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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number 1-6805.
--------------------------
BROWNING-FERRIS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1673682
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
757 N. ELDRIDGE
HOUSTON, TEXAS 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 870-8100.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------------------- ---------------------------------------------
Common Stock, $.16-2/3 par value New York Stock Exchange, Inc.
Chicago Stock Exchange Incorporated
Pacific Stock Exchange Incorporated
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7.25% Automatic Common Exchange New York Stock Exchange, Inc.
Securities
Chicago Stock Exchange Incorporated
Pacific Stock Exchange Incorporated
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
---
The approximate aggregate market value of common stock held by non-affiliates
of the registrant: $5.7 billion, computed on the basis of $26.88 per share,
closing price of the common stock on the New York Stock Exchange, Inc. on
December 2, 1996.
There were 212,577,062 shares of the registrant's common stock, $.16-2/3 par
value, outstanding as of December 2, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III (except for information required with
respect to executive officers of the Company, which is set forth under
"Business--Executive Officers of the Company" in Part I of this report) have
been omitted from this report, since the Company will file with the Securities
and Exchange Commission, not later than 120 days after the close of its fiscal
year, a definitive proxy statement, pursuant to Regulation 14A, which involves
the election of directors. The information required by Items 10, 11, 12 and 13
of Part III of this report, which will appear in the definitive proxy
statement, is incorporated by reference into this report.
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TABLE OF CONTENTS
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PAGE
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PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
North American Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
COLLECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
POST-COLLECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Landfills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Transfer Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Medical Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Recycling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SERVICES GROUP AND OTHER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
International Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Waste-To-Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Waste Disposal Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Corporate Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Environmental Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . 19
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS . . . . . . . . . 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . 82
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
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PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . 82
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
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PART I.
ITEM 1. BUSINESS.
GENERAL
Browning-Ferris Industries, Inc. is one of the largest publicly-held companies
that engages, through its subsidiaries and affiliates, in providing waste
services. The Company collects, transports, treats and/or processes, recycles
and disposes of commercial, residential and municipal solid waste and
industrial wastes. BFI is also involved in waste-to- energy conversion,
medical waste services, portable restroom services, and municipal and
commercial sweeping operations.
The terms "BFI" and "Company" refer to Browning-Ferris Industries, Inc., a
Delaware corporation incorporated on October 26, 1970, and are used herein to
include its subsidiaries, affiliates and predecessors, unless the context
requires otherwise. BFI's executive offices are located at 757 N. Eldridge,
Houston, Texas 77079. The Company's mailing address is P.O. Box 3151, Houston,
Texas 77253, and its telephone number is (281) 870-8100.
The Company (including unconsolidated affiliates) operates in approximately 450
locations in North America and approximately 300 locations outside North
America and employs approximately 43,000 persons. No single customer or
operating location accounts for a material amount of BFI's revenue or net
income.
During fiscal 1996, the Company began implementing a strategic refocus to
emphasize internal growth rather than external growth and to more closely align
the Company's performance objectives with its shareholders' interests. To
support this strategy, the Company realigned its North American operating
organization, revised its financial strategies, implemented revised incentive
compensation plans for employees and reduced its capital expenditures budget
for fiscal 1997 as compared to historic levels of such expenditures. See below
and also "Corporate Development" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations."
In August 1996, the Company realigned its North American operating organization
along functional lines into five groups: sales and marketing, collection,
post-collection, business development, and business analysis. Each functional
group is led by an officer in Houston who reports to the Company's chief
operating officer. The Company's six North American regions and forty-five
divisions were consolidated into thirteen market areas, each of which includes
area vice presidents responsible for one of the five functional groups within
the market area. Each market area is headed by a market area vice president who
reports directly to the Company's chief operating officer and is responsible
for coordinating the activities of the functional area vice presidents within
his market area. The realignment is intended to increase the expertise and
efficiency of each function, improve and integrate customer service,
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accelerate company-wide adoption of best practices and increase oversight and
discipline respecting capital expenditures.
The Company's international operations (excluding Canada) are aligned into two
operational areas, Europe and the Pacific Rim, and report to the Chairman of
BFI International, Inc. in Houston. BFI Europe, from its regional office in
the Netherlands, oversees the Company's operations in Finland, Germany, Italy,
the Netherlands, Spain, Switzerland and the United Kingdom. Management
oversight for operations in Australia, the Dominican Republic, Hong Kong,
Kuwait and New Zealand and the coordination of expansion into new markets
outside Europe are provided from the corporate office in Houston.
Management of the operations in each country is carried out by a country
manager, and in some cases where the operations are larger or more extensive,
by country managers, with one of the country managers being an experienced BFI
expatriate employee and the other an experienced national manager. The Company
believes that strong national management in each country of operation is
extremely important, together with support from the corporate office in Houston
and BFI's regional office in Europe, in areas of accounting, compliance, legal,
technical, sales and market development. BFI has implemented a divisional
market structure in several countries which permits and encourages increased
growth opportunities in more localized markets.
The Company's revised long-term financial goals are to: (i) generate cash
returns on assets in excess of the weighted average cost of capital; (ii)
increase profits at a faster pace than the increase in revenues; and (iii)
maintain a strong credit rating appropriate for supporting business operations.
To more closely align management interests to shareholder interests, the
Company has also revised its long-term incentive compensation plans for
management to reallocate a significant portion of their stock option
participation to performance-based restricted stock that will vest only as
certain performance measures are attained.
The Company's business is subject to extensive U.S. and foreign governmental
regulation and legislative initiative. Further, in some jurisdictions, both in
the U.S. and foreign countries, its business is also subject to environmental
regulation, mandatory recycling laws, medical waste regulation, preclusion of
certain waste from landfills and restrictions on the flow of solid waste. Due
to continuing public awareness and influence regarding waste and the
environment, and uncertainty with respect to the enactment and enforcement of
future laws, the Company can not always accurately project the impact any
future regulation or legislative initiative may have on its operations. See
"Regulation" and "Legal Proceedings - Environmental Proceedings" for additional
information.
The table below reflects for each of the three years ended September 30, 1996,
the total revenues contributed by the Company's principal lines of business
under the operating structuring in effect during such periods.
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Contribution to Consolidated Revenues
(in millions)
Year Ended September 30,
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1996 1995 1994
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North American Operations
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Collection Services - Solid Waste $2,886 $2,758 $2,360
Transfer and Disposal - Solid Waste 1,050 1,026 885
Recycling Services 531 675 359
Medical Waste Services 200 189 161
Services Group and Other 89 83 83
Elimination of Affiliated Companies'
Revenues (513) (483) (392)
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Total North American Operations 4,243 4,248 3,456
International Operations 1,536 1,531 859
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Total Company $5,779 $5,779 $4,315
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Total assets at September 30, 1996, 1995 and 1994 were $7,601 million, $7,460
million and $5,797 million, respectively.
In the fourth quarter of fiscal 1996, the Company reported pre-tax special
charges of $447 million ($362 million or $1.80 per share after income taxes).
The special charges during the fourth quarter resulted primarily from
management decisions to sell the Company's Italian operations, divest certain
domestic and international non-core business assets and operations, close
certain recycling facilities not expected to achieve desired performance
objectives, and write down to fair value the Company's investment in the Azusa,
California, landfill. See Note (4) of Notes to Consolidated Financial
Statements.
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NORTH AMERICAN OPERATIONS
COLLECTION
BFI collects solid waste in approximately 300 operating locations in 45 states,
Puerto Rico and Canada. These operations provide solid waste collection
services for commercial establishments, industrial plants, medical
institutions, and governmental and residential units. BFI uses approximately 1
million containers and approximately 10,000 specially equipped collection
trucks in its North American waste collection operations.
The Company's commercial and industrial solid waste collection services are
typically performed pursuant to service agreements that provide for one-year to
three-year initial terms and specified successive terms thereafter.
Residential collection contracts with individual homeowners, homeowner groups
and municipalities are generally for periods of one to five years, frequently
with renewable terms. Solid waste collection contracts with governmental
units are usually awarded pursuant to a competitive bidding process.
Operating costs, disposal costs and collection fees vary widely throughout the
geographic areas of the Company's operations. Prices for solid waste
collection services are determined locally, principally by the volume, weight
and type of wastes collected, treatment required, risks involved in handling or
disposing of the wastes, collection frequency, disposal costs, distance to
final disposal sites, quantity and type of equipment furnished to the customer
and other competitive factors. The Company's ability to pass on cost increases
is often influenced by competitive and other factors. Long-term residential
solid waste collection contracts often include a formula for adjusting fees,
generally based on published price indices, to cover increases in certain
operating costs.
The Company is the largest provider of medical waste services in North America
and collects infectious and pathological waste materials from approximately
153,000 customers.
The Company also collects recyclable materials, principally paperboard, office
paper and other paper products, in North American from approximately 7 million
households, including curbside customers, and for approximately 203,000
commercial and industrial customers. The Company's recycling collection
contracts often provide for the customers' participation in price increases or
price decreases on resale of recycled commodities.
POST-COLLECTION
Landfills
Sanitary landfilling is the primary method employed by the Company for final
disposal of the segment of the solid waste stream that is not recycled. BFI
currently operates 104 solid waste landfill sites in North America, 18 of which
are operated under contracts with municipalities or others. The Company has
approximately 16,000 acres permitted as landfill disposal sites,
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consisting of acres in unopened and unlined landfill cells, acres in filled and
capped landfill cells which are in open landfill sites, and acres in open
landfill cells. The acreage shown does not reflect the volume (or "airspace")
available for disposal, which depends on the vertical space as well as the
surface acres. BFI does not currently own or lease a landfill site in every
metropolitan area in which it is engaged in solid waste collection; however,
the Company intends to continue to seek, where advisable, ownership or lease of
disposal facilities in all such areas. To date, the Company has not
experienced excessive difficulty securing the use of disposal facilities owned
or operated by others in those communities in which it does not operate its own
landfill sites.
Transfer Stations
BFI operates 103 solid waste transfer stations where solid wastes are compacted
for transfer to final disposal facilities. Transfer stations are used for the
purpose of either (i) reducing costs associated with transporting waste to
final disposal sites, or (ii) better utilizing the Company's disposal sites.
Where practical, transfer and recycling functions are combined at the same
transfer station to form "Trancycleries."(TM)
Medical Waste
The Company owns or operates 30 treatment sites using either incineration or
autoclaving (steam sterilization) technology. One additional treatment site is
in the permitting process.
Recycling
The Company currently operates 146 recycleries in North America which receive,
process and dispose of recyclable materials. During fiscal 1996 the Company
closed 12 recycling facilities due to the continuing weakness in recycled
commodity prices, and plans to close additional facilities during fiscal 1997.
The Company operates a centralized materials marketing group with the objective
of establishing longer-term customer relationships and agreements with
purchasers of recycled commodities. The Company has developed relationships
with numerous other companies to assure municipalities and other customers of
continuous and diversified resale markets. In order to reduce the impact of
the price volatility that is inherent in this business segment, the Company has
included floor pricing provisions in a large number of its fiber resale
contracts.
The Company also engages in organic materials recycling and/or disposal, tire
recycling and other alternative energy concepts such as biomass fuels. The
Company currently operates more than 40 organic processing centers. BFI also
produces and markets decorative bark, mulch, compost and organic soils to
secure a market for organic materials collected.
SERVICES GROUP AND OTHER
The Company also rents and services portable restroom facilities and provides
street and parking lot sweeping. The Company may also participate, to a limited
extent, in the end-use development of certain BFI landfills that have reached
permitted capacity and other real and personal property in
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which it has an interest. From time to time, the Company sells or otherwise
disposes of surplus land and other real or personal property and reflects any
gain or loss from such transactions in the results of operations for the period
in which the transactions occur.
INTERNATIONAL OPERATIONS
The Company is involved in waste collection, processing, disposal and/or
recycling operations in approximately 300 locations (including locations of
unconsolidated affiliates) in Australia, the Dominican Republic, Finland,
Germany, Hong Kong, Italy, Kuwait, the Netherlands, New Zealand, Spain,
Switzerland and the United Kingdom. European operations comprise the largest
number of operating locations outside North America.
The Company currently collects solid waste in approximately 175 locations and
operates 60 landfill sites in its international operations (including, in each
case, locations of unconsolidated affiliates). The Company also has 56
recycleries and 56 transfer stations in its international operations and uses
approximately 310,000 containers and approximately 4,400 specially equipped
collection trucks in its international waste collection operations.
The Company owns 50% of the stock of Otto Entsorgungsdienstleistungen GmbH
("Otto Waste Services"), which is primarily engaged in providing collection and
recycling services under long-term contracts with municipalities in Germany and
Duales System Deutschland GmbH, the non-governmental organization responsible
for the collection and processing of certain recyclable materials in Germany.
During fiscal 1996, the Company reported consolidated revenues of approximately
$662 million applicable to Otto Waste Services.
During fiscal 1996, the Company announced its intention to divest its Italian
operations. Although the Company intends to complete the sale during fiscal
1997, the Company does not have an agreement to sell the operations and cannot
determine at present the timing, or terms of such divestiture. See Note (4) of
Notes to Consolidated Financial Statements.
WASTE-TO-ENERGY
The Company and Air Products and Chemicals, Inc. ("Air Products"),
headquartered in Allentown, Pennsylvania, are each 50% general partners in
partnerships that design, build, own and operate facilities that burn solid
waste and recover energy and other materials. These partnerships market their
capabilities under the name American Ref-Fuel(R).
In April 1996, Air Products announced its intention to divest its partnership
interests in American Ref-Fuel. Air Products has advised the Company that it
does not currently have an agreement to sell its partnership interests and
cannot determine at the present the timing of any such sale. Air Products has
the right (and the Company has a reciprocal right) under the buy-sell
provisions of an agreement between the companies to designate a price and to
submit offers to the Company which would require the Company to either purchase
Air Products' partnership interests in American Ref-
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Fuel, or sell the Company's partnership interests to Air Products, in
either case, at the designated price. In the event Air Products elected to
initiate the buy-sell procedure, the Company would have at least 180 days to
respond to the buy-sell offers. Additionally, the agreement requires that Air
Products obtain the Company's consent before transferring its interest in
American Ref-Fuel, which consent can not be unreasonably withheld.
American Ref-Fuel currently operates five waste-to-energy facilities. Four of
these facilities, which are located in Hempstead (Long Island), New York, Essex
County, New Jersey, Niagara Falls, New York and Rochester, Massachusetts, have
capacities of approximately 800,000 to 1,300,000 tons per year. A fifth
facility, located in Preston, Connecticut, has a capacity of approximately
250,000 tons per year.
Four of the facilities owned by American Ref-Fuel partnerships utilize the
solid waste mass-burning technology of the German firm, Deutsche Babcock
Anlagen GmbH ("DBA"), for which American Ref-Fuel is a licensee in North
America. This technology has been utilized successfully for over 30 years in
Europe and elsewhere.
In June 1996, American Ref-Fuel completed its acquisition of a 90% interest in
the SEMASS Partnership, which owns the SEMASS Resource Facility in Rochester,
Massachusetts. The facility, which has a capacity of approximately 1,300,000
tons per year, utilizes a shred-and-burn process developed by Energy Answers
Corporation, an Albany, New York based company which had been managing general
partner of the facility since the plant's design phase.
In connection with four of the existing American Ref-Fuel projects, both the
Company and Air Products have delivered, and in connection with any future
projects may be required to deliver, support agreements for certain project
indebtedness of each of the respective subsidiary partners. See Note (11) of
Notes to Consolidated Financial Statements for information concerning these
obligations.
The Company's equity and loan investments in American Ref-Fuel's
waste-to-energy projects were approximately $192 million at September 30, 1996.
American Ref-Fuel's business is very capital intensive and its ability to raise
capital is an important factor in its competitiveness in the waste services
industry. When feasible, American Ref-Fuel attempts to finance its projects
with tax exempt bonds due to the lower interest costs. During fiscal 1997, the
Company plans to evaluate select acquisition opportunities presented by
American Ref-Fuel.
All waste-to-energy facilities must meet rigid environmental laws and
regulations. Existing laws and regulations can be changed or administered so
as to affect the design, construction, startup or operation of such facilities.
Management believes that the technologies employed at its facilities are
capable of meeting anticipated future changes in laws and regulations; however,
there can be no assurance that required environmental and other permits will be
issued for any planned project. See "Regulation" and "Waste Disposal Risk
Factors."
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REGULATION
All of the Company's principal business activities in the United States are
governed by federal, state and local laws and regulations pertaining to public
health and the environment, as well as transportation laws and regulations.
These regulatory systems are complex and are subject to change.
The U.S. Congress and certain states have considered legislation, and some
states are taking action, to ban or otherwise restrict the interstate
transportation of wastes for disposal, to impose discriminatory fees on such
transported wastes, to limit the types of wastes that may be disposed of at
existing disposal facilities, and to mandate waste minimization initiatives,
recycling quotas and composting of yard wastes.
In recent years, a number of communities have instituted "flow control"
requirements, which typically require that waste collected within a particular
area be deposited at a designated facility. In May 1994, the U.S. Supreme Court
ruled that a flow control ordinance was inconsistent with the Commerce Clause
of the Constitution of the United States. A number of lower federal courts
have struck down similar measures. Although the U.S. Congress has considered
legislation that would partially grant flow control authority under the
Commerce Clause, no legislation has been enacted. In the future, the U.S.
Congress may consider bills that could at least partially overturn these court
decisions and immunize particular governmental actions (for example, flow
control mandates that were in place prior to the 1994 U.S. Supreme Court
decision) from Commerce Clause scrutiny.
Similarly, the U.S. Supreme Court has consistently held that state and local
measures that seek to restrict the importation of extraterritorial waste or tax
imported waste at a higher rate are unconstitutional. To date, congressional
efforts to enable states to, under certain circumstances, impose differential
taxes on out-of-state waste or restrict waste importation have not been
successful.
In the absence of federal legislation, certain local laws that directly or
indirectly divert waste flows to designated facilities may be unenforceable,
and discriminatory taxes and waste importation restrictions should continue to
be subject to judicial invalidation. If the U.S. Congress adopts legislation
allowing for certain types of flow control or restricting the importation of
waste, or if legislation affecting interstate transportation of waste is
adopted at the federal or state level, such legislation could adversely affect
the Company's waste collection, transportation, treatment and disposal
operations.
Because a major component of the Company's business is the collection and
disposal of solid waste in an environmentally sound manner, a material amount
of the Company's capital expenditures are related (directly or indirectly) to
environmental protection measures, including compliance with federal, state and
local provisions that have been enacted or adopted regulating the discharge of
materials into the environment. There are costs that are associated with
facility upgrading, corrective actions, facility closure and post-closure care
in addition to other costs normally associated with the Company's waste
management activities. The majority of these expenditures
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are made in the normal course of the Company's business, and do not place the
Company at any competitive disadvantage.
In October 1991, the EPA issued its final regulations under Subtitle D of the
Resource Conservation and Recovery Act of 1976 ("RCRA"), which set forth
minimum federal performance and design criteria for municipal solid waste
landfills. All Subtitle D regulations are in effect, except for the financial
assurance requirements which the EPA has deferred to April 1997, although many
states have already implemented financial assurance programs. Management of
BFI believes that these regulations will have a favorable long-term impact on
its landfill operations, but meeting these regulatory requirements has resulted
in increased costs.
Under the Clean Air Act, the EPA proposed regulations in May 1991 that require
extensive methane gas collection systems to be installed at many of the
Company's landfills. These regulations, as revised, were finalized in 1996 and
will be phased in through the adoption of state regulations and implementation
plans. The Company has proceeded to design, permit and install gas extraction
and control systems at many of its facilities and believes these systems
substantially comply with EPA regulations. The Company is also seeking
operating or other applicable permits for these activities. In addition,
landfills located in those areas of the country that do not meet prescribed air
quality standards may require more costly control systems.
State financial responsibility regulations, adopted in various forms, require
owners or operators of waste disposal facilities and underground storage tanks
to demonstrate the financial ability to respond to and correct sudden and
accidental pollution occurrences, as well as non-sudden or gradual pollution
occurrences. To meet these requirements, the Company has secured Environmental
Impairment Liability ("EIL") insurance coverage in amounts the Company believes
are in compliance with federal and state law. Under the current EIL policy,
which is collateralized, the Company must reimburse the carrier for any losses.
It is possible that the Company's net income could be adversely affected in a
particular reporting period in the event of significant environmental
impairment claims.
Many state regulations also require owners or operators of waste disposal
facilities to provide assurance of their financial ability to cover the
estimated costs of proper closure and post-closure monitoring and maintenance
of these facilities. The federal Subtitle D regulations require all states to
adopt financial assurance regulations that meet the federal standards. The
Company has generally relied upon its consolidated financial position to issue
corporate guarantees, or has utilized letters of credit to satisfy these
requirements. The EPA has proposed a financial test and corporate guarantee
for use by private Subtitle D facilities, which, if adopted, would afford the
Company a cost effective method to satisfy the financial assurance
requirements. The Company has also established a captive insurance company
that is being used to provide insurance as a recognized means of demonstrating
this financial assurance. The Company has had success and is continuing its
efforts to secure acceptance of captive-issued insurance policies which serve
as a cost-effective alternative to certain other forms of financial assurance,
such as letters of credit.
-9-
<PAGE> 14
In its international operations, the Company has noted a trend toward increased
environmental regulation. For example, in Europe, policies have been
established to encourage waste reduction, to promote re-use and recycling, to
reduce packaging waste, to strengthen the standards for permitting and
supervision of waste disposal operations and to control crossborder movements
of waste. BFI, with its commitment to sustainable development and the rational
management of all resources, including waste, believes that the continuation of
this trend and enhanced enforcement of increasingly stringent regulations will
benefit its international operations.
COMPETITION
BFI competes with both publicly-held and privately-owned waste services
companies. This competition is intense and has increased in recent years. BFI
believes that neither it nor any other waste services company has a significant
portion of any major aspect of the solid waste services markets. In some
geographic areas, all or part of the solid waste collection, processing and
disposal services offered by BFI may also be provided by municipalities or by
governmental authorities with regional or multi-county jurisdiction. Because
solid waste services provided by municipal or regional governmental authorities
are generally subsidized by tax revenues and utilize major equipment and
facilities that are financed with proceeds from the sale of tax-exempt bonds,
these authorities may provide such services at lower prices (though not
necessarily at lower costs) than those of private companies.
Competition is encountered primarily from publicly-held and numerous
locally-owned private solid waste services companies and, to a lesser degree,
from municipalities and other governmental units with respect to residential
solid waste collection and solid waste sanitary landfills. Intense competition
in pricing and type and quality of services offered is encountered. Some
competitors in certain markets have increased competitive pressure by their
willingness to accept lower pricing to maintain market share.
WASTE DISPOSAL RISK FACTORS
There are serious, sometimes unforeseeable, business risks and potentially
substantial cost exposures associated with the establishment, ownership and
operation of solid waste sanitary landfill sites and other types of waste
processing and disposal facilities. These risk factors include, but are not
limited to: (i) the difficulty of obtaining permits to expand or establish new
sites and facilities and public and private opposition to the location,
expansion and operation of these facilities, (ii) governmental actions at all
levels that seek to restrict the interstate movement of waste for disposal,
which can result in declining volumes of waste available for disposal at some
facilities, (iii) costs associated with liner requirements, groundwater
monitoring, leachate and landfill gas control, surface water control,
post-closure monitoring, site cleanup, other remedial work and maintenance and
long-term care obligations, (iv) the obligation to manage possible adverse
effects on the environment, (v) regulations requiring demonstration of
financial responsibility and conformance to prescribed or changing standards
and methods of operation, (vi) judicial and
-10-
<PAGE> 15
administrative proceedings regarding alleged possible adverse environmental and
health effects of landfills or other treatment and disposal facilities, and
(vii) reduction in the volume of solid waste available for direct landfill
disposal in certain states because of governmental incentives to reduce the
daily volume of waste that may be disposed of, initiatives that require waste
recycling, minimization or composting and because of incineration in large
waste-to- energy facilities. See also "Waste-To-Energy", "Regulation" and
"Legal Proceedings - Environmental Proceedings."
BFI has periodically undertaken or been required, and may in the future
undertake or be required, to cease or to alter substantially its operations at
existing waste disposal sites, to implement new construction standards at
existing facilities and to add additional monitoring, post-closure maintenance
or corrective measures at waste disposal sites. Compliance with the Subtitle D
regulations has required costly expenditures by the Company and may in the
future require additional expenditures. See "Regulation" for information
concerning capital expenditures relating to environmental and health laws and
regulations and Notes (2) and (8) of Notes to Consolidated Financial
Statements.
If the Company is unable to continue disposing of planned volumes of wastes at
existing solid waste landfills or is unable to either expand existing landfills
or establish new sites, it would be required to obtain the rights to use other
disposal facilities or to suspend or curtail solid waste collection or disposal
activities. Any such actions would have an adverse impact on the Company's
collection business and could substantially reduce the Company's revenues and
income from operations and increase the risk of impairing the value of the
Company's investment in existing or proposed facilities. These developments
could also result in accelerating the recognition of closure costs and post-
closure monitoring cost accruals for those landfills, with a corresponding
negative impact on the Company's net income.
The economic viability of certain waste-to-energy facilities may be adversely
affected by (i) the availability of commercially reasonable energy sales
contracts; (ii) the availability of landfills for the disposal of ash residue,
bypass and nonprocessible waste; (iii) existing and proposed governmental
standards applicable to the disposal of ash residue that could limit the number
of sites available for such disposal; (iv) air emission standards applicable to
the facilities, (v) the possible lower cost of other alternatives for waste
disposal and (vi) the continuing uncertainty with respect to the enforceability
of local flow control laws. Waste-to-energy facilities may also be adversely
affected by many of the same factors that are currently impacting other waste
disposal facilities.
Certain geographic regions in the United States have, at times, experienced
shortages of suitable solid waste disposal facilities. Without long term
planning, many private and governmental solid waste collection companies
operating in the affected areas, including BFI, could be required to curtail or
even suspend land disposal operations, or seek other, more distant sites. In
other cases, collection companies, including BFI, may be excluded from
disposing of solid waste in landfills or waste-to-energy facilities either
because of regulation or because of the landfill or facility owners' desire to
preserve the remaining capacity for their own disposal needs.
-11-
<PAGE> 16
With respect to international operations, the profitability and risks
associated with these operations can also be affected, to a greater or lesser
extent depending on the foreign country in which the operations are located, by
changes in national economies, financial and political policies, war, invasion,
social instability, currency fluctuations and other risk factors associated
with operations in foreign countries.
CORPORATE DEVELOPMENT
The Company's corporate development program will evaluate opportunities to
expand its customer base by entering into new domestic and international
markets, broadening the type of services offered and acquiring businesses and
properties. However, the Company expects a reduction in capital expenditures
for acquisitions and other corporate development activities during fiscal 1997
as compared to historic levels of such expenditures, with an increased emphasis
on achieving returns over time at targeted amounts in excess of the Company's
cost of capital. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources." The
Company also intends to divest certain domestic and international business
assets and operations that are not expected to achieve desired performance
objectives. When investing in capital-intensive facilities such as landfills,
the Company faces the risk that required permits will not be obtained or
renewed. If permits are not ultimately obtained and maintained, the value of
such facilities can be substantially impaired, which could adversely affect
future results of operations. See "North American Operations - Post-Collection
- - Landfills" and "Regulation."
CAPITAL EXPENDITURES
Capital expenditures were approximately $1.2 billion in fiscal 1996, consisting
of $256 million for acquired businesses. Approximately $391 million was
expended in connection with internal market development projects, municipal
contracts and investment in affiliates and $579 million related to additions
and replacements of capital items for existing operations, including existing
landfill cell development. See Notes (5), (6) and (7) of Notes to Consolidated
Financial Statements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" for
additional financing information.
-12-
<PAGE> 17
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their positions (including their
principal areas of responsibility with the Company) and their respective ages
are as follows:
<TABLE>
<CAPTION>
Name Position Age *
- ---- -------- -----
<S> <C> <C>
Bruce E. Ranck President, Chief Executive Officer 47
and Director (1)
Norman A. Myers Vice Chairman, Chief Marketing 60
Officer and Director (1)
J. Gregory Muldoon Executive Vice President and 42
Chief Operating Officer
Jeffrey E. Curtiss Senior Vice President and 48
Chief Financial Officer
Hugh J. Dillingham, III Senior Vice President 47
Post Collection
Sandra D. Glatzau Senior Vice President 44
Marketing and Sales
J. Frederick Snyder Senior Vice President 43
Collection
Rufus Wallingford Senior Vice President 56
and General Counsel
David R. Hopkins Vice President, Controller 53
and Chief Accounting Officer
Louis A. Waters Chairman and Chief Executive Officer of BFI 58
International, Inc. and Director (1)(2)
</TABLE>
________________
* As of December 3, 1996.
(1) Serves on the Executive Committee of the Board of Directors.
(2) Serves on the Finance Committee of the Board of Directors.
-13-
<PAGE> 18
Mr. Ranck was elected President and Chief Executive Officer in October 1995,
having served as President and Chief Operating Officer of the Company since
November 1991 and as Executive Vice President (Solid Waste Operations-North
America) from October 1989 to November 1991. Prior to that time, he served the
Company as a Regional Vice President in one of the Company's former regions for
a period in excess of five years. Mr. Ranck has been a director of the Company
since March 1990. He also serves as a director of Furon Co. and as a director
or trustee of several educational and charitable organizations.
Mr. Myers was elected a director in 1978, Chief Marketing Officer in March 1981
and Vice Chairman of the Board in December 1982. He was initially elected a
Vice President in December 1970 and became an Executive Vice President in July
1976. Mr. Myers is a director of My Friends, a foundation for children in
crisis.
Mr. Muldoon was elected Executive Vice President and Chief Operating Officer in
May, 1996 having served as Senior Vice President (Corporate Development) since
September 1992 and as Vice President (Operations) since December 1991. He
joined the Company in 1980 as a market development representative and from 1983
to 1988 served as a district manager in several locations. From early 1989
until October 1990, he served as President of CECOS International, Inc., a
subsidiary of the Company, through the discontinuation of its hazardous waste
business. He then served as Regional Vice President of one of the Company's
former regions from October 1990 to November 1991.
Mr. Curtiss became Senior Vice President and Chief Financial Officer of the
Company in January 1992. Before that time, he served from August 1989 to
January 1992 as Executive Vice President, Chief Financial Officer and a
director of Heritage Media Corporation, an American Stock Exchange-listed
company based in Dallas.
Mr. Dillingham was elected Senior Vice President, Post Collection (formerly
Senior Vice President (Processing and Disposal)) in March 1993, having served
as Vice President (Disposal Operations) since December 1991. Prior to his
election, he served as Divisional Vice President of Disposal Operations in one
of the Company's former regions, and has over eighteen years of experience with
the Company in landfill operations. Mr. Dillingham serves as a director of the
Wildlife Habitat Council.
Ms. Glatzau was elected Senior Vice President, Sales and Marketing in
September, 1996. In May 1995, Ms. Glatzau was appointed Corporate Vice
President - Marketing and Sales, and from March, 1992 through April, 1995, she
served as Corporate Vice President - Investor Relations. Ms. Glatzau joined
the Company in 1978 and served the Company at various levels including sales
representative, regional sales trainer and sales manager and as Divisional Vice
President of Marketing and Sales for one of the Company's former regions.
-14-
<PAGE> 19
Mr. Snyder was elected Senior Vice President, Collection in September, 1996.
From 1989 through May 1996, Mr. Snyder served as Regional Vice President in two
of the Company's former regions. Mr. Snyder joined the Company in 1976 and
served as a District Manager from 1977 through 1989.
Mr. Wallingford became Senior Vice President and General Counsel of the Company
in January 1994. Prior to that time, he was a senior partner with the law firm
of Fulbright & Jaworski L.L.P., Houston, Texas, for a period in excess of five
years. Mr. Wallingford also serves as a director of the Children's Museum in
Houston, Texas.
Mr. Hopkins, who was a Divisional Vice President and Assistant Controller prior
to becoming Controller of the Company in September 1986, joined the Company in
September 1980. He was elected a Vice President and named Chief Accounting
Officer in December 1986. From September 1991 to January 1992, he served as
acting Chief Financial Officer of the Company.
Mr. Waters has served as Chairman and Chief Executive Officer of BFI
International, Inc. since May 1991 and as President of BFI International, Inc.
from March 1993 to October 1996. He also serves as Chairman of the Finance
Committee of the Company and as a member of the Executive Committee of the
Company. He served as Chairman of the Executive Committee from September 1980
until 1988 and as Chairman of the Board of the Company from August 1969 to
September 1980. Mr. Waters serves as a director or trustee of several
business, educational and charitable organizations.
All officers of the Company (including executive officers) are elected by the
Board of Directors, generally at its meeting held the day of the annual meeting
of stockholders or as soon thereafter as practicable. Each officer is elected
to hold office until his successor shall have been chosen and shall have
qualified or until his death or the effective date of his resignation or
removal. Subject to Board of Director approval, the annual meeting of
stockholders is scheduled to be held March 5, 1997 in Houston, Texas.
ITEM 2. PROPERTIES.
In its operations, the Company uses specially-equipped trucks, containers and
compactors. The Company also owns and/or operates sanitary landfill sites
throughout the United States and Canada, and in the United Kingdom, Germany,
Hong Kong, the Netherlands, New Zealand, Spain, Australia and Italy. See
"Business - North American Operations - Collection" and "Business - North
American Operations - Landfills" and Notes (6) and (8) of Notes to Consolidated
Financial Statements.
The Company leases its executive offices which are located at 757 N. Eldridge,
Houston, Texas. The Company also owns real estate, buildings and other physical
properties, which it employs in its daily operations in a large number of its
operating locations. The Company also leases a substantial portion of its
transfer stations, offices, storage and shop space. See Notes (6) and (11) of
Notes to Consolidated Financial Statements.
-15-
<PAGE> 20
BFI believes that its property and equipment is well-maintained and adequate
for its current needs. Although during fiscal 1997 BFI expects a reduction in
capital expenditures when compared to historic levels of such expenditures,
substantial investments are expected to be made in additional property and
equipment for expansion, for replacement of assets as they reach the end of
their useful lives and in connection with corporate development activities.
See "Business - Corporate Development" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Certain of the
Company's property and equipment is subject to mortgages and liens securing
payment of portions of Company indebtedness. See Notes (9) and (11) of Notes
to Consolidated Financial Statements for information with respect to mortgage
and lease obligations on these properties.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various administrative matters or litigation,
including original or renewal permit application proceedings in connection with
the establishment, operation, expansion, closure and post-closure activities of
certain landfill disposal facilities, environmental proceedings relating to
governmental actions resulting from the involvement of various subsidiaries of
the Company with certain waste sites (including Superfund sites) (see
"Environmental Proceedings"), personal injury and other civil actions, as well
as other claims and disputes that could result in additional litigation or
other adversary proceedings.
While the final resolution of any such litigation or such other matters may
have an impact on the Company's consolidated financial results for a particular
reporting period, management believes that the ultimate disposition of such
litigation or such other matters will not have a materially adverse effect upon
the consolidated financial position of the Company.
ENVIRONMENTAL PROCEEDINGS
The Company strives to conduct its operations in compliance with applicable
laws and regulations, including environmental rules and regulations, and has as
its goal 100% compliance. However, management believes that in the normal
course of doing business, companies in the waste disposal industry, including
the Company, are faced with governmental enforcement proceedings and resulting
fines or other sanctions and will likely be required to pay civil penalties or
to expend funds for remedial work on waste disposal sites. The possibility
always exists that such expenditures could be substantial, which would have a
negative impact on earnings for a particular reporting period. Management of
BFI believes that the existence of these proceedings does not provide an
accurate reflection of the Company's operating policies, procedures and
capabilities, although the Company will have to respond to those issues in
filings required to be made with respect to its operations in certain
jurisdictions. In any event, management of the Company believes that the
ultimate resolution of such proceedings will neither individually nor in the
aggregate have a materially adverse effect upon the consolidated financial
position of the Company.
-16-
<PAGE> 21
The Company is continuously engaged in various original or renewal permit
application proceedings in connection with the establishment, operation,
expansion, closure and post-closure activities relating to waste treatment and
disposal facilities, properties and activities. These proceedings, which are a
necessary and routine part of waste disposal activities, are held before a
variety of regulatory and judicial agencies at the federal, state and local
level. In these proceedings, legal challenges are routinely raised by private
parties and by the regulatory agencies, alleging a variety of adverse
consequences (including adverse effects on the environment, in some instances
with particular reference to the inequitable distribution of environmental
burdens among various social groups and classes) if the proposed permits are
granted or renewed. Opposition is also routinely encountered in connection
with proposed changes in zoning designations, operating procedures, remedial or
upgrading actions and post-closure activities at waste processing and disposal
facilities. See "Business - Regulation."
The Company is participating in potentially responsible party ("PRP") groups at
98 waste disposal sites listed on the EPA's National Priority List, which sites
may be subject to remedial action under the Comprehensive Environmental
Response, Compensation and Liability Act (also known as "Superfund"). Complete
settlements with other members of the PRP groups and/or the EPA have been
negotiated with respect to 69 of these sites. Partial settlements have been
negotiated with regard to 13 of the sites. These settlements had no material
effect on the Company's results of operations or consolidated financial
position. Further, the Company has received information requests relating to
67 additional sites on the EPA's National Priority List. For 45 of these
sites, the Company has determined that it is not a PRP. The Company's PRP
status at the remaining 22 sites has not yet been determined. The number of
Superfund sites with which the Company is involved may increase or decrease
depending upon the EPA's findings from responses to these information requests
and any future information requests which may be received. Superfund
legislation permits strict joint and several liability to be imposed without
regard to fault, and as a result, one company might be required to bear
significantly more than its proportional share of the cleanup costs if it is
unable to obtain appropriate contributions from other responsible parties.
Management routinely reviews each site requiring corrective action (including
Superfund sites) in which the Company is involved, considering its role with
respect to each site and the relationship to the involvement of other parties
at the site, the quantity and content of the waste with which it was
associated, and the number and financial capabilities of the other parties at
the various sites. Based on reviews of the various sites, currently available
information and management's judgment and significant prior experience related
to similarly situated facilities, expense accruals are provided by the Company
for its share of estimated future costs associated with corrective actions to
be implemented at certain of these sites and existing accruals are revised as
deemed necessary. The final negotiated settlement relating to the large
majority of Superfund sites occurs several years after a party's identification
as a potentially responsible party, due to the many complex issues that must be
addressed in determining the magnitude of the contamination at the site. The
process for addressing contamination at a site usually includes technical
investigations, selection of a remedy and implementation of the remedy
selected. In many cases, the expenditures related to actual corrective action
may be incurred over a number of years. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Environmental
Matters."
-17-
<PAGE> 22
Management believes that the ultimate disposition of these environmental
matters will not have a materially adverse effect upon the liquidity, capital
resources or consolidated financial position of the Company, although the
resolution of one or more of these matters could have a significant negative
impact on the Company's consolidated financial results for a particular
reporting period. It can be reasonably expected that the Company will become
involved in additional remedial actions and Superfund sites in the future.
A subsidiary of the Company, CECOS International, Inc. ("CECOS"), is a party to
a consent order with the U.S. Environmental Protection Agency, one aspect of
which concerns a leachate pretreatment system that CECOS agreed to construct at
one of its closed facilities. By letter dated March 16, 1994, the USEPA has
demanded $528,500 in stipulated penalties due to CECOS's alleged failure to
commence timely start-up of the leachate pretreatment system that is presently
operating. On March 28, 1996, the USEPA filed a lawsuit styled United States
of America v. CECOS International, Inc. in the United States District Court for
the Southern District of Ohio, seeking payment of such stipulated penalties.
CECOS is vigorously contesting this matter. Management of the Company is
unable to conclude whether the ultimate monetary sanction in this matter, if
any, will be more than $100,000.
On April 27, 1992, a subsidiary of the Company paid the City of Philadelphia
$1,600,000 as restitution and in settlement of any claims the City might have
brought relating to the disposal at a City-owned treatment plant of
non-hazardous waste material alleged to have been inconsistent with the
authorization granted by the City. The Environmental Protection Agency and the
United States Attorney for the Southern District of Pennsylvania (the "U.S.
Attorney") have continued to investigate this matter and the Company has
continued to fully cooperate with such investigation. The subsidiary has
recently entered into a plea agreement with the U.S. Attorney calling for the
subsidiary to enter a plea of guilty to three felony counts, one of which
charges a violation of the Clean Water Act, and pay a fine of $3,000,000,
together with a contribution of $1,500,000 to a program or programs designed to
benefit the environment in the Southern Pennsylvania area. The subsidiary will
also make restitution payments in the amount of $642,000 to various publicly
owned treatment works in the Philadelphia area.
On March 6, 1991, Region VI of the EPA filed an administrative proceeding
entitled In the Matter of Chemical Reclamation Services, Avalon, Texas. The
complaint alleged that Chemical Reclamation Services ("CRS"), a former
subsidiary of the Company, failed to comply with certain notification
requirements under RCRA and under regulations established under the Texas
hazardous waste management program. The complaint sought a proposed monetary
sanction against CRS in the amount of $229,500 and a claim for indemnity had
been made against the Company. In September 1996, the Company agreed to pay a
monetary sanction of $32,250, which represents one-half of the total monetary
sanction imposed upon CRS, in full settlement of the alleged violations.
-18-
<PAGE> 23
On March 9, 1991, CECOS was named in a civil administrative complaint, entitled
In the Matter of CECOS International, Inc., initiated by Region II of the EPA.
This complaint alleges that CECOS landfilled certain waste generated by General
Motors Corporation, that by definition contained polychlorinated biphenyls in
excess of the regulatory limit, rather than incinerating such waste, and that
CECOS failed to test the waste in accordance with the requirements of its
permits. The original complaint sought monetary sanctions against CECOS in the
amount of $14,150,000. In September 1996, the EPA withdrew certain of its
allegations resulting in a reduction in the monetary sanctions sought to
$2,975,000. CECOS is vigorously contesting the allegations in the complaint.
Management of the Company is currently unable to determine whether the ultimate
monetary sanction, if any, will be more than $100,000.
In 1991, American Ref-Fuel Company of Essex County ("Ref-Fuel"), a New Jersey
partnership, received notices from the New Jersey Department of Environmental
Protection and Energy ("NJDEPE") alleging violations of its stormwater
discharge permit. On December 1, 1991, Ref-Fuel entered into an Administrative
Consent Order ("ACO") and has paid monetary sanctions in the amount of
$487,000. On November 8, 1996, NJDEPE terminated the ACO stating that all
required obligations have been fulfilled. A subsidiary of the Company owns a
50% interest in Ref-Fuel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
BFI's Common Stock is traded on the New York Stock Exchange, the Chicago Stock
Exchange, the Pacific Stock Exchange and The International Stock Exchange of
the United Kingdom and Republic of Ireland Ltd. The table below sets forth by
fiscal quarter, for the fiscal years ended September 30, 1995 and 1996, the
high and low sales prices of BFI's Common Stock on the New York Stock Exchange
- - Composite Transactions, as reported in The Wall Street Journal.
<TABLE>
<CAPTION>
Fiscal Year 1995 Fiscal Year 1996
------------------------- --------------------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter $32-3/8 $25-5/8 $31-7/8 $27-3/8
Second Quarter 34-1/4 27-1/8 32-5/8 28
Third Quarter 37-7/8 32-3/4 32-7/8 27-7/8
Fourth Quarter 40-5/8 30 29-1/8 21-3/8
</TABLE>
As of December 3, 1996, there were approximately 17,900 holders of record of
BFI Common Stock.
-19-
<PAGE> 24
In June 1988, the Company's Board of Directors adopted a Preferred Stock
Purchase Rights Plan and in connection therewith declared a dividend of one
Preferred Stock Purchase Right (a "Right") on each outstanding share of the
Company's Common Stock and on each share subsequently issued until separate
Rights certificates are distributed or the Rights expire or are redeemed. See
Note (13) of Notes to Consolidated Financial Statements for more detailed
information concerning these Rights.
BFI has paid cash dividends on its Common Stock each year since 1950. Cash
dividends are paid quarterly. During each of fiscal 1995 and 1996, 68 cents
was paid in dividends on each share of Common Stock. The most recently
declared quarterly cash dividend on the Common Stock was 17 cents per share.
The payment of dividends or other distributions on, or with respect to, the
Common Stock is limited by provisions of the Company's Multicurrency Revolving
Credit Agreement and Revolving Credit Agreement. See Note (9) of Notes to
Consolidated Financial Statements for a description of these credit agreements.
The amount available for payment of dividends or distributions on or with
respect to Common Stock pursuant to the most restrictive of such limitations
was approximately $945 million on September 30, 1996, after giving effect to
cash dividends paid or declared through September 30, 1996. BFI currently
expects to continue the payment of dividends, although future dividend payments
will depend on BFI's earnings, financial needs and other factors.
Due to the nature of the Company's business, the Company or its competitors
receives unfavorable publicity from time to time, which can result in
aberrational market conditions for the Company's securities.
-20-
<PAGE> 25
Item 6. - Selected Financial Data
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following is a summary of certain consolidated financial information
regarding the Company for the five years ended September 30, 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------
(In Thousands Except for Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Operating
Statement Data:
Revenues $5,779,277 $5,779,351 $4,314,541 $3,478,830 $3,277,635
Income before
special charges
and extra-
ordinary item $ 273,014 $ 384,561 $ 283,973 $ 213,910 $ 175,607
Income (loss)
before extra-
ordinary item $ (89,172) $ 384,561 $ 283,973 $ 197,440 $ 175,607
Net income
(loss) $ (101,331) $ 384,561 $ 278,710 $ 197,440 $ 175,607
Income (loss)
per common and
common equiv-
alent share -
Income (loss)
before extra-
ordinary item $(0.44) $1.93 $1.52 $1.15 $1.11
Net income (loss) $(0.50) $1.93 $1.49 $1.15 $1.11
Cash dividends per
common share $ .68 $ .68 $ .68 $ .68 $ .68
</TABLE>
(Continued on Following Page)
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<PAGE> 26
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------
(In Thousands Except for Per Share Amounts)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Property and
equipment, net $3,920,721 $3,722,292 $3,049,767 $2,515,709 $2,263,653
Total assets $7,600,906 $7,460,372 $5,796,955 $4,295,642 $4,067,524
Senior long-term
debt $2,766,885 $1,665,804 $ 713,680 $ 333,689 $ 349,183
Convertible
subordinated
debentures $ -- $ 744,944 $ 744,949 $ 744,949 $ 744,949
Common stock-
holders' equity $2,510,278 $2,741,750 $2,391,680 $1,532,603 $1,460,406
Cash Flow Data:
Capital
expenditures $ 935,382 $ 929,596 $ 694,475 $ 606,240 $ 531,239
Payments for
businesses
acquired $ 188,451 $ 769,369 $ 398,734 $ 83,786 $ 21,644
Cash flows from
operating
activities $ 856,843 $1,030,489 $ 693,928 $ 613,965 $ 577,007
</TABLE>
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<PAGE> 27
Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's operations,
financial performance and results, as well as material set forth elsewhere
herein, includes statements that are not historical facts. Such statements are
forward- looking statements based on the Company's expectations and as such,
these statements are subject to uncertainty and risk. These statements should
be read in conjunction with the "Regulation", "Competition" and "Waste Disposal
Risk Factors" sections of this document which describe many of the external
factors that could cause the Company's actual results to differ materially from
the Company's expectations.
RESULTS OF OPERATIONS
The Company's fiscal 1996 results were disappointing. Annual results were
heavily influenced by the significant decline in worldwide recycling commodity
prices experienced over the course of the past fiscal year and pre-tax special
charges of $447 million ($362 million or $1.80 per share after income taxes)
taken in the fourth quarter. As a result, the Company reported a net loss of
$101 million for fiscal 1996. These fiscal 1996 results also include the
after-tax extraordinary item ($12 million or $.06 per share after income taxes)
associated with the $745 million of Convertible Subordinated Debentures
redeemed during the second quarter of fiscal 1996. Before considering special
charges and the extraordinary item, net income for the current fiscal year was
$273 million. These fiscal 1996 results compare with net income for the prior
fiscal year of $385 million. Fiscal 1996 revenues were unchanged from the
prior fiscal year at $5.8 billion.
As stated above, the decline in the average value of worldwide recycling
commodities in the current year had a significant negative impact on the
Company's fiscal 1996 results, particularly in North America and in Germany.
In North America, apart from the significant decline in earnings from recycling
operations, operating results were affected favorably by increased earnings in
the collection business, partially due to improved customer pricing, and by
reduced incentive compensation costs, as compared with the prior year. Current
year results were also affected negatively by higher interest expense resulting
from increased indebtedness, principally associated with the prior year
acquisition of Attwoods plc ("Attwoods") and other acquisitions. A
continuation of low recycling commodity prices is expected to continue to
negatively affect the Company's earnings into fiscal 1997.
The special charges of $447 million included in the fiscal 1996 results of
operations resulted principally from management decisions to sell the Company's
Italian operations, divest certain domestic and international non-core business
assets and operations and close certain recycling facilities not expected to
achieve desired performance objectives. The special charges also included a
writedown to fair value of the Company's investment in the Azusa, California
landfill. This writedown was a result of the changing competitive nature of
waste disposal in the Los Angeles market area
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<PAGE> 28
and the continuing negative legal climate, including recent adverse decisions
by California judicial and regulatory authorities, bearing on the site's
ability to accept municipal solid waste. See Note (4) of Notes to Consolidated
Financial Statements for further discussion of the special charges.
During fiscal 1996, the Company acquired 102 businesses with a combined
annual revenue base of $333 million. In the first half of fiscal year 1995,
the Company acquired Attwoods, the largest acquisition in the history of the
Company, with estimated annualized revenues of $450 million, net of divested
operations. Approximately 80% of Attwoods revenues, net of divested
operations, was derived from collection and landfill operations with the
remainder derived from recycling, medical waste and mineral extraction
operations. The Company paid approximately $580 million to acquire this
integrated service company with operations principally in the United States and
the United Kingdom. Prior year results include the operating results of
Attwoods beginning in December 1994.
During June 1996, the Company announced the reorganization of its North
American operating business structure, which became effective in August 1996.
The Company's previous organization divided North America into 45 divisions
reporting to six regional offices with operations conducted from approximately
400 districts. The new organization divides North America into 13 market areas
and retains the district office organization. In addition, the new structure
organizes the Company's operations by specific business functions with direct
reporting to the corporate office. The new organization should better focus
the Company on customer service, improving asset utilization and controlling
costs. There was no reorganization charge recorded to cover the estimated
future expenses associated with this announcement. The costs associated with
this reorganization are being expensed as incurred and approximately $4.2
million of these costs was recorded as selling, general and administrative
expense through September 30, 1996. The Company expects to incur additional
costs associated with the reorganization during fiscal year 1997.
During the fourth quarter, the Company announced a strategic shift in
focus from an emphasis on external growth to an emphasis on internal growth
with success measured by cash flow and return on gross assets. This strategic
shift is also what led the Company to make the organization changes announced
in June 1996 discussed above and to set new long- term financial goals. These
revised goals and actions taken will more closely align the Company's
performance with its stockholders' interests. The generation of cash flow in
excess of the weighted average cost of capital is the Company's highest
financial priority. In addition, the Company's revised incentive compensation
plans link employees to common goals and reward them only as stockholders and
customers benefit from the improved performance by the Company. Finally, the
fiscal 1997 capital spending program has been substantially reduced from $1.2
billion in fiscal 1996 to $790 million in fiscal 1997, and the decisions
involving capital spending are now centralized.
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<PAGE> 29
Revenues
Revenues for fiscal 1996 were $5.8 billion, unchanged from fiscal 1995.
Fiscal 1994 revenues were $4.3 billion. The following table reflects the
contribution to total revenue of the Company's business segments for the last
three years (in millions):
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
North American Operations (1)
Collection Services -
Solid Waste $2,886 $2,758 $2,360
Transfer and Disposal -
Solid Waste
Unaffiliated customers 537 543 493
Affiliated companies 513 483 392
------ ------ ------
1,050 1,026 885
Recycling Services 531 675 359
Medical Waste Services 200 189 161
Services Group and Other 89 83 83
Elimination of affiliated
companies' revenues (513) (483) (392)
------ ------ ------
Total North American Operations 4,243 4,248 3,456
------ ------ ------
International Operations
Germany 662 710 344
The Netherlands 323 323 237
United Kingdom 193 176 55
Other 358 322 223
------ ------ ------
Total International Operations 1,536 1,531 859
------ ------ ------
Total Company $5,779 $5,779 $4,315
====== ====== ======
Percentage Increase from
Prior Year --% 34% 24%
</TABLE>
- ---------------
(1) Revenues from Canadian operations of $169 million, $178 million and
$162 million for fiscal years 1996, 1995 and 1994, respectively, are
included in North American revenues.
The following table reflects changes in revenues for fiscal 1996 from
price, volume, acquisitions and foreign currency translation compared with
revenue changes for fiscal years 1995 and 1994. The fiscal 1996 growth in
revenue from acquisitions was more than offset by the significant decrease in
revenues due to price.
-25-
<PAGE> 30
<TABLE>
<CAPTION>
Change in Revenues
--------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Price (5.9)% 5.9% 0.6%
Volume 0.4 5.8 7.3
Acquisitions 5.7 19.9 16.6
Foreign currency translation (0.2) 2.4 (0.5)
---- ---- ----
Total Percentage Increase --% 34.0% 24.0%
==== ==== ====
</TABLE>
Current year revenue growth due to acquisitions was due in part to the
acquisition of Attwoods in December 1994, which resulted in increased revenues
principally in the United States and the United Kingdom, as well as the
Company's acquisition efforts over the past year.
The 5.9% decrease in revenues in fiscal 1996 due to changes in price was
due to the significant decline in the weighted average price of recycling
commodities in North America and Germany during the year compared with last
year. In North America, despite the mitigating impact of floor price
contracts, the average price of recycling commodities for the current fiscal
year declined 53% from the prior year average. The weighted average market
prices in North America for corrugated, office paper and newspaper declined
from $147 per ton in fiscal 1995 to $61 per ton this year. Paper prices have
historically been cyclical, but in the past year, unprecedented changes in
recycling commodity prices have been experienced. During fiscal 1996, the
Company developed a mechanism to enable it to quickly adjust recycling customer
pricing in order to preserve acceptable margins when commodity values decline.
This mechanism was implemented over the latter half of fiscal 1996. The timely
adjustment of customer fees to correspond with changing commodity prices should
lessen earnings volatility in the future. The decline in revenues associated
with lower worldwide recycling commodity prices was offset slightly by
increases in revenues due to pricing in the North American collection business
and, to a lesser extent, in the landfill and medical waste businesses.
Revenues increased slightly due to volume in fiscal 1996 compared with
last year due to increased volumes in recycling operations offset by reductions
in collection and third party disposal volumes. Third party landfill volumes
were affected negatively in the current year by self-imposed restricted
volumes, the closing of certain sites and the loss of disposal contracts.
The 34% increase in revenues in fiscal 1995 compared with fiscal 1994 was
principally attributable to improved recycling business results, the impact in
fiscal 1995 of the acquisition of Otto Waste Services ("Otto") in Germany in
February 1994 and the Attwoods acquisition (with operations principally in the
United States and the United Kingdom). North American recycling revenues
increased $316 million in 1995, an 88% increase from fiscal 1994. Weighted
average paper prices for fiscal 1995 reached an all-time high. Revenues from
German operations were also favorably affected by the increased worldwide
recycling commodity prices experienced in fiscal 1995.
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<PAGE> 31
Cost of Operations
Cost of operations increased $168 million (4%) in fiscal 1996, $1,024
million (33%) in fiscal 1995, and $598 million (24%) in fiscal 1994, in each
case compared with the immediately prior year. Most of this increase in cost of
operations is attributable to businesses acquired, including the acquisition of
Attwoods in December 1994. Cost of operations as a percent of revenues
increased to 74.7% in fiscal 1996 compared with 71.8% in fiscal 1995 and 72.4%
in fiscal 1994. This increase as a percent of revenues from fiscal 1995 is
principally attributable to the negative effect on revenues of lower worldwide
recycling commodity prices in fiscal 1996 compared with last year. The fiscal
1995 increase in cost of operations was due principally to the Attwoods and
Otto acquisitions. The fiscal 1994 increase was due largely to the Otto
acquisition. Included in cost of operations is depreciation and amortization
expense of approximately $491 million, $453 million and $371 million for fiscal
years 1996, 1995 and 1994, respectively.
Selling, General and Administrative Expense (SG&A)
SG&A expenses increased $31 million (4%) in fiscal 1996, $196 million
(30%) in fiscal 1995 and $88 million (16%) in fiscal 1994, in each case
compared with the immediately prior year. SG&A expense as a percent of revenues
increased to 15.1% in fiscal 1996 compared with 14.6% in fiscal 1995 and 15.0%
in fiscal 1994. The current year increase in SG&A expense as a percent of
revenue compared with the prior year resulted principally from the negative
effect on revenues of lower worldwide recycling commodity prices between the
years. The $31 million increase in SG&A expense in fiscal 1996 compared with
the prior year was primarily related to higher costs (including goodwill
amortization expense) associated with the Company's acquisition activities, a
substantial portion of which was related to the acquisition of Attwoods in
December 1994. Fiscal 1996 SG&A expense also included approximately $4.2
million of expenses associated with the reorganization announced in June 1996.
The current year increase in SG&A expense was offset partially by the reduction
in fiscal 1996 incentive compensation considering the lower earnings level
achieved in 1996. The Company continuously strives to reduce SG&A costs through
the consolidation of administrative functions and other cost control measures
resulting from the identification and application of best practices within its
operations.
Increased SG&A expenses in fiscal years 1995 and 1994 over the prior years
were principally due to acquisition activities, including the Attwoods and Otto
acquisitions. Included in SG&A expense for fiscal years 1996, 1995 and 1994 was
depreciation and amortization expense of $112 million, $99 million and $73
million, respectively.
Special Charges
Special charges of $447 million ($362 million or $1.80 per
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<PAGE> 32
share after income taxes) were included in fiscal 1996 results of operations.
The charges resulted principally from management decisions to sell the
Company's Italian operations, divest certain domestic and international
non-core business assets and operations and close certain recycling facilities
not expected to achieve desired performance objectives. The special charges
also included a writedown to fair value of the Company's investment in the
Azusa, California landfill. This writedown was a result of the changing
competitive nature of waste disposal in the Los Angeles market area and the
continuing negative legal climate, including recent adverse decisions by
California judicial and regulatory authorities, bearing on the site's ability
to accept municipal solid waste. See Note (4) of Notes to Consolidated
Financial Statements for further discussion of the special charges and
potential additional related expenses to be recorded in fiscal 1997.
Interest Expense and Income
Interest expense and income for the last three fiscal years were as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Gross interest expense $195,605 $170,958 $104,759
Interest capitalized (16,306) (11,429) (11,600)
-------- -------- --------
Interest expense $179,299 $159,529 $ 93,159
======== ======== ========
Interest income $ 8,842 $ 7,422 $ 11,288
======== ======== ========
</TABLE>
Fiscal 1996 interest expense was $179.3 million, an increase of $19.8
million when compared with fiscal 1995 interest expense of $159.5 million. The
increase in gross interest expense in fiscal 1996 was principally the result of
acquisition activities, including the acquisition of Attwoods in the first half
of fiscal year 1995. The $66.4 million increase in interest expense in fiscal
1995 over fiscal 1994 was also due principally to acquisition activities,
including the impact in fiscal 1995 of the acquisitions of Otto (acquired in
February 1994) and Attwoods.
Interest capitalized fluctuates from year-to-year depending upon the
number of construction and other qualifying projects and average interest
capitalization rate. The increase in interest capitalized in fiscal 1996
compared with the prior year was due to increased construction activities at a
number of landfills and other qualifying projects over the prior year.
Fiscal year 1995 interest income declined principally as a result of
adjustments in international operations related to interest income accrued in
fiscal year 1994 on notes receivable amounts which the Company subsequently
determined would not be collected. The increase in interest income in fiscal
1996 is reflective in part of the negative adjustment recorded in fiscal 1995
discussed above.
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<PAGE> 33
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates increased slightly from
fiscal 1995 to 1996. This year-over-year improvement was due principally to
earnings improvement of American Ref-Fuel and certain other domestic and
international affiliates, partially offset by reduced earnings from the equity
investees in Germany. The decline in earnings from equity investees in Germany
was due to the acquisition of the remaining 50% ownership interest of
Pfitzenmeier & Rau by Otto Waste Services during the second quarter of fiscal
1996. Equity in earnings of unconsolidated affiliates increased $17 million
from fiscal 1994 to fiscal 1995 due principally to earnings improvement of
American Ref-Fuel and German affiliates. The Company acquired a 50% ownership
interest in Otto Waste Services in February 1994 and consolidates Otto's
financial results, which include equity in earnings of Otto's unconsolidated
affiliates.
Minority Interest in Income of Consolidated Subsidiaries
The changes in minority interest in income of consolidated subsidiaries
are reflective of changes in the net income of Otto Waste Services. The
current year decline of $18.4 million was principally due to the negative
impact of lower recycling commodity prices received in Germany in the current
year as compared with the prior year. The increase in minority interest in
income of consolidated subsidiaries of $14.6 million from fiscal 1994 to 1995
was due to increased earnings from Otto, which was acquired in February 1994.
Income Taxes
The Company's effective income tax rate for fiscal 1996 was 40.0% prior to
considering the special charges of $447 million taken in the fourth quarter.
Actual income tax expense for fiscal 1996 exceeded pre-tax reported income
(income before income taxes, minority interest and extraordinary item)
significantly in recognition that certain amounts included in the special
charges either are not deductible for income tax purposes or that deductible
amounts could expire prior to utilization by the Company. The Company's
effective income tax rate for fiscal years 1995 and 1994 was 40.0%.
Profitability Ratios and Other Financial Information
The following profitability ratios (shown as a percent of revenues)
reflect certain profitability trends for the Company's operations. Also
presented below are return on asset information and ratios of earnings to fixed
charges.
-29-
<PAGE> 34
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Profitability margins:
Gross profit 25.3% 28.2% 27.6%
Income from operations
before special charges 10.2% 13.7% 12.6%
Income from operations 2.5% 13.7% 12.6%
Income before income taxes,
minority interest and
extraordinary item 0.5% 12.0% 11.6%
Net income before special charges
and extraordinary item (1) 4.7% 6.7% 6.6%
Net income (loss) (1) (1.8)% 6.7% 6.5%
Other financial information:
Pre-tax, pre-interest return on
average total assets, excluding
special charges 8.4% 12.2% 11.4%
Return on Gross Assets 11.4% 13.9% 14.0%
Ratio of earnings to fixed charges 1.02(2) 4.04 4.25
</TABLE>
- ------------
(1) Fiscal 1996 and 1995 amounts do not reflect the pro forma effect of
the use of cash proceeds of $409.7 million to be received in the future
under the provisions of the 7.25% Automatic Common Exchange Securities.
See Note (14) of Notes to Consolidated Financial Statements.
(2) Excluding the effects of the fiscal 1996 special charges of $447
million, the ratio of earnings to fixed charges for fiscal 1996 was 2.77.
Special charges of $447 million taken in the fourth quarter of fiscal 1996
had a significant negative impact on the profitability margins of the Company
other than the gross profit margin. Exclusive of the impact of these charges,
fiscal 1996 results reflected declines in all of the profitability margins
presented above as compared with the prior year. These profitability margins
were affected negatively by the significant worldwide decline in the average
value of recycling commodities in the current year. Lower average recycling
commodity prices in the current year principally affected earnings and
profitability margins in the Company's North American and German operations.
These profitability margins were also negatively affected in the current year
by the relatively low profit margins in the Company's Italian operations and,
to a lesser extent, its Spanish and Australian operations. Management has made
the decision to sell the Italian operations and is continuing to focus on
improving its Spanish and Australian operating results.
Operating income as a percent of revenues in the North American collection
business improved in the current year over last year while the gross profit
margin remained relatively flat. Improved pricing in the collection business
in fiscal 1996 had a
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<PAGE> 35
favorable impact on profitability margins. Slight improvements were noted in
the transfer and disposal business operations in the current year as well.
Profitability ratios improved in fiscal year 1995 principally due to
increased commodity prices and volumes in the Company's recycling business, the
continued focus on cost reductions and, to a lesser extent, improved pricing
and volumes in other business areas. The increase in gross profit margin was
driven by the Company's North American operations. An increase in operating
profit margins was achieved as a result of the higher gross profit margin in
North American operations and due to SG&A expenses increasing at a slower pace
than revenues throughout the Company's international operations.
Total assets increased to $7.6 billion in fiscal 1996, only a slight
increase over the $7.5 billion of total assets at the end of fiscal 1995,
reflective of the reduction in assets resulting from the special charges.
During fiscal 1995, total assets of the Company increased by $1.7 billion from
fiscal 1994, primarily as a result of the acquisition of Attwoods and other
businesses, foreign currency translation and capital expenditures. Pre-tax,
pre-interest return on average total assets, excluding special charges,
decreased in fiscal 1996 from the prior year as a result of lower earnings,
principally due to the significant worldwide decline in the average value of
recycling commodities in the current year. Despite the significant increase in
total assets in fiscal 1995, pre-tax, pre-interest return on average total
assets increased to 12.2% for fiscal 1995 due to higher profitability.
As stated above, management's focus has shifted from external growth to an
emphasis on internal growth with success measured by cash flow and return on
gross assets. Return on gross assets ("ROGA"), although not a measure of
financial performance under generally accepted accounting principles, is a new
measurement for the Company representing the quotient of operating cash flow
divided by average gross assets, where operating cash flow and gross assets are
defined as follows:
Operating cash flow - the sum of (i) net income before extra-
ordinary item, (ii) minority interest, (iii) interest expense, net of
related income tax benefit, (iv) depreciation and amortization expense and
(v) asset impairment writedowns (e.g. special charges in fiscal 1996).
Gross assets - the sum of total assets, accumulated depreciation
and amortization, and asset impairment writedowns (until such assets are
sold or otherwise disposed of), less the sum of (i) current liabilities,
net of interest-bearing indebtedness included therein, (ii) accrued
environmental and landfill costs associated with the continuing operations
of the Company and (iii) deferred income tax liabilities.
The gross assets in the ROGA computation for a fiscal year are the average of
the applicable five quarter-end amounts in the period. ROGA for fiscal years
1996, 1995 and 1994 was 11.4%, 13.9% and 14.0%, respectively. The Company's
goal for fiscal 1997 is to increase ROGA by 0.5% from fiscal 1996 to 11.9%.
-31-
<PAGE> 36
EBITDA (defined herein as income from operations plus depreciation and
amortization expense before considering special charges) was $1.19 billion for
fiscal 1996 compared with $1.34 billion for the prior fiscal year. EBITDA,
which is not a measure of financial performance under generally accepted
accounting principles, is included in this discussion because the Company
understands that such information is used by certain investors when analyzing
the Company's financial condition and performance.
The effect of general inflation, as measured by the average consumer price
index, has not historically had a material impact on the Company's overall
financial position or results of operations.
ENVIRONMENTAL MATTERS
As of September 30, 1996 and 1995, the Company's balance sheet included
accrued environmental costs of $666 million and $703 million, respectively,
associated with its obligations for closure and post-closure of its operating
and closed landfills and for remediation and corrective actions at Superfund
sites and other facilities which are discussed in the following paragraphs.
See Notes (2) and (8) of Notes to Consolidated Financial Statements for a
discussion of the Company's environmental and landfill accounting policies and
other financial information related to environmental and landfill accruals.
The Company's landfills are subject to specific operating permit
requirements and the applicable existing regulatory requirements of the
national, state and local jurisdictions in which they are operated. On an
ongoing basis, the Company, based on input from its engineers, estimates its
future cost requirements for closure and post-closure management of its
landfills based on its interpretations of these regulations and standards.
Accruals for these costs are typically provided as the remaining permitted
airspace of these facilities is consumed. Engineering reviews of the future
cost requirements for closure and post-closure monitoring and maintenance for
the Company's operating landfills are performed at least annually and are the
basis upon which the Company's estimates of these future costs and the related
accruals are revised. In its foreign operations, the Company has noted a trend
toward increased landfill regulation, particularly in those countries within
the European Economic Community. While increasing regulation often presents
new business opportunities to the Company, it likewise often results in
increased operating costs in those jurisdictions in which such regulatory
changes occur and could potentially have a negative impact on results of
operations.
The Company is also responsible for a significant number of closed solid
waste landfills which require varying levels of inspection, maintenance,
environmental monitoring and from time to time corrective action. An overall
program of management has been implemented to provide a systematic and routine
standard of care and maintenance and to ensure environmental compliance at
these closed facilities.
In fiscal year 1990, the Company announced its withdrawal from the
hazardous waste collection, treatment and disposal business
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<PAGE> 37
principally because the Company believed its resources would be better utilized
if they were directed toward developing opportunities in the solid waste
business. Anticipated cash expenditures related principally to remediation and
post- closure monitoring at certain closed sites are expected to be required
over a long period of time with no significant amounts anticipated to be paid
in any single year. In addition, these future cash expenditures will be offset
in part by the realization of related income tax benefits.
Various subsidiaries of the Company are participating in potentially
responsible party ("PRP") groups at 98 waste disposal sites listed on the U.S.
Environmental Protection Agency's National Priority List, which may be subject
to remedial action under Superfund. The Company's association with these sites
is typically attributable to the transportation of waste to the listed sites by
its subsidiaries (or their predecessors). In many cases, these waste disposal
activities were performed by companies prior to their acquisition by the
Company. Certain of the Company's subsidiaries have negotiated settlements with
other members of the PRP groups and the EPA with respect to 69 of these 98
Superfund sites. Partial settlements have been negotiated with regard to 13 of
the remaining sites. These settlements had no material effect on the Company's
liquidity, results of operations or financial position. Further, various
subsidiaries have received information requests relating to 67 additional sites
on the EPA's National Priority List. For 45 of these sites, the Company has
determined it is not a PRP; the Company's PRP status at the remaining 22 sites
has not yet been determined. The number of Superfund sites with which the
Company's subsidiaries are involved may increase or decrease depending upon the
EPA's findings from responses to these information requests and any future
information requests which may be received. Superfund legislation permits
strict joint and several liability to be imposed without regard to fault, and
as a result, one company may be required to bear significantly more than its
proportional share of the cleanup costs if it is unable to obtain appropriate
contributions from other responsible parties. The final negotiated settlement
relating to the large majority of Superfund sites occurs several years after a
company has been identified as a PRP due to the many complex issues that must
be addressed in determining the magnitude of contamination present, the cause
of the contamination and the recommended remedial action to be taken. In many
cases, the expenditures related to actual remediation may also occur over a
number of years.
The Company has implemented programs to promote compliance with the laws,
regulations and permit requirements governing its landfills and has as its goal
100% compliance. Even with these programs, management believes that in the
normal course of doing business, companies in the waste disposal industry are
faced with governmental enforcement proceedings resulting in fines or other
sanctions and will likely be required to pay civil penalties or to expend funds
for remedial work on waste disposal sites. These programs include systematic
site reviews and evaluations of each site requiring corrective action
(including Superfund sites) in which the Company's subsidiaries are involved,
considering each subsidiary's role with respect to each site and the
relationship to the involvement of other parties at the site, the quantity and
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<PAGE> 38
content of the waste with which the subsidiary was associated, and the number
and financial capabilities of the other parties at the various sites. Based on
reviews of the various sites, currently available information, and management's
judgment and significant prior experience related to similarly situated
facilities, expense accruals are provided by the Company for its share of
estimated future costs associated with corrective actions to be implemented at
certain of these sites and existing accruals are revised as deemed necessary.
Management also routinely reviews the realization of its investments in
operating landfills and the adequacy of its accruals for the future costs of
closure and post-closure monitoring and maintenance at its operating and closed
landfills and adjusts its asset values and accruals as deemed appropriate.
Management believes that the ultimate disposition of these environmental
matters will not have a materially adverse effect upon the liquidity, capital
resources, business or consolidated financial position of the Company, though
resolution of one or more of these matters could have a significant negative
impact on the Company's consolidated financial results for a particular
reporting period. Due to the nature of the Company's business and the
continuing emphasis of government in all jurisdictions and the public on
environmental issues relating to the waste disposal industry, it can be
reasonably expected that various subsidiaries of the Company will become
involved in additional remediation actions and Superfund sites in the future.
Management attempts to anticipate future changes in laws, regulations and
operating permit requirements which may affect its operations; however, there
is no assurance that such future changes will not significantly affect its
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and related ratios at the end of the last
three years were as follows:
<TABLE>
<CAPTION>
As of September 30,
-----------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Working capital (in thousands) $(10,695) $ 7,967 $ 7,104
Working capital ratios 1.0:1 1.0:1 1.0:1
</TABLE>
The Company's long-term strategy in managing working capital is to
maintain substantial available commitments under bank credit agreements or
other financial agreements to finance short-term capital requirements in excess
of internally generated cash while minimizing working capital.
In connection with the acquisition of Attwoods in December 1994, the
Company and three of its subsidiaries entered into a Multicurrency Revolving
Credit Agreement for a total facility of 500 million pounds sterling
(subsequently converted to U.S. $750 million). The Company is currently
engaged in amending this facility, which matures in December 1997, into a
364-day agreement.
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<PAGE> 39
The Company had repaid the $550 million in U.S. dollars borrowed under this
agreement by March 31, 1995.
In March 1995, Otto entered into a five-year revolving credit facility in
the amount of 600 million deutsche mark with a group of German and
international banks. Interest is payable on loans under the facility at the
Frankfurt Interbank Offered Rate plus a margin. The agreement requires a
facility fee of .45% per annum (.30% per annum if Otto maintains certain net
worth requirements) on the total facility commitment, whether used or unused.
At September 30, 1996, Otto had outstanding borrowings under this facility of
250 million deutsche mark (approximately U.S. $163.9 million).
In July 1995, the Company issued to the public 11,499,200 7.25% Automatic
Common Exchange Securities with a stated amount of $35.625 per security ($409.7
million in total). Each security consists of (1) a purchase contract under
which (a) the holder will purchase from the Company on June 30, 1998 (earlier
under certain circumstances), for an amount in cash equal to the stated amount
of $35.625, between .8333 of a share (in total approximately 9.6 million
shares) and one share (a maximum of 11,499,200 shares) of the Company's common
stock (depending on the then market value of the common stock) and (b) the
Company will pay the holder contract fees at the rate of 2.125% per annum on
the security, and (2) 5.125% United States Treasury Notes having a principal
amount equal to $35.625 and maturing on June 30, 1998. The Treasury Notes
underlying these securities are pledged as collateral to secure the holder's
obligation to purchase the Company's common stock under the purchase contract.
The principal of the Treasury Notes underlying such securities, when paid at
maturity, will automatically be applied to satisfy in full the holder's
obligation to purchase the Company's common stock. These securities are not
included on the Company's balance sheet; an increase in common stockholders'
equity will be reflected when the cash proceeds totalling over $400 million are
received by the Company.
On January 2, 1996, the Company announced that its $400 million 6 3/4%
Convertible Subordinated Debentures due 2005 and its $345 million 6 1/4%
Convertible Subordinated Debentures due 2012 ("the Debentures") were being
called for redemption. The redemption, which occurred on February 2, 1996,
resulted in a one-time extraordinary charge to the Company's net income of
approximately $12.2 million, after income taxes, or approximately $.06 per
share. The Debentures have been refinanced with (i) the issuance of $400
million of notes discussed below and (ii) additional commercial paper
borrowings. These transactions had a favorable effect on the Company's
weighted average interest rate.
In January 1996, the Company issued $200 million of 6.10% Senior Notes due
January 15, 2003 and $200 million of 6.375% Senior Notes due January 15, 2008
("the Notes"). The Notes are not redeemable prior to maturity and are not
subject to any sinking fund.
The available credit capacity under the Company's $1 billion revolving
credit agreement, which matures in May 2000, is used principally to support the
Company's commercial paper program, under which up to $1.5 billion in
commercial paper may be issued.
-35-
<PAGE> 40
Borrowings under the commercial paper program may not exceed the available
credit under the Company's two existing bank credit agreements. There were
approximately $438.3 million of commercial paper borrowings outstanding as of
September 30, 1996.
As of September 30, 1996, the Company's unused committed borrowing
capacity under its Multicurrency Revolving Credit Agreement and its $1 billion
bank credit agreement was in excess of $1.3 billion. Such capacity may be used
to refinance amounts outstanding under short-term facilities, for financing
requirements in connection with foreign exchange contracts or for other capital
requirements. Of the $2.8 billion of the Company's long-term indebtedness
outstanding at September 30, 1996, 72% was at fixed interest rates for a period
of at least 12 months. Management's long-term objective is to maintain most of
its indebtedness in fixed interest rate obligations, although variable rate
debt has been and will likely continue to be used to meet short-term and
certain longer term financing needs. The Company's weighted average cost of
indebtedness declined to approximately 7.2% for fiscal 1996 from 7.6% for
fiscal year 1995.
Long-term indebtedness (including $553.1 million of Otto Waste Services
debt, which has not been guaranteed by the Company) as a percentage of total
capitalization increased from 47% at September 30, 1995 to 52% at September 30,
1996, principally as a result of acquisition and other market development
activities and the special charges of $447 million taken in the fourth quarter
of fiscal 1996.
The capital appropriations budget for fiscal year 1997 has been
established at $790 million, of which $514.6 million is intended to provide for
normal replacement requirements and to provide new assets to support planned
revenue growth within all consolidated businesses. The remaining $275.4
million is designated for corporate market development activities which
principally include new or expanded solid waste transfer and disposal
facilities, recycling processing centers, acquisitions of solid waste
businesses and other investments in both North American and international
operations.
Cash flows from operating activities declined to $856.8 million for fiscal
1996 from $1.03 billion reported for last year, principally as a result of
lower earnings and the decrease in cash associated with the changes in other
liabilities offset partially by increased depreciation and amortization. The
use of cash associated with the decrease in other liabilities was principally
the result of the slight decline in fiscal 1996 income tax payments relating to
current year earnings compared with fiscal 1995 despite significantly reduced
taxable income, the reduction in the change in accounts payable between years
and increased bonus payments early in fiscal 1996 associated with fiscal 1995
earnings. As of September 30, 1996, there were no significant changes in
balance sheet caption amounts from September 30, 1995 other than the redemption
of convertible subordinated debentures.
The Company believes that its cash flows from operations and its access to
cash from banks and other external sources, including the public markets, are
more than sufficient for its financing needs.
-36-
<PAGE> 41
Item 8. - Financial Statements and Supplemental Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Browning-Ferris Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Browning-Ferris
Industries, Inc. (a Delaware corporation) and subsidiaries as of September 30,
1996 and 1995, and the related consolidated statements of operations, common
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1996. These financial statements and the schedule referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Browning-Ferris Industries,
Inc. and subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic 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 financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
December 4, 1996
-37-
<PAGE> 42
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Three Years Ended September 30, 1996
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Year Ended September 30,
------------------------------------
1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $5,779,277 $5,779,351 $4,314,541
Cost of operations 4,315,615 4,147,303 3,123,375
---------- ---------- ----------
Gross profit 1,463,662 1,632,048 1,191,166
Selling, general and
administrative expense 874,069 842,861 647,256
Special charges 446,800 -- --
---------- ---------- ----------
Income from operations 142,793 789,187 543,910
Interest expense 179,299 159,529 93,159
Interest income (8,842) (7,422) (11,288)
Equity in earnings of
unconsolidated affiliates (55,370) (53,996) (37,084)
---------- ---------- ----------
Income before income taxes,
minority interest and
extraordinary item 27,706 691,076 499,123
Income taxes 105,188 276,430 199,649
Minority interest in income
of consolidated subsidiaries 11,690 30,085 15,501
---------- ---------- ----------
Income (loss) before
extraordinary item (89,172) 384,561 283,973
Extraordinary item - loss on
redemption of debt, net of
income tax benefit of
$4,467, $-- and $2,833 12,159 -- 5,263
---------- ---------- ----------
Net income (loss) $ (101,331) $ 384,561 $ 278,710
========== ========== ==========
Number of common and common
equivalent shares used in
computing earnings per share 200,668 199,077 187,621
========== ========== ==========
</TABLE>
(Continued on Following Page)
-38-
<PAGE> 43
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Three Years Ended September 30, 1996
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Year Ended September 30,
------------------------------------
1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) per common and
common equivalent share:
Income (loss) before extraordinary
item $ (.44) $ 1.93 $ 1.52
Extraordinary item (.06) -- (.03)
------- ------- -------
Net income (loss) $ (.50) $ 1.93 $ 1.49
======= ======= =======
Cash dividends per common share $ .68 $ .68 $ .68
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-39-
<PAGE> 44
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
September 30,
--------------------------
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 110,224 $ 92,808
Short-term investments 26,394 104,761
Receivables -
Trade, net of allowances of $40,622
and $39,777 for doubtful accounts 929,316 926,791
Other 42,543 57,015
Inventories 51,536 50,090
Deferred income taxes 119,914 116,871
Prepayments and other 107,868 73,959
---------- ----------
Total current assets 1,387,795 1,422,295
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,737,788 and $2,395,795 3,920,721 3,722,292
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$138,636 and $116,369 1,671,461 1,768,391
Other intangible assets, net of
accumulated amortization of $110,835
and $142,780 110,925 116,303
Deferred income taxes 122,617 78,689
Investments in unconsolidated affiliates 287,051 272,205
Other 100,336 80,197
---------- ----------
Total other assets 2,292,390 2,315,785
---------- ----------
Total assets $7,600,906 $7,460,372
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-40-
<PAGE> 45
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
(In Thousands Except for Share Amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
September 30,
--------------------------
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 59,806 $ 62,463
Accounts payable 507,731 515,304
Accrued liabilities -
Salaries and wages 129,203 122,656
Taxes, other than income 40,876 41,960
Other 430,187 434,855
Income taxes 35,586 53,045
Deferred revenues 195,101 184,045
---------- ----------
Total current liabilities 1,398,490 1,414,328
---------- ----------
DEFERRED ITEMS:
Accrued environmental and landfill
costs 541,838 568,644
Deferred income taxes 108,041 104,645
Other 275,374 220,257
---------- ----------
Total deferred items 925,253 893,546
---------- ----------
LONG-TERM DEBT, net of current portion 2,766,885 1,665,804
---------- ----------
CONVERTIBLE SUBORDINATED DEBENTURES -- 744,944
---------- ----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,390,458 and
213,440,672 shares issued 35,572 35,581
Additional paid-in capital 1,730,612 1,801,407
Retained earnings 1,031,331 1,328,244
Treasury stock, 1,027,278 and 1,001,407
shares, at cost (11,926) (10,494)
Stock and Employee Benefit Trust,
11,012,423 and 13,596,325 shares (275,311) (412,988)
---------- ----------
Total common stockholders' equity 2,510,278 2,741,750
---------- ----------
Total liabilities and common
stockholders' equity $7,600,906 $7,460,372
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-41-
<PAGE> 46
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Year Ended September 30,
----------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shares of common stock:
Beginning of year 213,441 197,085 174,232
Stock option exercises 563 423 867
Common stock issuances related to -
Public offering -- -- 15,525
Dividend Reinvestment Plan 101 38 96
BFI Employee Stock Ownership and
Savings Plan 754 318 597
Acquisitions 988 555 5,708
Stock and Employee Benefit Trust -- 15,000 --
Retirements of common stock (2,584) -- --
Other 127 22 60
-------- -------- --------
End of year 213,390 213,441 197,085
======== ======== ========
Common stock:
Beginning of year $ 35,581 $ 32,854 $ 29,044
Stock option exercises 94 71 145
Common stock issuances related to -
Public offering -- -- 2,588
Dividend Reinvestment Plan 17 6 16
BFI Employee Stock Ownership and
Savings Plan 126 53 100
Acquisitions 165 93 951
Stock and Employee Benefit Trust -- 2,501 --
Retirements of common stock (431) -- --
Other 20 3 10
-------- -------- --------
End of year 35,572 35,581 32,854
-------- -------- --------
</TABLE>
(Continued on Following Page)
-42-
<PAGE> 47
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Year Ended September 30,
----------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Additional paid-in capital:
Beginning of year 1,801,407 1,351,919 743,265
Stock option exercises and related
income tax benefit 13,868 (933) 17,528
Common stock issuances related to -
Public offering, net of issuance
costs -- -- 431,307
Dividend Reinvestment Plan 2,908 1,137 2,587
BFI Employee Stock Ownership and
Savings Plan 21,404 9,459 16,628
Acquisitions 29,133 8,245 139,788
Stock and Employee Benefit Trust -- 456,874 --
Adjustment of Stock and Employee
Benefit Trust to market (62,388) 2,534 --
Issuance costs and present value
of contract fees payable to
holders of Automatic Common
Exchange Securities -- (27,027) --
Retirements of common stock (74,858) -- --
Other (862) (801) 816
---------- ---------- ----------
End of year 1,730,612 1,801,407 1,351,919
---------- ---------- ----------
Retained earnings:
Beginning of year 1,328,244 1,009,132 761,325
Net income (loss) (101,331) 384,561 278,710
Cash dividends (133,623) (137,014) (126,818)
Foreign currency translation
adjustment (61,959) 71,565 95,915
---------- ---------- ----------
End of year 1,031,331 1,328,244 1,009,132
---------- ---------- ----------
</TABLE>
(Continued on Following Page)
-43-
<PAGE> 48
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Year Ended September 30,
----------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury stock:
Beginning of year (10,494) (2,225) (1,031)
Stock option exercises (1,649) 27,013 (1,192)
Common stock issuances related to -
Dividend Reinvestment Plan -- 1,106 --
BFI Employee Stock Ownership and
Savings Plan -- 9,228 --
Acquisitions 303 3,223 --
Reimbursement from Stock and
Employee Benefit Trust -- (48,921) --
Other (86) 82 (2)
---------- ---------- ----------
End of year (11,926) (10,494) (2,225)
---------- ---------- ----------
Stock and Employee Benefit Trust:
Beginning of year (412,988) -- --
Establishment of trust -- (459,375) --
Reimbursement of treasury stock -- 48,921 --
Reimbursements of common stock 75,289 -- --
Adjustment to market 62,388 (2,534) --
---------- ---------- ----------
End of year (275,311) (412,988) --
---------- ---------- ----------
Total common stockholders' equity $2,510,278 $2,741,750 $2,391,680
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-44-
<PAGE> 49
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Three Years Ended September 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Year Ended September 30,
--------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(101,331) $ 384,561 $ 278,710
--------- ---------- ---------
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization -
Property and equipment 521,185 476,384 391,639
Goodwill 47,374 43,519 19,277
Other intangible assets 33,966 31,967 33,276
Special charges 446,800 -- --
Deferred income tax expense 3,034 23,450 23,458
Amortization of deferred investment
tax credit (706) (706) (706)
Provision for losses on accounts
receivable 29,527 26,620 31,346
Gains on sales of fixed assets (4,512) (4,724) (5,167)
Equity in earnings of unconsolidated
affiliates, net of dividends received (13,455) (28,535) (19,442)
Minority interest in income of
consolidated subsidiaries, net of
dividends paid 10,895 26,344 15,501
Increase (decrease) in cash from
changes in assets and liabilities
excluding effects of acquisitions:
Trade receivables (28,683) (70,069) (112,586)
Inventories 1,563 (5,466) 2,606
Other assets 29,991 52,625 (14,563)
Other liabilities (118,805) 74,519 50,579
--------- --------- ---------
Total adjustments 958,174 645,928 415,218
--------- --------- ---------
Net cash provided by operating activities 856,843 1,030,489 693,928
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (935,382) (929,596) (694,475)
Payments for businesses acquired (188,451) (769,369) (398,734)
Investments in unconsolidated affiliates (82,535) (29,530) (54,342)
Proceeds from disposition of assets 57,742 159,217 74,797
Purchases of short-term investments -- (42,179) --
Sales of short-term investments 302,065 201,924 147,424
Return of investment in unconsolidated
affiliates 56,861 38,637 30,431
--------- ---------- ---------
Net cash used in investing activities (789,700) (1,370,896) (894,899)
--------- ---------- ---------
</TABLE>
(Continued on Following Page)
-45-
<PAGE> 50
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Three Years Ended September 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year Ended September 30,
----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 13,316 15,363 450,876
Proceeds from issuances of
indebtedness 980,834 1,062,652 175,111
Repayments of indebtedness (904,459) (591,884) (246,761)
Dividends paid (137,944) (134,139) (122,944)
--------- ---------- --------
Net cash provided by (used in)
financing activities (48,253) 351,992 256,282
--------- ---------- --------
EFFECT OF EXCHANGE RATE CHANGES (1,474) 2,092 949
--------- ---------- --------
NET INCREASE IN CASH 17,416 13,677 56,260
CASH AT BEGINNING OF YEAR 92,808 79,131 22,871
--------- ---------- --------
CASH AT END OF YEAR $ 110,224 $ 92,808 $ 79,131
========= ========== ========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $174,590 $153,576 $ 97,996
Income taxes $163,251 $205,544 $174,005
</TABLE>
The accompanying notes are an integral part of these financial statements.
-46-
<PAGE> 51
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of business and basis of presentation -
Browning-Ferris Industries, Inc. and its subsidiaries (the "Company")
provide waste services in the United States and in 14 foreign countries. The
Company collects, transports, treats and/or processes, recycles and disposes of
commercial, residential and municipal solid waste and industrial wastes. The
Company is also involved in waste-to- energy conversion, medical waste
services, portable restroom services, and municipal and commercial sweeping
operations.
The accompanying financial statements are prepared on a consolidated
basis. All significant intercompany accounts and transactions have been
eliminated. Entities over which the Company exercises control are
consolidated. Other investments are accounted for under the equity method or
the cost method, as appropriate. Foreign currencies have been translated into
United States dollars at appropriate exchange rates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingencies at the date of the financial statements, and affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the Company's estimates.
(2) Summary of significant accounting policies -
Short-term investments.
Short-term investments are carried at cost, which approximates the
aggregate market value. At September 30, 1996 and 1995, short-term investments
of approximately $26.4 million and $104.8 million, respectively, were invested
in time deposits.
Inventories.
Inventories consisting principally of equipment parts, mate-rials and
supplies are generally valued under a method which approximates the lower of
cost (first-in, first-out) or market.
Property and equipment.
Property and equipment are recorded at cost. Capitalized landfill
costs include expenditures for land and related airspace, permitting costs and
preparation costs. Landfill permitting and preparation costs represent only
direct costs related to these activities, including legal, engineering,
construction and the direct costs of Company personnel dedicated for these
purposes. Interest is capitalized on landfill permitting and construction
projects and other projects under development while the assets are undergoing
activities to ready them for their intended use. The interest capitalization
rate is based on the Company's weighted average cost of indebtedness. Interest
capitalized during fiscal
-47-
<PAGE> 52
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
years 1996, 1995 and 1994 was $16,306,000, $11,429,000 and $11,600,000,
respectively. Management routinely reviews its investment in operating
landfills, transfer stations and other significant facilities to determine
whether the costs of these investments are realizable.
Landfill permitting and acquisition costs, excluding the estimated
residual value of land, are typically amortized as permitted airspace of the
landfill is consumed. For many of the Company's landfills, preparation costs,
which include the costs of construction associated with excavation, liners,
site berms and the installation of leak detection and leachate collection
systems, are also typically amortized as total permitted airspace of the
landfill is consumed. In determining the amortization rate for these
landfills, preparation costs include the total estimated costs to complete
construction of the landfill's permitted capacity. For other landfills, the
landfill preparation costs are generally less significant and are amortized as
the airspace for the particular benefitted phase is consumed. Units-of-
production amortization rates are determined annually for each of the Company's
operating landfills. The rates are based on estimates provided by the
Company's engineers and accounting personnel, and consider the information
provided by aerial surveys which are generally performed annually.
Depreciation of property and equipment, other than landfills, is provided on
the straight-line method based upon the estimated useful lives of the assets,
generally estimated as follows: buildings, 20 to 40 years and vehicles and
equipment, 3 to 12 years.
Expenditures for major renewals and betterments are capitalized and
expenditures for maintenance and repairs are charged to expense as incurred.
During fiscal 1996, 1995 and 1994, maintenance and repairs charged to cost of
operations were $336,374,000, $325,658,000 and $247,143,000, respectively.
When property and equipment is retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income.
Intangible assets.
The cost over fair value of net tangible assets of acquired businesses
("goodwill") is amortized on the straight- line method over periods not
exceeding 40 years. Other intangible assets, substantially all of which are
customer lists and covenants not to compete, are amortized on the straight-line
method over their estimated lives, typically no more than seven years. The
Company periodically evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful lives of intangible assets should
be revised or the remaining balances of intangible assets are not recoverable.
When factors indicate that an evaluation should be performed for possible
impairment, the Company uses an estimate of the future income from operations
of the related business as a measure of future recoverability of these assets.
-48-
<PAGE> 53
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred income taxes.
Deferred tax assets and liabilities reflect the impact of temporary
differences between the financial reporting basis and tax basis of assets and
liabilities. Such amounts are recorded using presently enacted tax rates and
regulations. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be realized.
Deferred revenues.
Amounts billed to customers prior to providing the related services are
deferred and later reported as revenues in the period in which the services are
rendered.
Deferred items.
Accrued environmental and landfill costs -
Accrued environmental and landfill costs includes the non-current
portion of accruals associated with obligations for closure and post-closure of
the Company's operating and closed landfills, corrective actions and
remediation at certain of these landfill facilities and corrective actions at
Superfund sites. The Company, based on input from its engineers and accounting
personnel, estimates its future cost requirements for closure and post-closure
monitoring and maintenance for solid waste operating landfills in the United
States based on its interpretation of the technical standards of the U.S.
Environmental Protection Agency's Subtitle D regulations and the air emissions
standards under the Clean Air Act as they are being applied on a state-by-state
basis. Closure and post-closure monitoring and maintenance costs represent the
costs related to cash expenditures yet to be incurred when a landfill facility
ceases to accept waste and closes. Accruals for closure and post-closure
monitoring and maintenance requirements in the U.S. consider final capping of
the site, site inspections, ground-water monitoring, leachate management,
methane gas control and recovery, and operation and maintenance costs to be
incurred during the period after the facility closes. Certain of these
environmental costs, principally capping and methane gas control costs, are
also incurred during the operating life of the site in accordance with the
landfill operation requirements of Subtitle D and the air emissions standards.
Future cost requirements for closure and post-closure monitoring and
maintenance of foreign operating landfills are determined based on the country
or local landfill regulations governing the facility. The Company typically
provides accruals for these estimated costs as the remaining permitted airspace
of such facilities is consumed. Reviews of the future cost requirements for
closure and post-closure monitoring and maintenance for the Company's operating
landfills by the Company's engineers and accounting personnel are performed at
least annually and are the basis upon which the Company's estimates of these
future costs and the related accrual rates are revised.
-49-
<PAGE> 54
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
An overall program of management of closed solid waste landfills
previously owned or operated by the Company has been implemented to provide a
systematic and routine standard of care and maintenance and to ensure
environmental compliance at closed facilities which require varying levels of
inspection, maintenance, environmental monitoring and, from time to time,
corrective action. Additionally, the Company routinely reviews and
evaluates each landfill site requiring corrective action (including Superfund
sites) in which the Company's subsidiaries are involved, considering each
subsidiary's role with respect to each site and the relationship to the
involvement of other parties at the site, the quantity and content of the waste
with which the subsidiary was associated and the number and financial
capabilities of the other parties at the various sites. Based on reviews of
the various sites, currently available information, and management's judgment
and significant prior experience related to similarly situated facilities,
expense accruals are provided by the Company for its share of estimated future
costs associated with corrective actions to be implemented at certain of these
sites and existing accruals are revised as deemed necessary. Expense accruals
related to the estimated costs of post-closure care of previously owned or
operated solid waste landfills are also reviewed on a periodic basis and
revised as necessary.
Accruals for closure, post-closure and certain other liabilities related
to hazardous waste disposal were provided in fiscal 1990 when the Company
discontinued its hazardous waste operations. The Company reviews the adequacy
of these accruals on a periodic basis to determine whether any revisions in the
accruals provided at that time are required.
Other deferred items -
Deferred items as of September 30, 1996 and 1995 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Self-insurance accruals $ 90,515 $ 82,508
Minority interest in consolidated
subsidiaries 59,376 44,583
Accrued pension costs 39,734 34,798
Unamortized investment tax credits 20,393 21,099
Other 65,356 37,269
-------- --------
$275,374 $220,257
======== ========
</TABLE>
The Company amortizes investment tax credits under the deferral method
over the estimated useful lives of the related assets as they are placed in
service. No investment tax credits have been generated since fiscal year 1992.
In addition to the above deferred items, included in other accrued liabilities
at September 30, 1996 and 1995 was the current portion of self-insurance
accruals of $87,274,000 and $83,971,000, respectively,
-50-
<PAGE> 55
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
and accrued pension costs of $14,625,000 and $20,388,000, respectively.
Foreign exchange contracts.
The Company enters into foreign exchange contracts as a hedge against
certain of its net investments in foreign subsidiaries and purchase
commitments from time to time. Realized and unrealized gains and losses on
these contracts and the amortization of any premiums or discounts are deferred
and included with translation adjustments in the separate component of common
stockholders' equity or reflected as a deferred asset or liability associated
with the anticipated purchase commitment. When deemed appropriate, the Company
enters into foreign exchange contracts as a hedge against certain advances to
foreign subsidiaries, which are to be repaid in the foreseeable future.
Realized and unrealized gains and losses associated with these contracts are
reflected in income for each period such contracts are outstanding. There were
no significant foreign exchange contracts outstanding at September 30, 1996 or
1995.
Cash flow information.
The Consolidated Statement of Cash Flows provides information about
changes in cash and excludes the effects of non-cash transactions, principally
related to business combinations discussed in Note (5).
Reclassifications.
Certain reclassifications have been made in prior years' financial
statements to conform to the fiscal year 1996 presentation.
New accounting pronouncement.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
This statement sets forth standards for the recognition and measurement of
impairment of long-lived assets, including certain identifiable intangible
assets and goodwill related to those assets, to be held and used in an entity's
operations or expected to be disposed of. SFAS No. 121 is effective for the
Company's fiscal year 1997. As the Company's current accounting practices are
substantially in compliance with the provisions of the new standard, the
adoption of SFAS No. 121 in fiscal 1997 is not expected to have a material
effect on the Company's financial position or results of operations.
(3) Reorganization -
During June 1996, the Company announced the reorganization of its North
American operating business structure, which became effective in August 1996.
The Company's previous organization
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<PAGE> 56
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
divided North America into 45 divisions reporting to six regional offices with
operations conducted from approximately 400 districts. The new organization
divides North America into 13 market areas and retains the district office
organization. In addition, the new structure organizes the Company's
operations by specific business functions with direct reporting to the
corporate office. There was no reorganization charge recorded to cover the
estimated future expenses associated with this announcement. The costs
associated with this reorganization are being expensed as incurred and
approximately $4.2 million was recorded as selling, general and administrative
expense through September 30, 1996.
(4) Special charges -
Special charges of $447 million ($362 million or $1.80 per share after
income taxes) were included in fiscal 1996 results of operations. Charges of
$349 million resulted principally from management decisions to sell the
Company's Italian operations, divest certain domestic and international
non-core business assets and operations and close certain recycling facilities
not expected to achieve desired performance objectives. The remainder of the
special charges related to the writedown to fair value of the Company's
investment in the Azusa, California landfill. This writedown was a result of
the changing competitive nature of waste disposal in the Los Angeles market
area and the continuing negative legal climate, including recent adverse
decisions by California judicial and regulatory authorities, bearing on the
site's ability to accept municipal solid waste.
The Company has initiated a plan to sell its Italian operations, which has
been formally approved by the Company's Board of Directors. The Company
expects to complete the sale of these operations during 1997. The difficult
political and economic environment and the inability to build the desired
operating infrastructure in Italy have negatively affected the Company's
ability to achieve adequate returns on invested capital and were significant
factors considered in reaching this decision. The Company's investment in its
Italian operations, before considering special charges, was $206 million as of
September 30, 1996. During the period that the sale of all or substantially
all of the Italian operations occurs, losses accumulated in the foreign
currency translation component of common stockholders' equity ($49 million at
September 30, 1996) must be reported as an additional loss on sale of these
operations. Summary financial information related to the Company's Italian
operations is as follows (in thousands):
<TABLE>
<CAPTION>
For the Years Ended September 30,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Revenues $ 122,782 $103,819 $ 55,489
Income (loss) from
operations and equity
in earnings of uncon-
solidated affiliates $(182,584) $ 65 $ (7,831)
</TABLE>
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<PAGE> 57
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company has also decided to divest of certain domestic and
international non-core business assets and operations and close certain
recycling facilities. These decisions were reached based on a review of the
non-core business assets and operations which were not expected to achieve the
Company's desired performance objectives and a review of certain of the
Company's recycling operations which have been adversely affected by the
significant decline in commodity prices. The special charges, which include
asset writedowns and related liabilities recorded for certain contractual
arrangements, do not consider future expenses associated principally with
severance and relocation costs which will occur as a result of these decisions.
These divestitures and closures are expected to be completed during 1997.
Assets of these operations, prior to the special charges, were approximately
$177 million as of September 30, 1996. The results of operations for these
non-core business assets and operations and recycling facilities are not
material to the Company's consolidated results of operations as the aggregated
revenues and income (loss) from operations of these assets and operations
represent less than 4% of the Company's corresponding consolidated totals, on a
pre-special charges basis.
In October 1996 (pursuant to a judicial order issued in September),
California authorities suspended the Company's ability to accept municipal
solid waste at its Azusa, California landfill pending compliance with certain
regulatory requirements. The Company has appealed this decision. (See Note
(11).) As a result of the changing competitive nature of waste disposal in the
Los Angeles market area and the continuing negative legal climate, including
the recent adverse decisions discussed above, bearing on the site's ability to
accept municipal solid waste, $98 million was included in the special charges
to reduce the carrying amount of this investment to its estimated fair value.
The fair value was determined based upon the present value of the estimated
future cash flows using a discount rate commensurate with the risks involved.
(5) Business combinations -
During the current fiscal year, the Company paid approximately $243.4
million (including additional amounts payable, principally to former owners, of
$23.3 million and the issuance of 974,085 shares of the Company's common stock
valued at $28.3 million) to acquire 102 solid waste businesses, which were
accounted for as purchases, including the acquisition of the remaining 50%
ownership interest of Pfitzenmeier & Rau ("P&R"), a joint venture previously
owned 50% by Otto Waste Services, a 50% owned subsidiary of the Company. In
connection with these acquisitions, the Company recorded additional
interest-bearing indebtedness of $69.3 million (including $55.0 million related
to P&R) and other liabilities of $37.4 million. The results of these business
combinations are not material to the Company's consolidated results of
operations or financial position.
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<PAGE> 58
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On December 2, 1994, the Company acquired majority control of Attwoods plc
("Attwoods"), which was a provider of waste services operating principally in
the United States, the United Kingdom, the Caribbean and mainland Europe
(primarily Germany) and also had mineral extraction operations in the United
Kingdom. The Company increased its ownership from 56.6% of the outstanding
ordinary shares (including ordinary shares represented by American Depository
Shares) of Attwoods and 80.8% of the convertible preference shares of Attwoods
(Finance) N.V., a finance subsidiary of Attwoods, at December 2, 1994 to 94.4%
of the outstanding ordinary shares and 83.2% of the convertible preference
shares as of December 31, 1994. The Company acquired the remaining ordinary
shares that it did not own and certain additional preference shares during the
second quarter of fiscal 1995. The Company paid approximately $580 million (in
pounds sterling except where requested to pay U.S. dollars by individual
shareholders) to acquire the ordinary and convertible preference shares of
Attwoods as discussed above. Additionally, during the second quarter of fiscal
1995, the Company redeemed the remaining outstanding convertible preference
shares. In connection with the acquisition, the Company sold in June 1995 the
portable sanitation and accommodation business of Attwoods in continental
Europe, primarily Germany. As a result of this transaction, the Company
reduced the purchase price of this acquisition by the 80.5 million in deutsche
mark (U.S. $56.8 million) received and further adjusted the purchase price for
the 1.1 million in deutsche mark (U.S. $700,000) in contingent payments
received subsequent to December 31, 1995. The Attwoods acquisition has been
accounted for as a purchase.
In addition to the Attwoods transaction, during the prior fiscal year, the
Company paid approximately $191.5 million (including additional amounts
payable, principally to former owners, of $9.4 million and the issuance of
262,948 shares of the Company's common stock valued at $8.1 million) to acquire
102 solid waste businesses. These businesses were accounted for as purchases
and included the acquisition of the remaining 50% ownership interest
outstanding of Servizi Industriali S.r.l., its joint venture in Italy. In
connection with these acquisitions, the Company recorded additional
interest-bearing indebtedness of $17.8 million and other liabilities of $49.3
million. The Company also exchanged 397,221 shares of its common stock and
assumed liabilities and equity of $5.6 million in connection with one business
combination that met the criteria to be accounted for as a
pooling-of-interests. As the effect of this business combination was not
significant, prior period financial statements were not restated.
The results of all businesses acquired in fiscal years 1996 and 1995 have
been included in the consolidated financial statements from the dates of
acquisition. In allocating purchase price, the assets acquired and liabilities
assumed in connection with the Company's acquisitions have been initially
assigned and recorded based on preliminary estimates of fair value and may be
revised as additional information concerning the valuation of such assets and
liabilities becomes available. As a result, the
-54-
<PAGE> 59
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
financial information included in the Company's consolidated financial
statements is subject to adjustment prospectively as subsequent revisions in
estimates of fair value, if any, are necessary.
The Company's consolidated results of operations on an unaudited pro forma
basis for fiscal year 1995, as though the businesses acquired during fiscal
year 1995 had been acquired on October 1, 1994, are as follows (in thousands,
except per share amounts):
<TABLE>
<S> <C>
Pro forma revenues $5,978,994
Pro forma net income $ 387,416
Pro forma earnings per common
and common equivalent share $ 1.94
</TABLE>
These pro forma results are presented for informational purposes only and
do not purport to show the actual results which would have occurred had the
business combinations been consummated on October 1, 1994, nor should they be
viewed as indicative of future results of operations.
(6) Property and equipment -
Property and equipment at September 30, 1996 and 1995 was as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land and improvements $ 340,034 $ 303,848
Buildings 616,596 538,040
Landfills 1,897,206 1,737,975
Vehicles and equipment 3,686,466 3,387,795
Construction-in-progress 118,207 150,429
---------- ----------
Total property and equipment 6,658,509 6,118,087
Less accumulated depreciation
and amortization 2,737,788 2,395,795
---------- ----------
Property and equipment, net $3,920,721 $3,722,292
========== ==========
</TABLE>
Included in the landfill category of property and equipment, net are $78.1
million and $118.6 million as of September 30, 1996 and 1995, respectively,
related to solid waste landfill market development projects, including landfill
permitting costs, for which amortization has not yet commenced. The Company
reviews the realization of these projects on a periodic basis.
(7) Investments in unconsolidated affiliates -
The Company uses the equity method of accounting for invest-ments in
unconsolidated affiliates over which it exercises control of 20% - 50%. The
summarized combined balance sheet and income statement information presented in
the table below (and the Company's related investments and earnings) includes
amounts
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<PAGE> 60
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
primarily related to the following significant equity investees: American
Ref-Fuel Company of Hempstead, Inc. (New York) (50%), American Ref-Fuel
Company of Essex County, Inc. (New Jersey) (50%), American Ref-Fuel Company of
Southeastern Connecticut, Inc. (50%), American Ref-Fuel Company of Niagara,
L.P. (New York) (50%), American Ref-Fuel Company Operations of SEMASS, L.P.
(50%), Servizi Industriali Group (Italy) (50% - for the period through
December 1994, at which time the remaining 50% ownership interest was
acquired), Swire BFI Waste Services, Ltd. (Hong Kong) (50%), P&R (Germany)
(50% - for the period February 1994 through February 1996, at which time the
remaining 50% ownership interest was acquired) and Congress Development Company
(Chicago, Illinois) (50%) (in thousands).
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Combined Balance Sheet Information
as of Fiscal Yearend:
Assets -
Current assets $ 233,891 $ 241,787
Noncurrent assets 1,528,799 1,118,959
---------- ----------
$1,762,690 $1,360,746
========== ==========
Liabilities and Net Worth -
Current liabilities $ 181,184 $ 142,967
Noncurrent liabilities 1,221,633 913,213
Net worth 359,873 304,566
---------- ----------
$1,762,690 $1,360,746
========== ==========
Company's Investments in and
Advances to Equity Investees
(including subordinated note
and other receivables of
$63,106 and $81,822,
respectively) $ 259,486 $ 239,372
========== ==========
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Combined Income Statement
Information for the Fiscal
Year Ended:
Revenues $511,086 $500,989 $398,753
Gross profit $213,236 $211,555 $162,870
Net income $ 95,438 $ 94,463 $ 74,804
Company's Equity in Earnings
of Equity Investees (1) $ 55,370 $ 53,996 $ 37,084
Dividends Received from Equity
Investees $ 41,915 $ 25,461 $ 17,642
</TABLE>
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<PAGE> 61
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ----------------
(1) Differences between the equity in earnings of equity investees
reported by the Company and the Company's proportionate share of the
combined earnings of the related equity investees have resulted
principally from accounting differences in the recognition of income and
the elimination of intercompany transactions.
(8) Accrued environmental and landfill costs -
Accrued environmental and landfill costs at September 30, 1996 and 1995
were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
Continuing operations -
<S> <C> <C>
Accrued costs associated with open
landfills (including landfills under
expansion) $334,793 $343,746
Accrued costs associated with closed
landfills and corrective action
costs (including Superfund sites) 223,781 232,169
-------- --------
Total 558,574 575,915
Less current portion (included in
other accrued liabilities) 92,536 101,295
-------- --------
Total long-term $466,038 $474,620
======== ========
Discontinued operations -
Accrued costs of closure, post-
closure and certain other
liabilities associated with
discontinued operations $107,832 $126,931
Less current portion (included in
other accrued liabilities) 32,032 32,907
-------- --------
Total long-term $ 75,800 $ 94,024
======== ========
Total long-term portion of accrued
environmental and landfill costs $541,838 $568,644
======== ========
</TABLE>
For a discussion of the Company's significant accounting policies related
to these environmental and landfill costs, see Note (2) - "Summary of
significant accounting policies" - "Deferred items" - "Accrued environmental
and landfill costs".
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<PAGE> 62
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Open landfills.
The Company operates 100 solid waste landfills in the United States, 18 of
which are operated under contracts with municipalities or others. The Company
also operates 64 landfills outside of the United States. The Company is
responsible for closure and post-closure monitoring and maintenance costs at
most of these landfills which are currently operating or are engaged in
expansion efforts. Estimated aggregate closure and post-closure costs will be
fully accrued for these landfills at the time that such facilities cease to
accept waste and are closed. Considering existing accruals at the end of fiscal
1996, approximately $225-$250 million of additional accruals are to be
provided over the remaining lives of these facilities. Estimated additional
environmental costs ranging from $425-$475 million, principally related to
capping and certain methane gas control and recovery activities expected to
occur during the operating lives of these sites, are also to be expensed over
the remaining lives of these landfill facilities.
Closed landfills and corrective action costs
(including Superfund sites).
These costs relate to closure and post-closure activities or corrective
actions at closed solid waste landfills owned or previously operated by the
Company as well as a number of Superfund sites where subsidiaries of the
Company are participating in potentially responsible party groups or are
otherwise involved.
Discontinued operations.
These costs relate to closure and post-closure activities or corrective
actions at hazardous waste landfills owned or previously operated by the
Company as well as a number of Superfund sites where subsidiaries of the
Company previously disposed of hazardous waste and are participating in
potentially responsible party groups or are otherwise involved. The Company
discontinued its hazardous waste operations in April 1990.
(9) Long-term debt -
Long-term debt at September 30, 1996 and 1995 was as follows (in
thousands):
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<PAGE> 63
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,838 $ 198,162 $ --
6.375% Senior Notes, net of
unamortized discount of $2,051 197,949 --
7.40% Debentures, net of
unamortized discount of $2,082
and $2,136 397,918 397,864
7 7/8% Senior Notes, net of
unamortized discount of $783
and $875 299,217 299,125
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond
obligations 149,127 114,079
Other notes payable, primarily
5.0%-14.0% 804,721 585,211
---------- ----------
2,147,094 1,496,279
Commercial paper and short-term
facilities to be refinanced 679,597 231,988
---------- ----------
Total long-term debt 2,826,691 1,728,267
Less current portion 59,806 62,463
---------- ----------
Long-term debt, net of current
portion $2,766,885 $1,665,804
========== ==========
</TABLE>
The long-term portion of the debt outstanding at September 30, 1996,
matures as follows: 1998, $345,278,000; 1999, $159,767,000; 2000, $795,931,000;
2001, $27,137,000 and in subsequent years, $1,438,772,000.
6.10% and 6.375% Senior Notes.
In January 1996, the Company issued $200 million of 6.10% Senior Notes due
January 15, 2003 and $200 million of 6.375% Senior Notes due January 15, 2008
(the "Notes"). The Notes are not redeemable prior to maturity and are not
subject to any sinking fund. Net proceeds from the sale of the Notes were
applied to the repayment of a portion of the $745 million of Convertible
Subordinated Debentures called for redemption on February 2, 1996. See Note
(10).
7.40% Debentures.
In September 1995, the Company issued $400 million of 7.40% Debentures due
September 15, 2035. These debentures are not subject to any sinking fund and
may be redeemed as a whole or in part, at the option of the Company at any
time. The redemption price is equal to the greater of (i) the principal amount
of the debentures and (ii) the present value of future principal and interest
payments discounted at a rate specified under the terms of
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<PAGE> 64
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the indenture. Net proceeds received from the sale of these debentures were
used to repay short-term indebtedness associated with various acquisitions,
including the Attwoods acquisition.
7 7/8% Senior Notes.
In March 1995, the Company issued $300 million of 7 7/8% Senior Notes
which mature on March 15, 2005. Net proceeds received by the Company from the
sale were used to repay indebtedness associated with the acquisition of
Attwoods and other working capital requirements.
9 1/4% Debentures.
In May 1991, the Company issued $100 million of 9 1/4% Debentures which
mature on May 1, 2021. The debentures may not be redeemed prior to maturity
and are not subject to any sinking fund.
8 1/2% Sinking Fund Debentures.
In April 1994, the Company called for redemption its $100 million 8 1/2%
Sinking Fund Debentures due 2017 which were originally issued in January 1987.
As a result, the Company recorded an after-tax loss of $5,263,000, which has
been reflected as an extraordinary item in fiscal 1994 in the Company's
Consolidated Statement of Operations.
Bank credit agreements.
During May 1995, the Company modified the terms of its existing $1 billion
revolving credit agreement extending the maturity of the facility to May 2000.
The agreement continues to provide total committed credit capacity of $1
billion. This $1 billion credit agreement can be utilized to borrow U.S.
domestic dollars or Eurodollars on a committed basis. At the option of the
Company and the participating banks, U.S. dollar and Eurodollar loans bear a
rate of interest based on the London Interbank Offered Rate ("LIBOR"), the
prime rate, the federal funds rate or a certificate of deposit rate, plus a
margin. The $1 billion revolving credit agreement with a group of U.S. and
international banks currently requires a facility fee of .1% per annum on the
total commitment, whether used or unused. This $1 billion credit agreement is
used primarily to support the Company's commercial paper program. The
agreement contains a net worth requirement of $1.5 billion, which increases
annually after September 30, 1995 by 20% of the consolidated net income of the
preceding year and excludes the effect of any foreign currency translation
adjustments on net worth. At September 30, 1996 and 1995, the Company had no
outstanding borrowings under this bank credit agreement.
In connection with the acquisition of Attwoods in December 1994, the
Company and three of its subsidiaries entered into a Multicurrency Revolving
Credit Agreement for a total facility of 500 million pounds sterling
(subsequently converted to U.S. $750 million). The facility, which matures
December 31, 1997, can be
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<PAGE> 65
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
utilized to borrow U.S. dollars, pounds sterling or deutsche mark as determined
by the Company. At the option of the Company, the loans bear a rate of
interest, generally for periods of six months or less, based on the prime rate
or LIBOR, a certificate of deposit rate or the federal funds rate, plus a
margin. The Multicurrency Revolving Credit Agreement with Credit Suisse, as
administrative agent for a group of U.S. and international banks, currently
requires a facility fee of .12% per annum. This agreement contains a net worth
requirement of $1.5 billion which increases annually after September 30, 1995
by 25% of the consolidated net income of the preceding year and excludes the
effect of any foreign currency translations on net worth. Prior to March 31,
1995, the Company had repaid the $550 million in U.S. dollars borrowed during
December 1994. Interest was payable on this indebtedness at an average
interest rate of approximately 6.5%. At September 30, 1996 and 1995, the
Company had no outstanding borrowings under this agreement.
In March 1995, Otto Waste Services entered into a five-year revolving
credit facility in the amount of 600 million deutsche mark with a group of
German and international banks. Interest is payable on loans under the
facility at the Frankfurt Interbank Offered Rate ("FIBOR") plus a margin. This
agreement requires a facility fee of .45% per annum (.30% per annum if Otto
Waste Services maintains certain net worth requirements) on the total facility
commitment, whether used or unused. At September 30, 1996 and 1995, Otto Waste
Services had outstanding borrowings under this facility of 250 million deutsche
mark (approximately U.S. $163.9 million) and 140 million deutsche mark
(approximately U.S. $98.1 million), respectively.
As of September 30, 1996, distributions from retained earnings could not
exceed $945 million under the most restrictive of the Company's net worth
maintenance requirements.
Solid waste revenue bond obligations.
Certain subsidiaries of the Company have entered into agree-ments under
which they receive proceeds from the sale by government authorities of solid
waste revenue bonds. These subsidiaries are obligated to make payments
sufficient to pay the interest and retire the bonds. The weighted average
interest rate of these issues is approximately 5.89%. These issues mature at
various dates through the year 2027. The solid waste revenue bond obligations
of the subsidiaries are guaranteed by the Company.
Other notes payable.
During February and March 1995, the Company borrowed a total of $160
million under separate senior note agreements with a number of lending
institutions. Interest is payable semi-annually on the senior notes at rates
ranging from 7.5 - 8.0%. The senior notes mature between December 1997 and
March 1998.
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<PAGE> 66
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Additionally, notes payable includes mortgages payable and other secured
debt, unsecured debt and capitalized lease obligations of the Company.
Approximately $336 million and $321 million of this indebtedness at September
30, 1996 and 1995, respectively, relates to a large number of separate company
debt instruments of Otto Waste Services and its consolidated subsidiaries. A
substantial portion of the Otto Waste Services debt is secured by assets of the
related companies and is payable in deutsche mark.
Commercial paper and short-term facilities to be refinanced.
Under the Company's commercial paper program, the Company is authorized to
issue up to $1.5 billion in commercial paper. The Company may use proceeds
from borrowings under this program to refinance existing indebtedness and for
general corporate purposes, including interim financing of business
acquisitions and funding working capital requirements. Borrowings under the
commercial paper program may not exceed the available credit under the
Company's existing bank credit agreements. At September 30, 1996 and 1995, the
Company had commercial paper and other short-term borrowings of $679,597,000
and $231,988,000, respectively, classified as long-term debt. It is the
Company's intention to refinance certain commercial paper balances and other
outstanding borrowings classified as long-term debt through the use of existing
committed long-term bank credit agreements in the event that alternative
long-term refinancing is not arranged. A summary by country of such commercial
paper balances and other outstanding borrowings to be refinanced as of
September 30, 1996 and 1995 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Amount Interest Amount Interest
to be Rate at to be Rate at
Refinanced Yearend Refinanced Yearend
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
United States -
Commercial paper $438,296 5.5% $ 34,317 6%
Germany 241,301 5-10% 197,671 5-10%
-------- --------
$679,597 $231,988
======== ========
</TABLE>
(10) Convertible Subordinated Debentures -
On January 2, 1996, the Company announced that its $400 million 6 3/4%
Convertible Subordinated Debentures due 2005 and its $345 million 6 1/4%
Convertible Subordinated Debentures due 2012 ("the Debentures") were being
called for redemption. The redemption, which occurred on February 2, 1996,
resulted in a one-time extraordinary charge to the Company's net income of
$12.2 million, after income taxes, or approximately $.06 per share. The
Debentures were refinanced with (i) the net proceeds from the
-62-
<PAGE> 67
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
issuance of $400 million of Senior Notes issued in January 1996 and (ii)
additional commercial paper borrowings to be refinanced through other long-term
financings.
(11) Commitments and contingencies -
Legal proceedings.
The Company and certain subsidiaries are involved in various
administrative matters or litigation, including personal injury and other civil
actions, as well as other claims and disputes that could result in additional
litigation or other adversary proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting period,
management believes that the ultimate disposition of these matters will not
have a materially adverse effect upon the consolidated financial position of
the Company.
Environmental proceedings.
California judicial and regulatory authorities suspended the Company's
ability to accept municipal solid waste at certain portions of its Azusa,
California landfill in January 1991. The Company has continued to use the
facility for the disposal of primarily inert waste. Since January 1991, the
Company has sought and received the ability to dispose of certain additional
non- municipal solid waste streams at the facility. In 1995, the Company was
allowed to continue to accept municipal solid waste in a portion of the
landfill dependent on the satisfaction of certain technical requirements
mandated by California authorities. In October 1996 (pursuant to a judicial
order issued in September), California authorities again suspended the
Company's ability to accept municipal solid waste at its Azusa, California
landfill pending compliance with certain additional regulatory requirements.
Although this decision has been appealed, the Company determined that recovery
of its total investment in this facility was unlikely. Accordingly, a special
charge of $98 million was recorded to reduce the carrying amount of this
investment to its estimated fair value. See Note (4).
The Company and certain subsidiaries are involved in various other
environmental matters or proceedings, including original or renewal permit
application proceedings in connection with the establishment, operation,
expansion, closure and post-closure activities of certain landfill disposal
facilities, and proceedings relating to governmental actions resulting from the
involvement of various subsidiaries of the Company with certain waste sites
(including Superfund sites), as well as other matters or claims that could
result in additional environmental proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting period,
management believes that the ultimate disposition
-63-
<PAGE> 68
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
of these matters will not have a materially adverse effect upon the
consolidated financial position of the Company.
Insurance matters.
Under its insurance policies, the Company generally has self-insured
retention limits ranging from $500,000 to $5,000,000 and has obtained fully
insured layers of coverage above such self-retention limits. The Company has a
wholly-owned domestic insurance subsidiary which operates as a captive
insurance company. It currently writes insurance to meet financial assurance
obligations related to closure and post-closure of certain landfills of the
Company. At September 30, 1996, no claims had been made relative to this
insurance operation, and no claim reserves had been posted.
In order to meet existing governmental requirements, the Com-pany has been
able to secure an environmental impairment liability insurance policy in
amounts which the Company believes are in compliance with the amounts required
by federal and state law. Under this policy, the Company must reimburse the
carrier for losses incurred by the Company.
Waste-to-energy projects.
Subsidiaries of the Company and Air Products and Chemicals, Inc. ("Air
Products") each have 50% ownership interests in American Ref-Fuel partnerships
that construct, own and operate facilities which generate and sell electricity
from the incineration of solid waste. The five facilities currently in
commercial operation are located in Hempstead, New York, Essex County in New
Jersey, Preston, Connecticut, Niagara Falls, New York and Rochester,
Massachusetts. Financing arrangements for four of these projects include
agreements with the Company and Air Products to each severally fund one-half of
each partnership's cash deficiencies resulting from the partnership's
failure to perform.
With respect to the facilities located in Hempstead, New York, Essex
County in New Jersey and Preston, Connecticut, the Company and Air Products
generally will not be required to fund cash deficiencies associated with waste
deliveries by the sponsoring municipality below certain minimum levels, changes
in law or termination of incineration service for reasons other than default by
the respective partnership. In the event of a partnership default which
results in termination of incineration service, the Company may limit its
financial obligations by partnership as follows:
Hempstead, New York - Funding of 50% of periodic payments related to
outstanding debt. At September 30, 1996, $215 million of total
unamortized project debt was outstanding. Average annual debt service on
50% of the debt over the next five years is $11 million.
-64-
<PAGE> 69
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Essex County in New Jersey - Funding of 50% of cash deficiencies
including debt service up to $50 to $100 million, depending upon the
circumstances. Average annual debt service on 50% of the debt over the
next five years is $10 million.
Preston, Connecticut - Funding of 50% of periodic payments
related to outstanding debt. At September 30, 1996, total outstanding debt
included $86 million of unamortized project debt and $44 million of
additional partnership debt (of which $22 million is guaranteed by the
Company). Average annual debt service on 50% of the debt over the next
five years is $6 million.
With respect to the facilities located in Niagara Falls, New York and
Rochester, Massachusetts, the Company may limit its financial obligations by
partnership as follows:
Niagara Falls, New York - Funding of 50% of partnership cash
deficiencies, including debt service. At September 30, 1996, $165 million
of total unamortized project debt was outstanding. Average annual debt
service on 50% of the debt over the next five years is $3 million.
SEMASS in Rochester, Massachusetts - Under support agreements and guarantees
(i) lending up to 50% of $5 million to the SEMASS Partnership under
certain circumstances, (ii) deferring up to 50% of $7 million of operating
cost reimbursement, and (iii) funding up to 50% of $5 million in operating
damages. These obligations have been assigned to the lenders. The SEMASS
Partnership has borrowed approximately $342 million (weighted average
fixed rate of 9.7%) of non-recourse debt as of September 30, 1996.
Average annual debt service on 50% of the debt over the next five years is
approximately $20 million.
Operating leases.
The Company and its subsidiaries lease substantial portions of their
office and other facilities under various lease agreements. At September 30,
1996, total minimum rental commitments becoming payable under all
noncancellable operating leases are as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
1997 $65,495 2001 $31,455
1998 $59,340 2002 - 2006 $94,397
1999 $51,937 2007 - 2011 $63,893
2000 $44,546 All years thereafter $15,953
</TABLE>
Total rental expenses for fiscal years 1996, 1995 and 1994, substantially
all of which related to fixed amount rental agreements, were $105,134,000,
$95,526,000 and $58,667,000, respectively.
-65-
<PAGE> 70
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(12) Preferred stock -
The Company is authorized by its Restated Certificate of In-corporation to
issue 25 million shares of preferred stock, the terms and conditions to be
determined by the Board of Directors in creating any particular series.
(13) Preferred Stock Purchase Rights Plan -
In June 1988, the Board of Directors of the Company adopted a
Preferred Stock Purchase Rights Plan (the "Plan") and in connection
therewith declared a dividend of one Preferred Stock Purchase Right (a "Right")
on each outstanding share of the Company's common stock and on each share
subsequently issued until separate Rights certificates are distributed, or the
Rights expire or are redeemed. When exercisable, each Right will entitle a
holder to purchase one one-hundredth of a share of a new series of the
Company's Preferred Stock at an exercise price of $110.00, subject to
adjustment.
The Plan, as subsequently amended in February 1996, provides that if the
Company is acquired in a business combination transaction on or at any time
after the date on which a person obtains ownership of stock having 20% or more
of the Company's general voting power, provision generally must be made prior
to the consummation of such transaction to entitle each holder of a Right to
purchase at the exercise price a number of the acquiring company's common
shares having a market value at the time of such transaction of two times the
exercise price of the Right. The Plan also provides that upon the occurrence
of certain other specific matters, each holder of a Right will have the right
to receive, upon payment of the exercise price, shares of the new series of
Preferred Stock having a market value of two times the exercise price of a
Right. The Company has a right to redeem the Rights for $.05 per Right
(subject to adjustment) prior to the time they become exercisable. The Rights
will expire on June 13, 1998.
(14) Common stock -
Earnings per share.
The following table reconciles the number of common shares shown as
outstanding on the consolidated balance sheet with the number of common and
common equivalent shares used in computing primary earnings per share (in
thousands):
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<PAGE> 71
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Common shares outstanding, end
of period 212,363 212,439 196,341
Less - Shares held in the Stock
and Employee Benefit Trust (11,012) (13,596) --
------- ------- -------
Common shares outstanding for
purposes of computing primary
earnings per share, end of
period 201,351 198,843 196,341
Effect of using weighted average
common and common equivalent
shares outstanding (1,398) (1,199) (9,788)
Effect of shares issuable under
stock option plans based on
the treasury stock method 715 1,433 1,068
------- ------- -------
Shares used in computing
primary earnings per share 200,668 199,077 187,621
======= ======= =======
</TABLE>
Shares of common stock held in the Stock and Employee Benefit Trust ("the
Trust") are not considered to be outstanding in the computation of common
shares outstanding until shares are utilized at the Company's option for the
purposes for which the Trust was established.
The difference between shares for primary and fully di-luted earnings
per share was not significant in any year. Conversion of the 6 3/4%
Convertible Subordinated Debentures due 2005, which were determined not to be
common stock equivalents, was not assumed in the computation of fully diluted
earnings per share because the debentures had an anti-dilutive effect in the
periods prior to their redemption in February 1996.
Earnings per common and common equivalent share were computed by dividing
net income (loss) by the weighted average number of shares of common stock and
common stock equivalents outstanding during each year. Common stock
equivalents include stock options, the Company's 6 1/4% Convertible
Subordinated Debentures due 2012 (the "6 1/4% Debentures") which were redeemed
in February 1996, and the 7.25% Automatic Common Exchange Securities. The
effect of the 6 1/4% Debentures on earnings per share was not significant or
was not dilutive in the periods prior to their redemption in February 1996 and,
accordingly, has not been included in the computations. The 7.25% Automatic
Common Exchange Securities had no effect on the computations for the periods
presented.
-67-
<PAGE> 72
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock and Employee Benefit Trust.
In February 1995, the Company established a Stock and Employee Benefit
Trust to which it sold 15,000,000 shares of the Company's newly issued common
stock. This trust was established to provide the Company the option to use the
trust to fund future payments under existing employee compensation and benefit
plans as well as other general corporate purposes for which common stock might
be issued. Shares issued to the trust are valued at market and reflected as a
reduction of common stockholders' equity in the balance sheet.
Automatic Common Exchange Securities.
In July 1995, the Company issued to the public 11,499,200 7.25% Automatic
Common Exchange Securities with a stated amount of $35.625 per security ($409.7
million in total). Each security consists of (1) a purchase contract under
which (a) the holder will purchase from the Company on June 30, 1998 (earlier
under certain circumstances), for an amount in cash equal to the stated amount
of $35.625, between .8333 of a share (in total approximately 9.6 million
shares) and one share (a maximum of 11,499,200 shares) of the Company's common
stock (depending on the then market value of the common stock) and (b) the
Company will pay the holder contract fees at the rate of 2.125% per annum on
the security, and (2) 5.125% United States Treasury Notes having a principal
amount equal to $35.625 and maturing on June 30, 1998. The Treasury Notes
underlying these securities are pledged as collateral to secure the holder's
obligation to purchase the Company's common stock under the purchase contract.
The principal of the Treasury Notes underlying such securities, when paid at
maturity, will automatically be applied to satisfy in full the holder's
obligation to purchase the Company's common stock. These securities are not
included on the Company's balance sheet; an increase in common stockholders'
equity will be reflected when cash proceeds are received by the Company.
Stock incentive plans.
The Company presently maintains six stock option plans af-fording
employees, directors and other persons affiliated with the Company the right to
purchase shares of its common stock. At September 30, 1996, options were
available for future grants only under five plans, the Company's 1987, 1990,
both 1993 plans and the 1996 plan (subject to stockholder approval). At
September 30, 1996, all of the options outstanding were non-qualified stock
options. The exercise price, term and other conditions applicable to each
option granted under the Company's plans are generally determined by the
Compensation Committee at the time of the grant of each option and may vary
with each option granted. No option may be granted at a price less than the
stock's fair market value on the date of the grant.
-68-
<PAGE> 73
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Transactions under all stock option plans are summarized below:
Year Ended September 30,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Options outstanding at
beginning of year 10,172,917 9,905,868 9,708,547
Options granted 2,688,600 1,758,400 1,697,000
Options terminated (285,980) (204,395) (632,870)
Options exercised (563,073) (1,286,956) (866,809)
---------- ---------- ----------
Options outstanding at
end of year 12,012,464 10,172,917 9,905,868
========== ========== ==========
Options exercisable at
end of year 6,852,999 5,921,652 5,939,033
Options available for
future grants at
end of year 2,423,544(1) 4,925,856 6,501,573
Total option price of
options outstanding
at end of year $330,267,919 $269,901,376 $249,683,713
Option price range:
Options granted $25.56-$31.56 $28.00-$36.56 $25.44-$31.69
Options terminated $17.31-$40.44 $15.50-$40.44 $17.31-$43.38
Options exercised $12.81-$30.81 $ 9.34-$37.63 $ 7.00-$29.84
Options outstanding
at end of year $17.31-$43.38 $12.81-$43.38 $ 9.34-$43.38
</TABLE>
- ----------
(1) Excludes 10 million under the 1996 Plan, which is subject to
stockholder approval.
Under the 1993 and 1996 Stock Incentive Plans, restricted common stock of
the Company may be granted to officers, other key employees and certain
non-employee directors. Shares granted are subject to certain restrictions on
ownership and transferability. Such restrictions on current restricted stock
grants lapse two years from the date of grant for officers and key employees
and three years for non-employee directors. The deferred compensation expense
related to restricted stock grants is amortized to expense on a straight-line
basis over the period of time the restrictions are in place and the unamortized
portion is classified as a reduction of additional paid-in capital in the
Company's Consolidated Balance Sheet. Additionally, the 1993 and 1996 Stock
Incentive Plans provide for common stock awards. Restricted stock grants and
common stock awards reduce stock options otherwise available for future grant.
Of the 500,000 shares which may be awarded to officers and key employees as
restricted stock grants or stock awards (excluding 1,500,000 shares which are
subject to stockholder approval), 94,655 restricted shares were issued during
the current year and 124,382 restricted shares were outstanding as of September
30, 1996. In addition, 8,024 restricted shares issued to non-employee
directors were outstanding as of September 30,
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<PAGE> 74
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1996. No common stock awards had been granted as of September 30, 1996.
Dividend Reinvestment Plan.
The Company has a Dividend Reinvestment Plan which provides registered
common stockholders an opportunity to reinvest automatically their dividends in
shares of the Company's common stock. Each participant in the plan may also
make additional cash payments of not less than $25 per remittance and not more
than $60,000 per calendar year to be invested in such common shares pursuant to
the plan. The plan provides that newly issued shares may be acquired from the
Company, purchased on the open market or purchased under a combination of the
two alternatives.
(15) Foreign currency translation -
Increases (decreases) in the equity component for each period's
translation adjustments are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Beginning cumulative
translation adjustment $ 30,821 $ (40,744) $(136,659)
Translation adjustment
for the fiscal year (61,959) 71,565 95,915
--------- --------- ---------
Ending cumulative translation
adjustment $ (31,138) $ 30,821 $ (40,744)
========= ========= =========
</TABLE>
(16) Income taxes -
The components of (i) earnings before income taxes, minority interest and
extraordinary item and (ii) the income tax provision for each of the three
fiscal years ended September 30, are as set forth below (in thousands).
<TABLE>
<CAPTION>
1996
-------------------------------
Excluding
Special Special As
Charges Charges Reported 1995 1994
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Domestic $429,705 $(187,087) $242,618 $563,648 $421,620
Foreign (1) 44,801 (259,713) (214,912) 127,428 77,503
-------- --------- -------- -------- --------
$474,506 $(446,800) $ 27,706 $691,076 $499,123
======== ========= ======== ======== ========
</TABLE>
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<PAGE> 75
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ----------
(1) Amounts are net of intercompany interest expense for fiscal years
1996, 1995 and 1994 of $53,660,000, $36,572,000 and $23,838,000,
respectively. The Company maintains a capital structure with respect to
its foreign operations designed to minimize worldwide income and other tax
costs.
<TABLE>
<CAPTION>
State
Federal Foreign & Local Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996: Current $ 51,900 $ 33,497 $ 17,463 $102,860
Deferred 30,895 (35,382) 7,521 3,034
Amortization
of investment
tax credit (706) -- -- (706)
-------- -------- -------- --------
$ 82,089 $ (1,885) $ 24,984 $105,188
======== ======== ======== ========
1995: Current $183,876 $ 46,480 $ 23,330 $253,686
Deferred 20,605 (6,764) 9,609 23,450
Amortization
of investment
tax credit (706) -- -- (706)
-------- -------- -------- --------
$203,775 $ 39,716 $ 32,939 $276,430
======== ======== ======== ========
1994: Current $116,164 $ 42,107 $ 18,626 $176,897
Deferred 34,646 (220) (10,968) 23,458
Amortization
of investment
tax credit (706) -- -- (706)
-------- -------- -------- --------
$150,104 $ 41,887 $ 7,658 $199,649
======== ======== ======== ========
</TABLE>
The following is a reconciliation between the U.S. federal income tax rate
and the effective income tax rate for each of the three fiscal years in the
period ended September 30, 1996:
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<PAGE> 76
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Excluding Special Charges:
Income tax - U.S. federal rate 35.00% 35.00% 35.00%
Federal effect of state
income taxes (2.31) (1.67) (.54)
Effect of foreign operations (2.05) (.20) .89
All other, net 2.77 2.10 3.12
------ ----- -----
Federal and foreign 33.41 35.23 38.47
State income taxes 6.59 4.77 1.53
------ ----- -----
Effective income tax rate,
excluding special charges 40.00 40.00 40.00
Effect of Special Charges 339.66 -- --
------ ----- -----
Effective income tax rate 379.66% 40.00% 40.00%
====== ===== =====
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities at September 30, 1996 and
1995, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Depreciation and
amortization $144,409 $468,326 $142,408 $460,444
Accrued environ-
mental and
landfill costs 183,041 -- 191,737 --
Accruals related
to discontinued
operations 8,956 -- 29,120 --
Self-insurance
accruals 56,457 -- 52,310 --
Assets and operations
to be divested 107,247 -- -- --
Net operating loss
carryforwards 115,717 -- 108,983 --
Other 318,449 138,649 231,550 88,505
-------- -------- -------- --------
Deferred tax assets
and liabilities 934,276 $606,975 756,108 $548,949
======== ========
Valuation allowance (192,811) (116,244)
-------- --------
Deferred tax
assets, net of
valuation
allowance $741,465 $639,864
======== ========
</TABLE>
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<PAGE> 77
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The valuation allowance applies principally to a substantial portion of
the net operating loss carryforwards and deductions associated with the special
charges which could expire prior to utilization by the Company. Foreign net
operating loss carryforwards of approximately $180 million are available to
reduce future taxable income of the applicable foreign entities for periods
which generally range from 1997 to 2003. Domestic state net operating loss
carryforwards of approximately $831 million (the tax benefit of which is
calculated at rates ranging generally from 5%- 10%) are available to reduce
future taxable income of the applicable entities taxable in such states for
periods which range from 1997 to 2011. The net change in the total valuation
allowance for the year ended September 30, 1996, was an increase of $76.6
million, principally due to the special charges taken in the fourth quarter of
fiscal 1996, compared with a decrease in the prior year of $3.2 million.
Deferred income taxes have not been provided as of September 30, 1996, on
approximately $820 million of undistributed earnings of foreign affiliates
which are considered to be permanently reinvested.
(17) Employee benefit plans -
Employee stock ownership and savings plan.
The Company sponsors an employee stock ownership and savings plan which
incorporates deferred savings features permitted under IRS Code Section
401(k). The plan covers substantially all U.S. employees with one or more
years of service except for certain employees subject to collective bargaining
agreements. Eligible employees may make voluntary contributions to one or more
of five investment funds through payroll deductions which, in turn, will allow
them to defer income for tax purposes. The Company matches these voluntary
contributions at a rate of $.50 per $1.00 on the first 5% of total earnings
contributed by each participating employee. The Company matches the voluntary
contributions through open market purchases or issuances of shares of the
Company's common stock. The Company expenses its contributions to the employee
stock ownership and savings plan which for fiscal years 1996, 1995 and 1994
were $11,752,000, $10,545,000 and $9,430,000, respectively.
Employee retirement plans.
The Company and its domestic subsidiaries have two defined benefit
retirement plans covering substantially all U.S. employees except for certain
employees subject to collective bargaining agreements. The benefits for these
plans are based on years of service and the employee's compensation. The
Company's general funding policy for these plans is to make annual
contributions to the plans equal to or exceeding the actuary's recommended
contribution.
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<PAGE> 78
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company also has employees in various foreign countries that are
covered by defined benefit pension plans. The benefits for these plans are
based generally on years of service and the employee's compensation. Under the
Company's funding policy, annual contributions are made in order to fund the
plans over the participants' total expected periods of service in conformity
with the requirements of local law or custom.
The components of net annual pension cost for fiscal years 1996, 1995 and
1994 for the defined benefit plans were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. Plans:
Service cost (benefits earned
during the period) $ 12,260 $ 9,933 $ 11,260
Interest cost on projected
benefit obligation 13,521 12,597 10,329
Investment gain on plan
assets (27,957) (14,097) (11,728)
Net amortization and deferral 12,056 (110) (1,534)
-------- -------- --------
Net annual pension cost $ 9,880 $ 8,323 $ 8,327
======== ======== ========
Non-U.S. Plans:
Service cost (benefits earned
during the period) $ 1,949 $ 1,969 $ 1,118
Interest cost on projected
benefit obligation 2,163 1,748 1,004
Investment gain on plan assets (2,044) (2,628) (62)
Net amortization and deferral (454) 12 (1,766)
------- ------- -------
Net annual pension cost $ 1,614 $ 1,101 $ 294
======= ======= =======
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's Consolidated Balance Sheet as of September 30, 1996 and 1995, and
the significant assumptions used in accounting for the defined benefit plans.
The measurement dates for the U.S. plans were June 30, 1996 and 1995 and for
non-U.S. plans were September 30, 1996 and 1995.
-74-
<PAGE> 79
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
U.S. Non-U.S. U.S. Non-U.S.
--------- -------- --------- --------
(Dollar Amounts in Thousands)
<S> <C>
Actuarial present value
of accumulated benefit
obligations, including
vested benefits of
$161,986, $10,296,
$141,572 and $18,787,
respectively $(180,639) $(10,644) $(150,450) $(19,385)
========= ======== ========= ========
Actuarial present value
of projected benefit
obligation $(196,909) $(14,412) $(166,552) $(24,130)
Plan assets at fair value,
primarily commercial
paper, common stocks
(including 22,000 shares
of the Company's common
stock for U.S. plans at
both dates) and mutual
funds 193,951 20,234 159,140 30,415
--------- -------- --------- --------
Projected benefit obligation
(in excess of) less than
plan assets (2,958) 5,822 (7,412) 6,285
Contributions made after
measurement date but
before end of fiscal year 7,263 -- 4,000 --
Unrecognized net gain (13,784) (80) (13,653) (128)
Unrecognized prior service
cost (13,957) -- (15,259) --
Unrecognized net (asset)
obligation at transition (1,486) 1,891 (1,680) 2,448
--------- -------- --------- --------
Prepaid (accrued) pension
costs $ (24,922) $ 7,633 $ (34,004) $ 8,605
========= ======== ========= ========
Discount rate 8.0% 6.5-8.5% 7.75% 6.5-8.5%
Rate of increase in
compensation levels 4.0% 3.0-6.5% 4.5% 3.5-7.0%
Expected long-term rate of
return on assets 9.5% 6.5-9.5% 9.5% 6.5-10.0%
</TABLE>
Termination indemnity plan.
The employees of the Company's Italian operations are covered by a
termination indemnity plan. Benefits under the plan, which are based on
periods of service and the employee's compensation,
-75-
<PAGE> 80
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
are payable in a lump sum upon (1) retirement, (2) termination, (3) death
after 10 years of credited service or (4) disability after 10 years of
credited service. Expense for fiscal years 1996, 1995 and 1994 related to this
unfunded plan was $1,809,000, $1,798,000 and $1,203,000, respectively.
Other postretirement benefits.
The Company currently maintains an unfunded postretirement benefit plan
which provides for employees participating in its medical plan to receive a
monthly benefit after retirement based on years of service. As permitted under
SFAS No. 106 - "Employers' Accounting for Postretirement Benefits Other Than
Pensions", the Company has chosen to recognize the transition obligation (the
actuarially-determined accumulated postretirement benefit obligation of
approximately $11.9 million at September 30, 1994) over a 20-year period.
Current year expense was not material to the Company's results of operations.
Postemployment benefits.
The Company maintains no plans which provide significant ben-efits to
former or inactive employees after employment but before retirement.
(18) Operations by industry segment and geographic area -
The Company's revenues and income are derived principally from one
industry segment, which includes the collection, transportation,
processing/recovery and disposal of municipal solid waste and industrial
wastes. This segment renders services to a variety of commercial, industrial,
governmental and residential customers. Substantially all revenues represent
income from unaffiliated customers.
The table below reflects certain geographic information relat-
ing to the Company's operations. For purposes of this table, general corporate
expenses have been included in the computation of income from operations and
are classified under "United States and Puerto Rico" (in thousands).
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
United States and
Puerto Rico $4,073,558 $4,070,021 $3,293,297
---------- ---------- ----------
Foreign - Europe 1,425,390 1,433,923 786,252
- Other 280,329 275,407 234,992
---------- ---------- ----------
Total foreign 1,705,719 1,709,330 1,021,244
---------- ---------- ----------
Consolidated $5,779,277 $5,779,351 $4,314,541
========== ========== ==========
</TABLE>
-76-
<PAGE> 81
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C>
Combined income (loss)
from operations and
equity in earnings of
unconsolidated
affiliates:
United States and
Puerto Rico $ 327,421 (1) $ 626,798 $ 451,108
---------- ---------- ----------
Foreign - Europe (118,411)(1) 186,251 91,035
- Other (10,847)(1) 30,134 38,851
---------- ---------- ----------
Total foreign (129,258) 216,385 129,886
---------- ---------- ----------
Consolidated $ 198,163 $ 843,183 $ 580,994
========== ========== ==========
Depreciation and
amortization:
United States and
Puerto Rico $ 438,639 $ 412,968 $ 349,189
---------- ---------- ----------
Foreign - Europe 134,061 113,907 72,288
- Other 29,825 24,995 22,715
---------- ---------- ----------
Total foreign 163,886 138,902 95,003
---------- ---------- ----------
Consolidated $ 602,525 $ 551,870 $ 444,192
========== ========== ==========
Identifiable assets:
United States and
Puerto Rico $4,803,978 $4,532,014 $3,626,134
---------- ---------- ----------
Foreign - Europe 2,435,541 2,599,797 1,903,141
- Other 361,387 328,561 267,680
---------- ---------- ----------
Total foreign 2,796,928 2,928,358 2,170,821
---------- ---------- ----------
Consolidated (2) $7,600,906 $7,460,372 $5,796,955
========== ========== ==========
</TABLE>
- -----------------
(1) Fiscal year 1996 earnings information for operations in (i) the
United States and Puerto Rico, (ii) Europe and (iii) other foreign
countries include special charges of $187,087,000, $234,773,000 and
$24,940,000, respectively. See Note (4).
(2) The Attwoods acquisition in the first quarter of fiscal 1995 and
the Otto Waste Services acquisition in the second quarter of fiscal 1994
each increased the identifiable assets of the Company by over $1.0 billion.
-77-
<PAGE> 82
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(19) Fair value of financial instruments -
The following disclosures of the estimated fair values of financial
instruments have been determined by the Company using available market data
and valuation methodologies. Considerable judgment is required in developing
the methodologies used to determine the estimates of fair value and in
interpreting available market data and, accordingly, the estimates presented
herein are not necessarily indicative of the values of such financial
instruments in a current market exchange. Additionally, under certain
financing agreements, the Company is prohibited from redeeming certain of the
long-term debt before its maturity.
<TABLE>
<CAPTION>
As of September 30,
----------------------------------------
1996 1995
------------------ -------------------
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Debt -
6.10% Senior Notes $198,162 $188,848 $ -- $ --
6.375% Senior Notes 197,949 184,171 -- --
7.40% Debentures 397,918 377,107 397,864 396,830
7 7/8% Senior Notes 299,217 311,575 299,125 322,606
9 1/4% Debentures 100,000 117,740 100,000 121,490
Solid waste revenue
bond obligations 149,127 151,601 114,079 119,444
Other notes payable 804,721 837,174 585,211 608,435
Commercial paper and
short-term
facilities to be
refinanced 679,597 676,489 231,988 231,701
Convertible
subordinated
debentures -- -- 744,944 742,806
</TABLE>
The book values of cash, short-term investments, trade accounts
receivables, trade accounts payable and financial instruments included in other
receivables, other assets and accrued liabilities approximate their fair values
principally because of the short-term maturities of these instruments.
The estimated fair value of long-term debt and convertible subordinated
debentures is based on quoted market prices where available or on present value
calculations which are calculated using current rates for similar debt with the
same remaining maturities.
In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying consolidated balance sheets. In the past, no significant claims
have been made against these financial instruments. Management believes that
the likelihood of performance
-78-
<PAGE> 83
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
under these financial instruments is minimal and expects no material losses to
occur in connection with these financial instruments.
(20) Related party transactions -
One of the Company's directors is affiliated with Otto Holding
International B.V. ("OHI") which owns the other 50% interest of Otto Waste
Services. The Company, primarily through its 50% ownership of Otto Waste
Services, is engaged in various transactions through the ordinary course of
business with OHI, its subsidiaries and unconsolidated affiliates or other
affiliated parties ("OHI Group"). The OHI Group leased containers and
equipment under operating leases and provided certain administrative services
to Otto Waste Services during the current fiscal year. Charges for these
administrative services were approximately $4.7 million and $5.0 million for
fiscal year 1996 and 1995, respectively, and $3.5 million for the period from
the acquisition date in February 1994 through the end of fiscal 1994. The
Company, including Otto Waste Services, also purchased or entered into capital
leases for approximately $30.8 million and $29.3 million, respectively, of
containers from the OHI Group during fiscal years 1996 and 1995. Included in
the Company's Consolidated Balance Sheet at September 30, 1996 and 1995, are
the following amounts relating to transactions with the OHI Group (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accounts payable $ -- $ 613
Other accrued liabilities 7,673 --
Capital lease obligations 44,000 46,252
Notes payable, interest
payable at FIBOR plus 2% 3,131 3,613
</TABLE>
During fiscal 1996, Otto Waste Services sold certain assets related to
plastics processing to the OHI Group. These assets were sold to OHI for
approximately $2.5 million resulting in a loss on the sale for Otto Waste
Services of approximately $1.3 million which is included in the Company's
Consolidated Statement of Operations. Additionally, Otto Waste Services sold
the stock of one of its subsidiaries to the OHI Group at its recorded book
value of approximately $2.1 million. OHI also sold two companies specializing
in plastics recycling and processing to Otto Waste Services at their net book
value of approximately $372,000. In connection with the acquisition of these
two companies, Otto Waste Services assumed liabilities of approximately $6.6
million of long-term debt with third parties and approximately $7.7 million in
net payables with affiliated companies of Otto Waste Services and other
companies within the OHI Group.
-79-
<PAGE> 84
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(21) Quarterly financial information (Unaudited) -
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(In Thousands Except for Per Share Amounts)
<S> <C>
Revenues 1996 $1,430,781 $1,373,887 $1,471,368 $1,503,241
1995 $1,292,787 $1,409,366 $1,550,083 $1,527,115
Gross profit 1996 $ 382,676 $ 346,971 $ 356,018 $ 377,997
1995 $ 367,817 $ 403,059 $ 445,117 $ 416,055
Income (loss)
from
operations 1996 $ 174,162 $ 134,414 $ 134,802 $ (300,585)(2)
1995 $ 177,311 $ 193,034 $ 218,685 $ 200,157
Income taxes 1996 $ 58,118 $ 42,205 $ 42,417 $ (37,552)
1995 $ 65,010 $ 66,109 $ 76,724 $ 68,587
Income (loss)
before extra-
ordinary
item 1996 $ 83,010 $ 60,984 $ 62,022 $ (295,188)
1995 $ 89,570 $ 92,809 $ 106,267 $ 95,915
Net income
(loss) 1996 $ 83,010 $ 48,825(1) $ 62,022 $ (295,188)
1995 $ 89,570 $ 92,809 $ 106,267 $ 95,915
Income (loss)
per share:
Income (loss)
before
extra-
ordinary
item 1996 $ .42 $ .30 $ .31 $(1.47)
1995 $ .45 $ .47 $ .53 $ .48
Net income
(loss) 1996 $ .42 $ .24 $ .31 $(1.47)
1995 $ .45 $ .47 $ .53 $ .48
</TABLE>
-80-
<PAGE> 85
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- -------------
(1) In the second quarter of fiscal year 1996, the Company recorded an
after-tax loss of $12.2 million associated with redemption of debt, which was
reflected in the Company's Consolidated Statement of Operations as an
extraordinary item. See Note (10).
(2) In the fourth quarter of fiscal year 1996, the Company incurred special
charges of $446.8 million related to decisions to sell the Company's Italian
operations, divest non-core business assets and operations, close certain
recycling facilities and writedown the investment in its Azusa, California
landfill. See Note (4).
-81-
<PAGE> 86
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
Items 10, 11, 12 and 13 of Part III (except for information required with
respect to executive officers of the Company which is set forth under "Business
- - Executive Officers of the Company" in Part I of this report) have been
omitted from this report, since the Company will file with the Securities and
Exchange Commission, not later than 120 days after the close of its fiscal
year, a definitive proxy statement, pursuant to Regulation 14A, which involves
the election of directors. The information required by Items 10, 11, 12 and 13
of this report, which will appear in the definitive proxy statement, is
incorporated by reference into Part III of this report.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS
Browning-Ferris Industries, Inc. and Subsidiaries:
Report of independent public accountants.
Consolidated statement of income for the three years ended September
30, 1996.
Consolidated balance sheet--September 30, 1996 and 1995.
Consolidated statement of common stockholders' equity for the three
years ended September 30, 1996.
Consolidated statement of cash flows for the three years ended
September 30, 1996.
Notes to consolidated financial statements.
SCHEDULES
II Allowance for doubtful accounts for the three years ended
September 30, 1996.
Schedules, other than those listed above, are omitted because of the absence of
conditions under which they are required, or because the information is
included in the financial statements or notes thereto.
-82-
<PAGE> 87
EXHIBITS
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation of BFI, dated October 7,
1991. (Exhibit 3(a) of Form 10-K for the fiscal year ended
September 30, 1993, is hereby incorporated by reference.)
3.2 By-laws of BFI, as amended through September 6, 1995.
4.1 Rights Agreement, dated June 1, 1988, between BFI and Texas
Commerce Bank National Association. (Exhibit 3.3 of Form 10-K
for the fiscal year ended September 30, 1988, is hereby
incorporated by reference.)
4.2 First Amendment, dated March 1, 1989, to Rights Agreement,
dated as of June 1, 1988, between BFI and Texas Commerce Bank
National Association. (Exhibit 10.1 of Form 10-Q for the
quarter ended June 30, 1989, is hereby incorporated by
reference.)
4.3 Second Amendment, dated March 7, 1990, to Rights Agreement,
dated as of June 1, 1988, between the Registrant and
First Chicago Trust Company of New York as successor Rights
Agent. (Exhibit 4.1 of Form 10-Q for the quarter ended March
31, 1990, is hereby incorporated by reference.)
4.4 Third Amendment, dated February 20, 1996, to Rights Agreement,
dated as of June 1, 1988, between the Company and First Chicago
Trust Company of New York as successor Rights Agent. (Exhibit
4 of Form 10-Q for the quarter ended March 31, 1996, is hereby
incorporated by reference.)
4.5 Second Amended and Restated Revolving Credit Agreement, dated
as of May 31, 1995, among BFI and Texas Commerce Bank National
Association, as Administrative Agent, and the other banks named
therein.
4.6 Restated Indenture, dated as of September 1, 1991, between
First City, Texas-Houston, National Association, Trustee, and
BFI. (Exhibit 4.8 of Form 10-K for the fiscal year ended
September 30, 1991, is hereby incorporated by reference.)
4.7 Indenture, dated as of August 1, 1987, between First
RepublicBank Houston, National Association, Trustee, and BFI.
(Exhibit 4.1 to Registration Statement on Form S-3 No. 33-16537
is hereby incorporated by reference.)
</TABLE>
-83-
<PAGE> 88
<TABLE>
<S> <C>
4.8 First Supplemental Indenture, dated as of January 11, 1994,
between Nations Bank of Texas, National Association,
Trustee, and BFI. (Exhibit 4(f) to Registration Statement on
Form S-3 No. 33-58790 is hereby incorporated by reference.)
4.9 Multicurrency Revolving Credit Agreement, dated December 5,
1994, between BFI Acquisition plc, BFI International, Inc.,
Browning-Ferris Industries Europe, Inc., BFI and Credit Suisse
and the Banks specified therein. (Exhibit 10 of Form 10-Q for
the quarter ended December 31, 1994, is hereby incorporated by
reference).
4.10 Purchase Contract Agreement, dated as of June 28, 1995, between
BFI and The First National Bank of Chicago, as Purchase
Contract Agent. (Exhibit 4(i) of Form 8-K dated July 3, 1995,
is hereby incorporated by reference.)
4.11 Pledge Agreement, dated as of June 28, 1995, among BFI, Texas
Commerce Bank National Association, as Collateral Agent, and
The First National Bank of Chicago, as Purchase Contract
Agent. (Exhibit 4(j) of Form 8-K dated July 3, 1995, is hereby
incorporated by reference.)
10.1 Employment Agreement, dated October 1, 1995, between BFI and
William D. Ruckelshaus.
10.2 Deferral Agreement, dated December 28, 1988, between BFI and
William D. Ruckelshaus. (Exhibit 10.2 of the Form 10-Q for
the quarter ended December 31, 1988, is hereby incorporated by
reference.)
10.3 Employment Agreement, dated July 10, 1989, between BFI and
Harry J. Phillips, Sr. (Exhibit 10.5 of Form 10-K for the
fiscal year ended September 30, 1989, is hereby incorporated by
reference.)
10.4 First Amendment, dated January 21, 1992, to the Employment
Agreement, dated as of July 10, 1989, between BFI and Harry
J. Phillips, Sr. (Exhibit 10.6 to Registration Statement on
Form S-4 No. 33-52240 is hereby incorporated by reference.)
10.5 Second Amendment, dated December 7, 1993, to the Employment
Agreement, dated as of July 10, 1989, between BFI and Harry
J. Phillips, Sr. (Exhibit 10 of the Form 10-Q for the quarter
ended December 31, 1993, is hereby incorporated by reference.)
10.6 Form of Employment Agreement between BFI and each of Norman A.
Myers, Bruce E. Ranck and certain other officers and former
officers (Exhibit 10.6 of Form 10-K for the fiscal year ended
September 30, 1989, is hereby incorporated by reference.)
</TABLE>
-84-
<PAGE> 89
<TABLE>
<S> <C>
10.7 Employment Agreement, dated as of November 1, 1991 between BFI
and Louis A. Waters. (Exhibit 10.7 of Form 10-K for the
fiscal year ended September 30, 1991, is hereby incorporated by
reference.)
10.8 First Amendment, dated December 7, 1993, to the Employment
Agreement, dated as of November 1, 1991, between BFI and Louis
A. Waters. (Exhibit 10 of the Form 10-Q for the quarter
ended December 31, 1993, is hereby incorporated by
reference.)
10.9 Second Amendment, dated March 1, 1995, to Employment Agreement,
dated as of November 1, 1991, between BFI and Louis A. Waters.
10.10 Executive Officer Form of Employment Agreement between BFI and
certain executive officers, beginning in January 1993. (Exhibit
10.9 of Post-Effective Amendment No. 1 to Registration
Statement on Form S-4 No. 33-52240 is hereby incorporated by
reference.)
10.11 Trust Agreement, dated September 7, 1988, between BFI and
Texas Commerce Bank, National Association with Louis A.
Waters as Beneficiary. (Exhibit 10.9 of Form 10-K for the
fiscal year ended September 30, 1988, is hereby incorporated by
reference.)
10.12 Browning-Ferris Industries, Inc. 1993 Stock Incentive Plan.
(Exhibit 4(d) to Registration Statement on Form S-8 No.
33-53393 is hereby incorporated by reference.)
10.13 Browning-Ferris Industries, Inc. 1993 Non-Employee Director
Stock Plan (Exhibit 4(e) to Registration Statement on Form S-8
No. 33-53393 is hereby incorporated by reference.)
10.14 Browning-Ferris Industries, Inc. 1990 Stock Option Plan.
(Exhibit 10.9 of Form 10-K for the fiscal year ended
September 30, 1991, is hereby incorporated by reference.)
10.15 Browning-Ferris Industries, Inc. 1987 Stock Option Plan.
(Exhibit 10.11 of Form 10-K for the fiscal year ended
September 30, 1988, is hereby incorporated by reference.)
10.16 Browning-Ferris Industries, Inc. 1983 Stock Option Plan, as
amended on December 2, 1986. (Exhibit 10.7 of Form 10-K for
the fiscal year ended September 30, 1986, is hereby
incorporated by reference.)
10.17 Browning-Ferris Industries, Inc.'s Cash Balance and Retirement
Plan, as amended and restated pursuant to an indenture dated
September 15, 1994. (Exhibit 10.18 of Form 10-K for the
fiscal year ended September 30, 1994, is hereby incorporated by
reference.)
</TABLE>
-85-
<PAGE> 90
<TABLE>
<S> <C>
10.18 BFI Employee Stock Ownership and Savings Plan, as amended
through December 1, 1986. (Exhibit 10.10 of Form 10-K for
the fiscal year ended September 30, 1986, is hereby
incorporated by reference.)
10.19 Fifth Amendment dated June 8, 1988, to the BFI Employee Stock
Ownership and Savings Plan. (Exhibit 10.16 of Form 10-K for
the fiscal year ended September 30, 1988, is hereby
incorporated by reference.)
10.20 Sixth Amendment, dated December 23, 1988, to the BFI Employee
Stock Ownership and Savings Plan. (Exhibit 10.4 of the
Form 10-Q for the quarter ended December 31, 1988, is hereby
incorporated by reference.)
10.21 Seventh, Eighth and Ninth Amendments, dated as of May 31, 1989,
June 7, 1989 and October 31, 1991, respectively, to the BFI
Employee Stock Ownership and Savings Plan. (Exhibit 10.20 of
Form 10-K for the fiscal year ended September 30, 1991, is
hereby incorporated by reference.)
10.22 Tenth Amendment, dated September 7, 1993, to the BFI Employee
Stock Ownership and Savings Plan. (Exhibit 10.22 of Form 10-K
for the fiscal year ended September 30, 1993, is hereby
incorporated by reference.)
10.23 Amended and Restated Partnership Agreement, dated as of
January 25, 1991, between Air Products Ref-Fuel, Inc. and
BFI Ref-Fuel, Inc. (Exhibit 10.23 of Form 10-K for the fiscal
year ended September 30, 1993, is hereby incorporated by
reference.)
*10.24 Parent Agreement, dated as of January 25, 1991, between Air
Products and Chemicals, Inc. and BFI.
10.25 Purchase and Transfer Agreement between Otto Holding
International B.V., the Registrant and BFI Atlantic GmbH,
dated September 27, 1993. (Exhibit 10.25 of Form 10-K for the
fiscal year ended September 30, 1993, is hereby incorporated by
reference.)
10.26 BFI Deferred Compensation Agreement.
10.27 BFI Convertible Annual Incentive Award Plan.
10.28 BFI Stock and Employee Benefit Trust Agreement, dated February
28, 1995, between BFI and Wachovia Bank of North Carolina,
N.A., as trustee.
10.29 Common Stock Purchase Agreement, dated February 28, 1995,
between BFI and Wachovia Bank of North Carolina, N.A., as
trustee
</TABLE>
-86-
<PAGE> 91
<TABLE>
<S> <C>
* 12. Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
* 21. Subsidiaries of the Registrant.
* 23.1 Consent of Arthur Andersen LLP.
* 27.1 Financial Data Schedule.
</TABLE>
__________________
*Filed herewith.
Reports on Form 8-K
None.
____________________
NOTE: Upon the request of a holder of the Company's securities directed to
Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253, Attn:
Secretary, the Company will furnish a copy of any exhibit for ten cents per
page to cover the cost of copying and mailing.
-87-
<PAGE> 92
SCHEDULE II
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
For the Three Years Ended September 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
==============================================================
Additions
Balance Charged Deductions Balance
Beginning to from End of
of Year Income Reserves Year
==============================================================
<S> <C> <C> <C> <C>
1996 $39,777 $29,527 $(28,682) $40,622
1995 $33,284 $26,620 $(20,127) $39,777
1994 $21,870 $31,346 $(19,932) $33,284
</TABLE>
-88-
<PAGE> 93
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.
BROWNING-FERRIS INDUSTRIES, INC.
(Registrant)
DATE: December 4, 1996 By: /s/ Bruce E. Ranck
----------------------------------
Bruce E. Ranck
President, Chief Executive
Officer and Director
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 and in the capacities and on the date indicated.
/s/ William D. Ruckelshaus
----------------------------------
William D. Ruckelshaus
Chairman of the Board
and Director
/s/ Bruce E. Ranck
----------------------------------
Bruce E. Ranck,
President, Chief Executive Officer
and Director
/s/ Norman A. Myers
----------------------------------
Norman A. Myers
Vice Chairman, Chief Marketing
Officer and Director
/s/ Jeffrey E. Curtiss
----------------------------------
Jeffrey E. Curtiss,
Senior Vice President and
Chief Financial Officer
-89-
<PAGE> 94
/s/ David R. Hopkins
----------------------------------
David R. Hopkins,
Vice President, Controller and
Chief Accounting Officer
/s/ William T. Butler
----------------------------------
William T. Butler,
Director
/s/ C. Jackson Grayson, Jr.
----------------------------------
C. Jackson Grayson, Jr.,
Director
/s/ Gerald Grinstein
----------------------------------
Gerald Grinstein, Director,
/s/ Ulrich Otto
----------------------------------
Ulrich Otto, Director,
/s/ Harry J. Phillips, Sr.
----------------------------------
Harry J. Phillips, Sr.,
Director
/s/ Joseph L. Roberts, Jr.
----------------------------------
Joseph L. Roberts, Jr.,
Director
/s/ Marc J. Shapiro
----------------------------------
Marc J. Shapiro, Director
/s/ Robert M. Teeter
----------------------------------
Robert M. Teeter, Director
/s/ Louis A. Waters
----------------------------------
Louis A. Waters, Director
/s/ Marina v.N. Whitman
----------------------------------
Marina v.N. Whitman, Director
December 4, 1996 /s/ Peter S. Willmott
----------------------------------
Peter S. Willmott, Director
-90-
<PAGE> 1
EXHIBIT 10.24
PARENT AGREEMENT
(RELATING TO AMERICAN REF-FUEL COMPANY)
DATED AS OF JANUARY 25, 1991
<PAGE> 2
Parent AGREEMENT
(RELATING TO AMERICAN REF-FUEL COMPANY)
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
MARKETING AGREEMENT
Section 1.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRANSFER
Section 2.1 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 Additional Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 Transfers to Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
OPTIONS TO BUY OR SELL
Section 3.1 Buy-Sell Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.2 Option to Purchase in the Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3 Closing of Purchases Under Sections 3.1 and 3.2 . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.4 Project Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.5 No Waiver of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.6 Non-Competition After Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV
RESTRICTIONS ON SUBSIDIARIES
Section 4.1 Single Purpose Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.3 Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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ARTICLE V
PERFORMANCE OF PARTNERSHIP OBLIGATIONS
Section 5.1 Parents' Performance Under Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI
CERTAIN SERVICES
Section 6.1 BFI Services to Partnership Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.2 Preferre Vendor Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII
POSSIBLE FORMATION OF LIMITED PARTNERSHIPS
Section 7.1 Good Faith Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII
CONFIDENTIALITY
Section 8.1 Agreement to Disclose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.2 Agreement to Keep Confidential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.3 Termination of Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX
DISPUTES
Section 9.1 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 9.2 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 9.3 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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ARTICLE X
MISCELLANEOUS
Section 10.1 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10.2 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 10.4 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 10.5 Binding Effect; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 10.6 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 10.7 Gender and Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 10.8 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 10.9 Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 10.10 Obligations of Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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<PAGE> 5
PARENT AGREEMENT
(Relating to American Ref-Fuel Company)
This Agreement, dated as of January 25, 1991, is between Air Products and
Chemicals, Inc., a Delaware corporation ("APCI") having its principal place of
business at 7201 Hamilton Boulevard, Allentown, Pennsylvania 18195-1501, and
Browning-Ferris Industries, Inc., a Delaware corporation ("BFI") having its
principal place of business at 757 N. Eldridge, Houston, Texas 77079.
A wholly-owned indirect subsidiary of APCI, Air Products Ref-Fuel, Inc.
("APRF"), is a partner in American REF-FUEL Company, a Delaware general
partnership (the "Partnership") existing under an Amended and Restated
Partnership Agreement, dated as of the date hereof (the "Partnership
Agreement").
Another wholly-owned indirect subsidiary of APCI, Air Products Ref-Fuel
Holdings Corp., a Delaware corporation (the "AP Holding Company"), wholly owns,
directly or indirectly, APRF and various Project Subsidiaries of APCI. Certain
inactive Project Subsidiaries are wholly owned, directly or indirectly, by
APCI, but are not owned by the AP Holding Company.
A wholly-owned indirect subsidiary of BFI, BFI Ref-Fuel, Inc. ("BFIES"), is
also a partner in the Partnership.
Another wholly-owned direct or indirect subsidiary of BFI (the "BFI Holding
Company"), wholly owns, directly or indirectly, BFIES and all Project
Subsidiaries of BFI.
APCI and BFI will each, directly or through their respective wholly-owned
subsidiaries, be the owner of a 50% interest in the Partnership and each of the
Project Companies.
<PAGE> 6
APCI and BFI are sometimes referred to herein as the "Parents" of their
respective subsidiaries.
Capitalized terms used herein and not specifically defined shall have the
meanings ascribed to them in the Partnership Agreement.
Therefore, APCI and BFI agree as follows:
ARTICLE I
Marketing Agreement
SECTION 1.1. Termination. The Waste-Energy Resource Projects Marketing Cost
Sharing Agreement dated as of October l, 1983 (the "Marketing Agreement") is
terminated as of January 25, 1991 pursuant to clause (b) of paragraph 16 of
that Agreement and shall have no further force or effect, except the
cost-sharing and indemnity provisions (including, without limitation, clauses
(a), (c) and (d) of paragraph 7 and clauses (a), (b), (c), (d) and (e) of
paragraph 15) shall continue to apply in respect of any Projects or
opportunities for Projects that were undertaken prior to such termination and
that were terminated prior to such date. Activities in respect of other
Projects or opportunities for Projects shall after January 25, 1991 be governed
by the Partnership Agreement and any applicable Project Agreements, and except
that the Marketing Agreement shall continue to apply to the extent that its
provisions are made specifically applicable to any now existing Project Company
by reason of the provisions of that Project Company's Partnership Agreement.
ARTICLE II
Transfer
SECTION 2.1. Restrictions. Neither Parent will cause or permit any shares of
capital stock of its Holding Company, or of its Project Subsidiaries, or any of
its Project Subsidiaries' interests in any Project Company, to be issued, sold,
assigned, transferred, pledged or otherwise encumbered or disposed of, directly
or indirectly, by sale, merger or otherwise, except that a Parent may sell or
permit the sale of, all, but not less than all, of the shares of capital stock
of its Holding Company (the "Shares") if (1) it has received the prior written
consent of the other Parent, which consent shall not be withheld unreasonably,
and (2) the additional conditions set forth in Section 2.2 are satisfied, and
except that interests in the Partnership or in Project Subsidiaries may be sold
if and to the extent permitted pursuant to Article III or VII of this Agreement
or pursuant to applicable provisions, if any, of a partnership agreement (or
shareholders' agreement) for a Project Company.
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SECTION 2.2. Additional Conditions. A Parent shall not sell or permit the sale
of the Shares unless the following conditions are met (or are waived in writing
by the other Parent):
(a) There is not pending a "Buy-Sell" procedure initiated pursuant to
Section 3.1(b)(1);
(b) The transaction does not result in a violation of any applicable law,
rule or regulation, including but not limited to antitrust and
securities laws;
(c) Neither the buyer nor any of its Affiliates is a competitor of the
other Parent or its Affiliates in the waste- to-energy business or any
other phase of the waste handling and disposal business;
(d) The senior unsecured debt, if any, of the buyer is rated by Standard &
Poor's or Moody's as investment grade, or, if the buyer has no senior
unsecured debt rated by Standard & Poor's or Moody's, the financial
condition of the buyer is reasonably satisfactory to the other Parent;
(e) The transaction will not, with or without the giving of notice or the
lapse of time, or both, conflict with, or result in any breach of, or
in any right to accelerate or the creation of any lien, charge or
encumbrance pursuant to the Project Agreements or any agreement or
other instrument or obligation to which the Partnership, any Project
Company, the transferor, or any Affiliate of the transferor is a
party, or by which any of them or any of their properties or assets
may be bound or affected, or any judgment, order, decree or law
applicable to any of them;
(f) Any outstanding borrowings by the transferor's subsidiaries from the
Partnership or any Project Company shall be repaid in full; and
(g) Each transferee shall agree to be bound by the provisions of this
Agreement, and this Agreement shall be appropriately amended to take
account of the transfer in a manner reasonably satisfactory to the
transferee and all entities that will continue to be parties to this
Agreement.
SECTION 2.3. Transfers to Affiliates. Notwithstanding the provisions of Section
2.1, a Parent may at any time transfer or permit the transfer of all, but not
less than all, of the Shares of its Holding Company, or the outstanding capital
stock of any of its Project Subsidiaries or of its subsidiary that is the
Partner in the Partnership, to any corporation that is wholly owned, directly
or indirectly, by that Parent, provided that the conditions set forth in
paragraphs (b), (e) and, if and to the extent that the other Parent may so
reasonably request, (g) of Section 2.2 are met, and provided that each of its
Project Subsidiaries and such Partner must at all times be wholly owned,
directly or indirectly, by its Holding Company (except as otherwise permitted
by Section 4.1 or 7.1).
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ARTICLE III
Options to Buy or Sell
SECTION 3.1. Buy-Sell Provision.
(a) Each Parent shall be entitled to initiate the "Buy-Sell" procedure
described below at any time, subject to the conditions set forth
below.
(b) (1) The Parent desiring to initiate the "Buy-Sell" procedure (the
"initiating party") shall give to the other Parent (the
"receiving party") at least 30 days' prior written notice that
it intends to submit the offers described below. During such
30-day period the initiating party shall enter in good faith
into such discussions as the receiving party shall reasonably
request regarding the circumstances that gave rise to the
initiating party's decision to initiate the "Buy-Sell"
procedure. Also, if APCI is the initiating party, during such
30-day period BFI shall furnish to APCI the Statement
described in Section 3.1(b)(2)(b). Within 45 days after the
expiration of such 30-day period, the initiating party may, at
its option, submit to the receiving party two offers in
writing, the first of which shall be an offer to purchase the
Shares of the receiving party's Holding Company and the second
shall be an offer to sell to the receiving party the Shares of
the initiating party's Holding Company. If BFI is the
initiating party, its submission of the two offers shall be
accompanied by the Statement described in Section
3.1(b)(2)(b). If APCI is the initiating party, its submission
of the two offers shall include its irrevocable election
whether or not to accept the arrangements contemplated by such
Statement (which must be accepted in their entirety or not at
all). Such offers shall be irrevocable except as expressly
provided in Section 3.1(e) or 3.3. If the initiating party
elects not to submit such offers within such 45-day period,
its 30-day notice shall be deemed withdrawn and it may not
again initiate the "Buy-Sell" procedure unless it has given a
new 30-day notice in accordance with the first sentence of
this Section 3.1(b)(1).
(2) (a) Following the submission of the offers, BFI shall, if
so requested by APCI, continue to work in good faith
with APCI in an effort to develop terms and
conditions that would apply if APCI were to buy BFI's
Shares pursuant to the offers and under which BFI
would supply solid waste and provide ash and by-pass
disposal capacity and services and transportation
services to Projects that, at the date the offers are
submitted, are Development Projects. If terms and
conditions for those activities have, prior to the
submission of the Offers, been offered by BFI to the
Partnership or the relevant Project Company, then the
terms and conditions to be offered by BFI shall be
consistent with those previously offered, subject to
appropriate changes to reflect changed circumstances.
(b) In accordance with Section 3.1(b)(1), BFI shall
furnish APCI a Statement that shall apply if APCI
were to buy BFI's Shares pursuant to the offers and
that shall set forth the terms and conditions on
which BFI
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<PAGE> 9
would make disposal capacity available to
Projects that are initiated by APCI or its Affiliates
after the date the offers are submitted, but
excluding Development Projects that are covered by
Section 3.1(b)(2)(a). Such disposal capacity would be
made available, at the posted market rate at the site
in question, on an unreserved basis to such Projects
owned, operated or controlled by APCI and its
Affiliates, in solid waste landfills which are owned,
operated or controlled by BFI or its Affiliates. The
Statement shall also set forth the price, terms and
conditions of a Site Option Agreement under which BFI
would grant APCI an exclusive option for a minimum
term of three years to purchase, lease or sublease
lands that are owned or leased by BFI or its
Affiliates and are located on or adjacent to solid
waste landfill facilities owned, operated or
controlled by BFI or its Affiliates. Except as
specified above in this Section 3.1(b)(2)(b), the
terms and conditions to be set forth in the Statement
shall be determined solely by BFI. If APCI purchases
BFI's Shares, and has elected to accept the
arrangements contemplated by the Statement, then, at
the closing of such purchase, the appropriate parties
shall enter into definitive agreements regarding
those arrangements. (Preliminary drafts of such
agreements have been furnished by BFI to APCI for
informational purposes, but shall not in any way be
determinative of the eventual terms and conditions of
the definitive agreements.) APCI's rights under such
agreements shall be assignable to and enforceable by
successors to APCI's interests in the Partnership and
the Project Companies.
(3) A party may not submit the offers described in Section
3.1(b)(1) if prior to such submission there has occurred and
at the time of such submission there is continuing any event
or condition which with or without the lapse of time or giving
of notice, or both, would constitute a Terminating Act of such
party, its Holding Company or a subsidiary that is a partner
(or shareholder) in the Partnership or in a Project Company
pursuant to Section 3.2(a)(1).
(4) Upon due submission of the offers, neither party shall
thereafter have the right to submit other offers pursuant to
this Section 3.1(b) (unless and until the closing under the
offers previously duly submitted fails to occur on the closing
date therefor as defined in Section 3.3, by reason of any
failure on the part of only one of the parties to perform its
obligations under this Section and Section 3.3, in which event
the party not so failing may, if otherwise so entitled, submit
other offers). During the pendency of the offers, the Parents
shall cause the Partnership and the Project Companies to be
operated in the ordinary course in accordance with prior
practice and in the best interest of the Partnership and the
Project Companies and with due regard to the fiduciary
obligations among partners.
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(c) The price to be contained in the offer to purchase shall be an amount
of cash as the initiating party shall determine, subject to adjustment
as provided in Section 3.1(f), plus the undertaking described below.
The price to be contained in the offer to sell shall be the same
amount of cash as is contained in the offer to purchase, subject to
adjustment as provided in Section 3.1(f), plus the undertaking
described below. The undertaking shall be as follows: APCI or BFI,
whichever shall be the buyer (or shall be the Parent of the buyer),
shall undertake at the closing of the purchase, subject to the
provisions of Section 3.5, (i) to assume and indemnify the other
Parent and its Affiliates against all obligations under the Company
Support Agreements, (ii) to indemnify the other Parent and its
Affiliates against, but not to assume, all other Project Liabilities,
and (iii) to use its reasonable business efforts to have the other
Parent and its Affiliates released from all Project Liabilities.
(d) After submission of the irrevocable offers, the receiving party on
behalf of itself or an Affiliate must accept one such offer and may
not reject both offers (the acceptance of one such offer to constitute
a rejection of the other and to be made in writing within 180 days
following the submission of the offers) and if the receiving party has
not accepted in writing one of the offers in such 180-day period, the
receiving party shall be deemed to have accepted on the last day of
such period the offer to purchase its Shares for the specified price.
If APCI is the receiving party and elects to purchase BFI's Shares,
its notice of acceptance shall be accompanied by a statement of its
irrevocable election whether it will accept the arrangements
contemplated by the Statement (which must be accepted in their
entirety or not at all).
(e) The foregoing provisions of this Section to the contrary
notwithstanding, if, at any time after the offers described in Section
3.1(b)(1) have been submitted, either party becomes unable to meet the
conditions set forth in Section 3.1(b)(3) for submitting the offers
described in Section 3.1(b)(1), then the non-defaulting party shall
have the right, upon notice to the defaulting party prior to the
closing referred to in Section 3.3, unilaterally to rescind and
invalidate such offers, and any acceptance thereof made or deemed to
have been made, whereupon such offers and acceptance shall be deemed
to have no further force or effect.
(f) The purchase price to be paid pursuant to Section 3.1 is intended to
be the amount that would be paid if the Holding Company that is being
purchased (the "Sold Company") had no assets or liabilities other than
its direct or indirect interests in the Partnership and the Project
Companies and if the value of the Sold Company were equal to one-half
of the value of the Partnership and the Project Companies. Although
the Sold Company would have been restricted in its activities as
provided in Section 4.1, the Parents recognize that the Sold Company
may have acquired additional assets or liabilities, primarily because
of its cash management policy and because of its income and franchise
tax obligations. Accordingly, at the closing of a purchase under
Section 3.1 APCI or BFI, whichever is the Parent of the Sold Company,
shall indemnify the purchaser and its Affiliates, pursuant to an
indemnity reasonably satisfactory to the purchaser, against all
liabilities of the Sold Company and its Affiliates, other than Project
Liabilities (as defined in Section 3.4) that the purchaser or its
Parent is
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assuming or indemnifying against pursuant to the undertaking
described in Section 3.1(c), and at or prior to the closing the Parent
of the Sold Company may withdraw from the Sold Company and its
subsidiaries any assets other than the Parent's direct or indirect
interests in the Partnership and the Project Companies. In addition,
if for any reason the Sold Company immediately prior to the closing
has more or less than a one-half direct or indirect interest in the
Partnership and each of the Project Companies, the purchase price
shall be appropriately adjusted. The amount of such adjustment shall
be based on the fair value of each entity that is not one-half owned
by the Sold Company as determined in accordance with the procedures
set forth in Section 3.2(d) (the second through the eighth sentences
thereof) except that the fair value shall be determined as of the date
of the submission of the irrevocable offers described in Section
3.1(b)(1) and the parties shall have 20 days after a request for
valuation is made in which to attempt to agree on the selection of one
nationally recognized investment banking firm.
SECTION 3.2. Option to Purchase in the Event of Default
(a) Each of the following circumstances shall constitute an "event of
default" for purposes of this Section 3.2;
(1) A Parent, or its Holding Company or its subsidiary that is a
partner (or shareholder) in the Partnership or in a Project
Company shall commit any Terminating Acts;
(2) A partner (or shareholder) in the Partnership or in a Project
Company or its Parent shall fail to pay when due any amounts
owing pursuant to this Agreement, the Partnership Agreement, a
Project Company Partnership Agreement (or Shareholders' or
Parent Agreement for a Project Company), a Company Support
Agreement or any other Project Agreement (but, in the case of
such other Project Agreement, solely to the extent that such
failure under such other Project Agreement results in a breach
of a Company Support Agreement or a guaranty agreement entered
into by a Parent in lieu of a Company Support Agreement) and
such failure is not cured within 60 days after written notice
thereof from the other Parent referring to this Section and
specifying such failure;
(3) It shall be finally determined that (i) a partner (or
shareholder) in the Partnership or in a Project Company or its
Parent shall have failed (other than a payment default) in any
material respect to observe, perform or comply with any
material agreement, condition or obligation required by this
Agreement, the Partnership Agreement, a Project Company
Partnership Agreement (or Shareholders' or Parent Agreement
for a Project Company), a Company Support Agreement or any
other Project Agreement (but, in the case of such other
Project Agreement, solely to the extent that such failure
under such other Project Agreement results in a breach of a
Company Support Agreement or a guaranty agreement entered into
by a Parent in lieu of a Company Support Agreement), (ii) such
failure was still continuing at the time of the initiation of
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such proceeding and had continued for a period of at least 30
days after written notice thereof from the other Parent
referring to this Section and specifying such failure, and
(iii) steps to cure such failure have not commenced, or, if
commenced, have not continued with all due diligence;
(4) A Parent, directly or through Affiliates, shall have sold its
direct or indirect equity interests in at least two Project
Companies to the other Parent or its Affiliates pursuant to
options to purchase because of the occurrence of an Event of
Default under the applicable Project Company Partnership
Agreement (or the Shareholders' Agreement or Parent Agreement
of the Project Company).
(b) A Terminating Act by an entity shall consist of:
(i) the commencement by such entity of any proceeding
under any applicable bankruptcy or insolvency law, or
its consent to the commencement of any such
proceeding against it, or the entry against it of a
decree or order of a court having jurisdiction over
it adjudicating it a bankrupt or insolvent or
approving a petition seeking its reorganization under
any applicable bankruptcy or insolvency law, if such
decree or order shall have continued undischarged or
unstayed for a period of 90 days or more;
(ii) the assignment by such entity for the benefit of its
creditors of all or any substantial part of its
property or the winding up or liquidation of its
affairs, its admission in writing of its inability to
pay its debts generally as they become due or its
consent to the appointment of a receiver, liquidator,
trustee, curator or assignee of all or any
substantial part of its properties, which appointment
shall not have been vacated;
(iii) the acquisition, pursuant to court order or
otherwise, by a creditor of such entity of any rights
with respect to its interest in a Holding Company,
the Partnership, a Project Company or a partner (or
shareholder) in the Partnership or in a Project
Company or any property or activities arising
therefrom, and such condition continues uncured for
more than the shorter of 30 days or the period, if
any, available to avoid having such acquisition
constitute a breach of any Company Support Agreement
or Project Agreement; or
(iv) the Board of Directors of such entity taking formal
action for the dissolution or the winding up of its
affairs.
(c) If an event of default shall occur at any time, then the Parent that
is not affiliated with the defaulting entity shall have the right to
purchase capital stock as follows: if the defaulting entity is the
other Parent, the option shall apply to all, but not less than all, of
the outstanding capital stock of the defaulting Parent's Holding
Company; if the defaulting entity is a Holding Company, the option
shall apply to all, but not less than
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all, of the outstanding capital stock of the Holding Company or, if the
purchaser so elects, of its subsidiaries; and if the defaulting entity
is a partner (or shareholder) in the Partnership or in a Project
Company, the option shall apply to all, but not less than all, of the
outstanding capital stock of the defaulting entity. In each case, the
price shall be equal to 90% of the fair value of the capital stock
(except that in the case of an event of default that is specified in
clause (1) of Section 3.2(a) and that relates to a Terminating Act
described in clause (i), (ii) or (iii) of Section 3.2(b), the
percentage shall be 100%), plus (B) an undertaking, subject to the
provisions of Section 3.5, to indemnify the seller and its Affiliates
against all Project Liabilities, except that if only the capital stock
of a partner (or shareholder) in the Partnership or in a Project
Company is being sold, the indemnity shall be against only those
Project Liabilities that arise out of the Partnership or the Project
Company. The financial benefit conferred by this right to purchase at
90% of fair value shall be considered liquidated damages, and not a
penalty, in respect of the event of default, it being agreed that it
would be impracticable or extremely difficult to fix the actual
damages, and shall be exclusive of any other right to damages in
respect of the event of default. The right of purchase provided in this
Section 3.2(c) shall be inapplicable if there has occurred and is
continuing any event of default described in this Section 3.2(c) on the
part of the purchaser or its Affiliates.
(d) The right to purchase under Section 3.2(c) shall be exercisable by the
purchaser giving written notice to the seller on or before the
ninetieth day after such event of default has occurred, of its
intention to exercise such right. The fair value of the capital stock
of a corporation shall be deemed to be 50% of the fair value of the
Partnership and Project Companies (such percentage to be appropriately
adjusted if there are outstanding any minority equity interests in
those entities), and shall be determined, as of the most recent
practicable date prior to the delivery of the initial report referred
to below, by a nationally recognized investment banking firm selected
by agreement of the purchaser and the seller or, if they fail to
select such firm not later than 20 days after the giving of the notice
by the purchaser, then each of them shall within 10 days thereafter
select, at its own expense, a nationally recognized investment banking
firm. Such firms shall be instructed to attempt to agree on the fair
value within 30 days after their selection or, failing such agreement,
to select, within such 30 days, a third nationally recognized
investment banking firm who shall alone determine the fair value. In
determining such fair value, the investment banking firm or firms
shall take into account the value of the obligations of the Parents
and Affiliates under the Company Support Agreements, the effect of any
minority equity interests that may be outstanding pursuant to Article
VII and all other factors as such firm or firms deem relevant. Where
the fair value is being determined by only one firm, as promptly as
practicable, such firm shall deliver to the purchaser and the seller
an initial report of its determination of fair value. The purchaser
and the seller shall then have 20 days in which to submit to such firm
their objections, if any, to the report. Thereafter, as promptly as
practicable, such firm shall deliver to the purchaser and the seller
its final report. The determination of fair value in accordance with
the foregoing procedures shall be final, conclusive and binding on the
purchaser and the seller for the purposes of this Section 3.2.
However, the purchaser shall have the right, at its election, to
rescind its notice of intention to purchase by so
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notifying the seller within 10 days after receipt of notice of the fair
value as so determined. The fees and expenses of a firm selected by
agreement of the purchaser and the seller or by agreement of two firms
shall be borne equally by the purchaser and the seller, except that if
the purchaser elects to rescind its notice of intention to purchase
pursuant to the proviso in the preceding sentence, those fees and
expenses shall be borne solely by the purchaser.
(e) If the Partnership Agreement, or Shareholders' Agreement, or Parent
Agreement, for a particular Project Company contains an option to
purchase in the event of default, and the provisions of such other
option are inconsistent with the provisions of Sections 3.2 through
3.6 of this Agreement, then the applicable provisions of this
Agreement shall be controlling unless the provisions of such other
option specifically state that they shall be controlling.
SECTION 3.3. Closing of Purchases Under Sections 3.1 and 3.2. The closing of
any purchase made pursuant to either of the offers provided for in Section 3.1
or pursuant to the option to purchase provided for in Section 3.2 shall be held
at the principal office of the Partnership on the closing date, or such other
location as shall be mutually agreeable. Such closing date shall be the date,
which shall be not less than 20 days nor more than 60 days after the date upon
which acceptance of the offer is made or deemed to be made or the notice of
intention to exercise the right to purchase is given (the "Acceptance Date"),
as the case may be, designated by written notice by the purchaser to the seller
given not later than 10 days after such acceptance or notice of intention;
provided, however, that if a dispute exists as to the right of a party to
purchase or sell, or if an interest is to be valued, the closing shall be held
not more than 45 days after the resolution of such dispute or the determination
of such value; provided further that if there is any litigation or governmental
requirement relating to such purchase and sale, the closing date shall be
postponed until a date not more than 30 days after the termination of such
litigation or satisfaction of all governmental requirements, and the parties
shall use their reasonable business efforts to satisfy such requirements
promptly; provided further that if the closing date shall be delayed more than
180 days after the Acceptance Date, either party, unless it has acted in bad
faith in substantially contributing to the delay, shall, at its election, have
the right to terminate the Buy-Sell or option procedure and the offers, and any
acceptance thereof, shall have no further force or effect. At such closing the
purchaser shall receive from the seller the certificates representing the
capital stock being purchased, duly endorsed in blank and with all appropriate
transfer and documentary stamps, if any, affixed and shall deliver to the
seller (i) funds, by bank or certified check, in the amount of the purchase
price, and (ii) the undertaking, in accordance with Section 3.1 or 3.2,
whichever is applicable, regarding Project Liabilities, all in such form as
shall be reasonably requested by the seller. Such stock shall be conveyed free
and clear of any claims, pledges, liens or encumbrances. In addition, at the
closing, there shall be paid in full any debts between the Sold Company or its
subsidiaries and (x) the Project Companies and the Partnership in which the
Sold Company or its subsidiaries participated, and (y) the seller and its
Affiliates, except in each case to the extent that such debts are already
appropriately reflected in the purchase price. Any party's right or obligation
to purchase at the closing may be exercised or discharged by any Affiliate of
that party.
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SECTION 3.4. Product Liabilities. For the purposes of this Article III,
"Project Liabilities" shall mean: (1) all liabilities, obligations and
commitments of the Parents or their Affiliates under or arising out of this
Agreement, the Partnership Agreement, any Project Company Partnership Agreement
(or Shareholders' Agreement), the Company Support Agreements or any Project
Agreements, and (2) all liabilities, obligations and commitments incurred or
assumed by the Partnership or any Project Company, except that Project
Liabilities to be assumed or indemnified by a Parent or its Affiliates shall
not include liabilities, obligations and commitments that are specifically
intended to apply to the other Parent or its Affiliates following a sale of its
Shares pursuant to this Article III or the dissolution or termination of the
Partnership or a Project Company (such as obligations under the Site Option
Agreement or obligations regarding maintaining confidentiality of information
or refraining from competition with the Partnership or a Project Company), or
that are incurred by the other Parent or its Affiliates in providing to the
Partnership or a Project Company services described in the second sentence of
Section 2.2(f) of the Partnership Agreement, or any liabilities for income or
franchise taxes.
SECTION 3.5. No Waiver of Defaults. Nothing contained in this Article III shall
be construed as a limitation upon, and no action or transaction in pursuance of
this Article III shall be deemed a satisfaction, waiver or discharge of, any
rights, claims or causes of action of either Parent or its Affiliates against
the other Parent or its Affiliates, whether for damages or other relief,
arising out of or by virtue of (i) breach of this Agreement, the Partnership
Agreement, any Project Company Partnership Agreement (or Shareholders'
Agreement) or any Project Agreement, theretofore or thereafter committed, by
the other Parent or its Affiliates or (ii) any event of default, theretofore or
thereafter arising on the part of the other Partner or its Affiliates, and the
undertakings provided for in Sections 3.1 and 3.2 shall not be construed to
include or relate to any such rights, claims or causes of action, or any
liability incident thereto, except, in each case, as and to the extent that
such default or breach is taken into account in any computation or adjustment
made pursuant to this Article III.
SECTION 3.6 Non-Competition After Sale. For a period of three years following
the sale of its Shares pursuant to Section 3.1 or 3.2, neither the selling
Parent nor any of its Affiliates, without the express written consent of the
other Parent, shall, (l) as principal, agent or in any other capacity or
through the agency of any other corporation, partnership, joint venture or
other agency, design, construct, own or operate Other Waste Incineration Plants
that would compete with any Project that on the date the offers were submitted
pursuant to Section 3.1, or on the date the notice of exercise of option was
given pursuant to Section 3.2, was in Operation or was a Development Project,
or (2) provide any services to Other Waste Incineration Plants that would
compete with any Project that on the date the offers were submitted, or the
notice of exercise of option was given, was a Development Project if to provide
the services referred to in this clause (2) would, in the reasonable judgment
of the other Parent, have a substantial adverse effect on any such Development
Project. If the provisions of this Section 3.6 should be deemed to exceed the
time or geographic limitations permitted by the applicable laws, then such
provisions shall be and are hereby reformed to the maximum time or geographic
limitations permitted by the applicable laws.
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ARTICLE IV
Restrictions on Subsidiaries
SECTION 4.1. Single Purpose Subsidiaries. It is the intention and agreement of
each Parent that at all times it will own and operate BFIES, the BFI Holding
Company, or APRF and the AP Holding Company, as the case may be, solely for the
purpose of holding interests, directly or through wholly-owned Project
Subsidiaries, in the Partnership or the Project Companies and will not permit
them to acquire any assets or incur any liabilities not reasonably necessary to
such purpose, and each of its Project Subsidiaries that participates in a
Project that is being actively pursued will be wholly owned, directly or
indirectly, by the Parent's Holding Company, will be owned and operated solely
for the purpose of such participation and will not acquire any assets or incur
any liabilities not reasonably necessary to such purpose, except as may be
specifically permitted by this Agreement or the Partnership Agreement. The
Parents recognize, however, that certain Project Subsidiaries of APCI that
participated in Projects that are no longer being actively pursued are not so
owned by the AP Holding Company, and that in the future other Project
Subsidiaries of either Parent that participated in Projects that are not then
being actively pursued may not be wholly owned by the Parent's Holding Company.
If pursuant to this Agreement any entity shall have the right to purchase the
capital stock of a Parent's Holding Company or the capital stock of the Holding
Company's subsidiaries, then such right shall also extend to the capital stock
of any Project Subsidiaries that are not so owned by the Holding Company, and
the Parent of the Holding Company shall take such actions as the purchaser may
reasonable request to effectuate such purchase.
SECTION 4.2. Transfer Restrictions. It is the intention and agreement of each
Parent that at all times its Holding Company and Project Subsidiaries will each
be wholly owned, directly or indirectly, by it, and that it will, directly or
indirectly, own a 50% interest in the Partnership and each of the Project
Companies, except for transfers expressly permitted by this Agreement, the
Partnership Agreement or the applicable Project Agreement.
SECTION 4.3. Security Interest. As security for the performance by a Parent and
its Affiliates of their obligations under this Agreement, the Partnership
Agreement and the Partnership (or Shareholders') Agreements for the Project
Companies, each Parent and its Affiliates hereby grant to the other Parent a
security interest in all of the outstanding capital stock of the granting
Parent's Holding Company and Project Subsidiaries and in any subsequently
issued capital stock in such Holding Company or any present or future Project
Subsidiaries. The certificates for all such capital stock shall be
appropriately legended and promptly delivered to the other Parent. Such
security interest may be foreclosed in any manner provided by law and is
additional to any other security and remedies that may be available. Each
Parent shall, and shall cause its Affiliates to, execute and deliver such
financing statements and other instruments as the other Parent shall from time
to time reasonably request to effectuate, perfect or confirm such security
interest.
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ARTICLE V
Performance of Partnership Obligations
SECTION 5.1. Parents' Performance Under Partnership Agreement. If and to the
extent that the Partnership Agreement for the Partnership, or the Partnership
Agreement or Shareholders' Agreement for any Project Company, provides for
obligations of APCI or BFI or their Affiliates that are not parties to such
Agreement, APCI and BFI shall each perform the obligations provided for it, and
shall cause its Affiliates to perform the obligations provided for them
therein. Without limiting the generality of the foregoing, each Parent hereby
agrees to be bound by Section 1.7 of the Partnership Agreement and guarantees
the payment on demand of any borrowings by its Affiliates pursuant to Section
7.4 of the Partnership Agreement or the comparable provisions of any
Partnership (or Shareholders') Agreement for any Project Company. Such
guarantee is absolute, unconditional, present and continuing and is in no way
conditional or contingent upon any event or circumstance, action or omission
that might in any way discharge a guarantor or surety.
ARTICLE VI
Certain Services
SECTION 6.1. BFI Services to Partnership Projects. If a particular Project
shall be designated as a Development Project by the Partnership, BFI, if
selected as the vendor in accordance with Section 6.2, will use its reasonable
business efforts to cause one or more of its Affiliates to (a) provide or
attempt to arrange through contracts with others to provide, adequate
quantities of solid waste to the Project to the extent such solid waste is not
being provided by the client or others that are under contract to the client or
to the Project, (b) provide for the conceptual design of and operate, to the
extent consistent with the Project, any stand-alone solid waste transfer
stations or stand-alone recycling facilities that may be established as part of
a particular Project, and (c) to the extent consistent with the Project,
attempt to dispose of, if required (or provide for the disposal of), ash,
bypass waste and other solid waste residues from the Projects, including
undertaking to provide for the site for such disposal.
SECTION 6.2. Preferred Vendor Status. It is the intention of BFI and APCI that
the Partnership, or an appropriate Project Company, will construct, own and
operate, at competitive prices, terms and conditions, any waste-to-energy
plants which would be required by BFI for its sole or principal use as a
provider of waste. BFI, in its capacity as the vendee of the services of the
Partnership or a Project Company and APCI and BFI, each acting through its
subsidiary that is a partner in the Partnership or the appropriate Project
Company, will employ reasonable business efforts to achieve this goal.
Accordingly, the Partnership and the Project Companies will be the preferred
vendor to BFI for all procurement by BFI of waste-to-energy plant services of
the types then being offered by them. The status of the Partnership and the
Project Companies as the "preferred vendor" shall mean that BFI and its
subsidiaries will not, so long as the Partnership is at least 45% owned by BFI
(whether directly or through subsidiaries), purchase any such services from any
unaffiliated third party unless BFI has determined in the exercise of its
reasonable business judgment that the overall value, in terms of price, terms
and conditions, quality, documentation, service and other matters, of such
services available from the Partnership and the Project Companies is not
competitive with that available from such
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other party, in which event BFI may purchase such services from such other
party; provided, however, that BFI shall be excused from the foregoing
obligation if upon written notice to the Partnership, BFI advises that (i) the
Partnership has failed to respond within a reasonable period of time to a
request by BFI (or its subsidiary) for a price quotation or other terms or
information with respect to such services or has failed to commit to deliver
such services within the time period in which BFI (or its subsidiary) shall have
required such services to be delivered, which time period, in either case, shall
not be substantially shorter than the time period that would have been required
from or allowed to an unaffiliated third party; or (ii) in BFI's reasonable
business judgment, it is not appropriate for the Partnership or a Project
Company to furnish the particular service in light of the Partnership's
expertise and experience; provided further that nothing in this Section 6.2
shall authorize BFI to take any action that would result in a breach of the DBA
License or of BFI's covenant to DBA set forth in the Agreement dated December
12, 1990 by and among BFI, APCI, the Partnership and DBA. If at any time in
accordance with this Section 6.2 BFI determines not to use the services of the
Partnership or a Project Company, BFI shall give a full and prompt report to the
Management Committee of the Partnership giving the rationale for this decision.
The foregoing shall not authorize BFI or any of its subsidiaries to provide such
services on their own in lieu of purchasing them from unaffiliated third parties
or the Partnership.
It is the intention of BFI and APCI that BFI will supply certain of its
traditional services to the Partnership and the Project Companies at
competitive prices, terms and conditions, including, without limitation, those
services specified in Section 6.1. BFI, in its capacity as service provider,
and APCI and BFI, each acting through its subsidiary that is a partner in the
Partnership or the appropriate Project Company, will employ reasonable business
efforts to achieve this goal. Accordingly, BFI will be the preferred vendor to
the Partnership and each Project Company for all services of the types then
being offered by BFI (directly or through its subsidiaries) in the Territory.
The status of BFI as the "preferred vendor" shall mean that neither the
Partnership nor any Project Company will, so long as it is at least 45% owned
by BFI (whether directly or through subsidiaries), purchase any such services
from any one other than BFI and its subsidiaries unless the Chief Executive
Officer of the Partnership (the "CEO") has determined in the exercise of his
reasonable business judgment that the overall value, in terms of price, terms
and conditions, quality, documentation, service and other matters, of such
services available from BFI and its subsidiaries is not competitive with that
available from such other party, in which event the vendee may purchase such
services from such other party; provided, however, that the vendee shall be
excused from the foregoing obligation if upon written notice to BFI, the vendee
advises that (i) BFI (or its appropriate subsidiary) has failed, in the
reasonable business judgment of the CEO, to respond within a reasonable period
of time to a request by the vendee for a price quotation or other terms or
information with respect to such services or has failed to commit to deliver
such services within the time period in which the vendee shall have required
such services to be delivered, which time period, in either case, shall not be
substantially shorter than the time period that would have been required from
or allowed to an unaffiliated third party; or (ii) in the reasonable business
judgment of the CEO, it is not appropriate for BFI and its subsidiaries to
furnish the particular service in light of the expertise and experience of BFI
and its subsidiaries or the stated preference of the vendee's customers
regarding the selection of service providers. If at any time in accordance with
this
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Section 6.2 the vendee elects not to use the services of BFI for any contract
involving the expenditure of greater than $250,000, the CEO shall give a full
and prompt report to the Management Committee of the Partnership giving the
rationale for this decision.
ARTICLE VII
Possible Formation of Limited Partnerships
SECTION 7.1. Good Faith Negotiations. The Parents recognize that one or both of
them may desire to organize or reorganize Project Companies as limited
partnerships, or to organize limited partnerships that would hold interests in
Projects, and arrange for the sale of limited partnership interests to
investors in order to reduce the financial commitments of the parties, while at
the same time maintaining control of their interests in the Project Companies.
The Parents agree that, following the submission of any such proposal by either
Parent or an Affiliate, they, or their Affiliates, as appropriate, shall
negotiate in good faith regarding such proposal and will not withhold their
approval unreasonably.
ARTICLE VIII
Confidentiality
SECTION 8.1. Agreement to Disclose. The Parents shall disclose or cause to be
disclosed to the Partnership, the Project Companies and to each other and their
respective Affiliates all information which in the collective judgment of the
Parents is required for fulfillment of the business purpose of the Partnership
and the Project Companies.
SECTION 8.2. Agreement to Keep Confidential. Each Parent and its Affiliates
will receive in confidence, will not use except in accordance with any
applicable agreements and except for "permitted purposes," and will not
disclose to a third party not under obligations of confidentiality and non-use
acceptable to the disclosing Parent or its Affiliate, without the prior written
consent of the disclosing Parent or its Affiliate, any information disclosed to
a Parent or its Affiliates by the other Parent or its Affiliates in writing, or
orally or by demonstration and reduced to writing within 15 days of disclosure,
and identified as confidential at the time of such disclosure. "Permitted
purposes" shall mean purposes consistent with the business purposes of the
Partnership and its affiliated Project Companies. The care exercised by each
Parent and its Affiliates in maintaining such information in confidence shall
be the care exercised by that Parent with respect to its own information that
it considers confidential. This Section 8.2 shall apply also to any
confidential information disclosed to a Parent or its Affiliates by the other
Parent or its Affiliates under the Marketing Agreement or the related
Confidentiality Agreement dated as of October 1, 1983.
SECTION 8.3. Termination of Confidentiality. The obligations set forth in
Section 8.2 shall automatically terminate five years from and after the
dissolution and winding up of the Partnership and all Project Companies or at
such earlier time to the extent that the information identified as
confidential:
(i) has become available to the public through no fault
of the receiving Parent or its Affiliates;
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(ii) is already known to the receiving Parent or its
Affiliates at the time of disclosure and was not
previously provided to such Parent or its Affiliates
pursuant to the Marketing Agreement or the aforesaid
related Confidentiality Agreement:
(iii) is received by the receiving Parent or its Affiliates
from a third party without obligation of
confidentiality or non-use; or
(iv) is subsequently developed by employees or consultants
of the receiving Parent or its Affiliates
independently of the disclosure hereunder.
ARTICLE IX
Disputes
SECTION 9.1. Dispute Resolution. The parties shall endeavor in good faith to
resolve any controversies or claims arising out of or relating to this
Agreement, the Partnership Agreement or any Partnership (or Shareholders' or
Parent) Agreement for any Project Company without resort to litigation or
arbitration. To that end, if either party gives the other written notice (the
"Notice") of a claim or controversy (a "Dispute"), they shall promptly engage
in good faith discussions in an effort to resolve the Dispute and, if either
party so requests, they shall select a mutually acceptable expert (the
"Expert") to participate in the discussions, evaluate the respective positions
of the parties and advise the parties of his opinion as to the merits of the
Dispute. Such opinion shall be advisory only and shall not be binding on the
parties. If by means of this procedure the parties are unable to resolve the
Dispute within the 60-day period beginning when the Notice was given, then
either party may commence litigation or, if the parties so agree or if binding
arbitration is mandated by the applicable agreement, arbitration pursuant to
Section 9.2. Time shall be of the essence, and each party shall in good faith
proceed with the discussions contemplated herein. Each party shall be entitled
to utilize the services of advisers and experts in connection with those
discussions. The fees and expenses of the Expert will be borne equally by the
parties. The provisions of this Section shall not apply where a party believes
it requires a temporary restraining order, injunction or order for specific
performance issued by a court in order to protect its interests, and time does
not permit the party to comply with the procedures and the 60-day waiting
period specified in this Section without the risk of substantial detriment to
that party. In that event the party may apply for such judicial relief without
such compliance. If any controversy or claim is submitted to arbitration or
litigation, all counterclaims arising out of the same subject matter shall be
asserted and resolved in that arbitration or litigation.
SECTION 9.2. Arbitration. If the parties to a controversy or claim arising out
of or relating to this Agreement agree to submit the matter to arbitration,
then, unless the parties specify otherwise, the following procedures will
apply. The controversy or claim shall be settled by arbitration in New York
City in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The parties shall agree on one arbitrator or, if they
are
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unable to agree within 60 days after an arbitrator has first been proposed,
then each party shall select one arbitrator, and the two arbitrators so
selected shall together select the third arbitrator. Any arbitration shall be
subject to the following:
(a) Any award pursuant to such arbitration shall be accompanied by the
written opinion of a majority of the arbitrators giving their reasons
therefor and rendered within 30 days of the date of closing of the
arbitration hearing.
(b) The arbitrators shall be selected by mutual consent of the parties
from a list of arbitrators knowledgeable about the operation of
resource recovery facilities prepared by the American Arbitration
Association, but if the parties cannot so agree within 20 days of the
date of request for arbitration, the selection shall be made pursuant
to the rules of such Association.
(c) The award rendered by the arbitrators shall, solely with respect to
the particular dispute, difference or alleged breach of this Agreement
which was submitted to arbitration, be conclusive and binding upon the
parties hereto and judgment on the award may be entered in any court
of proper jurisdiction; provided, however, that nothing herein shall
give the arbitrators any authority to amend, alter or delete any term,
condition or provision of this Agreement.
(d) Each party shall pay its own expenses of arbitration and the expenses
of the arbitrators shall be equally shared; except that if any matter
or dispute raised by a party or any defense or objection thereto was
unreasonable, the arbitrators may assess, as part of the award, all or
any part of the arbitration expenses (including reasonable attorneys'
fees) of the other party or parties and of the arbitrators against the
party raising such unreasonable matter or dispute or defense or
objection thereto.
(e) The arbitrators shall fix the time and place in New York City for the
arbitration hearing, which shall be held within 45 days after
appointment of the arbitrators. Notice of such hearing shall be given
by the arbitrators to the parties at least 20 days in advance, unless
the parties by mutual agreement waive such notice.
(f) The parties shall submit all documents and proof upon which they
intend to rely within 30 days after the appointment of the
arbitrators. All parties shall be afforded a reasonable opportunity to
examine such documents and proof prior to any hearing.
(g) The arbitrators, when authorized by law to subpoena witnesses or
documents, may do so upon their own initiative or upon the request of
any party. All evidence shall be taken in the presence of the
arbitrators and all of the parties, except when any of the parties is
absent in default, or has waived the right to be present.
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(h) Any party may be represented by counsel. A party intending to be so
represented shall notify the other party or parties and the
arbitrators of the name and address of counsel at least three days
prior to the date set for the hearing at which counsel is first to
appear. When an arbitration is initiated by counsel, or where any
attorney replies for another party, such notice is deemed to have been
given by such party.
(i) The parties may modify any period of time by mutual agreement. The
arbitrators for good cause may extend any period of time established
by this Agreement, except the time for making the award. The panel
shall notify the parties of any such extension of time and its reason
therefor.
(j) The scope of discovery allowed with respect to the arbitration
proceeding shall be the same as that allowed under the Federal Rules
of Civil Procedure.
(k) If a controversy or claim that is to be settled by arbitration
pursuant to this Agreement also arises under the Partnership Agreement
or a Partnership (or Shareholders' or Parent) Agreement for any
Project Company or any Project Agreement, the matter shall, to the
extent permitted by the applicable agreements, be resolved in one
combined arbitration proceeding, with each Parent and its Affiliates
acting as only one party.
SECTION 9.3. Specific Performance. The parties acknowledge that the failure of
either party to substantially perform its material obligations and covenants
under this Agreement may result in a significant frustration of the respective
business objectives of the parties under this Agreement and that the remedies
at law may be inadequate to protect the rights and interests of the other
party. Accordingly, the parties, in addition to the remedies otherwise
available under the law for the enforcement of this Agreement and in view of
Section 10.1, expressly consent to an order for specific performance of such
obligations and covenants of a party or an order granting other substantially
equivalent equitable remedies calculated to require performance of any such
covenants or obligations.
ARTICLE X
Miscellaneous
SECTION 10.1. Damages. A Parent and its Affiliates shall not be entitled to
recover from the other Parent or its Affiliates special or consequential
damages, or damages for anticipated future profits, loss of business
opportunities or other similar speculative damages for breach of any covenant
or understanding set forth in this Agreement or the Partnership Agreement, and
shall only be entitled to seek reimbursement for the actual out-of-pocket costs
and expenses incurred by the non-breaching party as a direct result of the
conduct of the breaching party (except as provided in Section 3.2(c) for a
right of liquidated damages).
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SECTION 10.2. Representations and Warranties. Each party represents and
warrants, as of January 25, 1991 ("the Execution Date"), as follows:
(i) It is a corporation duly incorporated and validly
existing in good standing under the laws of the State
of Delaware, and is duly authorized, qualified,
permitted and licensed under all applicable laws,
regulations, ordinances and orders of public
authorities to carry on its business in the places
and in the manner as now conducted (except where
failure to be so authorized, qualified, permitted and
licensed would not have a material adverse effect on
the business, operations, properties, assets or
financial condition of such corporation).
(ii) It is not a party to any contract, agreement or other
commitment or instrument or subject to any charter or
other corporate restriction or subject to any
restriction or condition contained in any permit,
license, judgment, order, writ, injunction, decree or
award which would prevent or restrict its ability to
enter into and perform its obligations under this
Agreement or which materially and adversely affects
or in the future is expected (as far as such party
can, as of the Execution Date, reasonably foresee) to
materially and adversely affect its business
operations, properties, assets or conditions
(financial or otherwise) considered as a consolidated
enterprise.
(iii) This Agreement has been duly and validly authorized
by any necessary corporate action and will be, when
executed and delivered, its legal, valid and binding
obligation.
SECTION 10.3. Notices.
(a) Any notice required or permitted to be given pursuant to this
Agreement shall be in writing and shall be sufficient if personally
delivered or sent by air courier, or by certified or registered mail
(return receipt requested) properly stamped and addressed, or by
telecopy as follows:
(i) If to APCI, addressed to 7201 Hamilton Boulevard,
Allentown, Pennsylvania 18195-1501, marked for the
attention of the Corporate Secretary with a copy sent
to the same address marked for the attention of the
Vice President - Energy Systems (telecopy no. (215)
481-8223).
(ii) If to BFI, addressed to, in the case of mail
delivery, P.O. Box 3151, Houston, Texas 77253, or, in
the case of other delivery, 757 N. Eldridge, Houston,
Texas 77079, in either case marked for the attention
of the Secretary, with a copy sent to the same
address marked for the attention of the Chairman,
American REF-FUEL Company (telecopy no. (713)
870-7825).
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(b) Either party may change its address by giving written notice of its
new address to the other party.
SECTION 10.4. CHOICE OF LAW. THIS AGREEMENT AND ALL RIGHTS AND LIABILITIES OF
THE PARTIES SHALL BE SUBJECT TO AND GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE.
SECTION 10.5. Binding Effect; Amendments. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their respective legal
representatives, successors and permitted assigns. The written agreement of
both Parents is required for any amendment to this Agreement. Nothing in this
Agreement shall be deemed to create any right in any third party and this
Agreement shall not be construed in any respect to be a contract in whole or in
part for the benefit of any third party, except as expressly provided herein.
SECTION 10.6. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original hereof for all purposes, and
shall be binding upon the party so signing, irrespective of whether or not both
parties executed each counterpart, but all of which shall be and constitute one
instrument.
SECTION 10.7. Gender and Numbers. Whenever the context requires, the gender of
all words used herein shall include the masculine, feminine or neuter, and the
number of all words shall include the singular and plural.
SECTION 10.8. Severability. If any provision of this Agreement, or the
application thereof, shall, for any reason and to any extent, be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the maximum extent permissible under applicable
law. The Parents shall negotiate in good faith regarding amendments to this
Agreement that would, to the maximum extent permissible under applicable law,
effectuate the intent of any provision determined to be invalid or
unenforceable.
SECTION 10.9. Headings, etc. Captions and headings contained in this Agreement
are for ease of reference only and do not constitute a part of this Agreement.
SECTION 10.10. Obligations of Affiliates. Whenever this Agreement provides for
obligations of an Affiliate of a Parent, the failure of the Affiliate to
perform those obligations shall be deemed a breach of this Agreement by that
Parent, but shall not give rise to any cause of action against the Affiliate
pursuant to this Agreement (although a cause of action regarding such failure
may arise pursuant to an agreement to which the Affiliate is a party).
-20-
<PAGE> 25
AIR PRODUCTS AND CHEMICALS,
INC.
ATTEST: By:
---------------------------------
SEAL
- --------------------------------
BROWNING-FERRIS INDUSTRIES,
INC.
ATTEST: By:
---------------------------------
SEAL
- --------------------------------
-21-
<PAGE> 1
Exhibit 12
BROWNING-FERRIS INDUSTRIES, INC.
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings Available for
Fixed Charges:
Income (loss) before
extraordinary item
and minority interest $(77,482) $414,646 $299,474 $197,461 $175,607
Income taxes 105,188 276,430 199,649 129,726 112,273
-------- -------- -------- ------- --------
Income before income
taxes, extraordinary
item and minority
interest 27,706 691,076 499,123 327,187 287,880
Consolidated interest
expense 179,299 159,529 93,159 70,894 71,096
Interest expense related
to proportionate share
of 50% owned affiliates 22,613 19,722 22,689 25,354 25,269
Portion of rents repre-
senting the interest
factor 35,045 31,842 20,868 18,721 16,393
Less-Equity in earnings
(losses) of affiliates
less than 50% owned 3,238 1,643 4,698 -- 22
-------- -------- -------- -------- --------
Total $261,425 $900,526 $631,141 $442,156 $400,616
======== ======== ======== ======== ========
Fixed Charges:
Consolidated interest
expense and interest
costs capitalized $195,605 $170,958 $104,759 $ 89,563 $ 86,908
Interest expense and
interest costs capi-
talized related to
proportionate share
of 50% owned
affiliates 24,408 20,351 22,974 25,484 26,952
Portion of rents repre-
senting the interest
factor 35,045 31,842 20,868 18,721 16,393
-------- -------- -------- -------- --------
Total $255,058 $223,151 $148,601 $133,768 $130,253
======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges 1.02(1) 4.04 4.25 3.31(2) 3.08
======== ======== ======== ======== ========
</TABLE>
(1) Excluding the effects of the fiscal 1996 special charges of $446.8 million,
the ratio of earnings to fixed charges for fiscal 1996 is 2.77.
(2) Excluding the effects of the fiscal 1993 reorganization charge of $27.0
million, the ratio of earnings to fixed charges for fiscal 1993 is 3.51.
<PAGE> 1
EXHIBIT 21
BROWNING-FERRIS INDUSTRIES, INC.
LIST OF SUBSIDIARIES
(SEE INDEX ON PAGES 10 AND 11 FOR EXPLANATION
OF PARENT AND SUBSIDIARY RELATIONSHIPS)
<TABLE>
<S> <C> <C>
10 Al-Mulla Environmental Systems, W.L.L. Kuwait
Acco International, Inc. Texas
Acco Paper Mill Fibers Co., Inc. Texas
Acco Waste Paper, Inc. Texas
Attwoods of North America, Inc. Delaware
Attwoods Inc. Delaware
MedX, Inc. Florida
Enviro-Solutions, Inc. Georgia
Bio-Safe Systems Inc. Wisconsin
National Environmental Services Corp. Illinois
County Sanitation, Inc. Florida
BFI of Port Richmond, Inc. Pennsylvania
Eastern Waste Industries, Inc. Maryland
Mednet, Inc. Maryland
Industrial Waste Service, Inc. Florida
Attwoods Environmental, Inc. Delaware
Attwoods Environmental of Florida, Inc. Florida
Jones Road Landfill and Recycling, Inc. Florida
14 Jones Road Landfill and Recycling Ltd. Florida
Attwoods Environmental of Pennsylvania, Inc. Pennsylvania
Attwoods New Jersey Holdings, Inc. New Jersey
Aliance Corporation New Jersey
BFI of Mt. Laurel, N.J., Inc. New Jersey
BFI of Southwestern N.J., Inc. New Jersey
Churchdale Leasing, Inc. New Jersey
Eastern Solid Waste Equipment Co. New Jersey
BFI Constructors California
BFI Disposal Systems of North America, Inc. Delaware
BFI Disposal Systems of Alabama, Inc. Delaware
Blount County Disposal, Inc. Alabama
Lawrence County Disposal, Inc. Alabama
South Alabama Disposal, Inc. Alabama
Walker County Disposal, Inc. Alabama
BFI Disposal Systems of Florida, Inc. Florida
Polk County Disposal, Inc. Florida
Wood Resource Recovery, Inc. Florida
BFI Disposal Systems of Georgia, Inc. Delaware
East DeKalb Landfill, Inc. Georgia
Marble Mill Recycling & Transfer Station, Inc. Georgia
Moreland Avenue Disposal, Inc. Georgia
</TABLE>
<PAGE> 2
(SEE INDEX ON PAGES 7 THROUGH 9 FOR EXPLANATION
OF PARENT AND SUBSIDIARY RELATIONSHIPS)
<TABLE>
<S> <C> <C> <C>
BFI Disposal Systems of Mississippi, Inc. Delaware
Escatawpa Environmental Services, Inc. Mississippi
BFI Disposal Systems of North Carolina, Inc. Delaware
Holly Springs Disposal, Inc. North Carolina
Sampson County Disposal, Inc. North Carolina
BFI Disposal Systems of Ohio, Inc. Delaware
Browning-Ferris Industries of Ohio, Inc. Delaware
1 Warner Hill Development Company Ohio
1 Warner Hill Improvement Company Ohio
Browning-Ferris Gas Services, Inc. Delaware
BFI Energy Systems, Inc. Delaware
BFI Ref-Fuel, Inc. Delaware
BFI Energy Systems of Albany, Inc. Delaware
BFI Energy Systems of Delaware County, Inc. Delaware
BFI Energy Systems of SEMASS, Inc. Delaware
BFI Energy Systems of SEMASS (LP), Inc. Delaware
BFI Energy Systems of Boston, Inc. Massachusetts
BFI Energy Systems of Essex County, Inc. New Jersey
BFI Energy Systems of Hempstead, Inc. Delaware
BFI Energy Systems of Niagara, Inc. Delaware
BFI Energy Systems of Plymouth, Inc. Delaware
BFI Energy Systems of Southeastern Connecticut, Inc. Delaware
BFI Energy Systems-U.K., Inc. Delaware
BFI Trans River (GP), Inc. Delaware
BFI Trans River (LP), Inc. Delaware
BFI International Finance B.V. Netherlands
BFI Investments, Inc. Delaware
BFI Medical Waste Systems, Inc. Delaware
BFI Medical Waste Systems (Atlantic), Inc. Delaware
BFI Medical Waste Systems of New Jersey, Inc. New Jersey
BFI Medical Waste Systems (South Central), Inc. Tennessee
Health Management, Inc. Tennessee
Bio-Tech Services, Inc. Missouri
BFI Medical Waste Systems (Steel), Inc. Delaware
BFI Medical Waste Systems (Southeast), Inc. Delaware
BFI Medical Waste Systems of Arizona, Inc. Delaware
BFI Medical Waste Systems of California, Inc. Delaware
BFI Medical Waste Systems of Colorado, Inc. Colorado
BFI Medical Waste Systems of Illinois, Inc. Delaware
BFI Medical Waste Systems of Minnesota, Inc. Delaware
BFI Medical Waste Systems of Oregon, Inc. Delaware
BFI Medical Waste Systems of Utah, Inc. Delaware
BFI Medical Waste Systems of Washington, Inc. Delaware
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
<S> <C> <C>
Merrimack Valley Medical Services Company, Inc. Massachusetts
BFI of Metro New York, Inc. Delaware
BFI Organics, Inc. Delaware
Pioneer Southern, Inc. Delaware
BFI Services Group, Inc. California
BFI of Ponce, Inc. Puerto Rico
BFI Northern Transfer, Inc. Delaware
BFI Pharmaceutical Services, Inc. Delaware
BFI Recycling Systems of Minnesota, Inc. Minnesota
BFI Special Services, Inc. Delaware
BFI Waste Systems of North America, Inc. Delaware
BFI Transportation, Inc. Delaware
BFI Waste Systems of Michigan, Inc. Delaware
BFI Waste Systems of Ohio, Inc. Delaware
Karas Trucking Co., Inc. Ohio
Lorain County Resource Recovery Complex, Inc. Delaware
Youngstown BFI Waste Systems, Inc. Ohio
BFI Whispering Oaks Sanitary Landfill, Inc. Missouri
Browning-Ferris, Inc. Delaware
BFI de Mexico, S.A. deC.V. Mexico
BFI Medical Waste Systems of Texas, Inc. Texas
Browning-Ferris Industries of Louisiana, Inc. Louisiana
Health Management of New Orleans, Inc. Louisiana
Ninety Plus, Inc. Louisiana
RMRR, Inc. Texas
Browning-Ferris, Inc. Maryland
BFI Transfer Systems of Maryland, Inc. Maryland
Mon Valley Sanitary Landfill, Inc. Pennsylvania
TRC, Inc. Pennsylvania
BFI Acquisition No. 10, Inc. Georgia
Browning-Ferris Industries Chemical Services, Inc. Nevada
Browning-Ferris Industries, Inc. Massachusetts
Northern Disposal, Inc. Massachusetts
Suburban Disposal Co., Inc. Massachusetts
Browning-Ferris Industries Ltd. Ontario
389343 Alberta Ltd. Alberta
31 Eldridge Finance Company Republic of Ireland
Contenants - Rebut Cadi Ltee Quebec
Usine de Triage Lachenaie Inc. Quebec
BFI Energy Inc. Quebec
2 Environmental Waste Systems, Inc. Ontario
10133 Newfoundland Limited Newfoundland
Browning-Ferris Industries (DC), Inc. Delaware
Browning-Ferris Industries of Alabama, Inc. Alabama
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<S> <C> <C>
Browning-Ferris Industries of Arizona, Inc. Delaware
Browning-Ferris Industries of Arkansas, Inc. Arkansas
Browning-Ferris Industries of California, Inc. California
American Sheds, Inc. California
Azusa Land Reclamation Co., Inc. California
Keller Canyon Landfill Company California
Loma Linda Disposal Company, Inc. California
Pleasant Hill Bayshore Disposal, Inc. California
Browning-Ferris Industries of Colorado, Inc. Colorado
Jeffco Land Reclamation Company Colorado
RPS, Inc. Colorado
Browning-Ferris Industries of Connecticut, Inc. Delaware
Browning-Ferris Industries of Florida, Inc. Delaware
Tanis Leasing Company Florida
Browning-Ferris Industries of Georgia, Inc. Georgia
BFI Tire Recyclers of Georgia, Inc. Georgia
Browning-Ferris Industries of Atlanta, Inc. Delaware
3 UWL, Inc. Georgia
Browning-Ferris Industries of Hawaii, Inc. Delaware
Honolulu Environmental Transfer, Inc. Hawaii
Browning-Ferris Industries of Idaho, Inc. Idaho
Browning-Ferris Industries of Illinois, Inc. Delaware
Active Service Corp. Illinois
Brooks Disposal Service, Inc. Illinois
11 Congress Development Co. Illinois
E&E Hauling, Inc. Illinois
Hoving and Sons, Inc. West Virginia
Oak Brook Disposal, Inc. Illinois
Browning-Ferris Industries of Indiana, Inc. Indiana
Browning-Ferris Industries of Iowa, Inc. Iowa
Browning-Ferris Industries of Kansas City, Inc. Missouri
Browning-Ferris Industries of Kansas, Inc. Kansas
Browning-Ferris Industries of Kentucky, Inc. Delaware
Browning-Ferris Industries of Maine, Inc. Delaware
Browning-Ferris Industries of Marion County, Inc. Delaware
Browning-Ferris Industries of Michigan, Inc. Michigan
Browning-Ferris Industries of Minnesota, Inc. Minnesota
Action Disposal System, Inc. Minnesota
BFI Tire Recyclers of Minnesota, Inc. Minnesota
FFF, Inc. Minnesota
Browning-Ferris Industries of Mississippi, Inc. Mississippi
Browning-Ferris Industries of Mississippi Valley, Inc. Missouri
Browning-Ferris Industries of Montana, Inc. Nevada
Browning-Ferris Industries of Nebraska, Inc. Nebraska
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
<S> <C> <C>
Browning-Ferris Industries of New Hampshire, Inc. New Hampshire
Hooksett Recycling & Processing Center, Inc. New Hampshire
Browning-Ferris Industries of New Jersey, Inc. New Jersey
BFI Transfer Systems of New Jersey, Inc. New Jersey
Browning-Ferris Industries of Central Jersey, Inc. Delaware
Browning-Ferris Industries of Elizabeth, N.J., Inc. New Jersey
Browning-Ferris Industries of Gloucester, N.J., Inc. New Jersey
Browning-Ferris Industries of North Jersey, Inc. New Jersey
Browning-Ferris Industries of Paterson, N.J., Inc. New Jersey
Browning-Ferris Industries of South Jersey, Inc. New Jersey
Browning-Ferris Industries of Western Jersey, Inc. New Jersey
Browning-Ferris Industries of Southwestern Jersey, Inc. New Jersey
Browning-Ferris Industries of New York, Inc. New York
Browning-Ferris Industries of Northern Michigan, Inc. Michigan
Browning-Ferris Industries of Ohio and Michigan, Inc. Ohio
BFI Great Lakes Medical, Inc. Michigan
Browning-Ferris Industries of Oregon, Inc. Oregon
Browning-Ferris Industries of Pennsylvania, Inc. Delaware
Homestand Land Corp. Pennsylvania
Imperial Landfill Company, Inc. Pennsylvania
New Morgan Landfill Company, Inc. Pennsylvania
Browning-Ferris Industries of Pinal County, Inc. Arizona
Browning-Ferris Industries of Puerto Rico, Inc. Puerto Rico
Browning-Ferris Industries of Quincy, Illinois, Inc. Iowa
Longview of Northeast Missouri, Inc. Missouri
Browning-Ferris Industries of Rhode Island, Inc. Delaware
Browning-Ferris Industries of Rochester, Inc. Minnesota
Browning-Ferris Industries of South Atlantic, Inc. North Carolina
CMS Development Corp. North Carolina
Browning-Ferris Industries of Southern Illinois, Inc. Delaware
Browning-Ferris Industries of Southeastern Michigan, Inc. Michigan
Browning-Ferris Industries of Springfield, Inc. Missouri
Springfield Relay Systems, Inc. Missouri
Browning-Ferris Industries of St. Louis, Inc. Delaware
BFI Modern Landfill, Inc. Illinois
Halls Ferry Investments, Inc. Missouri
Jeffco Land Reclamation, Inc. Missouri
Longview of St. Louis, Inc. Missouri
Schroder Solid-Waste Service, Inc. Missouri
Browning-Ferris Industries of Tennessee, Inc. Tennessee
BFI Mississippi Transfer, Inc. Delaware
Jefferson Pike Landfill, Inc. Delaware
T.R.A.S.H., Inc. Tennessee
Browning-Ferris Industries of Utah, Inc. Utah
</TABLE>
- 5 -
<PAGE> 6
<TABLE>
<S> <C> <C>
Browning-Ferris Industries of Vermont, Inc. Vermont
Browning-Ferris Industries of Washington, Inc. Washington
Fibres International, Inc. Washington
Browning-Ferris Industries of Western Kansas, Inc. Kansas
Browning-Ferris Industries of West Virginia, Inc. Delaware
Browning-Ferris Industries of Wisconsin, Inc. Wisconsin
River City Refuse Removal, Inc. Wisconsin
Town & Country Waste Service, Inc. Wisconsin
Troy Area Landfill, Inc. Wisconsin
Browning-Ferris Industries of Wyoming, Inc. Wyoming
BFI International, Inc. Delaware
BFI Atlantic, Inc. Delaware
34 BFI Atlantic GmbH Germany
35 Otto Entsorgungsdienstleistung GmbH Germany
BFI Waste Systems (Thailand) Limited Kingdom of Thailand
Browning-Ferris Industries Chile, Inc. Delaware
33 Browning-Ferris Industries (Australia) Pty. Ltd. Australia
Browning-Ferris Industries (A.C.T.) Pty. Ltd. Australia
Browning-Ferris Industries (Cranbourne) Pty. Ltd. Australia
Browning-Ferris Industries (N.S.W.) Pty. Ltd. Australia
Browning-Ferris Industries (S.A.) Pty. Ltd. Australia
Browning-Ferris Industries (Superannuation) Pty Ltd. Australia
Browning-Ferris Industries (Vic.) Pty. Ltd. Australia
Browning-Ferris Industries Asia Pacific, Inc. Delaware
32 UMW-BFI Waste Services Sdn Bhd Malaysia
Browning-Ferris Industries Malaysia Sdn Bhd Malaysia
15 Swire BFI Waste Services Ltd. Hong Kong
36 C.S.R. Macau - Compenhia de Sistemas Macau
de Residuos Limitada
Waylung Waste Collection Limited Hong Kong
Midland Waste International Limited Hong Kong
Island East Transfer Station Company Limited Hong Kong
Waste Care Limited New Zealand
Allens Septic Tank Cleaning Services New Zealand
(Manawatu) Limited
Allens United Septic Tank Cleaning Services New Zealand
(Whangarei) Limited
Besco Bins (1992) Limited New Zealand
Browning-Ferris Industries (NZ) Limited New Zealand
Waste Disposal Services Limited New Zealand
Container Rubbish Services (1992) Limited New Zealand
Hopper Services (Wellington) Limited New Zealand
J.R. McKeen Contractors Limited New Zealand
Jumbo Bins Limited New Zealand
</TABLE>
- 6 -
<PAGE> 7
<TABLE>
<S> <C> <C>
Waste Care Medi Safe Limited New Zealand
Winz Bins (N.Z.) Limited New Zealand
Browning-Ferris Industries de Costa Rica S.A. Costa Rica
Browning-Ferris Industries Finance B.V. Netherlands
Browning-Ferris Industries (Ireland) Limited Republic of Ireland
Falkenberg Limited Republic of Ireland
Browning-Ferris Landfill Services Ltd. Republic of China
Browning-Ferris Industries Europe, Inc. Delaware
8 BFI Acquisitions plc United Kingdom
13 Attwoods Limited United Kingdom
Browning-Ferris Industries (Belgium) Belgium
Browning-Ferris Industries Reinigungstechnik GmbH Germany
Browning-Ferris Industries (Deutschland) GmbH Germany
Browning-Ferris Industries Europa B.V. Netherlands
17 Browning-Ferris Industries (Italia) S.r.l. Italy
25 Nuova ISPA S.r.l. Italy
ISPA S.r.l. Italy
26 Grosso Scarl Italy
9 Servizi Industriali S.r.l. Italy
Fineco Partecip S.r.l. Italy
18 Maddalena e Rossi S.r.l. Italy
19 Impresa Maddalena S.r.l. Italy
22 Ecofin S.r.l. Italy
23 Valeco S.p.A Italy
20 Assia S.r.l. Italy
21 Imec S.r.l. Italy
G.E.A. Italia S.r.l. Italy
Ca' Brusa S.r.l. Italy
27 ISUC S.r.l. Italy
Technoveneta S.r.l. Italy
Ecoimpresa S.r.l. Italy
Feller S.r.l. Italy
24 Eldridge Finance Co. Italy
Browning-Ferris Industries UK Limited United Kingdom
BFI Packington Limited United Kingdom
Jacksons (Warwickshire) Brickworks Limited United Kingdom
Browning-Ferris Services (U.K.) Limited United Kingdom
Browning-Ferris Environmental Services Limited United Kingdom
BFI Wastecare Limited United Kingdom
BFI Coventry Limited United Kingdom
BFI Carnforth Limited United Kingdom
BFI Holding B.V. Netherlands
6 Browning-Ferris Industries Iberica S.A. Spain
Ingenieria Ambiental Alcarrena S.A. Spain
</TABLE>
- 7 -
<PAGE> 8
<TABLE>
<S> <C> <C>
16 Ingenieria Ambiental Granadina S.A. Spain
Ingenieria Imbiental Castellana, S.A. Spain
Transric UTE
28 Castellana de Servicios, S.A. y Spain
Transric, S.A., UTE
Ingeniera Ambiental Andaluza, S.A. Spain
29 Ingenieria Ambiental Antequerana, S.A. Spain
Ingenieria Ambiental Catalana, S.A. Spain
Gestion y Tratarniento de Residuos, S.A. Spain
Jansen Industriele reiniging en afvalverwerking B.V. Netherlands
Jaap Van Vliet B.V. Netherlands
Riooltechnieken Nederland B.V. Netherlands
West Holland Milieu B.V. Netherlands
Koks Nilo Milieu B.V. Netherlands
Koks' Containerservice B.V. Netherlands
Zwart Vastgoed B.V. Netherlands
Koks/Nilo Recycling B.V. Netherlands
Cotraned Milieu B.V. Netherlands
A.C.D. Milieu B.V. Netherlands
Recycling Amsterdam Vastgoed B.V. Netherlands
Recycling Maatschappij "Houtsnip" B.V. Netherlands
Wijtrans Recycling B.V. Netherlands
Maatman Milieu B.V. Netherlands
Maatman Reiniging B.V. Netherlands
Maatman Rioolreiniging B.V. Netherlands
Maatman Afvalverwerking B.V. Netherlands
Maatman Eibergen B.V. Netherlands
R.J. Maatman Beheer B.V. Netherlands
Maatman Containers B.V. Netherlands
Wijtrans Milieu B.V. Netherlands
Spitman Industrie Service B.V. Netherlands
Groenheide Reiniging B.V. Netherlands
Kroon Beheer Urmond B.V. Netherlands
Kroon Milieu Techneck B.V. Netherlands
BFI Vastgoed B.V. Netherlands
West Holland Recycling B.V. Netherlands
Van Rijswijk Containers B.V. Netherlands
Lekkerkerk-Rehorst Vastgoed Combinatie B.V. Netherlands
Oost Nederlandse Reinigingsdienst B.V. Netherlands
Oost-Nederlandse Container Dienst B.V. Netherlands
B.V. Handelsmaatschappij R.V.R. Netherlands
IBA Recycling B.V. Netherlands
Spitman Chemie B.V. Netherlands
Spitman Milieu B.V. Netherlands
</TABLE>
- 8 -
<PAGE> 9
<TABLE>
<S> <C> <C>
IBA Milieu B.V. Netherlands
Niemendal Transport B.V. Netherlands
Heerbaart Recycling B.V. Netherlands
Reinmat B.V. Netherlands
Transportbedrijf J. van Tongeren B.V. Netherlands
Browning-Ferris Industries Umwelttechnik Austria
Gesellschaft m.b.H.
Latin American Environmental Services, Inc. Delaware
Browning-Ferris Services, Inc. Delaware
BFI Equipment Leasing I, Inc. Delaware
Browning-Ferris Financial Services, Inc. Delaware
CECOS International, Inc. New York
Condor Waste Transportation, Inc. Texas
12 Cotecnica, C.A. Venezuela
Dave Systems, Inc. California
Ameride Corporation California
Disposal Specialists, Inc. Vermont
Dooley Equipment Corporation Massachusetts
5 Eastern Disposal Inc. Quebec
Environmental Development Corp. Puerto Rico
Global Indemnity Assurance Company Vermont
Hennepin Transfer, Inc. Minnesota
HL-NIW, Inc. New York
Indoco, Inc. Texas
International Disposal Corp. of California California
International Disposal Corporation of Kansas Kansas
Landfill, Inc. Missouri
Lake Area Disposal, Inc. Wisconsin
Land Reclamation, Inc. New York
Louis Kmito & Son, Inc. Massachusetts
M & N Disposal, Inc. Wisconsin
M & N Recycling, Inc. Wisconsin
National Disposal Service of Nebraska, Inc. Nebraska
Newco Waste Systems of New Jersey, Inc. New Jersey
Niagara Landfill, Inc. New York
Niagara Recycling, Inc. New York
Pine Bend Landfill, Inc. Minnesota
Risk Services, Inc. Delaware
West Roxbury Crushed Stone Co. Massachusetts
Westowns Disposal Systems, Inc. Wyoming
Woodlake Sanitary Service, Inc. Minnesota
30 VHG, Inc. Minnesota
4 Minneapolis Refuse, Incorporated Minnesota
</TABLE>
- 9 -
<PAGE> 10
______________________
Parent-subsidiary relationships are indicated by indentations. Except as
otherwise indicated by symbol preceding the name, 100% of the voting securities
of each of the subsidiaries is owned by the indicated parent of such subsidiary.
<TABLE>
<S> <C> <C>
1 66-2/3% owned
2 Namesaver corporation. No stock issued at this time
3 100% of Preferred Stock of UWL, Inc. owned by Browning-Ferris Industries of Georgia, Inc.
4 9% of stock owned by Woodlake Sanitary Service, Inc.
5 50% owned by Browning-Ferris Industries Ltd.
50% owned by Browning-Ferris Industries, Inc. (Delaware)
6 Browning-Ferris Industries, Inc. 33.84%
BFI Holding B.V. 54.45%
Carlos Benjumea Morenes 6.07%
Jaime Ventura 3.46%
Luis Basteiro .60%
Grupo Liga Financera 0.68%
L.M. van Staalduinen 0.45%
Bel. Hoeberg B. 0.45%
8 49,999 ordinary shares owned by Browning-Ferris Industries Europe, Inc.
1 ordinary share is held by nominee shareholder,
Browning-Ferris Industries UK Limited
9 50% owned by Browning-Ferris Industries (Italia) S.r.l. and
50% owned by outside party
10 49% owned
11 50% owned by Browning-Ferris Industries of Illinois, Inc. and
50% John Sexton Sand and Gravel Corp.
12 45% owned
13 Listing sets forth the Attwoods domestic subsidiaries; a listing of the international subsidiaries is
forthcoming.
14 Limited partnership that operates the Jones Road Landfill, of which 99% owned by Attwoods Environmental, Inc.
and 1% owned by Jones Road Landfill and Recycling, Inc.
15 50% owned by Browning-Ferris Industries Asia Pacific, Inc. and
50% owned by Swire Engineering Limited
16 90% owned by Browning-Ferris Industries Iberica S.A.
10% owned by Granada Municipality
17 95% owned by Browning-Ferris Industries Europe, Inc.
5% owned by BFI International, Inc.
18 80% owned by Browning-Ferris Industries (Italia) S.r.l.
20% owned by Fineco Partecip S.r.l.
19 99.23% owned by Maddalena e Rossi S.r.l.
.77% owned by Browning-Ferris Industries (Italia) S.r.l.
20 95% owned by Imp. Maddalena
5% owned by Maddalena and Rossi
21 80% ownd by Imp. Maddalena
20% owned by Maddalena and Rossi
</TABLE>
- 10 -
<PAGE> 11
<TABLE>
<S> <C>
22 37.5% owned by Impresa Maddalena S.r.l.
67.5% owned by outside party
23 80% owned by Ecofin S.r.l.
20% owned by outside party
24 1% owned by Browning-Ferris Industries (Italia) S.r.l.
99% outside party
25 80% owned by Browning-Ferris Industries (Italia) S.r.l.
20% owned by Impresa Maddalena S.r.l.
26 65% owned by ISPA S.r.l.
35% owned by outside party
27 44% owned by G.E.A. Italia
56% owned by outside party
28 50% owned by Ingenieria Ambiental Castellana, S.A.
50% owned by Castellana de Servicios, S.A.
29 80% owned by Ingenieria Ambiental Andaluza, S.A.
20% owned by Antequera Municipality
30 50% owned by Woodlake Sanitary Service, Inc.
31 99% owned by Browning-Ferris Industries Ltd. and
1% owned by Browning-Ferris Industries (Italia) S.r.l.
32 49% owned by Browning-Ferris Industries Asia Pacific, Inc.
51% owned by UMW Industries (1985) Sdn Bhd
33 99% owned by BFI International, Inc.
1% owned by Browning-Ferris Industries Asia Pacific, Inc.
34 40% owned by BFI International, Inc.
40% owned by BFI Atlantic, Inc.
20% owned by Browning-Ferris Industries Ltd.
35 (Subsidiaries of this Company are not listed herein)
50% owned by BFI Atlantic GmbH
50% owned by Otto Holding International B.V.
36 70% owned by Swire BFI Waste Services Limited
30% owned by Noriente-Gestao de Participacoes Limited
</TABLE>
- 11 -
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated December 4, 1996, included in this Form 10-K,
into the Browning-Ferris Industries, Inc. previously filed Form S-8
Registration Statement File Nos. 33-41281, 33-53393 and 33-56583, Form S-3
Registration Statement File Nos. 33-58298 and 33-65055 and Form S-4
Registration Statement File Nos. 33-52240 and 33-58889.
ARTHUR ANDERSEN LLP
Houston, Texas
December 4, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's consolidated financial statements for the twelve months ended
September 30, 1996 and is qualified in its entirety by reference to such
financial statements. (In thousands except per share data.)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 136,618
<SECURITIES> 0
<RECEIVABLES> 1,012,481
<ALLOWANCES> (40,622)
<INVENTORY> 51,536
<CURRENT-ASSETS> 1,387,795
<PP&E> 6,658,509
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0
0
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</TABLE>
