ITEM 1. BUSINESS
GENERAL
Safety-Kleen is a leader in servicing the recycling and waste needs of companies in the automotive/retail repair, industrial, imaging and other business sectors. Over 2,800 Safety-Kleen specialists service customers from a branch network that extends across North America and Western Europe.
Focusing primarily on the needs of smaller businesses, Safety-Kleen performed nearly five million individual services and reclaimed more than 300 million gallons of contaminated fluid through a network of 230 branches worldwide in 1996. The Company collects and recycles used products at thirteen recycle centers, two lube oil re-refineries, and three fuel-blending facilities.
The Company operates in the continental U.S., Canada, the United Kingdom, the Republic of Ireland, Puerto Rico, Belgium, France, Italy, Spain and Germany. The Company has licensee operations in Japan and Korea. Safety-Kleen Corp. was incorporated in July, 1963 under the laws of the State of Wisconsin. As used herein, the terms "Company" or "Safety-Kleen" refer to Safety-Kleen Corp. and its consolidated subsidiaries.
The Company groups its operations geographically into North America and Europe. The Company further segregates its North American services into four broad categories: Industrial Services, Automotive/Retail Repair Services, Oil Recovery Services and Other Services. Each of the Company's services is discussed in greater detail below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 21-25 of the Company's Annual Report to Shareholders for the year ended December 28, 1996 (the "Annual Report"), which is incorporated herein by reference.
INDUSTRIAL SERVICES
The Company markets two major services to its Industrial Services customers: its Parts Cleaner Service and its Fluid Recovery Service. In Safety-Kleen's Parts Cleaner Service, the Company's service representative places parts cleaner equipment and solvent with a customer. The service representative then makes service calls at regular intervals where he cleans and maintains the equipment, removes the dirty solvent and replaces it with clean solvent. The dirty solvent is recycled and reused. The Company provides a choice of several models of parts cleaners to customers for their use as part of the Parts Cleaner Service and provides service to customers who own their own parts cleaner equipment. Safety-Kleen also offers a line of water-based cleaning systems through its Parts Cleaner Service.
The Company's Fluid Recovery Service consists primarily of the collection of a wide variety of waste solvents and other liquid and solid containerized wastes generated by industrial customers in relatively small quantities, averaging a few 55-gallon drums per pickup. Depending upon the content, the material collected by the Company in its Fluid Recovery Service is generally recycled into usable solvent, processed into a waste-derived fuel for use in the cement manufacturing industry or disposed of through incineration. Wastewater that is collected as part of the Company's Fluid Recovery Service is treated and processed until it can be discharged into publicly-owned treatment works in compliance with applicable laws and regulations.
AUTOMOTIVE/RETAIL REPAIR SERVICES
The primary component of the Company's Automotive/Retail Repair Services is its Parts Cleaner Service. Safety-Kleen furnishes service stations, car and truck dealers, small engine repair shops, fleet maintenance shops and its other automotive/retail repair customers with the same high quality Parts Cleaner Service that it provides to its Industrial Services customers. In 1996, the Company introduced a new service line within the Automotive/Retail Repair Services market--Vacuum Services. This service utilizes specialized vacuum trucks that remove residual oil and sludge from underground oil/water separators found at many automotive repair and small industrial locations.
OIL RECOVERY SERVICES
The Company collects used lubricating oils from automobile and truck dealers, automotive garages, oil change outlets, service stations, industrial plants and other businesses. The used oil is then transferred to a re-refining plant where most of the product is converted into high-quality base lubricating oil. The Company derives revenues both from fees it charges customers to haul away used oil and from the sale of products it produces by processing the used oil. The Company's extensive branch network enables it to collect waste oil in sufficient volume to support oil re-refining operations, which produce lubricating oil that can be sold at significantly higher prices than industrial fuels. The Company operates oil re-refining plants in Breslau, Ontario and East Chicago, Indiana. The plants in Breslau and East Chicago have annual re-refining capacities of 43 and 92 million gallons of used oil per year, respectively. Used oil collected in excess of the capacity of the Company's re-refining facilities is either processed into industrial fuels or sold unprocessed for direct use as a fuel in certain industrial applications for which such used oil is suitable.
OTHER SERVICES
PAINT REFINISHING SERVICES. The Company's Paint Refinishing Services are supplied to new and used car dealers, auto body repair and paint shops and fiberglass product manufacturers. The Company provides a machine specially designed to clean paint spray guns. Company representatives place a machine and solvent with each customer, maintain the machine and regularly remove the contaminated solvent and replace it with clean solvent. The Company
either recycles the contaminated solvent into clean solvent for reuse or blends it into fuel used by cement kilns. Waste paint and paint booth filters are also collected from these customers and blended into fuel for cement kilns. The Company representatives also provide clean buffing pads and remove dirty pads during regularly scheduled service calls. The dirty pads are washed, dried, inspected and returned to the Company's distribution system.
DRY CLEANER SERVICES. The Company collects and recycles contaminated dry cleaner wastes consisting primarily of used filter cartridges and sludge containing perchloroethylene and mineral spirits.
IMAGING SERVICES. Through this service, the Company provides health care, printing, photoprocessing and other businesses with on-site and off-site recycling of photochemical solutions, as well as film, plate and silver recovery services. Imaging Services recovers the silver contained in the spent photochemical solutions it collects from customers. These solutions are then further treated and processed until they can be discharged as wastewater into publicly-owned treatment works in compliance with applicable laws and regulations. Silver is also recovered from photographic film by an outside processor.
ENVIROSYSTEMS SERVICES. Safety-Kleen's Envirosystem Service offers a collection and recycling service for bulk wastes from larger-quantity generators that is similar to its Fluid Recovery Service discussed above.
EUROPE
Safety-Kleen has wholly-owned operations in seven countries in Western Europe. The Company primarily provides its Automotive/Retail Repair and Paint Refinishing Services in Europe. The Company also provides selected industrial services in Germany and the United Kingdom.
PRIMARY RAW MATERIALS
The primary hydrocarbon material used in the Company's Parts Cleaner Service is a paraffinic hydro-treated petroleum fraction product that is purchased from petroleum refiners and suppliers through short-term purchase orders. It is not possible for the Company to accurately estimate the effect of possible future petroleum product shortages on the Company's operations or those of its customers. At the present time, the Company expects to be able to purchase required quantities of such solvent at acceptable prices. For a discussion of the effect of petroleum product price changes, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations--Effects of Petroleum Price Changes" appearing on page 25 of the Annual Report, which is incorporated herein by reference.
The Company purchases a wide variety of other products and raw materials and has not experienced any major shortages in the past. The Company believes that sufficient alternative sources are available should it become necessary to replace its current sources of supply for these products and materials.
COMPETITIVE CONDITIONS
The Company is the market leader in the United States in its Parts Cleaner, Paint Refinishing, Dry Cleaner and used oil collection services. In these services, the Company generally competes with local or smaller regional companies. In its Fluid Recovery Service, the Company generally competes with many firms engaged in the transportation, brokerage and/or disposal of hazardous wastes through recycling, fuels programs or incineration. The price at which Safety-Kleen sells its re-refined lube oil is largely dictated by a market dominated by large multinational oil companies. For a more complete discussion of the market for the Company's lube oil, see "Effects of Petroleum Price Changes" on page 25 of the Annual Report.
The principal methods of competition for all of the Company's services are price, quality, reliability of service rendered and technical proficiency in handling hazardous wastes properly. Knowledgeable customers are interested in the reputation and financial strength of the companies they use for management of their hazardous wastes, because the original generators of hazardous waste remain liable under federal and state environmental laws for improper disposal of such wastes, even if they employ companies which have proper permits and licenses. The Company believes that its technical proficiency, reputation and financial strength are important considerations to its customers in selecting and continuing to utilize the Company's services.
PATENTS
The Company owns various patents covering certain of its cleaning units and certain related accessories. The Company has an exclusive license to use a patented cyclonic separator in parts cleaner applications. In the Company's opinion, however, the continued conduct of its business operations does not depend upon the existence of these patents.
EMPLOYEES
At December 28, 1996, the Company had approximately 7,300 employees.
REGULATION
OVERVIEW. Domestic and foreign governmental regulations applicable to the Company's business govern, among other things: the handling of a number of substances collected by the Company which are classified as hazardous or solid wastes under these regulations; the operation of the facilities at which the Company stores or processes the substances it collects; and the ultimate disposal of waste the Company removes from the substances it collects. An increase in governmental requirements for the treatment of any particular material generally increases the value of the Company's services to its customers, but may also increase the Company's costs.
Various permits are generally required by federal and state environmental agencies for the Company's branch, accumulation center, solvent recycling, fuel blending and oil processing facilities. Most of these permits must be renewed periodically and the governmental authorities involved have the power, under various circumstances, to revoke, modify or deny issuance or renewal of these permits. Zoning, land use and siting restrictions also apply to these facilities. Regulations also govern matters such as the disposal of residual chemical wastes, operating procedures, stormwater and wastewater discharges, fire protection, worker and community right-to-know and emergency response plans. Air and water pollution regulations govern certain operations at the Company's facilities. Safety standards under the Occupational Safety and Health Act in the United States and similar foreign laws are also applicable. Governmental regulations also apply to the operation of vehicles used by the Company to transport the substances it collects and distributes, including licensing requirements for the vehicles and the drivers, vehicle safety requirements, vehicle weight limitations, shipment manifesting and vehicle placarding requirements. Governmental authorities have the power to enforce compliance and violators are subject to civil and criminal penalties. Private individuals may also have the right to sue to enforce compliance with certain of the governmental requirements.
Regulations similar to those in the United States apply to the Company's Canadian operations. In general, environmental requirements are not as strict in countries in which the Company operates outside North America, but there is a general trend in Europe and other countries to strengthen environmental requirements.
The Company has an internal staff of lawyers, engineers, geologists, hydrogeologists, chemists and other environmental and safety professionals whose responsibility is to continuously improve the procedures and practices to be followed by the Company to comply with various federal, state and local laws and regulations involving the protection of the environment and worker health and safety and to monitor compliance.
HAZARDOUS AND SOLID WASTE REQUIREMENTS. Safety-Kleen's services involve the collection, transportation, storage, processing, recycling and disposal of automotive and industrial hazardous and nonhazardous materials. Substantially all of these materials are regulated in the United States as "solid wastes" under the Resource Conservation and Recovery Act of 1976 ("RCRA"). In addition to being regulated as solid wastes, many of these materials are further regulated as "hazardous wastes." Accordingly, the Company is subject to federal and state regulations governing hazardous and solid wastes. RCRA established a national program which classified various substances as "hazardous wastes," established requirements for storage,
treatment and disposal of hazardous wastes, and imposed requirements for facilities used to store, treat or dispose of such wastes. RCRA was amended in 1984 by the Hazardous and Solid Waste Amendments ("HSWA") which expanded the scope of RCRA to include businesses which generate smaller quantities of waste materials (so-called "small quantity generators"), expanded the substances classified as hazardous wastes by RCRA and prohibited direct disposal of those wastes in landfills (thereby, in effect, requiring that the wastes be recycled, treated, or destroyed).
The Company's customers are increasingly attempting to avoid being subject to hazardous waste regulations by replacing hazardous materials used in their businesses with nonhazardous materials or otherwise reducing the amount of hazardous waste they generate. Accordingly, the Company is collecting more substances that are not regulated as hazardous wastes but may be regulated as solid wastes.
Hazardous and solid waste regulations impose requirements which must be met by facilities used to store, treat and dispose of these wastes. Operators of hazardous waste storage, disposal and treatment facilities, such as Safety-Kleen, must obtain a RCRA permit from federal or authorized state governmental authorities to operate those facilities. States may also require a solid waste permit. The Company has over 100 RCRA-permitted facilities. The Company does not intend to pursue RCRA permits for its remaining facilities because it will be limiting activities at these facilities to transfer operations.
In September, 1992, the United States Environmental Protection Agency ("EPA") finalized regulations that govern the management of used oils. Although used oil is not classified as a hazardous waste under federal law, certain states do regulate used oil as hazardous. The Company builds and operates its used oil facilities to standards similar to those required for hazardous waste facilities, and believes that its oil management standards are more protective of human health and the environment than current federal standards.
Materials collected by the Company's Fluid Recovery Service are primarily recycled for reuse or processed into waste-derived fuel to be burned in kilns used in the production of cement. The majority of such waste-derived fuel is supplied to cement kilns with which the Company has exclusive supply contracts with respect to such fuel. Cement kilns are subject to regulations which govern the burning of hazardous wastes in boilers and industrial furnaces ("BIF regulations"). Facilities covered by the BIF regulations are required to submit periodic certifications of compliance. Every BIF facility that elects to continue to burn hazardous waste will also be required to obtain a RCRA operating permit. All of the kilns with which the Company has exclusive supply contracts have met their initial compliance certification requirements, and intend to continue to meet their periodic certification requirements in the future. These kilns are also in the process of obtaining their RCRA operating permits. None of the kilns utilized by the Company for disposition of the waste it collects are owned by the Company. The Company is assisting the kilns with which it has exclusive contracts in complying with such regulations.
On April 19, 1996, the EPA published its proposed Hazardous Waste Combustor Rule. This proposed rule will set emissions standards for incinerators, cement kilns and lightweight aggregate kilns that burn hazardous waste. As proposed, these standards would require cement kilns, which are major outlets for the Company's waste-derived fuels, to make capital improvements that would increase the cost of burning such fuels in cement kilns. However, due to the complexity of the proposed rule, the lengthy adoption process to which it is subject, and the likelihood that the rule will undergo changes prior to its adoption, the effect of the final rule is unknown.
The EPA is also developing regulations which will establish management standards for cement kiln dust ("CKD"). The Company and the kilns to which it sends waste-derived fuel have developed programs for analyzing and characterizing CKD in anticipation of these new management standards; however, at this time it is not clear what impact these CKD regulations will have on the Company.
CLEAN AIR ACT. The Clean Air Act was passed by Congress to control the emissions of pollutants to the air, and requires permits to be obtained for certain sources. In 1990, Congress amended the Clean Air Act to require further reductions of air pollutants with specific targets for nonattainment areas in order to meet certain ambient air quality standards. These amendments also require the EPA to promulgate regulations which: (i) control emissions of 189 toxic air pollutants; (ii) create uniform operating permits for major industrial facilities similar to RCRA operating permits; (iii) mandate the phase-out of ozone depleting chemicals; and (iv) provide for enhanced enforcement.
The Clean Air Act required regulations which resulted in the reduction of volatile organic compound ("VOC") emissions in order to meet certain ozone attainment standards under the act. The Company has installed control technology to meet its obligations under the act. Additional emission reductions at the Company's recycle centers and branches could be required as the Company completes its air permitting program. In addition, the United States EPA has developed Maximum Achievable Control Technology ("MACT") standards under the Clean Air Act which impose additional restrictions on the emission of certain toxic air pollutants. These standards will impact certain of the Company's facilities and the cement kilns to which the Company sends its waste-derived fuels.
In order to comply with these regulations, the Company has instituted a program to augment the air emission control equipment at its affected facilities and to obtain operating permits, where required. The Company is also working with the United States EPA and appropriate state and local agencies regarding the regulation of its parts cleaner and paint spray gun cleaner operations.
The South Coast Air Quality Management District ("SCAQMD"), the air district for the greater Los Angeles, California area, has amended its rule setting the allowable volatile organic compound ("VOC") content of materials used for remote reservoir repair and maintenance cleaning. The amended rule will, in effect, ban remote reservoir parts cleaning with solutions containing VOCs in excess of fifty grams per liter as of January 1, 1999, except in certain applications. Substantially all of the Company's parts cleaners currently placed with SCAQMD
customers utilize solvents containing VOCs in excess of fifty grams per liter. The Company offers aqueous parts cleaning systems which meet the 1999 SCAQMD requirements and is working with its SCAQMD customers to identify which customers will need to convert their solvent part cleaners to an alternative cleaning solvent or solution prior to January 1, 1999. In addition, the Company will continue to actively work with the SCAQMD to identify appropriate exemptions and develop alternatives to the 1999 VOC limits for materials used for remote reservoir parts cleaning. The Company expects other Clean Air Act nonattainment municipalities to consider adopting similar rules.
CERCLA AND RELATED REQUIREMENTS. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") was originally enacted in December, 1980, and amended in 1986 by the Superfund Amendments and Reauthorization Act ("SARA"). CERCLA creates a fund of monies ("Superfund") which can be used by the EPA and state governments to clean up hazardous waste sites pending recovery of those costs from defined categories of "potentially responsible parties" ("PRPs"). Most EPA cleanup efforts are at sites listed or proposed for listing on the National Priorities List ("NPL"). Various states have also enacted statutes which contain provisions substantially similar to CERCLA.
Generators and transporters of hazardous substances, as well as past and present owners and operators of sites where there has been a release of hazardous substances, are made strictly, jointly and severally liable for the clean-up costs resulting from releases and threatened releases of CERCLA-regulated "hazardous substances." Under CERCLA, these responsible parties can be ordered to perform a clean-up, can be sued for costs associated with private party or public agency clean-up, or can voluntarily settle with the government concerning their liability for clean-up costs.
A large portion of the materials collected by the Company are recycled or converted into materials, such as industrial fuels, which may be used for another purpose. The amount of material that the Company deposits at waste sites is accordingly small in relation to the volume of materials collected by the Company, and the Company is actively engaged in a waste minimization program to reduce this small amount even further. The Company also sends some of the materials it collects to selected third party facilities for further treatment, processing and/or disposal. The Company audits each of these facilities prior to shipping any materials to attempt to minimize its potential superfund liability at these sites.
Most of the Company's CERCLA responsibilities stem from certain historic disposal practices in the 1970's. These practices were stopped in the mid-to-late 1970's with the development of expanded recycling technology.
Proceedings are currently pending involving several sites with respect to which the Company has been notified by the EPA or the appropriate state agency that the Company may be a PRP. The Company is participating in settlement discussions with the parties and the government at these sites. The Company's volumetric share of the total waste at a majority of these sites is among the smallest of the PRPs and the Company has a larger volumetric share at a minority of these sites. From time to time, the EPA requests information from the Company to ascertain if it may be a PRP at other sites.
COSTS OF INCREASING REGULATIONS AND HIGHER FEES AND TAXES. The Company continues to be subject to legislation and regulations adopted by federal, state and local authorities which may impose stricter operating and performance standards and increased taxes, assessments and fees upon emission sources and the generators, transporters and handlers of hazardous and nonhazardous waste. The Company may not be able to pass on the costs associated with such legislation and regulations to its customers through price increases.
CAPITAL AND CERTAIN OTHER EXPENDITURES RELATED TO THE ENVIRONMENT. A portion of the Company's capital expenditures are related to compliance with environmental laws and regulations. The Company estimates capital spending of approximately $6 million for the year 1997 and $21 million in the aggregate, for the years 1998 through 2001 in order to comply with RCRA, the Clean Air Act and other environmental laws and regulations currently in effect in conjunction with the Company's existing business.
In addition to these capital expenditures, the Company may incur costs in connection with closure activities at certain of its sites. When the Company discontinues using or, in certain cases, changes the use of a hazardous waste management unit, formal closure procedures must be followed. These closure procedures must be approved by federal or state environmental authorities. In some cases, costs are incurred to complete remedial cleanup work at the site. In addition, at certain of the Company's other operating sites, remedial cleanup work is required as part of the RCRA Corrective Action Program or other state and federal programs. As shown in the Annual Report on the Company's Consolidated Balance Sheet at page 29 and more fully described in note 10 to the Consolidated Financial Statements on pages 40-41, the Company has accrued liabilities of $49.2 million as of December 28, 1996 for remedial cleanup work, superfund site liability, closure activities and certain other environmental expenses related to its operating and previously closed sites.
ENFORCEMENT ACTIONS. The Company's goal is to fully comply with all environmental regulations and other governmental requirements. The Company has instituted several programs to enhance compliance, including suspending site operations if appropriate corrective actions are not taken to remedy potential defects. The Company conducts regular audits of its facilities to assess compliance with federal and state environmental and safety laws and regulations. Any potential deficiencies are identified and a corrective action plan is prepared and implemented to eliminate the potential defect. In 1996 the Company conducted over 480 such audits. The Company regularly conducts corporate training courses and seminars focused on environmental control and safety regulations, in addition to on-going weekly field training for its site employees.
While the Company's goal is to fully comply with all environmental regulations, given the Company's extensive operations, the technical aspects of the regulations and the varying interpretations of the requirements from jurisdiction to jurisdiction, the Company may face government enforcement proceedings and incur fines and penalties or expenses for remedial work from time to time. In the majority of situations where proceedings are commenced by governmental authorities, the matters involved relate to alleged violations of permits or orders under which the Company operates, or laws and regulations to which its operations are subject,
and are the result of varying interpretations of the applicable requirements. Generally, these proceedings result from routine inspections conducted by federal and state regulatory agencies. In 1991, throughout its United States facilities, 201 regulatory proceedings were brought by state or federal authorities against the Company. The number of regulatory proceedings brought against the Company has declined each year since then: There were 142 proceedings brought in 1992, 136 in 1993, 130 in 1994, 90 in 1995 and 83 in 1996. Administrative actions are counted in the year notice of the violation is received by the Company, regardless of when the inspection giving rise to the action was conducted. Some of the proceedings brought in 1996 resulted from inspections performed in previous years. Of these administrative actions in 1996, the majority of the alleged deficiencies related to incomplete or incorrect manifests and other shipping documents and alleged defects in site operating records, training record keeping and other paperwork. The Company processed approximately one million manifests and completed several million individual drum labels in 1996. Throughout its facility network, the Company maintains over 200 sets of operating records and logs in which millions of individual entries are made annually. A clerical error on a manifest, drum label or site paperwork can result in a violation notice.
From time to time, the Company becomes subject to proceedings in which governmental authorities may seek fines and/or penalties from the Company which exceed $100,000 in each case. Two such proceedings were pending against the Company at December 28, 1996. Two such cases were settled during the first three quarters of 1996 and were previously disclosed in the Company's quarterly reports on Form 10-Q. No such cases were settled during the fourth quarter of 1996.
The Company's practice is to attempt to negotiate resolution of claims against the Company and its facilities. The Company has to date been able to resolve cases on generally satisfactory terms. The Company is, however, prepared to contest claims or remedies which the Company believes to be inappropriate unless and until satisfactory settlement terms can be agreed upon. The Company paid in the aggregate approximately $400,000 in 1996 for environmental fines and penalties.
POTENTIAL ENVIRONMENTAL LIABILITIES. Based on its past experience and its knowledge of pending cases, the Company believes it is unlikely that the Company's actual liability on cases now pending (including enforcement actions of the type described above and CERCLA or state superfund cases) will be materially adverse to the Company's financial condition. It should be noted, however, that many environmental laws are written and enforced in a way in which the potential liability can be large, and it is always possible that the Company's actual liability in any particular case or claim will prove to be larger than anticipated and accrued for by the Company. It is also possible that expenses incurred in any particular reporting period for remediation costs or for fines, penalties, or judgments could have a material impact on the Company's results of operations for that period.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND INDUSTRY SEGMENTS
The Company operates primarily in one business segment--providing businesses with environmentally safe and convenient solutions for managing fluid waste and other recoverable resources. For a discussion of financial information relating to foreign and domestic operations and industry segments refer to Note 4 to the Consolidated Financial Statements appearing on page 33 of the Annual Report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are:
NAME AGE POSITION - ------------------------- --- ---------------------------------- Donald W. Brinckman 66 Chairman of the Board
John G. Johnson Jr. 56 President, Chief Executive Officer and Director
Hyman K. Bielsky 42 Senior Vice President, General Counsel and Managing Director, European Operations
Roy D. Bullinger 48 Senior Vice President Business Management and Marketing
Robert J. Burian 59 Senior Vice President Human Resources
Michael H. Carney 49 Senior Vice President Marketing Services and Customer Care
Joseph Chalhoub 51 Senior Vice President Operations, Oil Recovery and Envirosystems
David A. Dattilo 56 Senior Vice President Sales and Service
Scott E. Fore 42 Senior Vice President Environment, Health and Safety
F. Henry Habicht II 43 Senior Vice President Corporate Development and Environment
Robert W. Willmschen Jr. 49 Senior Vice President Finance, Secretary and Chief Financial Officer
Lawrence G. Davenport 54 Vice President Information Systems and Chief Information Officer
Clark J. Rose 59 Vice President Manufacturing and Technical Services
Laurence M. Rudnick 51 Treasurer
Clifford J. Schulz 45 Controller and Chief Accounting Officer
Mr. Brinckman relinquished his post as Chief Executive Officer of the Company as of December 31, 1994, a position he held since 1968. He served as President of the Company from 1968 to August, 1990, and December, 1991 to May, 1993. Mr. Brinckman was appointed Chairman of the Company's Board of Directors in August, 1990. Mr. Brinckman is also a director of Johnson Worldwide Associates, Inc., Racine, Wisconsin, Paychex, Inc., Rochester, New York and Snap-On Incorporated, Kenosha, Wisconsin. Mr. Brinckman is Chairman of the Executive Committee and is a member of the Environmental Committee.
Mr. Johnson has been Chief Executive Officer of the Company since January 1, 1995. He was elected President and a director of the Company in May 1993. He joined Safety-Kleen in January, 1993 as Assistant to the Chairman/CEO. Prior to joining Safety-Kleen, Mr. Johnson was employed by ARCO since 1958. He served as Senior Vice President of ARCO Chemical Company since 1986. In 1987, he became a director and in 1988 was given the added responsibility of President of ARCO Chemical Americas, a division of ARCO Chemical Company. He is also a director of McWhorter Technologies, Carpentersville, Illinois.
Mr. Bielsky was elected Senior Vice President General Counsel in May, 1993. He has also served as the Company's Managing Director of its European operations since 1996. Mr. Bielsky served as Assistant General Counsel- Commercial since January, 1990, and as Associate Counsel since joining the Company in 1987.
Mr. Bullinger was named Senior Vice President Business Management and Marketing in June 1994. He served as Vice President Sales--Central Division since 1985 and as a Regional Manager since joining the Company in 1975.
Mr. Burian was appointed Senior Vice President Human Resources in May, 1993. He served as Senior Vice President Administration since August,1990. Mr. Burian joined the Company in July, 1986, as Vice President Personnel.
Mr. Carney was named Senior Vice President Marketing Services and Customer Care in June 1994. He served as Senior Vice President Marketing since August, 1990 and Vice President Marketing since May, 1987. He joined the Company in 1976, serving in various marketing positions until his appointment to Vice President Marketing.
Mr. Chalhoub was named Senior Vice President Operations, Oil Recovery and Envirosystems in July, 1995. Prior to that, he served as Senior Vice President, Oil Recovery Division since August, 1990. In August, 1991, Mr. Chalhoub was assigned the additional responsibilities of overseeing the processing and engineering departments. He was President of the Company's former subsidiary, Breslube Holding Corp., since May, 1987.
Mr. Dattilo was named Senior Vice President Sales and Service in August, 1990. He served as Vice President Corporate Branch Sales and Service since January, 1980.
Mr. Fore was elected Senior Vice President Environment, Health and Safety in May, 1993. He served as Vice President Environment, Health and Safety since August, 1987, and was previously Associate General Counsel since joining the Company in 1985.
Mr. Habicht joined the Company in March, 1993. He served as Senior Vice President Strategic/Environmental Planning from March, 1993 to July, 1995. In June, 1994, he assumed responsibility for Safety-Kleen Canada. In July, 1995, he assumed responsibility for Environment, Health and Safety and Corporate Accounts and became Senior Vice President of Corporate Development and Environment. Prior to joining the Company, he served as Deputy Administrator of the U.S. Environmental Protection Agency from 1989 to 1992.
Mr. Willmschen was named Senior Vice President Finance in August, 1990. He served as Vice President Finance and Secretary since February, 1982.
Mr. Davenport joined the Company in June, 1995 as Vice President Information Services and Chief Information Officer. Prior to joining Safety-Kleen, Mr. Davenport was employed by JB Hunt Transport, Inc. since 1989 and served as Senior Vice President Information Services for that company since 1992.
Mr. Rose was named Vice President Manufacturing and Technical Services in July, 1995. He served as Vice President Technical Services since August, 1989 and Manager of Recycle Center Operations since joining the Company in June, 1984.
Mr. Rudnick joined the Company in September, 1979, and was appointed Treasurer in January, 1980.
Mr. Schulz was named Controller in December, 1994. He served as Controller North American Operations and Assistant Controller Cost and Inventory since 1991 and 1987, respectively.
ITEM 2.

ITEM 2. PROPERTIES
The Company owns 13 solvent recycling plants in the U.S., Canada, Puerto Rico, the United Kingdom and Germany. In total, these plants have an annual recycling capacity of 67 million gallons of parts cleaner solvents and 40 million gallons of halogenated, fluorinated and flammable solvents. The total storage capacity of these plants is approximately 9.2 million gallons. In addition, the Company owns 2 fuel blending facilities, located on leased land, and has an exclusive supply arrangement for its waste-derived fuel with a third facility. These three facilities have combined storage capacity of approximately 2.2 million gallons.
The Company owns 2 oil re-refining plants with a combined annual re-refining capacity of 135 million gallons. These plants are located in Breslau, Ontario and East Chicago, Indiana.
The Company leases 5 distribution facilities and owns 3 distribution facilities in the U.S., United Kingdom and Germany, averaging approximately 45,000 square feet. The Company has 17 accumulation centers across the U.S. Of these, 14 are owned and 3 are leased. A typical accumulation center is approximately 8,000 square feet. These centers serve branches by collecting drums of waste from the Fluid Recovery Service, Dry Cleaner Service, Paint Refinishing Service and other services. As truck load quantities are collected, they are transported from the accumulation centers to the recycling plants.
In North America and Europe, the Company's sales and service representatives operate out of 230 branch facilities. Of these, approximately 50% are leased and 50% are owned. A typical branch is approximately 8,000 square feet.
The Company owns a 106,000 square foot plant in New Berlin, Wisconsin, where parts cleaner machines are assembled and buffing pads are manufactured.
The Company owns a 285,000 square foot corporate headquarters building located in Elgin, Illinois and a 66,000 square foot Technical Center located in Elk Grove Village, Illinois.
The Company operates approximately 2,700 van-type vehicles, 470 straight tanker-type service vehicles and 950 pieces of over-the-road equipment, most of which are owned by the Company. The Company also operates approximately 770 leased railroad tanker cars.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
Reference is made to "Item 1. Business," subcaption "Regulation," for information concerning certain environmental matters.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth interim period of the fiscal year ended December 28, 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The "Market and Dividend Information" appearing on page 43 of the Annual Report is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The "Selected Financial Data" appearing on page 26 of the Annual Report is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 21-25 of the Annual Report is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Report of Independent Public Accountants", Consolidated Financial Statements and "Notes to Consolidated Financial Statements" appearing on pages 27-41 of the Annual Report are incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the heading "Executive Officers of the Registrant" in Part I, Item 1 of this Annual Report on Form 10-K and under the headings "COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and "PROPOSAL 1: ELECTION OF DIRECTORS" in the Company's definitive proxy statement for the May 9, 1997 Annual Meeting of Shareholders (the "Proxy Statement") is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the heading "EXECUTIVE COMPENSATION" in the Proxy Statement is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the heading "COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the headings "EXECUTIVE COMPENSATION," "DIRECTORS' COMMITTEES, MEETINGS AND COMPENSATION" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Item 14(a)1. List of Financial Statements.
The following consolidated financial statements of the Company included on pages 28-41 of the Annual Report to Shareholders for the year ended December 28, 1996 are incorporated herein by reference:
Consolidated Balance Sheets as of December 28, 1996 and December 30, 1995.
Consolidated Statements of Operations for the years ended December 28, 1996, December 30, 1995 and December 31, 1994.
Consolidated Statements of Cash Flows for the years ended December 28, 1996, December 30, 1995 and December 31, 1994.
Consolidated Statements of Shareholders' Equity for the years ended December 28, 1996, December 30, 1995, and December 31, 1994.
Notes to Consolidated Financial Statements.
Item 14(a)2. Financial Statement Schedule.
The following Consolidated Financial Statement Schedule of Safety-Kleen Corp. and Subsidiaries is included in response to Item 14(d):
PAGE NO. -------- Schedule II Allowance for Doubtful Accounts...... 24
Schedules other than the schedule listed above are omitted as the information is not required or not applicable, or the required information is shown in the financial statements or notes thereto.
(1) Previously filed and incorporated herein by reference from Registrant's Current Report on Form 8-K, dated November 10, 1988.
(2) Previously filed and incorporated herein by reference from Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended September 9, 1989.
(3) Previously filed and incorporated herein by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990.
(4) Previously filed and incorporated herein by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991.
(5) Previously filed and incorporated herein by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993.
(6) Previously filed and incorporated herein by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994.
(7) Previously filed and incorporated herein by reference from Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended September 9, 1995.
(8) Previously filed and incorporated herein by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(9) Previously filed and incorporated herein by reference from Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995.
*Indicates each management or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c) of this report.
(Copies of these exhibits can be obtained from the Company for its reasonable out-of-pocket expense for furnishing such copies.)
Item 14(b). Reports on Form 8-K.
The Company did not file any Reports on Form 8-K during the fiscal year ended December 28, 1996. On March 11, 1997, the Company issued a press release reporting that it anticipated net earnings for the first quarter, ending March 27, 1997, will be approximately $0.20 per share. The press release was filed on Form 8-K on March 12, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SAFETY-KLEEN CORP.
Date: March 27, 1997 By: /s/ ROBERT W. WILLMSCHEN JR. -------------- ----------------------------- SENIOR VICE PRESIDENT FINANCE AND SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Safety-Kleen Corp.:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in the Safety-Kleen Corp. annual report to shareholders incorporated by reference into this Form 10-K, and have issued our report thereon dated February 6, 1997. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The Supplemental Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
/S/ ARTHUR ANDERSEN LLP
Chicago, Illinois February 6, 1997
SCHEDULE II