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 March 31, 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 (Zip Code)
offices)
Registrant's telephone number, including area code: (713) 870-8100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
--- ---
Indicate the number of shares outstanding of the issuer's common stock,
as of May 9, 1996: 212,685,198
-----------
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In Thousands Except for Per Share Amounts)
----------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
1996 1995 1996 1995
----------------------------------------------------------------------------
Revenues $1,373,887 $1,409,366 $2,804,668 $2,702,153
Cost of operations 1,026,916 1,006,307 2,075,021 1,931,277
---------- ---------- ---------- ----------
Gross profit 346,971 403,059 729,647 770,876
Selling, general and
administrative expense 212,557 210,025 421,071 400,531
---------- ---------- ---------- ----------
Income from operations 134,414 193,034 308,576 370,345
Interest, net 41,892 40,792 82,869 67,224
Equity in earnings of
unconsolidated affiliates (12,992) (13,030) (25,102) (24,676)
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and extra-
ordinary item 105,514 165,272 250,809 327,797
Income taxes 42,205 66,109 100,323 131,119
Minority interest in
income of consolidated
subsidiaries 2,325 6,354 6,492 14,299
---------- ---------- ---------- ----------
Income before
extraordinary item 60,984 92,809 143,994 182,379
Extraordinary item - loss
on redemption of debt,
net of income tax
benefit of $4,467 12,159 -- 12,159 --
---------- ---------- ---------- ----------
Net income $ 48,825 $ 92,809 $ 131,835 $ 182,379
========== ========== ========== ==========
Number of common and common
equivalent shares used
in computing earnings
per share 200,379 198,754 200,128 198,278
========== ========== ========== ==========
(Continued on following page)
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Unaudited)
(In Thousands Except for Per Share Amounts)
---------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ---------------------
1996 1995 1996 1995
----------------------------------------------------------------------------
Earnings per common and
common equivalent share:
Income before extraordinary
item $ .30 $ .47 $ .72 $ .92
Extraordinary item (.06) -- (.06) --
------- ------- ------- -------
Net income $ .24 $ .47 $ .66 $ .92
======= ======= ======= =======
Cash dividends per
common share $ .17 $ .17 $ .34 $ .34
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
- ------------------------------------------------------------------------
March 31, September 30,
1996 1995
(Unaudited)
- ------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 113,106 $ 92,808
Short-term investments 62,763 104,761
Receivables -
Trade, net of allowances for doubtful
accounts of $35,591 and $39,777 881,022 926,791
Other 52,034 57,015
Inventories 56,984 50,090
Deferred income taxes 105,636 116,871
Prepayments and other 82,701 73,959
---------- ----------
Total current assets 1,354,246 1,422,295
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,565,753 and $2,395,795 3,958,869 3,722,292
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$139,979 and $116,369 1,790,521 1,768,391
Other intangible assets, net of
accumulated amortization of $123,058
and $142,780 107,655 116,303
Deferred income taxes 94,580 78,689
Investments in unconsolidated affiliates 279,013 272,205
Other 95,697 80,197
---------- ----------
Total other assets 2,367,466 2,315,785
---------- ----------
Total assets $7,680,581 $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)
- --------------------------------------------------------------------------
March 31, September 30,
1996 1995
(Unaudited)
- --------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 60,028 $ 62,463
Accounts payable 428,440 515,304
Accrued liabilities -
Salaries and wages 104,003 122,656
Taxes, other than income 36,099 41,960
Other 420,332 434,855
Income taxes 27,083 53,045
Deferred revenues 185,609 184,045
---------- ----------
Total current liabilities 1,261,594 1,414,328
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 550,497 568,644
Deferred income taxes 100,666 104,645
Other 244,856 220,257
---------- ----------
Total deferred items 896,019 893,546
---------- ----------
LONG-TERM DEBT, net of current portion 2,740,798 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; 213,447,740 and
213,440,672 shares issued 35,582 35,581
Additional paid-in capital 1,808,055 1,801,407
Retained earnings 1,348,727 1,328,244
Treasury stock, 1,028,893 and 1,001,407
shares, at cost (11,882) (10,494)
Stock and Employee Benefit Trust,
12,644,834 and 13,596,325 shares (398,312) (412,988)
---------- ----------
Total common stockholders' equity 2,782,170 2,741,750
---------- ----------
Total liabilities and common
stockholders' equity $7,680,581 $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)
- ----------------------------------------------------------------------------
Six Months Ended
March 31,
------------------------
1996 1995
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 131,835 $ 182,379
---------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization -
Property and equipment 251,341 232,875
Goodwill 23,729 18,236
Other intangible assets 16,667 14,951
Deferred income tax expense 10,585 18,704
Amortization of deferred investment tax credit (354) (353)
Provision for losses on accounts receivable 13,117 13,206
Gains on sales of fixed assets (3,251) (5,061)
Equity in earnings of unconsolidated
affiliates, net of dividends received (21,496) (24,676)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 5,672 12,922
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions -
Trade receivables 43,942 (1,635)
Inventories (2,972) (17,989)
Other assets 16,300 8,102
Other liabilities (190,174) (26,799)
---------- ---------
Total adjustments 163,106 242,483
---------- ---------
Net cash provided by operating activities 294,941 424,862
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (467,342) (427,176)
Payments for businesses acquired (94,662) (672,450)
Investments in unconsolidated affiliates (12,262) (9,958)
Proceeds from disposition of assets 35,231 63,211
Purchases of short-term investments -- (36,848)
Sales of short-term investments 44,772 201,924
Return of investment in unconsolidated
affiliates 15,517 19,270
---------- ---------
Net cash used in investing activities (478,746) (862,027)
---------- ---------
(Continued on following page)
BROWNING-FERRIS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)
- ----------------------------------------------------------------------------
Six Months Ended
March 31,
------------------------
1996 1995
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 7,712 6,539
Proceeds from issuance of indebtedness 1,132,021 795,459
Repayments of indebtedness (866,817) (252,449)
Dividends paid (67,659) (66,880)
---------- ---------
Net cash provided by financing
activities 205,257 482,669
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES (1,154) 4,109
---------- ---------
NET INCREASE IN CASH 20,298 49,613
CASH AT BEGINNING OF PERIOD 92,808 79,131
---------- ---------
CASH AT END OF PERIOD $ 113,106 $ 128,744
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 87,360 $ 66,922
Income taxes $ 110,351 $ 145,421
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 adjust-
ments 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 state-
ments to conform to the current year presentation.
(2) Earnings Per Common Share -
The following table reconciles the number of common shares outstanding
with the number of common and common equivalent shares used in computing
primary earnings per share (in thousands):
Six Months Ended
March 31,
--------------------
1996 1995
------- -------
Common shares outstanding, end of period 212,419 212,648
Less - Shares held in the Stock and
Employee Benefit Trust (12,645) (15,000)
------- -------
Common shares outstanding for purposes
of computing primary earnings per
share, end of period 199,774 197,648
Effect of using weighted average common
and common equivalent shares outstanding (509) (576)
Effect of shares issuable under stock
option plans based on the treasury
stock method 863 1,206
------- -------
Shares used in computing earnings
per share 200,128 198,278
======= =======
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 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
$114.5 million (including additional amounts payable, principally to
former owners, of $15.6 million and the issuance of 6,529 shares of
the Company's common stock valued at $0.2 million) to acquire 63 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 $61.9 million (including $55.0
million related to P&R) and other liabilities of $23.7 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 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 50% owned 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 six 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):
Six Months Ended
March 31, 1995
------------------
Pro forma revenues $2,876,472
Pro forma net income $ 184,242
Pro forma earnings per common
and common equivalent share $.93
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 March 31, 1996, and September 30, 1995, was as follows
(in thousands):
March 31, September 30,
1996 1995
------------ -------------
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,985 $ 198,015 $ --
6.375% Senior Notes, net of
unamortized discount of $2,143 197,857 --
7 7/8% Senior Notes, net of
unamortized discount of $829
and $875 299,171 299,125
7.40% Debentures, net of
unamortized discount of
$2,109 and $2,136 397,891 397,864
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond
obligations 149,103 114,079
Other notes payable 601,321 585,211
---------- ----------
1,943,358 1,496,279
Commercial paper and short-term
facilities to be refinanced 857,468 231,988
---------- ----------
Total long-term debt 2,800,826 1,728,267
Less current portion 60,028 62,463
---------- ----------
Long-term debt, net of current
portion $2,740,798 $1,665,804
========== ==========
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, for the periods
ended March 31, 1996. The Debentures were 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 (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 March 31, 1996 and September 30, 1995 is
as follows (amounts in thousands):
March 31, September 30,
1996 1995
------------ -------------
United States -
Commercial paper $623,507 $ 34,317
Germany 233,961 197,671
-------- --------
$857,468 $231,988
======== ========
As of March 31, 1996, distributions from retained earnings could not
exceed $1.20 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 consoli-
dated 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net income for the first six months of fiscal 1996 was $131.8 million or
$.66 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 extra-
ordinary item was $144.0 million or $.72 per share. These results compare
with net income for the same period of the prior year of $182.4 million or
$.92 per share. Current year results were negatively affected by a signifi-
cant decline in worldwide recycling commodity prices and the severe winter
weather experienced in the second quarter in North America and Northern
Europe. In North America, apart 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. 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 third quarter of
fiscal 1996.
During the first six months of fiscal 1996, the Company concluded
63 acquisitions with a combined annual revenue base of $228 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 $600 million for the first six months of fiscal
1996 as compared with $636 million for the first six 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.
Six Months Ended
-------------------- Year Ended
3/31/96 3/31/95 9/30/95
--------- --------- ----------
Profitability Margins:
Gross profit margin 26.0% 28.5% 28.2%
Income from operations 11.0% 13.7% 13.7%
Income before income taxes,
minority interest and
extraordinary item 8.9% 12.1% 12.0%
Net income before extra-
ordinary item 5.1%(1) 6.7% 6.7%(1)
Net income 4.7%(1) 6.7% 6.7%(1)
Ratio of earnings to fixed
charges 2.93(1) 4.01 4.04(1)
- ----------
(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 (6).)
The six months ended March 31, 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 the severe winter weather
experienced in the second quarter in North America and Northern Europe.
In North America, despite the mitigating impact of floor price contracts,
the average price of recycling commodities for the first six months of fiscal
1996 declined 42% compared with the same period last year. The weighted
average market prices in North America for corrugated, office paper and
newspaper declined from $125 per ton in the first half of last year to
$73 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
currently in the process of implementing a mechanism to adjust recycling
customer pricing fast enough to preserve acceptable margins when commodity
values decline. Once implemented, this mechanism will allow 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 six months of fiscal 1996 when compared with the same period last
year. Profitability margins in the North American collection business
improved in the current year over the first six months of last year. Higher
profitability in the collection business, which reflected improved pricing,
more than offset any impact caused by the harsh winter weather. In the
international operations, the Company continued to experience difficulties in
attaining performance improvement in its Italian operations and, to a somewhat
lesser extent, in its Spanish and Australian operations, despite the continued
focus by management on improvement in these areas.
Revenues -
Revenues for the six months ended March 31, 1996, were $2.80 billion, a
3.8% increase over the same period last year. The following table reflects
total revenues of the Company by each of the principal lines of business
(dollar amounts in thousands):
Six Months Ended
---------------------- %
3/31/96 3/31/95 Change
---------- ---------- --------
North American Operations
(including Canada) -
Collection Services -
Solid Waste $1,402,908 $1,334,510 5.1%
Transfer and Disposal -
Solid Waste
Unaffiliated customers 251,506 262,423 (4.2)%
Affiliated companies 242,462 230,009 5.4%
---------- ----------
493,968 492,432 0.3%
Recycling Services 262,606 290,201 (9.5)%
Medical Waste Services 100,485 91,657 9.6%
Services Group and Other 41,260 38,552 7.0%
Elimination of affiliated
companies' revenues (242,462) (230,009) 5.4%
---------- ----------
Total North American Operations 2,058,765 2,017,343 2.1%
International Operations 745,903 684,810 8.9%
---------- ----------
Total Company $2,804,668 $2,702,153 3.8%
========== ==========
As the table below reflects, revenue growth for the six months ended
March 31, 1996, was due principally to acquisitions and was offset partially
by the negative impact on pricing of lower worldwide recycling commodity
prices.
Changes in Revenue for
Six Months Ended
March 31,
-----------------------
1996 1995
---------- ----------
Price (3.9)% 5.8%
Volume (0.5) 8.8
Acquisitions 7.4 24.9
Foreign currency translation 0.8 1.8
---- ----
Total Percentage Increase 3.8% 41.3%
==== ====
As shown above, acquisitions accounted for revenue growth of 7.4% for
the first six 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 3.9% due to pricing
in the first half of fiscal 1996 from the first six months 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 six 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. There was a decline
in revenues due to volume in the first six months of fiscal 1996 compared
with the same prior year period. The change in revenue due to volume was
affected negatively by the severe winter weather in the second quarter of
fiscal 1996 in North America and Northern Europe, particularly in the
Netherlands. In addition to inclement weather, the decline in landfill
volumes in the current year compared to the first half of fiscal 1995
resulted from self-imposed restricted volumes, the closing of certain
sites and the loss of disposal contracts.
Cost of Operations -
Cost of operations increased $144 million or 7.4% for the first six
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 71.5% for the six months
ended March 31, 1995 to 74.0% for the six months ended March 31, 1996. This
increase as a percent of revenues is principally attributable to the decline
in revenues due to lower worldwide recycling commodity prices in the first
half of fiscal 1996 compared with the same period of the prior year.
Selling, General and Administrative Expense (SG&A) -
SG&A expense was $421 million for the first six months of fiscal 1996,
an increase of 5.1% over the same period last year. SG&A expense as a percent
of revenues increased slightly from 14.8% of revenues for the six months ended
March 31, 1995 to 15.0% of revenues for the six months ended March 31, 1996.
The $21 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 as a percent of revenues in
the first half 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 million or 23.3% for the first six
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 did not change
significantly between the periods. 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 $92.7 million at March 31, 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 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.
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, during the quarter ended 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 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 $548 million of Otto Waste Services
debt, which has not been guaranteed by the Company) as a percentage of total
capitalization was 50% as of March 31, 1996, up from 47% at September 30, 1995.
The ratio would have been 42% at March 31, 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 replace-
ment 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
$200 million to $1.1 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 $294.9 million
for the six months ended March 31, 1996 from $424.9 million reported
for the same period last year, principally as a result of lower earnings
and the decrease in cash associated with the change in other liabilities,
offset partially by increased depreciation and amortization and the
increase in cash attributable to the change in trade receivables. 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 March 31, 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.
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, Region IX
of the United States Environmental Protection ("EPA") issued a
Finding and Notice of Violation to BFI Medical Waste Systems of
Arizona, Inc.("BFI Medical Waste"), a subsidiary of the Company, for
alleged opacity and permit violations at a medical waste incinerator
BFI Medical Waste operates in Maricopa County, Arizona. In February,
1996, BFI Medical Waste agreed to pay a monetary sanction of $125,000
in full settlement of the alleged violations.
In addition to the above-described litigation, the Company and certain sub-
sidiaries 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 4. Submission of Matters to Vote of Security Holders
On March 6, 1996, the Company held its Annual Meeting of Stockholders. The
matters voted on were (1) the election of four nominees to serve as directors
for three-year terms and (2) the approval of the selection of
Arthur Andersen LLP as auditors for the Company's 1996 fiscal year.
In the election for directors, Gerald Grinstein received 175,640,376 votes
and 1,682,748 votes were withheld; Norman A. Myers received 175,659,842 votes
and 1,663,282 votes were withheld; Bruce E. Ranck received 175,638,227 votes
and 1,684,897 votes were withheld; and William D. Ruckelshaus received
175,593,669 votes and 1,729,455 votes where withheld. In the approval of
auditors, the holders of 176,539,190 shares voted for, the holders of 327,065
shares voted against, and the holders of 456,869 shares abstained from voting
on the matter. There were no broker nonvotes on any of the proposals pre-
sented at the 1996 Annual Meeting of Stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4. Third Amendment, dated February 20, 1996, to
Rights Agreement, dated as of June 1, 1988, between
the Company and First Chicago Trust Company of New
York as successor Rights Agent.
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: May 10, 1996
EXHIBIT 4
THIRD AMENDMENT
TO
RIGHTS AGREEMENT
DATED AS OF JUNE 1, 1988
BETWEEN
BROWNING-FERRIS INDUSTRIES, INC.
AND
FIRST CHICAGO TRUST COMPANY OF NEW YORK
AS SUCCESSOR RIGHTS AGENT
Browning-Ferris Industries, Inc., a Delaware corporation (the
"Company") and Texas Commerce Bank National Association, a
national banking corporation entered into a Rights Agreement,
dated as of June 1, 1988 (the "Rights Agreement"). Unless
otherwise defined, all terms used herein shall have the meaning
set forth in the Rights Agreement. On March 1, 1989, the
Company, Texas Commerce Bank National Association and Morgan
Shareholder Services Trust Company ("MSSTC") entered into a
First Amendment to the Rights Agreement, whereby MSSTC, or its
successor in interest, became the successor Rights Agent. First
Chicago Trust Company of New York (the "Rights Agent") became
the successor in interest to MSSTC.
1. The Company and the Rights Agent hereby enter into this
Third Amendment to the Rights Agreement, whereby the Rights
Agreement is hereby amended as follows: (i) the percentage
"20%" shall be inserted instead of the percentage "10%" in
Section 1(r), and (ii) the percentage "30%" shall be
inserted instead of the percentage "15%" in Sections
3(a)(i) and 11(a)(ii)(C).
2. All other provisions of the Rights Agreement continue in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to the Rights Agreement to be duly executed and their
respective corporate seals to be hereunto affixed and attested,
as of the 20th day of February, 1996.
ATTEST: BROWNING-FERRIS INDUSTRIES, INC.
/s/ Eileen B. Schuler /s/ Gerald K. Burger
By:________________________ By:__________________________
Eileen B. Schuler Gerald K. Burger
Title: Assistant Secretary Title: Vice President
ATTEST: FIRST CHICAGO TRUST
COMPANY OF NEW YORK
/s/ Kathleen D. Whelply /s/ Charles D. Keryc
By:__________________________ By:__________________________
Kathleen D. Whelply Charles D. Keryc
Title: Asst. Vice President Title: Vice President
Exhibit 12
BROWNING-FERRIS INDUSTRIES, INC.
AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Dollar Amounts in Thousands)
Six Months
Ended March 31,
---------------------
1996 1995
-------- --------
Earnings Available for Fixed Charges:
Income before minority interest
and extraordinary item $150,486 $196,678
Income taxes 100,323 131,119
-------- --------
Income before income taxes,
minority interest and extraordinary
item 250,809 327,797
Consolidated interest expense 87,845 78,162
Interest expense related to
proportionate share of 50% owned
unconsolidated affiliates 10,569 9,764
Portion of rents representing the
interest factor 17,105 14,153
Less-Equity in earnings of affiliates
less than 50% owned 1,525 2,214
-------- --------
Total $364,803 $427,662
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $ 95,985 $ 82,819
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned affiliates 11,210 9,764
Portion of rents representing the
interest factor 17,105 14,153
-------- --------
Total $124,300 $106,736
======== ========
Ratio of Earnings to Fixed Charges 2.93 4.01
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Company's consolidated financial statements for the six months
ended March 31, 1996 and is qualified in its entirety by reference
to such financial statements. (In thousands except per share data.)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 175,869
<SECURITIES> 0
<RECEIVABLES> 968,647
<ALLOWANCES> (35,591)
<INVENTORY> 56,984
<CURRENT-ASSETS> 1,354,246
<PP&E> 6,524,622
<DEPRECIATION> (2,565,753)
<TOTAL-ASSETS> 7,680,581
<CURRENT-LIABILITIES> 1,261,594
<BONDS> 2,740,798
0
0
<COMMON> 35,582
<OTHER-SE> 2,746,588
<TOTAL-LIABILITY-AND-EQUITY> 7,680,581
<SALES> 0
<TOTAL-REVENUES> 2,804,668
<CGS> 0
<TOTAL-COSTS> 2,075,021
<OTHER-EXPENSES> 407,954
<LOSS-PROVISION> 13,117
<INTEREST-EXPENSE> 82,869
<INCOME-PRETAX> 250,809
<INCOME-TAX> 100,323
<INCOME-CONTINUING> 143,994
<DISCONTINUED> 0
<EXTRAORDINARY> 12,159
<CHANGES> 0
<NET-INCOME> 131,835
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
