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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996 Commission file number 1-3970
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1483991
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
Camp Hill, Pennsylvania 17001-8888
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 717-763-7064
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common stock, par value $1.25 per share New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [x] NO [ ]
The aggregate market value of the Company's voting stock held by non-affiliates
of the Company as of February 28, 1997 was $1,777,787,532.
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 28, 1997
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Common stock, par value $1.25 per share 49,382,987
Preferred stock purchase rights 49,382,987
Documents Incorporated by Reference
Selected portions of the Notice of 1997 Meeting and Proxy Statement are
Incorporated by Reference in Part III of this Report.
The Exhibit index (Item No. 14) is located on pages 81 to 87.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
INFORMATION REQUIRED IN REPORT
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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 29 countries, including the
United States; scaffolding services to the industrial maintenance and
construction markets primarily in North America; railway maintenance equipment
and services that are provided to worldwide railroads; gas control and
containment products for customers worldwide; and several other lines of
business including, but not limited to, industrial grating and bridge decking,
pipe fittings, process equipment, slag abrasives 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 30 countries, including the United
States. Harsco also holds a 40% equity interest in United Defense, L.P., a $1.0
billion partnership with FMC Corporation, which principally manufactures armored
combat vehicles and other defense systems for the U.S. and allied governments.
In 1994, the Company formed a new Operating Group structure to reflect the
Company's strategic refocusing. The new Groups were formed because: (1) the
Company was 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; the completion of the
five-ton truck contract with the U.S. Government and the related conversion of
production to school buses in 1993; and (2) the acquisition of MultiServ
International, N.V., which substantially increased the Company's presence in
metal reclamation and mill services. Except for Defense, because it is no longer
a Group, the Company restated all the Operating Groups for the periods
presented.
In 1995, the Infrastructure, Construction and Transportation Group was renamed
the Infrastructure and Construction Group due to the Company's announced exits
from the school bus and military truck businesses. The Company ceased all bus
operations in June 1995. Truck operations were ended in June 1994.
The operations of the Company in any one country, except the United States, do
not account for more than 10% of sales. No single customer or group under common
control represented 10% or more of the Company's sales during 1996, 1995, and
1994. There are no significant intergroup sales.
(b) Financial Information about Industry Groups:
Financial information concerning Industry Groups is included in Note 17 to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data".
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(c) Narrative Description of Business:
(1) A narrative description of the businesses by Operating Group is as
follows:
Metal Reclamation and Mill Services
This Group provides specialized services to steel producers and non-ferrous
metallurgical industries worldwide. The services provided include metal
reclamation; slag processing, marketing, and disposal; scrap management and
handling; cleaning of slag pits; handling of raw material, steel slabs, 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, general plant services, and recycling
technology. Similar services are also provided to non-ferrous metallurgical
industries, such as aluminum, copper, and nickel.
This industry group includes the Eastern and Western Regions of the Heckett
MultiServ Division which operates in 29 countries on six continents.
During 1996, the Company entered into several new long-term services contracts
valued over $200 million over their life span. Covering four to ten years in
duration, each contract is expected to generate an average of more than $2
million in annual revenues. Additionally, the company sold two non-core units
located in France and Belgium which provided temporary labor services. These
units reported combined revenue of approximately $22 million during 1995.
For 1996, the percentage of consolidated net sales for metal reclamation and
mill services was 39%.
Infrastructure and Construction
Major product classes in this Group are scaffolding, shoring and concrete
forming equipment and services, railway maintenance of way equipment and
services, and industrial grating and bridge decking products. This Group
also provides roofing granules and slag abrasives.
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 cost-effective scaffolding and erection/dismantling
services to refineries and the petrochemical sector. During 1996, the Company
signed two new contracts to provide scaffolding services to the petrochemical
industry valued in excess of $5 million.
The Company's product class of railway maintenance of way equipment and services
includes specialized track maintenance equipment used by private and
government-owned railroads and urban transit systems worldwide. Start-up of the
innovative Tie Masters program with the Burlington Northern and Santa Fe Railway
is performing well, providing a template for effective
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resource management and cost reduction that is leading to additional
applications in 1997 and beyond. This program involves day-to-day management
responsibility for the railway's tie renewal and equipment maintenance work,
including training the railway's tie and surface gang personnel to operate new
equipment. The equipment manufactured by the Company includes ballast tamping
machines; ballast regulators and brooms; tie inserters and removers; spike
drivers, pullers, and reclaimers; and other systems used in the construction and
maintenance of track and railbeds.
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,
safety, and security applications for power, paper, chemical, refining and
processing applications. The Company also produces varied products for bridge
decking uses, as well as a range of fiberglass grating products.
The Company's slag abrasives and roofing granules are produced from utility coal
slag and processed at 15 locations in 12 states. Slag abrasives are used for
industrial surface preparation, such as rust removal and cleaning of bridges,
ship hulls, and various structures. Roofing granules, including color granules,
are sold to residential roofing shingle manufacturers.
For 1996, percentages of consolidated net sales of certain product classes were
as follows: scaffolding, shoring and concrete forming equipment, 8%; railway
maintenance of way services and equipment, 7%; grating and decking, 7%; and
roofing granules and slag abrasives, 4%.
Process Industry Products
Major product classes in this Group are gas control and containment equipment,
pipe fittings and process equipment.
Gas containment products include cryogenic equipment, such as bulk storage
tanks, refrigerators, dewars and freezers, and liquid cylinders; high pressure
cylinders; propane tanks; and composite pressure vessels such as self-contained
breathing apparatus and natural gas fuel tanks. Gas control products include
brass valves and regulators serving a variety of markets including the
recreational diving market and the barbecue grill industry.
The enhanced CO2 LIQUIDATOR(R), 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 1996 the
Company signed a contract with Amoco Food Shops of Chicago to install
LIQUIDATOR(R) bulk CO2 equipment in 265 of the chains Split Second convenience
stores.
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. A new scuba regulator,
the Minimus(R), is 35% smaller than standard units and has also gained market
acceptance.
During the second quarter of 1996, the Company acquired the assets of the Coyne
Cylinder business. Coyne manufactures acetylene, small and intermediate high
pressure and specialty
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cylinders, and had revenues of $45 million in 1995. Additional plant capacity
for cryogenic products will be built in Malaysia to support the Far Eastern
markets.
The Company's diverse product class of process equipment includes heat and mass
transfer equipment; air-cooled heat exchangers; fractionation trays; process
equipment, blenders, dryers and mixers; industrial and institutional boilers and
hot water heaters; and wear-resistant steels used in the heavy-duty industrial
requirements of mining, steelmaking, and paper production, as well as the
ballistic armor protection of military and commercial vehicles.
The Company is a major supplier of pipe fittings and related products for the
plumbing, hardware and energy industries and produces a variety of product
lines, including forged and stainless steel fittings, conduit fittings, standard
pressure fittings, swage nipples and couplings.
For 1996, percentages of consolidated net sales of certain product classes were
as follows: gas control and containment, 19%; process equipment, 9%; and pipe
fittings, 7%.
Unconsolidated Entities
The Company holds a 40% interest in United Defense, L.P., a joint venture
partnership formed with FMC Corporation in January 1994. United Defense is one
of the world's leading developers of ground combat vehicles and other select
defense systems for the U.S. and allied governments. United Defense's sales
increased 6% during 1996 to $1,029 million. The Company's other equity
investments provide metal reclamation and mill services as described earlier.
Responding to the declines in spending on defense equipment and research and
development, United Defense has been consolidated and downsized to strengthen
its competitive position and penetrate new, profitable markets through
re-manufacturing, upgrades, privatization and technology.
New U.S. Army production contracts during the year included a $116 million
contract to remanufacture and upgrade 207 Bradleys from their as-built A0
configuration to the current A2 configuration; a $24 million contract to add
Operation Desert Storm improvements to production Bradleys; a $48 million
contract for 24 additional M88A2 HERCULES recovery vehicles; and a $39 million
contract to build 48 Field Artillery Ammunition Support Vehicles for the U.S.
Army National Guard.
International orders included a $27 million contract to produce an additional 24
internationally-configured howitzers for a U.S. ally and an $18.5 million
contract to support the upgrade of some 750 Canadian M113 armored personnel
carriers. Other major international activities include a Turkish joint-venture
company for infantry fighting vehicles, a Korean co-production program for a
variety of vehicles, and logistics support for the Saudi Arabian Land Forces.
United Defense's leadership on a number of high-priority Army development
programs continued to advance, including the all-new Crusader Advanced Field
Artillery System, the Grizzly mineclearing and counterobstacle vehicle, the
Composite Armored Vehicle, and the Bradley Command and Control Vehicle (C2V).
Each of these programs successfully reached
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major development milestones in 1996 that enable them to now move forward to
their next level of program maturation. In addition, the first of the new
digitized Bradley A3 prototypes was delivered, along with several other
Bradley-based derivatives, including the first of ten Bradley FIST (Fire Support
Team) prototype vehicles and an Armored Treatment Vehicle prototype. All are now
being evaluated by the U.S. Army.
(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.
1996 1995 1994
---- ---- ----
Metal Reclamation and Mill Services 39% 40% 38%
Gas Control and Containment Equipment 19% 18% 17%
(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 1996, construction related
operations accounted for 12% of total sales.
(1) (vi) The practices of the Company relating to working capital items are
not unusual compared with those practices of other manufacturers servicing
mainly industrial and commercial markets.
(1) (vii) No material part of the business of the Company is dependent upon a
single customer or a few customers, the loss of any one of which would have a
material adverse effect upon the Company.
(1) (viii) Backlog of orders stood at $211,734,000 and $157,129,000 as of
December 31, 1996 and 1995, respectively. It is expected that approximately 25%
of the total backlog at December 31, 1996, will not be filled within 1997. There
is no significant seasonal aspect to the Company's backlog. Backlog for
scaffolding, shoring and forming equipment, and for roofing granules and slag
abrasives are not included in the total backlog, because they are generally not
quantifiable. Contracts for the Metal Reclamation and Mill Services Group are
also excluded from the total backlog. Additionally, contracts for the Company's
40% equity interest in United Defense, L.P. are excluded from total backlog.
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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.
in accordance with procedures specified in the regulations and, under certain
circumstances, has the right to renegotiate profits. The United Defense
partnership pretax income amounted to 25%, 34% and 42% of total Harsco pretax
income in 1996, 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 $5,108,000, $4,876,000, and $5,463,000 in 1996, 1995, and 1994,
respectively.
(1) (xii) The Company has become subject, as have others, to increasingly
stringent air and water quality control legislation. In general, the Company has
not experienced substantial difficulty in complying with these environmental
regulations in the past and does not anticipate making any major capital
expenditures for environmental control facilities. While the Company expects
that environmental regulations may expand, and its expenditures for air and
water quality control will continue, it cannot predict the effect on its
business of such expanded regulations. For additional information regarding
environmental matters see Note 1 and Note 10 to the Consolidated Financial
Statements included in Item 8, "Financial Statements and Supplementary Data".
(1) (xiii) As of December 31, 1996, the Company had approximately 14,200
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 17 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 the Company 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 30,000 Railroad Equipment
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, 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 66,000 Valve Manufacturing
Jessup, Georgia 43,000 Propane Tanks
Jessup, Georgia 62,000 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
Huntsville, Alabama 270,000 Acetylene Tanks
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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The Company 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 02/28/99
Brendale, Australia 40,000 Railroad Equipment 10/18/97
Process Industry Products:
Baltimore, Maryland 15,000 Pipe Fittings 04/30/97
Lansing, Ohio 67,000 Pipe Fittings 01/31/98
Cleveland, Ohio 50,000 Brass Castings 09/30/98
The Company 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-nine 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:
On November 19, 1996, the Board of Directors declared a two-for-one stock split
on the Company's common stock. One additional share will be issued for each
share of common stock held by shareholders of record as of the close of business
on January 15, 1997. New shares will be distributed on February 14, 1997. Common
stock and additional paid-in capital as of December 31, 1996 have been restated
to reflect this split. Par value will remain unchanged at $1.25. The number of
shares issued at December 31, 1996, after giving effect to the split, was
65,458,202 (32,729,101 shares issued before the split).
Harsco common stock is traded on the New York, Pacific, Boston, and Philadelphia
Stock Exchanges under the symbol HSC. At the end of 1996, there were 49,602,352
shares outstanding on a post-split basis. In 1996, the stock traded in a range
of 35 1/8 - 29 (on a post-split basis) and closed at $34 1/4 (on a post-split
basis) at year-end. For additional information regarding Harsco common stock
market price, dividends declared, and numbers of shareholders see Part II, Item
6, "Selected Financial Data".
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Item 6. Selected Financial Data
FIVE-YEAR STATISTICAL SUMMARY
(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUMMARY OF OPERATIONS 1996 1995 1994 1993(DELTA) 1992
Net sales $ 1,557,643 $ 1,495,466 $ 1,357,715 $ 1,422,308 $ 1,624,939
Equity in income of unconsolidated entities 50,083 57,031 64,120 2,415 3,626
Gain on sale of investments and other revenues 773 1,520 43,946 19,573 2,093
Costs and expenses excluding facilities
discontinuance and reorganization costs 1,389,801 1,346,031 1,272,153 1,292,236 1,479,023
Facilities discontinuance and reorganization costs 3,280 22,809 17,143 2,419 445
Income before interest, income taxes, minority
interest, and cumulative effect of accounting changes 215,418 185,177 176,485 149,641 151,190
Interest expense 21,483 28,921 34,048 19,974 18,882
Income before cumulative effect of
accounting changes 119,009 97,377 86,553 80,816(a) 91,516(b)
Net income 119,009 97,377 86,553 87,618 84,322
Return on net sales(1) 7.6% 6.5% 6.4% 5.7%(a) 5.6%(b)
Return on average equity(2) 18.2% 15.9% 15.7% 17.3% 17.2%
Return on average assets(3) 16.8% 14.6% 13.5% 13.4%(a) 15.2%(b)
FINANCIAL DATA
Shareholders' equity 681,287 625,991 581,222 523,084 495,103
Cash dividends declared 38,310 37,599 35,715 34,946 34,598
Depreciation 100,137 95,033 90,179 69,558 57,064
Capital expenditures 150,294 113,895 90,928 83,395 42,720
Cash provided by operating activities 217,202 258,815 161,395 232,220 108,134
Cash provided (used) by investing activities (153,225) (97,331) (73,150) (397,666) (24,518)
Cash provided (used) by financing activities (92,944) (128,068) (103,040) 173,555 (152,652)
Working capital 214,519 145,254 254,338 182,756 316,918
Current ratio 1.7:1 1.4:1 1.9:1 1.4:1 2.1:1
Total assets 1,324,419 1,310,662 1,314,649 1,427,612 991,225
Long-term debt 227,385 179,926 340,246 364,869 119,841
Total debt 253,567 288,673 365,984 428,378 131,068
Percent of total debt to capital(4) 27.1% 31.6% 38.6% 45.0% 20.9%
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FIVE-YEAR STATISTICAL SUMMARY (Column con't 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.
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FIVE-YEAR STATISTICAL SUMMARY (Column con't from prior page)
PER SHARE DATA(d) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Income before cumulative effect of
accounting changes ..................... 2.39 1.93 1.72 1.61(a) 1.76(b)
Shareholders' equity .................... 13.73 12.49 11.54 10.48 9.75
Cash dividends declared ................. 0.77 0.75 0.71 0.70 0.67
Price/earnings ratio, high-low .......... 15-12 16-10 13-11 13-10 12-9
Market price of common stock
High - low, by quarter
1st .................................... 34 - 29 22 1/2 - 19 3/4 23 1/4 - 20 3/8 22 1/2 - 18 1/2 19 3/4 - 13 7/8
2nd..................................... 35 - 32 3/8 26 1/2 - 21 1/2 22 3/8 - 19 7/8 22 1/4 - 17 1/2 19 - 16 7/8
3rd..................................... 35 1/2 - 29 1/4 29 3/4 - 26 1/4 21 5/8 - 19 1/4 22 3/8 - 18 3/4 18 7/8 - 14
4th..................................... 35 1/8 - 29 3/4 30 1/4 - 26 3/8 22 1/8 - 19 1/4 21 3/4 - 19 5/8 19 3/8 - 14 1/8
Dividends paid, by quarter
1st .................................... .1900 .1850 .1750 .1750 .1650
2nd .................................... .1900 .1850 .1750 .1750 .1650
3rd .................................... .1900 .1850 .1750 .1750 .1650
4th .................................... .1900 .1850 .1750 .1750 .1650
OTHER INFORMATION
Average number of shares outstanding(d) . 49,883,062 50,492,712 50,229,748 50,073,786 51,933,510
Number of employees ..................... 14,200 13,200 13,000 14,200 9,600
Backlog(e) .............................. $ 211,734 $ 157,129 $ 160,703 $ 146,751(c) $ 190,914(c)
(DELTA)Includes MultiServ International, N.V. since date of acquisition,
August 31, 1993.
(a) Excludes cumulative effect of change in method of accounting for income
taxes, which increased net income by $6.8 million, ($.14 per share).
(b) Excludes cumulative effect of change in method of accounting for
postretirement benefits other than pensions, which decreased net income by
$7.2 million, ($.14 per share).
(c) Excludes $397.9 million contributed to United Defense, L.P. for comparative
purposes with 1994 and $548.1 million for comparative purposes with 1993.
(d) Reflects two-for-one stock split to shareholders of record January 15, 1997.
(e) Excludes the estimated value of long-term metal reclamation and mill
services contracts.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
FINANCIAL CONDITION
Net cash provided by operating activities was $217.2 million in 1996 compared to
$258.8 million in 1995. 1995 included the receipt of $20.4 million from a claim
settlement with the U.S. Government and the $49.0 million Federal Excise Tax
reimbursement on the completed five-ton truck contract. During 1996 and 1995,
distributions of $38.5 million and $38.4 million were received from
unconsolidated entities, respectively.
Capital expenditures for 1996 were a record $150.3 million, compared with $113.9
million in 1995, reflecting the Company's program to achieve business growth and
to improve productivity and quality. The increase in capital spending reflects
principally higher capital expenditures for the Metal Reclamation and Mill
Services Group which amounted to $109 million, up 49% from 1995. Capital
expenditures during the past three years averaged $118.4 million. Proceeds from
the sale of property, plant and equipment in 1996 provided $4.9 million in cash
compared to $11.5 million in 1995. Cash used by investing activities included
$19 million for the acquisition of substantially all of the net assets of the
Coyne Cylinder business ("Coyne") and $2 million for the acquisition of certain
assets of a railway maintenance of way company.
Cash used by financing activities included $37.9 million of cash dividends paid
on common stock and $30.7 million in stock acquired for treasury. Total
short-term and long-term debt decreased by $31.7 million. Cash and cash
equivalents decreased $30.8 million to $45.9 million at December 31, 1996.
In November 1996, the Board of Directors declared a two-for-one stock split on
the Company's common stock. One additional share will be issued for each share
of common stock held by shareholders of record as of the close of business on
January 15, 1997. In the Management's Discussion and Analysis, all references to
the number of common shares and per share amounts have been adjusted to reflect
post-split amounts.
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 1996, the Board of Directors
authorized the purchase, over a one-year period, of up to 2,000,000 shares of
the Company's common stock. The total number of shares purchased under this
program for 1996 was 899,186 shares of common stock at an average cost of $31.53
per share. Financing activities included $30.7 million in cash used to
repurchase the Company's common stock. In January 1997, the Board of Directors
authorized the purchase, over a one-year period, of up to 2,000,000 shares of
the Company's common stock.
Other matters which could affect cash flows in the future are discussed under
Note 10 to the Consolidated Financial Statements, "Commitments and
Contingencies."
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The Company continues to maintain a strong financial position, with net working
capital of $214.5 million, up from $145.3 million at December 31, 1995. The
improvement is primarily due to the repayment of the $89.5 million of 8.75%
10-year notes that matured in May 1996, which was financed principally through
the issuance of commercial paper. Such borrowings are classified as long-term
debt due to the Company's intent and ability to refinance it on a long-term
basis through existing long-term credit facilities. Current assets amounted to
$508.5 million, and current liabilities were $294.0 million, resulting in a
current ratio of 1.7 to 1, up from 1.4 to 1 at December 31, 1995. With total
debt at $253.6 million and equity at $681.3 million at December 31, 1996, total
debt as a percent of total capital was 27.1%, down from 31.6% at December 31,
1995.
The stock price range during the year was 35 1/8 - 29. The Company's book value
per share at December 31, 1996, was $13.73, compared with $12.49 at December 31,
1995. The Company's return on average equity for 1996 was 18.2%, compared with
15.9% for the year 1995. The return on average assets for 1996 was 16.8%,
compared with 14.6% for the year 1995. The return on capital for 1996 was 14.1%,
compared with 12.2% for year 1995.
In July 1996, the Company amended and increased to $400 million, from $300
million, its October 1993 Five-Year Competitive Advance and Revolving Credit
Facility with a syndicate of 18 banks led by Chase Manhattan Bank. The five-year
facility, as amended, extends maturity to July 2001, provides for greater
financial flexibility and reflects favorable syndicated credit pricing. This
amended credit facility will serve as backup to the Company's $300 million
commercial paper program, which was increased from $150 million. In addition,
the Company in September 1996 initiated a Belgian commercial paper program. The
3 billion Belgian franc program is equivalent to approximately US $100 million.
The Belgian program will be used to borrow a variety of Eurocurrencies in order
to fund the Company's European operations more efficiently and in appropriate
currencies. The Company limits the aggregate commercial paper and credit
facility borrowings at any one time to a maximum of $400 million. The credit
facility has been increased to provide financing for general corporate needs and
future growth opportunities.
The Company's outstanding long-term notes are rated A by Standard & Poor's, A by
Fitch Investors Service and A-3 by Moody's. The Company'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.
As indicated by the above, the Company's financial position and debt capacity
should enable it to meet its current and future requirements. As additional
resources are needed, the Company should be able to obtain funds readily and at
competitive costs.
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RESULTS OF OPERATIONS
1996 Compared with 1995
Revenues for 1996 were $1.61 billion, 4% above 1995. The increase was due
principally to higher sales for gas control and containment equipment and metal
reclamation and mill services, which included the consolidation of a subsidiary
in South Africa that had previously been reflected as an equity investment. The
Company acquired a majority ownership of the subsidiary in the fourth quarter of
1995. More than offsetting the South Africa consolidation was the divesting of
certain non-core European businesses in the Metal Reclamation and Mill Services
Group during the fourth quarter of 1995 and April 1996. In addition, higher
sales were recorded for railway maintenance of way equipment and services,
scaffolding, shoring and forming equipment, roofing granules and slag abrasives,
pipe fittings and to a lesser extent grating. Increased sales were also due in
part to an acquisition made in 1996. These increases were partially offset by
the effect of ceasing school bus operations in June 1995, as well as lower
income from the Company's equity investment in United Defense, L.P. Sales also
decreased, but to a lesser extent, due to the strengthening of the U.S. dollar,
principally against certain European currencies.
Cost of sales increased primarily due to higher volume, but at a rate less than
the increase in sales. Selling, general and administrative expenses increased,
principally as a result of higher compensation costs and the inclusion of
acquired companies.
Income before income taxes and minority interest was up 23% from last year.
Higher earnings in 1996 reflect higher operating results for pipe fittings, gas
control and containment equipment, roofing granules and abrasives, railway
maintenance of way equipment and services, and metal reclamation and mill
services. Increased income was also due in part to an acquisition made in 1996.
As expected, lower earnings were recorded for the Company's share of income from
its equity investment in United Defense, L.P., which included substantial
dividend income from its investment in an international operation. Scaffolding,
shoring and forming equipment also recorded lower earnings in 1996. On a
comparative basis, unfavorably affecting 1995's results were losses arising from
the school bus business, which ceased operations in June that year. The Company
recorded in 1995 a pre-tax provision of $2.1 million for the valuation of the
remaining school bus operation plant and equipment and $3 million in termination
and other exit costs. 1995 also included a $13.5 million non-cash pre-tax charge
($0.16 after-tax earnings per share) arising from the settlement of a Federal
Excise Tax reimbursement claim with the U.S. Government. Income benefited in
1995 from the effect of a pre-tax $6.6 million 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 foreign
currency translation exchange loss due to the devaluation of the Mexican peso.
Interest expense decreased as a result of the continued reduction of the
Company's outstanding debt and average interest rate. The effective income tax
rate for 1996 at 38% was lower than the 1995 rate of 39%.
Net income of $119 million was up 22% from 1995. This net income was the highest
performance in the history of the Company.
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Sales of the Metal Reclamation and Mill Services Group, at $607.7 million, were
slightly above 1995. The rate of increase was unfavorably affected by the
strengthening of the U.S. dollar, principally against certain European
currencies. Sales for the Infrastructure and Construction Group, at $408.8
million, were above last year, which included $15.7 million for the school bus
business that ceased operation in June 1995. Higher sales were recorded for all
other product classes, particularly railway maintenance of way equipment and
services and scaffolding in 1996. Sales for the Process Industry Products Group,
at $541.1 million, were higher than last year and were led by gas control and
containment equipment, which included an acquisition made in 1996. The Process
Industry Products Group also included increased sales for pipe fittings, as well
as wear products and process equipment.
Operating profit in 1996 of $85.2 million, excluding the effect of expense items
relating to facilities discontinuance and reorganization costs for the Metal
Reclamation and Mill Services Group, was ahead of 1995, which included $3.4
million of foreign currency translation exchange losses due to the devaluation
of the Mexican peso. The increase also includes higher income in 1996 due to the
consolidation of a subsidiary in South Africa, beginning October 1995. Operating
profit in 1996 of $84.2 million, including the effect of facilities
discontinuance and reorganization costs, for the Group was up 9% from 1995. The
Infrastructure and Construction Group posted an operating profit of $42.8
million, excluding the effect of expense items relating to facilities
discontinuance and reorganization costs. Operating profit increased from 1995,
which included losses arising from the school bus operation. Additionally,
improved results for roofing granules and slag abrasives, as well as railway
maintenance of way equipment and services, contributed to the higher operating
profit of the Group. After including the effect of facilities discontinuance and
reorganization costs, operating profit of $41.8 million was more than two times
the amount recorded in 1995, which included $17.6 million of pre-tax facilities
discontinuance and reorganization costs due principally to a $13.5 million
non-cash pre-tax charge arising from the settlement of a Federal Excise Tax
reimbursement claim with the U.S. Government. Operating profit for the Process
Industry Products Group, at $55.8 million, was up 21% from last year, and
reflected higher earnings for all product classes, principally gas control and
containment equipment which included an acquisition made in 1996, and pipe
fittings.
In addition to the Group reporting noted above, the Company views itself as a
diversified industrial services and manufacturing company. Total industrial
service sales, which include Metal Reclamation and Mill Services Group and
Infrastructure and Construction Group service businesses, principally
scaffolding services and railway maintenance of way services, were $761.5
million in 1996 and $745.3 million in 1995, or approximately 49% and 50% of net
sales in 1996 and 1995, respectively. The total manufacturing sales for 1996
were $796.1 million or approximately 51% of net sales, which includes sales from
the Infrastructure and Construction Group and the Process Industry Products
Group. The total manufacturing sales for 1995 were $750.2 million, approximately
50% of net sales.
The operating profit, excluding the effect of expense items relating to
facilities discontinuance and reorganization costs, for industrial services for
1996 was $100.4 million compared with $96.5 million in 1995, or approximately
55% and 59%, respectively, of total Group operating profit. The operating
profit, excluding the effect of expense items relating to facilities
discontinuance and reorganization costs, from manufacturing for 1996 was $83.4
million
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compared with $65.8 million in 1995, which is approximately 45% and 41%,
respectively, of total Group operating profit.
The operating profit, including the effect of expense items relating to
facilities discontinuance and reorganization costs, for industrial services for
1996 was $99.1 million compared with $93.8 million in 1995, or approximately 55%
and 66%, respectively, of total Group operating profit. The operating profit,
including the effect of expense items relating to facilities discontinuance and
reorganization costs, from manufacturing for 1996 was $82.3 million compared
with $47.8 million in 1995, which is approximately 45% and 34%, respectively, of
total Group operating profit.
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%, versus 40% 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, and structural composites, as well
as roofing granules and abrasives. Income benefited in 1995 from the impact of a
pre-tax $5.8 million ($.07 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 $3.4 million ($.04 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 $13.5 million ($.16 earnings per share) arising
from the settlement of the Federal Excise Tax reimbursement claim with the U.S.
Government. As
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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 $2.1 million
($.03 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 $2.8 million ($.03 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 results were $36.2 million ($.43 earnings per share) of pre-tax
income resulting from the negotiated settlement of three claims with the U.S.
Government and a pre-tax $5.9 million ($.07 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 $17.1 million ($.20
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 $6 million ($.07 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 ($1.93 per share), a record, was up 13% from
1994. Results for 1995 included a non-cash, after-tax charge of $8.2 million
($.16 per share) from the settlement of a claim with the U.S. Army. Excluding
this item, 1995 income was $105.6 million ($2.09 per share). Net income in 1994
of $86.6 million ($1.72 per share) included gains from settlements of claims
with the U.S. Army and the sale of an equity security aggregating $.50 per
share. Excluding these items, 1994 income was $61.4 million ($1.22 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 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 loss,
whereas in December 1994, a $6 million foreign currency 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
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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 million was recorded for the Group as
compared to a $1 million loss in 1994. Operating profit for the Process Industry
Products Group, at $46 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 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
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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 million and $42 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.
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 group, 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 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
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unfavorably impacted by the school bus business, which incurred a loss of $16
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 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, 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 ($1.72 per share) was slightly below 1993, which
included an after-tax gain of $10.7 million ($.21 per share) on the partial sale
of an investment in a marketable equity security and the favorable effect of an
accounting change of $6.8 million ($.14 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 $21.7 million ($.43 per share) of claims with the U.S. Government
and an after-tax gain of $3.5 million ($.07 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 ($1.22 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
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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 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 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 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
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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 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.
RESEARCH AND DEVELOPMENT
The Company spent $5.1 million on internal research and development programs in
1996. Internal funding for the Infrastructure and Construction Group amounted to
$3.5 million, primarily for railway maintenance of way equipment and services.
Expenditures for Process Industry Products and the Metal Reclamation and Mill
Services Groups were $1 million and $0.6 million, respectively. Total internal
research and development spending of $5.1 million increased 5% above the $4.9
million spent in 1995.
BACKLOG
The year-end backlog for the Process Industry Products Group was $117.1 million,
an 18% increase over December 31, 1995. The Infrastructure and Construction
Group backlog at December 31, 1996 was $94.6 million which increased 63% over
December 31, 1995, due principally to increases in railway maintenance of way
services and equipment. 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 $2.6 billion at year-end, extending into the
year 2007, increased approximately 13% over December 31, 1995.
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OUTLOOK FOR 1997
The progress made in 1996, with upward trends in sales, income, and backlogs
underpins our view that Harsco's core businesses will continue to grow in 1997.
We expect metal reclamation and mill services to expand further in 1997, with
both new customers and broader product service offerings to existing customers.
This revenue growth combined with ongoing cost saving and productivity
initiatives, should again yield improved results. We expect to offer more
scaffolding services to the construction and industrial maintenance markets, as
we open five more branches in addition to the eight opened in 1996, and broaden
the introduction of our new Sprint Scaffolding line. Further, we anticipate the
expansion of services in the railway maintenance of way equipment market, led by
a broadening of our "Tie Masters" program and R&D efforts. The refocusing of the
Company, begun in 1994, shifting the emphasis to industrial services, in
contrast to our past primary focus on manufacturing, will continue. We
anticipate growth from our manufacturing businesses, led by the expansion of the
product offerings of our gas containment and process equipment businesses
internationally. Capital expenditures could exceed 1996's record $150 million
level, as we further pursue internal growth opportunities.
Achievement of this sales and income growth plan should more than offset the
anticipated decline of our defense industry partnership equity income in 1997.
Subject to major economic, political and foreign currency changes, we believe
that our operations will achieve our goals for increased returns on capital,
assets and equity. Cash flows from operating activities are expected to
approximate 1996's. We expect to further improve our debt-to-capital ratio,
excluding the impact of major acquisitions, and fulfill our other stated
financial objectives, while investing appropriately for sustainable growth in
our businesses.
SAFE HARBOR STATEMENT
The nature of the Company's operations and the many countries in which it
operates subject it to changing economic, competitive, regulatory, and
technological conditions, risks, and uncertainties. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company provides the following cautionary remarks regarding important factors
which, among others, could cause future results to differ materially from the
forward-looking statements, expectations and assumptions expressed or implied
herein. These include statements about our management confidence and strategies
for performance; expectations for new and existing products, technologies, and
opportunities; and expectations for market segment and industry growth.
These factors include, but are not limited to: (1) changes in the world-wide
business environment in which the Company operates, including import, licensing
and trade restrictions, interest rates, and capital costs; (2) changes in
governmental laws and regulations, including taxes; (3) market and competitive
changes, including market demand and acceptance for new products, services, and
technologies; and (4) effects of unstable governments and business conditions in
emerging economies.
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DIVIDEND ACTION
The Company paid four quarterly cash dividends of $.19 cents per share in 1996,
for an annual rate of $.76. At the November meeting, the Board of Directors
increased the dividend 5.3% to an annual rate of $.80 per share. In addition,
the Board approved a two-for-one common stock split. One additional share will
be issued for each share of common stock held by shareholders of record as of
the close of business on January 15, 1997. New shares will be distributed on
February 14, 1997. The Board normally reviews the dividend periodically during
the year and annually at its November meeting. Retained earnings in the amount
of $794.5 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. The February 1997 payment marked the 187th
consecutive quarterly dividend paid at the same or at an increased rate. During
the five-year period ended December 31, 1996, dividends paid were increased four
times. In 1996, the dividend payout rate was 31.9%. 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 build a tradition of creating
shareholder value. To that end, Harsco is striving to exceed a Return on Capital
("ROC") of 14% in 1997. 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 1996, the Company's ROC was 14.1%. In addition to this key earnings-related
measurement, incentive programs for both Division and Corporate management are
based on sales growth, operating cash flow and earnings per share goals. Harsco
raised two other Corporate goals in 1996 - to consistently achieve a Return on
Equity ("ROE") of 17% - 18% and a Return on Assets ("ROA") of 15% - 16%. In
1996, the Company's ROE was 18.2% and ROA was 16.8%. 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.
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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 29
Consolidated Balance Sheets
December 31, 1996 and 1995 30
Consolidated Statements of Income
for the years 1996, 1995 and 1994 31
Consolidated Statements of Cash Flows
for the years 1996, 1995 and 1994 32
Consolidated Statements of Shareholders'
Equity for the years 1996, 1995 and 1994 33
Notes to Consolidated Financial
Statements 34 - 72
Supplementary Data:
Two-Year Summary of Quarterly Results (Unaudited) 73
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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, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
January 30, 1997
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HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(In thousands, except share amounts) 1996 1995
- ------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................. $ 45,862 $ 76,669
Accounts receivable, net .............................................. 268,230 272,858
Inventories ........................................................... 126,018 123,285
Other current assets .................................................. 68,436 60,954
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ......................................... 508,546 533,766
- ------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net ......................................... 513,112 459,809
Cost in excess of net assets of businesses acquired, net ................... 195,387 205,801
Investments in debt securities ............................................. 4,058 21,007
Investments in unconsolidated entities ..................................... 57,719 45,604
Other assets ............................................................... 45,597 44,675
- ------------------------------------------------------------------------------------------------------------
$1,324,419 $1,310,662
============================================================================================================
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings ................................................. $ 16,856 $ 5,704
Current maturities of long-term debt .................................. 9,326 103,043
Accounts payable ...................................................... 111,912 112,736
Accrued compensation .................................................. 44,501 41,304
Income taxes .......................................................... 9,860 17,671
Dividends payable ..................................................... 9,920 9,520
Other current liabilities ............................................. 91,652 98,534
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES .................................... 294,027 388,512
- ------------------------------------------------------------------------------------------------------------
Long-term debt ............................................................. 227,385 179,926
Deferred income taxes ...................................................... 34,182 36,061
Insurance liabilities ...................................................... 38,876 37,298
Other liabilities .......................................................... 48,662 42,874
- ------------------------------------------------------------------------------------------------------------
643,132 684,671
- ------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Series A junior participating cumulative preferred stock... -- --
Common stock, par value $1.25, issued 65,458,202 and
32,537,880 shares, respectively ....................................... 81,823 40,672
Additional paid-in capital ................................................. 69,151 101,183
Cumulative translation adjustments ......................................... (25,476) (19,852)
Cumulative pension liability adjustments ................................... (619) (413)
Retained earnings .......................................................... 794,473 713,774
- ------------------------------------------------------------------------------------------------------------
919,352 835,364
Treasury stock, at cost (15,855,850 and 7,486,331 shares, respectively).. (238,065) (209,373)
- ------------------------------------------------------------------------------------------------------------
681,287 625,991
- ------------------------------------------------------------------------------------------------------------
$1,324,419 $1,310,662
============================================================================================================
See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS 1996, 1995 AND 1994
(In thousands, except per share) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
REVENUES
Net sales ....................................................... $1,557,643 $1,495,466 $1,357,715
Equity in income of unconsolidated entities ..................... 50,083 57,031 64,120
Gain on sale of investments ..................................... -- -- 5,966
Other revenues .................................................. 773 1,520 37,980
- ------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES .............................................. 1,608,499 1,554,017 1,465,781
- ------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales ................................................... 1,176,982 1,147,467 1,060,695
Selling, general and administrative expenses .................... 207,502 198,706 199,837
Research and development expenses ............................... 5,108 4,876 5,463
Facilities discontinuance and reorganization costs .............. 3,280 22,809 17,143
Other ........................................................... 209 (5,018) 6,158
- ------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES .................................... 1,393,081 1,368,840 1,289,296
- ------------------------------------------------------------------------------------------------------------------------
Income before interest, income taxes and minority interest 215,418 185,177 176,485
Interest income ...................................................... 6,949 7,472 6,403
Interest expense ..................................................... (21,483) (28,921) (34,048)
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest ............ 200,884 163,728 148,840
Provision for income taxes ........................................... 76,336 63,854 59,536
- ------------------------------------------------------------------------------------------------------------------------
Income before minority interest ............................. 124,548 99,874 89,304
Minority interest in net income ...................................... 5,539 2,497 2,751
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME .................................................. $ 119,009 $ 97,377 $ 86,553
========================================================================================================================
NET INCOME PER COMMON SHARE .......................................... $ 2.39 $ 1.93 $ 1.72
========================================================================================================================
AVERAGE SHARES OF COMMON STOCK OUTSTANDING ........................... 49,883 50,493 50,230
========================================================================================================================
See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS 1996, 1995 AND 1994
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 119,009 $ 97,377 $ 86,553
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation .......................................................... 100,137 95,033 90,179
Amortization .......................................................... 9,262 9,830 9,410
Gain on sale of investments ........................................... -- -- (5,966)
Equity in income of unconsolidated entities ........................... (50,083) (57,031) (64,120)
Dividends or distributions from unconsolidated entities ............... 38,474 38,400 71,845
Deferred income taxes ................................................. (829) (19,018) 273
Write-off of federal excise tax receivable ............................ -- 13,455 --
Other, net ............................................................ 5,429 (1,890) 7,902
Changes in assets and liabilities, net of acquisitions and dispositions
of businesses and formation of a partnership:
Accounts receivable ............................................... (138) 73,732 (34,263)
Inventories ....................................................... 3,100 (1,583) (7,302)
Accounts payable .................................................. 4,086 4,955 14,191
Advances on long-term contracts ................................... 296 (1,623) (9,636)
Other assets and liabilities ...................................... (11,541) 7,178 2,329
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................. 217,202 258,815 161,395
================================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment ............................ (150,294) (113,895) (90,928)
Purchase of businesses, net of cash acquired* ............................. (21,062) (4,145) --
Proceeds from sale of businesses .......................................... 1,793 3,821 2,444
Proceeds from sale of property, plant and equipment ....................... 4,890 11,491 8,222
Proceeds from sale of investment held available-for-sale .................. -- -- 7,617
Investments held-to-maturity: Purchases ................................... (14,300) (3,067) (15,750)
Maturities .................................. 26,561 5,475 24,740
Other investing activities ................................................ (813) 2,989 (9,495)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES ............................... (153,225) (97,331) (73,150)
================================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net ................................................ 10,911 (13,998) (35,303)
Current maturities and long-term debt: Additions .......................... 187,319 27,076 123,445
Reductions ......................... (229,914) (95,884) (164,662)
Cash dividends paid on common stock ....................................... (37,921) (37,397) (35,137)
Common stock issued-options ............................................... 5,726 5,660 7,241
Common stock acquired for treasury ........................................ (30,657) (14,130) --
Other financing activities ................................................ 1,592 605 1,376
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY FINANCING ACTIVITIES ............................... (92,944) (128,068) (103,040)
================================================================================================================================
EFFECT OF EXCHANGE RATE CHANGES ON CASH ...................................... (1,840) (297) (395)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ...................... (30,807) 33,119 (15,190)
Cash and cash equivalents at beginning of year ............................ 76,669 43,550 58,740
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ..................................... $ 45,862 $ 76,669 $ 43,550
================================================================================================================================
*PURCHASE OF BUSINESSES, NET OF CASH ACQUIRED
Working capital, other than cash .......................................... $ (7,625) $ 5,139 $ --
Property, plant and equipment ............................................. (12,315) (8,263) --
Other noncurrent assets and liabilities, net .............................. (1,122) (1,021) --
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH USED TO ACQUIRE BUSINESSES ................................... $ (21,062) $ (4,145) $ --
================================================================================================================================
See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS 1996, 1995 AND 1994
CUMULATIVE ADJUSTMENTS
COMMON STOCK ADDITIONAL ----------------------
-------------------- PAID-IN PENSION RETAINED
(In thousands, except share amounts) ISSUED TREASURY CAPITAL TRANSLATION LIABILITY EARNINGS
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES, JANUARY 1, 1994......................... $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
=================================================================================================================================
Net income........................................ 119,009
Cash dividends declared, $1.54 per share.......... (38,310)
Translation adjustments........................... (5,624)
Pension liability adjustments, net of $157
deferred income taxes.......................... (206)
Acquired during the year, 472,471 shares.......... (29,875)
Stock options exercised, 191,221 shares........... 239 8,038
Restricted stock issued, net, 30,183 shares....... 1,159 824
Other, 694 shares................................. 24 18
Two-for-one stock split at par value..............
(additional shares issued 32,729,101
including 7,927,925 treasury shares)*........ 40,912 (40,912)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996....................... $81,823 $(238,065) $ 69,151 $(25,476) $(619) $ 794,473
=================================================================================================================================
* See Note 2 to the consolidated financial statements.
See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Harsco Corporation
and its majority-owned subsidiaries ("Company"). Investments in United Defense,
L.P., a 40% owned partnership 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. 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 gain was
reflected in the Company's Consolidated Statements of Income in 1994.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventories in the United
States are accounted for using principally the last-in, first-out (LIFO) method.
All other inventories are accounted for using the first-in, first-out (FIFO)
method and average cost.
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- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
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.
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. Accumulated amortization was $42.7 and $34.5 million at December
31, 1996 and 1995, respectively.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 requires that
long-lived assets, including related goodwill, be reviewed for impairment and
written down to fair value whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. The Company evaluates long-lived
assets for impairment by individual business unit. The cumulative effect
resulting from the adoption of SFAS 121 in 1996 was immaterial.
INCOME TAXES
All U.S. federal and state income taxes and non-U.S. income taxes are provided
currently on the undistributed earnings of international subsidiaries and
unconsolidated affiliated entities, giving recognition to current tax rates and
applicable foreign tax credits.
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.
In October 1996, Statement of Position 96-1, "Environmental Remediation
Liabilities" was issued. The statement is effective for years beginning after
December 15, 1996. This statement provides guidance for recognizing, measuring
and disclosing environmental remediation liabilities. The Company does not
expect this statement to have a material effect on its financial position or
results of operations.
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- --------------------------------------------------------------------------------
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. 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. 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. Resulting 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.
Effective January 1997, the Company's operations in Mexico will be treated as a
highly inflationary economy for the purpose of applying Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation". This change is due
to the three-year cumulative rate of inflation for Mexico at December 31, 1996
exceeding 100 percent. The functional currency for the Company's operations in
Mexico will change from the peso to the U.S. dollar.
FINANCIAL INSTRUMENTS AND HEDGING
The Company has subsidiaries principally operating in North and South America,
Europe and the Pacific region. These operations are exposed to fluctuations in
related foreign currencies, in the normal course of business. The Company seeks
to reduce exposure to foreign currency fluctuations, 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.
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- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company enters into forward foreign exchange contracts to hedge transactions
on 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. The Company also enters
into forward foreign exchange contracts for intercompany foreign currency
commitments. These foreign exchange contracts do not qualify as hedges for
financial reporting purposes, and any related gain or loss is included in income
on a current basis.
OPTIONS FOR COMMON SHARES
The Company applies the intrinsic value based method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25) to account for options granted to
employees and directors to purchase common shares. No compensation expense is
recognized on the grant date since, at that date, the option price equals the
market price of the underlying common shares. Effective January 1, 1996, the
Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). SFAS 123 requires that companies electing to continue using the intrinsic
value method must make pro forma disclosures of net income and earnings per
share as if the fair-value-based method of accounting had been applied.
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.
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- --------------------------------------------------------------------------------
2. COMMON STOCK SPLIT
On November 19, 1996, the Board of Directors declared a two-for-one stock split
on the Company's common stock. One additional share will be issued for each
share of common stock held by shareholders of record as of the close of business
on January 15, 1997. New shares will be distributed on February 14, 1997. Common
stock and additional paid-in capital as of December 31, 1996 have been restated
to reflect this split. Par value will remain unchanged at $1.25. The number of
shares issued at December 31, 1996, after giving effect to the split, was
65,458,202 (32,729,101 shares issued before the split).
The effect of the stock split has been retroactively reflected as of December
31, 1996 in the consolidated balance sheet and statement of changes in
shareholders' equity, but activity for 1996 and prior periods was not restated
in those statements. All references to the number of common shares and per share
amounts elsewhere in the consolidated financial statements and related footnotes
have been restated as appropriate to reflect the effect of the split for all
periods presented.
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- --------------------------------------------------------------------------------
3. ACQUISITIONS, DIVESTITURES AND FORMATION OF DEFENSE BUSINESS PARTNERSHIP
ACQUISITIONS AND DIVESTITURES OF BUSINESSES
On April 29, 1996, the Company acquired substantially all the assets of the
Coyne Cylinder business ("Coyne") of Huntsville, Alabama, for $19 million in
cash and the assumption of certain liabilities for a total consideration of
approximately $22.2 million. Coyne had annual sales of approximately $45 million
in 1995. It is the world's leading manufacturer of acetylene, small and
intermediate high pressure and specialty cylinders, and also produces scuba
tanks and cylinder caps.
On February 6, 1995, the Company acquired substantially all the assets of
Fabsco, Inc. for $3.4 million in cash and the assumption of certain liabilities
for a total consideration of approximately $14.8 million. Fabsco, a privately
held manufacturer of heat exchanger products, had annual sales of approximately
$22 million in 1994.
The acquisitions are accounted for under the purchase method of accounting and
include the results of operations since the dates of acquisition. Proforma
results are not presented for the periods prior to the acquisitions because the
effect would not be material.
Effective April 1, 1996, the Company divested its non-core temporary labor units
in Europe for approximately $2 million. The businesses had annual sales of
approximately $22 million.
During 1996 and 1995, the Company also acquired and divested other smaller
operations.
FORMATION OF DEFENSE BUSINESS PARTNERSHIP
On January 28, 1994, FMC Corporation ("FMC") and the Company announced
completion of a series of agreements ("Agreements") 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 $29.6
million, which included $5.2 million in cash. The net assets were contributed on
the historical basis of accounting and no gain was recognized on the
transaction.
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3. ACQUISITIONS, DIVESTITURES AND FORMATION OF DEFENSE BUSINESS PARTNERSHIP
(CONTINUED)
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 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.
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4. INVESTMENTS IN DEBT SECURITIES
The debt securities held-to-maturity at December 31, 1996 and 1995 consist of:
(In thousands) 1996
- --------------------------------------------------------------------------------------
UNREALIZED
AMORTIZED ---------------- FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------
Corporate debt securities $23,468 $ 63 $14 $23,517
Government debt
securities non-U.S. 9,770 45 7 9,808
- --------------------------------------------------------------------------------------
$33,238 $108 $21 $33,325
======================================================================================
(In thousands) 1995
- ---------------------------------------------------------------------------------------
UNREALIZED
AMORTIZED ----------------- 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
=======================================================================================
The amortized cost and fair market value of fixed income debt securities at
December 31, 1996 and 1995, 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) 1996 1995
- -------------------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
- -------------------------------------------------------------------------------------------------
Held to maturity
Due in one year or less $29,180 $29,224 $24,996 $24,954
Due after one year through five years 4,058 4,101 21,007 $21,332
- -------------------------------------------------------------------------------------------------
$33,238 $33,325 $46,003 $46,286
=================================================================================================
Investments held to maturity due in one year or less are included in Other
current assets on the Consolidated Balance Sheets.
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5. INVENTORIES AND ACCOUNTS RECEIVABLE
Inventories consist of:
(In thousands) 1996 1995
- -----------------------------------------------------------------------------
Finished goods $ 24,743 $ 25,996
Work in process 25,843 24,640
Raw materials and purchased parts 57,581 54,151
Stores and supplies 17,851 18,498
- -----------------------------------------------------------------------------
$126,018 $123,285
=============================================================================
Valued at lower of cost or market:
LIFO basis $ 90,445 $ 89,239
FIFO basis 24,663 23,860
Average cost basis 10,910 10,186
- -----------------------------------------------------------------------------
$126,018 $123,285
=============================================================================
Inventories valued on the LIFO basis at December 31, 1996 and 1995 were
approximately $37.1 million and $37.9 million, respectively, less than the
amounts of such inventories valued at current costs.
As a result of reducing certain inventory quantities valued on the LIFO basis,
profits from liquidation of inventories were recorded, which increased net
income (in millions) by $0.6, $0.5 and $0.3 in 1996, 1995 and 1994,
respectively.
Accounts receivable are net of an allowance for doubtful accounts of $8.5
million and $8.3 million at December 31, 1996 and 1995, respectively.
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6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
(In thousands) 1996 1995
- --------------------------------------------------------------------------
Land and improvements $ 26,479 $ 25,351
Buildings and improvements 129,930 121,651
Machinery and equipment 981,384 896,139
Uncompleted construction 49,659 37,126
- --------------------------------------------------------------------------
1,187,452 1,080,267
Less accumulated depreciation 674,340 620,458
- --------------------------------------------------------------------------
$ 513,112 $ 459,809
==========================================================================
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 15 years
(Principally Metal Reclamation and Mill Services Group)
Machinery and equipment 3 to 20 years
- ----------------------------------------------------------------------------------
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7. 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.
The Company's other investments are in the Metal Reclamation and Mill Services
Group. The following table presents summarized financial information on a
combined 100% basis of the companies accounted for by the equity method:
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------
Current assets ....... $ 461,204 $ 378,430 $ 321,596
Noncurrent assets .... 194,358 202,701 187,896
Current liabilities .. 411,003 364,385 315,983
Noncurrent liabilities 57,247 52,801 56,485
Net sales ............ 1,042,821 1,003,562 1,129,528
Costs and expenses ... 973,247 892,733 983,955
Net income ........... 99,958 110,250 134,441
- -------------------------------------------------------------------------
The Company's share of income of all unconsolidated entities was (in millions)
$50.1, $57.0 and $64.1 for 1996, 1995 and 1994, respectively.
-44-
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8. DEBT AND CREDIT AGREEMENTS
In July 1996, the Company amended and increased to $400 million, from $300
million, its October 1993 Five-Year Competitive Advance and Revolving Credit
Facility ("credit facility") with a syndicate of 18 banks led by Chase Manhattan
Bank. The five-year facility, as amended, extends maturity to July 2001,
provides for greater financial flexibility and reflects favorable syndicated
credit pricing. Borrowings under this agreement are available in U.S. dollars or
Eurocurrencies and it serves as back-up to the Company's U. 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) plus a margin. The Company pays a facility fee
based upon the full amount of the facility that varies based upon its credit
ratings. The agreement currently provides for a facility fee of 0.08% per annum.
At December 31, 1996 and 1995, there were no borrowings outstanding under these
facilities.
The Company also has a commercial paper borrowing program under which it can
issue up to $300 million, an increase from $150 million, of short-term notes in
the U.S. commercial paper market. This commercial paper program is supported by
the credit facility. In addition, the Company in September 1996 initiated a
Belgian commercial paper program. The 3 billion Belgian franc program is
equivalent to approximately US $100 million. The Belgian program will be used to
borrow a variety of Eurocurrencies in order to fund the Company's European
operations more efficiently and in appropriate currencies. The Company limits
the aggregate commercial paper and credit facility borrowings at any one time to
a maximum of $400 million. Interest rates are based upon market conditions, but
are generally lower than comparable borrowings under the committed bank credit
facility. At December 31, 1996, $36.6 million of commercial paper was
outstanding. At December 31, 1995, the Company had no commercial paper
outstanding. Commercial paper is classified as long-term debt at December 31,
1996, 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 $16.9 million and
$5.7 million at December 31, 1996 and 1995, respectively. The weighted average
interest rate for short-term borrowings at December 31, 1996 and 1995 was 6.9%
and 7.3%, respectively.
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8. DEBT AND CREDIT AGREEMENTS (CONTINUED)
Long-term debt consists of the following:
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------
8.75% Notes due May 15, 1996..................................... $ -- $ 89,500
6.0% Notes due September 15, 2003................................ 150,000 150,000
Commercial Paper Borrowings
with interest up to 3.6%.................................... 36,614 --
Industrial Development Bonds, payable in varying
amounts from 2001 to 2005 with interest up to 7.0%.......... 11,400 11,400
Project financing and other, payable in varying
amounts to 2001 with interest up to 17.2%................... 38,697 32,069
- ------------------------------------------------------------------------------------------
236,711 282,969
Less current maturities.......................................... 9,326 103,043
- ------------------------------------------------------------------------------------------
$227,385 $179,926
==========================================================================================
The five-year facility and certain notes payable agreements contain covenants
restricting, among other things, the amount of debt that can be issued as
defined. At December 31, 1996, the Company was in compliance with these
covenants.
The maturities of long-term debt for the four years following December 31, 1997,
are:
(In thousands)
- ---------------------------------------------------------
1998 $6,421 2000 $ 1,142
1999 $2,308 2001 $62,345
Cash payments for interest on all debt were (in millions) $20.3, $28.8 and $33.5
in 1996, 1995 and 1994, respectively.
The Company has on file with the Securities and Exchange Commission, a Form S-3
shelf registration for the possible issuance of up to an additional $200 million
of new debt securities, preferred stock or common stock.
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- --------------------------------------------------------------------------------
9. LEASES
The Company leases certain property and equipment under noncancelable operating
leases. Rental expense under all operating leases was (in millions) $13.7, $12.2
and $10.9 in 1996, 1995 and 1994, respectively.
Future minimum lease payments under operating leases with noncancelable terms
are:
After
(In thousands) 1997 1998 1999 2000 2001 2001
- -----------------------------------------------------------------------------------------
Minimum Lease Payments $11,515 $8,085 $4,930 $4,080 $3,686 $14,584
- -----------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
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 the Company's
previously reported claims against the Army relating to Federal Excise Tax
("FET") arising under a completed 1986 contract for the sale of five-ton trucks
to the Army. On September 27, 1995, the Army paid the Company $49 million in
accordance with the settlement terms. The Company released the Army from any
further liability for those claims, and the Department of Justice released the
Company from a threatened action for damages and civil penalties based on an
investigation conducted by the Department's Commercial Litigation Branch that
had been pending for several years. 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, the Company recorded a non-recurring, pre-tax,
non-cash charge of $13.5 million (after-tax charge of $8.2 million, $.16 per
share), in the third quarter of 1995.
The settlement preserves the rights of the parties to assert claims and defenses
under the Internal Revenue Code, and rights of the Army and the Company to claim
certain amounts that may be owed by either party to reconcile possible
underpayments or overpayments on the truck contract as part of the formal
contract close-out process.
The settlement does not resolve the claim by the Internal Revenue Service that,
contrary to the Company's position, certain cargo truck models sold by the
Company should be considered to have gross vehicle weights in excess of the
33,000 pound threshold under the Federal Excise Tax law, are not entitled to an
exemption from the Federal Excise Tax under any other theory, and therefore are
taxable. On December 19, 1996, the District Director of the Internal Revenue
Service issued a 30-day letter and examination report (the "Report") that
proposed an increase in Federal Excise Tax of $33.7 million plus penalties of
$6.9 million and applicable interest currently estimated by the Company to be
$27.8 million, primarily on the grounds that those cargo truck models are
subject to the Federal Excise Tax. This proposed increase in Federal Excise Tax
takes into account offsetting credits of $9.2 million, based on a partial
allowance of the Company's $23.4 million claim that certain truck components are
exempt from the Federal Excise Tax. The Report disallowed in full the Company's
additional claim that it is entitled to the entire $52 million of Federal Excise
Tax (plus applicable interest currently estimated by the Company to be $25.8
million) the Company has paid on the five-ton trucks, on the grounds that such
trucks qualify for the Federal Excise Tax exemption applicable to certain
vehicles specially designed for the primary function of off-highway
transportation. In the event that the Company ultimately receives from the
Internal Revenue Service a refund of tax (including applicable interest) with
respect to which the Company has already received reimbursement from the Army,
the refund would be allocated between the Company and the Army. The Company
plans to vigorously contest the findings of the District Director and is
protesting these findings to the Internal Revenue Service Office of the Regional
Director of Appeals. Although there is risk of an adverse outcome, the Company
believes that the cargo trucks are not taxable. No recognition has been given in
the accompanying financial statements for the Company's claim or the dispute
with the Internal Revenue Service.
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- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The settlement agreement with the Army preserves the Company's right to seek
reimbursement of after-imposed tax from the Army in the event that the cargo
trucks are determined to be taxable, but the agreement limits the reimbursement
to a maximum of $21 million. Additionally, in an earlier contract modification,
the Army accepted responsibility for $3.6 million of the potential tax, bringing
its total potential responsibility up to $24.6 million.
Under the settlement, the Army agreed that if the cargo trucks are determined to
be taxable, the 1993 decision of the Armed Services Board of Contract Appeals
(which ruled that the Company is entitled to a price adjustment to the contract
for reimbursement of FET paid on vehicles that were to be delivered after
October 1, 1988) will apply to the question of the Company's right to
reimbursement from the Army for after-imposed taxes on the cargo trucks. In the
Company's view, application of the 1993 decision will favorably resolve the
principal issues regarding any such future claim by the Company. Therefore, the
Company believes that even if the cargo trucks are ultimately held to be
taxable, the Army would be obligated to reimburse the Company for a majority of
the tax, (but not interest or penalty, if any), resulting in a net maximum
liability for the Company of $9.1 million plus penalties of $6.9 million and
applicable interest currently estimated by the Company to be $27.8 million. The
Company believes it is unlikely that resolution of this matter will have a
material adverse effect on the Company's financial position, however, it could
have a material effect on quarterly or annual results of operations.
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 is continuing 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.
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- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
GOVERNMENT-FURNISHED EQUIPMENT OVERCHARGE CLAIM
The Company filed a claim in the Armed Services Board of Contract Appeals
asserting that the United States Government has overcharged the Company 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 $20.4 million. 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 $2.2
million. Payment was received in the first quarter of 1995.
OTHER LITIGATION
In 1992, the U.S. Government filed a counterclaim against the Company in a civil
suit alleging violations of the False Claims Act and breach of a contract to
supply M109A2 Self-Propelled Howitzers. The counterclaim was filed in 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 trial
commenced in July 1996 and a decision is expected in 1997. 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 asserted
various defenses and also 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. At an arbitration hearing held in January 1996, Iran reduced the
$76.3 million portion of its claim to approximately $34.4 million. The
International Court of Arbitration took the case under advisement and in
September 1996, awarded Iran a net amount of approximately $1.2 million. This
represents an award of $7.5 million to Iran for the advance payment, offset by
an award of $6.3 million to the Company for damages and legal costs and the
denial of all pre-award interest claims for both parties. The Company and Iran
have each filed appeals in the Supreme Court of Switzerland. 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.
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- --------------------------------------------------------------------------------
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 made improper certifications to the Defense Security
Assistance Agency and other government contract accounting matters. The
Government has not asserted any claims at this time and it is too early to know
whether a claim will be asserted or what the nature of any such claim would be,
however, 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.
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. $16 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 it is
unlikely that these claims will have a material adverse effect on the Company's
financial position or results of operations.
In August 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 settled its claims with certain defendants, and continued to pursue its
appeal with respect to claims against the other defendants. In August 1996, the
Court of Appeals affirmed the lower court decision dismissing the Company's
complaint. The Company is considering various options for further pursuit of its
claim if current efforts to settle the dispute fail.
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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, 1996 and 1995, include an accrual of
$3.9 million and $5.3 million, respectively, for environmental matters. The
amounts charged to earnings on a pre-tax basis related to environmental matters
totaled $1.2 million for each of the three years ended 1996, 1995, and 1994.
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.
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- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company has pension and profit sharing retirement plans, most of which are
noncontributory, covering substantially all its employees. The benefits for
salaried employees generally are based on years of service and the employee's
level of compensation during specified periods of employment. Plans covering
hourly employees generally provide benefits of stated amounts for each year of
service. The multi-employer plans which the Company participates in provide
benefits to certain unionized employees. The Company's funding policy for
qualified plans is consistent with statutory regulations and customarily equals
the amount deducted for income tax purposes. The Company's policy is to amortize
prior service costs over the average future service period of active plan
participants.
Pension expense consists of the following components:
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
Defined benefit plans:
Service cost....................... $ 9,690 $ 9,232 $ 10,604
Interest cost...................... 15,165 13,958 14,160
Actual return on plan assets....... (29,911) (35,944) (7,885)
Net amortization and deferral...... 5,724 14,921 (12,909)
- -------------------------------------------------------------------------------
668 2,167 3,970
Multi-employer plans.................... 3,789 3,610 3,285
Defined contribution plans.............. 5,910 4,530 3,965
- -------------------------------------------------------------------------------
Pension expense.................... $10,367 $ 10,307 $ 11,220
===============================================================================
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- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The financial status of the pension plans and amounts recognized in the
Consolidated Balance Sheets at December 31, 1996 and 1995 are:
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
(In thousands) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested ................................... $143,517 $139,766 $ 18,322 $15,359
Non-vested ............................... 6,116 9,853 1,308 664
- -------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation ................ 149,633 149,619 19,630 16,023
Effect of increase in
compensation ............................. 32,947 32,605 3,051 2,907
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation .................. 182,580 182,224 22,681 18,930
Plan assets at fair value ..................... 282,536 254,447 9,662 10,172
- -------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation ............. 99,956 72,223 (13,019) (8,758)
Unrecognized prior service cost ............... 11,183 10,534 2,590 2,186
Unrecognized net (gain) loss .................. (59,490) (33,581) 2,101 1,142
Unrecognized net asset ........................ (23,529) (23,709) 70 117
Minimum liability adjustment .................. -- -- (3,146) (2,299)
- -------------------------------------------------------------------------------------------------------------
Prepaid pension asset (liability) ............. $ 28,120 $ 25,467 $(11,404) $(7,612)
=============================================================================================================
Plan assets include equity and fixed-income securities. At December 31, 1996 and
1995, 732,640 shares of the Company's common stock with a fair market value of
$25.1 million and $21.3 million, respectively, are included in plan assets.
Dividends paid on such stock amounted to $0.6 million and $0.5 million in 1996
and in 1995, respectively.
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- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial assumptions used for the defined benefit pension plans, including
international plans, are:
1996 1995 1994
- ---------------------------------------------------------------------------------
Weighted average assumed discount rates............. 7.8% 7.5% 7.9%
Weighted average expected long-term rates of
return on plan assets.......................... 9.3% 9.0% 8.6%
Rates of compensation increase...................... 5.2% 4.8% 5.3%
- ---------------------------------------------------------------------------------
The change in the assumed discount rate had the effect of decreasing the
projected benefit obligation by $9.7 million in 1996. In 1995, the changes in
the assumed discount and compensation rates had the effect of increasing the
projected benefit obligation by $4.6 million. In 1994, the increase in the
assumed discount rate had the effect of decreasing the projected benefit
obligation by $13.6 million.
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- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFITS
The Company has postretirement life insurance benefits for a majority of
employees, and postretirement health care benefits for a limited number of
employees mainly under plans related to acquired companies. The cost of life
insurance and health care benefits are accrued for current and future retirees
and are recognized as determined under the projected unit credit actuarial
method. Under this method, the Company's obligation for postretirement benefits
is to be fully accrued by the date employees attain full eligibility for such
benefits. The Company's postretirement health care and life insurance plans are
unfunded.
The postretirement benefit expense (health care and life insurance) are (in
millions) $0.2, $0.2, and $0.5 for 1996, 1995 and 1994, respectively. The
components of these expenses are not shown separately as they are not material.
The 1996 and 1995 postretirement benefit liability recorded in the Consolidated
Balance Sheets consists of:
(In thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------
HEALTH LIFE Health Life
CARE INSURANCE TOTAL Care Insurance Total
- ---------------------------------------------------------------------------------------------------------
Current retirees $2,550 $2,584 $5,134 $2,947 $2,452 $5,399
Future retirees 415 849 1,264 271 942 1,213
- ---------------------------------------------------------------------------------------------------------
Accumulated benefit
obligation 2,965 3,433 6,398 3,218 3,394 6,612
Unrecognized gain 888 1,276 2,164 1,100 1,219 2,319
- ---------------------------------------------------------------------------------------------------------
Accumulated postretirement
benefit liability $3,853 $4,709 $8,562 $4,318 $4,613 $8,931
=========================================================================================================
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- --------------------------------------------------------------------------------
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial assumptions used for postretirement benefit plans are:
(Dollars In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------
Assumed discount rate ........................................ 7.5% 7.0% 7.5%
Health care cost trend rate .................................. 9.1% 9.5% 12.4%
Decreasing to ultimate rate .................................. 5.5% 5.5% 6.0%
Effect of one percent increase in health care cost trend rate:
On cost components .................................. $ 29 $ 32 $ 25
On accumulated benefit obligation ................... $223 $241 $ 287
- --------------------------------------------------------------------------------------------------
It is anticipated that the health care cost trend rate will decrease from 9.1%
in 1997 to 5.5% in the year 2005.
SAVINGS PLAN
The Company has a 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 (in
millions) $3.8, $3.6 and $2.8 for 1996, 1995 and 1994, 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 following year.
Effective in 1996, the Board of Directors approved a change to the terms and
conditions of the annual incentive awards under the Plan. The amendment provides
that upon the request of the participant, the Committee may make the incentive
award payable all in cash, subject to a 25% reduction in the total amount of the
award. 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 $5.5 million and $5.2 million
in 1996 and 1995, respectively. Compensation expense under the old plan was $3.7
million for 1994. A total of 4,000,000 shares of the Company's common stock are
reserved and available for issuance to participants for annual incentive and
stock option awards.
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- -------------------------------------------------------------------------------
12. INCOME TAXES
Income before taxes and minority interest in the Consolidated Statements of
Income consists of:
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
Income before income taxes:
United States....................... $130,424 $ 105,296 $129,225
International....................... 70,460 58,432 19,615
- -------------------------------------------------------------------------------
$200,884 $ 163,728 $148,840
===============================================================================
Provision for income taxes:
Currently payable:
Federal......................... $ 40,014 $ 46,837 $ 37,193
State........................... 7,919 9,303 6,697
International................... 25,581 25,368 12,271
- -------------------------------------------------------------------------------
73,514 81,508 56,161
Deferred federal and state.......... 2,321 (18,941) 3,503
Deferred international.............. 501 1,287 (128)
- -------------------------------------------------------------------------------
$ 76,336 $ 63,854 $ 59,536
===============================================================================
Cash payments for income taxes were (in millions) $85.4, $75.5 and $49.2, for
1996, 1995 and 1994, respectively.
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- --------------------------------------------------------------------------------
12. INCOME TAXES (CONTINUED)
The following is a reconciliation of the normal expected statutory U.S. federal
income tax rate to the effective rate as a percentage of Income before provision
for income taxes and minority interest as reported in the Consolidated
Statements of Income:
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
U.S. federal income tax rate....................... 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit............................ 2.6 2.8 3.2
Export sales corporation benefit................... (.5) (.5) (1.1)
International losses for which no tax benefit
was recorded.................................. .7 1.9 2.4
Difference in effective tax rates on
international earnings and remittances........ (1.8) (1.3) (1.4)
Nondeductible acquisition costs.................... 1.4 1.7 2.0
Other, net......................................... .6 (.6) (.1)
- ----------------------------------------------------------------------------------------------------
Effective income tax rate.......................... 38.0% 39.0% 40.0%
====================================================================================================
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,
1996 and 1995 are:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------
Deferred income taxes ASSET LIABILITY Asset Liability
- --------------------------------------------------------------------------------------------
Depreciation ..................... $ -- $40,997 $ -- $37,625
Expense accruals ................. 34,799 -- 30,890 --
Inventories ...................... 3,598 -- 3,175 --
Provision for receivables ........ 2,238 -- 1,960 --
Postretirement benefits .......... 3,453 -- 3,444 --
Deferred revenue ................. -- 4,985 -- 4,206
Unrelieved foreign tax losses .... 12,854 -- 14,800 --
Pensions ......................... -- 8,478 -- 7,735
Investment in United Defense, L.P. 553 -- -- 325
Other ............................ -- 61 -- 5,174
- --------------------------------------------------------------------------------------------
57,495 54,521 54,269 55,065
Valuation allowance .............. (9,471) -- (9,403) --
- --------------------------------------------------------------------------------------------
Total deferred income taxes ...... 48,024 54,521 $44,866 $55,065
============================================================================================
At December 31, 1996 and 1995, Other current assets included deferred income tax
benefits of $22.2 million and $18.4 million, respectively.
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- --------------------------------------------------------------------------------
12. INCOME TAXES (CONTINUED)
At December 31, 1996, certain of the Company's non-U.S. subsidiaries had total
available net operating loss carryforwards ("NOLs") of approximately $31.4
million of which approximately $8.1 million will expire by 2000, $0.5 million
will expire by 2001, $4.5 million will expire by 2004 and the balance may be
carried forward indefinitely. Included in the total are $15.1 million of
preacquisition NOLs.
During 1996 and 1995, $3.7 million and $8.5 million, respectively, of
preacquisition NOLs were utilized by the Company, resulting in tax benefits of
$1.4 million and $2.9 million, respectively.
The valuation allowance of $9.5 million and $9.4 million at December 31, 1996
and 1995, respectively relates principally to cumulative unrelieved foreign tax
losses which are uncertain as to realizability. To the extent that the
preacquisition NOLs, are utilized in the future and the associated valuation
allowance reduced, the tax benefit will be allocated to reduce the cost in
excess of net assets of businesses acquired.
The change in the valuation allowances for 1996, 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 certain
jurisdictions was allocated to reduce the cost in excess of net assets of
businesses acquired by $4.7 million and $3.4 million in 1995 and 1994,
respectively. There was no reduction in 1996.
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- --------------------------------------------------------------------------------
13. 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. Prior to the stock split discussed in Note 2, one right was
associated with each share of common stock. Upon the distribution of the shares
related to the two-for-one stock split on February 14, 1997, these rights will
be adjusted in accordance with the terms of the Rights Agreement such that each
share of common stock now has one-half of a right associated with it.
In January 1997, the Board of Directors authorized the purchase, over a one-year
period, of up to 2,000,000 shares of the Company's common stock on a post-split
basis.
COMMON STOCK SUMMARY
- ------------------------------------------------------------------------------
SHARES TREASURY SHARES
BALANCES ISSUED SHARES OUTSTANDING
- ------------------------------------------------------------------------------
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
DECEMBER 31, 1996 * .......... 65,458,202 15,855,850 49,602,352
- ------------------------------------------------------------------------------
* Includes the effect of a two-for-one stock split.
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- --------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, no compensation cost has been recognized
for the stock option plans. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date for awards in
accordance with the provisions of SFAS 123, the Company's net income and net
income per common share would have been reduced to the pro forma amounts
indicated below:
In thousands, except per share 1996 1995
- ----------------------------------------------------------------------
Net income - as reported $119,009 $97,377
Net income - pro forma 117,622 96,108
Net income per common share - as reported 2.39 1.93
Net income per common share - pro forma 2.36 1.90
- ----------------------------------------------------------------------
The fair value of the options granted during 1996 and 1995 is estimated on the
date of grant using the binomial option pricing model. The major assumptions
used and the estimated fair value are listed as follows:
RISK RATE
EXPECTED FREE OF
EXPECTED STOCK INTEREST DIVIDEND FAIR
TERM VOLATILITY RATE DIVIDEND INCREASE VALUE
- ----------------------------------------------------------------------------------------------------
1996
Incentive Stock Options 4 years 16.0% 5.14% $0.76 5% $4.545
Nonqualified Stock Options 4 years 16.0% 6.30% $0.76 5% $6.340
1995
Incentive Stock Options 4 years 16.0% 7.69% $0.74 5% $3.740
Nonqualified Stock Options 4 years 16.0% 7.07% $0.74 5% $4.005
- ----------------------------------------------------------------------------------------------------
The Company has granted stock options to officers and directors for the purchase
of its common stock under two shareholder approved plans.
The shareholders approved, at the 1995 Annual Meeting, the 1995 Executive
Incentive Compensation Plan and the 1995 Non-Employee Directors' Stock Plan. The
1995 Executive Incentive Compensation Plan authorizes the issuance of up to
4,000,000 shares of the Company's common stock for use in paying incentive
compensation awards in the form of restricted stock and stock options. The 1995
Non-Employee Directors' Stock Plan authorizes the issuance of up to 300,000
shares of the Company's common stock for stock option awards. Options are
granted at fair market value at date of grant and become exercisable commencing
one year later. The options expire ten years from the date of grant. The award
of shares and options under the 1995 Executive Incentive Compensation Plan
commenced in 1996; while the awards of options under the 1995 Non-Employee
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- --------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION (CONTINUED)
Directors' Stock Plan commenced in May 1995. Upon approval of these two plans in
1995, the Company terminated the use of the 1986 stock option plan for granting
of stock option awards. At December 31, 1996, there were 3,654,084 and 268,000
shares available for granting restricted stock and stock options under the 1995
Executive Incentive Compensation Plan and the 1995 Non-Employee Directors' Stock
Plan, respectively.
Restricted stock awards entitle the participant to full dividend, paid in shares
of restricted stock, and voting rights. Restricted stock awards generally vest
over a three year period. Unvested shares are restricted as to disposition and
subject to forfeiture under certain circumstances.
At December 31, 1996, options to purchase 1,202,026 shares were exercisable.
Changes during 1996 and 1995 in options outstanding were:
SHARES UNDER OPTION PRICE WEIGHTED AVERAGE
OPTION RANGE PER SHARE EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------
Outstanding, January 1, 1995 1,347,280 $11.72 to $21.625 $18.247
Granted 362,000 21.6875 to 23.8125 21.793
Exercised (388,654) 11.72 to 21.625 17.134
Terminated and expired (35,708) 13.78 to 21.6875 20.435
- ------------------------------------------------------------------------------------------------
Outstanding, December 31, 1995 1,284,918 11.72 to 23.8125 19.522
Granted 311,150 29.47 to 34.6875 29.705
Exercised (382,442) 12.44 to 29.47 18.954
Terminated and expired (11,600) 29.47 29.470
- ------------------------------------------------------------------------------------------------
OUTSTANDING, DECEMBER 31, 1996 1,202,026 $11.72 TO $34.6875 $22.243
================================================================================================
The following table summarizes information concerning currently outstanding and
exercisable options.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- -------------------------------
REMAINING
RANGE OF NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISABLE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------------------
$11.72 - $17.625 202,778 3.8 $14.210 202,778 $14.210
20.69 - 34.6875 999,248 7.8 23.873 708,698 21.475
-------- -------
1,202,026 911,476
========= =======
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- --------------------------------------------------------------------------------
14. STOCK-BASED COMPENSATION (CONTINUED)
During 1996 and 1995, the Company had non-cash transactions related to stock
option exercises of $1.5 million and $1.7 million, respectively, whereby old
shares are exchanged for new shares.
The following table summarizes the restricted stock activity:
1996
- ------------------------------------------------------------------------
Restricted shares awarded.................................. 60,660
Restricted shares forfeited................................ 294
Weighted average market value of stock on grant date....... $32.6875
- ------------------------------------------------------------------------
During 1996 and 1995, the Company recorded $2.1 million and $2.0 million,
respectively, in compensation expense related to restricted stock.
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- --------------------------------------------------------------------------------
15. FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
As collateral for performance and to ceding insurers, the Company is
contingently liable under standby letters of credit and bonds in the amount of
$47.3 million and $49.2 million at December 31, 1996 and 1995, 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 0.2 to 1.0 percent per annum of their face
value. If the Company were required to obtain replacement standby letters of
credit and bonds as of December 31, 1996 for those currently outstanding, it is
the Company's opinion that the replacement costs for such standby letters of
credit and bonds would not vary significantly from the present fee structure.
At December 31, 1996 and 1995, the Company had $10.9 million and $7.8 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
The Company has operations in 30 countries including the United States. It has
translational and transactional foreign currency exposures at these operations.
The Company's primary foreign currency exposures are in France, Belgium, United
Kingdom, Brazil, South Africa 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.
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- --------------------------------------------------------------------------------
15. FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes by major currency the contractual amounts of the
Company's forward exchange contracts in U.S. dollars as of December 31, 1996.
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:
BRITISH POUNDS BUY $ 2,934 VARIOUS IN 1997 $172 $ --
FRENCH FRANCS BUY 2,239 1-30-97 (2) --
GERMAN MARKS BUY 1,186 VARIOUS TO 1998 125 --
ITALIAN LIRE SELL 164 1-10-97 -- (2)
SPANISH PESETAS BUY 1,452 VARIOUS IN 1997 -- --
SOUTH AFRICAN RAND SELL 2,904 VARIOUS IN 1997 -- 191
- ----------------------------------------------------------------------------------------------
$10,879 $295 $189
==============================================================================================
At December 31, 1996, the Company had entered into forward exchange contracts in
British pounds, French francs and German marks which were used to hedge certain
future payments between the Company and its various subsidiaries. These forward
contracts do not qualify as hedges for financial reporting purposes. At December
31, 1996, the Company had recorded net gains of $0.3 million on these contracts.
The Company also had forward exchange contracts in Italian lire, Spanish pesetas
and South African rand which were used to hedge equipment purchases. Since these
contracts hedge identifiable foreign currency firm commitments the gain of $0.2
million 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, 1995.
- ------------------------------------------------------------------------------------------
$ 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
========================================================================================
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- --------------------------------------------------------------------------------
15. FINANCIAL INSTRUMENTS (CONTINUED)
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 $0.6 million 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 with high
quality financial institutions and, by policy, limits the amount of credit
exposure to any one institution. For investments, the Company purchases
investment grade debt securities and limits the amount of credit exposure to any
one government or commercial issuer. Concentrations of credit risk with respect
to accounts receivable are limited, due to the large number of customers in the
Company's customer base and their dispersion across 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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- --------------------------------------------------------------------------------
15. 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, 1996 and 1995 are:
(In thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents................. $ 45,862 $ 45,862 $ 76,669 $ 76,669
Investments in debt securities............ 33,238 33,325 46,003 46,286
Long-term debt............................ 236,711 230,037 282,969 282,943
Foreign currency exchange contracts....... 10,879 11,520 7,846 7,349
- -------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
16. FACILITIES DISCONTINUANCE AND REORGANIZATION COSTS
In 1996, the Company recorded a net charge of $3.3 million on the Consolidated
Statements of Income. This was primarily due to exit costs for the ceased school
bus business and discontinuance of certain facilities for Metal Reclamation and
Mill Services and Infrastructure and Construction Groups.
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.
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- --------------------------------------------------------------------------------
17. INFORMATION BY INDUSTRY GROUP AND GEOGRAPHIC AREA
The Company is a diversified industrial services and manufacturing company. Its
operations are classified among three Operating Groups: Metal Reclamation and
Mill Services, Infrastructure and Construction, and Process Industry Products.
The Company has over 175 major facilities in 30 countries, including the United
States. The Company 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. The major
products and services included in each Industry Group and other information
follows:
METAL RECLAMATION AND MILL SERVICES. This Group provides metal reclamation and
mill services primarily for the global steel industry in 29 countries. Steel
mill services include slag processing, marketing and disposal; slab management
systems; materials handling and scrap management programs; in-plant
transportation; and a variety of environmental services. Similar services are
also provided to non-ferrous metallurgical industries. Newer markets include
such non-ferrous metal industries as aluminum, nickel and copper.
INFRASTRUCTURE AND CONSTRUCTION. Major products and services include railway
maintenance of way equipment and services; bridge decking and industrial
grating; scaffolding, shoring and concrete forming products along with their
erection and dismantling; granules for asphalt roofing shingles; and slag
abrasives for industrial surface preparation.
Products and services are provided to private and government-owned railroads
worldwide; urban mass transit operators; public utilities; industrial plants;
the oil, chemical, petrochemical and process industries; bridge repair
companies; commercial and industrial construction firms; infrastructure repair
and maintenance markets; and the residential roofing industry.
PROCESS INDUSTRY PRODUCTS. Major products are industrial pipe fittings; process
equipment, including industrial blenders, dryers and mixers; heat transfer
equipment; boilers; air-cooled heat exchangers; wear resistant steels; valves,
regulators and gauges, including scuba and life support equipment; and gas
containment cylinders and tanks, including cryogenic equipment.
Major customers include various industrial markets; hardware, plumbing and
petrochemical sectors; chemical, food processing and pharmaceutical industries;
institutional building and retrofit markets; natural gas and process industries;
propane, compressed gas, life support, scuba and refrigerant gas industries; gas
equipment companies, welding distributors; medical laboratories; beverage
carbonation users; and the animal husbandry industry.
-70-
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- --------------------------------------------------------------------------------
17. INFORMATION BY INDUSTRY GROUP AND GEOGRAPHIC AREA (CONTINUED)
OTHER INFORMATION. The operations of the Company in any one country, except the
United States, do not account for more than 10% of sales and no single customer
or group under common control represented 10% or more of the Company's sales,
during 1996, 1995 and 1994.
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.
INDUSTRY GROUP INFORMATION
INDUSTRY GROUP NET SALES TO UNAFFILIATED CUSTOMERS OPERATING PROFIT
- ----------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Metal Reclamation and Mill Services(1) $ 607.7 $ 604.2 $ 523.4 $ 85.2 $ 80.0 $ 43.5
Infrastructure and Construction(2) 408.8 399.7 391.5 42.8 36.3 11.3
Process Industry Products 541.1 491.6 442.8 55.8 46.0 42.0
- ----------------------------------------------------------------------------------------------------------------------
1,557.6 1,495.5 1,357.7 183.8 162.3 96.8
Facilities discontinuance and
reorganization costs(3) (2.4) (20.7) (17.4)
- ----------------------------------------------------------------------------------------------------------------------
Industry group totals $1,557.6 $1,495.5 $1,357.7 181.4 141.6 79.4
- ----------------------------------------------------------------------------------------------------------------------
Equity in income of unconsolidated entities 50.1 57.0 64.1
Gain on sale of investments - - 6.0
Claim settlements - - 36.2
Interest expense (21.5) (28.9) (34.0)
General corporate expenses (4) (9.1) (6.0) (2.9)
- ----------------------------------------------------------------------------------------------------------------------
Income before taxes and minority
interest $200.9 $163.7 $148.8
======================================================================================================================
IDENTIFIABLE ASSETS DEPRECIATION AND AMORTIZATION CAPITAL EXPENDITURES
- --------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
Metal Reclamation
and Mill Services $ 698.3 $ 687.8 $ 658.9 $ 76.6 $ 73.7 $70.5 $108.9 $ 73.0 $61.6
Infrastructure and
Construction 230.5 228.7 278.7 21.0 20.4 19.2 28.3 27.2 18.1
Process Industry
Products 229.3 211.9 186.4 10.6 9.5 8.7 12.4 13.4 10.9
- --------------------------------------------------------------------------------------------------------------
1,158.1 1,128.4 1,124.0 108.2 103.6 98.4 149.6 113.6 90.6
Corporate 108.6 136.7 158.3 1.2 1.3 1.2 .7 .3 .3
Investments in
unconsolidated
entities 57.7 45.6 32.3
- --------------------------------------------------------------------------------------------------------------
Total $1,324.4 $1,310.7 $1,314.6 $109.4 $104.9 $99.6 $150.3 $113.9 $90.9
==============================================================================================================
-71-
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- --------------------------------------------------------------------------------
17. INFORMATION BY INDUSTRY GROUP AND GEOGRAPHIC AREA (CONTINUED)
GEOGRAPHIC AREA INFORMATION
GEOGRAPHIC AREA NET SALES OPERATING PROFIT IDENTIFIABLE ASSETS
- -------------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
United States $ 974.0 $ 916.9 $ 863.3 $106.7 $ 81.7 $57.1 $ 508.8 $ 462.8 $ 543.9
Europe 332.4 365.8 308.9 24.4 27.3 4.9 415.4 438.9 392.9
All Other 251.2 212.8 185.5 50.3 32.6 17.4 233.9 226.7 187.2
- -------------------------------------------------------------------------------------------------------------------------
Total $1,557.6 $1,495.5 $1,357.7 $181.4 $141.6 $79.4 $1,158.1 $1,128.4 $1,124.0
=========================================================================================================================
EXPORT SALES
- -------------------------------------------------
(In millions) 1996 1995 1994
- -------------------------------------------------
North America
(Excluding USA) $52.2 $49.9 $60.1
Asia 21.1 21.6 22.3
All Others 24.5 19.2 12.7
- -------------------------------------------------
Total $97.8 $90.7 $95.1
=================================================
(1) For the years ended December 31, 1996, 1995, and 1994, the Group realized
foreign currency losses of (in millions) $1.1, $2.3, and $8.1,
respectively. These currency losses include $3.4 million and $7 million in
1995 and 1994, respectively, related to the devaluation of the Mexican
peso.
(2) Under the Infrastructure and Construction Group, the Company ceased all bus
operations in June, 1995. For 1995, the school bus operation had $15.7
million in sales and an operating loss of $6.2 million.
(3) The year ended December 31, 1995 includes a non-cash charge of $13.5
million relating to the settlement of the Federal Excise Tax reimbursement
on the completed five-ton truck contract, a $2.1 million provision for
asset impairment relating to the remaining fixed assets of the school bus
business, and $3 million in termination and other exit costs for the school
bus business related to the Infrastructure and Construction Group. The year
1995 also includes $2.8 million relating to the discontinuance of certain
international facilities related to the Metal Reclamation and Mill Services
Group, and in 1996 this amounted to $1 million. The year ended December 31,
1994, includes $5.7 million for discontinuance and rationalization of
administrative facilities and termination costs related to the 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.
(4) General corporate expenses for the year 1995 include a $5.8 million foreign
currency translation exchange gain. For the 1996 and 1994 comparable
periods, foreign currency translation exchange losses were immaterial.
-72-
73
- --------------------------------------------------------------------------------
TWO-YEAR SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(In millions, except per share)
1996
- -------------------------------------------------------------------------------
QUARTERLY FIRST SECOND THIRD FOURTH
- -------------------------------------------------------------------------------
NET SALES $366.7 $387.7 $395.8 $ 407.4
GROSS PROFIT(1) 84.6 94.8 93.3 99.6
INCOME BEFORE INTEREST, INCOME
TAXES AND MINORITY INTEREST 57.0 54.0 51.2 53.2
NET INCOME 31.1 29.3 29.1 29.5
NET INCOME PER COMMON SHARE(2) 0.62 0.58 0.59 0.60
- -------------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------------
QUARTERLY FIRST SECOND THIRD(3) FOURTH
- ------------------------------------------------------------------------------
Net Sales $356.9 $377.3 $374.1 $387.2
Gross Profit(1) 77.5 83.6 71.9 87.3
Income before interest, income
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(2) 0.51 0.48 0.36 0.58
- ------------------------------------------------------------------------------
Notes:
(1) Gross Profit is defined as Net Sales less Cost of Sales, Facilities
Discontinuance and Reorganization Costs and Research and Development
Expenses.
(2) Reflects a two-for-one stock split to shareholders of record on January 15,
1997.
(3) The third quarter of 1995 includes $8.2 million after-tax charge ($.16 per
share) for the settlement of the Federal Excise Tax reimbursement on the
completed five-ton truck contract and a $1.3 million after-tax charge ($.03
per share) for asset impairment relating to the remaining fixed assets of
the school bus business.
-73-
74
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
None.
-74-
75
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 1997 Proxy Statement.
(b) Identification of Executive Officers:
Set forth below, as of March 17, 1997, 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 30, 1996, or at
various times during the year as noted. All terms expire on April 30, 1997.
There are no family relationships between any of the officers.
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
Corporate Officers:
D. C. Hathaway 52 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 61 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.
-75-
76
Name Age Principal Occupation or Employment
- ---- --- ----------------------------------
L. A. Campanaro 48 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 46 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 44 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.
(c) Beneficial Ownership Reporting Compliance
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated by reference to the section entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" of the 1997 Proxy
Statement.
-76-
77
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 1997 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 1997 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 1997 Proxy Statement.
-77-
78
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 and Supplementary Data"):
Page
Report of Independent Accountants on Schedule II
78
Schedule II - Valuation and Qualifying Accounts
for the years 1996, 1995 and 1994
79
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"), is included on page 29 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 78 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 30, 1997
-78-
79
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 1996:
Deducted from Receivables:
Uncollectible accounts $ 8,256 $ 4,969 $(74) $ (4,602) $ 8,549
======= ======= ==== ======== =======
Deducted from Inventories:
Inventory valuations $ 3,596 $ 3,260 $(57) $ (1,418) $ 5,381
======= ======= ==== ======== =======
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
======= ======= ==== ======== =======
(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.
-79-
80
(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.
(b) 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:
1. Financial Statements of United Defense, L.P.: Exhibit
Report of Independent Auditors 13
Balance Sheets at December 31, 1996 and 1995 13
Statements of Income for the
years ended December 31, 1996, 1995 and 1994 13
Statements of Partners' Capital for the years
ended December 31, 1996, 1995 and 1994 13
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 13
Notes to Financial Statements 13
Financial statements of other 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.
-80-
81
(a) 3. Listing of Exhibits Filed with Form 10-K:
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
2(a) Joint Venture with FMC Corporation Incorporated by reference
to Combining Harsco's BMY-Combat Form 8-K dated February 14, 1994
Systems Division with FMC Defense
Systems Group
- Participation Agreement
Dated as of January 1, 1994
- Partnership Agreement
Dated as of January 1, 1994
- Registration Rights Agreement
Dated as of January 1, 1994
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 Incorporated by reference to Form
under Rule 415 (6% Notes) S-3, Registration No. 33-42389
dated August 23, 1991
-81-
82
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
4(e) 6% 1993 Notes due September 15, Incorporated by reference to the
2003 described in Prospectus Prospectus Supplement dated
Supplement dated September 8, September 8, 1993 to Form S-3,
1993 to Form S-3 Registration under Registration No. 33-42389 dated
Rule 415 dated August 23, 1991 August 23, 1991
4(f) Debt and Equity Securities Registered Incorporated by reference to Form S-3,
Registration No. 33-56885 dated
December 15, 1994, effective date
January 12, 1995
Material Contracts - Credit facility
10(a) Amendment Agreement dated July 16, Exhibit to 10-Q for the period
1996 to the amended and restated ended June 30, 1996
Credit Agreement dated as of
August 24, 1993, as amended and
restated as of June 21, 1994, and as
amended by an Amendment Agreement
dated as of June 20, 1995 and a second
Amendment Agreement dated as of
February 29, 1996 among Harsco
Corporation, the lenders named therein
and Chase Manhattan Bank.
10(b) Commercial Paper Dealer Agreement Exhibit volume, 1994 10-K
Dated October 11, 1994, Between J.P.
Morgan Securities, Inc. and Harsco
Corporation
10(c) Commercial Paper Dealer Agreement Exhibit volume, 1994 10-K
Dated October 11, 1994, Between
Lehman Brothers, Inc. and Harsco
Corporation
10(d) Issuing and Paying Agency Agreement, Exhibit volume, 1994 10-K
Dated October 12, 1994, Between
Morgan Guaranty Trust Company
of New York and Harsco Corporation
-82-
83
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
10(e) Commercial Paper Agreement with Exhibit to 10-Q for the period
Banque Bruxelles Lambert S.A./Bank ended September 30, 1996
Brussel Lambert N.V. dated
September 25, 1996.
Material Contracts - Underwriting
10(f) Underwriting Agreement for Exhibit volume, 1987 10-K
Debt Securities dated
October 22, 1987
Material Contracts - Management Contracts and Compensatory Plans
10(g) Harsco Corporation Incentive Plan Exhibit volume, 1992 10-K
as amended March 18, 1992
10(h) Harsco Corporation Supplemental Exhibit volume, 1995 10-K
Retirement Benefit Program as
amended September 25, 1995
10(i) Trust Agreement between Harsco Exhibit volume, 1987 10-K
Corporation and Dauphin Deposit
Bank and Trust Company dated
July 1, 1987 relating to the
Supplemental Retirement Benefit
Plan
10(j) Harsco Corporation Supplemental Exhibit volume, 1991 10-K
Executive Retirement Plan as
amended
10(k) Trust Agreement between Harsco Exhibit volume, 1988 10-K
Corporation and Dauphin
Deposit Bank and Trust Company
dated November 22, 1988 relating
to the Supplemental Executive
Retirement Plan
10(l) 1986 Stock Option Plan as amended Exhibit volume, 1990 10-K
10(m) 1995 Executive Incentive Compensation Proxy Statement dated March 22, 1995
Plan on Exhibit A pages A-1 through A-12
-83-
84
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
10(n) Authorization, Terms and Conditions of Exhibit volume, 1996 10-K
the Annual Incentive Awards, as
amended and Restated November 19,
1996, under the 1995 Executive Incentive
Compensation Plan
Employment Agreements -
10(o) D. C. Hathaway Exhibit volume, 1989 10-K
" Uniform agreement, the same as
shown for J. J. Burdge
" L. A. Campanaro " "
" P. C. Coppock " "
" W. D. Etzweiler " "
Retirement Agreements -
10(p) Special Supplemental Retirement
Benefit Agreement and
Amendment for J. J. Burdge Exhibit volume, 1988 10-K
10(q) Special Supplemental Retirement
Benefit Agreement for
D. C. Hathaway Exhibit Volume, 1988 10-K
Director Indemnity Agreements -
10(r) J. J. Burdge Exhibit volume, 1989 10-K
Uniform agreement, same as
shown for J. J. Burdge
" R. F. Nation " "
" A. J. Sordoni, III " "
" R. C. Wilburn " "
" R. L. Kirk " "
" N. H. Prater " "
" D. C. Hathaway " "
" J. I. Scheiner " "
" J. E. Marley " "
-84-
85
(a) 3. Listing of Exhibits Filed with Form 10-K (continued):
Exhibit
Number Data Required Location in 10-K
- ------ ------------- ----------------
10(s) Harsco Corporation Exhibit volume, 1990 10-K
Directors Retirement Plan
10(t) Harsco Corporation Deferred Exhibit volume, 1994 10-K
Compensation Plan for
Non-Employee Directors
10(u) Harsco Corporation 1995 Non-Employee Proxy Statement dated
Directors' Stock Plan March 22, 1995 on Exhibit B
pages B-1 through B-6
10(v) Settlement Agreement dated Exhibit (b) to 10-Q for period
September 19, 1995, among the ended September 30, 1995
Company, the United States Army
and the United States Department of
Justice
11 Computation of Fully Diluted Exhibit volume, 1996 10-K
Net Income per Common Share
12 Computation of Ratios of Exhibit volume, 1996 10-K
Earnings to Fixed Charges
13 Financial Statements of Exhibit volume, 1996 10-K
United Defense, L.P.
21 Subsidiaries of the Registrant Exhibit volume, 1996 10-K
23(a) Consent of Independent Accountants Exhibit volume, 1996 10-K
23(b) Consent of Independent Auditors Exhibit volume, 1996 10-K
27 Financial Data Schedule Exhibit volume, 1996 10-K
-85-
86
(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 Harsco 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
-86-
87
(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.
- Undertakings of Harsco relating Incorporated by reference to Form S-8,
to registration statement on Registration No. 333-13175, dated
Form S-8 (Reg. No. 333-13175) October 1, 1996, effective October 1,
1996.
- Undertakings of Harsco relating Incorporated by reference to Form S-8,
to registration statement on Registration No. 333-13173, dated
Form S-8 (Reg. No. 333-13173) October 1, 1996, effective October 1,
1996.
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 November 19, 1996 was filed November 27, 1996 dealing
with the declaration of a two-for-one stock split of its outstanding Common
Stock, payable February 14, 1997 to stockholders of record at the close of
business January 15, 1997.
-87-
88
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, 1997 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 3-20-97
- -------------------------------- Executive Officer
(Derek C. Hathaway)
/s/ Leonard A. Campanaro Senior Vice President and 3-20-97
- -------------------------------- Chief Financial Officer
(Leonard A. Campanaro) (Principal Financial Officer)
/s/ Salvatore D. Fazzolari Vice President and Controller 3-20-97
- -------------------------------- (Principal Accounting Officer)
(Salvatore D. Fazzolari)
/s/ Robert L. Kirk Director 3-20-97
- --------------------------------
(Robert L. Kirk)
/s/ James E. Marley Director 3-20-97
- --------------------------------
(James E. Marley)
/s/ Robert F. Nation Director 3-20-97
- --------------------------------
(Robert F. Nation)
/s/ Nilon H. Prater Director 3-20-97
- --------------------------------
(Nilon H. Prater)
/s/ James I. Scheiner Director 3-20-97
- --------------------------------
(James I. Scheiner)
/s/ Andrew J. Sordoni III Director 3-20-97
- --------------------------------
(Andrew J. Sordoni III)
/s/ Dr. Robert C. Wilburn Director 3-20-97
- --------------------------------
(Dr. Robert C. Wilburn)
-88-
89
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
EXHIBIT VOLUME TO FORM 10-K
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 1-3970
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1483991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Camp Hill, Pennsylvania 17001-8888
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 717-763-7064
90
HARSCO CORPORATION FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Item 14(a) 3. Exhibits
Exhibit Document
Number Pages
10(n) Authorization, Terms and Conditions of 1 - 15
Annual Incentive Awards, as and
amended and Restated November 19, 1996, 1 - 4
under the 1995 Executive Incentive Compensation
Plan
11 Computation of Fully Diluted Net Income per
Common Share 1
12 Computation of Ratios of Earnings
to Fixed Charges 1
13 Audited Financial Statements
of United Defense, L.P. 1 - 9
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
HARSCO CORPORATION
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
AUTHORIZATION, TERMS, AND CONDITIONS OF
ANNUAL INCENTIVE AWARDS
(AS AMENDED AND RESTATED NOVEMBER 19, 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 last trading day of the performance year. 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.
Participants may request that the Committee pay his or her award all
in cash using a multiplier of .045 instead of the normal .06
multiplier, and upon approval by the Committee, the award shall be
paid to the requesting Participant in that manner.
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.
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(b) The existence of compensation restraints at an Eligible Unit.
(c) A substantial change in the established strategic performance
objectives during the period.
(d) A substantial change in the composition of an Eligible Unit
during the period.
5.4 Settlement of Award In the Event of Termination. In the event of a
Participant's Termination, such Participant (or his or her
beneficiary) shall receive, in lieu of payment of all amounts
specified in Section 5.2, settlement of such Participant's Award as
provided in this Section 5.4.
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 last
trading day of the performance year.
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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,
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margined, optioned, or otherwise encumbered in any way or subject to
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
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equal to the amount of cash and fair market value (as determined
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 Termination 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.
-1-
17
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
-2-
18
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
-3-
19
STOCK POWER
Exhibit
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
-4-
1
Exhibit 11
HARSCO CORPORATION
COMPUTATION OF FULLY DILUTED NET INCOME PER COMMON SHARE
(dollars in thousands except per share)
---------------------------
YEARS ENDED
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Net income $ 119,009 $ 97,377 $ 86,553 $ 87,618 $ 84,332
=========== =========== =========== =========== ===========
Average shares of common stock
outstanding used to compute
primary earnings per common
share 49,883,062 50,492,712 50,229,748 50,073,786 51,933,510
Additional common shares to be
issued assuming exercise of
stock options, net of shares
assumed reacquired 437,906 385,604 210,776 298,816 396,440
----------- ----------- ----------- ----------- -----------
Shares used to compute dilutive
effect of stock options 50,320,968 50,878,316 50,440,524 50,372,602 52,329,950
=========== =========== =========== =========== ===========
Fully diluted net income per
common share $ 2.36 $ 1.91 $ 1.72 $ 1.74 $ 1.61
=========== =========== =========== =========== ===========
Net income per common share $ 2.39 $ 1.93 $ 1.72 $ 1.75 $ 1.62
=========== =========== =========== =========== ===========
1
Exhibit 12
HARSCO CORPORATION
Computation of Ratios of Earnings to Fixed Charges
(In Thousands of Dollars)
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
Consolidated Earnings:
Pre-tax income from continuing
operations (1) $ 195,345 $ 161,231 $ 146,089 $ 137,151 $ 140,576
Add fixed charges computed below 26,181 33,121 37,982 23,879 22,425
Net adjustments for equity companies (9,410) (4,320) (134) (363) (454)
Net adjustments for capitalized
interest -- -- (274) (172) (134)
--------- --------- --------- --------- ---------
Consolidated Earnings Available for
Fixed Charges $ 212,116 $ 190,032 $ 183,663 $ 160,495 $ 162,413
========= ========= ========= ========= =========
Consolidated Fixed Charges:
Interest expense per financial
statements (2) $ 21,483 $ 28,921 $ 34,048 $ 19,974 $ 18,882
Interest expense capitalized 131 134 338 332 355
Portion of rentals (1/3) representing
an interest factor 4,567 4,066 3,596 3,573 3,188
Interest expense for equity companies
whose debt is guaranteed (3) -- -- -- -- --
--------- --------- --------- --------- ---------
Consolidated Fixed Charges $ 26,181 $ 33,121 $ 37,982 $ 23,879 $ 22,425
========= ========= ========= ========= =========
Consolidated Ratio of Earnings to
Fixed Charges 8.10 5.74 4.84 6.72 7.24
========= ========= ========= ========= =========
(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 the Company during the five year period
1992 through 1996.
1
Audited Financial Statements
United Defense, L.P.
As of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996
with Report of Independent Auditors
[ERNST & YOUNG LOGO]
2
United Defense, L.P.
Audited Financial Statements
As of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996
CONTENTS
Report of Independent Auditors...................................... 1
Audited Financial Statements
Balance Sheets...................................................... 2-3
Statements of Income................................................ 4
Statements of Partners' Capital..................................... 5
Statements of Cash Flows............................................ 6
Notes to Financial Statements....................................... 7-17
3
[ERNST & YOUNG 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, 1996 and 1995, and the related statements of income, partners'
capital, and cash flows for each of the three years in the period ended December
31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
January 15, 1997
1
4
United Defense, L.P.
Balance Sheets
DECEMBER 31
1996 1995
-----------------------
(In Thousands)
ASSETS
Current assets:
Cash and marketable securities $ 23 $ 896
Short-term investment with FMC Corporation 19,497 30,350
Trade receivables 85,483 98,929
Inventories (Note 3) 345,738 232,285
Other current assets 4,021 9,165
-------- --------
Total current assets 454,762 371,625
Investments in affiliated companies 7,192 7,662
Property, plant and equipment (Note 4) 466,493 475,891
Less -- accumulated depreciation 359,163 360,087
-------- --------
Net property, plant and equipment 107,330 115,804
Patents and deferred charges (Note 5) 34,194 39,132
Prepaid pension cost (Note 6) 41,501 35,381
-------- --------
Total assets $644,979 $569,604
======== ========
2
5
DECEMBER 31
1996 1995
-----------------------
(In Thousands)
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable, trade and other $ 71,723 $ 98,385
Advanced payments 258,990 194,276
Accrued and other liabilities 72,400 62,698
Due to FMC Corporation for current services 5,094 5,011
-------- --------
Total current liabilities 408,207 360,370
Accrued pension cost (Note 6) 25,641 17,765
Accrued postretirement benefit cost (Note 7) 31,493 35,036
-------- --------
Total liabilities 465,341 413,171
Commitments and contingencies (Notes 9, 11, and 12)
Partners' capital
FMC Corporation 136,889 122,989
Harsco Corporation 42,749 33,444
-------- --------
Total partners' capital 179,638 156,433
-------- --------
Total liabilities and partners' capital $644,979 $569,604
======== ========
See accompanying notes.
3
6
United Defense, L.P.
Statements of Income
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
(In Thousands)
Revenue:
Sales $1,029,333 $ 967,553 $1,076,259
Costs and expenses:
Cost of sales 820,845 746,701 809,813
Selling, general and administrative
expenses 128,455 122,675 131,822
Research and development 12,853 12,422 16,311
---------- --------- ----------
962,153 881,798 957,946
---------- --------- ----------
Income from operations 67,180 85,755 118,313
Other income (expense):
Earnings related to investments in
foreign affiliates 31,916 21,393 12,471
Interest 1,933 2,744 2,569
Miscellaneous, net -- (798) 52
---------- --------- ----------
Income before income taxes 101,029 109,094 133,405
Provision for income taxes (Note 2) 2,859 1,429 3,878
---------- --------- ----------
Net income $ 98,170 $ 107,665 $ 129,527
========== ========= ==========
See accompanying notes.
4
7
United Defense, L.P.
Statements of Partners' Capital
FMC HARSCO TOTAL
-------------------------------------------
(In Thousands)
Initial partnership contributions as of
January 1, 1994 $ 124,740 $ 29,600 $ 154,340
Distributions 1994 (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 1995 (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
Distributions 1996 (36,999) (37,966) (74,965)
1996 Net income 50,899 47,271 98,170
--------- -------- ---------
Balance, December 31, 1996 $ 136,889 $ 42,749 $ 179,638
========= ======== =========
See accompanying notes.
5
8
United Defense, L.P.
Statements of Cash Flows
YEAR ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net Income $ 98,170 $ 107,665 $ 129,527
Adjustments for noncash components of net income:
Depreciation 26,327 26,728 28,993
Amortization of restructuring costs 12,667 -- --
Other 519 (3,543) 78
Changes in assets and liabilities:
Trade receivables 13,446 (17,678) 7,401
Inventories (113,453) (49,320) (2,609)
Other current assets 5,144 780 (964)
Prepaid pension cost (6,120) (3,446) (5,898)
Restructuring costs (7,778) (23,498) (7,044)
Accounts payable, trade and other (26,662) 23,327 (2,290)
Advanced payments 64,714 28,859 (8,613)
Accrued and other liabilities 9,702 4,038 21,912
Due to FMC Corporation for current services 83 2,498 2,513
Accrued pension cost 7,876 5,419 6,072
Accrued postretirement benefit costs (3,543) (7,171) (3,069)
--------- --------- ---------
Cash provided by operating activities 81,092 94,658 166,009
INVESTING ACTIVITIES
Capital spending (22,396) (24,124) (18,259)
Disposal of property, plant and equipment 4,543 3,640 1,138
Short-term investment with FMC Corporation 10,853 (30,350) --
--------- --------- ---------
Cash used in investing activities (7,000) (50,834) (17,121)
FINANCING ACTIVITIES
Cash contributions from Partners 41,670
Partner distributions (74,965) (74,928) (160,171)
--------- --------- ---------
Cash used in financing activities (74,965) (74,928) (118,501)
--------- --------- ---------
Increase (decrease) in cash and marketable securities (873) (31,104) 30,387
Cash and marketable securities, beginning of period 896 32,000 1,613
--------- --------- ---------
Cash and marketable securities, end of period $ 23 $ 896 $ 32,000
========= ========= =========
See accompanying notes.
6
9
United Defense, L.P.
Notes to Financial Statements
As of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996
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% equity
interest and Harsco Defense Holding is a Limited Partner holding a 40% 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.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of the partnership and its wholly
owned subsidiaries. Intercompany accounts and transactions are eliminated in
consolidation.
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
7
10
United Defense, L.P.
Notes to Financial Statements (continued)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION FOR CONTRACTS-IN-PROGRESS (CONTINUED)
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.
During 1996, the partnership recognized a $14.3 million reduction in cost of
sales as a result of a settlement with the U.S. government on the cost of a
component supplied by the U.S. government on a group of related contracts.
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.
8
11
United Defense, L.P.
Notes to Financial Statements (continued)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN AFFILIATED COMPANIES
The investment in a majority owned foreign joint venture in Turkey is carried at
cost since there is uncertainty regarding the partnership's ability to control
this venture or to repatriate earnings, and because of the extreme volatility of
foreign exchange rates in the country in which this venture is active. Income is
recognized as dividends are received. In 1996, the partnership changed its
method of accounting for its investment in a foreign-owned joint venture in
Saudi Arabia from the cost to the equity method. Equity in earnings from this
venture was $4.6 million for 1996. Dividends received were $28.1 million, $21.4
million and $12.4 million during 1996, 1995 and 1994, respectively.
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 - twenty years;
buildings - twenty to thirty-five years; and machinery and equipment - three to
twelve years). Gains and losses realized upon sale or retirement of assets are
included in other 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, 1996 and 1995. Fair values have been determined through information
obtained from market sources and management estimates.
9
12
United Defense, L.P.
Notes to Financial Statements (continued)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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,
1996 and 1995, $4.2 million and $4.9 million, respectively, of the FMC
contributed accruals and $1.4 million and $1.7 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
Foreign Sales Corporation (FSC) subsidiary. The FSC paid income taxes amounting
to $1.8 million, $3.5 million and $3.6 million during 1996, 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.
10
13
United Defense, L.P.
Notes to Financial Statements (continued)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified in the accompanying financial
statements to conform with the current year's presentation.
3. INVENTORIES
The current replacement cost of LIFO inventories exceeded their recorded values
by approximately $31.7 million and $25.4 million at December 31, 1996 and 1995,
respectively. Inventories on long-term contracts carried at actual production
cost total approximately $12.6 million and $25 million at December 31, 1996 and
1995, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is as follows:
1996 1995
-------- --------
Buildings $ 55,305 $ 53,272
Machinery and equipment 382,573 395,468
Land and improvements 17,008 16,798
Construction in progress 11,607 10,353
-------- --------
466,493 475,891
Less: Accumulated depreciation 359,163 360,087
-------- --------
Net Property, plant and equipment $107,330 $115,804
======== ========
5. ADVANCE AGREEMENT
In October 1994 the partnership entered into an Advance Agreement with the U.S.
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
June 30, 1996. Costs deferred will then be allocated ratably to contracts with
the Department of Defense for
11
14
United Defense, L.P.
Notes to Financial Statements (continued)
5. ADVANCE AGREEMENT (CONTINUED)
thirty-six months beginning January 1, 1996. As of December 31, 1996 and 1995,
consolidation and restructuring costs deferred amount to $38.3 million and $30.5
million, respectively, and are included in patents and deferred charges in the
accompanying balance sheet. Accumulated amortization as of December 31, 1996 was
$12.7 million.
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, 1996, 1995 and 1994:
------------------------------------------
Assumptions: 1996 1995 1994
-------- -------- --------
Weighted average discount rate 8.00% 8.00% 8.00%
Rates of increase in future compensation levels 5.00% 5.00% 5.00%
Weighted average expected long-term asset return 9.62% 9.62% 9.60%
Components: (In Thousands)
Service cost $ 9,191 $ 8,744 $ 9,976
Interest cost on projected benefit obligation 19,826 18,008 16,967
Actual return on plan assets -- investment gains (61,135) (76,878) (6,106)
Net amortization and deferral 34,918 55,886 (16,238)
-------- -------- --------
Net pension cost $ 2,800 $ 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 fifty-five years of
age with ten 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.
12
15
United Defense, L.P.
Notes to Financial Statements (continued)
6. RETIREMENT PLANS (CONTINUED)
Pension expense includes a $1.2 million, $3.7 million and $3.8 million charge
related to special termination benefits (early retirement incentive) and a $0.4
million, $1.0 million and $0.9 million curtailment charge included in net
amortization and deferral relating to the elimination of employees for 1996,
1995 and 1994, respectively.
The funded status of the plans and accrued pension cost recognized in the
partnership's financial statements as of December 31, 1996 and 1995 are as
follows (in thousands):
1996 1995
------------------------------------------------------------
Over-funded Under-funded Over-funded Under-funded
Plans Plans Plans Plans
----------- ------------ ----------- ------------
Actuarial present value of benefits for
service rendered to date:
Accumulated benefit obligation based on
salaries to date, including vested
benefits of $219,217 for 1996 and
$197,675 for 1995 $(106,965) $(125,579) $(102,852) $(108,287)
--------- --------- --------- ---------
Additional benefits based on estimated future
salary levels -- (37,115) -- (32,366)
--------- --------- --------- ---------
Projected benefit obligation (106,965) (162,694) (102,852) (140,653)
Plan assets at fair market value (1) 208,380 175,830 182,507 153,565
--------- --------- --------- ---------
Plan assets in excess of projected benefit
obligation 101,415 13,136 79,655 12,912
Unrecognized net transition asset (8,512) 1,179 (10,640) 1,575
Unrecognized prior-service cost 5,756 6,550 2,776 7,535
Unrecognized net gain (57,158) (46,506) (36,410) (39,787)
--------- --------- --------- ---------
Net prepaid (accrued) pension cost $ 41,501 $ (25,641) $ 35,381 $ (17,765)
--------- --------- --------- ---------
(1) Primarily equities, bonds and fixed income securities.
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.
13
16
United Defense, L.P.
Notes to Financial Statements (continued)
7. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
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 expenses in 1996 and 1995 include 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.
Actuarial assumptions used to determine costs and the benefit obligation include
a discount rate of 8% and weighted average expected return on long-term assets
of 9% for 1996, 1995, and 1994. The assumed rate of future increases in per
capita cost of health care benefits was 10% in 1996 and 1995, decreasing to 6%
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 $2.8 million and would increase annual service and interest costs
by approximately $0.3 million.
The following table summarizes the components of net postretirement benefit cost
for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
------- ------- -------
(In Thousands)
Service cost $ 1,174 $ 1,412 $ 1,372
Interest cost on accumulated postretirement benefit obligation 4,159 3,935 4,576
Actual return on plan assets -- investment (gains) losses (4,916) (4,468) 364
Net amortization and deferral 981 (1,685) (2,203)
------- ------- -------
Net periodic postretirement benefit cost $ 1,398 $ (806) $ 4,109
======= ======= =======
14
17
United Defense, L.P.
Notes to Financial Statements (continued)
7. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED)
The funded status of the plans and accrued postretirement benefit cost
recognized in the partnership's financial statements as of December 31, 1996 and
1995 are as follows:
1996 1995
-------- --------
Accumulated postretirement obligation:
Retirees $(35,734) $(33,135)
Fully eligible active participants (5,515) (5,244)
Other active participants (14,905) (14,433)
-------- --------
Accumulated postretirement benefit obligation (56,154) (52,812)
Plan assets at fair market value (1) 38,630 32,164
-------- --------
Accumulated postretirement benefit obligation in excess of plan
assets (17,524) (20,648)
Unrecognized net gains (13,969) (14,388)
-------- --------
Accrued postretirement benefit cost $(31,493) $(35,036)
======== ========
(1) Primarily equities and fixed income securities.
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 $7.7 million, $6.6 million and $6.2 million in
1996, 1995 and 1994, respectively.
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
1996, 1995 and 1994 was $12.9 million, $12.8 million and $10.8 million,
respectively. Minimum future rentals under noncancellable leases, excluding a
related party lease (See Note 12), are estimated to be payable $8.4 million in
1997, $6.4 million in 1998, $3.5 million in 1999, $0.6 million in 2000, $0.5
million in 2001, and $0.6 million thereafter. The real estate leases generally
provide for payment of property taxes, insurance and repairs by the partnership.
15
18
United Defense, L.P.
Notes to Financial Statements (continued)
9. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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.
At December 31, 1996, the partnership has outstanding letters of credit in the
amount of $80.1 million as collateral for performance on long-term contracts.
10. PARTNERS' CAPITAL
Under the agreements of formation of the partnership, FMC and Harsco were
required to contribute net assets with an 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%. 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.
FMC has the option to purchase or cause the partnership to purchase Harsco's
interest in the partnership for 110% of the appraised value of Harsco's interest
in the partnership subject to adjustment, as provided for in the partnership
agreement. Harsco has the option to require the partnership to purchase its
interest in the partnership for 95% of the appraised value of its partnership
interest similarly subject to adjustment as provided for in the partnership
agreement.
11. SIGNIFICANT CUSTOMER AND EXPORT SALES
Sales to various agencies of the U.S. Government aggregated $819.9 million,
$719.1 million and $614.9 million during 1996, 1995 and 1994, respectively. At
December 31, 1996 and 1995, trade accounts receivable from the U.S. Government
totaled $44.1 million and $77.4 million, respectively. Export sales, including
sales to foreign governments transacted through the U.S. Government, were $194.2
million, $216.3 million and $280.6 million during 1996, 1995 and 1994,
respectively.
16
19
United Defense, L.P.
Notes to Financial Statements (continued)
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, 1996, 1995
and 1994, the partnership paid $35.2 million, $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
1996, 1995 and 1994 the partnership incurred rent amounting to $3.7 million,
$3.9 million and $4.2 million, respectively, under this lease.
Sales of inventory to FMC during 1996, 1995 and 1994 amounted to $1.1 million,
$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.
During 1995, the partnership entered into an agreement with FMC and Harsco
whereby the partnership's excess cash balances up to $40 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 ninety 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 $1.8 million and $1.1 million in 1996 and 1995.
17
1
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 65%
Heckett MultiServ S.A. Belgium 100%
Heckett MultiServ Russia S.A. Belgium 100%
Loyquip Holdings S.A. Belgium 100%
Societe D'Etudes et D'Administration Belgium 100%
des Enterprises S.A.
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 Bahna S.A.E. Egypt 65%
Metalsider S.A.S. France 51%
Heckett MultiServ France S.A. France 100%
Floyequip S.A. France 100%
PyroServ 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%
Taylor-Wharton Asia (M) SDN. BHD. Malaysia 70%
-1-
2
Country of Ownership
Name Incorporation Percentage
- ---- ------------- ----------
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 MultiServ Saudi Arabia Limited Saudi Arabia 55%
MultiServ Slovensko SPOL s r.o. Slovakia Republic 100%
FerroServ (Pty.) Limited South Africa 100%
Heckett MultiServ (South Africa) (Pty.) Ltd. South Africa 51%
MultiServ Lycrete S.A. Spain 100%
Serviequipo S.A. Spain 100%
MultiServ Intermetal S.A. Spain 100%
MultiServ Iberica S.A. Spain 100%
Heckett MultiServ Reclamet S.A. Spain 100%
Gestion Materias Ferricas, S.A. Spain 85%
Heckett MultiServ Nordiska 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
Tamper Corp. (U.K.) Limited U.K. 100%
Heckett International Services Limited U.K. 100%
Heckett Limited U.K. 100%
Heckett MultiServ Corporation U.S.A. 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 Defense Holding, Inc. U.S.A. 100%
Harsco Foreign Sales Corporation U.S. Virgin Islands 100%
Heckett MultiServ MV + MS Venezuela 100%
Heckett MultiServ Investment Corporation U.S.A. 100%
-2-
3
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)
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
report, dated January 30, 1997, on our audits, of the consolidated financial
statements and consolidated financial statement schedule of the Company as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, which reports are included in this Annual Report on Form
10-K, respectively:
- - Post Effective Amendment No. 6 to Form S-8 Registration Statement
(Registration No. 2-57876), effective May 21, 1982.
- - Post Effective Amendment No. 2 to Form S-8 Registration Statement
(Registration No. 33-5300), dated March 26, 1987.
- - Form S-8 Registration Statement (Registration No. 33-14064), dated May 6,
1987.
- - Amendment No. 2 to Form S-8 Registration Statement (Registration No.
33-24854), dated October 31, 1988.
- - Form S-3 Registration Statement (Registration No. 33-56885) dated December
15, 1994.
- - Form S-8 Registration Statement (Registration No. 333-13175), dated October
1, 1996.
- - Form S-8 Registration Statement (Registration No. 333-13173), dated October
1, 1996.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
March 24, 1997
1
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 15, 1997 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, 1996:
Post Effective Amendment No. 6 to Form S-8 Registration Statement
(Registration No. 2-57876), effective May 21, 1982.
Post Effective Amendment No. 2 to Form S-8 Registration Statement
(Registration No. 33-5300), dated March 26, 1987.
Form S-8 Registration Statement (Registration No. 33-14064), dated May 6,
1987.
Amendment No. 2 to Form S-8 Registration Statement (Registration No.
33-24854), dated October 31, 1988.
Form S-3 Registration Statement (Registration No. 33-56885), dated December
15, 1994.
Form S-8 Registration Statement (Registration No. 333-13175), dated October
1, 1996.
Form S-8 Registration Statement (Registration No. 333-13173), dated October
1, 1996.
ERNST & YOUNG LLP
Washington, D.C.
March 20, 1997
5
1,000
12-MOS
DEC-31-1996
DEC-31-1996
45,862
0
276,779
(8,549)
126,018
508,546
1,187,452
(674,340)
1,324,419
294,027
227,385
0
0
81,823
599,464
1,324,419
1,557,643
1,608,499
1,176,982
1,393,081
0
3,661
21,483
200,884
76,336
119,009
0
0
0
119,009
2.39
2.36
