<PAGE> 1
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, 1996
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
--- ---
<TABLE>
<CAPTION>
Title of Each Class Outstanding Shares at March 31, 1996
- ------------------- ------------------------------------
<S> <C>
Common Stock Par Value $1.25 25,074,059
Preferred Stock Purchase Rights 25,074,059
</TABLE>
-1-
<PAGE> 2
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) 1996 1995
- ---------------------------------------------------------------------------------------------------
REVENUES:
<S> <C> <C>
Net sales.................................................. $ 366,686 $ 356,879
Equity in income of unconsolidated entities................ 22,901 18,537
Other...................................................... 235 526
- ---------------------------------------------------------------------------------------------------
TOTAL REVENUES......................................... 389,822 375,942
===================================================================================================
COSTS AND EXPENSES:
Cost of sales.............................................. 280,528 276,897
Selling, general and administrative expenses............... 51,387 49,625
Research and development expenses.......................... 741 1,143
Facilities discontinuance and reorganization costs......... 768 1,313
Other...................................................... (558) (2,584)
- ---------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES............................... 332,866 326,394
===================================================================================================
INCOME BEFORE INTEREST, TAXES, AND MINORITY INTEREST... 56,956 49,548
Interest income................................................. 2,028 1,497
Interest expense................................................ (6,087) (7,510)
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND MINORITY INTEREST.............. 52,897 43,535
Provision for income taxes...................................... 20,630 17,414
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST........................ 32,267 26,121
Minority interest in net income................................. 1,157 661
- ---------------------------------------------------------------------------------------------------
NET INCOME............................................. $ 31,110 $ 25,460
===================================================================================================
Average shares of common stock outstanding...................... 25,086 25,202
===================================================================================================
NET INCOME PER SHARE................................... $ 1.24 $ 1.01
===================================================================================================
Cash dividends declared per share...................... $ .38 $ .37
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 3
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
(In thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 49,963 $ 76,669
Receivables................................................ 275,212 272,858
Inventories:
Finished goods.......................................... 30,642 25,996
Work in process......................................... 26,638 24,640
Raw material and purchased parts........................ 51,612 54,151
Stores and supplies..................................... 19,332 18,498
- ---------------------------------------------------------------------------------------------------------
Total inventories................................... 128,224 123,285
Other current assets....................................... 63,878 60,954
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS.................................... 517,277 533,766
=========================================================================================================
Property, plant and equipment, at cost......................... 1,088,737 1,080,267
Allowance for depreciation..................................... (628,293) (620,458)
- ---------------------------------------------------------------------------------------------------------
460,444 459,809
=========================================================================================================
Cost in excess of net assets of companies acquired, net........ 202,070 205,801
Investments in unconsolidated entities......................... 65,548 45,604
Other assets................................................... 62,121 65,682
- ---------------------------------------------------------------------------------------------------------
$ 1,307,460 $ 1,310,662
=========================================================================================================
LIABILITIES
CURRENT LIABILITIES:
Notes payable and current maturities....................... $ 109,147 $ 108,747
Accounts payable........................................... 98,671 112,736
Accrued compensation....................................... 36,476 41,304
Other current liabilities.................................. 128,537 125,725
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES............................... 372,831 388,512
=========================================================================================================
Long-term debt................................................. 173,967 179,926
Deferred income taxes.......................................... 33,027 36,061
Other liabilities.............................................. 84,871 80,172
- ---------------------------------------------------------------------------------------------------------
664,696 684,671
=========================================================================================================
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital.................... 147,280 141,855
Cumulative adjustments for translation & pension liability..... (24,174) (20,265)
Retained earnings.............................................. 735,367 713,774
Treasury stock................................................. (215,709) (209,373)
- ---------------------------------------------------------------------------------------------------------
642,764 625,991
- ---------------------------------------------------------------------------------------------------------
$ 1,307,460 $ 1,310,662
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
(In thousands) 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 31,110 $ 25,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................................... 23,810 23,110
Amortization............................................... 2,328 2,538
Equity in income of unconsolidated entities................ (22,901) (18,537)
Dividends or distributions from unconsolidated entities.... 3,325 3,325
Deferred income taxes...................................... 1,929 (2,190)
Other, net................................................. 1,659 (3,689)
Changes in assets and liabilities, net of acquisition
of a business:
Notes and accounts receivable.......................... (4,503) 25,713
Inventories............................................ (5,776) (14,977)
Accounts payable....................................... (7,792) (4,819)
Other assets and liabilities........................... (982) 10,644
- -------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 22,207 46,578
=================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment................. (30,704) (24,896)
Purchase of business, net of cash acquired..................... - (3,208)
Investments held-to-maturity................................... 1,000 1,000
Other investing activities..................................... 1,196 2,278
- -------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES.................... (28,508) (24,826)
=================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net..................................... (1,400) (3,342)
Current maturities and long-term debt
Additions.................................................... 761 15,109
Reductions................................................... (4,198) (35,452)
Cash dividends paid on common stock............................ (9,521) (9,319)
Common stock issued-options.................................... 3,038 1,586
Common stock acquired for treasury............................. (8,973) -
Other financing activities..................................... 496 (221)
- -------------------------------------------------------------------------------------------------
NET CASH (USED) BY FINANCING ACTIVITIES.................... (19,797) (31,639)
=================================================================================================
Effect of exchange rate changes on cash........................... (608) 45
- -------------------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents....................... (26,706) (9,842)
Cash and cash equivalents at beginning of period.................. 76,669 43,550
=================================================================================================
Cash and cash equivalents at end of period $ 49,963 $ 33,708
=================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVIEW OF OPERATIONS BY GROUP
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
(In millions) 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
SALES:
Metal Reclamation and Mill Services....................... $ 150.8 $ 141.7
Infrastructure and Construction (a)....................... 92.6 93.0
Process Industry Products................................. 123.3 122.2
- --------------------------------------------------------------------------------------------
Total.............................................. $ 366.7 $ 356.9
============================================================================================
INCOME BEFORE TAXES AND MINORITY INTEREST:
Metal Reclamation and Mill Services (b)................... $ 20.4 $ 14.1
Infrastructure and Construction (a)....................... 7.7 3.6
Process Industry Products................................. 11.2 12.5
- --------------------------------------------------------------------------------------------
39.3 30.2
Facilities discontinuance and
reorganization costs (c).................................. (.4) (1.2)
- --------------------------------------------------------------------------------------------
Total group operating profit....................... 38.9 29.0
Equity in income of unconsolidated entities............... 22.9 18.5
Interest expense ......................................... (6.1) (7.5)
General corporate expenses (d)............................ (2.8) 3.5
- --------------------------------------------------------------------------------------------
Total pre-tax income............................... $ 52.9 $ 43.5
============================================================================================
</TABLE>
(a) Under the Infrastructure and Construction Group, the Company ceased all bus
operations in June, 1995. For the first quarter of 1995, the school bus
operations had $8.5 million in sales and an operating loss of $3.2 million.
(b) For the first quarter of 1995, Group income before taxes included a $3.4
million foreign currency translation loss due to the devaluation of the
Mexican peso.
(c) Facilities discontinuance and reorganization costs in 1995 included $0.9
million of severance costs related to the school bus business.
(d) General corporate expenses for the first quarter of 1995 included $5.8
million foreign currency translation and exchange gains.
-5-
<PAGE> 6
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
$5,563,000 for the first quarter of 1996 and $7,510,000 for the first quarter of
1995. Cash payments for income taxes were $11,151,000 for the first quarter of
1996 and $5,981,000 for the first quarter of 1995.
Notes to Consolidated Financial Statements
Commitments and Contingencies:
Federal Excise Tax and Other Matters Related to the Five-ton Truck Contract:
In the third quarter of 1995, the Company, the United States Army, and the
United States Department of Justice concluded a settlement of Harsco's
previously reported claims against the Army relating to Federal Excise Tax
arising under a completed 1986 contract for the sale of five-ton trucks to the
Army. On September 27, 1995, the Army paid Harsco $49 million in accordance with
the settlement terms. Harsco released the Army from any further liability for
those claims, and the Department of Justice released Harsco from a threatened
action for damages and civil penalties based on an investigation conducted by
the Department's Commercial Litigation Branch that had been pending for several
years. During the performance of the five-ton truck contract, the Company
recorded an account receivable of $62.5 million for its claims against the Army
relating to Federal Excise Tax. As a result of accepting the $49 million in
settlement, Harsco recorded a non-recurring, pre-tax, non-cash charge of $13.5
million (after-tax charge of $8.2 million, $.32 per share), in the third quarter
of 1995.
The settlement preserves the rights of the parties to assert claims and defenses
under the Internal Revenue Code, and rights of the Army and Harsco to claim
certain amounts that may be owed by either party to reconcile possible
underpayments or overpayments on the truck contract as part of the formal
contract close out process.
The settlement does not resolve the potential for a claim from the Internal
Revenue Service that, contrary to the Company's position, certain cargo truck
models have gross vehicle weights in excess of the 33,000 pound threshold under
the Federal Excise Tax law, and therefore are taxable. As previously reported,
the Internal Revenue Service is reviewing Harsco's position and has tentatively
concluded that those cargo truck models 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 believes that these trucks are not taxable. The settlement
agreement preserves the Company's right to seek reimbursement of after-imposed
tax from the Army in the event that the cargo trucks are determined to be
taxable, but the agreement limits the reimbursement to a maximum of $21 million.
Additionally, in an earlier contract modification, the Army accepted
responsibility for $3.6 million of the potential tax, bringing its total
potential responsibility up to $24.6 million.
-6-
<PAGE> 7
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
Under the settlement, the Army agreed that if the cargo trucks are determined to
be taxable, the 1993 decision of the Armed Services Board of Contract Appeals
(which ruled that the Company is entitled to a price adjustment to the contract
for reimbursement of FET paid on vehicles that were to be delivered after
October 1, 1988) will apply to the question of Harsco's right to reimbursement
from the Army for after-imposed taxes on the cargo trucks. In Harsco's view,
application of the 1993 decision will favorably resolve the principal issues
regarding any such future claim by Harsco. Therefore, the Company believes that
even if the cargo trucks are held to be taxable, the Army would be obligated to
reimburse the Company for a majority of the tax, (but not interest or penalty,
if any), resulting in a net maximum liability for Harsco of approximately $18
million plus interest and penalty, if any. The Company believes it is unlikely
that resolution of this matter 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.
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 prices 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, totaling in excess of $60 million plus interest. No recognition has
been given in the accompanying financial statements for any recovery on these
claims. In July 1995, the Armed Services Board of Contract Appeals denied the
motions for summary judgment which had been filed by both the Company and the
Government. The Company is continuing to pursue its claim before the Armed
Services Board of Contract Appeals.
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 in response to the Company's claim of
approximately $5 million against the Government for costs incurred on this
contract relating to the same issue. In October 1995, Government counsel
informed the Company's counsel that at trial it would claim breach of contract
damages of $4.8 million plus damages and civil penalties under the False Claims
Act totaling $6.8 million. This is a reduction from the previously asserted
Government claim of $7.3 million in damages, trebled plus False Claims Act
penalties. 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.
-7-
<PAGE> 8
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
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 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 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 arbitration hearing was held in January 1996. At
the hearing, Iran reduced the $76.3 million portion of its claim to
approximately $34.4 million. The arbitration panel took the case under
advisement and management expects that it will issue a decision in 1996. 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. Based on discussions with the agent in charge
and the Government auditors, it appears that the investigation focuses on
whether the Company improperly certified requests for and 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 the Company). 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.
-8-
<PAGE> 9
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
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. At
the Company's request, the Court dismissed the remaining claims which then
allowed the Company to file an appeal in the United States Court of Appeals for
the Second Circuit. The Company has settled its claims with certain defendants,
but continues to pursue its appeal with respect to claims against the other
defendants.
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, 1996 and December 31, 1995, include an
accrual of $5.2 million and $5.3 million respectively for environmental matters.
The amounts charged to earnings on a pre-tax basis related to environmental
matters totaled $76,000 and zero for the first three months of 1996 and 1995,
respectively.
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.
-9-
<PAGE> 10
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
New Financial Accounting Standards Adopted
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" which is effective for years beginning after December 15, 1995.
This statement establishes criteria for recognizing, measuring and disclosing
impairments of long-lived assets, identifiable intangibles and goodwill. The
Company adopted SFAS 121 in the first quarter of 1996, the effect of which was
immaterial.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" which is effective for years beginning
after December 15, 1995. This statement allows entities to choose between a new
fair value based method of accounting for employee stock options or similar
equity instruments and the current method of accounting prescribed by Accounting
Principles Board Opinion No. 25. Entities electing to remain with the accounting
in Opinion No. 25 must make pro forma disclosure of net income and earnings per
share as if the fair value method of accounting had been applied. The Company
will continue accounting for employee stock options and similar equity
instruments in accordance with Opinion No. 25.
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.
-10-
<PAGE> 11
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Net cash provided by operating activities was $22.2 million in the first quarter
of 1996 compared to $46.6 million in 1995 which included receipt of $20.4
million in payment of a claim settlement. Operating cash flows for 1996 were
unfavorably affected by working capital components. Inventories and accounts
receivable increased $5.8 million and $4.5 million, respectively, and accounts
payable decreased $7.8 million. During the first quarter, distributions of $3.3
million were received from unconsolidated entities. It is anticipated that an
additional distribution of approximately $10.0 million will be received in the
second quarter of 1996.
Capital expenditures for the first quarter of 1996 were $30.7 million compared
with $24.9 million in 1995, reflecting the Company's program to achieve business
growth and to improve productivity and product quality. Proceeds from the sale
of property, plant and equipment in the first quarter 1996 provided $1.2 million
in cash. Cash used for financing activities included a net decrease in long-term
debt of $3.4 million, a $1.4 million reduction of short-term debt, and $9.5
million of cash dividends paid on common stock. The Company has maintained a
policy of reacquiring its common stock in unsolicited open market or
privately-negotiated transactions at prevailing market prices for several years.
In January 1996, the Board of Directors authorized the purchase, over a one-year
period, of up to 1,000,000 shares of the Company's common stock. The total
number of shares purchased under this program for the three months ended March
31, 1996 was 98,700 shares of common stock for approximately $6.5 million, at an
average cost of $66.19 per share. Financing activities included $9.0 million in
cash used to repurchase these shares plus approximately $2.5 million which was
payable at year end for shares purchased in 1995. Cash and cash equivalents
decreased $26.7 million to $50.0 million at March 31, 1996.
Other matters which could affect cash flows in the future are discussed under
Part 1, item 1 and in the 1995 Annual Report on Form 10K under Note 10,
"Commitments and Contingencies."
Harsco continues to maintain a good financial position, with net working capital
of $144.4 million, down slightly from the $145.3 million at December 31, 1995.
Current assets amounted to $517.3 million, and current liabilities were $372.8
million, resulting in a current ratio of 1.4 to 1, the same as year-end 1995.
With total debt at $283.1 million and equity at $642.8 million at March 31,
1996, the total debt as a percent of capital was 30.6%, which is lower than the
31.6% at December 31, 1995.
-11-
<PAGE> 12
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
The stock price range during the first quarter was $67 7/8 - 58. Harsco's book
value per share at March 31, 1996, was $25.63, compared with $24.99 at year-end
1995. The Company's annualized return on average equity for the first quarter of
1996 was 15.4%, compared with 15.9% for the year 1995. The annualized return on
average assets was 14.7%, compared with the 14.6% for the year 1995. The
annualized return on average capital for the first quarter was 12.2%, compared
with 12.2% for year 1995.
The Company has available through a syndicate of banks a $300 million
multi-currency five-year term line of credit. This facility serves as back-up to
the Company's commercial paper program. As of March 31, 1996, there were no
borrowings outstanding under this facility.
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 syndicated credit
facility borrowings at any one time to a maximum $300 million. At March 31,
1996, the Company had no outstanding commercial paper debt.
Harsco's outstanding long-term 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 readily and at
competitive costs.
-12-
<PAGE> 13
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 COMPARED
WITH FIRST QUARTER OF 1995
First quarter revenues of $389.8 million were 4% above last year's comparable
period. The increase was due principally to higher sales for metal reclamation
and mill services, which included the consolidation of a subsidiary in South
Africa that had previously been reflected as an equity investment. The Company
acquired a majority ownership of the subsidiary in the fourth quarter of 1995.
Partially offsetting these increases in metal reclamation and mill services, was
the divesting of certain non-core businesses in Europe during the second half of
1995. In addition, higher sales were recorded for grating, scaffolding, shoring
and forming equipment, and to a lesser extent railroad equipment, as well as
structural composites. Higher revenues included better than expected income from
the Company's equity investment in United Defense, L.P. These increases were
partially offset by lower sales of gas control and containment equipment, and
the effect of ceasing school bus operations in June 1995.
Cost of sales increased, principally due to higher volume. Selling and
administrative expenses increased, as a result of higher compensation costs and
professional fees associated with certain previously disclosed legal matters.
Income before taxes and minority interest was up 22% from the comparable period
last year due to higher earnings. The effective income tax rate for 1996 was
39%, versus 40% in 1995. The reduction in the income tax rate is primarily due
to lower effective tax rates on international earnings.
Higher earnings in the first quarter of 1996 were due principally to higher
results for metal reclamation and mill services, pipe fittings and grating, as
well as the Company's share of income in its equity investment in United
Defense, L.P., that includes substantial dividend income from the partnership's
equity investment in Turkey which was approximately twice the amount of dividend
income that was received in 1995. Lower earnings were recorded for gas control
and containment equipment in 1996. On a comparative basis, unfavorably affecting
1995's first quarter's results were losses arising from ceasing the school bus
business. 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 devaluation of the
Mexican peso. Interest expense decreased as a result of the continued reduction
of the Company's outstanding debt.
Net income of $31.1 million, was up 22% from the comparable period in 1995. This
net income was the highest first quarter performance.
-13-
<PAGE> 14
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Sales of the Metal Reclamation and Mill Services Group, at $150.8 million, were
above 1995's first quarter, due principally to the consolidation of a subsidiary
in South Africa which had previously been reflected as an equity investment as
discussed above. Partially offsetting this was the divesting of certain non-core
businesses in Europe during the second half of 1995. Sales for the
Infrastructure and Construction Group, at $92.6 million, approximated last
year's similar period which included $8.5 million for the school bus business
which ceased operation in June 1995. Higher sales were recorded for grating and
scaffolding in 1996. Sales for the Process Industry Products Group, at $123.3
million, were slightly higher than the prior year's first quarter.
Operating profit for the Metal Reclamation and Mill Services Group was
significantly ahead of 1995's first quarter, which included $3.4 million of
foreign currency translation exchange losses due to the devaluation of the
Mexican peso. The increase also includes higher income in 1996 due to the
consolidation of a subsidiary in South Africa. The Infrastructure and
Construction Group posted an operating profit of $7.7 million, this was more
than double 1995's first quarter which included losses arising from the shutdown
of the school bus operation. Additionally, significantly improved results for
grating contributed to the improved operating profit of the Group. Operating
profit for the Process Industry Products Group, at $11.2 million, was down 10%
from the prior year's first quarter and reflected significantly lower results
for gas control and containment equipment which more than offset higher earnings
for pipe fittings.
In addition to the Group reporting noted above, the Company views itself as a
diversified industrial services and manufacturing company. Total industrial
services sales, which include Metal Reclamation and Mill Services Group and
Infrastructure and Construction Group service businesses, principally
scaffolding services and railway maintenance of way services, were $184.1
million in 1996 and $170.3 million in 1995, or approximately 50% and 48% of net
sales, respectively. The total manufacturing sales for 1996 were $182.6 million
or approximately 50% of net sales, which includes sales from the Infrastructure
and Construction Group and the Process Industry Products Group. The total
manufacturing sales for 1995 were $186.6 million or approximately 52% of net
sales.
The operating profit for industrial services for 1996 was $22.3 million compared
with $15.9 million in 1995, or approximately 57% and 53%, respectively, of total
Group operating profit. The operating profit from manufacturing for 1996 was
$17.0 million compared with $14.3 million in 1995, which is approximately 43%
and 47%, respectively, of total Group operating profit.
-14-
<PAGE> 15
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
At the Annual Meeting of shareholders held on April 30, 1996 in Camp Hill,
Pennsylvania, two members of the Board of Directors were reelected to terms
expiring in 1999 under the classified Board structure enacted at the 1986 Annual
Meeting. They include A. J. Sordoni, III, Chairman of Sordoni Construction
Services, Inc. and R. C. Wilburn, President , Colonial Williamsburg Foundation.
The Board of Directors voting tabulation is as follows:
<TABLE>
<CAPTION>
Broker
For Withheld Abstentions No-Votes
Name No. of Shares No. of Shares No. of Shares No. of Shares
<S> <C> <C> <C> <C>
A. J. Sordoni, III 20,688,329 202,385 - 0 - - 0 -
R. C. Wilburn 20,680,401 210,313 - 0 - - 0 -
</TABLE>
Shareholders also approved the appointment of Coopers & Lybrand L.L.P. as
independent accountants to audit the financial statements of the Company for the
fiscal year ending December 31, 1996 by the following vote:
<TABLE>
<CAPTION>
Broker
For Withheld Abstentions No-Votes
No. of Shares No. of Shares No. of Shares No. of Shares
<S> <C> <C> <C>
20,761,545 52,532 76,637 - 0 -
</TABLE>
-15-
<PAGE> 16
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ACQUISITION:
* On January 18, 1996, the Company announced that by mutual agreement,
the parties have discontinued discussions about the possible
acquisition of Symons Corporation.
* On April 29, 1996, the Company announced that its Taylor-Wharton Gas
Equipment Division acquired substantially all of the assets of the
Coyne Cylinder business of Huntsville, Alabama. The transaction
included the acquisition of the business assets from Coyne Cylinder
Company for $18 million in cash and the assumption of certain
liabilities for a total consideration of approximately $22 million.
Coyne, which was a subsidiary of Thermadyne Holding Corporation of St.
Louis, Missouri, has annual revenues exceeding $45 million. It is the
world's leading manufacturer of acetylene, small and intermediate high
pressure and specialty cylinders, and also produces scuba tanks and
cylinder caps.
DIVIDEND ACTION:
* On March 21, 1996, the Company announced that the Board of Directors
declared a quarterly cash dividend of 38 cents per share, payable May
15, 1996, to shareholders of record on April 15, 1996.
DIRECTOR RETIREMENTS:
* On April 30, 1996, Jeffrey J. Burdge and Roy C. Smith retired from the
Company's Board of Directors.
-16-
<PAGE> 17
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.) Exhibit No. 27 Financial Data Schedule
ITEM 6(b). REPORTS ON FORM 8-K
a.) There were no reports filed on Form 8-K during the first quarter ending
March 31, 1996.
-17-
<PAGE> 18
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 April 29, 1996 /S/ Leonard A. Campanaro
--------------------- ----------------------------------
Leonard A. Campanaro
Senior Vice President and
Chief Financial Officer
DATE April 30, 1996 /S/ Salvatore D. Fazzolari
--------------------- ----------------------------------
Salvatore D. Fazzolari
Vice President and Controller
-18-
<PAGE> 19
EXHIBIT INDEX
Exhibit No. 11 Computation of Fully Diluted Net Income Per Common Share.
Exhibit No. 12 Computation of Ratios of Earnings to Fixed Charges.
Exhibit No. 27 Financial Data Schedule
<PAGE> 1
Exhibit 11
HARSCO CORPORATION
COMPUTATION OF FULLY DILUTED NET INCOME PER COMMON SHARE
(dollars in thousands except per share)
---------------------------
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31
1996 1995
----------- -----------
<S> <C> <C>
Net income $ 31,110 $ 25,460
=========== ===========
Average shares of common stock
outstanding used to compute
primary earnings per common
share 25,086,029 25,202,429
Additional common shares to be
issued assuming exercise of
stock options, net of shares
assumed reacquired 243,047 107,161
----------- -----------
Shares used to compute dilutive
effect of stock options 25,329,076 25,309,590
=========== ===========
Fully diluted net income per
common share $ 1.23 $ 1.01
=========== ===========
Net income per common share $ 1.24 $ 1.01
=========== ===========
</TABLE>
<PAGE> 1
HARSCO CORPORATION
Exhibit 12
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Three YEARS ENDED DECEMBER 31
Months -------------------------------------------------------------
Ended
3/31/96 1995 1994 1993 1992 1991
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Earnings:
Pre-tax income from
continuing operations(1) $ 51,740 $ 161,231 $ 146,089 $ 137,151 $ 140,576 $ 119,647
Add fixed charges computed
below 7,148 33,121 37,982 23,879 22,425 23,544
Net adjustments for equity
companies (19,026) (4,320) (134) (363) (454) (439)
Net adjustments for
capitalized interest -- -- (274) (172) (134) (469)
-------- --------- --------- --------- --------- ---------
Consolidated Earnings
Available for Fixed Charges $ 39,862 $ 190,032 $ 183,663 $ 160,495 $ 162,413 $ 142,283
======== ========= ========= ========= ========= =========
Consolidated Fixed Charges:
Interest Expense per
financial statements(2) $ 6,087 $ 28,921 $ 34,048 $ 19,974 $ 18,882 $ 18,925
Interest expense capitalized 33 134 338 332 355 574
Portion of rentals (1/3)
representing an interest
factor 1,028 4,066 3,596 3,573 3,188 4,045
Interest expense for equity
companies whose debt is
guaranteed (3) -- -- -- -- -- --
-------- --------- --------- --------- --------- ---------
Consolidated Fixed Charges $ 7,148 $ 33,121 $ 37,982 $ 23,879 $ 22,425 $ 23,544
======== ========= ========= ========= ========= =========
Consolidated Ratio of
Earnings to Fixed Charges $ 5.58 5.74 4.84 6.72 7.24 6.04
======== ========= ========= ========= ========= =========
</TABLE>
(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 the Company during the five year period 1991
through 1995, and the three months ended March 31, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 49,963
<SECURITIES> 0
<RECEIVABLES> 283,588
<ALLOWANCES> (8,376)
<INVENTORY> 128,224
<CURRENT-ASSETS> 517,277
<PP&E> 1,088,737
<DEPRECIATION> (628,293)
<TOTAL-ASSETS> 1,307,460
<CURRENT-LIABILITIES> 372,831
<BONDS> 173,967
0
0
<COMMON> 40,804
<OTHER-SE> 601,960
<TOTAL-LIABILITY-AND-EQUITY> 1,307,460
<SALES> 366,686
<TOTAL-REVENUES> 389,822
<CGS> 280,528
<TOTAL-COSTS> 332,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,017
<INTEREST-EXPENSE> 6,087
<INCOME-PRETAX> 52,897
<INCOME-TAX> 20,630
<INCOME-CONTINUING> 31,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,110
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.23
</TABLE>
