<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998 Commission file number 1-3970
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1483991
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
Camp Hill, Pennsylvania 17001-8888
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 717-763-7064
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
<S> <C>
Common stock, par value $1.25 per share New York Stock Exchange
Pacific Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
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 [ ]
The aggregate market value of the Company's voting stock held by non-affiliates
of the Company as of February 26, 1999 was $1,156,205,448.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Classes Outstanding at February 26, 1999
------- --------------------------------
<S> <C>
Common stock, par value $1.25 per share 41,201,085
Preferred stock purchase rights 41,201,085
</TABLE>
Documents Incorporated by Reference
Selected portions of the Notice of 1999 Meeting and Proxy Statement are
Incorporated by Reference in Part III of this Report.
The Exhibit index (Item No. 14) is located on pages 82 to 89.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
INFORMATION REQUIRED IN REPORT
--------
PART I
Item 1. Business:
(a) Description of Business:
Harsco Corporation ("the Company") is a diversified industrial services and
engineered products company. The principal lines of business are: industrial
mill services that are provided to steel and non-ferrous metals producers in
over 30 countries, including the United States; gas control and containment
products for customers worldwide; scaffolding services to the industrial
maintenance and construction markets primarily in North America; railway
maintenance of way equipment and services that are provided to worldwide
railroads; and several other lines of business including, but not limited to,
process equipment, industrial grating and bridge decking, industrial pipe
fittings, slag abrasives and roofing granules. The Company's operations fall
into three operating segments: Mill Services, Gas and Fluid Control and
Infrastructure. The Company has over 300 locations in 34 countries, including
the United States.
In 1998, the Company acquired four businesses and divested two small non-core
operations.
Under the Mill Services Segment - In April 1998, the Company acquired Faber
Prest Plc for approximately $98 million. Faber Prest Plc is a UK-based provider
of mill services to worldwide steel producers and integrated logistics services
to the steel industry and other market sectors. Faber Prest Plc, serving mills
in Europe, Africa, Australasia, and the United States, contributed sales of over
$100 million in its first nine months of operations under Harsco ownership.
In December 1998, the Company completed the sale of a non-core operation,
HydroServ SAS, a small industrial cleaning business based in France.
Under the Gas and Fluid Control Segment - In February 1998, the Company acquired
EFI Corporation (EFIC) for approximately $7.2 million. EFIC produces lightweight
composite cylinders used extensively in firefighter breathing apparatus as well
as other industrial and commercial applications.
In June 1998, the Company acquired Chemi-Trol Chemical Co. for approximately $46
million. Chemi-Trol's principal business is the production and distribution of
steel pressure tanks for the storage of propane gas and anhydrous ammonia.
Chemi-Trol increases the Company's propane tank manufacturing capacity by nearly
40%.
In October 1998, the Company acquired Superior Valve Company from Amcast
Industrial Corporation. Superior Valve designs, manufactures, and sells high
pressure, precision valves for a range of commercial and industrial
applications, principally commercial refrigeration, air conditioning, and
industrial gases.
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Also, in October 1998, the Company completed the sale of Nutter Engineering to
the Sulzer Chemtech division of Swiss-based Sulzer Technology Corporation.
Nutter, a non-core operation, had sales of approximately $25 million and $24
million in 1998 and 1997, respectively.
In 1998, the Company defined its operating structure into three segments as
required by the new accounting standard, SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." Under this accounting
standard the Company's seven business units have been aggregated into three
reportable segments: Mill Services, Gas and Fluid Control, and Infrastructure.
The operations of the Company in any one country, except the United States, do
not account for more than 10% of sales. No single customer represented 10% or
more of the Company's sales during 1998, 1997, and 1996. There are no
significant intersegment sales.
(b) Financial Information about Industry Segments:
Financial information concerning Industry Segments is included in Note 16 to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data".
(c) Narrative Description of Business:
(1) A narrative description of the businesses by operating segment is as
follows:
Mill Services
This segment provides specialized services to steel producers and non-ferrous
metals industries worldwide. The services provided include metal reclamation;
slag processing, marketing and utilization; raw material management and
handling; by-product recycling; and finished product handling and transport.
Highly specialized recovery and cleaning equipment, installed and operated on
the property of steel producers, together with standard material handling
equipment such as drag lines, cranes, bulldozers, tractors, hauling equipment,
lifting magnets and buckets are employed to reclaim metal and handle material.
The customer uses this reclaimed metal in its steel production process, and
makes periodic payments to the Company based upon the amounts of metal
reclaimed. The nonmetallic residual slag is graded into various sizes at on-site
Company-owned processing facilities and sold commercially. It is used as an
aggregate material in asphalt paving applications, railroad ballast and building
blocks. The Company also provides in-plant transportation and other specialized
services, including slab management systems, general plant services, and
recycling technology. Similar services are also provided to non-ferrous metals
industries, such as aluminum, copper, and nickel.
This segment also provides roofing granules and slag abrasives. The Company's
slag abrasives and roofing granules are produced from utility coal slag at a
number of locations throughout the United States. Slag abrasives are used for
industrial surface preparation, such as rust removal and cleaning of bridges,
ship hulls, and various structures. Roofing granules are sold to residential
roofing shingle manufacturers.
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This segment includes the Eastern and Western Regions of the Heckett MultiServ
Division, which operates at more than 160 sites in over 30 countries. Also
included is the Reed Minerals unit, which provides roofing granules and slag
abrasives.
For 1998, percentages of consolidated net sales of certain product classes were
as follows: metal reclamation and mill services 40%; and roofing granules and
slag abrasives 3%.
Gas and Fluid Control
Major product classes in this segment are gas containment and control equipment,
industrial pipe fittings and process equipment.
Gas containment products include bulk storage tanks, high pressure cylinders,
propane tanks, and storage vessels for industrial and commercial gases and other
products. Gas control products include valves and regulators serving a variety
of markets, including the commercial refrigeration, air conditioning, and
outdoor recreation industries.
The segment's diverse product class of process equipment includes heat and mass
transfer equipment; air-cooled heat exchangers; process equipment, blenders,
dryers and mixers; industrial and institutional boilers and hot water heaters;
and wear-resistant steels used in the heavy-duty industrial requirements of
mining, steelmaking, and paper production, as well as the ballistic armor
protection of military and commercial vehicles.
The segment is a major supplier of industrial pipe fittings and related products
for the plumbing, hardware and energy industries and produces a variety of
product lines, including forged and stainless steel fittings, conduit pipe
products, standard pressure fittings, swage nipples and couplings.
For 1998, percentages of consolidated net sales of certain product classes were
as follows: gas containment and control, 21%; process equipment, 9%; and
industrial pipe fittings, 6%.
Infrastructure
Major product classes in this segment are scaffolding, shoring and concrete
forming equipment and services, railway maintenance of way equipment and
services, and industrial grating and bridge decking products.
The segment's scaffolding, shoring and concrete forming operations include steel
and aluminum support systems that are leased or sold to customers through a
North American network of over 40 branch offices. Also, the New Orleans-based
Plant Services unit provides scaffolding and erection/dismantling services to
refineries and the petrochemical sector.
The segment manufactures a varied line of industrial grating products at
numerous plants in North America. The Company produces riveted, pressure-locked
and welded grating in steel and aluminum, used mainly in industrial flooring,
safety, and security applications for power, paper, chemical, refining and
processing applications. The Company also produces varied products for bridge
decking uses, as well as a range of fiberglass grating products.
The railway maintenance of way equipment and services product class includes
specialized track maintenance equipment used by private and government-owned
railroads and urban transit systems worldwide. The equipment manufactured by the
Company includes a
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comprehensive range of specially-designed systems used in the construction and
maintenance of track and railbeds. The Company's railway maintenance of way
services include the Tie Masters(TM) program, which provides day-to-day
management and equipment for the railway's tie renewal and equipment maintenance
work, including training the railway's tie and surface gang personnel to operate
the equipment.
For 1998, percentages of consolidated net sales of certain product classes were
as follows: scaffolding, shoring and concrete forming equipment, 8%; railway
maintenance of way services and equipment, 7%; and industrial grating and bridge
decking, 6%.
(1) (i) The products and services of Harsco can be divided into a number of
classes. The product classes that contributed 10% or more as a percentage of
consolidated net sales in any of the last three fiscal years are as set forth in
the following table.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Metal Reclamation and Mill Services 40% 38% 39%
Gas Control and Containment Equipment 21% 21% 19%
</TABLE>
(1) (ii) New products and services are added from time to time; however, in
1998 none required the investment of a material amount of the Company's assets.
(1) (iii) The manufacturing requirements of the Company's operations are such
that no unusual sources of supply for raw materials are required. The raw
materials used by the Company include principally steel and to a lesser extent
aluminum which usually are readily available.
(1) (iv) While Harsco has a number of trademarks, patents and patent
applications, it does not consider that any material part of its business is
dependent upon them.
(1) (v) Harsco furnishes building products and materials and a wide variety of
specialized equipment for commercial, industrial, public works and residential
construction which are seasonal in nature. In 1998, construction-related
operations accounted for 11% of total sales.
(1) (vi) The practices of the Company relating to working capital items are
not unusual compared with those practices of other manufacturers servicing
mainly industrial and commercial markets.
(1) (vii) No material part of the business of the Company is dependent upon a
single customer or a few customers, the loss of any one of which would have a
material adverse effect upon the Company.
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(1) (viii) Backlog of orders stood at $188,594,000 and $225,575,000 as of
December 31, 1998 and 1997, respectively. It is expected that approximately 26%
of the total backlog at December 31, 1998, will not be filled during 1999. There
is no significant seasonal aspect to the Company's backlog. Backlog for
scaffolding, shoring and forming equipment, and for roofing granules and slag
abrasives is not included in the total backlog, because it is generally not
quantifiable due to the nature of the products and services provided. Contracts
for the Mill Services Segment are also excluded from the total backlog. These
Contracts have an estimated value of $3.3 billion at December 31, 1998.
(1) (ix) At December 31, 1998, the Company had no material contracts that were
subject to renegotiation of profits or termination at the election of the
Government.
(1) (x) The various fields in which the Company operates are highly
competitive and the Company encounters active competition in all of its
activities from both larger and smaller companies who produce the same or
similar products or services or who produce different products appropriate for
the same uses.
(1) (xi) The expense for internal product improvement and product development
activities was $6,977,000, $6,090,000, and $5,108,000 in 1998, 1997, and 1996,
respectively.
(1) (xii) The Company has become subject, as have others, to increasingly
stringent air and water quality control legislation. In general, the Company has
not experienced substantial difficulty in complying with these environmental
regulations in the past and does not anticipate making any major capital
expenditures for environmental control facilities. While the Company expects
that environmental regulations may expand, and its expenditures for air and
water quality control will continue, it cannot predict the effect on its
business of such expanded regulations. For additional information regarding
environmental matters see Note 10 to the Consolidated Financial Statements
included in Item 8, "Financial Statements and Supplementary Data".
(1) (xiii) As of December 31, 1998, the Company had approximately 15,300
employees.
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(d) Financial Information about Foreign and
Domestic Operations and Export Sales:
Financial information concerning foreign and domestic operations is included in
Note 16 to the Consolidated Financial Statements under Item 8, "Financial
Statements and Supplementary Data". Export sales totaled $114.7 million and
$125.4 million in 1998 and 1997, respectively.
Item 2. Properties:
Information as to the principal plants owned and operated by the Company is
summarized in the following table:
<TABLE>
<CAPTION>
Floor Space
Location (Sq. Ft.) Principal Products
- -------- --------- ------------------
<S> <C> <C>
Infrastructure:
Fairmont, Minnesota 312,000 Railroad Equipment
West Columbia, South Carolina 224,000 Railroad Equipment
Brendale, Australia 20,000 Railroad Equipment
Nashville, Tennessee 246,000 Grating
Nashville, Tennessee 87,000 Grating
Charlotte, North Carolina 23,000 Grating
Madera, California 48,000 Grating
Leeds, Alabama 51,000 Grating
Cheswick, Pennsylvania 56,000 Grating
Channelview, Texas 86,000 Grating
Marlboro, New Jersey 30,000 Grating
Queretaro, Mexico 63,000 Grating
Marion, Ohio 135,000 Construction Equipment
Mill Services:
Moundsville, West Virginia 11,000 Roofing Granules/Abrasives
Drakesboro, Kentucky 38,000 Roofing Granules
Gary, Indiana 15,000 Roofing Granules/Abrasives
</TABLE>
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Item 2. Properties (continued):
<TABLE>
<CAPTION>
Floor Space
Location (Sq. Ft.) Principal Products
- -------- --------- ------------------
<S> <C> <C>
Gas and Fluid Control:
West Jefferson, Ohio 148,000 Pipe Fittings
Crowley, Louisiana 172,000 Pipe Fittings
Houston, Texas 26,000 Pipe Fittings
Chicago, Illinois 35,000 Pipe Fittings
Hamden, Connecticut 47,000 Pipe Fittings
Vanastra, Ontario, Canada 55,000 Pipe Fittings
East Stroudsburg, Pennsylvania 172,000 Process Equipment
Port of Catoosa, Oklahoma 131,000 Heat Exchangers
Sapulpa, Oklahoma 83,000 Heat Exchangers
Lockport, New York 104,000 Valve Manufacturing
Niagara Falls, New York 66,000 Valve Manufacturing
Washington, Pennsylvania 111,000 Valve Manufacturing
Jesup, Georgia 87,000 Propane Tanks
Jesup, Georgia 65,000 Propane Tanks
Jesup, Georgia 63,000 Cryogenic Storage Vessels
Bloomfield, Iowa 48,000 Propane Tanks
West Jordan, Utah 36,000 Propane Tanks
Fremont, Ohio 69,000 Propane Tanks
Pomona, California 56,000 Composite Pressure Vessels
Gardena, California 26,000 Composite Pressure Vessels
Harrisburg, Pennsylvania 245,000 Cylinders
Huntsville, Alabama 220,000 Acetylene Tanks
Theodore, Alabama 305,000 Cryogenic Storage Vessels
Husum, Germany 61,000 Cryogenic Storage Vessels
Shah Alam, Malaysia 25,000 Cryogenic Storage Vessels
Shah Alam, Malaysia 29,000 Cylinders
Beijing, China 134,000 Cryogenic Storage Vessels
</TABLE>
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The Company also operates the following plants which are leased:
<TABLE>
<CAPTION>
Expiration
Floor Space Principal Date of
Location (Sq. Ft.) Products Lease
- -------- --------- -------- -----
<S> <C> <C> <C>
Infrastructure:
Nottingham, England 30,000 Railroad Equipment 10/23/00
Tulsa, Oklahoma 10,000 Grating 02/28/00
Gas and Fluid Control:
Lansing, Ohio 67,000 Pipe Fittings 01/31/03
Cleveland, Ohio 50,000 Brass Castings 09/30/00
</TABLE>
The Company operates from a number of other plants, branches, warehouses and
offices in addition to the above. The Company has over 160 locations related to
mill services in over thirty countries, however since these facilities are on
the property of the steel mill being serviced they are not listed. The Company
considers all of its properties, at which operations are currently performed, to
be in satisfactory condition.
Item 3. Legal Proceedings:
Information regarding legal proceedings is included in Note 10 to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data".
Item 4. Submission of Matters to a
Vote of Security Holders:
There were no matters that were submitted during the fourth quarter of the year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
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PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters:
On November 19, 1996, the Board of Directors declared a two-for-one stock split
on the Company's common stock. One additional share was issued for each share of
common stock held by shareholders of record as of the close of business on
January 15, 1997. New shares were distributed on February 14, 1997.
Harsco common stock is traded on the New York, Pacific, Boston, and Philadelphia
Stock Exchanges under the symbol HSC. At the end of 1998, there were 42,249,922
shares outstanding. In 1998, the stock traded in a range of $47 1/4 - $23 and
closed at $30 7/16 at year-end. At December 31, 1998 there were approximately
20,000 shareholders. For additional information regarding Harsco common stock
market price and dividends declared, see the Common Stock Price and Dividend
Information under Part II, Item 8, "Financial Statements and Supplementary
Data".
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Item 6. Selected Financial Data
FIVE-YEAR STATISTICAL SUMMARY
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION
Net sales $ 1,733,458 $ 1,627,478 $ 1,557,643 $ 1,495,466 $ 1,357,715
Income from continuing operations
before interest, income taxes, and
minority interest 191,901 179,888 166,057 131,019 114,593
Income from continuing operations 107,513 100,400 83,903 61,318 46,111
Income from discontinued defense
business -- 28,424(d) 35,106 36,059 40,442
Gain on disposal of discontinued
defense business -- 150,008 -- -- --
Net income 107,513 278,832 119,009 97,377 86,553
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FINANCIAL POSITION INFORMATION
Working capital $ 112,619 $ 341,160 $ 214,519 $ 145,254 $ 254,338
Total assets 1,623,581 1,477,188 1,324,419 1,310,662 1,314,649
Long-term debt 309,131 198,898 227,385 179,926 340,246
Total debt 363,738 225,375 253,567 288,673 365,984
Depreciation and amortization 131,381 116,539 109,399 104,863 99,589
Capital expenditures 159,816 143,444 150,294 113,895 90,928
Cash provided by operating activities 189,260(e) 148,541(c) 217,202 258,815 161,395
Cash provided (used) by investing activities (233,490) 196,545(c) (153,225) (97,331) (73,150)
Cash (used) by financing activities (134,324) (167,249) (92,944) (128,068) (103,040)
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RATIOS
Return on net sales(1) 6.2% 6.2% 5.4% 4.1% 3.4%
Return on average equity(2) 14.3% 15.1% 14.0% 10.7% 9.0%
Return on average assets(3) 12.9% 14.3% 13.7% 10.8% 9.4%
Current ratio 1.2:1 1.9:1 1.7:1 1.4:1 1.9:1
Percent of total debt to capital(4) 34.7% 22.4% 27.1% 31.6% 38.6%
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PER SHARE INFORMATION (a)
Diluted - Income from continuing operations $ 2.34 $ 2.04 $ 1.67 $ 1.20 $ .92
- Income from discontinued defense business -- .58(d) .70 .71 .80
- Gain on disposal of discontinued defense
business -- 3.05 -- -- --
- Net income 2.34 5.67 2.37 1.91 1.72
Book Value 16.22 16.64 13.73 12.49 11.54
Cash dividends declared .885 .82 .77 .75 .71
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OTHER INFORMATION
Basic average number of shares outstanding (a) 45,568,256 48,754,212 49,894,515 50,504,707 50,230,321
Diluted average number of shares outstanding (a) 45,910,531 49,191,872 50,317,664 50,856,929 50,441,097
Number of employees 15,300 14,600 14,200 13,200 13,000
Backlog (b) $ 188,594 $ 225,575 $ 211,734 $ 157,129 $ 160,703
</TABLE>
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FIVE-YEAR STATISTICAL SUMMARY
(a) Reflects two-for-one stock split to shareholders of record January 15,
1997.
(b) Excludes the estimated value of long-term mill service contracts, which
had an estimated value of $3.3 billion at December 31, 1998.
(c) Cash provided by operating activities for 1997 includes approximately $100
million of income taxes paid related to the gain on the disposal of the
defense business, whereas the pre-tax cash proceeds are included in
investing activities.
(d) Includes income through August 1997 (the measurement date) from the
discontinued defense business.
(e) Cash provided by operating activities for 1998 includes approximately $14
million of payments related to income taxes, and certain other liabilities
of the discontinued defense business.
(1) "Return on net sales" is calculated by dividing income from continuing
operations by net sales.
(2) "Return on average equity" is calculated by dividing income from
continuing operations by quarterly weighted average equity.
(3) "Return on average assets" is calculated by dividing income from
continuing operations before interest expense, income taxes, and minority
interest by quarterly weighted average assets.
(4) "Percent of total debt to capital" is calculated by dividing the sum of
debt (short-term borrowings and long-term debt including current
maturities) by the sum of equity and debt.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
FINANCIAL CONDITION
The Company maintained a sound financial condition in 1998. Strong cash flow
from operations and proceeds from the sale of businesses, supplemented with
proceeds from debt financing, provided funding for the Company's record
investment of $487.4 million for acquisitions, capital spending, and share
repurchases.
Net cash provided by operating activities was $189.3 million in 1998 compared
with $148.5 million in 1997. Operating cash in 1998 was lowered by approximately
$14 million due to payments for income taxes and certain other liabilities
related to the discontinued defense business. In 1997, operating cash flows were
adversely affected by approximately $100 million of income taxes paid related to
the gain on disposal of the defense business, whereas the pretax cash proceeds
of $344 million were recorded in cash from investing activities. Cash flows were
significantly increased in 1997 by $49.1 million in distributions from the
discontinued defense business. After adjusting for the cash transactions
relating to the discontinued defense business, operating cash flows for
continuing operations of $203.3 million for 1998 approximated 1997.
Capital expenditures for 1998 were a record $159.8 million compared with $143.4
million in 1997. These investments reflect the Company's continuing program to
achieve business growth and to improve productivity and product quality. Capital
expenditures during the past three years averaged $151.2 million. Also, in 1998,
$158.3 million of cash was used to purchase four businesses, EFI Corporation,
Faber Prest Plc, Chemi-Trol Chemical Co., and Superior Valve Company.
For several years the Company has maintained a policy of reacquiring its common
stock in unsolicited open market or privately-negotiated transactions at
prevailing market prices. During 1998, the Board of Directors authorized the
purchase of up to 5,000,000 shares of the Company's common stock. This is in
addition to the over 1 million shares remaining from the November 1997
authorization. The total number of shares purchased under these programs for the
twelve months ended December 31, 1998 was 4,938,759 for approximately $166.2
million. This excludes shares repurchased for recurring corporate purposes, such
as employee benefit plans. Due to the timing of actual payments for the purchase
of common stock, the cash flow used by financing activities was approximately
$169.3 million. Remaining authorized shares to be purchased as of December 31,
1998 total 1,122,500. In January 1999, the Board of Directors authorized the
purchase of an additional 2,000,000 shares of the Company's common stock.
Cash from financing activities in 1998 also included a net increase in debt of
$72.7 million, and $40.3 million of cash dividends paid on common stock. The
increase in debt occurred to fund the Company's share repurchase program,
business acquisitions, and capital expenditures.
In 1998, cash and cash equivalents decreased $180.0 million to $41.6 million.
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Other matters which could affect cash flows in the future are discussed under
Note 10 to the Consolidated Financial Statements, "Commitments and
Contingencies".
As of December 31, 1998 net working capital was $112.6 million, a decrease from
$341.2 million at December 31, 1997. The decrease of $228.6 million relates
principally to 1997's excess cash from the sale of the defense business being
used to acquire businesses and for stock repurchases. Current assets were $587.4
million, and current liabilities were $474.8 million, resulting in a current
ratio of 1.2 to 1, compared with 1.9 to 1 at December 31, 1997. With debt of
$363.7 million and equity of $685.3 million at December 31, 1998, the debt as a
percent of total capital was 34.7%, compared with 22.4% at December 31, 1997.
The stock price ranged from $23.00 to $47.25 per share during 1998. Harsco's
book value per share at December 31, 1998 was $16.22, compared with $16.64 at
December 31, 1997. The Company's return from continuing operations on average
equity for 1998 was 14.3% compared with 15.1% for 1997. The return from
continuing operations on average assets was 12.9% compared with 14.3% for 1997.
The return from continuing operations on average capital was 11.5% compared with
11.6% for 1997.
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
December 31, 1998, 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 $87 million. The Belgian program can be used to
borrow a variety of European currencies 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 of $400 million. At December 31, 1998, the Company had
$108.8 million of commercial paper debt outstanding under the commercial paper
programs.
The Company's outstanding long-term notes are rated A by Standard & Poor's, A by
Fitch IBCA, and A-3 by Moody's. The Company's commercial paper is rated A-1 by
Standard & Poor's, F-1 by Fitch IBCA, 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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RESULTS OF OPERATIONS
1998 Compared with 1997
Revenues from continuing operations for 1998 were $1.74 billion, 7% above 1997.
The increase was due to the inclusion of acquired companies in 1998. Inclusion
of the acquired companies increased revenues for the Mill Services Segment and
for gas control and containment equipment in the Gas and Fluid Control Segment.
Process equipment sales also increased. Sales of scaffolding, shoring, and
forming services increased, but to a lesser extent. These increases were
partially offset by lower sales of pipe fittings, railway maintenance of way
equipment, and contract services and grating. Excluding the adverse foreign
exchange translation effect of the strengthening U.S. dollar, revenues from
continuing operations for 1998 were approximately 8% above 1997.
Cost of products and services sold increased due to the inclusion of acquired
companies. Due to the Company's cost control efforts, selling, general, and
administrative expenses were only slightly above 1997, despite the inclusion of
acquired companies.
In 1998 the Company incurred $2.2 million of net pre-tax special charges
including asset write-downs, employee termination costs, costs to exit
activities, and other reorganization-related costs. The charges were incurred as
a result of the Company's continuing efforts to consolidate and streamline its
businesses. The $2.2 million net special charges include a $15.6 million net
charge in the Mill Services Segment and a $4.8 million net charge in the
Infrastructure Segment partially offset by an $18.2 million net gain in the Gas
and Fluid Control Segment. This net gain included a $27.0 million gain
associated with the sale of a business.
Gains for 1998 consist principally of a pre-tax net gain of $27 million recorded
on the October 1998 sale of the Nutter Engineering unit of the Gas and Fluid
Control Segment. Such gains are reflected as adjustments to reconcile net income
to net cash provided by operating activities in the Consolidated Statement of
Cash Flows. Total proceeds associated with special gains were $42.9 million and
are included in proceeds from the sale of businesses and property, plant and
equipment in the investing activities section of the Consolidated Statement of
Cash Flows.
Impaired asset write-downs for 1998 include a $6.1 million pre-tax, non-cash,
write-down of the Company's investment in Bio-Oxidation Services Inc. which is
included in the Gas and Fluid Control Segment. The write-down amount was
measured on the basis of the lower of carrying amount or fair value less cost to
sell. Fair value was determined using available information based upon the
estimated amount at which the assets could be sold in a current transaction
between willing parties. The investment carrying value as of December 31, 1998
was $7.6 million. The Company estimates that the disposal will occur during
1999. For the year ended December 31, 1998 Bio-Oxidation Services Inc. recorded
a pre-tax loss of $9.8 million which includes the asset write-down of $6.1
million.
Impaired asset write-downs also include a fourth quarter 1998 $6.1 million
pre-tax, non-cash, write-down of assets, principally property, plant and
equipment in the Mill Services Segment. The write-down became necessary as a
result of significant adverse changes in the international economic environment
and the steel industry. Impairment loss was measured as
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<PAGE> 16
the amount by which the carrying amount of assets exceeded their estimated fair
value. Fair value was estimated based upon the expected future realizable cash
flows.
Non-cash impaired asset write-downs, are included in Other (income) and expenses
in the Consolidated Statement of Cash Flows, as adjustments to reconcile net
income to net cash provided by operating activities.
Employee termination benefit costs consist principally of severance arrangements
to employees terminated as a result of management reorganization actions. Under
these reorganization actions, the Company and its management have established
and approved specific plans of termination. The affected employees have been
notified prior to recognition of related provisions. Non-cash charges for
employee termination benefit costs are included in Other (income) and expenses
as adjustments to reconcile net income to net cash provided by operating
activities in the Consolidated Statement of Cash Flows. During 1998 such actions
occurred principally in the Mill Services Segment in South Africa, United
States, France, and Germany. In 1998, approximately 670 employees were included
in employee termination arrangements implemented by the Company and
approximately $2.4 million of cash payments were made under such arrangements.
The payments are reflected as uses of operating cash in the Consolidated
Statement of Cash Flows, and consequently reduce certain liabilities. Under
these reorganization actions, 349 employees have been terminated as of December
31, 1998. The remaining $4.1 million balance of employee termination
arrangements is expected to be paid principally in 1999.
Income from continuing operations before income taxes and minority interest
increased 5% from 1997 due principally to improved performance. Increased
earnings were achieved due principally to improved results for scaffolding,
shoring, and forming services and process equipment, as well as the inclusion of
acquired companies. These increases were partially offset by lower results for
metal reclamation and mill services, pipe fittings, grating, and gas control and
containment equipment, as well as start-up losses and asset write-downs
associated with the medical waste disposal services business.
The Company's results have been affected by the Asian economic crisis including
its effects on worldwide steel prices and steel production. That crisis
contributed to reduced sales and income in our Asian operations, lower exports
for certain operations in the United States, and reduced margins of certain
domestic operations adversely affected by foreign steel imports. Also included
in 1998 were $1.7 million of net pre-tax foreign currency
translation/transaction losses, principally due to the weakening of the Mexican
peso and the Russian ruble in relation to the U.S. dollar, as compared with $.5
million of net foreign currency translation/transaction gains in 1997.
Interest expense increased in 1998 as a result of increased borrowings for the
Company's share repurchase program and for the funding of acquisitions.
The effective income tax rate for continuing operations for 1998 was 37.5%
versus 38% in 1997. The reduction in the income tax rate is due to lower
effective income tax rates on state, as well as international earnings.
-16-
<PAGE> 17
Income from continuing operations was up 7% from 1997. Basic earnings per common
share from continuing operations of $2.36 were up 15% from 1997.
Net income of $107.5 million for 1998 was below 1997 which included $178.4
million of income and a gain from the Company's divested defense business. Basic
earnings per common share were $2.36, down from $5.72 in 1997. Diluted earnings
per common share were $2.34, down from $5.67 in 1997.
Sales of the Mill Services Segment, at $751.9 million, were above 1997, despite
the adverse effect of foreign exchange translation. The increase was due to the
inclusion of an acquired company as of the second quarter of 1998. Sales of the
Gas and Fluid Control Segment, at $617.9 million, increased from 1997 due to the
inclusion of sales of three acquired companies and due to increased sales for
process equipment. Sales of the Infrastructure Segment, at $363.7 million, were
slightly below 1997. Sales of scaffolding, shoring, and forming services were
above 1997. However, sales of railway maintenance of way equipment and contract
services and grating products were down from 1997.
Income from the Mill Services Segment, at $43.3 million, was below 1997. The
decrease included after-tax net charges of $9.8 million ($.21 earnings per
share) in 1998, as well as the adverse foreign exchange translation effect of
the strong U.S. dollar. The charges included principally asset write-downs and
employee termination costs. Income from the Gas and Fluid Control Segment, at
$43.4 million, was significantly above last year's comparable period due
principally to an after-tax $16.9 million gain ($.37 earnings per share) arising
from the sale of a business and, to a lesser extent, improved results for
process equipment. Income increased despite the inclusion of start-up losses and
asset write-downs associated with the medical waste disposal services business.
Income of the Infrastructure Segment in 1998, at $16.1 million, was above 1997.
The increase is due to improved results for scaffolding, shoring, and forming
services.
In addition to the segment reporting noted above, the Company views itself as a
diversified industrial services and engineered products company. Total
industrial service sales, which include metal reclamation and mill services, as
well as scaffolding, shoring, and forming services and railway maintenance of
way services, were $866.4 million in 1998 and $782.4 million in 1997, or
approximately 50% and 48% of net sales, respectively. Excluding the adverse
effect of foreign exchange translation of the strengthening U.S. dollar, total
industrial service sales were approximately 14% above last year. The total
engineered products sales for 1998 were $867.1 million, or approximately 50% of
net sales compared to $845.1 million in 1997, or 52% of net sales. Engineered
products include sales of the Reed Minerals unit in the Mill Services Segment,
and product sales of the Infrastructure and the Gas and Fluid Control Segments.
Income for industrial services in 1998 was $37.6 million compared with $48.4
million in 1997, or approximately 37% and 51%, respectively, of total segment
income. Income from engineered products for 1998 was $65.2 million compared with
$46.9 million in 1997. These amounts are approximately 63% and 49%,
respectively, of total segment income. The decreased percentage of industrial
services income in 1998 was due in part to decreased income from metal
reclamation and mill services as well as start-up losses and asset write-downs
associated with the medical waste disposal services business. This was partially
offset by higher income for scaffolding, shoring, and forming services. Income
for engineered products in 1998 included an
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<PAGE> 18
after-tax gain of $16.9 million arising from the sale of a business in the Gas
and Fluid Control Segment.
1997 Compared with 1996
Revenues from continuing operations for 1997 were $1.63 billion, 4% above 1996.
The increase was due principally to higher product sales of gas control and
containment equipment, which included an acquisition in April 1996. Higher
product sales were also recorded for process equipment, pipe fittings, grating,
and railway maintenance of way equipment. In addition, service sales in the Mill
Services Segment increased despite being adversely affected by the strengthening
of the U.S. dollar, particularly against European currencies, as well as the
divesting of certain non-core businesses in Europe in April 1996. Service sales
for scaffolding, shoring, and forming equipment, as well as railway maintenance
contract services, also increased. Excluding the adverse effect of the
strengthening U.S. dollar, revenues from continuing operations for 1997 were 7%
above 1996.
Cost of products sold increased, principally due to higher volume. Cost of
services sold also increased as a result of increased sales of services.
Selling, general, and administrative expenses increased, as a result of higher
compensation costs and sales commissions, as well as the inclusion of an
acquired company.
Income from continuing operations before income taxes and minority interest was
up 13% from 1996 due to improved performance. Higher earnings from continuing
operations in 1997 were due principally to higher results for mill services, as
well as gas control and containment equipment. Income from grating also
increased, but to a lesser extent. These items were partially offset by lower
results for process equipment and for railway maintenance of way equipment and
contract services, as well as a $1.4 million pre-tax provision ($.02 earnings
per share) for an impairment loss arising from the disposal of the Company's
shell and tube business. Interest expense decreased as a result of the continued
reduction of the Company's outstanding debt and average interest rate. The
effective income tax rate for continuing operations for 1997 was 38%, versus 41%
in 1996. The reduction in the income tax rate is principally due to lower
effective tax rates on United States earnings.
Income from continuing operations of $100.4 million for 1997 was up 20% from
1996. Basic earnings per common share from continuing operations were $2.06, up
23% from the $1.68 recorded in 1996. Diluted earnings per common share from
continuing operations were $2.04, up 22% from $1.67 in 1996.
Income from discontinued operations, which is the after-tax results of the
Company's divested defense business through August 1997, was below the results
recorded in 1996, which reflected a full year. Basic earnings per common share
from discontinued operations were $.58, which was below 1996. A $150.0 million
after-tax gain ($3.08 basic earnings per share) was recorded on the disposal of
the Company's defense business.
Net income of $278.8 million, which included the gain on the disposal of the
Company's defense business, was up significantly from 1996, which had been the
highest performance in
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<PAGE> 19
the history of the Company. Basic earnings per common share were $5.72, up
significantly from 1996. Diluted earnings per share were $5.67, also up
significantly from 1996.
Sales of the Mill Services Segment, at $672.7 million, were above 1996, despite
the strengthening of the U.S. dollar principally against certain European
currencies, and the divesting of certain non-core businesses in Europe in April
1996. Sales of the Gas and Fluid Control Segment, at $586.5 million, were higher
than 1996 due principally to increased sales of gas control and containment
equipment. In 1996 an acquisition was included as of April. Sales of the
Infrastructure Segment, at $368.3 million, included higher sales than 1996 for
all product classes.
Income from continuing operations of the Mill Services Segment, at $50.3
million, exceeded 1996 despite the adverse effects of the strong U.S. dollar.
Income from continuing operations of the Gas and Fluid Control Segment, at $31.9
million, was above the prior year. This increase principally reflected higher
results for gas control and containment equipment, which included an acquisition
and more than offset lower income for process equipment. The Infrastructure
Segment posted income from continuing operations of $13.1 million for 1997,
which was above the amount recorded in 1996.
Total industrial service sales, which include metal reclamation and mill
services, as well as scaffolding, shoring, and forming services and railway
maintenance of way services, were $782.4 million in 1997 and $761.5 million in
1996, or 48% and 49% of net sales, respectively. The total engineered products
sales for 1997 were $845.1 million or 52% of net sales compared to $796.1
million in 1996, or 51% of net sales. Engineered products include sales of the
Reed Minerals Division of the Mill Services Segment, and product sales of the
Infrastructure Segment and the Gas and Fluid Control Segment.
Income for industrial services for 1997 was $48.4 million compared with $41.9
million in 1996, which is 51% and 48%, respectively, of total segment income.
Income from engineered products for 1997 was $46.9 million compared with $44.9
million in 1996, which is 49% and 52%, respectively, of total segment income.
Economic Environment
The Company has currency exposures for its international operations which may be
subject to volatility, such as the early 1999 foreign exchange fluctuations
experienced in Brazil. Such exposures may result in reduced sales, income, and
cash flows. The situation in Brazil is not expected to have a material adverse
impact on the Company's financial position or results of operations. Balance
sheet translation adjustments for our Brazilian operations do not affect results
of operations.
In 1998 the worldwide steel industry experienced selling price reductions and
production curtailments at many steel producers, particularly in the United
States. The United States steel industry has been unfavorably affected by
imports of low-priced foreign steel. Additionally, certain steel producers have
been forced to file for bankruptcy protection. There is a risk that the
Company's future results of operations or financial condition may be adversely
affected if the steel industry's problems continue. Our Mill Services Segment
provides services at steel mills
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<PAGE> 20
throughout the world. The future financial impact on the Company associated with
these risks cannot be estimated.
Research and Development
The Company invested $7.0 million in internal research and development programs
in 1998, an increase of 15% above 1997. Internal funding for the Infrastructure
Segment amounted to $2.6 million, principally for railway maintenance of way
equipment and services. Expenditures for the Gas and Fluid Control and Mill
Services Segments were $2.3 million and $2.1 million, respectively.
Backlog
The Infrastructure Segment order backlog at December 31, 1998 was $117.9 million
which was slightly above December 31, 1997, due to an increase in railway
maintenance of way equipment and services. This was more than offset by lower
year-end backlog for the Gas and Fluid Control Segment which decreased
approximately 35% to $70.7 million. The decrease was due to lower backlog for
gas control and containment equipment and, to a lesser extent, process
equipment. Backlog for scaffolding, shoring, and forming services of the
Infrastructure Segment and roofing granules and slag abrasives of the Mill
Services Segment are not included in the backlog amounts. They are generally not
quantifiable due to the nature of the products and services provided. Metal
reclamation and mill services contracts are also excluded from the total
backlog. These contracts have an estimated value of $3.3 billion at December 31,
1998, an increase of approximately 22% over December 31, 1997.
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<PAGE> 21
Dividend Action
The Company paid four quarterly cash dividends of $.22 per share in 1998, for an
annual rate of $.88. This is an increase of 10% from 1997. At the November 1998
meeting, the Board of Directors increased the dividend 2.3% to an annual rate of
$.90 per share. The Board normally reviews the dividend rate periodically during
the year and annually at its November meeting. There are no material
restrictions on the payment of dividends.
The Company is proud of its history of paying dividends. The Company has paid
dividends each year since 1939. The February 1999 payment marked the 195th
consecutive quarterly dividend paid at the same or at an increased rate. During
the five-year period ended December 31, 1998, dividends paid were increased four
times. In 1998, the dividend payout rate was 37.5%. The Company is
philosophically committed to maintaining or increasing the dividend at a
sustainable level.
Year 2000 Readiness
The Year 2000 problem can be traced to the early days of computers, when memory
and data storage were very expensive. To conserve these limited resources,
computer programmers decided to use just two digits in date fields to identify a
calendar year. For example, 1999 would be identified as "99." The assumption is
that the date is within the 1900s. In the year 2000 this assumption will be
invalid and some systems will not properly recognize dates. On January 1, 2000,
many computer programs in mainframe, microcomputer, client/server, personal
computer, and embedded systems may recognize the year "00" as 1900 rather than
2000. Because many computer functions are date-sensitive, this error may cause
systems to process data inaccurately or shut down if they do not recognize the
date. If not corrected, many computer applications could fail or create
erroneous results as of or prior to the year 2000. Errors may occur in
chronological sorting, in date comparisons, duration calculations, and other
time and date-sensitive processing.
The Company is taking steps to ensure that its operations will not be adversely
impacted by potential Year 2000 computer failures. The Year 2000 readiness
project is overseen by the senior management of the Company with regular
progress reports made to the Board of Directors. Year 2000 readiness teams have
been working at various levels within the Company, as well as coordinating tasks
common to the total Company. The Year 2000 readiness process generally includes
the following phases for mission critical areas: awareness, assessment,
prioritization, remediation or replacement, testing, and contingency planning.
INFORMATION TECHNOLOGY
As of December 31, 1998, the Company is approximately 90% complete in its Year
2000 readiness assessment and prioritization of information technology. The
Company has determined that it is necessary to modify, upgrade or replace
portions of its hardware and software so that its computer applications will
properly utilize dates beyond December 31, 1999, and is in the process of
implementing such changes. The majority of the software which is not Year 2000
ready is currently being updated through normal software upgrades and
replacements.
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<PAGE> 22
The Company is approximately 60% complete as of December 31, 1998 in the
required remediation or replacement and testing of information technology
hardware and software. It is currently estimated that the major information
technology system improvements will be completed principally by the third
quarter of 1999. Most replacement hardware and software has been purchased from
vendors who have asserted that their software is Year 2000 ready. As additional
assurance, our process includes an overall Year 2000 readiness assessment of
critical business partners including information technology vendors.
NON-INFORMATION TECHNOLOGY SYSTEMS
Included within the scope of our Year 2000 readiness plan are non-information
technology systems including operating and production equipment with embedded
chips. Our assessment process generally includes inventorying such equipment and
making a determination, principally through supplier inquiry, as to the Year
2000 readiness status of critical items. The Company is approximately 85%
complete in the assessment of non-information technology systems as of December
31, 1998. Our assessment is estimated to be complete by the first quarter of
1999. Our process includes the testing, where possible, of date-sensitive
mission critical embedded chips. It is estimated that testing will be
substantially completed by the second quarter of 1999. No required Year 2000
modifications or replacements of a material nature have been identified for
non-information technology systems.
THIRD PARTIES
The Company is also engaged in communications with its significant business
partners, suppliers, and major customers to determine the extent to which the
Company is vulnerable to such third parties' failure to address their own Year
2000 issues. The Company's assessment is based on information currently
available to the Company from such third parties. The Company is also seeking
assurances from the third parties that their computer applications will not fail
due to Year 2000 problems. The third party assessment process is approximately
70% complete as of December 31, 1998. It is estimated that the assessment
process will be materially complete by the second quarter of 1999. No mission
critical third parties have indicated that they will not be Year 2000 ready by
December 31, 1999.
COSTS
As of December 31, 1998, the Company has incurred approximately $.7 million for
Year 2000 readiness. Based on the assessment of presently available information,
the Company's cost to complete its Year 2000 readiness program is estimated to
be an additional $2.0 million as of December 31, 1998. Total Year 2000 readiness
costs are estimated to be $2.7 million.
RISKS
The Company currently believes that its major Year 2000 risk relates to the
performance and readiness status of third parties, principally utilities
providing power, water and communication networks to Company facilities and
operations. The impact of such Year 2000 failures on the Company's financial
position or results of operations cannot be estimated.
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<PAGE> 23
Management has also engaged the Company's Internal Audit Department to perform
Year 2000 readiness audits and to identify other material Year 2000 risks.
CONTINGENCY PLANS
The Company is taking steps to mitigate the risk of a material impact of Year
2000 computer failures on its operations via the development of contingency
plans. Contingency plans are currently being developed for those mission
critical applications, functions, and resources for which the risk of a Year
2000-related failure has not been reduced to an insignificant level. Such plans
will include detailed alternative operating procedures to be invoked upon
confirmation of a critical Year 2000 failure. The plans will be updated as
necessary as new information becomes available prior to 2000. Certain resources,
such as electricity, are not easily replaceable and there are limited
contingency planning options. If there is an extended Year 2000 failure by
several third parties or supporting infrastructures, there could be a material
adverse impact on the Company's financial position or results of operations.
EURO CURRENCY CONVERSION
On January 1, 1999, certain countries of the European Monetary Union
established fixed conversion rates between their legacy currencies and one
common currency, the euro. The euro now trades on currency exchanges and may be
used in business transactions. Beginning in January 2002, new euro-denominated
notes and coins will be issued and the existing legacy currency notes and coins
will be withdrawn from circulation by July 1, 2002. The Company's arrangements
for euro bank accounts and the modification of certain loan arrangements to
accommodate the euro are near completion. The Company is evaluating other
systems and business issues raised by the euro conversion. These issues include
the need to adapt computer and other business systems and equipment and the
long-term competitive implications of conversion. In 1998, the Company derived
approximately 22% of its sales from the European geographic area, including
non-European Monetary Union countries. The Company believes the euro conversion
will not have a material effect on the Company's financial position or results
of operations.
FORWARD LOOKING STATEMENTS
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 accordance 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 worldwide
business environment in which the Company operates, including import, licensing,
and trade
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<PAGE> 24
restrictions, currency exchange rates, interest rates, and capital costs: (2)
changes in governmental laws and regulations, including taxes; (3) market and
competitive changes, including market demand and acceptance for new products,
services, and technologies; (4) effects of unstable governments and business
conditions in emerging economies; and (5) other risk factors listed from time to
time in the Company's SEC reports. The Company does not intend to update this
information and disclaims any legal liability to the contrary.
Item 7A. Quantitative And Qualitative Disclosures About Market Risk
The Company is exposed to foreign currency risk in its international operations.
The Company conducts business in over thirty foreign countries and approximately
37%, 36% and 37% of the Company's net revenues for the years ended December 31,
1998, 1997 and 1996, respectively, were derived from the Company's operations
outside the United States. To illustrate the effect of foreign currency exchange
rate changes due to the strengthening of the U.S. dollar, in 1998 sales would
have been 1% greater in comparison with the average exchange rates for the year
1997. A similar comparison for the year 1997, would have increased sales three
percent, if the average exchange rates for 1996 would have remained the same in
1997.
The Company seeks to reduce exposures to foreign currency fluctuations, through
the use of forward exchange contracts. At December 31, 1998, these contracts
amounted to $18.3 million and all mature within 1999. The Company does not hold
or issue financial instruments for trading purposes, and it is the Company's
policy to prohibit the use of derivatives for speculative purposes.
Also, the Company's cash flows and earnings are subject to changes in interest
rates. Long term debt of $309.1 million as of December 31, 1998 had interest
rates ranging from 5.2% to 11.2%, of which approximately 50% were at fixed rates
of interest. The weighted average interest rate of long-term debt was
approximately 6.1%. At current debt levels, a one percentage increase in
interest rates would not be material.
For additional information, see Note 15, Financial Instruments, to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data."
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<PAGE> 25
PART II
Item 8. Financial Statements and Supplementary Data:
Index to Consolidated Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Consolidated Financial Statements of
Harsco Corporation: Page
----
<S> <C>
Report of Independent Accountants 26
Consolidated Balance Sheet
December 31, 1998 and 1997 27
Consolidated Statement of Income
for the years 1998, 1997, and 1996 28
Consolidated Statement of Cash Flows
for the years 1998, 1997, and 1996 29
Consolidated Statement of Shareholders'
Equity for the years 1998, 1997, and 1996 30
Consolidated Statement of Comprehensive
Income for the years 1998, 1997, and 1996 31
Notes to Consolidated Financial Statements 32 - 74
Supplementary Data:
Two-Year Summary of Quarterly Results (Unaudited) 75
Common Stock Price and Dividend Information 76
</TABLE>
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<PAGE> 26
REPORT
=====================================
OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Harsco Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity, of comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Harsco Corporation and Subsidiary Companies at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 28, 1999, except as to
paragraph 6 of Note 10, for which
the date is February 8, 1999.
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<PAGE> 27
HARSCO CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41,562 $ 221,565
Investments in debt securities -- 43,867
Accounts receivable, net 310,935 259,565
Inventories 175,804 135,154
Other current assets 59,140 53,501
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 587,441 713,652
- --------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 626,194 511,913
Cost in excess of net assets of businesses acquired, net 273,708 187,666
Other assets 136,238 63,957
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,623,581 $ 1,477,188
==============================================================================================================
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ 46,766 $ 22,847
Current maturities of long-term debt 7,841 3,630
Accounts payable 142,681 120,148
Accrued compensation 43,938 42,652
Income taxes 42,908 30,572
Dividends payable 9,506 10,335
Other current liabilities 181,182 142,308
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 474,822 372,492
- --------------------------------------------------------------------------------------------------------------
Long-term debt 309,131 198,898
Deferred income taxes 55,195 36,954
Insurance liabilities 30,019 33,389
Other liabilities 69,115 53,753
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 938,282 695,486
- --------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Series A junior participating cumulative preferred stock -- --
Common stock, par value $1.25, issued 66,075,380 and
65,854,087 shares, respectively 82,594 82,318
Additional paid-in capital 85,384 79,360
Accumulated other comprehensive income (expense) (55,045) (50,974)
Retained earnings 1,101,828 1,033,770
- --------------------------------------------------------------------------------------------------------------
1,214,761 1,144,474
Treasury stock, at cost (23,825,458 and 18,877,957 shares, respectively) (529,462) (362,772)
- --------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 685,299 781,702
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,623,581 $ 1,477,188
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 28
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Product sales $ 867,054 $ 845,072 $ 796,161
Service sales 866,404 782,406 761,482
Other 1,936 1,643 1,495
- --------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,735,394 1,629,121 1,559,138
- --------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of products sold 660,536 645,044 604,144
Cost of services sold 666,806 584,290 573,047
Selling, general, and administrative expenses 213,438 211,231 207,502
Research and development expenses 6,977 6,090 5,108
Other (income) and expenses (4,264) 2,578 3,280
- --------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,543,493 1,449,233 1,393,081
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INTEREST, INCOME TAXES, AND MINORITY INTEREST 191,901 179,888 166,057
Interest income 8,378 8,464 6,949
Interest expense (20,504) (16,741) (21,483)
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 179,775 171,611 151,523
Provision for income taxes 67,361 65,213 62,081
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST 112,414 106,398 89,442
Minority interest in net income 4,901 5,998 5,539
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 107,513 100,400 83,903
Discontinued operations:
Equity in income of defense business (net of income taxes
of $14,082 and $14,255, respectively) -- 28,424 35,106
Gain on disposal of defense business (net of income taxes
of $100,006) -- 150,008 --
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 107,513 $ 278,832 $ 119,009
====================================================================================================================
Basic earnings per common share:
Income from continuing operations $ 2.36 $ 2.06 $ 1.68
Income from discontinued operations -- .58 .71
Gain on disposal of discontinued operations -- 3.08 --
- --------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $ 2.36 $ 5.72 $ 2.39
====================================================================================================================
Average shares of common stock outstanding 45,568 48,754 49,895
====================================================================================================================
Diluted earnings per common share:
Income from continuing operations $ 2.34 $ 2.04 $ 1.67
Income from discontinued operations -- .58 .70
Gain on disposal of discontinued operations -- 3.05 --
- --------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $ 2.34 $ 5.67 $ 2.37
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-28-
<PAGE> 29
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 107,513 $ 278,832 $ 119,009
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 119,044 107,350 100,137
Amortization 12,337 9,189 9,262
Gain on disposal of defense business -- (250,014) --
Equity in income of unconsolidated entities (1,354) (43,549) (50,083)
Dividends or distributions from unconsolidated entities 1,494 49,142 38,474
Deferred income taxes 3,893 (8,175) (829)
Other (income) and expenses 24,843 4,198 4,131
Gain on sale of non-defense businesses (29,107) (1,620) (851)
Other, net 5,260 (8,192) 2,149
Changes in assets and liabilities, net of acquisitions
and dispositions of businesses:
Accounts receivable (15,718) (1,812) (138)
Inventories (24,991) (13,042) 3,100
Accounts payable 8,379 4,840 4,086
Other assets and liabilities (22,333) 21,394 (11,245)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (1) 189,260 148,541 217,202
===================================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (159,816) (143,444) (150,294)
Purchase of businesses, net of cash acquired* (158,291) (8,508) (21,062)
Proceeds from sale of businesses 39,500 345,189 1,793
Proceeds from sale of property, plant and equipment 13,033 14,433 4,890
Investments available-for-sale: Purchases -- (39,346) --
Maturities 40,000 -- --
Investments held-to-maturity: Purchases -- (42,241) (14,300)
Maturities 4,010 71,469 26,561
Other investing activities (11,926) (1,007) (813)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (233,490) 196,545 (153,225)
===================================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net 16,131 8,291 10,911
Current maturities and long-term debt: Additions 172,709 61,310 187,319
Reductions (116,163) (88,523) (229,914)
Cash dividends paid on common stock (40,287) (39,120) (37,921)
Common stock issued-options 3,885 5,939 5,726
Common stock acquired for treasury (169,258) (113,161) (30,657)
Other financing activities (1,341) (1,985) 1,592
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY FINANCING ACTIVITIES (134,324) (167,249) (92,944)
===================================================================================================================================
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,449) (2,134) (1,840)
Net increase (decrease) in cash and cash equivalents (180,003) 175,703 (30,807)
Cash and cash equivalents at beginning of year 221,565 45,862 76,669
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 41,562 $ 221,565 $ 45,862
===================================================================================================================================
*PURCHASE OF BUSINESSES, NET OF CASH ACQUIRED
Working capital, other than cash $ 11,159 $ 2,807 $ (7,625)
Property, plant and equipment (89,182) (833) (12,315)
Other noncurrent assets and liabilities, net (80,268) (10,482) (1,122)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED TO ACQUIRE BUSINESSES $ (158,291) $ (8,508) $ (21,062)
===================================================================================================================================
</TABLE>
(1) Net cash provided by operating activities for 1998 includes approximately
$14 million of payments related to income taxes and certain other
liabilities of the discontinued defense business.
Cash provided by operating activities for 1997 includes approximately $100
million of income taxes paid related to the gain on the disposal of the
defense business, whereas the pre-tax cash proceeds are included under
investing activities.
See accompanying notes to consolidated financial statements.
-29-
<PAGE> 30
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) ISSUED TREASURY CAPITAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCES, JANUARY 1, 1996 $ 40,672 $(209,373) $101,183
- ----------------------------------------------------------------------------------------------------
Net income
Cash dividends declared, $.77 per share
Translation adjustments
Pension liability adjustments, net of $157
deferred income taxes
Acquired during the year, 944,942 shares (29,875)
Stock options exercised, 382,442 shares 239 8,038
Restricted stock, net, 60,366 shares 1,159 824
Other, 1,388 shares 24 18
Two-for-one stock split at par value 40,912 (40,912)
- ----------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 81,823 (238,065) 69,151
- ----------------------------------------------------------------------------------------------------
Net income
Cash dividends declared, $.82 per share
Translation adjustments
Unrealized investment (losses), net of $18
deferred income taxes
Pension liability adjustments, net of $412
deferred income taxes
Acquired during the year, 3,080,642 shares (125,841) 34
Stock options exercised, 395,885 shares 495 9,299
Restricted stock, net, 57,487 shares 1,117 846
Other, 1,048 shares 17 30
- ----------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 82,318 (362,772) 79,360
- ----------------------------------------------------------------------------------------------------
Net income
Cash dividends declared, $.885 per share
Translation adjustments
Unrealized investment gains, net of ($18)
deferred income taxes
Pension liability adjustments, net of $1,544
deferred income taxes
Acquired during the year, 4,989,483 shares (168,405)
Stock options exercised, 221,293 shares 276 5,913
Restricted stock, net, 40,324 shares 1,649 110
Other, 1,658 shares 66 1
- ----------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 $ 82,594 $(529,462) $ 85,384
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (EXPENSE)
--------------------------------------------------------------
NET UNREALIZED
INVESTMENT PENSION RETAINED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) TRANSLATION GAINS (LOSSES) LIABILITY TOTAL EARNINGS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1996 $(19,852) $ -- $ (413) $ (20,265) $ 713,774
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 119,009
Cash dividends declared, $.77 per share (38,310)
Translation adjustments (5,624) (5,624)
Pension liability adjustments, net of $157
deferred income taxes (206) (206)
Acquired during the year, 944,942 shares
Stock options exercised, 382,442 shares
Restricted stock, net, 60,366 shares
Other, 1,388 shares
Two-for-one stock split at par value
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 (25,476) -- (619) (26,095) 794,473
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 278,832
Cash dividends declared, $.82 per share (39,535)
Translation adjustments (24,201) (24,201)
Unrealized investment (losses), net of $18
deferred income taxes (28) (28)
Pension liability adjustments, net of $412
deferred income taxes (650) (650)
Acquired during the year, 3,080,642 shares
Stock options exercised, 395,885 shares
Restricted stock, net, 57,487 shares
Other, 1,048 shares
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 (49,677) (28) (1,269) (50,974) 1,033,770
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 107,513
Cash dividends declared, $.885 per share (39,455)
Translation adjustments (1,714) (1,714)
Unrealized investment gains, net of ($18)
deferred income taxes 28 28
Pension liability adjustments, net of $1,544
deferred income taxes (2,385) (2,385)
Acquired during the year, 4,989,483 shares
Stock options exercised, 221,293 shares
Restricted stock, net, 40,324 shares
Other, 1,658 shares
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 $(51,391) $ -- $(3,654) $ (55,045) $1,101,828
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-30-
<PAGE> 31
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $ 107,513 $ 278,832 $ 119,009
- --------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (expense):
Foreign currency translation adjustments (1,714) (24,201) (5,624)
Unrealized investment gains (losses), net of deferred income taxes 28 (28) --
Pension liability adjustments, net of deferred income taxes (2,385) (650) (206)
- --------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (expense) (4,071) (24,879) (5,830)
- --------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 103,442 $ 253,953 $ 113,179
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-31-
<PAGE> 32
HARSCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Harsco Corporation
and its majority-owned subsidiaries ("Company"). Investments in unconsolidated
entities (all of which are 20-50% owned) are accounted for under the equity
method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits, and short-term
investments which are highly liquid in nature and have an original maturity of
three months or less.
INVESTMENTS IN DEBT SECURITIES
Marketable debt securities are classified as available-for-sale or
held-to-maturity. Management determines the appropriate classification of debt
securities at the time of purchase. Debt securities classified as
available-for-sale are stated at fair value, with unrealized gains and losses
reported in a separate component of Other comprehensive income (expense), net of
deferred income taxes. Realized gains and losses on sales of investments are
included in Other revenues. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost. Interest on
debt securities is included in interest income.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventories in the United
States are accounted for using principally the last-in, first-out (LIFO) method.
Other inventories are accounted for using the first-in, first-out (FIFO) or
average cost methods.
DEPRECIATION
Property, plant and equipment is recorded at cost and depreciated over the
estimated useful lives of the assets using principally the straight-line method.
When property is retired from service, generally the cost of the retirement is
charged to the allowance for depreciation to the extent of the accumulated
depreciation, and the balance is charged to income.
INTANGIBLE ASSETS
Intangible assets consist principally of cost in excess of net assets of
businesses acquired, which is amortized on a straight line basis over a period
not to exceed 30 years. Accumulated amortization was $58.6 and $47.3 million at
December 31, 1998 and 1997, respectively.
-32-
<PAGE> 33
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, including cost in excess of net assets of businesses acquired
and other intangible assets, used in the Company's operations are reviewed for
impairment when events and circumstances indicate that the carrying amount of an
asset may not be recoverable. The primary indicators of recoverability are the
associated current and forecasted undiscounted operating cash flows. The
Company's policy is to record an impairment loss when it is determined it is
probable that the carrying amount of the asset exceeds its fair value.
REVENUE RECOGNITION
Revenue is recognized for product sales when title and risk of loss transfer.
Service sales are recognized over the contractual period or as services are
performed.
INCOME TAXES
All U.S. federal and state income taxes and non-U.S. income taxes are provided
currently on the undistributed earnings of international subsidiaries and
unconsolidated affiliated entities, giving recognition to current tax rates and
applicable foreign tax credits. Deferred taxes are provided using the asset and
liability method for temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
ACCRUED INSURANCE AND LOSS RESERVES
The Company retains a major portion of the risk for workers' compensation,
automobile, general, and product liability losses. Reserves have been recorded
which reflect the undiscounted estimated liabilities including claims incurred
but not reported. Changes in the estimates of the reserves are included in net
income in the period determined. Amounts estimated to be paid within one year
have been classified as Other current liabilities, with the remainder included
in Insurance liabilities.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's subsidiaries outside the United
States, except for those subsidiaries located in highly inflationary economies,
are principally measured using the local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange
rates at the balance sheet date. Resulting translation adjustments are recorded
in the cumulative translation adjustment, a separate component of Other
comprehensive income (expense). Income and expense items are translated at
average monthly exchange rates. Gains and losses from foreign currency
transactions are included in net income. For subsidiaries operating in highly
inflationary economies, gains and losses on foreign currency transactions and
balance sheet translation adjustments are included in net income.
Effective January 1997, the Company's operations in Mexico were accounted for as
a highly inflationary economy since the three-year cumulative rate of inflation
at December 31, 1996 exceeded 100%. The functional currency for the Company's
operations in Mexico was changed from the peso to the U.S. dollar.
-33-
<PAGE> 34
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective January 1998, the Company's operations in Brazil were no longer
accounted for as a highly inflationary economy, because the three-year
cumulative rate of inflation fell below 100%. The Company measures the financial
statements of its Brazilian entity using the Brazilian real as the entity's
functional currency.
Effective January 1999, the Company's operations in Mexico will no longer be
accounted for as a highly inflationary economy, because the three-year
cumulative rate of inflation is below 100%. The Company will measure the
financial statements of its Mexican entities using the peso as the functional
currency.
FINANCIAL INSTRUMENTS AND HEDGING
The Company has subsidiaries principally operating in North America, Latin
America, Europe, and Asia-Pacific. These operations are exposed to fluctuations
in related foreign currencies, in the normal course of business. The Company
seeks to reduce exposure to foreign currency fluctuations, through the use of
forward exchange contracts. The Company does not hold or issue financial
instruments for trading purposes, and it is the Company's policy to prohibit the
use of derivatives for speculative purposes. The Company has a Foreign Currency
Risk Management Committee that meets periodically to monitor foreign currency
risks.
The Company enters into forward foreign exchange contracts to hedge transactions
of its non-U.S. subsidiaries, for firm commitments to purchase equipment and for
export sales denominated in foreign currencies. These contracts generally are
for 90 to 180 days or less. For those contracts that hedge an identifiable
transaction, gains or losses are deferred and accounted for as part of the
underlying transactions. The cash flows from these contracts are classified
consistent with the cash flows from the transaction being hedged. The Company
also enters into forward foreign exchange contracts for intercompany foreign
currency commitments. These foreign exchange contracts do not qualify as hedges,
therefore, gains and losses are recognized in income based on fair market value.
OPTIONS FOR COMMON STOCK
The Company uses the intrinsic value based method to account for options granted
for the purchase of common stock. No compensation expense is recognized on the
grant date since, at that date, the option price equals the market price of the
underlying common stock. The Company discloses the pro-forma effect of
accounting for stock options under the fair value method.
EARNINGS PER SHARE
Basic earnings per share is calculated using the average shares of common stock
outstanding, while diluted earnings per share reflects the potential dilution
that could occur if stock options were exercised.
-34-
<PAGE> 35
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS 130), which is effective for years
beginning after December 15, 1997. This statement establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income is defined to include all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The Company
adopted SFAS 130 in the first quarter of 1998.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131), which is effective for fiscal years beginning after December 15, 1997.
This statement establishes standards for the disclosure of segment results. It
requires that segments be determined using the "management approach," which
means the way management organizes the segments within the enterprise for making
operating decisions and assessing performance. The Company adopted SFAS 131 in
the fourth quarter of 1998. All prior periods have been restated.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS
132), which is effective for fiscal years beginning after December 15, 1997.
SFAS 132 revises the required disclosures about pension and other postretirement
benefit plans. The Company adopted SFAS 132 in the fourth quarter of 1998.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform with
current year classifications.
NEW FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which
is effective for fiscal years beginning after June 15, 1999. SFAS 133 requires
that an entity recognize all derivative instruments as either assets or
liabilities on its balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or Other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction, and, if it is, the type of hedge transaction. The Company
is currently evaluating when to adopt SFAS 133. Due to the Company's limited use
of derivative instruments, SFAS 133 is not expected to have a material effect on
the financial position or results of operations of the Company.
-35-
<PAGE> 36
- ------------------------------------------------------------------------------
2. COMMON STOCK SPLIT
On November 19, 1996, the Board of Directors declared a two-for-one stock split
on the Company's common stock. One additional share was issued for each share of
common stock held by shareholders of record as of the close of business on
January 15, 1997. New shares were distributed on February 14, 1997. Common stock
and additional paid-in capital as of December 31, 1996 reflect this split. All
references to the number of common shares and per share amounts in the
consolidated financial statements and related notes reflect the effect of the
split for all periods presented.
3. DISCONTINUED DEFENSE BUSINESS
On August 25, 1997, the Company and FMC Corporation signed an agreement to sell
United Defense, L.P. for $850 million, and the sale was completed on October 6,
1997. Prior to the sale, FMC had been the managing general partner and 60% owner
of United Defense, L.P., while the Company owned the balance of 40% as the
limited partner. United Defense supplies ground combat and naval weapons systems
for the U.S. and military customers around the world.
On the Consolidated Statement of Income under Discontinued Operations, "Equity
in income of defense business" includes equity income through August 1997 (the
measurement date) from the Company's 40% interest in United Defense, L.P. The
sale resulted in pre-tax cash proceeds to the Company in 1997 of $344 million
and resulted in an after tax gain on the sale of $150 million or $3.08 per share
after taking into account certain retained liabilities from the partnership and
estimated post closing net worth adjustments, as well as pre-partnership
formation contingencies and other defense business contingencies.
On the Consolidated Statement of Cash Flows for 1997 and 1996, equity in income
of the defense business and distributions from the defense business through the
measurement date are included in "Equity in income of unconsolidated entities"
and "Dividends or distributions from unconsolidated entities", respectively.
-36-
<PAGE> 37
- ------------------------------------------------------------------------------
4. ACQUISITIONS AND DISPOSITIONS
In February 1998, the Company acquired EFI Corporation (EFIC) from Racal
Electronics Plc for approximately $7.2 million. EFIC produces lightweight
composite cylinders used extensively in firefighter breathing apparatus as well
as other industrial and commercial applications.
In April 1998, the Company acquired Faber Prest Plc for approximately $98
million. Faber Prest is a UK-based provider of mill services to worldwide steel
producers and integrated logistics services to the steel industry and other
market sectors.
In June 1998, the Company acquired Chemi-Trol Chemical Co. for approximately
$46 million. Chemi-Trol's principal business is the production and
distribution of steel pressure tanks for the storage of propane gas and
anhydrous ammonia.
In October 1998, the Company acquired Superior Valve Company from Amcast
Industrial Corporation. Superior Valve designs, manufactures, and sells high
pressure, precision valves for a range of commercial and industrial
applications.
All acquisitions have been accounted for by the purchase method of accounting
with cost in excess of net assets of businesses acquired totaling $94.6 million
in 1998. Results of operations are included in income since the dates of
acquisition.
On January 30, 1998, the Company signed a definitive agreement with Charter plc
to acquire Charter's Pandrol Jackson railway track maintenance business in a
cash transaction. Pandrol Jackson manufactures, markets worldwide, and provides
a wide range of equipment and services used in railway track maintenance. This
acquisition is currently under pre-merger review by the United States Department
of Justice.
In October 1998 the Company completed the sale of Nutter Engineering to the
Sulzer Chemtech division of Swiss-based Sulzer Technology Corporation. Nutter
had sales of approximately $25 million and $24 million in 1998 and 1997
respectively.
The sale of HydroServ SAS was completed in December 1998. The Company has also
announced plans to sell non-core operations including Astralloy Wear Technology
and the pavement marking and vegetation control business unit of Chemi-Trol.
Additionally, the Company plans to sell its investment in Bio-Oxidation Services
Inc.
-37-
<PAGE> 38
- ------------------------------------------------------------------------------
4. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The following unaudited pro forma consolidated net sales are presented as if the
companies (EFI Corporation, Faber Prest Plc, Chemi-Trol Chemical Co., and
Superior Valve) had been acquired at the beginning of the periods presented.
<TABLE>
<CAPTION>
(IN MILLIONS)
YEARS ENDED DECEMBER 31 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 1,832.7 $1,863.9
</TABLE>
Consolidated pro forma income and earnings per share would not have been
materially different from the reported amounts for 1998 and 1997. The unaudited
pro forma information is not necessarily indicative of the results of operations
that would have occurred had the purchase been made at the beginning of the
periods presented or the future results of the combined operations.
-38-
<PAGE> 39
- ------------------------------------------------------------------------------
5. INVESTMENTS IN DEBT SECURITIES
There were no debt securities held at December 31, 1998. At December 31, 1997,
$43.9 million of debt securities were due in one year or less, and were included
on the Consolidated Balance Sheet as Investments in debt securities.
For the years ended December 31, 1998, 1997, and 1996, there were no realized
gains or losses on sales of available-for-sale debt securities.
The debt securities held at December 31, 1997 consist of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997
=========================================================================================
AMORTIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate debt securities $39,903 $-- $ 46 $39,857
HELD-TO-MATURITY
- ----------------------------------------------------------------------------------------
Corporate debt securities $ 3,007 $5 $ -- $ 3,012
Government debt
securities non-U.S 1,003 1 -- 1,004
- ----------------------------------------------------------------------------------------
$ 4,010 $6 $ -- $ 4,016
=========================================================================================
</TABLE>
-39-
<PAGE> 40
- ------------------------------------------------------------------------------
6. ACCOUNTS RECEIVABLE AND INVENTORIES
Accounts receivable are net of an allowance for doubtful accounts of $13.6
million and $6.8 million at December 31, 1998 and 1997, respectively.
Inventories consist of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 45,259 $ 27,639
Work in process 36,060 27,979
Raw materials and purchased parts 71,576 60,982
Stores and supplies 22,909 18,554
- ------------------------------------------------------------------------
$175,804 $135,154
========================================================================
Valued at lower of cost or market:
LIFO basis $129,708 $101,184
FIFO basis 28,473 23,989
Average cost basis 17,623 9,981
- ------------------------------------------------------------------------
$175,804 $135,154
========================================================================
</TABLE>
Inventories valued on the LIFO basis at December 31, 1998 and 1997 were
approximately $32.5 million and $35.5 million, respectively, less than the
amounts of such inventories valued at current costs.
-40-
<PAGE> 41
- ------------------------------------------------------------------------------
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 31,048 $ 22,847
Buildings and improvements 147,291 119,679
Machinery and equipment 1,196,223 1,005,613
Uncompleted construction 63,540 54,644
- ---------------------------------------------------------------------------------
1,438,102 1,202,783
Less accumulated depreciation 811,908 690,870
- ---------------------------------------------------------------------------------
$ 626,194 $ 511,913
=================================================================================
</TABLE>
The estimated useful lives of different types of assets are:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
Land improvements 10 years
Buildings and improvements 10 to 50 years
Certain plant, buildings and installations 5 to 15 years
(Principally Mill Services Segment)
Machinery and equipment 3 to 20 years
- -------------------------------------------------------------------------------
</TABLE>
-41-
<PAGE> 42
- ------------------------------------------------------------------------------
8. DEBT AND CREDIT AGREEMENTS
The Company has a $400 million Five-Year Competitive Advance and Revolving
Credit Facility ("credit facility") maturing in July, 2001. Borrowings under
this agreement are available in U.S. dollars or Eurocurrencies and the credit
facility serves as back-up to the Company's U. S. commercial paper program.
Interest rates are either negotiated, based upon the U.S. federal funds
interbank market, prime, or based upon the London Interbank Offered Rate (LIBOR)
plus a margin. The Company pays a facility fee (0.08% per annum as of December
31, 1998) that varies based upon its credit ratings. At December 31, 1998 and
1997, there were no borrowings outstanding.
The Company can also 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
commercial paper program (approximately U.S. $87 million) which is used to fund
the Company's international operations. The Company limits the aggregate
commercial paper and credit facility borrowings at any one time to a maximum of
$400 million. Commercial paper interest rates, which are based on market
conditions, have been lower than on comparable borrowings under the credit
facility. At December 31, 1998 and 1997, $108.8 million and $30.8 million of
commercial paper was outstanding, respectively. Commercial paper is classified
as long-term debt at December 31, 1998 and 1997, because the Company has the
ability and intent to refinance it on a long-term basis through existing
long-term credit facilities.
Short-term debt amounted to $46.8 million and $22.8 million at December 31, 1998
and 1997, respectively. The weighted average interest rate for short-term
borrowings at December 31, 1998 and 1997 was 7.9% and 5.8%, respectively.
-42-
<PAGE> 43
- ------------------------------------------------------------------------------
8. DEBT AND CREDIT AGREEMENTS (CONTINUED)
Long-term debt consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
6.0% Notes due September 15, 2003 $150,000 $150,000
Commercial paper borrowings, with a weighted
average interest rate of 5.2% 108,784 30,757
Faber Prest loan notes due October 31, 2008 with interest
based on Sterling LIBOR minus .75% (6.13% at
December 31, 1998) 19,222 --
Industrial development bonds, payable in varying
amounts from 2001 to 2005 with a weighted
average interest rate of 6.0% 11,400 11,400
Other financing payable in varying
amounts to 2003 with a weighted
average interest rate of 11.2% 27,566 10,371
- ---------------------------------------------------------------------------------------------
316,972 202,528
Less current maturities 7,841 3,630
- ---------------------------------------------------------------------------------------------
$309,131 $198,898
=============================================================================================
</TABLE>
The credit facility and certain notes payable agreements contain covenants
restricting, among other things, the amount of debt as defined in the agreement
that can be issued. At December 31, 1998, the Company was in compliance with
these covenants.
The maturities of long-term debt for the four years following December 31, 1999,
are:
<TABLE>
<CAPTION>
(In thousands)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 9,292 2002 $ 2,625
2001 $120,199 2003 $151,384
- --------------------------------------------------------------------------------
</TABLE>
Cash payments for interest on all debt were (in millions) $20.0, $16.3, and
$20.3 in 1998, 1997 and 1996, respectively.
The Company 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.
-43-
<PAGE> 44
- --------------------------------------------------------------------------------
9. LEASES
The Company leases certain property and equipment under noncancelable operating
leases. Rental expense under all operating leases was (in millions) $17.6,
$13.5, and $13.7 in 1998, 1997 and 1996, respectively.
Future minimum lease payments under operating leases with noncancelable terms
are:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------
<S> <C>
1999 $ 13,816
2000 10,151
2001 7,092
2002 5,320
2003 4,629
After 2003 12,271
- --------------------------------------------------------------------------------
</TABLE>
-44-
<PAGE> 45
- ------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES
DISCONTINUED DEFENSE BUSINESS - CONTINGENCIES
FEDERAL EXCISE TAX AND OTHER MATTERS RELATED TO THE FIVE-TON TRUCK CONTRACT
In 1995, the Company, the United States Army ("Army"), and the United States
Department of Justice concluded a settlement of Harsco'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.
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
("IRS") 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 FET law, are not entitled to an exemption
from FET under any other theory, and therefore are taxable. On January 27, 1999,
the IRS notified the Company that it has denied the Company's protest of the
proposed increase in FET, and that the IRS will assess an increase in FET of
$30.4 million plus penalties of $6.3 million and applicable interest currently
estimated by the Company to be $40.0 million. This increase in FET takes into
account offsetting credits of $9.2 million, based on a partial allowance of the
Company's $28.7 million claim that certain truck components are exempt from FET.
The IRS disallowed in full the Company's additional claim that it is entitled to
the entire $52 million of FET (plus applicable interest currently estimated by
the Company to be $36.6 million) the Company has paid on the five-ton trucks, on
the grounds that such trucks qualify for the FET exemption applicable to certain
vehicles specially designed for the primary function of off-highway
transportation. In the event that the Company ultimately receives from the IRS 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
IRS assessment in Federal District Court or the U.S. Court of Federal Claims.
Although there is risk of an adverse outcome, both the Company and the Army
believe that the cargo trucks are not taxable. No recognition has been given in
the accompanying financial statements for the Company's claims with the IRS.
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
-45-
<PAGE> 46
- ------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 $5.8 million plus penalties of $6.3 million and
applicable interest currently estimated by the Company to be $40.0 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 asserted 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 were filed with respect
to all options purported to be exercised, totaling in excess of $60 million plus
interest. In February 1998, the Armed Services Board of Contract Appeals denied
the Company's claims. The Company appealed the decision to the United States
Court of Appeals for the Federal Circuit and in February 1999, the Court
affirmed the decision in favor of the Government. The Company is not appealing
the decision further and considers the matter to be closed. No recognition has
been given in the accompanying financial statements for any recovery on these
claims.
OTHER DEFENSE BUSINESS 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 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 May 1997, the
U.S. Court of Federal Claims issued a decision in the first phase of the case,
denying the Company's claim for reimbursement and granting the Government's
counterclaim for breach of contract and penalties under the False Claims Act.
The Court will consider the amount of damages and penalties in the next phase of
the case, and the decision will then be subject to the right of appeal. The
Government has filed a brief seeking penalties and treble damages totaling
approximately $26 million. The Company intends to vigorously oppose this claim.
The Company and its counsel believe that resolution of these claims will not
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.
-46-
<PAGE> 47
- ------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 Government subsequently subpoenaed a
number of former employees of the Company's divested defense business to testify
before a grand jury and since October 1998, has issued grand jury subpoenas to
the Company for additional documents. The Company is continuing to cooperate and
is responding to Government document requests. Based on discussions with the
Government, Harsco is the target of this investigation which primarily focuses
on whether the Company made improper certifications to the Defense Security
Assistance Agency. It is not yet known whether the Government will institute
criminal or civil action against the Company, nor is it known what the amount of
claims, fines or penalties, if any, would be or if any such actions would have a
material adverse effect on the Company's financial position or results of
operations.
CONTINUING OPERATIONS - CONTINGENCIES
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 Sheet at December 31, 1998 and 1997, includes an accrual of
$4.9 million and $3.4 million, respectively, for environmental matters. The
amounts charged to earnings on a pre-tax basis related to environmental matters
totaled $0.8 million for the year 1998, $1.7 million for the year 1997, and $1.2
million for the year 1996.
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. 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.
-47-
<PAGE> 48
- ------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
-48-
<PAGE> 49
- ------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company has pension and profit sharing retirement plans, most of which are
noncontributory, covering substantially all of its employees. The benefits for
salaried employees generally are based on years of service and the employee's
level of compensation during specified periods of employment. Plans covering
hourly employees generally provide benefits of stated amounts for each year of
service. The multi-employer plans in which the Company participates provide
benefits to certain unionized employees. The Company's funding policy for
qualified plans is consistent with statutory regulations and customarily equals
the amount deducted for income tax purposes. The Company's policy is to amortize
prior service costs over the average future service period of active plan
participants.
Pension expense consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans:
Service cost $ 13,785 $ 9,519 $ 9,690
Interest cost 21,367 15,129 15,165
Expected return on plan assets (39,859) (27,604) (23,816)
Amortization of prior service costs 1,307 1,368 1,275
Unrecognized (gain) or loss (4,034) (3,517) 684
Unrecognized transition asset (2,453) (2,457) (2,469)
Curtailment (gain) or loss 542 (5,468) 139
- ---------------------------------------------------------------------------------
(9,345) (13,030) 668
Multi-employer plans 4,054 4,457 3,789
Defined contribution plans 6,043 4,131 5,910
- ---------------------------------------------------------------------------------
Pension (income) expense $ 752 $ (4,442) $ 10,367
=================================================================================
</TABLE>
In 1997, the curtailment gain of $5.5 million was the result of a sizable
reduction in the number of employees under a plan related to a discontinued
facility. This gain, along with certain costs, was recorded under Other (income)
and expenses in the Consolidated Statement of Income.
-49-
<PAGE> 50
- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The change in the financial status of the pension plans and amounts recognized
in the Consolidated Balance Sheet at December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
PENSION BENEFITS
-----------------------------
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 220,428 $ 205,261
Service Cost 13,785 9,519
Interest Cost 21,367 15,129
Plan participants' contributions 1,452 536
Amendments 11,048 1,761
Actuarial (gain) loss (3,824) 13,939
Curtailment (gain) loss 542 (5,468)
Benefits paid (16,126) (17,458)
Acquisitions 122,388 --
Effect of foreign currency 394 (2,791)
- -------------------------------------------------------------------------------------
Benefit obligation at end of year $ 371,454 $ 220,428
=====================================================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 335,106 $ 292,198
Actual return on plan assets (16,342) 61,105
Employer contributions 2,370 3,289
Plan participants' contributions 1,452 536
Benefits paid (16,007) (17,458)
Acquisitions 151,346 --
Effect of foreign currency 316 (4,564)
- -------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 458,241 $ 335,106
=====================================================================================
FUNDED STATUS
Funded status at end of year $ 86,787 $ 114,678
Unrecognized net (gain) loss (19,683) (74,518)
Unrecognized transition (asset) obligation (15,657) (18,108)
Unrecognized prior service cost 22,446 12,746
- -------------------------------------------------------------------------------------
Net amount recognized $ 73,893 $ 34,798
=====================================================================================
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET CONSIST OF:
Prepaid benefit cost $ 84,251 $ 43,329
Accrued benefit liability (19,576) (13,209)
Intangible asset 3,297 2,559
Accumulated other comprehensive income 5,921 2,119
- -------------------------------------------------------------------------------------
Net amount recognized $ 73,893 $ 34,798
=====================================================================================
</TABLE>
Plan assets include equity and fixed-income securities. At December 31, 1998 and
1997, 732,640 shares of the Company's common stock with a fair market value of
$22.3 million
-50-
<PAGE> 51
and $31.6 million, respectively, are included in plan assets.
Dividends paid on such stock amounted to $0.6 million in both 1998 and 1997.
-51-
<PAGE> 52
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial assumptions used for the defined benefit pension plans, including
international plans, are:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average assumed discount rates 6.3% 7.4% 7.8%
Weighted average expected long-term rates of
return on plan assets 8.2% 9.1% 9.3%
Rates of compensation increase 4.4% 4.5% 5.2%
- ----------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $32.1 million, $30.1 million, and $11.6 million,
respectively, as of December 31, 1998, and $38.4 million, $34.6 million, and
$23.6 million, respectively, as of December 31, 1997.
-52-
<PAGE> 53
- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFITS
The Company has postretirement life insurance benefits for a majority of
employees, and postretirement health care benefits for a limited number of
employees mainly under plans related to acquired companies. The cost of life
insurance and health care benefits are accrued for current and future retirees
and are recognized as determined under the projected unit credit actuarial
method. Under this method, the Company's obligation for postretirement benefits
is to be fully accrued by the date employees attain full eligibility for such
benefits. The Company's postretirement health care and life insurance plans are
unfunded.
The postretirement benefit expense (health care and life insurance) was $0.3
million in 1998 and $0.2 million for each of the years 1997 and 1996. The
components of these expenses are not shown separately as they are not material.
The changes in the postretirement benefit liability recorded in the Consolidated
Balance Sheet are:
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS
-------------------------
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 6,220 $ 6,332
Service Cost 107 84
Interest Cost 431 453
Actuarial loss (gain) 49 (218)
Benefits paid (386) (431)
- ----------------------------------------------------------------------------------------
Benefit obligation at end of year $ 6,421 $ 6,220
========================================================================================
FUNDED STATUS
Funded status at end of year $(6,421) $(6,220)
Unrecognized prior service cost (42) (147)
Unrecognized actuarial (gain) (1,861) (2,069)
- ----------------------------------------------------------------------------------------
Net amount recognized as accrued benefit liability $(8,324) $(8,436)
========================================================================================
</TABLE>
-53-
<PAGE> 54
- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial assumptions used for postretirement benefit plans are:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumed discount rate 6.75% 7.25% 7.50%
Health care cost trend rate 8.30% 8.70% 9.10%
Decreasing to ultimate rate 5.50% 5.50% 5.50%
Effect of one percent increase in
health care cost trend rate:
On cost components $ 21 $ 47 $ 29
On accumulated benefit obligation $ 185 $ 192 $ 223
- -------------------------------------------------------------------------------------
</TABLE>
For 1998, a one percent decrease in health care cost trend rate would decrease
the cost component by $19 thousand and decrease the accumulated benefit
obligation by $166 thousand.
It is anticipated that the health care cost trend rate will decrease from 7.9%
in 1999 to 5.5% in the year 2005.
-54-
<PAGE> 55
- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
SAVINGS PLAN
The Company has a 401(k) savings plan which covers substantially all U.S.
employees with the exception of any such employees represented by a collective
bargaining agreement, unless the agreement expressly provides otherwise.
Employee contributions are generally determined as a percentage of covered
employee's compensation. The expense for contributions to the plan by the
Company was (in millions) $4.8, $4.5, and $3.8 for 1998, 1997, and 1996,
respectively.
EXECUTIVE INCENTIVE COMPENSATION PLAN
Under the 1995 Executive Incentive Compensation Plan, the Management Development
and Compensation Committee has awarded 60% of the value of any earned annual
incentive compensation award to be paid to participants in the form of cash and
40% in the form of restricted shares of the Company's common stock. Upon the
request of the participant, the Committee was authorized to make the incentive
award payable all in cash, subject to a 25% reduction in the total amount of the
award. Awards are made in February of the following year. The Company accrues
amounts based on performance reflecting the value of cash and common stock which
is anticipated to be earned for the current year. Compensation expense relating
to these awards was (in millions) $3.7, $5.1, and $5.5 in 1998, 1997 and 1996,
respectively.
Effective January 1, 1999 the restricted stock portion of the compensation plan
was discontinued and the terms of the plan were amended to provide for payment
of the incentive compensation all in cash. On January 6, 1999 the Company
repurchased from the participants, at the original award value, the restricted
shares awarded in 1998. For all other shares, the restrictions were removed
effective January 6, 1999.
-55-
<PAGE> 56
- --------------------------------------------------------------------------------
12. INCOME TAXES
Income from continuing operations before income taxes and minority interest in
the Consolidated Statement of Income consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 121,091 $ 93,386 $ 81,063
International 58,684 78,225 70,460
- ---------------------------------------------------------------------------------
$ 179,775 $ 171,611 $ 151,523
=================================================================================
Provision for income taxes:
Currently payable:
Federal $ 37,297 $ 21,627 $ 28,965
State 2,835 4,309 6,602
International 23,468 30,538 24,931
- ---------------------------------------------------------------------------------
63,600 56,474 60,498
Deferred federal and state 6,552 9,426 1,082
Deferred international (2,791) (687) 501
- ---------------------------------------------------------------------------------
$ 67,361 $ 65,213 $ 62,081
=================================================================================
</TABLE>
Cash payments for income taxes were (in millions) $38.8, $167.0, and $85.4, for
1998, 1997, and 1996, respectively. Approximately $5.4 million of the taxes paid
in 1998 and $100.0 million of the taxes paid in 1997 are related to the gain on
the disposal of the defense business.
-56-
<PAGE> 57
- --------------------------------------------------------------------------------
12. INCOME TAXES (CONTINUED)
The following is a reconciliation of the normal expected statutory U.S. federal
income tax rate to the effective rate as a percentage of Income from continuing
operations before income taxes and minority interest as reported in the
Consolidated Statement of Income:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 1.6 2.1 2.8
Export sales corporation benefit (.6) (.4) (.4)
Losses for which no tax benefit
was recorded. 1.3 .4 .9
Difference in effective tax rates on
international earnings and remittances (1.3) (.2) (.6)
Nondeductible acquisition costs 2.0 1.8 1.9
Other, net (.5) (.7) 1.4
- ----------------------------------------------------------------------------------
Effective income tax rate 37.5% 38.0% 41.0%
=================================================================================
</TABLE>
The tax effects of the primary temporary differences giving rise to the
Company's deferred tax assets and liabilities for the years ended December 31,
1998 and 1997 are:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------------
Deferred income taxes ASSET LIABILITY Asset Liability
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation $ -- $42,284 $ -- $38,676
Expense accruals 43,015 -- 46,783 --
Inventories 3,783 -- 3,314 --
Provision for receivables 2,986 -- 2,089 --
Postretirement benefits 3,235 -- 3,385 --
Deferred revenue -- 4,447 -- 5,039
Unrelieved foreign tax losses 3,729 -- 6,047 --
Unrelieved domestic tax losses 3,079 -- 2,400 --
Pensions -- 18,917 -- 10,324
Other -- 2,120 -- 50
- -------------------------------------------------------------------------------------------
59,827 67,768 64,018 54,089
Valuation allowance (6,293) -- (8,039) --
- -------------------------------------------------------------------------------------------
Total deferred income taxes $ 53,534 $67,768 $ 55,979 $54,089
===========================================================================================
</TABLE>
At December 31, 1998 and 1997, Other current assets included deferred income tax
benefits of $37.2 million and $38.7 million, respectively.
-57-
<PAGE> 58
- --------------------------------------------------------------------------------
12. INCOME TAXES (CONTINUED)
At December 31, 1998, certain of the Company's subsidiaries had total available
net operating loss carryforwards ("NOLs") of approximately $20.9 million, of
which approximately $8.5 million may be carried forward indefinitely and $12.4
million have varying expiration dates. Included in the total are $10.0 million
of preacquisition NOLs.
During 1998 and 1997, $4.4 million and $2.6 million, respectively, of
preacquisition NOLs were utilized by the Company, resulting in tax benefits of
$1.7 million and $1.0 million, respectively.
The valuation allowance of $6.3 million and $8.0 million at December 31, 1998
and 1997, respectively, relates principally to cumulative unrelieved tax losses
which are uncertain as to realizability. To the extent that the preacquisition
NOLs are utilized in the future and the associated valuation allowance reduced,
the tax benefit will be allocated to reduce the cost in excess of net assets of
businesses acquired.
The change in the valuation allowances for 1998 and 1997 results primarily from
the utilization of international tax loss carryforwards and the release of
valuation allowances in certain international jurisdictions based on the
Company's reevaluation of the realizability of future benefits resulting from
tax planning strategies. Further, the 1997 charge was also affected by the
expiration of tax loss carryforwards in certain international jurisdictions and
loss carryforwards acquired in a domestic acquisition. The release of valuation
allowances in certain jurisdictions is allocated to reduce the cost in excess of
net assets of businesses acquired. There was no reduction in 1998 or 1997.
-58-
<PAGE> 59
- --------------------------------------------------------------------------------
13. CAPITAL STOCK
The authorized capital stock consists of 150,000,000 shares of common stock and
4,000,000 shares of preferred stock, both having a par value of $1.25 per share.
The preferred stock is issuable in series with terms as fixed by the Board of
Directors. None of the preferred stock has been issued. On June 24, 1997, the
Company adopted a revised Shareholder Rights Plan to replace the Company's 1987
Plan which expired on September 28, 1997. Under the new Plan, the Board declared
a dividend to shareholders of record on September 28, 1997, of one Right for
each share of common stock. The rights may only be exercised if, among other
things, a person or group has acquired 15% or more, or intends to commence a
tender offer for 20% or more, of the Company's common stock. Each right entitles
the holder to purchase 1/100th share of a new Harsco Junior Participating
Cumulative Preferred Stock at an exercise price of $150. Once the rights become
exercisable, if any person acquires 20% or more of the Company's common stock,
the holder of a right will be entitled to receive common stock calculated to
have a value of two times the exercise price of the right. The rights, which
expire on September 28, 2007, do not have voting power, and may be redeemed by
the Company at a price of $.05 per right at any time until the 10th business day
following public announcement that a person or group has accumulated 15% or more
of the Company's common stock. At December 31, 1998, 750,000 shares of $1.25 par
value preferred stock were reserved for issuance upon exercise of the rights.
In November 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
Board of Directors subsequently increased the authorization by 1,000,000 shares
in June 1998, 2,000,000 shares in September 1998, 2,000,000 shares in November
1998, and 2,000,000 shares in January 1999. The share authorization remaining is
for purchases through January 26, 2000. Through December 31, 1998, 5,877,500
shares of common stock were purchased under these authorizations.
<TABLE>
<CAPTION>
COMMON STOCK SUMMARY
- ----------------------------------------------------------------------------------
SHARES TREASURY SHARES
BALANCES ISSUED SHARES OUTSTANDING
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1995 65,075,760 14,972,662 50,103,098
December 31, 1996 65,458,202 15,855,850 49,602,352
December 31, 1997 65,854,087 18,877,957 46,976,130
DECEMBER 31, 1998 66,075,380 23,825,458 42,249,922
- ----------------------------------------------------------------------------------
</TABLE>
-59-
<PAGE> 60
- -------------------------------------------------------------------------------
13. CAPITAL STOCK (CONTINUED)
The following is a reconciliation of the average shares of common stock used to
compute basic earnings per common share to the shares used to compute diluted
earnings per common share as shown on the Consolidated Statement of Income:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 107,513 $ 100,400 $ 83,903
=================================================================================================================
Average shares of common stock outstanding used to
compute basic earnings per common share 45,568,256 48,754,212 49,894,515
Additional common shares to be issued assuming exercise
of stock options, net of shares assumed reacquired 342,275 437,660 423,149
- -----------------------------------------------------------------------------------------------------------------
Shares used to compute dilutive effect of stock options 45,910,531 49,191,872 50,317,664
=================================================================================================================
Basic earnings per common share from continuing operations $ 2.36 $ 2.06 $ 1.68
=================================================================================================================
Diluted earnings per common share from continuing
operations $ 2.34 $ 2.04 $ 1.67
=================================================================================================================
</TABLE>
-60-
<PAGE> 61
- --------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION
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 123.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE) 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 107,513 $ 278,832 $ 119,009
Pro forma 105,736 277,101 117,622
Basic earnings per share:
As reported 2.36 5.72 2.39
Pro forma 2.32 5.68 2.36
Diluted earnings per share:
As reported 2.34 5.67 2.37
Pro forma 2.30 5.63 2.34
- -----------------------------------------------------------------------------
</TABLE>
The fair value of the options granted during 1998, 1997, and 1996 is estimated
on the date of grant using the binomial option pricing model. The
weighted-average assumptions used and the estimated fair value are listed as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected term 4 YEARS 4 years 4 years
Expected stock volatility 16.0% 16.0% 16.0%
Risk free interest rate 5.65% 6.46% 5.19%
Dividend $ .88 $ .80 $ .76
Rate of dividend increase 5% 5% 5%
Fair value $ 6.68 $ 6.55 $ 4.63
- ----------------------------------------------------------------------------------
</TABLE>
The Company has granted stock options to Officers and Directors for the purchase
of its common stock under two shareholder approved plans. The 1995 Executive
Incentive Compensation Plan authorizes the issuance of up to 4,000,000 shares of
the Company's common stock for use in paying incentive compensation awards in
the form of restricted stock and stock options. The 1995 Non-Employee Directors'
Stock Plan authorizes the issuance of up to 300,000 shares of the Company's
common stock for stock option awards. Options are granted at fair market value
at date of grant and become exercisable commencing one year later. The options
expire ten years from the date of grant. Upon shareholder approval of these two
plans in 1995, the Company terminated the use of the 1986 stock option plan for
granting of stock option awards. At December 31, 1998, there were 3,030,456 and
238,000 shares available for granting restricted stock and stock options under
the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee
Directors' Stock Plan, respectively.
-61-
<PAGE> 62
- --------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION (CONTINUED)
Changes during 1998, 1997, and 1996 in options outstanding were:
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, January 1, 1996 1,284,918 $ 19.52
Granted 311,150 29.70
Exercised (382,442) 18.95
Terminated and expired (11,600) 29.47
- --------------------------------------------------------------------------------
Outstanding, December 31, 1996 1,202,026 22.24
Granted 294,600 34.41
Exercised (395,885) 20.81
Terminated and expired (15,280) 22.90
- --------------------------------------------------------------------------------
Outstanding, December 31, 1997 1,085,461 26.06
Granted 275,100 38.30
Exercised (221,293) 24.93
Terminated and expired (16,500) 35.73
- --------------------------------------------------------------------------------
OUTSTANDING, DECEMBER 31, 1998 1,122,768 $ 29.14
================================================================================
</TABLE>
-62-
<PAGE> 63
- --------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION (CONTINUED)
Options to purchase 857,168 shares, 793,061 shares and 911,476 shares were
exercisable at December 31, 1998, 1997, and 1996, respectively. The following
table summarizes information concerning outstanding and exercisable options at
December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- --------------------------------
REMAINING
RANGE OF NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISABLE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.72 - $17.63 101,458 2.1 $ 14.25 101,458 $ 14.25
20.69 - 23.81 309,218 5.4 21.57 309,218 21.57
29.47 - 46.16 712,092 8.2 34.55 446,492 32.31
- ---------------------------------------------------------------------------------------------------------------------
1,122,768 857,168
=====================================================================================================================
</TABLE>
During 1998 and 1997, the Company had non-cash transactions related to stock
option exercises of $1.6 million and $2.3 million, respectively, whereby old
shares were exchanged for new shares.
-63-
<PAGE> 64
- --------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION (CONTINUED)
As of January 1, 1999, the restricted stock portion of the executive incentive
compensation plan was discontinued.
The following table summarizes the restricted stock activity for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Restricted shares awarded 40,702 57,622
Restricted shares forfeited 378 135
Weighted average market value of stock on grant date $ 43.22 $ 36.69
- -----------------------------------------------------------------------------------
</TABLE>
During 1998, 1997, and 1996, the Company recorded $.1 million, $1.9 million, and
$2.1 million, respectively, in compensation expense related to restricted stock.
-65-
<PAGE> 65
- --------------------------------------------------------------------------------
15. FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
As collateral for performance and to ceding insurers, the Company is
contingently liable under standby letters of credit and bonds in the amount of
$38.7 million and $42.0 million at December 31, 1998 and 1997, respectively.
These standby letters of credit and bonds are in force from one to three years,
for which the Company pays fees to various banks and insurance companies that
range from 0.2 to 1.0 percent per annum of their face value. If the Company were
required to obtain replacement standby letters of credit and bonds as of
December 31, 1998 for those currently outstanding, it is the Company's opinion
that the replacement costs for such standby letters of credit and bonds would
not vary significantly from the present fee structure.
At December 31, 1998 and 1997, the Company had $18.3 million and $8.4 million,
respectively, of forward foreign currency exchange contracts outstanding. These
contracts are part of a worldwide program to minimize foreign currency exchange
operating income and balance sheet exposure. The unsecured contracts mature
within 12 months and are principally with major financial institutions. The
Company is exposed to credit loss in the event of non-performance by the other
parties to the contracts. The Company evaluates the creditworthiness of the
counterparties' financial condition and does not expect default by the
counterparties.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company has currency exposures in thirty-three foreign countries. The
Company's primary foreign currency exposures are in France, Belgium, United
Kingdom, Brazil, South Africa, Mexico, Germany, and Australia.
Forward foreign currency exchange contracts are used to hedge commitments, such
as foreign currency debt, the purchase of equipment, and foreign currency cash
flows for certain export sales transactions.
-65-
<PAGE> 66
- --------------------------------------------------------------------------------
15. FINANCIAL INSTRUMENTS (CONTINUED)
The following tables summarize by major currency the contractual amounts of the
Company's forward exchange contracts in U.S. dollars as of December 31, 1998 and
1997. The "Sell" amounts represent the U.S. dollar equivalent of commitments to
sell foreign currencies, and the "Buy" amounts represent the U.S. dollar
equivalent of commitments to purchase foreign currencies.
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998
- -----------------------------------------------------------------------------------------------------------------
U.S. $ RECOGNIZED UNREALIZED
TYPE EQUIVALENT MATURITY GAIN (LOSS) GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forward exchange
contracts:
Belgian francs Sell $ 806 Various in 1999 $ 9 -
British pounds Sell 1,466 Various in 1999 12 -
French francs Sell 15,798 Various in 1999 46 -
Norwegian kronor Sell 199 Various in 1999 2 -
=================================================================================================================
$18,269 $ 69 -
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997
- -----------------------------------------------------------------------------------------------------------------
U.S. $ RECOGNIZED UNREALIZED
TYPE EQUIVALENT MATURITY GAIN (LOSS) GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Forward exchange
contracts:
Australian dollars Sell $2,368 1-30-98 $194 $ -
Belgian francs Buy 268 1-15-98 - -
British pounds Buy 3,536 Various in 1998 60 -
German marks Buy 564 Various in 1998 (28) -
German marks Sell 842 1-15-98 - 10
South African rand Sell 814 Various in 1998 3
=================================================================================================================
$8,392 $226 $13
=================================================================================================================
</TABLE>
At December 31, 1998, the Company had entered into forward exchange contracts in
Belgian francs, British pounds, French francs, and Norwegian kronor, which were
used to hedge certain future payments between the Company and its various
subsidiaries. These forward contracts do not qualify as hedges for financial
reporting purposes. At December 31, 1998, the Company had recorded net gains of
$0.1 million on these contracts.
At December 31, 1997, the Company had entered into forward exchange contracts in
Australian dollars, Belgium francs, British pounds, and German marks, which were
used to hedge certain future payments between the Company and its various
subsidiaries. These forward contracts do not qualify as hedges for financial
reporting purposes. At December 31, 1997, the Company had recorded net gains of
$0.2 million on these contracts. The Company also had forward exchange contracts
in German marks and South African rand which were used to hedge equipment
purchases and receivables. Since these contracts hedged identifiable foreign
currency firm commitments, the gain was deferred.
-66-
<PAGE> 67
- --------------------------------------------------------------------------------
15. FINANCIAL INSTRUMENTS (CONTINUED)
The counterparties of these agreements are major financial institutions.
Therefore, management believes the risk of incurring losses related to these
contracts is remote.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents, investments, and
accounts receivable. The Company places its cash and cash equivalents with high
quality financial institutions and, by policy, limits the amount of credit
exposure to any one institution. For investments, the Company purchases
investment grade debt securities and limits the amount of credit exposure to any
one government or commercial issuer. Concentrations of credit risk with respect
to accounts receivable are limited, due to the large number of customers in the
Company's customer base and their dispersion across different industries and
geographies. The Company generally does not require collateral or other security
to support customer receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The major methods and assumptions used in estimating the fair values of
financial instruments are:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the relatively short
period to maturity of these instruments.
INVESTMENTS
The fair values of investments are estimated based on quoted market prices
for those or similar investments.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
FOREIGN CURRENCY EXCHANGE CONTRACTS
The fair value of foreign currency exchange contracts are estimated by
obtaining quotes from brokers.
-67-
<PAGE> 68
- --------------------------------------------------------------------------------
15. FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 41,562 $ 41,562 $221,565 $221,565
Investments in debt securities -- -- 43,867 43,873
Long-term debt 316,972 317,530 202,528 200,319
Foreign currency exchange contracts 18,269 18,336 8,392 8,661
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-68-
<PAGE> 69
- --------------------------------------------------------------------------------
16. INFORMATION BY SEGMENT AND GEOGRAPHIC AREA
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" (SFAS 131), in the fourth quarter of 1998. SFAS 131
changes the way the Company reports information about its operating segments to
the "management approach". The management approach is based on the way
management organizes the segments within the enterprise for making operating
decisions and assessing performance. The segment information for 1997 and 1996
has been restated to conform to SFAS 131.
The Company's reportable segments were identified based upon differences in
products, services, and markets served. The Company's seven business units have
been aggregated into three reportable segments based upon the criteria in SFAS
131. The three reportable segments and the type of products and services offered
include:
MILL SERVICES
This segment provides metal reclamation and mill services principally for the
global steel industry. Mill services include slag processing, marketing, and
disposal; slab management systems; materials handling and scrap management
programs; in-plant transportation; and a variety of environmental services.
Similar services are provided to non-ferrous metallurgical industries, such as
aluminum, nickel, and copper. Also, slag recovery services are provided to
electric utilities from which granules for asphalt roofing shingles and slag
abrasives for industrial surface preparation are derived.
GAS AND FLUID CONTROL
Major products and services are gas containment cylinders and tanks, including
cryogenic equipment; valves, regulators, and gauges, including scuba and life
support equipment; industrial pipe fittings; process equipment, including
industrial blenders, dryers, and mixers; heat transfer equipment; boilers; and
air-cooled heat exchangers.
Major customers include various industrial markets; hardware, plumbing, and
petrochemical sectors; chemical, food processing, and pharmaceutical industries;
institutional building and retrofit markets; natural gas and process industries;
propane, compressed gas, life support, scuba, and refrigerant gas industries;
gas equipment companies; welding distributors; medical laboratories; beverage
carbonation users; and the animal husbandry industry.
INFRASTRUCTURE
Major products and services include railway maintenance of way equipment and
services; scaffolding, shoring, and concrete forming products and erection and
dismantling services; and bridge decking and industrial grating.
Products and services are provided to private and government-owned railroads
worldwide; urban mass transit operators; public utilities; industrial plants;
the oil, chemical, petrochemical, and process industries; bridge repair
companies; commercial and industrial construction firms; and infrastructure
repair and maintenance markets.
-69-
<PAGE> 70
- --------------------------------------------------------------------------------
16. INFORMATION BY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
OTHER INFORMATION
The measurement basis of segment profit or loss is income after taxes from
continuing operations. Interest income is recorded by each segment as incurred.
Interest expense is allocated to the segments based on actual interest expense
incurred by international operations and based on internal borrowings at an
estimated external weighted average interest rate for domestic operations.
Income taxes are allocated to the segments based on actual income tax expense
incurred, or where aggregated for tax purposes based on the effective income tax
rates for the countries in which they operate. The operations of the Company in
any one country, except the United States, do not account for more than 10% of
sales and no single customer represented 10% or more of the Company's sales,
during 1998, 1997 and 1996. There are no significant intersegment sales.
Corporate assets include principally cash, investments, prepaid pension costs,
and United States deferred taxes. Assets in the United Kingdom represent 12% of
total segment assets as of December 31, 1998 and are disclosed separately in the
geographic area information.
SEGMENT INFORMATION
<TABLE>
<CAPTION>
SEGMENTS NET SALES TO UNAFFILIATED CUSTOMERS INCOME FROM CONTINUING OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mill Services(1) $ 751.9 $ 672.7 $ 665.2 $ 43.3 $ 50.3 $ 44.7
Gas and Fluid Control 617.9 586.5 541.1 43.4 31.9 29.6
Infrastructure 363.7 368.3 351.3 16.1 13.1 12.5
- --------------------------------------------------------------------------------------------------------------------------------
Segment totals $1,733.5 $1,627.5 $1,557.6 102.8 95.3 86.8
- --------------------------------------------------------------------------------------------------------------------------------
General corporate Income (Expense) 4.7 5.1 (2.9)
- --------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 107.5 $ 100.4 $ 83.9
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SEGMENTS ASSETS DEPRECIATION AND AMORTIZATION CAPITAL EXPENDITURES
- --------------------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mill Services $ 922.7 $ 715.3 $ 734.3 $ 98.2 $ 87.2 $ 80.5 $ 102.7 $ 94.8 $ 111.5
Gas and Fluid Control 390.7 258.6 229.3 16.5 11.8 10.6 30.8 20.2 12.4
Infrastructure 231.3 213.3 197.8 15.5 16.3 17.1 25.9 26.9 25.7
- --------------------------------------------------------------------------------------------------------------------------------
Segment totals 1,544.7 1,187.2 1,161.4 130.2 115.3 108.2 159.4 141.9 149.6
Corporate 78.9 290.0 108.6 1.2 1.2 1.2 .4 1.5 .7
Net assets of
discontinued operations -- -- 54.4
- --------------------------------------------------------------------------------------------------------------------------------
Total $1,623.6 $1,477.2 $1,324.4 $ 131.4 $ 116.5 $ 109.4 $ 159.8 $ 143.4 $ 150.3
================================================================================================================================
</TABLE>
Note: A non-cash amount of $26.6 million of loan notes was issued for the Faber
Prest acquisition related to the Mill Services Segment.
(1) For the years ended December 31, 1998, 1997, and 1996 the Mill Services
Segment included equity in income of unconsolidated entities of $1.4
million, $1.0 million, and $0.7 million, respectively.
-70-
<PAGE> 71
- --------------------------------------------------------------------------------
16. INFORMATION BY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
RECONCILIATION OF REPORTED SEGMENT INCOME TO INCOME BEFORE INTEREST,
INCOME TAXES AND MINORITY INTEREST
<TABLE>
<CAPTION>
(IN MILLIONS) 1998
- -------------------------------------------------------------------------------------------------------------------------
MILL GAS AND INFRA- GENERAL CONSOLIDATED
SERVICES FLUID CONTROL STRUCTURE CORPORATE TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Segment income after income taxes from
continuing operations $ 43.3 $ 43.4 $ 16.1 $ 4.7 $ 107.5
Interest (income) (4.8) (0.2) (0.4) (3.0) (8.4)
Interest expense 11.0 4.1 5.4 - 20.5
Income tax expense 29.9 28.9 7.9 0.7 67.4
Minority interest in net income 4.9 - - - 4.9
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
interest, income taxes and minority interest $ 84.3 $ 76.2 $ 29.0 $ 2.4 $ 191.9
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(IN MILLIONS) 1997
- -------------------------------------------------------------------------------------------------------------------------
MILL GAS AND INFRA- GENERAL CONSOLIDATED
SERVICES FLUID CONTROL STRUCTURE CORPORATE TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Segment income after income taxes from
continuing operations $ 50.3 $ 31.9 $ 13.1 $ 5.1 $ 100.4
Interest (income) (2.0) (0.1) (0.2) (6.1) (8.4)
Interest expense 6.6 3.0 6.0 1.1 16.7
Income tax expense 38.5 19.9 7.1 (0.3) 65.2
Minority interest in net income 5.7 0.3 - - 6.0
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
interest, income taxes and minority interest $ 99.1 $ 55.0 $ 26.0 $ (0.2) $ 179.9
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(IN MILLIONS) 1996
- -------------------------------------------------------------------------------------------------------------------------
MILL GAS AND INFRA- GENERAL CONSOLIDATED
SERVICES FLUID CONTROL STRUCTURE CORPORATE TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Segment income after income taxes from
continuing operations $ 44.7 $ 29.6 $ 12.5 $ (2.9) $ 83.9
Interest (income) (3.2) (0.1) (0.3) (3.3) (6.9)
Interest expense 9.0 3.5 6.3 2.7 21.5
Income tax expense 33.5 20.2 7.2 1.2 62.1
Minority interest in net income 5.2 0.3 - - 5.5
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
interest, income taxes and minority interest $ 89.2 $ 53.5 $ 25.7 $ (2.3) $ 166.1
=========================================================================================================================
</TABLE>
-71-
<PAGE> 72
- --------------------------------------------------------------------------------
16. INFORMATION BY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
INFORMATION BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
GEOGRAPHIC AREA NET SALES SEGMENT ASSETS
- -------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $1,085.6 $1,044.8 $ 974.0 $ 721.2 $ 569.4 $ 508.8
United Kingdom 126.4 61.1 59.7 180.7 51.4 51.6
All Other 521.5 521.6 523.9 642.8 566.4 601.0
- -------------------------------------------------------------------------------------------------------------
Segment Totals $1,733.5 $1,627.5 $1,557.6 $1,544.7 $1,187.2 $1,161.4
=============================================================================================================
</TABLE>
See Note 17 for additional information related to segment income.
-72-
<PAGE> 73
- --------------------------------------------------------------------------------
17. OTHER (INCOME) AND EXPENSES AND SPECIAL CHARGES AND (GAINS)
In the years, 1998, 1997, and 1996 the Company recorded Other (income) and
expenses of $(4.3) million, $2.6 million, and $3.3 million, respectively:
<TABLE>
<CAPTION>
(IN THOUSANDS) OTHER (INCOME) AND EXPENSES
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Gains $(29,107) $(1,620) $ (851)
Impaired asset write-downs 14,410 1,592 642
Employee termination benefit costs 6,543 (810) 1,490
Costs to exit activities 2,792 3,313 2,305
Other 1,098 103 (306)
- -------------------------------------------------------------------------------
Total $ (4,264) $ 2,578 $ 3,280
================================================================================
</TABLE>
Additionally, in 1998 the Company recorded $6.5 million of other special
charges, of which $2.2 million is included in cost of products sold, $3.5
million in cost of services sold, and $.8 million in general and administrative
expenses. For 1998, this resulted in net special charges of $2.2 million which
includes Other (income) and expenses. The 1998 amounts were incurred principally
in the fourth quarter for which results included $29.6 million of gains and
other credits offset by $29.5 million of special charges. Other (income) and
expenses and special charges and gains consist principally of gains on the sale
of businesses, impaired asset write-downs, employee termination benefit costs,
costs to exit activities, and other reorganization-related costs. Pre-tax
amounts by operating segment include:
<TABLE>
<CAPTION>
(IN THOUSANDS) SPECIAL CHARGES AND (GAINS)
- -----------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Mill Services $ 15,618 $ 441 $1,386
Gas and Fluid Control (18,232) 1,766 329
Infrastructure 4,826 (348) 668
Corporate (11) 719 897
- -----------------------------------------------------------------
Total $ 2,201 $ 2,578 $3,280
=================================================================
</TABLE>
-73-
<PAGE> 74
GAINS. Gains for 1998 consist principally of a pre-tax net gain of $27 million
recorded on the October 1998 sale of the Nutter Engineering unit of the Gas and
Fluid Control Segment. Such gains are reflected as adjustments to reconcile net
income to net cash provided by operating activities in the Consolidated
Statement of Cash Flows. Total proceeds associated with special gains were $42.9
million and are included in proceeds from the sale of businesses and property,
plant and equipment in the investing activities section of the Consolidated
Statement of Cash Flows. Other related information concerning dispositions is
discussed in Note 4.
IMPAIRED ASSET WRITE-DOWNS. Impaired asset write-downs for 1998 include a $6.1
million pre-tax, non-cash, write-down of the Company's investment in
Bio-Oxidation Services Inc. which is included in the Gas and Fluid Control
Segment. The write-down amount was measured on the basis of the lower of
carrying amount or fair value less cost to sell. Fair value was determined using
available information based upon the estimated amount at which the assets could
be sold in a current transaction between willing parties. The investment
carrying value as of December 31, 1998 was $7.6 million. The Company estimates
that the disposal will occur during 1999. For the year ended December 31, 1998
Bio-Oxidation Services Inc. recorded a pre-tax loss of $9.8 million which
includes the asset write-down of $6.1 million.
Impaired asset write-downs also include a fourth quarter 1998 $6.1 million
pre-tax, non-cash, write-down of assets, principally property, plant and
equipment in the Mill Services Segment. The write-down became necessary as a
result of significant adverse changes in the international economic environment
and the steel industry. Impairment loss was measured as the amount by which the
carrying amount of assets exceeded their estimated fair value. Fair value was
estimated based upon the expected future realizable cash flows.
Non-cash impaired asset write-downs are included in Other (income) and expenses
in the Consolidated Statement of Cash Flows as adjustments to reconcile net
income to net cash provided by operating activities.
EMPLOYEE TERMINATION BENEFIT COSTS. Employee termination benefit costs consist
principally of severance arrangements to employees terminated as a result of
management reorganization actions. Under these reorganization actions, the
Company and its management have established and approved specific plans of
termination. The affected employees have been notified prior to recognition of
related provisions. Non-cash charges for employee termination benefit costs are
included in Other (income) and expenses as adjustments to reconcile net income
to net cash provided by operating activities in the Consolidated Statement of
Cash Flows. During 1998 such actions occurred principally in the Mill Services
Segment in South Africa, United States, France, and Germany. In 1998,
approximately 670 employees were included in employee termination arrangements
implemented by the Company and approximately $2.4 million of cash payments were
made under such arrangements. The payments are reflected as uses of operating
cash in the Consolidated Statement of Cash Flows and consequently reduce certain
liabilities. Under these reorganization actions, 349 employees have been
terminated as of December 31, 1998. The remaining $4.1 million balance of
employee termination arrangements is expected to be paid principally in 1999.
-74-
<PAGE> 75
TWO-YEAR SUMMARY OF QUARTERLY RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1998
- ---------------------------------------------------------------------------------------------------------------------------
QUARTERLY FIRST SECOND THIRD FOURTH (3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $401.0 $456.3 $445.7 $430.5
Gross profit(1) 93.3 110.2 99.9 100.0
Income from continuing operations 24.3 33.1 25.9 24.2
Net income 24.3 33.1 25.9 24.2
Diluted earnings per share:
Income from continuing operations .52 .71 .56 .55
Net income .52 .71 .56 .55
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1997
- ------------------------------------------------------------------------------------------------------------------------
QUARTERLY FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $390.7 $426.3 $407.0 $403.5
Gross profit(1) 88.2 102.6 98.3 100.4
Income from continuing operations 18.1 24.8 27.7 29.8
Income from discontinued defense business 12.0 11.6 5.5 (.7)
Gain on disposal of discontinued defense business - - - 150.0
Net income 30.1 36.4 33.2 179.1
Diluted earnings per share:
Income from continuing operations .36 .50 .56 .62
Income from discontinued defense business .24 .24 .11 (.01)
Gain on disposal of discontinued defense business (2) - - - 3.11
Net income (2) .60 .74 .67 3.72
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Gross profit is defined as Net sales less Cost of sales, Other
(income) and expenses, and Research and development expenses.
(2) The sum of the quarterly earnings per share data does not equal the
full year amount in the Consolidated Statement of Income due to
changes in the average shares outstanding.
(3) The fourth quarter included $29.6 million of special gains offset by
$29.5 million of special charges. The gains included a pre-tax net
gain of $27 million recorded on the sale of the Nutter Engineering
unit of the Gas and Fluid Control Segment. The special charges
included impaired asset write-downs, employee termination benefit
costs, costs to exit activities and other reorganization-related
expenses. Other information concerning special charges and (gains)
is discussed in Note 17.
-75-
<PAGE> 76
COMMON STOCK PRICE AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE
---------------------- DIVIDENDS DECLARED
HIGH LOW PER SHARE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
First Quarter $ 46 1/8 $ 37 1/2 $ .22
Second Quarter 47 41 5/16 .22
Third Quarter 47 1/4 23 .22
Fourth Quarter 35 28 .225
1997
First Quarter $ 37 5/8 $ 33 1/4 $ .20
Second Quarter 40 1/2 34 1/8 .20
Third Quarter 47 7/8 39 11/16 .20
Fourth Quarter 46 9/16 39 5/16 .22
- ---------------------------------------------------------------------------------------
</TABLE>
-76-
<PAGE> 77
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure:
None.
-77-
<PAGE> 78
PART III
Item 10. Directors and Executive Officers of the Registrant:
(a) Identification of Directors:
Information regarding the identification of directors and positions held is
incorporated by reference to the 1999 Proxy Statement.
(b) Identification of Executive Officers:
Set forth below, as of March 8, 1999, are the executive officers (this excludes
certain corporate officers who are not deemed "executive officers" within the
meaning of applicable Securities and Exchange Commission regulations) of the
Company and certain information with respect to each of them. The executive
officers were elected to their respective offices on April 28, 1998, or at
various times during the year as noted. All terms expire on April 27, 1999.
There are no family relationships between any of the officers.
<TABLE>
<CAPTION>
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
<S> <C> <C>
Corporate Officers:
D. C. Hathaway 54 Chairman and Chief Executive Officer effective January 1,
1998. Served as Chairman, President and Chief Executive
Officer from April 1, 1994 to December 31, 1997, and
President and Chief Executive Officer from January 1, 1994
to April 1, 1994. Director since 1991. From 1991 to 1993,
served as President and Chief Operating Officer. From 1986
to 1991 served as Senior Vice President-Operations of the
Corporation. Served as Group Vice President from 1984 to
1986 and as President of the Dartmouth Division of the
Corporation from 1979 until 1984.
</TABLE>
-78-
<PAGE> 79
<TABLE>
<CAPTION>
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
<S> <C> <C>
L. A. Campanaro 50 President, Chief Operating Officer and Director of the
Corporation effective January 1, 1998. Served as Senior
Vice President and Chief Financial Officer from December
1992 to December 1997, and as Vice President and Controller
from April 1992 to November 1992. Served as Vice President
of the BMY-Wheeled Vehicles Division from February 1992 to
March 1992, and previously served as Vice President and
Controller of the BMY-Wheeled Vehicles Division from 1988 to
1992, Vice President Cryogenics of the Plant City Steel
Division from 1987 to 1988, Senior Vice President
Taylor-Wharton Division from 1985 to 1987, Vice President
and Controller of Taylor-Wharton from 1982 to 1985, and
Director of Auditing of the Corporation from 1980 to 1982.
P. C. Coppock 48 Senior Vice President, Chief Administrative Officer, General
Counsel and Secretary of the Corporation effective January
1, 1994. Served as Vice President, General Counsel and
Secretary of the Corporation from May 1, 1991 to December
31, 1993. From 1989 to 1991 served as Secretary and
Corporate Counsel and as Assistant Secretary and Corporate
Counsel from 1986 to 1989. Served in various Corporate
Attorney positions for the Corporation since 1981.
S. D. Fazzolari 46 Senior Vice President and Chief Financial Officer of the
Corporation effective January 1, 1998. Served as Vice
President and Controller from January 1994 to December 1997
and as Controller from January 1993 to January 1994.
Previously served as Director of Auditing from 1985 to 1993,
and served in various auditing positions from 1980 to 1985.
</TABLE>
-79-
<PAGE> 80
<TABLE>
<CAPTION>
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
<S> <C> <C>
R. W. Kaplan 47 Senior Vice President-Operations of the Corporation
effective July 1, 1998. Concurrently serves as President of
the Taylor-Wharton Gas Equipment Division, a position held
since February 1, 1994. Served as Vice President and
Treasurer of the Corporation from January 1992 to February
1994. Served as Treasurer of the Corporation from May 1991
to December 1992. Previously served as Vice President and
General Manager of the Plant City Steel/Taylor-Wharton
Division from 1987 to 1991 and Vice President and Controller
of the Division from 1985 to 1987. Previously served in
various Corporate treasury/financial positions since 1979.
S. J. Schnoor 45 Vice President and Controller of the Corporation effective
May 15, 1998. Served as Vice President and Controller of
the Patent Construction Systems Division from February 1996
to May 1998 and as Controller of the Patent Construction
Systems Division from January 1993 to February 1996.
Previously served in various auditing positions for the
Corporation from 1988 to 1993.
</TABLE>
(c) Beneficial Ownership Reporting Compliance
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated by reference to the section entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" of
the 1999 Proxy Statement.
-80-
<PAGE> 81
Item 11. Executive Compensation:
Information regarding compensation of executive officers and directors is
incorporated by reference to the sections entitled "Executive Compensation and
Other Information" and "Directors' Compensation" of the 1999 Proxy Statement.
Item 12. Security Ownership of Certain
Beneficial Owners and Management:
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the section entitled "Share Ownership
of Management" of the 1999 Proxy Statement.
Item 13. Certain Relationships and Related Transactions:
Information regarding certain relationships and related transactions is
incorporated by reference to the section entitled "Employment Agreements with
Officers of the Company" of the 1999 Proxy Statement.
-81-
<PAGE> 82
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a) 1. The Consolidated Financial Statements are listed in the index to
Item 8, "Financial Statements and Supplementary Data," on page 25.
(a) 2. The following financial statement schedule should be read in
conjunction with the Consolidated Financial Statements (see Item 8,
"Financial Statements and Supplementary Data"):
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants
on Schedule II 83
Schedule II - Valuation and
Qualifying Accounts for the
years 1998, 1997 and 1996 84
</TABLE>
Schedules other than those listed above are omitted for the reason that
they are either not applicable or not required or because the
information required is contained in the financial statements or notes
thereto.
Condensed financial information of the registrant is omitted since
there are no substantial amounts of "restricted net assets" applicable
to the Company's consolidated subsidiaries.
Financial statements of 50% or less owned unconsolidated companies are
not submitted inasmuch as (1) the registrant's investment in and
advances to such companies do not exceed 20% of the total consolidated
assets, (2) the registrant's proportionate share of the total assets of
such companies does not exceed 20% of the total consolidated assets,
(3) the registrant's equity in the income from continuing operations
before income taxes of such companies does not exceed 20% of the total
consolidated income from continuing operations before income taxes.
-82-
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Harsco Corporation
Our report on the consolidated financial statements of Harsco Corporation and
Subsidiary Companies (the "Company"), is included on page 26 of this Form 10-K.
In connection with our audits of such consolidated financial statements, we have
also audited the related consolidated financial statement schedule listed in the
index (Item 14(a) 2.) on page 82 of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to above,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information required
to be included therein.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 28, 1999, except as to
paragraph 6 of Note 10, for which the
date is February 8, 1999.
-83-
<PAGE> 84
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
----------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions (Deductions) Additions
--------- -----------------------------
Due to
Balance at Charged to Currency Balance at
Beginning Cost and Translation End of
Description of Period Expenses Adjustments Other (1) Period
----------- --------- -------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
For the year 1998:
Deducted from Receivables:
Uncollectible accounts $ 6,834 $ 9,166 $ 9 $ (2,407) $ 13,602
========== ========== ========= ========== ==========
Deducted from Inventories:
Inventory valuations $ 3,687 $ 6,871 $ (30) $ (4,751) $ 5,777
========== ========== ========== ========== ==========
Other Reorganization and
Valuation Reserves $ 3,102 $ 16,423 $ 93 $ 5,698 (2) $ 25,316
========== ========== ========= ========== ==========
For the year 1997:
Deducted from Receivables:
Uncollectible accounts $ 8,549 $ 1,916 $ (188) $ (3,443) $ 6,834
========== ========== ========== =========== ==========
Deducted from Inventories:
Inventory valuations $ 5,381 $ 1,645 $ (129) $ (3,210) $ 3,687
========== ========== ========== =========== ==========
Other Reorganization and
Valuation Reserves $ 2,300 $ 3,232 $ (86) $ (2,344) $ 3,102
========== ========== ========== =========== ==========
For the year 1996:
Deducted from Receivables:
Uncollectible accounts $ 8,256 $ 4,969 $ (74) $ (4,602) $ 8,549
========== ========== ========= ========== ==========
Deducted from Inventories:
Inventory valuations $ 3,596 $ 3,260 $ (57) $ (1,418) $ 5,381
========== ========== ========= ========== ==========
Other Reorganization and
Valuation Reserves $ 3,184 $ 2,273 $ (74) $ (3,083) $ 2,300
========== ========== ========== =========== ==========
</TABLE>
(1) Amounts charged to valuation account during the year.
(2) Includes $12,328 increase due to opening balance sheet reorganization
reserves for companies acquired in 1998.
-84-
<PAGE> 85
(a) 3. Listing of Exhibits Filed with Form 10-K:
<TABLE>
<CAPTION>
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
<S> <C> <C>
2(a) Joint Venture with FMC Corporation Incorporated by reference to
Combining Harsco's BMY-Combat Form 8-K dated February 14, 1994
Systems Division with FMC Defense
Systems Group
- Participation Agreement
Dated as of January 1, 1994
- Partnership Agreement
Dated as of January 1, 1994
- Registration Rights Agreement
Dated as of January 1, 1994
2(b) Agreements for sale of 40% Incorporated by reference to Form 8-K
limited partnership interest in filed October 16, 1997, and related
United Defense L.P. Form 8-K/A
3(a) Articles of Incorporation as Exhibit volume, 1990 10-K
amended April 24, 1990
Certificate of Designation filed Exhibit volume, 1997 10-K
September 25, 1997
3(b) By-laws as amended April 25, 1990 Exhibit volume, 1990 10-K
4(a) Harsco Corporation Rights Incorporated by reference to Form
Agreement dated as of September 8-A, filed September 26, 1997
28, 1997, with Chase Mellon
Shareholder Services L.L.C.
4(b) Registration of Preferred Stock Incorporated by reference to Form
Purchase Rights 8-A dated October 2, 1987
4(c) Current Report on dividend Incorporated by reference to Form
distribution of Preferred 8-K dated October 13, 1987
Stock Purchase Rights
4(d) Debt Securities Registered Incorporated by reference to Form
under Rule 415 (6% Notes) S-3, Registration No. 33-42389
dated August 23, 1991
</TABLE>
-85-
<PAGE> 86
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
<TABLE>
<CAPTION>
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
<S> <C> <C>
4(e) 6% 1993 Notes due September 15, Incorporated by reference to the
2003 described in Prospectus Prospectus Supplement dated
Supplement dated September 8, September 8, 1993 to Form S-3,
1993 to Form S-3 Registration under Registration No. 33-42389 dated
Rule 415 dated August 23, 1991 August 23, 1991
4(f) Debt and Equity Securities Registered Incorporated by reference to Form S-3,
Registration No. 33-56885 dated
December 15, 1994, effective date
January 12, 1995
Material Contracts - Credit facility
10(a) Amendment Agreement dated July 16, Exhibit to 10-Q for the period
1996 to the amended and restated ended June 30, 1996
Credit Agreement dated as of August 24, 1993, as
amended and restated as of June 21, 1994, and as
amended by an Amendment Agreement dated as of
June 20, 1995 and a second Amendment Agreement
dated as of February 29, 1996 among Harsco
Corporation, the lenders named therein and Chase
Manhattan Bank.
10(b) Commercial Paper Dealer Agreement Exhibit volume, 1994 10-K
Dated October 11, 1994, Between J.P.
Morgan Securities, Inc. and Harsco
Corporation
10(c) Commercial Paper Dealer Agreement Exhibit volume, 1994 10-K
Dated October 11, 1994, Between
Lehman Brothers, Inc. and Harsco
Corporation
10(d) Issuing and Paying Agency Agreement, Exhibit volume, 1994 10-K
Dated October 12, 1994, Between
Morgan Guaranty Trust Company
of New York and Harsco Corporation
</TABLE>
-86-
<PAGE> 87
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
<TABLE>
<CAPTION>
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
<S> <C> <C>
10(e) Commercial Paper Agreement with Exhibit to 10-Q for the period
Banque Bruxelles Lambert S.A./Bank ended September 30, 1996
Brussel Lambert N.V. dated
September 25, 1996.
Material Contracts - Underwriting
10(f) Commercial Paper Placement Agency Exhibit volume, 1998 10-K
Agreement dated November 6, 1998,
between Chase Securities, Inc. and
Harsco Corporation
10(g) Underwriting Agreement for Exhibit volume, 1987 10-K
Debt Securities dated
October 22, 1987
Material Contracts - Management Contracts
and Compensatory Plans
10(h) Harsco Corporation Supplemental Exhibit volume, 1997 10-K
Retirement Benefit Program as
amended January 27, 1998
10(i) Trust Agreement between Harsco Exhibit volume, 1987 10-K
Corporation and Dauphin Deposit
Bank and Trust Company dated
July 1, 1987 relating to the
Supplemental Retirement Benefit
Plan
10(j) Harsco Corporation Supplemental Exhibit volume, 1991 10-K
Executive Retirement Plan as
amended
10(k) Trust Agreement between Harsco Exhibit volume, 1988 10-K
Corporation and Dauphin
Deposit Bank and Trust Company
dated November 22, 1988 relating
to the Supplemental Executive
Retirement Plan
10(l) 1986 Stock Option Plan as amended Exhibit volume, 1990 10-K
10(m) 1995 Executive Incentive Compensation Proxy Statement dated March 22, 1995
Plan on Exhibit A pages A-1 through A-12
</TABLE>
-87-
<PAGE> 88
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
<TABLE>
<CAPTION>
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
<S> <C> <C>
10(n) Authorization, Terms and Conditions of Exhibit volume, 1998 10-K
the Annual Incentive Awards, as
amended and Restated January 1,
1999, under the 1995 Executive Incentive
Compensation Plan
Employment Agreements -
10(o) D. C. Hathaway Exhibit volume, 1989 10-K
Uniform agreement, the same as
shown for J. J. Burdge
" L. A. Campanaro " "
" P. C. Coppock " "
" W. D. Etzweiler " "
" S. D. Fazzolari " "
" R. W. Kaplan " "
10(p) Special Supplemental Retirement Exhibit Volume, 1988 10-K
Benefit Agreement for
D. C. Hathaway
Director Indemnity Agreements -
10(q) R. F. Nation Exhibit volume, 1989 10-K
Uniform agreement, same as
shown for J. J. Burdge
" A. J. Sordoni, III " "
" R. C. Wilburn " "
" R. L. Kirk " "
" N. H. Prater " "
" D. C. Hathaway " "
" J. I. Scheiner " "
" J. E. Marley " "
" C. F. Scanlan " "
" J. J. Jasinowski " "
" J. P. Viviano " "
</TABLE>
-88-
<PAGE> 89
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
<TABLE>
<CAPTION>
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
<S> <C> <C>
10(r) Harsco Corporation Deferred Exhibit volume, 1994 10-K
Compensation Plan for
Non-Employee Directors
10(s) Harsco Corporation 1995 Non-Employee Proxy Statement dated
Directors' Stock Plan March 22, 1995 on Exhibit B
pages B-1 through B-6
12 Computation of Ratios of Exhibit volume, 1998 10-K
Earnings to Fixed Charges
21 Subsidiaries of the Registrant Exhibit volume, 1998 10-K
23 Consent of Independent Accountants Exhibit volume, 1998 10-K
27 Financial Data Schedule Exhibit volume, 1998 10-K
</TABLE>
Exhibits other than those listed above are omitted for the reason that they are
either not applicable or not material.
The foregoing Exhibits are available from the Secretary of the Company upon
receipt of a fee of $10 to cover the Company's reasonable cost of providing
copies of such Exhibits.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31, 1998.
-89-
<PAGE> 90
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date 3-19-99 By /S/ Salvatore D. Fazzolari
--------------------------------
Salvatore D. Fazzolari
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/S/ Derek C. Hathaway Chairman & Chief 3-19-99
- -------------------------------------- Executive Officer --------------------
(Derek C. Hathaway)
/S/ Leonard A. Campanaro President, Chief Operating 3-19-99
- -------------------------------------- Officer and Director --------------------
(Leonard A. Campanaro)
/S/ Salvatore D. Fazzolari Senior Vice President and 3-19-99
- -------------------------------------- Chief Financial Officer --------------------
(Salvatore D. Fazzolari) (Principal Financial Officer)
/S/ Stephen J. Schnoor Vice President and Controller 3-19-99
- -------------------------------------- (Principal Accounting Officer) --------------------
(Stephen J. Schnoor)
/S/ Jerry J. Jasinowski Director 3-19-99
- -------------------------------------- --------------------
(Jerry J. Jasinowski)
/S/ Robert L. Kirk Director 3-19-99
- -------------------------------------- --------------------
(Robert L. Kirk)
/S/ James E. Marley Director 3-19-99
- -------------------------------------- --------------------
(James E. Marley)
/S/ Robert F. Nation Director 3-19-99
- -------------------------------------- --------------------
(Robert F. Nation)
/S/ Carolyn F. Scanlan Director 3-19-99
- -------------------------------------- --------------------
(Carolyn F. Scanlan)
/S/ James I. Scheiner Director 3-19-99
- -------------------------------------- --------------------
(James I. Scheiner)
/S/ Andrew J. Sordoni III Director 3-19-99
- -------------------------------------- --------------------
(Andrew J. Sordoni III)
/S/ Joseph P. Viviano Director 3-19-99
- -------------------------------------- --------------------
(Joseph P. Viviano)
/S/ Dr. Robert C. Wilburn Director 3-19-99
- -------------------------------------- --------------------
(Dr. Robert C. Wilburn)
</TABLE>
-90-
<PAGE> 91
Exhibit Index
Exhibit Document
Number Pages
- ------ -----
10(f) Commercial Paper Placement
Agency agreement dated
November 6, 1998, between
Chase Securities, Inc. and
Harsco Corporation 1 - 15
10(n) Authorization, Terms and
Conditions of the Annual
Incentive Awards, as
amended and Restated
January 1, 1999, under the
1995 Executive Incentive
Compensation Plan 1 - 8
12 Computation of Ratios of Earnings
to Fixed Charges 1
21 Subsidiaries of the Registrant 1 - 4
23 Consent of Independent Accountants 1
27 Financial Data Schedule 1
<PAGE> 1
COMMERCIAL PAPER PLACEMENT AGENCY AGREEMENT, dated as of November 6, 1998,
between HARSCO CORPORATION, a Delaware corporation (the "Issuer"), and CHASE
SECURITIES INC., a Delaware corporation (the "Placement Agent").
The Issuer intends to issue short-term notes pursuant to Section 4(2) of
the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506
thereunder.
The Issuer desires to enter into this Agreement with the Placement Agent
in order to provide for the offer and sale of such notes in the manner described
herein.
The parties hereto, in consideration of the premises and mutual covenants
herein contained, agree as follows:
1. Definitions
"Business Day" shall mean any day other than a Saturday or Sunday or a day
when banks are authorized or required by law to close in New York City.
"Company Information" shall mean the Private Placement Memorandum (defined
below), together with, to the extent applicable, information provided by the
Issuer pursuant to Section 7(b) hereof.
"DTC" shall mean the Depository Trust Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Institutional Accredited Investor" shall mean an institutional investor
that is reasonably believed to qualify as an "accredited investor" as defined in
Rule 501 (a) (1), (2), (3) or (7) under the 1933 Act.
"Issuing and Paying Agent" shall mean The Chase Manhattan Bank, the
issuing and paying agent under the Issuing and Paying Agency Agreement, or any
successor thereto.
"Issuing and Paying Agency Agreement" shall mean the issuing and paying
agency agreement, dated as of ___________ __, ______, and October 12, 1994
between [Morgan], as the Issuing and Paying Agent and the Issuer, the
obligations under which were assumed by The Chase Manhattan Bank on _____ __,
199_, as the same may from time to time be amended.
"Notes" shall mean short-term promissory notes of the Issuer, represented
by master notes substantially in the form of Annex A to the Issuing and Paying
Agency Agreement, issued by the Issuer from time to time pursuant to the Issuing
and Paying Agency Agreement.
-1-
<PAGE> 2
"Offering Materials" shall mean the offering materials concerning the
Issuer contemplated by Section 7 hereof (including the materials incorporated by
reference therein), and such offering materials as from time to time revised or
supplemented.
"Private Placement Memorandum" shall mean the private placement memorandum
with respect to the offer and sale of the Notes (including materials referred to
therein or incorporated by reference therein), prepared in accordance with
Section 7 hereof and provided to purchasers or prospective purchasers of the
Notes, and all amendments and supplements thereto which may be prepared from
time to time in accordance with this Agreement.
"Person" shall mean an individual, a corporation, a partnership, a trust,
an association or any other entity.
"Qualified Institutional Buyer" shall have the meaning assigned to that
term in Rule 144A.
"Rule 144A" shall mean Rule 144A under the 1933 Act.
"SEC" shall mean the U.S. Securities and Exchange Commission, or any
successor thereto.
2. Issuance and Placement of Commercial Paper Notes
(a) The Issuer hereby appoints the Placement Agent to act as the Issuer's
placement agent in connection with the sale of the Notes in accordance with the
terms hereof, and the Placement Agent hereby accepts such appointment. While (i)
the Issuer has and shall have no obligation to permit the Placement Agent to
purchase any Notes for its own account or to arrange for the sale of the Notes
and (ii) the Placement Agent has and shall have no obligation to purchase any
Notes for the Placement Agent's own account or to arrange for the sale of Notes,
the parties agree that, as to any and all Notes which the Placement Agent may
purchase or the sale of which the Placement Agent may arrange, such Notes will
be purchased or sold by the Placement Agent in reliance on, among other things,
the agreements, representations, warranties and covenants of the Issuer
contained herein and on the terms and conditions and in the manner provided for
herein. Without limiting the generality of the foregoing, the Issuer agrees that
the Issuer will not engage any person or party to assist in the placement of the
Notes other than a placement agent that has executed a placement agreement with
the Issuer which agreement contains procedures and terms substantially in the
form of those set forth in Section 6 hereof (each such placement agent, along
with the Placement Agent, referred to herein as an "Approved Placement Agent"
and together, the "Approved Placement Agents") and that it shall provide the
Placement Agent with a copy thereof within five (5) Business Days of execution
thereof.
(b) If the Issuer and the Placement Agent shall agree on the terms of the
purchase of any Note by the Placement Agent or the sale of any Note arranged by
the
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Placement Agent (including, but not limited to, agreement with respect to
the date of issue, purchase price, principal amount, maturity and interest rate
(in the case of interest-bearing Notes) or discount rate thereof (in the case of
Notes issued on a discount basis), and appropriate compensation for the
Placement Agent's services hereunder) pursuant to this Agreement, the Placement
Agent shall confirm the terms of each such agreement promptly to the Issuer in
the Placement Agent's customary form, the Issuer shall cause such Note to be
issued and delivered in accordance with the terms of the Issuing and Paying
Agency Agreement, and payment for such Note shall be made in accordance with
such Agreement. The authentication and delivery of such Note by the Issuing and
Paying Agent shall constitute the issuance of such Note by the Issuer. The
Issuer shall deliver Notes signed by the Issuer to the Issuing and Paying Agent,
and instructions shall be delivered to the Issuing and Paying Agent to complete,
authenticate and deliver such Notes in the manner prescribed in the Issuing and
Paying Agency Agreement. So long as incurred at the time with the prior approval
of the Issuer, the Placement Agent shall be entitled to compensation at such
rates and paid in such manner as the Issuer and the Placement Agent shall from
time to time agree upon and to reimbursement for the Placement Agent's
out-of-pocket costs and expenses, including, but not limited to, fees and
disbursements of outside counsel, in connection with the transactions
contemplated hereby.
(c) The Notes shall be issued in book-entry form only. Notes in book-entry
form shall be represented by master notes registered in the name of a nominee of
DTC and recorded in the book-entry system maintained by DTC. References to
"Notes" in this Agreement shall refer to such book-entry Notes unless the
context otherwise requires. The Notes may be issued either at a discount or as
interest-bearing obligations with interest payable at maturity in a stated
amount.
(d) Each Note purchased by, or the sale of which is arranged through, the
Placement Agent hereunder shall (i) have a face amount of $250,000, or an
integral multiple of $1,000 in excess thereof, (ii) have a maturity which is a
Business Day not later than the 270th day next succeeding such Note's date of
issuance and (iii) not contain any provision for extension, renewal or automatic
"rollover."
3. Representations and Warranties of the Issuer.
(a) The Issuer represents and warrants as follows:
(i) The Issuer is a duly organized and validly existing corporation in
good standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority to own its property, to carry on its business
as presently being conducted, to execute and deliver this Agreement, the Issuing
and Paying Agency Agreement, and the Notes, and to perform and observe the
conditions hereof and thereof.
(ii) Each of this Agreement and the Issuing and Paying Agency Agreement
has been duly and validly authorized, executed and delivered by the Issuer and
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constitutes the legal, valid and binding agreement of the Issuer. The issuance
and sale of Notes by the Issuer hereunder have been duly and validly authorized
by the Issuer and, when delivered by the Issuing and Paying Agent as provided in
the Issuing and Paying Agency Agreement, each Note will be the legal, valid and
binding obligation of the Issuer.
(iii) Assuming that the Notes are offered and sold in the manner
contemplated by Section 6 below, the offer and sale by the Issuer of such Notes
will constitute exempt transactions under Section 4(2) of the 1933 Act and Rule
506 thereunder, and, accordingly, registration of the Notes under the 1933 Act
will not be required. Qualification of an indenture with respect to the Notes
under the Trust Indenture Act of 1939, as amended, will not be required in
connection with the offer, issuance, sale or delivery of the Notes.
(iv) The Issuer is neither an "investment company" nor a "company
controlled by an investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(v) No consent or action of, or filing or registration with, any
governmental or public regulatory body or authority is required to authorize, or
is otherwise required in connection with, the execution, delivery or performance
of this Agreement, the Issuing and Paying Agency Agreement or the Notes.
(vi) Neither the execution and delivery by the Issuer of any of this
Agreement, the Issuing and Paying Agency Agreement and the Notes, nor the
fulfillment of or compliance with the terms and provisions hereof or thereof by
the Issuer, will (x) result in the creation of imposition of any mortgage, lien,
charge or encumbrance of any nature whatsoever upon any of the properties or
assets of the Issuer or (y) violate any of the terms of the Issuer's charter
documents or by-laws, any contract or instrument to which the Issuer is a party
or by which it or its property is bound, or any law or regulation, or any order,
writ, injunction or decree of any court or governmental instrumentality, to
which the Issuer is subject or by which it or its property is bound.
(vii) There are no actions, suits, proceedings, claims or governmental
investigations pending or, to the knowledge of the Issuer, threatened against
the Issuer or any of its officers or directors or any persons who control the
Issuer (within the meaning of Section 15 of the 1933 Act or Section 20 of the
Exchange Act) or to which any property of the Issuer is subject, which could in
any way result in a material adverse change in the condition (financial or
otherwise) of the Issuer, or materially prevent or interfere with, or materially
and adversely affect the Issuer's execution, delivery of performance of, any of
this Agreement, the Issuing and Paying Agency Agreement and the Notes, of which
the Placement Agent has not been notified in writing.
(viii) The initial Offering Materials do not, and any amendments or
supplements thereto and any subsequent Offering Materials and any amendments or
supplements thereto will not, contain any untrue statement of a material fact or
omit to state a
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<PAGE> 5
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not misleading.
(b) Each issuance of Notes by the issuer shall be deemed a representation
and warranty by the Issuer to the Placement Agent, as of the date thereof, that
both before and after giving effect to such issuance, (i) the representations
and warranties of the Issuer set forth in Section 3(a) hereof remain true and
correct on and as of such date as if made on and as of such date (except to the
extent such representations and warranties expressly relate solely to an earlier
date); (ii) the corporate resolutions and certificate of incumbency referred to
in Section 5 hereof remain accurate and in full force and effect; (iii) since
the date of the most recent Offering Materials, there has been no material
adverse change in the financial condition or operations of the Issuer which has
not been disclosed to the Placement Agent in writing; and (iii) the Issuer is
not in default of any of its obligations hereunder, under the Issuing and Paying
Agency Agreement or under any Note.
4. Covenants and Agreements of the Issuer.
(a) Without the prior written consent of the Placement Agent, the Issuer
shall not permit to become effective any amendment, supplement, waiver or
consent to or under the Issuing and Paying Agency Agreement. The Issuer shall
give to the Placement Agent, at least 10 Business Days prior to the proposed
effective date thereof, notice of any proposed amendment, supplement, waiver or
consent under the Issuing and Paying Agency Agreement. The Issuer shall provide
to the Placement Agent, promptly after the same is executed, a copy of any
amendment, supplement or written waiver or consent covered by the notice
requirements of this Section 4(a). The Issuer further agrees to furnish prior
written notice to the Placement Agent, as soon as possible and in any event at
least 10 Business Days prior to the effective date thereof, of any proposed
resignation, termination or replacement of the Issuing and Paying Agent.
(b) The Issuer shall, whenever there shall occur any change in the
Issuer's financial condition or any development or occurrence in relation to the
Issuer that would be material to the holders of Notes or potential holders of
Notes, promptly, and in any event prior to any subsequent issuance of Notes,
notify the Placement Agent (by telephone, confirmed in writing) of such change,
development or occurrence.
(c) The Issuer covenants and agrees with the Placement Agent that the
Issuer will promptly furnish to the Placement Agent a copy of any notice, report
or other information, relating to the Notes delivered to or from rating agencies
then rating the Notes.
(d) The Issuer shall not use the proceeds of the sale of the Notes for the
purpose of purchasing or carrying securities within the meaning of Regulation T
of the Board of Governors of the Federal Reserve System, unless the Issuer gives
not less than 10 days' prior written notice to the Placement Agent of the
Issuer's intention to do
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so and prompt notice of the actual commencement of such use of proceeds. In the
event that, after receipt of such a notice, the Placement Agent purchases Notes
as principal and does not resell such Notes on the day of such purchase, the
Placement Agent shall sell such Notes only to persons it reasonably believes to
be Qualified Institutional Buyers or to Qualified Institutional Buyers it
reasonably believes are acting for other Qualified Institutional Buyers, in each
case pursuant to Rule 144A.
5. Conditions Precedent.
At or promptly after the execution of this Agreement, and as conditions
precedent to any obligations of the Placement Agent hereunder, there shall have
been furnished to the Placement Agent, in form and substance satisfactory to the
Placement Agent:
(i) an original or photocopy of the executed Issuing and Paying
Agency Agreement;
(ii) a certified copy of resolutions duly adopted by the Board of
Directors of the Issuer authorizing and approving the
transactions contemplated hereby;
(iii) a certificate of incumbency showing the officers and other
representatives of the Issuer authorized to execute Notes and
to give instructions concerning the issuance of Notes;
(iv) an opinion of counsel to the Issuer addressed to the Placement
Agent as to the matters set forth in subsections (i)-(vii) of
Section 3(a) above and as to such other matters as the
Placement Agent shall reasonably request;
(v) a copy of each other opinion of counsel furnished to any
Person that may be delivered in connection with the issuance
of the Notes, including, but not limited to, any opinion
delivered under or relating to the Issuing and Paying Agency
Agreement, each of which shall be addressed to the Placement
Agent;
(vi) true and correct copies of the letters assigning ratings and
of all other correspondence to the Issuer from the rating
agencies that have assigned a rating to the Notes;
(vii) a copy of the Offering Materials, including the Private
Placement Memorandum, approved in writing by the Issuer;
(viii) true and correct copies of any documents relating to the Notes
executed by the Issuer and DTC; and
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<PAGE> 7
(ix) in connection with issuance of Notes in book-entry form, a
copy of the master note(s) evidencing such Notes.
6. Offers, Sales and Resales of Notes.
All offers and sales of the Notes by the Issuer shall be effected pursuant
to the exemption from the registration requirements of the 1933 Act provided by
Section 4(2) thereof, which exempts transactions by an issuer not involving any
public offering. Offers and sales of the Notes by the Issuer through the
Placement Agent acting as agent for the Issuer shall be made in accordance with
Rule 506 under the 1933 Act. Notes may be resold or otherwise transferred by the
holders thereof only if the Notes are registered under the 1933 Act or if any
exemption (including, but not limited to, the exemption afforded by Rule 144A)
from the registration requirements of the 1933 Act is available, provided,
however, that the Issuer shall have no obligation to register the Notes under
the 1933 Act and has no intention of doing so at any time in the future.
The Placement Agent (only with respect to offers and sales made by it as
agent for the Issuer and reoffers and subsequent resales or other transfers made
by or through the Placement Agent) and the Issuer hereby establish and agree to
observe the following procedures in connection with offers, sales and subsequent
resales or other transfers of the Notes:
(a) The Issuer hereby confirms to the Placement Agent that within the
preceding six months neither the Issuer nor any person other than an Approved
Placement Agent acting on behalf of the Issuer has offered or sold any Notes, or
any substantially similar security of the Issuer to, or solicited offers to buy
any such security from, any person other than an Approved Placement Agent. The
Issuer also agrees that, as long as the Notes are being offered for sale by the
Approved Placement Agents as contemplated hereby and until at least six months
after the offer of Notes hereunder has been terminated, neither the Issuer nor
any person other than the Approved Placement Agents will offer the Notes or any
substantially similar security of the Issuer for sale to, or solicit offers to
buy any such security from, any person other than the Approved Placement Agents
without the giving of prior written notice to the Placement Agent, it being
understood that such agreement is made with a view to bringing the offer and
sale of the Notes within the exemption provided by Section 4(2) of the 1933 Act
and Rule 506 thereunder and shall survive any termination of this Agreement.
(b) Offers and sales of the Notes shall be made only to the following
types of investors; (i) Institutional Accredited Investors (including, but not
limited to, a bank, as defined in Section 3(a)(2) of the 1933 Act, or a savings
and loan association or other institution, as defined in Section 3(a)(5)(A) of
the 1933 Act, whether acting in its individual or fiduciary capacity, provided
that, if it is acting in a fiduciary capacity, it has sole investment discretion
with respect to any account for which it is purchasing a Note), (ii) fiduciaries
or agents (other than U.S. banks or savings and loan associations of the type
described in clause (i) of this sentence) that will be purchasing Notes for one
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or more accounts, each of which is an Institutional Accredited Investor, and
(iii) Qualified Institutional Buyers.
(c) Resales and other transfers of the Notes by the holders thereof shall
be made only to the Issuer or to Institutional Accredited Investors or, in the
case of Notes resold or otherwise transferred pursuant to Rule 144A, to
Qualified Institutional Buyers or, if the Rule 144A resale is made through the
Placement Agent, to institutional investors that the Placement Agent reasonably
believes to qualify as Qualified Institutional Buyers. The Placement Agent shall
not be liable to any person or entity for any resales or other transfers made in
violation of the foregoing conditions that are not made by or through the
Placement Agent.
(d) The Notes shall be offered only by approaching prospective purchasers
on an individual basis. No general solicitation or general advertising shall be
used in connection with the offering of the Notes. Without limiting the
generality of the foregoing, without the prior written approval of the Placement
Agent, the Issuer shall not issue any press release, generate any publicity,
allow any "tombstone" or other advertisement to be published, or hold any
meeting with securities analysts to the extent that any of these actions relates
to the Notes.
(e) No sale of Notes to any one purchaser shall be for less than $250,000
principal amount, and no Note shall be issued in a smaller face amount. If the
purchaser is a non-bank fiduciary acting on behalf of others, each person for
whom such purchaser is acting must purchase at least $250,000 face amount of
Notes.
(f) Each Note shall contain the following legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW. BY ITS
ACCEPTANCE OF THIS NOTE, THE PURCHASER REPRESENTS THAT (A) THE PURCHASER
IS (1) AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR WITHIN THE
MEANING OF REGULATION D UNDER THE ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), INCLUDING, WITHOUT LIMITATION, A BANK, AS DEFINED IN SECTION
3(a)(2) OF THE ACT, OR A SAVINGS AND LOAN ASSOCIATION OR OTHER
INSTITUTION, AS DEFINED IN SECTION 3(a)(5)(A) OF THE ACT, WHETHER ACTING
IN ITS INDIVIDUAL OR FIDUCIARY CAPACITY, PROVIDED THAT, IF IT IS ACTING IN
A FIDUCIARY CAPACITY, IT HAS SOLE INVESTMENT DISCRETION WITH RESPECT TO
ANY ACCOUNT FOR WHICH IT IS PURCHASING A NOTE, OR (2) A FIDUCIARY OR AGENT
(OTHER THAN A U.S. BANK OR SAVINGS AND LOAN ASSOCIATION OF THE TYPE
DESCRIBED IN CLAUSE (A)(1) OF THIS SENTENCE) PURCHASING THIS NOTE FOR AN
ACCOUNT WHICH IS AN INSTITUTIONAL ACCREDITED INVESTOR THAT IS PURCHASING
AT LEAST $250,000 OF NOTES OF THE TYPE REPRESENTED HEREBY, OR (3) A
QUALIFIED INSTITUTIONAL BUYER ("QIB") WITHIN THE MEANING OF RULE 144A
UNDER THE ACT; (B) THIS NOTE IS BEING ACQUIRED FOR
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INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY
DISTRIBUTION HEREOF; (C) ANY RESALE OF THIS NOTE WILL BE MADE ONLY (1) TO
THE ISSUER, CHASE SECURITIES INC. ("CSI"), OR ANOTHER PERSON DESIGNATED BY
THE ISSUER AS A PLACEMENT AGENT FOR THIS NOTE (CSI AND EACH SUCH PLACEMENT
AGENT TO BE REFERRED TO HEREINAFTER AS A "PLACEMENT AGENT"), NONE OF WHICH
SHALL HAVE ANY OBLIGATION TO ACQUIRE THIS NOTE, (2) THROUGH A PLACEMENT
AGENT TO AN INSTITUTIONAL INVESTOR APPROVED AS AN ACCREDITED INVESTOR OR
REASONABLY BELIEVED TO BE A QIB BY A PLACEMENT AGENT IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE ACT, OR (3) TO A QIB IN A TRANSACTION
THAT MEETS THE REQUIREMENTS OF RULE 144A; AND (D) IN THE CASE OF SALES
PURSUANT TO RULE 144A, IT IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR THE
ACCOUNT OF ANOTHER QIB AND THE PURCHASER UNDERSTANDS THAT THIS NOTE WAS
SOLD TO THE PURCHASER PURSUANT TO AN EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE ACT PURSUANT TO RULE 144A.
(g) The Placement Agent shall furnish to each purchaser of newly issued
Notes a copy of the Private Placement Memorandum, and each amendment or
supplement thereto (other than any amendment or supplement that has been
completely superseded by a later amendment or supplement), and any additional
Offering Materials approved by the Issuer and requested by such purchaser.
(h) For so long as any of the Notes is outstanding and is a "restricted
security" within the meaning of Rule 144(a)(3) under the 1933 Act, (i) the
Issuer shall cause to be provided to any holder of Notes and any prospective
purchaser of the Notes designated by a holder of such Notes, upon the request of
such holder or prospective purchaser, the information, if any, required to be
provided to such holder or prospective purchaser by Rule 144A(d)(4) and (ii) the
Issuer shall update such information from time to time in order to prevent such
information from becoming false or misleading and the Issuer shall take such
other actions as are necessary to ensure that the safe harbor exemption from the
registration requirements of the 1933 Act under Rule 144A is and will be
available for resale of the Notes conducted in accordance with Rule 144A.
(i) In the event that any Note offered or to be offered by the Placement
Agent would be ineligible for resale under Rule 144A (because such Note is of
the same class (within the meaning of Rule 144A) as any other securities of the
Issuer which are at such time listed on a national securities exchange
registered under Section 6 of the Exchange Act, or quoted in a U.S. automated
inter-dealer quotation system), the Issuer shall immediately notify the
Placement Agent (by telephone, confirmed in writing) of such fact and shall
promptly prepare and deliver to the Placement Agent an amendment or supplement
to the Offering Materials describing the Notes that are ineligible, the reason
for such ineligibility and any other relevant information relating thereto.
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(j) The Issuer agrees promptly from time to time to take such action as
the Placement Agent may reasonably request to qualify the Notes for offering and
sale under the securities laws of such jurisdictions as the Placement Agent may
request and to comply with such laws so as to permit the continuance of sales
and resales therein for as long as may be necessary to complete the transactions
contemplated hereby, provided that in connection therewith the Issuer shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction other than consent to service of process
under such state securities laws. The Issuer also agrees to reimburse the
Placement Agent for any reasonable fees or costs incurred in so qualifying the
Notes.
7. Disclosure.
(a) The Issuer understands that, in connection with the offer and sale of
the Notes, from time to time offering materials, including a Private Placement
Memorandum and any other Company Information approved by the Company for
dissemination to purchasers or potential purchasers of the Notes (the "Offering
Materials"), will be prepared relating to the Issuer, which may be distributed
to the Placement Agent's sales personnel and to purchasers and prospective
purchasers of the Notes.
(b) To provide a basis for the preparation of the Offering Materials and
to assist in the Placement Agent's ongoing credit review procedures and sale of
the Notes, the Issuer agrees to furnish to the Placement Agent, as these items
become available, (i) the Issuer's most recent report on Form 10-K filed with
the SEC and each report on Form 10-Q or 8-K filed by the Issuer with the SEC
since the most recent Form 10-K, (ii) the Issuer's most recent annual audited
financial statements and each interim financial statement or report prepared
subsequent thereto, if not included in item (i) above, (iii) the Issuer's and
its affiliates' other publicly available recent reports, including, but not
limited to, any publicly available filings or reports provided to their
respective shareholders, any national securities exchange or any rating agency,
and any information generally supplied in writing to securities analysts, (iv)
research reports with respect to the Company prepared by any brokerage house or
rating agency, (v) any other information or disclosure prepared pursuant to
Section 7(f) hereof, and (vi) any other information or document prepared or
approved by the Issuer for dissemination to purchasers or potential purchasers
of the Notes. In addition, the Issuer shall provide the Placement Agent with
such other information as the Placement Agent may reasonably request for the
purpose of its ongoing credit review of the Issuer.
(c) The Issuer recognizes that the accuracy and completeness of the
Offering Materials are dependent on the accuracy and completeness of the
information obtained by the Placement Agent and, subject to Section 7(d) and
Section 8 hereof, the Placement Agent shall not be responsible for any
inaccuracy in any Offering Materials.
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(d) The Placement Agent agrees that prior to the distribution of any
Offering Materials the Placement Agent will provide the Issuer with a copy
thereof for the Issuer's review and approval. The Issuer agrees to notify the
Placement Agent in writing within 14 calendar days of receipt of such Offering
Materials of the Issuer's approval or disapproval thereof. Any such approval by
the Issuer shall be deemed to be a representation by the Issuer that the
Offering Materials (excluding any information furnished by the Placement Agent
expressly for inclusion therein, as set forth in the sections thereof entitled
"CSI Affiliates" and "Additional Information") so approved does not contain an
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
(e) The Issuer represents and warrants to the Placement Agent that the
financial statements of the Issuer delivered or to be delivered to the Placement
Agent in accordance with this Section 7 are or will be in accordance with
generally accepted accounting principles and practices in effect in the United
States on the date such statements were or will be prepared and fairly do or
will present the financial condition and operations of the Issuer at such date
and the results of the Issuer's operations for the period then ended.
(f) The Issuer further agrees to notify the Placement Agent promptly upon
the occurrence of (i) any event that would render any fact contained in the
Issuer's most recent financial reports, as submitted to the Placement Agent,
untrue or misleading, or (ii) any event relating to or affecting the Issuer that
would cause the Offering Materials then in use to include an untrue statement of
material fact or to omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. In such event, the Issuer agrees to supply the
Placement Agent promptly with such information as will correct such untrue or
misleading statement or such omission.
8. Indemnification.
(a) The Issuer agrees to indemnify the Placement Agent and its affiliates,
their respective directors, officers, employees, and agents, and each person who
controls the Placement Agent or its affiliates within the meaning of the 1933
Act or the Exchange Act and any successor thereto (the Placement Agent and each
such person being an "Indemnified Person") from and against any and all losses,
claims, damages and liabilities, joint or several, to which such Indemnified
Person may become subject under any applicable federal or state law, or
otherwise, related to or arising out of (i) any untrue statement or alleged
untrue statement or a material fact contained in the Offering Materials or in
any information (whether oral or written) or documents furnished or made
available by the Issuer to offerees of the Notes or any of their representatives
or the omission or the alleged omission to state therein a material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, or (ii) any matter or transaction
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contemplated by this Agreement or by the engagement of the Placement Agent
pursuant to, and the performance by the Placement Agent of the services
contemplated by, this Agreement and shall promptly reimburse any Indemnified
Person for all expenses (including, but not limited to, fees and disbursements
of internal and external counsel), as they are incurred, in connection with the
investigation of, preparation for or defense of any pending or threatened claims
or any action or proceeding arising therefrom, whether or not such Indemnified
Person is a party, provided, however, that, with respect to (ii) herein, the
Issuer shall not be liable in any such case to the extent such loss, claim,
damage or liability is finally judicially determined to have resulted primarily
from an Indemnified Person's gross negligence or willful misconduct.
(b) Promptly after receipt by an Indemnified Person under this Section 8
of notice of any claim or the commencement of any action, the Indemnified Person
shall, if a claim in respect thereof is to be made against the Issuer under this
Section 8, notify the Issuer in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the Issuer shall not
relieve it from any liability that the Issuer may have under this Section 8
except up to the extent of any factual and material prejudice suffered by the
Issuer as a result of such failure; and, provided, further, that in no event
shall the failure to notify the Issuer relieve it from any liability that the
Issuer may have to an Indemnified Person otherwise than under this Section 8. If
any such claim or action shall be brought against an Indemnified Person, and
notifies the Issuer thereof, the Issuer shall be entitled to participate therein
and, to the extent that the Issuer wishes, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Person. After notice from the
Issuer to the Indemnified Person of the Issuer's election to assume the defense
of such claim or action, the Issuer shall not be liable to the Indemnified
Person under this Section 8 for any legal or other expenses subsequently
incurred by the Indemnified Person in connection with the defense thereof other
than reasonable costs of investigation. The Issuer shall not be liable for any
settlement of any such action effected without the Issuer's written consent
(which consent shall not be unreasonably withheld) but, if settled with the
Issuer's written consent or if there is final judgment for the plaintiff in any
such action, the Issuer agrees to indemnify and hold harmless any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 8 is for
any reason unavailable or insufficient to hold harmless an Indemnified Person,
other than as expressly provided above, the Issuer and the Placement Agent shall
contribute to the aggregate costs of satisfying such liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuer, on the one hand, and the Placement Agent, on the other hand, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuer on the
one hand and the Placement Agent on the other with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits
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received by the Issuer on the one hand and the Placement Agent on the other with
respect to such offering shall be deemed to be in the same proportion as the
aggregate proceeds to the Issuer of the Notes sold pursuant hereto (before
deducting expenses) bear to the aggregate commissions and fees earned by the
Placement Agent hereunder. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuer on the one hand or the Placement
Agent on the other, the intent of the parties, and their relative knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Issuer and the Placement Agent agree that it would
not be just and equitable if contributions pursuant to this Section 8 were to be
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to herein. The
amount paid or payable by an Indemnified Person as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Section 8 shall be deemed to include, for purposes of this Section 8, but not be
limited to, any fees and disbursements of internal and external counsel
reasonably incurred by an Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 8, the aggregate of all amounts paid by the Placement Agent pursuant to
the foregoing shall not exceed the aggregate of such commissions and fees earned
by the Placement Agent hereunder.
(d) The obligations of the Issuer in this Section 8 are in addition to any
other liability that the Issuer may otherwise have.
(e) The provisions of this Section 8 shall survive the termination of this
Agreement.
9. Choice of Forum.
The Issuer agrees that any suit, action or proceeding brought by the
Issuer against the Placement Agent in connection with or arising out of this
Agreement, any agreement, instrument or document entered into in connection with
this Agreement, or the offer and sale of the Notes shall be brought solely in
the Federal courts located in the Borough of Manhattan or the courts of the
State of New York located in the Borough of Manhattan.
10. Notices.
All notices required under the terms and provisions hereof shall be in
writing, delivered by hand, by mail (postage prepaid), or by telex, telecopier
or telegram, and any such notice shall be effective when received at the address
specified below.
If to the Issuer: If to the Placement Agent:
Harsco Corporation Chase Securities Inc.
-13-
<PAGE> 14
350 Poplar Church Road 270 Park Avenue, 9th Floor
Camp Hill, PA 17011 New York, New York 10017
Attention: Director of Treasury Attention: Money Market Division
Fax No.: 717-763-6424 Fax No.: 212-834-6560
or, if to any of the foregoing parties or their successors, at such other
address as such party or successor may designate from time to time by notice
duly given in accordance with the terms of this Section 10 to the other party
hereto.
11. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS
PROVISIONS.
12. Entire Agreement.
This Agreement constitutes the entire agreement between the parties hereto
with respect to the matters covered hereby and supersedes all prior agreements
and understandings between the parties.
13. Amendment and Termination; Successors; Counterparts.
(a) The terms of this Agreement shall not be waived, altered, modified,
amended or supplemented in any manner whatsoever except by written instrument
signed by both parties hereto. The Issuer or the Placement Agent may terminate
this Agreement upon at least 30 days' written notice to the other, provided that
such termination shall not affect the obligations of the parties hereunder with
respect to Notes unpaid at the time of such termination or with respect to
actions or events occurring prior to such termination.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that neither the Issuer nor the Placement Agent may assign, either in whole or
in part, any of its rights or obligations under this Agreement without the prior
written consent of the other party, and any such assignment without such consent
shall be null and void, except that the Placement Agent may assign and transfer
this Agreement to a successor in interest to the Placement Agent as a result of
a merger of the Placement Agent with any of its affiliates, or the acquisition
of the Placement Agent or The Chase Manhattan Corporation.
-14-
<PAGE> 15
(c) This Agreement may be executed in several counterparts, each of which
shall be deemed an original hereof.
14. Captions.
The captions in this Agreement are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof.
15. Severability of Provisions.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity of such provisions in any other
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.
HARSCO CORPORATION
By: /s/ BARRY M. SULLIVAN
-----------------------
Name: Barry M. Sullivan
Title:Vice President - Corporate
Development
and Treasurer
CHASE SECURITIES INC.
By: /s/ MARCO TEJADA
------------------------
Name: Marco Tejada
Title: Vice President
-15-
<PAGE> 1
HARSCO CORPORATION
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
AUTHORIZATION, TERMS, AND CONDITIONS OF
ANNUAL INCENTIVE AWARDS
(AS AMENDED AND RESTATED JANUARY 1, 1999)
1. Purposes of Annual Incentive Awards
The grant of Annual Incentive Awards ("Awards") under the 1995 Executive
Incentive Compensation Plan is intended to further the profitable growth
of Harsco Corporation (the "Company") by offering a short-term incentive
opportunity, in addition to base salary, to officers and key corporate and
divisional employees of the Company and its subsidiaries who are largely
responsible for such growth, to the benefit of the Company's stockholders.
Such Awards are expected to encourage recipients to improve their
performance and remain with the Company and its subsidiaries, and that the
possibility of such awards will encourage other qualified persons to seek
and accept employment with the Company and its subsidiaries.
2. Overview
This document (the "Authorization") sets forth the authorization, terms,
and conditions of Awards under the Company's 1995 Executive Incentive
Compensation Plan (the "1995 Plan"), as determined by the Management
Development and Compensation Committee (the "Committee"). The terms of
this Authorization are subject to, and qualified in their entirety by
reference to, the 1995 Plan, including Section 6(h) of the 1995 Plan
setting forth terms relating to Awards. If any terms of this Authorization
are inconsistent with the terms of the 1995 Plan, the terms of the 1995
Plan shall control. Terms used in this Authorization but not otherwise
defined herein shall have the meanings ascribed to such terms in the 1995
Plan.
3. Definitions
In addition to terms defined in Sections 1 and 2 hereof, the following
terms shall be defined as set forth below:
3.1 Award Potential means the range of amounts, denominated in cash,
that may be deemed to be earned upon achievement of Performance
Objectives, as set forth in Section 4.1. The terms Maximum and
Target Award Potential have the meanings set forth in Section 4.1,
and the term Earned Award Potential has the meaning set forth in
Section 5.1. Award Potentials are hypothetical amounts intended
solely to provide a means of valuing Awards for purposes of
settlement.
3.2 Base Salary means salary actually earned by a Participant during the
Performance Year to which the Award relates (as distinct from the
annual salary rate in effect at the end of such Performance Year).
This amount excludes payments resulting from awards authorized under
the Company's Annual and Long-Term Incentive Plans prior to 1995 and
payments under the 1995 Plan, the Authorization, or Awards
thereunder.
3.3 Cause means (i) the willful and continued failure by the Participant
to perform substantially his or her duties with the Company or a
subsidiary (other than such failure resulting from the Participant's
incapacity due to physical or mental illness), or (ii) the willful
engaging by the Participant in illegal conduct, or (iii) the willful
engaging by the Participant in conduct in violation of any provision
of the Code of Conduct or other published policies of the Company,
or (iv) the willful engaging by the Participant in any act of
serious dishonesty which adversely affects, or in the reasonable
estimation of the Committee, could in the future adversely affect,
<PAGE> 2
the value, reliability or performance of the Participant to the
Company. For purposes of this definition, no act, or failure to act,
on the part of the Participant shall be considered "willful" unless
done, or omitted to be done, by the Participant in bad faith and
without reasonable belief that his or her action or omission was in,
or not opposed to, the best interests of the Company.
3.4 Eligible Unit means the Company as a whole or any department,
division, subsidiary, or other business unit or function of the
Company for which separate operational results may be available to
the Committee, as specified by the Committee.
3.5 Fair Market Value of Common Stock as of any given date means the
average of the high and the low sale prices of a share of common
stock reported in the table entitled "New York Stock Exchange
Composite Transactions" contained in The Wall Street Journal (or an
equivalent successor table) for such date or, if no such prices are
reported for such date, on the most recent trading day prior to that
date for which such prices were reported.
3.6 Normal Retirement means retirement at or after age 62 with at least
30 years of service, or at or after age 65.
3.7 Participant means an officer of the Company (including division
officers).
3.8 Performance Objective means the business criteria and minimum,
targeted, and maximum Performance Levels with respect to such
business criteria required to be achieved during a Performance Year
as conditions to the settlement of an Award, and other related
terms, as set forth in Section 4.2.
3.9 Performance Level means a specified measure of achievement with
respect to a business criteria, required in connection with a
Performance Objective, as set forth in Section 4.2.
3.10 Performance Year means the fiscal year or other specified period
during which the achievement of Performance Objectives with respect
to a given Award shall be measured.
3.11 Restricted Stock means Restricted Stock granted in settlement of a
specified portion of an Award, subject to the terms of the 1995 Plan
and this Authorization. Common Stock issued or delivered as
Restricted Stock may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
3.12 Restricted Period shall have the meaning set forth in Section 6.1
hereof.
3.13 Salary Level means the numbered category assigned to each
Participant for purposes of determining annual salary rate under the
Company's executive compensation program, as of the end of the
Performance Year to which an Award relates.
3.14 Termination means a termination of employment immediately after
which the Participant is not an employee of the Company or any
subsidiary. Conversion from full-time or part-time employment or a
leave of absence from employment, if approved by the Committee,
shall not be deemed to be a Termination for purposes of this
Authorization.
4. Awards, Award Potentials, and Performance Objectives
The Committee may authorize Awards for a given Performance Year for
eligible officers of the Company. The authorization of an Award for a
Participant will confer upon such Participant a conditional right to
receive cash upon achievement of Performance Objectives specified for the
Participant. Each Award shall relate to a single Performance Year
specified by the Committee.
4.1 Award Potential; Maximum and Target Award Potentials. The Award
Potential for each Award shall range from zero to a maximum amount
equal to the Participant's Base Salary multiplied
-2-
<PAGE> 3
by his or her Salary Level multiplied by 0.06, such maximum amount
being designated the Maximum Award Potential. Within this range, the
Award Potential equal to 67% of the Maximum Award Potential shall be
designated as the Target Award Potential.
4.2 Performance Objectives. For each Award, the Committee shall specify
Performance Objectives, which shall be set forth in one or more
exhibits which may be from time to time appended to this
Authorization. The Performance Objectives specified in a given
exhibit may apply to one or more Participants, including groups of
Participants working for an Eligible Unit. Each such exhibit shall
set forth the following, in any format deemed appropriate by the
Committee:
(a) The Committee shall specify the business criteria for each
Performance Objective, setting forth the nature of the
performance to be measured. The Committee may limit the scope
of any business criteria authorized under the 1995 Plan, and
set forth in detail any terms relating to such business
criteria as the Committee deems necessary or desirable to
enable Performance Objectives to be unambiguous and subject to
precise measurement.
(b) Because multiple Performance Objectives will be designated for
each Award, the Committee shall specify the weighting to be
given each Performance Objective. Such weighting will be
expressed as a percentage, by which a Participant's Award
Potential may be multiplied to determine the portion of the
Award Potential that relates to a given Performance Objective.
(c) The Committee shall designate for each Performance Objective a
Minimum, Target, and Maximum Performance Level. The Minimum
Performance Level will represent the threshold level of
performance required before any Award Potential will be deemed
to be earned with respect to a given Performance Objective.
The Target Performance Level will represent the level of
performance required in order that the Target Award Potential
will be deemed to be earned with respect to a given
Performance Objective. The Maximum Performance Level will
represent the level of performance required in order that the
Maximum Award Potential will be deemed to be earned with
respect to a given Performance Objective.
(d) The Committee shall designate the Performance Year to which
the Performance Objectives relate.
4.3 Guidelines for Establishing Performance Levels. In establishing
Performance Levels, the Minimum Performance Level will represent
less than desired performance, the Target Performance Level will
represent superior, professional performance under existing
circumstances rather than ordinary performance, and the Maximum
Performance Level will represent distinguished performance expected
to be achieved only rarely, e.g., something on the order of two out
of ten times. Although the Target Award Potential represents 67% of
the Maximum Award Potential, there is no requirement that Target
Performance Levels bear any particular mathematical relationship to
Maximum Performance Levels or Minimum Performance Levels.
4.4 Notification of Awards. The Company shall notify members of the
class of eligible employees of their selection for participation,
the authorization of Awards, and the applicable Performance
Objectives as promptly as practicable. Such notification shall be
accomplished in any reasonable manner, in the discretion of the
Committee.
-3-
<PAGE> 4
5. Settlement of Awards in Cash and Restricted Stock
5.1 Determination of Earned Award Potential and Limitation Thereof. As
promptly as practicable following the end of each Performance Year,
the Committee shall determine whether and the extent to which
Performance Objectives and other material terms and conditions
relating to each Participant's Award for such Performance Year have
been achieved and satisfied, and shall determine the Award
Potential, if any, deemed to be earned with respect to each such
Award (the "Earned Award Potential"). In the event that a
Participant's Earned Award Potential exceeds $2,000,000, the Earned
Award Potential for such Participant's Award shall be reduced to
that amount.
5.2 Payment of Cash and Grant of Restricted Stock. At the time the
Committee determines a Participant's Earned Award Potential under
Section 5.1, each Participant shall become entitled, subject to
Sections 5.3 and 5.4, to receive a payment in cash equal to his or
her Earned Award Potential. Such cash payment shall be made as
promptly as practicable after the determination by the Committee of
the Participant's Earned Award Potential. Participants may request
that the Committee pay his or her award 60% in cash and the balance
in a number of shares of common stock of the Company, equal to 40%
of his or her Earned Award Potential divided by the Fair Market
Value of common stock on the last trading day of the performance
year. Upon approval by the Committee, the award shall be paid to the
requesting Participant in that manner. Such common stock may consist
in whole or in part, of authorized and unissued shares or treasury
stock.
5.3 Committee Discretion. The Committee may, at any time prior to the
payment under Section 5.2, adjust or modify Performance Objectives,
Award Potentials, or other Award terms (1) in recognition of unusual
or nonrecurring events affecting the Company or any Eligible Unit,
or the financial statements or results thereof, or in response to
changes in applicable laws (including tax, disclosure, and other
laws), regulations, accounting principles, or other circumstances
deemed relevant by the Committee, (2) in view of the Committee's
assessment of the business strategy of the Company and Eligible
Units thereof, performance of comparable organizations, economic and
business conditions, personal performance of the Participant, and
other circumstances deemed relevant by the Committee, or (3) with
respect to any Participant whose position or duties with the Company
or any subsidiary has changed; provided, however, that no such
adjustment or modification may be made with respect to an Award
granted to a "covered employee" within the meaning of Code Section
162(m) and regulations thereunder if and to the extent that such
adjustment or modification would increase the amount of compensation
payable to such covered employee upon achievement of the existing
Performance Objectives. Examples of considerations which might
influence the Committee in exercising its discretion hereunder
include:
(a) Achievement of a rate of return on stockholders' equity which
was either significantly more or significantly less than the
Committee's estimate of the Company's competitive cost of
equity.
(b) The existence of compensation restraints at an Eligible Unit.
(c) A substantial change in the established strategic performance
objectives during the period.
(d) A substantial change in the composition of an Eligible Unit
during the period.
5.4 Settlement of Award In the Event of Termination. In the event of a
Participant's Termination, such Participant (or his or her
beneficiary) shall receive, in lieu of payment of all amounts
specified in Section 5.2, settlement of such Participant's Award as
provided in this Section 5.4.
-4-
<PAGE> 5
In the event of a Participant's Termination by reason of Normal
Retirement, death, or full and permanent disability (as determined
by the Committee) prior to the end of a Performance Year to which an
Award relates, the Participant's Earned Award Potential shall be
100% of the Earned Award Potential otherwise determined under
Section 5.1. (However, the definition of "Base Salary" will have the
effect of prorating the Participant's Earned Award Potential
according to the salary actually earned during the year to the date
of retirement.) In the event of a Participant's Termination for any
reason other than an involuntary Termination for Cause after the end
of a Performance Year to which an Award relates but prior to
settlement of an Award relating to such Performance Year, the
Participant's Earned Award Potential shall equal 100% of the Earned
Award Potential otherwise determined under Section 5.1. In any case,
the Participant's Earned Award Potential shall be determined by the
Committee at such time as determinations are otherwise made under
Section 5.1, and settlement of his or her Award shall be made as
promptly as practicable thereafter.
Any settlement under this Section 5.4 shall be made in the form of a
payment in cash equal to 100% of the Participant's Earned Award
Potential (as adjusted under this Section 5.4).
In the event of a Participant's Termination (i) for any reason other
than Normal Retirement, death, or full and permanent disability (as
determined by the Committee) prior to the end of a Performance Year
to which an Award relates or (ii) which is an involuntary
Termination for Cause after the end of a Performance Year to which
an Award relates but prior to the Committee's determination of the
Participant's Earned Award Potential with respect to such Award, any
Award of such Participant for which such Earned Award Potential has
not previously been determined shall be forfeited.
5.5 Certification. Determinations by the Committee under this Section 5
shall be set forth in a written certification, which may include for
this purpose approved minutes of a meeting of the Committee at which
such determinations were made.
6. Restricted Stock
6.1 Effective January 6, 1999, all restrictions against transfer and
forfeiture conditions applicable to the outstanding Restricted Stock
shall terminate and all such shares which had not previously been
forfeited shall become transferable and nonforfeitable. In addition,
on such date, the Company shall repurchase from the Participants all
outstanding Restricted Stock with respect to which the Fair Market
Value on January 6, 1999 is more than 10% below the Fair Market
Value which was used at the time of grant to calculate the number of
shares awarded ("Original Grant Value"). Such repurchases shall be
paid for by the Company as soon as practicable in cash (subject to
necessary withholding) at a price per share equal to the Original
Grant Value. With respect to awards made in the form of a deferred
right to receive common stock of the Company (United Kingdom
Participants only), the Company shall issue common stock with
respect to those awards which are not being purchased for cash, and
with respect to the awards which the Company is repurchasing, the
Company shall pay cash to the Participants in an amount per share
equal to the Original Grant Value (subject to necessary withholding)
in satisfaction of its obligation to deliver those shares.
6.2 Delivery of Stock Certificates Upon Termination of Restricted
Period. Following termination of the Restricted Period applicable to
Restricted Stock, the Company shall upon Participant's request,
promptly cause to be delivered to the Participant one or more
certificates representing the shares granted as such Restricted
Stock (which shares shall no longer be deemed to be Restricted
Stock), with any legends no longer applicable to such shares removed
from such certificate(s).
-5-
<PAGE> 6
7. Tax Withholding
7.1 Upon the termination of the Restricted Period applicable to
Restricted Stock, the Company will withhold from such Restricted
Stock, whole shares of Common Stock which shall be sufficient in
value to satisfy all or a portion of such tax withholding
obligations.
7.2 Shares withheld or surrendered under this Section 7 shall be valued
at their Fair Market Value on January 6, 1999. The Committee may, in
its discretion, impose restrictions on any share withholding and
surrender under this Section 7, including restrictions on
Participants subject to Section 16 of the Exchange Act, in order to
ensure that the grant of a right to elect such share withholding and
provide the opportunity to such Participants to avail themselves of
an exemption for the actual withholding or surrender of shares from
short-swing profits liability under the Exchange Act.
8. Administration
Administrative details relating to Awards shall be handled by the
Administrator, which shall be one or more individuals, employed in the
Company's corporate office, designated by the Chief Executive Officer of
the Company to serve in such capacity.
-6-
<PAGE> 7
Exhibit 1995-I
ANNUAL INCENTIVE AWARDS AUTHORIZED
FOR 1995
The following sets forth the name of eligible officers for whom Annual Incentive
Awards are authorized for the 1995 Performance Year. Opposite the name of each
Participant is the Exhibit setting forth the Performance Objectives applicable
to such Participant.
Exhibit Setting Forth
Name Performance Objective
---- ---------------------
___________________________________________ Exhibit 1995-II
___________________________________________ Exhibit 1995-III
___________________________________________ Exhibit 1995-III
___________________________________________ Exhibit 1995-IV
___________________________________________ Exhibit 1995-IV
___________________________________________ Exhibit 1995-IV
___________________________________________ Exhibit 1995-V
-7-
<PAGE> 8
Exhibit 1995-____
PERFORMANCE OBJECTIVES FOR 1995
ANNUAL INCENTIVE AWARDS
[NAME OF ELIGIBLE UNIT:]
Performance Level
-------------------------------
Weight Business Criteria Minimum Target Maximum
- ------ ----------------- ------- ------ -------
Notes
- -----
-8-
<PAGE> 1
HARSCO CORPORATION
Exhibit 12
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations (net of minority interest
in net income) $ 174,874 $ 165,613 $ 145,984 $ 107,073 $ 84,197
Add fixed charges computed below 28,417 24,263 26,181 33,121 37,982
Net adjustments for equity companies 139 (694) (181) (466) (134)
Net adjustments for capitalized
interest (10) -- -- -- (274)
--------- --------- --------- --------- ---------
Fixed Charges $ 203,420 $ 189,182 $ 171,984 $ 139,728 $ 121,771
========= ========= ========= ========= =========
Consolidated Fixed Charges:
Interest expense per financial
statements (1) $ 20,504 $ 16,741 $ 21,483 $ 28,921 $ 34,048
Interest expense capitalized 128 128 131 134 338
Portion of rentals (1/3) representing
an interest factor 7,785 7,394 4,567 4,066 3,596
Interest expense for equity companies
whose debt is guaranteed (2) -- -- -- -- --
--------- --------- --------- --------- ---------
Consolidated Fixed Charges $ 28,417 $ 24,263 $ 26,181 $ 33,121 $ 37,982
========= ========= ========= ========= =========
Consolidated Ratio of Earnings to
Fixed Charges 7.16 7.80 6.57 4.22 3.21
========= ========= ========= ========= =========
</TABLE>
(1) Includes amortization of debt discount and expense.
(2) No fixed charges were associated with debt of less than fifty percent
owned companies guaranteed by the Company during the five year period 1994
through 1998.
<PAGE> 1
HARSCO CORPORATION EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Country of Ownership
Name Incorporation Percentage
- ---- ------------- ----------
<S> <C> <C>
Heckett MultiServ SAIC Argentina 100%
MetServ Holdings Pty. Limited Australia 55%
MetServ Australasia Pty. Ltd. Australia 70%
MetServ Victoria Pty. Ltd. Australia 70%
MetServ Pty. Ltd. Australia 55%
Harsco (Australia) Pty. Limited Australia 100%
Fairmont Tamper (Australia) Pty. Limited Australia 100%
Taylor-Wharton (Australia) Pty. Limited Australia 100%
AluServ Middle East W.L.L. Bahrain 65%
Heckett MultiServ S.A. Belgium 100%
Heckett MultiServ Russia S.A. Belgium 100%
Loyquip Holdings S.A. Belgium 100%
Societe D'Etudes et D'Administration des Enterprises S.A. Belgium 100%
Fortuna Insurance Limited Bermuda 100%
Harsco (Bermuda) Limited Bermuda 100%
Sobremetal - Recuperacao de Metais Ltda Brazil 100%
Comercio de Rejeitos Industriais Ltda Brazil 100%
Harsco Canada Limited Canada 100%
Heckett MultiServ S.A. Chile 100%
EnviroServ Co., Ltd. China 55%
MultiServ Wuhan Co. Ltd. China 100%
MultiServ Jiangxi Co. Ltd. China 100%
Taylor-Wharton (Beijing) Cryogenic Equipment Co. Ltd. China 51%
MultiServ s.r.o. Czech Republic 100%
Czech Slag - Nova Hut s.r.o. Czech Republic 65%
Czech Slag Consulting s.r.o. Czech Republic 100%
Czech Slag s.r.o. Czech Republic 100%
Slag Reduction Vitkovice s.r.o. Czech Republic 65%
Heckett MultiServ Bahna S.A.E. Egypt 65%
Metalsider S.A.S. France 100%
Heckett MultiServ France S.A. France 100%
Floyequip S.A. France 100%
PyroServ France 100%
Heckett MultiServ SAS France 100%
Heckett MultiServ Sud S.A. France 100%
Carbofer International GmbH Germany 100%
MultiServ GmbH Germany 100%
Harsco GmbH Germany 100%
IMS Servizi SpA Italy 100%
MultiServ SrL Italy 100%
ILSERV SrL Italy 65%
</TABLE>
-1-
<PAGE> 2
<TABLE>
<CAPTION>
Country of Ownership
Name Incorporation Percentage
- ---- ------------- ----------
<S> <C> <C>
Luxequip Holding S.A. Luxembourg 100%
Heckett MultiServ S.A. Luxembourg 100%
Societe Luxembourgeoise D'Interim S.A. Luxembourg 100%
Heckett MultiServ Kemaman SDN. BHD. Malaysia 100%
Taylor-Wharon Gas Equipment SDN. BHD. Malaysia 100%
Tayor-Wharton Asia (M) SDN. BHD. Malaysia 100%
Irving, S.A. de C.V. Mexico 100%
Heckett Mexicana, S.A. de C.V. Mexico 100%
Andamios Patentados, S.A. de C.V. Mexico 100%
Servicios Industriales Siderurgicos, S.A. de C.V. Mexico 100%
Electroforjados Nacionales, S.A. de C.V. Mexico 100%
Heckett MultiServ International N.V. Netherlands 100%
Heckett MultiServ Finance B.V. Netherlands 100%
Heckett MultiServ China B.V. Netherlands 100%
Heckett MultiServ Far East B.V. Netherlands 100%
Harsco Europe B.V. Netherlands 100%
Heckett MultiServ (Holland) B.V. Netherlands 100%
Slag Reductie (Pacific) B.V. Netherlands 100%
Slag Reductie Nederland B.V. Netherlands 100%
Heckett MultiServ AS Norway 100%
Slag Polska SP Z.O.O Poland 100%
C.T.S.-Companhia de Tratemento de Sucatas, Lda. Portugal 100%
Heckett MultiServ Saudi Arabia Limited Saudi Arabia 55%
MultiServ Slovensko spol. s.r.o. Slovakia Republic 100%
FerroServ (Pty.) Limited South Africa 100%
SteelServ (Pty.) Ltd. South Africa 51%
Faber Prest (South Africa) (Proprietary) Ltd. South Africa 100%
S.R.V. Mill Services (Pty.) Ltd. South Africa 100%
Slag Reduction (South Africa) (Proprietary) Limited South Africa 100%
SRH Pty. Ltd. South Africa 100%
MultiServ Lycrete S.A. Spain 100%
Serviequipo S.A. Spain 100%
MultiServ Intermetal S.A. Spain 100%
MultiServ Iberica S.A. Spain 100%
Heckett MultiServ Reclamet S.A. Spain 100%
Gestion Materias Ferricas, S.A. Spain 100%
Heckett MultiServ Nordiska AB Sweden 100%
Heckett MultiServ Thailand Limited Thailand 70%
EFIC Ltd. U.K. 100%
Heckett MultiServ Investment Limited U.K. 100%
Heckett MultiServ plc U.K. 100%
Heckett MultiServ Ltd. U.K. 100%
MultiServ Overseas Ltd. U.K. 100%
Quipco Ltd. U.K. 100%
Harsco (U.K.) Ltd. U.K. 100%
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Country of Ownership
Name Incorporation Percentage
- ---- ------------- ----------
<S> <C> <C>
The Permanent Way Equipment Company Limited U.K. 100%
Heckett International Services Limited U.K. 100%
Heckett Limited U.K. 100%
B.P. Dempsey Ltd. U.K. 100%
Faber Prest (Australia) Limited U.K. 100%
Faber Prest (Overseas) Limited U.K. 100%
Faber Prest (Pacific) Limited U.K. 100%
Faber Prest Distribution Limited U.K. 100%
Faber Prest Limited U.K. 100%
Flixborough Wharf Limited U.K. 75%
Gunness Wharf Limited U.K. 100%
Heckett MultiServ (ASR) Ltd. U.K. 100%
Heckett MultiServ (Sheffield) Ltd. U.K. 100%
Heckett MultiServ (SR) Ltd. U.K. 100%
Otis Transport Services Limited U.K. 100%
Slag Reduction Overseas Limited U.K. 100%
Faber Prest (US) Ltd. U.K. 100%
Harsco Foreign Sales Corporation U.S. Virgin Islands 100%
Bio-Oxidation Services Inc. U.S.A. 100%
EFIC Corporation U.S.A. 100%
Heckett MultiServ U.S. Corporation U.S.A. 100%
Heckett MultiServ Inc. U.S.A. 100%
Heckett MultiServ Operations Ltd. U.S.A. 100%
Heckett MultiServ General Corp. U.S.A. 100%
Heckett MultiServ Intermetal Inc. U.S.A. 100%
Heckett Technology Services Inc. U.S.A. 100%
Harsco Defense Holding, Inc. U.S.A. 100%
Harsco Minnesota Corporation U.S.A. 100%
Harsco UDLP Corporation U.S.A. 100%
Heckett MultiServ Investment Corporation U.S.A. 100%
T.J. Egan and Company Inc. U.S.A. 100%
Chemi-Trol Chemical Co. U.S.A. 100%
Faber Prest (U.S.), Inc. U.S.A. 100%
Harsco Technologies Corporation U.S.A. 100%
Heckett MultiServ International Holdings U.S.A. 100%
SRA Mill Services, Inc. U.S.A. 100%
Heckett MultiServ MV & MS, C.A. Venezuela 100%
</TABLE>
-3-
<PAGE> 4
Companies in which Harsco Corporation does not have majority ownership are not
consolidated. These companies are listed below as unconsolidated entities
<TABLE>
<CAPTION>
Country of
Incorporation/ Ownership
Name Organization Percentage
- ---- ------------ ----------
<S> <C> <C>
Steelstone (Rooty Hill) Pty. Limited Australia 50%
Steelstone Holdings Pty. Ltd. Australia 50%
Steelstone Pty. Limited Australia 50%
Phooltas Tamper Private Limited India 40%
Ferro Scrap Nigam Ltd. India 40%
P.T. Purna Baja Heckett Indonesia 40%
IKG-Salcon SDN. BHD. Malaysia 50%
RST Teknologi SDN. BHD. Malaysia 29%
The Slag Reduction Company (New Zealand) Limited New Zealand 50%
Natsteel Abrasives Pte. Ltd. Singapore 45%
Auxihec Spain 50%
S. R. Gabisa, S.A. Spain 50%
</TABLE>
-4-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements of Harsco Corporation and Subsidiary Companies (the "Company") of our
reports, dated January 28, 1999, except as to paragraph 6 of Note 10, for which
the date is February 8, 1999, on our audits, of the consolidated financial
statements and consolidated financial statement schedule of the Company as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998, which reports are included in this Annual Report on Form
10-K, respectively:
- - 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.
- - Form S-3 Registration Statement (Registration No. 33-56885), dated
December 15, 1994.
- - Form S-8 Registration Statement (Registration No. 333-13175), dated
October 1, 1996.
- - Form S-8 Registration Statement (Registration No. 333-13173), dated
October 1, 1996.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 41,562
<SECURITIES> 0
<RECEIVABLES> 310,935
<ALLOWANCES> (13,602)
<INVENTORY> 175,804
<CURRENT-ASSETS> 587,441
<PP&E> 1,438,102
<DEPRECIATION> (811,908)
<TOTAL-ASSETS> 1,623,581
<CURRENT-LIABILITIES> 474,822
<BONDS> 309,131
0
0
<COMMON> 82,594
<OTHER-SE> 602,705
<TOTAL-LIABILITY-AND-EQUITY> 1,623,581
<SALES> 1,733,458
<TOTAL-REVENUES> 1,735,394
<CGS> 1,327,342
<TOTAL-COSTS> 1,543,493
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,166
<INTEREST-EXPENSE> 20,504
<INCOME-PRETAX> 179,775
<INCOME-TAX> 67,361
<INCOME-CONTINUING> 107,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,513
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.34
</TABLE>
