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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, 1998
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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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of common stock held by non-affiliates of
the registrant: $4.8 billion, computed on the basis of $30-3/16 per share,
closing price of the common stock on the New York Stock Exchange, Inc. on
December 2, 1998.
There were 161,326,307 shares of the registrant's common stock, $.16-2/3 par
value, outstanding as of December 2, 1998.
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
<TABLE>
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PAGE
<S> <C>
PART I............................................................................................................1
Item 1. Business..............................................................................................1
General....................................................................................................1
North American Operations..................................................................................4
Collection...............................................................................................4
Post-Collection..........................................................................................4
Landfills.............................................................................................4
Transfer Stations.....................................................................................5
Medical Waste.........................................................................................5
Recycling.............................................................................................5
Services Group and Other.................................................................................5
International Operations...................................................................................6
Waste-To-Energy............................................................................................6
Regulation.................................................................................................7
Competition...............................................................................................10
Waste Disposal Risk Factors...............................................................................10
Corporate Development.....................................................................................11
Capital Expenditures......................................................................................12
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...................................................18
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..........................................48
Item 8. Financial Statements and Supplemental Data.........................................................49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............114
PART III........................................................................................................114
PART IV.........................................................................................................114
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................114
Financial Statements.....................................................................................114
Schedules................................................................................................114
Exhibits.................................................................................................115
SIGNATURES......................................................................................................123
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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 in the United States and Canada. The Company collects, transports,
treats and/or processes, recycles and disposes of commercial, residential and
municipal solid wastes 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 Company also engages in
providing waste services outside of North America, principally in Europe,
through its equity ownership in SITA, a publicly traded, Paris-based
subsidiary of Suez Lyonnaise des Eaux. See "International 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 operates in approximately 450 locations in the United States, Canada
and Puerto Rico and employs approximately 26,000 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"). In March 1998,
pursuant to the terms of the agreement, the Company sold to SITA substantially
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 received $950 million and ordinary shares of SITA equating
to approximately 19.2% equity ownership in SITA.
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
purchased 15 million shares of its common stock at a price of approximately $585
million in accordance with the terms of its "Dutch Auction" tender offer. During
the third quarter of fiscal 1998, the second phase of the program, approximately
$415 million in open market purchases and privately negotiated transactions was
completed with the Company having purchased 12.3 million shares of its common
stock.
In March 1998, the Company announced that its Board of Directors had approved a
$500 million increase to its common stock repurchase program, which was
completed in June 1998 with the Company having purchased approximately 14.6
million shares of its common stock.
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In July 1998, the Company announced that its Board of Directors had approved an
additional $750 million increase to its common stock repurchase program. It is
anticipated that this increase to the common stock repurchase program will be
completed on or before September 30, 1999. As of September 30, 1998, the Company
has purchased approximately 14.4 million shares of common stock pursuant to the
July authorization at a total cost of $500 million.
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 this strategy during fiscal 1998 by identifying and divesting of
certain underperforming business operations, including its international
operations, reducing its selling, general and administrative costs and, to a
lesser extent, operating costs, and focusing on return on gross assets in both
its existing business operations and its business development activities. See
below and also "International Operations", "Corporate Development" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
The Company's 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 directly to either the Company's chief executive officer or another
senior executive officer. The operations are divided into 7 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 long-term financial goals are to: (i) generate cash returns on
assets in excess of the weighted average cost of capital; (ii) increase profits
at a faster pace than the increase in revenues; and (iii) maintain a strong
credit rating appropriate for supporting business operations. To more closely
align management interests to shareholder interests, the Company has also
revised its long-term incentive compensation plans for management to reallocate
a significant portion of their stock option participation to performance-based
stock awards that will be earned only as certain performance measures are
attained.
The Company's business is subject to extensive 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
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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, 1998,
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,
---------------------------------
1998 1997 1996
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North American Operations
Collection Services - Solid Waste $ 2,753 $ 2,913 $ 2,886
Transfer and Disposal - Solid Waste 1,108 1,079 1,050
Recycling Services 473 555 531
Medical Waste Services 198 199 200
Services Group and Other 121 106 89
Elimination of Affiliated Companies' Revenues (543) (527) (513)
------- ------- -------
Total North American Operations 4,110 4,325 4,243
International Operations 636 1,458 1,536
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Total Company $ 4,746 $ 5,783 $ 5,779
======= ======= =======
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Total assets at September 30, 1998, 1997 and 1996 were $4,999 million, $6,678
million and $7,601 million, respectively.
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NORTH AMERICAN OPERATIONS
COLLECTION
BFI collects solid waste in approximately 260 operating locations in 46 states,
Canada and Puerto Rico. These operations provide solid waste collection services
for commercial establishments, industrial plants, medical institutions, and
governmental and residential units. BFI uses approximately 910,000 containers
and approximately 9,000 specially equipped collection trucks in its North
American waste collection operations.
The Company's commercial and industrial solid waste collection services are
typically performed pursuant to service agreements that provide for one-year to
three-year initial terms and specified successive terms thereafter. Residential
collection contracts with individual homeowners, homeowner groups and
municipalities are generally for periods of one to five years, frequently with
renewable terms. Solid waste collection contracts with governmental units are
usually awarded pursuant to a competitive bidding process.
Operating costs, disposal costs and collection fees vary widely throughout the
geographic areas of the Company's operations. Prices for solid waste collection
services are determined locally, principally by the volume, weight and type of
wastes collected, treatment required, risks involved in handling or disposing of
the wastes, collection frequency, disposal costs, distance to final disposal
sites, quantity and type of equipment furnished to the customer and other
competitive factors. The Company's ability to pass on cost increases is often
influenced by competitive and other factors. Long-term residential solid waste
collection contracts often include a formula for adjusting fees, generally based
on published price indices, to cover increases in certain operating costs.
The Company is the largest provider of medical waste services in North America
and collects infectious and pathological waste materials from approximately
210,000 customers.
The Company also collects recyclable materials, principally paperboard, office
paper and other paper products, in North America from approximately 5.2 million
households, including curbside customers, and for approximately 140,000
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 94 solid waste landfill sites in North America, 18 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 permitted acreage 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 90 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 25 treatment sites using either incineration or
autoclaving (steam sterilization) technology. The Company also utilizes
approximately 90 collection sites to service medical waste customers in most
major metropolitan cities in the United States.
Recycling
The Company currently operates 90 recycleries in North America which receive,
process and dispose of recyclable materials. During fiscal 1998, the Company
closed 12 recycling facilities due to the continuing weakness in recycled
commodity prices, and plans to close additional facilities during fiscal 1999.
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 and
other alternative energy concepts such as biomass fuels.
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. On March 31, 1998,
pursuant to the terms of the agreement, the Company sold substantially all of
its equity securities and other ownership interests of its international
operations located outside the United States, Puerto Rico, Canada and Mexico to
SITA. In return, the Company received $950 million and ordinary shares, FF50 par
value, of SITA equating to approximately 19.2% equity ownership in SITA. See
Note (8) of Notes to Consolidated Financial Statements.
Suez Lyonnaise des Eaux, a societe anonyme formed under the laws of the Republic
of France ("Suez Lyonnaise"), owns greater than 50% of the Ordinary Shares of
SITA. Pursuant to a Shareholders' Agreement between the Company and Suez
Lyonnaise, the Company is entitled to a 20% representation on SITA's board of
directors.
SITA is a leading waste services company that provides collection, recycling,
waste-to-energy and disposal services in Europe, with additional operations in
the Asia-Pacific region and Latin America.
WASTE-TO-ENERGY
The Company and Duke/UAE Ref-Fuel LLC ("Duke/UAE"), a Delaware limited liability
corporation which is indirectly owned 65% by Duke Capital Corporation and 35% by
United American Energy Corporation, are each 50% partners in partnerships that
design, build, own and operate facilities that burn solid waste and recover
energy and other materials. Duke/UAE acquired its partnership interests from Air
Products and Chemicals, Inc., the Company's prior partner, in December 1997.
These partnerships market their capabilities under the name American
Ref-Fuel(R).
In April 1997, the Company acquired 100% of 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.
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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.
In connection with four of the existing American Ref-Fuel projects, both the
Company and Duke Capital Corporation 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
(12) 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 $130 million at September 30, 1998. 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 1999, 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.
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In recent years, a number of communities have instituted "flow control"
requirements, which typically require that waste collected within a particular
area be deposited at a designated facility. In May 1994, the U.S. Supreme Court
ruled that a flow control ordinance was inconsistent with the Commerce Clause of
the Constitution of the United States. A number of lower federal courts have
struck down similar measures. Although the U.S. Congress has considered
legislation that would partially grant flow control authority under the Commerce
Clause, no legislation has been enacted. In the future, the U.S. Congress may
consider bills that could at least partially overturn these court decisions and
immunize particular governmental actions (for example, flow control mandates
that were in place prior to the 1994 U.S. Supreme Court decision) from Commerce
Clause scrutiny.
Similarly, the U.S. Supreme Court has consistently held that state and local
measures that seek to restrict the importation of extraterritorial waste or tax
imported waste at a higher rate are unconstitutional. To date, congressional
efforts to enable states to, under certain circumstances, impose differential
taxes on out-of-state waste or restrict waste importation have not been
successful.
In the absence of federal legislation, certain local laws that directly or
indirectly divert waste flows to designated facilities may be unenforceable, and
discriminatory taxes and waste importation restrictions should continue to be
subject to judicial invalidation. If the U.S. Congress adopts legislation
allowing for certain types of flow control or restricting the importation of
waste, or if legislation affecting interstate transportation of waste is adopted
at the federal or state level, such legislation could adversely affect the
Company's waste collection, transportation, treatment and disposal operations.
Because a major component of the Company's business is the collection and
disposal of solid waste in an environmentally sound manner, a material amount of
the Company's capital expenditures are related (directly or indirectly) to
environmental protection measures, including compliance with federal, state and
local provisions that have been enacted or adopted regulating the discharge of
materials into the environment. There are costs that are associated with
facility upgrading, corrective actions, facility closure and post-closure care
in addition to other costs normally associated with the Company's waste
management activities. The majority of these expenditures 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 are having 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 the 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
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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 has obtained or is seeking operating or other applicable permits for
these activities. In addition, landfills located in those areas of the country
that do not meet prescribed air quality standards may require more costly
control systems.
State financial responsibility regulations, adopted in various forms, require
owners or operators of waste disposal facilities and underground storage tanks
to demonstrate the financial ability to respond to and correct sudden and
accidental pollution occurrences, as well as non-sudden or gradual pollution
occurrences. To meet these requirements, the Company has secured Environmental
Impairment Liability ("EIL") insurance coverage in amounts the Company believes
are in compliance with federal and state law. Under the current EIL policy,
which is collateralized, the Company must reimburse the carrier for any losses.
It is possible that the Company's 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. In
April, 1998, the EPA promulgated a financial test and corporate guarantee for
use by private Subtitle D facilities which 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.
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COMPETITION
BFI competes with both publicly-held and privately-owned waste services
companies. This competition is intense and has increased in recent years. BFI
believes that neither it nor any other waste services company has a significant
portion of any major aspect of the solid waste services markets. In some
geographic areas, all or part of the solid waste collection, processing and
disposal services offered by BFI may also be provided by municipalities or by
governmental authorities with regional or multi-county jurisdiction. Because
solid waste services provided by municipal or regional governmental authorities
are generally subsidized by tax revenues and utilize major equipment and
facilities that are financed with proceeds from the sale of tax-exempt bonds,
these authorities may provide such services at lower prices (though not
necessarily at lower costs) than those of private companies.
Competition is encountered primarily from publicly-held and numerous
locally-owned private solid waste services companies and, to a lesser degree,
from municipalities and other governmental units with respect to residential
solid waste collection and solid waste sanitary landfills. Intense competition
in pricing and type and quality of services offered is encountered. Some
competitors in certain markets have increased competitive pressure by their
willingness to accept lower pricing to maintain market share.
WASTE DISPOSAL RISK FACTORS
There are serious, sometimes unforeseeable, business risks and potentially
substantial cost exposures associated with the establishment, ownership and
operation of solid waste 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."
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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 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 (9) 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 results of operations.
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.
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 1999 as compared to fiscal 1998,
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 -
-11-
<PAGE> 15
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.
CAPITAL EXPENDITURES
Capital expenditures were approximately $560 million in fiscal 1998, consisting
of $27 million for acquired businesses. Approximately $114 million was expended
in connection with internal market development projects and municipal contracts
and $419 million related to additions and replacements of capital items for
existing operations, including existing landfill cell development. See Notes
(6), (7) and (8) of Notes to Consolidated Financial Statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for additional financing
information.
-12-
<PAGE> 16
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 49
Director (1)
Norman A. Myers Executive Vice President and 62
Chief Development Officer
J. Gregory Muldoon Executive Vice President and 44
Chief Operating Officer
Jeffrey E. Curtiss Senior Vice President and 50
Chief Financial Officer
Hugh J. Dillingham, III Senior Vice President 49
Post Collection
Sandra D. Glatzau Senior Vice President 46
Marketing and Sales
J. Frederick Snyder Senior Vice President 45
Collection
Rufus Wallingford Senior Vice President and 58
General Counsel
Edward Schick Vice President of Business Services and 42
Corporate Controller
</TABLE>
- ----------------
* As of December 2, 1998.
(1) Serves on the Executive Committee of the Board of Directors.
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
-13-
<PAGE> 17
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.
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. Schick was elected Vice President of Business Services and Corporate
Controller in January 1998. He joined BFI in 1987 as Regional Controller in the
Company's former Midwest Region. He subsequently held the title of Assistant
Corporate Controller and later was placed in charge of Operations Analysis. In
1992, he relocated to Europe as Chief Financial Officer of Browning-
-14-
<PAGE> 18
Ferris Industries Europe, Inc. and was instrumental in the sale of the Company's
international operations to SITA.
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 1999 Annual Meeting of Stockholders is
scheduled to be held March 3, 1999 in Houston, Texas.
-15-
<PAGE> 19
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. See "Business - North American
Operations - Collection" and "Business - North American Operations - Landfills"
and Notes (7) and (9) 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 (7) and (12) 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 (10) and
(12) 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> 20
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
104 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 77 of these sites. Partial settlements have been
negotiated with regard to 14 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 60
additional sites on the EPA's National Priority List. For 48 of these sites, the
Company has determined that it is not a PRP. The Company's PRP status at the
remaining 12 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> 21
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 is 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, to the extent
quantifiable, 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.
On January 23, 1998, the Company and a subsidiary were notified by the U.S.
Department of Justice ("DOJ") that they were targets of a federal grand jury
investigation regarding possible violations of the Clean Water Act with respect
to a medical waste facility located in the District of Columbia. The Company's
subsidiary fully cooperated with the DOJ's investigation. On May 29, 1998, the
DOJ and the Company's subsidiary filed a plea agreement styled United States of
America v. Browning-Ferris Inc. in the U.S. District Court for the District of
Columbia. On October 1, 1998, judgment was entered pursuant to which the
Company's subsidiary pled guilty to three violations under the Clean Water Act
and agreed to pay $1.5 million in fines and make a $100,000 community service
contribution.
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.
-18-
<PAGE> 22
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, 1997 and 1998, 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 1997 Fiscal Year 1998
------------------------------- --------------------------------
High Low High Low
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
First Quarter $27-5/8 $24-1/8 $38-7/8 $29-7/16
Second Quarter 32-7/8 25-3/4 38-1/8 30
Third Quarter 35-1/2 26-3/8 37-1/8 31-1/2
Fourth Quarter 38-13/16 33-7/8 38-5/8 30-1/4
</TABLE>
As of December 2, 1998, there were approximately 14,000 holders of record of BFI
Common Stock.
In June 1998, the Board of Directors elected to renew the Company's 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 (14) 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 fiscal 1997 and 1998, 70 cents and 76
cents, respectively, were 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 (10) of Notes to Consolidated
Financial Statements for a description of these credit agreements. The amount
available for payment of dividends or distributions on or with respect to Common
Stock pursuant to the most restrictive of such limitations was approximately
$236 million on September 30, 1998, after giving effect to cash dividends paid
or declared through September 30, 1998. BFI currently expects to continue the
payment of dividends, although future dividend payments will depend on BFI's
earnings, financial needs and other factors.
-19-
<PAGE> 23
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-20-
<PAGE> 24
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, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(In Thousands Except for Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Operating
Statement Data:
Revenues $ 4,745,748 $ 5,782,972 $ 5,779,277 $ 5,779,351 $ 4,314,541
Income before
special charges (credits),
extraordinary
items and cumulative
effects of changes
in accounting
principles $ 336,495 $ 332,822 $ 273,014 $ 384,561 $ 283,973
Income (loss) before
extraordinary items
and cumulative effects
of changes in accounting
principles $ 349,373 $ 283,695 $ (89,172) $ 384,561 $ 283,973
Net income (loss) $ 338,811 $ 265,214 $ (101,331) $ 384,561 $ 278,710
Income (loss) per share
(diluted) -
Income (loss)
before extraordinary
items and cumulative
effects of changes in
accounting principles $ 1.93 $ 1.39 $ (0.45) $ 1.92 $ 1.52
Net income (loss) $ 1.87 $ 1.30 $ (0.51) $ 1.92 $ 1.49
Cash dividends per
common share $ .76 $ .70 $ .68 $ .68 $ .68
</TABLE>
(Continued on Following Page)
-21-
<PAGE> 25
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property and
equipment, net $2,812,221 $3,567,155 $3,920,721 $3,722,292 $3,049,767
Total assets $4,999,481 $6,678,292 $7,600,906 $7,460,372 $5,796,955
Long-term debt $1,792,863 $1,675,162 $2,766,885 $2,410,748 $1,458,629
Common stock-
holders' equity $1,413,458 $2,660,763 $2,510,278 $2,741,750 $2,391,680
Cash Flow Data:
Capital
expenditures $ 525,447 $ 494,725 $ 935,382 $ 929,596 $ 694,475
Payments for
businesses
acquired $ 24,409 $ 21,305 $ 188,451 $ 769,369 $ 398,734
Cash flows from
operating
activities $ 733,581 $ 999,100 $ 856,843 $1,030,489 $ 693,928
</TABLE>
-22-
<PAGE> 26
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS
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" (as defined in the Private Securities Litigation
Reform Act of 1995) 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 1998 was a year in which the Company improved its earnings per
share and returns significantly by divesting underperforming operations,
reducing costs and repurchasing shares of its common stock. In March 1998, the
Company sold substantially all of its operations outside of North America to
SITA, a Paris-based subsidiary of Suez Lyonnaise des Eaux. In exchange for these
operations, the Company received $950 million in cash and an ownership interest
of approximately 19.2% in ordinary shares of SITA. 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 outside of North America. The Company also repurchased 56.3 million shares
of its common stock during fiscal 1998 at a total cost of approximately $2.0
billion, which favorably affected earnings per share despite the higher interest
expense resulting from the stock repurchases.
Net income for fiscal 1998 was $336.5 million ($1.856 diluted earnings per
share) before special credits, extraordinary item and cumulative effects of
changes in accounting principles on consolidated revenues of $4.75 billion.
These results compare with net income before special charges and extraordinary
items for fiscal 1997 of $332.8 million ($1.634 diluted earnings per share on a
restated basis) on consolidated revenues of $5.78 billion. This represents a 14%
increase in earnings per share in fiscal 1998 over last year.
The current year results reflect pre-tax special credits of $21.5 million
($.07 diluted earnings per share) related principally to the
-23-
<PAGE> 27
estimated gain associated with the sale of substantially all of the Company's
operations outside of North America to SITA at the end of March 1998.
Fiscal 1998 results also include a net after-tax charge of $.053 diluted
earnings per share related to the cumulative effects of changes in accounting
principles. This charge related to (1) the write-off of previously capitalized
business process reengineering costs of approximately $21 million ($13.8 million
after-tax, or $.076 diluted earnings per share) as a result of a November 1997
consensus ruling issued by the Emerging Issues Task Force of the Financial
Accounting Standards Board offset partially by (2) the adoption of a preferable
method of accounting for employee retirement plan costs that more closely
matches current economic realities, which resulted in the recognition of an
after-tax credit of $4.2 million, or $.023 diluted earnings per share. See Note
(5) of Notes to Consolidated Financial Statements.
Extraordinary charges of $.005 and $.091 diluted earnings per share were
recorded in fiscal years 1998 and 1997, respectively, associated with the
redemption and refinancing of debt.
Fiscal 1998 net income after considering special credits, extraordinary
item and accounting changes was $338.8 million ($1.869 diluted earnings per
share) compared with net income, after considering special charges and
extraordinary items, of $265.2 million ($1.302 diluted earnings per share on a
restated basis) for fiscal 1997.
Fiscal 1998 results before special credits, extraordinary charges and
cumulative effects of changes in accounting principles, reflect the effects of
actions taken in the Company's North American operations in fiscal 1997 to (1)
reduce SG&A staffing levels and operating costs in the Company's collection and
recycling businesses, (2) divest underperforming operations and assets and (3)
improve customer pricing. Similar cost reduction actions taken in the Company's
international operations began to impact favorably the Company's international
operating results prior to the sale of these operations in March 1998.
Additionally, to improve the Company's long-term competitiveness in the
North American solid waste industry, the Company announced in May 1998 a cost
reduction program expected to reduce expenses by $30 million during the second
half of fiscal 1998 (before considering severance costs) and have an annualized
effect of over $80 million in fiscal 1999. This cost reduction program was
undertaken based on initiatives developed over several previous quarters. Under
this cost reduction program, the Company is also continuing to pursue field
-24-
<PAGE> 28
facility and functional consolidation and other actions, which are improving
operating costs.
Through the end of fiscal 1998, the Company benefited from approximately
$40 million of cost savings (before severance costs) from actions taken under
this cost reduction program. The primary drivers of these cost savings were
reduced costs associated with the Company's employee retirement plan, reduced
operating expenses, especially in the landfill and recycling operations,
corporate and field headcount reductions and a one-time gain of $9.4 million
relating to termination of a postretirement medical plan. The Company believes
its fiscal 1999 cost reduction target of $80 million (including the impact of
fiscal 1998 actions) under this program continues to be achievable.
Fiscal 1998 costs were affected unfavorably by increased selling, general
and administrative costs, including staffing, related to implementation of the
Company's new SAP software system and the continued support of certain existing
software systems not yet replaced. The new system was implemented and
amortization commenced on January 1, 1998. At the outset of fiscal 1998, the
Company expected to realize benefits in purchasing costs and in its accounting
and administrative support areas as certain modules of SAP were installed in the
field operations over the course of the year. However, the Company is incurring
the higher costs of the new system, approximately $24 million in fiscal 1998
over 1997, but is not yet realizing the expected benefits. Actions were taken in
September 1998 to suspend further development of the second phase of SAP so that
greater emphasis could be placed on the resolution of issues related to the
phase already implemented, including the modification of a number of business
processes. The Company will continue to rely on legacy systems for billing,
customer and operational requirements. The Company continues to believe that the
SAP software system will ultimately yield significant long-term economic
benefits.
Although significant progress was made in the current fiscal year, the
Company did not achieve its goals for fiscal 1998 as its results fell short of
its milestones for revenue growth, return on gross assets, selling, general and
administrative ("SG&A") expense and operating income. The Company recognizes
that substantial work remains to be accomplished, particularly in the area of
SG&A. The emphasis in fiscal 1999 will be to accelerate the rate of growth and
the cost reduction program. The Company also plans to continue to focus on asset
management and to limit capital spending in fiscal 1999.
-25-
<PAGE> 29
Revenues
Revenues declined from $5.78 billion in fiscal 1997 to $4.75 billion in
fiscal 1998. Revenues were unchanged from fiscal years 1996 to 1997. The
following table reflects the contribution to total revenue of the Company's
business segments for the last three years (in millions):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
North American Operations (1)
Collection Services -
Solid Waste $2,753 $2,913 $2,886
Transfer and Disposal -
Solid Waste
Unaffiliated customers 565 552 537
Affiliated companies 543 527 513
------ ------ ------
1,108 1,079 1,050
Recycling Services 473 555 531
Medical Waste Services 198 199 200
Services Group and Other 121 106 89
Elimination of affiliated
companies' revenues (543) (527) (513)
------ ------ ------
Total North American Operations 4,110 4,325 4,243
------ ------ ------
International Operations (2)
Germany 301 633 662
The Netherlands 125 289 323
United Kingdom 102 227 193
Other 108 309 358
------ ------ ------
Total International Operations 636 1,458 1,536
------ ------ ------
Total Company $4,746 $5,783 $5,779
====== ====== ======
Percentage Increase (Decrease)
from Prior Year (18)% --% --%
</TABLE>
- ---------------
-26-
<PAGE> 30
(1) Revenues from Canadian operations of $172 million, $176 million and
$169 million for fiscal years 1998, 1997 and 1996, respectively, are
included in North American revenues.
(2) Revenues declined significantly from prior years due principally to
the divestiture of substantially all of the Company's international
operations in March 1998.
The following table reflects changes in revenues for fiscal 1998 from
price, volume, acquisitions, divestitures, and foreign currency translation
compared with revenue changes for fiscal years 1997 and 1996.
<TABLE>
<CAPTION>
Change in Revenues
------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Price 0.5% 1.2% (5.9)%
Volume 0.1 1.0 0.4
Acquisitions 1.5 2.4 5.7
Divestitures (19.7) (2.4) --
Foreign currency
translation (0.3) (2.1) (0.2)
------ ------ ------
Total Percentage Increase
(Decrease) (17.9)% 0.1% --%
====== ====== ======
</TABLE>
As shown above, the divestiture of North American and international
business operations in fiscal 1997 and the sale of substantially all of the
Company's remaining international operations in March 1998 resulted in a
significant reduction in revenues for the current year compared with fiscal
1997. Further, increased disposal volumes in fiscal 1998 were almost totally
offset by reduced volumes related to the loss of (1) certain municipal contracts
put out to bid that were not re-awarded to the Company and (2) certain small
container work for schools, post offices, city-controlled apartment projects and
other government-owned buildings. Revenue volumes have been favorably affected
in fiscal 1998 by higher customer retention due to improved customer
satisfaction. In fiscal 1998, revenues increased due to pricing in each of the
Company's North American business operations, with the exception of disposal
operations. Revenue growth due to acquisitions was attributable to acquisitions
consummated in both fiscal years 1997 and 1998.
In order to achieve greater internal revenue growth in the future, the
Company named marketplace revenue managers during the third quarter of fiscal
1998 and redeployed 175 additional outside
-27-
<PAGE> 31
sales personnel in various markets, as deemed appropriate, in order to generate
additional new business. The Company also is implementing more aggressive price
increases in certain customer segments and marketplaces and is competitively
pricing business in general business and small container government contract
work to maintain route density. The Company has continued to exercise pricing
discipline on municipal contracts and, as a result, has lost more of this work
than contemplated. Lastly, the Company continues to pursue additional third
party volumes via reciprocal waste disposal agreements with other companies. As
a result of the Company's actions, year-to-year internal growth for the last six
months of fiscal 1998 was greater than the internal growth experienced during
the first six months of fiscal 1998.
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 fiscal 1997 with the emphasis on
internal rather than external growth. In 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 fiscal 1997 compared with the prior year were driven by increases in the
North American collection, transfer and disposal and recycling businesses.
Revenues also reflected 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
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<PAGE> 32
pricing in the North American collection business and, to a lesser extent, in
the landfill and medical waste businesses.
Cost of Operations
The following table reflects the portion of cost of operations associated
with depreciation and amortization expense for the periods presented:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------------------------
Revenue Revenue Revenue
1998 % 1997 % 1996 %
---------- ---------- ---------- ---------- ---------- ----------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cost of
operations,
excluding
depreciation
and
amortization
expense $3,046,389 64.2% $3,815,738 66.0% $3,824,784 66.2%
Depreciation
and
amortization
expense 391,272 8.2% 473,876 8.2% 490,831 8.5%
---------- ---------- ---------- ---------- ---------- ----------
$3,437,661 72.4% $4,289,614 74.2% $4,315,615 74.7%
========== ========== ========== ========== ========== ==========
</TABLE>
Cost of operations decreased $852.0 million or 19.9% for fiscal 1998,
compared with last year. Most of the decrease in cost of operations is
attributable to the impact of divestitures of certain business operations and
assets in fiscal 1997, the sale of the Company's international operations in
March 1998, and the Company's cost reduction programs implemented in both fiscal
years 1997 and 1998. As a result of the cost reduction programs, the Company has
reduced its operating headcount through the re-routing of trucks, field facility
and functional consolidations, closures of operating facilities and, where
appropriate, after careful review, a reduction in supervisory and administrative
support personnel.
Cost of operations decreased $26.0 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. These decreased costs were offset
largely by the increase in
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<PAGE> 33
cost of operations related to businesses acquired in fiscal 1996 and, to a
lesser extent, fiscal 1997.
Cost of operations increased $168.3 million (4%) in fiscal 1996 compared
with fiscal 1995. Most of this increase in cost of operations was 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 was principally attributable to the negative effect on revenues of
lower worldwide recycling commodity prices in fiscal 1996 compared with the
prior year.
Selling, General and Administrative Expense
The following table reflects the portion of SG&A expense associated with
depreciation and amortization expense for the periods presented:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------------
Revenue Revenue Revenue
1998 % 1997 % 1996 %
-------- -------- -------- -------- -------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
SG&A, excluding
depreciation
and
amortization
expense $604,601 12.7% $716,448 12.4% $762,375 13.2%
Depreciation
and
amortization
expense 78,683 1.7% 95,794 1.6% 111,694 1.9%
-------- -------- -------- -------- -------- --------
$683,284 14.4% $812,242 14.0% $874,069 15.1%
======== ======== ======== ======== ======== ========
</TABLE>
SG&A expense decreased $129.0 million in fiscal 1998, or 15.9% from last
year. The decrease in SG&A expense was driven largely by the impact of the
divestitures of certain business operations and assets in fiscal 1997, the sale
of substantially all of the Company's international operations in March 1998 and
the reduction in employees and other cost reduction actions to improve operating
and administrative efficiency implemented in both fiscal years 1997 and 1998.
This decrease was offset partially by an increase in expense of
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<PAGE> 34
approximately $24 million related to implementation of the Company's new SAP
software system and the continued support of certain existing systems not yet
replaced. Fiscal 1998 SG&A expense was also affected unfavorably by
approximately $6 million of severance costs incurred in the latter half of the
year in connection with the cost reduction program announced in May 1998.
SG&A expense was $812.2 million for fiscal 1997, a decrease of 7.1% from
fiscal 1996. The $61.8 million decrease in SG&A expense 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 expense associated with both the reorganization of North American
operations announced in June 1996 and the fiscal 1997 reduction of employees
worldwide.
SG&A expense increased $31.2 million (4%) in fiscal 1996, compared with
fiscal 1995. 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.
Special Charges (Credits), net
Special credits of $21.5 million ($12.9 million or $.07 per share after
income taxes) were reported for fiscal 1998. These special credits are related
principally to the estimated gain of $17.9 million recognized from the sale in
March 1998 of substantially all of the Company's operations outside North
America to SITA, a Paris-based subsidiary of Suez Lyonnaise des Eaux. In
exchange for these operations, the Company received $950 million in cash and an
ownership interest of approximately 19.2% in ordinary shares of SITA. Costs
associated with the sale of these operations included estimated transaction and
other expenses and losses accumulated in the foreign
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<PAGE> 35
currency translation component of common stockholders' equity (approximately
$133 million). A portion of the total gain, net of related costs, has been
deferred in connection with the Company's continuing investment in SITA. The
remaining amounts included in special credits were attributable principally to
net gains associated with the divestiture of certain North American operations
in the current fiscal year.
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
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 (credits).
Interest Expense and Income
Interest expense and income for the last three fiscal years were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Gross interest expense $131,726 $174,939 $195,605
Interest capitalized (8,726) (9,714) (16,306)
-------- -------- --------
Interest expense $123,000 $165,225 $179,299
======== ======== ========
Interest income $ 4,723 $ 7,142 $ 8,842
======== ======== ========
</TABLE>
-32-
<PAGE> 36
Fiscal 1998 interest expense declined by $42.2 million to $123.0 million
from $165.2 million for fiscal 1997 due to (1) the decrease of $308 million of
weighted average debt outstanding in fiscal 1998 and (2) lower average cost of
indebtedness. The decrease in average debt outstanding was driven by the $999.8
million reduction in debt during fiscal 1997, principally in the latter half of
the fiscal year, the utilization of cash proceeds of $950 million from the sale
of the Company's international operations in March 1998, and cash proceeds of
$409.7 million received in exchange for approximately 11.5 million shares of the
Company's common stock in June 1998. Reductions in debt were offset, to some
extent, by additional borrowings, principally associated with the common stock
repurchase program (56.3 million shares repurchased at a cost of approximately
$2 billion). The lower average cost of indebtedness is due primarily to the
early retirement of debt during the latter part of fiscal 1997 with interest
rates ranging from 6.10% to 9.25% and to the increased utilization of commercial
paper borrowings during the latter part of fiscal 1998 at interest rates ranging
from 5.55% to 6.25%.
Fiscal 1997 interest expense declined by $14.1 million to $165.2 million
from $179.3 million for fiscal 1996. This 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).
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.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates increased $6.1 million
from fiscal 1997 to fiscal 1998 primarily due to improved earnings from the
Company's North American waste-to-energy equity affiliates. The reduction in
equity in earnings of unconsolidated foreign affiliates as a result of the sale
of the Company's international operations in March 1998 was largely offset by
equity in earnings of SITA of approximately $7.8 million.
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<PAGE> 37
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. The Company acquired a 50% ownership interest in Otto Waste
Services in February 1994 and consolidated Otto's financial results, which
included equity in earnings of Otto's unconsolidated affiliates, until these
operations were sold in March 1998 as part of the sale of international
operations to SITA.
Income Taxes
The Company's effective income tax rate for fiscal 1998 was 40.0% prior to
considering equity in earnings of SITA of $7.8 million, which are included in
pre-tax income, but have already been tax effected prior to being recorded by
the Company. The Company's effective income tax rate for fiscal year 1997 was
40.0%, and the 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 decrease
in minority interest in income of consolidated subsidiaries of $6.8 million for
fiscal 1998 compared with fiscal 1997 was due to the sale of substantially all
of the Company's international operations in March 1998. 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.
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<PAGE> 38
Extraordinary Items
During the second quarter of fiscal 1998, one of the Company's
unconsolidated affiliates, American Ref-Fuel Company of Southeastern
Connecticut, incurred a pre-tax charge of $3.1 million associated with its
obligation to redeem approximately $90 million principal amount of 1988 Series A
Bonds in November 1998. As a result, the Company reflected an extraordinary
charge, after-tax, of $999,000 (or approximately $0.005 per share) in its
Consolidated Statement of Operations related to its 50% ownership interest in
this affiliate. Interest was payable on the 1988 Series A Bonds at a weighted
average interest rate of approximately 7.9%, compared with the weighted average
interest rate of approximately 5.1% for the new bonds, which mature in 2015.
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 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 $0.015 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 $0.076 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
-35-
<PAGE> 39
net income of $12.2 million, after income taxes, or approximately $0.061 per
share.
Cumulative Effects of Changes in Accounting Principles
On November 20, 1997, the FASB's Emerging Issues Task Force issued EITF
No. 97-13, a consensus ruling requiring that certain business process
reengineering costs typically capitalized by companies be expensed as incurred.
The ruling further required that previously capitalized costs of this nature be
written off as a cumulative effect of a change in accounting principle in the
quarter containing November 20, 1997. The Company had previously capitalized
these types of costs in connection with its current SAP software implementation
project. As a result, the Company recorded an after-tax charge of $13.8 million
or $.076 diluted earnings per share in fiscal 1998 as the cumulative effect of a
change in accounting principle.
During the second quarter of fiscal 1998, the Company changed its method
of accounting for recognition of value changes in its employee retirement plan
for purposes of determining annual expense under SFAS No. 87 - "Employers'
Accounting for Pensions", effective October 1, 1997. The Company has changed its
method of calculating the value of assets of its plan from a calculation that
recognizes changes in fair value of assets over five years to recognition of
changes in fair value immediately. The Company has also changed the method of
recognizing gains and losses from deferral within a 10% corridor and
amortization of gains outside this corridor over the future working careers of
the participants to a deferral below a 5% corridor, immediate recognition within
a 5-10% corridor and amortization of gains outside this corridor over the future
working careers of the participants. The new method is preferable because, in
the Company's situation, it produces results which more closely match current
economic realities of the Company's retirement plan through the use of the
current fair value of assets while still mitigating the impact of extreme gains
and losses. As a result, the Company recorded an after-tax credit of $4.2
million, or $.023 diluted earnings per share, as the cumulative effect of a
change in accounting principle.
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.
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<PAGE> 40
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Profitability margins:
Gross profit 27.6% 25.8% 25.3%
Income from operations before
special charges (credits) 13.2% 11.8% 10.2%
Income from operations 13.6% 10.4% 2.5%
Income before income taxes,
minority interest,
extraordinary items
and cumulative effects of
changes in accounting
principles 12.4% 8.6% 0.5%
Net income before special
charges (credits), extraordinary
items and cumulative effects
of changes in accounting
principles 7.1% 5.8% 4.7%
Net income (loss) 7.1% 4.6% (1.8)%
Other financial information:
Pre-tax, pre-interest return on
average total assets, excluding
special charges 12.3% 10.2% 8.4%
Return on gross assets 13.5%(1) 11.9% 11.4%
Ratio of earnings to fixed
charges 3.81(2) 2.98(3) 1.02(4)
</TABLE>
- ------------
(1) Excluding severance costs of $3.1 million, after tax, incurred in the third
quarter of fiscal 1998.
(2) Excluding the effects of the fiscal 1998 special credits of $21 million, the
ratio of earnings to fixed charges for fiscal 1998 was 3.71.
(3) 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.
(4) 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.
-37-
<PAGE> 41
All of the profitability margins presented above showed improvement for
the year ended September 30, 1998 compared with fiscal 1997. Profitability
margins in fiscal 1998 were affected favorably by the sale of substantially all
of the Company's international operations in March 1998 and the divestiture of
other underperforming operations and assets, which occurred principally in the
latter half of fiscal 1997. Improvement in the North American gross profit
margin was noted in the Company's disposal business as well as its recycling and
medical waste businesses. Increased landfill volumes and cost reduction efforts
were the key drivers of improved margin performance. In the recycling business,
the improvement was due to the successful execution of strategies to exit
underperforming recycleries, improve the quality of recyclable materials
received and reduce operating costs per ton, as well as slightly higher weighted
average commodity prices. The weighted average market prices for recycling
commodities in North America, principally corrugated, office paper and
newspaper, increased to approximately $68 per ton in the current year from
approximately $66 per ton last year. Increased SG&A expenses as a percentage of
revenues affected unfavorably the North American income from operations margin.
Prior to the sale of the Company's international operations in March 1998, a
slight improvement was noted in the gross profit margin and the income from
operations margin of these operations compared with the same period of the prior
year.
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 employee 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 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.
Total assets declined from $7.6 billion at September 30, 1996 to $6.7
billion at September 30, 1997 and declined further to $5.0 billion at September
30, 1998. The fiscal 1997 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,
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<PAGE> 42
offset partially by fiscal 1997 capital expenditures. 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. The decline in total assets in fiscal 1998 was attributable principally to
the sale of substantially all of the Company's international operations to SITA
in March 1998. The improvement in pre-tax, pre-interest return on average total
assets in fiscal 1998 over fiscal 1997 was driven largely by the sale of the
lower margin international operations.
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
items and cumulative effects of changes in accounting principles, (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).
Special credits have also been excluded for purposes of this computation.
Gross assets - the sum of total assets, accumulated depreciation and
amortization, and asset impairment writedowns (until such assets are sold
or otherwise disposed of -- approximately $33 million and $96 million at
September 30, 1998 and 1997, respectively), less the sum of (i) current
liabilities, net of interest-bearing indebtedness included therein, (ii)
noncurrent 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.
Although the Company did not achieve its milestones during fiscal 1998,
improvement was noted in operating profit margin and return on gross assets from
fiscal 1997. The Company's goals and actions in fiscal 1998 continued to align
the Company's performance with its stockholders' interests. In addition,
incentive compensation plans 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 total Company and its North American
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<PAGE> 43
operations compared with actual performance for fiscal 1998, excluding severance
costs, and fiscal 1997 are as follows:
<TABLE>
<CAPTION>
North
Total Company America
------------------------------------------ ------------------------------------------
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1998 1998 1997 1998 1998 1997
Milestone Actual Actual Milestone Actual Actual
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SG&A as a percent
of revenues 13.5% 14.3%(1) 14.0% 13.5% 14.3%(1) 14.0%
Operating profit
margin (2) 13.8% 13.3%(1) 11.8% 15.0% 14.1%(1) 13.1%
Revenue growth (3)
Internal 3.5% 0.6% 2.2% 4.0% 0.6% 2.1%
Acquisitions 1.0% 1.5% 2.4% 1.0% 1.5% 2.0%
--------- --------- --------- --------- --------- ---------
Total 4.5% 2.1% 4.6% 5.0% 2.1% 4.1%
Return on gross
assets 13.3% 13.5%(1) 11.9% 14.7% 14.2%(1) 13.4%
</TABLE>
- ---------------
(1) SG&A and operating profit as a percent of revenues exclude severance
costs of $5.2 million incurred in the third quarter of fiscal 1998. Return
on gross assets excludes the after-tax effect of these severance costs
($3.1 million).
(2) Excluding special charges (credits), net.
(3) Revenue growth from price, volume and acquisitions, excluding the
effects of divestitures and foreign currency exchange.
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<PAGE> 44
The fiscal 1999 milestones for the total Company compared with fiscal 1998
actual performance are as follows:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
Milestones Actual
------------ -----------
<S> <C> <C>
SG&A as a percent of
revenues (1) 12.2% 12.3%
Operating profit margin 14.7% 13.3%
Revenue growth 3.5% 2.1%
Return on gross assets 13.8% 13.5%
</TABLE>
- ---------------
(1) Reflected on a restated basis to conform to fiscal 1999 presentation.
Amounts exclude depreciation and amortization previously included in SG&A
expense and reflect the reclassification of certain expenses from SG&A
expense to costs of operations.
EBITDA (defined herein as income from operations plus depreciation and
amortization expense before considering special charges or credits) was $1.09
billion for fiscal 1998 compared with $1.25 billion for fiscal 1997. The current
year decline in EBITDA is principally attributable to the Company's divestiture
of business operations during fiscal 1997 and its international operations in
March 1998. North American EBITDA (including approximately $6 million of
severance costs) was $985 million for fiscal 1998, a slight decline from EBITDA
of $1,003 million for fiscal 1997. North American EBITDA also declined
principally as a result of the divestiture of business operations and assets,
principally in fiscal 1997. 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, 1998 and 1997, the Company's balance sheet included
accrued environmental costs of $481 million and $613 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 (9) of Notes to Consolidated Financial Statements for a discussion
of the Company's
-41-
<PAGE> 45
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 and accounting
personnel, 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. 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 accruals are revised.
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 104 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 77 of these 104
Superfund sites. Partial
-42-
<PAGE> 46
settlements have been negotiated with regard to 14 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 60 additional sites on the EPA's National
Priority List. For 48 of these sites, the Company has determined it is not a
PRP; the Company's PRP status at the remaining 12 sites has not yet been
determined. The number of Superfund sites with which the Company's subsidiaries
are involved may increase or decrease depending upon the EPA's findings from
responses to these information requests and any future information requests
which may be received. Superfund legislation permits strict joint and several
liability to be imposed without regard to fault, and as a result, one company
may be required to bear significantly more than its proportional share, 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. 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. 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. 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, to the extent quantifiable, 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
-43-
<PAGE> 47
and closed landfills and adjusts its asset values and accruals as deemed
appropriate.
Management believes that the ultimate disposition of these environmental
matters will not have a materially adverse effect upon the liquidity, capital
resources, business or consolidated financial position of the Company, though
resolution of one or more of these matters could have a significant negative
impact on the Company's consolidated financial results for a particular
reporting period. Due to the nature of the Company's business and the continuing
emphasis of government in all jurisdictions and the public on environmental
issues relating to the waste disposal industry, it can be reasonably expected
that various subsidiaries of the Company will become involved in additional
remediation actions and Superfund sites in the future. Management attempts to
anticipate future changes in laws, regulations and operating permit requirements
which may affect the Company's operations; however, there is no assurance that
such future changes will not significantly affect such operations.
YEAR 2000 ISSUES
Many computer software systems, as well as certain hardware and equipment
utilizing date-sensitive information, were configured to use a two-digit date
field, which will preclude them from properly recognizing dates in the year
2000. The inability to properly recognize date-sensitive information in the year
2000 could render systems inoperable or cause them to incorrectly process
operational or financial information. In fiscal 1995, the Company initiated a
project to implement the SAP suite of business systems software (which is year
2000 compliant) to replace essentially all of the Company's existing business
systems. The first phase of this project, implemented in January 1998, replaced
approximately 45% of the existing business systems of the Company. Due to timing
related to implementation of the second phase of this project, the Company
commenced a Year 2000 Project to ensure compliance of remaining legacy systems
by early 1999. To date, the Company has incurred expense of approximately $3
million in connection with the Year 2000 modifications of legacy computer
systems and does not expect additional costs related to these systems to be
material to its consolidated results of operations or financial position.
In addition, machinery and equipment often use or are controlled or
monitored by electronic devices that contain embedded microchips. Such machinery
and equipment could be rendered partially or totally inoperable if embedded
microchips are date-sensitive and do not properly recognize the year 2000.
-44-
<PAGE> 48
The Company has initiated a process to (1) identify critical supplier and
customer related issues, (2) assess the year 2000 readiness of equipment located
at all of its operating facilities and (3) determine what contingency plans may
be required. At this time, the potential effects in the event that the Company
and/or third parties are unable to resolve year 2000 problems timely are not
determinable, however, the Company believes it will be able to resolve its own
year 2000 issues.
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,
-------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Working capital (in thousands) $ (57,839) $(189,861) $(10,695)
Working capital ratios .9:1 .9:1 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 (15) 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. The Company
issued 11,499,200 shares of its common stock (from treasury stock) to the
holders of these securities on June 30, 1998 in exchange for cash proceeds of
$409.7 million.
As previously announced, in October 1997, the Company repurchased 15
million shares of its outstanding common stock at a price of $39 per share under
the terms of a Dutch auction tender offer. This purchase of approximately $585
million of common stock was the first phase of a two-part program to buy back $1
billion of the Company's common stock. The second phase of the program,
approximately $415 million in open market purchases and privately negotiated
transactions of common stock or automatic common exchange security units, was
completed during the third quarter of fiscal 1998.
In late March 1998, coincident with the announcement of completion of the
sale of its operations outside North America to
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<PAGE> 49
SITA, the Company announced that its Board of Directors had approved a $500
million increase to the current stock repurchase program permitting the Company
to repurchase additional shares of its common stock. This expanded share
repurchase program was completed in June 1998.
In early July 1998, the Company announced that its Board of Directors had
approved an additional $750 million increase to its common stock repurchase
program. It is anticipated that this newly authorized share repurchase program
will be completed on or before September 30, 1999.
Through September 30, 1998, the Company had repurchased 56.3 million
shares of its common stock at a total cost of approximately $2.0 billion, as
authorized under the common stock repurchase programs discussed above.
During December 1997, the Company amended the terms of its existing $750
million Multicurrency Revolving Credit Agreement to reduce the total commitment
to $500 million and to extend the termination date. Under the terms of the
amended agreement, the facility has a 364-day term with a one-year term-out
option available to the Company at any time prior to its maturity date in
December 1998. The agreement contains a net worth requirement consistent with
the Company's $1 billion revolving credit agreement. In addition, the Company's
net worth maintenance requirements under its $1 billion revolving credit
agreement and its $500 million Multicurrency Revolving Credit Agreement have
been amended, effective March 31, 1998. The definition of consolidated net worth
was amended (i) to include on a pro forma basis $409.7 million of common stock
(subsequently issued upon the maturity of the Automatic Common Exchange
Securities in June 1998) and (ii) to reduce the consolidated net worth
requirement to $1.2 billion for the remainder of fiscal 1998. The consolidated
net worth maintenance requirement of $1.2 billion increases annually after
September 30, 1998 by 20% of the consolidated net income of the preceding year
and excludes the effect of any foreign currency translation adjustments on net
worth. As of September 30, 1998, no borrowings were outstanding under these
revolving credit agreements.
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 $590.7 million of commercial paper
borrowings outstanding as of September 30, 1998.
-46-
<PAGE> 50
As of September 30, 1998, the Company's unused committed borrowing
capacity under its Multicurrency Revolving Credit Agreement and its $1 billion
bank credit agreement was approximately $900 million. Such capacity may be used
to refinance amounts outstanding under short-term facilities, for financing the
Company's $2.25 billion stock buyback program, or for other capital
requirements. Of the $1.8 billion of the Company's long-term indebtedness
outstanding at September 30, 1998, 64% was at fixed interest rates for a period
of at least 12 months. Management's long-term objective is to maintain most of
its indebtedness in fixed interest rate obligations, although variable rate debt
has been and will likely continue to be used to meet short-term and certain
longer term financing needs. The Company's weighted average cost of indebtedness
declined to approximately 6.2% for fiscal 1998 from 7.2% for fiscal 1997. The
lower average cost of indebtedness is due primarily to the early retirement of
debt during the latter part of fiscal 1997 with interest rates ranging from
6.10% to 9.25% and to the increased utilization of commercial paper borrowings
during the latter part of fiscal 1998 at interest rates ranging from 5.55% to
6.25%.
As of September 30, 1998, there have been significant changes in balance
sheet caption amounts compared with September 30, 1997, principally as a result
of (i) the sale of substantially all of the Company's operations outside North
America to SITA in March 1998 and the associated investment in ordinary shares
of SITA and (ii) the common stock repurchase program. There have been no other
material changes in the Company's financial condition from that reported at
September 30, 1997, except as disclosed herein. In addition, the decline in cash
flows from operating activities for fiscal 1998 compared with fiscal 1997 was
driven largely by divestitures of business assets and operations in the latter
half of fiscal 1997 and in fiscal 1998, including the sale of substantially all
of the Company's international operations to SITA.
The capital appropriations budget for fiscal year 1999 has been
established at $600 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 North American operations.
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.
-47-
<PAGE> 51
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, 1998 by expected maturity dates. Weighted average variable rates
are based on implied forward rates in the yield curve at September 30, 1998.
Implied forward rates should not be considered a predictor of actual future
interest rates. The information is presented in U.S. dollars, the Company's
reporting currency.
<TABLE>
<CAPTION>
Expected Maturity Date
-------------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
-------- -------- -------- -------- -------- -------- -------- --------
(Amounts in millions except for percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $ 9 $ 108 $ 5 $ 4 $ 160 $ 865 $ 1,151 $ 1,217
Average
interest
rate 10.5% 9.2% 10.5% 10.5% 6.2% 7.3% 7.4%
Variable Rate -- $ 591 -- -- -- $ 60 $ 651 $ 651
Average
interest
rate -- 5.2% -- -- -- 4.4% 5.1%
</TABLE>
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<PAGE> 52
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,
1998 and 1997, 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, 1998. 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 audits 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998, 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 Item 14 of Part IV
herein 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 3, 1998
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<PAGE> 53
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Three Years Ended September 30, 1998
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 4,745,748 $ 5,782,972 $ 5,779,277
Cost of operations 3,437,661 4,289,614 4,315,615
----------- ----------- -----------
Gross profit 1,308,087 1,493,358 1,463,662
Selling, general and administrative expense 683,284 812,242 874,069
Special charges (credits), net (21,464) 81,879 446,800
----------- ----------- -----------
Income from operations 646,267 599,237 142,793
Interest expense 123,000 165,225 179,299
Interest income (4,723) (7,142) (8,842)
Equity in earnings of unconsolidated
affiliates (60,078) (53,988) (55,370)
----------- ----------- -----------
Income before income taxes, minority
interest, extraordinary items and
cumulative effects of changes in
accounting principles 588,068 495,142 27,706
Income taxes 232,089 198,057 105,188
Minority interest in income of
consolidated subsidiaries 6,606 13,390 11,690
----------- ----------- -----------
Income (loss) before extraordinary items
and cumulative effects of changes in
accounting principles 349,373 283,695 (89,172)
Extraordinary losses on redemptions of debt
of unconsolidated affiliates, net of
income tax benefits of $538 and $1,677 for
fiscal years 1998 and 1997, respectively 999 3,124 --
Extraordinary losses on redemption of debt,
net of income tax benefits of $8,269 and
$4,467 for fiscal years 1997 and 1996,
respectively -- 15,357 12,159
Cumulative effects of changes in
accounting principles, net of income
tax benefit of $4,611 9,563 -- --
----------- ----------- -----------
Net income (loss) $ 338,811 $ 265,214 $ (101,331)
=========== =========== ===========
</TABLE>
(Continued on Following Page)
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<PAGE> 54
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Three Years Ended September 30, 1998
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Ended September 30,
----------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) per share:
Basic -
Income (loss) before extraordinary
items and cumulative effects of
changes in accounting principles $ 1.939 $ 1.399 $ (.446)
Extraordinary items (.005) (.091) (.061)
Cumulative effects of changes in
accounting principles (.053) -- --
------------ ------------ ------------
Net income (loss) $ 1.881 $ 1.308 $ (.507)
============ ============ ============
Diluted -
Income (loss) before extraordinary
items and cumulative effects of
changes in accounting principles $ 1.927 $ 1.393 $ (.446)
Extraordinary items (.005) (.091) (.061)
Cumulative effects of changes in
accounting principles (.053) -- --
------------ ------------ ------------
Net income (loss) $ 1.869 $ 1.302 $ (.507)
============ ============ ============
Number of common shares used in
computing earnings per share:
Basic 180,153 202,800 199,953
============ ============ ============
Diluted 181,298 203,745 199,953
============ ============ ============
Cash dividends per common share $ .76 $ .70 $ .68
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 55
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
September 30,
------------------------
1998 1997
- ------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 89,893 $ 78,746
Short-term investments 5,812 3,811
Receivables -
Trade, net of allowances for doubtful
accounts of $22,072 and of $38,376 603,331 820,678
Other 16,205 71,547
Inventories 21,035 40,414
Deferred income taxes 99,695 117,404
Prepayments and other 101,696 112,063
---------- ----------
Total current assets 937,667 1,244,663
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,223,913 and $2,512,196 2,812,221 3,567,155
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$83,050 and $168,401 592,946 1,418,827
Other intangible assets, net of
accumulated amortization of $81,959
and $92,794 70,594 81,208
Deferred income taxes 24,588 50,057
Investments in unconsolidated affiliates 512,964 235,559
Other 48,501 80,823
---------- ----------
Total other assets 1,249,593 1,866,474
---------- ----------
Total assets $4,999,481 $6,678,292
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-52-
<PAGE> 56
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
September 30,
---------------------------
1998 1997
- ---------------------------------------------------------------------------------
CURRENT LIABILITIES: (In Thousands Except for Share Amounts)
<S> <C> <C>
Notes payable and current portion of
long-term debt $ 9,241 $ 151,736
Accounts payable 354,916 496,733
Accrued liabilities -
Salaries and wages 83,199 115,477
Taxes, other than income 31,238 58,112
Other 332,221 414,601
Income taxes 9,076 19,204
Deferred revenues 175,615 178,661
----------- -----------
Total current liabilities 995,506 1,434,524
----------- -----------
LONG-TERM DEBT, net of current portion 1,792,863 1,675,162
----------- -----------
OTHER LIABILITIES:
Accrued environmental and landfill costs 392,853 505,278
Deferred income taxes 210,511 149,803
Other 194,290 252,762
----------- -----------
Total other liabilities 797,654 907,843
----------- -----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000 shares
authorized; 208,310,631 and 213,387,697 shares
issued 34,725 35,572
Additional paid-in capital 1,631,236 1,839,378
Retained earnings 1,368,485 1,080,810
Treasury stock, 46,008,054 and 1,239,246
shares, at cost (1,620,988) (18,951)
Stock and Employee Benefit Trust,
7,252,452 shares at yearend 1997 -- (276,046)
----------- -----------
Total common stockholders' equity 1,413,458 2,660,763
----------- -----------
Total liabilities and common stockholders'
equity $ 4,999,481 $ 6,678,292
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 57
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Three Years Ended September 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended September 30,
-------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 338,811 $ 265,214 $(101,331)
--------- --------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization -
Property and equipment 425,295 501,656 521,185
Goodwill 28,531 43,215 47,374
Other intangible assets 16,129 24,799 33,966
Special charges (credits), net (21,464) 81,879 446,800
Cumulative effects of changes in
accounting principles 9,563 -- --
Deferred income tax expense 94,496 81,146 3,034
Amortization of deferred investment
tax credit (706) (706) (706)
Provision for losses on accounts
receivable 20,604 30,116 29,527
Gains on sales of fixed assets (4,654) (6,995) (4,512)
Equity in earnings of unconsolidated
affiliates, net of dividends received
and extraordinary items (19,876) 7,373 (13,455)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 1,052 6,059 10,895
Increase (decrease) in cash from changes
in assets and liabilities excluding
effects of acquisitions and divestitures:
Trade receivables (50,865) (41,089) (28,683)
Inventories (6,415) 4,103 1,563
Other assets 40,246 42,430 29,991
Other liabilities (137,166) (40,100) (118,805)
--------- --------- ---------
Total adjustments 394,770 733,886 958,174
--------- --------- ---------
Net cash provided by operating activities 733,581 999,100 856,843
--------- --------- ---------
</TABLE>
(Continued on Following Page)
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<PAGE> 58
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Three Years Ended September 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Year Ended September 30,
---------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (525,447) (494,725) (935,382)
Payments for businesses acquired (24,409) (21,305) (188,451)
Proceeds from businesses divested 991,849 372,202 --
Investments in unconsolidated affiliates (37,816) (39,700) (82,535)
Proceeds from disposition of assets 47,297 41,667 57,742
Purchases of short-term investments (119,655) -- --
Sales of short-term investments -- 21,539 302,065
Return of investment in unconsolidated
affiliates 99,884 69,286 56,861
----------- ----------- -----------
Net cash provided by (used in)
investing activities 431,703 (51,036) (789,700)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 465,644 68,761 13,316
Proceeds from issuances of
indebtedness 599,847 191,255 980,834
Repayments of indebtedness (68,710) (1,098,030) (904,459)
Repurchases of common stock (2,008,468) -- --
Dividends paid (141,524) (137,572) (137,944)
----------- ----------- -----------
Net cash used in financing activities (1,153,211) (975,586) (48,253)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES (926) (3,956) (1,474)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 11,147 (31,478) 17,416
CASH AT BEGINNING OF YEAR 78,746 110,224 92,808
----------- ----------- -----------
CASH AT END OF YEAR $ 89,893 $ 78,746 $ 110,224
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 126,832 $ 170,398 $ 174,590
Income taxes $ 154,148 $ 168,393 $ 163,251
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 59
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Year Ended September 30,
---------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares of common stock:
Beginning of year 213,388 213,390 213,441
Stock option exercises 2,071 2,918 563
Common stock issuances related to -
Dividend Reinvestment Plan 8 67 101
BFI Employee Stock Ownership and
Savings Plan 43 699 754
Acquisitions 4 64 988
Retirements of common stock (7,252) (3,760) (2,584)
Other 49 10 127
--------- --------- ---------
End of year 208,311 213,388 213,390
========= ========= =========
Common stock:
Beginning of year $ 35,572 $ 35,572 $ 35,581
Stock option exercises 345 486 94
Common stock issuances related to -
Dividend Reinvestment Plan 1 11 17
BFI Employee Stock Ownership and
Savings Plan 7 117 126
Acquisitions 1 11 165
Retirements of common stock (1,209) (627) (431)
Other 8 2 20
--------- --------- ---------
End of year 34,725 35,572 35,572
--------- --------- ---------
</TABLE>
(Continued on Following Page)
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<PAGE> 60
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Additional paid-in capital:
Beginning of year 1,839,378 1,730,612 1,801,407
Stock option exercises and related
income tax benefit 61,551 81,140 13,868
Common stock issuances related to -
Dividend Reinvestment Plan 316 1,954 2,908
BFI Employee Stock Ownership and
Savings Plan 1,607 20,811 21,404
Automatic Common Exchange Securities 3,198 -- --
Acquisitions 119 1,718 29,133
Adjustment of Stock and Employee
Benefit Trust to market (23,413) 124,585 (62,388)
Retirements of common stock (251,424) (123,223) (74,858)
Other (96) 1,781 (862)
---------- ---------- ----------
End of year 1,631,236 1,839,378 1,730,612
---------- ---------- ----------
Retained earnings:
Beginning of year 1,080,810 1,031,331 1,328,244
Net income (loss) 338,811 265,214 (101,331)
Cash dividends (133,431) (142,266) (133,623)
Foreign currency translation
adjustment 82,295 (73,469) (61,959)
---------- ---------- ----------
End of year 1,368,485 1,080,810 1,031,331
---------- ---------- ----------
</TABLE>
(Continued on Following Page)
-57-
<PAGE> 61
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
For The Three Years Ended September 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year Ended September 30,
---------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury stock:
Beginning of year (18,951) (11,926) (10,494)
Stock option exercises (297) (5,313) (1,649)
Common stock issuances related to -
Automatic Common Exchange
Securities 406,461 -- --
Acquisitions 283 (1,468) 303
Common stock repurchases (2,008,468) -- --
Other (16) (244) (86)
----------- ----------- -----------
End of year (1,620,988) (18,951) (11,926)
----------- ----------- -----------
Stock and Employee Benefit Trust:
Beginning of year (276,046) (275,311) (412,988)
Reimbursements of common stock 252,633 123,850 75,289
Adjustment to market 23,413 (124,585) 62,388
----------- ----------- -----------
End of year -- (276,046) (275,311)
----------- ----------- -----------
Total common stockholders' equity $ 1,413,458 $ 2,660,763 $ 2,510,278
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-58-
<PAGE> 62
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 Canada. 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. Further,
the Company is engaged in waste services outside of North America, principally
in Europe, through its equity ownership in SITA, a publicly traded, Paris-based
subsidiary of Suez Lyonnaise des Eaux.
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, 1998 and 1997, short-term investments
of approximately $5.8 million and $3.8 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.
-59-
<PAGE> 63
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property and equipment.
Property and equipment are recorded at cost. Capitalized landfill costs
include expenditures for land and related airspace, permitting costs and
preparation costs. Landfill permitting and preparation costs represent only
direct costs related to these activities, including legal, engineering,
construction and the direct costs of Company personnel dedicated for these
purposes. Interest is capitalized on landfill permitting and construction
projects and other projects under development while the assets are undergoing
activities to ready them for their intended use. The interest capitalization
rate is based on the Company's weighted average cost of indebtedness. Interest
capitalized during fiscal years 1998, 1997 and 1996 was $8,726,000, $9,714,000
and $16,306,000, 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 most 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 the remaining 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:
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<PAGE> 64
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<S> <C>
Solid waste and recycling collection vehicles 8-10 years
Other trucks, tractors and trailers 8 years
Landfill equipment 5-7 years
Containers and compactors 12 years
Injection molded carts 10 years
Other residential carts 5 years
Transfer stations and buildings 20-40 years
Office and other equipment 3-10 years
</TABLE>
Expenditures for major renewals and betterments are capitalized and
expenditures for maintenance and repairs are charged to expense as incurred.
During fiscal 1998, 1997 and 1996, maintenance and repairs charged to expense
were $292,663,000, $338,553,000 and $336,374,000, 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.
Long-lived assets.
Long-lived assets are comprised principally of property and equipment,
goodwill and other intangible assets. The Company periodically evaluates whether
events and circumstances have occurred that indicate the remaining estimated
useful lives of these assets should be revised or the remaining balances of
these 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 asset or business as a measure of
future recoverability of these assets.
-61-
<PAGE> 65
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred income taxes.
Deferred tax assets and liabilities reflect the impact of temporary
differences between the financial reporting basis and tax basis of assets and
liabilities. Such amounts are recorded using presently enacted tax rates and
regulations. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be realized.
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.
Other liabilities.
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
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<PAGE> 66
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the site, site inspections, ground-water monitoring, leachate management,
methane gas control and recovery, and operation and maintenance costs to be
incurred during the period after the facility closes. Certain of these
environmental costs, principally capping and methane gas control costs, are also
incurred during the operating life of the site in accordance with the landfill
operation requirements of Subtitle D and the air emissions standards. Estimated
future net cash inflows from methane gas recovery activities are considered a
cost reduction component of closure and post-closure costs at a number of the
Company's landfills. Future net cash inflows of methane gas recovery activities
at each of these landfills represents cash to be received from sales of methane
gas or electricity in excess of the incremental costs to construct and operate
the methane gas recovery systems. Future cost requirements for closure and
post-closure monitoring and maintenance of Canadian operating landfills are
determined based on the 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, to
-63-
<PAGE> 67
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the extent quantifiable, for its share of estimated future costs associated with
corrective actions to be implemented at certain of these sites and existing
accruals are revised as deemed necessary. Expense accruals related to the
estimated costs of post-closure care of previously owned or operated solid waste
landfills are also reviewed on a periodic basis and revised as necessary.
Accruals for closure, post-closure and certain other liabilities related
to hazardous waste disposal were provided in fiscal 1990 when the Company
discontinued its hazardous waste operations. The Company reviews the adequacy of
these accruals on a periodic basis to determine whether any revisions in the
accruals provided at that time are required.
Other noncurrent items -
Other noncurrent items as of September 30, 1998 and 1997 were as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Self-insurance accruals $132,359 $121,722
Minority interest in
consolidated subsidiaries 1,512 57,035
Accrued pension costs 18,631 31,792
Other 41,788 42,213
-------- --------
$194,290 $252,762
======== ========
</TABLE>
In addition to the above items, included in other accrued liabilities at
September 30, 1998 and 1997 was the current portion of self-insurance accruals
of $71,774,000 and $89,567,000, respectively, and accrued pension costs of
$1,995,000 and $16,849,000, 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'
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<PAGE> 68
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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 (6).
New accounting pronouncements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 - "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The statement, which is
to be applied prospectively, is effective for the Company's quarter ending
December 31, 1999. The Company is currently evaluating the impact of SFAS No.
133 on its future results of operations and financial position.
In April 1998, Statement of Position ("SOP") No. 98-5 - "Reporting on the
Costs of Start-Up Activities" was issued by the American Institute of Certified
Public Accountants. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application of the
statement, which is effective for the Company's fiscal year 2000, is to be
reported as a cumulative effect of a change in accounting principle. The Company
believes that the future adoption of SOP No. 98-5 will not have a material
effect on its results of operations or financial position.
(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
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<PAGE> 69
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
organization divides North America into 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 were expensed as incurred and were included in selling,
general and administrative expenses.
(4) Special charges (credits), net -
Fiscal 1996 special charges ($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.
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):
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<PAGE> 70
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues $ 81,926 $122,782
Loss from operations and
equity in earnings of
unconsolidated affiliates
before special charges $ (2,190)(1) $ (4,019)(2)
</TABLE>
- ---------------
(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 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 years 1997 and 1998, the Company sold
a number of these business operations and closed 47 recycling facilities.
In October 1996 (pursuant to a judicial order issued in September),
California authorities suspended the Company's
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<PAGE> 71
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 special charges ($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 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.
Fiscal 1998 special credits ($21 million).
Special credits of $21.5 million ($12.9 million after income taxes or $.07
per share) were reported for fiscal 1998. These special credits are related
principally to the estimated gain of $17.9 million recognized from the sale in
March 1998 of substantially all of the Company's operations outside North
-68-
<PAGE> 72
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
America to SITA, a Paris-based subsidiary of Suez Lyonnaise des Eaux. In
exchange for these operations, the Company received $950 million in cash and an
ownership interest of approximately 19.2% in ordinary shares of SITA. Costs
associated with the sale of these operations included estimated transaction and
other expenses and losses accumulated in the foreign currency translation
component of common stockholders' equity (approximately $133 million). A portion
of the total gain, net of related costs, has been deferred in connection with
the Company's continuing investment in SITA.
The Company's consolidated results of operations on an unaudited pro forma
basis for the years ended September 30, 1998 and 1997, respectively, as though
the sale of the operations outside North America had occurred on October 1, 1996
are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Pro forma revenues $ 4,116,151 $ 4,328,394
Pro forma income before
extraordinary items and
cumulative effects of changes
in accounting principles $ 328,683 $ 350,855
Pro forma earnings per shares (i) -
Basic $ 1.82 $ 1.73
Diluted $ 1.81 $ 1.72
</TABLE>
- ----------------
(i) Excluding the after-tax impact of special charges (credits), net,
earnings per share amounts for the years ended September 30, 1998 and 1997
were:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
Actual Pro forma Actual Pro forma
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Basic $1.87 $1.82 $1.64 $1.55
Diluted $1.86 $1.81 $1.63 $1.54
</TABLE>
-69-
<PAGE> 73
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
These pro forma results are presented for informational purposes and do
not purport to show the actual results which would have occurred had the sale of
the international operations been consummated on October 1, 1996, nor should
they be viewed as indicative of future results of operations. In addition, these
pro forma amounts give no effect to earnings from the Company's equity
investment in SITA on a pro forma basis for the periods prior to consummation of
the sale of the international operations. Had any such estimated earnings from
the Company's investment in SITA been considered in the Company pro forma
results of operations presented above, management believes that pro forma
earnings per share amounts would reflect significantly less dilution when
compared with the related historical earnings per share amounts.
The remaining amounts included in special credits were attributable
principally to net gains associated with the divestiture of certain North
American operations in the current fiscal year.
(5) Cumulative effects of changes in accounting principles -
On November 20, 1997, the Financial Accounting Standards Board's Emerging
Issues Task Force issued EITF No. 97-13, a consensus ruling requiring that
certain business process reengineering costs typically capitalized by companies
be expensed as incurred. The ruling further required that previously capitalized
costs of this nature be written off as a cumulative effect of a change in
accounting principle in the quarter containing November 20, 1997. The Company
had previously capitalized these types of costs in connection with its current
SAP software implementation project. As a result, the Company recorded an
after-tax charge of $13.8 million or $.076 diluted earnings per share in the
first quarter of fiscal 1998 as the cumulative effect of a change in accounting
principle.
During the second quarter of fiscal 1998, the Company changed its method
of accounting for recognition of value changes in its employee retirement plan
for purposes of determining annual expense under SFAS No. 87 - "Employers'
Accounting for Pensions", effective October 1, 1997. The Company has changed its
method of calculating the value of assets of its plan from a calculation which
recognized changes in fair value of assets over five years to recognition of
changes
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<PAGE> 74
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
in fair value immediately. The Company has also changed the method of
recognizing gains and losses from deferral within a 10% corridor and
amortization of gains outside this corridor over the future working careers of
the participants to a deferral below a 5% corridor, immediate recognition within
a 5-10% corridor and amortization of gains outside this corridor over the future
working careers of the participants. The new method is preferable because, in
the Company's situation, it produces results which more closely match current
economic realities of the Company's retirement plan through the use of the
current fair value of assets while still mitigating the impact of extreme gains
and losses. As a result, the Company recorded an after-tax credit of $4.2
million, or $.023 diluted earnings per share, as the cumulative effect of a
change in accounting principle.
(6) Business combinations -
During the current fiscal year, the Company paid approximately $25.5
million (including additional amounts payable, principally to former owners, of
$.7 million and the issuance of 7,089 shares of the Company's common stock
valued at $.2 million) to acquire 30 solid waste businesses, which were
accounted for as purchases. In connection with these acquisitions, the Company
recorded additional interest-bearing indebtedness of $.2 million and other
liabilities of $1.5 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 $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 were not material to
the Company's consolidated results of operations or financial position.
The results of all businesses acquired in fiscal years 1998 and 1997 have
been included in the consolidated financial statements from the dates of
acquisition. In allocating purchase price, the assets acquired and liabilities
assumed in
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<PAGE> 75
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
connection with the Company's acquisitions have been initially assigned and
recorded based on preliminary estimates of fair value and may be revised as
additional information concerning the valuation of such assets and liabilities
becomes available. As a result, the financial information included in the
Company's consolidated financial statements is subject to adjustment
prospectively as subsequent revisions in estimates of fair value, if any, are
necessary.
(7) Property and equipment -
Property and equipment at September 30, 1998 and 1997 was as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land and improvements $ 217,190 $ 330,835
Buildings 389,568 596,053
Landfills 1,558,064 1,661,888
Vehicles and equipment 2,704,058 3,373,894
Construction-in-progress 167,254 116,681
---------- ----------
Total property and
equipment 5,036,134 6,079,351
Less accumulated depreciation
and amortization 2,223,913 2,512,196
---------- ----------
Property and equipment, net $2,812,221 $3,567,155
========== ==========
</TABLE>
Included in the landfill category of property and equipment, net are $54.1
million and $35.7 million as of September 30, 1998 and 1997, 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.
(8) Investments in unconsolidated affiliates -
The Company uses the equity method of accounting for investments in
unconsolidated affiliates over which it exercises voting control of 20% - 50%.
The summarized combined balance sheet and income statement information (and the
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<PAGE> 76
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company's related investments and earnings) presented in the table below
includes amounts primarily related to the following significant equity
investees: SITA (France) (19.2% equity ownership with 20% Board of Director
representation) (acquired March 1998), 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%) (through March 1998), 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%).
At September 30, 1998, the ordinary shares of SITA owned by the Company
had a net book value of $374 million and a market value, based on the Paris
Stock Exchange closing price, of approximately $477 million. Under the terms of
the Company's shareholders agreement with Suez Lyonnaise des Eaux, these
ordinary shares cannot be sold, transferred or otherwise disposed of by the
Company until after March 31, 2001, except with the prior written consent of
Suez Lyonnaise des Eaux.
-73-
<PAGE> 77
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Combined Balance Sheet Information
as of Fiscal Yearend:
Assets -
Current assets $1,742,447 $ 279,938
Noncurrent assets 3,695,399 1,434,272
---------- ----------
$5,437,846(1) $1,714,210
========== ==========
Liabilities and Net Worth -
Current liabilities $1,198,725 $ 192,745
Noncurrent liabilities 3,419,713 1,200,656
Net worth 819,408 320,809
---------- ----------
$5,437,846 $1,714,210
========== ==========
Company's Investments in and
Advances to Equity Investees(2) $ 510,387 $ 215,761
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Combined Income Statement
Information for the Fiscal
Year Ended:
Revenues $ 2,056,467 $ 553,098 $ 511,086
Gross profit $ 550,637 $ 226,853 $ 213,236
Income before extraordinary
item $ 154,328 $ 93,465 $ 95,438
Extraordinary item (4) $ (3,074) $ (9,602) $ --
Net income $ 151,254 $ 83,863 $ 95,438
</TABLE>
-74-
<PAGE> 78
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Company's Income Statement Information:
Equity in Earnings
of Equity Investees (3) $60,078 $53,988 $55,370
Extraordinary item, net of
income tax benefit of $538
and $1,677 for fiscal 1998
and 1997, respectively (4) $ 999 $ 3,124 $ --
Dividends Received from Equity
Investees $38,665 $56,560 $41,915
</TABLE>
- ----------------
(1) Includes assets of $3.8 billion related to SITA.
(2) Includes investment in excess of underlying equity of SITA of $237
million and subordinated note and other receivables of $43 million as of
September 30, 1998, and subordinated note and other receivables of $61
million as of September 30, 1997.
(3) 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, the
elimination of intercompany transactions and the amortization of
investment in excess of underlying equity of SITA over 40 years.
(4) During the second quarter of fiscal 1998, the Company's unconsolidated
affiliate, American Ref-Fuel Company of Southeastern Connecticut, incurred
a pre-tax charge of $3.1 million associated with its obligation to redeem
approximately $90 million principal amount of 1988 Series A Bonds in
November 1998. As a result, the Company reflected an extraordinary charge,
after-tax of $999,000 (or approximately $.005 per share) in its fiscal
1998 Consolidated Statement of Operations related to its 50% ownership
interest in this affiliate. Interest was payable on the 1988 Series A
Bonds at a weighted average interest rate of approximately 7.9%, compared
with the weighted average interest rate of approximately 5.1% for the new
bonds, which mature in 2015.
-75-
<PAGE> 79
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 amount of Series 1985 Bonds, which were refinanced. As a
result, the Company reflected an extraordinary charge, after tax, of $3.1
million (or approximately $.015 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.
(9) Accrued environmental and landfill costs -
Accrued environmental and landfill costs at September 30, 1998 and 1997
were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Continuing operations -
Accrued costs associated with open
landfills (including landfills
under expansion) $219,253 $248,820
Accrued costs associated with closed
landfills and corrective action
costs (including Superfund sites) 173,722 264,516
-------- --------
Total 392,975 513,336
Less current portion (included in
other accrued liabilities) 72,711 81,291
-------- --------
Total long-term $320,264 $432,045
======== ========
</TABLE>
-76-
<PAGE> 80
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<S> <C> <C>
Discontinued operations -
Accrued costs of closure, post-
closure and certain other
liabilities associated with
discontinued operations $ 88,322 $ 99,914
Less current portion (included in
other accrued liabilities) 15,733 26,681
-------- --------
Total long-term $ 72,589 $ 73,233
======== ========
Total long-term portion of accrued
environmental and landfill costs $392,853 $505,278
======== ========
</TABLE>
For a discussion of the Company's significant accounting policies related
to these environmental and landfill costs, see Note (2) - "Summary of
significant accounting policies" - "Other liabilities" - "Accrued environmental
and landfill costs".
Open landfills.
The Company operates 88 solid waste landfills in the United States, 18 of
which are operated under contracts with municipalities or others. The Company
also operates 6 landfills in Canada. 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 1998, approximately $125-$175 million of
additional accruals are to be provided over the remaining lives of these
facilities. Estimated additional environmental costs ranging from $425-$475
million, principally related to capping and certain methane gas control and
recovery activities expected to occur during the operating lives of these sites,
are also to be expensed over the remaining lives of these landfill facilities.
-77-
<PAGE> 81
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
(10) Long-term debt -
Long-term debt at September 30, 1998 and 1997 was as follows (in
thousands):
-78-
<PAGE> 82
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Senior indebtedness (maturing as set
forth in the following paragraphs):
6.10% Senior Notes, net of
unamortized discount of
$986 and $1,218 $ 155,703 $ 155,471
6.375% Senior Notes, net of
unamortized discount of
$1,360 and $1,507 159,840 159,693
7 7/8% Senior Notes, net of
unamortized discount of $169
and $195 69,332 69,306
7.40% Debentures, net of
unamortized discount of
$1,720 and $1,767 358,280 358,233
9 1/4% Debentures 99,500 99,500
Solid waste revenue bond obligations 220,044 219,974
Other notes payable, primarily
5.5%-15.5% 46,790 505,674
---------- ----------
1,109,489 1,567,851
Commercial paper and short-term
facilities to be refinanced 692,615 259,047
---------- ----------
Total long-term debt 1,802,104 1,826,898
Less current portion 9,241 151,736
---------- ----------
Long-term debt, net of current portion $1,792,863 $1,675,162
========== ==========
</TABLE>
The long-term portion of the debt outstanding at September 30, 1998,
matures as follows: 2000, $698,795,000; 2001, $4,955,000; 2002, $4,425,000;
2003, $159,977,000 and in subsequent years, $924,711,000.
-79-
<PAGE> 83
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $.076 diluted earnings per share.
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
(11).
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.
-80-
<PAGE> 84
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.
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 5.63%. These issues mature at
various dates through the year 2027. The solid waste revenue bond obligations of
the subsidiaries are either guaranteed by the Company or supported by letters of
credit issued by commercial banks.
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. These notes were redeemed during fiscal 1997. 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
-81-
<PAGE> 85
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
obligations of the Company. Approximately $208 million of this indebtedness at
September 30, 1997, related to a large number of separate company debt
instruments of Otto Waste Services and its consolidated subsidiaries (divested
in March 1998).
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. At September 30,
1998 and 1997, the Company had no outstanding borrowings under this bank credit
agreement.
During December 1997, the Company amended the terms of its existing $750
million Multicurrency Revolving Credit Agreement to reduce the total commitment
to $500 million and to extend the termination date. Under the terms of the
amended agreement, the facility has a 364-day term with a one-year, term-out
option available to the Company at any time prior to its maturity date in
December 1998. The facility can be utilized to borrow U.S. dollars, pounds
sterling, 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
.06% per annum on the total commitment, whether used or unused. At September 30,
1998 and 1997, the Company had no outstanding borrowings under this agreement.
The Company's net worth maintenance requirements under its $1 billion
revolving credit agreement and its $500 million
-82-
<PAGE> 86
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Multicurrency Revolving Credit Agreement were amended, effective March 31, 1998.
The definition of consolidated net worth was amended to (i) include on a pro
forma basis the $409.7 million of common stock (subsequently issued upon the
maturity of the Automatic Common Exchange Securities in June 1998) and (ii) to
reduce the consolidated net worth requirements to $1.2 billion for the remainder
of fiscal 1998. The consolidated net worth requirement of $1.2 billion increases
annually after September 30, 1998 by 20% of the consolidated net income of the
preceding year and excludes the effect of any foreign currency translation
adjustments on net worth.
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 was payable on loans under the facility
at the Frankfurt Interbank Offered Rate ("FIBOR") plus a margin. This agreement
required 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, Otto Waste Services had
outstanding borrowings under this facility of 360 million deutsche mark
(approximately U.S. $204.6 million). Otto Waste Services was included with the
international operations divested in March 1998.
As of September 30, 1998, distributions from retained earnings could not
exceed $236 million under the most restrictive of the Company's net worth
maintenance requirements.
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
-83-
<PAGE> 87
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1998 and 1997 is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
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 $590,676 5.8% $ -- --%
Other 101,939 6.7% -- --%
Germany -- --% 259,047 4-10%
-------- --------
$692,615 $259,047
======== ========
</TABLE>
(11) 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 $.061 per share.
(12) 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
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<PAGE> 88
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
materially adverse effect upon the consolidated financial position of the
Company.
Environmental proceedings.
The Company and certain subsidiaries are involved in various environmental
matters or proceedings, including original or renewal permit application
proceedings in connection with the establishment, operation, expansion, closure
and post-closure activities of certain landfill disposal facilities, and
proceedings relating to governmental actions resulting from the involvement of
various subsidiaries of the Company with certain waste sites (including
Superfund sites), as well as other matters or claims that could result in
additional environmental proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular 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, 1998, 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.
-85-
<PAGE> 89
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Waste-to-energy projects.
Certain of the Company's subsidiaries 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.
Substantially all of the remaining ownership interests are held by Duke/UAE
Ref-Fuel LLC, an entity indirectly owned 65% by Duke Capital Corporation ("Duke
Capital") and 35% by United American Energy Corporation. 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 Duke Capital 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 Duke Capital
generally will not be required to fund cash deficiencies associated with waste
deliveries by the sponsoring municipality below certain minimum levels, changes
in law or termination of incineration service for reasons other than default by
the respective partnership. In the event of a partnership default which results
in termination of incineration service, the Company may limit its financial
obligations by partnership as follows:
Hempstead, New York - Funding of 50% of periodic payments related to
outstanding debt. At September 30, 1998, $210 million of total unamortized
project debt was outstanding. Average annual debt service on 50% of the
debt over the next five years is $11 million. 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.
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<PAGE> 90
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Preston, Connecticut - Funding of 50% of periodic payments related to
outstanding debt. At September 30, 1998, total outstanding debt included
$85 million of unamortized project debt and $43 million of additional
partnership debt (of which $21.5 million is guaranteed by the Company).
Average annual debt service on 50% of the debt over the next five years is
$5 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
relating to debt service. At September 30, 1998, $165 million of total
unamortized partnership debt was outstanding (of which $82.5 million is
guaranteed by the Company). Average annual debt service on 50% of the debt
over the next five years is estimated to be $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 non-recourse indebtedness outstanding of
approximately $291 million (weighted average fixed rate of 9.7%) as of
September 30, 1998. Average annual debt service on 50% of the debt over
the next five years is approximately $19 million.
Operating leases.
The Company and its subsidiaries lease substantial portions of their
office and other facilities under various lease agreements. During the fourth
quarter of fiscal 1998, the Company acquired approximately $84 million of trucks
and containers under the purchase option provisions of related operating lease
agreements. At September 30, 1998, total minimum rental commitments becoming
payable under all noncancellable operating leases are as follows (in thousands):
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<PAGE> 91
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<S> <C> <C> <C> <C>
1999 $44,011 2003 $35,886
2000 $40,450 2004 - 2008 $136,489
2001 $38,959 2009 - 2013 $100,946
2002 $39,876 All years thereafter $28,488
</TABLE>
Total rental expenses for fiscal years 1998, 1997 and 1996, substantially
all of which related to fixed amount rental agreements, were $97,088,000,
$107,622,000 and $105,134,000, respectively.
(13) 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.
(14) Preferred Stock Purchase Rights Plan -
In June 1988, the Board of Directors of the Company adopted a Preferred
Stock Purchase Rights Plan and in connection therewith declared a dividend of
one Preferred Stock Purchase Right on each outstanding share of the Company's
common stock and on each share subsequently issued until separate Rights
certificates were distributed, or the Rights expired or were redeemed. In June
1998, prior to the expiration of the June 1988 plan, the Board of Directors
adopted a new plan and declared a dividend distribution of one Right for each
outstanding share of the Company's common stock, payable on June 15, 1998. 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
$125.00, subject to adjustment.
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 20% or more of
the Company's outstanding common stock, 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 Rights also provide that upon the occurrence of certain
other specific matters, each holder will have the right to receive, upon payment
of the exercise price, shares
-88-
<PAGE> 92
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $.01
per Right prior to the time they become exercisable. The Rights will expire on
June 15, 2008.
(15) Common stock -
Earnings per share.
In February 1997, SFAS No. 128 - "Earnings Per Share" was issued. This
statement, which established new standards for computing and presenting earnings
per share, became effective for the Company's quarter ended December 31, 1997.
All prior periods presented have been restated pursuant to the requirements of
this new standard. The adoption of SFAS No. 128 had no material effect on the
Company's previously reported earnings per share. The following table reconciles
the number of common shares outstanding with the number of common shares used in
computing basic and diluted earnings per share for the years ended September
30(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Common shares outstanding, end
of period 162,303 212,148 212,363
Less - Shares held in Stock and
Employee Benefit Trust -- (7,252) (11,012)
-------- -------- --------
Common shares outstanding for
purposes of computing earnings
per share, end of period 162,303 204,896 201,351
Effect of using weighted average
common shares outstanding 17,850 (2,096) (1,398)
-------- -------- --------
Shares used in computing earnings
per share - basic 180,153 202,800 199,953
Effect of shares issuable under
stock option plans based on the
treasury stock method 1,145 945 --
-------- -------- --------
Shares used in computing earnings
per share - diluted 181,298 203,745 199,953
======== ======== ========
</TABLE>
-89-
<PAGE> 93
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Shares of common stock held in the Stock and Employee Benefit Trust (the
"Trust") were not considered to be outstanding in the computation of common
shares outstanding until shares were utilized at the Company's option for the
purposes for which the Trust was established.
Basic earnings per share amounts were computed by dividing earnings by the
weighted average number of shares of common stock outstanding during each
period. Diluted earnings per share amounts were computed considering the
dilutive effect of stock options in the calculation. Options to purchase 2.8
million shares of common stock at prices ranging from $35.31 to $43.38 per share
were outstanding during fiscal 1998 but were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of the common shares. The 7.25% Automatic Common
Exchange Securities had no effect on the computations for the periods presented.
Common stock repurchase program.
As previously announced, in October 1997, the Company repurchased 15
million shares of its outstanding common stock at a price of $39 per share under
the terms of a Dutch auction tender offer. This purchase of approximately $585
million of common stock was the first phase of a two-part program to buy back $1
billion of the Company's common stock. The second phase of the program,
approximately $415 million in open market purchases and privately negotiated
transactions of common stock or automatic common exchange security units, was
completed early in the third quarter of fiscal 1998.
In late March 1998, coincident with the announcement of completion of the
sale of its operations outside North America to SITA, the Company announced that
its Board of Directors had approved a $500 million increase to the current stock
repurchase program permitting the Company to repurchase additional shares of its
common stock. This expanded share repurchase program was completed in June 1998.
In early July 1998, the Company announced that its Board of Directors
approved an additional $750 million increase to its common stock repurchase
program. It is anticipated that this newly authorized share repurchase program
will be completed on or before September 30, 1999.
-90-
<PAGE> 94
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Through September 30, 1998, the Company had repurchased approximately 56.3
million shares of its common stock at a total cost of $2.0 billion, as
authorized under the common stock repurchase program discussed above.
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. All remaining shares held in the Stock and Employee Benefit Trust
were fully utilized during the third quarter of fiscal 1998 and, as a result,
the trust has been terminated. Unutilized shares in the trust were valued at
market at the end of each reporting period 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 consisted of (1) a purchase contract under
which (a) the holder would 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
would 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 were pledged as collateral to secure the holders' obligations
to purchase the Company's common stock under the purchase contract. On June 30,
1998, the principal of the Treasury Notes underlying such securities was
automatically applied to satisfy in full the holders' obligations to purchase
the Company's common stock, and the Company issued 11,499,200 shares of its
common stock (from
-91-
<PAGE> 95
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
treasury stock) to the holders of these securities in exchange for cash proceeds
of $409.7 million.
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, 1998, options were
available for future grants only under four plans, the Company's 1990 plan, both
1993 plans and the 1996 plan. At September 30, 1998, all of the options
outstanding were non-qualified stock options, except for 51,300 incentive stock
options issued to the Company's officers. 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 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):
-92-
<PAGE> 96
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
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 10,518 $28.03 12,012 $27.49 10,173 $26.53
Granted 1,985 $36.15 1,974 $26.91 2,689 $30.46
Exercised (2,071) $26.85 (2,918) $24.89 (564) $22.54
Terminated (476) $30.39 (550) $29.04 (286) $30.90
------ ------ ------
Outstanding
at end of
year 9,956 $29.78 10,518 $28.03 12,012 $27.49
====== ====== ======
Exercisable at
end of year 5,801 $28.33 5,787 $27.71 6,853 $26.77
Available for
future grants
at end of
year 8,276 9,979 12,424
</TABLE>
As of September 30, 1998, 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 - $20.00 454 $17.31 3.2 454 $17.31
$20.01 - $30.00 4,641 $26.09 5.8 3,246 $25.78
$30.01 - $40.00 4,495 $33.95 7.1 1,735 $33.34
$40.01 - $43.38 366 $40.88 1.2 366 $40.88
</TABLE>
-93-
<PAGE> 97
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Under the 1993 and 1996 Stock Incentive Plans, restricted common stock of
the Company may be granted to officers, other key employees and certain
non-employee directors. Shares granted are subject to certain restrictions on
ownership and transferability. Such restrictions on outstanding restricted stock
grants lapse two years from the date of grant for officers, 18 months to three
years for key employees and three years for non-employee directors. However,
beginning in fiscal 1997, annual stock awards granted to non-employee directors
are no longer restricted. 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, 46,850 restricted shares were issued
during the current year and 51,600 restricted shares were outstanding as of
September 30, 1998. In addition, 1,980 restricted shares issued to non-employee
directors were outstanding as of September 30, 1998. Common stock awards
totaling 2,135 shares were granted to non-employee directors during fiscal 1998.
Shares of restricted stock granted for the three years ended September 30, 1998
were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Restricted stock granted 46,850 5,750 94,655
Weighted average fair value of
restricted stock granted $35.15 $31.82 $31.12
</TABLE>
During fiscal 1998 and 1997, performance share awards of 198,500 and
1,028,500, respectively, were granted to officers and certain key employees
pursuant to the Company's Long-Term Incentive Plan. After considering
cancellation of 219,875 of these awards, 1,007,125 of the performance share
awards remained outstanding as of September 30, 1998. These performance shares
vest in increments of 25% based upon the
-94-
<PAGE> 98
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees". Compensation expense related to these plans during fiscal years
1998, 1997 and 1996 was $963,644, $1,662,000 and $1,771,000, 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 for Stock-Based Compensation", are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma income (loss) before
extraordinary items and
cumulative effects of changes
in accounting principles $ 341,214 $ 278,698 $ (91,642)
Pro forma net income (loss) $ 330,652 $ 260,217 $ (103,801)
Pro forma income (loss) per common
and common equivalent share -
Income (loss) before
extraordinary items and
cumulative effects of changes
in accounting principles $ 1.88 $ 1.37 $ (0.46)
Net income (loss) $ 1.82 $ 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
-95-
<PAGE> 99
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
option pricing model with the following assumptions used for the grants:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Risk-free
interest rate 5.1% - 5.9% 6.1% - 6.9% 5.6% - 6.7%
Expected lives
(in years) 6 6 6
Expected
volatility 21.0% - 23.2% 19.3% - 24.5% 22.9% - 25.8%
Expected dividend
yields 1.9% - 2.1% 1.8% - 2.6% 2.2% - 2.7%
</TABLE>
The weighted average fair values of options granted during fiscal years
1998, 1997 and 1996 were $9.78, $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.
(16) Foreign currency translation -
Increases (decreases) in the component of common stockholders' equity
associated with foreign currency translation adjustments for the three years in
the period ended September 30, 1998, are as follows (in thousands):
-96-
<PAGE> 100
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Beginning cumulative
translation adjustment $ (104,607) $ (31,138) $ 30,821
Translation adjustment
for the fiscal year (25,347) (126,334) (61,959)
Sale of Italian operations -- 52,865 --
Sale of international operations 107,642 -- --
---------- ---------- ----------
Ending cumulative
translation adjustment $ (22,312) $ (104,607) $ (31,138)
========== ========== ==========
</TABLE>
(17) Income taxes -
The components of (i) earnings before income taxes, minority interest,
extraordinary items and cumulative effects of changes in accounting principles
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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Domestic:
Excluding special credits
(charges) $ 517,719 $ 498,141 $ 429,705
Special credits (charges) 3,545 71,330 (187,087)
--------- --------- ---------
As reported 521,264 569,471 242,618
--------- --------- ---------
Foreign (1):
Excluding special credits
(charges) 48,885 78,880 44,801
Special credits (charges) 17,919 (153,209) (259,713)
--------- --------- ---------
As reported 66,804 (74,329) (214,912)
--------- --------- ---------
Total:
Excluding special credits
(charges) 566,604 577,021 474,506
Special credits (charges) 21,464 (81,879) (446,800)
--------- --------- ---------
As reported $ 588,068 $ 495,142 $ 27,706
========= ========= =========
</TABLE>
-97-
<PAGE> 101
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ---------------
(1) Amounts are net of intercompany interest expense for fiscal years
1998, 1997 and 1996 of $18,795,000, $42,976,000 and $53,660,000,
respectively. Prior to the divestiture of its international operations in
March 1998, the Company maintained a capital structure with respect to its
foreign operations designed to minimize worldwide income and other tax
costs.
<TABLE>
<CAPTION>
State
Federal Foreign & Local Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998: Current $ 105,191 $ 15,593 $ 17,515 $ 138,299
Deferred 74,471 9,640 10,385 94,496
Amortization
of investment
tax credit (706) -- -- (706)
--------- --------- --------- ---------
$ 178,956 $ 25,233 $ 27,900 $ 232,089
========= ========= ========= =========
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
========= ========= ========= =========
</TABLE>
-98-
<PAGE> 102
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<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 (1.66) (1.39) (2.31)
Effect of foreign operations (.14) .06 (2.05)
All other, net 1.53 2.35 2.77
--------- --------- ---------
Federal and foreign 34.73 36.02 33.41
State income taxes 4.74 3.98 6.59
--------- --------- ---------
Effective income tax rate,
excluding special charges 39.47 40.00 40.00
Effect of Special Charges -- -- 339.66
--------- --------- ---------
Effective income tax rate 39.47% 40.00% 379.66%
========= ========= =========
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities at September 30, 1998 and
1997, are as follows (in thousands):
-99-
<PAGE> 103
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Depreciation and
amortization $ 89,818 $488,489 $126,197 $535,195
Accrued environ-
mental and
landfill costs 132,790 -- 159,508 --
Accruals related
to discontinued
operations 4,270 -- 10,211 --
Self-insurance
accruals 69,683 -- 68,004 --
Assets and operations
to be divested 19,399 -- 29,651 --
Net operating loss
carryforwards 89,192 -- 82,843 --
Other 240,610 153,025 285,196 141,768
-------- -------- -------- --------
Deferred tax assets
and liabilities 645,762 641,514 761,610 676,963
Unamortized investment
tax credits 19,010 19,716
Valuation allowance (71,466) (47,273)
-------- -------- -------- --------
Deferred tax assets and
liabilities, net of
unamortized investment
tax credits and
valuation allowance $574,296 $660,524 $714,337 $696,679
======== ======== ======== ========
</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 $27 million are available to
reduce future taxable income of the applicable foreign entities for periods
which generally range from 1999
-100-
<PAGE> 104
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
to 2004. Domestic state net operating loss carryforwards of approximately $1.6
billion (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 1999 to 2013. The net change
in the total valuation allowance for the year ended September 30, 1998, was an
increase of $24.2 million, principally due to increased valuation reserves
related to the increased net operating loss carryforwards resulting from the
restructuring of U.S. legal entities. The fiscal 1997 valuation allowance
decreased by $145.5 million from the prior year due to the sale of the Italian
operations in the third quarter of fiscal 1997.
Deferred income taxes have not been provided as of September 30, 1998, on
approximately $76 million of undistributed earnings of foreign affiliates which
are considered to be permanently reinvested.
(18) 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 six 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 1998, 1997 and 1996 were
$12,195,000, $12,710,000 and $11,752,000, respectively.
-101-
<PAGE> 105
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
During the second quarter of fiscal 1998, the Company changed its method of
accounting for recognition of value changes in its employee retirement plan for
purposes of determining annual expense under SFAS No. 87 - "Employers'
Accounting for Pensions", effective October 1, 1997 (see Note 5).
The employees of the Company in various international operations,
substantially all of which were divested in March 1998, were covered by defined
benefit plans. The benefits for these plans were based generally on years of
service and the employee's compensation. Under the Company's funding policy,
annual contributions were 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 were not material to the Company's
consolidated financial statements.
The following table sets forth the funded status and amounts recognized in
the Company's Consolidated Balance Sheet as of September 30, 1998 and 1997, and
the significant assumptions used in accounting for the U.S. defined benefit
plans. The measurement dates for these plans were June 30, 1998 and 1997.
-102-
<PAGE> 106
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(Dollar Amounts in Thousands)
<S> <C> <C>
Actuarial present value of
accumulated benefit obligations,
including vested benefits of
$231,046 and $186,856,
respectively $(257,897) $(207,438)
========= =========
Actuarial present value
of projected benefit
obligation $(271,277) $(222,274)
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 287,774 245,032
--------- ---------
Projected benefit obligation
(in excess of) less than
plan assets 16,497 22,758
Contributions made after
measurement date but
before end of fiscal year 6,248 4,762
Unrecognized net gain (1,224) (32,020)
Unrecognized prior service
cost (11,351) (12,654)
Unrecognized net asset
at transition (1,099) (1,292)
--------- ---------
Prepaid (accrued) pension costs $ 9,071 $ (18,446)
========= =========
Discount rate 6.75% 7.75%
Rate of increase in
compensation levels 4.0% 4.0%
Expected long-term rate of
return on assets 10.5% 10.5%
</TABLE>
The components of net annual pension cost for fiscal years 1998, 1997 and
1996 for the U.S. defined benefit plans were as follows (in thousands):
-103-
<PAGE> 107
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost (benefits earned
during the period) $ 12,100 $ 13,454 $ 12,260
Interest cost on projected
benefit obligation 17,806 16,050 13,521
Investment gain on plan
assets (40,315) (42,564) (27,957)
Net amortization and deferral 5,343 21,765 12,056
-------- -------- --------
Net annual pension (income)
expense $ (5,066) $ 8,705 $ 9,880
======== ======== ========
</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 year 1996 related to this unfunded plan was $1,350,000 and $1,809,000,
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 chose 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.
-104-
<PAGE> 108
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During the fourth quarter of fiscal 1998, the Company restricted the
participation in its postretirement benefit plan to employees over the age of 55
with 10 years of experience and individuals already covered by the plan. The
curtailment gain of $9.4 million associated with this benefit reduction was
recognized in income in the fourth quarter of fiscal 1998.
Postemployment benefits.
The Company maintains no plans which provide significant benefits to
former or inactive employees after employment but before retirement.
(19) 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).
-105-
<PAGE> 109
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States and
Puerto Rico $3,937,564 $ 4,148,647 $ 4,073,558
---------- ----------- -----------
Foreign -
Canada 172,458 176,009 169,077
Other
(principally
Europe) 635,726 1,458,316 1,536,642
---------- ----------- -----------
Total foreign 808,184 1,634,325 1,705,719
---------- ----------- -----------
Consolidated $4,745,748 $ 5,782,972 $ 5,779,277
========== =========== ===========
Combined income (loss)
from operations and equity
in earnings of uncon-
solidated affiliates:
United States and
Puerto Rico $ 602,059(1) $ 653,866(2) $ 327,421(3)
---------- ----------- -----------
Foreign -
Canada 20,417 10,504 (7,857)
Other
(principally
Europe) 83,869(1) (11,145) (121,401)
---------- ----------- -----------
Total foreign 104,286 (641)(2) (129,258)(3)
---------- ----------- -----------
Consolidated $ 706,345 $ 653,225 $ 198,163
========== =========== ===========
</TABLE>
-106-
<PAGE> 110
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and
amortization:
United States and
Puerto Rico $ 392,713 $ 418,542 $ 438,639
---------- ---------- ----------
Foreign -
Canada 16,393 18,370 17,615
Other (principally
Europe) 60,849 132,758 146,271
---------- ---------- ----------
Total foreign 77,242 151,128 163,886
---------- ---------- ----------
Consolidated $ 469,955 $ 569,670 $ 602,525
========== ========== ==========
Identifiable assets:
United States and
Puerto Rico $4,426,392 $4,471,306 $4,803,978
---------- ---------- ----------
Foreign -
Canada 171,936 185,372 206,908
Other (principally
Europe) 401,153 2,021,614 2,590,020
---------- ---------- ----------
Total foreign 573,089(4) 2,206,986 2,796,928
---------- ---------- ----------
Consolidated $4,999,481 $6,678,292 $7,600,906
========== ========== ==========
</TABLE>
- -----------------
(1) Fiscal year 1998 earnings information includes special credits
(principally net gains from the divestiture of business assets and
operations) of $3,545,000 for operations in the United States and Puerto
Rico and $17,919,000 related to the divestiture of substantially all of
the Company's operations outside of North America in March 1998. See Note
(4).
(2) 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).
-107-
<PAGE> 111
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) 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).
(4) Fiscal year 1998 identifiable assets declined significantly due to the
divestiture of substantially all of the Company's operations outside of
North America in March 1998, offset partially by the increase associated
with the Company's investment in SITA of $373,888,000 at September 30,
1998.
(20) 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.
-108-
<PAGE> 112
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
As of September 30,
---------------------------------------
1998 1997
------------------ ------------------
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Debt -
6.10% Senior Notes $155,703 $157,907 $155,471 $152,671
6.375% Senior Notes 159,840 162,112 159,693 154,879
7.40% Debentures 358,280 366,542 358,233 365,835
7 7/8% Senior Notes 69,332 77,297 69,306 74,086
9 1/4% Debentures 99,500 123,779 99,500 123,073
Solid waste revenue
bond obligations 220,044 230,420 219,974 229,902
Other notes payable 46,790 51,375 505,674 526,259
Commercial paper and
short-term facilities
to be refinanced 692,615 698,262 259,047 258,365
</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.
-109-
<PAGE> 113
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(21) Related party transactions -
Otto Holding International B.V. ("OHI") owns the other 50% interest of
Otto Waste Services. Otto Waste Services was included with the international
operations divested by the Company in March 1998. The Company, primarily through
its 50% ownership of Otto Waste Services, was previously 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 $1.8 million,
$3.6 million and $4.7 million for fiscal years 1998, 1997 and 1996,
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 1998 or 1997. Included in the Company's Consolidated Balance Sheet at
September 30, 1997 were the following amounts relating to transactions with the
OHI Group (in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Capital lease obligations $30,014
Notes payable, interest
payable at FIBOR plus 2% 8,077
</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.
-110-
<PAGE> 114
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(22) 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 1998 $1,344,742 $1,305,717 $1,042,648 $1,052,641
1997 $1,495,137 $1,413,731 $1,471,252 $1,402,852
Gross
profit 1998 $ 363,383 $ 348,993 $ 293,636 $ 302,075
1997 $ 383,839 $ 359,381 $ 376,051 $ 374,087
Income from
operations 1998 $ 175,321(1) $ 181,069(1) $ 141,578 $ 148,299
1997 $ 163,802 $ 152,754 $ 97,657(2) $ 185,024(2)
Income
taxes 1998 $ 59,916 $ 63,781 $ 53,453 $ 54,939
1997 $ 50,507 $ 47,955 $ 30,688 $ 68,907
Income before
extraordinary
items and cumulative
effects of changes in
accounting
principles 1998 $ 86,758 $ 93,343 $ 84,201 $ 85,071
1997 $ 71,880 $ 70,955 $ 41,926 $ 98,934
Net income 1998 $ 72,995(3) $ 96,544(3) $ 84,201 $ 85,071
1997 $ 71,880 $ 67,831(4) $ 40,241(5) $ 85,262(5)
</TABLE>
-111-
<PAGE> 115
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>
Earnings per share:
Income before extraordinary items
and cumulative effects of changes
in accounting principles -
1998 -
Basic $0.454 $0.504 $0.483 $0.500
Diluted $0.451 $0.501 $0.480 $0.497
1997 -
Basic $0.357 $0.350 $0.206 $0.484
Diluted $0.356 $0.349 $0.205 $0.480
Net Income
1998 -
Basic $0.382 $0.521 $0.483 $0.500
Diluted $0.380 $0.518 $0.480 $0.497
1997 -
Basic $0.357 $0.335 $0.198 $0.417
Diluted $0.356 $0.334 $0.197 $0.414
</TABLE>
- ---------------
(1) In the second quarter of fiscal 1998, the Company recorded
pre-tax special credits of $17.9 million related to the gain
recognized from the sale in March 1998 of substantially all of the
Company's operations outside of North America to SITA, a Paris-based
subsidiary of Suez Lyonnaise des Eaux. The remaining special credits
of $2.6 million and $1.0 million recorded in the first and second
quarters of fiscal 1998, respectively, related principally to net
gains associated with the divestiture of certain North American
Operations. See Note (4).
(2) 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
-112-
<PAGE> 116
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$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).
(3) In the first quarter of fiscal 1998, the Company recorded an
after-tax charge of $13.8 million as the cumulative effect of a
change in accounting principle in response to the FASB's Emerging
Issues Task Force EITF No. 97-13, a consensus ruling requiring that
certain business process reengineering costs typically capitalized
by companies be expensed as incurred. In the second quarter of
fiscal 1998, the Company recorded an after-tax credit of $4.2
million as the cumulative effect of a change in accounting
principle. The Company changed its method of accounting for
recognition of value changes in its employee retirement plan for
purposes of determining annual expense under SFAS No. 87 -
"Employers' Accounting for Pensions", effective October 1, 1997. See
Note (5).
(4) 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 (8).
(5) 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 (10).
-113-
<PAGE> 117
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, 1998.
Consolidated balance sheet--September 30, 1998 and 1997.
Consolidated statement of cash flows for the three years ended
September 30, 1998.
Consolidated statement of common stockholders' equity for the three
years ended September 30, 1998.
Notes to consolidated financial statements.
SCHEDULES
II Allowance for doubtful accounts for the three years ended September
30, 1998.
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.
-114-
<PAGE> 118
EXHIBITS
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 December 1, 1998.
4.1 Rights Agreement, dated June 3, 1998, between BFI and
First Chicago Trust Company of New York. (Exhibit 4 of
Form 8-K dated June 3, 1998, is hereby incorporated by
reference.)
4.2 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.)
4.3 First Amendment to the Second Amended and Restated
Revolving Credit Agreement, dated March 31, 1998, among
BFI, Chase Bank of Texas, National Association (formerly
Texas Commerce Bank National Association), and the other
banks named therein. (Exhibit 4.2 of Form 10-Q for the
quarter ended June 30, 1998, is hereby incorporated by
reference.)
4.4 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.)
4.5 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.)
4.6 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.)
4.7 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).
4.8 First Amendment to Amended and Restated Multicurrency
Revolving Credit Agreement, dated December 26, 1997,
among BFI, Credit Suisse First Boston and the Banks
specified therein. (Exhibit 10.3 of the Form 10-Q for the
quarter ended December 31, 1997, is hereby incorporated
by reference.)
-115-
<PAGE> 119
4.9 Second Amendment to the Amended and Restated
Multicurrency Revolving Credit Agreement, dated March 31,
1998, among BFI, Credit Suisse First Boston and the Banks
specified therein. (Exhibit 4.1 of Form 10-Q for the
quarter ended June 30, 1998, 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.)
10.7 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.)
*10.8 Browning-Ferris Industries, Inc. Restated 1996 Stock
Incentive Plan.
*10.9 Browning-Ferris Industries, Inc. Restated 1993 Stock
Incentive Plan.
*10.10 Browning-Ferris Industries, Inc. Restated 1993
Non-Employee Director Stock Plan.
-116-
<PAGE> 120
*10.11 Browning-Ferris Industries, Inc. Restated 1990 Stock
Option Plan.
10.12 Browning-Ferris Industries, Inc. 1987 Stock Option Plan.
(Exhibit 10.11 of Form 10-K for the fiscal year ended
September 30, 1988, is hereby incorporated by reference.)
*10.13 Amendments dated September 4, 1996, December 3, 1996,
December 2, 1997 and May 4, 1998 to BFI's 1987 Stock
Option Plan.
10.14 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.)
*10.15 First, Second, Third, Fourth and Fifth Amendments, dated
as of March 31, 1995, December 31, 1995, December 31,
1996, December 31, 1996 and May 9, 1998, respectively, to
the BFI Cash Balance and Retirement Plan.
10.16 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.)
10.17 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.)
10.18 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.)
10.19 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.)
10.20 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.)
10.21 Amended and Restated Partnership Agreement, dated as of
December 5, 1997, by and between Duke/UAE Ref-Fuel
Management LLC, BFI Ref-Fuel, Inc. and Air Products
Ref-Fuel, Inc. (Exhibit 10.1 of Form 10-Q for the quarter
ended December 31, 1997, is hereby incorporated by
reference.)
-117-
<PAGE> 121
10.22 Amended and Restated Parent Agreement relating to
American Ref-Fuel Company, dated as of December 5, 1997,
among Duke Capital Corporation, United American Energy
Corp., Duke/UAE Ref-Fuel LLC and BFI. (Exhibit 10.2 of
Form 10-Q for the quarter ended December 31, 1997, is
hereby incorporated by reference.)
10.23 BFI Deferred Compensation Plan (Exhibit 10.4 of Form 10-Q
for the quarter ended December 31, 1997, is hereby
incorporated by reference.)
*10.24 BFI Convertible Annual Incentive Award Plan as amended on
December 2, 1998.
10.25 BFI Annual Management Incentive Plan. (Exhibit 10.2 of
Form 10-Q for the quarter ended March 31, 1997, is hereby
incorporated by reference.)
10.26 BFI Long-Term Incentive Plan. (Exhibit 10.3 of Form 10-Q
for the quarter ended March 31, 1997, is hereby
incorporated by reference.)
10.27 Stock Purchase Agreement, dated as of February 16, 1998,
among BFI, BFI International, Inc., Suez Lyonnaise Des
Eaux, S.A. and SITA, S.A. (Exhibit 2 of Form 10-Q for the
quarter ended March 31, 1998, is hereby incorporated by
reference.)
10.28 Shareholders Agreement, dated as of March 31, 1998,
between BFI and Suez Lyonnaise des Eaux, S.A. (Exhibit 10
of Form 10-Q for the quarter ended March 31, 1998, is
hereby incorporated by reference.)
*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. Financial Data Schedule.
- ------------------
*Filed herewith.
Reports on Form 8-K
- -------------------
None
-118-
<PAGE> 122
- --------------------
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.
- -----------------
-119-
<PAGE> 123
SCHEDULE II
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
For the Three Years Ended September 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Additions
Balance Charged Deductions Balance
Beginning to from End of
of Year Income Reserves(a) Year
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1998 $38,376 $20,604 $(36,908) $22,072
1997 $40,622 $30,116 $(32,362) $38,376
1996 $39,777 $29,527 $(28,682) $40,622
</TABLE>
(a) Amounts determined not to be collectible. Amount for fiscal 1998 also
includes a reduction in the reserve of approximately $18.0 million related to
the divestiture of substantially all of the Company's international operations
in March 1998.
-120-
<PAGE> 124
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, 1998 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/ Edward Schick
----------------------------------------------------
Edward Schick
Vice President of Business Services
And Corporate Controller
-121-
<PAGE> 125
/s/ John W. Alden
----------------------------------------------------
John W. Alden, Director
/s/ Gregory D. Brenneman
----------------------------------------------------
Gregory D. Brenneman, Director
/s/ William T. Butler
----------------------------------------------------
William T. Butler,
Director
/s/ Gerald Grinstein
----------------------------------------------------
Gerald Grinstein, Director,
/s/ Robert J. Herbold
----------------------------------------------------
Robert J. Herbold, Director
/s/ Harry J. Phillips, Sr.
----------------------------------------------------
Harry J. Phillips, Sr.,
Director
/s/ Joseph L. Roberts
----------------------------------------------------
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, 1998 Marina v.N. Whitman, Director
-122-
<PAGE> 126
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER 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 December 1, 1998.
4.1 Rights Agreement, dated June 3, 1998, between BFI and
First Chicago Trust Company of New York. (Exhibit 4 of
Form 8-K dated June 3, 1998, is hereby incorporated by
reference.)
4.2 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.)
4.3 First Amendment to the Second Amended and Restated
Revolving Credit Agreement, dated March 31, 1998, among
BFI, Chase Bank of Texas, National Association (formerly
Texas Commerce Bank National Association), and the other
banks named therein. (Exhibit 4.2 of Form 10-Q for the
quarter ended June 30, 1998, is hereby incorporated by
reference.)
4.4 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.)
4.5 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.)
4.6 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.)
4.7 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).
4.8 First Amendment to Amended and Restated Multicurrency
Revolving Credit Agreement, dated December 26, 1997,
among BFI, Credit Suisse First Boston and the Banks
specified therein. (Exhibit 10.3 of the Form 10-Q for the
quarter ended December 31, 1997, is hereby incorporated
by reference.)
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
4.9 Second Amendment to the Amended and Restated
Multicurrency Revolving Credit Agreement, dated March 31,
1998, among BFI, Credit Suisse First Boston and the Banks
specified therein. (Exhibit 4.1 of Form 10-Q for the
quarter ended June 30, 1998, 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.)
10.7 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.)
*10.8 Browning-Ferris Industries, Inc. Restated 1996 Stock
Incentive Plan.
*10.9 Browning-Ferris Industries, Inc. Restated 1993 Stock
Incentive Plan.
*10.10 Browning-Ferris Industries, Inc. Restated 1993
Non-Employee Director Stock Plan.
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
*10.11 Browning-Ferris Industries, Inc. Restated 1990 Stock
Option Plan.
10.12 Browning-Ferris Industries, Inc. 1987 Stock Option Plan.
(Exhibit 10.11 of Form 10-K for the fiscal year ended
September 30, 1988, is hereby incorporated by reference.)
*10.13 Amendments dated September 4, 1996, December 3, 1996,
December 2, 1997 and May 4, 1998 to BFI's 1987 Stock
Option Plan.
10.14 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.)
*10.15 First, Second, Third, Fourth and Fifth Amendments, dated
as of March 31, 1995, December 31, 1995, December 31,
1996, December 31, 1996 and May 9, 1998, respectively, to
the BFI Cash Balance and Retirement Plan.
10.16 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.)
10.17 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.)
10.18 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.)
10.19 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.)
10.20 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.)
10.21 Amended and Restated Partnership Agreement, dated as of
December 5, 1997, by and between Duke/UAE Ref-Fuel
Management LLC, BFI Ref-Fuel, Inc. and Air Products
Ref-Fuel, Inc. (Exhibit 10.1 of Form 10-Q for the quarter
ended December 31, 1997, is hereby incorporated by
reference.)
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.22 Amended and Restated Parent Agreement relating to
American Ref-Fuel Company, dated as of December 5, 1997,
among Duke Capital Corporation, United American Energy
Corp., Duke/UAE Ref-Fuel LLC and BFI. (Exhibit 10.2 of
Form 10-Q for the quarter ended December 31, 1997, is
hereby incorporated by reference.)
10.23 BFI Deferred Compensation Plan (Exhibit 10.4 of Form 10-Q
for the quarter ended December 31, 1997, is hereby
incorporated by reference.)
*10.24 BFI Convertible Annual Incentive Award Plan as amended on
December 2, 1998.
10.25 BFI Annual Management Incentive Plan. (Exhibit 10.2 of
Form 10-Q for the quarter ended March 31, 1997, is hereby
incorporated by reference.)
10.26 BFI Long-Term Incentive Plan. (Exhibit 10.3 of Form 10-Q
for the quarter ended March 31, 1997, is hereby
incorporated by reference.)
10.27 Stock Purchase Agreement, dated as of February 16, 1998,
among BFI, BFI International, Inc., Suez Lyonnaise Des
Eaux, S.A. and SITA, S.A. (Exhibit 2 of Form 10-Q for the
quarter ended March 31, 1998, is hereby incorporated by
reference.)
10.28 Shareholders Agreement, dated as of March 31, 1998,
between BFI and Suez Lyonnaise des Eaux, S.A. (Exhibit 10
of Form 10-Q for the quarter ended March 31, 1998, is
hereby incorporated by reference.)
*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. Financial Data Schedule.
</TABLE>
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*Filed herewith.
<PAGE> 1
EXHIBIT 3.2
BY-LAWS OF
BROWNING-FERRIS INDUSTRIES, INC.
A DELAWARE CORPORATION
AS AMENDED THROUGH DECEMBER 1, 1998
<PAGE> 2
EXHIBIT 3.2
BY-LAWS, AS AMENDED, *
OF
BROWNING-FERRIS INDUSTRIES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1.1. Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle, and the name of its registered agent shall be The Corporation
Trust Company.
SECTION 1.2. Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. Place of Meeting. All meetings of stockholders(21) shall
be held at such place, either within or without the State of Delaware, as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting.
SECTION 2.2. Annual Meeting. The annual meeting of stockholders shall
be held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting.
SECTION 2.3. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting,(21) or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
SECTION 2.4. Special Meeting. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Restated Certificate of Incorporation of the corporation (the "Certificate of
Incorporation"), may be called only by the
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* Through December 1, 1998. Neither the footnote references, the footnotes,
nor the Officer's Certificate appended hereto, are a part of these by-laws,
as amended.
<PAGE> 3
persons specified in the Certificate of Incorporation. The officers or directors
shall fix the time and any place, either within or without the State of
Delaware, as the place for holding such meeting.(21)
SECTION 2.5. Notice of Meeting. Written notice of the annual, and each
special meeting of stockholders, stating the time, place and in the case of
special meetings, the(17) purpose or purposes thereof, shall be given to each
stockholder entitled to vote thereat, not less than ten nor more then 60(7) days
before the meeting.
SECTION 2.6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at any meeting of the stockholders for the
transaction of business except when stockholders are required to vote by class,
in which event a majority of the issued and outstanding shares of the
appropriate class shall be present in person or by proxy, and(2) except as
otherwise provided by statute or by the Certificate of Incorporation.
Notwithstanding any other provisions of the Certificate of Incorporation or
these by-laws, the holders of a majority of the shares of capital stock entitled
to vote thereat, present in person or represented by proxy, whether or not a
quorum is present, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 2.7. Voting. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any questions
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, of the Certificate of Incorporation or of these
by-laws, a different vote is required, in which case such express provision
shall govern and control the decision of such question. Every stockholder having
the right to vote shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such stockholder, bearing a date not more
than one year(2) prior to voting(2) and filed with the Secretary of the
Corporation before, or at the time of, the meeting. If such instrument shall
designate two or more persons to act as proxies, unless such instrument shall
provide the contrary, a majority of such persons present at any meeting at which
their powers thereunder are to be exercised shall have and may exercise all the
powers of voting(21) thereby conferred, or if only one be present, then such
powers may be exercised by that one; or, if an even number attend and a majority
do not agree on any particular issue, each proxy so attending shall be entitled
to exercise such powers in respect of the same portion of the shares as he is of
the proxies representing such shares. Unless required by statute or determined
by the Chairman of the Meeting to be advisable, the vote on any question need
not be by written ballot.(2)
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<PAGE> 4
SECTION 2.8. Consent of Stockholders. Any action required or permitted
to be taken by the stockholders of the corporation must be effected at a duly
called annual or special meeting of stockholders of the corporation and may not
be effected by a consent in writing by such stockholders.(21)
SECTION 2.9. Voting of Stock of Certain Holders. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the by-laws of such corporation may prescribe, or in the
absence of such provision, the Board of Directors of such corporation may
determine. Shares standing in the name of a deceased person may be voted by the
executor or administrator of such deceased person, either in person or by
proxy.(17) Shares standing in the name of a receiver may be voted by such
receiver. A stockholder whose share are pledged shall be entitled to vote such
shares, unless in the transfer by the pledgor on the books of the corporation,
he has expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such(21) stock and vote thereon.
SECTION 2.10. Treasury Stock. The corporation shall not vote, directly
or indirectly, shares of its own stock owned by it; and such shares shall not be
counted in determining the total number of outstanding shares.
SECTION 2.11. Fixing Record Date. The Board of Directors may fix in
advance a date, not exceeding 60 nor less than 10(2) days preceding the date of
any meeting of stockholders, or the date for payment of any meeting
stockholders, or the date for payment of any dividend or distribution, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect,(21) as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting and any adjournment thereof, or entitled to receive payment of any
such dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock,(21) and in such case such stockholders and only such stockholders
as shall be stockholders of record on the date so fixed shall be entitled to
such notice of and to vote at, any such meeting and any adjournment thereof, or
to receive payment of such dividend or distribution, or to receive such
allotment of rights, or to exercise such rights,(21) as the case may be
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid.
SECTION 2.12. Notification of Nominations. Subject to the rights of
holders of Preferred Stock, nominations for the election of directors may be
made by the Board of Directors or the Directors and Corporate Governance(30)
Committee, as provided in Section 4.4, or by any stockholder entitled to vote in
the election of directors generally. However, any stockholder entitled to vote
in the election of directors generally may nominate one or more persons for
election as directors at a meeting only if written notice of such stockholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Directors and
Corporate Governance(30) Committee, at the address of the corporation's
principal executive offices, not later than (i) with respect to an election to
be held at an annual meeting of stockholders, 90(27) days in advance of the date
of
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<PAGE> 5
the corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders, and (ii) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to stockholder. Each such notice shall set
forth: (a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the corporation at the
time of giving such notice, will be a holder of record entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or person (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated by the Board of Directors or Directors and Corporate
Governance(30) Committee; and (e) the consent of each nominee to serve as a
director of the corporation if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedures.(21)
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. Powers. The business and affairs of the corporation shall
be managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not be statute or by
the Certificate of Incorporation(17) directed or required to be exercised or
done by the stockholders.
SECTION 3.2. Number, Election and Term. The number of directors which
shall constitute the whole Board shall be determined as provided in the
Certificate of Incorporation. Such number of directors shall, from time to time,
be fixed and determined by the directors and shall be set forth in the notice of
any meeting of stockholders held for the purpose of electing directors. The
directors shall be elected at the annual meeting of stockholders, except as
provided in Section 3.3, and each director elected shall hold office until his
successor shall be elected and shall qualify or until his earlier resignation or
removal. Directors need not be residents of Delaware or stockholders of the
corporation.(21)
SECTION 3.3. Vacancies, Additional Directors and Removal From Office.
If any vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification or removal from office of any director, or
otherwise, or if any new directorship is created by an increase in the
authorized number of directors, a majority of the directors then in office,
though less than a quorum, or a sole remaining director, may choose a successor
or fill the newly created directorship; and a director so chosen shall hold
office until the end of the term he is chose to fill and until his successor
shall be duly elected and shall
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<PAGE> 6
qualify, or until his earlier resignation or removal. Any director may be
removed from office as a director only as provided in the Certificate of
Incorporation.(21)
SECTION 3.4. Regular Meeting. A regular meeting of the Board of
Directors shall be held each year, without other notice than this by-law, at the
place of, and immediately following, the annual meeting of stockholders; and
other regular meetings of the Board of Directors shall be held during(9) each
year, at such time and place as the Board of Directors may from time to time(9)
provide, by resolution, either within or without the State of Delaware, without
other notice than such resolution.
SECTION 3.5. Special Meeting. A special meeting of the Board of
Directors may be called by the Chairman of the Board(9),(20) and shall be called
by the Secretary on the written request of any two directors. The Chairman of
the Board(20) so calling, or the directors so requesting, any such meeting shall
fix the time and any place, either within or without the State of Delaware, as
the place for holding such meeting.
SECTION 3.6. Notice of Special Meeting. Notice(21) of special meetings
of the Board of Directors shall be given to each director at least 48 hours
prior to the time of such meeting. Any director may waive notice of any meeting.
The attendance of a director at any meeting shall constitute a waiver of notice
of such meeting, except where a director attends a meeting for the purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting, except that notice shall be given of
any proposed amendment to the by-laws if it is to be adopted at any special
meeting or with respect to any other matter where notice is required by statute.
SECTION 3.7. Quorum. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute, by the Certificate of
Incorporation or by these by-laws. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time without notice other than announcement at the meeting,
until a quorum shall be present.
SECTION 3.8. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof as provided in Article IV of these by-laws, may be taken without a
meeting, if a written consent thereto is signed by all members of the Board or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board or committee.
SECTION 3.9. Meeting by Telephone. Any action required or permitted to
be taken by the Board of Directors or any committee thereof may be taken by
means of a meeting by
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<PAGE> 7
conference telephone or similar communications equipment so long as all persons
participating in the meeting can hear each other. Any person participating in
such meeting shall be deemed to be present in person at such meeting.
SECTION 3.10.(22) Compensation. Directors, as such, shall not be
entitled to any stated salary for their services unless voted by the
stockholders, the Board of Directors or the Compensation Committee of the Board
of Directors; but by resolution of the Board of Directors or the Compensation
Committee of the Board of Directors, a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board of Directors or any meeting of a committee of directors. No provision of
these bylaws shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES(9) OF DIRECTORS
SECTION 4.1. Executive Committee. The Executive Committee of the Board
of Directors (the "Executive Committee") shall consist of not less than three
directors to be designated by the Board of Directors annually at its first
regular meeting held pursuant to Section 3.4 of these by-laws after the annual
meeting of stockholders or as soon thereafter as conveniently possible. None of
the members of the Executive Committee need be officers of the corporation. The
Executive Committee shall have and may exercise all of the powers of the Board
of Directors during the period between meetings of the Board of Directors except
as reserved to the Board of Directors or as delegated by these by-laws or by the
Board of Directors to another standing or special committee or as may be
prohibited by law and, except further, that the Executive Committee shall not
have the power to elect officers of the corporation. The Chairman of the Board
shall be a member of the Executive Committee.(16)
SECTION 4.2.(12) Compensation Committee. The Compensation Committee of
the Board of Directors (the "Compensation Committee") shall consist of at least
two(25) directors, all(25) of whom shall be "outside" directors of the
corporation, to be designated annually by the Board of Directors at its first
regular meeting held pursuant to Section 3.4 of these by-laws after the annual
meeting of stockholders or as soon thereafter as conveniently possible. The term
"outside" director, as used in this Section 4.2, shall mean a director of the
corporation who is (17),(21),(26) free of any relationship that, in the opinion
of the Board of Directors, would interfere with the designated director's
exercise of independent judgment as a member of the Compensation Committee. The
Compensation Committee shall have and may exercise all of the powers of the
Board of Directors during the period between meetings of the Board of Directors,
except as may be prohibited by law, with respect to (i) studying, recommending,
adopting, implementing, administering, determining and authorizing the amount,
terms, and conditions of payment of any and all forms of compensation for the
corporation's directors, officers, employees and agents, (ii) approving and
administering any loan to, guarantee of any obligation of, or other assistance
to any officer or other employee of the corporation or any of its subsidiaries,
including any officer or employee who is a director of the corporation or any of
its subsidiaries,(31) (iii) implementing and administering those qualified,
nonqualified, or other
-6-
<PAGE> 8
stock option or purchase plans of the corporation, as designated by the Board of
Directors, and (iv) overseeing and reviewing the administration and results of
operations of the "Browning-Ferris Industries, Inc. Retirement Plan", as amended
(the "Plan"), the "Browning-Ferris Industries, Inc. Canadian Retirement Plan
(the "Canadian Plan") and any other pension benefit or retirement plan or
arrangement maintained by any subsidiary of the Company (the "Subsidiary Plan"),
the Plan, Canadian Plan and Subsidiary Plan being referred to collectively as
the "Pension Plans", and further to acquaint the Board of Directors with the
Compensation Committee's oversight and surveillance activities in connection
with the Pension Plans.(31)
SECTION 4.3.(12) Audit Committee. The Audit Committee of the Board of
Directors (the "Audit Committee") shall consist solely of directors, not less
than three, all of whom shall be "outside" directors of the corporation, to be
designated annually by the Board of Directors at its first regular meeting held
pursuant to Section 3.4 of these by-laws after the annual meeting of
stockholders or as soon thereafter as conveniently possible. The term "outside"
director, as used in this Section 4.3, shall mean a director of the corporation
who is (17),(21) free of any relationship that, in the opinion of the Board of
Directors, would interfere with the designated director's exercise of
independent judgment as a member of the Audit Committee. The Audit Committee
shall have and may exercise all of the powers of the Board of Directors during
the period between meetings of the Board of Directors, except as may be
prohibited by law, with respect to (i) the selection and recommendation for
employment by the corporation, subject to approval by the Board of
Directors,(34) of a firm of certified public accountants whose duty it shall be
to audit the books and accounts of the corporation and its subsidiaries for the
fiscal year in which they are appointed and who shall report to the Audit
Committee, provided, that in selecting and recommending for employment any firm
of certified public accountants, the Audit Committee shall make a thorough
investigation to ensure the "independence" of such accountants as defined in the
applicable rules and regulations of the Securities and Exchange Commission; (ii)
instructing the certified public accountants to expand the scope and extent of
the annual audits of the corporation into areas of any concern to the Audit
Committee, which may be beyond that necessary for the certified public
accountants to report on the financial statements of the corporation and, at its
discretion, directing other special investigations to ensure the objectivity of
the financial reporting of the corporation; (iii) reviewing the reports
submitted by the certified public accountants, conferring with the auditors and
reporting thereon to the Board of Directors with such recommendations as the
Audit Committee may deem appropriate; (iv) meeting with the corporation's
principal accounting and financial officers, the certified public accountants
and auditors, and other officers or department managers of the corporation as
the Audit Committee shall deem necessary in order to determine the adequacy of
the corporation's accounting principles and financial and operating policies,
controls and practices, its public financial reporting principles and practices,
and the results of the corporation's annual audit; (v) conducting inquiries into
any of the foregoing, the underlying and related facts, including such matters
as the conduct of the personnel of the corporation, the integrity of the records
of the corporation, the adequacy of the procedures and the legal and financial
consequences of such facts; and (vi) retaining and deploying such professional
assistance, including outside counsel and auditors and any others, as the Audit
Committee shall deem necessary or appropriate, in connection with the exercise
of its powers on such terms as the Audit Committee shall deem necessary or
appropriate to protect the interests of the stockholders of the corporation.
-7-
<PAGE> 9
SECTION 4.4.(18) Directors and Corporate Governance(30) Committee. The
Directors and Corporate Governance(30) Committee of the Board of Directors (the
"Directors and Corporate Governance(30) Committee") shall consist of at least
three directors all of whom shall be "outside" directors of the corporation,(26)
all to be designated annually by the Board of Directors at its first regular
meeting held pursuant to Section 3.4 of these by-laws after the annual meeting
of stockholders or as soon thereafter as conveniently possible. The term
"outside" director, as used in this Section 4.4, shall mean a director of the
corporation who is(26) free of any relationship that, in the opinion of the
Board of Directors, would interfere with the designated director's exercise of
independent judgment as a member of the Directors and Corporate Governance(30)
Committee.(26) The Directors and Corporate Governance(30) Committee shall have
and may exercise all of the powers of the Board of Directors during the period
between meetings of the Board of Directors, except as may be prohibited by law,
with respect to (i) recommending to the whole Board of Directors(26) the
nominees for election as directors at the annual meetings of stockholders; (ii)
searching for, evaluating and recommending(26) to the whole Board of Directors
to fill vacancies and newly created directorships resulting from any increase in
the authorized number of directors; (iii) recruitment of potential director
candidates; (iv) recommending to the whole Board of Directors changes in the
responsibilities, composition, size and committee structure of the Board of
Directors; (v) review of the composition and membership of each of the standing
committees and special committees of the Board of Directors; (vi) selection of
the membership of the proxy committee charged with voting solicited proxies at
stockholder meetings; (vii) review of proxy comments received from stockholders
relating directly or indirectly to the Board of Directors, its composition and
duties; (viii) review of stockholder suggestions as to nominees for
directorships that are submitted in writing to the Directors and Corporate
Governance(30) Committee, at the address of the company's principal executive
offices, not less than 90 days in advance of the date of the company's proxy
statement released to stockholders in connection with the previous year's annual
meeting of stockholders; and (ix) retaining and deploying such professional
assistance as the Directors and Corporate Governance(30) Committee shall deem
necessary or appropriate, in connection with the exercise of its powers on such
terms as the Directors and Corporate Governance(30) Committee shall deem
necessary or appropriate, to protect the interests of the stockholders of the
corporation.(17)
SECTION 4.5.(18),(28) Corporate Responsibility Committee. The Corporate
Responsibility Committee of the Board of Directors (the "Corporate
Responsibility Committee") shall consist solely of directors, not less than
three, all of whom shall be "outside" directors of the Company, to be designated
annually by the Board of Directors at its first regular meeting held pursuant to
Section 3.4 of these by-laws after the annual meeting of stockholders or as soon
thereafter as conveniently possible. The term "outside" director, as used in
this Section, shall mean a director of the corporation who is free of any
relationship that, in the opinion of the Board of Directors, would interfere
with the designated director's exercise of independent judgment as a member of
the Corporate Responsibility Committee. The Corporate Responsibility Committee
shall have and may exercise all of the powers of the Board of
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Directors during the period between meetings of the Board of Directors, except
as may be prohibited by law, with respect to (i) surveying, monitoring and
guiding the corporation's role in the fulfillment of its social responsibilities
toward its shareholders, employees and the general public in the conduct of its
normal business activities; (ii) reporting to the Board of Directors with
respect to the foregoing; and (iii) retaining and deploying such professional
assistance as the Corporate Responsibility Committee shall deem reasonably
necessary or appropriate, in connection with the exercise of its powers on such
terms as the Corporate Responsibility Committee shall deem reasonably necessary
or appropriate to protect the interests of the corporation and its stockholders.
SECTION 4.6.(33) Marketing Committee. The Marketing Committee of the
Board of Directors (the " Marketing Committee") shall consist solely of
directors, not less than three, of which shall be "outside" directors of the
Company, to be designated annually by the Board of Directors at its first
regular meeting held pursuant to Section 3.4 of these by-laws after the annual
meeting of stockholders or as soon thereafter as conveniently possible. The term
"outside" director, as used in this Section, shall mean a director of the
corporation who is free of any relationship that, in the opinion of the Board of
Directors, would interfere with the designated directors exercise of independent
judgment as a member of the Marketing Committee. The Marketing Committee shall
have and may exercise all of the powers of the Board of Directors during the
period between meetings of the Board of Directors, except as may be prohibited
by law, with respect to (i) surveying, monitoring and guiding the corporation's
internal and external growth opportunities and strategies that the corporation
should pursue; (ii) reporting to the Board of Directors with respect to the
foregoing; and retaining and deploying such professional assistance as the
Marketing Committee shall deem reasonably necessary or appropriate, in
connection with the exercise of its powers on such terms as the Marketing
Committee shall deem necessary or appropriate to protect the interests of the
corporation and its stockholders.
SECTION 4.7.(32) Strategic Industry Development Committee. The
Strategic Industry Development Committee of the Board of Directors (the "
Strategic Industry Development Committee") shall consist solely of directors,
not less than three, of which shall be "outside" directors of the Company, to be
designated annually by the Board of Directors at its first regular meeting held
pursuant to Section 3.4 of these by-laws after the annual meeting of
stockholders or as soon thereafter as conveniently possible. The term "outside"
director, as used in this Section, shall mean a director of the corporation who
is free of any relationship that, in the opinion of the Board of Directors,
would interfere with the designated directors exercise of independent judgment
as a member of the Strategic Industry Development Committee. The Strategic
Industry Development Committee shall have and may exercise all of the powers of
the Board of Directors during the period between meetings of the Board of
Directors, except as may be prohibited by law, with respect to (i) evaluating,
monitoring and guiding the corporation in relation to significant issues
affecting the corporation and to assist the corporation in the development of
strategic responses thereto; (ii) reporting to the Board of Directors with
respect to the foregoing; and retaining and deploying such professional
assistance as the Strategic Industry Development Committee shall deem reasonably
necessary or appropriate, in connection with the exercise of its powers on such
terms as the Strategic Industry Development Committee shall deem necessary or
appropriate to protect the interests of the corporation and its stockholders.
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SECTION 4.8.(12),(18),(20),(24),(31),(32),(33) Designation, Powers and
Name. The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more additional special or standing(9) committees
other than the Executive Committee, Compensation Committee, Audit Committee,(11)
Directors and Corporate Governance(30) Committee and Corporate Responsibility
Committee,(28),(31) each such additional(19) committee to consist of two or more
of the directors of the corporation. The committee shall have and may exercise
such of the powers of the Board of Directors in the management of the business
and affairs of the corporation as may be provided in such resolution, except as
delegated by these by-laws or by the Board of Directors to another standing or
special committee or as may be prohibited by law.(9)
SECTION 4.9.(12),(18),(24),(31),(32),(33) Committee Operations. A
majority of a committee shall constitute a quorum for the transaction of any
committee business. Such committee or committees shall have such name or names
and such limitations of authority as provided in these by-laws or as(9) may be
determined from time to time by resolution adopted by the Board of Directors.
The corporation shall pay all expenses of committee operations.(9) The Board of
Directors may designate one or more appropriate(9) directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of such committee. In the absence or disqualification of any members
of such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another appropriate(9) member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member.
SECTION 4.10.(12),(18),(24),(31),(32),(333) Minutes. Each committee of
directors shall keep regular minutes of its proceedings and report the same to
the Board of Directors when required. The Secretary or any Assistant Secretary
of the corporation shall (i) serve as the Secretary of the Executive
Committee(20) and any other special or standing committee of the Board of
Directors of the corporation, (ii) keep regular minutes of standing or special
committee proceedings, (iii) make available to the Board of Directors, as
required, copies of all resolutions adopted or minutes or reports of other
actions recommended or taken by any such standing or special committee and (iv)
otherwise as requested keep the members of the Board of Directors apprised of
the actions taken by such standing or special committees.(9)
SECTION 4.11.(12),(18),(24),(31),(32),(33) Compensation. Members of
special or standing committees who are "outside" directors,(9) as that term is
defined elsewhere in this Article, may be allowed compensation for serving as a
member of any such committee and all members may be compensated for expenses
of(9) attending committee meetings, if the Board of Directors shall so
determine.
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ARTICLE V
NOTICE
SECTION 5.1. Methods of Giving Notice. Whenever under the provisions of
the Delaware General Corporation Law,(21) the Certificate of Incorporation or
these by-laws, notice is required to be given to any director, member of any
committee or stockholder, such notice shall be in writing and delivered
personally or mailed to such director, member or stockholder, provided that in
the case of a director or a member of any committee such notice may be given
orally or by telephone or telegram. If mailed, notice to a director, member of a
committee or stockholder shall be deemed to be given when deposited in the
United States mail first class in a sealed envelope, with postage thereon
prepaid, addressed, in the case of a stockholder, to the stockholder at the
stockholder's address as it appears on the records of the corporation or, in the
case of a director or a member of a committee, to such person at his business
address. If sent by telegraph, notice to a director or member of a committee
shall be deemed to be given when the telegram, so addressed, is delivered to the
telegraph company.
SECTION 5.2. Written Waiver. Whenever any notice is required to be
given under the provisions of the Delaware General Corporation Law,(21) the
Certificate of Incorporation or these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
OFFICERS
SECTION 6.1. Officers. The officers of the corporation shall be
Chairman of the Board,(6),(11) Chief Executive Officer,(29),(31) President,
Chief Operating Officer,(29) one or more Vice Presidents, any one or more of
which may be designated Executive Vice President or Senior Vice President, a
Secretary and a Treasurer. The Board of Directors may appoint such other
officers and agents, including but not limited to,(9) Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers, as it shall deem necessary, who
shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined by the Board. Any two or more
offices, other than the offices of President and Secretary, may be held by the
same person. No officer shall execute, acknowledge, verify or countersign any
instrument on behalf of the corporation in more than one capacity, if such
instrument is required by law, by these by-laws or by any act of the corporation
to be executed, acknowledged, verified or countersigned by two or more officers.
The Chairman of the Board,(6),(11),(31) Chief Executive Officer(29) and
President(20) shall be elected from among the directors. With the foregoing
exceptions, none of the other officers need be a director, and none of the
officers need be a stockholder of the corporation.
SECTION 6.2. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently possible. Each officer shall 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, or until he shall cease to be
a director in the case of the Chairman of the Board,(6),(9),(21) Chief Executive
Officer(29),(31) or President.
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SECTION 6.3. Removal and Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed without cause by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the corporation shall be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed. Any officer may resign at any time by giving written
notice to the corporation. Any such resignation shall take effect at the date of
the receipt of such notice or at any later time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 6.4. Vacancies. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise, shall(15) be filled by
the Board of Directors for the unexpired portion of the term.
SECTION 6.5. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors or the Compensation
Committee(9) or pursuant to the(9) direction of the Board of Directors or
Compensation Committee(9); and no officer shall be prevented from receiving such
salary by reason of his also being a director.
SECTION 6.6. Chairman of the Board. The Chairman of the Board shall be
elected from among the directors of the corporation and(29) shall preside at
all meetings of the Board of Directors and of the stockholders of the
corporation. In the Chairman's absence, such duties shall be attended to by the
Chief Executive Officer(29),(31) or the President.11 The Chairman of the
Board(11),(15),(20),(29) shall perform such duties and possess such powers(15)
as usually pertain to the position(29) of chairman of the board of
directors(15),(20),(29) and shall have(15) such duties and possess such
powers(15) as may be further prescribed by these by-laws, the(15) Board of
Directors or the Executive Committee. In the absence of the Chief Executive
Officer or the(29) President, or in the event of such officers'(29) inability
or refusal to act, the Chairman of the Board shall perform the duties and
exercise the powers of the Chief Executive Officer or the(29) President until
such vacancies shall be filled in the manner prescribed by these by-laws or by
law.(15) The Chairman of the Board(29) may sign with the Secretary or any other
officer of the corporation thereunto authorized by the Board of Directors
certificates for shares of the corporation and any(29) other instruments which
the Board of Directors or the Executive Committee(9) has authorized to be
executed, except in cases where the signing and execution thereof has been
expressly delegated or reserved(9) by these bylaws or by the Board of Directors
or the Executive Committee(9) to some other officer or agent of the
corporation, or shall be required by law to be otherwise executed.(29)
SECTION 6.7(29). Chief Executive Officer. The Chief Executive Officer
shall be elected by the Board of Directors and such office may be held in
conjunction with any other office of the corporation. The Chief Executive
Officer shall in general supervise and control the business and affairs of the
corporation, shall perform such duties and possess such powers as usually
pertain to the position of Chief Executive Officer and shall have such duties
and
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possess such powers as may be further prescribed by these by-laws, the Board of
Directors or the Executive Committee. The Chief Executive Officer shall
formulate and submit to the Board of Directors or the Executive Committee
matters of general policy for the corporation. He shall have the power to
appoint and remove subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors. The Chief Executive Officer may
sign any deeds, bonds, mortgages, contracts, checks, notes, drafts or other
instruments which the Board of Directors or Executive Committee has authorized
to be executed, except in cases where the signing and execution thereof have
been expressly delegated or reserved by these by-laws or by the Board of
Directors or the Executive Committee to some other officer or agent of the
corporation, or shall be required by law to be otherwise executed. The Chief
Executive Officer shall vote, or give a proxy to any other officer of the
corporation to vote, all shares of stock of any other corporation standing in
the name of the corporation.(29)
SECTION 6.8.(10),(11),(20),(29),(31) President. The President shall be
the chief operating(l5),(20) officer of the corporation unless elected otherwise
by the Board of Directors,(29) and, subject to the control of the Board of
Directors,(l5) the Executive Committee,(15),(29) the Chairman of the Board,(20)
and the Chief Executive Officer,(29) shall in general supervise and control the
day-to-day business operations of the corporation. He shall have the power to
appoint and remove subordinate officers, agents, and employees, except those
elected or appointed by the Board of Directors.(9),(15) The President shall keep
the Board of Directors, the Executive Committee,(29) the Chairman of the
Board(9) and the Chief Executive Officer,(29) fully informed as they or any of
them shall request(9) and shall consult with them concerning the business of the
corporation. He may sign with the Secretary or any other officer of the
corporation thereunto authorized by the Board of Directors, certificates for
shares of capital stock of the corporation and any deeds, bonds, mortgages,
contracts, checks, notes, drafts or other instruments which the Board of
Directors or the Executive Committee has authorized to be executed, except in
cases where the signing and execution thereof has been expressly delegated by
these by-laws or by the Board of Directors,(29) the Executive Committee or the
Chief Executive Officer(29) to some other officer or agent of the corporation,
or shall be required by law to be otherwise executed. In general he shall
perform all other duties normally incident to the office of President, except
any duties expressly delegated to other persons by these by-laws, the Board of
Directors, the Executive Committee,(29) the Chairman of the Board(20) or the
Chief Executive Officer,(29) and such other duties as may be prescribed by the
stockholders,(9),(15) the Board of Directors, the Executive Committee(29), the
Chairman of the Board(20) or the Chief Executive Officer(29) from time to time.
SECTION 6.9.(29),(31) Chief Operating Officer. The Chief Operating
Officer shall be the President unless elected otherwise by the Board of
Directors. If the office of Chief Operating Officer is not the President, then
such office will perform the duties and possess the powers as delegated by the
President in connection with the(9) supervision and control of the corporation's
day-to-day operations. The Chief Operating Officer shall have such other duties
and possess such other powers as from time to time may be further prescribed by
the Chairman of the Board, the Chief Executive Officer, the Board of Directors
or the Executive Committee.(29)
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SECTION 6.10.(10),(11),(20),(29),(31) Vice President.(5) Any Vice
President (including any Vice Presidents designated by the Board of Directors as
an Executive Vice President or as a Senior Vice President)(15),(20) may sign,
with the Secretary or any Assistant Secretary, certificates for shares of
capital stock of the corporation. The Vice Presidents shall perform such other
duties as from time to time may be assigned to them by the Chairman of the
Board,(9),(20) the Chief Executive Officer,(29) the Board of Directors or the
Executive Committee.
SECTION 6.11.(10),(11),(20),(29),(31) Secretary. The Secretary shall
(a) keep the minutes of the meetings of the stockholders, the Board of Directors
and committees of directors; (b) see that all notices are duly given in
accordance with the provisions of these by-laws and as required by law; (c) be
custodian of the corporate records and of the seal of the corporation, and see
that the seal of the corporation or a facsimile thereof is affixed to all
certificates for shares prior to the issue thereof and to all documents, the
execution of which on behalf of the corporation under its seal is duly
authorized in accordance with the provisions of these by-laws; (d) keep or cause
to be kept a register of the post office address of each stockholder which shall
be furnished by such stockholder; (e) sign with the Chairman of the Board,(11)
the Chief Executive Officer,(29),(31) President, or a Vice President,
certificates for shares of the corporation, the issue of which shall have been
authorized by resolution of the Board of Directors(9); (f) have general charge
of the stock transfer books of the corporation; and (g) in general, perform all
duties normally incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Chairman of the Board,(11),(20)
the Chief Executive Officer,(29) the Board of Directors or the Executive
Committee.
SECTION 6.12.(10),(11),(20),(29),(31) Treasurer. If required by the
Board of Directors or the Executive Committee, the Treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the Board of Directors or the Executive Committee shall determine.
He shall (a) have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for monies due and
payable to the corporation from any source whatsoever and deposit all such
monies in the name of the corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of Section
7.3 of these by-laws; (b) prepare, or cause to be prepared, for submission at
each regular meeting of the Board of Directors, at each annual meeting of the
stockholders, and at such other times as may be required by the Board of
Directors, the Chairman of the Board,(11),(20) the Chief Executive Officer,(29)
the Executive Committee, or as may be required by law,(17) a statement of
financial condition of the corporation in such detail as may be required; (c)
have the power to sign stock certificates to the full extent permitted by
law,(17) and (d)(17) in general, perform all the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the Chairman of the Board,(11),(20) the Chief Executive Officer,(29) the
Board of Directors or the Executive Committee.
SECTION 6.13.(10),(11),(20),(29),(31) Assistant Secretary or
Assistant(17) Treasurer. The Assistant Secretaries and Assistant Treasurers
shall, in general, perform such duties as shall be assigned to them by the
Secretary or the Treasurer, respectively, or by the Chairman of the
Board,(11),(20) the Chief Executive Officer,(29) the Board of Directors or the
Executive Committee. The Assistant Secretaries and Assistant Treasurers shall,
in the absence of the Secretary or Treasurer, respectively, perform all
functions and duties which such absent officers may
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delegate, but such delegation shall not relieve the absent officer from the
responsibilities and liabilities of his office. The Assistant Secretaries and
Assistant Treasurers(20) may sign, with the Chairman of the Board,(11) the
Chief Executive Officer,(29),(31) the President or a Vice President,
certificates for shares of the corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors.(9) The Assistant
Treasurers shall respectively, if required by the Board of Directors or the
Executive Committee, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors or the Executive
Committee(9) shall determine.
ARTICLE VII
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.1. Contracts. Subject to the provisions of Section 6.1, the
Board of Directors or the Executive Committee may authorize any officer,
officers, agent or agents, to enter into any contract or execute and deliver an
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 7.2. Checks, etc. All checks, demands, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers or such
agent or agents of the corporation, and in such manner, as shall be determined
by the Board of Directors or the Executive Committee.
SECTION 7.3. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Chief Executive
Officer,(29) President or Treasurer may be empowered by the Board of Directors
or Executive Committee to select or(9) as the Board of Directors or the
Executive Committee may select.
ARTICLE VIII
CERTIFICATE OF STOCK
SECTION 8.1. Issuance. Each Stockholder of this corporation shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the corporation. The certificate shall
be in such form as may be determined by the Board of Directors or the Executive
Committee, and shall be issued in numerical order and shall be entered in the
books of the corporation as they are issued. They shall exhibit the holder's
name and the number of shares and shall be signed by the Chairman of the Board,
the Chief Executive Officer,(29),(31) the President or a Vice President and by
the Secretary,(17) an Assistant Secretary, the Treasurer or an Assistant
Treasurer.(17) Any of or all the signatures on the certificate may be a
facsimile(4). If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designation,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preference and rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to
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represent such class of stock; provided that, except as otherwise provided by
statute, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate which the corporation shall issue to represent
such class or series of stock, a statement that the corporation will furnish to
each Stockholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and rights. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in the case of a lost, stolen, destroyed or mutilated certificate, a new
one may be issued therefore upon such terms and with such indemnity, if any, to
the corporation as the Board of Directors(9) may prescribe. Certificates may be
issued representing fractional shares of stock.
SECTION 8.2. Lost Certificates. The Board of Directors(9) may direct
that a new certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed.(17) When authorizing such issue of a new certificate or
certificates, the Board of Directors(9) may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal
representative,(17) to give the corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the corporation with
respect to the certificate or certificates alleged to have been lost, stolen or
destroyed, or both.
SECTION 8.3. Transfers. Upon surrender to the corporation or the
transfer agents of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney and filed with the Secretary of the
corporation or the transfer agents.
SECTION 8.4. Registered Stockholders. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
ARTICLE IX
DIVIDENDS
SECTION 9.1. Declaration. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors(9) at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Certificate of
Incorporation.
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SECTION 9.2. Reserve. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors(9) from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors(9) shall think
conducive to the interest of the corporation, and the Board of Directors(9) may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
INDEMNIFICATION
SECTION 10.1. Third Party Actions. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to, or
otherwise becomes involved in(25), any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(formal or informal)(25), other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement(9), conviction, or upon a plea of nolo contendere(9)
or its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
SECTION 10.2. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to, or otherwise becomes involved in(25), any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, 12 partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable(23) to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
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SECTION 10.3.(13) Successful Defense. To the extent that a director,
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 10.1 and 10.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 10.4.(13) Determination of Conduct. Any indemnification under
Sections 10.1, 10.2 or 10.7 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 10.1 and 10.2.(9) Such determination(9) shall be made (1) by the Board
of Directors or the Executive Committee(9) by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding
or(9) (2) if such quorum is not obtainable or, even(9) if obtainable, a quorum
of disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
SECTION 10.5.(13),(21),(23) Payment of Expenses in Advance. Expenses
incurred by an officer or director in defending a civil or criminal action, suit
or proceeding shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer(21) to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article X.
SECTION 10.6.(13),(23) Indemnity Not Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other
provisions of this Article X, shall not be deemed exclusive of any other rights
to which a person seeking indemnification or advancement of expenses may be
entitled under any(17) by-law, agreement, vote of stockholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
SECTION 10.7.(14) The Corporation. For purposes of this Article X,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under and subject to
the provisions of this Article X (including, without limitation, the provisions
of Section 10.4) with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
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<PAGE> 20
SECTION 10.8.(3),(13) Insurance Indemnification. The corporation shall
have the power to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article X.
SECTION 10.9.(23) Heirs, Executors and Administrators. The
indemnification and advancement of expenses provided by Article X shall continue
as to a person who has ceased to be a director, officer, employee or agent of
the corporation and shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, and the words "Corporate Seal, Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced.
SECTION 11.2. Books. The books of the corporation may be kept (subject
to any provision contained in the statutes) outside the State of Delaware at the
offices of the corporation at Houston, Texas, or at such other place or places
as may be designed from time to time by the Board of Directors or the Executive
Committee.
ARTICLE XII
AMENDMENT
The by-laws of the corporation may be adopted, amended or repealed at any
regular meeting of the Board of Directors without prior notice, or at any
special meeting of the Board of Directors if notice of such alteration,
amendment or repeal be contained in the notice of such special meeting, except
as provided in the Certificate of Incorporation(21).
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<PAGE> 21
OFFICER'S CERTIFICATE
The undersigned, _________________________ of Browning-Ferris
Industries, Inc., a Delaware corporation (the "Corporation"), hereby certifies
that the above and foregoing is a true and correct copy of the by-laws, as
amended, of the Corporation in effect on the date of this certificate.
[Seal]
-----------------------------------------------
Date:
---------------------------------------
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<PAGE> 22
EXHIBIT 3.2
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FOOTNOTES:
<TABLE>
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1. Amended August 23, 1971.
2. Amended November 19, 1971.
3. Amended November 19, 1971
4. Amend November 21, 1972.
5. Amended March 20, 1973.
6. Amended March 20, 1973.
7. Amended December 2, 1975.
8. Amended December 7, 1976.
9. Amended June 7, 1977.
10. Section 6.8 concerning "Vice Chairman of the Board" was deleted by amendment adopted March 20,
1973, and Sections 6.9-.13 were accordingly renumbered as 6.8-.12.
11. Section 6.7 concerning "Chairman of the Executive Committee" was deleted by amendment adopted
June 18, 1976, and Sections 2.4, 6.1, 6.6 and 6.8-.12 were amended to reflect the deletion and Sections
6.8-.12 were accordingly renumbered as 6.7-.11.
12. Sections 4.2 and 4.3 were added by amendment adopted June 7, 1977, and Sections 4.2-.5 were
accordingly renumbered as 4.4-.7. When Sections 4.4 and 4.5 were added by amendment adopted March 3, 1981,
Sections 4.4-.7 were accordingly renumbered as 4.6-4.9.
13. Section 10.3 was added by amendment adopted June 7, 1977, and Sections 10.3-.7 were accordingly
renumbered as 10.4-.8.
14. Section 10.7 was originally adopted as Section 10.6 on November 19, 1971, and amended in its entirety and
renumbered as Section 10.7 on June 7, 1977.
15. Amended December 6, 1977.
16. Amended December 1, 1980.
17. Amended March 3, 1981.
18. New Sections 4.4 and 4.5 were added by amendment adopted March 3, 1981, and the following Sections 4.6
through 4.9 were renumbered accordingly.
19. The position of Vice Chairman was reintroduced to these by-laws by the adoption of new Section 6.7 on
December 6, 1982, and the following sections were renumbered accordingly.
20. Amended December 6, 1982.
21. Amended March 6, 1985.
22. Amended December 2, 1986.
23. Amended March 4, 1987.
24. Amended September 7, 1988.
25. Amended March 6, 1991.
26. Amended December 1, 1992.
27. Amended March 3, 1993.
28. Amended March 1, 1995. Included the addition of a new Section 4.5.
29. Amended September 6, 1995. Included the addition of new Sections 6.7 and 6.10.
30. Amended December 5, 1995.
31. Amended March 5, 1997. Section 6.8 concerning "Vice Chairman" was deleted and Sections 6.9-.14 were
accordingly renumbered 6.8-.13.
32. Amended September 2, 1998.
33. Amended September 18, 1998.
34. Amended December 1, 1998.
</TABLE>
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<PAGE> 23
EXHIBIT 3.2
BY-LAWS, AS AMENDED, OF
BROWNING-FERRIS INDUSTRIES, INC.
A DELAWARE CORPORATION
TABLE OF CONTENTS *
<TABLE>
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ARTICLE 1 - OFFICES
Page
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SECTION 1.1 Registered Office....................................................................1
SECTION 1.2 Other Offices........................................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meeting.....................................................................1
SECTION 2.2 Annual Meeting.......................................................................1
SECTION 2.3 Voting List..........................................................................1
SECTION 2.4 Special Meeting......................................................................1
SECTION 2.5 Notice Meeting.......................................................................2
SECTION 2.6 Quorum...............................................................................2
SECTION 2.7 Voting...............................................................................2
SECTION 2.8 Consent of Stockholders..............................................................3
SECTION 2.9 Voting of Stock of Certain Holders...................................................3
SECTION 2.10 Treasury Stock.......................................................................3
SECTION 2.11 Fixing Record Date...................................................................3
SECTION 2.12 Notification of Nominations..........................................................3
ARTICLE III - BOARD OF DIRECTORS
SECTION 3.1 Powers...............................................................................4
SECTION 3.2 Number, Election and Term............................................................4
SECTION 3.3 Vacancies, Additional Directors and Removal from Office..............................4
SECTION 3.4 Regular Meeting......................................................................5
SECTION 3.5 Special Meeting......................................................................5
SECTION 3.6 Notice of Special Meeting............................................................5
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</TABLE>
* This Table of contents is not part of the By-Laws, as amended.
i
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<TABLE>
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SECTION 3.7 Quorum...............................................................................5
SECTION 3.8 Action Without Meeting...............................................................5
SECTION 3.9 Meeting by Telephone.................................................................5
SECTION 3.10 Compensation.........................................................................6
ARTICLE IV - COMMITTEES OF DIRECTORS
SECTION 4.1 Executive Committee..................................................................6
SECTION 4.2 Compensation Committee...............................................................6
SECTION 4.3 Audit Committee......................................................................7
SECTION 4.4 Directors and Corporate Governance Committee.........................................8
SECTION 4.5 Corporate Responsibility Committee...................................................8
SECTION 4.6 Marketing Committee..................................................................9
SECTION 4.7 Strategic Industry Development Committee.............................................9
SECTION 4.8 Designation, Powers and Name........................................................10
SECTION 4.9 Committee Operations................................................................10
SECTION 4.10 Minutes.............................................................................10
SECTION 4.11 Compensation........................................................................10
ARTICLE V - NOTICES
SECTION 5.1 Methods of Giving Notice............................................................11
SECTION 5.2 Written Waiver......................................................................11
ARTICLE VI - OFFICERS
SECTION 6.1 Officers............................................................................11
SECTION 6.2 Election and Term of Office.........................................................11
SECTION 6.3 Removal and Resignation.............................................................12
SECTION 6.4 Vacancies...........................................................................12
SECTION 6.5 Salaries............................................................................12
SECTION 6.6 Chairman of the Board...............................................................12
SECTION 6.7 Chief Executive Officer.............................................................12
SECTION 6.8 President...........................................................................13
SECTION 6.9 Chief Operating Officer.............................................................13
SECTION 6.10 Vice President......................................................................13
SECTION 6.11 Secretary...........................................................................14
SECTION 6.12 Treasurer...........................................................................14
SECTION 6.13 Assistant Secretary or Assistant Treasurer..........................................14
</TABLE>
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<TABLE>
ARTICLE VII - CONTRACTS, CHECKS AND DEPOSITS
<S> <C> <C>
SECTION 7.1 Contracts...........................................................................15
SECTION 7.2 Checks, etc.........................................................................15
SECTION 7.3 Deposits............................................................................15
ARTICLE VIII - CERTIFICATE OF STOCK
SECTION 8.1 Issuance............................................................................15
SECTION 8.2 Lost Certificates...................................................................16
SECTION 8.3 Transfers...........................................................................16
SECTION 8.4 Registered Stockholders.............................................................16
ARTICLE IX - DIVIDENDS
SECTION 9.1 Declaration.........................................................................16
SECTION 9.2 Reserve.............................................................................17
ARTICLE X - INDEMNIFICATION
SECTION 10.1 Third Party Actions.................................................................17
SECTION 10.2 Actions by or in the Right of the Corporation.......................................17
SECTION 10.3 Successful Defense..................................................................18
SECTION 10.4 Determination of Conduct............................................................18
SECTION 10.5 Payment of Expenses in Advance......................................................18
SECTION 10.6 Indemnity Not Exclusive.............................................................18
SECTION 10.7 The Corporation.....................................................................18
SECTION 10.8 Insurance Indemnification...........................................................19
SECTION 10.9 Heirs, Executors and Administrators.................................................19
ARTICLE XI - MISCELLANEOUS
SECTION 11.1 Seal................................................................................19
SECTION 11.2 Books...............................................................................19
ARTICLE XII - AMENDMENT
</TABLE>
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<PAGE> 1
EXHIBIT 10.8
BROWNING-FERRIS INDUSTRIES, INC.
RESTATED 1996 STOCK INCENTIVE PLAN
1. PURPOSE. The 1996 Stock Incentive Plan (the "Plan") is to benefit
Browning-Ferris Industries, Inc. (the "Company") and its subsidiary
corporations through the maintenance and development of its management
by offering certain executives, key employees (including
employee-directors) and consultants of the Company and its subsidiaries
(the "Participants") an opportunity to become owners of the Common
Stock, $.16-2/3 par value, of the Company and is intended to advance
the best interests of the Company by providing such persons with
additional incentive by increasing their proprietary interest in the
success of the Company and its subsidiary corporations.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company or by another
committee designated to act by the Board of Directors (the
"Committee"). The Committee shall be comprised solely of two or more
directors each of whom is an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and
the rules and regulations issued thereunder, and a "non-employee
director" as defined in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"). Meetings shall be held
at such times and places as shall be determined by the Committee. A
majority of the members of the Committee shall constitute a quorum for
the transaction of business, and the vote of a majority of those
members present at any meeting shall decide any question brought before
that meeting. In addition, the Committee may take any action otherwise
proper under the Plan by the unanimous written consent of its members.
No member of the Committee shall be liable for any act or omission of
any other member of the Committee or for any act or omission on his own
part, including but not limited to the exercise of any power or
discretion given to him under the Plan, except those resulting from his
own gross negligence or willful misconduct. All questions of
interpretation and application of the Plan, or of options granted
hereunder (the "Options") and of stock awards and restricted stock
(which are defined in Paragraph 17 hereof) granted hereunder, shall be
subject to the determination, which shall be final and binding, of a
majority of the whole Committee.
3. OPTIONS, STOCK AWARDS AND RESTRICTED STOCK GRANTS. The stock subject to
the Options and other provisions of the Plan shall be shares of the
Company's Common Stock, $.16-2/3 par value (the "Stock"). The total
amount of the Stock with respect to which Options, stock awards and
restricted stock may be granted under this Plan shall not exceed in the
aggregate 10,000,000 shares, but no more than 1,500,000 shares of Stock
in the aggregate may be awarded as stock awards and restricted stock
grants; provided, that the class and aggregate number of shares of
Stock which may be subject to Options, stock awards and restricted
stock granted hereunder shall be subject to adjustment in accordance
with the provisions of Paragraph 16 hereof. Such shares of Stock may be
treasury shares or authorized but unissued shares of Stock. In the
event that any outstanding Option for any reason shall
<PAGE> 2
expire or is terminated or canceled, the shares of Stock allocable to
the unexercised portion of such Option may again be subject to an
Option, stock award or restricted stock under the Plan.
4. AUTHORITY TO GRANT OPTIONS. The Committee may grant from time to time
to such eligible individuals (the "Optionees") as set forth in
Paragraph 5 an Option or Options to buy a stated number of shares of
Stock under the terms and conditions of the Plan and the stock option
agreement. Options granted under the Plan may, in the discretion of the
Committee, be either incentive stock options as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options. Each stock option agreement shall
specifically state, for each Option granted thereunder, whether the
Option is an incentive stock option or a non-qualified option, but any
Option not designated by the Committee as an incentive stock option
shall be a non-qualified stock option. In no event, however, shall both
an incentive stock option and a non-qualified stock option be granted
together under the Plan in such a manner that the exercise of one
Option affects the rights to exercise the other. No Options shall be
granted under the Plan subsequent to September 3, 2006. Except as
provided in Paragraph 6, all provisions of this Plan relating to
options apply to both incentive and non-qualified options. The only
Options under the Plan which may be granted are those which either (i)
are granted after adoption of the Plan and are conditioned upon
approval of the Plan by the stockholders of the Company within twelve
months of such adoption or (ii) are granted after both adoption of the
Plan and approval thereof by the stockholders of the Company within
twelve months after the date of such adoption, all as provided in
Paragraph 21 hereof. The maximum number of Options which may be granted
to any one Participant from this Plan annually is 250,000; provided,
that the class and the aforesaid maximum number of shares shall be
subject to adjustments in accordance with the provisions of Paragraph
16 hereof.
5. ELIGIBILITY FOR STOCK OPTIONS. Except as provided in Paragraph 6(iv),
the individuals who shall be eligible to receive Options under the Plan
shall be key employees (including employee-directors) of the Company or
of any subsidiary corporation and any person who is a party to a
written consulting agreement with the Company or any of its subsidiary
corporations, as determined by the Committee. Non-employee directors
are not eligible. For all purposes of the Plan, the term "subsidiary
corporation" shall mean any corporation of which the Company is the
"parent corporation" as that term is defined in Section 424(e) of the
Code.
6. PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS. The following
provisions shall apply only to incentive stock options granted under
the Plan:
(i) No incentive stock option shall be granted to any employee
who, at the time such Option is granted, owns, within the
meaning of Section 422 of the Code, stock possessing more than
10 percent of the total combined voting power of all classes
of Stock of the Company or any of its subsidiaries, except
that such an Option may be granted to such an employee if at
the time the Option is granted the option price is at
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<PAGE> 3
least 110 percent of the fair market value of the Stock
(determined in accordance with Paragraph 7) subject to the
Option, and the Option by its terms is not exercisable after
the expiration of five years from the date the Option is
granted;
(ii) To the extent that the aggregate fair market value of stock
with respect to which incentive stock options (without regard
to this subparagraph) are exercisable for the first time by
any individual during any calendar year (under all plans of
the Company and its subsidiaries) exceeds $100,000, such
Options shall be treated as Options which are not incentive
stock options. This subparagraph shall be applied by taking
Options into account in the order in which they were granted.
If some but not all Options granted on any one day are subject
to this subparagraph, then such Options shall be apportioned
between incentive stock option and non-qualified stock option
treatment in such manner as the Committee shall determine. For
purposes of this subparagraph, the fair market value of any
stock shall be determined, in accordance with Paragraph 7, as
of the date the Option with respect to such Stock is granted.
(iii) No incentive stock option granted under the Plan shall be
exercisable any sooner than one year from the date of grant.
(iv) Only employees (including employee-directors) of the Company
and its subsidiary corporations shall be eligible to receive
incentive stock options.
(v) Incentive stock options shall not be transferable by the
Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's
lifetime, only by the Optionee or his legal guardian or
representative.
7. OPTION PRICE; FAIR MARKET VALUE. The price at which shares of Stock may
be purchased pursuant to an Option shall be not less than the fair
market value of the shares of Stock on the date the Option is granted,
and the Committee in its discretion may provide that the price at which
shares may be so purchased shall be more than such fair market value.
For all purposes of this Plan, the "fair market value" of the Stock
shall be the closing selling price of the Stock as reported in The Wall
Street Journal for the last trading day before the date as of which
such fair market value is to be determined. No Option may be repriced.
8. DURATION OF OPTIONS. Subject to Paragraph 6 (i), no Option shall be
exercisable after the expiration of ten years from the date such Option
is granted. An Option shall expire immediately following the last day
on which such Option is exercisable pursuant to this Paragraph 8 or any
decision of the Committee made pursuant to Paragraph 9.
9. AMOUNT EXERCISABLE. The Committee in its discretion may provide that an
Option shall be exercisable throughout the term of the Option or during
any lesser period of time from the date of grant of the Option and
ending upon or before the expiration of the term. Each Option may be
exercised, so long as it is valid and outstanding, from time to time in
part or
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<PAGE> 4
as a whole, subject to any limitations with respect to the number of
shares for which the Option may be exercised at a particular time and
to such other conditions as the Committee in its discretion may specify
upon granting the Option.
10. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares of
Stock with respect to which the Option is to be exercised, together
with cash, wire transfer, certified check, bank draft or postal or
express money order payable to the order of the Company (the
"Acceptable Funds") for an amount equal to the Option price of such
shares of Stock, or at the election of the Optionee, by exchanging
shares of Stock owned by the Optionee, so long as the exchanged shares
of Stock plus Acceptable Funds paid, if any, have a total fair market
value (determined in accordance with Paragraph 7, as of the date of
exercise) equal to the purchase prices for such shares to be acquired
upon exercise of said Option, and specifying the address to which the
certificates for such shares are to be mailed. Whenever an Option is
exercised by exchanging shares of Stock theretofore owned by the
Optionee: (1) no shares of Stock received upon exercise of that Option
thereafter may be exchanged to pay the Option price for additional
shares of Stock within the following six months; and (2) the Optionee
shall deliver to the Company certificates registered in the name of
such Optionee representing a number of shares of Stock legally and
beneficially owned by such Optionee, free of all liens, claims, and
encumbrances of every kind, accompanied by stock powers duly endorsed
in blank by the record holder of the shares represented by such
certificates, with signature guaranteed by a commercial bank or trust
company or by a brokerage firm having a membership on a registered
national stock exchange. Such notice may be delivered in person to the
Secretary of the Company, or may be sent by mail to the Secretary of
the Company, in which case delivery shall be deemed made on the date
such notice is received. As promptly as practicable after receipt of
such written notification and payment, the Company shall deliver to the
Optionee certificates for the number of shares with respect to which
such Option has been so exercised, issued in the Optionee's name;
provided, that such delivery shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Optionee, at
the address specified pursuant to this Paragraph 10. The delivery of
certificates upon the exercise of Options may, in the discretion of the
Committee, be subject to any reasonable conditions, including, but not
limited to (a) payment to the Company by the person exercising such
Option of the amount, determined by the Company, of any tax liability
of the Company (including but not limited to federal and state income
and employment taxes required to be withheld) resulting from such
exercise, or from a sale or other disposition of the stock issued upon
exercise of such Option (or a stock option granted under another plan
of the Company), if such sale or other disposition might be a
"disqualifying disposition" described in Section 422(a) of the Code and
(b) agreement by the person exercising such Option to provide the
Company with such information as the Company might reasonably request
pertaining to such exercise, sale or other disposition. The Optionee
may elect to have the Company accept or retain Stock as payment of an
Optionee's tax liability to the Company, as described in (a), above.
The Company has the discretion to buy back shares of Stock resulting
from the exercise of an Option by any officer of the Company, and in
connection therewith, the Applicable Funds, as defined in
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<PAGE> 5
the Plan, will include the delivery of instructions to retain the
exercise price from the proceeds of the sale of the shares of Stock.
11. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the
Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's lifetime,
only by the Optionee or his legal guardian or representative; provided,
however, subject to Paragraph 6(v), the Committee, in its sole
discretion, may grant Options that are transferable by the Optionee to
(i) immediate family members (such as children, grandchildren or
spouse); (ii) trusts for the benefit of the Optionee's immediate family
members; and (iii) partnerships in which immediate family members are
the only partners.
12. TERMINATION OF EMPLOYMENT OF OPTIONEE. Except as may be otherwise
expressly provided herein, Options shall terminate on such date as
shall be selected by the Committee in its discretion. If an Optionee is
an employee of the Company or of a subsidiary corporation at the time
an Option is granted, and, before the date of expiration of the Option,
an employment relationship with the Company and all subsidiaries is
severed, for any reason (except as otherwise provided for herein), the
Option shall terminate thirty days following severance of the
employment relationship. Whether authorized leave of absence, or
absence on military or government service, shall constitute severance
of an employment relationship with the Company or a subsidiary
corporation and the Optionee, shall be determined by the Committee at
the time thereof. If, before the date of expiration of a non-qualified
Option, the Optionee shall be retired in good standing from the employ
of the Company and all subsidiaries for reasons of age or disability
under the then established rules of the Company, the Option shall
terminate on the earlier of such date of expiration or one year after
the date of such retirement. In the event of such retirement, the
Optionee shall have the right prior to the termination of such Option
to exercise the Option to the extent to which he was entitled to
exercise such Option immediately prior to such retirement; however, in
the event that the Optionee has retired on or after attaining the age
of sixty-two (62) years, the Optionee shall be entitled to exercise all
or any part of such Option (without regard to any limitations imposed
pursuant to Paragraph 9 hereof. If during the exercisability period as
set forth hereinabove as being one year, an Optionee becomes an
employee or consultant for a competitor of the Company, it shall be
deemed that the employee's retirement status under the Plan shall be
considered as not in good standing and the exercisability period shall
automatically be reduced to thirty days from the date of the consulting
or employment arrangement, and further that the accelerated vesting of
stock options on or after age 62 shall be rescinded and such Optionee
shall only be able to exercise that portion of the Option which was
exercisable immediately prior to such retirement and the remaining
portion shall immediately be deemed canceled. Upon the death of the
Optionee, his executors, administrators, or any person or persons to
whom his Option may be transferred by will or by the laws of descent
and distribution, shall have the right, at any time prior to the
earlier of the date of expiration or one year following the date of
such death, to exercise the Option, in whole or in part (without regard
to any limitations imposed pursuant to Paragraph 9 hereof. The
Committee shall be permitted, in its discretion, to grant to any
employee an Option which is an incentive stock option or a
non-
-5-
<PAGE> 6
qualified stock option with a provision that the Option shall continue
in full force and effect as a non-qualified stock option with no
modification of the option price if the person's status with the
Company or its subsidiary changes, but such person continues as a
director or consultant of the Company.
13. REQUIREMENTS OF LAW. The Company shall not be required to sell or issue
any shares under any Option if the issuance of such shares shall
constitute a violation by the Optionee or the Company of any provisions
of any law or regulation of any governmental authority.
14. NO RIGHTS AS STOCKHOLDER. No Optionee shall have rights as a
Stockholder with respect to shares covered by any Option until the date
of issuance of a stock certificate for such shares; and, except as
otherwise provided in Paragraph 16 hereof, no adjustment for dividends,
or otherwise, shall be made if the record date thereof is prior to the
date of issuance of such certificate.
15. NO EMPLOYMENT OR NOMINATION OBLIGATION. The granting of any Option
shall not impose upon the Company or any subsidiary any obligation to
continue to nominate an Optionee for election as a director or to
employ or continue to employ any Optionee; and the right of the Company
or any subsidiary to terminate the employment of any employee shall not
be diminished or affected by reason of the fact that an Option has been
granted to the employee.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of
the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Stock or
the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar
character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Stock outstanding,
without receiving compensation therefor in money, services or property,
then (a) the number, class, and per share price of shares of stock
subject to outstanding Options hereunder shall be appropriately
adjusted in such a manner as to entitle an Optionee to receive upon
exercise of an Option, for the same aggregate cash consideration, an
equivalent total number and class of shares as he would have received
had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares then
reserved for issuance under the Plan shall be adjusted by substituting
for the total number and class of shares of Stock then reserved that
number and class of shares of stock that would have been received by
the owner of an equal number of outstanding shares of each class of
Stock as the result of the event requiring the adjustment.
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<PAGE> 7
After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each holder of an
outstanding Option shall, at no additional cost, be entitled upon
exercise of such Option to receive (subject to any required action by
stockholders) in lieu of the number and class of shares as to which
such Option would have been so exercisable in the absence of such
event, the number and class of shares of stock or other securities or
property to which such holder would have been entitled pursuant to the
terms of the agreement of merger or consolidation if, immediately prior
to such merger or consolidation, such holder had been the holder of
record of the number and class of shares of Stock equal to the number
and class of shares as to which such Option shall be so exercised.
Immediately upon a Change of Control, all outstanding Options and
Restricted Stock shall be deemed fully vested. For all purposes of the
Plan, a Change of Control shall be deemed to have occurred if, with or
without the approval of the Board of Directors of the Company, any of
the following events shall occur (i) more than 25% of the voting power
of the Company's outstanding securities entitled to vote in elections
of directors shall be acquired by any person (as such term is used in
Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934)
except with respect to any Optionee who is included in any such person;
or (ii) as the result of a tender offer, merger, consolidation, sale of
assets or contested election, or any combination of such transactions,
the persons who were directors of the Company immediately before the
transaction shall cease to constitute a majority of the Board of
Directors of the Company or of any successor to the Company.
Except as herein before expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of
stock of any class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the number, class or price of shares of Stock then subject to
outstanding Options.
17. STOCK AWARDS AND RESTRICTED STOCK GRANTS. A stock award consists of the
issuance by the Company to a Participant of shares of Stock, without
other payment therefor, in lieu of certain cash compensation or as
additional compensation for his services to the Company. Restricted
stock grants consist of shares of Stock which are issued by the Company
to a Participant at a price which may be below their fair market value
or for no payment, but subject to restrictions on their sale or other
transfer by the Participant. The issuance of Stock pursuant to stock
awards and restricted stock grants shall be subject to the following
terms and conditions:
(i) Number of Shares. Subject to Section 3, the number of shares
to be issued by the Company to a Participant pursuant to a
stock award or restricted stock grant shall be determined by
the Committee.
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<PAGE> 8
(ii) Sale Price. The Committee shall determine the prices, if any,
at which shares of restricted stock shall be issued to a
Participant, which may vary from time to time and among
Participants and which may be below the fair market value of
such shares of Stock at the date of sale and which may be
zero.
(iii) Restrictions. All shares of restricted stock issued hereunder
shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the
following:
(a) a prohibition against the sale, transfer, pledge or
other encumbrance of the shares of restricted stock,
such prohibition to lapse (i) at such time or times
as the Committee shall determine (whether in annual
or more frequent installments, at the time of the
death, disability or retirement of the holder of such
shares, or otherwise) or (ii) upon written
certification by the Committee of the attainment of
certain performance measurements;
(b) a requirement that the holder of shares of restricted
stock forfeit, or (in the case of shares sold to a
Participant) resell back to the Company at his cost,
all or a part of such shares in the event of
termination of the holder's employment during any
period in which such shares are subject to
restrictions; or
(c) a prohibition against employment of the holder of
such restricted stock by any competitor of the
Company or its affiliates, or against such holder's
dissemination of any secret or confidential
information belonging to the Company or a subsidiary
of the Company.
Shares of restricted stock shall be registered in the name of the
Participant and deposited, together with a stock power endorsed in
blank, with the Company. Each such certificate shall bear a legend in
substantially the following form:
"The transferability of this certificate and the shares of
Common Stock represented by it are subject to the terms and
conditions (including conditions of forfeiture) contained in
the 1996 Stock Incentive Plan of the Company, and an agreement
entered into between the registered owner and the Company. A
copy of the Plan and agreement is on file in the office of the
Secretary of the Company."
At the end of any time period during which the shares of restricted
stock are subject to forfeiture and restrictions on transfer or upon
the attainment of certain performance measurements, such shares will be
delivered free of all restrictions to the Participant or to the
Participant's legal representative, beneficiary or heir.
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<PAGE> 9
Subject to the terms and conditions of the Plan, each Participant
receiving restricted stock shall have all the rights of a stockholder
with respect to shares of stock during any period in which such shares
are subject to forfeiture and restrictions on transfer, including
without limitation, the right to vote such shares. By accepting a stock
award or a restricted stock grant, the Participant agrees to remit to
the Company when due any federal and state income and employment taxes
required to be withheld by the Company and the Participant may elect to
have the Company accept or retain Stock as payment of such tax
liability. Dividends paid in cash or property other than Stock with
respect to shares of restricted stock shall be paid to the Participant
currently or, at the election of the Participant, be reinvested by the
Participant under the Company's Dividend Reinvestment Plan. Shares
purchased with reinvested dividends shall not be restricted.
18. TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors of the
Company may amend, terminate or suspend the Plan at any time, in its
sole and absolute discretion; provided, however, no amendment that
would (a) materially increase the number of shares of Stock that may be
issued under the Plan, (b) materially modify the requirements as to
eligibility for participation in the Plan, or (c) otherwise materially
increase the benefits accruing to Participants under the Plan shall be
made without the approval of the Company's stockholders.
19. WRITTEN AGREEMENT. Each Option or restricted stock granted hereunder
shall be embodied in a written agreement, which shall be subject to the
terms and conditions prescribed above and shall be signed by the
Participant and by the Chairman of the Board, Chief Executive Officer,
the Vice Chairman, the President or any Vice President of the Company
for and in the name and on behalf of the Company. Stock awards granted
hereunder may be embodied in such a written agreement. Such an Option,
stock award or restricted stock agreement shall contain such other
provisions as the Committee in its discretion shall deem advisable.
20. INDEMNIFICATION OF COMMITTEE. The Company shall indemnify each present
and future member of the Committee against, and each member of the
Committee shall be entitled without further act on his part to
indemnity from the Company for, all expenses (including the amount of
judgments and the amount of approved settlements made with a view to
the curtailment of costs of litigation, other than amounts paid to the
Company itself) reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be
involved by reason of his being or having been a member of the
Committee, whether or not he continues to be a member of the Committee
at the time of incurring such expenses; provided, however, that such
indemnity shall not include any expenses incurred by any such member of
the Committee (a) in respect of matters as to which he shall be finally
adjudged in any such action, suit or proceeding to have been guilty of
gross negligence or willful misconduct in the performance of his duty
as a member of the Committee, or (b) in respect of any matter in which
any settlement is effected, to an amount in excess of the amount
approved by the Company on the advice of its legal counsel; and
provided further, that no right of indemnification under the provisions
set forth herein shall be available to or enforceable by any such
member of the Committee unless, within sixty
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<PAGE> 10
(60) days after institution of any such action, suit or proceeding, he
shall have offered the Company, in writing, the opportunity to handle
and defend same at its own expense. The foregoing right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee and shall be in
addition to all other rights to which such member of the Committee may
be entitled as a matter of law, contract, or otherwise.
21. ADOPTION, APPROVAL AND EFFECTIVE DATE OF PLAN. The Plan shall be
considered adopted and shall become effective on the date the Plan is
approved by the Board of Directors of the Company; provided, however,
that the Plan and any grants of Options, stock awards or restricted
stock grants thereunder, shall be void, if the stockholders of the
Company shall not have approved adoption of the Plan within twelve
months after such effective date.
22. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware,
without reference to principles of conflict of laws, and shall be
construed accordingly.
23. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that all
transactions under the Plan comply in all respects with Rule 16b-3, and
any successor rule pursuant thereto. If any provision of this Plan is
later found not to be in compliance with the Rule, the provision shall
be deemed null and void. All grants of Options and Stock and all
exercises of Options under this Plan shall be executed in accordance
with the requirements of Section 16 of the Securities Exchange Act of
1934, as amended, and any regulations promulgated thereunder.
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<PAGE> 1
EXHIBIT 10.9
BROWNING-FERRIS INDUSTRIES, INC.
RESTATED 1993 STOCK INCENTIVE PLAN
1. PURPOSE. The 1993 Stock Incentive Plan (the "Plan") is to benefit
Browning-Ferris Industries, Inc. (the "Company") and its subsidiary
corporations through the maintenance and development of its management by
offering certain executives, key employees (including employee-directors)
and consultants of the Company and its subsidiaries (the "Participants") an
opportunity to become owners of the Common Stock, $.16-2/3 par value, of
the Company and is intended to advance the best interests of the Company by
providing such persons with additional incentive by increasing their
proprietary interest in the success of the Company and its subsidiary
corporations.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company or by another committee
designated to act by the Board of Directors (the "Committee"), which
Committee shall consist of not less than two members who are outside
directors as described in Section 162(m) of the Internal Revenue Code of
1986, as amended, and rules and regulations issued thereunder. Meetings
shall be held at such times and places as shall be determined by the
Committee. Except to the extent permitted under Rule 16b-3 or any successor
rule under the Securities Exchange Act of 1934 ("Rule 16b-3"), no director
serving on the Committee shall be granted or awarded equity securities or
options of the Company pursuant to this Plan or any other plan of the
Company or any of its affiliates during service as an administrator of a
compensation or benefit plan of the Company or any of its affiliates or
during the one year prior to such service. A majority of the members of the
Committee shall constitute a quorum for the transaction of business, and
the vote of a majority of those members present at any meeting shall decide
any question brought before that meeting. In addition, the Committee may
take any action otherwise proper under the Plan by the unanimous written
consent of its members. No member of the Committee shall be liable for any
act or omission of any other member of the Committee or for any act or
omission on his own part, including but not limited to the exercise of any
power or discretion given to him under the Plan, except those resulting
from his own gross negligence or willful misconduct. All questions of
interpretation and application of the Plan, or of options granted hereunder
(the "Options") and of stock awards and restricted stock (which are defined
in Paragraph 17 hereof) granted hereunder, shall be subject to the
determination, which shall be final and binding, of a majority of the whole
Committee.
3. OPTIONS, STOCK AWARDS AND RESTRICTED STOCK GRANTS. The stock subject to the
Options and other provisions of the Plan shall be shares of the Company's
Common Stock, $.16-2/3 par value (the "Stock"). The total amount of the
Stock with respect to which Options, stock awards and restricted stock may
be granted under this Plan shall not exceed in the aggregate 7,000,000
shares, but no more than 500,000 shares of Stock in the aggregate may be
awarded as stock awards and restricted stock grants; provided, that the
class and aggregate number of shares of Stock which may be subject to
Options, stock awards and restricted stock granted hereunder shall be
subject to adjustment in accordance with the provisions of
<PAGE> 2
Paragraph 16 hereof. Such shares of Stock may be treasury shares or
authorized but unissued shares of Stock. In the event that any outstanding
Option for any reason shall expire or is terminated or cancelled, the
shares of Stock allocable to the unexercised portion of such Option may
again be subject to an Option, stock award or restricted stock under the
Plan.
4. AUTHORITY TO GRANT OPTIONS. The Committee may grant from time to time to
such eligible individuals (the "Optionees") as set forth in Paragraph 5 an
Option or Options to buy a stated number of shares of Stock under the terms
and conditions of the Plan and the stock option agreement. Options granted
under the Plan may, in the discretion of the Committee, be either incentive
stock options as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or non-qualified stock options. Each stock
option agreement shall specifically state, for each Option granted
thereunder, whether the Option is an incentive stock option or a
non-qualified option, but any Option not designated by the Committee as an
incentive stock option shall be a non-qualified stock option. In no event,
however, shall both an incentive stock option and a non-qualified stock
option be granted together under the Plan in such a manner that the
exercise of one Option affects the rights to exercise the other. No Options
shall be granted under the Plan subsequent to December 6, 2003. Except as
provided in Paragraph 6, all provisions of this Plan relating to options
apply to both incentive and non-qualified options. The total amount of
Stock with respect to which Options may be granted under the Plan to
employee-directors of the Company as a group shall not exceed in the
aggregate thirty (30) percent of the total number of shares with respect to
which Options may be granted pursuant to Paragraph 3 of the Plan; provided,
that the class and the aforesaid maximum number of shares shall be subject
to adjustments in accordance with the provisions of Paragraph 16 hereof.
The only Options under the Plan which may be granted are those which either
(i) are granted after adoption of the Plan and are conditioned upon
approval of the Plan by the stockholders of the Company within twelve
months of such adoption or (ii) are granted after both adoption of the Plan
and approval thereof by the stockholders of the Company within twelve
months after the date of such adoption, all as provided in Paragraph 21
hereof. The maximum number of Options which may be granted to any one
Participant from this Plan is 300,000; provided, that the class and the
aforesaid maximum number of shares shall be subject to adjustments in
accordance with the provisions of Paragraph 16 hereof.
5. ELIGIBILITY FOR STOCK OPTIONS. Except as provided in Paragraph 6(iv), the
individuals who shall be eligible to receive Options under the Plan shall
be key employees (including employee-directors) of the Company or of any
subsidiary corporation and any person who is a party to a written
consulting agreement with the Company or any of its subsidiary
corporations, as determined by the Committee. Non-employee directors are
not eligible. For all purposes of the Plan, the term "subsidiary
corporation" shall mean any corporation of which the Company is the "parent
corporation" as that term is defined in Section 424(e) of the Code.
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<PAGE> 3
6. PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS. The following provisions
shall apply only to incentive stock options granted under the Plan:
(i) No incentive stock option shall be granted to any employee who, at
the time such Option is granted, owns, within the meaning of Section
422 of the Code, stock possessing more than 10 percent of the total
combined voting power of all classes of Stock of the Company or any
of its subsidiaries, except that such an Option may be granted to
such an employee if at the time the Option is granted the option
price is at least 110 percent of the fair market value of the Stock
(determined in accordance with Paragraph 7) subject to the Option,
and the Option by its terms is not exercisable after the expiration
of five years from the date the Option is granted;
(ii) To the extent that the aggregate fair market value of stock with
respect to which incentive stock options (without regard to this
subparagraph) are exercisable for the first time by any individual
during any calendar year (under all plans of the Company and its
subsidiaries) exceeds $100,000, such Options shall be treated as
Options which are not incentive stock options. This subparagraph
shall be applied by taking Options into account in the order in
which they were granted. If some but not all Options granted on any
one day are subject to this subparagraph, then such Options shall
be apportioned between incentive stock option and non-qualified
stock option treatment in such manner as the Committee shall
determine. For purposes of this subparagraph, the fair market value
of any stock shall be determined, in accordance with Paragraph 7,
as of the date the Option with respect to such Stock is granted.
(iii) No incentive stock option granted under the Plan shall be
exercisable any sooner than one year from the date of grant.
(iv) Only employees (including employee-directors) of the Company and its
subsidiary corporations shall be eligible to receive incentive stock
options.
7. OPTION PRICE; FAIR MARKET VALUE. The price at which shares of Stock may be
purchased pursuant to an Option shall be not less than the fair market
value of the shares of Stock on the date the Option is granted, and the
Committee in its discretion may provide that the price at which shares may
be so purchased shall be more than such fair market value. For all purposes
of this Plan, the "fair market value" of the Stock shall be the closing
selling price of the Stock as reported in The Wall Street Journal for the
last trading day before the date as of which such fair market value is to
be determined. No Option may be repriced.
8. DURATION OF OPTIONS. Subject to Paragraph 6 (i), no Option shall be
exercisable after the expiration of ten years from the date such Option is
granted. An Option shall expire immediately following the last day on which
such Option is exercisable pursuant to this Paragraph 8 or any decision of
the Committee made pursuant to Paragraph 9(b).
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<PAGE> 4
9. AMOUNT EXERCISABLE.
(a) Subject to Paragraph 6(iii), no Option shall be exercisable earlier
than six months from the date of grant.
(b) Subject to Paragraph 9(a), the Committee in its discretion may
provide that an Option shall be exercisable throughout the term of
the Option or during any lesser period of time commencing on or
after six months from the date of grant of the Option and ending
upon or before the expiration of the term. Each Option may be
exercised, so long as it is valid and outstanding, from time to
time in part or as a whole, subject to any limitations with respect
to the number of shares for which the Option may be exercised at a
particular time and to such other conditions as the Committee in
its discretion may specify upon granting the Option.
10. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of written
notice to the Company setting forth the number of shares of Stock with
respect to which the Option is to be exercised, together with cash, wire
transfer, certified check, bank draft or postal or express money order
payable to the order of the Company (the "Acceptable Funds") for an amount
equal to the Option price of such shares of Stock, or at the election of
the Optionee, by exchanging shares of Stock owned by the Optionee, so long
as the exchanged shares of Stock plus Acceptable Funds paid, if any, have a
total fair market value (determined in accordance with Paragraph 7, as of
the date of exercise) equal to the purchase prices for such shares to be
acquired upon exercise of said Option, and specifying the address to which
the certificates for such shares are to be mailed. Whenever an Option is
exercised by exchanging shares of Stock theretofore owned by the Optionee:
(1) no shares of Stock received upon exercise of that Option thereafter may
be exchanged to pay the Option price for additional shares of Stock within
the following six months; and (2) the Optionee shall deliver to the Company
certificates registered in the name of such Optionee representing a number
of shares of Stock legally and beneficially owned by such Optionee, free of
all liens, claims, and encumbrances of every kind, accompanied by stock
powers duly endorsed in blank by the record holder of the shares
represented by such certificates, with signature guaranteed by a commercial
bank or trust company or by a brokerage firm having a membership on a
registered national stock exchange. Such notice may be delivered in person
to the Secretary of the Company, or may be sent by mail to the Secretary of
the Company, in which case delivery shall be deemed made on the date such
notice is received. As promptly as practicable after receipt of such
written notification and payment, the Company shall deliver to the Optionee
certificates for the number of shares with respect to which such Option has
been so exercised, issued in the Optionee's name; provided, that such
delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United
States mail, addressed to the Optionee, at the address specified pursuant
to this Paragraph 10. The delivery of certificates upon the exercise of
Options may, in the discretion of the Committee, be subject to any
reasonable conditions, including, but not limited to (a) payment to the
Company by the person exercising such Option of the amount, determined by
the Company, of any tax liability of the Company (including but not limited
to federal and state income and
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<PAGE> 5
employment taxes required to be withheld) resulting from such exercise, or
from a sale or other disposition of the stock issued upon exercise of such
Option (or a stock option granted under another plan of the Company), if
such sale or other disposition might be a "disqualifying disposition"
described in Section 422(a) of the Code and (b) agreement by the person
exercising such Option to provide the Company with such information as the
Company might reasonably request pertaining to such exercise, sale or other
disposition. Except to the extent the election would impact qualification
under Rule 16b-3, the Optionee may elect to have the Company accept or
retain Stock as payment of an Optionee's tax liability to the Company, as
described in (a), above. The Company has the discretion to buy back shares
of Stock resulting from stock option exercises by any officer of the
Company, and the Applicable Funds, as defined in the Plan, will include the
delivery of instructions to retain the exercise price from the proceeds of
the sale of the shares of Stock.
11. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the
Optionee other than by will or under the laws of descent and distribution,
and shall be exercisable, during the Optionee's lifetime, only by the
Optionee or his legal guardian or representative; provided, however, the
Committee, in its sole discretion, may grant Options that are transferable
by the Optionee to (i) immediate family members (such as children,
grandchildren or spouse); (ii) trusts for the benefit of the Optionee's
immediate family members; and (iii) partnerships in which immediate family
members are the only partners.
12. TERMINATION OF EMPLOYMENT OF OPTIONEE. Except as may be otherwise expressly
provided herein, Options shall terminate on such date as shall be selected
by the Committee in its discretion. If an Optionee is an employee of the
Company or of a subsidiary corporation at the time an Option is granted,
and, before the date of expiration of the Option, an employment
relationship with either the Company or a subsidiary is severed, for any
reason (except as otherwise provided for herein), the Option shall
terminate thirty days following severance of the employment relationship.
Whether authorized leave of absence, or absence on military or government
service, shall constitute severance of an employment relationship with the
Company or a subsidiary corporation and the Optionee, shall be determined
by the Committee at the time thereof. If, before the date of expiration of
a non-qualified Option, the Optionee shall be retired in good standing from
the employ of the Company or a subsidiary for reasons of age or disability
under the then established rules of the Company, the Option shall terminate
on the earlier of such date of expiration or one year after the date of
such retirement. In the event of such retirement, the Optionee shall have
the right prior to the termination of such Option to exercise the Option to
the extent to which he was entitled to exercise such Option immediately
prior to such retirement; however, in the event that the Optionee has
retired on or after attaining the age of sixty-two (62) years, the Optionee
shall be entitled to exercise all or any part of such Option (without
regard to any limitations imposed pursuant to Paragraph 9(b) hereof, but
subject to Paragraph 9(a)). Upon the death of the Optionee, his executors,
administrators, or any person or persons to whom his Option may be
transferred by will or by the laws of descent and distribution, shall have
the right, at any time prior to the earlier of the date of expiration or
one year following the date of such death, to exercise the Option, in whole
or in part (without regard to any limitations imposed pursuant to Paragraph
9(b) hereof, but subject to
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<PAGE> 6
Paragraph 9(a)). The Committee shall be permitted, in its discretion, to
grant to any employee an Option which is an incentive stock option or a
non-qualified stock option with a provision that the Option shall continue
in full force and effect as a non-qualified stock option with no
modification of the option price, if the person's status with the Company
or its subsidiary changes, but such person continues as a director or
consultant of the Company.
13. REQUIREMENTS OF LAW. The Company shall not be required to sell or issue any
shares under any Option if the issuance of such shares shall constitute a
violation by the Optionee or the Company of any provisions of any law or
regulation of any governmental authority.
14. NO RIGHTS AS STOCKHOLDER. No Optionee shall have rights as a Stockholder
with respect to shares covered by any Option until the date of issuance of
a stock certificate for such shares; and, except as otherwise provided in
Paragraph 16 hereof, no adjustment for dividends, or otherwise, shall be
made if the record date thereof is prior to the date of issuance of such
certificate.
15. NO EMPLOYMENT OR NOMINATION OBLIGATION. The granting of any Option shall
not impose upon the Company or any subsidiary any obligation to continue to
nominate an Optionee for election as a director or to employ or continue to
employ any Optionee; and the right of the Company or any subsidiary to
terminate the employment of any employee shall not be diminished or
affected by reason of the fact that an Option has been granted to the
employee.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of outstanding
Options shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of the Stock outstanding,
without receiving compensation therefor in money, services or property,
then (a) the number, class, and per share price of shares of stock subject
to outstanding Options hereunder shall be appropriately adjusted in such a
manner as to entitle an Optionee to receive upon exercise of an Option, for
the same aggregate cash consideration, an equivalent total number and class
of shares as he would have received had he exercised his Option in full
immediately prior to the event requiring the adjustment; and (b) the number
and class of shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number and class of shares of Stock
then reserved that number and class of shares of stock that would have been
received by the owner of an equal number of outstanding shares of each
class of Stock as the result of the event requiring the adjustment.
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<PAGE> 7
After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each holder of an outstanding
Option shall, at no additional cost, be entitled upon exercise of such
Option to receive (subject to any required action by stockholders) in lieu
of the number and class of shares as to which such Option would have been
so exercisable in the absence of such event, the number and class of shares
of stock or other securities to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of the number and class of shares of Stock equal to the
number and class of shares as to which such Option shall be so exercised.
Immediately upon a Change of Control, all outstanding Options and
Restricted Stock shall be deemed fully vested. For all purposes of the
Plan, a Change of Control shall be deemed to have occurred if, with or
without the approval of the Board of Directors of the Company, any of the
following events shall occur (i) more than 25% of the voting power of the
Company's outstanding securities entitled to vote in elections of directors
shall be acquired by any person (as such term is used in Sections 13(d) and
14(d) of the Securities and Exchange Act of 1934) except with respect to
any Optionee who is included in any such person; or (ii) as the result of a
tender offer, merger, consolidation, sale of assets or contested election,
or any combination of such transactions, the persons who were directors of
the Company immediately before the transaction shall cease to constitute a
majority of the Board of Directors of the Company or of any successor to
the Company.
Except as herein before expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of
stock of any class, for cash or property, or for labor or services either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number,
class or price of shares of Stock then subject to outstanding Options.
17. STOCK AWARDS AND RESTRICTED STOCK GRANTS. A stock award consists of the
issuance by the Company to a Participant of shares of Stock, without other
payment therefor, in lieu of certain cash compensation or as additional
compensation for his services to the Company. Restricted stock grants
consist of shares of Stock which are issued by the Company to a Participant
at a price which may be below their fair market value or for no payment,
but subject to restrictions on their sale or other transfer by the
Participant. The issuance of Stock pursuant to stock awards and restricted
stock grants shall be subject to the following terms and conditions:
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<PAGE> 8
(i) Number of Shares. Subject to Section 3, the number of shares to be
issued by the Company to a Participant pursuant to a stock award or
restricted stock grant shall be determined by the Committee.
(ii) Sale Price. The Committee shall determine the prices, if any, at
which shares of restricted stock shall be issued to a Participant,
which may vary from time to time and among Participants and which
may be below the fair market value of such shares of Stock at the
date of sale and which may be zero.
(iii) Restrictions. All shares of restricted stock issued hereunder shall
be subject to such restrictions as the Committee may determine,
including, without limitation any or all of the following:
(a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, such prohibition
to lapse (i) at such time or times as the Committee shall
determine (whether in annual or more frequent installments, at
the time of the death, disability or retirement of the holder
of such shares, or otherwise) or (ii) upon written
certification by the Committee of the attainment of certain
performance measurements;
(b) a requirement that the holder of shares of restricted stock
forfeit, or (in the case of shares sold to a Participant)
resell back to the Company at his cost, all or a part of such
shares in the event of termination of the holder's employment
during any period in which such shares are subject to
restrictions;
(c) a prohibition against employment of the holder of such
restricted stock by any competitor of the Company or its
affiliates, or against such holder's dissemination of any
secret or confidential information belonging to the Company or
a subsidiary of the Company;
(iv) No Participant shall exercise the election permitted by Section
83(b) of the Code without the express written approval of the
Committee. Any Participant making such election without such
written approval shall forfeit all shares of restricted stock
granted to him.
Shares of restricted stock shall be registered in the name of the
Participant and deposited, together with a stock power endorsed in blank,
with the Company. Each such certificate shall bear a legend in
substantially the following form:
"The transferability of this certificate and the shares of Common
Stock represented by it are subject to the terms and conditions
(including conditions of forfeiture) contained in the 1993 Stock
Incentive Plan of the Company, and an agreement entered into between
the registered owner and the Company. A copy of the Plan and agreement
is on file in the office of the Secretary of the Company."
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<PAGE> 9
At the end of any time period during which the shares of restricted stock
are subject to forfeiture and restrictions on transfer or upon the
attainment of certain performance measurements, such shares will be
delivered free of all restrictions to the Participant or to the
Participant's legal representative, beneficiary or heir.
Subject to the terms and conditions of the Plan, each Participant receiving
restricted stock shall have all the rights of a stockholder with respect to
shares of stock during any period in which such shares are subject to
forfeiture and restrictions on transfer, including without limitation, the
right to vote such shares. By accepting a stock award or a restricted stock
grant, the Participant agrees to remit when due any federal and state
income and employment taxes required to be withheld. Dividends paid in cash
or property other than Stock with respect to shares of restricted stock
shall be paid to the Participant currently or, at the election of the
Participant, be reinvested by the Participant under the Company's Dividend
Reinvestment Plan. Shares purchased with reinvested dividends shall not be
restricted.
18. TERMINATION AND AMENDMENT OF THE PLAN. The Board of Directors of the
Company may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that to the extent required to
qualify the Plan under Rule 16b-3, no amendment that would (a) materially
increase the number of shares of Stock that may be issued under the Plan,
(b) materially modify the requirements as to eligibility for participation
in the Plan, or (c) otherwise materially increase the benefits accruing to
Participants under the Plan shall be made without the approval of the
Company's stockholders.
19. WRITTEN AGREEMENT. Each Option or restricted stock granted hereunder shall
be embodied in a written agreement, which shall be subject to the terms and
conditions prescribed above and shall be signed by the Participant and by
the Chairman of the Board, the Vice Chairman, the President or any Vice
President of the Company for and in the name and on behalf of the Company.
Stock awards granted hereunder may be embodied in such a written agreement.
Such an Option, stock award or restricted stock agreement shall contain
such other provisions as the Committee in its discretion shall deem
advisable.
20. INDEMNIFICATION OF COMMITTEE. The Company shall indemnify each present and
future member of the Committee against, and each member of the Committee
shall be entitled without further act on his part to indemnity from the
Company for, all expenses (including the amount of judgments and the amount
of approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to the Company itself) reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his being or having
been a member of the Committee, whether or not he continues to be such
member of the Committee at the time of incurring such expenses; provided,
however, that such indemnity shall not include any expenses
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<PAGE> 10
incurred by any such member of the Committee (a) in respect of matters as
to which he shall be finally adjudged in any such action, suit or
proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duty as such member of the Committee, or (b) in
respect of any matter in which any settlement is effected, to an amount in
excess of the amount approved by the Company on the advice of its legal
counsel; and provided further, that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by any
such member of the Committee unless, within sixty (60) days after
institution of any such action, suit or proceeding, he shall have offered
the Company, in writing, the opportunity to handle and defend same at its
own expense. The foregoing right of indemnification shall inure to the
benefit of the heirs, executors or administrators of each such member of
the Committee and shall be in addition to all other rights to which such
member of the Committee may be entitled as a matter of law, contract, or
otherwise.
21. ADOPTION, APPROVAL AND EFFECTIVE DATE OF PLAN. The Plan shall be considered
adopted and shall become effective on the date the Plan is approved by the
Board of Directors of the Company; provided, however, that the Plan and any
grants of Options, stock awards or restricted stock grants thereunder,
shall be void, if the stockholders of the Company shall not have approved
adoption of the Plan within twelve months after such effective date.
22. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware,
without reference to principles of conflict of laws, and shall be construed
accordingly.
23. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that the Plan
comply in all respects with Rule 16b-3, and any successor rule pursuant
thereto. If any provision of this Plan is later found not to be in
compliance with the Rule, the provision shall be deemed null and void. All
grants of Options and Stock and all exercises of Options under this Plan
shall be executed in accordance with the requirements of Section 16 of the
Securities Exchange Act of 1934, as amended, and any regulations
promulgated thereunder.
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<PAGE> 1
EXHIBIT 10.10
BROWNING-FERRIS INDUSTRIES, INC.
RESTATED 1993 NON-EMPLOYEE DIRECTOR STOCK PLAN
1. PURPOSE. The 1993 Non-Employee Director Stock Plan (the "Plan") is to
benefit Browning-Ferris Industries, Inc. (the "Company") and its
subsidiary corporations by offering its non-employee directors (the
"Eligible Directors") an opportunity to become owners of the Common
Stock, $.16-2/3 par value, of the Company (the "Stock") and is intended
to advance the best interests of the Company by increasing their
proprietary interest in the success of the Company and its subsidiary
corporations.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board"). Subject to the terms of the
Plan, the Board shall have the power to construe the provisions of the
Plan, or of options granted hereunder (the "Options") or Stock issued
hereunder, to determine all questions arising thereunder, and to adopt
and amend such rules and regulations for administering the Plan as the
Board deems desirable.
3. AVAILABLE SHARES. The total amount of the Stock with respect to which
Options and Stock paid in lieu of directors' annual retainer that may
be granted under this Plan shall not exceed in the aggregate Two
Hundred and Fifty Thousand (250,000) shares; provided, that the class
and aggregate number of shares of Stock which may be granted hereunder
shall be subject to adjustment in accordance with the provisions of
Paragraph 17 hereof. Such shares of Stock may be treasury shares or
authorized but unissued shares of Stock. In the event that any
outstanding Option for any reason shall expire or is terminated or
canceled, the shares of Stock allocable to the unexercised portion of
such Option may again be subject to an Option or Options under the
Plan.
4. AUTHORITY TO GRANT OPTIONS AND STOCK. All Options granted under the
Plan shall be non-qualified stock options. No Options shall be granted
under the Plan subsequent to December 6, 2003. The only Options and
Stock under the Plan which may be granted are those which are granted
after both adoption of the Plan and approval thereof by the
stockholders of the Company within twelve months after the date of such
adoption, all as provided in Paragraph 21 hereof.
5. ELIGIBILITY FOR STOCK OPTIONS AND STOCK. The individuals who shall be
eligible to receive Options under the Plan shall be each Eligible
Director of the Company.
6. OPTION GRANT SIZE AND GRANT DATES.
Initial Grants - An Option to purchase 5,000 shares of Stock (as
adjusted pursuant to Paragraph 17) shall be granted to each Eligible
Director the day following the Annual Meeting at which such Director is
first elected or the day following the first Annual Meeting after such
Eligible Director is first elected or appointed by the Board to be a
<PAGE> 2
Director, whichever is applicable (an "Initial Grant"); provided, that
if an Eligible Director who previously received an Initial Grant
terminates service as a Director and is subsequently elected or
appointed to the Board, such Director shall not be eligible to receive
a second Initial Grant, but shall be eligible to receive only Annual
Grants as provided in this Paragraph 6, beginning with the Annual
Meeting held during the fiscal year immediately following the year in
which such Director was reelected or appointed.
Annual Grants - An Option to purchase 2,500 shares (as adjusted
pursuant to Paragraph 17) shall be granted each year, the day following
the Annual Meeting, to each director who is an Eligible Director at
such time (except as set forth above) and who is not receiving an
Initial Grant (each, an "Annual Grant").
If however, the General Counsel of the Company determines, in his sole
discretion, that the Company is in possession of material, nonpublic
information about the Company, then the Initial and Annual Grant to the
Eligible Directors shall be suspended until the second trading day
after public dissemination of such information.
7. OPTION PRICE; FAIR MARKET VALUE. The price at which shares of Stock may
be purchased by an Eligible Director pursuant to an Option (the
"Optionee") shall be the fair market value of the shares of Stock on
the date the Option is granted. For all purposes of this Plan, the
"fair market value" of the Stock shall be the closing selling price of
the Stock as reported in The Wall Street Journal for the last trading
day before the date as of which such fair market value is to be
determined. No Option may be repriced.
8. DURATION OF OPTIONS. The term of each Option hereunder shall be ten
years, and no Option shall be exercisable after the expiration of ten
years from the date such Option is granted. An Option shall expire
immediately following the last day on which such Option is exercisable
pursuant to this Paragraph 8.
9. AMOUNT EXERCISABLE.
An Option becomes exercisable according to the following schedule:
<TABLE>
<CAPTION>
Period from Portion of Grant That
The Date the Becomes Exercisable
Option is Granted after Such Period
------------------------------------------------ --------------------------------------------
<S> <C>
One year after grant 25%
Two years after grant 50%
Three years after grant 75%
Four years after grant 100%
</TABLE>
10. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares of
Stock with respect to which the
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<PAGE> 3
Option is to be exercised, together with cash, wire transfer, certified
check, bank draft or postal or express money order payable to the order
of the Company (the "Acceptable Funds") for an amount equal to the
Option price of such shares of Stock, or at the election of the
Optionee, by exchanging shares of Stock owned by the Optionee, so long
as the exchanged shares of Stock plus Acceptable Funds paid, if any,
have a total fair market value (determined in accordance with Paragraph
7, as of the date of exercise) equal to the purchase prices for such
shares to be acquired upon exercise of said Option, and specifying the
address to which the certificates for such shares are to be mailed.
Whenever an Option is exercised by exchanging shares of Stock
theretofore owned by the Optionee: (1) no shares of Stock received upon
exercise of that Option thereafter may be exchanged to pay the Option
price for additional shares of Stock within the following six months;
and (2) the Optionee shall deliver to the Company certificates
registered in the name of such Optionee representing a number of shares
of Stock legally and beneficially owned by such Optionee, free of all
liens, claims, and encumbrances of every kind, accompanied by stock
powers duly endorsed in blank by the record holder of the shares
represented by such certificates, with signature guaranteed by a
commercial bank or trust company or by a brokerage firm having a
membership on a registered national stock exchange. Such notice may be
delivered in person to the Secretary of the Company, or may be sent by
mail to the Secretary of the Company, in which case delivery shall be
deemed made on the date such notice is received. As promptly as
practicable after receipt of such written notification and payment, the
Company shall deliver to the Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued
in the Optionee's name; provided, that such delivery shall be deemed
effected for all purposes when a stock transfer agent of the Company
shall have deposited such certificates in the United States mail,
addressed to the Optionee, at the address specified pursuant to this
Paragraph 10. The delivery of certificates upon the exercise of Options
is subject to the condition that the person exercising such Option
provide the Company with such information as the Company might
reasonably request pertaining to such exercise, sale or other
disposition. The Company has the discretion to buy back shares of Stock
resulting from the exercise of an Option by any Eligible Director of
the Company, and in connection therewith, the Applicable Funds, as
defined in the Plan, will include the delivery of instructions to
retain the exercise price from the proceeds of the sale of the shares
of Stock.
11. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the
Optionee other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Optionee's lifetime,
only by the Optionee or his legal guardian or representative; provided,
however, the Committee, in its sole discretion, may grant Optionees the
ability to transfer Options previously granted or to be granted to (i)
immediate family members (such as children, grandchildren or spouse),
(ii) trusts for the benefit of the Optionee's immediate family members;
and (iii) partnerships in which immediate family members are the only
partners.
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<PAGE> 4
12. TERMINATION OF DIRECTORSHIP OF OPTIONEE. If, before the date of
expiration of the Option, the Optionee shall cease to be a director of
the Company, the Option shall terminate on the earlier of such date of
expiration or one year after the date of ceasing to serve as a
director. In such event, the Optionee shall have the right prior to the
termination of such Option to exercise the Option to the extent to
which he was entitled to exercise such Option immediately prior to
ceasing to serve as a director; however, in the event that the Optionee
has ceased to serve as a director on or after attaining the age of
sixty-two (62) years, the Optionee shall be entitled to exercise all or
any part of such Option (without regard to any limitations imposed
pursuant to Paragraph 9 hereof). Upon the death of the Optionee, his
executors, administrators, or any person or persons to whom his Option
may be transferred by will or by the laws of descent and distribution,
shall have the right, at any time prior to the earlier of the date of
expiration or one year following the date of such death, to exercise
the Option, in whole or in part (without regard to any limitations
imposed pursuant to Paragraph 9 hereof. If the Optionee continues to
serve as an outside advisory director of the Company after serving as
director, the Optionee will retain the right to exercise stock options
during the period that the former director serves in such capacity,
with the term not to exceed the original date of expiration and with
such right to exercise to cancel thirty (30) days following the
termination date as serving as an outside advisory director.
13. ISSUANCE OF SHARES IN LIEU OF PAYMENT OF RETAINER FEE.
One-third of each Eligible Director's annual retainer fee for service
as a member of the Company's Board of Directors shall be paid in Stock.
Such shares shall be issued the day following each Annual Meeting or
the day following the first Annual Meeting after such Eligible Director
is first elected or appointed by the Board to be a director, whichever
is applicable. If, however, the General Counsel of the Company
determines, in his sole discretion, that the Company is in possession
of material, nonpublic information about the Company, then such
issuance shall be delayed until the second trading day after public
dissemination of such information. The number of shares to be issued
shall be that number equal to one-third of the annual retainer for
service as a member of the Company's Board of Directors divided by the
fair market value of the Stock as determined pursuant to Paragraph 7
above. No fractional shares shall be issued, but the number of shares
shall be rounded up to the nearest whole share.
The Stock in lieu of retainer fee issued under this Paragraph prior to
March 5, 1997 ("Restricted Stock"), shall have a restriction period of
three (3) years. Notwithstanding any other provision of this Paragraph,
such Restricted Stock shall be subject to the following terms and
conditions:
(a) Restricted Stock in lieu of retainer fee shall be represented by
a stock certificate registered in the name of the holder. The
holder shall have the right to enjoy all
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<PAGE> 5
stockholder rights during the restriction period (including the
right to vote the shares and the right to receive any cash
dividends) with the exception that:
(i) The holder may not sell, transfer, pledge or assign the
Restricted Stock during the restriction period;
(ii) The Company will retain custody of the certificate for the
Restricted Stock during the restriction period; and
(iii) A breach of the terms and conditions during the restriction
period shall cause a forfeiture of the Restricted Stock.
(b) All restrictions shall lapse and the holder of such Restricted
Stock shall be entitled to the delivery of a stock certificate or
certificates upon the earliest of the following:
(i) Three (3) years from the date the applicable shares are
issued in the name of to such holder;
(ii) The date of the holder's death or disability;
(iii) The date on which the holder no longer serves on the Board,
other than for the reason set out in subsection (c) below.
(c) Restricted Stock shall be entirely forfeited in the event that
during a restriction period the holder is removed for cause from
the Board during his elected term.
For purposes of subsection (b) above, "disability" shall mean long term
disability as determined under rules and procedures that apply under
the Company's long term disability plan then in effect. For purposes of
subsection (c) above, a holder shall be considered to have been removed
for cause if and only if he is dismissed on account of any act of (a)
fraud or intentional misrepresentation, or (b) embezzlement,
misappropriation, or conversion of assets or opportunities of the
Company or any subsidiary of the Company.
14. REQUIREMENTS OF LAW. The Company shall not be required to issue any
shares under any Option or as partial payment for annual retainer fees
if the issuance of such shares shall constitute a violation by the
Optionee or the Company of any provisions of any law or regulation of
any governmental authority.
15. NO RIGHTS AS STOCKHOLDER. No Optionee shall have rights as a
Stockholder with respect to shares covered by any Option until the date
of issuance of a stock certificate for such shares; and, except as
otherwise provided in Paragraph 17 hereof, no adjustment for dividends,
or otherwise, shall be made if the record date thereof is prior to the
date of issuance of such certificate.
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<PAGE> 6
16. NO EMPLOYMENT OR NOMINATION OBLIGATION. The granting of any Option
shall not impose upon the Company or its stockholders any obligation to
employ any Optionee or to continue to nominate any Optionee for
election as a director of the Company.
17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of
the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Stock or
the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar
character or otherwise.
Immediately upon a Change of Control, all outstanding Options and
Restricted Stock shall be deemed fully vested. For all purposes of the
Plan, a Change of Control shall be deemed to have occurred if, with or
without the approval of the Board of Directors of the Company, any of
the following events shall occur (i) more than 25% of the voting power
of the Company's outstanding securities entitled to vote in elections
of directors shall be acquired by any person (as such term is used in
Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934)
except with respect to any Optionee who is included in any such person;
or (ii) as the result of a tender offer, merger, consolidation, sale of
assets or contested election, or any combination of such transactions,
the persons who were directors of the Company immediately before the
transaction shall cease to constitute a majority of the Board of
Directors of the Company or of any successor to the Company.
After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each holder of an
outstanding Option shall, at no additional cost, be entitled upon
exercise of such Option to receive (subject to any required action by
stockholders) in lieu of the number and class of shares as to which
such Option would have been so exercisable in the absence of such
event, the number and class of shares of stock or other securities to
which such holder would have been entitled pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to such
merger or consolidation, such holder had been the holder of record of
the number and class of shares of Stock equal to the number and class
of shares as to which such Option shall be so exercised.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation,
or if the Company sells or otherwise disposes of substantially all its
assets to another corporation and is liquidated while unexercised
Options remain outstanding under the Plan, (i) after the effective date
of such merger, consolidation or sale and liquidation, as the case may
be,
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<PAGE> 7
each holder of an outstanding Option shall be entitled, upon exercise
of such Option, to receive, in lieu of shares of the Stock, shares of
such stock or other securities as the holders of shares of such class
of Stock received pursuant to the terms of the merger, consolidation or
sale; and (ii) notwithstanding Paragraph 9 hereof, all Options, from
and after the date of any agreement regarding such merger,
consolidation, or sale and liquidation, as the case may be, shall be
exercisable in full prior to the effective date of such merger,
consolidation or sale and liquidation.
Except as herein before expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of
stock of any class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the number, class or price of shares of Stock then subject to
outstanding Options.
18. TERMINATION AND AMENDMENT OF PLAN. The Board of Directors of the
Company may amend, terminate or suspend the Plan at any time, in its
sole and absolute discretion; provided, however, to the extent required
to qualify the Plan under Rule 16b-3, no amendment that would (a)
materially increase the number of shares of the Stock that may be
issued under the Plan, (b) materially modify the requirements as to
eligibility for participation in the Plan, or (c) otherwise materially
increase the benefits accruing to participants under the Plan, shall be
made without the approval of the Company's stockholders.
19. WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied in a
written agreement, which shall be subject to the terms and conditions
prescribed above and shall be signed by the Eligible Director and by
the Chairman of the Board, the Vice Chairman, the President or any Vice
President of the Company for and in the name and on behalf of the
Company.
20. INDEMNIFICATION OF BOARD. The Company shall indemnify each present and
future member of the Board against, and each member of the Board shall
be entitled without further act on his part to indemnity from the
Company for, all expenses (including the amount of judgments and the
amount of approved settlements made with a view to the curtailment of
costs of litigation, other than amounts paid to the Company itself)
reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his
being or having been a member of the Board, whether or not he continues
to be such member of the Board at the time of incurring such expenses;
provided, however, that such indemnity shall not include any expenses
incurred by any such member of the Board (a) in respect of matters as
to which he shall be finally adjudged in any such action, suit or
proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Board,
or (b) in respect of any matter in which any settlement is effected, to
an amount in excess of the amount approved by the Company
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<PAGE> 8
on the advice of its legal counsel; and provided further, that no right
of indemnification under the provisions set forth herein shall be
available to or enforceable by any such member of the Board unless,
within sixty (60) days after institution of any such action, suit or
proceeding, he shall have offered the Company, in writing, the
opportunity to handle and defend same at its own expense. The foregoing
right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Board and shall
be in addition to all other rights to which such member of the Board
may be entitled as a matter of law, contract, or otherwise.
21. ADOPTION, APPROVAL AND EFFECTIVE DATE OF PLAN. The Plan shall be
considered adopted and shall become effective on the date the Plan is
approved by the stockholders of the Company.
22. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware,
without reference to principles of conflict of laws, and shall be
construed accordingly.
23. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3, and any successor rule
pursuant thereto. If any provision of this Plan is later found not to
be in compliance with the Rule, the provision shall be deemed null and
void. All grants of Options and Stock and all exercises of Options
under this Plan shall be executed in accordance with the requirements
of Section 16 of the Securities Exchange Act of 1934, as amended, and
any regulations promulgated thereunder.
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<PAGE> 1
EXHIBIT 10.11
BROWNING-FERRIS INDUSTRIES, INC.
RESTATED 1990 STOCK OPTION PLAN
1. PURPOSE. The 1990 Stock Option Plan (the Plan) is to benefit
Browning-Ferris Industries, Inc. (the "Company") and its subsidiary corporations
through the maintenance and development of its management by offering certain
executives, key employees, directors and affiliates a favorable opportunity to
become owners of the Common Stock, $.16-2/3 par value, of the Company and is
intended to advance the best interests of the Company by providing such persons
with additional incentive by increasing their proprietary interest in the
success of the Company and its subsidiary corporations.
2. ADMINISTRATION. Except as provided in Paragraph 4, the Plan shall be
administered by the Compensation Committee of the Board of Directors of the
Company or by another committee designated to act by the Board of Directors (the
"Committee"), which Committee shall consist of not less than three members.
Meetings shall be held at such times and places as shall be determined by the
Committee. A majority of the members of the Committee shall constitute a quorum
for the transaction of business, and the vote of a majority of those members
present at any meeting shall decide any question brought before that meeting. In
addition, the Committee may take any action otherwise proper under the Plan by
the unanimous written consent of its members. No member of the Committee shall
be liable for any act or omission of any other member of the Committee or for
any act or omission on his own part, including but not limited to the exercise
of any power or discretion given to him under the Plan, except those resulting
from his own gross negligence or willful misconduct. All questions of
interpretation and application of the Plan, or of options granted hereunder (the
"Options"), shall be subject to the determination, which shall be final and
binding of a majority of the whole Committee.
3. OPTION SHARES. The stock subject to the Options and other provisions
of the Plan shall be shares of the Company's Common Stock, $.16-2/3 par value
(the "Stock"). The total amount of the Stock with respect to which Options may
be granted under this Plan shall not exceed in the aggregate Four Million
(4,000,000) shares; provided, that the class and aggregate number of shares of
Stock which may be subject to Options granted hereunder shall be subject to
adjustment in accordance with the provisions of Paragraph 16 hereof. Such shares
of Stock may be treasury shares or authorized but unissued shares of Stock. In
the event that any outstanding Option for any reason shall expire or is
terminated or cancelled the shares of Stock allocable to the unexercised portion
of such Option may again be subject to an Option under the Plan.
4. AUTHORITY TO GRANT OPTIONS. Options granted under the Plan may, in
the discretion of the Committee, be either incentive stock options as defined in
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options. Each stock option agreement shall specifically
state, for each Option granted thereunder, whether the
<PAGE> 2
Option is an incentive stock option or a non-qualified option but any Option not
designated by the Committee as an incentive stock option shall be a
non-qualified stock option. In no event, however, shall both an incentive stock
option and a non-qualified stock option be granted together under the Plan in
such a manner that the exercise of one Option affects the right to exercise the
other. No Options shall be granted under the Plan subsequent to December 3,
2000. Except as provided in Paragraph 6, all provisions of this Plan apply to
both incentive and non-qualified options. In the event that any member of the
Committee is to be granted Options under the Plan, then said grant shall be made
by the Executive Committee of the Board of Directors of the Company (the
"Executive Committee"). The Executive Committee's actions in such instances
shall be governed by each of the provisions of the Plan to the extent applicable
to the Committee; provided, however, that any member of the Committee who also
serves on the Executive Committee shall not vote on the granting of any Options
to himself. The total amount of Stock with respect to which Options may be
granted under the Plan to directors of the Company as a group shall not exceed
in the aggregate forty (40) percent of the total number of shares with respect
to which Options may be granted pursuant to Paragraph 3 of the Plan; provided,
that the class and the aforesaid maximum number of shares shall be subject to
adjustments in accordance with the provisions of Paragraph 16 hereof. The only
Options under the Plan which may be granted are those which either (i) are
granted after adoption of the Plan and are conditioned upon approval of the Plan
by the stockholders of the Company within twelve months of such adoption or (ii)
are granted after both adoption of the Plan and approval thereof by the
stockholders of the Company within twelve months after the date of such adoption
all as provided in Paragraph 20 hereof.
5. ELIGIBILITY FOR STOCK OPTIONS. Except as provided in Paragraph
6(iv), the individuals who shall be eligible to receive Options under the Plan
shall be all employees, directors and affiliates of the Company or of any
subsidiary corporation. For all purposes of the Plan:
(i) The term "subsidiary corporation" shall mean any corporation
of which the Company is the "parent corporation" as that term
is defined in Section 425(e) of the Code; and
(ii) The term "affiliate" shall mean a person controlling,
controlled by or under common control with the Company or any
of its subsidiary corporations. An "affiliate" includes a
person who is a party to a written consulting agreement with
the Company or any of its subsidiary corporations and includes
any person who is a director of the Company.
6. PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS. The following
provisions shall apply only to incentive stock options granted under the Plan:
(i) No incentive stock option shall be granted to any employee
who, at the time such Option is granted, owns, within the
meaning of Section 422A(b) (6) of the Code, stock possessing
more than 10 percent of the total combined voting power of
all classes of Stock of the Company or any of its
subsidiaries, except that
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<PAGE> 3
such an Option may be granted to such an employee if at the
time the Option is granted the option price is at least 110
percent of the fair market value of the Stock (determined in
accordance with Paragraph 7) subject to the Option, and the
Option by its terms is not exercisable after the expiration
of five years from the date the Option is granted.
(ii) To the extent that the aggregate fair market value of stock
with respect to which incentive stock options (without regard
to this subparagraph) are exercisable for the first time by
any individual during any calendar year (under all plans of
the Company) exceeds $100,000, such Options shall be treated
as Options which are not incentive stock options. This
subparagraph shall be applied by taking Options into account
in the order in which they were granted. If some but not all
Options granted on any one day are subject to this
subparagraph, then such Options shall be apportioned between
incentive stock option and non-qualified stock option
treatment in such manner as the Committee shall determine.
For purposes of this subparagraph, the fair market value of
any stock shall be determined, in accordance with Paragraph 7,
as of the date the Option with respect to such Stock is
granted .
(iii) No incentive stock option granted under the Plan shall be
exercisable any sooner than one year from the date of grant.
(iv) Only employees of the Company and its subsidiary corporations
shall be eligible to receive incentive stock options.
7. OPTION PRICE; FAIR MARKET VALUE. The price at which shares of Stock
may be purchased pursuant to an Option shall be not less than the fair market
value of the shares of Stock on the date the Option is granted, and the
Committee in its discretion may provide that the price at which shares may be so
purchased shall be more than such fair market value. For all purposes of this
Plan, the "fair market value" of the Stock shall be the closing selling price of
the Stock as reported in The Wall Street Journal for the last trading day before
the date as of which such fair market value is to be determined.
8. DURATION OF OPTIONS. Subject to paragraph 6 (i), no Option shall be
exercisable after the expiration of ten years from the date such Option is
granted. An Option shall expire immediately following the last day on which such
Option is exercisable pursuant to this Paragraph 8 or any decision of the
Committee made pursuant to Paragraph 9.
9. AMOUNT EXERCISABLE. Subject to Paragraph 6(iii), the Committee in
its discretion may provide that an Option shall be exercisable throughout the
term of the Option or during any lesser period of time commencing on or after
the date of grant of the Option and ending upon or before the expiration of the
term. Each Option may be exercised, so long as it is valid and outstanding, from
time to time in part or as a whole, subject to any limitations with respect to
the number of shares for which the Option may be exercised at a particular time
and to such other conditions as the Committee in its discretion may specify upon
granting the Option.
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<PAGE> 4
10. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares of Stock with
respect to which the Option is to be exercised. together with cash, certified
check, bank draft or postal or express money order payable to the order of the
Company for an amount equal to the Option price of such shares of Stock, or at
the election of the Optionee, unless the terms of the Option provide to the
contrary, by exchanging shares of Stock owned by the Optionee, so long as the
exchanged shares of Stock plus cash (or certified check) paid, if any, have a
total fair market value (determined in accordance with Paragraph 7, as of the
date of exercise) equal to the purchase prices for such shares to be acquired
upon exercise of said Option, and specifying the address to which the
certificates for such shares are to be mailed. Whenever an Option is exercised
by exchanging shares of Stock theretofore owned by the Optionee: (1) no shares
of Stock received upon exercise of that Option thereafter may be exchanged to
pay the Option price for additional shares of Stock within the following six
months; and (2) the Optionee shall deliver to the Company certificates
registered in the name of such Optionee representing a number of shares of Stock
legally and beneficially owned by such Optionee, free of all liens, claims, and
encumbrances of every kind, accompanied by stock powers duly endorsed in blank
by the record holder of the shares represented by such certificates, with
signature guaranteed by a commercial bank or trust company or by a brokerage
firm having a membership on a registered national stock exchange. Such notice
may be delivered in person to the Secretary of the Company, or may be sent by
mail to the Secretary of the Company, in which case delivery shall be deemed
made on the date such notice is received. As promptly as practicable after
receipt of such written notification and payment, the Company shall deliver to
the Optionee certificates for the number of shares with respect to which such
Option has been so exercised, issued in the Optionee's name; provided, that such
delivery shall be deemed effected for all purposes when a stock transfer agent
of the Company shall have deposited such certificates in the United States mail,
addressed to the Optionee, at the address specified pursuant to this Paragraph
10. The delivery of certificates upon the exercise of Options may, in the
discretion of the Committee, be subject to any reasonable conditions, including,
but not limited to (a) payment to the Company by the person exercising such
Option of the amount, determined by the Company, of any tax liability of the
Company (including but not limited to employment taxes required to be withheld)
resulting from such exercise, or from a sale or other disposition of the stock
issued upon exercise of such Option (or a stock option granted under another
plan of the Company), if such sale or other disposition might be a
"disqualifying disposition" described in Section 422A(a) of the Code and (b)
agreement by the person exercising such Option to provide the Company with such
information as the company might reasonably request pertaining to such exercise,
sale or other disposition. In its discretion, the Committee may provide that the
Optionee may elect to have the Company accept or retain Stock as payment of an
Optionee s liability to the Company, as set forth in (a), above. The Company has
the discretion to buy back shares of Stock resulting from stock option exercises
by any officer of the Company, and the Applicable Funds, as defined in the Plan,
will include the delivery of instructions to retain the exercise price from the
proceeds of the sale of the shares of Stock.
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<PAGE> 5
11. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by
the Optionee other than by will or under the laws of descent and distribution,
and shall be exercisable, during the Optionee's lifetime, only by the Optionee,
or his legal guardian or representative; provided, however, the Committee, in
its sole discretion, may grant Options that are transferable by the Optionee to
(i) immediate family members (such as children, grandchildren or spouse); (ii)
trusts for the benefit of the Optionee's immediate family members; and (iii)
partnerships in which immediate family members are the only partners.
12. TERMINATION OF EMPLOYMENT OF OPTIONEE. Except as may be otherwise
expressly provided herein, Options shall terminate on such date as shall be
selected by the Committee in its discretion. If an Optionee is an employee of
the Company or of a subsidiary corporation at the time an Option is granted,
and, before the date of expiration of the Option, the Optionee and the Company
or its subsidiary corporation sever the employment relationship for any reason
(except as otherwise provided for herein), the Option shall terminate not later
than one day less than three months following severance of the employment
relationship. If an Optionee is a director or affiliate (and not an employee) of
the Company at the time an Option is granted to him, and he ceases to be a
director or affiliate (except as otherwise provided for herein), the Option
shall terminate not later than one day less than the three months following the
date he ceases to be a director or affiliate; provided that the Committee may
extend such date if such person becomes an employee of the Company. Whether
authorized leave of absence, or absence on military or government service, shall
constitute severance of the employment relationship between the Company or its
subsidiary corporation and the Optionee, shall be determined by the Committee at
the time thereof. If, before the date of expiration of the Option, the Optionee
shall be retired in good standing from the employ of the Company for reasons of
age or disability under the then established rules of the Company, the Option
shall terminate on the earlier of such date of expiration or one year after the
date of such retirement. In the event of such retirement, the Optionee shall
have the right prior to the termination of such Option to exercise the Option to
the extent to which he was entitled to exercise such Option immediately prior to
such retirement; however, in the event that the Optionee has retired on or after
attaining the age of sixty-two (62) years. The Optionee shall be entitled to
exercise all or any part of such Option. Upon the death of the Optionee, his
executors, administrators, or any person or persons to whom his Option may be
transferred by will or by the laws of descent and distribution, shall have the
right, at any time prior to the earlier of the date of expiration or one year
following the date of such death, to exercise the Option, in whole or in part
(without regard to any limitations imposed pursuant to Paragraph 9 hereof). In
the event that the Committee grants an Option designating it as an incentive
stock option, and the Optionee's employment status changes, but such person
continues as a director or an affiliate of the Company, then the Company in its
discretion may, upon request of the Optionee, elect that the Option previously
granted shall continue in full force and effect as a non-qualified stock option.
In the event that the Committee grants an Option designating it as a
non-qualified stock option, and the person's status with the Company or its
subsidiary corporations changes, but such person continues as an affiliate of
the Company, then the Company in its discretion may elect that the Option
previously granted shall continue in full force and effect. The Committee shall
be permitted, in its discretion, to grant to any employee an Option which is an
incentive stock option or a non-qualified stock option with a provision
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<PAGE> 6
that the Option shall continue in full force and effect as a non-qualified stock
option if the person's status with the Company or its subsidiary changes, but
such person continues as an affiliate of the Company.
13. REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any shares under any Option if the issuance of such shares shall
constitute a violation by the Optionee or the Company of any provisions of any
law or regulation of any governmental authority. In addition, in connection with
the Securities Act of 1933 (as now in effect or hereafter amended), upon
exercise of any Option, the Company shall not be required to issue Stock unless
the Committee has received evidence satisfactory to it to the effect that the
holder of such Option will not transfer such shares except pursuant to a
registration statement in effect under such Act or unless a reasonably
satisfactory opinion of counsel addressed to the Company has been received by
the Company to the effect that such registration is not required. Any
determination in this connection by the Committee shall be final, binding and
conclusive. In the event the shares issuable on exercise of an Option are not
registered under the Securities Act of 1933, the Company may imprint the
following legend or any other legend which counsel for the Company considers
necessary or advisable to comply with the Securities Act of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel satisfactory to the Corporation, in form and substance
satisfactory to the Corporation, that registration is not required for
such sale or transfer."
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended); and in the event any shares are so registered
the Company may remove any legend on certificates representing such shares. The
Company shall not be obligated to take any other affirmative action in order to
cause the exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority.
14. NO RIGHTS AS STOCKHOLDER. No Optionee shall have rights as a
Stockholder with respect to shares covered by any Option until the date of
issuance of a stock certificate for such shares; and, except as otherwise
provided in Paragraph 16 hereof, no adjustment for dividends, or otherwise,
shall be made if the record date thereof is prior to the date of issuance of
such certificate.
15. NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
impose upon the Company any obligation to employ or continue to employ any
Optionee; and the right of the Company to terminate the employment of any
employee shall not be diminished or affected by reason of the fact that an
Option has been granted to the employee.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to
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<PAGE> 7
make or authorize any or all adjustments. recapitalizations, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Stock or the rights thereof, or
the dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation therefor in money, services or property, then (a) the number, class
and per share price of shares of stock subject to outstanding Options hereunder
shall be appropriately adjusted in such a manner as to entitle an Optionee to
receive upon exercise of an Option, for the same aggregate cash consideration,
the same total number and class of shares as he would have received had he
exercised his Option in full immediately prior to the event requiring the
adjustment; and (b) the number and class of shares then reserved for issuance
under the Plan shall be adjusted by substituting for the total number and class
of shares of Stock then reserved that number and class of shares of stock that
would have been received by the owner of an equal number of outstanding shares
of each class of Stock as the result of the event requiring the adjustment.
After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each holder of an outstanding Option shall,
at no additional cost, be entitled upon exercise of such Option to receive
(subject to any required action by stockholders) in lieu of the number and class
of shares as to which such Option would have been so exercisable in the absence
of such event, the number and class of shares of stock or other securities to
which such holder would have been entitled pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of the number and class
of shares of Stock equal to the number and class of shares as to which such
Option shall be so exercised.
Immediately upon a Change of Control, all outstanding Options shall be
deemed fully vested. For all purposes of the Plan, a Change of Control shall be
deemed to have occurred if, with or without the approval of the Board of
Directors of the Company, any of the following events shall occur (i) more than
25% of the voting power of the Company's outstanding securities entitled to vote
in elections of directors shall be acquired by any person (as such term is used
in Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934) except
with respect to any Optionee who is included in any such person; or (ii) as the
result of a tender offer, merger, consolidation, sale of assets or contested
election, or any combination of such transactions, the persons who were
directors of the Company immediately before the transaction shall cease to
constitute a majority of the Board of Directors of the Company or of any
successor to the Company.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or
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<PAGE> 8
for labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect
and no adjustment by reason thereof shall be made with respect to, the number,
class or price of shares of Stock then subject to outstanding Options.
17. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors may
modify, revise or terminate this Plan at any time and from time to time;
provided, however, that without the further approval of the holders of at least
a majority of the shares of stock of the Company present in person or by proxy
and entitled to vote on the election of directors, the Board may not increase
the aggregate number of shares which may be issued under Options pursuant to
provisions of the Plan, change the class of employees eligible under the Plan,
materially modify the requirements as to director, officer and affiliate
eligibility for participation in the Plan, or materially increase the benefits
accruing to participants under the Plan. Consistent with the foregoing
limitations, the Committee shall determine whether and to what extent any
amendment, modification, revision or termination will affect any outstanding
Options.
18. WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied
in a written option agreement, which shall be subject to the terms and
conditions prescribed above and shall be signed by the Optionee and by the
Chairman of the Board, the Vice Chairman, the President or any Vice President of
the Company for and in the name and on behalf of the Company. Such an option
agreement shall contain such other provisions as the Committee in its discretion
shall deem advisable.
19. INDEMNIFICATION OF COMMITTEE. The Company shall indemnify each
present and future member of the Committee against, and each member of the
Committee shall be entitled without further act on his part to indemnity from
the Company for, all expenses (including the amount of judgments and the amount
of approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to the Company itself) reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his being or having been a member of the
Committee whether or not he continues to be such member Of the Committee at the
time of incurring such expenses; provided, however, that such indemnity shall
not include any expenses incurred by any such member of the Committee (a) in
respect of matters as to which he shall be finally adjudged in any such action,
suit or proceeding to have been guilty of gross negligence or willful misconduct
in the performance of his duty as such member of the Committee or (b) in respect
of any matter in which any settlement is effected, to an amount in excess of the
amount approved by the Company on the advice of its legal counsel; and provided
further that no right of indemnification under the provisions set forth herein
shall be available to or enforceable by any such member of the Committee unless,
within sixty (60) days after institution of any such action, suit or proceeding,
he shall have offered the Company. in writing, the opportunity to handle and
defend same at its own expense. The foregoing right of indemnification shall
inure to the benefit of the heirs, executors or administrators of each such
member of the Committee and shall be in addition to all other rights to which
such member of the Committee may be entitled as a matter of law, contract or
otherwise.
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<PAGE> 9
20. ADOPTION, APPROVAL AND EFFECTIVE DATE OF PLAN. The Plan shall be
considered adopted and shall become effective on the date the Plan is approved
by the Board of Directors of the Company; provided, however, that the Plan and
any grants of Options thereunder, shall be void, if the stockholders of the
Company shall not have approved adoption of the Plan within twelve months after
such effective date.
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<PAGE> 1
EXHIBIT 10.13
AMENDMENTS TO THE 1987 STOCK OPTION PLAN
(THE "PLAN")
On September 4, 1996, the Company's Board of Directors approved to amend the
Plan to provide for the Compensation Committee in its sole discretion, to grant
Optionees the ability to transfer Options previously granted or to be granted to
(i) immediate family members (such as children, grandchildren or spouse); (ii)
trusts for the benefit of the Optionee's immediate family members; and (iii)
partnerships in which immediate family members are the only partners; provided,
however, that no consideration be paid for such transfer of the Option.
On December 3, 1996, the Company's Board of Directors approved to amend Section
7 of the Plan to read as follows:
"7. OPTION PRICE. The price at which shares of Stock may be purchased
pursuant to an Option shall be not less than the fair market value of
the shares of Stock on the date the Option is granted, and the
Committee in its discretion may provide that the price at which shares
may be so purchased shall be more than such fair market value. The
"fair market value" of the Stock shall be the closing selling price of
the Stock as reported in The Wall Street Journal for the last trading
day before the date as of which such fair market value is to be
determined."
On December 2, 1997, the Company's Board of Directors approved to amend the Plan
to provide for the Company to buy back shares of Stock, as defined in the Plan,
resulting from stock option exercises by any officer of the Company, and the
Applicable Funds, as defined in the Plan will include the delivery of
instructions to retain the exercise price from the proceeds of the sale of the
share of Stock.
On May 4, 1998, the Company's Board of Directors approved to amend the Plan to
provide for the Compensation Committee in its sole discretion, to establish an
extended exercisable period upon termination of employment from thirty days to
up to six months for any future optionees, and further that all outstanding
stock options shall be deemed fully vested immediately upon a Change of Control.
For all purposes of the Plan, a Change of Control shall be deemed to have
occurred if, with or without the approval of the Board of Directors of the
Company, any of the following events shall occur (i) more than 25% of the voting
power of the Company's outstanding securities entitled to vote in elections of
directors shall be acquired by any person (as such term is used in Sections
13(d) and 14(d) of the Securities and Exchange Act of 1934) except with respect
to any Optionee who is included in any such person; or (ii) as the result of a
tender offer, merger, consolidation, sale of assets or contested election, or
any combination of such transactions, the persons who were directors of the
Company immediately before the transaction shall cease to constitute a majority
of the Board of Directors of the Company or of any successor to the Company.
<PAGE> 1
EXHIBIT 10.15
FIRST AMENDMENT TO BFI RETIREMENT PLAN
This First Amendment made as of the 31st day of March, 1995, by
Browning-Ferris Industries, Inc., a corporation organized and existing under the
laws of the State of Delaware (hereinafter called the "Primary Sponsor");
WITNESSETH:
WHEREAS, the Primary Sponsor maintains the BFI Retirement Plan under an
indenture dated December 30, 1994 (the "Plan"); and
WHEREAS, the Primary Sponsor desires to amend the Plan to make minor
technical changes;
NOW, THEREFORE, the Primary Sponsor hereby amends the Plan, effective
as if included in the December 30, 1994 Plan document, as follows:
1.By replacing Section 1.1 with the following:
"Account" means a hypothetical account balance
established for each Participant which equals the present
value Actuarial Equivalent of the Participant's Old Plan
Benefit, plus the total amount credited on behalf of the
Participant after October 1, 1993. The amount credited for
each Plan year shall equal the sum of:
(a) 4.5 % of Compensation for October 1,
1993 through December 31, 1993, and thereafter, 4.5%
of Compensation for the Plan Year, of a Participant
who is an Eligible Employee (and with respect to any
temporary and seasonal Employee only, has received a
year of Credited Service for such Plan Year.) (In the
case of Employees who are employed as of the last day
of the Plan Year, such amount shall be credited as of
the last day of each Plan Year. In the case of
Employees who have a Severance Date during a Plan
Year, such Compensation shall be credited as of the
last day of the month following the Severance Date.);
plus
(b) interest on the period's beginning
balance computed by multiplying such balance by 6%
per annum for 1993 and 1994, and thereafter, an
annual rate determined by the Committee prior to the
first day of each Plan Year, but not less than 4% and
not more than 12% per annum thereafter. (In the case
of Employees who are employed on the last day of the
Plan Year, such interest shall be credited as of the
last day of each Plan Year. In the case of Employees
who have a Severance Date during a Plan Year, such
interest shall be credited as of the last day of
<PAGE> 2
the month following the Severance Date, and as of the
last day of each Plan Year thereafter preceding the
Plan Year in which payment commences.) In either
event, such interest shall be credited for each Plan
Year through the end of the month coinciding with or
immediately preceding the date as of which payment
commences under the Plan.
Notwithstanding Subsection (a) above:
(1) a Participant who would otherwise be excluded
from receiving a credit for a period under Subsection (a)
above solely because the Employee was included in a unit of
Employees covered under a collective bargaining agreement
between a union and a Plan Sponsor shall receive a credit
under Subsection (a) for such period if the Participant is not
included in such a unit, and is an Eligible Employee, on his
Severance Date; and
(2) a Participant who reaches a Disability Retirement
Date shall receive a credit under Subsection (a) above equal
to 4.5% of the greater of the Participant's Compensation in
the Plan Year in which the Disability Retirement Date occurred
or the first Plan Year immediately preceding that date,
continuing for each Plan Year until the earliest of the date
as of which the Participant (1) reaches age 65, (2) is no
longer subject to a Disability, or (3) elects to begin
receiving payment under the Plan; and
(3) a Participant who has not incurred a Severance
Date and who is on an authorized medical leave of absence
shall receive a credit under Subsection (a) above for the Plan
Year in which the authorized leave started equal to 4.5% of
the greater of the Participant's Compensation in the Plan Year
in which the leave of absence started or the first Plan Year
immediately preceding that date."
2. By replacing the reference in Plan Section 1.3(b) to
"Section 1.2(a)" with "Section 1.2".
3. By adding the following to Section 1.13(a)
"(1) if an Employee quits, retires, or is discharged
and then performs an Hour of Service within twelve months of
his Severance Date, then such period of severance shall be
taken into account in calculating Credited Service;
(2) if an Employee quits, is discharged or retires
during an absence from service of twelve months or less for
any reason other than quit, discharge or attainment of a
Retirement Date and the Employee then performs an Hour of
Service within twelve months of the date the Employee was
first absent from service, then such period of absence shall
be taken into account in calculating Credited Service;
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<PAGE> 3
(3) in the case of an Employee who remains absent
from service beyond the first anniversary of the commencement
of a period of absence (1) by reason of the pregnancy of the
Employee, (2) by reason of the birth of a child of the
Employee, (3) by reason of the placement of a child with the
Employee in connection with the adoption of the child by the
Employee, or (4) for purposes of caring for such child for a
period immediately following its birth or placement, the
period between the first and second anniversaries of such
period of absence shall not be counted as Credited Service. H
4. By replacing Section 1.37(b) with the following:
"(b) for purposes of applying the Old Plan Benefit
Formula, each Section 401(a)(17) Employee's accrued benefit
will be the greater of the amount determined under Paragraphs
(1) or (2) below.
(1) equals the accrued benefit determined
under the Old Plan Benefit Formula as applied to the
Employee's total years of Credited Service (to the
extent recognized for computing a benefit under the
Plan), and on the Employee's Compensation not in
excess of the applicable Compensation Limit in effect
on and after January 1, 1994.
(2) equals the sum of (A) plus (B) below.
(A) equals the greater of (i) or (ii)
below.
(i) equals the accrued benefit
determined under the Old Plan Benefit
Formula as applied to the Employee's
total years of Credited Service before
January 1, 1994 (to the extent
recognized for computing a benefit
under the Plan) and on the Employee's
Compensation not in excess of the
applicable Compensation Limit in effect
before January 1, 1994.
(ii) equals the sum of (I) plus (ID
below.
(I) equals the accrued benefit
as of December 31, 1988, frozen in
accordance with Treas. Reg. Section
1.401(a)(4) -13.
(II) equals the accrued benefit
determined under the Old Plan
Benefit Formula applicable for the
Plan Year beginning January 1, 1989,
as applied to the Employee's years
of Credited Service credited to the
Employee for Plan
-3-
<PAGE> 4
Years beginning on or after January
1, 1989 through December 31, 1993
(to the extent recognized for
computing a benefit under the Plan),
frozen in accordance with Treas.
Reg. Section 1.401(a)(4)-13.
(B) equals the accrued benefit
determined under the Old Plan Benefit
Formula as applied to the Employee's years
of Credited Service credited to the
Employee for Plan years beginning on or
after January 1, 1994 (to the extent
recognized for computing a benefit under
the Plan).
A Section 401(a)(17) Employee means an Employee whose current
Accrued Benefit as of a date on or after January 1, 1989, is based on
Compensation for a Plan Year beginning before January 1, 1994 that
exceeded $150,000."
Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to First Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this First Amendment
to be executed as of the day and year first above written.
BROWNING-FERRIS INDUSTRIES, INC.
By: /s/ Gerald K. Burger
-----------------------------------
Title: Vice President and Secretary
-----------------------------------
ATTEST:
By: /s/ Eileen B. Schuler
----------------------------
Title: Assistant Secretary
----------------------------
[CORPORATE SEAL]
-4-
<PAGE> 5
EXHIBIT 10.15
SECOND AMENDMENT TO
BFI RETIREMENT PLAN
THIS SECOND AMENDMENT, made as of 31st day of December, 1995, by
BROWNING-FERRIS INDUSTRIES, INC., a Delaware corporation (the "Primary
Sponsor");
INTRODUCTION
The Primary Sponsor maintains the BFI Retirement Plan under an
indenture dated December 30, 1994, as amended (the "Plan"). The Primary Sponsor
desires to amend the Plan primarily to provide that a spouse of a deceased
participant may elect to receive immediately his or her distribution in the form
of a single life annuity.
NOW THEREFORE, the Primary Sponsor does hereby amend the Plan as
follows:
1. With respect to distributions in which the annuity starting date is
on or after the date of adoption of this Amendment, by substituting the
following for Plan Section 1.3(b):
"(b) for purposes of determining the present value Actuarial
Equivalent of the guaranteed minimum accrued benefit
determined pursuant to Section 1.2(a), the prevailing
commissioners' standard table (described in Code Section
807(d)(5)(A)) used to determine reserves for group annuity
contracts issued on the date as of which present value is
being determined (without regard to any other subparagraph of
Code Section 807(d)(5)) and the annual interest rate on
30-year Treasury securities, as specified by the Internal
Revenue Service, for the second full month preceding the Plan
Year in which the annuity starting date occurs shall be used."
2. Effective January 1, 1996, by substituting the following for Plan
Section 6.3:
"6.3 Death Benefits of Married Participant Not in Pay Status.
If the Participant dies while married before the commencement
of retirement payments under the Plan, the Participant's
Spouse shall receive as a death benefit a Normal Fund Payment
payable commencing as of the earliest retirement age under the
Plan; provided, however that a Spouse whose Normal Fund
Payment is an annuity described in Plan Section 1.33(c) may
elect, prior to commencement of payments, to receive instead a
single life annuity payable in monthly installments for the
life of the Spouse or a lump sum, in either case payable
immediately, that is the Actuarial Equivalent."
<PAGE> 6
Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to Second Amendment,
IN WITNESS WHEREOF, the Primary Sponsor has caused this Second
Amendment to be executed as of the day and year first above written.
BROWNING-FERRIS INDUSTRIES, INC.
By: /s/ Craig W. Wasserman
----------------------------------------------
Title: Vice President, Organizational Development
----------------------------------------------
ATTEST:
By: /s/ Eileen B. Schuler
--------------------------
Title: Assistant Secretary
--------------------------
[CORPORATE SEAL]
-2-
<PAGE> 7
EXHIBIT 10.15
THIRD AMENDMENT TO BFI RETIREMENT PLAN
THIS THIRD AMENDMENT, made on this 31st day of December, 1996, by
Browning-Ferris Industries, Inc., a Delaware corporation (the "Primary
Sponsor");
INTRODUCTION
The Primary Sponsor maintains the BFI Retirement Plan under an
indenture dated December 30, 1994 as amended by the First and Second Amendments
(the "Plan"). The Primary Sponsor now desires to amend the Plan to make changes
requested by the Internal Revenue Service and to provide that a Participant who
has reached Normal Retirement Age and who continues to be an Employee may elect
to begin receipt of his benefits.
NOW, THEREFORE, the Primary Sponsor does hereby amend the Plan as
follows:
1. Effective October 1, 1993, by substituting the following for
Section 1.1(b):
"(b) interest on the period's beginning balance computed by
multiplying such balance by the annual interest rate on
30-year Treasury securities for the third full month preceding
the beginning of that Plan Year (such annual interest rate for
July 1993 with respect to the beginning balance as of October
1, 1993), but not more than 6% per annum. (In the case of
Employees who are employed on the last day of the Plan Year,
such interest shall be credited as of the last day of each
Plan Year. In the case of Employees who have a Severance Date
during a Plan Year, such interest shall be credited as of the
last day of the month following the Severance Date, and as of
the last day of each Plan Year thereafter preceding the Plan
Year in which payment commences.) In either event, such
interest shall be credited for each Plan Year through the end
of the month coinciding with or immediately preceding the date
as of which payment commences under the Plan."
2. By replacing the reference in Plan Section 1.3(b) to Section
1.2(a)" with "Section 1.2."
3. By adding the following to Section 4.6, effective April 1,
1996:
"4.6 Benefits While an Employee After Reaching Normal
Retirement Age. A Participant who continues as an Employee and
has reached Normal Retirement Age may elect to receive a
pension (determined as of the annuity starting date pursuant
to Plan Section 4.2 or 4.3, as applicable (but without regard
to the requirement that he retire), commencing as of the first
day of any month on or after his Normal
<PAGE> 8
Retirement Age. Any benefit the Participant accrues after the
date as of which his Accrued Benefit is valued for payment for
these purposes shall be treated as a separate Accrued Benefit
which shall be paid in accordance with the provisions of the
Plan when the Participant actually terminates employment or
dies."
4. By adding the following new Section 7.8 effective April 1,
1996:
"7.8 Participants Who Elect to Receive Benefits While Employed
After Reaching Normal Retirement Age. Subject to the
provisions of the Plan, a Participant who is entitled to
payment pursuant to Section 4.6 may elect any form of
distribution set forth in Plan Section 7.2(b); provided,
however, that once the Participant has begun to receive
payment in the elected form, such election shall remain
binding on the Participant with regard to his or his
Beneficiary's later entitlement to payment, after termination
of employment or death, of his pension attributable to his
separate Accrued Benefit which accrues after the date as of
which his pension is valued for the initial payment, and
payment of such additional separate benefit in such form shall
automatically be made as soon as feasible following
termination of employment or death."
Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this Third Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this Third Amendment
to be executed as of the day and year first above written.
BROWNING-FERRIS INDUSTRIES, INC.
By: /s/ Gerald K. Burger
----------------------------
Title: Vice President
----------------------------
ATTEST:
By: /s/ Eileen B. Schuler
--------------------------
Title: Assistant Secretary
--------------------------
[CORPORATE SEAL]
-2-
<PAGE> 9
EXHIBIT 10.15
FOURTH AMENDMENT TO BFI RETIREMENT PLAN
THIS FOURTH AMENDMENT, made on this 31st day of December, 1996, by
Browning-Ferris Industries, Inc., a Delaware corporation (the "Primary
Sponsor");
INTRODUCTION
The Primary Sponsor maintains the BFI Retirement Plan under an
indenture dated December 30, 1994, as amended (the "Plan"). The Primary Sponsor
now desires to amend the Plan to clarify the exclusions from compensation.
NOW, THEREFORE, the Primary Sponsor does hereby amend the plan as
follows:
1. By adding the following Subsection (i) to Section 1.11:
"(i) For purposes of determining a Participant's benefit
accrual in any Plan Year, income attributable to rodeo awards,
spot bonus awards, monetary gifts, Chairman's Club awards,
area wage premiums, allowances attributable to foreign
assignments and restricted stock grants shall be excluded,
unless determined to discriminatory under Code Section
401(a)(4)."
2. By adding the following Subsection (h) to Section 1.30
effective December 1, 1996:
"(h) Any Employee whose employment is transferred from
American-Ref-Fuel Company to a Plan Sponsor shall have his
hours of service with American Ref-Fuel Company counted as
Hours of Service for purposes of the definition of Eligibility
Service and Vesting Service."
Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to this Fourth Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this Fourth
Amendment to be executed as of the day and year first above written.
BROWNING-FERRIS INDUSTRIES, INC.
By: /s/ Gerald K. Burger
----------------------------
Title: Vice President
----------------------------
ATTEST:
By: /s/ Eileen B. Schuler
----------------------------
Title: Assistant Secretary
----------------------------
[CORPORATE SEAL]
<PAGE> 10
FIFTH AMENDMENT TO BFI RETIREMENT PLAN
The Fifth Amendment made on the 9th day of May, 1998, by Browing-Ferris
Industries, Inc., a Delaware corporation (the "Primary Sponsor");
INTRODUCTION
Primary Sponsor maintains the BFI Retirement Plan under an indenture dated
December 30, 1994, a amended (the "Plan"). The Primary Sponsor now desires to
amend the Plan to revise the formula under which benefits accrue.
NOW THEREFORE, the Primary Sponsor does hereby amend the Plan, effective
January 1, 1998, as follows:
1. By replacing Section 1.1(a) with the following:
"(a) 4.5% of Compensation paid from January 1, 1998 through May 31, 1998,
2% of Compensation paid from June 1, 1998 through December 31, 1998, and
thereafter, 2% of Compensation for the Plan Year, of a Participant who is
an Eligible Employee (and with respect to any temporary and seasonal
Employee only, has received a year of Credited Service for such Plan Year).
(In the case of Employees who are employed as of the last day of the Plan
Year, such amount shall be credited as of the last day of each Plan Year.
In the case of Employees who have a Severance Date during a Plan Year, such
Compensation shall be credited as of the last day of the month following
the Severance Date); plus"
2. By replacing Section 1.1(2) and (3) with the following:
(2) A Participant who reaches a Disability Retirement Date shall receive
a credit under Subsection (a) above equal to the credit provided
under the Plan prior to this Amendment for Plan Years ending before
January 1, 1998 through May 31, 1998, 7/12's of 2% from June 1, 1998
through December 31, 1998, and thereafter 2%, of the greater of the
Participant's Compensation in the Plan Year in which the Disability
Retirement Date occurred or the first Plan year immediately preceding
that date, continuing for each Plan year until the earlier of the
date as of which the Participant (A) reaches age 65, (B) is no longer
subject to a Disability, or (C) elects to begin receiving payment
under the Plan; and
(3) A Participant who has not incurred a Severance Date and who is on an
authorized medical leave of absence shall receive a credit under
Subsection (a) above for the Plan year in which the leave of absence
started (A) in the case of the 1998 Plan Year, equal to 5/12's of
4.5% from January 1, 1998 through May 31, 1998 and 7/12's of 2% from
June 1, 1998 through December 31, 1998, of the greater of the
Participant's Compensation in the Plan Year in which the leave of
absence started or the first Plan Year immediately preceding that
date."
Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to this Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this Amendment to be
executed as of the day and year first above written.
BROWNING-FERRIS INDUSTRIES, INC.
By: /s/ Rufus Wallingford
-----------------------------
Rufus Wallingford
Title: Senior Vice President
-----------------------------
Attest:
By: /s/ Eileen B. Schuler
------------------------------
Eileen B. Schuler
Title: Assistant Secretary
------------------------------
[CORPORATE SEAL]
<PAGE> 1
EXHIBIT 10.24
BROWNING-FERRIS INDUSTRIES, INC.
CONVERTIBLE ANNUAL INCENTIVE AWARD PLAN
(AS AMENDED ON DECEMBER 2, 1997)
The Browning-Ferris Industries, Inc. (the "Company") Convertible Annual
Incentive Award Plan (the "Plan") is an executive incentive plan designed to
encourage increased ownership of BFI Common Stock by the Company's and its
subsidiaries' executives an key employees who have a significant impact on the
growth and profitability of the Company. The objectives of the Plan are to
offer a highly competitive stock-based compensation program to executives, to
ensure that the Company is managed in the best long-term interests of its
shareholders and employees. The Plan seeks to achieve these objectives by
allowing plan participants to convert a portion or all of their annual cash
incentive awards, which may be earned in the next fiscal year, to the Company's
common stock, with restrictions placed on this stock for a period of two years
after the grant date. As an incentive for participating in the Plan,
participants will receive a 25% premium, also in shares of restricted stock, in
addition to the shares of converted incentive award. This plan document sets
forth all the terms and conditions of the Plan as approved by the Compensation
Committee of the Board of Directors of Browning-Ferris Industries, Inc.
PARTICIPATION ELIGIBILITY
Participation in the Plan shall be restricted to Corporate Officers;
participation in the Plan is voluntary.
CONVERSION APPROACH
A Plan participant can convert up to 100% of an annual incentive award, on a
pre-tax basis, to BFI Common Stock. The number of shares received by the
participant is a function of the percentage of the annual cash incentive award
to be converted, specified by the participant prior to the beginning of the
Company's fiscal year, and the fair market value of BFI Common Stock on the
grant date. In addition, premium shares will be granted on a 1-for-4 basis
(where one premium share is issued for every for shares of common stock that
the participant converts). The following is an example of how the Plan
operates:
<TABLE>
<S> <C>
Hypothetical Annual Incentive Award $34,800
50% of Award converted to Common Stock $17,400
Fair Market Value of Common Stock on Grant Date $30.00 per share
Number of shares of Common Stock converted 580
Number of Premium Shares offered 145
Total number of Plan shares awarded* 725
Dollar value on Grant Date of both Converted Shares $21,750
and Premium Shares
</TABLE>
*Note: Only whole shares in five share increments will be awarded to
participants in the Plan. Fractional share amounts will not be
converted but will be paid in cash as part of the annual
incentive payment.
As used in this Plan, "grant date" shall mean the date the Compensation
Committee approves annual incentive awards for each Plan participant and "fair
market value" shall mean the average of the high and low prices on the New York
Stock Exchange, Composite Transactions, as reported in the Wall Street Journal,
for shares of common stock of the Company.
<PAGE> 2
RESTRICTION PERIOD FOR SHARES
Both converted shares and premium shares acquired through the Plan are subject
to a two-year restriction period during which the Plan shares are forfeitable
and a participant cannot sell, transfer, pledge or assign Plan shares. During
this restriction period, all Plan shares maintain full voting rights and
participants will receive dividend payments as declared and paid by the
Company. The restriction period begins on the grant date, with subsequent
two-year restriction periods beginning on the grant dates of any subsequent
awards. Generally, the taxation of all Plan shares is deferred until the
expiration of the restriction period. Following the expiration of this
restriction period, both the converted shares and the premium shares become
fully vested and their fair market value on that date will be recognized as
taxable income subject to applicable payroll taxes and inclusion in W-2
earnings for that calendar year. No participant shall exercise the election
permitted by Section 83(b) of the Code without the express written approval of
the Compensation Committee of the Board of Directors.
FORFEITURE IN THE CASE OF SEPARATION OF EMPLOYMENT
Termination prior to the expiration of the restriction period requires complete
forfeiture of all converted common stock shares and premium shares acquired
through the Plan. Should employment end by reason of death, disability,
retirement in accordance with the then existing rules of the Company, or
involuntarily leave of employment with the Company without cause, during the
restriction period, all Plan shares shall be vested on the effective
termination date and valued at fair market value on that date for compensation
purposes.
CONVERSION ELECTION BY PARTICIPANT
Each participant must specify the portion of his/her annual incentive award to
be converted to BFI common stock prior to the beginning of the Company's fiscal
year or 30 days following eligibility for this Plan. Eligibility for initial
participants shall commence on September 27, 1994. Once made, each annual
election is irrevocable. A separate election must be made prior to the
beginning of each subsequent fiscal year as to the respective award conversion
for that fiscal year.
TERM AND ADOPTION OF THE PLAN
This Plan, as set forth herein, was approved by the Compensation Committee on
September 7, 1994, and revised on September 6, 1995, and is subject to the
terms of the Company's 1993 Stock Incentive Plan (the "Stock Incentive Plan"),
and in the event of a conflict or inconsistency between the terms of the Plan
and the Stock Incentive Plan, then the terms of the Stock Incentive Plan shall
control. The Plan shall remain in effect until it is terminated pursuant to the
following section. The adoption of this Plan or any modification hereof does
not imply any commitment to continue or adopt the same Plan, or any
modification thereof, or any other Plan for incentive compensation for any
succeeding year, or for any award to be paid under the Company's annual
incentive plans. Neither this Plan nor any award made under the Plan shall
create any employment contract or relationship between the Company or its
subsidiaries and any participant.
-2-
<PAGE> 3
RIGHT TO AMEND OR TERMINATE THE PLAN
This Plan will be construed in accordance with the laws of the State of
Delaware. The Compensation Committee can amend, suspend, or terminate the Plan
at any time and for any reason, except that the provisions of the Plan
pertaining to the amount, price, and timing of grants shall not be amended more
than once in any 12-month period, unless such action is required to comply with
changes in laws or regulations of the Internal Revenue Service, the Securities
and Exchange Commission or other government agencies having jurisdiction over
these types of plans.
PLAN AGREEMENT
Each participant must sign the Convertible Annual Incentive Award Plan
Agreement (Attachment I) to indicate his/her participation in the Plan under
all terms and conditions set forth herein. A new agreement must be signed for
each subsequent fiscal year for which the participant wishes to make an
election.
PLAN ADMINISTRATION
The Compensation Committee of the Board of Directors of Browning-Ferris
Industries, Inc. shall have the exclusive responsibility for the general
administration of this Plan, according to the terms and provisions of the Plan
and the Stock Incentive Plan. In order to properly fulfill its administrative
responsibilities, the Committee shall have the right to construe the Plan,
resolve ambiguities and when exercising its discretion in good faith, its
decisions shall be binding on all parties and shall only be subject to review
as to whether the Committee has abused its discretion.
-3-
<PAGE> 4
Attachment I
CONVERTIBLE ANNUAL INCENTIVE AWARD PLAN AGREEMENT
This document shall constitute the agreement between Browning-Ferris
Industries, Inc. or one its subsidiaries (the "Company") and
_________________________________, which confirms his or her election to
participate in the Company' s Convertible Annual Incentive Award Plan (the
"Plan").
Subject to the terms and conditions of the Plan, I elect to be a participant in
the Plan for the fiscal year beginning October 1, _____ and ending September
30, ______.
For the above fiscal year, I irrevocably elect the following (complete either
item 1 or 2 below):
1. ____ Fixed Option. ____% (up to 100%) of any annual
incentive award I am eligible to
receive.
2. ____ Variable Option. (Complete each of the items listed below):
____% (up to 100%) of any annual
incentive award I am eligible to
receive if such award represents
less than 50% of the Target award I
am eligible for in the annual
incentive plan,
____% (up to 100%) of any annual
incentive award I am eligible to
receive if such award represents at
least 50% but less than 75% of the
Target award,
____% (up to 100%) of any annual
incentive award I am eligible to
receive if such award represents at
least 75% but less than 100% of the
Target award, and
____% (up to 100%) of any annual
incentive award I am eligible to
receive if such award represents
100% or more of the Target award,
and
to be converted to BFI Common Stock under the provisions of the Plan. For each
four shares of converted incentive award that the Company grants in common
stock under the terms of the Plan, the Company will grant one premium share of
BFI Common Stock. All converted common shares and premium shares acquired under
the terms of this Plan are subject to a two year restriction period from the
grant date. During this restriction period, shares cannot be sold, transferred,
pledged or assigned.
In the event that my employment with the Company is terminated for reasons
other than disability, retirement, or death prior to the expiration of the
restriction period, I am required to forfeit all converted common stock shares
and premium shares acquired under the provisions of this Plan which are still
subject to the restriction period. However, if I involuntarily leave employment
with the Company without cause, all Plan shares shall be vested on the
effective termination date.
-4-
<PAGE> 5
I acknowledge that I have received a copy of the Convertible Annual Incentive
Plan document and the 1993 Stock Incentive Plan and am responsible for
understanding their provisions.
This agreement is valid for the fiscal year described above and is irrevocable
once made; my conversion election and beneficiary designation does not revoke
any prior election applicable to any prior period.
BENEFICIARY DESIGNATION
In the event of my death, I designate ______________________________ to receive
all Plan shares for the fiscal year covered by this agreement, which will be
vested on the date of my death and valued at fair market value on that date. If
I have designated a beneficiary who is not my spouse, my spouse has indicated
his or her consent by his or her execution of this document, properly
notarized. (Important Notice from the Company: In the event that a married
participant wishes to designate as beneficiary a person who is not his or her
spouse, then the participant and his or her spouse are advised to seek
independent tax counsel as to the possible federal and/or state gift and estate
tax consequences of such a beneficiary designation.)
Date: Participant:
-------------------- --------------------------------
CONSENT TO BENEFICIARY
I understand that if the participant names a beneficiary other than his or her
spouse, the spouse must consent. I hereby consent to the beneficiary named in
this Agreement.
Consent of Participant's Spouse: Date:
----------------------------- ------------
The State of
-----------
County of
--------------
Before me, the undersigned authority, on this day personally appeared
___________________, known to me to be the person whose name is subscribed to
the foregoing instrument as the Participant's spouse, and such person
acknowledged to me that he or she executed the same for the purposes expressed
and in the capacity stated.
Given under my hand and seal of office, this day of , 19 .
--- ----------- ---
-----------------------------------------------
Notary Public for the
State of
-------------
My commission expires on
, 19
------------------------- ---.
Accepted by the Company:
By:
--------------------------------
-5-
<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,
---------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings Available for Fixed
Charges:
Income (loss) before minority
interest, extraordinary items
and cumulative effects of
changes in accounting
principles $355,979 $297,085 $(77,482) $414,646 $299,474
Income taxes 232,089 198,057 105,188 276,430 199,649
-------- -------- -------- -------- --------
Income before income taxes,
minority interests, extraordinary
items and cumulative effects of
changes in accounting principles 588,068 495,142 27,706 691,076 499,123
Consolidated interest
expense 123,000 165,225 179,299 159,529 93,159
Interest expense related to
proportionate share of 50%
owned affiliates 33,463 33,215 22,613 19,722 22,689
Portion of rents representing
the interest factor 38,076 35,741 35,045 31,842 20,868
Less-Undistributed earnings
of affiliates less than
50% owned 7,472 3,210 3,238 1,643 4,698
-------- -------- -------- -------- --------
Total $775,135 $726,113 $261,425 $900,526 $631,141
======== ======== ======== ======== ========
</TABLE>
(Continued on Following Page)
<PAGE> 2
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Consolidated interest
expense and interest
costs capitalized $131,726 $174,939 $195,605 $170,958 $104,759
Interest expense and
interest costs capitalized
related to proportionate
share of 50% owned
unconsolidated affiliates 33,463 33,215 24,408 20,351 22,974
Portion of rents
representing the interest
factor 38,076 35,741 35,045 31,842 20,868
-------- -------- -------- -------- --------
Total $203,265 $243,895 $255,058 $223,151 $148,601
======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges 3.81(1) 2.98(2) 1.02(3) 4.04 4.25
======== ======== ======== ======== ========
</TABLE>
(1) Excluding the effects of the fiscal 1998 special credits of $21.5 million,
the ratio of earnings to fixed charges for fiscal 1998 is 3.71.
(2) 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.
(3) 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.
<PAGE> 1
EXHIBIT 21
BROWNING-FERRIS INDUSTRIES, INC.
LIST OF SUBSIDIARIES
NORTH AMERICAN SUBSIDIARIES
<TABLE>
<S> <C> <C>
Attwoods of North America, Inc. Delaware
2 BFI Energy Systems of Albany, Inc. Delaware
2 BFI Energy Systems of Delaware County, Inc. Delaware
2 BFI Energy Systems of Boston, Inc. Massachusetts
2 BFI Energy Systems of Essex County, Inc. New Jersey
2 BFI Energy Systems of Hempstead, Inc. Delaware
2 BFI Energy Systems of Niagara, Inc. Delaware
2 BFI Energy Systems of Plymouth, Inc. Delaware
2 BFI Energy Systems of SEMASS, Inc. Delaware
2 BFI Energy Systems of Southeastern Connecticut, Inc. Delaware
BFI Medical Waste Systems of Washington, Inc. Delaware
BFI of Ponce, Inc. Puerto Rico
2 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
1 Browning-Ferris Industries Chemical Services, Inc. Nevada
Browning-Ferris Industries, Inc. Massachusetts
Browning-Ferris Industries Ltd. Ontario
389343 Alberta Ltd. Alberta
Usine de Triage Lachenaie Inc. Quebec
BFI Energy Inc. Quebec
1 Environmental Waste Systems, Inc. Ontario
10133 Newfoundland Limited Newfoundland
Med-Tech Environmental Limited Ontario
Browning-Ferris Industries of California, Inc. California
Keller Canyon Landfill Company California
Browning-Ferris Industries of Connecticut, Inc. Delaware
Browning-Ferris Industries of Florida, Inc. Delaware
Browning-Ferris Industries of Hawaii, Inc. Delaware
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
New Morgan Landfill Company, Inc. Pennsylvania
Browning-Ferris Industries of Puerto Rico, Inc. Puerto Rico
Browning-Ferris Industries of Tennessee, Inc. Tennessee
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Browning-Ferris Services, Inc. Delaware
BFI Properties, Inc. Texas
Browning-Ferris Financial Services, Inc. Delaware
CECOS International, Inc. New York
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
Woodlake Sanitary Service, Inc. Minnesota
4 VHG, Inc. Minnesota
</TABLE>
- ------------------------------------
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 Owns 50% interest in American Ref-Fuel partnership
3 66-2/3% owned
4 50% owned by Woodlake Sanitary Service, Inc.
-2-
<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 3, 1998, 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 No. 33-58889.
ARTHUR ANDERSEN LLP
Houston, Texas
December 3, 1998
<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, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 95,705
<SECURITIES> 0
<RECEIVABLES> 641,608
<ALLOWANCES> (22,072)
<INVENTORY> 21,035
<CURRENT-ASSETS> 937,667
<PP&E> 5,036,134
<DEPRECIATION> (2,223,913)
<TOTAL-ASSETS> 4,999,481
<CURRENT-LIABILITIES> 995,506
<BONDS> 1,792,863
0
0
<COMMON> 34,725
<OTHER-SE> 1,378,733
<TOTAL-LIABILITY-AND-EQUITY> 4,999,481
<SALES> 0
<TOTAL-REVENUES> 4,745,748
<CGS> 0
<TOTAL-COSTS> 3,437,661
<OTHER-EXPENSES> 641,216
<LOSS-PROVISION> 20,604
<INTEREST-EXPENSE> 118,277
<INCOME-PRETAX> 588,068
<INCOME-TAX> 232,089
<INCOME-CONTINUING> 349,373
<DISCONTINUED> 0
<EXTRAORDINARY> 999
<CHANGES> 9,563
<NET-INCOME> 338,811
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.87
</TABLE>
