<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, 1999 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 identification number)
incorporation or organization)
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:
Name of each exchange
Title of each class on which registered
------------------- ------------------------------------
Common stock, par value $1.25 per share New York Stock Exchange
Pacific Stock Exchange
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.
[ ]
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 29, 2000 was $991,080,725.
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 29, 2000
------- --------------------------------
<S> <C>
Common stock, par value $1.25 per share 39,942,800
Preferred stock purchase rights 39,942,800
</TABLE>
Documents Incorporated by Reference
-----------------------------------
Selected portions of the Notice of 2000 Meeting and Proxy Statement are
Incorporated by Reference in Part III of this Report.
The Exhibit index (Item No. 14) is located on pages 89 to 96.
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<PAGE> 2
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
INFORMATION REQUIRED IN REPORT
--------
PART I
Item 1. Business:
(a) Description of Business:
Harsco Corporation ("the Company") is a services and engineered products
company. The principal lines of business are: mill services that are provided to
steel and non-ferrous metal 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
principally in North America; railway maintenance of way services and equipment
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: Harsco Mill Services,
Harsco Gas and Fluid Control and Harsco Infrastructure. The Company has over 300
locations in 32 countries, including the United States.
In 1999, the Company acquired three businesses and divested three small non-core
operations.
Harsco Infrastructure Segment - In October 1999, the Company acquired Charter
plc's Pandrol Jackson railway track maintenance business. The transaction was
completed for approximately $48 million in cash plus assumption of liabilities,
for a total consideration of approximately $65 million. Pandrol Jackson
manufactures and markets worldwide a wide range of equipment and services used
in railway track maintenance. In December 1999, the Company completed the sale
of the railway switch, crossing and transit grinding business obtained as part
of the Pandrol Jackson railway maintenance acquisition. This business, with
annual sales of approximately $6 million, was divested in accordance with an
agreement with the Department of Justice as a condition to the acquisition of
Pandrol Jackson.
In July 1999, the Company acquired certain assets and assumed certain
liabilities of Structural Accessories, Inc. The total consideration was
approximately $2 million. Structural Accessories, Inc. manufactures and sells
bridge bearings and expansion joints.
Harsco Gas and Fluid Control Segment - In February 1999, the Company acquired
certain assets and assumed certain liabilities of Natural Gas Vehicle Systems,
Inc. Total consideration was approximately $3 million. Natural Gas Vehicle
Systems, Inc. manufactures cylinders used in vehicles which use natural gas. The
Company completed the sale of Astralloy Wear Technology in March 1999 and the
sale of the pavement marking and vegetation control business of Chemi-Trol in
August 1999.
Harsco Mill Services Segment - The Manchester truck dealership was sold in
September 1999.
The Company reports information about its operating segments according 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 Company's reportable segments are identified based
upon differences in products, services, and markets served.
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<PAGE> 3
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 1999, 1998, and 1997. There are no
significant intersegment sales.
(b) Financial Information about Industry Segments:
Financial information concerning Industry Segments is included in Note 14 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:
Harsco Mill Services
This segment is the world leader in providing on-site highly specialized
services and technology under long-term contracts to steel producers and
non-ferrous metal industries. The Company's flame and recycling technologies
along with computerized scrap handling are several examples of the specialized
services the Company provides. These highly specialized services and
technologies include: scarfing, ferrocut, carbofer, briquetting and scrap
management. The Company provides in-plant transportation and other specialized
services, including slab management systems, general plant services, and other
recycling technology. Other services provided include metal reclamation; slag
processing, marketing and utilization; raw material management and handling;
by-product recovery and 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 are employed to reclaim metal and handle material. The customer uses
this reclaimed metal in its steel production process. The nonmetallic residual
slag is graded into various sizes at on-site Company-owned processing facilities
and then sold commercially. It is used as an aggregate material in asphalt
paving applications, railroad ballast and building blocks. Similar services are
also provided to non-ferrous metal 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 and
natural rock materials at a number of locations throughout the United States.
The Company's Black Beauty(TM) 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.
This segment 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 1999, percentage of consolidated net sales was 42%.
Harsco Gas and Fluid Control
Major product classes in this segment are gas containment and control equipment,
industrial pipe fittings, and process equipment, principally air-cooled heat
exchangers.
Gas containment products include cryogenic gas storage tanks, high pressure and
acetylene cylinders, propane tanks, and composite vessels for industrial and
commercial gases and other products. Gas control products include valves and
regulators serving a variety of markets, including the industrial gas commercial
refrigeration, life support, and outdoor recreation industries. Products are
used in applications such as scuba diving equipment and outdoor barbecue grills.
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<PAGE> 4
The segment provides custom designed and manufactured air-cooled heat
exchangers, principally for applications on field-sited natural gas compression
packages, for both domestic and international locations.
The segment is a major supplier of industrial pipe fittings and related products
for the plumbing, hardware and energy industries.
For 1999, percentage of consolidated net sales was 33%.
Harsco Infrastructure
Major product classes in this segment are scaffolding, shoring and concrete
forming services, railway maintenance-of-way services and equipment, and
industrial grating and bridge decking products.
The segment's scaffolding, shoring and concrete forming service products include
steel and aluminum support systems that are leased or sold to customers through
a North American network of some 50 branch service centers. The Company also
provides design engineering services, on-site installation, and equipment
management services.
The Company's railway maintenance-of-way services provide high technology
comprehensive track maintenance and new track construction support to railroad
customers. The railway maintenance-of-way services and equipment 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 comprehensive range of specially-designed
systems used in the construction and maintenance of track and railbeds.
The segment manufactures a varied line of industrial grating products at several
plants in North America. The Company produces a full range of riveted,
pressure-locked and welded grating in steel, aluminum and fiberglass, used
mainly in industrial flooring, safety, and security applications for power,
paper, chemical, refining and processing applications.
The Company also produces bridge decking and related products for bridge
surfaces.
This segment also produces commercial and industrial boilers and hot water
heaters, and blenders, dryers and mixers for the chemical and food processing
industries.
For 1999, percentage of consolidated net sales was 25%.
(1) (i) The products and services of Harsco include 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Mill Services 39% 40% 38%
Gas Control and Containment Equipment 24% 21% 21%
</TABLE>
(1) (ii) New products and services are added from time to time; however, in
1999 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.
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<PAGE> 5
(1) (v) Harsco furnishes building products and materials and a wide
variety of specialized equipment for commercial, industrial, public works and
non-residential construction which are seasonal in nature. In 1999,
construction-related operations accounted for 12% of total sales.
(1) (vi) The practices of the Company relating to working capital items are
not unusual compared with those practices of other service providers or
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.
(1) (viii) Backlog of orders was $231.6 million and $188.6 million as of
December 31, 1999 and 1998, respectively. It is expected that approximately 18%
of the total backlog at December 31, 1999, will not be filled during 2000. There
is no significant seasonal aspect to the Company's backlog. Backlog for
scaffolding, shoring and forming services, 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 Harsco Mill Services Segment are also excluded from the total backlog.
These Contracts have an estimated value of $3.6 billion at December 31, 1999.
(1) (ix) At December 31, 1999, 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 businesses 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 product development activities was $7,759,000,
$6,977,000, and $6,090,000 in 1999, 1998, and 1997, 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, 1999, the Company had approximately 15,700
employees.
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<PAGE> 6
(d) Financial Information about Foreign and
Domestic Operations and Export Sales:
Financial information concerning foreign and domestic operations is included in
Note 14 to the Consolidated Financial Statements under Item 8, "Financial
Statements and Supplementary Data". Export sales totaled $110.0 million and
$114.7 million in 1999 and 1998, 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>
Harsco Infrastructure:
E. Syracuse, New York 48,000 Railroad Equipment
Ludington, Michigan 159,000 Railroad Equipment
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
Harsco Mill Services:
Moundsville, West Virginia 12,000 Roofing Granules/Abrasives
Drakesboro, Kentucky 41,000 Roofing Granules
Gary, Indiana 19,000 Roofing Granules/Abrasives
Ione, California 33,000 Roofing Granules
</TABLE>
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<PAGE> 7
Item 2. Properties (continued):
<TABLE>
<CAPTION>
Floor Space
Location (Sq. Ft.) Principal Products
- -------- --------- ------------------
<S> <C> <C>
Harsco 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 112,000 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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<PAGE> 8
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>
Harsco Infrastructure:
Nottingham, England 30,000 Railroad Equipment 10/23/00
Danbury, Connecticut 16,000 Railroad Equipment 11/30/01
Tulsa, Oklahoma 10,000 Grating 04/28/01
Harsco 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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<PAGE> 9
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 1999, there were 40,071,785
shares outstanding. In 1999, the stock traded in a range of $34-3/8 - $23-1/16
and closed at $31-3/4 at year-end. At December 31, 1999 there were approximately
21,000 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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<PAGE> 10
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
FIVE-YEAR STATISTICAL SUMMARY
- -----------------------------
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998 1997 1996 1995
INCOME STATEMENT INFORMATION
<S> <C> <C> <C> <C> <C>
Net sales $ 1,716,688 $ 1,733,458 $ 1,627,478 $ 1,557,643 $ 1,495,466
Income from continuing operations before
interest, income taxes, and minority interest 169,736 191,901 179,888 166,057 131,019
Income from continuing operations 90,713 107,513 100,400 83,903 61,318
Income from discontinued defense business - - 28,424(a) 35,106 36,059
Gain on disposal of discontinued defense
business - - 150,008 - -
Net income 90,713 107,513 278,832 119,009 97,377
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION INFORMATION
Working capital $ 182,439 $ 112,619 $ 341,160 $ 214,519 $ 145,254
Total assets 1,659,823 1,623,581 1,477,188 1,324,419 1,310,662
Long-term debt 418,504 309,131 198,898 227,385 179,926
Total debt 455,111 363,738 225,375 253,567 288,673
Depreciation and amortization 135,853 131,381 116,539 109,399 104,863
Capital expenditures 175,248 159,816 143,444 150,294 113,895
Cash provided by operating activities 213,953 189,260 148,541 217,202 258,815
Cash provided (used) by investing activities (194,674) (233,490) 196,545 (153,225) (97,331)
Cash (used) by financing activities (8,928) (134,324) (167,249) (92,944) (128,068)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS
Return on net sales(1) 5.3% 6.2% 6.2% 5.4% 4.1%
Return on average equity(2) 13.9% 14.3% 15.1% 14.0% 10.7%
Return on average assets(3) 10.7% 12.9% 14.3% 13.7% 10.8%
Current ratio 1.4:1 1.2:1 1.9:1 1.7:1 1.4:1
Total debt to total capital(4) 41.2% 34.7% 22.4% 27.1% 31.6%
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION (b)
Diluted - Income from continuing operations $ 2.21 $ 2.34 $ 2.04 $ 1.67 $ 1.20
- Income from discontinued defense
business - - .58(a) .70 .71
- Gain on disposal of discontinued defense
business - - 3.05 - -
- Net income 2.21 2.34 5.67 2.37 1.91
Book value 16.22 16.22 16.64 13.73 12.49
Cash dividends declared .91 .885 .82 .77 .75
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
Basic average number of shares outstanding (b) 40,882,153 45,568,256 48,754,212 49,894,515 50,504,707
Diluted average number of shares outstanding (b) 41,017,067 45,910,531 49,191,872 50,317,664 50,856,929
Number of employees 15,700 15,300 14,600 14,200 13,200
Backlog (c) $ 231,557 $ 188,594 $ 225,575 $ 211,734 $ 157,129
</TABLE>
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<PAGE> 11
FIVE-YEAR STATISTICAL SUMMARY
(a) Includes income through August 1997 (the measurement date) from the
discontinued defense business.
(b) Reflects two-for-one stock split to shareholders of record January 15,
1997.
(c) Excludes the estimated value of long-term mill service contracts, which
had an estimated value of $3.6 billion at December 31, 1999.
(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) "Total debt to total 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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<PAGE> 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
FINANCIAL CONDITION AND LIQUIDITY
The change in the Company's financial position and liquidity is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 INCREASE/
(DOLLARS ARE IN MILLIONS) 1999 1998 (DECREASE)
=================================================================================
<S> <C> <C> <C>
Current Assets $ 612.9 $ 587.4 $ 25.5
Current Liabilities 430.5 474.8 (44.3)
- ---------------------------------------------------------------------------------
Working Capital $ 182.4 $ 112.6 $ 69.8
Current Ratio 1.4:1 1.2:1
=================================================================================
Notes Payable and
Current Maturities $ 36.6 $ 54.6 $(18.0)
Long-term Debt 418.5 309.1 109.4
- ---------------------------------------------------------------------------------
Total Debt 455.1 363.7 91.4
Total Equity 650.1 685.3 (35.2)
- ---------------------------------------------------------------------------------
Total Capital $ 1,105.2 $1,049.0 $ 56.2
Total Debt to
Total Capital 41.2% 34.7%
=================================================================================
</TABLE>
The improvement in the Company's working capital position and current ratio
during 1999 was due principally to a reduction in current liabilities of $44.3
million. Additionally, current assets increased, but at a lesser rate. The
largest reduction within current liabilities was an $18.0 million decrease in
notes payable and current maturities of long-term debt due principally to
refinancing short term notes into long-term debt. The reduction in current
liabilities also included $14.6 million of cash payments related to the
discontinued defense business. This is reflected as a reduction in Other current
liabilities in the Consolidated Balance Sheet.
A strategic focus of the Company is the minimization of capital employed
including inventory levels. Inventories decreased a net of $3.6 million despite
an increase of $16.3 million related to a fourth quarter 1999 acquired company
(acquisition). Receivables increased by $20.2 million principally due to the
acquisition and the timing of sales. Sales in the last two months of 1999
substantially exceeded those in the last two months of 1998.
Long-term debt increased in 1999 principally as a result of capital expenditures
(investments), share repurchases and an acquisition in the fourth quarter of
1999. Capital investments for 1999 were a record $175.2 million compared with
the previous record of $159.8 million in 1998. Investments were made for new
mill services contracts and other business growth initiatives, information
technology, new processes, and for productivity improvements. The Company
acquired 2,326,798 shares of its common stock in 1999 at a cost of $66.4
million. Due to the timing of actual cash settlements for the purchase of the
stock, the cash used in 1999 was $71.9 million. The capital investments, share
repurchases and cash dividends demonstrate the Company's continued commitment to
creating value through strategic investment and return of capital to
shareholders. In the past six years, the Company has committed over $1.7 billion
to increasing shareholder value.
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<PAGE> 13
<TABLE>
<CAPTION>
CASH UTILIZATION: FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital Investments $ 175.2 $ 159.8 $ 143.4 $ 150.3 $ 113.9 $ 90.9
Strategic Acquisitions 48.9 158.3 8.5 21.1 4.1 -
Share Repurchases 71.9 169.3 113.2 30.7 14.1 -
Cash Dividends 37.0 40.3 39.1 37.9 37.4 35.1
- ------------------------------------------------------------------------------------------------------
Total $ 333.0 $ 527.7 $ 304.2 $ 240.0 $ 169.5 $ 126.0
======================================================================================================
</TABLE>
The Company's debt as a percent of total capital changed as a result of
increased debt and a decrease in equity capital due to the Company's share
repurchases and $27.3 million resulting from foreign currency translation
adjustments. The foreign currency translation adjustments are principally due to
1999's 14% decrease in the translated value of the euro and a 33% decrease in
the translated value of the Brazilian real.
<TABLE>
<CAPTION>
FINANCIAL STATISTICS FOR THE YEAR ENDED DECEMBER 31
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
HARSCO STOCK PRICE HIGH-LOW $34.38 - $23.06 $47.25 - $23.00
- ---------------------------------------------------------------------------------
RETURN ON AVERAGE EQUITY 13.9% 14.3%
- ---------------------------------------------------------------------------------
Return on Average Assets 10.7% 12.9%
Return on Average Capital 10.0% 11.5%
</TABLE>
Lower returns on average equity, assets, and capital are due principally to
lower income in 1999 compared with the record income from continuing operations
for 1998. More specifically, income was lower in the first half of 1999 compared
to the first half of 1998. However, this was partially offset by higher income
for the second half of 1999 than the same period of 1998. Return on average
equity was positively affected by lower average equity due principally to share
repurchases. The Company's book value per share was unchanged at $16.22 per
share at December 31, 1998 and 1999.
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET CASH PROVIDED BY OPERATIONS: $214.0 $189.3 $148.5
</TABLE>
Operating cash flows were a strong $214.0 million in 1999 compared with $189.3
million in 1998. These amounts include $14.6 million in 1999 and $13.6 million
in 1998 of cash payments for the discontinued defense business. The increase in
cash from operating activities was due principally to intensified efforts to
reduce inventories in 1999. A strategic management initiative in 1999 has
focused on a reduction of working capital components including inventory. This
focus will continue in 2000 and beyond. Lower earnings in 1999, the timing of
cash receipts from accounts receivable, and the timing of payments on accounts
payable, partially offset the significant improvement in cash provided by
operations.
The Company has a U.S. commercial paper borrowing program under which it can
issue up to $400 million of short-term notes in the U.S. commercial paper
market. In addition, the Company has a three billion Belgian franc commercial
paper program, equivalent to
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<PAGE> 14
approximately U.S. $75 million at December 31, 1999. The Belgian program
provides the capacity to borrow euros to fund the Company's European operations
more efficiently. The Company limits the aggregate commercial paper and
syndicated credit facility borrowings at any one time to a maximum $400 million.
At December 31, 1999, the Company had $205.4 million of U.S. commercial paper
debt outstanding, and $28.3 million of commercial paper debt outstanding under
the Belgian program.
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 U.S. commercial paper program.
As of December 31, 1999 there were no borrowings outstanding under this
facility.
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. A Form S-3 shelf
registration is on file with the Securities and Exchange Commission for the
possible issuance of up to an additional $200 million of new debt securities,
preferred stock or common stock.
As supported 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. The Company is positioned to continue to invest in strategic
acquisitions, selective high return capital investments, and to issue cash
dividends as means to enhance shareholder value. The Company recently completed
its strategic initiative of purchasing 20% of the Company's outstanding shares.
With the completion of this program, the Company intends to use future
discretionary cash flow principally for debt reduction and acquisitions,
although additional shares may be acquired from time to time.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
<TABLE>
<CAPTION>
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS, EXCEPT PER SHARE) 1999 1998 (DECREASE) (DECREASE)
----------------------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 1,720.8 $ 1,735.4 $ (14.6) (1%)
Income before interest, income taxes, and minority interest 169.7 191.9 (22.2) (12%)
Net income 90.7 107.5 (16.8) (16%)
Basic earnings per common share 2.22 2.36 (.14) (6%)
Diluted earnings per common share 2.21 2.34 (.13) (6%)
</TABLE>
SUMMARY ANALYSIS OF RESULTS
Despite improving conditions in the steel industry during the last six months of
1999, the Company's results for the full year of 1999 reflect the adverse
effects of a steel industry affected by overcapacity, reduced prices and weak
demand in certain parts of the world. These problems contributed to reduced
steel production and financial stress at several steel mills. Certain customers
in the United States were forced to file for bankruptcy protection. In the
second half of 1999, increased levels of domestic steel production and capacity
utilization
-14-
<PAGE> 15
favorably affected the Company's results. Second half net income and earnings
per share for 1999 exceeded the same period of 1998.
Soft market conditions in the industrial gas and oil industries contributed to
lower results for 1999. However, the significant increase in crude oil prices
that was experienced in late 1999 contributed to improved results for the second
half. The Company's order backlog in the Harsco Gas and Fluid Control Segment as
of December 31, 1999 is 27% higher than as of December 31, 1998, reflecting
improved business conditions.
In 1999, the strong U.S. dollar adversely impacted the foreign currency
translation effect on results of operations in many countries in which the
Company operates.
Additionally, pre-tax pension expense for 1999, calculated in accordance with
SFAS No. 87, was $10.6 million higher than 1998. The increase unfavorably
impacted cost of services and products sold as well as selling, general, and
administrative expenses.
Despite decreases in the Company's revenues and income for 1999 when compared to
1998, certain economic and market conditions as of December 31, 1999,
particularly for the Harsco Mill Services and the Harsco Gas and Fluid Control
Segments, indicate that the unfavorable trends experienced in 1999 have begun to
dissipate.
-15-
<PAGE> 16
COMPARATIVE ANALYSIS OF CONSOLIDATED RESULTS
REVENUES
Revenues for 1999 were $1.72 billion, slightly below 1998. The decrease reflects
principally the unfavorable effects of market conditions in the steel, oil and
gas industries during the first six months of 1999. Improvements in market
conditions in the second half of 1999, as well as higher sales from
acquisitions, net of dispositions of non-core businesses, partially offset the
lower sales reported in the first six months of 1999. Excluding the adverse
foreign exchange translation effect of the strengthening U.S. dollar,
particularly relative to the Brazilian real, the euro, the South African rand
and the British pound, revenues exceeded 1998.
COST OF SALES AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Costs of services and products sold for 1999 approximated that of 1998. As a
result of divesting certain non-core businesses and the Company's continuing
cost reduction, process improvement, and reorganization efforts, selling,
general, and administrative expenses decreased despite the inclusion of acquired
companies. The total of cost of sales plus selling, general, and administrative
expenses was lower than 1998, despite a significant increase in pension expense.
NET SPECIAL CHARGES AND GAINS
In 1999 the Company incurred $6.0 million of net pre-tax expense related to
special charges and gains. Special charges include asset write-downs, employee
termination benefit costs, costs to exit activities, and other
reorganization-related costs resulting from the company's continuing efforts to
consolidate and streamline its businesses. Gains result principally from the
disposal of non-core businesses. In 1998 net special charges were $2.2 million.
Net gains for 1998 of $29.1 million consist principally of a pre-tax net gain of
$27 million recorded on the October 1998 sale of the Nutter Engineering unit of
the Harsco 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 1998
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. Net gains for 1999 were $0.6
million.
Impaired asset write-downs for 1999 of $2.9 million include a $1.9 million
pre-tax, non-cash, write-down of the Company's investment in Bio-Oxidation
Services Inc. which is included in the Harsco Gas and Fluid Control Segment. The
Company's investment in Bio-Oxidation Services Inc. is being held for disposal.
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. For the year ended December 31,
1999, Bio-Oxidation Services Inc. recorded a pre-tax loss of $2.3 million which
includes the asset write-down of $1.9 million. The Company estimates that the
disposal will occur during 2000.
Impaired asset write-downs of $14.4 million for 1998 include a $6.1 million
pre-tax, non-cash, write-down of the Company's investment in Bio-Oxidation
Services Inc. 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 for 1998 also include a $6.1 million pre-tax,
non-cash, write-down of assets, principally property, plant and equipment in the
Harsco Mill Services Segment. The
-16-
<PAGE> 17
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 net cash flows. In September 1999, assets associated with a
substantial portion of this provision were sold in conjunction with the
termination settlement of a contract in Russia.
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's management has established and
approved specific plans of termination. Details of the termination benefit plans
have been communicated to the affected employees prior to recognition of related
provisions. Non-cash charges for employee termination benefit costs are included
as adjustments to reconcile net income to net cash provided by operating
activities in the Consolidated Statement of Cash Flows.
During 1999, $2.9 million of expense related to employee termination benefits
was incurred principally in the Harsco Mill Services Segment, primarily in
France and the United Kingdom. In 1999, 220 employees were included in employee
termination arrangements initiated by the Company and approximately $1.8 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.
During 1998, $6.5 million of expense related to employee termination benefits
occurred principally in the Harsco Mill Services Segment, primarily in South
Africa, United States, France, and Germany. In 1998, approximately 670 employees
were included in employee termination arrangements initiated by the Company and
approximately $2.4 million of cash payments were made under such arrangements.
An additional $3.3 million was disbursed in 1999 for the 1998 reorganization
actions.
-17-
<PAGE> 18
EMPLOYEE TERMINATION BENEFIT COSTS AND PAYMENTS
<TABLE>
<CAPTION>
(IN MILLIONS)
SUMMARY OF ACTIVITY
-----------------------
Original reorganization action period 1999 1998
<S> <C> <C>
Employee termination benefits expense $ 2.9 $ 6.5
------ ------
Payments:
Disbursed in 1998 - (2.4)
Disbursed in 1999 (1) (1.8) (3.3)
------ ------
Total payments (1.8) (5.7)
Other - (0.4)
------ ------
Remaining payments as of
December 31, 1999 (2) $ 1.1 $ 0.4
====== ======
</TABLE>
(1) - Disbursements in 1999 are categorized according to the original
reorganization action period to which they relate (1999 or 1998). Cash
severance payments in 1999 occurred principally in the Harsco Mill
Services Segment in South Africa principally for 1998 reorganization
actions.
(2) - Remaining payments are categorized according to the original
reorganization action period to which they relate (1999 or 1998).
EMPLOYEE TERMINATIONS - NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
SUMMARY OF ACTIVITY
---------------------
Original reorganization action period 1999 1998
<S> <C> <C>
Employees affected by new reorganization actions 220 670
---- ----
Employee terminations:
Terminated in 1998 - (349)
Terminated in 1999 (172) (352)
---- ----
Total terminations (172) (701)
Other (9) 35
---- ----
Remaining terminations as of
December 31, 1999 39 4
==== ====
</TABLE>
INTEREST EXPENSE
The Company's defense business was sold in the fourth quarter of 1997. This
resulted in $344 million of pre-tax cash proceeds. The availability of a
substantial portion of this cash in 1998 resulted in additional interest income,
as well as reduced interest expense compared to 1999. Additionally, interest
expense for 1999 was higher than 1998 as a result of increased borrowings for
record capital expenditures (investments), the Company's share repurchase
program and an acquisition in the fourth quarter of 1999. Capital investments,
$175.2 million in 1999, were made for new mill services contracts, other
business growth initiatives, information technology, new processes, and for
productivity improvements.
-18-
<PAGE> 19
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
As a result of factors disclosed in previous sections, income before income
taxes and minority interest was down 18% from 1998.
PROVISION FOR INCOME TAXES
The effective income tax rate for 1999 was 35% versus 37.5% for 1998. The
reduction in the income tax rate is due principally to lower effective income
tax rates on domestic earnings.
NET INCOME AND EARNINGS PER SHARE
Net income of $90.7 million was below 1998. Basic earnings per common share were
$2.22 down from $2.36 in 1998. Diluted earnings per common share were $2.21 down
from $2.34 in 1998.
SEGMENT ANALYSIS
HARSCO MILL SERVICES SEGMENT
<TABLE>
<CAPTION>
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1999 1998 (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 729.6 $ 751.9 $(22.3) (3%)
Income before interest, income taxes, and minority interest 81.2 84.3 (3.1) (4%)
Segment net income 45.1 43.3 1.8 4%
</TABLE>
Sales of the Harsco Mill Services Segment were below 1998. The inclusion of
sales from an acquired company for the full year 1999 was partially offset by
the 1998 disposition of a non-core business. The decrease also reflects the
unfavorable effects of foreign exchange translation and overcapacity in the
steel industry which adversely affected worldwide steel prices and production.
This is particularly true in the United States where the steel industry filed
complaints with the government due to alleged unfairly low-priced imports. Lower
steel production adversely affected volume and margins at most steel mills in
the United States including many of the Company's customers. However, during the
last six months of 1999, steel production and capacity utilization in the United
States trended upwards reflecting the highest levels since the second quarter of
1998. Additionally, certain other key countries in which the Company conducts
business also experienced upward trends in steel production in 1999. The Harsco
Mill Services Segment fourth quarter 1999 results reflected this trend as
revenues and income, excluding special charges and gains, exceeded the same
period of 1998.
Income before interest, income taxes, and minority interest of the Harsco Mill
Services Segment was below 1998. Results in 1998 included $10.0 million of
pre-tax, non-cash write-downs of assets, principally property, plant and
equipment. Additionally, $4.9 million of employee termination benefit costs were
included in net special charges and gains in 1998. Excluding net special charges
and gains, income before interest, income taxes, and minority interest was $84.5
million in 1999 compared to $99.9 million in 1998.
The decrease in income for 1999 reflected the adverse effects of lower steel
production and prices in the first half of 1999. Results for 1999 include a
foreign currency transaction gain in Brazil, while in 1998, net foreign currency
translation exchange losses were incurred. The transaction gain in Brazil
partially offset the net unfavorable foreign currency impact associated with
translation of the results of operations of the Harsco Mill Services Segment.
-19-
<PAGE> 20
Net income of the Harsco Mill Services Segment was above 1998. Excluding net
special charges and gains, net income in 1999 was $47.3 million compared to
$52.9 million in 1998 reflecting the conditions previously disclosed.
HARSCO GAS AND FLUID CONTROL SEGMENT
<TABLE>
<CAPTION>
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1999 1998 (1) (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $560.9 $588.7 $(27.8) (5%)
Income before interest, income taxes, and minority interest 47.5 72.3 (24.8) (34%)
Segment net income 27.0 40.9 (13.9) (34%)
</TABLE>
(1) Segment information for 1998 has been restated to reflect the realignment
of the heat transfer and industrial blending equipment product lines from
the Harsco Gas and Fluid Control Segment to the Harsco Infrastructure
Segment. Sales of these product lines were $26.9 million and $29.2 million
for the years 1999 and 1998, respectively.
Sales of the Harsco Gas and Fluid Control Segment decreased from 1998. The
inclusion of a full year's sales of three acquired companies was more than
offset by lower sales of process equipment due in part to the disposition of
three non-core businesses. Reduced sales of gas control and containment
equipment and process equipment also reflected decreased demand in the
industrial gas and oil industries. In late 1999, these industries were favorably
affected by rising crude oil prices.
Income before interest, income taxes, and minority interest of the Harsco Gas
and Fluid Control Segment was below 1998 principally due to the inclusion in
1998 of gains on the disposal of two businesses. Excluding net special charges
and gains, income before interest, income taxes, and minority interest was $50.0
million in 1999 compared to $54.1 million in 1998. The decrease reflected the
adverse effects of reduced demand from customers in the industrial gas and oil
industries.
Segment net income was below 1998 principally due to the inclusion in 1998 of
gains on the disposal of two businesses. Net income for 1999 was adversely
affected, but to a lesser extent than 1998, by valuation provisions related to
the write-down of assets held for disposal. Excluding net special charges and
gains, net income in 1999 was $28.6 million compared to $30.0 million in 1998.
-20-
<PAGE> 21
HARSCO INFRASTRUCTURE SEGMENT
<TABLE>
<CAPTION>
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1999 1998 (1) (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 426.2 $ 392.9 $ 33.3 8%
Income before interest, income taxes, and minority interest 41.2 32.9 8.3 25%
Segment net income 22.5 18.6 3.9 21%
</TABLE>
(1) Segment information for 1998 has been restated to reflect the realignment
of the heat transfer and industrial blending equipment product lines from
the Harsco Gas and Fluid Control Segment to the Harsco Infrastructure
Segment. Sales of these product lines were $26.9 million and $29.2 million
for the years 1999 and 1998, respectively.
The Harsco Infrastructure Segment's sales for 1999 exceeded 1998 due to
increased sales of scaffolding, shoring and forming services, as well as sales
of railway maintenance-of-way equipment and contract services which included the
effect of an acquisition in the fourth quarter of 1999.
Income before interest, income taxes, and minority interest of the Harsco
Infrastructure Segment was significantly above 1998. Excluding net special
charges and gains, income before interest, income taxes, and minority interest
was $41.2 million compared to $37.7 million in 1998. The increase was due
principally to improved margins on sales of grating products and, to a lesser
extent, higher income for scaffolding, shoring and forming services.
Segment net income was above 1998 due principally to improved margins on sales
of grating products. Additionally, increased income was recorded for
scaffolding, shoring and forming services. Excluding net special charges and
gains, net income in 1999 was $22.5 million compared to $21.8 million in 1998.
INDUSTRIAL SERVICES AND ENGINEERED PRODUCTS
In addition to the segment reporting previously presented, the Company is a
diversified industrial services and engineered products company. Total
industrial services sales, include mill services, as well as scaffolding,
shoring, and forming services and railway maintenance-of-way services.
Engineered products include sales of the Reed Minerals unit in the Harsco Mill
Services Segment, and product sales of the Harsco Infrastructure and the Harsco
Gas and Fluid Control Segments.
-21-
<PAGE> 22
<TABLE>
<CAPTION>
(DOLLARS ARE IN MILLIONS) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
SALES
- -----
<S> <C> <C> <C> <C>
Industrial Services $ 864.0 50% $ 866.4 50%
Engineered Products 852.7 50% 867.1 50
--------- ---------- ---------- ----------
Total sales $ 1,716.7 100% $ 1,733.5 100%
========== ========== =========== ==========
INCOME
- ------
Industrial Services $ 87.9 52% $ 80.2 42%
Engineered Products 82.0 48% 109.3 58
--------- ---------- ---------- ----------
Total segment income before interest,
income taxes, and minority interest $ 169.9 100% $ 189.5 100%
========== ========== =========== ==========
</TABLE>
Industrial services income in 1999 was $87.9 million compared with $80.2 million
in 1998. Excluding losses and impaired asset write-downs associated with the
medical waste disposal service business, industrial services income was $90.2
million and $90.0 million for 1999 and 1998, respectively.
Income for engineered products in 1998 included a pre-tax net gain of $27
million.
-22-
<PAGE> 23
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
<TABLE>
<CAPTION>
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS, EXCEPT PER SHARE) 1998 1997 (DECREASE) (DECREASE)
- ------------------------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,735.4 $1,629.1 $ 106.3 7%
Income from continuing operations before interest,
income taxes, and minority interest 191.9 179.9 12.0 7%
Income from continuing operations 107.5 100.4 7.1 7%
Basic earnings per common share from continuing operations 2.36 2.06 .30 15%
Diluted earnings per common share from continuing operations 2.34 2.04 .30 15%
</TABLE>
SUMMARY ANALYSIS OF RESULTS
The Company's results for 1998 showed substantial improvement over 1997. The
acquisition of Faber Prest Plc for the Harsco Mill Services Segment and three
acquisitions for the Harsco Gas and Fluid Control Segment enhanced the market
leading position of these segments, and contributed to the overall revenue
growth. Strong results from scaffolding, shoring and forming services and
process equipment also contributed to improved operating results.
However, 1998 results were adversely affected by the Asian economic crisis,
particularly its effects on the steel industry. Beginning in the third quarter
of 1998, a significant decline in worldwide steel prices occurred due to
overcapacity in the industry. Several mills temporarily idled capacity,
impacting activity levels for the Harsco Mill Services Segment. The Asian
economic crisis also impacted the results of the Harsco Gas and Fluid Control
Segment's Asian operations, lowered export sales from certain domestic
locations, and reduced margins of certain domestic operations adversely affected
by low-priced imports.
The strong U.S. dollar also adversely impacted 1998 results compared to 1997 for
many of the company's international operations.
COMPARATIVE ANALYSIS OF CONSOLIDATED RESULTS
REVENUES
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 Harsco Mill Services
Segment and for gas control and containment equipment in the Harsco 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 industrial 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.
-23-
<PAGE> 24
COST OF SALES AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Cost of products and services sold increased due to the inclusion of acquired
companies. Selling, general, and administrative expenses were only slightly
above 1997, despite the inclusion of acquired companies. This resulted from the
Company's cost control efforts. 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 new peso and the Russian ruble in relation to the U.S.
dollar, as compared with $0.5 million of net foreign currency
translation/transaction gains in 1997.
NET SPECIAL CHARGES AND GAINS
In 1998 the Company incurred $2.2 million of net pre-tax special charges
including asset write-downs, employee termination benefit costs, costs to exit
activities, and other reorganization-related costs, compared with $2.6 million
in 1997. 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 for 1998 include a $15.6 million net charge in the Harsco Mill
Services Segment and a $4.8 million net charge in the Harsco Infrastructure
Segment partially offset by an $18.2 million net gain in the Harsco Gas and
Fluid Control Segment. This net gain included a $27 million gain associated with
the sale of a business. The $2.6 million net special charges for 1997 include a
$1.8 million net charge in the Harsco Gas and Fluid Control Segment, a $0.4
million net charge in the Harsco Mill Services Segment and a $0.7 million net
charge in general Corporate expenses, partially offset by a $0.3 million net
gain in the Harsco Infrastructure Segment.
Net 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 Harsco
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 Harsco 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. 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 Harsco 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 net cash flows.
Non-cash impaired asset write-downs are generally 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.
-24-
<PAGE> 25
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's management has established and
approved specific plans of termination. Details of the termination benefit plans
have been communicated to the affected employees prior to recognition of related
provisions. Non-cash charges for employee termination benefit costs are included
as adjustments to reconcile net income to net cash provided by operating
activities in the Consolidated Statement of Cash Flows.
During 1998, $6.5 million of reorganization expense related to employee
termination benefits occurred principally in the Harsco Mill Services Segment,
primarily in South Africa, United States, France, and Germany. In 1998,
approximately 670 employees were included in employee termination arrangements
initiated by the Company and approximately $2.4 million of cash payments were
made under such arrangements. An additional $3.3 million was disbursed in 1999
for the 1998 reorganization actions.
EMPLOYEE TERMINATION BENEFIT COSTS AND PAYMENTS
<TABLE>
<CAPTION>
(IN MILLIONS) SUMMARY OF ACTIVITY
- ------------- -------------------------
<S> <C>
Employee termination benefits expense for 1998 $6.5
----
Payments:
Disbursed in 1998 (2.4)
Disbursed in 1999 (3.3)
----
Total payments (5.7)
Other (0.4)
----
Remaining payments as of
December 31, 1999 $0.4
====
</TABLE>
EMPLOYEE TERMINATIONS - NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
SUMMARY OF ACTIVITY
-------------------------
<S> <C>
Employees affected by 1998 reorganization actions 670
----
Employee terminations:
Terminated in 1998 (349)
Terminated in 1999 (352)
----
Total terminations (701)
Other 35
----
Remaining terminations as of
December 31, 1999 4
====
</TABLE>
-25-
<PAGE> 26
Costs to exit activities consist of incremental direct costs of reorganization
actions and lease run-out costs. Such costs are recorded when a specific exit
plan is approved by management. Relocation expenses, such as employee moving
costs, are classified as exit costs and are expensed as incurred. Other costs
classified in this category are generally expensed as incurred. During 1998,
$1.0 million and $0.8 million of exit costs, principally relocation expenses,
were included in the Harsco Mill Services and Harsco Infrastructure Segments,
respectively. During 1997, $1.5 million of exit costs were included in the
Harsco Mill Services Segment. These costs resulted principally from the
expiration or termination of contracts at certain mill sites, as well as
facility relocation costs.
INTEREST EXPENSE
Interest expense increased in 1998 as a result of increased borrowings for the
Company's share repurchase program and for the funding of acquisitions.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST
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, industrial 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.
PROVISION FOR INCOME TAXES
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.
INCOME FROM CONTINUING OPERATIONS
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 AND EARNINGS PER SHARE
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 discontinued 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.
-26-
<PAGE> 27
SEGMENT ANALYSIS
HARSCO MILL SERVICES SEGMENT
<TABLE>
<CAPTION>
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1998 1997 (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $751.9 $672.7 $ 79.2 12%
Income before interest, income taxes, and minority interest 84.3 99.1 (14.8) (15%)
Segment net income 43.3 50.3 (7.0) (14%)
</TABLE>
Sales of the Harsco Mill Services Segment 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.
Income before interest, income taxes, and minority interest of the Harsco Mill
Services Segment was below 1997. Excluding special charges and gains, income
before interest, income taxes, and minority interest for 1998 was $99.9 million,
a slight increase from $99.5 million for 1997. Increased income due to the
inclusion of an acquired company was offset by the adverse foreign exchange
translation effect of the strong U.S. dollar.
Net income of the Harsco Mill Services Segment was below 1997. The decrease
included after-tax net special charges of $9.8 million in 1998, as well as the
adverse foreign exchange translation effect of the strong U.S. dollar, offset by
the inclusion of an acquired company. The special charges included principally
asset write-downs and employee termination benefit costs.
HARSCO GAS AND FLUID CONTROL SEGMENT
<TABLE>
<CAPTION>
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1998 (1) 1997 (1) (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $588.7 $558.3 $30.4 5%
Income before interest, income taxes, and minority interest 72.3 51.3 21.0 41%
Segment net income 40.9 29.5 11.4 39%
</TABLE>
(1) Segment information for 1998 and 1997 has been restated to reflect the
realignment of the heat transfer and industrial blending equipment product
lines from the Harsco Gas and Fluid Control Segment to the Harsco
Infrastructure Segment. Sales of these product lines were $29.2 million
and $28.2 million for the years 1998 and 1997, respectively.
Sales of the Harsco Gas and Fluid Control Segment increased from 1997 due to the
inclusion of sales of three acquired companies and due to increased sales for
process equipment.
Income before interest, income taxes, and minority interest of the Harsco Gas
and Fluid Control Segment was significantly above 1997's comparable amount due
to the inclusion of special charges and gains, including a $27 million pre-tax
net gain from the sale of a business. Excluding all special charges and gains,
income before interest, income taxes, and minority interest was $54.1 million in
1998 compared to $53.1 million in 1997. This increase was due to improved
results for process equipment.
-27-
<PAGE> 28
Net income of the Harsco Gas and Fluid Control Segment was significantly above
1997's comparable period due principally to an after-tax $16.9 million net gain
arising from the sale of a business and, to a lesser extent, improved results
for process equipment. Income increased despite start-up losses and asset
write-downs associated with the medical waste disposal services business.
HARSCO INFRASTRUCTURE SEGMENT
<TABLE>
<CAPTION>
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1998 (1) 1997 (1) (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C>
Sales $392.9 $396.5 $(3.6) (1%)
Income before interest, income taxes, and minority interest 32.9 29.7 3.2 11%
Segment net income 18.6 15.5 3.1 20%
</TABLE>
(1) Segment information for 1998 and 1997 has been restated to reflect the
realignment of the heat transfer and industrial blending equipment product
lines from the Harsco Gas and Fluid Control Segment to the Harsco
Infrastructure Segment. Sales of these product lines were $29.2 million
and $28.2 million for the years 1998 and 1997, respectively.
Sales of the Harsco Infrastructure Segment 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
decreased from 1997.
Income before interest, income taxes, and minority interest was above 1997.
Special charges and gains for the Harsco Infrastructure Segment were $4.8
million in 1998, principally asset write-downs. Excluding special charges and
gains, income before interest, income taxes, and minority interest was $37.7
million compared to $29.4 million in 1997. The increase was principally due to
improved results for scaffolding, shoring, and forming services.
Net income of the Harsco Infrastructure Segment in 1998 was above 1997. The
increase is due to improved results for scaffolding, shoring, and forming
services.
-28-
<PAGE> 29
INDUSTRIAL SERVICES AND ENGINEERED PRODUCTS
In addition to the segment reporting previously presented, the Company is a
diversified industrial services and engineered products company. Industrial
services sales include mill services, as well as scaffolding, shoring, and
forming services and railway maintenance-of-way services. Engineered products
include sales of the Reed Minerals unit in the Harsco Mill Services Segment, and
product sales of the Harsco Infrastructure and the Harsco Gas and Fluid Control
Segments.
<TABLE>
<CAPTION>
(DOLLARS ARE IN MILLIONS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
SALES
- -----
<S> <C> <C> <C> <C>
Industrial Services $ 866.4 50% $ 782.4 48%
Engineered Products 867.1 50 845.1 52
----------- ------------ ----------- ----------
Total sales $ 1,733.5 100% $ 1,627.5 100%
=========== ============ =========== ==========
INCOME
- ------
Industrial Services $ 80.2 42% $ 99.6 55%
Engineered Products 109.3 58 80.5 45
----------- ------------ ----------- ----------
Total segment income before interest,
income taxes, and minority interest $ 189.5 100% $ 180.1 100%
=========== ============ =========== =========
</TABLE>
Industrial services income decreased 19% in 1998 compared to 1997 due to net
special charges and gains. Net special charges and gains in 1998 included asset
write-downs associated with the medical waste disposal services business and
asset write-downs and employee termination benefit costs in the Harsco Mill
Services Segment. Excluding net special charges and gains, industrial services
income was $102.5 million in 1998 compared to $98.9 million in 1997. This
increase was due to improved results for scaffolding, shoring, and forming
services.
Engineered products income increased 35% in 1998 compared to 1997. This increase
was principally due to a $27 million pre-tax net gain from the sale of a
business. Excluding net special charges and gains, engineered products income in
1998 was $89.2 million compared to $83.1 million in 1997. This increase was due
to improved results for process equipment and the inclusion of acquired
companies.
ECONOMIC ENVIRONMENT
The Company has currency exposures for its international operations which may be
subject to volatility, such as the 1999 foreign exchange fluctuations
experienced in Brazil and the decline of the euro. Such exposures may result in
reduced sales, income, and cash flows. The situations in Brazil and Europe are
not expected to have a material adverse impact on the Company's financial
position or results of operations. However, these and similar risks could result
in a material impact on the Company's financial position or results of
operations in the future. Balance sheet translation adjustments for the
Brazilian and European operations generally do not affect results of operations.
In 1998 and early 1999 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 was unfavorably affected by
imports of low-priced foreign steel. Additionally, certain steel producers were
forced to file for bankruptcy protection. The situation improved in
-29-
<PAGE> 30
the second half of 1999. There is a risk that the Company's future results of
operations or financial condition could be adversely affected if the steel
industry's problems were to continue. The Harsco Mill Services Segment provides
services at steel mills throughout the world. The future financial impact on the
Company associated with these risks cannot be estimated.
RESEARCH AND DEVELOPMENT
The Company invested $7.8 million in internal research and development programs
in 1999, an increase of 11% above 1998. Internal funding for the Harsco
Infrastructure Segment amounted to $3.5 million, principally for railway
maintenance-of-way equipment and services. Expenditures for the Harsco Mill
Services and Harsco Gas and Fluid Control Segments were $3.2 million and $1.1
million, respectively.
BACKLOG
As of December 31, 1999, the Company's order backlog, exclusive of long-term
mill services contracts, was $231.6 million compared to $188.6 million as of
December 31, 1998, a 23% increase. The Harsco Infrastructure Segment order
backlog at December 31, 1999 was $151.6 million, an increase of 24% over the
December 31, 1998 backlog of $122.5 million. This increase principally results
from the fourth quarter 1999 Pandrol Jackson acquisition. The Harsco Gas and
Fluid Control Segment backlog increased approximately 27% to $80.0 million from
$62.8 million as of December 31, 1998. The increase results from higher backlog
for gas control and containment equipment. Backlog for scaffolding, shoring and
forming services of the Harsco Infrastructure Segment and roofing granules and
slag abrasives of the Harsco Mill Services Segment are excluded from the backlog
amounts. They are generally not quantifiable due to the nature of the products
and services provided.
Metal reclamation and mill services contracts have an estimated value of $3.6
billion at December 31, 1999, an increase of approximately 9% over the December
31, 1998 amount of $3.3 billion.
DIVIDEND ACTION
The Company paid four quarterly cash dividends of $.225 per share in 1999, for
an annual rate of $.90. This is an increase of 2.3% from 1998. At the November
1999 meeting, the Board of Directors increased the dividend 4.4% to an annual
rate of $.94 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 2000 payment marked the 199th
consecutive quarterly dividend paid at the same or at an increased rate. During
the five-year period ended December 31, 1999, dividends paid were increased five
times. In 1999, the dividend payout rate was 41%. The Company is philosophically
committed to maintaining or increasing the dividend at a sustainable level.
YEAR 2000 READINESS
The Company has taken steps to assure that its operations are not adversely
impacted by potential Year 2000 computer failures. All phases of the Company's
Year 2000 readiness process have been completed for information technology and
non-information technology systems. Those phases included awareness, assessment,
prioritization, remediation or replacement, testing and contingency planning.
Additionally, Year 2000 readiness assessments have been completed of critical
third parties including significant business
-30-
<PAGE> 31
partners, suppliers, and major customers. As of December 31, 1999, no mission
critical third parties have indicated that they are not Year 2000 ready.
Through March 16, 2000 the Company has not experienced any material Year 2000
failures.
As of December 31, 1999, the Company has incurred approximately $3.3 million in
cumulative Year 2000 readiness costs. The Company does not expect to incur
additional Year 2000 readiness costs unless a material Year 2000 failure occurs.
The Company believes that its major Year 2000 risks involve the continuing Year
2000 readiness and performance of third parties. The impact of such Year 2000
risks and potential failures on the Company's financial position or results of
operations cannot be estimated.
The Company has developed contingency plans to be invoked in the event of a
material Year 2000 failure. However, if there is an extended Year 2000 failure
by several third parties or of supporting infrastructures, there could be a
material adverse impact on the Company's financial position or results of
operations.
Year 2000 Statements contained herein about Harsco products and services are
Year 2000 Readiness Disclosures, pursuant to the Year 2000 Information and
Readiness Disclosure Act, 15 U. S. C. 1-note.
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 and
earnings.
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 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.
-31-
<PAGE> 32
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
36%, 37% and 36% of the Company's net revenues for the years ended December 31,
1999, 1998 and 1997, 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 1999 sales would
have been 2.5% greater using the average exchange rates for the year 1998. A
similar comparison for the year 1998, would have increased sales one percent, if
the average exchange rates for 1997 would have remained the same in 1998.
The Company seeks to reduce exposures to foreign currency fluctuations, through
the use of forward exchange contracts. At December 31, 1999, these contracts
amounted to $19.2 million and all mature within 2000. 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. Total debt of $455.1 million as of December 31, 1999 had interest rates
ranging from 3.2% to 13.0%, of which approximately 35% were at fixed rates of
interest. The weighted average interest rate of total debt was approximately
5.8%. At current debt levels, a one percentage increase in interest rates would
increase interest expense by approximately three million dollars per year.
For additional information, see Note 13, Financial Instruments, to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data."
The Company is also exposed to risks related to changing economic conditions and
their effect on the markets it serves and on the Company's supply chain, and
related costs. For additional information, see "Economic Environment" under Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
-32-
<PAGE> 33
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 34
Consolidated Balance Sheet
December 31, 1999 and 1998 35
Consolidated Statement of Income
for the years 1999, 1998, and 1997 36
Consolidated Statement of Cash Flows
for the years 1999, 1998, and 1997 37
Consolidated Statement of Shareholders'
Equity for the years 1999, 1998, and 1997 38
Consolidated Statement of Comprehensive
Income for the years 1999, 1998, and 1997 39
Notes to Consolidated Financial Statements 40 - 81
Supplementary Data:
Two-Year Summary of Quarterly Results (Unaudited) 82
Common Stock Price and Dividend Information 83
</TABLE>
-33-
<PAGE> 34
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, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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 27, 2000
-34-
<PAGE> 35
HARSCO CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 51,266 $ 41,562
Accounts receivable, net 331,123 310,935
Inventories 172,198 175,804
Other current assets 58,368 59,140
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 612,955 587,441
- ----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 671,546 626,194
Cost in excess of net assets of businesses acquired, net 258,698 273,708
Other assets 116,624 136,238
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,659,823 $ 1,623,581
============================================================================================================================
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ 32,014 $ 46,766
Current maturities of long-term debt 4,593 7,841
Accounts payable 132,394 142,681
Accrued compensation 46,615 43,938
Income taxes 44,154 42,908
Dividends payable 9,417 9,506
Other current liabilities 161,329 181,182
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 430,516 474,822
- ----------------------------------------------------------------------------------------------------------------------------
Long-term debt 418,504 309,131
Deferred income taxes 52,932 55,195
Insurance liabilities 37,097 30,019
Other liabilities 70,653 69,115
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,009,702 938,282
- ----------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Series A junior participating cumulative preferred stock - -
Common stock, par value $1.25, issued 66,221,544 and 66,075,380
shares as of December 31, 1999 and 1998, respectively 82,777 82,594
Additional paid-in capital 88,101 85,384
Accumulated other comprehensive income (expense) (80,538) (55,045)
Retained earnings 1,155,586 1,101,828
- ----------------------------------------------------------------------------------------------------------------------------
1,245,926 1,214,761
Treasury stock, at cost (26,149,759 and 23,825,458 shares, respectively) (595,805) (529,462)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 650,121 685,299
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,659,823 $ 1,623,581
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-35-
<PAGE> 36
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Service sales $ 864,035 $ 866,404 $ 782,406
Product sales 852,653 867,054 845,072
Other 4,123 1,936 1,643
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,720,811 1,735,394 1,629,121
- ---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of services sold 666,560 666,806 584,290
Cost of products sold 662,972 660,536 645,044
Selling, general, and administrative expenses 207,765 213,438 211,231
Research and development expenses 7,759 6,977 6,090
Other (income) and expenses 6,019 (4,264) 2,578
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,551,075 1,543,493 1,449,233
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INTEREST, INCOME TAXES, AND MINORITY INTEREST 169,736 191,901 179,888
Interest income 4,662 8,378 8,464
Interest expense (26,968) (20,504) (16,741)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 147,430 179,775 171,611
Provision for income taxes 51,599 67,361 65,213
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST 95,831 112,414 106,398
Minority interest in net income 5,118 4,901 5,998
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 90,713 107,513 100,400
Discontinued operations:
Equity in income of defense business (net of income taxes
of $14,082) - - 28,424
Gain on disposal of defense business (net of income taxes
of $100,006) - - 150,008
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 90,713 $ 107,513 $ 278,832
=================================================================================================================================
Basic earnings per common share:
Income from continuing operations $ 2.22 $ 2.36 $ 2.06
Income from discontinued operations - - .58
Gain on disposal of discontinued operations - - 3.08
- ---------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $ 2.22 $ 2.36 $ 5.72
=================================================================================================================================
Average shares of common stock outstanding 40,882 45,568 48,754
=================================================================================================================================
Diluted earnings per common share:
Income from continuing operations $ 2.21 $ 2.34 $ 2.04
Income from discontinued operations - - .58
Gain on disposal of discontinued operations - - 3.05
- ---------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $ 2.21 $ 2.34 $ 5.67
=================================================================================================================================
Diluted average shares of common stock outstanding 41,017 45,911 49,192
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-36-
<PAGE> 37
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 90,713 $ 107,513 $ 278,832
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 122,777 119,044 107,350
Amortization 13,076 12,337 9,189
Gain on disposal of defense business - - (250,014)
Equity in income of unconsolidated entities (3,004) (1,354) (43,549)
Dividends or distributions from unconsolidated entities 3,369 1,494 49,142
Deferred income taxes 193 3,893 (8,175)
Other (income) and expenses 6,019 24,843 4,198
Gain on sale of non-defense businesses - (29,107) (1,620)
Other, net 5,205 5,260 (8,192)
Changes in assets and liabilities, net of acquisitions and
dispositions of businesses:
Accounts receivable (28,157) (15,718) (1,812)
Inventories 15,934 (24,991) (13,042)
Accounts payable (1,238) 8,379 4,840
Disbursements related to discontinued
defense business (14,605) (13,642) (951)
Other assets and liabilities 3,671 (8,691) 22,345
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (1) 213,953 189,260 148,541
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (175,248) (159,816) (143,444)
Purchase of businesses, net of cash acquired* (48,907) (158,291) (8,508)
Proceeds from sale of businesses 17,718 39,500 345,189
Proceeds from sale of property, plant and equipment 14,381 13,033 14,433
Investments available-for-sale: Purchases - - (39,346)
Maturities - 40,000 -
Investments held-to-maturity: Purchases - - (42,241)
Maturities - 4,010 71,469
Other investing activities (2,618) (11,926) (1,007)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (194,674) (233,490) 196,545
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net (10,546) 16,131 8,291
Current maturities and long-term debt: Additions 214,133 172,709 61,310
Reductions (103,410) (116,163) (88,523)
Cash dividends paid on common stock (37,022) (40,287) (39,120)
Common stock issued-options 2,272 3,885 5,939
Common stock acquired for treasury (71,860) (169,258) (113,161)
Other financing activities (2,495) (1,341) (1,985)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY FINANCING ACTIVITIES (8,928) (134,324) (167,249)
- ------------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (647) (1,449) (2,134)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 9,704 (180,003) 175,703
Cash and cash equivalents at beginning of year 41,562 221,565 45,862
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 51,266 $ 41,562 $ 221,565
====================================================================================================================================
*PURCHASE OF BUSINESSES, NET OF CASH ACQUIRED
Working capital, other than cash $ 18,078 $ 11,159 $ 2,807
Property, plant and equipment (36,417) (89,182) (833)
Other noncurrent assets and liabilities, net (30,568) (80,268) (10,482)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED TO ACQUIRE BUSINESSES $ (48,907) $ (158,291) $ (8,508)
====================================================================================================================================
</TABLE>
(1) 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.
-37-
<PAGE> 38
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
COMMON STOCK ADDITIONAL (EXPENSE)
--------------------- PAID-IN --------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) ISSUED TREASURY CAPITAL TRANSLATION
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1997 $ 81,823 $ (238,065) $ 69,151 $ (25,476)
- -------------------------------------------------------------------------------------------------
Net income
Cash dividends declared, $.82 per share
Translation adjustments (24,201)
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 (49,677)
- -------------------------------------------------------------------------------------------------
Net income
Cash dividends declared, $.885 per share
Translation adjustments (1,714)
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 (51,391)
- -------------------------------------------------------------------------------------------------
Net income
Cash dividends declared, $.91 per share
Translation adjustments (27,273)
Pension liability adjustments, net of ($1,277)
deferred income taxes
Acquired during the year, 2,326,798 shares (66,441)
Stock options exercised, 146,164 shares 183 2,740
Other, 2,497 shares 98 (23)
- -------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999 $ 82,777 $ (595,805) $ 88,101 $ (78,664)
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (EXPENSE)
------------------------------------
NET UNREALIZED
INVESTMENT PENSION RETAINED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) GAINS (LOSSES) LIABILITY TOTAL EARNINGS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1997 $ - $ (619) $ (26,095) $ 794,473
- ----------------------------------------------------------------------------------------------------
Net income 278,832
Cash dividends declared, $.82 per share (39,535)
Translation adjustments (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 (28) (1,269) (50,974) 1,033,770
- ----------------------------------------------------------------------------------------------------
Net income 107,513
Cash dividends declared, $.885 per share (39,455)
Translation adjustments (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 - (3,654) (55,045) 1,101,828
- ----------------------------------------------------------------------------------------------------
Net income 90,713
Cash dividends declared, $.91 per share (36,955)
Translation adjustments (27,273)
Pension liability adjustments, net of ($1,277)
deferred income taxes 1,780 1,780
Acquired during the year, 2,326,798 shares
Stock options exercised, 146,164 shares
Other, 2,497 shares
- ----------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999 $ - $ (1,874) $ (80,538) $ 1,155,586
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-38-
<PAGE> 39
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31 1999 1998 1997
=========================================================================================================================
<S> <C> <C> <C>
Net Income $ 90,713 $ 107,513 $ 278,832
- -------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (expense):
Foreign currency translation adjustments (27,273) (1,714) (24,201)
Unrealized investment gains (losses), net of deferred income taxes - 28 (28)
Pension liability adjustments, net of deferred income taxes 1,780 (2,385) (650)
- -------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (expense) (25,493) (4,071) (24,879)
- -------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 65,220 $ 103,442 $ 253,953
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-39-
<PAGE> 40
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.
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. Long-lived assets to be
disposed are not depreciated while they are held for disposal.
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 $74.9 and $58.6 million at
December 31, 1999 and 1998, respectively.
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 Company's policy is to record an impairment
loss when it is determined that the carrying amount of the asset exceeds the sum
of the expected undiscounted future cash flows resulting from use of the asset
and its eventual disposition. Impairment losses are measured as the amount by
which the carrying amount of the asset exceeds its fair value. Long-lived assets
to be disposed are reported at the lower of the carrying amount or fair value
less cost to sell.
REVENUE RECOGNITION
Revenue is recognized for product sales generally when title and risk of loss
transfer. Service sales are recognized over the contractual period or as
services are performed.
-40-
<PAGE> 41
INCOME TAXES
United States 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, except when management has specific plans
for reinvestment of undistributed earnings which will result in the indefinite
postponement of their remittance. 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 significant 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 as of 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 the U.S. dollar for 1997 and 1998. Effective January
1999, the three-year cumulative rate of inflation fell below 100%. As of January
1, 1999, the Company measures the financial statements of its Mexican entities
using the Mexican new peso as the functional currency.
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 entities using the Brazilian real as the functional
currency.
-41-
<PAGE> 42
FINANCIAL INSTRUMENTS AND HEDGING
The Company has subsidiaries principally operating in North America, South
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 executes forward foreign exchange contracts to hedge transactions of
its non-U.S. subsidiaries for firm purchase commitments 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 transaction.
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.
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, the 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.
-42-
<PAGE> 43
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), with
an amended effective date for fiscal years beginning after June 15, 2000. SFAS
133 requires that an entity recognize on its balance sheet all derivative
instruments as either assets or liabilities 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
will adopt SFAS 133 as of January 1, 2001. 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.
-43-
<PAGE> 44
- --------------------------------------------------------------------------------
2. 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 worldwide.
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, 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.
Disbursements related to the discontinued defense business, principally legal
fees and settlements, are shown separately on the Consolidated Statement of Cash
Flows for 1997, 1998, and 1999.
-44-
<PAGE> 45
- --------------------------------------------------------------------------------
3. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
In October 1999, the Company acquired Charter plc's Pandrol Jackson railway
track maintenance business. The transaction was completed for approximately $48
million in cash plus assumption of liabilities, for a total consideration of
approximately $65 million. Pandrol Jackson manufactures and markets worldwide a
wide range of equipment and services used in railway track maintenance. In
December 1999, the Company completed the sale of the railway switch, crossing
and transit grinding business obtained as part of the Pandrol Jackson railway
maintenance acquisition. This business, with annual sales of approximately $6
million, was divested in accordance with an agreement with the Department of
Justice as a condition to the acquisition of Pandrol Jackson.
In July 1999, the Company acquired certain assets and assumed certain
liabilities of Structural Accessories, Inc. The total consideration was
approximately $2 million. Structural Accessories, Inc. manufactures and sells
bridge bearings and expansion joints.
In February 1999, the Company acquired certain assets and assumed certain
liabilities of Natural Gas Vehicle Systems, Inc. Total consideration was
approximately $3 million. Natural Gas Vehicle Systems, Inc. manufactures
cylinders used in vehicles which use natural gas.
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.
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 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 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.
All acquisitions have been accounted for using the purchase method of accounting
with cost in excess of net assets of businesses acquired totaling $9.4 million
in 1999 and $94.6 million in 1998. Results of operations are included in income
since the dates of acquisition.
-45-
<PAGE> 46
- --------------------------------------------------------------------------------
3. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The following unaudited pro-forma consolidated net sales, net income, and
earnings per share data are presented as if the above businesses had been
acquired at the beginning of the periods presented.
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
PRO-FORMA INFORMATION FOR YEARS ENDED DECEMBER 31 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 1,767 $ 1,929
Net income 90 97
Basic earnings per share 2.20 2.13
Diluted earnings per share 2.19 2.12
- ---------------------------------------------------------------------------------------------------
</TABLE>
The unaudited pro-forma information is not necessarily indicative of the results
of operations that would have occurred had the purchases been made at the
beginning of the periods presented, or of the future results of the combined
operations.
The pro-forma information includes the actual results of the acquired businesses
prior to the acquisition dates. These results do not reflect the effect of
reorganization actions, synergies, cost reductions and other benefits resulting
from the combinations. Additionally, the pro-forma information reflects
amortization of the cost in excess of net assets acquired and interest expense
on assumed borrowings for acquisitions for the full periods presented.
DISPOSITIONS
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 completed
the sales of Astralloy Wear Technology in March 1999; the pavement marking and
vegetation control business of Chemi-Trol in August 1999; and the Manchester
truck dealership in September 1999. Additionally, the Company plans to dispose
of its investments in Bio-Oxidation Services Inc., Gunness Wharf Limited and
Flixborough Wharf Limited.
-46-
<PAGE> 47
- --------------------------------------------------------------------------------
4. ACCOUNTS RECEIVABLE AND INVENTORIES
Accounts receivable are net of an allowance for doubtful accounts of $13.3
million and $13.6 million at December 31, 1999 and 1998, respectively.
Inventories consist of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 37,715 $ 45,259
Work-in-process 37,198 36,060
Raw materials and purchased parts 76,911 71,576
Stores and supplies 20,374 22,909
- -------------------------------------------------------------------------------------------------
$ 172,198 $ 175,804
=================================================================================================
Valued at lower of cost or market:
LIFO basis $ 132,366 $ 129,708
FIFO basis 16,483 28,473
Average cost basis 23,349 17,623
- -------------------------------------------------------------------------------------------------
$ 172,198 $ 175,804
=================================================================================================
</TABLE>
Inventories valued on the LIFO basis at December 31, 1999 and 1998 were
approximately $28.4 million and $32.5 million, respectively, less than the
amounts of such inventories valued at current costs.
As a result of reducing certain inventory quantities valued on the LIFO basis,
net income increased from that which would have been recorded under the FIFO
basis of valuation, by $1.1 million, $0.2 million and $0.1 million in 1999,
1998, and 1997, respectively.
-47-
<PAGE> 48
- --------------------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 28,847 $ 31,048
Buildings and improvements 147,742 147,291
Machinery and equipment 1,243,437 1,196,223
Uncompleted construction 79,797 63,540
- -------------------------------------------------------------------------------------
1,499,823 1,438,102
Less accumulated depreciation 828,277 811,908
- -------------------------------------------------------------------------------------
$ 671,546 $ 626,194
=====================================================================================
</TABLE>
The estimated useful lives of different types of assets are generally:
<TABLE>
- ----------------------------------------------------------------------------
<S> <C>
Land improvements 10 years
Buildings and improvements 10 to 50 years
Certain plant, buildings and installations
(Principally Mill Services Segment) 3 to 15 years
Machinery and equipment 3 to 20 years
- ----------------------------------------------------------------------------
</TABLE>
-48-
<PAGE> 49
- --------------------------------------------------------------------------------
6. 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, 1999) that varies based upon its credit ratings. At December 31, 1999 and
1998, there were no borrowings outstanding.
The Company can also issue up to $400 million of short-term notes in the U.S.
commercial paper market. In addition, the Company has a three billion Belgian
franc commercial paper program (approximately U.S. $75 million at December 31,
1999) 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, 1999 and 1998, $233.7 million and $108.8
million of commercial paper was outstanding, respectively. Commercial paper is
classified as long-term debt at December 31, 1999 and 1998, 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 $32.0 million and $46.8 million at December 31, 1999
and 1998, respectively. The weighted average interest rate for short-term
borrowings at December 31, 1999 and 1998 was 4.6% and 7.9%, respectively.
-49-
<PAGE> 50
- --------------------------------------------------------------------------------
6. DEBT AND CREDIT AGREEMENTS (CONTINUED)
Long-term debt consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
6.0% notes due September 15, 2003 $ 150,000 $ 150,000
Commercial paper borrowings, with a weighted
average interest rate of 5.8% as of December 31, 1999 233,746 108,784
Faber Prest loan notes due October 31, 2008 with interest
based on Sterling LIBOR minus .75% (5.4% at
December 31, 1999) 16,285 19,222
Industrial development bonds, payable in varying
amounts from 2001 to 2005 with a weighted
average interest rate of 6.4% as of December 31, 1999 11,400 11,400
Other financing payable in varying
amounts to 2005 with a weighted
average interest rate of 7.3% as of December 31, 1999 11,666 27,566
- ---------------------------------------------------------------------------------------------------------
423,097 316,972
Less current maturities 4,593 7,841
- ---------------------------------------------------------------------------------------------------------
$ 418,504 $ 309,131
=========================================================================================================
</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, 1999, the Company was in compliance with
these covenants.
The maturities of long-term debt for the four years following December 31, 2000,
are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2001 $ 242,927 2003 $ 150,967
2002 $ 2,049 2004 $ 4,778
- --------------------------------------------------------------------------------
</TABLE>
Cash payments for interest on all debt were (in millions) $25.0, $20.0, and
$16.3 in 1999, 1998 and 1997, respectively. Capitalized interest was $893
thousand, $10 thousand, and zero in 1999, 1998, and 1997, 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.
-50-
<PAGE> 51
- --------------------------------------------------------------------------------
7. LEASES
The Company leases certain property and equipment under noncancelable operating
leases. Rental expense under such operating leases was (in millions) $16.9,
$17.6, and $13.5 in 1999, 1998 and 1997, respectively.
Future minimum payments under operating leases with noncancelable terms are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C>
2000 $15,703
2001 12,534
2002 9,399
2003 7,268
2004 13,309
After 2004 16,598
- --------------------------------------------------------------------------------
</TABLE>
-51-
<PAGE> 52
- --------------------------------------------------------------------------------
8. 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.
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PENSION EXPENSE
Defined benefit plans:
Service cost $ 15,882 $ 13,785 $ 9,519
Interest cost 23,048 21,367 15,129
Expected return on plan assets (36,848) (39,859) (27,604)
Recognized prior service costs 2,052 1,307 1,368
Recognized (gains) or losses 278 (4,034) (3,517)
Amortization of transition asset (2,447) (2,453) (2,457)
Curtailment (gains) or losses - 542 (5,468)
- -------------------------------------------------------------------------------------------------
1,965 (9,345) (13,030)
Multi-employer plans 4,922 4,054 4,457
Defined contribution plans 4,466 6,043 4,131
- -------------------------------------------------------------------------------------------------
Pension (income) expense $ 11,353 $ 752 $ (4,442)
=================================================================================================
</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.
-52-
<PAGE> 53
- --------------------------------------------------------------------------------
8. 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, 1999 and 1998 are:
<TABLE>
<CAPTION>
PENSION BENEFITS
----------------------------------
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 371,454 $ 220,428
Service cost 15,882 13,785
Interest cost 23,048 21,367
Plan participants' contributions 1,887 1,452
Amendments 5,416 11,048
Actuarial (gain) loss (42,466) (3,824)
Curtailment (gain) loss - 542
Benefits paid (15,229) (16,126)
Obligations of acquired companies 8,574 122,388
Effect of foreign currency (5,598) 394
- --------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 362,968 $ 371,454
========================================================================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 458,241 $ 335,106
Actual return on plan assets 67,692 (16,342)
Employer contributions 1,425 2,370
Plan participants' contributions 1,887 1,452
Benefits paid (15,103) (16,007)
Plan assets of acquired companies 8,057 151,346
Effect of foreign currency (6,270) 316
- --------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 515,929 $ 458,241
========================================================================================================
FUNDED STATUS
Funded status at end of year $ 152,961 $ 86,787
Unrecognized net (gain) loss (92,817) (19,683)
Unrecognized transition (asset) obligation (13,222) (15,657)
Unrecognized prior service cost 25,534 22,446
- --------------------------------------------------------------------------------------------------------
Net amount recognized $ 72,456 $ 73,893
========================================================================================================
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET CONSIST OF:
Prepaid benefit cost $ 85,914 $ 84,251
Accrued benefit liability (18,907) (19,576)
Intangible asset 2,588 3,297
Accumulated other comprehensive income 2,861 5,921
- --------------------------------------------------------------------------------------------------------
Net amount recognized $ 72,456 $ 73,893
========================================================================================================
</TABLE>
Plan assets include equity and fixed-income securities. At December 31, 1999 and
1998, 732,640 shares of the Company's common stock with a fair market value of
$23.3 million and $22.3 million, respectively, are included in plan assets.
Dividends paid on such stock amounted to $0.7 million and $0.6 million in 1999
and 1998.
-53-
<PAGE> 54
- --------------------------------------------------------------------------------
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial assumptions used for the defined benefit pension plans, including
international plans, are:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average assumed discount rates 6.9% 6.3% 7.4%
Weighted average expected long-term rates of
return on plan assets 8.4% 8.2% 9.1%
Rates of compensation increase 4.2% 4.4% 4.5%
- --------------------------------------------------------------------------------------------
</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 $33.6 million, $32.4 million, and $15.7 million,
respectively, as of December 31, 1999, and $32.1 million, $30.1 million, and
$11.6 million, respectively, as of December 31, 1998.
-54-
<PAGE> 55
- --------------------------------------------------------------------------------
8. 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 $0.4
million in 1999, $0.3 million in 1998, and $0.2 million in 1997. 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) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 6,421 $ 6,220
Service cost 129 107
Interest cost 466 431
Actuarial loss (gain) 319 49
Benefits paid (325) (386)
Obligation of acquired company 3,294 -
- -----------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 10,304 $ 6,421
===========================================================================================================
FUNDED STATUS
Funded status at end of year $ (10,304) $ (6,421)
Unrecognized prior service cost (39) (42)
Unrecognized net actuarial (gain) (1,328) (1,861)
- -----------------------------------------------------------------------------------------------------------
Net amount recognized as accrued benefit liability $ (11,671) $ (8,324)
===========================================================================================================
</TABLE>
-55-
<PAGE> 56
- --------------------------------------------------------------------------------
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial assumptions used for postretirement benefit plans are:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumed discount rate 7.75% 6.75% 7.25%
Health care cost trend rate 7.50% 8.30% 8.70%
Decreasing to ultimate rate 6.50% 5.50% 5.50%
Effect of one percent increase in
health care cost trend rate:
On cost components $ 21 $ 21 $ 47
On accumulated benefit obligation $ 415 $ 185 $ 192
- ----------------------------------------------------------------------------------------------------
</TABLE>
For 1999, a one percent decrease in the health care cost trend rate would
decrease the cost component by $19 thousand and decrease the accumulated benefit
obligation by $405 thousand.
It is anticipated that the health care cost trend rate will decrease from 7.5%
in 2000 to 6.5% in the year 2003.
SAVINGS PLAN
The Company has a 401(k) savings plan which covers substantially all U.S.
employees with the exception of 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) $4.4, $4.8, and $4.5 for 1999, 1998, and 1997, respectively.
EXECUTIVE INCENTIVE COMPENSATION PLAN
Under the 1995 Executive Incentive Compensation Plan, the Management Development
and Compensation Committee 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 were made in February of the following year. The Company accrued
amounts based on performance reflecting the value of cash and common stock which
was anticipated to be earned for the year. Compensation expense relating to
these awards was (in millions) $3.8, $3.7, and $5.1 in 1999, 1998 and 1997,
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.
-56-
<PAGE> 57
- --------------------------------------------------------------------------------
9. INCOME TAXES
Income from continuing operations before income taxes and minority interest in
the Consolidated Statement of Income consists of:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 78,689 $ 121,091 $ 93,386
International 68,741 58,684 78,225
- -----------------------------------------------------------------------------------------
$ 147,430 $ 179,775 $ 171,611
=========================================================================================
Provision for income taxes:
Currently payable:
Federal $ 22,474 $ 37,297 $ 21,627
State 1,743 2,835 4,309
International 25,203 23,468 30,538
- -----------------------------------------------------------------------------------------
49,420 63,600 56,474
Deferred federal and state 3,890 6,552 9,426
Deferred international (1,711) (2,791) (687)
- -----------------------------------------------------------------------------------------
$ 51,599 $ 67,361 $ 65,213
=========================================================================================
</TABLE>
Cash payments for income taxes were (in millions) $50.7, $38.8, and $167.0, for
1999, 1998, and 1997, 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.
-57-
<PAGE> 58
- --------------------------------------------------------------------------------
9. 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>
1999 1998 1997
- -------------------------------------------------------------------------------------------
<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 1.6 2.1
Export sales corporation benefit (.5) (.6) (.4)
Losses for which no tax benefit
was recorded .3 1.3 .4
Difference in effective tax rates on
international earnings and remittances (1.9) (1.3) (.2)
Nondeductible acquisition costs 2.1 2.0 1.8
Other, net (1.6) (.5) (.7)
- -------------------------------------------------------------------------------------------
Effective income tax rate 35.0% 37.5% 38.0%
===========================================================================================
</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,
1999 and 1998 are:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES ASSET LIABILITY Asset Liability
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation $ - $ 36,580 $ - $ 42,284
Expense accruals 34,975 - 43,015 -
Inventories 5,294 - 3,783 -
Provision for receivables 3,867 - 2,986 -
Postretirement benefits 4,221 - 3,235 -
Deferred revenue - 4,196 - 4,447
Unrelieved foreign tax losses 6,694 - 3,729 -
Unrelieved domestic tax losses 2,424 - 3,079 -
Pensions - 22,923 - 18,917
Other - 1,913 - 2,120
- ------------------------------------------------------------------------------------------------------
57,475 65,612 59,827 67,768
Valuation allowance (4,045) - (6,293) -
- ------------------------------------------------------------------------------------------------------
Total deferred income taxes $53,430 $ 65,612 $ 53,534 $ 67,768
======================================================================================================
</TABLE>
At December 31, 1999 and 1998, Other current assets included deferred income tax
benefits of $35.0 million and $37.2 million, respectively.
-58-
<PAGE> 59
- --------------------------------------------------------------------------------
9. INCOME TAXES (CONTINUED)
At December 31, 1999, certain of the Company's subsidiaries had total available
net operating loss carryforwards ("NOLs") of approximately $27.8 million, of
which approximately $17.9 million may be carried forward indefinitely and $9.9
million have varying expiration dates. Included in the total are $8.7 million of
preacquisition NOLs.
During 1999 and 1998, $2.3 million and $4.4 million, respectively, of
preacquisition NOLs were utilized by the Company, resulting in tax benefits of
$0.8 million and $1.7 million, respectively.
The valuation allowance of $4.0 million and $6.3 million at December 31, 1999
and 1998, 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 1999 and 1998 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. The release of
valuation allowances in certain jurisdictions was allocated to reduce the cost
in excess of net assets of businesses acquired by $0.3 million in 1999. There
was no reduction in 1998.
-59-
<PAGE> 60
- --------------------------------------------------------------------------------
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. In 1999, the IRS
assessed an increase in FET of $30.4 million plus penalties of $9.3 million and
applicable interest currently estimated to be $45.5 million. In October 1999,
the Company posted an $80 million bond required as security by the IRS. This
increase in FET takes into account offsetting credits of $9.2 million, based on
a partial allowance of the Company's $31.9 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 $41.7 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 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.
-60-
<PAGE> 61
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 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 and applicable interest
currently estimated to be $9.3 million and $45.5 million, respectively. 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.
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. In May 1999, the Company and the U.S.
Government settled. Under the settlement agreement, Harsco paid the U.S.
Government $11 million and both parties released all claims in the case. The
settlement payment was charged against an existing reserve in the second quarter
of 1999.
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. In September 1994,
the Company received a subpoena issued by the Department of Defense Inspector
General seeking various documents relating to issues raised in the audit.
-61-
<PAGE> 62
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Government subsequently subpoenaed a number of former employees of the
Company's divested defense business to testify before a grand jury and issued
grand jury subpoenas to the Company for additional documents. On December 22,
1999, the Company announced that it reached agreement with the U.S. Government
on behalf of its former BMY Combat Systems Division to settle the matter. Under
the agreement, BMY Combat Systems pled guilty to a one-count misdemeanor
relating to submitting advance payment certifications which resulted in BMY
receiving a portion of the payments for the contract prematurely. Harsco will
pay the Government a $200,000 fine plus $10.8 million in damages for a total of
$11 million.
The settlement, which is subject to acceptance by the U.S. District Court, ends
the Government's investigation and releases Harsco and BMY from further
liability for the issues under investigation. Harsco will charge the payment
against an existing reserve, resulting in no charge to the Company's earnings.
Based on the terms of the settlement, the Company expects to pay the $11 million
in the second quarter of 2000, following the Court's entry of judgment.
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, 1999, and 1998 includes an accrual of
$3.0 million and $4.9 million, respectively, for environmental matters. The
amounts affecting pre-tax earnings related to environmental matters totaled $0.7
million of income for the year 1999, $0.8 million of expense for the year 1998
and $1.7 million of expense for the year 1997.
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.
-62-
<PAGE> 63
- --------------------------------------------------------------------------------
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, that would not have
a material adverse effect on the financial position or results of operations of
the Company.
-63-
<PAGE> 64
- --------------------------------------------------------------------------------
11. 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, 1999, 750,000 shares of $1.25 par
value preferred stock were reserved for issuance upon exercise of the rights.
In November 1998, the Board of Directors authorized the purchase, over a
one-year period, of 2,000,000 shares of the Company's common stock. The Company
purchased 877,500 shares of this authorization in 1998. The Board of Directors
subsequently increased the authorization by 2,000,000 shares in January 1999.
Through December 31, 1999, 3,143,646 shares of common stock were purchased under
these authorizations. This leaves 856,354 shares remaining under the
authorization. In January 2000, the Board of Directors extended the share
purchase authorization through January 25, 2001.
In 1999, additional share repurchases of 58,155, net of issues, were made
principally as part of the 1995 Executive Compensation Plan.
<TABLE>
<CAPTION>
COMMON STOCK SUMMARY
- -------------------------------------------------------------------------------------
SHARES TREASURY SHARES
BALANCES ISSUED SHARES OUTSTANDING
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
DECEMBER 31, 1999 66,221,544 26,149,759 40,071,785
- -------------------------------------------------------------------------------------
</TABLE>
-64-
<PAGE> 65
- --------------------------------------------------------------------------------
11. 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) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 90,713 $ 107,513 $ 100,400
===================================================================================================================
Average shares of common stock outstanding used to
compute basic earnings per common share 40,882,153 45,568,256 48,754,212
Additional common shares to be issued assuming exercise
of stock options, net of shares assumed reacquired 134,914 342,275 437,660
- -------------------------------------------------------------------------------------------------------------------
Shares used to compute dilutive effect of stock options 41,017,067 45,910,531 49,191,872
===================================================================================================================
Basic earnings per common share from continuing operations $ 2.22 $ 2.36 $ 2.06
===================================================================================================================
Diluted earnings per common share from continuing
operations $ 2.21 $ 2.34 $ 2.04
===================================================================================================================
</TABLE>
-65-
<PAGE> 66
- --------------------------------------------------------------------------------
12. 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 No. 123.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 90,713 $ 107,513 $ 278,832
Pro forma 89,113 105,736 277,101
Basic earnings per share:
As reported 2.22 2.36 5.72
Pro forma 2.18 2.32 5.68
Diluted earnings per share:
As reported 2.21 2.34 5.67
Pro forma 2.17 2.30 5.63
- ----------------------------------------------------------------------------------
</TABLE>
The fair value of the options granted during 1999, 1998, and 1997 is estimated
on the date of grant using the binomial option pricing model. The
weighted-average assumptions used and the estimated fair value are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected term 4 YEARS 4 years 4 years
Expected stock volatility 25.0% 16.0% 16.0%
Risk free interest rate 4.65% 5.65% 6.46%
Dividend $ .91 $ .88 $ .80
Rate of dividend increase 5% 5% 5%
Fair value $5.18 $6.68 $6.55
- -------------------------------------------------------------------------------------
</TABLE>
The Company has granted stock options to officers, certain key employees, 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, 1999, there were 2,729,158 and 220,000 shares available for granting stock
options under the 1995 Executive Incentive Compensation Plan and the 1995
Non-Employee Directors' Stock Plan, respectively.
-66-
<PAGE> 67
- --------------------------------------------------------------------------------
12. STOCK-BASED COMPENSATION (CONTINUED)
Changes during 1999, 1998, and 1997 in options outstanding were:
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, January 1, 1997 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
Granted 428,400 26.92
Exercised (146,164) 19.06
Terminated and expired (68,400) 31.36
- -----------------------------------------------------------------------------------------------------
OUTSTANDING, DECEMBER 31, 1999 1,336,604 $28.97
=====================================================================================================
</TABLE>
-67-
<PAGE> 68
- --------------------------------------------------------------------------------
12. STOCK-BASED COMPENSATION (CONTINUED)
Options to purchase 932,704 shares, 857,168 shares and 793,061 shares were
exercisable at December 31, 1999, 1998, and 1997, respectively. The following
table summarizes information concerning outstanding and exercisable options at
December 31, 1999.
<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> <C>
$11.81 - $17.63 34,778 1.8 $15.39 34,778 $15.39
20.69 - 29.47 793,726 7.0 25.61 407,826 24.62
32.81 - 46.16 508,100 7.6 36.31 490,100 36.44
- ------------------------------------------------------------------------------------------------------------------------
1,336,604 932,704
========================================================================================================================
</TABLE>
During 1999, 1998, and 1997, the Company had non-cash transactions related to
stock option exercises of $0.5 million, $1.6 million, and $2.3 million,
respectively, whereby old shares were exchanged for new shares.
-68-
<PAGE> 69
- --------------------------------------------------------------------------------
12. STOCK-BASED COMPENSATION (CONTINUED)
As of January 1, 1999, the restricted stock portion of the 1995 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 and 1997, the Company recorded $.1 million and $1.9 million
respectively, in compensation expense related to restricted stock.
-69-
<PAGE> 70
- --------------------------------------------------------------------------------
13. 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
$165.9 million and $38.7 million at December 31, 1999 and 1998, respectively.
These standby letters of credit and bonds are generally in force for up to four
years. Certain issues have no scheduled expiration date. The Company pays fees
to various banks and insurance companies that range from 0.08 to 1.9 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, 1999 for those currently
outstanding, it is the Company's opinion that the replacement costs would not
vary significantly from the present fee structure.
At December 31, 1999 and 1998, the Company had $19.2 million and $18.3 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 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 credit worthiness of the
counterparties' financial condition and does not expect default by the
counterparties.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company generally has currency exposures in thirty-two countries. The
Company's primary foreign currency exposures are in United Kingdom, France,
Canada, South Africa, Brazil, Germany, Australia, and Mexico.
Forward foreign currency exchange contracts are used to hedge commitments, such
as foreign currency debt, firm purchase commitments, and foreign currency cash
flows for certain export sales transactions.
-70-
<PAGE> 71
- --------------------------------------------------------------------------------
13. 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, 1999 and
1998. The "Buy" amounts represent the U.S. dollar equivalent of commitments to
purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar
equivalent of commitments to sell foreign currencies.
<TABLE>
<CAPTION>
(IN THOUSANDS) AS OF DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
U.S. DOLLAR RECOGNIZED UNREALIZED
TYPE EQUIVALENT MATURITY GAIN (LOSS) GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------
FORWARD EXCHANGE
CONTRACTS:
<S> <C> <C> <C> <C> <C>
EUROS BUY $17,339 JANUARY 18, 2000 $(661) $ -
BRITISH POUNDS BUY 1,506 VARIOUS IN 2000 79 -
FRENCH FRANCS BUY 229 VARIOUS IN 2000 - (13)
BRITISH POUNDS BUY 93 VARIOUS IN 2000 (2)
- ----------------------------------------------------------------------------------------------------------------------
$19,167 $(582) $(15)
======================================================================================================================
</TABLE>
At December 31, 1999, the Company had entered into forward exchange contracts in
euros and British pounds, 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, 1999, the
Company had recorded net losses of $0.6 million on these contracts. These losses
were generally offset by gains on the hedged items. In January 2000, the euro
contract was extended to March 18, 2000. The Company also had forward exchange
contracts in French francs and British pounds, which were used to hedge
equipment purchases. Since these contracts hedge identifiable foreign currency
firm commitments, the losses were deferred and will be accounted for as part of
the underlying transactions.
<TABLE>
<CAPTION>
(IN THOUSANDS) AS OF DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------------------------
U.S. DOLLAR RECOGNIZED UNREALIZED
TYPE EQUIVALENT MATURITY GAIN (LOSS) GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------
Forward exchange
contracts:
<S> <C> <C> <C> <C> <C>
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>
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 did 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.
-71-
<PAGE> 72
- --------------------------------------------------------------------------------
13. FINANCIAL INSTRUMENTS (CONTINUED)
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. Concentrations of credit risk with respect to
accounts receivable are limited due to the Company's large number of customers
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.
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.
-72-
<PAGE> 73
- --------------------------------------------------------------------------------
13. FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1999 and 1998 are:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 51,266 $ 51,266 $ 41,562 $ 41,562
Long-term debt 423,097 416,925 316,972 317,530
Foreign currency exchange contracts 19,167 18,571 18,269 18,336
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-73-
<PAGE> 74
- --------------------------------------------------------------------------------
14. INFORMATION BY SEGMENT AND GEOGRAPHIC AREA
The Company reports information about its operating segments according 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 Company's reportable segments are identified based upon differences in
products, services, and markets served. The Company's business units are
aggregated into three reportable segments. The three reportable segments and the
type of products and services offered include:
HARSCO MILL SERVICES
This segment provides metal reclamation and other 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.
HARSCO 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; and air-cooled heat exchangers.
Major customers include various industrial markets; hardware, plumbing, and
petrochemical sectors; 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.
HARSCO INFRASTRUCTURE
Major products and services include railway maintenance-of-way equipment and
services; scaffolding, shoring, and concrete forming products and erection and
dismantling services; bridge decking and industrial grating; process equipment,
including industrial blenders, dryers, mixers, water heaters, boilers, and heat
transfer equipment.
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. Other customers include the chemical, food
processing, and pharmaceutical industries; and institutional building and
retrofit markets.
-74-
<PAGE> 75
- --------------------------------------------------------------------------------
14. 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 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 1999,
1998, and 1997. 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, 1999 and 1998 and are disclosed
separately in the geographic area information.
SEGMENT INFORMATION (1)(2)
<TABLE>
<CAPTION>
SEGMENTS NET SALES TO UNAFFILIATED CUSTOMERS INCOME FROM CONTINUING OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harsco Mill Services (3)(4) $ 729.6 $ 751.9 $ 672.7 $ 45.1 $ 43.3 $ 50.3
Harsco Gas and Fluid Control 560.9 588.7 558.3 27.0 40.9 29.5
Harsco Infrastructure (5) 426.2 392.9 396.5 22.5 18.6 15.5
- ----------------------------------------------------------------------------------------------------------------------------------
Segment totals $ 1,716.7 $ 1,733.5 $1,627.5 94.6 102.8 95.3
- ----------------------------------------------------------------------------------------------------------------------------------
General corporate income (expense) (3.9) 4.7 5.1
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 90.7 $ 107.5 $ 100.4
==================================================================================================================================
<CAPTION>
SEGMENTS ASSETS DEPRECIATION AND AMORTIZATION CAPITAL EXPENDITURES
- ------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harsco Mill Services (4) $ 934.6 $ 922.7 $ 715.3 $ 99.5 $ 98.2 $ 87.2 $ 134.9 $ 102.7 $ 94.8
Harsco Gas and
Fluid Control 347.9 380.9 249.3 18.1 16.1 11.4 21.4 30.6 19.8
Harsco Infrastructure (5) 325.7 241.1 222.6 17.0 15.9 16.7 17.9 26.1 27.3
- ------------------------------------------------------------------------------------------------------------------------------
Segment totals 1,608.2 1,544.7 1,187.2 134.6 130.2 115.3 174.2 159.4 141.9
Corporate 51.6 78.9 290.0 1.3 1.2 1.2 1.0 .4 1.5
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 1,659.8 $ 1,623.6 $ 1,477.2 $ 135.9 $ 131.4 $ 116.5 $ 175.2 $ 159.8 $ 143.4
==============================================================================================================================
</TABLE>
(1) The 1997 segment information has been restated in accordance with the
Financial Accounting Standards Board SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information."
(2) Segment information reflects the first quarter 1999 reorganization of the
Patterson-Kelley division. Segment information for 1998 and 1997 has been
restated to reflect this change. The reorganization resulted in the
realignment of the heat transfer and industrial blending equipment
product lines from the Harsco Gas and Fluid Control Segment to the Harsco
Infrastructure Segment. Sales of these product lines were $26.9 million,
$29.2 million, and $28.2 million for the years 1999, 1998, and 1997,
respectively.
(3) For the years ended December 31, 1999, 1998, and 1997 the Harsco Mill
Services Segment included equity in income of unconsolidated entities of
$3.0 million, $1.4 million, and $1.0 million, respectively.
(4) A non-cash amount of $26.6 million of loan notes was issued for the Faber
Prest acquisition related to the Harsco Mill Services Segment in 1998.
(5) The Pandrol Jackson railway maintenance-of-way business was acquired in
October 1999 and is included as part of the Harsco Infrastructure
Segment. Pandrol Jackson sales were $12.4 million in 1999, and assets
were $69.2 million as of December 31, 1999.
-75-
<PAGE> 76
- --------------------------------------------------------------------------------
14. INFORMATION BY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
RECONCILIATION OF REPORTED INCOME BEFORE INTEREST, INCOME TAXES, AND MINORITY
INTEREST TO SEGMENT INCOME
<TABLE>
<CAPTION>
HARSCO
HARSCO GAS AND HARSCO GENERAL CONSOLIDATED
(IN MILLIONS) MILL SERVICES FLUID CONTROL INFRASTRUCTURE CORPORATE TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 (1)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INTEREST, INCOME TAXES, AND MINORITY INTEREST $ 81.2 $ 47.5 $ 41.2 $ (0.2) $ 169.7
INTEREST INCOME 4.3 0.1 0.2 0.1 4.7
INTEREST EXPENSE (10.8) (4.8) (6.3) (5.1) (27.0)
INCOME TAX (EXPENSE) BENEFIT (24.4) (15.9) (12.6) 1.3 (51.6)
MINORITY INTEREST IN NET (INCOME) LOSS (5.2) 0.1 - - (5.1)
- -----------------------------------------------------------------------------------------------------------------------------
SEGMENT INCOME (LOSS) FROM CONTINUING OPERATIONS $ 45.1 $ 27.0 $ 22.5 $ (3.9) $ 90.7
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
HARSCO
HARSCO GAS AND HARSCO GENERAL CONSOLIDATED
(IN MILLIONS) MILL SERVICES FLUID CONTROL INFRASTRUCTURE CORPORATE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 (2)
Income from continuing operations before interest,
income taxes, and minority interest $ 84.3 $ 72.3 $ 32.9 $ 2.4 $ 191.9
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) (27.5) (9.3) (0.7) (67.4)
Minority interest in net income (4.9) - - - (4.9)
- -------------------------------------------------------------------------------------------------------------------------------
Segment income from continuing operations $ 43.3 $ 40.9 $ 18.6 $ 4.7 $ 107.5
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
HARSCO
HARSCO GAS AND HARSCO GENERAL CONSOLIDATED
(IN MILLIONS) MILL SERVICES FLUID CONTROL INFRASTRUCTURE CORPORATE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 (3)
Income (loss) from continuing operations before
interest, income taxes, and minority interest $ 99.1 $ 51.3 $ 29.7 $ (0.2) $ 179.9
Interest income 2.0 0.1 0.2 6.1 8.4
Interest expense (6.6) (3.1) (5.9) (1.1) (16.7)
Income tax (expense) benefit (38.5) (18.5) (8.5) 0.3 (65.2)
Minority interest in net income (5.7) (0.3) (6.0)
- ------------------------------------------------------------------------------------------------------------------------------
Segment income from continuing operations $ 50.3 $ 29.5 $ 15.5 $ 5.1 $ 100.4
==============================================================================================================================
</TABLE>
(1) For 1999, segment income includes pre-tax special charges of $3.4 million
and $2.5 million for the Harsco Mill Services Segment and Harsco Gas and
Fluid Control Segment, respectively.
(2) For 1998, segment income includes pre-tax special charges (gains) of
$15.6 million, ($18.2) million, and $4.8 million for the Harsco Mill
Services Segment, Harsco Gas and Fluid Control Segment and the Harsco
Infrastructure Segment, respectively.
(3) For 1997, segment income includes pre-tax special charges (gains) of $0.4
million, $1.8 million, and ($0.3) million for the Harsco Mill Services
Segment, Harsco Gas and Fluid Control Segment and the Harsco
Infrastructure Segment, respectively.
See Note 15 for further information on special charges and (gains).
-76-
<PAGE> 77
- --------------------------------------------------------------------------------
14. INFORMATION BY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
INFORMATION BY GEOGRAPHIC AREA (4)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA NET SALES TO UNAFFILIATED CUSTOMERS SEGMENT ASSETS
- ----------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 1,095.3 $ 1,085.6 $ 1,044.8 $ 797.1 $ 721.2 $ 569.4
United Kingdom 155.5 126.4 61.1 186.2 180.7 51.4
All Other 465.9 521.5 521.6 624.9 642.8 566.4
- ----------------------------------------------------------------------------------------------------------------------
Segment Totals $ 1,716.7 $ 1,733.5 $ 1,627.5 $ 1,608.2 $ 1,544.7 $ 1,187.2
======================================================================================================================
</TABLE>
(4) Revenues are attributed to individual countries based on the location of
the facility generating the revenue.
-77-
<PAGE> 78
- --------------------------------------------------------------------------------
15. OTHER (INCOME) AND EXPENSES AND SPECIAL CHARGES AND (GAINS)
In the years 1999, 1998, and 1997, the Company recorded Other (income) and
expenses of $6.0 million, $(4.3) million, and $2.6 million, respectively:
<TABLE>
<CAPTION>
OTHER (INCOME) AND EXPENSES
- ------------------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net gains $ (560) $ (29,107) $ (1,620)
Impaired asset write-downs 2,878 14,410 1,592
Employee termination benefit costs 2,889 6,543 (810)
Costs to exit activities 502 2,792 3,313
Other 310 1,098 103
- -----------------------------------------------------------------------------------------
Total $ 6,019 $ (4,264) $ 2,578
=========================================================================================
</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 in 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>
- ------------------------------------------------------------------------------------------------------------
SPECIAL CHARGES AND (GAINS)
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harsco Mill Services $ 3,350 $ 15,618 $ 441
Harsco Gas and Fluid Control 2,452 (18,232) 1,766
Harsco Infrastructure (10) 4,826 (348)
Corporate 227 (11) 719
- ------------------------------------------------------------------------------------------------------------
Total $ 6,019 $ 2,201 $ 2,578
============================================================================================================
</TABLE>
-78-
<PAGE> 79
- --------------------------------------------------------------------------------
15. OTHER (INCOME) AND EXPENSES AND SPECIAL CHARGES AND (GAINS) (CONTINUED)
NET GAINS
Net 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 Harsco
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 1998
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 3.
IMPAIRED ASSET WRITE-DOWNS
Impaired asset write-downs for 1999 include a $1.9 million pre-tax, non-cash,
write-down of the Company's investment in Bio-Oxidation Services Inc. which is
included in the Harsco Gas and Fluid Control Segment. The Company's investment
in Bio-Oxidation Services Inc. is being held for disposal. 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, 1999
was $6.6 million. For the year ended December 31, 1999, Bio-Oxidation Services
Inc. recorded a pre-tax loss of $2.3 million which includes the asset write-down
of $1.9 million. The Company estimates that the disposal will occur during 2000.
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. The
investment carrying value as of December 31, 1998 was $7.6 million. 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 for 1998 also include a $6.1 million pre-tax,
non-cash, write-down of assets, principally property, plant and equipment in the
Harsco 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 net cash flows. In September 1999,
assets associated with a substantial portion of this provision were sold in
conjunction with the termination settlement of a contract in Russia.
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.
-79-
<PAGE> 80
- --------------------------------------------------------------------------------
15. OTHER (INCOME) AND EXPENSES AND SPECIAL CHARGES AND (GAINS) (CONTINUED)
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's management has established and
approved specific plans of termination. Details of the termination benefit plans
have been communicated to the affected employees prior to recognition of related
provisions. Non-cash charges for employee termination benefit costs are included
as adjustments to reconcile net income to net cash provided by operating
activities in the Consolidated Statement of Cash Flows.
During 1999, $2.9 million of reorganization expense related to employee
termination benefits was incurred, principally in the Harsco Mill Services
Segment, primarily in France and the United Kingdom. In 1999, 220 employees were
included in employee termination arrangements initiated by the Company and
approximately $1.8 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.
During 1998, $6.5 million of reorganization expense related to employee
termination benefits was incurred, principally in the Harsco Mill Services
Segment primarily in South Africa, United States, France, and Germany. In 1998,
approximately 670 employees were included in employee termination arrangements
initiated by the Company and approximately $2.4 million of cash payments were
made under such arrangements. An additional $3.3 million was disbursed in 1999
for the 1998 reorganization actions.
EMPLOYEE TERMINATION BENEFIT COSTS AND PAYMENTS
<TABLE>
<CAPTION>
(IN MILLIONS)
SUMMARY OF ACTIVITY
-----------------------------------------
Original reorganization action period 1999 1998
<S> <C> <C>
Employee termination benefits expense $2.9 $6.5
--- ---
Payments:
Disbursed in 1998 - (2.4)
Disbursed in 1999 (1) (1.8) (3.3)
--- ---
Total payments (1.8) (5.7)
Other - (0.4)
---- ---
Remaining payments as of
December 31, 1999 (2) $1.1 $0.4
=== ===
</TABLE>
(1) - Disbursements in 1999 are categorized according to the original
reorganization action period to which they relate (1999 or 1998). Cash
severance payments in 1999 occurred principally in the Harsco Mill
Services Segment in South Africa principally for 1998 reorganization
actions.
(2) - Remaining payments are categorized according to the original
reorganization action period to which they relate (1999 or 1998).
-80-
<PAGE> 81
- --------------------------------------------------------------------------------
15. OTHER (INCOME) AND EXPENSES AND SPECIAL CHARGES AND (GAINS) (CONTINUED)
EMPLOYEE TERMINATIONS - NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
SUMMARY OF ACTIVITY
----------------------------------------
Original reorganization action period 1999 1998
<S> <C> <C>
Employees affected by new reorganization actions 220 670
--- ---
Employee terminations:
Terminated in 1998 - (349)
Terminated in 1999 (172) (352)
--- ---
Total terminations (172) (701)
Other (9) 35
---- -----
Remaining terminations as of
December 31, 1999 39 4
==== =====
</TABLE>
COSTS TO EXIT ACTIVITIES
Costs to exit activities consist of incremental direct costs of reorganization
actions and lease run-out costs. Such costs are recorded when a specific exit
plan is approved by management. Relocation expenses, such as employee moving
costs, are classified as exit costs and are expensed as incurred. Other costs
classified in this category are generally expensed as incurred.
During 1998, $1.0 million and $0.8 million of exit costs, principally relocation
expenses, were included in the Harsco Mill Services and Harsco Infrastructure
Segments, respectively.
During 1997, $1.5 million of exit costs were included in the Harsco Mill
Services Segment. These costs resulted principally from the expiration or
termination of contracts at certain mill sites, as well as facility relocation
costs.
-81-
<PAGE> 82
TWO-YEAR SUMMARY OF QUARTERLY RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1999
- ----------------------------------------------------------------------------------------------------------------
QUARTERLY FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $404.6 $430.7 $423.9 $457.5
Gross profit (1) 82.8 94.7 93.7 102.2
Net income 14.8 23.8 26.1 26.0
Diluted earnings per share .35 .58 .64 .65
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1998
- ----------------------------------------------------------------------------------------------------------------
QUARTERLY FIRST SECOND THIRD FOURTH (2)
- ----------------------------------------------------------------------------------------------------------------
<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
Net income 24.3 33.1 25.9 24.2
Diluted earnings per share .52 .71 .56 .55
- ----------------------------------------------------------------------------------------------------------------
</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 fourth quarter of 1998 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 Harsco 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 Management's
Discussion and Analysis and Note 15.
-82-
<PAGE> 83
COMMON STOCK PRICE AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE
---------------------- DIVIDENDS DECLARED
HIGH LOW PER SHARE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
First Quarter $ 33 $ 25 $ .225
Second Quarter 34 3/8 23 1/16 .225
Third Quarter 32 5/16 25 3/8 .225
Fourth Quarter 31 7/8 26 .235
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
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-83-
<PAGE> 84
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure:
None.
-84-
<PAGE> 85
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 2000 Proxy Statement.
(b) Identification of Executive Officers:
Set forth below, as of March 2, 2000, are the executive officers (this excludes
one corporate officer who is not deemed an "executive officer" 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 27, 1999, or at
various times during the year as noted. All terms expire on April 25, 2000.
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 55 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>
-85-
<PAGE> 86
<TABLE>
<CAPTION>
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
<S> <C> <C>
L. A. Campanaro 51 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 of the 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 49 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 47 Senior Vice President, Chief Financial Officer and Treasurer of the Corporation
effective August 24, 1999. Served as Senior Vice President and Chief Financial
Officer from January 1998 to August 1999. 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>
-86-
<PAGE> 87
<TABLE>
<CAPTION>
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
<S> <C> <C>
R. W. Kaplan 48 Senior Vice President-Operations of the Corporation effective July 1, 1998.
Concurrently serves as President of the Harsco Gas & Fluid Control Group and was
President of the Taylor-Wharton Gas Equipment Division from February 1, 1994 to
November 16, 1999. 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 46 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 2000
Proxy Statement.
-87-
<PAGE> 88
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 2000 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 2000 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 2000 Proxy Statement.
-88-
<PAGE> 89
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 33.
(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 90
Schedule II - Valuation and Qualifying Accounts for the years 1999,
1998 and 1997 91
</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.
-89-
<PAGE> 90
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 34 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 89 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 27, 2000
-90-
<PAGE> 91
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 1999:
Deducted from Receivables:
--------------------------
Uncollectible accounts $ 13,602 $ 4,844 $ (153) $ (4,954) $ 13,339
========= ========= ========= ========= =========
Deducted from Inventories:
--------------------------
Inventory valuations $ 5,777 $ 6,383 $ (132) $ (1,344) $ 10,684
========= ========= ========= ========= =========
Other Reorganization and
------------------------
Valuation Reserves $ 25,316 $ 5,206 $ (389) $ (13,053)(2) $ 17,080
------------------ ========= ========= ========= ========= =========
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(3) $ 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
------------------ ========= ========= ========= ========= =========
</TABLE>
(1) Amounts charged to valuation account during the year.
(2) Includes $5,942 of charges against the opening balance sheet
reorganization reserves of Faber Prest acquired in 1998.
(3) Includes $12,328 increase due to opening balance sheet reorganization
reserves for companies acquired in 1998.
-91-
<PAGE> 92
(a) 3. Listing of Exhibits Filed with Form 10-K:
<TABLE>
<CAPTION>
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
<S> <C> <C>
3(a) Articles of Incorporation as Exhibit volume, 1990 10-K
amended April 24, 1990
3(b) Certificate of Amendment of Exhibit volume, 1999 10-K
Articles of Incorporation filed
June 3, 1997
3(c) Certificate of Designation filed Exhibit volume, 1997 10-K
September 25, 1997
3(d) By-laws as amended April 25, 1990 Exhibit volume, 1990 10-K
4(a) Harsco Corporation Rights Agreement dated as Incorporated by reference to Form
of September 28, 1997, with Chase Mellon 8-A, filed September 26, 1997
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>
-92-
<PAGE> 93
(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>
-93-
<PAGE> 94
(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) 1995 Executive Incentive Compensation Proxy Statement dated March 22, 1995
Plan on Exhibit A pages A-1 through A-12
</TABLE>
-94-
<PAGE> 95
(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(m) 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(n) D. C. Hathaway Exhibit volume, 1989 10-K
Uniform agreement, the same as
shown for J. J. Burdge
" L. A. Campanaro " "
" P. C. Coppock " "
" S. D. Fazzolari " "
" R. W. Kaplan " "
10(o) Special Supplemental Retirement Exhibit Volume, 1988 10-K
Benefit Agreement for
D. C. Hathaway
Director Indemnity Agreements -
10(p) R. F. Nation Exhibit volume, 1989 10-K
Uniform agreement, same as
shown for J. J. Burdge
" A. J. Sordoni, III " "
" R. C. Wilburn " "
" D. C. Hathaway " "
" J. I. Scheiner " "
" C. F. Scanlan " "
" J. J. Jasinowski " "
" J. P. Viviano " "
</TABLE>
-95-
<PAGE> 96
(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(q) Harsco Corporation Deferred Exhibit volume, 1994 10-K
Compensation Plan for
Non-Employee Directors
10(r) 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, 1999 10-K
Earnings to Fixed Charges
21 Subsidiaries of the Registrant Exhibit volume, 1999 10-K
23 Consent of Independent Accountants Exhibit volume, 1999 10-K
27 Financial Data Schedule Exhibit volume, 1999 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, 1999.
-96-
<PAGE> 97
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 3-16-00 By /S/ Salvatore D. Fazzolari
----------------------------- ----------------------------------
Salvatore D. Fazzolari
Senior Vice President, Chief Financial
Officer and Treasurer
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 and Chief 3-16-00
- ------------------------------------ Executive Officer --------------------
(Derek C. Hathaway)
/S/ Leonard A. Campanaro President, Chief Operating 3-16-00
- ------------------------------------ Officer and Director --------------------
(Leonard A. Campanaro)
/S/ Salvatore D. Fazzolari Senior Vice President, Chief 3-16-00
- ------------------------------------ Financial Officer and Treasurer --------------------
(Salvatore D. Fazzolari) (Principal Financial Officer)
/S/ Stephen J. Schnoor Vice President and Controller 3-16-00
- ------------------------------------ (Principal Accounting Officer) --------------------
(Stephen J. Schnoor)
/S/ Jerry J. Jasinowski Director 3-16-00
- ------------------------------------ --------------------
(Jerry J. Jasinowski)
/S/ Robert F. Nation Director 3-16-00
- ------------------------------------ --------------------
(Robert F. Nation)
/S/ Carolyn F. Scanlan Director 3-16-00
- ------------------------------------ --------------------
(Carolyn F. Scanlan)
/S/ James I. Scheiner Director 3-16-00
- ------------------------------------ --------------------
(James I. Scheiner)
/S/ Andrew J. Sordoni III Director 3-16-00
- ------------------------------------ --------------------
(Andrew J. Sordoni III)
/S/ Joseph P. Viviano Director 3-16-00
- ------------------------------------ --------------------
(Joseph P. Viviano)
/S/ Dr. Robert C. Wilburn Director 3-16-00
- ------------------------------------ --------------------
(Dr. Robert C. Wilburn)
</TABLE>
-97-
<PAGE> 98
HARSCO CORPORATION FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Item 14(a) 3. Exhibits
<TABLE>
<CAPTION>
Exhibit Document
Number Pages
- ------ --------
<S> <C> <C>
3(b) Certificate of Amendment of
Articles of Incorporation filed
June 3, 1997 1 - 2
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
</TABLE>
<PAGE> 1
EXHIBIT 3(b)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
*****
Harsco Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of Harsco
Corporation on January 28, 1997, resolutions were duly adopted setting forth a
proposed amendment to the Restated Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and calling a meeting of
the stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of
Harsco Corporation, as heretofore amended, be, and the same hereby is,
further amended by deleting the introductory paragraph of Article
FOURTH thereof and substituting, in lieu thereof, the following:
"FOURTH: The total number of shares of all classes of stock
which this Corporation shall have authority to issue is 154,000,000
shares, of which 4,000,000 shares are to be Preferred Stock of the par
value of $1.25 per share and 150,000,000 shares are to be Common Stock
of the par value of $1.25 per share."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, an Annual Meeting of the stockholders of said corporation was duly
called and held April 30, 1997, upon notice in accordance with Section 222 of
the General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
-1-
<PAGE> 2
IN WITNESS WHEREOF, said Harsco Corporation has caused this certificate
to be signed by Derek C. Hathaway, its Chairman, President and Chief Executive
Officer, this 20th day of May, 1997.
/s/ Derek C. Hathaway
--------------------------------
Derek C. Hathaway
Chairman, President and
Chief Executive Officer
ATTEST:
/s/ Paul C. Coppock
- -------------------------------------
Paul C. Coppock
Senior Vice President, Chief
Administrative Officer, General
Counsel and Secretary
-2-
<PAGE> 1
HARSCO CORPORATION
Exhibit 12
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations (net of minority interest
in net income) $ 142,312 $ 174,874 $ 165,613 $ 145,984 $ 107,073
Add fixed charges computed below 37,418 28,417 24,263 26,181 33,121
Net adjustments for equity companies 365 139 (694) (181) (466)
Net adjustments for capitalized
interest (535) (10) - - -
-------- -------- -------- -------- --------
Consolidated Earnings Available
for Fixed Charges $ 179,560 $ 203,420 $ 189,182 $ 171,984 $ 139,728
======== ======== ======== ======== ========
Consolidated Fixed Charges:
Interest expense per financial
statements (1) $ 26,968 $ 20,504 $ 16,741 $ 21,483 $ 28,921
Interest expense capitalized 893 128 128 131 134
Portion of rentals (1/3) representing
an interest factor 9,557 7,785 7,394 4,567 4,066
Interest expense for equity companies
whose debt is guaranteed (2) - - - - -
-------- -------- -------- -------- --------
Consolidated Fixed Charges $ 37,418 $ 28,417 $ 24,263 $ 26,181 $ 33,121
======== ======== ======== ======== ========
Consolidated Ratio of Earnings to
Fixed Charges 4.80 7.16 7.80 6.57 4.22
======== ======== ======== ======== ========
</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 1995
through 1999.
<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%
Heckett MultiServ (Australia) Pty. Ltd. 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 Spol 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%
Heckett Bahna Co. for Industrial Operations S.A.E. Egypt 65%
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%
Heckett MultiServ Industries France 100%
Heckett MultiServ Logistique Et Services Specialises France 100%
Carbofer International GmbH Germany 100%
MultiServ GmbH Germany 100%
Harsco GmbH Germany 100%
IMS Servizi SpA Italy 100%
MultiServ SrL Italy 100%
</TABLE>
-1-
<PAGE> 2
<TABLE>
<CAPTION>
Country of Ownership
Name Incorporation Percentage
- ---- ------------- ----------
<S> <C> <C>
ILSERV SrL Italy 65%
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 Reduction Polska SP Z.O.O Poland 100%
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%
Heckett MultiServ (FS) (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%
Heckett MultiServ (SR) (Pty.) Ltd. 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 (U.K.) 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%
Bio-Oxidation, Inc. 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 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%
The Slag Reduction Company (New Zealand) Limited New Zealand 50%
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 27, 2000, on our audits, of the consolidated financial
statements and consolidated financial statement schedule of the Company as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999, 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 20, 2000
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