<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934)
BROWNING-FERRIS INDUSTRIES, INC.
(Name of Issuer and Person Filing Statement)
---------------------
COMMON STOCK, PAR VALUE $.16 2/3 PER SHARE
(Title of Class of Securities)
---------------------
115885105
(CUSIP Number of Class of Securities)
---------------------
GERALD K. BURGER
VICE PRESIDENT AND SECRETARY
BROWNING-FERRIS INDUSTRIES, INC.
757 N. ELDRIDGE
HOUSTON, TEXAS 77079
(281) 870-8100
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of the Person Filing Statement)
COPY TO:
ARTHUR H. ROGERS
FULBRIGHT & JAWORSKI L.L.P.
1301 MCKINNEY, SUITE 5100
HOUSTON, TEXAS 77010
(713) 651-5421
SEPTEMBER 4, 1997
(Date Tender Offer First Published,
Sent or Given to Security Holders)
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
==================================================================================================
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- --------------------------------------------------------------------------------------------------
<S> <C>
$585,000,000 $117,000
==================================================================================================
</TABLE>
(*) Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 15,000,000
shares at $39.00 per share.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C>
Amount Previous Paid: Not applicable.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
</TABLE>
================================================================================
<PAGE> 2
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Browning-Ferris Industries, Inc., a Delaware
corporation (the "Company"), that has its principal executive offices at 757 N.
Eldridge, Houston, Texas 77079. The information set forth on page 1 and under
"Certain Information Concerning the Company" in Section 10 of the Offer to
Purchase (as defined below) is incorporated herein by reference.
(b) This Schedule relates to the offer by the Company to purchase up to
15,000,000 outstanding shares of Common Stock, par value $.16 2/3 per share (the
"Shares") (including the associated preferred stock purchase rights issued
pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between
the Company and First Chicago Trust Company of New York, as the Rights Agent),
at a price not greater than $39.00 nor less than $34.00 per share, net to the
seller in cash, specified by such stockholders, all upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated September 4, 1997
(the "Offer to Purchase"), and related Letter of Transmittal, copies of which
are attached hereto as Exhibits (a)(1) and (a)(2), respectively. The information
set forth under "Number of Shares; Proration" in Section 1 of the Offer to
Purchase is incorporated herein by reference.
(c) The information set forth under "Price Range of Shares; Dividends" in
Section 8 of the Offer to Purchase is incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS.
(a) The information set forth under "Source and Amount of Funds" in Section
11 of the Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a) to (j) The information set forth under "Purpose of the Offer; Certain
Effects of the Offer" in Section 9 and "Certain Information Concerning the
Company" in Section 10 of the Offer to Purchase is incorporated herein by
reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth under "Transactions and Agreements Concerning the
Shares" in Section 12 of the Offer to Purchase is incorporated herein by
reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth under "Transactions and Agreements Concerning the
Shares" in Section 12 of the Offer to Purchase is incorporated herein by
reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "Fees and Expenses" in Section 15 of the
Offer to Purchase is incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
(a) and (b) The information set forth under "Certain Information Concerning
the Company" in Section 10 of the Offer to Purchase is incorporated herein by
reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) to (e) None or not applicable.
<PAGE> 3
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Form of Offer to Purchase, dated September 4, 1997.
(a)(2) Form of Letter of Transmittal, dated September 4, 1997, together
with Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(3) Form of Letter to Stockholders from Bruce E. Ranck, President and
Chief Executive Officer of the Company, dated September 4, 1997.
(a)(4) Form of Notice of Guaranteed Delivery.
(a)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees, dated September 4, 1997.
(a)(6) Form of Letter to Clients, dated September 4, 1997.
(a)(7) Form of Letter to Participants in the Company's Employee Stock
Ownership and Savings Plan, dated September 4, 1997.
(a)(8) Form of Summary Advertisement, dated September 4, 1997.
(a)(9) Form of Press Release, dated September 3, 1997.
(b) Not applicable.
(c) None.
(d) None.
(e) Not applicable.
(f) None.
(g)(1) Pages 37 to 81 of the Company's Annual Report on Form 10-K for the
Year Ended September 30, 1996.
(g)(2) The Company's Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1997 (other than exhibits).
(g)(3) Pages 2 to 14 of the Company's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 1996 (other than exhibits).
<PAGE> 4
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
BROWNING-FERRIS INDUSTRIES, INC.
By: /s/ JEFFREY E. CURTISS
----------------------------------
Jeffrey E. Curtiss
Senior Vice President and
Chief Financial Officer
Dated: September 4, 1997
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(a)(1) Form of Offer to Purchase, dated September 4, 1997.
(a)(2) Form of Letter of Transmittal, dated September 4, 1997,
together with Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
(a)(3) Form of Letter to Stockholders from Bruce E. Ranck,
President and Chief Executive Officer of the Company,
dated September 4, 1997.
(a)(4) Form of Notice of Guaranteed Delivery.
(a)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees, dated September 4, 1997.
(a)(6) Form of Letter to Clients, dated September 4, 1997.
(a)(7) Form of Letter to Participants in the Company's Employee
Stock Ownership and Savings Plan, dated September 4,
1997.
(a)(8) Form of Summary Advertisement, dated September 4, 1997.
(a)(9) Form of Press Release, dated September 3, 1997.
(g)(1) Pages 37 to 81 of the Company's Annual Report on Form 10-K
for the Year Ended September 30, 1996.
(g)(2) The Company's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1997 (other than exhibits).
(g)(3) Pages 2 to 14 of the Company's Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1996 (other than
exhibits).
</TABLE>
<PAGE> 6
EXHIBIT a.1
Browning-Ferris Industries, Inc.
Offer to Purchase for Cash
Up to 15,000,000 Shares of its Common Stock
(Including the Associated Preferred Stock Purchase Rights)
At a Purchase Price Not Greater Than $39
Nor Less Than $34 Per Share
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997,
UNLESS THE OFFER IS EXTENDED.
------------------------
Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"),
invites its stockholders to tender shares of its Common Stock, par value
$.16 2/3 per share (the "Shares") (including the associated preferred stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as
of June 1, 1988, as amended, between the Company and First Chicago Trust Company
of New York, as the Rights Agent), at prices not greater than $39.00 nor less
than $34.00 per Share, net to the seller in cash, specified by such
stockholders, upon the terms and subject to the conditions set forth herein and
in the related Letter of Transmittal (which together constitute the "Offer").
Unless the context otherwise requires, all references to Shares shall include
the associated Rights. The Company will determine a single per Share price (not
greater than $39.00 nor less than $34.00 per Share) that it will pay for the
Shares validly tendered pursuant to the Offer and not withdrawn (the "Purchase
Price"), taking into account the number of Shares so tendered and the prices
specified by the tendering stockholders. The Company will select the Purchase
Price that will enable it to purchase 15,000,000 Shares (or such lesser number
of Shares as are validly tendered at prices not greater than $39.00 nor less
than $34.00 per Share) pursuant to the Offer. The Company will purchase all
Shares validly tendered at prices at or below the Purchase Price and not
withdrawn, upon the terms and subject to the conditions of the Offer, including
the provisions thereof relating to proration and conditional tenders described
herein. Shares tendered at prices in excess of the Purchase Price and Shares not
purchased because of proration and conditional tenders will be returned.
Stockholders must complete the section of the Letter of Transmittal relating to
the price at which they are tendering Shares in order to validly tender Shares.
------------------------
On September 3, 1997, the Board of Directors of the Company announced an
increase in the regular quarterly cash dividend for the fourth quarter of the
fiscal year ending September 30, 1997 to $.19 per Share. Shares tendered and
purchased by the Company will be entitled to this regular quarterly cash
dividend of $.19 per Share to be paid by the Company on October 6, 1997 to
holders of record on September 19, 1997. See Section 8.
------------------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of his or her shares
should either (i) complete and sign the Letter of Transmittal or a facsimile
thereof in accordance with the instructions in the Letter of Transmittal, mail
or deliver it and any other required documents to the Depositary, and either
deliver the certificates for Shares to the Depositary along with the Letter of
Transmittal or deliver such Shares pursuant to the procedure for book-entry
transfer set forth in Section 3 hereof or (ii) request his or her broker,
dealer, commercial bank, trust company or nominee to effect the transaction for
him or her. A stockholder whose Shares are registered in the name of a broker,
dealer, commercial bank, trust company or nominee must contact such broker,
dealer, commercial bank, trust company or nominee if he or she desires to tender
such Shares. Any stockholder who desires to tender Shares and whose certificates
for such Shares are not immediately available, or who cannot comply in a timely
manner with the procedure for book-entry transfer, should tender such Shares by
following the procedures for guaranteed delivery set forth in Section 3 hereof.
------------------------
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH STOCKHOLDER MUST
MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS BEEN ADVISED THAT NO
DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
------------------------
The Shares are listed and principally traded on the New York Stock Exchange
(the "NYSE"). On September 2, 1997, the last trading day prior to the
announcement of the Offer, the last reported sale price of the Shares on the
NYSE Composite Tape was $35 5/16 per Share. Stockholders are urged to obtain
current market quotations for the Shares.
------------------------
Questions or requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal, Notice of Guaranteed Delivery or other
tender offer materials may be directed to Morrow & Co., Inc. (the "Information
Agent") or Morgan Stanley & Co. Incorporated (the "Dealer Manager") at their
respective addresses and telephone numbers set forth on the back cover of this
Offer to Purchase.
------------------------
The Dealer Manager for the Offer is:
MORGAN STANLEY DEAN WITTER
September 4, 1997
<PAGE> 7
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
TABLE OF CONTENTS
<TABLE>
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SECTION PAGE
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<C> <S> <C>
Introduction................................................ 3
1. Number of Shares; Proration................................. 4
2. Tenders by Holders of Fewer Than 100 Shares................. 5
3. Procedure for Tendering Shares.............................. 6
4. Withdrawal Rights........................................... 8
5. Acceptance for Payment of Shares and Payment of Purchase
Price....................................................... 9
6. Conditional Tender of Shares................................ 10
7. Certain Conditions of the Offer............................. 10
8. Price Range of Shares; Dividends............................ 12
9. Purpose of the Offer; Certain Effects of the Offer.......... 13
10. Certain Information Concerning the Company.................. 14
11. Source and Amount of Funds.................................. 20
12. Interests of Directors and Officers; Transactions and
Agreements Concerning the Shares............................ 20
13. Certain Federal Income Tax Consequences..................... 20
14. Extension of Tender Period; Termination; Amendments......... 23
15. Fees and Expenses........................................... 24
16. Miscellaneous............................................... 24
The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 (other than the exhibits thereto)....... Annex I
</TABLE>
2
<PAGE> 8
To the Holders of Common Stock of
Browning-Ferris Industries, Inc.:
INTRODUCTION
This Offer to Purchase contains certain forward-looking statements that are
based on the Company's expectations and, as such, are subject to uncertainty and
risk. These statements should be read in conjunction with the "Regulation",
"Competition" and "Waste Disposal Risk Factors" sections of the Company's Annual
Report on Form 10-K for the year ended September 30, 1996 (the "Company's 1996
Annual Report") which describes many of the external factors that could cause
the Company's actual results to differ materially from the Company's
expectations. The Company's 1996 Annual Report is on file with the United States
Securities Commission, a copy of which is available without charge upon written
request to: Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas
77253, Attention: Secretary.
Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"),
invites its stockholders to tender shares of its Common Stock, par value
$.16 2/3 per share (the "Shares") (including the associated preferred stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as
of June 1, 1988, as amended, between the Company and First Chicago Trust Company
of New York, as the Rights Agent), at prices not greater than $39.00 nor less
than $34.00 per Share, net to the seller in cash, specified by such
stockholders, upon the terms and subject to the conditions set forth herein and
in the related Letter of Transmittal (which together constitute the "Offer").
Unless the context otherwise requires, all references to Shares shall include
the associated Rights.
The Company will determine a single per Share price (not greater than
$39.00 nor less than $34.00 per Share) that it will pay for Shares validly
tendered pursuant to the Offer and not withdrawn (the "Purchase Price"), taking
into account the number of Shares so tendered and the prices specified by
tendering stockholders. The Company will select the Purchase Price that will
enable it to purchase 15,000,000 Shares (or such lesser number of Shares as is
validly tendered at prices not greater than $39.00 nor less than $34.00 per
Share) pursuant to the Offer. The Company will purchase all Shares validly
tendered at prices at or below the Purchase Price and not withdrawn on or prior
to the Expiration Date (as defined in Section 1), upon the terms and subject to
the conditions of the Offer, including the provisions relating to proration and
conditional tenders described below. The Purchase Price will be paid in cash,
net to the seller, with respect to all Shares purchased. Shares tendered at
prices in excess of the Purchase Price and Shares not purchased because of
proration or conditional tenders will be returned.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 7.
Tendering stockholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to the Instructions to the Letter of Transmittal,
stock transfer taxes on the purchase of Shares by the Company. The Company will
pay all charges and expenses of Morgan Stanley & Co. Incorporated (the "Dealer
Manager"), First Chicago Trust Company of New York (the "Depositary") and Morrow
& Co., Inc. (the "Information Agent") incurred in connection with the Offer. See
Section 15. HOWEVER, ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO
COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE LETTER OF
TRANSMITTAL MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING
OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH STOCKHOLDER OR OTHER PAYEE PURSUANT
TO THE OFFER. SEE SECTIONS 3 AND 13.
Stockholders who are participants in the Dividend Reinvestment Plan (the
"Reinvestment Plan") available to owners of Shares through First Chicago Trust
Company of New York, which administers the Reinvestment Plan, may instruct First
Chicago Trust Company of New York to tender part or all of the Shares held in
their accounts under the Reinvestment Plan. See Section 3. Stockholders who are
participants in the Company's Employee Stock Ownership and Savings Plan (the
"Stock Ownership and Savings Plan") may instruct the trustee of such plan as set
forth in the "Letter to Participants in the Company's Employee Stock Ownership
and Savings Plan" to tender some or all of the Shares attributed to such
participant's account. See Section 3.
3
<PAGE> 9
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH STOCKHOLDER MUST
MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS BEEN ADVISED THAT NO
DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
As of September 2, 1997, the Company had issued and outstanding 204,472,625
Shares (excluding approximately 8,500,000 Shares held by the Company's Stock and
Employee Benefit Trust) and had reserved 11,027,530 Shares for issuance upon
exercise of outstanding stock options and with respect to performance shares.
The 15,000,000 Shares that the Company is offering to purchase represent
approximately 7.3% of the Shares then outstanding, or approximately 7.0% on a
fully diluted basis (assuming the exercise of all outstanding stock options and
the issuance of Shares underlying the performance shares, but excluding the
Shares held by the Company's Stock and Employee Benefit Trust as well as Shares
issuable in settlement of the Company's 7.25% Automatic Common Exchange
Securities (the "BFI Exchange Securities")).
A tender of Shares pursuant to the Offer will include a tender of the
associated Rights. No separate consideration will be paid for such Rights. See
Section 8.
The Shares are listed and principally traded on the New York Stock Exchange
("NYSE"). The Shares trade under the symbol "BFI". Stockholders are urged to
obtain current market quotations for the Shares. See Section 8.
1. NUMBER OF SHARES; PRORATION.
Upon the terms and subject to the conditions described herein and in the
Letter of Transmittal, the Company will purchase up to 15,000,000 Shares that
are validly tendered on or prior to the Expiration Date (and not properly
withdrawn in accordance with Section 4) at a price (determined in the manner set
forth below) not greater than $39.00 nor less than $34.00 per Share. The later
of 12:00 midnight, New York City time, on Wednesday, October 1, 1997, or the
latest time and date to which the Offer is extended, is referred to herein as
the "Expiration Date". If the Offer is oversubscribed as described below, only
Shares tendered at or below the Purchase Price on or prior to the Expiration
Date will be eligible for proration.
The Company will determine the Purchase Price taking into account the
number of Shares so tendered and the prices specified by tendering stockholders.
The Company will select the Purchase Price that will enable it to purchase
15,000,000 Shares (or such lesser number of Shares as is validly tendered and
not withdrawn at prices not greater than $39.00 nor less than $34.00 per Share)
pursuant to the Offer. The Company reserves the right to purchase more than
15,000,000 Shares pursuant to the Offer, but does not currently plan to do so.
The Offer is not conditioned on any minimum number of Shares being tendered.
In accordance with Instruction 5 of the Letter of Transmittal, each
stockholder who wishes to tender Shares must specify the price (not greater than
$39.00 nor less than $34.00 per Share) at which such stockholder is willing to
have the Company purchase such Shares. As promptly as practicable following the
Expiration Date, the Company will determine the Purchase Price (not greater than
$39.00 nor less than $34.00 per Share) that it will pay for Shares validly
tendered pursuant to the Offer, taking into account the number of Shares so
tendered and the prices specified by tendering stockholders. All Shares not
purchased pursuant to the Offer, including Shares tendered at prices greater
than the Purchase Price and Shares not purchased because of proration or
conditional tenders, will be returned to the tendering stockholders at the
Company's expense as promptly as practicable following the Expiration Date.
Upon the terms and subject to the conditions of the Offer, if 15,000,000 or
fewer Shares have been validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date, the Company will purchase all such
Shares (including fractional Shares). Upon the terms and subject to the
conditions of the Offer, if more than 15,000,000 Shares have been validly
tendered at or below the Purchase Price and not
4
<PAGE> 10
withdrawn on or prior to the Expiration Date, the Company will purchase Shares
in the following order of priority:
(a) all Shares validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date by any stockholder (an "Odd
Lot Owner") who owned beneficially an aggregate of fewer than 100 Shares
(including any Shares held in the Reinvestment Plan or the Stock Ownership
and Savings Plan) as of the close of business on September 3, 1997 and who
validly tenders all of such Shares (partial tenders will not qualify for
this preference) and completes the box captioned "Odd Lots" on the Letter
of Transmittal and, if applicable, the Notice of Guaranteed Delivery; and
(b) after purchase of all of the foregoing Shares, subject to the
conditional tender provisions described in Section 6, all other Shares
validly tendered at or below the Purchase Price and not withdrawn on or
prior to the Expiration Date on a pro rata basis, if necessary (with
appropriate adjustments to avoid purchases of fractional Shares, other than
Shares held in the Reinvestment Plan or the Stock Ownership and Savings
Plan).
If proration of tendered Shares is required, because of the difficulty in
determining the number of Shares validly tendered (including Shares tendered by
the guaranteed delivery procedure described in Section 3) and as a result of the
"odd lot" procedure described in Section 2 and conditional tender procedure
described in Section 6, the Company does not expect that it will be able to
announce the final proration factor or to commence payment for any Shares
purchased pursuant to the Offer until approximately seven NYSE trading days
after the Expiration Date. Proration for each stockholder tendering Shares other
than Odd Lot Owners will be based on the ratio of the number of Shares tendered
by such stockholder at or below the Purchase Price to the total number of Shares
tendered by all stockholders other than Odd Lot Owners at or below the Purchase
Price. This ratio will be applied to stockholders tendering Shares other than
Odd Lot Owners to determine the number of Shares that will be purchased from
each stockholder pursuant to the Offer. Preliminary results of proration will be
announced by press release as promptly as practicable after the Expiration Date.
Holders of Shares may obtain such preliminary information from the Dealer
Manager or the Information Agent and may also be able to obtain such information
from their brokers.
THE COMPANY EXPRESSLY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO
PURCHASE ADDITIONAL SHARES PURSUANT TO THE OFFER. If (a) the Company increases
or decreases the price to be paid for Shares, increases the number of Shares
being sought and such increase in the number of Shares being sought exceeds 2%
of the outstanding Shares or decreases the number of Shares being sought and (b)
the Offer is scheduled to expire at any time earlier than the expiration of a
period ending on the tenth business day from, and including, the date that
notice of such increase or decrease is first published, sent or given in the
manner described in Section 14, the Offer will be extended until the expiration
of ten business days from the date of publication of such notice.
The Company also expressly reserves the right, in its sole discretion, at
any time or from time to time, to extend the period of time during which the
Offer is open by giving oral or written notice of such extension to the
Depositary. See Section 14. There can be no assurance, however, that the Company
will exercise its right to extend the Offer.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
Copies of this Offer to Purchase, the Letter of Transmittal and Notice of
Guaranteed Delivery are being mailed to record holders of Shares and will be
furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the Company's stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
2. TENDERS BY HOLDERS OF FEWER THAN 100 SHARES.
All Shares validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date by or on behalf of persons who each
owned beneficially an aggregate of fewer than 100 Shares
5
<PAGE> 11
(including Shares held in the Reinvestment Plan and fractional Shares) as of the
close of business on September 3, 1997, will be accepted before proration, if
any, of the purchase of other tendered Shares. See Section 1. Partial tenders
will not qualify for this preference, and it is not available to beneficial
holders of 100 or more Shares, even if such holders have separate stock
certificates for fewer than 100 Shares. By accepting the Offer, a stockholder
owning beneficially fewer than 100 Shares will avoid the payment of brokerage
commissions and the applicable odd lot discount payable in a sale of such Shares
in a transaction effected on a securities exchange.
As of September 3, 1997, there were approximately 16,300 holders of record
of Shares. Approximately 54% of these holders of record held individually fewer
than 100 Shares and held in the aggregate approximately 176,000 Shares. Because
of the large number of Shares held in the names of brokers and nominees, the
Company is unable to estimate the number of beneficial owners of fewer than 100
Shares or the aggregate number of Shares they own. Any beneficial owner of fewer
than 100 Shares (including Shares held in the Reinvestment Plan and fractional
shares) who wishes to tender all of his or her Shares pursuant to this Section
should complete the box captioned "Odd Lots" on the Letter of Transmittal and,
if applicable, on the Notice of Guaranteed Delivery.
3. PROCEDURE FOR TENDERING SHARES.
To tender Shares validly pursuant to the Offer, either (a) a properly
completed and duly executed Letter of Transmittal or facsimile thereof, together
with any required signature guarantees and any other documents required by the
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and either (i)
certificates for the Shares to be tendered must be received by the Depositary at
one of such addresses or (ii) such Shares must be delivered pursuant to the
procedures for book-entry transfer described below (and a confirmation of such
delivery received by the Depositary), in each case on or prior to the Expiration
Date, or (b) the tendering holder of Shares must comply with the guaranteed
delivery procedure described below.
IN ACCORDANCE WITH INSTRUCTION 5 OF THE LETTER OF TRANSMITTAL, IN ORDER TO
TENDER SHARES PURSUANT TO THE OFFER, A STOCKHOLDER MUST EITHER (A) CHECK THE BOX
IN THE SECTION OF THE LETTER OF TRANSMITTAL CAPTIONED "SHARES TENDERED AT PRICE
DETERMINED BY DUTCH AUCTION" OR (B) CHECK ONE OF THE BOXES IN THE SECTION OF THE
LETTER OF TRANSMITTAL CAPTIONED "SHARES TENDERED AT PRICE DETERMINED BY
STOCKHOLDER".
A STOCKHOLDER WHO WISHES TO MAXIMIZE THE CHANCE THAT HIS OR HER SHARES WILL
BE PURCHASED AT THE RELEVANT PURCHASE PRICE SHOULD CHECK THE BOX ON THE RELEVANT
LETTER OF TRANSMITTAL MARKED, "SHARES TENDERED AT PRICE DETERMINED BY DUTCH
AUCTION". NOTE THAT THIS ELECTION COULD RESULT IN SUCH STOCKHOLDER'S SHARES
BEING PURCHASED AT THE MINIMUM PRICE OF $34.00 PER SHARE. A STOCKHOLDER WHO
WISHES TO INDICATE A SPECIFIC PRICE (IN MULTIPLES OF $.125) AT WHICH HIS OR HER
SHARES ARE BEING TENDERED MUST CHECK A BOX UNDER THE SECTION CAPTIONED "SHARES
TENDERED AT PRICE DETERMINED BY STOCKHOLDER" OF THE LETTER OF TRANSMITTAL IN THE
TABLE LABELED "PRICE (IN DOLLARS) AT WHICH SHARES ARE BEING TENDERED". A
STOCKHOLDER WHO WISHES TO TENDER SHARES AT MORE THAN ONE PRICE MUST COMPLETE
SEPARATE LETTERS OF TRANSMITTAL FOR EACH PRICE AT WHICH SUCH SHARES ARE BEING
TENDERED. THE SAME SHARES CANNOT BE TENDERED AT MORE THAN ONE PRICE.
A TENDER OF SHARES WILL BE PROPER, IF, AND ONLY IF, ON THE APPROPRIATE
LETTER OF TRANSMITTAL EITHER THE BOX IN THE SECTION CAPTIONED "SHARES TENDERED
AT PRICE DETERMINED BY DUTCH AUCTION" OR ONE OF THE BOXES IN THE SECTION
CAPTIONED "SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER" IS CHECKED.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company and Philadelphia Depository Trust Company (collectively
referred to as the "Book-Entry Transfer Facilities") for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in the system of either Book-Entry
Transfer Facility may make delivery of Shares by causing such Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account in
accordance with the procedures of such Book-Entry Transfer Facility. Although
delivery of Shares may be effected through book-entry transfer, a properly
completed and duly executed Letter of Transmittal or facsimile thereof, together
with any required signature guarantees and any other required documents, must,
in any case, be received by the Depositary at one of its addresses set forth on
the back cover of this Offer to
6
<PAGE> 12
Purchase on or prior to the Expiration Date, or the tendering holder of Shares
must comply with the guaranteed delivery procedure described below. Delivery of
the Letter of Transmittal and any other required documents to a Book-Entry
Transfer Facility does not constitute delivery to the Depositary.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States which is a participant in an approved Signature Guarantee
Medallion Program (each of the foregoing being referred to as an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed if
(a) the Letter of Transmittal is signed by the registered holder of the Shares
tendered therewith and such holder has not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal or (b) such Shares are tendered for the account of an
Eligible Institution. See Instructions 1 and 6 of the Letter of Transmittal.
If a stockholder desires to tender Shares pursuant to the Offer and cannot
deliver certificates for such Shares and all other required documents to the
Depositary on or prior to the Expiration Date or the procedure for book-entry
transfer cannot be complied with in a timely manner, such Shares may
nevertheless be tendered if all of the following conditions are met:
(a) such tender is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company (with any
required signature guarantees) is received by the Depositary as provided
below on or prior to the Expiration Date; and
(c) the certificates for such Shares (or a confirmation of a
book-entry transfer of such Shares into the Depositary's account at one of
the Book-Entry Transfer Facilities), together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) and any other
documents required by the Letter of Transmittal, are received by the
Depositary no later than 5:00 p.m., New York City time, on the third NYSE
trading day after the date of execution of the Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mail to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in such Notice.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE PURSUANT TO THE OFFER, EACH STOCKHOLDER MUST NOTIFY THE DEPOSITARY
OF SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN
OTHER INFORMATION BY PROPERLY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE
LETTER OF TRANSMITTAL. FOREIGN STOCKHOLDERS (AS DEFINED IN SECTION 13) MAY BE
REQUIRED TO SUBMIT A PROPERLY COMPLETED FORM W-8, CERTIFYING NON-UNITED STATES
STATUS, IN ORDER TO AVOID BACKUP WITHHOLDING. IN ADDITION, FOREIGN STOCKHOLDERS
MAY BE SUBJECT TO 30% (OR LOWER TREATY RATE) WITHHOLDING ON GROSS PAYMENTS
RECEIVED PURSUANT TO THE OFFER (AS DISCUSSED IN SECTION 13). FOR A DISCUSSION OF
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO TENDERING STOCKHOLDERS, SEE SECTION
13. EACH STOCKHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR.
It is a violation of Rule 14e-4 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), for a person to tender Shares for
his or her own account unless the person so tendering (a) has a net long
position equal to or greater than the amount of (i) Shares tendered or (ii)
other securities immediately convertible into, exercisable or exchangeable for
the amount of Shares tendered and will acquire such Shares for tender by
conversion, exercise or exchange of such other securities and (b) will cause
such Shares to be delivered in accordance with the terms of the Offer. Rule
14e-4 provides a similar restriction applicable to the tender or guarantee of a
tender on behalf of another person. The tender of Shares pursuant to
7
<PAGE> 13
any one of the procedures described above will constitute the tendering
stockholder's representation and warranty that (a) such stockholder has a net
long position in the Shares being tendered within the meaning of Rule 14e-4
promulgated under the Exchange Act, and (b) the tender of such Shares complies
with Rule 14e-4. The Company's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the tendering
stockholder and the Company upon the terms and subject to the conditions of the
Offer.
All questions as to the Purchase Price, the form of documents and the
validity, eligibility (including time of receipt) and acceptance for payment of
any tender of Shares will be determined by the Company, in its sole discretion,
and its determination shall be final and binding. The Company reserves the
absolute right to reject any or all tenders of Shares that it determines are not
in proper form or the acceptance for payment of or payment for Shares that may,
in the opinion of the Company's counsel, be unlawful. The Company also reserves
the absolute right to waive any defect or irregularity in any tender of Shares.
None of the Company, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notice of any defect or
irregularity in tenders, nor shall any of them incur any liability for failure
to give any such notice.
A stockholder participating in the Reinvestment Plan who wishes to have
First Chicago Trust Company of New York, which administers the Reinvestment
Plan, tender Shares held in such participant's accounts in the Reinvestment Plan
should so indicate by completing the box captioned "Dividend Reinvestment Plan
Shares" in the Letter of Transmittal. Participants in the Reinvestment Plan are
urged to read Instruction 13 of the Letter of Transmittal carefully. Any
Reinvestment Plan Shares tendered but not purchased will be returned to the
participant's Reinvestment Plan account.
A stockholder participating in the Stock Purchase and Savings Plan who
wishes to have the trustee of such plan tender Shares attributable to his or her
account should so indicate by completing, executing and returning to such
trustee the election form included in the notice sent to such participants. The
participants in the Stock Purchase and Savings Plan cannot use the Letter of
Transmittal to direct the tender of Shares, but must use the separate election
form sent to them by the trustee. Participants in the Stock Purchase and Savings
Plan are urged to read the separate election form and related materials
carefully.
On September 3, 1997, the Board of Directors of the Company declared a
dividend of $.19 per Share payable on October 6, 1997 to stockholders of record
on September 19, 1997. The dividend will be paid to such stockholders of record
regardless of whether or when they tender their Shares pursuant to the Offer.
Even if all of the Shares accumulated under the Reinvestment Plan by a
participant through September 3, 1997 are purchased by the Company pursuant to
the Offer, such participant's account will be credited with any Shares
attributable to the October 6, 1997 dividend of $.19 per Share, and the
stockholder's participation in the Reinvestment Plan will not be terminated.
Soon after the Expiration Date and the payment for any Shares the Company
accepts pursuant to the Offer, however, the Depositary will contact all
stockholders who tendered and sold Shares out of their Reinvestment Plan
accounts and inform them of their then current shareholdings (resulting from the
October 6, 1997 dividend), and offer such stockholders an opportunity to
liquidate that shareholding in their Reinvestment Plan accounts simply by
contacting the Depositary.
4. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after October 30, 1997 unless theretofore accepted
for payment as provided in this Offer to Purchase. If the Company extends the
period of time during which the Offer is open, is delayed in accepting for
payment or paying for Shares or is unable to accept for payment or pay for
Shares pursuant to the Offer for any reason, then, without prejudice to the
Company's rights under the Offer, the Depositary may, on behalf of the Company,
retain all Shares tendered, and such Shares may not be withdrawn except as
otherwise provided in this Section 4, subject to Rule 13e-4(f)(5) under the
Exchange Act, which provides that the issuer making the tender offer shall
either pay the consideration offered, or return the tendered securities promptly
after the termination or withdrawal of the tender offer.
8
<PAGE> 14
To be effective, a written or facsimile transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses set forth on
the back cover of this Offer to Purchase and must specify the name of the person
who tendered the Shares to be withdrawn and the number of Shares to be
withdrawn. If the Shares to be withdrawn have been delivered to the Depositary,
a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution (except in the case of Shares tendered by an Eligible Institution)
must be submitted prior to the release of such Shares. In addition, such notice
must specify, in the case of Shares tendered by delivery of certificates, the
name of the registered holder (if different from that of the tendering
stockholder) and the serial numbers shown on the particular certificates
evidencing the Shares to be withdrawn or, in the case of Shares tendered by
book-entry transfer, the name and number of the account at one of the Book-Entry
Transfer Facilities to be credited with the withdrawn Shares. Withdrawals may
not be rescinded, and Shares withdrawn will thereafter be deemed not validly
tendered for purposes of the Offer. However, withdrawn Shares may be retendered
by again following one of the procedures described in Section 3 at any time
prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Company, in its sole
discretion, which determination shall be final and binding. None of the Company,
the Dealer Manager, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defect or irregularity in any
notice of withdrawal or incur any liability for failure to give any such
notification.
5. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and subject to the conditions of the Offer and as promptly
as practicable after the Expiration Date, the Company will determine the
Purchase Price, taking into account the number of Shares tendered and the prices
specified by tendering stockholders, announce the Purchase Price, and will
(subject to the proration and conditional tender provisions of the Offer) accept
for payment and pay for Shares validly tendered at or below the Purchase Price.
Thereafter, payment for all Shares validly tendered on or prior to the
Expiration Date and accepted for payment pursuant to the Offer will be made by
the Depositary by check as promptly as practicable. In all cases, payment for
Shares accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of certificates for Shares (or of a confirmation of a
book-entry transfer of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities), a properly completed and duly executed Letter
of Transmittal or facsimile thereof, and any other required documents.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares that are validly tendered and not
withdrawn as, if and when it gives oral or written notice to the Depositary of
its acceptance for payment of such Shares. The Company will pay for Shares that
it has purchased pursuant to the Offer by depositing the Purchase Price therefor
with the Depositary. The Depositary will act as agent for tendering stockholders
for the purpose of receiving payment from the Company and transmitting payment
to tendering stockholders. Under no circumstances will interest be paid on
amounts to be paid to tendering stockholders, regardless of any delay in making
such payment.
Certificates for all Shares not purchased will be returned (or, in the case
of Shares tendered by book-entry transfer, such Shares will be credited to an
account maintained with a Book-Entry Transfer Facility) as promptly as
practicable without expense to the tendering stockholder.
Payment for Shares may be delayed in the event of difficulty in determining
the number of Shares properly tendered or if proration is required. See Section
1. In addition, if certain events occur, the Company may not be obligated to
purchase Shares pursuant to the Offer. See Section 7.
The Company will pay or cause to be paid any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the Purchase Price is to be made to, or
Shares not tendered or not purchased are to be registered in the name of, any
person other than the registered holder, or if tendered Shares are registered in
the name of any person other than the person signing the Letter of Transmittal,
the amount of any stock transfer taxes (whether imposed on the registered
holder, such other person or otherwise) payable on account of the transfer to
such person will be deducted from the
9
<PAGE> 15
Purchase Price unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted. See Instruction 7 to the Letter of
Transmittal.
6. CONDITIONAL TENDER OF SHARES.
Under certain circumstances and subject to the exceptions set forth in
Section 1, the Company may prorate the number of Shares purchased pursuant to
the Offer. As discussed in Section 13, the number of Shares to be purchased from
a particular stockholder might affect the tax treatment of such purchase to such
stockholder and such stockholder's decision whether to tender. EACH STOCKHOLDER
IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR. Accordingly, a stockholder
may tender Shares subject to the condition that a specified minimum number of
such holder's Shares tendered pursuant to a Letter of Transmittal or Notice of
Guaranteed Delivery must be purchased if any such Shares so tendered are
purchased, and any stockholder desiring to make such a conditional tender must
so indicate in the box captioned "Conditional Tender" in such Letter of
Transmittal or, if applicable, the Notice of Guaranteed Delivery.
Any tendering stockholder wishing to make a conditional tender must
calculate and appropriately indicate such minimum number of Shares. If the
effect of accepting tenders on a pro rata basis would be to reduce the number of
Shares to be purchased from any stockholder (tendered pursuant to a Letter of
Transmittal or Notice of Guaranteed Delivery) below the minimum number so
specified, such tender will automatically be regarded as withdrawn (except as
provided in the next paragraph) and all Shares tendered by such stockholder
pursuant to such Letter of Transmittal or Notice of Guaranteed Delivery will be
returned as promptly as practicable thereafter.
If conditional tenders would otherwise be so regarded as withdrawn and
would cause the total number of Shares to be purchased to fall below 15,000,000,
then, to the extent feasible, the Company will select enough of such conditional
tenders that would otherwise have been so withdrawn to permit the Company to
purchase 15,000,000 Shares. In selecting among such conditional tenders, the
Company will select by lot and will limit its purchase in each case to the
designated minimum number of Shares to be purchased.
7. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, the Company will not be
required to accept for payment or pay for any Shares tendered, and may terminate
or amend and may postpone (subject to the requirements of the Exchange Act for
prompt payment for or return of Shares) the acceptance for payment of Shares
tendered, if at any time on or after September 3, 1997 and at or before
acceptance for payment of any Shares any of the following shall have occurred:
(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or
administrative agency or authority or tribunal or any other person,
domestic or foreign, or before any court, authority, agency or tribunal
that (i) challenges the acquisition of Shares pursuant to the Offer or
otherwise in any manner relates to or affects the Offer or (ii) in the sole
judgment of the Company, could materially and adversely affect the
business, condition (financial or other), income, operations or prospects
of the Company and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the
business of the Company or any of its subsidiaries or materially impair the
Offer's contemplated benefits to the Company;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or the Company or
any of its subsidiaries, by any legislative body, court, authority, agency
or tribunal which, in the Company's sole judgment, would or might directly
or indirectly (i) make the acceptance for payment of, or payment for, some
or all of the Shares illegal or otherwise restrict or prohibit consummation
of the Offer, (ii) delay or restrict the ability of the Company, or render
the Company unable, to accept for payment or pay for some or all of the
Shares, (iii) materially impair the contemplated benefits of the Offer to
the Company or (iv) materially affect the business, condition (financial or
other), income, operations or prospects of the
10
<PAGE> 16
Company and its subsidiaries, taken as a whole, or otherwise materially
impair in any way the contemplated future conduct of the business of the
Company or any if its subsidiaries;
(c) it shall have been publicly disclosed or the Company shall have
learned that (i) any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) has acquired or proposes to acquire
beneficial ownership of more than 5% of the outstanding Shares whether
through the acquisition of stock, the formation of a group, the grant of
any option or right, or otherwise (other than as disclosed in a Schedule
13D or 13G on file with the Securities and Exchange Commission (the
"Commission") on or prior to September 3, 1997) or (ii) any such person or
group that on or prior to September 3, 1997 had filed such a Schedule with
the Commission thereafter shall have acquired or shall propose to acquire
whether through the acquisition of stock, the formation of a group, the
grant of any option or right, or otherwise, beneficial ownership of
additional Shares representing 2% or more of the outstanding Shares;
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market, (ii) any significant decline in
the market price of the Shares, (iii) any change in the general political,
market, economic or financial condition in the United States or abroad that
could have a material adverse effect on the Company's business, condition
(financial or other), income, operations, prospects or ability to obtain
financing generally or the trading in the Shares, (iv) the declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States or any limitation on, or any event which, in the Company's
sole judgment, might affect, the extension of credit by lending
institutions in the United States, (v) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, in the
Company's sole judgment, a material acceleration or worsening thereof;
(e) a tender or exchange offer with respect to some or all of the
Shares (other than the Offer), or a merger, acquisition or other business
combination proposal for the Company, shall have been proposed, announced
or made by any person;
(f) there shall have occurred any event or events that have resulted,
or may in the sole judgment of the Company result, in an actual or
threatened change in the business, condition (financial or other), income,
operations, stock ownership or prospects of the Company and its
subsidiaries, taken as a whole; or
(g) there shall have occurred any decline in the Dow Jones Industrial
Average (7,879.78 at the close of business on September 2, 1997) or the
Standard & Poor's Composite 500 Stock Index (927.58 at the close of
business on September 2, 1997) by an amount in excess of 10% measured from
the close of business on September 2, 1997;
and, in the sole judgment of the Company, such event or events make it
undesirable or inadvisable to proceed with the Offer or with such acceptance for
payment or payment.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances (including any action or
inaction by the Company) giving rise to any such condition, and any such
condition may be waived by the Company, in whole or in part, at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by the Company concerning
the events described above will be final and binding on all parties.
11
<PAGE> 17
8. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are listed and principally traded on the NYSE. The following
table sets forth the high and low sales prices of the Shares on the NYSE
Composite Tape and the cash dividends per Share for the Company's fiscal
quarters indicated.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH* LOW* PER SHARE
----- ---- ---------
<S> <C> <C> <C> <C>
Fiscal Year Ended September 30, 1995: 1st Quarter..................... $32 3/8 $25 5/8 $.17
2nd Quarter..................... 34 1/4 27 1/8 .17
3rd Quarter..................... 37 7/8 32 3/4 .17
4th Quarter..................... 40 5/8 30 .17
Fiscal Year Ended September 30, 1996: 1st Quarter..................... $31 7/8 $27 3/8 $.17
2nd Quarter...................... 32 5/8 28 .17
3rd Quarter..................... 32 7/8 27 7/8 .17
4th Quarter..................... 29 1/8 21 3/8 .17
Fiscal Year Ended September 30, 1997: 1st Quarter..................... $27 5/8 $24 1/8 $.17
2nd Quarter..................... 32 7/8 25 3/4 .17
3rd Quarter..................... 35 1/2 26 3/8 .17
4th Quarter (to September 2,
1997)....................... 38 5/8 33 7/8 .19**
</TABLE>
- ---------------
* Information provided was obtained from The Wall Street Journal, and the
Company believes such information to be accurate.
** Dividend declared by the Board of Directors of the Company for the fourth
quarter of the fiscal year ending September 30, 1997, to be paid on October
6, 1997 to stockholders of record on September 19, 1997.
On September 2, 1997, the last full NYSE trading day prior to the
announcement of the Offer, the last reported sale price of the Shares on the
NYSE Composite Tape was $35 5/16 per Share. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE SHARES.
On September 3, 1997, the Board of Directors of the Company announced an
increase in the regular quarterly cash dividend for the fourth quarter of the
fiscal year ending September 30, 1997 to $.19 per Share. Shares tendered and
purchased by the Company will be entitled to this regular quarterly cash
dividend of $.19 per Share to be paid by the Company on October 6, 1997 to
holders of record on September 19, 1997.
On June 1, 1988, the Board of Directors of the Company declared a dividend
distribution of one Right on each share of Common Stock outstanding at the close
of business on June 13, 1988, and in connection therewith entered into the
Rights Agreement, dated as of June 1, 1988, as amended, between the Company and
Texas Commerce Bank National Association, subsequently succeeded by First
Chicago Trust Company of New York, as the Rights Agent.
When exercisable, each Right will entitle the registered holder to purchase
one one-hundredth of a share of Series A Participating Preferred Stock at an
exercise price of $110.00, subject to adjustment. The Rights will not be
exercisable prior to the expiration of the Company's right to redeem the Rights.
The Company is entitled to redeem the Rights at $.05 per Right (subject to
adjustment) up to and including the tenth business day (twentieth business day
if the Board of Directors so determines) after the acquisition by a person of
beneficial ownership of shares of the Company's stock having 20% or more of the
general voting power of the Company. The Rights will expire on June 13, 1998,
unless earlier redeemed.
In general, the Rights Agreement provides that if the Company is acquired
in a merger or other 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 ("Stock Acquisition Date"), provision must be
made prior to the consummation of such transaction to entitle each holder of a
Right (except as provided in the Rights Agreement) to purchase at the exercise
price a number of the acquiring company's common shares
12
<PAGE> 18
having a market value (determined as provided in the Rights Agreement) at the
time of such transaction of two times the exercise price of the Right. The
Rights Agreement also provides that in the event of (a) the acquisition of the
Company on or at any time after the Stock Acquisition Date in a merger or other
business combination transaction in which the Company's Common Stock remains
outstanding and unchanged, (b) certain self-dealing transactions by a 20% or
greater stockholder, (c) the acquisition by a person of at least 30% of the
general voting power of the Company or (d) an increase in the ownership interest
of a 20% or greater stockholder by more than 1% as a result of the occurrence of
any of certain events specified in the Rights Agreement, then, in each such
case, each holder of a Right (except as provided in the Rights Agreement) will
have the right to receive, upon payment of the exercise price, a number of
shares of Series A Participating Preferred Stock having a market value
(determined as provided in the Rights Agreement) at the time of such transaction
of two times the exercise price of a Right.
The foregoing description of the Rights is qualified in its entirety by
reference to the Rights Agreement, a copy of which has been included as an
exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1988, and copies of the amendments thereto to which have been
included as exhibits to the Company's Quarterly Reports on Form 10-Q for the
quarters ended June 30, 1989, March 31, 1990 and March 31, 1996, in each case
filed with the Commission. Such reports and exhibits may be obtained from the
Commission in the manner provided in Section 16.
9. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.
The Company believes that the purchase of the Shares at this time will
benefit the Company and its stockholders over the long term through enhanced
earnings per share and will result in a capital structure more consistent with
the Company's business strategy. The Company has made significant progress
during this fiscal year in improving profitability and increasing cash flow. The
Company has significantly reduced the level of capital expenditures in fiscal
1997 compared to fiscal 1996, and has divested a significant amount of
underperforming assets during the course of the year. The Company will also
receive approximately $410 million from the settlement of the BFI Exchange
Securities in fiscal 1998.
Prior to the announcement of the Offer, the Company had been considering a
variety of alternatives for the use of excess cash with the goal of enhancing
stockholder value. The Company has determined that the action taken by the Board
of Directors on September 3, 1997 to increase the dividend to $.19 per share,
combined with the authorization of a $1.0 billion share repurchase program
(including the Offer), accomplishes this objective in an efficient manner. A
significant portion of the repurchase program is expected to be effected
pursuant to the Offer; however, in addition to the Offer, the Company intends to
commence purchases of additional Shares or BFI Exchange Securities from time to
time in the open market, in privately negotiated transactions or otherwise. See
Section 12. The Company expects any such purchase of additional Shares or BFI
Exchange Securities to be completed by September 30, 1998. Any such purchase may
be on the same terms or on terms that are more or less favorable to stockholders
than the terms of the Offer. However, under the Exchange Act rules, the Company
and its affiliates are prohibited from purchasing any Shares and BFI Exchange
Securities, other than pursuant to the Offer, until at least ten business days
after the Expiration Date. Any possible future purchases by the Company will
depend on many factors, including the market price of the Shares and the BFI
Exchange Securities, the results of the Offer, the Company's business and
financial position and general economic and market conditions.
The Offer will afford to stockholders who are considering the sale of all
or a portion of their Shares the opportunity to determine the price at which
they are willing to sell their Shares and, in the event the Company accepts such
Shares for purchase, to dispose of Shares without the usual transaction costs
associated with a market sale. The Offer will also allow qualifying stockholders
owning beneficially fewer than 100 Shares to avoid the payment of brokerage
commissions and the applicable odd lot discount payable on a sale of Shares in a
transaction effected on a securities exchange. Correspondingly, the costs to the
Company for servicing the accounts of odd lot holders will be reduced. See
Section 2.
As of September 2, 1997, the Company had issued and outstanding 204,472,625
Shares (excluding approximately 8,500,000 Shares held by the Company's Stock and
Employee Benefit Trust) and had reserved
13
<PAGE> 19
11,027,530 Shares for issuance upon exercise of outstanding stock options and
with respect to performance shares. The 15,000,000 Shares that the Company is
offering to purchase represent approximately 7.3% of the Shares then
outstanding. As of September 2, 1997, all directors and executive officers of
the Company as a group owned beneficially an aggregate of 3,425,035 Shares
(including an aggregate of 2,326,000 Shares that may be acquired pursuant to the
exercise of outstanding stock options exercisable within 60 days of the date
hereof) or approximately 1.7% of the Shares then outstanding. The Company has
been advised that no director or executive officer intends to tender Shares
pursuant to the Offer. If the Company purchases 15,000,000 Shares pursuant to
the Offer and no director or executive officer of the Company tenders Shares,
the percentage of outstanding Shares owned beneficially by all of the Company's
directors and executive officers as a group would increase to approximately 1.8%
of the Shares then outstanding (including for this purpose, Shares that may be
acquired by such directors and executive officers pursuant to the exercise of
outstanding stock options exercisable within 60 days of the date hereof).
Stockholders who determine not to accept the Offer will obtain a
proportionate increase in their ownership interest in the Company. After
consummation of the Offer, increases or decreases in net income will likely be
reflected in greater increases or decreases in earnings per Share than is
presently the case because of the smaller number of Shares outstanding
thereafter.
Shares that the Company acquires pursuant to the Offer will become
authorized but unissued Shares and will be available for issuance by the Company
without further stockholder action (except as may be required by applicable law
or the rules of the securities exchanges on which the Shares are listed). Such
Shares could be issued without stockholder approval for, among other things,
acquisitions, settlement of the BFI Exchange Securities, the raising of
additional capital for use in the Company's business, stock dividends or in
connection with employee stock, stock option and other plans or a combination
thereof.
Except as disclosed in this Offer to Purchase, the Company has no plans or
proposals which relate to or would result in: (a) the acquisition by any person
of additional securities of the Company or the disposition of securities of the
Company; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its subsidiaries;
(c) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries; (d) any change in the present Board of Directors or management
of the Company; (e) any material change in the present dividend rate or policy,
or indebtedness or capitalization of the Company; (f) any other material change
in the Company's corporate structure or business; (g) any change in the
Company's Restated Certificate of Incorporation or By-Laws, as amended, or any
actions which may impede the acquisition of control of the Company by any
person; (h) a class of equity security of the Company being delisted from a
national securities exchange; (i) a class of equity security of the Company
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Exchange Act; or (j) the suspension of the Company's obligation to file
reports pursuant to Section 15(d) of the Exchange Act.
The Company does not believe that the Offer will result in delisting of the
Shares on the NYSE or termination of registration of the Shares under the
Exchange Act.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH STOCKHOLDER MUST
MAKE HIS OR HER OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS BEEN ADVISED THAT NO
DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
10. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company 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 waste. The
Company also is involved in waste-to-energy conversion, medical waste services,
portable restroom services and municipal and commercial sweeping operations.
14
<PAGE> 20
The Company, a Delaware corporation, was incorporated on October 26, 1970.
The Shares are listed and principally traded on the NYSE under the symbol "BFI".
The Company's executive offices are located at 757 N. Eldridge, Houston, Texas
77079, and its telephone number is (281) 870-8100.
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 stockholders' 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
the fiscal year ending September 30, 1997 as compared to historic levels of such
expenditures.
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 North American regions and 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, accelerate
company-wide adoption of best practices and increase oversight and discipline
respecting capital expenditures.
The Company announced the following revised long-term financial goals in
October 1996: (a) to generate cash returns on assets in excess of the weighted
average cost of capital; (b) to increase profits at a faster pace than the
increase in revenues; and (c) to maintain a strong credit rating appropriate for
supporting business operations. To more closely align management interests to
stockholder interests, the Company also revised its long-term incentive
compensation plans for management to reallocate a significant portion of
management's stock option participation to performance-based restricted stock
that will vest only as certain performance measures are attained.
In October 1996, the Company also announced its plans to sell its 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. In July 1997, the Company announced that it had
completed the initial phase of its planned divestitures with the sale of
operating facilities in North America, representing approximately $260 million
in revenues, and the sale of certain of its European operations, including the
Company's Italian operations, representing approximately $190 million in
revenues. The Company also announced that future divestitures, with revenues
exceeding $230 million from North American and international operations, would
be completed in the next six to nine months.
During fiscal 1997, a redeployment and retraining of the sales force was
completed which enabled sales personnel to better focus on the Company's
customers. In addition, a planned reduction in selling, general and
administrative expense ("SG&A") resulted in SG&A constituting a lower percentage
of revenues for the first nine months of fiscal 1997 compared to the same period
for the prior year. The Company is also continuing its strategic reviews of
underperforming marketplaces to identify actions to improve business operations
or candidates for divestiture.
The Company expects to receive on June 30, 1998 proceeds of approximately
$410 million from the settlement of the BFI Exchange Securities. Under the terms
of the BFI Exchange Securities, the Company currently is required to issue
between approximately 9.6 million and 11.5 million shares of Common Stock when
the cash proceeds are received by the Company.
15
<PAGE> 21
Summary Historical Consolidated Financial Information
The following is a summary of certain historical consolidated financial
information regarding the Company for the periods indicated. The summary
financial information (other than the ratio of earnings to fixed charges) set
forth below for the years ended September 30, 1996 and 1995 is summarized or
prepared from the audited consolidated financial statements set forth in the
Company's 1996 Annual Report. The financial information (other than the ratio of
earnings to fixed charges) set forth below for the nine months ended June 30,
1997 and 1996 is summarized or prepared from the unaudited consolidated
financial statements set forth in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (the "Company's 1997 Third Quarter 10-Q")
and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 (the "Company's 1996 Third Quarter 10-Q"), which have been prepared on a
basis substantially consistent with the audited consolidated financial
statements, and reflect, in the opinion of management, all adjustments necessary
to a fair presentation of the financial position and results of operations for
such periods. The results for the nine months ended June 30, 1997 are not
necessarily indicative of the results for the full year. The Company's 1997
Third Quarter 10-Q (other than the exhibits thereto) is attached to this Offer
to Purchase as Annex I. The information presented below should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto, incorporated by reference herein. Copies of the Company's 1997 Third
Quarter 10-Q, the Company's 1996 Third Quarter 10-Q and the Company's 1996
Annual Report, in each case complete with exhibits, may be obtained as described
in Section 16.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
--------------- ---------------
1997 1996 1996 1995
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Revenues................................................... $4,380 $4,276 $5,779 $5,779
Income before special charges and extraordinary items...... $ 235 $ 206 $ 273 $ 385
Income (loss) before extraordinary items................... $ 185 $ 206 $ (89) $ 385
Net income (loss).......................................... $ 180 $ 194 $ (101) $ 385
Income (loss) per common and common equivalent share:
Income (loss) before extraordinary items................. $ .91 $ 1.03 $ (.44) $ 1.93
Net income (loss)........................................ $ .89 $ .97 $ (.50) $ 1.93
Number of common and common equivalent shares used in
computing earnings per share............................. 203 200 201 199
Ratio of earnings to fixed charges before special
charges.................................................. 3.02x 2.84x 2.77x 4.04x
Ratio of earnings to fixed charges......................... 2.59x 2.84x 1.02x 4.04x
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30,
--------------- -----------------
1997 1996 1996 1995
------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................................. $ 75 $ 39 $ (11) $ 8
Total assets............................................... $6,902 $7,828 $7,601 $7,460
Total long-term debt, net of current portion............... $2,111 $2,773 $2,767 $2,411
Total common stockholders' equity.......................... $2,596 $2,826 $2,510 $2,742
Book value per common share................................ $12.74 $14.06 $12.47 $13.79
</TABLE>
- ---------------
16
<PAGE> 22
NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(1) Financial information for the nine months ended June 30, 1997 includes:
(a) Special charges of $84 million ($50 million, or $.25 per share,
after income taxes) which were reported in the third quarter of
fiscal 1997. Included in these special charges were non-cash
expenses of $53 million due to cumulative foreign currency
translation losses associated with the sale of Italian business
operations and $96 million for anticipated losses related to
decisions to divest additional underperforming or non-core
business operations and assets located primarily in the United
Kingdom, the Netherlands and the United States. These losses were
offset partially by net gains of $65 million arising largely from
34 divestitures completed in the third quarter of fiscal 1997,
principally in North America.
(b) An extraordinary item recorded in the second quarter of fiscal
1997 of $3.1 million, after income tax, or approximately $.02 per
share, related to one of the Company's unconsolidated affiliates,
American Ref-Fuel Company of Hempstead. This affiliate incurred a
pre-tax charge to expense of $9.6 million associated with the
redemption of approximately $250 million principal amount of
Series 1985 Bonds, which were refinanced.
(c) Extraordinary charges to the Company's net income of $1.7 million,
after income tax, or approximately $.01 per share, related to the
Company's redemption of $160 million of private placement notes
previously scheduled to mature in fiscal 1998 and $11.8 million of
tax-exempt debt associated with a landfill in Arizona sold by the
Company.
(2) Financial information for the nine months ended June 30, 1996 includes:
(a) An extraordinary charge of $12.2 million, after income taxes, or
approximately $.06 per share, related to the redemption of the
Company's Convertible Subordinated Debentures.
(3) Financial information for the year ended September 30, 1996 includes:
(a) Special charges of $447 million ($362 million, or $1.80 per share,
after income taxes) which were recorded in the fourth quarter of
fiscal 1996. 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.
(b) An extraordinary charge of $12.2 million, after income taxes, or
approximately $.06 per share, related to the redemption of the
Company's Convertible Subordinated Debentures.
(4) For additional information relating to the Summary Historical Consolidated
Financial Information, reference is made to the Company's consolidated
financial statements and related notes thereto contained in the Company's
1997 Third Quarter 10-Q attached hereto as Annex I and the Company's 1996
Third Quarter 10-Q and the Company's 1996 Annual Report, each of which is
incorporated by reference herein.
17
<PAGE> 23
Summary Unaudited Consolidated Pro Forma Financial Information
The following summary unaudited consolidated pro forma financial
information gives effect to the purchase of Shares pursuant to the Offer, based
on the assumptions described in the Notes to Summary Unaudited Consolidated Pro
Forma Financial Information and give effect to the purchase of Shares pursuant
to the Offer as if it had occurred on the first date of each of the periods
presented, with respect to the operating statement data, and on June 30, 1997
and September 30, 1996, with respect to the balance sheet data. The summary
unaudited consolidated pro forma financial information should be read in
conjunction with the summary historical consolidated financial information and
does not purport to be indicative of the results that would actually have been
obtained, or results that may be obtained in the future, or the financial
condition that would have resulted had the purchase of the Shares pursuant to
the Offer been completed at the dates indicated.
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1997 YEAR ENDED SEPTEMBER 30, 1996
------------------------------------ ------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Revenues..................... $4,380 $4,380 $5,779 $5,779
Income before special charges
and extraordinary items.... $ 235 $ (15) $ 220 $ 273 $ (20) $ 253
Income (loss) before
extraordinary items........ $ 185 $ (15) $ 170 $ (89) $ (20) $ (109)
Net income (loss)............ $ 180 $ (15) $ 165 $ (101) $ (20) $ (121)
Income (loss) per common and
common equivalent share:
Income (loss) before
extraordinary items..... $ .91 $ .90 $ (.44) $ (.59)
Net income (loss).......... $ .89 $ .88 $ (.50) $ (.65)
Number of common and common
equivalent shares used in
computing earnings per
share...................... 203 (15) 188 201 (15) 186
Ratio of earnings to fixed
charges before special
charges.................... 3.02x 2.67x 2.77x 2.45x
Ratio of earnings to fixed
charges.................... 2.59x 2.29x 1.02x 0.91x
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997 AT SEPTEMBER 30, 1996
------------------------------------ ------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).... $ 75 $(177) $ (102) $ (11) $(177) $ (188)
Total assets................. $6,902 $6,902 $7,601 $7,601
Total long-term debt, net of
current portion............ $2,111 $ 410 $2,521 $2,767 $ 410 $3,177
Total common stockholders'
equity..................... $2,596 $(587) $2,009 $2,510 $(587) $1,923
Book value per common
share...................... $12.74 $10.64 $12.47 $10.32
</TABLE>
18
<PAGE> 24
NOTES TO SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
(1) Financial information for the nine months ended June 30, 1997 includes:
(a) Special charges of $84 million ($50 million, or $.25 per share, after
income taxes) which were reported in the third quarter of fiscal 1997.
Included in these special charges were non-cash expenses of $53 million
due to cumulative foreign currency translation losses associated with
the sale of Italian business operations and $96 million for anticipated
losses related to decisions to divest additional underperforming or
non-core business operations and assets located primarily in the United
Kingdom, the Netherlands and the United States. These losses were
offset partially by net gains of $65 million arising largely from 34
divestitures completed in the third quarter of fiscal 1997, principally
in North America.
(b) An extraordinary item recorded in the second quarter of fiscal 1997 of
$3.1 million, after income tax, or approximately $.02 per share,
related to one of the Company's unconsolidated affiliates, American
Ref-Fuel Company of Hempstead. This affiliate incurred a pre-tax charge
to expense of $9.6 million associated with the redemption of
approximately $250 million principal amount of Series 1985 Bonds, which
were refinanced.
(c) Extraordinary charges to the Company's net income of $1.7 million,
after income tax, or approximately $.01 per share, related to the
Company's redemption of $160 million of private placement notes
previously scheduled to mature in fiscal 1998 and $11.8 million of
tax-exempt debt associated with a landfill in Arizona sold by the
Company.
(2) Financial information for the year ended September 30, 1996 includes:
(a) Special charges of $447 million ($362 million, or $1.80 per share,
after income taxes) which were recorded in the fourth quarter of fiscal
1996. 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.
(b) An extraordinary charge of $12.2 million, after income taxes, or
approximately $.06 per share, related to the redemption of the
Company's Convertible Subordinated Debentures.
(3) The following assumptions were made in presenting the summary unaudited
consolidated pro forma financial information:
(a) The information assumes that 15,000,000 Shares are purchased and
retired at $39.00 per Share. There can be no assurance that the Company
will purchase 15,000,000 Shares or at what price any Shares will be
purchased.
(b) Expenses directly related to the Offer are assumed to be $2 million and
have been charged against additional paid-in capital.
(c) The purchase price is assumed to be financed with commercial paper at
an interest rate of 5.75%. However, while the Company is unable to
predict its level of cash on hand at the close of the Offer, such cash,
together with proceeds from the settlement of the BFI Exchange
Securities, cash flow from operations and proceeds from the divestiture
of business operations and assets, is expected to be sufficient to fund
a portion of the purchase price and to retire any commercial paper
issued to fund the balance within one year.
(d) The Company's effective tax rate is 40%.
(4) Earnings per share are computed by dividing net income by the weighted
average common and common equivalent shares outstanding during the year,
giving effect in the case of the pro forma amount to the Share repurchase
contemplated herein. The only dilutive common stock equivalents included in
the earnings per share calculation are outstanding stock options. Excluding
the matters discussed in Note 1
19
<PAGE> 25
above, earnings per share for the nine months ended June 30, 1997 would have
been $1.16 (or $1.17 on a pro forma basis). Excluding the matters discussed
in Note 2 above, earnings per share for the year ended September 30, 1996
would have been $1.36 (also $1.36 on a pro forma basis.).
(5) Book value per share is calculated by dividing common stockholders' equity
by the number of common and pro forma common shares outstanding at the end
of the period.
(6) For purposes of computing the ratio of earnings to fixed charges, "earnings"
has been calculated by adding to the caption "income before income taxes,
minority interest and extraordinary items", fixed charges, excluding
capitalized interest, and by deducting equity in earnings of affiliates less
than 50% owned. "Fixed charges" consists of interest expense whether
capitalized or expensed, amortization of debt costs, and the portion of
rents representing the interest factor which the Company generally
calculates as one-third of rental expense. The interest expense portion of
fixed charges includes interest expense and interest costs capitalized
related to the Company's proportionate share of 50%-owned subsidiaries and
has been reduced by capitalized interest income earned on proceeds primarily
from tax-exempt financings of such 50%-owned subsidiaries.
(7) For additional information relating to the Summary Unaudited Consolidated
Pro Forma Financial Information, reference is made to the Company's
consolidated financial statements and related notes thereto contained in the
Company's 1997 Third Quarter 10-Q attached hereto as Annex I and the
Company's 1996 Annual Report, which is incorporated herein by reference.
11. SOURCE AND AMOUNT OF FUNDS.
Assuming the Company purchases 15,000,000 Shares pursuant to the Offer at a
purchase price of $39.00 per Share, the Company expects the maximum aggregate
cost to be approximately $587 million (including estimated expenses). It is
anticipated that the Company will fund the purchase of Shares pursuant to the
Offer and the payment of related fees and expenses with proceeds of commercial
paper, which the Company expects to repay within one year through proceeds from
asset dispositions, cash from operations and proceeds from the settlement of the
BFI Exchange Securities.
12. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND AGREEMENTS CONCERNING
THE SHARES.
Except as described below, neither the Company, nor any subsidiary of the
Company nor, to the best of the Company's knowledge, any of the Company's
directors or executive officers, nor any affiliates of any of the foregoing, had
any transactions involving the Shares during the 40 business days prior to the
date hereof. On August 4, 1997, one director of the Company sold an aggregate of
87,987 Shares for an average sales price of $36.04 per share. On August 12,
1997, one of the Company's officers sold an aggregate of 6,000 Shares for $35.38
per share.
Except for outstanding options to purchase Shares granted from time to time
to certain employees (including executive officers) and non-employee directors
of the Company pursuant to the Company's stock option plans and performance
shares granted from time to time to certain employees (including executive
officers) pursuant to the Company's incentive compensation programs and except
as otherwise described herein, neither the Company nor, to the best of the
Company's knowledge, any of its affiliates, directors or executive officers, is
a party to any contract, arrangement, understanding or relationship with any
other person relating, directly or indirectly, to the Offer with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guaranties of loans, guaranties against loss or the giving or withholding
or proxies, consents or authorizations.
13. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
In General. The following summary describes certain United States federal
income tax consequences relating to the Offer. The summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and existing final,
temporary and proposed Treasury Regulations, Revenue Rulings and judicial
decisions, all of which are subject to prospective and retroactive changes. The
summary deals only with Shares
20
<PAGE> 26
held as capital assets within the meaning of Section 1221 of the Code and does
not address tax consequences that may be relevant to investors in special tax
situations, such as certain financial institutions, tax-exempt organizations,
life insurance companies, dealers in securities or currencies, or stockholders
holding the Shares as part of a conversion transaction, as part of a hedge or
hedging transaction, or as a position in a straddle for tax purposes. The
Company will not seek a ruling from the Internal Revenue Service (the "IRS")
with regard to the United States federal income tax treatment of the Offer and,
therefore, there can be no assurance that the IRS will agree with the
conclusions set forth below. Accordingly, each stockholder should consult its
own tax advisor with regard to the Offer and the application of United States
federal income tax laws, as well as the laws of any state, local or foreign
taxing jurisdiction, to its particular situation.
Characterization of the Sale. A sale of Shares by a stockholder of the
Company pursuant to the Offer will be a taxable transaction for United States
federal income tax purposes and may also be a taxable transaction under
applicable state, local and foreign tax laws. The United States federal income
tax consequences to a stockholder may vary depending upon the stockholder's
particular facts and circumstances. Under Section 302 of the Code, a sale of
Shares by a stockholder to the Company pursuant to the Offer will be treated as
a "sale or exchange" of such Shares for United States federal income tax
purposes (rather than as a dividend distribution by the Company with respect to
the Shares held by the tendering stockholder) if the receipt of cash upon such
sale (a) is "substantially disproportionate" with respect to the stockholder,
(b) results in a "complete redemption" of the Shares owned by the stockholder,
or (c) is "not essentially equivalent to a dividend" with respect to the
stockholder (each as described below).
If any of the above three tests is satisfied, and the sale of the Shares is
therefore treated as a "sale or exchange" of such Shares for United States
federal income tax purposes, the tendering stockholder will recognize gain or
loss equal to the difference between the amount of cash received by the
stockholder pursuant to the Offer and the stockholder's tax basis in the Shares
sold pursuant to the Offer. Any such gain or loss will be capital gain or loss.
Stockholders should consult their own tax advisors concerning the tax treatment
of capital gains and losses.
If none of the above three tests is satisfied, the tendering stockholder
would be treated as having received a dividend, to the extent the Company has
earnings and profits, which would be includible in gross income in an amount
equal to the entire amount of cash received by the stockholder pursuant to the
Offer (without reduction for the tax basis of the Shares sold pursuant to the
Offer), no loss would be recognized, and the tendering stockholder's basis in
the Shares sold pursuant to the Offer would be added to such stockholder's basis
in its remaining Shares, if any.
In determining whether any of the three tests under Section 302 of the Code
is satisfied, each stockholder must take into account not only the Shares which
are actually owned by the stockholder, but also Shares which are constructively
owned by the stockholder within the meaning of Section 318 of the Code. Under
Section 318 of the Code, a stockholder may constructively own Shares actually
owned, and in some cases constructively owned, by certain related individuals or
entities and Shares which the stockholder has the right to acquire by exercise
of an option or by conversion. Each stockholder should be aware that because
proration may occur in the Offer, even if all the Shares actually and
constructively owned by a stockholder are tendered pursuant to the Offer, fewer
than all of such Shares may be purchased by the Company. Thus, proration may
affect whether a sale by a stockholder pursuant to the Offer will meet any of
the three tests under Section 302 of the Code. See Section 6 for information
regarding each stockholder's option to make a conditional tender of a minimum
number of Shares. A stockholder should consult its own tax advisor regarding
whether to make a conditional tender of a minimum number of Shares, and the
appropriate calculation thereof.
Section 302 Tests. The receipt of cash by a stockholder will be
"substantially disproportionate" if the percentage of the outstanding Shares
actually and constructively owned by the stockholder immediately following the
sale of Shares pursuant to the Offer (treating as not outstanding all Shares
purchased pursuant to the Offer) is less than 80% of the percentage of the
outstanding Shares actually and constructively owned by such stockholder
immediately before the sale of Shares pursuant to the Offer (treating as
outstanding all Shares purchased pursuant to the Offer). Stockholders should
consult their tax advisors with respect to the application of the "substantially
disproportionate" test to their particular situation.
21
<PAGE> 27
The receipt of cash by a stockholder will be a "complete redemption" of all
the Shares owned by the stockholder if either (a) all of the Shares actually and
constructively owned by the stockholder are sold pursuant to the Offer, or (b)
all of the Shares actually owned by the stockholder are sold pursuant to the
Offer and, with respect to Shares constructively owned by the stockholder which
are not sold pursuant to the Offer, the stockholder is eligible to waive (and
effectively waives) constructive ownership of all such Shares under procedures
described in Section 302(c)(2) of the Code.
Even if the receipt of cash by a stockholder fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test, a
stockholder may nevertheless satisfy the "not essentially equivalent to a
dividend" test, if the stockholder's sale of Shares pursuant to the Offer
results in a "meaningful reduction" in the stockholder's interest in the
Company. Whether the receipt of cash by a stockholder will be "not essentially
equivalent to a dividend" will depend upon the individual stockholder's facts
and circumstances. The IRS has indicated in published rulings that even a small
reduction in the proportionate interest of a small minority stockholder in a
publicly held corporation who exercises no control over corporate affairs may
constitute such a "meaningful reduction." The IRS held in Rev. Rul. 76-385,
1976-2 C.B. 92, that a reduction in the percentage ownership interest of a
stockholder in a publicly held corporation from .0001118% to .0001081% (a
reduction to 96.7% of the stockholder's prior percentage ownership interest)
would constitute a "meaningful reduction." Under this ruling, it is likely that
a small minority stockholder who exercises no control over the Company, and all
of whose actual and constructively owned Shares are tendered at or below the
Purchase Price, would satisfy the "not essentially equivalent to a dividend"
test notwithstanding proration in the Offer. Stockholders expecting to rely on
the "not essentially equivalent to a dividend" test should consult their own tax
advisors as to its application in their particular situation.
Corporate Stockholder Dividend Treatment. Under current law, if a sale of
Shares by a corporate stockholder is treated as a dividend, the corporate
stockholder may be entitled to claim a dividends-received deduction under
Section 243 of the Code, subject to applicable limitations. However, it is
expected that any amount received by a corporate stockholder pursuant to the
Offer that is treated as a dividend would constitute an "extraordinary dividend"
under Section 1059 of the Code. Accordingly, a corporate stockholder would be
required under Section 1059(a) of the Code to reduce its basis (but not below
zero) in its Shares by the non-taxed portion of the dividend (i.e., the portion
of the dividend for which a deduction is allowed). Under the recently enacted
Taxpayer Relief Act of 1997 (the "Act"), if such portion exceeds the
stockholder's tax basis for its Shares, the excess will be recognized
immediately as taxable gain from the sale of such Shares in the year in which
Shares are sold pursuant to the Offer. Corporate stockholders should consult
their own tax advisors as to the application of Section 1059 of the Code to the
Offer.
Additional Tax Considerations. The distinction between capital gains and
ordinary income is relevant because certain individuals are subject to taxation
at reduced rates on certain capital gains. For example, under the Act, a
stockholder who is an individual and has held his Shares for more than 18 months
may be entitled to a 20% maximum federal tax rate for gains from the sale of
these Shares. Stockholders should consult their own tax advisers in this regard.
Foreign Stockholders. The Company will withhold United States federal
income tax at a rate of 30% from gross proceeds paid pursuant to the Offer to a
foreign stockholder or his agent, unless the Company determines that a reduced
rate of withholding is applicable pursuant to a tax treaty or that an exemption
from withholding is applicable because such gross proceeds are effectively
connected with the conduct of a trade or business by the foreign stockholder
within the United States. For this purpose, a "foreign stockholder" is a person
or entity that, for United States federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership or a foreign
estate or trust. Without definite knowledge to the contrary, the Company will
determine whether a stockholder is a foreign stockholder by reference to the
stockholder's address. A foreign stockholder may be eligible to file for a
refund of such tax or a portion of such tax if such stockholder (a) meets the
"complete redemption," "substantially disproportionate" or "not essentially
equivalent to a dividend" tests described above, (b) is entitled to a reduced
rate of withholding pursuant to a treaty and the Company withheld at a higher
rate, or (c) is otherwise able to establish that no tax or a reduced amount of
tax was due. In order to claim an exemption from withholding on the ground that
gross proceeds paid pursuant to the Offer are effectively connected with the
conduct of a trade or business by a
22
<PAGE> 28
foreign stockholder within the United States or that the foreign stockholder is
entitled to the benefits of a tax treaty, the foreign stockholder must deliver
to the Depositary (or other person who is otherwise required to withhold United
States tax) a properly executed statement claiming such exemption or benefits.
Such statements may be obtained from the Depositary. Foreign stockholders are
urged to consult their own tax advisors regarding the application of United
States federal income tax withholding, including eligibility for a withholding
tax reduction or exemption and the refund procedures.
The Company has not determined whether or not it is or has been, during a
five-year lookback period, a United States real property holding corporation,
within the meaning of section 897(c) of the Code. A foreign stockholder who (a)
meets the "complete redemption," "substantially disproportionate" or "not
essentially equivalent to a dividend" tests described above and (b) beneficially
owns or has owned, during a five-year lookback period, directly, indirectly or
constructively more than five percent of the Shares (a foreign stockholder who
is described in both clauses (a) and (b) of this sentence is hereafter called a
"Large Foreign Stockholder"), will be presumed, under Treasury Regulation
section 1.897-2(g), to dispose of shares in a United States real property
holding corporation unless the Large Foreign Stockholder establishes, by methods
prescribed in the above-cited Treasury regulation, that the Shares do not
constitute a United States real property interest. A Large Foreign Stockholder
who does not rebut the presumption by the prescribed methods generally will
recognize gain or loss on the disposition of its Shares pursuant to the Offer as
if such gain or loss were effectively connected with a United States trade or
business. Large Foreign Stockholders, if any, are urged to consult their own tax
advisors regarding the particular United States federal income tax consequences
to them of a sale of Shares pursuant to the Offer.
Backup Withholding. See Section 3 with respect to the application of the
United States federal income tax backup withholding.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY
AND MAY NOT APPLY TO SHARES ACQUIRED IN CONNECTION WITH THE EXERCISE OF STOCK
OPTIONS OR PURSUANT TO OTHER COMPENSATION ARRANGEMENTS WITH THE COMPANY. THE TAX
CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON, AMONG
OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TENDERING STOCKHOLDER. NO
INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE
OFFER AND THE EFFECT OF THE STOCK OWNERSHIP ATTRIBUTION RULES MENTIONED ABOVE.
14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.
The Company expressly reserves the right, in its sole discretion and at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary.
There can be no assurance, however, that the Company will exercise its right to
extend the Offer. During any such extension, all Shares previously tendered will
remain subject to the Offer, except to the extent that such Shares may be
withdrawn as set forth in Section 4. The Company also expressly reserves the
right, in its sole discretion, (a) to terminate the Offer and not accept for
payment any Shares not theretofore accepted for payment or, subject to Rule
13-4(f)(5) under the Exchange Act, which requires the Company either to pay the
consideration offered or to return the Shares tendered promptly after the
termination or withdrawal of the Offer, to postpone payment for Shares upon the
occurrence of any of the conditions specified in Section 7 hereof by giving oral
or written notice of such termination to the Depositary and making a public
announcement thereof and (b) at any time or from time to time amend the Offer in
any respect. Amendments to the Offer may be effected by public announcement.
Without limiting the manner in which the Company may choose to make public
announcement of any termination or amendment, the Company shall have no
obligation (except as otherwise required by applicable law) to publish,
advertise or otherwise communicate any such public announcement, other than by
making a release to the Dow Jones News Service, except in the case of an
announcement of an extension of the Offer, in which case the Company shall have
no obligation to
23
<PAGE> 29
publish, advertise or otherwise communicate such announcement other than by
issuing a notice of such extension by press release or other public
announcement, which notice shall be issued no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Material changes to information previously provided to holders of the
Shares in this Offer or in documents furnished subsequent thereto will be
disseminated to holders of Shares in compliance with Rule 13e-4(e)(2)
promulgated by the Commission under the Exchange Act.
If the Company materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price,
change in dealer's soliciting fee or change in percentage of securities sought)
will depend on the facts and circumstances, including the relative materiality
of such terms or information. In a published release, the Commission has stated
that in its view, an offer should remain open for a minimum of five business
days from the date that notice of such a material change is first published,
sent or given. The Offer will continue or be extended for at least ten business
days from the time the Company publishes, sends or gives to holders of Shares a
notice that it will (a) increase or decrease the price it will pay for Shares or
the amount of the Dealer Manager's soliciting fee or (b) increase (except for an
increase not exceeding 2% of the outstanding Shares) or decrease the number of
Shares it seeks.
15. FEES AND EXPENSES.
Morgan Stanley & Co. Incorporated will act as Dealer Manager for the
Company in connection with the Offer. The Company has agreed to pay the Dealer
Manager, upon acceptance for payment of Shares pursuant to the Offer, a fee
equal to $.10 multiplied by the aggregate number of Shares purchased by the
Company pursuant to the Offer. The Dealer Manager also will be reimbursed by the
Company for its reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses, including liabilities under the
federal securities laws, in connection with the Offer.
The Dealer Manager has rendered, is currently rendering and is expected to
continue to render various investment banking and other advisory services to the
Company. It has received, and will continue to receive, customary compensation
from the Company for such services.
The Company has retained First Chicago Trust Company of New York, as
Depositary, and Morrow & Co., Inc., as Information Agent, in connection with the
Offer. The Information Agent may contact stockholders by mail, telephone, telex,
telegraph and personal interviews, and may request brokers, dealers and other
nominee stockholders to forward materials relating to the Offer to beneficial
owners. The Depositary and the Information Agent will receive reasonable and
customary compensation for their services and will also be reimbursed for
certain out-of-pocket expenses. The Company has agreed to indemnify the
Depositary and the Information Agent against certain liabilities, including
certain liabilities under the federal securities laws, in connection with the
Offer. Neither the Information Agent nor the Depositary has been retained to
make solicitations or recommendations in connection with the Offer.
The Company will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of Shares pursuant to the Offer (other than
the fee of the Dealer Manager). The Company will, upon request, reimburse
brokers, dealers, commercial banks and trust companies for reasonable and
customary handling and mailing expenses incurred by them in forwarding materials
relating to the Offer to their customers.
16. MISCELLANEOUS.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission relating to its business, financial condition
and other matters. Certain information as of particular dates concerning the
Company's directors and officers, their remuneration, options granted to them,
the principal holders of the Company's securities and any material interest of
such persons in transactions with the Company is filed with the
24
<PAGE> 30
Commission. The Company has also filed an Issuer Tender Offer Statement on
Schedule 13E-4 with the Commission, which includes certain additional
information relating to the Offer. Such reports, as well as such other material,
may be inspected and copies may be obtained at the Commission's public reference
facilities at 450 Fifth Street, N.W., Washington, D.C., and should also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material may be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
and other information related to registrants that file electronically with the
Commission. Such reports, proxy statements and other information also should be
available for inspection at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York. The Company's Schedule 13E-4 may not be available at
the Commission's regional offices.
The Offer is being made to all holders of Shares. The Company is not aware
of any state where the making of the Offer or its acceptance is prohibited by
administrative or judicial action pursuant to a valid state statute. If the
Company becomes aware of any valid state statute prohibiting the making of the
Offer or its acceptance, the Company will make a good faith effort to comply
with such statute. If, after such good faith effort, the Company cannot comply
with such statute, the Offer will not be made to, nor will tenders be accepted
from or on behalf of, holders of Shares in such state. In those jurisdictions
whose securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of the
Company by the Dealer Manager or one or more registered brokers or dealers
licensed under the laws of such jurisdictions.
BROWNING-FERRIS INDUSTRIES, INC.
September 4, 1997
25
<PAGE> 1
ANNEX I
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------------
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 1-3876
BROWNING-FERRIS INDUSTRIES, INC.
(Exact name of registrant, as specified in its charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 75-1673682
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
757 N. ELDRIDGE
HOUSTON, TEXAS 77079
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (281) 870-8100
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 the number of shares outstanding of the issuer's common stock, as
of August 12, 1997: 212,805,670.
================================================================================
<PAGE> 2
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues..................................... $1,471,252 $1,471,368 $4,380,120 $4,276,036
Cost of operations........................... 1,095,201 1,115,350 3,260,849 3,190,371
---------- ---------- ---------- ----------
Gross profit................................. 376,051 356,018 1,119,271 1,085,665
Selling, general and administrative
expense.................................... 194,267 221,216 620,931 642,287
Special charges, net......................... 84,127 -- 84,127 --
---------- ---------- ---------- ----------
Income from operations....................... 97,657 134,802 414,213 443,378
Interest, net................................ 39,905 42,577 128,815 125,446
Equity in earnings of unconsolidated
affiliates................................. (18,969) (13,816) (37,478) (38,918)
---------- ---------- ---------- ----------
Income before income taxes, minority interest
and extraordinary items.................... 76,721 106,041 322,876 356,850
Income taxes................................. 30,688 42,417 129,150 142,740
Minority interest in income of consolidated
subsidiaries............................... 4,107 1,602 8,965 8,094
---------- ---------- ---------- ----------
Income before extraordinary items............ 41,926 62,022 184,761 206,016
Extraordinary items --
Loss on redemption of debt by
unconsolidated affiliate, net of income
tax benefit of $1,677................... -- -- 3,124 --
Loss on redemption of debt, net of income
tax benefit of $908 and $4,467.......... 1,685 -- 1,685 12,159
---------- ---------- ---------- ----------
Net income................................... $ 40,241 $ 62,022 $ 179,952 $ 193,857
========== ========== ========== ==========
Number of common and common equivalent shares
used in computing earnings per share....... 204,020 200,932 203,019 200,395
========== ========== ========== ==========
Earnings per common and common equivalent
share:
Income before extraordinary items.......... $ .21 $ .31 $ .91 $ 1.03
Extraordinary items........................ (.01) -- (.02) (.06)
---------- ---------- ---------- ----------
Net income................................. $ .20 $ .31 $ .89 $ .97
========== ========== ========== ==========
Cash dividends per common share.............. $ .17 $ .17 $ .51 $ .51
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
----------- -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 99,312 $ 110,224
Short-term investments.................................... 79,062 26,394
Receivables --
Trade, net of allowances for doubtful accounts of
$37,974 and $40,622.................................... 854,151 929,316
Other................................................... 87,240 42,543
Inventories............................................... 42,301 51,536
Deferred income taxes..................................... 113,868 119,914
Prepayments and other..................................... 82,886 107,868
---------- ----------
Total current assets............................... 1,358,820 1,387,795
---------- ----------
Property and equipment, at cost, less accumulated
depreciation and amortization of $2,506,545 and
$2,737,788................................................ 3,547,448 3,920,721
---------- ----------
Other assets:
Cost over fair value of net tangible assets of acquired
businesses, net of accumulated amortization of $159,448
and $138,636............................................ 1,452,220 1,671,461
Other intangible assets, net of accumulated amortization
of $88,373 and $110,835................................. 90,427 110,925
Deferred income taxes..................................... 118,299 122,617
Investments in unconsolidated affiliates.................. 243,290 287,051
Other..................................................... 91,719 100,336
---------- ----------
Total other assets................................. 1,995,955 2,292,390
---------- ----------
Total assets....................................... $6,902,223 $7,600,906
========== ==========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 33,692 $ 59,806
Accounts payable.......................................... 424,841 507,731
Accrued liabilities --
Salaries and wages...................................... 106,966 129,203
Taxes, other than income................................ 61,596 40,876
Other................................................... 449,238 430,187
Income taxes.............................................. 22,990 35,586
Deferred revenues......................................... 184,025 195,101
---------- ----------
Total current liabilities.......................... 1,283,348 1,398,490
---------- ----------
Deferred items:
Accrued environmental and landfill costs.................. 511,212 541,838
Deferred income taxes..................................... 145,416 108,041
Other..................................................... 255,331 275,374
---------- ----------
Total deferred items............................... 911,959 925,253
---------- ----------
Long-term debt, net of current portion...................... 2,110,581 2,766,885
---------- ----------
Commitments and contingencies
Common stockholders' equity:
Common stock, $.16 2/3 par; 400,000,000 shares authorized;
213,387,697 and 213,390,458 shares issued............... 35,572 35,572
Additional paid-in capital................................ 1,808,222 1,730,612
Retained earnings......................................... 1,048,265 1,031,331
Treasury stock, 1,147,931 and 1,027,278 shares, at cost... (15,611) (11,926)
Stock and Employee Benefit Trust, 8,424,452 and 11,012,423
shares.................................................. (280,113) (275,311)
---------- ----------
Total common stockholders' equity.................. 2,596,335 2,510,278
---------- ----------
Total liabilities and common stockholders'
equity........................................... $6,902,223 $7,600,906
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 179,952 $ 193,857
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization --
Property and equipment............................... 381,268 384,981
Goodwill............................................. 33,317 34,725
Other intangible assets.............................. 19,191 25,086
Special charges, net................................... 84,127 --
Deferred income tax expense............................ 7,235 20,005
Amortization of deferred investment tax credit......... (530) (530)
Provision for losses on accounts receivable............ 23,444 20,427
Gains on sales of fixed assets......................... (5,669) (3,984)
Equity in earnings of unconsolidated affiliates, net of
dividends received and extraordinary item............. 14,726 (2,086)
Minority interest in income of consolidated
subsidiaries, net of dividends paid................... 8,657 7,299
Increase (decrease) in cash from changes in assets and
liabilities excluding effects of acquisitions and
divestitures --
Trade receivables.................................... (57,146) (33,896)
Inventories.......................................... 3,219 2,139
Other assets......................................... 35,691 15,765
Other liabilities.................................... (5,056) (115,787)
--------- ---------
Total adjustments................................. 542,474 354,144
--------- ---------
Net cash provided by operating activities......... 722,426 548,001
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures...................................... (315,458) (656,628)
Payments for businesses acquired.......................... (15,353) (162,722)
Proceeds from businesses divested......................... 300,099 --
Investments in unconsolidated affiliates.................. (37,139) (92,389)
Proceeds from disposition of assets....................... 33,257 44,383
Purchases of short-term investments....................... (53,603) --
Sales of short-term investments........................... -- 273,647
Return of investment in unconsolidated affiliates......... 35,625 37,863
--------- ---------
Net cash used in investing activities............. (52,572) (555,846)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from issuances of stock.......................... 46,938 12,189
Proceeds from issuance of indebtedness.................... 114,535 979,813
Repayments of indebtedness................................ (735,803) (888,715)
Dividends paid............................................ (102,947) (101,615)
--------- ---------
Net cash provided by (used in) financing
activities...................................... (677,277) 1,672
--------- ---------
Effect of exchange rate changes............................. (3,489) (1,542)
--------- ---------
Net decrease in cash........................................ (10,912) (7,715)
Cash at beginning of period................................. 110,224 92,808
--------- ---------
Cash at end of period....................................... $ 99,312 $ 85,093
--------- ---------
Supplemental disclosure of cash paid for:
Interest, net of capitalized amounts...................... $ 122,596 $ 109,663
Income taxes.............................................. $ 137,167 $ 134,161
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION --
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments and disclosures
necessary to a fair presentation of these financial statements have been
included. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1996, as filed with the Securities
and Exchange Commission.
In October 1996, the Company adopted 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", which was issued by the
Financial Accounting Standards Board in March 1995. The 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. As the Company's prior accounting practices were substantially in
compliance with the provisions of the new standard, the adoption of SFAS No. 121
had no material effect on the Company's financial position or results of
operations.
In January 1997, the Securities and Exchange Commission issued Release
33-7386 governing disclosure requirements for financial instruments, including
derivatives. The disclosures related to the Company's accounting policies for
derivative transactions are required to be included in the Company's financial
statements for the quarter ended June 30, 1997. The Company believes that the
disclosures included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1996 are in compliance with the requirements of this
release.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 -- "Earnings Per Share". This statement, which establishes new standards for
computing and presenting earnings per share, is effective for the Company's
quarter ending December 31, 1997 and requires restatement for all periods
presented. The Company believes that the adoption of SFAS No. 128 will not have
a material effect on its earnings per share calculations.
(2) EARNINGS PER COMMON SHARE --
The following table reconciles the number of common shares outstanding with
the number of common and common equivalent shares used in computing primary
earnings per share (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
------------------
1997 1996
------- -------
<S> <C> <C>
Common shares outstanding, end of period.................... 212,240 212,363
Less -- Shares held in the Stock and Employee Benefit
Trust..................................................... (8,424) (11,326)
------- -------
Common shares outstanding for purposes of computing primary
earnings per share, end of period......................... 203,816 201,037
Effect of using weighted average common and common
equivalent shares outstanding............................. (1,552) (1,505)
Effect of shares issuable under stock option plans based on
the treasury stock method................................. 755 863
------- -------
Shares used in computing earnings per share................. 203,019 200,395
======= =======
</TABLE>
5
<PAGE> 6
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 diluted earnings per
share was not significant in any period. 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 by the weighted average number of shares of common stock and common
stock equivalents outstanding during each period. Common stock equivalents
include stock options, the Company's 6 3/4% Convertible Subordinated Debentures
due 2012 (the "6 3/4% Debentures"), which were redeemed in February 1996, and
the 7.25% Automatic Common Exchange Securities. The effect of the 6 3/4%
Debentures on earnings per share was not significant in the period prior to
their redemption in February 1996 and, accordingly, has not been included in the
computation. The 7.25% Automatic Common Exchange Securities had no effect on the
computations for the periods presented.
(3) SPECIAL CHARGES --
Fourth Quarter of Fiscal 1996 ($447 million) --
Special charges of $447 million ($362 million or $1.80 per share after
income taxes) were included in the Company's results of operations for the
fourth quarter of fiscal 1996. 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 of the
Company's investment in the Azusa, California landfill to fair value, which was
determined based upon the present value of the estimated future cash flows using
a discount rate commensurate with the risks involved. 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 adverse
decisions by California judicial and regulatory authorities in fiscal 1996 and
early fiscal 1997, bearing on the site's ability to accept municipal solid
waste. During the third quarter of fiscal 1997, the Company sold the Azusa,
California landfill facility.
The Company completed the sale of its Italian operations in late June 1997.
The Company's investment in its Italian operations, before considering special
charges, was $206 million as of September 30, 1996. Losses accumulated in the
foreign currency translation component of common stockholders' equity
(approximately $53 million) were recognized as an additional loss on the sale of
the Company's Italian operations upon consummation of the sale in June 1997 and
were included in the third quarter special charge (see discussion below).
Summary financial information related to the Company's Italian operations is as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED FOR THE
JUNE 30 YEAR ENDED
------------------- SEPTEMBER 30,
1997 1996 1996
------- ------- -------------
<S> <C> <C> <C>
Revenues........................................... $81,926 $88,450 $122,782
Losses from operations and equity in earnings of
unconsolidated affiliates before special
charges.......................................... $(2,190)(1) $ (763) $ (4,019)(2)
</TABLE>
- ---------------
(1) Does not reflect impact of special charges taken in third quarter of fiscal
1997 (see below).
(2) Does not reflect special charge of $178.6 million included in the fourth
quarter of fiscal 1996.
6
<PAGE> 7
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fourth quarter special charge also included approximately $177 million
of assets as of September 30, 1996 associated with domestic and international
non-core business assets and operations to be divested and recycling facilities
to be closed during fiscal 1997. The results of operations for these non-core
business assets and operations and recycling facilities were not material to the
Company's consolidated results of operations for fiscal 1996 as the aggregated
revenues and income (loss) from operations of these assets and operations
represented less than 4% of the Company's corresponding consolidated totals, on
a pre-special charge basis. During the first nine months of the current fiscal
year, the Company sold a number of these business operations and closed 33
recycling facilities.
Third Quarter of Fiscal 1997 ($84 million) --
Special charges of $84 million ($50 million or $0.25 per share after income
taxes) were reported in the third quarter of fiscal 1997. Included in these
special charges were non-cash expenses of $53 million due to cumulative foreign
currency translation losses associated with the sale of Italian business
operations and $96 million for anticipated losses related to decisions to divest
additional underperforming or non-core business operations and assets located
primarily in the United Kingdom, the Netherlands and the United States. These
losses were offset partially by net gains of $65 million arising largely from 34
divestitures completed in the current quarter, principally in North America.
The results of operations for these additional underperforming or non-core
business operations to be divested were not material to the Company's
consolidated results of operations for the nine months ended June 30, 1997 as
the aggregated total assets, revenues and income (loss) from operations of these
assets and business operations represented approximately 3% or less of the
Company's corresponding consolidated totals, on a pre-special charge basis.
(4) BUSINESS COMBINATIONS --
During the current fiscal year, the Company paid approximately $21.3
million (including additional amounts payable, principally to former owners, of
$5.9 million) to acquire 17 solid waste businesses, which were accounted for as
purchases. In connection with these acquisitions, the Company recorded
additional interest-bearing indebtedness of $.1 million and other liabilities of
$1.0 million. The results of these business combinations are not material to the
Company's consolidated results of operations or financial position.
During the prior 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 were
not material to the Company's consolidated results of operations or financial
position.
The results of all businesses acquired in fiscal years 1997 and 1996 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 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.
7
<PAGE> 8
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT --
Long-term debt at June 30, 1997, and September 30, 1996, was as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
---------- -------------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of unamortized discount of $1,617
and $1,838............................................ $ 198,383 $ 198,162
6.375% Senior Notes, net of unamortized discount of
$1,915 and $2,051..................................... 198,085 197,949
7 7/8% Senior Notes, net of unamortized discount of $714
and $783.............................................. 299,286 299,217
7.40% Debentures, net of unamortized discount of $2,042
and $2,082............................................ 397,958 397,918
9 1/4% Debentures........................................ 100,000 100,000
Solid waste revenue bond obligations..................... 171,726 149,127
Other notes payable...................................... 523,914 804,721
---------- ----------
1,889,352 2,147,094
Commercial paper and short-term facilities to be
refinanced............................................ 254,921 679,597
---------- ----------
Total long-term debt..................................... 2,144,273 2,826,691
Less current portion..................................... 33,692 59,806
---------- ----------
Long-term debt, net of current portion................... $2,110,581 $2,766,885
========== ==========
</TABLE>
During December 1996, the Company amended the terms of its existing $750
million Multicurrency Revolving Credit Agreement which was originally
established to fund the Company's acquisition of Attwoods plc in December 1994.
Under the terms of the amended agreement, the facility has a 364-day term with a
one-year term-out option available to the Company at any time prior to its
maturity date in December 1997. The agreement contains a net worth requirement
consistent with the Company's $1 billion revolving credit agreement.
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 classified as
long-term debt as of June 30, 1997 and September 30, 1996 is as follows (amounts
in thousands):
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
-------- -------------
<S> <C> <C>
United States -- Commercial paper........................... $ -- $438,296
Germany..................................................... 254,921 241,301
-------- --------
$254,921 $679,597
======== ========
</TABLE>
As of June 30, 1997, distributions from retained earnings could not exceed
$1.1 billion under the most restrictive of the Company's net worth maintenance
requirements.
(6) EXTRAORDINARY ITEMS --
During the second quarter of fiscal 1997, one of the Company's
unconsolidated affiliates, American Ref-Fuel Company of Hempstead, incurred a
pre-tax charge to expense of $9.6 million associated with the redemption of
approximately $250 million principal amount of Series 1985 Bonds, which were
refinanced. As a result, the Company has reflected an extraordinary charge,
after tax, of $3.1 million (or approximately $.02
8
<PAGE> 9
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per share) in its consolidated statement of income for the quarter ended March
31, 1997, related to its 50% ownership interest in this affiliate. Interest was
payable on the Series 1985 Bonds due 2010 at a weighted average interest rate of
approximately 7.3%, compared with the weighted average interest rate of
approximately 5% for the new bonds, which are also due in 2010.
During the third quarter of fiscal 1997, the Company redeemed $160 million
of private placement notes previously scheduled to mature in fiscal 1998 and
$11.8 million of tax-exempt debt associated with a landfill in Arizona sold by
the Company. These redemptions resulted in extraordinary charges to the
Company's net income of $1.7 million, after tax, or approximately $.01 per share
in the third quarter.
(7) 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 quarterly or annual
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.
The Company and certain subsidiaries are involved in various 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 quarterly or annual
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.
(8) 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.
9
<PAGE> 10
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 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 the Company's Annual
Report on Form 10-K for the year ended September 30, 1996 ("the Form 10-K"),
which describes many of the external factors that could cause the Company's
actual results to differ materially from the Company's expectations. The
Company's Form 10-K is on file with the U.S. Securities and Exchange Commission,
a copy of which is available without charge upon written request to: Browning-
Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253, Attention:
Secretary.
RESULTS OF OPERATIONS
Net income for the nine months ended June 30, 1997, was $235.2 million
($1.16 per share), before special charges and extraordinary items, an increase
of 14.2% from the same prior year period, on consolidated revenues of $4.380
billion. Pre-tax special charges reported in the third quarter of fiscal 1997
were $84 million ($50 million or $0.25 per share after tax). The fiscal 1997
nine-month results also included after-tax extraordinary items of $4.8 million,
or $0.02 per share, associated with the retirement of debt. After the special
charges and extraordinary items, net income for the nine months ended June 30,
1997 was $180.0 million, or $0.89 per share.
Included in the third quarter pre-tax special charges of $84 million were
non-cash expenses of $53 million due to cumulative foreign currency translation
losses associated with the sale of Italian business operations and $96 million
for anticipated losses related to decisions to divest additional underperforming
or non-core business operations and assets located primarily in the United
Kingdom, the Netherlands and the United States. These losses were offset
partially by net gains of $65 million arising largely from 34 divestitures
completed in the third quarter, principally in North America. The $4.8 million
of extraordinary items included in the current year-to-date results were
associated with the redemption and refinancing of $250 million of debt of one of
the Company's unconsolidated affiliates, American Ref-Fuel Company of Hempstead,
the redemption of $11.8 million in tax-exempt debt associated with a landfill in
Arizona sold by the Company in the third quarter and the redemption of $160
million in private placement notes previously scheduled to mature in fiscal
1998.
These year-to-date results compare with net income before an extraordinary
item for the same fiscal 1996 period of $206.0 million, or $1.03 per share, on
consolidated revenues of $4.276 billion. The fiscal 1996 extraordinary item of
$12.2 million, after tax ($0.06 per share), was associated with the redemption
of $745 million of Convertible Subordinated Debentures. After the extraordinary
item, net income for the nine months ended June 30, 1996, was $193.9 million or
$0.97 per share.
Fiscal 1997 year-to-date results, before special charges and extraordinary
items, were favorably affected by improved operating profit in the Company's
North American operations, which resulted from actions taken to (1) reduce SG&A
staffing levels and operating costs in the Company's collection and recycling
businesses, (2) improve customer pricing and (3) divest underperforming
operations and assets. Similar actions taken in the Company's international
operations have also recently begun to impact favorably the Company's
international operating results. Current year-to-date results were affected
negatively by severance and reorganization expenses of approximately $18 million
associated with both the reorganization of North American operations in June
1996 and the reductions, principally in the first half of the current fiscal
year, in worldwide employee staffing levels to effect improvements in operating
and administrative efficiency. Additionally, an increase in the Company's income
from operations of $19.5 million, principally due to lower depreciation and
amortization expense, was reflected in the current year-to-date earnings as a
result of the special charges of $447 million taken in the fourth quarter of
fiscal 1996 (see Note (3) of Notes to Consolidated Financial Statements).
10
<PAGE> 11
During the first nine months of fiscal 1997, the Company's actions
reflected its previously announced strategic shift in focus away from an
emphasis on external growth to an emphasis on internal growth and on increasing
return on assets. The redeployment and retraining of the sales force that was
completed in the first half of the current fiscal year is enabling sales
personnel to better focus on the Company's customers. In addition, the plan to
reduce selling, general and administrative expenses ("SG&A"), commenced during
the first quarter of fiscal 1997, has resulted in the reduction of approximately
1,300 employees worldwide since the Company announced its reorganization in June
1996 and the consolidation of certain business and administrative activities.
SG&A as a percent of revenues was 14.2% for the first nine months of fiscal
1997, lower than the same period of the prior year (15.0%). With a quarter
remaining in fiscal 1997, the Company is on track to exceed its SG&A milestone,
which is to reduce SG&A as a percent of revenues to 14.6% for the fiscal year.
During the first quarter of fiscal 1997, the Company completed its initial
marketplace and business line strategic reviews and identified core and non-core
business operations (including those considered in the special charges incurred
in the fourth quarter of fiscal 1996) to be marketed and sold with aggregate
annual revenues of approximately $270 million in the U.S. and $130 million
outside of the U.S. The Company has continued its strategic reviews of
underperforming marketplaces since the first quarter. The goal of these reviews
is to identify the key drivers of performance or underperformance in each
marketplace and identify actions to improve the business operations. However, in
some cases, these reviews have resulted in a conclusion to divest the operations
as it is evident that the Company will be unable to achieve its desired returns
even with identified areas for improvement. As a result of these reviews, the
Company has identified additional business operations with annual revenues of
$130 million in North America and $155 million (a portion of which is not
consolidated for financial reporting purposes) in international operations to be
divested (including those considered in the current quarter special charges).
Through June 1997, the Company has sold business operations with annual revenues
of approximately $450 million, with most of these sales concluded subsequent to
March 31, 1997. The Company has also identified real estate assets of
approximately $60 million that are actively being marketed.
In March 1997, the Company initiated an effort to reduce operating expenses
by $100 million on an annualized basis by the beginning of the fourth quarter of
fiscal 1997. Through June 30, the Company had reduced operating headcount by
approximately 800 employees through the re-routing of trucks, consolidations and
closures of operating facilities and, where appropriate, after careful review, a
reduction in supervisory personnel. Although this goal has not yet been fully
achieved, the ability to further reduce operating expenses in recycling business
operations will significantly affect the Company's ability to achieve this
operating expense reduction goal by fiscal yearend. The focus in the recycling
business is on (1) cleaning up the volumes received to reduce sorting costs and
increase the quality or value of the material to be sold and (2) closing or
selling the remaining higher cost, lower efficiency facilities. During the first
nine months of fiscal 1997, the Company closed or sold 49 recycleries. The
Company's focus on asset management continued during the third quarter. Reduced
capital spending will lead to lower fixed costs, which is another contributor to
the Company's effort to reduce operating costs. Capital expenditures, including
acquisitions, for the first nine months of fiscal 1997 were limited to $352
million.
11
<PAGE> 12
The following profitability ratios (shown as a percent of revenues) reflect
certain profitability trends for the Company's operations. The Company has
established an operating profit milestone for fiscal 1997 to increase income
from operations as a percent of revenues to 12%. (Progress toward this goal will
be measured on a pre-special charge basis.) Also presented below are return on
asset information and ratios of earnings to fixed charges.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
----------------- YEAR ENDED
6/30/97 6/30/96 9/30/96
------- ------- ----------
<S> <C> <C> <C>
Profitability Margins:
Gross profit............................................. 25.6% 25.4% 25.3%
Income from operations before special charges............ 11.4% 10.4% 10.2%
Income from operations................................... 9.5% 10.4% 2.5%
Income before income taxes, minority interest and
extraordinary items................................... 7.4% 8.3% 0.5%
Net income before special charges and extraordinary
items(1).............................................. 5.4% 4.8% 4.7%
Net income (loss)(1)..................................... 4.1% 4.5% (1.8)%
Other Financial Information:
Return on Gross Assets................................... 8.66% 8.55% 11.4%
Ratio of earnings to fixed charges before special
charges(1)............................................ 3.02 2.84 2.77
Ratio of earnings to fixed charges(1).................... 2.59 2.84 1.02
</TABLE>
- ---------------
(1) Does 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 (8) of Notes to Consolidated
Financial Statements.)
Improvement was reflected in all of the profitability margins, before
considering special charges and extraordinary items, presented above for the
nine months ended June 30, 1997 compared with the same period of the prior year.
Although these profitability margins continued to be affected negatively in
domestic operations by the decline in the weighted average value of recycling
commodities in the current fiscal year as compared with the first nine months of
the prior year, the North American income from operations margin reflected
improvement as a result of improved profitability in solid waste collection,
recycling and, to a lesser extent, transfer and disposal operations. Reduced
SG&A expenses as a percentage of revenues also affected favorably the North
American income from operations margin. The weighted average market prices for
recycling commodities in North America, principally corrugated, office paper and
newspaper, declined by 12%, to approximately $62 per ton in the first nine
months of the current year from approximately $70 per ton in the comparable
period last year. Current year profitability margins were also affected
negatively by the increased operating and SG&A costs associated with current
year employee severance and reorganization expenses of approximately $18
million, although this effect was more than offset by the increase in income
from operations of $19.5 million associated principally with the reduced
depreciation and amortization expense resulting from the special charges taken
in the fourth quarter of fiscal 1996. In the Company's international operations,
the gross profit margin was flat and income from operations margin improved in
the current year compared with the same period of the prior year. International
results, although adversely impacted by severance costs and foreign exchange
losses, improved principally as a result of higher seasonal operating
profitability from German operations.
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 generally as follows:
Operating cash flow -- the sum of (i) net income before extraordinary
items, (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 and the
current quarter of fiscal 1997).
12
<PAGE> 13
Gross assets -- the sum of total assets, accumulated depreciation and
amortization, and asset impairment writedowns (until such assets are sold
or otherwise disposed of -- approximately $175 million at June 30, 1997 and
$382 million at September 30, 1996) 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 (approximately $447 million at June 30, 1997) and
(iii) deferred income tax liabilities.
Gross assets in the ROGA computations for the first nine months of a fiscal year
is the average of the applicable beginning of year and end of first, second and
third quarter amounts; gross assets for a fiscal year is the average of the
applicable five quarter-end amounts in the period. The Company established a
ROGA milestone for fiscal 1997 to increase ROGA by 0.5% from fiscal 1996 to
11.9%.
Total assets decreased from $7.60 billion at September 30, 1996 to $6.90
billion at June 30, 1997. Average gross assets of approximately $8.72 billion in
the computation of ROGA resulted from a decline in gross assets at June 30,
1997, compared with September 30, 1996 ($9.06 billion). The decreases in assets
and gross assets were principally attributable to the divestitures completed
through June 30, 1997, and the decrease in assets related to foreign currency
exchange, a result of the strengthening U.S. dollar against the German, Dutch,
and Spanish currencies, offset partially by capital expenditures during the
first nine months of fiscal 1997. The decrease in assets was also attributable
to the increase in accumulated depreciation and amortization.
While the Company is on track to exceed its fiscal 1997 milestones for
lower SG&A costs, reduced capital spending and reduced interest-bearing debt
levels, management believes that the operating income margin and ROGA milestones
are very challenging, but still may be achievable. Management believes that
operating margin and ROGA improvements will come from decreased operating and
SG&A costs, additional divestitures, internal growth and normal seasonal
improvement over the remainder of the fiscal year.
EBITDA (defined herein as income from operations plus depreciation and
amortization expense before considering special charges) was $932 million for
the first nine months of fiscal 1997 as compared with $888 million for the first
nine months of last 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.
13
<PAGE> 14
Revenues --
Revenues for the nine months ended June 30, 1997, were $4.38 billion, a
2.4% increase over the same period last year. The following table reflects total
revenues of the Company by each of the principal lines of business (dollar
amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
JUNE 30, JUNE 30, %
1997 1996 CHANGE
---------- ---------- ------
<S> <C> <C> <C>
North American Operations (including Canada) --
Collection Services --
Solid Waste..................................... $2,203,095 $2,132,372 3.3%
Transfer and Disposal --
Solid Waste
Unaffiliated customers........................ 413,600 391,307 5.7%
Affiliated companies.......................... 391,230 378,014 3.5%
---------- ----------
804,830 769,321 4.6%
Recycling Services................................. 414,802 397,274 4.4%
Medical Waste Services............................. 149,592 150,225 (0.4)%
Services Group and Other........................... 73,058 62,830 16.3%
Elimination of affiliated companies' revenues...... (391,230) (378,014) 3.5%
---------- ----------
Total North American Operations............ 3,254,147 3,134,008 3.8%
International Operations............................. 1,125,973 1,142,028 (1.4)%
---------- ----------
Total Company.............................. $4,380,120 $4,276,036 2.4%
========== ==========
</TABLE>
As the table below reflects, revenue growth for the nine months ended June
30, 1997, was due principally to acquisitions and, to a lesser extent, pricing
and volume which more than offset the decline related to the divestiture of
business operations and foreign currency translation.
<TABLE>
<CAPTION>
CHANGES IN
REVENUE FOR
NINE MONTHS
ENDED
JUNE 30,
---------------
1997 1996
---- ----
<S> <C> <C>
Price....................................................... 1.4% (5.9)%
Volume...................................................... 0.8 0.1
Acquisitions................................................ 2.7 6.3
Divestitures................................................ (0.8) --
Foreign currency translation................................ (1.7) 0.1
---- ----
Total Percentage Increase......................... 2.4% 0.6%
==== ====
</TABLE>
As shown above, acquisitions accounted for revenue growth of 2.7% for the
first nine months of fiscal 1997 over the same period of the prior year. Revenue
growth due to acquisitions was attributable principally to acquisitions
consummated in fiscal 1996. No significant acquisitions were closed in the first
nine months of the current year with the new emphasis on internal rather than
external growth. Revenues increased due to change in price during the first nine
months of fiscal 1997 despite the decline in pricing in the North American
recycling business previously discussed. Increases in revenues due to price were
noted in the Company's collection, medical waste and international businesses
while a decrease was experienced in the transfer and disposal business. The
increases in revenue due to volume in the first nine months of the current year
compared with the same period of the prior year were driven by increases in the
North American collection, transfer and disposal and recycling businesses.
Revenues also reflect the effect of divestitures and lower international
revenues from foreign currency translation due to the stronger U.S. dollar.
14
<PAGE> 15
Cost of Operations --
Cost of operations increased $70 million or 2.2% for the first nine months
of fiscal 1997, compared with the same period of the prior year. Most of the
increase in cost of operations is attributable to businesses acquired in fiscal
1996. These increased costs have been offset partially by the impact of
divestitures of certain business operations and the operating cost reduction
program initiated in March 1997. As a result of this cost reduction program, the
Company has reduced its operating headcount by approximately 800 employees
through the re-routing of trucks, consolidations and closures of operating
facilities and, where appropriate, after careful review, a reduction in
supervisory personnel. Cost of operations as a percent of revenues decreased
from 74.6% for the nine months ended June 30, 1996 to 74.4% for the nine months
ended June 30, 1997. Included in cost of operations is depreciation and
amortization expense of approximately $360.0 million and $362.9 million for the
nine months ended June 30, 1997 and 1996, respectively.
Selling, General and Administrative Expense --
SG&A was $621 million for the first nine months of fiscal 1997, a decrease
of 3.3% from the same period last year. SG&A as a percent of revenues decreased
from 15.0% of revenues for the nine months ended June 30, 1996 to 14.2% of
revenues for the nine months ended June 30, 1997. The $21.4 million decrease in
SG&A was driven largely by the reduction in employees worldwide and other cost
reduction actions to improve operating and administrative efficiency. This
decrease was offset partially by higher costs associated with the Company's
acquisition activities and approximately $18 million of severance and
reorganization expenses included in SG&A associated with both the reorganization
of North American operations in June 1996 and the current year reduction of
employees worldwide. Included in SG&A for the nine months ended June 30, 1997
and 1996 was depreciation and amortization expense of $73.8 million and $81.9
million, respectively.
Special Charges, net --
Reported in the third quarter of fiscal 1997 were pre-tax special charges
of $84 million. The special charges included non-cash expenses of $53 million
due to cumulative foreign currency translation losses associated with the sale
of Italian business operations and $96 million for anticipated losses related to
decisions to divest additional underperforming or non-core business operations
located primarily in the United Kingdom, the Netherlands and the United States.
These losses were offset partially by net gains of $65 million arising largely
from 34 divestitures completed in the third quarter, principally in North
America.
Net Interest Expense --
Net interest expense increased $3.4 million or 2.7% for the first nine
months of fiscal 1997 compared with the same period of the prior year as a
result of the increase in average debt outstanding between the periods,
associated principally with fiscal 1996 capital expenditures of approximately
$1.2 billion. At the end of the third quarter of fiscal 1997, debt outstanding
had declined by $682 million from yearend fiscal 1996, largely as a result of
the receipt of net proceeds from divested operations, increased cash flow as a
result of improved operating performance and the limitation on capital spending
during the period. The Company has established a milestone for long-term debt
which is to maintain interest-bearing debt at or below the September 30, 1996
level.
Equity in Earnings of Unconsolidated Affiliates --
Equity in earnings of unconsolidated affiliates declined slightly between
the periods primarily due to the reduction in equity earnings from P&R due to
the acquisition of the remaining 50% ownership interest of P&R by Otto Waste
Services during the second quarter of fiscal 1996 offset to a large extent by
improved earnings from the Company's North American waste-to-energy and Hong
Kong equity affiliates. Included in this caption are the earnings of
unconsolidated affiliates of Otto Waste Services. The Company consolidates Otto
Waste Services' financial results, which include equity in earnings of Otto's
unconsolidated affiliates.
15
<PAGE> 16
Minority Interest in Income of Consolidated Subsidiaries --
The increase in minority interest in income of consolidated subsidiaries
was not significant, $0.9 million for the first nine months of fiscal 1997
compared with the same period of last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $10.7 million at September 30,
1996, compared with working capital of $75.5 million at June 30, 1997. Over the
long term, it continues to be the Company's desire 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.
As discussed in Note (8) of Notes to Consolidated Financial Statements, 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. These
securities are not included on the Company's balance sheet; an increase in
common stockholders' equity will be reflected when cash proceeds totaling over
$400 million are received by the Company no later than June 30, 1998.
Long-term indebtedness including the current portion of long-term
debt(including $498.2 million of Otto Waste Services debt, which has not been
guaranteed by the Company) as a percentage of total capitalization was 45% as of
June 30, 1997, down from 53% at September 30, 1996. The ratio would have been
37% at June 30, 1997, on a pro forma basis assuming that under the provisions
related to the Automatic Common Exchange Securities, cash proceeds of $409.7
million were paid to the Company to purchase common stock and such proceeds were
utilized to repay long-term debt.
The capital appropriations budget for fiscal 1997 was established at $790
million to provide for normal replacement capital needs in the Company's core
business, to provide new assets to support planned revenue growth within all
consolidated businesses and in anticipation of selective business acquisition
and development opportunities. This is a significant reduction from the $1.2
billion level of capital expenditures in fiscal 1996 and is reflective of the
new emphasis on internal rather than external growth. As a result of cash flows
from operations, proceeds from divestitures and reduced capital spending, the
Company has generated surplus cash through the first nine months of fiscal 1997,
a portion of which has been utilized to retire outstanding indebtedness. The
Company continues to assess the various alternatives for the use of such surplus
cash among investing additional capital in the business, increasing dividends,
additional debt retirement or a common share repurchase program.
As of June 30, 1997, there have been no significant changes in balance
sheet caption amounts compared with September 30, 1996, and there have been no
material changes in the Company's financial condition from that reported at
September 30, 1996, except with respect to the declines in balance sheet amounts
associated with the impact of foreign currency exchange resulting from the
strengthening of the U.S. dollar against the German, Dutch and Spanish
currencies, and except as disclosed herein.
16
<PAGE> 17
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain subsidiaries are 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), 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
quarterly or annual 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<C> <S>
12. -- Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
27. -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K: None
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
(Company)
/s/ BRUCE E. RANCK
------------------------------------
Bruce E. Ranck
President and Chief
Executive Officer
/s/ JEFFREY E. CURTISS
------------------------------------
Jeffrey E. Curtiss
Senior Vice President and
Chief Financial Officer
Date: August 13, 1997
18
<PAGE> 19
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal and certificates for Shares should be sent or delivered by each
stockholder of the Company or his or her broker, dealer, bank or trust company
to the Depositary at one of its addresses set forth below.
The Depositary:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<C> <C>
By Mail: By Facsimile Transmission:
First Chicago Trust Company of New York (For Eligible Institutions Only)
Tenders & Exchanges (201) 222-4720
P.O. Box 2569 or
Suite 4660 (201) 222-4721
Jersey City, New Jersey 07303-2569 Confirm by Telephone:
(201) 222-4707
By Hand: By Overnight Courier:
First Chicago Trust Company of First Chicago Trust Company of New York
New York Tenders & Exchanges
Tenders & Exchanges 14 Wall Street, 8th Floor
c/o The Depository Trust Company Suite 4680 - BFI
55 Water Street New York, New York 10005
DTC TAD
Vietnam Veterans Memorial Plaza
New York, New York 10041
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at the respective telephone numbers and addresses
listed below. Requests for additional copies of this Offer to Purchase, the
Letter of Transmittal, Notice of Guaranteed Delivery or other tender offer
materials may be directed to the Information Agent or the Dealer Manager, and
such copies will be furnished promptly at the Company's expense. Stockholders
may also contact their local broker, dealer, commercial bank or trust company
for assistance concerning the Offer.
The Information Agent:
MORROW & CO., INC.
909 Third Avenue, 20th Floor
New York, New York 10022
BANKS AND BROKERS CALL TOLL FREE:
(800) 662-5200
ALL OTHERS CALL TOLL FREE:
(800) 566-9061
The Dealer Manager:
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
(212) 761-5722 (call collect)
<PAGE> 1
EXHIBIT a.2
LETTER OF TRANSMITTAL
To Accompany Shares of Common Stock
(Including the Associated Preferred Stock Purchase Rights)
of
Browning-Ferris Industries, Inc.
Tendered Pursuant to the Offer to Purchase
Dated September 4, 1997
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY,
OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED.
TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, Depositary
<TABLE>
<C> <C>
By Mail: By Overnight Courier:
First Chicago Trust Company of New York First Chicago Trust Company of New York
Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569 14 Wall Street, 8th Floor
Suite 4660 Suite 4680 - BFI
Jersey City, New Jersey 07303-2569 New York, New York 10005
</TABLE>
By Hand:
First Chicago Trust Company of New York
Tenders & Exchanges
c/o The Depository Trust Company
55 Water Street DTC TAD
Vietnam Veterans Memorial Plaza
New York, New York 10041
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) ON SHARES TENDERED
CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES NUMBER
CERTIFICATE REPRESENTED BY OF SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------------------------
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented by any certificate delivered to the
Depositary are being tendered. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used if certificates are to be
forwarded herewith or if delivery of Shares (as defined below) is to be made by
book-entry transfer to the Depositary's account at The Depository Trust Company
("DTC") or Philadelphia Depository Trust Company ("PDTC") (hereinafter
collectively referred to as the "Book-Entry Transfer Facilities") pursuant to
the procedures set forth in Section 3 of the Offer to Purchase (as defined
below).
Stockholders who cannot deliver their Shares and all other documents
required hereby to the Depositary by the Expiration Date (as defined in the
Offer to Purchase) must tender their Shares pursuant to the guaranteed delivery
procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2.
Delivery of documents to the Company or to a Book-Entry Transfer Facility does
not constitute a valid delivery.
<PAGE> 3
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
- --------------------------------------------------------------------------------
Check Applicable Box: [ ] DTC [ ] PDTC
Account No.
- --------------------------------------------------------------------------------
Transaction Code No.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s)
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
- -------------------------------------------------------------------------------
Name of Institution that Guaranteed Delivery
- --------------------------------------------------------------------------------
If delivery is by book-entry transfer:
Name of Tendering Institution
- --------------------------------------------------------------------------------
Check Applicable Box: [ ] DTC [ ] PDTC
Account No.
- --------------------------------------------------------------------------------
Transaction Code No.
- --------------------------------------------------------------------------------
<PAGE> 4
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Browning-Ferris Industries, Inc., a
Delaware corporation (the "Company"), the above-described shares of its Common
Stock, par value $.16 2/3 per share (the "Shares") (including the associated
preferred stock purchase rights (the "Rights") issued pursuant to the Rights
Agreement, dated as of June 1, 1988, as amended, between the Company and First
Chicago Trust Company of New York, as the Rights Agent), pursuant to the
Company's offer to purchase up to 15,000,000 Shares at a price per Share
hereinafter set forth, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated September 4, 1997 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together constitute the "Offer"). Unless the
context otherwise requires, all references to Shares shall include the
associated Rights.
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to all the Shares that are being tendered hereby (and
any and all other Shares or other securities issued or issuable in respect
thereof on or after September 4, 1997 (collectively, "Distributions")) and
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares and all
Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver
certificates for such Shares and all Distributions, or transfer ownership of
such Shares and all Distributions on the account books maintained by any of the
Book-Entry Transfer Facilities, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, (b) present such Shares and all Distributions for registration and
transfer on the books of the Company and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares and all
Distributions, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions and that, when and to the extent the same
are accepted for payment by the Company, the Company will acquire good,
marketable and unencumbered title thereto, free and clear of all liens,
restrictions, charges, encumbrances, conditional sales agreements or other
obligations relating to the sale or transfer thereof, and the same will not be
subject to any adverse claims. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Depositary or the Company to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby and all Distributions.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death or incapacity of the undersigned, and
any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that (a) the undersigned has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and (b) the tender of such Shares complies
with Rule 14e-4. The Company's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Offer.
The undersigned understands that the Company will determine a single per
Share price (not greater than $39.00 nor less than $34.00 per Share) (the
"Purchase Price") that it will pay for Shares validly tendered and not withdrawn
pursuant to the Offer taking into account the number of Shares so tendered and
the prices specified by tendering stockholders. The undersigned understands that
the Company will select the Purchase Price that will enable it to purchase
15,000,000 Shares (or such lesser number of Shares as are validly tendered at
prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the
Offer. The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 2 or 3 of the Offer to Purchase and in the
instructions hereto will constitute an agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer. The
undersigned also understands that unless the Rights are redeemed or become
separately transferable in accordance with their terms, by tendering Shares the
undersigned will also be tendering the associated Rights and that no separate
consideration will be paid for such Rights.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of any Shares purchased, and/or return
any Shares not tendered or not purchased, in the name(s) of the undersigned
(and, in the case of Shares tendered by book-entry transfer, by credit to the
account at the Book-Entry Transfer Facility designated above). Similarly, unless
otherwise indicated under "Special Delivery Instructions," please mail the check
for the purchase price of any Shares purchased and/or any certificates for
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Payment Instructions" and "Special
Delivery Instructions" are completed, please issue the check for the purchase
price of any Shares purchased and/or return any Shares not tendered or not
purchased in the name(s) of, and mail said check and/or any certificates to, the
person(s)
<PAGE> 5
so indicated. The undersigned recognizes that the Company has no obligation,
pursuant to the "Special Payment Instructions," to transfer any Shares from the
name of the registered holder(s) thereof if the Company does not accept for
payment any of the Shares so tendered.
<PAGE> 6
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED
(SEE INSTRUCTION 5)
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED,
THERE IS NO PROPER TENDER OF SHARES.
- --------------------------------------------------------------------------------
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having Browning-Ferris
Industries, Inc. purchase all the Shares the undersigned is tendering
(subject to the possibility of proration). Accordingly, by checking this
ONE box INSTEAD OF ONE OF THE PRICE BOXES BELOW, the undersigned hereby
tenders Shares and is willing to accept the Purchase Price resulting from
the Dutch auction tender process. This action will result in receiving a
price per Share of as low as $34.00 or as high as $39.00.
--------------------------------------- OR
---------------------------------------
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
By checking ONE of the boxes below INSTEAD OF THE BOX ABOVE, the
undersigned hereby tenders Shares at the price checked. This action could
result in none of the Shares being purchased if the Purchase Price for the
Shares is less than the price checked. A stockholder who desires to tender
Shares at more than one price must complete a separate Letter of
Transmittal for each price at which Shares are tendered. The same Shares
cannot be tendered at more than one price.
Price (in dollars) per Share at which Shares are being tendered:
<TABLE>
<S> <C> <C> <C> <C> <C>
[ ] $34.00 [ ] $35.00 [ ] $36.00 [ ] $37.00 [ ] $38.00 [ ] $39.00
[ ] $34.125 [ ] $35.125 [ ] $36.125 [ ] $37.125 [ ] $38.125
[ ] $34.25 [ ] $35.25 [ ] $36.25 [ ] $37.25 [ ] $38.25
[ ] $34.375 [ ] $35.375 [ ] $36.375 [ ] $37.375 [ ] $38.375
[ ] $34.50 [ ] $35.50 [ ] $36.50 [ ] $37.50 [ ] $38.50
[ ] $34.625 [ ] $35.625 [ ] $36.625 [ ] $37.625 [ ] $38.625
[ ] $34.75 [ ] $35.75 [ ] $36.75 [ ] $37.75 [ ] $38.75
[ ] $34.875 [ ] $35.875 [ ] $36.875 [ ] $37.875 [ ] $38.875
</TABLE>
ODD LOTS
(SEE INSTRUCTION 9)
This section is to be completed ONLY if Shares are being tendered by or on
behalf of a person owning beneficially an aggregate of fewer than 100 Shares as
of the close of business on September 3, 1997.
The undersigned either (check one box):
[ ] was the beneficial owner of an aggregate of fewer than 100 Shares
(including Shares held in the Reinvestment Plan (as such term is defined in
the Offer to Purchase)) as of the close of business on September 3, 1997,
all of which are being tendered, or
[ ] is a broker, dealer, commercial bank, trust company or other nominee that
(a) is tendering, for the beneficial owners thereof, Shares with respect to
which it is the record owner, and (b) believes, based upon representations
made to it by each such beneficial owner, that such beneficial owner owned
beneficially an aggregate of fewer than 100 Shares (including Shares held
in the Reinvestment Plan and Stock Ownership and Savings Plan) as of the
close of business on September 3, 1997 and is tendering all of such Shares.
<PAGE> 7
DIVIDEND REINVESTMENT PLAN SHARES
(SEE INSTRUCTION 13)
This section is to be completed ONLY if Shares held in the Reinvestment
Plan are to be tendered.
[ ] By checking this box, the undersigned represents that the undersigned is a
participant in the Reinvestment Plan and hereby tenders the following
number of Shares held in the Reinvestment Plan account of the undersigned:
------------------ Shares*
* The undersigned understands and agrees that all Shares held in the
Reinvestment Plan account(s) of the undersigned will be tendered if the
above box is checked and the space above is left blank. Shares attributable
to the Company's dividend of $.19 per Share to be paid on October 6, 1997 to
holders of Shares of record on September 19, 1997 will not be eligible to be
tendered. See Instruction 13 to this Letter of Transmittal.
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY if the check for the purchase price of Shares
purchased and/or certificates for Shares not tendered or not purchased are to be
issued in the name of someone other than the undersigned.
Issue [ ] check and/or [ ] certificate(s) to:
Name
- ------------------------------------------
---------------------------------------------------
(Please Print)
Address
- ------------------------------------------
---------------------------------------------------
(Include Zip Code)
- ----------------------------------------------------
(Taxpayer Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY if the check for the purchase price of Shares
purchased and/or certificates for Shares not tendered or not purchased are to be
mailed to someone other than the undersigned or to the undersigned at an address
other than that shown below the undersigned's signature(s).
Mail [ ] check and/or [ ] certificates to:
Name
- ------------------------------------------
---------------------------------------------------
(Please Print)
Address
- ------------------------------------------
---------------------------------------------------
(Include Zip Code)
CONDITIONAL TENDER
A tendering stockholder may condition his or her tender of Shares upon the
purchase by the Company of a specified minimum number of the Shares tendered
hereby, all as described in the Offer to Purchase, particularly in Section 6
thereof. Unless at least such minimum number of Shares is purchased by the
Company pursuant to the terms of the Offer, none of the Shares tendered hereby
will be purchased. It is the tendering stockholder's responsibility to calculate
such minimum number of Shares, and each stockholder is urged to consult his or
her own tax advisor. Unless this box has been completed and a minimum specified,
the tender will be deemed unconditional.
Minimum number of Shares that must be purchased, if any are purchased:
------------------ Shares
<PAGE> 8
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
* *
------------------------------------------------------------------------------
Signature(s) of Owner(s)
* *
------------------------------------------------------------------------------
Dated
- ------------------------------------ , 1997
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
- --------------------------------------------------------------------------------
Capacity (full title)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.
- --------------------------------------------------------------------------------
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title and see Instruction 6.
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 6)
Name of Firm
- --------------------------------------------------------------------------------
Authorized Signature
- --------------------------------------------------------------------------------
Dated
- ------------------------------------------------------ , 1997
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed (a) if this
Letter of Transmittal is signed by the registered holder(s) of the Shares (which
term, for purposes of this document, shall include any participant in one of the
Book-Entry Transfer Facilities whose name appears on a security position listing
as the owner of Shares) tendered herewith and such holder(s) have not completed
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are
tendered for the account of an Eligible Institution. See Instruction 6.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or if delivery
of Shares is to be made by book-entry transfer pursuant to the procedures set
forth in Section 3 of the Offer to Purchase. Certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all Shares
delivered electronically, as well as a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) and any other documents required by
this Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth on this Letter of Transmittal on or prior to the Expiration
Date (as defined in the Offer to Purchase). Stockholders who cannot deliver
their Shares and all other required documents to the Depositary on or prior to
the Expiration Date must tender their Shares pursuant to the guaranteed delivery
procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such
procedure: (a) such tender must be made by or through an Eligible Institution,
(b) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Company (with any required signature
guarantees) must be received by the Depositary on or prior to the Expiration
Date and (c) the certificates for all physically delivered Shares, or a
confirmation of a book-entry transfer into the Depositary's account at one of
the Book-Entry Transfer Facilities of all Shares delivered electronically, as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by this Letter of
Transmittal must be received by the Depositary within three New York Stock
Exchange, Inc. trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF CERTIFICATES FOR SHARES ARE
SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED.
Except as specifically permitted by Section 6 of the Offer to Purchase, no
alternative or contingent tenders will be accepted. Fractional Shares will be
purchased, unless proration of tendered Shares is required (in which case only
fractional Shares held by participants in the Reinvestment Plan (as such term is
defined in the Offer to Purchase) will be purchased). See Section 1 of the Offer
to Purchase. By executing this Letter of Transmittal (or a facsimile thereof),
the tendering stockholder waives any right to receive any notice of the
acceptance for payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares represented by any certificate delivered
to the Depositary are to be tendered, fill in the number of Shares that are to
be tendered in the box entitled "Number of Shares Tendered." In such case, a new
certificate for the remainder of the Shares represented by the old certificate
will be sent to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the "Special Payment Instructions" or "Special Delivery
Instructions" boxes on this Letter of Transmittal, as promptly as practicable
following the expiration or termination of the Offer. All Shares represented by
certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
5. INDICATION OF PRICE AT WHICH SHARES ARE BEING TENDERED. For Shares to be
validly tendered by this Letter of Transmittal, the stockholder must either:
(a) check the box under "Shares Tendered at Price Determined by Dutch
Auction"; OR
(b) check the box indicating the price per Share at which he is
tendering Shares under "Shares Tendered at Price Determined by
Stockholder".
By checking the box under "Shares Tendered at Price Determined by Dutch Auction"
you agree to accept the Purchase Price that results from the Dutch Auction
tender process, which may be as low as $34.00 or as high as $39.00 per Share. By
checking a box under "Shares Tendered at Price Determined by Stockholder," you
acknowledge that doing so could result in none of the Shares being purchased if
the Purchase Price for the Shares is less than the price you check.
Only one box may be checked. If more than one box is checked or if no box
is checked, there is no valid tender of Shares. A stockholder wishing to tender
portions of his or her Share holdings at different prices must complete a
separate Letter of Transmittal for each price at which he or she wishes to
tender each such portion of his or her Shares. The same Shares cannot be
tendered (unless previously validly withdrawn as provided in Section 4 of the
Offer to Purchase) at more than one price.
<PAGE> 10
6. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
hereby, the signature(s) must correspond with the name(s) as written on the face
of the certificates without alteration, enlargement or any change whatsoever.
If any of the Shares hereby is held of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the Purchase Price is to be made to, or Shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s). Signatures on any such certificates or
stock powers must be guaranteed by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, certificates must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear(s) on the certificates
for such Shares. Signature(s) on any such certificates or stock powers must be
guaranteed by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
7. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock
transfer taxes with respect to the sale and transfer of any Shares to it or its
order pursuant to the Offer. If, however, payment of the purchase price is to be
made to, or Shares not tendered or not purchased are to be registered in the
name of, any person other than the registered holder(s), or if tendered Shares
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s), such other person or otherwise) payable on account
of the transfer to such person will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted. See Section 5 of the Offer to Purchase. EXCEPT AS PROVIDED IN THIS
INSTRUCTION 7, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE
CERTIFICATES REPRESENTING SHARES TENDERED HEREBY.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase
price of any Shares purchased is to be issued in the name of, and/or any Shares
not tendered or not purchased are to be returned to, a person other than the
person(s) signing this Letter of Transmittal or if the check and/or any
certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to an
address other than that shown above in the box captioned "Description of Shares
Tendered," then the boxes captioned "Special Payment Instructions" and/or
"Special Delivery Instructions" on this Letter of Transmittal should be
completed. Stockholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such stockholder at the Book-Entry Transfer Facility from which such transfer
was made.
9. ODD LOTS. As described in the Offer to Purchase, if fewer than all
Shares validly tendered at or below the Purchase Price and not withdrawn on or
prior to the Expiration Date are to be purchased, the Shares purchased first
will consist of all Shares tendered by any stockholder who owned beneficially an
aggregate of fewer than 100 Shares (including Shares held in the Reinvestment
Plan) as of the close of business on September 3, 1997 who validly and
unconditionally tendered all such Shares at or below the Purchase Price. Partial
tenders of Shares will not qualify for this preference. This preference will not
be available unless the box captioned "Odd Lots" in this Letter of Transmittal
and the Notice of Guaranteed Delivery, if any, is completed.
10. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required
to provide the Depositary with either a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, which is provided under "Important Tax
Information" below, or a properly completed Form W-8. Failure to provide the
information on either Substitute Form W-9 or Form W-8 may subject the tendering
stockholder to 31% federal income tax backup withholding on the payment of the
Purchase Price. The box in Part 2 of Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a number or
intends to apply for a number in the near future. If the box in Part 2 is
checked and the Depositary is not provided with a TIN by the time of payment,
the Depositary will withhold 31% on all payments of the Purchase Price
thereafter until a TIN is provided to the Depositary.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests
for assistance may be directed to the Information Agent or the Dealer Manager at
their respective telephone numbers and addresses listed below. Requests for
additional copies of the Offer to Purchase, this Letter of Transmittal or other
tender offer materials may be directed to the Information Agent or the Dealer
Manager and such copies will be furnished promptly at the Company's expense.
Stockholders may also contact their local broker, dealer, commercial bank or
trust company for assistance concerning the Offer.
12. IRREGULARITIES. All questions as to the Purchase Price, the form of
documents and the validity, eligibility (including time of receipt) and
acceptance of any tender of Shares will be determined by the Company, in its
sole discretion, and its determination shall be final and binding. The Company
reserves the absolute right to reject any or all tenders of Shares that it
determines are not in proper form or the acceptance for payment of or payment
for Shares that may, in the opinion of the Company's counsel, be
<PAGE> 11
unlawful. The Company also reserves the absolute right to waive any of the
conditions to the Offer or any defect or irregularity in any tender of Shares
and the Company's interpretation of the terms and conditions of the Offer
(including these instructions) shall be final and binding. Unless waived, any
defects or irregularities in connection with tenders must be cured within such
time as the Company shall determine. None of the Company, the Dealer Manager,
the Depositary, the Information Agent or any other person shall be under any
duty to give notice of any defect or irregularity in tenders, nor shall any of
them incur any liability for failure to give any such notice. Tenders will not
be deemed to have been made until all defects and irregularities have been cured
or waived.
13. REINVESTMENT PLAN. If a tendering stockholder desires to have tendered
pursuant to the Offer Shares which such stockholder has accumulated through
September 3, 1997 under the Reinvestment Plan, the box captioned "Dividend
Reinvestment Plan Shares" should be completed. A participant in the Reinvestment
Plan may complete such box on only one Letter of Transmittal submitted by such
participant. If a participant submits more than one Letter of Transmittal and
completes such box on more than one Letter of Transmittal, the participant will
be deemed to have elected to tender all Shares which such participant has
accumulated under the Reinvestment Plan through September 3, 1997 at the lowest
of the prices specified in such Letters of Transmittal. Upon receipt of the
instructions included in such box, the Depositary will notify the Reinvestment
Plan agent (the "Reinvestment Plan Agent") of such instructions. The
Reinvestment Plan Agent will then accumulate all such instructions from
tendering stockholders and will tender the aggregate number of Shares which it
has been instructed to tender at the respective prices specified in such
instructions. Upon receipt of payment for Shares tendered on behalf of a
participant in the Reinvestment Plan the Reinvestment Plan Agent will distribute
to such participant the amount received by the Reinvestment Plan Agent in
respect of such Shares.
On September 3, 1997, the Company declared a dividend of $.19 per Share
payable on October 6, 1997, to stockholders of record on September 19, 1997. The
dividend will be paid to such stockholders of record regardless of whether or
when they tender their Shares pursuant to the Offer. Even if all of the Shares
accumulated under the Reinvestment Plan by a participant through September 3,
1997 are purchased by the Company pursuant to the Offer, such participant's
account will be credited with any shares attributable to the October 6, 1997
dividend of $.19 per Share, and the stockholder's participation in the
Reinvestment Plan will not be terminated. Soon after the Expiration Date and the
payment for any Shares the Company accepts pursuant to the Offer, however, the
Depositary will contact all stockholders who tendered and sold Shares out of
their Reinvestment Plan accounts and inform them of their then current
shareholdings (resulting from the October 6, 1997 dividend), and offer such
stockholders an opportunity to liquidate that shareholding in their Reinvestment
Plan accounts simply by contacting the Depositary.
If a stockholder authorizes a tender of his or her Shares held in the
Reinvestment Plan, all such Shares held in such stockholder's Reinvestment Plan
account(s), including fractional Shares, will be tendered, unless otherwise
specified in the appropriate space in the box captioned "Dividend Reinvestment
Plan Shares."
In the event that the box captioned "Dividend Reinvestment Plan Shares" is
not completed, no Shares held in the tendering stockholder's Reinvestment Plan
account will be tendered.
PARTICIPANTS IN THE STOCK PURCHASE AND SAVINGS PLAN MAY NOT USE THIS LETTER
OF TRANSMITTAL TO DIRECT THE TENDER OF THE SHARES ATTRIBUTABLE TO THE
PARTICIPANT'S ACCOUNT BUT MUST USE THE "DIRECTION FORM" SENT TO THEM BY THE
TRUSTEE OF THE PLAN. PARTICIPANTS IN THE STOCK PURCHASE AND SAVINGS PLAN ARE
URGED TO READ THE SEPARATE "TENDER INSTRUCTION FORMS" AND RELATED MATERIALS
CAREFULLY.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF)
TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE
EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
<PAGE> 12
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such stockholder's correct TIN on Substitute Form W-9 below or a properly
completed Form W-8. If such stockholder is an individual, the TIN is his or her
social security number. For businesses and other entities, the number is the
employer identification number. If the Depositary is not provided with the
correct TIN on Substitute Form W-9 or a properly completed Form W-8, the
stockholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such stockholder with respect to
Shares purchased pursuant to the Offer may be subject to backup withholding. The
Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If federal income tax backup withholding applies, the Depositary is
required to withhold 31% of any payments made to the stockholder. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to federal income tax backup withholding will be reduced by
the amount of the tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the stockholder is required
to notify the Depositary of his or her correct TIN by completing the Substitute
Form W-9 below certifying that the TIN provided on Substitute Form W-9 is
correct and that (a) the stockholder has not been notified by the Internal
Revenue Service that he or she is subject to federal income tax backup
withholding as a result of failure to report all interest or dividends or (b)
the Internal Revenue Service has notified the stockholder that he or she is no
longer subject to federal income tax backup withholding. Foreign stockholders
must submit a properly completed Form W-8 in order to avoid the applicable
backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the registered owner of the Shares.
If the Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report.
<PAGE> 13
PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW.
-----------------------------------------------------------
<CAPTION>
<S> <C>
SUBSTITUTE
FORM W-9 TIN -----------------------------------
Social Security Number or
Employer Identification Number
-----------------------------------------------------------
Name (Please Print)
DEPARTMENT OF THE TREASURY ---------------------------------------------------------- PART 2
INTERNAL REVENUE SERVICE Address
---------------------------------------------------------- Awaiting
--------------------
TIN [ ]
City State Zip
Code
-------------------------------------------------------------------------------
PART 3 -- Certification -- Under the Penalties of Perjury, I certify that
(1) the number shown on this form is my correct taxpayer identification number
(or a TIN has not been issued to me but I have mailed or delivered an
application to receive a TIN or intend to do so in the near future),
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends or
PAYER'S REQUEST FOR the IRS has notified me that I am no longer subject to backup withholding
TAXPAYER IDENTIFICATION
NUMBER (TIN)
AND CERTIFICATION and
(3) all other information provided on this form is true, correct and complete.
Signature ------------------------------------------- Date
----------------------
You must cross out item (2) above if you have been notified by the IRS that you
are currently subject to backup withholding because of underreporting interest
or dividends on your tax return.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments of the purchase price made to me thereafter will be withheld
until I provide a number.
Signature
- ------------------------------------------------------ Date
- ------------------------ , 1997
<PAGE> 14
The Information Agent:
MORROW & CO., INC.
909 Third Avenue, 20th Floor
New York, New York 10022
BANKS AND BROKERS CALL TOLL FREE:
(800) 662-5200
ALL OTHERS CALL TOLL FREE:
(800) 566-9061
The Dealer Manager:
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
(212) 761-5722 (call collect)
<PAGE> 15
GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
PURPOSE OF FORM.-- A person who is required to file an information return with
the IRS must obtain your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an IRA. Use Form W-9 to furnish
your correct TIN to the requester (the person asking you to furnish your TIN)
and, when applicable, (1) to certify that the TIN you are furnishing is correct
(or that you are waiting for a number to be issued), (2) to certify that you are
not subject to backup withholding, and (3) to claim exemption from backup
withholding if you are an exempt payee. Furnishing your correct TIN and making
the appropriate certifications will prevent certain payments from being subject
to backup withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form.
HOW TO OBTAIN A TIN.-- If you do not have a TIN, apply for one immediately. To
apply, get FORM SS-5, Application for a Social Security Card (for individuals),
from your local office of the Social Security Administration, or FORM SS-4,
Application for Employer Identification Number (for businesses and all other
entities), from your local IRS office.
To complete Form W-9 if you do not have a TIN, write "Applied for" in the
space for the TIN in Part I (or check box 2 of Substitute Form W-9), sign and
date the form, and give it to the requester. Generally, you must obtain a TIN
and furnish it to the requester by the time of payment. If the requester does
not receive your TIN by the time of payment, backup withholding, if applicable,
will begin and continue until you furnish your TIN to the requester.
NOTE: Writing "Applied for" (or checking box 2 of the Substitute Form W-9) on
the form means that you have already applied for a TIN OR that you intend to
apply for one in the near future.
As soon as you receive your TIN, complete another Form W-9, include your TIN,
sign and date the form, and give it to the requester.
WHAT IS BACKUP WITHHOLDING?-- Persons making certain payments to you are
required to withhold and pay to the IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee compensation, and certain payments
from fishing boat operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS notifies the requester that you furnished an incorrect TIN, or
3. You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax return
(for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts opened
after 1983 only), or
5. You do not certify your TIN. This applies only to reportable interest,
dividend, broker, or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.
Except as explained in 5 above, other reportable payments are subject to
backup withholding only if 1 or 2 above applies. Certain payees and payments are
exempt from backup withholding and information reporting. See PAYEES AND
PAYMENTS EXEMPT FROM BACKUP WITHHOLDING, below, and Exempt PAYEES AND PAYMENTS
under Specific Instructions, below, if you are an exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING.-- The following is a list of
payees exempt from backup withholding and for which no information reporting is
required. For interest and dividends, all listed payees are exempt except item
(9). For broker transactions, payees listed in (1) through (13) and a person
registered under the Investment Advisers Act of 1940 who regularly acts as a
broker are exempt. Payments subject to reporting under sections 6041 and 6041A
are generally exempt from backup withholding only if made to payees described in
items (1) through (7), except a corporation that provides medical and health
care services or bills and collects payments for such services is not exempt
from backup withholding or information reporting. Only payees described in items
(2) through (6) are exempt from backup withholding for barter exchange
transactions, patronage dividends, and payments by certain fishing boat
operators.
(1) A corporation. (2) An organization exempt from tax under section 501(a),
or an IRA, or a custodial account under section 403(b)(7). (3) The United States
or any of its agencies or instrumentalities. (4) A state, the District of
Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities. (5) A foreign government or any of its
political subdivisions, agencies, or instrumentalities. (6) An international
organization or any of its agencies or instrumentalities. (7) A foreign central
bank of issue. (8) A dealer in securities or commodities required to register in
the United States or a possession of the United States. (9) A futures commission
merchant registered with the Commodity Futures Trading Commission. (10) A real
estate investment trust. (11) An entity registered at all times during the tax
year under the Investment Company Act of 1940. (12) A common trust fund operated
by a bank under section 584(a). (13) A financial institution. (14) A middleman
known in the investment community as a nominee or listed in the most recent
publication of the American Society of Corporate Secretaries, Inc., Nominee
List. (15) A trust exempt from tax under section 664 or described in section
4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
Payments of Interest generally not subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct TIN to the payer.
- -Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid to you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A, and 6050N, and their regulations.
<PAGE> 16
Form W-9 Page 2
- --------------------------------------------------------------------------------
PENALTIES
FAILURE TO FURNISH TIN.-- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.-- If you make a
false statement with no reasonable basis that results in no backup withholding,
you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS.-- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
NAME.-- If you are an individual, you must generally provide the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card, and your new last name.
If you are a sole proprietor, you must furnish your individual name and either
your SSN or EIN. You may also enter your business name or "doing business as"
name on the business name line. Enter your name(s) as shown on your social
security card and/or as it was used to apply for your EIN on Form SS-4.
SIGNING THE CERTIFICATION.
1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You are required to furnish your
correct TIN, but you are not required to sign the certification.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross
out item 2 of the certification.
4. OTHER PAYMENTS. You are required to furnish your correct TIN, but you are
not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN,
but you are not required to sign the certification.
6. EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you
should complete this form to avoid possible erroneous backup withholding. Enter
your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign and
date the form. If you are a nonresident alien or foreign entity not subject to
backup withholding, give the requester a completed Form W-8, Certificate of
Foreign Status.
7. TIN "APPLIED FOR". Follow the instructions under How To Obtain a TIN, on
page 1, and sign and date this form.
SIGNATURE.-- For a joint account, only the person whose TIN is shown in Part I
should sign.
PRIVACY ACT NOTICE.-- Section 6109 requires you to furnish your correct TIN to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, or contributions you made to an
IRA. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
required to file a tax return. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
TIN to a payer. Certain penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<S> <C>
- ------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF:
- ------------------------------------------------------------------
1. Individual The individual
2. Two or more individuals The actual owner of the account
(joint account) or, if combined funds, the first
individual on the account.(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable The grantor-trustee(1)
savings trust (grantor is
also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under state
law
5. Sole proprietorship The owner(3)
- ------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
- ------------------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or Legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a state or local government,
school district, or prison)
that receives agricultural
program payments
- ------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's SSN.
(3) Show your individual name. You may also enter your business name. You may
use your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 1
EXHIBIT a.3
[BROWNING-FERRIS INDUSTRIES, INC. LETTERHEAD]
SEPTEMBER 4, 1997
Dear Stockholder:
Browning-Ferris Industries, Inc. is offering to purchase up to 15,000,000
shares of its common stock (representing approximately 7.3% of the currently
outstanding shares, excluding shares issued to the Company's Stock and Employee
Benefit Trust), at a price not greater than $39.00 nor less than $34.00 per
share. The Company is conducting the offer through a procedure commonly referred
to as a "dutch auction." This procedure allows you to select the price within
that range at which you are willing to sell all or a portion of your shares to
the Company. Alternatively, this procedure allows you to sell all or a portion
of your shares to the Company at a price determined by the "Dutch Auction"
process.
Based upon the number of shares tendered and the prices specified by the
tendering stockholders, the Company will determine the single per-share price
within that range that will allow it to buy 15,000,000 shares (or such lesser
number of shares that are properly tendered). All of the shares that are
properly tendered at prices at or below that purchase price (and are not
withdrawn) will -- subject to possible proration, conditional tenders and
provisions relating to the tender of "odd lots" -- be purchased for cash at that
purchase price, net to the selling stockholder. All other shares that have been
tendered and not purchased will be returned to the stockholder.
If you do not wish to participate in the offer, you do not need to take any
action.
The offer is explained in detail in the enclosed Offer to Purchase and
Letter of Transmittal. If you want to tender your shares, the instructions on
how to do so are also explained in detail in the enclosed materials. I encourage
you to read carefully these materials before making any decision with respect to
the offer.
The Company believes that the purchase of its shares of common stock at
this time represents an attractive opportunity that will benefit BFI and its
stockholders. However, neither the Company nor its Board of Directors makes any
recommendation to any stockholder whether to tender all or any shares. Neither I
nor any other director or executive officer intends to tender shares pursuant to
the offer.
Sincerely,
/s/ Bruce E. Ranck
Bruce E. Ranck
President and Chief Executive Officer
<PAGE> 1
EXHIBIT a.4
BROWNING-FERRIS INDUSTRIES, INC.
NOTICE OF GUARANTEED DELIVERY
OF SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if certificates for the shares of Common
Stock of Browning-Ferris Industries, Inc. are not immediately available, if the
procedure for book-entry transfer cannot be completed on a timely basis, or if
time will not permit all other documents required by the Letter of Transmittal
to be delivered to the Depositary on or prior to the Expiration Date (as defined
in Section 1 of the Offer to Purchase defined below). Such form may be delivered
by hand or transmitted by mail, or (for Eligible Institutions only) by facsimile
transmission, to the Depositary. See Section 3 of the Offer to Purchase. THE
ELIGIBLE INSTITUTION, WHICH COMPLETES THIS FORM, MUST COMMUNICATE THE GUARANTEE
TO THE DEPOSITARY AND MUST DELIVER THE LETTER OF TRANSMITTAL AND CERTIFICATES
FOR SHARES TO THE DEPOSITARY WITHIN THE TIME SHOWN HEREIN. FAILURE TO DO SO
COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE INSTITUTION.
TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY
<TABLE>
<C> <C>
By Mail: By Facsimile Transmission:
First Chicago Trust Company (For Eligible Institutions Only)
of New York (201) 222-4720
Tenders & Exchanges or
P.O. Box 2569 (201) 222-4721
Suite 4660 Confirm by Telephone:
Jersey City, New Jersey 07303-2569 (201) 222-4707
By Hand: By Overnight Courier:
First Chicago Trust Company First Chicago Trust Company
of New York of New York
Tenders & Exchanges Tenders & Exchanges
c/o The Depository Trust Company 14 Wall Street, 8th Floor
55 Water Street Suite 4680 -- BFI
DTC TAD New York, New York 10005
Vietnam Veterans Memorial Plaza
New York, New York 10041
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE
ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
1
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Browning-Ferris Industries, Inc., a
Delaware corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated September 4, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of which is hereby acknowledged, the number of
shares of Common Stock, par value $.16 2/3 per share (the "Shares") (including
the associated preferred stock purchase rights (the "Rights") issued pursuant to
the Rights Agreement, dated as of June 1, 1988, as amended, between the Company
and First Chicago Trust Company of New York, as Rights Agent), of the Company
listed below, pursuant to the guaranteed delivery procedure set forth in Section
3 of the Offer to Purchase.
Number of Shares:
------------------------------------------------------
------------------------------------------------------
Certificate Nos.: (if available)
------------------------------------------------------
If Shares will be tendered by book-entry transfer:
Name of Tendering Institution:
------------------------------------------------------
Account No. ________________ at (check one)
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
------------------------------------------------------
Signature(s)
------------------------------------------------------
Name(s) (Please Print)
------------------------------------------------------
Address
------------------------------------------------------
------------------------------------------------------
Area Code and Telephone Number
2
<PAGE> 3
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED,
OR IF NO BOX IS CHECKED, THERE IS NO PROPER TENDER OF SHARES
- --------------------------------------------------------------------------------
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having Browning-Ferris
Industries, Inc. purchase all the Shares the undersigned is tendering
(subject to the possibility of proration). Accordingly, by checking this
ONE box INSTEAD OF ONE OF THE PRICE BOXES BELOW, the undersigned hereby
tenders Shares and is willing to accept the Purchase Price resulting from
the Dutch auction tender process. This action will result in receiving a
price per Share of as low as $34.00 or as high as $39.00.
------------------------------ OR
------------------------------
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
By checking ONE of the boxes below INSTEAD OF THE BOX ABOVE, the undersigned
hereby tenders Shares at the price checked. This action could result in none
of the Shares being purchased if the Purchase Price for the Shares is less
than the price checked. A stockholder who desires to tender Shares at more
than one price must complete a separate Letter of Transmittal for each price
at which Shares are tendered. The same Shares cannot be tendered at more
than one price.
Price (in dollars) per Share at which Shares are being tendered:
<TABLE>
<S> <C> <C> <C> <C> <C>
[ ] $34.00 [ ] $35.00 [ ] $36.00 [ ] $37.00 [ ] $38.00 [ ] $39.00
[ ] $34.125 [ ] $35.125 [ ] $36.125 [ ] $37.125 [ ] $38.125
[ ] $34.25 [ ] $35.25 [ ] $36.25 [ ] $37.25 [ ] $38.25
[ ] $34.375 [ ] $35.375 [ ] $36.375 [ ] $37.375 [ ] $38.375
[ ] $34.50 [ ] $35.50 [ ] $36.50 [ ] $37.50 [ ] $38.50
[ ] $34.625 [ ] $35.625 [ ] $36.625 [ ] $37.625 [ ] $38.625
[ ] $34.75 [ ] $35.75 [ ] $36.75 [ ] $37.75 [ ] $38.75
[ ] $34.875 [ ] $35.875 [ ] $36.875 [ ] $37.875 [ ] $38.875
</TABLE>
======================================================
<TABLE>
<S> <C>
CONDITIONAL TENDER ODD LOTS
UNLESS THIS BOX HAS BEEN COMPLETED AND A To be completed ONLY if Shares are being
MINIMUM SPECIFIED, THE TENDER WILL BE DEEMED tendered or on behalf of persons owning benefi-
UNCONDITIONAL (see Sections 6 and 13 of the cially an aggregate of fewer than 100 Shares as
Offer to Purchase). of the close of business on September 3, 1997.
Minimum number of Shares that must be The undersigned either (check one):
purchased, if any are purchased: [ ] was the beneficial owner of an aggregate of
--------------- Shares fewer than 100 Shares (including Shares
held in the Reinvestment Plan (as such term
is defined in the Offer to Purchase)) as of
the close of business on September 3, 1997,
all of which are tendered, or
[ ] is a broker, dealer, commercial bank, trust
company or other nominee that (i) is
tendering, for the beneficial owners
thereof, Shares with respect to which it is
the record owner, and (ii) believes, based
upon representations made to it by each
such beneficial owner, that such beneficial
owner owned an aggregate of fewer than 100
Shares (including Shares held in the
Reinvestment Plan) as of the close of
business on September 3, 1997 and is
tendering all of such Shares.
</TABLE>
======================================================
3
<PAGE> 4
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States, guarantees (a) that the above-named person(s) has a net long position in
the Shares (and associated Rights) being tendered within the meaning of Rule
14e-4 promulgated under the Securities Exchange Act of 1934, as amended, (b)
that such tender of Shares complies with Rule 14e-4 and (c) to deliver to the
Depositary at one of its addresses set forth above certificate(s) for the Shares
tendered hereby, in proper form for transfer, or a confirmation of the
book-entry transfer of the Shares tendered hereby into the Depositary's account
at The Depository Trust Company or Philadelphia Depository Trust Company, in
each case together with a properly completed and duly executed Letter(s) of
Transmittal (or facsimile(s) thereof), with any required signature guarantee(s)
and any other required documents, all within three New York Stock Exchange, Inc.
trading days after the date hereof.
<TABLE>
<C> <C>
- -------------------------------------------- --------------------------------------------
Name of Firm Authorized Signature
- -------------------------------------------- --------------------------------------------
Address Name
- -------------------------------------------- --------------------------------------------
City, State, Zip Code Title
- --------------------------------------------
Area Code and Telephone Number
Dated:
- ------------------------------------------ ,
1997
</TABLE>
DO NOT SEND STOCK CERTIFICATES WITH THIS FORM.
YOUR STOCK CERTIFICATES MUST BE SENT WITH
THE LETTER OF TRANSMITTAL.
4
<PAGE> 1
EXHIBIT a.5
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
BROWNING-FERRIS INDUSTRIES, INC.
OFFER TO PURCHASE FOR CASH
UP TO 15,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED.
September 4, 1997
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
In our capacity as Dealer Manager (the "Dealer Manager"), we are enclosing
the material listed below relating to the offer of Browning-Ferris Industries,
Inc., a Delaware corporation (the "Company"), to purchase up to 15,000,000
shares of its Common Stock, par value $.16 2/3 per share (the "Shares")
(including the associated preferred stock purchase rights issued pursuant to the
Rights Agreement, dated as of June 1, 1988, as amended, between the Company and
First Chicago Trust Company of New York, as the Rights Agent), at prices not
greater than $39.00 nor less than $34.00 per Share, net to the seller in cash,
specified by tendering stockholders, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated September 4, 1997 (the
"Offer to Purchase"), and in the related Letter of Transmittal (which together
constitute the "Offer"). The Company will determine a single price (not greater
than $39.00 nor less than $34.00 per Share) that it will pay for Shares validly
tendered pursuant to the Offer (the "Purchase Price"), taking into account the
number of Shares so tendered and the prices specified by tendering stockholders.
The Company will select the Purchase Price that will enable it to purchase
15,000,000 Shares (or such lesser number of Shares as are validly tendered at
prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the
Offer. The Company will purchase all Shares validly tendered at prices at or
below the Purchase Price and not withdrawn, upon the terms and subject to the
conditions of the Offer, including the provisions relating to proration and
conditional tenders described in the Offer to Purchase.
The Purchase Price will be paid in cash, net to the seller, with respect to
all Shares purchased. Shares tendered at prices in excess of the Purchase Price
and Shares not purchased because of proration and conditional tenders will be
returned.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. The Offer is, however, subject to other conditions. See Section 7 of
the Offer to Purchase.
We are asking you to contact your clients for whom you hold Shares
registered in your name (or in the name of your nominee) or who hold Shares
registered in their own names. Please bring the Offer to their attention as
promptly as possible. The Company will, upon request, reimburse you for
reasonable and customary handling and mailing expenses incurred by you in
forwarding any of the enclosed materials to your clients.
1
<PAGE> 2
For your information and for forwarding to your clients, we are enclosing
the following documents:
1. The Offer to Purchase, which includes as annexes thereto the
Company's Quarterly Report on Form 10-Q for the third quarter of the
Company's 1997 fiscal year other than the exhibits thereto.
2. The Letter of Transmittal for your use and for the information of
your clients.
3. A letter to stockholders of the Company from the President and
Chief Executive Officer of the Company.
4. The Notice of Guaranteed Delivery to be used to accept the Offer if
the Shares and all other required documents cannot be delivered to the
Depositary by the Expiration Date (as defined in the Offer to Purchase).
5. A letter which may be sent to your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee, with
space for obtaining such clients' instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9 providing information
relating to backup federal income tax withholding.
7. A return envelope addressed to First Chicago Trust Company of New
York, the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED.
The Company will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of Shares pursuant to the Offer (other than
the Dealer Manager). The Company will, upon request, reimburse brokers, dealers,
commercial banks and trust companies for reasonable and customary handling and
mailing expenses incurred by them in forwarding materials relating to the Offer
to their customers. The Company will pay all stock transfer taxes applicable to
its purchase of Shares pursuant to the Offer, subject to Instruction 7 of the
Letter of Transmittal.
As described in the Offer to Purchase, if more than 15,000,000 Shares have
been validly tendered at or below the Purchase Price and not withdrawn on or
prior to the Expiration Date, as defined in Section 1 of the Offer to Purchase,
the Company will purchase Shares in the following order of priority: (a) all
Shares validly tendered at or below the Purchase Price and not withdrawn on or
prior to the Expiration Date by any stockholder who owned beneficially an
aggregate of fewer than 100 Shares (including any Shares held in the Dividend
Reinvestment Plan (the "Reinvestment Plan")) as of the close of business on
September 3, 1997 and who validly tenders all of such Shares (partial and
conditional tenders will not qualify for this preference) and completes the box
captioned "Odd Lots" on the Letter of Transmittal and, if applicable, the Notice
of Guaranteed Delivery; and (b) after purchase of all the foregoing Shares,
subject to the conditional tender provisions described in Section 6 of the Offer
to Purchase, all other Shares validly tendered at or below the Purchase Price
and not withdrawn on or prior to the Expiration Date on a pro rata basis, if
necessary (with appropriate adjustments to avoid purchases of fractional Shares,
other than Shares held in the Reinvestment Plan).
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. STOCKHOLDERS MUST
MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE
OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
2
<PAGE> 3
Any questions or requests for assistance or additional copies of the
enclosed materials may be directed to Morrow & Co., Inc. (the "Information
Agent") or the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of the enclosed Offer to Purchase.
Very truly yours,
Morgan Stanley Dean Witter
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE
DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE> 1
EXHIBIT a.6
BROWNING-FERRIS INDUSTRIES, INC.
OFFER TO PURCHASE FOR CASH
UP TO 15,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated September
4, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") setting forth an offer by Browning-Ferris
Industries, Inc., a Delaware corporation (the "Company"), to purchase up to
15,000,000 shares of its Common Stock, par value $.16 2/3 per share (the
"Shares") (including the associated preferred stock purchase rights issued
pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between
the Company and First Chicago Trust Company of New York, as the Rights Agent),
at prices not greater than $39.00 nor less than $34.00 per Share, net to the
seller in cash, specified by tendering stockholders, upon the terms and subject
to the conditions of the Offer. The Company will determine a single per Share
price (not greater than $39.00 nor less than $34.00 per Share) that it will pay
for the Shares validly tendered pursuant to the Offer and not withdrawn (the
"Purchase Price"), taking into account the number of Shares so tendered and the
prices specified by tendering stockholders. The Company will select the Purchase
Price that will enable it to purchase 15,000,000 Shares (or such lesser number
of Shares as are validly tendered at prices not greater than $39.00 nor less
than $34.00 per Share) pursuant to the Offer. The Company will purchase all
Shares validly tendered at prices at or below the Purchase Price and not
withdrawn, upon the terms and subject to the conditions of the Offer, including
the provisions thereof relating to proration and conditional tenders.
We are the holder of record of Shares held for your account. A tender of
such Shares can be made only by us as the holder of record and pursuant to your
instructions. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION
ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all of
the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer to Purchase and the Letter of Transmittal.
Your attention is invited to the following:
(1) You may tender Shares at either the price determined by you (in
multiples of $.125), not greater than $39.00 nor less than $34.00 per
Share, or the price determined by "Dutch Auction" as indicated in the
attached instruction form, net to you in cash. You should mark the box
entitled, "Shares Tendered at Price Determined by Dutch Auction" if you are
willing to accept the Purchase Price resulting from the Dutch Auction
tender process. This could result in your receiving the minimum price of
$34.00 per Share.
(2) The Offer is for up to 15,000,000 Shares, constituting
approximately 7.3% of the total Shares outstanding as of September 2, 1997.
Although it has no present intention of so doing, the Company reserves the
right to purchase more than 15,000,000 Shares pursuant to the Offer. The
Offer is not conditioned upon any minimum number of Shares being tendered.
1
<PAGE> 2
(3) The Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on Wednesday, October 1, 1997, unless
the Offer is extended. Your instructions to us should be forwarded to us in
ample time to permit us to submit a tender on your behalf. If you would
like to withdraw your Shares that we have tendered, you can withdraw them
so long as the Offer remains open or any time after the expiration of forty
business days from the commencement of the Offer if they have not been
accepted for payment.
(4) As described in the Offer to Purchase, if more than 15,000,000
Shares have been validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date, as defined in Section 1 of
the Offer to Purchase, the Company will purchase Shares in the following
order of priority:
(a) all Shares validly tendered at or below the Purchase Price and
not withdrawn on or prior to the Expiration Date by any stockholder who
owned beneficially an aggregate of fewer than 100 Shares (including any
Shares held in the Dividend Reinvestment Plan (the "Reinvestment Plan"))
as of the close of business on September 3, 1997 and who validly tenders
all of such Shares (partial tenders will not qualify for this
preference) and completes the box captioned "Odd Lots" on the Letter of
Transmittal and, if applicable, the Notice of Guaranteed Delivery; and
(b) after purchase of all the foregoing Shares, subject to the
conditional tender provisions described in Section 6 of the Offer to
Purchase, all other Shares validly tendered at or below the Purchase
Price and not withdrawn on or prior to the Expiration Date on a pro rata
basis, if necessary (with appropriate adjustments to avoid purchases of
fractional Shares, other than Shares held in the Reinvestment Plan). See
Section 1 of the Offer to Purchase for a discussion of proration.
(5) Any stock transfer taxes applicable to the sale of Shares to the
Company pursuant to the Offer will be paid by the Company, except as
otherwise provided in Instruction 7 of the Letter of Transmittal.
(6) If you owned beneficially an aggregate of fewer than 100 Shares
(including Shares held in the Reinvestment Plan) as of the close of
business on September 3, 1997 and you instruct us to tender at or below the
Purchase Price on your behalf all such Shares on or prior to the Expiration
Date and check the box captioned "Odd Lots" in the instruction form, all
such Shares will be accepted for purchase before proration, if any, of the
purchase of other tendered Shares.
(7) On September 3, 1997, the Board of Directors of the Company
declared a dividend of $.19 per Share payable on October 6, 1997, to
stockholders of record on September 19, 1997. The dividend will be paid to
such stockholders of record regardless of whether or when they tender
Shares pursuant to the Offer.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. STOCKHOLDERS MUST
MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE
OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER.
If you wish to have us tender any or all of your Shares held by us for your
account upon the terms and subject to the conditions set forth in the Offer,
please so instruct us by completing, executing, detaching and returning to us
the instruction form on the detachable part hereof. An envelope to return your
instructions to us is enclosed. If you authorize tender of your Shares, all such
Shares will be tendered unless otherwise specified on the detachable part
hereof. Your instructions should be forwarded to us in ample time to permit us
to submit a tender on your behalf by the expiration of the Offer.
A tendering stockholder may condition the tender of Shares upon the
purchase by the Company of a specified minimum number of Shares tendered, all as
described in Section 6 of the Offer to Purchase. Unless such specified minimum
is purchased by the Company pursuant to the terms of the Offer to Purchase and
the related Letter of Transmittal, none of the Shares tendered by the
stockholder will be purchased. If you wish us to condition your tender upon the
purchase of a specified minimum number of Shares, please complete the box
entitled "Conditional Tender" on the instruction form. It is the tendering
stockholder's responsibility to calculate such minimum number of Shares, and you
are urged to consult your own tax advisor.
2
<PAGE> 3
The Offer is being made to all holders of Shares. The Company is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions whose securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Company by Morgan Stanley & Co. Incorporated, as the
Dealer Manager, or one or more registered brokers or dealers licensed under the
laws of such jurisdictions.
3
<PAGE> 4
INSTRUCTIONS
WITH RESPECT TO OFFER TO PURCHASE FOR CASH
UP TO 15,000,000 SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
BROWNING-FERRIS INDUSTRIES, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated September 4, 1997, and the related Letter of
Transmittal (which together constitute the "Offer") in connection with the Offer
by Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), to
purchase up to 15,000,000 shares of its Common Stock, par value $.16 2/3 per
share (the "Shares") (including the associated preferred stock purchase rights),
at prices not greater than $39.00 nor less than $34.00 per Share, net to the
undersigned in cash, specified by the undersigned.
This will instruct you to tender to the Company the number of Shares
indicated below (or, if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, at the price per Share indicated
below, upon the terms and subject to the conditions of the Offer.
CONDITIONAL TENDER
By completing this box, the undersigned conditions the tender authorized
hereby on the following minimum number of Shares being purchased if any are
purchased.
---------- Shares
Unless this box is completed, the tender authorized hereby will be made
unconditionally.
- --------------------------------------------------------------------------------
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED.
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED,
OR IF NO BOX IS CHECKED, THERE IS NO PROPER TENDER OF SHARES.
- --------------------------------------------------------------------------------
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having Browning-Ferris
Industries, Inc. purchase all the Shares the undersigned is tendering
(subject to the possibility of proration). Accordingly, by checking this
ONE box INSTEAD OF ONE OF THE PRICE BOXES BELOW, the undersigned hereby
tenders Shares and is willing to accept the Purchase Price resulting from
the Dutch auction tender process. This action will result in receiving a
price per Share of as low as $34.00 or as high as $39.00.
--------------------------------- OR
---------------------------------
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
By checking ONE of the boxes below INSTEAD OF THE BOX ABOVE, the
undersigned hereby tenders Shares at the price checked. This action could
result in none of the Shares being purchased if the Purchase Price for the
Shares is less than the price checked. A stockholder who desires to tender
Shares at more than one price must complete a separate Letter of
Transmittal for each price at which Shares are tendered. The same Shares
cannot be tendered at more than one price.
Price (in dollars) per Share at which Shares are being tendered:
<TABLE>
<S> <C> <C> <C> <C> <C>
[ ] $34.00 [ ] $35.00 [ ] $36.00 [ ] $37.00 [ ] $38.00 [ ] $39.00
[ ] $34.125 [ ] $35.125 [ ] $36.125 [ ] $37.125 [ ] $38.125
[ ] $34.25 [ ] $35.25 [ ] $36.25 [ ] $37.25 [ ] $38.25
[ ] $34.375 [ ] $35.375 [ ] $36.375 [ ] $37.375 [ ] $38.375
[ ] $34.50 [ ] $35.50 [ ] $36.50 [ ] $37.50 [ ] $38.50
[ ] $34.625 [ ] $35.625 [ ] $36.625 [ ] $37.625 [ ] $38.625
[ ] $34.75 [ ] $35.75 [ ] $36.75 [ ] $37.75 [ ] $38.75
[ ] $34.875 [ ] $35.875 [ ] $36.875 [ ] $37.875 [ ] $38.875
</TABLE>
4
<PAGE> 5
ODD LOTS
[ ] By checking this box, the undersigned represents the undersigned owned
beneficially an aggregate of fewer than 100 Shares (including Shares held in
the Reinvestment Plan as of the close of business on September 3, 1997 and
is tendering all of such Shares.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Number of Shares to be SIGN HERE
Tendered: ------------------------------------------------------------
- ------------ Shares* Signature(s)
Dated: ------------ , 1997 Name
------------------------------------------------------------
Address
============================================================
------------------------------------------------------------
Social Security or Taxpayer ID No.
- ---------------
</TABLE>
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
5
<PAGE> 1
EXHIBIT a.7
IMMEDIATE ATTENTION REQUIRED
September 4, 1997
RE: BFI EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN
Dear Plan Participant:
Our records reflect that a portion of your individual account in the plan
described above (the "Plan") is invested in Browning-Ferris Industries, Inc.
stock.
Enclosed are tender offer materials and a Direction Form that require your
immediate attention. These materials describe an offer to purchase shares of
common stock (including the associated preferred stock purchase rights) of
Browning-Ferris Industries, Inc. at prices not greater than $39.00 nor less than
$34.00 per share. As described below, you have the right to instruct Fidelity
Management Trust Company ("Fidelity"), as Trustee of the Plan, concerning
whether and on what terms to tender shares credited to your individual account
under the Plan.
YOU WILL NEED TO COMPLETE THE ENCLOSED DIRECTION FORM AND RETURN IT TO
FIDELITY INSTITUTIONAL RETIREMENT SERVICES COMPANY IN THE ENCLOSED RETURN
ENVELOPE SO THAT IT IS RECEIVED BY 12:00 MIDNIGHT, EASTERN TIME, ON SEPTEMBER
26, 1997, UNLESS EXTENDED. PLEASE COMPLETE AND RETURN THE DIRECTION FORM EVEN IF
YOU DECIDE NOT TO PARTICIPATE IN THE TENDER OFFER DESCRIBED BELOW. REGARDLESS OF
YOUR PARTICIPATION IN THIS TENDER OFFER, YOUR ABILITY TO PERFORM CERTAIN
TRANSACTION WILL BE AFFECTED BY THE OFFER, AS DESCRIBED BELOW.
The remainder of this letter summarizes the transaction, your rights under
the Plan and the procedures for completing the Direction Form. You should also
review the more detailed explanation provided in the other materials including
the Offer to Purchase and the related Letter of Transmittal, enclosed with this
letter.
BACKGROUND
Browning-Ferris Industries, Inc. (the "Company") has made a tender offer to
purchase up to 15,000,000 shares of its common stock, par value $.16 2/3 per
share (including the associated preferred stock purchase rights, the "Shares"),
at prices not greater than $39.00 nor less than $34.00 per Share. The enclosed
Offer to Purchase dated September 4, 1997 (the "Offer to Purchase"), and the
related Letter of Transmittal (together with the Offer to Purchase, the "Offer")
set forth the objectives, terms and conditions of the Offer and are being
provided to all of the Company's stockholders.
The Company's Offer to Purchase extends to the Shares held by the Plan. As
of August 29, 1997, the Plan held approximately 3,857,942 Shares (the "Plan
Shares"). Only Fidelity as Trustee of the Plan can tender these Shares for sale.
Plan Shares are attributable to both restricted sources and participant directed
sources. Generally, Shares attributable to restricted sources must be invested
in Company stock while Shares attributable to participant directed sources may
be invested in all Plan investment options. Nonetheless, as a Plan participant,
you have the right to direct Fidelity whether or not to tender some or all of
the Shares credited to your individual account in the Plan. If you direct
Fidelity to tender any of the Shares credited to your individual account, you
must also specify the price or prices at which the Shares should be tendered.
Unless otherwise required by applicable law, Fidelity will tender Shares
credited to participant accounts in accordance with participant instructions.
Fidelity will not tender Shares credited to participant accounts for which
Fidelity does not receive timely instructions, unless otherwise required by
applicable law.
Please note that a tender of Shares credited to your individual account
under the Plan can be made only by Fidelity as the holder of record. THE LETTER
OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED
BY YOU TO TENDER DIRECTLY SHARES CREDITED TO YOUR INDIVIDUAL ACCOUNT UNDER THE
PLAN.
1
<PAGE> 2
FIDELITY MAKES NO RECOMMENDATIONS AS TO WHETHER TO DIRECT THE TENDER OF
SHARES, THE PRICE AT WHICH TO TENDER, OR WHETHER TO REFRAIN FROM DIRECTING THE
TENDER OF SHARES. EACH PARTICIPANT MUST MAKE HIS OR HER OWN DECISION ON THESE
MATTERS.
CONFIDENTIALITY
TO ASSURE THE CONFIDENTIALITY OF YOUR DECISION, FIDELITY AND ITS AFFILIATES
OR AGENTS WILL TABULATE THE DIRECTION FORMS. NEITHER FIDELITY NOR ITS AFFILIATES
OR AGENTS WILL MAKE THE RESULTS OF YOUR INDIVIDUAL DIRECTION AVAILABLE TO THE
COMPANY.
HOW THE OFFER WORKS
The details of the Offer are described in the enclosed materials, which you
should review carefully. However, in broad outline, the transaction will work as
follows with respect to Plan participants.
- The Company has offered to purchase up to 15,000,000 of its Shares at a
single per Share price not greater than $39.00 nor less than $34.00.
- If you want any of the Shares credited to your individual account under
the Plan sold pursuant to the Offer, you need to instruct Fidelity by
completing the enclosed Direction Form and returning it in the enclosed
return envelope.
- In order to be valid, Direction Forms must be received by Fidelity no
later than 12:00 MIDNIGHT on FRIDAY, SEPTEMBER 26, 1997, unless the Offer
is extended.
- You need to specify on the Direction Form the per Share price (in
multiples of $.125), which cannot be greater than $39.00 nor less than
$34.00, at which you wish to tender the Shares credited to your
individual account under the Plan.
- Please complete and return the Direction Form even if you decide not to
participate in the Offer. The form should be returned to Fidelity at P.O.
Box 9142, Hingham, MA 02043-9964. If you wish to return the form by
overnight mail, please send it to Fidelity's tabulation agent, Management
Information Services, at 61 Accord Park Drive, Norwell, MA 02061. If
Fidelity does not receive timely instructions from you with respect to
the Shares credited to your individual account, Fidelity will not tender
any of such Shares in response to the Offer, unless otherwise required by
applicable law.
- After the deadline above for returning the Direction Form to Fidelity,
Fidelity and its affiliates or agents will complete the tabulation of all
directions and Fidelity, as Trustee, will tender the appropriate number
of Shares. For purposes of this tabulation, Fidelity will calculate the
number of Shares credited to your individual account based upon the close
of business on September 24, 1997. Any Shares attributable to
contributions made to your account after September 24, 1997, will be
considered uninstructed pursuant to this Offer, and Fidelity will not
tender any of such Shares in response to the Offer, unless otherwise
required by applicable law.
- After the expiration date of the Offer, the Company will determine the
per Share purchase price (not greater than $39.00 nor less than $34.00)
(the "Purchase Price"), that allows the Company to purchase 15,000,000
Shares (or such lesser number of Shares as is validly tendered and not
withdrawn at prices not greater than $39.00 and not less than $34.00 per
Share). The Purchase Price will be paid for all purchased Shares, even
those Shares tendered at a lower price.
- Unless the Offer is terminated or amended in accordance with its terms,
the Company will then buy all of the Shares, up to 15,000,000, that were
tendered at the Purchase Price or below. If there is an excess of Shares
tendered over the exact number desired by the Company at the Purchase
Price, Shares tendered pursuant to the Offer may be subject to proration,
as set forth in Section 1 of the Offer to Purchase. Participants who
tender Shares at or below the Purchase Price will receive the same per
Share Purchase Price for Shares accepted for purchase.
2
<PAGE> 3
- If you direct the tender of any Shares credited to your individual
account at a price in excess of the Purchase Price as finally determined,
those Shares will not be purchased, and your individual account
previously invested Company stock will remain invested in the Company
stock.
PROCEDURE FOR DIRECTING TRUSTEE
A Direction Form for making your direction is enclosed. You must complete,
sign and return the enclosed Direction Form in the return envelope so that it is
RECEIVED at the address listed on the enclosed return envelope not later than
12:00 Midnight, Eastern Time, on Friday, September 26, 1997, unless extended.
PLEASE COMPLETE AND RETURN THE DIRECTION FORM EVEN IF YOU DECIDE NOT TO
PARTICIPATE IN THE OFFER. If Fidelity does not receive timely instructions from
you with respect to the Shares credited to your individual account, Fidelity
will not tender any of such Shares in response to the Offer, unless otherwise
required by applicable law. Please note that on the Direction Form the number of
Shares credited to your individual account as of August 29, 1997, is indicated
to the right of your address. As described above, the actual number of Shares
credited to your individual account for purposes of the Offer may vary from this
amount.
To properly complete your Direction Form, you must do the following:
(1) On the face of the Direction Form, check Box 1 or 2. CHECK ONLY ONE
BOX:
- CHECK BOX 1 if you do not want the Shares credited to your individual
account tendered for sale at any price and simply want the Plan to
continue holding such Shares.
- CHECK BOX 2 in all other cases and complete the table immediately
below Box 2. Specify the percentage of Shares credited to your
individual account that you want to tender at each price indicated.
You may direct the tender of Shares credited to your individual
account at different prices. To do so, you must state the percentage
(in whole numbers) of Shares to be sold at each indicated price by
filling in the percentage of such Shares on the line immediately
before the price. Leave a line blank if you want no Shares reflecting
your interest in Company stock tendered at that price. THE TOTAL
PERCENTAGE OF SHARES REFLECTING YOUR INTEREST IN COMPANY STOCK MAY NOT
EXCEED 100%, BUT IT MAY BE LESS THAN OR EQUAL TO 100%. IF THIS AMOUNT
IS LESS THAN 100%, YOU WILL BE DEEMED TO HAVE INSTRUCTED FIDELITY NOT
TO TENDER THE BALANCE OF THE SHARES CREDITED TO YOUR INDIVIDUAL
ACCOUNT UNDER THE PLAN.
(2) Your directions to Fidelity will only be applied to Shares attributable
to participant directed sources unless you instruct Fidelity to apply these
directions to all Shares credited to your individual account by checking Box 3.
(3) Date and sign the Direction Form in the space provided.
(4) Return the Direction Form in the enclosed return envelope so that it is
received by Fidelity at the address on the return envelope not later than 12:00
Midnight, Eastern time, on Friday, September 26, 1997, unless the Offer is
extended. Please complete and return the Direction Form even if you decide not
to participate in the Offer. NO FACSIMILE TRANSMITTALS OF THE DIRECTION FORM
WILL BE ACCEPTED.
Your direction will be deemed irrevocable unless withdrawn by 12:00
Midnight, Eastern time, on Friday, September 26, 1997, unless the Offer is
extended. In order to make an effective withdrawal, you must submit a new
Direction Form which may be obtained by calling Fidelity at 1-800-835-5098. Your
new Direction Form must include your name, address and Social Security number.
Upon receipt of a new, completed and signed Direction Form, your previous
direction will be deemed canceled. You may direct the re-tendering of any Shares
credited to your individual account by obtaining an additional Direction Form
from Fidelity and repeating the previous instructions for directing tenders as
set forth in this letter.
3
<PAGE> 4
EFFECT OF TENDER ON YOUR ACCOUNT
For any Shares in the Plan that are tendered to and purchased by the
Company, the Company will pay cash to the Plan. INDIVIDUAL PARTICIPANTS IN THE
PLAN WILL NOT RECEIVE ANY PORTION OF THE TENDER PROCEEDS DIRECTLY. ALL SUCH
PROCEEDS WILL REMAIN IN THE PLAN AND MAY BE WITHDRAWN ONLY IN ACCORDANCE WITH
THE TERMS OF THE PLAN.
The investment of proceeds from the Offer depends on whether the tendered
Shares accepted for purchase are attributable to participant directed or
restricted sources. Fidelity will invest proceeds with respect to Shares
credited to your account from participant directed sources in the Individually
Managed Guaranteed Investment Fund as soon as administratively possible after
receipt of proceeds. Proceeds received with respect to Shares tendered from
restricted sources will be reinvested in Company stock as soon as
administratively possible after receipt of the proceeds. You may call Fidelity
at 1-800-835-5098 after the reinvestment is complete to learn the effect of the
tender on your account or to have the proceeds from the sale of Shares which
were invested in the Individually Managed Guaranteed Investment Fund invested in
other investment options offered under the Plan.
This Offer will not affect the investment of future contributions into
Company stock. Nonetheless, as of 4:00 p.m., Eastern Time, on Monday, September
15, 1997, you will NOT be able to make exchanges into or out of Company stock
until all tender offer processing has been completed. Additionally, as of 4:00
p.m., Eastern Time, on Tuesday, September 23, 1997, you will NOT be able to make
a withdrawal from Company stock until all tender offer processing has been
completed. Fidelity will complete processing as soon as administratively
possible.
SHARES OUTSIDE THE PLAN
If you hold Shares directly, you will receive, under separate cover, tender
offer materials which can be used to tender such Shares directly to the Company.
Those tender offer materials may not be used to direct Fidelity to tender or not
tender the Shares credited to your individual account under the Plan. The
direction to tender or not tender Shares credited to your individual account
under the Plan may only be made in accordance with the procedures in this
letter.
FURTHER INFORMATION
If you require additional information concerning the procedure to tender
Shares credited to your individual account under the Plan, please contact
Fidelity at 1-800-835-5098.
Sincerely,
Fidelity Management Trust Company
4
<PAGE> 5
<TABLE>
<S> <C>
FIDELITY INSTITUTIONAL RETIREMENT SERVICES CO. ---------------
P.O. BOX 9107 FIRST CLASS
HINGHAM, MA 02043-9107 U.S. POSTAGE
PAID
PROXY
TABULATOR
---------------
</TABLE>
BFI EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN
DIRECTION FORM
BEFORE COMPLETING THIS FORM, PLEASE READ CAREFULLY THE ACCOMPANYING OFFER TO
PURCHASE AND ALL OTHER ENCLOSED MATERIALS.
INSTRUCTIONS
Carefully complete the detachable portion of this Direction Form below. Then
insert today's date and sign your name in the spaces provided. Enclose the
Direction Form in the included postage prepaid envelope and mail it promptly.
YOUR DIRECTION FORM MUST BE RECEIVED BY FIDELITY AT THE ADDRESS ON THE ENCLOSED
RETURN ENVELOPE NOT LATER THAN 12:00 MIDNIGHT, EASTERN TIME, ON SEPTEMBER 26,
1997, UNLESS THE OFFER IS EXTENDED. PLEASE COMPLETE AND RETURN THE DIRECTION
FORM EVEN IF YOU DECIDE NOT TO PARTICIPATE IN THE OFFER. Direction Forms that
are not fully or properly completed, dated, and signed, or that are received
after the deadline, will be ignored, and Fidelity will not tender the Shares
credited to your individual account under the Plan, unless otherwise required by
applicable law.
FIDELITY MAKES NO RECOMMENDATION TO PARTICIPANTS AS TO WHETHER TO DIRECT THE
TENDER OF SHARES, THE PRICE AT WHICH TO TENDER, OR TO REFRAIN FROM DIRECTING THE
TENDER OF SHARES. EACH PARTICIPANT MUST MAKE HIS OR HER OWN DECISION ON THESE
MATTERS.
As of Friday, August 28, 1997, the number of Shares credited to your
individual account under the Plan is shown to the right of your address.
--PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING--
<TABLE>
<S> <C> <C>
(CHECK ONLY ONE BOX)
[ ] 1. Please refrain from tendering and continue to HOLD all
Shares credited to my individual account under the Plan.
[ ] 2. Please TENDER Shares credited to my individual account
attributable to participant directed sources under the Plan
in the percentage indicated below for each of the prices
provided. (The total of the percentages may NOT exceed 100%,
but it may be less than or equal to 100%). A blank space
before a given price will be taken to mean that no Shares
credited to my account are to be tendered at that price.
FILL IN THE TABLE BELOW ONLY IF YOU HAVE CHECKED BOX 2.
</TABLE>
Percentage of Shares Directed to be Tendered (The total of all percentages
must be less than or equal to 100%. If the total is less than 100%, you will be
deemed to have directed Fidelity NOT to tender the remaining percentage.)
<TABLE>
<S> <C> <C> <C> <C>
- ------ % at $34.000 ------ % at $35.000 ------ % at $36.000 ------ % at $37.000 ------ % at $38.000
- ------ % at $34.125 ------ % at $35.125 ------ % at $36.125 ------ % at $37.125 ------ % at $38.125
- ------ % at $34.250 ------ % at $35.250 ------ % at $36.250 ------ % at $37.250 ------ % at $38.250
- ------ % at $34.375 ------ % at $35.375 ------ % at $36.375 ------ % at $37.375 ------ % at $38.375
- ------ % at $34.500 ------ % at $35.500 ------ % at $36.500 ------ % at $37.500 ------ % at $38.500
- ------ % at $34.625 ------ % at $35.625 ------ % at $36.625 ------ % at $37.625 ------ % at $38.625
- ------ % at $34.750 ------ % at $35.750 ------ % at $36.750 ------ % at $37.750 ------ % at $38.750
- ------ % at $34.875 ------ % at $35.875 ------ % at $36.875 ------ % at $37.875 ------ % at $38.875
------ % at $39.000
</TABLE>
The undersigned hereby directs Fidelity Management Trust Company ("Fidelity"),
as Trustee of the BFI Employee Stock Ownership and Savings Plan (the "Plan") to
tender to Browning-Ferris Industries, Inc. (the "Company"). In accordance with
the Offer to Purchase, dated September 4, 1997, a copy of which I have received
and read, the indicated percentage of shares of the Company's common stock, par
value $.16 2/3 per share (the "Shares"), credited to my individual account under
the Plan, or to hold such Shares, in either case as provided above.
[ ] 3. ONLY CHECK the
box if you wish
to have your
directions above
applied to all of
the Shares
credited to your
individual
account under the
Plan. All
proceeds received
for Shares
attributable to
restricted
sources will be
reinvested in
Company stock.
Date
-------------------------, 1997
------------------------------------
Your signature (Please sign as your
name appears at left)
<PAGE> 1
EXHIBIT a.8
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase, dated
September 4, 1997 and the related Letter of Transmittal. The Offer is being made
to all holders of Shares; provided, that the Offer is not being made to, nor
will tenders be accepted from or on behalf of, holders of Shares in any
jurisdiction in which making or accepting the Offer would violate that
jurisdiction's laws. In those jurisdictions where securities, blue sky or other
laws require the Offer to be made by a licensed broker or dealer, the Offer
shall be deemed to be made on behalf of the Company by Morgan Stanley & Co.
Incorporated or one or more registered brokers or dealers licensed under the
laws of such jurisdictions.
NOTICE OF OFFER TO PURCHASE FOR CASH
BY
BROWNING-FERRIS INDUSTRIES, INC.
UP TO 15,000,000 SHARES OF ITS COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
AT A PURCHASE PRICE NOT GREATER THAN
$39 NOR LESS THAN $34 PER SHARE
Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"),
invites its stockholders to tender shares of its Common Stock, par value
$.16 2/3 per share (the "Shares") (including the associated preferred stock
purchase rights issued pursuant to the Rights Agreement, dated as of June 1,
1988, as amended, between the Company and First Chicago Trust Company of New
York, as the Rights Agent), at prices not greater than $39.00 nor less than
$34.00 per Share, net to the seller in cash, specified by such stockholders,
upon the terms and subject to the conditions set forth in the Offer to Purchase,
dated September 4, 1997 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which together constitute the "Offer").
The Offer is not conditioned upon any minimum number of Shares being
tendered. The Offer is, however, subject to other conditions. See Section 7 of
the Offer to Purchase.
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED.
The Company will determine a single per Share price (not greater than
$39.00 nor less than $34.00 per Share) that it will pay for Shares validly
tendered pursuant to the Offer and not withdrawn (the "Purchase Price"), taking
into account the number of Shares so tendered and the prices specified by
tendering stockholders. The Company will select the Purchase Price that will
enable it to buy 15,000,000 Shares (or such lesser number of Shares as are
validly tendered at prices not greater than $39.00 nor less than $34.00 per
Share) pursuant to the Offer. The Company will purchase all Shares validly
tendered at prices at or below the Purchase Price and not withdrawn, upon the
terms and subject to the conditions of the Offer, including the provisions
relating to proration and conditional tenders described below. The Purchase
Price will be paid in cash, net to the seller, with respect to all Shares
purchased. Shares rendered at prices in excess of the Purchase Price and Shares
not purchased because of proration and conditional tenders will be returned.
On September 3, 1997, the Board of Directors of the Company announced an
increase in the regular quarterly cash dividend for the fourth quarter of the
fiscal year ending September 30, 1997 to $.19 per Share. Shares tendered and
purchased by the Company will be entitled to this regular quarterly cash
dividend of $.19 per Share to be paid by the Company on October 6, 1997, to
holders of record on September 19, 1997.
1
<PAGE> 2
Upon the terms and subject to the conditions of the Offer, if more than
15,000,000 Shares have been validly tendered at or below the Purchase Price and
not withdrawn on or prior to the Expiration Date (as defined in the Offer to
Purchase), the Company will purchase Shares in the following order of priority:
(a) first, all Shares validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date by any stockholder who owned
beneficially an aggregate of fewer than 100 Shares (including any Shares held in
the Dividend Reinvestment Plan (the "Reinvestment Plan")) as of the close of
business on September 3, 1997 and who validly tenders all of such Shares
(partial tenders will not qualify for this preference) and completes the box
captioned "Odd Lots" on the Letter of Transmittal and, if applicable, the Notice
of Guaranteed Delivery; and (b) then, after purchase of all the foregoing
Shares, subject to the conditional tender provisions described in Section 6 of
the Offer to Purchase, all other Shares validly tendered at or below the
Purchase Price and not withdrawn on or prior to the Expiration Date on a pro
rata basis, if necessary (with appropriate adjustments to avoid purchases of
fractional Shares, other than Shares held in the Reinvestment Plan).
The Company believes that the purchase of its Shares at this time will
benefit the Company and its stockholders. The Offer will afford to stockholders
who are considering the sale of all or a portion of their Shares the opportunity
to determine the price (not greater than $39.00 nor less than $34.00 per Share)
at which they are willing to sell their Shares and, in the event the Company
accepts such Shares, to dispose of Shares without the usual transaction costs
associated with a market sale. The Offer will also allow qualifying stockholders
owning beneficially fewer than 100 Shares to avoid the payment of brokerage
commissions and the applicable odd lot discount payable on a sale of Shares in a
transaction effected on a securities exchange.
Neither the Company nor its Board of Directors makes any recommendation to
any stockholder as to whether to tender all or any Shares. Each stockholder must
make his or her own decision as to whether to tender shares and, if so, how many
Shares to tender and at what price. The Company has been informed that no
director or executive officer intends to tender Shares pursuant to the Offer.
The Company reserves the right, at any given time or from time to time, to
extend the period of time during which the Offer is open by giving oral or
written notice of such extension to the Depositary, followed by a public
announcement thereof no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
Tenders of Shares made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after October 30, 1997, unless theretofore accepted
for payment by the Company as provided in the Offer to Purchase. For a
withdrawal to be effective, a written or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of the addresses or
the facsimile number set forth on the back cover of the Offer to Purchase and
must specify the name of the person who tendered the Shares to be withdrawn and
the number of Shares to be withdrawn. If the Shares to be withdrawn have been
delivered to the Depositary, a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to
Purchase) (except in the case of Shares tendered by an Eligible Institution)
must be submitted prior to the release of such Shares. In addition, such notice
must specify, in the case of Shares tendered by delivery of certificates, the
name of the registered holder (if different from that of the tendering
stockholder) and the serial numbers shown on the particular certificates
evidencing the Shares to be withdrawn or, in the case of Shares tendered by
book-entry transfer, the name and number of the account at one of the Book-Entry
Transfer Facilities (as defined in the Offer to Purchase) to be credited with
the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn
will thereafter be deemed not validly tendered for purposes of the Offer.
However, withdrawn Shares may be retendered by again following one of the
procedures described in Section 3 of the Offer to purchase at any time prior to
the Expiration Date.
The Company will be deemed to have purchased tendered Shares as, if and
when it gives oral or written notice to the Depositary of its acceptance for
payment of Shares.
2
<PAGE> 3
The information required to be disclosed by Rule 13e-4(d)(1) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, is
contained in the Offer to Purchase and is incorporated herein by reference.
Copies of the Offer to Purchase and the related Letter of Transmittal are
being mailed to record holders of Shares and will be furnished to brokers, banks
and similar persons whose names, or the names of whose nominees, appear on the
Company's stockholder list or, if applicable, who are listed as participants in
a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
The Offer to Purchase and the related Letter of Transmittal contain
important information that should be read before any decision is made with
respect to the Offer.
Any questions or requests for assistance may be directed to Morrow & Co.,
Inc. (the "Information Agent") or Morgan Stanley & Co. Incorporated (the "Dealer
Manager") at their respective telephone numbers and addresses listed below.
Requests for additional copies of the Offer to Purchase, the Letter of
Transmittal, Notice of Guaranteed Delivery or other tender offer materials may
be directed to the Information Agent or the Dealer Manager and such copies will
be furnished promptly at the Company's expense. Stockholders may also contact
their local broker, dealer, commercial bank or trust company for assistance
concerning the Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
909 Third Avenue
20th Floor
New York, New York 10022
BANKS AND BROKERS CALL TOLL FREE:
(800) 622-5200
ALL OTHERS CALL TOLL FREE:
(800) 566-9061
The Dealer Manager for the Offer is:
MORGAN STANLEY DEAN WITTER
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
(212) 761-5722 (call collect)
September 4, 1997
3
<PAGE> 1
EXHIBIT a.9
Analysts Contact: Tod Holmes
(281) 870-7161
Media Contact: Maureen Allen
(281) 870-7456
BFI 97-14
FOR IMMEDIATE RELEASE
IMPROVED PERFORMANCE, POSITIVE OUTLOOK
PROMPT BFI BOARD ACTION:
-- $1.0 Billion Stock Buy-Back Program
-- 12% Increase In Quarterly Dividend To $0.19 Per Share
-- Tender Offer For Its $300 million 7- 7/8% Notes
HOUSTON, TEXAS (SEPTEMBER 3, 1997) -- Browning-Ferris Industries, Inc.
(NYSE-BFI) today announced that its Board of Directors has approved a $1.0
billion stock buy-back program, a 12% increase in the quarterly cash dividend on
common stock from $0.17 to $0.19 per share, and a tender offer for its $300
million 7- 7/8% Notes.
In announcing the Board's decision, Chairman William D. Ruckelshaus
commented, "The Board's actions today will better align BFI's capital structure
with its financial goals. BFI's improved financial performance and significant
generation of cash flow in fiscal 1997 gives the Board confidence in taking
these actions."
The $1.0 billion equity repurchase program consists of a "Dutch Auction"
self tender to purchase up to 15 million shares, over 7%, of its common stock,
and an open market repurchase program of common stock or automatic common
exchange security units (NYSE-BFE).
The Dutch Auction tender offer for common stock will commence on September
4, 1997 and will expire at midnight, New York City time, on October 1, 1997,
unless extended. Copies of the offering materials are being mailed to all of the
company's common stock shareholders.
Under the terms of the offer, BFI will invite shareholders to tender shares
at prices not greater than $39 nor less than $34 per share, with the precise
amount to be determined upon expiration of the offer. The closing price of the
common stock on September 2, 1997 was $35- 5/16 per share. Based upon the number
of shares tendered and the price specified, BFI will determine the single
per-share price within that price range that will allow the company to buy 15
million shares, or whatever lesser number are properly tendered. Morgan Stanley
Dean Witter is acting as dealer manager for the offer. Morrow & Co., Inc. is
acting as the information agent. Shareholders who choose to tender some or all
of their stock will be eligible to receive the $0.19 dividend, whether or not
the company accepts their shares for payment.
Commenting on the announcement, BFI's Chief Executive Officer Bruce Ranck
noted, "BFI's momentum demonstrates the effectiveness of a highly disciplined
approach to meeting challenging milestones. We look forward to reporting
performance in the fourth quarter and beyond which continues this momentum."
The open market repurchase program will commence no earlier than 10
business days after completion of the Dutch Auction tender offer, and will be
for an aggregate amount no greater than $1.0 billion less the cash distributed
to shareholders participating in the Dutch Auction tender offer. The open market
purchases may include privately negotiated transactions. The open market
repurchase program is expected to be completed by September 30, 1998.
In addition, the Board declared the company's regular quarterly cash
dividend on common stock, increasing it from $0.17 to $0.19 per share. The cash
dividend is payable on October 6, 1997, to shareholders of record at the close
of business on September 19, 1997.
1
<PAGE> 2
The company also announced that it is tendering for its $300 million
7- 7/8% Notes due March 15, 2005. The tender offer will commence immediately and
will expire at 5 p.m. New York City time on September 17, 1997, unless extended.
The purchase price is determined by reference to a fixed spread of 25 basis
points (i.e., 0.25%) over the yield to maturity of the United States Treasury
6.125% Notes due August 15, 2007 at the time of acceptance of the Tender Offer,
plus accrued and unpaid interest up to the date of payment. NationsBanc Capital
Markets, Inc. is serving as dealer manager.
Browing-Ferris Industries, Inc., a leading international waste services
company, provides collection, recycling and disposal of residential, commercial,
industrial and medical waste.
2
<PAGE> 1
EXHIBIT g.1
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> 2
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> 3
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> 4
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> 5
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> 6
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> 7
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> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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> 15
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
-51-
<PAGE> 16
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>
-52-
<PAGE> 17
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.
-53-
<PAGE> 18
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> 19
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
-55-
<PAGE> 20
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>
-56-
<PAGE> 21
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".
-57-
<PAGE> 22
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):
-58-
<PAGE> 23
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
-59-
<PAGE> 24
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
-60-
<PAGE> 25
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.
-61-
<PAGE> 26
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> 27
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> 28
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> 29
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> 30
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):
-66-
<PAGE> 31
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> 32
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> 33
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,
-69-
<PAGE> 34
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> 35
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:
-71-
<PAGE> 36
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>
-72-
<PAGE> 37
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.
-73-
<PAGE> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 1
EXHIBIT g.2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 Identification No.)
incorporation or organization)
757 N. Eldridge 77079
Houston, Texas
- --------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 870-8100
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 the number of shares outstanding of the issuer's common stock, as of
August 12, 1997: 212,805,670.
<PAGE> 2
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,471,252 $ 1,471,368 $ 4,380,120 $ 4,276,036
Cost of operations 1,095,201 1,115,350 3,260,849 3,190,371
----------- ----------- ----------- -----------
Gross profit 376,051 356,018 1,119,271 1,085,665
Selling, general and ad-
ministrative expense 194,267 221,216 620,931 642,287
Special charges, net 84,127 -- 84,127 --
----------- ----------- ----------- -----------
Income from operations 97,657 134,802 414,213 443,378
Interest, net 39,905 42,577 128,815 125,446
Equity in earnings of un-
consolidated affiliates (18,969) (13,816) (37,478) (38,918)
----------- ----------- ----------- -----------
Income before income taxes,
minority interest and
extraordinary items 76,721 106,041 322,876 356,850
Income taxes 30,688 42,417 129,150 142,740
Minority interest in
income of consolidated
subsidiaries 4,107 1,602 8,965 8,094
----------- ----------- ----------- -----------
Income before
extraordinary items 41,926 62,022 184,761 206,016
Extraordinary items -
Loss on redemption of
debt by unconsolidated
affiliate, net of income
tax benefit of $1,677 -- -- 3,124 --
Loss on redemption of debt,
net of income tax benefit
of $908 and $4,467 1,685 -- 1,685 12,159
----------- ----------- ----------- -----------
Net income $ 40,241 $ 62,022 $ 179,952 $ 193,857
=========== =========== =========== ===========
</TABLE>
(Continued on following page)
2
<PAGE> 3
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Unaudited)
(In Thousands Except for Per Share Amounts)
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- -----------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of common and common
equivalent shares used
in computing earnings
per share 204,020 200,932 203,019 200,395
========== ========== ========== ==========
Earnings per common and
common equivalent share:
Income before extra-
ordinary items $ .21 $ .31 $ .91 $ 1.03
Extraordinary items (.01) -- (.02) (.06)
------- ------- ------- -------
Net income $ .20 $ .31 $ .89 $ .97
======= ======= ======= =======
Cash dividends per
common share $ .17 $ .17 $ .51 $ .51
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(Unaudited)
------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 99,312 $ 110,224
Short-term investments 79,062 26,394
Receivables -
Trade, net of allowances for doubtful
accounts of $37,974 and $40,622 854,151 929,316
Other 87,240 42,543
Inventories 42,301 51,536
Deferred income taxes 113,868 119,914
Prepayments and other 82,886 107,868
---------- ----------
Total current assets 1,358,820 1,387,795
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,506,545 and $2,737,788 3,547,448 3,920,721
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$159,448 and $138,636 1,452,220 1,671,461
Other intangible assets, net of
accumulated amortization of $88,373
and $110,835 90,427 110,925
Deferred income taxes 118,299 122,617
Investments in unconsolidated affiliates 243,290 287,051
Other 91,719 100,336
---------- ----------
Total other assets 1,995,955 2,292,390
---------- ----------
Total assets $6,902,223 $7,600,906
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
(In Thousands Except for Share Amounts)
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(Unaudited)
-------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 33,692 $ 59,806
Accounts payable 424,841 507,731
Accrued liabilities -
Salaries and wages 106,966 129,203
Taxes, other than income 61,596 40,876
Other 449,238 430,187
Income taxes 22,990 35,586
Deferred revenues 184,025 195,101
---------- ----------
Total current liabilities 1,283,348 1,398,490
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 511,212 541,838
Deferred income taxes 145,416 108,041
Other 255,331 275,374
---------- ----------
Total deferred items 911,959 925,253
---------- ----------
LONG-TERM DEBT, net of current portion 2,110,581 2,766,885
---------- ----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,387,697 and
213,390,458 shares issued 35,572 35,572
Additional paid-in capital 1,808,222 1,730,612
Retained earnings 1,048,265 1,031,331
Treasury stock, 1,147,931 and 1,027,278
shares, at cost (15,611) (11,926)
Stock and Employee Benefit Trust,
8,424,452 and 11,012,423 shares (280,113) (275,311)
---------- ----------
Total common stockholders' equity 2,596,335 2,510,278
---------- ----------
Total liabilities and common
stockholders' equity $6,902,223 $7,600,906
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 179,952 $ 193,857
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization -
Property and equipment 381,268 384,981
Goodwill 33,317 34,725
Other intangible assets 19,191 25,086
Special charges, net 84,127 --
Deferred income tax expense 7,235 20,005
Amortization of deferred investment tax credit (530) (530)
Provision for losses on accounts receivable 23,444 20,427
Gains on sales of fixed assets (5,669) (3,984)
Equity in earnings of unconsolidated
affiliates, net of dividends received
and extraordinary item 14,726 (2,086)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 8,657 7,299
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions and divestitures -
Trade receivables (57,146) (33,896)
Inventories 3,219 2,139
Other assets 35,691 15,765
Other liabilities (5,056) (115,787)
---------- ----------
Total adjustments 542,474 354,144
---------- ----------
Net cash provided by operating activities 722,426 548,001
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (315,458) (656,628)
Payments for businesses acquired (15,353) (162,722)
Proceeds from businesses divested 300,099 --
Investments in unconsolidated affiliates (37,139) (92,389)
Proceeds from disposition of assets 33,257 44,383
Purchases of short-term investments (53,603) --
Sales of short-term investments -- 273,647
Return of investment in unconsolidated
affiliates 35,625 37,863
---------- ----------
Net cash used in investing activities (52,572) (555,846)
---------- ----------
</TABLE>
(Continued on following page)
6
<PAGE> 7
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 46,938 12,189
Proceeds from issuance of indebtedness 114,535 979,813
Repayments of indebtedness (735,803) (888,715)
Dividends paid (102,947) (101,615)
---------- ----------
Net cash provided by (used in)
financing activities (677,277) 1,672
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES (3,489) (1,542)
---------- ----------
NET DECREASE IN CASH (10,912) (7,715)
CASH AT BEGINNING OF PERIOD 110,224 92,808
---------- ----------
CASH AT END OF PERIOD $ 99,312 $ 85,093
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 122,596 $ 109,663
Income taxes $ 137,167 $ 134,161
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation -
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments and disclosures
necessary to a fair presentation of these financial statements have been
included. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1996, as filed with the
Securities and Exchange Commission.
In October 1996, the Company adopted 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", which was issued by the
Financial Accounting Standards Board in March 1995. The 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. As the Company's prior accounting practices were substantially
in compliance with the provisions of the new standard, the adoption of SFAS No.
121 had no material effect on the Company's financial position or results of
operations.
In January 1997, the Securities and Exchange Commission issued Release
33-7386 governing disclosure requirements for financial instruments, including
derivatives. The disclosures related to the Company's accounting policies for
derivative transactions are required to be included in the Company's financial
statements for the quarter ended June 30, 1997. The Company believes that the
disclosures included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1996 are in compliance with the requirements of this
release.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 - "Earnings Per Share". This statement, which establishes new standards for
computing and presenting earnings per share, is effective for the Company's
quarter ending December 31, 1997 and requires restatement for all periods
presented. The Company believes that the adoption of SFAS No. 128 will not have
a material effect on its earnings per share calculations.
8
<PAGE> 9
(2) Earnings Per Common Share -
The following table reconciles the number of common shares outstanding
with the number of common and common equivalent shares used in computing
primary earnings per share (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------
1997 1996
------- -------
<S> <C> <C>
Common shares outstanding, end of period 212,240 212,363
Less - Shares held in the Stock and
Employee Benefit Trust (8,424) (11,326)
------- -------
Common shares outstanding for purposes
of computing primary earnings per
share, end of period 203,816 201,037
Effect of using weighted average common
and common equivalent shares outstanding (1,552) (1,505)
Effect of shares issuable under stock
option plans based on the treasury
stock method 755 863
------- -------
Shares used in computing earnings
per share 203,019 200,395
======= =======
</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 diluted earnings per
share was not significant in any period. 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 by the weighted average number of shares of common stock and common
stock equivalents outstanding during each period. 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 in the period prior to
their redemption in February 1996 and, accordingly, has not been included in
the computation. The 7.25% Automatic Common Exchange Securities had no effect
on the computations for the periods presented.
9
<PAGE> 10
(3) Special Charges -
Fourth Quarter of Fiscal 1996 ($447 million) -
Special charges of $447 million ($362 million or $1.80 per share after
income taxes) were included in the Company's results of operations for the
fourth quarter of fiscal 1996. 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 of
the Company's investment in the Azusa, California landfill to fair value, which
was determined based upon the present value of the estimated future cash flows
using a discount rate commensurate with the risks involved. 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
adverse decisions by California judicial and regulatory authorities in fiscal
1996 and early fiscal 1997, bearing on the site's ability to accept municipal
solid waste. During the third quarter of fiscal 1997, the Company sold the
Azusa, California landfill facility.
The Company completed the sale of its Italian operations in late June
1997. The Company's investment in its Italian operations, before considering
special charges, was $206 million as of September 30, 1996. Losses accumulated
in the foreign currency translation component of common stockholders' equity
(approximately $53 million) were recognized as an additional loss on the sale
of the Company's Italian operations upon consummation of the sale in June 1997
and were included in the third quarter special charge (see discussion below).
Summary financial information related to the Company's Italian operations is as
follows (in thousands):
<TABLE>
<CAPTION>
For the Nine Months
Ended
June 30,
--------------------- For the Year Ended
1997 1996 September 30, 1996
--------- ------- ------------------
<S> <C> <C> <C>
Revenues $ 81,926 $88,450 $ 122,782
Losses from
operations and
equity in earnings
of unconsolidated
affiliates before
special charges $ (2,190)(1) $ (763) $ (4,019)(2)
</TABLE>
(1) Does not reflect impact of special charges taken in third quarter of
fiscal 1997 (see below).
(2) Does not reflect special charge of $178.6 million included in the fourth
quarter of fiscal 1996.
The fourth quarter special charge also included approximately $177 million
of assets as of September 30, 1996 associated with domestic and international
non-core business assets and operations to be divested and recycling facilities
to be closed during fiscal 1997. The results of operations for these non-core
business assets and operations and recycling facilities were not material to
the Company's consolidated results of operations for fiscal 1996 as the
aggregated revenues and income (loss) from operations of these assets and
operations
10
<PAGE> 11
represented less than 4% of the Company's corresponding consolidated totals, on
a pre-special charge basis. During the first nine months of the current fiscal
year, the Company sold a number of these business operations and closed 33
recycling facilities.
Third Quarter of Fiscal 1997 ($84 million) -
Special charges of $84 million ($50 million or $0.25 per share after
income taxes) were reported in the third quarter of fiscal 1997. Included in
these special charges were non-cash expenses of $53 million due to cumulative
foreign currency translation losses associated with the sale of Italian
business operations and $96 million for anticipated losses related to decisions
to divest additional underperforming or non-core business operations and assets
located primarily in the United Kingdom, the Netherlands and the United States.
These losses were offset partially by net gains of $65 million arising largely
from 34 divestitures completed in the current quarter, principally in North
America.
The results of operations for these additional underperforming or non-core
business operations to be divested were not material to the Company's
consolidated results of operations for the nine months ended June 30, 1997 as
the aggregated total assets, revenues and income (loss) from operations of
these assets and business operations represented approximately 3% or less of
the Company's corresponding consolidated totals, on a pre-special charge basis.
(4) Business Combinations -
During the current fiscal year, the Company paid approximately $21.3
million (including additional amounts payable, principally to former owners, of
$5.9 million) to acquire 17 solid waste businesses, which were accounted for as
purchases. In connection with these acquisitions, the Company recorded
additional interest-bearing indebtedness of $.1 million and other liabilities
of $1.0 million. The results of these business combinations are not material to
the Company's consolidated results of operations or financial position.
During the prior 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 were not material to the Company's consolidated results of
operations or financial position.
The results of all businesses acquired in fiscal years 1997 and 1996 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
11
<PAGE> 12
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 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.
(5) Long-Term Debt -
Long-term debt at June 30, 1997, and September 30, 1996, was as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------------ -------------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,617
and $1,838 $ 198,383 $ 198,162
6.375% Senior Notes, net of
unamortized discount of $1,915
and $2,051 198,085 197,949
7 7/8% Senior Notes, net of
unamortized discount of $714
and $783 299,286 299,217
7.40% Debentures, net of
unamortized discount of
$2,042 and $2,082 397,958 397,918
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond
obligations 171,726 149,127
Other notes payable 523,914 804,721
---------- ----------
1,889,352 2,147,094
Commercial paper and short-term
facilities to be refinanced 254,921 679,597
---------- ----------
Total long-term debt 2,144,273 2,826,691
Less current portion 33,692 59,806
---------- ----------
Long-term debt, net of current
portion $2,110,581 $2,766,885
========== ==========
</TABLE>
During December 1996, the Company amended the terms of its existing $750
million Multicurrency Revolving Credit Agreement which was originally
established to fund the Company's acquisition of Attwoods plc in December 1994.
Under the terms of the amended agreement, the facility has a 364-day term with
a one-year term-out option available to the Company at any time prior to its
maturity date in December 1997. The agreement contains a net worth requirement
consistent with the Company's $1 billion revolving credit agreement.
It is the Company's intention to refinance certain commercial paper
balances and other outstanding borrowings classified as long-term
12
<PAGE> 13
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
classified as long-term debt as of June 30, 1997 and September 30, 1996 is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------------ -------------
<S> <C> <C>
United States -
Commercial paper $ -- $438,296
Germany 254,921 241,301
-------- --------
$254,921 $679,597
======== ========
</TABLE>
As of June 30, 1997, distributions from retained earnings could not
exceed $1.1 billion under the most restrictive of the Company's net worth
maintenance requirements.
(6) Extraordinary Items -
During the second quarter of fiscal 1997, one of the Company's
unconsolidated affiliates, American Ref-Fuel Company of Hempstead, incurred a
pre-tax charge to expense of $9.6 million associated with the redemption of
approximately $250 million principal amount of Series 1985 Bonds, which were
refinanced. As a result, the Company has reflected an extraordinary charge,
after tax, of $3.1 million (or approximately $.02 per share) in its
consolidated statement of income for the quarter ended March 31, 1997, related
to its 50% ownership interest in this affiliate. Interest was payable on the
Series 1985 Bonds due 2010 at a weighted average interest rate of approximately
7.3%, compared with the weighted average interest rate of approximately 5% for
the new bonds, which are also due in 2010.
During the third quarter of fiscal 1997, the Company redeemed $160 million
of private placement notes previously scheduled to mature in fiscal 1998 and
$11.8 million of tax-exempt debt associated with a landfill in Arizona sold by
the Company. These redemptions resulted in extraordinary charges to the
Company's net income of $1.7 million, after tax, or approximately $.01 per
share in the third quarter.
(7) 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 quarterly or annual
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.
13
<PAGE> 14
Environmental Proceedings.
The Company and certain subsidiaries are involved in various 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 quarterly or annual
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.
(8) 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.
14
<PAGE> 15
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 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 the Company's
Annual Report on Form 10-K for the year ended September 30, 1996 ("the Form
10-K"), which describes many of the external factors that could cause the
Company's actual results to differ materially from the Company's expectations.
The Company's Form 10-K is on file with the U.S. Securities and Exchange
Commission, a copy of which is available without charge upon written request
to: Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253,
Attention: Secretary.
RESULTS OF OPERATIONS
Net income for the nine months ended June 30, 1997, was $235.2 million
($1.16 per share), before special charges and extraordinary items, an increase
of 14.2% from the same prior year period, on consolidated revenues of $4.380
billion. Pre-tax special charges reported in the third quarter of fiscal 1997
were $84 million ($50 million or $0.25 per share after tax). The fiscal 1997
nine-month results also included after-tax extraordinary items of $4.8 million,
or $0.02 per share, associated with the retirement of debt. After the special
charges and extraordinary items, net income for the nine months ended June 30,
1997 was $180.0 million, or $0.89 per share.
Included in the third quarter pre-tax special charges of $84 million were
non-cash expenses of $53 million due to cumulative foreign currency translation
losses associated with the sale of Italian business operations and $96 million
for anticipated losses related to decisions to divest additional
underperforming or non-core business operations and assets located primarily in
the United Kingdom, the Netherlands and the United States. These losses were
offset partially by net gains of $65 million arising largely from 34
divestitures completed in the third quarter, principally in North America. The
$4.8 million of extraordinary items included in the current year-to-date
results were associated with the redemption and refinancing of $250 million of
debt of one of the Company's unconsolidated affiliates, American Ref-Fuel
Company of Hempstead, the redemption of $11.8 million in tax-exempt debt
associated with a landfill in Arizona sold by the Company in the third quarter
and the redemption of $160 million in private placement notes previously
scheduled to mature in fiscal 1998.
These year-to-date results compare with net income before an extraordinary
item for the same fiscal 1996 period of $206.0 million, or $1.03 per share, on
consolidated revenues of $4.276 billion. The fiscal 1996 extraordinary item of
$12.2 million, after tax ($0.06 per share), was associated with the redemption
of $745 million of Convertible Subordinated Debentures. After the extraordinary
item, net
15
<PAGE> 16
income for the nine months ended June 30, 1996, was $193.9 million or $0.97 per
share.
Fiscal 1997 year-to-date results, before special charges and extraordinary
items, were favorably affected by improved operating profit in the Company's
North American operations, which resulted from actions taken to (1) reduce SG&A
staffing levels and operating costs in the Company's collection and recycling
businesses, (2) improve customer pricing and (3) divest underperforming
operations and assets. Similar actions taken in the Company's international
operations have also recently begun to impact favorably the Company's
international operating results. Current year-to-date results were affected
negatively by severance and reorganization expenses of approximately $18
million associated with both the reorganization of North American operations in
June 1996 and the reductions, principally in the first half of the current
fiscal year, in worldwide employee staffing levels to effect improvements in
operating and administrative efficiency. Additionally, an increase in the
Company's income from operations of $19.5 million, principally due to lower
depreciation and amortization expense, was reflected in the current
year-to-date earnings as a result of the special charges of $447 million taken
in the fourth quarter of fiscal 1996 (see Note (3) of Notes to Consolidated
Financial Statements).
During the first nine months of fiscal 1997, the Company's actions
reflected its previously announced strategic shift in focus away from an
emphasis on external growth to an emphasis on internal growth and on increasing
return on assets. The redeployment and retraining of the sales force that was
completed in the first half of the current fiscal year is enabling sales
personnel to better focus on the Company's customers. In addition, the plan to
reduce selling, general and administrative expenses ("SG&A"), commenced during
the first quarter of fiscal 1997, has resulted in the reduction of
approximately 1,300 employees worldwide since the Company announced its
reorganization in June 1996 and the consolidation of certain business and
administrative activities. SG&A as a percent of revenues was 14.2% for the
first nine months of fiscal 1997, lower than the same period of the prior year
(15.0%). With a quarter remaining in fiscal 1997, the Company is on track to
exceed its SG&A milestone, which is to reduce SG&A as a percent of revenues to
14.6% for the fiscal year.
During the first quarter of fiscal 1997, the Company completed its initial
marketplace and business line strategic reviews and identified core and
non-core business operations (including those considered in the special charges
incurred in the fourth quarter of fiscal 1996) to be marketed and sold with
aggregate annual revenues of approximately $270 million in the U.S. and $130
million outside of the U.S. The Company has continued its strategic reviews of
underperforming marketplaces since the first quarter. The goal of these reviews
is to identify the key drivers of performance or underperformance in each
marketplace and identify actions to improve the business operations. However,
in some cases, these reviews have resulted in a conclusion to divest the
operations as it is evident that the Company will be unable to achieve its
desired returns even with identified areas for improvement. As a result of
these reviews, the Company has identified additional business operations with
annual revenues of $130 million in
16
<PAGE> 17
North America and $155 million (a portion of which is not consolidated for
financial reporting purposes) in international operations to be divested
(including those considered in the current quarter special charges). Through
June 1997, the Company has sold business operations with annual revenues of
approximately $450 million, with most of these sales concluded subsequent to
March 31, 1997. The Company has also identified real estate assets of
approximately $60 million that are actively being marketed.
In March 1997, the Company initiated an effort to reduce operating
expenses by $100 million on an annualized basis by the beginning of the fourth
quarter of fiscal 1997. Through June 30, the Company had reduced operating
headcount by approximately 800 employees through the re-routing of trucks,
consolidations and closures of operating facilities and, where appropriate,
after careful review, a reduction in supervisory personnel. Although this goal
has not yet been fully achieved, the ability to further reduce operating
expenses in recycling business operations will significantly affect the
Company's ability to achieve this operating expense reduction goal by fiscal
yearend. The focus in the recycling business is on (1) cleaning up the volumes
received to reduce sorting costs and increase the quality or value of the
material to be sold and (2) closing or selling the remaining higher cost, lower
efficiency facilities. During the first nine months of fiscal 1997, the Company
closed or sold 49 recycleries. The Company's focus on asset management
continued during the third quarter. Reduced capital spending will lead to lower
fixed costs, which is another contributor to the Company's effort to reduce
operating costs. Capital expenditures, including acquisitions, for the first
nine months of fiscal 1997 were limited to $352 million.
The following profitability ratios (shown as a percent of revenues)
reflect certain profitability trends for the Company's operations. The Company
has established an operating profit milestone for fiscal 1997 to increase
income from operations as a percent of revenues to 12%. (Progress toward this
goal will be measured on a pre-special charge basis.) Also presented below are
return on asset information and ratios of earnings to fixed charges.
17
<PAGE> 18
<TABLE>
<CAPTION>
Nine Months Ended
------------------- Year Ended
6/30/97 6/30/96 9/30/96
-------- --------- ----------
<S> <C> <C> <C>
Profitability Margins:
Gross profit 25.6% 25.4% 25.3%
Income from operations before
special charges 11.4% 10.4% 10.2%
Income from operations 9.5% 10.4% 2.5%
Income before income taxes,
minority interest and
extraordinary items 7.4% 8.3% 0.5%
Net income before special
charges and extraordinary
items(1) 5.4% 4.8% 4.7%
Net income (loss)(1) 4.1% 4.5% (1.8%)
Other Financial Information:
Return on Gross Assets 8.66% 8.55% 11.4%
Ratio of earnings to fixed
charges before special
charges(1) 3.02 2.84 2.77
Ratio of earnings to fixed
charges(1) 2.59 2.84 1.02
</TABLE>
- ----------
(1) Does 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 (8) of
Notes to Consolidated Financial Statements.)
Improvement was reflected in all of the profitability margins, before
considering special charges and extraordinary items, presented above for the
nine months ended June 30, 1997 compared with the same period of the prior
year. Although these profitability margins continued to be affected negatively
in domestic operations by the decline in the weighted average value of
recycling commodities in the current fiscal year as compared with the first
nine months of the prior year, the North American income from operations margin
reflected improvement as a result of improved profitability in solid waste
collection, recycling and, to a lesser extent, transfer and disposal
operations. Reduced SG&A expenses as a percentage of revenues also affected
favorably the North American income from operations margin. The weighted
average market prices for recycling commodities in North America, principally
corrugated, office paper and newspaper, declined by 12%, to approximately $62
per ton in the first nine months of the current year from approximately $70 per
ton in the comparable period last year. Current year profitability margins were
also affected negatively by the increased operating and SG&A costs associated
with current year employee severance and reorganization expenses of
approximately $18 million, although this effect was more than offset by the
increase in income from operations of $19.5 million associated principally with
the reduced depreciation and amortization expense resulting from the special
charges taken in the fourth quarter of fiscal 1996. In the Company's
international operations, the gross
18
<PAGE> 19
profit margin was flat and income from operations margin improved in the current
year compared with the same period of the prior year. International results,
although adversely impacted by severance costs and foreign exchange losses,
improved principally as a result of higher seasonal operating profitability from
German operations.
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 generally as follows:
Operating cash flow - the sum of (i) net income before extraordinary
items, (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 and
the current quarter of fiscal 1997).
Gross assets - the sum of total assets, accumulated depreciation and
amortization, and asset impairment writedowns (until such assets are
sold or otherwise disposed of -- approximately $175 million at June
30, 1997 and $382 million at September 30, 1996) 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 (approximately $447 million
at June 30, 1997) and (iii) deferred income tax liabilities.
Gross assets in the ROGA computations for the first nine months of a fiscal
year is the average of the applicable beginning of year and end of first,
second and third quarter amounts; gross assets for a fiscal year is the average
of the applicable five quarter-end amounts in the period. The Company
established a ROGA milestone for fiscal 1997 to increase ROGA by 0.5% from
fiscal 1996 to 11.9%.
Total assets decreased from $7.60 billion at September 30, 1996 to $6.90
billion at June 30, 1997. Average gross assets of approximately $8.72 billion in
the computation of ROGA resulted from a decline in gross assets at June 30,
1997, compared with September 30, 1996 ($9.06 billion). The decreases in assets
and gross assets were principally attributable to the divestitures completed
through June 30, 1997, and the decrease in assets related to foreign currency
exchange, a result of the strengthening U.S. dollar against the German, Dutch,
and Spanish currencies, offset partially by capital expenditures during the
first nine months of fiscal 1997. The decrease in assets was also attributable
to the increase in accumulated depreciation and amortization.
19
<PAGE> 20
While the Company is on track to exceed its fiscal 1997 milestones for
lower SG&A costs, reduced capital spending and reduced interest-bearing debt
levels, management believes that the operating income margin and ROGA
milestones are very challenging, but still may be achievable. Management
believes that operating margin and ROGA improvements will come from decreased
operating and SG&A costs, additional divestitures, internal growth and normal
seasonal improvement over the remainder of the fiscal year.
EBITDA (defined herein as income from operations plus depreciation and
amortization expense before considering special charges) was $932 million for
the first nine months of fiscal 1997 as compared with $888 million for the
first nine months of last 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.
Revenues -
Revenues for the nine months ended June 30, 1997, were $4.38 billion, a
2.4% increase over the same period last year. The following table reflects
total revenues of the Company by each of the principal lines of business
(dollar amounts in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
---------------------- %
6/30/97 6/30/96 Change
---------- ---------- --------
<S> <C> <C> <C>
North American Operations
(including Canada) -
Collection Services -
Solid Waste $2,203,095 $2,132,372 3.3%
Transfer and Disposal -
Solid Waste
Unaffiliated customers 413,600 391,307 5.7%
Affiliated companies 391,230 378,014 3.5%
---------- ----------
804,830 769,321 4.6%
Recycling Services 414,802 397,274 4.4%
Medical Waste Services 149,592 150,225 (0.4)%
Services Group and Other 73,058 62,830 16.3%
Elimination of affiliated
companies' revenues (391,230) (378,014) 3.5%
---------- ----------
Total North American Operations 3,254,147 3,134,008 3.8%
International Operations 1,125,973 1,142,028 (1.4)%
---------- ----------
Total Company $4,380,120 $4,276,036 2.4%
========== ==========
</TABLE>
20
<PAGE> 21
As the table below reflects, revenue growth for the nine months ended June
30, 1997, was due principally to acquisitions and, to a lesser extent, pricing
and volume which more than offset the decline related to the divestiture of
business operations and foreign currency translation.
<TABLE>
<CAPTION>
Changes in Revenue for
Nine Months Ended
June 30,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Price 1.4% (5.9)%
Volume 0.8 0.1
Acquisitions 2.7 6.3
Divestitures (0.8) --
Foreign currency translation (1.7) 0.1
---- ----
Total Percentage Increase 2.4% 0.6%
==== ====
</TABLE>
As shown above, acquisitions accounted for revenue growth of 2.7% for the
first nine months of fiscal 1997 over the same period of the prior year.
Revenue growth due to acquisitions was attributable principally to acquisitions
consummated in fiscal 1996. No significant acquisitions were closed in the
first nine months of the current year with the new emphasis on internal rather
than external growth. Revenues increased due to change in price during the
first nine months of fiscal 1997 despite the decline in pricing in the North
American recycling business previously discussed. Increases in revenues due to
price were noted in the Company's collection, medical waste and international
businesses while a decrease was experienced in the transfer and disposal
business. The increases in revenue due to volume in the first nine months of
the current year compared with the same period of the prior year were driven by
increases in the North American collection, transfer and disposal and recycling
businesses. Revenues also reflect the effect of divestitures and lower
international revenues from foreign currency translation due to the stronger
U.S. dollar.
Cost of Operations -
Cost of operations increased $70 million or 2.2% for the first nine months
of fiscal 1997, compared with the same period of the prior year. Most of the
increase in cost of operations is attributable to businesses acquired in fiscal
1996. These increased costs have been offset partially by the impact of
divestitures of certain business operations and the operating cost reduction
program initiated in March 1997. As a result of this cost reduction program,
the Company has reduced its operating headcount by approximately 800 employees
through the re-routing of trucks, consolidations and closures of operating
facilities and, where appropriate, after careful review, a reduction in
supervisory personnel. Cost of operations as a percent of revenues decreased
from 74.6% for the nine months ended June 30, 1996 to 74.4% for the nine months
ended June 30, 1997. Included in cost of operations is depreciation and
amortization expense of approximately $360.0 million and $362.9 million for the
nine months ended June 30, 1997 and 1996, respectively.
21
<PAGE> 22
Selling, General and Administrative Expense -
SG&A was $621 million for the first nine months of fiscal 1997, a decrease
of 3.3% from the same period last year. SG&A as a percent of revenues decreased
from 15.0% of revenues for the nine months ended June 30, 1996 to 14.2% of
revenues for the nine months ended June 30, 1997. The $21.4 million decrease in
SG&A was driven largely by the reduction in employees worldwide and other cost
reduction actions to improve operating and administrative efficiency. This
decrease was offset partially by higher costs associated with the Company's
acquisition activities and approximately $18 million of severance and
reorganization expenses included in SG&A associated with both the
reorganization of North American operations in June 1996 and the current year
reduction of employees worldwide. Included in SG&A for the nine months ended
June 30, 1997 and 1996 was depreciation and amortization expense of $73.8
million and $81.9 million, respectively.
Special Charges, net -
Reported in the third quarter of fiscal 1997 were pre-tax special charges
of $84 million. The special charges included non-cash expenses of $53 million
due to cumulative foreign currency translation losses associated with the sale
of Italian business operations and $96 million for anticipated losses related
to decisions to divest additional underperforming or non-core business
operations located primarily in the United Kingdom, the Netherlands and the
United States. These losses were offset partially by net gains of $65 million
arising largely from 34 divestitures completed in the third quarter,
principally in North America.
Net Interest Expense -
Net interest expense increased $3.4 million or 2.7% for the first nine
months of fiscal 1997 compared with the same period of the prior year as a
result of the increase in average debt outstanding between the periods,
associated principally with fiscal 1996 capital expenditures of approximately
$1.2 billion. At the end of the third quarter of fiscal 1997, debt outstanding
had declined by $682 million from yearend fiscal 1996, largely as a result of
the receipt of net proceeds from divested operations, increased cash flow as a
result of improved operating performance and the limitation on capital spending
during the period. The Company has established a milestone for long-term debt
which is to maintain interest-bearing debt at or below the September 30, 1996
level.
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates declined slightly between
the periods primarily due to the reduction in equity earnings from P&R due to
the acquisition of the remaining 50% ownership interest of P&R by Otto Waste
Services during the second quarter of fiscal 1996 offset to a large extent by
improved earnings from the Company's North American waste-to-energy and Hong
Kong equity affiliates. Included in this caption are the earnings of
unconsolidated affiliates of Otto Waste Services. The Company consolidates Otto
Waste Services'
22
<PAGE> 23
financial results, which include equity in earnings of Otto's unconsolidated
affiliates.
Minority Interest in Income of Consolidated Subsidiaries -
The increase in minority interest in income of consolidated subsidiaries
was not significant, $0.9 million for the first nine months of fiscal 1997
compared with the same period of last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $10.7 million at September 30,
1996, compared with working capital of $75.5 million at June 30, 1997. Over the
long term, it continues to be the Company's desire 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.
As discussed in Note (8) of Notes to Consolidated Financial Statements, 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. These
securities are not included on the Company's balance sheet; an increase in
common stockholders' equity will be reflected when cash proceeds totaling over
$400 million are received by the Company no later than June 30, 1998.
Long-term indebtedness including the current portion of long-term
debt(including $498.2 million of Otto Waste Services debt, which has not been
guaranteed by the Company) as a percentage of total capitalization was 45% as
of June 30, 1997, down from 53% at September 30, 1996. The ratio would have
been 37% at June 30, 1997, on a pro forma basis assuming that under the
provisions related to the Automatic Common Exchange Securities, cash proceeds
of $409.7 million were paid to the Company to purchase common stock and such
proceeds were utilized to repay long-term debt.
The capital appropriations budget for fiscal 1997 was established at $790
million to provide for normal replacement capital needs in the Company's core
business, to provide new assets to support planned revenue growth within all
consolidated businesses and in anticipation of selective business acquisition
and development opportunities. This is a significant reduction from the $1.2
billion level of capital expenditures in fiscal 1996 and is reflective of the
new emphasis on internal rather than external growth. As a result of cash flows
from operations, proceeds from divestitures and reduced capital spending, the
Company has generated surplus cash through the first nine months of fiscal
1997, a portion of which has been utilized to retire outstanding indebtedness.
The Company continues to assess the various alternatives for the use of such
surplus cash among investing additional capital in the business, increasing
dividends, additional debt retirement or a common share repurchase program.
As of June 30, 1997, there have been no significant changes in balance
sheet caption amounts compared with September 30, 1996, and
23
<PAGE> 24
there have been no material changes in the Company's financial condition from
that reported at September 30, 1996, except with respect to the declines in
balance sheet amounts associated with the impact of foreign currency exchange
resulting from the strengthening of the U.S. dollar against the German, Dutch
and Spanish currencies, and except as disclosed herein.
24
<PAGE> 25
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain subsidiaries are 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), 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
quarterly or annual 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.
25
<PAGE> 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12. Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
27. Financial Data Schedule.
(b) Reports on Form 8-K: None
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
(Company)
/s/ Bruce E. Ranck
------------------------
Bruce E. Ranck
President and
Chief Executive Officer
/s/ Jeffrey E. Curtiss
-------------------------
Jeffrey E. Curtiss
Senior Vice President and
Chief Financial Officer
Date: August 13, 1997
27
<PAGE> 1
EXHIBIT g.3
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- --------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,471,368 $1,550,083 $4,276,036 $4,252,236
Cost of operations 1,115,350 1,104,966 3,190,371 3,036,243
---------- ---------- ---------- ----------
Gross profit 356,018 445,117 1,085,665 1,215,993
Selling, general and
administrative expense 221,216 226,432 642,287 626,963
---------- ---------- ---------- ----------
Income from operations 134,802 218,685 443,378 589,030
Interest, net 42,577 41,784 125,446 109,008
Equity in earnings of
unconsolidated affiliates (13,816) (14,910) (38,918) (39,586)
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and
extraordinary item 106,041 191,811 356,850 519,608
Income taxes 42,417 76,724 142,740 207,843
Minority interest in
income of consolidated
subsidiaries 1,602 8,820 8,094 23,119
---------- ---------- ---------- ----------
Income before
extraordinary item 62,022 106,267 206,016 288,646
Extraordinary item - loss
on redemption of debt,
net of income tax
benefit of $4,467 -- -- 12,159 --
---------- ---------- ---------- ----------
Net income $ 62,022 $ 106,267 $ 193,857 $ 288,646
========== ========== ========== ==========
Number of common and common
equivalent shares used
in computing earnings
per share 200,932 199,636 200,395 198,731
========== ========== ========== ==========
</TABLE>
(Continued on following page)
-2-
<PAGE> 2
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Unaudited)
(In Thousands Except for Per Share Amounts)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per common and
common equivalent share:
Income before extraordinary
item $ .31 $ .53 $ 1.03 $ 1.45
Extraordinary item -- -- (.06) --
------- ------- ------- -------
Net income $ .31 $ .53 $ .97 $ 1.45
======= ======= ======= =======
Cash dividends per
common share $ .17 $ .17 $ .51 $ .51
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 3
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
(Unaudited)
- ------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 85,093 $ 92,808
Short-term investments 54,572 104,761
Receivables -
Trade, net of allowances for doubtful
accounts of $39,365 and $39,777 947,429 926,791
Other 49,981 57,015
Inventories 51,500 50,090
Deferred income taxes 104,674 116,871
Prepayments and other 86,036 73,959
---------- ----------
Total current assets 1,379,285 1,422,295
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,672,485 and $2,395,795 4,024,337 3,722,292
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$151,133 and $116,369 1,810,752 1,768,391
Other intangible assets, net of
accumulated amortization of $123,131
and $142,780 115,629 116,303
Deferred income taxes 88,378 78,689
Investments in unconsolidated affiliates 313,014 272,205
Other 96,538 80,197
---------- ----------
Total other assets 2,424,311 2,315,785
---------- ----------
Total assets $7,827,933 $7,460,372
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 4
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
(In Thousands Except for Share Amounts)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
(Unaudited)
- ------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 67,555 $ 62,463
Accounts payable 443,463 515,304
Accrued liabilities -
Salaries and wages 124,399 122,656
Taxes, other than income 42,441 41,960
Other 440,386 434,855
Income taxes 31,742 53,045
Deferred revenues 190,071 184,045
---------- ----------
Total current liabilities 1,340,057 1,414,328
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 528,266 568,644
Deferred income taxes 101,824 104,645
Other 258,981 220,257
---------- ----------
Total deferred items 889,071 893,546
---------- ----------
LONG-TERM DEBT, net of current portion 2,773,047 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; 213,395,109 and
213,440,672 shares issued 35,573 35,581
Additional paid-in capital 1,776,606 1,801,407
Retained earnings 1,353,979 1,328,244
Treasury stock, 1,031,929 and 1,001,407
shares, at cost (11,944) (10,494)
Stock and Employee Benefit Trust,
11,326,078 and 13,596,325 shares (328,456) (412,988)
---------- ----------
Total common stockholders' equity 2,825,758 2,741,750
---------- ----------
Total liabilities and common
stockholders' equity $7,827,933 $7,460,372
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 5
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 193,857 $ 288,646
---------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization -
Property and equipment 384,981 348,526
Goodwill 34,725 30,147
Other intangible assets 25,086 22,560
Deferred income tax expense 20,005 30,528
Amortization of deferred investment tax credit (530) (530)
Provision for losses on accounts receivable 20,427 19,957
Gains on sales of fixed assets (3,984) (7,447)
Equity in earnings of unconsolidated
affiliates, net of dividends received (2,086) (18,755)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 7,299 19,378
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions -
Trade receivables (33,896) (28,424)
Inventories 2,139 (15,769)
Other assets 15,765 17,008
Other liabilities (115,787) (13,185)
---------- ----------
Total adjustments 354,144 403,994
---------- ----------
Net cash provided by operating activities 548,001 692,640
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (656,628) (615,646)
Payments for businesses acquired (162,722) (735,208)
Investments in unconsolidated affiliates (92,389) (33,301)
Proceeds from disposition of assets 44,383 173,566
Purchases of short-term investments -- (37,546)
Sales of short-term investments 273,647 201,924
Return of investment in unconsolidated
affiliates 37,863 28,085
---------- ----------
Net cash used in investing activities (555,846) (1,018,126)
---------- ----------
</TABLE>
(Continued on following page)
-6-
<PAGE> 6
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 12,189 13,791
Proceeds from issuance of indebtedness 979,813 914,705
Repayments of indebtedness (888,715) (483,059)
Dividends paid (101,615) (100,469)
--------- ---------
Net cash provided by financing
activities 1,672 344,968
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES (1,542) 2,785
--------- ---------
NET INCREASE (DECREASE) IN CASH (7,715) 22,267
CASH AT BEGINNING OF PERIOD 92,808 79,131
--------- ---------
CASH AT END OF PERIOD $ 85,093 $ 101,398
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 109,663 $ 92,230
Income taxes $ 134,161 $ 191,781
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 7
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation -
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments and disclosures
necessary to a fair presentation of these financial statements have been
included. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1995, as filed with the
Securities and Exchange Commission.
Certain reclassifications have been made in prior year financial
statements to conform to the current year presentation.
(2) Earnings Per Common Share -
The following table reconciles the number of common shares outstanding
with the number of common and common equivalent shares used in computing
primary earnings per share (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Common shares outstanding, end of period 212,363 212,971
Less - Shares held in the Stock and
Employee Benefit Trust (11,326) (14,854)
------- -------
Common shares outstanding for purposes
of computing primary earnings per
share, end of period 201,037 198,117
Effect of using weighted average common
and common equivalent shares outstanding (1,505) (774)
Effect of shares issuable under stock
option plans based on the treasury
stock method 863 1,388
------- -------
Shares used in computing earnings
per share 200,395 198,731
======= =======
</TABLE>
-8-
<PAGE> 8
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 diluted earnings per
share was not significant in any period. 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 by the weighted average number of shares of common stock and common
stock equivalents outstanding during each period. 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.
(3) Business Combinations -
During the current fiscal year, the Company paid approximately $214.2
million (including additional amounts payable, principally to former owners, of
$20.0 million and the issuance of 964,910 shares of the Company's common stock
valued at $28.1 million) to acquire 87 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 $62.7 million (including $55.0 million related
to P&R) and other liabilities of $29.4 million. The results of these business
combinations are not material to the Company's consolidated results of
operations or financial position.
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) 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 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
-9-
<PAGE> 9
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 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 the first nine months of the prior fiscal year, 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):
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<PAGE> 10
<TABLE>
<CAPTION>
Nine Months Ended
June 30, 1995
------------------
<S> <C>
Pro forma revenues $4,442,942
Pro forma net income $ 291,088
Pro forma earnings per common
and common equivalent share $1.46
</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.
(4) Long-Term Debt -
Long-term debt at June 30, 1996, and September 30, 1995, was as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,912 $ 198,088 $ --
6.375% Senior Notes, net of
unamortized discount of $2,097 197,903 --
7 7/8% Senior Notes, net of
unamortized discount of $806
and $875 299,194 299,125
7.40% Debentures, net of
unamortized discount of
$2,095 and $2,136 397,905 397,864
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond
obligations 149,115 114,079
Other notes payable 824,660 585,211
---------- ----------
2,166,865 1,496,279
Commercial paper and short-term
facilities to be refinanced 673,737 231,988
---------- ----------
Total long-term debt 2,840,602 1,728,267
Less current portion 67,555 62,463
---------- ----------
Long-term debt, net of current
portion $2,773,047 $1,665,804
========== ==========
</TABLE>
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 tax, or approximately $.06 per share. The Debentures were
refinanced with (i) the $400 million of notes discussed below
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<PAGE> 11
and (ii) additional commercial paper borrowings to be refinanced through other
long-term financings.
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.
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 classified
as long-term debt as of June 30, 1996 and September 30, 1995 is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
United States -
Commercial paper $453,862 $ 34,317
Germany 219,875 197,671
-------- --------
$673,737 $231,988
======== ========
</TABLE>
As of June 30, 1996, distributions from retained earnings could not exceed
$1.27 billion under the most restrictive of the Company's net worth maintenance
requirements.
(5) 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 quarterly or annual
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 decomposable household 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
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<PAGE> 12
and received the ability to dispose of certain additional non- municipal solid
waste streams at the facility. The Company's ability to continue to accept
decomposable household waste in a portion of the landfill is dependent on the
satisfaction of certain technical requirements mandated by California
authorities. The ultimate realization of the Company's investment of
approximately $100 million is dependent upon continued disposal of current and
future acceptable waste streams while continuing to pursue all possible
alternative uses of the property to maximize its value.
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 quarterly or annual
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.
(6) Reorganization -
During June 1996, the Company announced the reorganization of its North
American operating business structure, effective September 1, 1996. The
Company's previous organization divided North America into 45 divisions
reporting to 6 regional offices and operations were 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 future costs associated with this reorganization will be
expensed as incurred.
(7) 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
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<PAGE> 13
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.
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