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, 2003
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
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES x NO o
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at April 30, 2003 | |||
Common stock, par value $1.25 per share |
40,561,713 | |||
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED
STATEMENT OF INCOME
(Unaudited)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31 | ||||||||
| (In thousands, except per share amounts) | 2003 | 2002 | ||||||
| Revenues from continuing operations: | ||||||||
| Service sales | $ | 347,603 | $ | 309,868 | ||||
| Product sales | 140,299 | 148,735 | ||||||
| Total revenues | 487,902 | 458,603 | ||||||
| Costs and expenses from continuing operations: | ||||||||
| Cost of services sold | 261,737 | 227,187 | ||||||
| Cost of products sold | 113,937 | 117,330 | ||||||
| Selling, general and administrative expenses | 80,512 | 78,394 | ||||||
| Research and development expenses | 872 | 857 | ||||||
| Other expenses | 938 | 1,335 | ||||||
| Total costs and expenses | 457,996 | 425,103 | ||||||
| Operating income from continuing operations | 29,906 | 33,500 | ||||||
| Equity in income of affiliates, net | 162 | 205 | ||||||
| Interest income | 697 | 1,363 | ||||||
| Interest expense | (10,267 | ) | (11,226 | ) | ||||
| Income from continuing operations before income taxes and | ||||||||
| minority interest | 20,498 | 23,842 | ||||||
| Income tax expense | (6,350 | ) | (7,392 | ) | ||||
| Income from continuing operations before minority interest | 14,148 | 16,450 | ||||||
| Minority interest in net income | (1,678 | ) | (1,445 | ) | ||||
| Income from continuing operations | 12,470 | 15,005 | ||||||
| Discontinued Operations: | ||||||||
| Loss from operations of discontinued business | (212 | ) | (1,319 | ) | ||||
| Gain on disposal of discontinued business | 295 | — | ||||||
| Income tax benefit (expense) | (30 | ) | 475 | |||||
| Income (loss) from discontinued operations | 53 | (844 | ) | |||||
| Net Income | $ | 12,523 | $ | 14,161 | ||||
| Average shares of common stock outstanding | 40,543 | 40,041 | ||||||
| Basic earnings (loss) per common share: | ||||||||
| Continuing operations | $ | .31 | $ | .37 | ||||
| Discontinued operations | — | (.02 | ) | |||||
| Basic earnings per common share | $ | .31 | $ | .35 | ||||
| Diluted average shares of common stock outstanding | 40,654 | 40,535 | ||||||
| Diluted earnings (loss) per common share: | ||||||||
| Continuing operations | $ | .31 | $ | .37 | ||||
| Discontinued operations | — | (.02 | ) | |||||
| Diluted earnings per common share | $ | .31 | $ | .35 | ||||
See accompanying notes to consolidated financial statements.
-2-
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
CONDENSED CONSOLIDATED
BALANCE SHEET
(Unaudited)
| March 31 | December 31 | |||||||
|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2003 | 2002 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 90,210 | $ | 70,132 | ||||
| Accounts receivable, net | 411,290 | 388,872 | ||||||
| Inventories | 188,974 | 181,712 | ||||||
| Other current assets | 56,768 | 61,686 | ||||||
| Total current assets | 747,242 | 702,402 | ||||||
| Property, plant and equipment, net | 799,475 | 807,935 | ||||||
| Goodwill, net | 374,542 | 377,220 | ||||||
| Other assets | 92,030 | 102,493 | ||||||
| Assets held for sale | 2,139 | 9,247 | ||||||
| Total assets | $ | 2,015,428 | $ | 1,999,297 | ||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Short-term borrowings | $ | 16,594 | $ | 22,362 | ||||
| Current maturities of long-term debt | 10,396 | 11,695 | ||||||
| Accounts payable | 161,384 | 166,871 | ||||||
| Accrued compensation | 34,530 | 39,456 | ||||||
| Income taxes | 45,657 | 43,411 | ||||||
| Dividends payable | 10,644 | 10,642 | ||||||
| Other current liabilities | 186,545 | 179,413 | ||||||
| Total current liabilities | 465,750 | 473,850 | ||||||
| Long-term debt | 624,513 | 605,613 | ||||||
| Deferred income taxes | 61,342 | 62,096 | ||||||
| Insurance liabilities | 45,219 | 44,090 | ||||||
| Other liabilities | 142,707 | 167,069 | ||||||
| Liabilities associated with assets held for sale | 1,910 | 2,039 | ||||||
| Total liabilities | 1,341,441 | 1,354,757 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock | 83,803 | 83,793 | ||||||
| Additional paid-in capital | 110,847 | 110,639 | ||||||
| Accumulated other comprehensive expense | (215,627 | ) | (242,978 | ) | ||||
| Retained earnings | 1,298,733 | 1,296,855 | ||||||
| 1,277,756 | 1,248,309 | |||||||
| Treasury stock | (603,769 | ) | (603,769 | ) | ||||
| Total shareholders’ equity | 673,987 | 644,540 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,015,428 | $ | 1,999,297 | ||||
See accompanying notes to consolidated financial statements.
-3-
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31 | ||||||||
| (In thousands) | 2003 | 2002 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 12,523 | $ | 14,161 | ||||
| Adjustments to reconcile net income to net | ||||||||
| cash provided (used) by operating activities: | ||||||||
| Depreciation | 39,895 | 37,975 | ||||||
| Amortization | 373 | 337 | ||||||
| Equity in income of affiliates, net | (162 | ) | (205 | ) | ||||
| Other, net | 507 | 1,407 | ||||||
| Changes in assets and liabilities, net of acquisitions | ||||||||
| and dispositions of businesses: | ||||||||
| Accounts receivable | (21,624 | ) | (9,319 | ) | ||||
| Inventories | (7,593 | ) | (12,766 | ) | ||||
| Accounts payable | (6,089 | ) | (20,713 | ) | ||||
| Net disbursements related to discontinued defense business | (234 | ) | (291 | ) | ||||
| Other assets and liabilities | 13,580 | (1,573 | ) | |||||
| Net cash provided by operating activities | 31,176 | 9,013 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | (30,181 | ) | (31,255 | ) | ||||
| Proceeds from sale of assets | 12,284 | 10,464 | ||||||
| Net cash used by investing activities | (17,897 | ) | (20,791 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Short-term borrowings, net | (6,540 | ) | (12,563 | ) | ||||
| Current maturities and long-term debt: | ||||||||
| Additions | 50,133 | 61,136 | ||||||
| Reductions | (27,219 | ) | (34,583 | ) | ||||
| Cash dividends paid on common stock | (10,643 | ) | (9,996 | ) | ||||
| Common stock issued-options | 190 | 3,611 | ||||||
| Other financing activities | 3 | (1,378 | ) | |||||
| Net cash provided by financing activities | 5,924 | 6,227 | ||||||
| Effect of exchange rate changes on cash | 875 | (1,403 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | 20,078 | (6,954 | ) | |||||
| Cash and cash equivalents at beginning of period | 70,132 | 67,407 | ||||||
| Cash and cash equivalents at end of period | $ | 90,210 | $ | 60,453 | ||||
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 | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31 | ||||||||
| (In thousands) | 2003 | 2002 | ||||||
| Net income | $ | 12,523 | $ | 14,161 | ||||
| Other comprehensive income (expense): | ||||||||
| Foreign currency translation adjustments | 4,656 | (3,631 | ) | |||||
| Net losses on cash flow hedging instruments, net of deferred income | ||||||||
| taxes | 3 | (2 | ) | |||||
| Pension liability adjustments, net of deferred income taxes | 22,690 | 12 | ||||||
| Reclassification adjustment for (gain) loss on marketable securities, | ||||||||
| net of deferred income taxes included in net income | 2 | (337 | ) | |||||
| Other comprehensive income (expense) | 27,351 | (3,958 | ) | |||||
| Total comprehensive income | $ | 39,874 | $ | 10,203 | ||||
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, 2002.
Certain reclassifications have been made to prior years’ amounts to conform with current year classifications. These reclassifications relate principally to segment information which has been reclassified to conform to the current presentation as described in Note 14, “Information by Segment and Geographic Area,” to the Company’s Form 10-K for the year ended December 31, 2002.
As a result of these reclassifications, certain 2002 amounts presented for comparative purposes will not individually agree with previously filed Forms 10-Q.
The Company’s net income and net income per common share would have been reduced to the pro forma amounts indicated below if compensation cost for the Company’s stock option plan had been determined based on the fair value at the grant date for awards in accordance with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31 | ||||||||
| (In thousands, except per share) | 2003 | 2002 | ||||||
| Net income: | ||||||||
| As reported | $ | 12,523 | $ | 14,161 | ||||
| Compensation expense (a) | (481 | ) | (654 | ) | ||||
| Pro forma | $ | 12,042 | $ | 13,507 | ||||
| Basic earnings per share: | ||||||||
| As reported | $ | .31 | $ | .35 | ||||
| Pro forma | .30 | .34 | ||||||
| Diluted earnings per share: | ||||||||
| As reported | .31 | .35 | ||||||
| Pro forma | .30 | .33 | ||||||
| (a) | Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects. |
-6-
HARSCO CORPORATION AND
SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION
| Three Months Ended | Three Months Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2003 | March 31, 2002 | |||||||||||||
| Operating | Operating | |||||||||||||
| (In millions) | Sales (a) | Income (b) | Sales (a) | Income (b) | ||||||||||
| Mill Services Segment | $ | 188.3 | $ | 16.7 | $ | 161.1 | $ | 14.7 | ||||||
| Access Services Segment | 147.4 | 4.6 | 133.5 | 8.0 | ||||||||||
| Gas and Fluid Control Segment | ||||||||||||||