SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Amendment No.#1
Amendment to Current Report on Form 8-K dated
January 28, 1994, and filed on February 14, 1994.
Harsco Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-3970 23-1483991
(State or other jurisdiction (Commission (I.R.S.
Employer
of incorporation) File Number) Identification
Number)
Camp Hill, Pennsylvania 17001-8888
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(717) 763-7064
The undersigned registrant hereby amends the following item of its
Current Report on Form 8-K dated January 28, 1994, and filed February
14, 1994, as set forth in the pages attached hereto:
ITEM 7. Financial Statements and Exhibits
(a) Consolidated Financial Statements of FMC's Defense Systems Group
(1) Independent Auditors' Report
(2) Consolidated Balance Sheets as of December 31, 1993 and 1992
(3) Consolidated Statements of Income for the Years 1993, 1992, 1991
(4) Consolidated Statements of Cash Flows for the Years 1993, 1992,
1991
(5) Notes to Financial Statements
(b) Pro Forma Financial Information (unaudited) to reflect Harsco's
acquisition of an interest in United Defense, L.P. formed to combine
FMC's Defense Systems Group and Harsco's BMY-Combat Systems Division
(1) Balance Sheet as of December 31, 1993
(2) Statement of Income for the Year Ended December 31, 1993
(d) Exhibits
Number Exhibit
24 Consent of Independent Accountants
SIGNATURE
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 13, 1994 By: /s/ Leonard A. Campanaro
Leonard A. Campanaro
Senior Vice President &
Chief Financial Officer
Independent Auditors' Report
The Board of Directors and Stockholders,
FMC Corporation
We have audited the balance sheets of the Defense Systems Group of FMC
Corporation as of December 31, 1993 and 1992 and the related statements
of income and cash flows for each of the years in the three-year period
ended December 31, 1993. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and signficant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Defense
Systems Group of FMC Corporation as of December 31, 1993 and 1992, and
the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 5 to the financial statements, the company changed
its method of accounting for post retirement benefits other than
pensions in 1992.
KPMG, Peat Marwick
Chicago, Illinois
January 24, 1994
<TABLE>
FMC CORPORATION
DEFENSE SYSTEMS GROUP
BALANCE SHEETS
(Dollars In Thousands)
DECEMBER 31
ASSETS 1993
1992
<S> <C> <C>
Current assets:
Trade receivables, net $ 85,348 $
72,457
Inventories 39,249
61,555
Deferred income taxes 30,126
30,617
Other current assets 21,381
19,467
_________
_________
Total current assets 176,104
184,096
Investments in affiliated companies 8,721
10,342
Net property, plant & equipment 111,718
135,262
Prepaid pensions and deferred charges 28,573
24,817
Deferred income taxes 5,165
7,956
_________
_________
Total assets $ 330,281 $
362,473
_________
_________
_________
_________
LIABILITIES AND GROUP EQUITY
Current liabilities:
Accounts payable, trade and other $ 73,144 $
93,989
Advance payments received from customers 95,781
85,292
Accrued payroll 21,183
21,638
Accrued workers' compensation insurance 27,147
21,599
Accrued and other liabilities 18,789
25,462
Total current liabilities 236,044
247,980
_________
_________
Accrued post-retirement benefits 69,601
75,162
Commitments and contingencies
Group equity: Investment of FMC Corporation 24,636
39,331
_________
_________
Total liabilities and group equity $ 330,281 $
362,473
_________
_________
_________
_________
See accompanying notes to financial statements
</TABLE>
<TABLE>
FMC CORPORATION
DEFENSE SYSTEMS GROUP
STATEMENTS OF INCOME
(Dollars In Thousands)
YEARS ENDED DECEMBER 31
1993 1992 1991
<S> <C> <C> <C>
Revenue $ 950,170 $1,111,809
$1,169,043
_________ _________
_________
Cost of sales 708,362 867,757
897,871
Selling, general and administrative 102,406 106,036
113,813
Research and development 16,669 21,000
21,305
Other (income) and expense, net (15,232) (31,284)
(4,458)
_________ _________
_________
Total costs and expenses 812,205 963,509
1,028,531
_________ _________
_________
Income before income taxes and
cumulative effect of change in
accounting principle 137,965 148,300
140,512
Income taxes 52,405 55,670
54,868
_________ _________
_________
Income from continuing operations
before cumulative effect of change
in accounting principle 85,560 92,630
85,644
Cumulative effect of change in
accounting principle, net of taxes - (45,678)
- -
_________ _________
_________
Net income $ 85,560 $ 46,952 $
85,644
_________ _________
_________
_________ _________
_________
See accompanying notes to financial statements
</TABLE>
<TABLE>
FMC CORPORATION
DEFENSE SYSTEMS GROUP
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
YEARS ENDED DECEMBER 31
1993 1992 1991
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 85,560 $ 46,952 $
85,644
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 23,960 26,452
28,631
Amortization of accrued pension costs 2,066 8,178
2,966
Deferred income taxes 3,281 (27,480)
(79)
_________ _________
_________
114,867 54,102
117,162
_________ _________
_________
(Increase) decrease in assets:
Trade receivables, net ( 12,891) 3,878
(1,605)
Inventories 22,306 56,982
81,043
Other current assets (1,914) (3,482)
(7,168)
(Decrease) increase in liabilities:
Accounts payable - trade and other (23,681) 16
11,373
Advance payments received from
customers 10,489 (80,562)
(111,296)
Other current liabilities 1,256 (1,672)
2,170
Pension and other post-retirement
benefits, net (10,785) 69,792
(5,250)
_________ _________
_________
Net cash provided by operating
activities 99,647 99,054
86,429
_________ _________
_________
Cash flows provided (required) by
investing activities:
Expenditures for property, plant
and equipment (17,816) (17,963)
(23,075)
Transfers and other changes in
property, plant and equipment 17,400 3,978
2,600
Changes in investments in affiliates
and other 1,024 3,165
350
_________ _________
_________
Cash flows provided (required) by
investing activities 608 (10,820)
(20,125)
_________ _________
_________
Net cash flow provided to
FMC Corporation $ 100,255 $ 88,234 $
66,304
_________ _________
_________
_________ _________
_________
See accompanying notes to financial statements
</table?
DEFENSE SYSTEMS GROUP
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. GENERAL INFORMATION
The Defense Systems Group ("DSG") of FMC Corporation ("FMC")
manufactures tracked military vehicles, gun and launching systems, and
steel track, forgings and castings, predominently for the U. S.
Government. On January 28, 1994, FMC and Harsco Corporation ("Harsco")
announced completion of a series of agreements ("Agreements"), first
announced in December 1992, to combine certain assets and liabilities of
DSG and Harsco's BMY Combat Systems Division. The effective date of the
combination was January 1, 1994. The combined company, United Defense,
L. P., will operate as a limited partnership, with FMC as the Managing
General Partner with a 60 percent equity interest and Harsco Defense
Holding as the Limited Partner holding a 40 percent equity interest.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the historical assets,
liabilities, revenues and expenses that are directly related to the
operations of DSG. As described in Note 5, the financial statements
also include allocations of certain FMC expenses in order to approximate
the effect of DSG operating on a stand-alone basis during the periods
presented. Management believes the allocations of expenses are made on
a reasonable basis; however, they do not necessarily equal the costs
which would have been, or will be incurred, by DSG on a stand-alone
basis. Furthermore, other financial information included herein may not
necessarily reflect the financial position and results of operations of
DSG in the future combined operations of UDLP or what the financial
position and results of operations of DSG would have been had it been a
separate, stand-alone company during the periods covered.
SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION FOR CONTRACTS-IN-PROGRESS
Sales are recorded when the earning process is substantially complete
and the dollar amount is known. The completion of the earning process
is dependent upon the contract type.
In cost type contracts, sales revenue is recognized concurrent with
voucher billing. Sales value will be equal to actual billed costs plus
allocable fee. Fee adjustments for over/underruns are recorded if the
contract is modified to reduce the billing percentage for fee.
In time and material contracts, revenue is recognized concurrent with
voucher billing. No sales are recorded for billings associated with
undefinitized contracts.
Government fixed-price and fixed-price incentive contracts are accounted
for under the percentage of completion method, whereby the estimated
sales value is determined on the basis of physical completion to date
(units of delivery or other acceptable methods of measuring progress
toward completion). The sales unit price is the negotiated value or, in
the case of incentive contracts, the estimated unit price at completion.
Changes in estimates for sales, costs, and profits are recognized in the
period in which they are determinable. Claims for required changes in
contract performance are considered in estimated contract revenue at
such time as realization is probable. Any anticipated losses on
contracts are charged to operations as soon as they are determinable.
Under certain arrangements the customer shares in product development
costs. The estimated costs in excess of price from the customer are
expensed at the time of contract award.
TRADE RECEIVABLES
A receivable is recorded whenever a sale is recorded and an invoice, as
contractually allowed, is sent to the customer. A receivable is also
recorded when a request for progress payment is issued to the customer.
An unbilled receivable is recorded if certain conditions for recording a
sale are met and contractual constraints prevent sending an invoice.
Approximately $12.8 million of unbilled receivables recorded as of
December 31, 1993, will be shipped and billed in 1995. Trade
receivables do not contain material amounts of receivables billed under
retainage provisions of contracts or similar items whose determination
or ultimate realization is uncertain. DSG maintains an allowance for
doubtful accounts based upon the expected collectibility of all trade
receivables ($0.2 million and $0.3 million for December 31, 1993 and
December 31, 1992, respectively).
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined on the last-in, first-out (LIFO) basis, except for certain
inventories relating to long-term contracts ($7.0 million in 1993 and
$21.4 million in 1992). Inventoried costs relating to long-term
contracts not valued on the LIFO basis are stated at the actual
production cost incurred to date, reduced by amounts recognized as cost
of sales. The costs attributed to units delivered under such contracts
are based on the estimated average cost of all units expected to be
produced and sold under the contract.
There are no material amounts remaining in inventory relating to the
excess of actual production cost of in-process and delivered units over
the estimated average cost of all units expected to be produced under
contracts-in-progress, or other non-recurring costs for which ultimate
recovery may be uncertain. Provisions have been made for additional
cost elements and business risks expected to be incurred in completing
the contracts.
Inventory costs include manufacturing overhead. Costs normally
associated with general and administrative functions and independent
research and bid and proposal costs are expensed as incurred.
The current replacement cost of inventories exceeded their LIFO values
by approximately $13.9 million at December 31, 1993 and $13.8 million at
December 31, 1992. During 1993, 1992 and 1991, DSG reduced LIFO
inventories that were carried at lower than prevailing costs. These
reductions increased pre-tax income by $2.6 million, $13.9 million, and
$4.2 million in the respective years.
INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies are carried primarily at cost, with
income recognized as dividends are received. Dividends received were
$9.4 million in 1993 and $8.1 million in 1992. No dividends were
received in 1991.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
provided principally on the sum-of-the-years digits method over
estimated useful lives of the assets (land improvements - 20 years,
buildings - 20 to 35 years, and machinery and equipment - 3 to 11
years). Gains and losses realized upon sale or retirement of assets are
either deducted from or added to depreciation for the period or
reflected in income.
Maintenance and repairs are expensed as incurred ($26.0 million, $26.0
million, and $28.3 million for 1993, 1992 and 1991 respectively).
Expenditures that extend the useful life of property, plant and
equipment or increase its productivity are capitalized and depreciated.
ADVANCE PAYMENTS RECEIVED FROM CUSTOMERS
Amounts advanced by customers as deposits on orders not yet billed and
progress payments on contracts-in-progress are recorded as current
liabilities.
INCOME TAXES
Effective January 1, 1993, DSG adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." SFAS No. 109 requires
an asset and liability approach, whereby deferred tax liabilities and
assets are recognized for expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities. The adoption of SFAS No. 109 had no material effect upon
the financial statements of DSG. Additional U. S. income taxes are not
provided for the undistributed earnings of foreign affiliates as it is
management's intention that such earnings remain invested in those
companies. Taxes are provided in the year the dividend payment is
received. Prior to January 1, 1993, income tax provisions were based on
income reported for financial statement purposes, adjusted for
transactions (permanent differences) that do not enter into the
computation of income taxes payable. The company deferred the tax
effects of timing differences between financial reporting and taxable
income.
DSG's taxable income is included in the Federal and State income tax
returns filed by FMC and, accordingly, the current payable for income
taxes has been transferred to FMC. The provisions for income taxes are
computed as if the Group filed its own separate tax returns.
ENVIRONMENTAL
Environmental-related obligations, such as estimated contractor costs
and fees, site study costs, reimbursements of regulatory agency costs,
post-closure costs, litigation costs, and other remediation costs, are
provided for when they are probable and amounts can be reasonably
estimated. Estimated obligations to remediate sites that involve the
Environmental Protection Agency (EPA), are generally accrued no later
than when a Record of Decision (ROD), or equivalent, is issued, or upon
completion of a Remediation Investigation/Feasibility Study (RI/FS) that
is accepted by the company and the appropriate government agency or
agencies. As remediations and investigations proceed, the estimates are
reviewed quarterly by the company's Environmental Health and Safety
organization, as well as financial and legal management and, if
necessary, adjusted as additional information becomes available. The
estimates can change substantially as additional information becomes
available regarding the nature or extent of site contamination, required
remediation methods, and other actions by governmental agencies or
private parties.
Provisions for environmental costs incorporate inflation and are not
discounted to their present values. Estimated recoveries from third
parties are recorded when probable and reasonably estimable.
ACCOUNTING STANDARDS NOT ADOPTED
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Post-employment Benefits."
Effective for fiscal year 1994, SFAS No. 112 established accounting
standards for benefits provided to former or inactive employees after
employment but before retirement. The impact on earnings in 1994 from
implementation of the new statement's provisions is estimated to be
approximately $.7 million.
3. PROPERTY, PLANT AND EQUIPMENT
</TABLE>
<TABLE>
Property, plant and equipment consists of the following:
December 31,
1993 1992
<S> <C> <C>
Land and land improvements $ 17,761 $
18,490
Buildings and building equipment 73,087
90,478
Machinery and equipment 320,081
323,350
Construction in progress 5,597
8,055
_________
_________
Total cost 416,526
440,373
Accumulated depreciation 304,808
305,111
Net property, plant and equipment $ 111,718 $
135,262
The decrease in net property, plant and equipment from 1992 resulted
primarily from the transfer to FMC of a technology center in Minneapolis
with a net book value of approximately $16 million.
</TABLE>
4. INCOME TAXES
<TABLE>
The provisions for income taxes consist of:
December 31,
1993 1992 1991
<S> <C> <C> <C>
Current:
Federal $ 42,984 $ 47,030 $
47,903
State and local 6,140 6,916
7,044
_________ _________
_________
Total current 49,124 53,946
54,947
Deferred 3,281 (27,480)
(79)
_________ _________
_________
Total income taxes $ 52,405 $ 26,466 $
54,868
_________ _________
_________
_________ _________
_________
</TABLE>
The deferred tax benefit in 1992 relates primarily to the one-time
adjustment for postretirement benefits as discussed in note 5.
The income tax provision differs from that computed by applying the
applicable federal statutory rate (35% in 1993 and 34% in the other
years) to income before taxes for the following reasons:
<TABLE>
December 31,
1993 1992 1991
<S> <C> <C> <C>
Expected tax provision $ 48,288 $ 24,962 $
47,774
State income taxes, less federal
tax benefit 6,898 3,671
7,026
Tax adjustment on dividends
from affiliate (1,781) (1,737)
- -
Foreign sales corporation income (1,000) (430)
68
_________ _________
_________
Actual tax provision $ 52,405 $ 26,466 $
54,868
_________ _________
_________
_________ _________
_________
</TABLE>
Significant components of the Group's deferred tax assets and
liabilities are as follows:
<TABLE>
December 31,
1993 1992
<S> <C> <C>
Inventory basis differences $ 8,678 $ 11,293
Accrued and other liabilities 21,448 19,324
Deferred tax assets - current 30,126 30,617
Post-retirement benefits and other 27,277 29,313
_________ _________
Total deferred tax assets $ 57,403 $ 59,930
Prefunded pension costs $ 9,444 $ 8,212
Property, plant and equipment 9,880 10,786
Other 2,788 2,359
_________ _________
Total deferred tax liabilities $ 22,112 $ 21,357
_________ _________
Net deferred tax assets $ 35,291 $ 38,573
_________ _________
_________ _________
</TABLE>
No valuation allowance with respect to the deferred tax assets is
considered necessary.
5. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
Salaried employees of DSG are covered by FMC's Salaried Retirement Plan,
which provides pension benefits based on years of service and an average
of the highest 60 consecutive months of compensation during the last 120
months of consecutive employment. Plans covering hourly employees of
DSG generally provide benefits of stated amounts for each year of
service.
The funding policy is to make contributions based on the projected unit
credit actuarial cost method and to limit contributions to amounts that
are currently deductible for tax reporting purposes. In 1992, net
pension cost includes a pension curtailment charge of $4.6 million
relating to the elimination of certain employees in the DSG hourly
plans.
The following table summarizes the assumptions used and the components
of the net pension cost:
<TABLE>
Year Ended December 31,
Assumptions: 1993 1992
1991
<S> <C> <C> <C>
Weighted average discount rate 8.0% 8.0%
8.0%
Rates of increase in future
compensation levels 5.0% 5.0%
5.0%
Weighted average expected long-term
asset return 9.3% 9.3%
9.8%
________ ________
________
Components:
Service cost-benefits earned $ 7,537 $ 8,350 $
8,105
Interest cost on projected
benefit obligation 13,374 12,604
11,195
Actual return on plan assets (31,751) (14,923)
(33,857)
Net amortization and deferral:
Net transition asset amortization (1,006) (1,006)
(1,006)
Prior service cost amortization 1,632 6,390
1,990
Net (gain) loss amortization (213) 142
(98)
Net asset gain (loss) deferred 12,493 (3,379)
16,637
________ ________
________
Net pension cost $ 2,066 $ 8,178 $
2,966
________ ________
________
________ ________
________
</TABLE>
The funded status of the plans and accrued pension cost recognized in
the financial statements were as follows:
<TABLE>
Year Ended December 31,
1993 1992
<S> <C> <C>
Actuarial present value of benefits
for service rendered to date:
Accumulated benefit obligation based
on salaries to date, including vested
benefits of $148,171 in 1993 and
$141,101 in 1992 $ (154,959) $
(148,921)
Additional benefits based on estimated
future salary levels (29,702)
(30,193)
_________
_________
Projected benefit obligation $ (184,661) $
(179,114)
Plan assets at fair value<F1> 228,395
201,172
_________
_________
Plan assets in excess of projected
benefit obligation 43,734
22,158
Unrecognized net transition asset (7,030)
(8,035)
Unrecognized prior service cost 9,700
8,310
Unrecognized net gain (22,189)
(1,376)
_________
_________
Prepaid pension cost $ 24,215 $
21,057
_________
_________
_________
_________
<FN>
<F1> Primarily equities, bonds and participating annuities
</TABLE>
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE
Substantially all of DSG employees are covered by FMC's postretirement
health care and life insurance benefit program. Employees generally
become eligible for the retiree benefit plans when they meet minimum
retirement age and service requirements. The cost of providing most of
these benefits is shared with retirees. FMC has reserved the right to
change or eliminate these benefit plans.
FMC funds a trust for retiree health and life benefits for DSG. Funding
is based on amounts in negotiated government defense contracts, in
conformance with Governmental Cost Accounting Standards.
Retroactive to January 1, 1992, FMC elected early adoption of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which requires accrual of the expected cost of providing
postretirement benefits other than pensions, during the years of
employee service. The adoption of SFAS No. 106 resulted in a one-time
pre-tax charge of $74.9 million ($45.7 million, net of tax). Prior to
1992, the Group recognized postretirement health care costs using the
cash basis of accounting, while the estimated costs of postretirement
life insurance benefits were generally accrued over the employees'
active working lives. These costs were $ 3.1 million in 1991.
Actuarial assumptions used to determine costs and benefit obligations
include a discount rate of 8 percent and a weighted average expected
return on long-term assets of 9 percent. The assumed rate of future
increases in per capita cost of health care benefits was 13 percent in
1993 and 1992, decreasing gradually to 6 percent by the year 2001.
The following table summarizes the components of net periodic
postretirement benefit cost for 1993 and 1992:
<TABLE>
1993 1992
<S> <C> <C>
Service cost of benefits earned $ 1,620 $ 1,925
Interest cost on accumulated
postretirement benefit obligation 4,900 6,593
Actual return on plan assets (1,246) (707)
Prior service cost amortization and
net asset loss deferred (2,172) (454)
_________ _________
Net periodic postretirement benefit cost $ 3,102 $ 7,357
_________ _________
_________ _________
</TABLE>
Plan amendments adopted in 1993 reduced the accumulated benefit
obligation by approximately $ 18.7 million. These amendments will be
recognized as a reduction of plan costs over the average remaining
service period of active plan participants. The status of the accrued
postretirement benefit cost recognized in the balance sheet and the
funded status of the plan as of December 31 were as follows:
<TABLE>
1993 1992
<S> <C> <C>
Accumulated postretirement benefit
obligation (APBO):
Retirees $ (29,905) $ (27,663)
Fully eligible active participants (9,080) (16,637)
Other active participants (22,422) (41,084)
_________ _________
APBO $ (61,407) $ (85,384)
Plan assets at fair value<F1> 20,792 14,826
_________ _________
APBO in excess of plan assets (40,615) (70,558)
Unamortized plan amendments (21,725) (4,966)
Unrecognized (gain) loss (7,261) 362
_________ _________
Accrued postretirement benefit obligation $ (69,601) $ (75,162)
_________ _________
_________ _________
<FN>
<F1> Primarily fixed income securities
</TABLE>
EMPLOYEES' THRIFT AND STOCK PURCHASE PLAN
All salaried and non-union hourly employees are included in FMC Employee
Thrift and Stock Purchase Plan. Under the Thrift Plan, participants may
elect to have up to 15 percent of their compensation contributed to the
plan. An employee's contribution, up to 5 percent of compensation, is
matched by the Group's 15 percent to 100 percent (80 percent prior to
April 1, 1993) depending on profits and fund elections. A participant's
interest in the Group's contribution vests gradually during the first
five years of active service and is fully vested thereafter. The
employee-elected contributions may be invested in FMC stock, a fixed
income fund or an equity fund, as a participant elects. All matching
contributions by the Group are invested in FMC stock. Charges for these
benefits for the years 1993, 1992 and 1991, were $ 4.9 million, $ 4.4
million and $ 3.9 million, respectively.
6. EQUITY: INVESTMENT BY FMC CORPORATION
The changes in equity during the three years ended December 31, 1993
were as follows:
Balance December 31, 1990 $ 61,273
Net income for 1991 85,644
Net cash provided to FMC (66,304)
_________
Balance December 31, 1991 80,613
Net income for 1992 46,952
Net cash provided to FMC (88,234)
_________
Balance December 31, 1992 39,331
Net income for the year 85,560
Net cash provided to FMC (100,255)
_________
Balance December 31, 1993 $ 24,636
_________
_________
7. TRANSACTIONS WITH FMC
The following summarizes the assumptions used in accounting for certain
transactions between DSG and FMC. See also Notes 2 and 4.
WORKING CAPITAL AND FINANCING REQUIREMENTS
All capital requirements of DSG are funded through the operation of a
centralized cash management system at FMC. Generally, all cash receipts
are deposited to and all cash requirements are funded through the system
on a daily basis. Cash activity is segregated and controlled through
intercompany accounts, which are included in the accompanying financial
statements as a component of Group Equity: Investment of FMC
Corporation.
ADMINISTRATIVE COST ALLOCATION
The statements of income presented reflect an administrative cost
allocation from FMC for certain expenses incurred at the corporate level
for the benefit of the Group, aggregating $24.3 million, $20.4 million
and $23.1 million for the years 1993, 1992 and 1991, respectively. The
allocations are based on sales, numbers of FMC personnel, payroll
dollars, estimates of time spent to provide services, or other rational
measures. These allocations include general management, treasury, tax,
financial audits, financial reporting, benefits administration,
insurance, communication, public affairs, information management and
other miscellaneous services.
DIRECT CHARGES
Other costs incurred at the FMC corporate level and charged directly to
DSG on the basis of services used include the Corporate Technology
Center, computer processing, employee benefits, pension and thrift plan
costs, insurance and miscellaneous other expenses. Charges related to
services other than employee benefits aggregated approximately $15.2
million, $17.0 million and $18.1 million in 1993, 1992 and 1991,
respectively. Employee benefits are discussed further in Note 5.
8. COMMITMENTS AND CONTINGENT LIABILITIES
MINIMUM LEASE PAYMENTS
DSG leases manufacturing space and various types of equipment under
operating leases. Total rent expense under all leases amounted to $4.4
million, $6.6 million and $5.7 million in the years 1993, 1992 and 1991,
respectively. Minimum future rentals under noncancellable leases
aggregated approximately $18.2 million as of December 31, 1993, and are
estimated to be payable $4.6 million in 1994, $4.4 million in 1995, $3.9
million in 1996, $1.9 million in 1997, $1.9 million in 1998 and $1.5
million in 1999.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
In accordance with the environmental accounting policy, reserves of
approximately $6.5 million and $6.7 million have been provided at the
end of 1993 and 1992, respectively. The liability arising from
potential environmental obligations that have not been reserved for at
this time--because amounts cannot be reasonably determined due to
uncertainties associated with remedial-related activities, relevant
clean-up technologies and methods, and amounts to be recovered from
third parties--may or may not be material to any one year's results of
operations in the future. Management, however, believes the liability
arising from these potential environmental obligations is not likely to
have a material adverse effect on the Group's liquidity or financial
condition and will be satisfied over many years.
OFF BALANCE SHEET RISK
DSG is contingently liable under outstanding letters of credit in the
amount of approximately $32.1 million at December 31, 1993.
OTHER CONTINGENT LIABILITIES
DSG has certain contingent liabilities resulting from litigation, claims
and commitments incident to the ordinary course of business. Management
believes that the probable resolution of such contingencies will not
materially affect the financial position or results of operations.
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED FINANCIAL INFORMATION
(Unaudited)
On January 28, 1994, FMC Corporation ("FMC") and Harsco Corporation
("Harsco") announced completion of a series of agreements
("Agreements"), first announced in December 1992, to combine certain
assets and liabilities of FMC's Defense Systems Group ("DSG") and
Harsco's BMY-Combat Systems Division ("BMY-CS"). The effective date of
the combination was January 1, 1994. The combined company, United
Defense, L.P. ("UDLP"), will operate as a limited partnership, with FMC
as the Managing General Partner with a 60 percent equity interest and
Harsco Defense Holding, Inc. as the Limited Partner holding a 40 percent
equity interest.
The following unaudited pro forma condensed financial statements reflect
the elimination of BMY-CS and accounting for the 40% ownership interest
of Harsco in UDLP on the equity method of accounting. The assumption,
for the balance sheet, is that the combination occurred on December 31,
1993, and for the statement of income that the combination date was
January 1, 1993. The pro forma operating results are not necessarily
indicative of what would have occurred had the combination actually
taken place on January 1, 1993, or of what they are expected to be in
1994. Also, no adjustments have been made to operations for the impact
of certain anticipated operational and administrative efficiencies which
are expected to be realized over the first two years of the combined
company's operation.
<TABLE>
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED BALANCE SHEET
(In Thousands of Dollars) (Unaudited)
Pro Forma as of December 31, 1993
Pro Forma Pro
Forma
Adjustments and Harsco
with
Less Eliminations 40%
ASSETS Harsco BMY-CS Debit Credit UDLP
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 58,740 $ - $ 5,200<F1> $
53,540
Notes and accounts receivable, net 322,894 45,286 $ 38,507<F1>
316,115
Inventories 202,426 86,815
115,611
Other current assets 16,045 6,374 5,962<F1>
15,633
________ _______
________
Total current assets 600,105 138,475
500,899
Property, plant and equipment, net 491,655 50,597
441,058
Goodwill 221,082
221,082
Equity in unconsolidated entities 9,258 29,600<F1><F2>
38,858
Other assets 105,512 212
105,300
________ _______
________
Total assets $1,427,612 $189,284
$1,307,197
________ _______
________
________ _______
________
LIABILITIES
Current Liabilities
Borrowings due within one year $ 63,509 $ - $ $
63,509
Accounts payable 98,021 18,272 1,265<F1>
81,014
Advances on long-term contracts 88,518 78,882
9,636
Income taxes payable 14,905 -
14,905
Other current liabilities 52,396 19,019 3,634<F1>
137,011
_________ _______
________
Total current liabilities 417,349 116,173
306,075
Long-term debt 364,869 -
364,869
Deferred income taxes 33,424 3,544 3,544<F1>
33,424
Insurance accruals 49,350 -
49,350
Other liabilities 39,536 9,164 23<F1>
30,395
_________ _______
________
Total liabilities 904,528 128,881
784,113
_________ _______
________
CAPITAL
Capital stock 40,143
40,143
Additional paid-in capital 86,436
86,436
Retained earnings 603,158
603,158
Cumulative adjustments (16,166)
(16,166)
Treasury stock, at cost (190,487)
(190,487)
Net Assets 60,403 60,403<F1><F2>
- -
_________ _______
_______
Total capital 523,084 60,403
523,084
_________ _______
_______
Total liabilities and capital $1,427,612 $189,284
$1,307,197
_________ _______
_______
_________ _______
_______
See accompanying notes to unaudited pro forma condensed financial statements.
</TABLE>
<TABLE>
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA CONDENSED STATEMENT OF INCOME
(In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
Pro Forma for the Year Ended December 31 1993
Pro Forma
Harsco
with
Less: Pro Forma 40%
Harsco BMY-CS Adjustments UDLP
<S> <C> <C> <C> <C>
Net sales $1,422,308 $ 347,958 $ - $1,074,350
Operating expenses 1,295,148 283,904 4,416<F3> 1,015,660
_________ _______ _______ _________
Profit from operations 127,160 64,054 (4,416) 58,690
Equity in earnings of unconsolidated entities 2,415 84,000<F4> 86,415
Other income, net 7,576 12 - 7,564
_________ _______ _______ _________
Income before provision for income taxes and
the cumulative effect of accounting change 137,151 64,066 79,584 152,669
Provision for income taxes 56,335 24,653 31,834<F5> 63,516
_________ _______ _______ _________
Income before cumulative effect
of change in accounting method 80,816 39,413 47,750 89,153
Cumulative effect of change in
accounting method 6,802 - - 6,802
________ _______ _______ ________
Net income $ 87,618 $ 39,413 $ 47,750 $ 95,955
________ _______ _______ ________
________ _______ _______ ________
Average shares of common stock
outstanding 25,036,893 25,036,893
Earnings per common share:
Income before cumulative effect of
accounting change $ 3.23 3.56
Cumulative effect of change in method
of accounting .27 .27
________ ________
Net income per common share $ 3.50 $ 3.83
________ ________
________ ________
See accompanying notes to unaudited pro forma condensed financial statements.
<F1> Under the Agreements, Harsco is required to contribute a total net
asset value of $29.6 million including $5.2 million of cash. Harsco
also will retain financial responsibility for certain items which are
not contributed to the joint venture and sufficient accounts receivable
balances to meet the total net asset value of $29.6 million. These
adjustments are to reflect the contribution of cash, the retention of
accounts receivable, and the retention of certain liability accounts as
provided for in the Agreements.
<F2> The assets and liabilities contributed by FMC and Harsco to the
joint venture are recorded at their historical net book values and,
consequently, no recognition is given to their fair market values at
formation. In combining the assets and liabilities under this premise,
Harsco's initial equity interest in UDLP has a net book value of $67
million, calculated at 40 percent of the combined net assets contributed
by FMC and Harsco of $168 million. Therefore, Harsco's 40 percent
equity interest in the joint venture exceeds the book value of the net
assets contributed and acquisition costs incurred by approximately $34
million. However, no recognition is given to this amount in the Pro
Forma Financial Statements.
<F3> $4.4 million of general and administrative expense allocated to BMY
in 1993 by Harsco has been retained by Harsco in order to approximate
the operating results of Harsco assuming the transaction had occurred on
January 1, 1993.
<F4> The Agreements provide for sharing the income before income taxes
of the venture generally on the basis of the partners' equity ownership
interests, after giving effect to a limited partner preferred
distribution. The Equity in Earnings of $84 million includes the
limited partner preferred distribution and 40% of the remaining pro
forma pre-tax earnings of UDLP. The pro forma earnings of the venture
give effect to various income and expense adjustments in order to
approximate the results of operations assuming the transaction had been
effective on January 1, 1993.
<F5> The income tax expense results from the taxable pro forma
adjustments to income at a combined Federal and State statutory tax rate
of approximately 40%.
</TABLE>
EXHIBIT 24
CONSENT OF KPMG PEAT MARWICK
We consent to the incorporation by reference in the following
Registration Statements of Harsco Corporation and subsidiary companies
of our report included herein dated January 24, 1994, relating to the
balance sheets of the Defense Systems Group of FMC Corporation as of
December 31, 1993 and 1992, and the related statements of income and
cash flows for each of the years in the three-year period ended December
31, 1993:
- - Post Effective Amendment No. 6 to Form S-8 Registration Statement
(Registration No. 2-57876), effective May 21, 1982.
- - Post Effective Amendment No. 2 to Form S-8 Registration Statement
(Registration No. 33-5300), dated March 26, 1987.
- - Form S-8 Registration Statement (Registration No. 33-14064), dated May
6, 1987.
- - Amendment No. 2 to Form S-8 Registration Statement (Registration No.
33-24854), dated October 31, 1988.
Our report contains an explanatory paragraph regarding changes in the
Company's method of accounting for postretirement benefits other than
pensions.
KPMG PEAT MARWICK
Chicago, Illinois
April 11, 1994
