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 March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ____________ to ___________
Commission file number 1-6805
BROWNING-FERRIS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-1673682
________________________________ _________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
757 N. Eldridge
Houston, Texas 77079
________________________________ _________________________
(Address of principal (Zip Code)
Executive offices)
Registrant's telephone number, including area code: (713) 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 require- ments for the past 90 days.
Yes X. No ___.
Indicate the number of shares outstanding of the issuer's common stock,
as of May 9, 1994: 195,679,062.
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
----------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- ----------------------
1994 1993 1994 1993
----------------------------------------------------------------------------
Revenues $ 984,154 $ 822,813 $1,912,446 $1,667,944
Cost of operations 713,977 592,658 1,390,267 1,202,787
---------- ---------- ---------- ----------
Gross profit 270,177 230,155 522,179 465,157
Selling, general and
administrative expense 151,090 136,781 295,465 274,504
---------- ---------- ---------- ----------
Income from operations 119,087 93,374 226,714 190,653
Interest, net 20,022 12,753 35,545 27,389
Equity in earnings of
unconsolidated affiliates (8,196) (2,729) (14,410) (5,811)
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and extra-
ordinary item 107,261 83,350 205,579 169,075
Income taxes 42,905 32,502 82,232 65,931
Minority interest in
income of consolidated
subsidiaries 2,438 12 2,438 21
---------- ---------- ---------- ----------
Income before
extraordinary item 61,918 50,836 120,909 103,123
Extraordinary item - loss
on early retirement of
debt, net of income tax
benefit of $2,833 5,263 -- 5,263 --
---------- ---------- ---------- ----------
Net income $ 56,655 $ 50,836 $ 115,646 $ 103,123
========== ========== ========== ==========
Number of common and common
equivalent shares used
in computing earnings
per share 181,451 170,892 178,058 170,343
========== ========== ========== ==========
(Continued on following page)
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
-----------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- ---------------------
1994 1993 1994 1993
-----------------------------------------------------------------------------
Earnings per common and
common equivalent share:
Income before extraordinary
item $ .34 $ .30 $ .68 $ .61
Extraordinary item (.03) -- (.03) --
------- ------- ------- -------
Net income $ .31 $ .30 $ .65 $ .61
======= ======= ======= =======
Cash dividends per
common share $ .17 $ .17 $ .34 $ .34
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
- ------------------------------------------------------------------------
March 31, September 30,
1994 1993
(Unaudited)
- ------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 55,500 $ 22,871
Short-term investments 138,601 208,674
Receivables -
Trade, net of allowances for doubtful
accounts of $26,873 and $21,870 670,616 556,456
Other 52,083 58,090
Inventories 34,718 26,508
Deferred income taxes 91,665 --
Prepayments and other 69,217 52,899
---------- ----------
Total current assets 1,112,400 925,498
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $1,878,512 and $1,742,362 2,889,426 2,515,709
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$48,748 and $41,234 849,459 310,065
Other intangible assets, net of
accumulated amortization of $162,178
and $158,693 109,951 138,844
Deferred income taxes 142,993 113,615
Investments in unconsolidated affiliates 248,928 222,698
Other 87,866 69,213
---------- ----------
Total other assets 1,439,197 854,435
---------- ----------
Total assets $5,441,023 $4,295,642
========== ==========
The accompanying notes are an integral part of these financial statements.
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
(In Thousands Except for Share Amounts)
- --------------------------------------------------------------------------
March 31, September 30,
1994 1993
(Unaudited)
- --------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 178,421 $ 95,953
Accounts payable 313,690 245,555
Accrued liabilities -
Salaries and wages 76,671 75,162
Taxes, other than income 34,855 30,912
Other 353,637 313,687
Income taxes 18,726 27,678
Deferred revenues 140,107 135,509
---------- ----------
Total current liabilities 1,116,107 924,456
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 630,226 631,690
Deferred income taxes 127,754 --
Other 142,910 128,255
---------- ----------
Total deferred items 900,890 759,945
---------- ----------
LONG-TERM DEBT, net of current portion 498,829 333,689
---------- ----------
CONVERTIBLE SUBORDINATED DEBENTURES 744,949 744,949
---------- ----------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 196,163,388 and
174,231,747 shares issued 32,700 29,044
Additional paid-in capital 1,329,821 743,265
Retained earnings 818,807 761,325
Treasury stock, 688,671 and 686,826
shares, at cost (1,080) (1,031)
---------- ----------
Total common stockholders' equity 2,180,248 1,532,603
---------- ----------
Total liabilities and common
stockholders' equity $5,441,023 $4,295,642
========== ==========
The accompanying notes are an integral part of these financial statements.
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
- ----------------------------------------------------------------------------
Six Months Ended
March 31,
------------------------
1994 1993
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item $ 120,909 $ 103,123
--------- ---------
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 202,037 178,208
Deferred income tax expense 6,109 5,106
Amortization of deferred investment tax credit (353) (542)
Provision for losses on accounts receivable 11,527 7,831
Gains on sales of fixed assets (2,691) (159)
Equity in earnings of unconsolidated
affiliates (14,410) (5,811)
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions:
Trade receivables (41,595) 23,481
Inventories (4,010) (696)
Other assets (1,104) 5,465
Other liabilities 2,225 (32,910)
--------- ---------
Total adjustments 157,735 179,973
--------- ---------
Net cash provided by operating activities 278,644 283,096
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (320,834) (256,804)
Payments for businesses acquired (338,724) (21,876)
Investments in unconsolidated affiliates (19,297) (31,917)
Proceeds from disposition of assets 9,838 10,740
Purchases of short-term investments -- (49,591)
Sales of short-term investments 69,526 32,500
Receipts from unconsolidated affiliates 28,939 25,484
--------- ---------
Net cash used in investing activities (570,552) (291,464)
--------- ---------
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
- ----------------------------------------------------------------------------
Six Months Ended
March 31,
------------------------
1994 1993
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 443,322 13,209
Proceeds from issuance of indebtedness 40,564 57,865
Repayments of indebtedness (100,396) (8,170)
Dividends paid (59,140) (57,459)
--------- ---------
Net cash provided by financing activities 324,350 5,445
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES 187 (5,425)
--------- ---------
NET INCREASE (DECREASE) IN CASH 32,629 (8,348)
CASH AT BEGINNING OF PERIOD 22,871 34,682
--------- ---------
CASH AT END OF PERIOD $ 55,500 $ 26,334
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 41,288 $ 36,648
Income taxes $ 83,898 $ 69,617
The accompanying notes are an integral part of these financial statements.
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, 1993, 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):
Six Months Ended
March 31,
--------------------
1994 1993
------- -------
Common shares outstanding, end of period 195,475 170,017
Effect of using weighted average common
and common equivalent shares outstanding (18,330) (644)
Effect of shares issuable under stock option
plans based on the treasury stock method 913 970
------- -------
Shares used in computing earnings per share 178,058 170,343
======= =======
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.
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 share equivalents include stock options and the Company's 6 1/4%
Convertible Subordinated Debentures due 2012. The effect of these
debentures on earnings per share was not dilutive for each of the
periods presented and, accordingly, has not been included in the
computations.
(3) Business Combinations -
In February 1994, the Company acquired 50% of the share capital of
Otto Waste Services, a company engaged in the solid waste services
business in Germany, which has been accounted for as a purchase. The
Company paid approximately $400 million, consisting of 3,928,075 shares
of the Company's common stock valued at $117.4 million and the
remainder in Deutsche Mark, for its interest in Otto Waste Services.
The Company has included Otto Waste Services and its subsidiaries in
its consolidated financial statements.
During the first six months of the current fiscal year, the
Company paid approximately $82.5 million (including liabilities assumed
and additional amounts payable to former owners of $7.0 million and
622,385 shares of the Company's common stock valued at $17.4 million)
to acquire 57 solid waste businesses, which were accounted for as
purchases, in addition to the Otto Waste Services transaction discussed
above. The Company also issued 1,027,721 shares of its common stock
and assumed liabilities and equity of $7.0 million in connection with
four business combinations which met the criteria to be accounted for
as poolings-of-interests. As the aggregate effect of these four
business combinations was not significant, prior period financial
statements were not restated.
The results of these businesses acquired in fiscal year 1994 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 many of the Company's
acquisitions are 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. The financial information included in the Company's
consolidated financial statements and in the pro forma information
below relating to Otto Waste Services has been prepared from
preliminary information available in the initial phase of the Company's
effort to account for and report on these operations. There exist a
number of accounting and reporting issues involving certain
subsidiaries of Otto Waste Services that have not yet been resolved.
Currently reported information is, therefore, subject to adjustment as
more complete information becomes available prior to the Company's
fiscal yearend.
The Company's consolidated results of operations on an unaudited
pro forma basis, as though the businesses acquired during fiscal year
1994 had been acquired on October 1, 1992, are as follows (in
thousands, except per share amounts):
Six Months Ended
March 31,
-----------------------
1994 1993
(Unaudited) (Unaudited)
----------- -----------
Pro forma revenues $2,059,232 $1,903,769
Pro forma income before extraordinary item $ 123,019 $ 106,962
Pro forma net income $ 117,756 $ 106,962
Pro forma income per common and common
equivalent share -
Income before extraordinary item $ .66 $ .59
Net income $ .64 $ .59
The pro forma effect of the acquisitions consummated during the
prior fiscal year was not material. 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, 1992, nor should they be
viewed as indicative of future results of operations.
(4) Common Stock Offering -
In January 1994, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission to provide for
the registration of up to $700 million of unsecured debt securities,
preferred stock, common stock or warrants to purchase unsecured debt
securities, preferred stock or common stock. The Company may offer
these securities from time-to-time, either jointly or separately, at
prices and on terms to be determined at or prior to the time of sale.
In March 1994, the Company issued 15,525,000 shares of its common
stock under this universal shelf registration statement in concurrent
public offerings in the United States and outside the United States.
The Company used approximately $106 million of the net proceeds of
approximately $434 million to redeem its $100 million 8 1/2% Sinking
Fund Debentures due 2017 during April 1994. The balance of the
proceeds was used to repay indebtedness associated with the February
1994 acquisition of the fifty percent interest in Otto Waste Services
and other working capital requirements.
(5) Long-Term Debt -
Long-term debt at March 31, 1994, and September 30, 1993, was as
follows (in thousands):
March 31, September 30,
1994 1993
---------- -------------
Senior indebtedness:
9 1/4% Debentures $ 100,000 $ 100,000
8 1/2% Sinking Fund Debentures 105,525 98,501
Dfl. 125 million 6 1/2% Notes -- 68,200
Solid waste revenue bond obligations 79,358 79,977
Mortgages payable 6,830 7,061
Otto Waste Services indebtedness 224,159 --
Other notes payable 70,229 75,903
--------- ---------
586,101 429,642
Commercial paper to be refinanced 16,993 --
Short-term facilities of Otto Waste
Services to be refinanced 74,156 --
--------- ---------
Total long-term debt 677,250 429,642
Less current portion 178,421 95,953
--------- ---------
Long-term debt, net of current portion $ 498,829 $ 333,689
========= =========
In March 1994, the Company announced that its $100 million 8 1/2%
Sinking Fund Debentures due 2017 would be called for redemption in
April 1994. As a result, the Company recorded an after-tax loss of
$5,263,000 during the second quarter of fiscal year 1994 associated
with the early retirement of indebtedness, which has been reflected in
the Company's consolidated statement of income as an extraordinary
item. This indebtedness has been classified as current in the
consolidated balance sheet as of March 31, 1994.
The Company's $1 billion Revolving Credit Agreement contains a net
worth requirement of $1 billion, which increases annually after
September 30, 1992 by 25% of the consolidated net income of the
preceding year and excludes the effect of any foreign currency
translation adjustments on net worth. At March 31, 1994, distributions
from retained earnings could not exceed $1.2 billion under this net
worth maintenance requirement (the covenant of the Company's debt
agreements which is most restrictive regarding dividends).
(6) Commitments and Contingencies -
Legal Proceedings.
Since early November 1990, several lawsuits have been filed in the
United States District Court for the Southern District of Texas. These
suits, seeking unquantified damages and attorneys' and other fees, are
class actions on behalf of those persons who purchased the Company's
common stock during specified periods beginning August 9, 1990 through
September 3, 1991. The suits generally allege that the Company
violated the Securities Exchange Act of 1934 by allegedly preparing,
issuing and disseminating materially false and misleading information
to plaintiffs and the investing public. Two classes (August 9, 1990 to
November 5, 1990 and November 6, 1990 to September 3, 1991) were
certified by the trial court. The Company intends to vigorously defend
these matters.
In addition to the above described litigation, the Company and
certain subsidiaries are involved in various other 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 and received
the ability to dispose of certain additional non-municipal solid waste
streams at the facility. 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.
(7) Income Taxes -
Effective October 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109 - "Accounting for
Income Taxes". Under SFAS No. 109, 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. As
permitted under SFAS No. 109, prior years' financial statements have
not been restated to apply the provisions of SFAS No. 109. The
adoption of SFAS No. 109 had no material effect on the Company's
results of operations; however, it did affect the classification of
deferred tax assets and liabilities resulting in an increase in working
capital of $90.3 million and increases in both total assets and
liabilities of $128.4 million as of October 1, 1993.
The tax effects of temporary differences that gave rise to
significant portions of the deferred tax assets and liabilities at
October 1, 1993 are as follows (in thousands):
Deferred Deferred
Tax Assets Tax Liabilities
---------- ---------------
Depreciation and amortization $ 73,866 $ 341,916
Accrued environmental and
landfill costs 201,025 --
Accruals related to discontinued
operations 76,919 --
Self-insurance accruals 41,316 --
Net operating loss carryforwards 114,192 --
Other 115,542 81,627
--------- ---------
Deferred tax assets and
liabilities 622,860 $ 423,543
=========
Valuation allowance (110,437)
---------
Deferred tax assets, net of
valuation allowance $ 512,423
=========
The valuation allowance applies principally to net operating loss
carryforwards which could expire prior to utilization by the Company.
Foreign net operating loss carryforwards of approximately $130 million
are available to reduce future taxable income of the applicable foreign
entities for periods which generally range from 1994 to 1998. Domestic
state net operating loss carryforwards of approximately $600 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 1994 to
2008. Additionally, deferred income taxes had not been provided as of
September 30, 1993, on approximately $98.7 million of undistributed
earnings of foreign affiliates which are considered to be permanently
reinvested.
The Company's consolidated federal income tax returns for fiscal
years 1986, 1987 and 1988 have been under audit by the Internal Revenue
Service. In May 1993, the Company received a Revenue Agent's Report
proposing that the Company pay additional taxes of approximately $22
million (plus interest of approximately $17 million as of September 30,
1993) relating to disallowed deductions in those income tax returns.
The principal issue involved, which extends as well to the Company's
subsequent taxable years, is the deductibility of amortization relating
to customer lists and covenants not to compete associated with
acquisitions consummated by the Company in fiscal years 1986, 1987 and
1988. The Company intends to contest the proposed adjustment
vigorously. Although the final outcome cannot be predicted with
certainty, management believes that the ultimate disposition of the
issues raised by the Revenue Agent's Report will not have a materially
adverse effect upon the Company's consolidated financial position or
results of operations.
(8) Postretirement Benefits -
The Company currently maintains a postretirement benefit plan
which provides for employees participating in its medical plan to
receive a monthly benefit after retirement based on years of service.
Effective October 1, 1993, the Company adopted SFAS No. 106 -
"Employers' Accounting for Postretirement Benefits Other Than
Pensions", which requires the accrual of such benefits over the active
service period of the employee. Prior to October 1, 1993, such
benefits were expensed when paid. As permitted under SFAS No. 106, the
Company has chosen to recognize the transition obligation (the
actuarially-determined accumulated postretirement benefit obligation of
approximately $9.8 million) over a 20-year period.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net income for the six months ended March 31, 1994 was $116
million, an increase of $12.5 million or 12.1% over the same period of
the prior year. Fiscal 1994 results included an extraordinary charge
of $5.3 million, net of income taxes, related to the early retirement
of debt. Income before the extraordinary item was $121 million, an
increase of 17.2% over the prior year. The increase in net income was
largely the result of increased profitability in the Company's domestic
disposal and transfer services operations and the Company's
international operations. International earnings have been favorably
affected by improved performance in the Netherlands and the United
Kingdom, and the recent acquisition of the 50% interest in Otto Waste
Services of Germany. The Company's ability to contain the growth in
selling, general and administrative expenses while growing revenues
also contributed to the increase in net income. Net income was
affected favorably, as well, by increased equity in earnings of the
Company's unconsolidated affiliates.
In February 1994, the Company paid approximately $400 million,
consisting of 3.9 million shares of the Company's common stock and the
remainder in Deutsche Mark, to acquire a 50% interest in Otto Waste
Services. This purchase represents the single largest acquisition in
the history of the Company. Otto Waste Services is a fully integrated
waste services company operating throughout Germany that is principally
engaged in providing collection and recycling services under long-term
contracts to municipalities. The Otto Waste Services' group of
companies includes in excess of 50 wholly owned and partially owned
subsidiaries. As a result of the extensive effort associated with
converting from German statutory reporting to reporting under U.S.
generally accepted accounting principles, the Company's focus to date
has principally been on the 100% owned subsidiaries. The financial
information included in the Company's consolidated financial statements
relating to Otto Waste Services has been prepared from preliminary
information available in the initial phase of the Company's effort to
account for and report on these operations. The revenues and earnings
of the East German companies and certain other partially owned
affiliates have not yet been completely quantified and are, therefore,
not included in the Company's results for the periods ended March 31,
1994. The Company believes that these accounting and reporting issues
will be addressed fully and resolved prior to yearend; however,
currently reported information is subject to adjustment as more
complete information becomes available. As a result, the two-month
results of Otto Waste Services included in the Company's consolidated
statement of income for the periods ended March 31, 1994, may not be
representative of a full year's results.
The following table presents ratios (shown as a percentage of
revenues) which reflect certain profitability trends of the Company's
operations and shows the Company's ratios of earnings to fixed charges.
Six Months Ended
------------------ Year Ended
3/31/94 3/31/93(1) 9/30/93(1)
-------- -------- ----------
Gross profit margin 27.3% 27.9% 27.4%
Income from operations before
reorganization charge 11.9% 11.4% 11.3%
Income from operations 11.9% 11.4% 10.6%
Income before income taxes, minority
interest and extraordinary item 10.7% 10.1% 9.4%
Net income before reorganization charge
and extraordinary item 6.3% 6.2% 6.1%
Net income 6.0% 6.2% 5.6%
Ratio of earnings to fixed charges 3.92 3.36 3.31
- -----------
(1) Certain reclassifications have been made in prior year
amounts to conform to the current year presentation.
The six months ended March 31, 1994, showed improvements in all
profitability margins except gross profit margin and net income as a
percentage of revenues. Net income before the extraordinary charge as
a percentage of revenues, however, improved over the same period of
last year. The primary factor contributing to the improvement in the
income from operations profit margin is the Company's ability to
contain the growth in selling, general and administrative expenses
while achieving double digit revenue growth through acquisitions and
the selling of new business. The domestic disposal and transfer
services operations and international operations have both experienced
improving profit margins compared to the prior year. The Otto Waste
Services acquisition in Germany has favorably impacted the
international operations' profit margins, although the margins continue
to be affected negatively by operating losses of certain of the
Company's Italian operations. The domestic collection services
business continues to experience eroding margins primarily as a result
of competitive pressures on pricing. While the collection services'
disposal and other operating costs on a per unit of work performed
basis continues to rise slightly, revenues on a per unit basis continue
to decline. In an effort to deal with this issue, the Company has
selectively increased collection service prices throughout its customer
base on an ongoing basis since October 1993, and indications are that
most of the increases implemented to date have been accepted by the
customers. The Company plans to continue to selectively increase
collection services' prices throughout the remainder of the year.
Gross margins in both the medical waste services and recycling services
businesses are down due to price weaknesses and slightly higher costs
which are, to some extent, weather related.
Revenues -
Revenues for the six months ended March 31, 1994, were $1,912
million, a 14.7% 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):
Six Months Ended
---------------------- %
3/31/94 3/31/93(1) Change
---------- ---------- --------
North American Operations -
Collection Services - Solid Waste $1,142,651 $1,036,075 10.3 %
Disposal and Transfer - Solid Waste
Unaffiliated customers 215,043 217,173 (1.0)%
Affiliated companies 175,935 159,554 10.3 %
---------- ----------
390,978 376,727 3.8 %
Medical Waste Services 80,334 70,508 13.9 %
Recycling Services 143,797 110,224 30.5 %
Services Group and Other 35,173 43,259 (18.7)%
Elimination of affiliated
companies' revenues (175,935) (159,554) 10.3 %
---------- ----------
Total North American Operations 1,616,998 1,477,239 9.5 %
International Operations (2) 295,448 190,705 54.9 %
---------- ----------
Total Company $1,912,446 $1,667,944 14.7 %
========== ==========
- ------------
(1) Certain reclassifications have been made in prior year amounts
to conform to the current year presentation.
(2) Revenues from Canadian operations are excluded from inter-
national revenues and are combined with North American
revenues.
As shown above, international operations' revenues increased 54.9%
and accounted for approximately 43% of the Company's growth in revenues
for the six months ended March 31, 1994, compared with the same period
of the prior year. The reconsolidation of the Spanish operations in
May 1993 and the acquisition of the 50% interest in Otto Waste Services
in February 1994 accounted for over 90% of the increase in
international's revenues. Otto Waste Services' revenues were $57
million for the two months it was included in the Company's results.
North America revenues grew 9.5% for the six months ended March 31,
1994, compared with the first six months of the prior year. All
business areas, with the exception of the services group and disposal
and transfer business areas, experienced revenue growth over the prior
year in North America. Revenues for the services group were negatively
affected by the sale of a significant portion of its operations during
fiscal year 1993. The Company has decided to retain the unsold portion
of the business and re-integrate these operations into its existing
business operations. The disposal and transfer services' revenues from
unaffiliated customers were below the prior year primarily due to (i) a
shift in mix of waste disposed from contaminated soils at higher
tipping fees to other types of special and municipal wastes which carry
a lower tipping fee, (ii) a shift in the mix of waste disposed from
landfills in the northern section of the United States to landfills in
the southern and southeastern sections of the United States which
receive lower tipping fees, and (iii) a decrease in transfer volumes
resulting from lost special event volumes and a large city hauling
contract. The collection services business revenues increased 10.3%
for the first six months of fiscal 1994 compared with the first six
months of the prior year which accounted for approximately 44% of the
Company's total revenue growth. Acquisitions consummated in the last
half of fiscal 1993 and the first half of fiscal 1994 and increased
volumes in the Company's existing business accounted for the revenue
increase in the collection services business. Recycling revenues
increased 30.5% over the same period of the prior year primarily due to
increased volumes and, to a lesser extent, acquisitions. Medical waste
revenues increased 13.9% due to increased volumes and acquisitions
offset partially by lower pricing resulting from a very competitive
marketplace.
Cost of Operations -
Cost of operations increased $187 million or 15.6% for the first
six months of fiscal 1994, compared with the same period of the prior
year. Disposal costs, which is the single largest component of cost of
operations and includes landfill and transfer station operating costs,
increased 11% due to acquisitions and increased volumes. Disposal
costs have been favorably affected by flat disposal and transfer
station operating costs resulting from the mix of sites receiving waste
compared with the prior year. Other operating costs increased
approximately 20%. The increase in other operating costs is also
attributable to acquisitions and to increased volumes primarily in the
North America collection services and international business areas.
Selling, General and Administrative Expense (SG&A) -
SG&A expense was $295 million for the first six months of fiscal
1994, an increase of 7.6%. SG&A expense as a percent of revenues
declined from 16.5% for the six months ended March 31, 1993, to 15.4%
of revenues for the six months ended March 31, 1994, as a result of the
Company's cost control efforts. The $21 million increase in SG&A was
primarily related to the Company's acquisition activities, of which
approximately one-half came from the international operations. Selling
expense continues to grow at a faster rate than the remainder of SG&A
expense, accounting for approximately 23% of the total growth in SG&A.
Net Interest Expense -
Net interest expense increased $8.2 million or 30% for the first
six months of fiscal 1994 compared with the same period of the prior
year. Otto Waste Services' net interest expense, which was $3.7
million, accounted for 45% of this increase. Other factors which
contributed to the increase in net interest expense were (i) lower
interest income as a result of a decrease in the weighted average
investment balances outstanding for the six months ended March 31,
1994, compared with the prior year and (ii) a decrease in capitalized
interest as a result of the completion of the construction of a number
of market development projects.
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates increased $8.6
million due principally to improvement in the earnings of American
Ref- Fuel and certain international affiliates.
Minority Interest in Income of Consolidated Subsidiaries -
The increase in minority interest in income of consolidated
subsidiaries is the result of the Company's acquisition of a 50%
interest in Otto Waste Services in February 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital of $1.0 million at September 30,
1993, decreased to a deficit of $3.7 million at March 31, 1994.
Although working capital was affected favorably in the current fiscal
year by the adoption of SFAS No. 109, "Accounting for Income Taxes"
(see Note (7)), current year acquisitions, including the acquisition of
the fifty percent interest in Otto Waste Services, and the use of cash
for capital expenditures during the first six months of fiscal 1994,
resulted in a decrease in working capital. 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.
In January 1994, the Company filed a universal shelf registration
statement with the Securities and Exchange Commission to provide for
the registration of up to $700 million of unsecured debt securities,
preferred stock, common stock or warrants to purchase unsecured debt
securities, preferred stock or common stock. In March 1994, the
Company issued 15,525,000 shares of its common stock under this
universal shelf registration statement in concurrent public offerings
in the United States and outside the United States. The Company used
approximately $106 million of the net proceeds of approximately $434
million during April 1994 to redeem its $100 million 8 1/2% Sinking
Fund Debentures due 2017. The balance of the proceeds was used to
repay indebtedness associated with the February 1994 acquisition of the
fifty percent interest in Otto Waste Services and other working capital
requirements.
The capital appropriations budget for fiscal year 1994 was
established at $962 million, a significantly higher level than the $784
million of capital expenditures in the prior year, in anticipation of
more attractive business acquisition opportunities and higher
replacement capital needs in the Company's core business. In addition,
on February 3, 1994, the Company completed its acquisition of a 50%
interest in Otto Waste Services, a solid waste services business in
Germany, for a purchase price of approximately $400 million, consisting
of approximately 3.9 million shares of the Company's common stock and
the remainder in Deutsche Mark. The Company continues to believe that
cash provided by operations, cash obtained from the sale of short-term
investments, cash available under its commercial paper program
supported by its credit facility, under its medium-term note program
and its universal shelf registration statement, and its access to cash
from banks and other external sources, including the public markets,
are more than sufficient for its financing needs.
Except as disclosed herein, there have been no material changes in
the Company's financial condition from that reported at September 30,
1993.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
A subsidiary of a Company, CECOS International, Inc. ("CECOS"), is a
party to a consent order with the U.S. Environmental Protection Agency,
one aspect of which concerns a leachate pretreatment system that CECOS
agreed to construct at one of its closed facilities. By letter dated
March 29, 1994, the USEPA has demanded $528,500 in stipulated penalties
due to CECOS's alleged failure to commence timely start-up of the
leachate pretreatment system that is presently operating. CECOS is
vigorously defending the imposition of this proposed penalty.
Management of the Company is unable to conclude whether the ultimate
monetary sanction in this matter, if any, will be less than $100,000.
As previously reported in its Annual Reports on Form 10-K for the
Company's 1992 and 1993 fiscal years, the case of Gary David Harding,
et al. v. Browning-Ferris Industries, Inc., et al. was filed in the
105th Judicial District Court of Nueces County, Texas, on September 23,
1992. The plaintiffs moved to have the case dismissed by the trial
court without prejudice, which the trial court in Nueces County
granted. The plaintiffs refiled the litigation in the 229th Judicial
District Court of Duval County, Texas, on March 1, 1994. The Company
has filed a motion that seeks to transfer venue in the litigation back
to Nueces County, Texas. The Company is vigorously defending against
the allegations in the litigation.
As previously reported in BFI's Annual Report on Form 10-K for the year
ended September 30, 1993 and other filings, several purported
stockholder derivative actions had been consolidated as the case of In
Re Browning-Ferris Industries, Inc. Stockholder Derivative Litigation,
and on March 3, 1993, the United States District Court for the Southern
District of Texas granted the defendants' motion to dismiss the
stockholder derivative litigation. The plaintiffs appealed the
dismissal of the litigation to the Fifth Circuit Court of Appeals. On
March 22, 1994, the Fifth Circuit Court of Appeals upheld the dismissal
of the derivative litigation.
As previously reported in BFI's Annual Report on Form 10-K for the year
ended September 30, 1993 and other filings, California judicial and
regulatory authorities had suspended the Company's ability to accept
decomposable household waste at certain portions of its Azusa,
California landfill. On July 24, 1991, the California State Water
Resources Control Board (the "State Board") issued an order which
continued to prevent certain portions of the landfill from accepting
decomposable household waste. The State Board order was upheld
following two appeals, which ended with a February 1, 1994, order of
the superior court. See Note (6) of Notes to Consolidated Financial
Statements.
In addition to the above-described litigation, the Company and certain
subsidiaries are involved in various other 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 4. Submission of Matters to a Vote of Security Holders
On March 2, 1994, the Company held its Annual Meeting of Stockholders.
The matters voted on were (1) the election of five nominees to serve as
directors for three-year terms; (2) the approval of the selection of
Arthur Andersen & Co. as auditors for the Company's 1994 fiscal year;
(3) the approval of the Company's 1993 Stock Incentive Plan; and (4)
the approval of the Company's 1993 Non-Employee Director Stock Plan.
In the election for directors, Harry J. Phillips, Sr. received
143,599,193 votes and 1,455,487 votes were withheld; Marc J. Shapiro
received 143,601,352 votes and 1,453,328 votes were withheld; Robert M.
Teeter received 143,594,797 votes and 1,459,883 votes were withheld.;
Louis A. Waters received 143,573,454 votes and 1,481,226 votes were
withheld; and Peter S. Willmott received 143,744,217 votes and
1,310,463 votes were withheld. In addition, on March 2, 1994, the
Company's Board of Directors elected Ulrich Otto to a one-year term as
a director to fill a vacancy in accordance with the Company's by-laws.
In the approval of auditors, the holders of 143,180,061 shares voted
for, the holders of 525,252 shares voted against, and the holders of
1,349,367 shares abstained from voting on the matter.
In the approval of the 1993 Stock Incentive Plan, the holders of
131,487,550 shares voted in favor of the plan, the holders of
11,786,063 shares voted against the plan, and the holders of 1,781,067
shares abstained from voting on the plan.
In the approval of the 1993 Non-Employee Director Stock Plan, the
holders of 129,361,131 shares voted for the plan, the holders of
10,974,641 shares voted against the plan, and the holders of 4,718,908
shares abstained from voting on the plan.
There were no broker nonvotes on any of the proposals presented at the
1994 Annual Meeting of Stockholders.
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.
(b) Reports on Form 8-K:
A Report on Form 8-K dated March 10, 1994 was filed pursuant to
"Item 7. Financial Statements and Exhibits", whereby the Company filed
certain exhibits required in connection with the Company's Common Stock
offering, which closed on March 16, 1994.
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 thereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
(Company)
Date: May 11, 1994 /s/ William D. Ruckelshaus
______________________________
William D. Ruckelshaus
Chairman of the Board and
Chief Executive Officer
/s/ David R. Hopkins
________________________________
David R. Hopkins
Vice President, Controller and
Chief Accounting Officer
Exhibit 12
BROWNING-FERRIS INDUSTRIES, INC.
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Dollar Amounts in Thousands)
Six Months
Ended March 31,
-----------------------
1994 1993
-------- --------
Earnings Available for Fixed Charges:
Income before extraordinary item $120,909 $103,123
Income taxes 82,232 65,931
-------- --------
Income before income taxes and extraordinary
item 203,141 169,054
Consolidated interest expense 40,511 35,833
Interest expense related to proportionate
share of 50% owned affiliates 11,011 15,109
Portion of rents representing the interest
factor 9,314 9,007
Less-Equity in earnings of affiliates less
than 50% owned 165 --
-------- --------
Total $263,812 $229,003
======== ========
Fixed Charges:
Consolidated interest expense and interest
costs capitalized $ 47,049 $ 43,966
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned affiliates 11,011 15,109
Portion of rents representing the interest
factor 9,314 9,007
-------- --------
Total $ 67,374 $ 68,082
======== ========
Ratio of Earnings to Fixed Charges 3.92 3.36
======== ========
