UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 Executive (Zip Code)
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 10, 1995: 212,922,507
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,
---------------------- ----------------------
1995 1994 1995 1994
- ------------------------------------------------------------------------------
Revenues $1,550,083 $1,160,632 $4,252,236 $3,073,078
Cost of operations 1,104,966 842,122 3,036,243 2,232,389
---------- ---------- ---------- ----------
Gross profit 445,117 318,510 1,215,993 840,689
Selling, general and
administrative expense 226,432 163,965 626,963 459,430
---------- ---------- ---------- ----------
Income from operations 218,685 154,545 589,030 381,259
Interest, net 41,784 21,119 109,008 56,664
Equity in earnings of
unconsolidated affiliates (14,910) (10,694) (39,586) (25,104)
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and extra-
ordinary item 191,811 144,120 519,608 349,699
Income taxes 76,724 57,648 207,843 139,880
Minority interest in
income of consolidated
subsidiaries 8,820 5,659 23,119 8,097
---------- ---------- ---------- ----------
Income before
extraordinary item 106,267 80,813 288,646 201,722
Extraordinary item - loss
on early retirement of
debt, net of income tax
benefit of $2,833 -- -- -- 5,263
---------- ---------- ---------- ----------
Net income $ 106,267 $ 80,813 $ 288,646 $ 196,459
========== ========== ========== ==========
Number of common and common
equivalent shares used
in computing earnings
per share 199,636 196,810 198,731 184,309
========== ========== ========== ==========
(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,
---------------------- ----------------------
1995 1994 1995 1994
- ------------------------------------------------------------------------------
Earnings per common and
common equivalent share:
Income before extraordinary
item $ .53 $ .41 $ 1.45 $ 1.10
Extraordinary item -- -- -- (.03)
------- ------- ------- -------
Net income $ .53 $ .41 $ 1.45 $ 1.07
======= ======= ======= =======
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,
1995 1994
(Unaudited)
- ------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 101,398 $ 79,131
Short-term investments 100,225 61,993
Receivables -
Trade, net of allowances for doubtful
accounts of $40,111 and $33,284 899,436 752,686
Other 68,232 60,934
Inventories 61,386 32,811
Deferred income taxes 121,771 114,925
Prepayments and other 103,005 83,613
---------- ----------
Total current assets 1,455,453 1,186,093
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,329,027 and $2,046,604 3,545,147 3,049,767
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$106,605 and $62,527 1,690,242 954,378
Other intangible assets, net of
accumulated amortization of $154,474
and $156,080 120,852 113,059
Deferred income taxes 87,278 97,998
Investments in unconsolidated affiliates 278,446 292,579
Other 85,713 103,081
---------- ----------
Total other assets 2,262,531 1,561,095
---------- ----------
Total assets $7,263,131 $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)
- --------------------------------------------------------------------------
June 30, September 30,
1995 1994
(Unaudited)
- --------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings, including
current portion of long-term debt $ 99,076 $ 49,841
Accounts payable 443,566 400,177
Accrued liabilities -
Salaries and wages 125,435 101,530
Taxes, other than income 38,426 44,129
Other 449,891 373,978
Income taxes 36,295 53,642
Deferred revenues 183,001 155,692
---------- ----------
Total current liabilities 1,375,690 1,178,989
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 577,843 529,501
Deferred income taxes 62,935 78,678
Other 246,497 159,478
---------- ----------
Total deferred items 887,275 767,657
---------- ----------
LONG-TERM DEBT, net of current portion 1,533,124 713,680
---------- ----------
CONVERTIBLE SUBORDINATED DEBENTURES 744,944 744,949
---------- ----------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,440,672 and
197,084,755 shares issued 35,581 32,854
Additional paid-in capital 1,928,211 1,351,919
Retained earnings 1,297,614 1,009,132
Treasury stock, 469,548 and 743,497
shares, at cost (4,575) (2,225)
Stock and Employee Benefit Trust,
14,853,703 shares (534,733) --
---------- ----------
Total common stockholders' equity 2,722,098 2,391,680
---------- ----------
Total liabilities and common
stockholders' equity $7,263,131 $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)
- ----------------------------------------------------------------------------
Nine Months Ended
June 30,
------------------------
1995 1994
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item $ 288,646 $ 201,722
---------- ---------
Adjustments to reconcile income before
extraordinary item to net cash provided
by operating activities:
Depreciation and amortization -
Property and equipment 348,526 289,720
Goodwill 30,147 12,941
Other intangible assets 22,560 24,125
Deferred income tax expense (benefit) 30,528 (224)
Amortization of deferred investment tax credit (530) (530)
Provision for losses on accounts receivable 19,957 16,878
Gains on sales of fixed assets (7,447) (3,957)
Equity in earnings of unconsolidated
affiliates, net of dividends received (18,755) (4,827)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 19,378 8,097
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions -
Trade receivables (28,424) (77,555)
Inventories (15,769) (1,429)
Other assets 17,008 274
Other liabilities (13,185) 19,096
---------- ---------
Total adjustments 403,994 282,609
---------- ---------
Net cash provided by operating activities 692,640 484,331
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (615,646) (469,766)
Payments for businesses acquired (735,208) (352,313)
Investments in unconsolidated affiliates (33,301) (19,890)
Proceeds from disposition of assets 173,566 18,778
Purchases of short-term investments (37,546) --
Sales of short-term investments 201,924 168,015
Return of investment in unconsolidated
affiliates 28,085 17,766
---------- ---------
Net cash used in investing activities (1,018,126) (637,410)
---------- ---------
(Continued on following page)
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
- ----------------------------------------------------------------------------
Nine Months Ended
June 30,
------------------------
1995 1994
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 13,791 448,231
Proceeds from issuance of indebtedness 914,705 58,242
Repayments of indebtedness (483,059) (225,064)
Dividends paid (100,469) (89,638)
---------- ---------
Net cash provided by financing
activities 344,968 191,771
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES 2,785 74
---------- ---------
NET INCREASE IN CASH 22,267 38,766
CASH AT BEGINNING OF PERIOD 79,131 22,871
---------- ---------
CASH AT END OF PERIOD $ 101,398 $ 61,637
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 92,230 $ 59,658
Income taxes $ 191,781 $ 142,555
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):
Nine Months Ended
June 30,
--------------------
1995 1994
------- -------
Common shares outstanding, end of period 212,971 195,953
Less - Shares held in the Stock and Employee
Benefit Trust (14,854) --
------- -------
Common shares outstanding for purposes of
computing primary earnings per share,
end of period 198,117 195,953
Effect of using weighted average common
and common equivalent shares outstanding (774) (12,622)
Effect of shares issuable under stock option
plans based on the treasury stock method 1,388 978
------- -------
Shares used in computing earnings per share 198,731 184,309
======= =======
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, the Company's 6 1/4%
Convertible Subordinated Debentures (the "6 1/4% Debentures") due 2012
and the 7.25% Automatic Common Exchange Securities. The effect of the
6 1/4% Debentures on earnings per share was not significant or was not
dilutive for each of the periods presented and, accordingly, has not
been included in the computations. The 7.25% Automatic Common Exchange
Securities had no effect on the computations for the periods presented.
(3) Business Combinations -
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
that it did not own and certain additional preference shares during the
second quarter of fiscal 1995. The Company paid approximately $580
million (in pounds sterling except where requested to pay U.S. dollars
by individual shareholders) to acquire the ordinary and convertible
preference shares of Attwoods as discussed above. Additionally, during
the second quarter of fiscal 1995, the Company redeemed the remaining
outstanding convertible preference shares. In connection with the
acquisition, the Company sold in June 1995 the portable sanitation and
accommodation business of Attwoods in continental Europe, primarily
Germany. As a result of this transaction, the Company received 80.5
million in deutsche mark (U.S. $56.8 million) and may receive up to 2.7
million in deutsche mark (U.S. $1.9 million) in future contingent
payments. The Attwoods acquisition has been accounted for as a
purchase.
In addition to the Attwoods transaction, during the current fiscal
year, the Company paid approximately $202.7 million (including
liabilities assumed and additional amounts payable to former owners of
$55.3 million and 176,444 shares of the Company's common stock valued at
$5.2 million) to acquire 74 solid waste businesses. These businesses
were accounted for as purchases and included the acquisition of the
remaining 50% ownership interest outstanding of Servizi Industriali
S.r.l., its 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 that
met the criteria to be accounted for as a pooling-of-
interests. As the effect of this business combination was not
significant, prior period financial statements were not restated.
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):
Nine Months Ended
June 30,
---------------------------
1995 1994
(Unaudited) (Unaudited)
----------- -----------
Pro forma revenues $4,405,278 $3,785,086
Pro forma income before
extraordinary item $ 289,586 $ 199,001
Pro forma net income $ 289,586 $ 193,738
Pro forma income per common
and common equivalent share -
Income before extraordinary
item $ 1.46 $ 1.05
Net income $ 1.46 $ 1.02
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 June 30, 1995, and September 30, 1994, was as
follows (in thousands):
June 30, September 30,
1995 1994
------------ -------------
Senior indebtedness:
7 7/8% Senior Notes, net of
unamortized discount of $898 $ 299,102 $ --
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond obligations 114,067 114,031
Other notes payable 538,001 366,145
---------- ---------
1,051,170 580,176
---------- ---------
Commercial paper and short-term
facilities to be refinanced 531,030 183,345
---------- ---------
Total long-term debt 1,582,200 763,521
Less current portion 49,076 49,841
---------- ---------
Long-term debt, net of current portion $1,533,124 $ 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 June 30, 1995, Otto Waste Services had outstanding borrowings under
this facility of 140 million deutsche mark (approximately U.S. $101.3
million).
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. Prior to March 31, 1995, the
Company had repaid the $550 million in U.S. dollars borrowed during
December 1994. Interest was payable on this indebtedness at an average
interest rate of approximately 6.5%. At June 30, 1995, distributions
from retained earnings could not exceed $1.16 billion under this net
worth maintenance requirement (the covenant of the Company's debt
agreements which is most restrictive regarding dividends).
During May 1995, the Company modified the terms of its existing
bank credit agreement, extending the maturity of the facility from
August 1996 to May 2000. The agreement continues to provide total
committed credit capacity of $1 billion and requires that a facility fee
of .1% per annum be paid on the total commitment, whether used or
unused. Additionally, the net worth requirement under the agreement has
been modified and the terms restricting the incurrence or assumption of
additional debt under certain circumstances were deleted. At June 30,
1995, the Company had no outstanding borrowings under this bank credit
agreement.
It is the Company's intention to refinance certain commercial paper
balances and other outstanding borrowings 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 such commercial
paper balances and other outstanding borrowings classified as long-term
debt as of June 30, 1995 and September 30, 1994 is as follows (amounts
in thousands):
June 30, September 30,
1995 1994
---------- -------------
United States -
Commercial paper $ 260,306 $ 43,482
Other 100,444 --
---------- ---------
Total United States 360,750 43,482
Germany 170,280 139,863
---------- ---------
$ 531,030 $ 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
provide the Company the option to use the Trust to fund future payments
under existing employee compensation and benefit plans as well as other
general corporate purposes for which common stock might be issued.
Shares issued to the Trust are valued at market and reflected as a
reduction of common stockholders' equity in the balance sheet.
(6) Automatic Common Exchange Securities -
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 statements which provided for the future issuance of up to
$100 million of debt securities 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.
In July 1995, the Company utilized the above universal shelf
registration statement through issuance to the public of 11,499,200
7.25% Automatic Common Exchange Securities with a stated amount of
$35.625 per security ($409.7 million in total). Each security consists
of (a) a purchase contract under which (i) the holder will purchase from
the Company on June 30, 1998 (earlier under certain circumstances), for
an amount in cash equal to the stated amount of $35.625, between .8333
of a share (in total approximately 9.6 million shares) and one share (a
maximum of 11,499,200 shares) of the Company's common stock (depending
on the then market value of the common stock) and (ii) the Company will
pay the holder contract fees at the rate of 2.125% per annum on the
security, and (b) 5.125% United States Treasury Notes having a principal
amount equal to $35.625 and maturing on June 30, 1998. The Treasury
Notes underlying these securities are pledged as collateral to secure
the holder's obligation to purchase the Company's common stock under the
purchase contract. The principal of the Treasury Notes underlying such
securities, when paid at maturity, will automatically be applied to
satisfy in full the holder's obligation to purchase the Company's common
stock. These securities are not included on the Company's balance
sheet; an increase in common stockholders' equity will be reflected when
cash proceeds are received by the Company.
(7) 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
appealed 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 nine months of fiscal year 1995 was $288.6
million, an increase of $92.2 million (46.9%) from the $196.5 million
reported for the first nine 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 $86.9
million (43.1%) greater than the $201.7 million reported for the first
nine months of last year. This improvement was driven by the Company's
North American collection, landfill and recycling operations and its
international operations and reflected growth attributable to
acquisitions, including Attwoods. Higher commodity prices, coupled with
volume and acquisition growth, were responsible for improved earnings in
the recycling business. International earnings were higher than for the
first nine 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. Further, the Company's ability to control the
growth in selling, general and administrative expenses while increasing
revenues at a faster pace also contributed to the increase in net income
for the nine months ended June 30, 1995, 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 that 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
sold in June 1995 the portable sanitation and accommodation business of
Attwoods in continental Europe, primarily Germany. As a result of this
transaction, the Company received 80.5 million in deutsche mark (U.S.
$56.8 million) and may receive up to 2.7 million in deutsche mark (U.S.
$1.9 million) in future contingent payments. 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.
Nine Months Ended
------------------- Year Ended
6/30/95 6/30/94 9/30/94
-------- -------- ----------
Profitability Margins:
Gross profit margin 28.6% 27.4% 27.6%
Income from operations 13.9% 12.4% 12.6%
Income before income taxes,
minority interest and
extraordinary item 12.2% 11.4% 11.6%
Income before extraordinary item 6.8% 6.6% 6.6%
Net income 6.8% 6.4% 6.5%
Ratio of earnings to fixed charges 4.13 4.32 4.25
The nine months ended June 30, 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 North American recycling and international businesses as well as
the Company's ability to control the growth in selling, general and
administrative costs while achieving even greater revenue growth. In
North America, commodity prices received for recycled materials were
significantly greater in the first nine months of the current year than
in the comparable period of the prior year. The favorable profit margin
impact of overall higher prices in domestic recycling services was
offset, to some extent, by the significantly higher customer credits.
Customer credits represent either reductions in billings or payments to
certain of the Company's customers associated with the value of their
recyclable materials. Growth from acquisitions and increased volumes,
despite increased competition, also contributed to the improved
profitability margins experienced in recycling services. The average
market prices for corrugated, office paper and newspaper declined in the
month of June from historic highs and the average price of these
commodities may be lower during the fourth quarter. Future volume
demands, cost management and reduced customer commodity credits are
expected to mitigate the impact of any further commodity price declines
on recycling services profitability. Operating profit margins declined
slightly at the Company's domestic landfills in the current year,
principally as a result of higher depreciation and amortization costs at
certain of the Company's landfills and unusually high legal costs during
the third quarter of the current year. The gross profit margin for the
domestic collection services business was slightly up compared with the
first nine months of last year while the domestic collection operating
profit margins other than the gross profit margin were almost flat with
the first nine months of last year. The selective price increases
implemented throughout the commercial collection customer base, along
with cost control and other measures, have affected favorably the
operating profit margins in this business type during the current fiscal
year. The Company plans to continue to selectively increase collection
services' prices throughout the remainder of the fiscal year and into
next year. In addition, the Company is continuing to implement a number
of profit improvement initiatives which will likely span the next two to
three years. In the international business area, operating profit
margins have been favorably affected by the acquisition of Otto Waste
Services in February 1994 and improved results in the Netherlands where
results have been impacted positively
by pricing improvement programs, cost control initiatives and
acquisitions, including Attwoods.
Revenues -
Revenues for the nine months ended June 30, 1995, were $4.3
billion, a 38.4% increase over the same period last year. The following
table reflects total revenues of the Company by each of the principal
lines of business (dollar amounts in thousands):
Nine Months Ended
----------------------- %
6/30/95 6/30/94 Change
---------- ----------- --------
North American Operations
(including Canada) -
Collection Services - Solid Waste $2,047,335 $1,743,851 17.4%
Disposal and Transfer - Solid Waste
Unaffiliated customers 402,386 347,633 15.8%
Affiliated companies 356,634 279,699 27.5%
---------- ----------
759,020 627,332 21.0%
Recycling Services 500,923 247,454 102.4%
Medical Waste Services 139,839 120,044 16.5%
Services Group and Other 60,088 59,032 1.8%
Elimination of affiliated
companies' revenues (356,634) (279,699) 27.5%
---------- ----------
Total North American Operations 3,150,571 2,518,014 25.1%
International Operations 1,101,665 555,064 98.5%
---------- ----------
Total Company $4,252,236 $3,073,078 38.4%
========== ==========
As the table below reflects, revenue growth for the nine months
ended June 30, 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
Nine Months Ended
June 30,
-----------------------
1995 1994
---------- ----------
Price 7% (1)%
Volume (1) 10 6
Acquisitions 21 15
---- ----
Total Percentage Increase 38% 20%
==== ====
(1) Includes the impact of foreign currency exchange rates.
As shown above, North American revenues grew 25.1% for the nine
months ended June 30, 1995, compared with the first nine 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 higher weighted average per unit pricing and increased volumes.
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, special waste volumes, which demand a higher
price than MSW, represent a higher percentage of total volumes for the
first nine months of the current year than for the same period last
year, which is favorably affecting weighted average per unit landfill
disposal prices. Many of the new landfill sites which opened during the
last 12-24 months have experienced relatively rapid rates of growth
which is typical during the initial phase of a landfill's operations.
The rate of growth from these sites will slow in the future. Further,
landfill volumes are being affected by the diversion of volumes to
recycling facilities. The Company does not expect total volumes in its
landfill operations to vary significantly during the fourth quarter from
volumes disposed in the third quarter. The collection services business
revenues increased 17.4% for the first nine months of fiscal 1995
compared with the first nine months of the prior year which accounted
for approximately 26% of the Company's total revenue growth. The
Attwoods acquisition, other domestic 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 102.4% 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 approximately 85% of the
volume processed by recycling services and pricing for paper has been
very strong. Paper prices have historically been cyclical. The average
market prices for corrugated, office paper and newspaper declined in the
month of June from historic highs and the average price for these
commodities may be lower during the fourth quarter. 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 16.5% due to
increased volumes and acquisitions offset partially by lower pricing
resulting from a competitive marketplace.
International operations' revenues increased 98.5% and accounted
for approximately 46% of the Company's growth in revenues for the nine
months ended June 30, 1995, compared with the same period of the prior
year. Acquisitions, including the acquisition of the 50% interest in
Otto Waste Services in February 1994 and Attwoods in December 1994,
accounted for over 70% of the increase in international's revenues. The
Company reflected revenues from Otto Waste Services of $507 million for
the nine months ended June 30, 1995 compared with $182 million for the
first nine months of the prior year.
Cost of Operations -
Cost of operations increased $804 million or 36.0% for the first
nine months of fiscal 1995, compared with the same period of the prior
year. A significant portion 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 as well as other acquisition
activities. Disposal costs, which is the single largest component of
cost of operations and includes landfill and transfer station operating
costs, increased 23% in North America due principally to acquisitions
and increased volumes. Other operating costs increased approximately
21% in North America. The increase in these operating costs in North
America is attributable largely 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 $627 million for the first nine months of fiscal
1995, an increase of 36.5% over the first nine months of last year.
SG&A expense as a percent of revenues declined from 15.0% of revenues
for the nine months ended June 30, 1994, to 14.7% of revenues for the
nine months ended June 30, 1995, as a result of pricing-driven revenue
increases (principally in recycling services) and the Company's cost
control efforts. The $168 million increase in SG&A was primarily
related to higher goodwill amortization and other costs associated with
the Company's acquisition activities, a substantial portion of which
were related to the acquisition of Otto Waste Services in February 1994
and Attwoods in December 1994. These expenses also increased as a
result of the impact of foreign currency translation of overseas SG&A
costs and unusually high legal costs experienced during the third
quarter of the current year.
Net Interest Expense -
Net interest expense increased $52 million or 92.4% for the first
nine 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 $14
million for the first nine 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 and due to higher
earnings reported by Otto Waste Services during the current year over
last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital of $7.1 million at September 30,
1994, increased to $79.8 million at June 30, 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 June 30, 1995, Otto Waste Services had outstanding borrowings under
this facility of 140 million in deutsche mark (approximately U.S. $101.3
million).
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 debt securities 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. In July
1995, the Company utilized this universal shelf registration statement
through issuance to the public of 11,499,200 7.25% Automatic Common
Exchange Securities with a stated amount of $35.625 per security ($409.7
million in total). Each security consists of (a) a purchase contract
under which (i) the holder will purchase from the Company on June 30,
1998 (earlier under certain circumstances), for an amount in cash equal
to the stated amount of $35.625, between .8333 of a share (in total
approximately 9.6 million shares) and one share (a maximum of 11,499,200
shares) of the Company's common stock (depending on the then market
value of the common stock) and (ii) the Company will pay the holder
contract fees at the rate of 2.125% per annum on the security, and (b)
5.125% United States Treasury Notes having a principal amount equal to
$35.625 and maturing on June 30, 1998. The Treasury Notes
underlying these securities are pledged as collateral to secure the
holder's obligation to purchase the Company's common stock under the
purchase contract. The principal of the Treasury Notes underlying such
securities, when paid at maturity, will automatically be applied to
satisfy in full the holder's obligation to purchase the Company's common
stock.
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 $460 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 46% at June
30, 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 June 30, 1995, a number of balance sheet caption amounts have
increased significantly since September 30, 1994, primarily trade
receivables, property and equipment, goodwill, other accrued
liabilities, accrued environmental and landfill costs, other deferred
items 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
On January 2, 1995, Region IX of the United States Environmental
Protection Agency ("EPA")issued a Finding and Notice of Violation to BFI
Medical Waste Systems of Arizona, Inc. ("BFI Medical Waste"), a subsidiary
of the Company, for alleged opacity and permit violations at a medical
waste incinerator BFI Medical Waste operates in Maricopa County, Arizona.
The EPA may seek penalties of up to $25,000 per day for each violation.
Although the Company has been negotiating settlement of this matter with
the EPA, management is currently unable to determine whether the ultimate
monetary sanction will exceed $100,000.
As previously reported in the Company's 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. The plaintiffs have appealed
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, and other filings, a case styled Gary David
Harding et. al. v. Browning-Ferris Industries, Inc., et. al. was pending
in the 229th Judicial District Court of Duval County, Texas. The Company
and the plaintiffs have agreed to settle this litigation. The settlement
agreement, which will require court approval since certain of the
plaintiffs are minors, is expected to be finalized within the next few
months. This settlement will also result in the withdrawal of the
petition filed with the Texas Natural Resources Conservation Commission by
the association entitled Victims of Toxic Exposure, as previously reported
in the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
As previously reported in the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1994, a subsidiary of the Company was
assessed a penalty by the New Jersey Department of Environmental
Protection and Energy ("NJDEPE") for operating a transfer station with an
expired permit and for violating capacity limitations. On June 9, 1995,
the Company agreed to settle this and certain other matters that were
before the NJDEPE by payment of a monetary penalty.
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: 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 hereunto duly authorized.
BROWNING-FERRIS INDUSTRIES, INC.
(Company)
/s/ David R. Hopkins
--------------------------------
David R. Hopkins
Vice President, Controller and
Chief Accounting Officer
Date: August 11, 1995
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,
--------------------
1995 1994
-------- --------
Earnings Available for Fixed Charges:
Income before minority interest
and extraordinary item $311,765 $209,819
Income taxes 207,843 139,880
-------- --------
Income before income taxes, minority
interest and extraordinary item 519,608 349,699
Consolidated interest expense 118,524 62,753
Interest expense related to
proportionate share of 50% owned
affiliates 14,537 16,497
Portion of rents representing the
interest factor 22,910 14,191
Less-Equity in earnings of affiliates
less than 50% owned 1,338 254
-------- --------
Total $674,241 $442,886
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $125,519 $ 71,950
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned affiliates 14,901 16,497
Portion of rents representing the
interest factor 22,910 14,191
-------- --------
Total $163,330 $102,638
======== ========
Ratio of Earnings to Fixed Charges 4.13 4.32
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements for the nine months ended June 30,
1995 and is qualified in its entirety by reference to such financial statements.
(In thousands except per share data.)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 201,623
<SECURITIES> 0
<RECEIVABLES> 1,007,779
<ALLOWANCES> (40,111)
<INVENTORY> 61,386
<CURRENT-ASSETS> 1,455,453
<PP&E> 5,874,174
<DEPRECIATION> (2,329,027)
<TOTAL-ASSETS> 7,263,131
<CURRENT-LIABILITIES> 1,375,690
<BONDS> 2,278,068
<COMMON> 35,581
0
0
<OTHER-SE> 2,686,517
<TOTAL-LIABILITY-AND-EQUITY> 7,263,131
<SALES> 0
<TOTAL-REVENUES> 4,252,236
<CGS> 0
<TOTAL-COSTS> 3,036,243
<OTHER-EXPENSES> 607,006
<LOSS-PROVISION> 19,957
<INTEREST-EXPENSE> 109,008
<INCOME-PRETAX> 519,608
<INCOME-TAX> 207,843
<INCOME-CONTINUING> 288,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288,646
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.45
</TABLE>
