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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q/A
_________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 2001
Commission File Number 1-8368
SAFETY-KLEEN CORP.
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(Exact name of registrant as specified in its charter)
Delaware 51-0228924
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Gervais Street, Columbia, South Carolina 29201
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(Address of principal executive offices) (Zip Code)
(803) 933-4200 (Registrant's telephone number, including area code)
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(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- ---
The number of shares of the issuer's common stock outstanding as of September
10, 2001 was 100,783,596.
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SAFETY-KLEEN CORP.
INDEX
Part I and Part II are amended in their entirety by the following:
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the Nine Months Ended
May 31, 2001 and the Three Months Ended May 31, 2001, February
28, 2001 and November 30, 2000 . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets as of May 31, 2001, February 28,
2001, November 30, 2000 and August 31, 2000. . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine Months Ended
May 31, 2001 and the Six Months Ended February 28, 2001, and the
Three Months Ended November 30, 2000 . . . . . . . . . . . . 5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) and Other Comprehensive Income (Loss) for the Three
Months Ended May 31, 2001, February 28, 2001 and November 30,
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 39
Item 3. Quantitative and Qualitative Disclosure about Market Risk . . . . . 53
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 54
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 57
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
-2-
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
NINE MONTHS ----------------------------------------------
ENDED MAY 31, FEBRUARY 28, NOVEMBER 30,
MAY 31, 2001 2001 2001 2000
-------------- -------------- -------------- --------------
Revenues $ 1,121,407 $ 374,615 $ 369,875 $ 376,917
-------------- -------------- -------------- --------------
Expenses:
Operating 931,850 317,973 300,077 313,800
Depreciation and amortization 104,403 33,860 34,683 35,860
Selling, general and administrative 200,352 68,669 66,815 64,868
Provision for early facility closures 44,773 -- 35,297 9,476
-------------- -------------- -------------- --------------
1,281,378 420,502 436,872 424,004
-------------- -------------- -------------- --------------
Operating loss (159,971) (45,887) (66,997) (47,087)
Interest expense, net (See Note 3 for excluded
contractual interest amounts) (4,425) (875) (1,290) (2,260)
Other income (expense) (111) 448 (329) (230)
-------------- -------------- -------------- --------------
Loss before reorganization items, income taxes
and minority interests (164,507) (46,314) (68,616) (49,577)
Reorganization items (24,681) (5,467) (9,814) (9,400)
-------------- -------------- -------------- --------------
Loss before income taxes and minority interests (189,188) (51,781) (78,430) (58,977)
Income tax (expense) benefit (2,419) (2,041) (1,048) 670
-------------- -------------- -------------- --------------
Loss before minority interests (191,607) (53,822) (79,478) (58,307)
Minority interests (118) (20) (53) (45)
-------------- -------------- -------------- --------------
Loss before extraordinary item (191,725) (53,842) (79,531) (58,352)
Extraordinary item, net of tax (early extinguishment
of debt) 5,787 3,309 1,793 685
-------------- -------------- -------------- --------------
Net loss $ (185,938) $ (50,533) $ (77,738) $ (57,667)
============== ============== ============== ==============
Basic and diluted loss per share:
Loss before extraordinary item $ (1.90) $ (0.53) $ (0.79) $ (0.58)
Extraordinary item 0.06 0.03 0.02 0.01
-------------- -------------- -------------- --------------
Net loss $ (1.84) $ (0.50) $ (0.77) $ (0.57)
============== ============== ============== ==============
Weighted average common stock outstanding - basic
and diluted 100,784 100,784 100,784 100,784
============== ============== ============== ==============
See accompanying Notes to Consolidated Financial Statements
-3-
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNT)
MAY 31, FEBRUARY 28, NOVEMBER 30, AUGUST 31,
2001 2001 2000 2000
------------ -------------- -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
ASSETS:
Current assets
Cash and cash equivalents $ 117,831 $ 109,651 $ 112,195 $ 84,282
Accounts receivable, net 282,592 303,803 317,635 307,342
Inventories and supplies 47,703 50,822 48,740 51,914
Deferred tax asset 41,485 39,656 37,174 28,554
Other current assets 40,358 43,693 50,987 49,731
------------ -------------- -------------- ------------
Total current assets 529,969 547,625 566,731 521,823
------------ -------------- -------------- ------------
Property, plant and equipment, net 731,450 736,895 742,907 772,875
Intangible assets, net 1,742,322 1,760,274 1,777,893 1,798,285
Other assets 27,563 27,732 38,351 38,885
------------ -------------- -------------- ------------
$ 3,031,304 $ 3,072,526 $ 3,125,882 $ 3,131,868
============ ============== ============== ============
LIABILITIES:
Current liabilities
Accounts payable $ 48,027 $ 54,353 $ 52,527 $ 65,838
Current portion of environmental liabilities 42,234 39,160 32,326 41,122
Income taxes payable 19,199 17,752 19,433 24,534
Unearned revenue 90,961 90,234 99,258 90,953
Accrued other liabilities 146,768 127,434 121,521 69,211
Current portion of long-term debt 62,291 62,859 62,724 65,421
------------ -------------- -------------- ------------
Total current liabilities 409,480 391,792 387,789 357,079
------------ -------------- -------------- ------------
Environmental liabilities 331,965 337,269 309,129 285,634
Deferred income taxes 101,921 100,519 97,366 92,659
Other long-term liabilities 14,245 13,188 12,322 9,197
Liabilities subject to compromise 2,474,719 2,480,096 2,492,216 2,500,973
Minority interests 1,415 1,395 1,341 1,296
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, par value $1.00 per share; authorized
250,000; issued and outstanding 100,784
100,784 100,784 100,784 100,784
Additional paid-in-capital 1,359,972 1,359,972 1,359,972 1,359,972
Accumulated other comprehensive loss (8,199) (8,024) (8,310) (6,666)
Accumulated deficit (1,754,998) (1,704,465) (1,626,727) (1,569,060)
------------ -------------- -------------- ------------
Total stockholders' equity (deficit) (302,441) (251,733) (174,281) (114,970)
------------ -------------- -------------- ------------
$ 3,031,304 $ 3,072,526 $ 3,125,882 $ 3,131,868
============ ============== ============== ============
(Note: The consolidated balance sheet as of August 31, 2000
has been derived from the audited financial statements)
See accompanying Notes to Consolidated Financial Statements
-4-
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
MAY 31, 2001 FEBRUARY 28, 2001 NOVEMBER 30, 2000
------------------ ------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (185,938) $ (135,405) $ (57,667)
Adjustments to reconcile net loss to net cash
provided by operations:
Extraordinary item, net of tax (5,787) (2,478) (685)
Depreciation and amortization 104,403 70,543 35,860
Provision for environmental liabilities 63,935 59,730 20,491
Loss on disposal of equipment 15,802 9,668 5,461
Deferred income taxes (1,469) (1,434) (2,019)
Spending for environmental liabilities (14,855) (8,729) (4,386)
Change in accounts receivable, net 23,569 2,504 (11,484)
Change in accounts payable (16,188) (10,220) (12,006)
Change in income taxes payable (5,334) (6,748) (5,057)
Change in accrued other liabilities 78,047 58,602 52,687
Change in unearned revenue 213 (554) 8,494
Change in liabilities subject to compromise (2,309) (241) 6
Change in other, net 22,995 14,626 6,776
------------------ ------------------- -------------------
Net cash provided by operating activities 77,084 49,864 36,471
------------------ ------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment 3,942 3,221 2,417
Purchases of property, plant and equipment (44,883) (26,168) (9,869)
Decrease (increase) in other assets 8,407 9,168 (616)
------------------ ------------------- -------------------
(32,534) (13,779) (8,068)
------------------ ------------------- -------------------
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on pre-petition debt (10,080) (10,080) --
------------------ ------------------- -------------------
Net cash used in financing activities (10,080) (10,080) --
------------------ ------------------- -------------------
Effect of exchange rate changes on cash (921) (636) (490)
------------------ ------------------- -------------------
Net increase in cash and cash equivalents 33,549 25,369 27,913
Cash and cash equivalents at:
Beginning of period 84,282 84,282 84,282
------------------ ------------------- -------------------
End of period $ 117,831 $ 109,651 $ 112,195
================== =================== ===================
See accompanying Notes to Consolidated Financial Statements
-5-
SAFETY-KLEEN CORP.
(DEBTOR-IN-POSSESSION AS OF JUNE 9, 2000)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
AND OTHER COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE ACCUMULATED
STOCK CAPITAL INCOME (LOSS) DEFICIT TOTAL
-------- ----------- --------------- ------------- ----------
Balance at August 31, 2000 $100,784 $ 1,359,972 $ (6,666) $ (1,569,060) $(114,970)
======== =========== =============== ============= ==========
Comprehensive loss:
Net loss (57,667) (57,667)
Other comprehensive income
(loss), net of income taxes:
Foreign currency translation
adjustments (1,644) (1,644)
----------
Total comprehensive loss (59,311)
-------- ----------- --------------- ------------- ----------
Balance at November 30, 2000 $100,784 $ 1,359,972 $ (8,310) $ (1,626,727) $(174,281)
======== =========== =============== ============= ==========
Comprehensive loss:
Net loss (77,738) (77,738)
Other comprehensive income
(loss), net of income taxes:
Foreign currency translation
adjustments 63 63
Unrealized gain on marketable
securities 223 223
----------
Total comprehensive loss (77,452)
-------- ----------- --------------- ------------- ----------
Balance at February 28, 2001 $100,784 $ 1,359,972 $ (8,024) $ (1,704,465) $(251,733)
======== =========== =============== ============= ==========
Comprehensive loss:
Net loss (50,533) (50,533)
Other comprehensive income
(loss), net of income taxes:
Foreign currency translation
adjustments (365) (365)
Unrealized gain on marketable
securities 190 190
----------
Total comprehensive loss (50,708)
-------- ----------- --------------- ------------- ----------
Balance at May 31, 2001 $100,784 $ 1,359,972 $ (8,199) $ (1,754,998) $(302,441)
======== =========== =============== ============= ==========
See accompanying Notes to Consolidated Financial Statements
-6-
SAFETY-KLEEN CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BANKRUPTCY
Safety-Kleen Corp. (the "Registrant" or "Safety-Kleen") (collectively referred
to, with its subsidiaries, as the "Company"), was incorporated in Delaware in
1978 as Rollins Environmental Services, Inc., later changed its name to Laidlaw
Environmental Services, Inc., and subsequently changed its name to Safety-Kleen
Corp.
On June 9, 2000, Safety-Kleen Corp. and 73 of its domestic subsidiaries
(collectively, the "Debtors") filed voluntary petitions for relief (the "Chapter
11 Cases") under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C.
Sec.Sec. 101-1330, as amended (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
Excluded from the filing were certain of Safety-Kleen's domestic subsidiaries
and all Safety-Kleen's indirect Canadian subsidiaries.
The Debtors remain in possession of their properties and assets, and the
management of Safety-Kleen and each of the Debtor subsidiaries continues to
operate their respective businesses as debtors-in-possession under Sections 1107
and 1108 of the Bankruptcy Code. As debtors-in-possession, the Debtors are
authorized to manage their properties and operate their businesses, but may not
engage in transactions outside the ordinary course of business without the
approval of the Bankruptcy Court.
Under Section 365 of the Bankruptcy Code, subject to the approval of the
Bankruptcy Court, the Debtors may assume or reject executory contracts and
unexpired leases. Parties affected by these rejections may file proofs of claim
with the Bankruptcy Court in accordance with the reorganization process. These
claims for damages resulting from the rejection of executory contracts or
unexpired leases will be subject to separate bar dates, generally thirty days
after entry of the order approving the rejection. At various times since the
commencement of the Chapter 11 Cases, the Bankruptcy Court has approved the
Debtors' requests to reject certain contracts or leases that were deemed
burdensome or of no further value to the Company. As of September 10, 2001, the
Debtors had not yet completed their review of all contracts and leases for
assumption or rejection, but ultimately will assume or reject all such contracts
and leases. The Debtors have until the confirmation of a plan of reorganization
to assume or reject executory contracts and certain leases. However, pursuant
to an order entered by the Bankruptcy Court on May 16, 2001, the Debtors have
until the earlier of the confirmation of a plan of reorganization or February 9,
2002, to assume or reject nonresidential real property leases. The Debtors
cannot presently determine or reasonably predict the ultimate liability that may
result from rejecting such contracts or leases or from the filing of rejection
damage claims, but such rejections could result in additional liabilities
subject to compromise (see Note 3).
The consummation of a plan or plans of reorganization is the principal objective
of the Chapter 11 Cases. A plan of reorganization sets forth the means for
satisfying claims against and interests in the Company and its Debtor
subsidiaries, including the liabilities subject to compromise. Generally,
pre-petition liabilities are subject to settlement under such a plan or plans of
reorganization, which must be voted upon by creditors and equity holders and
approved by the Bankruptcy Court. The Debtors have retained Lazard Freres & Co.
LLC, an investment bank, as corporate restructuring advisor to assist them in
formulating and negotiating a plan or plans of reorganization for the Company
and its Debtor subsidiaries. Although the Debtors expect to file a
reorganization plan or plans, as soon as reasonably possible, there can be no
assurance that a reorganization plan or plans will be proposed by the Debtors or
confirmed by the Bankruptcy Court, or that any such plan or plans will be
consummated.
As provided by the Bankruptcy Code, the Debtors initially had the exclusive
right for 120 days to submit a plan or plans of reorganization. On October 17,
2000, the Debtors received Bankruptcy Court approval to extend the exclusive
period to file a plan or plans of reorganization in the Chapter 11 Cases. The
order extended the Debtor's exclusive right to file a plan or plans from October
7, 2000, to April 30, 2001, and extended the Debtors' exclusive right to solicit
acceptances of such plan or plans from December 6, 2000, to June 29, 2001. On
May 16, 2001, the Debtors received Bankruptcy Court approval to further extend
the exclusive period to file a plan or plans of reorganization in the Chapter 11
Cases. The order extended the Debtor's exclusive right to file a plan or plans
until September 19, 2001, and extended the Debtors' exclusive right to solicit
acceptances of such plan or plans until November 19, 2001. The Debtors have
filed a motion to further extend the exclusive period to file a plan or plans of
reorganization and to extend the Debtors' exclusive right to solicit acceptances
of such plan or plans.
-7-
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICIANT ACCOUNTING POLICIES
A summary of the basis of presentation and the significant accounting policies
followed in the preparation of these Consolidated Financial Statements is as
follows:
BASIS OF PRESENTATION
The accompanying unaudited interim Consolidated Financial Statements have been
prepared on a going concern basis which contemplates continuity of operations,
realization of assets, and payment of liabilities in the ordinary course of
business and do not reflect adjustments that might result if the Debtors are
unable to continue as going concerns. The Debtors' history of significant
losses, deficit in stockholders' equity and their Chapter 11 filings, as well as
issues related to compliance with debt covenants and financial assurance
requirements raise substantial doubt about the Company's ability to continue as
a going concern. The Debtors intend to file a plan or plans of reorganization
with the Bankruptcy Court. Continuing as a going concern is dependent
upon, among other things, the Debtors' formulation of a plan or plans of
reorganization, the success of future business operations, and the generation of
sufficient cash from operations and financing sources to meet the Debtors'
obligations. The Consolidated Financial Statements do not reflect: (a) the
realizable value of assets on a liquidation basis or their availability to
satisfy liabilities; (b) aggregate pre-petition liability amounts that may be
allowed for unrecorded claims or contingencies, or their status or priority; (c)
the effect of any changes to the Debtors' capital structure or in the
Debtors' business operations as the result of an approved plan or plans of
reorganization; or (d) adjustments to the carrying value of assets (including
goodwill and other intangibles) or liability amounts that may be necessary as
the result of actions by the Bankruptcy Court.
The Company's financial statements have been presented in conformity with the
AICPA's Statement of Position 90-7, "Financial Reporting By Entities In
Reorganization Under the Bankruptcy Code," ("SOP 90-7"). The statement requires
a segregation of liabilities subject to compromise by the Bankruptcy Court as of
the bankruptcy filing date and identification of all transactions and events
that are directly associated with the reorganization of the Company.
INTERIM FINANCIAL INFORMATION
In accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X, the Company's unaudited interim Consolidated Financial Statements do not
include all of the disclosures required by generally accepted accounting
principles for annual financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation of the interim period
results have been included. Operating results for the nine months ended May 31,
2001 are not necessarily indicative of the results that may be expected for the
full fiscal year ending August 31, 2001. These statements should be read in
conjunction with the consolidated financial statements, including the accounting
policies, and notes thereto included in the Registrant's Form 10-K/A, for the
year ended August 31, 2000, filed with the Securities and Exchange Commission on
July 9, 2001.
As previously reported in the Company's Form 10-K/A for the year ended
August 31, 2000, the Company contracted with outside accountants, including
Arthur Andersen LLP, and other professionals to provide significant non-audit
assistance to the Company's corporate and field accounting personnel. These
professionals assisted with the account analysis, development of financial
reporting systems and project management support, all of which was necessary to
prepare the Company's fiscal 1997 to 2000 Consolidated Financial Statements,
related disclosures and its fiscal 2000 Form 10-K/A. This effort included a
comprehensive review of substantially all the accounts and resulted in a large
number of adjustments affecting each of the respective periods. The impact of
these adjustments on the annual financial statements is described in Note 2 of
the fiscal 2000 Consolidated Financial Statements. As disclosed in the Form
10-K/A filed on July 9, 2001 and referenced in the auditors' report, the
quarterly financial information required by Item 302 of Regulation S-K was not
included in the Form 10-K/A. The Company believes the adjustments to the
financial statements have been reflected in the appropriate annual fiscal
period, however, the Company did not spend the additional time and money to
undertake the extraordinary effort to apply all of the adjustments to the
appropriate interim fiscal quarter.
Moreover, the Company has not undertaken to spend additional time and money
preparing such quarterly information since the filing of the Form 10-K/A so
comparative quarterly financial information for fiscal 2000, as required by Rule
10-01 of Regulation S-X, has not been included in this Form 10-Q/A.
In preparing the accompanying unaudited Consolidated Financial Statements, the
Company recorded certain adjustments relating to periods prior to fiscal 2001,
which have been reflected in the operating results for the three months ended
November 30, 2000. These adjustments, which increased the net loss by
approximately $11 million, related primarily to certain environmental, severance
and other benefits liabilities, revenue and capitalized interest. The Company
does not believe the adjustments are material to revenue, operating loss or net
loss for fiscal 2000 and prior, or for the expected fiscal year 2001 annual
results.
-8-
INVENTORIES AND SUPPLIES
Inventories consist primarily of solvent, drums, supplies and repair parts and
are valued at the lower of cost or market, determined on a first-in, first-out
basis. The Company periodically reviews its inventories for obsolete or
unsaleable items and adjusts the carrying value to reflect estimated realizable
values.
ACCRUED OTHER LIABILITIES
Accrued other liabilities as of May 31, 2001, February 28, 2001 and November 30,
2000 included additional provisions for legal and professional fees incurred in
conjunction with the Company's bankruptcy filing and restatement of its fiscal
1997 to 1999 financial statements as well as preparation of the fiscal 2000 and
2001 financial statements.
RECENT ACCOUNTING DEVELOPMENTS
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a Company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. In June 1999, the
FASB issued SFAS No. 137, which deferred the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
No. 138, which amended certain guidance within SFAS No. 133. The Company
adopted SFAS No. 133, as amended, on September 1, 2000 and concluded that the
adoption of this statement did not materially impact the Company's financial
position, results of operations, or cash flows.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated or
completed after June 30, 2001. SFAS No. 141 also specifies criteria for
intangible assets acquired in a business combination to be recognized and
reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company is required to adopt the provisions of
SFAS No. 141 immediately for new transactions and SFAS No. 142 effective
September 1, 2002. Early adoption of SFAS No. 142 is permitted.
The Company's existing goodwill and intangible assets will continue to be
amortized prior to the adoption of SFAS No. 142. SFAS No. 141 requires that,
upon adoption of SFAS No. 142, the Company evaluate its existing intangible
assets and goodwill. Upon adoption of SFAS No. 142, the Company will be required
to reassess the useful lives and residual values of all recorded intangible
assets, and make any necessary amortization period adjustments by February 28,
2003. Additionally, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will be required to test the intangible
asset for impairment in accordance with the provisions of SFAS No. 142 by
February 28, 2003. Any impairment loss will be measured as of the date of
adoption and recognized as the cumulative effect of a change in accounting
principle.
As of September 1, 2002, the Company expects to have unamortized goodwill of
approximately $1.2 billion, which will be subject to the transition provisions
of SFAS Nos. 141 and 142. Amortization expense related to goodwill and other
intangible assets was $18.0 million, $17.8 million and $18.8 million for each of
the three months ended May 31, 2001, February 28, 2001 and November 30, 2000,
respectively. The Company believes it will likely incur a significant
write-down in the value of its intangible assets at the earlier of its emergence
from bankruptcy, as provided by SOP 90-7, or the adoption of SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 will require, upon adoption, that the Company
recognize as a component of asset cost, the fair value of a liability for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value can be made. Under this statement, the
liability is discounted and accretion expense is recognized using the
credit-adjusted risk-free interest rate in effect when the liability was
initially recognized. SFAS No. 143 is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The Company will be required to
adopt SFAS No. 143 on September 1, 2002. The Company believes its current
accounting practice for certain of its facilities will be impacted by SFAS No.
143, for which it is likely that significant additional assets and liabilities
will be recorded.
-9-
NOTE 3 - LIABILITIES SUBJECT TO COMPROMISE
The principal categories of claims classified as liabilities subject to
compromise under reorganization proceedings are identified below. All amounts
below may be subject to future adjustment depending on Bankruptcy Court action,
further developments with respect to disputed claims, or other events, including
the reconciliation of claims filed with the Bankruptcy Court to amounts included
in the Company's records. Additional pre-petition claims may arise from
rejection of additional executory contracts or unexpired leases by the Company.
Under a confirmed plan or plans of reorganization, all pre-petition claims may
be paid and discharged at amounts substantially less than their allowed amounts.
Recorded liabilities -- On a consolidated basis, recorded liabilities subject to
--------------------
compromise under Chapter 11 proceedings consisted of the following ($ in
thousands):
MAY 31, FEBRUARY 28, NOVEMBER 30, AUGUST 31,
2001 2001 2000 2000
----------- -------------- -------------- ------------
Accrued litigation $ 22,371 $ 22,371 $ 22,371 $ 19,891
Derivative liabilities 69,461 69,461 69,461 69,461
Trade accounts payable 113,196 119,342 122,138 126,454
Accrued insurance liability 15,106 15,278 15,511 18,019
Environmental liabilities 10,476 10,648 10,615 9,579
Accrued interest 67,177 67,177 67,279 67,147
Senior Credit Facility:
Term loans 1,137,750 1,137,750 1,137,750 1,137,750
Revolver 340,000 340,000 340,000 340,000
Adequate protection payments (18,088) (18,950) (18,950) (18,950)
Senior Subordinated Notes 325,000 325,000 325,000 325,000
Senior Notes 225,000 225,000 225,000 225,000
Promissory note 60,000 60,000 60,000 60,000
Industrial revenue bonds 80,820 80,820 90,900 90,900
Other 26,450 26,199 25,141 30,722
----------- -------------- -------------- ------------
$2,474,719 $ 2,480,096 $ 2,492,216 $ 2,500,973
=========== ============== ============== ============
During the first nine months of fiscal 2001, the Company has entered into
Bankruptcy Court approved settlements to pay approximately $9.9 million in
settlement of approximately $15.7 million of pre-petition liabilities related to
certain critical vendors. Extraordinary gains of $5.8 million have been reported
in the accompanying statements of operations as a result of these settlements
for the first nine months of fiscal 2001. Additionally, during the quarter ended
February 28, 2001, the Company entered into a Bankruptcy Court approved
settlement to repay $10.1 million of industrial revenue bonds, using restricted
funds held by trustees.
As a result of the bankruptcy filing, principal and interest payments may not be
made on pre-petition debt without Bankruptcy Court approval or until a
reorganization plan or plans defining the repayment terms has been confirmed.
The total interest on pre-petition debt that was not paid or charged to earnings
for the three month periods ended May 31, 2001, February 28, 2001 and November
30, 2000 was $60.3 million, $63.8 million and $65.6 million, respectively. Such
interest is not being accrued since it is not probable that it will be treated
as an allowed claim. The Bankruptcy Code generally disallows the payment of
interest that accrues post-petition with respect to unsecured or undersecured
claims.
Contingent liabilities -- Contingent liabilities as of the Chapter 11 filing
-----------------------
date are also subject to compromise. At May 31, 2001, the Company was
contingently liable to banks, financial institutions and others for
approximately $88.0 million for outstanding letters of credit and $0.8 million
of performance bonds securing performance of sales contracts and other
guarantees in the ordinary course of business related to pre-filing activity.
The Company is a party to litigation matters and claims that are normal in the
course of its operations. Generally, litigation related to "claims," as
defined by the Bankruptcy Code, is stayed. Also, as a normal part of their
operations, the Company's subsidiaries undertake certain contractual
obligations, warranties and guarantees in connection with the sale of products
or services. The outcome of the bankruptcy process on these matters cannot be
predicted with certainty.
-10-
NOTE 4 - REORGANIZATION ITEMS
Reorganization items as reported in the accompanying statements of operations
are comprised of income and expense items that were realized or incurred by the
Debtors as a direct result of the Company's decision to reorganize under Chapter
11. During the first nine months of fiscal 2001, the Company recorded
reorganization items as follows ($ in thousands):
THREE MONTHS ENDED
NINE MONTHS ----------------------------------------------
ENDED MAY 31, MAY 31, FEBRUARY 28, NOVEMBER 30,
2001 2001 2001 2000
--------------- -------------- -------------- --------------
Professional fees directly related to the filing $ 16,845 $ 2,407 $ 7,319 $ 7,119
Amortization of DIP financing costs 3,447 999 999 1,449
Interest earned on cash accumulated during Chapter 11 (3,764) (914) (1,261) (1,589)
Accrued retention plan costs 6,625 2,256 2,256 2,113
Other 1,528 719 501 308
--------------- -------------- -------------- --------------
$ 24,681 $ 5,467 $ 9,814 $ 9,400
=============== ============== ============== ==============
NOTE 5 - CLOSURE, POST-CLOSURE AND ENVIRONMENTAL REMEDIATION LIABILITIES
The Company records environmentally related accruals for both its landfill and
non-landfill operations.
Final closure and post-closure liabilities -- The Company has material financial
------------------------------------------
commitments for the costs associated with requirements of the United States
Environmental Protection Agency (the "EPA"), and the comparable regulatory
agency in Canada for the final closure and post-closure activities at the
majority of its facilities. In the United States, the final closure and
post-closure requirements are established by the EPA and the states, and are
generally implemented and applied on a state-by-state basis. Estimates for the
cost of these activities are developed by the Company's engineers, accountants
and external consultants, based on an evaluation of site-specific facts and
circumstances, including the Company's interpretation of current regulatory
requirements and proposed regulatory changes. Such estimates may change in the
future because of, among other factors, permit modifications and/or changes in
legislation or regulations. Final closure and post-closure plans are established
in accordance with the individual site permit requirements. Post-closure periods
are generally expected to be for a period of 30 years after landfill closure,
but may extend to a period of 100 years after landfill closure.
For purchased landfills, the Company assessed and recorded the present value of
the estimated closure and post-closure liability based upon the estimated final
closure and post-closure costs and the percentage of airspace utilized as of the
purchase date. Thereafter, the difference between the liability recorded at the
time of acquisition and the present value of total estimated final closure and
post-closure costs to be incurred is accrued prospectively on a units of
consumption basis over the remaining estimated useful life of the landfill.
During the first six months of fiscal 2001, the Company decided to cease
operations at two incinerators, a wastewater treatment facility and a
transportation facility. As a result of these closures, the Company recorded
closure and post-closure charges of approximately $44.8 million, which have been
reflected as provision for early facility closures in the accompanying unaudited
consolidated statements of operations. Asset impairment charges related to
these facilities in the amount of $30.7 million and $11.0 million were recorded
in fiscal years 2000 and 1998, respectively.
Remedial liabilities, including Superfund liabilities -- The Company
---------------------------------------------------------
periodically evaluates potential remedial liabilities at sites that it owns or
operates and at sites to which it has transported or disposed of waste,
including approximately 60 Superfund sites as of September 10, 2001. The
majority of the issues at Superfund sites relates to allegations that its
subsidiaries, or their predecessors, transported waste to the facilities in
question, often prior to the acquisition of such subsidiaries by the Company.
The Company periodically reviews and evaluates sites requiring remediation,
including Superfund sites, giving consideration to the nature (i.e.,
owner/operator, arranger, transporter or generator) and the extent (i.e., amount
and nature of waste hauled to the location, number of years of site operations
or other relevant factors) of the Company's alleged connection with the site,
the regulatory context surrounding the site, the accuracy and strength of
evidence connecting the Company to the location, the number, connection and
financial ability of other named and unnamed potentially responsible parties and
the nature and estimated cost of the likely remedy. Where the Company concludes
that it is probable that a liability has been incurred, provision is made in the
financial statements, based upon management's judgment and prior experience, for
the Company's best estimate of the liability. Such estimates, which are
inherently subject to change, are subsequently revised if and when additional
information becomes available.
Revisions to remediation reserve requirements may result in upward or downward
adjustments to income from operations in any given period. The Company believes
that its extensive experience in the environmental services business, as well as
its involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. It is reasonably possible that
-11-
technological, regulatory or enforcement developments, the results of
environmental studies or other factors could necessitate the recording of
additional liabilities and/or the revision of currently recorded liabilities
that could be material. The impact of such future events cannot be estimated at
the current time.
Discounted environmental liabilities - Where the Company believes that both the
-------------------------------------
amount of a particular environmental liability and the timing of the payments
are fixed or reliably determinable, its cost in current dollars is inflated
using estimates of future inflation rates until the expected time of payment,
then discounted to its present value using risk-free discount rates. Discount
and inflation rate assumptions used during the first nine months of fiscal 2001
have not changed significantly from those used during fiscal 2000.
The Company has recorded liabilities for closure, post-closure and remediation
obligations as of May 31, 2001, February 28, 2001, November 30, 2000 and August
31, 2000 as follows ($ in thousands):
MAY 31, FEBRUARY 28, NOVEMBER 30, AUGUST 31,
2001 2001 2000 2000
------------ ------------- ------------- -----------
Current portion of environmental liabilities $ 42,234 $ 39,160 $ 32,326 $ 41,122
Non-current portion of environmental liabilities 331,965 337,269 309,129 285,634
Liabilities subject to compromise (see Note 3) 10,476 10,648 10,615 9,579
------------ ------------- ------------- -----------
Total $ 384,675 $ 387,077 $ 352,070 $ 336,335
============ ============= ============= ===========
In the following table, reserves for environmental matters are classified as of
each balance sheet date based on their classification at May 31, 2001. Reserves
for closure, post-closure and remediation as of May 31, 2001, February 28, 2001,
November 30, 2000 and August 31, 2000, respectively, are as follows ($ in
thousands):
MAY 31, FEBRUARY 28, NOVEMBER 30, AUGUST 31,
2001 2001 2000 2000
------------- ------------- ------------- -----------
Landfill facilities:
Cell closure $ 24,623 $ 24,125 $ 24,381 $ 26,028
Final closure 17,747 17,759 17,679 17,732
Post-closure 66,074 64,378 62,251 59,198
Remediation 21,569 21,712 21,805 21,562
------------- ------------- ------------- -----------
130,013 127,974 126,116 124,520
Non-landfill facilities:
Remediation, closure and post-closure for
closed sites 156,457 159,074 124,820 112,499
Remediation (including Superfund) for open
Sites 98,205 100,029 101,134 99,316
------------- ------------- ------------- -----------
254,662 259,103 225,954 211,815
------------- ------------- ------------- -----------
$ 384,675 $ 387,077 $ 352,070 $ 336,335
============= ============= ============= ===========
All of the landfill facilities included in the table above are active as of May
31, 2001, except the Pinewood facility. Total closure and post-closure reserves
related to the Pinewood facility were $46.2 million, $46.0 million, $45.9
million and $44.6 million as of May 31, 2001, February 28, 2001, November 30,
2000 and August 31, 2000, respectively. At May 31, 2001, the Company has
recorded approximately $1.3 million for all known remediation matters at
Pinewood. The South Carolina Department of Health and Environmental Control has
required that an Environmental Impairment Fund ("EIF") be established for any
potential environmental cleanup and restoration of environmental impairment at
the Pinewood facility. With respect to the EIF funding requirement, no
environmental liabilities have been identified which require accrual.
-12-
NOTE 6 - LONG-TERM DEBT
DEBTOR-IN-POSSESSION (DIP) CREDIT AGREEMENT
On July 19, 2000, the Bankruptcy Court granted final approval of a one-year
$100.0 million Revolving Credit, Term Loan, and Guaranty Agreement underwritten
by the Toronto Dominion Bank as general administrative agent and the CIT Group,
Inc. as collateral agent (the "DIP Facility") with sublimits for letters of
credit of $35.0 million. The actual amount available under the DIP Facility is
subject to a borrowing base computation. Subsequently, the DIP Facility has
been amended on six occasions. The fifth amendment and agreement dated as of
August 6, 2001, increased the sublimits for letters of credit to $75.0 million.
Unless amended, the DIP Facility matures on the earlier of January 31, 2002 or
the effective date of the plan of reorganization.
Proceeds from the DIP Facility may be used to fund post-petition working capital
and for other general corporate purposes during the term of the DIP Facility and
to pay certain pre-petition claims, including those of critical vendors. The
$75.0 million sublimit on letters of credit is further stratified into
$40.0 million available for auto liability, general liability and worker's
compensation insurance for fiscal years 2001 and 2002; $15.0 million for
performance bonding; and $30.0 million for additional financial assurance with
respect to certain facilities.
By October 15, 2001, the Company has agreed to discuss modifications to the
DIP Facility to include financial covenants, including capital expenditure
limitations. As of September 10, 2001, no amounts had been drawn on the DIP
Facility and approximately $49.0 million of letters of credit had been issued.
In addition, the Company had approximately $41.0 million available under the DIP
Facility. The Company has agreed to increase, in stages, the amounts currently
posted by an additional $11.0 million through January 1, 2002. In addition, the
Company has agreed to post an additional $15.0 million of letters of credit by
September 30, 2001 with respect to existing financial assurance arrangements.
The Company is currently negotiating an increase in the DIP Facility in order to
accommodate these and other letter of credit requirements. The Debtors are
jointly and severally liable under the DIP Facility.
The DIP Facility benefits from superpriority claims status as provided for under
the Bankruptcy Code. A superpriority claim is senior to unsecured pre-petition
claims and all other administrative expenses incurred in a Chapter 11 case. As
security, the DIP Facility lenders were granted certain priority, perfected
liens on certain of the Debtors' assets. Pursuant to the final order approving
the DIP Facility, such liens are not subordinate to or pari passu with any other
lien or security interest. Pursuant to an agreement with the Company's new
Chief Executive Officer, obligations under his employment contract with the
Company are generally pari passu with liens pursuant to the DIP Facility.
Borrowings under the DIP Facility are priced at LIBOR plus 3% or prime plus 1%
depending on the nature of the borrowings. Letters of credit are priced at 3%
per annum (plus a fronting fee of 0.25% to the Agent) on the outstanding face
amount of each letter of credit. In addition, the Company pays a commitment fee
of 0.50% per annum on the unused amount of the DIP Facility, payable monthly in
arrears.
Subsequent to August 31, 2000, the Company failed to comply with certain
affirmative covenants within its DIP Facility, primarily related to providing
audited financial statements by specified dates, for which waivers of
non-compliance were received. In addition, subsequent to May 31, 2001, the
Company failed to provide certain preliminary plan of reorganization
information, for which waivers of non-compliance have been received.
CANADIAN BORROWINGS
Senior Credit Facility - The Canadian Borrower and the Company's Canadian
------------------------
subsidiaries participated in the Senior Credit Facility under which it
established and initially borrowed $70.0 million (USD) from a syndicate of five
banks. The term loan has a floating interest rate based on Canadian prime +
1.375% or Canadian Bankers Acceptance, ("CB/A") + 2.375%, at the Company's
discretion. As a result of the Company's filing for Chapter 11 bankruptcy
protection, its Canadian subsidiaries are in default of the loan conditions and
a notice of default has been issued by the banks making the loan payable on
demand. Accordingly, the outstanding loan balance is classified as current as of
May 31, 2001, February 28, 2001, November 30, 2000 and August 31, 2000. The
Company has ceased making principal and interest payments on the borrowings,
however, interest continues to accrue.
Canadian Operating Facility -- On April 3, 1998, the Canadian Borrower entered
-----------------------------
into a letter agreement with the Toronto Dominion Bank providing an operating
line of credit of up to $35.0 million (CDN). The letter agreement has a
floating interest rate based on Canadian prime plus 1.375% or CB/A plus 2.375%
for Canadian borrowings and prime plus 1.375% or LIBOR plus 2.375% for U.S.
borrowings, at the Company's discretion. On March 4, 2000, Toronto Dominion Bank
cancelled this letter agreement at which time the Canadian Borrower had
borrowings of $17.2 million and letters of credit totaling $3.8 million. The
full amount borrowed is in default due to breaches of loan covenants by the
local subsidiary. Accordingly, the outstanding loan balance is classified as
current as of May 31, 2001, February 28, 2001, November 30, 2000 and August 31,
2000. The Company has ceased making principal and interest payments on the
borrowings, however, interest continues to accrue.
-13-
NOTE 7 - COMMITMENTS AND CONTINGENCIES
FINANCIAL ASSURANCE OBLIGATIONS
As of September 10, 2001, the Company provides financial assurances by insurance
policies and performance bonds to the applicable regulatory authorities,
totaling approximately $500.0 million, in connection with closure, post-closure
and corrective action requirements of certain facility operating permits.
Letters of credit of approximately $77.0 million are posted to meet various
financial assurance requirements. The Company has agreed to post $15.0 million
of letters of credit by September 30, 2001 as additional collateral, to support
its existing financial assurance obligations and currently is obligated to
provide additional financial assurance with respect to certain of its sites by
September 30, 2001, although the EPA staff has agreed to an extended deadline of
October 18, 2001. The Company plans to further amend the terms of the DIP
Facility to provide additional letters of credit needed to support its financial
assurance obligations. There can be no assurance that such amendments will be
obtained. Restricted assets of $23.5 million are held in trust for landfill
closure, post-closure and environmental impairment (see Note 5). Insurance
policies with limits of approximately $92.0 million are held to cover accidental
bodily injury or property damage to third parties at certain of the Company's
facilities.
LEGAL PROCEEDINGS
Legal proceedings covering a wide range of matters are pending or threatened in
the United States and foreign jurisdictions against the Company. Various types
of claims are raised in these proceedings, including shareholder class action
and derivative lawsuits, product liability, financial assurance, environmental,
antitrust, tax, and breach of contract. Management consults with legal counsel
in estimating reserves and developing estimates of ranges of potential loss.
The Company has claims where management has assessed that an unfavorable outcome
is probable. The aggregate estimated potential loss on these claims ranges from
approximately $19.4 million to approximately $71.1 million and the Company has
recorded reserves of approximately $26.8 million, including $22.4 million
reflected as accrued litigation subject to compromise, representing its best
estimate of losses to be incurred.
The Company also has claims, excluding product liability cases, where management
has determined that an unfavorable outcome, while not probable, is reasonably
possible with an estimated range of loss of up to $1.9 billion. The Company has
not recorded reserves related to these claims.
The actual outcome from these claims could differ from these estimates. The
estimated ranges of loss discussed above do not include any amount related to
the Laidlaw Inc. proof of claim and Ville Mercier matters discussed below.
CHAPTER 11 FILING
As described in Note 1, the Debtors filed a voluntary petition for
reorganization under the Bankruptcy Code on June 9, 2000. Management of the
Company continues to operate the business of the Debtors as a
debtor-in-possession under Sections 1107 and 1108 of the Bankruptcy Code. In
this proceeding, the Debtors intend to propose and seek confirmation of a plan
or plans of reorganization. Pursuant to the automatic stay provision of Section
362 of the Bankruptcy Code, virtually all pending pre-petition litigation
against the Debtors is currently stayed.
Laidlaw Inc., a Canadian corporation, owns 43.5% of the outstanding common stock
of the Company and has various other arrangements and relationships with the
Company and its affiliates. On November 7, 2000, Laidlaw Inc., on behalf of
itself and its direct and indirect subsidiaries, filed a proof of claim in the
unliquidated amount of not less than $6.5 billion against the Company and its
affiliates in the Chapter 11 cases. The Laidlaw Inc. claims against the Company
and its affiliates fall into the following general categories: 1) claims for
indemnification; 2) contribution and reimbursement in connection with certain
litigation matters; 3) claims against the Company and its affiliates for
fraudulent misrepresentation, fraud, securities law violations, and related
causes of action; 4) insurance claims; 5) guaranty claims; 6) environmental
contribution claims; 7) tax reimbursement claims; and 8) additional
miscellaneous claims. On April 19, 2001, the Company, on behalf of itself and
its direct and indirect subsidiaries, filed with the Bankruptcy Court an
objection to the proof of claim filed by Laidlaw Inc.
As of August 31, 2001, proofs of claim in the approximate amount of $174.0
billion have been filed against the Company and its affiliates by among others,
secured creditors, unsecured creditors and security holders. The Company
believes that the amount of these claims that are in excess of the $2.5 billion
recorded as "Liabilities subject to compromise" in the accompanying Consolidated
Financial Statements as of May 31, 2001 are duplicative or without merit and
will not have a material effect on the Consolidated Financial Statements. The
Company is in the process of reviewing the proofs of claim and once this process
is complete, will file appropriate objections to the claims in the Bankruptcy
Court. As of August 31, 2001, the Company believes it has identified
approximately $170.8 billion of such claims which are duplicative or without
merit.
-14-
As a result of the Bankruptcy filing, the Company has not paid certain real
estate taxes and certain taxing authorities have asserted liens against the real
estate.
ACTION TO AVOID AND RECOVER TRANSFERS TO LAIDLAW INC.
On April 19, 2001, the Company filed an action against Laidlaw Inc. and its
affiliates, Laidlaw Transportation, Inc. and Laidlaw International Finance
Corporation (collectively the "Defendants"), in the Bankruptcy Court, Adv. Pro.
No. 01-01086 (PJW). This action seeks to recover a transfer of over $200
million in August 1999 (the "Transfer") made to or for the benefit of the
Defendants, holders of 43.5% of the Company's common stock. The Company asserts
that the Transfer is recoverable either as a preference payment to the extent
the Transfer retired pre-existing debt, or as a fraudulent transfer to the
extent the Transfer redeemed equity or was made with intent to hinder, delay or
defraud creditors. In the action, the Company seeks to recover the Transfer,
plus interest and costs occurring from the first date of demand, from the
Defendants.
EFFECT OF LAIDLAW'S FINANCIAL SITUATION ON THE COMPANY
On June 28, 2001, Laidlaw Inc. and five of its subsidiary holding companies,
Laidlaw Investments Ltd., Laidlaw International Finance Corporation, Laidlaw
One, Inc., Laidlaw Transportation, Inc. and Laidlaw USA, Inc. (collectively,
"Laidlaw") filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Western District
of New York. On the same day, Laidlaw Inc. and Laidlaw Investments Ltd. filed
cases under the Canada Companies' Creditors Arrangement Act (CCAA) in the
Ontario Superior Court of Justice in Toronto, Ontario. As a result of Laidlaw's
filings, claims and causes of action the Company may have against Laidlaw may be
subject to compromise in Laidlaw's Chapter 11 or CCAA proceedings.
MATTERS RELATED TO INVESTIGATION OF FINANCIAL RESULTS
As previously reported on March 6, 2000, the Company announced that it had
initiated an internal investigation of its previously reported financial results
and certain of its accounting policies and practices following receipt by the
Company's Board of Directors of information alleging possible accounting
irregularities that may have affected the previously reported financial results
of the Company since fiscal year 1998. The internal investigation was
subsequently expanded to include fiscal years 1998 and 1997. The Board
appointed a special committee, consisting of four directors who were then
independent outside directors of the Company, to conduct the internal
investigation (the "Special Committee (Investigation)"). The Special Committee
(Investigation) was later expanded to five directors, with the addition of one
additional independent outside director. The Special Committee (Investigation)
engaged the law firm Shaw Pittman, and Shaw Pittman engaged the accounting firm
Arthur Andersen LLP, to assist with the comprehensive investigation of these
matters. The Board placed Kenneth W. Winger, the Company's President and Chief
Executive Officer and a director, Michael J. Bragagnolo, Executive Vice
President and Chief Operating Officer, and Paul R. Humphreys, Senior Vice
President of Finance and Chief Financial Officer, on administrative leave on
March 5, 2000. The Company accepted the resignations of Messrs. Winger,
Bragagnolo, and Humphreys, as officers, in mid-May 2000 and of Mr. Winger, as a
director, on June 9, 2000, and subsequently terminated the employment of these
individuals in July 2000. On September 13, 2001, the Board of Directors
dissolved the Special Committee (Investigation) and established the Special
Committee (Conflicts of Interest in Litigation). The Special Committee
(Conflicts of Interest in Litigation) is authorized to manage all litigation
involving the Company and a member of the Board of Directors. The new committee
is comprised of Ronald A. Rittenmeyer, Kenneth K. Chalmers, Peter E. Lengyel and
David W. Wallace, each of whom was appointed to the Board subsequent to March 6,
2000 and is not personally involved in such litigation.
Beginning in March 2000, a number of lawsuits have been filed, on behalf of
various classes of investors against the Company, certain directors, former
directors, and others alleging, among other things, that the defendants made
false and misleading statements and violated certain federal securities laws.
Generally, the actions seek to recover damages in unspecified amounts that the
plaintiffs allegedly sustained by acquiring shares of the Company's common stock
or purchasing debt of the Company.
Shortly after the Company's March 6, 2000, announcement, Company representatives
met with officials of the Securities and Exchange Commission (the "Commission")
and advised the Commission of the alleged accounting irregularities and the
Company's internal investigation with respect to the allegations. On March 10,
2000, the Company was advised that the Commission had initiated a formal
investigation of the Company. Also on March 10, 2000, the Commission issued a
subpoena to the Company requiring the production of certain financial and
corporate documents relating to the preparation of Company financial statements,
reports and audits for fiscal years 1998, 1999 and portions of fiscal years 1997
and 2000 and for various other documents pertaining to and ancillary to the
alleged accounting irregularities. On May 24, 2000, the Commission issued a
second subpoena to the Company requiring additional documents relating to the
preparation of Company financial statements, reports and audits for fiscal years
1998, 1999 and portions of fiscal years 1997 and 2000. The Company has
responded to the subpoenas.
-15-
On or about March 22, 2000, Safety-Kleen Corp. was served with a subpoena issued
by a Grand Jury sitting in the United States District Court for the Southern
District of New York seeking production of the same documents described in the
Commission's original subpoena. The Company has responded to the subpoena.
The Company is cooperating with each of the investigations.
On March 5, 2001 a class action was commenced by investors who purchased or
acquired certain bonds issued by the California Pollution Control Financing
Authority on July 1, 1997, secured by an Indenture Agreement with the Company.
Plaintiffs seek to recover compensatory damages in the amount of approximately
$21.7 million and punitive damages in the amount of approximately $65.2 million
as well as related relief. Although the Company is not a party to this action,
certain of the individual defendants who are present or former officers or
directors of the Company, may make demands to be indemnified by the Company in
connection with the action.
FINANCIAL ASSURANCE ISSUES
Under the Resource Conservation and Recovery Act ("RCRA"), the Toxic Substances
Control Act ("TSCA"), and analogous state statutes, owners and operators of
certain waste management facilities are subject to financial assurance
requirements to ensure performance of their closure, post-closure and corrective
action obligations. The Company and certain of its subsidiaries as owners and
operators of RCRA and TSCA waste management facilities are subject to these
financial assurance requirements. Applicable regulations allow owners and
operators to provide financial assurance through a surety bond from an approved
surety. Under federal regulations and in virtually all states, to qualify as an
approved surety for the purposes of providing this type of financial assurance,
a surety company must be listed on Circular 570, which is maintained and
distributed publicly by the United States Department of the Treasury. In
compliance with the law, the Company and its subsidiaries procured surety bonds
issued by Frontier Insurance Company ("Frontier") as financial assurance at
numerous locations. Of the total amount of financial assurance required of the
Company and its affiliates under the environmental statutes, which approximated
$500 million as of May 31, 2000, slightly more than 50 percent of such
requirements were satisfied through assurances provided by Frontier in the form
of surety bonds.
On June 6, 2000, the U.S. Treasury issued notification that Frontier no longer
qualified as an acceptable surety on Federal bonds and had been removed from
Circular 570 on May 31, 2000. Accordingly, effective May 31, 2000, the Company
and its affiliates no longer had compliant financial assurance for many of their
facilities. Under applicable regulations, the Company and its affected
subsidiaries were required to obtain compliant financial assurance within sixty
days, and in some states, more quickly. Although the surety bonds issued by
Frontier are no longer qualified as acceptable federal bonds, they remain in
place and effective until replaced and the Company continues to pay the premiums
on the bonds.
Immediately following the June 6, 2000, announcement that Frontier no longer
qualified as an approved surety, the Company notified the EPA of its lack of
certified financial statements for fiscal years 1999, 1998 and 1997 and the
difficulties that certain alleged accounting irregularities would cause the
Company in attempting to obtain compliant financial assurance for its facilities
previously covered by the Frontier bonds. The Company and the EPA also
contacted states in which the non-compliant facilities were located and apprised
such states of these facts.
The Company and the EPA, acting on behalf of many, but not all affected states,
then engaged in negotiations resulting in the entry of a Consent Agreement and
Final Order ("CAFO"), which the Bankruptcy Court approved on October 17, 2000.
The main component of the CAFO is a compliance schedule for the Company and its
affected subsidiaries to obtain compliant financial assurance for the facilities
covered by the Frontier bonds. The CAFO also imposes a penalty on Safety-Kleen
Services, Inc. which, as delays have ensued in the replacement of Frontier, and
additional states have joined the CAFO (see discussion below), has grown to
approximately $0.4 million. Under the CAFO, the Company and its affected
subsidiaries were required to obtain compliant financial assurance as
expeditiously as possible, with the original deadline set at December 15, 2000.
The EPA reserved discretion to extend the deadline and did so on several
occasions. The current deadlines are July 31, 2001 for some facilities and
September 30, 2001 for the remaining facilities. The Company and its affected
subsidiaries currently are negotiating to extend the September 30, 2001
deadline. Although the EPA staff has agreed to an interim deadline of October
18, 2001, there can be no assurance that these negotiations will succeed.
On August 7, 2001, the Company obtained the collateral necessary to enable it to
replace Frontier Insurance Company ("Frontier") surety bonds at more than 100
facilities, pursuant to Bankruptcy Court approval obtained on July 11, 2001.
These facilities are subject to the July 31, 2001 deadline mentioned above.
Several states already have approved the replacement insurance policies, which
Indian Harbor Insurance Company has issued, and in those states the Company now
has financial assurance coverage that complies with applicable law. The Company
expects the remaining affected states and the EPA to approve the Indian Harbor
policies in the near future.
-16-
As noted, the Company also obtained an extension from the EPA, which the
Bankruptcy Court approved on May 16, 2001, until September 30, 2001, although
the EPA staff has agreed to an interim deadline of October 18, 2001 for certain
sites where Frontier provides financial assurance coverage. Most states that
have retained primary jurisdiction on this issue (see discussion below) have
indicated that they will accept these same deadlines. However, the Company has
not concluded agreements with all such states. The Company may seek further
extensions of time from the EPA and the states, but the CAFO does not obligate
the EPA and the states to grant such further extensions. Although the Company
has obtained a proposal for the replacement of the Frontier coverage, there can
be no assurance that the Company will be able to replace Frontier on a schedule
acceptable to the EPA and the states. As noted above, the Company anticipates
seeking Court approval for the replacement of Frontier at only some such
facilities and is seeking additional time from the EPA and the affected states
for the replacement of Frontier at other facilities, many of which already are
closed. Negotiations regarding the Company's request are underway. If these
negotiations do not succeed, the active facilities for which Frontier continues
to provide coverage (located primarily in Utah and Colorado) may be required to
close and the Company may be subject to further penalties.
If the Company's affected facilities are unable to secure compliant financial
assurance by the applicable deadline, the CAFO requires the Company and its
affected facilities to cease accepting waste and to initiate closure and
post-closure measures in accordance with their permits and applicable federal
and state requirements. Under the CAFO, the EPA reserves the right, in
consultation with an affected state, to determine in its discretion and in
accordance with applicable law, to modify these requirements. The Company's
lenders and the unsecured creditors committee retain the right to oppose through
the Bankruptcy Court any efforts by the EPA to require the Company to initiate
any such closure and post-closure measures.
The Company understands that, on August 27, 2001, Frontier entered a
rehabilitation proceeding that the New York Superintendent of Insurance will
administer pursuant to New York law. The Company further understands that in
such a proceeding, the Superintendent takes possession of the property of
Frontier and conducts its business. Because Frontier continues to provide
substantial amounts of financial assurance coverage at various facilities that
the Company and its subsidiaries own and operate, the Company is investigating
the extent to which, if at all, the New York rehabilitation proceeding will
impact the rights of the Company or the states or the EPA with respect to these
financial assurance surety bonds. The Company's preliminary understanding is
that the rehabilitation proceedings will not affect the validity of such bonds.
Pursuant to the terms of the CAFO, the Company and its affected subsidiaries
have agreed to a schedule by which the EPA and Participating States (as defined
below) may monitor the Company's efforts to obtain compliant financial
assurance. (A "Participating State" is a state with authority to enforce
financial assurance requirements, but which referred that authority to the EPA
for purposes of the CAFO.) This schedule includes required periodic reports to
the EPA and Participating States. The schedule also requires the Company to
provide audited restated financial statements for fiscal years 1997-1999 and the
audited statements for fiscal year 2000 by certain deadlines, which the Company
did not meet. Accordingly, the EPA may impose additional penalties on the
Company. In addition, the Company or certain of its subsidiaries will be
required to pay additional penalty amounts to some states that enter similar,
but separate, agreements with the Company and its appropriate subsidiaries
concerning the replacement of Frontier. The CAFO also required the Company and
its affected subsidiaries to retain an independent environmental auditor to
conduct an environmental management systems analysis and to conduct
environmental audits at certain facilities. This analysis and the audits have
been completed.
Under the CAFO, until such time as the affected facilities have obtained
compliant financial assurance, the Company and its affected facilities must not
seek to withdraw an existing irrevocable letter of credit, which is subject to
compromise (see Note 3), in the amount of $28.5 million from Toronto Dominion
Bank for the benefit of Frontier and shall take all steps necessary to keep
current the existing Frontier surety bonds.
In the CAFO, the Company and certain of its subsidiaries waived certain
arguments they otherwise could have asserted under the Bankruptcy Code with
respect to their financial assurance and certain other obligations under
environmental laws. As noted, the Company's lenders and the unsecured creditors
committee have reserved their right to assert certain of such arguments.
The Company and the EPA contacted states in which affected company facilities
were located and apprised these states of the terms of the CAFO. As noted,
several of these states referred the affected facilities' non-compliance to the
EPA for enforcement and joined in the CAFO. Certain other states (referred to
in the CAFO as the "Parallel Action States") have entered parallel agreements
with the Company and appropriate subsidiaries. Other states have entered or
have indicated an interest to enter agreements with affected facilities with
terms similar to the CAFO. If the Company and/or its subsidiaries or affiliates
were unable to conclude such an agreement in a particular state and were thus
required to close facilities in such state, the impact on the Company could be
material, depending upon the particular facility involved.
The State of South Carolina has indicated that it will not be a Participating
State or a Parallel Action State for facilities owned or operated by
Safety-Kleen (Pinewood), Inc. (see discussion below).
-17-
The State of Texas had set May 31, 2001 as the deadline for replacement of
Frontier coverage in that state. The Company and its subsidiaries did not meet
that deadline. On June 1, 2001, the State of Texas notified the Company and its
affected subsidiaries that it intended to (i) seek substantial penalties for the
failure to have compliant financial assurance; (ii) deny certain pending permit
renewal and modification applications; and (iii) revoke the registration of some
of the used oil facilities that the Company and its subsidiaries operate in
Texas. On August 21, 2001, the Bankruptcy Court approved a settlement agreement
between the Company and certain of its subsidiaries and the State of Texas with
respect to financial assurance (and other matters) in that state. Having now
obtained Court approval, the Company is implementing that settlement agreement
and now has compliant financial assurance where required at all the facilities
that it or its subsidiaries own and/or operate in Texas. The Company, through
one of its subsidiaries, has paid a penalty of $1.5 million in connection with
such settlement agreement.
As noted, Frontier does not provide all the coverage required by the Company and
its subsidiaries for closure, post-closure and corrective action activities.
Reliance Insurance Company of Illinois ("Reliance") has provided a significant
proportion of such coverages. The Company has received expressions of concern
from various states about the quality of this coverage and some states have
indicated that they do not consider Reliance policies to satisfy requirements of
state law. The Company understands that the Pennsylvania Insurance Department
has placed Reliance under an order of rehabilitation. The Company further
understands that Reliance Group Holdings Inc., with which Reliance apparently is
affiliated, has filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code. Prior to these developments, on December 15, 2000, the Company
received Bankruptcy Court approval to replace approximately $150 million of RCRA
financial assurance coverage underwritten by Reliance with new policies issued
by Indian Harbor Insurance Company, an A.M. Best A+ rated underwriter. The
effective date for this new financial assurance is October 15, 2000, and is
still subject to state acceptance of the substitution, which the Company expects
to receive.
GENERAL
The Company's hazardous and industrial waste services are continuously regulated
by federal, state, provincial and local laws enacted to regulate the discharge
of materials into the environment or primarily for the purpose of protecting the
environment. This inherent regulation of the Company necessarily results in its
frequently becoming a party to judicial or administrative proceedings involving
all levels of governmental authorities and other interested parties. The issues
that are involved generally relate to applications for permits and licenses by
the Company and their conformity with legal requirements and alleged violations
of existing permits and licenses. At September 14, 2001, subsidiaries of the
Company were involved in nine proceedings in which a governmental authority is a
party relating primarily to activities at waste treatment, storage and disposal
facilities where the Company believes sanctions involved in each instance may
exceed $100,000.
In the United States, CERCLA imposes financial liability on persons who are
responsible for the release of hazardous substances into the environment.
Present and past owners and operators of sites which release hazardous
substances, as well as generators, disposal arrangers and transporters of the
waste material, may be strictly, jointly and severally liable for remediation
costs and natural resources damage. At September 10, 2001, the Company had
identified 60 active federal or state-run CERCLA (Superfund) sites where the
Company is a potentially responsible party ("PRP"). The Company periodically
reviews its status with respect to each location and the extent of its alleged
contribution to the volume of waste at the location, the available evidence
connecting the Company to that location, and the financial soundness of other
PRPs at the location.
PRODUCTS LIABILITY CASES
From time to time, the Company is named as a defendant in various lawsuits
arising in the ordinary course of business, including proceedings wherein
persons claim personal injury resulting from the use of the Company's parts
cleaner equipment and/or cleaning products. A number of such legal proceedings
are currently pending in various courts and jurisdictions throughout the United
States. These proceedings typically involve allegations that the solvent used
in the Company's parts cleaner equipment contains contaminants and/or that the
Company's recycling process does not effectively remove the contaminants that
become entrained in the solvent during its use. In addition, certain claimants
assert that the Company failed to adequately warn the product user of potential
risks. In the aggregate, the plaintiffs' claims are in excess of $150 million.
The Company maintains insurance which it believes will provide coverage for
these claims over self-insured retentions and deductibles which, in the
aggregate, the Company believes are less than $10 million. The Company believes
that these claims are not meritorious and intends to vigorously defend itself
and the safety of its products against any and all such claims.
SAFETY-KLEEN (PINEWOOD), INC.
A subsidiary of the Company, Safety-Kleen (Pinewood), Inc. ("Pinewood"), owns
and operates a hazardous waste landfill near the Town of Pinewood in Sumter
County, South Carolina. By an order dated May 19, 1994 ("Order"), the South
Carolina Board of Health and Environmental Control ("Board") approved the
issuance by the Department of Health and Environmental Control ("DHEC") of a
RCRA Part B permit (the "Permit") for operation of the Pinewood Facility. The
Permit included provisions governing financial assurance and capacity for the
facility.
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The Order established Pinewood's total permitted capacity of hazardous and
non-hazardous waste to be 2,250 acre feet, including the amount of hazardous
waste disposed prior to the date of the Order.
South Carolina law requires that hazardous waste facilities provide evidence of
financial assurance for potential environmental cleanup and restoration in form
and amount to be determined by DHEC. The Order required Pinewood to establish
and maintain an Environmental Impairment Fund ("EIF") in the amount of $133
million in 1994 dollars by July 1, 2004 as financial assurance for potential
environmental cleanup and restoration of environmental impairment at the
Pinewood Facility. The total fund requirement amount is to be adjusted annually
by the Implicit Price Deflator for the Gross National Product as published by
the U.S. Department of Commerce. The EIF has two components: (1) the GSX
Contribution Fund, which was to be funded by Pinewood in annual cash payments
over a ten year period; and (2) the State Permitted Sites Fund, a legislatively
created fund derived from fees on waste disposal at the Pinewood Facility.
Under the Order, at the end of the 100-year post-closure care period, funding of
the GSX Contribution Fund will be subject to evaluation by an independent
arbitrator, who will determine what level of funding, if any, is still required.
The Company is entitled to seek recovery of any excess amount so determined.
Upon termination of the GSX Contribution Fund, any remaining trust assets would
revert to Pinewood. In 1993 and 1994, Pinewood paid approximately $15.5 million
cash into the GSX Contribution Fund, which has grown to approximately $20.1
million as of May 31, 2001.
In June 1995, the South Carolina legislature approved regulations (the
"Regulations") governing financial assurance for environmental cleanup and
restoration. The Regulations gave owner/operators of hazardous waste facilities
the right to choose from among five options for providing financial assurance.
The options included insurance, a payment bond, a letter of credit, a cash trust
fund and a corporate guaranty, subject to a financial soundness test.
From June 1995, under authority of the Regulations, Pinewood submitted financial
assurance for potential environmental cleanup and restoration by way of a
corporate guaranty by Laidlaw Inc. or insurance. Pinewood also left in place
the GSX Contribution Fund. On September 15, 1995, DHEC issued a declaratory
ruling finding that the Regulations were applicable to the financial assurance
requirements for Pinewood.
Pinewood appealed the May 19, 1994, DHEC order and the opposing parties appealed
the May 19, 1994, DHEC Order and the September 15, 1995, DHEC declaratory ruling
and the appeals were consolidated in the South Carolina Circuit Court in the
case captioned Laidlaw Environmental Services of South Carolina, Inc. et al.,
Petitioners vs. South Carolina Department of Health and Environmental Control
and South Carolina Board of Health and Environmental Control, Respondents -
Energy Research Foundation, et al., Intervenors, Docket Numbers C/A
94-CP-43-175, 94-CP-43-178, 94-CP-40-1412 and 94-CP-40-1859. The opposing
parties included Citizens Asking for a Safe Environment, Energy Research
Foundation, County of Sumter, Sierra Club, County of Clarendon, Senator Phil
Leventis, the South Carolina Department of Natural Resources and the South
Carolina Public Service Authority.
The South Carolina Court of Appeals issued a decision on April 4, 2000
(substituting for a January 17, 2000 ruling) ruling that (1) the Regulations
were invalid due to insufficient public notice during the promulgation procedure
and ordering Pinewood to immediately comply with the cash financial assurance
requirements of the May 19, 1994 Order; and (2) both non-hazardous and hazardous
waste count against Pinewood's capacity from the beginning of waste disposal,
thereby reducing the remaining permitted capacity.
On June 13, 2000, the South Carolina Supreme Court denied Pinewood's petition
for a writ of certiorari. On June 14, 2000, DHEC sent notice by letter to the
Pinewood Facility directing that Pinewood cease accepting waste for disposal in
30 days and submit a closure plan. DHEC based this directive on the decision of
the Court of Appeals that all non-hazardous waste disposed at Pinewood should be
counted against Pinewood's hazardous waste capacity limit and DHEC's resulting
conclusion that there is no remaining permitted capacity at Pinewood.
-19-
On June 22, 2000, DHEC notified Pinewood that the Court of Appeals' decision
vacated the Regulations and, therefore, Pinewood has the sole responsibility to
provide cash funding into the EIF in accordance with the May 19, 1994 Order.
The DHEC notice also directed Pinewood to provide information to DHEC within 15
days on how Pinewood would comply with the Order including payment into the GSX
Contribution Fund. As of May 31, 2001, there was approximately $20.1 million in
the GSX Contribution Fund and approximately $14.4 million in the State Permitted
Sites Fund. In 2001 dollars, the total EIF funding requirement is approximately
$150.1 million. To comply with the financial assurance provisions of the Order,
Pinewood would have to contribute the following payments (in 2001 dollars) as
follows ($ in thousands), subject to the automatic stay provisions discussed
below:
Amount due during fiscal year:
2001 $ 95,515
2002 14,450
2003 5,652
--------
Total $115,617
========
Additionally, on June 9, 2000 (on the same day, but after, Pinewood filed its
petition for bankruptcy protection in the United States District Court for the
District of Delaware), DHEC issued an Emergency Order finding that Frontier
Insurance Company (the issuer of the bonds used by Pinewood to provide for
financial assurance for the costs of closure and post-closure, and third party
liability) no longer met regulatory standards for bond issuers. Based on this
finding, DHEC ordered Pinewood to cease accepting waste for disposal by August
28, 2000, unless it could provide acceptable alternative financial assurance by
June 27, 2000.
On July 7, 2000, in the legal action captioned: In re: Safety-Kleen Corp., et
al. Debtor, Chapter 11 Cases, Delaware Bankruptcy Court, Case Nos. 00-203 (PJW),
Adversary Proceeding No. 00-698-Safety-Kleen (Pinewood), Inc. v. State of South
Carolina, et al., District of South Carolina (MJP) Case No. 3:00-2243-10,
Pinewood commenced legal proceedings in the United States District Court for the
District of Delaware challenging DHEC's June 9, 2000, Emergency Order and DHEC's
June 14 and June 22, 2000 notice letters. Pinewood sought to stay and/or enjoin
DHEC and the State of South Carolina from enforcement of these directives on the
grounds that the actions of DHEC were invalid under various provisions of the
United States Constitution, violated the automatic stay provision of the
Bankruptcy Code and/or should be enjoined under the equitable powers of the
Bankruptcy Court. As an alternative cause of action, Pinewood demanded that it
be compensated for the taking of its property without just compensation under
provisions of the Constitutions of the United States and the State of South
Carolina.
On July 12, 2000, the Delaware U.S. District Court issued an Order transferring
the case to the United States District Court for the District of South Carolina.
On August 25, 2000, the U.S. District Court for the District of South Carolina
issued rulings that (1) denied South Carolina's motion to dismiss Pinewood's
claims upon jurisdictional grounds and certified the issue for an immediate
appeal to the United States Court of Appeals for the Fourth Circuit; (2) held
that the June 9, 2000 Emergency Order was subject to the automatic stay
provisions of Section 362 of the Bankruptcy Code; and (3) denied Pinewood's
motion for a preliminary injunction with respect to the June 14, 2000 DHEC
letter.
The State of South Carolina and Pinewood appealed the District Court's ruling to
the United States Court of Appeals for the Fourth Circuit. No decision has been
issued by the Court of Appeals.
On September 25, 2000, Pinewood filed a request with DHEC for a permit
modification increasing landfill capacity. Pinewood also filed a request for
temporary authorization from DHEC to continue waste disposal at the facility
pending a DHEC decision on the requested permit modification.
At midnight on September 25, 2000, Pinewood suspended waste disposal in the
landfill pending action by DHEC and/or court decision allowing continued waste
disposal. On September 26, 2000, DHEC denied Pinewood's request for temporary
authorization for continued waste disposal at its Pinewood landfill.
The Stock Purchase Agreement among Rollins Environmental Services, Inc. (now
Safety-Kleen Corp.) and Laidlaw Inc. and Laidlaw Transportation, Inc. ("LTI")
dated February 6, 1997, provides that Laidlaw Inc. shall maintain, solely at its
expense, until the tenth anniversary of the Closing Date (May 15, 2007), such
financial mechanism as may be permitted by the relevant environmental laws to
provide the required financial assurance for potential environmental cleanup and
restoration at the Pinewood facility.
-20-
VILLE MERCIER FACILITY
On January 12, 1993, Safety-Kleen Services (Mercier) Ltd. ("the Subsidiary")
filed a declaratory judgement action (Safety-Kleen Services (Mercier) Ltd. v.
Attorney General of Quebec; Pierre Paradis, in his capacity as Minister of the
Environment of Quebec; Ville Mercier; and LaSalle Oil Carriers, Inc.) in the
Superior Court for the Province of Quebec, District of Montreal. The legal
proceeding seeks a court determination of the liability associated with the
contamination of former lagoons that were located on the Company's Ville Mercier
property. The Subsidiary asserts that it has no responsibility for the
contamination on the site. The Minister filed a Defense and Counterclaim in
which it asserts that the Subsidiary is responsible for the contamination,
should reimburse the Province of Quebec for past costs incurred in the amount of
CDN $17.4 million, and should be responsible for future remediation costs. The
legal proceedings are in the discovery stage.
The contamination on the Ville Mercier facility dates back to 1968, when an
unrelated company owned the property. In 1968, the Quebec government issued two
permits to the unrelated company to dump organic liquids into lagoons on the
Ville Mercier property. By 1972, groundwater contamination had been identified
and the Quebec government provided an alternate water supply to the municipality
of Ville Mercier. Also in 1972, the permit authorizing the dumping of liquids
was terminated and a permit to operate an organic liquids incinerator on the
property was issued. (The entity to which this permit was issued was indirectly
acquired by the Company in 1989.) In 1973, the Quebec government contracted
with the incinerator operator to incinerate the pumpable liquids in the lagoons.
In 1980, the incinerator operator removed, solidified and disposed of the
non-pumpable material from the lagoons in a secure cell and completed the
closure of the lagoons at its own expense. In 1983, the Quebec government
constructed and continues to operate a groundwater pumping and treatment
facility near the lagoons.
The Company believes that the Subsidiary is not the party responsible for the
lagoon and groundwater contamination and the Subsidiary has denied any
responsibility for the decontamination and restoration of the site. In November
1992, the Minister of the Environment ordered the Subsidiary to take all the
necessary measures to excavate, eliminate or treat all of the contaminated soils
and residues and to recover and treat all of the contaminated waters
resulting from the aforementioned measures. The Subsidiary responded by letter,
reiterating its position that it had no responsibility for the contamination
associated with the discharges of wastes into the former Mercier lagoons between
1968 and 1972 and proposing to submit the question of responsibility to the
Courts for determination as expeditiously as possible through the cooperation of
the parties' respective attorneys, resulting in the filing of the pending
action.
On or about February 9 and March 12, 1999, Ville Mercier and three neighboring
municipalities filed separate legal proceedings against the Subsidiary and
certain related companies together with certain former officers and directors,
as well as against the Government of Quebec. (Ville Mercier v. Safety-Kleen
Services (Mercier) Ltd., et. al.; Ville de Chateauguay v. Safety-Kleen Services
(Mercier) Ltd., et. al.; Municipality of Ste-Martine v. Safety-Kleen Services
(Mercier) Ltd., et. al.; and St.Paul de Chateauguay v. Safety-Kleen Services
(Mercier) Ltd., et. al.) The lawsuits assert that the defendants are jointly
and severally responsible for the contamination of groundwater in the region,
which Plaintiffs claim was caused by contamination from the former Ville Mercier
lagoons, and which they claim caused each municipality to incur additional costs
to supply drinking water for their citizens since the 1970's and early 1980's.
The four municipalities claim a total of CDN $1,595,000 as damages for
additional costs to obtain drinking water supplies and seek an injunctive order
to obligate the defendants to remediate the groundwater in the region. The
Subsidiary will continue to assert that it has no responsibility for the ground
water contamination in the region. The legal proceedings are in the discovery
stage.
Pursuant to the Stock Purchase Agreement, Laidlaw Inc. and LTI agreed to
indemnify and hold harmless the Company and its subsidiaries for any damages
resulting from the remediation of contaminated soils and water arising from the
former lagoon sites and the operation of the incinerator at Mercier, Quebec.
The indemnification is only to the extent that the aggregate cash expenditure
with respect to such damages exceeds in the aggregate (i) $1 million during such
year and (ii) since May 15, 1997, an amount equal to the product of $1 million
times the number of years that have elapsed since May 15, 1997; however, there
shall be no indemnification for any cash expenditures incurred more than six
years after May 15, 1997. As of September 14, 2001, the Company has not
incurred expenses for which it would be entitled to indemnification under the
Stock Purchase Agreement.
MARINE SHALE PROCESSORS
Beginning in the mid-1980's and continuing until July 1996, Marine Shale
Processors, Inc., located in Amelia, Louisiana ("Marine Shale"), operated a kiln
which incinerated waste producing a vitrified aggregate as a by-product. Marine
Shale contended that its operation recycled waste into a useful product, i.e.
vitrified aggregate, and therefore, was exempt from RCRA regulation and
permitting requirements as a Hazardous Waste Incinerator. The EPA contended
that Marine Shale was a "sham-recycler" subject to the regulation and permitting
requirements as a Hazardous Waste Incinerator under RCRA, that its vitrified
aggregate by-product is a hazardous waste, and that Marine Shale's continued
operation without required permits was illegal. Litigation between the EPA and
Marine Shale with respect to this issue began in 1990 and continued until July
1996 when Marine Shale was ordered to shut down its operations by U.S. Fifth
Circuit Court of Appeals.
-21-
During the course of its operation, Marine Shale produced thousands of tons of
aggregate, some of which was sold as fill material at various locations in the
vicinity of Amelia, Louisiana, but most of which is stockpiled on the premises
of the Marine Shale Facility. Moreover, as a result of past operations, soil
and groundwater contamination may exist on the Marine Shale site.
In November 1996, an option to buy Marine Shale was obtained by GTX, Inc. with
the intent to operate the facility as a permitted Hazardous Waste Incinerator.
Subsequently, Marine Shale, GTX and the EPA reached a settlement, including a
required cleanup of the aggregate and the facility, and the Louisiana Department
of Environmental Quality issued a draft permit to GTX for operation of the
Marine Shale facility as a RCRA-permitted Hazardous Waste Incinerator. Appeals
were taken by opposition parties and in October 1999, a Louisiana State Court
Judge ruled that the draft permit was improperly issued. GTX appealed this
decision and in October 2000, the Appeals Court reversed the lower court and
affirmed the permit issuance. The opposition parties filed applications for
Supervisory Writs with the Louisiana Supreme Court, and these applications were
denied in April 2001. There may be further legal challenges to the permit and
GTX expects to spend more than $60 million updating the facility in a year long
project prior to commercial operation of the facility. Therefore, it is
uncertain whether or when GTX will begin operation of the Marine Shale facility.
The Company was one of the largest customers of Marine Shale. In the event
Marine Shale does not operate, the potential exists for an EPA action requiring
cleanup of the Marine Shale site and the stockpiled aggregate under CERCLA. In
this event, Safety-Kleen Corp. would be exposed to potential financial liability
for remediation costs as a potentially responsible party under CERCLA.
The Stock Purchase Agreement provides that Laidlaw Inc. and LTI shall indemnify
Safety-Kleen Corp. for environmental liability arising with respect to the
treatment of waste at the Marine Shale facility. The indemnification is only to
the extent that the aggregate cash expenditure with respect to such damages
exceeds in the aggregate (i) $1 million during such year; and (ii) since May 15,
1997, an amount equal to the product of $1 million times the number of years
that have elapsed since May 15, 1997; however, there shall be no indemnification
for any cash expenditures by Safety-Kleen Corp. incurred more than six years
after May 15, 1997. As of September 14, 2001, the Company has not incurred
expenses for which it would be entitled to indemnification under the Stock
Purchase Agreement.
LAMBTON HAZARDOUS WASTE LANDFILL, ONTARIO, CANADA
On September 3, 1999, The Company's Lambton hazardous waste landfill facility in
Ontario, Canada, discovered an upwelling of water and natural gas in a disposal
cell designated as Sub-cell 3. While in the course of trying to determine the
source and cause of the upwelling, the Company informed the Ontario Ministry of
Environment and Energy ("MOE") of the situation. On November 2, 1999, MOE
issued a Field Order finding that the upward migration of water and methane gas
onto the landfill cell floor necessitated that the Company not utilize the newly
constructed Sub-cell 3 for waste disposal. On December 14, 1999 the MOE issued
a second Field Order requiring that Sub-cell 4, another newly constructed cell,
not be utilized for waste disposal after MOE officials observed what they
believed to be significant gas evolution from the bottom of the cell. On
December 21, 1999 independent technical experts and Company professionals
presented to MOE testimony and a report addressing MOE concerns. Following the
hearing and testimony, the MOE issued a third Field Order on December 24, 1999
revoking the two previous orders and allowing the utilization of Sub-cell 4 for
waste disposal under new conditions which included that, (1) no waste in
Sub-cell 4 was to be placed below an elevation of 182 meters above mean sea
level and (2) with respect to Sub-cell 3 the Company was to provide a report for
the approval of the Director of the MOE which would provide the plan for
identifying potential areas of gas and water venting, the proposed measures to
remediate all areas identified and further steps to protect the integrity of the
sub-cell. In accordance with the third Field Order, the Company submitted a
report to the MOE in February 2000 outlining its plan for present and future
site activities. The MOE issued an Order approving the remediation plan. In
accordance with the approved plan, physical remediation began in spring 2001.
The Order requires that the plan be fully implemented by the end of December
2001.
RAYGAR ENVIRONMENTAL SYSTEMS INTERNATIONAL LITIGATION
On August 7, 2000, RayGar Environmental Systems International, Inc. filed its
First Amended Complaint in the United States District for the Southern District
of Mississippi, Hattiesburg Division, Civil Action No. 2:9CV376PG, against
Laidlaw Inc., Laidlaw Investments, Ltd., LTI, Laidlaw Environmental Services,
Inc. (now Safety-Kleen Corp.), LES, Inc. (a wholly owned subsidiary of the
Company now known as Safety-Kleen Services, Inc.), Laidlaw Environmental
Services (U.S.), Inc. (a wholly owned subsidiary of the Company now known as
Safety-Kleen (U.S.), Inc.), Laidlaw OSCO Holdings, Inc. (a wholly owned
subsidiary of the Company now known as Safety-Kleen OSCO Holdings, Inc.),
Laidlaw International, and Safety-Kleen Corp. alleging a variety of Federal
antitrust violations and state law business torts. RayGar seeks damages it has
allegedly sustained as a result of the defendants' actions in an amount of not
less than $450 million in actual compensatory damages and not less than $950
million for punitive damages.
-22-
The dispute arises from an unsuccessful effort pursuant to an agreement between
RayGar and a Company subsidiary, to obtain RCRA and related permits for the
operation of a wastewater treatment facility in Pascagoula, Mississippi. This
lawsuit is in the very early stages of discovery. Laidlaw Inc., Laidlaw
Investments, Ltd., LTI and Laidlaw International have filed a motion to dismiss
the Complaint for lack of personal jurisdiction and for failure to state a claim
upon which relief can be granted. The action has not proceeded against the
Company and its subsidiaries due to the filing of their Chapter 11 bankruptcy
petitions on June 9, 2000.
FEDERATED HOLDINGS, INC. LITIGATION
On November 6, 2000, Federated Holdings, Inc. (FHI) filed a lawsuit against
Laidlaw Inc., Laidlaw Investments, Ltd., LTI, Laidlaw Environmental Services,
Inc. (now Safety-Kleen Corp.), LES, Inc. (a wholly owned subsidiary of the
Company now known as Safety-Kleen Services, Inc. and successor in interest to
Laidlaw Environmental Services (U.S.), Inc.), Laidlaw OSCO Holdings, Inc. (a
wholly owned subsidiary of the Company now known as Safety-Kleen OSCO Holdings,
Inc.), Laidlaw International, and Safety-Kleen Corp. in the United States
District Court for the Southern District of Mississippi, Hattiesburg Division,
Civil Action No. 2:00CV286 alleging a variety of Federal antitrust violations
and state law business torts. FHI seeks damages it has allegedly sustained as a
result of the Defendants' actions in an amount of not less than $200 million in
actual compensatory damages and not less than $250 million for punitive damages.
The dispute arises from an unsuccessful effort pursuant to an agreement between
FHI and a Company subsidiary to obtain RCRA and related permits for the
operation of a hazardous waste landfill in Noxubee County, Mississippi. This
lawsuit is in the very early stages of discovery. Laidlaw Inc., Laidlaw
Investments, Ltd., LTI and Laidlaw International have filed a motion to dismiss
the Complaint for lack of personal jurisdiction and for failure to state a claim
upon which relief can be granted. The action has not proceeded against the
Company and its subsidiaries due to the filing of their Chapter 11 bankruptcy
petitions on June 9, 2000.
HUDSON COUNTY IMPROVEMENT AUTHORITY LITIGATION
In July 1999, Hudson County Improvement Authority ("HCIA") filed suit in the
Superior Court, Hudson County, New Jersey against SK Services (East), L.C. ("SK
Services East") (an indirect wholly owned Company subsidiary), Safety-Kleen
Corp., American Home Assurance Company, and Hackensack Meadowlands Development
Commission. An Amended Complaint was filed on August 18, 1999, in which HCIA
sought damages and injunctive relief evicting SK Services East from a 175 acre
site in Kearny, New Jersey owned by HCIA. SK Services East had been using the
site pursuant to an Agreement and Lease dated as of February 2, 1997 for the
processing and disposal of processed dredge material. HCIA alleged that certain
conditions precedent to SK Services East's right to continue operations at the
site had not occurred, that as a result the Agreement and Lease had
automatically terminated, that SK Services East owed HCIA some $11 million in
back rent, and that SK Services East was obligated to finish the remediation of
the site and its preparation for development as a commercial property. In
January 2000, the Court granted HCIA summary judgment on its motion to declare
the Agreement and Lease null and void as a result of the failure of the
conditions precedent. This ruling effectively terminated the relationship
between SK Services East and HCIA leaving only the issue of the determination of
the rights and responsibilities of the parties in the unwinding of the
relationship. In May 2000, HCIA filed for summary judgment seeking an order
declaring that SK Services East is obligated to complete all measures required
under the Remedial Action Work Plan for the site. SK Services East filed a
brief opposing the motion. In June 2000, HCIA withdrew its pending motion, with
the Court's understanding that the motion could be re-filed if the automatic
stay in connection with the Company's Chapter 11 bankruptcy protection is
lifted. On July 11, 2001 the Bankruptcy Court entered an Order authorizing the
Company's rejection of the executory contracts and the unexpired lease to which
SK Services East and HCIA were parties. The Order does not limit, abridge, or
otherwise effect HCIA's right to assert and seek remedies regarding its pre-
and/or postpetition claims against the Company for damages and other relief.
Also on July 11, 2001 the Bankruptcy Court granted HCIA's motion to modify the
Bankruptcy Code's automatic stay, and entered an Order permitting the Superior
Court of New Jersey, Hudson County, to make its final determination regarding SK
Services East contractual obligations under the Agreement and Lease. The
Superior Court has scheduled oral argument on this matter for September 2001.
ECDC ENVIRONMENTAL, L.C. CLAIM
Certain subsidiaries of the Company entered into a long-term contract (the "4070
Contract") with General Motors Corporation ("GM") to manage certain GM waste
products. One requirement of the 4070 Contract was to provide a dedicated cell
for GM waste products at a landfill facility owned by ECDC Environmental, L.C.
("ECDC"), which was then a Company subsidiary. In November 1997, the Company
sold its interest in ECDC to an affiliate of Allied Waste Industries, Inc.
Pursuant to the sale, ECDC, the Company, and certain Company subsidiaries
entered the GM Waste Disposal Agreement (the "WDA") governing the obligations of
the parties with respect to the continued management of GM waste in the
dedicated cell at the ECDC landfill.
By letter dated May 15, 2000, the Company was notified of GM's intent to
terminate the 4070 Contract for default, effective December 31, 2000. Under the
WDA, default by the Company and/or its subsidiaries under the 4070 Contract
would have obligated the Company and/or its affected subsidiaries to pay certain
costs, rebates and damages to ECDC in accordance with the terms of the WDA.
The Company and certain of its wholly owned subsidiaries, including those
subsidiaries which were parties to the 4070 Contract and the WDA, filed for
protection under Chapter 11 of the Bankruptcy Code. In anticipation of the
Company's rejection of the 4070 Contract pursuant to 11 U.S.C. Sec.365, on
-23-
October 30, 2000, ECDC filed a claim for not less than approximately $11.0
million plus other and unspecified additional damages for Company's breach of
the 4070 and WDA contracts. Subsequently, the Bankruptcy Court granted the
motion by the Company and certain of its subsidiaries, which were parties to the
4070 Contract and the WDA, to reject both the 4070 Contract and the WDA,
effective December 1, 2000.
BRYSON ADAMS LITIGATION
In 1996, a lawsuit was filed in the federal court in Baton Rouge, Louisiana,
under the caption Carleton Gene Rineheart et al. v. CIBA-GEIGY Corporation, et
al., U.S. District Court for the Middle District of Louisiana, CA #96-517,
Section B(2). In October 1999, a substantially similar lawsuit was filed in
state court in Lafayette Parish, Louisiana, under the caption of Bryson Adams,
et al. v. Environmental Purification Advancement Corporation, et al., Civil
Action No. 994879, Fifteenth Judicial District Court, Parish of Lafayette, State
of Louisiana. In December 2000, these two cases were consolidated with Adams
designated as the lead case. In this consolidated litigation, plaintiffs are
suing for alleged personal injury and/or property damage arising out of the
operation of certain waste disposal facilities near Bayou Sorrel, Louisiana.
The initial Bryson Adams lawsuit was filed on behalf of 320 plaintiffs against
191 defendants.
A Company subsidiary which owns and operates a hazardous waste deep injection
well in Bayou Sorrel, Louisiana is named as a defendant. A different Company
subsidiary is also named as a defendant for its alleged role as a generator and
arranger for disposal or treatment of hazardous waste at certain of the disposal
facilities which are named in the litigation. It is alleged that the Company
subsidiary was the operator of the injection well in question from 1974 through
the present. In addition to the claims asserted by the plaintiffs, there is the
potential that the customers of the injection well, who are also defendants, may
assert claims for indemnification against the Company. The action has not
proceeded against the Company subsidiaries due to the filing of their Chapter 11
Bankruptcy petition on June 9, 2000.
FUSRAP WASTE DISPOSAL AT SAFETY-KLEEN (BUTTONWILLOW), INC.
Safety-Kleen (Buttonwillow), Inc., a subsidiary of the Company owns and operates
a hazardous waste landfill in Kern County California. The facility accepted and
disposed of construction debris that originated at a site in New York which was
part of the federal Formerly Utilized Sites Remediation Program (FUSRAP). The
construction debris was low-activity radioactive waste and was shipped to the
site by the U.S. Army Corps of Engineers (USACE). FUSRAP was created in the
mid-1970s in an attempt to manage various sites around the country contaminated
with residual radioactivity from activities conducted by the Atomic Energy
Commission and United States military during World War II. The California
Department of Health Services (DHS) has claimed that the facility did not
lawfully accept the waste. Both DHS and the Department of Toxic Substances
Control (DTSC) have filed claims in the Company's Bankruptcy proceedings
preserving the right of the agencies to seek penalties and possibly compel
removal of the material should an ongoing investigation reveal the subsidiary
acted improperly. DHS claimed penalties in the amount of $0.6 million and
potential removal costs of $15.5 million should DHS have to oversee and/or
conduct the removal. The proof of claim filed by the DTSC was in the amount of
$15.0 million for potential penalties plus an unspecified amount for any costs
the DTSC may incur should the subsidiary be forced to remove the waste. The
subsidiary and the USACE contend the material was properly disposed of and will
vigorously resist the imposition of any penalties or any efforts to require that
waste be removed.
NOTE 8- SEGMENT INFORMATION
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Performance of the segments is
evaluated on several factors, of which the primary financial measure is
operating income before depreciation and amortization and provision for early
facility closures ("EBITDA"). Transactions between the segments are accounted
for at the Company's estimate of fair value based on similar transactions with
outside customers. In general, SFAS No. 131 requires that business entities
report selected information about operating segments in a manner consistent with
that used for internal management reporting.
The Company is organized along its two primary revenue producing business
activities - Branch Sales and Service and Chemical Services. Branch Sales and
Service provides various services to both industrial and commercial customers as
well as governmental entities. These services include, but are not limited to,
parts cleaner services and hazardous and non-hazardous waste collection.
Chemical Services involves the treatment, recycling and destruction of hazardous
and non-hazardous waste at Company owned and operated facilities. The Company
operates thermal destruction incinerators, landfills and wastewater treatment
facilities. Each segment is managed independently from the other and reports
separately to senior management.
The Company currently classifies as "Other" in its segment reporting the cost of
certain Company-wide (corporate) functions and services consisting primarily of
legal, finance and information technology. In addition, this category includes
the incremental cost of the Company's efforts related to its internal accounting
review and the various investigations of its financial results. As discussed in
Note 4, other components of income and expense directly attributable to the
Chapter 11 Cases are classified as "Reorganization items" in the consolidated
statements of operations.
-24-
Management believes that the unaudited financial results for segment reporting
purposes for the first three quarters of fiscal 2001 are reasonable and is in
accordance with SFAS No. 131.
The table below reflects selected segment information relating to the Company's
operations ($ in thousands):
BRANCH SALES CHEMICAL
AND SERVICE SERVICES OTHER TOTAL
-------------- ------------ ------------- ------------
Nine Months Ended May 31, 2001
------------------------------
External revenue $ 750,983 $ 370,374 $ 50 $ 1,121,407
Intersegment revenue 7,888 40,276 (48,164) --
Depreciation and amortization 79,823 22,653 1,927 104,403
Provision for early facility closures -- 44,773 -- 44,773
EBITDA 23,892 14,151 (48,838) (10,795)
Three Months Ended May 31, 2001
-------------------------------
External revenue $ 251,311 $ 123,254 $ 50 $ 374,615
Intersegment revenue 2,671 12,187 (14,858) --
Depreciation and amortization 26,441 6,835 584 33,860
Provision for early facility closures -- -- -- --
EBITDA (2,525) 9,235 (18,737) (12,027)
Three Months Ended February 28, 2001
------------------------------------
External revenue $ 245,480 $ 124,395 $ -- $ 369,875
Intersegment revenue 2,497 11,774 (14,271) --
Depreciation and amortization 26,804 7,370 509 34,683
Provision for early facility closures -- 35,297 -- 35,297
EBITDA 13,394 6,489 (16,900) 2,983
Three Months Ended November 30, 2000
------------------------------------
External revenue $ 254,192 $ 122,725 $ -- $ 376,917
Intersegment revenue 2,720 16,315 (19,035) --
Depreciation and amortization 26,578 8,448 834 35,860
Provision for early facility closures -- 9,476 -- 9,476
EBITDA 13,023 (1,573) (13,201) (1,751)
External revenue and intersegment revenue related to products and services
within the Branch Sales and Service segment is shown in the table below ($ in
thousands):
THREE MONTHS ENDED
NINE MONTHS ---------------------------------------------
ENDED MAY 31, FEBRUARY 28, NOVEMBER 30,
MAY 31, 2001 2001 2001 2000
------------- --------------- ------------- -------------
Parts Cleaner Services $ 246,548 $ 80,039 $ 83,096 $ 83,413
Paint Refinishing Services 44,102 14,628 14,168 15,306
Imaging Services 31,546 10,826 10,686 10,034
Dry Cleaner Services 14,384 4,900 4,922 4,562
Vacuum Truck Services 40,481 13,364 12,695 14,422
Integrated Customer Compliance Services 13,542 4,577 4,218 4,747
Industrial Waste Collection Services 168,518 57,079 55,792 55,647
Used Oil Collection Services 48,275 15,974 14,737 17,564
Oil Re-Refining 114,225 38,786 35,970 39,469
Automotive Recovery Services 20,266 7,072 6,814 6,380
Additional services 16,984 6,737 4,879 5,368
------------- --------------- ------------- -------------
Total external and intersegment revenue $ 758,871 $ 253,982 $ 247,977 $ 256,912
============= =============== ============= =============
-25-
External revenue and intersegment revenue related to products and services
within the Chemical Services segment is shown in the table below ($ in
thousands):
THREE MONTHS ENDED
NINE MONTHS ------------------------------------------------
ENDED MAY 31, FEBRUARY 28, NOVEMBER 30,
MAY 31, 2001 2001 2001 2000
------------------- ---------------- -------------- --------------
Incineration $ 106,422 $ 35,303 $ 34,821 $ 36,298
Landfill 67,461 23,503 22,464 21,494
Service Center 200,805 65,701 67,031 68,073
Additional services 67,652 23,061 20,939 23,652
Transportation 33,347 7,784 11,240 14,323
Wastewater Treatment 30,200 10,158 9,682 10,360
------------------- ---------------- -------------- --------------
505,887 165,510 166,177 174,200
Less: Intrasegment revenue (95,237) (30,069) (30,008) (35,160)
------------------- ---------------- -------------- --------------
Total external and intersegment revenue $ 410,650 $ 135,441 $ 136,169 $ 139,040
=================== ================ ============== ==============
The table below provides a reconciliation of segment information to total
consolidated information ($ in thousands):
THREE MONTHS ENDED
NINE MONTHS -------------------------------------------------
ENDED MAY 31, FEBRUARY 28, NOVEMBER 30,
MAY 31, 2001 2001 2001 2000
-------------- --------------- --------------- ---------------
EBITDA $ (10,795) $ (12,027) $ 2,983 $ (1,751)
Depreciation and amortization (104,403) (33,860) (34,683) (35,860)
Provision for early facility closures (44,773) -- (35,297) (9,476)
-------------- --------------- --------------- ---------------
Operating loss $ (159,971) $ (45,887) $ (66,997) $ (47,087)
============== =============== =============== ===============
NOTE 9 - CONDENSED COMBINED FINANCIAL STATEMENTS OF ENTITIES IN BANKRUPTCY
The following condensed combined financial statements are presented in
accordance with SOP 90-7:
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED MAY 31, 2001
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
------------------------------------------- ---------------- ----------------- --------------- -------------
Revenues $ 1,036,581 $ 153,245 $ (68,419) $ 1,121,407
Operating expenses 1,207,613 142,184 (68,419) 1,281,378
---------------- ----------------- -------------- --------------
Operating income (loss) (171,032) 11,061 -- (159,971)
Interest (expense) income, net 1,150 (5,575) -- (4,425)
Other income (expense) (210) 99 -- (111)
Equity in earnings of associated companies 3,048 -- (3,048) --
---------------- ----------------- -------------- --------------
Income (loss) before reorganization items,
income taxes and minority interests (167,044) 5,585 (3,048) (164,507)
Reorganization items (24,681) -- -- (24,681)
Income tax expense -- (2,419) -- (2,419)
---------------- ----------------- -------------- --------------
Income (loss) before minority interests (191,725) 3,166 (3,048) (191,607)
Minority interests -- (118) -- (118)
---------------- ----------------- -------------- --------------
Income (loss) before extraordinary item (191,725) 3,048 (3,048) (191,725)
Extraordinary item, net of tax
(early extinguishment of debt) 5,787 -- -- 5,787
---------------- ----------------- -------------- --------------
Net income (loss) $ (185,938) $ 3,048 $ (3,048) $ (185,938)
================ ================= ============== ==============
-26-
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF MAY 31, 2001
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
----------------------------------- ---------------- ---------------- -------------- --------------
ASSETS:
Current assets $ 441,237 $ 88,732 $ -- $ 529,969
Intercompany receivables 78,531 -- (78,531) --
Property, plant and equipment, net 628,123 103,327 -- 731,450
Investment in subsidiaries 9,992 -- (9,992) --
Intangible assets, net 1,670,395 71,927 -- 1,742,322
Other assets 25,668 1,895 -- 27,563
---------------- ---------------- -------------- --------------
$ 2,853,946 $ 265,881 $ (88,523) $ 3,031,304
================ ================ ============== ==============
LIABILITIES:
Current liabilities $ 313,931 $ 95,549 $ -- $ 409,480
Intercompany payables -- 78,531 (78,531) --
Non-current liabilities 366,593 81,538 -- 448,131
Liabilities subject to compromise 2,474,719 -- -- 2,474,719
Minority interests 1,144 271 -- 1,415
STOCKHOLDERS' EQUITY (DEFICIT) (302,441) 9,992 (9,992) (302,441)
---------------- ---------------- -------------- --------------
$ 2,853,946 $ 265,881 $ (88,523) $ 3,031,304
================ ================ ============== ==============
-27-
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MAY 31, 2001
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS TOTALS
------------------------------------------------------- ---------------- ----------------- --------------
Net cash provided by operating activities $ 44,713 $ 32,371 $ 77,084
---------------- ----------------- --------------
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment 3,507 435 3,942
Purchases of property, plant and equipment (39,902) (4,981) (44,883)
Decrease in other assets 8,407 -- 8,407
---------------- ----------------- --------------
Net cash used in investing activities (27,988) (4,546) (32,534)
---------------- ----------------- --------------
Cash flows from financing activities:
Principal payments on pre-petition debt (10,080) -- (10,080)
Change in intercompany accounts (4,847) 4,847 --
---------------- ----------------- --------------
Net cash (used in) provided by financing activities (14,927) 4,847 (10,080)
---------------- ----------------- --------------
Effect of exchange rate changes on cash (1,907) 986 (921)
---------------- ----------------- --------------
Net increase (decrease) in cash and cash equivalents (109) 33,658 33,549
Cash and cash equivalents at:
Beginning of period 74,234 10,048 84,282
---------------- ----------------- --------------
End of period $ 74,125 $ 43,706 $ 117,831
================ ================= ==============
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 31, 2001
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
------------------------------------------- ---------------- ----------------- -------------- --------------
Revenues $ 345,693 $ 50,813 $ (21,891) $ 374,615
Operating expenses 397,971 44,422 (21,891) 420,502
---------------- ----------------- -------------- --------------
Operating income (loss) (52,278) 6,391 -- (45,887)
Interest (expense) income, net 580 (1,455) -- (875)
Other income (expense) (49) 497 -- 448
Equity in earnings of associated companies 3,373 -- (3,373) --
---------------- ----------------- -------------- --------------
Income (loss) before reorganization items,
income taxes and minority interests (48,374) 5,433 (3,373) (46,314)
Reorganization items (5,467) -- -- (5,467)
Income tax expense -- (2,041) -- (2,041)
---------------- ----------------- -------------- --------------
Income (loss) before minority interests (53,841) 3,392 (3,373) (53,822)
Minority interests (1) (19) -- (20)
Income (loss) before ---------------- ----------------- -------------- --------------
extraordinary item (53,842) 3,373 (3,373) (53,842)
Extraordinary item, net of tax
(early extinguishment of debt) 3,309 -- -- 3,309
---------------- ----------------- -------------- --------------
Net income (loss) $ (50,533) $ 3,373 $ (3,373) $ (50,533)
================ ================= ============== ==============
-28-
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 2001
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
------------------------------------------- ---------------- ----------------- -------------- --------------
Revenues $ 341,345 $ 49,054 $ (20,524) $ 369,875
Operating expenses 413,741 43,655 (20,524) 436,872
---------------- ----------------- -------------- --------------
Operating income (loss) (72,396) 5,399 -- (66,997)
Interest (expense) income, net 375 (1,665) -- (1,290)
Other income (expense) 21 (350) -- (329)
Equity in earnings of associated companies 2,282 -- (2,282) --
---------------- ----------------- -------------- --------------
Income (loss) before reorganization items,
income taxes and minority interests (69,718) 3,384 (2,282) (68,616)
Reorganization items (9,814) -- -- (9,814)
Income tax expense -- (1,048) -- (1,048)
---------------- ----------------- -------------- --------------
Income (loss) before minority interests (79,532) 2,336 (2,282) (79,478)
Minority interests 1 (54) -- (53)
---------------- ----------------- -------------- --------------
Income (loss) before extraordinary item (79,531) 2,282 (2,282) (79,531)
Extraordinary item, net of tax (early
extinguishment of debt) 1,793 -- -- 1,793
---------------- ----------------- -------------- --------------
Net income (loss) $ (77,738) $ 2,282 $ (2,282) $ (77,738)
================ ================= ============== ==============
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 28, 2001
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
----------------------------------- ---------------- ---------------- -------------- --------------
ASSETS:
Current assets $ 468,624 $ 79,001 $ -- $ 547,625
Intercompany receivables 74,440 -- (74,440) --
Property, plant and equipment, net 633,382 103,513 -- 736,895
Investment in subsidiaries 6,946 -- (6,946) --
Intangible assets, net 1,686,511 73,763 -- 1,760,274
Other assets 25,754 1,978 -- 27,732
---------------- ---------------- -------------- --------------
$ 2,895,657 $ 258,255 $ (81,386) $ 3,072,526
================ ================ ============== ==============
LIABILITIES:
Current liabilities $ 297,577 $ 94,215 $ -- $ 391,792
Intercompany payables -- 74,440 (74,440) --
Non-current liabilities 368,573 82,403 -- 450,976
Liabilities subject to compromise 2,480,096 -- -- 2,480,096
Minority interests 1,144 251 -- 1,395
STOCKHOLDERS' EQUITY (DEFICIT) (251,733) 6,946 (6,946) (251,733)
---------------- ---------------- -------------- --------------
$ 2,895,657 $ 258,255 $ (81,386) $ 3,072,526
================ ================ ============== ==============
-29-
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED FEBRUARY 28, 2001
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS TOTALS
------------------------------------------------------- ---------------- ---------------- ---------------
Net cash provided by operating activities $ 20,822 $ 29,042 $ 49,864
---------------- ----------------- --------------
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment 2,774 447 3,221
Purchases of property, plant and equipment (22,490) (3,678) (26,168)
Decrease in other assets 9,168 -- 9,168
---------------- ----------------- --------------
Net cash used in investing activities (10,548) (3,231) (13,779)
---------------- ----------------- --------------
Cash flows from financing activities:
Principal payments of pre-petition debt (10,080) -- (10,080)
Change in intercompany accounts (921) 921 --
---------------- ----------------- --------------
Net cash (used in) provided by financing activities (11,001) 921 (10,080)
---------------- ----------------- --------------
Effect of exchange rate changes on cash (1,580) 944 (636)
---------------- ----------------- --------------
Net increase (decrease) in cash and cash equivalents (2,307) 27,676 25,369
Cash and cash equivalents at:
Beginning of period 74,234 10,048 84,282
---------------- ----------------- --------------
End of period $ 71,927 $ 37,724 $ 109,651
================ ================= ==============
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 2000
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
------------------------------------------- ---------------- ----------------- -------------- --------------
Revenues $ 349,543 $ 53,378 $ (26,004) $ 376,917
Operating expenses 395,901 54,107 (26,004) 424,004
---------------- ----------------- -------------- --------------
Operating loss (46,358) (729) -- (47,087)
Interest (expense) income, net 195 (2,455) -- (2,260)
Other income (expense) (182) (48) -- (230)
Equity in earnings of associated companies (2,607) -- 2,607 --
---------------- ----------------- -------------- --------------
Income (loss) before reorganization items,
income taxes and minority interests (48,952) (3,232) 2,607 (49,577)
Reorganization items (9,400) -- -- (9,400)
Income tax benefit -- 670 -- 670
---------------- ----------------- -------------- --------------
Income (loss) before minority interest (58,352) (2,562) 2,607 (58,307)
Minority interests -- (45) -- (45)
---------------- ----------------- -------------- --------------
Income (loss) before extraordinary item (58,352) (2,607) 2,607 (58,352)
Extraordinary item, net of tax (early
extinguishment of debt) 685 -- -- 685
---------------- ----------------- -------------- --------------
Net income (loss) $ (57,667) $ (2,607) $ 2,607 $ (57,667)
================ ================= ============== ==============
-30-
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 30, 2000
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS ELIMINATIONS TOTALS
----------------------------------- ---------------- ---------------- ------------- ---------------
ASSETS:
Current assets $ 495,320 $ 71,411 $ -- $ 566,731
Intercompany receivables 70,455 -- (70,455) --
Property, plant and equipment, net 639,633 103,274 -- 742,907
Investment in subsidiaries 4,600 -- (4,600) --
Intangible assets, net 1,703,059 74,834 -- 1,777,893
Other assets 36,314 2,037 -- 38,351
---------------- ---------------- -------------- --------------
$ 2,949,381 $ 251,556 $ (75,055) $ 3,125,882
================ ================ ============== ==============
LIABILITIES:
Current liabilities $ 294,265 $ 93,524 $ -- $ 387,789
Intercompany payables -- 70,455 (70,455) --
Non-current liabilities 336,037 82,780 -- 418,817
Liabilities subject to compromise 2,492,216 -- -- 2,492,216
Minority interests 1,144 197 -- 1,341
STOCKHOLDERS' EQUITY (DEFICIT) (174,281) 4,600 (4,600) (174,281)
---------------- ---------------- ------------- ---------------
$ 2,949,381 $ 251,556 $ (75,055) $ 3,125,882
================ ================ ============== ==============
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED NOVEMBER 30, 2000
(UNAUDITED)
ENTITIES IN ENTITIES NOT IN
REORGANIZATION REORGANIZATION CONSOLIDATED
In thousands PROCEEDINGS PROCEEDINGS TOTALS
------------------------------------------------------- ---------------- ----------------- --------------
Net cash provided by operating activities $ 21,918 $ 14,553 $ 36,471
---------------- ----------------- --------------
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment 1,977 440 2,417
Purchases of property, plant and equipment (6,801) (3,068) (9,869)
Decrease in other assets (615) (1) (616)
---------------- ----------------- --------------
Net cash used in investing activities (5,439) (2,629) (8,068)
---------------- ----------------- --------------
Cash flows from financing activities:
Change in intercompany accounts 2,850 (2,850) --
---------------- ----------------- --------------
Net cash provided by (used in) financing activities 2,850 (2,850) --
---------------- ----------------- --------------
Effect of exchange rate changes on cash (1,643) 1,153 (490)
---------------- ----------------- --------------
Net increase in cash and cash equivalents 17,686 10,227 27,913
Cash and cash equivalents at:
Beginning of period 74,234 10,048 84,282
---------------- ----------------- --------------
End of period $ 91,920 $ 20,275 $ 112,195
================ ================= ==============
-31-
NOTE 10 - SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
The supplemental cash flow disclosures and non-cash transactions are as follows
($ in thousands):
THREE MONTHS ENDED
NINE MONTHS --------------------------------------
ENDED MAY 31, FEBRUARY 28, NOVEMBER 30,
MAY 31, 2001 2001 2001 2000
------------- -------- ------------- -------------
Supplemental cash flow information:
Cash paid for income taxes $ 8,778 $ 1,078 $ 2,516 $ 5,184
============= ======== ============= =============
NOTE 11 - SUMMARIZED FINANCIAL INFORMATION OF GUARANTOR/NON-GUARANTOR
In connection with the Safety-Kleen Acquisition, Safety-Kleen Services, Inc.
(formerly known as LES, Inc.), a wholly owned subsidiary of the Company, issued
$325 million of 9.25% Senior Subordinated Notes. The Notes are jointly and
severally guaranteed by the Company and all wholly owned domestic subsidiaries
of the Company, including the wholly owned domestic subsidiaries of Safety-Kleen
Corp., on a full and unconditional basis. No foreign direct or indirect
subsidiary or non-wholly owned domestic subsidiary is an obligor or guarantor on
the financing. Separate financial statements and other disclosures concerning
each of Safety-Kleen Services, Inc. and the subsidiary guarantors are not
presented because management believes they are not material to investors.
Summarized financial information for the Company and its subsidiaries on a
combined basis is set forth below.
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED MAY 31, 2001
(UNAUDITED)
SAFETY-KLEEN SUBSIDIARY
SAFETY-KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
--------------------------------- -------------- -------------- ------------ ------------ -------------- --------------
Revenues $ -- $ 50 $ 1,036,531 $ 153,245 $ (68,419) $ 1,121,407
Operating expenses 100 56,227 1,148,509 144,961 (68,419) 1,281,378
-------------- -------------- ------------ ------------ -------------- --------------
Operating income (loss) (100) (56,177) (111,978) 8,284 -- (159,971)
Interest (expense) income, net 155 (431) 1,426 (5,575) -- (4,425)
Other income (expense) -- -- (210) 99 -- (111)
Equity in earnings of associated
companies (185,961) (106,048) -- -- 292,009 --
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before
reorganization items, income
taxes and minority interests (185,906) (162,656) (110,762) 2,808 292,009 (164,507)
Reorganization items (32) (23,305) (1,344) -- -- (24,681)
Income tax (expense) benefit -- -- 4 (2,423) -- (2,419)
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before minority
interests (185,938) (185,961) (112,102) 385 292,009 (191,607)
Minority interests -- -- -- (118) -- (118)
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before
extraordinary item (185,938) (185,961) (112,102) 267 292,009 (191,725)
Extraordinary item, net of tax
(early extinguishment of debt) -- -- 5,787 -- -- 5,787
-------------- -------------- ------------ ------------ -------------- --------------
Net income (loss) $ (185,938) $ (185,961) $ (106,315) $ 267 $ 292,009 $ (185,938)
============== ============== ============ ============ ============== ==============
-32-
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 31, 2001
(UNAUDITED)
SAFETY-KLEEN SUBSIDIARY
SAFETY-KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
--------------------------------- -------------- -------------- ------------ ------------ -------------- --------------
Revenues $ -- $ 50 $ 345,643 $ 50,813 $ (21,891) $ 374,615
Operating expenses 14 19,555 377,658 45,166 (21,891) 420,502
-------------- -------------- ------------ ------------ -------------- --------------
Operating income (loss) (14) (19,505) (32,015) 5,647 -- (45,887)
Interest (expense) income,
net (3) 85 498 (1,455) -- (875)
Other income (expense) -- -- (49) 497 -- 448
Equity in earnings of associated
companies (50,523) (25,905) -- -- 76,428 --
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before
reorganization items, income
taxes and minority interests (50,540) (45,325) (31,566) 4,689 76,428 (46,314)
Reorganization items 7 (5,198) (276) -- -- (5,467)
Income tax expense -- -- -- (2,041) -- (2,041)
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before minority (50,533) (50,523) (31,842) 2,648 76,428 (53,822)
interests
Minority interests -- -- (1) (19) -- (20)
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before
extraordinary item (50,533) (50,523) (31,843) 2,629 76,428 (53,842)
Extraordinary item, net of tax
(early extinguishment of
debt) -- -- 3,309 -- -- 3,309
-------------- -------------- ------------ ------------ -------------- --------------
Net income (loss) $ (50,533) $ (50,523) $ (28,534) $ 2,629 $ 76,428 $ (50,533)
============== ============== ============ ============ ============== ==============
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF MAY 31, 2001
(UNAUDITED)
SAFETY- SAFETY-KLEEN SUBSIDIARY
KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
--------------------------- -------------- -------------- ----------- ----------- -------------- --------------
ASSETS:
Current assets $ 70 $ 128,481 $ 311,328 $ 90,090 $ -- $ 529,969
Intercompany receivables 375,910 2,269,770 -- -- (2,645,680) --
Property, plant and
equipment, net -- 16,183 613,253 102,014 -- 731,450
Investment in subsidiaries (317,718) (824,186) 3,814 -- 1,138,090 --
Intangible assets, net 8,160 59,995 1,595,431 78,736 -- 1,742,322
Other assets -- 109 25,559 1,895 -- 27,563
-------------- -------------- ----------- ----------- -------------- --------------
$ 66,422 $ 1,650,352 $ 2,549,385 $ 272,735 $ (1,507,590) $ 3,031,304
============== ============== =========== =========== ============== ==============
LIABILITIES:
Current liabilities $ 351 $ 5,888 $ 307,725 $ 95,516 $ -- $ 409,480
Intercompany payables -- -- 2,570,283 75,397 (2,645,680) --
Non-current liabilities 2,551 41,486 322,956 81,138 -- 448,131
Liabilities subject to
compromise 365,961 1,920,075 185,477 3,206 -- 2,474,719
Minority interests -- 621 523 271 -- 1,415
STOCKHOLDERS'
EQUITY (DEFICIT) (302,441) (317,718) (837,579) 17,207 1,138,090 (302,441)
-------------- -------------- ----------- ----------- -------------- --------------
$ 66,422 $ 1,650,352 $ 2,549,385 $ 272,735 $ (1,507,590) $ 3,031,304
============== ============== =========== =========== ============== ==============
-33-
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MAY 31, 2001
(UNAUDITED)
SAFETY-
KLEEN SUBSIDIARY
SAFETY-KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
------------------------ -------------- ----------- ------------ ------------ ------------- --------------
Net cash provided by
(used in) operating
activities $ 58,314 $ (337,016) $ 320,059 $ 35,727 $ -- $ 77,084
-------------- ----------- ------------ ------------ ------------- --------------
Cash flows from
investing activities:
Proceeds from sales of
property, plant and
equipment -- -- 3,507 435 -- 3,942
Purchases of property,
plant and equipment -- (1,111) (38,369) (5,403) -- (44,883)
Decrease (increase) in
other assets 375 (4,996) 13,028 -- -- 8,407
-------------- ----------- ------------ ------------ ------------- --------------
Net cash provided by
(used in) investing
activities 375 (6,107) (21,834) (4,968) -- (32,534)
-------------- ----------- ------------ ------------ ------------- --------------
Cash flows from
financing activities:
Principal payments on
pre-petition debt -- -- (10,080) -- -- (10,080)
Change in intercompany
accounts (58,871) 346,408 (289,450) 1,913 -- --
-------------- ----------- ------------ ------------ ------------- --------------
Net cash (used in)
provided by financing
activities (58,871) 346,408 (299,530) 1,913 -- (10,080)
-------------- ----------- ------------ ------------ ------------- --------------
Effect of exchange rate
changes on cash (1,908) -- -- 987 -- (921)
-------------- ----------- ------------ ------------ ------------- --------------
Net increase (decrease)
in cash and cash
equivalents (2,090) 3,285 (1,305) 33,659 -- 33,549
Cash and cash
equivalents at:
Beginning of period 2,153 63,880 8,201 10,048 -- 84,282
-------------- ----------- ------------ ------------ ------------- --------------
End of period $ 63 $ 67,165 $ 6,896 $ 43,707 $ -- $ 117,831
============== =========== ============ ============ ============= ==============
-34-
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 2001
(UNAUDITED)
SAFETY-KLEEN SUBSIDIARY
SAFETY-KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
------------------------------------ -------------- -------------- ------------ ------------ -------------- --------------
Revenues $ -- $ -- $ 341,345 $ 49,054 $ (20,524) $ 369,875
Operating expenses 14 22,920 390,019 44,443 (20,524) 436,872
-------------- -------------- ------------ ------------ -------------- --------------
Operating income (loss) (14) (22,920) (48,674) 4,611 -- (66,997)
Interest (expense) income, net 31 15 329 (1,665) -- (1,290)
Other income (expense) -- -- 21 (350) -- (329)
Equity in earnings of associated
companies (77,755) (45,301) -- -- 123,056 --
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before reorganization
items, income taxes and minority
interests (77,738) (68,206) (48,324) 2,596 123,056 (68,616)
Reorganization items -- (9,549) (265) -- -- (9,814)
Income tax (expense) benefit -- -- 4 (1,052) -- (1,048)
Income (loss) before minority -------------- -------------- ------------ ------------ -------------- --------------
interests (77,738) (77,755) (48,585) 1,544 123,056 (79,478)
Minority interests -- -- 1 (54) -- (53)
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before extraordinary
item (77,738) (77,755) (48,584) 1,490 123,056 (79,531)
Extraordinary item, net of tax
(early extinguishment of debt) -- -- 1,793 -- -- 1,793
-------------- -------------- ------------ ------------ -------------- --------------
Net income (loss) $ (77,738) $ (77,755) $ (46,791) $ 1,490 $ 123,056 $ (77,738)
============== ============== ============ ============ ============== ==============
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 28, 2001
(UNAUDITED)
SAFETY- SAFETY-KLEEN SUBSIDIARY
KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
--------------------------- ---------- -------------- ------------ ----------- -------------- --------------
ASSETS:
Current assets $ 23 $ 120,463 $ 346,775 $ 80,364 $ -- $ 547,625
Intercompany receivables 375,956 2,302,525 -- -- (2,678,481) --
Property, plant and
equipment, net -- 17,165 616,868 102,862 -- 736,895
Investment in subsidiaries (267,021) (798,107) 4,475 -- 1,060,653 --
Intangible assets, net 8,160 60,008 1,611,280 80,826 -- 1,760,274
Other assets -- 1,108 24,646 1,978 -- 27,732
---------- -------------- ------------ ----------- -------------- --------------
$ 117,118 $ 1,703,162 $ 2,604,044 $ 266,030 $ (1,617,828) $ 3,072,526
========== ============== ============ =========== ============== ==============
LIABILITIES:
Current liabilities $ 341 $ 8,695 $ 288,661 $ 94,095 $ -- $ 391,792
Intercompany payables -- -- 2,607,056 71,425 (2,678,481) --
Non-current liabilities 2,549 41,550 324,873 82,004 450,976
Liabilities subject to
compromise 365,961 1,919,317 191,468 3,350 -- 2,480,096
Minority interests -- 621 523 251 -- 1,395
STOCKHOLDERS'
EQUITY (DEFICIT) (251,733) (267,021) (808,537) 14,905 1,060,653 (251,733)
---------- -------------- ------------ ----------- -------------- --------------
$ 117,118 $ 1,703,162 $ 2,604,044 $ 266,030 $ (1,617,828) $ 3,072,526
========== ============== ============ =========== ============== ==============
-35-
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED FEBRUARY 28, 2001
(UNAUDITED)
SAFETY-KLEEN SUBSIDIARY
SAFETY-KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
----------------------------- -------------- -------------- ------------ ------------ ------------- --------------
Net cash provided by
(used in) operating
activities $ 58,314 $ (300,239) $ 259,510 $ 32,279 $ -- $ 49,864
-------------- -------------- ------------ ------------ ------------- --------------
Cash flows from
investing activities:
Proceeds from sales of
property, plant and
equipment -- -- 2,774 447 -- 3,221
Purchases of property,
plant and equipment -- (808) (21,260) (4,100) -- (26,168)
Decrease (increase) in other
assets 223 (4,996) 13,941 -- -- 9,168
-------------- -------------- ------------ ------------ ------------- ---------------
Net cash provided by (used
in) investing activities 223 (5,804) (4,545) (3,653) -- (13,779)
-------------- -------------- ------------ ------------ ------------- --------------
Cash flows from financing
activities:
Principal payments on pre-
petition debt -- -- (10,080) -- -- (10,080)
Change in intercompany
accounts (59,091) 312,953 (251,968) (1,894) -- --
-------------- -------------- ------------ ------------ ------------- --------------
Net cash (used in) provided
by financing activities (59,091) 312,953 (262,048) (1,894) -- (10,080)
-------------- -------------- ------------ ------------ ------------- --------------
Effect of exchange rate
changes on cash (1,581) -- -- 945 -- (636)
-------------- -------------- ------------ ------------ ------------- --------------
Net increase (decrease) in
cash and cash
equivalents (2,135) 6,910 (7,083) 27,677 -- 25,369
Cash and cash equivalents at:
Beginning of period 2,153 63,880 8,201 10,048 -- 84,282
-------------- -------------- ------------ ------------ ------------- --------------
End of period $ 18 $ 70,790 $ 1,118 $ 37,725 $ -- $ 109,651
============== ============== ============ ============ ============= ==============
CONDENSED COMBINED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 2000
(UNAUDITED)
SAFETY-KLEEN SUBSIDIARY
SAFETY-KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
----------------------------------- -------------- -------------- ------------ ------------ -------------- --------------
Revenues $ -- $ -- $ 349,543 $ 53,378 $ (26,004) $ 376,917
Operating expenses 72 13,752 380,832 55,352 (26,004) 424,004
-------------- -------------- ------------ ------------ -------------- --------------
Operating loss (72) (13,752) (31,289) (1,974) -- (47,087)
Interest (expense) income, net 127 (531) 599 (2,455) -- (2,260)
Other expense -- -- (182) (48) -- (230)
Equity in earnings of associated
companies (57,683) (34,842) -- -- 92,525 --
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before
reorganization items, income
taxes and minority interests (57,628) (49,125) (30,872) (4,477) 92,525 (49,577)
Reorganization items (39) (8,558) (803) -- -- (9,400)
Income tax benefit -- -- -- 670 -- 670
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before minority
interests (57,667) (57,683) (31,675) (3,807) 92,525 (58,307)
Minority interests -- -- -- (45) -- (45)
-------------- -------------- ------------ ------------ -------------- --------------
Income (loss) before extraordinary
item (57,667) (57,683) (31,675) (3,852) 92,525 (58,352)
Extraordinary item, net of tax
(early extinguishment of debt) -- -- 685 -- -- 685
-------------- -------------- ------------ ------------ -------------- --------------
Net income (loss) $ (57,667) $ (57,683) $ (30,990) $ (3,852) $ 92,525 $ (57,667)
============== ============== ============ ============ ============== ==============
-36-
CONDENSED COMBINED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 30, 2000
(UNAUDITED)
SAFETY-KLEEN SUBSIDIARY
SAFETY-KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
--------------------------- -------------- -------------- ------------ ----------- -------------- --------------
ASSETS:
Current assets $ 4,303 $ 154,886 $ 334,767 $ 72,775 $ -- $ 566,731
Intercompany receivables 371,433 2,297,468 -- -- (2,668,901) --
Property, plant and
equipment, net -- 17,026 623,238 102,643 -- 742,907
Investment in subsidiaries (189,552) (753,092) 5,046 -- 937,598 --
Intangible assets, net 8,160 60,060 1,627,486 82,187 -- 1,777,893
Other assets -- 2,108 34,206 2,037 -- 38,351
-------------- -------------- ------------ ----------- -------------- --------------
$ 194,344 $ 1,778,456 $ 2,624,743 $ 259,642 $ (1,731,303) $ 3,125,882
============== ============== ============ =========== ============== ==============
LIABILITIES:
Current liabilities $ 117 $ 6,349 $ 287,932 $ 93,391 $ -- $ 387,789
Intercompany payables -- -- 2,602,032 66,869 (2,668,901) --
Non-current liabilities 2,547 41,581 292,309 82,380 -- 418,817
Long-term debt -- -- -- -- -- --
Liabilities subject to
compromise 365,961 1,919,457 203,344 3,454 -- 2,492,216
Minority interests -- 621 523 197 -- 1,341
STOCKHOLDERS'
EQUITY (DEFICIT) (174,281) (189,552) (761,397) 13,351 937,598 (174,281)
-------------- -------------- ------------ ----------- -------------- --------------
$ 194,344 $ 1,778,456 $ 2,624,743 $ 259,642 $ (1,731,303) $ 3,125,882
============== ============== ============ =========== ============== ==============
-37-
CONDENSED COMBINED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED NOVEMBER 30, 2000
(UNAUDITED)
SAFETY-KLEEN SUBSIDIARY
SAFETY-KLEEN SERVICES, SUBSIDIARY NON- CONSOLIDATED
In thousands CORP. INC. GUARANTORS GUARANTORS ELIMINATIONS TOTALS
------------------------ -------------- -------------- ------------ ------------ ------------- --------------
Net cash provided by
(used in) operating
activities $ 58,310 $ (274,058) $ 234,182 $ 18,037 $ -- $ 36,471
-------------- -------------- ------------ ------------ ------------- --------------
Cash flows from
investing activities:
Proceeds from sales of
property, plant and
equipment -- -- 1,977 440 -- 2,417
Purchases of property,
plant and equipment -- (201) (6,502) (3,166) -- (9,869)
Decrease (increase) in
other assets -- (4,996) 4,381 (1) -- (616)
-------------- -------------- ------------ ------------ ------------- --------------
Net cash used in
investing activities -- (5,197) (144) (2,727) -- (8,068)
-------------- -------------- ------------ ------------ ------------- --------------
Cash flows from
financing activities:
Change in intercompany
accounts (54,282) 318,051 (257,533) (6,236) -- --
-------------- -------------- ------------ ------------ ------------- --------------
Net cash (used in)
provided by
financing activities (54,282) 318,051 (257,533) (6,236) -- --
-------------- -------------- ------------ ------------ ------------- --------------
Effect of exchange rate
changes on cash (1,644) -- -- 1,154 -- (490)
-------------- -------------- ------------ ------------ ------------- --------------
Net increase (decrease)
in cash and cash
equivalents 2,384 38,796 (23,495) 10,228 -- 27,913
Cash and cash
equivalents at:
Beginning of period 2,153 63,880 8,201 10,048 -- 84,282
-------------- -------------- ------------ ------------ ------------- --------------
End of period $ 4,537 $ 102,676 $ (15,294) $ 20,276 $ -- $ 112,195
============== ============== ============ ============ ============= ==============
-38-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The following
discussion and analysis should be read in conjunction with the Company's
unaudited Consolidated Financial Statements and related notes thereto contained
in Part I of the report on Form 10-Q, as amended, and with the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended August 31, 2000, and
the other information included elsewhere herein.
BUSINESS, ORGANIZATION AND BANKRUPTCY
Safety-Kleen Corp. (the "Registrant" or "Safety-Kleen") (collectively referred
to with its subsidiaries as the "Company"), was incorporated in Delaware in 1978
as Rollins Environmental Services, Inc. ("Rollins"), later changed its name to
Laidlaw Environmental Services, Inc. ("LESI") and subsequently changed its name
to Safety-Kleen Corp. Through its Chemical Services and Branch Sales and
Service divisions, the Company provides a range of services designed to collect,
transport, process, recycle or dispose of hazardous and non-hazardous industrial
and commercial waste streams. The Company provides these services in 50 states,
seven Canadian provinces, Puerto Rico, Mexico and Saudi Arabia from
approximately 375 collection, processing and other locations.
Current management believes that the Company experienced substantial
difficulties in the integration of the operations of Old Safety-Kleen with those
of LESI following the acquisition of Old Safety-Kleen by LESI in 1998. The
implementation of the Company's post-acquisition strategy to combine key
elements of the more decentralized LESI business structure with that of the
strongly centralized Old Safety-Kleen business, particularly in the United
States, adversely affected post-acquisition operations and cash flows. Changing
the existing regionalized LESI pricing structure to the more uniform national
pricing structure of the Old Safety-Kleen business resulted in a reduction of
the overall pricing realized by the Company. Converting several of LESI's
service centers from profit centers with one manager to cost centers with two
managers during fiscal 1999 and 2000 resulted in poor cost and pricing controls.
Transferring the Old Safety-Kleen industrial waste collection business to a
co-managed waste-collection offering diluted pricing and negatively impacted
customer service. Requiring the use of Company owned waste disposal facilities,
even when lower-cost, external options were available, resulted in higher
overall operating costs.
Current management believes that the loss of key employees of the Old
Safety-Kleen business due to post-acquisition strategies and the relocation of
Old Safety-Kleen's corporate office from Elgin, Illinois to Columbia, South
Carolina resulted in a significant loss of institutional knowledge concerning
historical business practices of the Old Safety-Kleen business. Many of the
internal accounting and operational information systems and processes that had
historically been used to monitor and manage the costs and performance of the
Old Safety-Kleen business were discontinued shortly after the acquisition and,
to date, have not been satisfactorily replaced. In addition, significant
difficulties in relocating and converting the Old Safety-Kleen's accounts
receivable and cash application functions to the LESI headquarters in Columbia,
South Carolina and, subsequently, converting to new accounts receivable software
resulted in significant problems regarding customer billing, dispute resolution,
cash application and, ultimately, cash realization. See "Uncertainties Related
To The Company's Internal Controls" below.
On June 9, 2000, Safety-Kleen Corp. and 73 of its domestic subsidiaries
(collectively, the "Debtors") filed voluntary petitions for relief (the "Chapter
11 Cases") under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C.
Sec.Sec. 101-1330, as amended (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
Chapter 11 Cases are being jointly administered, for procedural purposes only,
before the Bankruptcy Court under Case No. 00-2303(PJW). Excluded from the
filing were certain of Safety-Kleen's non-wholly owned domestic subsidiaries and
all Safety-Kleen's indirect Canadian subsidiaries.
The Company has incurred and will continue to incur significant costs associated
with the reorganization. The amount of these costs, which are being expensed as
incurred, is expected to significantly affect future results until the Company
emerges from its reorganization under the Chapter 11 proceedings.
-39-
The Company's Consolidated Financial Statements have been prepared on a going
concern basis which contemplates continuity of operations, realization of
assets, and payment of liabilities in the ordinary course of business and do not
reflect adjustments that might result if the Debtors are unable to continue as
going concerns. The Debtors' history of significant losses, deficit in
stockholders' equity and their Chapter 11 filings, as well as issues related to
compliance with debt covenants and financial assurance requirements raise
substantial doubt about the Company's ability to continue as a going concern.
The Debtors intend to file a plan or plans of reorganization with the Bankruptcy
Court. Continuing as a going concern is dependent upon, among other things, the
Debtors' formulation of a plan or plans of reorganization, the success of future
business operations, and the generation of sufficient cash from operations and
financing sources to meet the Debtors' obligations. The Consolidated Financial
Statements do not reflect: (a) the realizable value of assets on a liquidation
basis or their availability to satisfy liabilities; (b) aggregate pre-petition
liability amounts that may be allowed for unrecorded claims or contingencies, or
their status or priority; (c) the effect of any changes to the Debtors' capital
structure or in the Debtors' business operations as the result of an approved
plan or plans of reorganization; or (d) adjustments to the carrying value of
assets (including goodwill and other intangibles) or liability amounts that may
be necessary as the result of actions by the Bankruptcy Court.
The Company's Consolidated Financial Statements have been presented in
conformity with the AICPA's Statement of Position 90-7, "Financial Reporting By
Entities In Reorganization Under the Bankruptcy Code," ("SOP 90-7"). The
statement requires a segregation of liabilities subject to compromise by the
Bankruptcy Court as of the bankruptcy filing date and identification of all
transactions and events that are directly associated with the reorganization of
the Company.
OTHER MATTERS
On September 5, 2001, the Bankruptcy Court entered an order approving employment
and indemnification agreements with Ronald A. Rittenmeyer, who had been
appointed to the Board of Directors of the Company in April 2001. At the same
time, the Bankruptcy Court approved termination and consulting agreements
with David E. Thomas, Jr. and Grover C. Wrenn. Under the employment and
indemnification agreements, Mr. Rittenmeyer will become Chairman of the Board,
President and Chief Executive Officer of the Company and Messrs. Thomas and
Wrenn will be appointed non-executive Vice Chairmen of the Board of Directors.
Messrs. Thomas and Wrenn co-managed the Company on an interim basis from March
6, 2000 through May 22, 2000, before being elected as Company officers. On May
4, 2000, Mr. Thomas was elected Chairman of the Board. On May 22, 2000, Mr.
Thomas was elected Chief Executive Officer and Mr. Wrenn was elected President
and Chief Operating Officer. On August 17, 2000, Larry W. Singleton, previously
unaffiliated with the Company, was appointed Chief Financial Officer.
In addition to Mr. Rittenmeyer, three new independent outside directors have
been named to the Board of Directors of the Company since March 2000. Kenneth
K. Chalmers was appointed in May 2000 and Peter E. Lengyel and David W. Wallace
were each appointed in March 2001.
INVESTIGATION OF FINANCIAL RESULTS; PREVIOUS RESTATEMENT OF CONSOLIDATED
FINANCIAL STATEMENTS
On March 6, 2000, the Company announced that it had initiated an internal
investigation of its previously reported financial results and certain of its
accounting policies and practices. This investigation followed receipt of
information by the Company's Board of Directors, on February 24, 2000, alleging
possible accounting irregularities that may have affected the previously
reported financial results of the Company. The Company conducted a
comprehensive internal review of its accounting records for fiscal 1997 to 2000
and engaged Arthur Andersen LLP as its new independent public accountants to,
among other things, conduct an audit of the Company's consolidated financial
statements for the same periods. In addition, the Company is the subject of
ongoing investigations by the Securities and Exchange Commission and a grand
jury sitting in the United States District Court for the Southern District of
New York relating to the same matters. The Company has responded to subpoenas
issued by the Securities and Exchange Commission and the grand jury and is
cooperating with each of the investigations.
The Board appointed a special committee, consisting of four directors who were
then independent outside directors of the Company, to conduct the internal
investigation (the "Special Committee (Investigation)"). The Special Committee
(Investigation) was later expanded to five directors, with the addition of one
additional independent outside director. On September 13, 2001, the Board of
Directors dissolved the Special Committee (Investigation) and established the
Special Committee (Conflicts of Interest in Litigation). The Special Committee
(Conflicts of Interest in Litigation) is authorized to manage all litigation
involving the Company and a member of the Board of Directors. The new committee
is comprised of Ronald A. Rittenmeyer, Kenneth K. Chalmers, Peter E. Lengyel and
David W. Wallace, each of whom was appointed to the Board subsequent to March 6,
2000 and is not personally involved in such litigation. (see NOTE 7 -
COMMITMENTS AND CONTINGENCIES, PART I, Item 1, "Matters Related to Investigation
of Financial Results").
-40-
FISCAL 2000 QUARTERLY FINANCIAL INFORMATION
As previously reported in the Company's Form 10-K/A for the year ended August
31, 2000, the Company contracted with outside accountants, including Arthur
Andersen LLP, and with other professionals to provide significant non-audit
assistance to the Company's corporate and field accounting personnel. These
professionals assisted with the account analysis, development of financial
reporting systems and project management support, all which was necessary to
prepare the Company's fiscal 1997 to 2000 Consolidated Financial Statements,
related disclosures, and its fiscal 2000 Form 10-K/A. This effort included a
comprehensive review of substantially all the accounts and resulted in a large
number of adjustments affecting each of the respective periods. The impact of
these adjustments on the annual financial statements is described in Note 2 of
the fiscal 2000 Consolidated Financial Statements.
As disclosed in the Form 10-K/A filed on July 9, 2001 and referenced in the
auditors' report, the quarterly financial information required by Item 302 of
Regulation S-K was not included in the Form 10-K/A. The Company believes the
adjustments to the financial statements have been reflected in the appropriate
annual fiscal period, however, the Company did not spend additional time and
money to undertake the extraordinary effort to apply all the adjustments to the
appropriate interim fiscal quarter. Moreover, the Company has not undertaken to
spend additional time and money preparing such quarterly information since the
filing of the Form 10-K/A so comparative quarterly financial information for
fiscal 2000, as required by Rule 10-01 of Regulation S-X, has not been included
in this Form 10-Q/A.
RESULTS OF OPERATIONS
During the third quarter of fiscal 2000, the Company reorganized its operations
along the lines of its two primary business activities-Chemical Services
and Branch Sales and Service. The Chemical Services Division involves
the collection, treatment, transportation and disposal of hazardous and
non-hazardous waste. The Company disposes of waste primarily through its
network of thermal destruction incinerators, landfills and wastewater treatment
facilities, in certain instances after accumulating and treating waste at
Company-owned service centers. The Branch Sales and Service Division provides
parts cleaner services and other services to automotive repair, commercial and
manufacturing customers. These other services include, but are not limited to,
hazardous and non-hazardous waste collection, treatment, recycling and disposal.
The Chemical Services and Branch Sales and Service Divisions are managed
independently and, effective with the aforementioned executive management
transition, each reports separately to Mr. Rittenmeyer. The Company eliminates
intersegment and intrasegment revenue in presenting consolidated financial
results. The majority of intersegment revenue eliminations relate to the
Chemical Services Division, which bills for the waste streams it receives from
the Branch Sales and Service Division.
-41-
Set forth below are certain operating items expressed as a percentage of
revenues:
THREE MONTHS ENDED
NINE MONTHS ------------------------------------------
ENDED MAY 31, FEBRUARY 28, NOVEMBER 30,
MAY 31, 2001 2001 2001 2000
------------- ------------ ------------- -------------
Revenues 100.0% 100.0% 100.0% 100.0%
------------- ------------ ------------- -------------
Expenses:
Operating 83.1 84.9 81.1 83.3
Depreciation and amortization 9.3 9.0 9.4 9.5
Selling, general and administrative 17.9 18.3 18.1 17.2
Provision for early facility closures 4.0 0.0 9.5 2.5
------------- ------------ ------------- -------------
114.3 112.2 118.1 112.5
------------- ------------ ------------- -------------
Operating loss (14.3) (12.2) (18.1) (12.5)
Interest expense, net (0.4) (0.2) (0.3) (0.6)
Other income (expense) 0.0 0.1 (0.1) (0.1)
------------- ------------ ------------- -------------
Loss before reorganization items, income taxes
and minority interests (14.7) (12.3) (18.5) (13.2)
Reorganization items (2.2) (1.5) (2.7) (2.5)
------------- ------------ ------------- -------------
Loss before income taxes and minority interests (16.9) (13.8) (21.2) (15.7)
Income tax (expense) benefit (0.2) (0.5) (0.3) 0.2
------------- ------------ ------------- -------------
Loss before minority interests (17.1) (14.3) (21.5) (15.5)
Minority interests 0.0 0.0 0.0 0.0
------------- ------------ ------------- -------------
Loss before extraordinary item (17.1) (14.3) (21.5) (15.5)
Extraordinary item, net of tax (early
extinguishment of debt) 0.5 0.9 0.5 0.2
------------- ------------ ------------- -------------
Net loss (16.6)% (13.4)% (21.0)% (15.3)%
============= ============ ============= =============
-42-
FISCAL 2001 OPERATIONS FOR THE NINE MONTHS ENDED MAY 31, 2001
-------------------------------------------------------------
As discussed further in the quarter to quarter comparisons below, the Company's
revenues during each of the three quarters during the nine months ended May 31,
2001 were comparable considering seasonal fluctuations typically experienced.
The fluctuations for the Chemical Services and Branch Sales and Service
Divisions are generally consistent with the consolidated trends.
The Company's operating loss of $160.0 million for the nine months ended May 31,
2001 includes the effect of several significant expenses resulting from a number
of unusual events.
During the first six months of fiscal 2001, the Chemical Services Division
decided to cease operations at two incinerators, a wastewater treatment facility
and a transportation facility. As a result of these closures, the Company
recorded a "Provision for early facility closures" of $44.8 million.
During the nine months ended May 31, 2001, the Company incurred approximately
$42.1 million of auditing, non-audit contract accounting assistance, legal and
other professional costs associated primarily with (i) the investigation,
restatement and audits of its Consolidated Financial Statements for fiscal 1997
through 2000; (ii) a comprehensive review of all its major fiscal year 2001
general ledger accounts; (iii) the preparation of its unaudited Consolidated
Financial Statements for the first nine months of fiscal 2001 and related Form
10-Q/A; (iv) other finance and accounting services; and (v) litigation and
compliance matters and expenses related to the various investigations concerning
the Company's previously reported financial results. These costs are classified
as "Selling, general and administrative" expense in the Company's consolidated
statements of operations.
The Company expects (i) the legal costs described above to decrease when the
aforementioned matters are resolved, and (ii) the auditing and non-audit
contract accounting costs to continue throughout the remainder of fiscal 2001
and for an indefinite period thereafter, although at a somewhat lower level,
since the restatement and audit for fiscal years 1997 through 2000 was completed
in July 2001. The Company expects these costs to be further reduced when its
internal controls and processes are satisfactorily improved. See "Uncertainties
Relating to the Company's Internal Controls" below.
In preparing the unaudited Consolidated Financial Statements for the first nine
months of fiscal 2001, the Company recorded certain adjustments relating to
periods prior to fiscal 2001, which have been reflected in the operating results
for the three months ended November 30, 2000. These adjustments, which increased
the net loss by approximately $11 million, related primarily to certain
environmental, severance and other benefits liabilities, revenue and capitalized
interest. The Company does not believe the adjustments are material to revenue,
operating loss or net loss for fiscal 2000 and prior, or to the expected fiscal
year 2001 annual results.
-43-
THREE MONTHS ENDED MAY 31, 2001 COMPARED TO THE THREE MONTHS ENDED FEBRUARY 28,
-------------------------------------------------------------------------------
2001
----
REVENUES
Consolidated revenues increased $4.7 million to $374.6 million for the three
months ended May 31, 2001, compared to $369.9 million for the three months ended
February 28, 2001, with the following increase or decrease by business segment:
Chemical Services decreased 0.5% ($0.7 million); and Branch Sales and Service
increased 2.4% ($6.0 million). The elimination of intersegment revenue
increased $0.6 million for the three months ended May 31, 2001, compared to the
three months ended February 28, 2001.
Chemical Services combined external and intersegment revenues for the three
months ended May 31, 2001 were $135.5 million compared to $136.2 million for the
three months ended February 28, 2001. The revenue decline from facility
closures in the third quarter was modest due to the timing of the closures and
the Company's ability to retain portions of the business. This decline was
mostly offset by increased waste activity typically experienced during the
warmer season. Chemical Services intersegment revenues were $12.2 million and
$11.8 million for the three months ended May 31, 2001 and February 28, 2001,
respectively.
The Branch Sales and Service combined external and intersegment revenues for the
three months ended May 31, 2001, were $254.0 million compared to $248.0 million
for the three months ended February 28, 2001. The increase in revenues from used
oil collection services, oil re-refining sales, industrial waste collection
services and additional services was partially offset by a decrease in revenues
from parts cleaner services. Used oil collections are typically lower during the
second quarter due to customer requirements. A shift to a higher revenue
product mix and improved pricing favorably impacted the oil re-refining revenue
in the three months ended May 31, 2001. The revenues from industrial waste
collection services benefited from a non-recurring project related to wastewater
transportation. The decline in revenues from parts cleaner services continues a
trend that the Company believes results from sales to a maturing market. Branch
Sales and Service intersegment revenues were $2.7 million and $2.5 million for
the three months ended May 31, 2001 and February 28, 2001, respectively.
OPERATING EXPENSES
Consolidated operating expenses for the three months ended May 31, 2001 were
$318.0 million compared to $300.0 million for the three months ended February
28, 2001 with the following increase or decrease by business segment: Chemical
Services decreased 4.6% ($5.1 million); Branch Sales and Service increased by
11.5% ($23.0 million); and corporate increased by $0.7 million.
Chemical Services combined external and intersegment operating expenses were
$105.6 million (78.0% of revenues) for the three months ended May 31, 2001,
compared to $110.7 million (81.3% of revenues) for the three months ended
February 28, 2001. Costs incurred in the third quarter for scheduled
incinerator overhauls were lower than such costs incurred in the second quarter.
In addition, third quarter utility costs were lower than such costs in the
second quarter because, during the third quarter, higher quantities of
fuel-blended waste were incinerated, the residue from which reduces the need to
purchase natural gas.
Branch Sales and Service combined external and intersegment operating expenses
were $223.0 million (87.8% of revenues) for the three months ended May 31, 2001
compared to $200.0 million (80.7% of revenues) for the three months ended
February 28, 2001. The increase in operating expenses was primarily attributable
to (i) higher non-cash charges related to disposal of drums and equipment and
related reserve adjustments; (ii) higher operating labor costs due to annual
base compensation adjustments and higher commissions related to the higher
revenue; (iii) higher cost of materials in oil re-refining resulting from rising
prices and the cost of producing the higher revenue product mix discussed above;
and (iv) higher fuel costs related to operating the internal transportation
fleet.
Corporate operating expenses of $4.3 million for the three months ended May 31,
2001, were essentially unchanged compared to $3.6 million for the three months
ended February 28, 2001. These expenses consist primarily of taxes (other than
taxes on earnings), rental payments and other operating expenses.
DEPRECIATION AND AMORTIZATION EXPENSE
Consolidated depreciation and amortization expense of $33.9 million for the
three months ended May 31, 2001, was essentially unchanged compared to $34.7
million for the three months ended February 28, 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses of $68.7 million for
the three months ended May 31, 2001, were essentially unchanged compared to
$66.8 million for the three months ended February 28, 2001. This increase of
$1.9 million includes an increase in professional fees (as more fully discussed
above) and certain other corporate costs.
-44-
PROVISION FOR EARLY FACILITY CLOSURES
As described above, the Company decided to cease operations at several of its
locations during fiscal 2001. The charge of $35.3 million in the three months
ended February 28, 2001, represents the estimated closure/post-closure costs
associated with the cessation of operations at the Bridgeport incinerator and
Hilliard wastewater treatment facilities.
INTEREST EXPENSE, NET
Consolidated interest expense was $0.9 million and $1.3 million for the three
months ended May 31, 2001 and February 28, 2001, respectively. Interest expense
principally represents the interest on the Canadian portion of the outstanding
balance of the Company's Credit Facility, for which the interest rate is based
on the Canadian Prime Rate or Canadian Bankers Acceptance, both being variable
in nature. In accordance with SOP 90-7, interest on the domestic pre-petition
debt has not been accrued for financial statement purposes since the date of the
Chapter 11 filing. Contractual interest expense of $60.3 million and $63.8
million for the three months ended May 31, 2001 and February 28, 2001,
respectively, has not been accrued in the accompanying Consolidated Financial
Statements. No interest payments have been made on either Canadian or domestic
debt for the three months ending May 31, 2001, and February 28, 2001.
REORGANIZATION ITEMS
Consolidated reorganization items as reported in the accompanying consolidated
statements of operations are comprised of income and expense items that were
realized or incurred by the Debtors as a direct result of the Company's decision
to reorganize under Chapter 11 (See Note 4 of Notes to Consolidated Financial
Statements). Reorganization items were $5.5 million for the three months ended
May 31, 2001 compared to $9.8 million for the three months ended February 28,
2001. Most of this change is due to a decrease in professional services directly
related to the Chapter 11 filing.
INCOME TAXES
The consolidated income tax provision reflects foreign taxes payable of $2.1
million for the three months ended May 31, 2001 and $0.5 million for the three
months ended February 28, 2001, plus net deferred tax expense of $0.6 million
for the three months ended February 28, 2001.
EXTRAORDINARY ITEMS (EARLY EXTINGUISHMENT OF DEBT)
The Company, pursuant to Bankruptcy Court approval, has settled certain
pre-petition trade accounts payable claims during the first nine months of
fiscal 2001. Under the terms of these settlements, the Company paid certain
vendors less than the amount recorded in the Company's financial records as
being owed to the vendors as of the date of the Chapter 11 filing. The Company
has reported the resulting gain from the early extinguishment of this debt as an
extraordinary item. The consolidated gains from these settlements amounted to
$3.3 million and $1.8 million for the three months ended May 31, 2001 and
February 28, 2001, respectively. No income tax provision or benefit with
respect to these items is required.
-45-
THREE MONTHS ENDED FEBRUARY 28, 2001 COMPARED TO THE THREE MONTHS ENDED NOVEMBER
--------------------------------------------------------------------------------
30, 2000
--------
REVENUES
Consolidated revenues decreased $7.0 million to $369.9 million for the three
months ended February 28, 2001 compared to $376.9 million for the three months
ended November 30, 2000, with the following decrease by business segment:
Chemical Services decreased 2.0% ($2.8 million); and Branch Sales and Service
decreased 3.5% ($8.9 million). The elimination of intersegment revenue decreased
$4.7 million for the three months ended February 28, 2001 compared to the three
months ended November 30, 2000.
Chemical Services combined external and intersegment revenues for the three
months ended February 28, 2001, were $136.2 million compared to $139.0 million
for the three months ended November 30, 2000. This decline was mainly
attributable to the rejection by the Company, in its Chapter 11 proceedings, of
a major transportation contract and the seasonal decrease typically occurring
during the colder months. Chemical Services' intersegment revenues were $11.8
million and $16.3 million for the three months ended February 28, 2001 and
November 30, 2000, respectively.
Branch Sales and Service combined external and intersegment revenues for the
three months ended February 28, 2001, were $248.0 million compared to $256.9
million for the three months ended November 30, 2000. The decrease in revenues
was primarily in used oil collection and oil re-refining, which was the result
of lower volumes of used oil collected and sold as fuel or re-refined oil. The
used oil collection business typically has lower collections during that time of
year due to customer requirements. Oil re-refining revenues were higher in the
first quarter due to an effort to sell existing inventories in an environment of
rising commodity pricing. Branch Sales and Service intersegment revenues were
$2.5 million and $2.7 million for the three months ended February 28, 2001 and
November 30, 2000, respectively.
OPERATING EXPENSES
Consolidated operating expenses for the three months ended February 28, 2001
were $300.0 million compared to $313.8 million for the three months ended
November 30, 2000 with the following increase or decrease by business segment:
Chemical Services decreased 9.3% ($11.4 million); Branch Sales and Service
decreased 3.8% ($8.0 million); and corporate increased by 33.3% ($0.9 million).
Chemical Services combined external and intersegment operating expenses were
$110.7 million (81.3% of revenues) for the three months ended February 28, 2001,
compared to $122.1 million (87.8% of revenue) for the three months ended
November 30, 2000. This decrease is primarily due to the effect of recording in
the first quarter certain adjustments relating to periods prior to fiscal 2001,
primarily for the correction of certain environmental liabilities. No such
charges were recorded in the second quarter.
Branch Sales and Service combined external and intersegment operating expenses
were $200.0 million (80.7% of revenues) for the three months ended February 28,
2001 compared to $208.0 million (80.9% of revenues) for the three months ended
November 30, 2000. The decrease is primarily due to lower non-cash charges in
the second quarter related to disposal of drums and equipment.
Corporate operating expenses of $3.6 million for the three months ended February
28, 2001, were essentially unchanged compared to $2.7 million for the three
months ended November 30, 2000. These expenses consist primarily of taxes,
(other than taxes on earnings), rental payments and other operating expenses.
DEPRECIATION AND AMORTIZATION EXPENSE
Consolidated depreciation and amortization expense of $34.7 million for the
three months ended February 28, 2001, was essentially unchanged compared to
$35.9 million for the three months ended November 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses were $66.8 million for
the three months ended February 28, 2001 compared to $64.9 million for the three
months ended November 30, 2000. This increase of $1.9 million results primarily
from an increase in professional fees.
-46-
PROVISION FOR EARLY FACILITY CLOSURES
During the three months ended February 28, 2001, the Company decided to cease
operations at its Bridgeport incinerator and Hilliard wastewater treatment
facilities. The charge of $35.3 million in the three months ended February 28,
2001, represents the estimated closure/post-closure costs associated with the
cessation of operations at its Bridgeport incinerator and Hilliard wastewater
treatment facilities. During the three months ended November 30, 2000,
the Company ceased operations at its Coffeyville incinerator and Burton
transportation facilities, which resulted in a charge of $9.5 million for the
associated closure/post-closure costs.
INTEREST EXPENSE, NET
Consolidated interest expense was $1.3 million and $2.3 million for the three
months ended February 28, 2001 and November 30, 2000, respectively. Interest
expense principally represents the interest on the Canadian portion of the
outstanding balance of the Company's Credit Facility, for which the interest
rate is based on the Canadian Prime Rate or Canadian Bankers Acceptance, both
being variable in nature. In accordance with SOP 90-7, interest on the domestic
pre-petition debt has not been accrued for financial statement purposes since
the date of the Chapter 11 filing. Contractual interest expense of $63.8
million and $65.6 million for the three months ended February 28, 2001 and
November 30, 2000, respectively, has not been accrued in the accompanying
Consolidated Financial Statements. No interest payments have been made on
either Canadian or domestic debt for the three months ending February 28, 2001,
and November 30, 2000.
REORGANIZATION ITEMS
Consolidated reorganization items as reported in the accompanying consolidated
statement of operations are comprised of income, expense and loss items that
were realized or incurred by the Debtors as a direct result of the Company's
decision to reorganize under Chapter 11. (See Note 4 of Notes to Consolidated
Financial Statements). Reorganization items were $9.8 million for the three
months ended February 28, 2001, compared to $9.4 million for the three months
ended November 30, 2000.
INCOME TAXES
The consolidated income tax provision reflects foreign taxes payable of $0.5
million and $1.4 million, plus other net deferred tax expenses of $0.6 million
and net deferred tax benefits of $2.0 million for the three months ended
February 28, 2001 and November 30, 2000, respectively.
EXTRAORDINARY ITEMS (EARLY EXTINGUISHMENT OF DEBT)
The Company, pursuant to Bankruptcy Court approval, has settled certain
pre-petition trade accounts payable claims during the first nine months of
fiscal 2001. Under the terms of these settlements, the Company paid certain
vendors less than the amount recorded in the Company's financial records as
being owed to the vendors as of the date of the Chapter 11 filing. The Company
has reported the resulting gain from the early extinguishment of this debt as an
extraordinary item. The consolidated gains from these settlements amounted to
$1.8 million and $0.7 million for the three months ended February 28, 2001 and
November 30, 2000, respectively. No income tax provision or benefit with
respect to these items is required.
-47-
LIQUIDITY AND CAPITAL RESOURCES
BANKRUPTCY
The matters described under this caption "Liquidity and Capital Resources", to
the extent that they relate to future events or expectations, may be
significantly affected by the Chapter 11 proceedings. These proceedings will
involve, or result in, (i) various restrictions on the Company's activities;
(ii) limitations on financing; (iii) the need to obtain Bankruptcy Court
approval for various matters; and (iv) uncertainty as to relationships with
vendors, suppliers, customers and others with whom the Company may conduct or
seek to conduct business.
CASH AND CASH EQUIVALENTS
The Company's primary sources of liquidity are cash flows from operations,
existing cash, proceeds from the sale of non-core assets and businesses and the
DIP Facility.
As of August 31, 2001 and as described below, the Company has approximately
$41.0 million of remaining cash borrowing availability of which up to $26.0
million of letter of credit availability remains under the terms of its DIP
Facility. The Company currently plans to use a substantial portion of this
liquidity to meet its operating, capital expenditure, financial assurance and
environmental liability requirements. The Company has begun to negotiate an
increase in the availability under the DIP Facility to accommodate expected
letter of credit needs related to financial assurance requirements. While the
Company believes it has sufficient cash and credit to meet its current
operating, capital expenditure and environmental liability requirements, there
will likely be additional financing required to meet all of the Company's needs
(including financing assurance requirements) and there can be no assurance that
any such additional financing will be obtained.
CASH FLOWS FROM OPERATIONS
During the first three fiscal quarters of 2001, cash increased $33.5 million
compared to the balance at August 31, 2000. This increase is attributed
primarily to (i) improvements in its accounts receivable aging; (ii) the timing
of payments on certain accrued liabilities such as professional fees, payroll
and related costs, property taxes and other operating items; and (iii) continued
suspension of interest payments on pre-petition and Canadian debt.
Consolidated net cash flow from operations subsequent to May 31, 2001 (i) will
need to accommodate substantially increased costs to replace certain financial
assurance programs; (ii) will need to fund the payment of the accrued
liabilities noted above as they become due; (iii) could be affected by the
potential loss of "event-based" business in the Chemical Services Division; and
(iv) will need to fund the cash requirements for the deactivation and closure of
certain facilities.
CASH FLOWS FROM INVESTING ACTIVITIES
The Company operates in an industry that requires a high level of capital
investment. The Company's capital investment requirements primarily relate to
(i) trucks and other vehicles; (ii) equipment at customer locations; (iii)
computer related technology; (iv) equipment at waste collection and disposal
facilities; and (v) construction and expansion of its landfill sites. Capital
expenditures through May 31, 2001 totaled $44.9 million. During the first nine
months of fiscal 2001, the Company deferred non-essential capital expenditures.
However, in fiscal 2002 and beyond, the Company expects capital expenditure
requirements to significantly increase over the spending levels of fiscal 2001,
primarily due to a return to more normal operating requirements and the need to
comply with new regulatory requirements for incinerators. In addition, the
Company expects to upgrade certain of the Company's Branch Sales and Service
transportation fleet and oil re-refining facilities in fiscal 2001 and beyond.
-48-
EBITDA ANALYSIS
Management evaluates the Company's performance using several factors, of which
the primary financial measure is operating income before depreciation and
amortization and the provision for early facility closures ("EBITDA"). EBITDA
is adjusted by adding back certain other non-cash charges which management
believes are similar to depreciation and amortization. This adjusted
EBITDA measure is used by the Company to plan for its environmental,
capital expenditure and other requirements. Further adjustments are made for
significant items that, in management's opinion, are unusual and affect the
applicable period.
A summary of quarterly EBITDA reflecting these additional management adjustments
is as follows (in thousands):
THREE MONTHS ENDED
--------------------------------------------
NINE MONTHS ENDED MAY 31, FEBRUARY 28, NOVEMBER 30,
MAY 31, 2001 2001 2001 2000
------------------- ------------- ------------- --------------
EBITDA $ (10,795) $ (12,027) $ 2,983 $ (1,751)
Loss on disposal of equipment (non-cash) 15,802 6,134 4,207 5,461
Provision for environmental liabilities (non-cash) 19,162 4,205 3,942 11,015
------------------- ------------- ------------- --------------
Adjusted EBITDA 24,169 (1,688) 11,132 14,725
Unusual items:
Accounting, legal, consulting and other costs 42,150 15,186 14,649 12,315
------------------- ------------- ------------- --------------
Adjusted EBITDA after unusual items $ 66,319 $ 13,498 $ 25,781 $ 27,040
=================== ============= ============= ==============
Capital expenditures were $44.9 million and environmental spending totaled $14.9
million for the nine months ended May 31, 2001.
DIP FACILITY
On July 19, 2000, the Bankruptcy Court granted final approval of a one-year
$100.0 million Revolving Credit, Term Loan, and Guaranty Agreement underwritten
by the Toronto Dominion Bank as general administrative agent and the CIT Group,
Inc. as collateral agent (the "DIP Facility") with sublimits for letters of
credit of $35.0 million. The actual amount available under the DIP Facility is
subject to a borrowing base computation. Subsequently, the DIP Facility has
been amended on six occasions. The fifth amendment and agreement dated as of
August 6, 2001, increased the sublimits for letters of credit to $75.0 million.
Unless amended, the DIP Facility matures on the earlier of January 31, 2002 or
the effective date of the plan of reorganization.
Proceeds from the DIP Facility may be used to fund post-petition working capital
and for other general corporate purposes during the term of the DIP Facility and
to pay certain pre-petition claims, including those of critical vendors. The
$75.0 million sublimit on letters of credit is further stratified into
$40.0 million available for auto liability, general liability and worker's
compensation insurance for fiscal years 2001 and 2002; $15.0 million for
performance bonding; and $30.0 million for additional financial assurance with
respect to certain facilities.
By October 15, 2001, the Company has agreed to discuss modifications to the
DIP Facility to include financial covenants, including capital expenditure
limitations. As of September 10, 2001, no amounts had been drawn on the DIP
Facility and approximately $49.0 million of letters of credit had been issued.
In addition, the Company had approximately $41.0 million available under the DIP
Facility. The Company has agreed to increase, in stages, the amounts currently
posted by an additional $11.0 million through January 1, 2002. In addition, the
Company has agreed to post an additional $15.0 million of letters of credit by
September 30, 2001 with respect to existing financial assurance arrangements.
The Company is currently negotiating an increase in the DIP Facility in order to
accommodate these and other letter of credit requirements. The Debtors are
jointly and severally liable under the DIP Facility.
The DIP Facility benefits from superpriority claims status as provided for under
the Bankruptcy Code. A superpriority claim is senior to unsecured pre-petition
claims and all other administrative expenses incurred in a Chapter 11 case.
As security, the DIP Facility lenders were granted certain priority, perfected
liens on certain of the Debtors' assets. Pursuant to the final order approving
the DIP Facility, such liens are not subordinate to or pari passu with any other
lien or security interest. Pursuant to an agreement with the Company's new
Chief Executive Officer, obligations under his employment contract with the
Company are generally pari passu with liens pursuant to the DIP Facility.
-49-
Borrowings under the DIP Facility are priced at LIBOR plus 3% or prime plus 1%
depending on the nature of the borrowings. Letters of credit are priced at 3%
per annum (plus a fronting fee of 0.25% to the Agent) on the outstanding face
amount of each letter of credit. In addition, the Company pays a commitment fee
of 0.50% per annum on the unused amount of the DIP Facility, payable monthly in
arrears.
Subsequent to August 31, 2000, the Company failed to comply with certain
affirmative covenants within its DIP Facility, primarily related to providing
audited financial statements by specified dates, for which waivers of
non-compliance were received. In addition, subsequent to May 31, 2001, the
Company failed to provide certain preliminary plan of reorganization
information, for which waivers of non-compliance have been received.
FINANCIAL ASSURANCE
On August 7, 2001, the Company obtained the collateral necessary to enable it to
replace Frontier Insurance Company ("Frontier") surety bonds at more than 100
facilities, pursuant to Bankruptcy Court approval obtained on July 11, 2001.
Several states already have approved the replacement insurance policies, which
Indian Harbor Insurance Company has issued, and in those states the Company now
has financial assurance coverage that complies with applicable law. The Company
expects the remaining affected states and the EPA to approve the Indian Harbor
policies in the near future.
The Company understands that, on August 27, 2001, Frontier entered a
rehabilitation proceeding that the New York Superintendent of Insurance will
administer pursuant to New York law. The Company further understands that in
such a proceeding, the Superintendent takes possession of the property of
Frontier and conducts its business. Because Frontier continues to provide
substantial amounts of financial assurance coverage at various facilities that
the Company and its subsidiaries own and operate, the Company is investigating
the extent to which, if at all, the New York rehabilitation proceeding will
impact the rights of the Company or the states or EPA with respect to these
financial assurance surety bonds. The Company has not been notified of any
change in the validity of such bonds.
The State of Texas had set May 31, 2001 as the deadline for replacement of
Frontier coverage in that state. The Company and its subsidiaries did not meet
that deadline. On June 1, 2001, the State of Texas notified the Company and its
affected subsidiaries that it intended to (i) seek substantial penalties for the
failure to have compliant financial assurance; (ii) deny certain pending permit
renewal and modification applications; and (iii) revoke the registration of some
of the used oil facilities that the Company and its subsidiaries operate in
Texas. On August 21, 2001, the Bankruptcy Court approved a settlement agreement
between the Company and certain of its subsidiaries and the State of Texas with
respect to financial assurance (and other matters) in that state. Having
obtained Court approval, the Company is implementing that settlement agreement
and now has compliant financial assurance where required at all the facilities
that it or its subsidiaries own and/or operate in Texas. The Company, through
one of its subsidiaries, has paid a penalty of $1.5 million in connection with
such settlement agreement.
As described in greater detail in NOTE 7 - COMMITMENTS AND CONTINGENCIES, PART
I, Item 1, "Financial Assurance Issues", in the accompanying Consolidated
Financial Statements, the Company currently is subject to a Consent Agreement
and Final Order with EPA (and similar agreements in certain other states)
requiring the replacement of Frontier at additional facilities on September 30,
2001, although the EPA staff has agreed to an extended deadline of October 18,
2001. The Company anticipates seeking Court approval for the replacement of
Frontier at some of these facilities and is seeking additional time (beyond
October 18, 2001) from EPA and the affected states for the replacement of
Frontier at other facilities, many of which already are closed. Negotiations
regarding the Company's request are underway. If these negotiations do not
succeed, the active facilities for which Frontier continues to provide coverage
(located primarily in Utah and Colorado) may be required to close and the
Company may be subject to further penalties.
INFLATION AND COMMODITY PRICE RISKS
During the periods presented herein, the Company's business has not been and is
not expected in the near future to be significantly affected by inflation.
The Company operates a large fleet of vehicles in order to transport products
and waste streams. The Company also purchases petroleum and petroleum waste
products for processing in its oil re-refining operations. As a result, the
Company is exposed to fluctuations in both revenues and expenses as a result of
potential changes in the price of petroleum products. The Company believes that
its oil business creates a partial hedge against the risk of increased fuel
expense that might result from an increase in petroleum prices. While the
Company does not use derivative contracts to hedge its petroleum price risk, it
does enter into volume discount arrangements to purchase fuel for its fleet.
-50-
FACTORS THAT MAY AFFECT FUTURE RESULTS
The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") provide companies with a "safe harbor" when making forward-looking
statements. This "safe harbor" encourages companies to provide prospective
information about their companies without fear of litigation. The Company wishes
to take advantage of the "safe harbor" provisions of the Act and is including
this section in its Quarterly Report on Form 10-Q/A in order to do
so. Statements that are not historical facts, including statements about
management's expectations for fiscal year 2001 and beyond, are forward-looking
statements and involve various risks and uncertainties. Factors that could cause
the Company's actual results to differ materially from management's projections,
forecasts, estimates and expectations include, but are not limited to, the
following:
UNCERTAINTIES RELATING TO THE COMPANY'S INTERNAL CONTROLS
The Company has identified numerous issues that will be critical to a successful
reorganization. In addition to these efforts, and as part of the comprehensive
internal review of its accounting records conducted in connection with the
restatement process, the Company identified material deficiencies in many of its
financial systems, processes and related internal controls and commenced a
long-term program to correct these conditions.
During the first nine months of fiscal 2001, the Company contracted with outside
accountants, including Arthur Andersen LLP, and other professionals to provide
significant non-audit assistance to the Company's corporate and field accounting
personnel. These professionals assisted with the account analysis, development
of financial reporting systems and project management support, all which was
necessary to prepare the Company's Consolidated Financial Statements, related
disclosures and other information requirements of this Form 10-Q/A and fiscal
2000 Form 10-K/A. During this same period, the Company began taking steps to
develop a comprehensive program that, over time, will establish a satisfactory
system of internal controls and a timely and reliable financial reporting
process.
The Company will continue to utilize substantial internal and supplemental
external resources until it is satisfied that its internal controls no longer
contain material weaknesses and it is capable of preparing timely and reliable
financial reporting. In closing its books and records through May 31, 2001, the
Company has posted to its general ledger system the large number of adjusting
journal entries resulting from its internal accounting review through August 31,
2000. In addition to updating its general ledger, the Company has reviewed its
accounting records for the first nine months of fiscal 2001, including the
effects of applying any changes to its accounting policies from the fiscal 1997
to 2000 review, to its current results. The Company will incur significant costs
and require extraordinary efforts to close its books at each interim and annual
period in order to produce reliable financial statements.
The Company continues the process of correcting these conditions by filling key
financial accounting and reporting positions in the organization, adding
information technology controls and improving its financial systems and
processes. The Company cannot estimate, at this time, how long it will take to
completely develop and establish an adequate internal control environment.
UNCERTAINTIES RELATING TO BANKRUPTCY PROCEEDINGS
The Company's future results are dependent upon the Company's successfully
confirming and implementing a plan or plans of reorganization. The Company has
not yet submitted a plan or plans to the Bankruptcy Court for approval and
cannot make any assurance that it will be able to obtain any such approval in a
timely manner. Failure to obtain this approval in a timely manner could
adversely affect the Company's operating results, its ability to obtain
financing to fund its operations and its relations with its customers may be
harmed by protracted bankruptcy proceedings. Furthermore, the Company cannot
predict the ultimate amount of all settlement terms for the liabilities of the
Company that will be subject to a plan of reorganization.
As of August 31, 2001, proofs of claim in the approximate amount of $174.0
billion have been filed against the Company and its affiliates by, among others,
secured creditors, unsecured creditors and security holders. The Company
believes that the amount of these claims that are in excess of the $2.5 billion
recorded as "Liabilities subject to compromise" in the accompanying Consolidated
Financial Statements as of May 31, 2001 are duplicative or without merit and
will not have a material effect on the Consolidated Financial Statements. The
Company is in the process of reviewing the proofs of claim and once this process
is complete, will file appropriate objections to the claims in the Bankruptcy
Court. As of August 31, 2001, the Company believes it has identified
approximately $170.8 billion of such claims which are duplicative or without
merit.
Once a plan or plans of reorganization is approved and implemented, the
Company's operating results may be adversely affected by the possible reluctance
of prospective lenders and customers to do business with a Company that recently
emerged from bankruptcy proceedings. The Company believes that its revenue
since the date of the filing is being adversely impacted by the Chapter 11
cases, particularly with respect to "event-based" business in the Chemical
Services Division.
-51-
EFFECT OF LAIDLAW'S FINANCIAL SITUATION ON THE COMPANY
On June 28, 2001, Laidlaw Inc. and five of its subsidiary holding companies,
Laidlaw Investments Ltd., Laidlaw International Finance Corporation, Laidlaw
One, Inc., Laidlaw Transportation, Inc. and Laidlaw USA, Inc. (collectively,
"Laidlaw") filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Western District
of New York. On the same day, Laidlaw Inc. and Laidlaw Investments Ltd. filed
cases under the Canada Companies' Creditors Arrangement Act (CCAA) in the
Ontario Superior Court of Justice in Toronto, Ontario. As a result of Laidlaw's
filings, claims and causes of action the Company may have against Laidlaw may be
subject to compromise in Laidlaw's Chapter 11 or CCAA proceedings.
The Company is unable to predict the outcome or impact of these matters and
there can be no assurance that they will not have a material adverse effect on
the Company and its operations.
LEVERAGE
The Company is currently in default under its senior debt obligations, which are
substantial. During the pendency of its bankruptcy proceedings, the Company may
only obtain additional debt financing with the approval of the Bankruptcy Court,
and has already obtained $100.0 million in such debt financing through the DIP
Facility discussed above. To date, there have been no cash borrowings against
this $100.0 million DIP Facility. As of September 10, 2001, letters of credit
in the aggregate amount of approximately $49.0 million have been issued under
the DIP Facility. The total remaining availability under the DIP Facility is
approximately $41.0 million, of which up to $26.0 million is available for
letters of credit. Depending on the resolution of its bankruptcy proceedings and
the plan or plans of reorganization adopted, the Company could emerge
from bankruptcy highly leveraged with substantial debt service obligations,
including, as discussed above, obligations or commitments regarding financial
assurance requirements. Thus the Company is particularly susceptible to adverse
changes in its industry, the economy and the financial markets. In addition, the
Company's ability to obtain additional debt financing may be limited by
restrictive covenants under the terms of credit agreements and any other debt
instruments. Those limits on financing may restrict the Company's ability to
service its debt obligations through additional debt financing if cash flow from
operations is insufficient to service such obligations. Unless amended, the DIP
Facility matures on the earlier of January 31, 2002, or the effective date of a
plan of reorganization.
ENVIRONMENTAL REGULATION AND LEGAL PROCEEDINGS
The Company's operations are subject to certain federal, state, and local
requirements, which regulate health, safety, environment, zoning and land-use.
Operating and other permits are generally required for incinerators, landfills,
transfer and storage facilities, certain collection vehicles, storage tanks and
other facilities owned or operated by the Company, and these permits are subject
to revocation, modification and renewal. Although the Company believes that its
facilities meet federal, state and local requirements in all material respects
(except for financial assurance matters described below) and have all the
required operating and other permits, it may be necessary to expend considerable
time, effort and money to keep existing or acquired facilities in compliance
with applicable requirements, including new regulations, and to maintain
existing permits and approvals and to obtain the permits and approvals necessary
to increase their capacity.
The Company is required to provide certain financial assurances with respect to
certain statutorily required closure, post-closure and corrective action
obligations related to various operating facilities. These financial assurances
may take the form of insurance, guarantees, bonds, letters of credit or deposits
of cash, to the extent acceptable to the United States, Canadian or other
foreign, state, territorial, federal, provincial or local courts, executive
offices, legislatures, governmental agencies or ministries, commissions or
administrative, regulatory or self-regulatory authorities or instrumentalities
("Governmental Entities") requiring such assurances. There is no guarantee that
the Company will be able to provide the required financial assurances.
The Company is a party to environmental and other litigation, claims and
administrative proceedings arising from its operations. The Company is unable to
predict the outcome or impact of these matters and there can be no assurance
that they will not have a material adverse effect on the Company and its
operations.
The Company believes that many of the claims and litigation matters described
above are subject to resolution in its Bankruptcy proceedings. The outcomes of
such proceedings are unknown and subject to a number of uncertainties as
described above.
MATTERS RELATED TO INVESTIGATION OF FINANCIAL RESULTS
The Company is a party to various claims filed by shareholders and bondholders
of the Company on behalf of various alleged classes of Company shareholders and
bondholders, asserting federal securities law claims against the Company and
certain present and former officers and directors of the Company and Laidlaw
Inc. These actions against the Company are subject to an automatic stay under
the Bankruptcy Code during the pendency of the Company's bankruptcy proceedings.
-52-
The Company is the subject of ongoing investigations by the Securities and
Exchange Commission and a grand jury sitting in the United States District Court
for the Southern District of New York relating to the same matters. The Company
has responded to subpoenas issued by the Securities and Exchange Commission and
the grand jury and is cooperating with each of the investigations.
In addition to the above, two shareholder derivative lawsuits were filed on
behalf of the Company against certain of its directors and former directors
alleging breach of state law fiduciary duties by the defendants. These claims
seek to recover damages on behalf of the Company against the director defendants
in an unspecified amount as well as related relief. These actions are subject to
an automatic stay under the Bankruptcy Code during the pendency of the Company's
bankruptcy proceedings.
The Company is unable to predict the outcome or impact of these matters and
there can be no assurance that they will not have a material adverse effect on
the Company and its operations.
REVIEW FOR IMPAIRMENTS
During the fourth quarter of fiscal 2001, the Company completed its operating
budget for the fiscal year 2002 and updated its five-year plan for the fiscal
years 2002 to 2006. The Company is in the process of updating its comprehensive
assessment for impairment of its long-lived assets based, in part, on the
completed budget and plans. If additional impairment charges are required once
this assessment is complete, these charges will be recorded in the fourth
quarter of fiscal 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RICK
For the nine months ended May 31, 2001, there have been no material changes in
the Company's market risk. Information relating to the Company's market risk at
August 31, 2000 is included in the Company's Annual Report on Form 10-K/A filed
on July 9, 2001.
-53-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Except as herein set forth, there have been no additional significant legal
proceedings or any material changes in the legal proceedings other than as
reported in PART II, Item 3 of the Company's Report on Form 10-K/A for the
twelve months ended August 31, 2000 filed July 9, 2001.
CHAPTER 11 FILING
On September 5, 2001, the Bankruptcy Court entered an order approving employment
and indemnification agreements with Ronald A. Rittenmeyer, who had been
appointed to the Board of Directors of the Company in April 2001. At the same
time, the Bankruptcy Court approved termination and consulting agreements
with David E. Thomas, Jr. and Grover C. Wrenn. Under the employment and
indemnification agreements, Mr. Rittenmeyer will become Chairman of the Board,
President and Chief Executive Officer of the Company and Messrs. Thomas and
Wrenn will remain on the Board of Directors as non-executive Vice Chairmen and
will be available to consult with the Board of Directors and Mr. Rittenmeyer as
needed on specific issues.
On August 21, 2001, the Bankruptcy Court entered an Order approving a Consent
Agreement between the Company and certain of its subsidiaries and the Texas
Natural Resources Conservation Commission (the "Texas Consent Agreement"). The
Texas Consent Agreement is a parallel agreement as is contemplated in the
Amended Consent Agreement between the Environmental Protection Agency and the
Company and certain of its subsidiaries previously approved by the Bankruptcy
Court and Texas is a parallel action state as is contemplated in that agreement.
The Texas Consent Agreement represents a comprehensive settlement between the
Debtors and the Texas Natural Resources Commission (the "TNRCC") settling
various environmental claims and civil administrative actions asserted by the
TNRCC. In connection with the Texas Consent Agreement, the Company, through one
of its subsidiaries, has paid an administrative penalty in the amount of $1.5
million in settlement of various violations related to the failure to provide
compliant financial assurance for alleged hazardous waste violations in the
State of Texas.
On August 21, 2001, the Bankruptcy Court approved a motion permitting the
Company to continue to advance certain legal defense costs to certain employees
in connection with the investigations being conducted by the Securities and
Exchange Commission and the U.S. Attorney's Office.
MATTERS RELATED TO INVESTIGATION OF FINANCIAL RESULTS
On September 13, 2001, the Board of Directors dissolved the Special Committee
(Investigation) and established the Special Committee (Conflicts of Interest in
Litigation). The Special Committee (Conflicts of Interest in Litigation) is
authorized to manage all litigation involving the Company and a member of the
Board of Directors. The new committee is comprised of Ronald A. Rittenmeyer,
Kenneth K. Chalmers, Peter E. Lengyel and David W. Wallace, each of whom was
appointed to the Board subsequent to March 6, 2000 and is not personally
involved in such litigation.
On March 5, 2001, a class action captioned Eaton Vance Distributors, Inc., T.
Rowe Price Associates, Inc., Delaware Investment Advisors, John Hancock Funds,
Inc., and Putnam Investments, Inc., v. Kenneth W. Winger, Laidlaw Inc. John R.
Grainger, James R. Bullock, Paul R. Humphreys, John Rollins, Sr., John W.
Rollins, Jr., Leslie W. Haworth, David E. Thomas, Jr., Henry B. Tippie, James L.
Wareham, Grover C. Wrenn, Michael J. Bragagnolo and Henry H. Taylor, Case No.
01AS01376, was filed in the Superior Court of the State of California, County of
Sacramento. The plaintiffs purchased or acquired certain bonds issued by the
California Pollution Control Financing Authority on July 1, 1997, secured by an
indenture agreement with Laidlaw Environmental Services, Inc. and its successor
Safety-Kleen Corp., in their initial offering on July 1, 1997, and retained
through March 6, 2000. The bonds were entitled Pollution Control Refunding
Revenue Bonds due July 1, 2007. The plaintiffs allege, among other things, that
the defendants made written or oral communications containing material false
statements or omissions and violated certain state securities laws and common
law. The plaintiffs seek to recover compensatory damages in the amount of
approximately $21.7 million and punitive damages in the amount of approximately
$65.2 million, as well as related relief. Although the Company is not a party
to this action, certain of the individual defendants, who are present or former
officers or directors of the Company, may make demands to be indemnified by the
Company in connection with the action. A motion to quash the complaint, on
behalf of David E. Thomas, John W. Rollins, Jr., the Estate of John W. Rollins,
Sr., James L. Wareham, Grover C. Wrenn, and Henry B. Tippie was filed on August
27, 2001. On behalf of Mr. Taylor, a motion to quash service of the summons was
filed on September 4, 2001.
-54-
FINANCIAL ASSURANCE ISSUES
On August 7, 2001, the Company obtained the letter of credit necessary to enable
it to replace Frontier Insurance Company ("Frontier") surety bonds at more than
100 facilities, pursuant to Bankruptcy Court approval obtained on July 11, 2001.
Several states already have approved the replacement insurance policies, which
Indian Harbor Insurance Company has issued, and in those states the Company now
has financial assurance coverage that complies with applicable law. The Company
expects the remaining affected states and the United States Environmental
Protection Agency ("EPA") to approve the Indian Harbor policies in the near
future.
The Company understands that, on August 27, 2001, Frontier entered a
rehabilitation proceeding that the New York Superintendent of Insurance will
administer pursuant to New York law. The Company further understands that in
such a proceeding, the Superintendent takes possession of the property of
Frontier and conducts its business. Because Frontier continues to provide
substantial amounts of financial assurance coverage at various facilities that
the Company and its subsidiaries own and operate, the Company is investigating
the extent to which, if at all, the New York rehabilitation proceeding will
impact the rights of the Company or the states or EPA with respect to these
financial assurance surety bonds. The Company has not been notified of any
change in the validity of such bonds.
As noted above under Chapter 11 Filing, on August 21, 2001, the Bankruptcy Court
approved the settlement agreement between the Company and certain of its
subsidiaries and the State of Texas with respect to financial assurance (and
other matters) in that state. Having now obtained Court approval, the Company
is implementing that settlement agreement and now has compliant financial
assurance where required at all the facilities that it or its subsidiaries own
and operate in Texas.
As described in greater detail in the Company's Annual Report on Form 10-K/A for
the fiscal year ended August 31, 2000, the Company currently is subject to a
Consent Agreement and Final Order with EPA (and similar agreements in certain
other states) requiring the replacement of Frontier at additional facilities on
September 30, 2001, although the EPA staff has agreed to an extended deadline of
October 18, 2001. The Company anticipates seeking Court approval for the
replacement of Frontier at some of these facilities and is seeking additional
time (beyond October 18, 2001) from EPA and the affected states for the
replacement of Frontier at other facilities, many of which already are
closed. Negotiations regarding the Company's request are underway. If these
negotiations do not succeed, the active facilities for which Frontier continues
to provide coverage (located primarily in Utah and Colorado) may be required to
close and the Company also may be subject to further penalties.
GENERAL
The Company's hazardous and industrial waste services are continuously regulated
by federal, state, provincial and local laws enacted to regulate the discharge
of materials into the environment or primarily for the purpose of protecting the
environment. This inherent regulation of the Company necessarily results in its
frequently becoming a party to judicial or administrative proceedings involving
all levels of governmental authorities and other interested parties. The issues
that are involved generally relate to applications for permits and licenses by
the Company and their conformity with legal requirements and alleged violations
of existing permits and licenses. At September 14, 2001, subsidiaries of the
Company were involved in nine proceedings in which a governmental authority is a
party relating primarily to activities at waste treatment, storage and disposal
facilities where the Company believes sanctions involved in each instance may
exceed $100,000.
In the United States, CERCLA imposes financial liability on persons who are
responsible for the release of hazardous substances into the environment.
Present and past owners and operators of sites which release hazardous
substances, as well as generators, disposal arrangers and transporters of the
waste material, may be strictly, jointly and severally liable for remediation
costs and natural resources damage. At September 10, 2001, the Company had
identified 60 active federal or state-run CERCLA sites where the Company is a
potentially responsible party. The Company periodically reviews its status with
respect to each location and the extent of its alleged contribution to the
volume of waste at the location, the available evidence connecting the Company
to that location, and the financial soundness of other potentially responsible
parties at the location.
-55-
Lambton Hazardous Waste Landfill, Ontario, Canada
------------------------------------------------------
On September 3, 1999, The Company's Lambton hazardous waste landfill facility in
Ontario, Canada, discovered an upwelling of water and natural gas in a disposal
cell designated as Sub-cell 3. While in the course of trying to determine the
source and cause of the upwelling, the Company informed the Ontario Ministry of
Environment and Energy ("MOE") of the situation. On November 2, 1999, MOE
issued a Field Order finding that the upward migration of water and methane gas
onto the landfill cell floor necessitated that the Company not utilize the newly
constructed Sub-cell 3 for waste disposal. On December 14, 1999 the MOE issued
a second Field Order requiring that Sub-cell 4, another newly constructed cell,
not be utilized for waste disposal after MOE officials observed what they
believed to be significant gas evolution from the bottom of the cell. On
December 21, 1999 independent technical experts and Company professionals
presented to MOE testimony and a report addressing MOE concerns. Following the
hearing and testimony, the MOE issued a third Field Order on December 24, 1999
revoking the two previous orders and allowing the utilization of Sub-cell 4 for
waste disposal under new conditions which included that, (1) no waste in
Sub-cell 4 was to be placed below an elevation of 182 meters above mean sea
level and (2) with respect to Sub-cell 3 the Company was to provide a report for
the approval of the Director of the MOE which would provide the plan for
identifying potential areas of gas and water venting, the proposed measures to
remediate all areas identified and further steps to protect the integrity of the
sub-cell. In accordance with the third Field Order, the Company submitted a
report to the MOE in February 2000 outlining its plan for present and future
site activities. The MOE issued an Order approving the remediation plan. In
accordance with the approved plan, physical remediation began in spring 2001.
The Order requires that the plan be fully implemented by the end of December
2001.
Hudson County Improvement Authority Litigation
--------------------------------------------------
On July 11, 2001 the Bankruptcy Court entered an Order authorizing the Company's
rejection of the executory contracts and the unexpired lease to which SK
Services East and HCIA were parties. The Order does not limit, abridge, or
otherwise effect HCIA's right to assert and seek remedies regarding its pre-
and/or postpetition claims against the Company for damages and other relief.
Also on July 11, 2001 the Bankruptcy Court granted HCIA's motion to modify the
Bankruptcy Code's automatic stay, and entered an Order permitting the Superior
Court of New Jersey, Hudson County, to make its final determination regarding SK
Services East contractual obligations under the Agreement and Lease. The
Superior Court has scheduled oral argument on this matter for September 2001.
FUSRAP Waste Disposal at Safety-Kleen (Buttonwillow), Inc.
----------------------------------------------------------------
Safety-Kleen (Buttonwillow), Inc., a subsidiary of the Company, owns and
operates a hazardous waste landfill in Kern County California. The facility
accepted and disposed of construction debris that originated at a site in New
York which was part of the federal Formerly Utilized Sites Remediation Program
(FUSRAP). The construction debris was low-activity radioactive waste and was
shipped to the site by the U.S. Army Corps of Engineers (USACE). FUSRAP was
created in the mid-1970s in an attempt to manage various sites around the
country contaminated with residual radioactivity from activities conducted by
the Atomic Energy Commission and United States military during World War II. The
California Department of Health Services (DHS) has claimed that the facility did
not lawfully accept the waste. Both DHS and the Department of Toxic Substances
Control (DTSC) have filed claims in the Company's Bankruptcy proceedings
preserving the right of the agencies to seek penalties and possibly compel
removal of the material should an ongoing investigation reveal the subsidiary
acted improperly. DHS claimed penalties in the amount of $0.6 million and
potential removal costs of $15.5 million should DHS have to oversee and/or
conduct the removal. The proof of claim filed by the DTSC was in the amount of
$15.0 million for potential penalties plus an unspecified amount for any costs
the DTSC may incur should the subsidiary be forced to remove the waste. The
subsidiary and the USACE contend the material was properly disposed of and will
vigorously resist the imposition of any penalties or any efforts to require that
waste be removed.
-56-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(3)(a) Restated Certificate of Incorporation of the Company dated May 13, 1997
and Amendment to Certificate of Incorporation dated May 15, 1997, Certificate of
Correction Filed to Correct a Certain Error in the Restated and Amended
Certificate of Incorporation of the Company dated October 15, 1997, Certificate
of Amendment to the Restated Certificate of Incorporation of the Company dated
November 25, 1998, and Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated November 30, 1998, all filed as Exhibit
(3)(a) to the Registrant's Form 10-Q for the three months ended February 28,
2001, and incorporated herein by reference.
(3)(b) Amended and Restated Bylaws of the Company filed as Exhibit (3)(b) to the
Registrant's Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
(4)(a) Indenture dated as of May 29, 1998 between LES, Inc. (a subsidiary of the
Registrant), Registrant, subsidiary guarantors of the Registrant and The Bank of
Nova Scotia Trust Company of New York, as trustee filed as Exhibit 4(b) to the
Registrant's Form S-4 Registration Statement No. 333-57587 filed June 24, 1998
and incorporated herein by reference.
(4)(b) First Supplemental Indenture effective as of November 15, 1998 among
Safety-Kleen Services, Inc. the Registrant, SK Europe, Inc. and The Bank of Nova
Scotia Trust Company of New York, as trustee filed as Exhibit (4)(f) to the
Registrant's Form S-4 Registration Statement No. 333-82689 filed July 12, 1999
and incorporated herein by reference.
(4)(c) Second Supplemental Indenture effective as of May 7, 1999 among
Safety-Kleen Services, Inc. the Company, SK Services, L.C., SK Services (East),
L.C. and The Bank of Nova Scotia Trust Company of New York, as trustee filed as
Exhibit (4)(d) to the Company's Form 10-K filed October 29, 1999 and
incorporated herein by reference.
(4)(d) Indenture dated as of May 17, 1999 between the Company and the Bank of
Nova Scotia Trust Company of New York, as trustee filed as Exhibit (4)(b) to the
Registrant's Form S-4 Registration Statement No. 333-82689 filed July 12, 1999
and incorporated herein by reference.
(4)(e) Amended and Restated Credit Agreement among Laidlaw Chem-Waste, Inc.,
Laidlaw Environmental Services (Canada) Ltd., Toronto Dominion (Texas) Inc., The
Toronto-Dominion Bank, TD Securities (USA) Inc., The Bank of Nova Scotia,
NationsBank, N.A. and The First National Bank of Chicago and NationsBank, N.A.
as Syndication Agent dated as of April 3, 1998, filed as Exhibit 4(f) to the
Registrant's Form 10-Q for the three months ended February 28, 1999 and
incorporated herein by reference.
(4)(f) Supplement to the Amended and Restated Credit Agreement among Laidlaw
Chem-Waste, Inc., Laidlaw Environmental Services (Canada) Ltd., Toronto Dominion
(Texas) Inc., The Toronto-Dominion Bank, TD Securities (USA) Inc., The Bank of
Nova Scotia, NationsBank, N.A. and The First National Bank of Chicago and
NationsBank, N.A. as Syndication Agent dated as of April 3, 1998, filed as
Exhibit 4(e) to a subsidiary of the Registrant's Form S-4 Registration Statement
No. 333-57587 filed June 24, 1998 and incorporated herein by reference.
(4)(g) Waiver and First Amendment to the Amended and Restated Credit Agreement
dated as of May 15, 1998 among LES, Inc., Laidlaw Environmental Services
(Canada) Ltd., the Lenders, Toronto Dominion (Texas), Inc., The Toronto Dominion
Bank, TD Securities (USA) Inc., The Bank of Nova Scotia, NationsBank, N.A., The
First National Bank of Chicago and Wachovia Bank filed as Exhibit 4(f) to a
subsidiary of the Registrant's Form S-4 Registration Statement No. 333-57587
filed June 24, 1998 and incorporated herein by reference.
(4)(h) Commitment to Increase Supplement to the Amended and Restated Credit
Agreement dated as of June 3, 1998 among LES, Inc., Laidlaw Environmental
Services (Canada) Ltd., the Lenders, Toronto Dominion (Texas), Inc., The Toronto
Dominion Bank, TD Securities (USA) Inc., The Bank of Nova Scotia, NationsBank,
N.A., The First National Bank of Chicago and Wachovia Bank filed as Exhibit 4(g)
to a subsidiary of the Registrant's Form S-4 Registration Statement No.
333-57587 filed June 24, 1998 and incorporated herein by reference.
(4)(i) Second Amendment to the Amended and Restated Credit Agreement dated as
of November 20, 1998 among Safety-Kleen Services, Inc. (formerly known as LES,
Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as Laidlaw
Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion (Texas),
Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of Nova
Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia Bank
N.A., filed as Exhibit (4)(j) to the Registrant's Form 10-Q for the three months
ended February 28, 1999 and incorporated herein by reference.
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(4)(j) Waiver and Third Amendment to the Amended and Restated Credit Agreement
dated as of May 6, 1999 among Safety-Kleen Services, Inc. (formerly known as
LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as Laidlaw
Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion (Texas),
Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of Nova
Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia Bank
N.A. filed as Exhibit (4)(l) to the Registrant's Form S-4 Registration Statement
No. 333-82689 filed July 12, 1999 and incorporated herein by reference.
(4)(k) Fourth Amendment dated as of March 13, 2000 to the Amended and Restated
Credit Agreement dated as of May 6, 1999 among Safety-Kleen Services, Inc.
(formerly known as LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly
known as Laidlaw Environmental Services (Canada) Ltd.), the Lenders, Toronto
Dominion (Texas), Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The
Bank of Nova Scotia, NationsBank, N.A., The First National Bank of Chicago and
Wachovia Bank N.A. filed as Exhibit (4)(l) to the Registrant's Form 10-Q for the
three months ended May 31, 2000 and incorporated herein by reference.
(4)(l) Consent dated as of March 16, 2000 to the Amended and Restated Credit
Agreement dated as of May 6, 1999 among Safety-Kleen Services, Inc. (formerly
known as LES, Inc.), Safety-Kleen Services (Canada) Ltd. (formerly known as
Laidlaw Environmental Services (Canada) Ltd.), the Lenders, Toronto Dominion
(Texas), Inc., The Toronto Dominion Bank, TD Securities (USA) Inc., The Bank of
Nova Scotia, NationsBank, N.A., The First National Bank of Chicago and Wachovia
Bank N.A. filed as Exhibit (4)(m) to the Registrant's Form 10-Q for the three
months ended May 31, 2000 and incorporated herein by reference.
(4)(m) Amended and Restated $100,000,000 Debtor In Possession Credit Agreement
among Safety-Kleen Services, Inc., The Several Lenders from Time to Time Parties
thereto, Toronto Dominion (Texas), Inc., as General Administrative Agent and
Underwriter and The CIT Group/Business Credit, Inc. as Collateral Agent and
Underwriter Initially dated as of June 11, 2000 Amended and Restated as of July
19, 2000 Company filed as Exhibit (4)(m) to the Registrant's Form 10-K for the
year ended August 31, 2000 and incorporated herein by reference.
(4)(n) First Amendment, dated as of October 31, 2000, to the Amended and
Restated $100,000,000 Debtor In Possession Credit Agreement among Safety-Kleen
Services, Inc., The Several Lenders from Time to Time Parties thereto, Toronto
Dominion (Texas), Inc., as General Administrative Agent and Underwriter and The
CIT Group/Business Credit, Inc. as Collateral Agent and Underwriter Initially
dated as of June 11, 2000 Amended and Restated as of July 19, 2000, filed as
Exhibit (4)(n) to the Registrant's Form 10-Q for the three months ended November
30, 2000 and incorporated herein by reference.
(4)(o) Second Amendment and Waiver, dated as of February 28, 2001, to the
Amended and Restated Debtor-in-Possession Credit Agreement among Safety-Kleen
Services, Inc., The Several Lenders from Time to Time Parties thereto,
Toronto-Dominion (Texas), Inc. as General Administrative Agent and Underwriter
and The CIT Group/Business Credit, Inc. as Collateral Agent and Underwriter
Initially dated as of June 11, 2000, Amended and Restated as of July 19, 2000,
filed as Exhibit (4)(o) to the Registrant's Form 10-K/A for the year ended
August 31, 2000, filed on July 9, 2001 and incorporated herein by reference.
(4)(p) Third Amendment and Waiver, dated as of March 28, 2001, to the Amended
and Restated Debtor-in-Possession Credit Agreement among Safety-Kleen Services,
Inc., The Several Lenders from Time to Time Parties thereto, Toronto-Dominion
(Texas), Inc. as General Administrative Agent and Underwriter and The CIT
Group/Business Credit, Inc. as Collateral Agent and Underwriter Initially dated
as of June 11, 2000, Amended and Restated as of July 19, 2000, filed as Exhibit
(4)(p) to the Registrant's Form 10-K/A for the year ended August 31, 2000, filed
on July 9, 2001 and incorporated herein by reference.
(4)(q) Fourth Amendment and Waiver, dated as of April 30, 2001, to the Amended
and Restated Debtor-in-Possession Credit Agreement among Safety-Kleen Services,
Inc., The Several Lenders from Time to Time Parties thereto, Toronto-Dominion
(Texas), Inc. as General Administrative Agent and Underwriter and The CIT
Group/Business Credit, Inc. as Collateral Agent and Underwriter Initially dated
as of June 11, 2000, Amended and Restated as of July 19, 2000, filed as Exhibit
(4)(q) to the Registrant's Form 10-K/A for the year ended August 31, 2000, filed
on July 9, 2001 and incorporated herein by reference.
(4)(r) Fifth Amendment and Agreement, dated as of August 6, 2001, to the
Amended and Restated Debtor-in-Possession Credit Agreement among Safety-Kleen
Services, Inc., The Several Lenders from Time to Time Parties thereto,
Toronto-Dominion (Texas), Inc. as General Administrative Agent and Underwriter
and The CIT Group/Business Credit, Inc. as Collateral Agent and Underwriter
Initially dated as of June 11, 2000, Amended and Restated as of July 19, 2000.
(4)(s) Sixth Waiver dated as of September 4, 2001, to the Amended and Restated
Debtor-in-Possession Credit Agreement among Safety-Kleen Services, Inc., The
Several Lenders from Time to Time Parties thereto, Toronto-Dominion (Texas),
Inc. as General Administrative Agent and Underwriter and The CIT Group/Business
Credit, Inc. as Collateral Agent and Underwriter Initially dated as of June 11,
2000, Amended and Restated as of July 19, 2000.
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(4)(t) Letter Agreement among Toronto Dominion (Texas), Inc., as administrative
agent, the Company and Safety-Kleen Systems, Inc. dated December 12, 2000
relating to the Amended and Restated Marketing and Distribution Agreement by
Safety-Kleen Systems, Inc. and System One Technologies Inc., filed as Exhibit
(4)(o) to the Registrant's Form 10-Q for the three months ended February 28,
2001, and incorporated herein by reference.
(4)(u) Registration Rights Agreement dated May 15, 1997 between the Company,
Laidlaw Transportation, Inc. and Laidlaw Inc. the form of which was filed as
Exhibit B to Annex A to the Registrant's Definitive Proxy Statement on Form DEF
14A, filed on May 1, 1997 and incorporated herein by reference.
(4)(v) Indenture dated as of May 1, 1993 between the Industrial Development
Board of the Metropolitan Government of Nashville and Davidson County
(Tennessee) and NationsBank of Tennessee, N.A., filed as Exhibit 4(f) to the
Registrant's Form 10-Q for the three months ended May 31, 1997 and incorporated
herein by reference.
(4)(w) Indenture of Trust dated as of August 1, 1995 between Tooele County,
Utah and West One Bank, Utah, now known as U.S. Bank, as Trustee, filed as
Exhibit 4(h) to the Registrant's form 10-Q for the three months ended May 31,
1997 and incorporated herein by reference.
(4)(x) Indenture of Trust dated as of July 1, 1997 between Tooele County, Utah
and U.S. Bank, a national banking association, as Trustee, filed as Exhibit 4(j)
to the Registrant's Form 10-Q for the three months ended May 31, 1997 and
incorporated herein by reference.
(4)(y) Indenture of Trust dated as of July 1, 1997 between California Pollution
Control Financing Authority and U.S. Bank, a national banking association, as
Trustee, filed as Exhibit 4(k) to the Registrant's Form 10-Q for the three
months ended May 31, 1997 and incorporated herein by reference.
(4)(z) Promissory Note dated May 15, 1997 for $60,000,000 from the Company to
Westinghouse Electric Corporation, filed as Exhibit 4(n) to the Registrant's
Form 10-Q for the three months ended May 31, 1997 and incorporated herein by
reference.
(4)(aa) Letter dated May 7, 1999 from Toronto-Dominion (Texas) Inc. (as
assignee of Westinghouse Electric Corporation) and agreed to by the Company and
Laidlaw Inc. amending the terms of the Promissory Note dated May 15, 1997 (as
referenced in Exhibit (4)(z)) filed as Exhibit (4)(u) to the Registrant's Form
S-4 Registration Statement No. 333-82689 filed July 12, 1999 and incorporated
herein by reference.
(4)(bb) Guaranty Agreement dated May 15, 1997 by Laidlaw Inc. to Westinghouse
Electric Corporation guaranteeing Promissory Note dated May 15, 1997 (as
referenced in Exhibit (4)(z)) from Company to Westinghouse Electric Corporation,
filed as Exhibit 4(o) to the Registrant's Form 10-Q for the three months ended
May 31, 1997 and incorporated herein by reference.
(4)(cc) Rights Agreement dated as of October 15, 1999 between the Company and
EquiServe Trust Company, N.A., as Rights Agent, filed as Exhibit (c)1 to the
Company's Current Report on Form 8-K filed on October 15, 1999 and incorporated
herein by reference.
(4)(dd) First Amendment to Rights Agreement, dated as of March 17, 2000,
between the Company and EquiServe Trust Company, N.A. filed as Exhibit 99.1 to
the Company's Current Report on Form 8-K filed on March 17, 2000 and
incorporated herein by reference.
(4)(ee) Letter Agreement, dated October 12, 1999, between the Company and
Laidlaw Inc. filed as Exhibit 99.2 to the Company's Current Report on Form 8-K
filed on March 17, 2000 and incorporated herein by reference.
(4)(ff) Other instruments defining the rights of holders of nonregistered debt
of the Company have been omitted from this exhibit list because the amount of
debt authorized under any such instrument does not exceed 10% of the total
assets of the Company and its subsidiaries. The Company agrees to furnish a
copy of any such instrument to the Commission upon request.
(10)(a) Agreement and Plan of Merger dated as of March 16, 1998 by and among
Registrant, LES Acquisition, Inc., and Safety-Kleen Corp. included as Annex A of
Safety-Kleen's Revised Amended Prospectus on Form 14D-9 filed as Exhibit 62 to
Safety-Kleen's Amendment No. 28 to Schedule 14-9A on March 17, 1998 and
incorporated herein by reference.
(10)(b) Stock Purchase Agreement between Westinghouse Electric Corporation
(Seller) and Rollins Environmental Services, Inc. (Buyer) for National Electric,
Inc. dated March 7, 1995 filed as Exhibit 2 to the Registrant's Current Report
on Form 8-K filed on June 13, 1995 and incorporated herein by reference.
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(10)(c) Second Amendment to Stock Purchase Agreement (as referenced in Exhibit
(10)(b) above), dated May 15, 1997 among Westinghouse Electric Corporation,
Rollins Environmental Services, Inc. and Laidlaw Inc., filed as Exhibit 4(m) to
the Registrant's Form 10-Q for the three months ended May 31, 1997 and
incorporated herein by reference.
(10)(d) Agreement for the sale and purchase of shares and loan stock held by SK
Europe, Inc. in Safety-Kleen Europe Limited between Safety-Kleen Europe Limited
and SK Europe, Inc. and the Company and The Electra Subscribers and Electra
European Fund LP dated as of July 6, 2000 Company filed as Exhibit (10)(d) to
the Registrant's Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
(10)(e) Rollins Environmental Services, Inc. 1982 Incentive Stock Option Plan
filed with Amendment No. 1 to the Company's Registration Statement No. 2-84139
on Form S-1 dated June 24, 1983 and incorporated herein by reference.
(10)(f) Rollins Environmental Services, Inc. 1993 Stock Option Plan filed as
Exhibit (10)(e) to the Registrant's Current Form 10-Q for the three months ended
May 31, 2000 and incorporated herein by reference.
(10)(g) The Company's 1997 Stock Option Plan, filed as Exhibit 4.4 to the
Company's Registration Statement No. 333-41859 on Form S-8 dated December 10,
1997 and incorporated herein by reference.
(10)(h) First Amendment to Company's 1997 Stock Option Plan, filed as Exhibit
(10)(g) to the Company's Form 10-Q for the three months ended November 30, 1999
and incorporated herein by reference.
(10)(i) The Company's Director's Stock Option Plan, filed as Exhibit 4.5 to the
Company's Registration Statement No. 333-41859 on Form S-8 dated December 10,
1997 and incorporated herein by reference.
(10)(j) First Amendment to Company's Director's Stock Option Plan filed as
Exhibit (10)(i) to the Company's Form 10-Q for the three months ended November
30, 1999 and incorporated herein by reference.
(10)(k) Stock Purchase Agreement dated February 6, 1997 among the Company,
Laidlaw Inc., and Laidlaw Transportation, Inc. filed as Exhibit A to Annex A to
the Definitive Proxy Statement on Form DEF 14A filed on May 1, 1997 and
incorporated herein by reference.
(10)(l) Executive Bonus Plan for fiscal year 2000 filed as Appendix C to the
Definitive Proxy Statement on Form DEF 14A filed on October 29, 1999 and
incorporated herein by reference.
(10)(m) The Company's U.S. Supplemental Executive Retirement Plan filed as
Exhibit 10(g) to the Company's Form 10-Q for the three months ended November 30,
1997 and incorporated herein by reference.
(10)(n) Employment Agreement by and between Company and Grover C. Wrenn dated
as of August 23, 2000 filed as Exhibit (10)(n) to the Registrant's Form 10-K for
the year ended August 31, 2000 and incorporated herein by reference.
(10)(o) Employment Termination And Consulting Agreement dated as of August 15,
2001 between Safety-Kleen Corp. and Grover C. Wrenn.
(10)(p) Employment Agreement by and between Company and David E. Thomas, Jr.
dated as of August 23, 2000 filed as Exhibit (10)(o) to the Registrant's Form
10-K for the year ended August 31, 2000 and incorporated herein by reference.
(10)(q) Employment Termination And Consulting Agreement dated as of August 15,
2001 between Safety-Kleen Corp. and David E. Thomas, Jr.
(10)(r) Employment Agreement by and between Company and Larry W. Singleton
dated as of July 17, 2000 filed as Exhibit (10)(p) to the Registrant's Form 10-K
for the year ended August 31, 2000 and incorporated herein by reference.
(10)(s) Employment Agreement by and between Safety-Kleen Corp. and Ronald A.
Rittenmeyer, dated as of August 8, 2001.
(10)(t) Company Indemnification Agreement delivered to Ronald A. Rittenmeyer by
Safety-Kleen Corp., effective as of August 8, 2001.
(10)(u) Form of Senior Executive Change of Control Agreement filed as Exhibit
(10)(q) to the Registrant's Form 10-K for the year ended August 31, 2000 and
incorporated herein by reference.
(10)(v) Senior Executive Retention Plan filed as Exhibit (10)(r) to the
Registrant's Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
(10)(w) Senior Executive Severance Plan filed as Exhibit (10)(s) to the
Registrant's Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
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(10)(x) Executive Retention Plan filed as Exhibit (10)(t) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(10)(y) Executive Severance Plan filed as Exhibit (10)(u) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(10)(z) Key Manager Retention Plan filed as Exhibit (10)(v) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(10)(aa) Key Manager Severance Plan filed as Exhibit (10)(w) to the
Registrant's Form 10-K for the year ended August 31, 2000 and incorporated
herein by reference.
(10)(bb) Letter Agreement dated March 16, 2000 between Jay Alix & Associates
and the Company filed as Exhibit (10)(x) to the Company's Form 10-Q for the
three months ended May 31, 2000 and incorporated herein by reference.
(10)(cc) Second Amended and Restated Marketing and Distribution Agreement,
dated as of March 8, 2001 by and between SystemOne Technologies Inc. and
Safety-Kleen Systems, Inc., a subsidiary of the Registrant, filed as Exhibit
10.16 to SystemOne Technologies Inc. Form 10-KSB for the year ended December 31,
2000 and incorporated herein by reference.
(99.1) Consent Agreement and Final Order by and between the United States
Environmental Protection Agency and Safety-Kleen Corp. and certain of its United
States subsidiaries and affiliates filed as Exhibit (99.1) to the Registrant's
Form 10-K for the year ended August 31, 2000 and incorporated herein by
reference.
(99.2) Amended Consent Agreement and Final Order by and between the United
States Environmental Protection Agency and Safety-Kleen Corp. and certain of its
United States subsidiaries and affiliates as approved by the United States
Bankruptcy Court on May 16, 2001, filed as Exhibit (99.2) to the Registrant's
Form 10-K/A for the year ended August 31, 2000, filed on July 9, 2001 and
incorporated herein by reference.
(b) Reports on Form 8-K:
i. The Company filed a Current Report on Form 8-K on September 15, 2000, which
contained Item 5 related to an updated report concerning the Pinewood legal
proceeding.
ii. The Company filed a Current Report on Form 8-K on October 11, 2000, which
contained Item 5 related to an updated report concerning the Pinewood legal
proceeding.
iii. The Company filed a Current Report on Form 8-K on November 14, 2000, which
contained Item 5 related to a press release announcing that Safety-Kleen to
launch SystemOne Product line for 2001.
iv. The Company filed a Current Report on Form 8-K on December 11, 2000, which
contained Item 5 related to a press release announcing that Safety-Kleen
had reached an agreement with Indian Harbor Insurance Co. to provide
approximately $143 million worth of closure, post-closure and corrective
action financial assurance for Safety-Kleen facilities.
v. The Company filed a Current Report on Form 8-K on February 2, 2001, which
contained Item 5 related to three press releases announcing the cessation
of operations at the Company's Hilliard, Ohio Wastewater Treatment
Facility, the Company's change in operations at its Coffeyville, Kansas
facility and the closure of the Company's Bridgeport, New Jersey
incineration facility.
vi. The Company filed a Current Report on Form 8-K on March 23, 2001, which
contained Items 5 and 7 related to a press release announcing the
appointment of two new directors to the Company's Board of Directors.
vii. The Company filed a Current Report on Form 8-K on May 3, 2001, which
contained Items 5 and 7 related to a press release announcing the
appointment of one new director to the Company's Board of Directors.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATE: September 21, 2001 SAFETY-KLEEN CORP.
---------------------------------
(Registrant)
/s/ Larry W. Singleton
---------------------------------
Larry W. Singleton
Chief Financial Officer
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