<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
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
August 8, 1996: 212,502,287
<PAGE> 2
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- --------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,471,368 $1,550,083 $4,276,036 $4,252,236
Cost of operations 1,115,350 1,104,966 3,190,371 3,036,243
---------- ---------- ---------- ----------
Gross profit 356,018 445,117 1,085,665 1,215,993
Selling, general and
administrative expense 221,216 226,432 642,287 626,963
---------- ---------- ---------- ----------
Income from operations 134,802 218,685 443,378 589,030
Interest, net 42,577 41,784 125,446 109,008
Equity in earnings of
unconsolidated affiliates (13,816) (14,910) (38,918) (39,586)
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and
extraordinary item 106,041 191,811 356,850 519,608
Income taxes 42,417 76,724 142,740 207,843
Minority interest in
income of consolidated
subsidiaries 1,602 8,820 8,094 23,119
---------- ---------- ---------- ----------
Income before
extraordinary item 62,022 106,267 206,016 288,646
Extraordinary item - loss
on redemption of debt,
net of income tax
benefit of $4,467 -- -- 12,159 --
---------- ---------- ---------- ----------
Net income $ 62,022 $ 106,267 $ 193,857 $ 288,646
========== ========== ========== ==========
Number of common and common
equivalent shares used
in computing earnings
per share 200,932 199,636 200,395 198,731
========== ========== ========== ==========
</TABLE>
(Continued on following page)
-2-
<PAGE> 3
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Unaudited)
(In Thousands Except for Per Share Amounts)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per common and
common equivalent share:
Income before extraordinary
item $ .31 $ .53 $ 1.03 $ 1.45
Extraordinary item -- -- (.06) --
------- ------- ------- -------
Net income $ .31 $ .53 $ .97 $ 1.45
======= ======= ======= =======
Cash dividends per
common share $ .17 $ .17 $ .51 $ .51
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
(Unaudited)
- ------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 85,093 $ 92,808
Short-term investments 54,572 104,761
Receivables -
Trade, net of allowances for doubtful
accounts of $39,365 and $39,777 947,429 926,791
Other 49,981 57,015
Inventories 51,500 50,090
Deferred income taxes 104,674 116,871
Prepayments and other 86,036 73,959
---------- ----------
Total current assets 1,379,285 1,422,295
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,672,485 and $2,395,795 4,024,337 3,722,292
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$151,133 and $116,369 1,810,752 1,768,391
Other intangible assets, net of
accumulated amortization of $123,131
and $142,780 115,629 116,303
Deferred income taxes 88,378 78,689
Investments in unconsolidated affiliates 313,014 272,205
Other 96,538 80,197
---------- ----------
Total other assets 2,424,311 2,315,785
---------- ----------
Total assets $7,827,933 $7,460,372
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
(In Thousands Except for Share Amounts)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
(Unaudited)
- ------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 67,555 $ 62,463
Accounts payable 443,463 515,304
Accrued liabilities -
Salaries and wages 124,399 122,656
Taxes, other than income 42,441 41,960
Other 440,386 434,855
Income taxes 31,742 53,045
Deferred revenues 190,071 184,045
---------- ----------
Total current liabilities 1,340,057 1,414,328
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 528,266 568,644
Deferred income taxes 101,824 104,645
Other 258,981 220,257
---------- ----------
Total deferred items 889,071 893,546
---------- ----------
LONG-TERM DEBT, net of current portion 2,773,047 1,665,804
---------- ----------
CONVERTIBLE SUBORDINATED DEBENTURES -- 744,944
---------- ----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,395,109 and
213,440,672 shares issued 35,573 35,581
Additional paid-in capital 1,776,606 1,801,407
Retained earnings 1,353,979 1,328,244
Treasury stock, 1,031,929 and 1,001,407
shares, at cost (11,944) (10,494)
Stock and Employee Benefit Trust,
11,326,078 and 13,596,325 shares (328,456) (412,988)
---------- ----------
Total common stockholders' equity 2,825,758 2,741,750
---------- ----------
Total liabilities and common
stockholders' equity $7,827,933 $7,460,372
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 193,857 $ 288,646
---------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization -
Property and equipment 384,981 348,526
Goodwill 34,725 30,147
Other intangible assets 25,086 22,560
Deferred income tax expense 20,005 30,528
Amortization of deferred investment tax credit (530) (530)
Provision for losses on accounts receivable 20,427 19,957
Gains on sales of fixed assets (3,984) (7,447)
Equity in earnings of unconsolidated
affiliates, net of dividends received (2,086) (18,755)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 7,299 19,378
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions -
Trade receivables (33,896) (28,424)
Inventories 2,139 (15,769)
Other assets 15,765 17,008
Other liabilities (115,787) (13,185)
---------- ----------
Total adjustments 354,144 403,994
---------- ----------
Net cash provided by operating activities 548,001 692,640
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (656,628) (615,646)
Payments for businesses acquired (162,722) (735,208)
Investments in unconsolidated affiliates (92,389) (33,301)
Proceeds from disposition of assets 44,383 173,566
Purchases of short-term investments -- (37,546)
Sales of short-term investments 273,647 201,924
Return of investment in unconsolidated
affiliates 37,863 28,085
---------- ----------
Net cash used in investing activities (555,846) (1,018,126)
---------- ----------
</TABLE>
(Continued on following page)
-6-
<PAGE> 7
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 12,189 13,791
Proceeds from issuance of indebtedness 979,813 914,705
Repayments of indebtedness (888,715) (483,059)
Dividends paid (101,615) (100,469)
--------- ---------
Net cash provided by financing
activities 1,672 344,968
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES (1,542) 2,785
--------- ---------
NET INCREASE (DECREASE) IN CASH (7,715) 22,267
CASH AT BEGINNING OF PERIOD 92,808 79,131
--------- ---------
CASH AT END OF PERIOD $ 85,093 $ 101,398
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 109,663 $ 92,230
Income taxes $ 134,161 $ 191,781
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 8
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):
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Common shares outstanding, end of period 212,363 212,971
Less - Shares held in the Stock and
Employee Benefit Trust (11,326) (14,854)
------- -------
Common shares outstanding for purposes
of computing primary earnings per
share, end of period 201,037 198,117
Effect of using weighted average common
and common equivalent shares outstanding (1,505) (774)
Effect of shares issuable under stock
option plans based on the treasury
stock method 863 1,388
------- -------
Shares used in computing earnings
per share 200,395 198,731
======= =======
</TABLE>
-8-
<PAGE> 9
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 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 in the periods prior
to their redemption in February 1996.
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"), which were redeemed in February 1996, 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 in the
periods prior to their redemption in February 1996 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 $214.2
million (including additional amounts payable, principally to former owners, of
$20.0 million and the issuance of 964,910 shares of the Company's common stock
valued at $28.1 million) to acquire 87 solid waste businesses, which were
accounted for as purchases, including the acquisition of the remaining 50%
ownership interest of Pfitzenmeier & Rau ("P&R"), a joint venture previously
owned 50% by Otto Waste Services, a 50% owned subsidiary of the Company. In
connection with these acquisitions, the Company recorded additional
interest-bearing indebtedness of $62.7 million (including $55.0 million related
to P&R) and other liabilities of $29.4 million. 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
-9-
<PAGE> 10
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 further adjusted 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 $191.5 million (including additional amounts
payable, principally to former owners, of $9.4 million and the issuance of
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 joint venture in Italy. In
connection with these acquisitions, the Company recorded additional
interest-bearing indebtedness of $17.8 million and other liabilities of $49.3
million. 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 the Company's 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 nine 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):
-10-
<PAGE> 11
<TABLE>
<CAPTION>
Nine Months Ended
June 30, 1995
------------------
<S> <C>
Pro forma revenues $4,442,942
Pro forma net income $ 291,088
Pro forma earnings per common
and common equivalent share $1.46
</TABLE>
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 June 30, 1996, and September 30, 1995, was as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,912 $ 198,088 $ --
6.375% Senior Notes, net of
unamortized discount of $2,097 197,903 --
7 7/8% Senior Notes, net of
unamortized discount of $806
and $875 299,194 299,125
7.40% Debentures, net of
unamortized discount of
$2,095 and $2,136 397,905 397,864
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond
obligations 149,115 114,079
Other notes payable 824,660 585,211
---------- ----------
2,166,865 1,496,279
Commercial paper and short-term
facilities to be refinanced 673,737 231,988
---------- ----------
Total long-term debt 2,840,602 1,728,267
Less current portion 67,555 62,463
---------- ----------
Long-term debt, net of current
portion $2,773,047 $1,665,804
========== ==========
</TABLE>
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,
resulted in a one- time extraordinary charge to the Company's net income of
$12.2 million, after tax, or approximately $.06 per share. The Debentures were
refinanced with (i) the $400 million of notes discussed below
-11-
<PAGE> 12
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
(the "Notes"). The Notes are not redeemable prior to maturity and are not
subject to any sinking fund.
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 June 30, 1996 and September 30, 1995 is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------ -------------
<S> <C> <C>
United States -
Commercial paper $453,862 $ 34,317
Germany 219,875 197,671
-------- --------
$673,737 $231,988
======== ========
</TABLE>
As of June 30, 1996, distributions from retained earnings could not exceed
$1.27 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
-12-
<PAGE> 13
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) Reorganization -
During June 1996, the Company announced the reorganization of its North
American operating business structure, effective September 1, 1996. The
Company's previous organization divided North America into 45 divisions
reporting to 6 regional offices and operations were conducted from
approximately 400 districts. The new organization divides North America into
13 market areas and retains the district office organization. In addition, the
new structure organizes the Company's operations by specific business functions
with direct reporting to the corporate office. There was no reorganization
charge recorded to cover the estimated future expenses associated with this
announcement. The future costs associated with this reorganization will be
expensed as incurred.
(7) 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
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<PAGE> 14
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.
-14-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income for the first nine months of fiscal 1996 was $193.9 million or
$.97 per share. The year-to-date results include an extraordinary charge of
$12.2 million, net of income taxes, related to the redemption of $745 million
of convertible debentures in February 1996. Net income before the
extraordinary item was $206.0 million or $1.03 per share. These results
compare with net income for the same period of the prior year of $288.6 million
or $1.45 per share. Current year results were negatively affected by a
significant decline in worldwide recycling commodity prices and, to a lesser
extent, higher disposal expenses in certain North American collection
operations in the third quarter and the more severe winter weather experienced
in the second quarter in North America and Northern Europe compared with the
prior year. In North America, apart from the significant decline in earnings
from recycling operations, results were affected favorably by improved earnings
in the collection business, partially due to improved customer pricing, as
compared with the same period of the prior year. Unusually high legal costs
recorded in the third quarter of the prior year and a reduction in incentive
compensation in the current year also offset partially the decline in earnings
of the Company. Year-to-date 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.
Continuing low commodity prices are also expected to have a negative effect on
the Company's earnings for the remainder of fiscal 1996.
During the first nine months of fiscal 1996, the Company concluded 87
acquisitions with a combined annual revenue base of $297 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 $888 million for the first nine months of fiscal 1996
as compared with $990 million for the first nine months 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.
-15-
<PAGE> 16
<TABLE>
<CAPTION>
Nine Months Ended
-------------------- Year Ended
6/30/96 6/30/95 9/30/95
--------- --------- ----------
<S> <C> <C> <C>
Profitability Margins:
Gross profit margin 25.4% 28.6% 28.2%
Income from operations 10.4% 13.9% 13.7%
Income before income taxes,
minority interest and
extraordinary item 8.3% 12.2% 12.0%
Net income before extra-
ordinary item 4.8%(1) 6.8% 6.7%(1)
Net income 4.5%(1) 6.8% 6.7%(1)
Ratio of earnings to fixed
charges 2.84 (1) 4.13 4.04 (1)
- ----------
</TABLE>
(1) Does not reflect the pro forma effect of the use 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 (7).)
The nine months ended June 30, 1996, reflected declines in all of the
profitability margins presented above. These profitability margins were
affected negatively by the decline in the average value of worldwide recycling
commodities in the current year and, to a lesser extent, the more severe winter
weather experienced in the second quarter in North America and Northern Europe
than in the prior year. In North America, despite the mitigating impact of
floor price contracts, the average price of recycling commodities for the first
nine months of fiscal 1996 declined 53% compared with the same period last
year. The weighted average market prices in North America for corrugated,
office paper and newspaper declined from $149 per ton in the first nine months
of last year to $62 per ton in the comparable current year period. Paper
prices have historically been cyclical, but, in the past year, unprecedented
changes in recycling commodity prices have been experienced. The Company is
continuing to implement a mechanism to adjust recycling customer pricing fast
enough to preserve acceptable margins when commodity values decline. Once
fully implemented, this mechanism should provide a more timely adjustment of
customer fees to correspond with changing commodity prices, thus lessening
recycling earnings volatility. Lower average recycling commodity prices in the
current year also negatively affected earnings and related profitability
margins in the Company's German operations for the first nine months of fiscal
1996 when compared with the same period last year. Operating income as a
percentage of revenues in the North American collection business improved in
the current year over the first nine months of last year while gross profit
remained relatively flat. Higher profitability in the collection business,
which reflected improved pricing, more than offset any impact caused by the
winter weather in the second quarter and the increased disposal costs
experienced in the third quarter of fiscal 1996. In the international
operations, the Company continued to experience difficulties in attaining
performance improvement in its German and Italian operations and, to a somewhat
lesser extent, in
-16-
<PAGE> 17
its Spanish and Australian operations, despite the continued focus by management
on improvement in these areas.
During June 1996, the Company announced the reorganization of its North
American operating business structure, effective September 1, 1996. The
Company's previous organization divided North America into 45 divisions
reporting to 6 regional offices and operations were conducted from
approximately 400 districts. The new organization divides North America into
13 market areas and retains the district office organization. In addition, the
new structure organizes the Company's operations by specific business functions
with direct reporting to the corporate office. The new organization should
better focus the Company on customer service, improving asset utilization and
controlling costs. There was no reorganization charge recorded to cover the
estimated future expenses associated with this announcement. The future costs
associated with this reorganization will be expensed as incurred.
Revenues -
Revenues for the nine months ended June 30, 1996, were $4.28 billion, a
slight 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):
<TABLE>
<CAPTION>
Nine Months Ended
---------------------- %
6/30/96 6/30/95 Change
---------- ---------- --------
<S> <C> <C> <C>
North American Operations
(including Canada) -
Collection Services -
Solid Waste $2,132,372 $2,047,335 4.2%
Transfer and Disposal -
Solid Waste
Unaffiliated customers 391,307 402,386 (2.8)%
Affiliated companies 378,014 356,634 6.0%
---------- ----------
769,321 759,020 1.4%
Recycling Services 397,274 500,923 (20.7)%
Medical Waste Services 150,225 139,839 7.4%
Services Group and Other 62,830 60,088 4.6%
Elimination of affiliated
companies' revenues (378,014) (356,634) 6.0%
---------- ----------
Total North American Operations 3,134,008 3,150,571 (0.5)%
International Operations 1,142,028 1,101,665 3.7%
---------- ----------
Total Company $4,276,036 $4,252,236 0.6%
========== ==========
</TABLE>
-17-
<PAGE> 18
As the table below reflects, revenue growth for the nine months ended June
30, 1996, was due principally to acquisitions and was offset largely by the
negative impact on pricing of lower worldwide recycling commodity prices.
<TABLE>
<CAPTION>
Changes in Revenue for
Nine Months Ended
June 30,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Price (5.9)% 7.0%
Volume 0.1 7.0
Acquisitions 6.3 21.7
Foreign currency translation 0.1 2.7
---- ----
Total Percentage Increase 0.6% 38.4%
==== ====
</TABLE>
As shown above, acquisitions accounted for revenue growth of 6.3% for the
first nine months of fiscal 1996 over the same period of the prior year. This
growth was attributable in part to the acquisition of Attwoods in December
1994, which resulted in increased revenues principally in the United States and
the United Kingdom. Revenues declined 5.9% due to pricing in the first nine
months of fiscal 1996 from the same period of the prior fiscal year. 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
weighted average recycling commodity prices in Germany during the first nine
months of the current year from the same period last year. However, increases
in revenue due to pricing were experienced in North America in the collection
business and, to a lesser extent, in the landfill and medical waste businesses.
Revenues increased slightly due to volume in the first nine months of fiscal
1996 compared with the same prior year period due to increased volumes in
recycling operations offset by reductions in collection and disposal volumes.
The change in revenue due to volume was affected negatively by the more severe
winter weather in the second quarter of fiscal 1996 in North America and
Northern Europe, particularly in the Netherlands, than was experienced last
year. Additionally, landfill volumes were also affected negatively in the
current year compared to the first nine months of fiscal 1995 due to
self-imposed restricted volumes, the closing of certain sites and the loss of
disposal contracts.
Cost of Operations -
Cost of operations increased $154 million or 5.1% for the first nine
months of fiscal 1996, compared with the same period of the prior year. Most of
this increase in cost of operations is attributable to businesses acquired,
including the acquisition of Attwoods in December 1994. Cost of operations as a
percent of revenues increased from 71.4% for the nine months ended June 30, 1995
to 74.6% for the nine months ended June 30, 1996. This increase as a percent of
revenues is principally attributable to
-18-
<PAGE> 19
the decline in revenues due to lower worldwide recycling commodity prices in the
first nine months of fiscal 1996 compared with the same period of the prior
year.
Selling, General and Administrative Expense (SG&A) -
SG&A expense was $642 million for the first nine months of fiscal 1996, an
increase of 2.4% over the same period last year. SG&A expense as a percent of
revenues increased slightly from 14.7% of revenues for the nine months ended
June 30, 1995 to 15.0% of revenues for the nine months ended June 30, 1996.
The $15.3 million increase in SG&A was primarily related to higher costs
(including goodwill amortization) associated with the Company's acquisition
activities, a substantial portion of which was related to the acquisition of
Attwoods in December 1994. The increase in SG&A expense was offset partially
by the reduction in incentive compensation in the current year based on lower
earnings and the unusually high legal costs recorded in the third quarter of
fiscal 1995. The increase in SG&A as a percent of revenues in the first nine
months of fiscal 1996 compared with the same period of fiscal 1995 resulted
principally from the decline in revenues due to lower worldwide recycling
commodity prices between the periods.
Net Interest Expense -
Net interest expense increased $16.4 million or 15.1% for the first nine
months of fiscal 1996 compared with the same period of the prior year,
principally as a result of acquisition activities, including the acquisition of
Attwoods in December 1994.
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates declined slightly between
the periods primarily due to the acquisition of the remaining 50% ownership
interest of P&R by Otto Waste Services, offset by increased earnings from other
equity investees. Included in this caption are the 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 the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital of $8.0 million at September 30, 1995,
increased to $39.2 million at June 30, 1996. 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
-19-
<PAGE> 20
requirements in excess of internally generated cash while minimizing working
capital.
As discussed in Note (7), 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 no later than June 30, 1998.
As discussed in Note (4), 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, resulted in a one-time extraordinary charge to the
Company's net income of approximately $12.2 million, after tax, or
approximately $.06 per share. The Debentures have been refinanced with (i) the
$400 million of notes issued discussed below and (ii) additional commercial
paper borrowings. These transactions 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
(the "Notes"). The Notes are not redeemable prior to maturity and are not
subject to any sinking fund.
Long-term indebtedness (including $536 million of Otto Waste Services
debt, which has not been guaranteed by the Company) as a percentage of total
capitalization was 50% as of June 30, 1996, up from 47% at September 30, 1995.
The ratio would have been 42% at June 30, 1996, 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. Due to the lower than expected performance of
the Company to date in the current fiscal year, management has reduced
anticipated capital spending for fiscal 1996 by $100 million to $1.2 billion to
preserve cash flow. 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.
Cash flows from operating activities declined to $548.0 million for the
nine months ended June 30, 1996 from $692.6 million reported for the same
period last year, principally as a result of lower earnings and the decrease in
cash associated with the change
-20-
<PAGE> 21
in other liabilities offset partially by increased depreciation and
amortization. The decrease in other liabilities resulted primarily from the
decline in accounts payable associated with capital spending and other items,
increased bonus payments in fiscal 1996 reflective of higher prior year earnings
and increased payments associated with environmental and landfill accruals.
As of June 30, 1996, there have been no significant changes in balance
sheet caption amounts compared with September 30, 1995, and there have been no
material changes in the Company's financial condition from that reported at
September 30, 1995, except as disclosed herein.
-21-
<PAGE> 22
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 subsidiary of the Company, CECOS
International, Inc. ("CECOS"), is a party to a consent order with the U.S.
Environmental Protection Agency, one aspect of which concerns a leachate
pretreatment system that CECOS agreed to construct at one of its closed
facilities. By letter dated March 16, 1994, the USEPA has demanded $528,500 in
stipulated penalties due to CECOS's alleged failure to commence timely start-up
of the leachate pretreatment system that is presently operating. On March 28,
1996, the USEPA filed a lawsuit styled United States of America v. CECOS
International, Inc. in the United States District Court for the Southern
District of Ohio, seeking payment of such stipulated penalties. CECOS is
vigorously defending the imposition of this proposed penalty. Management of
the Company is unable to conclude whether the ultimate monetary sanction in
this matter, if any, will be more than $100,000.
As previously reported in the Company's Form 10-Q for the quarter ended March
31, 1992, on April 27, 1992, a subsidiary of the Company paid the City of
Philadelphia $1,600,000 as restitution and in settlement of any claims the City
might have brought relating to the disposal at a City-owned treatment plant of
non-hazardous waste material alleged to have been inconsistent with the
authorization granted by the City. In making the payment, the subsidiary did
not admit liability for such activities. The Environmental Protection Agency
and the United States Attorney for the Southern District of Pennsylvania (the
"U.S. Attorney") have continued to investigate this matter and the Company has
continued to fully cooperate with such investigation. The Company has recently
been advised that the U.S. Attorney intends to initiate criminal proceedings
against the subsidiary, although no proceedings have currently been initiated.
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.
-22-
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits:
10. Amendment to Deferral Agreement, dated June 5, 1996, to
Deferral Agreement, dated as of December 28, 1988, between
the Company and William D. Ruckelshaus.
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
</TABLE>
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/ Bruce E. Ranck
----------------------------------------
Bruce E. Ranck
President and
Chief Executive Officer
/s/ Jeffrey E. Curtiss
----------------------------------------
Jeffrey E. Curtiss
Senior Vice President and
Chief Financial Officer
Date: August 12, 1996
-23-
<PAGE> 24
INDEX TO EXHIBITS
10 Amendment to Deferral Agreement, dated June 5, 1996, to
Deferral Agreement, dated as of December 28, 1988, between
the Company and William D. Ruckelshaus.
12 Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10
AMENDMENT TO DEFERRAL AGREEMENT
As authorized by Section 11 of the Deferral Agreement, dated December 28, 1988
(the "Deferral Agreement"), by and between Browning-Ferris Industries, Inc., a
Delaware corporation (the "Company"), and William D. Ruckelshaus (the
"Employee"), the Deferral Agreement is hereby amended to provide that the
deferral amounts for calendar years 1989 and 1993 shall be distributed pursuant
to the terms of the Deferral Agreement, provided that the Payout Period, as
defined in the Deferral Agreement, for such amounts shall end on December 31,
2017.
Dated this 5th day of June, 1996.
BROWNING-FERRIS INDUSTRIES, INC.
(the "Company")
By: /s/ Bruce E. Ranck
-------------------------------------
Bruce E. Ranck
President and Chief Executive Officer
/s/ William D. Ruckelshaus
-------------------------------------
William D. Ruckelshaus
(the "Employee")
<PAGE> 1
Exhibit 12
BROWNING-FERRIS INDUSTRIES, INC.
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Earnings Available for Fixed Charges:
Income before minority interest
and extraordinary item $214,110 $311,765
Income taxes 142,740 207,843
-------- --------
Income before income taxes,
minority interest and extraordinary
item 356,850 519,608
Consolidated interest expense 132,497 118,524
Interest expense related to
proportionate share of 50% owned
unconsolidated affiliates 14,411 14,537
Portion of rents representing the
interest factor 25,703 22,910
Less-Equity in earnings of affiliates
less than 50% owned 2,481 1,338
-------- --------
Total $526,980 $674,241
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $144,539 $125,519
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned affiliates 15,607 14,901
Portion of rents representing the
interest factor 25,703 22,910
-------- --------
Total $185,849 $163,330
======== ========
Ratio of Earnings to Fixed Charges 2.84 4.13
======== ========
</TABLE>
<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,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
(IN THOUSANDS EXCEPT PER SHARE DATA.)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 139,665
<SECURITIES> 0
<RECEIVABLES> 1,036,775
<ALLOWANCES> (39,365)
<INVENTORY> 51,500
<CURRENT-ASSETS> 1,379,285
<PP&E> 6,696,822
<DEPRECIATION> (2,672,485)
<TOTAL-ASSETS> 7,827,933
<CURRENT-LIABILITIES> 1,340,057
<BONDS> 2,773,047
<COMMON> 35,573
0
0
<OTHER-SE> 2,790,185
<TOTAL-LIABILITY-AND-EQUITY> 7,827,933
<SALES> 0
<TOTAL-REVENUES> 4,276,036
<CGS> 0
<TOTAL-COSTS> 3,190,371
<OTHER-EXPENSES> 621,860
<LOSS-PROVISION> 20,427
<INTEREST-EXPENSE> 125,446
<INCOME-PRETAX> 356,850
<INCOME-TAX> 142,740
<INCOME-CONTINUING> 206,016
<DISCONTINUED> 0
<EXTRAORDINARY> 12,159
<CHANGES> 0
<NET-INCOME> 193,857
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
