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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 1999
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Commission File Number 1-8368
SAFETY-KLEEN CORP.
(Exact name of registrant as specified in its charter)
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Delaware 51-0228924
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Gervais Street, Columbia, South Carolina 29201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 933-4200
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Securities Registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange
Par Value $1.00 Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the common stock held by non-affiliates of the
registrant was $671,032,318 as of October 15, 1999.
The number of shares of the issuer's common stock outstanding as of October 15,
1999 was 100,637,975.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Stockholders are incorporated in Part II
of Form 10-K.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held November 30, 1999 are incorporated in Part III of Form 10-K.
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TABLE OF CONTENTS
Item Page
PART I
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1. Business.....................................................................................1
2. Properties..................................................................................12
3. Legal Proceedings...........................................................................13
4. Submission of Maters to a Vote of Security Holders..........................................17
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters...................17
6. Selected Financial Data.....................................................................17
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......18
7A. Quantitative and Qualitative Disclosures About Market Risk..................................26
8. Financial Statements and Supplementary Data.................................................27
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........60
PART III
10. Directors and Executive Officers of the Registrant..........................................60
11. Executive Compensation......................................................................60
12. Security Ownership of Certain Beneficial Owners and Management..............................60
13. Certain Relationships and Related Transactions..............................................60
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................60
Signatures..................................................................................65
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66
PART I
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ITEM 1. BUSINESS
GENERAL
Safety-Kleen Corp. (the "Company", the "Registrant" or "Safety-Kleen")
provides industrial waste services designed to collect, process, recycle and
dispose of hazardous and industrial waste streams. The Company provides these
services from approximately 280 collection and processing locations in 45 states
and seven Canadian provinces.
The Registrant was incorporated in Delaware in 1968. Its principal
executive office is located at 1301 Gervais Street, Suite 300, Columbia, South
Carolina 29201 and its telephone number is 803-933-4200.
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. Effective December 1, 1998, the Company ceased to
consolidate the results of the European operations and began to account for them
under the equity method.
The Company, in providing industrial waste services, is engaged in two
primary lines of business: (a) Collection and Recovery, and (b) Treatment and
Disposal. The Collection and Recovery Component is further defined by the
markets for which it provides services:
Industrial Services and Commercial and Institutional Services.
The Collection and Recovery component involves providing various
services to both industrial and commercial customers. These services include
parts cleaners and hazardous and non-hazardous waste collection. The Treatment
and Disposal component involves the treatment, recycling and destruction of
hazardous and non-hazardous waste at Company owned and operated facilities. The
Company operates thermal destruction incinerators, landfills and wastewater
treatment facilities. The Company's revenue and income are derived principally
from customers in the United States, which include a variety of commercial,
industrial, governmental and residential customers. Substantially all revenue
represents income from unaffiliated customers.
The percentages of the Company's revenue contributed by its primary
business components (including the European operations) for the last three
fiscal years ended August 31, were as follows:
1999 1998 1997
---- ---- ----
Collection and Recovery Component
Industrial Services ............................... 47% 50% 58%
Commercial and Institutional Services ............. 32% 19% 0%
--- --- ---
Total Collection and Recovery ....................... 79% 69% 58%
Total Treatment and Disposal ........................ 19% 27% 42%
European Operations ................................. 2% 4% 0%
--- --- ---
Total Revenue 100% 100% 100%
==== ==== ====
As of August 31, 1999, Laidlaw Inc. ("Laidlaw") beneficially owned 43.6%
of the Company's outstanding Common Stock. Laidlaw announced publicly on
September 13, 1999 its intention to divest itself of all its Common Stock within
six to twelve months. On September 13, 1999, the Company's Board of Directors
appointed a Special Committee made up of independent non-Laidlaw directors to
consider the implications of the announced change in Laidlaw's time horizon for
divesting its 43.6% common share ownership of the Company. On October 12, 1999,
the Company announced that it received a detailed report from the Special
Committee and its financial advisor, Raymond James & Associates, on strategic
and financial alternatives for the Company. The Special Committee made a
recommendation to the Board that it begin discussions with likely sale or
strategic merger candidates. After due consideration, the Company's Board
unanimously agreed with the recommendation of the Special Committee. The Board
also approved the reinstitution of the Company's stockholders' rights plan to
help insure that all stockholders will be given an opportunity to participate in
any sale or merger which may take place.
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COLLECTION AND RECOVERY SERVICES
Safety-Kleen provides Collection and Recovery Services in North America
primarily through a network of 176 branches supported by 31 service center and
accumulation center locations. Collection and Recovery Services are further
differentiated by those services provided to industrial customers and those
provided to commercial and institutional customers.
Industrial Services
The Company markets two major categories of service to its Industrial
Services customers: its Parts Cleaner Service and its Industrial Waste Services.
In Safety-Kleen's Parts Cleaner Service, the Company's service representative
places parts cleaner equipment and solvent with a customer. The service
representative then makes service calls at regular intervals to clean and
maintain the equipment and to remove the dirty solvent and replace it with clean
solvent. The majority of the dirty solvent is recycled for reuse. The Company
provides a choice of several models of parts cleaners to customers for their use
as part of the Parts Cleaner Service and also provides service to customers who
own their own parts cleaner equipment. As an alternative to solvent-based
systems, Safety-Kleen also offers a line of water-based cleaning systems through
its Parts Cleaner Service.
The Company's Industrial Waste Services consist primarily of the
collection of a wide variety of liquid and solid wastes, hazardous or
non-hazardous, typically in drum containers from a customer's location.
Depending upon the type of customer, the Company may make frequent pickups of
large quantities or may pick up only one or a few 55-gallon drums on a scheduled
periodic basis. Depending upon the content, the material collected by the
Company may be recycled into usable solvent, processed into a waste-derived fuel
for use in the cement manufacturing industry, or disposed of through
incineration or landfill methods.
The Industrial Waste Services group also provides other comprehensive
environmental and technical service. Technical Field Services includes offerings
such as Lab Pack Services and In-Plant Services. The primary focus of Lab Pack
Services is the collection and proper management of miscellaneous, and often
unidentified, chemicals stored in small containers. Since the list of Lab Pack
chemicals removed from a particular site can be extensive and vary widely in
characteristics and quantities, the knowledge and abilities of Company field
chemists are often required. In-Plant Services encompass a variety of services
provided by Safety-Kleen personnel at the generator's location. In-Plant
Services are customized to the specific needs of the customer. With Technical
Field Services, Safety-Kleen often prepares the paperwork, packages the waste
for shipment and provides for transportation and disposal management.
Waste streams collected through one or more of Safety-Kleen's Industrial
Services offerings may be routed to one of the Company's service centers or
accumulation centers where they are temporarily stored or consolidated with
compatible waste streams for more efficient transportation to final recycling,
treatment or disposal destinations. All of the Company's service centers in the
United States have Part B permits under the United States Resource Conservation
and Recovery Act ("RCRA") that, among other things, allow the Company to store
waste for up to one year for bulking or transfer purposes. Service centers and
accumulation centers are the largest source of waste streams for the Company's
treatment and disposal facilities. In 1999, the Company directed approximately
80% of its waste streams to internal disposal locations.
Commercial and Institutional Services
The Company provides several specialized services to commercial and
institutional customers. The largest component of the Company's Commercial and
Institutional Services is its Parts Cleaner Service. Safety-Kleen furnishes
service stations, car and truck dealers, small engine repair shops, fleet
maintenance shops and other automotive and retail repair customers with the same
high quality Parts Cleaner Service that it provides to its Industrial Services
customers.
Other Commercial and Institutional Service offerings include Paint
Refinishing Services, Imaging Services, Dry Cleaner Services, Vacuum Truck
Services, Integrated Customer Compliance Services and Used Oil Collection
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and Re-Refining Services. These additional offerings utilize the same facility
network and many of the same customer relationships as have been developed for
the traditional Parts Cleaner Service.
The Company's Paint Refinishing Services are supplied to new and used
car dealers, auto body repair and paint shops and fiberglass product
manufacturers. Company representatives place a machine and solvent with each
customer, maintain the machine and regularly remove the contaminated solvent and
replace it with clean solvent. The Company either recycles the contaminated
solvent into clean solvent for reuse or blends it into fuel used by cement kilns
or incinerators. Waste paint and paint booth filters are also collected from
these customers and blended into fuel for cement kilns or incinerators. Company
representatives also provide clean buffing pads and remove used pads during
regularly scheduled service calls. The used pads are washed, dried, inspected
and returned to the Company's distribution system.
The Company's Imaging Service provides health care, printing, photo
processing and other businesses and industries with on-site recycling of
photochemical solutions, as well as film, plate and silver recovery services.
Imaging Services recovers the silver contained in the spent photochemical
solutions it collects from customers. These solutions are then further treated
and processed until they can be discharged as wastewater into publicly owned
treatment works in compliance with applicable laws and regulations. Silver is
also recovered from photographic film by outside processors.
Dry Cleaner Services collect and recycle contaminated dry cleaning
wastes consisting of used filter cartridges and sludge containing
perchloroethylene and mineral spirits.
Vacuum Services utilizes specialized vacuum trucks to remove residual
oil and sludge from underground oil/water separators found at many automotive
repair and as well as other residual fluids found at small industrial locations.
Collected oil is recycled or reused as a fuel source.
The Company provides Integrated Customer Compliance Services to its
customers. Service offerings in this area include Material Safety Data Sheets
("MSDS") Fax on Demand, an electronic MSDS management program; Department of
Transportation Shipping Paper Services, which provides appropriate shipping
papers for hazardous waste shipments; regulatory training; spill and poison
control hotlines; and on-site facility assessments. Integrated Customer
Compliance offers single services and bundled full service programs in
accordance with customer requests.
Safety-Kleen also provides Used Oil Collection and Re-Refining Services.
The Company collects used lubricating oils from automobile and truck dealers,
automotive garages, oil change outlets, service stations, industrial plants and
other businesses. The used oil is then transferred to a re-refining plant where
most of the product is converted into high-quality base lubricating oil. The
Company derives revenue both from fees it charges customers to haul away used
oil, oily water and glycol and from the sale of products it produces by
processing the used oil. The Company's extensive branch network enables it to
collect waste oil in sufficient volume to support oil re-refining operations,
which produce lubricating oil that can be sold at significantly higher prices
than industrial fuels. The Company operates oil re-refining plants in Breslau,
Ontario and East Chicago, Indiana. The plants in Breslau and East Chicago have
combined annual re-refining capacities of approximately 130 million gallons of
used oil per year. Used oil collected in excess of the capacity of the Company's
re-refining facilities is either processed into industrial fuels or sold
unprocessed for direct use as a fuel in certain industrial applications.
TREATMENT AND DISPOSAL SERVICES
Safety-Kleen provides final Treatment and Disposal Services designed to
properly manage hazardous and non-hazardous wastes which cannot be otherwise
economically recycled or reused. Thermal Treatment and Landfill facilities
provide such solutions for the majority of industrial waste streams. The
Company's Specialty Services provide a compliment of other technologies for more
specialized or economical handling of certain waste streams.
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Thermal Treatment
The Company offers a wide range of technological capabilities and
locations to customers through its collection of incineration facilities.
Incineration is the preferred method for the treatment of organic hazardous
waste, because it effectively destroys the contaminants at temperatures in
excess of 2,000 degrees fahrenheit. High temperature incineration effectively
eliminates organic wastes such as herbicides, plastics, halogenated solvents,
pesticides, and pharmaceutical and refinery wastes, regardless of whether they
are gases, liquids, sludges or solids. Federal and state incineration
regulations require a destruction and removal efficiency of 99.99% for most
organic wastes and 99.9999% for PCBs and dioxin.
The Company operates four solids and liquids-capable incineration
facilities with a combined annual capacity of over 250,000 tons and two lower
volume specialty incineration facilities in the United States, as well as two
hazardous waste liquid injection incinerators in Canada.
The Company's incineration facilities in Bridgeport, New Jersey; Deer
Park, Texas; Coffeyville, Kansas; and Aragonite, Utah, are designed to process
liquid organic wastes, sludges, solids, soil and debris. The Deer Park facility
has two kilns and a rotary reactor. Additionally, the Deer Park facility has an
on-site landfill for the disposal of ash and other waste material produced as a
result of the incineration process. The landfill is built and permitted to RCRA
hazardous waste standards.
The Company's incineration facilities in Mercier, Quebec and Sarnia,
Ontario are liquid injection incinerators, designed primarily for the
destruction of liquid organic waste. The Mercier facility also has a system to
blend and destroy pumpable sludges. Typical waste streams include wastewater
containing concentrated organic levels not amenable to conventional physical or
chemical waste treatment, pesticide and herbicide waste, waste with high
chlorinated organic concentrations and flammable materials.
All of the Company's United States incineration facilities have received
Part B permits under RCRA. Part B permits are generally issued for periods of
five or ten years, after which the permit must be reviewed by state or federal
regulators or both before the permit can be renewed for additional terms.
Management is not aware of any issues at any of the Company's sites that would
preclude the renewal of any of its Part B permits.
During fiscal 1997, the Company closed its less efficient and redundant
incineration facilities at Baton Rouge, Louisiana, and Clive, Utah. During
fiscal 1998, the Company closed its incinerator at Roebuck, South Carolina,
further reducing excess capacity. These three closures have eliminated
approximately 215,000 tons of practical capacity from the off-site commercial
incineration market. The industry's total off-site commercial incinerator
practical capacity was estimated at 1.0 million tons in 1997, according to "EI
Digest".
Landfill
The Company operates 11 landfills located throughout the United States
and Canada. A total of eight landfills are designed and permitted for the
disposal of hazardous wastes. Three landfills are operated for non-hazardous
industrial waste disposal, and to a lesser extent, municipal solid waste.
The Company operates eight of the 23 permitted hazardous waste landfills
in North America, with 60 million cubic yards of remaining permitted capacity
(which at current fill rates represents in excess of 62 years of capacity). Of
these facilities, six are located in the United States and two in Canada.
In the United States, the Company's hazardous waste landfills have been
issued RCRA Subtitle C permits. The EPA's permitting process for RCRA Subtitle C
landfills is very rigorous. Before a permit can be issued, the applicant must
provide detailed waste analysis, spill prevention and control counter-measure
plans, detailed design specifications (which include liner design, leak
detection systems and rainwater removal systems), groundwater monitoring,
employee training and geologic and hydrogeologic investigations. Furthermore,
the applicant must post financial assurance instruments for landfill cell and
site closure and post-closure care. All six of the Company's United States
hazardous waste landfills have received Part B landfill permits and meet or
exceed Subtitle C requirements. These permits are generally issued for periods
of five or ten years, after which the permit must be reviewed by state or
federal regulators or both before the permit can be renewed for additional
terms. Management
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is not aware of any issues at any of the Company's sites that would preclude the
renewal of its Part B landfill permits. During fiscal year 1999, approximately
1.0 million cubic yards of hazardous wastes were disposed of in these landfills.
In addition to its hazardous waste landfill sites, the Company operates
three non-hazardous industrial landfills with over 6 million cubic yards of
remaining permitted capacity. The Company's non-hazardous landfill facilities
are permitted to accept commercial industrial waste, including wastes from
foundries, demolition and construction, machine shops, automobile manufacturing,
printing, metal fabrications and recycling. During fiscal year 1999,
approximately 0.2 million cubic yards of non-hazardous wastes were disposed of
in these landfills.
Specialty Services
Specialty Services provided by the Company include PCB management
services, wastewater treatment, harbor and channel dredging, consulting and
analytical services, and transportation services.
The Company recycles PCB-contaminated oils and reclaims metals from PCB
contaminated equipment. The Company accomplishes this recycling and reclamation
through a de-chlorination process operated from seven facilities mainly in the
eastern United States and Canada.
Safety-Kleen offers a range of wastewater treatment technology
facilities and customer services. Wastewater treatment is provided from four
facilities and consists of four basic business lines: hazardous wastewater
treatment, mobile treatment, sludge de-watering or drying and non-hazardous
wastewater treatment. These services include the reduction, treatment and
disposal of both hazardous and non-hazardous wastewater, sludges and solids for
both bulk and drummed waste. The Company removes hazardous components from
hazardous industrial liquids and chemically or physically makes hazardous
industrial liquids non-hazardous through blending and treatment technology.
Specialized techniques reduce residues by recycling or reusing spent products.
Batch treatment technologies also enable the Company to handle hard-to-treat
wastewater streams.
Safety-Kleen performs services designed to dredge, treat and provide for
the beneficial reuse of sediments found in harbors, channels and other
waterways. The Company contracts with federal, state and local agencies and port
authorities for the cleanup of sediments resulting from downstream accumulation
and waterway widening and deepening projects. These services are provided as an
environmentally sound alternative to historical sea dumping methods.
The Company provides a variety of consulting and analytical services
which utilize Safety-Kleen's laboratories, specialized equipment and personnel.
Such services are typically customized for the customer's specific project or
requirements.
The Company's transportation operations facilitate the movement of
materials between and occasionally amongst the Company's network of Collection
and Recovery locations and its Treatment and Disposal facilities. Transportation
may be accomplished by truck, rail or other mode, with Company-owned assets or
in conjunction with third-party transporters. Specially designed containment
systems, vehicles and other equipment permitted for hazardous and industrial
waste transport, together with drivers trained in transportation skills and
waste handling procedures, provide for the movement of customer waste streams.
COMPETITIVE CONDITIONS
The hazardous and industrial waste management industry is highly
competitive. The sources of competition vary by locality and by type of service
rendered, with competition coming from the other major waste services companies
and hundreds of privately owned firms which offer waste services. The Company
also competes with municipalities and larger plants which provide "on site"
waste services for their own waste materials. The principal methods of
competition for all of the Company's services are price, quality, reliability of
service rendered and technical proficiency in handling industrial and hazardous
wastes properly.
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The Company estimates total industry revenue associated with the
off-site services it provides in North America, excluding Used Oil Collection
and Re-Refining, to be $7.4 billion. Of this market, the combined revenue of the
Company, including inter-company receipts at disposal locations, for the year
ended August 31, 1999 would account for a 22% market share.
In the United States, the original generators of hazardous waste remain
liable under federal and state environmental laws for improper disposal of such
wastes. Even if waste generators employ companies which have proper permits and
licenses, knowledgeable customers are interested in the reputation and financial
strength of the companies they use for management of their hazardous wastes.
Safety-Kleen believes that its technical proficiency, reputation and financial
strength are important considerations to its customers in selecting and
continuing to utilize the Company's services.
The Company is the market leader in the United States in its Parts
Cleaner, Paint Refinishing and Dry Cleaner Services. In these services, the
Company competes with local or smaller regional companies. In its Industrial
Waste Services, the Company competes with many firms engaged in the
transportation, brokerage and disposal of hazardous wastes through recycling,
fuels programs, thermal treatment or landfilling.
The Company is the market leader in North America in its Used Oil
Collection and Re-Refining Services. The price at which Safety-Kleen sells its
re-refined lube oil is primarily dictated by a market dominated by large
multinational oil companies and has been positively correlated to crude oil
prices over the long-term. The selling price of re-refined lube oil is also
affected by lube oil refinery capacity changes in North America, which do not
necessarily bear a relationship to the movement of crude oil price changes.
Competitors operate large-scale incinerators at eight locations
throughout North America. Other companies have applied for or received permits
to construct and operate hazardous waste incinerators. Competition is also
encountered from certain cement kilns, which use hazardous waste-derived fuel as
a supplemental fuel source. Generator-owned thermal treatment operations and
mobile thermal treatment units also compete with the Company's fixed-location
facilities.
Ten of the 15 U.S. hazardous waste landfills not operated by the Company
are operated by three competitors with landfill facilities spread throughout the
United States. Significant competition exists for waste volumes generated by
remedial cleanups and other project-based events.
CUSTOMERS
The Company conducts business with more than 400,000 customers. These
customers represent diverse industries, including automotive repair, dry
cleaning, photo imaging, automobile manufacturing and distribution, chemical and
petrochemical manufacturing, computer and micro-processor manufacturing, and
primary metals, paper, furniture, aerospace and pharmaceutical manufacturing.
The Company's customers are located throughout the United States and Canada.
During fiscal 1999, no one customer accounted for more than three percent of the
Company's consolidated revenue.
The hazardous and industrial waste management business is cyclical to
the extent that it is dependent upon a stream of waste from cyclical industries.
If those cyclical industries slow significantly, the business that the Company
receives from those industries is likely to slow.
SEASONALITY
Adverse winter weather moderately affects some of the Company's
operations, particularly during the second fiscal quarter. The main reason for
this effect is reduced volumes of waste being received at the Company's
facilities and higher operating costs associated with operating in sub-freezing
weather and high levels of snowfall.
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REGULATION
Hazardous and Solid Waste Requirements
Safety-Kleen's services involve the collection, transportation, storage,
processing, recycling and disposal of commercial, institutional and industrial
hazardous and nonhazardous materials. Substantially all of these materials are
regulated in the United States as "solid wastes" under the Resource Conservation
and Recovery Act (RCRA). In addition to being regulated as solid wastes, many of
these materials are further regulated as "hazardous wastes." Accordingly, the
Company is subject to federal and state regulations governing hazardous and
solid wastes. RCRA established a national program which classified various
substances as "hazardous wastes", established requirements for storage,
treatment and disposal of hazardous wastes and imposed requirements for
facilities used to store, treat or dispose of such wastes. RCRA was amended in
1984 by the Hazardous and Solid Waste Amendments ("HSWA") which expanded the
scope of RCRA to include businesses which generate smaller quantities of waste
materials (so-called "small quantity generators"), expanded the substances
classified as hazardous wastes by RCRA and prohibited direct disposal of those
wastes in landfills (thereby, in effect, requiring that the wastes be recycled,
treated or destroyed).
Hazardous and solid waste regulations impose requirements which must be
met by facilities used to store, treat and dispose of these wastes. Operators of
hazardous waste storage, disposal and treatment facilities, such as
Safety-Kleen, must obtain a RCRA permit from federal or authorized state
governmental authorities to operate those facilities. States may also require a
solid waste permit. The Company has over 100 RCRA-permitted facilities.
The Company believes that each permit will be renewed at the end of its
existing term. At the present time, the Company does not intend to pursue RCRA
permits for facilities which do not currently have a RCRA permit and will limit
the activities of those facilities to activities that are not regulated by RCRA.
In September 1992, the United States Environmental Protection Agency
("EPA") enacted regulations that govern the management of used oils. Although
used oil is not classified as a hazardous waste under federal law, certain
states do regulate used oil as hazardous. The Company built and operates its
used oil facilities to standards similar to those required for hazardous waste
facilities, and believes that its oil management standards are more protective
of human health and the environment than current federal standards.
Materials collected by the Company through its Industrial Services
operations may be recycled for reuse, processed into waste-derived fuel to be
burned in kilns used in the production of cement or incinerated in the Company's
incinerators. Much of the waste-derived fuel is supplied to cement kilns with
which the Company has exclusive supply contracts with respect to such fuel.
Cement kilns are subject to regulations which govern the burning of hazardous
wastes in boilers and industrial furnaces ("Boiler and Industrial Furnace
Regulations" or "BIF regulations"). Since 1980, under the authority of RCRA, EPA
has required incinerators to comply with provisions that are similar to those in
the BIF regulations. The Company believes that all of the kilns with which the
Company has exclusive supply contracts and all of the Company's incinerators
comply in all material respects with the applicable regulation requirements.
Clean Air Act
The Clean Air Act was passed by Congress to control the emissions of
pollutants to the air and requires permits to be obtained for certain sources of
air toxic emissions or criteria pollutants, such as carbon monoxide. In 1990,
Congress amended the Clean Air Act to require further reductions of air
pollutants with specific targets for nonattainment areas in order to meet
certain ambient air quality standards. These amendments also require the EPA to
promulgate regulations which: (i) control emissions of 189 toxic air pollutants;
(ii) create uniform operating permits for major industrial facilities similar to
RCRA operating permits; (iii) mandate the phase-out of ozone depleting
chemicals; and (iv) provide for enhanced enforcement. The Company believes each
of its operating facilities complies in all material respects with the
applicable requirements.
The Clean Air Act required regulations which resulted in the reduction
of volatile organic compound ("VOC") emissions in order to meet certain ozone
attainment standards under the Act. The Company has installed control technology
to meet its obligations under the Act. Additional emission reductions at the
Company's recycle
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centers and branches could be required as the Company completes its air
permitting program. On August 21, 1999, the EPA adopted new federal Clean Air
Act Rules for all Hazardous Waste Combustion Units. These new regulations
supersede the existing BIF and RCRA Subpart "O" permitting and operating
regulations. This new rule sets emissions standards for incinerators, cement
kilns and lightweight aggregate kilns that burn hazardous waste. These new
standards require cement kilns which are major outlets for the Company's
waste-derived fuels, to make capital improvements that will increase the cost of
burning such fuels in cement kilns. The incinerators owned by the Company must
also comply with this new rule. Although these incinerators already meet the
majority of the emission and management requirements of this new rule,
additional capital may be required to install air pollution control equipment
and compliance monitoring devices to provide assurance that the requirements
will be met on a continuous basis. The Company intends to be in compliance with
all aspects of this new rule, for incineration units owned and operated by the
Company, on or before September 27, 2002, which is the compliance demonstration
deadline.
The EPA is also developing regulations which will establish management
standards for cement kiln dust ("CKD"). The Company and the kilns to which it
sends waste-derived fuel have developed programs for analyzing and
characterizing CKD in anticipation of these new management standards; however,
at this time it is not clear what impact these CKD regulations will have on the
Company.
The South Coast Air Quality Management District ("SCAQMD"), the air
district for the greater Los Angeles, California area, has amended its rule
setting the allowable volatile organic compound ("VOC") content of materials
used for remote reservoir repair and maintenance cleaning. The amended rule, in
effect, banned remote reservoir parts cleaning with solutions containing VOCs in
excess of fifty grams per liter as of January 1, 1999, except in certain
applications. Substantially all of the Company's parts cleaners placed with
SCAQMD customers prior to the adoption of the amended rule, utilized solvents
containing VOCs in excess of fifty grams per liter. The Company offers aqueous
parts cleaning systems which meet the 1999 SCAQMD requirements and has worked
with its SCAQMD customers to convert their solvent parts cleaners to an
alternative cleaning solvent or solution. In addition, the Company will continue
to work actively with the SCAQMD to identify appropriate exemptions and develop
alternatives to the 1999 VOC limits for materials used for remote reservoir
parts cleaning. The Company expects other Clean Air Act nonattainment
municipalities to consider adopting similar rules.
Clean Water Act
The Clean Water Act regulates the discharge of pollutants into surface
waters and sewers from a variety of sources, including disposal sites and
treatment facilities. The Company is required to obtain discharge permits and
conduct sampling and monitoring programs. The Company believes each of its
operating facilities complies in all material respects with the applicable
requirements.
CERCLA and Related Requirements
The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA") was originally enacted in December 1980, and amended in 1986
by the Superfund Amendments and Reauthorization Act ("SARA"). CERCLA creates a
fund of monies ("Superfund") which can be used by the EPA and state governments
to clean up hazardous waste sites pending recovery of those costs from defined
categories of "potentially responsible parties" ("PRPs"). Most EPA cleanup
efforts are at sites listed or proposed for listing on the National Priorities
List ("NPL"). Various states have also enacted statutes which contain provisions
substantially similar to CERCLA.
Generators and transporters of hazardous substances, as well as past and
present owners and operators of sites where there has been a release of
hazardous substances, are made strictly, jointly and severally liable for the
clean-up costs resulting from releases and threatened releases of
CERCLA-regulated "hazardous substances". Under CERCLA, these responsible parties
can be ordered to perform a clean-up, can be sued for costs associated with
private party or public agency clean-up, or can voluntarily settle with the
government concerning their liability for clean-up costs.
A portion of the materials collected by the Company are recycled or
converted into materials, such as industrial fuels, which may be used for
another purpose. The amount of material that the Company deposits at waste sites
is accordingly small in relation to the volume of materials collected by the
Company, and the Company is
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actively engaged in a waste minimization program to reduce this small amount
even further. The Company also sends some of the materials it collects to
selected third party facilities for further treatment, processing and/or
disposal. The Company audits facilities where it ships materials in an attempt
to minimize its potential Superfund liability at these sites.
ENVIRONMENTAL LIABILITIES AND CAPITAL EXPENDITURES
A portion of the Company's capital expenditures are related to
compliance with environmental laws and regulations. The Company does not expect
that compliance with RCRA, the Clean Air Act and other environmental laws and
regulations currently in effect will have a material impact on the Company's
projected annual capital expenditures, results of operations or competitive
position.
In addition to these capital expenditures, the Company may incur costs
in connection with closure activities at certain of its sites. When the Company
discontinues using or changes the use of a hazardous waste management unit,
formal closure procedures must be followed, and such procedures must be approved
by federal or state environmental authorities. In some cases, costs are incurred
to complete remedial clean-up work at the site. In addition at certain of the
Company's other operating sites, remedial clean-up work is required as part of
the RCRA Corrective Action Program or other state and federal programs. As
included in the Company's Consolidated Balance Sheet and more fully described in
Note 8 of the Notes to Consolidated Financial Statements, included elsewhere in
this report on Form 10-K, the Company has recorded liabilities of $248.0 million
as of August 31, 1999, for remedial cleanup work, Superfund site liability,
closure activities and certain other environmental expenses related to its
operating and previously closed sites.
With respect to various operating facilities, the Company is required to
provide financial assurance with respect to certain statutorily required closure
and post-closure obligations totaling $502.2 million at August 31, 1999. The
Company provides most of the required financial assurance through a combination
of performance bonds and insurance policies, as allowed by the applicable
regulatory authorities.
EMPLOYEES
As of August 31, 1999, approximately 9,990 employees provided the
Company's hazardous and industrial waste services. Approximately 8% of the
Company's employees were represented by various collective bargaining groups.
Management believes that its relations with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to the
executive officers of the Company:
NAME AGE POSITION HELD
Kenneth W. Winger 61 President and Chief Executive Officer
Michael J. Bragagnolo 53 Executive Vice President and Chief
Operating Officer
Paul R. Humphreys 40 Senior Vice President, Finance and Chief
Financial Officer
Henry H. Taylor 55 Vice President, General Counsel and
Secretary
Kenneth W. Winger became President and Chief Executive Officer on May
15, 1997. Mr. Winger served as President and Chief Operating Officer of Laidlaw
Environmental Services (US), Inc. ("Old LESI") from July 15 1995 until May 1997.
He served as Executive Vice President for Business Development of Laidlaw Waste
Systems, Ltd., a former subsidiary of Laidlaw, from January 1995 until July
1995. Prior to that, Mr. Winger served as Senior Vice President for Corporate
Development with Laidlaw from May 1991.
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Michael J. Bragagnolo became Executive Vice President and Chief
Operating Officer on May 15, 1997. He joined Old LESI in January 1997 as the
Executive Vice President after serving as Executive Vice President of U.S.
Operations for Laidlaw Waste Systems, Ltd. since 1992.
Paul R. Humphreys became Senior Vice President, Finance, and Chief
Financial Officer on May 15, 1997. He joined Old LESI in January 1995 as Vice
President of Finance. He previously served as Manager of Finance for Laidlaw for
more than five years.
Henry H. Taylor became Vice President, General Counsel and Secretary on
May 15, 1997. He served as Vice President of Legal and Regulatory Affairs and
Secretary of Old LESI from September 1995 until May 1997. Mr. Taylor joined Old
LESI in May 1990 as Vice President of Legal Affairs.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The provisions of the Private Securities Litigation Reform Act of 1995
(the "Act"), which became law in late 1995, provides companies with a "safe
harbor" when making forward-looking statements. This "safe harbor" encourages
companies to provide prospective information about their companies without fear
of litigation. The Company wishes to take advantage of the "safe harbor"
provisions of the Act and is including this section in its Annual Report on Form
10-K in order to do so. Statements that are not historical facts, including
statements about management's expectations for fiscal year 2000 and beyond, are
forward-looking statements and involve various risks and uncertainties. Factors
that could cause the Company's actual results to differ materially from
management's projections, forecasts, estimates and expectations include, but are
not limited to, the following:
Uncertainties in integrating operations and achieving cost savings
The Company, including its subsidiaries, is a large enterprise with
operations in different markets. The success of any business combination,
including the Company's recent acquisition of Old Safety-Kleen, is in part
dependent on the Company's ability following the acquisition to consolidate
operations and integrate departments, systems and procedures and thereby obtain
business efficiencies, economies of scale and related cost savings. The
consolidation of operations, the integration of departments, systems and
procedures and the reallocation of staff present significant management
challenges. There can be no assurance that future consolidated results will
improve as a result of the Old Safety-Kleen acquisition, or as to the timing or
extent to which cost savings and efficiencies anticipated by the Company will be
achieved. The Company cannot presently quantify the impact of achieving or
failing to achieve anticipated synergies on the Company's earnings per share.
Ability to exert significant influence
As of August 31, 1999, Laidlaw beneficially owned 43.6% of the Company's
outstanding Common Stock. Laidlaw announced publicly on September 13, 1999 its
intention to divest itself of all the Company Common Stock owned by it within
six to twelve months. Such a transaction could materially affect future
operating results. However, because the Company does not know when or if any
such transaction will take place or the form of any such transaction, the
Company cannot predict the effect such a transaction would have on the future
operations of the Company.
Leverage
The Company is highly leveraged with substantial debt service
obligations. Principal repayment obligations with respect to the long term debt
aggregates $731.0 million over the next five years. Thus the Company is
particularly susceptible to adverse changes in its industry, the economy and the
financial markets. In addition, the Company's ability to obtain additional debt
financing will be limited by restrictive covenants under the terms of its credit
agreements and any other debt instruments. Those limits on financing may limit
the Company's ability to service its existing debt obligations through
additional debt financing if cash flow from operations is insufficient to
service such obligations.
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Environmental Regulation and Legal Proceedings
The operations of businesses of the Company are subject to certain
federal, state, territorial, provincial and local requirements which regulate
health, safety, environment, zoning and land-use. Operating and other permits
are generally required for incinerators, landfills, transfer and storage
facilities, certain collection vehicles, storage tanks and other facilities
owned or operated by the Company, and these permits are subject to revocation,
modification and renewal. Although the Company believes that its facilities meet
federal, state and local requirements in all material respects and have all of
the required operating and other permits, it may be necessary to expend
considerable time, effort and money to keep existing or acquired facilities in
compliance with applicable requirements, including new regulations, and to
maintain existing permits and approvals and to obtain the permits and approvals
necessary to increase their capacity. Applicable requirements are enforceable by
injunctions and fines or penalties, including criminal penalties. These
regulations are administered by the EPA and various other federal, state and
local environmental and health and safety agencies and authorities, including
the Occupational Safety and Health Administration of the United States
Department of Labor and by the provincial environmental ministries in Canada.
CERCLA imposes liability for damages and the cleanup of sites from which
there is a release or threatened release of a hazardous substance into the
environment on generators and transporters as well as current and former owners
and operators of such sites. Given the substantial costs involved in a CERCLA
cleanup and the difficulty of obtaining insurance for environmental impairment
liability, such liability could have a material impact on the Company's
business, financial condition and future prospects.
The Company is required to provide certain financial assurances with
respect to certain statutorily required closure and post-closure obligations
related to various operating facilities. These financial assurances may take the
form of insurance, guarantees, bonds, letters of credit or deposits of cash, to
the extent acceptable to the United States, Canadian or other foreign, state,
territorial, federal, provincial or local courts, executive offices,
legislatures, governmental agencies or ministries, commissions or
administrative, regulatory or self-regulatory authorities or instrumentalities
("Governmental Entities") requiring such assurances. There is no guarantee that
the Company will be able to provide the required financial assurances, without
increased cost, or at all.
In addition to the costs of complying with environmental regulations,
hazardous waste treatment companies generally will continue to be involved in
legal proceedings in the ordinary course of business. Alleged failure by the
Company to comply with laws and regulations may lead to the imposition of fines
or the denial, revocation or delay of the renewal of permits and licenses by
Governmental Entities. In addition, such Governmental Entities as well as
surrounding landowners may claim that the Company is liable for environmental
damages. Citizens groups have become increasingly active in challenging the
grant or renewal of permits and licenses for hazardous waste facilities and
responding to such challenges has further increased the costs associated with
establishing new facilities or expanding current facilities. A significant
judgment against the Company, the loss of a significant permit or license or the
imposition of a significant fine could have a material adverse effect on the
Company's business, financial condition and future prospects. The Company is
currently a party to various legal proceedings, as well as environmental
proceedings, which have arisen in the ordinary course of its business.
Based on its past experience and its knowledge of pending cases, the
Company believes it is unlikely that the Company's actual liability on cases now
pending (including enforcement actions of the type described above and CERCLA or
state superfund cases) will be materially adverse to the Company's financial
condition. It should be noted, however, that many environmental laws are written
and enforced in a way in which the potential liability can be large, and it is
always possible that the Company's actual liability in any particular case or
claim will prove to be larger than anticipated and accrued for by the Company.
It is also possible that expenses incurred in any particular reporting period
for remediation costs or for fines, penalties or judgments could have a material
impact on the Company's results of operations for that period.
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Competitive Environment
The Company operates in highly competitive environments. In addition,
the hazardous waste industry is changing as a result of rapid consolidation. The
future success of the Company will be affected by such changes, the nature of
which cannot be forecast with certainty. There can be no assurance that such
developments will not create additional competitive pressures on the Company's
business.
International Operations
The Company has business operations in the United States, Canada and
Western Europe. Certain risks are inherent in international operations,
including the risks of differing regulation, currency fluctuations and differing
tax treatment. The Company is subject to Canadian, United States and
European-based environmental and other regulations. Also, the relative value of
United States dollar, Canadian dollar and European currencies could change. The
impact of future exchange rate fluctuations on the results of operations cannot
be accurately predicted. The Company is subject to United States, European and
Canadian tax laws and regulations. The application of United States and foreign
tax laws and regulations to Company and to intercompany relationships is subject
to audit and review by independent national tax authorities. In addition,
business practices or laws in Europe may impose costs, restrictions or
requirements on such activities that differ in significant respects from the
United States business environment.
Cyclical And Seasonal Nature Of Business
The hazardous waste business is cyclical to the extent that it is
dependent upon a stream of waste from cyclical industries. If those cyclical
industries slow significantly, the business that the Company receives from those
industries is likely to slow. Also, the Company's business is somewhat seasonal
in that generally less waste is received in winter months.
Dividends
The Company has not paid cash dividends during the past two fiscal years
and does not presently anticipate paying any cash dividends in the future. In
addition, the Company's existing credit facility precludes the payment of cash
dividends.
ITEM 2. PROPERTIES
In North America, the Company operates in 45 states, seven Canadian
provinces and Puerto Rico.
In North America, the Company's sales and service representatives
operate out of approximately 176 branch facilities. Of these, approximately half
are leased and half are owned. A typical branch is approximately 8,000 square
feet.
The Company has 31 service/accumulation centers across the United States
and Canada. Of these, 25 are owned. These locations serve branches by
accumulating shipments of waste from the Industrial Services and Commercial and
Institutional Service offerings. As truckload quantities are collected, they are
transported from these locations to the treatment and disposal or recycling
plants.
The Company owns 10 solvent recycling plants in the United States,
Canada and Puerto Rico. In total, these plants have an annual recycling capacity
of 63 million gallons of parts cleaner solvents and 15 million gallons of
halogenated, fluorinated and flammable solvents. The total storage capacity of
these plants is approximately 8.2 million gallons. In addition, the Company owns
two fuel-blending facilities, located on leased land, and has an exclusive
supply arrangement for its waste-derived fuel with a third facility. These three
facilities have combined storage capacity of approximately two million gallons.
The Company owns two oil re-refining plants with a combined annual
re-refining capacity of approximately 130 million gallons. These plants are
located in Breslau, Ontario and East Chicago, Indiana.
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The Company owns one and leases five distribution facilities in the
United States, averaging approximately 45,000 square feet each.
The Company operates eight commercial incineration facilities and 11
landfills throughout the United States and Canada, all of which are owned. The
Company also operates 15 other treatment and disposal facilities, of which nine
are leased.
The Company operates approximately 3,800 step vans, straight truck and
tractors, 650 tank and vacuum trucks, 1,200 light duty trucks and 1,800 trailer
units, most of which are owned by the Company. The Company also operates
approximately 1,250 leased railroad tanker cars.
The Company owns a 106,000 square foot plant in New Berlin, Wisconsin
where parts cleaner machines are assembled and buffing pads are manufactured.
The Company owns a 66,000 square foot technical center located in Elk
Grove Village, Illinois.
The Company owns a 285,000 square foot administrative office building
located in Elgin, Illinois. The building was the premises for Old Safety-Kleen's
corporate headquarters. The Company intends to sell this property.
The Company leases 92,000 square feet of office space in Columbia, South
Carolina for its corporate headquarters.
ITEM 3. 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 August 31, 1999,
subsidiaries of the Company were involved in four 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.
From time to time, the Company is named as a defendant in various
lawsuits arising in the ordinary course of business, including proceedings
wherein persons claim injury resulting from the use of the Company's parts
cleaner equipment and/or cleaning products, other matters involving personal
injury and property damage claims and employment-related claims. A number of
such legal proceedings are currently pending in various courts and jurisdictions
throughout North America. Based on the Company's assessment of known claims and
its historical claims payment pattern, and discussions with internal and outside
legal counsel and risk management personnel, the Company believes that there is
no proceeding pending against the Company relating to such matters arising out
of the ordinary course of business that, if resolved against the Company, would
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
August 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
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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.
VILLE MERCIER FACILITY
On May 10, 1991, representatives of the Ministry of the Environment of
the Province of Quebec conducted a search on property of a subsidiary of the
Company in Ville Mercier pursuant to a search warrant issued on the basis of
allegations that the subsidiary, prior to its acquisition, had during the years
1973, 1974 and 1975, illegally buried between 500 and 600 barrels of industrial
waste in the ground on the site. As a result of that search and the finding of
barrels of industrial waste, the subsidiary immediately undertook an
investigation and submitted a restoration plan to the Ministry of the
Environment and in fact, commenced the restoration activity. On May 24, 1991,
the Minister of the Environment issued an order under the provisions of the
Environment Quality Act, ordering the subsidiary to collect all the contaminants
dumped, emitted, issued or discharged into the environment. This order was
issued without notice to the subsidiary at a time when the subsidiary was
already carrying out its restoration plan. The subsidiary filed a motion in the
Superior Court in the Province of Quebec and the District of Montreal seeking an
order to, among other things, cancel and annul the order on the basis, that the
burial of the barrels between 1973 and 1975 did not constitute an actual and
current discharge, emission or deposit of contaminants into the environment,
justifying the 1991 order under the law and that the order did not identify the
contaminants that the subsidiary was required to remove, their location, or the
time in which this should be accomplished. Following implementation of the
restoration plan, these proceedings were suspended. Management believes that the
restoration plan submitted by the subsidiary as amended after consultation with
the Ministry of the Environment has been implemented and that any contamination
resulting from the barrels of industrial waste has been remediated.
Unrelated to the barrels of industrial waste referred to above, in a
letter dated June 19, 1992, the Quebec Ministry of the Environment requested the
subsidiary to advise the Ministry, within 30 days of receipt of the request, of
its intentions concerning the carrying out of certain characterization studies
of soil and water and restoration work with respect to certain areas of the
Ville Mercier property. In 1968, the Quebec government issued two permits to an
unrelated company to dump organic liquids into lagoons on the Ville Mercier
property. By 1971, groundwater contamination had been identified. In 1972, the
Quebec government provided an alternate water supply to Ville Mercier. In the
same year, the permit authorizing the dumping of liquids was terminated and a
permit to operate an organic liquids incinerator on the property was granted to
an entity which was indirectly acquired by the Company in 1989. In 1973, the
Quebec government contracted with the incinerator operator to incinerate the
pumpable liquids in the lagoons. In 1980, the incinerator operator removed,
solidified and disposed of the non-pumpable material from the lagoons in a
secure cell and completed the closure of the lagoons at its own expense. In
1983, the Quebec government constructed and continues to operate a groundwater
pumping and treatment facility near the lagoons. The Company believes that its
subsidiary is not the party responsible for the lagoon and groundwater
contamination. By letter dated July 17, 1992, the subsidiary responded by first
denying any responsibility for the decontamination and restoration of its site
and secondly, by proposing that the Quebec Ministry of the Environment and the
subsidiary form a working group to find the most appropriate technical solution
to the contamination problem. On November 16 and 25, 1992, the Minister of the
Environment, pursuant to the provisions of the Environment Quality Act, served
the subsidiary with two Notices alleging that the subsidiary was responsible for
the presence of contaminants on its property and that of its neighbor and
ordering the subsidiary to take all the necessary measures to excavate,
eliminate or treat all of the contaminated soils and residues located within the
areas defined in the Notices and to recover and treat all of the contaminated
waters resulting from the aforementioned measures. The Notices further provided
that failing the receipt by the Department of Environment, within ten days of
the date of service of the Notices, of an undertaking by the subsidiary to carry
out the aforementioned measures, the Minister of the Environment would proceed
to do the work and would claim from the subsidiary the direct and indirect costs
relating to such work.
By letter dated November 25, 1992, the subsidiary responded by
reiterating its position that it had no responsibility for the contamination
associated with the discharges of wastes into the former Mercier Lagoons between
1968 and 1972 and proposing to submit the question of responsibility to the
Courts for determination as expeditiously as possible through the cooperation of
the parties' respective attorneys. Concurrently, the subsidiary
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undertook to prepare and submit to the Department of the Environment a technical
plan to address the contamination on the site identified in the notices. This
plan was developed with the assistance of highly qualified experts from Quebec
and elsewhere in North America drawing upon all available information and was
submitted to the Minister of the Environment. By letter dated December 7, 1992,
the subsidiary submitted to the Minister of the Environment a document entitled
"Detailed Scope of Work for the Groundwater Contamination Panel Ville Mercier,
Quebec". This proposal by the subsidiary was refused by the Minister of the
Environment by letter dated December 22, 1992 on the grounds that it did not
meet the terms of the above mentioned Notices issued against the subsidiary. The
Minister published a request for tenders for the preparation of plans and
specifications with respect to the excavation and storage of the contaminated
soils. The Minister also retained six independent experts to review the
subsidiary's technical plan. This panel of experts subsequently submitted to the
Minister of the Environment its recommended methodology to address the
contamination on the site.
The Minister of the Environment convened a public hearing which reviewed
the report submitted to the Minister by the experts he retained and recommended
to the Minister what remedial plan should be instituted to address the
contamination on the site.
The subsidiary filed legal proceedings seeking a court determination of
the liability associated with the contamination of the former Mercier lagoons.
The subsidiary asserted that it has no responsibility for the contamination on
the site. The Minister claimed that the subsidiary is responsible for the
contamination and should reimburse the Province of Quebec for costs incurred to
the present in the amount of $17.4 million Canadian and should be responsible
for future remediation costs.
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. The subsidiary will continue to assert that it
has no responsibility for the ground water contamination in the region.
Pursuant to the Agreement dated February 6, 1997, among the Company,
Laidlaw and Laidlaw Transportation, Inc., Laidlaw and Laidlaw Transportation,
Inc. agreed to indemnify and hold harmless the Company and its subsidiaries for
any damages resulting from the remediation of contaminated soils and water
arising from the former lagoon sites and the operation of the incinerator at
Mercier, Quebec. The indemnification is only to the extent that the aggregate
cash expenditure with respect to such damages exceeds in the aggregate (i) $1
million during such year and (ii) since 1997, an amount equal to the product of
$1 million times the number of years that have elapsed since 1997; however,
there shall be no indemnification for any cash expenditures incurred more than
six years after 1997. 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.
SAFETY-KLEEN (PINEWOOD), INC. FINANCIAL ASSURANCE
A subsidiary of the Company, Safety-Kleen (Pinewood), Inc. ("Pinewood"),
owns and operates a hazardous waste landfill near the Town of Pinewood in Sumter
County, South Carolina. South Carolina law requires that hazardous waste
facilities provide evidence of financial assurance for potential environmental
cleanup and restoration in form and amount to be determined by the South
Carolina Department of Health and Environmental Control ("DHEC").
In its order dated May 19, 1994, the Board of DHEC (the "Board") decided
that over a ten year period Pinewood must establish a cash funded trust in the
amount of $133 million, adjusted for inflation, as financial assurance for
potential environmental cleanup and restoration. In August 1994, Pinewood paid
approximately $14 million cash into the trust fund as a first installment. The
cash funded trust now stands at approximately $18 million. Pinewood appealed to
the South Carolina Circuit Court contesting the legality of the Board's
determination.
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In June 1995, DHEC promulgated, and the South Carolina legislature
approved, regulations governing financial assurance for environmental cleanup
and restoration giving owner/operators of hazardous waste facilities the right
to choose from among six options for providing financial assurance. The options
include insurance, a bond, a letter of credit, a cash trust fund and a corporate
guaranty with a financial test.
In June 1995, under authority of the new regulations, Pinewood submitted
financial assurance for potential environmental cleanup and restoration composed
of a combination of the existing State Permitted Sites Fund (this is a state of
South Carolina fund created by statute and funded by hazardous waste disposal
taxes) in the amount of approximately $8 million and the balance of a total
package of $135 million by way of a corporate guaranty by Laidlaw Inc. in the
amount of approximately $127 million. Pinewood also left in place the existing
cash trust fund in the amount of approximately $16 million. DHEC accepted
Pinewood's financial submittal. On September 15, 1995, DHEC issued a declaratory
ruling finding the new regulations applicable to financial assurance
requirements for Pinewood. A group of parties opposed to the ruling appealed the
declaratory ruling to the South Carolina Circuit Court. The opposing parties
include Citizens Asking for a Safe Environment, Energy Research Foundation,
County of Sumter, Sierra Club, County of Clarendon, The Sumter County
Legislative Delegation, the South Carolina Department of Natural Resources and
the South Carolina Public Service Authority. In June 1996, Pinewood submitted
and DHEC accepted a similar financial assurance package for the state fiscal
year ended June 30, 1997. In June 1997, June 1998 and June 1999 Pinewood
submitted and DHEC approved financial assurance packages for the state fiscal
years ending June 30, 1998, 1999 and 2000, consisting of the State Permitted
Sites Fund (approximately $11 million), the cash trust fund in the amount of
approximately $18 million and the balance of a total package of approximately
$140 million in insurance coverage in replacement of the Laidlaw guarantee.
Pinewood's appeal of the May 19, 1994 DHEC order and the opposing
parties' appeal of the September 15, 1995 DHEC declaratory ruling were
consolidated in the South Carolina Circuit Court in the case captioned Laidlaw
Environmental Services of South Carolina, Inc. et. al., Petitioners vs. South
Carolina Department of Health and Environmental Control and South Carolina Board
of Health and Environmental Control, Respondents - Energy Research Foundation,
et al., Intervenors, Docket Numbers C/A 94-CP-43-175, 94-CP-43-178,
94-CP-40-1412 and 94-CP-40-1859. A decision was issued by the Circuit Court on
August 19, 1997 finding the regulation legally valid and applicable to financial
assurance requirements of the Pinewood landfill. Opposing parties appealed the
decision to the South Carolina Court of Appeals. The South Carolina Court of
Appeals heard arguments in the case on September 9, 1999 and it is anticipated
that a decision of the Court of Appeals will be issued during the Company's
fiscal year ending August 31, 2000. A decision adverse to the Company could
result in the reinstatement of the May 19, 1994 DHEC order. The Company believes
that the regulations promulgated in June 1995 are legally valid and applicable
to financial assurance requirements for the Pinewood landfill. 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.
TAX MATTERS
Laidlaw's United States subsidiaries petitioned 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) with respect
to their consolidated federal income tax returns (which until May 15, 1997
included certain of the Company's United States subsidiaries) for the fiscal
years ended August 31, 1986, 1987 and 1988. The principal issue involved related
to the timing and deductibility for tax purposes of interest attributable to
loans owing to related foreign persons. Judge John O. Colvin issued an opinion
on June 30, 1998 concluding that advances from Laidlaw's related foreign entity
were equity rather than debt and that interest deductions claimed were
disallowed. Similar claims were asserted with respect to Laidlaw's consolidated
federal income tax returns for the fiscal years ended August 31, 1989, 1990 and
1991 and a petition was filed with the United States Tax Court with respect to
these years (captioned as Laidlaw Transportation, Inc. and Subsidiaries v.
Commissioner of Internal Revenue, Docket No. 329-98). In September 1998,
Laidlaw's United States subsidiaries received a thirty day letter proposing that
the subsidiaries pay additional taxes relating to disallowed deductions in
federal income tax returns for the fiscal years ended August 31, 1992, 1993 and
1994 based on the same issues. Entry of the decision relating to the Tax Court
opinion was deferred to allow Laidlaw and the Commissioner of Internal Revenue
to engage in discussions to resolve issues relating to all fiscal years from
1986 through 1994.
16
<PAGE>
On March 1, 1999, Laidlaw, Inc. announced a settlement of the dispute
between its 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, Inc. was
approximately $226 million compared with more than $500 million should Laidlaw,
Inc. have been required to pay all claims on these issues for these periods. The
payment includes approximately $121 million in taxes together with interest of
approximately $161 million ($105 million after tax) of which $281.1 million was
paid by August 31, 1999 and the balance in September 1999. This settlement
resolves matters in the United States Tax Court (captioned as Laidlaw
Transportation, Inc. and Subsidiaries v. Commissioner of Internal Revenue,
Docket Nos. 9361-94 and 329-98) relating to the 1986 to 1991 fiscal years as
well as claims raised in the thirty day letter relating to 1992 to 1994.
Pursuant to the agreement dated February 6, 1997 among the Company,
Laidlaw and Laidlaw Transportation, Inc., Laidlaw and Laidlaw Transportation,
Inc. 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 tax or interest is due to or from
Laidlaw as a result of the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a Special Meeting of Shareholders on August 27, 1999.
At the meeting, shareholders approved the Company's proposal relating to the
issuance of shares of common stock of the Company, par value $1.00 per share, to
Laidlaw International Finance Corporation ("LIFC") or another affiliate of
Laidlaw Inc., in connection with the Company's proposed repurchase of its
outstanding $350 million 5% Subordinated Convertible Pay-In-Kind Debenture due
2009 held by LIFC. 79.4% of the outstanding shares were represented at the
meeting. The following table sets forth the voting results:
Abstentions and
For Against Broker Non-Votes
--- ------- ----------------
Issuance of Stock 70,038,779 484,455 106,897
99.1% .7% .2%
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On August 27, 1999, in connection with the repurchase of the Company's
$350 million 5% Subordinated Convertible Pay-In-Kind debenture (the "Debenture")
and payment of accrued interest thereon, the Registrant issued 11,697,613 shares
of its common stock, par value $1.00 per share ("SK Stock"), beneficially to
Laidlaw through Laidlaw's subsidiary. 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 repurchase of the
Debenture.
The section entitled "Shareholder Information" appearing on page 8 in
the Company's 1999 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The section entitled "Financial Highlights and Selected Financial Data"
appearing on page 1 in the Company's 1999 Annual Report to Stockholders is
incorporated herein by reference.
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<PAGE>
ITEM 7. 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.
Results associated with the May 15, 1997 reverse acquisition of Rollins
Environmental Services, Inc. ("Rollins") (the "Rollins Acquisition") 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
Twelve Months Ended August 31, 1999 compared with Twelve Months Ended August 31,
1998
Operating results, before restructuring and other charges and extraordinary
items, are as follows ($ in millions):
<TABLE>
<CAPTION>
Twelve Months Ended August 31
-----------------------------
1999 1998
-------------------------------------
<S> <C> <C> <C> <C>
Revenue ............................................. $1,685.9 100.0% $1,185.5 100.0%
Operating expense ................................... 1,070.6 63.5% 797.4 67.3%
Depreciation and amortization ....................... 136.0 8.1% 93.1 7.8%
Selling, general and administrative ................. 134.5 8.0% 108.8 9.2%
-------- ------ -------- ------
Operating income before restructuring and other
charges and extraordinary items ..................... $ 344.8 20.4% $ 186.2 15.7%
======== ===== ======== ======
</TABLE>
Components of revenue are as follows ($ in millions):
<TABLE>
<CAPTION>
Twelve Months Ended August 31
-----------------------------
1999 1998
-------------------------------------
<S> <C> <C> <C> <C>
Collection and Recovery Services
Industrial Services ............................ $ 800.1 47% $ 585.3 50%
Commercial and Institutional Services .......... 540.7 32% 227.7 19%
-------- --- -------- ---
Total Collection and Recovery Services ............. 1,340.8 79% 813.0 69%
Treatment and Disposal Services .................... 313.4 19% 324.6 27%
European Operations ................................ 31.7 2% 47.9 4%
--------- ---- -------- ---
Total revenue ................................. $1,685.9 100% $1,185.5 100%
======== ==== ======== ====
</TABLE>
Revenue increased $500.4 million, or 42.2%, during the twelve months
ended August 31, 1999, compared to the twelve months ended August 31, 1998.
Revenue from collection and recovery services to industrial customers increased
$214.8 million, or 36.7%, while collection and recovery services to commercial
and institutional customers increased $313.0 million, or 137.5%. Increased
revenue from collection and recovery services reflects the inclusion of the
acquired Old Safety-Kleen business for the full twelve months of the current
period. Revenue from treatment and disposal services decreased $11.2 million, or
3.5%, primarily due to a reduction in the level of activity at the Company's
harbor dredging and treatment operations. European operations generated $31.7
million in the
18
<PAGE>
three months included in the current period compared to $47.9 million for the
five months included in the prior fiscal year, a decrease of $16.2 million.
The Company eliminates inter-company revenue 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)
Twelve Months Ended August 31
1999 over 1998
--------------
Expansion of customer base by acquisition 46.8%
Other, primarily through volume and price changes 1.5%
Divestitures and closures (5.3%)
Foreign exchange rate changes (0.8%)
------
Total 42.2%
The comparative increase in revenue for the twelve months ended August
31, 1999, was primarily due to the inclusion of a full twelve month's results
for the acquired North American operations of Old Safety-Kleen. Revenue from
existing operations was impacted by a significant reduction in the level of
activity in the Company's harbor dredging and treatment operations within the
treatment and disposal component. Prior year revenue 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 effective December 1, 1998. A reduction in revenue 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 growth of
approximately 7% during fiscal 2000 primarily as a result of market share gains
in the industrial services component, the introduction of new services, and, to
a lesser extent, price increases. During the fourth fiscal quarter of fiscal
1999, the price and volume increase over the prior year, excluding the Company's
harbor dredging and treatment operations, was 5.0%.
Operating Expenses
Operating expenses increased $273.2 million, or 34.3%, during the twelve
months ended August 31, 1999, compared to the twelve months ended August 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 63.5% from 67.3% 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. The Company estimates that the
vast majority of available cost reduction measures associated with the
acquisition of Old Safety-Kleen has been achieved by the fourth quarter of
fiscal 1999, during which operating expenses totaled 62.4% of revenue and that
operating expenses during fiscal 2000 will approximate a similar percentage of
revenue.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $42.9 million, or 46.1%,
during the twelve months ended August 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 8.1%, compared to 7.8% in
the prior year. The increase as a percentage of revenue is primarily
attributable to the full year's inclusion of the amortization of excess purchase
price related to the acquisition of Old Safety-Kleen.
19
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $25.7 million, or
23.6%, during the twelve months ended August 31, 1999, versus the prior year. As
a percentage of revenue, selling, general and administrative expenses decreased
to 8.0% from 9.2% in the prior year due to cost reduction measures and economies
of scale gained through the acquisition of Old Safety-Kleen. The Company
estimates that, as a percentage of revenue, costs for the year ended August 31,
1999, will be representative of those to be incurred in fiscal 2000.
Interest Expense
Interest expense increased $64.3 million, or 59.7%, during the twelve
months ended August 31, 1999, over the prior year as a result of the additional
long term debt incurred to finance the acquisition of Old Safety-Kleen.
Based on existing market conditions, the Company's average interest rate
is approximately 8.25% of which 60% was fixed at August 31, 1999. The Company
capitalized $4.1 million of interest costs during the year.
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 and
intends to permanently reinvest its share of the earnings of the European
operations.
Income Tax Expense
The effective tax rate of 44% on income before restructuring and other
charges, equity earnings, and taxes ($178.6 million), has increased over the
prior year effective rate due to the sale of 56% of the Company's European
operations and a full year's impact of the 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.
Extraordinary Loss
On August 27, 1999, as a result of the repurchase of the subordinated
convertible debenture, the Company recognized an extraordinary charge of $15.0
million, or $0.13 per share on a diluted basis, related to the write-off of a
deferred tax asset associated with the debenture.
RESULTS OF OPERATIONS
Twelve Months Ended August 31, 1998 compared with Twelve Months Ended August 31,
1997
Operating results, before restructuring and other charges and extraordinary
items, are as follows ($ in millions):
<TABLE>
<CAPTION>
Twelve Months Ended August 31
-----------------------------
1998 1997
-------------------------------------
<S> <C> <C> <C> <C>
Revenue ............................................ $1,185.5 100.0% $678.6 100.0%
Operating expense .................................. 797.4 67.3% 485.1 71.5%
Depreciation and amortization ...................... 93.1 7.8% 53.5 7.9%
Selling, general and administrative ................ 108.8 9.2% 73.1 10.7%
-------- ----- ------ ------
Operating income before restructuring and other
charges and extraordinary items .................... $ 186.2 15.7% $ 66.9 9.9%
======== ====== ====== ======
</TABLE>
20
<PAGE>
Components of revenue are as follows ($ in millions):
<TABLE>
<CAPTION>
Twelve Months Ended August 31
-----------------------------
1998 1997
-------------------------------------
Collection and Recovery Services
<S> <C> <C> <C> <C>
Industrial Services ................................$ 585.3 50% $ 394.1 58%
Commercial and Institutional Services .............. 227.7 19% 0.0 0%
-------- --- ------ ----
Total Collection and Recovery Services ................. 813.0 69% 394.1 58%
Treatment and Disposal Services ........................ 324.6 27% 284.5 42%
European Operations .................................... 47.9 4% 0.0 0%
------- ---- ------ ----
Total revenue .....................................$1,185.5 100% $ 678.6 100%
======== ==== ======== ====
</TABLE>
Revenue increased $506.9 million, or 74.7%, during the fiscal year ended
August 31, 1998, compared to the fiscal year ended August 31, 1997. Revenue from
collection and recovery services to industrial customers increased $191.2
million, or 48.5%, while the addition of collection and recovery services to
commercial and institutional customers generated an additional $227.7 million.
Increased revenue from industrial services reflects the inclusion of the
acquired Old Safety-Kleen and Rollins businesses while the commercial and
institutional component reflects business acquired with Old Safety-Kleen
exclusively. Revenue from treatment and disposal services increased $40.1
million, or 14.1%, primarily due to the acquired Rollins business as well as
increased harbor related dredging, treatment and disposal activities. The
acquired European operations of Old Safety-Kleen provided an additional $47.9
million in revenue.
The Company eliminates inter-company revenue 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)
Twelve Months Ended August 31,
1998 over 1997
--------------
Expansion of customer base by acquisition 80.4%
Other, primarily through volume and price changes 3.0%
Divestitures and closures (7.9%)
Foreign exchange rate changes (0.8%)
------
Total 74.7%
=====
The comparative increase in revenue for the fiscal year ended August 31,
1998 was primarily due to the inclusion of the acquired operations of Old
Safety-Kleen from April 1, 1998, and the inclusion of Rollins for the full
fiscal year compared to its inclusion as of May 15, 1997, in the prior year.
Revenue from existing operations grew as a result of increased activity at the
Company's harbor-related dredging, treatment and placement operations but were
partially offset by reduced volumes at certain hazardous waste landfills. Prior
year revenue included contributions from an industrial and municipal solid waste
landfill which was divested on December 18, 1997. A reduction in revenue due to
foreign exchange rate changes resulted from a relative decline in the Canadian
dollar translation rate.
Operating Expenses
Operating expenses increased $312.3 million, or 64.4%, during the fiscal
year ended August 31, 1998, compared to the fiscal year ended August 31, 1997.
The increase was primarily attributable to additional business obtained as part
of the acquisitions of Old Safety-Kleen and Rollins. As a percentage of revenue,
operating expense
21
<PAGE>
decreased to 67.3% from 71.5% in the prior year, primarily due to stabilized
pricing, the increased utilization of existing facilities and acquisition
related cost reduction measures.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $39.6 million, or 74.0%,
during the fiscal year ended August 31, 1998, compared to the prior year. The
increase related to the acquired operations of Old Safety-Kleen and Rollins. As
a percentage of revenue, depreciation and amortization expense was relatively
unchanged at 7.8% compared to 7.9% in the prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $35.7 million, or
48.8%, during the fiscal year ended August 31, 1998, compared to the prior year.
As a percentage of revenue, selling, general and administrative expenses
decreased to 9.2%, from 10.7% in the prior year, due to cost reduction measures
and economies of scale gained through the Safety-Kleen and Rollins Acquisitions.
Restructuring and Other Charges
A one-time restructuring charge of $65.8 million ($39.5 million after
tax, or $0.12 per share on a diluted basis) impacted earnings for the twelve
months ended August 31, 1998. The charge included the costs associated with the
closing and remediation of certain of the existing operating facilities that
have become redundant and other exit activities as a result of the Safety-Kleen
Acquisition. $31.8 million of the charge related to the non-cash write-off of
existing facility carrying values, and $34.0 million represented cash costs to
be expended during subsequent periods.
In fiscal 1997, the Company recorded a restructuring charge of $331.7
million ($200.0 million after tax) related to the Rollins Acquisition, of which
the expected cash costs were $25 million.
Interest Expense
Interest expense increased $63.4 million, or 143.3%, during the fiscal
year ended August 31, 1998 over the prior year, primarily as a result of the
recapitalizations related to the Safety-Kleen and Rollins Acquisitions. Prior to
May 15, 1997, interest expense was allocated from the parent corporation,
Laidlaw Inc.
Income Tax Expense
Prior to May 15, 1997, income tax expense was allocated from the parent
corporation using applicable income tax rates on income for tax purposes on a
separate return basis. Effective May 15, 1997, the Company began filing federal
and state income tax returns separately.
Extraordinary Loss
In April 1998, the Company replaced its existing Bank Credit Facility
with a Senior Credit Facility and recognized an extraordinary charge of $18.8
million ($11.3 million after tax or $0.13 per share on a diluted basis) related
to the write-off of previous deferred debt issuance costs and repayment
penalties.
ENVIRONMENTAL LIABILITIES
Note 9 to the Consolidated Financial Statements includes a continuity of
the Company's environmental liabilities for the two years ended August 31, 1999.
During fiscal 1999, the Company charged against earnings $1.4 million
for closure and post-closure costs at open landfill facilities and $3.6 million
for remediation costs at open facilities. The closure and post-closure costs
relate to consumed airspace, based on waste receipts during the year. The
remediation costs relate to ongoing monitoring activities. There were no
significant amounts charged against earnings related to closed facilities.
22
<PAGE>
In addition, the Company reevaluated the costs associated with closing
and remediating facilities identified for closure in connection with the
acquisition of Old Safety-Kleen and identified additional LESI facilities to be
closed. As outlined in Note 12 to the Consolidated Financial Statements, a $14.2
million reduction in previously recorded environmental liabilities was recorded
relating to the LESI facilities identified for closure in fiscal 1998 and a $2.8
million increase was required to be recorded relating to additional LESI
facilities identified for closure in connection with the acquisition of Old
Safety-Kleen.
During fiscal 1999, the Company reduced environmental liabilities by
$1.9 million due to changes in foreign exchange rates.
In fiscal 1998, the Company charged against earnings $0.5 million for
closure and post-closure costs at open landfill facilities and $2.9 million for
remediation costs at open facilities.
EARNINGS PER SHARE
Basic earnings per share ("EPS") for fiscal 1999 of $1.00 on reported
net income of $89.0 million, comprises a $0.17 loss for the extraordinary item
and $1.17 for income from continuing operations. Diluted EPS from continuing
operations before the extraordinary item were $1.03.
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 this Annual Report on Form 10-K for the Twelve
Months Ended August 31, 1999. 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 at the close of business on November
30, 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 were used to finance the cash
portion of the purchase price for the repurchase of the subordinated convertible
debenture (the "Repurchase"). The purchase price also included approximately
11.3 million common shares of the Company. The issuance of the common shares was
approved at a Special Meeting of the stockholders of the Company on August 27,
1999.
On August 27, 1999, the Company issued 376,858 shares to satisfy
interest due, through the date of the repurchase, on the subordinated
convertible debenture.
23
<PAGE>
LIQUIDITY
Total cash provided by operations during the twelve months ended August
31, 1999 was $70.1 million. This was comprised of $312.1 million from operations
before financing working capital requirements of $154.1 million and $87.9
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 twelve months ended August
31, 1999, the Company received $140.4 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.
The Company's primary sources of liquidity are cash flows from
operations, existing cash and short-term investments of $9.2 million, and the
unused cash portion of the Senior Credit Facility's revolver tranche of $299
million.
Trade and other accounts receivable represent the largest portion of
current assets, totaling $395.0 million at August 31, 1999. The average days
sales outstanding ("DSO") increased to 82 days, from 66 days at August 31, 1998.
The DSO increase and the related increase in working capital was due to billing
and collections systems integration and modifications. The Company expects days
sales outstanding to decrease in fiscal 2000 as these integration issues are
resolved and as systems modifications become complete.
The Company expects to fund capital expenditures, debt repayment and
environmental liability requirements from cash flows from operations.
The Company has not paid dividends during the reported periods, and does
not intend to pay dividends in the foreseeable future. Additionally, the Senior
Credit Facility prohibits the payment of dividends (unless a given percentage of
lenders otherwise agree).
The Company has charged cash expenditures of $31.2 million against the
Safety-Kleen and Rollins restructuring reserves during Fiscal 1999, leaving a
balance of $13.0 million for which cash expenditures related primarily to
environmental accruals will be expended in subsequent periods.
CAPITAL EXPENDITURES AND CAPITAL RESOURCES
Investing activities for the twelve months ended August 31, 1999,
generated cash of $59.4 million. Net expenditures for the purchase of fixed
assets for normal replacement requirements and increases in services were $66.3
million and net proceeds from the sale of the European operations were $140.4
million. The Company's projected capital expenditures for fiscal 2000 are
approximately $75 to $80 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 August 31, 1999.
The Company's 1999 Notes are effectively subordinated to the Company's
subsidiaries' indebtedness. The 1998 Notes restrict 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.
24
<PAGE>
INFLATION
During the periods presented herein, the Company's business has not been
and is not expected in the near future to be, significantly affected by
inflation.
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, 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, (c) our key vendors not being able to supply goods and services on a
timely basis, and (d) the inability of our customers to remit payment for
services rendered 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.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, FASB issued Statement No. 133, "Accounting of Derivative
Instruments and Hedging Activities," ("SFAS 133"), and amended by SFAS 137,
effective for periods beginning after June 15, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded on other contracts, and derivatives used for
hedging purposes. SFAS 133 requires that
25
<PAGE>
entities recognize all derivative financial instruments as either assets or
liabilities on the balance sheet at their fair value. Changes in the fair value
of the derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction, and if it is, the type of hedge transaction. The Company
anticipates that the adoption of this standard will not have a significant
effect on the Company's results of operations or its financial position.
In March 1998, the AICPA issued Statement of Position 98-1. "Accounting
for Costs of Computer Software for Internal Use," ("SOP 98-1"), effective for
periods beginning after December 15, 1998. SOP 98-1 provides guidance on
defining internal use software and the accounting for the costs thereof. The
Company anticipates that the adoption of this statement will not have a
significant effect on the Company's results of operations or its financial
position.
In April 1998, the AICPA issued Statement of Position 98-5, "Accounting
for the Costs of Start-Up Activities," (SOP 98-5"), effective for periods
beginning after December 15, 1998. SOP 98-5 requires all costs of start-up
activities to be expensed as incurred. Start-up activities are defined as those
one-time activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer or beneficiary, initiating a new process in an existing
facility, or commencing a new operation. Activities related to mergers or
acquisitions are not considered start-up activities and, therefore, SOP 98-5
does not change the accounting for such items. The Company anticipates that the
adoption of this statement will not have a significant effect on the Company's
results of operations or its financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has no material information to disclose.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements
<S> <C>
Report of Independent Accountants................................................................28
Consolidated Statements of Income for the Years Ended August 31, 1999, 1998 and 1997............29
Consolidated Statements of Comprehensive Income for the Years Ended August 31, 1999, 1998
and 1997.........................................................................................29
Consolidated Balance Sheets as of August 31, 1999 and 1998.......................................30
Consolidated Statements of Cash Flows for the Years Ended August 31, 1999, 1998 and 1997.........31
Consolidated Statements of Stockholders' Equity for the Years Ended August 31, 1999, 1998
and 1997.........................................................................................32
Notes to Consolidated Financial Statements.......................................................33
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of Safety-Kleen Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, cash flows and
stockholders' equity present fairly, in all material respects, the financial
position of Safety-Kleen Corp. and its subsidiaries at August 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended August 31, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ProcewaterhouseCoopers LLP
Charlotte, North Carolina
October 5, 1999
28
<PAGE>
SAFETY-KLEEN CORP.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue .......................................... $ 1,685,948 $ 1,185,473 $ 678,619
----------- ----------- -----------
Expenses:
Operating ...................................... 1,070,666 797,382 485,062
Depreciation and amortization .................. 136,002 93,051 53,506
Selling, general and administrative ............ 134,497 108,817 73,068
Restructuring and other charges ................ -- 65,831 331,697
----------- ----------- -----------
Total expenses ............................... 1,341,165 1,065,081 943,333
----------- ----------- -----------
Operating income (loss) .......................... 344,783 120,392 (264,714)
Interest expense ................................. 172,028 107,697 44,273
Other income ..................................... 5,803 7,657 2,865
Equity in earnings of associated company ......... 2,708 -- --
----------- ----------- -----------
Income (loss) from continuing operations
before income tax expense (benefit) ............ 181,266 20,352 (306,122)
Income tax expense (benefit) ..................... 78,565 9,133 (122,789)
----------- ----------- -----------
Income (loss) from continuing operations
before minority interest ....................... 102,701 11,219 (183,333)
Minority interest, net of tax .................... 1,211 269 (119)
----------- ----------- -----------
Income (loss) from continuing operations ......... 103,912 11,488 (183,452)
Income from discontinued operations, net of tax .. -- -- 20
----------- ----------- -----------
Income (loss) before extraordinary item .......... 103,912 11,488 (183,432)
Extraordinary loss, net of tax of $7,494 in 1998 . (15,036) (11,283) --
----------- ----------- -----------
Net income (loss) ................................ $ 88,876 $ 205 $ (183,432)
=========== =========== ===========
Basic income (loss) per share:
Income (loss) from continuing operations ....... $ 1.17 $ 0.18 $ (5.32)
Extraordinary loss, net of tax ................. (0.17) (0.18) --
----------- ----------- -----------
Net income (loss) .............................. $ 1.00 $ -- $ (5.32)
=========== =========== ===========
Weighted average common stock outstanding (000s) 88,537 62,322 34,508
=========== =========== ===========
Diluted income (loss) per share:
Income (loss) from continuing operations ....... $ 1.03 $ 0.18 $ (5.32)
Extraordinary loss, net of tax ................. (0.13) (0.18) --
----------- ----------- -----------
Net income (loss) .............................. $ 0.90 $ -- $ (5.32)
=========== =========== ===========
Weighted average common stock outstanding
and assumed conversions (000s) ............... 111,645 62,322 34,508
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
SAFETY-KLEEN CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
<TABLE>
<CAPTION>
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) ................................... $ 88,876 $ 205 $(183,432)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments 5,879 (18,122) (706)
--------- --------- ---------
Comprehensive income (loss) ......................... $ 94,755 $ (17,917) $(184,138)
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
29
<PAGE>
SAFETY-KLEEN CORP.
CONSOLIDATED BALANCE SHEETS
($ in thousands)
August 31
---------
1999 1998
---- ----
ASSETS
Current assets
Cash and cash equivalents ....................... $ 9,173 $ 16,333
Accounts receivable ............................. 395,009 320,048
Inventories and supplies ........................ 60,567 53,759
Income taxes recoverable ........................ -- 37,495
Deferred income taxes ........................... 58,641 69,426
Other current assets ............................ 64,307 45,273
----------- -----------
Total current assets .......................... 587,697 542,334
----------- -----------
Long-term investments ............................. 76,739 35,926
----------- -----------
Property, plant and equipment
Land, landfill sites and improvements ........... 507,404 504,308
Buildings ....................................... 1,012,660 1,115,137
Machinery and equipment ......................... 1,412,988 1,495,643
Leasehold improvements .......................... 23,788 32,815
Construction in process ......................... 28,200 14,965
----------- -----------
Property, plant and equipment ................. 2,985,040 3,162,868
Less, accumulated depreciation and amortization (413,020) (312,366)
----------- -----------
Property, plant and equipment, net .......... 2,572,020 2,850,502
Goodwill, at cost (net of accumulated amortization
of $39,538 in 1999; $13,268 in 1998) ............ 1,098,731 1,023,154
Other assets ...................................... 31,617 16,979
----------- -----------
Total assets .................................... $ 4,366,804 $ 4,468,895
=========== ===========
LIABILITIES
Current liabilities
Accounts payable ................................ $ 172,838 $ 128,560
Accrued liabilities ............................. 163,818 219,352
Current portion of long-term debt ............... 85,063 77,004
----------- -----------
Total current liabilities ..................... 421,719 424,916
Environmental and other long-term liabilities 224,090 259,459
Long-term debt .................................... 1,882,371 1,853,164
Subordinated convertible debenture ................ -- 350,000
Deferred income taxes ............................. 556,372 566,650
----------- -----------
Total liabilities ............................... 3,084,552 3,454,189
----------- -----------
Commitments and contingencies ..................... -- --
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share;
authorized 250,000,000; issued and outstanding
100,635,975 - 1999; 87,746,243 - 1998............ 100,636 87,746
Additional paid-in capital ........................ 1,342,448 1,182,547
Accumulated other comprehensive loss .............. (12,949) (18,828)
Accumulated deficit ............................... (147,883) (236,759)
----------- -----------
Total stockholders' equity ...................... 1,282,252 1,014,706
----------- -----------
Total liabilities and stockholders' equity ...... $ 4,366,804 $ 4,468,895
=========== ===========
See accompanying Notes to Consolidated Financial Statements
30
<PAGE>
SAFETY-KLEEN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) ................................. $ 88,876 $ 205 $ (183,432)
Adjustments to reconcile net income (loss) to net
cash provided by continuing operations:
Income from discontinued operations ............ -- -- (20)
Extraordinary loss, net of applicable income tax 15,036 11,283 --
Restructuring and other charges, net of
Applicable income tax ......................... -- 39,499 200,000
Depreciation and amortization .................. 136,002 93,051 53,506
Deferred income taxes .......................... 64,038 21,681 37,507
Equity in undistributed earnings of associated
companies ...................................... (2,708) -- --
Change in accounts receivable .................. (92,263) 7,902 (8,151)
Change in accounts payable and accrued and
other long-term liabilities ................... (41,816) (34,955) (52,632)
Decrease in liabilities assumed upon acquisition (87,964) (40,922) (17,945)
Change in other, net ........................... (9,143) (10,117) 8,126
----------- ----------- -----------
Net cash provided by continuing operations .......... 70,058 87,627 36,959
Net cash provided by discontinued operations ........ -- -- 425
----------- ----------- -----------
Net cash provided by operating activities ........... 70,058 87,627 37,384
----------- ----------- -----------
Cash flows from investing activities:
Cash acquired (expended) on acquisition of
businesses ........................................ (10,911) (1,281,495) 15,451
Purchase of property, plant and equipment ......... (73,593) (50,754) (36,097)
Increase in long-term investments ................. (5) (2,478) (2,837)
Proceeds from sales of property, plant and
equipment ......................................... 7,336 13,433 1,596
Proceeds from sale of business .................... 140,401 33,675 --
Change in other, net .............................. (3,870) (5,716) --
----------- ----------- -----------
Net cash provided by (used in) continuing operations 59,358 (1,293,335) (21,887)
Net cash used in discontinued operations ............ -- -- (1,887)
----------- ----------- -----------
Net cash provided by (used in) investing activities . 59,358 (1,293,335) (23,774)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock upon exercise of
stock options .................................... 212 509 --
Borrowings of long-term debt ...................... 225,000 1,856,814 451,622
Repayments of long-term debt ...................... (385,294) (604,684) (61,542)
Bank overdraft .................................... 36,396 12,992 (32,188)
Bank financing fees and expenses .................. (12,900) (50,538) (18,788)
Payments to Laidlaw Inc. .......................... -- -- (349,116)
Advances from Laidlaw Inc. ........................ -- -- 7,562
----------- ----------- -----------
Net cash provided by (used in) financing activities . (136,586) 1,215,093 (2,450)
----------- ----------- -----------
Effect of exchange rate changes on cash ............. 10 (4,212) --
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (7,160) 5,173 11,160
Cash and cash equivalents at:
Beginning of period ............................... 16,333 11,160 --
----------- ----------- -----------
End of period ..................................... $ 9,173 $ 16,333 $ 11,160
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
31
<PAGE>
SAFETY-KLEEN CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Comprehensive Accumulated Stockholders'
Stock Capital Loss Deficit Equity
----- ------- ---- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1996 . $ 30,000 $1,118,309 $ -- $ (53,532) $1,094,777
Net loss ................... -- -- -- (183,432) (183,432)
Net additional investment
by Laidlaw Inc. .......... -- 7,562 -- -- 7,562
Issuance of subordinated
convertible debenture
to Laidlaw Inc. .......... -- (350,000) -- -- (350,000)
Cash paid to Laidlaw Inc. .. -- (349,116) -- -- (349,116)
Issuance of additional
shares on acquisition .... 15,094 150,940 -- -- 166,034
Exercise of stock options .. 15 140 -- -- 155
Transfer of subsidiary (See
Note 14) to Laidlaw Inc. . -- (57,309) -- -- (57,309)
Cumulative foreign currency
translation adjustment ... -- -- (706) -- (706)
--------- ---------- ---------- ----------- -----------
Balance at August 31, 1997 . 45,109 520,526 (706) (236,964) 327,965
Net income ................. -- -- -- 205 205
Issuance of additional
shares on acquisition .... 41,615 645,034 -- -- 686,649
Exercise of stock options .. 42 467 -- -- 509
Issuance of shares in
payment for interest
on subordinated
convertible debenture .... 980 16,520 -- -- 17,500
Cumulative foreign currency
translation adjustment ... -- -- (18,122) -- (18,122)
--------- ---------- ---------- ----------- -----------
Balance at August 31, 1998 . 87,746 1,182,547 (18,828) (236,759) 1,014,706
Net income ................. -- -- -- 88,876 88,876
Exercise of stock options .. 18 194 -- -- 212
Issuance of shares in
payment for directors'fees 6 87 -- -- 93
Issuance of shares for
repurchase of subordinated
convertible debenture .... 11,321 138,679 -- -- 150,000
Issuance of shares in
payment for interest
on subordinated
convertible debenture .... 1,545 20,941 -- -- 22,486
Cumulative foreign currency
translation adjustment ... -- -- 5,879 -- 5,879
--------- ---------- ----------- ----------- -----------
Balance at August 31, 1999 . $ 100,636 $1,342,448 $ (12,949) $ (147,883) $1,282,252
========= ========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
32
<PAGE>
SAFETY-KLEEN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed in the
preparation of these consolidated financial statements is as follows:
Consolidation and Presentation
The consolidated financial statements include the accounts of
Safety-Kleen Corp. (formerly Laidlaw Environmental Services, Inc. or "LESI")
(the "Company") and all of its subsidiary companies. All significant
intercompany balances and transactions have been eliminated in consolidation.
Prior period shares issued and outstanding, weighted average common
stock outstanding and basic and diluted income per share have been restated to
reflect a one-for-four reverse stock split which became effective at the close
of business November 30, 1998. In connection with the reverse stock split, the
number of common shares available for issuance was reduced from 750 million to
250 million.
Certain reclassifications have been made to the prior period financial
statements to conform to the current presentation. Such reclassifications had no
effect on results of operations.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit and term deposits
in investments with maturities of three months or less.
Inventories and Supplies
Inventories consist primarily of solvent, oil and supplies and are
valued at the lower of cost or market, determined on a first-in, first-out
basis.
Long -Term Investments
Long-term investments, which have been classified as held to maturity,
are carried at cost, which approximates fair market value, and consist primarily
of long-term trust fund deposits with government authorities to support closure
and post-closure activities at several of the Company's facilities.
Investments in associated companies, over which the Company has
significant influence, are accounted for by the equity method. Equity earnings
are recorded to the extent that any increase in the carrying value is determined
to be realizable. All earnings are considered to be permanently reinvested.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Expenditures for
major renewals and improvements are capitalized. Items of an ordinary repair or
maintenance nature are charged directly to operating expense. The Company
capitalizes environmentally related expenditures which extend the life of the
related property or mitigates or prevents future environmental contamination.
Machinery and equipment includes the cost of equipment at customer
locations having a net book value of $110.3 and $103.3 million at August 31,
1999 and 1998, respectively. Depreciation commences when the units are placed in
service at the customer location.
Landfill sites, preparation costs and improvements are recorded at cost,
which includes capitalized interest on landfill capacity under development, and
amortized on the basis of landfill capacity utilized during the year. Landfill
capacity represents total permitted airspace which is measured in the form of
cubic yards.
33
<PAGE>
During the construction and development period of an asset, the costs
incurred, including applicable interest costs, are classified as construction in
process. Once an asset has been completed and put into use, it is transferred to
the appropriate category and depreciation commences.
During fiscal 1999, 1998, and 1997, the Company capitalized interest of
$4.1 million, $4.1 million, and $6.7 million, respectively.
The cost of permits directly related to property, plant and equipment is
capitalized with the related asset and depreciated over the expected permit
life. Leasehold improvements are capitalized and amortized over the shorter of
the improvement life or the remaining term of the lease. Depreciation and
amortization of other property, plant and equipment is provided substantially on
a straight-line basis over the estimated useful lives which are as follows:
Buildings - 20 to 40 years Machinery and equipment - 5 to 30 years.
Depreciation expense was $107.8 million, $78.1 million, and $50.9
million in fiscal 1999, 1998 and 1997, respectively.
Goodwill
Goodwill consists primarily of the cost of acquired businesses in excess
of market value of net assets acquired and is amortized on a straight-line basis
over forty years. Goodwill is reviewed for impairment when events or
circumstances indicate it may not be recoverable. If it is determined that
goodwill may be impaired and the estimated undiscounted future cash flows of the
underlying business are less than the carrying amount of the goodwill, then an
impairment loss is recognized. The impairment loss is based on the difference
between the fair value of the underlying business and the carrying amount. The
method of determining fair value differs based on the nature of the underlying
business. Goodwill amortization expense was $28.2 million, $12.5 million, and
$2.1 million in fiscal 1999, 1998, and 1997, respectively.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying values of its property,
plant and equipment and goodwill to determine whether such values are
recoverable. Accordingly, when indicators of impairment are present, the Company
evaluates the carrying value of property, plant and equipment and goodwill in
relation to the operating performance and the estimated future undiscounted cash
flows of the underlying business. If a write-down is required, the Company
adjusts the book value of the underlying asset to fair value of the sum of
expected future discounted cash flows.
Deferred Financing Costs
Deferred financing costs are amortized over the life of the related debt
instrument and included in long-term debt.
Environmental Liabilities
Environmental liabilities include accruals for the estimated costs
associated with closure and post-closure monitoring and maintenance of the
Company's landfills, remediation at certain of the Company's facilities and
corrective actions at Superfund sites. The Company accrues for estimated closure
and post-closure costs over the life of the landfill site as capacity is
consumed. In accordance with American Institute of Certified Public Accountants
Statement of Position 96-1 ("SOP 96-1"), the Company accrues for costs
associated with environmental remediation obligations on a site by site basis
when such costs are probable and reasonably estimable. Accruals for estimated
costs of environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Changes in estimated
closure and post-closure costs are recognized over the remaining asset life.
Costs of future expenditures
34
<PAGE>
for closure, post-closure and environmental remediation obligations are
discounted if the amount and timing of the cash payments are fixed or reliably
determinable.
Financial Instruments
The Company's cash and cash equivalents, accounts receivable, certain
long-term investments, accounts payable, long-term debt, and the subordinated
convertible debenture constitute financial instruments. Concentration of credit
risks in accounts receivable are limited due to the large number of customers
comprising the Company's customer base throughout North America. The Company
performs ongoing credit evaluations of its customers, but does not require
collateral to support trade accounts receivable. The Company establishes an
allowance for doubtful accounts based on the credit risk applicable to
particular customers, historical trends and other relevant information.
Derivative Financial Instruments
The Company uses interest rate swap agreements to minimize the impact of
interest rate fluctuations on floating interest rate long-term borrowings. The
differential paid or received on interest rate swap agreements is recognized as
an adjustment to interest expense. See Note 6 for fair value information
pertaining to long-term debt and derivative financial instruments.
Revenue Recognition
Revenue, along with the related costs of treatment, disposal and
transportation, is recorded at the time of performance of services, shipment of
products, or acceptance of waste at the Company's service centers. Revenue from
the Company's treatment and disposal operations, primarily landfill and
incineration facilities, is recognized when the waste material is disposed of,
whether burned, landfilled, or treated. Pursuant to contracts with its
customers, the Company accepts title to waste material at such time and provides
contractual indemnification to its customers against future liability with
respect to the waste materials.
Stock-Based Compensation
The Company has elected to apply APB 25 in accounting for its stock
option plans, providing only pro forma disclosure required by SFAS 123.
Accordingly, no compensation cost has been recognized because the option
exercise price of all options granted is equal to the market price of the
underlying stock on the date of the grant.
Income Taxes
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts. Future tax benefits, such as net operating loss
carryforwards, are recognized to the extent that realization of such benefits
are more likely than not. Prior to May 15, 1997, the Company filed consolidated
tax returns with Laidlaw Inc. ("Laidlaw"), the former parent company. Income
taxes for periods prior to May 15, 1997 have been calculated using applicable
income tax rates on income for tax purposes on a separate return basis.
Foreign Currency Translation
The Company's foreign operations are all of a self-sustaining nature.
The functional currency of the Company's foreign subsidiaries is its respective
local currency. Assets and liabilities are translated to U.S. Dollars at the
exchange rate in effect at the balance sheet date and revenue and expenses at
weighted monthly average exchange rates for the year. Gains and losses from the
translation of the financial statements of the foreign subsidiaries are included
in stockholders' equity.
Comprehensive Income
During fiscal 1999, the Company adopted Statement No. 130, "Reporting
Comprehensive Income," ("SFAS 130"). Comprehensive income for all periods
presented consists of net income and foreign currency
35
<PAGE>
translation adjustments. Adoption of this standard required additional
disclosures and had no effect on the Company's results of operations, cash flows
or financial position.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
2. BUSINESS COMBINATIONS
Rollins Environmental
On May 15, 1997, pursuant to a February 6, 1997 stock purchase agreement
(the "Stock Purchase Agreement") between Rollins Environmental Services, Inc.
("Rollins") and Laidlaw and its subsidiaries, Rollins acquired the hazardous and
industrial waste operations of Laidlaw ("Old LESI" or the "Accounting
Acquirer"). The business combination was accounted for as a reverse acquisition
using the purchase method of accounting. Rollins issued 30 million common shares
and a $350 million 5% subordinated convertible debenture (see Note 7), and paid
$349.1 million in cash ($400 million, less debt of $50.9 million assumed), to
Laidlaw. As a result of the acquisition, the historical financial information
included in these consolidated financial statements is that of the Accounting
Acquirer. The results of operations of Rollins have been included from the date
of acquisition.
Safety-Kleen Corp.
In May 1998, the Company completed the acquisition of the former
Safety-Kleen Corp. ("Old Safety-Kleen") for total consideration of approximately
$2.2 billion, including debt assumed and estimated transaction costs. Such
consideration was comprised of approximately $1.5 billion cash and 41.6 million
shares of common stock. The cash consideration and the refinancing of certain
existing indebtedness was financed from the proceeds of a $2.2 billion Senior
Credit Facility (See Note 6).
The acquisition of Safety-Kleen has been accounted for under the
purchase method and accordingly, the financial statements include the results of
operations of the acquired business from the date of acquisition. The purchase
price has been allocated to the assets acquired and liabilities assumed based
upon management's best estimate of their fair values. The excess of the
estimated purchase price over the assets acquired of approximately $1.0 billion
is amortized over forty years.
Other
During fiscal 1999, the Company completed 7 acquisitions, all of which
were accounted for under the purchase method. Accordingly, the operating results
of these businesses are included in the financial statements from the date of
acquisition and the purchase prices have been allocated to the net assets
acquired based upon management's best estimate of the fair values. The total
aggregate cash purchase price was $10.9 million. Pro forma results of operations
have not been presented as the effect of these acquisitions on the financial
statements was not material in the aggregate.
3. SALE OF EUROPEAN OPERATIONS
On December 23, 1998, the Company announced the recapitalization of its
European operations and the formation of a new entity, Safety-Kleen Europe. The
recapitalization, which was based on a total enterprise value of $190 million,
included investments in Safety-Kleen Europe by Electra Fleming and the senior
management group of Safety-Kleen Europe. In exchange for the contribution of the
European operations of Old Safety-Kleen, the Company received a 44% equity
interest in Safety-Kleen Europe and will receive $154 million in gross cash
proceeds (of which $140.4 million has been received as of August 31, 1999).
Electra Fleming purchased a 44% equity interest, while the senior management
group acquired a 12% equity interest (on a fully-diluted basis). The proceeds
from the sale were used to pay down borrowings under the revolver tranche of the
Senior Credit Facility. The transaction resulted in no gain or loss.
36
<PAGE>
Effective December 1, 1998, the Company ceased to consolidate the
results of the European operations and began to account for the investment by
the equity method.
4. ACCOUNTS RECEIVABLE
Accounts receivable at August 31, 1999 and 1998 consisted of the following ($ in
thousands):
August 31
---------
1999 1998
---- ----
Billed trade accounts receivable $ 273,121 $ 259,691
Accrued trade accounts receivable 62,335 47,959
Claims on completed contracts 31,179 8,100
Allowance for doubtful accounts (10,096) (10,816)
Other 38,470 15,114
------------ ------------
Total $ 395,009 $ 320,048
============ ============
5. ACCRUED LIABILITIES
Accrued liabilities at August 31, 1999 and 1998 consisted of the following ($ in
thousands):
August 31
---------
1999 1998
---- ----
Current portion of environmental liabilities $ 39,204 $ 45,434
Interest payable 19,675 28,914
Accrued salaries and benefits 42,626 70,577
Other 62,313 74,427
------------ ------------
Total $ 163,818 $ 219,352
============ ============
6. LONG-TERM DEBT
Long-term debt at August 31, 1999 and 1998 consisted of the following ($ in
thousands):
<TABLE>
<CAPTION>
August 31
---------
1999 1998
---- ----
Senior Credit Facility:
<S> <C> <C>
Term loans, U.S. ........................................... $1,171,250 $1,238,250
Term loans, Canadian ....................................... 53,245 60,500
Revolver ................................................... 101,167 208,000
Senior Subordinated Notes, due June 1, 2008, with an
interest rate of 9.25% ..................................... 325,000 325,000
Senior Notes, due May 15, 2009, with an interest rate of 9.25% 225,000 --
Promissory note, due May 2003, with an interest rate of 5.245% 60,000 60,000
Industrial Revenue Bonds, due 2003-2027, with fixed
interest rates from 6.0% to 7.75% .......................... 79,950 80,891
Other ........................................................ 2,176 1,410
---------- ----------
2,017,788 1,974,051
Less: current portion ....................................... 85,063 77,004
Less: unamortized deferred financing costs .................. 50,354 43,883
---------- ----------
Total ...................................................... $1,882,371 $1,853,164
========== ==========
</TABLE>
Senior Credit Facility
In April 1998, the Company established a $2.2 billion Senior Credit
Facility (the "Senior Credit Facility") pursuant to a credit agreement between
the Company and a syndicate of banks and other financial institutions. The
Senior Credit Facility, the availability of which was permanently reduced by
$325 million to $1.875 billion by the subsequent issuance of the Senior
Subordinated Notes described below, consists of five parts: (i) a $550 million
six-
37
<PAGE>
year Senior Secured Revolving Credit Facility (interest rates at August 31, 1999
of 7.63% to 8.25%) with a $200 million letter of credit sublimit and $400
million sublimit for loans (the "Revolver"), (ii) a $455 million six-year Senior
Secured Amortizing Term Loan (interest rates at August 31, 1999 of 7.69% to
7.88%), (iii) a $70 million six-year Senior Secured Amortizing Term Loan
(interest rates at August 31, 1999 of 7.13% to 7.32%), (iv) a $400 million
minimally amortizing seven-year Senior Secured Term Loan (interest rates at
August 31, 1999 of 8.06% to 8.25%) and (v) a $400 million minimally amortizing
eight-year Senior Secured Term Loan (interest rates at August 31, 1999 of 8.31%
to 8.50%). The term loans referred to in clauses (ii), (iii), (iv) and (v) are
collectively referred to herein as the "Term Loans".
As of August 31, 1999, the Term Loans have been drawn in full and
borrowings outstanding under the Revolver total $101 million. The Company has
$299 million of additional borrowing availability under the Revolver. In
addition, there were $90 million of letters of credit issued under the terms of
the Revolver, with additional availability of $60 million.
The Senior Credit Facility is collateralized by all of the tangible
assets of the Company. All of the capital stock of the Company's subsidiaries
are pledged to the lenders, and such subsidiaries guarantee the obligations of
the Company to the lenders.
Interest costs on the Senior Credit Facility are reset periodically, at
least annually, and vary depending on the particular facility and whether the
Company chooses to borrow under Eurodollar or non-Eurodollar loans.
Senior Subordinated Notes
On May 29, 1998, Safety-Kleen Services, Inc. (formerly known as LES,
Inc.), a wholly-owned subsidiary of the Company, issued $325 million 9.25%
Senior Subordinated Notes due 2008 (the "1998 Notes") in a Rule 144A offering
which were subsequently exchanged for substantially identical notes in an
offering registered with the Securities and Exchange Commission (the "SEC") in
November 1998. Net proceeds, after the underwriting discount and other expenses,
were approximately $316 million and were used to repay a portion of the
borrowings outstanding under the Senior Credit Facility.
The 1998 Notes mature on June 1, 2008 with interest payable
semi-annually on June 1 and December 1. The 1998 Notes will be redeemable, in
whole or in part, at the option of the Company, at any time and from time to
time at a redemption price defined in the indenture. Upon a change in control of
the Company, each holder of the 1998 Notes may require the Company to repurchase
all or a portion of such holder's 1998 Notes at 101% of the principal amount
thereof, plus accrued interest.
The 1998 Notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness,
as defined, of the Company. The 1998 Notes will rank senior in right of payment
to all existing and future subordinated indebtedness of the Company, if any. The
payment of the 1998 Notes are guaranteed on a senior subordinated basis by
Safety-Kleen Corp. and are jointly and severally guaranteed on a senior
subordinated basis by the Company's wholly-owned domestic subsidiaries. No
foreign direct or indirect subsidiary or non-wholly-owned domestic subsidiary is
an obligor or guarantor on the financing.
Senior Notes
On May 17, 1999, the Company issued $225 million 9.25% Senior Notes due
2009 (the "1999 Notes") in a Rule 144A offering which were subsequently
exchanged for substantially identical notes in an offering registered with the
SEC in September 1999. Net proceeds, after the underwriting discount and other
expenses, were approximately $214 million and were used to finance the cash
portion of the purchase price for the repurchase of the PIK Debenture (see Note
7), for expenses relating to the repurchase and for general corporate purposes.
The 1999 Notes mature on May 15, 2009 with interest payable
semi-annually on May 15 and November 15. The 1999 Notes will be redeemable, in
whole or in part, at the option of the Company, at any time and from time to
time at a redemption price as defined in the indenture. Upon a change in control
of the Company, each holder of the 1999 Notes may require the Company to
repurchase all or a portion of such holder's 1999 Notes at 101% of the principal
amount thereof, plus accrued interest.
38
<PAGE>
The 1999 Notes are unsecured and rank equally with all existing and
future senior indebtedness and senior to all existing and future subordinated
indebtedness. The Notes are not guaranteed by the Company's subsidiaries.
Debt Covenants
The Senior Credit Facility contains negative, affirmative and financial
covenants customarily found in credit agreements for similar financings,
including covenants restricting debt, guarantees, liens, mergers and
consolidations, sales of assets and payment of dividends and establishing a
total leverage ratio test, a fixed charge coverage test, an interest coverage
ratio test and a maximum contingent obligation to operating cash flow ratio
test. The 1998 and 1999 Notes contain certain affirmative and negative covenants
which, in certain instances and subject to certain limitations and
qualifications, restrict, among other things, the incurrence of additional debt,
restricted payments, assets sales, transactions with affiliates, dividend and
other payments, the issuance of stock of subsidiaries to third parties, certain
liens, and certain consolidations, mergers or sales of assets.
The aggregate amount of minimum payments required on long-term debt in
each of the years indicated is as follows ($ in thousands):
YEAR ENDED AUGUST 31
2000 $ 85,063
2001 114,843
2002 113,767
2003 149,952
2004 267,326
Thereafter 1,286,837
------------
Total minimum payments due $ 2,017,788
============
In management's view, the fair value of long-term debt at August 31,
1999 is approximately $1,966.2 million, as compared to a carrying value of
$1,967.4 million.
The promissory note and $15.7 million of the Industrial Revenue Bonds
are guaranteed by Laidlaw.
The Company has entered into interest rate swap agreements to alter
interest rate exposures. These agreements, with a principal notional amount of
$1,095 million, expire in periods ranging from 2 to 30 years, with a weighted
average of approximately 10.2 years. The Company pays fixed rates ranging from
5.31% to 6.71%, and receives floating rates based on U.S. Dollar LIBOR,
determined on a quarterly basis of 5.52% as of August 31, 1999.
Credit risk arises from the possible inability of counterparties to meet
the terms of their contracts on a net basis. All of the Company's interest rate
swap agreements have been entered into with major financial institutions which
are expected to fully perform under the terms of the agreements. The Company's
credit exposure on swaps is related not to the notional balances of the interest
rate swaps, but to the current and potential replacement costs of all profitable
contracts at year end. At August 31, 1999 this credit exposure is immaterial.
Credit exposure will increase along with the market value of the swaps, if
interest rates increase, and decrease if interest rates decline.
Derivative financial instrument fair values represent an approximation
of amounts the Company would have paid to or received from counterparties to
terminate its positions prior to maturity, and are based on capital market rates
prevailing at August 31, 1999. The Company's fair value cost for all interest
rate derivative contracts as of August 31, 1999, was approximately $30.6
million. At August 31, 1999, the Company had no plans to terminate these
positions prior to maturity.
7. SUBORDINATED CONVERTIBLE DEBENTURE
Pursuant to the Rollins acquisition described in Note 2, the Company
issued a $350 million 5% subordinated convertible, pay-in-kind debenture ("PIK")
due May 15, 2009 to Laidlaw. Interest payments due during the first two years
after the acquisition of Safety-Kleen are required to be satisfied by the
issuance of the
39
<PAGE>
Company's common shares, based on the market price of the common shares at the
time the interest payments are due. During the year ended August 31, 1999, the
Company issued 1,545,399 shares to Laidlaw in satisfaction of interest payments
due.
On August 27, 1999, the Company repurchased the PIK for an aggregate
purchase price comprised of (i) $200 million in cash, (ii) 11,320,755 shares of
common stock and (iii) 376,858 shares of common stock in satisfaction of accrued
and unpaid interest on the PIK Debenture to the date of repurchase. The cash
portion of the purchase price was financed with the issuance of the 1999 Notes
(See Note 6).
8. CLOSURE, POST-CLOSURE AND ENVIRONMENTAL REMEDIATION LIABILITIES
The Company has recorded liabilities for closure and post-closure
monitoring and environmental remediation costs as follows ($ in thousands):
August 31
---------
1999 1998
---- ----
Current portion, included in accrued liabilities $ 39,204 $ 45,434
Non-current portion, included in environmental
and other long-term liabilities 208,842 220,669
---------- ----------
Total $ 248,046 $ 266,103
========== ==========
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 matters will be
material to its operations or financial condition.
Closure and post-closure monitoring and maintenance costs for U.S.
landfills are estimated based on the technical requirements of Subtitle C and D
Regulations of the U.S. Environmental Protection Agency or the applicable state
requirements, whichever is stricter, and the air emissions standards under the
Clean Air Act. The costs include such items as final capping of the site,
methane gas and leachate management, groundwater monitoring and operation and
maintenance costs to be incurred during the period after the facility closes and
ceases to accept waste. Closure and post-closure costs for the Company's
landfills in Canada are based upon the local landfill regulations governing the
facility.
The Company has also established procedures to routinely evaluate
potential remedial liabilities at sites that it owns or operates, or to which it
transports waste, including 51 sites listed on the Superfund National Priority
List ("NPL"). In the majority of situations, the Company's connection with NPL
sites relates to allegations that its subsidiaries, or their predecessors,
transported waste to the facilities in question, often prior to the acquisition
of such subsidiaries by the Company. The Company routinely reviews and evaluates
sites requiring remediation, including NPL sites, giving consideration to the
nature (i.e., owner, operator, transporter or generator) and the extent (i.e.,
amount and nature of waste hauled to the location, number of years of site
operations or other relevant factors) of the Company's alleged connection with
the site, the accuracy and strength of evidence connecting the Company to the
location, the number, connection and financial ability of other named and
unnamed potentially responsible parties and the nature and estimated cost of the
likely remedy. Where the Company concludes that it is probable that a liability
has been incurred, provision is made in the financial statements, based upon
management's judgment and prior experience, for the Company's best estimate of
the liability. If no amount within the range appears to be a better estimate
than any other amount, then the Company provides for the minimum amount within
the range in accordance with Statement of Financial Accounting Standards No. 5
("SFAS 5"), "Accounting for Contingencies". Such estimates are subsequently
revised as deemed necessary as additional information becomes available. The
Company believes that it is more than remotely possible but less than likely,
that its potential liability could be at the high end of such ranges, which
would be approximately $40.0 million higher in the aggregate than the estimate
that has been recorded in the financial statements as of August 31, 1999.
40
<PAGE>
Estimates of the extent of the Company's degree of responsibility for
remediation of a particular site and the method and ultimate cost of remediation
require a number of assumptions and are inherently difficult to evaluate, such
that the ultimate outcome may differ from current estimates. However, the
Company believes that its extensive experience in the environmental services
business, as well as its involvement with a large number of sites, provides a
reasonable basis for estimating its aggregate liability. As additional
information becomes available, estimates are adjusted as necessary. While the
Company does not anticipate that any such adjustment would be material to its
financial statements, it is reasonably possible that technological, regulatory
or enforcement developments, the results of environmental studies or other
factors could necessitate the recording of additional liabilities which could be
material. The impact of such future events cannot be estimated at the current
time.
Where the Company believes that both the amount of a particular
environmental liability and the timing of the payments are fixed or reliably
determinable, the cost in current dollars is discounted to present value
assuming inflation of 3.6% and a risk free discount rate of 8.5%. Had the
Company not discounted any portion of its liability, the amount recorded would
have been increased by approximately $11.0 million at August 31, 1999 (1998 -
$7.0 million).
The majority of the Company's active landfill sites have estimated
remaining lives ranging from two, to more than 100 years, based upon current
site plans and anticipated annual volumes of waste. As of August 31, 1999, the
Company estimates that during this remaining site life, it will provide for an
additional $63.6 million (1998 - $59.0 million) of closure and post-closure
costs, including accretion for the discount recognized to date.
Activity in the Company's environmental liabilities during fiscal 1998
and 1999 is as follows ($ in thousands):
<TABLE>
<CAPTION>
Closure/Post Closure Remediation
-------------------- -----------
Open Sites Closed Sites Open Sites Closed Sites Total
---------- ------------ ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Balance, August 31, 1997 $ 40,805 $ 1,598 $ 75,358 $ 65,300 $ 183,061
Operating expenses ..... 502 81 2,836 -- 3,419
Expenditures ........... (6,054) (1,679) (15,695) (6,735) (30,163)
Restructuring charge
(see
Note 12) ............. -- 12,765 -- 20,029 32,794
Acquisitions ........... -- -- 72,440 5,466 77,906
Other .................. (204) -- (704) (6) (914)
--------- --------- --------- --------- ---------
Balance, August 31, 1998 35,049 12,765 134,235 84,054 266,103
Operating expenses ..... 1,352 -- 3,055 4 4,411
Expenditures ........... (1,516) (23) (17,440) (23,110) (42,089)
Restructuring charge
(see
Note 12) ............. -- (7,350) -- (4,000) (11,350)
Acquisitions ........... -- -- 33,927 -- 33,927
Dispositions ........... -- -- (1,018) -- (1,018)
Other .................. (336) -- (1,605) 3 (1,938)
--------- --------- --------- --------- ---------
Balance, August 31, 1999 $ 34,549 $ 5,392 $ 151,154 $ 56,951 $ 248,046
========= ========= ========= ========= =========
</TABLE>
Remediation costs at closed sites includes the Company's estimated
liability in connection with third party NPL locations.
41
<PAGE>
Anticipated payments of undiscounted environmental liabilities for each
of the next five years and thereafter are as follows ($ in thousands):
YEAR ENDED AUGUST 31
2000 $ 39,204
2001 31,098
2002 18,244
2003 13,480
2004 25,855
Thereafter 183,773
------------
Total $ 311,654
============
In conjunction with the acquisitions of certain facilities, the Company
has obtained varying amounts and types of indemnification from potential
environmental liabilities existing at the time of acquisition. Such indemnities
typically cover all or a portion of the costs associated with the remediation of
such pre-existing environmental liabilities, and may be available for a limited
period of time. The Company periodically evaluates the ability of the sellers to
perform under the indemnification agreements and will record a receivable if
collection is probable.
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Rental expense incurred under operating leases, primarily for real
property and vehicles, was $55.6 million, $50.5 million, and $36.1 million in
1999, 1998, and 1997, respectively. Minimum future rental amounts required under
operating leases for premises and equipment having non-cancelable terms in
excess of one year as of August 31, 1999, are as follows ($ in thousands):
YEAR ENDED AUGUST 31
2000 $ 28,655
2001 23,553
2002 17,226
2003 11,707
2004 7,462
Thereafter 11,848
------------
Total $ 100,451
============
Financial Assurance Obligations
As of August 31, 1999, the Company provided financial assurances,
primarily by insurance policies, performance bonds and letters of credit, to the
applicable regulatory authorities, totaling approximately $502.2 million, in
connection with the closure and post-closure requirements of certain facility
operating permits.
Legal Proceedings
From time to time, the Company is named as a defendant in various
lawsuits arising in the ordinary course of business, including proceedings
wherein persons claim injury resulting from the use of the Company's parts
cleaner equipment and/or cleaning products, other matters involving personal
injury and property damage claims and employment-related claims. A number of
such legal proceedings are currently pending in various courts and jurisdictions
throughout North America. Based on the Company's assessment of known claims and
its historical claims payment pattern, and discussions with internal and outside
legal counsel and risk management personnel, the Company believes that there is
no proceeding pending against the Company relating to such matters arising out
of the ordinary course of business that, if resolved against the Company, would
have a materially adverse effect upon the Company's consolidated financial
position. Although uncertainties exist in these proceedings, the Company
believes that it is more than remotely possible but less than likely, that its
potential liability could be approximately $41.5 million higher in the aggregate
that the estimate that has been recorded in the financial statements
42
<PAGE>
as of August 31, 1999. In the event of an unanticipated adverse final
determination in respect of these cases, the Company's consolidated net income
for the period in which such determination occurs could be materially affected.
On March 1, 1999, 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 was 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 Stock Purchase Agreement referred to in Note 2, Laidlaw
and Laidlaw Transportation, Inc. agreed to be responsible for any tax
liabilities, including the costs to defend the subsidiaries, 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.
10. STOCKHOLDERS' EQUITY
The Company is authorized to issue 250 million shares of its $1 par
value common stock and one million shares of its $1 par value preferred stock.
The terms and conditions of each issue of preferred stock are determined by the
Board of Directors. No preferred stock has been issued.
11. STOCK OPTION PLANS
The Company has the following stock option plans:
1. The 1982 Stock Option Plan of the former Rollins Environmental
Services, Inc.
2. The 1993 Stock Option Plan of the former Rollins Environmental
Services, Inc.
3. The 1997 Directors Stock Option Plan
4. The 1997 Stock Option Plan
All outstanding employee stock options granted by the former Rollins were fully
vested on May 15, 1997, in accordance with the terms of the Stock Purchase
Agreement referred to in Note 2.
Option activity is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year ................................ 780,100 $ 14.924 510,011 $ 15.976
Granted ......................................................... 538,625 $ 13.250 396,562 $ 15.352
Exercised ...................................................... (18,250) $ 11.613 (42,225) $ 12.056
Expired or canceled ............................................. (107,112) $ 18.032 (84,248) $ 24.748
----------- ------- ------- --------
Outstanding at end of year ...................................... 1,193,363 $ 13.947 780,100 $ 14.924
=========== ======== ======= ========
Options available for grant ..................................... 402,937 941,562
Options exercisable ............................................. 206,788 146,037
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Weighted
Average Weighted Average Weighted
Remaining Average Remaining Average
Range of Options Contractual Exercise Options Contractual Exercise
Exercise Price Outstanding Life Price Outstanding Life Price
- -------------- ----------- ---- ----- ----------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
$10.50-$11.50 6,750 4.26 years $ 11.500 20,500 2.85 years $ 11.160
$12.75-$15.75 1,167,688 8.90 years $ 13.798 693,438 9.43 years $ 14.240
$16.50-$23.00 15,300 2.77 years $ 20.299 45,150 3.00 years $ 19.044
$30.00-$35.50 2,500 0.25 years $ 35.500 19,887 0.37 years $ 31.384
$44.50-$49.00 . 1,125 0.47 years $ 49.000 1,125 1.47 years $ 49.000
- ------------- --------- ---------- -------- --------- ---------- ---------
$10.50-$49.00 1,193,363 8.77 years $ 13.947 780,100 8.64 years $ 14.924
============= ========= ============== ======== ========= =========== =========
</TABLE>
Effective July 9, 1997, the directors of the Company set aside 1.5
million shares of its $1 par value common stock for issuance under a 1997 stock
option plan. All options under this plan are for a term of ten years from the
date of grant and become exercisable with respect to 20% of the total number of
shares subject to the option, one year after the date of grant, and with respect
to an additional 20% at the end of each 12 month period thereafter on a
cumulative basis during the succeeding four years. The plan provides for the
granting of stock options to certain senior employees and officers of the
Company at the discretion of the Board of Directors. All options are subject to
certain conditions of service. Options for 351,563 shares were granted during
fiscal 1998 at exercise prices ranging from $15.25 to $15.75. Options for
471,125 shares were granted during fiscal 1999 at an exercise price of $13.25.
Effective July 9, 1997, the directors of the Company set aside 135,000
shares of its $1 par value common stock for issuance under a 1997 directors
stock option plan. All options under this plan are for a term of ten years from
the date of grant and become exercisable with respect to 20% of the total number
of shares subject to the option, one year after the date of grant, and with
respect to an additional 20% at the end of each 12 month period thereafter on a
cumulative basis during the succeeding four years. All options are subject to
certain conditions of service. Options for 45,000 shares were granted during
fiscal 1998 at an exercise price of $15.25. Options for 67,500 shares were
granted during fiscal 1999 at an exercise price of $13.25.
In accordance with the disclosure requirements of SFAS 123, the fair
value of each option grant has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
August 31
---------
1999 1998 1997
---- ---- ----
Risk free interest rate 4.7% 4.5% 4.5%
Expected life 9.8 years 8.7 years 8.7 years
Dividend rate 0.0% 0.0% 0.0%
Expected volatility 27.7% 28.6% 19.4%
Had compensation cost for these plans been determined based on the
Black-Scholes value at the grant dates for awards as prescribed by SFAS No. 123,
pro forma net income and earnings per share would have been as follows ($ in
thousands, except per share data):
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
Net income (loss):
As reported $ 88,876 $ 205 $ (183,432)
Pro forma 87,363 (260) (183,727)
Net income (loss) per share:
As reported $ 0.90 $ -- $ (5.32)
Pro forma 0.88 -- (5.32)
44
<PAGE>
12. RESTRUCTURING AND OTHER CHARGES
The integration related to the acquisitions described in Note 2 have, or
will result in, the closing and remediation of certain of the existing operating
facilities that have become redundant and the incurrence of other exit
activities related to the acquisitions.
1997 Restructuring Charge
With respect to the Old LESI operations, the Company recorded a
restructuring charge of $331.7 million ($200 million after tax, or $6.10 per
share) against income in the quarter ended May 31, 1997, to reflect the closing
of certain of the operating facilities that had become redundant, and an
impairment in the carrying value of certain operating facilities due to lower
expected future cash flows as a result of the Rollins acquisition. The plan
commitment date was May 15, 1997, the date of the Rollins acquisition, as the
implementation of the plan was contingent upon the consummation of the
acquisition.
The restructuring charge included a $242 million asset write-down
related to Old LESI facilities that were closed as a result of the Rollins
acquisition. The facilities that were determined to be redundant and scheduled
for closure primarily included four treatment, storage and disposal facilities,
two wastewater treatment facilities, two landfills, two transportation
divisions, one incinerator, and one certified lab. Other than two facilities
which remain open at August 31, 1999, all facilities scheduled for closure
ceased operations as soon as practicable after the commitment date, but no later
than August 31, 1997. The closure process included informing customers of the
redirection of the waste streams to alternative facilities and the final
treatment and disposal of the existing waste at the facility. It is anticipated
that the closure of the two open facilities will be completed by August 2002 and
August 2004. Management determined that it is more economically feasible for the
Company to continue to operate on a limited basis and satisfy the regulatory
mandated cell closure and capping requirements through the disposal of outside
waste streams into existing constructed landfill cells, than to cease accepting
all customer waste and purchase fill material to close the cells. The revenue
and results of operations at these two facilities are immaterial to the
consolidated revenue and results of operations of the Company.
Other than a transportation facility, the certified lab and certain
equipment at the incineration facility, all assets are expected to be abandoned
once the closure process is completed. The Company does not expect to be able to
sell the real property based upon their past use as hazardous waste facilities.
For those facilities scheduled for closure by abandonment, assets that could be
utilized elsewhere within the Company were transferred and the remaining assets
were written down to zero value. Assets held for sale were valued at estimated
fair value less directly related costs to sell. As of August 31, 1999, the
Company has certain equipment remaining to be sold with a carrying value, which
approximates estimated fair value, of $13.7 million.
Also included in the 1997 restructuring charge is a $65 million
impairment loss in the carrying value of certain operating facilities as a
result of the Rollins acquisition. This was attributable to lower expected
future cash flows at three facilities (primarily the Pinewood, South Carolina
hazardous waste landfill facility) due to reduced waste volumes as a result of
redirecting certain waste streams to acquired incinerator operations. The fair
value was determined based upon an estimate of the discounted net cash flows for
these three facilities.
The expected cash costs were $25.0 million and primarily related to
closure and post-closure costs. Total expenditures of $22.2 million have been
incurred to date ($7.8 million incurred in fiscal 1999), resulting in a
remaining balance of $2.8 million.
1998 Restructuring Charge
During the third quarter of fiscal 1998, with respect to the existing
operations, the Company recorded a restructuring charge of $65.8 million ($39.5
million after tax or $0.56 per share) against earnings to reflect the costs
associated with the closing and remediation of certain facilities and other exit
activities as a result of the acquisition of Old Safety-Kleen. The plan was
approved by management in May 1998.
The 1998 restructuring charge includes a $32 million asset write-down
related to LESI facilities that were closed as a result of the acquisition of
Old Safety-Kleen. The facilities that were determined to be redundant and
45
<PAGE>
scheduled for closure primarily included one incinerator and two transportation
facilities. Effective August 31, 1998, the incinerator ceased to receive waste
shipments from customers and one transportation facility was closed. The
remaining facilities were closed during fiscal 1999.
It is anticipated that the facilities scheduled for closure will be
abandoned. The Company does not expect to be able to sell the real property
based upon their past use as hazardous waste facilities. For those facilities
scheduled for closure by abandonment, assets that could be utilized elsewhere
within the Company were transferred and the remaining assets were written down
to zero value.
Included in the restructuring charge was $34 million that represents
cash costs to be incurred during subsequent periods, of which $2 million is
severance cost relating to the termination of approximately 45 employees at the
incinerator and 23 at the transportation facility. There were no expenditures
related to these costs during fiscal 1998.
During fiscal 1999, the Company reevaluated the costs associated with
closing and remediating the facilities to be closed. As a result of further
investigation and evaluation of alternative remediation methods and discussions
with the regulatory authorities, the estimate of the costs to be incurred to
remediate the identified facilities has been determined to be less than that
accrued in May 1998. Also, the Company decided during fiscal 1999 that
additional LESI facilities would be closed as a result of the acquisition of Old
Safety-Kleen and that additional LESI personnel should be terminated.
The balance of the 1998 restructuring charge was impacted during fiscal 1999 as
follows ($ in thousands):
Balance, August 31, 1998 $ 34,034
Change in estimate of remedial costs (14,166)
Additional costs:
Facility closures - remediation 2,816
Personnel terminations 10,850
Payments (23,367)
-------------
Balance, August 31, 1999 $ 10,167
=============
13. INCOME TAXES
Prior to May 15, 1997, the Company filed consolidated tax returns with
Laidlaw (See Note 1). The income tax expense (benefit) for periods ending after
May 15, 1997 are comprised as follows ($ in thousands):
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
Current:
Federal $ 674 $ -- $ (30,236)
State 3,739 810 1,000
Foreign 10,114 5,480 (2,064)
Deferred:
Federal 67,566 1,827 (87,086)
State (30) (7,477) (12,440)
Foreign 11,538 999 8,037
----------- ----------- ------------
Income tax expense (benefit) $ 93,601 $ 1,639 $ (122,789)
=========== =========== ============
Income tax expense (benefit) is included in the financial statements as
follows ($ in thousands):
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
Continuing $ 78,565 $ 9,133 $ (122,789)
Extraordinary loss 15,036 (7,494) --
------------ ------------- -------------
Income tax expense (benefit) $ 93,601 $ 1,639 $ (122,789)
============ ============ =============
46
<PAGE>
A reconciliation of the income tax on income from continuing operations
calculated by applying the domestic statutory federal income tax rate to the
income (loss) before income taxes is as follows ($ in thousands):
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
Federal income tax expense (benefit) at statutory 35.0% 35.0% (35.0)%
rate
State income tax expense (benefit) 3.4% (4.2)% (5.2)%
Change in valuation allowance (2.2)% (10.4)% --
Foreign country rate differential 2.6% 2.2% --
Goodwill 5.3% 18.6% --
Other (0.8)% 3.7% 0.1%
-------- -------- ---------
Income tax expense (benefit) 43.3% 44.9% (40.1)%
======== ======== =========
Deferred tax assets and liabilities consisted of the following ($ in
thousands):
August 31
---------
1999 1998
---- ----
Deferred tax assets:
Accrued liabilities $ 124,742 $ 128,175
Tax attribute carryovers 98,010 123,913
Interest -- 14,155
Other -- 11,882
---------- ----------
Total gross deferred tax assets 222,752 278,125
Less: valuation allowance 16,529 37,429
---------- ----------
Net deferred tax assets 206,223 240,696
---------- ----------
Deferred tax liabilities:
Excess of tax over book depreciation 687,277 710,286
Other 16,677 27,634
------------ ----------
Total gross deferred tax liabilities 703,954 737,920
------------ ----------
Net deferred tax liabilities $ 497,731 $ 497,224
============ ==========
The Company has net operating loss carryforwards for federal income
taxes expiring in the years 2008 to 2013 of $166.3 million. A valuation
allowance of $35.2 million has been recorded against $46.8 million of these loss
carryforwards which are subject to limitations of both Treasury Regulation
1.1502-21 and Internal Revenue Code ("IRC") Section 382. Foreign net operating
losses expiring in the years 2000 to 2005 are $19.4 million. Interest carryovers
of $15.4 million limited by IRC Section 163(j) are available against federal tax
without expiration.
14. DISCONTINUED OPERATIONS
On May 1, 1997, in contemplation of the Rollins acquisition described in
Note 2, the Company transferred, in a non-cash transaction, JTM Industries,
Inc., its coal combustion by-products management operations to Laidlaw.
Accordingly, no gain or loss was recognized on this transfer. These operations
were retained by Laidlaw and are not part of the Company's ongoing operations.
Accordingly, the Company has classified these operations as discontinued.
Revenue for the discontinued operations for 1997 was $41.5 million.
15. EXTRAORDINARY LOSS
In April 1998, the Company repaid its existing Bank Credit Facility and
established the Senior Credit Facility (See Note 6). In connection with this
refinancing, the Company recognized an extraordinary charge in fiscal 1998 of
approximately $18.8 million ($11.3 million after tax, or $0.18 per share)
related to the write-off of previous deferred debt issuance costs and repayment
penalties.
In August 1999, the Company repurchased the PIK issued to Laidlaw
pursuant to the Rollins acquisition (See Note 7). In connection with this
repurchase, the Company recognized an extraordinary charge in fiscal 1999 of
47
<PAGE>
approximately $15.0 million ($0.17 per share) related to the write-off of
certain deferred tax assets associated with the PIK that were permanently and
directly lost due to the early retirement of the PIK.
16. EARNINGS PER SHARE
The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for each of the three years ended
August 31, 1999:
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
Numerator ($ in thousands):
Net income (loss) - basic $ 88,876 $ 205 $(183,432)
Add interest, net of tax, on subordinated
Convertible debenture 11,274 -- --
--------- ------- ----------
Total - diluted $ 100,150 $ 205 $(183,432)
========= ======= ==========
Denominator (000s):
Weighted average shares outstanding - basic 88,537 62,322 34,508
Effect of dilutive securities:
Employee stock options 28 -- --
Subordinated convertible debenture 23,080 -- --
--------- -------- ---------
Weighted average shares outstanding - diluted 111,645 62,322 34,508
========= ======== ==========
Basic earnings per share $ 1.00 $ -- $ (5.32)
Diluted earnings per share $ 0.90 $ -- $ (5.32)
Potentially dilutive shares are excluded from diluted shares outstanding
for fiscal 1998 and 1997 because the effect of their inclusion would be
anti-dilutive. The number of potentially dilutive shares excluded from the
earnings per share calculation was 23,421,000 and 6,582,000 for fiscal 1998 and
1997, respectively.
17. RELATED PARTY TRANSACTIONS
Included in selling, general and administrative expenses are management
fees paid to Laidlaw in the amount of $2.6 million during fiscal 1997. Interest
expense in fiscal 1997 includes $24.0 million allocated from Laidlaw.
Management fees have been allocated to the Company, prior to May 15,
1997, based upon the Company's share of Laidlaw's consolidated revenue.
Management fees are charged by Laidlaw to each of its operating groups in order
to recover its general and administrative costs. The services provided by
Laidlaw include treasury, taxation and insurance.
Insurance premiums paid to Laidlaw totaled $21.5 million, $11.3 million,
and $7.2 million in fiscal 1999, 1998, and 1997, respectively.
Certain directors and officers of the Company are also directors and
officers of Laidlaw.
18. SEGMENT AND GEOGRAPHIC INFORMATION
In 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
131 establishes standards for reporting information about operating segments in
financial statements. In general, the standard requires that business entities
report selected information about operating segments in a manner consistent with
that used for internal management reporting.
The Company is organized along its two primary business activities -
Collection and Recovery and Treatment and Disposal. Collection and Recovery
involves providing various services to both industrial and commercial customers.
These services include parts cleaners and hazardous and non-hazardous waste
collection.
48
<PAGE>
Treatment and Disposal involves the treatment, recycling and destruction of
hazardous and non-hazardous waste at Company owed and operated facilities. The
Company operates thermal destruction incinerators, landfills and wastewater
treatment facilities. Each segment is managed independently from the other and
reports separately to senior management. Transactions between the segments are
accounted for at the Company's estimate of fair value based on similar
transactions with outside customers. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies.
The Company evaluates performance based on several factors, of which the primary
financial measure is operating income before depreciation and amortization
("EBITDA") and before restructuring and other non-recurring charges. The table
below reflects certain information relating to the Company's operations ($ in
thousands):
<TABLE>
<CAPTION>
Collection Treatment
and Recovery and Disposal Europe Other Total
------------ ------------ ------ ----- -----
Fiscal 1999
<S> <C> <C> <C> <C> <C>
Outside revenue $ 1,340,807 $ 313,441 $ 31,700 $ -- $ 1,685,948
Intercompany revenue 51,381 131,283 -- (182,664) --
Depreciation and amortization 46,164 35,979 3,438 50,421 136,002
EBITDA before restructuring
and other non-recurring
Charges 433,434 132,509 7,605 (92,763) 480,785
Total assets 2,383,965 1,697,880 -- 284,959 4,366,804
Capital expenditures 49,981 11,800 1,965 9,847 73,593
Fiscal 1998
Outside revenue $ 813,000 $ 324,600 $ 47,873 $ -- $ 1,185,473
Intercompany revenue 38,330 116,642 -- (154,972) --
Depreciation and amortization 29,802 36,306 5,730 21,213 93,051
EBITDA before restructuring
and other non-recurring
Charges 201,184 110,940 12,317 (45,167) 279,274
Total assets 2,078,195 1,533,863 311,555 545,282 4,468,895
Capital expenditures 29,564 19,332 453 1,405 50,754
Fiscal 1997
Outside revenue $ 394,100 $ 284,519 $ -- $ -- $ 678,619
Intercompany revenue 24,405 101,295 -- (125,700) --
Depreciation and amortization 25,506 27,956 -- 44 53,506
EBITDA before restructuring
and other non-recurring
Charges 31,514 104,023 -- (15,048) 120,489
</TABLE>
Reconciliation of reportable segment primary financial measure to
operating income (loss) is as follows ($ in thousands):
<TABLE>
<CAPTION>
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total EBITDA before restructuring and other
non-recurring charges $ 480,785 $ 279,274 $ 120,489
Depreciation and amortization 136,002 93,051 53,506
Restructuring and other charges -- 65,831 331,697
---------- ---------- -----------
Operating income (loss) $ 344,783 $ 120,392 $ (264,714)
========== ========== ===========
</TABLE>
49
<PAGE>
Information concerning principal geographic areas is as follows ($ in
thousands):
United States Other Total
------------- ----- -----
Fiscal 1999
Outside revenue $ 1,481,576 $ 204,372 $ 1,685,948
Net property, plant and equipment 2,384,589 187,431 2,572,020
Fiscal 1998
Outside revenue $ 1,006,199 $ 179,274 $ 1,185,473
Net property, plant and equipment 2,458,227 392,275 2,850,502
Fiscal 1997
Outside revenue $ 562,469 $ 116,150 $ 678,619
19. SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
The supplemental cash flow disclosures and non-cash transactions for
fiscal years 1999, 1998 and 1997 are as follows ($ in thousands):
<TABLE>
<CAPTION>
Year Ended August 31
--------------------
1999 1998 1997
---- ---- ----
Supplemental cash flow information:
Cash paid during the year for:
<S> <C> <C> <C>
Interest $ 163,794 $ 78,008 $ 26,660
=========== ============ ==========
Income taxes paid (refunded) $ (22,529) $ 1,253 $ --
=========== ============ ==========
Non-cash investing and financing activities:
Business combinations:
Fair value of assets acquired $ -- $ 2,949,100 $ 495,168
Fair value of liabilities assumed -- 966,498 329,134
Less, cash paid -- (1,295,953) --
----------- ------------- ----------
Fair value of stock issued on acquisition -- 686,649 $ 166,034
=========== ============ ==========
Issuance of subordinated convertible debenture
to Laidlaw Inc. $ -- $ -- $ 350,000
=========== ============ ==========
Issuance of common stock to satisfy interest
payment due on subordinated convertible debenture $ 22,486 $ 17,500 $ --
=========== ============ ==========
Issuance of common stock as consideration for
repurchase of subordinated convertible debenture $ 150,000 $ -- $ --
=========== ============ ==========
Non-cash transactions arising from sale of
business:
Promissory notes receivable $ -- $ 8,000 $ --
Reduction of debt -- 40,814 --
Equity investment recorded as long-term investment 37,782 -- --
============ ============ ==========
</TABLE>
20. RECENT ACCOUNTING DEVELOPMENTS
In June 1998, FASB issued Statement No. 133, "Accounting of Derivative
Instruments and Hedging Activities," ("SFAS 133") (as amended by Statement No.
137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133" issued June 1999), effective for
periods beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded on other contracts, and derivatives used for hedging
purposes. SFAS 133 requires that entities recognize all derivative financial
instruments as either assets or liabilities on the balance sheet at their fair
value. Changes in the fair value of the derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction, and if it is, the type
of hedge transaction. The Company anticipates that the adoption of this standard
will not have a significant effect on the Company's results of operations or its
financial position.
50
<PAGE>
In March 1998, the AICPA issued Statement of Position 98-1. "Accounting
for Costs of Computer Software for Internal Use," ("SOP 98-1"), effective for
periods beginning after December 15, 1998. SOP 98-1 provides guidance on
defining internal use software and the accounting for the costs thereof. The
Company anticipates that the adoption of this statement will not have a
significant effect on the Company's results of operations or its financial
position.
In April 1998, the AICPA issued Statement of Position 98-5, "Accounting
for the Costs of Start-Up Activities," (SOP 98-5"), effective for periods
beginning after December 15, 1998. SOP 98-5 requires all costs of start-up
activities to be expensed as incurred. Start-up activities are defined as those
one-time activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer or beneficiary, initiating a new process in an existing
facility, or commencing a new operation. Activities related to mergers or
acquisitions are not considered start-up activities and, therefore, SOP 98-5
does not change the accounting for such items. The Company anticipates that the
adoption of this statement will not have a significant effect on the Company's
results of operations or its financial position.
21. QUARTERLY FINANCIAL DATA-UNAUDITED
<TABLE>
<CAPTION>
FIRST * SECOND THIRD ** FOURTH * TOTAL**
------- ------ -------- -------- -------
($ in thousands, except per share amounts)
Fiscal 1999
<S> <C> <C> <C> <C> <C>
Revenue $ 467,019 $ 402,135 $ 400,935 $ 415,859 $1,685,948
Income from operations 90,176 73,866 90,111 90,630 344,783
Extraordinary loss, net of
applicable tax -- -- -- (15,036) (15,036)
Net income 27,772 18,245 29,694 13,165 88,876
Earnings per share:
Income before
extraordinary item
Basic $ 0.32 $ 0.21 $ 0.34 $ 0.32 $ 1.17
Diluted 0.27 0.19 0.30 0.28 1.03
Net income
Basic $ 0.32 $ 0.21 $ 0.34 $ 0.15 $ 1.00
Diluted 0.27 0.19 0.30 $ 0.15 0.90
Fiscal 1998
Revenue $ 211,552 $ 173,215 $ 365,705 $ 435,001 $1,185,473
Income (loss) from
operations 31,931 19,676 (10,304) 79,089 120,392
Extraordinary loss, net of
applicable tax -- -- (11,283) -- (11,283)
Net income (loss) 10,144 3,556 (35,319) 21,824 205
Earnings per share:
Income (loss) before
extraordinary item
Basic $ 0.22 $ 0.08 $ (0.34) $ 0.25 $ 0.18
Diluted 0.19 0.08 (0.34) 0.22 0.18
Net income (loss)
Basic $ 0.22 $ 0.08 $ (0.50) $ 0.25 $ --
Diluted 0.19 0.08 (0.50) 0.22 --
</TABLE>
* Includes revenue from European operations of $31.7 million and $27.9 million
in first quarter 1998 and fourth quarter 1999, respectively.
** 1998 includes restructuring charge of $65.8 million ($39.5 million net of
tax).
51
<PAGE>
Results for the quarters include the results of operations of acquired companies
for the periods in which they were owned by the Company.
22. SUMMARIZED FINANCIAL INFORMATION
In connection with the Safety-Kleen acquisition, Safety-Kleen Services,
Inc. (formerly known as LES, Inc.), a wholly-owned subsidiary of the Company,
issued 9.25% Senior Subordinated Notes (See Note 6). The Notes are jointly and
severally guaranteed by the Company and all wholly-owned domestic subsidiaries
of the Company, including the wholly-owned domestic subsidiaries of Safety-Kleen
Corp., on a full and unconditional basis. No foreign direct or indirect
subsidiary or non-wholly-owned domestic subsidiary is an obligor or guarantor on
the financing. Separate financial statements and other disclosures concerning
each of Safety-Kleen Services, Inc. and the subsidiary guarantors are not
presented because management believes they are not material to investors.
Summarized financial information for the Company and its subsidiaries on a
combined basis is set forth below.
Consolidating Condensed Balance Sheet
August 31, 1999
<TABLE>
<CAPTION>
Safety-Kleen Subsidiary
Safety-Kleen Services, Subsidiary Non- Elimination Consolidated
($ in thousands) Corp. Inc. Guarantors Guarantors Entries Totals
----- ---- ---------- ---------- ------- ------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 24,956 $ -- $ 528,621 $ 48,418 $ (14,298) $ 587,697
Property, plant and
Equipment, net -- -- 2,384,106 187,914 -- 2,572,020
Investment in
Subsidiaries 1,601,498 2,911,631 2,346,621 -- (6,859,750) --
Goodwill -- -- 1,042,315 56,416 -- 1,098,731
Other non-current
Assets -- -- 107,000 1,356 -- 108,356
----------- ----------- ---------- --------- ----------- -----------
Total assets $ 1,626,454 $ 2,911,631 $6,408,663 $ 294,104 $(6,874,048) $ 4,366,804
=========== =========== ========== ========= ============ ===========
LIABILITIES
Current liabilities $ 7,189 $ 100,208 $ 277,455 $ 51,165 $ (14,298) $ 421,719
Non-current -- -- 774,608 5,854 -- 780,462
liabilities
Long-term debt 337,013 1,488,126 15,798 41,434 -- 1,882,371
----------- ----------- ---------- --------- ----------- -----------
Total liabilities 344,202 1,588,334 1,067,861 98,453 (14,298) 3,084,552
STOCKHOLDERS' EQUITY
1,282,252 1,323,297 5,340,802 195,651 (6,859,750) 1,282,252
----------- ----------- ---------- --------- ------------ -----------
Total liabilities and
stockholders' equity $ 1,626,454 $ 2,911,631 $6,408,663 $ 294,104 $(6,874,048) $ 4,366,804
=========== =========== ========== ========= ============ ===========
</TABLE>
52
<PAGE>
Consolidating Condensed Statement of Income
Year Ended August 31, 1999
<TABLE>
<CAPTION>
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 revenue ..... $ -- $ -- $1,434,226 $ 264,465 $ (12,743) $ 1,685,948
Operating expenses 936 -- 1,167,318 185,654 (12,743) 1,341,165
----------- ----------- ---------- ----------- ------------ ----------
Operating income .. (936) -- 266,908 78,811 -- 344,783
Interest income
(expense), net .. (24,150) (139,868) 1,223 (3,430) -- (166,225)
Undistributed
earnings of
subsidiaries .... 118,070 197,006 2,708 -- (315,076) 2,708
----------- ----------- ----------- ----------- ------------ -------------
Income (loss) from-
continuing
operations before
income tax ...... 92,984 57,138 270,839 75,381 (315,076) 181,266
Income tax expense
(benefit) ....... (10,928) (60,932) 117,987 32,438 -- 78,565
----------- ----------- ----------- ----------- ------------ ------------
Income (loss) from
continuing
operations before
minority interest 103,912 118,070 152,852 42,943 (315,076) 102,701
Minority interest . -- -- 217 994 -- 1,211
----------- ----------- ---------- ---------- ------------ ------------
Income (loss) from
continuing
operations ...... 103,912 118,070 153,069 43,937 (315,076) 103,912
Extraordinary loss (15,036) -- -- -- -- (15,036)
----------- ---------- ---------- ---------- ---------- ------------
Net income ........ $ 88,876 $ 118,070 $ 153,069 $ 43,937 $ (315,076) $ 88,876
=========== =========== =========== =========== ============ ============
</TABLE>
53
<PAGE>
Consolidating Condensed Statement of Cash Flows
Year Ended August 31, 1999
<TABLE>
<CAPTION>
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 $ (20,642) $ (141,441) $ 248,694 $ (16,553) $ -- $ 70,058
------------ ------------ ---------- ---------- ----------- -----------
Cash flows from
investing
activities:
Cash expended on
acquisition of
Business -- -- (10,809) (102) -- (10,911)
Purchase of
property,
plant and equipment -- -- (66,578) (7,015) -- (73,593)
Proceeds from sale of
Business -- -- 140,401 -- -- 140,401
Change in other, net -- -- 3,173 288 -- 3,461
----------- ----------- ---------- --------- ----------- -----------
Net cash (used in)
investing activities -- -- 66,187 (6,829) -- 59,358
----------- ----------- ---------- ---------- ----------- -----------
Cash flows from
financing activities:
Exercise of stock
Options 212 -- -- -- -- 212
Bank financing fees
and expenses (8,709) (4,191) -- -- -- (12,900)
Borrowings of
long-term debt 225,000 -- -- -- -- 225,000
Repayment of
long-term debt (200,000) (173,832) (1,050) (10,412) -- (385,294)
Bank overdraft -- 14,298 20,139 16,257 (14,298) 36,396
Intercompany payable
(receivable) 26,584 305,166 (336,203) 4,453 -- --
----------- ----------- ----------- --------- ----------- -----------
Net cash provided
by (used in)
financing activities 43,087 141,441 (317,114) 10,298 (14,298) (136,586)
----------- ----------- ----------- --------- ------------ ------------
Effect of exchange
rate changes on cash -- -- (2,110) 2,120 -- 10
----------- ----------- ----------- --------- ----------- -----------
Net increase
(decrease) in cash
and cash equivalents 22,445 -- (4,343) (10,964) (14,298) (7,160)
Cash and cash
equivalents at:
Beginning of period -- -- 4,343 11,990 -- 16,333
----------- ----------- ---------- --------- ----------- -----------
End of period $ 22,445 $ -- $ -- $ 1,026 $ (14,298) $ 9,173
=========== =========== ========== ========= ============ ===========
</TABLE>
54
<PAGE>
Consolidating Condensed Balance Sheet
August 31, 1998
<TABLE>
<CAPTION>
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>
ASSETS
Current assets ...... $ -- $ -- $ 431,274 $ 111,060 $ -- $ 542,334
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 $ 5,211,333 $ 579,827 $ (5,595,659) $ 4,468,895
=========== =========== =========== ========== ============ ==========
LIABILITIES
Current liabilities . $ 6,853 $ 88,089 $ 246,359 $ 83,617 $ (2) $ 424,916
Non-current ......... -- -- 714,145 111,964 -- 826,109
liabilities
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 1,750,078 976,838 245,222 (2) 3,454,189
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 $ 5,211,333 579,827 $(5,595,659) $ 4,468,895
=========== =========== =========== ========== ============ ===========
</TABLE>
55
<PAGE>
Consolidating Condensed Statement of Income
Year Ended August 31, 1998
<TABLE>
<CAPTION>
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 revenue ...... $ -- $ -- $ 947,774 $ 250,814 $ (13,115) $1,185,473
Operating expenses . -- -- 796,955 215,370 (13,075) 999,250
Restructuring charge -- -- 60,081 5,750 -- 65,831
--------- --------- --------- --------- --------- ---------
Operating income ... -- -- 90,738 29,694 (40) 120,392
Interest income
(expense), net ... (25,747) (79,464) 12,790 (7,619) -- (100,040)
Undistributed
earnings of
Subsidiaries ..... 14,366 68,147 -- -- (82,513) --
--------- --------- --------- --------- --------- ---------
Income (loss) from
continuing
operations before
income tax ....... (11,381) (11,317) 103,528 22,075 (82,553) 20,352
Income tax expense
(benefit) ........ (11,586) (35,759) 46,164 10,314 -- 9,133
--------- --------- --------- --------- --------- ---------
Income (loss) from
continuing
operations before
minority interest 205 24,442 57,364 11,761 (82,553) 11,219
Minority interest .. -- -- 589 (320) -- 269
--------- --------- --------- --------- --------- ---------
Income (loss) from
continuing
Operations ....... 205 24,442 57,953 11,441 (82,553) 11,488
Extraordinary loss,
net of tax ....... -- (10,076) -- (1,207) -- (11,283)
--------- --------- --------- --------- --------- ---------
Net income ......... $ 205 $ 14,366 $ 57,953 $ 10,234 $ (82,553) $ 205
========= ========= ========= ========= ========= =========
</TABLE>
56
<PAGE>
Consolidating Condensed Statement of Cash Flows
Year Ended August 31, 1998
<TABLE>
<CAPTION>
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 ......... $ 3,612 $ (12,888) $ 76,353 $ 20,550 $ -- $ 87,627
--------- ---------- ---------- ---------- ---------- ------------
Cash flows from
investing activities:
Cash acquired on
acquisition of
Business .......... -- -- (1,272,639) (8,856) -- (1,281,495)
Purchase of property,
plant and equipment -- -- (39,327) (11,427) -- (50,754)
Proceeds from sale of
property, plant and
Equipment ......... -- -- 13,256 177 -- 13,433
Proceeds from sale of
Business .......... -- -- 33,675 -- -- 33,675
Change in other, net -- -- 13,046 (21,240) -- (8,194)
---------- ------------ ------------ ---------- ---------- ------------
Net cash (used in)
investing activities -- -- (1,251,989) (41,346) -- (1,293,335)
---------- ------------ ------------ ---------- ---------- ------------
Cash flows from
financing activities:
Exercise of stock
Options ........... 509 -- -- -- -- 509
Bank financing fees
and expenses ...... -- (48,513) -- (2,025) -- (50,538)
Bank overdraft ...... -- -- 10,975 2,017 -- 12,992
Borrowings of
long-term debt .... -- 1,788,000 -- 68,814 -- 1,856,814
Repayment of
long-term debt .... -- (331,750) (212,953) (59,981) -- (604,684)
Intercompany payable
(receivable) ...... (4,121) (1,394,849) 1,357,187 41,783 -- --
---------- ------------ ------------ ---------- ---------- -------------
Net cash provided
by (used in) financing
activities ......... (3,612) 12,888 1,155,209 50,608 -- 1,215,093
---------- ------------ ------------ ---------- ----------- ------------
Effect of exchange rate
changes on cash..... -- -- -- (4,212) -- (4,212)
---------- ----------- ------------ ---------- ----------- ------------
Net increase
(decrease) in cash and
cash equivalents.... -- -- (20,427) 25,600 -- 5,173
Cash and cash
equivalents at:
Beginning of period -- -- 24,770 (13,610) -- 11,160
---------- ------------ ------------ ---------- ---------- ------------
End of period ..... $ -- $ -- $ 4,343 $ 11,990 $ -- $ 16,333
========== ============ ============ ========== ========== ============
</TABLE>
57
<PAGE>
Consolidating Condensed Statement of Income
Year Ended August 31, 1997
<TABLE>
<CAPTION>
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 revenue ....... $ -- $ -- $ 510,563 $ 168,056 $ -- $ 678,619
Operating expenses .. -- -- 472,254 139,382 -- 611,636
Restructuring charge -- -- 325,070 6,627 -- 331,697
---------- ----------- ----------- ---------- ---------- ----------
Operating income .... -- -- (286,761) 22,047 -- (264,714)
Interest expense, net 6,580 8,010 22,530 4,288 -- 41,408
Undistributed losses
of subsidiaries ... (179,397) (174,485) -- -- 353,882 --
---------- ----------- ---------- ---------- ---------- ----------
Income (loss) from
operations before
income tax ........ (185,977) (182,495) (309,291) 17,759 353,882 (306,122)
Income tax expense
(benefit) ......... (2,545) (3,098) (118,579) 1,433 -- (122,789)
---------- ----------- ----------- ---------- ---------- ----------
Income (loss) from
continuing
operations before
minority interest . (183,432) (179,397) (190,712) 16,326 353,882 (183,333)
Minority interest ... -- -- (72) (47) -- (119)
---------- ----------- ----------- ---------- ---------- ----------
Income (loss) from
continuing
operations ........ (183,432) (179,397) (190,784) 16,279 353,882 (183,452)
Income from
discontinued
operations ........ -- -- 20 -- -- 20
---------- ----------- ----------- --------- ---------- -----------
Net income .......... $(183,432) $ (179,397) $ (190,764) $ 16,279 $ 353,882 $ (183,432)
========== =========== =========== ========== ========== ===========
</TABLE>
58
<PAGE>
Consolidating Condensed Statement of Cash Flows
Year Ended August 31, 1997
<TABLE>
<CAPTION>
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) continuing
Operations ........ $ 2,545 $ 3,098 $ 38,964 $ (7,428) $ (220) $ 36,959
Net cash provided
by (used in)
Discontinued
Operations ........ -- -- 425 -- -- 425
---------- ---------- ---------- ---------- ---------- -----------
Net cash provided by
(used in) operating
Activities ........ 2,545 3,098 39,389 (7,428) (220) 37,384
---------- ---------- ---------- ---------- ---------- -----------
Cash flows from
investing
activities:
Purchase of property,
plant and equipment -- -- (16,154) (19,943) -- (36,097)
Other investing
activities, net ... -- -- 15,648 (1,438) -- 14,210
---------- --------- ---------- ---------- ---------- -----------
Net cash used in
continuing
operations ........ -- -- (506) (21,381) -- (21,887)
Net cash used in
discontinued
operations ........ -- -- (1,887) -- -- (1,887)
---------- ---------- ---------- ---------- ---------- -----------
Net cash used in
investing activities -- -- (2,393) (21,381) -- (23,774)
---------- ---------- ---------- ---------- ---------- -----------
Cash flows from
financing activities:
Debt financing fees
and expenses ...... -- (16,448) -- (2,340) -- (18,788)
Bank overdraft ...... -- -- (28,829) (3,359) -- (32,188)
Repayment of
long-term debt .... -- -- (55,700) (5,842) -- (61,542)
Borrowings of
long-term debt .... 65,200 315,000 -- 71,422 -- 451,622
Intercompany payable
(receivable) ...... (67,745) (301,650) 369,175 -- 220 --
Net payments to
Laidlaw Inc. ...... -- -- (296,872) (44,682) -- (341,554)
---------- ---------- ---------- ---------- ---------- -----------
Net cash provided by
(used in) Financing
activities........... (2,545) (3,098) (12,226) 15,199 220 (2,450)
---------- ---------- ---------- ---------- ---------- -----------
Net increase
(decrease) in cash
and cash equivalents -- -- 24,770 (13,610) -- 11,160
Cash and cash
Equivalents at:
Beginning of period -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -----------
End of period ..... $ -- $ -- $ 24,770 $ (13,610) $ -- $ 11,160
========== ========== ========== ========== ========== ===========
</TABLE>
59
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Executive Officers of the Registrant" in Part I,
Item 1 of this Annual Report on Form 10-K and the section entitled "Section
16(a) Beneficial Ownership Reporting Compliance" and "Proposal 1: Election of
Directors" in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the Annual Meeting of Stockholders to be held on November 30,
1999 (the "Proxy Statement"), are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Compensation of Executive Officers and
Directors" and "Compensation Committee Interlocks and Insider Participation" in
the Proxy Statement are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Beneficial Ownership" in the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Compensation Committee Interlocks and Insider
Participation" in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial statements and the notes thereto:
Report of Independent Accountants (page 28).
Consolidated Statements of Income for the years ended August 31, 1999,
1998 and 1997 (page 29).
Consolidated Statements of Comprehensive Income for the years ended
August 31, 1999, 1998 and 1997 (page 29).
Consolidated Balance Sheets as of August 31, 1999 and 1998 (page 30).
Consolidated Statements of Cash Flows for the years ended August 31,
1999, 1998 and 1997 (page 31).
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1999, 1998 and 1997 (page 32).
Notes to Consolidated Financial Statements (pages 32-59).
60
<PAGE>
(2) Financial statement schedule required to be filed by Item 8 of this form:
Schedule II -- Valuation and qualifying accounts.
Independent accountant's report on financial statement schedule.
All other schedules have been omitted since they are inapplicable or not
required, or the information has been included in the financial statements or
the notes thereto.
The Company's 1999 Annual Report to Stockholders is not to be deemed
filed as part of this report except for those parts thereof specifically
incorporated by reference herein.
(3) 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-405 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)(f) to the
Registrant's Form S-4 Registration Statement No. 333-82689 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. 333-82689 filed July 12, 1999
and incorporated herein by reference.
(4)(d) Second Supplemental Indenture effective as of May 7, 1999 among
Safety-Kleen Services, Inc. the Registrant, SK Services, L.C., SK Services
(East), L.C. and The Bank of Nova Scotia Trust Company of New York, as trustee.
(4)(e) Registration 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. 333-82689 filed July 12, 1999 and incorporated herein
by reference.
(4)(f) 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
61
<PAGE>
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)(g) 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)(h) 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)(i) 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)(j) 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 Registrant's Form 10-Q for the quarter
ended February 28, 1999 and incorporated herein by reference.
(4)(k) 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)(l) to the Registrant's Form S-4 Registration Statement
No. 333-82689 filed July 12, 1999 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 filed as
Exhibit B to Annex A 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 1, 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.
62
<PAGE>
(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)(u) to the Registrant's Form
S-4 Registration Statement No. 333-82689 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)(s)) 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) Collateral Account Pledge and Security Agreement dated as of May 17, 1999
between the Registrant, the Bank of Nova Scotia Trust Company of New York, as
escrow agent and the Bank of Nova Scotia Trust Company of New York, as trustee,
filed as Exhibit (4)(d) to the Registrant's Form S-4 Registration Statement No.
333-82689 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.
63
<PAGE>
(10)(h) Stock Purchase Agreement dated February 6, 1997 among the Registrant,
Laidlaw Inc., and Laidlaw Transportation, Inc. filed as Exhibit A to Annex A 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-B1, 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.
(12) Statement Re: Computation of Ratios.
(13) 1999 Annual Report to Stockholders
(21) Subsidiaries of Registrant.
(23) Consent of Independent Accountants.
(24) Power of Attorney (on the signature pages hereof)
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
i. The Company filed a Current Report on Form 8-K on July 30,
1999, which contained Item 5 related to the Company announcing
that it would hold a special meeting of shareholders.
ii. The Company filed a Current Report on Form 8-K on August 27,
1999 which contained Item 5 related to the Company announcing
that its stockholders had approved the issuance of Common
Stock in connection with the repurchase of the $350 million 5%
subordinated convertible pay-in-kind debenture from Laidlaw
Inc.
iii. The Company filed a Current Report on Form 8-K on August 27,
1999 which contained Item 5 related to the Company announcing
its agreement to acquire Ecogard, Inc. d/b/a First Recovery.
64
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: SAFETY-KLEEN CORP.
October 18, 1999
----------------------------------------------------
(Registrant)
/s/ K. W. Winger
------------------------------------
Kenneth W. Winger
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby constitutes and appoints Paul R. Humphreys and Henry H. Taylor and
each of them, his or her true and lawful agent, proxy and attorney-in-fact, each
acting alone, with full power and substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities to (i)
act on, sign and file with the Securities and Exchange Commission any and all
amendments to this Form 10-K together with all schedules and exhibits thereto,
(ii) act on, sign and file such certificates, instruments, agreements and other
documents as may be necessary or appropriate in connection therewith, (iii) take
any and all actions which may be necessary or appropriate in connection
therewith, granting unto such agents, proxies and attorneys-in-fact, and each of
them, full power and authority to do and perform each and every act and thing
necessary or appropriate to be done, as fully and for all intents and purposes
as he or she might or could do in person, hereby approving, ratifying and
confirming all that such agents, proxies and attorneys-in-fact, any of them or
any of his or her or their substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ J. R. Bullock Chairman of the Board October 5, 1999
- ----------------- and Director
James R. Bullock
/s/ Kenneth W. Winger President, Chief Executive October 5, 1999
- --------------------- Officer and Director
Kenneth W. Winger (principal executive officer)
/s/ Paul R. Humphreys Senior Vice President, Finance October 5, 1999
- --------------------- and Chief FinancialOfficer
Paul R. Humphreys (principal financial and
accounting officer)
/s/ L. W. Haworth Director October 5, 1999
- -----------------
Leslie W. Haworth
/s/ Robert W. Luba Director October 5, 1999
- ------------------
Robert W. Luba
65
<PAGE>
/s/ John W. Rollins, Sr. Director October 5, 1999
- -----------------------
John W. Rollins, Sr.
/s/ John W. Rollins, Jr. Director October 5, 1999
- ------------------------
John W. Rollins, Jr.
/s/ David E. Thomas, Jr. Director October 5, 1999
- ------------------------
David E. Thomas, Jr.
/s/ Henry B. Tippie Director October 5, 1999
- -------------------
Henry B. Tippie
/s/ James L. Wareham Director October 5, 1999
- --------------------
James L. Wareham
/s/ Grover C. Wrenn Director October 5, 1999
- -------------------
Grover C. Wrenn
66
<PAGE>
EXHIBIT INDEX
(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-405 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)(f) to the Registrant's Form S-4 Registration
Statement No. 333-82689 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.333-82689 filed July
12, 1999 and incorporated herein by reference.
(4)(d) Second Supplemental Indenture effective as of May 7,
1999 among Safety-Kleen Services, Inc. the Registrant,
SK Services, L.C., SK Services(East), L.C. and The Bank
of Nova Scotia Trust Company of New York, as trustee.
(4)(e) Registration 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.
333-82689 filed July 12, 1999 and incorporated herein
by reference.
(4)(f) 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)(g) 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
67
<PAGE>
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)(h) 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)(i) 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)(j) 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 Registrant's Form 10-Q for the
quarter ended February 28, 1999 and incorporated herein
by reference.
(4)(k) 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)(l) to the Registrant's Form S-4
Registration Statement No. 333-82689 filed July 12,
1999 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 filed as Exhibit B to Annex A
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 1, 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.
68
<PAGE>
(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)(u) to the Registrant's Form S-4 Registration
Statement No. 333-82689 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)(s)) 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) Collateral Account Pledge and Security Agreement dated
as of May 17, 1999 between the Registrant, the Bank of
Nova Scotia Trust Company of New York, as escrow agent
and the Bank of Nova Scotia Trust Company of New York,
as trustee, filed as Exhibit (4)(d) to the Registrant's
Form S-4 Registration Statement No. 333-82689 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.
69
<PAGE>
(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. filed as Exhibit A to Annex A 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.
(12) Statement Re: Computation of Ratios.
(13) 1999 Annual Report to Stockholders
(21) Subsidiaries of Registrant.
(23) Consent of Independent Accountants.
(24) Power of Attorney (on the signature pages hereof)
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
i. The Company filed a Current Report on Form 8-K on
July 30, 1999, which contained Item 5 related to
the Company announcing that it would hold a
special meeting of shareholders.
ii. The Company filed a Current Report on Form 8-K on
August 27, 1999 which contained Item 5 related to
the Company announcing that its stockholders had
approved the issuance of Common Stock in
connection with the repurchase of the $350 million
5% subordinated convertible pay-in-kind debenture
from Laidlaw Inc.
iii. The Company filed a Current Report on Form 8-K on
August 27, 1999 which contained Item 5 related to
the Company announcing its agreement to acquire
Ecogard, Inc. d/b/a First Recovery.
70
THIS SECOND SUPPLEMENTAL INDENTURE, effective as of May 7, 1999, among
Safety-Kleen Services, Inc. (formerly LES, Inc.), a Delaware corporation (the
"Company"), Safety-Kleen Corp. (formerly Laidlaw Environmental Services, Inc.),
a Delaware corporation (the "Parent Guarantor"), SK Services, L.C. ("SK
Services") and SK Services (East), L.C. ("SK Services East"), both SK Services
and SK Services East are Utah limited liability companies, and The Bank of Nova
Scotia Trust Company of New York, as trustee (the "Trustee").
WHEREAS, the Company, the Guarantors, and the Trustee entered into an
Indenture dated as of May 29, 1998 (the "Indenture") to provide for the issuance
of the Company's 9 1/4 % Senior Subordinated Notes due 2008;
WHEREAS, the Company, the Parent Guarantor, the Trustee and SK Europe,
Inc. entered into the First Supplement Indenture dated December 18,1998 (the
"First Supplemental Indenture");
WHEREAS, Safety-Kleen (Delaware), Inc., a wholly-owned subsidiary of
Safety-Kleen (Lone and Grassy Mountain), Inc., which is a wholly-owned
subsidiary of the Company, acquired an additional 20% ownership of each of SK
Services and SK Services East so that it now holds 100% of each of SK Services
and SK Services East;
WHEREAS, pursuant to Sections 1307 and 1308 of the Indenture, SK Services
and SK Services East, as Subsidiary Guarantors, are each required to enter into
this Second Supplemental Indenture (the "Second Supplemental Indenture");
WHEREAS, the Company, the Parent Guarantor, SK Services, SK Services East
and the Trustee are authorized to enter into this Second Supplemental Indenture;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained in this Second Supplemental Indenture and for other good and
valuable consideration, the receipt and sufficiency of which are herein
acknowledged, the Company, the Parent Guarantor, SK Services, SK Services East
and the Trustee hereby agree for the equal and the ratable benefit of all
Holders of the Securities as follows:
ARTICLE ONE
Definitions
-----------
1.1 Definitions. For purposes of this Second Supplemental Indenture, the
terms defined in the recitals shall have the meanings therein specified; any
terms defined in the Indenture and not defined herein shall have the same
meanings herein as therein defined; and references to Articles or Sections
shall, unless the context indicates otherwise, be references to Articles or
Sections of the Indenture.
<PAGE>
ARTICLE TWO
GUARANTEES OF SECURITIES AND OTHER PROVISIONS
---------------------------------------------
2.1 SK Services Guarantee.
---------------------
(a) SK Services hereby jointly and severally, fully, absolutely,
unconditionally and irrevocably guarantees to each Holder of a Security
authenticated and delivered by the Trustee, and to the Trustee for its benefit
and the benefit of each Holder, the punctual payment and performance when due of
all Indenture Obligations which, for purposes of its Securities Guarantee, shall
also be deemed to include all commissions, fees, charges, costs and other
expenses (including reasonable legal fees and disbursements of counsel) arising
out of or incurred by the Trustee or the Holders in connection with the
enforcement of any Securities Guarantee. Without limiting the generality of the
foregoing, SK Services' liability shall extend to all amounts that constitute
part of the Indenture Obligations and would be owed by the Company to such
Holder or the Trustee under the Securities or the Indenture but for the fact
that they are unenforceable, reduced, limited, suspended or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
the Company.
(b) SK Services and by its acceptance of a Security each Holder hereby
confirms that it is the intention of all such parties that the guarantee by SK
Services pursuant to its Securities Guarantee not constitute a fraudulent
transfer or conveyance for purposes of the Federal Bankruptcy Code, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act of any similar
federal or state law or the provisions of its local law relating to fraudulent
transfer or conveyance. To effectuate the foregoing intention, the Holders and
SK Services hereby irrevocably agree that the obligations of such Guarantor
under its Securities Guarantee shall be limited to the maximum amount as shall
after giving effect to all other contingent and fixed liabilities of SK Services
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Securities Guarantee or pursuant to paragraph (c) of Section 1301 of
the Indenture, result in the obligations of SK Services under its Securities
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law.
(c) SK Services, the Trustee and each Holder by its acceptance of a
Security hereby agrees that the Securities Guarantee of SK Services provided
hereunder shall be subject to all terms, provisions and conditions in the
Indenture that relate to a Securities Guarantee (including, without limitation,
Articles XIII and XIV of the Indenture). SK Services further agrees to be bound
by, and to comply with, all provisions of the Indenture and Securities Guarantee
that are applicable to a Subsidiary Guarantor.
<PAGE>
3.2 SK Services East Guarantee.
---------------------------
(a) SK Services East hereby jointly and severally, fully, absolutely,
unconditionally and irrevocably guarantees to each Holder of a Security
authenticated and delivered by the Trustee, and to the Trustee for its benefit
and the benefit of each Holder, the punctual payment and performance when due of
all Indenture Obligations which, for purposes of its Securities Guarantee, shall
also be deemed to include all commissions, fees, charges, costs and other
expenses (including reasonable legal fees and disbursements of counsel) arising
out of or incurred by the Trustee or the Holders in connection with the
enforcement of any Securities Guarantee. Without limiting the generality of the
foregoing, SK Services East's liability shall extend to all amounts that
constitute part of the Indenture Obligations and would be owed by the Company to
such Holder or the Trustee under the Securities or the Indenture but for the
fact that they are unenforceable, reduced, limited, suspended or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Company.
(b) SK Services East and by its acceptance of a Security each Holder
hereby confirms that it is the intention of all such parties that the guarantee
by SK Services East pursuant to its Securities Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Federal Bankruptcy Code,
the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act of
any similar federal or state law or the provisions of its local law relating to
fraudulent transfer or conveyance. To effectuate the foregoing intention, the
Holders and SK Services East hereby irrevocably agree that the obligations of
such Guarantor under its Securities Guarantee shall be limited to the maximum
amount as shall after giving effect to all other contingent and fixed
liabilities of SK Services East and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Securities Guarantee or pursuant
to paragraph (c) of Section 1301 of the Indenture, result in the obligations of
SK Services East under its Securities Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law.
(c) SK Services East, the Trustee and each Holder by its acceptance of a
Security hereby agrees that the Securities Guarantee of SK Services East
provided hereunder shall be subject to all terms, provisions and conditions in
the Indenture that relate to a Securities Guarantee (including, without
limitation, Articles XIII and XIV of the Indenture). SK Services East further
agrees to be bound by, and to comply with, all provisions of the Indenture and
Securities Guarantee that are applicable to a Subsidiary Guarantor.
3.3 Execution and Delivery of Guarantee.
------------------------------------
The delivery of any Security by the Trustee, after the authentication
thereof under the Indenture, shall constitute due delivery of the Securities
Guarantee on behalf of SK Services and SK Services East.
<PAGE>
3.4 Amendment of Schedule A.
------------------------
In order to reflect the Securities Guarantee of SK Services and SK
Services East, Schedule A of the Indenture and Schedule A of the First
Supplemental Indenture is hereby replaced by Schedule A attached to this Second
Supplemental Indenture.
3.5 No Personal Liability.
----------------------
No stockholder, officer, director, employee or incorporator, past,
present or future, of SK Services or SK Services East, as such, shall have any
personal liability under the Securities Guarantee by reason of his, her or its
status as such stockholder, officer, director, employee or incorporator.
ARTICLE THREE
Miscellaneous
-------------
4.1 Effect of the Second Supplemental Indenture. This Second Supplemental
--------------------------------------------
Indenture supplements the First Supplemental Indenture and the Indenture and
shall be a part and subject to all the terms thereof. Except as supplemented
hereby, the Indenture, the First Supplemental Indenture and the Securities
issued thereunder shall continue in full force and effect.
4.2 Counterparts. This Second Supplemental Indenture may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
4.3 GOVERNING LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED
-------------
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4.4 Recitals. The Trustee shall not be responsible for any recital herein
--------
(other than the sixth recital as it applies to the Trustee) as such recitals
shall be taken as statements of the Company, or the validity of the execution by
SK Services or SK Services East of this Second Supplemental Indenture. The
Trustee makes no representations as to the validity or sufficiency of this
Second Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed on this 9th day of August 1999.
SAFETY-KLEEN SERVICES, INC.
By: /s/ Kenneth W. Winger
-------------------------
Name: Kenneth W. Winger
Title: President
<PAGE>
SAFETY-KLEEN CORP.
By: /s/ Kenneth W. Winger
-------------------------
Name: Kenneth W. Winger
Title: President and Chief Executive Officer
SK SERVICES, L.C.
By: /s/ Kenneth W. Winger
-------------------------
Name: Kenneth W. Winger
Title: President and Sole Member
Safety-Kleen (Delaware), Inc.
SK SERVICES (EAST), L.C.
By: /s/ Kenneth W. Winger
-------------------------
Name: Kenneth W. Winger
Title: President and Sole Member
Safety-Kleen (Delaware), Inc.
THE BANK OF NOVA SCOTIA TRUST
COMPANY OF NEW YORK, as Trustee
By: /s/ George E. Timmes
-------------------------
Name: George E. Timmes
Title: Vice President
<PAGE>
SCHEDULE A
SUBSIDIARY GUARANTORS
Safety-Kleen Systems, Inc.
Safety-Kleen (Altair), Inc.
Safety-Kleen (Aragonite), Inc.
Safety-Kleen (Bartow), Inc.
Safety-Kleen (Baton Rouge), Inc.
Safety-Kleen (BDT), Inc.
Safety-Kleen (Bridgeport), Inc.
Safety-Kleen (Buttonwillow), Inc.
Safety-Kleen (California), Inc.
Safety-Kleen (Chattanooga), Inc.
Safety-Kleen (Clive), Inc.
Safety-Kleen (Colfax), Inc.
Safety-Kleen (Crowley), Inc.
Safety-Kleen (Custom Transport), Inc.
Safety-Kleen (Deer Park), Inc.
Safety-Kleen (Deer Trail), Inc.
Safety-Kleen (Delaware), Inc.
Safety-Kleen (Encotec), Inc.
Safety-Kleen (FS), Inc.
Safety-Kleen (Gloucester), Inc.
Safety-Kleen (GS), Inc.
Safety-Kleen Holdings, Inc.
Safety-Kleen (La Porte), Inc.
Safety-Kleen (Lone and Grassy Mountain) Inc.
Safety-Kleen (Los Angeles), Inc.
Safety-Kleen (Minneapolis), Inc.
Safety-Kleen (Mt. Pleasant), Inc.
Safety-Kleen (Nashville), Inc.
Safety-Kleen (NE), Inc.
Safety-Kleen (Pecatonica), Inc.
Safety-Kleen (Pinewood), Inc.
Safety-Kleen (Plaquemine), Inc.
Safety-Kleen (PPM), Inc.
Safety-Kleen (Puerto Rico), Inc.
Safety-Kleen (Roebuck), Inc.
Safety-Kleen (Rosemount), Inc.
Safety-Kleen (San Antonio), Inc.
Safety-Kleen (Sawyer), Inc.
Safety-Kleen (TG), Inc.
<PAGE>
Safety-Kleen (Tipton), Inc.
Safety-Kleen (TS), Inc.
Safety-Kleen (Tulsa), Inc.
Safety-Kleen (San Jose), Inc.
Safety-Kleen (Sussex), Inc.
Safety-Kleen (White Castle), Inc.
Safety-Kleen (Wichita), Inc.
Safety-Kleen (Westmorland), Inc.
Safety-Kleen (WT), Inc.
Safety-Kleen OSCO Holdings, Inc.
Safety-Kleen Chemical Services, Inc.
SK Europe, Inc.
SK Services, L.C.
SK Services (East), L.C.
Ninth Street Properties, Inc.
Chemclear, Inc. of Los Angeles
USPCI, Inc. of Georgia
GSX Chemical Services of Ohio, Inc.
LEMC, Inc.
Dirt Magnet, Inc.
The Midway Gas & Oil Company
Elgint Corp.
Safety-Kleen Envirosystems Company
Safety-Kleen Envirosystems Company of Puerto Rico, Inc.
Petrocon, Inc.
Phillips Acquisition Corp.
ViroGroup, Inc.
SK Insurance Company
SK Real Estate, Inc.
Safety-Kleen International, Inc.
Safety-Kleen Oil Recovery Co.
Safety-Kleen Oil Services, Inc.
The Solvents Recovery Service of New Jersey, Inc.
EXHIBIT 12
Safety-Kleen Corp.
Ratio of Earnings to Fixed Charges
($ in thousands)
<TABLE>
<CAPTION>
Year Ended August 31
--------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations before income tax $ 181,266 $ 20,352 $(306,122) $ 11,860 $ 21,684
Add:
Portion of rents representative
of the interest factor 18,568 16,841 12,033 11,967 11,800
Interest on indebtedness,
including amortization of
deferred financing charges 172,028 107,697 44,273 46,850 41,142
--------- --------- --------- -------- --------
Income as adjusted $ 371,862 $ 144,890 $(249,816) $ 70,677 $ 74,626
========= ========= ========== ======== ========
Fixed charges
Portion of rents representative
of the interest factor $ 18,568 $ 16,841 $ 12,033 $ 11,967 $ 11,800
Interest on indebtedness,
including amortization of
deferred financing charges 172,028 107,697 44,273 46,850 41,142
--------- --------- --------- -------- --------
Total fixed charges $ 190,596 $ 124,538 $ 56,306 $ 58,817 $ 52,942
========= ========= ========= ======== ========
Ratio of earnings to fixed charges 1.95 1.16 (4.44) 1.20 1.41
======== ========= ========== ======== ========
</TABLE>
Safety-Kleen Corp. 1999 Annual Report 99 Going the Distance
FRONT COVER
- p i c t u r e -
<PAGE>
INSIDE FRONT COVER
- p i c t u r e -
Headquartered in Columbia, South Carolina, Safety-Kleen Corp. is the premier
industrial services company in North America servicing over 400,000 customers of
all sizes in a broad range of markets. The majority of these customers generate
some type of regulated waste that must be handled responsibly and efficiently.
Safety-Kleen is the only service provider that offers a completely integrated
network designed to collect, process, recycle and dispose of an almost unlimited
range of both hazardous and non-hazardous waste streams.
<PAGE>
Financial Highlights & Selected Financial Data
Total Revenue Total Assets Operating Cash Flow (1)
($ in millions) ($ in millions) ($ in millions)
95 $599 95 $1,367 95 $108
96 $653 96 $1,491 96 $106
97 $679 97 $1,611 97 $121
98 $1,185 98 $4,469 98 $279
99 $1,686 99 $4,477 99 $481
<TABLE>
<CAPTION>
Year Ended August 31 1999 1998 1997 1996 1995
($ in thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,685,948 $ 1,185,473 $ 678,619 $ 652,973 $ 599,241
- --------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (2) $ 344,783 $ 120,392 $ (264,714) $ 57,319 $ 59,859
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from
continuing operations (2) $ 103,912 $ 11,488 $ (183,452) $ 6,714 $ 16,765
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) per share from
continuing operations -Basic (3) $ 1.17 $ 0.18 $ (5.32) $ 0.22 $ 0.56
-Diluted (3) $ 1.03 $ 0.18 $ (5.32) $ 0.22 $ 0.56
- ---------------------------------------------------------------------------------------------------------------------------
Dividends per common share $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 4,366,804 $ 4,468,895 $ 1,610,878 $ 1,491,294 $ 1,367,411
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 1,967,434 $ 1,930,168 $ 540,096 $ 55,838 $ 64,256
Weighted average common
stock outstanding (000's) (3) 88,537 62,322 34,508 30,000 30,000
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average common
stock outstanding and assumed
conversions (000's) (3) 111,645 62,322 34,508 30,000 30,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating income before restructuring and other charges, plus depreciation
and amortization.
(2) Includes restructuring and other charges of $65.8 million in 1998 and $331.7
million in 1997.
(3) Restated to reflect a one-for-four reverse stock split effective December 1,
1998.
Private Securities Litigation Reform Act: Portions of this Annual Report contain
various forward-looking statements which reflect management's current views and
estimates of future economic circumstances, industry conditions and Company
performance. These statements include financial, operating and other
projections. Factors that could cause actual results to differ from these
projections include risks associated with acquisitions; the adoption of new
environmental laws and regulations and changes in how they are interpreted and
enforced; changes in demand for the Company's services; competition; and prices
for petroleum-based products.
Table of Contents Selected Financial Data 1 Shareholder Information 8
President's Letter 2 Annual Report on Form 10K
Service Matrix 3 Facility Locations IBC
Going the Distance 4-7
1
<PAGE>
Letter to Shareholders
Going the distance. This is what Safety-Kleen is all about. Our Company's
culture is built upon the promise to always provide superior service. This
commitment is visible in our alliance with our customers, our employees, the
environment and our stakeholders. It is what pushes us each day to make that
extra effort and go the extra mile.
In our last annual report to shareholders, we stated that our foremost goal in
fiscal 1999 was to complete the integration of the former Laidlaw Environmental
Services and Safety-Kleen Corp. into the leading industrial services company in
North America. That goal has been achieved.
During the fiscal year, we sold a majority interest in our European
operations; reduced our long term debt from $2.28 billion in 1998 to $1.97
billion at year end; achieved our merger synergy targets; maintained operating
margins in excess of 20.5%; re-aligned our business operations into a more
effective centralized operating structure; and substantially completed the
process of making two corporate headquarters one.
But we did not stop there.
In addition to these tasks, we set out to reintroduce the new Safety-Kleen and
the expanded menu of services we offer to commercial and industrial markets. By
increasing the number of services to our existing customers and defining new
areas of growth in waste water services, coolant management services and
industrial lubricants management, we are now uniquely positioned as the leading
service provider to the industrial marketplace. Industrial Services contributed
$800.1 million, or 47%, to our record fiscal 1999 revenue of $1.69 billion. This
business component is Safety-Kleen's future growth vehicle for the rollout of
new services and is targeted to contribute an increasing growth rate during
fiscal 2000. The Company's successful introduction of Compliance, Vacuum and
Imaging Services in the Commercial and Institutional Services markets are
examples of how we have successfully utilized and leveraged the existing branch
and route-based infrastructure to introduce new services.
What is next?
The challenges of 1999 have helped us to focus more clearly on the opportunities
ahead. The integration of Safety-Kleen's assets, sales and service personnel and
management teams was an exacting process that allowed us to evaluate how to best
move forward in a consolidating industry and produce long-term value for our
shareholders. I believe that today's Safety-Kleen is uniquely positioned to
benefit from the changes taking place in the waste industry. We know that our
unparalleled collection, recycle, treatment and disposal capabilities allow us
to quickly and efficiently service all sizes and types of customers across North
America. Furthermore, we have identified a tremendous market opportunity with
both existing and new customers. We now have the people, the facilities, and the
resources in place to continue to build our leading market position in the year
2000 and beyond.
Safety-Kleen's business is a service business largely based on
personal, face-to-face contact with its customers. Our success is a result of
all of the Safety-Kleen employees who make the commitment to provide superior
service, day-in and day-out. In particular, I would like to recognize and thank
each of them for their invaluable contributions during a period of rapid change.
To our shareholders, our customers, and our suppliers, we appreciate
and thank you for your continuing support of Safety-Kleen Corp.
/s/Kenneth W. Winger
Kenneth W. Winger
President and Chief Executive Officer
2
<PAGE>
<TABLE>
<CAPTION>
Collection & Recovery Component Treatment &
Disposal Component
<S> <C> <C> <C>
Industrial Services Commercial/Institutional
Services
Fiscal 1999 Revenue $ 800 million $ 541 million $ 313 million
47% of total revenue 32% of total revenue 19% of total revenue
Services Offered o Industrial Waste o Automotive Parts o Thermal Treatment
Service Cleaner Service - Eight commercial
- Small/large quantities - Solvent/aqueous based. incineration facilities.
of solid and liquid drum - Customer-owned - Only incineration
wastes. machines. facility permitted for
- Technical Field Service o Compliance dioxin destruction in
- Remedial Service o Dry Cleaner Service North America.
o Industrial Parts o Imaging Service - Eight hazardous/three
Cleaner Service o Paint Refinishing non-hazardous landfills.
- Solvent/aqueous based. Service o Specialty Services
- Customer-owned machines. o Used Oil Collection - PCB management
o Industrial Lubricant o Used Oil Re-refining - Wastewater processing
Management o Vacuum Truck Service - Harbor dredging,
o Coolant Management treatment and placement
o Water Management
Market Potential o Market is $4.3 o Market is $1.1 o Market is $2.0
billion and nearly 400,000 billion excluding used billion for hazardous
potential customers oil services. waste treatment and
- Safety-Kleen currently - Safety-Kleen currently disposal
has 20% revenue share and has 33% revenue share - Safety-Kleen currently
120,000 customers. and 250,000 customers. has 16% revenue share.
- Every manufacturing o Waste Oil o Safety-Kleen
establishment in the U.S. collection market is maintains 8 of 20
has a potential need for estimated at 800 million off-site commercial
the services offered by 7 gallons. incinerators in North
of the 12 Industrial - Safety-Kleen now America.
lines of business collects 240 million o Commercial
Safety-Kleen offers. gallons of used oil incineration market
annually. estimated at $485
- Re-refines million.
approximately 80 million - Safety-Kleen has 43%
gallons of base lube per market share.
year. o Safety-Kleen
operates 8 of the 23
hazardous waste
landfills in North
America.
Strategy o Further expand and o Continue to push o Continue to direct
promote single source into aqueous parts internal waste streams
service capabilities to cleaning market as to Safety-Kleen
the underserved, medium alternative to treatment and disposal
quantity waste generator, solvent-based units, and facilities and maintain
by bundling traditional focus on expansion of incineration utilization
services with new existing Imaging, Vacuum levels in excess of 90%.
offerings. as well as new
route-based services.
</TABLE>
3
<PAGE>
Going the Distance
"As a BIM for nearly five years, my responsibilities
and opportunities to pursue new business have grown
dramatically with the flood of new services
Safety-Kleen now offers. Whether it's an opportunity in
parts cleaners, compliance, absorbents, transformers or
waste water streams, my commitment to the customer is
-- We can do that."
Not only does a BIM focus on managing existing
industrial accounts, more and more they are identifying
and tailoring a specific service to satisfy a
customer's future needs. The industrial needs
assessment checklist has grown from less than 40
categories to nearly 60 service opportunities that
Safety-Kleen now readily tackles. The expansion of
waste codes and internal disposal facilities opens the
door for Safety-Kleen to pursue virtually all waste
management and site remediation opportunities.
Whether calling on small, medium, or large-size
industrial customers, the Safety-Kleen BIM uses the
eyes and ears of the Industrial Service Rep to help
evaluate additional Safety-Kleen services a customer
may require. A growing component of the industrial
sales focus is the promotion of several programs that
move Safety-Kleen closer to the customer's operations.
The INSITE Environmental Management program stations
one or more Safety-Kleen employees at a customer's
workplace to directly manage all aspects of the
client's waste management program. The Total
Environmental Activity Management program analyzes a
customer's current service requirements and recommends
necessary adjustments in their operations, compliance
practices, and waste minimization opportunities. In
addition, Safety-Kleen's newest on-site recycling
services for aqueous and industrial fluid streams are
now bundled with the traditional waste services which
saves the customer money, while increasing the number
of Safety-Kleen services utilized.
These new services and marketing strategies
demonstrate Safety-Kleen's commitment to address all of
their customers environmental compliance and waste
handling needs.
- - picture -
Todd Pikor
Branch Industrial Manager
("BIM")
Approximately 4,000 branch-based sales
and service personnel assist Safety-Kleen
customers on a daily basis from more than
175 branch locations throughout North
America.
- picture -
Combined, more than 3.0 million drums of
industrial wastes are collected, treated,
recycled or disposed of by Safety-Kleen
personnel on an annual basis.
- picture -
Safety-Kleen annually collects more
than 200 million gallons of used
solvent from its customers and re-
cycles more than 85% back into re-
usable solvent.
4
<PAGE>
As Safety-Kleen looks at new opportunities in the consolidating waste industry
as well as the internal development of additional services, the underlying
requirement is that they will be supported by the existing infrastructure of the
branch-based service.
For example, the Vacuum Service was introduced in 1996 primarily to
enhance service to automotive customers using a Safety-Kleen parts cleaner. This
successful service introduction has expanded rapidly into a growing business
that focuses primarily on an unserved market.
A recent rollout of the Vacuum Service to an expanded customer base now
allows the service representative to collect a broader variety of waste streams
such as coolants, hydraulic fluids, or waste waters in addition to waste oil and
sludges. Servicing both commercial and industrial customers, a Vac rep may see
customers as often as twice a month or on a semi-annual basis. Approximately 70%
of these customers are already using other Safety-Kleen services.
Similar services that leverage off of the existing branch
infrastructure have been introduced in recent years such as the Imaging Services
program that offers compliance services and silver and aluminum recovery for
photo finishing, medical x-rays, publishing and graphic arts businesses. More
recently, the introduction of ArmaKleen, the result of a joint venture between
Safety-Kleen and Church and Dwight, makers of Arm & Hammer products, offers a
new chemistry for aqueous parts cleaners and industrial cleaning chemicals.
Another area of expanded service is integrated compliance. Safety-Kleen now
markets compliance solutions, regulatory training, material safety data sheet
management, hotlines and other programs to customers through its extensive sales
and service network.
"Many of my customers in the automotive industry need our service on a scheduled
or sometimes even unscheduled basis. When a garage's underground separator is
full or clogged, there is very little that can be accomplished until a
Safety-Kleen Vac truck arrives. I am always prepared to be paged for an
emergency service."
- picture -
Jim Gellner
Vacuum Services Representative
As a result of its recent
acquisition of First Recovery,
Safety-Kleen will collect roughly
240 million gallons of used oil
annually. Nearly 130 million
gallons will be re-refined of which
80 million will then be sold as
base lube stock.
- - picture -
Safety-Kleen operates 11 Hazardous and Non-
hazardou Landfills With Over 67 Million
Cubic Yards of Capacity, Allowing for an
Average Life of Approximately 60 Years.
Safety-Kleen services over 400,000
solvent and aqueous based parts
cleaners in its industrial and
commercial/institutional markets.
5
<PAGE>
Going the Distance
"I personally believe that if you only do `just the basics' in
your job, then that's all you will ever be known for. I am
very proud of the fact that in my role as Project Manager,
Safety-Kleen's services are completely and seamlessly
integrated with Monsanto's progressive work environment. We
always try to do more here and the result speaks for itself --
We're busier than ever."
The unique role of an on-site environmental manager
encompasses a number of responsibilities. In addition to
managing the collection, packing and direct shipment of all
waste streams from the facility, Linda also assists with
on-site training courses, environmental seminars, facility
inspections and consulting on the development of a custom
waste billing system.
This is an example of a growing part of
Safety-Kleen's industrial business -the development of
services that help customers manage all phases of their waste
program. For many years, Safety-Kleen focused on the
smaller-quantity waste generator. While this type of customer
remains a large percentage of Safety-Kleen's business, the
Company has identified an increasing number of customers with
more sophisticated waste handling needs. Today Safety-Kleen
has the largest industrial sales/service force in the industry
coupled with the complete range of permits, skills and
facilities required to fully service the needs of these
larger-scale customers.
Whether it is a field chemist who travels on a
regional basis or remains on-site at a customer's facility,
Safety-Kleen frequently puts an environmental professional at
a customer's location to oversee the responsibility of
documenting and removing wastes on a scheduled basis. These
waste streams are then shipped directly to a disposal facility
or transferred to a Safety-Kleen Accumulation Center where the
material is consolidated and the appropriate processing,
treatment or disposal option is determined.
- - picture -
Linda Vishino
INSITE Project Manager
Monsanto
- picture -
The average automotive service rep
completes 10-15 services daily. This is
just the beginning of the 4 million
service calls Safety-Kleen makes on an
annual basis.
- picture -
Safety-Kleen's combined fleet consists
of over 4,000 vehicles driven an average
of 100 miles per day on a typical service
route.
6
<PAGE>
In addition to the 31 fully-permitted Accumulation/Service
Centers Safety-Kleen operates, there are 10 Recycle Centers
throughout the United States.
The Recycle Centers (RCs) in the Safety-Kleen
network primarily reclaim waste streams collected by the
Company's vast branch service network. While waste solvent
is the predominate recyclable material, some RCs work with
cleaning fluid, industrial degreasers, PCB-contaminated oil,
and inorganic wastewater. Waste streams that cannot be
cleaned and returned to their original state for reuse are
prepared for different applications such as fuel blending to
use as an alternative fuel in cement kilns. Remaining
sludges that offer no further value are disposed of through
the incineration process.
Like the other RCs, Safety-Kleen's Chicago Recycle Center
reclaims used solvents and waste streams from many different
types of businesses. However, this particular Recycle Center
is unique in that it is primarily a custom recycle and
tolling facility where material is usually delivered by
tanker or railcar instead of in drums. Receiving large,
direct ship quantities from multi-national pharmaceutical,
electronics, polymer, chemical, and agricultural companies,
the Chicago RC works closely with its customers and partners
to assure that their waste is handled efficiently and
responsibly. After recycling the fluids, the clean material
is returned to the customer or sold to other customers on
the open market.
"As facility manager, I am directly involved in the
technical, environmental, and safety aspects of our recycle
facility to ensure that we have provided `peace of mind' to
our customers. We always go the distance for our customers,
not as a special consideration, but because it is our duty
in the concept of customer service."
Alfred Aghapour
Facility Manager
Chicago Recycle Center
- picture -
Nearly 130,000 businesses participate in
Safety-Kleen's WE CARE program, demonstrating
their commitment to protect the environment and
employ the most environmentally desirable
waste-handling methods.
- - picture -
To address customer needs in its industrial services
and commercial and institutional markets,
Safety-Kleen presently offers more than 80 types of
service that encompass a multitude of specialized
sub-services.
7
<PAGE>
Company Directors James R. Bullock, President and Chief Executive Officer,
Laidlaw Inc., Leslie W. Haworth, Senior Vice President and Chief Financial
Officer, Laidlaw Inc., Robert W. Luba,(1) President, Luba Financial Inc., John
W. Rollins, Sr., Chairman and Chief Executive Officer, Rollins Truck Leasing
Corp., John W. Rollins, Jr.,(2) President, Rollins Truck Leasing Corp., David E.
Thomas, Jr.,(2) Senior Managing Director, Raymond James & Associates, Inc.,
Henry B. Tippie,(1) Chairman, President and Chief Executive Officer, Tippie
Services, Inc., James L. Wareham,(1) President, AK Steel Corporation, Kenneth W.
Winger, President and Chief Executive Officer, Safety-Kleen Corp., Grover C.
Wrenn, President and Chief Executive Officer, Accent Health, Inc.
(1) Member of the Audit Committee (2) Member of the Human Resources and
Compensation Committee
- --------------------------------------------------------------------------------
Executive Officers James R. Bullock, Chairman of the Board; Kenneth W. Winger,
President and Chief Executive Officer; Michael J. Bragagnolo, Executive Vice
President, Chief Operating Officer; Paul R. Humphreys, Senior Vice President
Finance and Chief Financial Officer; Henry H. Taylor, Vice President, General
Counsel and Secretary.
Senior Management Roy D. Bullinger, Senior Vice President Business Management;
David M. Sprinkle, Senior Vice President Sales and Service; Michael A. Faucett,
Senior Vice President Disposal and Incineration; Barry K. Fogle, Senior Vice
President Material Processing. James J. Hattler, Vice President Business
Development; Robert Arquilla, Vice President Administration; Donald L. Schwieg,
Vice President Technology; Rick L. McEwen, Vice President Planning and
Logistics; Timothy P. Keegan, Vice President Oil/Remedial; William D. Ridings,
Vice President Controller.
- --------------------------------------------------------------------------------
Shareholder Information
Market Information: Safety-Kleen common stock is traded on the New York Stock
Exchange under the ticker symbol SK. The approximate number of record holders of
Safety-Kleen stock as of Aug. 31, 1999 was 4,063. The following table shows the
range of common stock prices for the fiscal quarters indicated as reported by
The New York Stock Exchange.
<TABLE>
<CAPTION>
Fiscal Year Ended
August 31, 1999 High Low
<S> <C> <C> <C>
Corporate Office
First Quarter $ 14-1/2 $ 8-1/2 Safety-Kleen Corp.
Second Quarter $ 16 $ 12-1/16 1301 Gervais Street, Suite 300
Third Quarter $ 17-3/16 $ 11-11/16 Columbia, S.C. 29201
Fourth Quarter $ 19-1/4 $ 11-3/4 Phone: (803) 933-4200
Please visit us via our website at
Fiscal year ended High Low www.safety-kleen.com.
August 31, 1998
Financial Publications Copies of Safety-Kleen's 1999
First Quarter $ 23 $ 17-1/2 annual report and other financial documents are available
Second Quarter $ 20-1/2 $ 15-1/2 upon request to Investor Relations, Safety-Kleen Corp.,
Third Quarter $ 19 $ 14-1/2 (803) 933-4285.
Fourth Quarter $ 17-1/2 $ 11-3/4 You may also e-mail requests to
[email protected].
Annual Meeting Shareholders are welcome to
attend the Company's Annual Meeting to be held on
Tuesday, November 30, 1999, at 9:30 a.m., (EST), at
the Adam's Mark Hotel, 1200 Hampton Street, in
Columbia, South Carolina.
Stock prices are adjusted to reflect a 1-for-4
reverse split effective December 1, 1998. Shareholder Inquiries
EquiServe Trust Company P.O. Box 2500
Jersey City, NJ 07303-2500
Safety-Kleen has not paid dividends during the Phone: (800) 446-2617 or
reported periods and does not intend to pay e-mail: www.equiserve.com
dividends in the foreseeable future
</TABLE>
8
<PAGE>
Safety-Kleen Corp. 1999 Annual Report on Form 10-K
- picture -
<PAGE>
INSIDE BACK COVER
Collection and Recovery Network
Picture - Map
o Branch
o Accumulation/
Service Center
Treatment, Recycle and Disposal Network
Picture - Map
o Recycling Center
o Oil Re-Refinery
o Secure Landfill
o Thermal Treatment
o Specialty Treatment
<PAGE>
Safety-Kleen Corp. 1301 Gervais Street, Suite 300
Columbia, South Carolina 29201
OUTSIDE BACK COVER
- picture -
CORPORATE ORGANIZATIONAL STRUCTURE
SAFETY-KLEEN CORP. - NYSE: (SK)
The following list sets forth the subsidiaries of Safety-Kleen Corp. as of
August 31, 1999. Parent subsidiary relations are indicated by indentations.
Unless otherwise indicated, 100% of the voting securities of each subsidiary is
owned by the indicated parent of such subsidiary.
<TABLE>
<CAPTION>
NAME OF CORPORATION STATE OF INCORPORATION
<S> <C>
Safety-Kleen Corp. Delaware
Safety-Kleen Services, Inc. Delaware
ViroGroup, Inc. (7.8635%) Delaware
Safety-Kleen (Lone and Grassy Mountain), Inc. Oklahoma
Safety-Kleen (Tulsa), Inc. Oklahoma
Safety-Kleen (San Antonio), Inc. Texas
Safety-Kleen (Wichita), Inc. Kansas
USPCI of Mississippi, Inc. (50%) Mississippi
Safety-Kleen (Delaware), Inc. Delaware
SK Services (East), L.C. Utah
SK Services, L.C. Utah
Safety-Kleen (Rosemount), Inc. Minnesota
Safety-Kleen (Sawyer), Inc. Oklahoma
Safety-Kleen (PPM), Inc. Georgia
Ninth Street Properties, Inc. Missouri
Safety-Kleen (San Jose), Inc. California
Chemclear, Inc. of Los Angeles Delaware
USPCI, Inc. of Georgia Delaware
Safety-Kleen Holdings, Inc. Delaware
Safety-Kleen (Westmorland), Inc. (50%) California
Safety-Kleen (Buttonwillow), Inc. (23%) California
Safety-Kleen (NE), Inc. New Hampshire
Safety-Kleen (Crowley), Inc. Louisiana
Safety-Kleen (LaPorte), Inc. Texas
Safety-Kleen (TG), Inc. Delaware
Safety-Kleen (Roebuck), Inc. South Carolina
Safety-Kleen (TS), Inc. Delaware
Safety-Kleen (Colfax), Inc. Delaware
GSX Chemical Services of Ohio, Inc. Ohio
LEMC, Inc. Delaware
Safety-Kleen Chemical Services, Inc. Massachusetts
Safety-Kleen (Altair), Inc. Texas
Safety-Kleen (FS), Inc. (13%) Delaware
Safety-Kleen (BDT), Inc. New York
Safety-Kleen (FS), Inc. (87%) Delaware
1
<PAGE>
Safety-Kleen (GS), Inc. Tennessee
Safety-Kleen (Clive), Inc. Oklahoma
Safety-Kleen (WT), Inc. Ohio
Safety-Kleen OSCO Holdings, Inc. Delaware
Safety-Kleen (Nashville), Inc. Tennessee
OSCO Treatment Systems of Mississippi, Inc. (50%) Tennessee
Safety-Kleen (Bartow), Inc. Florida
Safety-Kleen (California), Inc. California
Safety-Kleen (Buttonwillow), Inc. (77%) California
Safety-Kleen (Westmorland), Inc. (50%) California
Safety-Kleen (Chattanooga), Inc. Tennessee
Safety-Kleen (Pecatonica), Inc. Illinois
Safety-Kleen (Pinewood), Inc. South Carolina
Safety-Kleen (White Castle), Inc. Colorado
Safety-Kleen (Puerto Rico), Inc. Puerto Rico
Safety-Kleen (Bridgeport), Inc. Delaware
Safety-Kleen (Deer Park), Inc. Delaware
Safety-Kleen (Baton Rouge), Inc. Delaware
Safety-Kleen (Plaquemine), Inc. Delaware
Safety-Kleen (Custom Transport), Inc. Delaware
Safety-Kleen (Los Angeles), Inc. California
Safety-Kleen (Tipton), Inc. Delaware
Safety-Kleen (Gloucester), Inc. Delaware
Safety-Kleen (Deer Trail), Inc. Colorado
Safety-Kleen (Mt. Pleasant), Inc. Tennessee
Safety-Kleen (Minneapolis), Inc. Minnesota
Safety-Kleen (Aragonite), Inc. Delaware
Safety-Kleen (Sussex), Inc. Delaware
Safety-Kleen (Encotec), Inc. Delaware
Safety-Kleen Systems, Inc. Wisconsin
Curbside, Inc. (49%) California
SK Europe, Inc. Nevada
Safety-Kleen Europe Limited (44%) United Kingdom
Dirt Magnet, Inc. Colorado
The Midway Gas and Oil Co. Colorado
Safety-Kleen Canada Inc. (1) Ontario
Environnement Services et Machinerie E.S.M. Inc. Quebec
Elgint Corp. Nevada
Safety-Kleen Envirosystems Company California
Safety-Kleen Envirosystems Company of Puerto Rico, Inc. Indiana
(1) 3095-7146 Quebec Inc. holds 711,199 Class Z shares (however, they are
physically held by Safety-Kleen Canada Inc. and Safety-Kleen Systems,
Inc. as collateral for payment of outstanding loans).
2
<PAGE>
Petrocon, Inc. Delaware
Phillips Acquisition Corp. Delaware
ViroGroup, Inc. (78.6349%) Delaware
SK Insurance Company Vermont
SK Real Estate Inc. Illinois
Safety-Kleen International, Inc. Delaware
Safety-Kleen Oil Recovery Co. Delaware
Safety-Kleen Oil Services, Inc. Delaware
The Solvents Recovery Service of New Jersey, Inc. New Jersey
3E Company Environmental, Ecological and Engineering (75.8%) California
Safety-Kleen Services (Canada), Ltd. Canada
Safety-Kleen Ltd. Ontario
Safety-Kleen (BC) Ltd. Canada
1197296 Ontario Inc. Ontario
Safety-Kleen Services (Quebec) Ltd. Quebec
Safety-Kleen Services (Mercier) Ltd. Quebec
SK D'Incineration Inc. Quebec
Safety-Kleen (Ryley) Ltd. Alberta
Safety-Kleen (Atlantic) Limited Nova Scotia
Safety-Kleen (On-Site) Inc. Ontario
3
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of Safety-Kleen Corp. of our report dated October 5, 1999,
relating to the financial statements and financial statement schedule,
respectively, which appears in the Annual Report Form 10-K.
PricewaterhouseCoopers LLP
Charlotte, North Carolina
October 5, 1999
Power of Attorney on signature pages (65-66)
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<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
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<ALLOWANCES> 10096
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