<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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)
<TABLE>
<CAPTION>
Delaware 74-1673682
-------------------------------------------------- ------------------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
757 N. Eldridge 77079
Houston, Texas
-------------------------------------------------- ------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (281) 870-8100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
---- ----
Indicate the number of shares outstanding of the issuer's common stock, as of
August 11, 1998: 173,766,713.
<PAGE> 2
29
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ---------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,042,648 $1,471,252 $3,693,107 $4,380,120
Cost of operations 749,012 1,095,201 2,687,095 3,260,849
---------- ---------- ---------- ----------
Gross profit 293,636 376,051 1,006,012 1,119,271
Selling, general and
administrative expense 152,058 194,267 529,508 620,931
Special charges (credits), net -- 84,127 (21,464) 84,127
---------- ---------- ---------- ----------
Income from operations 141,578 97,657 497,968 414,213
Interest, net 22,718 39,905 94,960 128,815
Equity in earnings of
unconsolidated affiliates (19,283) (18,969) (44,377) (37,478)
---------- ---------- ---------- ----------
Income before income taxes, minority
interest, extraordinary items
and cumulative effects of changes
in accounting principles 138,143 76,721 447,385 322,876
Income taxes 53,453 30,688 177,150 129,150
Minority interest in income of
consolidated subsidiaries 489 4,107 5,933 8,965
---------- ---------- ---------- ----------
Income before extraordinary items
and cumulative effects of changes
in accounting principles 84,201 41,926 264,302 184,761
Extraordinary losses on redemptions
of debt of unconsolidated affiliates,
net of income tax benefits of $538
and $1,677 for the fiscal 1998 and
fiscal 1997 periods, respectively -- -- 999 3,124
Extraordinary loss on redemption of debt,
net of income tax benefit of $908 -- 1,685 -- 1,685
Cumulative effects of changes in
accounting principles, net of
income tax benefit of $4,611 -- -- 9,563 --
---------- ---------- ---------- ----------
Net income $ 84,201 $ 40,241 $ 253,740 $ 179,952
========== ========== ========== ==========
</TABLE>
(Continued on following page)
2
<PAGE> 3
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ---------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per share:
Basic -
Income before extraordinary
items and cumulative effects
of changes in accounting
principles $ .483 $ .206 $ 1.440 $ .914
Extraordinary items -- (.008) (.005) (.024)
Cumulative effects of changes
in accounting principles -- -- (.052) --
------- ------- ------- -------
Net income $ .483 $ .198 $ 1.383 $ .890
======= ======= ======= =======
Diluted -
Income before extraordinary
items and cumulative effects
of changes in accounting
principles $ .480 $ .205 $ 1.431 $ .910
Extraordinary items -- (.008) (.005) (.024)
Cumulative effects of changes
in accounting principles -- -- (.052) --
------- ------- ------- -------
Net income $ .480 $ .197 $ 1.374 $ .886
======= ======= ======= =======
Number of common shares used in
computing earnings per share:
Basic 174,297 203,043 183,504 202,264
======= ======= ======= =======
Diluted 175,361 204,020 184,677 203,019
======= ======= ======= =======
Cash dividends per common share $ .19 $ .17 $ .57 $ .51
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited)
- -------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 46,798 $ 78,746
Short-term investments 62,907 3,811
Receivables -
Trade, net of allowances for doubtful
accounts of $22,617 and $38,376 584,926 820,678
Other 22,497 71,547
Inventories 19,884 40,414
Deferred income taxes 84,515 117,404
Prepayments and other 54,529 112,063
---------- ----------
Total current assets 876,056 1,244,663
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,196,862 and $2,512,196 2,674,060 3,567,155
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$78,639 and $168,401 595,510 1,418,827
Other intangible assets, net of
accumulated amortization of $81,941
and $92,794 80,290 81,208
Deferred income taxes 18,886 50,057
Investments in unconsolidated affiliates 490,109 235,559
Other 63,037 80,823
---------- ----------
Total other assets 1,247,832 1,866,474
---------- ----------
Total assets $4,797,948 $6,678,292
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited)
- -------------------------------------------------------------------------------
CURRENT LIABILITIES: (In Thousands Except for Share Amounts)
<S> <C> <C>
Notes payable and current portion of
long-term debt $ 10,752 $ 151,736
Accounts payable 287,492 496,733
Accrued liabilities -
Salaries and wages 42,907 115,477
Taxes, other than income 34,655 58,112
Other 368,632 414,601
Income taxes 7,426 19,204
Deferred revenues 173,796 178,661
----------- -----------
Total current liabilities 925,660 1,434,524
----------- -----------
DEFERRED ITEMS:
Accrued environmental and landfill costs 433,605 505,278
Deferred income taxes 104,901 149,803
Other 195,686 252,762
----------- -----------
Total deferred items 734,192 907,843
----------- -----------
LONG-TERM DEBT, net of current portion 1,307,126 1,675,162
----------- -----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 207,788,244 and
213,387,697 shares issued 34,638 35,572
Additional paid-in capital 1,616,840 1,839,378
Retained earnings 1,295,194 1,080,810
Treasury stock, 31,563,943 and 1,239,246
shares, at cost (1,115,702) (18,951)
Stock and Employee Benefit Trust,
7,252,452 shares at yearend 1997 -- (276,046)
----------- -----------
Total common stockholders' equity 1,830,970 2,660,763
----------- -----------
Total liabilities and common
stockholders' equity $ 4,797,948 $ 6,678,292
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------
1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 253,740 $ 179,952
---------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization -
Property and equipment 327,657 381,268
Goodwill 24,430 33,317
Other intangible assets 12,511 19,191
Special charges (credits), net (21,464) 84,127
Cumulative effects of changes in accounting
principles 9,563 --
Deferred income tax expense 7,522 7,235
Amortization of deferred investment tax credit (530) (530)
Provision for losses on accounts receivable 16,191 23,444
Gains on sales of fixed assets (2,180) (5,669)
Equity in earnings of unconsolidated affiliates,
net of dividends received and extraordinary
items (12,993) 14,726
Minority interest in income of consolidated
subsidiaries, net of dividends paid 2,829 8,657
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions and divestitures -
Trade receivables (26,630) (57,146)
Inventories (5,200) 3,219
Other assets 66,363 35,691
Other liabilities (159,213) (5,056)
---------- ---------
Total adjustments 238,856 542,474
---------- ---------
Net cash provided by operating activities 492,596 722,426
---------- ---------
</TABLE>
(Continued on following page)
6
<PAGE> 7
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
---------------------------------------------------------------------------
Nine Months Ended
June 30,
---------------------
1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (287,525) (315,458)
Payments for businesses acquired (23,505) (15,353)
Proceeds from businesses divested 987,362 300,099
Investments in unconsolidated affiliates (35,900) (37,139)
Proceeds from disposition of assets 41,158 33,257
Purchases of short-term investments (76,547) (53,603)
Return of investment in unconsolidated affiliates 87,670 35,625
--------- ---------
Net cash provided by (used in)
investing activities 692,713 (52,572)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock 449,186 46,938
Proceeds from issuance of indebtedness 27,015 114,535
Repayments of indebtedness (82,542) (735,803)
Repurchases of common stock (1,500,851) --
Dividends paid (109,190) (102,947)
--------- ---------
Net cash used in financing activities (1,216,382) (677,277)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES (875) (3,489)
--------- ---------
NET DECREASE IN CASH (31,948) (10,912)
CASH AT BEGINNING OF PERIOD 78,746 110,224
--------- ---------
CASH AT END OF PERIOD $ 46,798 $ 99,312
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 92,170 $ 122,596
Income taxes $ 140,382 $ 137,167
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation -
The accompanying unaudited financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In the opinion of management, all adjustments
and disclosures necessary to a fair presentation of these financial
statements have been included. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1997
as filed with the Securities and Exchange Commission.
(2) Earnings Per Common Share -
In February 1997, Statement of Financial Accounting Standards ("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 (in thousands):
8
<PAGE> 9
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------
1998 1997
------- -------
<S> <C> <C>
Common shares outstanding, end of period 176,224 212,240
Less - Shares held in the Stock and
Employee Benefit Trust -- (8,424)
------- -------
Common shares outstanding for purposes
of computing earnings per share, end
of period 176,224 203,816
Effect of using weighted average common
shares outstanding 7,280 (1,552)
------- -------
Shares used in computing earnings per
share - basic 183,504 202,264
Effect of shares issuable under stock
option plans based on the treasury
stock method 1,173 755
------- -------
Shares used in computing earnings
per share - diluted 184,677 203,019
======= =======
</TABLE>
Shares of common stock held in the Stock and Employee Benefit Trust
(the "Trust") are not considered to be outstanding in the computation of
common shares outstanding until shares are utilized at the Company's option
for the purposes for which the Trust was established. 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.
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 $34.31 to $43.38
per share were outstanding during the first nine months of 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.
9
<PAGE> 10
(3) Special Credits, net -
Special credits of $21.5 million ($12.9 million after income taxes or
$.07 per share) were reported for the nine-month period ended June 30, 1998.
These special credits are related principally to the estimated gain of $18
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 currency translation component of common
stockholders' equity (approximately $133 million). A portion of the total
gain, net of expenses, 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 nine-month periods ended June 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>
Nine Months Ended
June 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Pro forma revenues $3,063,510 $3,255,969
Pro forma income before extraordinary
items and cumulative effects of
changes in accounting principles 243,612 259,828
Pro forma earnings per shares (i) -
Basic $1.33 $1.28
Diluted $1.32 $1.28
</TABLE>
------------
(i) Excluding the after-tax impact of special credits, earnings per share
amounts for the nine months ended June 30, 1998 and 1997 were:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
Actual Pro forma Actual Pro forma
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Basic $1.37 $1.33 $1.16 $1.11
Diluted $1.36 $1.32 $1.16 $1.11
</TABLE>
10
<PAGE> 11
These pro forma results are presented for informational purposes only
and do not purport to show the actual results which would have occurred had
the 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 have
exceeded 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.
(4) Extraordinary Item -
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 $.005 per
share) in its consolidated statement of income for the quarter ended March
31, 1998, related to its 50% ownership interest in this affiliate. Interest
is 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.
(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 $.073 per share in the first quarter of fiscal 1998 as the
cumulative effect of a change in accounting principle.
11
<PAGE> 12
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 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 $.022 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 $23.9
million (including additional amounts payable, principally to former owners,
of $0.2 million) to acquire 20 solid waste businesses, which were accounted
for as purchases. In connection with these acquisitions, the Company
recorded additional interest-bearing indebtedness of $0.2 million and other
liabilities of $1.0 million. The results of these business combinations are
not material to the Company's consolidated results of operations or
financial position.
During the prior fiscal year, the Company paid approximately $22.5
million (including additional amounts payable, principally 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
12
<PAGE> 13
and liabilities assumed in connection with the Company's acquisitions have
been initially assigned and recorded based on preliminary estimates of fair
value and may be revised as additional information concerning the valuation
of such assets and liabilities becomes available. As a result, the financial
information included in the Company's consolidated financial statements is
subject to adjustment prospectively as subsequent revisions in estimates of
fair value, if any, are necessary.
(7) Long-Term Debt -
Long-term debt at June 30, 1998 and September 30, 1997, was as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
------------ -------------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,044
and $1,218 $ 155,645 $ 155,471
6.375% Senior Notes, net of
unamortized discount of $1,396
and $1,507 159,804 159,693
7 7/8% Senior Notes, net of
unamortized discount of $175
and $195 69,326 69,306
7.40% Debentures, net of
unamortized discount of
$1,732 and $1,767 358,268 358,233
9 1/4% Debentures 99,500 99,500
Solid waste revenue bond
obligations 220,027 219,974
Other notes payable 52,197 505,674
------------ -------------
1,114,767 1,567,851
Commercial paper and short-term
facilities to be refinanced 203,111 259,047
------------ -------------
Total long-term debt 1,317,878 1,826,898
Less current portion 10,752 151,736
------------ -------------
Long-term debt, net of current
portion $ 1,307,126 $ 1,675,162
============ =============
</TABLE>
13
<PAGE> 14
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.
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 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 requirement to $1.2 billion for the remainder of
fiscal 1998.
It is the Company's intention to refinance certain outstanding
borrowings classified as long-term debt through the use of existing committed
long-term bank credit agreements in the event that alternative long-term
refinancing is not arranged. A summary by country of such outstanding
borrowings classified as long-term debt as of June 30, 1998 and September 30,
1997 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
-------- -------------
<S> <C> <C>
United States $203,111 $ --
Germany -- 259,047
-------- -------------
$203,111 $ 259,047
======== =============
</TABLE>
As of June 30, 1998, distributions from retained earnings could not
exceed $672 million under the most restrictive of the Company's net worth
maintenance requirements as recently amended.
(8) 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
14
<PAGE> 15
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.
Through June 30, 1998, the Company had repurchased approximately 41.8
million shares of its common stock at a total cost of $1.5 billion, as
authorized under the common stock repurchase program discussed above.
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.
(9) Commitments and Contingencies -
Legal Proceedings.
The Company and certain subsidiaries are involved in various
administrative matters or litigation, including personal injury and other
civil actions, as well as other claims and disputes that could result in
additional litigation or other adversary proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular quarterly or annual
reporting period, management believes that the ultimate disposition of these
matters will not have a materially adverse effect upon the consolidated
financial position of the Company.
Environmental Proceedings.
The Company and certain subsidiaries are involved in various
environmental matters or proceedings, including original or renewal permit
application proceedings in connection with the establishment, operation,
expansion, closure and post-closure activities of certain landfill disposal
facilities, and proceedings relating to governmental actions resulting from
the involvement of various subsidiaries of the Company with certain waste
sites (including Superfund sites), as well as other matters or claims that
could result in additional environmental proceedings.
15
<PAGE> 16
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular quarterly or annual
reporting period, management believes that the ultimate disposition of these
matters will not have a materially adverse effect upon the consolidated
financial position of the Company.
(10) 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 holder's obligation 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
treasury stock) to the holders of these securities in exchange for cash
proceeds of $409.7 million.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's operations,
financial performance and results includes statements that are not historical
facts. Such statements are forward-looking statements based on the Company's
expectations and as such, these statements are subject to uncertainty and
risk. These statements should be read in conjunction with the "Regulation",
"Competition" and "Waste Disposal Risk Factors" sections of the Company's
Annual Report on Form 10-K for the year ended September 30, 1997 ("the Form
10-K"), which describes many of the external factors that could cause the
Company's actual results to differ materially from the Company's
expectations. The Company's Form 10-K is on file with the U.S. Securities and
Exchange Commission, a copy of which is available without charge upon written
request to: Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas
77253, Attention: Assistant Corporate Secretary.
RESULTS OF OPERATIONS
Net income for the nine months ended June 30, 1998, was $251.4 million
($1.361 diluted earnings per share), before special credits, extraordinary
charges and the cumulative effects of changes in accounting principles, on
consolidated revenues of $3.693 billion. These results compare with net
income before extraordinary charges for the first nine months of fiscal 1997
of $235.2 million ($1.159 diluted earnings per share on a restated basis) on
consolidated revenues of $4.380 billion. The per share increase from the
comparable prior year nine-month period of $.202 represents a 17% increase in
per share results. Current year earnings per share amounts were affected
favorably by the reduction in outstanding common shares under the Company's
common stock repurchase initiative, offset to some extent by higher interest
expense experienced as a result of these stock repurchases.
The results for the first nine months of fiscal 1998 include
approximately $5.2 million of severance costs ($.017 diluted earnings per
share) as a result of the cost reduction program announced in May 1998. The
results for the current year-to-date period also reflect pre-tax special
credits of $21.5 million ($.070 diluted earnings per share), related
principally to the gain associated with the sale of substantially all of the
Company's operations outside of North America to SITA, a Paris-based
subsidiary of Suez Lyonnaise des Eaux. The transaction was completed at the
end of March 1998. 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,
17
<PAGE> 18
waste-to-energy and disposal services related to residential, commercial,
industrial and medical waste outside of North America.
The current year results also include a net after-tax charge of $.052
diluted earnings per share related to the cumulative effects of changes in
accounting principles. This charge related to (i) the write-off of previously
capitalized business process reengineering costs of approximately $21 million
($13.8 million after-tax, or $.075 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 (ii) 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.
Extraordinary charges of $.005 and $.024 diluted earnings per share were
recorded in the year-to-date results of both fiscal years 1998 and 1997,
respectively, associated with the redemption and refinancing of debt.
Net income after considering special credits, extraordinary charges and
the accounting changes was $253.7 million ($1.374 diluted earnings per share)
for the first nine months of fiscal 1998 compared with net income, after
considering extraordinary charges, of $180.0 million ($.886 diluted earnings
per share on a restated basis) for the comparable period of the prior year.
Fiscal 1998 year-to-date 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 expense by $30 million during the second
half of fiscal 1998 (before considering severance costs) and have an
annualized effect of over $80 million. 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 facility and functional consolidation and other actions, which are
improving operating costs. Through the end of the third quarter of fiscal
1998, the Company
18
<PAGE> 19
benefited from approximately $16 million of cost savings (before severance
costs) from actions taken under this cost reduction program. The three
primary drivers of these reduced costs were reduced costs associated with the
Company's employee retirement plan, reduced operating expenses, especially in
the landfill and recycling operations, and corporate and field headcount
reductions. Headcount was reduced by approximately 350 people during the
third quarter of fiscal 1998. The Company believes its cost reduction targets
under this program continue to be achievable.
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.
<TABLE>
<CAPTION>
Nine Months Ended
------------------- Year Ended
6/30/98 6/30/97 9/30/97
-------- -------- ----------
<S> <C> <C> <C>
Profitability Margins:
Gross profit 27.2% 25.6% 25.8%
Income from operations before
special charges/credits 12.9% 11.4% 11.8%
Income from operations 13.5% 9.5% 10.4%
Income before income taxes,
minority interest, extraordinary
items and cumulative effects of
changes in accounting principles 12.1% 7.4% 8.6%
Net income before special
charges/credits, extraordinary
items and cumulative effects of
changes in accounting principles (1) 6.8% 5.4% 5.8%
Net income (1) 6.9% 4.1% 4.6%
Other Financial Information:
Return on Gross Assets -
Year-to-date basis 10.04% 8.66% 11.9%
Annualized basis 13.39% 11.55% 11.9%
Ratio of earnings to fixed
charges before special
charges/credits (1) 3.60 3.02 3.31
Ratio of earnings to fixed charges (1) 3.73 2.59 2.98
</TABLE>
------------
(1) Does not reflect the pro forma effect of the use of cash proceeds
of $409.7 million received on June 30, 1998 under the provisions of
the 7.25% Automatic Common Exchange Securities. (See Note (10) of
Notes to Consolidated Financial Statements.)
19
<PAGE> 20
All of the profitability margins presented above showed improvement for
the nine months ended June 30, 1998 compared with the same period of the
prior year. Profitability margins in the first nine months of fiscal 1998
were affected favorably by the divestiture of the Company's international
operations in March 1998 and other underperforming operations and assets,
which occurred principally in the latter half of fiscal 1997. Improvement in
the North American income from operations margin was noted in the Company's
core collection and 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 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 first nine months of
the current year from approximately $62 per ton in the comparable period last
year. Conversely, the weighted average market price for recycling commodities
of approximately $63 per ton for the third quarter of fiscal 1998 represented
a slight decline from approximately $64 per ton for the same quarter of
fiscal 1997. Reduced SG&A expenses as a percentage of revenues also affected
favorably the North American income from operations margin. However, the
improvement in profitability margins was offset somewhat in the current year
by lower profitability margins at the Company's wholly-owned waste-to-energy
facility in Chester, Pennsylvania (acquired in April 1997). This lower
profitability margin was attributable principally to planned and unplanned
outages at the facility and additional compensation expense, a portion of
which was nonrecurring, recorded during the first quarter of fiscal 1998
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 compared with the same period of the prior year.
The Company's goals and actions in fiscal 1998 continue to align the
Company's performance with its stockholders' interests. In addition,
incentive compensation plans continue to link employees to common goals and
reward them only as stockholders and customers benefit from improved
performance by the Company. The fiscal 1998 milestones for both the total
Company and its North American operations compared with actual performance
for the first nine months of fiscal year 1998, excluding severance costs, are
as follows:
20
<PAGE> 21
<TABLE>
<CAPTION>
Total Company North America
----------------------- -----------------------
Fiscal First Nine Fiscal First Nine
1998 Months of 1998 Months of
Milestone Fiscal 1998 Milestone Fiscal 1998
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
SG&A as a percent
of revenues (1) 13.5% 14.2% 13.5% 14.2%
Operating profit
margin (1)(2) 13.8% 13.0% 15.0% 14.1%
Revenue growth (3) -
Internal 3.5% 0.4% 4.0% 0.4%
Acquisitions 1.0% 1.7% 1.0% 1.7%
--------- ------------ --------- -----------
Total 4.5% 2.1% 5.0% 2.1%
Return on Gross Assets -
Year-to-date basis 10.1% 10.6%
Annualized basis (1) 13.3% 13.5% 14.7% 14.1%
</TABLE>
------------
(1) Excluding severance costs of $5.2 million incurred in the third
quarter of fiscal 1998.
(2) Excluding special credits, net.
(3) Revenue growth from price, volume and acquisitions, excluding the
effects of divestitures and foreign currency exchange.
While the Company is making progress toward its fiscal 1998 milestones,
it now appears that current year milestone performance will fall short of the
annual milestone goals for fiscal 1998, with the possible exception of the
return on gross assets milestone. The Company's inability to achieve its
milestone goals in fiscal 1998 is due principally to higher than expected
SG&A costs and lower than expected internal revenue growth.
The fiscal year milestones for SG&A as a percent of revenues were very
aggressive considering the increased costs related to staffing for
implementation of the Company's new SAP software system and the continued
support of certain existing systems not yet replaced. The Company began to
experience these costs in the first three months of fiscal 1998. These costs
increased approximately $16 million over the first nine months of the prior
fiscal year as the new system was implemented and amortization commenced on
January 1, 1998. Additionally, the impact of these costs and the expensing of
reengineering costs over the remainder of the year, offset partially by lower
costs being amortized as a result of the charge
21
<PAGE> 22
associated with the change in accounting principle related to reengineering
costs, is expected to increase SG&A expense by an additional $10 million in
the last three months of the current fiscal year compared with the same
period of the prior year. The Company believes that the SAP software system
will ultimately yield significant long-term economic benefits.
The Company's goals and objectives continue to emphasize 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
generally as follows:
Operating cash flow - the sum of (i) net income before extraordinary
items and cumulative effect of a change in accounting principle, (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 years 1996 and
1997). Special credits have 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 $41 million and $96
million at June 30, 1998, and September 30, 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 (approximately $355 million at June 30, 1998) and (iii)
deferred income tax liabilities.
Gross assets in the ROGA computations for the first nine months of a
fiscal year is the average of the applicable beginning of year and end of
first, second and third quarter amounts; gross assets for a fiscal year is
the average of the applicable five quarter-end amounts in the period.
Total assets decreased significantly from $6.68 billion at September 30,
1997 to $4.80 billion at June 30, 1998, principally due to the sale of
operations outside North America to SITA. Average gross assets of
approximately $6.76 billion in the computation of ROGA resulted from the
significant decrease in gross assets at June 30, 1998 ($5.82 billion),
compared with September 30, 1997 ($7.68 billion).
22
<PAGE> 23
EBITDA (defined herein as income from operations plus depreciation and
amortization expense before considering special charges or credits) was $841
million for the first nine months of fiscal 1998 as compared with $932
million for the first nine months of last year. 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 was $248 million for the third quarter of fiscal 1998,
a slight decline from EBITDA of $257 million for the third quarter of last
year. North American EBITDA also declined principally as a result of the
divestiture of business operations and assets. EBITDA, which is not a measure
of financial performance under generally accepted accounting principles, is
included in this discussion because the Company understands that such
information is used by certain investors when analyzing the Company's
financial condition and performance.
Revenues -
Revenues for the nine months ended June 30, 1998, were $3.69 billion, a
15.7% decrease from the same period last year. The following table reflects
total revenues of the Company by each of the principal lines of business
(dollar amounts in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
---------------------- %
6/30/98 6/30/97 Change
---------- ---------- --------
<S> <C> <C> <C>
North American Operations
(including Canada) -
Collection Services -
Solid Waste $2,048,654 $2,203,095 (7.0)%
Transfer and Disposal -
Solid Waste
Unaffiliated customers 415,009 413,600 0.3 %
Affiliated companies 397,547 391,230 1.6 %
---------- ----------
812,556 804,830 1.0 %
Recycling Services 357,981 414,802 (13.7)%
Medical Waste Services 148,837 149,592 (0.5)%
Services Group and Other 88,065 73,058 20.5 %
Elimination of affiliated
companies' revenues (397,547) (391,230) 1.6 %
---------- ----------
Total North American Operations 3,058,546 3,254,147 (6.0)%
International Operations 634,561 1,125,973 (43.6)%
---------- ----------
Total Company $3,693,107 $4,380,120 (15.7)%
========== ==========
</TABLE>
23
<PAGE> 24
As the table below reflects, lower revenues for the nine months ended
June 30, 1998, were due principally to the decline related to the divestiture
of business operations.
<TABLE>
<CAPTION>
Changes in Revenue for
Nine Months Ended
June 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Price 1.3 % 1.4 %
Volume (0.9) 0.8
Acquisitions 1.7 2.7
Divestitures (17.6) (0.8)
Foreign currency translation (0.2) (1.7)
----- ----
Total Percentage Change (15.7)% 2.4 %
===== ====
</TABLE>
As shown above, the divestiture of business operations in fiscal 1997
and all of the Company's international operations in March 1998 resulted in a
significant reduction in revenues for the first nine months of fiscal 1998
compared with the same period of last year. Further, the Company experienced
a decline in revenues due to volume between these two periods due largely 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. These revenue declines were offset by increases in revenues due to
pricing, principally in the North American collection and recycling
operations, increases in landfill revenues due to increased volumes and due
to acquisitions.
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 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.
24
<PAGE> 25
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>
Nine Months Ended June 30,
----------------------------------------
Revenue Revenue
1998 % 1997 %
---------- ------- ---------- -------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Cost of operations, excluding
depreciation and amortization
expense $2,384,792 64.6% $2,900,863 66.2%
Depreciation and amortization
expense 302,303 8.2% 359,986 8.2%
---------- ---- ---------- ------
Total $2,687,095 72.8% $3,260,849 74.4%
========== ==== ========== ======
</TABLE>
Cost of operations decreased $574 million or 17.6% for the first nine
months of fiscal 1998, compared with the same period of the prior 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.
25
<PAGE> 26
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>
Nine Months Ended June 30,
--------------------------------------
Revenue Revenue
1998 % 1997 %
--------- ------- --------- -------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
SG&A, excluding depreciation and
amortization expense $467,213 12.6% $547,141 12.5%
Depreciation and amortization
expense 62,295 1.7% 73,790 1.7%
-------- ---- -------- ----
Total $529,508 14.3% $620,931 14.2%
======== ==== ======== ====
</TABLE>
SG&A expense decreased $91 million for the first nine months of fiscal
1998, a decrease of 14.7% from the same period last year. The decrease in
SG&A was driven largely by the impact of the divestitures of certain business
operations and assets in fiscal 1997, the sale of 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 approximately $16 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 $5 million of severance costs incurred in the third quarter in
connection with the cost reduction program announced in May 1998.
Special Credits, net -
Special credits of $21.5 million ($12.9 million after income taxes or
$.07 per share) were reported for the nine-month period ended June 30, 1998.
These special credits are related principally to the estimated gain of $18
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
26
<PAGE> 27
currency translation component of common stockholders' equity (approximately
$133 million). A portion of the total gain, net of expenses, 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.
Net Interest Expense -
Net interest expense decreased $33.9 million or 26.3% for the first nine
months of fiscal 1998 compared with the same period of the prior year as a
result of the decrease in average debt outstanding between the periods. The
decrease was driven principally by the $999.8 million reduction in debt
during fiscal 1997, largely as a result of cash proceeds from businesses
divested, increased cash flow from improved operating performance and the
limitation on capital spending in fiscal years 1997 and 1998. The utilization
of cash proceeds of $950 million from the sale of the Company's international
operations in March 1998 also reduced interest expense. The reduction in net
interest expense was offset partially by increased interest expense from
additional borrowings associated with the Company's common stock repurchase
program commenced in the first quarter of fiscal 1998, under which the
Company had acquired approximately 41.8 million shares through June 30, 1998.
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates increased $6.9 million
between the periods 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 $4.5 million.
Minority Interest in Income of Consolidated Subsidiaries -
The decrease in minority interest in income of consolidated subsidiaries
for the first nine months of fiscal 1998 compared with the same period of
last year was due to the sale of the Company's international operations in
March 1998.
Extraordinary Item -
During the second quarter of fiscal 1998, one of the Company's
unconsolidated affiliates, American Ref-Fuel Company of Southeastern
27
<PAGE> 28
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 has reflected an
extraordinary charge, after-tax, of $999,000 (or approximately $.005 per
share) in its consolidated statement of income for the quarter ended March
31, 1998, related to its 50% ownership interest in this affiliate. Interest
is 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.
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 $.075 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 recognized 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.
28
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $189.9 million at September
30, 1997, compared with a deficit of $49.6 million at June 30, 1998. Over the
long term, it continues to be the Company's desire to maintain substantial
available commitments under bank credit agreements or other financial
agreements to finance short-term capital requirements in excess of internally
generated cash while minimizing working capital.
As discussed in Note (10) 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 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. Through June 30, 1998, the Company had
repurchased approximately 41.8 million shares of its common stock at a total
cost of $1.5 billion, as authorized under the common stock repurchase
programs discussed above.
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.
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
29
<PAGE> 30
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. As of June 30, 1998, no borrowings were outstanding
under these revolving credit agreements.
Long-term indebtedness including the current portion of long-term debt as
a percentage of total capitalization was 42% as of June 30, 1998 and 41% at
September 30, 1997.
The capital appropriations budget for fiscal 1998 was established at
$550 million to provide for normal replacement requirements, new assets to
support planned revenue growth within all consolidated businesses and
corporate market development activities. This is a slight increase from the
$527 million level of capital expenditures in fiscal 1997 and is reflective
of the continued emphasis on internal rather than external growth. Capital
expenditures through June 30, 1998 were approximately $313 million.
In March 1998, the Company's merger of its operations outside North
America with SITA, a subsidiary of Suez Lyonnaise des Eaux, was completed. 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. The
Company immediately used the proceeds from the transaction principally to pay
down outstanding debt. Additionally, the Company is implementing a prudent,
returns-driven, external growth strategy as a result of this transaction and
the recent streamlining of North American operations.
As of June 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.
30
<PAGE> 31
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, 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 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.
Sentencing is scheduled for September 11, 1998.
In addition to the above described litigation, the Company and certain
subsidiaries are involved in various administrative matters or litigation,
including original or renewal permit application proceedings in connection with
the establishment, operation, expansion, closure and post-closure activities of
certain landfill disposal facilities, environmental proceedings relating to
governmental actions resulting from the involvement of various subsidiaries of
the Company with certain waste sites (including Superfund sites), personal
injury and other civil actions, as well as other claims and disputes that could
result in additional litigation or other adversary proceedings.
While the final resolution of any such litigation or such other matters may have
an impact on the Company's consolidated financial results for a particular
quarterly or annual reporting period, management believes that the ultimate
disposition of such litigation or such other matters will not have a materially
adverse effect upon the consolidated financial position of the Company.
31
<PAGE> 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.1 Second Amendment to the Amended and Restated Multicurrency
Revolving Credit Agreement, dated March 31, 1998, among BFI,
the banks and other financial institutions listed therein and
Credit Suisse First Boston, as administrative agent.
4.2 First Amendment to the Second Amended and Restated
Revolving Credit Agreement, dated March 31, 1998, among BFI,
the banks and other financial institutions listed therein, and
Chase Bank of Texas, as administrative agent.
12. Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
27. Financial Data Schedule.
(b) Reports on Form 8-K:
A Report on Form 8-K was filed on June 12, 1998 pursuant to "Item 5.
Other Events," whereby the Company disclosed it had adopted a new
stockholder rights plan.
A Report on Form 8-K/A was filed on May 29, 1998 whereby the Company
amended Item 7(b) "Pro Form Financial Information" of its Form 8-K
filed on April 15, 1998, relating to the divestiture of the Company's
operations outside North America to SITA, a Paris-based waste services
company, and certain common stock repurchases pursuant to the Company's
common stock buyback program.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
(Company)
/s/ JEFFREY E. CURTISS
------------------------------------------
Jeffrey E. Curtiss
Senior Vice President and
Chief Financial Officer
Date: August 13, 1998
33
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.1 Second Amendment to the Amended and Restated Multicurrency
Revolving Credit Agreement, dated March 31, 1998, among BFI,
the banks and other financial institutions listed therein and
Credit Suisse First Boston, as administrative agent.
4.2 First Amendment to the Second Amended and Restated
Revolving Credit Agreement, dated March 31, 1998, among BFI,
the banks and other financial institutions listed therein, and
Chase Bank of Texas, as administrative agent.
12. Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
27. Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 4.1
EXECUTION COUNTERPART
SECOND AMENDMENT
TO
THE AMENDED AND RESTATED
MULTICURRENCY REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO THE AMENDED AND RESTATED MULTICURRENCY
REVOLVING CREDIT AGREEMENT (this "Amendment") dated as of March 31, 1998 is
among BROWNING-FERRIS INDUSTRIES, INC., a Delaware corporation (the "Company"),
the banks and other financial institutions listed on the signature pages under
the heading Banks (collectively, the "Banks"), and CREDIT SUISSE FIRST BOSTON,
as administrative agent (in such capacity, the "Administrative Agent"), for the
Banks.
PRELIMINARY STATEMENT
(a) The Company, the Banks and the Administrative Agent executed an
Amended and Restated Multicurrency Revolving Credit Agreement dated as of
December 27, 1996, as amended pursuant to a First Amendment to Amended and
Restated Multicurrency Revolving Credit Agreement and Amendment to Notes (said
agreement as so amended being the "Credit_Agreement"), pursuant to which the
Banks agreed to extend credit thereunder in an aggregate principal amount not
in excess of $500,000,000 at any time outstanding.
(b) The Company has requested that the Credit Agreement be amended to
(i) modify the definition of Consolidated Net Worth, (ii) add a definition of
ACE Securities and (iii) modify Section 5.06 thereof.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Company, the Banks and the
Administrative Agent hereby agree as follows:
SECTION 1. Definitions and Interpretations. (a) All capitalized
terms defined in the Credit Agreement and not otherwise defined herein shall
have the same meanings herein as in the Credit Agreement.
(b) In this Amendment, unless a clear contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Amendment as a whole and not to
any particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns
are permitted by this Amendment, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually, provided that nothing in this clause (iv) is intended to
authorize any assignment not otherwise permitted by this Amendment;
(v) except as expressly provided to the contrary herein,
reference to any agreement, document or instrument (including this
Amendment) means such agreement, document or instrument as amended,
supplemented or modified and in effect from time to time in accordance
with the terms thereof and, if applicable, the
-2-
<PAGE> 3
terms hereof, and reference to any Note or other note includes any
note issued pursuant hereto in extension or renewal thereof and in
substitution or replacement therefor;
(vi) unless the context indicates otherwise, reference to any
Article or Section means such Article or Section hereof;
(vii) the word "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term;
(viii) with respect to the determination of any period of time,
except as expressly provided to the contrary, the word "from" means
"from and including" and the word "to" means "to but excluding"; and
(ix) reference to any law, rule or regulation means such as
amended, modified, codified or reenacted, in whole or in part, and in
effect from time to time.
(c) The Article and Section headings herein are for convenience only
and shall not affect the construction hereof.
(d) No provision of this Amendment shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
SECTION 2. Amendments to Section 1.01 of the Credit Agreement. (a)
The definition of the term "Consolidated Net Worth" contained in Section 1.01
of the Credit Agreement is hereby amended in its entirety to read as follows:
" 'Consolidated Net Worth' means, with respect to the Company, the
stockholders' equity of the Company determined in accordance with generally
accepted accounting principles applied on a consistent basis; provided,
however, the $409,659,000 of capital stock to be issued upon the maturity
of the ACE Securities
-3-
<PAGE> 4
on June 30, 1998 shall be included on a pro forma basis from and after
March 31, 1998 for purposes of determining Consolidated Net Worth; provided
further, however, the amount of any foreign currency translation adjustment
shall not be included for purposes of determining Consolidated Net Worth."
(b) Section 1.01 of the Credit Agreement is hereby amended to add the
following definition of ACE Securities:
" 'ACE Securities' means 11,499,200 7.25% Automatic Common Exchange
Securities issued by the Company in July 1995, in an aggregate stated
amount of $409,659,000 and which mature June 30, 1998."
SECTION 3. Section 5.06 of the Credit Agreement is hereby amended in
its entirety to read as follows:
"SECTION 5.06. Financial Covenants. The Company shall not permit
Consolidated Net Worth (i) at any time during the fiscal year ending
September 30, 1998 to be less than $1,200,000,000 and (ii) at any time
during each fiscal year thereafter to be less than an amount equal to the
sum of (A) the amount of Consolidated Net Worth required under this Section
5.06 for the immediately preceding fiscal year plus (B) 20% of Consolidated
Net Income for such immediately preceding fiscal year; provided, however,
if Consolidated Net Income in any such preceding fiscal year is less than
zero, the amount to be aggregated for such fiscal year shall be zero."
SECTION 4. Conditions to Effectiveness. This Amendment shall become
effective when, and only when, the following conditions have been fulfilled:
(a) the Company and the Banks shall have executed a counterpart of
this Amendment; and
(b) the Administrative Agent shall have executed a counterpart of this
Amendment and shall have received counterparts of this Amendment executed by
the Company and the Majority Banks.
-4-
<PAGE> 5
SECTION 5. Representations and Warranties True; No Default or Event
of Default. The Company hereby represents and warrants to the Administrative
Agent and the Banks that after giving effect to the execution and delivery of
this Amendment: (a) the representations and warranties set forth in the Credit
Agreement are true and correct on the date hereof as though made on and as of
such date except for any such representations and warranties as are by their
terms limited to a specific earlier date (in which case such representations
and warranties shall have been true and correct on and as of such earlier
date); provided however, (i) the reference in the first sentence of Section
4.07 of the Credit Agreement to the Company's financial statements contained in
the Company's Annual Report on Form 10-K shall be a reference to the audited
consolidated financial statements of the Company most recently delivered to the
Administrative Agent and the Banks by the Company pursuant to Section 5.07(a)
of the Credit Agreement prior to the date of this Amendment and (ii) the
reference in the last sentence of Section 4.07 of the Credit Agreement to
September 30, 1994, shall be a reference to the date of the audited
consolidated financial statements most recently delivered to the Administrative
Agent and the Banks pursuant to Section 5.07(a) of the Credit Agreement; and
(b) no Default or Event of Default has occurred and is continuing.
SECTION 6. Reference to the Credit Agreement and Effect on the Other
Documents. (a) Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement," "hereunder," "herein" or words of
like import shall mean and be a reference to the Credit Agreement, as amended
and affected hereby.
-5-
<PAGE> 6
(b) Upon the effectiveness of this Amendment, each reference in the
Notes to "the Credit Agreement" shall mean and be a reference to the Credit
Agreement, as amended and affected hereby.
(c) Upon the effectiveness of this Amendment, each reference in the
Credit Agreement and the Notes to "Consolidated Net Worth" shall mean and be a
reference to such term as modified pursuant to Section 1.
(d) The Credit Agreement and the Notes, as amended and affected
hereby, shall remain in full force and effect and are hereby ratified and
confirmed.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE BANKS AND
THE ADMINISTRATIVE AGENT AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
SECTION 8. FINAL AGREEMENT OF THE PARTIES. THE CREDIT AGREEMENT
(INCLUDING THE EXHIBITS AND SCHEDULES THERETO), AS AMENDED HEREBY, THE NOTES
AND THE ADMINISTRATIVE AGENT'S LETTER, CONSTITUTE A "LOAN AGREEMENT" AS DEFINED
IN SECTION 26.02(a) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES RESPECTING THE SUBJECT MATTER HEREOF AND
THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES RESPECTING THE SUBJECT MATTER HEREOF AND THEREOF.
-6-
<PAGE> 7
SECTION 9. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed effective as of the date first stated herein, by their respective
officers thereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
By:
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
<PAGE> 8
CREDIT SUISSE FIRST BOSTON,
AS ADMINISTRATIVE AGENT
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 9
ABN AMRO BANK, N.V., HOUSTON AGENCY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 10
BANK OF AMERICA NT & SA
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 11
BANQUE NATIONALE DE PARIS HOUSTON
AGENCY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 12
CITICORP USA, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 13
CREDIT LYONNAIS
NEW YORK BRANCH
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 14
CREDIT SUISSE FIRST BOSTON
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $50,000,000
<PAGE> 15
DEUTSCHE BANK AG NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 16
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 17
THE FUJI BANK, LIMITED
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 18
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 19
NATIONSBANK OF TEXAS, N.A.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 20
SOCIETE GENERALE,
SOUTHWEST AGENCY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 21
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION (Formerly Texas
Commerce Bank National Association)
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Commitment: $37,500,000
<PAGE> 1
EXHIBIT 4.2
FIRST AMENDMENT
TO THE
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT (this "Amendment") dated as of March 31, 1998, is among:
(a) BROWNING-FERRIS INDUSTRIES, INC., a Delaware
corporation (the "Company");
(b) the banks and other financial institutions named
under the caption "Banks" on the signature pages hereof (the "Banks");
(c) BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, MORGAN GUARANTY TRUST COMPANY OF NEW YORK AND NATIONSBANK OF
TEXAS, N.A., as co-agents for the Banks (in such capacity the "Co-Agents");
(d) CREDIT SUISSE FIRST BOSTON (formerly CREDIT SUISSE),
as documentation agent for the Banks (in such capacity the "Documentation
Agent");
(e) CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly
Texas Commerce Bank National Association), a national banking association, as
administrative agent for the Banks (in such capacity the "Administrative
Agent"); and
(f) THE CHASE MANHATTAN BANK (formerly Chemical Bank), a
New York banking corporation, as auction administration agent for the Banks (in
such capacity the "Auction Administration Agent").
PRELIMINARY STATEMENT
<PAGE> 2
(a) The Company has entered into a Second Amended and Restated
Revolving Credit Agreement dated as of May 31, 1995 (the "Credit Agreement")
with the Banks, the Co-Agents, the Documentation Agent, the Auction
Administration Agent and the Administrative Agent. As of the date hereof there
are no Borrowing Subsidiaries. Capitalized terms used in this Amendment shall
have the respective meanings specified in the Credit Agreement.
(b) The Company has requested that the Credit Agreement be
amended to (i) modify the definition of Consolidated Net Worth, (ii) add a
definition of ACE Securities and (iii) modify Section 5.06 thereof.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Company, the Banks, the Co-Agent, the
Documentation Agent, the Auction Administration Agent and the Administrative
Agent hereby agree as follows:
SECTION 1. Amendments to Section 1.01 of the Credit Agreement. (a)
The definition of the term "Consolidated Net Worth" contained in Section 1.01
of the Credit Agreement is hereby amended in its entirety to read as follows:
" 'Consolidated Net Worth' means, with respect to the Company,
the stockholders' equity of the Company determined in accordance with
generally accepted accounting principles applied on a consistent
basis; provided, however, the $409,659,000 of capital stock to be
issued upon the maturity of the ACE Securities on June 30, 1998 shall
be included on a pro forma basis from and after March 31, 1998 for
purposes of determining Consolidated Net Worth; provided further,
however, the amount of any foreign currency translation adjustment
shall not be included for purposes of determining Consolidated Net
Worth."
(b) Section 1.01 of the Credit Agreement is hereby
amended to add the following definition of ACE Securities:
-2-
<PAGE> 3
" 'ACE Securities' means 11,499,200 7.25% Automatic Common
Exchange Securities issued by the Company in July 1995, in an
aggregate stated amount of $409,659,000 and which mature June 30,
1998."
SECTION 2. Amendment to Section 5.06 of the Credit Agreement.
Section 5.06 of the Credit Agreement is hereby amended in its entirety to read
as follows:
"SECTION 5.06. Financial Covenants. The Company shall not
permit Consolidated Net Worth (i) at any time during the fiscal year
ending September 30, 1998 to be less than $1,200,000,000 and (ii) at
any time during each fiscal year thereafter to be less than an amount
equal to the sum of (A) the amount of Consolidated Net Worth required
under this Section 5.06 for the immediately preceding fiscal year plus
(B) 20% of Consolidated Net Income for such immediately preceding
fiscal year; provided, however, if Consolidated Net Income in any such
preceding fiscal year is less than zero, the amount to be aggregated
for such fiscal year shall be zero."
SECTION 3. Conditions to Effectiveness. This Amendment shall become
effective when, and only when, the following conditions have been fulfilled:
(a) the Company and the Majority Banks shall have executed a
counterpart of this Amendment;
(b) the Administrative Agent shall have executed a counterpart of
this Amendment and shall have received counterparts of this Amendment executed
by the Company and the Majority Banks;
(c) the Company shall have delivered to the Administrative Agent
such other documents and instruments, if any, as it may reasonably request.
SECTION 4. Representations and Warranties True; No Default or Event
of Default. The Company hereby represents and warrants to the Administrative
Agent and the Banks that after giving effect to the execution and delivery of
this Amendment: (a) the representations and warranties set forth in the Credit
Agreement are true and correct on the date hereof as though made on and as of
-3-
<PAGE> 4
such date except for any such representations and warranties as are by their
terms limited to a specific earlier date (in which case such representations
and warranties shall have been true and correct on and as of such earlier
date); provided however, (i) the reference in the first sentence of Section
4.07 of the Credit Agreement to the Company's financial statements contained in
the Company's Annual Report on Form 10-K shall be a reference to the audited
consolidated financial statements of the Company most recently delivered to the
Administrative Agent and the Banks by the Company pursuant to Section 5.07(a)
of the Credit Agreement prior to the date of this Amendment and (ii) the
reference in the last sentence of Section 4.07 of the Credit Agreement to
September 30, 1994, shall be a reference to the date of the audited
consolidated financial statements most recently delivered to the Administrative
Agent and the Banks pursuant to Section 5.07(a) of the Credit Agreement; and
(b) no Default or Event of Default has occurred and is continuing.
SECTION 5. Reference to the Credit Agreement and Effect on the
Notes.
(a) Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement," "hereunder," "herein" or words of
like import shall mean and be a reference to the Credit Agreement, as amended
and affected hereby.
(b) Upon the effectiveness of this Amendment, each reference in
the Notes to "the Credit Agreement" shall mean and be a reference to the Credit
Agreement, as amended and affected hereby.
(c) Upon the effectiveness of this Amendment, each reference in
the Credit Agreement and the Notes to "Consolidated Net Worth" shall mean and
be a reference to such term as modified pursuant to Section 1.
(d) The Credit Agreement and the Notes, as amended and affected
hereby, shall remain in full force and effect and are hereby ratified and
confirmed.
-4-
<PAGE> 5
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE BANKS,
THE CO-AGENTS, THE DOCUMENTATION AGENTS, THE AUCTION ADMINISTRATION AGENT AND
THE ADMINISTRATIVE AGENT AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
SECTION 7. Descriptive Headings. The section headings appearing in
this Amendment have been inserted for convenience only and shall be given no
substantive meaning or significance whatever in construing the terms and
provisions of this Amendment.
SECTION 8. FINAL AGREEMENT OF THE PARTIES. THE CREDIT AGREEMENT
AS MODIFIED BY THIS AMENDMENT, THE NOTES, THE ADMINISTRATIVE AGENT'S LETTER AND
THE AUCTION ADMINISTRATION AGENT'S LETTER CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE, REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF
AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND
THEREOF.
SECTION 9. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so
-5-
<PAGE> 6
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
BROWNING-FERRIS INDUSTRIES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-6-
<PAGE> 7
Documentation Agent
CREDIT SUISSE FIRST BOSTON (FORMERLY
CREDIT SUISSE),
AS DOCUMENTATION AGENT
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-7-
<PAGE> 8
Administrative Agent
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION (FORMERLY TEXAS
COMMERCE BANK NATIONAL
ASSOCIATION), AS ADMINISTRATIVE
AGENT
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-8-
<PAGE> 9
Auction Administration Agent
THE CHASE MANHATTAN BANK (FORMERLY
CHEMICAL BANK), AS AUCTION
ADMINISTRATION AGENT
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-9-
<PAGE> 10
Co-Agent
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, AS CO-AGENT
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-10-
<PAGE> 11
Co-Agent
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, AS CO-AGENT
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-11-
<PAGE> 12
Co-Agent
NATIONSBANK OF TEXAS, N.A., AS CO-AGENT
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-12-
<PAGE> 13
Banks:
ABN AMRO BANK, N.V., HOUSTON AGENCY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-13-
<PAGE> 14
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-14-
<PAGE> 15
BANQUE NATIONALE DE PARIS HOUSTON
AGENCY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-15-
<PAGE> 16
THE CHASE MANHATTAN BANK
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-16-
<PAGE> 17
CIBC, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-17-
<PAGE> 18
CITICORP USA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-18-
<PAGE> 19
COMERICA BANK
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-19-
<PAGE> 20
CREDIT LYONNAIS
NEW YORK BRANCH
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-20-
<PAGE> 21
CREDIT SUISSE FIRST BOSTON (FORMERLY
CREDIT SUISSE)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-21-
<PAGE> 22
DEUTSCHE BANK AG NEW YORK BRANCH AND
CAYMAN ISLAND BRANCH
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-22-
<PAGE> 23
WELLS FARGO BANK (TEXAS), N.A.
(FORMERLY FIRST INTERSTATE BANK OF
TEXAS, N.A.)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-23-
<PAGE> 24
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-24-
<PAGE> 25
THE FUJI BANK, LIMITED
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-25-
<PAGE> 26
THE INDUSTRIAL BANK OF JAPAN TRUST
COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-26-
<PAGE> 27
ISTITUTO BANCARIO SAN PAOLO DI TORINO
S.P.A.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-27-
<PAGE> 28
MELLON BANK, N.A.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-28-
<PAGE> 29
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-29-
<PAGE> 30
NATIONSBANK OF TEXAS, N.A.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-30-
<PAGE> 31
NATIONAL WESTMINSTER BANK PLC
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-31-
<PAGE> 32
SOCIETE GENERALE,
SOUTHWEST AGENCY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-32-
<PAGE> 33
THE SUMITOMO BANK, LIMITED
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-33-
<PAGE> 34
SUNTRUST BANK, ATLANTA
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-34-
<PAGE> 35
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION (FORMERLY TEXAS
COMMERCE BANK NATIONAL ASSOCIATION)
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-35-
<PAGE> 36
TORONTO DOMINION [TEXAS], INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-36-
<PAGE> 37
UNION BANK OF SWITZERLAND, NEW YORK
BRANCH
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-37-
<PAGE> 38
WACHOVIA BANK OF GEORGIA, N.A.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-38-
<PAGE> 39
COMMERZBANK AKTIENGESELLSCHAFT,
ATLANTA AGENCY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-39-
<PAGE> 40
CREDITO ITALIANO
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-40-
<PAGE> 41
THE SANWA BANK LIMITED,
DALLAS AGENCY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-41-
<PAGE> 42
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK
BRANCH
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-42-
<PAGE> 43
BANK OF HAWAII
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-43-
<PAGE> 44
THE BANK OF NEW YORK
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-44-
<PAGE> 45
NATIONAL BANK OF COMMERCE
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-45-
<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>
Nine Months
Ended June 30,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Earnings Available for Fixed Charges:
Income before minority interest, extraordinary
items and cumulative effects of changes in
accounting principles $270,235 $193,726
Income taxes 177,150 129,150
-------- --------
Income before income taxes, minority
interest, extraordinary items and cumulative
effects of changes in accounting principles 447,385 322,876
Consolidated interest expense 99,037 134,086
Interest expense related to proportionate
share of 50% owned unconsolidated
affiliates 23,449 27,470
Portion of rents representing the interest
factor 30,256 28,016
Less-undistributed earnings of affiliates
less than 50% owned 4,170 2,616
-------- --------
Total $595,957 $509,832
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $105,975 $141,470
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned unconsolidated
affiliates 23,449 27,470
Portion of rents representing the interest
factor 30,256 28,016
-------- --------
Total $159,680 $196,956
======== ========
Ratio of Earnings to Fixed Charges 3.73(1) 2.59
======== ========
</TABLE>
(1) Excluding the effects of the special credits of $21.5 million, the ratio of
earnings to fixed charges is 3.60.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 109,705
<SECURITIES> 0
<RECEIVABLES> 630,040
<ALLOWANCES> (22,617)
<INVENTORY> 19,884
<CURRENT-ASSETS> 876,056
<PP&E> 4,870,922
<DEPRECIATION> (2,196,862)
<TOTAL-ASSETS> 4,797,948
<CURRENT-LIABILITIES> 925,660
<BONDS> 1,307,126
0
0
<COMMON> 34,638
<OTHER-SE> 1,796,332
<TOTAL-LIABILITY-AND-EQUITY> 4,797,948
<SALES> 0
<TOTAL-REVENUES> 3,693,107
<CGS> 0
<TOTAL-COSTS> 2,687,095
<OTHER-EXPENSES> 491,853
<LOSS-PROVISION> 16,191
<INTEREST-EXPENSE> 94,960
<INCOME-PRETAX> 447,385
<INCOME-TAX> 177,150
<INCOME-CONTINUING> 264,302
<DISCONTINUED> 0
<EXTRAORDINARY> 999
<CHANGES> 9,563
<NET-INCOME> 253,740
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.37
</TABLE>
