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 June 30, 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
(State of incorporation)
23-1483991
(I.R.S. Employer Identification No.)
Camp Hill, Pennsylvania
(Address of principal executive offices)
17001-8888
(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.
X YES NO
Title of Each Class Outstanding Shares
at June 30, 1994
Common Stock Par Value $1.25 25,136,299
Preferred Stock Purchase Rights 25,136,299
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(In thousands, except per share amounts)
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Sales $338,056 $354,623 $656,728 $700,427
Equity in net income of unconsolidated
entities 20,796 694 35,824 1,593
Gain on sale of investment - - 5,867 8,971
Other revenues 247 449 4,348 894
Total revenues 359,099 355,766 702,767 711,885
Costs and expenses:
Cost of sales 265,533 273,218 518,530 546,780
Selling, administrative and
general expenses 52,835 43,212 100,495 82,828
Research and development 1,792 1,050 2,723 2,508
Provision for facilities discontinuance 302 823 319 686
Other, net (910) 102 124 (165)
Total costs and expenses 319,552 318,405 622,191 632,637
Income before interest, taxes, minority
interest and cumulative effect of
accounting change 39,547 37,361 80,576 79,248
Interest income 1,375 2,250 2,856 4,193
Interest expense (8,805) (3,206) (17,135) (6,146)
Income before taxes, minority interest,
and cumulative effect of accounting
change 32,117 36,405 66,297 77,295
Provision for income taxes 14,036 14,172 28,972 30,960
Income before minority interest and
cumulative effect of accounting
change 18,081 22,233 37,325 46,335
Minority interest 534 (48) 1,150 (103)
Income before cumulative effect of
accounting change 17,547 22,281 36,175 46,438
Cumulative effect of change in accounting
for income taxes - - - 6,802
Net income $ 17,547 $ 22,281 $ 36,175 $ 53,240
Average shares of common stock outstanding 25,118 25,056 25,065 25,190
Earnings per common share:
Income before cumulative effect of
accounting change $ 0.70 $ 0.89 $ 1.44 $ 1.84
Cumulative effect of change in accounting - - - 0.27
Net income per share $ 0.70 $ 0.89 $ 1.44 $ 2.11
Cash dividends declared per share $ 0.35 $ 0.35 $ 0.70 $ 0.70
</TABLE>
See accompanying notes to consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
(In thousands) 1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 58,123 $ 58,740
Receivables 334,961 322,894
Inventories:
Long-term contract costs - 105,154
Less progress payment - (16,662)
_________ _________
- 88,492
Finished goods 30,273 23,543
Work in process 33,136 25,612
Raw material and purchased
parts 49,547 52,608
Stores and supplies 14,417 12,171
_________ _________
Total inventories 127,373 202,426
Other current assets 17,170 16,045
_________ _________
Total current assets 537,627 600,105
Property, plant and equipment,
at cost 965,401 1,060,729
Allowance for depreciation (531,007) (569,074)
_________ _________
434,394 491,655
Cost in excess of net assets of
companies acquired, net 222,638 221,082
Insurance related assets 71,437 70,153
Other assets 82,796 44,617
_________ _________
Total Assets $1,348,892 $1,427,612
_________ _________
_________ _________
</TABLE>
See accompanying notes to consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31
(In thousands) 1994 1993
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable and current
maturities of long-term debt $ 41,834 $ 63,509
Accounts payable 69,238 98,021
Advances on long-term contracts 2,159 88,518
Accrued compensation 32,296 45,546
Other current liabilities 123,312 121,755
_________ _________
Total current liabilities 268,839 417,349
Long-term debt 415,134 364,869
Deferred income taxes 31,066 33,424
Insurance related liabilities 49,271 49,350
Other liabilities 35,420 39,536
_________ _________
799,730 904,528
_________ _________
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Common stock and additional
paid-in capital 132,935 126,579
Cumulative adjustments for
translation and pension
liability (14,352) (16,166)
Retained earnings 621,743 603,158
Treasury stock (191,164) (190,487)
_________ _________
549,162 523,084
_________ _________
Total liabilities and
shareholders equity $1,348,892 $1,427,612
_________ _________
_________ _________
</TABLE>
See accompanying notes to consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
(In thousands) 1994 1993
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 36,175 $ 53,240
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 44,314 28,794
Amortization 4,498 993
Cumulative effect of change in accounting
principle - (6,802)
Gain on sale of investment (5,867) (8,971)
Change in equity of entities (3,022) (1,164)
Other, net 1,569 (18)
Changes in assets and liabilities,
net of acquisition of a business and
formation of a partnership:
Notes and accounts receivables (14,898) 53,360
Inventories (11,216) 35,304
Accounts payable 946 (8,657)
Accrued long-term contract costs - 602
Advances on long-term contracts (7,100) 7,938
Other assets and liabilities (17,276) (5,641)
_________ _________
Net cash provided by operating activities 28,123 148,978
_________ _________
Cash flows from investing activities:
Capital expenditures, net of disposals (31,065) (21,772)
Purchase of business - (2,100)
Proceeds from sale of investment 7,617 11,471
Other investing activities (6,943) (2)
_________ _________
Net cash (used) by investing activities (30,391) (12,403)
_________ _________
Cash flows from financing activities:
Short-term borrowings, net (20,545) 3,864
Current maturities and long-term debt
Additions 87,765 (267)
Reductions (54,160) -
Cash dividends paid on common stock (17,531) (17,725)
Common stock issued-options 5,678 3,823
Common stock acquired for treasury - (36,322)
Other financing activities 215 -
_________ _________
Net cash provided (used) by financing
activities 1,422 (46,627)
_________ _________
Effect of exchange rate changes on cash 229 (85)
_________ _________
Net increase (decrease) in cash and cash
equivalents (617) 89,863
Cash and cash equivalents at beginning
of period 58,740 50,366
_________ _________
Cash and cash equivalents at end of period $ 58,123 $ 140,229
_________ _________
_________ _________
</TABLE>
See accompanying notes to consolidated financial
statements.
REVIEW OF OPERATIONS BY GROUP
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
SALES June 30 June 30
(In Millions) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Metal Reclamation and Mill Services $ 129.5 $ 43.1 $ 247.5 $ 82.3
Infrastructure, Construction and
Transportation 103.5 82.1 194.9 150.2
Process Industry Products 105.0 93.0 214.3 188.6
Defense<F1> - 136.4 - 279.3
______ ______ ______ ______
Total $ 338.0 $ 354.6 $ 656.7 $ 700.4
______ ______ ______ ______
______ ______ ______ ______
INCOME BEFORE TAX Three Months Ended Six Months Ended
AND MINORITY INTEREST June 30 June 30
(In Millions) 1994 1993 1994 1993
Group operating profit:
Metal Reclamation and Mill Services $ 9.2 $ 6.9 $ 14.3 $ 12.0
Infrastructure, Construction and
Transportation 3.9 6.2 6.5 8.0
Process Industry Products 8.9 7.8 20.0 14.7
Defense<F1> - 21.1 - 41.1
______ ______ ______ ______
Total group operating profit 22.0 42.0 40.8 75.8
Equity in income of unconsolidated
entities<F2> 20.8 0.7 35.8 1.6
Gain on sale of investment - - 5.9 9.0
Unallocated expenses (10.7) (6.3) (16.2) (9.1)
______ ______ ______ ______
Total pre-tax income $ 32.1 $ 36.4 $ 66.3 $ 77.3
______ ______ ______ ______
______ ______ ______ ______
<FN>
<F1> 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 the five-ton truck
production at midyear in 1993. Any truck sales in 1994 will be reflected under the
Infrastructure, Construction and Transportation Group.
<F2> Includes equity in income of United Defense, L.P.
</TABLE>
Cash payments for interest on all debt, net of
amounts capitalized were $17,715,000 for the six
months of 1994 and $6,178,000 for the six months of
1993. Cash payments for income taxes were
$20,728,000 for the six months of 1994 and
$34,468,000 for the six months of 1993.
Notes to Consolidated Financial Statements
Receivables:
As of June 30, 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.
MultiServ International, N.V. was acquired by Harsco
Corporation on August 31, 1993. 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
a financial institution.
Pro forma information relative to United Defense,
L.P. and MultiServ International, N.V. presented for
the first six months of 1993, include 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 results also include 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 following represents the unaudited pro forma
results of operations as if the combinations had
occurred at the beginning of 1993:
<TABLE>
<CAPTION>
Pro Forma
Six Months
(Unaudited) Ended
(In thousands, except per share amounts) June 30, 1993
<S> <C>
Total Revenues $ 727,468
__________
__________
Income before provision for income taxes,
minority interest and, cumulative effect
of accounting change 84,954
Provision for income taxes 37,931
Minority interest 390
__________
Income before cumulative effect of
accounting change 46,633
Cumulative effect of change in
accounting for income taxes 6,802
__________
Net income $ 53,435
__________
__________
Average shares of common stock
outstanding 25,490,180
__________
__________
Earnings per common share:
Income before cumulative effect of
accounting change $ 1.83
Cumulative effect of change in
accounting .27
__________
Net income per share $ 2.10
</TABLE>
The pro forma operating results are not necessarily
indicative of what would have occurred had the
combinations actually taken place on January 1, 1993,
or of what they are expected to be in 1994. Also, no
adjustments have been made to operations for the
impact of certain anticipated operational and
administrative efficiencies.
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. In
June 1994, the Government appealed these decisions to
the Court of Appeals for the Federal Circuit. In
addition, the Government might renew the motions in
the Armed Services Board of Contract Appeals based
upon the results 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 the Government's appeal and any future
Government motions, 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.
The Commercial Litigation Branch of the Department of
Justice is continuing to conduct an investigation
with respect to the facts underlying the Company's
claim for reimbursement of Federal Excise Tax
payments and in addition is examining the way the
Company charged the Army for sales of certain cargo
truck models for which the Company did not pay
Federal Excise Tax based upon an exemption in the
law. 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 $42 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 other claims relating to
the five-ton truck contract totalling in excess of
$55 million plus interest, with respect to contract
changes, inadequate technical data package, and
delays and disruptions. The Company continues to
explore resolution of these claims through
negotiation. 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 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 Litigation:
On March 13, 1992, the U.S. Government filed a
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.
In June 1994, the shareholder of the Ferrari Group, a
Belgium holding company involved in steel mill
services and other activities, filed a legal action
in Belgium against Heckett MultiServ, S.A. and
S.E.A.E., subsidiaries of MultiServ International
N.V. (a subsidiary of Harsco Corporation). The
action alleges that these two subsidiaries breached
contracts arising from letters of intent signed in
1992 and 1993 concerning the possible acquisition of
the Ferrari Group, claiming that the subsidiaries
were obligated to proceed with the acquisition and
failed to do so. The action seeks damages of 504
million Belgian Francs (approximately U.S. $16
million). The Company intends to vigorously defend
against the action and believes that based on
conditions contained in the letters of intent and
other defenses it will prevail.
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 periods.
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 provided by operating activities was $28.1
million in the first six months of 1994, reflecting,
among other things, a $30.9 million distribution of
earnings from United Defense, L.P., a $14.9 million
increase in accounts receivable and an $11.2 million
increase in inventories. Included in receivables is
$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 flow for investing activities included capital
expenditures of $35.6 million and $7.6 million of
proceeds from the sale of the remaining shares 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 and mill services business. Cash
flow for financing activities included a net increase
in long-term debt of $30.3 million, a $17.2 million
reduction of short-term debt, and $17.5 million of
cash dividends paid on common stock. Cash and cash
equivalents decreased $.6 million to $58.1 million at
June 30, 1994.
In conjunction with the formation of United Defense,
L.P., in which Harsco holds a 40% equity interest,
the Company recognized a non-cash 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 the first six
months for the partnership, the Company received a
$30.9 million distribution 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. However, a special distribution, as allowed
by the agreement, was received during the second
quarter, due to the strong cash position of the
Limited Partnership.
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 1, Item 1 of this Form
10Q. During the first quarter, 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
referred to in Note 10. Under this settlement, the
Government paid the Company $3.8 million. The
Company's claim in excess of $60 million against the
Government on this contract for untimely exercise of
contract options has not yet been resolved.
Harsco continues to maintain a good financial
position, with net working capital of $268.8 million,
up from the $182.8 million at December 31, 1993,
principally due to the conversion of $30.2 million of
short-term debt to long-term debt and the
contribution of certain current assets and
liabilities to the formation of United Defense, L.P.
Current assets amounted to $537.6 million, and
current liabilities were $268.8 million, resulting in
a current ratio of 2.0 to 1, higher than the 1.4 to 1
at year-end 1993. With total debt at $457.0 million
and equity at $549.2 million at June 30, 1994, the
total debt as a percent of capital was 45.4%, which
is slightly higher than the 45.0% at December 31,
1993.
The stock price range during the first six months was
$46 3/8 - 39 3/4. Harsco's book value per share at
June 30, 1994 was $21.85, compared with $20.95 at
year-end 1993. The Company's annualized return on
equity for the first six months of 1994 was 13.2%,
compared with 17.3% for the year 1993. The return on
assets was 11.8%, compared with the 13.4% for the
year 1993.
The Company has available through a syndicate of
banks a $150 million, 364-day revolving line-of-
credit and a $150 million, multi-currency, five-year
term line of credit. During the second quarter, the
Company successfully negotiated with the banks to re-
syndicate and amend this facility, 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. As of June 30, 1994,
$106.9 million was outstanding under this syndicated
credit facility. 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
Second Quarter of 1994 Compared
with Second Quarter of 1993
Second quarter revenues of $359.1 million were
slightly higher than last year's comparable period.
Higher sales were reported in each of our three
operating groups, however, the Company's total sales
of $338.1 million were 5% lower than the same period
last year, due to the substantial absence of military
vehicle sales in 1994, which was partially offset by
sales from MultiServ International, N.V., acquired in
August 1993 and, to a lesser extent, by sales from
the new product line of school buses brought to
market during the third quarter of 1993. Higher
sales were reported for most product classes,
particularly for scaffolding, shoring and forming
equipment, process equipment and railway maintenance
equipment. Five-ton truck sales during the second
quarter of 1993 were $43.9 million, before production
was suspended in June that year. During the second
quarter of 1994, production was restarted and
operated briefly, completing $3.1 million of sales
orders for customers. Also included under revenues
is Harsco's $20.2 million share of the income from
its investment in United Defense, L.P., a joint
venture formed effective January 1, 1994, in which
the Company has a 40% interest.
Cost of sales decreased, principally due to lower
volume. Selling expense increased, due to higher
sales commissions, and administrative expense
increased as a result of the inclusion of acquired
companies and, to a lesser extent, $2.5 million pre-
tax charge for termination costs.
Income before taxes and minority interest was down
11.8% from the comparable period last year, due
primarily to significantly higher interest expense
from debt incurred principally in conjunction with
the acquisition and operations of MultiServ. On a
comparative basis, income before interest increased,
as higher earnings in the second quarter of 1994 were
recorded for scaffolding, shoring and forming
equipment, metal reclamation with the inclusion of
the MultiServ acquisition, and pipe fittings. School
buses operated unprofitably due to the low volume of
initial production currently experienced by this
product line. Additionally, a $2.0 million provision
for legal matters was recorded.
Net income of $17.5 million was down 21% from the
comparable period in 1993. The effective income tax
rate before minority interest for the second quarter
of 1994 was 43.7%, versus 38.9% in 1993. The higher
income tax rate was due to losses sustained in
certain foreign operations, in large part from new
project start-up costs, for which there is no tax
benefit and the nondeductibility of certain
acquisition costs.
Sales of the Metal Reclamation and Mill Services
Group, at $129.5 million, were significantly above
1993's second quarter, due to the acquisition of
MultiServ International, N.V. Sales for the
Infrastructure, Construction and Transportation
Group, at $103.5 million, were substantially ahead of
last year's similar period, reflecting greater demand
for all product classes with the exception of
grating, which was even with last year and is yet to
see the anticipated improvement in market conditions.
Sales for the Process Industry Products Group, at
$105.0 million, were well ahead of the prior year's
second quarter, as each Division posted higher
volume.
Operating profit for the Metal Reclamation and Mill
Services Group was $9.2 million, reflecting the
acquisition of MultiServ International, N.V.
Performance was adversely affected by the ongoing
rationalization of the steel industry, as well as by
weak economic conditions in certain countries in
Europe, currency devaluations and hyper-inflation in
Brazil, start-up costs for new contracts, and
termination costs. The Infrastructure, Construction
and Transportation Group posted an operating profit
of $3.9 million, well below 1993's second quarter.
The significant improvement of the scaffolding,
shoring and forming equipment product line was
diminished by a charge for legal matters and a $3.6
million operating loss for school buses. Operating
profit for the Process Industry Products Group, at
$8.9 million, exceeded the prior year's and reflected
improved performance for all product classes.
RESULTS OF OPERATIONS
First Six Months of 1994 Compared
with First Six Months of 1993
Revenues for the first six months were $702.8
million, slightly below last year's comparable
period. While the decrease was primarily due to the
substantial absence from sales of military vehicles
in 1994, sales for all three operating groups were
substantially ahead of the prior year's first six
months.
Sales increased in 1994 for each of our three
operating groups due to acquisitions in 1993,
principally MultiServ International, N.V., in August
1993, and higher sales from railway maintenance
equipment, scaffolding, shoring and forming
equipment, process equipment, gas control and
containment equipment, metal reclamation and mill
services and pipe fittings. Revenues in 1994 include
Harsco's $34.6 million share of the income from its
equity investment in United Defense, L.P., as well as
$3.8 million of revenues resulting from the
negotiated settlement with the U.S. Government.
Cost of sales decreased, principally due to lower
volume. Selling and administrative expenses
increased, principally as a result of the inclusion
of acquired companies. Also contributing to the
increase was a $2.5 million pre-tax charge, for
termination costs, and higher sales commissions. On
a comparative basis, administrative expenses in 1993
were reduced by the collection of $2.8 million of
previously reserved bad debts related to divested
operations.
Income before taxes and minority interest was down
14% from the comparable period last year, despite
overall increased operating profits in 1994 for the
three operating groups. The decrease reflects
significantly higher interest expense, due to the
debt incurred principally in conjunction with the
acquisition and operations of MultiServ
International, N.V. Additionally, operating losses
of $6.7 million were recorded in 1994 for school
buses during the low volume of initial production
associated with this new business, as compared to
income recorded for military trucks in last year's
first six months, for which production 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, termination
costs, provision for legal matters, and the adverse
impact of foreign currency devaluations and hyper-
inflation in Brazil. On a comparative basis,
scaffolding, shoring and forming equipment recorded
income in 1994 as compared with an operating loss in
1993. Additionally, higher earnings in the first six
months of 1994 were recorded for railway maintenance
equipment, gas control and containment equipment,
pipe fittings and process equipment. Favorably
impacting the 1994 six months 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. Income from
equity in United Defense, L. P. approximated
operating profits in 1993 from military tracked
vehicles.
Net income of $36.2 million was down 32% from the
comparable period in 1993, the highest six months
ever. First-half results for 1994 were materially
affected by an after-tax gain of $3.5 million ($.14
per share) on the sale of the remaining shares of an
equity investment, which the Company purchased
several years ago. The first-half results for 1993,
the highest six-month period ever, were materially
assisted by the favorable effect of an accounting
change of $6.8 million ($.27 per share), as well as
by an after-tax gain of $5.4 million ($.21 per share)
on the partial sale of an equity investment. The
effective income tax rate before minority interest
for 1994 was 43.7%, versus 40.1% in 1993. The higher
income tax rate was due to losses sustained in
certain foreign operations, in large part from new
project start-up costs, for which there is no tax
benefit and the nondeductibility of certain
acquisition costs.
Sales of the Metal Reclamation and Mill Services
Group, at $247.5 million, were significantly greater
than 1993's first six months, due to the acquisition
of MultiServ International, N.V. Sales for the
Infrastructure, Construction and Transportation
Group, at $194.9 million, were substantially ahead of
last year's similar period, reflecting greater demand
for all product classes. Sales for the Process
Industry Products Group, at $214.3 million, were well
ahead of the prior year's six months, as each
Division posted higher volume.
Operating profit for the Metal Reclamation and Mill
Services Group was a disappointing $14.3 million, up
only 20% from 1993's first six months in spite of the
acquisition of MultiServ International, N.V.
Performance was adversely affected by the ongoing
rationalization of the steel industry as well as weak
economic conditions in certain countries in Europe,
the adverse impact of foreign currency devaluations
and hyper-inflation in Brazil, and the ongoing
expensing of start-up costs for new contracts. Also
unfavorably impacting results for 1994 was a pre-tax
$2.5 million charge for termination costs. The
Infrastructure, Construction and Transportation Group
posted an operating profit of $6.5 million which was
below 1993's first six months, despite most product
classes posting significantly improved results, with
the exception of the new product line of school
buses, where the Company experienced an operating
loss ($6.7 million), and grating. Operating profit
for the Process Industry Products Group, at $20.0
million, was up 36% over the prior year's first six
months 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 above
under Part I, Item 1., the section labeled
"Commitments and Contingencies."
ITEM 5. OTHER INFORMATION
a.) On April 29, 1994, Harsco Corporation announced
that Taylor-Wharton Gas Equipment Division's
Headquarter's will be relocated to Camp Hill,
Pennsylvania from Plant City, Florida.
b.) On June 22, 1994, Harsco Corporation announced
that the Company completed an amendment and
resyndication of the $300 million credit facility
which was originally entered into October 1993,
relating to the acquisition of MultiServ
International, N.V.
This amended agreement will reduce costs through
lower interest expense and fees, will provide
financial flexibility and eliminate certain financial
covenants, and will serve as a backup for the
potential issuance of commercial paper. The
structure of the revolving credit agreement includes
a $150 million, 364-day committed facility in US
dollars only and a $150 million, five-year committed
facility in US dollars and Eurocurrencies.
c.) On June 28, 1994, Harsco Corporation announced
that the Board of Directors declared a quarterly cash
dividend of 35 cents per share, payable August 15,
1994, to shareholders of record on July 15, 1994.
d.) On July 7, 1994, Harsco Corporation announced a
management reorganization of its Heckett MultiServ
Division as a part of the Company's ongoing program
to integrate with its Heckett Division the MultiServ
International N.V. metal reclamation and mill service
operations acquired last year. Under the new
structure, the Heckett MultiServ Division will be
organized into two geographic regions, each managed
by a regional President reporting to Harsco Senior
Vice President and Chief Operating Officer, William
D. Etzweiler. Geoffrey D. H. Butler, previously the
Managing Director of London based Heckett MultiServ-
East will serve as President of Heckett MultiServ
Division East, adding Europe to his existing areas of
responsibility which include Africa, Asia and
Australia. Senior Vice President of North America of
the Heckett MultiServ Division, Richard E. Chapla, is
assuming responsibility for North and South American
operations as President of the Butler Pennsylvania
based Heckett MultiServ Division-West. Adrian H. H.
Bowden who led the Heckett MultiServ Division as
President and Chief Operating Officer has departed
the Company by mutual agreement to assist the
reorganization effort.
In view of the new responsibilities being assumed by
Mr. Etzweiler for the Heckett MultiServ Division,
four Harsco divisions are being reassigned from him
to Barrett W. Taussig, who is also a Senior Vice
President and Chief Operating Officer. Under this
realignment, Mr. Etzweiler will retain responsibility
for the Company's Process Industry Products group
which includes the Capitol Manufacturing, Patterson-
Kelley, Sherwood and Taylor-Wharton Gas Equipment
Divisions. Mr. Taussig, who is responsible for the
Corporation's 40% limited partnership interest in
United Defense, L.P. and the BMY-Wheeled Vehicles
Division will retain those assignments and in
addition oversee the other divisions in the
Infrastructure Construction and Transportation Group
consisting of Fairmont Tamper, IKG Industries, Patent
Construction Systems and Reed Minerals.
ITEM 6. EXHIBITS
The following exhibits are attached:
a.) Exhibit No. 11. Computation of Fully Diluted
Net Income Per Common Share.
b.) Exhibit No. 12. Computation of Ratios of
Earnings to Fixed Charges.
c.) There have been no reports filed on Form 8-K
during the second quarter ending June 30, 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 August 11, 199 /S/Leonard A. Campanaro
Leonard A. Campanaro
Senior Vice President and
Chief Financial Officer
DATE August 11, 199 /S/Salvatore D. Fazzolari
Salvatore D. Fazzolari
Vice President and Controller
Part I
Exhibit 11
HARSCO CORPORATION
COMPUTATION OF FULLY DILUTED NET INCOME PER COMMON
SHARE
(dollars in thousands except per share)
<TABLE>
<CAPTION>
3 MONTHS ENDED JUNE 30 6 MONTHS ENDED JUNE 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income before cumulative
effect of accounting change $ 17,547 $ 22,281 $ 36,175 $ 46,438
Cumulative effect of a change
in accounting for income taxes - - - 6,802
__________ __________ __________ __________
Net income $ 17,547 $ 22,281 $ 36,175 $ 53,240
__________ __________ __________ __________
__________ __________ __________ __________
Average shares of common stock
outstanding used to compute
primary earnings per common
share 25,118,244 25,056,040 25,065,274 25,189,883
Additional common shares to be
issued assuming exercise of
stock options, net of shares
assumed reacquired 82,849 123,801 100,304 139,629
__________ __________ __________ __________
Shares used to compute dilutive
effect of stock options 25,201,093 25,179,841 25,165,578 25,329,512
__________ __________ __________ __________
__________ __________ __________ __________
Fully diluted income per
share before cumulative
effect of accounting change $ 0.70 $ 0.88 $ 1.44 $ 1.83
Fully diluted income per
share of cumulative effect
of change in accounting for
income taxes - - - 0.27
__________ __________ __________ __________
Fully diluted net income per
common share $ 0.70 $ 0.88 $ 1.44 $ 2.10
__________ __________ __________ __________
__________ __________ __________ __________
Income per share before
cumulative effect of
accounting change $ 0.70 $ 0.88 $ 1.44 $ 1.84
Income per share of cumulative
effect of change in accounting
for income taxes - - - 0.27
__________ __________ __________ __________
Net income per common share $ 0.70 $ 0.89 $ 1.44 $ 2.11
__________ __________ __________ __________
__________ __________ __________ __________
</TABLE>
Part I
Exhibit 12
HARSCO CORPORATION
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
_____________________________________________________
Six
Months
Ended
1989 1990 1991 1992 1993 6-30-94
<S> <C> <C> <C> <C> <C> <C>
Consolidated Earnings:
Pre-tax income from
continuing operations<F1> $ 22,173 $115,587 $119,647 $140,576 $137,151 $ 65,147
Add fixed charges computed
below 20,693 21,864 23,544 22,425 23,879 19,025
Net adjustments for equity
companies (483) (532) (439) (454) (363) (15,744)
Net adjustments for
capitalized interest (215) (255) (469) (134) (172) (192)
_______ _______ _______ _______ _______ _______
Consolidated Earnings
Available for Fixed
Charges $ 42,168 $136,664 $142,283 $162,413 $160,495 $ 68,236
_______ _______ _______ _______ _______ _______
_______ _______ _______ _______ _______ _______
Consolidated Fixed Charges:
Interest expense per
financial statements<F2> $ 16,412 $ 17,506 $ 18,925 $ 18,882 $ 19,974 $ 17,135
Interest expense
capitalized 287 345 574 355 332 224
Portion of rentals (1/3
representing an interest
factor 3,994 4,013 4,045 3,188 3,573 1,666
Interest expense for
equity companies whose
debt is guaranteed<F3> - - - - - -
_______ _______ _______ _______ _______ _______
Consolidated Fixed Charges $ 20,693 $ 21,864 $ 23,544 $ 22,425 $ 23,879 $ 19,025
_______ _______ _______ _______ _______ _______
_______ _______ _______ _______ _______ _______
Consolidated Ratio of
Earnings to Fixed Charges 2.04 6.25 6.04 7.24 6.72 3.59
_______ _______ _______ _______ _______ _______
_______ _______ _______ _______ _______ _______
<FN>
<F1> 1992 excludes the cumulative effect of change in accounting method for
postretirement benefits other than pensions.
<F2> Includes amortization of debt discount and expense.
<F3> 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 six months of 1994.
</TABLE>
