the 1970s a third generation of the Elia family became involved in the construction business and eventually took over. Because the second generation had produced seven sons, the new generation changed the name of the company to Sevenson Construction. In the 1970s, margins were low in the construction industry and competition extremely tight. In 1978 a scandal would erupt in the bedroom community of Love Canal, New York, located just minutes away from Sevenson’s offices, providing the company with an opportunity to branch out into a new line of endeavor.

Ever since the end of World War II, the United States had grown increasingly more concerned about the effects of pollution. The first piece of federal law to address the subject was the Water Pollution Control Act of 1948, followed by additional legislation in 1956. It was the publication of Rachel Carson’s 1962 book Silent Spring, however, that would solidify public opinion and lead to the environmental movement. Carson, in fact, added an entirely new level of meaning to the word “environment,” which until Silent Spring had been a simple and unassuming term. The book became so controversial that even before its official publication date, public pressure forced President Kennedy to promise an investigation and Congress to establish a score of committees to study the new “environmental problems.” The early 1960s saw the passage of clean air and clean water acts. In 1969 the oil spills that fouled the pristine beaches of the affluent community of Santa Barbara, California, created environmental activists out of the rich and politically well connected. In 1970 the first Earth Day was celebrated, the organization of which led to the creation of a permanent Washington lobby. Also in 1970 President Nixon signed the law that created the Environmental Protection Agency (EPA), and for the first time the nation had a single government entity charged with monitoring and enforcing environmental protection laws.

During the 1970s, public concern about environmental issues continued to mount. For instance, a 1977 study estimated that 95 percent of the country’s river basins were polluted. The situation at Love Canal would soon make Americans painfully aware of the dangers of chemical wastes. The small community was built over an abandoned canal that the Niagara Falls School Board bought from the Hooker Chemical and Plastics Corporation for $1 in 1953. The city allowed homes to be built on the site, but in 1978 state officials discovered that toxic chemicals were seeping into the basements. Further study revealed that the community suffered from an unusually high level of birth defects, miscarriages, cancer, epilepsy, and other diseases. A national scandal then erupted when it was revealed that the abandoned canal had served as a chemical waste dump for almost 22,000 tons of chemical waste from Hooker, the area’s largest employer, and that local politicians had withheld the information from the public. The environmental movement now gained an “angry mom” constituency, which politicians simply could not ignore. Just before he left office in 1980, President Carter signed the Comprehensive Environmental Response, Compensation, and Liability Act, what would become commonly known as the Superfund. Funded in part by taxes on petroleum and other chemicals, the $1.6 billion appropriation was earmarked for the cleanup of toxic waste sites and oil spills.

Love Canal and a Shift in Focus for Sevenson: 1978

Aside from its close proximity, Sevenson Construction had direct ties to Love Canal. Members of the second generation of the Elia family built a school that was located above much of the buried contaminants. Before Superfund was created, Love Canal was declared a federal disaster area and Sevenson was awarded the first emergency cleanup contract. As a result of this effort, environmental work quickly became a mainstay of the company. Revenues in the 1980s rose steadily, from $6.1 million in 1984 to $38.9 million in 1988. Net income reached $4.3 million in 1987. Although Sevenson became involved in environmental cleanup work through government contracts, by 1988 more than 60 percent of its business was derived from the private sector. Given the uncertainty of President Reagan’s commitment to funding cleanups, Sevenson’s focus on private contracts was a prudent strategy.

After the Reagan administration came into power in 1980, the EPA went an entire year before an administrator was named. According to Hal K. Rothman in his book Saving the Planet, “The Reagan administration also worked to curtail EPA’s reach…. Enforcement standards were set so that the $1.6 billion Superfund would not be spent. This meant that the agency generally did not pursue law enforcement, instead resorting to sometimes fruitless negotiation with polluters…. Later, in 1986, Reagan signed Executive Order 12580, which gave the Department of Justice the right to disapprove any EPA enforcement action against a federal facility. The Justice Department held that the executive branch entities could not sue each other, effectively ending EPA’s ability to enforce its mandate on federal lands.” Congress, some of whose members were outraged, held hearings that revealed that the Pentagon itself recognized 4,611 contaminated sites at 761 military bases, many of which purportedly posed grave threats to local communities. In October 1986 Congress then re-authorized the Superfund cleanup program, allocating $9 billion for the next five years. Hundreds of start-up companies vied for these government contracts. Well established in the business, Sevenson now preferred to work for private companies, rather than bid on government projects that were likely to be low-balled by newcomers eager to land their first contracts. Sevenson had built a reputation for completing work on time at a fixed price, which budget-conscious companies found appealing.

Wall Street soon recognized the potential for growth in the cleanup industry. In 1989 Sevenson went public to take advantage of investor interest and raise money in order to tackle more complex contracts and pay off $2 million of its $5.7 million in long-term debt. The family construction business was spun off, and Sevenson Construction was renamed Sevenson Environmental Services. Shortly after the initial public offering, the company made an important acquisition, purchasing Waste Stream Technology for just under $1 million.

Waste Stream was created in 1984 by Michael J. Barnhart, who had developed a method to clean up contaminated soil using bacteria. While working in the oil industry he became aware of the common problem of wells and piping that became plugged up by bacteria feeding on oil contaminants. Barnhart then sought to take advantage of the phenomena by creating bacterial cultures that could be introduced into contaminated soil. The bacteria ate the contaminants and died off naturally once the food source was exhausted. Barnhart was still working out of his Buffalo apartment in 1988 when he was able to procure laboratory and office space through the nonprofit Western New York Technology Development Center, which was created to assist area high-tech companies. Sevenson recognized the importance of Barnhart’s work and bought Waste Stream well before his method became commonly used in remediation efforts.

Impact of Recession: Early 1990s

Sevenson, and the environmental cleanup industry in general, suffered from the economic recession of the early 1990s, when the number of projects decreased and competitive bidding drove down contract prices. After generating almost $75 million in revenues in 1990, Sevenson’s business fell off by 35 percent to $48.3 million in 1991. Net earnings of approximately $7.7 million in 1990 also dropped by 36 percent to approximately $5.1 million. The company rebounded nicely in 1992, posting revenues of just under $70 million, although net earnings increased by just 5 percent to $5.4 million.

Company Perspectives:

Sevenson is well established as one of the country’s leading environmental cleanup contractors with over 900 projects with a combined value of over $1 billion successfully completed .

A trend toward onsite treatment bode well for the company and its Waste Stream technology in the mid-1990s. In 1994 the Securities and Exchange Commission began requiring publicly held companies to disclose potential environment problems at their facilities. Because the listing of those liabilities could hurt stock values, companies were encouraged to fund cleanups. Moreover, Congress began debating the reauthorization of the Superfund with the possibility of relaxed cleanup standards, which critics contended were simply unworkable. Sevenson hoped that the result would be an even greater incentive for companies to initiate cleanup efforts.

Sevenson grew steadily in the early 1990s. It paid its first dividend in 1994, and followed that with a record year in 1995 when it generated $102.5 million and posted net earnings of $10.1 million, or $1.60 per share. A number of suitors sought to acquire Sevenson, but the Elia family-led management was uninterested in ceding control. The prospects for the company appeared bright, especially because many of its competitors were failing to deliver, a situation that enhanced Sevenson’s solid reputation. The company also faced decreasing competition on the contracts it pursued. Budget squabbles in Washington, however, would soon have an adverse effect on Sevenson’s fortunes.

In 1996 President Clinton and a Republican-controlled Congress squared off in a budget dispute that resulted in the so-called “government shutdown.” Superfund projects were among the many government initiatives affected, as reauthorization of the fund was also delayed by the budget impasse. Although its mix of business had continued to skew towards the private sector, Sevenson was hurt by the lack of federal money because companies that relied on government contracts now sought private contracts, driving down bids to levels that Sevenson found unacceptable. The company’s revenues for 1996 would drop 16 percent to $85.7 million, and profits by 38 percent to $6.28 million. The slump would continue into 1997, although the company’s poor performance was more the result of two major projects being delayed rather than the lingering effects of the budget stalemate. Revenues in 1997 would fall another 4 percent to just under $82 million, while profits plunged 25 percent, dropping to $4.7 million. Subtracting interest income and the sale of some investments, however, the company actually suffered an operating loss of just $621,000. Management signaled that it would look to cut overhead costs, although it did not expect to eliminate any jobs. The company simply had to adjust to a business environment that offered fewer of the large, highly profitable contracts and more of the smaller, lower-margin contracts.

In an attempt to diversify its business and be less dependent on the uncertainties of government funding, Sevenson became involved in developing brownfields in the late 1990s. It started out by purchasing two properties in Long Beach, California. One, a former Elks Lodge affected by asbestos, was cleaned and sold to a hotel chain for a 25 percent profit. Sevenson then began working with venture capitalists to acquire more brownfield properties. In 2000, Sevenson became involved in another, although uncharacteristic, real estate venture: casino financing. Working with the St. Regis Mohawk Indians and assuming the name of Unity Development Group, Sevenson tried to purchase an option on 60 acres of land in the Catskill area. Northeast Gaming Group of West Springfield, Massachusetts, claimed it had an agreement to sell the land to Sevenson, and filed suit because it said that Sevenson went around them to deal directly with the private owners of the property. Opening up the Catskill Mountains region to gambling was also opposed by many residents. Moreover, real estate and gambling magnate Donald Trump threatened to fight for a casino in Manhattan if Catskill gambling were allowed. At best, the prospect of Sevenson achieving diversification by financing tribal gambling appeared problematic.

Sevenson’s cleanup business finally recovered from its swoon of the mid-1990s. In 1998 the company realized revenues of nearly $85 million and earnings of $6.5 million. The next year, revenues would soar, increasing 50 percent to a record $127.2 million, with earnings of $9.7 million. The company enjoyed the best year in its history in attracting new contracts or adding to existing contracts, recording $148 million in business. The year 2000 was another strong one for Sevenson. Although revenues of $126.5 million were flat compared to the previous year, profits surged 25 percent, reaching a record $12.1 million, or $1.15 per share. Even if Sevenson failed to diversify its business mix, given its solid reputation it still appeared to be in good health for the foreseeable future.

Principal Subsidiaries

Waste Stream Technology, Inc.; Sevenson Industrial Services, Inc.; Sevenson Environmental Services of PA, Inc.; Sevenson Resources, Inc.; Senviro Investment Holdings, Inc.

Principal Competitors

Brown and Caldwell; Ecology and Environment, Inc.; IT Group.

Key Dates:

1917:: Architect Albert Elia establishes general construction business.
1947:: Second generation incorporates Albert Elia Building Company.
1978:: Love Canal disaster leads to company’s entry into waste cleanup business.
1988:: Company is renamed Sevenson Environmental Services.
1989:: Sevenson Environmental goes public, acquires Waste Stream Technology, Inc.
1995:: Company exceeds $100 million in annual revenues.