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 March 31, 1995
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 May 11, 1995: 212,891,110
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,
---------------------- -----------------------
1995 1994 1995 1994
- -------------------------------------------------------------------------------
Revenues $1,409,366 $ 984,154 $2,702,153 $1,912,446
Cost of operations 1,006,307 713,977 1,931,277 1,390,267
---------- ---------- ---------- ----------
Gross profit 403,059 270,177 770,876 522,179
Selling, general and
administrative expense 210,025 151,090 400,531 295,465
---------- ---------- ---------- ----------
Income from operations 193,034 119,087 370,345 226,714
Interest, net 40,792 20,022 67,224 35,545
Equity in earnings of
unconsolidated affiliates (13,030) (8,196) (24,676) (14,410)
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and extra-
ordinary item 165,272 107,261 327,797 205,579
Income taxes 66,109 42,905 131,119 82,232
Minority interest in
income of consolidated
subsidiaries 6,354 2,438 14,299 2,438
---------- ---------- ---------- ----------
Income before
extraordinary item 92,809 61,918 182,379 120,909
Extraordinary item - loss
on early retirement of
debt, net of income tax
benefit of $2,833 -- 5,263 -- 5,263
---------- ---------- ---------- ----------
Net income $ 92,809 $ 56,655 $ 182,379 $ 115,646
========== ========== ========== ==========
Number of common and common
equivalent shares used
in computing earnings
per share 198,754 181,451 198,278 178,058
========== ========== ========== ==========
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,
---------------------- -----------------------
1995 1994 1995 1994
- -------------------------------------------------------------------------------
Earnings per common and
common equivalent share:
Income before extraordinary
item $ .47 $ .34 $ .92 $ .68
Extraordinary item -- (.03) -- (.03)
------- ------- ------- -------
Net income $ .47 $ .31 $ .92 $ .65
======= ======= ======= =======
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,
1995 1994
(Unaudited)
- ------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 128,744 $ 79,131
Short-term investments 99,639 61,993
Receivables -
Trade, net of allowances for doubtful
accounts of $37,080 and $33,284 866,566 752,686
Other 67,158 60,934
Inventories 63,550 32,811
Deferred income taxes 106,087 114,925
Prepayments and other 112,576 83,613
---------- ----------
Total current assets 1,444,320 1,186,093
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,242,284 and $2,046,604 3,496,483 3,049,767
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$92,231 and $62,527 1,646,660 954,378
Other intangible assets, net of
accumulated amortization of $157,526
and $156,080 117,340 113,059
Deferred income taxes 101,999 97,998
Investments in unconsolidated affiliates 366,620 292,579
Other 96,608 103,081
---------- ----------
Total other assets 2,329,227 1,561,095
---------- ----------
Total assets $7,270,030 $5,796,955
========== ==========
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,
1995 1994
(Unaudited)
- --------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 54,825 $ 49,841
Accounts payable 422,216 400,177
Accrued liabilities -
Salaries and wages 99,813 101,530
Taxes, other than income 37,238 44,129
Other 447,445 373,978
Income taxes 31,926 53,642
Deferred revenues 178,274 155,692
---------- ----------
Total current liabilities 1,271,737 1,178,989
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 598,096 529,501
Deferred income taxes 90,841 78,678
Other 221,859 159,478
---------- ----------
Total deferred items 910,796 767,657
---------- ----------
LONG-TERM DEBT, net of current portion 1,703,806 713,680
---------- ----------
CONVERTIBLE SUBORDINATED DEBENTURES 744,949 744,949
---------- ----------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,433,581 and
197,084,755 shares issued 35,579 32,854
Additional paid-in capital 1,887,148 1,351,919
Retained earnings 1,230,173 1,009,132
Treasury stock, 785,489 and 743,497
shares, at cost (4,158) (2,225)
Stock and Employee Benefit Trust,
15,000,000 shares (510,000) --
---------- ----------
Total common stockholders' equity 2,638,742 2,391,680
---------- ----------
Total liabilities and common
stockholders' equity $7,270,030 $5,796,955
========== ==========
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,
------------------------
1995 1994
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item $ 182,379 $ 120,909
--------- ---------
Adjustments to reconcile income before
extraordinary item to net cash provided
by operating activities:
Depreciation and amortization -
Property and equipment 232,875 178,814
Goodwill 18,236 7,871
Other intangible assets 14,951 15,352
Deferred income tax expense 18,704 6,109
Amortization of deferred investment tax credit (353) (353)
Provision for losses on accounts receivable 13,206 11,527
Gains on sales of fixed assets (5,061) (2,691)
Equity in earnings of unconsolidated
affiliates, net of dividends received (24,676) (14,410)
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions -
Trade receivables (1,635) (41,595)
Inventories (17,989) (4,010)
Other assets 8,102 (1,104)
Other liabilities (13,877) 2,225
--------- ---------
Total adjustments 242,483 157,735
--------- ---------
Net cash provided by operating activities 424,862 278,644
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (427,176) (320,834)
Payments for businesses acquired (672,450) (338,724)
Investments in unconsolidated affiliates (9,958) (19,297)
Proceeds from disposition of assets 63,211 9,838
Purchases of short-term investments (36,848) --
Sales of short-term investments 201,924 69,526
Return of investment in unconsolidated
affiliates 19,270 28,939
--------- ---------
Net cash used in investing activities (862,027) (570,552)
--------- ---------
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
- ----------------------------------------------------------------------------
Six Months Ended
March 31,
------------------------
1995 1994
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 6,539 443,322
Proceeds from issuance of indebtedness 795,459 40,564
Repayments of indebtedness (252,449) (100,396)
Dividends paid (66,880) (59,140)
--------- ---------
Net cash provided by financing
activities 482,669 324,350
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES 4,109 187
--------- ---------
NET INCREASE IN CASH 49,613 32,629
CASH AT BEGINNING OF PERIOD 79,131 22,871
--------- ---------
CASH AT END OF PERIOD $ 128,744 $ 55,500
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 66,922 $ 41,288
Income taxes $ 145,421 $ 83,898
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, 1994, 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,
--------------------
1995 1994
------- -------
Common shares outstanding, end of period 197,648 195,475
Effect of using weighted average common
and common equivalent shares outstanding (576) (18,330)
Effect of shares issuable under stock option
plans based on the treasury stock method 1,206 913
------- -------
Shares used in computing earnings per share 198,278 178,058
======= =======
Shares of common stock held in the Stock and Employee Benefit
Trust are not considered to be outstanding in the computation of common
shares outstanding until the shares are utilized to fund the
obligations for which the trust was established.
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 -
On December 2, 1994, the Company acquired majority control of
Attwoods plc ("Attwoods"), which is a provider of waste services
operating principally in the United States, the United Kingdom, the
Caribbean and mainland Europe (primarily Germany) and also has mineral
extraction operations in the United Kingdom. The Company increased its
ownership from 56.6% of the outstanding ordinary shares (including
ordinary shares represented by American Depositary Shares) and 80.8% of
the convertible preference shares of Attwoods (Finance) N.V., a finance
subsidiary of Attwoods, at December 2, 1994 to 94.4% of the outstanding
ordinary shares and 83.2% of the convertible preference shares as of
December 31, 1994. The Company acquired the remaining ordinary shares
which it did not own and certain additional preference shares during
the second quarter of fiscal 1995. The Company paid approximately $580
million (in pounds sterling except where requested to pay U.S. dollars
by individual shareholders) to acquire the ordinary and convertible
preference shares of Attwoods as discussed above. Additionally, during
the second quarter of fiscal 1995, the Company redeemed the remaining
outstanding convertible preference shares. In connection with the
acquisition, the Company will receive $56.8 million, plus 20% of any
proceeds in excess of such amount, arising from the sale of the
portable sanitation and accommodation business of Attwoods in
continental Europe, primarily Germany. The acquisition has been
accounted for as a purchase.
In addition to the Attwoods transaction, during the current fiscal
year, the Company paid approximately $146.3 million (including
liabilities assumed and additional amounts payable to former owners of
$55.3 million and 174,617 shares of the Company's common stock valued
at $5.2 million) to acquire 40 solid waste businesses, which were
accounted for as purchases, including the acquisition of the remaining
50% ownership interest outstanding of Servizi Industriali S.r.l., its
50% owned joint venture in Italy. The Company also exchanged 397,221
shares of its common stock and assumed liabilities and equity of $5.6
million in connection with one business combination which met the
criteria to be accounted for as a pooling-of-interests. As the effect
of this business combination was not significant, prior period
financial statements were not restated.
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.
In addition to the Otto Waste Services transaction, during the prior
fiscal year, the Company paid approximately $179.5 million (including
liabilities assumed and additional amounts payable to former owners of
$31.4 million and 752,049 shares of the Company's common stock valued
at $21.4 million) to acquire 111 solid waste businesses, which were
accounted for as purchases. The Company also exchanged 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 all businesses acquired in fiscal years 1995 and
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 Attwoods and many
of the Company's other acquisitions have been initially assigned and
recorded based on preliminary estimates of fair value and may be
revised as additional information becomes available. As a result, the
financial information included in the Company's consolidated financial
statements and in the pro forma information listed below is subject to
adjustment prospectively as subsequent revisions in estimates of fair
value, if any, are necessary.
The Company's consolidated results of operations on an unaudited
pro forma basis, as though the businesses acquired during fiscal years
1995 and 1994 had been acquired on October 1, 1993, are as follows (in
thousands, except per share amounts):
Six Months Ended
March 31,
---------------------------
1995 1994
(Unaudited) (Unaudited)
----------- -----------
Pro forma revenues $2,821,961 $2,373,151
Pro forma income before
extraordinary item $ 181,523 $ 117,807
Pro forma net income $ 181,523 $ 112,544
Pro forma income per common
and common equivalent share -
Income before extraordinary
item $ .91 $ .63
Net income $ .91 $ .61
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,
1993, nor should they be viewed as indicative of future results of
operations.
(4) Long-Term Debt -
Long-term debt at March 31, 1995, and September 30, 1994, was as
follows (in thousands):
March 31, September 30,
1995 1994
------------ -------------
Senior indebtedness:
7 7/8% Senior Notes, net of
unamortized discount of $921 $ 299,079 $ --
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond obligations 114,055 114,031
Other notes payable 577,367 366,145
---------- ---------
1,090,501 580,176
---------- ---------
Commercial paper and short-term
facilities to be refinanced 668,130 183,345
---------- ---------
Total long-term debt 1,758,631 763,521
Less current portion 54,825 49,841
---------- ---------
Long-term debt, net of current portion $1,703,806 $ 713,680
========== =========
In March 1995, the Company issued $300 million of 7 7/8% Senior
Notes (" 7 7/8% Notes") which mature on March 15, 2005, utilizing an
additional $300 million of the remaining capacity under two of its
existing shelf registration statements on file with the Securities and
Exchange Commission ("SEC"). Net proceeds received by the Company from
the sale of the 7 7/8% Notes were used to repay indebtedness associated
with the acquisition of Attwoods and other working capital
requirements.
During February and March 1995, the Company borrowed a total of
$160 million under separate senior note agreements with a number of
lending institutions. Interest is payable semi-annually on the senior
notes at rates ranging from 7.5 - 8.0%. The senior notes mature
between December 1997 and March 1998.
In March 1995, Otto Waste Services entered into a five-year
revolving credit facility in the amount of 600 million deutsche mark
with a group of German and international banks. Interest will be
payable on loans under the facility at the Frankfurt Interbank Offered
Rate plus a margin. The agreement requires a facility fee of .45% per
annum (.30% per annum if Otto Waste Services maintains certain net
worth requirements) on the total facility commitment, whether used or
unused. At March 31, 1995, Otto Waste Services had no outstanding
borrowings under this facility.
In April 1995, the Company filed a universal shelf registration
statement with the SEC to provide for the issuance of up to $700
million of securities and, at the same time, amended both its existing
registration statement which provided for the future issuance of up to
$100 million of medium term notes and its remaining universal shelf
registration statement covering the issuance of up to an additional
$149.8 million of securities. As a result, the Company may issue up to
an aggregate initial offering price of $949.8 million of (i) unsecured
debt securities, (ii) preferred stock, (iii) common stock, (iv)
warrants to purchase debt securities, preferred stock or common stock,
(v) stock purchase contracts to purchase preferred stock or common
stock or (vi) stock purchase units, each representing ownership of a
stock purchase contract and debt securities or debt obligations of
third parties, securing the holder's obligations to purchase securities
under the stock purchase contract. These securities may be issued at
prices and on terms to be determined at or prior to the time of sale.
None of these securities have been issued to date.
In connection with the acquisition of Attwoods in December 1994,
the Company and three of its subsidiaries entered into a Multicurrency
Revolving Credit Agreement for a total facility equivalent to 500
million pounds sterling. The facility, which matures December 31,
1997, can be utilized to borrow U.S. dollars, pounds sterling or
deutsche mark as determined by the Company. At the option of the
Company, the loans bear a rate of interest, generally for periods of
six months or less, based on the prime rate or the London Interbank
Offered Rate ("LIBOR"), a certificate of deposit rate or the federal
funds rate, plus a margin. The Multicurrency Revolving Credit
Agreement with Credit Suisse, as administrative agent for a group of
U.S. and international banks, requires a facility fee based upon the
credit rating of the Company. The agreement contains a net worth
requirement of $1.5 billion which increases annually after September
30, 1995 by 25% of the consolidated net income of the preceding year
and excludes the effect of any foreign currency translations on net
worth. At March 31, 1995, the Company had repaid the $550 million in
U.S. dollars borrowed during December 1994. Interest was payable on
this indebtedness at an average interest rate of approximately 6.5%.
At March 31, 1995, distributions from retained earnings could not
exceed $1.07 billion under this net worth maintenance requirement (the
covenant of the Company's debt agreements which is most restrictive
regarding dividends).
It is the Company's intention to refinance the commercial paper
and other outstanding borrowings classified as long-term debt through
the use of existing committed long-term bank credit agreements or
universal shelf registration statements in the event that alternative
long-term refinancing is not arranged. A summary by country of the
commercial paper and other outstanding borrowings to be refinanced as
of March 31, 1995 and September 30, 1994 is as follows (amounts in
thousands):
March 31, September 30,
1995 1994
---------- -------------
United states -
Commercial paper $ 344,752 $ 43,482
Other 201,924 --
---------- ---------
Total United States 546,676 43,482
Germany 121,454 139,863
---------- ---------
$ 668,130 $ 183,345
========== =========
(5) Stock and Employee Benefit Trust -
In February 1995, the Company established a Stock and Employee
Benefit Trust (the "Trust") to which it sold 15,000,000 shares of the
Company's newly issued common stock. The Trust was established to fund
future payments under existing employee compensation and benefit plans
as well as other general corporate purposes for which common stock
might be issued. Shares issued to the Trust are valued at market and
reflected as a reduction of common stockholders' equity in the balance
sheet.
(6) Commitments and Contingencies -
Legal Proceedings.
Since early November 1990, several lawsuits were filed in the
United States District Court for the Southern District of Texas. These
suits, seeking unquantified damages and attorneys' and other fees, were
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 alleged 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. In March 1995, the United States
District Court for the Southern District of Texas entered a final
judgment in favor of the Company and all other defendants. The
plaintiffs have announced their intention to appeal the final judgment.
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 Company's ability to continue to accept
decomposable household waste in a portion of the landfill is dependent
on the outcome of pending proceedings before California authorities.
The Company cannot determine whether it will be successful in such
proceedings. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net income for the first six months of fiscal year 1995 was $182.4
million, an increase of $66.7 million (57.7%) from the $115.6 million
reported for the first six months of last year. However, fiscal 1994
results included an extraordinary charge of $5.3 million, net of income
tax benefit, related to the early retirement of debt. Excluding the
prior year extraordinary charge, current year net income was $61.5
million (50.8%) greater than the $120.9 million reported for the first
six months of last year. This improvement was driven by increased
profitability in the Company's North American recycling and landfill
operations and its international operations. Higher commodity prices
and, to some extent, volume and acquisition growth were responsible for
improved earnings in the recycling business. Increased volumes
combined with higher weighted average per unit pricing resulted in
increased profits in the landfill business. International earnings
were higher than the first six months of last year principally as a
result of the Company's acquisition of a 50% ownership interest in a
German company, Otto Waste Services, in February 1994, and due to
increased earnings from the Netherlands operations. Higher
profitability was also attributable, to a lesser extent, to increased
profits in the North American collection and other business operations.
Further, the Company's continued 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, as did increased equity in earnings of the Company's
unconsolidated affiliates.
On December 2, 1994, the Company acquired majority control of
Attwoods plc ("Attwoods"), which is a provider of waste services
operating principally in the United States, the United Kingdom, the
Caribbean and mainland Europe (primarily Germany) and also has mineral
extraction operations in the United Kingdom. The Company acquired the
remaining ordinary shares which it did not own during the second
quarter of fiscal 1995. The Company paid approximately $580 million
(in pounds sterling except where requested to pay U.S. dollars by
individual shareholders) to acquire Attwoods (see Note (3) of Notes to
Consolidated Financial Statements). In connection with the acquisition,
the Company will receive $56.8 million, plus 20% of any proceeds in
excess of such amount, arising from the sale of the portable sanitation
and accommodation business of Attwoods in continental Europe, primarily
Germany. Under purchase accounting, the assets acquired and
liabilities assumed in connection with this acquisition have been
initially assigned and recorded based on preliminary estimates of fair
value and may be revised as additional information concerning the
valuation of such assets and liabilities becomes available. Currently
reported information is, therefore, subject to adjustment prospectively
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.
Six Months Ended
------------------- Year Ended
3/31/95 3/31/94 9/30/94
-------- -------- ----------
Gross profit margin 28.5% 27.3% 27.6%
Income from operations 13.7% 11.9% 12.6%
Income before income taxes, minority
interest and extraordinary item 12.1% 10.7% 11.6%
Income before extraordinary item 6.7% 6.3% 6.6%
Net income 6.7% 6.0% 6.5%
Ratio of earnings to fixed charges 4.01 3.95 4.25
The six months ended March 31, 1995, reflected improvements in all
the profitability margins presented above. Improved profit margins are
attributable principally to the higher gross profit margins experienced
in the recycling and international businesses as well as the Company's
ability to control the growth in selling, general and administrative
costs while achieving significantly greater revenue growth. Operating
profit margins in the international business area have been favorably
affected by the acquisition of Otto Waste Services in February 1994 and
improved results in the Netherlands where results have been positively
impacted by ongoing price increase programs, cost control initiatives
and acquisitions. Operating profit margins improved at the Company's
landfills in the current year, principally as a result of increases in
both municipal solid waste and special waste volumes disposed and
higher weighted average pricing. Commodity prices received for
recycled materials were significantly greater in the first six months
of the current year than in the comparable period of the prior year.
The favorable profit margin impact of overall higher prices in
recycling services was offset, to some extent, by the significantly
higher costs associated with customer rebates. Increased volumes and
growth from acquisitions also contributed to the improved profitability
margins experienced in recycling services. Increased volumes in the
Company's North American business and, to some extent, increased
pricing are generally reflective of improvement in economic conditions
in many of the markets where the Company conducts it operations. The
domestic collection services business operating margins were almost
flat compared with the first six months of last year. The Company has
noted, however, sequential quarter-to-quarter improvement in operating
profit margins during the current fiscal year. The selective price
increases implemented throughout the commercial collection customer
base, along with cost control and other measures, have enabled the
Company to maintain its operating profit margins in this business type
during the current fiscal year as compared with last year. The Company
plans to continue to selectively increase collection services' prices
throughout the fiscal year. The Company has also initiated minimum
pricing levels on new business. In addition, the Company is continuing
to implement a number of profit improvement initiatives which will
likely span the next two to three years.
Revenues -
Revenues for the six months ended March 31, 1995, were $2.7
billion, a 41.3% 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):
Six Months Ended
----------------------- %
3/31/95 3/31/94 Change
---------- ----------- --------
North American Operations
(including Canada) -
Collection Services - Solid Waste $1,334,510 $1,142,651 16.8%
Disposal and Transfer - Solid Waste
Unaffiliated customers 262,423 215,043 22.0%
Affiliated companies 230,009 175,935 30.7%
---------- ----------
492,432 390,978 25.9%
Medical Waste Services 91,657 80,334 14.1%
Recycling Services 290,201 143,797 101.8%
Services Group and Other 38,552 35,173 9.6%
Elimination of affiliated
companies' revenues (230,009) (175,935) 30.7%
---------- ----------
Total North American Operations 2,017,343 1,616,998 24.8%
International Operations 684,810 295,448 131.8%
---------- ----------
Total Company $2,702,153 $1,912,446 41.3%
========== ==========
As the table below reflects, revenue growth for the six months
ended March 31, 1995 was due largely to acquisitions, although volume
and price increases accounted for a higher percentage of the growth
than has been experienced recently.
Changes in Revenue for
Six Months Ended
March 31,
-----------------------
1995 1994
---------- ----------
Price 6% (1)%
Volume (1) 10 4
Acquisitions 25 12
---- ----
Total Percentage Increase 41% 15%
==== ====
(1) Includes the impact of foreign currency exchange rates.
As shown above, international operations' revenues increased
131.8% and accounted for approximately 49% of the Company's growth in
revenues for the six months ended March 31, 1995, compared with the
same period of the prior year. The acquisition of the 50% interest in
Otto Waste Services in February 1994 and Attwoods in December 1994
accounted for over 75% of the increase in international's revenues.
Otto Waste Services' revenues were $313 million for the six months
ended March 31, 1995 compared with $57 million for the first six months
of the prior year. North American revenues grew 24.8% for the six
months ended March 31, 1995, compared with the first six months of the
prior year. All business lines experienced revenue growth over the
prior year in North America. The disposal and transfer services'
revenues from unaffiliated customers were above the prior year
primarily due to increased volumes and higher weighted average per unit
pricing. Prices for municipal solid waste ("MSW") disposal are
improving at a number of the Company's landfills, particularly in the
midwestern and southern regions of the U.S. Despite the softening of
special waste pricing in many markets, growth in special waste volumes,
which demands a higher price than MSW, is at a faster pace than MSW,
which is favorably affecting weighted average per unit landfill
disposal prices. The collection services business revenues increased
16.8% for the first six months of fiscal 1995 compared with the first
six months of the prior year which accounted for approximately 24% of
the Company's total revenue growth. Acquisitions and increased volumes
in the Company's existing business accounted for over 90% of the
revenue increase in the collection services business. Recycling
revenues increased 101.8% over the same period of the prior year
primarily due to increased commodity prices and, to a lesser extent,
increased volumes and acquisitions. Paper currently represents over
85% of the volume processed by recycling services and pricing for paper
has been very strong. Although paper prices have historically been
very volatile and cyclical, the Company's outlook for the next six
months is that paper prices will continue within the range of prices
experienced during the past six months. It is the Company's goal to
secure long-term contracts with quality paper producers that guarantee
floor prices (typically lower than current commodity prices) in
exchange for guaranteed volumes for the majority of its volumes by the
end of 1995. Medical waste revenues increased 14.1% due to increased
volumes and acquisitions offset partially by lower pricing resulting
from a competitive marketplace.
Cost of Operations -
Cost of operations increased $541 million or 38.9% for the first
six months of fiscal 1995, compared with the same period of the prior
year. Over 55% of this increase in cost of operations is directly
attributable to the acquisitions of Otto Waste Services in February
1994 and Attwoods in December 1994. Disposal costs, which is the
single largest component of cost of operations and includes landfill
and transfer station operating costs, increased 18% in North America
due to acquisitions (excluding Attwoods) and increased volumes. Other
operating costs increased approximately 14% in North America, excluding
Attwoods. The increase in these operating costs in North America is
attributable to acquisitions and to increased volumes, primarily in the
collection and recycling services business areas.
Selling, General and Administrative Expense (SG&A) -
SG&A expense was $401 million for the first six months of fiscal
1995, an increase of 35.6% over the first six months of last year.
SG&A expense as a percent of revenues declined from 15.4% of revenues
for the six months ended March 31, 1994, to 14.8% of revenues for the
six months ended March 31, 1995, as a result of the Company's cost
control efforts. The $105 million increase in SG&A was primarily
related to the Company's acquisition activities, a substantial portion
of which was related to the acquisition of Otto Waste Services in
February 1994 and Attwoods in December 1994.
Net Interest Expense -
Net interest expense increased $32 million or 89.1% for the first
six months of fiscal 1995 compared with the same period of the prior
year, principally as a result of the acquisition and consolidation of
Otto Waste Services in February 1994 and Attwoods in December 1994.
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates increased $10.3
million for the first six months of fiscal 1995, compared with the same
period of the prior year, due principally to improvement in the
earnings of American Ref-Fuel and certain international affiliates and
due to the equity in earnings of unconsolidated affiliates of Otto
Waste Services. The Company acquired a 50% interest in Otto Waste
Services in February 1994. The Company consolidates Otto Waste
Services' financial results, which include equity in earnings of Otto's
unconsolidated affiliates.
Minority Interest in Income of Consolidated Subsidiaries -
The increase in minority interest in income of consolidated
subsidiaries 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 $7.1 million at September 30,
1994, increased to $172.6 million at March 31, 1995. 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 March 1995, the Company issued $300 million of 7 7/8% Senior
Notes ("7 7/8% Notes") which mature on March 15, 2005. Net proceeds
received by the Company from the sale of the 7 7/8% Notes were used to
repay indebtedness associated with the acquisition of Attwoods and
other working capital requirements.
During February and March 1995, the Company borrowed a total of
$160 million under separate senior note agreements with a number of
lending institutions. Interest is payable semi-annually on the senior
notes at rates ranging from 7.5 - 8.0%. The senior notes mature
between December 1997 and March 1998.
In March 1995, Otto Waste Services entered into a five-year
revolving credit facility in the amount of 600 million deutsche mark
with a group of German and international banks. Interest will be
payable on loans under the facility at the Frankfurt Interbank Offered
Rate plus a margin. The agreement requires a facility fee of .45% per
annum (.30% per annum if Otto Waste Services maintains certain net
worth requirements) on the total facility commitment, whether used or
unused. At March 31, 1995, Otto Waste Services had no outstanding
borrowings under this facility.
In April 1995, the Company filed a universal shelf registration
statement with the SEC to provide for the issuance of up to $700
million of securities and, at the same time, amended both its existing
registration statement which provided for the future issuance of up to
$100 million of medium term notes and its remaining universal shelf
registration statement covering the issuance of up to an additional
$149.8 million of securities. As a result, the Company may issue up to
an aggregate initial offering price of $949.8 million of debt, equity
and other types of securities. These securities may be issued at prices
and on terms to be determined at or prior to the time of sale. None of
these securities have been issued to date.
In connection with the acquisition of Attwoods in December 1994,
the Company and three of its subsidiaries entered into a Multicurrency
Revolving Credit Agreement for a total facility equivalent to 500
million pounds sterling. As of March 31, 1995, the Company had repaid
the $550 million in U.S. dollars borrowed under this agreement. See
Notes (3) and (4) of Notes to Consolidated Financial Statements.
Long-term indebtedness (including $446 million of Otto Waste
Services debt, which has not been guaranteed by the Company, and $745
million of Convertible Subordinated Debentures) as a percentage of
total capitalization increased from 38% at September 30, 1994 to 48% at
March 31, 1995, principally as a result of the acquisition of Attwoods.
The capital appropriations budget for fiscal year 1995, excluding
Attwoods, was established at $1.2 billion, in anticipation of
attractive business acquisition and development opportunities to
provide new assets to support planned revenue growth within all
consolidated businesses and to provide for normal replacement capital
needs in the Company's core business. The Company believes that its
cash flows from operations and its access to cash from banks and other
external sources, including the public markets, are more than
sufficient for its current financing needs.
As of March 31, 1995, a number of balance sheet caption amounts
have increased significantly since September 30, 1994, primarily trade
receivables, property and equipment, goodwill, accrued environmental
and landfill costs and long-term debt. The most significant changes in
balance sheet items during the period were principally due to (i)
business combinations, particularly the Attwoods acquisition, (ii)
capital expenditures, (iii) additional indebtedness associated with
business acquisitions, capital spending, dividends and other corporate
requirements and (iv) the net impact of foreign currency translation
which increased the assets and liabilities of the Company when balance
sheet amounts of foreign operations were measured in U.S. dollars.
Except as disclosed herein, there have been no material changes in
the Company's financial condition from that reported at September 30,
1994.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported in its Annual Report on Form 10-K for the year
ended September 30, 1994, and other filings, several class action suits
alleging violations of Section 10(b) and Section 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder had been consolidated
into a lawsuit styled In Re Browning-Ferris Industries, Inc. Securities
Litigation. On March 2, 1995, the United States District Court for the
Southern District of Texas entered a final judgment in favor of the
Company and all individual defendants. On March 31, 1995, the
plaintiffs announced their intention to appeal the final judgment to the
United States Court of Appeals for the Fifth Circuit.
As previously reported in the Company's Annual Report on Form 10-K for
the year ended September 30, 1994, the case of Gary David Harding et.
al. v. Browning-Ferris Industries, Inc., et. al. ("Harding") was filed
in the 229th Judicial District Court of Duval County, Texas on February
28, 1994. The plaintiffs allege that they reside in the vicinity of the
Company's Sinton Landfill located in San Patricio County, Texas and
have sustained personal injuries and other damages from allegedly
contaminated groundwater and other alleged pathways of exposure. The
Company's motion to transfer venue in the litigation back to Nueces
County, Texas, where the lawsuit was first filed, has been denied. The
lawsuit is scheduled for trial as to 32 of the plaintiffs on October 2,
1995. The Company continues to vigorously defend against the
allegations in the litigation.
On April 27, 1995, the Company was notified that an association entitled
Victims of Toxic Exposure intended to file a petition with the Texas
Natural Resources Conservation Commission seeking revocation of the
Company's municipal waste permit for its Sinton Landfill located in
San Patricio County. The association alleges that the Company
misrepresented and violated state and federal law. The Company believes
that many, if not all, of the members of the association are also
plaintiffs in the above-described Harding lawsuit. The Company disputes
the allegations and will contest the petition vigorously.
In addition to the above-described litigation, the Company and certain
subsidiaries are also 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.
27. Financial Data Schedule.
(b) Reports on Form 8-K:
A Report on Form 8-K dated January 24, 1995, as amended on March 2,
1995, was filed pursuant to "Item 2. Acquisition or Disposal of Assets",
whereby the Company described the acquisition of Attwoods plc and filed
certain financial statements of Attwoods plc and pro forma financial
information relating to the transaction.
A Report on Form 8-K dated March 2, 1995 was filed pursuant to
"Item 5. Other Events", whereby the Company filed its unaudited
pro forma consolidated statement of operations for the quarter ended
December 31, 1994.
A Report on Form 8-K dated March 14, 1995 was filed pursuant to
"Item 7. Financial Statements and Exhibits", whereby the Company filed
certain exhibits required in connection with the Company's offering of
7 7/8% Senior Notes due March 15, 2005, which closed on March 15, 1995.
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)
/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
Date: May 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements for the six months ended March 31,
1995 and is qualified in its entirety by reference to such financial statements.
(In thousands except per share data.)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 228,383
<SECURITIES> 0
<RECEIVABLES> 970,804
<ALLOWANCES> (37,080)
<INVENTORY> 63,550
<CURRENT-ASSETS> 1,444,320
<PP&E> 5,738,767
<DEPRECIATION> (2,242,284)
<TOTAL-ASSETS> 7,270,030
<CURRENT-LIABILITIES> 1,271,737
<BONDS> 2,448,755
<COMMON> 35,579
0
0
<OTHER-SE> 2,603,163
<TOTAL-LIABILITY-AND-EQUITY> 7,270,030
<SALES> 0
<TOTAL-REVENUES> 2,702,153
<CGS> 0
<TOTAL-COSTS> 1,931,277
<OTHER-EXPENSES> 387,325
<LOSS-PROVISION> 13,206
<INTEREST-EXPENSE> 67,224
<INCOME-PRETAX> 327,797
<INCOME-TAX> 131,119
<INCOME-CONTINUING> 182,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,379
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
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,
---------------------
1995 1994
-------- --------
Earnings Available for Fixed Charges:
Income before minority interest
and extraordinary item $196,678 $123,347
Income taxes 131,119 82,232
-------- --------
Income before income taxes, minority
interest and extraordinary item 327,797 205,579
Consolidated interest expense 78,162 40,511
Interest expense related to
proportionate share of 50% owned
affiliates 9,764 11,011
Portion of rents representing the
interest factor 14,153 9,314
Less-Equity in earnings of affiliates
less than 50% owned 2,214 165
-------- --------
Total $427,662 $266,250
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $ 82,819 $ 47,049
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned affiliates 9,764 11,011
Portion of rents representing the
interest factor 14,153 9,314
-------- --------
Total $106,736 $ 67,374
======== ========
Ratio of Earnings to Fixed Charges 4.01 3.95
======== ========
