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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the twelve weeks ended March 26, 1994.
___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to _____________.
Commission File #1-8513
SAFETY-KLEEN CORP.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-6090019
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 N. Randall Road, Elgin, Illinois 60123
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (708) 697-8460
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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
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Shares of common stock, outstanding at March 26, 1994 were 57,683,756.
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SAFETY-KLEEN CORP AND SUBSIDIARIES
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PART I. FINANCIAL STATEMENTS
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The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management,
these statements contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position as of March 26,
1994 and January 1, 1994, cash flows for the twelve-week periods ended March 26,
1994 and March 27, 1993 and results of operations for the twelve-week periods
ended March 26, 1994 and March 27, 1993. The 1994 interim results reported
herein may not necessarily be indicative of the results of operations for the
full year 1994.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts are in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS
Mar. 26, 1994 Jan. 1, 1994
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<S> <C> <C>
Current assets:
Cash and cash equivalents $20,378 $17,375
Trade accounts receivable, less allowances
of $8,222 and $8,432, respectively 100,525 98,678
Inventories 34,263 34,362
Prepaid expenses and other 50,686 43,309
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Total current assets 205,852 193,724
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Equipment at customers and components, at
cost, less accumulated depreciation of
$26,552 and $30,922, respectively 68,659 63,026
Property, plant and equipment, at cost
less accumulated depreciation of $240,968
and $233,971, respectively 548,602 553,219
Intangible assets, at cost, less accumulated
amortization of $40,776 and $37,254,
respectively 108,264 106,714
Other assets 78,363 78,695
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$1,009,740 $995,378
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable $5,192 $ -
Current portion of long-term debt 821 888
Trade accounts payable 53,593 58,417
Accrued expenses 90,834 88,763
Income taxes payable 7,050 1,347
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Total current liabilities 157,490 149,415
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Long-term debt, less current portion 296,142 288,633
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Deferred income taxes 62,426 61,540
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Restructure reserve 59,911 62,431
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Other liabilities 66,358 70,695
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Shareholders' equity:
Preferred stock ($.10 par value;
authorized 1,000,000 shares; none
issued) - -
Common stock ($.10 par value; authorized
300,000,000 shares; issued and
outstanding 57,683,756 shares) 5,768 5,768
Additional paid-in capital 183,613 183,612
Retained earnings 198,775 194,261
Cumulative translation adjustments (20,743) (20,977)
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367,413 362,664
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$1,009,740 $995,378
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</TABLE>
The accompanying notes are an integral part of these balance sheets.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollar amounts are in thousands except per share data)
<TABLE>
<CAPTION>
Twelve Weeks Ended
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Mar. 26, 1994 Mar. 27, 1993
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<S> <C> <C>
Revenue $176,812 $181,818
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Costs and expenses:
Operating costs and expenses 131,312 138,767
Selling and administrative expenses 26,106 26,914
Interest income (128) (267)
Interest expense 2,962 2,342
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160,252 167,756
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Earnings before income taxes 16,560 14,062
Income taxes 6,855 5,427
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Net earnings $9,705 $8,635
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Earnings per common and common
equivalent share $0.17 $0.15
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Average number of common and common
equivalent shares outstanding 57,697,000 57,886,000
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Cash dividends per common share $0.09 $0.09
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts are in thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
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Mar. 26, 1994 Mar. 27, 1993
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<S> <C> <C>
Net cash provided by operating activities $16,723 $14,840
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Cash flows used in investing activities:
Equipment at customers and component
additions (8,149) (3,184)
Property, plant and equipment additions (9,745) (19,735)
Other (3,232) (3,587)
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Net cash used in investing activities (21,126) (26,506)
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Cash flows from financing activities:
Net borrowings 7,443 9,052
Dividends -- (5,191)
Other -- 86
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Net cash provided from financing activities 7,443 3,947
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Effect of exchange rate changes on cash (37) (5)
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Net increase (decrease) in cash and cash
equivalents 3,003 (7,724)
Cash and cash equivalents at beginning of year 17,375 30,565
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Cash and cash equivalents at end of the
reporting period $20,378 $22,841
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Supplemental disclosures of cash paid during
the reporting period:
Interest (net of amount capitalized) $5,168 $2,037
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Income taxes paid $598 $2,867
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. INVENTORIES
The Company's inventories consist primarily of solvent, oil and supplies.
LIFO inventories at March 26, 1994 and January 1, 1994 were $4.8 million
and $4.7 million, respectively. Under the FIFO method of accounting (which
approximates current or replacement cost), inventories would have been $1.1
million and $1.8 million higher at March 26, 1994 and January 1, 1994,
respectively.
2. INTERIM REPORTING PERIODS
The Company's interim reporting periods are twelve weeks each for the first
three reporting periods of the year, and sixteen weeks for the fourth
reporting period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
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Financial Condition
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The Company's working capital increased from $44.3 million at January 1, 1994 to
$48.4 million at March 26, 1994. The Company's capital spending for equipment
at customers and property, which totaled approximately $17.9 million during the
period, was financed by internally generated cash and additional borrowings.
During the twelve weeks ended March 26, 1994, the Company increased its debt by
$7.4 million.
The Company's long term debt-to-total-capital ratio was 45% and 44% at March 26,
1994, and January 1, 1994, respectively. The Company does not expect its
long-term debt to total capital ratio to change significantly during the balance
of 1994.
During the twelve weeks ended March 26, 1994, the Company's restructure
liabilities declined $4.3 million as a result of costs incurred to implement its
restructure plan as anticipated. In April 1994, subsequent to the end of the
current reporting period, the Company received a $10.8 million cash refund of
its 1993 estimated US Federal income tax payments. The income tax refund is due
to the restructure charges recorded in the final reporting period of 1993.
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Results of Operations
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Comparison of the Twelve-Week Periods
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Ended March 26, 1994 and March 27, 1993
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Revenue
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Revenue for the twelve weeks ended March 26, 1994 declined $5.0 million or 3%
from the comparable period in 1993. Revenue derived from the Company's North
American Services and European operations during the first twelve weeks of 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
Thousands of Dollars Percentage
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1994 1993 Increase (Decrease)
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<S> <C> <C> <C>
North America
Automotive/Retail
Repair Services $ 55,577 $ 57,075 (2.6)%
Industrial Services 49,375 48,140 2.6 %
Oil Recovery Services 24,543 25,221 (2.7)%
Other Service Areas 28,414 32,499 (12.6)%
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Total North America 157,909 162,935 (3.1)%
Europe 18,903 18,883 0.1 %
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Consolidated $176,812 $181,818 (2.8)%
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</TABLE>
The revenue decline in the Company's North American Automotive/Retail Repair
Parts Cleaner Service is due primarily to the discontinuance of allied product
sales and lower parts cleaner service volume. North American parts cleaner units
at customers locations declined 4% and the average interval between services
lengthened from the end of the first 12 weeks of 1993, resulting in a volume
decline of 8%. Partially offsetting the volume decline were higher service
charges.
The Company's North American Industrial Services includes approximately $23.0
million of revenue from the Fluid Recovery Service, up 5% from the comparable
period of 1993, and $26.4 million of revenue from the Industrial Parts Cleaner
Service, flat with 1993. Virtually all of the increased revenues from the
Industrial Fluid Recovery Service is due to increased volume. A 6% decline in
Industrial Parts Cleaner Service volume is due to a lengthening of service
intervals. The lower Industrial Parts Cleaner Service volume was offset by
higher service charges.
The revenue decline of the Company's North American Oil Recovery Services was
caused primarily by a 15% decline in base lube oil selling prices and, to a
lesser extent, a weakening of the Canadian dollar exchange rate against the US
dollar.
European revenues of $18.9 million were virtually flat with last year. Weaker
European currencies lowered U.S dollar European revenues by approximately 4%.
Operating Costs and Expenses
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Operating costs and expenses were 74.3% and 76.3% of revenue during the first
twelve weeks of 1994 and 1993, respectively. The corresponding improvement in
gross profit margin is primarily attributable to a lower cost structure which
resulted from the Company's restructuring actions and change in accounting
estimate for remediation costs, which were implemented in the final reporting
period of 1993.
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Results of Operations (cont.)
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Comparison of the Twelve-Week Periods
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Ended March 26, 1994 and March 27, 1993
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Operating Costs and Expenses (cont.)
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Selling and Administrative Expenses
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Selling and administrative expenses declined by $808,000 or 3%, primarily due to
the work force reduction actions of the Company's restructuring plan.
Interest Expense
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Interest expense increased $620,000 in the first-twelve weeks of 1994, primarily
due to a higher average interest rate on borrowings during the current reporting
period versus the comparable period of 1993.
Income Taxes
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The effective income tax rate was 41.4% for the twelve weeks ended March 26,
1994 and 38.6% for the comparable 1993 period. The increase in the effective tax
rate is primarily due to an increase in the U.S statutory corporate tax rate and
a change in the mix of pre-tax earnings by taxing jurisdiction.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES
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PART II.
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Item 1. LEGAL PROCEEDINGS
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Although the Company's goal is to fully comply with all environmental
regulations, from time to time it is likely that the nature of the Company's
business will cause it to incur governmental fines and penalties as a
consequence of its business operations. In the majority of situations where
proceedings are commenced by governmental authorities, the matters involved
relate to alleged technical violations of permits or orders under which the
Company operates, or laws and regulations to which its operations are subject,
and are the result of varying interpretations of the applicable requirements.
Generally, these proceedings result from routine inspections conducted by
federal and state regulatory agencies.
From time to time, the Company becomes subject to claims which allege more than
technical violations or in which the claimant seeks remedies which involve
potentially higher costs than routine technical violation claims. These claims
can be brought by either governmental authorities or private claimants. The
relief sought can involve remediation of the alleged environmental damage,
payment of damages, and (in the case of claims brought by governmental
authorities), fines and penalties.
In some cases of this type, governmental authorities may seek fines and/or
penalties from the Company which exceed $100,000 in each case. Nine such
proceedings were pending against the Company at March 26, 1994. In these cases,
the governmental authorities may allege, among other things, that at certain of
the Company's facilities, the Company is responsible for releases or threatened
releases of hazardous substances, that the Company engaged in soil excavation or
clean-up activities without obtaining requisite advance approvals and/or that
the Company committed certain manifesting, storage or waste handling violations.
The Company's practice is to attempt to negotiate resolution of claims against
the Company and its facilities. The Company has to date been able to resolve
cases on generally satisfactory terms. The Company is, however, prepared to
contest claims or remedies which the Company believes to be inappropriate unless
and until satisfactory settlement terms can be agreed upon.
Based on its past experience and its knowledge of pending cases, the Company
believes it is unlikely that the Company's actual liability on the cases now
pending will be materially adverse to the Company's financial condition. It
should be noted, however, that many environmental laws are written in a way in
which the Company's potential liability can be large, and it is always possible
that the Company's actual liability on any particular environmental 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 earnings for that period.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
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None.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Safety-Kleen Corp.
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Registrant
Date: April 27, 1994 By: /s/ Donald W. Brinckman
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Donald W. Brinckman
Chairman and Chief Executive Officer
Date: April 27, 1994 By: /s/ Robert W. Willmschen, Jr.
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Robert W. Willmschen, Jr.
Senior Vice President Finance
and Secretary - Chief Financial Officer
Date: April 27, 1994 By: /s/ John Rycombel
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John Rycombel
Controller - Chief Accounting Officer
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