UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3970
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1483991
(State of incorporation) (I.R.S. Employer Identification No.)
Camp Hill, Pennsylvania 17001-8888
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number (717) 763-7064
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 ( )
Title of Each Class Outstanding Shares at March
31, 1994
Common Stock Par Value $1.25 25,091,113
Preferred Stock Purchase Rights 25,091,113
<TABLE>
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) Three Months
Ended
March 31
<CAPTION>
(In thousands, except per share amounts) 1994
1993
Revenues:
<S> <C> <C>
Sales $ 318,672 $
345,804
Equity in net income of unconsolidated entities 15,028
899
Gain on sale of investment 5,867
8,971
Other revenues 4,101
445
_______
_______
Total revenues 343,668
356,119
_______
_______
Costs and expenses:
Cost of sales 252,997
273,562
Selling, administrative and general expenses 47,660
39,616
Research and development 931
1,458
Provision (gain) for facility discontinuances 17
(137)
Other, net 1,034
(267)
_______
_______
Total costs and expenses 302,639
314,232
_______
_______
Income before interest, taxes, minority interest
and cumulative effect of accounting change 41,029
41,887
Interest income 1,481
1,943
Interest expense (8,330)
(2,940)
______
______
Income before taxes, minority interest, and
cumulative effect of accounting change 34,180
40,890
Provision for income taxes 14,936
16,788
______
______
Income before minority interest and cumulative
effect of accounting change 19,244
24,102
Minority interest 616
(55)
______
______
Income before cumulative
effect of accounting change 18,628
24,157
Cumulative effect of change in
accounting for income taxes -
6,802
_______
_______
Net income $ 18,628 $
30,959
_______
_______
_______
_______
Average shares of common stock outstanding 25,012
25,324
_______
_______
_______
_______
Earnings per common share:
Income before cumulative effect of accounting change $ .74 $
.95
Cumulative effect of change in accounting -
.27
_______
_______
Net income per share $ .74 $
1.22
_______
_______
_______
_______
Cash dividends declared per share $ .35 $
.35
_______
_______
_______
_______
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<CAPTION>
March 31
December 31
1994
1993
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 50,215 $
58,740
Receivables 322,003
322,894
Inventories:
Long-term contract costs -
105,154
Less progress payments - U.S. Government -
(16,662)
_________
_________
-
88,492
Finished goods 25,991
23,543
Work in process 32,248
25,612
Raw materials and purchased parts 47,771
52,608
Stores and supplies 13,594
12,171
Total inventories 119,604
202,426
Other current assets 14,450
16,045
_________
_________
Total current assets 506,272
600,105
_________
_________
Property, plant and equipment, at cost 946,786
1,060,729
Allowance for depreciation (510,520)
(569,074)
_________
_________
436,266
491,655
_________
_________
Cost in excess of net assets of companies
acquired, net 220,905
221,082
Insurance related assets 71,217
70,153
Other assets 96,514
44,617
_________
_________
Total assets $1,331,174
$1,427,612
_________
_________
_________
_________
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<CAPTION>
March 31
December 31
1994
1993
LIABILITIES
<S> <C> <C>
Current liabilities:
Notes payable and current maturities $ 50,273 $
63,509
Accounts payable 67,131
98,021
Advances on long-term contracts 3,178
88,518
Accrued compensation 29,522
45,546
Other current liabilities 132,578
121,755
_________
_________
Total current liabilities 282,682
417,349
Long-term debt 399,468
364,869
Deferred income taxes 31,987
33,424
Insurance related liabilities 49,619
49,350
Other liabilities 32,074
39,536
_________
_________
795,830
904,528
_________
_________
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Common stock 40,316
40,143
Additional paid-in capital 90,555
86,436
Cumulative adjustments (17,365)
(16,166)
Retained earnings 613,002
603,158
Treasury stock (191,164)
(190,487)
_________
_________
535,344
523,084
Total liabilities and equity $1,331,174
$1,427,612
_________
_________
_________
_________
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
(In thousands) 1994 1993
<CAPTION>
Cash flows from operating activities:
<S> <C> <C>
Net income $ 18,628 $
30,959
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 21,190
14,488
Amortization 2,363
453
Cumulative effect of change in accounting principle -
(6,802)
Gain on sale of investment (5,867)
(8,971)
Change in equity of unconsolidated entities (14,413)
(1,131)
Other, net (1,926)
138
Changes in assets and liabilities, net of acquisition of a business
and formation of a partnership:
Notes and accounts receivables (4,466)
21,315
Inventories (4,026)
6,210
Accounts payable (11,205)
(2,895)
Accrued long-term contract costs -
479
Advances on long-term contracts (6,233)
13,581
Other assets and liabilities 152
5,670
________
_______
Net cash provided (used) by operating activities (5,803)
73,494
________
_______
Cash flows from investing activities:
Capital expenditures, net of disposals (15,200)
(7,735)
Purchase of business, net of cash acquired -
(2,100)
Proceeds from sale of investment 7,617
11,471
Other investing activities (6,943)
56
________
_______
Net cash provided (used) by investing activities (14,526)
1,692
________
_______
Cash flows from financing activities:
Short-term borrowings, net (13,570)
(750)
Current maturities and long-term debt:
Additions 34,414
- - -
Reductions (3,321)
(132)
Cash dividends paid on common stock (8,741)
(8,874)
Common stock issued-options 3,615
2,943
Common stock acquired for treasury -
(10,843)
Net cash provided (used) by financing activities 12,397
(17,656)
________
_______
Effect of exchange rate changes on cash (593)
23
________
_______
Net increase (decrease) in cash and cash equivalents (8,525)
57,553
Cash and cash equivalents at beginning of period 58,740
50,366
________
_______
Cash and cash equivalents at end of period $ 50,215
$107,919
________
_______
________
_______
See accompanying notes to consolidated financial statements.
</TABLE>
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVIEW OF OPERATIONS BY GROUP
(Unaudited)
Three Months
Ended
SALES March 31
(In Millions) 1994
1993
SALES
Metal Reclamation and Mill Services $ 118.0 $ 39.2
Infrastructure, Construction and Transportation 91.4 68.1
Process Industry products 109.3 95.6
Defense* - 142.9
______ ______
Total $ 318.7 $ 345.8
Three Months Ended
INCOME BEFORE TAX March 31
(In Millions) 1994 1993
Group operating profit:
Metal Reclamation and Mill Services $ 5.2 $ 5.1
Infrastructure, Construction and Transportation 2.6 1.8
Process Industry products 11.0 6.9
Defense* - 20.0
Total group operating profit $ 18.8 $ 33.8
Equity in net income of unconsolidated entities** $ 15.0 $ .9
Gain on sale of investment 5.9 9.0
Unallocated Expenses (5.5)
(2.8)
Total pre-tax income $ 34.2 $ 40.9
* Effective January 1, 1994, Defense is no longer designated as a
separate group. This is due to the formation of our joint venture,
United Defense, L.P., in which Harsco has a 40% ownership, and the
suspension of five-ton truck production at midyear in 1993. Any truck
sales in 1994 will be reflected under the Infrastructure, Construction
and Transportation Group.
** Includes equity in net income of United Defense, L.P.
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
Cash payments for interest on all debt, net of amounts capitalized were
$9,159,000 for the first quarter of 1994 and $1,055,000 for the first
quarter of 1993. Cash payments for income taxes were $7,018,000 for
the first quarter of 1994 and $11,013,000 for the first quarter of
1993.
Notes to Consolidated Financial Statements
Receivables:
As of March 31, 1994, Receivables include $62,415,000 of unbilled
receivables representing the Company's claim against the U.S.
Government for Federal Excise Taxes and related claims on the five-ton
truck contract. See "Commitments and Contingencies" for additional
disclosure on this claim.
Acquisition of MultiServ International, N.V. and Formation of Defense
Business Partnership
On January 28, 1994, FMC Corporation ("FMC") and Harsco Corporation
("Harsco") announced completion of a series of agreements
("Agreements"), first announced in December 1992, to combine certain
assets and liabilities of FMC's Defense Systems Group ("DSG") and
Harsco's BMY-Combat Systems Division ("BMY-CS"). The effective date of
the combination was January 1, 1994. The combined company, United
Defense, L.P. ("UDLP"), operates as a limited partnership. FMC as the
Managing General Partner has a 60 percent equity interest, and Harsco
Defense Holding, Inc., a wholly owned subsidiary of Harsco Corporation,
as the Limited Partner has a 40 percent equity interest.
Pro forma information relative to United Defense, L.P. and MultiServ
International, N.V., which was acquired by Harsco Corporation on August
31, 1993, is presented for the first quarter 1993 results. The
acquisition of MultiServ has been accounted for by the purchase method
of accounting, and operating results of this acquisition are included
in the Company's Consolidated Financial Statements since the date of
acquisition. The total consideration paid by the Company was
approximately $384,000,000 and consisted of: (i) approximately
$333,000,000 in cash, (ii) approximately $12,000,000 in Harsco
Corporation Common Stock from treasury, and (iii) the assumption of
certain project financing indebtedness of MultiServ in the amount of
approximately $39,000,000. Approximately $8,000,000 in closing and
acquisition costs were also incurred. The funds used by the Company to
complete the acquisition consisted of approximately $83,000,000 from
cash balances of Harsco, and approximately $250,000,000 borrowed from
Chase Manhattan Bank, N.A.
Included in the following pro forma results are adjustments to reflect
additional expenses associated with the amortization of the created
goodwill and the write-up of MultiServ fixed assets to fair market
value. The pro forma also includes additional provisions for interest
and debt expenses on the acquisition borrowings, the elimination of
BMY-CS and accounting for the 40% ownership interest of Harsco in UDLP
on the equity method of accounting. The assumption is that the
combination date was January 1, 1993.
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
Pro Forma
Supplemental Information Three Months
(Unaudited) Ended
(In thousands, except per share amounts) March 31, 1993
Total Revenues $ 362,520
__________
__________
Income before provision for income taxes,
minority interest and, cumulative effect
of accounting change 48,455
Provision for income taxes 21,530
Minority interest 61
__________
Income before cumulative effect of
accounting change 26,864
Cumulative effect of change in
accounting for income taxes 6,802
__________
Net income $ 33,666
__________
__________
Average shares of common stock outstanding 25,624,022
__________
__________
Earnings per common share:
Income before cumulative effect of accounting
change $ 1.04
Cumulative effect of change in
accounting .27
__________
Net income per share $ 1.31
__________
__________
The pro forma operating results are not necessarily indicative of what
would have occurred had the combinations actually taken place on
January 1, 1993. Also, no adjustments have been made to operations for
the impact of certain anticipated operational and administrative
efficiencies which are expected to be realized over the first two years
of the combined companys' operations.
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
Commitments and Contingencies:
Federal Excise Tax and Other Matters Related to the Five-ton Truck
Contract:
Subsequent to the award of the five-ton truck contract in 1986, the
Federal Excise Tax (FET) law, which was due to expire on October 1,
1988, was extended. The Company and its legal counsel consider that
the excise tax required to be paid by the extension of the law
constitutes an after-imposed tax and therefore is subject to recovery
by a price adjustment. In January 1993, the Armed Services Board of
Contract Appeals decided in favor of the Company's position, ruling
that Harsco is entitled to a price adjustment to the contract to
reimburse FET paid on vehicles that were to be delivered after October
1, 1988. The Government filed a motion requesting the Armed Services
Board of Contract Appeals to reopen the proceedings to admit additional
evidence or alternatively to reconsider its decision. On February 25,
1994, the Armed Services Board of Contract Appeals denied the
Government's motions. The Government may appeal these decisions to the
Court of Appeals for the Federal Circuit or renew the motions on the
conclusion of the continuing investigation described below.
As previously reported, the Company had already anticipated prevailing
on its claims and recorded as an account receivable the amount of the
FET it has paid on these vehicles of approximately $47 million, and the
related claim arising from changes in shipment destinations of
approximately $15 million. The January 1993 decision only rules upon
the Company's claim for reimbursement of the taxes paid without
establishing the specific amount of the reimbursement. Subject to the
Company prevailing against any future Government motions or appeals,
the decision will send the case back to the government contracting
officer to determine the proper amount of the price adjustment
consistent with the ruling. Under applicable law, interest also
accrues on the amount owed. Although the January 1993 decision does
not directly deal with the claim for $15 million on the related
destination change issue, the Company believes that the ruling resolves
the key factual issues in that claim in favor of Harsco as well. The
Company continues to anticipate favorable resolution with respect to
both claims. Final resolution of the issues in favor of the Company
would not result in the recording of additional income other than any
interest received, but would have a positive cash flow effect. To the
extent that any portion of the FET and related claims is not recovered,
additional losses on the contract will have to be recognized which
could have a material effect on quarterly or annual operating results.
As previously reported, the United States Attorney's Office in Detroit
has been conducting a grand jury investigation with respect to the
facts underlying the Company's claim for reimbursement of Federal
Excise Tax payments. In March 1994, the United States Attorney's
Office in Detroit advised the Company that it had made a decision to
decline prosecution. Based on this information, the Company considers
the grand jury investigation to be closed.
The Commercial Litigation Branch of the Department of Justice is
continuing to conduct a similar investigation and in addition is
examining the way the Company charges the Army for sales of certain
cargo truck models for which the Company does not pay Federal Excise
Tax. If the Government files a civil action against the Company as a
result of the civil investigation, it may seek various remedies
including forfeiture by the Company of its claims for reimbursement of
FET and related claims, treble damages, and civil penalties.
In a related matter, the Internal Revenue Service is reviewing Harsco's
position that certain cargo truck models are not taxable due to a
provision in the tax law that exempts trucks having a gross vehicle
weight of 33,000 pounds or less, and has tentatively concluded that
they appear to be taxable. If the Internal Revenue Service asserts
that tax is due on these vehicles, the total claim could be $38 million
plus interest and penalty, if any. The Company plans to vigorously
contest any such tax deficiency. Although there is risk of an adverse
outcome, the Company and its counsel believe that these trucks are not
taxable. Even if they are held to be taxable, the Company and its
counsel believe the Government would be obligated to reimburse the
Company for the majority of the tax because it would constitute an
after-imposed tax that would be subject to the ruling of the Armed
Services Board of Contract Appeals discussed above, resulting in a net
maximum liability for Harsco of $16 million plus interest and penalty,
if any.
The Company has also filed or is in the process of filing other claims
relating to the five-ton truck contract in excess of $55 million (the
final amount has not yet been determined) plus interest, with respect
to contract changes, inadequate technical data package, and delays and
disruptions. No recognition of any possible recovery on these claims
is reflected in the accompanying financial statements.
M9 Armored Combat Earthmover Claim:
The Company and its legal counsel are of the opinion that the U.S.
Government did not exercise option three under the M9 Armored Combat
Earthmover (ACE) contract in a timely manner, with the result that the
unit price for options three, four and five are subject to
renegotiation. Claims reflecting the Company's position have been
filed with respect to all options purported to be exercised, totalling
in excess of $60 million plus interest. No recognition has been given
in the accompanying financial statements for any recovery on these
claims. The Company is awaiting a decision on its Motion for Summary
Judgment relating to the late option exercise that is now pending
before the Armed Services Board of Contract Appeals.
In addition, the Company recently negotiated a settlement with the U.
S. Government of a smaller outstanding claim concerning this contract
which provides for payment of $3.8 million by the U.S. Government to
Harsco. The Company recognized that amount as revenue in the First
Quarter of this year and payment has since been received.
Government Furnished Equipment Overcharge Claim:
The Company filed a claim in the Armed Services Board of Contract
Appeals asserting that the United States Government has overcharged
Harsco in the sale of government furnished equipment on various
contracts, all of which have been completed. The Company has advised
the Government that the overpayment on these contracts is approximately
$24 million. The Government disputes the Company's position, but the
parties are exploring the possibility of settling this case and similar
issues relating to other completed contracts that are not included in
the litigation.
Other Defense Litigation:
On March 13, 1992, the U.S. Government filed the previously threatened
counterclaim against the Company in a civil suit alleging violations of
the False Claims Act and breach of a contract to supply M109A2
Self-Propelled Howitzers. The counterclaim was filed in the United
States Claims Court along with the Government's answer to the Company's
claim of approximately $5 million against the Government for costs
incurred on this contract relating to the same issue. The Government
claims breach of contract damages of $7.3 million and in addition seeks
treble that amount under the False Claims Act plus unquantified civil
penalties which the Company estimates to be approximately $3.3 million.
The Company and its counsel believe it is unlikely Harsco will incur
any material liability as a result of these claims.
Iran's Ministry of Defense has initiated arbitration procedures against
the Company under the rules of the International Chamber of Commerce
for damages allegedly resulting from breach of various contracts
executed by the Company and the Ministry of Defense between 1970 and
1978. The contracts were terminated in 1978 and 1979 during the period
of civil unrest in Iran that preceded the Iranian revolution. Iran has
asserted a claim under one contract for repayment of a $7.5 million
advance payment it made to the Company, plus interest at 12% through
June 27, 1991 in the amount of $25.3 million. Iran has also asserted a
claim for damages under other contracts for $32.1 million plus
interest. The Company intends to assert various defenses and also has
filed counterclaims against Iran for damages in excess of $7.5 million
which it sustained as a result of Iran's breach of contract, plus
interest. The Company's management and its counsel believe that it is
unlikely Harsco will incur any material liability as a result of these
claims.
Environmental:
The Company is involved in a number of environmental remediation
investigations and clean-ups and, along with other companies, has been
identified as a "potentially responsible party" for certain waste
disposal sites. While each of these matters is subject to various
uncertainties, it is probable that the Company will agree to make
payments toward funding certain of these activities and it is possible
that some of these matters will be decided unfavorably to the Company.
The Company has evaluated its potential liability, and its financial
exposure is dependent upon such factors as the continuing evolution of
environmental laws and regulatory requirements, the availability and
application of technology, the allocation of cost among potentially
responsible parties, the years of remedial activity required and the
remediation methods selected. The liability for future remediation
costs is evaluated on a quarterly basis and it is the opinion of
management that any liability over the amounts accrued will not have a
materially adverse effect on the Company's financial position or
results of operations.
Other:
The Company is subject to various other claims, legal proceedings and
investigations covering a wide range of matters that arose in the
ordinary course of business. In the opinion of management, all such
matters are adequately covered by insurance or by accruals, and if not
so covered, are without merit or are of such kind, or involve such
amounts, as would not have a materially adverse effect on the financial
position or results of operations of the Company.
Opinion of Management:
Financial information furnished herein, which is unaudited, reflects in
the opinion of management all adjustments (all of which are of a
recurring nature) that are necessary to present a fair statement of the
interim period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
Cash used by operating activities was $5.8 million in the first quarter
of 1994, reflecting, among other things, an $11.2 million decrease in
accounts payable and a $6.2 million decrease in advance deposits on
long-term contracts. Included in receivables was $62.4 million for
amounts expended, or income not received, related to the Federal Excise
Tax (FET) and related claims for the completed five-ton truck contract.
Final resolution of the FET and related claims in favor of the Company
would not result in the recording of additional income other than any
interest received, but would have a positive cash flow effect. To the
extent that any portion of the FET and related claims is not recovered,
additional losses on the contract will have to be recognized, but there
would be little impact on cash outflows.
Cash used by investing activities included capital expenditures of
$16.5 million and $7.6 million of proceeds from the sale of the
remaining portion of an equity investment. Investment activity also
included the cash contribution of $5.2 million for a portion of the
initial capitalization of United Defense, L.P. and a $1.7 million
minority-interest purchase in a metal reclamation business. Cash flow
from financing activities included a net increase in long-term debt of
$31.1 million, a $13.6 million reduction of short-term debt, and $8.7
million of cash dividends paid on common stock. Cash and cash
equivalents decreased $8.5 million to $50.2 million at March 31, 1994.
In conjunction with the formation of United Defense, L.P., in which
Harsco holds a 40% equity interest, the Company recognized a noncash
contribution of $24.4 million of net assets related to the BMY-Combat
Systems Division of Harsco Corporation. As mentioned above, the
Company also contributed cash of $5.2 million to United Defense, L.P.
During this initial quarter for the partnership, the Company received
no distributions of earnings from United Defense, L.P. The agreement
stipulates, among other things, that cash distributions of earnings
will be made at certain minimum amounts of income in the quarter
subsequent to the quarter in which income is earned.
Other matters which could significantly affect cash flows in the future
are discussed in the 1993 Annual Report to Shareholders under Note 10,
"Commitments and Contingencies" and in Part I, Item 1 of this Form 10Q.
Recently, the Company negotiated a settlement with the U. S. Government
of a small portion of the outstanding issues concerning the M9 Armored
Combat Earthmover (ACE) contract. Under this settlement, the
Government has paid the Company $3.8 million. The Company's claim
against the Government on this contract in excess of $60 million for
untimely exercise of contract options has not yet been resolved.
Harsco continues to maintain a good financial position, with net
working capital of $223.6 million, up from the $182.8 million at
December 31, 1993, principally due to the conversion of $34.0 million
of short-term debt to long-term debt. Current assets amounted to
$506.3 million, and current liabilities were $282.7 million, resulting
in a current ratio of 1.8 to 1, higher than the 1.4 to 1 at year-end
1993. With total debt at $449.7 million and equity at $535.3 million
at March 31, 1994, the total debt as a percent of capital was 45.7%,
which is slightly higher than the 45.0% at December 31, 1993.
The stock price range during the first quarter was 46 3/8 - 40 5/8.
Harsco's book value per share at March 31, 1994 was $21.34, compared
with $20.95 at year-end 1993. The Company's annualized return on
equity for the first quarter of 1994 was 12.1%, compared with 17.3% in
1993. The first quarter return on assets annualized was 11.1%,
compared with the 13.4% for 1993.
The Company has available through a group of banks a $150 million
364-day revolving line of credit and a $150 million, multi-currency
five-year term credit agreement. As of March 31, 1994, $102.8 million
was outstanding under the five-year term credit agreement. In May, the
Company began negotiations with the banks to re-syndicate and amend the
total $300 million facilities, to extend maturity, update pricing for
favorable bank market dynamics, make certain technical adjustments to
the documents and allow more flexibility to borrow in additional
European currencies. Harsco's outstanding notes are rated A by
Standard & Poor's and Baa1 by Moody's.
As indicated by the above, the Company's financial position and debt
capacity should enable it to meet its current and future requirements.
As additional resources are needed, Harsco should be able to obtain
funds at competitive costs.
RESULTS OF OPERATIONS
FIRST QUARTER OF 1994 COMPARED
WITH FIRST QUARTER OF 1993
First quarter revenues of $343.7 million were 4% below last year's
comparable period. The decrease was primarily due to a decline in
sales, from $345.8 million in 1993 to $318.7 million for the first
quarter of 1994, that reflected the absence from sales of military
vehicles in 1994. This was related to the formation, effective January
1, 1994, of United Defense, L.P., a joint venture with FMC Corporation,
in which the Company has a 40% ownership, and, to a lesser extent, the
suspension of five-ton truck production in June 1993. Revenues also
declined, due to lower gains on the sale of the remaining shares of an
equity investment.
These declines were partially offset by sales arising from acquisitions
in 1993, principally MultiServ International, N.V., and higher sales
from railway maintenance equipment, process equipment, scaffolding,
shoring and forming equipment, gas control and containment equipment,
pipe fittings and metal reclamation and mill services. Also included
in revenues was Harsco's $14.4 million share of the income from its
investment in United Defense, L.P., as well as $3.8 million of revenues
resulting from the negotiated settlement with the U.S. Government due
to contract specification changes made during production of the Armored
Combat Earthmover (ACE) for the U.S. Government. This item represents
settlement of a small portion of the outstanding issues on the Armored
Combat Earthmover vehicle, as discussed in the Annual Report under Note
10 to the Consolidated Financial Statements, "Commitments and
Contingencies" and in Part I, Item 1 of this Form 10Q
Cost of sales decreased, principally due to lower volume. Selling and
administrative expenses increased, as a result of the inclusion of
acquired companies and, to a lesser extent, higher commissions and
compensation costs. On a comparative basis, administrative expenses in
1993 were reduced, due to the collection of $2.8 million of previously
reserved bad debts related to divested operations.
Income before taxes and minority interest was down 16% from the
comparable period last year. On a comparative basis, operating losses
were recorded in 1994 for school buses ($3.1 million), due to
continuing start-up costs during the low rate of initial production
associated with the business, which was acquired in 1993, compared to
income recorded for military trucks in last year's first quarter,
production of which was suspended in June 1993. Also contributing to
the decrease in profits was the lower gain from the sale of the
remaining shares of an equity investment and foreign currency
translation losses in Mexico and Europe. Higher earnings in the first
quarter of 1994 were recorded for railway maintenance equipment, gas
control and containment equipment, pipe fittings and process equipment.
Favorably impacting 1994 first quarter's results was $3.8 million of
income, resulting from the negotiated settlement for revenues due from
the U.S. Government for contract specification changes made during
production of military tracked vehicles. Interest expense increased,
due to the debt incurred in conjunction with the acquisition and
operations of MultiServ International, N.V.
Net income of $18.6 million was down 40% from the comparable period in
1993, the highest quarter ever, which included a favorable $6.8 million
non-cash tax credit ($.27 per share) to reflect the adoption of
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes." The effective income tax rate for 1994 is 43.7%, versus
41.1% in 1993. The higher income tax rate is due to losses sustained
in certain foreign operations for which there is no tax benefit and the
nondeductibility of certain acquisition costs.
Sales of the Metal Reclamation and Mill Services Group, at $118.0
million, were significantly above 1993's first quarter, due to the
acquisition of MultiServ International, N.V. Sales for the
Infrastructure, Construction and Transportation Group, at $91.4
million, were substantially ahead of last year's similar period,
reflecting greater demand for all product classes with the exception of
the new line of school buses which was brought to market during the
third quarter of 1993. Sales for the Process Industry Products Group,
at $109.3 million, were well ahead of the prior year's first quarter,
as each Division posted higher volume.
Operating profit for the Metal Reclamation and Mill Services Group was
a disappointing $5.2 million, only even with 1993's first quarter in
spite of the acquisition of MultiServ International, N.V. Performance
was adversely affected by harsh weather conditions in North America,
the ongoing rationalization of the steel industry as well as weak
economic conditions in certain countries in Europe, poor business
performance in Brazil, the ongoing expensing of start-up costs for new
contracts and the adverse effect of foreign currency translation
losses. The Infrastructure, Construction and Transportation Group
posted an operating profit of $2.6 million, well above 1993's first
quarter, as almost all product classes posted significantly improved
results with the principal exception of the new product line of school
buses, where the Company continues to expense start-up costs ($3.1
million). Operating profit for the Process Industry Products Group, at
$11.0 million, was up substantially over the prior year's and reflected
improved performance for all product classes.
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information on legal proceedings is included under Part I, Item 1., the
section labeled "Commitments and Contingencies."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
a.) At the Annual Meeting of shareholders held on April 26, 1994 in
Camp Hill, Pennsylvania, four members of the Board of Directors were
reelected to terms expiring in 1997 under the classified Board
structure enacted at the 1986 Annual Meeting. They include D. C.
Hathaway, Chairman, President and Chief Executive Officer, Harsco
Corporation; R. F Nation, President of Penn Harris Company;
N. H. Prater, retired President and Chief Executive Officer of Mobay
Corporation; and A. J. Sordoni, III, Chairman of Sordoni Enterprises,
Inc.
The Board of Directors voting tabulation is as follows:
For Withheld
Name No. of Shares No. of Shares
D. C. Hathaway 20,063,521 226,854
R. F. Nation 20,066,496 223,879
N. H. Prater 20,062,031 228,344
A. J. Sordoni, III 20,071,652 218,723
Shareholders also approved the appointment of Coopers & Lybrand as
independent accountants to audit the accounts of the Company for the
fiscal year ending December 31, 1994 by the following vote: 20,153,413
For, 77,316 Against, and 59,646 Abstain.
ITEM 5. OTHER INFORMATION
a.) On January 28, 1994, Harsco Corporation announced that FMC
Corporation and Harsco Corporation had completed the joint venture,
first announced in December 1992, to combine FMC's Defense Systems
Group and Harsco's BMY-Combat Systems Division. The new partnership,
which is effective as of January 1, 1994 will be known as United
Defense, L.P. and expects to achieve annual sales of about $1 billion
in 1994. United Defense, L.P. is jointly owned, with FMC holding an
interest of 60 percent and Harsco holding 40 percent. FMC will manage
the business.
United Defense, L.P. is headquartered in Arlington, Virginia. Thomas
W. Rabaut, formerly general manager of FMC's Defense Systems Group, is
President and Chief Executive Officer.
b.) On March 17, 1994, Harsco Corporation announced that in accordance
with plans outlined last December, Malcolm W. Gambill was retiring from
his positions of Director and Chairman of the Board and that the
President and Chief Executive Officer, Derek C. Hathaway, has been
elected to succeed him as Chairman effective on the April 1, 1994
retirement date. Mr. Hathaway, who was previously elected to succeed
Mr. Gambill as Chief Executive Officer as of January 1, 1994, will
retain his current positions of President and Chief Executive Officer.
c.) On March 17, 1994, Harsco Corporation announced that the Board of
Directors declared a quarterly cash dividend of 35 cents per share,
payable May 13, 1994, to shareholders of record on April 15, 1994.
d.) On April 5, 1994, Harsco Corporation announced the reformation of
the Senior Management structure and the promotion of four senior
officers whose new titles reflect their expanded responsibilities. The
Senior Management group is composed of four senior vice presidents and
the President.
Each member of this new Senior Management Committee has been designated
the chief officer of a major management function, covering operations,
finance and administration. They are as follows:
1. Leonard A. Campanaro to Senior Vice President & Chief Financial
Officer.
2. Paul C. Coppock to Senior Vice President, General Counsel,
Secretary & Chief Administrative Officer.
3. William D. Etzweiler to Senior Vice President & Chief Operating
Officer - Commercial and Industrial Products.
4. Barrett W. Taussig to Senior Vice President & Chief Operating
Officer-Defense.
e.) On April 26, 1994, Derek C. Hathaway, Chairman, President and
Chief Executive Officer of Harsco Corporation announced the Company's
new Operating Groups at the 39th annual meeting of shareholders.
The three new Operating Groups include Metal Reclamation and Mill
Services; Infrastructure, Construction and Transportation; and Process
Industry Products. The Metal Reclamation and Mill Services Group
includes the Heckett MultiServ Division, the world leader in providing
specialized steel mill services at over 130 steel mills in 27
countries. The Infrastructure, Construction and Transportation Group
is composed of these five Divisions: BMY-Wheeled Vehicles (school
buses and military trucks); Fairmont Tamper (railway maintenance
equipment); IKG Industries (industrial grating products); Patent
Construction Systems (scaffolding, shoring and forming equipment); and
Reed Minerals (roofing granules and slag abrasives). The Process
Industry Products Group includes these four Divisions: Capitol
Manufacturing (industrial pipe fittings); Patterson-Kelley (process
equipment); Sherwood (valves and regulators); and Taylor-Wharton Gas
Equipment (gas containment equipment).
ITEM 6(a). EXHIBITS
The following exhibits are attached:
a.) Exhibit No. 11 (Part I) Computation of Fully Diluted Net Income Per
Common Share.
b.) Exhibit No. 12 (Part I) Computation of Ratios of Earnings to Fixed
Charges.
ITEM 6(b). REPORTS ON FORM 8-K
During the first quarter ending March 31, 1994, there was a Form 8-K
and 8K/A filed which were as follows:
1. Form 8-K
ITEMS REPORTED:
ITEM 2. Acquisition or Disposition of Assets.
On January 28, 1994, FMC Corporation and Harsco Corporation completed
the formation of the joint venture, which was first announced in
December 1992, to combine FMC's Defense Systems Group and Harsco's
BMY-Combat Systems Division. The joint venture, which has an effective
date of January 1, 1994, operates as a limited partnership known as
United Defense, L.P. (the "Partnership"), and is jointly owned, with
FMC holding an interest of 60 percent and Harsco holding 40 percent.
FMC is the managing general partner, and Harsco is a limited partner.
ITEM 5. Other Events.
In January 1992, the Board of Directors authorized the purchase over a
two-year period of up to 4,000,000 shares of the Company's common stock
in unsolicited open market or privately negotiated transactions at
prevailing market prices. This authorization expired in January 1994.
In the course of that two year program, the Company repurchased
2,064,555 shares of its common stock. Following the expiration of this
program, the Board on January 25, 1994 authorized the repurchase of
additional shares of common stock from time to time during the next
year at management's discretion in unsolicited open market or privately
negotiated transactions at prevailing market prices, but not to exceed
500,000 shares in the aggregate.
ITEM 7. Financial Statements and Exhibits.
(d) Exhibits
2.1 Participation Agreement, dated as of January 1, 1994, among
FMC, Harsco, Harsco Defense Holding, Inc. and United Defense, L.P.
(with a list of omitted Exhibits and Schedules thereto).
2.2 Partnership Agreement, dated as of January 1, 1994, among FMC,
Harsco Defense Holding, Inc. and United Defense, L.P. (with a list of
omitted Exhibits and Schedules thereto).
2.3 Annex A (Definitions relating to Participation Agreement and
Partnership Agreement) dated as of January 1, 1994.
2.4 Registration Rights Agreement, dated as of January 1, 1994,
among FMC, Harsco Defense Holding, Inc. and United Defense, L.P.
File Date of Report: January 28, 1994
2. Form 8-K/A (Amendment No. 1)
ITEM REPORTED:
On February 14, 1994, the Company filed an amendment to its Current
Report on Form 8-K dated January 28, 1994, and incorporated the
following Financial Statements and Exhibits:
(a) Consolidated Financial Statements of FMC's Defense Systems Group
(1) Independent Auditors' Report
(2) Consolidated Balance Sheets as of December 31, 1993 and 1992
(3) Consolidated Statements of Income for the Years 1993, 1992,
1991
(4) Consolidated Statements of Cash Flows for the Years 1993,
1992, 1991
(5) Notes to Financial Statements
(b) Pro Forma Financial Information (unaudited) to reflect Harsco's
acquisition of an interest in United Defense, L.P. formed to combine
FMC's Defense Systems Group and Harsco's BMY-Combat Systems Division
(1) Balance Sheet as of December 31, 1993
(2) Statement of Income for the Year Ended December 31, 1993
(c) Exhibits
Number Exhibit
24 Consent of Independent Accountants
File date of report: February 14, 1994
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 thereunto duly authorized.
HARSCO CORPORATION
(Registrant)
DATE May 11, 1994 /S/Leonard A. Campanaro
Leonard A. Campanaro
Senior Vice President and
Chief Financial Officer
DATE May 11, 1994 /S/Salvatore D. Fazzolari
Salvatore D. Fazzolari
Vice President and Controller
HARSCO CORPORATION
COMPUTATION OF FULLY DILUTED NET INCOME PER COMMON SHARE
(dollars in thousands except per share)
3 MONTHS ENDED MARCH 31
1994 1993
Net income $ 18,628 $ 30,959
__________ __________
__________ __________
Average shares of common stock
outstanding used to compute
primary earnings per common
share 25,012,305 25,323,725
Additional common shares to be
issued assuming exercise of
stock options, net of shares
assumed reacquired 179,820 209,601
__________ __________
Shares used to compute dilutive
effect of stock options 25,192,125 25,533,326
__________ __________
__________ __________
Fully diluted net income per
common share $ .74 $ 1.21
_____ _____
_____ _____
Net income per common share
as reported in report to
shareholders $ .74 $ 1.22
_____ _____
_____ _____
Exhibit 12
HARSCO CORPORATION Part I
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
<TABLE>
YEARS ENDED DECEMBER 31
Three
Months
Ended
1989 1990 1991 1992 1993
3-31-94
<CAPTION>
Consolidated Earnings:
<S> <C> <C> <C> <C> <C>
<C>
Pre-tax income from continuing
operations (1) $22,173 $115,587 $119,647 $140,576 $137,151 $
33,564
Add fixed charges computed below 20,693 21,864 23,544 22,425 23,879
9,304
Net adjustments for equity companies (483) (532) (439) (454) (363)
(13,999)
Net adjustments for capitalized
interest (215) (255) (469) (134) (172)
(110)
______ _______ _______ _______ _______
_______
Consolidated Earnings Available for
Fixed Charges $42,168 $136,664 $142,283 $162,413 $160,495 $
28,759
______ _______ _______ _______ _______
_______
______ _______ _______ _______ _______
_______
Consolidated Fixed Charges:
Interest expense per financial
statements (2) $16,412 $ 17,506 $ 18,925 $ 18,882 $ 19,974 $
8,330
Interest expense capitalized 287 345 574 355 332
126
Portion of rentals (1/3 ) representing
an interest factor 3,994 4,013 4,045 3,188 3,573
848
Interest expense for equity companies
whose debt is guaranteed (3) - - - - -
- - -
______ _______ _______ _______ _______
_______
Consolidated Fixed Charges $20,693 $ 21,864 $ 23,544 $ 22,425 $ 23,879 $
9,304
______ _______ _______ _______ _______
_______
______ _______ _______ _______ _______
_______
Consolidated Ratio of Earnings to
Fixed Charges 2.04 6.25 6.04 7.24 6.72
3.09
______ _______ _______ _______ _______
_______
______ _______ _______ _______ _______
_______
(1) 1992 excludes the cumulative effect of change in accounting method for postretirement
benefits other than pensions.
(2) Includes amortization of debt discount and expense.
(3) No fixed charges were associated with debt of less than fifty percent owned companies
guaranteed by Harsco during the five year period 1989 through 1993 and during the first three
months of 1994.
</TABLE>
