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 December 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 Identification No.)
incorporation or organization)
757 N. Eldridge
Houston, Texas 77079
(Address of principal Executive Offices) (Zip Code)
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 February 8, 1996: 212,666,765
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
----------------------------------------------------------------------
Three Months Ended
December 31,
--------------------------
1995 1994
----------------------------------------------------------------------
Revenues $1,430,781 $1,292,787
Cost of operations 1,048,105 924,970
---------- ----------
Gross profit 382,676 367,817
Selling, general and
administrative expense 208,514 190,506
---------- ----------
Income from operations 174,162 177,311
Interest, net 40,977 26,432
Equity in earnings of
unconsolidated affiliates (12,110) (11,646)
---------- ----------
Income before income taxes
and minority interest 145,295 162,525
Income taxes 58,118 65,010
Minority interest in
income of consolidated
subsidiaries 4,167 7,945
---------- ----------
Net income $ 83,010 $ 89,570
========== ==========
Number of common and common
equivalent shares used
in computing earnings
per share 199,878 197,809
========== ==========
Earnings per common and
common equivalent share $ .42 $ .45
======= =======
Cash dividends per
common share $ .17 $ .17
======= =======
The accompanying notes are an integral part of these financial statements.
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
- ------------------------------------------------------------------------
December 31, September 30,
1995 1995
(Unaudited)
- ------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 117,602 $ 92,808
Short-term investments 124,762 104,761
Receivables -
Trade, net of allowances for doubtful
accounts of $39,886 and $39,777 901,648 926,791
Other 52,944 57,015
Inventories 57,646 50,090
Deferred income taxes 95,139 116,871
Prepayments and other 78,175 73,959
---------- ----------
Total current assets 1,427,916 1,422,295
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,484,839 and $2,395,795 3,837,558 3,722,292
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$128,049 and $116,369 1,783,349 1,768,391
Other intangible assets, net of
accumulated amortization of $138,297
and $142,780 114,550 116,303
Deferred income taxes 111,690 78,689
Investments in unconsolidated affiliates 282,744 272,205
Other 76,111 80,197
---------- ----------
Total other assets 2,368,444 2,315,785
---------- ----------
Total assets $7,633,918 $7,460,372
========== ==========
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)
- --------------------------------------------------------------------------
December 31, September 30,
1995 1995
(Unaudited)
- --------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 75,123 $ 62,463
Accounts payable 422,408 515,304
Accrued liabilities -
Salaries and wages 95,225 122,656
Taxes, other than income 42,458 41,960
Other 466,243 434,855
Income taxes 95,856 53,045
Deferred revenues 186,540 184,045
---------- ----------
Total current liabilities 1,383,853 1,414,328
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 571,497 568,644
Deferred income taxes 105,936 104,645
Other 239,662 220,257
---------- ----------
Total deferred items 917,095 893,546
---------- ----------
LONG-TERM DEBT, net of current portion 1,805,869 1,665,804
---------- ----------
CONVERTIBLE SUBORDINATED DEBENTURES 744,944 744,944
---------- ----------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,433,857 and
213,440,672 shares issued 35,579 35,581
Additional paid-in capital 1,789,491 1,806,482
Retained earnings 1,356,307 1,323,169
Treasury stock, 995,763 and 1,001,407
shares, at cost (10,451) (10,494)
Stock and Employee Benefit Trust,
13,234,705 and 13,596,325 shares (388,769) (412,988)
---------- ----------
Total common stockholders' equity 2,782,157 2,741,750
---------- ----------
Total liabilities and common
stockholders' equity $7,633,918 $7,460,372
========== ==========
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)
- ----------------------------------------------------------------------------
Three Months Ended
December 31,
------------------------
1995 1994
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 83,010 $ 89,570
---------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization -
Property and equipment 125,630 111,641
Goodwill 11,934 8,191
Other intangible assets 8,009 7,069
Deferred income tax expense 4,930 6,596
Amortization of deferred investment tax credit (177) (176)
Provision for losses on accounts receivable 6,045 6,852
Gains on sales of fixed assets (835) (1,801)
Equity in earnings of unconsolidated
affiliates, net of dividends received (10,345) (11,646)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 4,167 7,945
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions -
Trade receivables 28,300 (11,165)
Inventories (3,945) (5,995)
Other assets 11,545 7,269
Other liabilities (76,098) (29,444)
---------- ---------
Total adjustments 109,160 95,336
---------- ---------
Net cash provided by operating activities 192,170 184,906
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (249,816) (199,128)
Payments for businesses acquired (40,344) (597,593)
Investments in unconsolidated affiliates (4,816) (5,765)
Proceeds from disposition of assets 24,195 44,045
Purchases of short-term investments (18,960) (13,909)
Sales of short-term investments -- 102,391
Return of investment in unconsolidated
affiliates 8,018 12,965
---------- ---------
Net cash used in investing activities (281,723) (656,994)
---------- ---------
(Continued on following page)
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
- ----------------------------------------------------------------------------
Three Months Ended
December 31,
------------------------
1995 1994
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 1,668 3,625
Proceeds from issuance of indebtedness 179,522 575,795
Repayments of indebtedness (32,952) (66,028)
Dividends paid (33,796) (33,362)
---------- ---------
Net cash provided by financing
activities 114,442 480,030
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES (95) 274
---------- ---------
NET INCREASE IN CASH 24,794 8,216
CASH AT BEGINNING OF PERIOD 92,808 79,131
---------- ---------
CASH AT END OF PERIOD $ 117,602 $ 87,347
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 18,953 $ 18,914
Income taxes $ 10,318 $ 48,832
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, 1995, as filed with the Securities and
Exchange Commission.
Certain reclassifications have been made in prior year
financial statements to conform to the current year presentation.
(2) Earnings Per Common Share -
The following table reconciles the number of common shares
outstanding with the number of common and common equivalent shares
used in computing primary earnings per share (in thousands):
Three Months Ended
December 31,
--------------------
1995 1994
------- -------
Common shares outstanding, end of period 212,438 197,208
Less - Shares held in the Stock and
Employee Benefit Trust (13,235) --
------- -------
Common shares outstanding for purposes
of computing primary earnings per
share, end of period 199,203 197,208
Effect of using weighted average common
and common equivalent shares outstanding (179) (485)
Effect of shares issuable under stock
option plans based on the treasury
stock method 854 1,086
------- -------
Shares used in computing earnings
per share 199,878 197,809
======= =======
Shares of common stock held in the Stock and Employee Benefit
Trust (the "Trust") are not considered to be outstanding in the
computation of common shares outstanding until the shares are
utilized at the Company's option for the purposes for which the
Trust was established.
The difference between shares for primary and fully diluted
earnings per share was not significant in any period. Conversion
of the 6 3/4% Convertible Subordinated Debentures due 2005, which
were determined not to be common stock equivalents, was not assumed
in the computation of fully diluted earnings per share because the
debentures had an anti-dilutive effect.
Earnings per common and common equivalent share were computed
by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during each
period. Common stock equivalents include stock options, the
Company's 6 1/4% Convertible Subordinated Debentures due 2012 (the
"6 1/4% Debentures") and the 7.25% Automatic Common Exchange
Securities. The effect of the 6 1/4% Debentures on earnings per
share 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 -
During the current fiscal year, the Company paid approximately
$69.7 million (including liabilities assumed and additional amounts
payable to former owners of $29.0 million) to acquire 31 solid
waste businesses, which were accounted for as purchases. The
results of these business combinations are not material to the
Company's consolidated results of operations or financial position.
On December 2, 1994, the Company acquired majority control of
Attwoods plc ("Attwoods"), which was a provider of waste services
operating principally in the United States, the United Kingdom, the
Caribbean and mainland Europe (primarily Germany) and also had
mineral extraction operations in the United Kingdom. The Company
increased its ownership from 56.6% of the outstanding ordinary
shares (including ordinary shares represented by American
Depository Shares) and 80.8% of the convertible preference shares
of Attwoods (Finance) N.V., a finance subsidiary of Attwoods, at
December 2, 1994 to 94.4% of the outstanding shares and 83.2% of
the convertible preference shares as of December 31, 1994. The
Company acquired the remaining ordinary shares that it did not own
and certain additional preference shares during the second quarter
of fiscal 1995. The Company paid approximately $580 million (in
pounds sterling except where requested to pay U.S. dollars by
individual shareholders) to acquire the ordinary and convertible
preference shares of Attwoods as discussed above. Additionally,
during the second quarter of fiscal 1995, the Company redeemed the
remaining outstanding convertible preference shares. In connection
with the acquisition, the Company sold in June 1995 the portable
sanitation and accommodation business of Attwoods in continental
Europe, primarily Germany. As a result of this transaction, the
Company reduced the purchase price of this acquisition by the 80.5
million in deutsche mark (U.S. $56.8 million) received and will
further adjust the purchase price for the 1.1 million in deutsche
mark (U.S. $700,000) in contingent payments received subsequent to
December 31, 1995. The Attwoods acquisition has been accounted for
as a purchase.
In addition to the Attwoods transaction, during the prior
fiscal year, the Company paid approximately $258.6 million
(including liabilities assumed and additional amounts payable to
former owners of $76.5 million and 262,948 shares of the Company's
common stock valued at $8.1 million) to acquire 102 solid waste
businesses. These businesses were accounted for as purchases and
included the acquisition of the remaining 50% ownership interest
outstanding of Servizi Industriali S.r.l., its 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.
The results of all businesses acquired in fiscal years 1996
and 1995 have been included in the consolidated financial
statements from the dates of acquisition. In allocating purchase
price, the assets acquired and liabilities assumed in connection
with 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
concerning the valuation of such assets and liabilities becomes
available. As a result, the financial information included in the
Company's consolidated financial statements is subject to
adjustment prospectively as subsequent revisions in estimates of
fair value, if any, are necessary.
The Company's consolidated results of operations on an
unaudited pro forma basis for the first three months of the prior
fiscal year, as though the businesses acquired during fiscal year
1995 had been acquired on October 1, 1994, are as follows (in
thousands, except per share amounts):
Three Months Ended
December 31, 1994
---------------------------
Pro forma revenues $1,435,651
Pro forma net income $ 90,052
Pro forma earnings per common
and common equivalent share $.45
These pro forma results are presented for informational
purposes only and do not purport to show the actual results which
would have occurred had the business combinations been consummated
on October 1, 1994, nor should they be viewed as indicative of
future results of operations.
(4) Long-Term Debt -
Long-term debt at December 31, 1995, and September 30, 1995,
was as follows (in thousands):
December 31, September 30,
1995 1995
------------ -------------
Senior indebtedness:
7.40% Debentures, net of
unamortized discount of
$2,122 and $2,136 $ 397,878 $ 397,864
7 7/8% Senior Notes, net of
unamortized discount of $852
and $875 299,148 299,125
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond
obligations 124,091 114,079
Other notes payable 602,550 585,211
---------- ----------
1,523,667 1,496,279
Commercial paper and short-term
facilities to be refinanced 357,325 231,988
---------- ----------
Total long-term debt 1,880,992 1,728,267
Less current portion 75,123 62,463
---------- ----------
Long-term debt, net of current
portion $1,805,869 $1,665,804
========== ==========
It is the Company's intention to refinance certain commercial
paper balances and other outstanding borrowings classified as long-
term debt through the use of existing committed long-term bank
credit agreements in the event that alternative long-term
refinancing is not arranged. A summary by country of such
commercial paper balances and other outstanding borrowings
classified as long-term debt as of December 31, 1995 and September
30, 1995 is as follows (amounts in thousands):
December 31, September 30,
1995 1995
------------ -------------
United States -
Commercial paper $153,685 $ 34,317
Germany 203,640 197,671
--------- ---------
$357,325 $ 231,988
========= =========
As of December 31, 1995, distributions from retained earnings
could not exceed $1.17 billion under the most restrictive of the
Company's net worth maintenance requirements.
(5) Commitments and Contingencies -
Legal Proceedings.
The Company and certain subsidiaries are involved in various
administrative matters or litigation, including personal injury and
other civil actions, as well as other claims and disputes that
could result in additional litigation or other adversary
proceedings.
While the final resolution of any matter may have an impact on
the Company's consolidated financial results for a particular
quarterly or annual reporting period, management believes that the
ultimate disposition of these matters will not have a materially
adverse effect upon the consolidated financial position of the
Company.
Environmental Proceedings.
California judicial and regulatory authorities suspended the
Company's ability to accept decomposable household waste at certain
portions of its Azusa, California landfill in January 1991. The
Company has continued to use the facility for the disposal of
primarily inert waste. Since January 1991, the Company has sought
and received the ability to dispose of certain additional non-
municipal solid waste streams at the facility. The Company's
ability to continue to accept decomposable household waste in a
portion of the landfill is dependent on the satisfaction of certain
technical requirements mandated by California authorities. The
ultimate realization of the Company's investment of approximately
$100 million is dependent upon continued disposal of current and
future acceptable waste streams while continuing to pursue all
possible alternative uses of the property to maximize its value.
The Company and certain subsidiaries are involved in various
other environmental matters or proceedings, including original or
renewal permit application proceedings in connection with the
establishment, operation, expansion, closure and post-closure
activities of certain landfill disposal facilities, and proceedings
relating to governmental actions resulting from the involvement of
various subsidiaries of the Company with certain waste sites
(including Superfund sites), as well as other matters or claims
that could result in additional environmental proceedings.
While the final resolution of any matter may have an impact on
the Company's consolidated financial results for a particular
quarterly or annual reporting period, management believes that the
ultimate disposition of these matters will not have a materially
adverse effect upon the consolidated financial position of the
Company.
(6) Automatic Common Exchange Securities -
In July 1995, the Company issued to the public 11,499,200
7.25% Automatic Common Exchange Securities with a stated amount of
$35.625 per security ($409.7 million in total). Each security
consists of (1) a purchase contract under which (a) the holder will
purchase from the Company on June 30, 1998 (earlier under certain
circumstances), for an amount in cash equal to the stated amount of
$35.625, between .8333 of a share (in total approximately 9.6
million shares) and one share (a maximum of 11,499,200 shares) of
the Company's common stock (depending on the then market value of
the common stock) and (b) the Company will pay the holder contract
fees at the rate of 2.125% per annum on the security, and (2)
5.125% United States Treasury Notes having a principal amount equal
to $35.625 and maturing on June 30, 1998. The Treasury Notes
underlying these securities are pledged as collateral to secure the
holder's obligation to purchase the Company's common stock under
the purchased 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) Subsequent Events -
On January 2, 1996, the Company announced that its $400
million 6 3/4% Convertible Subordinated Debentures due 2005 and its
$345 million 6 1/4% Convertible Subordinated Debentures due 2012
("the Debentures") were being called for redemption. The
redemption, which occurred on February 2, 1996, will result in a
one-time extraordinary charge to the Company's net income of
approximately $11 million, after tax, or approximately 5 cents per
share, for the quarter ending March 31, 1996. The Debentures have
been classified as long-term as of December 31, 1995, as such
amounts have been refinanced with (i) the $400 million of notes
issued discussed below and (ii) additional commercial paper
borrowings to be refinanced through other long-term financings.
In January 1996, the Company issued $200 million of 6.10%
Senior Notes due January 15, 2003 and $200 million of 6.375% Senior
Notes due January 15, 2008 (collectively, the "Notes"). The Notes
are not redeemable prior to maturity and are not subject to any
sinking fund.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net income for the first three months of fiscal 1996 was $83.0
million or $.42 per share on consolidated revenues of $1.43
billion. These results compare with net income for the same period
of the prior year of $89.6 million or $.45 per share on
consolidated revenues of $1.29 billion. The decrease in earnings
was principally the result of a 28% decline in the average price of
recycling commodities in North America. Apart from North American
recycling operations, first quarter results were affected favorably
by improved earnings in the North American collection business,
partially due to improved customer pricing, as compared with the
same period of the prior year, as well as pricing improvements in
the North American landfill business and solid earnings in the
medical waste business. International earnings were affected
negatively by sharp declines in recycling commodity prices in
Germany, although operating profit from the Company's other
European operations improved when compared with the same period of
the prior year. First quarter results were also affected by higher
interest expense resulting from increased indebtedness, principally
associated with the prior year acquisition of Attwoods plc
("Attwoods") and other acquisitions.
During the first quarter of fiscal 1996, the Company concluded
31 acquisitions with a combined annual revenue base of $123
million. In the first half of fiscal year 1995, the Company
acquired Attwoods with estimated annualized revenues of $450
million, net of divested operations. Approximately 80% of
Attwoods' revenues, net of divested operations, was derived from
collection and landfill operations with the remainder from
recycling, medical waste and mineral extraction operations. The
Company paid approximately $580 million to acquire this integrated
service company with operations in the United States, United
Kingdom, the Caribbean and mainland Europe (primarily Germany).
Prior year results include the operating results of Attwoods
beginning in December 1994.
EBITDA (defined herein as income from operations plus
depreciation and amortization expense) was $320 million for the
first quarter of fiscal 1996 as compared with $304 million for the
first quarter of last year.
The following table presents ratios (shown as a percentage of
revenues) that reflect certain profitability trends of the
Company's operations and shows the Company's ratios of earnings to
fixed charges.
Three Months Ended
-------------------- Year Ended
12/31/95 12/31/94 9/30/95
--------- --------- ----------
Profitability Margins:
Gross profit margin 26.7% 28.5% 28.2%
Income from operations 12.2% 13.7% 13.7%
Income before income taxes
and minority interest 10.2% 12.6% 12.0%
Net income 5.8% 6.9% 6.7%
Ratio of earnings to fixed
charges 3.29(1) 4.44 4.04(1)
- ----------
(1) Excludes the pro forma effect of cash proceeds of $409.7
million to be received in the future under the provisions
of the 7.25% Automatic Common Exchange Securities. (See
Note (6).)
The three months ended December 31, 1995, reflected declines
in all of the profitability margins presented above. These lower
profitability margins were attributable to the impact of the
decline in the average value of recycling commodities in North
America and the even sharper declines experienced in Germany. In
North America, despite the mitigating impact of floor price
contracts, the average price of recycling commodities for the first
quarter of fiscal 1996 declined 28% compared with the same period
last year. The weighted average market prices in North America for
corrugated, office paper and newspaper declined from $104 per ton
in the first quarter of last year to $75 per ton in the current
quarter. Paper prices have historically been cyclical, but, in the
past year, unprecedented changes in recycling commodity prices have
been experienced. The first quarter results also showed the need
to implement a mechanism to adjust recycling customer pricing fast
enough to preserve acceptable margins when commodity values
decline. An effort is currently underway to implement this pricing
mechanism over the next several quarters. Once implemented, this
mechanism will allow a more timely adjustment of customer fees to
correspond with changing commodity prices, thus lessening recycling
earnings volatility. Absent the decline in earnings from recycling
operations discussed above, the profitability margins for the three
months ended December 31, 1995, reflected improvement over the same
period of the prior year, driven largely by the improved margins in
the North American collection business. Continuing low commodity
prices, coupled with rough winter weather in many parts of the
country, are having a negative effect on the Company's earnings for
the second quarter of fiscal 1996.
Revenues -
Revenues for the three months ended December 31, 1995, were
$1.43 billion, a 10.7% increase over the same period last year.
The following table reflects total revenues of the Company by each
of the principal lines of business (dollar amounts in thousands):
Three Months Ended
---------------------- %
12/31/95 12/31/94 Change
---------- ---------- --------
North American Operations
(including Canada) -
Collection Services -
Solid Waste $ 705,964 $ 648,380 8.9%
Transfer and Disposal -
Solid Waste
Unaffiliated customers 133,170 138,796 (4.1)%
Affiliated companies 123,622 112,486 9.9%
---------- ----------
256,792 251,282 2.2%
Recycling Services 133,431 125,536 6.3%
Medical Waste Services 49,628 43,451 14.2%
Services Group and Other 21,172 18,094 17.0%
Elimination of affiliated
companies' revenues (123,622) (112,486) 9.9%
---------- ----------
Total North American Operations 1,043,365 974,257 7.1%
International Operations 387,416 318,530 21.6%
---------- ----------
Total Company $1,430,781 $1,292,787 10.7%
========== ==========
As the table below reflects, revenue growth for the three
months ended December 31, 1995 was due principally to acquisitions.
Changes in Revenue for
Three Months Ended
December 31,
-----------------------
1995 1994
---------- ----------
Price (2.3)% 5.3%
Volume -- 8.2
Acquisitions 11.3 24.7
Foreign currency translation 1.7 1.1
---- ----
Total Percentage Increase 10.7% 39.3%
==== ====
As shown above, acquisitions accounted for revenue growth of
11.3% for the first quarter of fiscal 1996 over the first quarter
of the prior year. This growth was largely attributable to the
acquisition of Attwoods in December 1994, which resulted in
increased revenues principally in the United States and the United
Kingdom. Revenues declined 2.3% due to pricing in the first
quarter of fiscal 1996 from the prior year first quarter. This
decline in pricing was due to the significant decline in the
weighted average price of North American recycling commodities and
the even sharper decline in recycling commodity prices in Germany
during the first quarter; however, increases in revenue due to
pricing were experienced in North America in both the collection
and landfill businesses. There was no growth in revenues due to
volume in the first quarter of fiscal 1996 over the prior year
first quarter as the decrease in revenues associated with the
decline in North American landfill volumes was offset by increased
revenues due to volume in the Company's North American recycling
and International operations.
Cost of Operations -
Cost of operations increased $123 million or 13.3% for the
first three months of fiscal 1996, compared with the same period of
the prior year. A significant portion of this increase in cost of
operations is directly attributable to the acquisition of Attwoods
in December 1994 as well as other acquisition activities. Cost of
operations as a percent of revenues increased from 71.5% for the
three months ended December 31, 1994 to 73.3% for the three months
ended December 31, 1995. This increase as a percent of revenues is
principally attributable to the decline in revenues due to pricing
in the first quarter of fiscal 1996 compared with the same period
of the prior year.
Selling, General and Administrative Expense (SG&A) -
SG&A expense was $209 million for the first three months of
fiscal 1996, an increase of 9.5% over the first three months of
last year. SG&A expense as a percent of revenues declined slightly
from 14.7% of revenues for the three months ended December 31, 1994
to 14.6% of revenues for the three months ended December 31, 1995.
The $18 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 Attwoods in December 1994.
Net Interest Expense -
Net interest expense increased $15 million or 55.0% for the
first three months of fiscal 1996 compared with the same period of
the prior year, principally as a result of the acquisition of
Attwoods in December 1994.
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates increased
slightly for the first three months of fiscal 1996, compared with
the same period of the prior year, due principally to improvement
in the earnings of certain international affiliates including the
equity in earnings of unconsolidated affiliates of Otto Waste
Services. The Company consolidates Otto Waste Services' financial
results, which include equity in earnings of Otto's unconsolidated
affiliates.
Minority Interest in Income of Consolidated Subsidiaries -
The decrease in minority interest in income of consolidated
subsidiaries is due to lower consolidated earnings reported by Otto
Waste Services during the current year compared with last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital of $8.0 million at September 30,
1995, increased to $44.1 million at December 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.
As discussed in Note (6), in July 1995, the Company issued to
the public 11,499,200 7.25% Automatic Common Exchange Securities
with a stated amount of $35.625 per security. These securities are
not included on the Company's balance sheet; an increase in common
stockholders' equity will be reflected when cash proceeds totalling
over $400 million are received by the Company.
On January 2, 1996, the Company announced that its $400
million 6 3/4% Convertible Subordinated Debentures due 2005 and its
$345 million 6 1/4% Convertible Subordinated Debentures due 2012
("the Debentures") were being called for redemption. The
redemption, which occurred on February 2, 1996, will result in a
one-time extraordinary charge to the Company's net income of
approximately $11 million, after tax, or approximately $.05 per
share, for the quarter ending March 31, 1996. The Debentures have
been refinanced with (i) the $400 million of notes issued discussed
below and (ii) additional commercial paper borrowings. These
transactions will have a favorable effect on the Company's weighted
average interest rate.
In January 1996, the Company issued $200 million of 6.10%
Senior Notes due January 15, 2003 and $200 million of 6.375% Senior
Notes due January 15, 2008 (collectively, the "Notes"). The Notes
are not redeemable prior to maturity and are not subject to any
sinking fund.
Long-term indebtedness (including $506 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 47% at September
30, 1995 to 48% at December 31, 1995. The ratio would have been
40% at December 31, 1995, on a pro forma basis assuming that under
the provisions related to the Automatic Common Exchange Securities,
cash proceeds of $409.7 million were paid to the Company to
purchase common stock and such proceeds were utilized to repay
long-term debt.
The capital appropriations budget for fiscal year 1996 was
established at $1.3 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 December 31, 1995, there have been no significant
changes in balance sheet caption amounts compared with September
30, 1995. Except as disclosed herein, there have been no material
changes in the Company's financial condition from that reported at
September 30, 1995.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported in the Company's Annual Report on Form 10-K
for the year ended September 30, 1995, and other filings, a case
styled Ogden Projects, Inc., et al. v. New Morgan Landfill Company,
Inc. ("New Morgan") was filed in the United States District Court
for the Eastern District of Pennsylvania. On September 21, 1995,
the court ruled that New Morgan, a subsidiary of the Company, did
not obtain a permit to construct and operate a landfill as required
under the provisions of the Clean Air Act, although the court did
not enjoin New Morgan's operation of the landfill or impose civil
penalties against New Morgan. On October 5, 1995, the Company filed
with the court a motion for reconsideration of the court's ruling,
specifically requesting that the court rule that New Morgan has not
violated the Clean Air Act and that the plaintiffs' complaint be dis-
missed with prejudice. On January 8, 1996, the court withdrew its
earlier decision and entered a judgment in favor of New Morgan.
As previously reported, on January 11, 1994, American Ref-Fuel Company
of Essex County ("Ref-Fuel"), a New Jersey partnership, entered into
an Administrative Consent Order ("ACO") with the New Jersey Department
of Environmental Protection and Energy (the "NJDEP") regarding alleged
violations of air permit requirements. A subsidiary of the Company owns
a 50% interest in Ref-Fuel. Ref-Fuel agreed to pay a monetary sanction
of $212,600 to settle all outstanding and pending Administrative Orders
and Notices of Civil Administrative Penalty Assessments with the NJDEP
concerning these alleged violations, including air emission excursions
for the period of July 1, 1991 through June 30, 1993. Through
September 30, 1995, Ref-Fuel has paid an additional $34,200 in
monetary penalties for occasional self-monitored air emission excursions
in excess of those stipulated in the ACO.
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, environ-
mental 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 11, 1996 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 6.10% Senior Notes Due January 15, 2003, and 6.375%
Senior Notes Due January 15, 2008, which closed on January 17, 1996.
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/ Jeffrey E. Curtiss
--------------------------------
Jeffrey E. Curtiss
Senior Vice President and
Chief Financial Officer
Date: February 9, 1996
Exhibit 12
BROWNING-FERRIS INDUSTRIES, INC.
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Dollar Amounts in Thousands)
Three Months
Ended December 31,
---------------------
1995 1994
-------- --------
Earnings Available for Fixed Charges:
Income before minority interest $ 87,177 $ 97,515
Income taxes 58,118 65,010
-------- --------
Income before income taxes and
minority interest 145,295 162,525
Consolidated interest expense 43,390 31,261
Interest expense related to
proportionate share of 50% owned
affiliates 5,356 5,241
Portion of rents representing the
interest factor 8,594 6,913
Less-Equity in earnings of affiliates
less than 50% owned 838 1,005
-------- --------
Total $201,797 $204,935
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $ 47,194 $ 33,765
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned affiliates 5,633 5,514
Portion of rents representing the
interest factor 8,594 6,913
-------- --------
Total $ 61,421 $ 46,192
======== ========
Ratio of Earnings to Fixed Charges 3.29 4.44
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Company's consolidated financial statements for the three months
ended December 31, 1995 and is qualified in its entirety by reference
to such financial statements. (In thousands except per share data.)
</LEGEND>
<S> <C>
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<PERIOD-END> DEC-31-1995
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