<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 77079
Houston, Texas
- --------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 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 12, 1997: 212,805,670.
<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,
---------------------------- ----------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,471,252 $ 1,471,368 $ 4,380,120 $ 4,276,036
Cost of operations 1,095,201 1,115,350 3,260,849 3,190,371
----------- ----------- ----------- -----------
Gross profit 376,051 356,018 1,119,271 1,085,665
Selling, general and ad-
ministrative expense 194,267 221,216 620,931 642,287
Special charges, net 84,127 -- 84,127 --
----------- ----------- ----------- -----------
Income from operations 97,657 134,802 414,213 443,378
Interest, net 39,905 42,577 128,815 125,446
Equity in earnings of un-
consolidated affiliates (18,969) (13,816) (37,478) (38,918)
----------- ----------- ----------- -----------
Income before income taxes,
minority interest and
extraordinary items 76,721 106,041 322,876 356,850
Income taxes 30,688 42,417 129,150 142,740
Minority interest in
income of consolidated
subsidiaries 4,107 1,602 8,965 8,094
----------- ----------- ----------- -----------
Income before
extraordinary items 41,926 62,022 184,761 206,016
Extraordinary items -
Loss on redemption of
debt by unconsolidated
affiliate, net of income
tax benefit of $1,677 -- -- 3,124 --
Loss on redemption of debt,
net of income tax benefit
of $908 and $4,467 1,685 -- 1,685 12,159
----------- ----------- ----------- -----------
Net income $ 40,241 $ 62,022 $ 179,952 $ 193,857
=========== =========== =========== ===========
</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,
---------------------- -----------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of common and common
equivalent shares used
in computing earnings
per share 204,020 200,932 203,019 200,395
========== ========== ========== ==========
Earnings per common and
common equivalent share:
Income before extra-
ordinary items $ .21 $ .31 $ .91 $ 1.03
Extraordinary items (.01) -- (.02) (.06)
------- ------- ------- -------
Net income $ .20 $ .31 $ .89 $ .97
======= ======= ======= =======
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,
1997 1996
(Unaudited)
------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 99,312 $ 110,224
Short-term investments 79,062 26,394
Receivables -
Trade, net of allowances for doubtful
accounts of $37,974 and $40,622 854,151 929,316
Other 87,240 42,543
Inventories 42,301 51,536
Deferred income taxes 113,868 119,914
Prepayments and other 82,886 107,868
---------- ----------
Total current assets 1,358,820 1,387,795
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amortization
of $2,506,545 and $2,737,788 3,547,448 3,920,721
---------- ----------
OTHER ASSETS:
Cost over fair value of net tangible
assets of acquired businesses,
net of accumulated amortization of
$159,448 and $138,636 1,452,220 1,671,461
Other intangible assets, net of
accumulated amortization of $88,373
and $110,835 90,427 110,925
Deferred income taxes 118,299 122,617
Investments in unconsolidated affiliates 243,290 287,051
Other 91,719 100,336
---------- ----------
Total other assets 1,995,955 2,292,390
---------- ----------
Total assets $6,902,223 $7,600,906
========== ==========
</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,
1997 1996
(Unaudited)
-------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 33,692 $ 59,806
Accounts payable 424,841 507,731
Accrued liabilities -
Salaries and wages 106,966 129,203
Taxes, other than income 61,596 40,876
Other 449,238 430,187
Income taxes 22,990 35,586
Deferred revenues 184,025 195,101
---------- ----------
Total current liabilities 1,283,348 1,398,490
---------- ----------
DEFERRED ITEMS:
Accrued environmental and
landfill costs 511,212 541,838
Deferred income taxes 145,416 108,041
Other 255,331 275,374
---------- ----------
Total deferred items 911,959 925,253
---------- ----------
LONG-TERM DEBT, net of current portion 2,110,581 2,766,885
---------- ----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.16 2/3 par; 400,000,000
shares authorized; 213,387,697 and
213,390,458 shares issued 35,572 35,572
Additional paid-in capital 1,808,222 1,730,612
Retained earnings 1,048,265 1,031,331
Treasury stock, 1,147,931 and 1,027,278
shares, at cost (15,611) (11,926)
Stock and Employee Benefit Trust,
8,424,452 and 11,012,423 shares (280,113) (275,311)
---------- ----------
Total common stockholders' equity 2,596,335 2,510,278
---------- ----------
Total liabilities and common
stockholders' equity $6,902,223 $7,600,906
========== ==========
</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,
------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 179,952 $ 193,857
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization -
Property and equipment 381,268 384,981
Goodwill 33,317 34,725
Other intangible assets 19,191 25,086
Special charges, net 84,127 --
Deferred income tax expense 7,235 20,005
Amortization of deferred investment tax credit (530) (530)
Provision for losses on accounts receivable 23,444 20,427
Gains on sales of fixed assets (5,669) (3,984)
Equity in earnings of unconsolidated
affiliates, net of dividends received
and extraordinary item 14,726 (2,086)
Minority interest in income of consolidated
subsidiaries, net of dividends paid 8,657 7,299
Increase (decrease) in cash from changes in
assets and liabilities excluding effects
of acquisitions and divestitures -
Trade receivables (57,146) (33,896)
Inventories 3,219 2,139
Other assets 35,691 15,765
Other liabilities (5,056) (115,787)
---------- ----------
Total adjustments 542,474 354,144
---------- ----------
Net cash provided by operating activities 722,426 548,001
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (315,458) (656,628)
Payments for businesses acquired (15,353) (162,722)
Proceeds from businesses divested 300,099 --
Investments in unconsolidated affiliates (37,139) (92,389)
Proceeds from disposition of assets 33,257 44,383
Purchases of short-term investments (53,603) --
Sales of short-term investments -- 273,647
Return of investment in unconsolidated
affiliates 35,625 37,863
---------- ----------
Net cash used in investing activities (52,572) (555,846)
---------- ----------
</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,
------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of stock 46,938 12,189
Proceeds from issuance of indebtedness 114,535 979,813
Repayments of indebtedness (735,803) (888,715)
Dividends paid (102,947) (101,615)
---------- ----------
Net cash provided by (used in)
financing activities (677,277) 1,672
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES (3,489) (1,542)
---------- ----------
NET DECREASE IN CASH (10,912) (7,715)
CASH AT BEGINNING OF PERIOD 110,224 92,808
---------- ----------
CASH AT END OF PERIOD $ 99,312 $ 85,093
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest, net of capitalized amounts $ 122,596 $ 109,663
Income taxes $ 137,167 $ 134,161
</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, 1996, as filed with the
Securities and Exchange Commission.
In October 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121 - "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", which was issued by the
Financial Accounting Standards Board in March 1995. The statement sets forth
standards for the recognition and measurement of impairment of long-lived
assets, including certain identifiable intangible assets and goodwill related
to those assets, to be held and used in an entity's operations or expected to
be disposed of. As the Company's prior accounting practices were substantially
in compliance with the provisions of the new standard, the adoption of SFAS No.
121 had no material effect on the Company's financial position or results of
operations.
In January 1997, the Securities and Exchange Commission issued Release
33-7386 governing disclosure requirements for financial instruments, including
derivatives. The disclosures related to the Company's accounting policies for
derivative transactions are required to be included in the Company's financial
statements for the quarter ended June 30, 1997. The Company believes that the
disclosures included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1996 are in compliance with the requirements of this
release.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 - "Earnings Per Share". This statement, which establishes new standards for
computing and presenting earnings per share, is effective for the Company's
quarter ending December 31, 1997 and requires restatement for all periods
presented. The Company believes that the adoption of SFAS No. 128 will not have
a material effect on its earnings per share calculations.
8
<PAGE> 9
(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,
--------------------
1997 1996
------- -------
<S> <C> <C>
Common shares outstanding, end of period 212,240 212,363
Less - Shares held in the Stock and
Employee Benefit Trust (8,424) (11,326)
------- -------
Common shares outstanding for purposes
of computing primary earnings per
share, end of period 203,816 201,037
Effect of using weighted average common
and common equivalent shares outstanding (1,552) (1,505)
Effect of shares issuable under stock
option plans based on the treasury
stock method 755 863
------- -------
Shares used in computing earnings
per share 203,019 200,395
======= =======
</TABLE>
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 in the period prior to
their redemption in February 1996 and, accordingly, has not been included in
the computation. The 7.25% Automatic Common Exchange Securities had no effect
on the computations for the periods presented.
9
<PAGE> 10
(3) Special Charges -
Fourth Quarter of Fiscal 1996 ($447 million) -
Special charges of $447 million ($362 million or $1.80 per share after
income taxes) were included in the Company's results of operations for the
fourth quarter of fiscal 1996. Charges of $349 million resulted principally
from management decisions to sell the Company's Italian operations, divest
certain domestic and international non-core business assets and operations and
close certain recycling facilities not expected to achieve desired performance
objectives. The remainder of the special charges related to the writedown of
the Company's investment in the Azusa, California landfill to fair value, which
was determined based upon the present value of the estimated future cash flows
using a discount rate commensurate with the risks involved. This writedown was
a result of the changing competitive nature of waste disposal in the Los
Angeles market area and the continuing negative legal climate, including
adverse decisions by California judicial and regulatory authorities in fiscal
1996 and early fiscal 1997, bearing on the site's ability to accept municipal
solid waste. During the third quarter of fiscal 1997, the Company sold the
Azusa, California landfill facility.
The Company completed the sale of its Italian operations in late June
1997. The Company's investment in its Italian operations, before considering
special charges, was $206 million as of September 30, 1996. Losses accumulated
in the foreign currency translation component of common stockholders' equity
(approximately $53 million) were recognized as an additional loss on the sale
of the Company's Italian operations upon consummation of the sale in June 1997
and were included in the third quarter special charge (see discussion below).
Summary financial information related to the Company's Italian operations is as
follows (in thousands):
<TABLE>
<CAPTION>
For the Nine Months
Ended
June 30,
--------------------- For the Year Ended
1997 1996 September 30, 1996
--------- ------- ------------------
<S> <C> <C> <C>
Revenues $ 81,926 $88,450 $ 122,782
Losses from
operations and
equity in earnings
of unconsolidated
affiliates before
special charges $ (2,190)(1) $ (763) $ (4,019)(2)
</TABLE>
(1) Does not reflect impact of special charges taken in third quarter of
fiscal 1997 (see below).
(2) Does not reflect special charge of $178.6 million included in the fourth
quarter of fiscal 1996.
The fourth quarter special charge also included approximately $177 million
of assets as of September 30, 1996 associated with domestic and international
non-core business assets and operations to be divested and recycling facilities
to be closed during fiscal 1997. The results of operations for these non-core
business assets and operations and recycling facilities were not material to
the Company's consolidated results of operations for fiscal 1996 as the
aggregated revenues and income (loss) from operations of these assets and
operations
10
<PAGE> 11
represented less than 4% of the Company's corresponding consolidated totals, on
a pre-special charge basis. During the first nine months of the current fiscal
year, the Company sold a number of these business operations and closed 33
recycling facilities.
Third Quarter of Fiscal 1997 ($84 million) -
Special charges of $84 million ($50 million or $0.25 per share after
income taxes) were reported in the third quarter of fiscal 1997. Included in
these special charges were non-cash expenses of $53 million due to cumulative
foreign currency translation losses associated with the sale of Italian
business operations and $96 million for anticipated losses related to decisions
to divest additional underperforming or non-core business operations and assets
located primarily in the United Kingdom, the Netherlands and the United States.
These losses were offset partially by net gains of $65 million arising largely
from 34 divestitures completed in the current quarter, principally in North
America.
The results of operations for these additional underperforming or non-core
business operations to be divested were not material to the Company's
consolidated results of operations for the nine months ended June 30, 1997 as
the aggregated total assets, revenues and income (loss) from operations of
these assets and business operations represented approximately 3% or less of
the Company's corresponding consolidated totals, on a pre-special charge basis.
(4) Business Combinations -
During the current fiscal year, the Company paid approximately $21.3
million (including additional amounts payable, principally to former owners, of
$5.9 million) to acquire 17 solid waste businesses, which were accounted for as
purchases. In connection with these acquisitions, the Company recorded
additional interest-bearing indebtedness of $.1 million and other liabilities
of $1.0 million. The results of these business combinations are not material to
the Company's consolidated results of operations or financial position.
During the prior fiscal year, the Company paid approximately $243.4
million (including additional amounts payable, principally to former owners, of
$23.3 million and the issuance of 974,085 shares of the Company's common stock
valued at $28.3 million) to acquire 102 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 $69.3 million (including $55.0 million related
to P&R) and other liabilities of $37.4 million. The results of these business
combinations were not material to the Company's consolidated results of
operations or financial position.
The results of all businesses acquired in fiscal years 1997 and 1996 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
11
<PAGE> 12
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.
(5) Long-Term Debt -
Long-term debt at June 30, 1997, and September 30, 1996, was as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------------ -------------
<S> <C> <C>
Senior indebtedness:
6.10% Senior Notes, net of
unamortized discount of $1,617
and $1,838 $ 198,383 $ 198,162
6.375% Senior Notes, net of
unamortized discount of $1,915
and $2,051 198,085 197,949
7 7/8% Senior Notes, net of
unamortized discount of $714
and $783 299,286 299,217
7.40% Debentures, net of
unamortized discount of
$2,042 and $2,082 397,958 397,918
9 1/4% Debentures 100,000 100,000
Solid waste revenue bond
obligations 171,726 149,127
Other notes payable 523,914 804,721
---------- ----------
1,889,352 2,147,094
Commercial paper and short-term
facilities to be refinanced 254,921 679,597
---------- ----------
Total long-term debt 2,144,273 2,826,691
Less current portion 33,692 59,806
---------- ----------
Long-term debt, net of current
portion $2,110,581 $2,766,885
========== ==========
</TABLE>
During December 1996, the Company amended the terms of its existing $750
million Multicurrency Revolving Credit Agreement which was originally
established to fund the Company's acquisition of Attwoods plc in December 1994.
Under the terms of the amended agreement, the facility has a 364-day term with
a one-year term-out option available to the Company at any time prior to its
maturity date in December 1997. The agreement contains a net worth requirement
consistent with the Company's $1 billion revolving credit agreement.
It is the Company's intention to refinance certain commercial paper
balances and other outstanding borrowings classified as long-term
12
<PAGE> 13
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, 1997 and September 30, 1996 is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------------ -------------
<S> <C> <C>
United States -
Commercial paper $ -- $438,296
Germany 254,921 241,301
-------- --------
$254,921 $679,597
======== ========
</TABLE>
As of June 30, 1997, distributions from retained earnings could not
exceed $1.1 billion under the most restrictive of the Company's net worth
maintenance requirements.
(6) Extraordinary Items -
During the second quarter of fiscal 1997, one of the Company's
unconsolidated affiliates, American Ref-Fuel Company of Hempstead, incurred a
pre-tax charge to expense of $9.6 million associated with the redemption of
approximately $250 million principal amount of Series 1985 Bonds, which were
refinanced. As a result, the Company has reflected an extraordinary charge,
after tax, of $3.1 million (or approximately $.02 per share) in its
consolidated statement of income for the quarter ended March 31, 1997, related
to its 50% ownership interest in this affiliate. Interest was payable on the
Series 1985 Bonds due 2010 at a weighted average interest rate of approximately
7.3%, compared with the weighted average interest rate of approximately 5% for
the new bonds, which are also due in 2010.
During the third quarter of fiscal 1997, the Company redeemed $160 million
of private placement notes previously scheduled to mature in fiscal 1998 and
$11.8 million of tax-exempt debt associated with a landfill in Arizona sold by
the Company. These redemptions resulted in extraordinary charges to the
Company's net income of $1.7 million, after tax, or approximately $.01 per
share in the third quarter.
(7) 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.
13
<PAGE> 14
Environmental Proceedings.
The Company and certain subsidiaries are involved in various 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.
(8) 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 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
The following discussion and analysis of the Company's operations,
financial performance and results includes statements that are not historical
facts. Such statements are forward-looking statements based on the Company's
expectations and as such, these statements are subject to uncertainty and risk.
These statements should be read in conjunction with the "Regulation",
"Competition" and "Waste Disposal Risk Factors" sections of the Company's
Annual Report on Form 10-K for the year ended September 30, 1996 ("the Form
10-K"), which describes many of the external factors that could cause the
Company's actual results to differ materially from the Company's expectations.
The Company's Form 10-K is on file with the U.S. Securities and Exchange
Commission, a copy of which is available without charge upon written request
to: Browning-Ferris Industries, Inc., P.O. Box 3151, Houston, Texas 77253,
Attention: Secretary.
RESULTS OF OPERATIONS
Net income for the nine months ended June 30, 1997, was $235.2 million
($1.16 per share), before special charges and extraordinary items, an increase
of 14.2% from the same prior year period, on consolidated revenues of $4.380
billion. Pre-tax special charges reported in the third quarter of fiscal 1997
were $84 million ($50 million or $0.25 per share after tax). The fiscal 1997
nine-month results also included after-tax extraordinary items of $4.8 million,
or $0.02 per share, associated with the retirement of debt. After the special
charges and extraordinary items, net income for the nine months ended June 30,
1997 was $180.0 million, or $0.89 per share.
Included in the third quarter pre-tax special charges of $84 million were
non-cash expenses of $53 million due to cumulative foreign currency translation
losses associated with the sale of Italian business operations and $96 million
for anticipated losses related to decisions to divest additional
underperforming or non-core business operations and assets located primarily in
the United Kingdom, the Netherlands and the United States. These losses were
offset partially by net gains of $65 million arising largely from 34
divestitures completed in the third quarter, principally in North America. The
$4.8 million of extraordinary items included in the current year-to-date
results were associated with the redemption and refinancing of $250 million of
debt of one of the Company's unconsolidated affiliates, American Ref-Fuel
Company of Hempstead, the redemption of $11.8 million in tax-exempt debt
associated with a landfill in Arizona sold by the Company in the third quarter
and the redemption of $160 million in private placement notes previously
scheduled to mature in fiscal 1998.
These year-to-date results compare with net income before an extraordinary
item for the same fiscal 1996 period of $206.0 million, or $1.03 per share, on
consolidated revenues of $4.276 billion. The fiscal 1996 extraordinary item of
$12.2 million, after tax ($0.06 per share), was associated with the redemption
of $745 million of Convertible Subordinated Debentures. After the extraordinary
item, net
15
<PAGE> 16
income for the nine months ended June 30, 1996, was $193.9 million or $0.97 per
share.
Fiscal 1997 year-to-date results, before special charges and extraordinary
items, were favorably affected by improved operating profit in the Company's
North American operations, which resulted from actions taken to (1) reduce SG&A
staffing levels and operating costs in the Company's collection and recycling
businesses, (2) improve customer pricing and (3) divest underperforming
operations and assets. Similar actions taken in the Company's international
operations have also recently begun to impact favorably the Company's
international operating results. Current year-to-date results were affected
negatively by severance and reorganization expenses of approximately $18
million associated with both the reorganization of North American operations in
June 1996 and the reductions, principally in the first half of the current
fiscal year, in worldwide employee staffing levels to effect improvements in
operating and administrative efficiency. Additionally, an increase in the
Company's income from operations of $19.5 million, principally due to lower
depreciation and amortization expense, was reflected in the current
year-to-date earnings as a result of the special charges of $447 million taken
in the fourth quarter of fiscal 1996 (see Note (3) of Notes to Consolidated
Financial Statements).
During the first nine months of fiscal 1997, the Company's actions
reflected its previously announced strategic shift in focus away from an
emphasis on external growth to an emphasis on internal growth and on increasing
return on assets. The redeployment and retraining of the sales force that was
completed in the first half of the current fiscal year is enabling sales
personnel to better focus on the Company's customers. In addition, the plan to
reduce selling, general and administrative expenses ("SG&A"), commenced during
the first quarter of fiscal 1997, has resulted in the reduction of
approximately 1,300 employees worldwide since the Company announced its
reorganization in June 1996 and the consolidation of certain business and
administrative activities. SG&A as a percent of revenues was 14.2% for the
first nine months of fiscal 1997, lower than the same period of the prior year
(15.0%). With a quarter remaining in fiscal 1997, the Company is on track to
exceed its SG&A milestone, which is to reduce SG&A as a percent of revenues to
14.6% for the fiscal year.
During the first quarter of fiscal 1997, the Company completed its initial
marketplace and business line strategic reviews and identified core and
non-core business operations (including those considered in the special charges
incurred in the fourth quarter of fiscal 1996) to be marketed and sold with
aggregate annual revenues of approximately $270 million in the U.S. and $130
million outside of the U.S. The Company has continued its strategic reviews of
underperforming marketplaces since the first quarter. The goal of these reviews
is to identify the key drivers of performance or underperformance in each
marketplace and identify actions to improve the business operations. However,
in some cases, these reviews have resulted in a conclusion to divest the
operations as it is evident that the Company will be unable to achieve its
desired returns even with identified areas for improvement. As a result of
these reviews, the Company has identified additional business operations with
annual revenues of $130 million in
16
<PAGE> 17
North America and $155 million (a portion of which is not consolidated for
financial reporting purposes) in international operations to be divested
(including those considered in the current quarter special charges). Through
June 1997, the Company has sold business operations with annual revenues of
approximately $450 million, with most of these sales concluded subsequent to
March 31, 1997. The Company has also identified real estate assets of
approximately $60 million that are actively being marketed.
In March 1997, the Company initiated an effort to reduce operating
expenses by $100 million on an annualized basis by the beginning of the fourth
quarter of fiscal 1997. Through June 30, the Company had reduced operating
headcount by approximately 800 employees through the re-routing of trucks,
consolidations and closures of operating facilities and, where appropriate,
after careful review, a reduction in supervisory personnel. Although this goal
has not yet been fully achieved, the ability to further reduce operating
expenses in recycling business operations will significantly affect the
Company's ability to achieve this operating expense reduction goal by fiscal
yearend. The focus in the recycling business is on (1) cleaning up the volumes
received to reduce sorting costs and increase the quality or value of the
material to be sold and (2) closing or selling the remaining higher cost, lower
efficiency facilities. During the first nine months of fiscal 1997, the Company
closed or sold 49 recycleries. The Company's focus on asset management
continued during the third quarter. Reduced capital spending will lead to lower
fixed costs, which is another contributor to the Company's effort to reduce
operating costs. Capital expenditures, including acquisitions, for the first
nine months of fiscal 1997 were limited to $352 million.
The following profitability ratios (shown as a percent of revenues)
reflect certain profitability trends for the Company's operations. The Company
has established an operating profit milestone for fiscal 1997 to increase
income from operations as a percent of revenues to 12%. (Progress toward this
goal will be measured on a pre-special charge basis.) Also presented below are
return on asset information and ratios of earnings to fixed charges.
17
<PAGE> 18
<TABLE>
<CAPTION>
Nine Months Ended
------------------- Year Ended
6/30/97 6/30/96 9/30/96
-------- --------- ----------
<S> <C> <C> <C>
Profitability Margins:
Gross profit 25.6% 25.4% 25.3%
Income from operations before
special charges 11.4% 10.4% 10.2%
Income from operations 9.5% 10.4% 2.5%
Income before income taxes,
minority interest and
extraordinary items 7.4% 8.3% 0.5%
Net income before special
charges and extraordinary
items(1) 5.4% 4.8% 4.7%
Net income (loss)(1) 4.1% 4.5% (1.8%)
Other Financial Information:
Return on Gross Assets 8.66% 8.55% 11.4%
Ratio of earnings to fixed
charges before special
charges(1) 3.02 2.84 2.77
Ratio of earnings to fixed
charges(1) 2.59 2.84 1.02
</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 (8) of
Notes to Consolidated Financial Statements.)
Improvement was reflected in all of the profitability margins, before
considering special charges and extraordinary items, presented above for the
nine months ended June 30, 1997 compared with the same period of the prior
year. Although these profitability margins continued to be affected negatively
in domestic operations by the decline in the weighted average value of
recycling commodities in the current fiscal year as compared with the first
nine months of the prior year, the North American income from operations margin
reflected improvement as a result of improved profitability in solid waste
collection, recycling and, to a lesser extent, transfer and disposal
operations. Reduced SG&A expenses as a percentage of revenues also affected
favorably the North American income from operations margin. The weighted
average market prices for recycling commodities in North America, principally
corrugated, office paper and newspaper, declined by 12%, to approximately $62
per ton in the first nine months of the current year from approximately $70 per
ton in the comparable period last year. Current year profitability margins were
also affected negatively by the increased operating and SG&A costs associated
with current year employee severance and reorganization expenses of
approximately $18 million, although this effect was more than offset by the
increase in income from operations of $19.5 million associated principally with
the reduced depreciation and amortization expense resulting from the special
charges taken in the fourth quarter of fiscal 1996. In the Company's
international operations, the gross
18
<PAGE> 19
profit margin was flat and income from operations margin improved in the current
year compared with the same period of the prior year. International results,
although adversely impacted by severance costs and foreign exchange losses,
improved principally as a result of higher seasonal operating profitability from
German operations.
As stated above, management's focus has shifted from external growth to an
emphasis on internal growth with success measured by cash flow and return on
gross assets. Return on gross assets ("ROGA"), although not a measure of
financial performance under generally accepted accounting principles, is a new
measurement for the Company representing the quotient of operating cash flow
divided by average gross assets, where operating cash flow and gross assets are
defined generally as follows:
Operating cash flow - the sum of (i) net income before extraordinary
items, (ii) minority interest, (iii) interest expense, net of related
income tax benefit, (iv) depreciation and amortization expense and (v)
asset impairment writedowns (e.g. special charges in fiscal 1996 and
the current quarter of fiscal 1997).
Gross assets - the sum of total assets, accumulated depreciation and
amortization, and asset impairment writedowns (until such assets are
sold or otherwise disposed of -- approximately $175 million at June
30, 1997 and $382 million at September 30, 1996) less the sum of (i)
current liabilities, net of interest-bearing indebtedness included
therein, (ii) accrued environmental and landfill costs associated with
the continuing operations of the Company (approximately $447 million
at June 30, 1997) and (iii) deferred income tax liabilities.
Gross assets in the ROGA computations for the first nine months of a fiscal
year is the average of the applicable beginning of year and end of first,
second and third quarter amounts; gross assets for a fiscal year is the average
of the applicable five quarter-end amounts in the period. The Company
established a ROGA milestone for fiscal 1997 to increase ROGA by 0.5% from
fiscal 1996 to 11.9%.
Total assets decreased from $7.60 billion at September 30, 1996 to $6.90
billion at June 30, 1997. Average gross assets of approximately $8.72 billion in
the computation of ROGA resulted from a decline in gross assets at June 30,
1997, compared with September 30, 1996 ($9.06 billion). The decreases in assets
and gross assets were principally attributable to the divestitures completed
through June 30, 1997, and the decrease in assets related to foreign currency
exchange, a result of the strengthening U.S. dollar against the German, Dutch,
and Spanish currencies, offset partially by capital expenditures during the
first nine months of fiscal 1997. The decrease in assets was also attributable
to the increase in accumulated depreciation and amortization.
19
<PAGE> 20
While the Company is on track to exceed its fiscal 1997 milestones for
lower SG&A costs, reduced capital spending and reduced interest-bearing debt
levels, management believes that the operating income margin and ROGA
milestones are very challenging, but still may be achievable. Management
believes that operating margin and ROGA improvements will come from decreased
operating and SG&A costs, additional divestitures, internal growth and normal
seasonal improvement over the remainder of the fiscal year.
EBITDA (defined herein as income from operations plus depreciation and
amortization expense before considering special charges) was $932 million for
the first nine months of fiscal 1997 as compared with $888 million for the
first nine months of last year. EBITDA, which is not a measure of financial
performance under generally accepted accounting principles, is included in this
discussion because the Company understands that such information is used by
certain investors when analyzing the Company's financial condition and
performance.
Revenues -
Revenues for the nine months ended June 30, 1997, were $4.38 billion, a
2.4% increase over the same period last year. The following table reflects
total revenues of the Company by each of the principal lines of business
(dollar amounts in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
---------------------- %
6/30/97 6/30/96 Change
---------- ---------- --------
<S> <C> <C> <C>
North American Operations
(including Canada) -
Collection Services -
Solid Waste $2,203,095 $2,132,372 3.3%
Transfer and Disposal -
Solid Waste
Unaffiliated customers 413,600 391,307 5.7%
Affiliated companies 391,230 378,014 3.5%
---------- ----------
804,830 769,321 4.6%
Recycling Services 414,802 397,274 4.4%
Medical Waste Services 149,592 150,225 (0.4)%
Services Group and Other 73,058 62,830 16.3%
Elimination of affiliated
companies' revenues (391,230) (378,014) 3.5%
---------- ----------
Total North American Operations 3,254,147 3,134,008 3.8%
International Operations 1,125,973 1,142,028 (1.4)%
---------- ----------
Total Company $4,380,120 $4,276,036 2.4%
========== ==========
</TABLE>
20
<PAGE> 21
As the table below reflects, revenue growth for the nine months ended June
30, 1997, was due principally to acquisitions and, to a lesser extent, pricing
and volume which more than offset the decline related to the divestiture of
business operations and foreign currency translation.
<TABLE>
<CAPTION>
Changes in Revenue for
Nine Months Ended
June 30,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Price 1.4% (5.9)%
Volume 0.8 0.1
Acquisitions 2.7 6.3
Divestitures (0.8) --
Foreign currency translation (1.7) 0.1
---- ----
Total Percentage Increase 2.4% 0.6%
==== ====
</TABLE>
As shown above, acquisitions accounted for revenue growth of 2.7% for the
first nine months of fiscal 1997 over the same period of the prior year.
Revenue growth due to acquisitions was attributable principally to acquisitions
consummated in fiscal 1996. No significant acquisitions were closed in the
first nine months of the current year with the new emphasis on internal rather
than external growth. Revenues increased due to change in price during the
first nine months of fiscal 1997 despite the decline in pricing in the North
American recycling business previously discussed. Increases in revenues due to
price were noted in the Company's collection, medical waste and international
businesses while a decrease was experienced in the transfer and disposal
business. The increases in revenue due to volume in the first nine months of
the current year compared with the same period of the prior year were driven by
increases in the North American collection, transfer and disposal and recycling
businesses. Revenues also reflect the effect of divestitures and lower
international revenues from foreign currency translation due to the stronger
U.S. dollar.
Cost of Operations -
Cost of operations increased $70 million or 2.2% for the first nine months
of fiscal 1997, compared with the same period of the prior year. Most of the
increase in cost of operations is attributable to businesses acquired in fiscal
1996. These increased costs have been offset partially by the impact of
divestitures of certain business operations and the operating cost reduction
program initiated in March 1997. As a result of this cost reduction program,
the Company has reduced its operating headcount by approximately 800 employees
through the re-routing of trucks, consolidations and closures of operating
facilities and, where appropriate, after careful review, a reduction in
supervisory personnel. Cost of operations as a percent of revenues decreased
from 74.6% for the nine months ended June 30, 1996 to 74.4% for the nine months
ended June 30, 1997. Included in cost of operations is depreciation and
amortization expense of approximately $360.0 million and $362.9 million for the
nine months ended June 30, 1997 and 1996, respectively.
21
<PAGE> 22
Selling, General and Administrative Expense -
SG&A was $621 million for the first nine months of fiscal 1997, a decrease
of 3.3% from the same period last year. SG&A as a percent of revenues decreased
from 15.0% of revenues for the nine months ended June 30, 1996 to 14.2% of
revenues for the nine months ended June 30, 1997. The $21.4 million decrease in
SG&A was driven largely by the reduction in employees worldwide and other cost
reduction actions to improve operating and administrative efficiency. This
decrease was offset partially by higher costs associated with the Company's
acquisition activities and approximately $18 million of severance and
reorganization expenses included in SG&A associated with both the
reorganization of North American operations in June 1996 and the current year
reduction of employees worldwide. Included in SG&A for the nine months ended
June 30, 1997 and 1996 was depreciation and amortization expense of $73.8
million and $81.9 million, respectively.
Special Charges, net -
Reported in the third quarter of fiscal 1997 were pre-tax special charges
of $84 million. The special charges included non-cash expenses of $53 million
due to cumulative foreign currency translation losses associated with the sale
of Italian business operations and $96 million for anticipated losses related
to decisions to divest additional underperforming or non-core business
operations located primarily in the United Kingdom, the Netherlands and the
United States. These losses were offset partially by net gains of $65 million
arising largely from 34 divestitures completed in the third quarter,
principally in North America.
Net Interest Expense -
Net interest expense increased $3.4 million or 2.7% for the first nine
months of fiscal 1997 compared with the same period of the prior year as a
result of the increase in average debt outstanding between the periods,
associated principally with fiscal 1996 capital expenditures of approximately
$1.2 billion. At the end of the third quarter of fiscal 1997, debt outstanding
had declined by $682 million from yearend fiscal 1996, largely as a result of
the receipt of net proceeds from divested operations, increased cash flow as a
result of improved operating performance and the limitation on capital spending
during the period. The Company has established a milestone for long-term debt
which is to maintain interest-bearing debt at or below the September 30, 1996
level.
Equity in Earnings of Unconsolidated Affiliates -
Equity in earnings of unconsolidated affiliates declined slightly between
the periods primarily due to the reduction in equity earnings from P&R due to
the acquisition of the remaining 50% ownership interest of P&R by Otto Waste
Services during the second quarter of fiscal 1996 offset to a large extent by
improved earnings from the Company's North American waste-to-energy and Hong
Kong equity affiliates. Included in this caption are the earnings of
unconsolidated affiliates of Otto Waste Services. The Company consolidates Otto
Waste Services'
22
<PAGE> 23
financial results, which include equity in earnings of Otto's unconsolidated
affiliates.
Minority Interest in Income of Consolidated Subsidiaries -
The increase in minority interest in income of consolidated subsidiaries
was not significant, $0.9 million for the first nine months of fiscal 1997
compared with the same period of last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $10.7 million at September 30,
1996, compared with working capital of $75.5 million at June 30, 1997. 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 (8) of Notes to Consolidated Financial Statements, 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 totaling over
$400 million are received by the Company no later than June 30, 1998.
Long-term indebtedness including the current portion of long-term
debt(including $498.2 million of Otto Waste Services debt, which has not been
guaranteed by the Company) as a percentage of total capitalization was 45% as
of June 30, 1997, down from 53% at September 30, 1996. The ratio would have
been 37% at June 30, 1997, 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 1997 was established at $790
million to provide for normal replacement capital needs in the Company's core
business, to provide new assets to support planned revenue growth within all
consolidated businesses and in anticipation of selective business acquisition
and development opportunities. This is a significant reduction from the $1.2
billion level of capital expenditures in fiscal 1996 and is reflective of the
new emphasis on internal rather than external growth. As a result of cash flows
from operations, proceeds from divestitures and reduced capital spending, the
Company has generated surplus cash through the first nine months of fiscal
1997, a portion of which has been utilized to retire outstanding indebtedness.
The Company continues to assess the various alternatives for the use of such
surplus cash among investing additional capital in the business, increasing
dividends, additional debt retirement or a common share repurchase program.
As of June 30, 1997, there have been no significant changes in balance
sheet caption amounts compared with September 30, 1996, and
23
<PAGE> 24
there have been no material changes in the Company's financial condition from
that reported at September 30, 1996, except with respect to the declines in
balance sheet amounts associated with the impact of foreign currency exchange
resulting from the strengthening of the U.S. dollar against the German, Dutch
and Spanish currencies, and except as disclosed herein.
24
<PAGE> 25
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain subsidiaries are involved in various 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.
25
<PAGE> 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12. Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
27. Financial Data Schedule.
(b) Reports on Form 8-K: None
26
<PAGE> 27
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 13, 1997
27
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
12. Computation of Ratio of Earnings to Fixed Charges of
Browning-Ferris Industries, Inc. and Subsidiaries.
27. Financial Data Schedule.
</TABLE>
<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,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Earnings Available for Fixed Charges:
Income before minority interest
and extraordinary items $193,726 $214,110
Income taxes 129,150 142,740
-------- --------
Income before income taxes, minority
interest and extraordinary item 322,876 356,850
Consolidated interest expense 134,086 132,497
Interest expense related to
proportionate share of 50% owned
unconsolidated affiliates 27,470 14,411
Portion of rents representing the
interest factor 28,016 25,703
Less-Equity in earnings of affiliates
less than 50% owned 2,616 2,481
-------- --------
Total $509,832 $526,980
======== ========
Fixed Charges:
Consolidated interest expense and
interest costs capitalized $141,470 $144,539
Interest expense and interest costs
capitalized related to proportionate
share of 50% owned unconsolidated
affiliates 27,470 15,607
Portion of rents representing the
interest factor 28,016 25,703
-------- --------
Total $196,956 $185,849
======== ========
Ratio of Earnings to Fixed Charges 2.59(1) 2.84
======== ========
</TABLE>
(1) Excluding the effects of the third quarter special charges of $84.1
million, the ratio of earnings to fixed charges is 3.02.
<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,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 178,374
<SECURITIES> 0
<RECEIVABLES> 979,365
<ALLOWANCES> (37,974)
<INVENTORY> 42,301
<CURRENT-ASSETS> 1,358,820
<PP&E> 6,053,993
<DEPRECIATION> (2,506,545)
<TOTAL-ASSETS> 6,902,223
<CURRENT-LIABILITIES> 1,283,348
<BONDS> 2,110,581
0
0
<COMMON> 35,572
<OTHER-SE> 2,560,763
<TOTAL-LIABILITY-AND-EQUITY> 6,902,223
<SALES> 0
<TOTAL-REVENUES> 4,380,120
<CGS> 0
<TOTAL-COSTS> 3,260,849
<OTHER-EXPENSES> 681,614
<LOSS-PROVISION> 23,444
<INTEREST-EXPENSE> 128,815
<INCOME-PRETAX> 322,876
<INCOME-TAX> 129,150
<INCOME-CONTINUING> 184,761
<DISCONTINUED> 0
<EXTRAORDINARY> 4,809
<CHANGES> 0
<NET-INCOME> 179,952
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
</TABLE>
