Annual Report
2000
C o n t e n t s
1
Financial Highlights
2
Report to Stockholders
6
Operations Profile
10
Management’s Discussion
and Analysis
19
Five-Year Statistical
Summary
20
Reports of Management and
Independent Accountants
21
Consolidated Financial
Statements
25
Notes to Consolidated
Financial Statements
42
Quarterly Financial Data;
Share Prices and Dividends
43
Information for Stockholders
P ro f i l e
Harsco Corporation (NYSE: HSC) is a diversified, multinational provider
of industrial services and products serving the worldwide infrastructure
development, steel, railway transportation, gas and energy industries.
Harsco’s operations are organized in three core business segments:
Infrastructure, Mill Services, and Gas and Fluid Control.
M i s s i o n
The Mission of Harsco Corporation is to achieve consistent, superior
financial returns from operations complemented by targeted and prudent
growth in markets and technologies familiar to the Company. Enhanced
stockholder 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.
O p e r a t i o n s
Harsco employs approximately 20,000 people at more than 400 service,
manufacturing, sales, and distribution locations in 38 countries.
Argentina
Australia
Bahrain
Belgium
Brazil
Canada
Chile
China
Czech Republic
Denmark
Egypt
Finland
France
Germany
India
Indonesia
Italy
Luxembourg
Malaysia
Mexico
Netherlands
New Zealand
Norway
Portugal
Qatar
Saudi Arabia
Singapore
Slovakia
South Africa
Spain
Sweden
Taiwan
Thailand
Trinidad
United Arab Emirates
United Kingdom
United States
Venezuela
Financial Highlights
(All dollars in thousands, except per share amounts)
Operating Information
Net Sales (2)
Net Income
Earnings Before Interest, Income Taxes, Minority
Interest, Depreciation and Amortization (3)
Effective Income Tax Rate
Financial Position
Working Capital
Current Ratio
Total Assets
Shareholders’ Equity
Total Debt to Total Capital
Per Share Information
Diluted Earnings Per Share
Book Value Per Share
Cash Dividends Declared Per Share
Other Information
Diluted Average Shares Outstanding
Capital Expenditures
Return on Average Capital
Return on Average Equity
Return on Average Assets
2000 (1)
1999
$ 2,003,387
96,803
$ 1,749,888
90,713
351,807
31.5%
305,589
35.0%
$
$
$
190,236
1.4:1
2,180,948
674,179
55.4%
2.42
16.94
.945
40,021,803
180,048
9.6%
14.7%
10.0%
$
$
$
182,439
1.4:1
1,659,823
650,121
41.2%
2.21
16.22
.91
41,017,067
175,248
10.0%
13.9%
10.7%
(1)
Includes SGB Group Plc, since date of acquisition.
(2)
In order to comply with EITF Issue No. 00-10, all shipping and handling costs have been classified as cost of services
sold or as cost of products sold rather than as reductions of sales. Sales for 1999 have been reclassified to reflect this
change.
(3) Earnings before interest, income taxes, minority interest, depreciation and amortization (EBITDA) is not a measure of
performance under generally accepted accounting principles; however, the Company and the investment community
consider it an important calculation.
Net Sales (2)
(In millions)
Income from
Continuing Operations
(In millions)
Diluted Earnings
Per Share from
Continuing Operations
(In dollars)
Cash Dividends
Declared Per Share
(In dollars)
2,003
107.5
100.4
1,766 1,750
83.9
1,660
1,586
2.34
2.21
2.42
96.8
90.7
2.04
1.67
.885
.91
.945
.82
.77
96
97
98
99
00
96
97
98
99
00
96
97
98
99
00
96
97
98
99
00
Harsco Corporation Annual Report 2000 1
Report to Stockholders
W e are optimistic that our double-digit
performance improvements in 2000 signal a
return to the steady, year-over-year progress that
has been our custom.
With the mid-year acquisition of SGB Group Plc, 2000 revenues
increased to a record $2.005 billion, up nearly 15 percent over the
preceding year. Diluted earnings per share grew to $2.42, a
10 percent improvement over last year’s $2.21 per share. Operating
cash flows, one of Harsco’s principal strengths, reached a record
$271 million, 18 percent ahead of last year’s $229 million, adjusted
for disbursements related to the discontinued defense business.
Our progress is the result of carefully executed strategies which we
believe give Harsco a solid foundation for future earnings stability and
long-term growth. Since the mid-1990s, we have refashioned the
Company, building substantial leadership positions on a worldwide
basis in important niche markets. In the same way that Harsco’s
predecessor companies of the 18th through the 20th centuries
continually reinvented themselves to take on increasingly valuable
roles in the industrial and economic growth of their era, our latest
reformation has elevated Harsco to a significant multinational position
within some of the world’s largest and most enduring industries.
The twin pillars of international expansion and industrial services
growth are much in evidence in our 2000 results. The continuing
difficulties in the North American steel industry and the disappointing
softness in certain markets of our gas and fluid containment and
control business were offset by strong international performance in
our mill services business, record results in our domestic access
equipment and services unit, and the international expansion of our
railway track maintenance business. These encouraging indicators
underscore the operating balance that has been our goal.
Industrial services now account for about 60 percent of our
revenues, giving higher margin, long-term sustainability to our
performance. At year-end 2000, the value of our mill services
contracts, adjusted for foreign currency translation, stood at an
estimated $3.5 billion, providing a high degree of recurring, annuity-
type revenue streams on a global basis. Noteworthy also is that for
the first time in Harsco’s history, we expect our 2001 revenues will
2 Harsco Corporation Annual Report 2000
O r g a n i z a t i o n a l l y
w e a re d e m o n -
s t r a t i n g o u r a b i l i t y
t o s u c c e s s f u l l y
m a n a g e a s a m u l t i -
n a t i o n a l c o r p o r a t i o n .
be evenly split between our domestic and international markets,
providing further evidence of our successful transformation and
reduced sensitivity to national and regional business cycles.
Many are predicting reduced activity levels in the U.S. economy in
2001, and the global environment in which we operate is not without
its challenges. While we cannot completely immunize ourselves
from market cyclicality or the periodic pressures on national
economies and their currencies, we believe we are better balanced
today, both geographically and operationally, to sustain and
accelerate our positive forward momentum. Our goals for 2001
include double-digit gains in Earnings Per Share and improving
operating margins, return on invested capital, and EBITDA.
Organizationally we are demonstrating our ability to successfully
manage as a multinational corporation. SGB facilitated the
expansion of our scaffolding and access equipment business, giving
it the broad international market presence and industry-leading
service and product portfolio already in place in our mill services,
gas and fluid control, and railway track maintenance services and
equipment businesses. SGB is one of the best-known and most
respected names throughout Western Europe for scaffolding,
formwork, shoring and other access services and products. It is also
an increasingly significant player in the Middle East and Asia. The
combined strengths of SGB and Patent Construction Systems give
us the requisite resources to service major construction and
maintenance projects anywhere in the world. We are confident that
SGB will be a substantial contributor to Harsco’s future, and are
taking the necessary steps to energize and re-tool the company for
the improved quality of earnings and long-term growth of which it is
capable.
The international expansion of our railway track maintenance
services and equipment business recognizes that over 80 percent of
the world’s 750,000 route miles (1.2 million kilometers) of railway
track lies outside the United States. While the post-merger U.S.
railroads continue to prioritize their operational issues and long-term
maintenance requirements, we have begun accelerating our
international advance, where it is estimated that the annual outlays
for rail track maintenance services and equipment exceed $1 billion.
We made good headway in this regard during 2000, winning new
orders for track renewal, rail grinding, rail flaw detection and other
specialized equipment and services from the UK, China, India,
Harsco Corporation Annual Report 2000 3
South America and Eastern Europe, all regions with substantial
railroad infrastructures and thus opportunities for our future
business growth.
Nowhere is the transformation of Harsco more evident than in our
Mill Services Group. In the early 1990s, our mill services operations
were concentrated primarily in the North American market,
generating about $165 million in annual revenues. Today, the
business operates in more than 30 countries, producing annual
revenues of more than $750 million, of which approximately
75 percent are generated outside the United States. As in each of
our three core operating segments, our mill services operations
represent a significant participation in a vital industrial sector. Steel
is a worldwide business, and we serve many of its foremost
producers. Among our near-term goals is to expand our service to
the growing international stainless steel sector, an objective that we
advanced last year with our acquisition of the Scandinavia-based
Bergslagens specialty stainless operations.
The majority of our manufacturing is now concentrated in our Gas
and Fluid Control Group, where our strategies have been to expand
our product and market penetration through selected, smaller
acquisitions and to divest lower-margin, non-core product lines.
There is much room for improvement from the Group’s 2000 results,
and we hope to see encouraging signs of market recovery in several
product areas and geographic regions in the nearer term.
With regard to Harsco’s future, a primary emphasis in 2001 will be to
reduce the increased level of debt incurred to support our recent
growth objectives. Historically we have demonstrated our ability to
pay down debt, lower our overall debt-to-capital ratio, and reduce
interest expense. The sale this year of certain assets will generate
additional discretionary cash to accomplish our debt reduction
objectives, without impeding our operating momentum and long
history of cash dividends. Harsco’s strong balance sheet,
underpinned by excellent cash flows, sensible debt levels, and
investment-grade credit ratings, will remain an inherent characteristic.
We also intend to improve the return on the considerable amount of
capital we have invested to grow and strengthen our business units.
These past several years have seen an acceleration of our
investment in selected acquisitions and internal development
projects offering the potential for long-term contribution to Harsco’s
growth. In a few instances, the results have not yet lived up to our
H a r s c o ' s s t ro n g
b a l a n c e s h e e t ,
u n d e r p i n n e d b y
e x c e l l e n t c a s h f l o w s ,
s e n s i b l e d e b t l e v e l s ,
a n d i n v e s t m e n t - g r a d e
c re d i t r a t i n g s , w i l l
re m a i n a n i n h e re n t
c h a r a c t e r i s t i c .
4 Harsco Corporation Annual Report 2000
expectations. The reasons, some legitimate, are numerous, but it is
our shareholders who suffer when capital investments underperform.
We feel the time is right to begin introducing the EVA value
improvement methodology throughout Harsco to better ensure that
we are allocating our capital and resources in the most effective
ways to generate shareholder value. The EVA framework
incentivizes operations to produce long-term returns well above their
cost of capital.
We will continue to:
· Concentrate on our long range objectives
· Focus on industrial services businesses with recurring revenue
streams
· Expand our market leadership positions domestically and
internationally
· Prudently use our increasing level of discretionary cash flows in
value-creating opportunities
· Maintain a strong balance sheet
· Improve returns on invested capital
· Go for certainty
· Deliver on our commitments.
/s/
Derek C. Hathaway
Chairman, President and Chief Executive Officer
February 27, 2001
Harsco Corporation Annual Report 2000 5
O p e r a t i o n s P r o f i l e
Harsco’s strategic transformation has
sharpened our operating focus and
expanded our international horizon.
No longer a domestic manufacturing organization,
today’s Harsco is delivering
high-value industrial services and products to
global customers on a global scale.
6 Harsco Corporation Annual Report 2000
Infrastructure Group
35%
32%
Net Sales
$703.6M
Operating Income
$62.3M
A c c e s s S e r v i c e s a n d E q u i p m e n t
Our June 2000 acquisition of SGB Group expands Harsco’s access services
and equipment business to a worldwide level. SGB pioneered the introduc-
tion of traditional scaffolding and is still the UK’s largest supplier. The
company serves the construction, infrastructure, and industrial maintenance
markets throughout Europe, the Middle East, and Asia with a full range of
scaffolding, concrete formwork, shoring, and other construction-related
services and products. SGB complements our Patent Construction Systems
division’s market leadership in North America to deliver Total Access
Solutions to customers on a worldwide basis, with increased geographic
coverage and one of the broadest portfolios of services and equipment in the
industry.
Both founded in the early 1900s, SGB and Patent Construction Systems are
the industry’s most experienced access equipment organizations, recognized
for playing major roles in some of the largest and most complex projects of
the modern era, including the modernization of the Empire State Building
and construction of the massive Hong Kong International Airport.
R a i l w a y Tr a c k M a i n t e n a n c e
Harsco Track Technologies combines Fairmont Tamper and Pandrol
Jackson, two leading railway track maintenance companies, to form one of
the largest and most comprehensive track maintenance and equipment
organizations in the world. Harsco Track Technologies provides contract
services to major railroads, short lines, and urban mass transit systems, and
is a single source for over 140 types and models of work equipment used in
the maintenance, renewal, and new construction of railway track.
Already North America’s leading track maintenance and equipment
company, Harsco Track Technologies continues to expand internationally,
where rail infrastructure improvements are receiving heightened investment
to support economic expansion and increased rail transportation efficiency
and safety.
I n d u s t r i a l G r a t i n g
IKG Industries is the United States’ leading manufacturer of specialized
industrial grating and bridge decking, making every type of grating available
on the market today. IKG’s steel, aluminum, and fiberglass grating products
are used by industrial plants, public utilities, and others for maintenance
walkways, non-skid safety flooring, drain grating, security enclosures, and a
range of other applications. For refurbishment of existing bridges, IKG’s
grid-reinforced concrete bridge deck and open grid deck provide lightweight,
low-maintenance solutions. The precast and prefabricated panels arrive at
the bridge ready to be installed, minimizing traffic disruption. Under new
leadership as part of the Patent Construction Systems division since 1998,
IKG Industries is focused on improved profitability and operational perform-
ance, and enhanced service to the large national steel service centers and
structural steel fabricators in North America.
Harsco Corporation Annual Report 2000 7
www.sgb.co.uk
www.pcshd.com
www.harscotrack.com
www.ikgindustries.com
Mill Services Group
38%
48%
Net Sales
$757.4M
Operating Income
$92.6M
M e t a l s I n d u s t r y S e r v i c e s
Heckett MultiServ is the world’s largest provider of outsourced, on-site mill
services to the international steel and metals industry. Heckett MultiServ’s
experience, financial resources, and broad geographic coverage are impor-
tant qualities to leading metals producers, who increasingly look to Heckett
MultiServ’s specialized services and technologies to enhance their produc-
tivity, product quality, environmental compliance and commercial competi-
tiveness.
Heckett MultiServ provides its services on a long-term contract basis,
supporting each stage of the metal-making process from initial raw material
handling to post-production by-product processing and recycling. Working
exclusively as a specialized, high-value services provider, Heckett MultiServ
does not trade steel or scrap, or at any time take ownership of its
customers’ raw materials or finished products. The company’s multi-year
contracts, with an estimated value in excess of $3.5 billion, provide Harsco
with a substantial financial base of long-term, annuity-type revenues.
Heckett MultiServ’s geographic reach _ more than 160 mills in over 30
countries _ and its increasing range of services provide financial and
operating balance across differing regional production levels.
Heckett MultiServ will continue to emphasize its margin improvement objec-
tives while focusing its research and development investments on key
customers and major contracts. Further market penetration will be pursued
through the addition of new customers and the expansion of services to
existing customers.
S l a g A b r a s i v e s a n d G r a n u l e s
The Reed Minerals unit of Heckett MultiServ is a pioneer in the recycling of
electric utility coal slag into aesthetically pleasing, competitively priced
roofing shingle granules and low-free-silica sandblast abrasives. Reed
Minerals sells these products under the well-known Black Beauty®
product name.
Reed Minerals is the United States’ largest manufacturer of slag abrasives
and the third largest manufacturer of roofing granules, operating from 16
production facilities in 13 states. A new slag abrasives facility opening in
Houston, Texas strengthens Reed’s market presence in that area, short-
ening distribution channels and facilitating shipments to regional customers.
www.heckettmultiserv.com
www.reedminerals.com
8 Harsco Corporation Annual Report 2000
Gas and Fluid Control Group
27%
21%
Net Sales
$542.4M
Operating Income
$41.1M
G a s C o n t a i n m e n t a n d C o n t r o l P r o d u c t s
The Harsco Gas and Fluid Control Group manufactures the broadest range
of gas and fluid containment and control equipment in the world. Its market-
leading businesses include Taylor-Wharton cryogenic gas containers, high
pressure gas cylinders, and acetylene cylinders; Sherwood valves for indus-
trial, commercial, and recreational use, including Superior Refrigeration
Products; American Welding & Tank propane gas tanks; Structural
Composites Industries (SCI) composite pressure vessels and structures; Air-
X-Changers heat exchangers for the natural gas industry; and Capitol
Manufacturing fluid fittings.
The Group’s manufacturing and service facilities in the USA, Europe,
Australia, Malaysia, and China comprise the industry’s largest integrated
manufacturing network for gas containment and control products. This
global operating presence provides significant economies of scale and
multiple code production capability, enabling the Gas and Fluid Control
Group to serve as a single source to the world’s leading industrial gas
producers and distributors, as well as regional and local customers on a
worldwide basis.
As the industry’s most comprehensive gas containment and control equip-
ment leader, the Gas and Fluid Control Group is well-positioned to support
the projected growth in demand for industrial and natural gases. Potential
opportunities include increased demand for heat exchangers to support the
international expansion in natural gas production; new market opportunities
for composite gas tanks such as natural gas-powered vehicles; new applica-
tions for industrial gases requiring specialty cylinders and valves, including
semiconductor manufacturing, medical valves and regulators, and laser
fabrication; and emerging international markets for beverage carbonation
requiring cryogenic liquid cylinders.
Harsco Corporation Annual Report 2000 9
www.taylorwharton.com
www.sherwoodvalve.com
www.sherwoodscuba.com
www.awtank.com
www.scicomposites.com
www.capitolcamco.com
www.airx.com
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
(Dollars are in millions)
Dec. 31
2000
Dec. 31
1999
Increase
Current Assets
$ 726.4
$ 612.9
$113.5
Current Liabilities
536.2
430.5
105.7
The strategic acquisitions, capital investments and cash
dividends, which have been paid at the same or increased
rates for the 203rd consecutive quarter in February 2001,
demonstrate the Company’s continued commitment to
creating shareholder value.
Working Capital
$ 190.2
$ 182.4
$ 7.8
Cash Utilization for the Year Ended December 31
Current Ratio
1.4:1
1.4:1
(In millions)
2000
1999
1998
1997
1996
Notes Payable and
Current Maturities
Long-term Debt
Total Debt
Total Equity
Total Capital
Total Debt to
Total Capital
$ 62.3
$ 36.6
$ 25.7
774.4
836.7
674.2
418.5
455.1
650.1
355.9
381.6
24.1
$1,510.9
$1,105.2
$405.7
55.4%
41.2%
The change in the components of the Company’s working
capital during 2000 is due principally to the strategic acqui-
sition of SGB Group Plc (SGB) in June 2000. Current
assets and current liabilities at December 31, 2000 include
SGB amounts of $150.9 million and $110.6 million, respec-
tively.
The Company is continuing its strategic focus on the
reduction of capital employed, including inventory and
receivable levels. As a result of this focus, excluding
acquisitions, in 2000 the Company reduced accounts
receivable by $15.9 million and inventories by $9.4 million.
Long-term debt increased in 2000 principally as a result of
financing the acquisitions of SGB, Bergslagens Stalservice
AB and Bergslagens Suomi Oy (collectively Bergslagens)
and, to a lesser extent, capital investments. In October
2000, the Company financed the SGB acquisition with 200
million of British pound sterling 7.25% notes issued at
98.463% (approximately $294.1 million using the
December 31, 2000 foreign exchange rate). The
Bergslagens acquisition was financed by a private place-
ment bond issued in June 2000.
Capital investments in 2000 were a record $180.0 million.
These investments were made for new mill services
contracts, for SGB access equipment, other business
growth initiatives and for productivity improvements.
10 Harsco Corporation Annual Report 2000
Strategic Acquisitions $302.5 $ 48.9 $158.3 $ 8.5 $ 21.1
Share Repurchases
Cash Dividends
7.9
37.6
71.9
37.0
169.3
113.2
40.3
39.1
30.7
37.9
Capital Investments
180.0
175.2
159.8
143.4
150.3
Total
$528.0 $333.0 $527.7 $304.2 $240.0
The Company’s debt as a percent of total capital increased
as a result of the debt incurred to finance the strategic
acquisitions. Also contributing to the change is a
$28.3 million decrease in equity from foreign currency
translation adjustments. These adjustments are principally
due to a 6% decrease in the translated value of the euro,
an 8% decrease in the British pound sterling and a 19%
decrease in the South African rand from December 31,
1999 to December 31, 2000. To improve the debt to
capital ratio, the Company has initiated a debt reduction
program that is further described later in this section.
Financial Statistics for the Year Ended December 31
2000
1999
Harsco stock price high-low $31.63 - $17.69
$34.38 - $23.06
Return on average equity
Return on average assets
Return on average capital
14.7%
10.0%
9.6%
13.9%
10.7%
10.0%
Higher return on average equity is due to increased
income in 2000 compared with 1999. Lower returns on
average assets and average capital are due to the effect
of the recent SGB acquisition which increased total assets
and capital. The company’s book value per share
increased to $16.94 per share at December 31, 2000 from
$16.22 at December 31, 1999 due principally to an
increase in retained earnings resulting from increased
income that was partially offset by foreign currency transla-
tion adjustments. These adjustments are recorded as part
of other comprehensive income (expense).
In the first quarter of 2001, the Company engaged Stern
Stewart & Co. to assist in the implementation of the
Economic Value Added (EVA®) measurement and
management system. The EVA® program will result in a
worldwide focus by employees to add shareholder value
by increasing the return on capital.
(In millions)
2000
1999
1998
Net Cash Provided by Operations:
$259.4
$214.0 $189.3
Cash provided by operations in 2000 was a record
$259.4 million, $45.4 million greater than in 1999. The
increase in cash is due principally to the timing of receipts
and payments for accounts receivable and accounts
payable of $46.0 million and $11.4 million, respectively.
Also affecting cash from operations was an increase in
income before depreciation and amortization of
$29.3 million and a $22.6 million increase in deferred
income taxes. Partially offsetting these favorable vari-
ances was a $46.2 million use of cash related to other
assets and liabilities and a $15.0 million variance related to
the timing of payments for inventories. The decrease in
other assets and liabilities is principally due to decreases
in accrued taxes, payments related to facilities discontinu-
ance and reorganizations including acquisitions, reduction
of advance payments on contracts, and decreases in other
current liabilities.
The Company has a U.S. commercial paper borrowing
program under which it can issue up to $350 million of
short-term notes in the U.S. commercial paper market.
In addition, the Company has a three billion Belgian franc
commercial paper program, equivalent to approximately
U.S. $70 million at December 31, 2000. The Belgian
program provides the capacity for the Company to borrow
euros to fund its European operations more efficiently.
The Company limits the aggregate commercial paper and
syndicated credit facility borrowings at any one time to a
maximum $350 million. At December 31, 2000, the
Company had $216.8 million of U.S. commercial paper
debt outstanding, and $52.0 million of commercial paper
debt outstanding under the Belgian program.
In September 2000, the Company renewed its revolving
credit facility in the amount of $350 million through a
syndicate of 13 banks. This facility serves as back-up to
the Company’s U.S. commercial paper program. The
facility is in two parts. One part amounts to $131,250,000
and is referred to as a 364-day credit agreement that
extends maturity of any borrowings for up to two years.
The second part is for $218,750,000 and is referred to as
a 5-year credit agreement that extends the maturity date of
the facility for up to five years. As of December 31, 2000,
there were no borrowings outstanding under this facility.
Subsequent to December 31, 2000, the Company
executed two $50 million credit facility agreements with
European-based banks. Borrowings under these facilities,
which expire in December 2001 and January 2002, are
available in Eurocurrencies or U.S. dollars and will be
primarily used to finance the Company’s European opera-
tions. Borrowings outstanding at expiration may be repaid
over the succeeding 4 years. Interest rates are based
upon LIBOR plus a margin.
A Form S-3 shelf registration is on file with the Securities
and Exchange Commission for the possible issuance of up
to an additional $200 million of new debt securities,
preferred stock or common stock.
Due to the Company’s increased debt level resulting from
the SGB acquisition, Standard & Poor’s and Fitch lowered
the Company’s credit ratings slightly. Moody’s ratings
were unchanged. The Company’s outstanding long-term
notes are now rated A- by Standard & Poor’s, A- by Fitch
and A-3 by Moody’s. The Company has undertaken a
debt reduction program that includes working capital
reductions through process improvements and the use of
software tools, divestitures of non-core businesses and
non-performing assets, and a complete reevaluation of the
capital expenditure program. These actions are expected
to enable the Company to reduce debt levels in 2001.
The Company’s financial position and debt capacity should
enable it to meet current and future requirements. As
additional resources are needed, the Company should be
able to obtain funds readily and at competitive costs. The
Company is positioned to continue to invest strategically in
high-return projects and acquisitions, and to pay cash
dividends as a means to enhance shareholder value. In
the near-term, the Company intends to use future discre-
tionary cash flow principally for debt reduction.
Harsco Corporation Annual Report 2000 11
Management’s Discussion and Analysis (continued)
Results of Operations
2000 Compared with 1999
(Dollars are in millions,
except per share)
2000
1999
Amount Percent
Increase Increase
Revenues
$2,004.7
$1,751.0
$253.7
14%
Operating income
194.7
166.7
Net income
96.8
90.7
28.0
6.1
17
7
Diluted earnings per
common share
2.42
2.21
.21
10
contributed to the decrease in sales. The decrease in
sales, as well as higher product cost of sales, resulted in
lower operating income for the Gas and Fluid Control
Segment.
Interest expense in 2000 was significantly greater than in
1999, principally as a result of increased debt used to
finance the SGB and Pandrol Jackson acquisitions. This
increase offset a significant portion of the operating
income increase.
Summary Analysis of Results
Comparative Analysis of Consolidated Results
The Company’s revenues, operating income, operating
income margin, net income and diluted earnings per share
improved in 2000 compared with 1999. Results improved
despite the negative impact on sales and earnings of the
foreign currency translation effect of the strong U.S. dollar,
the sale of six non-core businesses in 1999 and 2000 and
the unfavorable effect of higher energy costs. On a
comparative basis with 1999, the unfavorable effects of
foreign currency translation reduced the Company’s 2000
revenues and net income by approximately $45 million and
$4.8 million, respectively. Net income in 2000 benefited
from a lower effective income tax rate, principally on inter-
national earnings.
Sales and operating income for 2000 benefited signifi-
cantly from the results of the SGB acquisition in the
second quarter of 2000 and the Pandrol Jackson acquisi-
tion in the fourth quarter of 1999. Increased sales and
income were due in part to increased demand for services
from the Company's worldwide mill services business,
which generates approximately 75% of its revenues from
outside the United States. Improved performance from the
non-U.S. mill services operations allowed the Company to
post increased results in 2000, despite a second half
slowdown in the domestic steel industry. Additionally,
increased demand for services and products in the
domestic non-residential construction market favorably
affected sales and income.
Sales for most product lines in the Gas and Fluid Control
Segment were below 1999 levels due to reduced demand
and competitive pricing restraints due to a significant slow-
down in the manufacturing sector in the fourth quarter of 2000.
Additionally, the disposition of three non-core businesses
Revenues
Revenues for 2000 were significantly above those
recorded in 1999. Sales increased principally due to the
addition of acquired companies. The improvement also
resulted from increased demand in mill services and non-
residential construction markets in the United States.
Sales decreased in the United States for railway track
maintenance contract services and equipment (excluding
acquisitions) as well as for products in the Gas and Fluid
Control Segment. These decreases principally resulted
from softening demand due to high energy costs and the
unfavorable effects of a fourth quarter 2000 economic
slowdown in the United States manufacturing sector.
Excluding the unfavorable foreign currency translation
effect of the strengthening U.S. dollar, particularly relative
to the euro, revenues increased by more than 17%.
Cost of Sales and Selling, General and
Administrative Expenses
Cost of services and products sold increased, but at a
lower rate than the increase in revenues, despite a signifi-
cant increase in energy costs. Selling, general and admin-
istrative expenses increased due to the costs related to
acquired companies. The Company’s continuing cost
reduction, process improvement and reorganization efforts
slowed the growth rate of these costs. Excluding the net
effects of business acquisitions and dispositions, selling,
general and administrative expenses decreased approxi-
mately 3%.
On a comparative basis, 2000 was unfavorably affected by
higher product costs of $8 million due to LIFO inflation.
This was offset by a one-time employee benefit plan
change that reduced pre-tax costs by approximately
$5.3 million, and by lower pension costs.
12 Harsco Corporation Annual Report 2000
Other Income and Expenses
In 2000, the Company incurred $1.3 million of net other
expenses compared with $6 million in 1999. This income
statement classification principally includes impaired asset
write-downs, employee termination benefit costs and costs
to exit activities, offset by net gains on the disposal of non-
core assets. The decreased net expenses for 2000 princi-
pally result from a $3.8 million increase in net gains from
asset disposals.
Interest Expense
Interest expense in 2000 was higher than in 1999 due
principally to additional borrowings as a result of business
acquisitions, principally SGB and Pandrol Jackson. Higher
interest rates also contributed to the increase.
Provision for Income Taxes
The effective income tax rate for 2000 was 31.5% versus
35% for 1999. The reduction in the income tax rate is due
principally to lower rates on international earnings.
Net Income and Earnings Per Share
Net income of $96.8 million and diluted earnings per share
of $2.42 were above 1999 due to the factors previously
disclosed.
Segment Analysis
Infrastructure Segment
(Dollars are in millions)
2000
1999
Amount Percent
Increase Increase
Sales
$703.6
$432.5
$271.1
63%
Operating income
Segment net income
62.3
26.1
41.2
22.5
21.1
3.6
51
16
The significant increase in sales and operating income of
the Infrastructure Segment for 2000 is due to the acquisi-
tion of SGB in the second quarter of 2000 and Pandrol
Jackson in the fourth quarter of 1999. The acquisitions
resulted in increased sales of scaffolding, shoring, and
forming services and railway track maintenance
contracting services and equipment.
Excluding acquisitions, the operating income of the
Infrastructure Segment decreased by $7.7 million in 2000.
The decrease reflects reduced demand for railway track
maintenance contracting services and equipment. This
was experienced particularly in the United States where
the Company’s customers were confronted with a
manufacturing sector economic slowdown in the fourth
quarter of 2000 as well as significantly higher energy
costs. Railroad customers delayed the purchase of equip-
ment and deferred their maintenance programs for most of
the year. Additionally, a pre-tax non-recurring asset write-
down of $3.0 million was incurred in the third quarter of
2000 for the railway track maintenance business. Despite
higher sales, operating income for the grating product line
decreased due to higher material costs. The decrease in
the Segment’s operating income excluding acquisitions
was partially offset by improved income for scaffolding
services due to a continuing strong United States non-
residential construction market.
Net income of the Infrastructure Segment increased due to
the conditions previously discussed.
Mill Services Segment
(Dollars are in millions)
2000
1999
Amount Percent
Increase Increase
Sales
$757.4 $737.8
$19.6
3%
Operating income
Segment net income
92.6
58.5
78.2
45.1
14.4
13.4
18
30
Sales of the Mill Services Segment in 2000 were above
1999 despite the unfavorable effect of foreign exchange
translation and the disposition of two non-core businesses.
Excluding these factors and the effects of an acquisition,
sales increased by 10% in 2000. However, by year-end
2000 an oversupply of steel in the United States and
Canada, due principally to a high level of imports, unfavor-
ably affected prices, shipments and the profitability of
many steel mills; consequently the demand for mill
services began to decline and sales began to decrease.
Economic conditions in the steel industry are forecasted to
improve by the second half of 2001.
Operating income of the Mill Services Segment for 2000
was significantly above 1999. The increase reflects the
improved operating and economic environment for mill
services in the first half of 2000 and the favorable effects
of continuous process improvement programs and reorga-
nization efforts that more than offset significantly higher
energy costs. Excluding the unfavorable foreign currency
translation effect of the strong U.S. dollar, the disposition
of two non-core businesses and a business acquisition,
operating income increased by approximately 28%.
Net income of the Mill Services Segment for 2000 was
also significantly above 1999. The increase reflects the
conditions previously discussed. Additionally, a lower
effective income tax rate in 2000 favorably affected inter-
national earnings.
Harsco Corporation Annual Report 2000 13
Management’s Discussion and Analysis (continued)
Gas and Fluid Control Segment
Amount
Percent
(Dollars are in millions)
2000
1999
(Decrease) (Decrease)
Sales
$542.4 $579.6 $(37.2)
(6)%
Operating income
Segment net income
41.1
23.9
47.5
27.0
(6.4)
(3.1)
(13)
(11)
The decrease in 2000 sales of the Gas and Fluid Control
Segment is due principally to reduced demand and to
competitive pricing restraints for most product lines, as
well as the disposition of three non-core businesses.
The decreases in operating income and net income reflect
the unfavorable effect of lower sales which more than
offset net gains associated with the sale of non-core
businesses. Additionally, higher manufacturing production
costs contributed to the decrease in income.
Services and Engineered Products Analysis
The Company is a diversified services and engineered
products company. Over the last several years, manage-
ment has transformed the Company into a global services
company. This is evidenced by recent acquisitions of
service companies and related capital equipment. Sales,
operating income and EBITDA for 2000 and 1999 are
presented in the following table:
(Dollars are in millions)
Sales
Services
Engineered products
2000
1999
Amount Percent Amount Percent
$1,140.9
862.5
57%
43
$ 866.8
50%
883.1
50
Total sales
$2,003.4
100%
$1,749.9
100%
Operating Income
Services
$ 122.7
Engineered products
73.3
63%
37
$ 84.9
51%
82.0
49
Total segment
operating income
$ 196.0
100%
$ 166.9
100%
EBITDA*
Services
$ 248.0
Engineered products
103.3
71%
29
$ 191.1
63%
110.3
37
Total segment EBITDA $ 351.3
100%
$ 301.4
100%
* Earnings before interest, income taxes, depreciation and amorti-
zation (EBITDA) is not a measure of performance under generally
accepted accounting principles; however, the Company and the
investment community consider it an important calculation.
Service sales, operating income and EBITDA in 2000
increased significantly from 1999. The increase reflects
the effects of acquired companies, principally SGB and
Pandrol Jackson, as well as improved economic conditions
in certain markets served by the Company.
14 Harsco Corporation Annual Report 2000
Operating income for 2000 for engineered products was
down from 1999 due to reduced margins for certain
products, principally grating and industrial fittings.
Results of Operations
1999 Compared with 1998
(Dollars are in millions,
except per share)
1999
Amount
Percent
1998 (Decrease) (Decrease)
Revenues
$1,751.0
$1,766.1
$(15.1)
(1)%
Operating income
166.7
190.5
(23.8)
Net income
90.7
107.5
(16.8)
(12)
(16)
Diluted earnings per
common share
2.21
2.34
(.13)
(6)
Summary Analysis of Results
Despite improving conditions in the steel industry during
the last six months of 1999, the Company’s results for the
full year of 1999 reflect the adverse effects of a steel
industry affected by overcapacity, reduced prices and
weak demand in certain parts of the world. These
problems contributed to reduced steel production and
financial stress at several steel mills. Certain customers in
the United States were forced to file for bankruptcy protec-
tion. In the second half of 1999, increased levels of
domestic steel production and capacity utilization favorably
affected the Company’s results. Second half net income
and earnings per share for 1999 exceeded the same
period of 1998.
Soft market conditions in the industrial gas and oil indus-
tries contributed to lower results for 1999. However, the
significant increase in crude oil prices that was experi-
enced in late 1999 contributed to improved results for the
second half. The Company’s order backlog in the Gas
and Fluid Control Segment as of December 31, 1999 was
27% higher than as of December 31, 1998, reflecting
improved business conditions.
In 1999, the strong U.S. dollar adversely impacted the
foreign currency translation effect on results of operations
in many countries in which the Company operates.
Additionally, pre-tax pension expense for 1999, calculated
in accordance with SFAS No. 87, was $10.6 million higher
than 1998. The increase unfavorably impacted cost of
services and products sold as well as selling, general, and
administrative expenses.
Comparative Analysis of Consolidated Results
Revenues
Revenues for 1999 were $1.75 billion, slightly below 1998.
The decrease reflects principally the unfavorable effects of
market conditions in the steel, oil and gas industries during
the first six months of 1999. Improvements in market
conditions in the second half of 1999, as well as higher
sales from acquisitions, net of dispositions of non-core
businesses, partially offset the lower sales reported in the
first six months of 1999. Excluding the adverse foreign
exchange translation effect of the strengthening U.S.
dollar, particularly relative to the Brazilian real, the euro,
the South African rand and the British pound, revenues
exceeded 1998.
Cost of Sales and Selling, General and
Administrative Expenses
Costs of services and products sold for 1999 approximated
that of 1998. As a result of divesting certain non-core
businesses and the Company’s continuing cost reduction,
process improvement, and reorganization efforts, selling,
general, and administrative expenses decreased despite
the inclusion of acquired companies. The total of cost of
sales plus selling, general, and administrative expenses
was lower than 1998, despite a significant increase in
pension expense.
Other Income and Expenses
In 1999, the Company incurred $6.0 million of other
expenses compared with $4.3 million of other income in
1998. This income statement classification principally
includes impaired asset write-downs, employee termina-
tion benefit costs and costs to exit activities, offset by net
gains on the disposal of non-core assets.
Expenses for 1999 included $2.9 million of impaired asset
write-downs, principally for the Company’s investment in
Bio-Oxidation Services Inc. which is included in the Gas
and Fluid Control Segment. Additionally, $2.9 million of
expense was incurred for employee termination benefits
principally in the Mill Services Segment related to arrange-
ments which included operations in France and the United
Kingdom. In 1999, the Company did not benefit from any
large gains related to either the sale of non-core busi-
nesses or redundant facilities or equipment.
Other income for 1998 included a pre-tax net gain of
$27 million recorded on the October 1998 sale of the
Nutter Engineering unit of the Gas and Fluid Control
Segment. This was substantially offset by $14.4 million of
impaired asset write-downs including $6.1 million for the
Company’s investment in Bio-Oxidation Services Inc., as
well as $6.1 million for principally buildings and equipment
in the Mill Services Segment related primarily to the
Company’s operation in Russia. Also during 1998,
$6.5 million of employee termination benefit expense was
incurred principally in the Mill Services Segment, primarily
in South Africa, United States, France and Germany.
Employee Termination Benefit Costs and Payments
(In millions)
Summary of Activity
Original reorganization action period
1999
1998
Employee termination benefits expense
$2.9
$6.5
Disbursements:
In 1998
In 1999 (1)
Total disbursements
Other
_
(1.8)
(1.8)
_
(2.4)
(3.3)
(5.7)
(0.4)
Remaining payments as of
December 31, 1999 (2)
$1.1
$0.4
(1) Disbursements in 1999 are categorized according to the
original reorganization action period to which they relate (1999
or 1998).
(2) Remaining payments are categorized according to the original
reorganization action period to which they relate (1999 or
1998).
Employee Terminations _ Number of Employees
(In millions)
Summary of Activity
Original reorganization action period
1999
1998
Employees affected by new reorganization
actions
Employee terminations:
In 1998
In 1999
Total terminations
Other
Remaining terminations as of
December 31, 1999
220
670
_
(172)
(172)
(9)
39
(349)
(352)
(701)
35
4
Interest Expense
The Company’s defense business was sold in the fourth
quarter of 1997. This resulted in $344 million of pre-tax
cash proceeds. The availability of a substantial portion of
this cash in 1998 resulted in additional interest income, as
well as reduced interest expense compared to 1999.
Additionally, interest expense for 1999 was higher than
1998 as a result of increased borrowings for record capital
Harsco Corporation Annual Report 2000 15
Management’s Discussion and Analysis (continued)
investments, the Company’s share repurchase program
and an acquisition in the fourth quarter of 1999. Capital
investments, $175.2 million in 1999, were made for new
mill services contracts, other business growth initiatives,
information technology, new processes, and productivity
improvements.
Mill Services Segment
Amount
Increase
Percent
Increase
(Dollars are in millions)
1999
1998
(Decrease) (Decrease)
Sales
$737.8
$761.1
$(23.3)
(3)%
Operating income
78.2
Segment net income
45.1
82.9
43.3
(4.7)
1.8
(6)
4
Provision for Income Taxes
The effective income tax rate for 1999 was 35% versus
37.5% for 1998. The reduction in the income tax rate is
due principally to lower effective income tax rates on
domestic earnings.
Net Income and Earnings Per Share
Net income of $90.7 million was below 1998. Diluted
earnings per common share were $2.21, down from $2.34
in 1998.
Segment Analysis
Infrastructure Segment
(Dollars are in millions)
1999
1998
Amount
Increase
Percent
Increase
Sales
$432.5
$399.2
$33.3
8%
Operating income
41.2
Segment net income
22.5
32.9
18.6
8.3
3.9
25
21
The Infrastructure Segment’s sales for 1999 exceeded
1998 due to increased sales of scaffolding, shoring and
forming services, as well as sales of railway track mainte-
nance equipment and contracting services which included
the effect of an acquisition in the fourth quarter of 1999.
Operating income of the Infrastructure Segment was signif-
icantly above 1998. Excluding other income and
expenses, operating income was $41.2 million compared
with $34.8 million in 1998. The increase was due princi-
pally to improved margins on sales of grating products
and, to a lesser extent, higher income for scaffolding,
shoring and forming services. Additionally, the fourth
quarter of 1998 included $2.9 million of principally inven-
tory valuation adjustments due to a reorganization of the
grating products business.
Segment net income was above 1998 due principally to
improved margins on sales of grating products. Addition-
ally, increased income was recorded for scaffolding,
shoring and forming services. Excluding other income and
expenses, net income in 1999 was $22.5 million compared
with $19.9 million in 1998.
16 Harsco Corporation Annual Report 2000
Sales of the Mill Services Segment were below 1998. The
inclusion of sales from an acquired company for the full
year 1999 was partially offset by the 1998 disposition of a
non-core business. The decrease also reflects the
unfavorable effects of foreign exchange translation and
overcapacity in the steel industry which adversely affected
worldwide steel prices and production. This is particularly
true in the United States where the steel industry filed
complaints with the government due to alleged unfairly
low-priced imports. Lower steel production adversely
affected volume and margins at most steel mills in the
United States including many of the Company’s
customers. However, during the last six months of 1999,
steel production and capacity utilization in the United
States trended upwards reflecting the highest levels since
the second quarter of 1998. Additionally, certain other key
countries in which the Company conducts business also
experienced upward trends in steel production in 1999.
The Mill Services Segment fourth quarter 1999 results
reflected this trend as revenues and income, excluding
other income and expenses, exceeded the same period of
1998.
Operating income of the Mill Services Segment was below
1998. Results in 1998 included other expenses of
$6.5 million of pre-tax, non-cash write-downs of assets,
principally property, plant and equipment and $4.9 million
of employee termination benefit costs. Excluding other
income and expenses, operating income was $81.5 million
in 1999 compared with $95.0 million in 1998.
The decrease in income for 1999 reflected the adverse
effects of lower steel production and prices in the first half
of 1999. Results for 1999 include a foreign currency trans-
action gain in Brazil, while in 1998, net foreign currency
translation exchange losses were incurred. The transac-
tion gain in Brazil partially offset the net unfavorable
foreign currency impact associated with translation of the
results of operations of the Mill Services Segment.
Net income of the Mill Services Segment was above 1998.
Excluding other income and expenses, net income in 1999
was $47.3 million compared with $50.8 million in 1998,
reflecting the conditions previously disclosed.
(Dollars are in millions)
Sales
Services
1999
1998
Amount Percent Amount Percent
$ 866.8
50%
$ 870.0
49%
Gas and Fluid Control Segment
(Dollars are in millions)
1999
1998
Amount
Percent
(Decrease) (Decrease)
Sales
$579.6
$605.2
$(25.6)
(4)%
Operating income
47.5
Segment net income
27.0
72.3
40.9
(24.8)
(13.9)
(34)
(34)
Sales of the Gas and Fluid Control Segment decreased
from 1998. The inclusion of a full year’s sales of three
acquired companies was more than offset by lower sales
of process equipment due in part to the disposition of three
non-core businesses. Reduced sales of gas control and
containment equipment and process equipment also
reflected decreased demand in the industrial gas and oil
industries. In late 1999, these industries were favorably
affected by rising crude oil prices.
Operating income of the Gas and Fluid Control Segment
was below 1998 principally due to the inclusion in 1998 of
gains on the disposal of two businesses. Excluding other
income and expenses, operating income was $50.0 million
in 1999 compared with $54.1 million in 1998. The
decrease reflected the adverse effects of reduced demand
from customers in the industrial gas and oil industries.
Segment net income was below 1998 principally due to
the inclusion in 1998 of gains on the disposal of two busi-
nesses. Net income for 1999 was adversely affected, but to
a lesser extent than 1998, by valuation provisions related
to the write-down of assets held for disposal. Excluding
other income and expenses, net income in 1999 was $28.6
million compared with $30.0 million in 1998.
Services and Engineered Products Analysis
In addition to the segment reporting previously presented,
the Company is a services and engineered products
company. Total service sales include mill services, as well
as scaffolding, shoring, and forming services and railway
track maintenance services. Engineered products princi-
pally include product sales of the Infrastructure and the
Gas and Fluid Control Segments.
Engineered products
883.1
50
895.5
51
Total sales
$1,749.9
100%
$1,765.5 100%
Operating Income
Services
$
84.9
51%
$
78.8
42%
Engineered products
82.0
49
109.3
58
Total segment
operating income
$ 166.9
100%
$ 188.1 100%
Services operating income in 1999 was $84.9 million
compared with $78.8 million in 1998. Excluding losses
and impaired asset write-downs associated with the
medical waste disposal service business, services
operating income was $87.2 million and $88.6 million for
1999 and 1998, respectively.
Operating income for engineered products in 1998
included a pre-tax net gain of $27 million.
Economic Environment
The Company has currency exposures for its international
operations which are subject to volatility, such as the
foreign exchange fluctuations relative to the U.S. dollar
experienced for the euro and British pound sterling in 2000
and for the Brazilian real and the euro in 1999. Such
exposures may result in reduced sales, income, and cash
flows. The aforementioned situations are not expected to
have a material adverse impact on the Company’s finan-
cial position or results of operations. However, these and
similar risks could result in a material impact on the
Company’s financial position or results of operations in the
future, if the currencies would continue to weaken in
relation to the U.S. dollar. Balance sheet translation
adjustments for the European and Brazilian operations
generally do not affect results of operations.
In the second half of 2000 the worldwide steel industry
experienced selling price reductions and production curtail-
ments at many steel producers, particularly in the United
States and Canada. The United States steel industry was
unfavorably affected by imports of low-priced foreign steel
and a worldwide oversupply of steel. In 2000, United
Harsco Corporation Annual Report 2000 17
Management’s Discussion and Analysis (continued)
States steel imports were second only to the crisis year of
1998. Certain steel producers, including certain Company
customers, were forced to file for bankruptcy protection.
There is a risk that the Company’s future results of opera-
tions or financial condition could be adversely affected if
the steel industry’s problems were to continue. This risk is
mitigated since approximately 75% of the Company's mill
services sales are generated outside the United States.
The Mill Services Segment provides services at steel mills
throughout the world. The future financial impact on the
Company associated with these risks cannot be estimated.
Research and Development
The Company invested $5.7 million in internal research
and development programs in 2000. Internal funding for
the Infrastructure Segment amounted to $3.0 million,
principally for railway track maintenance equipment and
services. Expenditures for the Mill Services and Gas and
Fluid Control Segments were $2.0 million and $0.7 million,
respectively.
Backlog
As of December 31, 2000, the Company’s order backlog,
exclusive of long-term mill services contracts, was
$258.9 million compared with $231.6 million as of
December 31, 1999, a 12% increase. The Infrastructure
Segment order backlog at December 31, 2000 was $181.7
million, an increase of 20% over the December 31, 1999
backlog of $151.6 million. This increase is principally due
to an increase in railway track maintenance equipment and
services. Backlog for scaffolding, shoring and forming
services of the Infrastructure Segment is excluded from
the reported amounts. These amounts are generally not
quantifiable due to the nature of the products and services
provided.
Mill services contracts have an estimated value of
$3.5 billion at December 31, 2000, which is slightly below
the $3.6 billion at December 31, 1999, principally due to
the effect of foreign currency translation.
Dividend Action
The Company paid four quarterly cash dividends of $.235
per share in 2000, for an annual rate of $.94. This is an
increase of 4.4% from 1999. At the November 2000
meeting, the Board of Directors increased the dividend
18 Harsco Corporation Annual Report 2000
2.1% to an annual rate of $.96 per share. The Board
normally reviews the dividend rate periodically during the
year and annually at its November meeting. There are no
material restrictions on the payment of dividends.
The Company is proud of its history of paying dividends.
The Company has paid dividends each year since 1939.
The February 2001 payment marked the 203rd consecutive
quarterly dividend paid at the same or at an increased rate.
During the five-year period ended December 31, 2000,
dividends paid were increased five times. In 2000, the
dividend payout rate was 39%. The Company is philosoph-
ically committed to maintaining or increasing the dividend
at a sustainable level.
Forward Looking Statements
The nature of the Company’s operations and the many
countries in which it operates subject it to changing
economic, competitive, regulatory, and technological condi-
tions, risks, and uncertainties. In accordance with the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the Company provides the following
cautionary remarks regarding important factors which,
among others, could cause future results to differ materi-
ally from the forward-looking statements, expectations, and
assumptions expressed or implied herein. These include
statements about our management confidence and strate-
gies for performance; expectations for new and existing
products, technologies, and opportunities; and expecta-
tions for market segment and industry growth, sales,
earnings, and other financial performance measures.
These factors include, but are not limited to: (1) changes in
the worldwide business environment in which the
Company operates, including general economic condi-
tions, particularly in the mill services, infrastructure and
industrial gas markets; currency exchange rates; interest
rates; and capital costs; (2) changes in governmental laws
and regulations, including taxes; (3) market and competi-
tive changes, including pricing pressures, market demand
and acceptance for new products, services, and technolo-
gies; (4) effects of unstable governments and business
conditions in emerging economies; and (5) other risk
factors listed from time to time in the Company’s SEC
reports. The Company does not intend to update this
information and disclaims any legal liability to the contrary.
Five-Year Statistical Summary
(All dollars in thousands, except per share amounts)
Income Statement Information
Net sales (b)
Income from continuing operations before
interest, income taxes, and minority interest
Income from continuing operations
Income from discontinued defense business
Gain on disposal of discontinued defense business
Net income
Financial Position and Cash Flow Information
Working capital
Total assets
Long-term debt
Total debt
Depreciation and amortization
Capital expenditures
Cash provided by operating activities
Cash provided (used) by investing activities
Cash provided (used) by financing activities
2000 (a)
1999
1998
1997
1996
$ 2,003,387
$ 1,749,888
$ 1,765,546
$ 1,659,729
$ 1,586,108
192,708
96,803
-
-
96,803
169,736
90,713
-
-
90,713
191,901
107,513
-
-
107,513
179,888
100,400
28,424(c)
150,008
278,832
166,057
83,903
35,106
-
119,009
$ 190,236
2,180,948
774,450
836,745
159,099
180,048
259,448
(459,052)
210,746
$ 182,439
1,659,823
418,504
455,111
135,853
175,248
213,953
(194,674)
(8,928)
$ 112,619
1,623,581
309,131
363,738
131,381
159,816
189,260
(233,490)
(134,324)
$
341,160
1,477,188
198,898
225,375
116,539
143,444
148,541
196,545
(167,249)
$ 214,519
1,324,419
227,385
253,567
109,399
150,294
217,202
(153,225)
(92,944)
Ratios
Return on net sales 1
Return on average equity 2
Return on average assets 3
Current ratio
Total debt to total capital 4
Per Share Information (d)
Diluted - Income from continuing operations
- Income from discontinued defense business
- Gain on disposal of discontinued defense business
- Net income
Book value
Cash dividends declared
Other Information
Basic average number of shares outstanding (d)
Diluted average number of shares outstanding (d)
Number of employees
Backlog (e)
4.8%
14.7%
10.0%
1.4:1
55.4%
$ 2.42
-
-
2.42
16.94
.945
5.2%
13.9%
10.7%
1.4:1
41.2%
$ 2.21
-
-
2.21
16.22
.91
6.1%
14.3%
12.9%
1.2:1
34.7%
$ 2.34
-
-
2.34
16.22
.885
6.0%
15.1%
14.3%
1.9:1
22.4%
$ 2.04
.58(c)
3.05
5.67
16.64
.82
5.3%
14.0%
13.7%
1.7:1
27.1%
$ 1.67
.70
-
2.37
13.73
.77
39,964,228
40,021,803
19,700
$ 258,858
40,882,153
41,017,067
15,700
$ 231,557
45,568,256
45,910,531
15,300
188,594
$
48,754,212
49,191,872
14,600
$ 225,575
49,894,515
50,317,664
14,200
$ 211,734
(a)
(b)
Includes SGB Group Plc, since date of acquisition.
In order to comply with EITF Issue No. 00-10, all shipping and handling costs have been classified as cost of services sold or as cost of
products sold rather than as reductions of sales. Sales for the five years have been reclassified to reflect this change.
(c)
Includes income through August 1997 (the measurement date) from the discontinued defense business.
(d) Reflects two-for-one stock split to shareholders of record January 15, 1997.
(e) Excludes the estimated value of long-term mill service contracts, which had an estimated value of $3.5 billion at December 31, 2000.
1
2
3
4
"Return on net sales" is calculated by dividing income from continuing operations by net sales.
"Return on average equity" is calculated by dividing income from continuing operations by quarterly weighted average equity.
"Return on average assets" is calculated by dividing income from continuing operations before interest expense, income taxes, and minority
interest by quarterly weighted average assets.
"Total debt to total capital" is calculated by dividing the sum of debt (short-term borrowings and long-term debt including current maturities)
by the sum of equity and debt.
Harsco Corporation Annual Report 2000 19
Management’s Report on Financial Statements
To the Shareholders of Harsco Corporation:
Primary responsibility for the integrity and objectivity of the Company’s financial statements rests with management.
These statements are prepared in conformity with generally accepted accounting principles and, accordingly, include
amounts that are based on management’s best estimates and judgments. Non-financial information included in the
Annual Report has also been prepared by management and is consistent with the financial statements.
The Company’s internal control framework maintains systems, supported by a code of conduct, designed to provide
reasonable assurance, at reasonable cost, that its assets and resources are safeguarded against loss from unauthorized
use or disposition and that transactions are executed and recorded in accordance with established procedures. These
systems are implemented through clear and accessible written policies and procedures, employee training, and appro-
priate delegation of authority and segregation of responsibilities. These systems of internal control are reviewed,
modified, and improved as changes occur in business conditions and operations and as a result of suggestions from
managers, internal auditors, and independent accountants. These systems are the responsibility of the management of
the Company.
The independent accountants are engaged to perform an audit of the consolidated financial statements in accordance with
generally accepted auditing standards. Their report appears below.
The Audit Committee of the Board of Directors is comprised entirely of individuals who are not employees of the
Company. This Committee meets periodically and privately with the independent accountants, with the internal auditors,
and with the management of the Company to review matters relating to the quality of the financial reporting, the internal
control framework, and the scope and results of audit examinations.
/s/
/s/
Derek C. Hathaway
Chairman, President and Chief
Executive Officer
Salvatore D. Fazzolari
Senior Vice President, Chief
Financial Officer and Treasurer
Report of Independent Accountants
To the Shareholders of Harsco Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, share-
holders’ equity, comprehensive income, and cash flows present fairly, in all material respects, the financial position of
Harsco Corporation and Subsidiary Companies at December 31, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting princi-
ples generally accepted in the United States of America. These financial statements are the responsibility of the
Company’s management; our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 30, 2001
20 Harsco Corporation Annual Report 2000
Consolidated Balance Sheet
(In thousands, except share amounts)
December 31
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Cost in excess of net assets of businesses acquired, net
Other assets
Total assets
Liabilities
Current liabilities
Short-term borrowings
Current maturities of long-term debt
Accounts payable
Accrued compensation
Income taxes
Dividends payable
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Insurance liabilities
Other liabilities
Total liabilities
Commitments and Contingencies
Shareholders’ Equity
Preferred stock, Series A junior participating cumulative preferred stock
Common stock, par value $1.25, issued 66,309,651 and 66,221,544
shares as of December 31, 2000 and 1999, respectively
Additional paid-in capital
Accumulated other comprehensive expense
Retained earnings
Treasury stock, at cost (26,504,479 and 26,149,759 shares, respectively)
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
2000
1999
$ 56,422
413,654
199,117
57,222
726,415
896,781
369,199
188,553
$2,180,948
$ 47,676
14,619
192,148
46,591
34,783
9,553
190,809
536,179
774,450
88,480
46,988
60,672
1,506,769
$ 51,266
331,123
172,198
58,368
612,955
671,546
258,698
116,624
$1,659,823
$ 32,014
4,593
132,394
46,615
44,154
9,417
161,329
430,516
418,504
52,932
37,097
70,653
1,009,702
-
-
82,887
90,000
(109,377)
1,214,659
1,278,169
(603,990)
674,179
$2,180,948
82,777
88,101
(80,538)
1,155,586
1,245,926
(595,805)
650,121
$1,659,823
Harsco Corporation Annual Report 2000 21
Consolidated Statement of Income
(In thousands, except per share amounts)
Years ended December 31
Revenues
Service sales (1)
Product sales (1)
Other
Total revenues
Costs and expenses
Cost of services sold
Cost of products sold
Selling, general and administrative expenses
Research and development expenses
Other (income) and expenses
Total costs and expenses
2000
1999
1998
$1,140,922
862,465
1,354
2,004,741
840,501
688,385
274,079
5,714
1,334
1,810,013
$ 866,839
883,049
1,119
1,751,007
669,364
693,368
207,765
7,759
6,019
1,584,275
$ 869,987
895,559
582
1,766,128
670,389
689,041
213,438
6,977
(4,264)
1,575,581
Operating income
194,728
166,732
190,547
Equity in income (loss) of affiliates, net (2)
Interest income
Interest expense
Income before income taxes
and minority interest
Provision for income taxes
Income before minority interest
Minority interest in net income
Net income
(2,020)
5,987
(50,104)
148,591
46,805
101,786
4,983
3,004
4,662
(26,968)
147,430
51,599
95,831
5,118
1,354
8,378
(20,504)
179,775
67,361
112,414
4,901
$ 96,803
$ 90,713
$ 107,513
Basic earnings per common share
$ 2.42
$ 2.22
$ 2.36
Average shares of common stock outstanding
39,964
40,882
45,568
Diluted earnings per common share
$ 2.42
$ 2.21
$ 2.34
Diluted average shares of common stock outstanding
40,022
41,017
45,911
See accompanying notes to consolidated financial statements.
(1) In order to comply with Emerging Issues Task Force (EITF) Issue No. 00-10, all shipping and handling costs have been
classified as cost of services sold or as cost of products sold rather than as reductions of sales. The income statements for
the twelve months ended December 31, 1999 and 1998 have been reclassified to reflect this change. The reclassification
has no effect on previously reported operating income or net income for the twelve months ended December 31, 1999
and 1998.
(2) Equity in income (loss) of affiliates is now separately reported. Previously these amounts were included in operating income
as other revenues. Amounts previously reported as operating income for the twelve months ended December 31, 1999 and
1998 were $169,736 and $191,901, respectively.
22 Harsco Corporation Annual Report 2000
Consolidated Statement of Cash Flows
(In thousands)
Years ended December 31
Cash flows from operating activities
Net income
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation
Amortization
Equity in (income) loss of affiliates, net
Dividends or distributions from affiliates
Deferred income taxes
Other (income) and expenses
Gain on sale of businesses
Other, net
Changes in assets and liabilities, net of acquisitions
and dispositions of businesses:
Accounts receivable
Inventories
Accounts payable
Net disbursements related to discontinued
defense business
Other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Purchase of businesses, net of cash acquired*
Proceeds from sale of businesses
Proceeds from sale of property, plant and equipment
Investments available-for-sale: Maturities
Investments held-to-maturity:
Maturities
Other investing activities
Net cash (used) by investing activities
Cash flows from financing activities
Short-term borrowings, net
Current maturities and long-term debt: Additions
Reductions
Cash dividends paid on common stock
Common stock issued_options
Common stock acquired for treasury
Other financing activities
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
2000
1999
1998
$ 96,803
$ 90,713
$ 107,513
141,128
17,971
2,020
1,729
22,806
3,397
(2,226)
1,422
17,811
966
10,193
(12,012)
(42,560)
259,448
(180,048)
(302,461)
11,512
10,957
-
-
988
(459,052)
146,552
562,993
(448,366)
(37,594)
1,792
(7,917)
(6,714)
210,746
(5,986)
5,156
51,266
122,777
13,076
(3,004)
3,369
193
6,019
-
5,205
(28,157)
15,934
(1,238)
(14,605)
3,671
213,953
(175,248)
(48,907)
17,718
14,381
-
-
(2,618)
(194,674)
(10,546)
214,133
(103,410)
(37,022)
2,272
(71,860)
(2,495)
(8,928)
(647)
9,704
41,562
119,044
12,337
(1,354)
1,494
3,893
24,843
(29,107)
5,260
(15,718)
(24,991)
8,379
(13,642)
(8,691)
189,260
(159,816)
(158,291)
39,500
13,033
40,000
4,010
(11,926)
(233,490)
16,131
172,709
(116,163)
(40,287)
3,885
(169,258)
(1,341)
(134,324)
(1,449)
(180,003)
221,565
Cash and cash equivalents at end of year
$ 56,422
$ 51,266
$ 41,562
*Purchase of businesses, net of cash acquired
Working capital, other than cash
Property, plant and equipment
Other noncurrent assets and liabilities, net
Net cash used to acquire businesses
See accompanying notes to consolidated financial statements.
$ (20,249)
(215,065)
(67,147)
$ (302,461)
$ 18,078
$ 11,159
(36,417)
(30,568)
(89,182)
(80,268)
$ (48,907)
$ (158,291)
Harsco Corporation Annual Report 2000 23
Consolidated Statement of Shareholders’ Equity
Accumulated Other Comprehensive
Income (Expense)
(In thousands, except share amounts)
Balances, January 1, 1998
Issued
$82,318
Common Stock
Additional
Paid-in
Treasury
Capital
$(362,772) $79,360 $ (49,677)
Trans-
lation
Net Unrealized
Investment
Gains
(Losses)
$(28)
Pension
Liability
Total
$(1,269) $ (50,974) $1,033,770
Retained
Earnings
Net income
Cash dividends declared, $.885 per share
Translation adjustments
Unrealized investment gains, net of ($18)
deferred income taxes
Pension liability adjustments, net of $1,544
deferred income taxes
Acquired during the year, 4,989,483 shares
Stock options exercised, 221,293 shares
Restricted stock, net, 40,324 shares
Other, 1,658 shares
276
(168,405)
1,649
66
5,913
110
1
107,513
(39,455)
(1,714)
28
(1,714)
28
(2,385)
(2,385)
Balances, December 31, 1998
82,594
(529,462)
85,384
(51,391)
-
(3,654)
(55,045) 1,101,828
Net income
Cash dividends declared, $.91 per share
Translation adjustments
Pension liability adjustments, net of ($1,277)
deferred income taxes
Acquired during the year, 2,326,798 shares
Stock options exercised, 146,164 shares
Other, 2,497 shares
183
(66,441)
2,740
(23)
98
90,713
(36,955)
(27,273)
(27,273)
1,780
1,780
Balances, December 31, 1999
82,777
(595,805)
88,101
(78,664)
-
(1,874)
(80,538) 1,155,586
Net income
Cash dividends declared, $.945 per share
Translation adjustments
Pension liability adjustments, net of $295
deferred income taxes
Acquired during the year, 355,695 shares
Stock options exercised, 88,107 shares
Other, 975 shares
110
(8,209)
1,900
(1)
24
96,803
(37,730)
(28,327)
(28,327)
(512)
(512)
Balances, December 31, 2000
$82,887
$(603,990) $90,000 $(106,991)
$ -
$(2,386) $(109,377) $1,214,659
Consolidated Statement of Comprehensive Income
(In thousands)
Years ended December 31
Net Income
Other comprehensive income (expense):
Foreign currency translation adjustments
Unrealized investment gains, net of deferred income taxes
Pension liability adjustments, net of deferred income taxes
Other comprehensive expense
Total comprehensive income
See accompanying notes to consolidated financial statements.
24 Harsco Corporation Annual Report 2000
2000
$96,803
(28,327)
-
(512)
(28,839)
$67,964
1999
$90,713
(27,273)
-
1,780
(25,493)
$65,220
1998
$107,513
(1,714)
28
(2,385)
(4,071)
$103,442
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
(the "Company"). Investments in unconsolidated entities
(all of which are 20-50% owned) are accounted for under
the equity method.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand
deposits, and short-term investments which are highly
liquid in nature and have an original maturity of three
months or less.
Inventories
Inventories are stated at the lower of cost or market.
Inventories in the United States are accounted for using
principally the last-in, first-out (LIFO) method. Other inven-
tories are accounted for using the first-in, first-out (FIFO)
or average cost methods.
Depreciation
Property, plant and equipment is recorded at cost and
depreciated over the estimated useful lives of the assets
using principally the straight-line method. When property
is retired from service, generally the cost of the retirement
is charged to the allowance for depreciation to the extent
of the accumulated depreciation, and the balance is
charged to income. Long-lived assets to be disposed are
not depreciated while they are held for disposal.
Intangible Assets
Intangible assets consist principally of cost in excess of net
assets of businesses acquired, which is amortized on a
straight line basis over a period not to exceed 30 years.
Accumulated amortization was $91.0 and $74.9 million at
December 31, 2000 and 1999, respectively.
Impairment of Long-Lived Assets
Long-lived assets, including cost in excess of net assets of
businesses acquired and other intangible assets, used in
the Company’s operations are reviewed for impairment
when events and circumstances indicate that the carrying
amount of an asset may not be recoverable. The
Company’s policy is to record an impairment loss when it
is determined that the carrying amount of the asset
exceeds the sum of the expected undiscounted future
cash flows resulting from use of the asset and its eventual
disposition. Impairment losses are measured as the
amount by which the carrying amount of the asset exceeds
its fair value. Long-lived assets to be disposed are
reported at the lower of the carrying amount or fair value
less cost to sell.
Revenue Recognition
Revenue is recognized for product sales generally when
title and risk of loss transfer. Service sales are generally
recognized over the contractual period or as services are
performed. Both product sales and service revenues are
recognized when they are realized or realizable and when
earned. Revenue generally is realized or realizable and
earned when all of the following criteria are met: persua-
sive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the Company’s
price to the buyer is fixed or determinable and collectibility
is reasonably assured.
Income Taxes
United States federal and state income taxes and non-U.S.
income taxes are provided currently on the undistributed
earnings of international subsidiaries and unconsolidated
affiliated entities, giving recognition to current tax rates and
applicable foreign tax credits, except when management
has specific plans for reinvestment of undistributed
earnings which will result in the indefinite postponement of
their remittance. Deferred taxes are provided using the
asset and liability method for temporary differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Accrued Insurance and Loss Reserves
The Company retains a significant portion of the risk for
workers’ compensation, automobile, general, and product
liability losses. Reserves have been recorded which
reflect the undiscounted estimated liabilities including
claims incurred but not reported. Changes in the
estimates of the reserves are included in net income in the
period determined. Amounts estimated to be paid within
one year have been classified as Other current liabilities,
with the remainder included in Insurance liabilities.
Foreign Currency Translation
The financial statements of the Company’s subsidiaries
outside the United States, except for those subsidiaries
located in highly inflationary economies, are principally
measured using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are
translated at the exchange rates as of the balance sheet
date. Resulting translation adjustments are recorded in
the cumulative translation adjustment, a separate compo-
nent of Other comprehensive income (expense). Income
and expense items are translated at average monthly
exchange rates. Gains and losses from foreign currency
transactions are included in net income. For subsidiaries
operating in highly inflationary economies, gains and
losses on foreign currency transactions and balance sheet
translation adjustments are included in net income.
Harsco Corporation Annual Report 2000 25
Notes to Consolidated Financial Statements (continued)
The functional currency for the Company’s operations in
Mexico was the U.S. dollar for 1997 and 1998. Effective
January 1999, the three-year cumulative rate of inflation
fell below 100%. As of January 1, 1999, the Company
measures the financial statements of its Mexican entities
using the Mexican new peso as the functional currency.
Effective January 1998, the Company’s operations in
Brazil were no longer accounted for as a highly inflationary
economy, because the three-year cumulative rate of infla-
tion fell below 100%. The Company measures the finan-
cial statements of its Brazilian entities using the Brazilian
real as the functional currency.
Financial Instruments and Hedging
The Company has subsidiaries principally operating in
North America, South America, Europe, and Asia-Pacific.
These operations are exposed to fluctuations in related
foreign currencies in the normal course of business. The
Company seeks to reduce exposure to foreign currency
fluctuations through the use of forward exchange
contracts. The Company does not hold or issue financial
instruments for trading purposes, and it is the Company’s
policy to prohibit the use of derivatives for speculative
purposes. The Company has a Foreign Currency Risk
Management Committee that meets periodically to monitor
foreign currency risks.
The Company executes foreign currency forward
exchange contracts to hedge transactions of its non-U.S.
subsidiaries for firm purchase commitments, to hedge
variable cash flows of forecasted transactions and for
export sales denominated in foreign currencies. These
contracts generally are for 90 to 180 days or less. For
those contracts that hedge an identifiable transaction,
gains or losses are deferred and accounted for as part of
the underlying transaction. The cash flows from these
contracts are classified consistent with the cash flows from
the transaction being hedged. The Company also enters
into foreign currency forward exchange contracts for inter-
company foreign currency commitments. These forward
exchange contracts do not qualify as hedges. Therefore,
gains and losses are recognized in income based on fair
market value.
Options for Common Stock
The Company uses the intrinsic value method to account
for options granted to employees for the purchase of
common stock. No compensation expense is recognized
on the grant date, since at that date, the option price
equals the market price of the underlying common stock.
The Company discloses the pro forma effect of accounting
for stock options under the fair value method.
Earnings Per Share
Basic earnings per share is calculated using the average
shares of common stock outstanding, while diluted
earnings per share reflects the potential dilution that could
occur if stock options were exercised.
26 Harsco Corporation Annual Report 2000
Use of Estimates in the Preparation of Financial
Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires manage-
ment to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior years’
amounts to conform with current year classifications.
New Financial Accounting Standards Issued
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), with an
amended date effective for fiscal years beginning after
June 15, 2000. SFAS No. 133 was amended by
SFAS No. 138 (SFAS 138). SFAS 133 requires that an
entity recognize all derivative instruments as either assets
or liabilities on its balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of
a hedge transaction, and, if it is, the type of hedge trans-
action. The Company has adopted SFAS 133 and
SFAS 138 as of January 1, 2001. Due to the Company’s
limited use of derivative instruments, SFAS 133 and
SFAS 138 did not have a material effect on the financial
position or results of operations of the Company. The net
cumulative effect adjustment as of January 1, 2001 was an
expense of $21 thousand.
In September 2000, the FASB issued SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 140), which
replaces SFAS No. 125 (SFAS 125) with the same title. It
revises the standards for securitizations and other transfers
of financial assets and collateral and requires additional
disclosures, but otherwise retains most of SFAS 125’s
provisions. The Company will adopt SFAS 140 in the
second quarter of 2001. The adoption of SFAS 140 is not
expected to have a material effect on the Company’s finan-
cial position or results of operations.
New Staff Accounting Bulletin Issued
In December 1999, the Securities and Exchange
Commission (the "Commission") issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101), which provides guidance on the
recognition, presentation, and disclosure of revenue in
financial statements filed with the Commission. The
Company adopted SAB 101 in the fourth quarter of 2000
with no material effect on revenue.
New Emerging Issues Task Force (EITF) Consensus
In July and September 2000, the EITF reached a
consensus in EITF Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs", by agreeing that
shipping and handling fees billed to a customer in a sales
transaction must be classified as revenues and that
shipping costs should not be netted against sales. The
EITF also requires that all costs incurred for shipping
and handling be classified as expenses, preferably in
cost of sales.
It was determined that certain operations of the Company
had previously recorded shipping and handling costs by
netting them against revenues. The Company has reclas-
sified these costs to cost of services sold or cost of
products sold, as applicable. As a result, $34 million,
$33 million, and $32 million of shipping and handling costs
associated with the sales of the Company’s products and
services for 2000, 1999, and 1998, respectively, have
been reclassified. Pre-tax income, net income and
earnings per share are not affected by this change.
2. Discontinued Defense Business
On August 25, 1997, the Company and FMC Corporation
signed an agreement to sell United Defense, L.P. for
$850 million, and the sale was completed on October 6, 1997.
Prior to the sale, FMC had been the managing general
partner and 60% owner of United Defense, L.P., while the
Company owned the balance of 40% as the limited partner.
United Defense supplies ground combat and naval
weapons systems for the U.S. and military customers
worldwide.
Disbursements related to the discontinued defense
business, principally claim settlements and legal fees, are
shown separately on the Consolidated Statement of Cash
Flows for 2000, 1999, and 1998.
3. Acquisitions and Dispositions
Acquisitions
On June 16, 2000 the Company received all required
regulatory approvals and declared its offer to acquire
SGB Group Plc ("SGB") wholly unconditional. Harsco took
majority ownership in SGB and subsequently acquired
100% of the shares. SGB, based in the UK, is one of
Europe’s largest suppliers of scaffolding, forming and
related access products and services. SGB also has
operations in North America, the Middle East and the
Asia-Pacific region. SGB had 1999 sales of 283 million
British pounds sterling (approximately $423 million using
a December 31, 2000 exchange rate).
The acquisition of SGB has been accounted for using the
purchase method of accounting, and accordingly, the
operating results of SGB have been included in the consol-
idated results of the Company since the date of acquisi-
tion. The purchase price allocation is based upon
appraisal values and management estimates.
The purchase price of SGB has been allocated as follows:
(In millions)
Working capital, other than cash
$ 21.3
Property, plant and equipment
Other assets
Cost in excess of net assets acquired
Non-current liabilities
Purchase price, net of cash received
211.6
45.3
127.1
(133.4)
$ 271.9
The purchase price allocation was reclassified in the fourth
quarter of 2000. The reclassification was due principally to
the netting of deferred income taxes in the countries of
origin. Additionally, cost in excess of net assets acquired
increased by $14.2 million since September 30, 2000 due
principally to a decrease in pension assets based upon an
actuarial study.
In May 2000, the Company completed the acquisitions of
Bergslagens Stalservice AB and Bergslagens Suomi Oy
(collectively Bergslagens). The two companies provide
specialized slag processing and metal recovery services to
steel mills in Sweden and Finland, respectively. The two
organizations together recorded 1999 sales of nearly
$10 million.
In October 1999, the Company acquired Charter plc’s
Pandrol Jackson railway track maintenance business. The
transaction was completed for approximately $48 million in
cash plus assumption of liabilities, for a total consideration
of approximately $65 million. Pandrol Jackson manufac-
tures and markets worldwide a wide range of equipment
and services used in railway track maintenance. In
December 1999, the Company completed the sale of the
railway switch, crossing and transit grinding business
obtained as part of the Pandrol Jackson railway mainte-
nance acquisition. This business with annual sales of
approximately $6 million was divested in accordance with
an agreement with the Department of Justice as a condi-
tion to the acquisition of Pandrol Jackson.
In July 1999 and February 1999, respectively, the
Company acquired certain assets and assumed certain
liabilities of Structural Accessories, Inc. and Natural Gas
Vehicle Systems, Inc. The purchase prices for these
acquisitions approximated $2 million and $3 million,
respectively.
Harsco Corporation Annual Report 2000 27
Notes to Consolidated Financial Statements (continued)
Dispositions
In June 2000, the Company completed the sales of
Gunness Wharf Limited and Flixborough Wharf Limited,
and in March 2000 completed the sale of its natural gas
vehicle automotive valve product line. The Company
completed the sales of the Manchester truck dealership in
September 1999; the pavement marking and vegetation
control business of Chemi-Trol in August 1999; and
Astralloy Wear Technology in March 1999.
Pending Divestitures
The Company announced on September 27, 2000 that its
Board of Directors had approved plans to divest three non-
core operations as part of Harsco’s continuing strategic
repositioning as a leading worldwide industrial services
company.
The operations include Capitol Manufacturing, which
produces pipe fittings and related products for the indus-
trial plumbing, electrical, and other markets; Patterson-
Kelley, a manufacturer of industrial and commercial
boilers, water heaters, and blenders; and Faber Prest
Distribution, a UK-based materials transport business
which Harsco acquired in 1998 as part of mill services
provider Faber Prest Plc.
In the first quarter of 2001, due to changing economic
conditions, the Company reversed its decision to divest
Capitol Manufacturing.
4. Accounts Receivable and Inventories
Accounts receivable are net of an allowance for doubtful
accounts of $26.1 million and $13.3 million at December
31, 2000 and 1999, respectively. The acquisition of SGB
increased the allowance for doubtful accounts by
$15.8 million as of December 31, 2000.
Inventories consist of:
(In thousands)
Finished goods
Work-in-process
Raw materials and purchased parts
Stores and supplies
Valued at lower of cost or market:
LIFO basis
FIFO basis
Average cost basis
2000
1999
$ 68,519
$ 37,715
36,751
73,265
20,582
37,198
76,911
20,374
$ 199,117
$172,198
$124,189
$132,366
12,898
62,030
16,483
23,349
$199,117
$172,198
All acquisitions have been accounted for using the
purchase method of accounting with cost in excess of net
assets of businesses acquired totaling $137.0 million in
2000 and $9.4 million in 1999. Results of operations are
included in income since the dates of acquisition.
The following unaudited pro forma consolidated net sales,
net income, and earnings per share data are presented as
if the above businesses had been acquired at the begin-
ning of the periods presented.
(In millions, except per share data)
Pro Forma Information for Years
Ended December 31
Net sales
Net income
Basic earnings per share
Diluted earnings per share
2000
$2,208
93
2.27
2.27
1999
$2,220
101
2.47
2.47
The unaudited pro forma information is not necessarily
indicative of the results of operations that would have
occurred had the purchases been made at the beginning
of the periods presented, or of the future results of the
combined operations.
The unaudited pro forma information includes the actual
results of the acquired businesses prior to the acquisition
dates, which includes for the year 2000 approximately
$4 million of non-tax deductible costs incurred by SGB in
defense of the acquisition. These results do not reflect the
effect of reorganization actions, synergies, cost reductions
and other benefits resulting from the combinations.
Additionally, the unaudited pro forma information reflects
amortization of the cost in excess of net assets acquired
and interest expense on assumed borrowings for acquisi-
tions for the full periods presented.
In April 2000, the Company agreed to invest $20 million for
a 49 percent ownership interest in S3Networks, LLC, a
start-up company providing internet and e-business infra-
structure consulting services primarily to Fortune 1000
corporations. Cash of $10 million has been invested
through December 31, 2000 with an additional $10 million
due to be paid over a period not to exceed fifteen months
from the initial investment date. The investment is being
accounted for under the equity method. Since the
Company is the principal provider of initial capital for
S3Networks, LLC, the Company is recording 100% of net
losses to the extent of its initial $20 million investment.
However, the Company will also record 100% of subse-
quent net income until the entire initial investment amount
is reinstated. Subsequent to reinstatement of the initial
investment amount, the Company will record net income to
the extent of its ownership percentage of S3Networks, LLC.
28 Harsco Corporation Annual Report 2000
Inventories valued on the LIFO basis at December 31,
2000 and 1999 were approximately $33.2 million and
$28.4 million, respectively, less than the amounts of such
inventories valued at current costs.
As a result of reducing certain inventory quantities valued
on the LIFO basis, net income increased from that which
would have been recorded under the FIFO basis of valua-
tion by $0.03 million, $1.1 million, and $0.2 million in 2000,
1999, and 1998, respectively.
5. Property, Plant and Equipment
Property, plant and equipment consists of:
(In thousands)
2000
1999
Land and improvements
$ 46,609 $ 28,847
Buildings and improvements
168,719
147,742
Machinery and equipment
1,489,906
1,243,437
Uncompleted construction
66,260
79,797
1,771,494
1,499,823
Less accumulated depreciation
874,713
828,277
$ 896,781
$ 671,546
The estimated useful lives of different types of assets are
generally:
Land improvements
Buildings and improvements
Certain plant, buildings and installations
(principally Mill Services Segment)
Machinery and equipment
5 to 20 years
10 to 50 years
3 to 10 years
3 to 20 years
6. Debt and Credit Agreements
On October 27, 2000, the Company issued 200 million
British pounds sterling (U.S. $294 million) 7.25% notes due
2010. The interest payable annually commences on
October 27, 2001. The net proceeds of the issue were
used to refinance certain bank debt that was used to fund
the acquisition of SGB Group.
The Company has a $350 million credit facility through a
syndicate of 13 banks. Borrowings under this agreement
are available in U.S. dollars or Eurocurrencies and the
credit facility serves as back-up to the Company’s U.S.
commercial paper program. The facility is in two parts.
The first part, referred to as the 364-day credit agreement,
permits borrowings up to $131 million and expires in
September 2001. Borrowings outstanding at expiration
may be repaid over the succeeding 12 months. The
second part, referred to as the five-year credit agreement,
permits borrowings up to $219 million and expires in
September 2005. All borrowings under the five-year credit
agreement are due at expiration. Interest rates are either
negotiated, based upon the U.S. federal funds interbank
market, prime, or based upon the London Interbank
Offered Rate (LIBOR) plus a margin. The Company pays
a facility fee (.0825% per annum as of December 31, 2000)
that varies based upon its credit ratings. Prior to renegoti-
ating the terms of its credit facility in September 2000, the
Company formerly had a $400 million facility that would
have matured in July 2001. At December 31, 2000 and
1999, there were no borrowings outstanding under either
facility.
The Company can also issue up to $350 million of short-
term notes in the U.S. commercial paper market. In
addition, the Company has a three billion Belgian franc
commercial paper program (approximately U.S. $70 million
at December 31, 2000) which is used to fund the
Company’s international operations. The Company limits
the aggregate commercial paper and credit facility borrow-
ings at any one time to a maximum of $350 million.
Commercial paper interest rates, which are based on
market conditions, have been lower than comparable rates
available under the credit facility. At December 31, 2000
and 1999, $268.8 million and $233.7 million of commercial
paper was outstanding, respectively. Commercial paper is
classified as long-term debt at December 31, 2000 and
1999, because the Company has the ability and intent to
refinance it on a long-term basis through existing long-term
credit facilities.
Subsequent to December 31, 2000 the Company executed
two $50 million credit facility agreements with European-
based banks. Borrowings under these facilities, which
expire in December 2001 and January 2002, are available
in Eurocurrencies or U.S. dollars and will be primarily used
to finance the Company’s European operations.
Borrowings outstanding at expiration may be repaid over
the succeeding 4 years. Interest rates are based upon
LIBOR plus a margin.
Short-term debt amounted to $47.7 million and
$32.0 million at December 31, 2000 and 1999, respec-
tively. The weighted average interest rate for short-term
borrowings at December 31, 2000 and 1999 was 5.7% and
4.6%, respectively.
Harsco Corporation Annual Report 2000 29
Notes to Consolidated Financial Statements (continued)
2000
1999
$294,087 $ -
150,000
150,000
268,794
233,746
7. Leases
The Company leases certain property and equipment
under noncancelable operating leases. Rental expense
under such operating leases was (in millions) $30.3, $16.9,
and $17.6 in 2000, 1999, and 1998, respectively.
Approximately $9.3 million of the increase for 2000 is due
to the inclusion of the SGB acquisition as of June 2000.
12,898
16,285
Future minimum payments under operating leases with
noncancelable terms are:
Long-term debt consists of:
(In thousands)
7.25% notes due October 27, 2010
6.0% notes due September 15, 2003
Commercial paper borrowings, with a
weighted average interest rate of
7.0% as of December 31, 2000
Faber Prest loan notes due
October 31, 2008 with interest
based on Sterling LIBOR minus
.75% (5.5% at December 31, 2000)
Industrial development bonds, payable
in varying amounts from 2001 to
2010 with a weighted average
interest rate of 6.2% as of
December 31, 2000
Other financing payable in varying
amounts to 2007 with a weighted
average interest rate of 5.8% as of
December 31, 2000
Less: current maturities
13,400
11,400
49,890
789,069
14,619
11,666
423,097
4,593
$774,450
$418,504
The credit facility and certain notes payable agreements
contain covenants restricting, among other things, the
amount of debt, as defined in the agreement, that can be
issued. At December 31, 2000, the Company was in
compliance with these covenants.
The maturities of long-term debt for the four years following
December 31, 2001 are:
(In thousands)
2002 $ 71,321
2003 $154,870
2004 $ 7,517
2005 $226,442
Cash payments for interest on all debt were (in millions)
$44.7, $25.0, and $20.0 in 2000, 1999, and 1998, respec-
tively. Capitalized interest was (in thousands) $2, $893,
and $10 in 2000, 1999, and 1998, 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.
(In thousands)
2001
2002
2003
2004
2005
After 2005
$ 33,142
27,056
21,051
21,808
6,509
23,816
8. Employee Benefit Plans
Pension Benefits
The Company has pension and profit sharing retirement
plans, most of which are noncontributory, covering
substantially all of its employees. The benefits for salaried
employees generally are based on years of service and
the employee’s level of compensation during specified
periods of employment. Plans covering hourly employees
generally provide benefits of stated amounts for each year
of service. The multi-employer plans in which the
Company participates provide benefits to certain unionized
employees. The Company’s funding policy for qualified
plans is consistent with statutory regulations and custom-
arily 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 partic-
ipants.
A change to the pension information presented for 2000 is
the inclusion of SGB pension income, obligations and
pension assets acquired in June 2000.
(In thousands)
Pension Expense
Defined benefit plans:
Service cost
Interest cost
Expected return on plan assets
Recognized prior service costs
Recognized (gains) or losses
Amortization of transition asset
Curtailment losses
Multi-employer plans
Defined contribution plans
Pension expense
30 Harsco Corporation Annual Report 2000
2000
U.S. Plans
1999
1998
$ 8,017
12,069
(22,448)
1,368
(1,853)
(1,834)
360
(4,321)
4,334
1,401
$ 1,414
$ 9,514
11,427
(20,012)
1,309
272
(1,834)
-
676
3,853
1,165
$ 5,694
$ 7,971
10,339
(21,227)
1,219
(2,026)
(1,834)
542
(5,016)
3,011
2,673
$ 668
International Plans
1999
1998
2000
$ 8,559
18,727
(30,054)
949
(953)
(567)
-
(3,339)
1,039
4,386
$ 2,086
$ 6,369
11,622
(16,836)
742
5
(613)
-
1,289
1,069
3,301
$ 5,659
$ 5,814
11,027
(18,632)
88
(2,008)
(618)
-
(4,329)
1,043
3,370
$ 84
The change in the financial status of the pension plans and amounts recognized in the Consolidated Balance Sheet at
December 31, 2000 and 1999 are:
Pension Benefits
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Amendments
Actuarial (gain)
Curtailment loss
Benefits paid
Obligations of acquired companies
Effect of foreign currency
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants' contributions
Benefits paid
Plan assets of acquired companies
Effect of foreign currency
Fair value of plan assets at end of year
Funded status:
Funded status at end of year
Unrecognized net (gain)
Unrecognized transition (asset)
Unrecognized prior service cost
Net amount recognized
Amounts recognized in the Consolidated
Balance Sheet consist of:
Prepaid benefit cost
Accrued benefit liability
Intangible asset
Accumulated other comprehensive income
Net amount recognized
U.S. Plans
2000
1999
International Plans
1999
2000
$159,055
8,017
12,069
-
1,127
(10,692)
360
(6,672)
-
-
$163,264
$239,030
6,506
2,709
-
(6,672)
-
-
$241,573
$ 78,310
(42,621)
(8,244)
10,900
$ 38,345
$170,167
9,514
11,427
-
1,076
(35,638)
-
(6,065)
8,574
-
$159,055
$ 211,785
24,522
731
-
(6,065)
8,057
-
$239,030
$ 79,975
(49,724)
(10,078)
11,142
$ 31,315
$203,913
8,558
18,728
2,673
298
(2,044)
-
(12,952)
229,608
(14,931)
$433,851
$276,899
38,420
2,629
2,673
(12,808)
269,787
(20,738)
$556,862
$ 123,011
(49,173)
(2,262)
12,683
$ 84,259
$201,287
6,368
11,621
1,887
4,340
(6,828)
-
(9,164)
-
(5,598)
$203,913
$246,456
43,170
694
1,887
(9,038)
-
(6,270)
$276,899
$ 72,985
(43,092)
(3,144)
14,392
$ 41,141
$ 47,235
(14,416)
2,178
3,348
$ 38,345
$ 40,066
(13,639)
2,027
2,861
$ 31,315
$ 89,171
(5,825)
539
374
$ 84,259
$ 45,848
(5,268)
561
-
$ 41,141
Plan assets include equity and fixed-income securities. At December 31, 2000 and 1999, 732,640 shares of the Company’s
common stock with a fair market value of $18.1 million and $23.3 million, respectively, are included in plan assets. Dividends
paid on such stock amounted to $0.7 million in both 2000 and 1999.
The actuarial assumptions used for the defined benefit pension plans are:
Weighted average assumed discount rates
Weighted average expected long-term rates
of return on plan assets
Rates of compensation increase
U.S. Plans
1999
7.75%
2000
8.0%
9.5%
4.0%
9.50%
4.00%
1998
6.75%
9.50%
4.50%
International Plans
1999
6.2%
1998
6.0%
2000
6.2%
7.9%
4.4%
7.5%
4.4%
7.1%
4.2%
Harsco Corporation Annual Report 2000 31
Notes to Consolidated Financial Statements (continued)
The actuarial assumptions used for postretirement benefit
plans are:
(Dollars in thousands)
Assumed discount rate
Health care cost trend rate
Decreasing to ultimate rate
Effect of one percent increase in
health care cost trend rate:
2000
1999
1998
8.00%
7.50%
6.50%
7.75% 6.75%
7.50% 8.30%
6.50% 5.50%
On cost components
$ 41
On accumulated benefit obligation $510
$ 21
$415
$ 21
$185
For 2000, a one percent decrease in the health care
cost trend rate would decrease the cost component by
$43 thousand and decrease the accumulated benefit
obligation by $480 thousand.
It is anticipated that the health care cost trend rate will
decrease from 7.5% in 2001 to 6.5% in the year 2003.
Savings Plan
The Company has a 401(k) savings plan which covers
substantially all U.S. employees with the exception of
employees represented by a collective bargaining agree-
ment, unless the agreement expressly provides otherwise.
Employee contributions are generally determined as a
percentage of covered employee’s compensation. The
expense for contributions to the plan by the Company was
(in millions) $4.9, $4.4, and $4.8 for 2000, 1999, and 1998,
respectively.
Other Employee Benefit Plans
The Company offers various other benefit plans to its
employees. In 2000, the Company amended certain plans
in the United States which resulted in a one-time pre-tax
cost reduction of approximately $5.3 million.
Executive Incentive Compensation Plan
Under the 1995 Executive Incentive Compensation Plan,
the Management Development and Compensation
Committee awarded 60% of the value of any earned
annual incentive compensation award to be paid to partici-
pants in the form of cash and 40% in the form of restricted
shares of the Company’s common stock. Upon the
request of the participant, the Committee was authorized
to make the incentive award payable all in cash, subject to
a 25% reduction in the total amount of the award. Awards
were made in February of the following year. The
Company accrued amounts based on performance
reflecting the value of cash and common stock which was
anticipated to be earned for the year. Compensation
expense relating to these awards was (in millions) $5.6,
$3.8, and $3.7 in 2000, 1999, and 1998, respectively.
For the U.S. plans, the projected benefit obligation,
accumulated benefit obligation, and fair value of plan
assets for pension plans with accumulated benefit obliga-
tions in excess of plan assets were $22.7 million,
$21.9 million, and $9.0 million, respectively, as of
December 31, 2000, and $24.8 million, $24.7 million, and
$12.3 million, respectively, as of December 31, 1999.
For the international plans, the projected benefit obliga-
tion, accumulated benefit obligation, and fair value of plan
assets for pension plans with accumulated benefit obliga-
tions in excess of plan assets were $9.8 million,
$8.8 million, and $3.9 million, respectively, as of
December 31, 2000, and $8.9 million, $7.7 million, and
$3.4 million, respectively, as of December 31, 1999.
Postretirement Benefits
The Company has postretirement life insurance benefits
for a number 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 postretire-
ment health care and life insurance plans are unfunded.
The postretirement benefit expense (health care and life
insurance) was $0.7 million in 2000, $0.4 million in 1999,
and $0.3 million in 1998. The components of these
expenses are not shown separately as they are not
material.
The changes in the postretirement benefit liability recorded
in the Consolidated Balance Sheet are:
Postretirement Benefits
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning
of year
Service cost
Interest cost
Actuarial loss
Plan participants contributions
Benefits paid
Plan amendments
Obligation of acquired company
Benefit obligation at end of year
Funded status:
Funded status at end of year
Unrecognized prior service cost
Unrecognized net actuarial (gain)
Net amount recognized as
accrued benefit liability
2000
1999
$ 10,304
182
761
231
32
(660)
403
-
$ 11,253
$ 6,421
129
466
319
-
(325)
-
3,294
$ 10,304
$(11,253)
367
(902)
$(10,304)
(39)
(1,328)
$(11,788)
$(11,671)
32 Harsco Corporation Annual Report 2000
Effective January 1, 1999, the restricted stock portion of
the compensation plan was discontinued and the terms of
the plan were amended to provide for payment of the
incentive compensation all in cash. On January 6, 1999,
the Company repurchased from the participants, at the
original award value, the restricted shares awarded in
1998. For all other shares, the restrictions were removed
effective January 6, 1999.
9. Income Taxes
Income before income taxes and minority interest in the
Consolidated Statement of Income consists of:
(In thousands)
United States
International
Provision for income taxes:
Currently payable:
Federal
State
International
Deferred federal and state
Deferred international
2000
1999
1998
$ 68,000 $ 78,689 $121,091
58,684
$148,591 $147,430 $179,775
68,741
80,591
$ 5,113 $ 22,474 $ 37,297
2,835
23,468
63,600
6,552
(2,791)
$ 46,805 $ 51,599 $ 67,361
(536)
21,803
26,380
17,375
3,050
1,743
25,203
49,420
3,890
(1,711)
Cash payments for income taxes were (in millions) $19.3,
$50.7, and $38.8, for 2000, 1999, and 1998, respectively.
Approximately $5.4 million of the taxes paid in 1998 are
related to the gain on the disposal of the defense
business.
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 income taxes and
minority interest as reported in the Consolidated Statement
of Income:
2000
1999 1998
.4
(.3)
35.0% 35.0% 35.0%
U.S. federal income tax rate
State income taxes, net of federal
income tax benefit
Export sales corporation benefit
Losses for which no tax benefit
was recorded
Difference in effective tax rates on
(1.3)
(1.9)
international earnings and remittances (5.7)
2.0
2.1
1.9
Nondeductible acquisition costs
(.5)
(1.6)
(1.1)
Other, net
31.5% 35.0% 37.5%
Effective income tax rate
1.6
(.6)
1.6
(.5)
1.3
1.3
.3
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, 2000 and 1999 are:
(In thousands)
Deferred income taxes
2000
1999
Asset Liability
Asset Liability
Depreciation
Expense accruals
Inventories
Provision for receivables
Postretirement benefits
Deferred revenue
Unrelieved foreign
tax credits
Unrelieved foreign
tax losses
Unrelieved domestic
tax losses
Pensions
Other
Valuation allowance
Total deferred income
$
- $48,918 $
29,796
3,224
2,211
2,975
-
6,566
4,749
- $36,580
-
-
-
-
4,196
34,975
5,294
3,867
4,221
-
-
-
-
-
4,181
-
-
1,264
6,694
-
-
2,085
-
459
52,065
(11,659)
-
37,653
-
90,752
-
2,424
-
- 22,923
1,913
-
65,612
58,739
-
(5,309)
taxes
$40,406
$90,752
$53,430 $65,612
At December 31, 2000 and 1999, Other current assets
included deferred income tax benefits of $29.8 million and
$35.0 million, respectively.
At December 31, 2000, certain of the Company’s
subsidiaries had total available net operating loss carryfor-
wards ("NOLs") of approximately $27.1 million, of which
approximately $14.8 million may be carried forward indefi-
nitely and $12.3 million have varying expiration dates.
Included in the total are $10.7 million of preacquisition
NOLs.
At December 31, 2000, certain of the Company’s
subsidiaries had total available foreign tax credit carryfor-
wards of approximately $6.6 million, of which approxi-
mately $5.3 million may be carried forward five years and
$1.3 million have varying expiration dates.
During 2000 and 1999, $1.0 million and $2.3 million,
respectively, of preacquisition NOLs were utilized by the
Company, resulting in tax benefits of $0.4 million and
$0.8 million, respectively.
Harsco Corporation Annual Report 2000 33
Notes to Consolidated Financial Statements (continued)
The valuation allowance of $11.7 million and $5.3 million at
December 31, 2000 and 1999, respectively, relates princi-
pally to cumulative unrelieved foreign tax credits and 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 2000 and 1999
results primarily from the utilization of international tax loss
carryforwards, generation of foreign tax credit carryfor-
wards and the release of valuation allowances in certain
international jurisdictions based on the Company’s revalu-
ation of the realizability of future benefits. The release of
valuation allowances in certain jurisdictions was allocated
to reduce the cost in excess of net assets of businesses
acquired by $0.2 million, and $0.3 million in 2000 and
1999, respectively.
10. Commitments and Contingencies
Discontinued Defense Business - Contingencies
Federal Excise Tax and Other Matters
Related to the Five-Ton Truck Contract
In 1995, the Company, the United States Army ("Army"),
and the United States Department of Justice concluded a
settlement of Harsco’s previously reported claims against
the Army relating to Federal Excise Tax (FET) arising
under a completed 1986 contract for the sale of five-ton
trucks to the Army. On September 27, 1995, the Army
paid the Company $49 million in accordance with the
settlement terms. The Company released the Army from
any further liability for those claims, and the Department of
Justice released the Company from a threatened action for
damages and civil penalties based on an investigation
conducted by the Department’s Commercial Litigation
Branch that had been pending for several years.
The settlement preserves the rights of the parties to assert
claims and defenses under the Internal Revenue Code,
and rights of the Army and the Company to claim certain
amounts that may be owed by either party to reconcile
possible underpayments or overpayments on the truck
contract as part of the formal contract close-out process.
The settlement does not resolve the claim by the Internal
Revenue Service (IRS) that, contrary to the Company’s
position, certain cargo truck models sold by the Company
should be considered to have gross vehicle weights in
excess of the 33,000 pound threshold under FET law, are
not entitled to an exemption from FET under any other
theory, and therefore are taxable. In 1999, the IRS
assessed an increase in FET of $30.4 million plus penal-
ties of $9.3 million and applicable interest currently
estimated to be $53.7 million. In October 1999, the
34 Harsco Corporation Annual Report 2000
Company posted an $80 million bond required as security
by the IRS. This increase in FET takes into account
offsetting credits of $9.2 million, based on a partial
allowance of the Company’s $31.9 million claim that
certain truck components are exempt from FET. The IRS
disallowed in full the Company’s additional claim that it is
entitled to the entire $52 million of FET (plus applicable
interest currently estimated by the Company to be
$48.2 million) the Company has paid on the five-ton trucks,
on the grounds that such trucks qualify for the FET exemp-
tion applicable to certain vehicles specially designed for
the primary function of off-highway transportation. In the
event that the Company ultimately receives from the IRS a
refund of tax (including applicable interest) with respect to
which the Company has already received reimbursement
from the Army, the refund would be allocated between the
Company and the Army. In August 2000, the Company
filed legal action against the Government in the U.S. Court
of Federal Claims challenging the assessment and seeking
a refund of all FET that the Company has paid on five-ton
trucks. That action is proceeding. Although there is risk of
an adverse outcome, both the Company and the Army
believe that the cargo trucks are not taxable. No recogni-
tion has been given in the accompanying financial state-
ments for the Company’s claims with the IRS.
The settlement agreement with the Army preserved 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 limited 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. As of
September 30, 2000, the Army paid Harsco this entire
amount and Harsco paid those funds to the IRS, subject to
its pending refund claim. Thus, the Company has satisfied
a portion of the disputed tax assessment. If the Company
succeeds in its refund claim against the IRS, it will owe the
Army the amount recovered that corresponds to the
$24.6 million.
Even if the cargo trucks are ultimately held to be taxable,
the Army’s contribution of $24.6 million toward payment of
the tax (but not interest or penalty, if any), would result in a
net maximum liability for the Company of $5.8 million plus
penalties and applicable interest currently estimated to be
$11.5 million and $53.7 million, respectively. The
Company believes it is unlikely that resolution of this
matter will have a material adverse effect on the
Company’s financial position; however, it could have a
material effect on quarterly or annual results of operations.
Other Defense Business Litigation
In 1992, the 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 U.S. Attorney’s Office
then commenced an investigation of those contracts. In
December 1999, the Company announced that it reached
agreement with the U.S. Government on behalf of its
former BMY-Combat Systems Division ("BMY") to settle
the matter. Under the agreement, BMY pled guilty to a
one-count misdemeanor relating to submitting advance
payment certifications which resulted in BMY receiving a
portion of the payments for the contract prematurely. In
accordance with the settlement, Harsco paid the
Government a $200,000 fine in June 2000 and in
July 2000 paid the $10.8 million in damages for a total of
$11 million. The settlement ends the Government’s inves-
tigation and releases Harsco and BMY from further liability
for the issues under investigation. Harsco charged the
payment against an existing liability, resulting in no charge
to the Company’s earnings.
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 applica-
tion of technology, the allocation of cost among potentially
responsible parties, the years of remedial activity required
and the remediation methods selected. The Consolidated
Balance Sheet at December 31, 2000 and 1999 includes
an accrual of $3.5 million and $3.0 million, respectively, for
environmental matters. The amounts affecting pre-tax
earnings related to environmental matters totaled
$1.8 million of expense in 2000, $0.7 million of income in
1999, and $0.8 million of expense in 1998.
The liability for future remediation costs is evaluated on a
quarterly basis. Actual costs to be incurred at identified
sites in future periods may vary from the estimates, given
inherent uncertainties in evaluating environmental
exposures. The Company does not expect that any sum it
may have to pay in connection with environmental matters
in excess of the amounts recorded or disclosed above
would have a material adverse effect on its financial
position or results of operations.
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 opera-
tions of the Company.
11. Capital Stock
The authorized capital stock consists of 150,000,000
shares of common stock and 4,000,000 shares of
preferred stock, both having a par value of $1.25 per
share. The preferred stock is issuable in series with terms
as fixed by the Board of Directors. None of the preferred
stock has been issued. On June 24, 1997, the Company
adopted a revised Shareholder Rights Plan. Under the
new Plan, the Board declared a dividend to shareholders
of record on September 28, 1997, of one right for each
share of common stock. The rights may only be exercised
if, among other things, a person or group has acquired
15% or more, or intends to commence a tender offer for
20% or more, of the Company’s common stock. Each right
entitles the holder to purchase 1/100th share of a new
Harsco Junior Participating Cumulative Preferred Stock at
an exercise price of $150. Once the rights become
exercisable, if any person acquires 20% or more of the
Company’s common stock, the holder of a right will be
entitled to receive common stock calculated to have a
value of two times the exercise price of the right. The
rights, which expire on September 28, 2007, do not have
voting power, and may be redeemed by the Company at a
price of $.05 per right at any time until the 10th business
day following public announcement that a person or group
has accumulated 15% or more of the Company’s common
stock. At December 31, 2000, 750,000 shares of $1.25
par value preferred stock were reserved for issuance upon
exercise of the rights.
In January 1999, the Board of Directors authorized the
purchase, over a one-year period, of 2,000,000 shares of
the Company’s common stock. In January 2000, the
Board of Directors extended the share purchase authoriza-
tion through January 25, 2001 for the 856,354 shares
remaining on the original authorization. In 2000, 351,200
shares were purchased under this authorization. In
January 2001, the Board of Directors extended the share
purchase authorization through January 22, 2002 for the
505,154 shares still remaining as of December 31, 2000
from the original authorization.
In 2000, additional purchases of 3,520 shares, net of
issues, were made principally as part of the 1995
Executive Compensation Plan.
Balances
Dec. 31, 1997
Dec. 31, 1998
Dec. 31, 1999
Dec. 31, 2000
Common Stock Summary
Treasury
Shares
Shares
Issued
Shares
Outstanding
65,854,087
66,075,380
66,221,544
66,309,651
18,877,957
23,825,458
26,149,759
26,504,479
46,976,130
42,249,922
40,071,785
39,805,172
Harsco Corporation Annual Report 2000 35
Notes to Consolidated Financial Statements (continued)
The following is a reconciliation of the average shares of
common stock used to compute basic earnings per
common share to the shares used to compute diluted
earnings per common share as shown on the
Consolidated Statement of Income:
(Amounts in thousands,
except per share data)
2000
1999
1998
$96,803 $90,713 $107,513
39,964
Net income
Average shares of common
stock outstanding used to
compute basic earnings per
common share
Additional common shares to
be issued assuming exercise
of stock options, net of shares
assumed reacquired
Shares used to compute dilutive
40,022
effect of stock options
Basic earnings per common share
$2.42
Diluted earnings per common share $2.42
58
40,882
45,568
135
343
41,017
$2.22
$2.21
45,911
$2.36
$2.34
12. Stock-Based Compensation
The Company’s net income and net income per common
share would have been reduced to the pro forma amounts
indicated below if compensation cost for the Company’s
stock option plan had been determined based on the fair
value at the grant date for awards in accordance with the
provisions of SFAS No. 123.
(In thousands, except per share)
Net income:
As reported
Pro forma
Basic earnings per share:
As reported
Pro forma
Diluted earnings per share:
As reported
Pro forma
2000
1999
1998
$96,803
94,395
$90,713
89,113
$107,513
105,736
2.42
2.36
2.42
2.36
2.22
2.18
2.21
2.17
2.36
2.32
2.34
2.30
The fair value of the options granted during 2000, 1999,
and 1998 is estimated on the date of grant using the
binomial option pricing model. The weighted-average
assumptions used and the estimated fair value are as
follows:
Expected term
Expected stock volatility
Risk-free interest rate
Dividend
Rate of dividend increase
Fair value
2000
1999
1998
4 years
30.5%
6.44%
$ .94
5%
$7.13
4 years
25.0%
4.65%
$ .91
5%
$5.18
4 years
16.0%
5.65%
$ .88
5%
$6.68
36 Harsco Corporation Annual Report 2000
The Company has granted stock options to officers,
certain key employees, and directors for the purchase of
its common stock under two shareholder-approved plans.
The 1995 Executive Incentive Compensation Plan author-
izes 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 stock options. The
1995 Non-Employee Directors’ Stock Plan authorizes the
issuance of up to 300,000 shares of the Company’s
common stock for stock option awards. Options are
granted at fair market value at date of grant and become
exercisable commencing one year later. The options
expire ten years from the date of grant. Upon shareholder
approval of these two plans in 1995, the Company termi-
nated the use of the 1986 stock option plan for granting of
stock option awards. At December 31, 2000, there were
2,368,060 and 206,000 shares available for granting stock
options under the 1995 Executive Incentive Compensation
Plan and the 1995 Non-Employee Directors’ Stock Plan,
respectively.
Changes during 2000, 1999, and 1998 in options
outstanding were:
Outstanding, Jan. 1, 1998
Granted
Exercised
Terminated and expired
Outstanding, Dec. 31, 1998
Granted
Exercised
Terminated and expired
Outstanding, Dec. 31, 1999
Granted
Exercised
Terminated and expired
Outstanding, Dec. 31, 2000
Shares
Under
Option
1,085,461
275,100
(221,293)
(16,500)
1,122,768
428,400
(146,164)
(68,400)
1,336,604
539,247(1)
(88,107)
(105,052)
1,682,692
Weighted
Average
Exercise Price
$26.06
38.30
24.93
35.73
29.14
26.92
19.06
31.36
28.97
28.18
22.11
33.01
$29.18
(1) Included in the 2000 grant are 61,097 options granted to SGB
key employees as part of the Company’s acquisition of SGB.
These options are not a part of the 1995 Executive Incentive
Plan, or the 1995 Non-Employee Directors’ Stock Plan.
Options to purchase 1,162,947 shares, 932,704 shares
and 857,168 shares were exercisable at December 31,
2000, 1999, and 1998, respectively. The following table
summarizes information concerning outstanding and
exercisable options at December 31, 2000.
Outstanding In Years
Options Outstanding
Life
Remaining Weighted
Contractual Average
Exercise
Price
$19.63
27.39
36.31
5.4
7.5
6.6
Number
Range of
Exercisable
Prices
$14.10 - $21.00
127,480
21.63 - 30.49 1,107,356
447,856
32.81 - 46.16
1,682,692
Options Exercisable
Weighted
Average
Number Exercise
Exercisable Price
77,480 $18.78
637,611 26.09
447,856 36.31
1,162,947
During 2000, 1999, and 1998, the Company had non-cash
transactions related to stock option exercises of
$0.1 million, $0.5 million, and $1.6 million, respectively,
whereby old shares were exchanged for new shares.
Foreign currency forward exchange contracts are used to
hedge commitments, such as foreign currency debt, firm
purchase commitments, and foreign currency cash flows
for certain export sales transactions.
As of January 1, 1999, the restricted stock portion of the
1995 Executive Incentive Compensation Plan was discon-
tinued.
The following table summarizes the restricted stock activity
for 1998:
Restricted shares awarded
Restricted shares forfeited
Weighted average market value
of stock on grant date
1998
40,702
378
$43.22
During 1998, the Company recorded $0.1 million in
compensation expense related to restricted stock.
13. Financial Instruments
Off-Balance Sheet Risk
As collateral for performance and to ceding insurers, the
Company is contingently liable under standby letters of
credit and bonds in the amount of $181.6 million and
$165.9 million at December 31, 2000 and 1999, respec-
tively. These standby letters of credit and bonds are
generally in force for up to three years. Certain issues
have no scheduled expiration date. The Company pays
fees to various banks and insurance companies that range
from 0.08 to 1.9 percent per annum of their face value. If
the Company were required to obtain replacement standby
letters of credit and bonds as of December 31, 2000 for
those currently outstanding, it is the Company’s opinion
that the replacement costs would not vary significantly
from the present fee structure.
At December 31, 2000 and 1999, the Company had
$3.1 million and $19.2 million, respectively, of foreign
currency forward exchange contracts outstanding. These
contracts are part of a worldwide program to minimize
foreign currency exchange operating income and balance
sheet exposure. The unsecured contracts mature within
12 months and are with major financial institutions. The
Company is exposed to credit loss in the event of non-
performance by the other parties to the contracts. The
Company evaluates the credit worthiness of the counter-
parties’ financial condition and does not expect default by
the counterparties.
Foreign Exchange Risk Management
The Company generally has currency exposures in 38
countries. The Company’s primary foreign currency
exposures are in United Kingdom, France, Canada, South
Africa, Brazil, Germany, Australia, and Mexico.
The following tables summarize by major currency the
contractual amounts of the Company’s forward exchange
contracts in U.S. dollars as of December 31, 2000 and
1999. The "Buy" amounts represent the U.S. dollar equiv-
alent of commitments to purchase foreign currencies, and
the "Sell" amounts represent the U.S. dollar equivalent of
commitments to sell foreign currencies.
(In thousands)
As of December 31, 2000
U.S. Dollar
Type Equivalent
Maturity
Recognized Unrealized
Gain (Loss) Gain (Loss)
Forward exchange
contracts:
Buy
British pounds
Sell
British pounds
Australian dollars Buy
Buy
Japanese yen
Buy
Euros
Sell
British pounds
$1,938 Various in 2001
501 Various in 2001
199 Various in 2001
Jan. 4, 2001
186
Jan. 4, 2001
160
Jan. 4, 2001
70
$3,054
$(74)
(2)
-
-
-
-
$(76)
$ -
-
2
(12)
7
2
$ (1)
At December 31, 2000, the Company had executed
forward exchange contracts in British pounds, which were
used to hedge certain future payments between the
Company and its various subsidiaries. These forward
contracts do not qualify as hedges for financial reporting
purposes. At December 31, 2000, the Company had
recorded net losses of $0.1 million on these contracts.
The Company also had forward exchange contracts in
British pounds, Japanese yen, euros and Australian
dollars, which were used to hedge equipment purchases.
Since these contracts hedge identifiable foreign currency
firm commitments, the losses were deferred and will be
accounted for as part of the underlying transactions.
(In thousands)
As of December 31, 1999
U.S. Dollar
Type Equivalent
Maturity
Recognized Unrealized
Gain (Loss) Gain (Loss)
Forward exchange
contracts:
Euros
British pounds
French francs
British pounds
Buy $17,339
Buy
Buy
Buy
1,506 Various in 2000
229 Various in 2000
93 Various in 2000
Jan. 18, 2000 $(661)
79
-
-
$(582)
$19,167
$ -
-
(13)
(2)
$(15)
At December 31, 1999, the Company had executed
forward exchange contracts in euros and British pounds,
which were used to hedge certain future payments
between the Company and its various subsidiaries. These
forward contracts did not qualify as hedges for financial
reporting purposes. At December 31, 1999, the Company
had recorded net losses of $0.6 million on these contracts.
In January 2000, the euro contract was extended to
Harsco Corporation Annual Report 2000 37
Notes to Consolidated Financial Statements (continued)
March 18, 2000. The Company also had forward
exchange contracts in French francs and British pounds,
which were used to hedge equipment purchases. Since
these contracts hedge identifiable foreign currency firm
commitments, the losses were deferred and were
accounted for as part of the underlying transactions.
Concentrations of Credit Risk
Financial instruments, which potentially subject the
Company to concentrations of credit risk, consist princi-
pally of cash and cash equivalents, investments, and
accounts receivable. The Company places its cash and
cash equivalents with high quality financial institutions and,
by policy, limits the amount of credit exposure to any one
institution. Concentrations of credit risk with respect to
accounts receivable are limited due to the Company’s
large number of customers and their dispersion across
different industries and geographies. The Company
generally does not require collateral or other security to
support customer receivables.
Fair Value of Financial Instruments
The major methods and assumptions used in estimating
the fair values of financial instruments are:
Cash and cash equivalents
The carrying amount approximates fair value due to the
relatively short period to maturity of these instruments.
Long-term debt
The fair value of the Company’s long-term debt is
estimated based on the quoted market prices for the same
or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities.
Foreign currency exchange contracts
The fair value of foreign currency exchange contracts are
estimated by obtaining quotes from brokers.
The carrying amounts and estimated fair values of the
Company’s financial instruments as of December 31, 2000
and 1999 are:
(In thousands)
2000
1999
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Cash and cash
equivalents
Long-term debt
Foreign currency
$ 56,422 $ 56,422 $ 51,266 $ 51,266
416,925
789,069
423,097
790,070
exchange contracts
3,054
2,973
19,167
18,571
14. Information by Segment and Geographic Area
The Company reports information about its operating
segments according to the "management approach." This
approach is based on the way management organizes the
segments within the enterprise for making operating
decisions and assessing performance.
38 Harsco Corporation Annual Report 2000
The Company’s reportable segments are identified based
upon differences in products, services, and markets
served. The Company’s business units are aggregated
into three reportable segments. These segments and the
type of products and services offered include:
Infrastructure
Major products and services include scaffolding, powered
access equipment, shoring, concrete forming products,
erection and dismantling services and a variety of other
access equipment; railway track maintenance equipment
and services; industrial grating and bridge decking; and
process equipment, including industrial blenders, dryers,
mixers, water heaters, and boilers.
Products and services are provided to the oil, chemical
and petrochemical industries; commercial and industrial
construction firms; public utilities; industrial plants; private
and government-owned railroads worldwide; urban mass
transit operators; process industries; bridge repair compa-
nies; and infrastructure repair and maintenance markets.
Other customers include the chemical, food processing,
and pharmaceutical industries; and the institutional
building and retrofit markets.
Mill Services
This segment provides mill services, principally for the
global steel industry. Mill services include slag processing,
marketing, and disposal; metal reclamation; slab manage-
ment systems; materials handling and scrap management
programs; in-plant transportation; and a variety of other
services. Similar services are provided to non-ferrous
metallurgical industries, such as aluminum, nickel, and
copper. Also, slag recovery services are provided to
electric utilities from which granules for asphalt roofing
shingles and slag abrasives for industrial surface prepara-
tion are derived.
Gas and Fluid Control
Major products and services are gas containment cylinders
and tanks including cryogenic equipment; valves, regula-
tors, and gauges, including scuba and life support equip-
ment; industrial pipe fittings; and air-cooled heat
exchangers.
Major customers include various industrial markets;
hardware, plumbing, and petrochemical sectors; natural
gas and process industries; propane, compressed gas, life
support, scuba, and refrigerant gas industries; gas equip-
ment companies; welding distributors; medical laborato-
ries; beverage carbonation users; and the animal
husbandry industry.
Other Information
The measurement basis of segment profit or loss is net
income. Interest income is recorded by each segment as
incurred. Interest expense is allocated to the segments
based on actual interest expense incurred by international
operations and based on internal borrowings at estimated
weighted average interest rates for domestic operations.
Income taxes are allocated to the segments based on
actual income tax expense incurred or, where aggregated
for tax purposes, based on the effective income tax rates
for the countries in which they operate. Sales of the
Company in the United States and the United Kingdom
exceed 10% of consolidated sales with 58% and 14%,
respectively. No single customer represented 10% or
more of the Company’s sales during 2000, 1999, or 1998.
There are no significant inter-segment sales.
Corporate assets include principally cash, investments,
prepaid pension costs, and United States deferred taxes.
Assets in the United Kingdom represent 26% of total
segment assets as of December 31, 2000, and 12% of
total segment assets as of December 31, 1999, and are
disclosed separately in the geographic area information.
Segment Information
(In millions)
Twelve Months Ended December 31, 2000
Net sales to unaffiliated customers (1)
Operating income (loss)
Equity in income (loss) of affiliates, net (2)
Interest income
Interest expense
Income tax (expense) benefit
Minority interest in net (income) loss
Segment net income (loss)
Twelve Months Ended December 31, 1999 (3)
Net sales to unaffiliated customers (1)
Operating income (loss)
Equity in income of affiliates, net (2)
Interest income
Interest expense
Income tax (expense) benefit
Minority interest in net (income) loss
Segment net income (loss)
Twelve Months Ended December 31, 1998 (3)
Net sales to unaffiliated customers (1)
Operating income
Equity in income of affiliates, net (2)
Interest income
Interest expense
Income tax expense
Minority interest in net income
Segment net income
Infrastruc-
ture (4)
Mill
Services
Gas and
Fluid
Control
S3
Networks
LLC
General
Corporate
Consoli-
dated
Total
$ 703.6
$ 62.3
0.6
1.3
(24.1)
(13.8)
(0.2)
$ 26.1
$ 432.5
$ 41.2
-
0.2
(6.3)
(12.6)
-
$ 22.5
$ 399.2
$ 32.9
-
0.4
(5.4)
(9.3)
-
$ 18.6
$ 757.4
$ 92.6
0.8
4.5
(10.7)
(23.9)
(4.8)
$ 58.5
$ 737.8
$ 78.2
3.0
4.3
(10.8)
(24.4)
(5.2)
$ 45.1
$ 761.1
$ 82.9
1.4
4.8
(11.0)
(29.9)
(4.9)
$ 43.3
$ 542.4
$ 41.1
-
0.1
(3.6)
(13.7)
-
$ 23.9
$ 579.6
$ 47.5
-
0.1
(4.8)
(15.9)
0.1
$ 27.0
$ 605.2
$ 72.3
-
0.2
(4.1)
(27.5)
-
$ 40.9
$ -
$ -
(3.4)
-
-
1.2
-
$(2.2)
$ -
$ -
-
-
-
-
-
$ -
$ -
$ -
-
-
-
-
-
$ -
$ -
$ (1.3)
-
0.1
(11.7)
3.4
-
$ (9.5)
$ -
$ (0.2)
-
0.1
(5.1)
1.3
-
$ (3.9)
$ -
$ 2.4
-
3.0
-
(0.7)
-
$ 4.7
$2,003.4
$ 194.7
(2.0)
6.0
(50.1)
(46.8)
(5.0)
$ 96.8
$1,749.9
$ 166.7
3.0
4.7
(27.0)
(51.6)
(5.1)
$ 90.7
$1,765.5
$ 190.5
1.4
8.4
(20.5)
(67.4)
(4.9)
$ 107.5
(1) In order to comply with Emerging Issues Task Force (EITF) Issue No. 00-10, all shipping and handling costs have been classified as
cost of services sold or as cost of products sold rather than as reductions of sales. The income statement for the 12 months ended
December 31, 1999 and 1998 have been reclassified to reflect this change. The reclassification had no effect on previously reported
operating income or net income for the 12 months ended December 31, 1999 and 1998.
(2) Equity in income (loss) of affiliates is now separately reported. In prior years these amounts were classified in operating income. Amounts
previously reported as operating income for the 12 months ended December 31, 1999 and 1998 were $81.2 million and $84.3 million,
respectively for Mill Services Segment and a consolidated total of $169.7 million and $191.9 million, respectively. Reported operating
income amounts for the other segments are unchanged.
(3) Segment information reflects the first quarter 1999 reorganization of the Patterson-Kelley division. Segment information for 1998 has been
reclassified to reflect this change. The reorganization resulted in the realignment of the heat transfer and industrial blending equipment
product lines from the Gas and Fluid Control Segment to the Infrastructure Segment. Sales of these product lines were $27.3 million,
$26.9 million, and $29.2 million for the years 2000, 1999, and 1998, respectively.
(4) The SGB scaffolding and access service business was acquired in June 2000 and is included as part of the Infrastructure Segment.
Harsco Corporation Annual Report 2000 39
Notes to Consolidated Financial Statements (continued)
(In millions)
Infrastructure (a) (b)
Mill Services (c)
Gas and Fluid Control
Segment totals
Corporate
Total
2000
Assets
1999
1998
$ 906.4
$ 325.7
$ 241.1
900.9
312.3
2,119.6
61.3
$2,180.9
934.6
347.9
1,608.2
51.6
$1,659.8
922.7
380.9
1,544.7
78.9
$1,623.6
Depreciation and Amortization
1999
2000
1998
Capital Expenditures
1999
1998
2000
$ 38.0
97.7
19.6
155.3
3.8
$159.1
$ 17.0
99.5
18.1
134.6
1.3
$135.9
$ 15.9
98.2
16.1
130.2
1.2
$131.4
$ 53.8
116.5
9.4
179.7
0.3
$180.0
$ 17.9
134.9
21.4
174.2
1.0
$175.2
$ 26.1
102.7
30.6
159.4
0.4
$159.8
(a) The Pandrol Jackson railway track maintenance business was acquired in October 1999 and is included as part of the Infrastructure
Segment.
(b) The SGB scaffolding and access service business was acquired in June 2000 and is included as part of the Infrastructure Segment.
(c) A non-cash amount of $26.6 million of loan notes was issued for the Faber Prest acquisition related to the Mill Services Segment in 1998.
Information by Geographic Area (1)
Geographic Area
(In millions)
United States
United Kingdom
All Other
Segment Totals
Net Sales to Unaffiliated Customers
1999 (3)
2000 (2)(3)
$1,126.4
156.6
466.9
$1,749.9
1998 (3)
$1,114.6
128.2
522.7
$1,765.5
$1,152.6
286.5
564.3
$2,003.4
2000 (2)
$ 810.6
558.6
750.4
$2,119.6
Segment Assets
1999
$ 797.1
186.2
624.9
$1,608.2
1998
$ 721.2
180.7
642.8
$1,544.7
(1) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
(2) Included in above amounts are sales and assets of SGB Group that was acquired in June 2000 with a major portion of sales and assets
located in the United Kingdom.
(3) In order to comply with EITF Issue No. 00-10, all shipping and handling costs have been classified as cost of services sold or as cost of
products sold rather than as reductions of sales. Sales for 1999 and 1998 have been reclassified to reflect this change.
15. Other (Income) and Expenses
In the years 2000, 1999, and 1998, the Company recorded
Other (income) and expenses of $1.3 million, $6.0 million,
and $(4.3) million, respectively:
(In thousands)
Other (Income) and Expenses
1998
2000 1999
Net gains
Impaired asset write-downs
Employee termination benefit costs
Costs to exit activities
Other
Total
$(4,325) $ (560) $(29,107)
14,410
2,878
6,543
2,889
2,792
502
1,098
310
$ 1,334 $6,019 $ (4,264)
1,876
3,854
590
(661)
Net Gains
Net gains for 2000 reflect gains in all three operating
segments recorded principally on the sales of non-core
product lines and redundant properties, primarily land,
buildings and related equipment. Net gains for 1998
consist principally of a pre-tax net gain of $27 million
recorded on the October 1998 sale of the Nutter
Engineering unit of the Gas and Fluid Control Segment.
Such gains are reflected as adjustments to reconcile net
income to net cash provided by operating activities in the
Consolidated Statement of Cash Flows. Total proceeds
40 Harsco Corporation Annual Report 2000
associated with these gains are included in Proceeds from
the sale of businesses and Proceeds from sale of property,
plant and equipment in the investing activities section of
the Consolidated Statement of Cash Flows. Total
proceeds associated with 1998 gains were $42.9 million.
Other related information concerning dispositions is
discussed in Note 3, Acquisitions and Dispositions.
Impaired Asset Write-downs
Impaired asset write-downs for 2000, 1999, and 1998
include $1.9 million, $1.9 million and $6.1 million, respec-
tively, of pre-tax, non-cash, write-downs of the Company’s
investment in Bio-Oxidation Services Inc., which is held for
disposal. Bio-Oxidation Services Inc. is included in the
Gas and Fluid Control Segment. The write-down amounts
were measured on the basis of the lower of carrying
amount or fair value less costs to sell. Fair value was
determined using available information based upon the
estimated amount at which the assets could be sold in a
current transaction between willing parties. The investment
carrying values were $4.4 million, $6.6 million and
$7.6 million as of December 31, 2000, 1999, and 1998,
respectively. For the years 2000, 1999, and 1998, Bio-
Oxidation Services Inc. recorded pre-tax losses of
$1.9 million, $2.3 million and $9.8 million, respectively. The
Company estimates that disposal will occur during 2001.
Impaired asset write-downs for 1998 also include a
$6.1 million pre-tax, non-cash, write-down of assets, princi-
pally property, plant and equipment in the Mill Services
Segment. The write-down became necessary as a result
of significant adverse changes in the international
economic environment and the steel industry. The impair-
ment loss was measured as the amount by which the
carrying amount of assets exceeded their estimated fair
value. Fair value was estimated based upon the expected
future realizable net cash flows. In September 1999,
assets associated with a substantial portion of this provi-
sion were sold in conjunction with the termination settle-
ment of a contract in Russia.
Non-cash impaired asset write-downs are included in
Other (income) and expenses in the Consolidated
Statement of Cash Flows as adjustments to reconcile net
income to net cash provided by operating activities.
Employee Termination Benefit Costs
Employee termination benefit costs consist principally of
severance arrangements to employees terminated as a
result of management reorganization actions. Under these
reorganization actions, the Company’s management has
established and approved specific plans of termination.
Details of the termination benefit plans have been commu-
nicated to the affected employees prior to recognition of
related provisions. Non-cash charges for employee termi-
nation benefit costs are included as adjustments to recon-
cile net income to net cash provided by operating activities
in the Consolidated Statement of Cash Flows.
During 2000, $3.9 million of employee termination benefit
costs were incurred, principally in the Mill Services
Segment, primarily in Holland, Belgium and Italy.
Additionally, termination benefit costs were incurred in the
United States in the Gas and Fluid Control Segment as
well as at corporate headquarters. In 2000, approximately
294 employees were included in employee termination
arrangements initiated by the Company, and approximately
$3.3 million of cash payments were made under such
arrangements. The payments are reflected as uses of
operating cash in the Consolidated Statement of Cash
Flows.
During 1999, $2.9 million of expense related to employee
termination benefits was incurred, principally in the Mill
Services Segment, primarily in France and the United
Kingdom. In 1999, approximately 220 employees were
included in employee termination arrangements initiated by
the Company, and approximately $1.8 million of cash
payments were made under such arrangements. An
additional $0.8 million was disbursed in 2000 for the 1999
reorganization actions.
During 1998, $6.5 million of expense related to employee
termination benefits was incurred, principally in the Mill
Services Segment primarily in South Africa, United States,
France, and Germany. In 1998, approximately 670
employees were included in employee termination
arrangements initiated by the Company, and approximately
$2.4 million of cash payments were made under such
arrangements. An additional $0.2 million and $3.3 million
were disbursed in 2000 and 1999, respectively, for the
1998 reorganization actions.
Employee Termination Benefit Costs and Payments
(In millions)
Original reorganization action period 2000
Employee termination benefits
Summary of Activity
1998
1999
expense
Disbursements: (1)
In 1998
In 1999
In 2000
Total disbursements
Other
Remaining payments as of
December 31, 2000 (2)
$ 3.9
$ 2.9
$ 6.5
-
-
(3.3)
(3.3)
0.3
-
(1.8)
(0.8)
(2.6)
(0.3)
(2.4)
(3.3)
(0.2)
(5.9)
(0.4)
$ 0.9
$ -
$ 0.2
(1) Disbursements are categorized according to the original reorga-
nization action period to which they relate (2000, 1999 or 1998).
Cash severance payments in 2000 occurred principally in the
Mill Services Segment primarily in Europe. Cash severance
payments in 1999 occurred principally in the Mill Services
Segment in South Africa principally for 1998 reorganization
actions.
(2) Remaining payments are categorized according to the original
reorganization action period to which they relate (2000 or 1998).
Employee Terminations _ Number of Employees
Original reorganization action period 2000
Employees affected by new
Summary of Activity
1998
1999
reorganization actions
Employee terminations:
In 1998
In 1999
In 2000
Total terminations
Other
294
220
670
-
-
(282)
(282)
-
-
(172)
(39)
(211)
(9)
(349)
(352)
(1)
(702)
35
Remaining terminations as of
December 31, 2000
12
-
3
Costs to Exit Activities
Costs to exit activities consist of incremental direct costs of
reorganization actions and lease run-out costs. Such
costs are recorded when a specific exit plan is approved
by management. Relocation expenses, such as employee
moving costs, are classified as exit costs and are
expensed as incurred. Other costs classified in this
category are generally expensed as incurred.
During 1998, $1.0 million and $0.8 million of exit costs,
principally relocation expenses, were included in the Mill
Services and Infrastructure Segments, respectively.
Harsco Corporation Annual Report 2000 41
Quarterly Financial Data
Summarized unaudited quarterly financial data for 2000 and 1999 follows:
(In millions except per share amounts)
Net
Sales(1)
Gross
Profit(2)
2000
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1999
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$457.5
465.6
541.4
538.9
$412.1
438.8
432.1
466.9
$ 92.6
108.7
133.0
133.2
$ 82.8
94.7
93.7
102.2
Net
Income
$ 20.2
28.2
22.3
26.1
$ 14.8
23.8
26.1
26.0
Diluted
Earnings Per
Share
$ .50
.70
.56
.65
$ .35
.58
.64
.65
(1)
In order to comply with EITF Issue No. 00-10, all shipping and handling costs have been classified as cost of services sold
or as cost of products sold rather than as reductions of sales. Sales for the first three quarters of 2000 and for the year
1999 have been reclassified to reflect this change.
(2) Gross profit is defined as Net sales less Cost of sales, Other (income) and expenses, and Research and development
expenses.
Share Prices and Dividends
Quarterly share prices and declared dividends for the common stock are shown in the following table. Harsco
common shares are listed on the New York Stock Exchange and also on the Pacific, Boston and Philadelphia
exchanges.
Market Price Per Share
Low
High
Dividends Declared
Per Share
$31 5/8
30
29 7/8
26 3/4
$33
34 3/8
32 5/16
31 7/8
$24
25 31/64
21 1/4
17 11/16
$25
23 1/16
25 3/8
26
$.235
.235
.235
.24
$.225
.225
.225
.235
2000
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1999
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
42 Harsco Corporation Annual Report 2000
Information for Stockholders
Communications to Stockholders
Notice of the Annual Meeting, the Proxy Statement and Proxy Form
are mailed with the Annual Report in March. Form 10-K, the annual
report filed with the Securities and Exchange Commission (SEC), is
available in March, while each Form 10-Q, the quarterly report filed
with the SEC, is available following the close of the first, second and
third quarters. Copies of the reports can be obtained free of charge
by accessing them via Harsco’s website at www.harsco.com.
Company News
Company information and archived news releases are available
24 hours a day, 7 days a week at www.harsco.com. To request
copies of Harsco financial mailings, call the Harsco Financial Mailings
Request Line at 717.612.5656.
Securities analysts, portfolio managers, representatives of institu-
tional investors and other interested parties seeking information
about the Company should contact:
Eugene M. Truett
Director - Investor Relations and Specialized Finance
Phone: 717.975.5677
Fax: 717.763.6402
E-mail: etruett@harsco.com
Annual Meeting
April 24, 2001, 10:00 am
Radisson Penn Harris Hotel & Convention Center
1150 Camp Hill Bypass
Camp Hill, PA
Dividend Reinvestment Plan
Stockholders can choose from among three dividend payment plans.
You may receive your dividends through the mail, have them
deposited electronically into your checking or savings accounts, or
reinvest them through Harsco’s Dividend Reinvestment Plan. All
three options are offered free of charge.
The Dividend Reinvestment Plan provides stockholders with a simple
and convenient way to increase your investment in Harsco without
paying brokerage or service fees. In addition to the automatic
reinvestment of dividends, the Plan allows for additional cash invest-
ments as often as once a month. The minimum cash investment is
$10.00 per month; there are no limitations on the maximum amount.
For further information, contact Mellon Investor Services LLC at the
address below.
Registrar, Transfer and Dividend Disbursing Agent
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
Mail: P.O. Box 3315
South Hackensack, NJ 07606
Inside the United States: 800.851.9677
Outside the United States: 201.329.8660
TDD for hearing impaired: 800.231.5469
Website: www.mellon-investor.com
Registered stockholders can now view current information regarding
their stockholder account online through Investor Service Direct at
https://vault.mellon-investor.com/isd/. Each investor’s account is
password-protected and available 24 hours a day, 7 days a week.
Directors
Committees of the Board
Derek C. Hathaway, 56
Chairman, President and CEO
Director since 1991
Jerry J. Jasinowski, 62
President, National Association of
Manufacturers
Director since 1999
Robert F. Nation, 74
Retired President, Penn Harris
Company
Director since 1983
Carolyn F. Scanlan, 53
President and CEO, The Health
Alliance of Pennsylvania
Director since 1998
James I. Scheiner, 56
President and COO
Benatec Associates, Inc.
Director since 1995
Andrew J. Sordoni, III, 57
Chairman, Sordoni Construction
Services, Inc.
Director since 1988
Joseph P. Viviano, 62
Retired Vice Chairman, Hershey
Foods Corporation
Director since 1999
Dr. Robert C. Wilburn, 57
President, Gettysburg National
Battlefield Museum Foundation
Director since 1986
Heckett MultiServ Plc
International Advisory
Board - London
Derek C. Hathaway
Geoffrey D. H. Butler
Salvatore D. Fazzolari
Robert F. Nation
Dr. Robert C. Wilburn
Harold Homer
Retired Director, British Steel
Rt. Hon. Baroness Jill Knight of
Collingtree, DBE
Member, House of Lords
Kenneth L. Mansell
Former Director, SGB Group Plc
Giles D. Slaughter
Retired Educator
Executive
D. C. Hathaway, Chairman
R. F. Nation
J. I. Scheiner
A. J. Sordoni, III
R. C. Wilburn
Management Development
& Compensation
R. F. Nation, Chairman
R. C. Wilburn, Vice Chairman
C. F. Scanlan
A. J. Sordoni, III
Audit
J. I. Scheiner, Chairman
J. J. Jasinowski
C. F. Scanlan
J. P. Viviano
Nominating
A. J. Sordoni, III, Chairman
J. J. Jasinowski
R. C. Wilburn
Officers
Derek C. Hathaway, 56
Chairman, President and Chief
Executive Officer
34 years of service
Paul C. Coppock, 50
Senior Vice President, Chief
Administrative Officer,
General Counsel and Secretary
19 years of service
Salvatore D. Fazzolari, 48
Senior Vice President, Chief
Financial Officer and Treasurer
20 years of service
Geoffrey D. H. Butler, 55
Senior Vice President -
Operations
12 years of service
Ronald W. Kaplan, 49
Senior Vice President -
Operations
21 years of service
Stephen J. Schnoor, 47
Vice President and Controller
12 years of service
Warren A. Weisel, 48
Vice President - Taxes
17 years of service
Harsco Corporation Annual Report 2000 43
Harsco Corporation
350 Poplar Church Road
Camp Hill, PA 17011
Mail: P.O. Box 8888
Camp Hill, PA 17001-8888
Telephone: 717.763.7064
Fax: 717.763.6424
E-mail: info@harsco.com
Website: www.harsco.com