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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 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
incorporation or organization) Identification No.)
757 N. ELDRIDGE
HOUSTON, TEXAS 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 870-8100.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.16-2/3 par value New York Stock Exchange, Inc.
Chicago Stock Exchange Incorporated
Pacific Stock Exchange Incorporated
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7.25% Automatic Common Exchange New York Stock Exchange, Inc.
Securities
Chicago Stock Exchange Incorporated
Pacific Stock Exchange Incorporated
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
Such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any Amendment to
this Form 10-K. X
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The approximate aggregate market value of common stock held by non-affiliates
of the registrant: $6.7 billion, computed on the basis of $35-3/8 per share,
closing price of the common stock on the New York Stock Exchange, Inc. on
December 3, 1997.
There were 196,791,285 shares of the registrant's common stock, $.16-2/3 par
value, outstanding as of December 3, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III (except for information required with
respect to executive officers of the Company, which is set forth under
"Business--Executive Officers of the Company" in Part I of this report) have
been omitted from this report, since the Company will file with the Securities
and Exchange Commission, not later than 120 days after the close of its fiscal
year, a definitive proxy statement, pursuant to Regulation 14A, which involves
the election of directors. The information required by Items 10, 11, 12 and 13
of Part III of this report, which will appear in the definitive proxy
statement, is incorporated by reference into this report.
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TABLE OF CONTENTS
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PAGE
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PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
North American Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Post-Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Landfills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Transfer Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Medical Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Recycling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Services Group and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
International Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Waste-To-Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Waste Disposal Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Corporate Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Environmental Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . 19
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . . . . . 44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . 93
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
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PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . 93
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
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PART I.
ITEM 1. BUSINESS.
GENERAL
Browning-Ferris Industries, Inc. is one of the largest publicly-held companies
that engages, through its subsidiaries and affiliates, in providing waste
services. The Company collects, transports, treats and/or processes, recycles
and disposes of commercial, residential and municipal solid waste and
industrial wastes. BFI is also involved in waste-to-energy conversion,
medical waste services, portable restroom services, and municipal and
commercial sweeping operations.
The terms "BFI" and "Company" refer to Browning-Ferris Industries, Inc.,
incorporated in Delaware on October 26, 1970, and are used herein to include
its subsidiaries, affiliates and predecessors, unless the context requires
otherwise. BFI's executive offices are located at 757 N. Eldridge, Houston,
Texas 77079. The Company's mailing address is P.O. Box 3151, Houston, Texas
77253, and its telephone number is (281) 870-8100.
The Company (including unconsolidated affiliates) operates in approximately 420
locations in North America and approximately 270 locations outside North
America and employs approximately 40,000 persons. No single customer or
operating location accounts for a material amount of BFI's revenue or net
income.
In November 1997, the Company announced the signing of an agreement to merge
its operations located outside North America with SITA, S.A., a societe anonyme
formed under the laws of the Republic of France ("SITA"). Pursuant to the
terms of the agreement, the Company will sell to SITA all of its equity
securities and other ownership interests of its international operations
located outside the United States, Puerto Rico, Canada and Mexico. In return,
the Company will receive US$1 billion and ordinary shares of SITA equating to
approximately 20% equity ownership in SITA. The transaction is expected to be
consummated during the first quarter of calendar 1998. The transaction has
been approved by the boards of directors of the Company and SITA and is subject
to the satisfactory completion of due diligence, approval by regulatory
authorities, and authorization by SITA's shareholders of the issuance of
additional ordinary shares. See "International."
In September 1997, the Company commenced a $1 billion equity buy-back program.
The first phase of the program was completed in October 1997 when the Company
acquired 15 million shares of its Common Stock at a price of $39.00 per share
in accordance with the terms of its "Dutch Auction" tender offer. The second
phase of the program consists of the purchase of approximately $415 million of
the Company's Common Stock and/or its 7.25% Automatic Common Exchange
Securities in open market purchases and privately negotiated transactions and
is expected to be completed by September 30, 1998.
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At the end of fiscal 1996, the Company announced a strategic refocus to
emphasize internal growth rather than external growth and to more closely align
the Company's performance objectives with its shareholders' interests. To
begin implementation of 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 as compared to historic levels of such expenditures. The Company
continued to implement this strategy during fiscal 1997 by significantly
reducing capital expenditures from the prior year, identifying and divesting of
certain underperforming business operations, reducing its selling, general and
administrative costs and, to a lesser extent, operating costs, and shifting its
focus to return on gross assets in both its existing business operations and
its business development activities. See below and also "Corporate
Development" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations."
The Company's North American operating organization is aligned 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 either the Company's chief executive
officer or chief operating officer. The North American operations are divided
into 13 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 organizational
structure is intended to maximize 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's international operations (excluding Canada) are aligned into two
operational areas, Europe and the Pacific Rim. BFI Europe, from its regional
office in the Netherlands, oversees the Company's operations in Finland,
Germany, the Netherlands, Spain, Switzerland and the United Kingdom.
Management oversight for operations in Australia, Hong Kong, Kuwait and New
Zealand and the coordination of expansion into new markets outside Europe are
provided from the corporate office in Houston.
Management of the operations in each country is carried out by a country
manager, and in some cases where the operations are larger or more extensive,
by country managers, with one of the country managers being an experienced BFI
expatriate employee and the other an experienced national manager. The Company
believes that strong national management in each country of operation is
extremely important, together with support from the corporate office in Houston
and BFI's regional office in Europe, in areas of accounting, compliance, legal,
technical, sales and market development. BFI has implemented a divisional
market structure in several countries which permits and encourages increased
growth opportunities in more localized markets.
The Company's long-term financial goals are to: (i) generate cash returns on
assets in excess of the weighted average cost of capital; (ii) increase profits
at a faster pace than the increase in
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revenues; and (iii) maintain a strong credit rating appropriate for supporting
business operations. To more closely align management interests to shareholder
interests, the Company has also revised its long-term incentive compensation
plans for management to reallocate a significant portion of their stock option
participation to performance-based stock that will be earned only as certain
performance measures are attained.
The Company's business is subject to extensive U.S. and foreign governmental
regulation and legislative initiative, such as environmental regulation,
mandatory recycling laws, medical waste regulation, preclusion of certain waste
from landfills and restrictions on the flow of solid waste. Due to continuing
public awareness and influence regarding waste and the environment, and
uncertainty with respect to the enactment and enforcement of future laws, the
Company can not always accurately project the impact any future regulation or
legislative initiative may have on its operations. See "Regulation" and "Legal
Proceedings - Environmental Proceedings" for additional information.
The table below reflects for each of the three years ended September 30, 1997,
the total revenues contributed by the Company's principal lines of business.
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Contribution to Consolidated Revenues
(in millions)
Year Ended September 30,
1997 1996 1995
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North American Operations
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Collection Services - Solid Waste $2,913 $2,886 $2,758
Transfer and Disposal - Solid Waste 1,079 1,050 1,026
Recycling Services 555 531 675
Medical Waste Services 199 200 189
Services Group and Other 106 89 83
Elimination of Affiliated Companies'
Revenues (527) (513) (483)
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Total North American Operations 4,325 4,243 4,248
International Operations 1,458 1,536 1,531
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Total Company $5,783 $5,779 $5,779
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Total assets at September 30, 1997, 1996 and 1995 were $6,678 million, $7,601
million and $7,460 million, respectively.
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NORTH AMERICAN OPERATIONS
COLLECTION
BFI collects solid waste in approximately 275 operating locations in 45 states,
Puerto Rico and Canada. These operations provide solid waste collection
services for commercial establishments, industrial plants, medical
institutions, and governmental and residential units. BFI uses approximately
911,000 containers and approximately 9,300 specially equipped collection trucks
in its North American waste collection operations.
The Company's commercial and industrial solid waste collection services are
typically performed pursuant to service agreements that provide for one-year to
three-year initial terms and specified successive terms thereafter.
Residential collection contracts with individual homeowners, homeowner groups
and municipalities are generally for periods of one to five years, frequently
with renewable terms. Solid waste collection contracts with governmental
units are usually awarded pursuant to a competitive bidding process.
Operating costs, disposal costs and collection fees vary widely throughout the
geographic areas of the Company's operations. Prices for solid waste
collection services are determined locally, principally by the volume, weight
and type of wastes collected, treatment required, risks involved in handling or
disposing of the wastes, collection frequency, disposal costs, distance to
final disposal sites, quantity and type of equipment furnished to the customer
and other competitive factors. The Company's ability to pass on cost increases
is often influenced by competitive and other factors. Long-term residential
solid waste collection contracts often include a formula for adjusting fees,
generally based on published price indices, to cover increases in certain
operating costs.
The Company is the largest provider of medical waste services in North America
and collects infectious and pathological waste materials from approximately
150,000 customers.
The Company also collects recyclable materials, principally paperboard, office
paper and other paper products, in North America from approximately 5.8 million
households, including curbside customers, and for approximately 133,000
commercial and industrial customers. The Company's recycling collection
contracts often provide for customer participation in price increases or price
decreases on resale of recycled commodities.
POST-COLLECTION
Landfills
Sanitary landfilling is the primary method employed by the Company for final
disposal of the segment of the solid waste stream that is not recycled. BFI
currently operates 98 solid waste landfill sites in North America, 19 of which
are operated under contracts with municipalities or others. The Company has
approximately 15,000 acres permitted as landfill disposal sites,
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consisting of acres in unopened and unlined landfill cells, acres in filled and
capped landfill cells which are in open landfill sites, and acres in open
landfill cells. The acreage shown does not reflect the volume (or "airspace")
available for disposal, which depends on the vertical space and landfill
configuration as well as the surface acres. BFI does not currently own or
lease a landfill site in every metropolitan area in which it is engaged in
solid waste collection; however, the Company intends to continue to seek, where
advisable, ownership or lease of disposal facilities in all such areas. To
date, the Company has not experienced excessive difficulty securing the use of
disposal facilities owned or operated by others in those communities in which
it does not operate its own landfill sites.
Transfer Stations
BFI operates 91 solid waste transfer stations where solid wastes are compacted
for transfer to final disposal facilities. Transfer stations are used for the
purpose of either (i) reducing costs associated with transporting waste to
final disposal sites, or (ii) better utilizing the Company's disposal sites.
Where practical, transfer and recycling functions are combined at the same
transfer station to form "Trancycleries."(TM)
Medical Waste
The Company owns or operates 29 treatment sites using either incineration or
autoclaving (steam sterilization) technology. The Company also utilizes over
100 collection sites to service medical waste customers in most major
metropolitan cities in the United States.
Recycling
The Company currently operates 102 recycleries in North America which receive,
process and dispose of recyclable materials. During fiscal 1997, the Company
closed 35 recycling facilities due to the continuing weakness in recycled
commodity prices, and plans to close additional facilities during fiscal 1998.
The Company operates a centralized materials marketing group with the objective
of establishing longer-term customer relationships and agreements with
purchasers of recycled commodities. The Company has developed relationships
with numerous other companies to assure municipalities and other customers of
continuous and diversified resale markets. In order to reduce the impact of
the price volatility that is inherent in this business segment, the Company has
included floor pricing provisions in a large number of its fiber resale
contracts.
The Company also engages in organic materials recycling and/or disposal, tire
recycling and other alternative energy concepts such as biomass fuels. The
Company currently operates 28 organic processing centers.
SERVICES GROUP AND OTHER
In April 1997, the Company acquired the lease and related assets of a
waste-to-energy facility located in Chester, Pennsylvania. See
"Waste-To-Energy". The Company also rents and services
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portable restroom facilities and provides street and parking lot sweeping. The
Company may also participate, to a limited extent, in the end-use development
of certain BFI landfills that have reached permitted capacity and other real
and personal property in which it has an interest. From time to time, the
Company sells or otherwise disposes of surplus land and other real or personal
property and reflects any gain or loss from such transactions in the results of
operations for the period in which the transactions occur.
INTERNATIONAL OPERATIONS
On November 10, 1997, the Company announced the signing of an agreement to
merge its operations located outside North America with SITA, S.A., a societe
anonyme formed under the laws of the Republic of France ("SITA"). The
transaction is expected to be consummated during the first quarter of calendar
1998.
Pursuant to the terms of the agreement, the Company will sell to SITA all of
its equity securities and other ownership interests of its international
operations located outside the United States, Puerto Rico, Canada and Mexico.
In return, the Company will receive US$1 billion and ordinary shares, FF50 par
value (the "Ordinary Shares"), of SITA equating to approximately 20% equity
ownership in SITA.
Suez Lyonnaise des Eaux, a societe anonyme formed under the laws of the
Republic of France ("Suez Lyonnaise"), currently owns, and will own upon
consummation of the transaction, greater than 50% of the Ordinary Shares of
SITA. Pursuant to a Shareholders' Agreement between the Company and Suez
Lyonnaise, the Company will be entitled to representation on SITA's board of
directors.
The transaction has been approved by the boards of directors of the Company and
SITA and is subject to the satisfactory completion of due diligence and
approval by regulatory authorities. The transaction is also subject to the
authorization by SITA's shareholders of the issuance of the Ordinary Shares to
the Company and a rights offering to existing shareholders of SITA. Upon
completion of the transaction, SITA will be the largest waste services company
in Europe with annualized revenues of approximately US$2.8 billion.
The Company is involved in waste collection, processing, disposal and/or
recycling operations in approximately 270 locations (including locations of
unconsolidated affiliates) in Australia, Finland, Germany, Hong Kong, Kuwait,
the Netherlands, New Zealand, Spain, Switzerland and the United Kingdom.
European operations comprise the largest number of operating locations outside
North America.
The Company currently collects solid waste in approximately 160 locations and
operates 47 landfill sites in its international operations (including, in each
case, locations of unconsolidated affiliates). The Company also has 50
recycleries and 49 transfer stations in its international operations and
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uses approximately 285,000 containers and approximately 3,800 specially
equipped collection trucks in its international waste collection operations.
The Company owns 50% of the stock of Otto Entsorgungsdienstleistungen GmbH
("Otto Waste Services"), which is primarily engaged in providing collection and
recycling services under long-term contracts with municipalities in Germany and
Duales System Deutschland GmbH, the non-governmental organization responsible
for the collection and processing of certain recyclable materials in Germany.
During fiscal 1997, the Company reported consolidated revenues of approximately
$630 million applicable to Otto Waste Services. The Company's interest in Otto
Waste Services will also be merged into SITA.
WASTE-TO-ENERGY
The Company and Air Products and Chemicals, Inc. ("Air Products"),
headquartered in Allentown, Pennsylvania, are each 50% general partners in
partnerships that design, build, own and operate facilities that burn solid
waste and recover energy and other materials. These partnerships market their
capabilities under the name American Ref-Fuel(R). The Company also owns 100%
of a lease of a waste-to-energy facility located in Chester, Pennsylvania.
In April 1996, Air Products announced its intention to divest its partnership
interests in American Ref-Fuel. On November 1, 1997, Air Products entered into
an agreement to sell its 50% interests in American Ref-Fuel partnerships to a
new company formed by Duke Energy Power Services, a subsidiary of Duke Energy
Corporation, and United American Energy Corp. The sale is subject to approvals
by each company's board of directors and relevant regulatory agencies. The
transaction is expected to be consummated in December 1997.
In April 1997, the Company acquired the lease and related assets of the
Delaware County Resource Recovery Facility, located in Chester, Pennsylvania,
from Westinghouse Electric Corporation. The facility, which has a capacity of
approximately 1,000,000 tons per year, utilizes a rotary mass-burn process and
is operated by American Ref-Fuel.
American Ref-Fuel currently operates six waste-to-energy facilities, including
the Chester, Pennsylvania facility. Five of these facilities, which are
located in Hempstead (Long Island), New York, Essex County, New Jersey, Niagara
Falls, New York, Rochester, Massachusetts and Chester, Pennsylvania, have
capacities of approximately 800,000 to 1,300,000 tons per year. The Preston,
Connecticut facility has a capacity of approximately 250,000 tons per year.
Four of the facilities owned by American Ref-Fuel partnerships utilize the
solid waste mass-burning technology of the German firm, Deutsche Babcock
Anlagen GmbH ("DBA"), for which American Ref-Fuel is a licensee in North
America. This technology has been utilized successfully for over 30 years in
Europe and elsewhere.
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In connection with four of the existing American Ref-Fuel projects, both the
Company and Air Products have delivered, and in connection with any future
projects may be required to deliver, support agreements for certain project
indebtedness of each of the respective subsidiary partners. See Note (11) of
Notes to Consolidated Financial Statements for information concerning these
obligations.
The Company's equity and loan investments in American Ref-Fuel's
waste-to-energy projects were approximately $174 million at September 30, 1997.
American Ref-Fuel's business is very capital intensive and its ability to raise
capital is an important factor in its competitiveness in the waste services
industry. When feasible, American Ref-Fuel attempts to finance its projects
with tax exempt bonds due to the lower interest costs. During fiscal 1998, the
Company plans to evaluate select acquisition opportunities presented by
American Ref-Fuel.
All waste-to-energy facilities must meet rigid environmental laws and
regulations. Existing laws and regulations can be changed or administered so
as to affect the design, construction, startup or operation of such facilities.
Management believes that the technologies employed at its facilities are
capable of meeting anticipated future changes in laws and regulations; however,
there can be no assurance that required environmental and other permits will be
issued for any planned project. See "Regulation" and "Waste Disposal Risk
Factors."
REGULATION
All of the Company's principal business activities in the United States are
governed by federal, state and local laws and regulations pertaining to public
health and the environment, as well as transportation laws and regulations.
These regulatory systems are complex and are subject to change.
The U.S. Congress and certain states have considered legislation, and some
states are taking action, to ban or otherwise restrict the interstate
transportation of wastes for disposal, to impose discriminatory fees on such
transported wastes, to limit the types of wastes that may be disposed of at
existing disposal facilities, and to mandate waste minimization initiatives,
recycling quotas and composting of yard wastes.
In recent years, a number of communities have instituted "flow control"
requirements, which typically require that waste collected within a particular
area be deposited at a designated facility. In May 1994, the U.S. Supreme Court
ruled that a flow control ordinance was inconsistent with the Commerce Clause
of the Constitution of the United States. A number of lower federal courts
have struck down similar measures. Although the U.S. Congress has considered
legislation that would partially grant flow control authority under the
Commerce Clause, no legislation has been enacted. In the future, the U.S.
Congress may consider bills that could at least partially overturn these court
decisions and immunize particular governmental actions (for example, flow
control mandates that were in place prior to the 1994 U.S. Supreme Court
decision) from Commerce Clause scrutiny.
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Similarly, the U.S. Supreme Court has consistently held that state and local
measures that seek to restrict the importation of extraterritorial waste or tax
imported waste at a higher rate are unconstitutional. To date, congressional
efforts to enable states to, under certain circumstances, impose differential
taxes on out-of-state waste or restrict waste importation have not been
successful.
In the absence of federal legislation, certain local laws that directly or
indirectly divert waste flows to designated facilities may be unenforceable,
and discriminatory taxes and waste importation restrictions should continue to
be subject to judicial invalidation. If the U.S. Congress adopts legislation
allowing for certain types of flow control or restricting the importation of
waste, or if legislation affecting interstate transportation of waste is
adopted at the federal or state level, such legislation could adversely affect
the Company's waste collection, transportation, treatment and disposal
operations.
Because a major component of the Company's business is the collection and
disposal of solid waste in an environmentally sound manner, a material amount
of the Company's capital expenditures are related (directly or indirectly) to
environmental protection measures, including compliance with federal, state and
local provisions that have been enacted or adopted regulating the discharge of
materials into the environment. There are costs that are associated with
facility upgrading, corrective actions, facility closure and post-closure care
in addition to other costs normally associated with the Company's waste
management activities. The majority of these expenditures are made in the
normal course of the Company's business and do not place the Company at any
competitive disadvantage.
In October 1991, the EPA issued its final regulations under Subtitle D of the
Resource Conservation and Recovery Act of 1976 ("RCRA"), which set forth
minimum federal performance and design criteria for municipal solid waste
landfills. All Subtitle D regulations are now in effect. Management of BFI
believes that these regulations will have a favorable long- term impact on its
landfill operations, but meeting these regulatory requirements has resulted in
increased costs.
In March 1996, the EPA issued final regulations under the Clean Air Act to
control release of landfill gas from municipal solid waste landfills. At many
of its facilities, the Company has installed gas extraction and control systems
that meet the technical specifications in the rule. At those facilities that
do not have systems, and at new facilities, as appropriate, the Company will
continue to design, permit and install gas collection and control systems in
accordance with EPA and state requirements. The Company is also seeking
operating or other applicable permits for these activities. In addition,
landfills located in those areas of the country that do not meet prescribed air
quality standards may require more costly control systems.
State financial responsibility regulations, adopted in various forms, require
owners or operators of waste disposal facilities and underground storage tanks
to demonstrate the financial ability to respond to and correct sudden and
accidental pollution occurrences, as well as non-sudden or gradual pollution
occurrences. To meet these requirements, the Company has secured Environmental
Impairment Liability ("EIL") insurance coverage in amounts the Company believes
-9-
<PAGE> 14
are in compliance with federal and state law. Under the current EIL policy,
which is collateralized, the Company must reimburse the carrier for any losses.
It is possible that the Company's results of operations could be adversely
affected in a particular reporting period in the event of significant
environmental impairment claims.
Many state regulations also require owners or operators of waste disposal
facilities to provide assurance of their financial ability to cover the
estimated costs of proper closure and post-closure monitoring and maintenance
of these facilities. The federal Subtitle D regulations require all states to
adopt financial assurance regulations that meet the federal standards. The
Company has generally relied upon its consolidated financial position to issue
corporate guarantees, or has utilized letters of credit to satisfy these
requirements. The EPA has proposed and is expected to promulgate by early
1998, a financial test and corporate guarantee for use by private Subtitle D
facilities, which, if adopted, will afford the Company an additional cost
effective method to satisfy the financial assurance requirements. The Company
has also established a captive insurance company that is being used in several
states to provide insurance as a recognized means of demonstrating this
financial assurance. The Company has had success and is continuing its efforts
to secure acceptance of captive-issued insurance policies which serve as a
cost-effective alternative to certain other forms of financial assurance, such
as letters of credit.
In its international operations, the Company has noted a trend toward increased
environmental regulation. For example, in Europe, policies have been
established to encourage waste reduction, to promote re-use and recycling, to
reduce packaging waste, to strengthen the standards for permitting and
supervision of waste disposal operations and to control crossborder movements
of waste. BFI, with its commitment to sustainable development and the rational
management of all resources, including waste, believes that the continuation of
this trend and enhanced enforcement of increasingly stringent regulations will
benefit its international operations.
COMPETITION
BFI competes with both publicly-held and privately-owned waste services
companies. This competition is intense and has increased in recent years. BFI
believes that neither it nor any other waste services company has a significant
portion of any major aspect of the solid waste services markets. In some
geographic areas, all or part of the solid waste collection, processing and
disposal services offered by BFI may also be provided by municipalities or by
governmental authorities with regional or multi-county jurisdiction. Because
solid waste services provided by municipal or regional governmental authorities
are generally subsidized by tax revenues and utilize major equipment and
facilities that are financed with proceeds from the sale of tax-exempt bonds,
these authorities may provide such services at lower prices (though not
necessarily at lower costs) than those of private companies.
Competition is encountered primarily from publicly-held and numerous
locally-owned private solid waste services companies and, to a lesser degree,
from municipalities and other governmental units with respect to residential
solid waste collection and solid waste sanitary landfills. Intense
-10-
<PAGE> 15
competition in pricing and type and quality of services offered is encountered.
Some competitors in certain markets have increased competitive pressure by
their willingness to accept lower pricing to maintain market share.
WASTE DISPOSAL RISK FACTORS
There are serious, sometimes unforeseeable, business risks and potentially
substantial cost exposures associated with the establishment, ownership and
operation of solid waste sanitary landfill sites and other types of waste
processing and disposal facilities. These risk factors include, but are not
limited to: (i) the difficulty of obtaining permits to expand or establish new
sites and facilities and public and private opposition to the location,
expansion and operation of these facilities, (ii) governmental actions at all
levels that seek to restrict the interstate movement of waste for disposal or
which seek to limit the types of waste that can be disposed of in certain
facilities, which can, in each case, result in declining volumes of waste
available for disposal at some facilities, (iii) costs associated with liner
requirements, groundwater monitoring, leachate and landfill gas control,
surface water control, post-closure monitoring, site cleanup, other remedial
work and maintenance and long-term care obligations, (iv) the obligation to
manage possible adverse effects on the environment, (v) regulations requiring
demonstration of financial responsibility and conformance to prescribed or
changing standards and methods of operation, (vi) judicial and administrative
proceedings regarding alleged possible adverse environmental and health effects
of landfills or other treatment and disposal facilities, and (vii) reduction in
the volume of solid waste available for direct landfill disposal in certain
states because of governmental incentives to reduce the daily volume of waste
that may be disposed of, initiatives that require waste recycling, minimization
or composting and because of incineration in large waste-to-energy facilities.
See also "Waste-To-Energy", "Regulation" and "Legal Proceedings - Environmental
Proceedings."
BFI has periodically undertaken or been required, and may in the future
undertake or be required, to cease or to alter substantially its operations at
existing waste disposal sites, to implement new construction standards at
existing facilities and to add additional monitoring, post-closure maintenance
or corrective measures at waste disposal sites. See "Regulation" for
information concerning capital expenditures relating to environmental and
health laws and regulations and Notes (2) and (8) of Notes to Consolidated
Financial Statements.
If the Company is unable to continue disposing of planned volumes of wastes at
existing solid waste landfills or is unable to either expand existing landfills
or establish new sites, it would be required to obtain the rights to use other
disposal facilities or to suspend or curtail solid waste collection or disposal
activities. Any such actions would have an adverse impact on the Company's
collection business and could substantially reduce the Company's revenues and
results of operations and increase the risk of impairing the value of the
Company's investment in existing or proposed facilities. These developments
could also result in accelerating the recognition of closure costs and post-
closure monitoring cost accruals for those landfills, with a corresponding
negative impact on the Company's net income.
-11-
<PAGE> 16
The economic viability of certain waste-to-energy facilities may be adversely
affected by (i) the availability of commercially reasonable energy sales
contracts; (ii) the availability of landfills for the disposal of ash residue,
bypass and nonprocessible waste; (iii) existing and proposed governmental
standards applicable to the disposal of ash residue that could limit the number
of sites available for such disposal; (iv) air emission standards applicable to
the facilities; (v) the possible lower cost of other alternatives for waste
disposal and (vi) the continuing uncertainty with respect to the enforceability
of local flow control laws. Waste-to-energy facilities may also be adversely
affected by many of the same factors that are currently impacting other waste
disposal facilities.
Certain geographic regions in the United States have, at times, experienced
shortages of suitable solid waste disposal facilities. Without long term
planning, many private and governmental solid waste collection companies
operating in the affected areas, including BFI, could be required to curtail or
even suspend land disposal operations, or seek other, more distant sites. In
other cases, collection companies, including BFI, may be excluded from
disposing of solid waste in landfills or waste-to-energy facilities either
because of regulation or because of the landfill or facility owners' desire to
preserve the remaining capacity for their own disposal needs.
With respect to international operations, the profitability and risks
associated with these operations can also be affected, to a greater or lesser
extent depending on the foreign country in which the operations are located, by
changes in national economies, financial and political policies, war, invasion,
social instability, currency fluctuations and other risk factors associated
with operations in foreign countries. On November 10, 1997, the Company
announced that it had agreed to merge its operations located outside North
America with SITA. See "International."
CORPORATE DEVELOPMENT
The Company's corporate development program will evaluate opportunities to
expand its customer base by acquiring businesses and properties, broadening the
type of services offered and entering into new domestic markets. The Company
expects to modestly increase capital expenditures for acquisitions and other
corporate development activities during fiscal 1998 as compared to fiscal 1997,
but intends to maintain such expenditures below historic levels, with a
continuing emphasis on achieving returns over time at targeted amounts in
excess of the Company's cost of capital. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources." The Company intends to further divest certain domestic
business assets and operations that are not expected to achieve desired
performance objectives. The Company has also agreed to merge its operations
located outside of North America with SITA. See "International." When
investing in capital-intensive facilities such as landfills, the Company faces
the risk that required permits will not be obtained or renewed. If permits are
not ultimately obtained and maintained, the value of such facilities can be
substantially impaired, which could adversely affect future results of
operations. See "North American Operations - Post-Collection - Landfills" and
"Regulation."
-12-
<PAGE> 17
CAPITAL EXPENDITURES
Capital expenditures were approximately $527 million in fiscal 1997, consisting
of $30 million for acquired businesses. Approximately $160 million was
expended in connection with internal market development projects and municipal
contracts and $337 million related to additions and replacements of capital
items for existing operations, including existing landfill cell development.
See Notes (5), (6) and (7) of Notes to Consolidated Financial Statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for additional financing
information.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their positions (including their
principal areas of responsibility with the Company) and their respective ages
are as follows:
<TABLE>
<CAPTION>
Name Position Age *
- ---- -------- -----
<S> <C> <C>
Bruce E. Ranck President, Chief Executive Officer and 48
Director (1)
Norman A. Myers Executive Vice President and 61
Chief Development Officer
J. Gregory Muldoon Executive Vice President and 43
Chief Operating Officer
Jeffrey E. Curtiss Senior Vice President and 49
Chief Financial Officer
Hugh J. Dillingham, III Senior Vice President 48
Post Collection
Sandra D. Glatzau Senior Vice President 45
Marketing and Sales
J. Frederick Snyder Senior Vice President 44
Collection
Rufus Wallingford Senior Vice President and 57
General Counsel
David R. Hopkins Vice President, Controller and 54
Chief Accounting Officer
</TABLE>
- ----------------
* As of December 3, 1997.
(1) Serves on the Executive Committee of the Board of Directors.
-13-
<PAGE> 18
Mr. Ranck was elected President and Chief Executive Officer in October 1995,
having served as President and Chief Operating Officer of the Company since
November 1991 and as Executive Vice President (Solid Waste Operations-North
America) from October 1989 to November 1991. Prior to that time, he served the
Company as a Regional Vice President in one of the Company's former regions for
a period in excess of five years. Mr. Ranck has been a director of the Company
since March 1990. He also serves as a director of Furon Co. and as a director
or trustee of several educational and charitable organizations.
Mr. Myers was elected Executive Vice President and Chief Development Officer in
March 1997. He served as a director from 1978 through March 1997, as Vice
Chairman of the Board from 1982 through March 1997 and as Chief Marketing
Officer from 1981 through March 1997. He was initially elected a Vice
President in December 1970 and an Executive Vice President in July 1976. Mr.
Myers is a director of My Friends, a foundation for children in crisis.
Mr. Muldoon was elected Executive Vice President and Chief Operating Officer in
May 1996 having served as Senior Vice President (Corporate Development) since
September 1992 and as Vice President (Operations) since December 1991. He
joined the Company in 1980 and has served in a number of operating positions.
Mr. Muldoon is a director of the Boys and Girls Club of Greater Houston Inc.
Mr. Curtiss became Senior Vice President and Chief Financial Officer of the
Company in January 1992. Before that time, he served from August 1989 to
January 1992 as Executive Vice President, Chief Financial Officer and a
director of Heritage Media Corporation, an American Stock Exchange-listed
company based in Dallas.
Mr. Dillingham was elected Senior Vice President, Post Collection (formerly
Senior Vice President (Processing and Disposal)) in March 1993, having served
as Vice President (Disposal Operations) since December 1991. Prior to his
election, he served as Divisional Vice President of Disposal Operations in one
of the Company's former regions, and has over eighteen years of experience with
the Company in landfill operations. Mr. Dillingham serves as a director of the
Wildlife Habitat Council.
Ms. Glatzau was elected Senior Vice President, Sales and Marketing in September
1996. In May 1995, Ms. Glatzau was appointed Corporate Vice President -
Marketing and Sales, and from March, 1992 through April, 1995, she served as
Corporate Vice President - Investor Relations. Ms. Glatzau joined the Company
in 1978 and served the Company at various levels including sales
representative, regional sales trainer and sales manager and as Divisional Vice
President of Marketing and Sales for one of the Company's former regions.
Mr. Snyder was elected Senior Vice President, Collection in September 1996.
From 1989 through May 1996, Mr. Snyder served as Regional Vice President in two
of the Company's former regions. Mr. Snyder joined the Company in 1976 and
served as a District Manager from 1977 through 1989.
-14-
<PAGE> 19
Mr. Wallingford became Senior Vice President and General Counsel of the Company
in January 1994. Prior to that time, he was a senior partner with the law firm
of Fulbright & Jaworski L.L.P., Houston, Texas, for a period in excess of five
years. Mr. Wallingford also serves as a director of the Children's Museum in
Houston, Texas.
Mr. Hopkins, who was a Divisional Vice President and Assistant Controller prior
to becoming Controller of the Company in September 1986, joined the Company in
September 1980. He was elected a Vice President and named Chief Accounting
Officer in December 1986. From September 1991 to January 1992, he served as
acting Chief Financial Officer of the Company.
All officers of the Company (including executive officers) are elected by the
Board of Directors, generally at its meeting held the day of the annual meeting
of stockholders or as soon thereafter as practicable. Each officer is elected
to hold office until his successor shall have been chosen and shall have
qualified or until his death or the effective date of his resignation or
removal. Subject to Board of Director approval, the annual meeting of
stockholders is scheduled to be held March 4, 1998 in Houston, Texas.
-15-
<PAGE> 20
ITEM 2. PROPERTIES.
In its operations, the Company uses specially-equipped trucks, containers and
compactors. The Company also owns and/or operates sanitary landfill sites
throughout the United States and Canada, and in the United Kingdom, Germany,
Hong Kong, the Netherlands, New Zealand, Spain, and Australia. See "Business
- - North American Operations - Collection" and "Business - North American
Operations - Landfills" and Notes (6) and (8) of Notes to Consolidated
Financial Statements.
The Company leases its executive offices which are located at 757 N. Eldridge,
Houston, Texas. The Company also owns real estate, buildings and other physical
properties, which it employs in its daily operations in a large number of its
operating locations. The Company also leases a substantial portion of its
transfer stations, offices, storage and shop space. See Notes (6) and (11) of
Notes to Consolidated Financial Statements.
BFI believes that its property and equipment is well-maintained and adequate
for its current needs, although substantial investments are expected to be made
in additional property and equipment for expansion, for replacement of assets
as they reach the end of their useful lives and in connection with corporate
development activities. See "Business - Corporate Development" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Certain of the Company's property and equipment is subject to
mortgages and liens securing payment of portions of Company indebtedness. See
Notes (9) and (11) of Notes to Consolidated Financial Statements for
information with respect to mortgage and lease obligations on these properties.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various administrative matters or litigation,
including original or renewal permit application proceedings in connection with
the establishment, operation, expansion, closure and post-closure activities of
certain landfill disposal facilities, environmental proceedings relating to
governmental actions resulting from the involvement of various subsidiaries of
the Company with certain waste sites (including Superfund sites) (see
"Environmental Proceedings"), personal injury and other civil actions, as well
as other claims and disputes that could result in additional litigation or
other adversary proceedings.
While the final resolution of any such litigation or such other matters may
have an impact on the Company's consolidated financial results for a particular
reporting period, management believes that the ultimate disposition of such
litigation or such other matters will not have a materially adverse effect upon
the consolidated financial position of the Company.
-16-
<PAGE> 21
ENVIRONMENTAL PROCEEDINGS
The Company strives to conduct its operations in compliance with applicable
laws and regulations, including environmental rules and regulations, and has as
its goal 100% compliance. However, management believes that in the normal
course of doing business, companies in the waste disposal industry, including
the Company, are faced with governmental enforcement proceedings and resulting
fines or other sanctions and will likely be required to pay civil penalties or
to expend funds for remedial work on waste disposal sites. The possibility
always exists that such expenditures could be substantial, which would have a
negative impact on earnings for a particular reporting period. Management of
BFI believes that the existence of these proceedings does not provide an
accurate reflection of the Company's operating policies, procedures and
capabilities, although the Company will have to respond to those issues in
filings required to be made with respect to its operations in certain
jurisdictions. In any event, management of the Company believes that the
ultimate resolution of such proceedings will neither individually nor in the
aggregate have a materially adverse effect upon the consolidated financial
position of the Company.
The Company is continuously engaged in various original or renewal permit
application proceedings in connection with the establishment, operation,
expansion, closure and post-closure activities relating to waste treatment and
disposal facilities, properties and activities. These proceedings, which are a
necessary and routine part of waste disposal activities, are held before a
variety of regulatory and judicial agencies at the federal, state and local
level. In these proceedings, legal challenges are routinely raised by private
parties and by the regulatory agencies, alleging a variety of adverse
consequences (including adverse effects on the environment, in some instances
with particular reference to the inequitable distribution of environmental
burdens among various social groups and classes) if the proposed permits are
granted or renewed. Opposition is also routinely encountered in connection
with proposed changes in zoning designations, operating procedures, remedial or
upgrading actions and post-closure activities at waste processing and disposal
facilities. See "Business - Regulation."
The Company is participating in potentially responsible party ("PRP") groups at
102 waste disposal sites listed on the EPA's National Priority List, which
sites may be subject to remedial action under the Comprehensive Environmental
Response, Compensation and Liability Act (also known as "Superfund"). Complete
settlements with other members of the PRP groups and/or the EPA have been
negotiated with respect to 76 of these sites. Partial settlements have been
negotiated with regard to 13 of the sites. These settlements had no material
effect on the Company's results of operations or consolidated financial
position. Further, the Company has received information requests relating to
62 additional sites on the EPA's National Priority List. For 45 of these
sites, the Company has determined that it is not a PRP. The Company's PRP
status at the remaining 17 sites has not yet been determined. The number of
Superfund sites with which the Company is involved may increase or decrease
depending upon the EPA's findings from responses to these information requests
and any future information requests which may be received. Superfund
legislation permits strict joint and several liability to be imposed without
regard to fault, and as a result, one company might be required to bear
significantly more than its proportional share of the cleanup costs if it is
unable to obtain appropriate contributions from other responsible parties.
-17-
<PAGE> 22
Management routinely reviews each site requiring corrective action (including
Superfund sites) in which the Company is involved, considering its role with
respect to each site and the relationship to the involvement of other parties
at the site, the quantity and content of the waste with which it was
associated, and the number and financial capabilities of the other parties at
the various sites. Based on reviews of the various sites, currently available
information and management's judgment and significant prior experience related
to similarly situated facilities, expense accruals are provided by the Company
for its share of estimated future costs associated with corrective actions to
be implemented at certain of these sites and existing accruals are revised as
deemed necessary. The final negotiated settlement relating to the large
majority of Superfund sites occurs several years after a party's identification
as a potentially responsible party, due to the many complex issues that must be
addressed in determining the magnitude of the contamination at the site. The
process for addressing contamination at a site usually includes technical
investigations, selection of a remedy and implementation of the remedy
selected. In many cases, the expenditures related to actual corrective action
may be incurred over a number of years. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Environmental
Matters."
Management believes that the ultimate disposition of these environmental
matters will not have a materially adverse effect upon the liquidity, capital
resources, business or consolidated financial position of the Company, although
the resolution of one or more of these matters could have a significant
negative impact on the Company's consolidated financial results for a
particular reporting period. It can be reasonably expected that the Company
will become involved in additional remedial actions and Superfund sites in the
future.
A subsidiary of the Company, CECOS International, Inc. ("CECOS"), is a party to
a consent order with the U.S. Environmental Protection Agency, one aspect of
which concerns a leachate pretreatment system that CECOS agreed to construct at
one of its closed facilities. By letter dated March 16, 1994, the USEPA has
demanded $528,500 in stipulated penalties due to CECOS's alleged failure to
commence timely start-up of the leachate pretreatment system that is presently
operating. On March 28, 1996, the USEPA filed a lawsuit styled United States
of America v. CECOS International, Inc. in the United States District Court for
the Southern District of Ohio, seeking payment of such stipulated penalties.
CECOS is vigorously contesting this matter. Management of the Company is
unable to conclude whether the ultimate monetary sanction in this matter, if
any, will be more than $100,000.
On March 9, 1991, CECOS was named in a civil administrative complaint, entitled
In the Matter of CECOS International, Inc., initiated by Region II of the EPA.
This complaint alleges that CECOS landfilled certain waste generated by General
Motors Corporation, that by definition contained polychlorinated biphenyls in
excess of the regulatory limit, rather than incinerating such waste, and that
CECOS failed to test the waste in accordance with the requirements of its
permits. The original complaint sought monetary sanctions against CECOS in the
amount of $14,150,000. In September 1996, the EPA withdrew certain of its
allegations resulting in a reduction in the monetary sanctions sought to
$2,975,000. CECOS is vigorously contesting the allegations in the
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<PAGE> 23
complaint. Management of the Company is currently unable to determine whether
the ultimate monetary sanction, if any, will be more than $100,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
BFI's Common Stock is traded on the New York Stock Exchange, the Chicago Stock
Exchange, the Pacific Stock Exchange and The International Stock Exchange of
the United Kingdom and Republic of Ireland Ltd. The table below sets forth by
fiscal quarter, for the fiscal years ended September 30, 1996 and 1997, the
high and low sales prices of BFI's Common Stock on the New York Stock Exchange
- - Composite Transactions, as reported in The Wall Street Journal.
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1997
------------------------- -------------------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter $31-7/8 $27-3/8 $27-5/8 $24-1/8
Second Quarter 32-5/8 28 32-7/8 25-3/4
Third Quarter 32-7/8 27-7/8 35-1/2 26-3/8
Fourth Quarter 29-1/8 21-3/8 38-13/16 33-7/8
</TABLE>
As of December 3, 1997, there were approximately 16,000 holders of record of
BFI Common Stock.
In June 1988, the Company's Board of Directors adopted a Preferred Stock
Purchase Rights Plan and in connection therewith declared a dividend of one
Preferred Stock Purchase Right (a "Right") on each outstanding share of the
Company's Common Stock and on each share subsequently issued until separate
Rights certificates are distributed or the Rights expire or are redeemed. See
Note (13) of Notes to Consolidated Financial Statements for more detailed
information concerning these Rights.
BFI has paid cash dividends on its Common Stock each year since 1950. Cash
dividends are paid quarterly. During each of fiscal 1996 and 1997, 68 cents
was paid in dividends on each share of Common Stock. The most recently
declared quarterly cash dividend on the Common Stock was 19 cents per share.
The payment of dividends or other distributions on, or with respect to, the
Common Stock is limited by provisions of the Company's Amended and Restated
Multicurrency Revolving Credit Agreement and Second Amended and Restated
Revolving Credit Agreement. See Note (9) of Notes to Consolidated Financial
Statements for a description of these credit agreements. The amount available
for payment of dividends or distributions on or with respect to Common
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<PAGE> 24
Stock pursuant to the most restrictive of such limitations was approximately
$1.2 billion on September 30, 1997, after giving effect to cash dividends paid
or declared through September 30, 1997. After payment for the shares of Common
Stock acquired by the Company in accordance with the terms of its "Dutch
Auction" tender offer, this amount was reduced by $585 million to approximately
$615 million. See "Business-General." BFI currently expects to continue the
payment of dividends, although future dividend payments will depend on BFI's
earnings, financial needs and other factors.
Due to the nature of the Company's business, the Company or its competitors
receives unfavorable publicity from time to time, which can result in
aberrational market conditions for the Company's securities.
-20-
<PAGE> 25
Item 6. - Selected Financial Data
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following is a summary of certain consolidated financial information
regarding the Company for the five years ended September 30, 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------
(In Thousands Except for Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Operating
Statement Data:
- ----------------
Revenues $5,782,972 $5,779,277 $5,779,351 $4,314,541 $3,478,830
Income before
special charges
and extra-
ordinary items $ 332,822 $ 273,014 $ 384,561 $ 283,973 $ 213,910
Income (loss)
before extra-
ordinary items $ 283,695 $ (89,172) $ 384,561 $ 283,973 $ 197,440
Net income
(loss) $ 265,214 $ (101,331) $ 384,561 $ 278,710 $ 197,440
Income (loss)
per common and
common equivalent
share -
Income (loss)
before extra-
ordinary items $1.39 $(0.44) $1.93 $1.52 $1.15
Net income (loss) $1.30 $(0.50) $1.93 $1.49 $1.15
Cash dividends per
common share $ .70 $ .68 $ .68 $ .68 $ .68
</TABLE>
(Continued on Following Page)
21
<PAGE> 26
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------
(In Thousands Except for Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
- ------------------
Property and
equipment, net $3,567,155 $3,920,721 $3,722,292 $3,049,767 $2,515,709
Total assets $6,678,292 $7,600,906 $7,460,372 $5,796,955 $4,295,642
Senior long-term
debt $1,675,162 $2,766,885 $1,665,804 $ 713,680 $ 333,689
Convertible
subordinated
debentures $ -- $ -- $ 744,944 $ 744,949 $ 744,949
Common stock-
holders' equity $2,660,763 $2,510,278 $2,741,750 $2,391,680 $1,532,603
Cash Flow Data:
- --------------
Capital
expenditures $ 494,725 $ 935,382 $ 929,596 $ 694,475 $ 606,240
Payments for
businesses
acquired $ 21,305 $ 188,451 $ 769,369 $ 398,734 $ 83,786
Cash flows from
operating
activities $ 999,100 $ 856,843 $1,030,489 $ 693,928 $ 613,965
</TABLE>
22
<PAGE> 27
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the Company's operations,
financial performance and results, as well as material set forth elsewhere
herein, includes statements that are not historical facts. Such statements
are forward-looking statements based on the Company's expectations and as
such, these statements are subject to uncertainty and risk. These
statements should be read in conjunction with the "Regulation",
"Competition" and "Waste Disposal Risk Factors" sections of this document
which describe many of the external factors that could cause the Company's
actual results to differ materially from the Company's expectations.
RESULTS OF OPERATIONS
Fiscal 1997 was a crucial year for the Company that included the
reorganization of its North American operating business structure which
became effective in August 1996 and the announcement at the end of fiscal
1996 of a strategic shift in focus from an emphasis on external growth to
an emphasis on internal growth with success measured by cash flow and
return on gross assets. In fiscal 1997, the Company significantly reduced
capital expenditures from the prior year, streamlined its portfolio of
assets largely through divestiture activities, reduced its selling, general
and administrative ("SG&A") costs and, to a lesser extent, operating costs,
and shifted its focus to return on gross assets in both its existing
business operations and its business development activities. Subsequent to
yearend, the Company announced the signing of an agreement to merge its
international operations with SITA, a Paris-based company, in exchange for
U.S. $1 billion and ordinary shares of SITA stock that will result in
approximately a 20 percent ownership in SITA.
Net income for fiscal 1997 was $332.8 million or $1.63 per share,
before special charges and extraordinary items, an increase of 21.9% from
the prior year, on consolidated revenues of $5.783 billion, flat with the
prior year. Pre-tax special charges reported in fiscal 1997 were $82
million ($49 million or $0.24 per share after income taxes). The fiscal
1997 results were also reduced by after-tax extraordinary items of $18.5
million, or $0.09 per share, associated with the retirement of debt. After
the special charges and extraordinary items, net income for fiscal 1997 was
$265.2 million, or $1.30 per share.
The current year results compare with net income, before special
charges and an extraordinary item, for fiscal 1996 of $273.0 million or
$1.36 per share, on consolidated revenues of $5.779 billion. Pre-tax
special charges included in the fiscal 1996 results of operations were $447
million ($362 million or $1.80 per share after income taxes). The fiscal
1996 extraordinary item of $12.2 million, after tax ($0.06 per share) was
associated with the redemption of $745 million of
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<PAGE> 28
Convertible Subordinated Debentures. After the special charges and
extraordinary item, the Company reported a net loss for fiscal 1996 of
$101.3 million, or $0.50 per share.
Fiscal 1997 earnings, 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 certain
underperforming operations and assets. Similar actions taken in the
Company's international operations also had a favorable effect on the
Company's operating profitability during the latter part of the year.
Fiscal 1997 results were affected negatively by severance and
reorganization expenses of approximately $24 million associated with the
reorganization of North American operations announced 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 $27.2 million, a significant portion of which is
related to lower depreciation and amortization expense, was reflected in
current year earnings as a result of the special charges of $447 million
taken in the fourth quarter of fiscal 1996 and the special charges of $82
million taken in fiscal 1997 (see Note (4) of Notes to Consolidated
Financial Statements).
During 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.
Marketing and sales personnel were realigned with half of the sales force
focused on customer segments by industry and the remainder on integrated
direct sales (telephone-based sales). The redeployment and retraining of
the sales force that was completed in the first half of fiscal 1997 is
enabling sales personnel to better focus on the Company's customers. In
addition, the plan to reduce 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 14.0% for fiscal 1997, lower than the prior
year (15.1%). The Company exceeded its SG&A milestone for fiscal 1997,
which was 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
24
<PAGE> 29
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 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 fiscal year special charges). During fiscal 1997, the Company
sold business operations with annual revenues of approximately $540
million (of which approximately $340 million related to North American
operations), with most of these sales concluded during the latter half of
the fiscal year. Additionally, subsequent to year-end, the Company
announced the signing of an agreement to merge its international
operations with SITA, a Paris-based company. (See "Subsequent Event").
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. The Company reduced operating headcount
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 was not fully
achieved during fiscal 1997, actions to be taken in fiscal 1998, in
addition to those enumerated above, have been identified to further
reduce operating expenses, including the consolidation of container and
truck facilities, shedding fringe waste collection routes, reducing costs
associated with accidents and injuries through increased focus on safety,
and the implementation of disposal volume swaps with third parties. The
Company is also optimistic that SAP, its new information systems
platform, will assist in cost reduction efforts beginning in fiscal 1998.
Maintenance and procurement areas will now have a tool that will provide
information on a national basis. This data will enable managers to make
better decisions and reduce operating costs. The Company also focused on
asset management throughout fiscal 1997. Reduced capital spending is
leading to lower fixed costs, which is another contributor to the
Company's effort to reduce operating costs. Capital expenditures,
including acquisitions, for fiscal 1997 were limited to $527 million
compared with $1.2 billion in fiscal 1996.
Revenues
Revenues for fiscal 1997 were $5.8 billion, unchanged from fiscal
years 1996 and 1995. The following table reflects the
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<PAGE> 30
contribution to total revenue of the Company's business segments for the
last three years (in millions):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
North American Operations (1)
-----------------------------
Collection Services -
Solid Waste $2,913 $2,886 $2,758
Transfer and Disposal -
Solid Waste
Unaffiliated customers 552 537 543
Affiliated companies 527 513 483
------ ------ ------
1,079 1,050 1,026
Recycling Services 555 531 675
Medical Waste Services 199 200 189
Services Group and Other 106 89 83
Elimination of affiliated
companies' revenues (527) (513) (483)
------ ------ ------
Total North American Operations 4,325 4,243 4,248
------ ------ ------
International Operations
------------------------
Germany 633 662 710
The Netherlands 289 323 323
United Kingdom 227 193 176
Other 309 358 322
------ ------ ------
Total International Operations 1,458 1,536 1,531
------ ------ ------
Total Company $5,783 $5,779 $5,779
====== ====== ======
Percentage Increase from
Prior Year --% --% 34%
</TABLE>
---------------
(1) Revenues from Canadian operations of $176 million, $169 million
and $178 million for fiscal years 1997, 1996 and 1995, respectively,
are included in North American revenues.
The following table reflects changes in revenues for fiscal 1997 from
price, volume, acquisitions, divestitures, and foreign currency
translation compared with revenue changes for fiscal years 1996 and 1995.
The fiscal 1997 growth in revenue from acquisitions, price and volume was
offset by the significant decrease in revenues due to the divestitures of
business operations and foreign currency translation.
26
<PAGE> 31
<TABLE>
<CAPTION>
Change in Revenues
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Price 1.2% (5.9)% 5.9%
Volume 1.0 0.4 5.8
Acquisitions 2.4 5.7 19.9
Divestitures (2.4) -- --
Foreign currency
translation (2.1) (0.2) 2.4
---- ---- ----
Total Percentage Increase 0.1% --% 34.0%
==== ==== ====
</TABLE>
As shown above, acquisitions accounted for revenue growth of 2.4%
during fiscal 1997 over fiscal 1996. Revenue growth due to acquisitions
was attributable principally to acquisitions consummated in fiscal 1996.
No significant acquisitions were closed in the current year with the
emphasis on internal rather than external growth. Revenues increased 1.2%
due to change in price during fiscal 1997. Increases in revenues due to
price were noted in the Company's international, collection, medical
waste and, to a lesser extent, recycling businesses while a decrease was
experienced in the transfer and disposal business. The weighted average
market prices for corrugated, office paper and newspaper in North America
did not change significantly from fiscal 1996 to 1997. The increases in
revenue due to volume in the current year compared with last 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.
Fiscal 1996 revenue growth due to acquisitions was due in part to
the acquisition of Attwoods in December 1994, which resulted in increased
revenues principally in the United States and the United Kingdom, as well
as the Company's acquisition efforts during fiscal 1995. The 5.9%
decrease in revenues in fiscal 1996 due to changes in price was due to
the significant decline in the weighted average price of recycling
commodities in North America and Germany during the year compared with
fiscal 1995. In North America, despite the mitigating impact of floor
price contracts, the average price of recycling commodities for fiscal
1996 declined 53% from the prior year average. The weighted average
market prices in North America for corrugated, office paper and newspaper
declined from $147 per ton in fiscal 1995 to $61 per ton in fiscal 1996.
Paper prices have historically been cyclical, but in late fiscal 1995 and
through fiscal 1996, unprecedented changes in recycling commodity prices
were experienced. The decline in revenues associated with lower worldwide
recycling commodity prices was offset slightly by increases in revenues
due to pricing in the North American collection business and, to a lesser
extent, in the landfill and medical waste businesses.
27
<PAGE> 32
The 34% increase in revenues in fiscal 1995 compared with fiscal
1994 was principally attributable to improved recycling business results,
the impact in fiscal 1995 of the acquisition of Otto Waste Services
("Otto") in Germany in February 1994 and the Attwoods acquisition (with
operations principally in the United States and the United Kingdom).
North American recycling revenues increased $316 million in 1995, an 88%
increase from fiscal 1994. Weighted average paper prices for fiscal 1995
reached an all-time high. Revenues from German operations were also
favorably affected by the increased worldwide recycling commodity prices
experienced in fiscal 1995.
Cost of Operations
Cost of operations decreased $26 million or 0.6% during fiscal 1997
compared with fiscal 1996. The decrease in cost of operations is
attributable to 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 through the re-routing of trucks, consolidations and
closures of operating facilities and, where appropriate, after careful
review, a reduction in supervisory personnel. These decreased costs were
offset largely by the increase in cost of operations related to
businesses acquired in fiscal 1996 and, to a lesser extent, fiscal 1997.
Cost of operations as a percent of revenues decreased from 74.7% for
fiscal 1996 to 74.2% for fiscal 1997.
Cost of operations increased $168 million (4%) in fiscal 1996, and
$1,024 million (33%) in fiscal 1995, in both cases compared with the
immediately prior year. Most of this increase in cost of operations is
attributable to businesses acquired, including the acquisition of
Attwoods in December 1994. Cost of operations as a percent of revenues
increased to 74.7% in fiscal 1996 compared with 71.8% in fiscal 1995.
This increase as a percent of revenues from fiscal 1995 is principally
attributable to the negative effect on revenues of lower worldwide
recycling commodity prices in fiscal 1996 compared with the prior year.
The fiscal 1995 increase in cost of operations was due principally to the
Attwoods and Otto acquisitions.
Included in cost of operations is depreciation and amortization
expense of approximately $474 million, $491 million and $453 million for
fiscal years 1997, 1996 and 1995, respectively.
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<PAGE> 33
Selling, General and Administrative Expense
SG&A was $812 million for fiscal 1997, a decrease of 7.1% from last
year. SG&A as a percent of revenues decreased from 15.1% of revenues for
fiscal 1996 to 14.0% of revenues in fiscal 1997. The $61.8 million
decrease in SG&A was driven largely by the impact of divestitures of
certain business operations as well as 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 businesses acquired (principally in fiscal 1996)
and approximately $21 million in severance and reorganization expenses
included in SG&A associated with both the reorganization of North
American operations announced in June 1996 and the current year reduction
of employees worldwide.
SG&A expenses increased $31 million (4%) in fiscal 1996 and $196
million (30%) in fiscal 1995, in both cases compared with the immediately
prior year. SG&A expense as a percent of revenues increased to 15.1% in
fiscal 1996 compared with 14.6% in fiscal 1995. The increase in SG&A
expense in fiscal 1996 as a percent of revenue compared with the prior
year resulted principally from the negative effect on revenues of lower
worldwide recycling commodity prices between the years. The $31 million
increase in SG&A expense in fiscal 1996 compared with the prior year was
primarily related to higher costs (including goodwill amortization
expense) associated with the Company's acquisition activities, a
substantial portion of which was related to the acquisition of Attwoods
in December 1994. Fiscal 1996 SG&A expense also included approximately
$4.2 million of expenses associated with the reorganization announced in
June 1996. SG&A expense for fiscal 1996 was offset partially by reduced
incentive compensation related to the lower earnings level achieved in
1996. Increased SG&A expenses in fiscal 1995 over the prior year were
principally due to acquisition activities, including the Attwoods and
Otto acquisitions.
Included in SG&A expense for fiscal years 1997, 1996 and 1995 was
depreciation and amortization expense of $96 million, $112 million and
$99 million, respectively.
Special Charges, net
Special charges of $82 million ($49 million or $0.24 per share after
income taxes) were included in fiscal 1997 results of operations.
Non-cash expenses of $53 million were due to cumulative foreign currency
translation losses associated with the sale of Italian operations and $96
million were 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
29
<PAGE> 34
gains of $67 million arising largely from 56 divestitures completed in
fiscal 1997, principally in North America.
Special charges of $447 million ($362 million or $1.80 per share
after income taxes) were included in fiscal 1996 results of operations.
The charges resulted principally from management decisions to sell the
Company's Italian operations, divest certain domestic and international
non-core business assets and operations and close certain recycling
facilities not expected to achieve desired performance objectives. The
special charges also included a writedown to fair value of the Company's
investment in the Azusa, California landfill. See Note (4) of Notes to
Consolidated Financial Statements for further discussion of the special
charges.
Interest Expense and Income
Interest expense and income for the last three fiscal years were as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Gross interest expense $174,939 $195,605 $170,958
Interest capitalized (9,714) (16,306) (11,429)
-------- -------- --------
Interest expense $165,225 $179,299 $159,529
======== ======== ========
Interest income $ 7,142 $ 8,842 $ 7,422
======== ======== ========
</TABLE>
Fiscal 1997 interest expense declined by $14.1 million to $165.2
million from $179.3 million for fiscal 1996. The decrease was driven
principally by the $999.8 million reduction in debt during fiscal 1997,
largely as a result of cash proceeds from the 56 businesses divested in
fiscal 1997, increased cash flow from improved operating performance and
the limitation on capital spending in fiscal 1997 ($527 million) compared
with fiscal 1996 ($1.2 billion). In fiscal 1997, the Company
significantly exceeded its current year milestone for long-term debt
which was to maintain interest-bearing debt at or below the September 30,
1996 level.
Fiscal 1996 interest expense was $179.3 million, an increase of $19.8
million when compared with fiscal 1995 interest expense of $159.5
million. The increase in gross interest expense in fiscal 1996 was
principally the result of acquisition activities, including the
acquisition of Attwoods in the first half of fiscal year 1995.
Interest capitalized fluctuates from year-to-year depending upon the
number of construction and other qualifying projects and average interest
capitalization rate. The increase in interest capitalized in fiscal 1996
compared with the prior year was due to increased construction activities
at a number of landfills and other qualifying projects over the prior
year.
30
<PAGE> 35
Many of these construction projects were completed by fiscal 1996
yearend.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates declined slightly
from fiscal 1996 to fiscal 1997 due to the reduction in equity earnings
from Pfitzenmeier & Rau ("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 Hong Kong equity affiliates.
Equity in earnings of unconsolidated affiliates increased slightly
from fiscal 1995 to 1996. This year-over-year improvement was due
principally to earnings improvement of American Ref-Fuel and certain
other domestic and international affiliates, partially offset by reduced
earnings from P&R. The Company acquired a 50% ownership interest in Otto
Waste Services in February 1994 and consolidates Otto's financial
results, which include equity in earnings of Otto's unconsolidated
affiliates.
Income Taxes
The Company's effective income tax rate for fiscal years 1997 and
1995 was 40.0%. The Company's effective income tax rate for fiscal 1996
was 40.0% prior to considering the special charges of $447 million taken
in the fourth quarter. Actual income tax expense for fiscal 1996 exceeded
pre-tax reported income (income before income taxes, minority interest
and extraordinary item) significantly in recognition that certain amounts
included in the special charges either were not deductible for income tax
purposes or that deductible amounts could expire prior to utilization by
the Company.
Minority Interest in Income of Consolidated Subsidiaries
The minority interest in income of consolidated subsidiaries is
principally associated with the net income of Otto Waste Services. The
$1.7 million increase in fiscal 1997 over fiscal 1996 was not
significant. The fiscal 1996 decline of $18.4 million from fiscal 1995
was principally due to the negative impact of lower recycling commodity
prices received in Germany in fiscal 1996 as compared with the prior
year.
Extraordinary Items
During the second quarter of fiscal 1997, the Company's
unconsolidated affiliate, 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
31
<PAGE> 36
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 $0.02 per share) in its fiscal 1997 results of
operations related to its 50% ownership interest in this affiliate.
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 that was sold in the third quarter by the Company. On September
3, 1997, the Company announced a tender offer for its $300 million 7 7/8%
Senior Notes due March 15, 2005. Prior to expiration of the tender offer
on September 17, 1997, approximately $230.5 million of these notes were
tendered pursuant to the tender offer. During the fourth quarter of
fiscal 1997, the Company also acquired $122.6 million of its outstanding
publicly traded debt through open market purchases. The Company purchased
$43.3 million of its 6.10% Senior Notes, $38.8 million of its 6.375%
Senior Notes, $40.0 million of its 7.40% Debentures and $0.5 million of
its 9 1/4% Debentures. These redemptions of debt, aggregating $524.9
million, resulted in extraordinary charges to the Company's fiscal 1997
net income of $15.4 million, after income taxes, or approximately $0.08
per share.
On January 2, 1996, the Company announced that its $400 million 6
3/4% Convertible Subordinated Debentures due 2005 and its $345 million of
6 1/4% Convertible Subordinated Debentures due 2012 were being called for
redemption. The redemption, which occurred on February 2, 1996, resulted
in an extraordinary charge to the Company's fiscal 1996 net income of
$12.2 million, after income taxes, or approximately $0.06 per share.
Subsequent Event
In November 1997, the Company announced the signing of an agreement
to merge its operations outside North America with SITA, a Paris-based
subsidiary of Suez Lyonnaise des Eaux. Under the terms of the agreement,
the Company will receive cash totaling U.S. $1 billion and ordinary
shares of SITA stock that will result in approximately a 20 percent
ownership in the company. Upon completion of the transaction, Suez
Lyonnaise des Eaux will own more than 50 percent of SITA. The transaction
has been approved by the boards of the Company and SITA, and is subject
to satisfactory completion of due diligence, approval by regulatory
authorities and authorization by SITA's shareholders of the issuance of
additional ordinary shares. Closing of the transaction is anticipated by
the end of the first quarter of calendar year 1998. SITA is a leading
industrial waste services company, which provides collection, recycling,
waste-to-energy and disposal services related to residential, commercial,
industrial and medical waste. As a result of this transaction, SITA will
be an industry leader in France, the United Kingdom, the Netherlands,
Germany, Spain and Brazil.
32
<PAGE> 37
This transaction and the resulting global partnership with SITA and
its parent company represent a continuation of the Company's focus on its
core North American business, while continuing to participate in the
growth of the global environmental services industry. The Company intends
to use the proceeds from the transaction to continue its Board-approved
financial strategy to pay down debt and buy back equity. Additionally,
the Company will accelerate a prudent, results-driven, external growth
strategy as a result of this transaction and the recent streamlining of
North American operations.
Financial information related to the Company's international
operations for fiscal 1997 and 1996 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues $1,458,316 $1,536,642
Cost of operations 1,135,061 1,195,441
---------- ----------
Gross profit 323,255 341,201
SG&A 208,623 239,151
Special charges, net 145,144 244,973
---------- ----------
Loss from operations $ (30,512) $ (142,923)
========== ==========
Income from operations before
special charges $ 114,632 $ 102,050
========== ==========
Equity in earnings of
unconsolidated affiliates $ 19,367 $ 21,522
========== ==========
</TABLE>
Profitability Ratios and Other Financial Information
The following profitability ratios (shown as a percent of revenues)
reflect certain profitability trends for the Company's operations. Also
presented below are return on asset information and ratios of earnings to
fixed charges.
33
<PAGE> 38
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Profitability margins:
Gross profit 25.8% 25.3% 28.2%
Income from operations
before special charges 11.8% 10.2% 13.7%
Income from operations 10.4% 2.5% 13.7%
Income before income taxes,
minority interest and
extraordinary items 8.6% 0.5% 12.0%
Net income before special charges
and extraordinary items (1) 5.8% 4.7% 6.7%
Net income (loss) (1) 4.6% (1.8)% 6.7%
Other financial information:
Pre-tax, pre-interest return on
average total assets, excluding
special charges 10.2% 8.4% 12.2%
Return on Gross Assets 11.9% 11.4% 13.9%
Ratio of earnings to fixed
charges 2.98(2) 1.02(3) 4.04
</TABLE>
------------
(1) Amounts do not reflect the pro forma effect of the use of cash
proceeds of $409.7 million to be received in the future under the
provisions of the 7.25% Automatic Common Exchange Securities. See
Note (14) of Notes to Consolidated Financial Statements.
(2) Excluding the effects of the fiscal 1997 special charges of $82
million, the ratio of earnings to fixed charges for fiscal 1997 was
3.31.
(3) Excluding the effects of the fiscal 1996 special charges of $447
million, the ratio of earnings to fixed charges for fiscal 1996 was
2.77.
Special charges of $82 million and $447 million taken in fiscal
years 1997 and 1996, respectively, had a significant negative impact on
the profitability margins of the Company other than the gross profit
margin. Improvement was noted in each of the above profitability margins
in fiscal 1997 when compared with fiscal 1996. These margins were
affected favorably by the Company's operating and SG&A cost reduction
efforts, the divestiture of certain underperforming business operations
and assets, and improved customer pricing. The current year profitability
margins were affected negatively by employees severance and
reorganization expenses of approximately $24 million, although this
effect was offset largely by an increase in income from operations of
$27.2 million, a significant portion of which is related to reduced
depreciation and amortization expense resulting from the
34
<PAGE> 39
special charges taken in fiscal years 1996 and 1997. Improved operating
profit margins were achieved in each of the Company's core business types
in North America as well as its international operations during fiscal
1997.
Exclusive of the impact of special charges, fiscal 1996 results
reflected declines in all of the profitability margins presented above as
compared with fiscal 1995. These profitability margins were affected
negatively by the significant worldwide decline in the average value of
recycling commodities in fiscal 1996. Lower average recycling commodity
prices in the prior year principally affected earnings and profitability
margins in the Company's North American and German operations. These
profitability margins were also negatively affected in fiscal 1996 by the
relatively low profit margins in the Company's Italian operations and, to
a lesser extent, its Spanish and Australian operations.
Total assets declined from $7.6 billion at September 30, 1996 to
$6.7 billion at September 30, 1997. This decline resulted principally
from the divestitures of 56 business operations and asset divestitures in
fiscal 1997, decreases due to foreign currency translation and decreases
for depreciation and amortization expense, offset partially by fiscal
1997 capital expenditures. Total assets increased to $7.6 billion in
fiscal 1996, only a slight increase over the $7.5 billion of total assets
at the end of fiscal 1995, reflective of the reduction in assets
resulting from the special charges. Pre-tax, pre-interest return on
average total assets increased in fiscal 1997 over fiscal 1996 due both
to the improved earnings and the reduction in assets over the course of
the year. Pre-tax, pre-interest return on average total assets, excluding
special charges, decreased in fiscal 1996 from the prior year as a result
of lower earnings, principally due to the significant worldwide decline
in the average value of recycling commodities in fiscal 1996.
As stated previously, management's focus shifted in fiscal 1997 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 measurement utilized by the Company which
represents the quotient of operating cash flow divided by average gross
assets, where operating cash flow and gross assets are defined as
follows:
Operating cash flow - the sum of (i) net income before extra-
ordinary item, (ii) minority interest, (iii) interest expense,
net of related income tax benefit, (iv) depreciation and
amortization expense and (v) asset impairment writedowns (e.g.
special charges in fiscal 1997 and 1996).
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<PAGE> 40
Gross assets - the sum of total assets, accumulated depreciation and
amortization, and asset impairment writedowns (until such assets
are sold or otherwise disposed of), less the sum of (i) current
liabilities, net of interest-bearing indebtedness included
therein, (ii) accrued environmental and landfill costs associated
with the continuing operations of the Company and (iii) deferred
income tax liabilities.
The gross assets in the ROGA computation for a fiscal year are the
average of the applicable five quarter-end amounts in the period. ROGA
for fiscal years 1997, 1996 and 1995 was 11.9%, 11.4% and 13.9%,
respectively.
The Company's goals and actions for fiscal 1998 will continue to
align the Company's performance with its stockholders' interests. In
addition, incentive compensation plans will continue to link employees to
common goals and reward them only as stockholders and customers benefit
from improved performance by the Company. The fiscal 1998 milestones for
the Company and its North American operations are as follows:
<TABLE>
<CAPTION>
Total Company
-------------------------
Fiscal 1998
Fiscal 1998 Fiscal 1997 North American
Milestones Actual Milestones
----------- ----------- --------------
<S> <C> <C> <C>
SG&A as a percent of
revenues 13.5% 14.0% 13.5%
Operating profit
margin 13.8% 11.8% 15.0%
Revenue growth -
Internal 3.5% 2.2% 4.0%
Acquisitions 1.0% 2.4% 1.0%
----- ----- -----
Total 4.5% 4.6% (1) 5.0%
ROGA 13.3% 11.9% 14.7%
</TABLE>
----------
(1) Fiscal 1997 represents revenue growth from price, volume and
acquisitions and exclude the effects of divestitures and foreign
currency exchange.
Additionally, the Company's fiscal 1997 milestones compared with its
fiscal 1997 and 1996 actual performance was as follows (dollar amounts in
millions):
36
<PAGE> 41
<TABLE>
<CAPTION>
Fiscal 1997
---------------------
Fiscal
1996
Milestone Actual Actual
--------- --------- -------
<S> <C> <C> <C>
SG&A as a percent of revenues 14.6% 14.0% 15.1%
Operating profit margin 12.0% 11.8% 10.2%
ROGA 11.9% 11.9% 10.4%
Capital expenditures $790 $527 $1,226
Cash flow positive (reduce less than
interest-bearing debt) $2,827 $1,827 $2,827
</TABLE>
EBITDA (defined herein as income from operations plus depreciation
and amortization expense before considering special charges) was $1.25
billion for fiscal 1997 compared with $1.19 billion for the prior fiscal
year. EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, is included in this discussion
because the Company understands that such information is used by certain
investors when analyzing the Company's financial condition and
performance.
The effect of general inflation, as measured by the average consumer
price index, has not historically had a material impact on the Company's
overall financial position or results of operations.
ENVIRONMENTAL MATTERS
As of September 30, 1997 and 1996, the Company's balance sheet
included accrued environmental costs of $613 million and $666 million,
respectively, associated with its obligations for closure and
post-closure of its operating and closed landfills and for remediation
and corrective actions at Superfund sites and other facilities which are
discussed in the following paragraphs. See Notes (2) and (8) of Notes to
Consolidated Financial Statements for a discussion of the Company's
environmental and landfill accounting policies and other financial
information related to environmental and landfill accruals.
The Company's landfills are subject to specific operating permit
requirements and the applicable existing regulatory requirements of the
national, state and local jurisdictions in which they are operated. On an
ongoing basis, the Company, based on input from its engineers, estimates
its future cost requirements for closure and post-closure management of
its landfills based on its interpretations of these regulations and
standards. Accruals for these costs are typically provided as the
remaining permitted airspace of these facilities is consumed. Engineering
reviews of the future cost requirements for closure and post-closure
monitoring and maintenance for the Company's operating landfills are
performed at least annually
37
<PAGE> 42
and are the basis upon which the Company's estimates of these future
costs and the related accruals are revised. In its foreign operations,
the Company has noted a trend toward increased landfill regulation,
particularly in those countries within the European Economic Community.
While increasing regulation often presents new business opportunities to
the Company, it likewise often results in increased operating costs in
those jurisdictions in which such regulatory changes occur and could
potentially have a negative impact on results of operations.
The Company is also responsible for a significant number of closed
solid waste landfills which require varying levels of inspection,
maintenance, environmental monitoring and from time to time corrective
action. An overall program of management has been implemented to provide
a systematic and routine standard of care and maintenance and to ensure
environmental compliance at these closed facilities.
In fiscal year 1990, the Company announced its withdrawal from the
hazardous waste collection, treatment and disposal business principally
because the Company believed its resources would be better utilized if
they were directed toward developing opportunities in the solid waste
business. Anticipated cash expenditures related principally to
remediation and post-closure monitoring at certain closed sites are
expected to be required over a long period of time with no significant
amounts anticipated to be paid in any single year. In addition, these
future cash expenditures will be offset in part by the realization of
related income tax benefits.
Various subsidiaries of the Company are participating in potentially
responsible party ("PRP") groups at 102 waste disposal sites listed on
the U.S. Environmental Protection Agency's National Priority List, which
may be subject to remedial action under Superfund. The Company's
association with these sites is typically attributable to the
transportation of waste to the listed sites by its subsidiaries (or their
predecessors). In many cases, these waste disposal activities were
performed by companies prior to their acquisition by the Company. Certain
of the Company's subsidiaries have negotiated settlements with other
members of the PRP groups and the EPA with respect to 76 of these 102
Superfund sites. Partial settlements have been negotiated with regard to
13 of the remaining sites. These settlements had no material effect on
the Company's liquidity, results of operations or financial position.
Further, various subsidiaries have received information requests relating
to 62 additional sites on the EPA's National Priority List. For 45 of
these sites, the Company has determined it is not a PRP; the Company's
PRP status at the remaining 17 sites has not yet been determined. The
number of Superfund sites with which the Company's subsidiaries are
involved may increase or decrease depending upon the EPA's findings from
responses to these information requests and any future information
requests which may be received. Superfund legislation permits strict
joint
38
<PAGE> 43
and several liability to be imposed without regard to fault, and as a
result, one company may be required to bear significantly more than its
proportional share, or possibly all, of the cleanup costs if it is unable
to obtain appropriate contributions from other responsible parties. The
final negotiated settlement relating to the large majority of Superfund
sites occurs several years after a company has been identified as a PRP
due to the many complex issues that must be addressed in determining the
magnitude of contamination present, the cause of the contamination and
the recommended remedial action to be taken. In many cases, the
expenditures related to actual remediation may also occur over a number
of years.
The Company has implemented programs to promote compliance with the
laws, regulations and permit requirements governing its landfills and has
as its goal 100% compliance. Even with these programs, management
believes that in the normal course of doing business, companies in the
waste disposal industry are faced with governmental enforcement
proceedings resulting in fines or other sanctions and will likely be
required to pay civil penalties or to expend funds for remedial work on
waste disposal sites. These programs include systematic site reviews and
evaluations of each site requiring corrective action (including Superfund
sites) in which the Company's subsidiaries are involved, considering each
subsidiary's role with respect to each site and the relationship to the
involvement of other parties at the site, the quantity and content of the
waste with which the subsidiary was associated, and the number and
financial capabilities of the other parties at the various sites. Based
on reviews of the various sites, currently available information, and
management's judgment and significant prior experience related to
similarly situated facilities, expense accruals are provided by the
Company for its share of estimated future costs associated with
corrective actions to be implemented at certain of these sites and
existing accruals are revised as deemed necessary. Management also
routinely reviews the realization of its investments in operating
landfills and the adequacy of its accruals for the future costs of
closure and post-closure monitoring and maintenance at its operating and
closed landfills and adjusts its asset values and accruals as deemed
appropriate.
Management believes that the ultimate disposition of these
environmental matters will not have a materially adverse effect upon the
liquidity, capital resources, business or consolidated financial position
of the Company, though resolution of one or more of these matters could
have a significant negative impact on the Company's consolidated
financial results for a particular reporting period. Due to the nature of
the Company's business and the continuing emphasis of government in all
jurisdictions and the public on environmental issues relating to the
waste disposal industry, it can be reasonably expected that various
subsidiaries of the Company will become involved in additional
remediation actions and Superfund sites in the future. Management
attempts to anticipate future
39
<PAGE> 44
changes in laws, regulations and operating permit requirements which may
affect its operations; however, there is no assurance that such future
changes will not significantly affect its operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and related ratios at the end of the
last three years were as follows:
<TABLE>
<CAPTION>
As of September 30,
-------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Working capital (in thousands) $(189,861) $(10,695) $ 7,967
Working capital ratios .9:1 1.0:1 1.0:1
</TABLE>
The Company's long-term strategy in managing working capital is to
maintain substantial available commitments under bank credit agreements
or other financial agreements to finance short-term capital requirements
in excess of internally generated cash while minimizing working capital.
As discussed in Note (14) 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.
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 of December 1997. The
agreement contains a net worth requirement consistent with the Company's
$1 billion revolving credit agreement. At September 30, 1997 and 1996,
the Company had no outstanding borrowings under this agreement.
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 that was sold in the third quarter by the Company. These
redemptions resulted in extraordinary charges to the Company's net income
of $1.7 million, after income taxes, or approximately $0.01 per share in
the third quarter.
40
<PAGE> 45
On September 3, 1997, the Company announced a tender offer for its
$300 million 7 7/8% Senior Notes due March 15, 2005. Prior to expiration
of the tender offer on September 17, 1997, approximately $230.5 million
of these notes were tendered pursuant to the tender offer. During the
fourth quarter of fiscal 1997, the Company also acquired $122.6 million
of its outstanding publicly traded debt through open market purchases.
The Company purchased $43.3 million of its 6.10% Senior Notes, $38.8
million of its 6.375% Senior Notes, $40.0 million of its 7.40% Debentures
and $0.5 million of its 9 1/4% Debentures. As a result of these
redemptions, the Company recorded extraordinary charges to the Company's
net income of $13.7 million, after income taxes, or approximately $0.07
per share in the fourth quarter of fiscal 1997.
The available credit capacity under the Company's $1 billion
revolving credit agreement, which matures in May 2000, is used
principally to support the Company's commercial paper program, under
which up to $1.5 billion in commercial paper may be issued. Borrowings
under the commercial paper program may not exceed the available credit
under the Company's two existing bank credit agreements. There were
approximately $20.0 million of commercial paper borrowings outstanding as
of September 30, 1997.
As of September 30, 1997, the Company's unused committed borrowing
capacity under its Multicurrency Revolving Credit Agreement and its $1
billion bank credit agreement was in excess of $1.7 billion. Such
capacity may be used to refinance amounts outstanding under short-term
facilities, for financing the Company's $1.0 billion stock buyback
program, for financing requirements in connection with foreign exchange
contracts or for other capital requirements. Of the $1.8 billion of the
Company's long-term indebtedness outstanding at September 30, 1997, 84%
was at fixed interest rates for a period of at least 12 months.
Management's long-term objective is to maintain most of its indebtedness
in fixed interest rate obligations, although variable rate debt has been
and will likely continue to be used to meet short-term and certain longer
term financing needs. The Company's weighted average cost of indebtedness
of approximately 7.2% for fiscal 1997 is consistent with fiscal 1996.
Long-term indebtedness (including $466.8 million of Otto Waste
Services debt, which has not been guaranteed by the Company) as a
percentage of total capitalization decreased from 53% at September 30,
1996 to 41% at September 30, 1997, principally as a result of the debt
redemptions discussed above. The ratio would have been 32% at September
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.
41
<PAGE> 46
As a result of cash flows from operations, proceeds from
divestitures and reduced capital spending, the Company generated surplus
cash during fiscal 1997. In September 1997, the Company announced its
commencement of a common stock repurchase program, and initiated a Dutch
auction tender offer for the purchase of up to 15 million shares of
common stock. In accordance with the terms of the offer, which expired
October 1, 1997, the Company accepted for purchase 15 million shares at a
price of $39.00 per share in October 1997. This purchase of approximately
$585 million of common stock in the Dutch auction was the first phase of
the Company's two-part program to buy back $1 billion of its common
stock. The second phase of this program, approximately $415 million in
open market purchases of common stock or automatic common exchange
security units, is expected to be completed by September 30, 1998. In
addition, the Company increased its quarterly dividend rate from $.17 per
share to $.19 per share in September 1997.
As of September 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.
The capital appropriations budget for fiscal year 1998 has been
established at $550 million to provide for normal replacement
requirements, new assets to support planned revenue growth within all
consolidated businesses and corporate market development activities.
Market development activities principally include new or expanded solid
waste transfer and disposal facilities, recycling processing centers,
acquisitions of solid waste businesses and other investments in both
North American and international operations.
As previously discussed, in November 1997, the Company announced the
signing of an agreement to merge its operations outside North America
with SITA, a subsidiary of Suez Lyonnaise des Eaux. Under the terms of
the agreement, the Company will receive cash totaling U.S. $1 billion and
shares of SITA stock that will result in approximately a 20 percent
ownership in SITA. The transaction is subject to satisfactory completion
of due diligence, approval by regulatory authorities and authorization by
SITA's shareholders of the issuance of additional ordinary shares.
Closing of the transaction is anticipated by the end of the first quarter
of calendar year 1998. The Company intends to use the proceeds from the
transaction to continue its Board-approved financial strategy to pay down
debt and buy back equity. Additionally, the Company will accelerate a
prudent, results-driven, external growth strategy as a result of this
transaction and the recent streamlining of North American operations.
42
<PAGE> 47
The Company believes that its cash flows from operations and its
access to cash from banks and other external sources, including the
public markets, are more than sufficient for its financing needs.
43
<PAGE> 48
Item 7A. - Quantitative and Qualitative Disclosure About Market Risk
The Company currently utilizes no material derivative financial
instruments which expose the Company to significant market risk. The
Company is exposed to cash flow and fair value risk due to changes in
interest rates with respect to its long-term debt. The table below
presents principal cash flows and related weighted average interest rates
of the Company's long-term debt at September 30, 1997 by expected
maturity dates. Weighted average variable rates are based on implied
forward rates in the yield curve at September 30, 1997. Implied forward
rates should not be considered a predictor of actual future interest
rates. The information is presented in U.S. dollar equivalents, the
Company's reporting currency. The outstanding long-term debt amounts are
presented in U.S. dollars and parenthetically in German deutsche mark,
where applicable. Additionally, the U.S. dollar equivalent carrying value
of German deutsche mark denominated debt is sensitive to foreign currency
exchange rates.
<TABLE>
<CAPTION>
Expected Maturity Date
-------------------------------------------------------------------------
There- Fair
1998 1999 2000 2001 2002 after Total Value
-------- -------- -------- -------- -------- -------- -------- --------
(Amounts in millions except for percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $ 115 $ 116 $ 11 $ 5 $ 8 $ 1,017 $ 1,272 $ 1,330
Average
interest
rate 9.4% 9.3% 10.4% 10.4% 10.4% 7.1% 7.6%
Fixed Rate
(DM 366) $ 8 $ 36 $ 116 $ 21 $ 17 $ 64 $ 262 $ 262
Average
interest
rate 6.8% 6.8% 7.1% 6.8% 6.8% 6.8% 7.0%
Variable Rate $ 20 -- -- -- -- $ 60 $ 80 $ 80
Average
interest
rate 5.8% -- -- -- -- 5.6% 5.7%
Variable Rate
(DM 360) -- -- $ 205 -- -- -- $ 205 $ 205
Average
interest
rate -- -- 5.5% -- -- -- 5.5%
</TABLE>
44
<PAGE> 49
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, 1997 and 1996, 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,
1997. 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,
1997 and 1996, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 1997, 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, 1997
45
<PAGE> 50
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Three Years Ended September 30, 1997
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 5,782,972 $ 5,779,277 $ 5,779,351
Cost of operations 4,289,614 4,315,615 4,147,303
----------- ----------- -----------
Gross profit 1,493,358 1,463,662 1,632,048
Selling, general and
administrative expense 812,242 874,069 842,861
Special charges, net 81,879 446,800 --
----------- ----------- -----------
Income from operations 599,237 142,793 789,187
Interest expense 165,225 179,299 159,529
Interest income (7,142) (8,842) (7,422)
Equity in earnings of
unconsolidated affiliates (53,988) (55,370) (53,996)
----------- ----------- -----------
Income before income taxes,
minority interest and
extraordinary items 495,142 27,706 691,076
Income taxes 198,057 105,188 276,430
Minority interest in income
of consolidated subsidiaries 13,390 11,690 30,085
----------- ----------- -----------
Income (loss) before
extraordinary items 283,695 (89,172) 384,561
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 benefits of
$8,269 and $4,467 15,357 12,159 --
----------- ----------- -----------
Net income (loss) $ 265,214 $ (101,331) $ 384,561
=========== =========== ===========
Number of common and common
equivalent shares used in
computing earnings per share 203,745 200,668 199,077
=========== =========== ===========
</TABLE>
(Continued on Following Page)
46
<PAGE> 51
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Three Years Ended September 30, 1997
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------
Income (loss) per common and common equivalent share:
<S> <C> <C> <C>
Income (loss) before
extraordinary items $ 1.39 $ (.44) $ 1.93
Extraordinary items (.09) (.06) --
-------- -------- --------
Net income (loss) $ 1.30 $ (.50) $ 1.93
======== ======== ========
Cash dividends per common share $ .70 $ .68 $ .68
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE> 52
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
September 30,
-----------------------
1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 78,746 $ 110,224
Short-term investments 3,811 26,394
Receivables -
Trade, net of allowances of $38,376
and $40,622 for doubtful accounts 820,678 929,316
Other 71,547 42,543
Inventories 40,414 51,536
Deferred income taxes 117,404 119,914
Prepayments and other 112,063 107,868
---------- ----------
Total current assets 1,244,663 1,387,795
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,512,196 and $2,737,788 3,567,155 3,920,721
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$168,401 and $138,636 1,418,827 1,671,461
Other intangible assets, net of
accumulated amortization of $92,794
and $110,835 81,208 110,925
Deferred income taxes 50,057 122,617
Investments in unconsolidated affiliates 235,559 287,051
Other 80,823 100,336
---------- ----------
Total other assets 1,866,474 2,292,390
---------- ----------
Total assets $6,678,292 $7,600,906
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE> 53
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
(In Thousands Except for Share Amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
September 30,
-------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable and current portion
of long-term debt $ 151,736 $ 59,806
Accounts payable 496,733 507,731
Accrued liabilities -
Salaries and wages 115,477 129,203
Taxes, other than income 58,112 40,876
Other 414,601 430,187
Income taxes 19,204 35,586
Deferred revenues 178,661 195,101
----------- -----------
Total current liabilities 1,434,524 1,398,490
----------- -----------
DEFERRED ITEMS:
Accrued environmental and landfill
costs 505,278 541,838
Deferred income taxes 149,803 128,434
Other 252,762 254,981
----------- -----------
Total deferred items 907,843 925,253
----------- -----------
LONG-TERM DEBT, net of current portion 1,675,162 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 1,839,378 1,730,612
Retained earnings 1,080,810 1,031,331
Treasury stock, 1,239,246 and 1,027,278
shares, at cost (18,951) (11,926)
Stock and Employee Benefit Trust,
7,252,452 and 11,012,423 shares (276,046) (275,311)
----------- -----------
Total common stockholders' equity 2,660,763 2,510,278
----------- -----------
Total liabilities and common
stockholders' equity $ 6,678,292 $ 7,600,906
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE> 54
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Three Years Ended September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 265,214 $ (101,331) $ 384,561
----------- ----------- -----------
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization -
Property and equipment 501,656 521,185 476,384
Goodwill 43,215 47,374 43,519
Other intangible assets 24,799 33,966 31,967
Special charges, net 81,879 446,800 --
Deferred income tax expense 81,146 3,034 23,450
Amortization of deferred investment
tax credit (706) (706) (706)
Provision for losses on accounts
receivable 30,116 29,527 26,620
Gains on sales of fixed assets (6,995) (4,512) (4,724)
Equity in earnings of unconsolidated
affiliates, net of dividends received
and extraordinary item 7,373 (13,455) (28,535)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 6,059 10,895 26,344
Increase (decrease) in cash from changes
in assets and liabilities excluding
effects of acquisitions and divestitures:
Trade receivables (41,089) (28,683) (70,069)
Inventories 4,103 1,563 (5,466)
Other assets 42,430 29,991 52,625
Other liabilities (40,100) (118,805) 74,519
----------- ----------- -----------
Total adjustments 733,886 958,174 645,928
----------- ----------- -----------
Net cash provided by operating activities 999,100 856,843 1,030,489
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (494,725) (935,382) (929,596)
Payments for businesses acquired (21,305) (188,451) (769,369)
Proceeds from businesses divested 372,202 -- --
Investments in unconsolidated affiliates (39,700) (82,535) (29,530)
Proceeds from disposition of assets 41,667 57,742 159,217
Purchases of short-term investments -- -- (42,179)
Sales of short-term investments 21,539 302,065 201,924
Return of investment in unconsolidated
affiliates 69,286 56,861 38,637
----------- ----------- -----------
Net cash used in investing activities (51,036) (789,700) (1,370,896)
----------- ----------- -----------
</TABLE>
(Continued on Following Page)
50
<PAGE> 55
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Three Years Ended September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 68,761 13,316 15,363
Proceeds from issuances of
indebtedness 191,255 980,834 1,062,652
Repayments of indebtedness (1,098,030) (904,459) (591,884)
Dividends paid (137,572) (137,944) (134,139)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (975,586) (48,253) 351,992
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES (3,956) (1,474) 2,092
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (31,478) 17,416 13,677
CASH AT BEGINNING OF YEAR 110,224 92,808 79,131
----------- ----------- -----------
CASH AT END OF YEAR $ 78,746 $ 110,224 $ 92,808
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 170,398 $ 174,590 $ 153,576
Income taxes $ 168,393 $ 163,251 $ 205,544
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE> 56
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares of common stock:
Beginning of year 213,390 213,441 197,085
Stock option exercises 2,918 563 423
Common stock issuances related to -
Dividend Reinvestment Plan 67 101 38
BFI Employee Stock Ownership and
Savings Plan 699 754 318
Acquisitions 64 988 555
Stock and Employee Benefit Trust -- -- 15,000
Retirements of common stock (3,760) (2,584) --
Other 10 127 22
--------- --------- ---------
End of year 213,388 213,390 213,441
========= ========= =========
Common stock:
Beginning of year $ 35,572 $ 35,581 $ 32,854
Stock option exercises 486 94 71
Common stock issuances related to -
Dividend Reinvestment Plan 11 17 6
BFI Employee Stock Ownership and
Savings Plan 117 126 53
Acquisitions 11 165 93
Stock and Employee Benefit Trust -- -- 2,501
Retirements of common stock (627) (431) --
Other 2 20 3
--------- --------- ---------
End of year 35,572 35,572 35,581
--------- --------- ---------
</TABLE>
(Continued on Following Page)
52
<PAGE> 57
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Additional paid-in capital:
Beginning of year 1,730,612 1,801,407 1,351,919
Stock option exercises and related
income tax benefit 81,140 13,868 (933)
Common stock issuances related to -
Dividend Reinvestment Plan 1,954 2,908 1,137
BFI Employee Stock Ownership and
Savings Plan 20,811 21,404 9,459
Acquisitions 1,718 29,133 8,245
Stock and Employee Benefit Trust -- -- 456,874
Adjustment of Stock and Employee
Benefit Trust to market 124,585 (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 (123,223) (74,858) --
Other 1,781 (862) (801)
---------- ---------- ----------
End of year 1,839,378 1,730,612 1,801,407
---------- ---------- ----------
Retained earnings:
Beginning of year 1,031,331 1,328,244 1,009,132
Net income (loss) 265,214 (101,331) 384,561
Cash dividends (142,266) (133,623) (137,014)
Foreign currency translation
adjustment (73,469) (61,959) 71,565
---------- ---------- ----------
End of year 1,080,810 1,031,331 1,328,244
---------- ---------- ----------
</TABLE>
(Continued on Following Page)
53
<PAGE> 58
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury stock:
Beginning of year (11,926) (10,494) (2,225)
Stock option exercises (5,313) (1,649) 27,013
Common stock issuances related to -
Dividend Reinvestment Plan -- -- 1,106
BFI Employee Stock Ownership and
Savings Plan -- -- 9,228
Acquisitions (1,468) 303 3,223
Reimbursement from Stock and
Employee Benefit Trust -- -- (48,921)
Other (244) (86) 82
----------- ----------- -----------
End of year (18,951) (11,926) (10,494)
----------- ----------- -----------
Stock and Employee Benefit Trust:
Beginning of year (275,311) (412,988) --
Establishment of trust -- -- (459,375)
Reimbursement of treasury stock -- -- 48,921
Reimbursements of common stock 123,850 75,289 --
Adjustment to market (124,585) 62,388 (2,534)
----------- ----------- -----------
End of year (276,046) (275,311) (412,988)
----------- ----------- -----------
Total common stockholders' equity $ 2,660,763 $ 2,510,278 $ 2,741,750
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE> 59
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 12 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, 1997 and 1996, short-term
investments of approximately $3.8 million and $26.4 million,
respectively, were invested in time deposits.
Inventories.
Inventories consisting principally of equipment parts, materials 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
55
<PAGE> 60
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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
years 1997, 1996 and 1995 was $9,714,000, $16,306,000 and $11,429,000,
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 benefited 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 1997, 1996 and 1995, maintenance and repairs
charged to expense were $338,553,000, $336,374,000 and $325,658,000,
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
56
<PAGE> 61
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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.
Unamortized investment tax credits have been included in deferred
income taxes for financial reporting purposes. 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.
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,
57
<PAGE> 62
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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.
58
<PAGE> 63
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other deferred items -
Deferred items as of September 30, 1997 and 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Self-insurance accruals $121,722 $ 90,515
Minority interest in
consolidated subsidiaries 57,035 59,376
Accrued pension costs 31,792 39,734
Other 42,213 65,356
-------- --------
$252,762 $254,981
======== ========
</TABLE>
In addition to the above deferred items, included in other accrued
liabilities at September 30, 1997 and 1996 was the current portion of
self-insurance accruals of $89,567,000 and $87,274,000, respectively, and
accrued pension costs of $16,849,000 and $14,625,000, respectively.
The Company is self insured for workers' compensation, auto
liability and general and comprehensive liability claims. 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 provides
for its self-insurance accruals based upon estimates provided by a
third-party actuary. The actuary reviews the Company's actual claims'
activity and estimates the ultimate exposure related to these aggregate
claims. The Company reviews its self-insurance accruals quarterly and
revises these accruals as necessary.
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, 1997 or 1996.
59
<PAGE> 64
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 1997 presentation.
New accounting pronouncements.
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. 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 did not have a material effect on
the Company's financial position or results of operations.
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.
(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 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 expensed as incurred
60
<PAGE> 65
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
and are included in selling, general and administrative expenses.
(4) Special charges -
Fiscal 1996 ($447 million).
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
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.
The Company initiated a plan to sell its Italian operations during
the fourth quarter of fiscal 1996, which was formally approved by the
Company's Board of Directors. The Company's investment in its Italian
operations, before considering special charges, was $206 million as of
September 30, 1996. The Company completed the sale of these operations
during June 1997. Losses accumulated in the foreign currency translation
component of common stockholders' equity (approximately $53 million) were
recognized as an additional loss upon consummation of the sale of these
operations and were included in the fiscal 1997 special charges (see
discussion below). Summary financial information related to the Company's
Italian operations is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 81,926 $ 122,782 $ 103,819
Income (loss) from
operations and
equity in earnings
of unconsolidated
affiliates before
special charges $ (2,190)(1) $ (4,019)(2) $ 65
</TABLE>
61
<PAGE> 66
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
--------------
(1) Does not reflect impact of special charges taken in fiscal
1997 (see below).
(2) Does not reflect special charge of $178.6 million included
in the fiscal 1996 special charges.
The Company also decided to divest of certain domestic and
international non-core business assets and operations and close certain
recycling facilities during the fourth quarter of fiscal 1996. 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 had been adversely affected by the significant decline
in commodity prices at that time. The special charges, which included
asset writedowns and related liabilities recorded for certain contractual
arrangements, did not consider future expenses associated principally
with severance and relocation costs which would occur as a result of
these decisions. 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 were not material to the Company's consolidated
results of operations 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 charges
basis. During fiscal 1997, the Company sold a number of these business
operations and closed 35 recycling facilities.
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. 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 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. The Company sold this landfill facility during fiscal
1997.
Fiscal 1997 ($82 million).
Special charges of $82 million ($49 million or $0.24 per share after
income taxes) were reported in fiscal 1997. Included in these special
charges were non-cash expenses of $53 million due to cumulative foreign
currency translation losses
62
<PAGE> 67
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $67 million arising
largely from 56 divestitures completed in fiscal 1997, 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 fiscal 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.
(5) Business combinations -
During the current fiscal year, the Company paid approximately $22.5
million (including additional amounts payable, primarily to former
owners, of $1.2 million) to acquire 22 solid waste businesses, which were
accounted for as purchases. In connection with these acquisitions, the
Company recorded additional interest-bearing indebtedness of $2.5 million
and other liabilities of $4.8 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 are 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
63
<PAGE> 68
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
adjustment prospectively as subsequent revisions in estimates of fair
value, if any, are necessary.
(6) Property and equipment -
Property and equipment at September 30, 1997 and 1996 was as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land and improvements $ 330,835 $ 340,034
Buildings 596,053 616,596
Landfills 1,661,888 1,897,206
Vehicles and equipment 3,373,894 3,686,466
Construction-in-progress 116,681 118,207
---------- ----------
Total property and
equipment 6,079,351 6,658,509
Less accumulated depreciation
and amortization 2,512,196 2,737,788
---------- ----------
Property and equipment, net $3,567,155 $3,920,721
========== ==========
</TABLE>
Included in the landfill category of property and equipment, net are
$35.7 million and $78.1 million as of September 30, 1997 and 1996,
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 investments 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 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%), 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).
64
<PAGE> 69
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Combined Balance Sheet Information
as of Fiscal Yearend:
Assets -
Current assets $ 279,938 $ 233,891
Noncurrent assets 1,434,272 1,528,799
---------- ----------
$1,714,210 $1,762,690
========== ==========
Liabilities and Net Worth -
Current liabilities $ 192,745 $ 181,184
Noncurrent liabilities 1,200,656 1,221,633
Net worth 320,809 359,873
---------- ----------
$1,714,210 $1,762,690
========== ==========
Company's Investments in and
Advances to Equity Investees
(including subordinated note
and other receivables of $60,984
and $63,106, respectively) $ 215,761 $ 259,486
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Combined Income Statement
Information for the Fiscal
Year Ended:
Revenues $553,098 $511,086 $500,989
Gross profit $226,853 $213,236 $211,555
Income before extraordinary
item $ 93,465 $ 95,438 $ 94,463
Extraordinary item (2) $ (9,602) $ -- $ --
Net income $ 83,863 $ 95,438 $ 94,463
Company's Income Statement Information:
Equity in Earnings
of Equity Investees (1) $ 53,988 $ 55,370 $ 53,996
Extraordinary item,
net of income tax benefit
of $1,677 (2) $ 3,124 $ -- $ --
Dividends Received from Equity
Investees $ 56,560 $ 41,915 $ 25,461
</TABLE>
------------------
(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.
(2) During the second quarter of fiscal 1997, the
65
<PAGE> 70
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company's unconsolidated affiliate, 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 fiscal 1997 Consolidated Statement of Operations 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.
(8) Accrued environmental and landfill costs -
Accrued environmental and landfill costs at September 30, 1997 and
1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Continuing operations -
Accrued costs associated with open
landfills (including landfills
under expansion) $248,820 $334,793
Accrued costs associated with closed
landfills and corrective action
costs (including Superfund sites) 264,516 223,781
-------- --------
Total 513,336 558,574
Less current portion (included in
other accrued liabilities) 81,291 92,536
-------- --------
Total long-term $432,045 $466,038
======== ========
Discontinued operations -
Accrued costs of closure, post-
closure and certain other
liabilities associated with
discontinued operations $ 99,914 $107,832
Less current portion (included in
other accrued liabilities) 26,681 32,032
-------- --------
Total long-term $ 73,233 $ 75,800
======== ========
Total long-term portion of accrued
environmental and landfill costs $505,278 $541,838
======== ========
</TABLE>
66
<PAGE> 71
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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".
Open landfills.
The Company operates 92 solid waste landfills in the United States,
18 of which are operated under contracts with municipalities or others.
The Company also operates 53 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 1997, approximately
$275-$325 million of additional accruals are to be provided over the
remaining lives of these facilities. Estimated additional environmental
costs ranging from $525-$575 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, 1997 and 1996 was as follows (in
thousands):
67
<PAGE> 72
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Senior indebtedness (maturing as set
forth in the following paragraphs):
6.10% Senior Notes, net of
unamortized discount of
$1,218 and $1,838 $ 155,471 $ 198,162
6.375% Senior Notes, net of
unamortized discount of
$1,507 and $2,051 159,693 197,949
7 7/8% Senior Notes, net of
unamortized discount of $195
and $783 69,306 299,217
7.40% Debentures, net of
unamortized discount of
$1,767 and $2,082 358,233 397,918
9 1/4% Debentures 99,500 100,000
Solid waste revenue bond obligations 219,974 149,127
Other notes payable, primarily
5.0%-15.5% 505,674 804,721
---------- ----------
1,567,851 2,147,094
Commercial paper and short-term
facilities to be refinanced 259,047 679,597
---------- ----------
Total long-term debt 1,826,898 2,826,691
Less current portion 151,736 59,806
---------- ----------
Long-term debt, net of current portion $1,675,162 $2,766,885
========== ==========
</TABLE>
The long-term portion of the debt outstanding at September 30, 1997,
matures as follows: 1999, $152,890,000; 2000, $331,130,000; 2001,
$25,999,000; 2002, $24,358,000 and in subsequent years, $1,140,785,000.
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 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.
68
<PAGE> 73
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 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.
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.
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, 1997 and 1996, the Company had
no outstanding borrowings under this bank credit agreement.
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 of December 1997. The
facility can be utilized to borrow U.S. dollars, pounds sterling,
69
<PAGE> 74
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
deutsche mark, French francs or Dutch guilders as determined by the
Company. At the option of the Company, the loans bear a rate of interest
based upon LIBOR or the federal funds rate, plus a margin, or the prime
rate. The Multicurrency Revolving Credit Agreement with Credit Suisse, as
administrative agent for a group of U.S. and international banks,
requires a facility fee of 0.6% per annum on the total commitment,
whether used or unused, and contains a net worth requirement consistent
with the Company's $1 billion revolving credit agreement. At September
30, 1997 and 1996, 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, 1997 and 1996, Otto Waste Services had outstanding
borrowings under this facility of 360 million deutsche mark
(approximately U.S. $204.6 million) and 250 million deutsche mark
(approximately U.S. $163.9 million), respectively.
As of September 30, 1997, distributions from retained earnings
could not exceed $1.188 billion 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 agreements
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 5.85%.
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 was payable semi-annually on the senior notes at
rates ranging from 7.5% - 8.0%.
Additionally, notes payable includes mortgages payable and other
secured debt, unsecured debt and capitalized lease obligations of the
Company. Approximately $208 million and
70
<PAGE> 75
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$336 million of this indebtedness at September 30, 1997 and 1996,
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.
Extraordinary items.
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 that was sold in the third quarter by the Company.
On September 3, 1997, the Company announced a tender offer for its
$300 million 7 7/8% Senior Notes due March 15, 2005. Prior to expiration
of the tender offer on September 17, 1997, approximately $230.5 million
of these notes were tendered pursuant to the tender offer. During the
fourth quarter of fiscal 1997, the Company also acquired $122.6 million
of its outstanding publicly traded debt through open market purchases.
The Company purchased $43.3 million of its 6.10% Senior Notes, $38.8
million of its 6.375% Senior Notes, $40.0 million of its 7.40% Debentures
and $0.5 million of its 9 1/4% Debentures.
These redemptions of debt, aggregating $524.9 million, resulted
in extraordinary charges to the Company's fiscal 1997 net income of $15.4
million, after income taxes, or approximately $0.08 per share.
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. It is the Company's intention to refinance outstanding
short-term 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 commercial paper balances and other outstanding borrowings to be
refinanced as of September 30, 1997 and 1996 is as follows (amounts in
thousands):
71
<PAGE> 76
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
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%
Germany 259,047 4-10% 241,301 5-10%
-------- --------
$259,047 $679,597
======== ========
</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 were being called for
redemption. The redemption, which occurred on February 2, 1996, resulted
in an extraordinary charge to the Company's fiscal 1996 net income of
$12.2 million, after income taxes, or approximately $.06 per share.
(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.
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.
72
<PAGE> 77
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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, 1997, 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 Company 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 under this ownership
structure 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:
73
<PAGE> 78
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Hempstead, New York - Funding of 50% of periodic payments related to
outstanding debt. At September 30, 1997, $210 million of total
unamortized project debt was outstanding. Average annual debt
service on 50% of the debt over the next five years is $10
million. The Company has guaranteed $5 million of additional
partnership debt and annual debt service on such debt is
estimated to be $.2 million.
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, 1997, 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, 1997, $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 $300 million (weighted average fixed rate
of 9.7%) of non-recourse debt as of September 30, 1997. 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, 1997, total minimum rental commitments becoming payable under all
noncancellable operating leases are as follows (in thousands):
74
<PAGE> 79
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<S> <C> <C> <C>
1998 $ 87,624 2002 $ 38,952
1999 $ 71,175 2003 - 2007 $ 99,510
2000 $ 61,632 2008 - 2012 $ 59,920
2001 $ 48,603 All years thereafter $150,477
</TABLE>
Total rental expenses for fiscal years 1997, 1996 and 1995,
substantially all of which related to fixed amount rental agreements,
were $107,622,000, $105,134,000 and $95,526,000, respectively.
(12) Preferred stock -
The Company is authorized by its Restated Certificate of Incorporation
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
75
<PAGE> 80
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
number of common and common equivalent shares used in computing primary
earnings per share (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Common shares outstanding,
end of period 212,148 212,363 212,439
Less - Shares held in the Stock
and Employee Benefit Trust (7,252) (11,012) (13,596)
-------- -------- --------
Common shares outstanding for
purposes of computing primary
earnings per share, end of period 204,896 201,351 198,843
Effect of using weighted average
common and common equivalent
shares outstanding (2,096) (1,398) (1,199)
Effect of shares issuable under
stock option plans based on
the treasury stock method 945 715 1,433
-------- -------- --------
Shares used in computing
primary earnings per share 203,745 200,668 199,077
======== ======== ========
</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 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
76
<PAGE> 81
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7.25% Automatic Common Exchange Securities had no effect on the
computations for the periods presented.
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 affording
employees, directors and other persons affiliated with the Company the
right to purchase shares of its common stock. At September 30, 1997,
options were available for future grants only under five plans, the
Company's 1987, 1990, both 1993 plans and the 1996 plan. At September 30,
1997, 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. The
77
<PAGE> 82
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
stock options generally vest 25% per year over a four-year period and
expire after 10 years. The options are granted at a price equal to the
stock's fair market value on the date of the grant.
Transactions under all stock option plans are summarized below
(option amounts in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning
of year 12,012 $ 27.49 10,173 $ 26.53 9,906 $ 25.21
Granted 1,974 $ 26.91 2,689 $ 30.46 1,758 $ 28.28
Exercised (2,918) $ 24.89 (564) $ 22.54 (1,287) $ 18.70
Terminated (550) $ 29.04 (286) $ 30.90 (204) $ 26.62
---------- ------- ----------
Outstanding
at end of
year 10,518 $ 28.03 12,012 $ 27.49 10,173 $ 26.53
========== ======= ==========
Exercisable at
end of year 5,787 $ 27.71 6,853 $ 26.77 5,922 $ 26.99
Available for
future grants
at end of
year 9,979 12,424 4,926
</TABLE>
As of September 30, 1997, the options outstanding are as follows (option
amounts in thousands):
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Range of Exercise Remaining Exercise
Exercise Prices Options Price Years Options Price
--------------- ------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
$17.31 - $20.00 588 $17.31 4.2 588 $17.31
$20.01 - $30.00 6,372 $26.15 6.5 3,458 $25.63
$30.01 - $40.00 3,191 $32.27 6.7 1,374 $33.87
$40.01 - $43.38 367 $40.88 2.2 367 $40.88
</TABLE>
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
78
<PAGE> 83
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
transferability. Such restrictions on current restricted stock grants
lapse two years from the date of grant for officers, two to three years
for 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
2,000,000 shares which may be awarded to officers and key employees as
restricted stock grants or stock awards, 5,750 restricted shares were
issued during the current year and 109,842 restricted shares were
outstanding as of September 30, 1997. In addition, 5,232 restricted
shares issued to non-employee directors were outstanding as of September
30, 1997. Common stock awards totaling 2,552 shares were granted to
non-employee directors during fiscal 1997. Shares of restricted stock
granted for the two years ended September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1997 1996
----------- ----------
<S> <C> <C>
Restricted stock granted 5,750 94,655
Weighted average fair value of
restricted stock granted $31.82 $31.12
</TABLE>
During fiscal 1997, 1,028,500 performance share awards were granted
to officers and certain key employees pursuant to the Company's Long-Term
Incentive Plan. After considering cancellation of 91,125 of these awards,
937,375 of the performance share awards remained outstanding as of
September 30, 1997. These performance shares will vest in increments of
25% based upon the attainment of performance goals as described in the
Long-Term Incentive Plan. The performance shares are earned only if the
market price of the Company's common stock exceeds specific price targets
while attaining certain levels of cash returns on gross assets in excess
of the Company's weighted average cost of capital. No compensation
expense has been recorded to date related to these awards.
The Company accounts for all stock incentive plans related to
employees under Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issued to Employees". Compensation expense related to these
plans during fiscal years 1997, 1996 and 1995 was $1,662,000, $1,771,000
and $413,000, respectively.
The Company's consolidated results of operations on a pro forma
basis, as though the compensation cost for these plans had been
determined consistent with SFAS No. 123, "Accounting
79
<PAGE> 84
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
for Stock-Based Compensation", are as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1997 1996
-------- ---------
<S> <C> <C>
Pro forma income (loss) before
extraordinary items $278,698 $ (91,642)
Pro forma net income (loss) $260,217 $(103,801)
Pro forma income (loss) per common
and common equivalent share -
Income (loss) before
extraordinary items $ 1.37 $ (0.46)
Net income (loss) $ 1.28 $ (0.52)
</TABLE>
Because SFAS No. 123 has not been applied to options granted prior
to October 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. The fair value of
each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used
for the grants:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1997 1996
--------------- --------------
<S> <C> <C> <C> <C>
Risk-free interest rate 6.10% - 6.89% 5.56% - 6.70%
Expected lives (in years) 6 6
Expected volatility 19.26% - 24.48% 22.87% - 25.75%
Expected dividend yields 1.84% - 2.57% 2.15% - 2.66%
</TABLE>
The weighted average fair values of options grant during fiscal
years 1997 and 1996 were $7.68 and $8.67 per option, respectively.
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.
80
<PAGE> 85
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(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,
-------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Beginning cumulative
translation adjustment $ (31,138) $ 30,821 $(40,744)
Translation adjustment
for the fiscal year (126,334) (61,959) 71,565
Sale of Italian operations 52,865 -- --
--------- -------- --------
Ending cumulative translation
adjustment $(104,607) $(31,138) $ 30,821
========= ======== ========
</TABLE>
(16) Income taxes -
The components of (i) earnings before income taxes, minority
interest and extraordinary items 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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic:
Excluding special charges $ 498,141 $ 429,705 $ 563,648
Special charges 71,330 (187,087) --
--------- --------- ---------
As reported 569,471 242,618 563,648
--------- --------- ---------
Foreign (1):
Excluding special charges 78,880 44,801 127,428
Special charges (153,209) (259,713) --
--------- --------- ---------
As reported (74,329) (214,912) 127,428
--------- --------- ---------
Total:
Excluding special charges 577,021 474,506 691,076
Special charges (81,879) (446,800) --
--------- --------- ---------
As reported $ 495,142 $ 27,706 $ 691,076
========= ========= =========
-----------
</TABLE>
(1) Amounts are net of intercompany interest expense for fiscal
years 1997, 1996 and 1995 of $42,976,000, $53,660,000 and
$36,572,000, respectively. The Company maintains a capital
structure with respect to its foreign operations designed to
minimize worldwide income and other tax costs.
81
<PAGE> 86
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
State
Federal Foreign & Local Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997: Current $101,460 $ 12,367 $ 3,790 $117,617
Deferred 45,944 19,296 15,906 81,146
Amortization
of investment
tax credit (706) -- -- (706)
-------- -------- -------- --------
$146,698 $ 31,663 $ 19,696 $198,057
======== ======== ======== ========
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
======== ======== ======== ========
</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, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<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 (1.39) (2.31) (1.67)
Effect of foreign operations .06 (2.05) (.20)
All other, net 2.35 2.77 2.10
----- ----- -----
Federal and foreign 36.02 33.41 35.23
State income taxes 3.98 6.59 4.77
----- ----- -----
Effective income tax rate,
excluding special charges 40.00 40.00 40.00
Effect of Special Charges -- 339.66 --
----- ------ -----
Effective income tax rate 40.00% 379.66% 40.00%
===== ====== =====
</TABLE>
82
<PAGE> 87
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The tax effects of temporary differences that gave rise to
significant portions of the deferred tax assets and liabilities at
September 30, 1997 and 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Depreciation and
amortization $126,197 $535,195 $144,409 $468,326
Accrued environmental
and landfill costs 159,508 -- 183,041 --
Accruals related
to discontinued
operations 10,211 -- 8,956 --
Self-insurance
accruals 68,004 -- 56,457 --
Assets and operations
to be divested 29,651 -- 107,247 --
Net operating loss
carryforwards 82,843 -- 115,717 --
Other 285,196 141,768 318,449 138,649
-------- -------- -------- --------
Deferred tax assets
and liabilities 761,610 676,963 934,276 606,975
Unamortized investment
tax credits 19,716 20,393
Valuation allowance (47,273) (192,811)
-------- -------- -------- --------
Deferred tax assets and
liabilities, net of
unamortized investment
tax credits and
valuation allowance $714,337 $696,679 $741,465 $627,368
======== ======== ======== ========
</TABLE>
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 $96
million are available to reduce future taxable income of the applicable
foreign entities for periods which generally range from 1998 to 2001.
Domestic state net operating loss carryforwards of approximately $794
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 1998 to 2012. The net change in the total valuation allowance
83
<PAGE> 88
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
for the year ended September 30, 1997, was a decrease of $145.5 million,
principally due to the sale of the Italian operations in the third
quarter of fiscal 1997 compared with an increase in the prior year of
$76.6 million, principally due to the special charges taken in the fourth
quarter of fiscal 1996.
Deferred income taxes have not been provided as of September 30,
1997, on approximately $696 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 1997, 1996 and
1995 were $12,710,000, $11,752,000 and $10,545,000, 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.
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. No
additional disclosures pertaining to these plans have been included
because the related amounts are not material to the Company's
consolidated financial statements.
84
<PAGE> 89
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table sets forth the funded status and amounts
recognized in the Company's Consolidated Balance Sheet as of September
30, 1997 and 1996, and the significant assumptions used in accounting for
the U.S. defined benefit plans. The measurement dates for these plans
were June 30, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(Dollar Amounts in Thousands)
<S> <C> <C>
Actuarial present value of
accumulated benefit obligations,
including vested benefits of
$186,856 and $161,986,
respectively $(207,438) $(180,639)
========= =========
Actuarial present value
of projected benefit
obligation $(222,274) $(196,909)
Plan assets at fair value,
primarily commercial
paper, common stocks
(including 22,000 shares
of the Company's common
stock at both dates) and
mutual funds 245,032 193,951
--------- ---------
Projected benefit obligation
(in excess of) less than
plan assets 22,758 (2,958)
Contributions made after
measurement date but
before end of fiscal year 4,762 7,263
Unrecognized net gain (32,020) (13,784)
Unrecognized prior service
cost (12,654) (13,957)
Unrecognized net asset
at transition (1,292) (1,486)
--------- ---------
Accrued pension costs $ (18,446) $ (24,922)
========= =========
Discount rate 7.75% 8.0%
Rate of increase in
compensation levels 4.0% 4.0%
Expected long-term rate of
return on assets 10.5% 9.5%
</TABLE>
85
<PAGE> 90
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components of net annual pension cost for fiscal years 1997,
1996 and 1995 for the U.S. defined benefit plans were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned
during the period) $ 13,454 $ 12,260 $ 9,933
Interest cost on projected
benefit obligation 16,050 13,521 12,597
Investment gain on plan
assets (42,564) (27,957) (14,097)
Net amortization and deferral 21,765 12,056 (110)
-------- -------- --------
Net annual pension cost $ 8,705 $ 9,880 $ 8,323
======== ======== ========
</TABLE>
Termination indemnity plan.
The employees of the Company's Italian operations, which were
divested in June 1997, were covered by a termination indemnity plan.
Benefits under the plan, which were based on periods of service and the
employee's compensation, were 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 in fiscal year
1997 for the period prior to divestiture and for fiscal years 1996 and
1995 related to this unfunded plan was $1,350,000, $1,809,000 and
$1,798,000, 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
post-retirement 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.
86
<PAGE> 91
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Postemployment benefits.
The Company maintains no plans which provide significant benefits 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 relating 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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
United States and
Puerto Rico $4,148,647 $4,073,558 $4,070,021
---------- ---------- ----------
Foreign - Canada 176,009 169,077 178,417
- Europe 1,351,560 1,425,390 1,433,923
- Other 106,756 111,252 96,990
---------- ---------- ----------
Total foreign 1,634,325 1,705,719 1,709,330
---------- ---------- ----------
Consolidated $5,782,972 $5,779,277 $5,779,351
========== ========== ==========
Combined income (loss)
from operations and
equity in earnings of
unconsolidated
affiliates:
United States and
Puerto Rico $ 653,866 (1) $ 327,421 (2) $ 626,798
---------- ---------- ----------
Foreign - Canada 10,504 (7,857) 22,636
- Europe (28,782) (118,411) 186,251
- Other 17,637 (2,990) 7,498
---------- ---------- ----------
Total foreign (641)(1) (129,258)(2) 216,385
---------- ---------- ----------
Consolidated $ 653,225 $ 198,163 $ 843,183
========== ========== ==========
</TABLE>
87
<PAGE> 92
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and
amortization:
United States and
Puerto Rico $ 418,542 $ 438,639 $ 412,968
---------- ---------- ----------
Foreign - Canada 18,370 17,615 14,473
- Europe 121,270 134,061 113,907
- Other 11,488 12,210 10,522
---------- ---------- ----------
Total foreign 151,128 163,886 138,902
---------- ---------- ----------
Consolidated $ 569,670 $ 602,525 $ 551,870
========== ========== ==========
Identifiable assets:
United States and
Puerto Rico $4,471,306 $4,803,978 $4,532,014
---------- ---------- ----------
Foreign - Canada 185,372 206,908 183,210
- Europe 1,894,597 2,435,541 2,599,797
- Other 127,017 154,479 145,351
---------- ---------- ----------
Total foreign 2,206,986 2,796,928 2,928,358
---------- ---------- ----------
Consolidated $6,678,292 $7,600,906 $7,460,372
========== ========== ==========
-----------------
</TABLE>
(1) Fiscal year 1997 earnings information includes special credits
(principally net gains from the divestiture of business assets and
operations) of $71,330,000 for operations in the United States and
Puerto Rico and includes special charges of $153,209,000 for foreign
operations, principally Europe. See Note (4).
(2) Fiscal year 1996 earnings information for operations in the
United States and Puerto Rico and for foreign operations include
special charges of $187,087,000 and $259,713,000, respectively. See
Note (4).
(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.
88
<PAGE> 93
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
As of September 30,
---------------------------------------
1997 1996
------------------ ------------------
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Debt -
6.10% Senior Notes $155,471 $152,671 $198,162 $188,848
6.375% Senior Notes 159,693 154,879 197,949 184,171
7.40% Debentures 358,233 365,835 397,918 377,107
7 7/8% Senior Notes 69,306 74,086 299,217 311,575
9 1/4% Debentures 99,500 123,073 100,000 117,740
Solid waste revenue
bond obligations 219,974 229,902 149,127 151,601
Other notes payable 505,674 526,259 804,721 837,174
Commercial paper and
short-term
facilities to be
refinanced 259,047 258,365 679,597 676,489
</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 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 under these financial
instruments is minimal and expects no material losses to occur in
connection with these financial instruments.
(20) Related party transactions -
Otto Holding International B.V. ("OHI") 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
$3.6 million, $4.7 million and $5.0
89
<PAGE> 94
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
million for fiscal years 1997, 1996 and 1995, respectively. The Company,
including Otto Waste Services, also purchased or entered into capital
leases for approximately $30.8 million of containers from the OHI Group
during fiscal year 1996; no such capital leases were entered into in
fiscal 1997. Included in the Company's Consolidated Balance Sheet at
September 30, 1997 and 1996, are the following amounts relating to
transactions with the OHI Group (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Other accrued liabilities $ -- $ 7,673
Capital lease obligations 30,014 44,000
Notes payable, interest
payable at FIBOR plus 2% 8,077 3,131
</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 was included in the
Company's fiscal 1996 earnings. 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.
(21) Quarterly financial information (Unaudited) -
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(In Thousands Except for Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Revenues 1997 $1,495,137 $1,413,731 $1,471,252 $1,402,852
1996 $1,430,781 $1,373,887 $1,471,368 $1,503,241
Gross profit 1997 $ 383,839 $ 359,381 $ 376,051 $ 374,087
1996 $ 382,676 $ 346,971 $ 356,018 $ 377,997
Income (loss)
from operations 1997 $ 163,802 $ 152,754 $ 97,657(3) $ 185,024 (3)
1996 $ 174,162 $ 134,414 $ 134,802 $ (300,585)(5)
Income taxes 1997 $ 50,507 $ 47,955 $ 30,688 $ 68,907
1996 $ 58,118 $ 42,205 $ 42,417 $ (37,552)
</TABLE>
90
<PAGE> 95
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(In Thousands Except for Per Share Amounts)
<S> <C> <C> <C> <C>
Income (loss)
before extra-
ordinary
items 1997 $ 71,880 $ 70,955 $ 41,926 $ 98,934
1996 $ 83,010 $ 60,984 $ 62,022 $(295,188)
Net income
(loss) 1997 $ 71,880 $ 67,831(1) $ 40,241(4) $ 85,262(4)
1996 $ 83,010 $ 48,825(2) $ 62,022 $(295,188)
Income (loss)
per share:
Income (loss)
before extra-
ordinary
items 1997 $ .36 $ .35 $ .21 $ .48
1996 $ .42 $ .30 $ .31 $(1.47)
Net income
(loss) 1997 $ .36 $ .33 $ .20 $ .41
1996 $ .42 $ .24 $ .31 $(1.47)
</TABLE>
-------------
(1) In the second quarter of fiscal 1997, the Company recorded an
after-tax loss of $3.1 million associated with the redemption of
approximately $250 million of debt by an unconsolidated affiliate
(American Ref-Fuel Company of Hempstead), which was reflected in the
Company's Consolidated Statement of Operations as an extraordinary
item. See Note (7).
(2) 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).
(3) In the third quarter of fiscal 1997, the Company incurred special
charges of $84 million which included foreign currency translation
losses associated with the sale of the Company's Italian operations
and anticipated losses related to decisions to divest additional
underperforming or non-core business operations and assets, offset
partially by net gains from divestitures completed in the third
quarter. In the fourth quarter of fiscal 1997, the Company reported a
special credit of $2.2 million related principally to net gains from
the sale of business operations in the fourth quarter, offset
partially by changes in estimated losses associated with previous
decisions to divest certain operations and assets. See Note (4).
91
<PAGE> 96
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(4) In the third and fourth quarters of fiscal 1997, the Company
recorded after-tax losses of $1.7 million and $13.7 million,
respectively, associated with redemption of debt, which was reflected
in the Company's Consolidated Statement of Operations as an
extraordinary item. See Note (9).
(5) 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).
(22) Events Subsequent to Date of Financial Statements -
Common stock repurchase program.
In September 1997, the Company announced its commencement of a
common stock repurchase program, and initiated a Dutch auction tender
offer for the purchase of up to 15 million shares of common stock at a
price that could range from $34.00 to $39.00 per share. In accordance
with the terms of the offer, which expired on October 1, 1997, the
Company accepted for purchase 15 million shares at a price of $39.00 per
share in October 1997. This purchase of approximately $585 million of
common stock in the Dutch auction was the first phase of the Company's
two-part program to buy back $1 billion of its common stock. The second
phase of this program, approximately $415 million in open market
purchases and privately negotiated transactions of common stock or
automatic common exchange security units, is expected to be completed by
September 30, 1998.
Merger of operations outside North America.
In November 1997, the Company announced the signing of an agreement
to merge its operations outside North America with SITA, a subsidiary of
Suez Lyonnaise des Eaux. Under the terms of the agreement, the Company
will receive cash totaling U.S. $1 billion and ordinary shares of SITA
stock that will result in approximately a 20 percent ownership in SITA.
Upon completion of the transaction, Suez Lyonnaise des Eaux will own more
than 50 percent of SITA. The transaction has been approved by the boards
of the Company and SITA, and is subject to satisfactory completion of due
diligence, approval by regulatory authorities and authorization by SITA's
shareholders of the issuance of additional ordinary shares. Closing of
the transaction is anticipated by the end of the first quarter of
calendar year 1998. Paris-based SITA is a leading industrial waste
services company, which provides collection, recycling, waste-to-energy
and disposal services related to residential, commercial, industrial and
medical waste.
92
<PAGE> 97
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
Items 10, 11, 12 and 13 of Part III (except for information required with
respect to executive officers of the Company which is set forth under "Business
- - Executive Officers of the Company" in Part I of this report) have been
omitted from this report, since the Company will file with the Securities and
Exchange Commission, not later than 120 days after the close of its fiscal
year, a definitive proxy statement, pursuant to Regulation 14A, which involves
the election of directors. The information required by Items 10, 11, 12 and 13
of this report, which will appear in the definitive proxy statement, is
incorporated by reference into Part III of this report.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS
Browning-Ferris Industries, Inc. and Subsidiaries:
Report of independent public accountants.
Consolidated statement of operations for the three years ended
September 30, 1997.
Consolidated balance sheet--September 30, 1997 and 1996.
Consolidated statement of cash flows for the three years ended
September 30, 1997.
Consolidated statement of common stockholders' equity for the three
years ended September 30, 1997.
Notes to consolidated financial statements.
SCHEDULES
II Allowance for doubtful accounts for the three years ended
September 30, 1997.
Schedules, other than those listed above, are omitted because of the absence of
conditions under which they are required, or because the information is
included in the financial statements or notes thereto.
-93-
<PAGE> 98
EXHIBITS
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation of BFI, dated October 7,
1991. (Exhibit 3(a) of Form 10-K for the fiscal year ended
September 30, 1993, is hereby incorporated by reference.)
3.2 By-laws of BFI, as amended through March 5, 1997. (Exhibit 3 of
Form 10-Q for the quarter ended March 31, 1997, is hereby
incorporated by reference.)
4.1 Rights Agreement, dated June 1, 1988, between BFI and Texas
Commerce Bank National Association. (Exhibit 3.3 of Form 10-K for
the fiscal year ended September 30, 1988, is hereby incorporated
by reference.)
4.2 First Amendment, dated March 1, 1989, to Rights Agreement,
dated as of June 1, 1988, between BFI and Texas Commerce Bank
National Association. (Exhibit 10.1 of Form 10-Q for the quarter
ended June 30, 1989, is hereby incorporated by reference.)
4.3 Second Amendment, dated March 7, 1990, to Rights Agreement,
dated as of June 1, 1988, between the Registrant and First
Chicago Trust Company of New York as successor Rights Agent.
(Exhibit 4.1 of Form 10-Q for the quarter ended March 31, 1990,
is hereby incorporated by reference.)
4.4 Third Amendment, dated February 20, 1996, to Rights
Agreement, dated as of June 1, 1988, between the Company and
First Chicago Trust Company of New York as successor Rights
Agent. (Exhibit 4 of Form 10-Q for the quarter ended March 31,
1996, is hereby incorporated by reference.)
4.5 Second Amended and Restated Revolving Credit Agreement, dated
as of May 31, 1995, among BFI and Texas Commerce Bank National
Association, as Administrative Agent, and the other banks named
therein. (Exhibit 4.4 of Form 10-K for the fiscal year ended
September 30, 1995, is hereby incorporated by reference.)
4.6 Restated Indenture, dated as of September 1, 1991, between First
City, Texas-Houston, National Association, Trustee, and BFI.
(Exhibit 4.8 of Form 10-K for the fiscal year ended September 30,
1991, is hereby incorporated by reference.)
4.7 Indenture, dated as of August 1, 1987, between First RepublicBank
Houston, National Association, Trustee, and BFI. (Exhibit 4.1 to
Registration Statement on Form S-3 No. 33-16537 is hereby
incorporated by reference.)
</TABLE>
-94-
<PAGE> 99
<TABLE>
<S> <C>
4.8 First Supplemental Indenture, dated as of January 11, 1994,
between Nations Bank of Texas, National Association, Trustee, and
BFI. (Exhibit 4(f) to Registration Statement on Form S-3 No.
33-58790 is hereby incorporated by reference.)
4.9 Amended and Restated Multicurrency Revolving Credit Agreement,
dated December 27, 1996, among BFI and Credit Suisse and the
Banks specified therein. (Exhibit 4 of Form 10-Q for the quarter
ended December 31, 1996, is hereby incorporated by reference).
4.10 Purchase Contract Agreement, dated as of June 28, 1995,
between BFI and The First National Bank of Chicago, as Purchase
Contract Agent. (Exhibit 4(i) of Form 8-K dated July 3, 1995, is
hereby incorporated by reference.)
4.11 Pledge Agreement, dated as of June 28, 1995, among BFI, Texas
Commerce Bank National Association, as Collateral Agent, and The
First National Bank of Chicago, as Purchase Contract Agent.
(Exhibit 4(j) of Form 8-K dated July 3, 1995, is hereby
incorporated by reference.)
10.1 Employment Agreement, dated October 1, 1995, between BFI and
William D. Ruckelshaus. (Exhibit 10.1 of Form 10-K for the fiscal
year ended September 30, 1995, is hereby incorporated by
reference.)
10.2 Deferral Agreement, dated December 28, 1988, between BFI and
William D. Ruckelshaus. (Exhibit 10.2 of the Form 10-Q for the
quarter ended December 31, 1988, is hereby incorporated by
reference.)
10.3 Employment Agreement, dated July 10, 1989, between BFI and
Harry J. Phillips, Sr. (Exhibit 10.5 of Form 10-K for the fiscal
year ended September 30, 1989, is hereby incorporated by
reference.)
10.4 First Amendment, dated January 21, 1992, to the Employment
Agreement, dated as of July 10, 1989, between BFI and Harry J.
Phillips, Sr. (Exhibit 10.6 to Registration Statement on Form S-4
No. 33-52240 is hereby incorporated by reference.)
10.5 Second Amendment, dated December 7, 1993, to the Employment
Agreement, dated as of July 10, 1989, between BFI and Harry J.
Phillips, Sr. (Exhibit 10 of the Form 10-Q for the quarter ended
December 31, 1993, is hereby incorporated by reference.)
10.6 Form of Employment Agreement between BFI and each of Norman A.
Myers, Bruce E. Ranck and certain other officers and former
officers (Exhibit 10.6 of Form 10-K for the fiscal year ended
September 30, 1989, is hereby incorporated by reference.)
</TABLE>
-95-
<PAGE> 100
<TABLE>
<S> <C>
10.7 Employment Agreement, dated as of November 1, 1991 between BFI
and Louis A. Waters. (Exhibit 10.7 of Form 10-K for the fiscal
year ended September 30, 1991, is hereby incorporated by
reference.)
10.8 First Amendment, dated December 7, 1993, to the Employment
Agreement, dated as of November 1, 1991, between BFI and Louis A.
Waters. (Exhibit 10 of the Form 10-Q for the quarter ended
December 31, 1993, is hereby incorporated by reference.)
10.9 Second Amendment, dated March 1, 1995, to Employment Agreement,
dated as of November 1, 1991, between BFI and Louis A. Waters.
(Exhibit 10.9 of Form 10-K for the fiscal year ended September
30, 1995, is hereby incorporated by reference.)
10.10 Executive Officer Form of Employment Agreement between BFI
and certain executive officers, beginning in January 1993.
(Exhibit 10.9 of Post-Effective Amendment No. 1 to Registration
Statement on Form S-4 No. 33-52240 is hereby incorporated by
reference.)
10.11 Trust Agreement, dated September 7, 1988, between BFI and Texas
Commerce Bank, National Association with Louis A. Waters as
Beneficiary. (Exhibit 10.9 of Form 10-K for the fiscal year ended
September 30, 1988, is hereby incorporated by reference.)
10.12 Browning-Ferris Industries, Inc. 1996 Stock Incentive Plan
(Exhibit 10.1 of Form 10-Q for the quarter ended March 31, 1997,
is hereby incorporated by reference.)
10.13 Browning-Ferris Industries, Inc. 1993 Stock Incentive Plan.
(Exhibit 4(d) to Registration Statement on Form S-8 No. 33-53393
is hereby incorporated by reference.)
10.14 Browning-Ferris Industries, Inc. 1993 Non-Employee Director Stock
Plan (Exhibit 4(e) to Registration Statement on Form S-8 No.
33-53393 is hereby incorporated by reference.)
10.15 Browning-Ferris Industries, Inc. 1990 Stock Option Plan. (Exhibit
10.9 of Form 10-K for the fiscal year ended September 30, 1991,
is hereby incorporated by reference.)
10.16 Browning-Ferris Industries, Inc. 1987 Stock Option Plan. (Exhibit
10.11 of Form 10-K for the fiscal year ended September 30, 1988,
is hereby incorporated by reference.)
</TABLE>
-96-
<PAGE> 101
<TABLE>
<S> <C>
10.17 Browning-Ferris Industries, Inc. 1983 Stock Option Plan, as
amended on December 2, 1986. (Exhibit 10.7 of Form 10-K for the
fiscal year ended September 30, 1986, is hereby incorporated by
reference.)
10.18 Browning-Ferris Industries, Inc.'s Cash Balance and Retirement
Plan, as amended and restated pursuant to an indenture dated
September 15, 1994. (Exhibit 10.18 of Form 10-K for the fiscal
year ended September 30, 1994, is hereby incorporated by
reference.)
10.19 BFI Employee Stock Ownership and Savings Plan, as amended through
December 1, 1986. (Exhibit 10.10 of Form 10-K for the fiscal year
ended September 30, 1986, is hereby incorporated by reference.)
10.20 Fifth Amendment dated June 8, 1988, to the BFI Employee Stock
Ownership and Savings Plan. (Exhibit 10.16 of Form 10-K for the
fiscal year ended September 30, 1988, is hereby incorporated by
reference.)
10.21 Sixth Amendment, dated December 23, 1988, to the BFI Employee
Stock Ownership and Savings Plan. (Exhibit 10.4 of the Form 10-Q
for the quarter ended December 31, 1988, is hereby incorporated
by reference.)
10.22 Seventh, Eighth and Ninth Amendments, dated as of May 31, 1989,
June 7, 1989 and October 31, 1991, respectively, to the BFI
Employee Stock Ownership and Savings Plan. (Exhibit 10.20 of Form
10-K for the fiscal year ended September 30, 1991, is hereby
incorporated by reference.)
10.23 Tenth Amendment, dated September 7, 1993, to the BFI Employee
Stock Ownership and Savings Plan. (Exhibit 10.22 of Form 10-K for
the fiscal year ended September 30, 1993, is hereby incorporated
by reference.)
10.24 Amended and Restated Partnership Agreement, dated as of
January 25, 1991, between Air Products Ref-Fuel, Inc. and BFI
Ref-Fuel, Inc. (Exhibit 10.23 of Form 10-K for the fiscal year
ended September 30, 1993, is hereby incorporated by reference.)
10.25 Parent Agreement, dated as of January 25, 1991, between Air
Products and Chemicals, Inc. and BFI. (Exhibit 10.24 of Form 10-K
for the fiscal year ended September 30, 1996, is hereby
incorporated by reference.)
10.26 Purchase and Transfer Agreement between Otto Holding
International B.V., the Registrant and BFI Atlantic GmbH, dated
September 27, 1993. (Exhibit 10.25 of Form 10-K for the fiscal
year ended September 30, 1993, is hereby incorporated by
reference.)
</TABLE>
-97-
<PAGE> 102
<TABLE>
<S> <C>
10.27 BFI Deferred Compensation Agreement (Exhibit 10.26 of Form 10-K
for the fiscal year ended September 30, 1995, is hereby
incorporated by reference.)
10.28 BFI Convertible Annual Incentive Award Plan. (Exhibit 10.27
of Form 10-K for the fiscal year ended September 30, 1995, is
hereby incorporated by reference.)
10.29 BFI Stock and Employee Benefit Trust Agreement, dated
February 28, 1995, between BFI and Wachovia Bank of North
Carolina, N.A., as trustee. (Exhibit 10.28 of Form 10-K for the
fiscal year ended September 30, 1995, is hereby incorporated by
reference.)
10.30 Common Stock Purchase Agreement, dated February 28, 1995,
between BFI and Wachovia Bank of North Carolina, N.A., as
trustee. (Exhibit 10.29 of Form 10-K for the fiscal year ended
September 30, 1995, is hereby incorporated by reference.)
10.31 BFI Annual Management Incentive Plan. (Exhibit 10.2 of Form 10-Q
for the quarter ended March 31, 1997, is hereby incorporated by
reference.)
10.32 BFI Long-Term Incentive Plan. (Exhibit 10.3 of Form 10-Q for the
quarter ended March 31, 1997, is hereby incorporated by
reference.)
* 10.33 Agreement, dated as of November 8, 1997, among BFI, BFI
International, Inc., Suez Lyonnaise Des Eaux, S.A. and SITA, S.A.
* 12. Computation of Ratio of Earnings to Fixed Charges of Browning-
Ferris Industries, Inc. and Subsidiaries.
* 21. Subsidiaries of the Registrant.
* 23.1 Consent of Arthur Andersen LLP.
* 27.1 Financial Data Schedule.
</TABLE>
- ------------------
*Filed herewith.
Reports on Form 8-K
A Current Report on Form 8-K dated October 9, 1997 was filed pursuant to
"Item 5. Other Events," relating to the Company's announcement of the final
results of its Dutch Auction tender Offer.
-98-
<PAGE> 103
A Current Report on Form 8-K dated October 1, 1997 was filed pursuant to "Item
5. Other Events," relating to the Company's announcement of the Preliminary
results of its Dutch auction tender offer.
- ------------------
NOTE: Upon the request of a holder of the Company's securities directed to
Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253, Attn:
Secretary, the Company will furnish a copy of any exhibit for ten cents per
page to cover the cost of copying and mailing.
- ------------------
-99-
<PAGE> 104
SCHEDULE II
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
For the Three Years Ended September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Additions
Balance Charged Deductions Balance
Beginning to from End of
of Year Income Reserves Year
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $40,622 $30,116 $(32,362) $38,376
1996 $39,777 $29,527 $(28,682) $40,622
1995 $33,284 $26,620 $(20,127) $39,777
</TABLE>
100
<PAGE> 105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
(Registrant)
DATE: December 4, 1997 By: /s/ Bruce E. Ranck
----------------------------
Bruce E. Ranck
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ William D. Ruckelshaus
----------------------------
William D. Ruckelshaus
Chairman of the Board
and Director
/s/ Bruce E. Ranck
----------------------------
Bruce E. Ranck,
President, Chief Executive
Officer and Director
/s/ Jeffrey E. Curtiss
----------------------------
Jeffrey E. Curtiss,
Senior Vice President and
Chief Financial Officer
/s/ David R. Hopkins
----------------------------
David R. Hopkins,
Vice President, Controller and
Chief Accounting Officer
-101-
<PAGE> 106
/s/ Gregory D. Brenneman
----------------------------
Gregory D. Brenneman, Director
/s/ William T. Butler
----------------------------
William T. Butler,
Director
/s/ C. Jackson Grayson, Jr.
----------------------------
C. Jackson Grayson, Jr.,
Director
/s/ Gerald Grinstein
----------------------------
Gerald Grinstein, Director,
/s/ Harry J. Phillips, Sr.
----------------------------
Harry J. Phillips, Sr.,
Director
----------------------------
Joseph L. Roberts, Jr.,
Director
/s/ Marc J. Shapiro
----------------------------
Marc J. Shapiro, Director
/s/ Robert M. Teeter
----------------------------
Robert M. Teeter, Director
/s/ Marina v.N. Whitman
----------------------------
December 4, 1997 Marina v.N. Whitman,
Director
-102-
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of BFI, dated October 7,
1991. (Exhibit 3(a) of Form 10-K for the fiscal year ended
September 30, 1993, is hereby incorporated by reference.)
3.2 By-laws of BFI, as amended through March 5, 1997. (Exhibit 3 of
Form 10-Q for the quarter ended March 31, 1997, is hereby
incorporated by reference.)
4.1 Rights Agreement, dated June 1, 1988, between BFI and Texas
Commerce Bank National Association. (Exhibit 3.3 of Form 10-K for
the fiscal year ended September 30, 1988, is hereby incorporated
by reference.)
4.2 First Amendment, dated March 1, 1989, to Rights Agreement,
dated as of June 1, 1988, between BFI and Texas Commerce Bank
National Association. (Exhibit 10.1 of Form 10-Q for the quarter
ended June 30, 1989, is hereby incorporated by reference.)
4.3 Second Amendment, dated March 7, 1990, to Rights Agreement,
dated as of June 1, 1988, between the Registrant and First
Chicago Trust Company of New York as successor Rights Agent.
(Exhibit 4.1 of Form 10-Q for the quarter ended March 31, 1990,
is hereby incorporated by reference.)
4.4 Third Amendment, dated February 20, 1996, to Rights
Agreement, dated as of June 1, 1988, between the Company and
First Chicago Trust Company of New York as successor Rights
Agent. (Exhibit 4 of Form 10-Q for the quarter ended March 31,
1996, is hereby incorporated by reference.)
4.5 Second Amended and Restated Revolving Credit Agreement, dated
as of May 31, 1995, among BFI and Texas Commerce Bank National
Association, as Administrative Agent, and the other banks named
therein. (Exhibit 4.4 of Form 10-K for the fiscal year ended
September 30, 1995, is hereby incorporated by reference.)
4.6 Restated Indenture, dated as of September 1, 1991, between First
City, Texas-Houston, National Association, Trustee, and BFI.
(Exhibit 4.8 of Form 10-K for the fiscal year ended September 30,
1991, is hereby incorporated by reference.)
4.7 Indenture, dated as of August 1, 1987, between First RepublicBank
Houston, National Association, Trustee, and BFI. (Exhibit 4.1 to
Registration Statement on Form S-3 No. 33-16537 is hereby
incorporated by reference.)
</TABLE>
<PAGE> 108
<TABLE>
<S> <C>
4.8 First Supplemental Indenture, dated as of January 11, 1994,
between Nations Bank of Texas, National Association, Trustee, and
BFI. (Exhibit 4(f) to Registration Statement on Form S-3 No.
33-58790 is hereby incorporated by reference.)
4.9 Amended and Restated Multicurrency Revolving Credit Agreement,
dated December 27, 1996, among BFI and Credit Suisse and the
Banks specified therein. (Exhibit 4 of Form 10-Q for the quarter
ended December 31, 1996, is hereby incorporated by reference).
4.10 Purchase Contract Agreement, dated as of June 28, 1995,
between BFI and The First National Bank of Chicago, as Purchase
Contract Agent. (Exhibit 4(i) of Form 8-K dated July 3, 1995, is
hereby incorporated by reference.)
4.11 Pledge Agreement, dated as of June 28, 1995, among BFI, Texas
Commerce Bank National Association, as Collateral Agent, and The
First National Bank of Chicago, as Purchase Contract Agent.
(Exhibit 4(j) of Form 8-K dated July 3, 1995, is hereby
incorporated by reference.)
10.1 Employment Agreement, dated October 1, 1995, between BFI and
William D. Ruckelshaus. (Exhibit 10.1 of Form 10-K for the fiscal
year ended September 30, 1995, is hereby incorporated by
reference.)
10.2 Deferral Agreement, dated December 28, 1988, between BFI and
William D. Ruckelshaus. (Exhibit 10.2 of the Form 10-Q for the
quarter ended December 31, 1988, is hereby incorporated by
reference.)
10.3 Employment Agreement, dated July 10, 1989, between BFI and
Harry J. Phillips, Sr. (Exhibit 10.5 of Form 10-K for the fiscal
year ended September 30, 1989, is hereby incorporated by
reference.)
10.4 First Amendment, dated January 21, 1992, to the Employment
Agreement, dated as of July 10, 1989, between BFI and Harry J.
Phillips, Sr. (Exhibit 10.6 to Registration Statement on Form S-4
No. 33-52240 is hereby incorporated by reference.)
10.5 Second Amendment, dated December 7, 1993, to the Employment
Agreement, dated as of July 10, 1989, between BFI and Harry J.
Phillips, Sr. (Exhibit 10 of the Form 10-Q for the quarter ended
December 31, 1993, is hereby incorporated by reference.)
10.6 Form of Employment Agreement between BFI and each of Norman A.
Myers, Bruce E. Ranck and certain other officers and former
officers (Exhibit 10.6 of Form 10-K for the fiscal year ended
September 30, 1989, is hereby incorporated by reference.)
</TABLE>
<PAGE> 109
<TABLE>
<S> <C>
10.7 Employment Agreement, dated as of November 1, 1991 between BFI
and Louis A. Waters. (Exhibit 10.7 of Form 10-K for the fiscal
year ended September 30, 1991, is hereby incorporated by
reference.)
10.8 First Amendment, dated December 7, 1993, to the Employment
Agreement, dated as of November 1, 1991, between BFI and Louis A.
Waters. (Exhibit 10 of the Form 10-Q for the quarter ended
December 31, 1993, is hereby incorporated by reference.)
10.9 Second Amendment, dated March 1, 1995, to Employment Agreement,
dated as of November 1, 1991, between BFI and Louis A. Waters.
(Exhibit 10.9 of Form 10-K for the fiscal year ended September
30, 1995, is hereby incorporated by reference.)
10.10 Executive Officer Form of Employment Agreement between BFI
and certain executive officers, beginning in January 1993.
(Exhibit 10.9 of Post-Effective Amendment No. 1 to Registration
Statement on Form S-4 No. 33-52240 is hereby incorporated by
reference.)
10.11 Trust Agreement, dated September 7, 1988, between BFI and Texas
Commerce Bank, National Association with Louis A. Waters as
Beneficiary. (Exhibit 10.9 of Form 10-K for the fiscal year ended
September 30, 1988, is hereby incorporated by reference.)
10.12 Browning-Ferris Industries, Inc. 1996 Stock Incentive Plan
(Exhibit 10.1 of Form 10-Q for the quarter ended March 31, 1997,
is hereby incorporated by reference.)
10.13 Browning-Ferris Industries, Inc. 1993 Stock Incentive Plan.
(Exhibit 4(d) to Registration Statement on Form S-8 No. 33-53393
is hereby incorporated by reference.)
10.14 Browning-Ferris Industries, Inc. 1993 Non-Employee Director Stock
Plan (Exhibit 4(e) to Registration Statement on Form S-8 No.
33-53393 is hereby incorporated by reference.)
10.15 Browning-Ferris Industries, Inc. 1990 Stock Option Plan. (Exhibit
10.9 of Form 10-K for the fiscal year ended September 30, 1991,
is hereby incorporated by reference.)
10.16 Browning-Ferris Industries, Inc. 1987 Stock Option Plan. (Exhibit
10.11 of Form 10-K for the fiscal year ended September 30, 1988,
is hereby incorporated by reference.)
</TABLE>
<PAGE> 110
<TABLE>
<S> <C>
10.17 Browning-Ferris Industries, Inc. 1983 Stock Option Plan, as
amended on December 2, 1986. (Exhibit 10.7 of Form 10-K for the
fiscal year ended September 30, 1986, is hereby incorporated by
reference.)
10.18 Browning-Ferris Industries, Inc.'s Cash Balance and Retirement
Plan, as amended and restated pursuant to an indenture dated
September 15, 1994. (Exhibit 10.18 of Form 10-K for the fiscal
year ended September 30, 1994, is hereby incorporated by
reference.)
10.19 BFI Employee Stock Ownership and Savings Plan, as amended through
December 1, 1986. (Exhibit 10.10 of Form 10-K for the fiscal year
ended September 30, 1986, is hereby incorporated by reference.)
10.20 Fifth Amendment dated June 8, 1988, to the BFI Employee Stock
Ownership and Savings Plan. (Exhibit 10.16 of Form 10-K for the
fiscal year ended September 30, 1988, is hereby incorporated by
reference.)
10.21 Sixth Amendment, dated December 23, 1988, to the BFI Employee
Stock Ownership and Savings Plan. (Exhibit 10.4 of the Form 10-Q
for the quarter ended December 31, 1988, is hereby incorporated
by reference.)
10.22 Seventh, Eighth and Ninth Amendments, dated as of May 31, 1989,
June 7, 1989 and October 31, 1991, respectively, to the BFI
Employee Stock Ownership and Savings Plan. (Exhibit 10.20 of Form
10-K for the fiscal year ended September 30, 1991, is hereby
incorporated by reference.)
10.23 Tenth Amendment, dated September 7, 1993, to the BFI Employee
Stock Ownership and Savings Plan. (Exhibit 10.22 of Form 10-K for
the fiscal year ended September 30, 1993, is hereby incorporated
by reference.)
10.24 Amended and Restated Partnership Agreement, dated as of
January 25, 1991, between Air Products Ref-Fuel, Inc. and BFI
Ref-Fuel, Inc. (Exhibit 10.23 of Form 10-K for the fiscal year
ended September 30, 1993, is hereby incorporated by reference.)
10.25 Parent Agreement, dated as of January 25, 1991, between Air
Products and Chemicals, Inc. and BFI. (Exhibit 10.24 of Form 10-K
for the fiscal year ended September 30, 1996, is hereby
incorporated by reference.)
10.26 Purchase and Transfer Agreement between Otto Holding
International B.V., the Registrant and BFI Atlantic GmbH, dated
September 27, 1993. (Exhibit 10.25 of Form 10-K for the fiscal
year ended September 30, 1993, is hereby incorporated by
reference.)
</TABLE>
<PAGE> 111
<TABLE>
<S> <C>
10.27 BFI Deferred Compensation Agreement (Exhibit 10.26 of Form 10-K
for the fiscal year ended September 30, 1995, is hereby
incorporated by reference.)
10.28 BFI Convertible Annual Incentive Award Plan. (Exhibit 10.27
of Form 10-K for the fiscal year ended September 30, 1995, is
hereby incorporated by reference.)
10.29 BFI Stock and Employee Benefit Trust Agreement, dated
February 28, 1995, between BFI and Wachovia Bank of North
Carolina, N.A., as trustee. (Exhibit 10.28 of Form 10-K for the
fiscal year ended September 30, 1995, is hereby incorporated by
reference.)
10.30 Common Stock Purchase Agreement, dated February 28, 1995,
between BFI and Wachovia Bank of North Carolina, N.A., as
trustee. (Exhibit 10.29 of Form 10-K for the fiscal year ended
September 30, 1995, is hereby incorporated by reference.)
10.31 BFI Annual Management Incentive Plan. (Exhibit 10.2 of Form 10-Q
for the quarter ended March 31, 1997, is hereby incorporated by
reference.)
10.32 BFI Long-Term Incentive Plan. (Exhibit 10.3 of Form 10-Q for the
quarter ended March 31, 1997, is hereby incorporated by
reference.)
* 10.33 Agreement, dated as of November 8, 1997, among BFI, BFI
International, Inc., Suez Lyonnaise Des Eaux, S.A. and SITA, S.A.
* 12. Computation of Ratio of Earnings to Fixed Charges of Browning-
Ferris Industries, Inc. and Subsidiaries.
* 21. Subsidiaries of the Registrant.
* 23.1 Consent of Arthur Andersen LLP.
* 27.1 Financial Data Schedule.
</TABLE>
- ------------------
*Filed herewith.
Reports on Form 8-K
A Current Report on Form 8-K dated October 9, 1997 was filed pursuant to
"Item 5. Other Events," relating to the Company's announcement of the final
results of its Dutch Auction tender Offer.
<PAGE> 1
AGREEMENT
AGREEMENT (this "Agreement"), dated as of November 8, 1997,
among BROWNING-FERRIS INDUSTRIES, INC., a Delaware corporation ("Parent"), BFI
INTERNATIONAL, INC., a Delaware corporation ("International"), SUEZ LYONNAISE
DES EAUX, S.A., a societe anonyme organized under the laws of the Republic of
France ("Lion"), and SITA, S.A., a societe anonyme organized under the laws of
the Republic of France ("Purchaser").
W I T N E S S E T H :
WHEREAS, Parent and International, a direct wholly-owned
subsidiary of Parent, are primarily engaged, through direct or indirect
subsidiaries of Parent or International in the waste business, including the
collection, transportation, disposal, and processing of solid and medical waste,
the collection, transportation, processing and marketing or disposal of
recyclable materials, the collection, treatment and disposal of hazardous
materials and related activities, including quarrying operations, gas and
electricity production, transportation of sand, gravel and asphalt, and pipe
inspection and renovation, outside the United States, Canada and Mexico (the
"Waste Business");
WHEREAS, Parent and International wish to sell and transfer to
Purchaser, and Purchaser desires to purchase from Parent and International,
Parent's and International's respective right, title and interest in and to the
Waste
Business;
WHEREAS, in connection with such sale and transfer, Parent and
International wish to sell and transfer to Purchaser and/or subsidiaries of
Purchaser (or cause to be sold and transferred to Purchaser and/or subsidiaries
of Purchaser), and Purchaser desires to purchase and/or cause its subsidiaries
to purchase from Parent and International, all of the Shares (as defined
herein);
WHEREAS, in connection with such sale and transfer, prior to
the execution and delivery of this
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<PAGE> 2
Agreement Purchaser and OHI Holding International B.V.("Oscar") have entered
into a shareholders agreement with respect to the Oscar Joint Venture (as
defined herein);
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and on the terms and subject to the conditions
set forth herein, the parties agree as follows:
1. (a) Specific Definitions. As used in this Agreement and
the attached Annexes, the following terms shall have the meanings set forth or
referred to below:
"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by or under common control with
such Person, including any Subsidiary of such Person.
"French GAAP" means generally accepted accounting principles
in France as applied from time to time by Purchaser.
"International Subsidiaries" means, collectively, the Persons
listed on the draft organizational chart attached as Annex A to this Agreement
and any other Subsidiary of Parent through which the Waste Business is
conducted, except as set forth in Annex A. The Parties shall consult concerning
whether any business entities should be added to or deleted from Schedule A in
order to cause Schedule A to conform to the financial statements for the Waste
Business previously provided by Parent to Purchaser and shall agree in good
faith on any revisions to Schedule A within 30 days of the date of this
Agreement.
"Oscar Joint Venture" means Otto Entsorgungsdienstleistungen
GmbH.
"Parent Subsidiaries" means, collectively, all of the
Subsidiaries of Parent, including but not limited to International and the
International Subsidiaries.
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<PAGE> 3
"Person" means any individual, corporation, joint stock
company, limited liability company, partnership, firm, joint venture, trust,
association, unincorporated organization, governmental or regulatory body or
other entity.
"Purchaser Shares" means the ordinary shares, FF 50 par
value, of Purchaser.
"Selling Entities" means, collectively, any Parent
Subsidiaries that own, beneficially or of record, any of the Shares.
"Shares" means, collectively, the number and type of equity
securities and other ownership interests of the International Subsidiaries
specified in Schedule 1.
"Subsidiary" means, with respect to any Person, any other
Person, whether incorporated or unincorporated, of which at least a majority of
the securities or ownership interests having by their terms ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions is directly or indirectly owned or controlled by such Person
or by one or more of its direct or indirect Subsidiaries or by such Person and
any one or more of its respective Subsidiaries. The term Subsidiary, when used
with respect to Parent and International, shall be deemed to include the Oscar
Joint Venture.
"Waste Business" has the meaning set forth in the Recitals.
(b) Schedule of Definitions. As used in this Agreement, the
following terms shall have the meanings ascribed to them in the sections
indicated below.
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Acquisition Documents................................... 8(b)(iv)
Agreement............................................... Preamble
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Ancillary Agreements................................................ Annex I,
Section 1.5
Approval............................................................ Annex I,
Section 1.7
Arbitration Rules................................................... 18(b)
Auditors............................................................ 3(e)
Cash Consideration.................................................. 2(a)
Closing............................................................. 2(b)
Closing Date........................................................ 2(b)
Consideration....................................................... 2(a)
Consideration Shares................................................ 2(a)
Contracts........................................................... Annex I,
Section 1.8
Contracts........................................................... Annex II,
Section 2.7
Environmental Law................................................... Annex I,
Section 1.25
Full Rights Subscription............................................ 2(d)(iv)
Governmental Entity................................................. 12
Hazardous Substance................................................. Annex I,
Section 1.25
International....................................................... Preamble
International Acquisition Proposal.................................. 6(a)
International Balance Sheet......................................... Annex I,
Section 1.9(a)
International Employee Benefit Plans................................ Annex I,
Section 1.26
International Existing Real Property
Lease.............................................................. Annex I,
Section 1.21
International Financial Statements.................................. Annex I,
Section 1.9(a)
International Income Statement...................................... Annex I,
Section 1.9(a)
International Intellectual Property................................. Annex I,
Section 1.23
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
International Material Adverse Effect............................... Annex I,
Section 1.1
International Material Contracts.................................... Annex I,
Section 1.14
International Personal Property Leases.............................. Annex I,
Section 1.22(b)
Law................................................................. Annex I,
Section 1.8
Lion................................................................ Preamble
Local GAAP.......................................................... Annex I,
Section 1.9(a)
Loss................................................................ Annex VI,
Section 6.2
Measuring Date...................................................... 2(d)(i)
Measuring Price..................................................... 2(d)(i)
Net Short-term and Long-term Debt................................... 2(b)
Net Worth........................................................... 2(b)
Oscar............................................................... Recitals
Parent.............................................................. Preamble
Parent Closing Consents............................................. Annex I,
Section 1.10
Parent Contracts.................................................... Annex I,
Section 1.8
Parent Minimum...................................................... 2(d)(iv)
Proposed Parent Schedules........................................... 3(c)
Proposed Purchaser Schedules........................................ 3(d)
Purchased Entity.................................................... Annex I,
Section 1.3
Purchaser........................................................... Preamble
Purchaser Acquisition Proposal...................................... 6(b)
Purchaser Balance Sheet............................................. Annex II,
Section 2.8
Purchaser Balance Sheet Date........................................ Annex II,
Section 2.8
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Purchaser Closing Consents......................................... Annex II,
Section 2.9
Purchaser Contracts................................................ Annex II,
Section 2.7
Purchaser Employee Benefit Plans................................... Annex II,
Section 2.25
Purchaser Existing Real Property Annex II,
Leases............................................................ Section 2.20
Purchaser Financial Statements..................................... Annex II,
Section 2.8
Purchaser Income Statement......................................... Annex II,
Section 2.8
Purchaser Intellectual Property.................................... Annex II,
Section 2.22
Purchaser Material Adverse Effect.................................. Annex II,
Section 2.1
Purchaser Material Contracts....................................... Annex II,
Section 2.13(a)
Purchaser Personal Property Leases................................. Annex II,
Section 2.21(b)
Rights Offering.................................................... 8(b)(i)
Shareholders Agreement............................................. 8(b)(ii)
Shareholders Meeting............................................... 2(d)
Swire/BFI.......................................................... 2(b)
Tax Return......................................................... 4(c)
Taxes.............................................................. 4(a)
Technical Cooperation Agreement.................................... 8(b)(iii)
Transaction Agreement.............................................. 2(a)
Transfer Taxes..................................................... 4(c)
U.S. GAAP.......................................................... 3(e)
</TABLE>
2. Purchase and Sale of Shares. (a) Each of the parties agrees
that it shall enter into a Transaction Agreement (the "Transaction Agreement"),
and such other local transfer agreements, as necessary, and Purchaser
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<PAGE> 7
shall, and Parent shall cause the relevant Selling Entity or Selling Entities
to, enter into a Traite d'Apport providing for the purchase by Purchaser and/or
one or more of its Subsidiaries and the sale by Parent and International of all
of the Shares and various intercompany loans, in consideration for the payment
to Parent (and/or Subsidiaries of Parent) of an aggregate of US$1 billion in
cash, payable in U.S. dollars (the "Cash Consideration") and the issuance to
Parent (and/or wholly owned Subsidiaries of Parent) of the number of Purchaser
Shares determined as set forth in Section 2(d) (the "Consideration Shares" and,
collectively with the Cash Consideration, the "Consideration"). It is
anticipated that the Shares and intercompany loans of Waste Care, Ltd. and BFI
Acquisition, Ltd. will be contributed pursuant to the Traite d'Apport. The
allocation of the Shares as between the Traite d'Apport and the Transaction
Agreement shall be adjusted, if necessary, by the parties prior to the execution
of the Traite d'Apport such that the value of the assets is sufficient to permit
the Commissaire aux Apports to issue a favorable report.
(b) Purchaser agrees that, at the closing of the transaction
(which is expected to occur on the last day of a calendar month) (the
"Closing"), (i) the amount of Net Short-term and Long-term Debt (as defined
below) of the International Subsidiaries (including the Oscar Joint Venture)
will be no higher than $215.5 million; and (ii) the amount of Net Worth (as
defined below) will be no lower than $262 million. For purposes of this
Agreement, "Net Short-term and Long-term Debt" shall mean the sum of (i) 100%
of the short-term and long-term debt of the International Subsidiaries other
than the Oscar Joint Venture and Swire/BFI Waste Services, Ltd. ("Swire/BFI"),
less 100% of the cash and marketable securities of such Subsidiaries, (ii) 50%
of (A) the short-term and long-term debt of the Oscar Joint Venture and its
consolidated Subsidiaries, less (B) the cash and marketable securities of the
Oscar Joint Venture and such Subsidiaries, and (iii) 50% of (A) the short-term
and long-term debt of Swire/BFI and its consolidated Subsidiaries, less (B) the
cash and marketable securities of Swire/BFI and loans by Swire/BFI to the Swire
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<PAGE> 8
group. Net Short-term and Long-term Debt shall exclude intercompany debt
transferred to the Purchaser pursuant to Section 2(c). For purposes of this
Agreement, "Net Worth" shall mean the difference of (i) the sum of shareholders
equity and intercompany loans of the International Subsidiaries (including
subordinated loans to the Oscar Joint Venture), and (ii) the amount of goodwill
of the International Subsidiaries. For purposes of applying the provisions of
this Section 2(b), the comparison of the amounts set forth herein and the
amounts for such items at Closing will be made on a constant currency basis and
the amounts for such items will be calculated based on a balance sheet prepared
in accordance with U.S. GAAP (as defined below). The Transaction Agreement will
provide for a post-closing adjustment in favor of Purchaser in the event that
any of the foregoing items is not satisfied. It is the intent of the Parties
that the foregoing provisions and post-closing adjustment operate to permit
Parent and International to retain the benefits of (or bear the cost of)
ordinary course net income (or losses) between the date of this Agreement and
the date of the Closing (the "Closing Date"). The foregoing provisions are not
intended to permit Parent and International to retain income generated outside
of the ordinary course of business (e.g., arising from a sale of assets out of
the ordinary course of business).
(c) At the Closing, Parent shall, and shall cause the Parent
Subsidiaries to, assign and transfer, for no additional consideration, all of
their respective rights as creditors with respect to indebtedness owed by the
International Subsidiaries, on the one hand, to Parent and the Parent
Subsidiaries which are not International Subsidiaries, on the other hand
(including the loan to the Oscar Joint Venture). At or prior to the Closing,
Parent shall, and shall cause the Parent Subsidiaries to, pay in full all
intercompany accounts which represent indebtedness of Parent or the Parent
Subsidiaries which are not International Subsidiaries owed to the International
Subsidiaries.
(d) The Closing Date of the transaction will be the date of
the extraordinary meeting of Purchaser's
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<PAGE> 9
shareholders (the "Shareholders Meeting") to approve the issuance of the
Consideration Shares and the Rights Offering (as defined below). It is
contemplated by the parties that at the Closing, Parent shall receive Purchaser
Shares having a value approximating as closely as possible, pursuant to the
following procedure, FF 2,700,000,000. In this regard, the Transaction Agreement
shall contain provisions to the following effect:
(i) There shall be determined a "Measuring Price" for a
Purchaser Share which shall be the average per share closing
price per share on the Paris Stock Exchange for the 15
trading days ending on the last trading day which is 21
calendar days, or the next earlier trading day, prior to the
date on which the assemblee generale of Purchaser
contemplated by this Agreement (and at which the Rights
Offering is to be approved) is to be held, such date being
herein referred to as the "Measuring Date".
(ii) The "Measuring Price" shall be the per share price at which
the Purchaser Shares are to be offered pursuant to the
Rights Offering.
(iii) If the Measuring Price is equal to or greater than FF 1,080
on the Measuring Date, the number of Purchaser Shares to be
issued to Parent on the Closing Date shall be fixed as that
number of whole Purchaser Shares (rounding to the nearest
whole number) equal to the quotient obtained by dividing FF
2,700,000,000 by the Measuring Price. Such number of shares
so determined shall be issued to Parent on the Closing Date.
(iv) If the number of Purchaser Shares to be issued to Parent on
the Closing Date pursuant to the foregoing procedure shall
be less than 15% of the outstanding Purchaser Shares (the
"Parent Minimum") after the consummation of the transactions
contemplated hereby and assuming
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<PAGE> 10
100% subscription ("Full Rights Subscription") of all
Purchaser Shares to be offered pursuant to the Rights
Offering, then either Parent or Purchaser shall have the
right to terminate (by action of their respective boards of
directors) the Transaction Agreement.
(v) If the Measuring Price is less than FF 1,080 on the
Measuring Date, Purchaser shall issue 2,500,000 Purchaser
Shares to Parent at Closing.
(vi) Lion, Purchaser and Parent agree that neither they nor any
of their respective Affiliates nor any other person under
the direction or at the request thereof shall, directly or
indirectly, effect purchases of Purchaser Shares during the
15 days prior to the Measuring Date.
(vii) Notwithstanding any provision to the contrary herein, if
following the issuance of the Purchaser Shares and assuming
Full Rights Subscription Lion would own less than 50.3% of
the outstanding Purchaser Shares, Lion shall have a right to
terminate this Agreement or the Transaction Agreement, as
the case may be.
(viii) Any determination by Purchaser or Parent, as the case may
be, to terminate the Transaction Agreement pursuant to the
foregoing provisions shall be exercised no later than five
business days after the Measuring Date.
(e) Parent and Purchaser agree that Purchaser will promptly
after the date hereof enter into and maintain a call option for US$1,000,000,000
at a price of not more than FF6 per US$1, exercisable at any time prior to the
Closing. Parent shall pay to Purchaser 27.5% of the cost of purchasing such call
option up to a maximum of US$2,000,000 no later than (i) the Closing, or (ii)
three days following the termination of this Agreement or the Transaction
Agreement, as the case may be. In the event of the
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<PAGE> 11
termination of this Agreement or the Transaction Agreement, Purchaser shall sell
such call option and shall pay 27.5% of the net proceeds of such sale (if any)
to Parent up to a maximum of US$2,000,000.
3. Representations, Due Diligence and Conditions to the
Transaction Agreement. (a) The Transaction Agreement shall contain
representations by Parent and International as set forth in Annex I and of
Purchaser as set forth in Annex II, in each case with schedules included to
qualify, where appropriate, such representations
(b) Immediately following the execution of this Agreement,
Purchaser shall commence a 70-day due diligence review of the International
Subsidiaries and Parent shall commence a 70-day due diligence review of
Purchaser. Parent, International and Purchaser, as the case may be, shall
cooperate in full with such due diligence review and shall grant (and cause
their Subsidiaries to grant) reasonable access to their facilities, personnel,
books and records to the other Party and its investment bankers, accountants,
attorneys and other advisors in connection with such review.
(c) Prior to the fortieth day following the date of this
Agreement, Parent shall deliver to Purchaser a complete set of schedules
proposed to be appended to the Transaction Agreement in respect of Parent's
representations therein (the "Proposed Parent Schedules"). If (i) the Proposed
Parent Schedules or any amendments or supplements thereof (including the final
versions of the Schedules) refer to matters concerning the International
Subsidiaries, or there otherwise come to Purchaser's attention after the date
hereof as a result of Purchaser's due diligence review any other matters
concerning the International Subsidiaries which should be included in Parent's
Schedules, which in the aggregate have caused or resulted, or could reasonably
be expected to cause or result, in losses, claims, damages or liabilities not
specifically reserved for in the International Financial Statements in an amount
in excess of $25,000,000, or (ii) the Proposed Parent Schedules or any
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<PAGE> 12
amendments or supplements thereto (including the final versions of the
Schedules) refer to, or there otherwise come to Purchaser's attention, any
non-competition agreements to which the International Subsidiaries are a party
that may extend to the operations of Purchaser or Lion which, in Purchaser's or
Lion's commercially reasonable judgment could have a material adverse effect on
the ability of either Purchaser or Lion to conduct its business as currently
conducted, then, in either such case, Purchaser shall have the right to
terminate this Agreement by giving notice to Parent within 70 days of the date
of this Agreement. Parent shall not amend or supplement the disclosure schedules
to the Transaction Agreement on or following the seventieth day following the
date of this Agreement.
(d) Prior to the fortieth day following the date of this
Agreement, Purchaser shall deliver to Parent a complete set of schedules
proposed to be appended to the Transaction Agreement in respect of Purchaser's
representations therein (the "Proposed Purchaser Schedules"). If the Proposed
Purchaser Schedules or any amendments or supplements thereof (including the
final versions of the Schedules) refer to matters concerning Purchaser, or there
otherwise come to Parent's attention after the date hereof as a result of
Parent's due diligence review any other matters concerning Purchaser which
should be included in Purchaser's Schedules, which have, in either case, not
theretofore been publicly disclosed with sufficient time so that the Market
Price of the Purchaser Shares to be delivered at Closing reflects information
concerning such matters and such matters, in the aggregate, have caused or
resulted, or could reasonably be expected to cause or result, in losses, claims,
damages or liabilities not specifically reserved for in the Purchaser Financial
Statements in an amount in excess of $25,000,000, Parent shall have the right to
terminate this Agreement by giving notice to Purchaser within 70 days of the
date of this Agreement. Purchaser shall not amend or supplement the disclosure
schedules to the Transaction Agreement on or following the seventieth day
following the date of this Agreement.
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<PAGE> 13
(e) In addition to the provisions of Section 3(b), during the
70-day period following the date of this Agreement, an internationally
recognized firm of auditors independent of Parent and the Parent Subsidiaries
and retained by Purchaser (the "Auditors") shall conduct an examination of the
financial statements, books and records of the Selling Entities and the
International Subsidiaries. Parent and International shall, and shall cause the
Parent Subsidiaries to, cooperate in full with such examination and shall grant
(and cause the Parent Subsidiaries to grant) the Auditors reasonable access to
their facilities, personnel, books and records in connection with such
examination. If the Auditors shall issue a written determination that either (i)
the amount of Net Worth as of September 30, 1997 determined in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP") is
10% or more less than $274 million (i.e., the U.S. GAAP Net Worth at September
30, 1997) or (ii) the amount of Net Worth as of September 30, 1997 determined in
accordance with French GAAP is 10% or more less than $284 million (i.e., the
French GAAP Net Worth at September 30, 1997), then Purchaser shall have the
right to terminate this Agreement by giving notice to Parent within 80 days of
the date hereof. In making such Net Worth determination, the Auditors shall use
the same French accounting principles as those previously communicated to Parent
by Purchaser (including, for example, goodwill amortization periods, depreciable
lives and methods, treatment of lease obligations, proportional consolidation in
Germany, treatment of general environmental reserves and municipal receivables
in Spain and nonrecognition of goodwill of Oscar Affiliates) and refrain from
making judgmental adjustments without an objective basis in fact, including
adjustments relating to environmental matters, loss contracts, receivable
reserves and goodwill realization. Such principles shall be set forth in a
written protocol furnished to Parent by Purchaser as promptly as possible
following the date hereof and approved by Purchaser, such approval not to be
unreasonably denied or withheld. Any adjustments associated with Australia,
Finland and New Zealand shall be taken into account only to the extent such
adjustments are in excess of $4,000,000. In the event that the difference in Net
Worth in U.S. GAAP or
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<PAGE> 14
French GAAP is greater than 10% but less than 15%, Parent shall have the right,
but not the obligation, to increase the target Net Worth at Closing for purposes
of Section 2(b) by the greater of (i) the difference between $274 million and
Net Worth as of September 30, 1997, determined in accordance with U.S. GAAP, and
(ii) the difference between $284 million and Net Worth as of September 30, 1997,
determined in accordance with French GAAP. The provisions of this Section 3(e)
shall not affect Purchaser's rights under Section 2(b) of this Agreement.
(f) It shall be a condition precedent to each party's
execution of the Transaction Agreement that a commercial bank of national
standing in the United States or international standing in Europe shall have
issued to Purchaser a letter in customary form stating that it is "highly
confident" (or similar wording) that Purchaser will be able to borrow an
aggregate amount equivalent to or greater than $600 million from a commercial
bank or commercial banks on terms and subject to conditions customarily extended
to borrowers of size and creditworthiness similar to Purchaser, assuming (for
purposes of determining the size and creditworthiness of Purchaser) that the
transactions contemplated by this Agreement have been consummated.
4. Tax Matters. (a) Parent's Indemnification of Purchaser. The
Transaction Agreement shall provide that Parent and International shall be
liable for and shall indemnify and hold harmless Purchaser and its Affiliates
from, against and in respect of (i) any taxes (including without limitation,
income, gross receipts, windfall profits, gains, excise, severance, property,
production, sales, value added, use, transfer, license, franchise, employment,
withholding, capital, wage or similar taxes or assessments, together with
interest, additions or penalties with respect thereto and any interest in
respect of such interest, additions or penalties (collectively, "Taxes")),
imposed with respect to the Selling Entities, (ii) any Taxes imposed with
respect to any of the International Subsidiaries for the taxable periods, or
portions thereof, ended on or before the Closing Date, and (iii) any Transfer
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<PAGE> 15
Taxes for which Parent is liable pursuant to Section 4(c) hereof, except with
respect to clauses (i) and (ii), Tax liabilities (A) previously paid, or (B)
previously reserved for and reflected in the International Financial Statements.
(b) Purchaser's Indemnification of Parent. The Transaction
Agreement shall provide that Purchaser shall indemnify and hold harmless Parent
and its Affiliates (other than the International Subsidiaries) from, against and
in respect of any Taxes imposed with respect to any of the International
Subsidiaries for any taxable period, or portion thereof, beginning after the
Closing Date.
(c) Transfer Taxes. All excise, sales, use, transfer, stamp,
documentary, filing, recording and other similar taxes and fees which may be
imposed or assessed as a result of the transactions effected pursuant to this
Agreement or the Transaction Agreement, together with any interest, additions or
penalties with respect thereto and any interest in respect of such interest,
additions or penalties ("Transfer Taxes"), shall be borne by Parent. Any return,
declaration, report, claim for refund or information return or statement
thereto, including any amendment thereof, relating to Taxes (each, a "Tax
Return") that must be filed in connection with Transfer Taxes shall be (i)
prepared and filed when due by the party primarily or customarily responsible
under the applicable local law for filing such Tax Return, (ii) prepared on a
basis that is consistent with the allocation of the Consideration determined
hereunder and (iii) provided to the other party at least 10 days prior to the
applicable due date.
(d) Cooperation. The Parties agree to negotiate in good faith
with respect to the provisions of the Transaction Agreement concerning
preparation of Tax Returns, conducting of Tax audits and contesting of Tax
disputes and cooperation with respect to Tax matters generally.
5. Interim Operations of International. (a) Parent and
International covenant and agree that, from the date hereof and prior to the
Closing (unless Purchaser shall
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<PAGE> 16
have previously consented in writing and except as specifically provided by this
Agreement), International and the International Subsidiaries will not take any
of the actions described in Section 1.13 of Annex I.
(b) Purchaser covenants and agrees that, from the date hereof
and prior to the Closing (unless Parent shall have previously consented in
writing and except as specifically provided by this Agreement), Purchaser will
not take any of the actions described in Section 2.12 of Annex II.
(c) Until the Closing, Parent shall furnish to Purchaser
copies of interim monthly financial statements for International and the
International Subsidiaries (prepared in accordance with U.S. GAAP and, no less
frequently than each fiscal quarter, prepared for International and the
International Subsidiaries for such fiscal quarter on a combined basis) as soon
as practicable but in any event within 35 days after the end of each month or
quarter, as the case may be, together with any information ordinarily prepared
in connection with such financial statements. All such interim financial
statements shall fairly present in all material respects in accordance with U.S.
GAAP the separate company, combined or consolidated, as the case may be,
financial position of International and the International Subsidiaries covered
thereby at the respective dates thereof, and the results of their separate
company or consolidated, as the case may be, operations, stockholders' equity
and cash flows for International and the International Subsidiaries covered
thereby for the respective periods covered thereby, subject to year-end
adjustments (consisting of normal recurring accruals) and the omission of
explanatory footnote materials required by U.S. GAAP. Parent shall, and shall
cause its accountants to, assist Purchaser in translating all financial
statements provided pursuant to this Section into French GAAP.
(d) Until the Closing, Purchaser shall furnish to Parent
copies of such interim monthly financial statements for Purchaser (prepared in
accordance with French
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<PAGE> 17
GAAP and, no less frequently than each fiscal quarter, prepared for Purchaser
for such fiscal quarter on a combined basis) as it prepares in the ordinary
course of its business, as soon as practicable but in any event within 35 days
after the end of each month or quarter, as the case may be, together with any
information ordinarily prepared in connection with such financial statements. To
the extent that such financial statements include balance sheets, all such
interim financial statements shall fairly present in all material respects in
accordance with French GAAP the financial position of Purchaser covered thereby
at the respective dates thereof, and, to the extent that such financial
statements include income statements and cash flow statements, the results of
consolidated operations, stockholders' equity and cash flows for Purchaser
covered thereby for the respective periods covered thereby, subject to year-end
adjustments (consisting of normal recurring accruals) and the omission of
explanatory footnote materials required by French GAAP. Purchaser shall, and
shall cause its accountants to, assist Parent in translating all financial
statements provided pursuant to this Section into U.S. GAAP.
(e) Until the Closing, Parent and International shall cause
the International Subsidiaries to have sufficient working capital to allow the
International Subsidiaries to maintain their working capital at prudent levels
which are sufficient to support their continued operations in the ordinary
course of their business and consistent with past practices.
(f) Parent agrees that it will not consent to any transfer of
an interest in the Oscar Joint Venture by any other shareholder in the Oscar
Joint Venture. Parent further agrees that, from September 30, 1997 through the
date of Closing, Parent and the Parent Subsidiaries have not taken, accepted or
received and will not take, accept or receive any dividends or distributions
paid in cash, stock or other assets in respect of its interest in the Oscar
Joint Venture or any payment of interest in respect of indebtedness owed by the
Oscar Joint Venture to Parent or the Parent Subsidiaries unless all such amounts
have been or
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<PAGE> 18
will be loaned to the Oscar Joint Venture and will constitute intercompany loans
transferred to Purchaser without any additional consideration at the Closing.
6. Acquisition Proposals. (a) Parent agrees that, except as
otherwise agreed among the parties, neither Parent nor any Parent Subsidiaries
nor any of the respective employees, officers, directors, agents or
representatives (including counsel, financial advisors and accountants) of
Parent or the Parent Subsidiaries shall, and Parent shall cause such Persons not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to stockholders of Parent or any Parent Subsidiary) with respect to a
merger, consolidation, acquisition, disposition or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities or ownership interests of, International or any
International Subsidiary (any such proposal or offer being hereinafter referred
to as an "International Acquisition Proposal"), or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an International Acquisition Proposal,
or otherwise facilitate any effort or attempt to make or implement an
International Acquisition Proposal. Parent shall immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. Parent shall
take all necessary steps to inform the Persons referred to in the first sentence
of this Section of the obligations undertaken by Parent in this Section. Parent
shall notify Purchaser immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with Parent, any Parent
Subsidiary or, to its knowledge, any of the Persons referred to in the first
sentence of this Section. Parent shall promptly request each Person which has
heretofore executed a confidentiality agreement in connection with its
consideration of acquiring any assets, liabilities and/or equity securities or
ownership interests
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<PAGE> 19
of International or any International Subsidiary to return all confidential
information heretofore furnished to such person by or on behalf of Parent or any
Parent Subsidiary.
(b) Purchaser and Lion agree that, except as otherwise agreed
among the parties, neither Purchaser, Lion nor any of their respective
Subsidiaries nor any of their respective employees, officers, directors, agents
or representatives (including counsel, financial advisors and accountants)
shall, and Purchaser and Lion shall cause such Persons not to, initiate, solicit
or encourage, directly or indirectly, any inquiries or the making of any
proposal or offer (including, without limitation, any proposal or offer to
stockholders of Purchaser, Lion or any of their respective Subsidiaries) with
respect to a merger, consolidation, acquisition, disposition or similar trans
action involving, or any purchase of all or any significant portion of the
assets or of the equity securities or ownership interests of Purchaser (any such
proposal or offer being hereinafter referred to as a "Purchaser Acquisition
Proposal"), or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any Person
relating to a Purchaser Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement a Purchaser Acquisition Proposal. Lion and
Purchaser shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. Lion and Purchaser shall take all
necessary steps to inform the Persons referred to in the first sentence of this
Section of the obligations undertaken by Lion and Purchaser in this Section.
Lion and Purchaser shall notify Parent immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with
Purchaser, Lion, any of their respective Subsidiaries or, to its knowledge, any
of the Persons referred to in the first sentence of this Section. Purchaser and
Lion shall promptly request each Person which has heretofore executed a
confidentiality agreement in connection with its consideration of acquiring any
assets, liabilities and/or equity securities
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<PAGE> 20
or ownership interests of Purchaser to return all confidential information
heretofore furnished to such person by or on behalf of Purchaser, Lion or any of
their respective Subsidiaries.
7. Meeting of Purchaser's Shareholders. The Transaction
Agreement shall provide that Purchaser shall take, consistent with applicable
law and its statuts, all action necessary to convene a special meeting of its
shareholders as promptly as practicable to consider and vote upon the approval
of the issuance of the Consideration Shares as well as the Rights Offering and
Debt Offering.
8. Certain Transactions. (a) Prior to the Closing, Purchaser
shall use its best efforts, subject to market conditions, to borrow an aggregate
amount equivalent to US$600,000,000 from a commercial bank or commercial banks
on terms and subject to conditions customarily extended to borrowers of size and
creditworthiness similar to Purchaser.
(b) Prior to or contemporaneously with the Closing:
(i) Purchaser shall take, consistent with applicable law and
its statuts, all actions necessary to commence, on the Closing Date, a rights
offering to raise approximately FF 2.4 billion from its existing shareholders
(the "Rights Offering").
(ii) Parent and Lion shall execute and deliver, each to the
other, a Shareholders Agreement in the form set forth in Annex B (the
"Shareholders Agreement").
(iii) Parent and Purchaser shall execute and deliver, each to
the other, a Technical Cooperation Agreement on the terms set forth in Annex C
(the "Technical Cooperation Agreement").
(iv) Parent shall assign to Purchaser the benefits (including
the benefits of any indemnification provisions) of each agreement, instrument,
contract or arrangement executed within the last five years pursuant to
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<PAGE> 21
which Parent or any Parent Subsidiary acquired any assets, liabilities or
operations of the International Subsidiaries having a value of $5,000,000 or
more in the aggregate (collectively, the "Acquisition Documents") to the extent
that the Acquisition Documents relate to any assets, liabilities and operations
of the International Subsidiaries.
(v) Prior to Closing, Parent shall, or shall cause a
Subsidiary to, acquire all shares of Browning-Ferris Industries Iberica S.A. not
currently held by Parent or its Subsidiaries. In connection with such
transaction, Parent may cause Browning-Ferris Industries Iberica S.A. to reverse
the minority interest reserves included in its balance sheet at September 30,
1997 in respect of the acquisition of such interest.
(vi) Without the prior written consent of Purchaser, Parent
shall cause the International Subsidiaries not to prepay and refinance long-term
indebtedness with short-term indebtedness.
9. Regulatory Approvals. The Parties shall use their
respective best efforts to obtain all necessary regulatory consents and to
cooperate fully with each other in seeking to obtain such consents.
10. Conditions. Annex III sets out the conditions to the
obligations of all Parties to consummate the transactions contemplated by the
Transaction Agreement. Annex IV sets out the conditions to the obligations of
Parent and International to consummate the transactions contemplated by the
Transaction Agreement. Annex V sets out the conditions to the obligations of
Purchaser to consummate the transactions contemplated by the Transaction
Agreement. The Transaction Agreement shall not provide other conditions to be
satisfied.
11. Survival and Indemnification. The Transaction Agreement
shall provide for the survival of certain representations and indemnification
among the parties as set forth in Annex VI.
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<PAGE> 22
12. Publicity. The initial press release concerning the
matters contemplated by this Agreement shall be a joint press release and
thereafter Parent and Purchaser shall consult with each other prior to issuing
any press releases or otherwise making public statements with respect to the
transactions contemplated hereby and prior to making any filings with any court,
tribunal, arbitrator, arbitration panel, or any governmental, administrative, or
regulatory authority, agency, commission, or body or similar entity
("Governmental Entity") or with any securities exchange with respect thereto.
Notwithstanding the foregoing, any party shall have the right to make such
disclosure of the matters contemplated by this Agreement as is required under
applicable law, provided, however, that the disclosing party shall give the
other parties reasonable prior notice of each such disclosure.
13. Amendment and Waiver. Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Purchaser and Parent, or in the case of
a waiver, by the party against whom the waiver is to be effective. No failure or
delay by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
14. Assignment. No party to this Agreement may assign any of
its rights or obligations under this Agreement without the prior written consent
of the other party hereto.
15. Entire Agreement. This Agreement (including all Schedules
and Annexes hereto) contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements
and understandings, oral or written, with respect to such matters, which will
remain in full force and effect for the term provided for therein.
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<PAGE> 23
16. Counterparts. This Agreement and any amendments hereto may
be executed in one or more counterparts, each of which shall be deemed to be an
original, and all of which shall be considered one and the same instrument.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE REPUBLIC OF FRANCE WITHOUT
REFERENCE TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
18. Resolution of Disputes. Any dispute between the parties
arising out of this Agreement, whether as to this Agreement's construction,
interpretation or enforceability or as to any party's breach or alleged breach
of any provision of this Agreement, shall be submitted to final and binding
arbitration in accordance with the following procedures:
(a) Any party may demand such arbitration by giving written
notice of that demand to the other party. Any such arbitration shall be before a
panel of three arbitrators, one selected by Parent, one selected by Purchaser
and the third (who shall serve as chairman of the tribunal) selected by the
agreement of each of the two arbitrators selected by the parties in the manner
set forth in Section 18(b). The notice pursuant to this Section 18(a) shall
state (x) the matter in controversy and (y) the name of the arbitrator selected
by the party giving the notice.
(b) Not more than 15 days after notice is given pursuant to
Section 18(a), the other party shall give written notice to the party who
demanded arbitration of the name of an arbitrator selected by the other party.
If the other party shall fail to give such notice within such 15 day period, a
second arbitrator shall be selected in accordance with the Arbitration Rules of
the International Chamber of Commerce (the "Arbitration Rules"). Not more than
30 days after the second arbitrator is so named, the two arbitrators shall
select a third arbitrator. If the two arbitrators shall fail to select a third
arbitrator within such 30 day period, the third arbitrator shall be named
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<PAGE> 24
pursuant to the Arbitration Rules. All arbitrators shall be fluent in English
and French.
(c) The dispute shall be arbitrated at a hearing to be
conducted in French, although documents may be submitted in English or French.
The arbitration shall take place in Geneva or such other place as the parties
agree and shall be concluded as soon as practicable in accordance with the
Arbitration Rules. Any award, which may be made by a majority of the
arbitrators, shall be made as soon as possible following the conclusion of the
arbitration and shall be conclusive and binding on the parties and may be
entered as a judgment of any court having jurisdiction.
(d) Each party shall bear half the arbitrators' fees and
expenses and administrative expenses of the arbitration and its own legal and
other costs.
The agreement of the parties contained in the foregoing provisions of Section 18
shall be a complete defense to any action, suit or other proceeding instituted
in any court or before any administrative tribunal with respect to any dispute
between the parties arising out of this Agreement.
19. Board of Directors. This Agreement is subject to approval
by the Board of Directors of Parent, and Parent providing evidence thereof to
Purchaser, not later than November 10, 1997.
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<PAGE> 25
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the date first written above.
BROWNING-FERRIS INDUSTRIES, INC.
By:
-------------------------------------
Name:
Title:
BFI INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
SUEZ LYONNAISE DES EAUX, S.A.
By:
-------------------------------------
Name:
Title:
SITA, S.A.
By:
-------------------------------------
Name:
Title:
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<PAGE> 26
ANNEX A
List of International Subsidiaries
A-1
<PAGE> 27
ANNEX B
Shareholders Agreement
B-1
<PAGE> 28
SHAREHOLDERS AGREEMENT
This Shareholders Agreement dated as of __________, 1998
between Browning-Ferris Industries, Inc., a corporation formed under the laws of
the State of Delaware, U.S.A. ("Blue") and Suez Lyonnaise des Eaux, S.A., a
societe anonyme formed under the laws of France ("Lion"), relating to SITA,
S.A., a societe anonyme formed under the laws of France ("Solid").
WHEREAS, Blue, Lion and Solid are parties to a Transaction
Agreement dated _________, 1998 (the "Transaction Agreement") providing, inter
alia, (i) for the sale and exchange on the Closing Date (as defined therein) of
certain stock held directly and indirectly by Blue, as set forth in the
Transaction Agreement, for the consideration specified therein, and (ii) the
undertaking by Solid of a capital increase through a rights offering (the
"Rights Offering") to its existing shareholders on the terms specified in the
Transaction Agreement;
WHEREAS, the parties anticipate that following the
consummation of the transactions contemplated in the Transaction Agreement,
including the Rights Offering, Lion will own [ ]% of the outstanding capital
stock of Solid and Blue will own [ ]% of the outstanding capital stock of Solid;
and
WHEREAS, Blue and Lion have agreed that they will participate
in the ownership of Solid, attend to its management and have such other
relationships with each other and with respect to Solid in accordance with, and
in the manner, contemplated hereby.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants herein contained, Blue and Lion agree as follows:
1. DEFINITIONS. For purposes of this Shareholders Agreement:
(a) "Affiliate" means with respect to any Person, each other
Person that directly or indirectly (through one or more intermediaries or
otherwise) controls, is controlled by or is under common control with such
Person.
(b) "Arbitration Rules" shall have the meaning specified in
Section 4(b).
<PAGE> 29
(c) "Blue" shall have the meaning specified in the preamble of
this Shareholders Agreement.
(d) "Blue Nominees" shall have the meaning specified in
Section 2(a).
(e) "Board" means the conseil d'administration of Solid.
(f) "Change in Control" shall have the meaning specified in
Section 3(e).
(g) "Consultation Period" shall have the meaning specified in
Section 2(c).
(h) "Discussion Matter" shall have the meaning specified in
Section 2 (d).
(i) "Lion" shall have the meaning specified in the preamble of
this Shareholders Agreement.
(j) "Lock-Up Period" shall have the meaning specified in
Section 3(b).
(k) "Market Value" per Solid Share for purposes of this
Shareholders Agreement means the average of the closing price for the shares of
Solid on the 20 trading days on the Bourse de Paris ending on the trading day
immediately preceding the date on which such Market Value is being determined,
provided, however, if less than 20% of the outstanding Solid Shares are held by
Persons other than Blue and Lion and other than Persons who hold in excess of 5%
of the Solid Shares (other than investment funds, mutual funds and institutional
investors), Market Value shall be determined in accordance with Section 6.
(l) "Minimum Number" shall have the meaning specified in
Section 2(a).
(m) "Other Matter" shall have the meaning specified in Section
2(d).
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<PAGE> 30
(n) "Person" (i) means any natural person, corporation,
company, limited or general partnership, joint stock company, joint venture,
association, limited liability company, trust, bank, trust company, land trust,
business trust or other entity or organization organized or existing under any
law and (ii) shall, for purposes of the definition of "Change in Control" in
Section 3(e) only, also mean, as a single Person, any group or syndicate of
Persons, as defined by clause (i) hereof, acting in concert for the purpose of
acquiring, holding or disposing of securities of any other Person, as defined in
such clause (i).
(o) "Principals" means Blue and Lion and their respective
successors and assigns.
(p) "Prohibited Transferee" shall have the meaning specified
in Section 3(b).
(q) "Rights Offering" shall have the meaning specified in the
preamble of this Shareholders Agreement.
(r) "Significant Matter" shall have the meaning specified in
Section 2(d).
(s) "Solid" shall have the meaning specified in the preamble
of this Shareholders Agreement.
(t) "Solid Shares" means the ordinary shares, FF 50 par value,
of Solid.
(u) "Statuts" means the Statuts of Solid as in effect from
time to time.
(v) "Strategic Committee" means the committee of the Board
referred to in Section 2(c).
(w) "Subsidiary" means, with respect to any Person, any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person, are held by the
Person or one or more of its Subsidiaries.
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<PAGE> 31
(x) "Transaction Agreement" shall have the meaning specified
in the preamble of this Shareholders Agreement.
(y) "Transfer" shall have the meaning specified in Section
3(b).
(z) "Wholly-Owned Subsidiary" means, with respect to a Person,
a Subsidiary of such Person all of the capital stock of which (other than
directors' qualifying shares) is owned by such Person.
2. MANAGEMENT OF SOLID.
(a) For so long as Blue holds 10% or more of the outstanding
Solid Shares (but subject to Section 2(h) below), Blue shall be entitled to
designate from time to time a number of Board members (the "Blue Nominees")
equal to the greater of (i) two and (ii) the largest whole number (the "Minimum
Number") that does not exceed 20% of the total number of Board members. In the
event that any of such Blue Nominees shall cease to serve as a director for any
reason, Lion and Blue agree, in their capacity as shareholders of Solid, to
cause the vacancy resulting thereby, subject to the terms of this Shareholders
Agreement, with a person designated by Blue (and such person shall be a "Blue
Nominee" for purposes hereof). Notwithstanding the foregoing, Lion shall not
have any obligation to support the nomination, recommendation or election of any
Blue Nominee pursuant to this Section 2(a) if Blue has acquired any Solid Shares
in violation of the terms of this Shareholders Agreement or otherwise materially
breached its obligations hereunder. The Principals agree that, during the term
of this Shareholders Agreement, they will vote their respective Solid Shares at
any meeting of shareholders of Solid at which directors are to be elected for
the number of Blue Nominees, if any, necessary so that following such election
of directors not fewer than the Minimum Number of Blue Nominees are serving on
the Board.
(b) Upon the termination of this Shareholders Agreement or in
the event of a breach of the terms hereof by Blue at any time, Blue shall have
no further rights under this Section 2 and shall cause all Blue Nominees on the
Board to resign promptly from the Board and any committees thereof. In addition,
if at any time Blue directly or indirectly owns Solid Shares representing less
than 10% of the outstanding Solid Shares, Blue shall cause to resign promptly
from the Board that number of Blue Nominees as shall exceed the number of
directors that Blue would then be entitled to designate pursuant to Section 2(a)
(i) or Section 2(a) (ii), as the case may be, provided, however, that if Blue is
entitled to acquire additional Solid Shares pursuant to Section 2(h), the Blue
Nominees shall not be required to resign until the passage of the 30-day notice
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<PAGE> 32
period under Section 2(h) or, if notice is given pursuant to Section 2(h), until
the passage of the 180-day acquisition period under Section 2(h) in the event
that following the passage of such period Blue's ownership of Solid Shares
remains less than 10%.
(c) The Principals agree that, at any time Blue is entitled to
have Blue Nominees serve on the Board, all Significant Matters, Other Matters
and Discussion Matters shall be submitted to the Board for the prior approval by
the Board. The Principals further agree that the Board will establish a
"Strategic Committee" of the Board made up of two members of the Board
designated by Lion, one member of the Board designated by the Chief Executive
Officer of Solid and, for so long as Blue owns at least 10% of the outstanding
Solid Shares (but subject to Section 2(h)), one member of the Board who is a
Blue Nominee. Any party may designate any individual to substitute for any of
its representatives on the Strategic Committee at any meeting at which any such
representative does not attend, provided, that any such substitute need not
otherwise be a member of the Strategic committee.
The member of the Strategic Committee designated by the Chief
Executive Officer of Solid will be the Chairman of the Strategic Committee and
the member of the Strategic Committee designated by Blue will be the
Vice-Chairman of the Strategic Committee.
Unless the Strategic Committee unanimously determines not to
consider a Significant Matter, Other Matter or Discussion Matter, each
Significant Matter, Other Matter and Discussion Matters must be approved by the
Strategic Committee of the Board in accordance with the procedures set forth in
this Section 2(c) prior to proposal to the Board for its consideration,
provided, however, that if the Strategic Committee does not act on a Significant
Matter, Other Matter or Discussion Matter within seven days of notice being
given in accordance with this Section to consider any such Significant Matter,
Other Matter or Discussion Matter, the Board shall be free to vote on any such
issue without the prior vote of the Strategic Committee.
In the event that the Blue designee to the Strategic Committee
has voted against adoption of a proposal with respect to a Significant Matter or
an Other Matter that has been approved by a majority of the members present at a
meeting of the Strategic Committee, then, prior to submission of such
Significant Matter or Other Matter to the Board for approval, Blue and Lion
shall consult in good faith for a period of 30 days (the "Consultation Period")
in an effort to reach agreement on how to proceed with respect to such
Significant Matter or Other Matter. Following such Consultation Period with
respect to such Significant Matter or Other Matter, the Significant Matter or
Other Matter shall be resubmitted to the Strategic Committee for consideration
and, if approved by a
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<PAGE> 33
majority of the members present at the meeting of the Strategic Committee, may
then be submitted to the Board for consideration. The foregoing provisions shall
not apply to Discussion Matters.
Meetings of the Strategic Committee may be called at any time
by the Board, the Chairman of the Strategic Committee or the Vice-Chairman of
the Strategic Committee. Meetings of the Strategic Committee may be held at any
time, in Paris or any other place as the Chairman of the Strategic Committee and
the Vice-Chairman of the Strategic Committee shall mutually agree. Reasonable
notice of meetings of the Strategic Committee (taking into account the urgency
of the matter to be considered) shall be given by the person or persons calling
the meeting. Members of the Strategic Committee may participate in a meeting of
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting shall constitute presence in person
at such meeting. At all meetings of the Strategic Committee a majority of the
entire Strategic Committee shall constitute a quorum for the transaction of
business, provided that at least one of the members present is a Blue designee.
The vote of a majority of the members of the Strategic Committee present at a
meeting at which a quorum is present shall be the act of the Strategic
Committee. In case at any meeting of the Strategic Committee a quorum shall not
be present, the members of the Strategic Committee present may adjourn the
meeting from time to time until a quorum shall attend. Any action required or
permitted to be taken at any meeting of the Strategic Committee may be taken
without a meeting if all members of the Strategic Committee consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Strategic Committee.
The validity, authorization or enforceability of any contract,
agreement or instrument entered into by Solid or any of its Subsidiaries shall
not be affected by the operation of this Section 2.
(d) A "Significant Matter" shall mean any action, or failure
to act, taking or having the effect of any of the following:
(i) Approval of the annual operating and capital
budgets of Solid for any year;
(ii) Approval of the acquisition, regardless of the
form thereof, by Solid or any Solid Subsidiary of the assets or
securities of another Person for consideration greater than $50 million
in value;
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<PAGE> 34
(iii) Approval of the entry by Solid or any Solid
Subsidiary into any joint venture, partnership, strategic alliance,
merger or other business combination with another Person pursuant to
which the value of the consideration paid or received by Solid (or the
Solid Subsidiary) is greater than $50 million in value;
(iv) Approval of the sale or other divestiture of
assets of Solid or a Solid Subsidiary either (i) having a book value at
the time of sale or divestiture of greater than $50 million, (ii) for
consideration greater than $50 million or (iii) for consideration less
than the fair market value of the assets proposed to be sold or
divested (as determined in the sole discretion of the Board) or for no
consideration;
(v) A decision by the Board or the shareholders of
Solid to issue or authorize the issue of equity securities of, or any
other derivative security or financial instrument giving a right to an
equity participation in, Solid, in any case in an amount in excess of
$100 million or, in the case of a capital increase reserved to Lion or
any Affiliate of Lion, in any amount in excess of $10 million,
provided, however, that a proposed issuance of equity securities, or
such derivative securities or financial instruments, in excess of $100
million shall be deemed not to be a Significant Matter if Blue is given
the opportunity to subscribe for its pro rata share of such securities
(based on its percentage ownership of Solid's capital) of such
issuance;
(vi) Presenting resolutions to the shareholders to
approve an amendment of Solid's Statuts; and
(vii) Approval of any agreement as to any transaction
or series of related transactions between Solid (or any Subsidiary
thereof) and Blue or any Subsidiary or Affiliate of Blue or between
Solid (or any Subsidiary thereof) and Lion or any Subsidiary or
Affiliate of Lion involving consideration or value which is greater
than $10 million or the term of which exceeds one year or that is on
terms which are less favorable to Solid (or any Subsidiary thereof)
than could be obtained in arm's-length dealings with an independent
third party (as determined in the sole discretion of the Board).
An "Other Matter" shall mean any determination by Solid to
enter a new line of business, provided that (i) entering into a business related
or incidental to Solid's existing business operations shall be deemed not to be
entering into a new line of
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<PAGE> 35
business and (ii) this provision shall not apply to a new line of business if
the aggregate expenditure by Solid involved in entering into such new line of
business is less than $50 million.
A "Discussion Matter" shall mean (i) a proposal by the
management of Solid to expand its Waste Business into new countries or (ii)
establishment of rates of return criteria for the operations of Solid.
(e) All meetings of the Board and of the Strategic Committee
may be conducted in French. Blue Nominees shall be entitled to be accompanied at
such meetings by a translator if they desire.
(f) Blue and Lion shall each be present, and shall cause any
of their respective Affiliates that hold Solid Shares to be present, in person
or by proxy, at all meetings of Solid shareholders. Blue and Lion agree that,
for a period of 10 years, to the extent permitted by applicable law, they shall
cast their votes at all meetings of shareholders in favor of the resolutions
submitted by the Board. No vote by Blue at a shareholders meeting with respect
to an item that constitutes a Significant Matter or Other Matter shall be deemed
to constitute a waiver by Blue of its rights under Section 3(d) with respect to
such Significant Matter or Other Matter. Lion and Blue shall vote its shares in
favor of the other's nominees to the Board.
(g) In the event Lion materially breaches any significant
obligation (i) to present Significant Matters or Other Matters to the Strategic
Committee or the Board or (ii) to vote its Solid Shares in support of the Blue
Nominees, each in accordance with the terms of this Section 2, Blue shall
promptly give Lion written notice thereof and if Lion does not cure such breach
within 30 days of such notice from Blue, Blue shall have the right at its option
to put all, but not less than all, of its Solid Shares to Lion at 110% of the
Market Value of such Solid Shares. The rights set forth in this subsection (g)
shall be in addition to any remedy Blue may otherwise have.
(h) For purposes of Sections 2(a) and 2(c), Blue shall not be
deemed to own 10% of the Solid Shares in the event that Blue has at any time
Transferred Solid Shares such that, following such Transfer, Blue owns less than
10% of the Solid Shares (whether or not Blue thereafter acquires additional
Solid Shares). In the event that, as a result of an issuance of additional Solid
Shares or as a result of a stock split, reclassification or other
recapitalization of Solid, Blue's ownership of Solid Shares decreases to below
10%, Blue shall notify Solid in writing within 30 days of such issuance, stock
split, reclassification or recapitalization whether Blue intends to acquire
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<PAGE> 36
additional Solid Shares to increase its ownership to 10% or more and, if so,
Blue shall have a period of 180 days from the date of such issuance, stock
split, reclassification or other recapitalization to acquire additional Solid
Shares to increase its ownership of Solid Shares to 10%. If Blue gives such
notice and effects such acquisition during such 180 day period, Blue shall be
deemed for purposes of Section 2(a) and 2(c) to have owned 10% at all times.
(i) At any time Blue is entitled under the provisions of this
Section 2 to have a Blue Nominee serve on the Board, Blue shall be entitled to
have one Blue Nominee serve on the compensation committee of the Board.
3. TRANSFERS AND ACQUISITIONS OF SOLID SHARES.
(a) Transfers of Shares Between the Principals and their
Subsidiaries. Notwithstanding any other provision of this Agreement, Solid
Shares owned by Blue or a Subsidiary of Blue may be Transferred by Blue or such
Subsidiary, as the case may be, to any Wholly-Owned Subsidiary of Blue or, in
the case of Solid Shares issued to or owned or held by such Subsidiary, to Blue,
provided that (i) written notice of such Transfer is given to Lion by Blue and
(ii) any Wholly-Owned Subsidiary of Blue to which any Solid Shares are to be
Transferred agrees to be bound by all the terms and provisions of this
Shareholders Agreement applicable to Blue.
Solid Shares owned by Lion or a Subsidiary of Lion may be
Transferred by Lion or such Subsidiary, as the case may be, to any Subsidiary of
Lion, or in the case of Solid Shares issued to or owned or held by such
Subsidiary, to Lion, provided that (i) written notice of such Transfer is given
to Blue by Lion and (ii) such transferee agrees to be bound by all the terms and
provisions of this Shareholders Agreement applicable to Lion.
(b) Disposition of Shares. Other than as set forth in Sections
3(a), 3(d) and 3(e), except with the prior written consent of Lion (which may be
granted or withheld in Lion's sole discretion) neither Blue nor any Subsidiary
of Blue may sell or transfer (including by dividend, pledge or mortgage) or
otherwise dispose of (collectively, "Transfer"), or permit any pledgee or
mortgagee of Blue or any Subsidiary of Blue to Transfer, any Solid Shares (i)
for a period of three years from the Closing Date (the "Lock-Up Period") or (ii)
following the Lock-Up Period, except in accordance with the provisions of
Section 3(c). Notwithstanding anything to the contrary in this Section 3,
neither Blue nor any Subsidiary of Blue may Transfer, or permit any pledgee or
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<PAGE> 37
mortgagee of Blue or any Subsidiary of Blue to Transfer, any Solid Shares to any
entity listed on Annex I hereto (a "Prohibited Transferee").
(c) Sale of Shares. In the event that, at any time after the
Lock-Up Period, Blue desires to Transfer all or any portion of its Solid Shares
(other than in accordance with Section 3(a)) (including, in the context of an
offre publique de vente or a private placement with unidentified purchasers, to
any underwriter or underwriters) for a fixed price in cash, then Blue shall
first offer or cause to be offered such stock for sale to Lion at a price and on
terms which Blue is prepared to accept, in accordance with the following
provisions:
(i) Blue shall give notice in writing to Lion
indicating the number of Solid Shares Blue desires to Transfer and
specifying the price and terms which it is prepared to accept and
irrevocably offering such Solid Shares to Lion or any Person designated
by Lion.
(ii) Within 30 days from the receipt of such notice,
Lion shall deliver a written notice to Blue stating whether Lion or its
designee accepts such offer. If Lion fails to deliver such notice
within such 30-day period, Lion shall be deemed conclusively not to
accept such offer.
(iii) In the event that, within 30 days from the
receipt of the notice of Blue referred to in Section 3(c)(i), Lion
delivers a written notice to Blue to the effect that Lion accepts such
offer, delivery of such notice shall constitute an agreement binding on
Blue and Lion to sell and to purchase (or to cause Lion's designee to
purchase, as the case may be), respectively, all of the Solid Shares
offered by Blue, subject to receipt of any required regulatory
approvals, at the price and upon the terms stated in the offer of Blue.
(iv) If Lion fails to accept the offer of Blue within
such 30-day period specified in Section 3(c)(ii), Blue shall be free
for a period of 90 days from the date of the notification to Lion under
Section 3(c)(i) to Transfer such Solid Shares to a third-party
purchaser or third-party purchasers at a price not less than the price
at which, and on terms no more favorable than, such Solid Shares were
offered to Lion as provided in the notice to Lion and, upon such
Transfer, such Solid Shares shall cease to be subject to the terms of
this Shareholders Agreement.
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<PAGE> 38
(v) In the event that Blue (or its Subsidiary) does
not complete the Transfer contemplated by the foregoing Section
3(c)(iv) above within a period of 90 days from the date of the
notification to Lion under Section 3(c)(i) of its desire to sell Solid
Shares, all the provisions of this Section 3(c), including the notice
and offer provisions of Section 3(c)(i), (ii) and (iii), shall apply to
any proposed Transfer of such Solid Shares, other than as provided
under Section 3(a).
(vi) Any purchase of Blue's Solid Shares by Lion
pursuant to Section 3(c)(iii) shall be completed in any manner
permitted by then applicable French law and regulations upon payment of
the purchase price to Blue (provided that Blue or its Subsidiary, as
the case may be, shall have delivered good title to such Solid Shares
free of all encumbrances in the manner provided for by then applicable
French law).
(vii) In the event that Blue desires to Transfer all
or any portion of its Solid Shares (other than in accordance to Section
3(a)) for consideration other than a fixed price in cash, Lion shall
retain, at Blue's expense, a financial advisor independent of both Lion
and Blue to value such proposed consideration, Blue shall supply to
Lion and its financial advisors all information requested by them in
connection with such valuation, and Lion shall have the right to accept
Blue's offer to purchase such Solid Shares at the cash equivalent of
such consideration within 60 days from the receipt of the notice
referred to in Section 3(c)(i). Such offer and purchase shall
otherwise be governed by the provisions of this Section 3(c).
(d) Significant Matter; Other Matter. In the event that on two
separate occasions within any 12 month period during the duration of this
Agreement, (i) the Blue designee to the Strategic Committee shall have voted
against adoption of a proposal with respect to a Significant Matter at the
meeting of the Strategic Committee following the Consultation Period with
respect to such Significant Matter and (ii) such Significant Matter shall have
been approved by a meeting of the Board at which all Blue Nominees present or
represented voted against approval of such Significant Matter (such vote by the
Board being a "Triggering Event") then Blue (or any Subsidiary thereof, as the
case may be) may sell all, but not less than all, of its Solid Shares to any
Person other than a Prohibited Transferee in accordance with the provisions of
Section 3(c) (subject to Lion's right to purchase such Solid Shares in
accordance with Section 3(c) by giving written notice to Lion within 10 days of
such Triggering Event). In the event Blue has exercised its right pursuant to
the immediately preceding sentence and at the end of the 90-day period provided
under Section 3(c)(iv) Blue has not sold its Solid Shares, Blue shall have the
right for a period of 30 days to put all, but not less than all, of its Solid
Shares to Lion
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<PAGE> 39
at a price of 99% of the Market Value on the date of the Triggering Event and,
if at the end of such 30-day period Blue has not exercised such put right, Lion
shall have a right for a period of 30 days to call all, but not less than all,
of such Solid Shares at a price of 101% of the Market Value on the date of the
Triggering Event. In the event that Blue does not transfer its Solid Shares
pursuant to the right of first offer, put or call provisions of this Section
3(d), all provisions of this Shareholders Agreement (including Section 3(d) in
the event of disagreements with respect to two additional Significant Matters)
shall continue to apply.
In the event that during the duration of this Agreement, (i)
the Blue designee to the Strategic Committee shall have voted against adoption
of a proposal with respect to an Other Matter at the meeting of the Strategic
Committee following the Consultation Period with respect to such Other Matter
and (ii) such Other Matter shall have been approved by a meeting of the Board
(at which all Blue Nominees present or represented voted against approval of
such Other Matter) then Blue (or any Subsidiary thereof, as the case may be) may
sell all, but not less than all, of its Solid Shares to any Person other than a
Prohibited Transferee in accordance with the provisions of Section 3(c) by
giving written notice to Lion within 10 days of such meeting of the Board
(subject to Lion's right to purchase such Solid Shares in accordance with
Section 3(c)). In the event that Blue does not transfer its Solid Shares
pursuant to the right of first offer provisions of this Section 3(d) within 90
days of such notice, all provisions of this Shareholders Agreement (including
Section 3(d)) shall continue to apply.
The Principals agree that neither they nor any of their
respective Affiliates shall effect purchases of Solid Shares during the 20
trading days prior to any date upon which Market Value is determined pursuant to
this Shareholders Agreement.
(e) Change in Control. In the event of a Change in Control of
Blue, Lion shall have the option either (i) to call from Blue (or its
Subsidiaries, as the case may be) all, but not less than all, of Blue's Solid
Shares at a price equal to 101% of the Market Value of such Solid Shares as of
the date of such Change in Control by giving written notice to Blue at any time
prior to the 30th day following receipt by Lion of written notice from Blue of
such Change in Control or (ii) to terminate this Shareholders Agreement by
giving written notice to Blue at any time prior to the 30th day following
receipt by Lion of written notice from Blue of such Change in Control.
In the event of a Change in Control of Lion, the Lock-Up
Period shall immediately terminate.
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<PAGE> 40
A "Change in Control" shall be deemed to have occurred as to
Blue or Lion if any Person is or becomes the owner, directly or indirectly, of
more than 30% of the total voting power of all shareholders or other equity
holders of Blue or Lion, as the case may be, entitled to vote generally in the
election of directors of Blue or Lion, as the case may be, provided, however,
that a Change in Control shall be deemed not to have occurred with respect to
Blue if Lion has approved the acquisition by such Person in writing in advance
of the acquisition and that a Change in Control shall be deemed not to have
occurred with respect to Lion if Blue has approved the acquisition by such
Person in writing in advance of the acquisition.
(f) Pledge of Solid Shares. The provisions of Section 3(b) and
3(c) shall be deemed not to apply to any pledge or mortgage by Blue or any
Subsidiary thereof of the Solid Shares owned or held by it if such pledge or
mortgage is required or provided for under the terms of any mortgage, trust,
indenture or other agreement which provides that any Transfer of Solid Shares by
the pledgee or mortgagee shall be governed by the provisions of Sections 3(b)
and 3(c) of this Shareholders Agreement.
(g) Acquisitions of Solid, Lion and Blue Shares. At any time
this Shareholders Agreement is in effect, Blue agrees that none of Blue, any of
its Affiliates, or any group of which Blue or any such Affiliate is a member,
will acquire ownership (i.e., voting rights, economic rights or other rights) of
any Solid Shares (or securities convertible into or exercisable for Solid
Shares) except for (x) the acquisition of Solid Shares (provided that Blue has
not breached its obligations under this Shareholders Agreement) which would not,
after giving effect to such acquisition, result in ownership (i.e., voting
rights, economic rights or other rights) of Solid Shares representing more than
25% of the outstanding Solid Shares or 30% of the voting rights in respect of
the outstanding Solid Shares or (y) pursuant to a stock split, stock dividend,
rights offering, recapitalization, reclassification or similar transaction made
available to holders of Solid Shares generally; provided that any such Solid
Shares shall be subject to the restrictions of this Shareholders Agreement. In
the event that Blue directly or indirectly owns or acquires any Solid Shares in
violation of this Shareholders Agreement, such Solid Shares shall immediately be
disposed of to Persons who are not Affiliates of Blue (but only in compliance
with the provisions of this Shareholders Agreement relating to Transfers of
Solid Shares); provided, however, that Lion may also pursue any other available
remedy to which it may be entitled as a result of such violation. At any time
this Shareholders Agreement is in effect, Blue will give Solid reasonable prior
notice of any acquisition of Solid Shares by Blue, any of its Affiliates or any
group of which Blue or any such Affiliate is a member.
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<PAGE> 41
At any time this Shareholders Agreement is in effect, Blue
agrees that none of Blue or any of its Affiliates, or any group of which Blue or
any such Affiliate is a member, will acquire ownership (i.e., voting rights,
economic rights or other rights) of any shares of Lion's ordinary shares, par
value FF____ per share (or securities convertible into or exercisable for Lion
ordinary shares). In the event that Blue owns or acquires any Lion ordinary
shares in violation of this Shareholders Agreement, such Lion ordinary shares
shall immediately be disposed of in an orderly fashion to Persons who are not
Affiliates of Blue and who will not, to the knowledge of Blue, after such
disposition, own more than 5% of the outstanding Lion ordinary shares, provided
that such 5% limitation shall not apply to transfers to investment funds, mutual
funds and other similar types of passive investors; provided, further however,
that Lion may also pursue any other available remedy to which it may be entitled
as a result of such violation. At any time this Shareholders Agreement is in
effect, Blue will give Solid reasonable prior notice of any acquisition of Lion
ordinary shares by Blue, any of its Affiliates or any group of which Blue or any
such Affiliate is a member.
At any time this Shareholders Agreement is in effect, Lion
agrees that none of Lion, Solid, any of their Affiliates, or any group of which
Lion, Solid or any such Affiliate is a member, will acquire ownership (i.e.,
voting rights, economic rights or other rights) of any shares of Blue's Common
Stock, par value $0.162/3 per share (or securities convertible into or
exercisable for Blue Common Stock) except for (x) the acquisition of Blue Common
Stock (provided that Lion has not breached its obligations under this
Shareholders Agreement) which would not, after giving effect to such
acquisition, result in ownership (i.e., voting rights, economic rights or other
rights) of Blue Common Stock representing more than 10% of the outstanding Blue
Common Stock or (y) pursuant to a stock split, stock dividend, rights offering,
recapitalization, reclassification or similar transaction made available to
holders of Blue Common Stock. In the event that Lion beneficially owns or
acquires any Blue Common Stock in violation of this Shareholders Agreement, such
Blue Common Stock shall immediately be disposed of in an orderly fashion to
Persons who are not Affiliates of Lion or Solid and who will not, to the
knowledge of Lion or Solid, after such disposition, own more than 5% of the
outstanding Blue Common Stock, provided that such 5% limitation shall not apply
to transfers to investment funds, mutual funds and other similar types of
passive investors; provided, further however, that Blue may also pursue any
other available remedy to which it may be entitled as a result of such
violation. At any time this Shareholders Agreement is in effect, Lion and Solid
will give Blue reasonable prior notice of any acquisition of Blue's Common Stock
by Lion, Solid, any of their Affiliates, or any group of which Lion, Solid or
any such Affiliate is a member.
(h) Other than with respect to a Transfer in accordance with
Section 3(a), the rights of Blue under this Shareholders Agreement shall not be
transferable and
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<PAGE> 42
shall terminate with respect to any Solid Shares Transferred by Blue. Any Solid
Shares Transferred by Blue in accordance with the provisions of Section 3 shall
be free of any restrictions under this Shareholders Agreement.
4. RESOLUTION OF DISPUTES. Any dispute between the Principals arising
out of this Shareholders Agreement, whether as to this Shareholders Agreement's
construction, interpretation or enforceability or as to any Principal's breach
or alleged breach of any provision of this Shareholders Agreement, shall be
submitted to final and binding arbitration in accordance with the following
procedures:
(a) Either Principal may demand such arbitration by
giving written notice of that demand to the other Principal. Any such
arbitration shall be before a panel of three arbitrators, one selected
by each Principal and the third (who shall serve as chairman of the
tribunal) selected by the agreement of each of the two arbitrators
selected by the Principals in the manner set forth in Section 4(b). The
notice pursuant to this Section 4(a) shall state (x) the matter in
controversy and (y) the name of the arbitrator selected by the
Principal giving the notice.
(b) Not more than 15 days after notice is given
pursuant to Section 4(a), the other Principal shall give written notice
to the Principal who demanded arbitration of the name of an arbitrator
selected by the other Principal. If the other Principal shall fail to
give such notice within such 15 day period, a second arbitrator shall
be selected in accordance with the Arbitration Rules of the
International Chamber of Commerce (the "Arbitration Rules"). Not more
than 30 days after the second arbitrator is so named, the two
arbitrators shall select a third arbitrator. If the two arbitrators
shall fail to select a third arbitrator within such 30 day period, the
third arbitrator shall be named pursuant to the Arbitration Rules. All
arbitrators shall be fluent in English and French.
(c) The dispute shall be arbitrated at a hearing to
be conducted in French, although documents may be submitted in English
or French. The arbitration shall take place in Geneva or such other
place as the Principals agree and shall be concluded as soon as
practicable in accordance with the Arbitration Rules. Any award, which
may be made by a majority of the arbitrators, shall be made as soon as
possible following the conclusion of the arbitration and shall be
conclusive and binding on the parties and may be entered as a judgment
of any court having jurisdiction.
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<PAGE> 43
(d) Each Principal shall bear half the arbitrators'
fees and expenses and administrative expenses of the arbitration and
its own legal and other costs.
The agreement of the Principals contained in the foregoing provisions of Section
4 shall be a complete defense to any action, suit or other proceeding instituted
in any court or before any administrative tribunal with respect to any dispute
between the Principals arising out of this Shareholders Agreement.
5. SALES BY LION. (a) Lion will not reduce its ownership of Solid
Shares to less than 40% of the outstanding Solid Shares voting rights unless
Lion receives a written opinion of a nationally recognized French law firm in
form and substance satisfactory to Blue, and delivers a copy of such opinion to
Blue, to the effect that Lion and Blue will not be obligated to launch a tender
offer for all of the outstanding Solid Shares as a result of such reduction in
ownership. The parties agree that the provisions of this Section 5(a) are in
addition to, and do not negate, the rights provided to Blue under the agreements
executed in connection with the transactions contemplated by this Shareholders
Agreement.
6. In the event that Market Value is being determined at any time when
less then 20% of the outstanding Solid Shares are held by Persons other than
Blue and Lion and other than Persons who hold in excess of 5% of the Solid
Shares (other than investment funds, mutual funds and institutional investors),
Market Value shall be determined as follows:
Blue shall designate and appoint an investment bank to
participate in establishing Market Value. Within 15 days after written notice of
the identity of such investment bank by Blue is given, Lion shall appoint an
investment bank to participate in establishing Market Value. Using generally
accepted valuation techniques and investment banking methodology, such
investment banks as so appointed shall endeavor to agree upon the Market Value
of the subject Solid Shares and shall, within 30 days following the engagement
of the second such investment bank, each deliver to the other in writing the
amount arrived at as representing its opinion as to Market Value. If such
amounts are the same (an "agreed value") or one of them shall be no less than 90
percent of the other, then the Market Value shall be the agreed value or the
arithmetic mean of the two. If the two investment banks are unable to agree
within 30 days after the appointment of its investment bank by Lion or if one of
the amounts proposed by one of such two investment banks shall be less than 90
percent of the other, then such Market Value shall be established by a third
investment bank appointed by the two investment banks named by the Principals
or, failing such appointment by such investment banks
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<PAGE> 44
within five days after the expiry of their 30-day period of effort, then by the
President of the Paris Commercial Court. Such third investment bank shall be
instructed to establish such Market Value (which shall not be greater than the
larger of the two estimates nor less than the lesser of the two estimates),
using generally accepted valuation techniques and investment banking
methodology, as soon as possible and shall, upon completion of its task, so
notify the Principals.
7. AMENDMENT. This Shareholders Agreement may not be amended except by
a written instrument signed on behalf of each of the Principals.
8. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally or by facsimile
transmission and shall be deemed given when received at the following addresses
or facsimile transmission numbers (or at such other address or facsimile
transmission number for a party as shall be specified by like notice):
(a) If to Blue: ________________, Attention: ________________
(facsimile transmission number: _______________); with a copy (which shall not
constitute notice) to ________________ (facsimile transmission number:
_______________).
(b) If to Lion: 1, Rue d' Astorg 75008 Paris, France,
Attention: Le President du Directoire (facsimile transmission number:
_______________); with copies (which shall not constitute notice) to Le
Directeur Juridique (facsimile transmission number: _______________) and
Sullivan & Cromwell, Attention: Richard A. Pollack (facsimile transmission
number: 212-558-3588).
9. SEVERABILITY. Any term or provision of this Shareholders Agreement
that is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Shareholders Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Shareholders Agreement
in any other jurisdiction. If any provision of this Shareholders Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
10. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Shareholders
Agreement (together with the documents and instruments delivered by the parties
in connection with this Shareholders Agreement or specifically contemplated
hereby)
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<PAGE> 45
(a) constitutes the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) is agreed to in English and shall be read and
interpreted according thereto notwithstanding any translation hereof for the
convenience of the parties into French; and (c) is solely for the benefit of the
Principals hereto and, other than as provided herein, their respective
successors, legal representatives and assigns and does not confer on any other
person any rights or remedies hereunder.
11. APPLICABLE LAW. THIS SHAREHOLDERS AGREEMENT SHALL BE GOVERNED IN
ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF
FRANCE REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
12. ASSIGNMENT. Neither this Shareholders Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either Principal
except as contemplated hereby without the prior written consent of the other
Principals. Subject to the preceding sentence, this Shareholders Agreement will
be binding upon, inure to the benefit of and be enforceable by the Principals
and their respective successors and permitted assigns.
13. WAIVERS. Either Principal hereto may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other Principal and (b) waive performance of any of the
covenants or agreements contained herein. Any agreement on the part of a
Principal to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such Principal. Except as specifically
and explicitly provided in this Shareholders Agreement, no action taken pursuant
to this Shareholders Agreement shall be deemed to constitute a waiver by the
Principal taking such action of compliance with any covenants or agreements
contained in this Shareholders Agreement. The waiver by any Principal of a
breach of any provision hereof shall not operate or be construed as a waiver of
any prior or subsequent breach of the same or any other provisions hereof.
14. This Shareholders Agreement shall terminate and expire at the later
of (i) the fifth anniversary of the Closing Date and (ii) the date on which Blue
owns less than 5% of the outstanding Solid Shares.
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<PAGE> 46
SUEZ LYONNAISE DES EAUX, S.A.
By:
------------------------------------
Name:
Title:
BROWNING-FERRIS INDUSTRIES, INC.
By:
------------------------------------
Name:
Title:
Witnessed, as of the date hereof:
SITA, S.A.
By:
------------------------------------
Name:
Title:
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<PAGE> 47
ANNEX I
- - Generale des Eaux
- - Waste Management
- - Bouygues
- - Tredi-EMC
- - FCC
- - Caisse des Depots
- - EDF
- - RWE
- - VEW
- - Rethmann
- - Any affiliate of any of the foregoing entities.
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<PAGE> 48
ANNEX C
Terms of Technical Cooperation Agreement
In consideration of the transactions contemplated by the
Transaction Agreement, including Parent's ongoing participation in Purchaser as
a significant shareholder, participation in Purchaser's management and
Purchaser's agreement not to engage in solid waste activities in the United
States, Canada and Mexico and Parent's agreement not to engage in such
activities outside of the United States, Canada and Mexico, Parent and Purchaser
will enter into a Technical Cooperation Agreement (the "Cooperation Agreement")
containing the following terms. For purposes of this Annex C, the "United
States" shall include the Commonwealth of Puerto Rico.
o Parent will undertake to cooperate with Purchaser in the development of and
share with Purchaser technical information, know-how, proprietary
information, intellectual property including patents, and assistance
regarding the Waste Business, particularly technical information, know-how
and assistance regarding solid waste technology in the United States,
Canada and Mexico and Parent will not engage in the Waste Business outside
of the United States, Canada and Mexico.
o Purchaser will undertake to cooperate with Parent in the development of and
share with Parent technical information, know-how, proprietary information,
intellectual property including patents, and assistance regarding the
collection, transportation, disposal, and processing or solid and medical
waste, the collection, transportation, processing and marketing or disposal
of recyclable materials (the "Business"), particularly technical
information, know-how and assistance regarding solid waste technology
outside of the United States, Canada and Mexico and Purchaser will not
engage in the Business in the United States, Canada and Mexico, except for
operations being conducted on the date of the Transaction Agreement.
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<PAGE> 49
o Each of Parent and Purchaser will agree to share with the other party,
among other things, (i) new methods and technologies (or methods known
to one party but not the other party) of waste collection,
transportation, disposal, processing, recycling, recycling processing
and other activities related to the Waste Business and Purchaser's
Business, as the case may be, (ii) standards and innovations to
improve logistical efficiency in the conduct of the Waste Business and
Purchaser's Business, as the case may be, (iii) standards and
innovations regarding the design and operation of landfills, transfer
stations and waste to energy facilities and (iv) standards to be
maintained and actions to be taken to improve environmental safety and
compliance with environmental regulations.
o Each of Parent and Purchaser will agree that any technological
information provided to the other party (as set forth above) will be
provided with a royalty-free license to use such technological
information in perpetuity.
o Parent will provide Purchaser with a royalty-free license to use
Parent's name outside the United States, Canada and Mexico following
the Closing in connection with the business of the International
Subsidiaries, which license shall be granted on reasonable terms for a
reasonable duration (not to exceed 90 days) following the Closing.
Parent and Purchaser shall negotiate concerning whether Parent will
agree to provide Purchaser with a royalty-free license to use Parent's
name independent of, or in conjunction with, Purchaser's name during
the term of the Cooperation Agreement.
o The sharing of technical information contemplated hereby shall be
provided (during the term of the Cooperation Agreement) on a
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continuous basis without the need for requests for such information
from either party.
o Each of Parent and Purchaser will assist with the implementation and
incorporation of the technical information to be provided hereunder by
providing technical assistance and support to each other.
o Each of Parent and Purchaser will consult with the other party as to
the appropriate manner to aid in any technology sharing.
o Each of Parent and Purchaser will provide technicians to the other
party at such other party's expense who will work onsite to assist
with any technology sharing.
o Each of Parent and Purchaser (either, the "providing party") will
provide a reasonable number of the other party's technicians access to
its facilities at the providing party's expense for both short-term
and long-term training.
o For so long as Parent owns 10% or more of the outstanding Purchaser Shares,
Purchaser will prepare quarterly financial reports in accordance with
French GAAP at its own expense.
o Purchaser will retain one full time employee for the purpose of
reconciling Purchaser's quarterly and annual financial reports to U.S.
GAAP.
o Purchaser will commit to make its personnel available to and to
provide access to Purchaser's books and records to such employee to
enable such employee to discharge his responsibilities.
o Parent will reimburse Purchaser for the salary and benefits payable to
such employee.
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o Nothing contained herein shall be deemed to be a representation from
Purchaser as to the accuracy of the presentation of Purchaser's
financial reports in accordance with U.S. GAAP.
o The Cooperation Agreement will terminate and expire at the later of (i) the
fifth anniversary of the Closing Date, and (ii) the date on which Parent
owns less than 5% of the outstanding Purchaser Shares.
o The Cooperation Agreement will contain customary confidentiality
provisions.
o The Cooperation Agreement will be governed by French law.
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ANNEX I
Representations and Warranties of
Parent and the Selling Entities
Parent and International will jointly and severally represent
and warrant to Purchaser as follows:
Section 1.1 Corporate Organization and Qualification. Each of
the International Subsidiaries has been duly organized and is validly existing
and in good standing under the laws of its jurisdiction of organization, and is
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated by it or the
business conducted by it require such qualification, except for such failures to
so qualify or be in good standing as a foreign corporation, which, in the
aggregate, could not have a material adverse effect on the general affairs,
business, assets, liabilities, financial condition, properties, operations or
results of operations of the International Subsidiaries taken as a whole, or on
the ability to operate or conduct the business of the International
Subsidiaries, taken as a whole, in the manner in which it is presently operated
or conducted (an "International Material Adverse Effect"), it being understood
that for purposes of the definition of International Material Adverse Effect
that any change, development or effect which could reasonably be expected to
cause or result in losses, damages, claims or liabilities to or against the
International Subsidiaries greater than $15,000,000 shall be deemed to be such a
material adverse effect. Each of the International Subsidiaries has the
corporate power and authority to carry on its business as currently conducted.
Parent has delivered to Purchaser a complete and correct copy of each
International Subsidiary's certificate of incorporation, by-laws or other
comparable governing instruments, each as amended to date. Such instruments are
in full force and effect.
Section 1.2 Authorized Capital. Schedule 1.2 contains a true
and complete list of all of the
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International Subsidiaries and sets forth with respect to each International
Subsidiary (i) its jurisdiction of incorporation, (ii) each jurisdiction in
which it is qualified to do business as a foreign corporation, (iii) its
authorized, issued and outstanding equity securities or ownership interests and
(iv) the holder or holders of all of its issued and outstanding equity
securities or ownership interests. The authorized capital stock or equity
capitalization of each International Subsidiary consists of the number and class
of equity securities or ownership interests set forth opposite such
International Subsidiary's name on Schedule 1.2. All of the Shares have been
duly authorized and validly issued, and are fully paid and (except as set forth
on Schedule 1.2) nonassessable.
Section 1.3 Ownership and Title. Except as set forth in
Schedule 1.3, (i) each of the Shares is owned, of record and beneficially,
either directly or indirectly, by the applicable Selling Entity free and clear
of all liens, pledges, security interests, voting trust arrangements, charges,
options, restrictions, claims or other encumbrances, and (ii) each of the
outstanding equity securities or ownership interests of each International
Subsidiary other than any issuer of the Shares (each, a "Purchased Entity") is
owned, of record and beneficially, either directly or indirectly, by a Purchased
Entity, free and clear of all liens, pledges, security interests, voting trust
arrangements, charges, options, restrictions, claims or other encumbrances,
except, in the case of clause (i) or clause (ii), for such encumbrances as could
not have a material adverse effect on the ability of any International
Subsidiary to operate or conduct its business in the manner in which it is
presently operated, or hinder or delay the performance by any party of its
obligations under this Agreement or hinder or delay the consummation of the
transactions contemplated herein with the result that the representation and
warranties set forth in the second sentence of this Section 1.3 will be true and
accurate. Immediately following the Closing, Purchaser or one or more of its
Subsidiaries shall have good and valid title to all of the Shares, free and
clear of any lien, pledge, security interest, voting trust arrangement, charge,
option,
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restriction, claim, or other encumbrance, except for any encumbrances on the
Shares arising or perfected following the Closing. Except as set forth in
Schedule 1.3, immediately following the transfer to Purchaser or one of its
Subsidiaries of the Shares, each of the outstanding equity securities or
ownership interests of each International Subsidiary will be owned, of record
and beneficially, either directly or indirectly, by Purchaser or one of its
Subsidiaries, free and clear of all liens, pledges, security interests, voting
trust arrangements, charges, options, restrictions, claims or other
encumbrances, except for any encumbrances arising following the Closing, and
Purchaser will have purchased and acquired all of Parent's direct or indirect
right, title and interest in and to the Waste Business. Except for the
International Subsidiaries, International does not have any Subsidiaries or own
of record or beneficially, or is obligated to acquire, any equity security or
ownership interest or investment in any Person. Except as set forth in Schedule
1.3, no International Subsidiary has any Subsidiaries or owns of record or
beneficially, or is obligated to acquire, any equity security or ownership
interest or investment in any Person.
Section 1.4 No Dilution. Except as set forth in Schedule 1.4,
no International Subsidiary has any equity securities or ownership interests
reserved for issuance. Except as set forth in Schedule 1.4, there are no
subscriptions, calls, commitments, rights, options, warrants, conversion rights,
stock appreciation rights, redemption rights, repurchase rights, agreements,
plans, arrangements or commitments with respect to the issuance, sale or
purchase of any equity securities or ownership interests of any International
Subsidiary or any securities or obligations convertible or exchangeable into or
exercisable for, or giving any Person a right to subscribe for or acquire,
equity securities or ownership interests of any International Subsidiary, and no
securities or obligations evidencing such rights are authorized, issued or
outstanding. Neither International nor any International Subsidiary has any
outstanding securities or instruments the holders of which have the right to
vote (or convert or
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exchange such securities or instruments into or for securities having the right
to vote) with the shareholders of any International Subsidiary on any matter.
Section 1.5 Corporate Authority. (a) Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute, deliver and perform
its obligations under the Transaction Agreement and the Ancillary Agreements (as
defined below) and to consummate the transactions contemplated thereby. Morgan
Stanley & Co. Incorporated has rendered a written opinion to Parent to the
effect that the Consideration is fair to Parent from a financial point of view.
The Transaction Agreement is and as of and after the Closing will be, and as of
and after the Closing the Ancillary Agreements will be, valid and binding
agreements of Parent, enforceable against them in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles. "Ancillary
Agreements" means, collectively, the Shareholders Agreement and the Operations
Agreement.
(b) Each of the Selling Entities is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite corporate power and authority
and has taken all corporate action necessary to transfer, convey and sell to
Purchaser the Shares held by it, and no other proceedings on the part of any
Selling Entity are necessary to authorize the transactions contemplated by the
Transaction Agreement.
Section 1.6 Conduct of Business. Parent and the Parent
Subsidiaries are engaged in the Waste Business only through the International
Subsidiaries, and neither Parent, nor any Parent Subsidiary conducts any
operations associated with, or owns any assets or properties used in, or holds
any permits or licenses used in, the Waste Business, except for operations which
after the Closing Date will be conducted
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pursuant to the Technical Services Agreement. None of the International
Subsidiaries is, or (to Parent's knowledge) has been, engaged in any material
business other than the Waste Business or owns or has owned any material assets
or properties which are used in any business other than the Waste Business.
Section 1.7 Governmental Filings. Other than the filings
and/or notices required by Council Regulation (EEC) No. 4064/89, [List
non-European antitrust or regulatory filings] and the filings and/or notices set
forth in Schedule 1.7, no notices, reports or other filings are required to be
made by Parent or any Parent Subsidiary with, nor are any consents,
registrations, Approvals (as defined below), permits or authorizations required
to be obtained by Parent or any Parent Subsidiary from, any Governmental Entity,
in connection with the execution and delivery of the Transaction Agreement by
Parent or International and the consummation by Parent or any Parent
Subsidiaries of the transactions contemplated hereby, except for notices,
reports, filings, consents, registrations, Approvals, permits or authorizations,
the failure to make or obtain which could not, in the aggregate, have an
International Material Adverse Effect, hinder or delay the performance by any
party of its obligations under this Agreement or hinder or delay the
consummation of the transactions contemplated herein. "Approval" means any
approval, authorization, consent, license, franchise, order or permit of or by,
or filing with, a Person.
Section 1.8 Non-Contravention. The execution, delivery and
performance of the Transaction Agreement and the Ancillary Agreements by Parent
and any Parent Subsidiaries party thereto, and the consummation by Parent and
any Parent Subsidiaries of the transactions contemplated in the Transaction
Agreement and therein, do not and will not (a) violate or conflict with, or
constitute a default under, any provision of the certificate of incorporation,
by-laws or comparable governing instruments of Parent or any Parent Subsidiary,
(b) violate any provision of, or constitute (or with notice or lapse of time or
both would constitute) a default under, or accelerate or permit the
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acceleration of the performance required by, any agreement, lease, contract,
note, mortgage, indenture, instrument, arrangement or other obligation
(collectively, "Contracts") to which Parent or any Parent Subsidiary is a party
or by which any of them or any of their respective assets or properties are
bound or subject (collectively, the "Parent Contracts"), (c) entitle any party
to cancel or terminate, or result in any change in the rights or obligations of
any party under, or require a consent or waiver by any party to, any Parent
Contract, (d) result in the creation of a lien, pledge, security interest,
voting trust arrangement, charge, option, restriction, claim, or other
encumbrance on the equity securities, ownership interests or on the assets of
Parent or any Parent Subsidiary, (e) violate any law, statute, rule, regulation,
ordinance, requirement, administrative ruling, order, judgment, injunction,
award, decree or process of any Governmental Entity (collectively, "Law") by
which or to which any of their respective assets or properties are bound or
subject, or (f) result in the loss or impairment of any Approval of or
benefitting Parent or any Parent Subsidiary; except (i) in the case of clauses
(b), (d), (e) and (f) of this Section, for such violations, defaults,
accelerations, losses or impairments as, when taken together with all other such
violations, defaults, accelerations, losses and impairments, could not have an
International Material Adverse Effect, and (ii) in the case of clauses (b) and
(c), for violations, defaults, accelerations, cancellations, terminations of and
changes in rights under the Contracts, instruments, agreements and obligations
listed in Schedule 1.8.
Section 1.9 Financial Statements; Projections. (a)(i) The
consolidated balance sheet of the International Subsidiaries dated September 30,
1997 contained in Schedule 1.9(a)(i) (the "International Balance Sheet") fairly
presents the consolidated assets, liabilities and financial position of the
International Subsidiaries as a whole as of such date in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP") and
the accounting practices listed on Schedule 1.9(a)(ii), in each case
consistently applied, except as specifically noted therein. The consolidated
statement of income and of
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changes in financial position of the International Subsidiaries for the year
ended September 30, 1997 contained in Schedule 1.9(a)(i) (the "International
Income Statement," and, collectively with the International Balance Sheet, the
"International Financial Statements") fairly presents the consolidated results
of operations, retained earnings and changes in financial position, as the case
may be, of the International Subsidiaries as a whole for such period, in each
case in accordance with U.S. GAAP and the accounting practices listed in
Schedule 1.9(a)(ii), in each case consistently applied, except as specifically
noted therein. (ii) Except as set forth in Schedule 1.9(a)(iii), (A) each of the
balance sheets contained in Schedule 1.9(a)(iii) in respect of each individual
International Subsidiary fairly presents the assets, liabilities and financial
position of such International Subsidiary as of the date hereof in accordance
with the local jurisdiction accounting standards applicable to each such
Subsidiary ("Local GAAP"), and (B) each of the statements of income and of
changes in financial position contained in Schedule 1.9(a)(iii) in respect of
each individual International Subsidiary fairly presents the results of
operations, retained earnings and changes in financial position, as the case may
be, of such International Subsidiary for the period covered thereby in
accordance with Local GAAP.
(b) The projections regarding the financial performance of the
International Subsidiaries contained in Schedule 1.9(b) were based on
assumptions which Parent believes are reasonable; provided that the foregoing
does not constitute any representation or warranty with respect to the actual
results which will be achieved by the International Subsidiaries.
Section 1.10 Closing Consents. Except for the consents,
waivers and authorizations set forth in Schedule 1.10 (the "Parent Closing
Consents"), and other than as disclosed in Section 1.7, there are no Persons or
entities, other than Parent, whose approval, consent, waiver or authorization is
legally or contractually required to consummate the transactions contemplated by
this Transaction Agreement, except for consents, waivers and authorizations,
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the failure to obtain which could not, in the aggregate, have an International
Material Adverse Effect, hinder or delay the performance by any party of its
obligations under this Agreement or hinder or delay the consummation of the
transactions contemplated herein. As of the Closing, each of the Parent Closing
Consents shall have been duly authorized, executed and delivered by each of the
parties thereto and from and after the Closing shall be a valid and binding
agreement of each such party, enforceable against such party in accordance with
its terms.
Section 1.11 No Actions. There is no action, claim, dispute,
proceeding, suit, investigation or appeal pending or, to Parent's knowledge,
threatened, against Parent or any Parent Subsidiary which questions or
challenges the validity of this Transaction Agreement, any Ancillary Agreement
or any Parent Closing Consent, or any action taken or proposed to be taken by
Parent or any Parent Subsidiary pursuant hereto or thereto or in connection with
the transactions contemplated hereby and thereby, and to the knowledge of Parent
or any Parent Subsidiary no conditions exist which could reasonably be expected
to lead to any such action, claim, dispute, proceeding, suit, investigation or
appeal.
Section 1.12 No Undisclosed Liabilities. Notwithstanding any
other representation or warranty set forth in this Transaction Agreement and
except as set forth in Schedule 1.12, no International Subsidiary had, at
September 30, 1997, any liabilities of any nature (whether accrued, absolute,
fixed, contingent, liquidated or unliquidated or otherwise and whether due or to
become due, and whether or not required by generally accepted accounting
principles to be set forth on a balance sheet of any International Subsidiary),
except as and to the extent of the amounts specifically reflected or reserved
against in the International Balance Sheet or in the notes thereto and except
for liabilities which could not, in the aggregate, have an International
Material Adverse Effect.
Section 1.13 Absence of Certain Changes. Except as set forth
in Schedule 1.13 and except as specifically
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provided for in the Transaction Agreement or agreed in writing between Parent
and Purchaser, since September 30, 1997:
(a) each of the Selling Entities and the International
Subsidiaries has conducted its businesses only in the ordinary course of
business consistent with past practice;
(b) there has not occurred any damage, destruction or other
casualty loss with respect to any asset or real or tangible personal property
owned, leased or otherwise by International and the International Subsidiaries,
whether or not covered by insurance, which could have an International Material
Adverse Effect;
(c) no International Subsidiary has (i) sold, pledged or
agreed to sell or pledge any equity securities or ownership interests owned by
it in any of its Subsidiaries; (ii) amended or violated its certificate of
incorporation, by-laws or comparable governing documents; (iii) reclassified,
split, subdivided, combined or reclassified any of its equity securities or
ownership interests; or (iv) declared, set aside or paid any dividend payable in
securities or property other than cash with respect to any of its equity
securities or ownership interests; and no Selling Entity has sold, pledged or
agreed to sell or pledge any equity securities or ownership interests owned by
it in any of the International Subsidiaries;
(d) no Selling Entity nor any International Subsidiary has (i)
issued, sold, pledged, disposed of or encumbered any shares of, or securities
convertible or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any of its equity securities or ownership
interests or any of its other securities, property or assets; (ii) transferred,
leased, licensed, guaranteed, sold, mortgaged, pledged, disposed of or subjected
to or permitted the imposition of any lien, claim, restriction or encumbrance
(other than statutory liens for taxes not yet due and payable) on any of its
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assets or properties, other than in the ordinary course of business consistent
with past practice; (iii) acquired directly or indirectly, by purchase,
redemption or otherwise any of its equity securities or ownership interests;
(iv) incurred any indebtedness for borrowed money or guaranteed the obligations
of any Person, or made any loans or advances, in each case except in the
ordinary course of business consistent with past practice; (v) paid, discharged
or satisfied any liability other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice, of liabilities
reflected on or reserved against the financial statements contained in Schedule
1.9(a) or subsequently incurred in the ordinary course of business consistent
with past practice; (vi) entered into any International Material Contract (as
defined in Section 1.14) or agreement other than in the ordinary course of
business consistent with past practice; or (vii) authorized capital expenditures
in excess of $100,000,000 in the aggregate or made any direct or indirect
acquisition of, or investment in, assets or stock of any other Person;
(e) no International Subsidiary has, except in the ordinary
course of business consistent with past practice, (i) granted any severance or
termination pay to, or entered into any employment or severance agreement with,
or increased the compensation payable to, any director, officer or other
employee of any International Subsidiary; or (ii) established, adopted, entered
into, made any new grants or awards under or amended any International Employee
Benefit Plans (as defined in Section 1.26);
(f) no Selling Entity nor any International Subsidiary has
settled or compromised any claims or litigation or waived, assigned or released
any rights or claims involving liability or potential liability of the
International Subsidiaries or otherwise having a value of $5,000,000 per right,
claim or action or $10,000,000 in the aggregate or, except in the ordinary
course of business consistent with past practice, modified, amended or
terminated any International Material Contracts to which it is a party or by
which it or any of its properties is bound;
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(g) there has been no change in the accounting policies or
procedures of any Selling Entity or any International Subsidiary;
(h) no Selling Entity nor any International Subsidiary has
made any tax election or settled or compromised promised any Tax liability of
the International Subsidiaries or permitted any insurance policy naming an
International Subsidiary as a beneficiary or a loss payable payee to be canceled
or terminated, except, in any such case, in the ordinary course of business
consistent with past practice and except to the extent that such Tax liabilities
and insurance policy limits do not exceed $5,000,000 in the aggregate;
(i) no International Subsidiary has sold, disposed of or
otherwise abandoned, altered or written down the book value of (except for
amortization and depreciation thereof in accordance with U.S. GAAP or Local
GAAP, as the case may be), any item of the property, plant and equipment
reflected on the International Balance Sheet contained in Schedule 1.9(a) or on
the accounting records of International and the International Subsidiaries as of
the Closing, except for sales and dispositions not exceeding $5,000,000 in the
aggregate;
(j) no Selling Entity nor any International Subsidiary has
created any lien, claim, restriction or other encumbrance on or affecting title
to the real property occupied or used by any International Subsidiary, other
than liens not affecting the use, operation or value of such real property
created in the ordinary course of business consistent with past practice, or
entered into any leases or subleases for any real or personal property providing
for annual payments greater than $15,000,000 in the aggregate; and
(k) no Selling Entity nor any International Subsidiary has
authorized or entered into an agreement to do any of the foregoing.
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Section 1.14 Material Contracts. (a) Schedule 1.14(a) contains
a true and complete list of each agreement, instrument, contract or arrangement
to which any International Subsidiary is a party or by which it or any of their
respective properties or assets are bound: (i) which relates to the borrowing of
money and pursuant to which the outstanding indebtedness is in excess of
$5,000,000, or (ii) under which any International Subsidiary made or received
payments in excess of $5,000,000 during 1997 or is reasonably likely to make or
receive payments in excess of $5,000,000 during 1998; or (iii) which accounts
for two percent (2%) or more of any Purchased Entity's revenue per annum or
imposes any encumbrance, lien or restriction on any assets or properties
(including International Intellectual Property (as defined in Section 1.23))
used in the manufacture or sale of any such product or service (collectively,
the "International Material Contracts").
(b) Except as set forth in Schedule 1.14(b) and except for
such failures to be valid, binding and enforceable, breaches, defaults,
violations and events as could not, in the aggregate, have an International
Material Adverse Effect, hinder or delay the performance by any party of its
obligations under this Agreement or hinder or delay the consummation of the
transactions contemplated herein, (i) each International Material Contract is a
valid and binding obligation of each of the parties thereto and is enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles, except for such failures to be valid and binding as could not,
individually or in the aggregate, have an International Material Adverse Effect,
(ii) no International Subsidiary is in violation or breach of, or in default
under, any International Material Contract and, to Parent's knowledge, no other
party to any International Material Contract is in violation or breach thereof,
or in default thereunder, except, in either case, for such violations, breaches
and defaults as could not, individually or in the aggregate, have an
International Material Adverse Effect, and (iii) to Parent's knowledge, no
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event has occurred that, with the passage of time or the giving of notice or
both, would permit the unilateral modification, acceleration, or termination of
any International Material Contract.
(c) Parent has caused to be delivered or made available to
Purchaser a true, complete and current copy of each International Material
Contract.
(d) Except as set forth on Schedule 1.14(d)(i), and except for
agreements providing, in the aggregate, for the nonstatutory compensation and
benefits summarized in Schedule 1.14(d)(ii), neither Parent nor any Parent
Subsidiary is a party to or bound by any agreement, instrument, contract or
arrangement (i) to which any directors, executive officers or affiliates of
Parent or any Parent Subsidiary, is a party or is bound, or (ii) which contains
any provision or covenant limiting (x) the ability of any International
Subsidiary to engage in any line of business, to compete with any Person, to do
business with any Person or in any location or to employ any Person or (y) the
ability of any Person to compete with or obtain products or services from any
International Subsidiary.
(e) Schedule 1.14(e) lists each Acquisition Document.
Section 1.15 Approvals. Each of the International Subsidiaries
has all Approvals required for the conduct of its business, except for
Approvals, the failure to obtain which could not, in the aggregate, have an
International Material Adverse Effect, hinder or delay the performance by any
party of its obligations under this Agreement or hinder or delay the
consummation of the transactions contemplated herein. All such Approvals are
valid and in full force and effect, and the International Subsidiaries are in
compliance with all such Approvals, except for such failures to be valid or to
be in compliance as could not, individually or in the aggregate, have an
International Material Adverse Effect. Except for such proceedings as could not,
individually or in the aggregate, have an International Material Adverse Effort,
there is no
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proceeding pending or, to Parent's or International's knowledge, threatened,
that disputes the validity of any such Approval or that is likely to result in
the revocation, cancellation or suspension, or any adverse modification of, any
such Approval.
Section 1.16 Compliance with Laws. Except as set forth in
Schedule 1.16:
(a) Parent, each Parent Subsidiary and their respective
businesses, facilities, operations and agreements have complied with all Laws
and Approvals, except for such instances of noncompliance as, when taken
together with all other instances of noncompliance, could not have an
International Material Adverse Effect.
(b) No investigation or review by any Governmental Entity with
respect to Parent, any Parent Subsidiary or any of their respective businesses,
facilities, operations or agreements is pending or, to Parent's knowledge,
threatened, except for investigations and reviews which could not, in the
aggregate, have an International Material Adverse Effect, hinder or delay the
performance by any party of its obligations under this Agreement or hinder or
delay the consummation of the transactions contemplated herein. To Parent's
knowledge, no Governmental Entity has indicated an intention to conduct the
same, except for such investigations and reviews as, when taken together with
all other investigations and reviews, could not have an International Material
Adverse Effect.
(c) Neither Parent nor any Parent Subsidiary has received any
notice or communication alleging any noncompliance by any International
Subsidiary with any Law or Approval that has not been cured, and no
International Subsidiary is subject to any unpaid fine or any continuing
sanction for any such noncompliance, except, in either case, for such instances
of noncompliance as, when taken together with all other instances of
noncompliance, could not have an International Material Adverse Effect.
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(d) Neither Parent nor any Parent Subsidiary is in violation
of or in default under, and to Parent's knowledge, no event has occurred which,
with the lapse of time or the giving of notice or both, would result in the
violation of or default under, the terms of any judgment, decree, order,
injunction or writ of any Governmental Entity, except for such violations or
defaults as, when taken together with all other violations and defaults, could
not have an International Material Adverse Effect.
Section 1.17 Insurance. Schedule 1.17 (i) contains a true and
accurate summary of the insurance coverage of the property, assets or business
liabilities of the International Subsidiaries as a whole specifying with respect
to each such type of coverage, the term of the policies or bonds, the limits and
layers of liability and the annual premiums, and (ii) lists any agreements,
arrangements or commitments under which any International Subsidiary indemnifies
any other Person or is required to carry insurance for the benefit of any other
Person in an amount in excess of $1,000,000 in the aggregate. The policies and
bonds summarized in Schedule 1.17 are in full force and effect, all premiums due
and payable thereon have been paid, no notice of cancellation or termination has
been received with respect to any such policy, and the Selling Entities and the
International Subsidiaries have complied with such policies and bonds. Such
policies and bonds will remain in full force and effect through the respective
dates set forth in Schedule 1.17 without the payment of additional premiums,
except in the ordinary course of business, and will not in any way be affected
by, terminate, or lapse by reason of the transactions contemplated by the
Transaction Agreement.
Section 1.18 Customers. Since September 30, 1997, to Parent's
and International's knowledge, no municipality or other customer of any
International Subsidiary accounting for one percent (1%) or more of the
consolidated annual revenue of the International Subsidiaries has canceled or
otherwise terminated its relationship with any International Subsidiary or has
at any time decreased significantly its usage of the services of
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International or any International Subsidiary and there has been no material
adverse change in the business relationship of any International Subsidiary with
any such municipality or customer, as the case may be. To Parent's and
International's knowledge, no such municipality or other customer intends to
cancel or otherwise terminate its relationship with any International Subsidiary
or to decrease significantly its usage of the services of any International
Subsidiary, as the case may be.
Section 1.19 Affiliate Interests. Except as set forth in
Schedule 1.19:
(a) Neither Parent, any Parent Subsidiary nor to the knowledge
of Parent (after reasonable investigation) any director, executive officer or
affiliate of Parent, any Parent Subsidiary, International or any International
Subsidiary (i) has any interest in any property, real or personal, tangible or
intangible, of any International Subsidiary, except for interests with a value
of not greater than $1,000,000 in the aggregate, (ii) has any cause of action or
other claim whatsoever against any International Subsidiary or their respective
assets or properties, or owes any amount to, or is owed any amount by, any of
them, except for claims and indebtedness not in excess of $1,000,000 in the
aggregate, or (iii) owns, directly or indirectly, any debt, equity or other
interest or investment in any Person which is a competitor, lessor, lessee,
customer or supplier of any International Subsidiary, except securities of any
publicly-held corporation which do not exceed one percent (1%) of the
outstanding voting securities of such corporation.
(b) There are no agreements, indebtedness, arrangements,
understandings, obligations or other rights or obligations between any
International Subsidiary, on the one hand, and Parent, any Parent Subsidiary,
International, or to the knowledge of Parent (after reasonable investigation)
any of their respective directors, officers, employees or Affiliates (other than
the International Subsidiaries), on the other hand, other than agreements,
indebtedness,
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arrangements, understandings, obligations and other rights which will not
survive the Closing.
Section 1.20 Title to Properties. Except as set forth on
Schedule 1.20, each International Subsidiary has good and marketable title to or
a valid leasehold interest in all of the properties and assets (real, personal,
mixed, tangible and intangible) which are necessary to the conduct of their
respective businesses as presently conducted, free and clear of all liens,
claims, defects, encumbrances, encroachments, easements, restrictions, security
interests, mortgages or deeds of trust, except (a) liens for current Taxes not
yet due and payable, (b) such liens, easements and zoning restrictions as are
matters of public record, are not substantial in character, amount or extent and
do not impair the use or occupancy of such property or assets or the business
operations of any International Subsidiary, and (c) liens noted in the
International Financial Statements.
Section 1.21 Leased Real Property. Except as set forth in
Schedule 1.21, and except for such failures to be valid, binding and
enforceable, breaches, defaults, violations and events as could not, in the
aggregate, have an International Material Adverse Effect, hinder or delay the
performance by any party of its obligations under this Agreement or hinder or
delay the consummation of the transactions contemplated herein, (i) each lease
of real property to which any International Subsidiary is a party (each, an
"International Existing Real Property Lease") is a valid and binding obligation
of each party thereto and is enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles, (ii) the International Subsidiaries are not in
violation or breach of, or in default under, any International Existing Real
Property Lease, and, to Parent's knowledge, no other party to any International
Existing Real Property Lease is in violation or breach thereof, or in default
thereunder, (iii) to Parent's and International's knowledge, no event has
occurred that, with the passage of time or the giving of notice or both, would
permit the
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unilateral modification, acceleration, or termination of any International
Existing Real Property Lease, and (iv) each International Subsidiary which is a
party to the International Existing Real Property Leases enjoys peaceful and
undisturbed possession under each International Existing
Real Property Lease.
Section 1.22 Personal Property. (a) The equipment and fixtures
used by the International Subsidiaries in connection with their respective
businesses are, in the aggregate, in substantially good repair (reasonable wear
and tear excepted) and are adequate for the uses to which they are being put.
(b) Schedule 1.22(b) sets forth a true and complete list of
all of the leases of personal property to which any International Subsidiary is
a party which provides for payments in excess of $2,000,000 per year
(collectively, the "International Personal Property Leases"). Parent has caused
to be delivered or made available to the Purchaser a true and complete copy of
each International Personal Property Lease.
(c) Except as set forth in Schedule 1.22(c), and except for
failures to be valid, binding or enforceable, defaults, and events which could
not, in the aggregate, have an International Material Adverse Effect, hinder or
delay the performance by any party of its obligations under this Agreement or
hinder or delay the consummation of the transactions contemplated herein, (i)
each International Personal Property Lease is a valid and binding obligation of
each party thereto and is enforceable against each such party in accordance with
its terms, (ii) there is no default or claim of default under any International
Personal Property Lease, and (iii) no event has occurred that, with the passage
of time or the giving of notice or both, would constitute a default by any party
to any International Personal Property Lease, or would permit unilateral
modification, acceleration, or termination of any International Personal
Property Lease.
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Section 1.23 Intellectual Property. Schedule 1.23 includes a
true, complete and current list of all patents, inventions, know-how that has
been acquired for value, trade names, registered and unregistered trademarks,
registered and unregistered service marks and registered and unregistered
copyrights owned or used by any International Subsidiary, and all pending
applications therefor and all licenses and other agreements relating thereto,
other than immaterial items (collectively, the "International Intellectual
Property"). Except as set forth in Schedule 1.23, an International Subsidiary
owns the entire right, title and interest in and to the International
Intellectual Property (including, without limitation, the exclusive right to use
and license the same) and each item constituting part of the International
Intellectual Property has been duly registered or filed with or issued by the
appropriate authorities in the countries indicated in Schedule 1.23 and, to
Parent's and International's knowledge, such registrations, filings and
issuances remain in full force and effect. To Parent's and International's
knowledge, there are no infringements or misappropriations of any proprietary
rights or International Intellectual Property owned by or licensed by or to any
International Subsidiary. The trademarks, service marks and trade names of the
International Subsidiaries are enforceable by such entities and all patents
comprising the International Intellectual Property are valid and enforceable by
the International Subsidiaries. Except as set forth on Schedule 1.23, no consent
of third parties will be required for the use of any International Intellectual
Property as a consequence of the consummation of the transactions contemplated
hereby. Except as set forth on Schedule 1.23, (i) no claims are currently being
asserted by any Person to the use of any of the International Intellectual
Property or challenging or questioning the validity or effectiveness of any such
license or agreement, and the use of the International Intellectual Property by
any International Subsidiary does not infringe on the rights of any Person and
no suits or proceedings are pending or threatened against with respect to the
foregoing; and (ii) no claims are currently being asserted, and, to Parent's and
International's knowledge, no conditions exist upon which
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such claims could be based, that any International Subsidiary is in default or
is not in full compliance with all licenses and other agreements under which it
is using any item of the International Intellectual Property. To Parent's and
International's knowledge there are no infringements of any proprietary rights
owned by or licensed by or to any International Subsidiary. The trademarks,
service marks and trade names of the International Subsidiaries are enforceable
by such entities and the patents of such entities are valid and enforceable by
the International Subsidiaries. The International Intellectual Property
constitutes all of the intellectual property necessary for the operation of the
International Subsidiaries' respective businesses as presently conducted and
provides the International Subsidiaries with all requisite rights to conduct
their respective businesses as presently conducted.
Section 1.24 Employees. (a) Since September 30, 1997, there
have been no increases in salaries, wages and fringe benefits of the employees
of the International Subsidiaries (other than increases in the ordinary course
of business of the International Subsidiaries consistent with past practice),
nor do any such employees that are within the scope of applicability of
collective bargaining agreements enjoy salary benefits in excess of what is
provided under the relevant collective bargaining agreement.
(b) Since September 30, 1997, there have been no changes in
the employment conditions of any International Subsidiaries' employees nor have
any additional employment relationships commenced or offers of employment been
given by any International Subsidiary, except in the ordinary course of business
consistent with past practice.
(c) The International Subsidiaries have neither signed, nor
are they liable under any policy of any life or like personal insurances in
excess of compulsory insurances, nor do any of the employees of the
International Subsidiaries enjoy any other benefits in excess of benefits
provided by Law, except as stated in Schedule 1.25.
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(d) The pension liability of the International Subsidiaries is
fully paid or provided for in the International Financial Statements and,
subsequent to the Closing, the International Subsidiaries will not incur any
costs in respect of any pension liability arising out of employment before the
Closing.
(e) With such exceptions as would not reasonably be likely to
have a material adverse effect on the ability of the International Subsidiaries
operating or conducting business in any particular country to operate or conduct
such business in such country, the International Subsidiaries have paid all
labor related charges.
(f) To Parent's and International's knowledge, there are not
pending any strikes, work stoppage or like in the International Subsidiaries.
(g) To Parent's and International's knowledge there are no
claims from present or former employees of the International Subsidiaries on
account for overtime pay, wages, salaries, vacations, discrimination or
termination of employment which could reasonably be expected to cause or result
in losses, damages, claims or liabilities to or against the International
Subsidiaries greater than $5,000,000 in the aggregate.
Section 1.25 Litigation. Except as set forth on Schedule 1.25
and except for such matters as could not, in the aggregate, have an
International Material Adverse Effect, hinder or delay the performance by any
party of its obligations under this Agreement or hinder or delay the
consummation of the transactions contemplated herein, there are no (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of Parent or International, threatened
against Parent or any Parent Subsidiary, or (ii) obligations or liabilities,
whether or not accrued, contingent or otherwise, including, without limitation,
those relating to matters involving any Environmental Law (as defined below) and
occupational safety and health matters. "Environmental Law" means any
multi-national, national, regional or local
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law, regulation, directive, treaty, convention, order, decree, permit,
authorization, common law or government requirement relating to: (i) the
protection, investigation or restoration of the environment, health, safety, or
natural resources, (ii) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance (as defined below) or (iii) noise,
odor, indoor air, employee exposure, wetlands, pollution, contamination or any
injury or threat of injury to persons or property relating to any Hazardous
Substance. "Hazardous Substance" means any substance that is: (i) listed,
classified or regulated as hazardous, toxic, or harmful pursuant to any
Environmental Law; (ii) any petroleum product or by-product, industrial,
commercial or special waste, asbestos-containing material, lead product,
hazardous material, polychlorinated biphenyls, radioactive materials or
manufacturing byproduct; and (iii) any other substance which is the subject of
regulatory action by any Governmental Authority in connection with any
Environmental Law.
Section 1.26 Employee Benefits. (a) Schedule 1.26 contains a
true and accurate summary, for each jurisdiction in which International or any
International Subsidiary conducts business, of the employees covered, amounts
payable and material terms of payment under the employment, severance, bonus,
incentive, deferred compensation, pension, profit sharing, stock option, stock,
stock based, death benefit, health, disability and other employee benefit plans
or agreements (the "International Employee Benefit Plans") maintained or
contributed to by International or any International Subsidiary in such
jurisdiction. Parent has delivered to Purchaser true, complete and correct
copies of (i) each International Employee Benefit Plan and (ii) each trust
agreement and annuity or other insurance contract relating to any International
Employee Benefit Plan.
(b) Neither International nor any International Subsidiaries
is in default of any material obligation to be performed under any of the
International Employee Benefit Plans. None of the International Employee Benefit
Plans is subject to the provisions of the United States Employee
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Retirement Income Security Act of 1974, as amended. Each International Employee
Benefit Plan has been administered in all material respects in accordance with
its terms. All the International Employee Benefit Plans are in compliance in all
material respects with the provisions of applicable law. All payments,
deductions from wages, reports, returns and similar documents with respect to
the International Employee Benefit Plans required to be filed with or paid to
any Governmental Entity or International Employee Benefit Plan or distributed to
any International Employee Benefit Plan participant have been duly and timely
filed, distributed or paid. There is no pending or, to the knowledge of Parent,
threatened litigation relating to any International Employee Benefit Plan, other
than routine claims for benefits. Each International Employee Benefit Plan which
is a pension plan has sufficient assets to discharge the liabilities for
benefits thereunder.
(c) Except as set forth on Schedule 1.26(c), the consummation
of the transactions contemplated by this Transaction Agreement and the Ancillary
Agreements will not (i) entitle any employees of International or any of
International Subsidiaries to severance pay or (ii) accelerate or provide any
other rights or credits under, or increase the amount payable or trigger any
other obligation pursuant to, any of the International Employee Benefit Plans.
Section 1.27 Environmental Matters. Except as disclosed in
Schedule 1.27, and except for such instances of noncompliance, release,
liability, deficiencies in permitting, use, circumstances, conditions, failures
to reserve orders, decrees, injunctions, directives as could not, individually
or in the aggregate, have an International Material Adverse Effect: (i) Parent
and the Parent Subsidiaries have complied at all times with all applicable
Environmental Laws; (ii) no property owned or operated by Parent or any Parent
Subsidiary (including landfills, transfer stations, incinerators, or any
storage, processing or recycling facility) has released any Hazardous Substance
into the environment; (iii) no property formerly owned or operated by Parent or
any Parent Subsidiaries has released
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any Hazardous Substance into the environment during such period of ownership or
operation; (iv) no International Subsidiary is subject to any liability for any
Hazardous Substance disposal or contamination on any owned or third party
property; (v) each International Subsidiary possesses all permits,
authorizations, licenses and approvals necessary to the current conduct of its
operations and businesses and is not aware of any circumstances that would
interfere with any future permit renewal, issuance or modification required for
any planned future operations or facility expansions; (vi) neither Parent nor
any Parent Subsidiary is subject to any order, decree, injunction, directive or
investigation by any Governmental Entity or to any indemnity, agreement or other
obligation to any third party relating to liability under any Environmental Law;
(vii) none of the properties of any International Subsidiary have been used for
the handling or disposal of any Hazardous Substances other than for the handling
and disposal of uncontaminated household waste and similar materials having the
same regulatory classification in compliance with all Environmental Laws; (viii)
there are no other circumstances or conditions involving any International
Subsidiary that could be expected to result in any claims, liabilities,
investigations, costs or restrictions on the ownership, use, or transfer of any
property in connection with any Environmental Law; (ix) the International
Subsidiaries have established appropriate reserves and posted all required
financial assurances required under any Environmental Law to address all
facility closure and post-closure obligations arising under any Environmental
Law. Except with respect to conditions which could not, individually or in the
aggregate, have an International Material Adverse Effect, (x) neither Parent nor
any Parent Subsidiary has received any notice, demand, letter, claim or request
for information indicating that it may be in violation of or subject to
liability under any Environmental Law; and (ii) Parent has delivered to
Purchaser copies of all environmental reports, studies, assessments, sampling
data and other environmental information in its possession relating to any
International Subsidiary or any of their current or former properties or
operations.
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Section 1.28 Landfills. Schedule 1.28 lists each landfill
owned or operated by International and the International Subsidiaries and
accurately describes each such landfill by its city or county and state or
province of location, total area (in square meters), permitted area (in square
meters), estimated remaining permitted capacity in cubic meters, estimated or
mandated closure date, and estimated closure, post-closure and reclamation
liability at its projected or mandated closure date (computed at the closure
date with and without discount to present value) and any other recorded or
unrecorded accruals, contingent or otherwise, or reserves related to landfill
liabilities of any type.
Section 1.29 Taxes. Except as disclosed in Schedule 1.29: (i)
Parent, International and the International Subsidiaries have timely filed all
Tax Returns that are required to be filed with respect to International or any
International Subsidiaries or any of their income, properties or operations;
(ii) such Tax Returns are true, complete and accurate in all material respects;
(iii) all Taxes due or shown as due on the returns described in clause (i) with
respect to International or any International Subsidiaries (without regard to
whether such Taxes have been assessed and without regard to whether the
liability for such Taxes is disputed) have been timely paid or have been
provided for in a reserve which is adequate for the payment of such Taxes and is
identified in Schedule 1.29; (iv) Parent, International and each of the
International Subsidiaries have maintained adequate provisions on their books
for all Taxes that have accrued but are not yet due; (v) no adjustments or
deficiencies relating to the Tax Returns referred to in clause (i) or any Taxes
attributable to International or any International Subsidiaries have been
assessed, proposed or asserted; (vi) there are no pending or (to the knowledge
of Parent) threatened actions or proceedings for the assessment or collection of
Taxes against International or any International Subsidiaries; (vii) there are
no outstanding waivers or agreements extending or tolling the applicable statute
of limitations for any period with respect to any Taxes of International or any
International Subsidiaries; (viii) no audit or
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examination with respect to International or any International Subsidiaries is
presently pending or (to the knowledge of Parent) threatened; (ix) no material
claim has ever been made by an authority in a jurisdiction where International
or any of the International Subsidiaries does not file Tax Returns that it is or
may be subject to Taxes by that jurisdiction; (x) there are no liens on any of
the assets of International or any International Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Taxes; (xi) neither
International nor any of the International Subsidiaries is a party to any
allocation or sharing agreement or intercompany account system (whether written
or unwritten) in respect of Taxes.*
Section 1.30 Brokers and Finders. Neither Parent nor any of
its officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated in the Transaction Agreement,
except that Parent has employed Morgan Stanley & Co. Incorporated as its
financial advisors, the arrangements with which have been disclosed in writing
to Purchaser prior to the date hereof.
Section 1.31 Aggregation. The imperfections, defects, orders,
actions, defaults, liabilities, inaccuracies and other items omitted from
disclosure in connection with the representations and warranties made in
Sections 1.1 through 1.30 on grounds of immateriality or failure to have an
International Material Adverse Effect do not and could not, taken as a whole,
cause or result in losses, damages, claims or liabilities greater than
$15,000,000.
- --------
* [Other representations to be provided by non-U.S. tax counsel relevant to
jurisdictions where companies or their assets are located.]
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ANNEX II
Representations and Warranties of Purchaser
Purchaser will represent and warrant to Parent as follows:
Section 2.1 Corporate Organization and Qualification.
Purchaser is a societe anonyme duly organized and is validly existing and in
good standing under the laws of the Republic of France, and is qualified and in
good standing as a foreign corporation in each jurisdiction where the properties
owned, leased or operated by it or the business conducted by it require such
qualification, except for such failures to so qualify or be in good standing as
a foreign corporation, which, in the aggregate, could not have a material
adverse effect on the general affairs, business, assets, liabilities, financial
condition, properties, operations or results of operations of Purchaser and its
Subsidiaries, taken as a whole, or on the ability to operate or conduct the
business of Purchaser and its Subsidiaries, taken as a whole, in the manner in
which it is presently operated or conducted (a "Purchaser Material Adverse
Effect"), it being understood that for purposes of the definition of Purchaser
Material Adverse Effect that any change, development or effect which could
reasonably be expected to cause or result in losses, damages, claims or
liabilities to or against Purchaser greater than $15,000,000 shall be deemed to
be such a material adverse effect. Purchaser has the corporate power and
authority to carry on its business as currently conducted. Purchaser has made
available to Parent a complete and correct copy of its statuts, as amended to
date. Purchaser's statuts are in full force and effect.
Section 2.2 Authorized Capital. The authorized capital stock
or equity capitalization of Purchaser consists of ___ Purchaser Shares, all of
which were outstanding on ________, 1997. All of the outstanding Purchaser
Shares have been duly authorized and validly issued, and are fully paid and
(except as set forth on Schedule 2.2) nonassessable. All of the outstanding
equity securities or ownership interests of
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each of Purchaser's Subsidiaries is duly authorized and validly issued, and is
fully paid and (except as set forth in Schedule 2.2) nonassessable and, except
as set forth in Schedule 2.2, is owned, of record and beneficially, either
directly or indirectly, by Purchaser free and clear of all liens, pledges,
security interests, voting trust arrangements, charges, options, restrictions,
claims or other encumbrances, except for such encumbrances as could not, in the
aggregate, have a Purchaser Material Adverse Effect, hinder or delay the
performance by any party of its obligations under this Agreement or hinder or
delay the consummation of the transactions contemplated herein.
Section 2.3 No Dilution. Except as set forth in Schedule 2.3,
Purchaser does not have any Purchaser Shares reserved for issuance. Except as
set forth in Schedule 2.3, there are no subscriptions, calls, commitments,
rights, options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, plans, arrangements or
commitments with respect to the issuance, sale or purchase of any Purchaser
Shares or other equity securities or ownership interests or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, Purchaser Shares or any equity
securities or ownership interests of Purchaser, and no securities or obligations
evidencing such rights are authorized, issued or outstanding. Purchaser does not
have any outstanding securities or instruments the holders of which have the
right to vote (or convert or exchange such securities or instruments into or for
securities having the right to vote) with the shareholders of Purchaser on any
matter.
Section 2.4 Corporate Authority. Subject only to the approval
of Purchaser shareholders, Purchaser has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under the Transaction Agreement and the
Ancillary Agreements and to consummate the transactions contemplated hereby and
thereby. J.P. Morgan & Co. Incorporated has rendered a written opinion to
Purchaser to
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the effect that the Consideration is fair to Purchaser from a financial point of
view. The Transaction Agreement is, and as of and after the Closing will be, and
as of and after the Closing the Ancillary Agreements will be, valid and binding
agreements of Purchaser enforceable against Purchaser in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
Section 2.5 Consideration Shares. When issued at the Closing,
the Consideration Shares shall be duly authorized, validly issued, fully paid
and nonassessable.
Section 2.6 Governmental Filings. Other than the filings
and/or notices required by Council Regulation (EEC) No. 4064/89, [List
non-European antitrust or regulatory filings] and the filings and/or notices set
forth in Schedule 2.6, no notices, reports or other filings are required to be
made by Purchaser with, nor are any consents, registrations, Approvals, permits
or authorizations required to be obtained by Purchaser from, any Governmental
Entity, in connection with the execution and delivery of the Transaction
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby, except for notices, reports, filings, consents,
registrations, Approvals, permits or authorizations, the failure to make or
obtain which could not, in the aggregate, have a Purchaser Material Adverse
Effect, hinder or delay the performance by any party of its obligations under
this Agreement or hinder or delay the consummation of the transactions
contemplated herein.
Section 2.7 Non-Contravention. The execution, delivery and
performance of the Transaction Agreement and the Ancillary Agreements by
Purchaser, and the consummation by Purchaser of the transactions contemplated in
the Transaction Agreement and therein, do not and will not (a) violate or
conflict with, or constitute a default under, any provision of the statuts or
comparable governing instruments of Purchaser or any of its Subsidiaries,
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(b) violate any provision of, or constitute (or with notice or lapse of time or
both would constitute) a default under, or accelerate or permit the acceleration
of the performance required by, any Contracts to which Purchaser or any of its
Subsidiaries is a party or by which any of them or any of their respective
assets or properties are bound or subject (collectively, the "Purchaser
Contracts"), (c) entitle any party to cancel or terminate, or result in any
change in the rights or obligations of any party under, or require a consent or
waiver by any party to, any Purchaser Contract, (d) result in the creation of a
lien, pledge, security interest, voting trust arrangement, charge, option,
restriction, claim, or other encumbrance on the equity securities, ownership
interests or on the assets of Purchaser or any of its Subsidiaries, (e) violate
any Law, by which or to which any of their respective assets or properties are
bound or subject, or (f) result in the loss or impairment of any Approval of or
benefitting Purchaser or any of its Subsidiaries; except (i) in the case of
clauses (b), (d), (e) and (f) of this Section, for such violations, defaults,
accelerations, losses or impairments as, when taken together with all other such
violations, defaults, accelerations, losses and impairments, could not have a
Purchaser Material Adverse Effect, and (ii) in the case of clauses (b) and (c),
for violations, defaults, accelerations, cancellations, terminations of and
changes in rights under the Contracts, instruments, agreements and obligations
listed in Schedule 2.7.
Section 2.8 Financial Statements. The consolidated balance
sheet of Purchaser dated June 30, 1997 (the "Purchaser Balance Sheet Date")
contained in Schedule 2.8(a) (the "Purchaser Balance Sheet") fairly presents the
consolidated assets, liabilities and financial position of Purchaser and its
consolidated Subsidiaries as a whole as of such date in accordance with French
GAAP and the accounting practices listed on Schedule 2.8(a)(i), in each case
consistently applied, except as specifically noted therein. The consolidated
statement of income and of changes in financial condition dated June 30, 1997
contained in Schedule 2.8(a) of (the "Purchaser Income Statement", and,
collectively with the Purchaser Balance Sheet, the
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"Purchaser Financial Statements") fairly presents the consolidated results of
operations, retained earnings and changes in financial condition, as the case
may be, of Purchaser and its consolidated Subsidiaries for such period, in each
case in accordance with French GAAP and the accounting practices listed on
Schedule 2.8(a)(i), in each case consistently applied, except as specifically
noted therein.
Section 2.9 Closing Consents. Except for the consents, waivers
and authorizations set forth in Schedule 2.9 (the "Purchaser Closing Consents"),
and other than as disclosed in Section 2.6, there are no Persons or entities,
other than Purchaser, whose Approval, consent, waiver or authorization is
legally or contractually required to consummate the transactions contemplated by
this Transaction Agreement, except for consents, waivers and authorizations, the
failure to obtain which could not, in the aggregate, have a Purchaser Material
Adverse Effect, hinder or delay the performance by any party of its obligations
under this Agreement or hinder or delay the consummation of the transactions
contemplated herein. As of the Closing, each of the Purchaser Closing Consents
shall have been duly authorized, executed and delivered by each of the parties
thereto and from and after the Closing shall be a valid and binding agreement of
each such party, enforceable against such party in accordance with its terms.
Section 2.10 No Actions. There is no action, claim, dispute,
proceeding, suit, investigation or appeal pending or, to Purchaser's knowledge,
threatened, against Purchaser or any of its Subsidiaries which questions or
challenges the validity of this Transaction Agreement, any Ancillary Agreement
or any Purchaser Closing Consent, or any action taken or proposed to be taken by
Purchaser or any of its Subsidiaries pursuant hereto or thereto or in connection
with the transactions contemplated hereby and thereby, and (to the knowledge of
Purchaser or any Subsidiary of Purchaser) no conditions exist which could
reasonably be expected to lead to any such action, claim, dispute, proceeding,
suit, investigation or appeal.
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Section 2.11 No Undisclosed Liabilities. Notwithstanding any
other representation or warranty set forth in this Transaction Agreement and
except as set forth in Schedule 2.11, Purchaser did not have, as of June 30,
1997, any liabilities of any nature (whether accrued, absolute, fixed,
contingent, liquidated or unliquidated or otherwise and whether due or to become
due, and whether or not required by generally accepted accounting principles to
be set forth on Purchaser's Balance Sheet), except as and to the extent of the
amounts specifically reflected or reserved against in the Purchaser Balance
Sheet or in the notes thereto and except for liabilities which could not, in the
aggregate, have a Purchaser Material Adverse Effect.
Section 2.12 Absence of Certain Changes. Except as set forth
in Schedule 2.12 and except as specifically provided for in the Transaction
Agreement or agreed in writing between Parent and Purchaser, since the Purchaser
Balance Sheet Date:
(a) Purchaser has conducted its businesses only in the
ordinary course of business consistent with past practice;
(b) there has not occurred any damage, destruction or other
casualty loss with respect to any asset or real or tangible personal property
owned, leased or otherwise by Purchaser, whether or not covered by insurance,
which could have a Purchaser Material Adverse Effect;
(c) Purchaser has not (i) sold, pledged or agreed to sell or
pledge any equity securities or ownership interests owned by it in any of its
Subsidiaries; (ii) amended or violated its Statutes; (iii) reclassified, split,
subdivided, combined or reclassified any of its equity securities or ownership
interests; or (iv) declared, set aside or paid any dividend payable in
securities or property other than cash with respect to any of its equity
securities or ownership interests;
(d) Purchaser has not (i) issued, sold, pledged, disposed of
or encumbered any shares of, or securities convertible
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or exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any of its equity securities or ownership interests or any of
its other securities, property or assets; (ii) transferred, leased, licensed,
guaranteed, sold, mortgaged, pledged, disposed of or subjected to or permitted
the imposition of any lien, claim, restriction or encumbrance (other than
statutory liens for taxes not yet due and payable) on any of its assets or
properties, other than in the ordinary course of business consistent with past
practice; (iii) acquired directly or indirectly, by purchase, redemption or
otherwise any of its equity securities or ownership interests; (iv) incurred any
indebtedness for borrowed money or guaranteed the obligations of any Person, or
made any loans or advances, in each case except in the ordinary course of
business consistent with past practice; (v) paid, discharged or satisfied any
liability other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice, of liabilities reflected on or
reserved against the financial statements contained in Schedule 2.8 or
subsequently incurred in the ordinary course of business consistent with past
practice; (vi) entered into any Purchaser Material Contract (as defined in
Section 2.13) or agreement other than in the ordinary course of business
consistent with past practice; or (vii) authorized capital expenditures in
excess of US$200,000,000 in the aggregate or made any direct or indirect
acquisition of, or investment in, assets or stock of any other Person having an
aggregate acquisition price in excess of US$20,000,000;
(e) Purchaser has not, except in the ordinary course of
business consistent with past practice, (i) granted any severance or termination
pay to, or entered into any employment or severance agreement with, or increased
the compensation payable to, any director, officer or other employee of
Purchaser; or (ii) established, adopted, entered into, made any new grants or
awards under or amended any Purchaser Employee Benefit Plans (as defined in
Section 2.25);
(f) Purchaser has not settled or compromised any claims or
litigation or waived, assigned or released any
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rights or claims involving liability or potential liability of Purchaser or
otherwise having a value of $5,000,000 per right, claim or action or $10,000,000
in the aggregate or, except in the ordinary course of business consistent with
past practice, modified, amended or terminated any Purchaser Material Contracts
to which it is a party or by which it or any of its properties is bound;
(g) there has been no change in the accounting policies or
procedures of Purchaser;
(h) Purchaser has not made any tax election or settled or
compromised any Tax liability or permitted any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or terminated, except, in any
such case, in the ordinary course of business consistent with past practice and
except to the extent that such Tax liabilities and insurance policy limits do
not exceed US$5,000,000 in the aggregate;
(i) Purchaser has not sold, disposed of or other wise
abandoned, altered or written down the book value of (except for amortization
and depreciation thereof in accordance with French GAAP), any item of the
property, plant and equipment reflected on the Purchaser Balance Sheet contained
in Schedule 2.8 or on the accounting records of Purchaser as of the Closing,
except for sales and dispositions not exceeding US$5,000,000 in the aggregate;
(j) Purchaser has not created any lien, claim, restriction or
other encumbrance on or affecting title to the real property occupied or used by
Purchaser, other than liens not affecting the use, operation or value of such
real property created in the ordinary course of business consistent with past
practice, or entered into any leases or subleases for any real or personal
property providing for annual payments greater than $15,000,000 in the
aggregate; and
(k) Purchaser has not authorized or entered into an agreement
to do any of the foregoing.
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Section 2.13 Material Contracts. (a) Schedule 2.13(a) contains
a true and complete list of each agreement, instrument, contract or arrangement
to which Purchaser is a party or by which it or any of their respective
properties or assets are bound: (i) which relates to the borrowing of money and
pursuant to which the outstanding indebtedness is in excess of US$5,000,000, or
(ii) under which Purchaser made or received payments in excess of US$5,000,000
during 1997 or is reasonably likely to make or receive payments in excess of
US$5,000,000 during 1998; or (iii) which accounts for two percent (2%) or more
of Purchaser's revenue per annum or imposes any encumbrance, lien or restriction
on any assets or properties (including Purchaser Intellectual Property, as
defined in Section 2.22) used in the manufacture or sale of any such product or
service (collectively, the "Purchaser Material Contracts").
(b) Except as set forth in Schedule 2.13(b) and except for
such failures to be valid, binding and enforceable, breaches, defaults,
violations and events as could not, in the aggregate, have a Purchaser Material
Adverse Effect, hinder or delay the performance by any party of its obligations
under this Agreement or hinder or delay the consummation of the transactions
contemplated herein, (i) each Purchaser Material Contract is a valid and binding
obligation of each of the parties thereto and is enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles,
except for such failures to be valid and binding as could not, individually or
in the aggregate, have a Purchaser Material Adverse Effect, (ii) Purchaser is
not in violation or breach of, or in default under, any Purchaser Material
Contract and, to Purchaser's knowledge, no other party to any Purchaser Material
Contract is in violation or breach thereof, or in default thereunder, except, in
either case, for such violations, breaches and defaults as could not,
individually or in the aggregate, have a Purchaser Material Adverse Effect, and
(iii) to Purchaser's knowledge, no event has occurred that, with the passage of
time or the giving of notice or both, would
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permit the unilateral modification, acceleration, or termination of any
Purchaser Material Contract.
(c) Purchaser has caused to be delivered or made available to
Parent a true, complete and current copy of each Purchaser Material Contract.
(d) Except as set forth on Schedule 2.13(d)(i), and except for
agreements providing, in the aggregate, for the nonstatutory compensation and
benefits summarized in Schedule 2.13(d)(ii), Purchaser is not a party to or
bound by any agreement, instrument, contract or arrangement (i) to which any
directors, executive officers or affiliates of Purchaser or any Purchaser
Subsidiary, is a party or is bound, or (ii) which contains any provision or
covenant limiting (x) the ability of Purchaser to engage in any line of
business, to compete with any Person, to do business with any Person or in any
location or to employ any Person or (y) the ability of any Person to compete
with or obtain products or services from Purchaser.
Section 2.14 Approvals. Purchaser has all Approvals required
for the conduct of its business, except for Approvals, the failure to obtain
which could not, in the aggregate, have a Purchaser Material Adverse Effect,
hinder or delay the performance by any party of its obligations under this
Agreement or hinder or delay the consummation of the transactions contemplated
herein. All such Approvals are valid and in full force and effect, and Purchaser
is in compliance with all such Approvals, except for such failures to be valid
or to be in compliance as could not, individually or in the aggregate, have a
Purchaser Material Adverse Effect. Except for such proceedings as could not,
individually or in the aggregate, have a Purchaser Material Adverse Effect,
there is no proceeding pending or, to Purchaser's knowledge, threatened, that
disputes the validity of any such Approval or that is likely to result in the
revocation, cancellation or suspension, or any adverse modification of, any such
Approval.
Section 2.15 Compliance with Laws. Except as set forth in
Schedule 2.15:
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(a) Purchaser, and its businesses, facilities, operations and
agreements have complied with all Laws and Approvals, except for such instances
of noncompliance as, when taken together with all other instances of
noncompliance, could not have a Purchaser Material Adverse Effect.
(b) No investigation or review by any Governmental Entity with
respect to Purchaser or any of its businesses, facilities, operations or
agreements is pending or, to Purchaser's knowledge, threatened, except for
investigations and reviews which could not, in the aggregate, have a Purchaser
Material Adverse Effect, hinder or delay the performance by any party of its
obligations under this Agreement or hinder or delay the consummation of the
transactions contemplated herein. To Purchaser's knowledge, no Governmental
Entity has indicated an intention to conduct the same, except for such
investigations and reviews as, when taken together with all other investigations
and reviews, could not have a Purchaser Material Adverse Effect.
(c) Purchaser has not received any notice or communication
alleging any noncompliance by Purchaser with any Law or Approval that has not
been cured, and Purchaser is not subject to any unpaid fine or any continuing
sanction for any such noncompliance, except, in either case, for such instances
of noncompliance as, when taken together with all other instances of
noncompliance, could not have a Purchaser Material Adverse Effect.
(d) Purchaser is not in violation of or in default under, and
to Purchaser's knowledge, no event has occurred which, with the lapse of time or
the giving of notice or both, would result in the violation of or default under,
the terms of any judgment, decree, order, injunction or writ of any Governmental
Entity, except for such violations or defaults as, when taken together with all
other violations and defaults, could not have a Purchaser Material Adverse
Effect.
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Section 2.16 Insurance. Schedule 2.16 (i) contains a true and
accurate summary of the insurance coverage of the property, assets or business
liabilities of Purchaser specifying with respect to each such type of coverage,
the term of the policies or bonds, the limits and layers of liability and the
annual premiums, and (ii) lists any agreements, arrangements or commitments
under which Purchaser indemnifies any other Person or is required to carry
insurance for the benefit of any other Person in an amount in excess of
US$1,000,000 in the aggregate. The policies and bonds summarized in Schedule
2.16 are in full force and effect, all premiums due and payable thereon have
been paid, no notice of cancellation or termination has been received with
respect to any such policy, and Purchaser has complied with such policies and
bonds. Such policies and bonds will remain in full force and effect through the
respective dates set forth in Schedule 2.16 without the payment of additional
premiums, except in the ordinary course of business, and will not in any way be
affected by, terminate, or lapse by reason of the transactions contemplated by
the Transaction Agreement.
Section 2.17 Customers. Since the Purchaser Balance Sheet
Date, to Purchaser's knowledge, no municipality or other customer of Purchaser
accounting for one percent (1%) or more of Purchaser's consolidated annual
revenue has canceled or otherwise terminated its relationship with Purchaser or
has at any time decreased significantly its usage of the services of Purchaser
and there has been no material adverse change in the business relationship of
Purchaser with any such municipality or customer, as the case may be. To
Purchaser's knowledge, no such municipality or other customer intends to cancel
or otherwise terminate its relationship with Purchaser or to decrease
significantly its usage of the services of Purchaser, as the case may be.
Section 2.18 Affiliate Interests. Except as set forth in
Schedule 2.18, neither Purchaser, any Purchaser Subsidiary nor to the knowledge
of Purchaser (after reasonable investigation) any director, executive officer or
affiliate of Purchaser or any Purchaser Subsidiary (i) has
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any interest in any property, real or personal, tangible or intangible, of
Purchaser, except for interests with a value of not greater than US$1,000,000 in
the aggregate (ii) has any cause of action or other claim whatsoever against
Purchaser or their respective assets or properties, or owes any amount to, or is
owed any amount by, any of them, except for claims and indebtedness not in
excess of US$1,000,000 in the aggregate, or (iii) owns, directly or indirectly,
any debt, equity or other interest or investment in any Person which is a
competitor, lessor, lessee, customer or supplier of Purchaser, except securities
of any publicly-held corporation which do not exceed one percent (1%) of the
outstanding voting securities of such corporation.
Section 2.19 Title to Properties. Except as set forth on
Schedule 2.19, Purchaser has good and marketable title to or a valid leasehold
interest in all of the properties and assets (real, personal, mixed, tangible
and intangible) which are necessary to the conduct of its businesses as
presently conducted, free and clear of all liens, claims, defects, encumbrances,
encroachments, easements, restrictions, security interests, mortgages or deeds
of trust, except (a) liens for current Taxes not yet due and payable, (b) such
liens, easements and zoning restrictions as are matters of public record, are
not substantial in character, amount or extent and do not impair the use or
occupancy of such property or assets or the business operations of Purchaser and
(c) liens noted in the Purchaser Financial Statements.
Section 2.20 Leased Real Property. Except as set forth in
Schedule 2.20, and except for such failures to be valid, binding and
enforceable, breaches, defaults, violations and events as could not, in the
aggregate, have a Purchaser Material Adverse Effect, hinder or delay the
performance by any party of its obligations under this Agreement or hinder or
delay the consummation of the transactions contemplated herein, (i) each lease
of real property to which Purchaser is a party (each, a "Purchaser Existing Real
Property Lease") is a valid and binding obligation of each party thereto and is
enforceable in accordance with its terms, subject to bankruptcy,
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insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles, (ii) Purchaser is not in violation or breach of, or in
default under, any Purchaser Existing Real Property Lease, and, to Purchaser's
knowledge, no other party to any Purchaser Existing Real Property Lease is in
violation or breach thereof, or in default thereunder, (iii) to Purchaser's
knowledge, no event has occurred that, with the passage of time or the giving of
notice or both, would permit the unilateral modification, acceleration, or
termination of any Purchaser Existing Real Property Lease, and (iv) Purchaser
enjoys peaceful and undisturbed possession under each Purchaser Existing Real
Property Lease.
Section 2.21 Personal Property. (a) The equipment and fixtures
used by Purchaser in connection with its businesses are, in the aggregate, in
substantially good repair (reasonable wear and tear excepted) and are adequate
for the uses to which they are being put.
(b) Schedule 2.21(b) sets forth a true and complete list of
all of the leases of personal property to which Purchaser is a party which
provides for payments in excess of $2,000,000 per year (collectively, the
"Purchaser Personal Property Leases"). Purchaser has caused to be delivered or
made available to Parent a true and complete copy of each Purchaser Personal
Property Lease.
(c) Except as set forth in Schedule 2.21(c), and except for
failures to be valid, binding or enforceable, defaults, and events which could
not, in the aggregate, have a Purchaser Material Adverse Effect, hinder or delay
the performance by any party of its obligations under this Agreement or hinder
or delay the consummation of the transactions contemplated herein, (i) each
Purchaser Personal Property Lease is a valid and binding obligation of each
party thereto and is enforceable against each such party in accordance with its
terms, (ii) there is no default or claim of default under any Purchaser Personal
Property Lease, and (iii) no event has occurred that, with the
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passage of time or the giving of notice or both, would constitute a default by
any party to any Purchaser Personal Property Lease, or would permit unilateral
modification, acceleration, or termination of Purchaser any Purchaser Personal
Property Lease.
Section 2.22 Intellectual Property. Schedule 2.22 includes a
true, complete and current list of all patents, inventions, know-how that has
been acquired for value, trade names, registered and unregistered trademarks,
registered and unregistered service marks and registered and unregistered
copyrights owned or used by any Purchaser Subsidiary, and all pending
applications therefor and all licenses and other agreements relating thereto,
other than immaterial items (collectively, the "Purchaser Intellectual
Property"). Except as set forth in Schedule 2.22, Purchaser owns the entire
right, title and interest in and to the Purchaser Intellectual Property
(including, without limitation, the exclusive right to use and license the same)
and each item constituting part of the Purchaser Intellectual Property has been
duly registered or filed with or issued by the appropriate authorities in the
countries indicated in Schedule 2.22 and, to Purchaser's knowledge, such
registrations, filings and issuances remain in full force and effect. To
Purchaser's knowledge, there are no infringements or misappropriations of any
proprietary rights or Purchaser Intellectual Property owned by or licensed by or
to Purchaser. The trademarks, service marks and trade names of Purchaser are
enforceable by Purchaser and all patents comprising the Purchaser Intellectual
Property are valid and enforceable by Purchaser. Except as set forth on Schedule
2.22, no consent of third parties will be required for the use of any Purchaser
Intellectual Property as a consequence of the consummation of the transactions
contemplated hereby. Except as set forth on Schedule 2.22, (i) no claims are
currently being asserted by any Person to the use of any of the Purchaser
Intellectual Property or challenging or questioning the validity or
effectiveness of any such license or agreement, and the use of the Purchaser
Intellectual Property by Purchaser does not infringe on the rights of any Person
and no suits or proceedings are pending or threatened against with respect to
the foregoing; and
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(ii) no claims are currently being asserted, and, to Purchaser's knowledge, no
conditions exist upon which such claims could be based, that Purchaser is in
default or is not in full compliance with all licenses and other agreements
under which it is using any item of the Purchaser Intellectual Property. To
Purchaser's knowledge there are no infringements of any proprietary rights owned
by or licensed by or to Purchaser. The trademarks, service marks and trade names
of Purchaser are enforceable by Purchaser and the patents of Purchaser are valid
and enforceable by Purchaser. The Purchaser Intellectual Property constitutes
all of the intellectual property necessary for the operation of Purchaser's
businesses as presently conducted and provides Purchaser with all requisite
rights to conduct its businesses as presently conducted.
Section 2.23 Employees. (a) Since the Purchaser Balance Sheet
Date, there have been no increases in salaries, wages and fringe benefits of the
employees of Purchaser (other than increases in the ordinary course of business
of Purchaser consistent with past practice), nor do any such employees that are
within the scope of applicability of collective bargaining agreements enjoy
salary benefits in excess of what is provided under the relevant collective
bargaining agreement.
(b) Since the Purchaser Balance Sheet Date, there have been no
changes in the employment conditions of Purchaser's employees nor have any
additional employment relationships commenced or offers of employment been given
by Purchaser, except in the ordinary course of business consistent with past
practice.
(c) Purchaser has neither signed, nor is it liable under any
policy of any life or like personal insurances in excess of compulsory
insurances, nor do any of the employees of Purchaser enjoy any other benefits in
excess of benefits provided by Law, except as stated in Schedule 2.23.
(d) With such exceptions as would not reasonably be likely to
have a material adverse effect on the ability
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of Purchaser operating or conducting business in any particular country to
operate or conduct such business in such country, Purchaser has paid all labor
related charges.
(e) To Purchaser's knowledge, there are not pending any
strikes, work stoppage or like in Purchaser.
(f) To Purchaser's knowledge there are no claims from present
or former employees of Purchaser on account for overtime pay, wages, salaries,
vacations, discrimination or termination of employment which could reasonably be
expected to cause or result in losses, damages, claims or liabilities to or
against Purchaser greater than US$5,000,000 in the aggregate.
Section 2.24 Litigation and Liabilities. Except as set forth
on Schedule 2.24 and except for such matters as could not, in the aggregate,
have a Purchaser Material Adverse Effect, hinder or delay the performance by any
party of its obligations under this Agreement or hinder or delay the
consummation of the transactions contemplated herein, there are no (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of Purchaser, threatened against
Purchaser or any of its Subsidiaries, or (ii) obligations or liabilities,
whether or not accrued, contingent or otherwise, including, without limitation,
those relating to matters involving any Environmental Law and occupational
safety and health matters.
Section 2.25 Employee Benefits. (a) Schedule 2.25 contains a
true and accurate summary, for each jurisdiction in which Purchaser conducts
business, of the employees covered, amounts payable and material terms of
payment under the employment, severance, bonus, incentive, deferred
compensation, pension, profit sharing, stock option, stock, stock based, death
benefit, health, disability and other employee benefit plans or agreements (the
"Purchaser Employee Benefit Plans") maintained or contributed to by Purchaser in
such jurisdiction. Purchaser has delivered to Parent true, complete and correct
copies of (i) each Purchaser Employee Benefit Plan and (ii) each trust
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agreement and annuity or other insurance contract relating to any Purchaser
Employee Benefit Plan.
(b) Purchaser is not in default of any material obligation to
be performed under any of the Purchaser Employee Benefit Plans. None of the
Purchaser Employee Benefit Plans is subject to the provisions of the United
States Employee Retirement Income Security Act of 1974, as amended. Each
Purchaser Employee Benefit Plan has been administered in all material respects
in accordance with its terms. All the Purchaser Employee Benefit Plans are in
compliance in all material respects with the provisions of applicable law. All
payments, deductions from wages, reports, returns and similar documents with
respect to the Purchaser Employee Benefit Plans required to be filed with or
paid to any Governmental Entity or Purchaser Employee Benefit Plan or
distributed to any Purchaser Employee Benefit Plan participant have been duly
and timely filed, distributed or paid. There is no pending or, to the knowledge
of Purchaser, threatened litigation relating to any Purchaser Employee Benefit
Plan, other than routine claims for benefits. Each Purchaser Employee Benefit
Plan which is a pension plan has sufficient assets to discharge the liabilities
for benefits thereunder.
(c) Except as set forth on Schedule 2.25(c), the consummation
of the transactions contemplated by this Transaction Agreement and the Ancillary
Agreements will not (i) entitle any employees of Purchaser to severance pay or
(ii) accelerate or provide any other rights or credits under, or increase the
amount payable or trigger any other obligation pursuant to, any of the Purchaser
Employee Benefit Plans.
Section 2.26 Environmental Matters. Except as disclosed in
Schedule 2.26 and except for such instances of noncompliance, release,
liability, deficiencies in permitting, use, circumstances, conditions, failures
to reserve orders, decrees, injunctions, directives and investigations as could
not, individually or in the aggregate, have a Purchaser Material Adverse
Effect,: (i) Purchaser has complied at all times with all applicable
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Environmental Laws; (ii) no property owned or operated by Purchaser (including
landfills, transfer stations, incinerators, or any storage, processing or
recycling facility) has released any Hazardous Substance into the environment;
(iii) no property formerly owned or operated by Purchaser has released any
Hazardous Substance into the environment during such period of ownership or
operation; (iv) Purchaser is not subject to any liability for any Hazardous
Substance disposal or contamination on any owned or third party property; (v)
Purchaser possesses all permits, authorizations, licenses and approvals
necessary to the current conduct of its operations and businesses and is not
aware of any circumstances that would interfere with any future permit renewal,
issuance or modification required for any planned future operations or facility
expansions; (vi) Purchaser is not subject to any order, decree, injunction,
directive or investigation by any Governmental Entity or to any indemnity,
agreement or other obligation to any third party relating to liability under any
Environmental Law; (vii) none of the properties of Purchaser have been used for
the handling or disposal of any Hazardous Substances other than for the handling
and disposal of uncontaminated household waste and similar materials having the
same regulatory classification in compliance with all Environmental Laws; (vii)
there are no other circumstances or conditions involving Purchaser that could be
expected to result in any claims, liabilities, investigations, costs or
restrictions on the ownership, use, or transfer of any property in connection
with any Environmental Law; (x) Purchaser has established appropriate reserves
and posted all required financial assurances required under any Environmental
Law to address all facility closure and post- closure obligations arising under
any Environmental Law. Except with respect to conditions which could not,
individually or in the aggregate, have a Purchaser Material Adverse Effect, (vi)
Purchaser has not received any notice, demand, letter, claim or request for
information indicating that it may be in violation of or subject to liability
under any Environmental Law; and (ii) Purchaser has delivered to Parent copies
of all environmental reports, studies, assessments, sampling data and other
environmental
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information in its possession relating to Purchaser or any
of its current or former properties or operations.
Section 2.27 Landfills. Schedule 2.27 lists each landfill
owned or operated by Purchaser and accurately describes each such landfill by
its city or county and state or province of location, total area (in square
meters), permitted area (in square meters), estimated remaining permitted
capacity in cubic meters, estimated or mandated closure date, and estimated
closure, post-closure and reclamation liability at its projected or mandated
closure date (computed at the closure date with and without discount to present
value) and any other recorded or unrecorded accruals, contingent or otherwise,
or reserves related to landfill liabilities of any type.
Section 2.28 Taxes. Except as disclosed in Schedule 2.28: (i)
Purchaser timely filed all Tax Returns that are required to be filed with
respect to Purchaser or any of its income, properties or operations; (ii) such
Tax Returns are true, complete and accurate in all material respects; (iii) all
Taxes due or shown as due on the returns described in clause (i) with respect to
Purchaser (without regard to whether such Taxes have been assessed and without
regard to whether the liability for such Taxes is disputed) have been timely
paid or have been provided for in a reserve which is adequate for the payment of
such Taxes and is identified in Schedule 2.28; (iv) Purchaser has maintained
adequate provisions on their books for all Taxes that have accrued but are not
yet due; (v) no adjustments or deficiencies relating to the Tax Returns referred
to in clause (i) or any Taxes attributable to Purchaser has been assessed,
proposed or asserted; (vi) there are no pending or (to the knowledge of
Purchaser) threatened actions or proceedings for the assessment or collection of
Taxes against Purchaser; (vii) there are no outstanding waivers or agreements
extending or tolling the applicable statute of limitations for any period with
respect to any Taxes of Purchaser; (viii) no audit or examination with respect
to Purchaser is presently pending or (to the knowledge of Purchaser) threatened;
(ix) no material claim has ever been made by an authority in a jurisdiction
where Purchaser does
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not file Tax Returns that it is or may be subject to Taxes by that jurisdiction;
(x) there are no liens on any of the assets of Purchaser that arose in
connection with any failure (or alleged failure) to pay any Taxes; (xi)
Purchaser is not a party to any allocation or sharing agreement or intercompany
account system (whether written or unwritten) in respect of Taxes.*
Section 2.29 Brokers and Finders. Neither Purchaser nor any of
its officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated in the Transaction Agreement,
except that Purchaser has employed J.P. Morgan & Co. Incorporated as its
financial advisors, the arrangements with which have been disclosed in writing
to Parent prior to the date hereof.
Section 2.30 Aggregation. The imperfections, defects, orders,
actions, defaults, liabilities, inaccuracies and other items omitted from
disclosure in connection with the representations and warranties made in
Sections 2.1 through 2.29 on grounds of immateriality or failure to have a
Purchaser Material Adverse Effect do not and could not, taken as a whole, cause
or result in losses, damages, claims or liabilities greater than US$15,000,000.
- --------
* Other representations to be provided by non-U.S. tax counsel relevant to
jurisdictions where companies or their assets are located.
II-21
<PAGE> 99
ANNEX III
Conditions to Obligations of Each Party
The obligations of the parties to consummate the transactions
contemplated by the Transaction Agreement will be subject to the satisfaction or
waiver of the following conditions:
(a) No court of competent jurisdiction shall have issued or
entered any order which is then in effect and has the effect of making any of
the transactions contemplated by the Transaction Agreement illegal or otherwise
prohibiting their consummation.
(b) Any waiting period (and any extension thereof) applicable
to the consummation of the transactions contemplated hereby under any
competition, merger control or similar Law, including Council Regulation (EEC)
No. 4064/89 and [List non-European antitrust and regulatory filings], shall have
expired or been terminated.
III-1
<PAGE> 100
ANNEX IV
Conditions to the Obligations of Purchaser
The obligation of Purchaser to consummate the transactions
contemplated by the Transaction Agreement will be subject to the satisfaction or
waiver of the following additional conditions:
(a) Each of the representations and warranties of Parent and
International contained in the Transaction Agreement shall be true and correct
in all material respects as of the Measuring Date and the Closing as though made
on and as of each such date, except that those representations and warranties
that address matters only as of a particular date shall remain true and correct
as of such date, and Purchaser shall have received a certificate of the Chief
Executive Officer and the Chief Financial Officer of Parent to such effect.
(b) Parent shall have performed or complied in all material
respects with all agreements and covenants required by the Transaction Agreement
to be performed or complied with by it on or prior to the Measuring Date and the
Closing, as the case may be, and Purchaser shall have received a certificate of
the Chief Executive Officer and the Chief Financial Officer of Parent to such
effect.
(c) Parent shall have furnished to Purchaser evidence
reasonably satisfactory to it that the aggregate consolidated indebtedness of
the International Subsidiaries as of the Closing does not exceed $215.5 million.
(d) Parent and the Parent Subsidiaries shall have obtained the
Parent Closing Consents.
(e) Parent shall have executed and delivered the Shareholders
Agreement.
(f) Parent shall have executed and delivered the Technical
Cooperation Agreement.
IV-1
<PAGE> 101
ANNEX V
Conditions to the Obligations of Parent
The obligation of Parent to consummate the transactions
contemplated by the Transaction Agreement will be subject to the satisfaction or
waiver of the following additional conditions:
(a) Each of the representations and warranties of Purchaser
contained in the Transaction Agreement shall be true and correct in all material
respects as of the Measuring Date and the Closing, as though made on and as of
each such date, except that those representations and warranties that address
matters only as of a particular date shall remain true and correct as of such
date, and Parent shall have received a certificate of the Chief Executive
Officer and the Chief Financial Officer of Purchaser to such effect.
(b) Purchaser shall have performed or complied in all material
respects will all agreements and covenants required by the Transaction Agreement
to be performed or complied with by it on or prior to the Measuring Date and the
Closing, as the case may be, and Parent shall have received a certificate of the
Chief Executive Officer and the Chief Financial Officer of Purchaser to such
effect.
(c) Purchaser shall have obtained the Purchaser Closing
Consents.
(d) Purchaser shall have executed and delivered the
Shareholders Agreement.
(e) Purchaser shall have executed and delivered the Technical
Cooperation Agreement.
V-1
<PAGE> 102
ANNEX VI
Survival and Indemnification
Section 6.1 Survival. The representations of the parties shall
survive the Closing until the publication of audited financial statements of
Purchaser for the year ended December 31, 1999 (which is expected to be
approximately March 31, 2000), except that the representations as to Corporate
Organization and Qualification, Authorized Capital, Ownership and Title, No
Dilution and Corporate Authority shall survive in perpetuity, the
representations as to Environmental Matters shall survive until the fifth
anniversary of the Closing and the representations as to Taxes and Employee
Benefits shall survive until the expiration of all relevant statutes of
limitations.
Section 6.2 Indemnification. (a) Parent and International
shall jointly and severally indemnify Purchaser against any direct losses,
costs, expenses and damages of any kind or nature whatsoever (each, a "Loss")
arising in connection with: (i) any breach of any representation, as qualified
by schedules delivered in accordance with Section 3(a), made by Parent or
International in the Transaction Agreement or any other certificate or document
delivered pursuant to such Agreement, (ii) any breach or violation of, or
failure to perform fully, any covenant, agreement, undertaking or obligation of
Parent or International set forth in the Transaction Agreement, or (iii) any
Taxes for which Parent and International are liable, in accordance with Section
4(a), pursuant to the Transaction Agreement. Parent and International shall not
be liable for damages arising in connection with its indemnification obligations
until the amount of damages incurred exceeds $15,000,000 in the aggregate. In
such event, Parent and International shall be liable for all such damages
including the first $15,000,000.
(b) Purchaser shall indemnify Parent and International against
all Losses arising in connection with: (i) any breach of any representation (as
qualified by schedules delivered in accordance with Section 3(a), made by
VI-1
<PAGE> 103
Purchaser in the Transaction Agreement or any other certificate or document
delivered pursuant to such Agreement) in respect of matters that were not
publicly disclosed prior to the twentieth day prior to the Measuring Date, (ii)
any breach or violation of, or failure to perform fully, any covenant,
agreement, undertaking or obligation of Purchaser set forth in the Transaction
Agreement, or (iii) any Taxes for which Purchaser is liable, in accordance with
Section 4(b), pursuant to the Transaction Agreement. Purchaser shall not be
liable for damages arising in connection with its indemnification obligations
until the amount of damages (calculated as set forth below) incurred exceeds
$15,000,000 in the aggregate. In such event, Purchaser shall be liable for all
such damages including the first $15,000,000. For purposes of calculating
damages to Parent and International in connection with any indemnity or claim,
damages to Parent or International, as the case may be, shall be calculated as
the damages to Purchaser in respect of such item multiplied by the fraction the
numerator of which is the aggregate number of Consideration Shares issued to
Parent and its Subsidiaries at Closing and the denominator of which is the
number of Purchaser Shares outstanding at Closing (including the issuance of the
Consideration Shares) (the "Parent Percentage Ownership"), such amount to be
increased by an amount equal to such amount multiplied by the Parent Percentage
Ownership. For purposes of calculating damages to Purchaser relating to an
International Subsidiary which is less than 100% owned, directly or indirectly,
by Parent, Purchaser may make a claim for indemnification for such Loss, subject
to the provisions of this Section 6, only up to a percentage of such Loss equal
to the percentage ownership of such International Subsidiary held, directly or
indirectly, by Parent on the Closing.
Section 6.3 Calculation of Loss. (a) In calculating the amount
of a Loss, there shall be deducted:
(i) an amount equal to any tax benefit (including the creation
or increase of a tax loss carried forward) actually realized as a
result of such Loss by any of the International Subsidiaries (if the
claim is made by
VI-2
<PAGE> 104
the Purchaser) or by the Purchaser or any of its Affiliates (including,
with respect to any tax benefit realized after the Closing with respect
to a period prior to the Closing and not reflected on the closing
balance sheet prepared in connection with the post-closing adjustment
referred to in Section 2(b) of the Agreement, the International
Subsidiaries) (if the claim is made by Parent or International);
(ii) the amount of any specifically identified reserve or
provision included in the International Financial Statements (if the
claim is made by the Purchaser) or the Purchaser Financial Statements
(if the claim is made by International and/or Parent), with respect to
the facts or circumstances giving rise to such Loss;
(iii) the amount of (i) proceeds actually received under any
indemnification arrangement or any policy of insurance, paid to any
International Subsidiary (if the claim is made by the Purchaser) or to
the Purchaser or its Affiliates (if the claim is made by International
and/or Parent), with respect to such Loss, minus (ii) the costs of
collection of such proceeds and the insurance premiums paid with
respect to any such policy for the period covering such Loss.
(b) In the event that the amount of any deduction which shall
be applied pursuant to this Section 6.3 is determined after payment by a party
under this Agreement of the amount otherwise required pursuant to this Section
6, the indemnified party shall repay the paying party promptly after such
determination any amount that the paying party would not have had to pay
pursuant to this Section 6 had such determination been made at or prior to the
time of such payment.
Section 6.4 No party shall be entitled to make a claim for
indemnification for Losses against the other in respect of any tax audit or
claim which merely modifies the tax period during which a deductible charge or
amortization may be taken or in respect of any VAT assessment (except if such
VAT is not recoverable), except for any interest or penalties resulting
therefrom.
VI-3
<PAGE> 1
Exhibit 12
BROWNING-FERRIS INDUSTRIES, INC.
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings Available for
Fixed Charges:
Income (loss) before
extraordinary items
and minority interest $ 297,085 $ (77,482) $ 414,646 $ 299,474 $ 197,461
Income taxes 198,057 105,188 276,430 199,649 129,726
--------- --------- --------- --------- ---------
Income before income
taxes, extraordinary
items and minority
interest 495,142 27,706 691,076 499,123 327,187
Consolidated interest
expense 165,225 179,299 159,529 93,159 70,894
Interest expense related
to proportionate share
of 50% owned affiliates 33,215 22,613 19,722 22,689 25,354
Portion of rents representing
the interest factor 35,741 35,045 31,842 20,868 18,721
Less-Equity in earnings
of affiliates less than
50% owned 3,210 3,238 1,643 4,698 --
--------- --------- --------- --------- ---------
Total $ 726,113 $ 261,425 $ 900,526 $ 631,141 $ 442,156
========= ========= ========= ========= =========
Fixed Charges:
Consolidated interest
expense and interest
costs capitalized $ 174,939 $ 195,605 $ 170,958 $ 104,759 $ 89,563
Interest expense and
interest costs capitalized
related to
proportionate share of
50% owned affiliates 33,215 24,408 20,351 22,974 25,484
Portion of rents representing
the interest factor 35,741 35,045 31,842 20,868 18,721
--------- --------- --------- --------- ---------
Total $ 243,895 $ 255,058 $ 223,151 $ 148,601 $ 133,768
========= ========= ========= ========= =========
Ratio of Earnings to
Fixed Charges 2.98(1) 1.02(2) 4.04 4.25 3.31(3)
========= ========= ========= ========= =========
</TABLE>
(1) Excluding the effects of the fiscal 1997 special charges of $81.9 million,
the ratio of earnings to fixed charges for fiscal 1997 is 3.31.
(2) Excluding the effects of the fiscal 1996 special charges of $446.8 million,
the ratio of earnings to fixed charges for fiscal 1996 is 2.77.
(3) Excluding the effects of the fiscal 1993 reorganization charge of $27.0
million, the ratio of earnings to fixed charges for fiscal 1993 is 3.51.
<PAGE> 1
EXHIBIT 21
BROWNING-FERRIS INDUSTRIES, INC.
LIST OF SUBSIDIARIES
(SEE INDEX ON PAGE 8 FOR EXPLANATION
OF PARENT AND SUBSIDIARY RELATIONSHIPS
NORTH AMERICAN SUBSIDIARIES
<TABLE>
<S> <C> <C>
Attwoods of North America, Inc. Delaware
BFI de Mexico, S.A. deC.V. Mexico
BFI Energy Systems of Albany, Inc. Delaware
BFI Energy Systems of Delaware County, Inc. Delaware
BFI Energy Systems of Boston, Inc. Massachusetts
BFI Energy Systems of Essex County, Inc. New Jersey
BFI Energy Systems of Hempstead, Inc. Delaware
BFI Energy Systems of Niagara, Inc. Delaware
BFI Energy Systems of Plymouth, Inc. Delaware
BFI Energy Systems of SEMASS, Inc. Delaware
BFI Energy Systems of Southeastern Connecticut, Inc. Delaware
BFI Medical Waste Systems of Washington, Inc. Delaware
BFI of Metro New York, Inc. Delaware
BFI of Ponce, Inc. Puerto Rico
BFI Organics, Inc. Delaware
Pioneer Southern, Inc. Delaware
BFI Ref-Fuel, Inc. Delaware
1 BFI Services Group, Inc. California
BFI Trans River (GP), Inc. Delaware
BFI Trans River (LP), Inc. Delaware
BFI Waste Systems of North America, Inc. Delaware
Browning-Ferris Gas Services, Inc. Delaware
1 Browning-Ferris, Inc. Maryland
TRC, Inc. Pennsylvania
1 Browning-Ferris Industries Chemical Services, Inc. Nevada
Browning-Ferris Industries, Inc. Massachusetts
Browning-Ferris Industries Ltd. Ontario
389343 Alberta Ltd. Alberta
2 Eldridge Finance Company Republic of Ireland
Contenants - Rebut Cadi Ltee Quebec
Usine de Triage Lachenaie Inc. Quebec
BFI Energy Inc. Quebec
1 Environmental Waste Systems, Inc. Ontario
10133 Newfoundland Limited Newfoundland
Browning-Ferris Industries of California, Inc. California
Keller Canyon Landfill Company California
Pleasant Hill Bayshore Disposal, Inc. California
Browning-Ferris Industries of Connecticut, Inc. Delaware
Browning-Ferris Industries of Florida, Inc. Delaware
Browning-Ferris Industries of Hawaii, Inc. Delaware
Honolulu Environmental Transfer, Inc. Hawaii
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Browning-Ferris Industries of Illinois, Inc. Delaware
Browning-Ferris Industries of New Jersey, Inc. New Jersey
BFI Transfer Systems of New Jersey, Inc. New Jersey
BFI Waste Systems of New Jersey, Inc. New Jersey
Browning-Ferris Industries of New York, Inc. New York
Browning-Ferris Industries of Ohio, Inc. Delaware
3 Warner Hill Development Company Ohio
Browning-Ferris Industries of Pennsylvania, Inc. Delaware
Imperial Landfill Company, Inc. Pennsylvania
New Morgan Landfill Company, Inc. Pennsylvania
Browning-Ferris Industries of Puerto Rico, Inc. Puerto Rico
Browning-Ferris Industries of Tennessee, Inc. Tennessee
Jefferson Pike Landfill, Inc. Delaware
T.R.A.S.H., Inc. Tennessee
Browning-Ferris Services, Inc. Delaware
BFI Equipment Leasing I, Inc. Delaware
Browning-Ferris Financial Services, Inc. Delaware
CECOS International, Inc. New York
4 Eastern Disposal, Inc. Quebec
Environmental Development Corp. Puerto Rico
Global Indemnity Assurance Company Vermont
International Disposal Corp. of California California
Newco Waste Systems of New Jersey, Inc. New Jersey
Risk Services, Inc. Delaware
West Roxbury Crushed Stone Co. Massachusetts
Woodlake Sanitary Service, Inc. Minnesota
5 VHG, Inc. Minnesota
</TABLE>
-2-
<PAGE> 3
INTERNATIONAL
<TABLE>
<S> <C> <C>
6 Al-Mulla Environmental Systems, W.L.L. Kuwait
BFI International Finance B.V. The Netherlands
BFI International, Inc. Delaware
Browning-Ferris Industries Europe, Inc. Delaware
Browning-Ferris Industries Holding B.V. The Netherlands
7 BFI Iberica S.A. Spain
Ingenieria Ambiental Alcarrena, S.A. Spain
8 Ingenieria Ambiental Granadina, S.A. Spain
Ingenieria Ambiental Completa Spain
Transric S.A. U.T.E. Alcobendas Spain
9 Castellana De Servicios, SA Y Transric S.A. U.T.E. Spain
Ingenieria Ambiental Andaluza, S.A. Spain
10 Ingenieria Ambiental Antequerana, S.A. Spain
Ingenieria Ambiental Catalana, S.A. Spain
Gestion Y Tratamiento De Residuos, S.A. Spain
BFI Finland Oy AB Finland
Somero-BFI OY Finland
Fritz Erismann AG Switzerland
A. De Jong Gorcum Milieutelhniek B.V. The Netherlands
Omega Randstad Holding B.V. The Netherlands
Omega Randstad B.V. The Netherlands
Mavebe Maatschapplj tot Verhur Van Bedrijfsen B.V. The Netherlands
J. De Bruyn Onroerend Goeb B.V. The Netherlands
Recycling Bedrijf Randstad B.V. The Netherlands
Jansen Industriele Reinging En Afvalverwerking B.V. The Netherlands
Maatman Afvalverwerking B.V. The Netherlands
De Wit Milieu B.V. The Netherlands
BFI Vastgoed B.V. The Netherlands
Transportedrijf J. Van Tongeren B.V. The Netherlands
BFI Bijzondere Afvalstoffen B.V. The Netherlands
Van Rijswijk Containers B.V. The Netherlands
Heerbaart Recycling B.V. The Netherlands
IBA Recycling B.V. The Netherlands
Heerbaart Reinigings-Bedrijven B.V. The Netherlands
Reinmat B.V. The Netherlands
Spitman Milieu B.V. The Netherlands
IBA Milieu B.V. The Netherlands
Niemendal Transport B.V. The Netherlands
Oost-Nederlandse Reinigingsdienst B.V. The Netherlands
Oost-Nederlandse Container Dienst B.V. The Netherlands
B.V. Handelsmaatschappij R.V.R. The Netherlands
West Holland Recycling B.V. The Netherlands
18 Alphen Recycling V.B. The Netherlands
Lekkerkerk-Rehorst Vastgoed Combinatie B.V. The Netherlands
Wijtrans Milieu B.V. The Netherlands
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C> <C>
Spitman Industrele Services B.V. The Netherlands
Kroon Bemeer Urmond B.V. The Netherlands
Kroon Milieu Technick B.V. The Netherlands
Groenheilde Reinging B.V. The Netherlands
Maatman Elbergen B.V. The Netherlands
Maatman Roolreiniging B.V. The Netherlands
Jaap Van Vliet B.V. The Netherlands
Koks Nilo Milieu B.V. The Netherlands
Koks' Containerservice B.V. The Netherlands
Zwart Vastgoed B.V. The Netherlands
Koks/Nilo Recycling B.V. The Netherlands
Wyjrans Recycling B.V. The Netherlands
Recycling Maatschappij "Houtsnip" B.V. The Netherlands
Recycling Amsterdam Vastgoed B.V. The Netherlands
Contraned Milieu B.V. The Netherlands
A.C.D. Milieu B.V. The Netherlands
Browning-Ferris Industries Europa B.V. The Netherlands
Jan Oldenburger B.V. The Netherlands
Jan Oldenburger Beheer B.V. The Netherlands
Jan Oldenburger Holding B.V. The Netherlands
Jan Oldenburger Reinging B.V. The Netherlands
Jan Oldenburger Container Service B.V. The Netherlands
Nova Recycling B.V. The Netherlands
BFI Jzondere Afval Stoffen Noord B.V. The Netherlands
Riooltechnieken Nederland B.V. The Netherlands
Eemsmond Handel En Transport B.V. The Netherlands
Boekhorst Containers B.V. The Netherlands
19 Afvalstoffen Verw. Zeeland B.V. The Netherlands
20 Houtverwerding Limburg B.V. The Netherlands
21 Acts B.V. The Netherlands
Verkerk Alphen A/D Rijn B.V. The Netherlands
Verkerk Recycling B.V. The Netherlands
Alphen Recycling B.V. The Netherlands
Geisler Container B.V. The Netherlands
Geisler Ligistiek B.V. The Netherlands
Container Limburg B.V. The Netherlands
Afval Recycling Midden Limburg B.V. The Netherlands
Geisler Grondverzetbedrijf B.V. The Netherlands
Transclean B.V. The Netherlands
Kole Milieu B.V. The Netherlands
Rademaker Milieu B.V. The Netherlands
J. Poldervaart B.V. The Netherlands
G. Poldervaart B.V. The Netherlands
22 Poldervaart Afvalverwerking B.V. The Netherlands
Meisner Holding B.V. The Netherlands
Meisner (Stortplaats Noord Drenthe) B.V. The Netherlands
G.J. Eiland Beheer B.V. The Netherlands
G.J. Eiland Containerdienst B.V. The Netherlands
West Holland Milieu B.V. The Netherlands
</TABLE>
-4-
<PAGE> 5
<TABLE>
<S> <C> <C>
Recycling Dordrecht B.V. The Netherlands
Maatman Mileiu B.V. The Netherlands
Maatman Reiniging B.V. The Netherlands
R.J. Maatman Beher B.V. The Netherlands
Maatman Containers B.V. The Netherlands
Container Transport Maas and Waal B.V. The Netherlands
Maas en Waal Pensioen B.V. The Netherlands
BFI Acquisitions Ltd. United Kingdom
Attwoods Ltd. United Kingdom
Attwoods American Holdings Ltd. United Kingdom
Attwoods Holdings Ltd. United Kingdom
Ebenezer Mears Plant Hire Ltd. United Kingdom
Ebenezer Mears Sand Producers Ltd. United Kingdom
Attwoods Overseas Leasing Ltd. United Kingdom
Attwoods Technologies Ltd. United Kingdom
Attwoods Israeli Investments Ltd. United Kingdom
Attwoods Israeli Ltd. United Kingdom
14 Green Land Ltd. United Kingdom
Attwoods B.V. The Netherlands
Attwoods Holdings GmbH Germany
Attwoods & Dixi Entsorgungs GmbH Germany
Omega Holding GmbH Germany
ADCO Attwoods and Dixi Umweltschurtz GmbH Germany
DPT Transport GmbH Germany
ADCO Schleizer Umweltdienste GmbH Germany
Schader Entsorgungs GmbH Germany
Catina-Lecker Essen und Trinken GmbH Germany
Olymp GmbH Transportable Sanitaersysteme Germany
ADCO Mobil Raun GmbH Germany
Old Original Bakewell Pudding Shop (U.K.) United Kingdom
15 A & J Bull (Holdings) Ltd. (U.K.) United Kingdom
Vesta Investments Ltd. United Kingdom
Attwoods Finance N.V. Netherlands Antilles
Taskmasters Holdings Ltd. United Kingdom
Chiefsum Ltd. United Kingdom
Taskmasters Cleansing Services Ltd. United Kingdom
Pritchard Industrial Services Ltd. United Kingdom
BFI Ltd. United Kingdom
16 Wareham Ball Clay Co. Ltd. United Kingdom
Community Recycling Ltd. United Kingdom
14 Green Land Reclamation Ltd. United Kingdom
14 Cranford Realty Ltd. United Kingdom
17 Drinkwater Sabey CWD Ltd. United Kingdom
F. Avann Ltd. United Kingdom
Drinkwater Sabey Ltd. United Kingdom
16 Sands and Gravels (Standlake) Ltd. United Kingdom
Ebenezer Mears and Son, Ltd. United Kingdom
Dorset Waste Management Ltd. United Kingdom
Billetvale Ltd. United Kingdom
</TABLE>
-5-
<PAGE> 6
<TABLE>
<S> <C> <C>
Surrey Operational Services Ltd. United Kingdom
E. F. Phillips Ltd. United Kingdom
Holmspring Ltd. United Kingdom
Maybank Enterprises Holdings Ltd. United Kingdom
Drinkwater and Murray Ltd. United Kingdom
Openpitch Ltd. United Kingdom
W.W. Drinkwater Ltd. United Kingdom
Drinkwater Sabey (Tilmanstone) Ltd. United Kingdom
W. Tinsley and Son Ltd. United Kingdom
Maybank Enterprises Ltd. United Kingdom
Dixi Sanitation Services (U.K.) Ltd. United Kingdom
Attwoods (Jersey) Holdings Ltd. United Kingdom
Browning-Ferris Industries (UK) Ltd. United Kingdom
BFI Wastecare Limited United Kingdom
BFI Carnforth, Limited United Kingdom
BFI Coventry Limited United Kingdom
Browning-Ferris Environmental Services Ltd. United Kingdom
BFI Packington Limited United Kingdom
Jackson Brickworks (Warwickshire) United Kingdom
Browning-Ferris Services (U.K.) Ltd. United Kingdom
Browning-Ferris Industries (Deutschland) GmbH Germany
Browning-Ferris Industries (Belgium) S.A. Belgium
Browning-Ferris Industries Reinigungstechnik GmbH Germany
Browning-Ferris Industries Argentina, Inc. Argentina
BFI Argentina S.A. Argentina
14 Soluciones Quimicas Argentina
Browning-Ferris Industries (Australia) Pty. Ltd. Australia
Browning-Ferris Industries (Cranbourne) Pty. Ltd. Australia
Browning-Ferris Industries (N.S.W.) Pty. Ltd. Australia
Environmental Consultants (Asia Pacific) Pty. Ltd. Australia
Browning-Ferris Industries (Victoria) Pty. Ltd. Australia
Builders Bins Pty. Ltd. Australia
Browning-Ferris Industries (S.A.) Pty. Ltd. Australia
Browning-Ferris Industries (ACT) Pty. Ltd. Australia
Browning-Ferris Industries (W.A.) Pty. Ltd. Australia
Browning-Ferris Industries (Superannuation) Pty. Ltd. Australia
BFI (Central Coast) Pty. Ltd. Australia
Jennings Liquid Waste Pty. Ltd. Australia
Jennings Environmental Services Australia
Browning-Ferris Industries Asia Pacific, Inc. Delaware
14 Swire BFI Waste Services, Ltd. Hong Kong
Waylung Waste Collection Ltd. Hong Kong
Midland Waste International, Ltd. Hong Kong
Island East Transfer Station Hong Kong
11 Companhia de Sistemas de Residuos, Ltd. Hong Kong
BF Landfill Services Taiwan Taiwan
Waste Care, Ltd. New Zealand
Hopper Services New Zealand
General Rubbish-Wellington New Zealand
</TABLE>
-6-
<PAGE> 7
<TABLE>
<S> <C> <C>
J.R. McKeen Contractors, Ltd. New Zealand
Budget Bins, Ltd. New Zealand
Winz Bins, Ltd. New Zealand
Regular Rubbish Removal Ltd. New Zealand
Waste Care Medisafe Ltd. New Zealand
23 BFI Waste Care Ltd. New Zealand
Jumbo Bins, Ltd. New Zealand
24 Browning-Ferris Industries (N.Z.) Ltd. New Zealand
24 Waste Disposal Services Ltd. New Zealand
24 Allens United Septic Tank Cleaning Services (Whangerei) Ltd. New Zealand
24 Besco Bins Ltd. New Zealand
24 Allens Septic Tank Cleaning Services (Manawatu) Ltd. New Zealand
Browning-Ferris Industries de Mexico, S.A. de C.V. Mexico
BFI de EcoMex, S.A. de C.V. Mexico
BFI International de Vallarta, S.A. de C.V. Mexico
BFI de Vallarta Services, S.A. de C.V. Mexico
BFI Atlantic, Inc. Delaware
12 BFI Atlantic GmbH Germany
13 Otto Entsorgungsdienstleistungen GmbH Germany
Browning-Ferris Industries Taiwan, Inc. Taiwan
</TABLE>
-7-
<PAGE> 8
Parent-subsidiary relationships are indicated by indentations. Except as
otherwise indicated by symbol preceding the name, 100% of the voting securities
of each of the subsidiaries is owned by the indicated parent of such
subsidiary.
1 Dormant company - no operations
2 99% owned by Browning-Ferris Industries Ltd. and
1% owned by BFI Acquisitions, Ltd.
3 66-2/3% owned
4 50% owned by Browning-Ferris Industries Ltd.
and 50% owned by Browning-Ferris Industries, Inc. (Delaware)
5 50% owned by Woodlake Sanitary Service, Inc.
6 49% owned
7 Browning-Ferris Industries, Inc. 33.83%
Browning-Ferris Industries, B.V. 54.46%
Carlos Benjumea Morenes 6.07%
LuTranex, S.A. 3.46%
Luis Basteiro .60%
Jose Miguel Garrigues Walker 0.68%
L.M. van Staalduinen 0.45%
Dichonia Holding, B.V. 0.45%
8 90% owned by Browning-Ferris Industries Iberica S.A.
10% owned by Granada Municipality
9 50% owned by Ingenieria Ambiental Completa
50% owned by Castellana de Servicios, S.A.
10 80% owned by Ingenieria Ambiental Andaluza, S.A.
20% owned by Antequera Municipality
11 80% owned by Swire BFI Waste Services Limited
20% owned by Noriente-Gestao de Participacoes Limited
12 40% owned by BFI International, Inc.
40% owned by BFI Atlantic, Inc.
20% owned by Browning-Ferris Industries Ltd.
13 (Subsidiaries of this Company are not listed herein)
50% owned by BFI Atlantic GmbH
50% owned by Otto Holding International BV
14 50% owned
15 49% owned
16 60% owned
17 80% owned
18 25% owned
19 35% owned
20 40% owned
21 10% owned
22 50% owned by J. Poldervaart B.V.
50% owned by G. Poldervaart B.V.
23 1% owned by Waste Care Medisafe Ltd.
99% owned by Waste Care, Ltd.
24 1% owned by Jumbo Bins, Ltd.
99% owned by Waste Care, Ltd.
-8-
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated December 4, 1997, included in this Form
10-K, into the Browning-Ferris Industries, Inc. previously filed Form S-8
Registration Statement File Nos. 33-38117, 33-41281, 33-53393 and
33-56583, Form S-3 Registration Statement File Nos. 33-58298 and 33-65055
and Form S-4 Registration Statement File Nos. 33-52240 and 33-58889.
ARTHUR ANDERSEN LLP
Houston, Texas
December 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS. (IN THOUSANDS EXCEPT PER
SHARE DATA)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 82,557
<SECURITIES> 0
<RECEIVABLES> 930,601
<ALLOWANCES> (38,376)
<INVENTORY> 40,414
<CURRENT-ASSETS> 1,244,663
<PP&E> 6,079,351
<DEPRECIATION> (2,512,196)
<TOTAL-ASSETS> 6,678,292
<CURRENT-LIABILITIES> 1,434,524
<BONDS> 1,675,162
0
0
<COMMON> 35,572
<OTHER-SE> 2,625,191
<TOTAL-LIABILITY-AND-EQUITY> 6,678,292
<SALES> 0
<TOTAL-REVENUES> 5,782,972
<CGS> 0
<TOTAL-COSTS> 4,289,614
<OTHER-EXPENSES> 864,005
<LOSS-PROVISION> 30,116
<INTEREST-EXPENSE> 158,083
<INCOME-PRETAX> 495,142
<INCOME-TAX> 198,057
<INCOME-CONTINUING> 283,695
<DISCONTINUED> 0
<EXTRAORDINARY> 18,481
<CHANGES> 0
<NET-INCOME> 265,214
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>