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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the twelve weeks ended March 23, 1996.
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the transition period from ________________
to ________________.
Commission File #1-8513
SAFETY-KLEEN CORP.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-6090019
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 North Randall Road, Elgin, Illinois 60123-7857
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code 847/697-8460
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Shares of common stock outstanding at March 23, 1996 were 57,868,541.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES
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PART I. FINANCIAL STATEMENTS
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The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 30,
1995. In the opinion of management, these statements contain all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly the
financial position as of March 23, 1996 and December 30, 1995, results of
operations for the twelve week periods ended March 23, 1996 and March 25, 1995
and cash flows for the twelve week periods ended March 23, 1996 and March 25,
1995. The 1996 interim results reported herein may not necessarily be indicative
of the results of operations for the full year 1996.
2
SAFETY-KLEEN CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts are in thousands except per share data)
ASSETS
March 23, 1996 December 30, 1995
-------------- -----------------
Current assets:
Cash and cash equivalents $ 29,552 $ 22,238
Trade accounts receivable, less
allowances of $7,688 and $7,969, respectively 108,411 110,120
Inventories 38,085 36,020
Prepaid expenses and other 46,877 37,830
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Total current assets 222,925 206,208
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Equipment at customers and components, at cost,
less accumulated depreciation of
$45,567 and $44,072, respectively 117,385 117,383
Property, plant and equipment, at cost, less
accumulated depreciation of $324,242 and 521,415 529,553
$315,092, respectively
Intangible assets, at cost, less accumulated
amortization of $71,419 and $68,008, 127,419 127,302
respectively
Other assets 26,024 28,604
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$1,015,168 $1,009,050
========== ==========
LIABILITY AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable $ 5,210 $ --
Trade accounts payable 59,252 62,795
Accrued expenses 62,136 69,695
Restructure liability 8,607 10,450
Income taxes payable 20,461 8,175
Accrued environmental liabilities 8,761 11,561
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Total current liabilities 164,427 162,676
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Long-term debt 283,702 283,715
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Deferred income taxes 40,733 43,111
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Restructure liability 11,839 12,069
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Accrued environmental liabilities 45,570 42,713
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Other liabilities 29,213 31,331
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Shareholders' equity:
Preferred stock ($.10 par value;
authorized 1,000,000 shares, none issued) -- --
Common stock ($.10 par value;
authorized 300,000,000 shares; issued and 5,787 5,787
outstanding 57,868,541 shares)
Additional paid-in capital 186,365 186,365
Retained earnings 263,913 256,052
Minimum pension liability adjustment (1,226) (1,226)
Cumulative translation adjustments (15,155) (13,543)
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439,684 433,435
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$1,015,168 $1,009,050
========== ==========
The accompanying notes are an integral part of these financial statements.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollar amounts are in thousands except per share data)
TWELVE WEEKS ENDED
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March 23, 1996 March 25, 1995
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Revenue $201,723 $194,559
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Costs and expenses:
Operating costs and expenses 145,823 142,417
Selling and administrative expenses 29,728 27,570
Interest income (180) (260)
Interest expense 4,264 4,544
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179,635 174,271
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Earnings before income taxes 22,088 20,288
Income taxes 9,011 8,217
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Net earnings $ 13,077 $ 12,071
=============== ===============
Earnings per common and common
equivalent share $ 0.23 $ 0.21
=============== ===============
Average number of common and common
equivalent shares outstanding 57,903 57,819
=============== ===============
Cash dividends per common share $ 0.09 $ 0.09
=============== ===============
The accompanying notes are an integral part of these financial statements.
4
SAFETY-KLEEN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts are in thousands)
Twelve Weeks Ended
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March 23, 1996 March 25, 1995
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Net cash provided by operating activities $ 23,548 $ 26,490
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Cash flows used in investing activities:
Equipment at customers and component additions (4,287) (11,661)
Property, plant and equipment additions (7,049) (8,323)
Business acquisitions and other (4,841) (14,872)
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Net cash used in investing activities (16,177) (34,856)
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Cash flows from (used in) financing activities:
Net borrowings (payments) (13) 15,279
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Net cash provided from (used in)
financing activities (13) 15,279
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Effect of exchange rate changes on cash (44) 208
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Net increase in cash and cash equivalents 7,314 7,121
Cash and cash equivalents at beginning of year 22,238 21,015
-------- --------
Cash and cash equivalents at end of the
reporting period $ 29,552 $ 28,136
======== ========
Supplemental disclosures of cash paid during the
reporting period:
Interest (net of amount capitalized) $ 6,748 $ 5,836
======== ========
Income taxes paid (net of refunds received) $ 1,144 $ 380
======== ========
The accompanying notes are an integral part of these financial statements.
5
SAFETY-KLEEN CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. INVENTORIES
The Company's inventories consist primarily of solvent, oil and supplies.
LIFO inventories at March 23, 1996 and December 30, 1995 were $5.0 million and
$5.3 million, respectively. Under the FIFO method of accounting (which
approximates current or replacement cost), inventories would have been $1.0
million higher at March 23, 1996 and unchanged at December 30, 1995.
2. INTERIM REPORTING PERIODS
The Company's interim reporting periods are twelve weeks each for the first
three reporting periods of the year, and sixteen weeks for the fourth reporting
period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
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The Company's working capital increased from $43.5 million at December 30,
1995 to $58.5 million at March 23, 1996. Year-to-date capital spending for
equipment at customers and property, plant and equipment additions totaled $11.3
million. These expenditures were mainly financed by internally generated cash.
The Company's total long-term debt at March 23, 1996 was unchanged from 1995
fiscal year-end.
The Company's long-term debt to total capital ratio was 39.2% at March 23,
1996 and 39.6% at December 30, 1995. The Company expects its long-term debt to
total capital ratio to decline slightly during the balance of 1996.
The Company's restructure liabilities declined $2.1 million during the
first twelve weeks of 1996 from $22.5 million to $20.4 million.
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RESULTS OF OPERATIONS
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COMPARISON OF THE TWELVE WEEK PERIODS ENDED
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MARCH 23, 1996 AND MARCH 25, 1995
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REVENUE
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Revenue for the twelve weeks ended March 23, 1996 was $202 million, up $7
million, or 4%, from the comparable period last year.
Revenue derived from the Company's North American and European operations
during the twelve weeks ended March 23, 1996 and March 25, 1995 was as follows:
Thousands of Dollars
------------------------------
Percentage
Increase
March 23, 1996 March 25, 1995 (Decrease)
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North America
Automotive/Retail Repair Services $ 54,609 $ 56,028 (3%)
Industrial Services 59,211 54,429 9%
Oil Recovery Services 30,399 26,978 13%
Other Services 33,034 34,530 (4%)
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Total North America 177,253 171,965 3%
Europe 24,470 22,594 8%
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Consolidated $201,723 $194,559 4%
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NORTH AMERICAN AUTOMOTIVE/RETAIL REPAIR SERVICES. The revenue decline in
the Company's North American Automotive/Retail Repair Services was caused by a
decrease in volume which was due mainly to machine mix and a lengthening of the
average service interval. This volume decrease was partially offset by price
increases that averaged approximately 4% compared to the first interim period of
1995.
NORTH AMERICAN INDUSTRIAL SERVICES. The Company's North American Industrial
Services revenue for the current reporting period includes $30.4 million from
the Fluid Recovery Service, which represents a 10% increase over the comparable
period of 1995. Approximately one-half of this revenue increase resulted from
higher volume. The balance of the increase can be attributed to better
prices resulting from a reduction of discounts.
The North American Industrial Parts Cleaner Service accounts for the
remaining $28.8 million of revenue, which represents an increase of $1.9
million, or 7%, from the comparable period of 1995. The revenue increase
included price increases averaging approximately 5%. The impact of machine
growth and price increases was partially offset by a lengthening in the average
service interval.
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NORTH AMERICAN OIL RECOVERY SERVICES. Revenue from North American Oil
Recovery Services was up $3.4 million, or 13%, from the comparable period of
1995. $1.7 million of the revenue increase is due to an 11% increase in the
volume of lube oil sales. Price increases in the automotive oil collection
business and a higher volume of automotive oily water gallons collected were the
major factors causing the remaining revenue increase.
NORTH AMERICAN OTHER SERVICES. Revenue from Other Services during the
current reporting period decreased $1.5 million, or 4%, from the comparable
period of 1995. The decline in revenue was primarily attributable to a decline
in revenue from the Envirosystems and Dry Cleaner Services businesses due mainly
to decreases in volume. Revenue from the Imaging Services business was flat with
1995. Approximately $2 million of additional revenue realized from servicing
customers directly through the branch network was offset by approximately $2
million of lower margin broker business revenue (which was included in the first
interim period of 1995) which was discontinued by the Company.
EUROPE. European revenues of $24.5 million were up $1.9 million, or 8%,
from the comparable period of 1995. All businesses except the Envirosystems
business in Germany showed increases in revenue. These revenue increases were
mainly attributable to higher volume.
OPERATING COSTS AND EXPENSES
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Operating costs and expenses as a percentage of revenue were 72.3% in the
current reporting period, compared to 73.2% for the first interim period of
1995. Most of this decrease resulted from improved pricing in selected markets
and the elimination of lower margin Imaging Services business.
SELLING AND ADMINISTRATIVE EXPENSES
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Selling and administrative expenses increased from 14.2% of revenue in 1995
to 14.7% of revenue in 1996. The increase is largely due to higher employee
related costs.
INTEREST EXPENSE
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Interest expense decreased $0.3 million to $4.3 million during the current
reporting period due primarily to lower interest rates.
INCOME TAXES
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The Company's effective income tax rate was 40.8% for the twelve weeks
ended March 23, 1996 and 40.5% for the comparable period of 1995.
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PART II.
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Item 1. LEGAL PROCEEDINGS
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The Company's goal is to fully comply with all environmental regulations,
but the nature of the Company's business will likely cause it to incur
governmental fines and penalties from time to time as a consequence of its
business operations. In the majority of situations where proceedings are
commenced by governmental authorities, the matters involved relate to alleged
technical violations of permits or orders under which the Company operates, or
laws and regulations to which its operations are subject, and are often the
result of varying interpretations of the applicable requirements. Generally,
these proceedings result from routine inspections conducted by federal and state
regulatory agencies.
From time to time, the Company becomes subject to claims which allege more
than technical violations or in which the claimant seeks remedies which involve
potentially higher costs than routine technical violation claims. These claims
can be brought by either governmental authorities or private claimants. The
relief sought can involve remediation of the alleged environmental damage,
payment of damages, and in the case of claims brought by governmental
authorities, fines and penalties.
In some cases, governmental authorities may seek fines and/or penalties
from the Company which exceed $100,000 in each case. In these cases, the
governmental authorities may allege, among other things, that the Company is
responsible for releases or threatened releases of hazardous substances, that
the Company engaged in soil excavation or clean-up activities without obtaining
requisite advance approvals and/or that the Company committed certain
manifesting, storage or waste handling violations. Only two such proceedings
against the Company were pending or known to be contemplated by governmental
authorities at March 23, 1996.
The Company settled one such case during the twelve week period ended March
23, 1996. In this case, the Company and the State of Minnesota entered into a
settlement agreement involving alleged violations of certain manifesting
requirements, which the Company denied. The case was resolved for a penalty of
$119,025.
The Company's practice is to attempt to negotiate resolution of claims
against the Company and its facilities. The Company has to date been able to
resolve cases on generally satisfactory terms. The Company is, however, prepared
to contest claims or remedies which the Company believes to be inappropriate
unless and until satisfactory settlement terms can be agreed upon.
Based on its past experience and its knowledge of pending cases, the
Company believes it is unlikely that the Company's actual liability for the
cases now pending will be materially adverse to the Company's financial
condition. It should be noted, however, that many environmental laws are written
in a way in which the Company's potential liability can be large, and it is
always possible that the Company's actual liability with respect to any
particular environmental claim will prove to be larger than anticipated and
accrued for by the Company. It is also possible that expenses incurred in any
particular reporting period for remediation costs or for fines, penalties, or
judgments could have a material impact on the Company's earnings for that
period.
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On April 19, 1996, the U.S. Environmental Protection Agency ("EPA")
published its proposed Hazardous Waste Combuster Rule. This proposed rule will
set emissions standards for incinerators, cement kilns and lightweight aggregate
kilns that burn hazardous waste. As proposed, these standards will require
cement kilns, who are the major customers for the Company's waste-derived fuels,
to make capital improvements which would increase the cost of burning hazardous
waste fuels in cement kilns. However, due to the complexity of the proposed
rule, the lengthy adoption process to which it is subject, and the likelihood
that the rule will undergo changes prior to its adoption, the effect of the
final rule is unknown.
The South Coast Air Quality Management District ("SCAQMD"), the air
district for the greater Los Angeles, California area, is considering amendment
of a rule that would significantly reduce the allowable volatile organic
compound ("VOC") content of materials used for repair and maintenance cleaning.
The proposal being reviewed would, in effect, ban parts cleaning with solutions
containing VOCs in excess of fifty grams per liter as of January 1, 1998. The
SCAQMD contends this proposed amendment will help it meet ozone attainment
standards under the Clean Air Act. The Company is actively working with the
SCAQMD to develop alternatives to the proposed restrictions on parts cleaning.
If the amendment being studied is adopted in its current form, it would require
the Company to convert its SCAQMD solvent parts cleaner customers to an
alternative cleaning solvent or solution.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
EX-27 Financial Data Schedule (EDGAR filing only).
EX-99 Press release issued April 15, 1996 regarding the
Company's results of operations during the twelve weeks
ended March 23, 1996.
(b) Reports on Form 8-K
None.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on this 7th day of May, 1996.
SAFETY-KLEEN CORP.
/s/ ROBERT W. WILLMSCHEN, JR.
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Robert W. Willmschen, Jr.
Senior Vice President Finance
and Secretary - Chief Financial Officer
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