UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1999
Commission File Number 1-8368
SAFETY-KLEEN CORP.
-----------------
(Exact name of registrant as specified in its charter)
Delaware 51-0228924
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Gervais Street Columbia, Suite 300, South Carolina 29201
- ------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(803) 933-4200 (Registrant's telephone number, including area code)
--------------
---------------------------------------------------------------------------
(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
---
The number of shares of the issuer's common stock outstanding as of
July 7, 1999 was 88,926,299.
<PAGE>
SAFETY-KLEEN CORP.
INDEX
<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION
<S> <C> <C>
Item 1 Financial Statements
Consolidated Statements of Income for the Three and Nine Months Ended
May 31, 1999 and 1998..................................................................................
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended
May 31, 1999 and 1998..................................................................................
Consolidated Balance Sheets as of May 31, 1999 and August 31, 1998............................................
Consolidated Statements of Cash Flows for the Nine Months Ended
May 31, 1999 and 1998..................................................................................
Notes to Unaudited Consolidated Financial Statements..........................................................
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.........................
PART II OTHER INFORMATION
Item 1 Legal Proceedings.............................................................................................
Item 2 Changes In Securities and Use Of Proceeds.....................................................................
Item 6 Exhibits and Reports on Form 8-K..............................................................................
Signatures.............................................................................................................
</TABLE>
<TABLE>
<CAPTION>
SAFETY-KLEEN CORP.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues....................................................... $ 400,935 $ 365,705 $ 1,270,089 $ 750,472
--------- --------- ----------- ---------
Expenses:
Operating................................................... 244,390 244,033 811,289 513,138
Depreciation and amortization............................... 33,272 31,108 104,245 55,927
Selling, general and administrative......................... 33,162 35,037 100,402 74,273
Restructuring and other charges............................. -- 65,831 -- 65,831
----------- --------- ----------- ---------
Total expenses............................................ 310,824 376,009 1,015,936 709,169
----------- --------- ----------- ---------
Operating income (loss)........................................ 90,111 (10,304) 254,153 41,303
Interest expense, net.......................................... 40,460 29,804 127,143 58,050
Equity in earnings of associated company....................... 1,002 -- 2,104 --
----------- --------- ----------- ---------
Income (loss) before income tax expense (benefit).............. 50,653 (40,108) 129,114 (16,747)
Income tax expense (benefit)................................... 20,959 (15,837) 54,614 (6,282)
----------- ---------- ----------- ----------
Income (loss) before minority interest......................... 29,694 (24,271) 74,500 (10,465)
Minority interest, net of tax.................................. -- 235 1,211 129
----------- --------- ----------- ---------
Income (loss) before extraordinary item........................ 29,694 (24,036) 75,711 (10,336)
Extraordinary item, net of applicable income tax............... -- (11,283) -- (11,283)
----------- ---------- ----------- ----------
Net income (loss).............................................. $ 29,694 $ (35,319) $ 75,711 $ (21,619)
=========== ========== =========== ==========
Basic income (loss) per share:
Income (loss) before extraordinary item..................... $ 0.34 $ (0.34) $ 0.86 $ (0.19)
Extraordinary item, net of applicable income tax............ -- (0.16) -- (0.21)
----------- --------- ----------- ---------
Net income (loss)........................................... $ 0.34 $ (0.50) $ 0.86 $ (0.40)
========== ========= ========== =========
Weighted average common stock outstanding (000s)............ 88,469 70,233 88,233 53,756
=========== ========= =========== =========
Diluted income (loss) per share:
Income (loss) before extraordinary item..................... $ 0.30 $ (0.34) $ 0.76 $ (0.19)
Extraordinary item, net of applicable income tax............ -- (0.16) -- (0.21)
----------- --------- ----------- ---------
Net income (loss)........................................... $ 0.30 $ (0.50) $ 0.76 $ (0.40)
========== ========= ========== =========
Weighted average common stock outstanding and
assumed conversions (000s)................................ 111,835 70,233 111,610 53,756
=========== ========= =========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
SAFETY-KLEEN CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss).............................................. $ 29,694 $ (35,319) $ 75,711 $ (21,619)
Other comprehensive income, net of tax:
Unrealized foreign currency translation adjustment.......... 3,358 (1,697) 3,294 (3,962)
Unrealized gain on securities available for sale, net
of tax of $1,247.......................................... -- (1,870) -- --
----------- ---------- ----------- ---------
Other comprehensive income..................................... 3,358 (3,567) 3,294 (3,962)
----------- ----------- ----------- ----------
Comprehensive income (loss).................................... $ 33,052 $ (38,886) $ 79,005 $ (25,581)
=========== ========== =========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
SAFETY-KLEEN CORP.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
MAY 31, 1999
(UNAUDITED) AUGUST 31, 1998
----------- ---------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 10,320 $ 16,333
Trade and other accounts receivable, net of allowance................ 362,145 320,048
Inventories and supplies............................................. 61,290 53,759
Deferred income taxes................................................ 72,368 69,426
Income taxes recoverable............................................. -- 37,495
Other current assets................................................. 71,281 53,750
------------- -------------
Total current assets............................................... 577,404 550,811
Long-term investments.................................................. 295,563 35,926
Property, plant and equipment, net..................................... 2,532,978 2,850,502
Goodwill, net of amortization.......................................... 1,110,717 1,023,154
Other assets........................................................... 16,882 16,979
------------- -------------
Total assets......................................................... $ 4,533,544 $ 4,477,372
============= =============
LIABILITIES
Current liabilities
Accounts payable..................................................... $ 151,486 $ 128,560
Accrued liabilities.................................................. 184,390 219,352
Current portion of long-term debt.................................... 78,680 77,004
------------- -------------
Total current liabilities.......................................... 414,556 424,916
Environmental and other long-term liabilities.......................... 258,637 259,459
Long-term debt......................................................... 1,907,988 1,853,164
Subordinated convertible debenture..................................... 350,000 350,000
Deferred income taxes.................................................. 491,025 575,127
------------- -------------
Total liabilities.................................................... 3,422,206 3,462,666
------------- -------------
Commitments and contingencies.......................................... -- --
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share; authorized 250,000,000;
issued and outstanding 88,923,674 - May 31, 1999; 87,746,243 -
August 31, 1998....................................................... 88,924 87,746
Additional paid-in capital............................................. 1,198,996 1,182,547
Accumulated other comprehensive income................................. (15,534) (18,828)
Accumulated deficit.................................................... (161,048) (236,759)
-------------- --------------
Total stockholders' equity........................................... 1,111,338 1,014,706
------------- -------------
Total liabilities and stockholders' equity........................... $ 4,533,544 $ 4,477,372
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
SAFETY-KLEEN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Nine Months Ended
May 31,
-----
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 75,711 $ (21,619)
Adjustments to reconcile net income (loss) to net cash provided
by operations:
Extraordinary item, net of applicable income tax -- 11,283
Restructuring and other charges, net of applicable income tax -- 39,499
Depreciation and amortization 104,245 55,927
Deferred income taxes 33,524 7,816
Change in working capital and other items (55,001) (18,142)
Decrease in liabilities assumed upon acquisition (67,395) (19,830)
-------------- --------------
Net cash provided by operating activities 91,084 54,934
------------- -------------
Cash flows from investing activities:
Cash expended on business acquisitions (9,796) (1,282,744)
Proceeds from sale of business 138,617 33,675
Purchases of property, plant and equipment (48,875) (34,564)
Increase in long-term investments (219,375) --
Change in other, net (478) 7,539
-------------- -------------
Net cash used in investing activities (139,907) (1,276,094)
-------------- --------------
Cash flows from financing activities:
Issuance of common stock on exercise of stock options 34 436
Bank financing fees and expenses (9,425) (36,946)
Net repayments of long-term debt (167,838) (591,547)
Issuance of long-term debt 225,000 1,857,756
------------- -------------
Net cash provided by financing activities 47,771 1,229,699
------------- -------------
Effect of exchange rate changes on cash (4,961) (202)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (6,013) 8,337
Cash and cash equivalents at:
Beginning of period 16,333 11,160
------------- -------------
End of period $ 10,320 $ 19,497
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
SAFETY-KLEEN CORP.
Notes to Consolidated Financial Statements
For the Nine Months Ended May 31, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X and, therefore, do not include all of the disclosures required by
generally accepted accounting principles for annual financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the interim period results have been included; all such
adjustments are of a normal recurring nature. Operating results for the three
and nine months ended May 31, 1999 are not necessarily indicative of the results
that may be expected for the full fiscal year ending August 31, 1999. These
statements should be read in conjunction with the consolidated financial
statements, including the accounting policies, and notes thereto included in the
Registrant's Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on October 29, 1998. Certain amounts as of August 31, 1998 have been
reclassified to conform to the current period's presentations.
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This standard was
adopted by the Company for the fiscal year beginning September 1, 1998. SFAS 130
establishes standards for reporting and displaying comprehensive income and its
components. Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from non-owner
sources and includes all changes in equity during a period except those
resulting from investments by and distributions to owners. All prior periods
presented have been restated.
NOTE 2 - SHAREHOLDER MATTERS
At the annual meeting of shareholders held on November 24, 1998, shareholders
approved the change in the Company's name from Laidlaw Environmental Services,
Inc. to Safety-Kleen Corp.
In addition, the shareholders approved a one-for-four reverse stock split, which
became effective at the close of business on November 30, 1998. For each four
shares of Safety-Kleen common stock, one share of new Safety-Kleen common stock
was issued. In connection with the reverse stock split, the number of common
shares available for issuance was reduced from 750 million to 250 million. As a
result, prior period shares issued and outstanding, weighted average common
stock outstanding and basic and diluted income per share have been restated to
reflect the reverse stock split.
NOTE 3 - CHANGES IN LONG-TERM DEBT
Subject to stockholder approval, the Company has entered into an agreement with
Laidlaw Inc. to repurchase the $350 million pay-in-kind convertible subordinated
debenture ("PIK Debenture") which was issued to Laidlaw in May, 1997 in
connection with the acquisition of Rollins Environmental Services, Inc. The
aggregate purchase price will consist of (i) $200 million in cash, (ii)
11,320,755 shares of common stock and (iii) cash or shares of common stock in an
amount equal to any accrued and unpaid interest on the PIK Debenture to the date
of repurchase.
On May 17, 1999, the Company issued $225 million 9.25% Senior Notes due 2009
(the "Notes") in a Rule 144A offering. Net proceeds from the sale of the Notes,
after the underwriting discount and other expenses, will be approximately $214
million. The proceeds will be used to finance the cash portion of the purchase
price for the repurchase of the PIK Debenture, for expenses relating to the
repurchase and for general corporate purposes. The Notes mature on May 15, 2009.
Interest on the Notes will be payable semiannually commencing November 15, 1999.
The Notes will be redeemable, in whole or in part, at the option of the Company,
at any time prior to May 15, 2004 at a redemption price equal to the greater of
(i) 100% of the principal amount of such Notes or (ii) the sum of the present
values of 104.625% of the principal amount of such Notes and the scheduled
payments of interest thereon through and including May 15, 2004, discounted to
such redemption date on a semi-annual basis at the adjusted treasury rate plus
50 basis points, together with accrued and unpaid interest, if any. The Notes
will be redeemable, in whole or in part, at the option of the Company at any
time on or after May 15, 2004 at 104.625% of the principal amount declining
ratably in annual increments to par on or after May 15, 2007. In addition, prior
to May 15, 2002, the Company may redeem up to 35% of the original aggregate
principal amount of the Notes with the net proceeds of one or more public equity
offerings at a redemption price equal to 109.25% of the principal amount
thereof, plus accrued and unpaid interest. Upon a change in control of the
Company, each holder of the Notes may require the Company to repurchase all or a
portion of such holder's Notes at 101% of the principal amount thereof, plus
accrued interest.
The Company is required to redeem the Notes for 101% of the principal amount
plus accrued and unpaid interest, if any, if the repurchase of the PIK Debenture
is not completed by September 30, 1999. The net proceeds of the Notes are held
in escrow to fund, if necessary, the special mandatory redemption. The escrow
fund has been included in long-term investments at May 31, 1999.
The Notes are unsecured and rank equally with all existing and future senior
indebtedness and senior to all existing and future subordinated indebtedness.
The Notes are not guaranteed by the Company's subsidiaries.
The Notes contain certain covenants that, in certain instances and subject to
certain limitations and qualifications, restrict, among other things, (i) the
incurrence of additional debt; (ii) the incurrence of certain contingent
obligations; (iii) dividends and other payments; (iv) the issuance of stock of
subsidiaries; (v) certain investments; (vi) certain liens; (vii) transactions
with affiliates; and (viii) certain consolidations, mergers or sales of assets.
In accordance with a Registration Rights Agreement entered into at the time of
the issuance of the Notes, the Company is required to file a registration
statement with the Securities and Exchange Commission on or before July 16,
1999, pursuant to which the Company proposes to exchange the Notes for
registered notes of the Company with terms identical to the Notes.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings:
TAX MATTERS: On March 1, 1999, Laidlaw Inc. ("Laidlaw") announced a settlement
of a dispute between Laidlaw's United States subsidiaries and the Commissioner
of Internal Revenue relating to the timing and deductibility for tax purposes of
interest attributable to loans owing to related foreign persons during the years
from 1986 to 1994.
The total net after tax cash cost to Laidlaw will be approximately $226 million.
The payment includes approximately $121 million in taxes together with interest
of approximately $161 million ($105 million after tax).
This settlement resolves matters in the United States Tax Court (captioned as
Laidlaw Transportation, Inc. and Subsidiaries et. al v. Commissioner of Internal
Revenue, Docket Nos. 9361-94 and 9362-94) relating to the 1986 to 1991 fiscal
years as well as claims raised in a thirty day letter relating to the 1992 to
1994 fiscal years. The Commissioner of Internal Revenue had asserted claims
totaling approximately $500 million.
Pursuant to the agreement dated February 6, 1997 among the Company, Laidlaw and
Laidlaw Transportation, Inc. ("LTI"), Laidlaw and LTI are responsible for any
tax liabilities resulting from these matters. Based upon discussions with
Laidlaw, the Company's income tax provision determined on a separate return
basis during the period audited by the Internal Revenue Service was sufficient
and no additional taxes or interest are due to or from Laidlaw as a result of
the settlement.
NOTE 5 - EUROPEAN OPERATIONS
On December 23, 1998, the Company announced the recapitalization of its European
operations resulting in the sale of 56% of the Company's equity interest in
those operations. As a result of the recapitalization, the Company will receive
gross proceeds totaling $154.0 million (of which $138.6 million has been
received as of May 31, 1999), which will be used to pay down borrowings under
the revolver tranche of the Senior Credit Facility. The transaction resulted in
no gain or loss.
Effective December 1, 1998, the Company ceased to consolidate the results of the
European operations and began to account for the investment by the equity
method.
NOTE 6 - PURCHASE PRICE ALLOCATION
The acquisition of the former Safety-Kleen Corp. in fiscal year 1998 was
accounted for under the purchase method. The purchase price was allocated to the
assets acquired and liabilities assumed based upon management's best estimate of
their fair value at the time of the acquisition. The areas of particular
complexity included the valuation of long-lived assets, environmental
liabilities, pre-acquisition contingencies and the related deferred tax
consequences. The determination of the fair value of these items has been
completed and, as a result, the purchase price has been increased by
approximately $85 million. The adjustment consists of a $52 million decrease in
the fair value of fixed assets based primarily on completed appraisals, an
additional liability of $20 million associated with the termination of the Old
Safety-Kleen defined benefit pension plan, a $35 million adjustment to
environmental and other liabilities based on the Company's evaluation and
analysis of facts and information that existed at the acquisition date and
obtained prior to the end of the allocation period, and a $22 million decrease
in the deferred tax liability.
The purchase price has been allocated to the assets acquired and liabilities
assumed based on the fair values at the date of acquisition as follows:
Current assets................................ $ 231,351
Property, plant and equipment................. 1,705,314
Goodwill...................................... 1,033,077
Other assets.................................. 14,680
Current liabilities........................... (119,927)
Deferred income taxes......................... (448,810)
Other deferred items.......................... (182,584)
Long-term debt................................ (217,858)
---------------
Total purchase price..................... $ 2,015,243
==============
<PAGE>
NOTE 7 - STOCKHOLDERS' EQUITY
Changes in the components of stockholders' equity, restated for the effect of
the one-for-four reverse stock split, since September 1, 1998 are as follows ($
in thousands):
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Comprehensive Accumulated Stockholders'
Stock Capital Income Deficit Equiry
----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Balance, September 1, 1998 $ 87,746 $ 1,182,547 $ (18,828) $ (236,759) $ 1,014,706
Net income for period -- -- -- 75,711 75,711
Issuance of shares (Note A) 1,178 16,449 -- -- 17,627
Cumulative foreign currency.......
translation adjustment -- -- 3,294 -- 3,294
----------- ------------ ------------ ----------- -------------
Balance, May 31, 1999 $ 88,924 $ 1,198,996 $ (15,534) $ (161,048) $ 1,111,338
=========== ============ ============= ============= =============
</TABLE>
Note A: Includes 1,168,541 shares issued to satisfy the November 15, 1998 and
May 15, 1999 interest payments due on the subordinated convertible debenture.
NOTE 8 - STATEMENTS OF CASH FLOWS
The non-cash transactions for the nine months ended May 31, 1999 and 1998 are as
follows ($ in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
-------
1999 1998
---- ----
<S> <C> <C>
Non-cash investing and financing activities:
Business combinations:
Fair value of assets acquired..................................... $ -- $ 2,869,192
Fair value of liabilities acquired................................ -- 930,202
Less, cash paid -- (1,252,341)
Fair value of stock issued on acquisition......................... -- 686,649
Issuance of common stock to satisfy interest payment due on
subordinated convertible debenture................................ 17,500 17,500
Issuance of common stock to satisfy payment of directors' fees...... 93 --
Non-cash transactions arising from sale of business:
Promissory note receivable........................................ -- 8,000
Reduction of debt................................................. -- 40,814
</TABLE>
NOTE 9 - SUMMARIZED FINANCIAL INFORMATION
The Senior Subordinated Notes (the "Notes") issued by Safety-Kleen Services,
Inc., a consolidated subsidiary of the Company, are jointly and severally
guaranteed by Safety-Kleen Corp. and all wholly-owned domestic subsidiaries of
the Company on a full and unconditional basis. The Notes contain certain
covenants, which, among other things, restrict the payment of dividends from
Safety-Kleen Services, Inc. and its subsidiary guarantors to Safety-Kleen Corp.
Summarized financial information for each of Safety-Kleen Corp., Safety-Kleen
Services, Inc., the subsidiary guarantors, and the subsidiary non-guarantors on
a consolidating basis are presented below. Separate financial statements and
other disclosures concerning the subsidiary guarantors are not included because
management believes that they are not material to investors.
<PAGE>
<TABLE>
<CAPTION>
Consolidating Condensed Balance Sheet
May 31, 1999
(Unaudited)
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets ........... $ 546 $ -- $ 530,183 $ 46,675 $ -- $ 577,404
Property, plant and
equipment, net ........ -- -- 2,341,408 191,570 -- 2,532,978
Investment in subsidiaries 1,586,032 2,731,453 1,681,569 5,495 (6,004,549) --
Goodwill ................. -- -- 1,055,000 55,717 -- 1,110,717
Other non-current assets . 219,375 -- 91,692 1,378 -- 312,445
----------- ----------- ----------- ----------- ----------- -----------
Total assets .......... $ 1,805,953 $ 2,731,453 $ 5,699,852 $ 300,835 $(6,004,549) $ 4,533,544
=========== =========== =========== =========== =========== ===========
LIABILITIES
Current liabilities ...... $ 5,415 $ 88,883 $ 285,134 $ 35,124 $ -- $ 414,556
Non-current liabilities .. -- -- 742,439 7,223 -- 749,662
Long-term debt ........... 339,200 1,507,981 15,932 44,875 -- 1,907,988
Subordinated convertible
debenture ............. 350,000 -- -- -- -- 350,000
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities ..... 694,615 1,596,864 1,043,505 87,222 -- 3,422,206
STOCKHOLDERS' EQUITY .... 1,111,338 1,134,589 4,656,347 213,613 (6,004,549) 1,111,338
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity .. $ 1,805,953 $ 2,731,453 $ 5,699,852 $ 300,835 $(6,004,549) $ 4,533,544
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Consolidating Condensed Statement of Income
Three Months Ended May 31, 1999
(Unaudited)
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ............. $ -- $ -- $355,591 $ 49,221 $ (3,877) $400,935
Operating expenses ......... 136 -- 279,875 34,690 (3,877) 310,824
-------- -------- -------- -------- -------- --------
Operating income (loss) .... (136) -- 75,716 14,531 -- 90,111
Interest expense, net ...... 6,527 29,901 2,322 1,710 -- 40,460
Equity in undistributed
earnings of subsidiaries 33,687 51,701 1,002 -- (85,388) 1,002
-------- -------- -------- -------- -------- --------
Income before income
tax expense (benefit) ... 27,024 21,800 74,396 12,821 (85,388) 50,653
Income tax expense (benefit) (2,670) (11,887) 29,929 5,587 -- 20,959
-------- -------- -------- -------- -------- --------
Net income ................. $ 29,694 $ 33,687 $ 44,467 $ 7,234 $(85,388) $ 29,694
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidating Condensed Statement of Income
Nine Months Ended May 31, 1999
(Unaudited)
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ............. $ -- $ -- $ 1,069,289 $ 213,382 $ (12,582) $ 1,270,089
Operating expenses ......... 136 -- 875,134 153,248 (12,582) 1,015,936
--------- --------- ----------- --------- ------------ -----------
Operating income (loss) .... (136) -- 194,155 60,134 -- 254,153
Interest expense, net ...... 19,354 100,120 5,920 1,749 -- 127,143
Equity in undistributed
earnings of subsidiaries 87,111 145,671 2,104 -- (232,782) 2,104
--------- --------- ----------- --------- ------------ -----------
Income before income
tax expense (benefit) ... 67,621 45,551 190,339 58,385 (232,782) 129,114
Income tax expense (benefit) (8,090) (41,560) 79,010 25,254 -- 54,614
--------- --------- ----------- --------- ------------ -----------
Income before minority
interest ................ 75,711 87,111 111,329 33,131 (232,782) 74,500
Minority interest .......... -- -- 176 1,035 -- 1,211
--------- --------- ----------- --------- ------------ -----------
Net income ................. $ 75,711 $ 87,111 $ 111,505 $ 34,166 $ (232,782) $ 75,711
========= ========= =========== ========= ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidating Condensed Statement of Cash Flows
Nine Months Ended May 31, 1999
(Unaudited)
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities ...... $ (5,795) $ (94,105) $ 173,724 $ 17,260 $ -- $ 91,084
----------- ----------- ----------- ----------- ----------- ------------
Cash flows from investing
activities:
Cash expended on
acquisition of business ... -- -- (9,694) (102) -- (9,796)
Proceeds from sale of business -- -- 138,617 -- -- 138,617
Purchases of property, plant
and equipment ............. -- -- (42,479) (6,396) -- (48,875)
Increase in long-term
investments ............... (219,375) -- -- -- -- (219,375)
Change in other, net ......... -- -- (604) 126 -- (478)
----------- ---------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
investing activities ...... (219,375) -- 85,840 (6,372) -- (139,907)
----------- ---------- ---------- ----------- ----------- ------------
Cash flows from financing
activities:
Issuance of common stock on
exercise of stock options . 34 -- -- -- -- 34
Borrowings of long-term debt . 225,000 -- -- -- -- 225,000
Repayment of long-term debt .. -- (158,983) (918) (7,937) -- (167,838)
Bank financing fees .......... (9,179) (246) -- -- -- (9,425)
Intercompany payable
(receivable) .............. 9,315 253,334 (253,307) (9,342) -- --
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
financing activities ...... 225,170 94,105 (254,225) (17,279) -- 47,771
----------- ----------- ----------- ----------- ----------- ------------
Effect of exchange rate
changes on cash ........... -- -- -- (4,961) -- (4,961)
----------- ----------- ----------- ----------- ----------- -------------
Net increase (decrease) in
cash and cash equivalents . -- -- 5,339 (11,352) -- (6,013)
Cash and cash equivalents at:
Beginning of period ....... -- -- 4,343 11,990 -- 16,333
----------- ----------- ----------- ---=------- ----------- ------------
End of period ............. $ -- $ -- $ 9,682 $ 638 $ -- $ 10,320
=========== =========== ===-======= =========== =========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidating Condensed Balance Sheet
August 31, 1998
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets ........... $ -- $ -- $ 439,751 $ 111,060 $ -- $ 550,811
Property, plant and
equipment, net ........ -- -- 2,454,211 396,331 (40) 2,850,502
Investment in subsidiaries 1,496,759 2,776,635 1,322,059 166 (5,595,619) --
Goodwill ................. -- -- 951,655 71,499 -- 1,023,154
Other non-current assets . -- -- 52,134 771 -- 52,905
----------- ----------- ----------- ----------- ------------
Total assets .......... $ 1,496,759 $ 2,776,635 $ 5,219,810 $ 579,827 $(5,595,659) $ 4,477,372
=========== =========== ============ =========== ============
LIABILITIES
Current liabilities ...... $ 6,853 $ 88,089 $ 246,359 $ 83,617 $ (2) $ 424,916
Non-current liabilities .. -- -- 722,622 111,964 -- 834,586
Long-term debt ........... 125,200 1,661,989 16,334 49,641 -- 1,853,164
Subordinated convertible
debenture ............. 350,000 -- -- -- -- 350,000
----------- ----------- ----------- ----------- ------------
Total liabilities ..... 482,053 1,750,078 985,315 245,222 (2) 3,462,666
STOCKHOLDERS' EQUITY .... 1,014,706 1,026,557 4,234,495 334,605 (5,595,657) 1,014,706
----------- ----------- ----------- ----------- ------------
Total liabilities and
stockholders' equity .. $ 1,496,759 $ 2,776,635 $ 5,219,810 $ 579,827 $(5,595,659) $ 4,477,372
=========== =========== =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Consolidating Condensed Statement of Income
Three Months Ended May 31, 1998
(Unaudited)
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ............... $ -- $ -- $ 291,176 $ 78,694 $ (4,165) $ 365,705
Operating expenses ........... -- -- 311,390 68,784 (4,165) 376,009
---------- ------------ ---------- ---------- ------------ -------------
Operating income (loss) ...... -- -- (20,214) 9,910 -- (10,304)
Interest expense, net ........ 6,505 21,123 192 1,984 -- 29,804
Undistributed earnings
(losses) of subsidiaries .. (31,751) (9,464) -- -- 41,215 --
----------- ------------- ----------- ---------- ----------- -------------
Income (loss) before income
tax expense (benefit) ..... (38,256) (30,587) (20,406) 7,926 41,215 (40,108)
Income tax expense (benefit) . (2,937) (8,912) (5,644) 1,656 -- (15,837)
----------- ------------- ----------- ---------- ----------- -------------
Income (loss) before
minority interest ......... (35,319) (21,675) (14,762) 6,270 41,215 (24,271)
Minority interest ............ -- -- (384) 619 -- 235
----------- ------------- ----------- ---------- ----------- -------------
Income (loss) before
extraordinary item ........ (35,319) (21,675) (15,146) 6,889 41,215 (24,036)
Extraordinary item, net of tax -- (10,076) -- (1,207) -- (11,283)
----------- ------------- ----------- ----------- ----------- -------------
Net income (loss) ............ $ (35,319) $ (31,751) $ (15,146) $ 5,682 $ 41,215 $ (35,319)
=========== ============= =========== =========== =======--== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidating Condensed Statement of Income
Nine Months Ended May 31, 1998
(Unaudited)
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ............... $ -- $ -- $ 596,378 $ 158,259 $ (4,165) $ 750,472
Operating expenses ........... -- -- 581,315 132,019 (4,165) 709,169
---------- ----------- ---------- ---------- ------------ ----------
Operating income ............. -- -- 15,063 26,240 -- 41,303
Interest expense, net ........ 19,265 33,684 419 4,682 -- 58,050
Undistributed earnings
(losses) of subsidiaries .. (10,233) 19,750 -- -- (9,517) --
----------- ---------- ---------- ---------- ------------ ----------
Income (loss) before income
tax expense (benefit) ..... (29,498) (13,934) 14,644 21,558 (9,517) (16,747)
Income tax expense (benefit) . (7,879) (13,777) 9,143 6,231 -- (6,282)
----------- ----------- ---------- ---------- ------------ ----------
Income (loss) before
minority interest ......... (21,619) (157) 5,501 15,327 (9,517) (10,465)
Minority interest ............ -- -- -- 129 -- 129
---------- ------------ ---------- ---------- ------------ ----------
Income (loss) before
extraordinary item ........ (21,619) (157) 5,501 15,456 (9,517) (10,336)
Extraordinary item, net of tax -- (10,076) -- (1,207) -- (11,283)
----------- ----------- ---------- ----------- ----------- ----------
Net income (loss) ............ $ (21,619 $ (10,233) $ 5,501 $ 14,249 $ (9,517) $ (21,619)
=========== ============ ========== ========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidating Condensed Statement of Cash Flows
Nine Months Ended May 31, 1998
(Unaudited)
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities ....... $ (14,997) $ (31,134) $ 41,451 $ 59,614 $ -- $ 54,934
----------- ----------- ---------- ----------- --------- -----------
Cash flows from investing
activities:
Cash expended on
acquisition of business .... -- -- (1,274,177) (8,567) -- (1,282,744)
Proceeds from sale of business -- -- 33,675 -- -- 33,675
Purchases of property, plant
and equipment .............. -- -- (27,220) (7,344) -- (34,564)
Change in other, net .......... -- -- 7,683 (144) -- 7,539
---------- ---------- ---------- ------------ --------- -----------
Net cash used in investing
activities ................. -- -- (1,260,039) (16,055) -- (1,276,094)
---------- ---------- ----------- ------------ --------- -----------
Cash flows from financing
activities:
Issuance of common stock
on exercise of stock options 436 -- -- -- -- 436
Bank financing fees ........... -- (36,946) -- -- -- (36,946)
Borrowings of long-term debt .. -- 1,788,000 -- 69,756 -- 1,857,756
Repayment of long-term debt ... -- (315,000) (217,770) (58,777) -- (591,547)
Intercompany payable
(receivable) ............... 14,561 (1,404,920) 1,417,135 (26,776) -- --
---------- ----------- ---------- ------------ --------- -----------
Net cash provided by (used in)
financing activities ....... 14,997 31,134 1,199,365 (15,797) -- 1,229,699
---------- ---------- ---------- ------------ --------- -----------
Effect of exchange rate
changes on cash ............ -- -- -- (202) -- (202)
---------- ---------- ---------- ------------ --------- -----------
Net increase (decrease) in
cash and cash equivalents .. -- -- (19,223) 27,560 -- 8,337
Cash and cash equivalents at:
Beginning of period ........ -- -- 24,770 (13,610) -- 11,160
---------- ---------- ---------- ------------ --------- -----------
End of period .............. $ -- $ -- $ 5,547 $ 13,950 $ -- $ 19,497
========== ========== ========== ============ ========= ===========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and related notes thereto
included elsewhere herein.
Results associated with the April 1, 1998 acquisition of Safety-Kleen
Corp. ("Old Safety-Kleen") by Laidlaw Environmental Services, Inc. ("Old LESI")
have been included in the Company's consolidated results as of the date of the
acquisition.
The following discussion and analysis includes statements that are
considered forward-looking based on the Company's expectations and, as such,
these statements are subject to uncertainty and risk. See "Factors That May
Affect Future Results" below.
RESULTS OF OPERATIONS:
Three Months Ended May 31, 1999 compared with Three Months Ended May 31, 1998
Operating results, before restructuring and other charges and extraordinary
items, are as follows ($ in millions):
<TABLE>
<CAPTION>
Three Months Ended May 31,
--------------------------
1999 1998
----------------------------------------
<S> <C> <C> <C> <C>
Revenues $400.9 100.0% $365.7 100.0%
Operating expense 244.4 60.9% 244.0 66.7%
Depreciation and amortization 33.3 8.3% 31.1 8.5%
Selling, general and administrative 33.1 8.3% 35.1 9.6%
------- ------ ------ ------
Operating income before restructuring and other
charges and extraordinary items $ 90.1 22.5% $ 55.5 15.2%
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Revenues
Components of revenue ($ in millions): Three Months Ended May 31,
--------------------------
1999 1998
---------------------------------------
<S> <C> <C> <C> <C>
Collection and Recovery Services
Industrial Services $198.1 50% $168.3 46%
Commercial and Institutional Services 133.6 33% 95.0 26%
------ --- ------ ---
Total Collection and Recovery Services 331.7 83% 263.3 72%
Treatment and Disposal Services 69.2 17% 82.4 22%
European Operations 0.0 0% 20.0 6%
------ --- ------ ---
Total revenue $400.9 100% $365.7 100%
====== === ====== ===
</TABLE>
Revenues increased $35.2 million, or 9.6%, during the three months
ended May 31, 1999 compared to the three months ended May 31, 1998. Revenue from
collection and recovery services to industrial customers increased $29.8
million, or 17.7%, while collection and recovery services to commercial and
institutional customers increased $38.6 million, or 40.6%. Increased revenue
from collection and recovery services reflects the inclusion of the acquired Old
Safety-Kleen business for the full three months of the current period. Revenue
from treatment and disposal services decreased $13.2 million, or 16.0%.
The Company eliminates inter-company revenues in presenting
consolidated financial results. The majority of such eliminations occur at the
Company's disposal facilities which receive waste streams from the Company's
collection and recovery services network.
Management's estimate of the components of the changes in the Company's
consolidated revenue is as follows:
Percentage Increase (Decrease)
Three Months Ended May 31,
1999 over 1998
--------------
Expansion of customer base by acquisition 19.0%
Other, primarily through volume and price changes (2.4%)
Divestitures and closures (6.2%)
Foreign exchange rate changes (0.8%)
------
Total 9.6%
=====
The comparative increase in revenue for the three months ended May 31,
1999 was primarily due to the inclusion of a full three months results for the
acquired operations of Old Safety-Kleen. Revenues from existing operations
decreased primarily due to a $20 million reduction in the level of activity in
the Company's harbor dredging and treatment operations within the treatment and
disposal component. Absent this $20 million reduction, the price and volume
component of the change in revenue would have been a positive 3.4%. Increased
throughput at the Company's landfill operations somewhat mitigated the overall
reduction. Prior year revenues included contributions from a thermal treatment
facility which was closed on August 31, 1998, and from the Company's European
operations which were partially divested on December 23, 1998, and
deconsolidated as of November 30, 1998. A reduction in revenues due to foreign
exchange rate changes resulted from a relative decline in the Canadian dollar
translation rate.
While previously expecting to achieve internal revenue growth of 10% by
the end of fiscal 1999, the Company now expects to achieve such growth levels
during fiscal 2000.
Operating Expenses
Operating expenses increased $0.4 million, or 0.2%, during the three
months ended May 31, 1999, compared to the three months ended May 31, 1998. The
increase was primarily attributable to additional business obtained as part of
the acquisition of Old Safety-Kleen. As a percentage of revenue, operating
expense decreased to 60.9% from 66.7% in the prior year, primarily due to the
increased utilization of existing facilities and other operational assets,
acquisition related cost reduction measures, primarily personnel related costs,
and an increase in higher margin business.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $2.2 million, or 7.1%,
during the three months ended May 31, 1999, compared to the prior year. The
increase related to the acquired operations of Old Safety-Kleen. As a percentage
of revenue, depreciation and amortization expense was 8.3%, compared to 8.5% in
the prior year. The decrease as a percentage of revenue is primarily
attributable to a reduction in capital expenditures from historic levels of the
combined companies and the closure of certain facilities as part of the
acquisition integration.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $2.0 million, or
5.7% during the three months ended May 31, 1999, versus the prior year. As a
percentage of revenue, selling, general and administrative expenses decreased to
8.3% from 9.6% in the prior year due to cost reduction measures and economies of
scale gained through the acquisition of Old Safety-Kleen.
Interest Expense
Interest expense increased $10.7 million, or 35.9%, during the three
months ended May 31, 1999, over the prior year as a result of the additional
long term debt incurred to finance the acquisition of Old Safety-Kleen.
Equity in Earnings of Associated Companies
On December 23, 1998, the Company sold a 56% interest in its European
operations. This transaction resulted in no gain or loss. The Company accounts
for its remaining interest in the European operations on an equity basis.
Income Tax Expense
The effective tax rate of 42% on income before equity earnings and
taxes ($49.65 million) has increased over the prior year effective rate due to
the sale of 56% of the Company's European operations and additional
non-deductible goodwill amortization related to the acquisition of Old
Safety-Kleen. The European operations had an effective tax rate below that of
the overall Company average.
The Company expects that the effective tax rate will be higher in
subsequent quarters due to the continuing impact of the sale of the European
operations.
RESULTS OF OPERATIONS:
Nine Months Ended May 31, 1999 compared with Nine Months Ended May 31, 1998
Operating results, before restructuring and other charges and extraordinary
items, are as follows ($ in millions):
<TABLE>
<CAPTION>
Nine Months Ended May 31,
-------------------------
1999 1998
-----------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,270.1 100.0% $750.5 100.0%
Operating expense 811.3 63.9% 513.2 68.4%
Depreciation and amortization 104.2 8.2% 55.9 7.4%
Selling, general and administrative 100.4 7.9% 74.3 9.9%
-------- ----- ------ -----
Operating income before restructuring and other
charges and extraordinary items $ 254.2 20.0% $107.1 14.3%
======== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Revenues
Components of revenue ($ in millions): Nine Months Ended May 31,
-------------------------
1999 1998
-----------------------------------
<S> <C> <C> <C> <C>
Collection and Recovery Services
Industrial Services $ 597.9 47% $384.1 51%
Commercial and Institutional Services 400.5 32% 95.0 13%
------ ---- ------ ----
Total Collection and Recovery Services 998.4 79% 479.1 64%
Treatment and Disposal Services 240.0 19% 251.4 33%
European Operations 31.7 2% 20.0 3%
------ ---- ------ ----
Total revenue $1,270.1 100% $750.5 100%
======== ==== ====== ====
</TABLE>
Revenues increased $519.6 million, or 69.2%, during the nine months
ended May 31, 1999 compared to the nine months ended May 31, 1998. Revenue from
collection and recovery services to industrial customers increased $213.8
million, or 55.7%, while collection and recovery services to commercial and
institutional customers generated an additional $305.5 million. Increased
revenue from collection and recovery services reflects the inclusion of the
acquired Old Safety-Kleen business for the full nine month period. Revenue from
treatment and disposal services decreased $11.4 million, or 4.5%. The acquired
European operations of Safety-Kleen provided an additional $11.7 million in
revenue.
The Company eliminates inter-company revenues in presenting
consolidated financial results. The majority of such eliminations occur at the
Company's disposal facilities which receive waste streams from the Company's
collection and recovery services network.
Management's estimate of the components of the changes in the Company's
consolidated revenue is as follows:
Percentage Increase (Decrease)
Nine Months Ended May 31,
1999 over 1998
Expansion of customer base by acquisition 73.9%
Other, primarily through volume and price changes 0.8%
Divestitures and closures (4.3%)
Foreign exchange rate changes (1.2%)
------
Total 69.2%
=====
The comparative increase in revenue for the nine months ended May 31,
1999 was primarily due to the inclusion of the acquired operations of Old
Safety-Kleen for the full period. Revenues from existing operations decreased
primarily due to a reduction in activity at the Company's harbor dredging and
treatment operations within the treatment and disposal component. Prior year
revenues included contributions from a thermal treatment facility which was
closed on August 31, 1998 and from the Company's European operations which were
partially divested on December 23, 1998, and deconsolidated as of November 30,
1998. Prior year revenues also included contributions from an industrial and
solid waste landfill which was divested on December 18, 1997. A reduction in
revenues due to foreign exchange rate changes resulted from a relative decline
in the Canadian dollar translation rate.
Operating Expenses
Operating expenses increased $298.1 million, or 58.1%, during the nine
months ended May 31, 1999, compared to the nine months ended May 31, 1998. The
increase was primarily attributable to additional business obtained as part of
the acquisition of Old Safety-Kleen. As a percentage of revenue, operating
expense decreased to 63.9% from 68.4% in the prior year, primarily due to the
increased utilization of existing facilities and acquisition related cost
reduction measures.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $48.3 million, or
86.4%, during the nine months ended May 31, 1999, compared to the prior year.
The increase related to the acquired operations of Old Safety-Kleen. As a
percentage or revenue, depreciation and amortization expense was 8.2%, compared
to 7.4% in the prior year. The increase as a percentage of revenue is primarily
attributable to the amortization of the excess purchase price relating to the
acquisition of Old Safety-Kleen.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $26.1 million,
or 35.1% during the nine months ended May 31, 1999, versus the prior year. As a
percentage of revenue, selling, general and administrative expenses decreased to
7.9% from 9.9% in the prior year due to cost reduction measures and economies of
scale gained through the acquisition of Old Safety-Kleen.
Interest Expense
Interest expense increased $69.1 million, or 119.0%, during the nine
months ended May 31, 1999, over the prior year as a result of the additional
long term debt incurred to finance the acquisition of Old Safety-Kleen.
Equity in Earnings of Associated Companies
On December 23, 1998, the Company sold a 56% interest in its European
operations, realizing cash proceeds of $154.0 million. This transaction resulted
in no gain or loss. Effective December 1, 1998, the Company commenced accounting
for its remaining interest in the European operations on an equity basis. The
equity earnings recorded in the quarter ended May 31, 1999, represent 100% of
the European operations for the month of December, 1998, and reflect a 44%
interest thereafter. Thus, the European operations' results have been excluded
from revenue and expenses effective December 1, 1998.
Income Tax Expense
The effective tax rate on income before equity earnings and income
taxes increased to 43% from 38% due to the sale of 56% of the Company's European
operations and additional non-deductible goodwill amortization related to the
acquisition of Old Safety-Kleen.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains various forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
financial, operating and other projections. These statements are based on
current plans and expectations of the Company and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements.
Important factors that could cause actual results to differ include,
among others, risks associated with acquisitions and achieving the targeted cost
savings levels, fluctuations in operating results because of acquisitions,
changes in applicable government regulations (environmental and other), the
impact of litigation, competition, and risks associated with the operations and
growth of the newly acquired business of Old Safety-Kleen and other factors
described in Part I, Item 1 of the Company's report on Form 10-K for the Twelve
Months Ended August 31, 1998. As a result of these factors, the Company's
revenue and income could vary significantly from quarter to quarter, and past
financial performance should not be considered a reliable indicator of future
performance.
CAPITALIZATION
On November 24, 1998, the Company's shareholders approved a
one-for-four reverse stock split which became effective on December 1, 1998. As
a result, shareholders received one share of Safety-Kleen common stock for each
four shares previously held.
On November 15, 1998, the Company issued 635,208 shares to satisfy
interest due on the subordinated convertible debenture.
On May 17, 1999, the Company issued 533,333 shares to satisfy interest
due on the subordinated convertible debenture.
On May 17, 1999, the Company issued $225 million 9.25% Senior Notes due
2009 (the "Senior Notes") in a private offering. Net proceeds from the sale of
the Senior Notes, after the underwriting discount and other expenses, were
approximately $214 million. The net proceeds will be used to finance the cash
portion of the purchase price for the repurchase of the subordinated convertible
debenture (the "Repurchase"). The net proceeds will be held in escrow pending
the attainment of shareholder approval for the issuance of approximately 11.3
million common shares of the Company to finance the stock portion of the
purchase price for the Repurchase. The Company is required to redeem the Senior
Notes for 101% of the principal amount plus accrued and unpaid interest, if any,
if the Repurchase has not been completed by September 30, 1999.
LIQUIDITY
Total cash provided by operations during the nine months ended May 31,
1999 was $91.1 million. This was composed of $224.4 million from operations
before financing working capital requirements of $65.9 million and $67.4 million
related to spending on acquisition liabilities.
On December 23, 1998, the Company announced the recapitalization of its
European operations resulting in the sale of 56% of the Company's equity
interest in that entity. As a result of the recapitalization the Company will
receive gross proceeds of $154.0 million. During the nine months ended May 31,
1999, the Company received $138.6 million of net proceeds (net of $5 million
cash left in the European operations at the time of sale). The balance of the
gross proceeds will be received as a dividend tax refund within the current
year.
The Company's primary sources of liquidity are cash flows from
operations, existing cash and short-term investments of $10.3 million, and the
short-term unused working capital bank lines and unused cash portion of the
Senior Credit Facility's revolver tranche of $299.9 million.
The Company expects to fund capital expenditures, debt repayment and
environmental liability requirements from cash flows from operations.
CAPITAL EXPENDITURES AND CAPITAL RESOURCES
Investing activities for the nine months ended May 31, 1999, used cash
of $139.9 million. Net expenditures for the purchase of fixed assets for normal
replacement requirements and increases in services were $48.9 million, net
proceeds from the sale of the European operations were $138.6 million and the
purchase of short term investments from the proceeds of the Senior Note issue on
May 17, 1999 were $219.4 million. The Company's projected capital expenditures
for fiscal 1999 are approximately $65 to $70 million. The Company believes that
it has adequate resources to finance these expenditures.
The Company's Senior Credit Facility contains negative, affirmative and
financial covenants customarily found in credit agreements for financings
similar to the financing provided under the Senior Credit Facility, including
covenants limiting annual capital expenditures, restricting debt, guaranties,
liens, mergers and consolidations, sales of assets and payment of dividends. The
Company was in compliance with all of its covenants at May 31, 1999.
The Company's Senior Notes are effectively subordinated to the
Company's subsidiaries' indebtedness. The payment of dividends, advances or
other distributions from the Company's subsidiaries to the Company, as may be
required to service the Senior Notes, may be restricted as they are subject to
the various indentures, covenants and other obligations of the subsidiaries.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
programs will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in
operations. The Company developed a three-phase program for Y2K systems
compliance. Phase I identified those systems with respect to which the Company
had exposure to Y2K issues. Phase II was the development and implementation of
action plans for Y2K compliance. Phase III was the final testing of the
appropriate major areas of exposure to ensure compliance.
Phase I was completed early in fiscal 1998 and identified three major
areas of Y2K non-compliance:
(1) certain modules of our financial and operational systems,
(2) incinerator distributed control systems, and
(3) third-party vendor relationships.
The Phase II action plans have been developed with implementation
completed during the second calendar quarter of 1999. Our plan to bring
deficient financial systems into compliance through the previously scheduled
purchase of software upgrades has been accomplished, and these upgrades have
tested satisfactorily. Remediation of the operational systems has been
accomplished through a combination of hardware and software upgrades and program
changes. The deficiencies in the incinerator distributed control systems have
been remedied by the installation of upgrades purchased from the systems
vendors. With respect to the third-party vendors, we have contacted most of our
major suppliers and have received indications that they are either compliant or
intend to be compliant by mid-calendar year 1999.
In fiscal 1999 to date, the Company incurred approximately $7.25
million of costs in connection with its Y2K compliance efforts ($1.4 million was
incurred in fiscal 1998). $5.0 million related to software upgrades and program
changes to certain modules of the Company's financial and operational systems,
$1.0 million related to upgrades to network operations equipment and $1.25
million related to software upgrades to the incinerator distributed control
systems.
Phase III testing, to ensure compliance once the Phase II plans were
implemented, was successfully completed during the second calendar quarter of
1999. As all three phases have now been completed, the Company is in the process
of developing worst case contingency plans. To the extent we experience material
Y2K problems and do not have any contingency plan in effect for remedying such
problems, such Y2K problems could have a material adverse effect on our results
of operations, financial conditions and cash flow.
While we believe the occurrence of such a scenario is unlikely, a
possible worst case scenario might include (a) delays, inaccuracies or other
difficulties with respect to billing customers or the loss of customer records,
(b) our inability to run one or more of our incinerators or recycling
facilities, and (c) our key vendors not being able to supply goods and services
on a timely basis. The financial impact of any or all of the above worst case
scenarios has not been and cannot be estimated by management due to the numerous
uncertainties and variables associated with such scenarios.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
GENERAL
The business of the Company's hazardous and industrial waste services
is continuously regulated by federal, state, provincial and local provisions
that have been enacted or adopted, regulating the discharge of materials into
the environment or primarily for the purpose of protecting the environment. The
nature of the Company's businesses results in its frequently becoming a party to
judicial or administrative proceedings involving all levels of governmental
authorities and other interested parties. The issues that are involved generally
relate to applications for permits and licenses by the Company and their
conformity with legal requirements and alleged technical violations of existing
permits and licenses. The Company does not believe that these issues will be
material to the Company's operations or financial condition. At May 31, 1999,
subsidiaries of the Company were involved in five proceedings of the latter type
relating primarily to activities at waste treatment, storage and disposal
facilities where the Company believes sanctions involved in each instance may
exceed $100,000. The Company believes that the ultimate disposition of these
issues will not have a materially adverse effect upon the Company's consolidated
financial position or results of operations.
The Company frequently becomes a party to legal proceedings wherein
persons claim injury resulting from the use of Company's parts cleaner equipment
and/or cleaning products. A number of legal proceedings of this nature are
currently pending in various courts and jurisdictions throughout North America.
The Company believes that the ultimate disposition of these legal proceedings
will not have a materially adverse effect upon the Company's consolidated
financial position or results of operations.
In the United States, CERCLA imposes financial liability on persons who
are responsible for the release of hazardous substances into the environment.
Present and past owners and operators of sites which release hazardous
substances, as well as generators and transporters of the waste material, are
jointly and severally liable for remediation costs and environmental damage. At
May 31, 1999, the Company had been notified that it was a potentially
responsible party in connection with 51 locations in its hazardous waste
management and other businesses. The Company continually reviews its status with
respect to each location and the extent of its alleged contribution to the
volume of waste at the location, the available evidence connecting the Company
to that location, and the numbers and financial soundness of other potentially
responsible parties at the location. Based upon presently available information,
the Company does not believe that potential liabilities arising from its
involvement with these locations will be material to the Company's operations or
financial condition.
<PAGE>
VILLE MERCIER FACILITY
On or about February 9 and March 12, 1999, Ville Mercier and three
neighboring municipalities filed separate legal proceedings against the
subsidiary and certain related companies together with certain former officers
and directors, as well as against the Government of Quebec. The lawsuits assert
that the defendants are jointly and severally responsible for the contamination
of groundwater in the region, which Plaintiffs claim was caused by contamination
from the former Ville Mercier lagoons, and which they claim caused each
municipality to incur additional costs to supply drinking water for their
citizens since the 1970's and early 1980's. The four municipalities claim a
total of CDN$1,595,000 as damages for additional costs to obtain drinking water
supplies and seek an injunctive order to obligate the defendants to remediate
the groundwater in the region. For the reasons stated in the related legal
proceedings described in the PART II, Item 3 of the Registrant's Report on Form
10-K for the twelve months ended August 31, 1998, the subsidiary will continue
to assert that it has no responsibility for the ground water contamination in
the region.
Other than as herein reported there have been no additional significant
legal proceedings nor any material changes in the legal proceedings reported in
PART II, Item 3 of the Registrant's Report on Form 10-K for the twelve months
ended August 31, 1998.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) In May 1999 the Company issued $225 million 9.25% Senior Notes due May 15,
2009, the proceeds of which are intended to be used to finance the cash portion
of the purchase price for the repurchase of the $350,000,000 5% Subordinated
Convertible Pay-In-Kind debenture (the "PIK Debenture") issued to Laidlaw
Transportation, Inc. on May 15, 1997, for expenses relating to the repurchase of
the PIK Debenture and for general corporate purposes. For information concerning
this financing arrangement see Note 3 to the Consolidated Financial Statements
included in Item 1 of Part I of this report which is hereby incorporated by
reference.
(b) On May 17, 1999, the Registrant issued 533,333 shares of its common stock,
par value $1.00 per share ("SK Stock"), to Laidlaw Finance (Barbados) Ltd., as
interest payment on the PIK Debenture. The Company believes that the shares are
exempt from registration pursuant to Section (4)(2) of the Securities Act of
1933, as amended (the "Act"). In determining to issue the SK Stock without
registration under the Act management considered the fact that the offering was
being made to a single offeree in connection with the interest payment under the
Debenture and further, Laidlaw Finance (Barbados) Ltd. represented to the
Registrant that it was acquiring the SK Stock for investment and not with a view
to, or for resale in connection with, any distribution of the SK Stock.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(3)(a) Restated Certificate of Incorporation of the Company dated May 13, 1997
and Amendment to Certificate of Incorporation dated May 15, 1997 filed as
Exhibit 3(a) to the Registrant's Form 10-Q for the Quarter ended May 31, 1997
and incorporated herein by reference.
(3)(a)(i) Certificate of Correction Filed to Correct a Certain Error in the
Restated and Amended Certificate of Incorporation of the Company dated October
15, 1997 filed as Exhibit (3)(a)(i) to the Registrant's Form 10-K for the Year
ended August 31, 1997, and incorporated herein by reference.
(3)(a)(ii) Certificate of Amendment to the Restated Certificate of Incorporation
of the Company dated November 25, 1998 filed as Exhibit (3)(a)(iii) to the
Registrant's Form 10-Q for the quarter ended November 30, 1998 and incorporated
herein by reference.
(3)(a)(iii) Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated November 30, 1998 filed as Exhibit (3)(a)(iv)
to the Registrant's Form 10-Q for the quarter ended November 30, 1998 and
incorporated herein by reference.
(3)(b) Amended and Restated Bylaws of the Company filed as Exhibit 4(ii) to the
Registrant's Current Report on Form 8-K dated July 29, 1997 and incorporated
herein by reference.
(4)(a) Indenture dated as of May 29, 1998 between LES, Inc. (a subsidiary of the
Registrant), Registrant, subsidiary guarantors of the Registrant and The Bank of
Nova Scotia Trust Company of New York, as trustee filed as Exhibit 4(b) to the
Registrant's Form S-4 Registration Statement No. 333-57587 filed June 24, 1998
and incorporated herein by reference.
(4)(b) First Supplemental Indenture effective as of November 15, 1998 among
Safety-Kleen Services, Inc. the Registrant, SK Europe, Inc. and The Bank of Nova
Scotia Trust Company of New York, as trustee filed as Exhibit (4)(e) to the
Registrant's Form S-4 Registration Statement No. filed July 12, 1999 and
incorporated herein by reference.
(4)(c) Indenture dated as of May 17, 1999 between Registrant and the Bank of
Nova Scotia Trust Company of New York, as trustee filed as Exhibit (4)(b) to the
Registrant's Form S-4 Registration Statement No. filed July 12, 1999 and
incorporated herein by reference.
(4)(d) Registrations Rights Agreement dated as of May 17, 1999 between
Registrant and TD Securities, NationsBanc Montgomery Securities LLC and Raymond
James & Associates, Inc. filed as Exhibit (4)(a) to the Registrant's Form S-4
Registration Statement No. filed July 12, 1999 and incorporated herein by
reference.
(4)(e) Amended and Restated Credit Agreement among Laidlaw Chem-Waste, Inc.,
Laidlaw Environmental Services (Canada) Ltd., Toronto Dominion (Texas) Inc., The
Toronto-Dominion Bank, TD Securities (USA) Inc., The Bank of Nova Scotia,
NationsBank, N.A. and The First National Bank of Chicago and NationsBank, N.A.
as Syndication Agent dated as of April 3, 1998, filed as Exhibit 4(f) to the
Registrant's Form 10-Q for the quarter ended February 28, 1999, and incorporated
herein by reference.
(4)(f) Supplement to the Amended and Restated Credit Agreement among Laidlaw
Chem-Waste, Inc., Laidlaw Environmental Services (Canada) Ltd., Toronto Dominion
(Texas) Inc., The Toronto-Dominion Bank, TD Securities (USA) Inc., The Bank of
Nova Scotia, NationsBank, N.A. and The First National Bank of Chicago and
NationsBank, N.A. as Syndication Agent dated as of April 3, 1998, filed as
Exhibit 4(e) to a subsidiary of the Registrant's Form S-4 Registration Statement
No. 333-57587 filed June 24, 1998 and incorporated herein by reference.
(4)(g) Waiver and First Amendment to the Amended and Restated Credit Agreement
dated as of May 15, 1998 among LES, Inc., Laidlaw Environmental Services
(Canada) Ltd., the Lenders, Toronto Dominion (Texas), Inc., The Toronto Dominion
Bank, TD Securities (USA) Inc., The Bank of Nova Scotia, NationsBank, N.A., The
First National Bank of Chicago and Wachovia Bank filed as Exhibit 4(f) to a
subsidiary of the Registrant's Form S-4 Registration Statement No. 333-57587
filed June 24, 1998 and incorporated herein by reference.
(4)(h) Commitment to Increase Supplement to the Amended and Restated Credit
Agreement dated as of June 3, 1998 among LES, Inc., Laidlaw Environmental
Services (Canada) Ltd., the Lenders, Toronto Dominion (Texas), Inc., The Toronto
Dominion Bank, TD Securities (USA) Inc., The Bank of Nova Scotia, NationsBank,
N.A., The First National Bank of Chicago and Wachovia Bank filed as Exhibit 4(g)
to a subsidiary of the Registrant's Form S-4 Registration Statement No.
333-57587 filed June 24, 1998 and incorporated herein by reference.
(4)(i) Second Amendment to the Amended and Restated Credit Agreement dated as of
November 20, 1998 among Safety-Kleen Services, Inc. (formerly known as LES,
Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as Laidlaw
Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion (Texas),
Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of Nova
Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia Bank
N.A., filed as Exhibit (4)(j) to the Registrants Form 10-Q for the quarter ended
February 28, 1999 and incorporated herein by reference.
(4)(j) Waiver and Third Amendment to the Amended and Restated Credit Agreement
dated as of May 6, 1999 among Safety-Kleen Services, Inc. (formerly known as
LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as Laidlaw
Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion (Texas),
Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of Nova
Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia Bank
N.A. filed as Exhibit (4)(k) to the Registrant's Form S-4 Registration Statement
No. filed July 12, 1999 and incorporated herein by reference.
(4)(k) $350,000,000 5% Subordinated Convertible Pay-In-Kind Debenture due 2009
issued by Registrant on May 15, 1997 to Laidlaw Transportation, Inc. the form of
which was included as an appendix to the Registrant's Definitive Proxy Statement
on Form DEF 14A, filed on May 1, 1997 and incorporated herein by reference.
(4)(l) Registration Rights Agreement dated May 15, 1997 between Registrant,
Laidlaw Transportation, Inc. and Laidlaw Inc. the form of which was included as
an appendix to the Registrant's Definitive Proxy Statement on Form DEF 14A,
filed on May 1, 1997 and incorporated herein by reference.
(4)(m) Indenture dated as of May 1, 1993 between the Industrial Development
Board of the Metropolitan Government of Nashville and Davidson County
(Tennessee) and NationsBank of Tennessee, N.A., filed as Exhibit 4(f) to the
Registrant's Form 10-Q for the Quarter ended May 31, 1997, and incorporated
herein by reference.
(4)(n) Indenture of Trust dated as of August 1995 between Tooele County, Utah
and West One Bank, Utah, now known as U.S. Bank, as Trustee, filed as Exhibit
4(h) to the Registrant's form 10-Q for the Quarter ended May 31, 1997, and
incorporated herein by reference.
(4)(o) Indenture of Trust dated as of July 1, 1997 between Carbon County, Utah
and U.S. Bank, a national banking association, as Trustee, filed as Exhibit 4(i)
to the Registrant's Form 10-Q for the Quarter ended May 31, 1997, and
incorporated herein by reference.
(4)(p) Indenture of Trust dated as of July 1, 1997 between Tooele County, Utah
and U.S. Bank, a national banking association, as Trustee, filed as Exhibit 4(j)
to the Registrant's Form 10-Q for the Quarter ended May 31, 1997, and
incorporated herein by reference.
(4)(q) Indenture of Trust dated as of July 1, 1997 between California Pollution
Control Financing Authority and U.S. Bank, a national banking association, as
Trustee, filed as Exhibit 4(k) to the Registrant's Form 10-Q for the Quarter
ended May 31, 1997, and incorporated herein by reference.
(4)(r) Promissory Note dated May 15, 1997 for $60,000,000 from the Registrant to
Westinghouse Electric Corporation, filed as Exhibit 4(n) to the Registrant's
Form 10-Q for the Quarter ended May 31, 1997, and incorporated herein by
reference.
(4)(s) Letter dated May 7, 1999 from Toronto-Dominion (Texas) Inc. (as assignee
of Westinghouse Electric Corporation) and agreed to by the Registrant and
Laidlaw Inc. amending the terms of the Promissory Note dated May 15, 1997 (as
referenced in Exhibit (4)(r)) filed as Exhibit (4)(t) to the Registrant's Form
S-4 Registration Statement No. filed July 12, 1999 and incorporated herein by
reference.
(4)(t) Guaranty Agreement dated May 15, 1997 by Laidlaw Inc. to Westinghouse
Electric Corporation guaranteeing Promissory Note dated May 15, 1997 (as
referenced in Exhibit (4)(r)) from Registrant to Westinghouse Electric
Corporation), filed as Exhibit 4(o) to the Registrant's Form 10-Q for the
Quarter ended May 31, 1997, and incorporated herein by reference.
(4)(u) Escrow Agreement dated as of May 17, 1999 between the Registrant and the
Bank of Nova Scotia Trust Company of New York, as trustee, filed as Exhibit
(4)(c) to the Registrant's Form S-4 Registration Statement No. filed July 12,
1999 and incorporated herein by reference.
(4)(v) Other instruments defining the rights of holders of nonregistered debt of
the Registrant have been omitted from this exhibit list because the amount of
debt authorized under any such instrument does not exceed 10% of the total
assets of the Registrant and its subsidiaries. The Registrant agrees to furnish
a copy of any such instrument to the Commission upon request.
(10)(a) Agreement and Plan of Merger dated as of March 16, 1998 by and among
Registrant, LES Acquisition, Inc., and Safety-Kleen Corp. included as Annex A of
Safety-Kleen's Revised Amended Prospectus on Form 14D-9 filed as Exhibit 62 to
Safety-Kleen's Amendment No. 28 to Schedule 14-9A on March 17, 1998, and
incorporated herein by reference.
(10)(b) Stock Purchase Agreement between Westinghouse Electric Corporation
(Seller) and Rollins Environmental Services, Inc. (Buyer) for National Electric,
Inc. dated March 7, 1995 filed as Exhibit 2 to the Registrant's Current Report
on Form 8-K filed on June 13, 1995 and incorporated herein by reference.
(10)(c) Second Amendment to Stock Purchase Agreement (as referenced in Exhibit
(10)(b) above), dated May 15, 1997 among Westinghouse Electric Corporation,
Rollins Environmental Services, Inc. and Laidlaw Inc., filed as Exhibit 4(m) to
the Registrant's Form 10-Q for the Quarter ended May 31, 1997, and incorporated
herein by reference.
(10)(d) Rollins Environmental Services, Inc. 1982 Incentive Stock Option Plan
filed with Amendment No. 1 to the Company's Registration Statement No. 2-84139
on Form S-1 dated June 24, 1983 and incorporated herein by
reference.
(10)(e) Rollins Environmental Services, Inc. 1993 Stock Option Plan filed with
the Company's Proxy Statement for the Annual Meeting of Shareholders held
January 28, 1994 and incorporated herein by reference.
(10)(f) Registrant's 1997 Stock Option Plan, filed as Exhibit 4.4 to the
Company's Registration Statement No. 333-41859 on Form S-8 dated December 10,
1997 and incorporated herein by reference.
(10)(g) Registrant's Director's Stock Option Plan, filed as Exhibit 4.5 to the
Company's Registration Statement No. 333-41859 on Form S-8 dated December 10,
1997 and incorporated herein by reference.
(10)(h) Stock Purchase Agreement dated February 6, 1997 among the Registrant,
Laidlaw Inc., and Laidlaw Transportation, Inc. included as an appendix to the
Definitive Proxy Statement on Form DEF 14A filed on May 1, 1997 and incorporated
herein by reference.
(10)(i) Corporate Incentive Plan for fiscal year 1999, filed as Exhibit (10)(i)
to the Registrant's Form 10-Q for the quarter ended November 30, 1998 and
incorporated herein by reference.
(10)(j) Operations Management Incentive Plan for fiscal year 1999 filed as
Exhibit (10)(j) to the Registrant's Form 10-Q for the quarter ended November 30,
1998 and incorporated herein by reference.
(10)(k) Registrant's U.S. Supplemental Executive Retirement Plan filed as
Exhibit 10(g) to the Registrant's 10-Q for the quarter ended November 30, 1997,
and incorporated herein by reference.
(10)(l) Form of Change of Control Agreement LES-A1, filed as Exhibit 10(k) to
the Registrant's 10-K for the year ended August 31, 1998, and incorporated
herein by reference.
(10)(m) Form of Change of Control Agreement LES-B-1, filed as Exhibit 10(l) to
the Registrant's 10-K for the year ended August 31, 1998, and incorporated
herein by reference.
(10)(n) Form of Change of Control Agreement LES-C1, filed as Exhibit 10(m) to
the Registrant's 10-K for the year ended August 31, 1998, and incorporated
herein by reference.
(10)(o) Securities Purchase Agreement dated April 19, 1999, among the
Registrant, Laidlaw Inc. and Laidlaw International Finance Corporation filed as
Exhibit (10)(o) to the Registrant's Form S-4 Registration Statement No. filed
July 12, 1999 and incorporated herein by reference.
(11) Statement of Computation of Per Share Earnings
(12) Statement Re: Computation of Ratios
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K, dated April 20, 1999, which
contained Item 5 related to a press release announcing an agreement to purchase
the Company's outstanding $350 million 5% subordinated convertible pay-in-kind
debenture from Laidlaw Inc. for cash and common stock and the Company's
intention to offer up to $225 million of senior notes due 2009 in a private
placement.
The Company filed a Current Report on Form 8-K, dated May 5, 1999, which
contained Item 5 related to a press release announcing the Company's intention
to offer up to $225 million of senior notes due 2009 in a private placement.
The Company filed a Current Report on Form 8-K, dated May 10, 1999, which
contained Item 5 related to a press release announcing that the Company had
received notice from the Securities and Exchange Commission (the "SEC") that the
SEC advised of its intention to fully review the Company's Preliminary Proxy
Statement filed on April 23, 1999, in connection with the Company's previously
announced repurchase of the outstanding $350 million 5% subordinated convertible
pay-in-kind debenture from Laidlaw Inc.
The Company filed a Current Report on Form 8-K, dated May 17, 1999, which
contained Item 5 related to a press release announcing that the Company was in
the process of completing its offering of $225 million of senior notes due 2009
in a private placement.
The Company filed a Current Report on Form 8-K, dated May 27, 1999, which
contained Item 7, unaudited pro forma combined financial information for the
year ended August 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: July , 1999 SAFETY-KLEEN CORP.
------------------
(Registrant)
/s/Kenneth W. Winger
-------------------------------------
Kenneth W. Winger
President and Chief Executive Officer
/s/Paul R. Humphreys
--------------------------------------
Paul R. Humphreys
Senior Vice President-Finance and
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
(3)(a) Restated Certificate of Incorporation of the Company dated
May 13, 1997 and Amendment to Certificate of Incorporation
dated May 15, 1997 filed as Exhibit 3(a) to the Registrant's
Form 10-Q for the Quarter ended May 31, 1997 and incorporated
herein by reference.
(3)(a)(i) Certificate of Correction Filed to Correct a Certain Error in
the Restated and Amended Certificate of Incorporation of the
Company dated October 15, 1997 filed as Exhibit (3)(a)(i) to
the Registrant's Form 10-K for the Year ended August 31, 1997,
and incorporated herein by reference.
(3)(a)(ii) Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated November 25, 1998 filed as
Exhibit (3)(a)(iii) to the Registrant's Form 10-Q for the
quarter ended November 30, 1998 and incorporated herein by
reference.
(3)(a)(iii) Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated November 30, 1998 filed as
Exhibit (3)(a)(iv) to the Registrant's Form 10-Q for the
quarter ended November 30, 1998 and incorporated herein by
reference.
(3)(b) Amended and Restated Bylaws of the Company filed as Exhibit
4(ii) to the Registrant's Current Report on Form 8-K dated
July 29, 1997 and incorporated herein by reference.
(4)(a) Indenture dated as of May 29, 1998 between LES, Inc. (a
subsidiary of the Registrant), Registrant, subsidiary
guarantors of the Registrant and The Bank of Nova Scotia Trust
Company of New York, as trustee filed as Exhibit 4(b) to the
Registrant's Form S-4 Registration Statement No. 333-57587
filed June 24, 1998 and incorporated herein by reference.
(4)(b) First Supplemental Indenture effective as of November 15, 1998
among Safety-Kleen Services, Inc. the Registrant, SK Europe,
Inc. and The Bank of Nova Scotia Trust Company of New York, as
trustee filed as Exhibit (4)(e) to the Registrant's Form S-4
Registration Statement No. filed July 12, 1999 and
incorporated herein by reference.
(4)(c) Indenture dated as of May 17, 1999 between Registrant and the
Bank of Nova Scotia Trust Company of New York, as trustee
filed as Exhibit (4)(b) to the Registrant's Form S-4
Registration Statement No. filed July 12, 1999 and
incorporated herein by reference.
(4)(d) Registrations Rights Agreement dated as of May 17, 1999
between Registrant and TD Securities, NationsBanc Montgomery
Securities LLC and Raymond James & Associates, Inc. filed as
Exhibit (4)(a) to the Registrant's Form S-4 Registration
Statement No. filed July 12, 1999 and incorporated herein by
reference.
(4)(e) Amended and Restated Credit Agreement among Laidlaw
Chem-Waste, Inc., Laidlaw Environmental Services (Canada)
Ltd., Toronto Dominion (Texas) Inc., The Toronto-Dominion
Bank, TD Securities (USA) Inc., The Bank of Nova Scotia,
NationsBank, N.A. and The First National Bank of Chicago and
NationsBank, N.A. as Syndication Agent dated as of April 3,
1998, filed as Exhibit 4(f) to the Registrant's Form 10-Q for
the quarter ended February 28, 1999, and incorporated herein
by reference.
(4)(f) Supplement to the Amended and Restated Credit Agreement among
Laidlaw Chem-Waste, Inc., Laidlaw Environmental Services
(Canada) Ltd., Toronto Dominion (Texas) Inc., The
Toronto-Dominion Bank, TD Securities (USA) Inc., The Bank of
Nova Scotia, NationsBank, N.A. and The First National Bank of
Chicago and NationsBank, N.A. as Syndication Agent dated as of
April 3, 1998, filed as Exhibit 4(e) to a subsidiary of the
Registrant's Form S-4 Registration Statement No. 333-57587
filed June 24, 1998 and incorporated herein by reference.
(4)(g) Waiver and First Amendment to the Amended and Restated Credit
Agreement dated as of May 15, 1998 among LES, Inc., Laidlaw
Environmental Services (Canada) Ltd., the Lenders, Toronto
Dominion (Texas), Inc., The Toronto Dominion Bank, TD
Securities (USA) Inc., The Bank of Nova Scotia, NationsBank,
N.A., The First National Bank of Chicago and Wachovia Bank
filed as Exhibit 4(f) to a subsidiary of the Registrant's Form
S-4 Registration Statement No. 333-57587 filed June 24, 1998
and incorporated herein by reference.
(4)(h) Commitment to Increase Supplement to the Amended and Restated
Credit Agreement dated as of June 3, 1998 among LES, Inc.,
Laidlaw Environmental Services (Canada) Ltd., the Lenders,
Toronto Dominion (Texas), Inc., The Toronto Dominion Bank, TD
Securities (USA) Inc., The Bank of Nova Scotia, NationsBank,
N.A., The First National Bank of Chicago and Wachovia Bank
filed as Exhibit 4(g) to a subsidiary of the Registrant's Form
S-4 Registration Statement No. 333-57587 filed June 24, 1998
and incorporated herein by reference.
(4)(i) Second Amendment to the Amended and Restated Credit Agreement
dated as of November 20, 1998 among Safety-Kleen Services,
Inc. (formerly known as LES, Inc.), Safety-Kleen Services
(Canada) Ltd. (formerly known as Laidlaw Environmental
Services (Canada) Ltd.), the Lenders, Toronto Dominion
(Texas), Inc., The Toronto Dominion Bank, TD Securities (USA)
Inc., The Bank of Nova Scotia, NationsBank, N.A., The First
National Bank of Chicago and Wachovia Bank N.A., filed as
Exhibit (4)(j) to the Registrants Form 10-Q for the quarter
ended February 28, 1999 and incorporated herein by reference.
(4)(j) Waiver and Third Amendment to the Amended and Restated Credit
Agreement dated as of May 6, 1999 among Safety-Kleen Services,
Inc. (formerly known as LES, Inc.), Safety-Kleen Services
(Canada) Ltd. (formerly known as Laidlaw Environmental
Services (Canada) Ltd.), the Lenders, Toronto Dominion
(Texas), Inc., The Toronto Dominion Bank, TD Securities (USA)
Inc., The Bank of Nova Scotia, NationsBank, N.A., The First
National Bank of Chicago and Wachovia Bank N.A. filed as
Exhibit (4)(k) to the Registrant's Form S-4 Registration
Statement No. filed July 12, 1999 and incorporated herein by
reference.
(4)(k) $350,000,000 5% Subordinated Convertible Pay-In-Kind Debenture
due 2009 issued by Registrant on May 15, 1997 to Laidlaw
Transportation, Inc. the form of which was included as an
appendix to the Registrant's Definitive Proxy Statement on
Form DEF 14A, filed on May 1, 1997 and incorporated herein by
reference.
(4)(l) Registration Rights Agreement dated May 15, 1997 between
Registrant, Laidlaw Transportation, Inc. and Laidlaw Inc. the
form of which was included as an appendix to the Registrant's
Definitive Proxy Statement on Form DEF 14A, filed on May 1,
1997 and incorporated herein by reference.
(4)(m) Indenture dated as of May 1, 1993 between the Industrial
Development Board of the Metropolitan Government of Nashville
and Davidson County (Tennessee) and NationsBank of Tennessee,
N.A., filed as Exhibit 4(f) to the Registrant's Form 10-Q for
the Quarter ended May 31, 1997, and incorporated herein by
reference.
(4)(n) Indenture of Trust dated as of August 1995 between Tooele
County, Utah and West One Bank, Utah, now known as U.S. Bank,
as Trustee, filed as Exhibit 4(h) to the Registrant's form
10-Q for the Quarter ended May 31, 1997, and incorporated
herein by reference.
(4)(o) Indenture of Trust dated as of July 1, 1997 between Carbon
County, Utah and U.S. Bank, a national banking association, as
Trustee, filed as Exhibit 4(i) to the Registrant's Form 10-Q
for the Quarter ended May 31, 1997, and incorporated herein by
reference.
(4)(p) Indenture of Trust dated as of July 1, 1997 between Tooele
County, Utah and U.S. Bank, a national banking association, as
Trustee, filed as Exhibit 4(j) to the Registrant's Form 10-Q
for the Quarter ended May 31, 1997, and incorporated herein by
reference.
(4)(q) Indenture of Trust dated as of July 1, 1997 between California
Pollution Control Financing Authority and U.S. Bank, a
national banking association, as Trustee, filed as Exhibit
4(k) to the Registrant's Form 10-Q for the Quarter ended May
31, 1997, and incorporated herein by reference.
(4)(r) Promissory Note dated May 15, 1997 for $60,000,000 from the
Registrant to Westinghouse Electric Corporation, filed as
Exhibit 4(n) to the Registrant's Form 10-Q for the Quarter
ended May 31, 1997, and incorporated herein by reference.
(4)(s) Letter dated May 7, 1999 from Toronto-Dominion (Texas) Inc.
(as assignee of Westinghouse Electric Corporation) and agreed
to by the Registrant and Laidlaw Inc. amending the terms of
the Promissory Note dated May 15, 1997 (as referenced in
Exhibit (4)(r)) filed as Exhibit (4)(t) to the Registrant's
Form S-4 Registration Statement No. filed July 12, 1999 and
incorporated herein by reference.
(4)(t) Guaranty Agreement dated May 15, 1997 by Laidlaw Inc. to
Westinghouse Electric Corporation guaranteeing Promissory Note
dated May 15, 1997 (as referenced in Exhibit (4)(r)) from
Registrant to Westinghouse Electric Corporation), filed as
Exhibit 4(o) to the Registrant's Form 10-Q for the Quarter
ended May 31, 1997, and incorporated herein by reference.
(4)(u) Escrow Agreement dated as of May 17, 1999 between the
Registrant and the Bank of Nova Scotia Trust Company of New
York, as trustee, filed as Exhibit (4)(c) to the Registrant's
Form S-4 Registration Statement No. filed July 12, 1999 and
incorporated herein by reference.
(4)(v) Other instruments defining the rights of holders of
nonregistered debt of the Registrant have been omitted from
this exhibit list because the amount of debt authorized under
any such instrument does not exceed 10% of the total assets of
the Registrant and its subsidiaries. The Registrant agrees to
furnish a copy of any such instrument to the Commission upon
request.
(10)(a) Agreement and Plan of Merger dated as of March 16, 1998 by and
among Registrant, LES Acquisition, Inc., and Safety-Kleen
Corp. included as Annex A of Safety-Kleen's Revised Amended
Prospectus on Form 14D-9 filed as Exhibit 62 to Safety-Kleen's
Amendment No. 28 to Schedule 14-9A on March 17, 1998, and
incorporated herein by reference.
(10)(b) Stock Purchase Agreement between Westinghouse Electric
Corporation (Seller) and Rollins Environmental Services, Inc.
(Buyer) for National Electric, Inc. dated March 7, 1995 filed
as Exhibit 2 to the Registrant's Current Report on Form 8-K
filed on June 13, 1995 and incorporated herein by reference.
(10)(c) Second Amendment to Stock Purchase Agreement (as referenced in
Exhibit (10)(b) above), dated May 15, 1997 among Westinghouse
Electric Corporation, Rollins Environmental Services, Inc. and
Laidlaw Inc., filed as Exhibit 4(m) to the Registrant's Form
10-Q for the Quarter ended May 31, 1997, and incorporated
herein by reference.
(10)(d) Rollins Environmental Services, Inc. 1982 Incentive Stock
Option Plan filed with Amendment No. 1 to the Company's
Registration Statement No. 2-84139 on Form S-1 dated June 24,
1983 and incorporated herein by reference.
(10)(e) Rollins Environmental Services, Inc. 1993 Stock Option Plan
filed with the Company's Proxy Statement for the Annual
Meeting of Shareholders held January 28, 1994 and incorporated
herein by reference.
(10)(f) Registrant's 1997 Stock Option Plan, filed as Exhibit 4.4 to
the Company's Registration Statement No. 333-41859 on Form S-8
dated December 10, 1997 and incorporated herein by reference.
(10)(g) Registrant's Director's Stock Option Plan, filed as Exhibit
4.5 to the Company's Registration Statement No. 333-41859 on
Form S-8 dated December 10, 1997 and incorporated herein by
reference.
(10)(h) Stock Purchase Agreement dated February 6, 1997 among the
Registrant, Laidlaw Inc., and Laidlaw Transportation, Inc.
included as an appendix to the Definitive Proxy Statement on
Form DEF 14A filed on May 1, 1997 and incorporated herein by
reference.
(10)(i) Corporate Incentive Plan for fiscal year 1999, filed as
Exhibit (10)(i) to the Registrant's Form 10-Q for the quarter
ended November 30, 1998 and incorporated herein by reference.
(10)(j) Operations Management Incentive Plan for fiscal year 1999
filed as Exhibit (10)(j) to the Registrant's Form 10-Q for the
quarter ended November 30, 1998 and incorporated herein by
reference.
(10)(k) Registrant's U.S. Supplemental Executive Retirement Plan filed
as Exhibit 10(g) to the Registrant's 10-Q for the quarter
ended November 30, 1997, and incorporated herein by reference.
(10)(l) Form of Change of Control Agreement LES-A1, filed as Exhibit
10(k) to the Registrant's 10-K for the year ended August 31,
1998, and incorporated herein by reference.
(10)(m) Form of Change of Control Agreement LES-B-1, filed as Exhibit
10(l) to the Registrant's 10-K for the year ended August 31,
1998, and incorporated herein by reference.
(10)(n) Form of Change of Control Agreement LES-C1, filed as Exhibit
10(m) to the Registrant's 10-K for the year ended August 31,
1998, and incorporated herein by reference.
(10)(o) Securities Purchase Agreement dated April 19, 1999, among the
Registrant, Laidlaw Inc. and Laidlaw International Finance
Corporation filed as Exhibit (10)(o) to the Registrant's Form
S-4 Registration Statement No. filed July 12, 1999 and
incorporated herein by reference.
(11) Statement of Computation of Per Share Earnings
(12) Statement Re: Computation of Ratios
(27) Financial Data Schedule.
<TABLE>
<CAPTION>
EXHIBIT 11
SAFETY-KLEEN CORP.
Statement of Computation of Per Share Earnings
($ in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic:
Income (loss) before extraordinary items $ 29,694 $ (24,036) $ 75,711 $ (10,336)
Extraordinary item, net of applicable income tax -- (11,283) -- (11,283)
----------- ------------ ---------- -----------
Income (loss) available to common stockholders $ 29,694 $ (35,319) $ 75,711 $ (21,619)
=========== ============ ========== ============
Weighted average common stock outstanding (000s) 88,469 70,233 88,233 53,756
========== =========== ========== ==========
Income (loss) before extraordinary items $ 0.34 $ (0.34) $ 0.86 $ (0.19)
Extraordinary item, net of applicable income tax -- (0.16) -- (0.21)
---------- ----------- --------- -----------
Basic income (loss) per share $ 0.34 $ (0.50) $ 0.86 $ (0.40)
========== =========== ========== ===========
Diluted:
Income (loss) before extraordinary item $ 29,694 $ (24,036) $ 75,711 $ (10,336)
Add, interest expense on conversion of
subordinated convertible debenture 3,281 (a) 8,531 (a)
Extraordinary item, net of applicable income tax -- (11,283) -- (11,283)
----------- ------------ ---------- -----------
Income available to common stockholders, plus
assumed conversions $ 32,975 $ (35,319) $ 84,242 $ (21,619)
=========== ============ ========== ===========
Weighted average common stock outstanding (000s) 88,469 70,233 88,233 53,756
Dilutive effect of stock options 33 (a) 44 (a)
Dilutive effect of conversion of $350,000,000
subordinated convertible debenture 23,333 (a) 23,333 (a)
----------- ----------- ---------- ----------
Diluted average shares outstanding 111,835 70,233 111,610 53,756
=========== =========== ========== ==========
Income (loss) before extraordinary items $ 0.30 $ (0.34) $ 0.76 $ (0.19)
Extraordinary item, net of applicable income tax -- (0.16) -- (0.21)
----------- ----------- ---------- -----------
Diluted income (loss) per share $ 0.30 $ (0.50) $ 0.76 $ (0.40)
========== =========== ========== ===========
</TABLE>
(a) Assumed conversion of each of these securities has an anti-dilutive effect
on income (loss) per share.
All per share amounts have been restated to effect the one-for-four reverse
stock split, which became effective at the close of business on November 30,
1998.
<TABLE>
<CAPTION>
EXHIBIT 12
SAFETY-KLEEN CORP.
Ratio of Earnings to Fixed Charges
($ in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) before income tax expense $ 50,653 $ (39,873) $ 130,325 $ (16,618)
Add,
Portions of rents representative of the interest factor 4,018 5,272 14,297 10,407
Interest on indebtedness, including amortization of
deferred financing charges 42,551 31,777 132,256 61,266
----------- ----------- ------------- -----------
Income as adjusted $ 97,222 $ (2,824) $ 276,878 $ 55,055
=========== ============ ============= ===========
Fixed charges:
Portions of rents representative of the interest factor $ 4,018 $ 5,272 $ 14,297 $ 10,407
Interest on indebtedness, including amortization of
deferred financing charges 42,551 31,777 132,256 61,266
----------- ----------- ------------- -----------
Total fixed charges $ 46,569 $ 37,049 $ 146,553 $ 71,673
=========== =========== ============= ===========
Ratio of earnings to fixed charges 2.09x (0.08)x 1.89x 0.77x
=========== ============ ============= ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 10320
<SECURITIES> 0
<RECEIVABLES> 371522
<ALLOWANCES> 9377
<INVENTORY> 61290
<CURRENT-ASSETS> 577404
<PP&E> 2929394
<DEPRECIATION> 396416
<TOTAL-ASSETS> 4533544
<CURRENT-LIABILITIES> 414556
<BONDS> 0
0
0
<COMMON> 88924
<OTHER-SE> 1022414
<TOTAL-LIABILITY-AND-EQUITY> 4533544
<SALES> 1270089
<TOTAL-REVENUES> 1270089
<CGS> 0
<TOTAL-COSTS> 1015936
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125932
<INCOME-PRETAX> 130325
<INCOME-TAX> 54614
<INCOME-CONTINUING> 75711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75711
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.76
</TABLE>
