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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 June 30, 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

(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    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 July 31, 2003
Common stock, par value $1.25 per share
     40,707,943  
 

 

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

  Three Months Ended Six Months Ended
June 30 June 30
(In thousands, except per share amounts) 2003 2002(a) 2003 2002(a)
Revenues from continuing operations:                    
    Service sales   $ 374,119   $ 335,690   $ 721,722   $ 645,558  
    Product sales    162,341    174,655    302,640    323,390  
      Total revenues    536,460    510,345    1,024,362    968,948  
Costs and expenses from continuing operations:  
    Cost of services sold    272,486    241,922    534,223    469,109  
    Cost of products sold    131,356    136,899    245,293    254,229  
    Selling, general and administrative expenses    81,453    80,629    161,965    159,023  
    Research and development expenses    800    707    1,672    1,564  
    Other expenses    1,399    1,702    2,337    3,037  
      Total costs and expenses    487,494    461,859    945,490    886,962  
      Operating income from continuing operations    48,966    48,486    78,872    81,986  
 
Equity in income of affiliates, net    99    85    261    290  
Interest income    379    866    1,076    2,229  
Interest expense    (10,259 )  (11,223 )  (20,526 )  (22,449 )
      Income from continuing operations before income taxes and  
         minority interest    39,185    38,214    59,683    62,056  
 
Income tax expense    (12,135 )  (11,799 )  (18,485 )  (19,191 )
      Income from continuing operations before minority interest    27,050    26,415    41,198    42,865  
 
Minority interest in net income    (1,596 )  (1,588 )  (3,274 )  (3,033 )
Income from continuing operations    25,454    24,827    37,924    39,832  
Discontinued operations:  
    Income (loss) from operations of discontinued business    3    (715 )  (209 )  (2,034 )
    Gain on disposal of discontinued business    233    2,868    528    2,868  
    Income tax expense    (85 )  (779 )  (115 )  (304 )
Income from discontinued operations    151    1,374    204    530  
      Net Income   $ 25,605   $ 26,201   $ 38,128   $ 40,362  
Average shares of common stock outstanding    40,615    40,353    40,579    40,198  
 
Basic earnings per common share:  
    Continuing operations   $ .63   $ .62   $ .93   $ .99  
    Discontinued operations    --    .03    .01    .01  
Basic earnings per common share   $ .63   $ .65   $ .94   $ 1.00  
Diluted average shares of common shares outstanding    40,872    40,938    40,764    40,738  
 
Diluted earnings per common share:  
    Continuing operations   $ .62   $ .61   $ .93   $ .98  
    Discontinued operations    .01    .03    .01    .01  
Diluted earnings per common share   $ .63   $ .64   $ .94   $ .99  
  (a)   In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 2002 information has been reclassified for comparative purposes.

See accompanying notes to consolidated financial statements.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)

June 30 December 31
(In thousands) 2003 2002
ASSETS            
Current assets:  
    Cash and cash equivalents   $ 63,975   $ 70,132  
    Accounts receivable, net     438,981    388,872  
    Inventories     183,806    181,712  
    Other current assets     54,927    61,686  
       Total current assets     741,689    702,402  
Property, plant and equipment, net     838,233    807,935  
Goodwill, net     386,357    377,220  
Other assets     102,840    102,493  
Assets held for sale     2,118    9,247  
       Total assets   $ 2,071,237   $ 1,999,297  
 
LIABILITIES  
Current liabilities:  
    Short-term borrowings   $ 16,806   $ 22,362  
    Current maturities of long-term debt     9,791    11,695  
    Accounts payable     162,552    166,871  
    Accrued compensation     37,795    39,456  
    Income taxes     46,146    43,411  
    Dividends payable     10,682    10,642  
    Other current liabilities     185,823    179,413  
       Total current liabilities     469,595    473,850  
Long-term debt     622,525    605,613  
Deferred income taxes     64,329    62,096  
Insurance liabilities     46,412    44,090  
Other liabilities     150,182    167,069  
Liabilities associated with assets held for sale     1,977    2,039  
       Total liabilities     1,355,020    1,354,757  
COMMITMENTS AND CONTINGENCIES  
 
SHAREHOLDERS’ EQUITY  
Common stock     83,988    83,793  
Additional paid-in capital     115,105    110,639  
Accumulated other comprehensive expense     (192,809 )  (242,978 )
Retained earnings     1,313,656    1,296,855  
      1,319,940    1,248,309  
 
Treasury stock     (603,723 )  (603,769 )
       Total shareholders’ equity     716,217    644,540  
       Total liabilities and shareholders’ equity   $ 2,071,237   $ 1,999,297  

See accompanying notes to consolidated financial statements.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

Six Months Ended
June 30
(In thousands) 2003 2002
 
Cash flows from operating activities:            
   Net income   $ 38,128   $ 40,362  
   Adjustments to reconcile net income to net  
     cash provided (used) by operating activities:  
      Depreciation     80,773    76,171  
      Amortization     718    838  
      Equity in income of affiliates, net     (262 )  (290 )
      Dividends or distributions from affiliates     1,335    144  
      Other, net     2,498    7,227  
      Changes in assets and liabilities, net of acquisitions  
        and dispositions of businesses:  
          Accounts receivable     (36,460 )  (18,621 )
          Inventories     335    (3,744 )
          Accounts payable     (10,880 )  (29,115 )
          Net disbursements related to discontinued defense business     (434 )  (505 )
          Other assets and liabilities     14,577    7,936  
 
      Net cash provided by operating activities     90,328    80,403  
 
Cash flows from investing activities:  
   Purchases of property, plant and equipment     (62,789 )  (60,020 )
   Purchase of businesses, net of cash acquired     (23,486 )  —  
   Proceeds from sales of assets     12,957    37,186  
   Other investing activities     —    (19 )
 
      Net cash used by investing activities     (73,318 )  (22,853 )
 
Cash flows from financing activities:  
   Short-term borrowings, net     (10,968 )  520  
   Current maturities and long-term debt:  
          Additions     82,292    88,805  
          Reductions     (81,107 )  (142,296 )
   Cash dividends paid on common stock     (21,286 )  (20,029 )
   Common stock issued-options     4,047    13,177  
   Other financing activities     (3,552 )  (3,298 )
 
      Net cash used by financing activities     (30,574 )  (63,121 )
 
Effect of exchange rate changes on cash     7,407    4,282  
 
Net decrease in cash and cash equivalents     (6,157 )  (1,289 )
 
Cash and cash equivalents at beginning of period     70,132    67,407  
 
Cash and cash equivalents at end of period   $ 63,975   $ 66,118  
  (a)   In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 2002 information has been reclassified for comparative purposes.

See accompanying notes to consolidated financial statements.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)

  Three Months Ended Six Months Ended
June 30 June 30
(In thousands) 2003 2002 2003 2002
 
Net income     $ 25,605   $ 26,201   $ 38,128   $ 40,362  
 
Other comprehensive income (expense):  
   Foreign currency translation adjustments     28,442    21,474     33,098    17,843  
   Net gains (losses) on cash flow hedging instruments, net of deferred  
     income taxes     (8 )  20     (5 )  18  
   Pension liability adjustments, net of deferred income taxes     (5,616 )  (39 )   17,074    (27 )
   Unrealized gain on marketable securities     --    44     --    44  
   Reclassification adjustment for (gain) loss on marketable securities,  
     net of deferred income taxes included in net income     --    --     2    (337 )
 
Other comprehensive income     22,818    21,499     50,169    17,541  
 
Total comprehensive income   $ 48,423   $ 47,700   $ 88,297   $ 57,903  

See accompanying notes to consolidated financial statements.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

Notes to Consolidated Financial Statements

A.  Opinion of Management

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.

B.  Reclassifications

Certain reclassifications have been made to prior years’ amounts to conform with current year classifications. These reclassifications relate principally to segment information and to operations previously classified as discontinued operations.

The segment information 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.

In the 10-Q filing for the period ending June 30, 2002, IKG Industries, a business unit of Other Infrastructure Products and Services was classified as a discontinued operation in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS 144). In August 2002, the transaction to sell IKG was terminated and the Company ceased marketing the business. Accordingly, IKG has been included in continuing operations for all periods presented and the assets and liabilities are no longer classified as “held for sale.”

As a result of these reclassifications, certain 2002 amounts presented for comparative purposes will not individually agree with previously filed Forms 10-Q.

C.  Options for Common Stock

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 Six Months Ended
June 30 June 30
(In thousands, except per share amounts) 2003 2002 2003 2002
Net income:                    
    As reported   $ 25,605   $ 26,201   $ 38,128   $ 40,362  
    Compensation expense (a)     (353 )  (563 )   (834 )  (1,217 )
 
    Pro forma   $ 25,252   $ 25,638   $ 37,294   $ 39,145  
 
Basic earnings per share:  
    As reported   $ .63   $ .65   $ .94   $ 1.00  
    Pro forma     .62    .64     .92    .97  
Diluted earnings per share:  
    As reported     .63    .64     .94    .99  
    Pro forma     .62    .63     .92    .96  
  (a)   Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

D.  Review of Operations by Segment (a)

Three Months Ended Three Months Ended
June 30, 2003 June 30, 2002(b)
Operating  
Income Operating
(In millions) Sales (c) (loss) (d) Sales (c) Income (d)
 
Mill Services Segment     $ 203.7   $ 25.7   $ 175.1   $ 17.8  
Access Services Segment    157.9    10.8    145.2    11.3  
Gas and Fluid Control Segment    81.2    4.6    91.4    8.2  
Segment Totals    442.8    41.1    411.7    37.3  
Other Infrastructure Products and Services    93.7    8.6    98.6    11.2  
General Corporate    —    (0.7 )  —    —  
 
Consolidated Totals   $ 536.5   $ 49.0   $ 510.3   $ 48.5  


Six Months Ended Six Months Ended
June 30, 2003 June 30, 2002(b)
Operating Operating
(In millions) Sales (c) Income (d) Sales (c) Income (d)
 
Mill Services Segment     $ 392.0   $ 42.4   $ 336.2   $ 32.5  
Access Services Segment     305.3     15.4    278.6    19.4  
Gas and Fluid Control Segment     157.3     7.6    173.9    12.4  
Segment Totals     854.6     65.4    788.7    64.3  
Other Infrastructure Products and Services     169.8     12.8    180.2    17.4  
General Corporate     --     0.7    --    0.3  
 
Consolidated Totals   $ 1,024.4   $ 78.9   $ 968.9   $ 82.0  
  (a)   Segment information for prior periods has been reclassified to conform with the current presentation.
  (b)   In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 2002 information has been reclassified for comparative purposes.
  (c)   Sales from continuing operations.
  (d)   Operating income (loss) from continuing operations.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

Reconciliation of Segment Operating Income to Consolidated Income
Before Income Taxes and Minority Interest