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 [FEE REQUIRED]
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1995 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. /X/
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
The aggregate market value of the Company's voting stock held by non-affiliates
of the Company as of February 29, 1996 was $1,659,009,792.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Classes Outstanding at February 29, 1996
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Common stock, par value $1.25 per share 25,136,512
Preferred stock purchase rights 25,136,512
Documents Incorporated by Reference
Selected portions of the Notice of 1996 Meeting and Proxy Statement are
Incorporated by Reference in Part III of this Report.
The Exhibit index (Item No. 14) is located on pages 74 to 83.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
INFORMATION REQUIRED IN REPORT
--------
PART I
Item 1. Business:
(a) Description of Business:
Harsco Corporation ("the Company") is a diversified industrial services and
manufacturing company. The principal lines of business are: industrial mill
services that are provided to steel producers in 28 countries; scaffolding
services to the construction and industrial maintenance markets primarily in
North America; railway maintenance equipment and services that are provided to
U.S. railroads and other international customers; gas control and containment
products for customers worldwide, and, several other lines of business
including, but not limited to, grating, pipe fittings, process equipment and
roofing granules. The Company's operations fall into three Operating Groups:
Metal Reclamation and Mill Services; Infrastructure and Construction; and
Process Industry Products. The Company has over 175 major facilities in 29
countries, including the United States. Harsco also holds a 40% ownership in
United Defense, L.P., a $1.0 billion partnership with FMC Corporation, which
principally manufactures ground combat vehicles for the U.S. and international
governments.
In 1995, the Infrastructure, Construction and Transportation Group was renamed
the Infrastructure and Construction Group due to the Company's announced exit
from the school bus business. The Company ceased all bus operations in June
1995. Truck operations were ended in June 1994.
In 1994, the Company formed new Operating Groups. The new Groups were formed
because: (1) the Company is no longer directly involved in the Defense business
as a result of the formation of United Defense, L.P., effective January 1, 1994,
to which the Company contributed its military tracked vehicle business and has
an equity interest of 40% in the partnership, and the completion of the five-ton
truck contract with the U.S. Government and related conversion to a school bus
business in 1993; and (2) due to the acquisition of MultiServ International,
N.V. which substantially increased the Company's presence in metal reclamation
and mill services. This significant strategic refocusing of the Company
necessitated the new Group structure. Except for Defense, because it is no
longer a Group, the Company restated all the Operating Groups for the periods
presented.
The operations of the Company in any one country, except the United States, do
not account for more than 10% of sales. In 1995, no single customer or group
under common control represented 10% or more of the Company's sales. There are
no significant intergroup sales.
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The Company's operations are conducted through 9 divisions, each of which has
its own executive, supervisory and operating personnel. Each division has
general responsibility for its own activities, including marketing. At the
Company's headquarters, an executive management group, most of whom have been
associated with the Company for many years, manages and provides leadership for
business activities. This management group is responsible for establishing basic
Company policy and strategic direction, especially in the areas of long-range
planning, capital investment and finance, and, in addition, makes available to
operating personnel technical assistance in a number of specialized fields.
(b) Financial Information about Industry Groups:
Financial information concerning Industry Groups is included in Note 16 to the
consolidated financial statements under Item 8, "Financial Statements and
Supplementary Data".
(c) Narrative Description of Business:
(1) A narrative description of the businesses by Operating Group is as
follows:
Metal Reclamation and Mill Services
Under metal reclamation and mill services, the Company provides specialized
services to steel producers and non-ferrous metallurgical industries
worldwide. The services provided include metal reclamation, scrap handling,
cleaning of slag pits, handling of raw material and molten slag, filling and
grading of specified areas and the renting of various types of plant equipment.
Highly specialized recovery and cleaning equipment, installed and operated on
the property of steel producers, together with standard materials handling
equipment, including drag lines, cranes, bulldozers, tractors, hauling
equipment, lifting magnets and buckets, are employed to reclaim metal. The
customer uses this metal in lieu of steel scrap and makes periodic payments to
the Company based upon the amounts of metal reclaimed. The nonmetallic residual
slag is graded into various sizes at on-site Company-owned processing facilities
and sold commercially. Graded slag is used as an aggregate material in asphalt
paving applications, railroad ballast and building blocks. The Company also
provides in-plant transportation and other specialized services including slab
management systems, scrap management, iron making services, general plant
services, and recycling technology. Similar services are also provided to
non-ferrous metallurgical industries.
This industry group includes the Eastern and Western Regions of the Heckett
MultiServ Division which operates in 28 countries on four continents.
During 1995, the Company received two major long-term contracts for metal
reclamation and mill services, one at IPSCO Steel in Montpelier, Iowa, valued
at $100 million over the next 10 years, and the other valued at $50 million
over a ten year period at Gallatin Steel in its new Ghent, Kentucky facility.
Additionally, a ten year add-on contract valued at $50 million was signed with
Italy's AST, one of the world's largest stainless steel mills, and a $100
million 15-year contract was signed with Mexico's Hylsa Flat products group.
New contracts developing in the Middle East in Bahrain, Egypt and
Saudi Arabia, as well as a copper slag handling contract in Spain, will help
grow the business in the coming year.
For 1995, the percentage of consolidated net sales for metal reclamation and
mill services was 40%.
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Infrastructure and Construction
Major product classes in this Group are scaffolding, shoring and concrete
forming equipment and services, railway maintenance equipment and services, and
industrial grating products. This Group also provides roofing granules and slag
abrasives and miscellaneous products.
The Group's scaffolding, shoring and concrete forming operations include steel
and aluminum support systems that are leased or sold to customers through a
North American network of some 40 branch offices. Also, the New Orleans-based
Plant Services unit provides safe, cost-effective scaffolding and
erection/dismantling services to refineries and the petrochemical sector.
Major projects of the Company included the Seattle Kingdome Arena, the San
Francisco City Hall, Houston Intercontinental Airport, and McGuire Air Force
Base, as well as a concrete forming and shoring contract for the new Visitor's
Center at South Dakota's celebrated Mt. Rushmore National Monument. In 1995,
the Company signed a contract with TransAmerican Refining Corporation to supply
scaffolding access equipment and services for the revamp and rebuild of the
refinery's Goodhope, Louisiana, East and West plants. The contract is expected
to generate an estimated $4 million in revenues over the next two years.
The Company's product class of railway maintenance equipment and services
includes track machinery, which services private and government-owned railroads
and urban transit systems. This machinery is classified in the categories of
sleeper renewal, spike driving, Hy-Rail, rail grinding, tamping, ballast
maintenance, track renewal, track geometry, utility vehicle and rail and
overload line equipment. Increased capital investment in contract service
equipment was ongoing to accommodate the higher demand for service work from
North American railroads.
In 1995, the Company negotiated a multi-year agreement with the Santa Fe
Railway that significantly alters how major carriers handle their maintenance
needs. This change involves the Company supplying all the equipment and
managing all the labor of the railroad's extensive long-term tie renewal
program. The Company's leadership in track construction maintenance quality
was confirmed when the South Carolina plant was awarded ISO 9001 quality
certification. At December 31, 1995, the backlog of equipment orders was $33
million.
The Company manufactures a varied line of industrial grating products at
numerous plants in North America. The Company produces riveted,
pressure-locked and welded grating in steel and aluminum, used mainly in
industrial flooring applications for power, paper, chemical, refining and
processing applications. The Company also produces varied products for bridge
and decking uses, as well as fiberglass grating used principally in the process
industries. At December 31, 1995, the backlog was 37% ahead of the backlog at
year-end 1994.
The Company's industrial grating and bridge-decking products continue to grow,
as the need to rebuild the nation's aging infrastructure has become
increasingly apparent. Major activities in 1995 included New York's
Williamsburg Bridge, the Troy-Menands Bridge over the Hudson River and
Florida's Million Dollar Bridge, as well as some decking at a USX plant in
Alabama and a General Motors facility in Cleveland, Ohio.
Slag abrasives and roofing granules are products from utility coal slag and are
processed at 15 locations in 12 states. Slag abrasives are used for industrial
surface preparation and cleaning of bridges, ship hulls and various structures.
Roofing granules, including color granules, are sold to roofing shingle
manufacturers.
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For 1995, percentages of consolidated net sales of certain product classes were
as follows: scaffolding, shoring and concrete forming equipment, 8%; railway
maintenance equipment, 7%; grating, 7%; roofing granules, slag abrasives and
miscellaneous, 4%.
Process Industry Products
Major product classes in this Group are gas control and containment, pipe
fittings and process equipment. Other classes include composite products, metal
fabrication and wear products.
Gas containment products include propane tanks; cryogenic equipment such as bulk
storage tanks, refrigerators, ozone-free refrigeration systems, dewars and
freezers, and liquid cylinders; high pressure cylinders; and composite products;
while gas control products include valves and regulators serving a variety of
markets. At the California-based facility where the Company is the world's
leading producer of composite cylinders, the NGVFUELTANKS continued to gain
acceptance, particularly in the mass transit vehicle market.
The enhanced CO2 Liquidator, which stores carbon dioxide in liquid form and
dispenses it as gas to provide carbonation for soft drinks, has gained momentum
in the fast-food restaurant industry, as well as convenience stores. In 1995 the
company signed an exclusive contract with Arby's, Inc. to supply liquid carbon
dioxide systems for soft drinks at 350 Arby's restaurants.
Under the valves and regulators product line, an innovative propane cylinder
valve for 20-pound cylinders on gas grills continues to gain in the market
place. This propane valve is the barbecue grill standard for the entire
industry, because of its improved safety and convenience. The new scuba
regulator, the Minimus(R), which is 35% smaller than standard octopus units for
handling ease and protection of sea life, has gained market acceptance.
During the year, the Company expanded its Malaysian cryogenic plant, which was
opened in the early 1990's, to serve the fast growing Asia Pacific markets.
Additional capacity was added to the Company's gas control and scuba diving
product lines with a new plant near Niagara Falls, New York.
Harsco's diverse product class of process equipment includes these product
lines: heat transfer equipment, mass transfer equipment, air-cooled heat
exchangers, fractionation trays, process equipment, blenders, dryers, protective
linings and wear products, including bar, plate and fabrication, and manganese
products.
During the first quarter of 1995, the Company acquired Fabsco, an Oklahoma-based
manufacturer of heat transfer equipment, which was folded into its existing
air-cooled heat exchanger business. The Thermific Boiler, which entered the
market several years ago, created additional demand with the introduction of the
"lo-hi-lo boiler" which has generated considerable buyer interest.
The Company is a major supplier of pipe fittings for the plumbing, industrial,
hardware and energy industries and produces a variety of product lines,
including forged and stainless steel fittings, conduit fittings, swage nipples
and couplings.
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For 1995, percentages of consolidated net sales of certain product classes were
as follows: gas control and containment, 16%; process equipment, 8%; pipe
fittings, 7%; and three others, including structural composites, specialty metal
fabrications and wear products, 2%.
Unconsolidated Entities
The Company has a 40% interest in United Defense, L.P., which principally
manufactures ground combat vehicles for the U.S. and international governments.
The Company's other equity investments provide metal reclamation and mill
services as described earlier.
For United Defense, L.P. operating performance, as expected, was down in 1995;
however, the decline was much less than anticipated. Sales of the partnership
fell 10 percent to $967.6 million. Through its 40 percent equity ownership,
Harsco recorded $54.1 million in pre-tax income from its investment compared to
$61.9 million in 1994. The partnership also continued to generate significant
amounts of cash flow, with Harsco receiving $37.8 million in distributions in
1995.
The Bradley A3 remains United Defense's major product development effort.
Through it, the joint venture is building capabilities to be the designer of
electronic architecture, systems and software for the Army of the future. New
contracts during the year included a $28 million Bradley C2V contract from the
U.S. Tank-Automotive and Armaments Command; a $30 million Bradley FIST
Engineering and Manufacturing Development contract from the U.S. Army; and a $77
million contract for Bradley Systems Technical Support for an unprecedented four
years. This will allow United Defense to provide Bradley and Multiple Launch
Rocket System customers with engineering, logistics, quality and field support
services through 1999.
Work continued in 1995 to lead an industry team into the $1 billion five year
demonstration/validation phase of the Crusader Advanced Field Artillery System
(AFAS) development program, awarded last year. As the prime contractor for the
development of the Crusader -- the U.S. Army's next generation of howitzer and
resupply vehicles -- current work includes engineering and technology
demonstrators.
International sales remained healthy. A joint venture company based in Saudi
Arabia won a $213 million contract to provide contractor logistics and tactical
and combat service support training to the Royal Saudi Land Forces through 1998.
A $49 million contract was received from the Republic of Austria, calling for 54
M109A5 howitzers to be built to a unique configuration. Also an $85 million
contract from Thailand to provide 82 M113 vehicles in six variations over a two
year period and a $33 million order from Samsung Aerospace for 55 additional M9
ACEs under an ACE co-production program launched in 1991.
In new products, work continues on the M88 Improved Recovery Vehicle (IRV) for
both the U.S. Army and the Kingdom of Kuwait. Funding has also been received for
the Battle Command Vehicle, the Armored Medical Vehicle and the Bradley Fire
Support Vehicle.
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(1) (i) The products and services of Harsco can be divided into a number
of classes. The product classes that contributed 10% or more as a percentage
of consolidated net sales in any of the last three fiscal years are as set
forth in the following table.
1995 1994 1993
---- ---- ----
Metal Reclamation and Mill Services 40% 38% 19%
Gas Control and Containment 16 15 13
Tracked Vehicles - - 24
(1) (ii) New products and services are added from time to time; however,
currently none require the investment of a material amount of the Company's
assets.
(1) (iii) The manufacturing requirements of the Company's operations are such
that no unusual sources of supply for raw materials are required. The raw
materials used by the Company include principally steel and to a lesser extent
aluminum which usually are readily available.
(1) (iv) While Harsco has a number of trademarks, patents and patent
applications, it does not consider that any material part of its business is
dependent upon them.
(1) (v) Harsco furnishes building products and materials and a wide variety of
specialized equipment for commercial, industrial, public works and residential
construction which are seasonal in nature. In 1995, construction related
operations accounted for 11% of total sales.
(1) (vi) The practices of the Company relating to working capital items are not
unusual compared with those practices of other manufacturers servicing mainly
industrial and commercial markets.
(1) (vii) No material part of the business of the Company is dependent upon a
single customer or a few customers, the loss of any one of which would have a
material adverse effect upon the Company.
Sales to U.S. Government agencies in 1995 and 1994 amounted to less than 1%
of total sales. Sales to U.S. Government agencies in 1993 amounted to 21% of
total sales. The decrease is due to the formation of United Defense L.P.,
effective January 1, 1994, to which the Company contributed its military tracked
vehicle business, and the completion in 1993 of the five-ton truck contract with
the U.S. Government.
(1) (viii) Backlog of orders stood at $157,129,000 and $160,703,000 as of
December 31, 1995 and 1994, respectively. It is expected that approximately 10%
of the total backlog at December 31, 1995, will not be filled within 1996. There
is no significant seasonal aspect to the Company's backlog. The backlog at
December 31, 1994 included $15,718,000 of orders for the bus business which
ceased operations in June 1995.
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(1) (ix) Under the terms and regulations applicable to government
contracts, the Government has the right to terminate its contracts with United
Defense L.P. (40% owned by Harsco) in accordance with procedures specified in
the regulations and, under certain circumstances, has the right to renegotiate
profits. The partnership pretax income amounted to 34% and 42% of total Harsco
pretax income in 1995 and 1994, respectively.
(1) (x) The various fields in which Harsco operates are highly competitive and
the Company encounters active competition in all of its activities from both
larger and smaller companies who produce the same or similar products or
services or who produce different products appropriate for the same uses.
(1) (xi) The expense for internal product improvement and product development
activities was $4,876,000, $5,463,000 and $5,167,000 in 1995, 1994 and 1993,
respectively. Customer-sponsored research and development expenditures were
$978,000, $703,000 and $23,008,000, in 1995, 1994 and 1993, respectively. The
decrease in customer-sponsored research and development expenditures from 1993
to 1994 is due to the formation of United Defense L.P., effective January 1,
1994, to which the Company contributed its military tracked vehicle business,
and the completion of the five-ton truck contract with the U.S. Government.
(1) (xii) The Company has become subject, as have others, to more 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 in 1996 or 1997. 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 1 and Note 10 to the Consolidated Financial
Statements included in Item 8, "Financial Statements and Supplementary Data".
(1) (xiii) As of December 31, 1995, the Company had approximately 13,200
employees.
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(d) FINANCIAL INFORMATION ABOUT FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES:
Financial information concerning foreign and domestic operations and export
sales is included in Note 16 to the consolidated financial statements under Item
8, "Financial Statements and Supplementary Data".
Item 2. Properties:
Information as to the principal plants owned and operated by Harsco is
summarized in the following table:
Floor Space
Location (Sq. Ft.) Principal Products
- -------- -------- ------------------
Infrastructure and Construction:
Fairmont, Minnesota 312,000 Railroad Equipment
West Columbia, South Carolina 224,000 Railroad Equipment
Nottingham, England 33,000 Railroad Equipment
Long Island City, New York 48,000 Grating
Nashville, Tennessee 212,000 Grating
Nashville, Tennessee 83,000 Grating
Charlotte, North Carolina 23,000 Grating
Madera, California 42,000 Grating
Leeds, Alabama 45,000 Grating
Cheswick, Pennsylvania 54,000 Grating
Channelview, Texas 82,000 Grating
Queretaro, Qro, Mexico 63,000 Grating
Marion, Ohio 135,000 Construction Equipment
Moundsville, West Virginia 12,000 Roofing Granules/Abrasives
Drakesboro, Kentucky 19,000 Roofing Granules
Gary, Indiana 15,000 Roofing Granules/Abrasives
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Item 2. Properties (continued):
Floor Space
Location (Sq. Ft.) Principal Products
- -------- --------- ------------------
Process Industry Products:
West Jefferson, Ohio 144,000 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
Tulsa, Oklahoma 41,000 Fractionation Trays
Tulsa, Oklahoma 13,000 Fractionation Trays
Sapulpa, Oklahoma 74,000 Heat Exchangers
Sapulpa, Oklahoma 52,000 Heat Exchangers
Tulsa, Oklahoma 80,000 Heat Exchangers
Birmingham, Alabama 133,000 Wear Products
Bilston, England 37,000 Fractionation Trays
Lockport, New York 104,000 Valve Manufacturing
Niagara Falls, New York 45,000 Valve Manufacturing
Jessup, Georgia 43,000 Propane Tanks
Bloomfield, Iowa 40,000 Propane Tanks
West Jordan, Utah 26,000 Propane Tanks
Pomona, California 75,000 Composite Pressure Vessels
Harrisburg, Pennsylvania 317,000 Cylinders
Theodore, Alabama 275,000 Cryogenic Storage Vessels
Husum, Germany 60,000 Cryogenic Storage Vessels
Shah Alam, Malaysia 20,000 Cryogenic Storage Vessels
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Harsco also operates the following plants which are leased:
Expiration
Floor Space Principal Date of
Location (Sq. Ft.) Products Lease
- -------- ----------- --------- -----------
Infrastructure and Construction:
Tulsa, Oklahoma 10,000 Grating 02/28/96
Brendale, Australia 110,000 Railroad Equipment 10/18/97
Process Industry Products:
Baltimore, Maryland 15,000 Pipe Fittings 12/31/96
Lansing, Ohio 67,000 Pipe Fittings 01/31/97
Decatur, Georgia 19,000 Pipe Fittings 06/30/97
Port of Catoosa, Oklahoma 30,000 Heat Exchangers 02/28/96
Cleveland, Ohio 50,000 Brass Castings 09/30/98
Harsco operates from a number of other plants, branches, warehouses and offices
in addition to the above. In particular, the Company has over 130 locations
related to metal reclamation in twenty-eight 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 to be in satisfactory
condition.
Item 3. Legal Proceedings:
Information regarding legal proceedings is included in Note 10 to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data".
Item 4. Submission of Matters to a
Vote of Security Holders:
There were no matters that were submitted during the fourth quarter of the year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
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PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters:
Harsco common stock is traded on the New York, Pacific, Boston, and Philadelphia
Stock Exchanges under the symbol HSC. At the end of 1995, there were 25,051,549
shares outstanding. In 1995, the stock traded in a range of 60 1/2-39 5/8 and
closed at a year-end high of 58 1/8. For additional information regarding Harsco
common stock market price, dividends declared, and numbers of shareholders see
Part II, Item 6.
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Item 6. Selected Financial Data:
FIVE-YEAR FINANCIAL DATA SUMMARY
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUMMARY OF OPERATIONS 1995 1994 1993+ 1992 1991
Net sales $1,495,466 $1,357,715 $1,422,308 $1,624,939 $1,943,083
Equity of unconsolidated entities 57,031 64,120 2,415 3,626 3,838
Gain on sale of investments and other revenues 1,520 43,946 19,573 2,093 2,230
Costs and expenses excluding facilities
discontinuance and reorganization costs 1,346,031 1,272,153 1,292,236 1,479,023 1,819,379
Facilities discontinuance and reorganization costs 22,809 17,143 2,419 445 1,664
Income before interest, taxes, minority interest,
and cumulative effect of accounting changes 185,177 176,485 149,641 151,190 128,108
Interest expense 28,921 34,048 19,974 18,882 18,925
Income before cumulative effect of
accounting changes 97,377 86,553 80,816* 91,516** 76,543
Net income 97,377 86,553 87,618 84,332 76,543
Return on net sales(1) 6.5% 6.4% 5.7%* 5.6%** 3.9%
Return on average equity(2) 15.9% 15.7% 17.3% 17.2% 16.9%
Return on average assets(3) 14.6% 13.5% 13.4%* 15.2%** 13.5%
FINANCIAL DATA
Shareholders' equity 625,991 581,222 523,084 495,103 479,726
Cash dividends declared 37,599 35,715 34,946 34,598 32,319
Depreciation 95,033 90,179 69,558 57,064 57,664
Capital expenditures 113,895 90,928 83,395 42,720 53,846
Cash provided by operating activities 258,815 161,395 232,220 108,134 151,485
Cash provided (used) by investing activities (97,331) (73,150) (397,666) (24,518) (58,184)
Cash provided (used) by financing activities (128,068) (103,040) 173,555 (152,652) 16,897
Working capital 145,254 254,338 182,756 316,918 284,699
Current ratio 1.4:1 1.9:1 1.4:1 2.1:1 1.8:1
Total assets 1,310,662 1,314,649 1,427,612 991,225 1,059,708
Long-term debt 179,926 340,246 364,869 119,841 120,451
Total debt 288,673 365,984 428,378 131,068 221,652
Percent of total debt to capital(4) 31.6% 38.6% 45.0% 20.9% 31.6%
(Continued next page)
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FIVE-YEAR FINANCIAL DATA SUMMARY (Continued from prior page)
(1) "Return on Net Sales" is calculated by dividing net income by net sales.
(2) "Return on Average Equity" is calculated by dividing net income by
quarterly weighted average equity.
(3) "Return on Average Assets" is calculated by dividing income before interest
expense, income taxes and minority interest by quarterly weighted average
assets.
(4) "Percent of Total Debt to Capital" is calculated by dividing the sum of
debt (short-term borrowings and long-term debt including current
maturities) by the sum of equity and debt.
Continued next page
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FIVE-YEAR FINANCIAL DATA SUMMARY (Continued from prior page)
PER SHARE DATA 1995 1994 1993 1992 1991
Income before cumulative effect of
accounting changes ................. 3.86 3.45 3.23* 3.52** 2.91
Shareholders' equity .................. 24.99 23.08 20.95 19.51 18.29
Cash dividends declared ............... 1.49 1.42 1.40 1.34 1.23
Price/earnings ratio, high-low ........ 16-10 13-11 13-10 12-9 10-8
Market price of common stock
high - low, by quarter
1st ............................. 45-39 5/8 46 3/8-40 5/8 45-36 7/8 39 1/2-27 3/4 27 3/4-22 3/4
2nd ............................. 52 7/8-42 7/8 44 5/8-39 3/4 44 1/2-35 38-33 5/8 30 3/8-25 1/4
3rd ............................. 59 3/8-52 1/2 43 1/4-38 1/2 44 5/8-37 1/2 37 5/8-28 29 5/8-26 3/4
4th ............................. 60 1/2-52 3/4 44 1/8-38 3/8 43 3/8-39 1/4 38 3/4-28 1/8 30 1/8-23 5/8
Dividends paid, by quarter
1st ............................. .3700 .3500 .3500 .3300 .3000
2nd ............................. .3700 .3500 .3500 .3300 .3000
3rd ............................. .3700 .3500 .3500 .3300 .3000
4th ............................. .3700 .3500 .3500 .3300 .3000
OTHER INFORMATION
Average number of shares outstanding .. 25,246,356 25,114,874 25,036,893 25,966,755 26,278,384
Number of shareholders of record ...... 7,328 7,674 8,069 8,415 8,767
Number of employees ................... 13,200 13,000 14,200 9,600 10,500
Backlog ............................... $157,129 $160,703 $146,751*** $190,914*** $1,229,688
+ Includes MultiServ International, N.V. since date of acquisition.
* Excludes cumulative effect of change in method of accounting for income
taxes, which increased net income by $6.8 million, ($.27 per share).
** Excludes cumulative effect of change in method of accounting for
postretirement benefits other than pensions, which decreased net income by
$7.2 million, ($.27 per share).
*** Excludes $397.9 million contributed to United Defense, L.P., a joint
venture formed between Harsco and FMC Corporation for comparative purposes
with 1994 and $548.1 million for comparative purposes with 1993.
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16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
FINANCIAL CONDITION
Net cash provided by operating activities reached a record $258.8 million in
1995 compared with $161.4 million in 1994. Accounts receivable decreased $73.7
million largely due to the claim settlement of $20.4 million which was
recognized in December 1994, but collected in February 1995, and the $49 million
related to the settlement of the Federal Excise Tax reimbursement on the
completed five-ton truck contract that was received in September 1995. As
previously reported, to the extent that any portion of the Federal Excise Tax
was not recovered, additional losses on the contract would have to be
recognized. By accepting the $49 million settlement, as payment for the $62.5
million receivable recorded during the performance of the contract, the Company
recorded a pre-tax, non-cash charge of $13.5 million (after tax charge of $8.2
million). Partially offsetting these claim settlements were related income tax
payments of $26.8 million. Cash provided by operating activities during 1995
also includes distributions of $38.4 million from unconsolidated entities.
Capital expenditures for 1995 were a record $113.9 million compared with $90.9
million in 1994, reflecting the Company's program to achieve business growth and
to improve productivity and product quality. Capital spending in 1996 is
anticipated to be another all-time record, currently budgeted at $120 million.
The increase in capital spending reflects higher capital expenditures for the
Metal Reclamation and Mill Services Group which spent $73 million, up 19% from
1994, as well as the Infrastructure and Construction Group which accounted for
$27.2 million of capital spending, a 50% increase over 1994. The increase in the
Infrastructure and Construction Group was principally for the railroad equipment
and scaffolding businesses. The Process Industry Products Group accounted for
$13.4 million of capital spending, which was 23% higher than 1994. Capital
expenditures during the past three years averaged $96.1 million. Proceeds from
the sale of property, plant and equipment in 1995 provided $11.5 million in
cash.
Cash used by investing activities also included $3.4 million for the acquisition
of Fabsco and $0.7 million for an aluminum cylinder shell producer business.
Total consideration for Fabsco was $14.8 million with the assumption of debt and
other liabilities.
Cash used by financing activities included a net decrease in long-term debt of
$68.8 million, which included the purchase at market of $10.5 million of the
Company's outstanding 8.75% 10-year notes due May 1996, a $14.0 million
reduction of short-term debt, and $37.4 million of cash dividends paid on common
stock.
The Company has maintained a policy of reacquiring its common stock in
unsolicited open market or privately-negotiated transactions at prevailing
market prices for several years. In January 1995, the Board of Directors
authorized the purchase, over a one-year period, of up to 500,000 shares of the
Company's common stock. The total number of shares purchased under this program
in 1995 was 292,014 shares of common stock for about $16.6 million, at an
average cost of $56.74 per share. Financing activities included $14.1 million in
cash used
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17
to repurchase these shares, the remaining amount of approximately $2.5 million
was payable at year-end. In January 1996, the Board of Directors authorized the
purchase, over a one-year period, of up to 1,000,000 shares of the Company's
common stock.
At December 31, 1995, there were 7,486,331 treasury shares. The cost of these
shares is $209.4 million, at an average price of $27.97 per share. There were
25,051,549 shares of the common stock outstanding at December 31, 1995, compared
with 25,182,250 shares at year-end 1994. There were 32,537,880 shares of the
common stock issued at December 31, 1995, as compared with 32,343,553 shares at
the end of 1994. The exercise of employee stock options in the amount of 194,327
additional shares accounted for the increase.
Other matters which could affect cash flows in the future are discussed in Note
10 to the Consolidated Financial Statements, "Commitments and Contingencies."
The Company continues to maintain a good financial position, with net working
capital of $145.3 million, down from the $254.3 million at December 31, 1994,
principally due to the increase in current maturities of debt related to 8.75%
10 year notes due May 1996, and the result of the settlement of the Federal
Excise Tax reimbursement from the U.S. Government. Current assets amounted to
$533.8 million, and current liabilities were $388.5 million, resulting in a
current ratio of 1.4 to 1, below the 1.9 to 1 at year-end 1994. With total debt
at $288.7 million and equity at $626.0 million at December 31, 1995, the total
debt as a percent of capital was 31.6%, which is substantially lower than the
38.6% at December 31, 1994.
The stock price range during 1995 was 60 1/2 - 39 5/8. Harsco's book value per
share at December 31, 1995, was $24.99, compared with $23.08 at year-end 1994.
The Company's return on average equity for 1995 was 15.9%, compared with 15.7%
for the year 1994. The return on average assets was 14.6%, compared with the
13.5% for the year 1994. The return on capital for 1995 was 12.2%, compared with
11.0% for the year 1994.
In June 1995, the Company amended its $300 million, October 1993 credit facility
with a syndicate of nineteen banks. The amended and restated five-year unsecured
facility consolidates two prior agreements and, as amended, extends maturity to
June 2000, provides for less restrictive financial ratio covenants and reduced
fees and interest rates. Borrowings under this agreement are available in U.S.
dollars or Eurocurrencies and serves as back-up to the Company's commercial
paper program. As of December 31, 1995, there were no borrowings outstanding
under this syndicated credit facility.
The Company also has a commercial paper borrowing program under which it can
issue up to $150 million of short-term notes in the U.S. commercial paper
market. The Company limits the aggregate commercial paper and syndicated credit
facility borrowings at any one time to a maximum of $300 million. At December
31, 1995, the Company had no outstanding commercial paper debt.
Harsco's outstanding long-term notes are rated A by Standard & Poor's and Baa1
by Moody's. Harsco's commercial paper is rated A-1 by Standard & Poor's, F-1 by
Fitch Investors Service and P-2 by Moody's. The Company also has on file, with
the Securities and Exchange Commission, a Form S-3 shelf registration for the
possible issuance of up to an additional $200 million of new debt securities,
preferred stock or common stock.
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18
As indicated by the above, the Company's financial position and debt capacity
should enable it to meet its current and future requirements. As additional
resources are needed, the Company should be able to obtain funds readily and at
competitive costs.
RESULTS OF OPERATIONS
1995 Compared with 1994
Revenues for 1995 were $1.55 billion, 6% above 1994. The increase was primarily
due to higher sales for metal reclamation and mill services, gas control and
containment equipment, scaffolding, shoring and forming equipment, grating, and
to a lesser extent railroad equipment, as well as, roofing granules and
abrasives. Additionally, higher revenues included sales from an acquisition made
in the first quarter of 1995. These increases were partially offset by the
impact of ceasing the school bus business in June 1995 and divesting non-core
businesses in Europe during the second half of 1995 and 1994, as well as the
expected decrease in income from the Company's equity investment in United
Defense, L.P. On a comparative basis, revenues for 1994 included $36.2 million
due to the negotiated settlement of three claims with the U.S. Government and a
$5.9 million pre-tax gain on the sale of the remaining holdings of an investment
in a marketable equity security.
Cost of sales increased, principally due to higher volume. Selling, general and
administrative expenses decreased as a result of exiting the school bus
business, which more than offset higher compensation costs, and professional
fees associated with certain legal matters, as well as expenses associated with
potential acquisitions.
Income before taxes and minority interest was up 10% from the comparable period
last year due to improved performance for all three Operating Groups. The
effective income tax rate for 1995 was 39.0%, versus 40.0% in 1994. The
reduction in the income tax rate is primarily due to lower effective tax rates
on international earnings.
Higher earnings in 1995 were due principally to improved results for metal
reclamation and mill services, grating, gas control and containment equipment,
scaffolding, shoring and forming equipment, structural composites, as well as
roofing granules and abrasives. Income benefited in 1995 from the impact of a
pre-tax $5.8 million ($.14 earnings per share) net foreign currency translation
exchange gain arising from the decline in the U.S. dollar against certain
European currencies which more than offset a pre-tax $3.4 million ($.08 earnings
per share) foreign currency translation exchange loss due to the devaluation of
the Mexican peso. Lower earnings were recorded for the Company's share of income
in its equity investment in United Defense, L.P., as well as pipe fittings.
Continued operating losses during the planned shutdown of the school bus
operation were lower than operating losses incurred in 1994. The Company ceased
all school bus operations in June 1995. In September 1995, the Company recorded
a non-cash, pre-tax charge of $13.5 million ($.32 earnings per share) arising
from the settlement of the Federal Excise Tax reimbursement claim with the U.S.
Government. As a result of the settlement, the Company received cash of $49
million which was offset against a $62.5 million receivable recorded during the
performance of the contract. Additionally, the Company recorded a pre-tax
provision of $2.1 million ($.05 earnings per share) for the valuation of the
remaining school bus operation plant and equipment, and $3 million in
termination and other exit costs. Also, in 1995 a pre-tax $2.8 million ($.07
earnings per share) provision for facilities discontinuance and reorganization
costs was recorded for the Metal Reclamation and Mill Services Group. On a
comparative basis, favorably affecting 1994's
- 18 -
19
results were $36.2 million ($.87 earnings per share) of pre-tax income resulting
from the negotiated settlement of three claims with the U.S. Government and a
pre-tax $5.9 million ($.14 earnings per share) gain on the sale of the remaining
holdings of an investment in a marketable equity security. These favorable items
in 1994 were partially offset by $17.1 million ($.41 earnings per share) of
expense for facilities discontinuance and reorganization costs related
principally to the Infrastructure and Construction and Metal Reclamation and
Mill Services Groups. Also, in December 1994, results were unfavorably affected
by a $6.0 million ($.14 earnings per share) foreign currency translation loss
relating to the Company's operations in Mexico as a result of the maxi
devaluation of the peso. Interest expense decreased as a result of the continued
reduction of the Company's outstanding debt.
Net income in 1995 of $97.4 million ($3.86 per share), a record, was up 13% from
1994. Results for 1995 included a non-cash, after-tax charge of $8.2 million
($.32 per share) from the settlement of a claim with the U.S. Army. Excluding
this item, 1995 income was $105.6 million ($4.18 per share). Net income in 1994
of $86.6 million ($3.45 per share) included gains from settlements of claims
with the U.S. Army and the sale of an equity security aggregating $1.01 per
share. Excluding these items, 1994 income was $61.4 million ($2.44 per share).
Sales of the Metal Reclamation and Mill Services Group, at $604.2 million, were
well above 1994 due to improved business conditions, particularly in Europe, as
well as North America. The favorable impact of the decline in the U.S. Dollar
against certain European currencies, particularly the French franc, Belgian
franc and German mark also contributed to increased revenues for the Group.
Sales for the Infrastructure and Construction Group at $399.7 million, were
slightly ahead of last year. Scaffolding equipment, grating, railroad equipment
and roofing granules and abrasives sales all increased from 1994. School bus
sales were down significantly as a result of exiting the operation. Sales for
the Process Industry Products Group, at $491.6 million, were ahead of 1994. The
improvement included increased sales for most product classes particularly gas
control and containment, as well as sales from an acquisition made in process
equipment during the first quarter of 1995.
Operating profit of $80.0 million for the Metal Reclamation and Mill Services
Group, excluding the impact of expense items relating to facilities
discontinuance and reorganization costs, was up 84% from 1994 principally due to
improved operating performance, as well as business conditions, the favorable
effects of cost reduction and reorganization efforts, and the favorable impact
of the decline in the U.S. Dollar against certain European currencies as
previously discussed. On a comparative basis, in 1995, results were unfavorably
affected by a $3.4 million Mexican peso foreign currency translation exchange
loss, whereas in December 1994, a $6.0 million foreign exchange translation loss
was recorded due to the maxi devaluation of the Mexican peso. After including
the impact of facilities discontinuance and reorganization costs, operating
profit of $77.2 million for the Group was more than twice the amount recorded in
the prior year. The Infrastructure and Construction Group posted an operating
profit of $36.3 million, excluding the impact of expense items relating to
facilities discontinuance and reorganization costs, which significantly exceeded
1994. All continuing product classes posted improved results, except railway
maintenance equipment which benefited in 1994 from two large international
sales. On a comparative basis, operating losses during the planned shutdown of
the school bus operation were lower than operating losses incurred in 1994.
After including the impact of facilities discontinuance and reorganization costs
(which included the $13.5 million pre-tax charge for the Federal Excise Tax
settlement and the $2.1 million pre-tax charge for the school bus operation as
previously discussed) operating profit of $18.7
- 19 -
20
million was recorded for the Group as compared to a $1.0 million loss in 1994.
Operating profit for the Process Industry Products Group, at $46.0 million, was
up 10% from 1994 due principally to improved results for gas control and
containment equipment and structural composites which more than offset lower
earnings for pipe fittings.
In addition to the Group reporting noted above, the Company views itself as a
diversified industrial services and manufacturing company. Total industrial
services sales, which include Metal Reclamation and Mill Services Group and
Infrastructure and Construction Group service businesses, were $745.3 million in
1995 and $648.5 million in 1994, or approximately 50% and 48% of net sales,
respectively. The Company's Metal Reclamation and Mill Services Group provides
industrial services principally to steel producers. Sales for this Group were
$604.2 million in 1995 compared with $523.4 million in 1994. The Infrastructure
and Construction Group includes both industrial services and manufacturing
businesses. This Group includes scaffolding services, primarily rentals, to the
construction and industrial maintenance markets and railway services to certain
railroads, as well as manufactured products consisting of grating, roofing
granules and abrasives and railway maintenance equipment. Sales for this Group
were $399.7 million in 1995 with industrial services contributing $141.1 million
and manufacturing $258.6 million. 1994 Group sales were $391.5 million with
industrial services contributing $125.1 million and manufacturing $266.4
million. The total manufacturing sales for 1995 were $750.2 million or
approximately 50% of net sales, which includes sales from the Infrastructure and
Construction Group of $258.6 million and $491.6 million from the Process
Industry Products Group. The total manufacturing sales for 1994 were $709.2
million or approximately 52% of net sales, which includes sales from the
Infrastructure and Construction Group of $266.4 million and $442.8 million from
the Process Industry Products Group.
The Metal Reclamation and Mill Services Group operating profit, excluding the
effect of expense items relating to facilities discontinuance and reorganization
costs, was $80.0 million in 1995 compared with $43.5 million in 1994. The
Infrastructure and Construction Group operating profit, excluding the effect of
expense items relating to facilities discontinuance and reorganization costs,
was $36.3 million in 1995 compared with $11.3 million in 1994. As stated above,
this Group provides both industrial services and manufactured products. The
operating profit of the service business within this Group was $16.5 million in
1995 compared with $11.7 million in 1994. The operating profit of the
manufacturing business within this Group was $19.8 million in 1995 compared with
a small loss in 1994. The combined operating profit, excluding the effect of
expense items relating to facilities discontinuance and reorganization costs,
for industrial services for 1995 was $96.5 million compared with $55.2 million
in 1994, or approximately 59% and 57%, respectively, of total Group operating
profit. The combined operating profit from manufacturing, excluding the effect
of expense items relating to facilities discontinuance and reorganization costs,
for 1995 was $65.8 million compared with $41.6 million in 1994. The combined
operating profit from manufacturing for 1995 and 1994 includes $46.0 million and
$42.0 million, respectively, from the Process Industry Products Group. The
combined manufacturing operating profit for 1995 and 1994 was 41% and 43%,
respectively, of total Group operating profit, excluding facilities
discontinuance and reorganization costs.
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RESULTS OF OPERATIONS
1994 Compared with 1993
Revenues for 1994 were $1.47 billion, up slightly from 1993. The increase was
due principally to higher sales for all three Operating Groups, which were well
ahead of the prior year. Total revenues increased despite a substantial absence
from sales of military vehicles in 1994.
Sales increased in 1994 for our three Operating Groups, due to acquisitions in
1993, principally MultiServ International, N.V., as of August 31, 1993, and
higher sales from gas control and containment equipment, scaffolding, shoring
and forming equipment, metal reclamation and mill services, process equipment,
railway maintenance equipment, and pipe fittings. Revenues in 1994 include
Harsco's $61.9 million share of the income from its equity investment in United
Defense, L.P., as well as $36.2 million of revenues resulting from the
negotiated settlement of three claims with the U.S. Government relating to
government furnished equipment on various contracts, the resolution of certain
outstanding contractual matters regarding the military truck contract and a
small claim concerning the M9 Armored Combat Earthmover.
Cost of sales was lower, principally reflecting the substantial absence of
military vehicles. Internally-funded research and development increased 6%, even
with the absence of Defense which in past years was the principal source, due to
the higher level of effort for railway maintenance equipment. Selling and
administrative expenses increased as a result of the inclusion of acquired
companies. Also contributing to the increase were higher sales commissions and
compensation costs. On a comparative basis, administrative expenses in 1993 were
reduced by the collection of $3.1 million of previously reserved bad debts
related to divested operations.
Income before taxes, minority interest, and cumulative effect of accounting
changes was up 8% from the comparable period last year, which included overall
increased operating profits in 1994 for the three Operating Groups, reflecting
growth for the Company's core businesses, as well as results of cost containment
efforts which improved operating efficiencies. Income benefited significantly
from $36.2 million of pre-tax income resulting from negotiated settlements with
the U.S. Government concerning several completed contracts, which were partially
offset by significantly higher interest expense, due to the debt incurred in
conjunction with the acquisition and operations of MultiServ International, N.V.
Also unfavorably affecting income was an $8.0 million pre-tax charge recorded
for the impaired value of certain assets in conjunction with the Company's exit
from the school bus business, a $4.7 million pre-tax provision recorded for the
realizable value of the Company's investment in the five-ton truck business
(including costs to complete certain contract close-out and related issues), and
a $5.7 million pre-tax charge for the discontinuance and rationalization of
administrative facilities at several international metal reclamation and mill
services locations. Results in 1994 were unfavorably impacted by the school bus
business, which incurred a loss of $16.0 million during the year from a lower
than anticipated volume of production associated with the business, as compared
to income recorded for military trucks last year, for which production was
suspended in June 1993. Also, results were unfavorably affected by a $6.0
million foreign currency translation loss which was recorded for the Company's
operations in Mexico, as a result of the maxi devaluation of the peso in
December 1994, and profits from the sale of our remaining holdings of an
investment in a marketable equity security were lower than the prior year
principally due to fewer shares being sold in 1994. On a comparative basis,
scaffolding,
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22
shoring and forming equipment recorded income in 1994 as compared with a loss in
1993. Additionally, higher earnings in 1994 were recorded for gas control and
containment equipment, process equipment, roofing granules and abrasives, pipe
fittings and railway maintenance equipment. Income from the Company's equity
investment in United Defense, L.P., was slightly below amounts recorded in 1993
from military tracked vehicles. The effective income tax rate before minority
interest for 1994 was 40% versus 41% in 1993.
Net income of $86.6 million ($3.45 per share) was slightly below 1993, which
included an after-tax gain of $10.7 million ($.43 per share) on the partial sale
of an investment in a marketable equity security and the favorable effect of an
accounting change of $6.8 million ($.27 per share). Results for 1994 were
favorably affected by higher earnings from operations for our three Groups
overall, as well as the net favorable effect of the after-tax negotiated
settlements of $21.7 million ($.87 per share) of claims with the U.S. Government
and an after-tax gain of $3.5 million ($.14 per share) on the sale of the
remaining shares of an investment in a marketable equity security. Excluding
these items, 1994 income was $61.4 million ($2.44 per share).
Sales of the Metal Reclamation and Mill Services Group, at $523.4 million, were
significantly greater than 1993, due to the acquisition of MultiServ
International, N.V. The acquisition of MultiServ International, N.V. resulted
in total international sales increasing substantially over amounts recorded in
1993. International sales of $494.4 million in 1994 were slightly more than
twice the amount recorded in 1993 and increased to 36% of consolidated sales
compared with only 17% in 1993. Sales for the Infrastructure and Construction
Group, at $391.5 million, and for the Process Industry Products Group, at
$442.8 million, were well ahead of 1993 due principally to greater demand for
most product classes. Sales of scaffolding, shoring and forming equipment were
up 30% in the Infrastructure and Construction Group, and process equipment and
gas control and containment equipment posted increases of 25% and 17%,
respectively in the Process Industry Products Group.
Operating profit, excluding the impact of the unusual expense items relating to
the discontinuance and rationalization of administrative facilities at several
international locations and the maxi devaluation of the Mexican peso, for the
Metal Reclamation and Mill Services Group was $49.5 million, up 72% from 1993,
principally due to the acquisition of MultiServ International, N.V. After
including the impact of the unusual items of expense, operating profit was $37.8
million, up 31% from the comparable period. Performance was unfavorably affected
in Mexico by the maxi devaluation of the peso and operating losses on a contract
which was terminated in December of 1994, the ongoing rationalization of the
European steel industry, as well as weak economic conditions experienced
principally in the first six months of this year in certain countries in Europe,
the adverse impact of foreign currency devaluations and hyperinflation in Brazil
particularly during the first half of 1994, and the ongoing expensing of
start-up costs for new contracts. During the latter half of 1994, performance
improved due to the management reorganization completed in July and improving
economic conditions in Brazil and certain European countries. The acquisition of
MultiServ International, N.V. resulted in total international operating profit
increasing substantially over the amount recorded in 1993. International
operating profit in 1994 was up 81% from 1993 and increased to 28% of the total
operating profit compared with only 8% in 1993. Although international profits
increased substantially, profit margins came in slightly lower in 1994 than 1993
due principally to the maxi devaluation of the Mexican Peso and a full year's
amortization of cost in excess of net assets acquired in conjunction with the
acquisition of MultiServ International, N.V. The Infrastructure and Construction
Group with an operating profit of $11.3 million, excluding the
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23
impact of unusual expense items relating to the completed military truck
contract and the school bus business, was 37% below 1993. Although most product
classes posted significantly improved results, they were more than offset by the
$16.0 million in operating losses from the school bus business. After including
the impact of the unusual items of expense relating to military trucks and
school buses, results for this Group reflect a $1.4 million operating loss.
Operating profit for the Process Industry Products Group, at $42.0 million, was
up 27% over the prior year and reflected improved performance for all product
classes. Gas control and containment equipment and process equipment posted
record results.
In addition to the Group reporting noted above, the Company views itself as a
diversified industrial services and manufacturing company. Total industrial
services sales, which include Metal Reclamation and Mill Services Group and
Infrastructure and Construction Group service businesses were $648.5 million in
1994 and $348.9 million in 1993, or approximately 48% and 25% of net sales,
respectively. The Company's Metal Reclamation and Mill Services Group provides
industrial services principally to steel producers. Sales for this Group were
$523.4 million in 1994 compared with $268.1 million in 1993. The Infrastructure
and Construction Group includes both industrial services and manufacturing
businesses. This Group includes scaffolding services, primarily rentals, to the
construction and industrial maintenance markets and railway services to certain
railroads, as well as manufactured products consisting of grating, roofing
granules and abrasives and railway maintenance equipment. Sales for this Group
were $391.5 million in 1994 with industrial services contributing $125.1 million
and manufacturing $266.4 million. 1993 Group sales were $306.3 million, with
industrial services contributing $80.8 million and manufacturing $225.5 million.
Total manufacturing sales for 1994 were $709.2 million or approximately 52% of
net sales, which includes sales from the Infrastructure and Construction Group
of $266.4 million and $442.8 million from the Process Industry Products Group.
The total manufacturing sales for 1993 were $1.1 billion or approximately 75% of
net sales, which includes sales from all Groups except Metal Reclamation and
Mill Services and the industrial services sales included in Infrastructure and
Construction.
The Metal Reclamation and Mill Services Group operating profit, excluding the
effect of expense items relating to facilities discontinuance and reorganization
costs, was $43.5 million in 1994 compared with $28.8 million in 1993. The
Infrastructure and Construction Group operating profit, excluding the effect of
expense items relating to facilities discontinuance and reorganization costs,
was $11.3 million in 1994 compared with $17.9 million in 1993. As stated above,
this Group provides both industrial services and manufactured products. The
operating profit of the service business within this Group was $11.7 million in
1994 compared with $2.9 million in 1993. The manufacturing business within this
Group incurred a small loss in 1994 compared with $15.0 million in operating
profit in 1993. The combined operating profit, excluding the effect of expense
items relating to facilities discontinuance and reorganization costs, for
industrial services for 1994 was $55.2 million compared with $31.7 million in
1993, or approximately 57% and 22%, respectively, of total Group operating
profit. The combined operating profit from manufacturing, excluding the effect
of expense items relating to facilities discontinuance and reorganization costs,
for 1994 was $41.6 million compared with $115.2 million in 1993. The combined
operating profit from manufacturing for 1994 and 1993 was 43% and 78%,
respectively, of total Group operating profit, excluding facilities
discontinuance and reorganization costs.
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RESULTS OF OPERATIONS
1993 Compared with 1992
Revenues for 1993 were $1.44 billion, down 11% from 1992 and sales for the year
were $1.42 billion, down 12%. These decreases are due principally to lower sales
of five-ton trucks in the Defense Group, reflecting reduced production levels in
1993 and completion of most contracts at midyear. Also contributing to the
decline were lower sales of tracked vehicles in the Defense Group, gas control
and containment equipment, and grating. The decline in sales also included the
divestiture of a division and a product line in the first quarter of 1992. These
declines were partially offset by sales arising from acquisitions in 1993,
principally MultiServ International, N.V., as well as an acquisition made in
June 1992. Higher sales were recorded for pipe fittings, process equipment and
scaffolding equipment.
Cost of sales decreased at a rate greater than revenues, due principally to
improvement in profit margins on sales of tracked vehicles in the Defense Group
and the favorable impact of profit improvement measures, including the
divestiture of an unprofitable division and a marginally profitable operation in
the first quarter of 1992. Selling and administrative expenses increased, as a
result of the inclusion of acquired companies which more than offset lower costs
associated with sales in the Defense Group and the collection of previously
reserved bad debts.
Income before taxes, minority interest, and cumulative effect of accounting
changes was lower than last year. Unfavorably affecting profits were
significantly lower results for wheeled vehicles in the Defense Group, which
includes start-up costs associated with the recently acquired school bus
business. Also, earnings were lower in 1993 for metal reclamation and mill
services due to start-up costs at certain locations, particularly Mexico with
six new contracts, and weaker economic conditions in Europe, which also
contributed to lower earnings for gas control and containment equipment. On a
comparative basis, income was unfavorably affected in 1993 by larger provisions
for facilities discontinuances compared with a smaller net charge in 1992 which
included profits related to the divestitures of the Company's unprofitable
plastic pipe division and its marginally profitable hydraulic tool product line.
Income benefited significantly from a $17.6 million pre-tax gain ($10.7 million
after-tax, $.43 per share) on the sale of a substantial portion of a marketable
equity security. Higher earnings in 1993 were recorded for tracked vehicles in
the Defense Group, and to a lesser extent, for pipe fittings. Interest expense
increased, due to the debt incurred in conjunction with the acquisition and
operations of MultiServ International, N.V., which was partially offset by lower
interest expense due to the payment of $82.5 million of other nonrelated debt
during the last nine months of 1992.
Net income of $87.6 million ($3.50 per share), which included a $6.8 million
non-cash reduction of deferred income taxes ($.27 per share) to reflect the
adoption, effective January 1, 1993, of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," was up from last year, which
included a $7.2 million non-cash, after-tax charge ($.27 per share) to reflect
the adoption of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." 1992 also included
after-tax profit of $2.3 million ($.09 per share) from the divestiture of the
Company's plastic pipe division and hydraulic tool product line. The effective
income tax rate of 41% in 1993 was up from 35% in 1992. The increase relates to
the higher effective tax rates associated with international earnings, losses
sustained in certain foreign operations for which there was no tax benefit, as
well as the nondeductibility of certain acquisition costs. Higher taxes were
also due to the increase in the U.S. federal tax rate and higher state taxes,
due to the change in the mix of U.S. and international income.
- 24 -
25
Sales of the Metal Reclamation and Mill Services Group, at $268.1 million, were
significantly greater than 1992, due to the acquisition of MultiServ
International, N.V. Sales for the Infrastructure, Construction and
Transportation Group, at $306.3 million, and Process Industry Products Group, at
$385.8 were slightly ahead of 1992. The increase for the Infrastructure,
Construction and Transportation Group was due to higher volume in railway
maintenance equipment, due to an acquisition made in June 1992, which more than
offset reduced demand for grating. Defense Group sales at $462.1 million, were
well below the level for 1992, reflecting the completion of most contracts for
five-ton trucks at midyear and, to a lesser extent, lower sales for tracked
vehicles.
Operating profit for the Metal Reclamation and Mill Services Group was below
last year, despite significantly greater sales than 1992. Earnings for Metal
Reclamation and Mill Services were unfavorably affected by weaker demand from
economic conditions in Europe and start-up costs at several locations. The
operating profit for the Infrastructure, Construction and Transportation Group
in 1993 was lower than 1992 which included income from the liquidation of
inventories associated with the railway maintenance equipment product class.
Higher operating profit was recorded for the Process Industry Products Group due
to improved earnings for most product lines. The Defense Group posted an
operating profit of $67.0 million, significantly below 1992, due to completion
of most contracts for five-ton trucks at midyear. Higher earnings were recorded
for tracked vehicles, which reflected improvement in margins.
Research and Development
The Company spent $4.9 million on internal research and development programs in
1995. An additional $1.0 million was customer-sponsored, principally in the
Process Industry Products Group. Internal funding for the Infrastructure and
Construction Group amounted to $3.6 million, primarily for railway maintenance
equipment. Expenditures in the Metal Reclamation and Mill Services and the
Process Industry Products Groups were $0.6 million and $0.7 million,
respectively. Total research and development spending, including both internal
and customer-sponsored expenditures, was $5.9 million, down slightly from the
$6.2 million in 1994.
Backlog
The year-end backlog for the Process Industry Products Group was $98.9 million,
a 14% increase over December 31, 1994. The Infrastructure and Construction Group
backlog at December 31, 1995 was $58.2 million, which approximated last year's
backlog excluding the school bus business. Backlog for scaffolding, shoring and
forming equipment and for roofing granules and slag abrasives are not included
in the Infrastructure and Construction Group's total backlog, because they are
generally not quantifiable. Contracts for the Metal Reclamation and Mill
Services Group are also excluded from the total backlog. These contracts, having
an estimated value of more than $2.3 billion at year-end, extending into year
2006, increased approximately 15% over December 31, 1994.
Outlook for 1996
The progress made in 1995, with upward trends in sales, income, cash flows and
backlogs underpins our view that Harsco's core businesses will continue to grow
in 1996.
Mill services will continue to expand with both new customers and broader
product service offerings to existing customers. This revenue growth combined
with continuing cost saving and productivity initiatives, along with efforts to
divest non-core lower margin service units, should again yield improved results.
We expect to offer more scaffolding services to the construction and
- 25 -
26
industrial maintenance market and to continue the expansion of services in the
railway maintenance market. The strategic refocusing of the Company, begun last
year, will continue our emphasis on industrial services of these types, in
contrast to our past primary focus on manufacturing. However, our manufacturing
businesses also expect growth. Most notably, gas containment and process
equipment expect to expand their offerings internationally. Capital expenditures
should exceed 1995's record level and are currently budgeted at $120 million.
Achievement of this sales and income growth plan should significantly more than
offset the anticipated decline in 1996 of our defense industry partnership
income, which exceeded 1995's expectations.
Subject to possible major economic and foreign currency changes, we are
optimistic that our operations will achieve our goals for increased return on
capital, assets and equity. Cash flows from operating activities are expected to
approximate 1995's, excluding the effects of government claims settlements, and
to further improve our debt-to-capital ratio, while comfortably enabling us to
invest appropriately for sustainable growth in our businesses as we continue to
fulfill our other financial objectives.
Dividend Action
The Company paid four quarterly cash dividends of $.37 cents per share in 1995,
for an annual rate of $1.48. At the November meeting, the Board of Directors
increased the dividend three percent to an annual rate of $1.52 per share. The
Board normally reviews the dividend periodically during the year and annually at
its November meeting. Retained earnings in the amount of $713.8 million are free
of restrictions for payment of dividends.
Harsco is proud of its history of paying dividends. The Company has paid
dividends each year since 1939, and the February 1996 payment marked the 183rd
consecutive dividend paid at the same or at an increased rate. During the
eleven-year period ended December 31, 1995, dividends paid were increased eight
times. In 1995, the dividend payout rate was 38.3%. Harsco is philosophically
committed to maintaining or increasing the dividend at a sustainable level.
Enhancing Shareholder Value
A guiding principle of the Company is to enhance shareholder value for the
long-term. Enhanced shareholder value will be obtained by developing and
maintaining lead industry positions in the markets served through the delivery
of products and services that provide the best value to the customer. To that
end, Harsco is striving to exceed a Return on Capital (ROC) of 13% in 1996. Each
Division's performance is also evaluated using the ROC measurement which is
calculated by dividing net income excluding after-tax interest expense charges,
by quarterly weighted average total debt and equity. In 1995, the Company's ROC
was 12.2%. In addition to this key earnings related measurement, incentive
programs for both Division and Corporate managements are based on sales growth,
operating cash flow and earnings per share goals. Harsco has elevated two other
Corporate goals, starting in 1996, to consistently achieve a Return on Equity
(ROE) of 17% - 18% and a Return on Assets (ROA) of 15% - 16%. In 1995, the
Company's ROE was 15.9% and ROA was 14.6%.
- 26 -
27
PART IV
Item 8. Financial Statements and Supplementary Data:
Index to Consolidated Financial Statements and Supplementary Data
Consolidated Financial Statements of
Harsco Corporation: Page
----
Report of Independent Accountants 28
Consolidated Balance Sheets
December 31, 1995 and 1994 29
Consolidated Statements of Income
for the years 1995, 1994 and 1993 30
Consolidated Statements of Cash Flows
for the years 1995, 1994 and 1993 31
Consolidated Statements of
Shareholders' Equity for the years
1995, 1994 and 1993 32
Notes to Consolidated Financial
Statements 33 - 68
Supplementary Data:
Two-Year Summary of Quarterly Results (Unaudited) 69 - 70
- 27 -
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Harsco Corporation:
We have audited the accompanying consolidated balance sheets of Harsco
Corporation and Subsidiary Companies as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Harsco Corporation
and Subsidiary Companies as of December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 11 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
/s/ Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
January 31, 1996
- 28 -
29
HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
- ---------------------------------------------------------------------------------------------------
December 31 1995 1994
- ---------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................ $ 76,669 $ 43,550
Notes and accounts receivable, less allowance
for uncollectible accounts ($8,256 and $7,285) ................... 272,858 350,578
Inventories .......................................................... 123,285 121,199
Other current assets ................................................. 60,954 21,432
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ......................................... 533,766 536,759
- ---------------------------------------------------------------------------------------------------
Property, plant and equipment, net ...................................... 459,809 434,968
Cost in excess of net assets of businesses acquired, less
accumulated amortization ($34,464 and $25,912) ................... 205,801 213,480
Investments ............................................................. 21,007 43,711
Investments in unconsolidated entities .................................. 45,604 32,312
Other assets ............................................................ 44,675 53,419
- ---------------------------------------------------------------------------------------------------
$1,310,662 $1,314,649
===================================================================================================
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings ................................................ $ 5,704 $ 14,236
Current maturities of long-term debt ................................. 103,043 11,502
Accounts payable ..................................................... 112,736 92,166
Accrued compensation ................................................. 41,304 37,837
Income taxes ......................................................... 17,671 10,971
Dividends payable .................................................... 9,520 9,317
Other current liabilities ............................................ 98,534 106,392
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES .................................... 388,512 282,421
- ---------------------------------------------------------------------------------------------------
Long-term debt .......................................................... 179,926 340,246
Deferred income taxes ................................................... 36,061 29,217
Insurance liabilities ................................................... 37,298 44,560
Other liabilities ....................................................... 42,874 36,983
- ---------------------------------------------------------------------------------------------------
684,671 733,427
- ---------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock,
Series A junior participating cumulative preferred stock ............. - -
Common stock, par value $1.25, issued 32,537,880 and
32,343,553 shares, respectively ...................................... 40,672 40,429
Additional paid-in capital .............................................. 101,183 94,070
Cumulative translation adjustments ...................................... (19,852) (16,020)
Cumulative pension liability adjustments ................................ (413) (99)
Retained earnings ....................................................... 713,774 653,996
- ---------------------------------------------------------------------------------------------------
835,364 772,376
Treasury stock, at cost (7,486,331 and 7,161,303 shares, respectively) .. (209,373) (191,154)
- ---------------------------------------------------------------------------------------------------
625,991 581,222
- ---------------------------------------------------------------------------------------------------
$1,310,662 $1,314,649
===================================================================================================
See accompanying notes to consolidated financial statements.
- 29 -
30
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share)
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
REVENUES
Net sales ....................................................................... $1,495,466 $1,357,715 $1,422,308
Equity in income of unconsolidated entities ..................................... 57,031 64,120 2,415
Gain on sale of investments ..................................................... - 5,966 17,555
Other revenues .................................................................. 1,520 37,980 2,018
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES ............................................................... 1,554,017 1,465,781 1,444,296
- ------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales ................................................................... 1,147,467 1,060,695 1,107,187
Selling, general and administrative expenses .................................... 198,706 199,837 180,375
Research and development expenses ............................................... 4,876 5,463 5,167
Facilities discontinuance and reorganization costs .............................. 22,809 17,143 2,419
Other ........................................................................... (5,018) 6,158 (493)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES ..................................................... 1,368,840 1,289,296 1,294,655
- ------------------------------------------------------------------------------------------------------------------------------
Income before interest, taxes, minority interest and
cumulative effect of accounting change ................................... 185,177 176,485 149,641
Interest income .................................................................... 7,472 6,403 7,586
Interest expense ................................................................... (28,921) (34,048) (19,974)
- ------------------------------------------------------------------------------------------------------------------------------
Income before taxes, minority interest and cumulative
effect of accounting change .............................................. 163,728 148,840 137,253
Provision for income taxes ......................................................... 63,854 59,536 56,335
- ------------------------------------------------------------------------------------------------------------------------------
Income before minority interest and cumulative
effect of accounting change .............................................. 99,874 89,304 80,918
Minority interest in net income .................................................... 2,497 2,751 102
- ------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change ......................... 97,377 86,553 80,816
Cumulative effect of accounting change ............................................. - - 6,802
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME ................................................................... $ 97,377 $ 86,553 $ 87,618
==============================================================================================================================
EARNINGS PER COMMON SHARE
Income before cumulative effect of accounting change ............................ $ 3.86 $ 3.45 $ 3.23
Cumulative effect of accounting change .......................................... - - 0.27
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE .................................................. $ 3.86 $ 3.45 $ 3.50
==============================================================================================================================
AVERAGE SHARES OF COMMON STOCK OUTSTANDING ......................................... 25,246 25,115 25,036
==============================================================================================================================
See accompanying notes to consolidated financial statements.
- 30 -
31
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................................ $ 97,377 $ 86,553 $ 87,618
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation .................................................................. 95,033 90,179 69,558
Amortization .................................................................. 9,830 9,410 5,250
Cumulative effect of accounting change ........................................ - - (6,802)
Gain on sale of investments ................................................... - (5,966) (17,555)
Equity in income of unconsolidated entities ................................... (57,031) (64,120) (2,415)
Dividends or distributions from unconsolidated entities ....................... 38,400 71,845 1,348
Deferred income taxes ......................................................... (19,018) 273 6,507
Write-off of federal excise tax receivable .................................... 13,455 - -
Other, net .................................................................... (1,890) 7,902 689
Changes in assets and liabilities, net of acquisitions
and dispositions of businesses and formation of a partnership:
Notes and accounts receivable.................. ............................ 73,732 (34,263) 66,562
Inventories ................................................................ (1,583) (7,302) 9,189
Accounts payable ........................................................... 4,955 14,191 10,371
Advances on long-term contracts ............................................ (1,623) (9,636) 13,673
Other assets and liabilities ............................................... 7,178 2,329 (11,773)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................................... 258,815 161,395 232,220
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment .................................. (113,895) (90,928) (83,395)
Purchase of businesses, net of cash acquired* ................................... (4,145) - (337,062)
Proceeds from sale of businesses ................................................ 3,821 2,444 -
Proceeds from sale of property, plant and equipment ............................. 11,491 8,222 3,302
Proceeds from sale of investment held available-for-sale ........................ - 7,617 22,555
Investments held-to-maturity: Purchases ......................................... (3,067) (15,750) -
Maturities .............................................. 5,475 24,740 -
Other investing activities ...................................................... 2,989 (9,495) (3,066)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES ....................................... (97,331) (73,150) (397,666)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net ...................................................... (13,998) (35,303) 28,339
Current maturities and long-term debt: Additions ................................ 27,076 123,445 224,248
Reductions ....................................... (95,884) (164,662) (8,222)
Cash dividends paid on common stock ............................................. (37,397) (35,137) (35,089)
Common stock issued-options ..................................................... 5,660 7,241 4,450
Common stock acquired for treasury .............................................. (14,130) - (36,322)
Other financing activities ...................................................... 605 1,376 (3,849)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES .............................. (128,068) (103,040) 173,555
- --------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ......................................... (297) (395) 265
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ............................ 33,119 (15,190) 8,374
Cash and cash equivalents at beginning of year .................................. 43,550 58,740 50,366
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................................ $ 76,669 $ 43,550 $ 58,740
===========================================================================================================================
*PURCHASE OF BUSINESSES, NET OF CASH ACQUIRED
Working capital, other than cash .................................................. $ 5,139 $ - $ 5,748
Property, plant and equipment ..................................................... (8,263) - (202,241)
Cost in excess of net assets of companies acquired, net ........................... - - (215,428)
Other noncurrent assets ........................................................... (1,021) - (7,789)
Long-term debt .................................................................... - - 29,655
Noncurrent liabilities ............................................................ - - 52,993
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED TO ACQUIRE BUSINESSES ............................................. $ (4,145) $ - $(337,062)
===========================================================================================================================
See accompanying notes to consolidated financial statements.
- 31 -
32
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cumulative Adjustments
----------------------
Common Stock Additional
------------ Paid-in Pension Retained
Issued Treasury Capital Translation Liability Earnings
------ -------- ------- ----------- --------- --------
(In thousands, except share amounts)
- ---------------------------------------------------------------------------------------------------------------
BALANCES, JANUARY 1, 1993 ................. $39,907 $(166,672) $ 80,070 $ (8,055) $(633) $550,486
- ---------------------------------------------------------------------------------------------------------------
Net income ................................ 87,618
Cash dividends declared, $1.40 per share .. (34,946)
Translation adjustments ................... (8,004)
Pension liability adjustments, net of $311
deferred income taxes .................... 526
Acquired during the year, 901,557 shares .. (34,975)
Stock options exercised, 189,076 shares ... 236 5,546
Acquisition of a company, 300,297 shares .. 11,143 818
Other, 426 shares ......................... 17 2
- ---------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1993 ............... 40,143 (190,487) 86,436 (16,059) (107) 603,158
- ---------------------------------------------------------------------------------------------------------------
Net income ................................ 86,553
Cash dividends declared, $1.42 per share .. (35,715)
Translation adjustments ................... 39
Pension liability adjustments, net of $5
deferred income taxes .................... 8
Acquired during the year, 14,991 shares ... (677)
Stock options exercised, 229,054 shares ... 286 7,627
Other, 386 shares ......................... 10 7
- ---------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 ............... 40,429 (191,154) 94,070 (16,020) (99) 653,996
- ---------------------------------------------------------------------------------------------------------------
Net income ................................ 97,377
Cash dividends declared, $1.49 per share .. (37,599)
Translation adjustments ................... (3,832)
Pension liability adjustments, net of $200
deferred income taxes .................... (314)
Acquired during the year, 325,861 shares .. (18,245)
Stock options exercised, 194,327 shares ... 243 7,092
Other, 833 shares ......................... 26 21
- ---------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 ............... $40,672 $(209,373) $101,183 $(19,852) $(413) $713,774
===============================================================================================================
See accompanying notes to consolidated financial statements.
- 32 -
33
HARSCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION PRINCIPLES
The consolidated financial statements include the accounts of Harsco
Corporation and its majority-owned subsidiaries ("Company").
Investments in United Defense, L.P., a 40% owned partnership,
effective January 1, 1994, and other unconsolidated entities are
accounted for on the equity method. The income of unconsolidated
entities is on a pre-tax basis for United Defense, L.P. as it is a
partnership, and net of taxes for all other unconsolidated entities.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid debt instruments
purchased with a maturity of three months or less.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). The cumulative effect
resulting from the adoption of SFAS 115 in 1994 was immaterial. In
accordance with SFAS 115, prior years' financial statements were not
restated. Prior to the adoption of SFAS 115, the Company's investments
in marketable equity securities were reported at the lower of cost or
market, and marketable debt securities at amortized cost which
approximated market.
Marketable debt securities are classified as held-to-maturity.
Management determines the appropriate classification of debt
securities at the time of purchase. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability
to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost. Interest on securities classified as
held-to-maturity is included in interest income.
The Company also had an investment in a marketable equity security
that was classified as available-for-sale at January 1, 1994. The
realized gains were reflected in the Company's Consolidated Statements
of Income.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market, cost being
determined using the last-in, first-out (LIFO), first-in, first-out
(FIFO) and average cost methods.
PROPERTY, PLANT AND EQUIPMENT
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.
- 33 -
34
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
Cost in excess of net assets of businesses acquired is amortized on a
straight-line basis over periods not to exceed 30 years. The Company's
policy is to record an impairment loss against the net unamortized
cost in excess of net assets of businesses acquired in the period when
it is determined that the carrying amount of the asset may not be
recoverable. An evaluation is made at each balance sheet date
(quarterly) and it is based on such factors as the occurrence of a
significant event, a significant change in the environment in which
the business operates or if the expected future net cash flows
(undiscounted and without interest) would become less than the
carrying amount of the asset.
LONG-TERM DEFENSE CONTRACTS
Defense contracts were accounted for under the percentage of
completion (units-of-delivery) method, whereby sales and estimated
average cost of the units to be produced under a contract were
recognized as deliveries were made or accepted. Changes in estimates
for sales, costs, and profits were recognized in the period in which
they were determinable using the cumulative catch-up method of
accounting. Claims were considered in the estimated contract
performance at such time as realization was probable. Any anticipated
losses on contracts were charged to operations as soon as they were
determinable. Inventory costs included factory overhead, general and
administrative expenses, initial tooling and other related costs.
Internal research and development costs were charged to expense or
allocated to production contracts, as applicable, when incurred. Under
certain arrangements in which a customer shared in product development
costs, the Company's portion of such costs was expensed as incurred.
Effective January 1, 1994, substantially all defense contracts were
transferred to United Defense, L.P.
INCOME TAXES
All U.S. federal and state income taxes and non-U.S. 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.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the cost can be reasonably
estimated. The timing of these accruals generally coincides with the
earlier of completion of a feasibility study or the Company's
commitment to a plan of action based on the then known facts.
- 34 -
35
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASUALTY AND PROPERTY INSURANCE
The Company is insured for workers' compensation, automobile, general,
and product liability losses through a risk retention program. The
Company accrues for the estimated losses occurring from both asserted
and unasserted claims. The estimate of the liability for unasserted
claims arising from unreported incidents is based on an analysis of
historical claims data. The Company has a wholly-owned captive
insurance company for the payment of its claims under this risk
retention program. Annual contributions are made by the Company to the
captive insurance company to provide funding for its retained risk.
Additionally, the Company self-insures its workers' compensation
exposures in the states of Ohio and Pennsylvania. The Company accrues
for their losses in the same fashion as described above; however,
funding is made from operating earnings. Also, the Company generally
insures its property on an all-risk basis through conventional
insurers with a minor deductible applicable to each loss.
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 rates of exchange at the balance
sheet date. The resultant translation adjustments are recorded in the
cumulative translation adjustment, a separate component of
shareholders' equity. Income and expense items are translated at
average monthly rates of exchange. Gains and losses from foreign
currency transactions of these subsidiaries 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.
FINANCIAL INSTRUMENTS AND HEDGING
During 1994, the Company adopted Statement of Financial Accounting
Standards No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments" (SFAS 119).
The Company has subsidiaries principally operating in Canada, Europe,
Latin America and the Pacific region. In the normal course of
business, these operations are exposed to fluctuations in related
foreign currencies. The Company seeks to reduce exposure to foreign
currency fluctuations, primarily the European currencies, 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.
- 35 -
36
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company enters into forward exchange contracts to hedge
transactions with its non-U.S. subsidiaries, for firm commitments to
purchase equipment and for export sales denominated in foreign
currencies. These contracts generally are for 90 to 180 days or less.
For those contracts that hedge an identifiable transaction, gains or
losses are deferred and accounted for as part of the underlying
transactions. The cash flows from forward exchange contracts accounted
for as hedges of identifiable transactions are classified consistent
with the cash flows from the transaction being hedged.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NEW FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" which is effective for years
beginning after December 15, 1995. This statement establishes criteria
for recognizing, measuring and disclosing impairments of long-lived
assets, identifiable intangibles and goodwill. The Company will adopt
SFAS 121 in the first quarter of 1996, but does not expect that the
adoption will have a material effect on its financial position or
results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation" which is effective
for years beginning after December 15, 1995. This statement allows
entities to choose between a new fair value based method of accounting
for employee stock options or similar equity instruments and the
current method of accounting prescribed by Accounting Principles Board
Opinion No. 25. Entities electing to remain with the accounting in
Opinion No. 25 must make pro forma disclosures of net income and
earnings per share as if the fair value method of accounting had been
applied. The Company expects to continue accounting for employee stock
options and similar equity instruments in accordance with Opinion No.
25. The pro forma effect for 1995 has not yet been determined.
- 36 -
37
2. ACQUISITIONS AND FORMATION OF DEFENSE BUSINESS PARTNERSHIP
ACQUISITIONS
On February 6, 1995, the Company acquired substantially all of the
assets of Fabsco, Inc. for a total consideration of $14.8 million
consisting of cash of $3.4 million and the assumption of debt and
liabilities of $11.4 million. The acquisition was accounted for by the
purchase method of accounting. Fabsco, a privately held manufacturer
of heat exchange products, had annual sales of approximately $22
million for 1994. Pro forma results are not presented for the periods
prior to the acquisition because the effect would not be material.
On August 31, 1993, the Company acquired MultiServ International, N.V.
("MultiServ"). The acquisition of MultiServ was accounted for by the
purchase method of accounting, and operating results of this
acquisition are included in the Company's Consolidated Financial
Statements since the date of acquisition. The total consideration paid
by the Company was approximately $384,000,000 and consisted of: (i)
approximately $333,000,000 in cash, (ii) approximately $12,000,000 in
Company Common Stock from treasury, and (iii) the assumption of
certain project financing indebtedness of MultiServ in the amount of
approximately $39,000,000. Approximately $8,000,000 in closing and
acquisition costs were also incurred. The funds used by the Company to
complete the acquisition consisted of approximately $83,000,000 from
cash balances of the Company, and approximately $250,000,000 borrowed
from a financial institution.
FORMATION OF DEFENSE BUSINESS PARTNERSHIP
On January 28, 1994, FMC Corporation ("FMC") and the Company announced
completion of a series of agreements ("Agreements"), first announced
in December 1992, to combine certain assets and liabilities of FMC's
Defense Systems Group ("DSG") and the Company's BMY-Combat Systems
Division ("BMY-CS"). The effective date of the combination was January
1, 1994. The combined company, United Defense, L.P., operates as a
limited partnership ("Partnership"). FMC as the Managing General
Partner has a 60 percent equity interest, and Harsco Defense Holding,
Inc., a wholly owned subsidiary of the Company, as the Limited Partner
has a 40 percent equity interest. The Company contributed to the
Partnership net assets of $29,600,000, which included $5,200,000 in
cash. The net assets were contributed on the historical basis of
accounting and no gain was recognized on the transaction.
The Partnership has an Advisory Committee comprised of ten
individuals, six appointed by FMC and four appointed by the Company
which considers and discusses Partnership issues. FMC as the managing
general partner exercises management control over the Partnership
subject to the Company's right to consent to certain actions
delineated in the Partnership Agreement. Additionally, the Partnership
Agreement contains certain exit rights for both Partners any time more
than 25 months after the formation of the Partnership including the
right of the Company to sell its interest to the Partnership (payable
by a promissory note from the Partnership) based upon a calculation of
95% of appraised value, and the right of FMC or the Partnership to buy
- 37 -
38
2. ACQUISITIONS AND FORMATION OF DEFENSE BUSINESS PARTNERSHIP (CONTINUED)
the Company's interest (payable in cash) based upon a calculation of
110% of appraised value. Appraised value is substantially the fully
distributed public equity trading value of the Partnership as
determined by three investment banking firms in accordance with
certain contractual stipulations, multiplied by the Company's
percentage interest in the Partnership. The Partnership Agreement
provides for certain special capital account allocations and cash
distributions, but otherwise allocates and distributes income in
proportion to the partners' percentage ownership. Under the
Participation Agreement between FMC and the Company, each Partner
generally is financially accountable to the Partnership for
environmental conditions occurring prior to formation of the
Partnership at facilities or properties previously operated or used in
their respective businesses, to the extent that costs incurred are not
recovered from third parties or not covered by environmental accruals
contributed by the parties at formation. The Company retained the
rights and any liabilities associated with certain pending major
claims between the Company and the U.S. Government, and the Company
and the Government of Iran. See Note 10, "Commitments and
Contingencies" for additional disclosure on these claims.
- 38 -
39
3. INVESTMENTS
The following is a summary of held-to-maturity debt securities at
December 31, 1995 and 1994:
(In thousands) 1995
- -----------------------------------------------------------------------------------
AMORTIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------
Corporate debt securities $28,753 $ 219 $58 $28,914
Government debt
securities non-U.S. 17,250 161 39 17,372
- -----------------------------------------------------------------------------------
$46,003 $ 380 $97 $46,286
===================================================================================
(In thousands) 1994
- -----------------------------------------------------------------------------------
AMORTIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------
Corporate debt securities $31,685 $ - $ 1,089 $30,596
Government debt
securities non-U.S. 17,555 - 682 16,873
- -----------------------------------------------------------------------------------
$49,240 $ - $ 1,771 $47,469
===================================================================================
The amortized cost and fair market value of fixed income debt securities at
December 31, 1995 and 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities, because the borrowers may
have the right to call or prepay obligations.
(In thousands) 1995 1994
- -----------------------------------------------------------------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
- -----------------------------------------------------------------------------------
Held to Maturity
Due in one year or less $24,996 $24,954 $ 5,529 $ 5,438
Due after one year through five years 21,007 $21,332 $43,711 $42,031
- -----------------------------------------------------------------------------------
$46,003 $46,286 $49,240 $47,469
===================================================================================
Investments held to maturity due in one year or less are included in Other
current assets on the Consolidated Balance Sheets.
During the first quarter of 1994, the Company sold its remaining shares of an
investment in a marketable equity security that was held available-for-sale. The
Company sold the majority of its holdings in this investment in 1993. These
sales have been included as Revenues under Gain on Sale of Investments in the
Consolidated Statements of Income.
- 39 -
40
4. INVENTORIES
Inventories are summarized as follows:
(In thousands) 1995 1994
---------------------------------------------------------------
Finished goods ..................... $ 25,996 $ 25,641
Work in process .................... 24,640 28,625
Raw materials and purchased parts .. 54,151 53,338
Stores and supplies ................ 18,498 13,595
---------------------------------------------------------------
$123,285 $121,199
===============================================================
Valued at lower of cost or market:
LIFO basis ......................... $ 89,239 $ 86,722
FIFO basis ......................... 23,860 16,938
Average cost basis ................. 10,186 17,539
---------------------------------------------------------------
$123,285 $121,199
===============================================================
Inventories valued on the LIFO basis at December 31, 1995 and 1994
were approximately $37,905,000 and $36,564,000, 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, profits from liquidation of inventories were recorded,
which increased net income by $494,000, $276,000 and $246,000 in
1995, 1994 and 1993, respectively.
- 40 -
41
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consists of:
(In thousands) 1995 1994
--------------------------------------------------------------------
Land and improvements $ 25,351 $ 24,955
Buildings and improvements 121,651 110,190
Machinery and equipment 896,139 820,868
Uncompleted construction 37,126 28,917
--------------------------------------------------------------------
1,080,267 984,930
Less allowance for depreciation 620,458 549,962
--------------------------------------------------------------------
$ 459,809 $434,968
====================================================================
The estimated useful lives of different types of assets are:
----------------------------------------------------------------------
Land improvements 10 years
Buildings and improvements 10 to 50 years
Certain plant, buildings and installations 5 to 20 years
(Principally Metal Reclamation and
Mill Services Group)
Machinery and equipment 3 to 20 years
----------------------------------------------------------------------
- 41 -
42
6. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company has a 40% interest in United Defense, L.P. which
principally manufactures ground combat vehicles for the U.S. and
international governments (see Note 2). The Company's other
investments are in the Metal Reclamation and Mill Services Group.
Summary information is not shown for 1993 as it is immaterial to the
Consolidated Financial Statements. The following table presents
summarized financial information on a combined 100% basis of the
companies accounted for by the equity method:
(In thousands) 1995 1994
- ---------------------------------------------------------------
Current assets .......... $378,430 $321,596
Noncurrent assets ....... 202,701 187,896
Current liabilities ..... 364,385 315,983
Noncurrent liabilities .. 52,801 56,485
Net sales ............... 1,003,562 1,129,528
Costs and expenses ...... 892,733 983,955
Net income .............. 110,250 134,441
- ---------------------------------------------------------------
The Company's share of income of all unconsolidated entities for 1995
and 1994 was $57,031,000, and $64,120,000, respectively.
- 42 -
43
7. DEBT AND CREDIT AGREEMENTS
In June 1995, the Company amended its $300 million, October 1993
credit facility with a syndicate of nineteen banks. The amended and
restated five-year unsecured facility consolidates two prior
agreements and, as amended, extends maturity to June 2000, provides
for less restrictive financial ratio covenants and reduces fees and
interest rates. Borrowings under this agreement are available in U.S.
dollars or Eurocurrencies and it serves as back-up to the Company's
commercial paper program. Interest rates are either a negotiated rate,
a rate based upon the U.S. federal funds interbank market, prime rate,
or a rate based upon the London Interbank Offered Rate (LIBOR). The
Company pays a facility fee based upon the full amount of the facility
that varies based upon its Moody's and Standard & Poor's credit
ratings. The agreement currently provides for a facility fee of .10%
per annum. At December 31, 1995 and 1994, there were no borrowings
outstanding under these facilities.
The Company also has a commercial paper borrowing program under which
it can issue up to $150 million of short-term notes in the U.S.
commercial paper market. The commercial paper program is supported by
the credit facility. The Company limits the aggregate commercial paper
and credit facility borrowings at any one time to a maximum of $300
million. Interest rates are based upon market conditions, but are
generally lower than comparable borrowings under the committed bank
credit facility. At December 31, 1995, the Company had no commercial
paper outstanding. At December 31, 1994, $24.1 million of commercial
paper was outstanding. Commercial paper is classified as long-term
debt, 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, including overdraft facilities, amounted to
$5,704,000 and $14,236,000 at December 31, 1995 and 1994,
respectively. The weighted average interest rate for short-term
borrowings at December 31, 1995 and 1994 was 7.3% and 7.6%,
respectively.
- 43 -
44
7. DEBT AND CREDIT AGREEMENTS (CONTINUED)
Long-term debt consists of the following:
(In thousands) 1995 1994
---------------------------------------------------------------------
8.75% Notes due May 15, 1996 ..................... $89,500 $100,000
6.0% Notes due September 15, 2003 ................ 150,000 150,000
Commercial Paper Borrowings supported by
bank credit facility with interest up to 6.2% .. - 24,139
Industrial Development Bonds, payable in varying
amounts to 2005 with interest up to 7.0% ....... 11,400 10,750
Project financing and other, payable in varying
amounts to 2004 with interest up to 17.5% ...... 32,069 66,859
---------------------------------------------------------------------
282,969 351,748
Less current maturities .......................... 103,043 11,502
---------------------------------------------------------------------
$179,926 $340,246
=====================================================================
The five-year facility and certain notes payable agreements contain
covenants restricting, among other things, the amount of issuance of
new debt as defined. At December 31, 1995, the Company was in
compliance with these covenants.
The maturities of long-term debt for the four years following
December 31, 1996, are:
(In thousands)
----------------------------------------------------------------------
1997 $10,660 1999 $1,475
1998 $ 5,766 2000 $ 626
Cash payments for interest on all debt, net of capitalized interest,
were $28,798,000, $33,544,000 and $15,165,000 in 1995, 1994 and 1993,
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 $200,000,000 of new debt securities, preferred stock or
common stock.
-44-
45
8. LEASES
The Company leases certain property and equipment under noncancelable
operating leases. Rental expense under all operating leases was $12.2
million, $10.9 million and $10.7 million in 1995, 1994 and 1993,
respectively.
Future minimum lease payments under operating leases with
noncancelable terms are:
After
(In thousands) 1996 1997 1998 1999 2000 2000
-----------------------------------------------------------------------
Minimum Lease Payments $10,008 $7,517 $4,853 $3,397 $2,976 $17,173
-----------------------------------------------------------------------
-45-
46
9. EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company has pension and profit sharing retirement plans, most of
which are noncontributory, covering substantially all its employees
and outside directors. 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 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.
The actuarially computed net pension expense includes the following
components:
(In thousands) 1995 1994 1993
------------------------------------------------------------------------------
Defined benefit plans:
Service cost ................................ $ 9,232 $10,604 $12,077
Interest cost ............................... 13,958 14,160 15,468
Actual return on plan assets ................ (35,944) (7,885) (33,984)
Net amortization and deferral ............... 14,921 (12,909) 8,547
------------------------------------------------------------------------------
Net pension expense ......................... 2,167 3,970 2,108
Multi-employer and defined contribution plans .. 8,140 7,250 5,110
------------------------------------------------------------------------------
Total pension expense ....................... $10,307 $11,220 $7,218
==============================================================================
The Company participates in multi-employer plans, providing defined
benefits for certain unionized employees, the cost of which totaled
$3,610,000, $3,285,000 and $2,474,000, for 1995, 1994 and 1993,
respectively.
-46-
47
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The financial status of the pension plans and amounts recognized in
the Company's Consolidated Balance Sheets at December 31, 1995 and
1994 are:
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
---------------------- ----------------------
(In thousands) 1995 1994 1995 1994
-------------------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested ............................ $139,766 $130,826 $15,359 $12,751
Non-vested ........................ 9,853 6,696 664 823
------------------------------------------------------------------------------------
Accumulated benefit obligation ..... 149,619 137,522 16,023 13,574
Effect of increase in
compensation ...................... 32,605 33,438 2,907 1,204
------------------------------------------------------------------------------------
Projected benefit obligation ....... 182,224 170,960 18,930 14,778
Plan assets at fair value .......... 254,447 234,489 10,172 9,628
------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligations ..... 72,223 63,529 (8,758) (5,150)
Unrecognized prior service costs ... 10,534 12,512 2,186 1,202
Unrecognized net loss (gain) ....... (33,581) (25,868) 1,142 589
Unrecognized net asset ............. (23,709) (24,926) 117 (192)
Minimum liability adjustment ....... - - (2,299) (1,106)
------------------------------------------------------------------------------------
Prepaid pension asset (liability) .. $ 25,467 $ 25,247 $(7,612) $(4,657)
====================================================================================
-47-
48
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
Plan assets include equity and fixed-income securities. At December
31, 1995 and 1994, 366,320 Harsco common shares with a fair market
value of $21,292,000 and $14,973,000, respectively, are included in
plan assets. Dividends paid on Harsco Common Stock amounted to
$542,000 and $512,000 in 1995 and in 1994, respectively.
The actuarial assumptions used for the defined benefit pension plans,
including international plans, are:
1995 1994 1993
-------------------------------------------------------------------
Weighted average assumed discount rates .... 7.5% 7.9% 7.4%
Weighted average expected long-term rates of
return on plan assets .... ............... 9.0% 8.6% 9.0%
Rates of compensation increase ............. 4.8% 5.3% 5.3%
-------------------------------------------------------------------
The changes in the assumed discount and compensation rates had the
effect of increasing the projected benefit obligation by $4,579,000 in
1995. In 1994, the change in the assumed discount rate had the effect
of decreasing the projected benefit obligation by $13,641,000. In
1993, the changes in the assumed discount and compensation rates had
the effect of decreasing the projected benefit obligation by
$31,956,000.
-48-
49
9. 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)
for 1995, 1994 and 1993 included the following components:
Health Life
(In thousands) Care Insurance Total
----------------------------------------------------------------------------
1995
SERVICE COST $ 29 $ 44 $ 73
INTEREST COST 266 254 520
AMORTIZATION (GAIN) (339) (37) (376)
----------------------------------------------------------------------------
TOTAL POSTRETIREMENT
BENEFIT (INCOME) COSTS $(44) $261 $217
============================================================================
1994
Service cost $ 46 $ 52 $ 98
Interest cost 292 244 536
Amortization (gain) (154) (29) (183)
----------------------------------------------------------------------------
Total postretirement benefit costs $184 $267 $451
============================================================================
1993
Service cost $235 $ 73 $308
Interest cost 532 324 856
Amortization (gain) (319) - (319)
----------------------------------------------------------------------------
Total postretirement benefit costs $448 $397 $845
============================================================================
The 1995 and 1994 postretirement benefit liability recorded in the
Consolidated Balance Sheets included the following components:
(In thousands) 1995 1994
--------------------------------------------------------------------------------------------
Health Life Health Life
Care Insurance Total Care Insurance Total
--------------------------------------------------------------------------------------------
Current retiree $2,947 $2,452 $5,399 $3,398 $2,765 $6,163
Future retirees 271 942 1,213 329 769 1,098
--------------------------------------------------------------------------------------------
Total 3,218 3,394 6,612 3,727 3,534 7,261
Unrecognized gain 1,100 1,219 2,319 998 945 1,943
--------------------------------------------------------------------------------------------
Accumulated postretirement
benefit liability $4,318 $4,613 $8,931 $4,725 $4,479 $9,204
============================================================================================
-49-
50
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial assumptions used for the plans are:
(Dollars In thousands) 1995 1994 1993
---------------------------------------------------------------------------------
Assumed discount rate .......................... 7.0% 7.5% 7.0%
Health care cost trend rate .................... 9.5% 12.4% 13.0%
Decreasing to ultimate rate .................... 5.5% 6.0% 6.0%
Effect of one percent increase in
health care cost trend rate:
On cost components ........................ $ 3 $ 25 $110
On accumulated benefit obligation ......... $324 $364 $937
---------------------------------------------------------------------------------
It is anticipated that the health care cost trend rate will decrease
from 9.1% in 1996 to 5.5% in year 2005.
SAVINGS PLAN
The Company has a defined contribution savings plan designed to comply
with the requirements of the Employee Retirement Income Security Act
of 1974 ("ERISA") and Section 401(k) of the Internal Revenue Code. The
plan covers substantially all U.S. employees with the exception of any
such employees represented by a collective bargaining agreement,
unless the agreement expressly provides otherwise. Employee
contributions are generally determined as a percentage of covered
employee's compensation. The expense for contributions to the plan by
the Company were $3,627,000, $2,825,000 and $4,213,000 for 1995, 1994
and 1993, respectively.
EXECUTIVE INCENTIVE COMPENSATION PLAN
At the Company's 1995 Annual Meeting, the Shareholders approved the
1995 Executive Incentive Compensation Plan which replaced the Annual
and Long-Term Incentive Plans and the 1986 Stock Option Plan. The new
Plan became effective January 1, 1995. Under the Plan, the Management
Development and Compensation Committee awards 60% of the value of any
earned performance to be paid to participants in the form of cash and
40% in the form of restricted shares of the Company's common stock.
Awards are made in February of the succeeding year. The Company
accrues amounts based on performance reflecting the value of cash and
common stock which is anticipated to be earned for the current year.
Compensation expense relating to these awards was $5.2 million in
1995. Compensation expense under the old plan was $3.7 million and
$4.5 million for 1994 and 1993, respectively. A total of 2,000,000
shares of the Company's common stock are reserved and available for
issuance to participants for annual incentive and stock option awards.
As of December 31, 1995, no restricted shares had been granted under
this Plan.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112) for both U.S. and non-U.S. plans,
the effect of which was immaterial. This statement requires companies
to accrue postemployment benefits if the obligation is attributable to
employees' services already rendered, employees' rights to those
benefits accumulate or vest, payment of the benefits is probable and
the amount of the benefits can be reasonably estimated.
-50-
51
10. COMMITMENTS AND CONTINGENCIES
FEDERAL EXCISE TAX AND OTHER MATTERS RELATED TO THE FIVE-TON TRUCK
CONTRACT
In the third quarter of 1995, the Company, the United States 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 arising under a completed 1986 contract for the
sale of five-ton trucks to the Army. On September 27, 1995, the Army
paid Harsco $49 million in accordance with the settlement terms.
Harsco released the Army from any further liability for those claims,
and the Department of Justice released Harsco 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. During the performance of the five-ton truck
contract, the Company recorded an account receivable of $62.5 million
for its claims against the Army relating to Federal Excise Tax. As a
result of accepting the $49 million in settlement, Harsco recorded a
non-recurring, pre-tax, non-cash charge of $13.5 million (after-tax
charge of $8.2 million, $.32 per share), in the third quarter. The
$13.5 million pre-tax charge is included in the Consolidated
Statements of Income under Facilities discontinuance and
reorganization costs.
The settlement preserves the rights of the parties to assert claims
and defenses under the Internal Revenue Code, and rights of the Army
and Harsco 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 potential for a claim from the
Internal Revenue Service that, contrary to the Company's position,
certain cargo truck models have gross vehicle weights in excess of the
33,000 pound threshold under the Federal Excise Tax law, and therefore
are taxable. As previously reported, the Internal Revenue Service is
reviewing Harsco's position and has tentatively concluded that those
cargo truck models appear to be taxable. If the Internal Revenue
Service asserts that tax is due on these vehicles, the total claim
could be $42 million plus interest and penalty, if any. The Company
plans to vigorously contest any such tax deficiency. Although there is
risk of an adverse outcome, the Company believes that these trucks are
not taxable. The settlement agreement 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.
-51-
52
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 Harsco's right to reimbursement from the Army for
after-imposed taxes on the cargo trucks. In Harsco's view, application
of the 1993 decision will favorably resolve the principal issues
regarding any such future claim by Harsco. Therefore, the Company
believes that even if the cargo trucks are 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 Harsco of approximately $18 million plus interest and
penalty, if any. 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.
In August 1994, the Company and the Government signed a modification
to the five-ton truck contract resolving all outstanding contractual
matters concerning that agreement with certain limited exceptions
including FET related matters. The contract modification included
resolution of the Company's claims described in earlier Company
filings for contract changes, inadequate technical data package, and
delays and disruptions. The modification provided for an increase of
$12.5 million in the contract price. This price increase yielded net
revenue to the Company of approximately $12 million after related
excise tax and other associated costs. The Company recognized such
amount as Other revenues in the Consolidated Statements of Income in
the third quarter of 1994.
M9 ARMORED COMBAT EARTHMOVER CLAIM
The Company and its legal counsel are of the opinion that the U.S.
Government did not exercise option three under the M9 Armored Combat
Earthmover (ACE) contract in a timely manner, with the result that the
unit prices for options three, four and five are subject to
renegotiation. Claims reflecting the Company's position have been
filed with respect to all options purported to be exercised, totaling
in excess of $60 million plus interest. No recognition has been given
in the accompanying financial statements for any recovery on these
claims. In July 1995, the Armed Services Board of Contract Appeals
denied the motions for summary judgment which had been filed by both
the Company and the Government. The Company intends to continue to
pursue its claim before the Armed Services Board of Contract Appeals.
In addition, in 1994 the Company negotiated a settlement with the U.S.
Government of a smaller outstanding claim concerning this contract
which provided for payment of $3.8 million by the U.S. Government to
Harsco. The Company recognized such amount as Other revenues in the
Consolidated Statements of Income in the first quarter of 1994.
-52-
53
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
GOVERNMENT-FURNISHED EQUIPMENT OVERCHARGE CLAIM
The Company filed a claim in the Armed Service Board of Contract
Appeals asserting that the United States Government has overcharged
Harsco in the sale of government-furnished equipment on various
contracts, all of which have been completed. In December 1994, the
Government and the Company agreed to a settlement of the Company's
claim on those contracts and several other disputed contracts not
included in the litigation. Under the terms of the settlement, the
Government agreed to pay the Company approximately $20,400,000. This
amount was included in Other revenues in the Consolidated Statements
of Income. Each party released the other from all liability relating
to the completed contracts, including the Government's previous claim
from the Company of approximately $2,200,000. Payment was received in
the first quarter of 1995.
OTHER LITIGATION
On March 13, 1992, the U.S. Government filed a counterclaim against
the Company in a civil suit alleging violations of the False Claims
Act and breach of a contract to supply M109A2 Self-Propelled
Howitzers. The counterclaim was filed in the United States Claims
Court in response to the Company's claim of approximately $5 million
against the Government for costs incurred on this contract relating to
the same issue. In October 1995, Government counsel informed the
Company's counsel that at trial it would claim breach of contract
damages of $4.8 million plus damages and civil penalties under the
False Claims Act totaling $6.8 million. This is a reduction from the
previously asserted Government claim of $7.3 million in damages,
trebled plus False Claims Act penalties. The Company and its counsel
believe it is unlikely that resolution of these claims 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.
Iran's Ministry of Defense initiated arbitration procedures against
the Company in 1991 under the rules of the International Chamber of
Commerce for damages allegedly resulting from breach of various
contracts executed by the Company and the Ministry of Defense between
1970 and 1978. The contracts were terminated in 1978 and 1979 during
the period of civil unrest in Iran that preceded the Iranian
revolution. Iran asserted a claim under one contract for repayment of
a $7.5 million advance payment it made to the Company, plus interest
at 12% through June 27, 1991 in the amount of $25.3 million. Iran also
asserted a claim for damages under other contracts for $76.3 million.
The Company has asserted various defenses and also has filed
counterclaims against Iran for damages in excess of $7.5 million which
it sustained as a result of Iran's breach of contract, plus interest.
The arbitration hearing was held in January 1996. At the hearing, Iran
reduced the $76.3 million portion of its claim to approximately $34.4
million. The arbitration panel took the case under advisement and
management expects that it will issue a decision in 1996. The
Company's management and its counsel believe it is unlikely that
resolution of these claims will have a material adverse effect on the
Company's financial position or results of operations.
-53-
54
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In 1992, the United States Government through its Defense Contract
Audit Agency commenced an audit of certain contracts for sale of
tracked vehicles by the Company to foreign governments, which were
financed by the United States Government through the Defense Security
Assistance Agency. The Company cooperated with the audit and responded
to a number of issues raised by the audit. In September 1994, the
Company received a subpoena issued by the Department of Defense
Inspector General seeking various documents relating to sale contracts
between the Company and foreign governments which were funded by the
Defense Security Assistance Agency. The Company is continuing to
cooperate and is responding to the subpoena. Based on discussions with
the agent in charge and the Government auditors, it appears that the
investigation focuses on whether the Company improperly certified
requests for and received progress payments in advance of the schedule
permitted by the Defense Security Assistance Agency regulations and
Company certifications. The Company's management and its counsel
believe it is unlikely that this issue will have a material adverse
effect on the Company's financial position or results of operations.
In June 1994, the shareholder of the Ferrari Group, a Belgium holding
company involved in steel mill services and other activities, filed a
legal action in Belgium against Heckett MultiServ, S.A. and S.E.A.E.,
subsidiaries of MultiServ International N.V. (a subsidiary of the
Company). The action alleges that these two subsidiaries breached
contracts arising from letters of intent signed in 1992 and 1993
concerning the possible acquisition of the Ferrari Group, claiming
that the subsidiaries were obligated to proceed with the acquisition
and failed to do so. The action seeks damages of 504 million Belgian
francs (approximately U.S. $17 million). The Company intends to
vigorously defend against the action and believes that based on
conditions contained in the letters of intent and other defenses it
will prevail. The Company and its counsel believe that is unlikely
that these claims will have a material adverse effect on the Company's
financial position or results of operations.
On August 29, 1994, the Company filed a legal action in the United
States District Court for the Southern District of New York against
certain former shareholders of MultiServ International, N.V. seeking
recovery of damages arising from misrepresentations which the Company
claims were made to it in connection with its purchase of the
MultiServ International, N.V. stock on August 31, 1993. The Complaint
seeks damages in an amount to be determined. On April 4, 1995, the
court dismissed various elements of the Company's claims and allowed
the Company to amend its complaint with respect to other elements. At
the Company's request, the Court dismissed the remaining claims which
then allowed the Company to file an appeal in the United States Court
of Appeals for the Second Circuit. The Company has settled its claims
with certain defendants, but continues to pursue its appeal with
respect to claims against the other defendants.
-54-
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10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 Sheets at
December 31, 1995 and 1994, include an accrual of $5.3 million and
$6.2 million respectively for environmental matters. The amounts
charged to earnings on a pre-tax basis related to environmental
matters totaled $1.2 million, $1.2 million and $3.2 million for 1995,
1994 and 1993, respectively.
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. Subject to the imprecision in
estimating future environmental costs, 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.
OTHER
The Company is subject to various other claims, legal proceedings and
investigations covering a wide range of matters that arose in the
ordinary course of business. In the opinion of management, all such
matters are adequately covered by insurance or by accruals, and if not
so covered, are without merit or are of such kind, or involve such
amounts, as would not have a material adverse effect on the financial
position or results of operations of the Company.
-55-
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11. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). The adoption of SFAS 109 changed the Company's method of
accounting for income taxes from the deferred method under Accounting
Principles Board Opinion No. 11 to an asset and liability approach.
Deferred income taxes are recognized for all temporary differences
between the tax and financial reporting bases of the Company's assets
and liabilities based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to
affect taxable income. The cumulative effect of this change in
accounting principle increased net income in the first quarter of 1993
by $6,802,000, or $.27 per share.
Income before taxes, minority interest, and cumulative effect of
accounting changes in the Consolidated Statements of Income consist
of:
(In thousands) 1995 1994 1993
-------------------------------------------------------------
Income before income taxes:
United States ............... $105,296 $129,225 $126,521
International ............... 58,432 19,615 10,732
-------------------------------------------------------------
$163,728 $148,840 $137,253
=============================================================
Provision for income taxes:
Currently payable:
Federal ................... $ 46,837 $ 37,193 $ 38,053
State ..................... 9,303 6,697 7,395
International ............. 25,368 12,271 8,882
-------------------------------------------------------------
81,508 56,161 54,330
Deferred federal and state .. (18,941) 3,503 4,195
Deferred international ...... 1,287 (128) (2,190)
-------------------------------------------------------------
$ 63,854 $ 59,536 $ 56,335
=============================================================
Cash payments for income taxes were $75,478,000, $49,151,000 and
$55,431,000, for 1995, 1994 and 1993, respectively.
-56-
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11. 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 before provision for income taxes, minority interest, and
cumulative effect of accounting changes as reported in the
Consolidated Statements of Income:
1995 1994 1993
------------------------------------------------------------------
U.S. federal income tax rate ................ 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit ....................... 2.8 3.2 3.9
Export sales corporation benefit ............ (.5) (1.1) (1.0)
International losses for which no tax benefit
was recorded ............................. 1.9 2.4 2.1
Difference in effective tax rates on
international earnings and remittances ... (1.3) (1.4) (.5)
Nondeductible acquisition costs ............. 1.7 2.0 1.0
Other, net .................................. (.6) (.1) .5
------------------------------------------------------------------
Effective income tax rate ................... 39.0% 40.0% 41.0%
==================================================================
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, 1995 and 1994 are:
(In thousands) 1995 1994
--------------------------------------------------------------------------
Deferred income taxes ASSET LIABILITY Asset Liability
--------------------------------------------------------------------------
Depreciation $ - $37,625 $ - $38,301
Expense accruals 30,890 - 35,027 -
Inventories 3,175 - 5,710 -
Provision for receivables 1,960 - - 30,863
Postretirement benefits 3,444 - 3,564 -
Deferred revenue - 4,206 - 1,330
Unrelieved foreign tax losses 14,800 - 20,767 -
Pensions - 7,735 - 7,461
Investment in United Defense, L.P. - 325 3,783 -
Other - 5,174 - 2,152
---------------------------------------------------------------------------
Subtotal 54,269 55,065 68,851 80,107
Valuation allowance (9,403) - (16,986) -
---------------------------------------------------------------------------
Total deferred income taxes $44,866 $55,065 $51,865 $80,107
===========================================================================
At December 31, 1995 and 1994, Other current assets included deferred
income tax benefits of $18.4 million and $2.1 million, respectively.
-57-
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11. INCOME TAXES (CONTINUED)
At December 31, 1995, certain of the Company's non-U.S. subsidiaries
had total available net operating loss carryforwards (NOLs) of
approximately $39,000,000 of which approximately $15,700,000 will
expire by 1999, $500,000 will expire by 2000 and the balance may be
carried forward indefinitely. Included in the total are $19,378,000 of
preacquisition NOLs relating to the MultiServ acquisition.
During 1995 and 1994, $8,522,000 and $13,500,000, respectively, of the
MultiServ preacquisition NOLs were utilized by the Company resulting
in tax benefits of $2,892,000 and $3,774,000, respectively, which were
allocated to reduce goodwill related to the acquisition.
The valuation allowance of $9,403,000 and $16,986,000 relates
principally to cumulative unrelieved foreign tax losses which are
uncertain as to realizability at December 31, 1995 and 1994,
respectively. To the extent that the preacquisition NOLs, are utilized
in the future and the associated valuation allowance reduced, the tax
benefit thereof will be allocated to reduce goodwill related to the
acquisition.
The decrease in the valuation allowance for 1995 and 1994 results
primarily from the utilization of foreign tax loss carryforwards and
the release of valuation allowances in certain international
jurisdictions based on the Company's reevaluation of the realizability
of future benefits resulting from tax planning strategies. The release
of valuation allowances in those international jurisdictions was
allocated to reduce goodwill related to the acquisition by $4,707,000
and $3,367,000 in 1995 and 1994, respectively.
The change in the valuation allowances relates to a decrease from the
utilization of preacquisition and postacquisition NOLs, net of
increases applicable to the creation of NOLs.
-58-
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12. CAPITAL STOCK
The authorized capital stock consists of 70,000,000 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. No preferred stock has been
issued other than the preferred stock rights for a Series A Junior
Participating Cumulative Preferred Stock distributed by the Company in
September 1987 for each outstanding share of common stock. The rights
may be exercised, under certain conditions, to purchase 1/100th share
of a new Series A Junior Participating Cumulative Preferred Stock at a
purchase price of $200. This new preferred stock has a par value of
$1.25 per share and a liquidation price of $150 per share with 400,000
shares authorized and none issued. The rights are not exercisable or
transferable apart from the common stock, until ten days after a
public announcement that a person or group has acquired 20% or more,
or intends to commence a tender offer for 25% or more of the Company's
common stock. The rights, which expire on September 28, 1997, 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 20% or more
of the Company's outstanding shares.
In January 1992, the Board of Directors authorized the purchase, over
a two-year period, of up to 4,000,000 shares of its common stock in
unsolicited open market or privately negotiated transactions at
prevailing market prices. Through December 31, 1993, 2,064,555 shares
of common stock had been purchased under this plan at an aggregate
cost of $73,862,000. In 1994, there were no stock purchases under a
one year authorization of the Board of Directors. In January 1995, the
Board of Directors authorized the purchase, over a one year period, of
up to 500,000 shares of its common stock. Through December 31, 1995,
292,014 shares of common stock had been purchased under this plan at
an aggregate cost of $16,568,000. In January 1996, the Board of
Directors authorized the purchase, over a one year period, of up to
1,000,000 shares of its common stock.
Common Stock Summary
--------------------------------------------------------------------
Shares Treasury Shares
Balances Issued Shares Outstanding
--------------------------------------------------------------------
December 31, 1992 .. 31,925,423 6,545,864 25,379,559
December 31, 1993 .. 32,114,499 7,146,698 24,967,801
December 31, 1994 .. 32,343,553 7,161,303 25,182,250
DECEMBER 31, 1995 .. 32,537,880 7,486,331 25,051,549
-------------------------------------------------------------------
-59-
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13. STOCK OPTIONS
The Company has granted stock options to officers and directors for
the purchase of its common stock under two shareholder approved plans,
one of which expired in 1985. In April 1993, shareholders approved an
increase in the number of shares that may be issued under the plan
from 1,500,000 to 2,500,000. At December 31, 1995 and 1994, 853,138
and 1,016,284 shares, respectively, were available for granting of
incentive stock options, nonqualified stock options or stock
appreciation rights. Options are granted at fair market value at date
of grant and become exercisable commencing one year later.
In addition, at the 1995 Annual Meeting, the shareholders approved the
1995 Executive Incentive Compensation Plan and the 1995 Non-Employee
Director's Stock Plan. The 1995 Executive Incentive Compensation Plan
authorizes the issuance of up to 2,000,000 shares of the Company's
common stock for use in paying annual incentive compensation awards in
the form of restricted stock and stock options. The 1995 Non-Employee
Director's Stock Plan authorizes the issuance of up to 150,000 shares
of the Company's common stock for stock option awards. The award of
shares and options under the 1995 Executive Incentive Compensation
Plan commenced in 1996; while the awards of options under the
Non-Employee Director's Stock Plan commenced in May 1995. Upon
approval of these two plans in 1995, the Company terminated the use of
the 1986 plan for granting of stock option awards.
At December 31, 1995, options to purchase 642,459 shares were
exercisable. Changes during 1995 and 1994 in options outstanding were:
Shares Under Option Price
Option Range per Share
---------------------------------------------------------------------
Outstanding, January 1, 1994 714,418 $15.75 to $41.56
Granted 232,480 42.00 to 43.25
Exercised (229,054) 15.75 to 41.56
Terminated and expired (44,204) 41.56 to 43.25
---------------------------------------------------------------------
Outstanding, December 31, 1994 673,640 23.44 to 43.25
Granted 181,000 43.375 to 47.625
Exercised (194,327) 23.44 to 43.25
Terminated and expired (17,854) 27.56 to 43.375
---------------------------------------------------------------------
OUTSTANDING, DECEMBER 31, 1995 642,459 $23.44 TO $47.625
=====================================================================
During 1995 and 1994, the Company had non-cash transactions related to
stock option exercises of $1,674,000 and $677,000, respectively,
whereby old shares are exchanged for new shares.
-60-
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14. FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
As collateral for performance and advances on long-term contracts and
to ceding insurers, the Company is contingently liable under standby
letters of credit and bonds in the amount of $49.2 million and $64.7
million at December 31, 1995 and 1994, respectively. These standby
letters of credit and bonds are generally in force from one to three
years for which the Company pays fees to various banks and insurance
companies that generally range from .20 to 1 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, 1995 for those
currently outstanding, it is the Company's opinion that the
replacement costs for such standby letters of credit and bonds would
not significantly vary from the present fee structure.
At December 31, 1995 and 1994, the Company had $7.8 million and $40.6
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 generally mature within 12 months
and are principally with major financial institutions. The Company is
exposed to credit loss in the event of non-performance by the other
parties to the contracts. The Company evaluates the creditworthiness
of the counterparties' financial condition and does not expect default
by the counterparties.
FOREIGN EXCHANGE RISK MANAGEMENT
Harsco is an international company with operations in 29 countries.
The Company has translation and transaction foreign currency exposures
at these operations. Harsco's primary foreign currency exposures are
in France, Belgium, United Kingdom, Brazil and Mexico.
Forward foreign currency exchange contracts are generally used to
hedge commitments, such as foreign currency debt, the purchase of
equipment, and foreign currency cash flows for certain export sales
transactions. The Company has entered into forward exchange contracts
that have been used to exchange the proceeds from U.S. commercial
paper borrowings into foreign currencies, and simultaneously enters
into a forward exchange contract to exchange such foreign currencies
back into U.S. dollars at the maturity date of the U.S. commercial
paper borrowings. These forward exchange contracts allow the Company
to finance certain international operations at effective interest
rates that are generally lower than in that country. These forward
exchange contracts do not qualify as hedges for financial reporting
purposes; therefore, any related gain or loss is recognized in income
on a current basis. At December 31, 1994, $37.8 million of forward
exchange contracts, related to the commercial paper borrowings, were
outstanding. There were no contracts of this type outstanding at
December 31, 1995.
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14. FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes by currency the contractual amounts of
the Company's forward exchange contracts in U.S. dollars as of
December 31, 1995. The "sell" amounts represent the U.S. dollar
equivalent of commitments to sell foreign currencies, and the "buy"
amounts represent the U.S. dollar equivalent of commitments to
purchase foreign currencies.
$ U.S. RECOGNIZED UNREALIZED
(IN THOUSANDS) TYPE EQUIVALENT MATURITY GAIN (LOSS) GAIN (LOSS)
----------------------------------------------------------------------------
FORWARD
EXCHANGE
CONTRACTS:
AUSTRALIAN
DOLLARS SELL $3,916 VARIOUS IN
1996 - $ 12
GERMAN MARKS BUY 2,606 VARIOUS TO
1998 - 468
ITALIAN LIRE BUY 1,253 VARIOUS IN
1996 - 147
BRITISH POUNDS BUY 71 1-15-96 - (2)
-------------------------------------------------------------------------
$7,846 - $625
=========================================================================
At December 31, 1995, the Company had forward exchange contracts in
Italian lire and German marks which were used to hedge product cost
transactions and contracts in British pounds and Australian dollars to
hedge certain sales and payments between the Company and its
Australian subsidiaries, respectively. Since these contracts hedge
identified foreign currency firm commitments, the net gain of $625,000
was deferred. The counterparties of these agreements are major
financial institutions; therefore, management believes the risk of
incurring losses related to these contracts is remote.
The table below summarizes by major currency the contractual amounts
of the Company's forward exchange contracts in U.S. dollars as of
December 31, 1994.
$ U.S. RECOGNIZED UNREALIZED
(IN THOUSANDS) TYPE EQUIVALENT MATURITY GAIN (LOSS) GAIN (LOSS)
---------------------------------------------------------------------------
FORWARD
EXCHANGE
CONTRACTS:
Belgian francs Sell $19,120 1-12-95 $ 290) -
French francs Sell 11,740 1-12-95 (187) -
French francs Buy 6,980 1-12-95 132 -
German marks Buy 2,606 Various to
1998 - $244
Finnish markka Buy 158 9-1-95 - 4
-------------------------------------------------------------------------
$40,604 $(345) $248
=========================================================================
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14. FINANCIAL INSTRUMENTS (CONTINUED)
At December 31, 1994, the Company had forward exchange contracts for
Belgian and French francs to exchange those currencies to U.S. dollars
at the time of maturity of the commercial paper debt. Also, the
Company had a forward exchange contract for U.S. dollars to settle the
French francs forward exchange contract. These forward contracts do
not qualify as hedges for financial reporting purposes. At December
31, 1994, the Company had recorded gains of $132,000 and losses of
$477,000 on these contracts. The Company also had forward exchange
contracts in Finnish markka and German marks which were used to hedge
a product cost transaction. Since these contracts hedge an identified
foreign currency firm commitment the gain of $248,000 was deferred.
The counterparties of these agreements are major financial
institutions; therefore, management believes the risk of incurring
losses related to these contracts is remote.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, investments and accounts receivable. The Company places
its cash and cash equivalents and investments ($46 million at December
31, 1995 and $49.2 million at December 31, 1994) 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 large number of
customers in the Company's customer base and their dispersion across
many different industries and geographies. The Company generally does
not require collateral or other security to support customer
receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following notes summarize the major methods and assumptions used
in estimating the fair values of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the relatively
short period to maturity of these instruments.
INVESTMENTS
The fair values of investments are estimated based on quoted
market prices for those or similar investments.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based
on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same
remaining maturities.
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14. FINANCIAL INSTRUMENTS (CONTINUED)
FOREIGN CURRENCY EXCHANGE CONTRACTS The fair value of foreign currency
exchange contracts are estimated by obtaining quotes from brokers.
The carrying amounts and estimated fair values of the Company's
financial instruments as of December 31, 1995 and 1994 are:
(In thousands) 1995 1994
-----------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-----------------------------------------------------------------------------
Cash and cash equivalents ......... $76,669 $76,669 $43,550 $43,550
Investments-Marketable debt securities 46,003 46,286 49,240 47,469
Long-term debt .................... 282,969 282,943 351,748 329,580
Foreign currency exchange contracts 7,846 7,349 40,604 41,558
-----------------------------------------------------------------------------
-64-
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15. FACILITIES DISCONTINUANCE AND REORGANIZATION COSTS
In 1995, the Company recorded a net charge of $22.8 million on the
Consolidated Statements of Income. This was primarily due to a third
quarter non-cash charge of $13.5 million relating to the settlement of
the Federal Excise Tax reimbursement on the completed five-ton truck
contract. This charge resulted from off-setting the $49 million
payment received against the $62.5 million receivable recorded during
the performance of the contract. The Company recognized for the school
bus business a $2.1 million provision for asset impairment relating to
the remaining fixed assets and $3 million in termination and other
exit costs. The Company ceased all bus operations in June 1995.
Additionally, the Company recorded net charges of $2.8 million in 1995
related to the discontinuance of certain international facilities for
the Metal Reclamation and Mill Services Group. These charges were for
the discontinuance of certain product lines.
In 1994, the Company recorded a net charge of $17.1 million on the
Consolidated Statements of Income primarily for the asset impairment
of the school bus business assets, costs associated with the military
truck contract close-out and the discontinuance and rationalization of
administrative facilities at several international metal reclamation
and mill services locations. In November 1994, the Board of Directors
authorized the Company to exit from the school bus business. In the
fourth quarter of 1994, the Company recognized an asset impairment
charge of $8 million for the write-down of the bus business assets to
their estimated net realizable value. During the second and third
quarters of 1994, the Company recognized a total charge of $5.7
million relating to the discontinuance and rationalization of
administrative facilities in the Metal Reclamation and Mill Services
Group. This charge was principally composed of termination and lease
costs. The Company also recognized a $4.7 million charge in the third
quarter for costs associated with closing-out the military truck
contract.
-65-
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16. INFORMATION BY INDUSTRY GROUP AND GEOGRAPHIC AREA
The Company is a diversified industrial services and manufacturing
company. The principal lines of business are: industrial mills
services that are provided to steel producers in 28 countries;
scaffolding services to the construction and industrial maintenance
markets primarily in North America; railway maintenance equipment and
services that are provided to U.S. railroads and other international
customers; gas control and containment products for customers
worldwide, and, several other lines of business including, but not
limited to, grating, roofing granules, pipe fittings and process
equipment. The Company's operations fall into three Operating Groups:
Metal Reclamation and Mill Services; Infrastructure and Construction;
and Process Industry Products. The Company has over 175 major
facilities in 29 countries, including the United States. Harsco also
holds a 40% ownership in United Defense, L.P., a $1.0 billion joint
venture with FMC Corporation, which principally manufactures ground
combat vehicles for the U.S. and international governments.
In 1995, the Infrastructure, Construction and Transportation Group was
renamed the Infrastructure and Construction Group due to the Company's
announced exit from the school bus business. The Company ceased all
bus operations in June 1995. Truck operations were ended in June 1994.
In 1994, the Company formed new Operating Groups. The new Groups were
formed because: (1) the Company is no longer directly involved in the
Defense business as a result of the formation of United Defense, L.P.,
effective January 1, 1994, in which the Company contributed its
military tracked vehicle business and has an equity interest of 40%,
and the completion of the five-ton contract with the U.S. Government
and related conversion to a school bus business in 1993; and (2) due
to the acquisition of MultiServ International, N.V. which
substantially increased the Company's presence in metal reclamation
and mill services. This significant strategic refocusing of the
Company necessitated the new Group structure. Except for Defense,
because it is no longer a Group, the Company restated all the
operating groups for the periods presented.
The operations of the Company in any one country, except the United
States, do not account for more than 10% of sales. In 1995, no single
customer or group under common control represented 10% or more of the
Company's sales.
Identifiable assets are those assets used in each Operating Group.
Corporate assets primarily include cash, investments, prepaid pension
costs and U.S. deferred taxes. There are no significant intergroup
sales.
Financial information by Industry Group and Geographic Area for the
years 1995, 1994 and 1993 is presented below:
-66-
67
16. INFORMATION BY INDUSTRY GROUP AND GEOGRAPHIC AREA (CONTINUED)
INDUSTRY GROUP NET SALES TO UNAFFILIATED CUSTOMERS OPERATING PROFIT
---------------------------------------------------------------------------------------------------------
(In millions) 1995 1994 1993 1995 1994 1993
---------------------------------------------------------------------------------------------------------
Metal Reclamation and Mill Services(a) $ 604.2 $ 523.4 $ 268.1 $ 80.0 $43.5 $28.8
Infrastructure and Construction 399.7 391.5 306.3 36.3 11.3 17.9
Process Industry Products 491.6 442.8 385.8 46.0 42.0 33.2
---------------------------------------------------------------------------------------------------------
1,495.5 1,357.7 960.2 162.3 96.8 79.9
Defense(b) - - 462.1 - - 67.0
Facilities discontinuance and
reorganization costs(c) (20.7) (17.4) (1.5)
---------------------------------------------------------------------------------------------------------
Industry group totals $1,495.5 $1,357.7 $1,422.3 141.6 79.4 145.4
---------------------------------------------------------------------------------------------------------
Equity in income of unconsolidated entities(d) 57.0 64.1 2.4
Gain on sale of investments - 6.0 17.6
Claim settlements - 36.2 -
Interest expense (28.9) (34.0) (20.0)
General corporate expenses (6.0) (2.9) (8.1)
----------------------------------------------------------------------------------------------------------
Income before taxes, minority interest
and cumulative effect of accounting change $163.7 $148.8 $137.3
==========================================================================================================
IDENTIFIABLE ASSETS DEPRECIATION AND AMORTIZATION CAPITAL EXPENDITURES
-----------------------------------------------------------------------------------------------------------------
(In millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------
Metal Reclamation
and Mill Services $ 687.8 $ 658.9 $ 638.2 $ 73.7 $70.5 $34.6 $ 73.0 $ 61.6 $51.7
Infrastructure and
Construction 228.7 278.7 190.9 20.4 19.2 18.2 27.2 18.1 10.8
Process Industry
Products 211.9 186.4 170.7 9.5 8.7 8.6 13.4 10.9 10.8
-----------------------------------------------------------------------------------------------------------------
1,128.4 1,124.0 999.8 103.6 98.4 61.4 113.6 90.6 73.3
Defense - - 265.0 - - 11.3 - - 9.2
-----------------------------------------------------------------------------------------------------------------
1,128.4 1,124.0 1,264.8 103.6 98.4 72.7 113.6 90.6 82.5
Corporate 136.7 158.3 156.9 1.3 1.2 2.1 .3 .3 .9
Investments in
unconsolidated
entities 45.6 32.3 5.9
-----------------------------------------------------------------------------------------------------------------
Total $1,310.7 $1,314.6 $1,427.6 $104.9 $99.6 $74.8 $113.9 $ 90.9 $83.4
=================================================================================================================
GEOGRAPHIC AREA NET SALES OPERATING PROFIT IDENTIFIABLE ASSETS
-------------------------------------------------------------------------------------------------------
(In millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993
-------------------------------------------------------------------------------------------------------
United States $ 916.9 $863.3 $1,181.0 $ 81.7 $57.1 $133.1 $ 462.8 $ 543.9 $ 655.8
Europe 365.8 308.9 140.9 27.3 4.9 7.7 438.9 392.9 376.6
All Other 212.8 185.5 100.4 32.6 17.4 4.6 226.7 187.2 232.4
-------------------------------------------------------------------------------------------------------
Total $1,495.5 $1,357.7 $1,422.3 $141.6 $79.4 $145.4 $1,128.4 $1,124.0 $1,264.8
=======================================================================================================
-67-
68
16. INFORMATION BY INDUSTRY GROUP AND GEOGRAPHIC AREA (CONTINUED)
FOREIGN MILITARY
EXPORT SALES SALES THROUGH U.S. GOVERNMENT AGENCIES
----------------------------------------------------------------------------------------------------
(In millions) 1995 1994 1993 1995 1994 1993
----------------------------------------------------------------------------------------------------
Asia $21.6 $22.3 $242.3 $ - $0.1 $ 88.7
Africa .5 2.0 56.3 - - 49.0
North America
(Excluding USA) 49.9 60.1 32.4 - - 0.2
All Others 18.7 10.7 12.5 - - -
----------------------------------------------------------------------------------------------------
Total $90.7 $95.1 $343.5 $ - $0.1 $137.9
====================================================================================================
Sales to U.S. Government
agencies, principally by the
Defense Group in 1993 $ 0.5 $ 1.1 $303.3
====================================================================================================
(a) Group operating profits for 1995 includes a $3.4 million foreign
currency translation loss incurred in the first quarter, and 1994
includes a $6 million foreign currency translation loss due to the maxi
devaluation of Mexican peso incurred in December.
(b) Effective January 1, 1994, Defense is no longer designated as a
separate Group. This is due to the formation of the joint venture,
United Defense, L.P., in which Harsco has a 40% ownership, and the
suspension of the five-ton truck production at midyear in 1993. Truck
activity in 1994 is reflected under the Infrastructure and Construction
Group.
(c) The year ended December 31, 1995, under the Infrastructure and
Construction Group, includes $13.5 million relating to the settlement
of the Federal Excise Tax reimbursement on the completed five-ton truck
contract, and for the school bus business a $2.1 million asset
impairment provision for the remaining fixed assets and $3 million in
termination and other exit costs. The year also includes $2.8 million
relating to the discontinuance of certain international facilities
related to the Metal Reclamation and Mill Services Group. The year
ended December 31, 1994, includes $5.7 million for discontinuance and
rationalization of administrative facilities and termination costs
related to Metal Reclamation and Mill Services Group, and, under the
Infrastructure and Construction Group, a provision of $4.7 million
relating to the net realizable value of the investment in the five-ton
truck business and future anticipated costs associated with contract
close-out and related issues and a provision for asset impairment of
the school bus business of $8 million.
(d) Includes equity in income of United Defense, L.P. of $54.1 million and
$61.9 million for the years ended December 31, 1995 and 1994,
respectively.
-68-
69
Supplementary Data:
TWO-YEAR SUMMARY OF QUARTERLY RESULTS (unaudited)
(In millions, except per share)
1995
- -------------------------------------------------------------------------
QUARTERLY FIRST SECOND THIRD FOURTH
- -------------------------------------------------------------------------
NET SALES $356.9 $377.3 $374.1 $387.2
GROSS PROFIT ++ 77.5 83.6 71.9 87.3
INCOME BEFORE INTEREST, TAXES
AND MINORITY INTEREST 49.5 46.1 36.6 53.0
NET INCOME 25.5 24.5 18.4 29.0
NET INCOME PER COMMON SHARE 1.01 .97 .73 1.15
- -------------------------------------------------------------------------
1994
- -------------------------------------------------------------------------
Quarterly First Second Third Fourth
- -------------------------------------------------------------------------
Net Sales $318.7 $338.1 $348.1 $352.8
Gross Profit ++ 64.7 67.9 68.4 73.4
Income before interest, taxes
and minority interest 41.0 39.6 47.5 48.4
Net Income 18.6 17.5 22.3 28.2
Net Income per Common Share .74 .70 .89 1.12
=========================================================================
Notes:
++ Gross Profit is defined as Net Sales less Cost of Sales, Provision for
Facilities Discontinuance and Reorganization Costs and Research and
Development Expenses.
- The first quarter of 1994 includes the after-tax gain of $3.5 million
($.14 per share) on the sale of the remaining shares of a marketable
equity security. The first quarter also includes a claim settlement of
$2.1 million after-tax ($.08 per share).
- The second quarter of 1994 includes an after-tax charge of $2.5 million
($.10 per share) for termination costs and other matters.
- The third quarter of 1995 includes $8.2 million after-tax charge ($.32
per share) for the settlement of the Federal Excise Tax reimbursement on
the completed five-ton truck contract and a $1.3 million after-tax charge
($.05 per share) for asset impairment relating to the remaining fixed
assets of the school bus business. The third quarter of 1994 includes
after-tax charges of $2.7 million ($.11 per share) and $2.0 million ($.08
per share) relating to the estimated net realizable value of the
investment in the five-ton truck business and costs associated with
contract close-out and related issues, and for the discontinuance and
rationalization of administrative facilities and termination costs
related to Metal Reclamation and Mill Services Group, respectively. The
third quarter also includes a claim settlement of $6.8 million after-tax
($.27 per share).
-69-
70
- The fourth quarters of 1995 and 1994 reflect after tax LIFO income of
$1.0 million and $0.6 million, respectively, representing final
determination of price changes and liquidations of inventories which
occurred during the year.
- The fourth quarter of 1994 includes after-tax charges of $4.8 million
($.19 per share) for the impairment of certain assets in conjunction with
exiting the school bus business and a $3.6 million ($.14 per share) maxi
devaluation of the Mexican peso. The fourth quarter also includes a claim
settlement of $12.2 million after-tax ($.49 per share).
- The fourth quarter of 1994 reflects a reduction in income taxes of
$4.0 million resulting from final determination of income taxes to be
provided for the year.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
None.
-70-
71
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 1996 Proxy Statement.
(b) Identification of Executive Officers:
Set forth below, as of March 15, 1996, are the executive officers (this excludes
certain corporate officers who are not deemed "executive officers" within the
meaning of applicable Securities and Exchange Commission regulations) of the
Company and certain information with respect to each of them. The executive
officers were elected to their respective offices on April 25, 1995, or at
various times during the year as noted. All terms expire on April 30, 1996.
There are no family relationships between any of the officers.
Name Age Principal Occupation or Employment
- ---- --- -----------------------------------
Corporate Officers:
D. C. Hathaway 51 Chairman, President and Chief Executive
Officer effective April 1, 1995, was
President and Chief Executive Officer from
January 1, 1994 to April 1, 1994.
Director since 1991. From May 1, 1991 to
December 31, 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 October 1984.
W. D. Etzweiler 60 Senior Vice President and Chief Operating
Officer of the Corporation effective
January 25, 1994. From 1992 to January
24, 1994, served as Senior Vice President
- Operations of the Corporation. Served as
President of the Corporation's
Patterson-Kelley Division from 1982 to
1991, Vice President Sales and Marketing
of the Patterson-Kelley Division from 1979
to 1982, Vice President of Marketing for
the Patterson-Kelley Division from 1971 to
1979, and various manager positions with
the Patterson-Kelley Division from 1966 to
1971.
-71-
72
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
L. A. Campanaro 47 Senior Vice President and Chief Financial
Officer of the Corporation effective
December 1, 1992 and served as Vice
President and Controller from April 1,
1992 to November 30, 1992. Served as Vice
President of the BMY-Wheeled Vehicles
Division from February 1, 1992 to March
31, 1992, and previously served as Vice
President and Controller of the
BMY-Wheeled Vehicles Division from 1988 to
1992, Vice President Cryogenics of the
Plant City Steel Division from 1987 to
1988, Senior Vice President Taylor-Wharton
Division from 1985 to 1987, Vice President
and Controller of Taylor-Wharton from 1982
to 1985, and Director of Auditing of the
Corporation from 1980 to 1982.
P. C. Coppock 45 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 43 Vice President and Controller of the
Corporation effective January 25, 1994.
Served as Controller of the Corporation
from January 26, 1993 to January 24, 1994.
Previously served as Director of Auditing
from 1985 to January 25, 1993, and served
in various auditing positions from 1980 to
1985.
-72-
73
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 1996 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 1996 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 1996 Proxy Statement.
-73-
74
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
(a) 1. The following financial statement schedule should be read in
conjunction with the consolidated financial statements (see Item 8.
Financial Statements):
Report of Independent Accountants on Schedule II
Schedule II - Valuation and Qualifying Accounts for the years 1995,
1994 and 1993
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.
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"), which includes an explanatory paragraph
regarding a change in the Company's method of accounting for income taxes is
included on page 28 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) 1.) on page 74 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.
/s/Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
January 31, 1996
-74-
75
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
--------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions Deductions
--------- -----------------------
Due to
Balance at Charged to Currency Balance at
Beginning Cost and Translation End of
Description of Period Expenses Adjustments Other(1) Period
----------- --------- -------- ----------- ----- ------
For the year 1995:
Deducted from Receivables:
Uncollectible accounts $ 7,285 $ 2,966 $ 54 $ (2,049) $ 8,256
======= ======= ==== ======== =======
Deducted from Inventories:
Inventory valuations $16,106 $ 1,689 $ 32 $(14,231) $ 3,596
======= ======= ==== ======== =======
For the year 1994:
Deducted from Receivables:
Uncollectible accounts $13,479 $ 3,436 $(93) $ (9,537) $ 7,285
======= ======= ==== ======== =======
Deducted from Inventories:
Inventory valuations $ 9,213 $11,228 $ 54 $ (4,389) $16,106
======= ======= ==== ======== =======
For the year 1993:
Deducted from Receivables:
Uncollectible accounts $10,244 $ 2,761 $ 7 $ 467 $13,479
======= ======= ==== ======== =======
Deducted from Inventories:
Inventory valuations $ 8,708 $ 6,682 $(61) $ (6,116) $ 9,213
======= ======= ==== ======== =======
(1) Amounts charged to valuation account during the year. During 1995, the
reduction in inventory reserves is due principally to the write off of
inventory related to the school bus business. During 1994, $2,372,000 in
inventory reserves were transferred to United Defense, L.P. in connection
with the formation of the partnership.
-75-
76
(a) 2. 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 certain 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
before income taxes of such companies does not exceed 20% of the
total consolidated income before income taxes.
The financial statements of a 50% or less owned unconsolidated company are
submitted inasmuch as the registrant's equity in the income before income taxes
of such company does exceed 20% of the total consolidated income before income
taxes:
(b) 1. Financial Statements of United Defense, L.P.: Exhibit
-------
Report of Independent Auditors 13
Balance Sheets at December 31, 1995 and 1994 13
Statements of Income for the
years ended December 31, 1995 and 1994 13
Statements of Partners' Capital for the years
ended December 31, 1995 and 1994 13
Statements of Cash Flows for the years
ended December 31, 1995 and 1994 13
Notes to Financial Statements 13
-76-
77
a) 3. Listing of Exhibits Filed with Form 10-K:
Exhibit
Number Data Required Location in 10-K
- ------- ------------- -----------------
2(a) Joint Venture with FMC Incorporated by reference to
Corporation Combining Harsco's Form 8-K dated February 14, 1994
BMY-Combat Systems Division
with FMC Defense Systems Group
-Participation Agreement
Dated as of January 1, 1994
-Partnership Agreement
Dated as of January 1, 1994
-Registration Rights Agreement
Dated as of January 1, 1994
3(a) Articles of Incorporation as Exhibit volume, 1990 10-K
amended April 24, 1990
Certificate of Designation filed Exhibit volume, 1987 10-K
September 29, 1987
3(b) By-laws as amended April 25, 1990 Exhibit volume, 1990 10-K
4(a) Harsco Corporation Rights Incorporated by reference to Form
Agreement dated as of September 8-A, Exhibit 1, dated October 2, 1987
29, 1987 with Chase Manhattan
Bank, N.A.
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 under Incorporated by reference to Form S-3,
Rule 415 (8 3/4% Notes) File No. 33-21526 dated May 23, 1988
4(e) 8 3/4% 1991 Notes due May 15, Incorporated by reference to the
1996 described in Prospectus Prospectus Supplement dated
Supplement dated May 7, 1991 May 7, 1991 to Form S-3,
to Form S-3 Registration under Registration No. 33-21526 dated
Rule 415 dated May 23, 1988 May 23, 1988
-77-
78
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------- ------------- ----------------
4(f) Debt Securities Registered Incorporated by reference to Form
under Rule 415 6% Notes) S-3, Registration No. 33-42389
dated August 23, 1991
4(g) 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(h) 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 June 20, Exhibit 10(a) to 10Q for the period
1995 to the $150 million Credit ending June 30, 1995
Agreement (364-Day Competitive
Advance and Revolving Credit
Facility) dated as of August
1993, and to the $150 million
Credit Agreement (5-year Advance
and Revolving Credit Facility)
dated as of August 1993, among
Harsco Corporation, the lenders
named therein and Chemical 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
-78-
79
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------- ------------- -----------------
Material Contracts - Underwriting
10(e) Underwriting Agreement for Exhibit volume, 1987 10-K
Debt Securities dated
October 22, 1987
Material Contracts - Management Contracts and Compensatory Plans
10(f) Harsco Corporation Incentive Pla Exhibit volume, 1992 10-K
as amended March 18, 1992
10(g) Harsco Corporation Supplemental Exhibit volume, 1995 10-K
Retirement Benefit Program as
amended September 25, 1995
10(h) 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(i) Harsco Corporation Supplemental Exhibit volume, 1991 10-K
Executive Retirement Plan as
amended
10(j) 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(k) 1986 Stock Option Plan as amended Exhibit volume, 1990 10-K
10(l) 1995 Executive Incentive Compensation Proxy Statement dated March
Plan 22, 1995 on Exhibit B pages
B-1 through B-6
10(m) Authorization, Terms and Conditions of Exhibit volume, 1995 10-K
the Annual Incentive Awards, as
amended and Restated, under the
1995 Executive Incentive
Compensation Plan
-79-
80
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------- ------------- ----------------
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 " "
" W. D. Etzweiler " "
" B. W. Taussig " "
Retirement Agreements -
10(o) Special Supplemental Retirement
Benefit Agreement and
Amendment for J. J. Burdge Exhibit volume, 1988 10-K
10(p) Special Supplemental Retirement
Benefit Agreement for
D. C. Hathaway Exhibit Volume, 1988 10-K
" Retirement and Consulting Exhibit Volume, 1993 10-K
" Agreement for M. W. Gambill
" Special Supplemental Retirement Exhibit volume, 1993 10-K
" Benefit Agreement for B. W. Taussig
" Agreement with Barrett W. Taussig Exhibit 10(a) to 10-Q for period
dated August 22, 1995 ending September 30, 1995
Director Indemnity Agreements -
10(q) J. J. Burdge Exhibit volume, 1989 10-K
Uniform agreement, same as
shown for J. J. Burdge
" F. E. Masland, III " "
" R. F. Nation "
" D. C. Smith, Jr. " "
" A. J. Sordoni, III " "
" R. C. Wilburn " "
" R. L. Kirk " "
" N. H. Prater " "
" D. C. Hathaway " "
" J. I. Scheiner " "
" R. C. Smith " "
" J. E. Marley " "
-80-
81
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------- ------------- ----------------
10(r) Harsco Corporation Exhibit volume, 1990 10-K
Directors Retirement Plan
10(s) Harsco Corporation Deferred Exhibit volume, 1994 10-K
Compensation Plan for
Non-Employee Directors
10(t) Harsco Corporation 1995 Non-Employee Proxy Statement dated
Directors' Stock Plan March 22, 1996 on Exhibit B
pages B-1 through B-6
10(u) Settlement Agreement dated Exhibit (b) to 10-Q for period
September 19, 1995, among the ending September 30, 1995
Company, the United States Army
and the United States Department of
Justice
11 Computation of Fully Diluted Exhibit volume, 1995 10-K
Net Income per Common Share
12 Computation of Ratios of Exhibit volume, 1995 10-K
Earnings to Fixed Charges
13 Financial Statements of Exhibit volume, 1995 10-K
United Defense, L.P.
21 Subsidiaries of the Registrant Exhibit volume, 1995 10-K
23(a) Consent of Independent Accountants Exhibit volume, 1995 10-K
23(b) Consent of Independent Auditors Exhibit volume, 1995 10-K
27 Financial Data Schedule Exhibit volume, 1995 10-K
-81-
82
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------- ------------- ----------------
99 Additional exhibits
- Undertakings of Harsco Incorporated by reference to
relating to registration Exhibit 28, Form 10-K for the
statement on Form S-16 year ended December 31, 1982
(Reg. No. 2-58121)
- Undertakings of HarscoI Incorporated by reference to
relating to registration Exhibit 28, Form 10-K for the
statement on Form S-8 year ended December 31, 1982
(Reg. No. 2-57876)
- Undertakings of Harsco Incorporated by reference to
relating to registration Form S-8, Registration No.
statement on Form S-8 33-14064, dated May 6, 1987
(Reg. No. 33-14064)
- Undertakings of Harsco Incorporated by reference to
relating to registration Form S-3, Registration No.
statement on Form S-3 2-97504 dated May 29, 1985
(Reg. No. 2-97504)
- Undertakings of Harsco Incorporated by reference to
relating to registration Form S-3, Registration No.
statement on Form S-3 33-21526 dated May 23, 1988
(Reg. No. 33-21526)
- Undertakings of Harsco Incorporated by reference to
relating to registration Form S-3, Registration No.
statement on Form S-3 33-42389, dated August 23, 1991
(Reg. No. 33-42389)
- Undertakings of Harsco Exhibit volume, 1990 10-K
with respect to indemnification
of directors, officers or
persons controlling Harsco
incorporated by reference
into registration statements
on Form S-8, Registration
File Numbers 2-57876,
33-5300, 33-14064 and 33-24854
-82-
83
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------- ------------- ----------------
-Undertakings of Harsco Incorporated by reference to
relating to registration Form S-3, Registration No.
statement on Form S-3 33-56885, dated December
(Reg. No. 33-56885) 15, 1994, effective January
12, 1995.
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:
A Report on Form 8-K dated September 27, 1995 was filed October 3, 1995 dealing
with the settlement of the Federal Excise Tax Reimbursement Claim with the
United States Army and Department of Justice.
-83-
84
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 March 20, 1996 By /S/ Leonard A. Campanaro
--------------------------- -------------------------------
Leonard A. Campanaro
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
/S/ Derek C. Hathaway Chairman, President & Chief 3/20/96
- ------------------------------- Executive Officer -----------
(Derek C. Hathaway)
/S/ Leonard A. Campanaro Senior Vice President and
- ------------------------------- Chief Financial Officer 3/20/96
(Leonard A. Campanaro) (Principal Financial Officer) -----------
/S/ Salvatore D. Fazzolari Vice President and Controller 3/20/96
- ------------------------------- (Principal Accounting Officer) -----------
(Salvatore D. Fazzolari)
/S/ Jeffrey J. Burdge Director 3/21/96
- ------------------------------- -----------
(Jeffrey J. Burdge)
/S/ Robert L. Kirk Director 3/21/96
- ------------------------------- -----------
(Robert L. Kirk)
/S/ James E. Marley Director 3/21/96
- ------------------------------- -----------
(James E. Marley)
/S/ Robert F. Nation Director 3/21/96
- ------------------------------- -----------
(Robert F. Nation)
/S/ Nilon H. Prater Director 3/21/96
- ------------------------------- -----------
(Nilon H. Prater)
/S/ James I. Scheiner Director 3/21/96
- ------------------------------- -----------
(James I. Scheiner)
Director
- ------------------------------- -----------
(Roy C. Smith)
/S/ Andrew J. Sordoni III Director 3/21/96
- ------------------------------- -----------
(Andrew J. Sordoni III)
/S/ Dr. Robert C. Wilburn Director 3/21/96
- ------------------------------- -----------
(Dr. Robert C. Wilburn)
- 84 -
85
HARSCO CORPORATION FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Item 14(a) 3. Exhibits
Exhibit Document
Number Pages
- ------- --------
10(g) Harsco Corporation Supplemental Retirement 1 - 11
Benefit Program as amended
September 25, 1995
10(m) Authorization, Terms and Conditions of the
Annual Incentive Awards, as amended and 1 - 15
Restated, under the 1995 Executive and
Incentive Compensation plan 1 - 4
11 Computation of Fully Diluted Net Income per
Common Share 1
12 Computation of Ratios of Earnings
to Fixed Charges 1
13 The Audited Financial Statements
of United Defense L.P. 1 - 12
21 Subsidiaries of the Registrant 1 - 3
23(a) Consent of Independent Accountants 1
23(b) Consent of Independent Auditors 1
27 Financial Data Schedule 1
1
EXHIBIT 10(g)
2
RESTATED SEPTEMBER, 1995
HARSCO CORPORATION
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Purpose. The Harsco Corporation Supplemental Retirement Plan
("Plan") was established by Harsco Corporation ("Corporation") to provide
supplemental retirement benefits to designated corporate and division officers
and to compensate them for government-imposed reductions in benefits from and/or
contributions to the tax-qualified plans in which they participate.
1.2 Tax/ERISA. The Corporation intends that the Plan shall at all times
be maintained on an unfunded basis for federal income tax purposes under the
Internal Revenue Code of 1986, as amended ("Code"), and administered as a
"top-hat" plan exempt from the substantive requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
1.3 Effective Date. This Plan, as amended and restated herein, shall
apply to participating employees whose retirement or other termination date
occurs on or after January 2, 1995. Benefits for Participants who retired or
whose participation terminated prior to January 2, 1995, will be determined by
the Plan provisions in effect upon such Participant's retirement or termination.
ARTICLE II
DEFINITIONS
2.1 Accrued Benefit. The Supplemental Pension Benefit and the
Supplemental Savings Benefit earned by a Participant under this Plan in
accordance with the provisions of Article IV.
2.2 Ancillary Agreement. An instrument by which special arrangements
for specific Participants are incorporated into this Plan.
2.3 Beneficiary. Any person designated by a Participant to receive
benefits which may be due, or become due, under this Plan. If a Participant made
no such designation, or if the designated person predeceases the Participant,
the Beneficiary shall be the Participant's estate.
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2.4 Board. The Board of Directors of the Corporation.
2.5 Change In Control. The first to occur of any one of the events
described below:
(a) Stock Acquisition. Any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 ["the 1934
Act"], other than the Company or a corporation, a majority of whose outstanding
stock entitled to vote is owned, directly or indirectly, by the Company, who is
or becomes, other than by purchase from the Company or such a corporation, the
"beneficial owner" (as such term is defined in Rule 13(d)-3 under the 1934 Act),
directly or indirectly, of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding voting
securities. Such a Change in Control shall be deemed to have occurred on the
first to occur of the date securities are first purchased by a tender or
exchange offer, or the date on which the Company first learns of acquisition of
20 percent of such securities, or the later of the effective date of an
agreement for the merger, consolidation or other reorganization of the Company
or Company shareholder approval thereof, as the case may be.
(b) Change in Board. During any period of two consecutive years,
individuals who at the beginning of such period were members of the Board of
Directors ceases for any reason to constitute at least a majority of the Board
of Directors, unless the election or nomination for election by the Company's
shareholders of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. Such a Change in Control shall be deemed to have occurred on the date
upon which the requisite majority of directors fails to be elected by the
shareholders of the Company.
(c) Other Events. Any other event or series of events which,
notwithstanding any other provision of this definition, is determined by a
majority of the outside members of the Board of Directors of the Company to
constitute a Change in Control of the Company for purposes of this Supplemental
Plan. Such a Change in Control shall be deemed to have occurred on the date of
such determination or on such other date as such majority of outside members of
the Board shall specify.
2.6 Committee. The Management Development and Compensation Committee of
the Board or such other committee as may be designated by the Board.
2.7 Compensation. Total base salary plus 100% of nondiscretionary
incentive compensation, all calculated on a paid basis and payable according to
the provisions of a regular written plan covering officers as approved by the
Board or a Committee thereof.
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2.8 Credited Service. Service with Harsco and with any predecessor
company acquired by or merged into Harsco if such service with the predecessor
company is granted by the Board of Directors or a Committee thereof. In
computing Credited Service hereunder, the Corporation shall act in accordance
with (a) rules applicable to the Related Harsco Plan or (b) if different, rules
established by the Board of Directors or a Committee thereof.
2.9 Early Retirement Date. The first date of the month following the
Participant's attainment of 55 years of age and 15 years of Credited Service.
2.10 Final Average Compensation. A Participant's average annual
Compensation for the 60 highest consecutive out of the last 120 months prior to
the date of retirement or termination of employment for any reason prior to
Normal Retirement Date. If, due to absence because of disability or temporary
layoff, a Participant's Compensation during any 12 month period in any of said
120 months falls below 75% of what it would have been had it not been for such
absence, such period or periods shall be excluded and contiguous periods of
months shall be used in determining the 60 highest consecutive months.
2.11 Normal Retirement Date. The first day of the month following the
Participant's 65th birthday.
2.12 Participant. An officer or other employee of the Corporation who
has been approved for participation in the Plan pursuant to Article III.
2.13 Pension Committee. The Committee appointed by the Board of
Directors or a Committee thereof to administer qualified and nonqualified
pension plans.
2.14 Related Harsco Plan. The relevant tax-qualified plan, the benefit
under which is offset against an amount determined under this Plan to comprise
all or part of the Participant's Accrued Benefit. In most cases, the Related
Harsco Plan shall be, with respect to the Supplemental Pension Benefit, the
Harsco Employees Pension Plan and, with respect to the Supplemental Savings
Benefit, the Harsco Corporation Savings Plan.
2.15 Social Security Covered Compensation. As defined by Social
Security Integration Table I - (see attached Exhibit A). This table is subject
to change as Social Security covered compensation maximums are changed.
2.16 Supplemental Pension Formula. 0.8% of Final Average Compensation,
plus 1.6% of Final Average Compensation in excess of Social Security Covered
Compensation, multiplied by Credited Service to a maximum of 33 years and
divided by 12.
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ARTICLE III
ELIGIBILITY AND VESTING
3.1 Eligibility to Participate in the Plan. All officers of the
Corporation, and division officers elected by the Board of Directors shall be
eligible to participate in this Plan
3.2 Vesting. A Participant's right to an Accrued Benefit under this
Plan shall vest and become nonforfeitable only if, and to the extent that, the
Participant is vested in the Related Harsco Plan. Notwithstanding any provision
to the contrary, all Participants shall become fully vested in their Accrued
Benefit following or in connection with a Change in Control.
ARTICLE IV
SUPPLEMENTAL BENEFITS
4.1 Supplemental Pension Benefit. The Supplemental Pension Benefit
shall be the greater of the monthly amounts calculated under (a) or (b) as set
forth below:
(a) The Supplemental Pension Formula offset by the monthly
retirement benefit payable to the Participant from the Related Harsco Plan, both
calculated on a 10-year certain and continuous basis; and
(b) The difference between (i) the monthly pension benefit which
the Participant would have been entitled to under the Related Harsco Plan,
calculated without regard to the limitation on benefits imposed by Code section
415, the ceiling on covered compensation imposed by Code section 401(a)(17) and
any similar limitation or restriction imposed by the Code or ERISA, and (ii) the
monthly pension benefit actually payable to the Participant under the Related
Harsco Plan.
4.2 Supplemental Savings Benefit. The Supplemental Savings Plan Benefit
shall be determined as follows: If the amount of a Participant's contributions
to the Harsco Corporation Savings Plan is limited as a result of the Code or
ERISA such that the Participant is unable to contribute the maximum amount of
Matched After-Tax Contributions and/or Matched Tax Saver Contributions permitted
by the Savings Plan, then the Participant shall be entitled to receive the
difference between (a) and (b) as set forth below:
(a) The amount of Corporation's matching contributions to the
Saving Plan that would have been made for the account of such Participant, but
for the Code or ERISA limitations, and
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(b) The amount of Corporation's matching contributions actually
made to the Savings Plan for the account of such Participant.
The amount payable pursuant to the provisions of this paragraph shall include
adjustments for changes in the market value of the Corporation stock that would
have been purchased by the Corporation's matching contributions that would have
been made to the Savings Plan for the account of a Participant, but for the
ERISA limitations including dividends that would have been payable on such
stock.
ARTICLE V
SUPPLEMENTAL PENSION BENEFIT DISTRIBUTION
5.1 Form of Payment. The Supplemental Pension Benefit shall be paid in
a form selected by the Participant within 60 days after the Participant's Early,
Normal or Postponed Retirement Date or termination of employment with a vested
Accrued Benefit. The normal form of payment for the Supplemental Pension Benefit
shall be determined on a 10-year certain and continuous basis; however, a
Participant may select an optional form of payment, provided such optional form
is (a) the same as that selected by the Participant under the Related Harsco
Plan and (b) not a lump sum.
5.2 Early Retirement Benefit. Subject to the form of payment
restrictions in Section 5.1, a Participant who retires after his Early
Retirement Date and prior to his Normal Retirement Date shall be entitled to a
Supplemental Pension Benefit which shall be adjusted actuarially in accordance
with Tables B and C attached hereto.
5.3 Postponed Retirement. The Supplemental Pension Benefit payable to a
Participant who continues employment after his Normal Retirement Date will be
calculated as of his Normal Retirement Date and will be paid upon his actual
retirement. If the Participant dies after his Normal Retirement Date, but prior
to actual retirement, his Supplemental Pension Benefit shall be payable to his
Beneficiary in the form of a life only annuity actuarially adjusted for the age
of the Beneficiary.
5.4 Disability Benefit. In case of permanent disability, the
Supplemental Pension Benefit will be determined using the eligibility
requirements for disability retirement benefits under the Related Harsco Plan.
5.5 Death Benefit. Except as provided under Section 5.3, if a
Participant dies on or after qualifying for benefits under the Related Harsco
Plan but before actual retirement, there shall be payable to the Beneficiary of
such Participant a monthly benefit equal to the Supplemental Pension Benefit
actuarially adjusted to provide a life annuity payable for the life of the
Beneficiary.
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5.6 Small Amounts. If the present value of the Supplemental Pension
Benefit is less than $25,000, such value may be paid to the Participant or
Beneficiary in a lump sum at the discretion of the CEO.
5.7 Change in Control. Notwithstanding the foregoing, if a Participant
terminates employment following or in connection with a Change in Control, the
Participant's Supplemental Pension Benefit shall be payable to him in a lump
sum.
ARTICLE VI
SUPPLEMENTAL SAVINGS BENEFIT DISTRIBUTIONS
6.1 Termination of Employment. If a Participant terminates employment
with the Corporation, the Supplemental Savings Benefit shall be payable to him
in a lump sum within 60 days following his termination of employment.
6.2 Payment of Benefits to Beneficiary. If the Participants dies while
an employee of the Corporation or prior to receiving payment under Section 6.1,
his Supplemental Savings Benefit, shall be payable to his Beneficiary within 60
days of his death.
ARTICLE VII
ADMINISTRATION
7.1 Administration of the Plan. The Plan shall be administered by the
Committee, referred to herein as the Administrator. Members of the Committee, if
otherwise eligible, shall be eligible to participate in the Plan, but no such
member shall be entitled to make decisions solely with respect to his
participation. The Administrator shall be vested with full authority to make,
administer and interpret such rules and regulations as it deems necessary to
administer the Plan. Any determination, decision or action of the Administrator
in connection with the construction, interpretation, administration or
application of the Plan shall be final, conclusive and binding upon all
Participants and any and all person claiming under or through any Participant.
The Administrator shall have the authority to:
(i) Employ agents to perform services on behalf of the
Administrator and to authorize the payment of reasonable compensation for the
performance of such services.
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(ii) Delegate to the Pension Committee the authority to perform
administrative duties otherwise reserved to the Administrator herein.
7.2 Cost of Administering the Plan. The Corporation shall bear the
costs of administration of the Plan.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 Amendment. The Corporation, acting through the Board or a Committee
thereof, may at any time amend this Plan, in whole or in part, by an instrument
in writing, executed by the Board or a Committee thereof; provided, however,
that no amendment shall be made which would have the effect of decreasing any
Participant's Accrued Benefit determined just prior to the amendment.
8.2 Termination. The Corporation, acting through its Board or a
Committee thereof, may at any time terminate this Plan by an instrument in
writing executed by the Board or its designee; provided, however,
(a) no such termination shall be made which would have the effect
of decreasing any Participant's Accrued Benefit determined just prior to the
amendment.
(b) the Corporation, by action of its Board or a Committee thereof,
may elect to accelerate all distributions at the time it elects to terminate the
Plan.
ARTICLE IX
MISCELLANEOUS
9.1 No Right of Employment. Nothing in the Plan shall be deemed to
grant a Participant any rights other than those specifically outlined in the
Plan. Nothing in the Plan shall be deemed to create any right of, or contract
for, employment between a Participant and the Corporation.
9.2 Withholding. The Corporation may deduct, with respect to any
payments due or benefits accrued under this Plan, any taxes required to be
withheld by Federal, state or local governments.
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9.3 Non-Assignability of Benefits. Neither the Participant nor any
Beneficiary shall have the power to transfer, assign, anticipate, modify or
otherwise encumber in advance any of the payments that may become due hereunder;
nor shall any such payments be subject to attachment, garnishment or execution,
or be transferable by operation of law in event of bankruptcy, insolvency or
otherwise.
9.4 No Funding. Any provision for payments hereunder shall be by means
of bookkeeping entries on the books of the Corporation and shall not create in
the Participant or his Beneficiary any right to, or claim against any specific
assets of the Corporation, nor result in the creation of any trust or escrow
account for the Participant or Beneficiary. A Participant or Beneficiary
entitled to any payment of benefits hereunder shall be a general creditor of the
Corporation.
9.5 Forfeiture on Termination For Cause. Notwithstanding any provision
to the contrary (including the acceleration of vesting and payment provisions
relating to Change in Control), if any Participant is terminated for cause, all
benefits hereunder shall be forfeited and the Corporation shall have no further
obligation to the Participant (or his Beneficiary) hereunder. For purposes of
this Plan, "cause" means (i) an act or acts of personal dishonesty taken by the
Participant and intended to result in substantial personal enrichment of the
Participant at the expense of the Company, (ii) repeated violations by the
Participant of the Participant's obligations under the Participant's employment
agreement where applicable which are demonstrably willful and deliberate on the
Participant's part and which are not remedied in a reasonable period of time
after receipt of written notice from the Company or (iii) the conviction of the
Participant of a felony.
9.6 Gender and Number. As used herein the masculine pronoun shall
include the feminine and neuter genders, the singular shall include the plural,
and the plural the singular, unless the context clearly indicates a different
meaning.
9.7 Controlling Law. This Plan and the respective rights and
obligations of the Corporation and the Participants and Beneficiaries, except to
the extent otherwise provided by Federal law, shall be construed under the law
of the Commonwealth of Pennsylvania.
/s/ P. C. Coppock /s/ D. C. Hathaway
- ---------------------------------- ------------------------------
P. C. Coppock, Sr. Vice President, D. C. Hathaway, Chairman,
Chief Administrative Officer, President and Chief Executive
General Counsel and Secretary Officer
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SOCIAL SECURITY TABLE I
Covered Compensation
For Retirement or Breaks In Service During 1995
(A Different Table will Apply Subsequent to December 31, 1995 as
Minor Adjustments Are Made Annually to the Covered
Compensation Amounts.)
Year of Year of Social Security Covered
Birth Retirement Age Compensation
----- -------------- ------------
1925 1990 $18,312
1926 1991 19,728
1927 1992 21,192
1928 1993 22,716
1929 1994 24,312
1930 1995 25,920
- ---------------------------------------------------------------------------
1931 1996 27,528
1932 1997 29,148
1933 1998 30,756
1934 1999 32,364
1935 2000 33,972
- ---------------------------------------------------------------------------
1936 2001 35,532
1937 2002 37,092
1938 2004 40,152
1939 2005 41,676
- ---------------------------------------------------------------------------
1940 2006 43,200
1941 2007 44,688
1942 2008 46,128
1943 2009 47,508
1944 2010 48,852
- ---------------------------------------------------------------------------
1945 2011 50,160
1946 2012 51,432
1947 2013 52,680
1948 2014 53,772
1949 2015 54,780
- ---------------------------------------------------------------------------
1950 2016 55,680
1951 2017 56,508
1952 2018 57,240
1953 2019 57,900
1954 2020 58,524
- ---------------------------------------------------------------------------
1955 2022 59,568
1956 2023 60,024
1957 2024 60,408
1958 2025 60,684
- ---------------------------------------------------------------------------
1959 2026 60,912
1960 2027 61,080
1961 2028 61,176
1962 2029 and later 61,200
11
TABLE B
HARSCO EMPLOYEES PENSION PLAN
EARLY RETIREMENT FACTORS (PERCENT OF ACCRUED PENSION PAYABLE AT AGE SPECIFIED)
EFFECTIVE FOR RETIREMENTS ON OR AFTER JANUARY 2, 1995
FOR EMPLOYEES WITH LESS THAN 30 YEARS OF SERVICE
AGE AT WHICH AGE AT WHICH AGE AT WHICH
MONTHLY BENEFITS MONTHLY BENEFITS MONTHLY BENEFITS
ARE TO BEGIN # OF MOS ARE TO BEGIN # OF MOS ARE TO BEGIN # OF MOS
- ------------------ PRIOR TO ---------------- PRIOR TO ---------------- PRIOR TO
YEARS MONTHS AGE 65 % YEARS MONTHS AGE 65 % YEARS MONTHS AGE 65 %
- ----- ------ -------- ---- ----- ------ -------- ---- ----- ------ -------- ----
65 0 0 100 61 6 42 87.4 58 0 84 74.8
- --------------------------------------- ------------------------------------- -------------------------------------
64 11 1 99.7 61 5 43 87.1 57 11 85 74.5
64 10 2 99.4 61 4 44 86.8 57 10 86 74.2
64 9 3 99.1 61 3 45 86.5 57 9 87 73.9
64 8 4 98.8 61 2 46 86.2 57 8 88 73.6
64 7 5 98.5 61 1 47 85.9 57 7 89 73.3
64 6 6 98.2 61 0 48 85.6 57 6 90 73
- --------------------------------------- ------------------------------------- -------------------------------------
64 5 7 97.9 60 11 49 85.3 57 5 91 72.7
64 4 8 97.6 60 10 50 85 57 4 92 72.4
64 3 9 97.3 60 9 51 84.7 57 3 93 72.1
64 2 10 97 60 8 52 84.4 57 2 94 71.8
64 1 11 96.7 60 7 53 84.1 57 1 95 71.5
64 0 12 96.4 60 6 54 83.8 57 0 96 71.2
- --------------------------------------- ------------------------------------- -------------------------------------
63 11 13 96.1 60 5 55 83.5 56 11 97 70.9
63 10 14 95.8 60 4 56 83.2 56 10 98 70.6
63 9 15 95.5 60 3 57 82.9 56 9 99 70.3
63 8 16 95.2 60 2 58 82.6 56 8 100 70
63 7 17 94.9 60 1 59 82.3 56 7 101 69.7
63 6 18 94.6 60 0 60 82 56 6 102 69.4
- --------------------------------------- ------------------------------------- -------------------------------------
63 5 19 94.3 59 11 61 81.7 56 5 103 69.1
63 4 20 94 59 10 62 81.4 56 4 104 68.8
63 3 21 93.7 59 9 63 81.1 56 3 105 68.5
63 2 22 93.4 59 8 64 80.8 56 2 106 68.2
63 1 23 93.1 59 7 65 80.5 56 1 107 67.9
63 0 24 92.8 59 6 66 80.2 56 0 108 67.6
- --------------------------------------- ------------------------------------- -------------------------------------
62 11 25 92.5 59 5 67 79.9 55 11 109 67.3
62 10 26 92.2 59 4 68 79.6 55 10 110 67
62 9 27 91.9 59 3 69 79.3 55 9 111 66.7
62 8 28 91.6 59 2 70 79 55 8 112 66.4
62 7 29 91.3 59 1 71 78.7 55 7 113 66.1
62 6 30 91 59 0 72 78.4 55 6 114 65.8
- --------------------------------------- ------------------------------------- -------------------------------------
62 5 31 90.7 58 11 73 78.1 55 5 115 65.5
62 4 32 90.4 58 10 74 77.8 55 4 116 65.2
62 3 33 90.1 58 9 75 77.5 55 3 117 64.9
62 2 34 89.8 58 8 76 77.2 55 2 118 64.6
62 1 35 89.5 58 7 77 76.9 55 1 119 64.3
62 0 36 89.2 58 6 78 76.6 55 0 120 64
- --------------------------------------- ------------------------------------- -------------------------------------
61 11 37 88.9 58 5 79 76.3
61 10 38 88.6 58 4 80 76
61 9 39 88.3 58 3 81 75.7
61 8 40 88 58 2 82 75.4
61 7 41 87.7 58 1 83 75.1
12
TABLE C
HARSCO EMPLOYEES PENSION PLAN
EARLY RETIREMENT FACTORS (PERCENT OF ACCRUED PENSION PAYABLE AT AGE SPECIFIED)
EFFECTIVE FOR RETIREMENTS ON OR AFTER JANUARY 2, 1995
FOR EMPLOYEES WITH 30 OR MORE YEARS OF SERVICE
AGE AT WHICH AGE AT WHICH AGE AT WHICH
MONTHLY BENEFITS MONTHLY BENEFITS MONTHLY BENEFITS
ARE TO BEGIN # OF MOS ARE TO BEGIN # OF MOS ARE TO BEGIN # OF MOS
- ------------------ PRIOR TO ----------------- PRIOR TO ---------------- PRIOR TO
YEARS MONTHS AGE 62 % YEARS MONTHS AGE 62 % YEARS MONTHS AGE 62 %
- ----- ------ -------- --- ----- ------ -------- ---- ----- ------ -------- ----
65 0 0 100 61 6 6 98.2 58 0 48 85.6
- -------------------------------------------------------------------------------------------------------------------
64 11 0 100 61 5 7 97.9 57 11 49 85.3
64 10 0 100 61 4 8 97.6 57 10 50 85
64 9 0 100 61 3 9 97.3 57 9 51 84.7
64 8 0 100 61 2 10 97 57 8 52 84.4
64 7 0 100 61 1 11 96.7 57 7 53 84.1
64 6 0 100 61 0 12 96.4 57 6 54 83.8
- -------------------------------------------------------------------------------------------------------------------
64 5 0 100 60 11 13 96.1 57 5 55 83.5
64 4 0 100 60 10 14 95.8 57 4 56 83.2
64 3 0 100 60 9 15 95.5 57 3 57 82.9
64 2 0 100 60 8 16 95.2 57 2 58 82.6
64 1 0 100 60 7 17 94.9 57 1 59 82.3
64 0 0 100 60 6 18 94.6 57 0 60 82
- -------------------------------------------------------------------------------------------------------------------
63 11 0 100 60 5 19 94.3 56 11 61 81.7
63 10 0 100 60 4 20 94 56 10 62 81.4
63 9 0 100 60 3 21 93.7 56 9 63 81.1
63 8 0 100 60 2 22 93.4 56 8 64 80.8
63 7 0 100 60 1 23 93.1 56 7 65 80.5
63 6 0 100 60 0 24 92.8 56 6 66 80.2
- -------------------------------------------------------------------------------------------------------------------
63 5 0 100 59 11 25 92.5 56 5 67 79.9
63 4 0 100 59 10 26 92.2 56 4 68 79.6
63 3 0 100 59 9 27 91.9 56 3 69 79.3
63 2 0 100 59 8 28 91.6 56 2 70 79
63 1 0 100 59 7 29 91.3 56 1 71 78.7
63 0 0 100 59 6 30 91 56 0 72 78.4
- -------------------------------------------------------------------------------------------------------------------
62 11 0 100 59 5 31 90.7 55 11 73 78.1
62 10 0 100 59 4 32 90.4 55 10 74 77.8
62 9 0 100 59 3 33 90.1 55 9 75 77.5
62 8 0 100 59 2 34 89.8 55 8 76 77.2
62 7 0 100 59 1 35 89.5 55 7 77 76.9
62 6 0 100 59 0 36 89.2 55 6 78 76.6
- -------------------------------------------------------------------------------------------------------------------
62 5 0 100 58 11 37 88.9 55 5 79 76.3
62 4 0 100 58 10 38 88.6 55 4 80 76
62 3 0 100 58 9 39 88.3 55 3 81 75.7
62 2 0 100 58 8 40 88 55 2 82 75.4
62 1 0 100 58 7 41 87.7 55 1 83 75.1
62 0 0 100 58 6 42 87.4 55 0 84 74.8
- -------------------------------------------------------------------------------------------------------------------
61 11 1 99.7 58 5 43 87.1
61 10 2 99.4 58 4 44 86.8
61 9 3 99.1 58 3 45 86.5
61 8 4 98.8 58 2 46 86.2
61 7 5 98.5 58 1 47 85.9
1
EXHIBIT 10(m)
2
HARSCO CORPORATION
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
AUTHORIZATION, TERMS, AND CONDITIONS OF
ANNUAL INCENTIVE AWARDS
(AS AMENDED AND RESTATED FEBRUARY 22, 1996)
1. Purposes of Annual Incentive Awards
The grant of Annual Incentive Awards ("Awards") under the 1995 Executive
Incentive Compensation Plan is intended to further the profitable growth
of Harsco Corporation (the "Company") by offering a short-term incentive
opportunity, in addition to base salary, to officers and key corporate
and divisional employees of the Company and its subsidiaries who are
largely responsible for such growth, to the benefit of the Company's
stockholders. In addition, by settling Awards in part by awarding
Restricted Stock, the Award is intended to provide a long-term incentive
for such persons to expend their efforts for the creation of stockholder
value, and promote a closer identity of interests between such persons
and the Company's stockholders. Such Awards are expected to encourage
recipients to improve their performance and remain with the Company and
its subsidiaries, and that the possibility of such awards will encourage
other qualified persons to seek and accept employment with the Company
and its subsidiaries.
2. Overview
This document (the "Authorization") sets forth the authorization, terms,
and conditions of Awards under the Company's 1995 Executive Incentive
Compensation Plan (the "1995 Plan"), as determined by the Management
Development and Compensation Committee (the "Committee"). The terms of
this Authorization are subject to, and qualified in their entirety by
reference to, the 1995 Plan, including Section 6(h) of the 1995 Plan
setting forth terms relating to Awards. If any terms of this
Authorization are inconsistent with the terms of the 1995 Plan, the terms
of the 1995 Plan shall control. Terms used in this Authorization but not
otherwise defined herein shall have the meanings ascribed to such terms
in the 1995 Plan.
3. Definitions
In addition to terms defined in Sections 1 and 2 hereof, the following
terms shall be defined as set forth below:
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3.1 Award Potential means the range of amounts, denominated in cash,
that may be deemed to be earned upon achievement of Performance
Objectives, as set forth in Section 4.1. The terms Maximum and
Target Award Potential have the meanings set forth in Section 4.1,
and the term Earned Award Potential has the meaning set forth in
Section 5.1. Award Potentials are hypothetical amounts intended
solely to provide a means of valuing Awards for purposes of
settlement.
3.2 Base Salary means salary actually earned by a Participant during
the Performance Year to which the Award relates (as distinct from
the annual salary rate in effect at the end of such Performance
Year). This amount excludes payments resulting from awards
authorized under the Company's Annual and Long-Term Incentive
Plans prior to 1995 and payments under the 1995 Plan, the
Authorization, or Awards thereunder.
3.3 Cause means (i) the willful and continued failure by the
Participant to perform substantially his or her duties with the
Company or a subsidiary (other than such failure resulting from
the Participant's incapacity due to physical or mental illness),
or (ii) the willful engaging by the Participant in illegal
conduct, or (iii) the willful engaging by the Participant in
conduct in violation of any provision of the Code of Conduct or
other published policies of the Company, or (iv) the willful
engaging by the Participant in any act of serious dishonesty which
adversely affects, or in the reasonable estimation of the
Committee, could in the future adversely affect, the value,
reliability or performance of the Participant to the Company. For
purposes of this definition, no act, or failure to act, on the
part of the Participant shall be considered "willful" unless done,
or omitted to be done, by the Participant in bad faith and without
reasonable belief that his or her action or omission was in, or
not opposed to, the best interests of the Company.
3.4 Eligible Unit means the Company as a whole or any department,
division, subsidiary, or other business unit or function of the
Company for which separate operational results may be available to
the Committee, as specified by the Committee.
3.5 Fair Market Value of Common Stock as of any given date means the
average of the high and the low sale prices of a share of common
stock reported in the table entitled "New York Stock Exchange
Composite Transactions" contained in The Wall Street Journal (or
an equivalent successor table) for such date or, if no such prices
are reported for such date, on the most recent trading day prior
to that date for which such prices were reported.
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3.6 Normal Retirement means retirement at or after age 62 with at
least 30 years of service, or at or after age 65.
3.7 Participant means an officer of the Company (including division
officers).
3.8 Performance Objective means the business criteria and minimum,
targeted, and maximum Performance Levels with respect to such
business criteria required to be achieved during a Performance
Year as conditions to the settlement of an Award, and other
related terms, as set forth in Section 4.2.
3.9 Performance Level means a specified measure of achievement with
respect to a business criteria, required in connection with a
Performance Objective, as set forth in Section 4.2.
3.10 Performance Year means the fiscal year or other specified period
during which the achievement of Performance Objectives with
respect to a given Award shall be measured.
3.11 Restricted Stock means Restricted Stock granted in settlement of a
specified portion of an Award, subject to the terms of the 1995
Plan and this Authorization. Common Stock issued or delivered as
Restricted Stock may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
3.12 Restricted Period shall have the meaning set forth in Section 6.1
hereof.
3.13 Salary Level means the numbered category assigned to each
Participant for purposes of determining annual salary rate under
the Company's executive compensation program, as of the end of the
Performance Year to which an Award relates.
3.14 Termination means a termination of employment immediately after
which the Participant is not an employee of the Company or any
subsidiary. Conversion from full-time or part-time employment or a
leave of absence from employment, if approved by the Committee,
shall not be deemed to be a Termination for purposes of this
Authorization.
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4. Awards, Award Potentials, and Performance Objectives
The Committee may authorize Awards for a given Performance Year for
eligible officers of the Company. The authorization of an Award for a
Participant will confer upon such Participant a conditional right to
receive cash and Restricted Stock upon achievement of Performance
Objectives specified for the Participant. Each Award shall relate to a
single Performance Year specified by the Committee.
4.1 Award Potential; Maximum and Target Award Potentials. The Award
Potential for each Award shall range from zero to a maximum amount
equal to the Participant's Base Salary multiplied by his or her
Salary Level multiplied by 0.06, such maximum amount being
designated the Maximum Award Potential. Within this range, the
Award Potential equal to 67% of the Maximum Award Potential shall
be designated as the Target Award Potential.
4.2 Performance Objectives. For each Award, the Committee shall
specify Performance Objectives, which shall be set forth in one or
more exhibits which may be from time to time appended to this
Authorization. The Performance Objectives specified in a given
exhibit may apply to one or more Participants, including groups of
Participants working for an Eligible Unit. Each such exhibit shall
set forth the following, in any format deemed appropriate by the
Committee:
(a) The Committee shall specify the business criteria for each
Performance Objective, setting forth the nature of the
performance to be measured. The Committee may limit the
scope of any business criteria authorized under the 1995
Plan, and set forth in detail any terms relating to such
business criteria as the Committee deems necessary or
desirable to enable Performance Objectives to be unambiguous
and subject to precise measurement.
(b) Because multiple Performance Objectives will be designated
for each Award, the Committee shall specify the weighting to
be given each Performance Objective. Such weighting will be
expressed as a percentage, by which a Participant's Award
Potential may be multiplied to determine the portion of the
Award Potential that relates to a given Performance
Objective.
(c) The Committee shall designate for each Performance Objective
a Minimum, Target, and Maximum Performance Level. The
Minimum Performance Level will represent the threshold level
of performance required before any Award Potential will be
deemed
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to be earned with respect to a given Performance Objective.
The Target Performance Level will represent the level of
performance required in order that the Target Award
Potential will be deemed to be earned with respect to a
given Performance Objective. The Maximum Performance Level
will represent the level of performance required in order
that the Maximum Award Potential will be deemed to be earned
with respect to a given Performance Objective.
(d) The Committee shall designate the Performance Year to which
the Performance Objectives relate.
4.3 Guidelines for Establishing Performance Levels. In establishing
Performance Levels, the Minimum Performance Level will represent
less than desired performance, the Target Performance Level will
represent superior, professional performance under existing
circumstances rather than ordinary performance, and the Maximum
Performance Level will represent distinguished performance
expected to be achieved only rarely, e.g., something on the order
of two out of ten times. Although the Target Award Potential
represents 67% of the Maximum Award Potential, there is no
requirement that Target Performance Levels bear any particular
mathematical relationship to Maximum Performance Levels or Minimum
Performance Levels.
4.4 Notification of Awards. The Company shall notify members of the
class of eligible employees of their selection for participation,
the authorization of Awards, and the applicable Performance
Objectives as promptly as practicable. Such notification shall be
accomplished in any reasonable manner, in the discretion of the
Committee.
5. Settlement of Awards in Cash and Restricted Stock
5.1 Determination of Earned Award Potential and Limitation Thereof. As
promptly as practicable following the end of each Performance
Year, the Committee shall determine whether and the extent to
which Performance Objectives and other material terms and
conditions relating to each Participant's Award for such
Performance Year have been achieved and satisfied, and shall
determine the Award Potential, if any, deemed to be earned with
respect to each such Award (the "Earned Award Potential"). In the
event that a Participant's Earned Award Potential exceeds
$800,000, the Earned Award Potential for such Participant's Award
shall be reduced to that amount.
5.2 Payment of Cash and Grant of Restricted Stock. At the time the
Committee determines a Participant's Earned Award Potential under
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Section 5.1, each Participant shall become entitled, subject to
Sections 5.3 and 5.4, to receive a payment in cash equal to 60% of
his or her Earned Award Potential and a grant of a number of
shares of Restricted Stock, on the terms set forth in Section 6,
equal to 40% of his or her Earned Award Potential divided by the
Fair Market Value of Common Stock on the date of the Committee's
determination under Section 5.1. Such cash payment shall be made
as promptly as practicable after the determination by the
Committee of the Participant's Earned Award Potential. The
Committee may, in its discretion and upon the consent of the
Participant, provide the Participant a deferred right to receive
Common Stock of the Company in lieu of an immediate grant of
Restricted Stock. The Committee may also, in its sole discretion,
award payment of all or a portion of the Restricted Stock
component of the Earned Award Potential in cash rather than
Restricted Stock.
5.3 Committee Discretion. The Committee may, at any time prior to the
payment of cash and grant of Restricted Stock under Section 5.2,
adjust or modify Performance Objectives, Award Potentials, or
other Award terms (1) in recognition of unusual or nonrecurring
events affecting the Company or any Eligible Unit, or the
financial statements or results thereof, or in response to changes
in applicable laws (including tax, disclosure, and other laws),
regulations, accounting principles, or other circumstances deemed
relevant by the Committee, (2) in view of the Committee's
assessment of the business strategy of the Company and Eligible
Units thereof, performance of comparable organizations, economic
and business conditions, personal performance of the Participant,
and other circumstances deemed relevant by the Committee, or (3)
with respect to any Participant whose position or duties with the
Company or any subsidiary has changed; provided, however, that no
such adjustment or modification may be made with respect to an
Award granted to a "covered employee" within the meaning of Code
Section 162(m) and regulations thereunder if and to the extent
that such adjustment or modification would increase the amount of
compensation payable to such covered employee upon achievement of
the existing Performance Objectives. Examples of considerations
which might influence the Committee in exercising its discretion
hereunder include:
(a) Achievement of a rate of return on stockholders' equity
which was either significantly more or significantly less
than the Committee's estimate of the Company's competitive
cost of equity.
(b) The existence of compensation restraints at an Eligible
Unit.
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(c) A substantial change in the established strategic
performance objectives during the period.
(d) A substantial change in the composition of an Eligible Unit
during the period.
5.4 Settlement of Award In the Event of Termination. In the event of a
Participant's Termination, such Participant (or his or her
beneficiary) shall receive, in lieu of payment of all amounts
specified in Section 5.2, settlement of such Participant's Award
as provided in this Section 5.4.
In the event of a Participant's Termination by reason of Normal
Retirement, death, or full and permanent disability (as determined
by the Committee) prior to the end of a Performance Year to which
an Award relates, the Participant's Earned Award Potential shall
be 100% of the Earned Award Potential otherwise determined under
Section 5.1. (However, the definition of "Base Salary" will have
the effect of prorating the Participant's Earned Award Potential
according to the salary actually earned during the year to the
date of retirement.) In the event of a Participant's Termination
for any reason other than an involuntary Termination for Cause
after the end of a Performance Year to which an Award relates but
prior to settlement of an Award relating to such Performance Year,
the Participant's Earned Award Potential shall equal 100% of the
Earned Award Potential otherwise determined under Section 5.1. In
any case, the Participant's Earned Award Potential shall be
determined by the Committee at such time as determinations are
otherwise made under Section 5.1, and settlement of his or her
Award shall be made as promptly as practicable thereafter.
Any settlement under this Section 5.4 relating to a Participant's
Termination by reason of death or full and permanent disability
(as determined by the Committee) shall be made in the form of a
payment in cash equal to 100% of the Participant's Earned Award
Potential (as adjusted under this Section 5.4). Any other
settlement under this Section 5.4 shall be made in the form of a
payment in cash equal to 60% of the Participant's Earned Award
Potential (as adjusted under this Section 5.4) and a grant of a
number of shares of Restricted Stock, on the terms set forth in
Section 6, equal to 40% the Participant's Earned Award Potential
(as adjusted under this Section 5.4) divided by the Fair Market
Value of Common Stock on the date of the Committee's determination
under Section 5.1.
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In the event of a Participant's Termination (i) for any reason
other than Normal Retirement, death, or full and permanent
disability (as determined by the Committee) prior to the end of a
Performance Year to which an Award relates or (ii) which is an
involuntary Termination for Cause after the end of a Performance
Year to which an Award relates but prior to the Committee's
determination of the Participant's Earned Award Potential with
respect to such Award, any Award of such Participant for which
such Earned Award Potential has not previously been determined
shall be forfeited.
5.5 Certification. Determinations by the Committee under this Section
5 shall be set forth in a written certification, which may include
for this purpose approved minutes of a meeting of the Committee at
which such determinations were made.
6. Terms of Restricted Stock
6.1 Restrictions Generally; Restricted Period. Restricted Stock
granted pursuant to Section 5.2 shall be subject to the
restrictions on transferability under Section 6.2 until the
expiration of the period specified under this Section 6.1 (the
"Restricted Period"), and shall be subject to the risk of
forfeiture under Section 6.3 from the date of grant of such
Restricted Stock until the expiration of the Restricted Period or
the earlier lapse of such risk of forfeiture as specified under
Section 6.3. The Restricted Period for one-half of the Restricted
Stock granted to a Participant in respect of any Award relating to
the 1995 or 1996 Performance Years shall expire on the first
anniversary of the date of grant, and the Restricted Period for
all other Restricted Stock granted hereunder shall expire on the
third anniversary of the date of grant; provided, however, that
the Restricted Period for any Restricted Stock granted hereunder
shall expire earlier in accordance with Section 6.4 hereof or upon
a Change in Control of the Company (as specified in Section 8 of
the 1995 Plan). The consideration for the grant of Restricted
Stock in settlement of an Award shall be the services performed by
the Participant during the year to which such Award relates.
6.2 Nontransferability. During the applicable Restricted Period, (i)
such Restricted Stock and all rights relating thereto shall not be
transferable or assignable by the Participant, other than by will
or the laws of descent and distribution; (ii) any right relating
to such Restricted Stock may be exercised, during the lifetime of
the Participant, only by the Participant or the Participant's
guardian or legal representative; and (iii) such Restricted Stock
shall not be pledged, hypothecated, margined, optioned, or
otherwise encumbered in any way or subject to
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execution, attachment, or similar process. Any transfer,
encumbrance, or other transaction relating to such Restricted
Stock in violation of the restrictions set forth in this Section
6.2 shall be null and void, and shall not be recognized or
recorded by the Company or its agents.
6.3 Forfeiture. During the applicable Restricted Period, such
Restricted Stock shall be forfeited automatically in the event of
the Participant's Termination, or in the event of the
Participant's failure to abide by any of the material terms or
conditions to which the Participant may be subject under this
Authorization or any agreement relating to the Restricted Stock
between the Company and the Participant; provided, however, that
no such forfeiture shall occur solely because of the Participant's
Termination due to Normal Retirement, death, full and permanent
disability (as determined by the Committee), or involuntary
Termination other than an involuntary Termination for Cause.
6.4 Expiration of Restricted Period Upon Termination. The expiration
of the Restricted Period with respect to such Restricted Stock
shall be accelerated upon Participant's Termination due to death
or full and permanent disability (as determined by the Committee)
so that, in such case, the Restricted Period shall expire upon the
Participant's Termination. In the event of any other Termination
not resulting in forfeiture of the Restricted Stock, the
expiration of the Restricted Period with respect to such
Restricted Stock shall be unaffected; provided, however, that the
Committee may instead determine, in such case, to accelerate the
expiration of the Restricted Period to the date of such
Participant's Termination or any other date between the date of
such Termination and the scheduled expiration date of the
Restricted Period.
6.5 Dividends and Distributions. The Participant shall be entitled to
receive dividends and distributions payable with respect to
Restricted Stock to the extent that he or she is the record owner
of such Restricted Stock on any record date for such a dividend or
distribution during the Restricted Period applicable to such
Restricted Stock, subject to the following terms and conditions:
(a) In the event of a cash dividend or distribution or a
non-cash dividend or distribution in the form of property
other than Common Stock payable on Restricted Stock, the
Company shall either (i) retain the amount of such cash
dividend or such other property and, in lieu of delivery
thereof, shall grant to the Participant additional shares of
Restricted Stock having a Fair Market Value at the record
date of the dividend or distribution equal to the amount of
cash and fair market value (as determined
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by the Committee) of such property paid as a dividend or
distribution on each share of Common Stock multiplied by the
number of shares of Restricted Stock as to which the
Restricted Period had not expired at the record date thereof
or (ii) arrange for the automatic reinvestment of such
dividend or distribution in additional shares, which shall
be deemed additional Restricted Stock, through any dividend
reinvestment plan or program then available to stockholders
of the Company. Such additional Restricted Stock will be
subject to the same Restricted Period and to such other
terms and conditions as applied to the Restricted Stock with
respect to which such dividend or distribution was paid was
forfeited prior to the payment date for such dividend or
distribution.
(b) In the event of a dividend or distribution in the form of
Common Stock, the Common Stock issued or delivered as such
dividend or distribution will be deemed to be additional
Restricted Stock and will be subject to the same Restricted
Period and to such other terms and conditions as applied to
the Restricted Stock with respect to which such dividend or
distribution was paid. No such additional Restricted Stock
will be granted if the Restricted Stock with respect to
which such dividend or distribution was paid was forfeited
prior to the payment date for such dividend or distribution.
6.6 Form of Restricted Stock.
(a) Restricted Stock delivered under the Plan shall be evidenced
by either of the following as determined by the Committee in
its sole discretion:
(1) issuance of one or more certificates in the name of
the Participant, bearing an appropriate legend
referring to the terms, conditions, and restrictions
applicable to such Restricted Stock, and shall remain
in the physical custody of the Secretary of the
Company or his or her designee until such time as the
restrictions on such Restricted Stock have expired.
In addition, the Secretary may cause a legend or
legends to be placed on any such certificates to make
appropriate reference to such restrictions.
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(2) entries in books and records of account maintained by
the Company's transfer agent or such other agent as
may from time to time be designated by the Company or
the then current agent. Such agent may hold the
shares directly or through a nominee it may select.
(b) Restricted Stock shall be subject to such stop-transfer
orders and other restrictions as the Secretary shall deem
advisable under federal or state securities laws, rules and
regulations thereunder, and the rules of any national
securities exchange or automated quotation system on which
Common Stock is then listed or quoted, and to implement the
restrictions under this Authorization.
6.7 Restricted Stock Agreement; Stock Powers. The Company and each
Participant to whom Restricted Stock is granted hereunder shall
enter into a Restricted Stock agreement in the form attached
hereto as Attachment A or such other form as the Committee may
from time to time approve, to set forth the terms and conditions
relating to such Restricted Stock. The terms and conditions of
this Authorization shall be deemed to constitute a part of such
agreement. In addition, each such Participant shall, if requested
by the Company, execute one or more stock powers, in such form as
may be specified by the Secretary, authorizing the transfer of the
Restricted Stock to the Company, in order to give effect to the
forfeiture provisions of Section 6.3.
6.8. Other Stockholder Rights. Subject to the terms and provisions of
the Delaware General Corporation Law, the Participant shall have
all of the rights of an owner of Common Stock granted as
Restricted Stock hereunder (including but not limited to voting
rights) except as provided in this Authorization and any agreement
between the Company and the Participant with respect to such
Restricted Stock.
6.9 Delivery of Stock Certificates Upon Expiration of Restricted
Period. Upon expiration of the Restricted Period applicable to
Restricted Stock, the Company shall upon Participant's request,
promptly cause to be delivered to the Participant one or more
certificates representing the shares granted as such Restricted
Stock (which shares shall no longer be deemed to be Restricted
Stock), with any legends no longer applicable to such shares
removed from such certificate(s).
6.10 Adjustments. In the event that the outstanding shares of Common
Stock increased or decreased, or changed into or exchanged for a
different number or kind of shares or other securities of the
Company or of another corporation, by reason of a
reclassification, reorganization, merger, consolidation, share
exchange, or other
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business combination in which the Company or a subsidiary of the
Company is the surviving parent corporation, stock split-up, or
combination of shares, (i) any securities received in addition to
or in substitution for previously granted Restricted Stock as to
which the applicable Restricted Period has not yet expired shall
be deemed to be Restricted Stock subject the same Restricted
Period and to such other terms and conditions as applied to such
previously acquired Restricted Stock, and (ii) the Committee shall
make such other adjustments in the number and kind of securities
subject to outstanding grants of Restricted Stock as to which the
applicable Restricted Period has not yet expired as it may
determine to be necessary or desirable in order to prevent
dilution or enlargement of the rights of each Participant.
7. Tax Withholding
7.1 Not later than the expiration of the Restricted Period applicable
to Restricted Stock, or simultaneously with the Participant's
filing with the Internal Revenue Service of an election under
Section 83(b) of the Internal Revenue Code of 1986, as amended, to
be subject to tax upon the grant of Restricted Stock, the
Participant shall make such provision, or furnish to the Company
and its subsidiaries such authorization, as the Committee
determines to be necessary or desirable so that the Company and
its subsidiaries may satisfy their obligations under applicable
tax laws to withhold for income or other taxes due with respect of
such Restricted Stock.
7.2 If such tax withholding obligation will arise upon the expiration
of the applicable Restricted Period, the Committee may require
that, or permit the Participant to elect to have, the Company
withhold from such Restricted Stock, or permit the Participant to
elect to surrender to the Company from shares of Common Stock
already owned by the Participant (except for shares acquired from
the Company by exercise of an option less than six months before
the date on which the tax withholding obligation arose), whole
shares of Common Stock which shall be sufficient in value to
satisfy all or a portion of such tax withholding obligations.
7.3 If a Participant who receives a settlement of an Award under
Section 5.4 in the form of Restricted Stock or has a Termination
which does not result in forfeiture of previously granted
Restricted Stock under Section 6.3 but with respect to which the
Restricted Period continues after such Termination under Section
6.4, will be subject to federal income taxation as a result of
such settlement or Temination at the time thereof (or, in the case
of a Participant subject to Section 16 of the Exchange Act, six
months after settlement) rather than upon
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expiration of the Restricted Period (without regard to any filing
with the Internal Revenue Service of an election under Section
83(b) of the Internal Revenue Code of 1986, as amended), then the
Company may withhold from the Restricted Stock or permit the
Participant to elect to surrender to the Company from shares of
Common Stock already owned by the Participant (except for shares
acquired from the Company by exercise of an option less than six
months before the date on which the tax withholding obligation
arose), at the date the Participant becomes subject to federal
income taxation with respect to such Restricted Stock, whole
shares of Common Stock which shall be sufficient in value to
satisfy all or a portion of applicable tax withholding obligations
and any additional federal and state income taxes relating to such
Restricted Stock (calculated at the Participant's highest marginal
rate of taxation).
7.4 Shares withheld or surrendered under this Section 7 shall be
valued at their Fair Market Value on the date as of which the
Participant became subject to federal income taxation with respect
to the Restricted Stock. The Committee may, in its discretion,
impose restrictions on any share withholding and surrender under
this Section 7, including restrictions on Participants subject to
Section 16 of the Exchange Act, in order to ensure that the grant
of a right to elect such share withholding and provide the
opportunity to such Participants to avail themselves of an
exemption for the actual withholding or surrender of shares from
short-swing profits liability under the Exchange Act.
8. Administration
Administrative details relating to Awards shall be handled by the
Administrator, which shall be one or more individuals, employed in the
Company's corporate office, designated by the Chief Executive Officer of
the Company to serve in such capacity.
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Exhibit 1995-I
ANNUAL INCENTIVE AWARDS AUTHORIZED
FOR 1995
The following sets forth the name of eligible officers for whom Annual Incentive
Awards are authorized for the 1995 Performance Year. Opposite the name of each
Participant is the Exhibit setting forth the Performance Objectives applicable
to such Participant.
Exhibit Setting Forth
Name Performance Objective
---- ---------------------
Exhibit 1995-II
- ------------------------------------
Exhibit 1995-III
- ------------------------------------
Exhibit 1995-III
- ------------------------------------
Exhibit 1995-IV
- ------------------------------------
Exhibit 1995-IV
- ------------------------------------
Exhibit 1995-IV
- ------------------------------------
Exhibit 1995-V
- ------------------------------------
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Exhibit 1995-
----
PERFORMANCE OBJECTIVES FOR 1995
ANNUAL INCENTIVE AWARDS
[NAME OF ELIGIBLE UNIT:]
Performance Level
------------------------------------------
Weight Business Criteria Minimum Target Maximum
- ------ ----------------- ------- ------ -------
Notes
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ATTACHMENT A
HARSCO CORPORATION
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
RESTRICTED STOCK AGREEMENT
Agreement dated as of February 15, 1996, between HARSCO CORPORATION (the
"Company") and the undersigned individual ("Participant").
The Company and Participant hereby agree as follows:
1. Grant of Restricted Stock; Consideration
The Management Development and Compensation Committee of the Company's
Board of Directors will be considering from time to time the possible grant,
under and pursuant to the Company's 1995 Executive Incentive Compensation Plan
(the "1995 Plan"), to Participant of shares of the Company's Common Stock, par
value $1.25 per share in settlement of Earned Award Potential (the "Awarded
Restricted Stock"). Such Awarded Restricted Stock, if any, shall be specified
from time to time in notices issued by the Company and delivered to Participant.
This Restricted Stock Agreement (the "Agreement") sets forth terms and
conditions applicable to any Awarded Restricted Stock and any additional shares
acquired by Participant as a result of dividend reinvestment under Section 5
hereof ("Reinvestment Restricted Stock" and, together with the Awarded
Restricted Stock, "Restricted Stock"). Participant shall be required to pay no
consideration for the grant of Awarded Restricted Stock hereunder except for his
prior services performed during the applicable Performance Year in connection
with such Award, his performance of services to the Company prior to the
expiration of restrictions on the Restricted Stock, and his agreement to abide
by the terms set forth in the 1995 Plan, the Authorization, Terms and Conditions
of Annual Incentive Awards (the "Authorization"), and this Restricted Stock
Agreement (the "Agreement").
2. Incorporation of 1995 Plan and Authorization by Reference
Restricted Stock will be subject to the terms of 1995 Plan, the
Authorization, and this Agreement. All of the terms, conditions and other
provisions of the 1995 Plan and Authorization, copies of which are attached
hereto, are hereby incorporated by reference into this Agreement. Capitalized
terms used in this Agreement but not defined herein shall have the same meanings
as in the 1995 Plan and the Authorization. If there is any conflict between the
provisions of this Agreement and the provisions of the 1995 Plan and the
Authorization, the provisions of the 1995 Plan and the Authorization shall
govern. Participant hereby acknowledges receipt of the attached copies of the
1995 Plan and Authorization and agrees to be bound by all the terms and
provisions thereof (as presently in effect or hereafter amended), and by all
decisions and determinations of the Committee thereunder.
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3. Form of Stock
Any Restricted Stock will be held by Chemical Mellon Shareholder Services
(which also serves as the Company's transfer agent), as agent and nominee for
Participant and other participants (the "Agent"). Agent shall maintain
appropriate books and records of account reflecting Participant's rights in the
shares. Agent may hold such shares directly or through a nominee it may select.
The Company or Agent may, from time to time, designate a substitute Agent. Agent
shall not permit shares of Restricted Stock or interests therein to be
transferred to Participant at any time the restrictions set forth in Section 6
of the Authorization remain in effect as to such shares, but will cause shares
to be transferred to Participant (in such manner as may then be approved by the
Secretary of the Company) as promptly as practicable following notification by
the Company of the lapse of such restrictions. Upon receipt of written notice by
the Company that the Participant has forfeited his or her Restricted Stock, the
Agent will transfer those shares of Restricted Stock specified in such notice to
the Company.
4. Restrictions and Related Terms
The Restricted Stock (including both Awarded Restricted Stock and
Reinvestment Stock) shall be subject to the terms and provisions, including the
restrictions on transferability and the risk of forfeiture, set forth in Section
6 of the Authorization.
5. Dividend Reinvestment
Participant agrees that all dividends paid upon Restricted Stock will be
automatically reinvested through a dividend reinvestment plan administered by
the transfer agent or such other agent as may be designated by the Company or
the Agent, and the shares obtained through such reinvestment will be
Reinvestment Restricted Stock, subject to the same restrictions against transfer
and to the same forfeiture provisions as the Restricted Stock with respect to
which the dividend was paid.
6. Stock Power
Participant agrees to execute and deliver to the Company one or more
stock powers, in the form attached hereto or such other form as may be specified
by the Secretary of the Company, authorizing the transfer of Restricted Stock to
the Company, upon request of the Company at any time if the Company deems such
stock power necessary or convenient.
7. Tax Withholding
The Company and any subsidiary may withhold from the Restricted Stock (by
deduction from Participant's Restricted Stock share account balance) or from any
payment to be made to Participant any amount that federal, state, local, or
foreign tax law requires to be withheld with respect to the grant of Restricted
Stock, the lapse of restrictions on the Restricted Stock, or the expiration of
the Restricted Period. The
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Participant may elect prior to the date he or she becomes subject to taxation,
to have the Company withhold from the Restricted Stock, or surrender previously
acquired shares of Common Stock to the Company, in payment of such tax
withholding obligations. If Restricted Stock is withheld or shares surrendered,
the number of shares withheld or surrendered shall be that number of whole
shares up to but not exceeding that number which has a Fair Market Value, at the
date the Participant becomes subject to taxation, nearest to but not exceeding
the amount of taxes that are to be paid through such withholding or surrender,
to the extent permitted under Section 7 of the 1995 Plan.
8. Miscellaneous
Nothing contained in this Agreement shall be construed to obligate the
Company to award or grant any Restricted Stock to the Participant. This
Agreement shall be binding upon the heirs, executors, administrators, and
successors of the parties. This Agreement constitutes the entire agreement
between the parties with respect to the Restricted Stock, and supersedes any
prior agreements or documents with respect to the Restricted Stock. No
amendment, alteration, suspension, discontinuation, or termination of this
Agreement which may impose any additional obligation upon the Company or
materially impair the rights of Participant with respect to the Restricted Stock
shall be valid unless in each instance such amendment, alteration, suspension,
discontinuance, or termination is expressed in a written instrument duly
executed in the name and on behalf of the party bound thereby.
HARSCO CORPORATION
BY:
-------------------------------------
Paul C. Coppock
Senior Vice President,
Chief Administrative Officer,
General Counsel & Secretary
PARTICIPANT:
-----------------------------------------
Signature
-----------------------------------------
Print Name
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THIS AN EXHIBIT
STOCK POWER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto Harsco Corporation _________________ shares of Common Stock, $1.25 par
value per share, of Harsco Corporation, Inc., a Delaware corporation (the
"Company"), registered in the name of the undersigned on the books and records
of the Company, and does hereby irrevocably constitute and appoint Paul C.
Coppock, Barry M. Sullivan, Brian H. Tucker, and _____________________________,
and each of them, attorneys, to transfer the Common Stock on the books of the
Company, with full power of substitution in the premises.
-----------------------------------------
Signed
-----------------------------------------
Print Name
-----------------------------------------
Date
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EXHIBIT 11
2
Exhibit 11
HARSCO CORPORATION
COMPUTATION OF FULLY DILUTED NET INCOME PER COMMON SHARE
(dollars in thousands except per share)
YEARS ENDED
-------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net income $ 97,377 $ 86,553 $ 87,618 $ 84,332 $ 76,543
=========== =========== =========== =========== ===========
Average shares of common stock
outstanding used to compute
primary earnings per common
share 25,246,356 25,114,874 25,036,893 25,966,755 26,278,384
Additional common shares to be
issued assuming exercise of
stock options, net of shares
assumed reacquired 192,802 105,388 149,408 198,220 118,208
----------- ----------- ----------- ----------- -----------
Shares used to compute dilutive
effect of stock options 25,439,158 25,220,262 25,186,301 26,164,975 26,396,592
=========== =========== =========== =========== ===========
Fully diluted net income per
common share $ 3.83 $ 3.43 $ 3.48 $ 3.22 $ 2.90
=========== =========== =========== =========== ===========
Net income per common share $ 3.86 $ 3.45 $ 3.50 $ 3.25 $ 2.91
=========== =========== =========== =========== ===========
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EXHIBIT 12
2
HARSCO CORPORATION
Exhibit 12
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
YEARS ENDED DECEMBER 31
-------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
Consolidated Earnings:
Pre-tax income from continuing
operations (1) $ 119,647 $ 140,576 $ 137,151 $ 146,089 $ 161,231
Add fixed charges computed below 23,544 22,425 23,879 37,982 33,121
Net adjustments for equity companies (439) (454) (363) (134) (4,320)
Net adjustments for capitalized
interest (469) (134) (172) (274) -
--------- --------- --------- --------- ---------
Consolidated Earnings Available for
Fixed Charges $ 142,283 $ 162,413 $ 160,495 $ 183,663 $ 190,032
========= ========= ========= ========= =========
Consolidated Fixed Charges:
Interest expense per financial
statements (2) $ 18,925 $ 18,882 $ 19,974 $ 34,048 $ 28,921
Interest expense capitalized 574 355 332 338 134
Portion of rentals (1/3 ) representing
an interest factor 4,045 3,188 3,573 3,596 4,066
Interest expense for equity companies
whose debt is guaranteed (3) - - - - -
--------- --------- --------- --------- ---------
Consolidated Fixed Charges $ 23,544 $ 22,425 $ 23,879 $ 37,982 $ 33,121
========= ========= ========= ========= =========
Consolidated Ratio of Earnings to
Fixed Charges 6.04 7.24 6.72 4.84 5.74
========= ========= ========= ========= =========
(1) 1992 excludes the cumulative effect of change in accounting method for
postretirement benefits other than pensions.
(2) Includes amortization of debt discount and expense.
(3) No fixed charges were associated with debt of less than fifty percent
owned companies guaranteed by Harsco during the five year period 1991
through 1995.
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EXHIBIT 13
2
[ERNST & YOUNG LLP Letterhead]
Report of Independent Auditors
Partners
United Defense, L.P.
We have audited the accompanying balance sheets of United Defense, L.P. as of
December 31, 1995 and 1994 and the related statements of income, partners'
capital and cash flows for the years then ended. These financial statements are
the responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Defense, L.P. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Washington D.C.
January 16, 1996
3
UNITED DEFENSE, L.P.
BALANCE SHEETS
December 31, 1995 and 1994
(In thousands)
1995 1994
---- ----
ASSETS:
Current assets:
Cash and marketable securities $ 896 $ 32,000
Short term investment with FMC Corporation 30,350 ----
Trade receivables 98,929 81,251
Inventories (Note 3) 232,285 182,965
Other current assets 9,165 9,600
----------------------
Total current assets 371,625 305,816
Investments in affiliated companies 7,662 8,412
Property, plant and equipment (Note 4) 475,891 478,853
Less -- accumulated depreciation 360,087 356,805
----------------------
Net property, plant and equipment 115,804 122,048
Patents and deferred charges (Note 5) 39,132 11,686
Prepaid pension cost (Note 6) 35,381 31,935
- -------------------------------------------------------------------------------
Total assets $569,604 $479,897
===============================================================================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable, trade and other $98,385 $75,058
Advanced payments 194,276 165,417
Accrued and other liabilities 62,698 58,660
Due to FMC Corporation for current services 5,011 2,513
----------------------
Total current liabilities 360,370 301,648
Accrued pension cost (Note 6) 17,765 12,346
Accrued postretirement benefit cost (Note 7) 35,036 42,207
----------------------
Total liabilities 413,171 356,201
Commitments and contingencies (Notes 9, 11 and 12)
Partners' capital
FMC Corporation 122,989 104,359
Harsco Corporation 33,444 19,337
----------------------
Total partners' capital 156,433 123,696
- -------------------------------------------------------------------------------
Total liabilities and partners' capital $569,604 $479,897
===============================================================================
See Accompanying Notes to Financial Statements
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4
UNITED DEFENSE, L.P.
STATEMENTS OF INCOME
Years ended December 31, 1995 and 1994
(In thousands)
1995 1994
---- ----
Revenue:
Sales and other revenue $988,946 $1,088,730
Costs and expenses:
Cost of sales 746,701 809,813
Selling, general and
administrative expenses 122,675 131,822
Research and development 12,422 16,311
---------------------------
881,798 957,946
---------------------------
Income from operations 107,148 130,784
Other income (expense)
Interest 2,744 2,569
Miscellaneous, net (798) 52
---------------------------
Income before income taxes 109,094 133,405
Provision for income taxes (Note 2) 1,429 3,878
---------------------------
Net income $107,665 $ 129,527
===========================
See Accompanying Notes to Financial Statements
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5
UNITED DEFENSE, L.P.
STATEMENTS OF PARTNERS' CAPITAL
Years ended December 31, 1995 and 1994
(In thousands)
FMC Harsco Total
----------------------------------------
Initial partnership contributions as of January 1, 1994 $124,740 $ 29,600 $154,340
Distributions (90,117) (70,054) (160,171)
1994 net income 69,736 59,791 129,527
----------------------------------------
Balance, December 31, 1994 104,359 19,337 123,696
Distributions (37,117) (37,811) (74,928)
1995 net income 55,747 51,918 107,665
----------------------------------------
Balance, December 31, 1995 $122,989 $ 33,444 $156,433
========================================
See Accompanying Notes to Financial Statements
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6
UNITED DEFENSE, L.P.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
(In thousands)
1995 1994
---- ----
OPERATING ACTIVITIES
Net Income $107,665 $ 129,527
Adjustments for non-cash components of
net income:
Depreciation 26,728 28,993
Other (3,543) 78
Changes in assets and liabilities:
Trade receivables (17,678) 7,401
Inventories (49,320) (2,609)
Other current assets 780 (964)
Prepaid pension cost (3,446) (5,898)
Restructuring costs (23,498) (7,044)
Accounts payable, trade and other 23,327 (2,290)
Advanced payments 28,859 (8,613)
Accrued and other liabilities 4,038 21,912
Due to FMC Corporation for current services 2,498 2,513
Accrued pension cost 5,419 6,072
Accrued other postretirement benefit costs (7,171) (3,069)
--------------------------
Cash provided by operating activities 94,658 166,009
--------------------------
INVESTING ACTIVITIES
Capital spending (24,124) (18,259)
Disposal of property, plant and equipment 3,640 1,138
Short term investment with FMC Corporation (30,350) ----
--------------------------
Cash used in investing activities (50,834) (17,121)
--------------------------
FINANCING ACTIVITIES
Cash contributions from partners --- 41,670
Partner distributions (74,928) (160,171)
--------------------------
Cash used in financing activities (74,928) (118,501)
--------------------------
Increase/(Decrease) in cash and marketable securities (31,104) 30,387
Cash and marketable securities, beginning
of year 32,000 1,613
--------------------------
Cash and marketable securities, end
of year $ 896 $ 32,000
==========================
See Accompanying Notes to Financial Statements
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7
UNITED DEFENSE, L.P.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 FORMATION OF UNITED DEFENSE, L.P.
On January 28, 1994, FMC Corporation ("FMC") and Harsco Corporation ("Harsco")
announced completion of a series of agreements, to combine certain assets and
liabilities of FMC's Defense Systems Group ("DSG") and Harsco's BMY Combat
Systems Division ("BMY"). The effective date of the combination was January 1,
1994. The combined company, United Defense, L. P. ("the partnership"), will
operate as a limited partnership. FMC is the Managing General Partner with a 60
percent equity interest and Harsco Defense Holding is a Limited Partner holding
a 40 percent equity interest.
The partnership designs, develops and manufactures various tracked armored
combat vehicles and a wide spectrum of weapons delivery systems for the armed
forces of the United States and nations around the world.
NOTE 2 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
United Defense, L.P. is a limited partnership comprised of the former Defense
Systems Group of FMC and the BMY Combat Systems Division of Harsco. The
partnership's only subsidiaries are a Foreign Sales Corporation (FSC) and UDLP
International, Inc.
Significant Accounting Policies
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes, in particular, estimates of contract cost and revenues used
in the earnings recognition process. Actual results could differ from those
estimates.
REVENUE RECOGNITION FOR CONTRACTS-IN-PROGRESS Sales are recognized on most
production contracts as deliveries are made or accepted. Sales under cost
reimbursement contracts for research, engineering, prototypes, repair and
maintenance and certain other contracts are recorded as costs are incurred and
include estimated fees in the proportion that costs incurred to date bear to
total estimated costs. Changes in estimates for sales and profits are recognized
in the period in which they are determinable using the cumulative catch-up
method. Claims are considered in the estimated contract performance at such time
as realization is probable. Any anticipated losses on contracts are charged to
operations as soon as they are determinable.
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8
INVENTORIES Inventories are stated at the lower of cost or market value. Cost is
determined on the last-in, first-out (LIFO) basis, except for inventories
relating to long-term contracts. Inventoried costs relating to long-term
contracts not valued on the LIFO basis are stated at the actual production cost
incurred to date, reduced by amounts recognized as cost of sales. The costs
attributed to units delivered under contracts are based on gross margins
expected to be realized over the life of the related contract. Gross margins are
based on the estimated revenue less the estimated cost of all units expected to
be produced over the life of the related contract.
Inventory costs include manufacturing overhead. Costs normally associated with
general and administrative functions, independent research and bid and proposal
are expensed as incurred.
BMY had followed the accounting practice of capitalizing general and
administrative expense in inventory. To conform with the partnership's
accounting policy and the agreement between FMC and Harsco, $7.4 million of such
expenses, which were included in the inventory contributed by Harsco, were
charged against income during 1994.
INVESTMENTS IN AFFILIATED COMPANIES Investments in affiliated companies,
primarily foreign joint ventures, are carried primarily at cost, with income
recognized as dividends are received. Investments in majority-owned foreign
joint ventures are not consolidated since there is uncertainty regarding the
partnership's ability to control these ventures and to repatriate earnings.
Dividends received were $21.4 million and $12.4 million during 1995 and 1994,
respectively, and are included in sales and other revenue.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost.
Depreciation is provided principally on the sum-of-the-years digits and straight
line methods over estimated useful lives of the assets (land improvements - 20
years, buildings - 20 to 35 years, and machinery and equipment - 3 to 12 years).
Gains and losses realized upon sale or retirement of assets are included in
income.
Maintenance and repairs are expensed as incurred. Expenditures that extend the
useful life of property, plant and equipment or increase its productivity are
capitalized and depreciated.
ADVANCED PAYMENTS RECEIVED FROM CUSTOMERS Amounts advanced by customers as
deposits on orders not yet billed and progress payments on contracts-in-progress
are recorded as current liabilities.
FINANCIAL INSTRUMENTS The fair values of financial instruments approximated
their carrying values at December 31, 1995 and 1994. Fair values have been
determined through information obtained from market sources and management
estimates.
ENVIRONMENTAL Under the Participation Agreement between FMC and Harsco each
partner generally is financially accountable to the partnership for
environmental conditions occurring prior to formation of the partnership at
facilities or properties previously operated or used in their
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9
respective businesses, to the extent that costs incurred are not recovered from
third parties or not covered by environmental accruals contributed by the
parties at formation. At December 31, 1995 and 1994, $4.9 million and $7.0
million, respectively, of the FMC contributed accruals and $1.7 million and $2.5
million, respectively, of the Harsco contributed accruals are unused.
INCOME TAXES As a limited partnership, income or loss passes to the partners and
is taxable at that level, except for taxes payable on the income of the
partnership's FSC. The FSC paid income taxes amounting to $3.5 million and $3.6
million during 1995 and 1994, respectively.
CASH FLOWS Marketable securities consists of investments with initial maturities
of three months or less.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT Effective January 1, 1994 the partnership
adopted the provisions of FAS 112, "Employer's Accounting for Postemployment
Benefits". This statement requires accrual of liabilities for postemployment
benefits provided to former or inactive employees, their beneficiaries, and
covered dependents after employment, but before retirement, if those liabilities
can be reasonably estimated. Adoption of FAS 112 resulted in a charge to the
partnership's 1994 earnings amounting to $826,000.
ACCOUNTING STANDARDS NOT ADOPTED FAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was issued by the
Financial Accounting Standards Board in March 1995. This standard, which
establishes criteria for recognizing, measuring and disclosing impairments of
long-lived assets, is effective for fiscal years beginning after December 15,
1995. The partnership plans to adopt the new standard on January 1, 1996, but
does not expect that the adoption will have a significant impact on its
financial position or results of operations.
RECLASSIFICATIONS Certain 1994 amounts have been reclassified in the
accompanying financial statements to conform with the current year's
presentation.
NOTE 3 INVENTORIES
The current replacement cost of LIFO inventories exceeded their recorded values
by approximately $25.4 million and $19.5 million at December 31,1995 and 1994,
respectively. Inventories on long-term contracts carried at actual production
cost total approximately $25.0 million and $9.6 million at December 31, 1995 and
1994, respectively.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is as follows:
1995 1994
- --------------------------------------------------------------------------------
Buildings $ 53,272 $ 58,342
Machinery and Equipment 395,468 398,573
Land and Improvements 16,798 16,526
Construction in Progress 10,353 5,412
- --------------------------------------------------------------------------------
475,891 478,853
Less: Accumulated Depreciation 360,087 356,805
- --------------------------------------------------------------------------------
$115,804 $122,048
================================================================================
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NOTE 5 ADVANCE AGREEMENT
In October 1994 the partnership entered into an Advance Agreement with the U.S.
Government Department of Defense. Under the terms of the Agreement, the
partnership is permitted to defer certain costs associated with consolidation
and restructuring of its ground systems businesses that are incurred from
January 1, 1994 through March 31, 1996. Costs deferred will then be allocated
ratably to contracts with the Department of Defense for 36 months beginning
January 1, 1996. As of December 31, 1995 and 1994 consolidation and
restructuring costs deferred amount to $30.5 million and $7.0 million,
respectively, and are included in patents and deferred charges in the
accompanying balance sheet.
NOTE 6 RETIREMENT PLANS
Substantially all of the partnership's domestic employees are covered by
retirement plans. Plans covering salaried employees provide pension benefits
based on years of service and compensation. Plans covering hourly employees
generally provide benefits of stated amounts for each year of service.
The partnership's funding policy is to make contributions based on the projected
unit credit method and to limit contributions to amounts that are currently
deductible for tax purposes.
The following table summarizes the assumptions used and the components of the
net pension cost for the years ended December 31, 1995 and 1994:
- ------------------------------------------------------------------------------
Assumptions: 1995 1994
- ------------------------------------------------------------------------------
Weighted average discount rate 8.00% 8.00%
Rates of increase in future compensation levels 5.00% 5.00%
Weighted average expected long-term asset return 9.62% 9.60%
- ------------------------------------------------------------------------------
Components:
- ------------------------------------------------------------------------------
Service cost $ 8,744 $ 9,976
Interest cost on projected benefit obligation 18,008 16,967
Actual return on plan assets - investment gains (76,878) (6,106)
Net amortization and deferral 55,886 (16,238)
- ------------------------------------------------------------------------------
Net pension cost $ 5,760 $ 4,599
==============================================================================
As part of the partnership's downsizing and consolidation program an incentive
benefit package, which lowered the early retirement penalty, was offered to
salaried and non-union hourly employees who were at least 55 years of age with
10 or more years of service. In addition to the voluntary program, early
retirement penalties were also adjusted for certain salaried and hourly
employees affected by the downsizing and consolidation.
Pension expense includes a $3.7 million and $3.8 million charge related to
special termination benefits (early retirement incentive) and a $1.0 million and
$0.9 million curtailment charge included in net amortization and deferral
relating to the elimination of employees for 1995 and 1994, respectively.
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The funded status of the plans and accrued pension cost recognized in the
partnership's financial statements as of December 31, 1995 and 1994 are as
follows:
- -----------------------------------------------------------------------------------------
Actuarial present value of benefits for service rendered to date: 1995 1994
---- ----
Accumulated benefit obligation based on salaries to date,
including vested benefits of $197,675 for 1995 and
$182,001 for 1994 $(211,139) $(192,341)
Additional benefits based on estimated future salary levels (32,366) (42,965)
- -----------------------------------------------------------------------------------------
Projected benefit obligation (243,505) (235,306)
Plan assets at fair market value (1) 336,072 274,139
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 92,567 38,833
Unrecognized net transition asset (9,065) (10,798)
Unrecognized prior service cost 10,311 12,089
Unrecognized net gain (76,197) (20,535)
- -----------------------------------------------------------------------------------------
Net prepaid pension cost $ 17,616 $ 19,589
- -----------------------------------------------------------------------------------------
(1) Primarily equities, bonds and fixed income securities.
NOTE 7 POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Substantially all of the partnership's employees are covered by postretirement
health care and life insurance benefit programs. Employees generally become
eligible for the retiree benefit plans when they meet minimum retirement age and
service requirements. The cost of providing most of these benefits is shared
with retirees. The partnership has reserved the right to change or eliminate
these benefit plans.
During 1995, the partnership's medical contributions for certain hourly
employees were capped. This change, effective January 1, 1995, reduced the
benefit obligation by $9.9 million, amortizable over the remaining years of
service to full eligibility. Postretirement expense in 1995 includes a $0.9
million gain.
Postretirement expense in 1995 includes a $2.8 million curtailment gain as a
result of the partnership's downsizing and consolidation program.
The partnership funds a trust for retiree health and life benefits for employees
previously covered under the FMC benefit plans. During 1995, the partnership
began funding for benefits previously covered under the Harsco plan. At December
31, 1994 the projected benefit obligation for the partnership's employees
included in this latter postretirement plan category amounted to $3.4 million.
Actuarial assumptions used to determine costs and the benefit obligation include
a discount rate of 8 percent and weighted average expected return on long-term
assets of 9 percent. The assumed rate of future increases in per capita cost of
health care benefits was 10 percent in 1995 and 1994, decreasing gradually to 6
percent by the year 2001 and after. Increasing the health care cost trend rates
by one percentage point would increase the accumulated benefit obligation by
approximately $3.5 million and would increase annual service and interest costs
by $0.3 million.
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The following table summarizes the components of net postretirement benefit cost
for the years ended December 31, 1995 and 1994:
- -----------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------
Service cost $ 1,412 $ 1,372
Interest cost on accumulated postretirement benefit obligation 3,935 4,576
Actual return on plan assets - investment (gains) losses (4,468) 364
Net amortization and deferral (1,685) (2,203)
- -----------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ (806) $ 4,109
===================================================================================
The funded status of the plans and accrued postretirement benefit cost
recognized in the partnership's financial statements as of December 31, 1995 and
1994 are as follows:
- ----------------------------------------------------------------------------------
Accumulated post retirement obligation: 1995 1994
---- ----
Retirees $(33,135) $(44,054)
Fully eligible active participants (5,244) (6,209)
Other active participants (14,433) (15,793)
- ----------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (52,812) (66,056)
Plan assets at fair market value (1) 32,164 24,491
- ----------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess of
plan assets (20,648) (41,565)
Unrecognized net gains (14,388) (642)
- ----------------------------------------------------------------------------------
Accrued postretirement benefit cost $(35,036) $(42,207)
==================================================================================
(1) Primarily equities and fixed income securities.
NOTE 8 EMPLOYEES' THRIFT AND STOCK PURCHASE PLAN
Substantially all of the partnership's employees are eligible to participate in
the partnership's defined contribution savings plans designed to comply with the
requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and
Section 401(k) of the Internal Revenue Code. Charges against income for matching
contributions to the plans were $6.6 and $6.2 million in 1995 and 1994,
respectively.
NOTE 9 COMMITMENTS AND CONTINGENT LIABILITIES
The partnership leases office space, plants and facilities, and various types of
manufacturing, data processing and transportation equipment. Rent expense for
1995 and 1994 was $12.8 million and $10.8 million, respectively. Minimum future
rentals under noncancellable leases, excluding a related party lease (Note 12)
are estimated to be payable $2.4 million in 1996, $2.1 million in 1997, $1.6
million in 1998, $.5 million in 1999, $.4 million in 2000 and $1.1 million
thereafter. The real estate leases generally provide for payment of property
taxes, insurance and repairs by the partnership.
The partnership is subject to claims and suits arising in the ordinary course of
its operations. In the opinion of management, the ultimate resolution of any
current pending legal proceedings will not have a material effect on the
partnership's financial position or results of operations.
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13
At December 31, 1995, the partnership has outstanding letters of credit in the
amount of $130.2 million as collateral for performance on long-term contracts.
NOTE 10 PARTNERS' CAPITAL
Under the agreements of formation of the partnership, FMC and Harsco were
required to contribute net assets with a historical net book value of $154.3
million.
The agreement provides for allocation of profits and losses and distribution of
available cash generally on the basis of the partner's equity ownership
interests, after giving effect to a limited partner preferred distribution and
certain other items as agreed to by the partners. Under the terms of the
partnership agreement the partnership is required to make quarterly tax
distributions to each partner equal to the product of (i) such partner's share
of the adjusted taxable income of the partnership times (ii) 40 percent. In
addition, the partnership is required to make certain other distributions to the
partners. Such required distributions are also made with reference to the
partnership's adjusted taxable income.
Beginning on February 1, 1996 FMC has the option to purchase or cause the
partnership to purchase Harsco's interest in the partnership for 110 percent of
the appraised value of Harsco's interest in the partnership subject to
adjustment, as provided for in the partnership agreement. Concurrently,
beginning February 1, 1996, Harsco has the option to require the partnership to
purchase its interest in the partnership for 95 percent of the appraised value
of its partnership interest similarly subject to adjustment as provided for in
the partnership agreement.
NOTE 11 SIGNIFICANT CUSTOMER AND EXPORT SALES
Sales to various agencies of the U.S. Government aggregated $719.1 million and
$614.9 million during 1995 and 1994, respectively. At December 31, 1995 and 1994
trade accounts receivable from the U.S. Government totaled $77.4 million and
$63.7 million, respectively. Export sales, including sales to foreign
governments transacted through the U.S. Government, were $216.3 million and
$280.6 million during 1995 and 1994, respectively.
NOTE 12 RELATED PARTY TRANSACTIONS
The partnership has contracted with FMC for various administrative and support
services. These services include computer services, systems and programming,
data communications, employee relocation support, payroll processing, insurance
and general management support. During the years ended December 31, 1995 and
1994, the partnership paid $39.8 million and $42.4 million, respectively, to FMC
for their support.
The partnership leases office and manufacturing facilities in San Jose,
California from FMC. Under the lease agreement monthly rent payments are
comprised of fixed base rent plus depreciation on the facilities. Fixed base
rent is $2.0 million per year and the lease expires December 31, 2003. During
1995 and 1994 the partnership incurred rent amounting to $3.9 million and $4.2
million, respectively, under this lease.
Sales of inventory to FMC during 1995 and 1994 amounted to $1.5 million and $2.8
million, respectively. Management believes that such transactions were
consummated on terms substantially similar to those that would arise in
transactions with third parties.
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14
During 1995, the partnership entered into an agreement with FMC and Harsco
whereby the partnership's excess cash balances up to $40.0 million are invested
with FMC. Interest on these funds is earned based on the average monthly cost of
FMC's U.S. dollar revolver-related short term borrowings for such month. In
addition, the partnership may offer short term loans, not to exceed 90 days, to
the partners if funds are not immediately needed for working capital. Interest
on short term borrowings is equal to LIBOR without premium. Interest on all
loans to FMC totaled $1.1 million in 1995.
At December 31, 1995 and 1994 amounts due FMC totaled $5.0 million and $2.5
million, respectively. Amounts due from FMC at December 31, 1995 and 1994
totaled $0.5 million and $0.3 million, respectively. Amounts due from Harsco at
December 31, 1995 and 1994 totaled $0.3 million and $0.2 million, respectively.
Related party receivables and payables are included in Other Current Assets and
Due to FMC for current services, respectively, in the accompanying financial
statements.
13
1
EXHIBIT 21
2
HARSCO CORPORATION
EXHIBIT 21
Subsidiaries of the Registrant:
Country of Ownership
Name Incorporation Percentage
- ---- ------------- ----------
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%
Alu Serv Middle East W.L.L. Bahrain 75%
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 Belgium 100%
des Enterprises S.A.
Somafer Benelux Interim S.A. Belgium 100%
Fortuna Insurance Limited Bermuda 100%
Harsco (Bermuda) Limited Bermuda 100%
Sociedade Brasileria de Recuperacao Brazil 100%
de Metals (Sobremetal) Ltda
Comercio de Rejeitos Industriais Ltda Brazil 100%
Harsco Canada Limited Canada 100%
Heckett Technology Services Canada, Inc. Canada 100%
Heckett MultiServ S.A. Chile 100%
MultiServ Wuhan Co. Ltd. China 100%
MultiServ Jiangxi Co. Ltd. China 100%
MultiServ s.r.o. Czech Republic 100%
Heckett MultiServ Holding S.A. France 100%
Floyequip S.A. France 100%
PyroServ France 100%
Societe Francais D'Interim S.A. France 100%
Heckett MultiServ Sud S.A. France 100%
Carbofer International GmbH Germany 100%
Heckett MultiServ GmbH Germany 100%
Harsco GmbH Germany 100%
Axil International Ltd. Ireland 100%
IMS Servizi Spa Italy 100%
MultiServ SRL Italy 100%
ILSERV SRL Italy 65%
Luxequip Holdings S.A. Luxembourg 100%
Heckett MultiServ S.A. Luxembourg 100%
Societe Luxembourgoiese D'Interim S.A. Luxembourg 100%
-1-
3
Country of Ownership
Name Incorporation Percentage
- ---- ------------- ----------
Taylor-Wharton Asia (M) SDN. BHD. Malaysia 70%
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, Mexico 100%
S.A. de C.V.
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 Europa B.V. Netherlands 100%
Heckett MultiServ (Holland) B.V. Netherlands 100%
Heckett MultiServ AS Norway 100%
Heckett Saudi Arabia Limited Saudi Arabia 55%
MultiServ Slovensko SPOL s r.o. Slovakia Republic 100%
FerroServ (Pty.) Limited South Africa 100%
FerroServ Operations (Pty.) Ltd. South Africa 100%
Heckett MultiServ (South Africa) (Pty.) Ltd. South Africa 51%
MultiServ Lycrete S.A. Spain 95%
Serviequipo S.A. Spain 95%
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 85%
Heckett MultiServ AB Sweden 100%
Heckett MultiServ plc U.K. 100%
Heckett MultiServ Ltd. U.K. 100%
MultiServ Overseas Ltd. U.K. 100%
Quipco Ltd. U.K. 100%
Harsco (U.K.) Ltd. U.K. 100%
The Permanent Way Equipment U.K. 100%
Company Limited
Harsco Ltd. U.K. 100%
Tamper Corp. (U.K.) Limited U.K. 100%
Heckett International Services Limited U.K. 100%
Heckett Limited U.K. 100%
Heckett MultiServ Inc. U.S.A. 100%
Heckett MultiServ U.S. Corp. 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 Investment Corporation U.S.A. 100%
Harsco Defense Holding, Inc. U.S.A. 100%
-2-
4
Country of Ownership
Name Incorporation Percentage
- ---- ------------- ----------
Harsco Foreign Sales Corporation U.S. Virgin Islands 100%
Heckett MultiServ MV + MS Venezuela 100%
Heckett Yugoslavia Ltd. Yugoslavia 100%
Companies in which Harsco Corporation does not have majority ownership are not
consolidated. These companies are listed below as unconsolidated entities:
Country of
Incorporation/ Ownership
Name Organization Percentage
- ---- ------------ ----------
Ferro Scrap Nigam Ltd. India 40%
P.T. Purna Baja Heckett Indonesia 40%
IKG-Salcon SDN. BHD. Malaysia 50%
Nutter-Niro Ingenieria S.A. de C.V. Mexico 49%
United Defense, L.P. U.S.A. 40%
-3-
1
EXHIBIT 23(a)
2
EXHIBIT 23(a)
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, which include an explanatory paragraph regarding a change in the
Company's method of accounting for income taxes, dated January 31, 1996, on our
audits, of the consolidated financial statements and consolidated financial
statement schedule of the Company as of December 31, 1995 and 1994 and for each
of the three years in the period ended December 31, 1995, 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 1994 Registration Statement (Registration No. 33-56885) dated
December 15, 1994.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
March 25, 1996
1
EXHIBIT 23(b)
2
EXHIBIT 23(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of Harsco Corporation and in the related Prospectuses of our report
dated January 16, 1996 with respect to the financial statements of United
Defense, L.P. included in this Annual Report (Form 10-K) for the year ended
December 31, 1995:
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.
ERNST & YOUNG LLP
Washington, D.C.
March 21, 1996
5
1,000
12-MOS
DEC-31-1995
DEC-31-1995
76,669
0
281,114
(8,256)
123,285
533,766
1,080,267
(620,458)
1,310,662
388,512
179,926
0
0
40,672
585,319
1,310,662
1,495,466
1,554,017
1,147,467
1,368,840
0
3,410
28,921
163,728
63,854
97,377
0
0
0
97,377
3.86
3.83
