-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Epl4pANtofijvSZ9JNpd8VnQroJ8MWZSACjVgftaMzd+QvmUFse7roFZl5tj+wmT 08ji3E1Cp3ciNd1ZxFlo9w== 0000950129-97-003628.txt : 19970912 0000950129-97-003628.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950129-97-003628 CONFORMED SUBMISSION TYPE: SC 13E4 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19970904 SROS: CSE SROS: NYSE SROS: PSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BROWNING FERRIS INDUSTRIES INC CENTRAL INDEX KEY: 0000014827 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 741673682 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13E4 SEC ACT: SEC FILE NUMBER: 005-12779 FILM NUMBER: 97675423 BUSINESS ADDRESS: STREET 1: 757 N ELDRIDGE CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 7138708100 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BROWNING FERRIS INDUSTRIES INC CENTRAL INDEX KEY: 0000014827 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 741673682 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13E4 BUSINESS ADDRESS: STREET 1: 757 N ELDRIDGE CITY: HOUSTON STATE: TX ZIP: 77079 BUSINESS PHONE: 7138708100 SC 13E4 1 BROWNING-FERRIS INDUSTRIES, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1997 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- SCHEDULE 13E-4 ISSUER TENDER OFFER STATEMENT (PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) BROWNING-FERRIS INDUSTRIES, INC. (Name of Issuer and Person Filing Statement) --------------------- COMMON STOCK, PAR VALUE $.16 2/3 PER SHARE (Title of Class of Securities) --------------------- 115885105 (CUSIP Number of Class of Securities) --------------------- GERALD K. BURGER VICE PRESIDENT AND SECRETARY BROWNING-FERRIS INDUSTRIES, INC. 757 N. ELDRIDGE HOUSTON, TEXAS 77079 (281) 870-8100 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person Filing Statement) COPY TO: ARTHUR H. ROGERS FULBRIGHT & JAWORSKI L.L.P. 1301 MCKINNEY, SUITE 5100 HOUSTON, TEXAS 77010 (713) 651-5421 SEPTEMBER 4, 1997 (Date Tender Offer First Published, Sent or Given to Security Holders) CALCULATION OF FILING FEE
================================================================================================== TRANSACTION VALUATION* AMOUNT OF FILING FEE - -------------------------------------------------------------------------------------------------- $585,000,000 $117,000 ==================================================================================================
(*) Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 15,000,000 shares at $39.00 per share. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previous Paid: Not applicable. Form or Registration No.: Not applicable. Filing Party: Not applicable. Date Filed: Not applicable.
================================================================================ 2 ITEM 1. SECURITY AND ISSUER. (a) The name of the issuer is Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), that has its principal executive offices at 757 N. Eldridge, Houston, Texas 77079. The information set forth on page 1 and under "Certain Information Concerning the Company" in Section 10 of the Offer to Purchase (as defined below) is incorporated herein by reference. (b) This Schedule relates to the offer by the Company to purchase up to 15,000,000 outstanding shares of Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and First Chicago Trust Company of New York, as the Rights Agent), at a price not greater than $39.00 nor less than $34.00 per share, net to the seller in cash, specified by such stockholders, all upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 4, 1997 (the "Offer to Purchase"), and related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. The information set forth under "Number of Shares; Proration" in Section 1 of the Offer to Purchase is incorporated herein by reference. (c) The information set forth under "Price Range of Shares; Dividends" in Section 8 of the Offer to Purchase is incorporated herein by reference. (d) Not applicable. ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS. (a) The information set forth under "Source and Amount of Funds" in Section 11 of the Offer to Purchase is incorporated herein by reference. (b) Not applicable. ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a) to (j) The information set forth under "Purpose of the Offer; Certain Effects of the Offer" in Section 9 and "Certain Information Concerning the Company" in Section 10 of the Offer to Purchase is incorporated herein by reference. ITEM 4. INTEREST IN SECURITIES OF THE ISSUER. The information set forth under "Transactions and Agreements Concerning the Shares" in Section 12 of the Offer to Purchase is incorporated herein by reference. ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE ISSUER'S SECURITIES. The information set forth under "Transactions and Agreements Concerning the Shares" in Section 12 of the Offer to Purchase is incorporated herein by reference. ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth under "Fees and Expenses" in Section 15 of the Offer to Purchase is incorporated herein by reference. ITEM 7. FINANCIAL INFORMATION. (a) and (b) The information set forth under "Certain Information Concerning the Company" in Section 10 of the Offer to Purchase is incorporated herein by reference. ITEM 8. ADDITIONAL INFORMATION. (a) to (e) None or not applicable. 3 ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Form of Offer to Purchase, dated September 4, 1997. (a)(2) Form of Letter of Transmittal, dated September 4, 1997, together with Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(3) Form of Letter to Stockholders from Bruce E. Ranck, President and Chief Executive Officer of the Company, dated September 4, 1997. (a)(4) Form of Notice of Guaranteed Delivery. (a)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees, dated September 4, 1997. (a)(6) Form of Letter to Clients, dated September 4, 1997. (a)(7) Form of Letter to Participants in the Company's Employee Stock Ownership and Savings Plan, dated September 4, 1997. (a)(8) Form of Summary Advertisement, dated September 4, 1997. (a)(9) Form of Press Release, dated September 3, 1997. (b) Not applicable. (c) None. (d) None. (e) Not applicable. (f) None. (g)(1) Pages 37 to 81 of the Company's Annual Report on Form 10-K for the Year Ended September 30, 1996. (g)(2) The Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997 (other than exhibits). (g)(3) Pages 2 to 14 of the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1996 (other than exhibits). 4 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. BROWNING-FERRIS INDUSTRIES, INC. By: /s/ JEFFREY E. CURTISS ---------------------------------- Jeffrey E. Curtiss Senior Vice President and Chief Financial Officer Dated: September 4, 1997 5 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- (a)(1) Form of Offer to Purchase, dated September 4, 1997. (a)(2) Form of Letter of Transmittal, dated September 4, 1997, together with Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(3) Form of Letter to Stockholders from Bruce E. Ranck, President and Chief Executive Officer of the Company, dated September 4, 1997. (a)(4) Form of Notice of Guaranteed Delivery. (a)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees, dated September 4, 1997. (a)(6) Form of Letter to Clients, dated September 4, 1997. (a)(7) Form of Letter to Participants in the Company's Employee Stock Ownership and Savings Plan, dated September 4, 1997. (a)(8) Form of Summary Advertisement, dated September 4, 1997. (a)(9) Form of Press Release, dated September 3, 1997. (g)(1) Pages 37 to 81 of the Company's Annual Report on Form 10-K for the Year Ended September 30, 1996. (g)(2) The Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997 (other than exhibits). (g)(3) Pages 2 to 14 of the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1996 (other than exhibits).
6 EXHIBIT a.1 Browning-Ferris Industries, Inc. Offer to Purchase for Cash Up to 15,000,000 Shares of its Common Stock (Including the Associated Preferred Stock Purchase Rights) At a Purchase Price Not Greater Than $39 Nor Less Than $34 Per Share THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED. ------------------------ Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), invites its stockholders to tender shares of its Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and First Chicago Trust Company of New York, as the Rights Agent), at prices not greater than $39.00 nor less than $34.00 per Share, net to the seller in cash, specified by such stockholders, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal (which together constitute the "Offer"). Unless the context otherwise requires, all references to Shares shall include the associated Rights. The Company will determine a single per Share price (not greater than $39.00 nor less than $34.00 per Share) that it will pay for the Shares validly tendered pursuant to the Offer and not withdrawn (the "Purchase Price"), taking into account the number of Shares so tendered and the prices specified by the tendering stockholders. The Company will select the Purchase Price that will enable it to purchase 15,000,000 Shares (or such lesser number of Shares as are validly tendered at prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the Offer. The Company will purchase all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration and conditional tenders described herein. Shares tendered at prices in excess of the Purchase Price and Shares not purchased because of proration and conditional tenders will be returned. Stockholders must complete the section of the Letter of Transmittal relating to the price at which they are tendering Shares in order to validly tender Shares. ------------------------ On September 3, 1997, the Board of Directors of the Company announced an increase in the regular quarterly cash dividend for the fourth quarter of the fiscal year ending September 30, 1997 to $.19 per Share. Shares tendered and purchased by the Company will be entitled to this regular quarterly cash dividend of $.19 per Share to be paid by the Company on October 6, 1997 to holders of record on September 19, 1997. See Section 8. ------------------------ THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7. ------------------------ IMPORTANT Any stockholder desiring to tender all or any portion of his or her shares should either (i) complete and sign the Letter of Transmittal or a facsimile thereof in accordance with the instructions in the Letter of Transmittal, mail or deliver it and any other required documents to the Depositary, and either deliver the certificates for Shares to the Depositary along with the Letter of Transmittal or deliver such Shares pursuant to the procedure for book-entry transfer set forth in Section 3 hereof or (ii) request his or her broker, dealer, commercial bank, trust company or nominee to effect the transaction for him or her. A stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or nominee must contact such broker, dealer, commercial bank, trust company or nominee if he or she desires to tender such Shares. Any stockholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth in Section 3 hereof. ------------------------ NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER. ------------------------ The Shares are listed and principally traded on the New York Stock Exchange (the "NYSE"). On September 2, 1997, the last trading day prior to the announcement of the Offer, the last reported sale price of the Shares on the NYSE Composite Tape was $35 5/16 per Share. Stockholders are urged to obtain current market quotations for the Shares. ------------------------ Questions or requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal, Notice of Guaranteed Delivery or other tender offer materials may be directed to Morrow & Co., Inc. (the "Information Agent") or Morgan Stanley & Co. Incorporated (the "Dealer Manager") at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. ------------------------ The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER September 4, 1997 7 NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. TABLE OF CONTENTS
SECTION PAGE ------- ---- Introduction................................................ 3 1. Number of Shares; Proration................................. 4 2. Tenders by Holders of Fewer Than 100 Shares................. 5 3. Procedure for Tendering Shares.............................. 6 4. Withdrawal Rights........................................... 8 5. Acceptance for Payment of Shares and Payment of Purchase Price....................................................... 9 6. Conditional Tender of Shares................................ 10 7. Certain Conditions of the Offer............................. 10 8. Price Range of Shares; Dividends............................ 12 9. Purpose of the Offer; Certain Effects of the Offer.......... 13 10. Certain Information Concerning the Company.................. 14 11. Source and Amount of Funds.................................. 20 12. Interests of Directors and Officers; Transactions and Agreements Concerning the Shares............................ 20 13. Certain Federal Income Tax Consequences..................... 20 14. Extension of Tender Period; Termination; Amendments......... 23 15. Fees and Expenses........................................... 24 16. Miscellaneous............................................... 24 The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (other than the exhibits thereto)....... Annex I
2 8 To the Holders of Common Stock of Browning-Ferris Industries, Inc.: INTRODUCTION This Offer to Purchase contains certain forward-looking statements that are based on the Company's expectations and, as such, are subject to uncertainty and risk. These statements should be read in conjunction with the "Regulation", "Competition" and "Waste Disposal Risk Factors" sections of the Company's Annual Report on Form 10-K for the year ended September 30, 1996 (the "Company's 1996 Annual Report") which describes many of the external factors that could cause the Company's actual results to differ materially from the Company's expectations. The Company's 1996 Annual Report is on file with the United States Securities Commission, a copy of which is available without charge upon written request to: Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253, Attention: Secretary. Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), invites its stockholders to tender shares of its Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and First Chicago Trust Company of New York, as the Rights Agent), at prices not greater than $39.00 nor less than $34.00 per Share, net to the seller in cash, specified by such stockholders, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal (which together constitute the "Offer"). Unless the context otherwise requires, all references to Shares shall include the associated Rights. The Company will determine a single per Share price (not greater than $39.00 nor less than $34.00 per Share) that it will pay for Shares validly tendered pursuant to the Offer and not withdrawn (the "Purchase Price"), taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The Company will select the Purchase Price that will enable it to purchase 15,000,000 Shares (or such lesser number of Shares as is validly tendered at prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the Offer. The Company will purchase all Shares validly tendered at prices at or below the Purchase Price and not withdrawn on or prior to the Expiration Date (as defined in Section 1), upon the terms and subject to the conditions of the Offer, including the provisions relating to proration and conditional tenders described below. The Purchase Price will be paid in cash, net to the seller, with respect to all Shares purchased. Shares tendered at prices in excess of the Purchase Price and Shares not purchased because of proration or conditional tenders will be returned. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 7. Tendering stockholders will not be obligated to pay brokerage commissions, solicitation fees or, subject to the Instructions to the Letter of Transmittal, stock transfer taxes on the purchase of Shares by the Company. The Company will pay all charges and expenses of Morgan Stanley & Co. Incorporated (the "Dealer Manager"), First Chicago Trust Company of New York (the "Depositary") and Morrow & Co., Inc. (the "Information Agent") incurred in connection with the Offer. See Section 15. HOWEVER, ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH STOCKHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTIONS 3 AND 13. Stockholders who are participants in the Dividend Reinvestment Plan (the "Reinvestment Plan") available to owners of Shares through First Chicago Trust Company of New York, which administers the Reinvestment Plan, may instruct First Chicago Trust Company of New York to tender part or all of the Shares held in their accounts under the Reinvestment Plan. See Section 3. Stockholders who are participants in the Company's Employee Stock Ownership and Savings Plan (the "Stock Ownership and Savings Plan") may instruct the trustee of such plan as set forth in the "Letter to Participants in the Company's Employee Stock Ownership and Savings Plan" to tender some or all of the Shares attributed to such participant's account. See Section 3. 3 9 NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER. As of September 2, 1997, the Company had issued and outstanding 204,472,625 Shares (excluding approximately 8,500,000 Shares held by the Company's Stock and Employee Benefit Trust) and had reserved 11,027,530 Shares for issuance upon exercise of outstanding stock options and with respect to performance shares. The 15,000,000 Shares that the Company is offering to purchase represent approximately 7.3% of the Shares then outstanding, or approximately 7.0% on a fully diluted basis (assuming the exercise of all outstanding stock options and the issuance of Shares underlying the performance shares, but excluding the Shares held by the Company's Stock and Employee Benefit Trust as well as Shares issuable in settlement of the Company's 7.25% Automatic Common Exchange Securities (the "BFI Exchange Securities")). A tender of Shares pursuant to the Offer will include a tender of the associated Rights. No separate consideration will be paid for such Rights. See Section 8. The Shares are listed and principally traded on the New York Stock Exchange ("NYSE"). The Shares trade under the symbol "BFI". Stockholders are urged to obtain current market quotations for the Shares. See Section 8. 1. NUMBER OF SHARES; PRORATION. Upon the terms and subject to the conditions described herein and in the Letter of Transmittal, the Company will purchase up to 15,000,000 Shares that are validly tendered on or prior to the Expiration Date (and not properly withdrawn in accordance with Section 4) at a price (determined in the manner set forth below) not greater than $39.00 nor less than $34.00 per Share. The later of 12:00 midnight, New York City time, on Wednesday, October 1, 1997, or the latest time and date to which the Offer is extended, is referred to herein as the "Expiration Date". If the Offer is oversubscribed as described below, only Shares tendered at or below the Purchase Price on or prior to the Expiration Date will be eligible for proration. The Company will determine the Purchase Price taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The Company will select the Purchase Price that will enable it to purchase 15,000,000 Shares (or such lesser number of Shares as is validly tendered and not withdrawn at prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the Offer. The Company reserves the right to purchase more than 15,000,000 Shares pursuant to the Offer, but does not currently plan to do so. The Offer is not conditioned on any minimum number of Shares being tendered. In accordance with Instruction 5 of the Letter of Transmittal, each stockholder who wishes to tender Shares must specify the price (not greater than $39.00 nor less than $34.00 per Share) at which such stockholder is willing to have the Company purchase such Shares. As promptly as practicable following the Expiration Date, the Company will determine the Purchase Price (not greater than $39.00 nor less than $34.00 per Share) that it will pay for Shares validly tendered pursuant to the Offer, taking into account the number of Shares so tendered and the prices specified by tendering stockholders. All Shares not purchased pursuant to the Offer, including Shares tendered at prices greater than the Purchase Price and Shares not purchased because of proration or conditional tenders, will be returned to the tendering stockholders at the Company's expense as promptly as practicable following the Expiration Date. Upon the terms and subject to the conditions of the Offer, if 15,000,000 or fewer Shares have been validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date, the Company will purchase all such Shares (including fractional Shares). Upon the terms and subject to the conditions of the Offer, if more than 15,000,000 Shares have been validly tendered at or below the Purchase Price and not 4 10 withdrawn on or prior to the Expiration Date, the Company will purchase Shares in the following order of priority: (a) all Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date by any stockholder (an "Odd Lot Owner") who owned beneficially an aggregate of fewer than 100 Shares (including any Shares held in the Reinvestment Plan or the Stock Ownership and Savings Plan) as of the close of business on September 3, 1997 and who validly tenders all of such Shares (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery; and (b) after purchase of all of the foregoing Shares, subject to the conditional tender provisions described in Section 6, all other Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date on a pro rata basis, if necessary (with appropriate adjustments to avoid purchases of fractional Shares, other than Shares held in the Reinvestment Plan or the Stock Ownership and Savings Plan). If proration of tendered Shares is required, because of the difficulty in determining the number of Shares validly tendered (including Shares tendered by the guaranteed delivery procedure described in Section 3) and as a result of the "odd lot" procedure described in Section 2 and conditional tender procedure described in Section 6, the Company does not expect that it will be able to announce the final proration factor or to commence payment for any Shares purchased pursuant to the Offer until approximately seven NYSE trading days after the Expiration Date. Proration for each stockholder tendering Shares other than Odd Lot Owners will be based on the ratio of the number of Shares tendered by such stockholder at or below the Purchase Price to the total number of Shares tendered by all stockholders other than Odd Lot Owners at or below the Purchase Price. This ratio will be applied to stockholders tendering Shares other than Odd Lot Owners to determine the number of Shares that will be purchased from each stockholder pursuant to the Offer. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Holders of Shares may obtain such preliminary information from the Dealer Manager or the Information Agent and may also be able to obtain such information from their brokers. THE COMPANY EXPRESSLY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO PURCHASE ADDITIONAL SHARES PURSUANT TO THE OFFER. If (a) the Company increases or decreases the price to be paid for Shares, increases the number of Shares being sought and such increase in the number of Shares being sought exceeds 2% of the outstanding Shares or decreases the number of Shares being sought and (b) the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the tenth business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner described in Section 14, the Offer will be extended until the expiration of ten business days from the date of publication of such notice. The Company also expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. See Section 14. There can be no assurance, however, that the Company will exercise its right to extend the Offer. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. Copies of this Offer to Purchase, the Letter of Transmittal and Notice of Guaranteed Delivery are being mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 2. TENDERS BY HOLDERS OF FEWER THAN 100 SHARES. All Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date by or on behalf of persons who each owned beneficially an aggregate of fewer than 100 Shares 5 11 (including Shares held in the Reinvestment Plan and fractional Shares) as of the close of business on September 3, 1997, will be accepted before proration, if any, of the purchase of other tendered Shares. See Section 1. Partial tenders will not qualify for this preference, and it is not available to beneficial holders of 100 or more Shares, even if such holders have separate stock certificates for fewer than 100 Shares. By accepting the Offer, a stockholder owning beneficially fewer than 100 Shares will avoid the payment of brokerage commissions and the applicable odd lot discount payable in a sale of such Shares in a transaction effected on a securities exchange. As of September 3, 1997, there were approximately 16,300 holders of record of Shares. Approximately 54% of these holders of record held individually fewer than 100 Shares and held in the aggregate approximately 176,000 Shares. Because of the large number of Shares held in the names of brokers and nominees, the Company is unable to estimate the number of beneficial owners of fewer than 100 Shares or the aggregate number of Shares they own. Any beneficial owner of fewer than 100 Shares (including Shares held in the Reinvestment Plan and fractional shares) who wishes to tender all of his or her Shares pursuant to this Section should complete the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery. 3. PROCEDURE FOR TENDERING SHARES. To tender Shares validly pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal or facsimile thereof, together with any required signature guarantees and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (i) certificates for the Shares to be tendered must be received by the Depositary at one of such addresses or (ii) such Shares must be delivered pursuant to the procedures for book-entry transfer described below (and a confirmation of such delivery received by the Depositary), in each case on or prior to the Expiration Date, or (b) the tendering holder of Shares must comply with the guaranteed delivery procedure described below. IN ACCORDANCE WITH INSTRUCTION 5 OF THE LETTER OF TRANSMITTAL, IN ORDER TO TENDER SHARES PURSUANT TO THE OFFER, A STOCKHOLDER MUST EITHER (A) CHECK THE BOX IN THE SECTION OF THE LETTER OF TRANSMITTAL CAPTIONED "SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION" OR (B) CHECK ONE OF THE BOXES IN THE SECTION OF THE LETTER OF TRANSMITTAL CAPTIONED "SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER". A STOCKHOLDER WHO WISHES TO MAXIMIZE THE CHANCE THAT HIS OR HER SHARES WILL BE PURCHASED AT THE RELEVANT PURCHASE PRICE SHOULD CHECK THE BOX ON THE RELEVANT LETTER OF TRANSMITTAL MARKED, "SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION". NOTE THAT THIS ELECTION COULD RESULT IN SUCH STOCKHOLDER'S SHARES BEING PURCHASED AT THE MINIMUM PRICE OF $34.00 PER SHARE. A STOCKHOLDER WHO WISHES TO INDICATE A SPECIFIC PRICE (IN MULTIPLES OF $.125) AT WHICH HIS OR HER SHARES ARE BEING TENDERED MUST CHECK A BOX UNDER THE SECTION CAPTIONED "SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER" OF THE LETTER OF TRANSMITTAL IN THE TABLE LABELED "PRICE (IN DOLLARS) AT WHICH SHARES ARE BEING TENDERED". A STOCKHOLDER WHO WISHES TO TENDER SHARES AT MORE THAN ONE PRICE MUST COMPLETE SEPARATE LETTERS OF TRANSMITTAL FOR EACH PRICE AT WHICH SUCH SHARES ARE BEING TENDERED. THE SAME SHARES CANNOT BE TENDERED AT MORE THAN ONE PRICE. A TENDER OF SHARES WILL BE PROPER, IF, AND ONLY IF, ON THE APPROPRIATE LETTER OF TRANSMITTAL EITHER THE BOX IN THE SECTION CAPTIONED "SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION" OR ONE OF THE BOXES IN THE SECTION CAPTIONED "SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER" IS CHECKED. The Depositary will establish an account with respect to the Shares at The Depository Trust Company and Philadelphia Depository Trust Company (collectively referred to as the "Book-Entry Transfer Facilities") for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the system of either Book-Entry Transfer Facility may make delivery of Shares by causing such Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of such Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, a properly completed and duly executed Letter of Transmittal or facsimile thereof, together with any required signature guarantees and any other required documents, must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to 6 12 Purchase on or prior to the Expiration Date, or the tendering holder of Shares must comply with the guaranteed delivery procedure described below. Delivery of the Letter of Transmittal and any other required documents to a Book-Entry Transfer Facility does not constitute delivery to the Depositary. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed if (a) the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 6 of the Letter of Transmittal. If a stockholder desires to tender Shares pursuant to the Offer and cannot deliver certificates for such Shares and all other required documents to the Depositary on or prior to the Expiration Date or the procedure for book-entry transfer cannot be complied with in a timely manner, such Shares may nevertheless be tendered if all of the following conditions are met: (a) such tender is made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (with any required signature guarantees) is received by the Depositary as provided below on or prior to the Expiration Date; and (c) the certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal, are received by the Depositary no later than 5:00 p.m., New York City time, on the third NYSE trading day after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH STOCKHOLDER MUST NOTIFY THE DEPOSITARY OF SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. FOREIGN STOCKHOLDERS (AS DEFINED IN SECTION 13) MAY BE REQUIRED TO SUBMIT A PROPERLY COMPLETED FORM W-8, CERTIFYING NON-UNITED STATES STATUS, IN ORDER TO AVOID BACKUP WITHHOLDING. IN ADDITION, FOREIGN STOCKHOLDERS MAY BE SUBJECT TO 30% (OR LOWER TREATY RATE) WITHHOLDING ON GROSS PAYMENTS RECEIVED PURSUANT TO THE OFFER (AS DISCUSSED IN SECTION 13). FOR A DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO TENDERING STOCKHOLDERS, SEE SECTION 13. EACH STOCKHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR. It is a violation of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for a person to tender Shares for his or her own account unless the person so tendering (a) has a net long position equal to or greater than the amount of (i) Shares tendered or (ii) other securities immediately convertible into, exercisable or exchangeable for the amount of Shares tendered and will acquire such Shares for tender by conversion, exercise or exchange of such other securities and (b) will cause such Shares to be delivered in accordance with the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person. The tender of Shares pursuant to 7 13 any one of the procedures described above will constitute the tendering stockholder's representation and warranty that (a) such stockholder has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Exchange Act, and (b) the tender of such Shares complies with Rule 14e-4. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Company upon the terms and subject to the conditions of the Offer. All questions as to the Purchase Price, the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Company, in its sole discretion, and its determination shall be final and binding. The Company reserves the absolute right to reject any or all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any defect or irregularity in any tender of Shares. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. A stockholder participating in the Reinvestment Plan who wishes to have First Chicago Trust Company of New York, which administers the Reinvestment Plan, tender Shares held in such participant's accounts in the Reinvestment Plan should so indicate by completing the box captioned "Dividend Reinvestment Plan Shares" in the Letter of Transmittal. Participants in the Reinvestment Plan are urged to read Instruction 13 of the Letter of Transmittal carefully. Any Reinvestment Plan Shares tendered but not purchased will be returned to the participant's Reinvestment Plan account. A stockholder participating in the Stock Purchase and Savings Plan who wishes to have the trustee of such plan tender Shares attributable to his or her account should so indicate by completing, executing and returning to such trustee the election form included in the notice sent to such participants. The participants in the Stock Purchase and Savings Plan cannot use the Letter of Transmittal to direct the tender of Shares, but must use the separate election form sent to them by the trustee. Participants in the Stock Purchase and Savings Plan are urged to read the separate election form and related materials carefully. On September 3, 1997, the Board of Directors of the Company declared a dividend of $.19 per Share payable on October 6, 1997 to stockholders of record on September 19, 1997. The dividend will be paid to such stockholders of record regardless of whether or when they tender their Shares pursuant to the Offer. Even if all of the Shares accumulated under the Reinvestment Plan by a participant through September 3, 1997 are purchased by the Company pursuant to the Offer, such participant's account will be credited with any Shares attributable to the October 6, 1997 dividend of $.19 per Share, and the stockholder's participation in the Reinvestment Plan will not be terminated. Soon after the Expiration Date and the payment for any Shares the Company accepts pursuant to the Offer, however, the Depositary will contact all stockholders who tendered and sold Shares out of their Reinvestment Plan accounts and inform them of their then current shareholdings (resulting from the October 6, 1997 dividend), and offer such stockholders an opportunity to liquidate that shareholding in their Reinvestment Plan accounts simply by contacting the Depositary. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after October 30, 1997 unless theretofore accepted for payment as provided in this Offer to Purchase. If the Company extends the period of time during which the Offer is open, is delayed in accepting for payment or paying for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Company's rights under the Offer, the Depositary may, on behalf of the Company, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in this Section 4, subject to Rule 13e-4(f)(5) under the Exchange Act, which provides that the issuer making the tender offer shall either pay the consideration offered, or return the tendered securities promptly after the termination or withdrawal of the tender offer. 8 14 To be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at one of the Book-Entry Transfer Facilities to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Company, in its sole discretion, which determination shall be final and binding. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or incur any liability for failure to give any such notification. 5. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE. Upon the terms and subject to the conditions of the Offer and as promptly as practicable after the Expiration Date, the Company will determine the Purchase Price, taking into account the number of Shares tendered and the prices specified by tendering stockholders, announce the Purchase Price, and will (subject to the proration and conditional tender provisions of the Offer) accept for payment and pay for Shares validly tendered at or below the Purchase Price. Thereafter, payment for all Shares validly tendered on or prior to the Expiration Date and accepted for payment pursuant to the Offer will be made by the Depositary by check as promptly as practicable. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for Shares (or of a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities), a properly completed and duly executed Letter of Transmittal or facsimile thereof, and any other required documents. For purposes of the Offer, the Company will be deemed to have accepted for payment (and thereby purchased) Shares that are validly tendered and not withdrawn as, if and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. The Company will pay for Shares that it has purchased pursuant to the Offer by depositing the Purchase Price therefor with the Depositary. The Depositary will act as agent for tendering stockholders for the purpose of receiving payment from the Company and transmitting payment to tendering stockholders. Under no circumstances will interest be paid on amounts to be paid to tendering stockholders, regardless of any delay in making such payment. Certificates for all Shares not purchased will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with a Book-Entry Transfer Facility) as promptly as practicable without expense to the tendering stockholder. Payment for Shares may be delayed in the event of difficulty in determining the number of Shares properly tendered or if proration is required. See Section 1. In addition, if certain events occur, the Company may not be obligated to purchase Shares pursuant to the Offer. See Section 7. The Company will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder, or if tendered Shares are registered in the name of any person other than the person signing the Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder, such other person or otherwise) payable on account of the transfer to such person will be deducted from the 9 15 Purchase Price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 7 to the Letter of Transmittal. 6. CONDITIONAL TENDER OF SHARES. Under certain circumstances and subject to the exceptions set forth in Section 1, the Company may prorate the number of Shares purchased pursuant to the Offer. As discussed in Section 13, the number of Shares to be purchased from a particular stockholder might affect the tax treatment of such purchase to such stockholder and such stockholder's decision whether to tender. EACH STOCKHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR. Accordingly, a stockholder may tender Shares subject to the condition that a specified minimum number of such holder's Shares tendered pursuant to a Letter of Transmittal or Notice of Guaranteed Delivery must be purchased if any such Shares so tendered are purchased, and any stockholder desiring to make such a conditional tender must so indicate in the box captioned "Conditional Tender" in such Letter of Transmittal or, if applicable, the Notice of Guaranteed Delivery. Any tendering stockholder wishing to make a conditional tender must calculate and appropriately indicate such minimum number of Shares. If the effect of accepting tenders on a pro rata basis would be to reduce the number of Shares to be purchased from any stockholder (tendered pursuant to a Letter of Transmittal or Notice of Guaranteed Delivery) below the minimum number so specified, such tender will automatically be regarded as withdrawn (except as provided in the next paragraph) and all Shares tendered by such stockholder pursuant to such Letter of Transmittal or Notice of Guaranteed Delivery will be returned as promptly as practicable thereafter. If conditional tenders would otherwise be so regarded as withdrawn and would cause the total number of Shares to be purchased to fall below 15,000,000, then, to the extent feasible, the Company will select enough of such conditional tenders that would otherwise have been so withdrawn to permit the Company to purchase 15,000,000 Shares. In selecting among such conditional tenders, the Company will select by lot and will limit its purchase in each case to the designated minimum number of Shares to be purchased. 7. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, the Company will not be required to accept for payment or pay for any Shares tendered, and may terminate or amend and may postpone (subject to the requirements of the Exchange Act for prompt payment for or return of Shares) the acceptance for payment of Shares tendered, if at any time on or after September 3, 1997 and at or before acceptance for payment of any Shares any of the following shall have occurred: (a) there shall have been threatened, instituted or pending any action or proceeding by any government or governmental, regulatory or administrative agency or authority or tribunal or any other person, domestic or foreign, or before any court, authority, agency or tribunal that (i) challenges the acquisition of Shares pursuant to the Offer or otherwise in any manner relates to or affects the Offer or (ii) in the sole judgment of the Company, could materially and adversely affect the business, condition (financial or other), income, operations or prospects of the Company and its subsidiaries, taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries or materially impair the Offer's contemplated benefits to the Company; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or the Company or any of its subsidiaries, by any legislative body, court, authority, agency or tribunal which, in the Company's sole judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, some or all of the Shares illegal or otherwise restrict or prohibit consummation of the Offer, (ii) delay or restrict the ability of the Company, or render the Company unable, to accept for payment or pay for some or all of the Shares, (iii) materially impair the contemplated benefits of the Offer to the Company or (iv) materially affect the business, condition (financial or other), income, operations or prospects of the 10 16 Company and its subsidiaries, taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any if its subsidiaries; (c) it shall have been publicly disclosed or the Company shall have learned that (i) any person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) has acquired or proposes to acquire beneficial ownership of more than 5% of the outstanding Shares whether through the acquisition of stock, the formation of a group, the grant of any option or right, or otherwise (other than as disclosed in a Schedule 13D or 13G on file with the Securities and Exchange Commission (the "Commission") on or prior to September 3, 1997) or (ii) any such person or group that on or prior to September 3, 1997 had filed such a Schedule with the Commission thereafter shall have acquired or shall propose to acquire whether through the acquisition of stock, the formation of a group, the grant of any option or right, or otherwise, beneficial ownership of additional Shares representing 2% or more of the outstanding Shares; (d) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market, (ii) any significant decline in the market price of the Shares, (iii) any change in the general political, market, economic or financial condition in the United States or abroad that could have a material adverse effect on the Company's business, condition (financial or other), income, operations, prospects or ability to obtain financing generally or the trading in the Shares, (iv) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event which, in the Company's sole judgment, might affect, the extension of credit by lending institutions in the United States, (v) the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States or (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, in the Company's sole judgment, a material acceleration or worsening thereof; (e) a tender or exchange offer with respect to some or all of the Shares (other than the Offer), or a merger, acquisition or other business combination proposal for the Company, shall have been proposed, announced or made by any person; (f) there shall have occurred any event or events that have resulted, or may in the sole judgment of the Company result, in an actual or threatened change in the business, condition (financial or other), income, operations, stock ownership or prospects of the Company and its subsidiaries, taken as a whole; or (g) there shall have occurred any decline in the Dow Jones Industrial Average (7,879.78 at the close of business on September 2, 1997) or the Standard & Poor's Composite 500 Stock Index (927.58 at the close of business on September 2, 1997) by an amount in excess of 10% measured from the close of business on September 2, 1997; and, in the sole judgment of the Company, such event or events make it undesirable or inadvisable to proceed with the Offer or with such acceptance for payment or payment. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances (including any action or inaction by the Company) giving rise to any such condition, and any such condition may be waived by the Company, in whole or in part, at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by the Company concerning the events described above will be final and binding on all parties. 11 17 8. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and principally traded on the NYSE. The following table sets forth the high and low sales prices of the Shares on the NYSE Composite Tape and the cash dividends per Share for the Company's fiscal quarters indicated.
CASH DIVIDENDS HIGH* LOW* PER SHARE ----- ---- --------- Fiscal Year Ended September 30, 1995: 1st Quarter..................... $32 3/8 $25 5/8 $.17 2nd Quarter..................... 34 1/4 27 1/8 .17 3rd Quarter..................... 37 7/8 32 3/4 .17 4th Quarter..................... 40 5/8 30 .17 Fiscal Year Ended September 30, 1996: 1st Quarter..................... $31 7/8 $27 3/8 $.17 2nd Quarter...................... 32 5/8 28 .17 3rd Quarter..................... 32 7/8 27 7/8 .17 4th Quarter..................... 29 1/8 21 3/8 .17 Fiscal Year Ended September 30, 1997: 1st Quarter..................... $27 5/8 $24 1/8 $.17 2nd Quarter..................... 32 7/8 25 3/4 .17 3rd Quarter..................... 35 1/2 26 3/8 .17 4th Quarter (to September 2, 1997)....................... 38 5/8 33 7/8 .19**
- --------------- * Information provided was obtained from The Wall Street Journal, and the Company believes such information to be accurate. ** Dividend declared by the Board of Directors of the Company for the fourth quarter of the fiscal year ending September 30, 1997, to be paid on October 6, 1997 to stockholders of record on September 19, 1997. On September 2, 1997, the last full NYSE trading day prior to the announcement of the Offer, the last reported sale price of the Shares on the NYSE Composite Tape was $35 5/16 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. On September 3, 1997, the Board of Directors of the Company announced an increase in the regular quarterly cash dividend for the fourth quarter of the fiscal year ending September 30, 1997 to $.19 per Share. Shares tendered and purchased by the Company will be entitled to this regular quarterly cash dividend of $.19 per Share to be paid by the Company on October 6, 1997 to holders of record on September 19, 1997. On June 1, 1988, the Board of Directors of the Company declared a dividend distribution of one Right on each share of Common Stock outstanding at the close of business on June 13, 1988, and in connection therewith entered into the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and Texas Commerce Bank National Association, subsequently succeeded by First Chicago Trust Company of New York, as the Rights Agent. When exercisable, each Right will entitle the registered holder to purchase one one-hundredth of a share of Series A Participating Preferred Stock at an exercise price of $110.00, subject to adjustment. The Rights will not be exercisable prior to the expiration of the Company's right to redeem the Rights. The Company is entitled to redeem the Rights at $.05 per Right (subject to adjustment) up to and including the tenth business day (twentieth business day if the Board of Directors so determines) after the acquisition by a person of beneficial ownership of shares of the Company's stock having 20% or more of the general voting power of the Company. The Rights will expire on June 13, 1998, unless earlier redeemed. In general, the Rights Agreement provides that if the Company is acquired in a merger or other business combination transaction on or at any time after the date on which a person obtains ownership of stock having 20% or more of the Company's general voting power ("Stock Acquisition Date"), provision must be made prior to the consummation of such transaction to entitle each holder of a Right (except as provided in the Rights Agreement) to purchase at the exercise price a number of the acquiring company's common shares 12 18 having a market value (determined as provided in the Rights Agreement) at the time of such transaction of two times the exercise price of the Right. The Rights Agreement also provides that in the event of (a) the acquisition of the Company on or at any time after the Stock Acquisition Date in a merger or other business combination transaction in which the Company's Common Stock remains outstanding and unchanged, (b) certain self-dealing transactions by a 20% or greater stockholder, (c) the acquisition by a person of at least 30% of the general voting power of the Company or (d) an increase in the ownership interest of a 20% or greater stockholder by more than 1% as a result of the occurrence of any of certain events specified in the Rights Agreement, then, in each such case, each holder of a Right (except as provided in the Rights Agreement) will have the right to receive, upon payment of the exercise price, a number of shares of Series A Participating Preferred Stock having a market value (determined as provided in the Rights Agreement) at the time of such transaction of two times the exercise price of a Right. The foregoing description of the Rights is qualified in its entirety by reference to the Rights Agreement, a copy of which has been included as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1988, and copies of the amendments thereto to which have been included as exhibits to the Company's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1989, March 31, 1990 and March 31, 1996, in each case filed with the Commission. Such reports and exhibits may be obtained from the Commission in the manner provided in Section 16. 9. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER. The Company believes that the purchase of the Shares at this time will benefit the Company and its stockholders over the long term through enhanced earnings per share and will result in a capital structure more consistent with the Company's business strategy. The Company has made significant progress during this fiscal year in improving profitability and increasing cash flow. The Company has significantly reduced the level of capital expenditures in fiscal 1997 compared to fiscal 1996, and has divested a significant amount of underperforming assets during the course of the year. The Company will also receive approximately $410 million from the settlement of the BFI Exchange Securities in fiscal 1998. Prior to the announcement of the Offer, the Company had been considering a variety of alternatives for the use of excess cash with the goal of enhancing stockholder value. The Company has determined that the action taken by the Board of Directors on September 3, 1997 to increase the dividend to $.19 per share, combined with the authorization of a $1.0 billion share repurchase program (including the Offer), accomplishes this objective in an efficient manner. A significant portion of the repurchase program is expected to be effected pursuant to the Offer; however, in addition to the Offer, the Company intends to commence purchases of additional Shares or BFI Exchange Securities from time to time in the open market, in privately negotiated transactions or otherwise. See Section 12. The Company expects any such purchase of additional Shares or BFI Exchange Securities to be completed by September 30, 1998. Any such purchase may be on the same terms or on terms that are more or less favorable to stockholders than the terms of the Offer. However, under the Exchange Act rules, the Company and its affiliates are prohibited from purchasing any Shares and BFI Exchange Securities, other than pursuant to the Offer, until at least ten business days after the Expiration Date. Any possible future purchases by the Company will depend on many factors, including the market price of the Shares and the BFI Exchange Securities, the results of the Offer, the Company's business and financial position and general economic and market conditions. The Offer will afford to stockholders who are considering the sale of all or a portion of their Shares the opportunity to determine the price at which they are willing to sell their Shares and, in the event the Company accepts such Shares for purchase, to dispose of Shares without the usual transaction costs associated with a market sale. The Offer will also allow qualifying stockholders owning beneficially fewer than 100 Shares to avoid the payment of brokerage commissions and the applicable odd lot discount payable on a sale of Shares in a transaction effected on a securities exchange. Correspondingly, the costs to the Company for servicing the accounts of odd lot holders will be reduced. See Section 2. As of September 2, 1997, the Company had issued and outstanding 204,472,625 Shares (excluding approximately 8,500,000 Shares held by the Company's Stock and Employee Benefit Trust) and had reserved 13 19 11,027,530 Shares for issuance upon exercise of outstanding stock options and with respect to performance shares. The 15,000,000 Shares that the Company is offering to purchase represent approximately 7.3% of the Shares then outstanding. As of September 2, 1997, all directors and executive officers of the Company as a group owned beneficially an aggregate of 3,425,035 Shares (including an aggregate of 2,326,000 Shares that may be acquired pursuant to the exercise of outstanding stock options exercisable within 60 days of the date hereof) or approximately 1.7% of the Shares then outstanding. The Company has been advised that no director or executive officer intends to tender Shares pursuant to the Offer. If the Company purchases 15,000,000 Shares pursuant to the Offer and no director or executive officer of the Company tenders Shares, the percentage of outstanding Shares owned beneficially by all of the Company's directors and executive officers as a group would increase to approximately 1.8% of the Shares then outstanding (including for this purpose, Shares that may be acquired by such directors and executive officers pursuant to the exercise of outstanding stock options exercisable within 60 days of the date hereof). Stockholders who determine not to accept the Offer will obtain a proportionate increase in their ownership interest in the Company. After consummation of the Offer, increases or decreases in net income will likely be reflected in greater increases or decreases in earnings per Share than is presently the case because of the smaller number of Shares outstanding thereafter. Shares that the Company acquires pursuant to the Offer will become authorized but unissued Shares and will be available for issuance by the Company without further stockholder action (except as may be required by applicable law or the rules of the securities exchanges on which the Shares are listed). Such Shares could be issued without stockholder approval for, among other things, acquisitions, settlement of the BFI Exchange Securities, the raising of additional capital for use in the Company's business, stock dividends or in connection with employee stock, stock option and other plans or a combination thereof. Except as disclosed in this Offer to Purchase, the Company has no plans or proposals which relate to or would result in: (a) the acquisition by any person of additional securities of the Company or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present Board of Directors or management of the Company; (e) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Company; (f) any other material change in the Company's corporate structure or business; (g) any change in the Company's Restated Certificate of Incorporation or By-Laws, as amended, or any actions which may impede the acquisition of control of the Company by any person; (h) a class of equity security of the Company being delisted from a national securities exchange; (i) a class of equity security of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) the suspension of the Company's obligation to file reports pursuant to Section 15(d) of the Exchange Act. The Company does not believe that the Offer will result in delisting of the Shares on the NYSE or termination of registration of the Shares under the Exchange Act. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND AT WHAT PRICE. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER. 10. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is one of the largest publicly-held companies that engages, through its subsidiaries and affiliates, in providing waste services. The Company collects, transports, treats and/or processes, recycles and disposes of commercial, residential and municipal solid waste and industrial waste. The Company also is involved in waste-to-energy conversion, medical waste services, portable restroom services and municipal and commercial sweeping operations. 14 20 The Company, a Delaware corporation, was incorporated on October 26, 1970. The Shares are listed and principally traded on the NYSE under the symbol "BFI". The Company's executive offices are located at 757 N. Eldridge, Houston, Texas 77079, and its telephone number is (281) 870-8100. During fiscal 1996, the Company began implementing a strategic refocus to emphasize internal growth rather than external growth and to more closely align the Company's performance objectives with its stockholders' interests. To support this strategy, the Company realigned its North American operating organization, revised its financial strategies, implemented revised incentive compensation plans for employees and reduced its capital expenditures budget for the fiscal year ending September 30, 1997 as compared to historic levels of such expenditures. In August 1996, the Company realigned its North American operating organization along functional lines into five groups: sales and marketing, collection, post-collection, business development and business analysis. Each functional group is led by an officer in Houston who reports to the Company's chief operating officer. The Company's North American regions and divisions were consolidated into thirteen market areas, each of which includes area vice presidents responsible for one of the five functional groups within the market area. Each market area is headed by a market area vice president who reports directly to the Company's chief operating officer and is responsible for coordinating the activities of the functional area vice presidents within his market area. The realignment is intended to increase the expertise and efficiency of each function, improve and integrate customer service, accelerate company-wide adoption of best practices and increase oversight and discipline respecting capital expenditures. The Company announced the following revised long-term financial goals in October 1996: (a) to generate cash returns on assets in excess of the weighted average cost of capital; (b) to increase profits at a faster pace than the increase in revenues; and (c) to maintain a strong credit rating appropriate for supporting business operations. To more closely align management interests to stockholder interests, the Company also revised its long-term incentive compensation plans for management to reallocate a significant portion of management's stock option participation to performance-based restricted stock that will vest only as certain performance measures are attained. In October 1996, the Company also announced its plans to sell its Italian operations, divest certain domestic and international non-core business assets and operations and close certain recycling facilities not expected to achieve desired performance objectives. In July 1997, the Company announced that it had completed the initial phase of its planned divestitures with the sale of operating facilities in North America, representing approximately $260 million in revenues, and the sale of certain of its European operations, including the Company's Italian operations, representing approximately $190 million in revenues. The Company also announced that future divestitures, with revenues exceeding $230 million from North American and international operations, would be completed in the next six to nine months. During fiscal 1997, a redeployment and retraining of the sales force was completed which enabled sales personnel to better focus on the Company's customers. In addition, a planned reduction in selling, general and administrative expense ("SG&A") resulted in SG&A constituting a lower percentage of revenues for the first nine months of fiscal 1997 compared to the same period for the prior year. The Company is also continuing its strategic reviews of underperforming marketplaces to identify actions to improve business operations or candidates for divestiture. The Company expects to receive on June 30, 1998 proceeds of approximately $410 million from the settlement of the BFI Exchange Securities. Under the terms of the BFI Exchange Securities, the Company currently is required to issue between approximately 9.6 million and 11.5 million shares of Common Stock when the cash proceeds are received by the Company. 15 21 Summary Historical Consolidated Financial Information The following is a summary of certain historical consolidated financial information regarding the Company for the periods indicated. The summary financial information (other than the ratio of earnings to fixed charges) set forth below for the years ended September 30, 1996 and 1995 is summarized or prepared from the audited consolidated financial statements set forth in the Company's 1996 Annual Report. The financial information (other than the ratio of earnings to fixed charges) set forth below for the nine months ended June 30, 1997 and 1996 is summarized or prepared from the unaudited consolidated financial statements set forth in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (the "Company's 1997 Third Quarter 10-Q") and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 (the "Company's 1996 Third Quarter 10-Q"), which have been prepared on a basis substantially consistent with the audited consolidated financial statements, and reflect, in the opinion of management, all adjustments necessary to a fair presentation of the financial position and results of operations for such periods. The results for the nine months ended June 30, 1997 are not necessarily indicative of the results for the full year. The Company's 1997 Third Quarter 10-Q (other than the exhibits thereto) is attached to this Offer to Purchase as Annex I. The information presented below should be read in conjunction with the Company's consolidated financial statements and the notes thereto, incorporated by reference herein. Copies of the Company's 1997 Third Quarter 10-Q, the Company's 1996 Third Quarter 10-Q and the Company's 1996 Annual Report, in each case complete with exhibits, may be obtained as described in Section 16. SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION (IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
NINE MONTHS YEAR ENDED ENDED JUNE 30, SEPTEMBER 30, --------------- --------------- 1997 1996 1996 1995 ------ ------ ------ ------ (UNAUDITED) OPERATING STATEMENT DATA: Revenues................................................... $4,380 $4,276 $5,779 $5,779 Income before special charges and extraordinary items...... $ 235 $ 206 $ 273 $ 385 Income (loss) before extraordinary items................... $ 185 $ 206 $ (89) $ 385 Net income (loss).......................................... $ 180 $ 194 $ (101) $ 385 Income (loss) per common and common equivalent share: Income (loss) before extraordinary items................. $ .91 $ 1.03 $ (.44) $ 1.93 Net income (loss)........................................ $ .89 $ .97 $ (.50) $ 1.93 Number of common and common equivalent shares used in computing earnings per share............................. 203 200 201 199 Ratio of earnings to fixed charges before special charges.................................................. 3.02x 2.84x 2.77x 4.04x Ratio of earnings to fixed charges......................... 2.59x 2.84x 1.02x 4.04x
AT JUNE 30, AT SEPTEMBER 30, --------------- ----------------- 1997 1996 1996 1995 ------ ------ ------- ------- (UNAUDITED) BALANCE SHEET DATA: Working capital (deficit).................................. $ 75 $ 39 $ (11) $ 8 Total assets............................................... $6,902 $7,828 $7,601 $7,460 Total long-term debt, net of current portion............... $2,111 $2,773 $2,767 $2,411 Total common stockholders' equity.......................... $2,596 $2,826 $2,510 $2,742 Book value per common share................................ $12.74 $14.06 $12.47 $13.79
- --------------- 16 22 NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION (1) Financial information for the nine months ended June 30, 1997 includes: (a) Special charges of $84 million ($50 million, or $.25 per share, after income taxes) which were reported in the third quarter of fiscal 1997. Included in these special charges were non-cash expenses of $53 million due to cumulative foreign currency translation losses associated with the sale of Italian business operations and $96 million for anticipated losses related to decisions to divest additional underperforming or non-core business operations and assets located primarily in the United Kingdom, the Netherlands and the United States. These losses were offset partially by net gains of $65 million arising largely from 34 divestitures completed in the third quarter of fiscal 1997, principally in North America. (b) An extraordinary item recorded in the second quarter of fiscal 1997 of $3.1 million, after income tax, or approximately $.02 per share, related to one of the Company's unconsolidated affiliates, American Ref-Fuel Company of Hempstead. This affiliate incurred a pre-tax charge to expense of $9.6 million associated with the redemption of approximately $250 million principal amount of Series 1985 Bonds, which were refinanced. (c) Extraordinary charges to the Company's net income of $1.7 million, after income tax, or approximately $.01 per share, related to the Company's redemption of $160 million of private placement notes previously scheduled to mature in fiscal 1998 and $11.8 million of tax-exempt debt associated with a landfill in Arizona sold by the Company. (2) Financial information for the nine months ended June 30, 1996 includes: (a) An extraordinary charge of $12.2 million, after income taxes, or approximately $.06 per share, related to the redemption of the Company's Convertible Subordinated Debentures. (3) Financial information for the year ended September 30, 1996 includes: (a) Special charges of $447 million ($362 million, or $1.80 per share, after income taxes) which were recorded in the fourth quarter of fiscal 1996. Charges of $349 million resulted principally from management decisions to sell the Company's Italian operations, divest certain domestic and international non-core business assets and operations and close certain recycling facilities not expected to achieve desired performance objectives. The remainder of the special charges related to the writedown to fair value of the Company's investment in the Azusa, California landfill. (b) An extraordinary charge of $12.2 million, after income taxes, or approximately $.06 per share, related to the redemption of the Company's Convertible Subordinated Debentures. (4) For additional information relating to the Summary Historical Consolidated Financial Information, reference is made to the Company's consolidated financial statements and related notes thereto contained in the Company's 1997 Third Quarter 10-Q attached hereto as Annex I and the Company's 1996 Third Quarter 10-Q and the Company's 1996 Annual Report, each of which is incorporated by reference herein. 17 23 Summary Unaudited Consolidated Pro Forma Financial Information The following summary unaudited consolidated pro forma financial information gives effect to the purchase of Shares pursuant to the Offer, based on the assumptions described in the Notes to Summary Unaudited Consolidated Pro Forma Financial Information and give effect to the purchase of Shares pursuant to the Offer as if it had occurred on the first date of each of the periods presented, with respect to the operating statement data, and on June 30, 1997 and September 30, 1996, with respect to the balance sheet data. The summary unaudited consolidated pro forma financial information should be read in conjunction with the summary historical consolidated financial information and does not purport to be indicative of the results that would actually have been obtained, or results that may be obtained in the future, or the financial condition that would have resulted had the purchase of the Shares pursuant to the Offer been completed at the dates indicated. SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION (IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
NINE MONTHS ENDED JUNE 30, 1997 YEAR ENDED SEPTEMBER 30, 1996 ------------------------------------ ------------------------------------ PRO FORMA PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- ---------- ----------- --------- OPERATING STATEMENT DATA: Revenues..................... $4,380 $4,380 $5,779 $5,779 Income before special charges and extraordinary items.... $ 235 $ (15) $ 220 $ 273 $ (20) $ 253 Income (loss) before extraordinary items........ $ 185 $ (15) $ 170 $ (89) $ (20) $ (109) Net income (loss)............ $ 180 $ (15) $ 165 $ (101) $ (20) $ (121) Income (loss) per common and common equivalent share: Income (loss) before extraordinary items..... $ .91 $ .90 $ (.44) $ (.59) Net income (loss).......... $ .89 $ .88 $ (.50) $ (.65) Number of common and common equivalent shares used in computing earnings per share...................... 203 (15) 188 201 (15) 186 Ratio of earnings to fixed charges before special charges.................... 3.02x 2.67x 2.77x 2.45x Ratio of earnings to fixed charges.................... 2.59x 2.29x 1.02x 0.91x
AT JUNE 30, 1997 AT SEPTEMBER 30, 1996 ------------------------------------ ------------------------------------ PRO FORMA PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- ---------- ----------- --------- BALANCE SHEET DATA: Working capital (deficit).... $ 75 $(177) $ (102) $ (11) $(177) $ (188) Total assets................. $6,902 $6,902 $7,601 $7,601 Total long-term debt, net of current portion............ $2,111 $ 410 $2,521 $2,767 $ 410 $3,177 Total common stockholders' equity..................... $2,596 $(587) $2,009 $2,510 $(587) $1,923 Book value per common share...................... $12.74 $10.64 $12.47 $10.32
18 24 NOTES TO SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION (1) Financial information for the nine months ended June 30, 1997 includes: (a) Special charges of $84 million ($50 million, or $.25 per share, after income taxes) which were reported in the third quarter of fiscal 1997. Included in these special charges were non-cash expenses of $53 million due to cumulative foreign currency translation losses associated with the sale of Italian business operations and $96 million for anticipated losses related to decisions to divest additional underperforming or non-core business operations and assets located primarily in the United Kingdom, the Netherlands and the United States. These losses were offset partially by net gains of $65 million arising largely from 34 divestitures completed in the third quarter of fiscal 1997, principally in North America. (b) An extraordinary item recorded in the second quarter of fiscal 1997 of $3.1 million, after income tax, or approximately $.02 per share, related to one of the Company's unconsolidated affiliates, American Ref-Fuel Company of Hempstead. This affiliate incurred a pre-tax charge to expense of $9.6 million associated with the redemption of approximately $250 million principal amount of Series 1985 Bonds, which were refinanced. (c) Extraordinary charges to the Company's net income of $1.7 million, after income tax, or approximately $.01 per share, related to the Company's redemption of $160 million of private placement notes previously scheduled to mature in fiscal 1998 and $11.8 million of tax-exempt debt associated with a landfill in Arizona sold by the Company. (2) Financial information for the year ended September 30, 1996 includes: (a) Special charges of $447 million ($362 million, or $1.80 per share, after income taxes) which were recorded in the fourth quarter of fiscal 1996. Charges of $349 million resulted principally from management decisions to sell the Company's Italian operations, divest certain domestic and international non-core business assets and operations and close certain recycling facilities not expected to achieve desired performance objectives. The remainder of the special charges related to the writedown to fair value of the Company's investment in the Azusa, California landfill. (b) An extraordinary charge of $12.2 million, after income taxes, or approximately $.06 per share, related to the redemption of the Company's Convertible Subordinated Debentures. (3) The following assumptions were made in presenting the summary unaudited consolidated pro forma financial information: (a) The information assumes that 15,000,000 Shares are purchased and retired at $39.00 per Share. There can be no assurance that the Company will purchase 15,000,000 Shares or at what price any Shares will be purchased. (b) Expenses directly related to the Offer are assumed to be $2 million and have been charged against additional paid-in capital. (c) The purchase price is assumed to be financed with commercial paper at an interest rate of 5.75%. However, while the Company is unable to predict its level of cash on hand at the close of the Offer, such cash, together with proceeds from the settlement of the BFI Exchange Securities, cash flow from operations and proceeds from the divestiture of business operations and assets, is expected to be sufficient to fund a portion of the purchase price and to retire any commercial paper issued to fund the balance within one year. (d) The Company's effective tax rate is 40%. (4) Earnings per share are computed by dividing net income by the weighted average common and common equivalent shares outstanding during the year, giving effect in the case of the pro forma amount to the Share repurchase contemplated herein. The only dilutive common stock equivalents included in the earnings per share calculation are outstanding stock options. Excluding the matters discussed in Note 1 19 25 above, earnings per share for the nine months ended June 30, 1997 would have been $1.16 (or $1.17 on a pro forma basis). Excluding the matters discussed in Note 2 above, earnings per share for the year ended September 30, 1996 would have been $1.36 (also $1.36 on a pro forma basis.). (5) Book value per share is calculated by dividing common stockholders' equity by the number of common and pro forma common shares outstanding at the end of the period. (6) For purposes of computing the ratio of earnings to fixed charges, "earnings" has been calculated by adding to the caption "income before income taxes, minority interest and extraordinary items", fixed charges, excluding capitalized interest, and by deducting equity in earnings of affiliates less than 50% owned. "Fixed charges" consists of interest expense whether capitalized or expensed, amortization of debt costs, and the portion of rents representing the interest factor which the Company generally calculates as one-third of rental expense. The interest expense portion of fixed charges includes interest expense and interest costs capitalized related to the Company's proportionate share of 50%-owned subsidiaries and has been reduced by capitalized interest income earned on proceeds primarily from tax-exempt financings of such 50%-owned subsidiaries. (7) For additional information relating to the Summary Unaudited Consolidated Pro Forma Financial Information, reference is made to the Company's consolidated financial statements and related notes thereto contained in the Company's 1997 Third Quarter 10-Q attached hereto as Annex I and the Company's 1996 Annual Report, which is incorporated herein by reference. 11. SOURCE AND AMOUNT OF FUNDS. Assuming the Company purchases 15,000,000 Shares pursuant to the Offer at a purchase price of $39.00 per Share, the Company expects the maximum aggregate cost to be approximately $587 million (including estimated expenses). It is anticipated that the Company will fund the purchase of Shares pursuant to the Offer and the payment of related fees and expenses with proceeds of commercial paper, which the Company expects to repay within one year through proceeds from asset dispositions, cash from operations and proceeds from the settlement of the BFI Exchange Securities. 12. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES. Except as described below, neither the Company, nor any subsidiary of the Company nor, to the best of the Company's knowledge, any of the Company's directors or executive officers, nor any affiliates of any of the foregoing, had any transactions involving the Shares during the 40 business days prior to the date hereof. On August 4, 1997, one director of the Company sold an aggregate of 87,987 Shares for an average sales price of $36.04 per share. On August 12, 1997, one of the Company's officers sold an aggregate of 6,000 Shares for $35.38 per share. Except for outstanding options to purchase Shares granted from time to time to certain employees (including executive officers) and non-employee directors of the Company pursuant to the Company's stock option plans and performance shares granted from time to time to certain employees (including executive officers) pursuant to the Company's incentive compensation programs and except as otherwise described herein, neither the Company nor, to the best of the Company's knowledge, any of its affiliates, directors or executive officers, is a party to any contract, arrangement, understanding or relationship with any other person relating, directly or indirectly, to the Offer with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding or proxies, consents or authorizations. 13. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. In General. The following summary describes certain United States federal income tax consequences relating to the Offer. The summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), and existing final, temporary and proposed Treasury Regulations, Revenue Rulings and judicial decisions, all of which are subject to prospective and retroactive changes. The summary deals only with Shares 20 26 held as capital assets within the meaning of Section 1221 of the Code and does not address tax consequences that may be relevant to investors in special tax situations, such as certain financial institutions, tax-exempt organizations, life insurance companies, dealers in securities or currencies, or stockholders holding the Shares as part of a conversion transaction, as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes. The Company will not seek a ruling from the Internal Revenue Service (the "IRS") with regard to the United States federal income tax treatment of the Offer and, therefore, there can be no assurance that the IRS will agree with the conclusions set forth below. Accordingly, each stockholder should consult its own tax advisor with regard to the Offer and the application of United States federal income tax laws, as well as the laws of any state, local or foreign taxing jurisdiction, to its particular situation. Characterization of the Sale. A sale of Shares by a stockholder of the Company pursuant to the Offer will be a taxable transaction for United States federal income tax purposes and may also be a taxable transaction under applicable state, local and foreign tax laws. The United States federal income tax consequences to a stockholder may vary depending upon the stockholder's particular facts and circumstances. Under Section 302 of the Code, a sale of Shares by a stockholder to the Company pursuant to the Offer will be treated as a "sale or exchange" of such Shares for United States federal income tax purposes (rather than as a dividend distribution by the Company with respect to the Shares held by the tendering stockholder) if the receipt of cash upon such sale (a) is "substantially disproportionate" with respect to the stockholder, (b) results in a "complete redemption" of the Shares owned by the stockholder, or (c) is "not essentially equivalent to a dividend" with respect to the stockholder (each as described below). If any of the above three tests is satisfied, and the sale of the Shares is therefore treated as a "sale or exchange" of such Shares for United States federal income tax purposes, the tendering stockholder will recognize gain or loss equal to the difference between the amount of cash received by the stockholder pursuant to the Offer and the stockholder's tax basis in the Shares sold pursuant to the Offer. Any such gain or loss will be capital gain or loss. Stockholders should consult their own tax advisors concerning the tax treatment of capital gains and losses. If none of the above three tests is satisfied, the tendering stockholder would be treated as having received a dividend, to the extent the Company has earnings and profits, which would be includible in gross income in an amount equal to the entire amount of cash received by the stockholder pursuant to the Offer (without reduction for the tax basis of the Shares sold pursuant to the Offer), no loss would be recognized, and the tendering stockholder's basis in the Shares sold pursuant to the Offer would be added to such stockholder's basis in its remaining Shares, if any. In determining whether any of the three tests under Section 302 of the Code is satisfied, each stockholder must take into account not only the Shares which are actually owned by the stockholder, but also Shares which are constructively owned by the stockholder within the meaning of Section 318 of the Code. Under Section 318 of the Code, a stockholder may constructively own Shares actually owned, and in some cases constructively owned, by certain related individuals or entities and Shares which the stockholder has the right to acquire by exercise of an option or by conversion. Each stockholder should be aware that because proration may occur in the Offer, even if all the Shares actually and constructively owned by a stockholder are tendered pursuant to the Offer, fewer than all of such Shares may be purchased by the Company. Thus, proration may affect whether a sale by a stockholder pursuant to the Offer will meet any of the three tests under Section 302 of the Code. See Section 6 for information regarding each stockholder's option to make a conditional tender of a minimum number of Shares. A stockholder should consult its own tax advisor regarding whether to make a conditional tender of a minimum number of Shares, and the appropriate calculation thereof. Section 302 Tests. The receipt of cash by a stockholder will be "substantially disproportionate" if the percentage of the outstanding Shares actually and constructively owned by the stockholder immediately following the sale of Shares pursuant to the Offer (treating as not outstanding all Shares purchased pursuant to the Offer) is less than 80% of the percentage of the outstanding Shares actually and constructively owned by such stockholder immediately before the sale of Shares pursuant to the Offer (treating as outstanding all Shares purchased pursuant to the Offer). Stockholders should consult their tax advisors with respect to the application of the "substantially disproportionate" test to their particular situation. 21 27 The receipt of cash by a stockholder will be a "complete redemption" of all the Shares owned by the stockholder if either (a) all of the Shares actually and constructively owned by the stockholder are sold pursuant to the Offer, or (b) all of the Shares actually owned by the stockholder are sold pursuant to the Offer and, with respect to Shares constructively owned by the stockholder which are not sold pursuant to the Offer, the stockholder is eligible to waive (and effectively waives) constructive ownership of all such Shares under procedures described in Section 302(c)(2) of the Code. Even if the receipt of cash by a stockholder fails to satisfy the "substantially disproportionate" test or the "complete redemption" test, a stockholder may nevertheless satisfy the "not essentially equivalent to a dividend" test, if the stockholder's sale of Shares pursuant to the Offer results in a "meaningful reduction" in the stockholder's interest in the Company. Whether the receipt of cash by a stockholder will be "not essentially equivalent to a dividend" will depend upon the individual stockholder's facts and circumstances. The IRS has indicated in published rulings that even a small reduction in the proportionate interest of a small minority stockholder in a publicly held corporation who exercises no control over corporate affairs may constitute such a "meaningful reduction." The IRS held in Rev. Rul. 76-385, 1976-2 C.B. 92, that a reduction in the percentage ownership interest of a stockholder in a publicly held corporation from .0001118% to .0001081% (a reduction to 96.7% of the stockholder's prior percentage ownership interest) would constitute a "meaningful reduction." Under this ruling, it is likely that a small minority stockholder who exercises no control over the Company, and all of whose actual and constructively owned Shares are tendered at or below the Purchase Price, would satisfy the "not essentially equivalent to a dividend" test notwithstanding proration in the Offer. Stockholders expecting to rely on the "not essentially equivalent to a dividend" test should consult their own tax advisors as to its application in their particular situation. Corporate Stockholder Dividend Treatment. Under current law, if a sale of Shares by a corporate stockholder is treated as a dividend, the corporate stockholder may be entitled to claim a dividends-received deduction under Section 243 of the Code, subject to applicable limitations. However, it is expected that any amount received by a corporate stockholder pursuant to the Offer that is treated as a dividend would constitute an "extraordinary dividend" under Section 1059 of the Code. Accordingly, a corporate stockholder would be required under Section 1059(a) of the Code to reduce its basis (but not below zero) in its Shares by the non-taxed portion of the dividend (i.e., the portion of the dividend for which a deduction is allowed). Under the recently enacted Taxpayer Relief Act of 1997 (the "Act"), if such portion exceeds the stockholder's tax basis for its Shares, the excess will be recognized immediately as taxable gain from the sale of such Shares in the year in which Shares are sold pursuant to the Offer. Corporate stockholders should consult their own tax advisors as to the application of Section 1059 of the Code to the Offer. Additional Tax Considerations. The distinction between capital gains and ordinary income is relevant because certain individuals are subject to taxation at reduced rates on certain capital gains. For example, under the Act, a stockholder who is an individual and has held his Shares for more than 18 months may be entitled to a 20% maximum federal tax rate for gains from the sale of these Shares. Stockholders should consult their own tax advisers in this regard. Foreign Stockholders. The Company will withhold United States federal income tax at a rate of 30% from gross proceeds paid pursuant to the Offer to a foreign stockholder or his agent, unless the Company determines that a reduced rate of withholding is applicable pursuant to a tax treaty or that an exemption from withholding is applicable because such gross proceeds are effectively connected with the conduct of a trade or business by the foreign stockholder within the United States. For this purpose, a "foreign stockholder" is a person or entity that, for United States federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust. Without definite knowledge to the contrary, the Company will determine whether a stockholder is a foreign stockholder by reference to the stockholder's address. A foreign stockholder may be eligible to file for a refund of such tax or a portion of such tax if such stockholder (a) meets the "complete redemption," "substantially disproportionate" or "not essentially equivalent to a dividend" tests described above, (b) is entitled to a reduced rate of withholding pursuant to a treaty and the Company withheld at a higher rate, or (c) is otherwise able to establish that no tax or a reduced amount of tax was due. In order to claim an exemption from withholding on the ground that gross proceeds paid pursuant to the Offer are effectively connected with the conduct of a trade or business by a 22 28 foreign stockholder within the United States or that the foreign stockholder is entitled to the benefits of a tax treaty, the foreign stockholder must deliver to the Depositary (or other person who is otherwise required to withhold United States tax) a properly executed statement claiming such exemption or benefits. Such statements may be obtained from the Depositary. Foreign stockholders are urged to consult their own tax advisors regarding the application of United States federal income tax withholding, including eligibility for a withholding tax reduction or exemption and the refund procedures. The Company has not determined whether or not it is or has been, during a five-year lookback period, a United States real property holding corporation, within the meaning of section 897(c) of the Code. A foreign stockholder who (a) meets the "complete redemption," "substantially disproportionate" or "not essentially equivalent to a dividend" tests described above and (b) beneficially owns or has owned, during a five-year lookback period, directly, indirectly or constructively more than five percent of the Shares (a foreign stockholder who is described in both clauses (a) and (b) of this sentence is hereafter called a "Large Foreign Stockholder"), will be presumed, under Treasury Regulation section 1.897-2(g), to dispose of shares in a United States real property holding corporation unless the Large Foreign Stockholder establishes, by methods prescribed in the above-cited Treasury regulation, that the Shares do not constitute a United States real property interest. A Large Foreign Stockholder who does not rebut the presumption by the prescribed methods generally will recognize gain or loss on the disposition of its Shares pursuant to the Offer as if such gain or loss were effectively connected with a United States trade or business. Large Foreign Stockholders, if any, are urged to consult their own tax advisors regarding the particular United States federal income tax consequences to them of a sale of Shares pursuant to the Offer. Backup Withholding. See Section 3 with respect to the application of the United States federal income tax backup withholding. THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT APPLY TO SHARES ACQUIRED IN CONNECTION WITH THE EXERCISE OF STOCK OPTIONS OR PURSUANT TO OTHER COMPENSATION ARRANGEMENTS WITH THE COMPANY. THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON, AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TENDERING STOCKHOLDER. NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE OFFER AND THE EFFECT OF THE STOCK OWNERSHIP ATTRIBUTION RULES MENTIONED ABOVE. 14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The Company expressly reserves the right, in its sole discretion and at any time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. There can be no assurance, however, that the Company will exercise its right to extend the Offer. During any such extension, all Shares previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in Section 4. The Company also expressly reserves the right, in its sole discretion, (a) to terminate the Offer and not accept for payment any Shares not theretofore accepted for payment or, subject to Rule 13-4(f)(5) under the Exchange Act, which requires the Company either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer, to postpone payment for Shares upon the occurrence of any of the conditions specified in Section 7 hereof by giving oral or written notice of such termination to the Depositary and making a public announcement thereof and (b) at any time or from time to time amend the Offer in any respect. Amendments to the Offer may be effected by public announcement. Without limiting the manner in which the Company may choose to make public announcement of any termination or amendment, the Company shall have no obligation (except as otherwise required by applicable law) to publish, advertise or otherwise communicate any such public announcement, other than by making a release to the Dow Jones News Service, except in the case of an announcement of an extension of the Offer, in which case the Company shall have no obligation to 23 29 publish, advertise or otherwise communicate such announcement other than by issuing a notice of such extension by press release or other public announcement, which notice shall be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Material changes to information previously provided to holders of the Shares in this Offer or in documents furnished subsequent thereto will be disseminated to holders of Shares in compliance with Rule 13e-4(e)(2) promulgated by the Commission under the Exchange Act. If the Company materially changes the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, the Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer (other than a change in price, change in dealer's soliciting fee or change in percentage of securities sought) will depend on the facts and circumstances, including the relative materiality of such terms or information. In a published release, the Commission has stated that in its view, an offer should remain open for a minimum of five business days from the date that notice of such a material change is first published, sent or given. The Offer will continue or be extended for at least ten business days from the time the Company publishes, sends or gives to holders of Shares a notice that it will (a) increase or decrease the price it will pay for Shares or the amount of the Dealer Manager's soliciting fee or (b) increase (except for an increase not exceeding 2% of the outstanding Shares) or decrease the number of Shares it seeks. 15. FEES AND EXPENSES. Morgan Stanley & Co. Incorporated will act as Dealer Manager for the Company in connection with the Offer. The Company has agreed to pay the Dealer Manager, upon acceptance for payment of Shares pursuant to the Offer, a fee equal to $.10 multiplied by the aggregate number of Shares purchased by the Company pursuant to the Offer. The Dealer Manager also will be reimbursed by the Company for its reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses, including liabilities under the federal securities laws, in connection with the Offer. The Dealer Manager has rendered, is currently rendering and is expected to continue to render various investment banking and other advisory services to the Company. It has received, and will continue to receive, customary compensation from the Company for such services. The Company has retained First Chicago Trust Company of New York, as Depositary, and Morrow & Co., Inc., as Information Agent, in connection with the Offer. The Information Agent may contact stockholders by mail, telephone, telex, telegraph and personal interviews, and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners. The Depositary and the Information Agent will receive reasonable and customary compensation for their services and will also be reimbursed for certain out-of-pocket expenses. The Company has agreed to indemnify the Depositary and the Information Agent against certain liabilities, including certain liabilities under the federal securities laws, in connection with the Offer. Neither the Information Agent nor the Depositary has been retained to make solicitations or recommendations in connection with the Offer. The Company will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer (other than the fee of the Dealer Manager). The Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and customary handling and mailing expenses incurred by them in forwarding materials relating to the Offer to their customers. 16. MISCELLANEOUS. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Certain information as of particular dates concerning the Company's directors and officers, their remuneration, options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is filed with the 24 30 Commission. The Company has also filed an Issuer Tender Offer Statement on Schedule 13E-4 with the Commission, which includes certain additional information relating to the Offer. Such reports, as well as such other material, may be inspected and copies may be obtained at the Commission's public reference facilities at 450 Fifth Street, N.W., Washington, D.C., and should also be available for inspection and copying at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material may be obtained by mail, upon payment of the Commission's customary fees, from the Commission's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and other information related to registrants that file electronically with the Commission. Such reports, proxy statements and other information also should be available for inspection at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York. The Company's Schedule 13E-4 may not be available at the Commission's regional offices. The Offer is being made to all holders of Shares. The Company is not aware of any state where the making of the Offer or its acceptance is prohibited by administrative or judicial action pursuant to a valid state statute. If the Company becomes aware of any valid state statute prohibiting the making of the Offer or its acceptance, the Company will make a good faith effort to comply with such statute. If, after such good faith effort, the Company cannot comply with such statute, the Offer will not be made to, nor will tenders be accepted from or on behalf of, holders of Shares in such state. In those jurisdictions whose securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Company by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdictions. BROWNING-FERRIS INDUSTRIES, INC. September 4, 1997 25 EX-99.A1 2 FORM OF OFFER TO PURCHASE, DATED SEPT. 4, 1997 1 ANNEX I ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q --------------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-3876 BROWNING-FERRIS INDUSTRIES, INC. (Exact name of registrant, as specified in its charter) --------------------- DELAWARE 75-1673682 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 757 N. ELDRIDGE HOUSTON, TEXAS 77079 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 870-8100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No . Indicate the number of shares outstanding of the issuer's common stock, as of August 12, 1997: 212,805,670. ================================================================================ 2 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Revenues..................................... $1,471,252 $1,471,368 $4,380,120 $4,276,036 Cost of operations........................... 1,095,201 1,115,350 3,260,849 3,190,371 ---------- ---------- ---------- ---------- Gross profit................................. 376,051 356,018 1,119,271 1,085,665 Selling, general and administrative expense.................................... 194,267 221,216 620,931 642,287 Special charges, net......................... 84,127 -- 84,127 -- ---------- ---------- ---------- ---------- Income from operations....................... 97,657 134,802 414,213 443,378 Interest, net................................ 39,905 42,577 128,815 125,446 Equity in earnings of unconsolidated affiliates................................. (18,969) (13,816) (37,478) (38,918) ---------- ---------- ---------- ---------- Income before income taxes, minority interest and extraordinary items.................... 76,721 106,041 322,876 356,850 Income taxes................................. 30,688 42,417 129,150 142,740 Minority interest in income of consolidated subsidiaries............................... 4,107 1,602 8,965 8,094 ---------- ---------- ---------- ---------- Income before extraordinary items............ 41,926 62,022 184,761 206,016 Extraordinary items -- Loss on redemption of debt by unconsolidated affiliate, net of income tax benefit of $1,677................... -- -- 3,124 -- Loss on redemption of debt, net of income tax benefit of $908 and $4,467.......... 1,685 -- 1,685 12,159 ---------- ---------- ---------- ---------- Net income................................... $ 40,241 $ 62,022 $ 179,952 $ 193,857 ========== ========== ========== ========== Number of common and common equivalent shares used in computing earnings per share....... 204,020 200,932 203,019 200,395 ========== ========== ========== ========== Earnings per common and common equivalent share: Income before extraordinary items.......... $ .21 $ .31 $ .91 $ 1.03 Extraordinary items........................ (.01) -- (.02) (.06) ---------- ---------- ---------- ---------- Net income................................. $ .20 $ .31 $ .89 $ .97 ========== ========== ========== ========== Cash dividends per common share.............. $ .17 $ .17 $ .51 $ .51 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 2 3 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS
JUNE 30, SEPTEMBER 30, 1997 1996 ----------- ------------- (IN THOUSANDS) (UNAUDITED) Current assets: Cash...................................................... $ 99,312 $ 110,224 Short-term investments.................................... 79,062 26,394 Receivables -- Trade, net of allowances for doubtful accounts of $37,974 and $40,622.................................... 854,151 929,316 Other................................................... 87,240 42,543 Inventories............................................... 42,301 51,536 Deferred income taxes..................................... 113,868 119,914 Prepayments and other..................................... 82,886 107,868 ---------- ---------- Total current assets............................... 1,358,820 1,387,795 ---------- ---------- Property and equipment, at cost, less accumulated depreciation and amortization of $2,506,545 and $2,737,788................................................ 3,547,448 3,920,721 ---------- ---------- Other assets: Cost over fair value of net tangible assets of acquired businesses, net of accumulated amortization of $159,448 and $138,636............................................ 1,452,220 1,671,461 Other intangible assets, net of accumulated amortization of $88,373 and $110,835................................. 90,427 110,925 Deferred income taxes..................................... 118,299 122,617 Investments in unconsolidated affiliates.................. 243,290 287,051 Other..................................................... 91,719 100,336 ---------- ---------- Total other assets................................. 1,995,955 2,292,390 ---------- ---------- Total assets....................................... $6,902,223 $7,600,906 ========== ========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt......................... $ 33,692 $ 59,806 Accounts payable.......................................... 424,841 507,731 Accrued liabilities -- Salaries and wages...................................... 106,966 129,203 Taxes, other than income................................ 61,596 40,876 Other................................................... 449,238 430,187 Income taxes.............................................. 22,990 35,586 Deferred revenues......................................... 184,025 195,101 ---------- ---------- Total current liabilities.......................... 1,283,348 1,398,490 ---------- ---------- Deferred items: Accrued environmental and landfill costs.................. 511,212 541,838 Deferred income taxes..................................... 145,416 108,041 Other..................................................... 255,331 275,374 ---------- ---------- Total deferred items............................... 911,959 925,253 ---------- ---------- Long-term debt, net of current portion...................... 2,110,581 2,766,885 ---------- ---------- Commitments and contingencies Common stockholders' equity: Common stock, $.16 2/3 par; 400,000,000 shares authorized; 213,387,697 and 213,390,458 shares issued............... 35,572 35,572 Additional paid-in capital................................ 1,808,222 1,730,612 Retained earnings......................................... 1,048,265 1,031,331 Treasury stock, 1,147,931 and 1,027,278 shares, at cost... (15,611) (11,926) Stock and Employee Benefit Trust, 8,424,452 and 11,012,423 shares.................................................. (280,113) (275,311) ---------- ---------- Total common stockholders' equity.................. 2,596,335 2,510,278 ---------- ---------- Total liabilities and common stockholders' equity........................................... $6,902,223 $7,600,906 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 4 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED JUNE 30, ---------------------- 1997 1996 --------- --------- Cash Flows from Operating Activities: Net income................................................ $ 179,952 $ 193,857 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization -- Property and equipment............................... 381,268 384,981 Goodwill............................................. 33,317 34,725 Other intangible assets.............................. 19,191 25,086 Special charges, net................................... 84,127 -- Deferred income tax expense............................ 7,235 20,005 Amortization of deferred investment tax credit......... (530) (530) Provision for losses on accounts receivable............ 23,444 20,427 Gains on sales of fixed assets......................... (5,669) (3,984) Equity in earnings of unconsolidated affiliates, net of dividends received and extraordinary item............. 14,726 (2,086) Minority interest in income of consolidated subsidiaries, net of dividends paid................... 8,657 7,299 Increase (decrease) in cash from changes in assets and liabilities excluding effects of acquisitions and divestitures -- Trade receivables.................................... (57,146) (33,896) Inventories.......................................... 3,219 2,139 Other assets......................................... 35,691 15,765 Other liabilities.................................... (5,056) (115,787) --------- --------- Total adjustments................................. 542,474 354,144 --------- --------- Net cash provided by operating activities......... 722,426 548,001 --------- --------- Cash Flows from Investing Activities: Capital expenditures...................................... (315,458) (656,628) Payments for businesses acquired.......................... (15,353) (162,722) Proceeds from businesses divested......................... 300,099 -- Investments in unconsolidated affiliates.................. (37,139) (92,389) Proceeds from disposition of assets....................... 33,257 44,383 Purchases of short-term investments....................... (53,603) -- Sales of short-term investments........................... -- 273,647 Return of investment in unconsolidated affiliates......... 35,625 37,863 --------- --------- Net cash used in investing activities............. (52,572) (555,846) --------- --------- Cash Flows from Financing Activities: Proceeds from issuances of stock.......................... 46,938 12,189 Proceeds from issuance of indebtedness.................... 114,535 979,813 Repayments of indebtedness................................ (735,803) (888,715) Dividends paid............................................ (102,947) (101,615) --------- --------- Net cash provided by (used in) financing activities...................................... (677,277) 1,672 --------- --------- Effect of exchange rate changes............................. (3,489) (1,542) --------- --------- Net decrease in cash........................................ (10,912) (7,715) Cash at beginning of period................................. 110,224 92,808 --------- --------- Cash at end of period....................................... $ 99,312 $ 85,093 --------- --------- Supplemental disclosure of cash paid for: Interest, net of capitalized amounts...................... $ 122,596 $ 109,663 Income taxes.............................................. $ 137,167 $ 134,161
The accompanying notes are an integral part of these financial statements. 4 5 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION -- The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary to a fair presentation of these financial statements have been included. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1996, as filed with the Securities and Exchange Commission. In October 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121 -- "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which was issued by the Financial Accounting Standards Board in March 1995. The statement sets forth standards for the recognition and measurement of impairment of long-lived assets, including certain identifiable intangible assets and goodwill related to those assets, to be held and used in an entity's operations or expected to be disposed of. As the Company's prior accounting practices were substantially in compliance with the provisions of the new standard, the adoption of SFAS No. 121 had no material effect on the Company's financial position or results of operations. In January 1997, the Securities and Exchange Commission issued Release 33-7386 governing disclosure requirements for financial instruments, including derivatives. The disclosures related to the Company's accounting policies for derivative transactions are required to be included in the Company's financial statements for the quarter ended June 30, 1997. The Company believes that the disclosures included in the Company's Annual Report on Form 10-K for the year ended September 30, 1996 are in compliance with the requirements of this release. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 -- "Earnings Per Share". This statement, which establishes new standards for computing and presenting earnings per share, is effective for the Company's quarter ending December 31, 1997 and requires restatement for all periods presented. The Company believes that the adoption of SFAS No. 128 will not have a material effect on its earnings per share calculations. (2) EARNINGS PER COMMON SHARE -- The following table reconciles the number of common shares outstanding with the number of common and common equivalent shares used in computing primary earnings per share (in thousands):
NINE MONTHS ENDED JUNE 30, ------------------ 1997 1996 ------- ------- Common shares outstanding, end of period.................... 212,240 212,363 Less -- Shares held in the Stock and Employee Benefit Trust..................................................... (8,424) (11,326) ------- ------- Common shares outstanding for purposes of computing primary earnings per share, end of period......................... 203,816 201,037 Effect of using weighted average common and common equivalent shares outstanding............................. (1,552) (1,505) Effect of shares issuable under stock option plans based on the treasury stock method................................. 755 863 ------- ------- Shares used in computing earnings per share................. 203,019 200,395 ======= =======
5 6 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Shares of common stock held in the Stock and Employee Benefit Trust (the "Trust") are not considered to be outstanding in the computation of common shares outstanding until shares are utilized at the Company's option for the purposes for which the Trust was established. The difference between shares for primary and fully diluted earnings per share was not significant in any period. Conversion of the 6 3/4% Convertible Subordinated Debentures due 2005, which were determined not to be common stock equivalents, was not assumed in the computation of fully diluted earnings per share because the debentures had an anti-dilutive effect in the periods prior to their redemption in February 1996. Earnings per common and common equivalent share were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during each period. Common stock equivalents include stock options, the Company's 6 3/4% Convertible Subordinated Debentures due 2012 (the "6 3/4% Debentures"), which were redeemed in February 1996, and the 7.25% Automatic Common Exchange Securities. The effect of the 6 3/4% Debentures on earnings per share was not significant in the period prior to their redemption in February 1996 and, accordingly, has not been included in the computation. The 7.25% Automatic Common Exchange Securities had no effect on the computations for the periods presented. (3) SPECIAL CHARGES -- Fourth Quarter of Fiscal 1996 ($447 million) -- Special charges of $447 million ($362 million or $1.80 per share after income taxes) were included in the Company's results of operations for the fourth quarter of fiscal 1996. Charges of $349 million resulted principally from management decisions to sell the Company's Italian operations, divest certain domestic and international non-core business assets and operations and close certain recycling facilities not expected to achieve desired performance objectives. The remainder of the special charges related to the writedown of the Company's investment in the Azusa, California landfill to fair value, which was determined based upon the present value of the estimated future cash flows using a discount rate commensurate with the risks involved. This writedown was a result of the changing competitive nature of waste disposal in the Los Angeles market area and the continuing negative legal climate, including adverse decisions by California judicial and regulatory authorities in fiscal 1996 and early fiscal 1997, bearing on the site's ability to accept municipal solid waste. During the third quarter of fiscal 1997, the Company sold the Azusa, California landfill facility. The Company completed the sale of its Italian operations in late June 1997. The Company's investment in its Italian operations, before considering special charges, was $206 million as of September 30, 1996. Losses accumulated in the foreign currency translation component of common stockholders' equity (approximately $53 million) were recognized as an additional loss on the sale of the Company's Italian operations upon consummation of the sale in June 1997 and were included in the third quarter special charge (see discussion below). Summary financial information related to the Company's Italian operations is as follows (in thousands):
FOR THE NINE MONTHS ENDED FOR THE JUNE 30 YEAR ENDED ------------------- SEPTEMBER 30, 1997 1996 1996 ------- ------- ------------- Revenues........................................... $81,926 $88,450 $122,782 Losses from operations and equity in earnings of unconsolidated affiliates before special charges.......................................... $(2,190)(1) $ (763) $ (4,019)(2)
- --------------- (1) Does not reflect impact of special charges taken in third quarter of fiscal 1997 (see below). (2) Does not reflect special charge of $178.6 million included in the fourth quarter of fiscal 1996. 6 7 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fourth quarter special charge also included approximately $177 million of assets as of September 30, 1996 associated with domestic and international non-core business assets and operations to be divested and recycling facilities to be closed during fiscal 1997. The results of operations for these non-core business assets and operations and recycling facilities were not material to the Company's consolidated results of operations for fiscal 1996 as the aggregated revenues and income (loss) from operations of these assets and operations represented less than 4% of the Company's corresponding consolidated totals, on a pre-special charge basis. During the first nine months of the current fiscal year, the Company sold a number of these business operations and closed 33 recycling facilities. Third Quarter of Fiscal 1997 ($84 million) -- Special charges of $84 million ($50 million or $0.25 per share after income taxes) were reported in the third quarter of fiscal 1997. Included in these special charges were non-cash expenses of $53 million due to cumulative foreign currency translation losses associated with the sale of Italian business operations and $96 million for anticipated losses related to decisions to divest additional underperforming or non-core business operations and assets located primarily in the United Kingdom, the Netherlands and the United States. These losses were offset partially by net gains of $65 million arising largely from 34 divestitures completed in the current quarter, principally in North America. The results of operations for these additional underperforming or non-core business operations to be divested were not material to the Company's consolidated results of operations for the nine months ended June 30, 1997 as the aggregated total assets, revenues and income (loss) from operations of these assets and business operations represented approximately 3% or less of the Company's corresponding consolidated totals, on a pre-special charge basis. (4) BUSINESS COMBINATIONS -- During the current fiscal year, the Company paid approximately $21.3 million (including additional amounts payable, principally to former owners, of $5.9 million) to acquire 17 solid waste businesses, which were accounted for as purchases. In connection with these acquisitions, the Company recorded additional interest-bearing indebtedness of $.1 million and other liabilities of $1.0 million. The results of these business combinations are not material to the Company's consolidated results of operations or financial position. During the prior fiscal year, the Company paid approximately $243.4 million (including additional amounts payable, principally to former owners, of $23.3 million and the issuance of 974,085 shares of the Company's common stock valued at $28.3 million) to acquire 102 solid waste businesses, which were accounted for as purchases, including the acquisition of the remaining 50% ownership interest of Pfitzenmeier & Rau ("P&R"), a joint venture previously owned 50% by Otto Waste Services, a 50% owned subsidiary of the Company. In connection with these acquisitions, the Company recorded additional interest-bearing indebtedness of $69.3 million (including $55.0 million related to P&R) and other liabilities of $37.4 million. The results of these business combinations were not material to the Company's consolidated results of operations or financial position. The results of all businesses acquired in fiscal years 1997 and 1996 have been included in the consolidated financial statements from the dates of acquisition. In allocating purchase price, the assets acquired and liabilities assumed in connection with the Company's acquisitions have been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. As a result, the financial information included in the Company's consolidated financial statements is subject to adjustment prospectively as subsequent revisions in estimates of fair value, if any, are necessary. 7 8 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) LONG-TERM DEBT -- Long-term debt at June 30, 1997, and September 30, 1996, was as follows (in thousands):
JUNE 30, SEPTEMBER 30, 1997 1996 ---------- ------------- Senior indebtedness: 6.10% Senior Notes, net of unamortized discount of $1,617 and $1,838............................................ $ 198,383 $ 198,162 6.375% Senior Notes, net of unamortized discount of $1,915 and $2,051..................................... 198,085 197,949 7 7/8% Senior Notes, net of unamortized discount of $714 and $783.............................................. 299,286 299,217 7.40% Debentures, net of unamortized discount of $2,042 and $2,082............................................ 397,958 397,918 9 1/4% Debentures........................................ 100,000 100,000 Solid waste revenue bond obligations..................... 171,726 149,127 Other notes payable...................................... 523,914 804,721 ---------- ---------- 1,889,352 2,147,094 Commercial paper and short-term facilities to be refinanced............................................ 254,921 679,597 ---------- ---------- Total long-term debt..................................... 2,144,273 2,826,691 Less current portion..................................... 33,692 59,806 ---------- ---------- Long-term debt, net of current portion................... $2,110,581 $2,766,885 ========== ==========
During December 1996, the Company amended the terms of its existing $750 million Multicurrency Revolving Credit Agreement which was originally established to fund the Company's acquisition of Attwoods plc in December 1994. Under the terms of the amended agreement, the facility has a 364-day term with a one-year term-out option available to the Company at any time prior to its maturity date in December 1997. The agreement contains a net worth requirement consistent with the Company's $1 billion revolving credit agreement. It is the Company's intention to refinance certain commercial paper balances and other outstanding borrowings classified as long-term debt through the use of existing committed long-term bank credit agreements in the event that alternative long-term refinancing is not arranged. A summary by country of such commercial paper balances and other outstanding borrowings classified as long-term debt as of June 30, 1997 and September 30, 1996 is as follows (amounts in thousands):
JUNE 30, SEPTEMBER 30, 1997 1996 -------- ------------- United States -- Commercial paper........................... $ -- $438,296 Germany..................................................... 254,921 241,301 -------- -------- $254,921 $679,597 ======== ========
As of June 30, 1997, distributions from retained earnings could not exceed $1.1 billion under the most restrictive of the Company's net worth maintenance requirements. (6) EXTRAORDINARY ITEMS -- During the second quarter of fiscal 1997, one of the Company's unconsolidated affiliates, American Ref-Fuel Company of Hempstead, incurred a pre-tax charge to expense of $9.6 million associated with the redemption of approximately $250 million principal amount of Series 1985 Bonds, which were refinanced. As a result, the Company has reflected an extraordinary charge, after tax, of $3.1 million (or approximately $.02 8 9 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) per share) in its consolidated statement of income for the quarter ended March 31, 1997, related to its 50% ownership interest in this affiliate. Interest was payable on the Series 1985 Bonds due 2010 at a weighted average interest rate of approximately 7.3%, compared with the weighted average interest rate of approximately 5% for the new bonds, which are also due in 2010. During the third quarter of fiscal 1997, the Company redeemed $160 million of private placement notes previously scheduled to mature in fiscal 1998 and $11.8 million of tax-exempt debt associated with a landfill in Arizona sold by the Company. These redemptions resulted in extraordinary charges to the Company's net income of $1.7 million, after tax, or approximately $.01 per share in the third quarter. (7) COMMITMENTS AND CONTINGENCIES -- Legal Proceedings. The Company and certain subsidiaries are involved in various administrative matters or litigation, including personal injury and other civil actions, as well as other claims and disputes that could result in additional litigation or other adversary proceedings. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular quarterly or annual reporting period, management believes that the ultimate disposition of these matters will not have a materially adverse effect upon the consolidated financial position of the Company. Environmental Proceedings. The Company and certain subsidiaries are involved in various environmental matters or proceedings, including original or renewal permit application proceedings in connection with the establishment, operation, expansion, closure and post-closure activities of certain landfill disposal facilities, and proceedings relating to governmental actions resulting from the involvement of various subsidiaries of the Company with certain waste sites (including Superfund sites), as well as other matters or claims that could result in additional environmental proceedings. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular quarterly or annual reporting period, management believes that the ultimate disposition of these matters will not have a materially adverse effect upon the consolidated financial position of the Company. (8) AUTOMATIC COMMON EXCHANGE SECURITIES -- In July 1995, the Company issued to the public 11,499,200 7.25% Automatic Common Exchange Securities with a stated amount of $35.625 per security ($409.7 million in total). Each security consists of (1) a purchase contract under which (a) the holder will purchase from the Company on June 30, 1998 (earlier under certain circumstances), for an amount in cash equal to the stated amount of $35.625, between .8333 of a share (in total approximately 9.6 million shares) and one share (a maximum of 11,499,200 shares) of the Company's common stock (depending on the then market value of the common stock) and (b) the Company will pay the holder contract fees at the rate of 2.125% per annum on the security, and (2) 5.125% United States Treasury Notes having a principal amount equal to $35.625 and maturing on June 30, 1998. The Treasury Notes underlying these securities are pledged as collateral to secure the holder's obligation to purchase the Company's common stock under the purchase contract. The principal of the Treasury Notes underlying such securities, when paid at maturity, will automatically be applied to satisfy in full the holder's obligation to purchase the Company's common stock. These securities are not included on the Company's balance sheet; an increase in common stockholders' equity will be reflected when cash proceeds are received by the Company. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's operations, financial performance and results includes statements that are not historical facts. Such statements are forward-looking statements based on the Company's expectations and as such, these statements are subject to uncertainty and risk. These statements should be read in conjunction with the "Regulation", "Competition" and "Waste Disposal Risk Factors" sections of the Company's Annual Report on Form 10-K for the year ended September 30, 1996 ("the Form 10-K"), which describes many of the external factors that could cause the Company's actual results to differ materially from the Company's expectations. The Company's Form 10-K is on file with the U.S. Securities and Exchange Commission, a copy of which is available without charge upon written request to: Browning- Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253, Attention: Secretary. RESULTS OF OPERATIONS Net income for the nine months ended June 30, 1997, was $235.2 million ($1.16 per share), before special charges and extraordinary items, an increase of 14.2% from the same prior year period, on consolidated revenues of $4.380 billion. Pre-tax special charges reported in the third quarter of fiscal 1997 were $84 million ($50 million or $0.25 per share after tax). The fiscal 1997 nine-month results also included after-tax extraordinary items of $4.8 million, or $0.02 per share, associated with the retirement of debt. After the special charges and extraordinary items, net income for the nine months ended June 30, 1997 was $180.0 million, or $0.89 per share. Included in the third quarter pre-tax special charges of $84 million were non-cash expenses of $53 million due to cumulative foreign currency translation losses associated with the sale of Italian business operations and $96 million for anticipated losses related to decisions to divest additional underperforming or non-core business operations and assets located primarily in the United Kingdom, the Netherlands and the United States. These losses were offset partially by net gains of $65 million arising largely from 34 divestitures completed in the third quarter, principally in North America. The $4.8 million of extraordinary items included in the current year-to-date results were associated with the redemption and refinancing of $250 million of debt of one of the Company's unconsolidated affiliates, American Ref-Fuel Company of Hempstead, the redemption of $11.8 million in tax-exempt debt associated with a landfill in Arizona sold by the Company in the third quarter and the redemption of $160 million in private placement notes previously scheduled to mature in fiscal 1998. These year-to-date results compare with net income before an extraordinary item for the same fiscal 1996 period of $206.0 million, or $1.03 per share, on consolidated revenues of $4.276 billion. The fiscal 1996 extraordinary item of $12.2 million, after tax ($0.06 per share), was associated with the redemption of $745 million of Convertible Subordinated Debentures. After the extraordinary item, net income for the nine months ended June 30, 1996, was $193.9 million or $0.97 per share. Fiscal 1997 year-to-date results, before special charges and extraordinary items, were favorably affected by improved operating profit in the Company's North American operations, which resulted from actions taken to (1) reduce SG&A staffing levels and operating costs in the Company's collection and recycling businesses, (2) improve customer pricing and (3) divest underperforming operations and assets. Similar actions taken in the Company's international operations have also recently begun to impact favorably the Company's international operating results. Current year-to-date results were affected negatively by severance and reorganization expenses of approximately $18 million associated with both the reorganization of North American operations in June 1996 and the reductions, principally in the first half of the current fiscal year, in worldwide employee staffing levels to effect improvements in operating and administrative efficiency. Additionally, an increase in the Company's income from operations of $19.5 million, principally due to lower depreciation and amortization expense, was reflected in the current year-to-date earnings as a result of the special charges of $447 million taken in the fourth quarter of fiscal 1996 (see Note (3) of Notes to Consolidated Financial Statements). 10 11 During the first nine months of fiscal 1997, the Company's actions reflected its previously announced strategic shift in focus away from an emphasis on external growth to an emphasis on internal growth and on increasing return on assets. The redeployment and retraining of the sales force that was completed in the first half of the current fiscal year is enabling sales personnel to better focus on the Company's customers. In addition, the plan to reduce selling, general and administrative expenses ("SG&A"), commenced during the first quarter of fiscal 1997, has resulted in the reduction of approximately 1,300 employees worldwide since the Company announced its reorganization in June 1996 and the consolidation of certain business and administrative activities. SG&A as a percent of revenues was 14.2% for the first nine months of fiscal 1997, lower than the same period of the prior year (15.0%). With a quarter remaining in fiscal 1997, the Company is on track to exceed its SG&A milestone, which is to reduce SG&A as a percent of revenues to 14.6% for the fiscal year. During the first quarter of fiscal 1997, the Company completed its initial marketplace and business line strategic reviews and identified core and non-core business operations (including those considered in the special charges incurred in the fourth quarter of fiscal 1996) to be marketed and sold with aggregate annual revenues of approximately $270 million in the U.S. and $130 million outside of the U.S. The Company has continued its strategic reviews of underperforming marketplaces since the first quarter. The goal of these reviews is to identify the key drivers of performance or underperformance in each marketplace and identify actions to improve the business operations. However, in some cases, these reviews have resulted in a conclusion to divest the operations as it is evident that the Company will be unable to achieve its desired returns even with identified areas for improvement. As a result of these reviews, the Company has identified additional business operations with annual revenues of $130 million in North America and $155 million (a portion of which is not consolidated for financial reporting purposes) in international operations to be divested (including those considered in the current quarter special charges). Through June 1997, the Company has sold business operations with annual revenues of approximately $450 million, with most of these sales concluded subsequent to March 31, 1997. The Company has also identified real estate assets of approximately $60 million that are actively being marketed. In March 1997, the Company initiated an effort to reduce operating expenses by $100 million on an annualized basis by the beginning of the fourth quarter of fiscal 1997. Through June 30, the Company had reduced operating headcount by approximately 800 employees through the re-routing of trucks, consolidations and closures of operating facilities and, where appropriate, after careful review, a reduction in supervisory personnel. Although this goal has not yet been fully achieved, the ability to further reduce operating expenses in recycling business operations will significantly affect the Company's ability to achieve this operating expense reduction goal by fiscal yearend. The focus in the recycling business is on (1) cleaning up the volumes received to reduce sorting costs and increase the quality or value of the material to be sold and (2) closing or selling the remaining higher cost, lower efficiency facilities. During the first nine months of fiscal 1997, the Company closed or sold 49 recycleries. The Company's focus on asset management continued during the third quarter. Reduced capital spending will lead to lower fixed costs, which is another contributor to the Company's effort to reduce operating costs. Capital expenditures, including acquisitions, for the first nine months of fiscal 1997 were limited to $352 million. 11 12 The following profitability ratios (shown as a percent of revenues) reflect certain profitability trends for the Company's operations. The Company has established an operating profit milestone for fiscal 1997 to increase income from operations as a percent of revenues to 12%. (Progress toward this goal will be measured on a pre-special charge basis.) Also presented below are return on asset information and ratios of earnings to fixed charges.
NINE MONTHS ENDED ----------------- YEAR ENDED 6/30/97 6/30/96 9/30/96 ------- ------- ---------- Profitability Margins: Gross profit............................................. 25.6% 25.4% 25.3% Income from operations before special charges............ 11.4% 10.4% 10.2% Income from operations................................... 9.5% 10.4% 2.5% Income before income taxes, minority interest and extraordinary items................................... 7.4% 8.3% 0.5% Net income before special charges and extraordinary items(1).............................................. 5.4% 4.8% 4.7% Net income (loss)(1)..................................... 4.1% 4.5% (1.8)% Other Financial Information: Return on Gross Assets................................... 8.66% 8.55% 11.4% Ratio of earnings to fixed charges before special charges(1)............................................ 3.02 2.84 2.77 Ratio of earnings to fixed charges(1).................... 2.59 2.84 1.02
- --------------- (1) Does not reflect the pro forma effect of the use of cash proceeds of $409.7 million to be received in the future under the provisions of the 7.25% Automatic Common Exchange Securities. (See Note (8) of Notes to Consolidated Financial Statements.) Improvement was reflected in all of the profitability margins, before considering special charges and extraordinary items, presented above for the nine months ended June 30, 1997 compared with the same period of the prior year. Although these profitability margins continued to be affected negatively in domestic operations by the decline in the weighted average value of recycling commodities in the current fiscal year as compared with the first nine months of the prior year, the North American income from operations margin reflected improvement as a result of improved profitability in solid waste collection, recycling and, to a lesser extent, transfer and disposal operations. Reduced SG&A expenses as a percentage of revenues also affected favorably the North American income from operations margin. The weighted average market prices for recycling commodities in North America, principally corrugated, office paper and newspaper, declined by 12%, to approximately $62 per ton in the first nine months of the current year from approximately $70 per ton in the comparable period last year. Current year profitability margins were also affected negatively by the increased operating and SG&A costs associated with current year employee severance and reorganization expenses of approximately $18 million, although this effect was more than offset by the increase in income from operations of $19.5 million associated principally with the reduced depreciation and amortization expense resulting from the special charges taken in the fourth quarter of fiscal 1996. In the Company's international operations, the gross profit margin was flat and income from operations margin improved in the current year compared with the same period of the prior year. International results, although adversely impacted by severance costs and foreign exchange losses, improved principally as a result of higher seasonal operating profitability from German operations. As stated above, management's focus has shifted from external growth to an emphasis on internal growth with success measured by cash flow and return on gross assets. Return on gross assets ("ROGA"), although not a measure of financial performance under generally accepted accounting principles, is a new measurement for the Company representing the quotient of operating cash flow divided by average gross assets, where operating cash flow and gross assets are defined generally as follows: Operating cash flow -- the sum of (i) net income before extraordinary items, (ii) minority interest, (iii) interest expense, net of related income tax benefit, (iv) depreciation and amortization expense and (v) asset impairment writedowns (e.g. special charges in fiscal 1996 and the current quarter of fiscal 1997). 12 13 Gross assets -- the sum of total assets, accumulated depreciation and amortization, and asset impairment writedowns (until such assets are sold or otherwise disposed of -- approximately $175 million at June 30, 1997 and $382 million at September 30, 1996) less the sum of (i) current liabilities, net of interest-bearing indebtedness included therein, (ii) accrued environmental and landfill costs associated with the continuing operations of the Company (approximately $447 million at June 30, 1997) and (iii) deferred income tax liabilities. Gross assets in the ROGA computations for the first nine months of a fiscal year is the average of the applicable beginning of year and end of first, second and third quarter amounts; gross assets for a fiscal year is the average of the applicable five quarter-end amounts in the period. The Company established a ROGA milestone for fiscal 1997 to increase ROGA by 0.5% from fiscal 1996 to 11.9%. Total assets decreased from $7.60 billion at September 30, 1996 to $6.90 billion at June 30, 1997. Average gross assets of approximately $8.72 billion in the computation of ROGA resulted from a decline in gross assets at June 30, 1997, compared with September 30, 1996 ($9.06 billion). The decreases in assets and gross assets were principally attributable to the divestitures completed through June 30, 1997, and the decrease in assets related to foreign currency exchange, a result of the strengthening U.S. dollar against the German, Dutch, and Spanish currencies, offset partially by capital expenditures during the first nine months of fiscal 1997. The decrease in assets was also attributable to the increase in accumulated depreciation and amortization. While the Company is on track to exceed its fiscal 1997 milestones for lower SG&A costs, reduced capital spending and reduced interest-bearing debt levels, management believes that the operating income margin and ROGA milestones are very challenging, but still may be achievable. Management believes that operating margin and ROGA improvements will come from decreased operating and SG&A costs, additional divestitures, internal growth and normal seasonal improvement over the remainder of the fiscal year. EBITDA (defined herein as income from operations plus depreciation and amortization expense before considering special charges) was $932 million for the first nine months of fiscal 1997 as compared with $888 million for the first nine months of last year. EBITDA, which is not a measure of financial performance under generally accepted accounting principles, is included in this discussion because the Company understands that such information is used by certain investors when analyzing the Company's financial condition and performance. 13 14 Revenues -- Revenues for the nine months ended June 30, 1997, were $4.38 billion, a 2.4% increase over the same period last year. The following table reflects total revenues of the Company by each of the principal lines of business (dollar amounts in thousands):
NINE MONTHS ENDED ----------------------- JUNE 30, JUNE 30, % 1997 1996 CHANGE ---------- ---------- ------ North American Operations (including Canada) -- Collection Services -- Solid Waste..................................... $2,203,095 $2,132,372 3.3% Transfer and Disposal -- Solid Waste Unaffiliated customers........................ 413,600 391,307 5.7% Affiliated companies.......................... 391,230 378,014 3.5% ---------- ---------- 804,830 769,321 4.6% Recycling Services................................. 414,802 397,274 4.4% Medical Waste Services............................. 149,592 150,225 (0.4)% Services Group and Other........................... 73,058 62,830 16.3% Elimination of affiliated companies' revenues...... (391,230) (378,014) 3.5% ---------- ---------- Total North American Operations............ 3,254,147 3,134,008 3.8% International Operations............................. 1,125,973 1,142,028 (1.4)% ---------- ---------- Total Company.............................. $4,380,120 $4,276,036 2.4% ========== ==========
As the table below reflects, revenue growth for the nine months ended June 30, 1997, was due principally to acquisitions and, to a lesser extent, pricing and volume which more than offset the decline related to the divestiture of business operations and foreign currency translation.
CHANGES IN REVENUE FOR NINE MONTHS ENDED JUNE 30, --------------- 1997 1996 ---- ---- Price....................................................... 1.4% (5.9)% Volume...................................................... 0.8 0.1 Acquisitions................................................ 2.7 6.3 Divestitures................................................ (0.8) -- Foreign currency translation................................ (1.7) 0.1 ---- ---- Total Percentage Increase......................... 2.4% 0.6% ==== ====
As shown above, acquisitions accounted for revenue growth of 2.7% for the first nine months of fiscal 1997 over the same period of the prior year. Revenue growth due to acquisitions was attributable principally to acquisitions consummated in fiscal 1996. No significant acquisitions were closed in the first nine months of the current year with the new emphasis on internal rather than external growth. Revenues increased due to change in price during the first nine months of fiscal 1997 despite the decline in pricing in the North American recycling business previously discussed. Increases in revenues due to price were noted in the Company's collection, medical waste and international businesses while a decrease was experienced in the transfer and disposal business. The increases in revenue due to volume in the first nine months of the current year compared with the same period of the prior year were driven by increases in the North American collection, transfer and disposal and recycling businesses. Revenues also reflect the effect of divestitures and lower international revenues from foreign currency translation due to the stronger U.S. dollar. 14 15 Cost of Operations -- Cost of operations increased $70 million or 2.2% for the first nine months of fiscal 1997, compared with the same period of the prior year. Most of the increase in cost of operations is attributable to businesses acquired in fiscal 1996. These increased costs have been offset partially by the impact of divestitures of certain business operations and the operating cost reduction program initiated in March 1997. As a result of this cost reduction program, the Company has reduced its operating headcount by approximately 800 employees through the re-routing of trucks, consolidations and closures of operating facilities and, where appropriate, after careful review, a reduction in supervisory personnel. Cost of operations as a percent of revenues decreased from 74.6% for the nine months ended June 30, 1996 to 74.4% for the nine months ended June 30, 1997. Included in cost of operations is depreciation and amortization expense of approximately $360.0 million and $362.9 million for the nine months ended June 30, 1997 and 1996, respectively. Selling, General and Administrative Expense -- SG&A was $621 million for the first nine months of fiscal 1997, a decrease of 3.3% from the same period last year. SG&A as a percent of revenues decreased from 15.0% of revenues for the nine months ended June 30, 1996 to 14.2% of revenues for the nine months ended June 30, 1997. The $21.4 million decrease in SG&A was driven largely by the reduction in employees worldwide and other cost reduction actions to improve operating and administrative efficiency. This decrease was offset partially by higher costs associated with the Company's acquisition activities and approximately $18 million of severance and reorganization expenses included in SG&A associated with both the reorganization of North American operations in June 1996 and the current year reduction of employees worldwide. Included in SG&A for the nine months ended June 30, 1997 and 1996 was depreciation and amortization expense of $73.8 million and $81.9 million, respectively. Special Charges, net -- Reported in the third quarter of fiscal 1997 were pre-tax special charges of $84 million. The special charges included non-cash expenses of $53 million due to cumulative foreign currency translation losses associated with the sale of Italian business operations and $96 million for anticipated losses related to decisions to divest additional underperforming or non-core business operations located primarily in the United Kingdom, the Netherlands and the United States. These losses were offset partially by net gains of $65 million arising largely from 34 divestitures completed in the third quarter, principally in North America. Net Interest Expense -- Net interest expense increased $3.4 million or 2.7% for the first nine months of fiscal 1997 compared with the same period of the prior year as a result of the increase in average debt outstanding between the periods, associated principally with fiscal 1996 capital expenditures of approximately $1.2 billion. At the end of the third quarter of fiscal 1997, debt outstanding had declined by $682 million from yearend fiscal 1996, largely as a result of the receipt of net proceeds from divested operations, increased cash flow as a result of improved operating performance and the limitation on capital spending during the period. The Company has established a milestone for long-term debt which is to maintain interest-bearing debt at or below the September 30, 1996 level. Equity in Earnings of Unconsolidated Affiliates -- Equity in earnings of unconsolidated affiliates declined slightly between the periods primarily due to the reduction in equity earnings from P&R due to the acquisition of the remaining 50% ownership interest of P&R by Otto Waste Services during the second quarter of fiscal 1996 offset to a large extent by improved earnings from the Company's North American waste-to-energy and Hong Kong equity affiliates. Included in this caption are the earnings of unconsolidated affiliates of Otto Waste Services. The Company consolidates Otto Waste Services' financial results, which include equity in earnings of Otto's unconsolidated affiliates. 15 16 Minority Interest in Income of Consolidated Subsidiaries -- The increase in minority interest in income of consolidated subsidiaries was not significant, $0.9 million for the first nine months of fiscal 1997 compared with the same period of last year. LIQUIDITY AND CAPITAL RESOURCES The Company had a working capital deficit of $10.7 million at September 30, 1996, compared with working capital of $75.5 million at June 30, 1997. Over the long term, it continues to be the Company's desire to maintain substantial available commitments under bank credit agreements or other financial agreements to finance short-term capital requirements in excess of internally generated cash while minimizing working capital. As discussed in Note (8) of Notes to Consolidated Financial Statements, in July 1995, the Company issued to the public 11,499,200 7.25% Automatic Common Exchange Securities with a stated amount of $35.625 per security. These securities are not included on the Company's balance sheet; an increase in common stockholders' equity will be reflected when cash proceeds totaling over $400 million are received by the Company no later than June 30, 1998. Long-term indebtedness including the current portion of long-term debt(including $498.2 million of Otto Waste Services debt, which has not been guaranteed by the Company) as a percentage of total capitalization was 45% as of June 30, 1997, down from 53% at September 30, 1996. The ratio would have been 37% at June 30, 1997, on a pro forma basis assuming that under the provisions related to the Automatic Common Exchange Securities, cash proceeds of $409.7 million were paid to the Company to purchase common stock and such proceeds were utilized to repay long-term debt. The capital appropriations budget for fiscal 1997 was established at $790 million to provide for normal replacement capital needs in the Company's core business, to provide new assets to support planned revenue growth within all consolidated businesses and in anticipation of selective business acquisition and development opportunities. This is a significant reduction from the $1.2 billion level of capital expenditures in fiscal 1996 and is reflective of the new emphasis on internal rather than external growth. As a result of cash flows from operations, proceeds from divestitures and reduced capital spending, the Company has generated surplus cash through the first nine months of fiscal 1997, a portion of which has been utilized to retire outstanding indebtedness. The Company continues to assess the various alternatives for the use of such surplus cash among investing additional capital in the business, increasing dividends, additional debt retirement or a common share repurchase program. As of June 30, 1997, there have been no significant changes in balance sheet caption amounts compared with September 30, 1996, and there have been no material changes in the Company's financial condition from that reported at September 30, 1996, except with respect to the declines in balance sheet amounts associated with the impact of foreign currency exchange resulting from the strengthening of the U.S. dollar against the German, Dutch and Spanish currencies, and except as disclosed herein. 16 17 PART II. -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and certain subsidiaries are involved in various administrative matters or litigation, including original or renewal permit application proceedings in connection with the establishment, operation, expansion, closure and post-closure activities of certain landfill disposal facilities, environmental proceedings relating to governmental actions resulting from the involvement of various subsidiaries of the Company with certain waste sites (including Superfund sites), personal injury and other civil actions, as well as other claims and disputes that could result in additional litigation or other adversary proceedings. While the final resolution of any such litigation or such other matters may have an impact on the Company's consolidated financial results for a particular quarterly or annual reporting period, management believes that the ultimate disposition of such litigation or such other matters will not have a materially adverse effect upon the consolidated financial position of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 12. -- Computation of Ratio of Earnings to Fixed Charges of Browning-Ferris Industries, Inc. and Subsidiaries. 27. -- Financial Data Schedule.
(b) Reports on Form 8-K: None 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BROWNING-FERRIS INDUSTRIES, INC. (Company) /s/ BRUCE E. RANCK ------------------------------------ Bruce E. Ranck President and Chief Executive Officer /s/ JEFFREY E. CURTISS ------------------------------------ Jeffrey E. Curtiss Senior Vice President and Chief Financial Officer Date: August 13, 1997 18 19 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates for Shares should be sent or delivered by each stockholder of the Company or his or her broker, dealer, bank or trust company to the Depositary at one of its addresses set forth below. The Depositary: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Mail: By Facsimile Transmission: First Chicago Trust Company of New York (For Eligible Institutions Only) Tenders & Exchanges (201) 222-4720 P.O. Box 2569 or Suite 4660 (201) 222-4721 Jersey City, New Jersey 07303-2569 Confirm by Telephone: (201) 222-4707 By Hand: By Overnight Courier: First Chicago Trust Company of First Chicago Trust Company of New York New York Tenders & Exchanges Tenders & Exchanges 14 Wall Street, 8th Floor c/o The Depository Trust Company Suite 4680 - BFI 55 Water Street New York, New York 10005 DTC TAD Vietnam Veterans Memorial Plaza New York, New York 10041
Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at the respective telephone numbers and addresses listed below. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, Notice of Guaranteed Delivery or other tender offer materials may be directed to the Information Agent or the Dealer Manager, and such copies will be furnished promptly at the Company's expense. Stockholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. The Information Agent: MORROW & CO., INC. 909 Third Avenue, 20th Floor New York, New York 10022 BANKS AND BROKERS CALL TOLL FREE: (800) 662-5200 ALL OTHERS CALL TOLL FREE: (800) 566-9061 The Dealer Manager: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 (212) 761-5722 (call collect) EX-99.A2 3 FORM OF LETTER OF TRANSMITTAL, DATED SEPT. 4, 1997 1 EXHIBIT a.2 LETTER OF TRANSMITTAL To Accompany Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Browning-Ferris Industries, Inc. Tendered Pursuant to the Offer to Purchase Dated September 4, 1997 THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED. TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, Depositary By Mail: By Overnight Courier: First Chicago Trust Company of New York First Chicago Trust Company of New York Tenders & Exchanges Tenders & Exchanges P.O. Box 2569 14 Wall Street, 8th Floor Suite 4660 Suite 4680 - BFI Jersey City, New Jersey 07303-2569 New York, New York 10005
By Hand: First Chicago Trust Company of New York Tenders & Exchanges c/o The Depository Trust Company 55 Water Street DTC TAD Vietnam Veterans Memorial Plaza New York, New York 10041 2 - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) ON SHARES TENDERED CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ TOTAL SHARES - ------------------------------------------------------------------------------------------------------------------------ * Need not be completed by stockholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares represented by any certificate delivered to the Depositary are being tendered. See Instruction 4. - ------------------------------------------------------------------------------------------------------------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used if certificates are to be forwarded herewith or if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or Philadelphia Depository Trust Company ("PDTC") (hereinafter collectively referred to as the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in Section 3 of the Offer to Purchase (as defined below). Stockholders who cannot deliver their Shares and all other documents required hereby to the Depositary by the Expiration Date (as defined in the Offer to Purchase) must tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. Delivery of documents to the Company or to a Book-Entry Transfer Facility does not constitute a valid delivery. 3 (BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution - -------------------------------------------------------------------------------- Check Applicable Box: [ ] DTC [ ] PDTC Account No. - -------------------------------------------------------------------------------- Transaction Code No. - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Tendering Stockholder(s) - -------------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery - ------------------------------------------------------------------------------- Name of Institution that Guaranteed Delivery - -------------------------------------------------------------------------------- If delivery is by book-entry transfer: Name of Tendering Institution - -------------------------------------------------------------------------------- Check Applicable Box: [ ] DTC [ ] PDTC Account No. - -------------------------------------------------------------------------------- Transaction Code No. - -------------------------------------------------------------------------------- 4 NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), the above-described shares of its Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and First Chicago Trust Company of New York, as the Rights Agent), pursuant to the Company's offer to purchase up to 15,000,000 Shares at a price per Share hereinafter set forth, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 4, 1997 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the "Offer"). Unless the context otherwise requires, all references to Shares shall include the associated Rights. Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof on or after September 4, 1997 (collectively, "Distributions")) and constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and all Distributions, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares and all Distributions, or transfer ownership of such Shares and all Distributions on the account books maintained by any of the Book-Entry Transfer Facilities, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Company, (b) present such Shares and all Distributions for registration and transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and all Distributions, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions and that, when and to the extent the same are accepted for payment by the Company, the Company will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Company to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer, including the undersigned's representation and warranty that (a) the undersigned has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, and (b) the tender of such Shares complies with Rule 14e-4. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer. The undersigned understands that the Company will determine a single per Share price (not greater than $39.00 nor less than $34.00 per Share) (the "Purchase Price") that it will pay for Shares validly tendered and not withdrawn pursuant to the Offer taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The undersigned understands that the Company will select the Purchase Price that will enable it to purchase 15,000,000 Shares (or such lesser number of Shares as are validly tendered at prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the Offer. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 2 or 3 of the Offer to Purchase and in the instructions hereto will constitute an agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer. The undersigned also understands that unless the Rights are redeemed or become separately transferable in accordance with their terms, by tendering Shares the undersigned will also be tendering the associated Rights and that no separate consideration will be paid for such Rights. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of any Shares purchased, and/or return any Shares not tendered or not purchased, in the name(s) of the undersigned (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of any Shares purchased and/or any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Shares purchased and/or return any Shares not tendered or not purchased in the name(s) of, and mail said check and/or any certificates to, the person(s) 5 so indicated. The undersigned recognizes that the Company has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if the Company does not accept for payment any of the Shares so tendered. 6 PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED (SEE INSTRUCTION 5) CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED, THERE IS NO PROPER TENDER OF SHARES. - -------------------------------------------------------------------------------- SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION [ ] The undersigned wants to maximize the chance of having Browning-Ferris Industries, Inc. purchase all the Shares the undersigned is tendering (subject to the possibility of proration). Accordingly, by checking this ONE box INSTEAD OF ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is willing to accept the Purchase Price resulting from the Dutch auction tender process. This action will result in receiving a price per Share of as low as $34.00 or as high as $39.00. --------------------------------------- OR --------------------------------------- SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER By checking ONE of the boxes below INSTEAD OF THE BOX ABOVE, the undersigned hereby tenders Shares at the price checked. This action could result in none of the Shares being purchased if the Purchase Price for the Shares is less than the price checked. A stockholder who desires to tender Shares at more than one price must complete a separate Letter of Transmittal for each price at which Shares are tendered. The same Shares cannot be tendered at more than one price. Price (in dollars) per Share at which Shares are being tendered: [ ] $34.00 [ ] $35.00 [ ] $36.00 [ ] $37.00 [ ] $38.00 [ ] $39.00 [ ] $34.125 [ ] $35.125 [ ] $36.125 [ ] $37.125 [ ] $38.125 [ ] $34.25 [ ] $35.25 [ ] $36.25 [ ] $37.25 [ ] $38.25 [ ] $34.375 [ ] $35.375 [ ] $36.375 [ ] $37.375 [ ] $38.375 [ ] $34.50 [ ] $35.50 [ ] $36.50 [ ] $37.50 [ ] $38.50 [ ] $34.625 [ ] $35.625 [ ] $36.625 [ ] $37.625 [ ] $38.625 [ ] $34.75 [ ] $35.75 [ ] $36.75 [ ] $37.75 [ ] $38.75 [ ] $34.875 [ ] $35.875 [ ] $36.875 [ ] $37.875 [ ] $38.875
ODD LOTS (SEE INSTRUCTION 9) This section is to be completed ONLY if Shares are being tendered by or on behalf of a person owning beneficially an aggregate of fewer than 100 Shares as of the close of business on September 3, 1997. The undersigned either (check one box): [ ] was the beneficial owner of an aggregate of fewer than 100 Shares (including Shares held in the Reinvestment Plan (as such term is defined in the Offer to Purchase)) as of the close of business on September 3, 1997, all of which are being tendered, or [ ] is a broker, dealer, commercial bank, trust company or other nominee that (a) is tendering, for the beneficial owners thereof, Shares with respect to which it is the record owner, and (b) believes, based upon representations made to it by each such beneficial owner, that such beneficial owner owned beneficially an aggregate of fewer than 100 Shares (including Shares held in the Reinvestment Plan and Stock Ownership and Savings Plan) as of the close of business on September 3, 1997 and is tendering all of such Shares. 7 DIVIDEND REINVESTMENT PLAN SHARES (SEE INSTRUCTION 13) This section is to be completed ONLY if Shares held in the Reinvestment Plan are to be tendered. [ ] By checking this box, the undersigned represents that the undersigned is a participant in the Reinvestment Plan and hereby tenders the following number of Shares held in the Reinvestment Plan account of the undersigned: ------------------ Shares* * The undersigned understands and agrees that all Shares held in the Reinvestment Plan account(s) of the undersigned will be tendered if the above box is checked and the space above is left blank. Shares attributable to the Company's dividend of $.19 per Share to be paid on October 6, 1997 to holders of Shares of record on September 19, 1997 will not be eligible to be tendered. See Instruction 13 to this Letter of Transmittal. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 6, 7 AND 8) To be completed ONLY if the check for the purchase price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue [ ] check and/or [ ] certificate(s) to: Name - ------------------------------------------ --------------------------------------------------- (Please Print) Address - ------------------------------------------ --------------------------------------------------- (Include Zip Code) - ---------------------------------------------------- (Taxpayer Identification or Social Security No.) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 6, 7 AND 8) To be completed ONLY if the check for the purchase price of Shares purchased and/or certificates for Shares not tendered or not purchased are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown below the undersigned's signature(s). Mail [ ] check and/or [ ] certificates to: Name - ------------------------------------------ --------------------------------------------------- (Please Print) Address - ------------------------------------------ --------------------------------------------------- (Include Zip Code) CONDITIONAL TENDER A tendering stockholder may condition his or her tender of Shares upon the purchase by the Company of a specified minimum number of the Shares tendered hereby, all as described in the Offer to Purchase, particularly in Section 6 thereof. Unless at least such minimum number of Shares is purchased by the Company pursuant to the terms of the Offer, none of the Shares tendered hereby will be purchased. It is the tendering stockholder's responsibility to calculate such minimum number of Shares, and each stockholder is urged to consult his or her own tax advisor. Unless this box has been completed and a minimum specified, the tender will be deemed unconditional. Minimum number of Shares that must be purchased, if any are purchased: ------------------ Shares 8 SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) * * ------------------------------------------------------------------------------ Signature(s) of Owner(s) * * ------------------------------------------------------------------------------ Dated - ------------------------------------ , 1997 Name(s) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please Print) - -------------------------------------------------------------------------------- Capacity (full title) - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No. - -------------------------------------------------------------------------------- Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 6. GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 6) Name of Firm - -------------------------------------------------------------------------------- Authorized Signature - -------------------------------------------------------------------------------- Dated - ------------------------------------------------------ , 1997 9 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States which is a participant in an approved Signature Guarantee Medallion Program (an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 6. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or if delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on this Letter of Transmittal on or prior to the Expiration Date (as defined in the Offer to Purchase). Stockholders who cannot deliver their Shares and all other required documents to the Depositary on or prior to the Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (with any required signature guarantees) must be received by the Depositary on or prior to the Expiration Date and (c) the certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by this Letter of Transmittal must be received by the Depositary within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. Except as specifically permitted by Section 6 of the Offer to Purchase, no alternative or contingent tenders will be accepted. Fractional Shares will be purchased, unless proration of tendered Shares is required (in which case only fractional Shares held by participants in the Reinvestment Plan (as such term is defined in the Offer to Purchase) will be purchased). See Section 1 of the Offer to Purchase. By executing this Letter of Transmittal (or a facsimile thereof), the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the "Special Payment Instructions" or "Special Delivery Instructions" boxes on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. INDICATION OF PRICE AT WHICH SHARES ARE BEING TENDERED. For Shares to be validly tendered by this Letter of Transmittal, the stockholder must either: (a) check the box under "Shares Tendered at Price Determined by Dutch Auction"; OR (b) check the box indicating the price per Share at which he is tendering Shares under "Shares Tendered at Price Determined by Stockholder". By checking the box under "Shares Tendered at Price Determined by Dutch Auction" you agree to accept the Purchase Price that results from the Dutch Auction tender process, which may be as low as $34.00 or as high as $39.00 per Share. By checking a box under "Shares Tendered at Price Determined by Stockholder," you acknowledge that doing so could result in none of the Shares being purchased if the Purchase Price for the Shares is less than the price you check. Only one box may be checked. If more than one box is checked or if no box is checked, there is no valid tender of Shares. A stockholder wishing to tender portions of his or her Share holdings at different prices must complete a separate Letter of Transmittal for each price at which he or she wishes to tender each such portion of his or her Shares. The same Shares cannot be tendered (unless previously validly withdrawn as provided in Section 4 of the Offer to Purchase) at more than one price. 10 6. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares hereby is held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the Purchase Price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted. 7. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Section 5 of the Offer to Purchase. EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase price of any Shares purchased is to be issued in the name of, and/or any Shares not tendered or not purchased are to be returned to, a person other than the person(s) signing this Letter of Transmittal or if the check and/or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to an address other than that shown above in the box captioned "Description of Shares Tendered," then the boxes captioned "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such stockholder at the Book-Entry Transfer Facility from which such transfer was made. 9. ODD LOTS. As described in the Offer to Purchase, if fewer than all Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date are to be purchased, the Shares purchased first will consist of all Shares tendered by any stockholder who owned beneficially an aggregate of fewer than 100 Shares (including Shares held in the Reinvestment Plan) as of the close of business on September 3, 1997 who validly and unconditionally tendered all such Shares at or below the Purchase Price. Partial tenders of Shares will not qualify for this preference. This preference will not be available unless the box captioned "Odd Lots" in this Letter of Transmittal and the Notice of Guaranteed Delivery, if any, is completed. 10. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required to provide the Depositary with either a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided under "Important Tax Information" below, or a properly completed Form W-8. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering stockholder to 31% federal income tax backup withholding on the payment of the Purchase Price. The box in Part 2 of Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 2 is checked and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the Purchase Price thereafter until a TIN is provided to the Depositary. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and addresses listed below. Requests for additional copies of the Offer to Purchase, this Letter of Transmittal or other tender offer materials may be directed to the Information Agent or the Dealer Manager and such copies will be furnished promptly at the Company's expense. Stockholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 12. IRREGULARITIES. All questions as to the Purchase Price, the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Company, in its sole discretion, and its determination shall be final and binding. The Company reserves the absolute right to reject any or all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of the Company's counsel, be 11 unlawful. The Company also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and the Company's interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. None of the Company, the Dealer Manager, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. 13. REINVESTMENT PLAN. If a tendering stockholder desires to have tendered pursuant to the Offer Shares which such stockholder has accumulated through September 3, 1997 under the Reinvestment Plan, the box captioned "Dividend Reinvestment Plan Shares" should be completed. A participant in the Reinvestment Plan may complete such box on only one Letter of Transmittal submitted by such participant. If a participant submits more than one Letter of Transmittal and completes such box on more than one Letter of Transmittal, the participant will be deemed to have elected to tender all Shares which such participant has accumulated under the Reinvestment Plan through September 3, 1997 at the lowest of the prices specified in such Letters of Transmittal. Upon receipt of the instructions included in such box, the Depositary will notify the Reinvestment Plan agent (the "Reinvestment Plan Agent") of such instructions. The Reinvestment Plan Agent will then accumulate all such instructions from tendering stockholders and will tender the aggregate number of Shares which it has been instructed to tender at the respective prices specified in such instructions. Upon receipt of payment for Shares tendered on behalf of a participant in the Reinvestment Plan the Reinvestment Plan Agent will distribute to such participant the amount received by the Reinvestment Plan Agent in respect of such Shares. On September 3, 1997, the Company declared a dividend of $.19 per Share payable on October 6, 1997, to stockholders of record on September 19, 1997. The dividend will be paid to such stockholders of record regardless of whether or when they tender their Shares pursuant to the Offer. Even if all of the Shares accumulated under the Reinvestment Plan by a participant through September 3, 1997 are purchased by the Company pursuant to the Offer, such participant's account will be credited with any shares attributable to the October 6, 1997 dividend of $.19 per Share, and the stockholder's participation in the Reinvestment Plan will not be terminated. Soon after the Expiration Date and the payment for any Shares the Company accepts pursuant to the Offer, however, the Depositary will contact all stockholders who tendered and sold Shares out of their Reinvestment Plan accounts and inform them of their then current shareholdings (resulting from the October 6, 1997 dividend), and offer such stockholders an opportunity to liquidate that shareholding in their Reinvestment Plan accounts simply by contacting the Depositary. If a stockholder authorizes a tender of his or her Shares held in the Reinvestment Plan, all such Shares held in such stockholder's Reinvestment Plan account(s), including fractional Shares, will be tendered, unless otherwise specified in the appropriate space in the box captioned "Dividend Reinvestment Plan Shares." In the event that the box captioned "Dividend Reinvestment Plan Shares" is not completed, no Shares held in the tendering stockholder's Reinvestment Plan account will be tendered. PARTICIPANTS IN THE STOCK PURCHASE AND SAVINGS PLAN MAY NOT USE THIS LETTER OF TRANSMITTAL TO DIRECT THE TENDER OF THE SHARES ATTRIBUTABLE TO THE PARTICIPANT'S ACCOUNT BUT MUST USE THE "DIRECTION FORM" SENT TO THEM BY THE TRUSTEE OF THE PLAN. PARTICIPANTS IN THE STOCK PURCHASE AND SAVINGS PLAN ARE URGED TO READ THE SEPARATE "TENDER INSTRUCTION FORMS" AND RELATED MATERIALS CAREFULLY. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF) TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). 12 IMPORTANT TAX INFORMATION Under federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payer) with either such stockholder's correct TIN on Substitute Form W-9 below or a properly completed Form W-8. If such stockholder is an individual, the TIN is his or her social security number. For businesses and other entities, the number is the employer identification number. If the Depositary is not provided with the correct TIN on Substitute Form W-9 or a properly completed Form W-8, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding. The Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to federal income tax backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 below certifying that the TIN provided on Substitute Form W-9 is correct and that (a) the stockholder has not been notified by the Internal Revenue Service that he or she is subject to federal income tax backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the stockholder that he or she is no longer subject to federal income tax backup withholding. Foreign stockholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 13 PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK - ----------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND FORM W-9 CERTIFY BY SIGNING AND DATING BELOW. -----------------------------------------------------------
SUBSTITUTE FORM W-9 TIN ----------------------------------- Social Security Number or Employer Identification Number ----------------------------------------------------------- Name (Please Print) DEPARTMENT OF THE TREASURY ---------------------------------------------------------- PART 2 INTERNAL REVENUE SERVICE Address ---------------------------------------------------------- Awaiting -------------------- TIN [ ] City State Zip Code ------------------------------------------------------------------------------- PART 3 -- Certification -- Under the Penalties of Perjury, I certify that (1) the number shown on this form is my correct taxpayer identification number (or a TIN has not been issued to me but I have mailed or delivered an application to receive a TIN or intend to do so in the near future), (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or PAYER'S REQUEST FOR the IRS has notified me that I am no longer subject to backup withholding TAXPAYER IDENTIFICATION NUMBER (TIN) AND CERTIFICATION and (3) all other information provided on this form is true, correct and complete. Signature ------------------------------------------- Date ---------------------- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. - -------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments of the purchase price made to me thereafter will be withheld until I provide a number. Signature - ------------------------------------------------------ Date - ------------------------ , 1997 14 The Information Agent: MORROW & CO., INC. 909 Third Avenue, 20th Floor New York, New York 10022 BANKS AND BROKERS CALL TOLL FREE: (800) 662-5200 ALL OTHERS CALL TOLL FREE: (800) 566-9061 The Dealer Manager: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 (212) 761-5722 (call collect) 15 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE. PURPOSE OF FORM.-- A person who is required to file an information return with the IRS must obtain your correct TIN to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. NOTE: If a requester gives you a form other than a W-9 to request your TIN, you must use the requester's form. HOW TO OBTAIN A TIN.-- If you do not have a TIN, apply for one immediately. To apply, get FORM SS-5, Application for a Social Security Card (for individuals), from your local office of the Social Security Administration, or FORM SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part I (or check box 2 of Substitute Form W-9), sign and date the form, and give it to the requester. Generally, you must obtain a TIN and furnish it to the requester by the time of payment. If the requester does not receive your TIN by the time of payment, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. NOTE: Writing "Applied for" (or checking box 2 of the Substitute Form W-9) on the form means that you have already applied for a TIN OR that you intend to apply for one in the near future. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. WHAT IS BACKUP WITHHOLDING?-- Persons making certain payments to you are required to withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: 1. You do not furnish your TIN to the requester, or 2. The IRS notifies the requester that you furnished an incorrect TIN, or 3. You are notified by the IRS that you are subject to backup withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or 4. You do not certify to the requester that you are not subject to backup withholding under 3 above (for reportable interest and dividend accounts opened after 1983 only), or 5. You do not certify your TIN. This applies only to reportable interest, dividend, broker, or barter exchange accounts opened after 1983, or broker accounts considered inactive in 1983. Except as explained in 5 above, other reportable payments are subject to backup withholding only if 1 or 2 above applies. Certain payees and payments are exempt from backup withholding and information reporting. See PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING, below, and Exempt PAYEES AND PAYMENTS under Specific Instructions, below, if you are an exempt payee. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING.-- The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an IRA, or a custodial account under section 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends generally not subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441. - - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. - - Payments of patronage dividends not paid in money. - - Payments made by certain foreign organizations. Payments of Interest generally not subject to backup withholding include the following: - - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct TIN to the payer. - -Payments of tax-exempt interest (including exempt-interest dividends under section 852). - - Payments described in section 6049(b)(5) to nonresident aliens. - - Payments on tax-free covenant bonds under section 1451. - - Payments made by certain foreign organizations. - - Mortgage interest paid to you. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A, and 6050N, and their regulations. 16 Form W-9 Page 2 - -------------------------------------------------------------------------------- PENALTIES FAILURE TO FURNISH TIN.-- If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.-- If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS.-- If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIFIC INSTRUCTIONS NAME.-- If you are an individual, you must generally provide the name shown on your social security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your social security card, and your new last name. If you are a sole proprietor, you must furnish your individual name and either your SSN or EIN. You may also enter your business name or "doing business as" name on the business name line. Enter your name(s) as shown on your social security card and/or as it was used to apply for your EIN on Form SS-4. SIGNING THE CERTIFICATION. 1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You are required to furnish your correct TIN, but you are not required to sign the certification. 2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. 3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out item 2 of the certification. 4. OTHER PAYMENTS. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified of an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services, payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. 5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN, but you are not required to sign the certification. 6. EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a completed Form W-8, Certificate of Foreign Status. 7. TIN "APPLIED FOR". Follow the instructions under How To Obtain a TIN, on page 1, and sign and date this form. SIGNATURE.-- For a joint account, only the person whose TIN is shown in Part I should sign. PRIVACY ACT NOTICE.-- Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a TIN to a payer. Certain penalties may also apply. WHAT NAME AND NUMBER TO GIVE THE REQUESTER - ------------------------------------------------------------------ FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF: - ------------------------------------------------------------------ 1. Individual The individual 2. Two or more individuals The actual owner of the account (joint account) or, if combined funds, the first individual on the account.(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor-trustee(1) savings trust (grantor is also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) - ------------------------------------------------------------------ FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF: - ------------------------------------------------------------------ 6. Sole proprietorship The owner(3) 7. A valid trust, estate, or Legal entity(4) pension trust 8. Corporate The corporation 9. Association, club, The organization religious, charitable, educational, or other tax-exempt organization 10. Partnership The partnership 11. A broker or registered The broker or nominee nominee 12. Account with the Department The public entity of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - ------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) Show your individual name. You may also enter your business name. You may use your SSN or EIN. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. EX-99.A3 4 FORM OF LETTER TO STOCKHOLDERS, DATED SEPT 4, 1997 1 EXHIBIT a.3 [BROWNING-FERRIS INDUSTRIES, INC. LETTERHEAD] SEPTEMBER 4, 1997 Dear Stockholder: Browning-Ferris Industries, Inc. is offering to purchase up to 15,000,000 shares of its common stock (representing approximately 7.3% of the currently outstanding shares, excluding shares issued to the Company's Stock and Employee Benefit Trust), at a price not greater than $39.00 nor less than $34.00 per share. The Company is conducting the offer through a procedure commonly referred to as a "dutch auction." This procedure allows you to select the price within that range at which you are willing to sell all or a portion of your shares to the Company. Alternatively, this procedure allows you to sell all or a portion of your shares to the Company at a price determined by the "Dutch Auction" process. Based upon the number of shares tendered and the prices specified by the tendering stockholders, the Company will determine the single per-share price within that range that will allow it to buy 15,000,000 shares (or such lesser number of shares that are properly tendered). All of the shares that are properly tendered at prices at or below that purchase price (and are not withdrawn) will -- subject to possible proration, conditional tenders and provisions relating to the tender of "odd lots" -- be purchased for cash at that purchase price, net to the selling stockholder. All other shares that have been tendered and not purchased will be returned to the stockholder. If you do not wish to participate in the offer, you do not need to take any action. The offer is explained in detail in the enclosed Offer to Purchase and Letter of Transmittal. If you want to tender your shares, the instructions on how to do so are also explained in detail in the enclosed materials. I encourage you to read carefully these materials before making any decision with respect to the offer. The Company believes that the purchase of its shares of common stock at this time represents an attractive opportunity that will benefit BFI and its stockholders. However, neither the Company nor its Board of Directors makes any recommendation to any stockholder whether to tender all or any shares. Neither I nor any other director or executive officer intends to tender shares pursuant to the offer. Sincerely, /s/ Bruce E. Ranck Bruce E. Ranck President and Chief Executive Officer EX-99.A4 5 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT a.4 BROWNING-FERRIS INDUSTRIES, INC. NOTICE OF GUARANTEED DELIVERY OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) This form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if certificates for the shares of Common Stock of Browning-Ferris Industries, Inc. are not immediately available, if the procedure for book-entry transfer cannot be completed on a timely basis, or if time will not permit all other documents required by the Letter of Transmittal to be delivered to the Depositary on or prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase defined below). Such form may be delivered by hand or transmitted by mail, or (for Eligible Institutions only) by facsimile transmission, to the Depositary. See Section 3 of the Offer to Purchase. THE ELIGIBLE INSTITUTION, WHICH COMPLETES THIS FORM, MUST COMMUNICATE THE GUARANTEE TO THE DEPOSITARY AND MUST DELIVER THE LETTER OF TRANSMITTAL AND CERTIFICATES FOR SHARES TO THE DEPOSITARY WITHIN THE TIME SHOWN HEREIN. FAILURE TO DO SO COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE INSTITUTION. TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY By Mail: By Facsimile Transmission: First Chicago Trust Company (For Eligible Institutions Only) of New York (201) 222-4720 Tenders & Exchanges or P.O. Box 2569 (201) 222-4721 Suite 4660 Confirm by Telephone: Jersey City, New Jersey 07303-2569 (201) 222-4707 By Hand: By Overnight Courier: First Chicago Trust Company First Chicago Trust Company of New York of New York Tenders & Exchanges Tenders & Exchanges c/o The Depository Trust Company 14 Wall Street, 8th Floor 55 Water Street Suite 4680 -- BFI DTC TAD New York, New York 10005 Vietnam Veterans Memorial Plaza New York, New York 10041
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. 1 2 Ladies and Gentlemen: The undersigned hereby tenders to Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 4, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and First Chicago Trust Company of New York, as Rights Agent), of the Company listed below, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Number of Shares: ------------------------------------------------------ ------------------------------------------------------ Certificate Nos.: (if available) ------------------------------------------------------ If Shares will be tendered by book-entry transfer: Name of Tendering Institution: ------------------------------------------------------ Account No. ________________ at (check one) [ ] The Depository Trust Company [ ] Philadelphia Depository Trust Company ------------------------------------------------------ Signature(s) ------------------------------------------------------ Name(s) (Please Print) ------------------------------------------------------ Address ------------------------------------------------------ ------------------------------------------------------ Area Code and Telephone Number 2 3 PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED, THERE IS NO PROPER TENDER OF SHARES - -------------------------------------------------------------------------------- SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION [ ] The undersigned wants to maximize the chance of having Browning-Ferris Industries, Inc. purchase all the Shares the undersigned is tendering (subject to the possibility of proration). Accordingly, by checking this ONE box INSTEAD OF ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is willing to accept the Purchase Price resulting from the Dutch auction tender process. This action will result in receiving a price per Share of as low as $34.00 or as high as $39.00. ------------------------------ OR ------------------------------ SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER By checking ONE of the boxes below INSTEAD OF THE BOX ABOVE, the undersigned hereby tenders Shares at the price checked. This action could result in none of the Shares being purchased if the Purchase Price for the Shares is less than the price checked. A stockholder who desires to tender Shares at more than one price must complete a separate Letter of Transmittal for each price at which Shares are tendered. The same Shares cannot be tendered at more than one price. Price (in dollars) per Share at which Shares are being tendered: [ ] $34.00 [ ] $35.00 [ ] $36.00 [ ] $37.00 [ ] $38.00 [ ] $39.00 [ ] $34.125 [ ] $35.125 [ ] $36.125 [ ] $37.125 [ ] $38.125 [ ] $34.25 [ ] $35.25 [ ] $36.25 [ ] $37.25 [ ] $38.25 [ ] $34.375 [ ] $35.375 [ ] $36.375 [ ] $37.375 [ ] $38.375 [ ] $34.50 [ ] $35.50 [ ] $36.50 [ ] $37.50 [ ] $38.50 [ ] $34.625 [ ] $35.625 [ ] $36.625 [ ] $37.625 [ ] $38.625 [ ] $34.75 [ ] $35.75 [ ] $36.75 [ ] $37.75 [ ] $38.75 [ ] $34.875 [ ] $35.875 [ ] $36.875 [ ] $37.875 [ ] $38.875
====================================================== CONDITIONAL TENDER ODD LOTS UNLESS THIS BOX HAS BEEN COMPLETED AND A To be completed ONLY if Shares are being MINIMUM SPECIFIED, THE TENDER WILL BE DEEMED tendered or on behalf of persons owning benefi- UNCONDITIONAL (see Sections 6 and 13 of the cially an aggregate of fewer than 100 Shares as Offer to Purchase). of the close of business on September 3, 1997. Minimum number of Shares that must be The undersigned either (check one): purchased, if any are purchased: [ ] was the beneficial owner of an aggregate of --------------- Shares fewer than 100 Shares (including Shares held in the Reinvestment Plan (as such term is defined in the Offer to Purchase)) as of the close of business on September 3, 1997, all of which are tendered, or [ ] is a broker, dealer, commercial bank, trust company or other nominee that (i) is tendering, for the beneficial owners thereof, Shares with respect to which it is the record owner, and (ii) believes, based upon representations made to it by each such beneficial owner, that such beneficial owner owned an aggregate of fewer than 100 Shares (including Shares held in the Reinvestment Plan) as of the close of business on September 3, 1997 and is tendering all of such Shares.
====================================================== 3 4 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, guarantees (a) that the above-named person(s) has a net long position in the Shares (and associated Rights) being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, (b) that such tender of Shares complies with Rule 14e-4 and (c) to deliver to the Depositary at one of its addresses set forth above certificate(s) for the Shares tendered hereby, in proper form for transfer, or a confirmation of the book-entry transfer of the Shares tendered hereby into the Depositary's account at The Depository Trust Company or Philadelphia Depository Trust Company, in each case together with a properly completed and duly executed Letter(s) of Transmittal (or facsimile(s) thereof), with any required signature guarantee(s) and any other required documents, all within three New York Stock Exchange, Inc. trading days after the date hereof. - -------------------------------------------- -------------------------------------------- Name of Firm Authorized Signature - -------------------------------------------- -------------------------------------------- Address Name - -------------------------------------------- -------------------------------------------- City, State, Zip Code Title - -------------------------------------------- Area Code and Telephone Number Dated: - ------------------------------------------ , 1997
DO NOT SEND STOCK CERTIFICATES WITH THIS FORM. YOUR STOCK CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL. 4 EX-99.A5 6 LETTER TO BROKERS, DEALERS, BANKS, TRUSTS - 9/4/97 1 EXHIBIT a.5 MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 BROWNING-FERRIS INDUSTRIES, INC. OFFER TO PURCHASE FOR CASH UP TO 15,000,000 SHARES OF ITS COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED. September 4, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: In our capacity as Dealer Manager (the "Dealer Manager"), we are enclosing the material listed below relating to the offer of Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), to purchase up to 15,000,000 shares of its Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and First Chicago Trust Company of New York, as the Rights Agent), at prices not greater than $39.00 nor less than $34.00 per Share, net to the seller in cash, specified by tendering stockholders, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 4, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"). The Company will determine a single price (not greater than $39.00 nor less than $34.00 per Share) that it will pay for Shares validly tendered pursuant to the Offer (the "Purchase Price"), taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The Company will select the Purchase Price that will enable it to purchase 15,000,000 Shares (or such lesser number of Shares as are validly tendered at prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the Offer. The Company will purchase all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions relating to proration and conditional tenders described in the Offer to Purchase. The Purchase Price will be paid in cash, net to the seller, with respect to all Shares purchased. Shares tendered at prices in excess of the Purchase Price and Shares not purchased because of proration and conditional tenders will be returned. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. The Offer is, however, subject to other conditions. See Section 7 of the Offer to Purchase. We are asking you to contact your clients for whom you hold Shares registered in your name (or in the name of your nominee) or who hold Shares registered in their own names. Please bring the Offer to their attention as promptly as possible. The Company will, upon request, reimburse you for reasonable and customary handling and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. 1 2 For your information and for forwarding to your clients, we are enclosing the following documents: 1. The Offer to Purchase, which includes as annexes thereto the Company's Quarterly Report on Form 10-Q for the third quarter of the Company's 1997 fiscal year other than the exhibits thereto. 2. The Letter of Transmittal for your use and for the information of your clients. 3. A letter to stockholders of the Company from the President and Chief Executive Officer of the Company. 4. The Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to the Depositary by the Expiration Date (as defined in the Offer to Purchase). 5. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space for obtaining such clients' instructions with regard to the Offer. 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding. 7. A return envelope addressed to First Chicago Trust Company of New York, the Depositary. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED. The Company will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer (other than the Dealer Manager). The Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and customary handling and mailing expenses incurred by them in forwarding materials relating to the Offer to their customers. The Company will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 7 of the Letter of Transmittal. As described in the Offer to Purchase, if more than 15,000,000 Shares have been validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date, as defined in Section 1 of the Offer to Purchase, the Company will purchase Shares in the following order of priority: (a) all Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date by any stockholder who owned beneficially an aggregate of fewer than 100 Shares (including any Shares held in the Dividend Reinvestment Plan (the "Reinvestment Plan")) as of the close of business on September 3, 1997 and who validly tenders all of such Shares (partial and conditional tenders will not qualify for this preference) and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery; and (b) after purchase of all the foregoing Shares, subject to the conditional tender provisions described in Section 6 of the Offer to Purchase, all other Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date on a pro rata basis, if necessary (with appropriate adjustments to avoid purchases of fractional Shares, other than Shares held in the Reinvestment Plan). NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. STOCKHOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER. 2 3 Any questions or requests for assistance or additional copies of the enclosed materials may be directed to Morrow & Co., Inc. (the "Information Agent") or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of the enclosed Offer to Purchase. Very truly yours, Morgan Stanley Dean Witter NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.A6 7 FORM OF LETTER TO CLIENTS, DATED SEPT. 4, 1997 1 EXHIBIT a.6 BROWNING-FERRIS INDUSTRIES, INC. OFFER TO PURCHASE FOR CASH UP TO 15,000,000 SHARES OF ITS COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated September 4, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer") setting forth an offer by Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), to purchase up to 15,000,000 shares of its Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and First Chicago Trust Company of New York, as the Rights Agent), at prices not greater than $39.00 nor less than $34.00 per Share, net to the seller in cash, specified by tendering stockholders, upon the terms and subject to the conditions of the Offer. The Company will determine a single per Share price (not greater than $39.00 nor less than $34.00 per Share) that it will pay for the Shares validly tendered pursuant to the Offer and not withdrawn (the "Purchase Price"), taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The Company will select the Purchase Price that will enable it to purchase 15,000,000 Shares (or such lesser number of Shares as are validly tendered at prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the Offer. The Company will purchase all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration and conditional tenders. We are the holder of record of Shares held for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase and the Letter of Transmittal. Your attention is invited to the following: (1) You may tender Shares at either the price determined by you (in multiples of $.125), not greater than $39.00 nor less than $34.00 per Share, or the price determined by "Dutch Auction" as indicated in the attached instruction form, net to you in cash. You should mark the box entitled, "Shares Tendered at Price Determined by Dutch Auction" if you are willing to accept the Purchase Price resulting from the Dutch Auction tender process. This could result in your receiving the minimum price of $34.00 per Share. (2) The Offer is for up to 15,000,000 Shares, constituting approximately 7.3% of the total Shares outstanding as of September 2, 1997. Although it has no present intention of so doing, the Company reserves the right to purchase more than 15,000,000 Shares pursuant to the Offer. The Offer is not conditioned upon any minimum number of Shares being tendered. 1 2 (3) The Offer, proration period and withdrawal rights will expire at 12:00 Midnight, New York City time, on Wednesday, October 1, 1997, unless the Offer is extended. Your instructions to us should be forwarded to us in ample time to permit us to submit a tender on your behalf. If you would like to withdraw your Shares that we have tendered, you can withdraw them so long as the Offer remains open or any time after the expiration of forty business days from the commencement of the Offer if they have not been accepted for payment. (4) As described in the Offer to Purchase, if more than 15,000,000 Shares have been validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date, as defined in Section 1 of the Offer to Purchase, the Company will purchase Shares in the following order of priority: (a) all Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date by any stockholder who owned beneficially an aggregate of fewer than 100 Shares (including any Shares held in the Dividend Reinvestment Plan (the "Reinvestment Plan")) as of the close of business on September 3, 1997 and who validly tenders all of such Shares (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery; and (b) after purchase of all the foregoing Shares, subject to the conditional tender provisions described in Section 6 of the Offer to Purchase, all other Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date on a pro rata basis, if necessary (with appropriate adjustments to avoid purchases of fractional Shares, other than Shares held in the Reinvestment Plan). See Section 1 of the Offer to Purchase for a discussion of proration. (5) Any stock transfer taxes applicable to the sale of Shares to the Company pursuant to the Offer will be paid by the Company, except as otherwise provided in Instruction 7 of the Letter of Transmittal. (6) If you owned beneficially an aggregate of fewer than 100 Shares (including Shares held in the Reinvestment Plan) as of the close of business on September 3, 1997 and you instruct us to tender at or below the Purchase Price on your behalf all such Shares on or prior to the Expiration Date and check the box captioned "Odd Lots" in the instruction form, all such Shares will be accepted for purchase before proration, if any, of the purchase of other tendered Shares. (7) On September 3, 1997, the Board of Directors of the Company declared a dividend of $.19 per Share payable on October 6, 1997, to stockholders of record on September 19, 1997. The dividend will be paid to such stockholders of record regardless of whether or when they tender Shares pursuant to the Offer. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. STOCKHOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER SHARES PURSUANT TO THE OFFER. If you wish to have us tender any or all of your Shares held by us for your account upon the terms and subject to the conditions set forth in the Offer, please so instruct us by completing, executing, detaching and returning to us the instruction form on the detachable part hereof. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified on the detachable part hereof. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf by the expiration of the Offer. A tendering stockholder may condition the tender of Shares upon the purchase by the Company of a specified minimum number of Shares tendered, all as described in Section 6 of the Offer to Purchase. Unless such specified minimum is purchased by the Company pursuant to the terms of the Offer to Purchase and the related Letter of Transmittal, none of the Shares tendered by the stockholder will be purchased. If you wish us to condition your tender upon the purchase of a specified minimum number of Shares, please complete the box entitled "Conditional Tender" on the instruction form. It is the tendering stockholder's responsibility to calculate such minimum number of Shares, and you are urged to consult your own tax advisor. 2 3 The Offer is being made to all holders of Shares. The Company is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to a valid state statute. If the Company becomes aware of any valid state statute prohibiting the making of the Offer, the Company will make a good faith effort to comply with such statute. If, after such good faith effort, the Company cannot comply with such statute, the Offer will not be made to, nor will tenders be accepted from or on behalf of, holders of Shares in such state. In those jurisdictions whose securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Company by Morgan Stanley & Co. Incorporated, as the Dealer Manager, or one or more registered brokers or dealers licensed under the laws of such jurisdictions. 3 4 INSTRUCTIONS WITH RESPECT TO OFFER TO PURCHASE FOR CASH UP TO 15,000,000 SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF BROWNING-FERRIS INDUSTRIES, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated September 4, 1997, and the related Letter of Transmittal (which together constitute the "Offer") in connection with the Offer by Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), to purchase up to 15,000,000 shares of its Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights), at prices not greater than $39.00 nor less than $34.00 per Share, net to the undersigned in cash, specified by the undersigned. This will instruct you to tender to the Company the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, at the price per Share indicated below, upon the terms and subject to the conditions of the Offer. CONDITIONAL TENDER By completing this box, the undersigned conditions the tender authorized hereby on the following minimum number of Shares being purchased if any are purchased. ---------- Shares Unless this box is completed, the tender authorized hereby will be made unconditionally. - -------------------------------------------------------------------------------- PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED. CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS CHECKED, THERE IS NO PROPER TENDER OF SHARES. - -------------------------------------------------------------------------------- SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION [ ] The undersigned wants to maximize the chance of having Browning-Ferris Industries, Inc. purchase all the Shares the undersigned is tendering (subject to the possibility of proration). Accordingly, by checking this ONE box INSTEAD OF ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is willing to accept the Purchase Price resulting from the Dutch auction tender process. This action will result in receiving a price per Share of as low as $34.00 or as high as $39.00. --------------------------------- OR --------------------------------- SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER By checking ONE of the boxes below INSTEAD OF THE BOX ABOVE, the undersigned hereby tenders Shares at the price checked. This action could result in none of the Shares being purchased if the Purchase Price for the Shares is less than the price checked. A stockholder who desires to tender Shares at more than one price must complete a separate Letter of Transmittal for each price at which Shares are tendered. The same Shares cannot be tendered at more than one price. Price (in dollars) per Share at which Shares are being tendered: [ ] $34.00 [ ] $35.00 [ ] $36.00 [ ] $37.00 [ ] $38.00 [ ] $39.00 [ ] $34.125 [ ] $35.125 [ ] $36.125 [ ] $37.125 [ ] $38.125 [ ] $34.25 [ ] $35.25 [ ] $36.25 [ ] $37.25 [ ] $38.25 [ ] $34.375 [ ] $35.375 [ ] $36.375 [ ] $37.375 [ ] $38.375 [ ] $34.50 [ ] $35.50 [ ] $36.50 [ ] $37.50 [ ] $38.50 [ ] $34.625 [ ] $35.625 [ ] $36.625 [ ] $37.625 [ ] $38.625 [ ] $34.75 [ ] $35.75 [ ] $36.75 [ ] $37.75 [ ] $38.75 [ ] $34.875 [ ] $35.875 [ ] $36.875 [ ] $37.875 [ ] $38.875
4 5 ODD LOTS [ ] By checking this box, the undersigned represents the undersigned owned beneficially an aggregate of fewer than 100 Shares (including Shares held in the Reinvestment Plan as of the close of business on September 3, 1997 and is tendering all of such Shares. - -------------------------------------------------------------------------------- Number of Shares to be SIGN HERE Tendered: ------------------------------------------------------------ - ------------ Shares* Signature(s) Dated: ------------ , 1997 Name ------------------------------------------------------------ Address ============================================================ ------------------------------------------------------------ Social Security or Taxpayer ID No. - ---------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 5 EX-99.A7 8 FORM OF LETTER TO PARTICIPANTS DATED SEPT. 4, 1997 1 EXHIBIT a.7 IMMEDIATE ATTENTION REQUIRED September 4, 1997 RE: BFI EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN Dear Plan Participant: Our records reflect that a portion of your individual account in the plan described above (the "Plan") is invested in Browning-Ferris Industries, Inc. stock. Enclosed are tender offer materials and a Direction Form that require your immediate attention. These materials describe an offer to purchase shares of common stock (including the associated preferred stock purchase rights) of Browning-Ferris Industries, Inc. at prices not greater than $39.00 nor less than $34.00 per share. As described below, you have the right to instruct Fidelity Management Trust Company ("Fidelity"), as Trustee of the Plan, concerning whether and on what terms to tender shares credited to your individual account under the Plan. YOU WILL NEED TO COMPLETE THE ENCLOSED DIRECTION FORM AND RETURN IT TO FIDELITY INSTITUTIONAL RETIREMENT SERVICES COMPANY IN THE ENCLOSED RETURN ENVELOPE SO THAT IT IS RECEIVED BY 12:00 MIDNIGHT, EASTERN TIME, ON SEPTEMBER 26, 1997, UNLESS EXTENDED. PLEASE COMPLETE AND RETURN THE DIRECTION FORM EVEN IF YOU DECIDE NOT TO PARTICIPATE IN THE TENDER OFFER DESCRIBED BELOW. REGARDLESS OF YOUR PARTICIPATION IN THIS TENDER OFFER, YOUR ABILITY TO PERFORM CERTAIN TRANSACTION WILL BE AFFECTED BY THE OFFER, AS DESCRIBED BELOW. The remainder of this letter summarizes the transaction, your rights under the Plan and the procedures for completing the Direction Form. You should also review the more detailed explanation provided in the other materials including the Offer to Purchase and the related Letter of Transmittal, enclosed with this letter. BACKGROUND Browning-Ferris Industries, Inc. (the "Company") has made a tender offer to purchase up to 15,000,000 shares of its common stock, par value $.16 2/3 per share (including the associated preferred stock purchase rights, the "Shares"), at prices not greater than $39.00 nor less than $34.00 per Share. The enclosed Offer to Purchase dated September 4, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (together with the Offer to Purchase, the "Offer") set forth the objectives, terms and conditions of the Offer and are being provided to all of the Company's stockholders. The Company's Offer to Purchase extends to the Shares held by the Plan. As of August 29, 1997, the Plan held approximately 3,857,942 Shares (the "Plan Shares"). Only Fidelity as Trustee of the Plan can tender these Shares for sale. Plan Shares are attributable to both restricted sources and participant directed sources. Generally, Shares attributable to restricted sources must be invested in Company stock while Shares attributable to participant directed sources may be invested in all Plan investment options. Nonetheless, as a Plan participant, you have the right to direct Fidelity whether or not to tender some or all of the Shares credited to your individual account in the Plan. If you direct Fidelity to tender any of the Shares credited to your individual account, you must also specify the price or prices at which the Shares should be tendered. Unless otherwise required by applicable law, Fidelity will tender Shares credited to participant accounts in accordance with participant instructions. Fidelity will not tender Shares credited to participant accounts for which Fidelity does not receive timely instructions, unless otherwise required by applicable law. Please note that a tender of Shares credited to your individual account under the Plan can be made only by Fidelity as the holder of record. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER DIRECTLY SHARES CREDITED TO YOUR INDIVIDUAL ACCOUNT UNDER THE PLAN. 1 2 FIDELITY MAKES NO RECOMMENDATIONS AS TO WHETHER TO DIRECT THE TENDER OF SHARES, THE PRICE AT WHICH TO TENDER, OR WHETHER TO REFRAIN FROM DIRECTING THE TENDER OF SHARES. EACH PARTICIPANT MUST MAKE HIS OR HER OWN DECISION ON THESE MATTERS. CONFIDENTIALITY TO ASSURE THE CONFIDENTIALITY OF YOUR DECISION, FIDELITY AND ITS AFFILIATES OR AGENTS WILL TABULATE THE DIRECTION FORMS. NEITHER FIDELITY NOR ITS AFFILIATES OR AGENTS WILL MAKE THE RESULTS OF YOUR INDIVIDUAL DIRECTION AVAILABLE TO THE COMPANY. HOW THE OFFER WORKS The details of the Offer are described in the enclosed materials, which you should review carefully. However, in broad outline, the transaction will work as follows with respect to Plan participants. - The Company has offered to purchase up to 15,000,000 of its Shares at a single per Share price not greater than $39.00 nor less than $34.00. - If you want any of the Shares credited to your individual account under the Plan sold pursuant to the Offer, you need to instruct Fidelity by completing the enclosed Direction Form and returning it in the enclosed return envelope. - In order to be valid, Direction Forms must be received by Fidelity no later than 12:00 MIDNIGHT on FRIDAY, SEPTEMBER 26, 1997, unless the Offer is extended. - You need to specify on the Direction Form the per Share price (in multiples of $.125), which cannot be greater than $39.00 nor less than $34.00, at which you wish to tender the Shares credited to your individual account under the Plan. - Please complete and return the Direction Form even if you decide not to participate in the Offer. The form should be returned to Fidelity at P.O. Box 9142, Hingham, MA 02043-9964. If you wish to return the form by overnight mail, please send it to Fidelity's tabulation agent, Management Information Services, at 61 Accord Park Drive, Norwell, MA 02061. If Fidelity does not receive timely instructions from you with respect to the Shares credited to your individual account, Fidelity will not tender any of such Shares in response to the Offer, unless otherwise required by applicable law. - After the deadline above for returning the Direction Form to Fidelity, Fidelity and its affiliates or agents will complete the tabulation of all directions and Fidelity, as Trustee, will tender the appropriate number of Shares. For purposes of this tabulation, Fidelity will calculate the number of Shares credited to your individual account based upon the close of business on September 24, 1997. Any Shares attributable to contributions made to your account after September 24, 1997, will be considered uninstructed pursuant to this Offer, and Fidelity will not tender any of such Shares in response to the Offer, unless otherwise required by applicable law. - After the expiration date of the Offer, the Company will determine the per Share purchase price (not greater than $39.00 nor less than $34.00) (the "Purchase Price"), that allows the Company to purchase 15,000,000 Shares (or such lesser number of Shares as is validly tendered and not withdrawn at prices not greater than $39.00 and not less than $34.00 per Share). The Purchase Price will be paid for all purchased Shares, even those Shares tendered at a lower price. - Unless the Offer is terminated or amended in accordance with its terms, the Company will then buy all of the Shares, up to 15,000,000, that were tendered at the Purchase Price or below. If there is an excess of Shares tendered over the exact number desired by the Company at the Purchase Price, Shares tendered pursuant to the Offer may be subject to proration, as set forth in Section 1 of the Offer to Purchase. Participants who tender Shares at or below the Purchase Price will receive the same per Share Purchase Price for Shares accepted for purchase. 2 3 - If you direct the tender of any Shares credited to your individual account at a price in excess of the Purchase Price as finally determined, those Shares will not be purchased, and your individual account previously invested Company stock will remain invested in the Company stock. PROCEDURE FOR DIRECTING TRUSTEE A Direction Form for making your direction is enclosed. You must complete, sign and return the enclosed Direction Form in the return envelope so that it is RECEIVED at the address listed on the enclosed return envelope not later than 12:00 Midnight, Eastern Time, on Friday, September 26, 1997, unless extended. PLEASE COMPLETE AND RETURN THE DIRECTION FORM EVEN IF YOU DECIDE NOT TO PARTICIPATE IN THE OFFER. If Fidelity does not receive timely instructions from you with respect to the Shares credited to your individual account, Fidelity will not tender any of such Shares in response to the Offer, unless otherwise required by applicable law. Please note that on the Direction Form the number of Shares credited to your individual account as of August 29, 1997, is indicated to the right of your address. As described above, the actual number of Shares credited to your individual account for purposes of the Offer may vary from this amount. To properly complete your Direction Form, you must do the following: (1) On the face of the Direction Form, check Box 1 or 2. CHECK ONLY ONE BOX: - CHECK BOX 1 if you do not want the Shares credited to your individual account tendered for sale at any price and simply want the Plan to continue holding such Shares. - CHECK BOX 2 in all other cases and complete the table immediately below Box 2. Specify the percentage of Shares credited to your individual account that you want to tender at each price indicated. You may direct the tender of Shares credited to your individual account at different prices. To do so, you must state the percentage (in whole numbers) of Shares to be sold at each indicated price by filling in the percentage of such Shares on the line immediately before the price. Leave a line blank if you want no Shares reflecting your interest in Company stock tendered at that price. THE TOTAL PERCENTAGE OF SHARES REFLECTING YOUR INTEREST IN COMPANY STOCK MAY NOT EXCEED 100%, BUT IT MAY BE LESS THAN OR EQUAL TO 100%. IF THIS AMOUNT IS LESS THAN 100%, YOU WILL BE DEEMED TO HAVE INSTRUCTED FIDELITY NOT TO TENDER THE BALANCE OF THE SHARES CREDITED TO YOUR INDIVIDUAL ACCOUNT UNDER THE PLAN. (2) Your directions to Fidelity will only be applied to Shares attributable to participant directed sources unless you instruct Fidelity to apply these directions to all Shares credited to your individual account by checking Box 3. (3) Date and sign the Direction Form in the space provided. (4) Return the Direction Form in the enclosed return envelope so that it is received by Fidelity at the address on the return envelope not later than 12:00 Midnight, Eastern time, on Friday, September 26, 1997, unless the Offer is extended. Please complete and return the Direction Form even if you decide not to participate in the Offer. NO FACSIMILE TRANSMITTALS OF THE DIRECTION FORM WILL BE ACCEPTED. Your direction will be deemed irrevocable unless withdrawn by 12:00 Midnight, Eastern time, on Friday, September 26, 1997, unless the Offer is extended. In order to make an effective withdrawal, you must submit a new Direction Form which may be obtained by calling Fidelity at 1-800-835-5098. Your new Direction Form must include your name, address and Social Security number. Upon receipt of a new, completed and signed Direction Form, your previous direction will be deemed canceled. You may direct the re-tendering of any Shares credited to your individual account by obtaining an additional Direction Form from Fidelity and repeating the previous instructions for directing tenders as set forth in this letter. 3 4 EFFECT OF TENDER ON YOUR ACCOUNT For any Shares in the Plan that are tendered to and purchased by the Company, the Company will pay cash to the Plan. INDIVIDUAL PARTICIPANTS IN THE PLAN WILL NOT RECEIVE ANY PORTION OF THE TENDER PROCEEDS DIRECTLY. ALL SUCH PROCEEDS WILL REMAIN IN THE PLAN AND MAY BE WITHDRAWN ONLY IN ACCORDANCE WITH THE TERMS OF THE PLAN. The investment of proceeds from the Offer depends on whether the tendered Shares accepted for purchase are attributable to participant directed or restricted sources. Fidelity will invest proceeds with respect to Shares credited to your account from participant directed sources in the Individually Managed Guaranteed Investment Fund as soon as administratively possible after receipt of proceeds. Proceeds received with respect to Shares tendered from restricted sources will be reinvested in Company stock as soon as administratively possible after receipt of the proceeds. You may call Fidelity at 1-800-835-5098 after the reinvestment is complete to learn the effect of the tender on your account or to have the proceeds from the sale of Shares which were invested in the Individually Managed Guaranteed Investment Fund invested in other investment options offered under the Plan. This Offer will not affect the investment of future contributions into Company stock. Nonetheless, as of 4:00 p.m., Eastern Time, on Monday, September 15, 1997, you will NOT be able to make exchanges into or out of Company stock until all tender offer processing has been completed. Additionally, as of 4:00 p.m., Eastern Time, on Tuesday, September 23, 1997, you will NOT be able to make a withdrawal from Company stock until all tender offer processing has been completed. Fidelity will complete processing as soon as administratively possible. SHARES OUTSIDE THE PLAN If you hold Shares directly, you will receive, under separate cover, tender offer materials which can be used to tender such Shares directly to the Company. Those tender offer materials may not be used to direct Fidelity to tender or not tender the Shares credited to your individual account under the Plan. The direction to tender or not tender Shares credited to your individual account under the Plan may only be made in accordance with the procedures in this letter. FURTHER INFORMATION If you require additional information concerning the procedure to tender Shares credited to your individual account under the Plan, please contact Fidelity at 1-800-835-5098. Sincerely, Fidelity Management Trust Company 4 5 FIDELITY INSTITUTIONAL RETIREMENT SERVICES CO. --------------- P.O. BOX 9107 FIRST CLASS HINGHAM, MA 02043-9107 U.S. POSTAGE PAID PROXY TABULATOR ---------------
BFI EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN DIRECTION FORM BEFORE COMPLETING THIS FORM, PLEASE READ CAREFULLY THE ACCOMPANYING OFFER TO PURCHASE AND ALL OTHER ENCLOSED MATERIALS. INSTRUCTIONS Carefully complete the detachable portion of this Direction Form below. Then insert today's date and sign your name in the spaces provided. Enclose the Direction Form in the included postage prepaid envelope and mail it promptly. YOUR DIRECTION FORM MUST BE RECEIVED BY FIDELITY AT THE ADDRESS ON THE ENCLOSED RETURN ENVELOPE NOT LATER THAN 12:00 MIDNIGHT, EASTERN TIME, ON SEPTEMBER 26, 1997, UNLESS THE OFFER IS EXTENDED. PLEASE COMPLETE AND RETURN THE DIRECTION FORM EVEN IF YOU DECIDE NOT TO PARTICIPATE IN THE OFFER. Direction Forms that are not fully or properly completed, dated, and signed, or that are received after the deadline, will be ignored, and Fidelity will not tender the Shares credited to your individual account under the Plan, unless otherwise required by applicable law. FIDELITY MAKES NO RECOMMENDATION TO PARTICIPANTS AS TO WHETHER TO DIRECT THE TENDER OF SHARES, THE PRICE AT WHICH TO TENDER, OR TO REFRAIN FROM DIRECTING THE TENDER OF SHARES. EACH PARTICIPANT MUST MAKE HIS OR HER OWN DECISION ON THESE MATTERS. As of Friday, August 28, 1997, the number of Shares credited to your individual account under the Plan is shown to the right of your address. --PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING-- (CHECK ONLY ONE BOX) [ ] 1. Please refrain from tendering and continue to HOLD all Shares credited to my individual account under the Plan. [ ] 2. Please TENDER Shares credited to my individual account attributable to participant directed sources under the Plan in the percentage indicated below for each of the prices provided. (The total of the percentages may NOT exceed 100%, but it may be less than or equal to 100%). A blank space before a given price will be taken to mean that no Shares credited to my account are to be tendered at that price. FILL IN THE TABLE BELOW ONLY IF YOU HAVE CHECKED BOX 2.
Percentage of Shares Directed to be Tendered (The total of all percentages must be less than or equal to 100%. If the total is less than 100%, you will be deemed to have directed Fidelity NOT to tender the remaining percentage.) - ------ % at $34.000 ------ % at $35.000 ------ % at $36.000 ------ % at $37.000 ------ % at $38.000 - ------ % at $34.125 ------ % at $35.125 ------ % at $36.125 ------ % at $37.125 ------ % at $38.125 - ------ % at $34.250 ------ % at $35.250 ------ % at $36.250 ------ % at $37.250 ------ % at $38.250 - ------ % at $34.375 ------ % at $35.375 ------ % at $36.375 ------ % at $37.375 ------ % at $38.375 - ------ % at $34.500 ------ % at $35.500 ------ % at $36.500 ------ % at $37.500 ------ % at $38.500 - ------ % at $34.625 ------ % at $35.625 ------ % at $36.625 ------ % at $37.625 ------ % at $38.625 - ------ % at $34.750 ------ % at $35.750 ------ % at $36.750 ------ % at $37.750 ------ % at $38.750 - ------ % at $34.875 ------ % at $35.875 ------ % at $36.875 ------ % at $37.875 ------ % at $38.875 ------ % at $39.000
The undersigned hereby directs Fidelity Management Trust Company ("Fidelity"), as Trustee of the BFI Employee Stock Ownership and Savings Plan (the "Plan") to tender to Browning-Ferris Industries, Inc. (the "Company"). In accordance with the Offer to Purchase, dated September 4, 1997, a copy of which I have received and read, the indicated percentage of shares of the Company's common stock, par value $.16 2/3 per share (the "Shares"), credited to my individual account under the Plan, or to hold such Shares, in either case as provided above. [ ] 3. ONLY CHECK the box if you wish to have your directions above applied to all of the Shares credited to your individual account under the Plan. All proceeds received for Shares attributable to restricted sources will be reinvested in Company stock. Date -------------------------, 1997 ------------------------------------ Your signature (Please sign as your name appears at left) EX-99.A8 9 FORM OF SUMMARY ADVERTISEMENT, DATED SEPT. 4, 1997 1 EXHIBIT a.8 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase, dated September 4, 1997 and the related Letter of Transmittal. The Offer is being made to all holders of Shares; provided, that the Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which making or accepting the Offer would violate that jurisdiction's laws. In those jurisdictions where securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Company by Morgan Stanley & Co. Incorporated or one or more registered brokers or dealers licensed under the laws of such jurisdictions. NOTICE OF OFFER TO PURCHASE FOR CASH BY BROWNING-FERRIS INDUSTRIES, INC. UP TO 15,000,000 SHARES OF ITS COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) AT A PURCHASE PRICE NOT GREATER THAN $39 NOR LESS THAN $34 PER SHARE Browning-Ferris Industries, Inc., a Delaware corporation (the "Company"), invites its stockholders to tender shares of its Common Stock, par value $.16 2/3 per share (the "Shares") (including the associated preferred stock purchase rights issued pursuant to the Rights Agreement, dated as of June 1, 1988, as amended, between the Company and First Chicago Trust Company of New York, as the Rights Agent), at prices not greater than $39.00 nor less than $34.00 per Share, net to the seller in cash, specified by such stockholders, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 4, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which together constitute the "Offer"). The Offer is not conditioned upon any minimum number of Shares being tendered. The Offer is, however, subject to other conditions. See Section 7 of the Offer to Purchase. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, OCTOBER 1, 1997, UNLESS THE OFFER IS EXTENDED. The Company will determine a single per Share price (not greater than $39.00 nor less than $34.00 per Share) that it will pay for Shares validly tendered pursuant to the Offer and not withdrawn (the "Purchase Price"), taking into account the number of Shares so tendered and the prices specified by tendering stockholders. The Company will select the Purchase Price that will enable it to buy 15,000,000 Shares (or such lesser number of Shares as are validly tendered at prices not greater than $39.00 nor less than $34.00 per Share) pursuant to the Offer. The Company will purchase all Shares validly tendered at prices at or below the Purchase Price and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions relating to proration and conditional tenders described below. The Purchase Price will be paid in cash, net to the seller, with respect to all Shares purchased. Shares rendered at prices in excess of the Purchase Price and Shares not purchased because of proration and conditional tenders will be returned. On September 3, 1997, the Board of Directors of the Company announced an increase in the regular quarterly cash dividend for the fourth quarter of the fiscal year ending September 30, 1997 to $.19 per Share. Shares tendered and purchased by the Company will be entitled to this regular quarterly cash dividend of $.19 per Share to be paid by the Company on October 6, 1997, to holders of record on September 19, 1997. 1 2 Upon the terms and subject to the conditions of the Offer, if more than 15,000,000 Shares have been validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date (as defined in the Offer to Purchase), the Company will purchase Shares in the following order of priority: (a) first, all Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date by any stockholder who owned beneficially an aggregate of fewer than 100 Shares (including any Shares held in the Dividend Reinvestment Plan (the "Reinvestment Plan")) as of the close of business on September 3, 1997 and who validly tenders all of such Shares (partial tenders will not qualify for this preference) and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, the Notice of Guaranteed Delivery; and (b) then, after purchase of all the foregoing Shares, subject to the conditional tender provisions described in Section 6 of the Offer to Purchase, all other Shares validly tendered at or below the Purchase Price and not withdrawn on or prior to the Expiration Date on a pro rata basis, if necessary (with appropriate adjustments to avoid purchases of fractional Shares, other than Shares held in the Reinvestment Plan). The Company believes that the purchase of its Shares at this time will benefit the Company and its stockholders. The Offer will afford to stockholders who are considering the sale of all or a portion of their Shares the opportunity to determine the price (not greater than $39.00 nor less than $34.00 per Share) at which they are willing to sell their Shares and, in the event the Company accepts such Shares, to dispose of Shares without the usual transaction costs associated with a market sale. The Offer will also allow qualifying stockholders owning beneficially fewer than 100 Shares to avoid the payment of brokerage commissions and the applicable odd lot discount payable on a sale of Shares in a transaction effected on a securities exchange. Neither the Company nor its Board of Directors makes any recommendation to any stockholder as to whether to tender all or any Shares. Each stockholder must make his or her own decision as to whether to tender shares and, if so, how many Shares to tender and at what price. The Company has been informed that no director or executive officer intends to tender Shares pursuant to the Offer. The Company reserves the right, at any given time or from time to time, to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary, followed by a public announcement thereof no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn after October 30, 1997, unless theretofore accepted for payment by the Company as provided in the Offer to Purchase. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of the addresses or the facsimile number set forth on the back cover of the Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (as defined in Section 3 of the Offer to Purchase) (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase) to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 of the Offer to purchase at any time prior to the Expiration Date. The Company will be deemed to have purchased tendered Shares as, if and when it gives oral or written notice to the Depositary of its acceptance for payment of Shares. 2 3 The information required to be disclosed by Rule 13e-4(d)(1) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. Copies of the Offer to Purchase and the related Letter of Transmittal are being mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information that should be read before any decision is made with respect to the Offer. Any questions or requests for assistance may be directed to Morrow & Co., Inc. (the "Information Agent") or Morgan Stanley & Co. Incorporated (the "Dealer Manager") at their respective telephone numbers and addresses listed below. Requests for additional copies of the Offer to Purchase, the Letter of Transmittal, Notice of Guaranteed Delivery or other tender offer materials may be directed to the Information Agent or the Dealer Manager and such copies will be furnished promptly at the Company's expense. Stockholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. The Information Agent for the Offer is: MORROW & CO., INC. 909 Third Avenue 20th Floor New York, New York 10022 BANKS AND BROKERS CALL TOLL FREE: (800) 622-5200 ALL OTHERS CALL TOLL FREE: (800) 566-9061 The Dealer Manager for the Offer is: MORGAN STANLEY DEAN WITTER Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 (212) 761-5722 (call collect) September 4, 1997 3 EX-99.A9 10 FORM OF PRESS RELEASE, DATED SEPT. 3, 1997 1 EXHIBIT a.9 Analysts Contact: Tod Holmes (281) 870-7161 Media Contact: Maureen Allen (281) 870-7456 BFI 97-14 FOR IMMEDIATE RELEASE IMPROVED PERFORMANCE, POSITIVE OUTLOOK PROMPT BFI BOARD ACTION: -- $1.0 Billion Stock Buy-Back Program -- 12% Increase In Quarterly Dividend To $0.19 Per Share -- Tender Offer For Its $300 million 7- 7/8% Notes HOUSTON, TEXAS (SEPTEMBER 3, 1997) -- Browning-Ferris Industries, Inc. (NYSE-BFI) today announced that its Board of Directors has approved a $1.0 billion stock buy-back program, a 12% increase in the quarterly cash dividend on common stock from $0.17 to $0.19 per share, and a tender offer for its $300 million 7- 7/8% Notes. In announcing the Board's decision, Chairman William D. Ruckelshaus commented, "The Board's actions today will better align BFI's capital structure with its financial goals. BFI's improved financial performance and significant generation of cash flow in fiscal 1997 gives the Board confidence in taking these actions." The $1.0 billion equity repurchase program consists of a "Dutch Auction" self tender to purchase up to 15 million shares, over 7%, of its common stock, and an open market repurchase program of common stock or automatic common exchange security units (NYSE-BFE). The Dutch Auction tender offer for common stock will commence on September 4, 1997 and will expire at midnight, New York City time, on October 1, 1997, unless extended. Copies of the offering materials are being mailed to all of the company's common stock shareholders. Under the terms of the offer, BFI will invite shareholders to tender shares at prices not greater than $39 nor less than $34 per share, with the precise amount to be determined upon expiration of the offer. The closing price of the common stock on September 2, 1997 was $35- 5/16 per share. Based upon the number of shares tendered and the price specified, BFI will determine the single per-share price within that price range that will allow the company to buy 15 million shares, or whatever lesser number are properly tendered. Morgan Stanley Dean Witter is acting as dealer manager for the offer. Morrow & Co., Inc. is acting as the information agent. Shareholders who choose to tender some or all of their stock will be eligible to receive the $0.19 dividend, whether or not the company accepts their shares for payment. Commenting on the announcement, BFI's Chief Executive Officer Bruce Ranck noted, "BFI's momentum demonstrates the effectiveness of a highly disciplined approach to meeting challenging milestones. We look forward to reporting performance in the fourth quarter and beyond which continues this momentum." The open market repurchase program will commence no earlier than 10 business days after completion of the Dutch Auction tender offer, and will be for an aggregate amount no greater than $1.0 billion less the cash distributed to shareholders participating in the Dutch Auction tender offer. The open market purchases may include privately negotiated transactions. The open market repurchase program is expected to be completed by September 30, 1998. In addition, the Board declared the company's regular quarterly cash dividend on common stock, increasing it from $0.17 to $0.19 per share. The cash dividend is payable on October 6, 1997, to shareholders of record at the close of business on September 19, 1997. 1 2 The company also announced that it is tendering for its $300 million 7- 7/8% Notes due March 15, 2005. The tender offer will commence immediately and will expire at 5 p.m. New York City time on September 17, 1997, unless extended. The purchase price is determined by reference to a fixed spread of 25 basis points (i.e., 0.25%) over the yield to maturity of the United States Treasury 6.125% Notes due August 15, 2007 at the time of acceptance of the Tender Offer, plus accrued and unpaid interest up to the date of payment. NationsBanc Capital Markets, Inc. is serving as dealer manager. Browing-Ferris Industries, Inc., a leading international waste services company, provides collection, recycling and disposal of residential, commercial, industrial and medical waste. 2 EX-99.G1 11 PAGES 37-81 OF THE COMPANY'S ANNUAL REPORT-9/30/96 1 EXHIBIT g.1 Item 8. - Financial Statements and Supplemental Data REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Browning-Ferris Industries, Inc.: We have audited the accompanying consolidated balance sheet of Browning-Ferris Industries, Inc. (a Delaware corporation) and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of operations, common stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1996. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Browning-Ferris Industries, Inc. and subsidiaries as of September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Houston, Texas December 4, 1996 -37- 2 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For The Three Years Ended September 30, 1996 (In Thousands Except for Per Share Amounts)
------------------------------------------------------------------------- Year Ended September 30, ------------------------------------ 1996 1995 1994 ------------------------------------------------------------------------- Revenues $5,779,277 $5,779,351 $4,314,541 Cost of operations 4,315,615 4,147,303 3,123,375 ---------- ---------- ---------- Gross profit 1,463,662 1,632,048 1,191,166 Selling, general and administrative expense 874,069 842,861 647,256 Special charges 446,800 -- -- ---------- ---------- ---------- Income from operations 142,793 789,187 543,910 Interest expense 179,299 159,529 93,159 Interest income (8,842) (7,422) (11,288) Equity in earnings of unconsolidated affiliates (55,370) (53,996) (37,084) ---------- ---------- ---------- Income before income taxes, minority interest and extraordinary item 27,706 691,076 499,123 Income taxes 105,188 276,430 199,649 Minority interest in income of consolidated subsidiaries 11,690 30,085 15,501 ---------- ---------- ---------- Income (loss) before extraordinary item (89,172) 384,561 283,973 Extraordinary item - loss on redemption of debt, net of income tax benefit of $4,467, $-- and $2,833 12,159 -- 5,263 ---------- ---------- ---------- Net income (loss) $ (101,331) $ 384,561 $ 278,710 ========== ========== ========== Number of common and common equivalent shares used in computing earnings per share 200,668 199,077 187,621 ========== ========== ==========
(Continued on Following Page) -38- 3 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For The Three Years Ended September 30, 1996 (In Thousands Except for Per Share Amounts)
------------------------------------------------------------------------- Year Ended September 30, ------------------------------------ 1996 1995 1994 ------------------------------------------------------------------------- Income (loss) per common and common equivalent share: Income (loss) before extraordinary item $ (.44) $ 1.93 $ 1.52 Extraordinary item (.06) -- (.03) ------- ------- ------- Net income (loss) $ (.50) $ 1.93 $ 1.49 ======= ======= ======= Cash dividends per common share $ .68 $ .68 $ .68 ======= ======= =======
The accompanying notes are an integral part of these financial statements. -39- 4 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS (In Thousands)
- ----------------------------------------------------------------------- September 30, -------------------------- 1996 1995 - ----------------------------------------------------------------------- CURRENT ASSETS: Cash $ 110,224 $ 92,808 Short-term investments 26,394 104,761 Receivables - Trade, net of allowances of $40,622 and $39,777 for doubtful accounts 929,316 926,791 Other 42,543 57,015 Inventories 51,536 50,090 Deferred income taxes 119,914 116,871 Prepayments and other 107,868 73,959 ---------- ---------- Total current assets 1,387,795 1,422,295 ---------- ---------- PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $2,737,788 and $2,395,795 3,920,721 3,722,292 ---------- ---------- OTHER ASSETS: Cost over fair value of net tangible assets of acquired businesses, net of accumulated amortization of $138,636 and $116,369 1,671,461 1,768,391 Other intangible assets, net of accumulated amortization of $110,835 and $142,780 110,925 116,303 Deferred income taxes 122,617 78,689 Investments in unconsolidated affiliates 287,051 272,205 Other 100,336 80,197 ---------- ---------- Total other assets 2,292,390 2,315,785 ---------- ---------- Total assets $7,600,906 $7,460,372 ========== ==========
The accompanying notes are an integral part of these financial statements. -40- 5 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (In Thousands Except for Share Amounts)
- ----------------------------------------------------------------------- September 30, -------------------------- 1996 1995 - ----------------------------------------------------------------------- CURRENT LIABILITIES: Current portion of long-term debt $ 59,806 $ 62,463 Accounts payable 507,731 515,304 Accrued liabilities - Salaries and wages 129,203 122,656 Taxes, other than income 40,876 41,960 Other 430,187 434,855 Income taxes 35,586 53,045 Deferred revenues 195,101 184,045 ---------- ---------- Total current liabilities 1,398,490 1,414,328 ---------- ---------- DEFERRED ITEMS: Accrued environmental and landfill costs 541,838 568,644 Deferred income taxes 108,041 104,645 Other 275,374 220,257 ---------- ---------- Total deferred items 925,253 893,546 ---------- ---------- LONG-TERM DEBT, net of current portion 2,766,885 1,665,804 ---------- ---------- CONVERTIBLE SUBORDINATED DEBENTURES -- 744,944 ---------- ---------- COMMITMENTS AND CONTINGENCIES COMMON STOCKHOLDERS' EQUITY: Common stock, $.16 2/3 par; 400,000,000 shares authorized; 213,390,458 and 213,440,672 shares issued 35,572 35,581 Additional paid-in capital 1,730,612 1,801,407 Retained earnings 1,031,331 1,328,244 Treasury stock, 1,027,278 and 1,001,407 shares, at cost (11,926) (10,494) Stock and Employee Benefit Trust, 11,012,423 and 13,596,325 shares (275,311) (412,988) ---------- ---------- Total common stockholders' equity 2,510,278 2,741,750 ---------- ---------- Total liabilities and common stockholders' equity $7,600,906 $7,460,372 ========== ==========
The accompanying notes are an integral part of these financial statements. -41- 6 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY For The Three Years Ended September 30, 1996 (In Thousands)
- -------------------------------------------------------------------------- Year Ended September 30, ---------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- Shares of common stock: Beginning of year 213,441 197,085 174,232 Stock option exercises 563 423 867 Common stock issuances related to - Public offering -- -- 15,525 Dividend Reinvestment Plan 101 38 96 BFI Employee Stock Ownership and Savings Plan 754 318 597 Acquisitions 988 555 5,708 Stock and Employee Benefit Trust -- 15,000 -- Retirements of common stock (2,584) -- -- Other 127 22 60 -------- -------- -------- End of year 213,390 213,441 197,085 ======== ======== ======== Common stock: Beginning of year $ 35,581 $ 32,854 $ 29,044 Stock option exercises 94 71 145 Common stock issuances related to - Public offering -- -- 2,588 Dividend Reinvestment Plan 17 6 16 BFI Employee Stock Ownership and Savings Plan 126 53 100 Acquisitions 165 93 951 Stock and Employee Benefit Trust -- 2,501 -- Retirements of common stock (431) -- -- Other 20 3 10 -------- -------- -------- End of year 35,572 35,581 32,854 -------- -------- --------
(Continued on Following Page) -42- 7 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY For The Three Years Ended September 30, 1996 (In Thousands)
- -------------------------------------------------------------------------- Year Ended September 30, ---------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- Additional paid-in capital: Beginning of year 1,801,407 1,351,919 743,265 Stock option exercises and related income tax benefit 13,868 (933) 17,528 Common stock issuances related to - Public offering, net of issuance costs -- -- 431,307 Dividend Reinvestment Plan 2,908 1,137 2,587 BFI Employee Stock Ownership and Savings Plan 21,404 9,459 16,628 Acquisitions 29,133 8,245 139,788 Stock and Employee Benefit Trust -- 456,874 -- Adjustment of Stock and Employee Benefit Trust to market (62,388) 2,534 -- Issuance costs and present value of contract fees payable to holders of Automatic Common Exchange Securities -- (27,027) -- Retirements of common stock (74,858) -- -- Other (862) (801) 816 ---------- ---------- ---------- End of year 1,730,612 1,801,407 1,351,919 ---------- ---------- ---------- Retained earnings: Beginning of year 1,328,244 1,009,132 761,325 Net income (loss) (101,331) 384,561 278,710 Cash dividends (133,623) (137,014) (126,818) Foreign currency translation adjustment (61,959) 71,565 95,915 ---------- ---------- ---------- End of year 1,031,331 1,328,244 1,009,132 ---------- ---------- ----------
(Continued on Following Page) -43- 8 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY For The Three Years Ended September 30, 1996 (In Thousands)
- -------------------------------------------------------------------------- Year Ended September 30, ---------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------- Treasury stock: Beginning of year (10,494) (2,225) (1,031) Stock option exercises (1,649) 27,013 (1,192) Common stock issuances related to - Dividend Reinvestment Plan -- 1,106 -- BFI Employee Stock Ownership and Savings Plan -- 9,228 -- Acquisitions 303 3,223 -- Reimbursement from Stock and Employee Benefit Trust -- (48,921) -- Other (86) 82 (2) ---------- ---------- ---------- End of year (11,926) (10,494) (2,225) ---------- ---------- ---------- Stock and Employee Benefit Trust: Beginning of year (412,988) -- -- Establishment of trust -- (459,375) -- Reimbursement of treasury stock -- 48,921 -- Reimbursements of common stock 75,289 -- -- Adjustment to market 62,388 (2,534) -- ---------- ---------- ---------- End of year (275,311) (412,988) -- ---------- ---------- ---------- Total common stockholders' equity $2,510,278 $2,741,750 $2,391,680 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. -44- 9 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For The Three Years Ended September 30, 1996 (In Thousands)
- ---------------------------------------------------------------------------- Year Ended September 30, -------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(101,331) $ 384,561 $ 278,710 --------- ---------- --------- Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization - Property and equipment 521,185 476,384 391,639 Goodwill 47,374 43,519 19,277 Other intangible assets 33,966 31,967 33,276 Special charges 446,800 -- -- Deferred income tax expense 3,034 23,450 23,458 Amortization of deferred investment tax credit (706) (706) (706) Provision for losses on accounts receivable 29,527 26,620 31,346 Gains on sales of fixed assets (4,512) (4,724) (5,167) Equity in earnings of unconsolidated affiliates, net of dividends received (13,455) (28,535) (19,442) Minority interest in income of consolidated subsidiaries, net of dividends paid 10,895 26,344 15,501 Increase (decrease) in cash from changes in assets and liabilities excluding effects of acquisitions: Trade receivables (28,683) (70,069) (112,586) Inventories 1,563 (5,466) 2,606 Other assets 29,991 52,625 (14,563) Other liabilities (118,805) 74,519 50,579 --------- --------- --------- Total adjustments 958,174 645,928 415,218 --------- --------- --------- Net cash provided by operating activities 856,843 1,030,489 693,928 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (935,382) (929,596) (694,475) Payments for businesses acquired (188,451) (769,369) (398,734) Investments in unconsolidated affiliates (82,535) (29,530) (54,342) Proceeds from disposition of assets 57,742 159,217 74,797 Purchases of short-term investments -- (42,179) -- Sales of short-term investments 302,065 201,924 147,424 Return of investment in unconsolidated affiliates 56,861 38,637 30,431 --------- ---------- --------- Net cash used in investing activities (789,700) (1,370,896) (894,899) --------- ---------- ---------
(Continued on Following Page) -45- 10 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For The Three Years Ended September 30, 1996 (In Thousands)
- ----------------------------------------------------------------------------- Year Ended September 30, ---------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuances of stock 13,316 15,363 450,876 Proceeds from issuances of indebtedness 980,834 1,062,652 175,111 Repayments of indebtedness (904,459) (591,884) (246,761) Dividends paid (137,944) (134,139) (122,944) --------- ---------- -------- Net cash provided by (used in) financing activities (48,253) 351,992 256,282 --------- ---------- -------- EFFECT OF EXCHANGE RATE CHANGES (1,474) 2,092 949 --------- ---------- -------- NET INCREASE IN CASH 17,416 13,677 56,260 CASH AT BEGINNING OF YEAR 92,808 79,131 22,871 --------- ---------- -------- CASH AT END OF YEAR $ 110,224 $ 92,808 $ 79,131 ========= ========== ======== SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR: Interest, net of capitalized amounts $174,590 $153,576 $ 97,996 Income taxes $163,251 $205,544 $174,005
The accompanying notes are an integral part of these financial statements. -46- 11 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Nature of business and basis of presentation - Browning-Ferris Industries, Inc. and its subsidiaries (the "Company") provide waste services in the United States and in 14 foreign countries. The Company collects, transports, treats and/or processes, recycles and disposes of commercial, residential and municipal solid waste and industrial wastes. The Company is also involved in waste-to- energy conversion, medical waste services, portable restroom services, and municipal and commercial sweeping operations. The accompanying financial statements are prepared on a consolidated basis. All significant intercompany accounts and transactions have been eliminated. Entities over which the Company exercises control are consolidated. Other investments are accounted for under the equity method or the cost method, as appropriate. Foreign currencies have been translated into United States dollars at appropriate exchange rates. The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, and affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the Company's estimates. (2) Summary of significant accounting policies - Short-term investments. Short-term investments are carried at cost, which approximates the aggregate market value. At September 30, 1996 and 1995, short-term investments of approximately $26.4 million and $104.8 million, respectively, were invested in time deposits. Inventories. Inventories consisting principally of equipment parts, mate-rials and supplies are generally valued under a method which approximates the lower of cost (first-in, first-out) or market. Property and equipment. Property and equipment are recorded at cost. Capitalized landfill costs include expenditures for land and related airspace, permitting costs and preparation costs. Landfill permitting and preparation costs represent only direct costs related to these activities, including legal, engineering, construction and the direct costs of Company personnel dedicated for these purposes. Interest is capitalized on landfill permitting and construction projects and other projects under development while the assets are undergoing activities to ready them for their intended use. The interest capitalization rate is based on the Company's weighted average cost of indebtedness. Interest capitalized during fiscal -47- 12 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) years 1996, 1995 and 1994 was $16,306,000, $11,429,000 and $11,600,000, respectively. Management routinely reviews its investment in operating landfills, transfer stations and other significant facilities to determine whether the costs of these investments are realizable. Landfill permitting and acquisition costs, excluding the estimated residual value of land, are typically amortized as permitted airspace of the landfill is consumed. For many of the Company's landfills, preparation costs, which include the costs of construction associated with excavation, liners, site berms and the installation of leak detection and leachate collection systems, are also typically amortized as total permitted airspace of the landfill is consumed. In determining the amortization rate for these landfills, preparation costs include the total estimated costs to complete construction of the landfill's permitted capacity. For other landfills, the landfill preparation costs are generally less significant and are amortized as the airspace for the particular benefitted phase is consumed. Units-of- production amortization rates are determined annually for each of the Company's operating landfills. The rates are based on estimates provided by the Company's engineers and accounting personnel, and consider the information provided by aerial surveys which are generally performed annually. Depreciation of property and equipment, other than landfills, is provided on the straight-line method based upon the estimated useful lives of the assets, generally estimated as follows: buildings, 20 to 40 years and vehicles and equipment, 3 to 12 years. Expenditures for major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred. During fiscal 1996, 1995 and 1994, maintenance and repairs charged to cost of operations were $336,374,000, $325,658,000 and $247,143,000, respectively. When property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Intangible assets. The cost over fair value of net tangible assets of acquired businesses ("goodwill") is amortized on the straight- line method over periods not exceeding 40 years. Other intangible assets, substantially all of which are customer lists and covenants not to compete, are amortized on the straight-line method over their estimated lives, typically no more than seven years. The Company periodically evaluates whether events and circumstances have occurred that indicate the remaining estimated useful lives of intangible assets should be revised or the remaining balances of intangible assets are not recoverable. When factors indicate that an evaluation should be performed for possible impairment, the Company uses an estimate of the future income from operations of the related business as a measure of future recoverability of these assets. -48- 13 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Deferred income taxes. Deferred tax assets and liabilities reflect the impact of temporary differences between the financial reporting basis and tax basis of assets and liabilities. Such amounts are recorded using presently enacted tax rates and regulations. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred revenues. Amounts billed to customers prior to providing the related services are deferred and later reported as revenues in the period in which the services are rendered. Deferred items. Accrued environmental and landfill costs - Accrued environmental and landfill costs includes the non-current portion of accruals associated with obligations for closure and post-closure of the Company's operating and closed landfills, corrective actions and remediation at certain of these landfill facilities and corrective actions at Superfund sites. The Company, based on input from its engineers and accounting personnel, estimates its future cost requirements for closure and post-closure monitoring and maintenance for solid waste operating landfills in the United States based on its interpretation of the technical standards of the U.S. Environmental Protection Agency's Subtitle D regulations and the air emissions standards under the Clean Air Act as they are being applied on a state-by-state basis. Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes. Accruals for closure and post-closure monitoring and maintenance requirements in the U.S. consider final capping of the site, site inspections, ground-water monitoring, leachate management, methane gas control and recovery, and operation and maintenance costs to be incurred during the period after the facility closes. Certain of these environmental costs, principally capping and methane gas control costs, are also incurred during the operating life of the site in accordance with the landfill operation requirements of Subtitle D and the air emissions standards. Future cost requirements for closure and post-closure monitoring and maintenance of foreign operating landfills are determined based on the country or local landfill regulations governing the facility. The Company typically provides accruals for these estimated costs as the remaining permitted airspace of such facilities is consumed. Reviews of the future cost requirements for closure and post-closure monitoring and maintenance for the Company's operating landfills by the Company's engineers and accounting personnel are performed at least annually and are the basis upon which the Company's estimates of these future costs and the related accrual rates are revised. -49- 14 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) An overall program of management of closed solid waste landfills previously owned or operated by the Company has been implemented to provide a systematic and routine standard of care and maintenance and to ensure environmental compliance at closed facilities which require varying levels of inspection, maintenance, environmental monitoring and, from time to time, corrective action. Additionally, the Company routinely reviews and evaluates each landfill site requiring corrective action (including Superfund sites) in which the Company's subsidiaries are involved, considering each subsidiary's role with respect to each site and the relationship to the involvement of other parties at the site, the quantity and content of the waste with which the subsidiary was associated and the number and financial capabilities of the other parties at the various sites. Based on reviews of the various sites, currently available information, and management's judgment and significant prior experience related to similarly situated facilities, expense accruals are provided by the Company for its share of estimated future costs associated with corrective actions to be implemented at certain of these sites and existing accruals are revised as deemed necessary. Expense accruals related to the estimated costs of post-closure care of previously owned or operated solid waste landfills are also reviewed on a periodic basis and revised as necessary. Accruals for closure, post-closure and certain other liabilities related to hazardous waste disposal were provided in fiscal 1990 when the Company discontinued its hazardous waste operations. The Company reviews the adequacy of these accruals on a periodic basis to determine whether any revisions in the accruals provided at that time are required. Other deferred items - Deferred items as of September 30, 1996 and 1995 were as follows (in thousands):
1996 1995 -------- -------- Self-insurance accruals $ 90,515 $ 82,508 Minority interest in consolidated subsidiaries 59,376 44,583 Accrued pension costs 39,734 34,798 Unamortized investment tax credits 20,393 21,099 Other 65,356 37,269 -------- -------- $275,374 $220,257 ======== ========
The Company amortizes investment tax credits under the deferral method over the estimated useful lives of the related assets as they are placed in service. No investment tax credits have been generated since fiscal year 1992. In addition to the above deferred items, included in other accrued liabilities at September 30, 1996 and 1995 was the current portion of self-insurance accruals of $87,274,000 and $83,971,000, respectively, -50- 15 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) and accrued pension costs of $14,625,000 and $20,388,000, respectively. Foreign exchange contracts. The Company enters into foreign exchange contracts as a hedge against certain of its net investments in foreign subsidiaries and purchase commitments from time to time. Realized and unrealized gains and losses on these contracts and the amortization of any premiums or discounts are deferred and included with translation adjustments in the separate component of common stockholders' equity or reflected as a deferred asset or liability associated with the anticipated purchase commitment. When deemed appropriate, the Company enters into foreign exchange contracts as a hedge against certain advances to foreign subsidiaries, which are to be repaid in the foreseeable future. Realized and unrealized gains and losses associated with these contracts are reflected in income for each period such contracts are outstanding. There were no significant foreign exchange contracts outstanding at September 30, 1996 or 1995. Cash flow information. The Consolidated Statement of Cash Flows provides information about changes in cash and excludes the effects of non-cash transactions, principally related to business combinations discussed in Note (5). Reclassifications. Certain reclassifications have been made in prior years' financial statements to conform to the fiscal year 1996 presentation. New accounting pronouncement. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This statement sets forth standards for the recognition and measurement of impairment of long-lived assets, including certain identifiable intangible assets and goodwill related to those assets, to be held and used in an entity's operations or expected to be disposed of. SFAS No. 121 is effective for the Company's fiscal year 1997. As the Company's current accounting practices are substantially in compliance with the provisions of the new standard, the adoption of SFAS No. 121 in fiscal 1997 is not expected to have a material effect on the Company's financial position or results of operations. (3) Reorganization - During June 1996, the Company announced the reorganization of its North American operating business structure, which became effective in August 1996. The Company's previous organization -51- 16 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) divided North America into 45 divisions reporting to six regional offices with operations conducted from approximately 400 districts. The new organization divides North America into 13 market areas and retains the district office organization. In addition, the new structure organizes the Company's operations by specific business functions with direct reporting to the corporate office. There was no reorganization charge recorded to cover the estimated future expenses associated with this announcement. The costs associated with this reorganization are being expensed as incurred and approximately $4.2 million was recorded as selling, general and administrative expense through September 30, 1996. (4) Special charges - Special charges of $447 million ($362 million or $1.80 per share after income taxes) were included in fiscal 1996 results of operations. Charges of $349 million resulted principally from management decisions to sell the Company's Italian operations, divest certain domestic and international non-core business assets and operations and close certain recycling facilities not expected to achieve desired performance objectives. The remainder of the special charges related to the writedown to fair value of the Company's investment in the Azusa, California landfill. This writedown was a result of the changing competitive nature of waste disposal in the Los Angeles market area and the continuing negative legal climate, including recent adverse decisions by California judicial and regulatory authorities, bearing on the site's ability to accept municipal solid waste. The Company has initiated a plan to sell its Italian operations, which has been formally approved by the Company's Board of Directors. The Company expects to complete the sale of these operations during 1997. The difficult political and economic environment and the inability to build the desired operating infrastructure in Italy have negatively affected the Company's ability to achieve adequate returns on invested capital and were significant factors considered in reaching this decision. The Company's investment in its Italian operations, before considering special charges, was $206 million as of September 30, 1996. During the period that the sale of all or substantially all of the Italian operations occurs, losses accumulated in the foreign currency translation component of common stockholders' equity ($49 million at September 30, 1996) must be reported as an additional loss on sale of these operations. Summary financial information related to the Company's Italian operations is as follows (in thousands):
For the Years Ended September 30, --------------------------------- 1996 1995 1994 --------- -------- -------- Revenues $ 122,782 $103,819 $ 55,489 Income (loss) from operations and equity in earnings of uncon- solidated affiliates $(182,584) $ 65 $ (7,831)
-52- 17 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company has also decided to divest of certain domestic and international non-core business assets and operations and close certain recycling facilities. These decisions were reached based on a review of the non-core business assets and operations which were not expected to achieve the Company's desired performance objectives and a review of certain of the Company's recycling operations which have been adversely affected by the significant decline in commodity prices. The special charges, which include asset writedowns and related liabilities recorded for certain contractual arrangements, do not consider future expenses associated principally with severance and relocation costs which will occur as a result of these decisions. These divestitures and closures are expected to be completed during 1997. Assets of these operations, prior to the special charges, were approximately $177 million as of September 30, 1996. The results of operations for these non-core business assets and operations and recycling facilities are not material to the Company's consolidated results of operations as the aggregated revenues and income (loss) from operations of these assets and operations represent less than 4% of the Company's corresponding consolidated totals, on a pre-special charges basis. In October 1996 (pursuant to a judicial order issued in September), California authorities suspended the Company's ability to accept municipal solid waste at its Azusa, California landfill pending compliance with certain regulatory requirements. The Company has appealed this decision. (See Note (11).) As a result of the changing competitive nature of waste disposal in the Los Angeles market area and the continuing negative legal climate, including the recent adverse decisions discussed above, bearing on the site's ability to accept municipal solid waste, $98 million was included in the special charges to reduce the carrying amount of this investment to its estimated fair value. The fair value was determined based upon the present value of the estimated future cash flows using a discount rate commensurate with the risks involved. (5) Business combinations - During the current fiscal year, the Company paid approximately $243.4 million (including additional amounts payable, principally to former owners, of $23.3 million and the issuance of 974,085 shares of the Company's common stock valued at $28.3 million) to acquire 102 solid waste businesses, which were accounted for as purchases, including the acquisition of the remaining 50% ownership interest of Pfitzenmeier & Rau ("P&R"), a joint venture previously owned 50% by Otto Waste Services, a 50% owned subsidiary of the Company. In connection with these acquisitions, the Company recorded additional interest-bearing indebtedness of $69.3 million (including $55.0 million related to P&R) and other liabilities of $37.4 million. The results of these business combinations are not material to the Company's consolidated results of operations or financial position. -53- 18 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) On December 2, 1994, the Company acquired majority control of Attwoods plc ("Attwoods"), which was a provider of waste services operating principally in the United States, the United Kingdom, the Caribbean and mainland Europe (primarily Germany) and also had mineral extraction operations in the United Kingdom. The Company increased its ownership from 56.6% of the outstanding ordinary shares (including ordinary shares represented by American Depository Shares) of Attwoods and 80.8% of the convertible preference shares of Attwoods (Finance) N.V., a finance subsidiary of Attwoods, at December 2, 1994 to 94.4% of the outstanding ordinary shares and 83.2% of the convertible preference shares as of December 31, 1994. The Company acquired the remaining ordinary shares that it did not own and certain additional preference shares during the second quarter of fiscal 1995. The Company paid approximately $580 million (in pounds sterling except where requested to pay U.S. dollars by individual shareholders) to acquire the ordinary and convertible preference shares of Attwoods as discussed above. Additionally, during the second quarter of fiscal 1995, the Company redeemed the remaining outstanding convertible preference shares. In connection with the acquisition, the Company sold in June 1995 the portable sanitation and accommodation business of Attwoods in continental Europe, primarily Germany. As a result of this transaction, the Company reduced the purchase price of this acquisition by the 80.5 million in deutsche mark (U.S. $56.8 million) received and further adjusted the purchase price for the 1.1 million in deutsche mark (U.S. $700,000) in contingent payments received subsequent to December 31, 1995. The Attwoods acquisition has been accounted for as a purchase. In addition to the Attwoods transaction, during the prior fiscal year, the Company paid approximately $191.5 million (including additional amounts payable, principally to former owners, of $9.4 million and the issuance of 262,948 shares of the Company's common stock valued at $8.1 million) to acquire 102 solid waste businesses. These businesses were accounted for as purchases and included the acquisition of the remaining 50% ownership interest outstanding of Servizi Industriali S.r.l., its joint venture in Italy. In connection with these acquisitions, the Company recorded additional interest-bearing indebtedness of $17.8 million and other liabilities of $49.3 million. The Company also exchanged 397,221 shares of its common stock and assumed liabilities and equity of $5.6 million in connection with one business combination that met the criteria to be accounted for as a pooling-of-interests. As the effect of this business combination was not significant, prior period financial statements were not restated. The results of all businesses acquired in fiscal years 1996 and 1995 have been included in the consolidated financial statements from the dates of acquisition. In allocating purchase price, the assets acquired and liabilities assumed in connection with the Company's acquisitions have been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. As a result, the -54- 19 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) financial information included in the Company's consolidated financial statements is subject to adjustment prospectively as subsequent revisions in estimates of fair value, if any, are necessary. The Company's consolidated results of operations on an unaudited pro forma basis for fiscal year 1995, as though the businesses acquired during fiscal year 1995 had been acquired on October 1, 1994, are as follows (in thousands, except per share amounts): Pro forma revenues $5,978,994 Pro forma net income $ 387,416 Pro forma earnings per common and common equivalent share $ 1.94
These pro forma results are presented for informational purposes only and do not purport to show the actual results which would have occurred had the business combinations been consummated on October 1, 1994, nor should they be viewed as indicative of future results of operations. (6) Property and equipment - Property and equipment at September 30, 1996 and 1995 was as follows (in thousands):
1996 1995 ---------- ---------- Land and improvements $ 340,034 $ 303,848 Buildings 616,596 538,040 Landfills 1,897,206 1,737,975 Vehicles and equipment 3,686,466 3,387,795 Construction-in-progress 118,207 150,429 ---------- ---------- Total property and equipment 6,658,509 6,118,087 Less accumulated depreciation and amortization 2,737,788 2,395,795 ---------- ---------- Property and equipment, net $3,920,721 $3,722,292 ========== ==========
Included in the landfill category of property and equipment, net are $78.1 million and $118.6 million as of September 30, 1996 and 1995, respectively, related to solid waste landfill market development projects, including landfill permitting costs, for which amortization has not yet commenced. The Company reviews the realization of these projects on a periodic basis. (7) Investments in unconsolidated affiliates - The Company uses the equity method of accounting for invest-ments in unconsolidated affiliates over which it exercises control of 20% - 50%. The summarized combined balance sheet and income statement information presented in the table below (and the Company's related investments and earnings) includes amounts -55- 20 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) primarily related to the following significant equity investees: American Ref-Fuel Company of Hempstead, Inc. (New York) (50%), American Ref-Fuel Company of Essex County, Inc. (New Jersey) (50%), American Ref-Fuel Company of Southeastern Connecticut, Inc. (50%), American Ref-Fuel Company of Niagara, L.P. (New York) (50%), American Ref-Fuel Company Operations of SEMASS, L.P. (50%), Servizi Industriali Group (Italy) (50% - for the period through December 1994, at which time the remaining 50% ownership interest was acquired), Swire BFI Waste Services, Ltd. (Hong Kong) (50%), P&R (Germany) (50% - for the period February 1994 through February 1996, at which time the remaining 50% ownership interest was acquired) and Congress Development Company (Chicago, Illinois) (50%) (in thousands).
1996 1995 ---------- ---------- Combined Balance Sheet Information as of Fiscal Yearend: Assets - Current assets $ 233,891 $ 241,787 Noncurrent assets 1,528,799 1,118,959 ---------- ---------- $1,762,690 $1,360,746 ========== ========== Liabilities and Net Worth - Current liabilities $ 181,184 $ 142,967 Noncurrent liabilities 1,221,633 913,213 Net worth 359,873 304,566 ---------- ---------- $1,762,690 $1,360,746 ========== ========== Company's Investments in and Advances to Equity Investees (including subordinated note and other receivables of $63,106 and $81,822, respectively) $ 259,486 $ 239,372 ========== ========== 1996 1995 1994 -------- -------- -------- Combined Income Statement Information for the Fiscal Year Ended: Revenues $511,086 $500,989 $398,753 Gross profit $213,236 $211,555 $162,870 Net income $ 95,438 $ 94,463 $ 74,804 Company's Equity in Earnings of Equity Investees (1) $ 55,370 $ 53,996 $ 37,084 Dividends Received from Equity Investees $ 41,915 $ 25,461 $ 17,642
-56- 21 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) - ---------------- (1) Differences between the equity in earnings of equity investees reported by the Company and the Company's proportionate share of the combined earnings of the related equity investees have resulted principally from accounting differences in the recognition of income and the elimination of intercompany transactions. (8) Accrued environmental and landfill costs - Accrued environmental and landfill costs at September 30, 1996 and 1995 were as follows (in thousands):
1996 1995 -------- -------- Continuing operations - Accrued costs associated with open landfills (including landfills under expansion) $334,793 $343,746 Accrued costs associated with closed landfills and corrective action costs (including Superfund sites) 223,781 232,169 -------- -------- Total 558,574 575,915 Less current portion (included in other accrued liabilities) 92,536 101,295 -------- -------- Total long-term $466,038 $474,620 ======== ======== Discontinued operations - Accrued costs of closure, post- closure and certain other liabilities associated with discontinued operations $107,832 $126,931 Less current portion (included in other accrued liabilities) 32,032 32,907 -------- -------- Total long-term $ 75,800 $ 94,024 ======== ======== Total long-term portion of accrued environmental and landfill costs $541,838 $568,644 ======== ========
For a discussion of the Company's significant accounting policies related to these environmental and landfill costs, see Note (2) - "Summary of significant accounting policies" - "Deferred items" - "Accrued environmental and landfill costs". -57- 22 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Open landfills. The Company operates 100 solid waste landfills in the United States, 18 of which are operated under contracts with municipalities or others. The Company also operates 64 landfills outside of the United States. The Company is responsible for closure and post-closure monitoring and maintenance costs at most of these landfills which are currently operating or are engaged in expansion efforts. Estimated aggregate closure and post-closure costs will be fully accrued for these landfills at the time that such facilities cease to accept waste and are closed. Considering existing accruals at the end of fiscal 1996, approximately $225-$250 million of additional accruals are to be provided over the remaining lives of these facilities. Estimated additional environmental costs ranging from $425-$475 million, principally related to capping and certain methane gas control and recovery activities expected to occur during the operating lives of these sites, are also to be expensed over the remaining lives of these landfill facilities. Closed landfills and corrective action costs (including Superfund sites). These costs relate to closure and post-closure activities or corrective actions at closed solid waste landfills owned or previously operated by the Company as well as a number of Superfund sites where subsidiaries of the Company are participating in potentially responsible party groups or are otherwise involved. Discontinued operations. These costs relate to closure and post-closure activities or corrective actions at hazardous waste landfills owned or previously operated by the Company as well as a number of Superfund sites where subsidiaries of the Company previously disposed of hazardous waste and are participating in potentially responsible party groups or are otherwise involved. The Company discontinued its hazardous waste operations in April 1990. (9) Long-term debt - Long-term debt at September 30, 1996 and 1995 was as follows (in thousands): -58- 23 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1996 1995 ---------- ---------- Senior indebtedness: 6.10% Senior Notes, net of unamortized discount of $1,838 $ 198,162 $ -- 6.375% Senior Notes, net of unamortized discount of $2,051 197,949 -- 7.40% Debentures, net of unamortized discount of $2,082 and $2,136 397,918 397,864 7 7/8% Senior Notes, net of unamortized discount of $783 and $875 299,217 299,125 9 1/4% Debentures 100,000 100,000 Solid waste revenue bond obligations 149,127 114,079 Other notes payable, primarily 5.0%-14.0% 804,721 585,211 ---------- ---------- 2,147,094 1,496,279 Commercial paper and short-term facilities to be refinanced 679,597 231,988 ---------- ---------- Total long-term debt 2,826,691 1,728,267 Less current portion 59,806 62,463 ---------- ---------- Long-term debt, net of current portion $2,766,885 $1,665,804 ========== ==========
The long-term portion of the debt outstanding at September 30, 1996, matures as follows: 1998, $345,278,000; 1999, $159,767,000; 2000, $795,931,000; 2001, $27,137,000 and in subsequent years, $1,438,772,000. 6.10% and 6.375% Senior Notes. In January 1996, the Company issued $200 million of 6.10% Senior Notes due January 15, 2003 and $200 million of 6.375% Senior Notes due January 15, 2008 (the "Notes"). The Notes are not redeemable prior to maturity and are not subject to any sinking fund. Net proceeds from the sale of the Notes were applied to the repayment of a portion of the $745 million of Convertible Subordinated Debentures called for redemption on February 2, 1996. See Note (10). 7.40% Debentures. In September 1995, the Company issued $400 million of 7.40% Debentures due September 15, 2035. These debentures are not subject to any sinking fund and may be redeemed as a whole or in part, at the option of the Company at any time. The redemption price is equal to the greater of (i) the principal amount of the debentures and (ii) the present value of future principal and interest payments discounted at a rate specified under the terms of -59- 24 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the indenture. Net proceeds received from the sale of these debentures were used to repay short-term indebtedness associated with various acquisitions, including the Attwoods acquisition. 7 7/8% Senior Notes. In March 1995, the Company issued $300 million of 7 7/8% Senior Notes which mature on March 15, 2005. Net proceeds received by the Company from the sale were used to repay indebtedness associated with the acquisition of Attwoods and other working capital requirements. 9 1/4% Debentures. In May 1991, the Company issued $100 million of 9 1/4% Debentures which mature on May 1, 2021. The debentures may not be redeemed prior to maturity and are not subject to any sinking fund. 8 1/2% Sinking Fund Debentures. In April 1994, the Company called for redemption its $100 million 8 1/2% Sinking Fund Debentures due 2017 which were originally issued in January 1987. As a result, the Company recorded an after-tax loss of $5,263,000, which has been reflected as an extraordinary item in fiscal 1994 in the Company's Consolidated Statement of Operations. Bank credit agreements. During May 1995, the Company modified the terms of its existing $1 billion revolving credit agreement extending the maturity of the facility to May 2000. The agreement continues to provide total committed credit capacity of $1 billion. This $1 billion credit agreement can be utilized to borrow U.S. domestic dollars or Eurodollars on a committed basis. At the option of the Company and the participating banks, U.S. dollar and Eurodollar loans bear a rate of interest based on the London Interbank Offered Rate ("LIBOR"), the prime rate, the federal funds rate or a certificate of deposit rate, plus a margin. The $1 billion revolving credit agreement with a group of U.S. and international banks currently requires a facility fee of .1% per annum on the total commitment, whether used or unused. This $1 billion credit agreement is used primarily to support the Company's commercial paper program. The agreement contains a net worth requirement of $1.5 billion, which increases annually after September 30, 1995 by 20% of the consolidated net income of the preceding year and excludes the effect of any foreign currency translation adjustments on net worth. At September 30, 1996 and 1995, the Company had no outstanding borrowings under this bank credit agreement. In connection with the acquisition of Attwoods in December 1994, the Company and three of its subsidiaries entered into a Multicurrency Revolving Credit Agreement for a total facility of 500 million pounds sterling (subsequently converted to U.S. $750 million). The facility, which matures December 31, 1997, can be -60- 25 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) utilized to borrow U.S. dollars, pounds sterling or deutsche mark as determined by the Company. At the option of the Company, the loans bear a rate of interest, generally for periods of six months or less, based on the prime rate or LIBOR, a certificate of deposit rate or the federal funds rate, plus a margin. The Multicurrency Revolving Credit Agreement with Credit Suisse, as administrative agent for a group of U.S. and international banks, currently requires a facility fee of .12% per annum. This agreement contains a net worth requirement of $1.5 billion which increases annually after September 30, 1995 by 25% of the consolidated net income of the preceding year and excludes the effect of any foreign currency translations on net worth. Prior to March 31, 1995, the Company had repaid the $550 million in U.S. dollars borrowed during December 1994. Interest was payable on this indebtedness at an average interest rate of approximately 6.5%. At September 30, 1996 and 1995, the Company had no outstanding borrowings under this agreement. In March 1995, Otto Waste Services entered into a five-year revolving credit facility in the amount of 600 million deutsche mark with a group of German and international banks. Interest is payable on loans under the facility at the Frankfurt Interbank Offered Rate ("FIBOR") plus a margin. This agreement requires a facility fee of .45% per annum (.30% per annum if Otto Waste Services maintains certain net worth requirements) on the total facility commitment, whether used or unused. At September 30, 1996 and 1995, Otto Waste Services had outstanding borrowings under this facility of 250 million deutsche mark (approximately U.S. $163.9 million) and 140 million deutsche mark (approximately U.S. $98.1 million), respectively. As of September 30, 1996, distributions from retained earnings could not exceed $945 million under the most restrictive of the Company's net worth maintenance requirements. Solid waste revenue bond obligations. Certain subsidiaries of the Company have entered into agree-ments under which they receive proceeds from the sale by government authorities of solid waste revenue bonds. These subsidiaries are obligated to make payments sufficient to pay the interest and retire the bonds. The weighted average interest rate of these issues is approximately 5.89%. These issues mature at various dates through the year 2027. The solid waste revenue bond obligations of the subsidiaries are guaranteed by the Company. Other notes payable. During February and March 1995, the Company borrowed a total of $160 million under separate senior note agreements with a number of lending institutions. Interest is payable semi-annually on the senior notes at rates ranging from 7.5 - 8.0%. The senior notes mature between December 1997 and March 1998. -61- 26 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Additionally, notes payable includes mortgages payable and other secured debt, unsecured debt and capitalized lease obligations of the Company. Approximately $336 million and $321 million of this indebtedness at September 30, 1996 and 1995, respectively, relates to a large number of separate company debt instruments of Otto Waste Services and its consolidated subsidiaries. A substantial portion of the Otto Waste Services debt is secured by assets of the related companies and is payable in deutsche mark. Commercial paper and short-term facilities to be refinanced. Under the Company's commercial paper program, the Company is authorized to issue up to $1.5 billion in commercial paper. The Company may use proceeds from borrowings under this program to refinance existing indebtedness and for general corporate purposes, including interim financing of business acquisitions and funding working capital requirements. Borrowings under the commercial paper program may not exceed the available credit under the Company's existing bank credit agreements. At September 30, 1996 and 1995, the Company had commercial paper and other short-term borrowings of $679,597,000 and $231,988,000, respectively, classified as long-term debt. It is the Company's intention to refinance certain commercial paper balances and other outstanding borrowings classified as long-term debt through the use of existing committed long-term bank credit agreements in the event that alternative long-term refinancing is not arranged. A summary by country of such commercial paper balances and other outstanding borrowings to be refinanced as of September 30, 1996 and 1995 is as follows (amounts in thousands):
1996 1995 -------------------- -------------------- Amount Interest Amount Interest to be Rate at to be Rate at Refinanced Yearend Refinanced Yearend ---------- -------- ---------- -------- United States - Commercial paper $438,296 5.5% $ 34,317 6% Germany 241,301 5-10% 197,671 5-10% -------- -------- $679,597 $231,988 ======== ========
(10) Convertible Subordinated Debentures - On January 2, 1996, the Company announced that its $400 million 6 3/4% Convertible Subordinated Debentures due 2005 and its $345 million 6 1/4% Convertible Subordinated Debentures due 2012 ("the Debentures") were being called for redemption. The redemption, which occurred on February 2, 1996, resulted in a one-time extraordinary charge to the Company's net income of $12.2 million, after income taxes, or approximately $.06 per share. The Debentures were refinanced with (i) the net proceeds from the -62- 27 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) issuance of $400 million of Senior Notes issued in January 1996 and (ii) additional commercial paper borrowings to be refinanced through other long-term financings. (11) Commitments and contingencies - Legal proceedings. The Company and certain subsidiaries are involved in various administrative matters or litigation, including personal injury and other civil actions, as well as other claims and disputes that could result in additional litigation or other adversary proceedings. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular reporting period, management believes that the ultimate disposition of these matters will not have a materially adverse effect upon the consolidated financial position of the Company. Environmental proceedings. California judicial and regulatory authorities suspended the Company's ability to accept municipal solid waste at certain portions of its Azusa, California landfill in January 1991. The Company has continued to use the facility for the disposal of primarily inert waste. Since January 1991, the Company has sought and received the ability to dispose of certain additional non- municipal solid waste streams at the facility. In 1995, the Company was allowed to continue to accept municipal solid waste in a portion of the landfill dependent on the satisfaction of certain technical requirements mandated by California authorities. In October 1996 (pursuant to a judicial order issued in September), California authorities again suspended the Company's ability to accept municipal solid waste at its Azusa, California landfill pending compliance with certain additional regulatory requirements. Although this decision has been appealed, the Company determined that recovery of its total investment in this facility was unlikely. Accordingly, a special charge of $98 million was recorded to reduce the carrying amount of this investment to its estimated fair value. See Note (4). The Company and certain subsidiaries are involved in various other environmental matters or proceedings, including original or renewal permit application proceedings in connection with the establishment, operation, expansion, closure and post-closure activities of certain landfill disposal facilities, and proceedings relating to governmental actions resulting from the involvement of various subsidiaries of the Company with certain waste sites (including Superfund sites), as well as other matters or claims that could result in additional environmental proceedings. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular reporting period, management believes that the ultimate disposition -63- 28 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) of these matters will not have a materially adverse effect upon the consolidated financial position of the Company. Insurance matters. Under its insurance policies, the Company generally has self-insured retention limits ranging from $500,000 to $5,000,000 and has obtained fully insured layers of coverage above such self-retention limits. The Company has a wholly-owned domestic insurance subsidiary which operates as a captive insurance company. It currently writes insurance to meet financial assurance obligations related to closure and post-closure of certain landfills of the Company. At September 30, 1996, no claims had been made relative to this insurance operation, and no claim reserves had been posted. In order to meet existing governmental requirements, the Com-pany has been able to secure an environmental impairment liability insurance policy in amounts which the Company believes are in compliance with the amounts required by federal and state law. Under this policy, the Company must reimburse the carrier for losses incurred by the Company. Waste-to-energy projects. Subsidiaries of the Company and Air Products and Chemicals, Inc. ("Air Products") each have 50% ownership interests in American Ref-Fuel partnerships that construct, own and operate facilities which generate and sell electricity from the incineration of solid waste. The five facilities currently in commercial operation are located in Hempstead, New York, Essex County in New Jersey, Preston, Connecticut, Niagara Falls, New York and Rochester, Massachusetts. Financing arrangements for four of these projects include agreements with the Company and Air Products to each severally fund one-half of each partnership's cash deficiencies resulting from the partnership's failure to perform. With respect to the facilities located in Hempstead, New York, Essex County in New Jersey and Preston, Connecticut, the Company and Air Products generally will not be required to fund cash deficiencies associated with waste deliveries by the sponsoring municipality below certain minimum levels, changes in law or termination of incineration service for reasons other than default by the respective partnership. In the event of a partnership default which results in termination of incineration service, the Company may limit its financial obligations by partnership as follows: Hempstead, New York - Funding of 50% of periodic payments related to outstanding debt. At September 30, 1996, $215 million of total unamortized project debt was outstanding. Average annual debt service on 50% of the debt over the next five years is $11 million. -64- 29 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Essex County in New Jersey - Funding of 50% of cash deficiencies including debt service up to $50 to $100 million, depending upon the circumstances. Average annual debt service on 50% of the debt over the next five years is $10 million. Preston, Connecticut - Funding of 50% of periodic payments related to outstanding debt. At September 30, 1996, total outstanding debt included $86 million of unamortized project debt and $44 million of additional partnership debt (of which $22 million is guaranteed by the Company). Average annual debt service on 50% of the debt over the next five years is $6 million. With respect to the facilities located in Niagara Falls, New York and Rochester, Massachusetts, the Company may limit its financial obligations by partnership as follows: Niagara Falls, New York - Funding of 50% of partnership cash deficiencies, including debt service. At September 30, 1996, $165 million of total unamortized project debt was outstanding. Average annual debt service on 50% of the debt over the next five years is $3 million. SEMASS in Rochester, Massachusetts - Under support agreements and guarantees (i) lending up to 50% of $5 million to the SEMASS Partnership under certain circumstances, (ii) deferring up to 50% of $7 million of operating cost reimbursement, and (iii) funding up to 50% of $5 million in operating damages. These obligations have been assigned to the lenders. The SEMASS Partnership has borrowed approximately $342 million (weighted average fixed rate of 9.7%) of non-recourse debt as of September 30, 1996. Average annual debt service on 50% of the debt over the next five years is approximately $20 million. Operating leases. The Company and its subsidiaries lease substantial portions of their office and other facilities under various lease agreements. At September 30, 1996, total minimum rental commitments becoming payable under all noncancellable operating leases are as follows (in thousands): 1997 $65,495 2001 $31,455 1998 $59,340 2002 - 2006 $94,397 1999 $51,937 2007 - 2011 $63,893 2000 $44,546 All years thereafter $15,953
Total rental expenses for fiscal years 1996, 1995 and 1994, substantially all of which related to fixed amount rental agreements, were $105,134,000, $95,526,000 and $58,667,000, respectively. -65- 30 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (12) Preferred stock - The Company is authorized by its Restated Certificate of In-corporation to issue 25 million shares of preferred stock, the terms and conditions to be determined by the Board of Directors in creating any particular series. (13) Preferred Stock Purchase Rights Plan - In June 1988, the Board of Directors of the Company adopted a Preferred Stock Purchase Rights Plan (the "Plan") and in connection therewith declared a dividend of one Preferred Stock Purchase Right (a "Right") on each outstanding share of the Company's common stock and on each share subsequently issued until separate Rights certificates are distributed, or the Rights expire or are redeemed. When exercisable, each Right will entitle a holder to purchase one one-hundredth of a share of a new series of the Company's Preferred Stock at an exercise price of $110.00, subject to adjustment. The Plan, as subsequently amended in February 1996, provides that if the Company is acquired in a business combination transaction on or at any time after the date on which a person obtains ownership of stock having 20% or more of the Company's general voting power, provision generally must be made prior to the consummation of such transaction to entitle each holder of a Right to purchase at the exercise price a number of the acquiring company's common shares having a market value at the time of such transaction of two times the exercise price of the Right. The Plan also provides that upon the occurrence of certain other specific matters, each holder of a Right will have the right to receive, upon payment of the exercise price, shares of the new series of Preferred Stock having a market value of two times the exercise price of a Right. The Company has a right to redeem the Rights for $.05 per Right (subject to adjustment) prior to the time they become exercisable. The Rights will expire on June 13, 1998. (14) Common stock - Earnings per share. The following table reconciles the number of common shares shown as outstanding on the consolidated balance sheet with the number of common and common equivalent shares used in computing primary earnings per share (in thousands): -66- 31 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Year Ended September 30, ---------------------------- 1996 1995 1994 ------- ------- ------- Common shares outstanding, end of period 212,363 212,439 196,341 Less - Shares held in the Stock and Employee Benefit Trust (11,012) (13,596) -- ------- ------- ------- Common shares outstanding for purposes of computing primary earnings per share, end of period 201,351 198,843 196,341 Effect of using weighted average common and common equivalent shares outstanding (1,398) (1,199) (9,788) Effect of shares issuable under stock option plans based on the treasury stock method 715 1,433 1,068 ------- ------- ------- Shares used in computing primary earnings per share 200,668 199,077 187,621 ======= ======= =======
Shares of common stock held in the Stock and Employee Benefit Trust ("the Trust") are not considered to be outstanding in the computation of common shares outstanding until shares are utilized at the Company's option for the purposes for which the Trust was established. The difference between shares for primary and fully di-luted earnings per share was not significant in any year. Conversion of the 6 3/4% Convertible Subordinated Debentures due 2005, which were determined not to be common stock equivalents, was not assumed in the computation of fully diluted earnings per share because the debentures had an anti-dilutive effect in the periods prior to their redemption in February 1996. Earnings per common and common equivalent share were computed by dividing net income (loss) by the weighted average number of shares of common stock and common stock equivalents outstanding during each year. Common stock equivalents include stock options, the Company's 6 1/4% Convertible Subordinated Debentures due 2012 (the "6 1/4% Debentures") which were redeemed in February 1996, and the 7.25% Automatic Common Exchange Securities. The effect of the 6 1/4% Debentures on earnings per share was not significant or was not dilutive in the periods prior to their redemption in February 1996 and, accordingly, has not been included in the computations. The 7.25% Automatic Common Exchange Securities had no effect on the computations for the periods presented. -67- 32 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stock and Employee Benefit Trust. In February 1995, the Company established a Stock and Employee Benefit Trust to which it sold 15,000,000 shares of the Company's newly issued common stock. This trust was established to provide the Company the option to use the trust to fund future payments under existing employee compensation and benefit plans as well as other general corporate purposes for which common stock might be issued. Shares issued to the trust are valued at market and reflected as a reduction of common stockholders' equity in the balance sheet. Automatic Common Exchange Securities. In July 1995, the Company issued to the public 11,499,200 7.25% Automatic Common Exchange Securities with a stated amount of $35.625 per security ($409.7 million in total). Each security consists of (1) a purchase contract under which (a) the holder will purchase from the Company on June 30, 1998 (earlier under certain circumstances), for an amount in cash equal to the stated amount of $35.625, between .8333 of a share (in total approximately 9.6 million shares) and one share (a maximum of 11,499,200 shares) of the Company's common stock (depending on the then market value of the common stock) and (b) the Company will pay the holder contract fees at the rate of 2.125% per annum on the security, and (2) 5.125% United States Treasury Notes having a principal amount equal to $35.625 and maturing on June 30, 1998. The Treasury Notes underlying these securities are pledged as collateral to secure the holder's obligation to purchase the Company's common stock under the purchase contract. The principal of the Treasury Notes underlying such securities, when paid at maturity, will automatically be applied to satisfy in full the holder's obligation to purchase the Company's common stock. These securities are not included on the Company's balance sheet; an increase in common stockholders' equity will be reflected when cash proceeds are received by the Company. Stock incentive plans. The Company presently maintains six stock option plans af-fording employees, directors and other persons affiliated with the Company the right to purchase shares of its common stock. At September 30, 1996, options were available for future grants only under five plans, the Company's 1987, 1990, both 1993 plans and the 1996 plan (subject to stockholder approval). At September 30, 1996, all of the options outstanding were non-qualified stock options. The exercise price, term and other conditions applicable to each option granted under the Company's plans are generally determined by the Compensation Committee at the time of the grant of each option and may vary with each option granted. No option may be granted at a price less than the stock's fair market value on the date of the grant. -68- 33 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Transactions under all stock option plans are summarized below: Year Ended September 30, ---------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Options outstanding at beginning of year 10,172,917 9,905,868 9,708,547 Options granted 2,688,600 1,758,400 1,697,000 Options terminated (285,980) (204,395) (632,870) Options exercised (563,073) (1,286,956) (866,809) ---------- ---------- ---------- Options outstanding at end of year 12,012,464 10,172,917 9,905,868 ========== ========== ========== Options exercisable at end of year 6,852,999 5,921,652 5,939,033 Options available for future grants at end of year 2,423,544(1) 4,925,856 6,501,573 Total option price of options outstanding at end of year $330,267,919 $269,901,376 $249,683,713 Option price range: Options granted $25.56-$31.56 $28.00-$36.56 $25.44-$31.69 Options terminated $17.31-$40.44 $15.50-$40.44 $17.31-$43.38 Options exercised $12.81-$30.81 $ 9.34-$37.63 $ 7.00-$29.84 Options outstanding at end of year $17.31-$43.38 $12.81-$43.38 $ 9.34-$43.38
- ---------- (1) Excludes 10 million under the 1996 Plan, which is subject to stockholder approval. Under the 1993 and 1996 Stock Incentive Plans, restricted common stock of the Company may be granted to officers, other key employees and certain non-employee directors. Shares granted are subject to certain restrictions on ownership and transferability. Such restrictions on current restricted stock grants lapse two years from the date of grant for officers and key employees and three years for non-employee directors. The deferred compensation expense related to restricted stock grants is amortized to expense on a straight-line basis over the period of time the restrictions are in place and the unamortized portion is classified as a reduction of additional paid-in capital in the Company's Consolidated Balance Sheet. Additionally, the 1993 and 1996 Stock Incentive Plans provide for common stock awards. Restricted stock grants and common stock awards reduce stock options otherwise available for future grant. Of the 500,000 shares which may be awarded to officers and key employees as restricted stock grants or stock awards (excluding 1,500,000 shares which are subject to stockholder approval), 94,655 restricted shares were issued during the current year and 124,382 restricted shares were outstanding as of September 30, 1996. In addition, 8,024 restricted shares issued to non-employee directors were outstanding as of September 30, -69- 34 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 1996. No common stock awards had been granted as of September 30, 1996. Dividend Reinvestment Plan. The Company has a Dividend Reinvestment Plan which provides registered common stockholders an opportunity to reinvest automatically their dividends in shares of the Company's common stock. Each participant in the plan may also make additional cash payments of not less than $25 per remittance and not more than $60,000 per calendar year to be invested in such common shares pursuant to the plan. The plan provides that newly issued shares may be acquired from the Company, purchased on the open market or purchased under a combination of the two alternatives. (15) Foreign currency translation - Increases (decreases) in the equity component for each period's translation adjustments are as follows (in thousands):
Year Ended September 30, -------------------------------- 1996 1995 1994 ---------- ---------- ---------- Beginning cumulative translation adjustment $ 30,821 $ (40,744) $(136,659) Translation adjustment for the fiscal year (61,959) 71,565 95,915 --------- --------- --------- Ending cumulative translation adjustment $ (31,138) $ 30,821 $ (40,744) ========= ========= =========
(16) Income taxes - The components of (i) earnings before income taxes, minority interest and extraordinary item and (ii) the income tax provision for each of the three fiscal years ended September 30, are as set forth below (in thousands).
1996 ------------------------------- Excluding Special Special As Charges Charges Reported 1995 1994 -------- --------- -------- -------- -------- Domestic $429,705 $(187,087) $242,618 $563,648 $421,620 Foreign (1) 44,801 (259,713) (214,912) 127,428 77,503 -------- --------- -------- -------- -------- $474,506 $(446,800) $ 27,706 $691,076 $499,123 ======== ========= ======== ======== ========
-70- 35 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) - ---------- (1) Amounts are net of intercompany interest expense for fiscal years 1996, 1995 and 1994 of $53,660,000, $36,572,000 and $23,838,000, respectively. The Company maintains a capital structure with respect to its foreign operations designed to minimize worldwide income and other tax costs.
State Federal Foreign & Local Total -------- -------- -------- -------- 1996: Current $ 51,900 $ 33,497 $ 17,463 $102,860 Deferred 30,895 (35,382) 7,521 3,034 Amortization of investment tax credit (706) -- -- (706) -------- -------- -------- -------- $ 82,089 $ (1,885) $ 24,984 $105,188 ======== ======== ======== ======== 1995: Current $183,876 $ 46,480 $ 23,330 $253,686 Deferred 20,605 (6,764) 9,609 23,450 Amortization of investment tax credit (706) -- -- (706) -------- -------- -------- -------- $203,775 $ 39,716 $ 32,939 $276,430 ======== ======== ======== ======== 1994: Current $116,164 $ 42,107 $ 18,626 $176,897 Deferred 34,646 (220) (10,968) 23,458 Amortization of investment tax credit (706) -- -- (706) -------- -------- -------- -------- $150,104 $ 41,887 $ 7,658 $199,649 ======== ======== ======== ========
The following is a reconciliation between the U.S. federal income tax rate and the effective income tax rate for each of the three fiscal years in the period ended September 30, 1996: -71- 36 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1996 1995 1994 ------- ------- ------- Excluding Special Charges: Income tax - U.S. federal rate 35.00% 35.00% 35.00% Federal effect of state income taxes (2.31) (1.67) (.54) Effect of foreign operations (2.05) (.20) .89 All other, net 2.77 2.10 3.12 ------ ----- ----- Federal and foreign 33.41 35.23 38.47 State income taxes 6.59 4.77 1.53 ------ ----- ----- Effective income tax rate, excluding special charges 40.00 40.00 40.00 Effect of Special Charges 339.66 -- -- ------ ----- ----- Effective income tax rate 379.66% 40.00% 40.00% ====== ===== =====
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities at September 30, 1996 and 1995, are as follows (in thousands):
1996 1995 --------------------- --------------------- Deferred Deferred Deferred Deferred Tax Tax Tax Tax Assets Liabilities Assets Liabilities -------- ----------- -------- ----------- Depreciation and amortization $144,409 $468,326 $142,408 $460,444 Accrued environ- mental and landfill costs 183,041 -- 191,737 -- Accruals related to discontinued operations 8,956 -- 29,120 -- Self-insurance accruals 56,457 -- 52,310 -- Assets and operations to be divested 107,247 -- -- -- Net operating loss carryforwards 115,717 -- 108,983 -- Other 318,449 138,649 231,550 88,505 -------- -------- -------- -------- Deferred tax assets and liabilities 934,276 $606,975 756,108 $548,949 ======== ======== Valuation allowance (192,811) (116,244) -------- -------- Deferred tax assets, net of valuation allowance $741,465 $639,864 ======== ========
-72- 37 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The valuation allowance applies principally to a substantial portion of the net operating loss carryforwards and deductions associated with the special charges which could expire prior to utilization by the Company. Foreign net operating loss carryforwards of approximately $180 million are available to reduce future taxable income of the applicable foreign entities for periods which generally range from 1997 to 2003. Domestic state net operating loss carryforwards of approximately $831 million (the tax benefit of which is calculated at rates ranging generally from 5%- 10%) are available to reduce future taxable income of the applicable entities taxable in such states for periods which range from 1997 to 2011. The net change in the total valuation allowance for the year ended September 30, 1996, was an increase of $76.6 million, principally due to the special charges taken in the fourth quarter of fiscal 1996, compared with a decrease in the prior year of $3.2 million. Deferred income taxes have not been provided as of September 30, 1996, on approximately $820 million of undistributed earnings of foreign affiliates which are considered to be permanently reinvested. (17) Employee benefit plans - Employee stock ownership and savings plan. The Company sponsors an employee stock ownership and savings plan which incorporates deferred savings features permitted under IRS Code Section 401(k). The plan covers substantially all U.S. employees with one or more years of service except for certain employees subject to collective bargaining agreements. Eligible employees may make voluntary contributions to one or more of five investment funds through payroll deductions which, in turn, will allow them to defer income for tax purposes. The Company matches these voluntary contributions at a rate of $.50 per $1.00 on the first 5% of total earnings contributed by each participating employee. The Company matches the voluntary contributions through open market purchases or issuances of shares of the Company's common stock. The Company expenses its contributions to the employee stock ownership and savings plan which for fiscal years 1996, 1995 and 1994 were $11,752,000, $10,545,000 and $9,430,000, respectively. Employee retirement plans. The Company and its domestic subsidiaries have two defined benefit retirement plans covering substantially all U.S. employees except for certain employees subject to collective bargaining agreements. The benefits for these plans are based on years of service and the employee's compensation. The Company's general funding policy for these plans is to make annual contributions to the plans equal to or exceeding the actuary's recommended contribution. -73- 38 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company also has employees in various foreign countries that are covered by defined benefit pension plans. The benefits for these plans are based generally on years of service and the employee's compensation. Under the Company's funding policy, annual contributions are made in order to fund the plans over the participants' total expected periods of service in conformity with the requirements of local law or custom. The components of net annual pension cost for fiscal years 1996, 1995 and 1994 for the defined benefit plans were as follows (in thousands):
1996 1995 1994 -------- -------- -------- U.S. Plans: Service cost (benefits earned during the period) $ 12,260 $ 9,933 $ 11,260 Interest cost on projected benefit obligation 13,521 12,597 10,329 Investment gain on plan assets (27,957) (14,097) (11,728) Net amortization and deferral 12,056 (110) (1,534) -------- -------- -------- Net annual pension cost $ 9,880 $ 8,323 $ 8,327 ======== ======== ======== Non-U.S. Plans: Service cost (benefits earned during the period) $ 1,949 $ 1,969 $ 1,118 Interest cost on projected benefit obligation 2,163 1,748 1,004 Investment gain on plan assets (2,044) (2,628) (62) Net amortization and deferral (454) 12 (1,766) ------- ------- ------- Net annual pension cost $ 1,614 $ 1,101 $ 294 ======= ======= =======
The following table sets forth the funded status and amounts recognized in the Company's Consolidated Balance Sheet as of September 30, 1996 and 1995, and the significant assumptions used in accounting for the defined benefit plans. The measurement dates for the U.S. plans were June 30, 1996 and 1995 and for non-U.S. plans were September 30, 1996 and 1995. -74- 39 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1996 1995 ------------------- ------------------- U.S. Non-U.S. U.S. Non-U.S. --------- -------- --------- -------- (Dollar Amounts in Thousands) Actuarial present value of accumulated benefit obligations, including vested benefits of $161,986, $10,296, $141,572 and $18,787, respectively $(180,639) $(10,644) $(150,450) $(19,385) ========= ======== ========= ======== Actuarial present value of projected benefit obligation $(196,909) $(14,412) $(166,552) $(24,130) Plan assets at fair value, primarily commercial paper, common stocks (including 22,000 shares of the Company's common stock for U.S. plans at both dates) and mutual funds 193,951 20,234 159,140 30,415 --------- -------- --------- -------- Projected benefit obligation (in excess of) less than plan assets (2,958) 5,822 (7,412) 6,285 Contributions made after measurement date but before end of fiscal year 7,263 -- 4,000 -- Unrecognized net gain (13,784) (80) (13,653) (128) Unrecognized prior service cost (13,957) -- (15,259) -- Unrecognized net (asset) obligation at transition (1,486) 1,891 (1,680) 2,448 --------- -------- --------- -------- Prepaid (accrued) pension costs $ (24,922) $ 7,633 $ (34,004) $ 8,605 ========= ======== ========= ======== Discount rate 8.0% 6.5-8.5% 7.75% 6.5-8.5% Rate of increase in compensation levels 4.0% 3.0-6.5% 4.5% 3.5-7.0% Expected long-term rate of return on assets 9.5% 6.5-9.5% 9.5% 6.5-10.0%
Termination indemnity plan. The employees of the Company's Italian operations are covered by a termination indemnity plan. Benefits under the plan, which are based on periods of service and the employee's compensation, -75- 40 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) are payable in a lump sum upon (1) retirement, (2) termination, (3) death after 10 years of credited service or (4) disability after 10 years of credited service. Expense for fiscal years 1996, 1995 and 1994 related to this unfunded plan was $1,809,000, $1,798,000 and $1,203,000, respectively. Other postretirement benefits. The Company currently maintains an unfunded postretirement benefit plan which provides for employees participating in its medical plan to receive a monthly benefit after retirement based on years of service. As permitted under SFAS No. 106 - "Employers' Accounting for Postretirement Benefits Other Than Pensions", the Company has chosen to recognize the transition obligation (the actuarially-determined accumulated postretirement benefit obligation of approximately $11.9 million at September 30, 1994) over a 20-year period. Current year expense was not material to the Company's results of operations. Postemployment benefits. The Company maintains no plans which provide significant ben-efits to former or inactive employees after employment but before retirement. (18) Operations by industry segment and geographic area - The Company's revenues and income are derived principally from one industry segment, which includes the collection, transportation, processing/recovery and disposal of municipal solid waste and industrial wastes. This segment renders services to a variety of commercial, industrial, governmental and residential customers. Substantially all revenues represent income from unaffiliated customers. The table below reflects certain geographic information relat- ing to the Company's operations. For purposes of this table, general corporate expenses have been included in the computation of income from operations and are classified under "United States and Puerto Rico" (in thousands).
1996 1995 1994 ---------- ---------- ---------- Revenues: United States and Puerto Rico $4,073,558 $4,070,021 $3,293,297 ---------- ---------- ---------- Foreign - Europe 1,425,390 1,433,923 786,252 - Other 280,329 275,407 234,992 ---------- ---------- ---------- Total foreign 1,705,719 1,709,330 1,021,244 ---------- ---------- ---------- Consolidated $5,779,277 $5,779,351 $4,314,541 ========== ========== ==========
-76- 41 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1996 1995 1994 ---------- ---------- ---------- Combined income (loss) from operations and equity in earnings of unconsolidated affiliates: United States and Puerto Rico $ 327,421 (1) $ 626,798 $ 451,108 ---------- ---------- ---------- Foreign - Europe (118,411)(1) 186,251 91,035 - Other (10,847)(1) 30,134 38,851 ---------- ---------- ---------- Total foreign (129,258) 216,385 129,886 ---------- ---------- ---------- Consolidated $ 198,163 $ 843,183 $ 580,994 ========== ========== ========== Depreciation and amortization: United States and Puerto Rico $ 438,639 $ 412,968 $ 349,189 ---------- ---------- ---------- Foreign - Europe 134,061 113,907 72,288 - Other 29,825 24,995 22,715 ---------- ---------- ---------- Total foreign 163,886 138,902 95,003 ---------- ---------- ---------- Consolidated $ 602,525 $ 551,870 $ 444,192 ========== ========== ========== Identifiable assets: United States and Puerto Rico $4,803,978 $4,532,014 $3,626,134 ---------- ---------- ---------- Foreign - Europe 2,435,541 2,599,797 1,903,141 - Other 361,387 328,561 267,680 ---------- ---------- ---------- Total foreign 2,796,928 2,928,358 2,170,821 ---------- ---------- ---------- Consolidated (2) $7,600,906 $7,460,372 $5,796,955 ========== ========== ==========
- ----------------- (1) Fiscal year 1996 earnings information for operations in (i) the United States and Puerto Rico, (ii) Europe and (iii) other foreign countries include special charges of $187,087,000, $234,773,000 and $24,940,000, respectively. See Note (4). (2) The Attwoods acquisition in the first quarter of fiscal 1995 and the Otto Waste Services acquisition in the second quarter of fiscal 1994 each increased the identifiable assets of the Company by over $1.0 billion. -77- 42 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (19) Fair value of financial instruments - The following disclosures of the estimated fair values of financial instruments have been determined by the Company using available market data and valuation methodologies. Considerable judgment is required in developing the methodologies used to determine the estimates of fair value and in interpreting available market data and, accordingly, the estimates presented herein are not necessarily indicative of the values of such financial instruments in a current market exchange. Additionally, under certain financing agreements, the Company is prohibited from redeeming certain of the long-term debt before its maturity.
As of September 30, ---------------------------------------- 1996 1995 ------------------ ------------------- Book Fair Book Fair Value Value Value Value -------- -------- -------- -------- (In Thousands) Debt - 6.10% Senior Notes $198,162 $188,848 $ -- $ -- 6.375% Senior Notes 197,949 184,171 -- -- 7.40% Debentures 397,918 377,107 397,864 396,830 7 7/8% Senior Notes 299,217 311,575 299,125 322,606 9 1/4% Debentures 100,000 117,740 100,000 121,490 Solid waste revenue bond obligations 149,127 151,601 114,079 119,444 Other notes payable 804,721 837,174 585,211 608,435 Commercial paper and short-term facilities to be refinanced 679,597 676,489 231,988 231,701 Convertible subordinated debentures -- -- 744,944 742,806
The book values of cash, short-term investments, trade accounts receivables, trade accounts payable and financial instruments included in other receivables, other assets and accrued liabilities approximate their fair values principally because of the short-term maturities of these instruments. The estimated fair value of long-term debt and convertible subordinated debentures is based on quoted market prices where available or on present value calculations which are calculated using current rates for similar debt with the same remaining maturities. In the normal course of business, the Company has letters of credit, performance bonds and other guarantees which are not reflected in the accompanying consolidated balance sheets. In the past, no significant claims have been made against these financial instruments. Management believes that the likelihood of performance -78- 43 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) under these financial instruments is minimal and expects no material losses to occur in connection with these financial instruments. (20) Related party transactions - One of the Company's directors is affiliated with Otto Holding International B.V. ("OHI") which owns the other 50% interest of Otto Waste Services. The Company, primarily through its 50% ownership of Otto Waste Services, is engaged in various transactions through the ordinary course of business with OHI, its subsidiaries and unconsolidated affiliates or other affiliated parties ("OHI Group"). The OHI Group leased containers and equipment under operating leases and provided certain administrative services to Otto Waste Services during the current fiscal year. Charges for these administrative services were approximately $4.7 million and $5.0 million for fiscal year 1996 and 1995, respectively, and $3.5 million for the period from the acquisition date in February 1994 through the end of fiscal 1994. The Company, including Otto Waste Services, also purchased or entered into capital leases for approximately $30.8 million and $29.3 million, respectively, of containers from the OHI Group during fiscal years 1996 and 1995. Included in the Company's Consolidated Balance Sheet at September 30, 1996 and 1995, are the following amounts relating to transactions with the OHI Group (in thousands):
1996 1995 ---------- ---------- Accounts payable $ -- $ 613 Other accrued liabilities 7,673 -- Capital lease obligations 44,000 46,252 Notes payable, interest payable at FIBOR plus 2% 3,131 3,613
During fiscal 1996, Otto Waste Services sold certain assets related to plastics processing to the OHI Group. These assets were sold to OHI for approximately $2.5 million resulting in a loss on the sale for Otto Waste Services of approximately $1.3 million which is included in the Company's Consolidated Statement of Operations. Additionally, Otto Waste Services sold the stock of one of its subsidiaries to the OHI Group at its recorded book value of approximately $2.1 million. OHI also sold two companies specializing in plastics recycling and processing to Otto Waste Services at their net book value of approximately $372,000. In connection with the acquisition of these two companies, Otto Waste Services assumed liabilities of approximately $6.6 million of long-term debt with third parties and approximately $7.7 million in net payables with affiliated companies of Otto Waste Services and other companies within the OHI Group. -79- 44 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (21) Quarterly financial information (Unaudited) -
First Second Third Fourth Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- (In Thousands Except for Per Share Amounts) Revenues 1996 $1,430,781 $1,373,887 $1,471,368 $1,503,241 1995 $1,292,787 $1,409,366 $1,550,083 $1,527,115 Gross profit 1996 $ 382,676 $ 346,971 $ 356,018 $ 377,997 1995 $ 367,817 $ 403,059 $ 445,117 $ 416,055 Income (loss) from operations 1996 $ 174,162 $ 134,414 $ 134,802 $ (300,585)(2) 1995 $ 177,311 $ 193,034 $ 218,685 $ 200,157 Income taxes 1996 $ 58,118 $ 42,205 $ 42,417 $ (37,552) 1995 $ 65,010 $ 66,109 $ 76,724 $ 68,587 Income (loss) before extra- ordinary item 1996 $ 83,010 $ 60,984 $ 62,022 $ (295,188) 1995 $ 89,570 $ 92,809 $ 106,267 $ 95,915 Net income (loss) 1996 $ 83,010 $ 48,825(1) $ 62,022 $ (295,188) 1995 $ 89,570 $ 92,809 $ 106,267 $ 95,915 Income (loss) per share: Income (loss) before extra- ordinary item 1996 $ .42 $ .30 $ .31 $(1.47) 1995 $ .45 $ .47 $ .53 $ .48 Net income (loss) 1996 $ .42 $ .24 $ .31 $(1.47) 1995 $ .45 $ .47 $ .53 $ .48
-80- 45 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) - ------------- (1) In the second quarter of fiscal year 1996, the Company recorded an after-tax loss of $12.2 million associated with redemption of debt, which was reflected in the Company's Consolidated Statement of Operations as an extraordinary item. See Note (10). (2) In the fourth quarter of fiscal year 1996, the Company incurred special charges of $446.8 million related to decisions to sell the Company's Italian operations, divest non-core business assets and operations, close certain recycling facilities and writedown the investment in its Azusa, California landfill. See Note (4). -81- EX-99.G2 12 THE COMPANY'S QUARTERLY REPORT FOR JUNE 30, 1997 1 EXHIBIT g.2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ____________ to ___________ Commission file number 1-6805 BROWNING-FERRIS INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 74-1673682 - ------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 757 N. Eldridge 77079 Houston, Texas - --------------------------------------- ------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (281) 870-8100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No . Indicate the number of shares outstanding of the issuer's common stock, as of August 12, 1997: 212,805,670. 2 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) (In Thousands Except for Per Share Amounts)
- ------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended June 30, June 30, ---------------------------- ---------------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------ Revenues $ 1,471,252 $ 1,471,368 $ 4,380,120 $ 4,276,036 Cost of operations 1,095,201 1,115,350 3,260,849 3,190,371 ----------- ----------- ----------- ----------- Gross profit 376,051 356,018 1,119,271 1,085,665 Selling, general and ad- ministrative expense 194,267 221,216 620,931 642,287 Special charges, net 84,127 -- 84,127 -- ----------- ----------- ----------- ----------- Income from operations 97,657 134,802 414,213 443,378 Interest, net 39,905 42,577 128,815 125,446 Equity in earnings of un- consolidated affiliates (18,969) (13,816) (37,478) (38,918) ----------- ----------- ----------- ----------- Income before income taxes, minority interest and extraordinary items 76,721 106,041 322,876 356,850 Income taxes 30,688 42,417 129,150 142,740 Minority interest in income of consolidated subsidiaries 4,107 1,602 8,965 8,094 ----------- ----------- ----------- ----------- Income before extraordinary items 41,926 62,022 184,761 206,016 Extraordinary items - Loss on redemption of debt by unconsolidated affiliate, net of income tax benefit of $1,677 -- -- 3,124 -- Loss on redemption of debt, net of income tax benefit of $908 and $4,467 1,685 -- 1,685 12,159 ----------- ----------- ----------- ----------- Net income $ 40,241 $ 62,022 $ 179,952 $ 193,857 =========== =========== =========== ===========
(Continued on following page) 2 3 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Continued) (Unaudited) (In Thousands Except for Per Share Amounts) - --------------------------------------------------------------------------
Three Months Ended Nine Months Ended June 30, June 30, ---------------------- ----------------------- 1997 1996 1997 1996 - -------------------------------------------------------------------------- Number of common and common equivalent shares used in computing earnings per share 204,020 200,932 203,019 200,395 ========== ========== ========== ========== Earnings per common and common equivalent share: Income before extra- ordinary items $ .21 $ .31 $ .91 $ 1.03 Extraordinary items (.01) -- (.02) (.06) ------- ------- ------- ------- Net income $ .20 $ .31 $ .89 $ .97 ======= ======= ======= ======= Cash dividends per common share $ .17 $ .17 $ .51 $ .51 ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements. 3 4 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS (In Thousands) ------------------------------------------------------------------------
June 30, September 30, 1997 1996 (Unaudited) ------------------------------------------------------------------------ CURRENT ASSETS: Cash $ 99,312 $ 110,224 Short-term investments 79,062 26,394 Receivables - Trade, net of allowances for doubtful accounts of $37,974 and $40,622 854,151 929,316 Other 87,240 42,543 Inventories 42,301 51,536 Deferred income taxes 113,868 119,914 Prepayments and other 82,886 107,868 ---------- ---------- Total current assets 1,358,820 1,387,795 ---------- ---------- PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $2,506,545 and $2,737,788 3,547,448 3,920,721 ---------- ---------- OTHER ASSETS: Cost over fair value of net tangible assets of acquired businesses, net of accumulated amortization of $159,448 and $138,636 1,452,220 1,671,461 Other intangible assets, net of accumulated amortization of $88,373 and $110,835 90,427 110,925 Deferred income taxes 118,299 122,617 Investments in unconsolidated affiliates 243,290 287,051 Other 91,719 100,336 ---------- ---------- Total other assets 1,995,955 2,292,390 ---------- ---------- Total assets $6,902,223 $7,600,906 ========== ==========
The accompanying notes are an integral part of these financial statements. 4 5 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (In Thousands Except for Share Amounts) -------------------------------------------------------------------------
June 30, September 30, 1997 1996 (Unaudited) ------------------------------------------------------------------------- CURRENT LIABILITIES: Current portion of long-term debt $ 33,692 $ 59,806 Accounts payable 424,841 507,731 Accrued liabilities - Salaries and wages 106,966 129,203 Taxes, other than income 61,596 40,876 Other 449,238 430,187 Income taxes 22,990 35,586 Deferred revenues 184,025 195,101 ---------- ---------- Total current liabilities 1,283,348 1,398,490 ---------- ---------- DEFERRED ITEMS: Accrued environmental and landfill costs 511,212 541,838 Deferred income taxes 145,416 108,041 Other 255,331 275,374 ---------- ---------- Total deferred items 911,959 925,253 ---------- ---------- LONG-TERM DEBT, net of current portion 2,110,581 2,766,885 ---------- ---------- COMMITMENTS AND CONTINGENCIES COMMON STOCKHOLDERS' EQUITY: Common stock, $.16 2/3 par; 400,000,000 shares authorized; 213,387,697 and 213,390,458 shares issued 35,572 35,572 Additional paid-in capital 1,808,222 1,730,612 Retained earnings 1,048,265 1,031,331 Treasury stock, 1,147,931 and 1,027,278 shares, at cost (15,611) (11,926) Stock and Employee Benefit Trust, 8,424,452 and 11,012,423 shares (280,113) (275,311) ---------- ---------- Total common stockholders' equity 2,596,335 2,510,278 ---------- ---------- Total liabilities and common stockholders' equity $6,902,223 $7,600,906 ========== ==========
The accompanying notes are an integral part of these financial statements. 5 6 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In Thousands) - --------------------------------------------------------------------------
Nine Months Ended June 30, ------------------------ 1997 1996 - -------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 179,952 $ 193,857 ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization - Property and equipment 381,268 384,981 Goodwill 33,317 34,725 Other intangible assets 19,191 25,086 Special charges, net 84,127 -- Deferred income tax expense 7,235 20,005 Amortization of deferred investment tax credit (530) (530) Provision for losses on accounts receivable 23,444 20,427 Gains on sales of fixed assets (5,669) (3,984) Equity in earnings of unconsolidated affiliates, net of dividends received and extraordinary item 14,726 (2,086) Minority interest in income of consolidated subsidiaries, net of dividends paid 8,657 7,299 Increase (decrease) in cash from changes in assets and liabilities excluding effects of acquisitions and divestitures - Trade receivables (57,146) (33,896) Inventories 3,219 2,139 Other assets 35,691 15,765 Other liabilities (5,056) (115,787) ---------- ---------- Total adjustments 542,474 354,144 ---------- ---------- Net cash provided by operating activities 722,426 548,001 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (315,458) (656,628) Payments for businesses acquired (15,353) (162,722) Proceeds from businesses divested 300,099 -- Investments in unconsolidated affiliates (37,139) (92,389) Proceeds from disposition of assets 33,257 44,383 Purchases of short-term investments (53,603) -- Sales of short-term investments -- 273,647 Return of investment in unconsolidated affiliates 35,625 37,863 ---------- ---------- Net cash used in investing activities (52,572) (555,846) ---------- ----------
(Continued on following page) 6 7 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) (Unaudited) (In Thousands) - --------------------------------------------------------------------------
Nine Months Ended June 30, ------------------------ 1997 1996 - -------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuances of stock 46,938 12,189 Proceeds from issuance of indebtedness 114,535 979,813 Repayments of indebtedness (735,803) (888,715) Dividends paid (102,947) (101,615) ---------- ---------- Net cash provided by (used in) financing activities (677,277) 1,672 ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES (3,489) (1,542) ---------- ---------- NET DECREASE IN CASH (10,912) (7,715) CASH AT BEGINNING OF PERIOD 110,224 92,808 ---------- ---------- CASH AT END OF PERIOD $ 99,312 $ 85,093 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR: Interest, net of capitalized amounts $ 122,596 $ 109,663 Income taxes $ 137,167 $ 134,161
The accompanying notes are an integral part of these financial statements. 7 8 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Basis of Presentation - The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary to a fair presentation of these financial statements have been included. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1996, as filed with the Securities and Exchange Commission. In October 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which was issued by the Financial Accounting Standards Board in March 1995. The statement sets forth standards for the recognition and measurement of impairment of long-lived assets, including certain identifiable intangible assets and goodwill related to those assets, to be held and used in an entity's operations or expected to be disposed of. As the Company's prior accounting practices were substantially in compliance with the provisions of the new standard, the adoption of SFAS No. 121 had no material effect on the Company's financial position or results of operations. In January 1997, the Securities and Exchange Commission issued Release 33-7386 governing disclosure requirements for financial instruments, including derivatives. The disclosures related to the Company's accounting policies for derivative transactions are required to be included in the Company's financial statements for the quarter ended June 30, 1997. The Company believes that the disclosures included in the Company's Annual Report on Form 10-K for the year ended September 30, 1996 are in compliance with the requirements of this release. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 - "Earnings Per Share". This statement, which establishes new standards for computing and presenting earnings per share, is effective for the Company's quarter ending December 31, 1997 and requires restatement for all periods presented. The Company believes that the adoption of SFAS No. 128 will not have a material effect on its earnings per share calculations. 8 9 (2) Earnings Per Common Share - The following table reconciles the number of common shares outstanding with the number of common and common equivalent shares used in computing primary earnings per share (in thousands):
Nine Months Ended June 30, -------------------- 1997 1996 ------- ------- Common shares outstanding, end of period 212,240 212,363 Less - Shares held in the Stock and Employee Benefit Trust (8,424) (11,326) ------- ------- Common shares outstanding for purposes of computing primary earnings per share, end of period 203,816 201,037 Effect of using weighted average common and common equivalent shares outstanding (1,552) (1,505) Effect of shares issuable under stock option plans based on the treasury stock method 755 863 ------- ------- Shares used in computing earnings per share 203,019 200,395 ======= =======
Shares of common stock held in the Stock and Employee Benefit Trust (the "Trust") are not considered to be outstanding in the computation of common shares outstanding until shares are utilized at the Company's option for the purposes for which the Trust was established. The difference between shares for primary and fully diluted earnings per share was not significant in any period. Conversion of the 6 3/4% Convertible Subordinated Debentures due 2005, which were determined not to be common stock equivalents, was not assumed in the computation of fully diluted earnings per share because the debentures had an anti-dilutive effect in the periods prior to their redemption in February 1996. Earnings per common and common equivalent share were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during each period. Common stock equivalents include stock options, the Company's 6 1/4% Convertible Subordinated Debentures due 2012 (the "6 1/4% Debentures"), which were redeemed in February 1996, and the 7.25% Automatic Common Exchange Securities. The effect of the 6 1/4% Debentures on earnings per share was not significant in the period prior to their redemption in February 1996 and, accordingly, has not been included in the computation. The 7.25% Automatic Common Exchange Securities had no effect on the computations for the periods presented. 9 10 (3) Special Charges - Fourth Quarter of Fiscal 1996 ($447 million) - Special charges of $447 million ($362 million or $1.80 per share after income taxes) were included in the Company's results of operations for the fourth quarter of fiscal 1996. Charges of $349 million resulted principally from management decisions to sell the Company's Italian operations, divest certain domestic and international non-core business assets and operations and close certain recycling facilities not expected to achieve desired performance objectives. The remainder of the special charges related to the writedown of the Company's investment in the Azusa, California landfill to fair value, which was determined based upon the present value of the estimated future cash flows using a discount rate commensurate with the risks involved. This writedown was a result of the changing competitive nature of waste disposal in the Los Angeles market area and the continuing negative legal climate, including adverse decisions by California judicial and regulatory authorities in fiscal 1996 and early fiscal 1997, bearing on the site's ability to accept municipal solid waste. During the third quarter of fiscal 1997, the Company sold the Azusa, California landfill facility. The Company completed the sale of its Italian operations in late June 1997. The Company's investment in its Italian operations, before considering special charges, was $206 million as of September 30, 1996. Losses accumulated in the foreign currency translation component of common stockholders' equity (approximately $53 million) were recognized as an additional loss on the sale of the Company's Italian operations upon consummation of the sale in June 1997 and were included in the third quarter special charge (see discussion below). Summary financial information related to the Company's Italian operations is as follows (in thousands):
For the Nine Months Ended June 30, --------------------- For the Year Ended 1997 1996 September 30, 1996 --------- ------- ------------------ Revenues $ 81,926 $88,450 $ 122,782 Losses from operations and equity in earnings of unconsolidated affiliates before special charges $ (2,190)(1) $ (763) $ (4,019)(2)
(1) Does not reflect impact of special charges taken in third quarter of fiscal 1997 (see below). (2) Does not reflect special charge of $178.6 million included in the fourth quarter of fiscal 1996. The fourth quarter special charge also included approximately $177 million of assets as of September 30, 1996 associated with domestic and international non-core business assets and operations to be divested and recycling facilities to be closed during fiscal 1997. The results of operations for these non-core business assets and operations and recycling facilities were not material to the Company's consolidated results of operations for fiscal 1996 as the aggregated revenues and income (loss) from operations of these assets and operations 10 11 represented less than 4% of the Company's corresponding consolidated totals, on a pre-special charge basis. During the first nine months of the current fiscal year, the Company sold a number of these business operations and closed 33 recycling facilities. Third Quarter of Fiscal 1997 ($84 million) - Special charges of $84 million ($50 million or $0.25 per share after income taxes) were reported in the third quarter of fiscal 1997. Included in these special charges were non-cash expenses of $53 million due to cumulative foreign currency translation losses associated with the sale of Italian business operations and $96 million for anticipated losses related to decisions to divest additional underperforming or non-core business operations and assets located primarily in the United Kingdom, the Netherlands and the United States. These losses were offset partially by net gains of $65 million arising largely from 34 divestitures completed in the current quarter, principally in North America. The results of operations for these additional underperforming or non-core business operations to be divested were not material to the Company's consolidated results of operations for the nine months ended June 30, 1997 as the aggregated total assets, revenues and income (loss) from operations of these assets and business operations represented approximately 3% or less of the Company's corresponding consolidated totals, on a pre-special charge basis. (4) Business Combinations - During the current fiscal year, the Company paid approximately $21.3 million (including additional amounts payable, principally to former owners, of $5.9 million) to acquire 17 solid waste businesses, which were accounted for as purchases. In connection with these acquisitions, the Company recorded additional interest-bearing indebtedness of $.1 million and other liabilities of $1.0 million. The results of these business combinations are not material to the Company's consolidated results of operations or financial position. During the prior fiscal year, the Company paid approximately $243.4 million (including additional amounts payable, principally to former owners, of $23.3 million and the issuance of 974,085 shares of the Company's common stock valued at $28.3 million) to acquire 102 solid waste businesses, which were accounted for as purchases, including the acquisition of the remaining 50% ownership interest of Pfitzenmeier & Rau ("P&R"), a joint venture previously owned 50% by Otto Waste Services, a 50% owned subsidiary of the Company. In connection with these acquisitions, the Company recorded additional interest-bearing indebtedness of $69.3 million (including $55.0 million related to P&R) and other liabilities of $37.4 million. The results of these business combinations were not material to the Company's consolidated results of operations or financial position. The results of all businesses acquired in fiscal years 1997 and 1996 have been included in the consolidated financial statements from the dates of acquisition. In allocating purchase price, the assets acquired and liabilities assumed in connection with the Company's 11 12 acquisitions have been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. As a result, the financial information included in the Company's consolidated financial statements is subject to adjustment prospectively as subsequent revisions in estimates of fair value, if any, are necessary. (5) Long-Term Debt - Long-term debt at June 30, 1997, and September 30, 1996, was as follows (in thousands):
June 30, September 30, 1997 1996 ------------ ------------- Senior indebtedness: 6.10% Senior Notes, net of unamortized discount of $1,617 and $1,838 $ 198,383 $ 198,162 6.375% Senior Notes, net of unamortized discount of $1,915 and $2,051 198,085 197,949 7 7/8% Senior Notes, net of unamortized discount of $714 and $783 299,286 299,217 7.40% Debentures, net of unamortized discount of $2,042 and $2,082 397,958 397,918 9 1/4% Debentures 100,000 100,000 Solid waste revenue bond obligations 171,726 149,127 Other notes payable 523,914 804,721 ---------- ---------- 1,889,352 2,147,094 Commercial paper and short-term facilities to be refinanced 254,921 679,597 ---------- ---------- Total long-term debt 2,144,273 2,826,691 Less current portion 33,692 59,806 ---------- ---------- Long-term debt, net of current portion $2,110,581 $2,766,885 ========== ==========
During December 1996, the Company amended the terms of its existing $750 million Multicurrency Revolving Credit Agreement which was originally established to fund the Company's acquisition of Attwoods plc in December 1994. Under the terms of the amended agreement, the facility has a 364-day term with a one-year term-out option available to the Company at any time prior to its maturity date in December 1997. The agreement contains a net worth requirement consistent with the Company's $1 billion revolving credit agreement. It is the Company's intention to refinance certain commercial paper balances and other outstanding borrowings classified as long-term 12 13 debt through the use of existing committed long-term bank credit agreements in the event that alternative long-term refinancing is not arranged. A summary by country of such commercial paper balances and other outstanding borrowings classified as long-term debt as of June 30, 1997 and September 30, 1996 is as follows (amounts in thousands):
June 30, September 30, 1997 1996 ------------ ------------- United States - Commercial paper $ -- $438,296 Germany 254,921 241,301 -------- -------- $254,921 $679,597 ======== ========
As of June 30, 1997, distributions from retained earnings could not exceed $1.1 billion under the most restrictive of the Company's net worth maintenance requirements. (6) Extraordinary Items - During the second quarter of fiscal 1997, one of the Company's unconsolidated affiliates, American Ref-Fuel Company of Hempstead, incurred a pre-tax charge to expense of $9.6 million associated with the redemption of approximately $250 million principal amount of Series 1985 Bonds, which were refinanced. As a result, the Company has reflected an extraordinary charge, after tax, of $3.1 million (or approximately $.02 per share) in its consolidated statement of income for the quarter ended March 31, 1997, related to its 50% ownership interest in this affiliate. Interest was payable on the Series 1985 Bonds due 2010 at a weighted average interest rate of approximately 7.3%, compared with the weighted average interest rate of approximately 5% for the new bonds, which are also due in 2010. During the third quarter of fiscal 1997, the Company redeemed $160 million of private placement notes previously scheduled to mature in fiscal 1998 and $11.8 million of tax-exempt debt associated with a landfill in Arizona sold by the Company. These redemptions resulted in extraordinary charges to the Company's net income of $1.7 million, after tax, or approximately $.01 per share in the third quarter. (7) Commitments and Contingencies - Legal Proceedings. The Company and certain subsidiaries are involved in various administrative matters or litigation, including personal injury and other civil actions, as well as other claims and disputes that could result in additional litigation or other adversary proceedings. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular quarterly or annual reporting period, management believes that the ultimate disposition of these matters will not have a materially adverse effect upon the consolidated financial position of the Company. 13 14 Environmental Proceedings. The Company and certain subsidiaries are involved in various environmental matters or proceedings, including original or renewal permit application proceedings in connection with the establishment, operation, expansion, closure and post-closure activities of certain landfill disposal facilities, and proceedings relating to governmental actions resulting from the involvement of various subsidiaries of the Company with certain waste sites (including Superfund sites), as well as other matters or claims that could result in additional environmental proceedings. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular quarterly or annual reporting period, management believes that the ultimate disposition of these matters will not have a materially adverse effect upon the consolidated financial position of the Company. (8) Automatic Common Exchange Securities - In July 1995, the Company issued to the public 11,499,200 7.25% Automatic Common Exchange Securities with a stated amount of $35.625 per security ($409.7 million in total). Each security consists of (1) a purchase contract under which (a) the holder will purchase from the Company on June 30, 1998 (earlier under certain circumstances), for an amount in cash equal to the stated amount of $35.625, between .8333 of a share (in total approximately 9.6 million shares) and one share (a maximum of 11,499,200 shares) of the Company's common stock (depending on the then market value of the common stock) and (b) the Company will pay the holder contract fees at the rate of 2.125% per annum on the security, and (2) 5.125% United States Treasury Notes having a principal amount equal to $35.625 and maturing on June 30, 1998. The Treasury Notes underlying these securities are pledged as collateral to secure the holder's obligation to purchase the Company's common stock under the purchase contract. The principal of the Treasury Notes underlying such securities, when paid at maturity, will automatically be applied to satisfy in full the holder's obligation to purchase the Company's common stock. These securities are not included on the Company's balance sheet; an increase in common stockholders' equity will be reflected when cash proceeds are received by the Company. 14 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's operations, financial performance and results includes statements that are not historical facts. Such statements are forward-looking statements based on the Company's expectations and as such, these statements are subject to uncertainty and risk. These statements should be read in conjunction with the "Regulation", "Competition" and "Waste Disposal Risk Factors" sections of the Company's Annual Report on Form 10-K for the year ended September 30, 1996 ("the Form 10-K"), which describes many of the external factors that could cause the Company's actual results to differ materially from the Company's expectations. The Company's Form 10-K is on file with the U.S. Securities and Exchange Commission, a copy of which is available without charge upon written request to: Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253, Attention: Secretary. RESULTS OF OPERATIONS Net income for the nine months ended June 30, 1997, was $235.2 million ($1.16 per share), before special charges and extraordinary items, an increase of 14.2% from the same prior year period, on consolidated revenues of $4.380 billion. Pre-tax special charges reported in the third quarter of fiscal 1997 were $84 million ($50 million or $0.25 per share after tax). The fiscal 1997 nine-month results also included after-tax extraordinary items of $4.8 million, or $0.02 per share, associated with the retirement of debt. After the special charges and extraordinary items, net income for the nine months ended June 30, 1997 was $180.0 million, or $0.89 per share. Included in the third quarter pre-tax special charges of $84 million were non-cash expenses of $53 million due to cumulative foreign currency translation losses associated with the sale of Italian business operations and $96 million for anticipated losses related to decisions to divest additional underperforming or non-core business operations and assets located primarily in the United Kingdom, the Netherlands and the United States. These losses were offset partially by net gains of $65 million arising largely from 34 divestitures completed in the third quarter, principally in North America. The $4.8 million of extraordinary items included in the current year-to-date results were associated with the redemption and refinancing of $250 million of debt of one of the Company's unconsolidated affiliates, American Ref-Fuel Company of Hempstead, the redemption of $11.8 million in tax-exempt debt associated with a landfill in Arizona sold by the Company in the third quarter and the redemption of $160 million in private placement notes previously scheduled to mature in fiscal 1998. These year-to-date results compare with net income before an extraordinary item for the same fiscal 1996 period of $206.0 million, or $1.03 per share, on consolidated revenues of $4.276 billion. The fiscal 1996 extraordinary item of $12.2 million, after tax ($0.06 per share), was associated with the redemption of $745 million of Convertible Subordinated Debentures. After the extraordinary item, net 15 16 income for the nine months ended June 30, 1996, was $193.9 million or $0.97 per share. Fiscal 1997 year-to-date results, before special charges and extraordinary items, were favorably affected by improved operating profit in the Company's North American operations, which resulted from actions taken to (1) reduce SG&A staffing levels and operating costs in the Company's collection and recycling businesses, (2) improve customer pricing and (3) divest underperforming operations and assets. Similar actions taken in the Company's international operations have also recently begun to impact favorably the Company's international operating results. Current year-to-date results were affected negatively by severance and reorganization expenses of approximately $18 million associated with both the reorganization of North American operations in June 1996 and the reductions, principally in the first half of the current fiscal year, in worldwide employee staffing levels to effect improvements in operating and administrative efficiency. Additionally, an increase in the Company's income from operations of $19.5 million, principally due to lower depreciation and amortization expense, was reflected in the current year-to-date earnings as a result of the special charges of $447 million taken in the fourth quarter of fiscal 1996 (see Note (3) of Notes to Consolidated Financial Statements). During the first nine months of fiscal 1997, the Company's actions reflected its previously announced strategic shift in focus away from an emphasis on external growth to an emphasis on internal growth and on increasing return on assets. The redeployment and retraining of the sales force that was completed in the first half of the current fiscal year is enabling sales personnel to better focus on the Company's customers. In addition, the plan to reduce selling, general and administrative expenses ("SG&A"), commenced during the first quarter of fiscal 1997, has resulted in the reduction of approximately 1,300 employees worldwide since the Company announced its reorganization in June 1996 and the consolidation of certain business and administrative activities. SG&A as a percent of revenues was 14.2% for the first nine months of fiscal 1997, lower than the same period of the prior year (15.0%). With a quarter remaining in fiscal 1997, the Company is on track to exceed its SG&A milestone, which is to reduce SG&A as a percent of revenues to 14.6% for the fiscal year. During the first quarter of fiscal 1997, the Company completed its initial marketplace and business line strategic reviews and identified core and non-core business operations (including those considered in the special charges incurred in the fourth quarter of fiscal 1996) to be marketed and sold with aggregate annual revenues of approximately $270 million in the U.S. and $130 million outside of the U.S. The Company has continued its strategic reviews of underperforming marketplaces since the first quarter. The goal of these reviews is to identify the key drivers of performance or underperformance in each marketplace and identify actions to improve the business operations. However, in some cases, these reviews have resulted in a conclusion to divest the operations as it is evident that the Company will be unable to achieve its desired returns even with identified areas for improvement. As a result of these reviews, the Company has identified additional business operations with annual revenues of $130 million in 16 17 North America and $155 million (a portion of which is not consolidated for financial reporting purposes) in international operations to be divested (including those considered in the current quarter special charges). Through June 1997, the Company has sold business operations with annual revenues of approximately $450 million, with most of these sales concluded subsequent to March 31, 1997. The Company has also identified real estate assets of approximately $60 million that are actively being marketed. In March 1997, the Company initiated an effort to reduce operating expenses by $100 million on an annualized basis by the beginning of the fourth quarter of fiscal 1997. Through June 30, the Company had reduced operating headcount by approximately 800 employees through the re-routing of trucks, consolidations and closures of operating facilities and, where appropriate, after careful review, a reduction in supervisory personnel. Although this goal has not yet been fully achieved, the ability to further reduce operating expenses in recycling business operations will significantly affect the Company's ability to achieve this operating expense reduction goal by fiscal yearend. The focus in the recycling business is on (1) cleaning up the volumes received to reduce sorting costs and increase the quality or value of the material to be sold and (2) closing or selling the remaining higher cost, lower efficiency facilities. During the first nine months of fiscal 1997, the Company closed or sold 49 recycleries. The Company's focus on asset management continued during the third quarter. Reduced capital spending will lead to lower fixed costs, which is another contributor to the Company's effort to reduce operating costs. Capital expenditures, including acquisitions, for the first nine months of fiscal 1997 were limited to $352 million. The following profitability ratios (shown as a percent of revenues) reflect certain profitability trends for the Company's operations. The Company has established an operating profit milestone for fiscal 1997 to increase income from operations as a percent of revenues to 12%. (Progress toward this goal will be measured on a pre-special charge basis.) Also presented below are return on asset information and ratios of earnings to fixed charges. 17 18
Nine Months Ended ------------------- Year Ended 6/30/97 6/30/96 9/30/96 -------- --------- ---------- Profitability Margins: Gross profit 25.6% 25.4% 25.3% Income from operations before special charges 11.4% 10.4% 10.2% Income from operations 9.5% 10.4% 2.5% Income before income taxes, minority interest and extraordinary items 7.4% 8.3% 0.5% Net income before special charges and extraordinary items(1) 5.4% 4.8% 4.7% Net income (loss)(1) 4.1% 4.5% (1.8%) Other Financial Information: Return on Gross Assets 8.66% 8.55% 11.4% Ratio of earnings to fixed charges before special charges(1) 3.02 2.84 2.77 Ratio of earnings to fixed charges(1) 2.59 2.84 1.02
- ---------- (1) Does not reflect the pro forma effect of the use of cash proceeds of $409.7 million to be received in the future under the provisions of the 7.25% Automatic Common Exchange Securities. (See Note (8) of Notes to Consolidated Financial Statements.) Improvement was reflected in all of the profitability margins, before considering special charges and extraordinary items, presented above for the nine months ended June 30, 1997 compared with the same period of the prior year. Although these profitability margins continued to be affected negatively in domestic operations by the decline in the weighted average value of recycling commodities in the current fiscal year as compared with the first nine months of the prior year, the North American income from operations margin reflected improvement as a result of improved profitability in solid waste collection, recycling and, to a lesser extent, transfer and disposal operations. Reduced SG&A expenses as a percentage of revenues also affected favorably the North American income from operations margin. The weighted average market prices for recycling commodities in North America, principally corrugated, office paper and newspaper, declined by 12%, to approximately $62 per ton in the first nine months of the current year from approximately $70 per ton in the comparable period last year. Current year profitability margins were also affected negatively by the increased operating and SG&A costs associated with current year employee severance and reorganization expenses of approximately $18 million, although this effect was more than offset by the increase in income from operations of $19.5 million associated principally with the reduced depreciation and amortization expense resulting from the special charges taken in the fourth quarter of fiscal 1996. In the Company's international operations, the gross 18 19 profit margin was flat and income from operations margin improved in the current year compared with the same period of the prior year. International results, although adversely impacted by severance costs and foreign exchange losses, improved principally as a result of higher seasonal operating profitability from German operations. As stated above, management's focus has shifted from external growth to an emphasis on internal growth with success measured by cash flow and return on gross assets. Return on gross assets ("ROGA"), although not a measure of financial performance under generally accepted accounting principles, is a new measurement for the Company representing the quotient of operating cash flow divided by average gross assets, where operating cash flow and gross assets are defined generally as follows: Operating cash flow - the sum of (i) net income before extraordinary items, (ii) minority interest, (iii) interest expense, net of related income tax benefit, (iv) depreciation and amortization expense and (v) asset impairment writedowns (e.g. special charges in fiscal 1996 and the current quarter of fiscal 1997). Gross assets - the sum of total assets, accumulated depreciation and amortization, and asset impairment writedowns (until such assets are sold or otherwise disposed of -- approximately $175 million at June 30, 1997 and $382 million at September 30, 1996) less the sum of (i) current liabilities, net of interest-bearing indebtedness included therein, (ii) accrued environmental and landfill costs associated with the continuing operations of the Company (approximately $447 million at June 30, 1997) and (iii) deferred income tax liabilities. Gross assets in the ROGA computations for the first nine months of a fiscal year is the average of the applicable beginning of year and end of first, second and third quarter amounts; gross assets for a fiscal year is the average of the applicable five quarter-end amounts in the period. The Company established a ROGA milestone for fiscal 1997 to increase ROGA by 0.5% from fiscal 1996 to 11.9%. Total assets decreased from $7.60 billion at September 30, 1996 to $6.90 billion at June 30, 1997. Average gross assets of approximately $8.72 billion in the computation of ROGA resulted from a decline in gross assets at June 30, 1997, compared with September 30, 1996 ($9.06 billion). The decreases in assets and gross assets were principally attributable to the divestitures completed through June 30, 1997, and the decrease in assets related to foreign currency exchange, a result of the strengthening U.S. dollar against the German, Dutch, and Spanish currencies, offset partially by capital expenditures during the first nine months of fiscal 1997. The decrease in assets was also attributable to the increase in accumulated depreciation and amortization. 19 20 While the Company is on track to exceed its fiscal 1997 milestones for lower SG&A costs, reduced capital spending and reduced interest-bearing debt levels, management believes that the operating income margin and ROGA milestones are very challenging, but still may be achievable. Management believes that operating margin and ROGA improvements will come from decreased operating and SG&A costs, additional divestitures, internal growth and normal seasonal improvement over the remainder of the fiscal year. EBITDA (defined herein as income from operations plus depreciation and amortization expense before considering special charges) was $932 million for the first nine months of fiscal 1997 as compared with $888 million for the first nine months of last year. EBITDA, which is not a measure of financial performance under generally accepted accounting principles, is included in this discussion because the Company understands that such information is used by certain investors when analyzing the Company's financial condition and performance. Revenues - Revenues for the nine months ended June 30, 1997, were $4.38 billion, a 2.4% increase over the same period last year. The following table reflects total revenues of the Company by each of the principal lines of business (dollar amounts in thousands):
Nine Months Ended ---------------------- % 6/30/97 6/30/96 Change ---------- ---------- -------- North American Operations (including Canada) - Collection Services - Solid Waste $2,203,095 $2,132,372 3.3% Transfer and Disposal - Solid Waste Unaffiliated customers 413,600 391,307 5.7% Affiliated companies 391,230 378,014 3.5% ---------- ---------- 804,830 769,321 4.6% Recycling Services 414,802 397,274 4.4% Medical Waste Services 149,592 150,225 (0.4)% Services Group and Other 73,058 62,830 16.3% Elimination of affiliated companies' revenues (391,230) (378,014) 3.5% ---------- ---------- Total North American Operations 3,254,147 3,134,008 3.8% International Operations 1,125,973 1,142,028 (1.4)% ---------- ---------- Total Company $4,380,120 $4,276,036 2.4% ========== ==========
20 21 As the table below reflects, revenue growth for the nine months ended June 30, 1997, was due principally to acquisitions and, to a lesser extent, pricing and volume which more than offset the decline related to the divestiture of business operations and foreign currency translation.
Changes in Revenue for Nine Months Ended June 30, ----------------------- 1997 1996 ---------- ---------- Price 1.4% (5.9)% Volume 0.8 0.1 Acquisitions 2.7 6.3 Divestitures (0.8) -- Foreign currency translation (1.7) 0.1 ---- ---- Total Percentage Increase 2.4% 0.6% ==== ====
As shown above, acquisitions accounted for revenue growth of 2.7% for the first nine months of fiscal 1997 over the same period of the prior year. Revenue growth due to acquisitions was attributable principally to acquisitions consummated in fiscal 1996. No significant acquisitions were closed in the first nine months of the current year with the new emphasis on internal rather than external growth. Revenues increased due to change in price during the first nine months of fiscal 1997 despite the decline in pricing in the North American recycling business previously discussed. Increases in revenues due to price were noted in the Company's collection, medical waste and international businesses while a decrease was experienced in the transfer and disposal business. The increases in revenue due to volume in the first nine months of the current year compared with the same period of the prior year were driven by increases in the North American collection, transfer and disposal and recycling businesses. Revenues also reflect the effect of divestitures and lower international revenues from foreign currency translation due to the stronger U.S. dollar. Cost of Operations - Cost of operations increased $70 million or 2.2% for the first nine months of fiscal 1997, compared with the same period of the prior year. Most of the increase in cost of operations is attributable to businesses acquired in fiscal 1996. These increased costs have been offset partially by the impact of divestitures of certain business operations and the operating cost reduction program initiated in March 1997. As a result of this cost reduction program, the Company has reduced its operating headcount by approximately 800 employees through the re-routing of trucks, consolidations and closures of operating facilities and, where appropriate, after careful review, a reduction in supervisory personnel. Cost of operations as a percent of revenues decreased from 74.6% for the nine months ended June 30, 1996 to 74.4% for the nine months ended June 30, 1997. Included in cost of operations is depreciation and amortization expense of approximately $360.0 million and $362.9 million for the nine months ended June 30, 1997 and 1996, respectively. 21 22 Selling, General and Administrative Expense - SG&A was $621 million for the first nine months of fiscal 1997, a decrease of 3.3% from the same period last year. SG&A as a percent of revenues decreased from 15.0% of revenues for the nine months ended June 30, 1996 to 14.2% of revenues for the nine months ended June 30, 1997. The $21.4 million decrease in SG&A was driven largely by the reduction in employees worldwide and other cost reduction actions to improve operating and administrative efficiency. This decrease was offset partially by higher costs associated with the Company's acquisition activities and approximately $18 million of severance and reorganization expenses included in SG&A associated with both the reorganization of North American operations in June 1996 and the current year reduction of employees worldwide. Included in SG&A for the nine months ended June 30, 1997 and 1996 was depreciation and amortization expense of $73.8 million and $81.9 million, respectively. Special Charges, net - Reported in the third quarter of fiscal 1997 were pre-tax special charges of $84 million. The special charges included non-cash expenses of $53 million due to cumulative foreign currency translation losses associated with the sale of Italian business operations and $96 million for anticipated losses related to decisions to divest additional underperforming or non-core business operations located primarily in the United Kingdom, the Netherlands and the United States. These losses were offset partially by net gains of $65 million arising largely from 34 divestitures completed in the third quarter, principally in North America. Net Interest Expense - Net interest expense increased $3.4 million or 2.7% for the first nine months of fiscal 1997 compared with the same period of the prior year as a result of the increase in average debt outstanding between the periods, associated principally with fiscal 1996 capital expenditures of approximately $1.2 billion. At the end of the third quarter of fiscal 1997, debt outstanding had declined by $682 million from yearend fiscal 1996, largely as a result of the receipt of net proceeds from divested operations, increased cash flow as a result of improved operating performance and the limitation on capital spending during the period. The Company has established a milestone for long-term debt which is to maintain interest-bearing debt at or below the September 30, 1996 level. Equity in Earnings of Unconsolidated Affiliates - Equity in earnings of unconsolidated affiliates declined slightly between the periods primarily due to the reduction in equity earnings from P&R due to the acquisition of the remaining 50% ownership interest of P&R by Otto Waste Services during the second quarter of fiscal 1996 offset to a large extent by improved earnings from the Company's North American waste-to-energy and Hong Kong equity affiliates. Included in this caption are the earnings of unconsolidated affiliates of Otto Waste Services. The Company consolidates Otto Waste Services' 22 23 financial results, which include equity in earnings of Otto's unconsolidated affiliates. Minority Interest in Income of Consolidated Subsidiaries - The increase in minority interest in income of consolidated subsidiaries was not significant, $0.9 million for the first nine months of fiscal 1997 compared with the same period of last year. LIQUIDITY AND CAPITAL RESOURCES The Company had a working capital deficit of $10.7 million at September 30, 1996, compared with working capital of $75.5 million at June 30, 1997. Over the long term, it continues to be the Company's desire to maintain substantial available commitments under bank credit agreements or other financial agreements to finance short-term capital requirements in excess of internally generated cash while minimizing working capital. As discussed in Note (8) of Notes to Consolidated Financial Statements, in July 1995, the Company issued to the public 11,499,200 7.25% Automatic Common Exchange Securities with a stated amount of $35.625 per security. These securities are not included on the Company's balance sheet; an increase in common stockholders' equity will be reflected when cash proceeds totaling over $400 million are received by the Company no later than June 30, 1998. Long-term indebtedness including the current portion of long-term debt(including $498.2 million of Otto Waste Services debt, which has not been guaranteed by the Company) as a percentage of total capitalization was 45% as of June 30, 1997, down from 53% at September 30, 1996. The ratio would have been 37% at June 30, 1997, on a pro forma basis assuming that under the provisions related to the Automatic Common Exchange Securities, cash proceeds of $409.7 million were paid to the Company to purchase common stock and such proceeds were utilized to repay long-term debt. The capital appropriations budget for fiscal 1997 was established at $790 million to provide for normal replacement capital needs in the Company's core business, to provide new assets to support planned revenue growth within all consolidated businesses and in anticipation of selective business acquisition and development opportunities. This is a significant reduction from the $1.2 billion level of capital expenditures in fiscal 1996 and is reflective of the new emphasis on internal rather than external growth. As a result of cash flows from operations, proceeds from divestitures and reduced capital spending, the Company has generated surplus cash through the first nine months of fiscal 1997, a portion of which has been utilized to retire outstanding indebtedness. The Company continues to assess the various alternatives for the use of such surplus cash among investing additional capital in the business, increasing dividends, additional debt retirement or a common share repurchase program. As of June 30, 1997, there have been no significant changes in balance sheet caption amounts compared with September 30, 1996, and 23 24 there have been no material changes in the Company's financial condition from that reported at September 30, 1996, except with respect to the declines in balance sheet amounts associated with the impact of foreign currency exchange resulting from the strengthening of the U.S. dollar against the German, Dutch and Spanish currencies, and except as disclosed herein. 24 25 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and certain subsidiaries are involved in various administrative matters or litigation, including original or renewal permit application proceedings in connection with the establishment, operation, expansion, closure and post-closure activities of certain landfill disposal facilities, environmental proceedings relating to governmental actions resulting from the involvement of various subsidiaries of the Company with certain waste sites (including Superfund sites), personal injury and other civil actions, as well as other claims and disputes that could result in additional litigation or other adversary proceedings. While the final resolution of any such litigation or such other matters may have an impact on the Company's consolidated financial results for a particular quarterly or annual reporting period, management believes that the ultimate disposition of such litigation or such other matters will not have a materially adverse effect upon the consolidated financial position of the Company. 25 26 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 12. Computation of Ratio of Earnings to Fixed Charges of Browning-Ferris Industries, Inc. and Subsidiaries. 27. Financial Data Schedule. (b) Reports on Form 8-K: None 26 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BROWNING-FERRIS INDUSTRIES, INC. (Company) /s/ Bruce E. Ranck ------------------------ Bruce E. Ranck President and Chief Executive Officer /s/ Jeffrey E. Curtiss ------------------------- Jeffrey E. Curtiss Senior Vice President and Chief Financial Officer Date: August 13, 1997 27 EX-99.G3 13 PAGES 2-14 OF THE COMPANY'S QUARTERLY REPORT--6/96 1 EXHIBIT g.3 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) (In Thousands Except for Per Share Amounts)
- ---------------------------------------------------------------------------- Three Months Ended Nine Months Ended June 30, June 30, ---------------------- -------------------- 1996 1995 1996 1995 - ---------------------------------------------------------------------------- Revenues $1,471,368 $1,550,083 $4,276,036 $4,252,236 Cost of operations 1,115,350 1,104,966 3,190,371 3,036,243 ---------- ---------- ---------- ---------- Gross profit 356,018 445,117 1,085,665 1,215,993 Selling, general and administrative expense 221,216 226,432 642,287 626,963 ---------- ---------- ---------- ---------- Income from operations 134,802 218,685 443,378 589,030 Interest, net 42,577 41,784 125,446 109,008 Equity in earnings of unconsolidated affiliates (13,816) (14,910) (38,918) (39,586) ---------- ---------- ---------- ---------- Income before income taxes, minority interest and extraordinary item 106,041 191,811 356,850 519,608 Income taxes 42,417 76,724 142,740 207,843 Minority interest in income of consolidated subsidiaries 1,602 8,820 8,094 23,119 ---------- ---------- ---------- ---------- Income before extraordinary item 62,022 106,267 206,016 288,646 Extraordinary item - loss on redemption of debt, net of income tax benefit of $4,467 -- -- 12,159 -- ---------- ---------- ---------- ---------- Net income $ 62,022 $ 106,267 $ 193,857 $ 288,646 ========== ========== ========== ========== Number of common and common equivalent shares used in computing earnings per share 200,932 199,636 200,395 198,731 ========== ========== ========== ==========
(Continued on following page) -2- 2 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Continued) (Unaudited) (In Thousands Except for Per Share Amounts) - -----------------------------------------------------------------------------
Three Months Ended Nine Months Ended June 30, June 30, ---------------------- ----------------------- 1996 1995 1996 1995 - ----------------------------------------------------------------------------- Earnings per common and common equivalent share: Income before extraordinary item $ .31 $ .53 $ 1.03 $ 1.45 Extraordinary item -- -- (.06) -- ------- ------- ------- ------- Net income $ .31 $ .53 $ .97 $ 1.45 ======= ======= ======= ======= Cash dividends per common share $ .17 $ .17 $ .51 $ .51 ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements. -3- 3 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS (In Thousands) - ------------------------------------------------------------------------
June 30, September 30, 1996 1995 (Unaudited) - ------------------------------------------------------------------------ CURRENT ASSETS: Cash $ 85,093 $ 92,808 Short-term investments 54,572 104,761 Receivables - Trade, net of allowances for doubtful accounts of $39,365 and $39,777 947,429 926,791 Other 49,981 57,015 Inventories 51,500 50,090 Deferred income taxes 104,674 116,871 Prepayments and other 86,036 73,959 ---------- ---------- Total current assets 1,379,285 1,422,295 ---------- ---------- PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $2,672,485 and $2,395,795 4,024,337 3,722,292 ---------- ---------- OTHER ASSETS: Cost over fair value of net tangible assets of acquired businesses, net of accumulated amortization of $151,133 and $116,369 1,810,752 1,768,391 Other intangible assets, net of accumulated amortization of $123,131 and $142,780 115,629 116,303 Deferred income taxes 88,378 78,689 Investments in unconsolidated affiliates 313,014 272,205 Other 96,538 80,197 ---------- ---------- Total other assets 2,424,311 2,315,785 ---------- ---------- Total assets $7,827,933 $7,460,372 ========== ==========
The accompanying notes are an integral part of these financial statements. -4- 4 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (In Thousands Except for Share Amounts) - ------------------------------------------------------------------------
June 30, September 30, 1996 1995 (Unaudited) - ------------------------------------------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt $ 67,555 $ 62,463 Accounts payable 443,463 515,304 Accrued liabilities - Salaries and wages 124,399 122,656 Taxes, other than income 42,441 41,960 Other 440,386 434,855 Income taxes 31,742 53,045 Deferred revenues 190,071 184,045 ---------- ---------- Total current liabilities 1,340,057 1,414,328 ---------- ---------- DEFERRED ITEMS: Accrued environmental and landfill costs 528,266 568,644 Deferred income taxes 101,824 104,645 Other 258,981 220,257 ---------- ---------- Total deferred items 889,071 893,546 ---------- ---------- LONG-TERM DEBT, net of current portion 2,773,047 1,665,804 ---------- ---------- CONVERTIBLE SUBORDINATED DEBENTURES -- 744,944 ---------- ---------- COMMITMENTS AND CONTINGENCIES COMMON STOCKHOLDERS' EQUITY: Common stock, $.16 2/3 par; 400,000,000 shares authorized; 213,395,109 and 213,440,672 shares issued 35,573 35,581 Additional paid-in capital 1,776,606 1,801,407 Retained earnings 1,353,979 1,328,244 Treasury stock, 1,031,929 and 1,001,407 shares, at cost (11,944) (10,494) Stock and Employee Benefit Trust, 11,326,078 and 13,596,325 shares (328,456) (412,988) ---------- ---------- Total common stockholders' equity 2,825,758 2,741,750 ---------- ---------- Total liabilities and common stockholders' equity $7,827,933 $7,460,372 ========== ==========
The accompanying notes are an integral part of these financial statements. -5- 5 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In Thousands) - ----------------------------------------------------------------------------
Nine Months Ended June 30, ------------------------ 1996 1995 - ---------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 193,857 $ 288,646 ---------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization - Property and equipment 384,981 348,526 Goodwill 34,725 30,147 Other intangible assets 25,086 22,560 Deferred income tax expense 20,005 30,528 Amortization of deferred investment tax credit (530) (530) Provision for losses on accounts receivable 20,427 19,957 Gains on sales of fixed assets (3,984) (7,447) Equity in earnings of unconsolidated affiliates, net of dividends received (2,086) (18,755) Minority interest in income of consolidated subsidiaries, net of dividends paid 7,299 19,378 Increase (decrease) in cash from changes in assets and liabilities excluding effects of acquisitions - Trade receivables (33,896) (28,424) Inventories 2,139 (15,769) Other assets 15,765 17,008 Other liabilities (115,787) (13,185) ---------- ---------- Total adjustments 354,144 403,994 ---------- ---------- Net cash provided by operating activities 548,001 692,640 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (656,628) (615,646) Payments for businesses acquired (162,722) (735,208) Investments in unconsolidated affiliates (92,389) (33,301) Proceeds from disposition of assets 44,383 173,566 Purchases of short-term investments -- (37,546) Sales of short-term investments 273,647 201,924 Return of investment in unconsolidated affiliates 37,863 28,085 ---------- ---------- Net cash used in investing activities (555,846) (1,018,126) ---------- ----------
(Continued on following page) -6- 6 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) (Unaudited) (In Thousands) ----------------------------------------------------------------------------
Nine Months Ended June 30, ------------------------ 1996 1995 - ---------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuances of stock 12,189 13,791 Proceeds from issuance of indebtedness 979,813 914,705 Repayments of indebtedness (888,715) (483,059) Dividends paid (101,615) (100,469) --------- --------- Net cash provided by financing activities 1,672 344,968 --------- --------- EFFECT OF EXCHANGE RATE CHANGES (1,542) 2,785 --------- --------- NET INCREASE (DECREASE) IN CASH (7,715) 22,267 CASH AT BEGINNING OF PERIOD 92,808 79,131 --------- --------- CASH AT END OF PERIOD $ 85,093 $ 101,398 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR: Interest, net of capitalized amounts $ 109,663 $ 92,230 Income taxes $ 134,161 $ 191,781
The accompanying notes are an integral part of these financial statements. -7- 7 BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Basis of Presentation - The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary to a fair presentation of these financial statements have been included. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1995, as filed with the Securities and Exchange Commission. Certain reclassifications have been made in prior year financial statements to conform to the current year presentation. (2) Earnings Per Common Share - The following table reconciles the number of common shares outstanding with the number of common and common equivalent shares used in computing primary earnings per share (in thousands):
Nine Months Ended June 30, -------------------- 1996 1995 ------- ------- Common shares outstanding, end of period 212,363 212,971 Less - Shares held in the Stock and Employee Benefit Trust (11,326) (14,854) ------- ------- Common shares outstanding for purposes of computing primary earnings per share, end of period 201,037 198,117 Effect of using weighted average common and common equivalent shares outstanding (1,505) (774) Effect of shares issuable under stock option plans based on the treasury stock method 863 1,388 ------- ------- Shares used in computing earnings per share 200,395 198,731 ======= =======
-8- 8 Shares of common stock held in the Stock and Employee Benefit Trust (the "Trust") are not considered to be outstanding in the computation of common shares outstanding until shares are utilized at the Company's option for the purposes for which the Trust was established. The difference between shares for primary and fully diluted earnings per share was not significant in any period. Conversion of the 6 3/4% Convertible Subordinated Debentures due 2005, which were determined not to be common stock equivalents, was not assumed in the computation of fully diluted earnings per share because the debentures had an anti-dilutive effect in the periods prior to their redemption in February 1996. Earnings per common and common equivalent share were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during each period. Common stock equivalents include stock options, the Company's 6 1/4% Convertible Subordinated Debentures due 2012 (the "6 1/4% Debentures"), which were redeemed in February 1996, and the 7.25% Automatic Common Exchange Securities. The effect of the 6 1/4% Debentures on earnings per share was not significant or was not dilutive in the periods prior to their redemption in February 1996 and, accordingly, has not been included in the computations. The 7.25% Automatic Common Exchange Securities had no effect on the computations for the periods presented. (3) Business Combinations - During the current fiscal year, the Company paid approximately $214.2 million (including additional amounts payable, principally to former owners, of $20.0 million and the issuance of 964,910 shares of the Company's common stock valued at $28.1 million) to acquire 87 solid waste businesses, which were accounted for as purchases, including the acquisition of the remaining 50% ownership interest of Pfitzenmeier & Rau ("P&R"), a joint venture previously owned 50% by Otto Waste Services, a 50% owned subsidiary of the Company. In connection with these acquisitions, the Company recorded additional interest-bearing indebtedness of $62.7 million (including $55.0 million related to P&R) and other liabilities of $29.4 million. The results of these business combinations are not material to the Company's consolidated results of operations or financial position. On December 2, 1994, the Company acquired majority control of Attwoods plc ("Attwoods"), which was a provider of waste services operating principally in the United States, the United Kingdom, the Caribbean and mainland Europe (primarily Germany) and also had mineral extraction operations in the United Kingdom. The Company increased its ownership from 56.6% of the outstanding ordinary shares (including ordinary shares represented by American Depository Shares) and 80.8% of the convertible preference shares of Attwoods (Finance) N.V., a finance subsidiary of Attwoods, at December 2, 1994 to 94.4% of the outstanding shares and 83.2% of the convertible preference shares as of December 31, 1994. The Company acquired the remaining ordinary shares that it did not own -9- 9 and certain additional preference shares during the second quarter of fiscal 1995. The Company paid approximately $580 million (in pounds sterling except where requested to pay U.S. dollars by individual shareholders) to acquire the ordinary and convertible preference shares of Attwoods as discussed above. Additionally, during the second quarter of fiscal 1995, the Company redeemed the remaining outstanding convertible preference shares. In connection with the acquisition, the Company sold in June 1995 the portable sanitation and accommodation business of Attwoods in continental Europe, primarily Germany. As a result of this transaction, the Company reduced the purchase price of this acquisition by the 80.5 million in deutsche mark (U.S. $56.8 million) received and further adjusted the purchase price for the 1.1 million in deutsche mark (U.S. $700,000) in contingent payments received subsequent to December 31, 1995. The Attwoods acquisition has been accounted for as a purchase. In addition to the Attwoods transaction, during the prior fiscal year, the Company paid approximately $191.5 million (including additional amounts payable, principally to former owners, of $9.4 million and the issuance of 262,948 shares of the Company's common stock valued at $8.1 million) to acquire 102 solid waste businesses. These businesses were accounted for as purchases and included the acquisition of the remaining 50% ownership interest outstanding of Servizi Industriali S.r.l., its joint venture in Italy. In connection with these acquisitions, the Company recorded additional interest-bearing indebtedness of $17.8 million and other liabilities of $49.3 million. The Company also exchanged 397,221 shares of its common stock and assumed liabilities and equity of $5.6 million in connection with one business combination that met the criteria to be accounted for as a pooling-of-interests. As the effect of this business combination was not significant, prior period financial statements were not restated. The results of all businesses acquired in fiscal years 1996 and 1995 have been included in the consolidated financial statements from the dates of acquisition. In allocating purchase price, the assets acquired and liabilities assumed in connection with the Company's acquisitions have been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. As a result, the financial information included in the Company's consolidated financial statements is subject to adjustment prospectively as subsequent revisions in estimates of fair value, if any, are necessary. The Company's consolidated results of operations on an unaudited pro forma basis for the first nine months of the prior fiscal year, as though the businesses acquired during fiscal year 1995 had been acquired on October 1, 1994, are as follows (in thousands, except per share amounts): -10- 10
Nine Months Ended June 30, 1995 ------------------ Pro forma revenues $4,442,942 Pro forma net income $ 291,088 Pro forma earnings per common and common equivalent share $1.46
These pro forma results are presented for informational purposes only and do not purport to show the actual results which would have occurred had the business combinations been consummated on October 1, 1994, nor should they be viewed as indicative of future results of operations. (4) Long-Term Debt - Long-term debt at June 30, 1996, and September 30, 1995, was as follows (in thousands):
June 30, September 30, 1996 1995 ------------ ------------- Senior indebtedness: 6.10% Senior Notes, net of unamortized discount of $1,912 $ 198,088 $ -- 6.375% Senior Notes, net of unamortized discount of $2,097 197,903 -- 7 7/8% Senior Notes, net of unamortized discount of $806 and $875 299,194 299,125 7.40% Debentures, net of unamortized discount of $2,095 and $2,136 397,905 397,864 9 1/4% Debentures 100,000 100,000 Solid waste revenue bond obligations 149,115 114,079 Other notes payable 824,660 585,211 ---------- ---------- 2,166,865 1,496,279 Commercial paper and short-term facilities to be refinanced 673,737 231,988 ---------- ---------- Total long-term debt 2,840,602 1,728,267 Less current portion 67,555 62,463 ---------- ---------- Long-term debt, net of current portion $2,773,047 $1,665,804 ========== ==========
On January 2, 1996, the Company announced that its $400 million 6 3/4% Convertible Subordinated Debentures due 2005 and its $345 million 6 1/4% Convertible Subordinated Debentures due 2012 ("the Debentures") were being called for redemption. The redemption, which occurred on February 2, 1996, resulted in a one- time extraordinary charge to the Company's net income of $12.2 million, after tax, or approximately $.06 per share. The Debentures were refinanced with (i) the $400 million of notes discussed below -11- 11 and (ii) additional commercial paper borrowings to be refinanced through other long-term financings. In January 1996, the Company issued $200 million of 6.10% Senior Notes due January 15, 2003 and $200 million of 6.375% Senior Notes due January 15, 2008 (the "Notes"). The Notes are not redeemable prior to maturity and are not subject to any sinking fund. It is the Company's intention to refinance certain commercial paper balances and other outstanding borrowings classified as long- term debt through the use of existing committed long-term bank credit agreements in the event that alternative long-term refinancing is not arranged. A summary by country of such commercial paper balances and other outstanding borrowings classified as long-term debt as of June 30, 1996 and September 30, 1995 is as follows (amounts in thousands):
June 30, September 30, 1996 1995 ------------ ------------- United States - Commercial paper $453,862 $ 34,317 Germany 219,875 197,671 -------- -------- $673,737 $231,988 ======== ========
As of June 30, 1996, distributions from retained earnings could not exceed $1.27 billion under the most restrictive of the Company's net worth maintenance requirements. (5) Commitments and Contingencies - Legal Proceedings. The Company and certain subsidiaries are involved in various administrative matters or litigation, including personal injury and other civil actions, as well as other claims and disputes that could result in additional litigation or other adversary proceedings. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular quarterly or annual reporting period, management believes that the ultimate disposition of these matters will not have a materially adverse effect upon the consolidated financial position of the Company. Environmental Proceedings. California judicial and regulatory authorities suspended the Company's ability to accept decomposable household waste at certain portions of its Azusa, California landfill in January 1991. The Company has continued to use the facility for the disposal of primarily inert waste. Since January 1991, the Company has sought -12- 12 and received the ability to dispose of certain additional non- municipal solid waste streams at the facility. The Company's ability to continue to accept decomposable household waste in a portion of the landfill is dependent on the satisfaction of certain technical requirements mandated by California authorities. The ultimate realization of the Company's investment of approximately $100 million is dependent upon continued disposal of current and future acceptable waste streams while continuing to pursue all possible alternative uses of the property to maximize its value. The Company and certain subsidiaries are involved in various other environmental matters or proceedings, including original or renewal permit application proceedings in connection with the establishment, operation, expansion, closure and post-closure activities of certain landfill disposal facilities, and proceedings relating to governmental actions resulting from the involvement of various subsidiaries of the Company with certain waste sites (including Superfund sites), as well as other matters or claims that could result in additional environmental proceedings. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular quarterly or annual reporting period, management believes that the ultimate disposition of these matters will not have a materially adverse effect upon the consolidated financial position of the Company. (6) Reorganization - During June 1996, the Company announced the reorganization of its North American operating business structure, effective September 1, 1996. The Company's previous organization divided North America into 45 divisions reporting to 6 regional offices and operations were conducted from approximately 400 districts. The new organization divides North America into 13 market areas and retains the district office organization. In addition, the new structure organizes the Company's operations by specific business functions with direct reporting to the corporate office. There was no reorganization charge recorded to cover the estimated future expenses associated with this announcement. The future costs associated with this reorganization will be expensed as incurred. (7) Automatic Common Exchange Securities - In July 1995, the Company issued to the public 11,499,200 7.25% Automatic Common Exchange Securities with a stated amount of $35.625 per security ($409.7 million in total). Each security consists of (1) a purchase contract under which (a) the holder will purchase from the Company on June 30, 1998 (earlier under certain circumstances), for an amount in cash equal to the stated amount of $35.625, between .8333 of a share (in total approximately 9.6 million shares) and one share (a maximum of 11,499,200 shares) of the Company's common stock (depending on the then market value of the common stock) and (b) the Company will pay the holder contract fees at the rate of 2.125% per annum on the security, and (2) 5.125% United States Treasury Notes having a principal amount equal -13- 13 to $35.625 and maturing on June 30, 1998. The Treasury Notes underlying these securities are pledged as collateral to secure the holder's obligation to purchase the Company's common stock under the purchase contract. The principal of the Treasury Notes underlying such securities, when paid at maturity, will automatically be applied to satisfy in full the holder's obligation to purchase the Company's common stock. These securities are not included on the Company's balance sheet; an increase in common stockholders' equity will be reflected when cash proceeds are received by the Company. -14- -----END PRIVACY-ENHANCED MESSAGE-----