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 September 30, 2002
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______
Commission File Number 1-3970
HARSCO CORPORATION
| 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 o
| Title of Each Class | Outstanding Shares at October 31, 2002 | |||
Common Stock Par Value $1.25 |
40,518,719 | |||
Preferred Stock Purchase Rights |
40,518,719 | |||
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED
STATEMENT OF INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30 | September 30 | |||||||||||||
| (In thousands, except per share amounts) | 2002 | 2001 (1) | 2002 | 2001 (1) | ||||||||||
| Revenues from continuing operations: | ||||||||||||||
| Service sales | $ | 342,668 | $ | 331,302 | $ | 988,226 | $ | 989,057 | ||||||
| Product sales | 167,851 | 178,991 | 491,241 | 536,374 | ||||||||||
| Total revenues | 510,519 | 510,293 | 1,479,467 | 1,525,431 | ||||||||||
| Costs and expenses from continuing operations: | ||||||||||||||
| Cost of services sold | 249,731 | 239,027 | 718,839 | 714,305 | ||||||||||
| Cost of products sold | 134,024 | 143,327 | 388,253 | 431,438 | ||||||||||
| Selling, general, and administrative expenses | 78,200 | 73,886 | 237,223 | 232,600 | ||||||||||
| Research and development expenses | 642 | 1,417 | 2,206 | 2,887 | ||||||||||
| Other (income) expense | (137 | ) | 323 | 2,901 | 4,148 | |||||||||
| Total costs and expenses | 462,460 | 457,980 | 1,349,422 | 1,385,378 | ||||||||||
| Operating income from continuing operations | 48,059 | 52,313 | 130,045 | 140,053 | ||||||||||
| Equity in income (loss) of affiliates, net | 138 | 225 | 428 | (1,823 | ) | |||||||||
| Interest income | 1,008 | 2,133 | 3,238 | 4,552 | ||||||||||
| Interest expense | (11,109 | ) | (12,919 | ) | (33,559 | ) | (41,632 | ) | ||||||
| Income from continuing operations before income taxes and | ||||||||||||||
| minority interest | 38,096 | 41,752 | 100,152 | 101,150 | ||||||||||
| Income tax expense | 11,736 | 13,139 | 30,927 | 33,929 | ||||||||||
| Income from continuing operations before minority interest | 26,360 | 28,613 | 69,225 | 67,221 | ||||||||||
| Minority interest in net income | 1,665 | 1,194 | 4,698 | 3,646 | ||||||||||
| Income from continuing operations | 24,695 | 27,419 | 64,527 | 63,575 | ||||||||||
| Discontinued operations: | ||||||||||||||
| Loss from operations of discontinued businesses | (548 | ) | (896 | ) | (2,582 | ) | (2,912 | ) | ||||||
| Gain on disposal of discontinued businesses | 2,071 | — | 4,939 | — | ||||||||||
| Income tax benefit (expense) | (546 | ) | 313 | (851 | ) | 1,019 | ||||||||
| Income (loss) from discontinued operations | 977 | (583 | ) | 1,506 | (1,893 | ) | ||||||||
| Net Income | $ | 25,672 | $ | 26,836 | $ | 66,033 | $ | 61,682 | ||||||
| Average shares of common stock outstanding | 40,514 | 39,898 | 40,304 | 39,845 | ||||||||||
| Basic earnings (loss) per common share: | ||||||||||||||
| Continuing operations | $ | .61 | $ | .69 | $ | 1.60 | $ | 1.60 | ||||||
| Discontinued operations | .02 | (.02 | ) | .04 | (.05 | ) | ||||||||
| Basic earnings per common share | $ | .63 | $ | .67 | $ | 1.64 | $ | 1.55 | ||||||
| Diluted average shares of common shares outstanding | 40,646 | 40,153 | 40,707 | 39,990 | ||||||||||
| Diluted earnings (loss) per common share: | ||||||||||||||
| Continuing operations | $ | .61 | $ | .68 | $ | 1.58 | $ | 1.59 | ||||||
| Discontinued operations | .02 | (.01 | ) | .04 | (.05 | ) | ||||||||
| Diluted earnings per common share | $ | .63 | $ | .67 | $ | 1.62 | $ | 1.54 | ||||||
| (1) | In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 2001 information has been reclassified for comparative purposes. |
See accompanying notes to consolidated financial statements.
-2-
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
CONDENSED CONSOLIDATED
BALANCE SHEET
(Unaudited)
| September 30 | December 31 | |||||||
|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2002 | 2001(1) | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 76,426 | $ | 67,407 | ||||
| Accounts receivable, net | 423,491 | 386,252 | ||||||
| Inventories | 180,524 | 174,644 | ||||||
| Other current assets | 73,192 | 68,546 | ||||||
| Total current assets | 753,633 | 696,849 | ||||||
| Property, plant and equipment, net | 791,010 | 822,500 | ||||||
| Goodwill, net | 368,612 | 353,221 | ||||||
| Other assets | 193,749 | 180,439 | ||||||
| Assets held for sale | 10,173 | 37,757 | ||||||
| Total assets | $ | 2,117,177 | $ | 2,090,766 | ||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Short-term borrowings | $ | 15,634 | $ | 29,560 | ||||
| Current maturities of long-term debt | 9,929 | 12,422 | ||||||
| Accounts payable | 160,728 | 162,481 | ||||||
| Accrued compensation | 40,066 | 37,245 | ||||||
| Income taxes | 34,542 | 35,061 | ||||||
| Dividends payable | 10,130 | 9,996 | ||||||
| Other current liabilities | 202,816 | 178,928 | ||||||
| Total current liabilities | 473,845 | 465,693 | ||||||
| Long-term debt | 663,144 | 720,133 | ||||||
| Deferred income taxes | 120,049 | 103,082 | ||||||
| Insurance liabilities | 50,205 | 49,019 | ||||||
| Other liabilities | 52,416 | 57,621 | ||||||
| Liabilities associated with assets held for sale | 2,218 | 9,045 | ||||||
| Total liabilities | 1,361,877 | 1,404,593 | ||||||
| COMMITMENTS and CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock | 83,767 | 83,106 | ||||||
| Additional paid-in capital | 110,096 | 94,597 | ||||||
| Accumulated other comprehensive expense | (118,201 | ) | (135,263 | ) | ||||
| Retained earnings | 1,283,423 | 1,247,680 | ||||||
| 1,359,085 | 1,290,120 | |||||||
| Treasury stock | (603,785 | ) | (603,947 | ) | ||||
| Total shareholders’ equity | 755,300 | 686,173 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,117,177 | $ | 2,090,766 | ||||
| (1) | In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 2001 information has been reclassified for comparative purposes. |
See accompanying notes to consolidated financial statements.
-3-
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||
| September 30 | ||||||||
| (In thousands) | 2002 | 2001(1) | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 66,033 | $ | 61,682 | ||||
| Adjustments to reconcile net income to net | ||||||||
| cash provided by (used by) operating activities: | ||||||||
| Depreciation | 115,911 | 119,781 | ||||||
| Amortization | 1,245 | 13,078 | ||||||
| Equity in (income) loss of affiliates, net | (428 | ) | 1,823 | |||||
| Dividends or distributions from affiliates | 144 | 845 | ||||||
| Other, net | 7,684 | 4,972 | ||||||
| Changes in assets and liabilities, net of acquisitions | ||||||||
| and dispositions of businesses: | ||||||||
| Accounts receivable | (22,851 | ) | (45,760 | ) | ||||
| Inventories | (5,968 | ) | 1,569 | |||||
| Accounts payable | (12,713 | ) | (25,495 | ) | ||||
| Net disbursements related to discontinued defense business | (1,054 | ) | (937 | ) | ||||
| Other assets and liabilities | 15,678 | 2,137 | ||||||
| Net cash provided by operating activities | 163,681 | 133,695 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | (86,132 | ) | (117,314 | ) | ||||
| Purchase of businesses, net of cash acquired | (436 | ) | (4,914 | ) | ||||
| Proceeds from sales of assets | 54,906 | 24,926 | ||||||
| Other investing activities | 16 | 16 | ||||||
| Net cash used by investing activities | (31,646 | ) | (97,286 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Short-term borrowings, net | (19,553 | ) | (20,156 | ) | ||||
| Current maturities and long-term debt: | ||||||||
| Additions | 103,093 | 155,470 | ||||||
| Reductions | (190,308 | ) | (140,113 | ) | ||||
| Cash dividends paid on common stock | (30,156 | ) | (28,670 | ) | ||||
| Common stock issued-options | 13,459 | 4,151 | ||||||
| Common stock acquired for treasury | -- | (167 | ) | |||||
| Other financing activities | (3,586 | ) | (2,729 | ) | ||||
| Net cash used by financing activities | (127,051 | ) | (32,214 | ) | ||||
| Effect of exchange rate changes on cash | 4,034 | (4,789 | ) | |||||
| Net decrease in cash of discontinued operations | 1 | -- | ||||||
| Net increase (decrease) in cash and cash equivalents | 9,019 | (594 | ) | |||||
| Cash and cash equivalents at beginning of period | 67,407 | 56,420 | ||||||
| Cash and cash equivalents at end of period | $ | 76,426 | $ | 55,826 | ||||
| (1) | In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 2001 information has been reclassified for comparative purposes. |
See accompanying notes to consolidated financial statements.
-4-
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30 | September 30 | |||||||||||||
| (In thousands) | 2002 | 2001 | 2002 | 2001 | ||||||||||
| Net income | $ | 25,672 | $ | 26,836 | $ | 66,033 | $ | 61,682 | ||||||
| Other comprehensive income (expense): | ||||||||||||||
| Foreign currency translation adjustments | (467 | ) | 1,620 | 17,376 | (21,088 | ) | ||||||||
| Net gains (losses) on cash flow hedging instruments, net of deferred income | ||||||||||||||
| taxes | 1 | 53 | 19 | (71 | ) | |||||||||
| Pension liability adjustments, net of deferred income taxes | 31 | 7 | 4 | 12 | ||||||||||
| Unrealized loss on marketable securities | (44 | ) | -- | -- | -- | |||||||||
| Reclassification adjustment for gain included in net income | -- | -- | (337 | ) | -- | |||||||||
| Other comprehensive income (expense) | (479 | ) | 1,680 | 17,062 | (21,147 | ) | ||||||||
| Total comprehensive income | $ | 25,193 | $ | 28,516 | $ | 83,095 | $ | 40,535 | ||||||
See accompanying notes to consolidated financial statements.
-5-
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
Financial information furnished herein, which is unaudited, in the opinion of management reflects all adjustments (all of which are of a normal recurring nature) that are necessary to present a fair statement of the interim period. This unaudited interim information should be read in conjunction with the Company’s annual Form 10-K filing for the year ended December 31, 2001.
Certain reclassifications have been made to prior year amounts to conform with current year classifications. These reclassifications relate principally to assets and liabilities currently classified as held for sale or operations currently classified as discontinued operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS 144) as discussed in Note H, “Assets Held for Sale and Discontinued Operations,” (Note H).
In the 10-Q filing for the period ending June 30, 2002 these reclassifications included IKG Industries, a business unit of the Infrastructure Segment, which was classified as a discontinued operation. However, as discussed in Note H, this operation is no longer classified as a discontinued operation as of September 30, 2002. Therefore, all assets and liabilities of IKG Industries are now included in their respective balance sheet caption on the Condensed Consolidated Balance Sheet and all income statement amounts are now included in continuing operations on the Condensed Consolidated Statement of Income.
As a result of these reclassifications, several amounts presented for comparative purposes from 2001 will not individually agree to previously filed forms 10-K or 10-Q.
| (In millions) | Infra– | Mill | Gas and | S3Networks | General | Consolidated | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, 2002 | structure | Services | Fluid Control | LLC | Corporate | Totals | ||||||||||||||
| Net sales from continuing operations to | ||||||||||||||||||||
| unaffiliated customers | $ | 222.8 | $ | 196.7 | $ | 91.0 | $ | — | $ | — | $ | 510.5 | ||||||||
| Operating income (loss) from continuing operations | $ | 17.4 | $ | 26.0 | $ | 5.1 | $ | — | $ | (0.4 | ) | $ | 48.1 | |||||||
| Equity in income of affiliates, net | — | 0.1 | — | — | — | 0.1 | ||||||||||||||
| Interest income | 0.1 | 1.0 | — | — | (0.1 | ) | 1.0 | |||||||||||||
| Interest expense | (7.3 | ) | (0.7 | ) | (0.1 | ) | — | (3.0 | ) | (11.1 | ) | |||||||||
| Income tax (expense) benefit | (3.0 | ) | (8.1 | ) | (2.1 | ) | — | 1.5 | (11.7 | ) | ||||||||||
| Minority interest in net income | (0.2 | ) | (1.5 | ) | — | — | — | (1.7 | ) | |||||||||||
| Segment income (loss) from continuing | ||||||||||||||||||||
| operations | 7.0 | 16.8 | 2.9 | — | (2.0 | ) | 24.7 | |||||||||||||
| Income from discontinued operations | — | — | 1.0 | — | — | 1.0 | ||||||||||||||
| Segment net income (loss) | $ | 7.0 | $ | 16.8 | $ | 3.9 | $ | — | $ | (2.0 | ) | $ | 25.7 | |||||||
-6-
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
| (In millions) | Infra– | Mill | Gas and | S3Networks | General | Consolidated | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, 2001(1) | structure | Services | Fluid Control | LLC | Corporate | Totals | ||||||||||||||
| Net sales from continuing operations to | ||||||||||||||||||||
| unaffiliated customers | $ | 228.2 | $ | 184.4 | $ | 97.7 | $ | — | $ | — | $ | 510.3 | ||||||||
| Operating income from continuing operations | $ | 24.6 | $ | 21.5 | $ | 6.2 | $ | — | $ | — | $ | 52.3 | ||||||||
| Equity in income of affiliates, net | 0.2 | — | — | — | — | 0.2 | ||||||||||||||
| Interest income | 0.1 | 1.1 | — | — | 0.9 | 2.1 | ||||||||||||||
| Interest expense | (8.5 | ) | (2.3 | ) | (0.5 | ) | — | (1.7 | ) | (13.0 | ) | |||||||||
| Income tax (expense) benefit | (6.0 | ) | (6.2 | ) | (2.0 | ) | — | 1.1 | (13.1 | ) | ||||||||||
| Minority interest in net income | — | (1.1 | ) | — | — | — | (1.1 | ) | ||||||||||||
| Segment income (loss) from continuing | ||||||||||||||||||||
| operations | 10.4 | 13.0 | 3.7 | — | 0.3 | 27.4 | ||||||||||||||
| Loss from discontinued operations | — | — | (0.6 | ) | — | — | (0.6 | ) | ||||||||||||
| Segment net income | $ | 10.4 | $ | 13.0 | $ | 3.1 | $ | — | $ | 0.3 | $ | 26.8 | ||||||||
| (1) | In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 2001 information has been reclassified for comparative purposes. |
| (In millions) | Infra– | Mill | Gas and | S3Networks | General | Consolidated | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, 2002 | structure | Services | Fluid Control | LLC | Corporate | Totals | ||||||||||||||
| Net sales from continuing operations to | ||||||||||||||||||||