UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
requirements for the past 90 days.
Yes X . No .
Indicate the number of shares outstanding of the issuer's common stock, as of
August 9, 1994: 196,092,079.
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,
----------------------- ----------------------
1994 1993 1994 1993
-----------------------------------------------------------------------------
Revenues $1,160,632 $ 887,500 $3,073,078 $2,555,444
Cost of operations 842,122 645,218 2,232,389 1,848,005
---------- ---------- ---------- ----------
Gross profit 318,510 242,282 840,689 707,439
Selling, general and
administrative expense 163,965 137,286 459,430 411,790
Reorganization charge -- 27,000 -- 27,000
---------- ---------- ---------- ----------
Income from operations 154,545 77,996 381,259 268,649
Interest, net 21,119 15,576 56,664 42,965
Equity in earnings of
unconsolidated affiliates (10,694) (5,183) (25,104) (10,994)
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and extra-
ordinary item 144,120 67,603 349,699 236,678
Income taxes 57,648 26,365 139,880 92,296
Minority interest in
income of consolidated
subsidiaries 5,659 -- 8,097 21
---------- ---------- ---------- ----------
Income before
extraordinary item 80,813 41,238 201,722 144,361
Extraordinary item - loss
on early retirement of
debt, net of income tax
benefit of $2,833 -- -- 5,263 --
---------- ---------- ---------- ----------
Net income $ 80,813 $ 41,238 $ 196,459 $ 144,361
========== ========== ========== ==========
Number of common and common
equivalent shares used
in computing earnings
per share 196,810 171,811 184,309 170,834
========== ========== ========== ==========
(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 Nine Months Ended
June 30, June 30,
----------------------- ---------------------
1994 1993 1994 1993
-----------------------------------------------------------------------------
Earnings per common and
common equivalent share:
Income before extraordinary
item $ .41 $ .24 $ 1.10 $ .85
Extraordinary item -- -- (.03) --
------- ------- ------- -------
Net income $ .41 $ .24 $ 1.07 $ .85
======= ======= ======= =======
Cash dividends per
common share $ .17 $ .17 $ .51 $ .51
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
- - - ------------------------------------------------------------------------
June 30, September 30,
1994 1993
(Unaudited)
- - - ------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 61,637 $ 22,871
Short-term investments 40,974 208,674
Receivables -
Trade, net of allowances for doubtful
accounts of $29,070 and $21,870 727,308 556,456
Other 48,993 58,090
Inventories 38,977 26,508
Deferred income taxes 87,209 --
Prepayments and other 73,658 52,899
---------- ----------
Total current assets 1,078,756 925,498
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $1,974,839 and $1,742,362 2,956,512 2,515,709
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$55,354 and $41,234 902,479 310,065
Other intangible assets, net of
accumulated amortization of $159,722
and $158,693 114,471 138,844
Deferred income taxes 145,942 113,615
Investments in unconsolidated affiliates 252,786 222,698
Other 112,533 69,213
---------- ----------
Total other assets 1,528,211 854,435
---------- ----------
Total assets $5,563,479 $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)
- - - --------------------------------------------------------------------------
June 30, September 30,
1994 1993
(Unaudited)
- - - --------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 88,636 $ 95,953
Accounts payable 328,767 245,555
Accrued liabilities -
Salaries and wages 93,473 75,162
Taxes, other than income 40,907 30,912
Other 342,296 313,687
Income taxes 24,311 27,678
Deferred revenues 149,292 135,509
---------- ----------
Total current liabilities 1,067,682 924,456
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 634,794 631,690
Deferred income taxes 119,608 --
Other 151,227 128,255
---------- ----------
Total deferred items 905,629 759,945
---------- ----------
LONG-TERM DEBT, net of current portion 556,155 333,689
---------- ----------
CONVERTIBLE SUBORDINATED DEBENTURES 744,949 744,949
---------- ----------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 196,647,288 and
174,231,747 shares issued 32,781 29,044
Additional paid-in capital 1,340,472 743,265
Retained earnings 916,963 761,325
Treasury stock, 694,553 and 686,826
shares, at cost (1,152) (1,031)
---------- ----------
Total common stockholders' equity 2,289,064 1,532,603
---------- ----------
Total liabilities and common
stockholders' equity $5,563,479 $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)
- - - ----------------------------------------------------------------------------
Nine Months Ended
June 30,
------------------------
1994 1993
- - - ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item $ 201,722 $ 144,361
--------- ---------
Adjustments to reconcile income before extra-
ordinary item to cash provided by operating
activities:
Depreciation and amortization 326,786 268,772
Reorganization charge -- 27,000
Deferred income tax expense (benefit) (224) 7,202
Amortization of deferred investment tax credit (530) (812)
Provision for losses on accounts receivable 16,878 12,580
Gains on sales of fixed assets (3,957) (38)
Equity in earnings of unconsolidated
affiliates, net of dividends received (4,827) (10,994)
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions:
Trade receivables (77,555) (15,980)
Inventories (1,429) (263)
Other assets 274 7,472
Other liabilities 27,193 23,403
--------- ---------
Total adjustments 282,609 318,342
--------- ---------
Net cash provided by operating activities 484,331 462,703
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (469,766) (399,492)
Payments for businesses acquired (352,313) (45,891)
Investments in unconsolidated affiliates (19,890) (41,826)
Proceeds from disposition of assets 18,778 16,818
Purchases of short-term investments -- (20,000)
Sales of short-term investments 168,015 51,563
Receipts from unconsolidated affiliates 17,766 41,735
--------- ---------
Net cash used in investing activities (637,410) (397,093)
--------- ---------
(Continued on Following Page)
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
- - - ----------------------------------------------------------------------------
Nine Months Ended
June 30,
------------------------
1994 1993
- - - ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 448,231 43,990
Proceeds from issuance of indebtedness 58,242 57,441
Repayments of indebtedness (225,064) (78,402)
Dividends paid (89,638) (86,361)
--------- ---------
Net cash provided by (used in) financing
activities 191,771 (63,332)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES 74 (6,278)
--------- ---------
NET INCREASE (DECREASE) IN CASH 38,766 (4,000)
CASH AT BEGINNING OF PERIOD 22,871 34,682
--------- ---------
CASH AT END OF PERIOD $ 61,637 $ 30,682
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 59,658 $ 43,435
Income taxes $ 142,555 $ 95,507
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):
Nine Months Ended
June 30,
--------------------
1994 1993
------- -------
Common shares outstanding, end of period 195,953 171,676
Effect of using weighted average common
and common equivalent shares outstanding (12,622) (1,820)
Effect of shares issuable under stock option
plans based on the treasury stock method 978 978
------- -------
Shares used in computing earnings per share 184,309 170,834
======= =======
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 significant or 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 nine months of the current fiscal year, the
Company paid approximately $99.3 million (including liabilities assumed
and additional amounts payable to former owners of $9.4 million and
647,744 shares of the Company's common stock valued at $18.2 million)
to acquire 85 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 $7.5 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 Otto Waste Services and many of
the Company's other 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. As a result, the financial information
included in the Company's consolidated financial statements and in the
pro forma information below is subject to adjustment as subsequent
revisions in estimates of fair value, if any, are necessary 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):
Nine Months Ended
June 30,
-----------------------
1994 1993
(Unaudited) (Unaudited)
----------- -----------
Pro forma revenues $3,272,529 $2,958,076
Pro forma income before
extraordinary item $ 205,778 $ 151,842
Pro forma net income $ 200,515 $ 151,842
Pro forma income per common and common
equivalent share -
Income before extraordinary
item $ 1.09 $ .84
Net income $ 1.06 $ .84
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 June 30, 1994, and September 30, 1993, was as
follows (in thousands):
June 30, September 30,
1994 1993
---------- -------------
Senior indebtedness:
9 1/4% Debentures $ 100,000 $ 100,000
8 1/2% Sinking Fund Debentures -- 98,501
Dfl. 125 million 6 1/2% Notes -- 68,200
Solid waste revenue bond obligations 114,019 79,977
Mortgages payable 6,760 7,061
Otto Waste Services indebtedness 245,334 --
Other notes payable 70,050 75,903
--------- ---------
536,163 429,642
Commercial paper to be refinanced -- --
Short-term facilities of Otto Waste
Services to be refinanced 108,628 --
--------- ---------
Total long-term debt 644,791 429,642
Less current portion 88,636 95,953
--------- ---------
Long-term debt, net of current portion $ 556,155 $ 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 was reflected in the
Company's consolidated statement of income as an extraordinary item.
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 June 30, 1994, distributions
from retained earnings could not exceed $1.3 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 ("IRS"). 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. Pursuant to a Congressional order, the IRS
developed the Intangible Settlement Initiative and is seeking to settle
outstanding claims with affected companies. In April 1994, the IRS
proposed to settle substantially all of the Company's pending issues
related to intangible assets from acquisitions. The Company is
evaluating whether to accept the settlement offer or continue to
contest the adjustment based on the merits of the claim. 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 nine months ended June 30, 1994 was $196
million, an increase of $52.1 million or 36.1% over the same period of
the prior year. However, fiscal 1994 results included an extraordinary
charge of $5.3 million, net of income taxes, related to the early
retirement of debt, and fiscal 1993 net income included a pre-tax
reorganization charge of $27 million ($16.5 million, net of income
taxes). Current year net income before considering the extraordinary
item was $202 million, an increase of 25.4% over prior year net income
of $161 million excluding the reorganization charge. The 25.4%
increase in net income before charges was largely the result of
increased profitability in the Company's international operations and
its domestic disposal and transfer services and recycling services
operations. International earnings have been favorably affected by
improved overall performance in Europe, including the recent
acquisition of the 50% interest in Otto Waste Services of Germany. The
Company's ability to control the growth in selling, general and
administrative expenses while increasing revenues at a significantly
faster pace 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. The revenues and earnings of these companies and
partially owned subsidiaries have been included in the Company's
results for the periods ended June 30, 1994. Under purchase accounting,
the assets acquired and liabilities assumed in connection with this
acquisition have been 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. Currently reported information is, therefore, subject to
adjustment as subsequent revisions in estimates of fair value, if any,
are necessary.
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.
Nine Months Ended
------------------ Year Ended
6/30/94 6/30/93(1) 9/30/93(1)
-------- -------- ----------
Gross profit margin 27.4% 27.7% 27.4%
Income from operations before
reorganization charge 12.4% 11.6% 11.3%
Income from operations 12.4% 10.5% 10.6%
Income before income taxes, minority
interest and extraordinary item 11.4% 9.3% 9.4%
Net income excluding reorganization
charge and extraordinary item 6.6% 6.3% 6.1%
Net income 6.4% 5.6% 5.6%
Ratio of earnings to fixed charges 4.32 3.23 3.31
- - - -----------
(1) Certain reclassifications have been made in prior year
amounts to conform to the current year presentation.
The nine months ended June 30, 1994, reflected improvements in all the
profitability margins presented above except the gross profit margin.
The improvement in the income from operations profit margin is
attributable principally to the Company's ability to contain the growth
in selling, general and administrative expenses while achieving
significantly greater revenue growth through acquisitions and increased
volumes, particularly at the Company's landfills. In the current
fiscal year, improving operating profit margins have been experienced
in the Company's international operations and in all its domestic
businesses except for collection services. The Otto Waste Services
acquisition in Germany has favorably impacted the international
operations' operating profit margins, although operating results
continue to be affected negatively by operating losses of certain of
the Company's Italian operations. Operating profit margins improved in
the disposal and transfer services business in the current year,
principally as a result of increases in both municipal solid waste and
special waste volumes disposed. Increased volumes, growth from
acquisitions and improved commodity pricing contributed to the improved
profitability margins experienced in recycling services. However, the
domestic collection services business continues to experience declining
operating margins, principally as a result of competitive pricing
pressures, operating cost increases and the lower initial operating
margins of some acquired companies. In an effort to deal with this
issue, the Company has selectively increased collection service prices
throughout its commercial 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. The Company also initiated
minimum pricing levels on new business during the quarter. In
addition, during the current fiscal year the Company concluded an
extensive study which identified opportunities for profit improvement
of the Company. The Company has recently begun to implement a number
of these profit improvement initiatives which will likely span the next
two to three years.
Revenues -
Revenues for the nine months ended June 30, 1994, were $3.1
billion, a 20.3% 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
---------------------- %
6/30/94 6/30/93(1) Change
---------- ---------- --------
North American Operations -
Collection Services - Solid Waste $1,743,851 $1,575,028 10.7 %
Disposal and Transfer - Solid Waste
Unaffiliated customers 347,633 335,343 3.7 %
Affiliated companies 279,699 248,837 12.4 %
---------- ----------
627,332 584,180 7.4 %
Medical Waste Services 120,044 107,718 11.4 %
Recycling Services 247,454 172,055 43.8 %
Services Group and Other 59,032 60,555 (2.5)%
Elimination of affiliated
companies' revenues (279,699) (248,837) 12.4 %
---------- ----------
Total North American Operations 2,518,014 2,250,699 11.9 %
International Operations (2) 555,064 304,745 82.1 %
---------- ----------
Total Company $3,073,078 $2,555,444 20.3 %
========== ==========
- - - ------------
(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 82.1%
and accounted for approximately 48% of the Company's growth in revenues
for the nine months ended June 30, 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 $181
million for the five months it was included in the Company's results.
North American revenues grew 11.9% for the nine months ended June 30,
1994, compared with the first nine months of the prior year. All
business lines, with the exception of services group and other,
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 above the prior year primarily due to increased volumes
offset partially by lower weighted average pricing 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 and (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. The collection services business revenues
increased 10.7% for the first nine months of fiscal 1994 compared with
the first nine months of the prior year which accounted for
approximately 33% of the Company's total revenue growth. Acquisitions
consummated in the last quarter of fiscal 1993 and the first nine
months 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 43.8% over the same period of
the prior year primarily due to increased volumes and, to a lesser
extent, acquisitions. Medical waste revenues increased 11.4% due to
increased volumes and acquisitions offset partially by lower pricing
resulting from a very competitive marketplace.
Cost of Operations -
Cost of operations increased $384 million or 20.8% for the first
nine 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 18% due to acquisitions and increased volumes. Landfill and
transfer station disposal costs have been favorably affected by the
change in the mix of sites receiving waste in the current year from
higher cost landfills in the northern section of the United States to
relatively lower cost landfills in the southern and southeastern
sections of the United States. Other operating costs increased
approximately 24%. The increase in other operating costs is also
attributable to acquisitions and to increased volumes primarily in the
North America collection and recycling services and international
business area.
Selling, General and Administrative Expense (SG&A) -
SG&A expense was $459 million for the first nine months of fiscal
1994, an increase of 11.6%. SG&A expense as a percent of revenues
declined from 16.1% of revenues for the nine months ended June 30,
1993, to 15.0% of revenues for the nine months ended June 30, 1994, as
a result of the Company's cost control efforts. The $48 million
increase in SG&A was primarily related to the Company's acquisition
activities, of which approximately one-half came from the international
operations.
Net Interest Expense -
Net interest expense increased $14 million or 31.9% for the first
nine months of fiscal 1994 compared with the same period of the prior
year. Otto Waste Services' net interest expense, which was $9 million,
accounted for 68% 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 nine months ended June 30, 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 significant market
development projects.
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates increased $14.1
million due principally to improvement in the earnings of American Ref-
Fuel and certain international affiliates and as a result of the
Company's acquisition of a 50% interest in Otto Waste Services in
February 1994.
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, increased to $11.1 million at June 30, 1994. Working capital was
affected favorably in the current fiscal year by the adoption of SFAS
No. 109, "Accounting for Income Taxes" (see Note (7)) and increased
profitability, offset partially by current year acquisitions and the
use of cash for capital expenditures during the first nine months of
fiscal 1994. 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.
In July 1994, the Company closed a $100 million master equipment
leasing program. A portion of the commitments under this program was
drawn at closing and the proceeds were used to repay indebtedness and
for working capital purposes. The balance of the commitments will be
drawn on or before March 31, 1995.
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, its master equipment
leasing program, 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
On May 18, 1994, a lawsuit styled, Ogden Projects, Inc., Ogden Martin
Systems of Lancaster, Inc., John Snyder and Jeffrey R. Horowitz v. New
Morgan Landfill Company, Inc. was filed in the United States District
Court for the Eastern District of Pennsylvania. The suit alleges that
a subsidiary of the Company did not obtain a permit to construct and
operate a landfill under Part D of Title I of the Clean Air Act. The
plaintiffs, who are private parties without regulatory authority, seek
a declaratory judgment, an order enjoining the subsidiary from
continuing the construction and/or operation of the landfill without a
valid permit, and civil penalties for each day New Morgan has
constructed and/or operated the landfill without a valid permit under
Part D of Title I of the Clean Air Act. The Company believes the suit
is without merit and is vigorously defending the case.
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 dismissal of the litigation was
affirmed by the Fifth Circuit Court of Appeals March 22, 1994, and the
time for any further appeals has expired.
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 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: None
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: August 10, 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)
Nine Months
Ended June 30,
-----------------------
1994 1993
-------- --------
Earnings Available for Fixed Charges:
Income before extraordinary item and
minority interest $209,819 $144,382
Income taxes 139,880 92,296
-------- --------
Income before income taxes, extraordinary
item and minority interest 349,699 236,678
Consolidated interest expense 62,753 54,837
Interest expense related to proportionate
share of 50% owned affiliates 16,497 18,840
Portion of rents representing the interest
factor 14,191 13,759
Less-Equity in earnings (losses) of
affiliates less than 50% owned 254 (43)
-------- --------
Total $442,886 $324,157
======== ========
Fixed Charges:
Consolidated interest expense and interest
costs capitalized $ 71,950 $ 67,912
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned affiliates 16,497 18,840
Portion of rents representing the interest
factor 14,191 13,759
-------- --------
Total $102,638 $100,511
======== ========
Ratio of Earnings to Fixed Charges 4.32 3.23
======== ========
