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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE 1995 FISCAL YEAR ENDED DECEMBER 30, 1995
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-8513
SAFETY-KLEEN(R) CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WISCONSIN 39-6090019
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 NORTH RANDALL ROAD,ELGIN, ILLINOIS 60123
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (847) 697-8460
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $.10 Par Value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
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
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 the 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 voting stock held by non-affiliates of the
registrant as of March 1, 1996 was approximately $0.7 billion.
Shares of Common Stock outstanding at March 1, 1996, were 57,868,541.
DOCUMENTS INCORPORATED BY REFERENCE:
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 10, 1996, ARE INCORPORATED BY REFERENCE IN PART
III, AND PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE
YEAR ENDED DECEMBER 30, 1995, ARE INCORPORATED BY REFERENCE IN PARTS I AND II.
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PART I
ITEM 1. BUSINESS
GENERAL
Safety-Kleen is a business-to-business marketing and service company focusing
on the environmental needs of business through recycling and reuse of fluid
waste and other recoverable resources. It is a leading provider of services to
generators of spent solvents and other hazardous and non-hazardous liquid
wastes and byproducts, the world's largest provider of parts cleaner services
and one of the world's largest collectors and re-refiners of used oil. The
Company serves hundreds of thousands of customers in North America and Europe
through a network of 235 branch facilities.
The Company operates in the continental U.S., Canada, the United Kingdom, the
Republic of Ireland, Puerto Rico, Belgium, France, Italy, Spain and Germany.
The Company has licensee operations in Japan and Korea. Safety-Kleen Corp. was
incorporated in July, 1963 under the laws of the State of Wisconsin. As used
herein, the terms "Company" or "Safety-Kleen" refer to Safety-Kleen Corp. and
its consolidated subsidiaries.
The Company groups its services into three broad categories: Small Quantity
Generator ("SQG") Resource Recovery Services, Envirosystems Services, and Oil
Recovery Services. Each of the Company's services is discussed in greater
detail below and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing on pages 23-27 of the Company's
Annual Report to Shareholders for the year ended December 30, 1995 (the "Annual
Report"), which is incorporated herein by reference.
SQG RESOURCE RECOVERY SERVICES
The Company's SQG Resource Recovery Services are divided into
Automotive/Retail Repair Services, Industrial Services, Paint Refinishing
Services, Dry Cleaner Services and Imaging Services. Solvent recycling is an
integral part of the Company's SQG Resource Recovery Services. Most fluid
wastes collected by the Company as part of these services, except Imaging
Services, are either recycled for re-use in these services or processed into
waste-derived fuel for use in the cement manufacturing industry. 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. Some wastewater is also
collected as part of the Company's Fluid Recovery Service.
Automotive/Retail Repair Services. The primary component of the Company's
Automotive/ Retail Repair Services is its Parts Cleaner Service which enables
businesses (such as service stations, car and truck dealers, small engine
repair shops and fleet maintenance shops) to clean parts in a convenient, cost
effective, safe and environmentally sound manner. In this service, the
Company's service representative places parts cleaner equipment and solvent
with a customer, and, at regular service intervals, cleans and maintains the
equipment, delivers clean solvent for use in the degreasing process, and
removes the dirty solvent.
Industrial Services. The Company markets both its Parts Cleaner Service and
its Fluid Recovery Service to industrial customers in the U.S. through its
Industrial Services specialists. The Company's Industrial Services furnish the
same high quality parts cleaner service that is provided to Automotive/Retail
Repair customers. The Company's Fluid Recovery Service consists of the
collection of a wide variety of waste solvents and other liquid and solid
containerized wastes generated by industrial customers in relatively small
quantities, averaging a few 55-gallon drums
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per pickup. Depending upon the content, the material collected by the Company
in its Fluid Recovery Service is either processed into a waste-derived fuel for
use in the cement manufacturing industry, recycled into usable solvent or
disposed of through incineration.
Automotive and Industrial Parts Cleaning Equipment Conversion. The Company
provides a choice of several models of parts cleaners to customers for their
use as part of the Parts Cleaner Service. The Company also provides service to
customers who own their own parts cleaner equipment. In total, at the end of
1995, the Company was providing services for approximately 493,000 parts
cleaners at customers in the United States, of which approximately 375,000 were
owned by the Company and approximately 118,000 were owned by customers.
Prior to 1994, the Company's Model 16 and 30 parts cleaners were the most
prevalent parts cleaner models furnished by the Company. They consist of a red
sink atop a 16-gallon or 30-gallon drum of solvent, equipped with a submersible
pump and a spout through which the solvent flows.
In 1993, the Company introduced a new parts cleaning machine in the United
States that was designed to replace most of its existing Model 16 and 30 parts
cleaners. This new parts cleaner was developed in response to customer desires
to minimize the amount of waste they generate and reduce their annual cost, and
was the result of extensive research and testing conducted by the Company. The
new parts cleaner utilizes a premium nonhazardous solvent and contains a
patented cyclonic separator which mechanically separates dirt particles from
the solvent during machine operation and traps them in a container for removal
during servicing. This system extends the solvent's useful life and reduces the
number of annual services required. With the new cyclonic parts cleaner
service, customers need service less frequently and generate less waste on an
annual basis, which reduces the cost of the parts cleaner service to Safety-
Kleen and also provides customers with the potential to reduce their cost.
The Company began converting the Model 16 and 30 parts cleaners being used by
its domestic Automotive/Retail Repair and Industrial Services customers to the
new cyclonic technology in late 1993. In the United States, the Company had
placed approximately 162,000 cyclonic parts cleaners at customer locations, and
there were approximately 94,000 Model 16 and 30 parts cleaner machines
remaining in service at December 30, 1995. The Company does not expect to
convert a large portion of the remaining Model 16 and 30 parts cleaner machines
to the cyclonic technology. Accordingly, the Company has determined that it
will no longer focus sales and marketing efforts on actively converting
existing red units to the cyclonic machines. Instead, it will convert existing
red units in response to market demand.
In conjunction with the Company's decision to convert its parts cleaning
equipment, the Company adopted a comprehensive restructuring plan during the
fourth interim period of 1993. For a discussion of this restructuring plan,
refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Restructuring and Special Charges" appearing on pages 26
and 27 of the Annual Report, which is incorporated herein by reference.
Paint Refinishing Services. The Company's Paint Refinishing Services are
supplied to new and used car dealers, auto body repair and paint shops and
fiberglass product manufacturers. The Company provides a machine specially
designed to clean paint spray guns. 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. Waste paint and paint booth filters are also
collected from these customers and blended into fuel for cement kilns. The
Company representatives also provide clean buffing pads and remove dirty pads
during regularly scheduled service calls. The dirty pads are washed, dried,
inspected and returned to the Company's distribution system.
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Dry Cleaner Services. The Company collects and recycles contaminated dry
cleaner wastes consisting primarily of used filter cartridges and sludge
containing perchloroethylene and mineral spirits.
Imaging Services. Through this service, the Company provides health care,
printing, photoprocessing and other businesses with on-site and off-site
recycling of photochemical solutions, as well as film, plate and silver
recovery services.
ENVIROSYSTEMS SERVICES
The Company's Envirosystems Services consist of the collection of waste
solvent and other waste fluids from customers which generate larger quantities
of such waste fluids. The fluids are typically shipped directly from the
customer to one of the Company's recycle centers or fuel blending facilities.
Depending on the content, material collected from Envirosystems Services are
recycled for reuse, processed into fuels for use in the cement manufacturing
industry or disposed of through incineration.
OIL RECOVERY 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 revenues both from fees it charges customers to haul away used
oil 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 Ontario, Canada and East
Chicago, Indiana. The plants in Ontario and East Chicago have annual re-
refining capacities of 34 and 85 million gallons of used oil per year,
respectively. Waste oil collected in excess of the capacity of the Company's
re-refining facilities is either processed into industrial fuels or, to a small
extent, sold unprocessed for direct use as a fuel in certain industrial
applications for which such oil is suitable.
EUROPE
Safety-Kleen has wholly-owned operations in seven countries in Western
Europe. The Company primarily provides its Automotive/Retail Repair and Paint
Refinishing Services in Europe. The Company also provides selected industrial
services in Germany and the United Kingdom.
PRIMARY RAW MATERIALS
The primary hydrocarbon material used in the Company's Parts Cleaner Service
is a paraffinic hydro-treated petroleum fraction product that is purchased from
petroleum refiners and suppliers through short-term purchase orders. It is not
possible for the Company to accurately estimate the effect of possible future
petroleum product shortages on the Company's operations or those of its
customers. At the present time, the Company expects to be able to purchase
required quantities of such solvent at acceptable prices. For a discussion of
the effect of petroleum product price changes, refer to "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Effects of Petroleum Price Changes" appearing on page 24 of the Annual Report,
which is incorporated herein by reference.
The Company purchases a wide variety of other products and raw materials and
has not experienced any major shortages in the past. The Company believes that
sufficient alternative sources are available should it become necessary to
replace its current sources of supply for these products and materials.
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COMPETITIVE CONDITIONS
The Company is the market leader in the United States in its Parts Cleaner,
Paint Refinishing, Dry Cleaner and Oil Recovery services. In these services,
the Company generally competes with local or smaller regional companies. In its
Fluid Recovery Service, the Company generally competes with many firms engaged
in the transportation, brokerage and/or disposal of hazardous wastes through
recycling, fuels programs or incineration. In its Envirosystems Services, the
Company competes with many recyclers of spent solvents, as well as many firms
engaged in hazardous waste disposal through fuels programs or incineration.
The principal methods of competition for all of the Company's services are
price, quality, reliability of service rendered and technical proficiency in
handling hazardous wastes properly. Knowledgeable customers are interested in
the reputation and financial strength of the companies they use for management
of their hazardous wastes, because the original generators of hazardous waste
remain liable under federal and state environmental laws for improper disposal
of such wastes, even if they employ companies which have proper permits and
licenses. The Company 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.
PATENTS
The Company owns various patents covering certain of its cleaning units and
certain related accessories. The Company has an exclusive license to use a
patented cyclonic separator in parts cleaner applications. In the Company's
opinion, however, the continued conduct of its business operations does not
depend upon the existence of these patents.
EMPLOYEES
At December 30, 1995, the Company had approximately 6,700 employees.
REGULATION
Overview. Domestic and foreign governmental regulations applicable to the
Company's business govern, among other things: the handling of a number of
substances collected by the Company which are classified as hazardous or solid
wastes under these regulations; the operation of the facilities at which the
Company stores or processes the substances it collects; and the ultimate
disposal of waste the Company removes from the substances it collects. An
increase in governmental requirements for the treatment of any particular
material generally increases the value of the Company's services to its
customers, but may also increase the Company's costs.
Various permits are generally required by federal and state environmental
agencies for the Company's branch, accumulation center, solvent recycling, fuel
blending and oil processing facilities. Most of these permits must be renewed
periodically and the governmental authorities involved have the power, under
various circumstances, to revoke, modify or deny issuance or renewal of these
permits. Zoning, land use and siting restrictions also apply to these
facilities. Regulations also govern matters such as the disposal of residual
chemical wastes, operating procedures, stormwater and wastewater discharges,
fire protection, worker and community right-to-know and emergency response
plans. Air and water pollution regulations govern certain operations at the
Company's facilities. Safety standards under the Occupational Safety and Health
Act in the United States and similar foreign laws are also applicable.
Governmental regulations also apply to the operation of vehicles used by the
Company to transport the substances it collects and distributes, including
licensing requirements for the vehicles and the drivers, vehicle safety
requirements, vehicle weight limitations, shipment manifesting and vehicle
placarding requirements. Governmental authorities have the power to enforce
compliance and violators are subject to civil and criminal penalties. Private
individuals may also have the right to sue to enforce compliance with certain
of the governmental requirements.
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Regulations similar to those in the United States apply to the Company's
Canadian operations. In general, environmental requirements are not as strict
in countries in which the Company operates outside North America, but there is
a general trend in Europe and other countries to strengthen environmental
requirements.
The Company has an internal staff of lawyers, engineers, geologists,
hydrogeologists, chemists and other environmental and safety professionals
whose responsibility is to continuously improve the procedures and practices to
be followed by the Company to comply with various federal, state and local laws
and regulations involving the protection of the environment and worker health
and safety and to monitor compliance.
Hazardous and Solid Waste Requirements. Safety-Kleen's services involve the
collection, transportation, storage, processing, recycling and disposal of
automotive and industrial hazardous and nonhazardous fluids. Substantially all
of these materials are regulated in the United States as "solid wastes" under
the Resource Conservation and Recovery Act of 1976 ("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).
The Company's customers are increasingly attempting to avoid being subject to
hazardous waste regulations by replacing hazardous materials used in their
businesses with nonhazardous materials or otherwise reducing the amount of
hazardous waste they generate. Accordingly, the Company is collecting more
substances that are not regulated as hazardous wastes but may be regulated as
solid wastes.
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 and is pursuing RCRA
permits at a small number of its other facilities. The Company does not intend
to pursue RCRA permits for its remaining facilities because it will be limiting
activities at these facilities to transfer operations.
In September, 1992, the United States Environmental Protection Agency ("EPA")
finalized 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 builds 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's Envirosystems and Fluid Recovery
Services are primarily recycled for reuse or processed into waste-derived fuel
to be burned in kilns used in the production of cement. The majority of such
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 ("BIF regulations"). Facilities covered by the BIF
regulations were required to submit certifications of
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compliance by August 1, 1992 or to obtain approvals from the relevant
governmental authority to extend the deadline for submission of certification.
Every BIF facility that elects to continue to burn hazardous waste will also be
required to obtain a RCRA operating permit. All of the kilns with which the
Company has exclusive supply contracts have either obtained their compliance
certifications or are in the process of doing so pursuant to an authorized
extension. These kilns are also in the process of obtaining their RCRA
operating permits. None of the kilns utilized by the Company for disposition of
the waste it collects are owned by the Company. The Company is assisting the
kilns with which it has exclusive contracts in complying with such regulations.
The United States EPA is 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.
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. 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 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 centers and branches could be required as
the Company completes its air permitting program. In addition, the United
States EPA is developing Maximum Achievable Control Technology ("MACT")
standards under the Clean Air Act which will impose restrictions on the
emission of certain toxic air pollutants. These standards could impact certain
of the Company's facilities and the cement kilns to which the Company sends its
waste-derived fuels.
In order to comply with these regulations, the Company has instituted a
program to augment the air emission control equipment at its affected
facilities and to obtain operating permits, where required. The Company is also
working with the United States EPA and appropriate state and local agencies
regarding the regulation of its parts cleaner and paint spray gun cleaner
operations.
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.
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A large 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 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 each of these
facilities prior to shipping any materials to attempt to minimize its potential
superfund liability at these sites.
Most of the Company's CERCLA responsibilities stem from certain historic
disposal practices in the 1970's. These practices were stopped in the mid-to-
late 1970's with the development of expanded recycling technology. The Company
has been a relatively small contributor in most waste disposal sites utilized
by the Company.
Proceedings are currently pending involving several sites with respect to
which the Company has been notified by the EPA or the appropriate state agency
that the Company may be a PRP. The Company is participating in settlement
discussions with the parties and the government at these sites. The Company's
volumetric share of the total waste at a majority of these sites is among the
smallest of the PRPs and the Company has a larger volumetric share at a
minority of these sites. From time to time, the EPA requests information from
the Company to ascertain if it may be a PRP at other sites.
Costs of Increasing Regulations and Higher Fees and Taxes. The Company
continues to be subject to legislation and regulations adopted by federal,
state and local authorities which may impose stricter operating and performance
standards and increased taxes, assessments and fees upon emission sources and
the generators, transporters and handlers of hazardous and nonhazardous waste.
Although historically the Company has been able to pass most of the costs
associated with such legislation and regulations on to its customers through
price increases, there can be no assurance it will be able to continue to do so
in the future.
Capital and Certain Other Expenditures Related to the Environment. A portion
of the Company's capital expenditures are related to compliance with
environmental laws and regulations. The Company estimates capital spending of
approximately $9 million for the year 1996 and $18 million in the aggregate,
for the years 1997 through 2000 in order to comply with RCRA, the Clean Air Act
and other environmental laws and regulations currently in effect in conjunction
with the Company's existing business.
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, in certain cases, changes the use of a hazardous waste
management unit, formal closure procedures must be followed. These closure
procedures must be approved by federal or state environmental authorities. In
some cases, costs are incurred to complete remedial cleanup work at the site.
In addition, at certain of the Company's other operating sites, remedial
cleanup work is required as part of the RCRA Corrective Action Program or other
state and federal programs. As shown on the Company's Consolidated Balance
Sheet and more fully described in note 9 to the Consolidated Financial
Statements at pages 31 and 41-42, respectively, of the Annual Report, the
Company has accrued liabilities of approximately $54.3 million as of December
30, 1995 for remedial cleanup work, superfund site liability, closure
activities and certain other environmental expenses related to its operating
and previously closed sites.
Enforcement Actions. The Company's goal is to fully comply with all
environmental regulations and other governmental requirements. The Company has
instituted several programs to enhance compliance, including suspending site
operations if appropriate corrective actions are not taken to remedy potential
defects. The Company conducts regular audits of its facilities to assess
compliance
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with federal and state environmental and safety laws and regulations. Any
potential deficiencies are identified and a corrective action plan is prepared
and implemented to eliminate the potential defect. In 1995 the Company
conducted over 460 such audits. The Company regularly conducts corporate
training courses and seminars focused on environmental control and safety
regulations, in addition to on-going weekly field training for its site
employees.
In spite of the Company's goal to fully comply with all environmental
regulations, given the Company's extensive operations, the technical aspects of
the regulations and the varying interpretations of the requirements from
jurisdiction to jurisdiction, the Company may incur governmental fines and
penalties from time to time. In the majority of situations where proceedings
are commenced by governmental authorities, the matters involved relate to
alleged 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. In 1991, throughout its United States facilities, 201
regulatory proceedings were brought by state or federal authorities against the
Company. The number of regulatory proceedings brought against the Company has
declined each year since then: There were 142 proceedings brought in 1992, 136
in 1993, 130 in 1994 and 90 in 1995. Administrative actions are counted in the
year notice of the violation is received by the Company, regardless of when the
inspection giving rise to the action was conducted. Some of the proceedings
brought in 1995 resulted from inspections performed in previous years. Of these
administrative actions in 1995, the majority of the alleged deficiencies
related to incomplete or incorrect manifests and other shipping documents and
alleged defects in site operating records, training record keeping and other
paperwork. The Company processed over one million manifests and completed
several million individual drum labels in 1995. Throughout its facility
network, the Company maintains over 200 sets of operating records and logs in
which millions of individual entries are made annually. A clerical error on a
manifest, drum label or site paperwork can result in a violation notice.
From time to time, the Company becomes subject to proceedings in which
governmental authorities may seek fines and/or penalties from the Company which
exceed $100,000 in each case. Two such proceedings were pending against the
Company at December 30, 1995. In these cases, the governmental authorities
involved 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 and/or waste handling
violations.
Five such cases were settled during the first three quarters of 1995 and were
previously disclosed in the Company's quarterly reports on Form 10-Q. No such
cases were settled during the fourth quarter of 1995.
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. The Company paid approximately $1 million in 1995 for environmental
fines, penalties and forfeitures.
Potential Environmental Liabilities. 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
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will prove to be larger than anticipated or 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.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND INDUSTRY
SEGMENTS
The Company operates primarily in one business segment: providing businesses
with environmentally safe and convenient solutions for managing fluid waste and
other recoverable resources. For a discussion of financial information relating
to foreign and domestic operations and industry segments refer to Note 3 to the
Consolidated Financial Statements appearing on page 35 of the Annual Report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are:
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NAME AGE POSITION
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Donald W. 65 Chairman of the Board
Brinckman
John G. 55 President, Chief Executive Officer and Director
Johnson
Jr.
Hyman K. 41 Senior Vice President General Counsel
Bielsky
Roy D. 47 Senior Vice President Business Management and Marketing
Bullinger
Robert J. 58 Senior Vice President Human Resources
Burian
Michael H. 48 Senior Vice President Marketing Services and Customer Care
Carney
Joseph 50 Senior Vice President Operations, Oil Recovery and Envirosystems
Chalhoub
David A. 55 Senior Vice President Sales and Service
Dattilo
Scott E. 41 Senior Vice President Environment, Health and Safety
Fore
F. Henry 42 Senior Vice President Corporate Development and Environment
Habicht II
Robert W. 48 Senior Vice President Finance and Secretary
Willmschen
Jr.
Lawrence G. 53 Vice President Information Systems and Chief Information Officer
Davenport
Clark J. 58 Vice President Manufacturing and Technical Services
Rose
Laurence M. 50 Treasurer
Rudnick
Clifford J. 44 Controller
Schulz
</TABLE>
Mr. Brinckman relinquished his post as Chief Executive Officer of the Company
as of December 31, 1994, a position he held since 1968. He served as President
of the Company from 1968 to August, 1990, and December, 1991 to May, 1993. Mr
Brinckman was appointed Chairman of the Company's Board of Directors in August,
1990. Mr. Brinckman is also a director of Johnson Worldwide Associates, Inc.,
Racine, Wisconsin, Paychex, Inc., Rochester, New York and Snap-On Incorporated,
Kenosha, Wisconsin. Mr. Brinckman is Chairman of the Executive Committee and is
a member of the Environmental Committee.
Mr. Johnson has been Chief Executive Officer of the Company since January 1,
1995. He was elected President and a director of the Company in May 1993. He
joined Safety-Kleen in January, 1993 as Assistant to the Chairman/CEO. Prior to
joining Safety-Kleen, Mr. Johnson was employed by ARCO since 1958. He served as
Senior Vice President of ARCO Chemical Company since 1986. In 1987, he became a
director and in 1988 was given the added responsibility of President of ARCO
Chemical Americas, a division of ARCO Chemical Company. He is also a director
of McWhorter Technologies, Carpentersville, Illinois.
9
<PAGE>
Mr. Bielsky was elected Senior Vice President General Counsel in May, 1993.
He was assigned the added responsibility of overseeing Human Resources and
Europe in July, 1995. Mr. Bielsky served as Assistant General Counsel-
Commercial since January, 1990, and as Associate Counsel since joining the
Company in 1987.
Mr. Bullinger was named Senior Vice President Business Management and
Marketing in June 1994. He served as Vice President Sales--Central Division
since 1985 and as a Regional Manager since joining the Company in 1975.
Mr. Burian was appointed Senior Vice President Human Resources in May, 1993.
He served as Senior Vice President Administration since August, 1990. Mr.
Burian joined the Company in July, 1986, as Vice President Personnel.
Mr. Carney was named Senior Vice President Marketing Services and Customer
Care in June 1994. He served as Senior Vice President Marketing since August,
1990 and Vice President Marketing since May, 1987. He joined the Company in
1976, serving in various marketing positions until his appointment to Vice
President Marketing.
Mr. Chalhoub was named Senior Vice President Operations, Oil Recovery and
Envirosystems in July, 1995. Prior to that, he served as Senior Vice President,
Oil Recovery Division since August, 1990. In August, 1991, Mr. Chalhoub was
assigned the additional responsibilities of overseeing the processing and
engineering departments. He was President of the Company's former subsidiary,
Breslube Holding Corp., since May, 1987.
Mr. Dattilo was named Senior Vice President Sales and Service in August,
1990. He served as Vice President Corporate Branch Sales and Service since
January, 1980.
Mr. Fore was elected Senior Vice President Environment, Health and Safety in
May, 1993. He served as Vice President Environment, Health and Safety since
August, 1987, and was previously Associate General Counsel since joining the
Company in 1985.
Mr. Habicht joined the Company in March, 1993. He served as Senior Vice
President Strategic/Environmental Planning from March, 1993 to July, 1995. In
June, 1994, he assumed responsibility for Safety-Kleen Canada. In July, 1995,
he assumed responsibility for Environment, Health and Safety and Corporate
Accounts and became Senior Vice President of Corporate Development and
Environment. Prior to joining the Company, he served as Deputy Administrator of
the U.S. Environmental Protection Agency from 1989 to 1992.
Mr. Willmschen was named Senior Vice President Finance in August, 1990. He
served as Vice President Finance and Secretary since February, 1982.
Mr. Davenport joined the Company in June, 1995 as Vice President Information
Services and Chief Information Officer. Prior to joining Safety-Kleen, Mr.
Davenport was employed by JB Hunt Transport, Inc. since 1989 and served as
Senior Vice President Information Services for that company since 1992.
Mr. Rose was named Vice President Manufacturing and Technical Services in
July, 1995. He served as Vice President Technical Services since August, 1989
and Manager of Recycle Center Operations since joining the Company in June,
1984.
Mr. Rudnick joined the Company in September, 1979, and was appointed
Treasurer in January, 1980.
Mr. Schulz was named Controller in December, 1994. He served as Controller
North American Operations and Assistant Controller Cost and Inventory since
1991 and 1987, respectively.
10
<PAGE>
ITEM 2. PROPERTIES
The Company owns 13 solvent recycling plants in the U.S., Canada, Puerto
Rico, the United Kingdom and Germany. In total, these plants have an annual
recycling capacity of 64 million gallons of parts cleaner solvents and 44
million gallons of halogenated, fluorinated and flammable solvents. The total
storage capacity of these plants is approximately 8.5 million gallons. In
addition, the Company owns 4 fuel blending facilities, located on leased land,
which have combined storage capacity of approximately 2.9 million gallons.
The Company owns 2 oil re-refining plants with a combined annual re-refining
capacity of 119 million gallons. These plants are located in Ontario, Canada
and East Chicago, Indiana.
The Company leases 5 distribution facilities and owns 3 distribution
facilities in the U.S., United Kingdom and Germany, averaging approximately
45,000 square feet. The Company has 18 accumulation centers across the U.S. Of
these, 13 are owned and 5 are leased. A typical accumulation center is
approximately 8,000 square feet. These centers serve branches by collecting
drums of waste from the Fluid Recovery Service, Dry Cleaner Service, Paint
Refinishing Service and other small quantity generator services. As truck load
quantities are collected, they are transported from the accumulation centers to
the recycling plants.
In North America and Europe, the Company's sales and service representatives
operate out of 235 branch facilities. Of these, approximately 50% are leased
and 50% are owned. A typical branch is approximately 8,000 square feet.
The Company owns a 106,000 square foot plant in New Berlin, Wisconsin, where
parts cleaner machines and buffing pads are manufactured.
The Company owns a 285,000 square foot corporate headquarters building
located in Elgin, Illinois and a 66,000 square foot Technical Center located in
Elk Grove Village, Illinois. The Company also owns a 128,000 square foot office
building located in Elgin, Illinois, which is being marketed for sale or lease.
The Company operates approximately 2,600 van-type vehicles, 270 straight
tanker-type service vehicles and 750 pieces of over-the-road equipment, most of
which are owned by the Company. The Company also leases approximately 565
railroad tanker cars.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to "Item 1. Business," subcaption "Regulation," for
information concerning certain environmental matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
interim period of the fiscal year ended December 30, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The "Market and Dividend Information" appearing on page 45 of the Annual
Report is incorporated herein by reference.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The "Selected Financial Data" appearing on page 28 of the Annual Report is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on pages 23-27 of the Annual Report is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Report of Independent Public Accountants", Consolidated Financial
Statements and "Notes to Consolidated Financial Statements" appearing on pages
29-43 of the Annual Report are incorporated herein by reference.
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 information set forth under the heading "Executive Officers of the
Registrant" in Part I, Item 1 of this Annual Report on Form 10-K and under the
headings "PROPOSAL 1: ELECTION OF DIRECTORS" and "COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Company's definitive proxy
statement for the May 10, 1996 Annual Meeting of Shareholders (the "Proxy
Statement") is herein incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the heading "EXECUTIVE COMPENSATION" in the
Proxy Statement is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the heading "COMMON STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is herein
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the headings "EXECUTIVE COMPENSATION,"
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," and "DIRECTORS' COMMITTEES,
MEETINGS AND COMPENSATION" in the Proxy Statement is herein incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Item 14(a)1. List of Financial Statements.
The following consolidated financial statements of the Company included
on pages 29-43 of the Annual Report to Shareholders for the year ended
December 30, 1995 are incorporated by reference:
Consolidated Balance Sheets as of December 30, 1995 and December 31,
1994.
Consolidated Statements of Operations for the years ended December 30,
1995, December 31, 1994 and January 1, 1994.
Consolidated Statements of Cash Flows for the years ended December 30,
1995, December 31, 1994 and January 1, 1994.
Consolidated Statements of Shareholders' Equity for the years ended
December 30, 1995, December 31, 1994 and January 1, 1994.
Notes to Consolidated Financial Statements.
12
<PAGE>
Item 14(a)2. Financial Statement Schedules.
The following Consolidated Financial Statement Schedules of Safety-
Kleen Corp. and Subsidiaries are included in response to Item 14(d):
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Report of Independent Public Accountants.............................. 16
Schedule II Allowance for Doubtful Accounts........................... 17
</TABLE>
Schedules other than those listed above are omitted as the information
is not required or not applicable, or the required information is shown
in the financial statements or notes thereto.
Item 14(a)3. List of Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.1 Articles of Incorporation of the Registrant. (4)
3.2 By-Laws of the Registrant. (7)
4.1 Form of Rights Agreement, dated November 9, 1988, between
Safety-Kleen Corp. and the First National Bank of Chicago. (1)
4.2 Indenture Agreement dated August 15, 1989, between Safety-Kleen
Corp. and the Chase Manhattan Bank, executed in connection with
the Company's issuance and sale from time to time of up to $200
million aggregate principal amount of Debt Securities. (2)
4.2.1 Board of Directors' Resolution executed in connection with the
issuance and sale of $100 million aggregate principal amount of
9.25% Senior Notes due September 15, 1999. (2)
4.2.2 Board of Directors' Resolution executed in connection with the
future issuance and sale of up to $100 million aggregate
principal amount of Series A Medium Term Notes. (2)
4.3 Note Purchase Agreement dated as of January 15, 1995, between
Safety-Kleen Corp. and certain Purchasers, executed in
connection with the Company's issuance and sale of its 8.05%
Senior Notes due January 30, 1998 in the aggregate principal
amount of $50 million. (8)
10.1 Safety-Kleen Corp. 1985 Stock Option Plan. (3)*
10.2 Safety-Kleen Corp. 1988 Non-Qualified Stock Option Plan for
Outside Directors. (1)*
10.3 Form of Safety-Kleen Corp. Severance Agreement. (3)*
10.3.1 Current Schedule of Participants to Safety-Kleen Corp. Severance
Agreement.*
10.4 Safety-Kleen Corp. 1993 Stock Option Plan. (5)*
10.5 Safety-Kleen Corp. Excess Benefit Plan. (5)*
10.6 Safety-Kleen 1995 Management Incentive Plan. (8)*
10.7 Safety-Kleen 1996 Management Incentive Plan.*
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.8 Amended and Restated Credit Agreement dated March 25, 1994,
among the Chase Manhattan Bank, N.A., the Northern Trust
Company, the NBD Bank, N.A. and the First National Bank of
Chicago. (8)
10.9 Letter Agreement dated March 29, 1995 amending the Amended and
Restated Credit Agreement dated March 25, 1994, among the Chase
Manhattan Bank, N.A., the Northern Trust Company, the NBD Bank,
N.A. and the First National Bank of Chicago.
13 Annual Report to Shareholders for the year ended December 30,
1995.
21 Subsidiaries of the Registrant. (3)
23 Consent of Experts.
27 Financial Data Schedule. (EDGAR Filing Only)
99.1 Press Release issued February 5, 1996 regarding 1995 results of
operations.
</TABLE>
-------------------------
(1) Previously filed and incorporated herein by reference from
Registrant's Current Report on Form 8-K, dated November 10, 1988.
(2) Previously filed and incorporated herein by reference from
Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended September 9, 1989.
(3) Previously filed and incorporated herein by reference from
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 1990.
(4) Previously filed and incorporated herein by reference from
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 28, 1991.
(5) Previously filed and incorporated herein by reference from
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 2, 1993.
(6) Previously filed and incorporated herein by reference from
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 1, 1994.
(7) Previously filed and incorporated herein by reference from
Registrant's Quarterly Report on Form 10-Q for the twelve weeks
ended September 9, 1995.
(8) Previously filed and incorporated herein by reference from
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
*Indicates each management or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to Item
14(c) of this report.
(Copies of these exhibits can be obtained from the Company for its
reasonable out-of-pocket expense for furnishing such copies.)
Item 14(b). Reports on Form 8-K.
The Company filed an optional report on Form 8-K on August 30, 1995
pursuant to Item 5 to report that earnings in the third interim
period would be adversely affected by higher waste processing and
disposal costs.
14
<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.
Safety-Kleen Corp.
Date: March 27, 1996 By: /s/ Robert W. Willmschen, Jr.
- - ------------------------------------- -------------------------------------
Senior Vice President Finance
and Secretary
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 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Donald W. Brinckman Chairman of the Board March 27, 1996
- - ------------------------------------
Donald W. Brinckman
/s/ John G. Johnson, Jr. President, Chief Executive
- - ------------------------------------ Officer and Director March 27, 1996
John G. Johnson, Jr.
/s/ Robert W. Willmschen, Jr. Senior Vice President
- - ------------------------------------ Finance, Chief Financial
Robert W. Willmschen, Jr. Officer March 27, 1996
/s/ Clifford J. Schulz Controller, Chief Accounting
- - ------------------------------------ Officer March 27, 1996
Clifford J. Schulz
/s/ Richard T. Farmer Director March 27, 1996
- - ------------------------------------
Richard T. Farmer
/s/ Russell A. Gwillim Director March 27, 1996
- - ------------------------------------
Russell A. Gwillim
/s/ Edgar D. Jannotta Director March 27, 1996
- - ------------------------------------
Edgar D. Jannotta
/s/ Karl G. Otzen Director March 27, 1996
- - ------------------------------------
Karl G. Otzen
/s/ Paul D. Schrage Director March 27, 1996
- - ------------------------------------
Paul D. Schrage
/s/ Marcia E. Williams Director March 27, 1996
- - ------------------------------------
Marcia E. Williams
/s/ W. Gordon Wood Director March 27, 1996
- - ------------------------------------
W. Gordon Wood
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Safety-Kleen Corp.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in the Safety-Kleen Corp. annual
report to shareholders incorporated by reference into this Form 10-K, and have
issued our report thereon dated February 5, 1996. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The Supplemental Schedule II is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 5, 1996
16
<PAGE>
SCHEDULE II
SAFETY-KLEEN CORP. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 30, 1995
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(EXPRESSED IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............... $ 8,868 $ 8,432 $ 7,399
Provision charged to operating expenses.... 4,225 5,067 6,822
Write-offs net of recoveries............... (5,124) (4,631) (5,789)
------- ------- -------
Balance at end of year..................... $ 7,969 $ 8,868 $ 8,432
======= ======= =======
</TABLE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
17
<PAGE>
[RECYCLE LOGO] Printed on recycled paper
<PAGE>
Exhibit 10.3.1
SAFETY-KLEEN CORP. SEVERANCE AGREEMENT PARTICIPANTS
Donald W. Brinckman Chairman
John G. Johnson, Jr. President and Chief Executive Officer
Hyman K. Bielsky Senior Vice President/General Counsel
James L. Breece Vice President Technical
Roy D. Bullinger Senior Vice President Business Management
and Marketing
Robert J. Burian Senior Vice President Human Resources
Michael H. Carney Senior Vice President Marketing Services
Glenn R. Casbourne Vice President Engineering and Oil Recycle
Operations
Joseph Chalhoub Senior Vice President Operations, Oil Recovery
& Envirosystems
David A. Dattilo Senior Vice President Sales and Service
Lawrence G. Davenport Vice President Information Services
and Chief Information Officer
Scott E. Fore Senior Vice President
Environment, Health & Safety
F. Henry Habicht, II Senior Vice President Corporate Development
William P. Kasko Senior Vice President
Ulisse Marini Vice President Solvent Recycle Operations
Clyde R. Phillips Vice President Sales Eastern Division
Clark J. Rose Vice President Manufacturing and
Technical Services
Laurence M. Rudnick Treasurer
Clifford J. Schulz Controller
Robert W. Willmschen, Jr. Senior Vice President, Finance
<PAGE>
Exhibit 10.7
SAFETY-KLEEN MANAGEMENT INCENTIVE PLAN
--------------------------------------
February 2, 1996
The Directors of Safety-Kleen Corp. have heretofore decided to compensate their
officers and key management personnel under a compensation plan that will
include base salary plus incentive bonus. The purpose of the incentive plan is
to supplement by incentive bonuses the remuneration for officers and key
management personnel which is competitive externally, equitable internally, and
properly rewarding for performance in the responsibility assigned. On the
recommendation of the Compensation Committee, the following Management Incentive
Plan is hereby established for officers and key management personnel of the
Company.
I. Calculation of Management Incentive Fund
- - -------------------------------------------
Each year the Board of Directors will review the Profit Plan ("Plan") for
the year and create an incentive fund, consisting of both a formula and
discretionary fund, based on performance relative to the Plan as follows:
A. Determination of Qualifying Net Earnings Level for Generation of
Incentive Fund
In order to qualify for the minimum percentage of earnings allocable to
the formula portion of the incentive fund, Safety-Kleen must attain
Consolidated Net Earnings equal to 80% of Plan Consolidated Net
Earnings.
B. Determination of Net Earnings Level Required for Maximum Incentive Fund
In order to qualify for the maximum percentage of earnings allocable to
the formula portion of the Incentive Fund in a given year, Safety-Kleen
must attain Consolidated Net Earnings equal to 120% of Plan
Consolidated Net Earnings.
C. Determination of Formula Incentive Fund Factor
At the minimum Net Earnings level (I.A.), a formula incentive fund
consisting of 1% of consolidated pretax earnings will be created. This
factor will rise on a graduated basis to a maximum of 5.0% of
Consolidated Pretax Earnings when the maximum level (I.B.) is attained
(see Table 1). The formula fund factor calculation for each ensuing
fiscal year will be reviewed by the Compensation Committee of the Board
prior to the development of that year's incentive plan.
1
<PAGE>
D. Calculation of the Discretionary Element of the Plan
In addition to the fund created by the above calculations, an
additional fund consisting of an amount not exceeding 50% of the
formula amount will be available for discretionary incentive
allocations. The allocation of corporate pretax earnings available for
incentive purposes, therefore, will be limited to a maximum of 7.5% of
pretax earnings.
II. Allocation of Funds
- - --- -------------------
A. Determination of Plan Participants
Determination of who will participate in the Plan will be developed
each year by the Chief Executive Officer (President) and the Chairman
of the Board (Chairman) in consultation with other corporate officers.
Such eligibility will be in accordance with job responsibility and
salary grade. The list of job classifications to be included in the
Plan will be submitted at the beginning of each calendar year for
review by the Compensation Committee.
B. Determination of Individual Fund Shares
The percentage share of the formula incentive fund for each officer
participant will be recommended by the President and the Chairman and
submitted to the Compensation Committee for its approval at the
beginning of each calendar year. Non-officer participant percent shares
will be developed by the President and the Chairman in consultation
with other officers.
C. Payment of Annual Incentive
The calculation of the formula incentive fund will be based on final
audited year-end financial statements, utilizing the method described
previously. The individual share calculations for each officer for the
formula incentive resulting from the above calculation, together with
the recommended discretionary share, which can range from 0 to 50% of
the formula amount, shall be submitted to the Compensation Committee
for its final approval during the first quarter of the year following
the fiscal year involved.
The President and the Chairman will recommend the discretionary amount
for each officer based on his analysis of each individual's performance
during the year. A non-officer participant's discretionary share will
be recommended by the participant's immediate supervisor for approval
by the President and the Chairman.
2
<PAGE>
III. Incentive Plan Participation and Communications
- - ---- -----------------------------------------------
The President and the Chairman shall notify the Compensation Committee of
the Board regarding officers and the key management positions that will be
included in the Plan for the current year. Such a list should be determined
as early as possible in any fiscal year and no later than the end of the
first quarter of each fiscal year. Early identification of participants is
desirable to provide maximum opportunity for communicating throughout the
year regarding company performance and each individual participant's
related bonus opportunity, thereby maximizing the effectiveness of the
Incentive Plan.
IV. General Provisions
- - --- ------------------
A. Plan Eligibility
To be eligible to participate under the plan, an officer or employee
must be actively employed with the company on the last working day of
the year for which the year's compensation is payable; provided, that
in the event a participant's employment is terminated prior to year-end
by reason of death occurring after June 1, his share of the formula
incentive fund will be adjusted on the basis of his full-year share,
prorated for the period of his actual employment.
B. Less Than Full-Year's Employment
In the event a participant's employment commences after January 1,
adjustment of his share of the formula incentive fund will be on the
basis of his full-year share, prorated for the period of the
participant's actual employment.
C. Definition of Consolidated Pretax Earnings
For purposes of determining the dollar amount to be set aside for the
formula portion of the fund as above provided, consolidated pretax
earnings shall consist of the reported earnings before income tax, and
before deducting the amount calculated for both the formula and the
discretionary portions of the incentive fund, as reflected in the
audited statements of that year, subject to the following limitations:
profits or losses on the sale or other distribution of fixed or capital
assets not in the ordinary course of business shall be excluded in the
determination of profits. The Board of Directors may elect to exclude
other income or expense items deemed not in the ordinary course of
business.
D. Definition of Consolidated Net Earnings
Consolidated Net Earnings shall be calculated on the basis of
Consolidated Pretax Earnings as defined in IV.C., less the expense
provision for both the formula and discretionary portions of the
incentive fund, and less the applicable income tax provision.
3
<PAGE>
V. Final Responsibility for Plan Administration
- - -- --------------------------------------------
Notwithstanding the foregoing provisions, all matters pertaining to the
administration of this Incentive Compensation Plan, including but not
limited to the determination of the Fund amount, selection of participants,
amounts of awards to be paid to individual participants, and other policy
matters, shall be within the sole discretion of the Board of Directors.
This plan may be revoked, amended or revised by the Board of Directors of
the Company but no revocation, amendment or revision shall affect a
participant's granted percentage share of the Fund.
b/inctpl96
February 9, 1996
4
<PAGE>
Exhibit 10.9
The Chase Manhattan Bank, N.A.
One Chase Plaza
New York, New York 10081
[Logo]
March 29, 1995
Mr. Laurence M. Rudnick
Treasurer
Safety-Kleen Corp.
1000 North Randall Road
Elgin, Illinois 60123-7857
Dear Larry:
In reference to our previous discussions regarding a senior bank financing
facility for Safety-Kleen Corp. ("Safety-Kleen"), the Chase Manhattan Bank, N.A.
("Chase") is pleased to offer to amend the March 25, 1994 $160,000,000 unsecured
Revolving Credit Facility (the "Facility"). Chase is also pleased to recommit up
to $40,000,000 to the amended Facility, subject to the negotiation, execution,
and exchange of mutually satisfactory documentation.
Terms of the amendment will revise pricing and tenor of the Facility as follows:
1) Extend the tenor and final maturity to 5 years; and
2) Revise pricing to reflect the fees and margins in the attached Pricing
Grid.
You acknowledge by execution of this letter (the "Commitment Letter") that you
hereby engage Chase to amend the Facility and, in consideration of Chase's
commitment to the amended Facility, you hereby agree to pay Chase the following
fees and expenses.
Advisory Fee: A one-time nonrefundable advisory fee in an amount equal
- - ------------- to $100,000 shall be payable to Chase, as Agent, on the
Closing Date.
<PAGE>
In addition, you agree to reimburse Chase for all reasonable legal fees and
expenses incurred from outside counsel and for reasonable out-of-pocket costs
and expenses (including, without limitation, reproduction, document delivery and
communication) incurred by Chase in the negotiation, syndication, and execution
of the amended Facility. This agreement shall in no way effect compensation
previously paid to Chase for the Facility. Except to the extent specifically
provided for herein, all other terms and conditions of the Facility will remain
unchanged.
We at Chase are proud of our relationship with Safety-Kleen. We appreciate the
opportunity to provide you with this proposal and look forward to working with
you to complete this transaction. Please sign and return this letter and the
enclosed counterparts acknowledging your understanding of these terms by 5:00
p.m. on Friday, March 31, 1995.
Very truly yours,
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By /s/ THOMAS DANIELS
-------------------------
Thomas Daniels
Title: Vice President
Agreed and Accepted this
31st day of March 1995:
SAFETY-KLEEN CORP.
By /s/ LAURENCE M. RUDNICK
-------------------------
Laurence M. Rudnick
Title: Treasurer
<PAGE>
Pricing Grid for Safety-Kleen Corporation
-----------------------------------------
Safety-Kleen Corp. 5 Year Revolving Credit Facility
---------------------------------------------------
March 29, 1995
--------------
<TABLE>
<CAPTION>
=============================================================================
Below
A-/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3 BBB-/Baa3
=============================================================================
<S> <C> <C> <C> <C> <C>
Facility Fee 10.00 12.50 15.00 18.75 25.00
- - -----------------------------------------------------------------------------
LIBOR Margin 20.00 22.50 30.00 41.25 50.00
- - -----------------------------------------------------------------------------
All-In Funded 30.00 35.00 45.00 60.00 75.00
=============================================================================
</TABLE>
The facility fee and applicable margins shall be determined by the Borrower's
senior unsecured long term debt ratings by Moody's Investor Service, Inc. and
Standard & Poor's Corporation. In the event of a split rating, the better rating
will control. In the event of a split of two or more ratings, the rating one
below the higher will be used. In the event any rating is less than or equal to
BBB- or Baa3, then the lowest of the two or more ratings will be used.
<PAGE>
Exhibit 13
FINANCIAL REVIEW
23. Management's Discussion and Analysis of Financial
Condition and Results of Operations
28. Selected Financial Data
29. Report of Independent Public Accountants
30. Consolidated Statements of Operations
31. Consolidated Balance Sheets
32. Consolidated Statements of Shareholders' Equity
33. Consolidated Statements of Cash Flows
34. Notes to Consolidated Financial Statements
[SAFETY-KLEEN LOGO]
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following table sets forth for the periods indicated (i) percentages which
certain items reflected in the financial data bear to consolidated revenue of
the Company and (ii) the percentage increase (decrease) of such items as
compared to the indicated prior period:
<TABLE>
<CAPTION>
RELATIONSHIP TO PERIOD TO PERIOD
CONSOLIDATED INCREASE
REVENUE (DECREASE)
FISCAL YEAR FISCAL YEARS
1995 1994 1993 1994-95 1993-94
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 100% 100% 100% 8.6% (0.5%)
- - ---------------------------------------------------------
Costs and Expenses:
Operating costs
and expenses 73.1 73.3 76.1 8.4 (4.3)
Selling and
administrative
expenses 14.2 14.2 15.0 8.8 (5.5)
Restructuring charge
(credit) (1.8) - 22.5 N/A N/A
Special charge for
environmental
remediation costs 1.4 - 6.3 N/A N/A
Interest income (0.1) (0.1) (0.1) 37.0 (16.0)
Interest expense 2.4 1.9 1.4 33.0 36.9
- - ---------------------------------------------------------
89.2 89.3 121.2 8.5 (26.7)
- - ---------------------------------------------------------
Earnings (loss) before
income taxes 10.8 10.7 (21.2) 9.0 N/A
Income taxes 4.6 4.4 (8.5) 12.8 N/A
- - ---------------------------------------------------------
Net earnings (loss) 6.2% 6.3% (12.7%) 6.4% N/A
- - ---------------------------------------------------------
</TABLE>
SUMMARY OF 1993, 1994 AND 1995 FINANCIAL RESULTS
In 1994 and 1995, the Company's net earnings before restructuring and special
charges increased 45% and 6%, respectively, from the prior year.
The Hazardous Waste Service Industry in general has experienced lower demand
in recent years as companies have endeavored to reduce costs and minimize the
amount of hazardous wastes they generate. These waste-minimization and cost-
saving efforts have also adversely affected demand for Safety-Kleen's services
as has slower than expected development of the Company's European operations.
However, the Company believes that the small quantity generators of wastes it
specializes in serving are not as greatly impacted by waste minimization
efforts.
After three years of relatively flat revenues through 1994, the Company
experienced a 9% increase in revenue in the current year. The Company believes
its emphasis on recycling and reuse, rather than incineration or disposal of
wastes, and its development of new non-hazardous and other waste minimization
services that help customers reduce the amount of fluid waste they generate
contributed to the Company's improved revenue performance in 1995.
CYCLONIC PARTS CLEANER SERVICE
In order to address the waste minimization concerns of its customers, the
Company began converting its existing Model 16 and Model 30 red sink-on-a-drum
parts cleaners in the United States to a new Cyclonic Parts Cleaner Service in
1993. The new service employs a premium non-hazardous solvent and patented
cyclonic separation technology that continuously removes dirt particles from the
solvent during use. As a result, the solvent stays cleaner longer, extending the
life of the solvent and reducing the number of annual services required. With
the new cyclonic parts cleaner service, customers need service less frequently
and generate less waste on an annual basis, which reduces the cost of the parts
cleaner service to Safety-Kleen and also provides customers with the potential
to reduce their cost.
In conjunction with this conversion of parts cleaners to new technology and a
comprehensive review of its operations, the Company adopted a restructuring plan
in 1993. The restructuring plan is more fully described below in "Results of
Operations" under the subheading "Restructuring and Special Charges."
At December 30, 1995, the Company was servicing approximately 493,000 parts
cleaner machines at customer locations in the United States. These machines
consisted of approximately 162,000 cyclonic parts cleaners, 94,000 red Models 16
and 30 parts cleaners and 237,000 other Safety-Kleen and customer owned parts
cleaners.
The Company does not expect to convert a large portion of the remaining Model
16 and 30 parts cleaner machines to the cyclonic technology. Accordingly, the
Company has determined that it will no longer focus sales and marketing efforts
on actively converting existing red units to the cyclonic machines. Instead, it
will convert existing red units in response to market demand.
OTHER TRENDS, EVENTS AND UNCERTAINTIES
While the Company can benefit from increased governmental regulation, as a
leading environmental services company, it is also the focus of regulatory
scrutiny. The Company's goal is to fully comply with all regulations and other
governmental requirements and thus avoid any fines and penalties, and the
Company has committed significant human and capital resources to the pursuit of
this goal. Nonetheless, given its extensive operations, the technical aspects of
the regulations, and the varying interpretations of the requirements
23
<PAGE>
[SAFETY-KLEEN LOGO]
from jurisdiction to jurisdiction, the Company may incur fines and penalties
from time to time. While the Company does not anticipate that the amount of
fines and penalties will have a material adverse impact on its financial
condition, 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. The Company paid approximately $1
million, $4 million and $1 million in 1995, 1994 and 1993, respectively, for
environmental fines, penalties and forfeitures.
The Company continues to be subject to legislation and regulations adopted by
federal, state and local authorities which may impose stricter operating and
performance standards and increased taxes, assessments and fees upon the
emission sources, generators, transporters and handlers of hazardous and
non-hazardous waste. The Company may or may not be able to pass on the costs
associated with such legislation and regulations to its customers through price
increases.
EFFECTS OF PETROLEUM PRICE CHANGES
Through its Oil Recovery operations, the Company re-refines and markets
petroleum based products at prices positively correlated to crude oil prices
over the long term. The Company's various service operations (such as its Parts
Cleaner Service) also consume petroleum based products, the cost of which are
positively correlated to crude oil prices over the long term. Consequently, any
meaningful increase or decrease in crude oil prices will have both a positive
and negative effect on earnings. Generally, the Company's earnings are
positively affected by higher crude oil prices and are negatively affected by
lower crude oil prices. The speed at which the Company is able to raise prices
for its services and products is restricted somewhat by committed price
contracts.
LIQUIDITY AND CAPITAL RESOURCES
Capital spending in 1995, 1994 and 1993 for additions of equipment at
customers and property, excluding business acquisitions, totaled $78 million,
$88 million and $96 million, respectively. These capital expenditures were
financed primarily by cash from operations. Long-term debt remained unchanged
during 1995, while decreasing $5 million and $12 million in 1994 and 1993,
respectively.
The Company expects that its capital expenditures for equipment at customers
and property additions for the full year 1996 will be approximately $70 million.
The Company also expects to be able to finance these expenditures entirely
through internally generated funds. The Company and its subsidiaries have lines
of credit aggregating approximately $385 million. As of December 30, 1995, total
borrowings under these lines were $128 million. The Company also expects to
continue to lease equipment and property at approximately the same level as
1995, which is higher than its recent past.
The Company entered into a note purchase agreement with two insurance
companies in January of 1995, under which the Company borrowed $50 million at a
fixed interest rate of 8.05% for 3 years expiring in January 1998. Proceeds from
the sale of the notes were used to repay existing bank borrowings.
A portion of the Company's capital expenditures are related to compliance with
environmental laws and regulations. The Company estimates capital spending of
approximately $9 million in 1996 and $18 million in aggregate in the years 1997
through 2000 in order to comply with current environmental laws and regulations
in connection with the Company's existing business.
RESULTS OF OPERATIONS
REVENUES
Total revenue derived from the Company's North American services and European
operations for each of the three fiscal years in the period ended December 30,
1995 are presented below:
<TABLE>
<CAPTION>
PERCENTAGE OF
INCREASE(DECREASE)
(Expressed in millions) FISCAL YEARS
1995 1994 1993 1995-94 1994-93
- - -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North America
Automotive/Retail
Repair Services $239.7 $237.8 $248.7 1% (4%)
Industrial Services 241.6 222.1 212.9 9% 4%
Oil Recovery
Services 129.0 117.8 113.3 10% 4%
Other Service
Areas 149.8 128.2 141.1 17% (9%)
- - -----------------------------------------------
Total North America 760.1 705.9 716.0 8% (1%)
Europe 99.2 85.4 79.5 16% 7%
- - -----------------------------------------------
Consolidated $859.3 $791.3 $795.5 9% (1%)
- - -----------------------------------------------
</TABLE>
24
<PAGE>
[SAFETY-KLEEN LOGO]
North American Automotive/Retail Repair Services
The increase in North American Automotive/Retail Repair Services revenue
included price increases of approximately 4% in 1995. These price increases were
partially offset by a change in the Company's mix of services. The continued
conversion of existing customers to the Cyclonic Parts Cleaner Service accounted
for most of the change in mix.
Lack of sales from discontinued allied products accounted for $6.4 million of
the 1994 revenue decline. Most of the remaining $4.5 million revenue decline was
due to a change in mix of services as the Company increased prices by
approximately 3% in 1994.
North American Industrial Services
Revenue from the Company's North American Industrial Services includes Fluid
Recovery Service revenue of $122.8 million in 1995, $109.1 million in 1994 and
$96.8 million in 1993. Approximately 2 percentage points of the 13% increase in
Fluid Recovery Service revenue in 1995 can be attributed to higher prices. The
remaining increase was due to higher volume and change in product mix. The 13%
increase in Fluid Recovery Service revenue in 1994 was due primarily to higher
volume, partially offset by quantity and regional discounts offered in 1994.
The North American Industrial Parts Cleaner Service accounts for the remaining
North American Industrial Services revenue of $118.8 million in 1995, $113.0
million in 1994 and $116.1 million in 1993. The increased revenues in 1995
included price increases of approximately 4%. The mix of services has also
changed as many customers have converted from the red sink-on-a-drum to the new
cyclonic technology. The 1994 decrease in Industrial Parts Cleaner Service
revenue was due almost entirely to the lack of sales from discontinued allied
products. The favorable impact of 4% price increases was offset primarily by
changes in the mix of services performed.
North American Oil Recovery Services
The increase in revenue experienced in 1995 from the North American Oil
Recovery Services was primarily due to an increase of 8% in the price of base
lube oil sales and an increase of 20% in the average revenue per gallon of used
oil, oily water and antifreeze collected from the automotive market.
A 16% increase in the volume of lubricating oil sales, partially offset by 7%
lower average lube oil sales prices, accounts for the 1994 revenue increase.
North American Other Service Areas
Revenue from Other Service Areas increased by $21.6 million in 1995, of which
$19.5 million was from the Company's new Imaging Services business. Revenue from
Other Service Areas decreased by $12.9 million in 1994 due primarily to the lack
of sales from discontinued allied products and the planned lower Envirosystems
volume as a result of the reduction of toll recycling capacity.
Europe
A strengthening of European currencies against the U.S. dollar increased
revenue by approximately $7.0 million in 1995. Exclusive of exchange rate
effects, revenues in Europe increased approximately 8% due to higher volumes and
prices throughout most of the European operations.
Foreign exchange rates account for approximately 24% of the increase in
revenue in 1994 over 1993, while the remaining increase experienced in 1994 was
due to higher volumes and prices throughout most of the European operations.
OPERATING COSTS AND EXPENSES
The following table shows the gross profit margins of the Company's North
American services and European operations for each of the three fiscal years in
the period ended December 30, 1995.
<TABLE>
<CAPTION>
Gross Profit Margin
- - ---------------------------------------------------
1995 1994 1993
- - ---------------------------------------------------
<S> <C> <C> <C>
North America
Automotive/Retail
Repair Services 37% 35% 31%
Industrial Services 30% 33% 33%
Oil Recovery Services 15% 11% 8%
Other Service Areas 17% 19% 12%
Total North America 27% 27% 24%
Europe 25% 24% 22%
Consolidated 27% 27% 24%
</TABLE>
North American Automotive/Retail Repair Services
The North American Automotive/Retail Repair Services gross margin improved in
1995 from 1994 due mainly to improved pricing, a shift in the mix towards more
cyclonic parts cleaners with higher profit margins, and lower worker's
compensation costs. The 1994 gross margin improvement was primarily due to the
Company's lower cost structure which resulted from its restructuring plan and
the change in accounting estimate for remediation costs implemented in the
fourth interim period of 1993.
25
<PAGE>
[SAFETY-KLEEN LOGO]
North American Industrial Services
The gross margin for the Company's North American Industrial Services declined
in 1995 from 1994 due mainly to higher recycling and plant costs. In the second
interim period of 1995, the Company completed negotiations and extended its
long-term exclusive supply arrangements with two cement plants and entered into
arrangements to manage the waste-derived fuels program at two additional plants.
The Company's cost per gallon for disposal of waste-derived fuel under the new
agreements is higher than its historical cost per gallon. In addition, three of
these plants were unable to burn normal volumes of waste-derived fuel during the
third interim period of 1995 due to unscheduled fuel burning outages, resulting
in higher costs.
Gross margins remained unchanged from 1993 to 1994. The favorable benefits
realized from the lower cost structure in 1994, as a result of the restructuring
plan and change in accounting estimate for environmental remediation costs
implemented in 1993, were offset by lower parts cleaner service volume and lower
average revenue per drum in the Fluid Recovery Service.
North American Oil Recovery Services
Improved pricing on base lube oil sold and higher automotive collection
charges for used oil, oily water and antifreeze account for most of the
improvement in the Oil Recovery Services 1995 gross margin over 1994.
The improvement in the 1994 gross profit margin can be attributed to improved
pricing, a lower cost structure in the automotive used oil collection business
resulting from the Company's restructuring plan that was implemented in 1993,
and certain plant processing improvements.
North American Other Service Areas
Higher losses realized in the new Imaging Services business caused the North
American Other Service Areas gross profit margin to decrease in 1995. The gross
margins on the North American Other Service Areas, excluding Imaging Services,
increased by two percentage points due mainly to improved pricing in selected
markets and higher volumes in the Puerto Rico Envirosystems business.
The increase in gross profit margin in 1994 resulted primarily from the
elimination of the lower margin allied product businesses contemplated by the
Company's restructuring plan. A $2.2 million increase in alternative waste fuel
processing costs in the Company's U.S. Envirosystems operations adversely
affected North American Other Service Areas gross profit margin in 1993.
Europe
The increase in Europe's 1995 gross profit margin over 1994 is due mainly to
improved pricing and volumes.
The increase in Europe's 1994 gross profit margin is mainly attributable to
work force reductions, and elimination of lower margin businesses in connection
with the Company's restructuring plan implemented in 1993.
SELLING AND ADMINISTRATIVE EXPENSES
The 9% increase in selling and administrative expenses the Company experienced
in 1995 resulted primarily from additional employees and related employee
expenses, increases in compensation and related benefits. Selling and
administrative expenses decreased 5% in 1994, primarily due to work force
reductions implemented as part of the Company's restructuring plan.
RESTRUCTURING AND SPECIAL CHARGES
The Company adopted a restructuring plan in 1993 based on conversion of its
Parts Cleaner Service to new technology and other strategic actions to better
focus the Company on its core environmental services, reduce its cost structure
and improve the value of its services to its customers. In conjunction with the
adoption of this plan, the Company recorded a restructuring charge of $179
million ($106 million after-tax or $1.84 per share). The pre-tax restructuring
charge of $179 million included $93 million of asset write-downs and $86 million
of other restructuring charges. The after-tax restructuring charge of $106
million included an estimated $34 million of costs requiring cash outflows and
$72 million of non-cash items.
The Company's restructuring activities proceeded substantially in accordance
with the original plan during 1994. In the fourth quarter of 1995, the Company
recorded a $15.2 million (pre-tax) credit to income to reduce the amount of
restructuring reserves previously established in 1993 to the expected required
levels. The Company also recorded a $12 million (pre-tax) charge to increase the
Company's reserves for environmental remediation costs at its facilities in
North America in the fourth quarter of 1995.
The Company's restructure reserves declined $36.5 million in 1995 and $25.2
million in 1994 . The Company incurred approximately $7 million and $20 million
of after-tax cash flows in 1995 and 1994, respectively. In 1994, the Company
also received a $10.8 million refund of estimated tax payments made in 1993. The
Company does not expect to incur significant additional after tax cash flows
associated with the restructuring in 1996 and beyond, as estimated cash
expenditures will be offset by tax benefits yet to be received.
26
<PAGE>
[SAFETY-KLEEN LOGO]
As part of the restructuring plan, the Company provided for the write-down of
the cost of parts cleaner machines expected to be replaced with the new cyclonic
parts cleaners, as well as the cost of converting customers to the new service.
The Company anticipated that converting a large portion of its existing parts
cleaners to the new cyclonic technology would result in less spent solvent being
collected from the Company's parts cleaner service. Accordingly, the Company
decided to convert many of its branch permitted hazardous waste storage
facilities to transfer locations, thereby eliminating the need for permits
required under the Resource Conservation and Recovery Act (RCRA) and reducing
unnecessary operating costs driven by RCRA-imposed requirements. The non-cash
restructuring charge included the write-off of the capitalized cost of the
permits at these affected facilities. The restructuring charge also included a
write-down of recycling capacity because the collection of less spent solvent
would reduce the amount of solvent recycling capacity required.
Other elements of the restructuring plan included: (i) a work force reduction
of approximately 375 jobs and payment of severance benefits; (ii) a write-down
of inventories and other assets for discontinuing certain minor business
activities, including the sale of allied products; and (iii) accrual of costs
and asset write-downs related to the curtailment or sale of certain operations.
In addition to the restructuring charge, the Company recorded a $50 million
special charge ($30 million after-tax or $.52 per share) representing a change
in estimate for remediation costs. These additional remediation costs were
estimated prior to conducting detailed individual site investigations to
ascertain the existence and extent of contamination, and were related to all
operating and previously closed sites. The Company expects the expenditures for
these remediation costs will occur over several years. The $12 million special
charge for environmental remediation costs in 1995 resulted from a refinement of
the estimates for environmental liabilities.
The Company experienced an estimated net earnings benefit of $16 million in
1994 compared to 1993 that was directly attributable to cost reductions and
other actions resulting from the restructuring plan and the special charge in
1993.
INTEREST INCOME
The $263,000 increase in interest income in 1995 was caused primarily by
higher interest rates. A lower average investment balance accounts for the
$135,000 decline in interest income in 1994.
INTEREST EXPENSE
Higher interest rates account for the $5.0 million increase in interest
expense in 1995. Interest expense excludes $2.1, $2.4 and $4.5 million of
interest capitalized during 1995, 1994 and 1993, respectively. Interest expense
increased $4.1 million in 1994 due mainly to increased interest rates and lower
capitalized interest. The impact of the interest rate swaps executed in the
United States and Germany in 1992 and 1993 resulted in interest expense savings
of $.6, $1.8 and $3.6 million in 1995, 1994 and 1993, respectively.
INCOME TAXES
The effective income tax rate was 42% in 1995, 41% in 1994 and 40% in 1993.
The higher effective tax rate in 1995 was due to the tax effects of the
restructuring credits and remediation charges discussed above. The effective
income tax rate in 1995 before the restructuring credits and additional
remediation charges was 40%. The lower rate before such items was due primarily
to a decrease in non-deductible expenses. The increase in the effective tax rate
in 1994 was primarily due to an increase in non-deductible expenses.
ACCOUNTING CHANGES
The Company is required to adopt Statement of Financial Accounting Standards
(SFAS) No. 121 on Accounting for the Impairment of Long Term Assets and for
Long-Term Assets to be Disposed Of for fiscal year 1996. The Company does not
believe that the adoption of SFAS No. 121 will have a material impact on the
financial position or results of operations of the Company.
27
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR/(4)/
- - -----------------------------------------------------------------------------------------------------
1995 1994 1993 1992/(3)/ 1991
(Expressed in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 859,251 $791,267 $795,508 $794,542 $695,001
Net earnings (loss) 53,303 50,094 (101,346)/(1)/ 45,637/(2)/ 51,551
Earnings (loss) per share 0.92 0.87 (1.76)/(1)/ 0.79/(2)/ 0.90
Cash dividends per share 0.36 0.36 0.36 0.34 0.32
BALANCE SHEET DATA
- - -----------------------------------------------------------------------------------------------------
Current assets 206,208 197,221 202,887 188,717 182,275
Current liabilities 162,676 165,455 149,415 140,988 128,156
Working capital 43,532 31,766 53,472 47,729 54,119
Total assets 1,009,050 973,444 950,664 1,006,446 903,824
Long-term debt 283,715 284,125 288,633 300,724 243,724
Shareholders' equity 433,435 396,336 362,664 492,095 463,621
</TABLE>
/(1)/ Includes restructuring and special charges, net of tax benefit, of $136
million ($229 million pre-tax) or $2.36 per share.
/(2)/ Includes $300,000 ($.01 per share) increase in net earnings from the net
cumulative prior years effect of adopting Statement of Financial
Accounting Standards (SFAS) No. 106 on accounting for post-retirement
benefits and SFAS No. 109 on accounting for income taxes.
/(3)/ Fiscal year 1992 was a fifty-three week year. All other years presented
were fifty-two weeks.
/(4)/ Certain prior year asset and liability amounts have been reclassified to
be consistent with current year presentation.
28
<PAGE>
[SAFETY-KLEEN LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Safety-Kleen Corp.:
We have audited the accompanying consolidated balance sheets of Safety-Kleen
Corp. (a Wisconsin corporation) and Subsidiaries as of December 30, 1995 and
December 31, 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 30, 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Safety-Kleen Corp. and
Subsidiaries as of December 30, 1995 and December 31, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 30, 1995, in conformity with generally accepted accounting
principles.
Chicago, Illinois, /s/ Arthur Andersen LLP
February 5, 1996
29
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Safety-Kleen Corp. and Subsidiaries
For The Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------
1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------
(Expressed in thousands, except per share amounts)
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE $859,251 $791,267 $ 795,508
- - ----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Operating costs and expenses 628,469 579,509 605,815
Selling and administrative expenses 122,319 112,434 119,037
Restructuring charge (credit) (15,217) - 179,000
Special charge for environmental remediation costs 11,956 - 50,000
Interest income (974) (711) (846)
Interest expense 20,230 15,209 11,111
- - ----------------------------------------------------------------------------------------------------------------
766,783 706,441 964,117
- - ----------------------------------------------------------------------------------------------------------------
EARNINGS(LOSS) BEFORE INCOME TAXES 92,468 84,826 (168,609)
INCOME TAXES 39,165 34,732 (67,263)
- - ----------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 53,303 $ 50,094 $(101,346)
- - ----------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ 0.92 $ 0.87 $ (1.76)
================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
CONSOLIDATED BALANCE SHEETS
Safety-Kleen Corp. and Subsidiaries
As of December 30, 1995, and December 31, 1994
<TABLE>
<CAPTION>
DECEMBER 30, 1995 December 31, 1994
- - --------------------------------------------------------------------------------------------------------------------------
ASSETS (Expressed in thousands)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 22,238 $ 21,015
Trade accounts receivable, less allowances of $7,969 and $8,868, respectively 110,120 102,908
Refundable taxes 1,170 6,091
Inventories 36,020 32,137
Deferred tax assets 17,984 18,256
Prepaid expenses and other 18,676 16,814
- - --------------------------------------------------------------------------------------------------------------------------
206,208 197,221
- - --------------------------------------------------------------------------------------------------------------------------
EQUIPMENT AT CUSTOMERS AND COMPONENTS, AT COST, LESS
accumulated depreciation of $44,072 and $38,917, respectively 117,383 96,605
- - --------------------------------------------------------------------------------------------------------------------------
PROPERTY, AT COST
Land 49,469 47,215
Buildings and improvements 242,886 236,125
Leasehold improvements 31,745 29,817
Machinery and equipment 391,519 365,676
Auto and trucks 129,026 132,284
- - --------------------------------------------------------------------------------------------------------------------------
844,645 811,117
Less accumulated depreciation and amortization 315,092 273,075
- - --------------------------------------------------------------------------------------------------------------------------
529,553 538,042
- - --------------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS, AT COST
Goodwill 95,233 87,484
Other 100,077 78,456
- - --------------------------------------------------------------------------------------------------------------------------
195,310 165,940
Less accumulated amortization 68,008 52,015
- - --------------------------------------------------------------------------------------------------------------------------
127,302 113,925
- - --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred tax assets 24,957 23,083
Other 3,647 4,568
- - --------------------------------------------------------------------------------------------------------------------------
28,604 27,651
- - --------------------------------------------------------------------------------------------------------------------------
$1,009,050 $973,444
==========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- - --------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ - $ 10
Trade accounts payable 62,795 61,629
Accrued salaries, wages and employee benefits 29,197 23,178
Other accrued expenses 27,397 28,298
Restructure liability 10,450 24,637
Insurance reserves 13,101 13,484
Accrued environmental liabilities 11,561 11,730
Income taxes payable 8,175 2,489
- - --------------------------------------------------------------------------------------------------------------------------
162,676 165,455
- - --------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT PORTION 283,715 284,125
- - --------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES 43,111 25,789
- - --------------------------------------------------------------------------------------------------------------------------
RESTRUCTURE LIABILITY 12,069 34,357
- - --------------------------------------------------------------------------------------------------------------------------
ACCRUED ENVIRONMENTAL LIABILITIES 42,713 37,954
- - --------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES 31,331 29,428
- - --------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9)
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 57,868,541 shares and 57,754,963 shares, respectively) 5,787 5,775
Additional paid-in capital 186,365 184,789
Retained earnings 256,052 223,569
Minimum pension liability adjustment (1,226) -
Cumulative translation adjustments (13,543) (17,797)
- - --------------------------------------------------------------------------------------------------------------------------
433,435 396,336
- - --------------------------------------------------------------------------------------------------------------------------
$1,009,050 $973,444
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Safety-Kleen Corp. and Subsidiaries
For The Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
TOTAL COMMON ADDITIONAL MINIMUM CUMULATIVE
SHAREHOLDERS' STOCK $.10 PAID-IN RETAINED PENSION TRANSLATION
EQUITY PAR VALUE CAPITAL EARNINGS LIABILITY ADJ. ADJUSTMENTS
- - ----------------------------------------------------------------------------------------------------------------------------------
(Expressed in thousands)
<S> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1993 $ 492,095 $ 5,767 $183,286 $ 316,374 $ - $(13,332)
Net earnings (loss) (101,346) - - (101,346) -
Cash dividends (20,767) - - (20,767) -
Stock options exercised and related tax benefits 327 1 326 - -
Change in cumulative translation adjustments (7,645) - - - (7,645)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1994 362,664 5,768 183,612 194,261 - (20,977)
Net earnings 50,094 - - 50,094 -
Cash dividends (20,786) - - (20,786) -
Stock options exercised and related tax benefits 1,184 7 1,177 - -
Change in cumulative translation adjustments 3,180 - - - 3,180
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 396,336 5,775 184,789 223,569 - (17,797)
Net earnings 53,303 - - 53,303 -
Cash dividends (20,820) - - (20,820) -
Stock options exercised and related tax benefits 1,588 12 1,576 - -
Minimum pension liability adjustment (1,226) (1,226)
Change in cumulative translation adjustments 4,254 - - - 4,254
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 30, 1995 $ 433,435 $ 5,787 $186,365 $ 256,052 $(1,226) $(13,543)
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Safety-Kleen Corp. and Subsidiaries
For The Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------
1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------
(Expressed in thousands)
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 53,303 $ 50,094 $(101,346)
- - ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation of equipment at customers and property 61,681 63,112 65,808
Amortization of intangible and other assets 16,120 14,618 15,673
Provisions for doubtful accounts receivable 4,225 5,067 6,822
Change in deferred income tax assets and liabilities, net 26,504 22,247 (85,856)
Writedown of non-current assets due to restructuring - - 88,028
Other 2,584 (2,440) 10,332
(Increase) decrease in assets, net of effects from business acquisitions:
Trade accounts receivable (8,433) (9,072) (4,601)
Inventories (1,088) 2,472 3,800
Prepaid expenses and other (2,001) (2,412) (2,205)
Increase (decrease) in liabilities, net of effects from business acquisitions:
Trade accounts payable and accrued expenses 703 18,644 (1,312)
Restructure liability (36,475) (25,179) 84,173
Environmental liabilities 4,459 (16,820) 47,804
Other liabilities 3,360 5,575 9,097
- - ----------------------------------------------------------------------------------------------------------------------
Total adjustments 71,639 75,812 237,563
- - ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 124,942 125,906 136,217
- - ----------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities:
Equipment at customers additions (34,874) (42,623) (20,846)
Property additions (43,235) (45,349) (74,991)
Payment for business acquisitions, net of cash acquired (12,682) (1,845) (2,414)
Other assets additions, net (12,671) (7,446) (18,557)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (103,462) (97,263) (116,808)
- - ----------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
Net borrowings (payments) under line-of-credit agreements (51,565) (5,404) (11,634)
Proceeds from issuances of senior notes 50,000 - -
Proceeds from stock option exercises 1,930 1,184 326
Cash dividends paid (20,820) (20,786) (20,767)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash from (used in) financing activities (20,455) (25,006) (32,075)
- - ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 198 3 (524)
- - ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,223 3,640 (13,190)
- - ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 21,015 17,375 30,565
- - ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 22,238 $ 21,015 $ 17,375
======================================================================================================================
Supplemental Information:
- - ----------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest (net of amount capitalized) $ 18,997 $ 14,241 $ 10,375
Income taxes (net of refunds received) $ 11,231 $ 10,222 $ 18,603
- - ----------------------------------------------------------------------------------------------------------------------
Consideration given up and liabilities assumed in
business acquisitions $ 17,268 $ 2,261 $4,823
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Safety-Kleen Corp. and Subsidiaries
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business
The Company is a business-to-business marketing and service company focusing
on the environmental needs of business through recycling and reuse of fluid
waste. It is a leading provider of services to generators of spent solvents and
other hazardous and non-hazardous liquid wastes and byproducts, the world's
largest provider of parts cleaner services and one of the world's largest
collectors and re-refiners of used oil. The Company serves hundreds of thousands
of customers in North America and Europe, through a network of 235 branch
facilities.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries after elimination of all significant intercompany balances and
transactions. The Company's fiscal year ends on the Saturday closest to December
31. Fiscal years 1995, 1994 and 1993 have fifty-two weeks.
Equipment at Customers and Related Depreciation
Equipment at customers is capitalized at manufactured or purchased cost.
Depreciation is computed using the straight-line method over a period of 3 to 13
years, commencing when the units are placed in service.
Property and Related Depreciation
Land, buildings and improvements, leasehold improvements, machinery and
equipment, and autos and trucks are capitalized at cost. Items of an ordinary
repair or maintenance nature are charged directly to operating expense.
Improvement costs are capitalized and charged to operations over the shorter of
the improvement life or the related asset life. Depreciation is computed
principally using the straight-line method over the estimated useful lives as
follows: buildings and improvements 5 to 40 years; machinery and equipment 3 to
20 years; autos and trucks 4 to 10 years; and leasehold improvements over the
shorter of 10 years or remaining term of the lease.
Intangible Assets and Related Amortization
Goodwill consists primarily of the cost of acquired businesses in excess of
market value of net assets acquired. Goodwill is being amortized on a straight-
line basis over a period of time not to exceed forty years. Subsequent to its
acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful life of
goodwill may warrant revision or that the remaining balance of goodwill may not
be recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related business unit's
undiscounted operating income over the remaining life of the goodwill in
measuring whether the goodwill is recoverable.
Other intangible assets consist primarily of costs to obtain customers,
regulatory operating permits and computer software. Amortization of other
intangible assets is computed using the straight-line method over the expected
lives of the intangible assets, which principally range from 2 years to 10
years.
Environmental Remediation Costs and Liabilities
The Company reviews the adequacy of its liability for environmental
remediation on a periodic basis and records adjustments to costs and liabilities
accordingly. In 1993 the Company recorded a $50 million pre-tax charge for a
change in estimate for remediation costs relating to all operating and
previously-closed sites prior to conducting detailed individual site
investigations to ascertain the existence and extent of contamination. In 1995,
the Company recorded a $12 million pre-tax charge to refine its estimates of
environmental liabilities.
Earnings (Loss) Per Share
Earnings (loss) per share amounts are based on the average shares of common
stock outstanding during each year and common stock equivalents of dilutive
stock options and warrants.
Statement of Cash Flows
Short-term investments with original maturities of 90 days or less are
considered to be cash equivalents for purposes of the Consolidated Statements of
Cash Flows and Consolidated Balance Sheets. Cash flows associated with items
intended as hedges of identifiable transactions are classified in the same
categories as the cash flows of the items being hedged.
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 the disclosure of
contingent assets and liabilities at the date of the financial statements as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to be consistent with
current year presentation.
34
<PAGE>
[SAFETY-KLEEN LOGO]
2. ACQUISITIONS
All acquisitions made during the three fiscal years ended December 30, 1995
were accounted for using the purchase method and, accordingly, their operating
results have been included in the Company's Consolidated Statements of
Operations only since the respective dates of acquisition. The acquisitions were
not material either individually or in the aggregate.
3. SEGMENT INFORMATION
The Company and its subsidiaries operate in the United States, the
Commonwealth of Puerto Rico, Canada and seven European countries, consisting of
the United Kingdom, the Republic of Ireland, France, Belgium, Italy, Germany,
and Spain. A summary of certain data with respect to these operations for the
fiscal years ended December 30, 1995, December 31, 1994, and January 1, 1994 is
presented below.
<TABLE>
<CAPTION>
1995 1994 1993
- - --------------------------------------------------------
(Expressed in thousands)
- - --------------------------------------------------------
<S> <C> <C> <C>
REVENUE
United States and
Puerto Rico $ 698,792 $648,555 $665,592
Canada 61,286 57,332 50,442
Europe 99,173 85,380 79,474
- - --------------------------------------------------------
Consolidated $ 859,251 $791,267 $795,508
- - --------------------------------------------------------
TOTAL ASSETS
United States and
Puerto Rico $ 766,276 $742,140 $729,772
Canada 68,482 68,550 72,882
Europe 174,292 162,754 148,010
- - --------------------------------------------------------
Consolidated $1,009,050 $973,444 $950,664
- - --------------------------------------------------------
NET EARNINGS (LOSS)
United States and
Puerto Rico $ 44,446 $ 47,766 $(84,454)
Canada 3,751 1,552 (4,693)
Europe 5,106 776 (12,199)
- - --------------------------------------------------------
Consolidated $53,303 $50,094 $(101,346)
- - --------------------------------------------------------
</TABLE>
The 1995 net earnings by segment, excluding the impact of the $15.2 million
credit to income for the writedown of restructuring reserves previously
established in 1993 and the $12 million charge for the refinement of the
Company's environmental remediation reserves at its facilities in North America,
were as follows:
<TABLE>
<CAPTION>
Expressed in thousands
----------------------------------------
<S> <C> <C>
USA & Puerto Rico 49,383
Canada 1,856
Europe 2,064
-------------------------------------
Consolidated 53,303
-------------------------------------
</TABLE>
The Company operates primarily in one business segment-providing businesses
with environmentally safe and convenient solutions for managing fluid waste and
other recoverable resources.
4. INVENTORIES
The Company's inventories consist primarily of solvent, oil and supplies.
LIFO inventories at December 30, 1995 and December 31, 1994 were $5.3 million
and $5.0 million, respectively. Under the FIFO method of accounting (which
approximates current or replacement cost) inventories would have been unchanged
at December 30, 1995 and $1.0 million higher at December 31, 1994.
5. FINANCIAL ARRANGEMENTS
AND LONG-TERM DEBT
Long-term debt at December 30, 1995 and December 31, 1994 consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 30, December 31,
1995 1994
- - -----------------------------------------------------------------
(Expressed in thousands)
- - -----------------------------------------------------------------
<S> <C> <C>
9.25% Senior Notes due in 1999 $100,000 $100,000
8.05% Senior Notes due in 1998 50,000 -
Unsecured notes payable to banks
under financing agreements:
Revolving lines of credit 89,771 105,085
Uncommitted lines of credit 37,580 73,533
Other 6,364 5,517
- - -----------------------------------------------------------------
283,715 284,135
Less-current portion - 10
- - -----------------------------------------------------------------
Total long-term debt $283,715 $284,125
- - -----------------------------------------------------------------
</TABLE>
35
<PAGE>
[SAFETY-KLEEN LOGO]
The long-term debt as of December 30, 1995 is due as follows:
<TABLE>
<CAPTION>
Expressed in thousands
-----------------------------------------
<S> <C>
1997 $ 55,902
1998 $ 50,625
1999 $100,045
2000 $ 77,045
2001 and thereafter $ 98
</TABLE>
The $100 million of 9.25% Senior Notes ("the Notes") due September, 1999
specify that, upon the occurrence of a credit agency rating decline below
investment grade, either in conjunction with a change in control or as a result
of other events as defined in the Notes, each holder of the Notes has the option
to require the Company to purchase all or any part of such holder's Notes at a
price equal to 100% of the principal amount plus accrued interest.
In May, 1992, the Company executed interest rate swap agreements that
effectively converted $100 million of its fixed-rate borrowings into variable
rate obligations. These swap agreements expire in September 1999. In April,
1993, the Company executed an interest rate swap agreement that converted these
$100 million variable rate obligations to a fixed rate. This agreement expires
in September, 1996. The effect of these swaps reduces the interest rate on the
Notes from 9.25% to 7.08% through September, 1996. At that time the interest
reverts to a variable rate. The variable rate is based on the U.S. Dollar London
Interbank Offered Rate (LIBOR) determined at 6-month intervals.
In May 1992, at the same time the Company entered into the $100 million
interest rate swap agreement, the Company entered into an interest rate cap
agreement, which protects the Company from rising interest rates. The cap has a
notional amount of $100 million, and expires on September 12, 1999. The cap
effectively limits the Company's interest rate exposure to 13.92% if LIBOR
exceeds 12%. The premium paid on the cap is being amortized to interest expense
over the term of the cap.
The Company has a U.S. revolving credit agreement totalling $160 million which
expires in March, 2000. The agreement provides for interest rates to be
determined at the time of the borrowing based on a choice of formulas as
specified in the agreement. The Company currently benefits from a competitive
bid option under the agreement, which ensures that favorable market rates of
interest are secured. A facility fee based on the Company's credit ratings is
paid on the total amount of the line of credit. At December 30, 1995, $40
million of borrowings were outstanding at an average interest rate of 5.9%.
At December 30, 1995, the Company had uncommitted lines of credit totalling
$165 million. Borrowings under these lines were $38 million at an average
interest rate of 6.1%
The Company has the ability to convert other bank borrowings to its revolving
credit facilities. Since the committed facilities extend beyond 1996 and the
Company intends to renew these obligations, $83 million of the loans payable to
banks have been classified as long-term debt.
The Company's German subsidiary has a revolving credit agreement totalling 76
million Deutschmarks (U.S. $53 million) that extends credit until December,
1997. The interest rate determined at the time of each borrowing is 6 month
LIBOR plus 0.5%. A commitment fee of 0.125% per annum is paid quarterly on the
unused portion of the facility. At December 30, 1995, 72 million Deutschmarks
($50 million U.S.) of borrowings were outstanding under these facilities at an
average interest rate of 4.4% (prior to the effect of the interest rate swap
described below).
In May, 1992, the Company's German subsidiary executed an interest rate swap
agreement which expires in May, 1997. The interest rate on DM 70 million (U.S.
$49 million) was swapped from rates based on 6-month DM LIBOR to rates based on
6-month U.S. Dollar LIBOR. At December 30, 1995, the effective interest rate was
8.0%.
At December 30, 1995, the Company's other subsidiary operations have
miscellaneous line of credit agreements totalling $7 million (U.S.). At December
30, 1995, there were no borrowings under these lines of credit.
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 monitors the credit ratings of these
counterparties and considers the risk of default to be remote.
The fair value of the three interest rate swap agreements and the interest cap
agreement noted above was approximately $6.4 million greater than the Company's
carrying value at December 30, 1995 and $2.7 million less than the Company's
carrying value at December 31, 1994. This fair value is determined by obtaining
quotes from brokers who regularly deal in these types of financial instruments.
These interest rate swaps have resulted in a net savings of $.6, $1.8, and $3.6
million in 1995, 1994, and 1993, respectively.
In January 1995, the Company entered into a note purchase agreement with two
insurance companies, under which the Company borrowed $50 million at a fixed
interest rate of 8.05% for 3 years expiring in January, 1998. Proceeds from the
note were used to repay existing bank borrowings.
36
<PAGE>
[SAFETY-KLEEN LOGO]
The Company's credit agreements include provisions, among others, relative to
maintenance of minimum shareholders' equity and interest coverage ratios. At
December 30, 1995, the Company's required minimum shareholders' equity was $411
million. December 30, 1995, the Company was in compliance with all such loan
provisions.
6. CAPITAL STOCK
PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,000,000 shares of
preferred stock, par value $.10 per share, at such time or times, in such
series, and with such designations and features thereof as it may determine,
including rate of dividend, redemption provisions and prices, conversion
conditions and prices and voting rights. No shares of preferred stock have been
issued.
STOCK OPTION AND
EMPLOYEE STOCK PURCHASE PLANS
The Company has the following stock option and employee stock purchase plans:
1. The 1985 and 1993 Stock Option Plans
(The "Option Plans")
2. The 1988 Non-Qualified Stock Option Plan for
Outside Directors (The "Directors' Plan")
3. The 1995 Employee Stock Purchase Plan (the "ESPP")
Under the Option Plans, options to purchase up to 5,937,500 shares of the
Company's common stock may be granted to officers and other key employees at a
price of 100% of the quoted market price at date of grant. Options granted under
the Option Plans may be either Incentive Stock Options or Non-Qualified Stock
Options. Stock appreciation rights (SARs) may be granted in conjunction with
Non-Qualified Stock Options whereby the grantee may surrender exercisable Non-
Qualified Options and receive a cash payment equal to the difference between the
option price and the market value of the common stock on the exercise date.
Incentive Options, Non-Qualified Options and SARs become exercisable at such
time or times, and are subject to such conditions, as determined at the time of
grant by the Compensation Committee of the Board of Directors.
Under the Directors' Plan, options to purchase up to 300,000 shares of the
Company's common stock may be granted to outside Directors at a price of 100% of
the quoted market price at the date of grant. Under the terms of the Directors'
Plan, each outside Director was granted an option to purchase 15,000 shares at
the time the plan was adopted. Any new outside Director elected or appointed
after the date the plan was adopted would also be granted an option to purchase
15,000 shares of the Company's common stock upon taking office. The Directors'
Plan also provides that a second option to purchase 15,000 shares be granted to
each outside Director on the fifth anniversary of the initial grant of options
to such Director if such Director is still serving on the Board at that time.
Options are exercisable 25% annually, on a cumulative basis, starting one year
from date of grant and terminating ten years after the grant date.
The Company had an employee stock purchase plan ("old ESPP") which was in
effect from 1990 through 1994. Under terms of the old ESPP, no further grants to
purchase shares could be made after December 31, 1994. Therefore, 1,064,571
available option shares not granted as of December 31, 1994 expired. An
additional 66,188 shares granted in 1994 that were cancelled in 1995 have
expired. Officers of the Company, employees with less than six months of
service, or employees who hold options under the 1985 Stock Option Plan were not
eligible to participate under the old ESPP.
At the Annual Meeting of Shareholders held in May, 1995, the shareholders
approved the ESPP. Under the ESPP, a total of 1,500,000 shares of the Company's
common stock may be purchased by employees of the Company and designated
subsidiaries, through payroll deductions, at 90% of the lower of the quoted
closing market price on the date of grant or the quoted closing market price on
June 30 in the year following the date of grant. Under the new plan, all full-
time employees (except officers of the corporation) of the Company and
designated subsidiaries on the grant date who were continuously employed since
January 1 of the year in which the grant date occurs (subject to certain
restrictions on percentage of ownership outlined in the new ESPP) are eligible
to participate.
37
<PAGE>
[SAFETY-KLEEN LOGO]
The following is a summary of the status of the Company's stock option plans
for the three fiscal years ended December 30, 1995:
<TABLE>
<CAPTION>
AVAILABLE
FOR
PRICE FUTURE
SHARES RANGE EXERCISABLE GRANTS
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding Options
@ 1/2/93 2,076,760 $17.08-$32.25 1,134,476 1,929,030
1993 Activity:
Authorized 2,750,000
Granted 879,101 $13.50-$24.00
Exercised (15,258) $17.33-$19.42
Cancelled (212,188) $17.33-$32.00
- - --------------------------------------
Outstanding Options
@ 1/1/94 2,728,415 $13.50-$32.25 1,447,846 4,012,117
1994 Activity:
Expired (1,064,571)
Granted 853,408 $13.50-$15.88
Exercised (71,207) $16.65-$16.65
Cancelled (271,341) $13.50-$32.00
- - --------------------------------------
Outstanding Options
@12/31/94 3,239,275 $13.50-$32.25 1,829,500 2,365,479
1995 Activity:
Expired (66,188)
Authorized 1,500,000
Granted 1,228,846 $15.41-$16.88
Exercised (133,992) $13.50-$15.63
Cancelled (233,762) $13.50-$32.25
- - --------------------------------------
Outstanding Options
@ 12/30/95 4,100,367 $13.50-$32.25 2,142,623 2,804,207
- - --------------------------------------------------------------------------------
</TABLE>
STOCK WARRANTS
The Company issued 200,000 stock warrants on January 27, 1995 in conjunction
with an acquisition. These warrants give the owner of the stock warrants the
right to purchase up to 200,000 shares of the Company stock at a price of $17.79
per share. The warrants expire on January 27, 2000. The value of these stock
warrants is not material.
SHAREHOLDERS' RIGHTS PLAN
Pursuant to a plan adopted by the Company in December, 1988, each share of the
Company's common stock carries the right to buy one share of the Company's
common stock at a price of $73.33 per share. The rights will expire on November
21, 1998, unless earlier redeemed by the Company. The rights will become
exercisable if a person becomes an "acquiring person" by acquiring 20% of the
Company's common stock or announces a tender offer that would result in such
person owning 20% or more of the Company's common stock. If someone becomes an
acquiring person (except pursuant to certain cash tender offers for all shares),
the holder of each right (other than rights owned by the acquiring person) will
be entitled to purchase common stock of the Company having a market value of
twice the exercise price of the right. In addition, if the Company is acquired
in a merger or other business combination transaction in which the Company's
common stock is exchanged for cash or securities, or 50% or more of its
consolidated assets or earning power are sold, each holder (other than the
acquiring person) will have the right to purchase common stock of the acquiring
company having a market value of twice the exercise price. The rights may be
redeemed by the Company, at a price of 0.67 cent per right, at any time prior to
anyone becoming an acquiring person.
7. PENSION AND EMPLOYEE
BENEFIT PLANS
The Company has four noncontributory pension plans covering substantially all
full time employees in the United States. Domestic pension plans consist of
three qualified plans and one unfunded non-qualified plan. The qualified plans
are funded in compliance with ERISA requirements as employees become eligible to
participate, generally, after completing one year of service.
The Company's consolidated pension costs for fiscal years 1995, 1994 and 1993
were $4.9 million, $5.5 million, and $7.2 million, respectively. The 1993
pension costs include $2.4 million incurred in conjunction with a restructuring
plan more fully described in Management's Discussion and Analysis of Financial
Condition and Results of Operations-Restructuring and Special Charges on
page 26.
38
<PAGE>
[SAFETY-KLEEN LOGO]
The following table sets forth the domestic plans' combined funded status at
December 30, 1995, and December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 December 31, 1994
- - -----------------------------------------------------------------------------------------
(Expressed in thousands)
- - -----------------------------------------------------------------------------------------
ASSETS ACCUMULATED Assets Accumulated
EXCEED BENEFITS Exceed Benefits
ACCUMULATED EXCEED Accumulated Exceed
BENEFITS ASSETS Benefits Assets
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligation:
Vested benefits $32,439 $ 7,314 $26,346 $ 1,681
Nonvested benefits 7,014 2,170 3,915 40
- - -----------------------------------------------------------------------------------------
Accumulated benefit
obligation 39,453 9,484 30,261 1,721
Effect of projected
compensation levels 14,063 420 11,985 759
- - -----------------------------------------------------------------------------------------
Projected benefit
obligation 53,516 9,904 42,246 2,480
Plan assets at fair value 43,869 5,644 38,984 -
- - -----------------------------------------------------------------------------------------
Projected benefit
obligation (greater)
than plan assets (9,647) (4,260) (3,262) (2,480)
Unrecognized net
loss (gain) 7,338 1,541 3,824 (558)
Unrecognized net
assets to be amortized
over 16-20 years (349) 267 (709) 618
Unrecognized prior
service cost 238 280 435 (80)
Adjustment
to recognize
minimum liability - (2,019) - -
- - -----------------------------------------------------------------------------------------
Unfunded accrued
pension cost
recognized in the
Consolidated
Balance Sheets $(2,420) $(4,191) $ 288 $(2,500)
- - -----------------------------------------------------------------------------------------
</TABLE>
In accordance with SFAS No. 87 on Employers' Accounting for Pensions, the
Company has recorded an additional minimum pension liability in 1995 for each
defined benefit plan that has an accumulated benefit obligation which exceeds
the plan assets at fair value. The additional minimum pension liability was
recorded as a $1,226,000 reduction to shareholders' equity at December 30, 1995,
net of applicable deferred income taxes.
The Plans' assets consist of cash, cash equivalents, equity funds, pooled
funds of real estate and common stock of the Company.
Net periodic pension cost for the Company's domestic plans in 1995, 1994 and
1993 includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
- - ------------------------------------------------------------------------
(Expressed in thousands)
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 3,451 $ 4,235 $ 3,374
Interest on projected
benefit obligation 4,274 3,909 3,339
Return on plan assets (10,405) (334) (2,034)
Charges due to restructuring - - 2,376
Net amortization and deferral 6,493 (3,318) (1,007)
- - ------------------------------------------------------------------------
Net periodic pension cost $ 3,813 $ 4,492 $ 6,048
- - ------------------------------------------------------------------------
</TABLE>
Actuarial assumptions used to determine the projected benefit obligation and
the expected net periodic pension costs were:
<TABLE>
<CAPTION>
1995 1994 1993
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Projected Benefit
Obligation Assumptions:
Discount Rates 7.3% 8.5% 7.3%
Rates of increase in
compensation levels 4.0% 5.0% 5.0%
Net Periodic Pension
Cost Assumption:
Expected long-term rate of
return on assets 10.0% 10.0% 10.0%
</TABLE>
The Company also has pension plans covering employees of its Canadian and
British subsidiaries. Those plans are funded by purchase of insurance contracts
and units in a managed fund invested in stocks, fixed income securities and real
estate. Vested benefits are fully funded. The Company's foreign subsidiaries are
not required to report under ERISA and do not otherwise determine the actuarial
value of accumulated plan benefits as disclosed above for the Company's domestic
pension plans. These plans do not have a material effect on the Company's
financial condition or results of operations.
The Safety-Kleen Corp. Savings and Investment Plan allows eligible employees
to make contributions, up to a certain limit, to the Plan on a tax-deferred
basis under Section 401(k) of the Internal Revenue Code of 1986. The Company
may, at its discretion, make matching contributions out of its profits for the
year. The Company's expense for contributions was $1.9 million in 1995, and $1.5
million in 1994. The Company did not make a matching contribution for 1993.
The Company offers a post-retirement medical insurance plan to its domestic
employees retiring prior to the normal retirement age of 65. Retirees are
eligible to continue this medical coverage until age 65. The plan is currently
unfunded and retirees electing this coverage are required to pay a premium for
the insurance.
39
<PAGE>
[SAFETY-KLEEN LOGO]
The following table reconciles the funded status of the plan to the accrued
post-retirement benefit cost recognized in the Consolidated Balance Sheets at
December 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 December 31, 1994
- - ------------------------------------------------------------------------------
(Expressed in thousands)
- - ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement benefit
obligation (APBO):
Retirees, beneficiaries
and dependents $ 1,055 $ 1,505
Active employees 5,575 4,494
- - ------------------------------------------------------------------------------
6,630 5,999
- - ------------------------------------------------------------------------------
Plan assets at fair value - -
- - ------------------------------------------------------------------------------
APBO greater than plan assets (6,630) (5,999)
Unrecognized net loss (gain) (1,453) (1,399)
- - ------------------------------------------------------------------------------
Accrued post-retirement
benefit cost $(8,083) $(7,398)
- - ------------------------------------------------------------------------------
APBO discount rate 7.25% 8.50%
- - ------------------------------------------------------------------------------
</TABLE>
Net periodic post-retirement benefit costs recognized for 1995, 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- - ---------------------------------------------------------
(Expressed in thousands)
- - ---------------------------------------------------------
<S> <C> <C> <C>
Service costs-benefits earned
during the year $511 $ 786 $ 735
Interest costs on APBO 436 498 489
Curtailment charge due
to restructuring - - 581
Other (87) (44) -
- - ---------------------------------------------------------
Net periodic post-
retirement benefit cost $860 $1,240 $1,805
- - ---------------------------------------------------------
</TABLE>
The health care cost trend was assumed to be 9% for 1995 decreasing by 2% per
year through 1997, then to an ultimate trend of 4.5% in 1998.
If the health care cost trend rate increases one percent for all future years,
the accumulated post-retirement benefit obligation as of December 30, 1995 would
have increased 19%. The effect of this change on the aggregate of the service
and interest cost for 1995 would be an increase of 21%.
The Company adopted SFAS No. 112 on accounting for post-employment benefits
during 1993. The effect of adopting this change was not material.
8. INCOME TAXES
The components of earnings (loss) before income taxes consisted of the
following for each of the last three fiscal years.
<TABLE>
<CAPTION>
1995 1994 1993
- - ---------------------------------------------------------
(Expressed in thousands)
- - ---------------------------------------------------------
<S> <C> <C> <C>
Domestic $74,492 $81,275 $(137,043)
Foreign 17,976 3,551 (31,566)
- - ---------------------------------------------------------
$92,468 $84,826 $(168,609)
- - ---------------------------------------------------------
</TABLE>
Under SFAS No. 109 on Accounting for Income Taxes, deferred tax assets and
liabilities are calculated based on the difference between the financial
statement and income tax bases of assets and liabilities using the enacted tax
rates. The provisions (benefits) for income taxes include the following:
<TABLE>
<CAPTION>
1995 1994 1993
- - ---------------------------------------------------------
(Expressed in thousands)
- - ---------------------------------------------------------
<S> <C> <C> <C>
CURRENT
Federal $16,505 $12,352 $ 878
State 5,087 5,692 1,361
Commonwealth
of Puerto Rico (376) (883) (1,726)
Foreign 662 1,365 -
DEFERRED
Federal 7,247 6,590 (2,871)
Foreign 2,087 928 (15,841)
PREPAID
Federal 1,949 10,090 (35,926)
State - - (8,340)
Commonwealth
of Puerto Rico - - (5,657)
Foreign 6,004 (1,402) 859
- - ---------------------------------------------------------
TOTAL PROVISION $39,165 $34,732 $(67,263)
- - ---------------------------------------------------------
</TABLE>
The following table reconciles the statutory U.S. Federal income tax rate to
the Company's consolidated effective tax rate:
<TABLE>
<CAPTION>
1995 1994 1993
- - ----------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. federal tax rate 35.0% 35.0% (35.0%)
Increase(decrease) resulting from:
Provision for state income tax,
net of federal benefit 3.6 4.4 ( 2.9)
Difference in foreign
statutory rates 2.2 (0.3) (3.3)
Other 1.6 1.8 1.3
- - ----------------------------------------------------------
Effective tax rate 42.4% 40.9% (39.9%)
- - ----------------------------------------------------------
</TABLE>
40
<PAGE>
[SAFETY-KLEEN LOGO]
Temporary differences and carryforwards which give rise to deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, December 31, January 1,
1995 1994 1994
- - ---------------------------------------------------------------------------------
(Expressed in thousands)
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets-current
Restructure reserves $ 4,278 $ 7,773 $ 7,609
Environmental reserves 2,625 1,628 1,628
Insurance reserves 5,908 6,399 6,551
Bad debt reserve 1,800 1,659 1,554
Other 3,373 797 2,348
- - ---------------------------------------------------------------------------------
Total deferred tax assets - current 17,984 18,256 19,690
- - ---------------------------------------------------------------------------------
Deferred tax assets - non-current
Restructuring charges
not currently deductible 17,494 24,842 29,475
Net operating loss (NOL)
carryforwards
of subsidiaries 20,149 18,679 16,233
Insurance reserves 4,822 3,605 -
Environmental reserves 14,382 19,382 21,113
Other 3,273 1,484 770
Valuation allowance (3,676) (3,217) (4,560)
- - ---------------------------------------------------------------------------------
Total deferred tax assets
non-current 56,444 64,775 63,031
- - ---------------------------------------------------------------------------------
Total Deferred Tax Assets $ 74,428 $ 83,031 $ 82,721
- - ---------------------------------------------------------------------------------
Deferred Tax Liabilities
Restructuring and
special charges $ 13,820 $ 12,726 $ 14,061
Depreciation (80,250) (68,828) (62,338)
Tax lease agreements (7,253) (7,539) (7,682)
Other (915) (3,840) (5,581)
- - ---------------------------------------------------------------------------------
Total Deferred
Tax Liabilities $ (74,598) $(67,481) $(61,540)
- - ---------------------------------------------------------------------------------
</TABLE>
As of December 30, 1995, the Company has undistributed earnings of foreign
consolidated subsidiaries of approximately $20.4 million. Since it is the
Company's intention to reinvest the earnings into the foreign subsidiaries
ongoing operations, the Company does not provide for deferred taxes on possible
future remittances of the undistributed earnings. If the reinvested earnings
were to be remitted, the U.S. income taxes under the current law would not be
material.
At December 30, 1995, the tax assets derived from Net Operating Loss
carryforwards (NOLs) that have no expiration total approximately $15.4 million
or 77% of the total NOL tax assets available to the Company. The remaining NOL
tax assets of approximately $4.7 million consist of NOL tax assets with
expiration dates as follows:
<TABLE>
<CAPTION>
Expressed in Thousands
------------------------------------
<S> <C>
1996 $1,341
1997 $ 765
1998 $ 636
1999 $1,560
2000 $ 402
</TABLE>
The Company has recorded a valuation allowance of approximately $3.7 million
for unrealized NOL tax assets that may expire before the Company is able to
utilize such NOLs.
The valuation allowance account balance of $3.7 million represents
approximately 79% of the NOL tax assets that are due to expire as compared to a
valuation allowance percentage of approximately 57% of the NOLs due to expire at
the end of 1994. The valuation account activity is summarized in the table
below.
<TABLE>
<CAPTION>
1995
- - -------------------------------------------------------------------------
(Expressed in thousands)
- - -------------------------------------------------------------------------
<S> <C>
Balance - beginning of year $3,217
Adjust valuation balances 259
Cumulative translation adjustment 200
- - -------------------------------------------------------------------------
Balance - end of year $3,676
- - -------------------------------------------------------------------------
</TABLE>
9. SPECIAL CHARGE FOR ENVIRONMENTAL
COST, OTHER ACCRUED EXPENSES AND
LIABILITIES, COMMITMENTS AND
CONTINGENT LIABILITIES
The Company operates a large number of hazardous waste facilities for the
collection and processing of hazardous and non-hazardous wastes and is subject
to extensive and expansive regulation by Federal, state and local authorities.
In the ordinary course of conducting its business activities, the Company
becomes involved in judicial and administrative proceedings in which
governmental authorities seek remedial actions and/or fines and penalties. The
Company also has been notified by the EPA that it may be a responsible party at
several National Priority List ("NPL") sites. Generally, these proceedings by
Federal and state regulatory agencies have been resolved by negotiation and
settlement. The Company does not anticipate that the amount of fines and
penalties will have a material adverse impact on its 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,
41
<PAGE>
[SAFETY-KLEEN LOGO]
and it is always possible that the Company's actual liability in any particular
case or claim will prove to be larger than anticipated or 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.
Under various Federal, state and local regulations, the Company can be
required to conduct an environmental investigation of any of its permitted
operating or closed facilities to determine the possible existence and extent of
environmental contamination. In the event that contamination is found, the
Company may be required to perform a remedial cleanup of the site. The Company
is currently engaged in investigation and cleanup work at many of its sites.
In 1993 the Company recorded a $50 million pre-tax special charge ($30 million
after-tax or $.52 per share) for a change in estimate for remediation costs
relating to all operating and previously-closed sites prior to conducting
detailed individual site investigations to ascertain the existence and extent of
contamination. This change results in earlier recognition of environmental
remediation costs and liabilities as compared with the Company's previous
practice which was to accrue the estimated cost of remedial cleanup work at the
time the need for such work was specifically identified based on site
investigation. In 1995, the Company recorded a $12 million pre-tax charge to
increase its reserves for environmental remediation based on a refinement of the
estimate for such liabilities.
Federal environmental regulations require that the Company demonstrate
financial responsibility for sudden and non-sudden releases, as well as closure
and post-closure liabilities. One manner by which to make this demonstration is
through Environmental Impairment Liability (EIL) insurance coverage. The Company
has EIL insurance coverage which it believes complies with the Federal
regulatory requirements. However, the Company must reimburse the insurance
carrier for all losses and expenses incurred by it under the policy. The
Company's income could be adversely affected in the future if it is unable to
obtain risk-transfer EIL insurance coverage and uninsured losses were to be
incurred.
The Company leases many of its branches, vehicles and other equipment. These
leases are accounted for as operating leases. Related rental expenses were $24.8
million in 1995, $21.2 million in 1994 and $20.8 million in 1993.
Aggregate minimum future rentals are payable as follows:
<TABLE>
<CAPTION>
Expressed in
Periods Millions
- - ------------------------------------------------------------------------------
<S> <C>
1996 $23.1
1997 19.1
1998 14.0
1999 8.0
2000 5.5
Future Years 16.9
- - ------------------------------------------------------------------------------
Total 86.6
- - ------------------------------------------------------------------------------
</TABLE>
10. RESTRUCTURING CHARGE
During the fourth interim period of 1993, the Company adopted a restructuring
plan based on conversion of its core parts cleaner service to new technology and
other strategic actions. In conjunction with the adoption of this plan, the
Company recorded a special charge of $179 million ($106 million after tax or
$1.84 per share) in the fourth quarter. The pre-tax restructuring charge
included $93 million of asset writedowns and $86 million of other restructuring
charges. In 1995, the Company recorded a pre-tax credit to income of $15.2
million to adjust the restructuring reserves to expected required levels.
11. PROPERTY PLANT & EQUIPMENT
HELD FOR SALE
The net book value of property intended for sale as a result of planned
recycling capacity reductions, facility shutdowns and other restructuring
actions taken during the fourth interim period of 1993 was $11.2 and $16.4
million as of December 30, 1995 and December 31, 1994, respectively.
12. ACCOUNTING CHANGES
The Company is required to adopt Statement of Financial Accounting Standards
(SFAS) No. 121 on Accounting for the Impairment of Long Term Assets and for
Long-Term Assets to be Disposed Of for fiscal year 1996. The Company does not
believe that the adoption of SFAS No. 121 will have a material impact on the
financial position or results of operations of the Company.
42
<PAGE>
[SAFETY-KLEEN LOGO]
13. INTERIM RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(Expressed in thousands, except per share amounts)
EARNINGS
REVENUE GROSS PROFIT NET EARNINGS PER SHARE
- - -------------------------------------------------------------------------------------------------------------------------------
Interim Period 1995 1994 1995 1994 1995 1994 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First (12 Weeks) $194,559 $176,812 $ 52,142 $ 45,500 $12,071 $ 9,705 $0.21 $0.17
Second (12 Weeks) 203,192 183,334 54,206 48,880 12,131 11,468 0.21 0.20
Third (12 Weeks) 197,529 182,149 52,290 48,644 11,126 12,212 0.19 0.21
Fourth (16 Weeks) 263,971 248,972 72,144/(1)/ 68,734 17,975/(1)/ 16,709 0.31 0.29
- - -------------------------------------------------------------------------------------------------------------------------------
Total $859,251 $791,267 $230,782 $211,758 $53,303 $50,094 $0.92 $0.87
===============================================================================================================================
</TABLE>
/(1)/ In the fourth interim period of 1995, the Company recorded normal year-end
adjustments to accruals and other accounts which were more favorable than
those approximately $1.4 million in recorded in the same period of 1994.
These adjustments resulted in an increase of gross profit and $2 million
in net earnings ($.03 per share) in the fourth interim period of 1995
compared to 1994.
43
<PAGE>
[SAFETY-KLEEN LOGO]
BOARD OF DIRECTORS
Donald W. Brinckman, Founder and Chairman,
Safety-Kleen Corp.
John G. Johnson Jr., President and Chief Executive Officer,
Safety-Kleen Corp.
Richard T. Farmer, Chairman, Cintas Corporation
(uniform manufacturer and supplier)
Russell A. Gwillim, Chairman Emeritus, Safety-Kleen Corp.
Edgar D. Jannotta, Senior Principal,
William Blair & Company, L.L.C. (investment banking firm)
Karl G. Otzen, President, Gerhard & Company
(product development consulting firm)
Paul D. Schrage, Senior Executive Vice President,
McDonald's Corporation (restaurant franchiser
and operator)
Marcia Williams, President, Williams & Vanino, Inc.
(environmental/management consulting firm)
W. Gordon Wood, Retired Vice President, Safety-Kleen Corp.
CORPORATE OFFICERS
Donald W. Brinckman, Founder, Chairman of the Board
and Director
John G. Johnson Jr., President, Chief Executive
Officer and Director
Hyman K. Bielsky, Senior Vice President General Counsel
Roy D. Bullinger, Senior Vice President Business
Management and Marketing
Robert J. Burian, Senior Vice President Human Resources
Michael H. Carney, Senior Vice President
Marketing Services and Customer Care
Joseph Chalhoub, Senior Vice President,
Operations, Oil Recovery and Envirosystems
David A. Dattilo, Senior Vice President Sales and Service
Scott E. Fore, Senior Vice President
Environment, Health and Safety
F. Henry Habicht II, Senior Vice President
Corporate Development and Environment
Robert W. Willmschen Jr., Senior Vice President
Finance and Secretary
Lawrence G. Davenport, Vice President
Information Services and Chief Information Officer
Clark J. Rose, Vice President
Manufacturing and Technical Services
Laurence M. Rudnick, Treasurer
Clifford J. Schulz, Controller
44
<PAGE>
[SAFETY-KLEEN LOGO]
CORPORATE DATA
CORPORATE OFFICE
Safety-Kleen Corp., 1000 North Randall Road,
Elgin, IL 60123
Telephone: (847) 697-8460
AUDITORS
Arthur Andersen LLP, 33 W. Monroe Street,
Chicago, IL 60603.
REGISTRAR AND TRANSFER AGENT
First Chicago Trust Company of New York,
Post Office Box 2500, Jersey City, NJ 07303.
ANNUAL MEETING
The Annual Meeting of Shareholders of Safety-Kleen Corp. will be held at 10:00
a.m., Friday, May 10, 1996, at The Westin Hotel, O'Hare, 6100 River Road,
Rosemont, IL 60018.
STOCK LISTING
Safety-Kleen stock is traded on the New York Stock Exchange under the symbol
SK.
FORM 10-K
Safety-Kleen's Annual Report to the Securities and Exchange Commission on Form
10-K is available, on request, from Safety-Kleen's Corporate Secretary.
SHAREHOLDER DIVIDEND
REINVESTMENT PLAN
Safety-Kleen offers a dividend reinvestment plan for shareholders of record.
Further information may be obtained from the Company's Registrar and Transfer
Agent as follows:
First Chicago Trust Company of New York
Post Office Box 2598
Jersey City, NJ 07303
Telephone: (800) 446-2617
MARKET AND DIVIDEND INFORMATION
The Company's common stock is traded on the New York Stock Exchange. The
approximate number of record holders of the Company's common stock at December
30, 1995 was 7,110.
The following table shows the range of common stock prices and cash dividends
for the calendar quarters indicated. The quotations represent the high and low
prices on the New York Stock Exchange as reported by The Wall Street Journal.
<TABLE>
<CAPTION>
1995 1994
- - ----------------------------------------------------------------------
CASH Cash
PRICES DIVIDENDS Prices Dividends
HIGH LOW PAID High Low Paid
<S> <C> <C> <C> <C> <C> <C>
March 31 $17.88 $14.50 $ .09 $18.50 $13.63 $0.09
June 30 18.00 15.13 .09 18.25 13.63 0.09
September 30 17.13 13.50 .09 18.00 15.38 0.09
December 31 15.63 14.00 .09 16.38 12.75 0.09
- - ----------------------------------------------------------------------
$0.36 $0.36
- - ----------------------------------------------------------------------
</TABLE>
The Company has continuously paid quarterly cash dividends since March 1979.
The Company expects to continue its policy of paying regular cash dividends,
although there is no assurance as to future dividends, as they are dependent
upon future earnings, capital requirements, financial condition of the Company
and other factors.
(C)1996 Printed in U.S.A. [RECYCLE LOGO] Printed on recycled paper.
Safety-Kleen Corp. is an Equal Opportunity Employer m/f
45
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To the Board of Directors and
Management of Safety-Kleen Corp.:
As independent public accountants, we hereby consent to the incorporation of our
reports included in or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (File No. 2-
97490, File No. 2-67421, File No. 33-34892, File No. 33-51396, File No. 2-97196,
File No. 33-56371) and on Form S-3 (File No. 22-806, File No. 33-18043, File No.
33-15010, File No. 33-27174, File No. 33-30519, File No. 33-35008 and File No.
33-44715).
/s/ Arthur Andersen LLP
Chicago, Illinois
March 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Corporation's Consolidated Statement of Operations, Balance Sheet and
Statement of Cash Flows and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 22,238
<SECURITIES> 0
<RECEIVABLES> 118,089
<ALLOWANCES> 7,969
<INVENTORY> 36,020
<CURRENT-ASSETS> 206,208
<PP&E> 844,645
<DEPRECIATION> 315,092
<TOTAL-ASSETS> 1,009,050
<CURRENT-LIABILITIES> 162,676
<BONDS> 283,715
<COMMON> 5,787
0
0
<OTHER-SE> 427,648
<TOTAL-LIABILITY-AND-EQUITY> 1,009,050
<SALES> 0
<TOTAL-REVENUES> 859,251
<CGS> 0
<TOTAL-COSTS> 628,469
<OTHER-EXPENSES> 119,058
<LOSS-PROVISION> 4,225
<INTEREST-EXPENSE> 20,230
<INCOME-PRETAX> 92,468
<INCOME-TAX> 39,165
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,303
<EPS-PRIMARY> .92
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.1
[LOGO OF SAFETY-KLEEN]
Safety-Kleen Corp.
1000 N. Randall Road
Elgin, Illinois 60123
(708) 697-8460
For further information:
FOR RELEASE: IMMEDIATELY CONTACT: ROBERT W. WILLMSCHEN
(847) 468-2002
LAURENCE M. RUDNICK
(847) 468-2408
- - ------------------------------------------------------------------------------
SAFETY-KLEEN CORP. REPORTS RECORD REVENUES, 6% GAIN IN NET EARNINGS FOR 1995
- - ----------------------------------------------------------------------------
ELGIN, IL, February 5, 1996 -- John G. Johnson, Jr., President and Chief
Executive Officer of Safety-Kleen Corp., announced today that the Company
earned $53.3 million, or $.92 per share, for the full year 1995, up 6% from
$50.1 million, or $.87 per share, in 1994. Revenue for the year increased
9% to $859 million, a new Company record.
In the fourth interim reporting period of 1995, revenue was $264 million, up
6% from 1994. Net earnings were $18.0 million, up 8% from 1994. Earnings per
share were $.31, compared to $.29 in 1994. These results included a pre-tax
charge of $12 million to increase the Company's reserves for environmental
remediation costs at its facilities. In addition, the interim results for the
fourth quarter included a pre-tax credit to income of $15.2 million to reduce
the amount of restructuring reserves, previously established in 1993, to the
expected required levels. These two items combined after-tax had no effect on
net earnings. The fourth interim period results also benefited from normal
year-end adjustments to accruals and other accounts recorded during 1995, which
were more favorable than those recorded at year-end 1994, by approximately
$2 million after-tax.
Mr. Johnson said, "We were pleased to get revenues growing again in 1995 after
three years of flat revenues. Our performance contrasts with the Hazardous
Waste Services Industry, in general, which has experienced significant
reductions in volume as companies have found ways to reduce the amount of
hazardous wastes they generate. While Safety-Kleen has also been affected by
these trends, the small quantity generators of wastes that we specialize in
serving are not as greatly impacted by waste minimization efforts. In many
cases our services help customers to minimize waste generation. We also
emphasize recycling and reuse as opposed to incineration or disposal of wastes.
We have developed a number of new non-hazardous and waste minimization services
over the past few years, such as our Oil Recovery Service and our unique
Cyclonic Parts Cleaner Service. Our WE CARE(TM) program helps these small
businesses explain the added value of recycling to their customers. We believe
that all of these things set Safety-Kleen apart from the rest of the industry
in 1995 and will continue to differentiate us in future years."
- - ------------------------------------------------------------------------------
<PAGE>
[LOGO OF SAFETY-KLEEN]
- - ------------------------------------------------------------------------------
Johnson added, "While we believe our operating results in 1995 were good
compared to the overall Hazardous Waste Services Industry, we fell short of
our internal goals and are not satisfied with our earnings growth rate,"
Johnson said. "Our earnings in 1995 were adversely affected by increased
operating costs, especially in the third quarter, at a number of our plants,
in addition to higher costs than expected at the cement kilns used for burning
of waste-derived fuels. We have taken action on a number of these issues, with
positive results in the fourth quarter, and expect better overall performance
in 1996. In addition, we incurred losses for the full year 1995 of approximately
$4 million pre-tax in our new Imaging Services business, compared to losses of
$1 million in 1994. Our revenue growth in this new business was slower than
anticipated and we are now adding dedicated Imaging Services sales specialists
in the major market areas at 40% of our U.S. branches to improve our growth
rate in this new market."
"We believe that our most significant growth opportunities are in our Industrial
Services, Imaging Services and Oil Recovery Service businesses in North America
and in our European operations. We look for minimal growth in our more mature
markets, including the Automotive/Retail Repair, Dry Cleaner, Paint Refinishing
and Envirosystems Services in North America, although we will continue to add
new products and services in these markets where appropriate. Our revenue growth
in 1995 was in-line with these expectations."
Safety-Kleen Corp. is the world's largest recycler of automotive and industrial
hazardous and non-hazardous fluids. Safety-Kleen's common stock is traded on
the New York Stock Exchange under the trading symbol SK.
# # #
- - ------------------------------------------------------------------------------
<PAGE>
[LOGO OF SAFETY-KLEEN]
CONSOLIDATED STATEMENT OF EARNINGS
(thousands, except per share amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------
SIXTEEN FIFTY-TWO
WEEKS ENDED WEEKS ENDED
-------------------------------------------------------------------
Dec. 30, 1995 Dec. 31, 1994 Dec. 30, 1995 Dec. 31, 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
North America
Automotive/Retail Repair Services $73,314 $73,449 $239,668 $237,780
-------------------------------------------------------------------
Industrial Services
Parts Cleaner $37,045 34,897 118,854 113,007
Fluid Recovery $38,186 35,402 122,762 109,113
-------------------------------------------------------------------
Total Industrial $75,231 70,299 241,616 222,120
Oil Recovery Services $40,805 38,230 129,039 117,815
Other $43,756 39,636 149,755 128,172
-------------------------------------------------------------------
Total North America $233,106 221,614 760,078 705,887
Europe $30,865 27,358 99,173 85,380
-------------------------------------------------------------------
Consolidated Revenue $263,971 248,972 859,251 791,267
Operating costs and expenses $191,827 180,238 628,469 579,509
Selling and administrative expenses $36,339 35,828 122,319 112,434
Restructuring credit ($15,217) - (15,217) -
Charge for remediation costs $11,956 - 11,956 -
-------------------------------------------------------------------
Operating income $39,066 32,906 111,724 99,324
Interest income $318 321 974 711
Interest expense ($6,172) (5,330) (20,230) (15,209)
-------------------------------------------------------------------
Earnings before income taxes $33,212 27,897 92,468 84,826
Income taxes $15,237 11,188 39,165 34,732
-------------------------------------------------------------------
Net earnings $17,975 $16,709 $53,303 $50,094
===================================================================
Earnings per common and common
equivalent share $0.31 $0.29 $0.92 $0.87
===================================================================
Average number of common and common
equivalent shares outstanding 57,882 57,774 57,857 57,741
===================================================================
Cash dividends per common share $0.09 $0.09 $0.36 $0.36
===================================================================
</TABLE>
- - -----------------------------
1. The sixteen weeks ended December 30, 1995 included a pre-tax charge of $12
million to increase the Company's reserves for environmental remediation
costs at its facilities. In addition, the interim results for the fourth
quarter included a $15.2 million pre-tax credit to income to reduce the
amount of restructuring reserves previously established in 1993, to the
expected required levels. These two items combined after-tax had no effect
on net earnings.
2. 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.
<PAGE>
[LOGO OF SAFETY-KLEEN]
SAFETY-KLEEN CORP.
Key Statistics
Fifty-two Weeks Ended Dec. 30, 1995 and Dec. 31, 1994
<TABLE>
<CAPTION>
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Percent
1995 1994 Change Change
===============================================================
<S> <C> <C> <C> <C>
Parts Cleaners In Service Year End *
- - ------------------------------------
Industrial 147,451 138,103 9,348 6.8%
All Other 460,068 448,458 11,610 2.6%
Total 607,519 586,561 20,958 3.6%
Average Service Interval in Weeks 8.87 7.85 1.02 13.0%
Oil Recovery Service
- - --------------------
Branch Collection:
Used Oil/Glycol/Oily Water Gallons Collected
Quarter 38.5 Million 40.9 Million -2.4 Million -5.9%
Year-to-Date 128.5 Mil1ion 131.2 Million -2.7 Million -2.1%
Avg Revenue Per Used Oil/Glycol/Oily Water Gal. Collected
Quarter $0.301 $0.235 $0.066 28.1%
Year-to-Date $0.274 $0.227 $0.047 20.7%
Avg. Base Oil Selling Price Per Gallon
Quarter $0.993 $0.955 $0.038 4.0%
Year-to-Date $0.994 $0.923 $0.071 7.7%
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</TABLE>
* The number of Parts Cleaners in the all other category in 1995, include
approximately 9,000 machines added as a result of acquisitions.
