Accounting & Tax

Safety-Kleen’s Restatements Reduce Earnings from 1997 to 1999

Also, the waste-disposal firm reports losses of $833.2 million as its accounting woes deepen.
CFO.com StaffJuly 10, 2001

Safety-Kleen Corp., awash in accounting woes that prompted it to seek bankruptcy-court protection a year ago, said in a filing with the Securities and Exchange Commission that a restatement of financial results reduced its earnings by about $534 million for the fiscal years 1997 through 1999, reports the Wall Street Journal.

At the same time, the hazardous-waste-disposal company, based in Columbia, S.C., unveiled a net loss for 2000 of $833.2 million, or $8.27 a share, including charges for asset impairment, as it undergoes a reorganization under new management.

Allegations of accounting irregularities at Safety-Kleen surfaced in March 2000 and have triggered investigations by a federal grand jury in New York and the SEC. Safety-Kleen said an audit of its financial results for the years ended Aug. 31, 1997, 1998 and 1999 revealed a host of improper accounting practices, ranging from inappropriate establishment and use of reserves for some acquisitions made between Sept. 1, 1996, and Aug. 31, 1999, to recording uncollected revenue. The audit was conducted by Arthur Andersen LLP, following an internal investigation.

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Audit reports of the original financial statements for 1997 through 1999 were prepared by PricewaterhouseCoopers LLP, says the Journal. The firm withdrew its reports after the irregularities were discovered, Safety-Kleen said.

Safety-Kleen said that while investigations continue, it believes “further material adjustments are unlikely” to be made to results from fiscal 1997 through 2000, says the Journal.

Safety-Kleen has yet to submit a reorganization plan to the federal bankruptcy court in Wilmington, Del., and said it “can’t make any assurance that it will be able to obtain any such approval in a timely manner.” Failure to win timely approval of a reorganization plan could hurt operating results by narrowing financing options and harming relations with customers, it said. Revenue has already suffered because the company can’t secure bonding necessary for some of its chemical- services businesses, the company said.

The company and 73 of its U.S. subsidiaries filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code in June 2000, says the Journal.

In addition, Safety-Kleen said about $174 billion in proofs of claim had been filed from creditors against it and its affiliates as of May 18. The company said, however, that it doesn’t expect the claims to have a material effect on financial statements because many are duplicated, with the same claim filed to Safety-Kleen and each of its 73 units, or are without merit. The value of Safety-Kleen’s assets was $3.13 billion as of Aug. 31, 2000.

The company’s losses in 2000 included several charges related to its reorganization, such as a $368 million asset-impairment charge, reports the newspaper. Safety-Kleen said it expects to continue to incur “significant costs” associated with its reorganization. But the company’s chairman and chief executive officer, David E. Thomas Jr., a former outside director who was appointed soon after the accounting problems were discovered, said he expects Safety-Kleen “to remain a viable commercial enterprise.”

Safety-Kleen is 44 percent owned by Laidlaw Inc., a Burlington, Ontario, transportation company. Laidlaw filed for bankruptcy-court protection in the U.S. and Canada late last month after reaching an agreement with its principal lenders to restructure about $3.2 billion of its $3.6 billion in debt, reports the Journal.

A Laidlaw spokesman told the Journal that the company must examine Safety-Kleen’s restated financial results to determine the impact, if any, on Laidlaw’s financial results, and said Laidlaw won’t comment further on the matter until the examination is complete.

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