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, 1995
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 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, 1995
___________________ ____________________________________
Common Stock Par Value $1.25 25,239,521
Preferred Stock Purchase Rights 25,239,521
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
(In thousands, except per share amounts) 1995 1994
__________________________________________________________________________________________
<S> <C> <C>
Revenues:
Net sales $ 356,879 $ 318,672
Equity in income of unconsolidated entities 18,537 15,028
Gain on sale of investments - 5,867
Other revenues 526 4,101
__________________________________________________________________________________________
Total revenues 375,942 343,668
__________________________________________________________________________________________
Costs and expenses:
Cost of sales 276,897 252,997
Selling, administrative and general expenses 49,625 47,660
Research and development 1,143 931
Facilities discontinuance and reorganization costs 1,313 17
Other (2,584) 1,034
__________________________________________________________________________________________
Total costs and expenses 326,394 302,639
__________________________________________________________________________________________
Income before interest, taxes, and minority interest 49,548 41,029
Interest income 1,497 1,481
Interest expense (7,510) (8,330)
__________________________________________________________________________________________
Income before taxes and minority interest 43,535 34,180
Provision for income taxes 17,414 14,936
__________________________________________________________________________________________
Income before minority interest 26,121 19,244
Minority interest 661 616
__________________________________________________________________________________________
Net income $ 25,460 $ 18,628
__________________________________________________________________________________________
__________________________________________________________________________________________
Average shares of common stock outstanding 25,202 25,012
__________________________________________________________________________________________
__________________________________________________________________________________________
Net income per share $ 1.01 $ .74
__________________________________________________________________________________________
__________________________________________________________________________________________
Cash dividends declared per share $ .37 $ .35
__________________________________________________________________________________________
__________________________________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
(In thousands) 1995 1994
_________________________________________________________________________________________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,708 $ 43,550
Receivables 342,162 350,578
Inventories:
Finished goods 28,762 25,641
Work in process 33,099 28,625
Raw material and purchased parts 59,861 53,338
Stores and supplies 15,085 13,595
__________________________________________________________________________________________
Total inventories 136,807 121,199
Other current assets 25,318 21,432
__________________________________________________________________________________________
Total current assets 537,995 536,759
__________________________________________________________________________________________
Property, plant and equipment, at cost 1,023,529 984,930
Allowance for depreciation (575,488) (549,962)
__________________________________________________________________________________________
448,041 434,968
__________________________________________________________________________________________
Cost in excess of net assets of companies
acquired, net 211,824 213,480
Investments 42,487 43,711
Other assets 91,176 85,731
__________________________________________________________________________________________
$1,331,523 $1,314,649
__________________________________________________________________________________________
__________________________________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
(In thousands) 1995 1994
_________________________________________________________________________________________
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable and current maturities $ 28,778 $ 25,738
Accounts payable 94,401 92,166
Accrued compensation 37,454 37,837
Other current liabilities 146,752 126,680
_________________________________________________________________________________________
Total current liabilities 307,385 282,421
Long-term debt 326,430 340,246
Deferred income taxes 25,100 29,217
Other liabilities 76,351 81,543
_________________________________________________________________________________________
735,266 733,427
_________________________________________________________________________________________
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital 136,799 134,499
Cumulative adjustments (18,790) (16,119)
Retained earnings 670,116 653,996
Treasury stock (191,868) (191,154)
_________________________________________________________________________________________
596,257 581,222
_________________________________________________________________________________________
$1,331,523 $1,314,649
_________________________________________________________________________________________
_________________________________________________________________________________________
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
(In thousands) 1995 1994 <F1>
__________________________________________________________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,460 $ 18,628
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 23,110 21,190
Amortization 2,538 2,363
Gain on sale of investments - (5,867)
Equity in earnings of unconsolidated entities (18,537) (14,413)
Dividends or distributions from unconsolidated entities 3,325 -
Other, net (5,879) (1,926)
Changes in assets and liabilities, net of acquisition
of a business and formation of a partnership:
Notes and accounts receivable 25,713 (4,466)
Inventories (14,977) (4,026)
Accounts payable (4,819) (11,205)
Other assets and liabilities 10,644 (1,086)
__________________________________________________________________________________________
Net cash provided (used) by operating activities 46,578 (9,808)
__________________________________________________________________________________________
Cash flows from investing activities:
Expenditures for property, plant and equipment,
net of disposals (23,132) (15,200)
Purchase of business, net of cash acquired (3,208) -
Proceeds from sale of investment held available for sale - 7,617
Investments held-to-maturity:
Purchases - (2,000)
Maturities 1,000 6,005
Other investing activities 514 (6,943)
__________________________________________________________________________________________
Net cash (used) by investing activities (24,826) (10,521)
__________________________________________________________________________________________
Cash flows from financing activities:
Short-term borrowings, net (3,342) (13,570)
Current maturities and long-term debt
Additions 15,109 34,414
Reductions (35,452) (3,321)
Cash dividends paid on common stock (9,319) (8,741)
Common stock issued-options 1,586 3,615
Other financing activities (221) -
__________________________________________________________________________________________
Net cash provided (used) by financing activities (31,639) 12,397
__________________________________________________________________________________________
Effect of exchange rate changes on cash 45 (593)
__________________________________________________________________________________________
Net (decrease) in cash and cash equivalents (9,842) (8,525)
Cash and cash equivalents at beginning of period 43,550 58,740
__________________________________________________________________________________________
Cash and cash equivalents at end of period $ 33,708 $ 50,215
__________________________________________________________________________________________
__________________________________________________________________________________________
<FN>
<F1> Reclassified
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
REVIEW OF OPERATIONS BY GROUP
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
SALES March 31
(In millions ) 1995 1994
__________________________________________________________________________________________
<S> <C> <C>
Metal Reclamation and Mill Services $ 141.7 $ 118.0
Infrastructure and Construction * 93.0 91.4
Process Industry Products 122.2 109.3
__________________________________________________________________________________________
Total $ 356.9 $ 318.7
__________________________________________________________________________________________
__________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
INCOME BEFORE TAX Three Months Ended
AND MINORITY INTEREST March 31
(In millions ) 1995 1994
__________________________________________________________________________________________
<S> <C> <C>
Group operating profit:
Metal Reclamation and Mill Services $ 14.1 $ 5.3
Infrastructure and Construction * 3.6 2.6
Process Industry Products 12.5 11.0
__________________________________________________________________________________________
30.2 18.9
Facilities discontinuance and
reorganization costs (1.2) (0.1)
__________________________________________________________________________________________
Total group operating profit 29.0 18.8
Equity in income of unconsolidated entities 18.5 15.0
Gain on sale of investments - 5.9
Claim settlements - 3.8
Interest expense (7.5) (8.3)
Unallocated income (expense) 3.5 (1.0)
__________________________________________________________________________________________
Total pre-tax income $ 43.5 $ 34.2
__________________________________________________________________________________________
__________________________________________________________________________________________
</TABLE>
*Note: Effective January 1, 1995, the Infrastructure, Construction and
Transportation Group was renamed the Infrastructure and Construction Group due
to the Company's announced exit from the school bus business. School bus
sales and operating results are included under this Group.
Cash payments for interest on all debt, net of amounts capitalized were
$7,510,000 for the first quarter of 1995 and $9,159,000 for the first quarter
of 1994. Cash payments for income taxes were $5,981,000 for the first quarter
of 1995 and $7,018,000 for the first quarter of 1994.
Notes to Consolidated Financial Statements
__________________________________________
Receivables:
As of March 31, 1995, 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.
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, but voluntarily withdrew its appeal effective August
16, 1994. On February 23, 1995, the Government filed another motion to reopen
the proceedings at the Armed Services Board of Contract Appeals to allow
additional discovery or alternatively, to reconsider its decision. The
Company will oppose this motion. The Government might also seek to overturn
the decision in a separate legal action 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 motions and any other
legal challenges to the judgment, the government contracting officer will be
required 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 and continues to negotiate with the
Government. 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 an
investigation with respect to the facts underlying the Company's claim for
reimbursement of Federal Excise Tax payments and its related claim regarding
destination changes. In addition, the investigation 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 $39 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.
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 provided for payment
of $3.8 million by the U.S. Government to Harsco. The Company recognized such
amount as other revenue in the Consolidated Statements of Income in the first
quarter of 1994 and payment has been received.
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 that resolution of these claims will have a
material adverse effect on the Company's financial position, however, it could
have a material effect on quarterly or annual results of operations.
Iran's Ministry of Defense initiated arbitration procedures against the
Company in 1991 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 $76.3 million.
The Company has asserted 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 it is unlikely that resolution of these claims will
have a material adverse effect on the Company's financial position or results
of operations.
In 1992, the United States Government through its Defense Contract Audit
Agency commenced an audit of certain contracts for sale of tracked vehicles by
the Company to foreign governments, which were financed by the United States
Government through the Defense Security Assistance Agency. The Company
cooperated with the audit and responded to a number of issues raised by the
audit. In September 1994, the Company received a subpoena issued by the
Department of Defense Inspector General seeking various documents relating to
sale contracts between the Company and foreign governments which were funded
by the Defense Security Assistance Agency. The Company is continuing to
cooperate and is responding to the subpoena. Although the Government has not
clearly identified to the Company the focus of its investigation, based on
discussions with the agent in charge, it appears that it focuses on whether
the Company received progress payments in advance of the schedule permitted by
the Defense Security Assistance Agency regulations and Company certifications.
The Company's management and its counsel believe it is unlikely that this
issue will have a material adverse effect on the Company's financial position
or results of operations.
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. $17 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. The
Company and its counsel believe that is unlikely that these claims will have a
material adverse effect on the Company's financial position or results of
operations.
On August 29, 1994, the Company filed a legal action in the United States
District Court for the Southern District of New York against certain former
shareholders of MultiServ International N.V. seeking recovery of damages
arising from misrepresentations which the Company claims were made to it in
connection with its purchase of the MultiServ International N.V. stock on
August 31, 1993. The Complaint seeks damages in an amount to be determined.
On April 4, 1995, the court dismissed various elements of the Company's claims
and allowed the Company to amend its complaint with respect to other elements.
The Company intends to appeal this decision and to continue pursuing its
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 Consolidated Balance Sheets at March
31, 1995 and December 31, 1994, include an accrual of $6.2 million for
environmental matters. No additional charges were made to earnings for
environmental matters during the first quarter of 1995. The first quarter of
1994 included charges to earnings amounting to $.1 million.
The liability for future remediation costs is evaluated on a quarterly basis.
Actual costs to be incurred at identified sites in future periods may vary
from the estimates, given inherent uncertainties in evaluating environmental
exposures. Subject to the imprecision in estimating future environmental
costs, the Company does not expect that any sum it may have to pay in
connection with environmental matters in excess of the amounts recorded or
disclosed above would have a material adverse effect on its 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 material 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 provided by operating activities was $46.6 million in the first quarter
of 1995, reflecting, among other things, a $25.7 million decrease in accounts
receivable which include the claim settlement of $20.4 million received from
the U.S. Government and a $13.8 million increase in income taxes payable.
During the first quarter, distributions of $3.3 million were received from
unconsolidated entities. As previously reported, 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 used by investing activities included capital expenditures of $24.9
million and $3.2 million for the acquisition of Fabsco. Total consideration
for Fabsco was $14.6 million with the assumption of debt and other
liabilities. Cash flow used for financing activities included a net decrease
in long-term debt of $20.4 million, which included the purchase at market of
$10 million of the Company's outstanding 8-3/4% 10 year notes due May 1996, a
$3.3 million reduction of short-term debt, and $9.3 million of cash dividends
paid on common stock. Cash and cash equivalents decreased $9.8 million to
$33.7 million at March 31, 1995.
Other matters which could significantly affect cash flows in the future are
discussed in the 1994 Annual Report to Shareholders under Note 10,
"Commitments and Contingencies" and the updated "Notes to the Consolidated
Financial Statements" include herein under Item 1.
Harsco continues to maintain a good financial position, with net working
capital of $230.6 million, down from the $254.3 million at December 31, 1994,
principally due to the increase in income taxes payable related to higher
earnings. Current assets amounted to $538.0 million, and current liabilities
were $307.4 million, resulting in a current ratio of 1.8 to 1, slightly below
the 1.9 to 1 at year-end 1994. With total debt at $355.2 million and equity
at $596.3 million at March 31, 1995, the total debt as a percent of capital
was 37.3%, which is lower than the 38.6% at December 31, 1994.
The stock price range during the first quarter was $45 - 39 5/8. Harsco's
book value per share at March 31, 1995, was $23.62, compared with $23.08 at
year-end 1994. The Company's annualized return on equity for the first
quarter of 1995 was 17.3%, compared with 15.7% for the year 1994. The return
on assets was 15.4%, compared with the 13.5% for the year 1994. The
annualized return on capital for the first quarter was 12.6%, compared with
11.0% for year 1994.
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. As of March 31, 1995, there were no borrowings outstanding
under these facilities.
The Company also has a commercial paper borrowing program under which it can
issue up to $150 million of short-term notes in the U.S. commercial paper
market. The Company limits the aggregate commercial paper and credit facility
borrowings at any one time to a maximum $300 million. At March 31, 1995, the
Company had outstanding $45.8 million in commercial paper. Harsco's
outstanding notes are rated A by Standard & Poor's and Baa1 by Moody's.
Harsco's commercial paper is rated A-1 by Standard & Poor's, F-1 by Fitch
Investors Service and P-2 by Moody's. The Company also has on file, with the
Securities and Exchange Commission, a Form S-3 shelf registration for the
possible issuance of up to an additional $200 million of new debt securities,
preferred stock or common stock.
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, the Company should be able to obtain funds at
competitive costs.
RESULTS OF OPERATIONS
FIRST QUARTER OF 1995 COMPARED
WITH FIRST QUARTER OF 1994
First quarter revenues of $375.9 million were 9% above last year's comparable
period. The increase was primarily due to higher sales for metal reclamation
and mill services, gas control and containment equipment, scaffolding, shoring
and forming equipment, and to a lesser extent roofing granules and abrasives.
Additionally, higher revenues included sales from an acquisition made in the
first quarter of 1995, and increased income from the Company's equity
investment in United Defense, L.P. These increases were partially offset by
lower sales of railway maintenance equipment and process equipment. On a
comparative basis, the Company recorded in 1994 a $5.9 million pre-tax gain on
the sale of the remaining holdings of an investment in a marketable equity
security and $3.8 million of revenues due to the negotiated settlement of a
claim with the U.S. Government.
Cost of sales increased, principally due to higher volume. Selling and
administrative expenses increased, as a result of higher compensation costs,
legal and business development costs, and, to a lesser extent, the inclusion
of an acquired company.
Income before taxes and minority interest was up 27% from the comparable
period last year due to higher earnings. The effective income tax rate for
1995 is 40.0%, versus 43.7% in 1994. The lower income tax rate is primarily
due to a reduction in losses sustained in certain foreign operations for which
there is no tax benefit and increased tax benefits relating to export sales.
Higher earnings in the first quarter of 1995 were due principally to improved
results for metal reclamation and mill services, gas control and containment
equipment, roofing granules and abrasives, as well as the Company's share of
income in its equity investment in United Defense, L.P. Lower earnings were
recorded for railway maintenance equipment and pipe fittings. Income
benefited in 1995 from the impact of a pre-tax $5.1 million net foreign
currency translation exchange gain arising from the decline in the U.S. Dollar
against certain European currencies which more than offset a pre-tax $3.4
million foreign currency translation exchange loss due to the continued
devaluation of the Mexican peso. On a comparative basis, favorably affecting
1994's first quarter's results were a gain on the sale of the remaining
holdings of an investment in a marketable equity security and income resulting
from the negotiated settlement of a claim with the U.S. Government. Finally,
continuing losses during the planned shutdown of the school bus operation,
approximated losses incurred in the first quarter of 1994.
Net income of $25.5 million, was up 37% from the comparable period in 1994.
This net income was the highest first quarter performance excluding accounting
changes in prior first quarters.
Sales of the Metal Reclamation and Mill Services Group, at $141.7 million,
were significantly above 1994's first quarter, due to improved business
conditions, particularly in Europe, as well as North America which was
unfavorably affected in 1994 by severe winter weather. The favorable impact
of the decline in the U.S. Dollar against certain European currencies also
contributed to increased revenues for the Group. Sales for Infrastructure and
Construction Group at $93.0 million, were slightly ahead of last year's
similar period. Scaffolding equipment sales increased significantly from
1994. Sales for the Process Industry Products Group, at $122.2 million, were
well ahead of the prior year's first quarter. The improvement included
increased sales for most product classes, as well as sales from an acquisition
made in the first quarter of 1995.
Operating profit for the Metal Reclamation and Mill Services Group was
significantly ahead of 1994's first quarter, despite $4.2 million of net
foreign currency translation exchange losses due principally to the continued
devaluation of the Mexican peso. The increase reflects improved business
conditions, the favorable effects of cost reduction efforts, and the favorable
impact of the decline in the U.S. Dollar against certain European currencies.
The Infrastructure and Construction Group posted an operating profit of $3.6
million, which exceeded 1994's first quarter, as all product classes posted
improved results, except railway maintenance equipment which benefited in 1994
from two large shipments to two international customers. On a comparative
basis, continuing losses from the planned shutdown of the school bus
operation, approximated losses incurred in the first quarter of 1994.
Operating profit for the Process Industry Products Group, at $12.5 million,
was up 14% from the prior year's first quarter and reflected significantly
improved results for gas control and containment equipment which more than
offset lower earnings for pipe fittings.
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 25, 1995 in Camp
Hill, Pennsylvania, three members of the Board of Directors were reelected to
terms expiring in 1998 under the classified Board structure enacted at the
1986 Annual Meeting. They include R. L. Kirk, Chairman, British Aerospace,
Inc.; J. E. Marley, Chairman of AMP Inc.; and J. I. Scheiner, P.E., President
of Benatec Associates Inc.
The Board of Directors voting tabulation is as follows:
For Withheld
Name No. of Shares No. of Shares
R. L. Kirk 21,270,462 102,240
J. E. Marley 21,263,313 109,389
J. I. Scheiner 21,234,831 137,871
Shareholders approved the 1995 Executive Incentive Compensation Plan by the
following vote: 17,072,531 For, 2,643,655 Against, and 279,258 Abstain.
Shareholders approved the 1995 Non-employee Directors' Stock Plan by the
following vote: 17,613,644 For, 2,011,563 Against, and 370,237 Abstain.
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, 1995 by the following vote: 21,196,146 For, 80,845 Against, and
95,711 Abstain.
ITEM 5. OTHER INFORMATION
ACQUISITION:
* On February 6, 1995, Harsco Corporation announced that it had completed the
acquisition of substantially all of the assets of Fabsco, Inc. for a total
consideration of $14.6 million in cash and assumed liabilities. Fabsco, Inc.,
with its main offices in Sapulpa, Oklahoma, manufactures heat exchange
products and generates annual sales of approximately $22 million to the
process industry cooler market. The operations of Fabsco will be integrated
into the Patterson-Kelley Division of Harsco, and operated as a new business
unit of that Division under the Fabsco name.
DIVESTITURE:
* In November 1994, the Board of Directors authorized the Company to exit
from the school bus business and in January 1995, Harsco Corporation announced
that it would close its school bus manufacturing division in Marysville, Ohio.
* On January 31, 1995, Harsco Corporation announced that it had signed a
letter of intent to sell the assets of its school bus manufacturing business
in Marysville, Ohio, to Warrick Industries for an undisclosed price. The
transaction was contingent upon the early finalization of a definitive
agreement and completion of statutory filing requirements.
* On February 15, 1995, Harsco Corporation announced that discussions
regarding the proposed sale of its school bus business to Warrick Industries,
Inc. have terminated due to Warrick's inability to complete its required
purchase commitment contingencies.
DIVIDEND ACTION:
* On March 16, 1995, Harsco Corporation announced that the Board of Directors
declared a quarterly cash dividend of 37 cents per share, payable May 15,
1995, to shareholders of record on April 14, 1995.
DIRECTOR RETIREMENTS:
* On April 25, 1995, DeWitt C. Smith, Jr. and Frank E. Masland III retired
from the Company's Board of Directors bringing the total number of directors
to 10.
ITEM 6(a). 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.) An 8-K was filed on January 11 reporting that the Government and the
Company agreed to settle various claims on completed contracts for
$20,400,000. The related income was recognized in 1994.
d.) An 8-K was filed on January 20, announcing that the Company plans to
close its school bus manufacturing division in Marysville, Ohio.
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_______________________ /S/ Leonard A. Campanaro
________________________
Leonard A. Campanaro
Senior Vice President and
Chief Financial Officer
DATE_______________________ /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)
_______________________________________
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31
1995 1994
___________ ___________
<S> <C> <C>
Net income $ 25,460 $ 18,628
__________ __________
__________ __________
Average shares of common stock
outstanding used to compute
primary earnings per common
share 25,202,429 25,012,305
Additional common shares to be
issued assuming exercise of
stock options, net of shares
assumed reacquired 107,161 179,820
__________ __________
Shares used to compute dilutive
effect of stock options 25,309,590 25,192,125
__________ __________
__________ __________
Fully diluted net income per
common share $ 1.01 $ .74
_____ _____
_____ _____
Net income per common share
as reported in report to
shareholders $ 1.01 $ .74
_____ _____
_____ _____
</TABLE>
HARSCO CORPORATION
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Three
YEARS ENDED DECEMBER 31 Months
________________________________________________________________ Ended
1990 1991 1992 1993 1994 3/31/95
________ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C>
Consolidated Earnings:
Pre-tax income from continuing
operations <F1> $ 115,587 $ 119,647 $ 140,576 $ 137,151 $ 146,089 $ 42,874
Add fixed charges computed below 21,864 23,544 22,425 23,879 37,982 8,380
Net adjustments for equity companies (532) (439) (454) (363) (134) (3,690)
Net adjustments for capitalized
interest (255) (469) (134) (172) (274) -
________ ________ ________ ________ ________ ________
Consolidated Earnings Available for
Fixed Charges $ 136,664 $ 142,283 $ 162,413 $ 160,495 $ 183,663 $ 47,564
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Consolidated Fixed Charges:
Interest expense per financial
statements <F2> $ 17,506 $ 18,925 $ 18,882 $ 19,974 $ 34,048 $ 7,510
Interest expense capitalized 345 574 355 332 338 50
Portion of rentals (1/3) representing
an interest factor 4,013 4,045 3,188 3,573 3,576 820
Interest expense for equity companies
whose debt is guaranteed <F3> - - - - - -
________ ________ ________ ________ ________ ________
Consolidated Fixed Charges $ 21,864 $ 23,544 $ 22,425 $ 23,879 $ 37,982 $ 8,380
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Consolidated Ratio of Earnings to
Fixed Charges 6.25 6.04 7.24 6.72 4.84 5.68
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
<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 1990 through 1994, and the three months ended March 31, 1995.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 33,708
<SECURITIES> 0
<RECEIVABLES> 350,126
<ALLOWANCES> (7,964)
<INVENTORY> 136,807
<CURRENT-ASSETS> 537,995
<PP&E> 1,023,529
<DEPRECIATION> (575,488)
<TOTAL-ASSETS> 1,331,523
<CURRENT-LIABILITIES> 307,385
<BONDS> 326,430
<COMMON> 40,522
0
0
<OTHER-SE> 555,735
<TOTAL-LIABILITY-AND-EQUITY> 1,331,523
<SALES> 356,879
<TOTAL-REVENUES> 375,942
<CGS> 276,897
<TOTAL-COSTS> 326,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 733
<INTEREST-EXPENSE> 7,510
<INCOME-PRETAX> 43,535
<INCOME-TAX> 17,414
<INCOME-CONTINUING> 25,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,460
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
