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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3970
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1483991
(State of incorporation) (I.R.S. Employer Identification No.)
Camp Hill, Pennsylvania 17001-8888
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number (717) 763-7064
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Title of Each Class Outstanding Shares at March 31, 1997
- ------------------- ------------------------------------
Common Stock Par Value $1.25 49,374,454
Preferred Stock Purchase Rights 49,374,454
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31
(In thousands, except per share amounts) 1997 1996*
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REVENUES:
Product sales ................................................. $ 208,257 $ 182,633
Service sales ................................................. 182,437 184,053
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NET SALES OF PRODUCTS AND SERVICES ........................ 390,694 366,686
Equity in income of unconsolidated entities ................... 17,919 22,901
Other ......................................................... 166 235
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TOTAL REVENUES ............................................ 408,779 389,822
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COSTS AND EXPENSES:
Cost of products sold ......................................... 159,370 139,901
Cost of services sold ......................................... 139,836 140,627
Selling, general and administrative expenses .................. 52,725 51,387
Research and development expenses ............................. 1,242 741
Facilities discontinuance and reorganization costs ............ 2,455 768
Other ......................................................... (432) (558)
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TOTAL COSTS AND EXPENSES .................................. 355,196 332,866
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INCOME BEFORE INTEREST, INCOME TAXES, AND MINORITY INTEREST 53,583 56,956
Interest income .................................................... 1,270 2,028
Interest expense ................................................... (3,992) (6,087)
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INCOME BEFORE INCOME TAXES AND MINORITY INTEREST .......... 50,861 52,897
Provision for income taxes ......................................... 19,327 20,630
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INCOME BEFORE MINORITY INTEREST ........................... 31,534 32,267
Minority interest in net income .................................... 1,436 1,157
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NET INCOME ................................................ $ 30,098 $ 31,110
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Average shares of common stock outstanding ......................... 49,496 50,172
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NET INCOME PER COMMON SHARE ............................... $ .61 $ .62
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Cash dividends declared per share .................................. $ .20 $ .19
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*Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
MARCH 31 DECEMBER 31
(In thousands) ........................................... 1997 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 28,167 $ 45,862
Receivables .......................................... 283,000 268,230
Inventories:
Finished goods .................................... 28,775 24,743
Work in process ................................... 28,948 25,843
Raw material and purchased parts .................. 55,954 57,581
Stores and supplies ............................... 19,389 17,851
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Total inventories ............................. 133,066 126,018
Other current assets ................................. 71,776 68,436
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TOTAL CURRENT ASSETS .............................. 516,009 508,546
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Property, plant and equipment, at cost ................... 1,186,337 1,187,452
Allowance for depreciation ............................... (677,853) (674,340)
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508,484 513,112
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Cost in excess of net assets of companies acquired, net .. 188,123 195,387
Investments in unconsolidated entities ................... 66,313 57,719
Other assets ............................................. 46,940 49,655
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$ 1,325,869 $ 1,324,419
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LIABILITIES
CURRENT LIABILITIES:
Notes payable and current maturities ................. $ 30,884 $ 26,182
Accounts payable ..................................... 100,890 111,912
Accrued compensation ................................. 37,032 44,501
Other current liabilities ............................ 110,923 111,432
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TOTAL CURRENT LIABILITIES ......................... 279,729 294,027
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Long-term debt ........................................... 236,579 227,385
Deferred income taxes .................................... 33,380 34,182
Other liabilities ........................................ 94,776 87,538
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644,464 643,132
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SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital .............. 155,814 150,974
Cumulative adjustments for translation & pension liability (35,513) (26,095)
Retained earnings ........................................ 814,713 794,473
Treasury stock ........................................... (253,609) (238,065)
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681,405 681,287
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$ 1,325,869 $ 1,324,419
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See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
(In thousands) ............................................... 1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 30,098 $ 31,110
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .......................................... 26,252 23,810
Amortization .......................................... 2,267 2,328
Equity in income of unconsolidated entities ........... (17,919) (22,901)
Dividends or distributions from unconsolidated entities 9,325 3,325
Deferred income taxes ................................. 1,180 1,929
Other, net ............................................ 46 1,659
Changes in assets and liabilities:
Accounts receivable ............................... (19,828) (4,503)
Inventories ....................................... (7,856) (5,776)
Accounts payable .................................. (6,567) (7,792)
Other assets and liabilities ...................... 61 (982)
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NET CASH PROVIDED BY OPERATING ACTIVITIES ............. 17,059 22,207
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment ............ (37,530) (30,704)
Investments held-to-maturity, net of purchases ............ 250 1,000
Other investing activities ................................ 3,422 1,196
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NET CASH (USED) BY INVESTING ACTIVITIES ............... (33,858) (28,508)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net ................................ 5,809 (1,400)
Current maturities and long-term debt:
Additions ............................................... 15,124 761
Reductions .............................................. (1,655) (4,198)
Cash dividends paid on common stock ....................... (9,909) (9,521)
Common stock issued-options ............................... 2,076 3,038
Common stock acquired for treasury ........................ (12,152) (8,973)
Other financing activities ................................ -- 496
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NET CASH (USED) BY FINANCING ACTIVITIES ............... (707) (19,797)
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Effect of exchange rate changes on cash ...................... (189) (608)
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Net (decrease) in cash and cash equivalents .................. (17,695) (26,706)
Cash and cash equivalents at beginning of period ............. 45,862 76,669
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Cash and cash equivalents at end of period ................... $ 28,167 $ 49,963
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See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
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 the Company's
previously reported claims against the Army relating to Federal Excise Tax
("FET") arising under a completed 1986 contract for the sale of five-ton trucks
to the Army. On September 27, 1995, the Army paid the Company $49 million in
accordance with the settlement terms. The Company released the Army from any
further liability for those claims, and the Department of Justice released the
Company 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, the Company recorded a non-recurring, pre-tax,
non-cash charge of $13.5 million (after-tax charge of $8.2 million, $.16 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 the Company 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 claim by the Internal Revenue Service that,
contrary to the Company's position, certain cargo truck models sold by the
Company should be considered to have gross vehicle weights in excess of the
33,000 pound threshold under the Federal Excise Tax law, are not entitled to an
exemption from the Federal Excise Tax under any other theory, and therefore are
taxable. On December 19, 1996, the District Director of the Internal Revenue
Service issued a 30-day letter and examination report (the "Report") that
proposed an increase in Federal Excise Tax of $33.7 million plus penalties of
$6.9 million and applicable interest currently estimated by the Company to be
$29.7 million, primarily on the grounds that those cargo truck models are
subject to the Federal Excise Tax. This proposed increase in Federal Excise Tax
takes into account offsetting credits of $9.2 million, based on a partial
allowance of the Company's $23.4 million claim that certain truck components are
exempt from the Federal Excise Tax. The Report disallowed in full the Company's
additional claim that it is entitled to the entire $52 million of Federal Excise
Tax (plus applicable interest currently estimated by the Company to be $27.1
million) the Company has paid on the five-ton trucks, on the grounds that such
trucks qualify for the Federal Excise Tax exemption applicable to certain
vehicles specially designed for the primary function of off-highway
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
transportation. In the event that the Company ultimately receives from the
Internal Revenue Service a refund of tax (including applicable interest) with
respect to which the Company has already received reimbursement from the Army,
the refund would be allocated between the Company and the Army. The Company
plans to vigorously contest the findings of the District Director. On March 19,
1997, the Company filed its formal written protest to these findings with the
Internal Revenue Service Office of the Regional Director of Appeals. Although
there is risk of an adverse outcome, the Company believes that the cargo trucks
are not taxable. No recognition has been given in the accompanying financial
statements for the Company's claim or the dispute with the Internal Revenue
Service.
The settlement agreement with the Army 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.
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 the Company's right to
reimbursement from the Army for after-imposed taxes on the cargo trucks. In the
Company's view, application of the 1993 decision will favorably resolve the
principal issues regarding any such future claim by the Company. Therefore, the
Company believes that even if the cargo trucks are ultimately 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 the Company of $9.1 million plus penalties of $6.9 million and
applicable interest currently estimated by the Company to be $29.7 million. 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
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
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:
In 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 trial
commenced in July 1996 and a decision is expected in 1997. 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 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 asserted
various defenses and also 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. At an arbitration hearing held in January 1996, Iran reduced the
$76.3 million portion of its claim to approximately $34.4 million. The
International Court of Arbitration took the case under advisement and in
September 1996, awarded Iran a net amount of approximately $1.2 million. This
represents an award of $7.5 million to Iran for the advance payment, offset by
an award of $6.3 million to the Company for damages and legal costs and the
denial of all pre-award interest claims for both parties. The Company and Iran
have each filed appeals in the Supreme Court of Switzerland. 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.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
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 made improper certifications to the Defense Security
Assistance Agency and other government contract accounting matters. The
Government has not asserted any claims at this time and it is too early to know
whether a claim will be asserted or what the nature of any such claim would be,
however, 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.
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. $15 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 it is
unlikely that these claims will have a material adverse effect on the Company's
financial position or results of operations.
In August 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 sought 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 settled its claims with certain defendants, and continued to pursue its
appeal with respect to claims against the other defendants. In August 1996, the
Court of Appeals affirmed the lower court decision dismissing the Company's
complaint. In March 1997, the Company reached a settlement of the claim for an
immaterial amount.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Cont'd.)
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, 1997 and December 31, 1996, include an
accrual of $3.5 million and $3.9 million, respectively, for environmental
matters. The amounts charged to earnings on a pre-tax basis related to
environmental matters totaled $0.2 million and $0.1 million for the three months
of 1997 and 1996, 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.
New Financial Accounting Standards Issued
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" which is effective for periods ending after December 15,
1997. The overall objective of SFAS 128 is to simplify the calculation of
earnings per share (EPS) and achieve comparability with International Accounting
Standards. The Company will be required to adopt SFAS No. 128 in the fourth
quarter of 1997, but does not expect that the adoption will have a material
effect on earnings per share.
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.
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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 $17.1 million in the first quarter
of 1997 compared to $22.2 million in 1996. Operating cash flows for 1997 were
unfavorably affected by working capital components. Accounts receivable and
inventories increased $19.8 million and $7.9 million, respectively, and accounts
payable decreased $6.6 million. During the first quarter, distributions of $9.3
million were received from unconsolidated entities. Distributions in the first
quarter of 1996 were $3.3 million.
Capital expenditures for the first quarter of 1997 were a record $37.5 million
compared with $30.7 million in 1996, 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 1997 provided
$4.4 million in cash. Cash used for financing activities included a net increase
in long-term debt of $13.5 million, a $5.8 million increase of short-term debt,
and $9.9 million of cash dividends paid on common stock, for the first quarter
1997.
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 1997, the Board of Directors
authorized the purchase, over a one-year period, of up to 2,000,000 shares of
the Company's common stock. The total number of shares purchased under this
program for the three months ended March 31, 1997 was 354,355 shares of common
stock for approximately $12.2 million. Cash and cash equivalents decreased $17.7
million to $28.2 million at March 31, 1997.
Other matters which could affect cash flows in the future are discussed under
Part 1, item 1 "Notes to Consolidated Financial Statements."
Harsco continues to maintain a good financial position, with net working capital
of $236.3 million, an increase from the $214.5 million at December 31, 1996.
Current assets amounted to $516 million, and current liabilities were $279.7
million, resulting in a current ratio of 1.8 to 1, up from 1.7 to 1 at December
31, 1996. With total debt of $267.5 million and equity of $681.4 million at
March 31, 1997, the total debt as a percent of capital was 28.2%, compared to
27.1% at December 31, 1996.
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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 37 5/8 - 33 1/4. Harsco's
book value per share at March 31, 1997, was $13.80, compared with $13.73 at
December 31, 1996. The Company's annualized return on average equity for the
first quarter of 1997 was 17.2%, compared with 18.2% for the year 1996. The
annualized return on average assets was 16.1%, compared with the 16.8% for the
year 1996. The annualized return on average capital for the first quarter was
13.5%, compared with 14.1% for year 1996.
The Company has available through a syndicate of banks a $400 million
multi-currency five-year revolving credit facility, extending through July 2001.
This facility serves as back-up to the Company's commercial paper program. As of
March 31, 1997, there were no borrowings outstanding under this facility.
The Company has a U.S. commercial paper borrowing program under which it can
issue up to $300 million of short-term notes in the U.S. commercial paper
market. In addition, the Company has a 3 billion Belgian Franc program,
equivalent to approximately US $90 million. The Belgian program will be used to
borrow a variety of Eurocurrencies in order to fund the Company's European
operations more efficiently and in appropriate currencies. The Company limits
the aggregate commercial paper and syndicated credit facility borrowings at any
one time to a maximum $400 million. At March 31, 1997, the Company had $65.7
million of commercial paper debt outstanding under both Commercial Paper
programs.
The Company's outstanding long-term notes are rated A by Standard & Poor's, A by
Fitch Investors Service and A-3 by Moody's. The Company'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.
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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 THREE MONTHS OF 1997 COMPARED
WITH FIRST THREE MONTHS OF 1996
First quarter revenues of $408.8 million were 5% above last year's comparable
period. The increase was due principally to higher product sales of gas control
and containment equipment, which included an acquisition in April of 1996.
Higher product sales were also recorded for process equipment, railway
maintenance of way equipment, and roofing granules and slag abrasives. Slightly
offsetting these increases were lower service sales in metal reclamation and
mill services which were adversely affected by the strengthening of the U.S.
dollar, principally against certain European currencies, as well as the
divesting of certain non-core businesses in Europe in April of 1996. Lower
revenues, as expected, were also recorded for the Company's equity investment in
United Defense, L.P.
Cost of products sold increased, principally due to higher volume which included
an acquisition in 1996. Cost of services sold decreased as a result of lower
sales of services. Selling, general and administrative expenses increased, as a
result of higher compensation costs and the inclusion of an acquired company.
Income before income taxes and minority interest was down 4% from the comparable
period last year due principally to the expected lower earnings from the equity
investment in United Defense, L.P. The effective income tax rate for 1997 was
38%, versus 39% in 1996. The reduction in the income tax rate is primarily due
to lower effective tax rates on international earnings.
Earnings were down in the first quarter of 1997, principally due to the
Company's expected lower share of income in its equity investment in United
Defense, L.P., which included substantial dividend income from the partnership's
investment in an international operation in 1996. Lower earnings were also
recorded for scaffolding shoring and forming equipment. These items more than
offset higher results for gas control and containment. Interest expense
decreased as a result of the continued reduction of the Company's outstanding
debt and average interest rate.
Net income of $30.1 million, was down 3% from the comparable period in 1996
which was the highest quarter ever.
Sales of the Metal Reclamation and Mill Services Group, at $149.0 million, were
slightly below 1996's first quarter, due to the strengthening of the U.S.
dollar, principally against certain European currencies and the divesting of
certain non-core businesses in Europe in April of 1996. Sales for the
Infrastructure and Construction Group, at $95.0 million, were slightly above
last year's similar period. Sales for the Process Industry Products Group, at
$146.7 million, were significantly higher than the prior year's first quarter
due principally to increased sales of gas control and containment, which
included an acquisition in April of 1996.
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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.)
Operating profit for the Metal Reclamation and Mill Services Group equaled
1996's first quarter. The Infrastructure and Construction Group posted an
operating profit of $5.4 million, which was lower than the $7.7 million recorded
in 1996's first quarter, due principally to lower results for scaffolding,
shoring and forming equipment. Operating profit for the Process Industry
Products Group, at $15.5 million, was significantly above the prior year's first
quarter and reflected higher results for gas control and containment equipment,
which included an acquisition.
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 $182.4
million in 1997 and $184.0 million in 1996, or approximately 47% and 50% of net
sales, respectively. The total manufacturing sales for 1997 were $208.3 million
or approximately 53% of net sales, which includes sales from the Infrastructure
and Construction Group and the Process Industry Products Group. The total
manufacturing sales for 1996 were $182.7 million or approximately 50% of net
sales.
The operating profit for industrial services for 1997 was $20.5 million compared
with $22.3 million in 1996, or approximately 50% and 57%, respectively, of total
Group operating profit. The operating profit from manufacturing for 1997 was
$20.8 million compared with $17.0 million in 1996, which is approximately 50%
and 43%, respectively, of total Group operating profit.
SAFE HARBOR STATEMENT
The nature of the Company's operations and the many countries in which it
operates subject it to changing economic, competitive, regulatory, and
technological conditions, risks, and uncertainties. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company provides the following cautionary remarks regarding important factors
which, among others, could cause future results to differ materially from the
forward-looking statements, expectations and assumptions expressed or implied
herein. These include statements about our management confidence and strategies
for performance; expectations for new and existing products, technologies, and
opportunities; and expectations for market segment and industry growth.
These factors include, but are not limited to: (1) changes in the world-wide
business environment in which the Company operates, including import, licensing,
and trade restrictions, interest rates, and capital costs; (2) changes in
government laws and regulations, including taxes; (3) market and competitive
changes, including market demand and acceptance for new products, services, and
technologies, and (4) effects of unstable governments and business conditions in
emerging economies.
-13-
14
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, 1997 in Camp Hill,
Pennsylvania, three members of the Board of Directors were reelected to terms
expiring in 2000 under the classified Board structure enacted at the 1986 Annual
Meeting. They include D. C. Hathaway, Chairman Harsco Corporation, R. F. Nation,
Former President Penn Harris Company and N. H. Prater, Retired President and
CEO, Mobay Corporation.
The Board of Directors voting tabulation is as follows:
Broker
For Withheld No-Votes
Name No. of Shares No. of Shares No. of Shares
D. C. Hathaway 41,942,605 278,753 --
R. F. Nation 42,154,635 66,723 --
N. H. Prater 42,159,010 62,348 --
Shareholders approved an amendment to Article FOURTH of the Restated
Certificate of incorporation of the Company which increased the shares of
Common Stock authorized for issuance from 70,000,000 to 150,000,000.
Broker
For Against Abstentions No-Votes
No. of Shares No. of Shares No. of Shares No. of Shares
39,628,357 2,430,443 162,558 --
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, 1997 by the following vote:
Broker
For Against Abstentions No-Votes
No. of Shares No. of Shares No. of Shares No. of Shares
42,046,453 139,285 35,620 --
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15
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
DIVIDEND ACTION:
On March 20, 1997, the Company announced that the Board of Directors
declared a quarterly cash dividend of 20 cents per share, payable May
15, 1997, to shareholders of record on April 15, 1997.
-15-
16
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, 1997.
-16-
17
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 30, 1997 /S/ Leonard A. Campanaro
------------------------------------- ------------------------
Leonard A. Campanaro
Senior Vice President and
Chief Financial Officer
DATE April 30, 1997 /S/ Salvatore D. Fazzolari
------------------------------------- --------------------------
Salvatore D. Fazzolari
Vice President and Controller
-17-
18
EXHIBIT INDEX
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
1
EXHIBIT 11
HARSCO CORPORATION
COMPUTATION OF FULLY DILUTED NET INCOME PER COMMON SHARE
(dollars in thousands except per share)
---------------------------
3 MONTHS ENDED MARCH 31
1997 1996
---- ----
Net income $ 30,098 $ 31,110
=========== ===========
Average shares of common stock
outstanding used to compute
primary earnings per common
share 49,496,273 50,172,058
Additional common shares to be
issued assuming exercise of
stock options, net of shares
assumed reacquired 422,875 486,094
----------- -----------
Shares used to compute dilutive
effect of stock options 49,919,148 50,658,152
=========== ===========
Fully diluted net income per
common share $ .60 $ .61
=========== ===========
Net income per common share $ .61 $ .62
=========== ===========
1
HARSCO CORPORATION
EXHIBIT 12
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
Three Months YEARS ENDED DECEMBER 31
Ended ------------------------------------------------------------------------
3/31/97 1996 1995 1994 1993 1992
------- ----------- ----------- ----------- ----------- -------------
Consolidated Earnings:
Pre-tax income from continuing
operations (1) $ 49,425 $ 195,345 $ 161,231 $ 146,089 $ 137,151 $ 140,576
Add fixed charges computed below 5,140 26,181 33,121 37,982 23,879 22,425
Net adjustments for equity companies (8,048) (9,410) (4,320) (134) (363) (454)
Net adjustments for capitalized
interest - - - (274) (172) (134)
----------- ----------- ----------- ----------- ----------- -----------
Consolidated Earnings Available for
Fixed Charges $ 46,517 $ 212,116 $ 190,032 $ 183,663 $ 160,495 $ 162,413
=========== =========== =========== =========== =========== ===========
Consolidated Fixed Charges:
Interest expense per financial
statements (2) $ 3,992 $ 21,483 $ 28,921 $ 34,048 $ 19,974 $ 18,882
Interest expense capitalized 32 131 134 338 332 355
Portion of rentals (1/3 ) representing
an interest factor 1,116 4,567 4,066 3,596 3,573 3,188
Interest expense for equity companies
whose debt is guaranteed (3) - - - - - -
----------- ----------- ----------- ----------- ----------- -----------
Consolidated Fixed Charges $ 5,140 $ 26,181 $ 33,121 $ 37,982 $ 23,879 $ 22,425
=========== =========== =========== =========== =========== ===========
Consolidated Ratio of Earnings to
Fixed Charges $ 9.05 8.10 5.74 4.84 6.72 7.24
=========== =========== =========== =========== =========== ===========
(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
1992 through 1995, and the three months ended March 31, 1997.
5
1,000
3-MOS
DEC-31-1997
MAR-31-1997
28,167
0
290,922
(7,922)
133,066
516,009
1,186,337
(677,853)
1,325,869
279,729
236,579
0
0
82,041
599,364
1,325,869
390,694
408,779
299,206
355,196
0
546
3,992
50,861
19,327
30,098
0
0
0
30,098
0.61
0.60
