A N N U A L R E P O R T 2 0 0 1
CONTENTS
Financial Highlights
Report to Stockholders
Harsco at a Glance
Principal Offices
Form 10-K Annual Report
1
2
4
6
7
Corporate and Stockholder Information
69
PROFILE
Harsco Corporation (NYSE: HSC) is a diversified,
multinational provider of market-leading industrial
services and products that serve some of the
world’s largest and most enduring industries. The
Company’s operations are organized in three global
business segments: Infrastructure, Mill Services, and
Gas and Fluid Control.
Supported by an industrial heritage that dates to
1742, Harsco’s worldwide operations encompass
more than 400 locations in 40 countries, and
approximately 18,700 employees.
MISSION
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 services and products that provide the
best value to the customer.
Cautionary Notice with Respect to
Forward-Looking Statements
The forward-looking statements expressed or implied in this
report are based on current expectations regarding
important factors which, among others, could cause future
results to differ materially. Please refer to the section
entitled “Forward-Looking Statements” on page 16 for
further information.
FINANCIAL HIGHLIGHTS
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
2001
2000 (1)
1999
$ 2,107,111
71,725
$ 2,003,387
96,803
$ 1,749,888
90,713
338,294
32.5%
351,807
31.5%
305,589
35.0%
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
$ 241,393
1.5:1
2,090,766
686,173
$ 190,236
1.4:1
2,180,948
674,179
$ 182,439
1.4:1
1,659,823
650,121
52.6%
55.4%
41.2%
$
1.79
17.16
.97
$ 2.42
16.94
.945
$ 2.21
16.22
.91
40,066
$ 156,073
40,022
$ 180,048
41,017
$ 175,248
7.2%
10.6%
7.8%
9.6%
14.7%
10.0%
10.0%
13.9%
10.7%
(1)
(2)
Includes SGB Group Plc, since date of acquisition (June 2000).
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 cal-
culation.
NET SALES (2)
(Dollars in millions)
OPERATING INCOME
(Dollars in millions)
DILUTED EARNINGS
PER SHARE
(In dollars)
CASH DIVIDENDS
DECLARED PER SHARE
(In dollars)
International
U.S.
2,107
2,003
International
U.S.
194.7
1,750
166.7
163.6
2.42
2.21
1.79
.97
.945
.91
99
00
01
99
00
01
99
00
01
99
00
01
HARSCO CORPORATION 2001 ANNUAL REPORT
1
RE P O R T TO STOCKHOLDERS
Harsco's strategic transformation to a
diversified, global industrial services
company withstood the challenges of the 2001
economic climate. With a full year's performance
GIVEN THE YEAR'S ECONOMIC REALITIES, OUR
RESULTS ARE AN ENCOURAGING VALIDATION
OF THE INDUSTRIAL SERVICES AND GLOBAL
from our June 2000 SGB Group acquisition now
TRANSFORMATION STRATEGIES THAT HAVE
included, revenues increased five percent to a record
$2.1 billion, and would have increased another two
BEEN OUR PRINCIPAL PREOCCUPATION.
percent, or an additional $41 million, but for the
our SGB Group acquisition covering Europe, the
continuing strength of the U.S. dollar in translation
Middle East, and Asia----has performed well, enabling
against international currencies. Diluted earnings
the Infrastructure segment to post its best year ever.
per share were $1.79 after the inclusion of $0.58 per
We will continue to grow our market-leading
share in net unusual costs, special charges and gains
positions in stable economies, providing total access
resulting from the aggressive strategic actions we
solutions to major construction projects and other
undertook to address the recessionary environment.
less-cyclical sectors such as the annual maintenance
These included capacity reductions and plant
of power plants and refineries. We are also
consolidations within our manufacturing sector and
encouraged by the prospects for continuing
provisions for doubtful receivables. Without these
international market share growth in our railway
one-time special items, earnings per share were
track maintenance services and equipment business,
$2.37, nearly even with last year. Cash flows from
although the domestic market, especially among the
operations exceeded $240 million. An additional $36
major Class I railroads, remains soft.
million in cash was generated from non-core asset
sales, facilitating a re-arming of our balance sheet, a
key objective we will pursue in 2002.
Our market leadership in outsourced mill
services is playing an important role in addressing
the difficult competitive issues faced by the world-
Given the year's economic realities, our results
wide steel and metals industry, and makes us a
are an encouraging validation of the industrial
value-adding partner to many of the industry's
services and global transformation strategies that
largest and strongest customers. Despite a signifi-
have been our principal preoccupation. Harsco's
cant drop in U.S. steel capacity utilization rates
future is being shaped by expanding opportunities
throughout most of 2001 and some 16 domestic
for growth, better operational balance, and, as
steel producer bankruptcies within the last two
we saw in 2001, limited downside risk during
years, our Mill Services segment revenues held
economic difficulties.
Our international scaffolding and access
services business----the combination of our Patent
Construction Systems division in the Americas and
almost even with the prior year, testimony to our
global balance and diversification. We believe there
are numerous and significant growth opportunities
yet to be realized through additional services,
customers, and markets.
2
HARSCO C ORPORATION 2001 ANNUAL REPORT
As it was in 2001, our most challenging area of
ample cash flows from operations, significantly
operation in 2002 will again be our manufacturing-
reducing our current level of debt, and generating
biased Gas and Fluid Control segment. We have
additional cash from the sale of non-core and under-
taken most of the necessary actions to re-size
performing assets, while also maintaining our cash
capacity and cut costs, but recognize that for this
dividend tradition. Harsco's characteristically strong
segment to perform at historical levels, it will require
balance sheet is a fundamental part of our strategy
a recovery in the broader manufacturing economy.
for ensuring the long-term stability and growth of
Recent reports of lower customer inventory levels
the Company.
and an upturn in production demand are heartening,
but it may not be until at least late in the second half
of this year before we can reasonably expect the
emergence of a sustainable improvement.
Recent turbulence and volatility have not
diminished our confidence in Harsco's ability to take
advantage of the improving economic environment
that many predict is on the horizon. Harsco is posi-
This year will be the first full year of implemen-
tioning to provide stockholders with a predictable
tation of our Economic Value Added (EVA®)
level of earnings growth, limited downside risk, and
management and financial system, and the first in
a total return consistent with most investor expecta-
which corporate-wide management incentive
tions. On behalf of the Board of Directors and the
compensation will be EVA-based. EVA is designed to
senior management team, we express our gratitude
measure the actual value that a company creates
to all of our stakeholders for their support of
after all of its costs are met, including the cost of
Harsco Corporation.
capital. EVA in no way replaces leadership, judg-
ment, experience, or hard work and execution, but
we are confident it will add improved and measur-
able financial discipline in the drive for enhancing
stockholder value. We have, moreover, frozen all
Company officer salaries at last year's levels pending
evidence of our improving operating performance
and more efficient use of capital.
We are expanding our successful industrial
services businesses in proportion to total revenues,
growing these activities from their current 63
percent to approximately 70 percent of annual
revenues by the end of this year, and 75 percent or
perhaps more by the end of 2003. We will repeat
the financial strategies successfully undertaken in
2001, which include increasing our historically
Derek C. Hathaway
Chairman, President and Chief Executive Officer
March 8, 2002
HARSCO CORPORATION 2001 ANNUAL REPORT
3
HA R S C O AT A GLANCE
SEGMENT
Infrastructure
Mill Services
Gas and Fluid
Control
4
HARSCO C ORPORATION 2001 ANNUAL REPORT
GLOBAL OPERATIONS
. Argentina
. Australia
. Bahrain
. Belgium
. Brazil
. Canada
. Chile
. China
. Czech Republic
. Denmark
. Egypt
. Finland
. France
. Germany
. Guatemala
. India
. Indonesia
. Ireland
. 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
DESCRIPTION
2001 SALES
SGB GROUP and PATENT CONSTRUCTION
SYSTEMS are the world’s most complete, full-
service providers of scaffolding, shoring,
forming and other access solutions for major
construction and industrial maintenance
projects. HARSCO TRACK TECHNOLOGIES
is a global leader in providing services and
equipment for the maintenance, repair and
construction of railway track. IKG INDUSTRIES
manufactures an extensive line of industrial
grating and PATTERSON-KELLEY produces
high-performing process industry and heat
transfer products.
HECKETT MULTISERV is the world’s leading
provider of specialized outsourced services to
the international steel and metals industry,
operating on its customers’ sites under long-
term, renewable contracts with an industry-
leading record of expertise, experience and
safety. REED MINERALS processes high-
quality industrial abrasives and roofing granules
from locations throughout the United States.
The GAS AND FLUID CONTROL GROUP
manufactures the world’s broadest range of
high-technology, internationally-compliant
tanks, cylinders and valves for the containment
and control of pressurized gases. This segment
is also the premier manufacturer of custom-
designed air-cooled heat exchangers for the
natural gas industry, and is a major supplier of
industrial fittings and related products.
42%
35%
23%
$ 8 8 7 . 0 m i l l i o n
$ 7 3 1 . 0 m i l l i o n
$ 4 8 9 . 1 m i l l i o n
MAJOR SERVICES
AND PRODUCTS
. Scaffolding, forming, and shoring equipment,
principally on a rental basis
. Access-related project design, management,
and erection and dismantling services
. Railway track maintenance services,
equipment and parts
. Industrial grating products
. Institutional boilers and water heaters
. Process industry blenders and dryers
. Raw materials handling
. Blast furnace and melt shop services
. Slag handling and metal recovery
. By-product recycling and slag
commercialization
. Semi-finished product management
. Finished product services
. Industrial abrasives and roofing granules
. TAYLOR-WHARTON cryogenic containers,
high pressure cylinders and acetylene
cylinders
. AMERICAN WELDING & TANK propane
tanks
. STRUCTURAL COMPOSITES INDUSTRIES
composite pressure vessels and structures
. SHERWOOD valves and SUPERIOR
refrigeration valves and accessories
. AIR-X-CHANGERS heat exchangers
. CAPITOL MANUFACTURING fittings and
conduit
MARKETS
OUTLOOK
Harsco’s scaffolding, forming, shoring and
access services are provided to the worldwide
construction and industrial plant maintenance
markets. The Company’s railway track
maintenance services and equipment serve
major domestic and international rail systems,
short-line railroads, and metropolitan transit
systems. Primary markets for industrial
grating, boilers and water heaters include the
building construction and maintenance
industries, while the process industry blenders
and dryers serve the food processing and
pharmaceutical industries.
Increased product range, expanded international
reach and market share gains, and extended
service capabilities will be key priorities to
facilitate future growth in this segment. The
worldwide market for access services is
fragmented and in some cases still developing,
affording the Company significant opportunities
for market share growth. Likewise, the market
for railway track equipment, parts and services
continues to be one of opportunity. As
economies recover and expand, increasing rail
traffic will place a greater demand on track
maintenance and repair.
Harsco’s mill services are provided on-site to
many of the world’s leading carbon and
stainless steel producers. These customers
trust Heckett MultiServ to provide customized
services focused on increasingly critical areas of
the steelmaking process. Similar services are
provided on a growing scale to the non-ferrous
metals industry. The roofing granules and
abrasives product lines serve the residential
roofing shingle manufacturing and industrial
abrasives markets.
Harsco will continue to build upon its leader-
ship as a strategic long-term partner and
specialist knowledge provider to the metals
industry. The ongoing consolidation of major
producers is expected to open additional
opportunities for service growth. Steady
progress in cost reductions, margin improve-
ment, and efficient use of invested capital will
continue to receive maximum emphasis
throughout the segment, as will the expansion
of services to both new and existing customers.
Markets served include the full range of
producers and consumers of industrial and fuel
gases, including global gas producers, regional
and local gas distributors and suppliers, and
gas end-users for residential, commercial and
industrial requirements. Other markets served
include the natural gas industry, emergency fire
and rescue, medical life support and medical
research, commercial refrigeration, and the
industrial plumbing and electrical industries.
While the gas industry continues to weather a
trough in the market cycle precipitated by
weak economic conditions in most major
industrial gas markets, macro-economic
improvements are anticipated beginning late
in the second half of 2002. Harsco will
continue to strengthen its internal operating
efficiencies, competitive position, and
geographic footprint in anticipation of the
projected market recovery.
HARSCO CORPORATION 2001 ANNUAL REPORT
5
P RINCIPAL OFFICES
(As of March 1, 2002)
Harsco Corporation _ Headquarters
350 Poplar Church Road
Camp Hill, PA 17011
Tel: 717.763.7064
Infrastructure
SGB Group _ Headquarters
SGB Group Ltd.
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381300
Europe
Czech Republic
SGB Cz a.s.
Becovska 939
Praha 10 -Uhrineves
Czech Republic
Tel: 420.2.7210.1511
SGB Slovakia
Slovakia
Contact via SGB Cz
Denmark
SGB Witca A/S
Industriholmen 31-33
Postboks 1044
DK-2650 Hvidorvre
Denmark
Tel: 45.3678.8222
France
SGB France SA
256 Allée de Fétan BP 130
01601 Trevoux, France
Tel: 33.4.74.08.90.50
Ireland
SGB Scafform
Newcourt Business Park
St Margarets
Co Dublin
Ireland
Tel: 353.1.834.0707
The Netherlands
SGB North Europe bv
Europaweg 97, 5707 Helmond
Postbus 112, 5700 AC Helmond
The Netherlands
Tel: 31.492.598.698
Portugal
Trenci SGB
Almeda de Linhas
De Torres 61-7, 1700 Lisbon
Portugal
Tel: 351.2175.76641
Middle East
Egypt
SGB Egypt
Street No 263, Building No 19
New Maadi
Cairo, Egypt
Tel: 20.2.519.3863
Qatar
SGB Al-Darwish
United WLL
PO Box 1811
Doha, Qatar
Tel: 974.4603.983
Saudi Arabia
SGB Baroom
PO Box 1346
Jeddah 21431
Saudi Arabia
Tel: 966.2.660.2784
SGB Dabal Head Office
PO Box 1102
Dammam 31431
Saudi Arabia
Tel: 966.3.827.3218
United Arab Emirates
Quebeisi SGB
Middle Eastern Head Office
PO Box 5682, Sharjah
United Arab Emirates
Tel: 971.6.5330.911
Asia
Hong Kong
SGB Asia Pacific Ltd
Unit 07A 38/F Cable TV Tower
9 Hoi Shing Road
Tsuen Wan, NT, Hong Kong
Tel: 852.2.8577008/2690 2606
Malaysia
SGB Asia Pacific (M) Sdn Bhd
3A-01 & 3A-02, Level 3A
Menara Maxisegar
Jalan Pandan Indah 4/2
Pandan Indah, 55100
Kuala Lumpur, Malaysia
Tel: 603.42965455
Singapore
SGB Asia Pacific (S) Pte Ltd
23 Gul Road
Singapore 629356
Tel: 65.862.6122
Patent Group _ Headquarters
Patent Construction Systems /
IKG Industries / Patterson-Kelley
One Mack Centre Drive
Paramus, NJ 07652
Tel: 201.261.5600
Patterson-Kelley _ Offices & Mfg.
100 Burson Street
East Stroudsburg, PA 18301
Tel: 570.421.7500
Canada
Patent - Canada
175 Duncan St.
New Westminster, BC
Canada V3M5G3
Tel: 604.525.5637
Mexico
Patent/APSA - Mexico City
Prolongacion Sur 128 No. 134
Colonia Jose Maria Pino Suarez
Mexico, D.F. 01140
Tel: 52.2.614.1414
IKG/Irving - Queretaro
Prol. Corregidora Norte No. 487
Col. Parques Industriales
Queretaro, Qro 76160
Mexico
Tel: 52.4.212.3815
Latin America
Patent - Latin America
1940 N. 30th Rd.
Hollywood, FL 33021
Tel: 954.961.2777
Harsco Track Technologies _
Headquarters
2401 Edmund Road, Box 20
West Columbia, SC 29171-0020
Tel: 803.822.9160
Europe
Harsco Track Technologies Limited
Chewton Street, Eastwood
Nottingham NG16 3HB
United Kingdom
Tel: 44.1773.539.480
Australia
Harsco Track Technologies Pty. Ltd.
4 Strathwyn St.
P.O. Box 5287
Brendale, Queensland 4500
Australia
Tel: 61.7.3205.6500
Mill Services
Heckett MultiServ-East _ Headquarters
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381400
Europe
Heckett MultiServ (UK) Ltd.
169 Bawtry Road
Wickersley
Rotherham, S Yorks S66 2BW
Tel: 44.1709.323500
Heckett MultiServ France
Route de Vitry
BP 66
57270 Uckange
France
Tel: 33.3.82.57.40.00
South Africa
SteelServ (Pty) Ltd
PO Box 786528
Sandton City 2146
South Africa
Tel: 27.11.444.0222
Australia
MetServ Holdings Pty Ltd
P. O. Box 5365
Wollongong, NSW 2500
Australia
Tel: 61.2.42.26.3400
Heckett MultiServ-West _ Headquarters
612 North Main Street
P.O. Box 1071
Butler, PA 16003-1071
Tel: 724.283.5741
Mexico
Heckett Mexicana, S.A. de C.V.
U.N.A.M. #828
Col. Villa Universidad
San Nicolas de los Garza, N.L. 66420
Mexico
Tel: 52.81.833.21104
South America
Sobremetal Recuperacao de Metais, LTDA
Avenida Marechal Camara, 160 - Gr. 1901
Edificio Le Bourget - Castelo
20020-080 Rio de Janeiro
Brazil
Tel: 55.21.251.05151
Reed Minerals _ Headquarters
1011 Mumma Road
Wormleysburg, PA 17043
Tel: 717.763.4200
Gas and Fluid Control
Gas and Fluid Control Group _ Headquarters
4718 Old Gettysburg Road
Mechanicsburg, PA 17055
Tel: 717.763.5060
United States
Taylor-Wharton Cryogenics
4075 Hamilton Blvd.
Theodore, AL 36582
Tel: 334.443.8680
Taylor-Wharton Cylinders
521 Green Cove Rd.
Huntsville, AL 35803
Tel: 256.650.9100
Air-X-Changers
P.O. Box 1804
Tulsa, OK 74101
Tel: 918.266.1850
American Welding & Tank _ Sales
4718 Old Gettysburg Road
Mechanicsburg, PA 17055
Tel: 717.763.5080
American Welding & Tank _ Mfg.
201 Tank Rd.
Jesup, GA 31545
Tel: 912.427.5605
Sherwood
2111 Liberty Drive
Niagara Falls, NY 14304
Tel: 716.283.1010
Structural Composites Industries
325 Enterprise Place
Pomona, CA 91768
Tel: 909.594.7777
Capitol Manufacturing
742 Brooksedge Plaza Drive
P.O. Box 6103
Westerville, OH 43081-6103
Tel: 614.823.6691
Canada
CapProducts of Canada
25 Winnipeg Street
Vanastra, ON
Canada N0M 1L0
Tel: 519.482.5000
Mexico
Taylor-Wharton International
Prolongacion Sur 128 No. 134
Colonia Jose Maria Pino Suarez
Mexico, D.F. 01140
Tel: 52.2.614.1400
Europe
Taylor-Wharton Harsco GmbH
Mildstedter Landstrasse 1
D-25866 Mildstedt
Germany
Tel: 49.4841.9850
Taylor-Wharton Harsco S. R. O.
Vstupny Areal U.S. Steel
04454 Kosice, Slovakia
Asia
Taylor-Wharton (Beijing) Cryogenic
Equipment Co., Ltd.
25 Banbidian Street
Beijing, Tongzhou District, P.R.C.
101101
Tel: 86.10.6052.4939
Taylor-Wharton Asia (M) Sdn Bhd
Lots PT 5076 & PT 5077
Jalan Janqur 28/43
Hicom Industrial Estate
PO Box 7193, Pejabat Pos Besar
40706 Shah Alam,
Selangor Darul Ehsan
Malaysia
Tel: 60.3.511.3003
Australia
Taylor-Wharton Australia Pty. Ltd.
Unit 1/882 Leslie Drive
Albury, NWS 2640
Australia
Tel: 61.2.6040.2533
6
HARSCO C ORPORATION 2001 ANNUAL REPORT
Form 10-K
2001
HARSCO CORPORATION 2001 A NNUAL R EPORT
7
Harsco Corporation
FORM 10-K
For the fiscal year ended December 31, 2001
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Item 5.
Item 6.
Item 7.
Item 7a.
Item 8.
Item 9.
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for the Registrant’s Common Stock and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
Part III.
Item 10. Directors and Executive Officers of the Registrant
Item 11.
Executive Compensation
Item 12.
Item 13.
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Part IV.
Item 14.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Signatures
Page
10
13
14
14
15
15
16
27
28
58
59
60
60
60
61
68
8
HARSCO CORPORATION 2001 A NNUAL R EPORT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-3970
HARSCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
Camp Hill, Pennsylvania
(Address of principal executive offices)
23-1483991
(I.R.S. employer identification number)
17001-8888
(Zip Code)
Registrant's telephone number, including area code 717-763-7064
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $1.25 per share
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Name of each exchange
on which registered
New York Stock Exchange
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the Company's voting stock held by non-affiliates of the Company as of February 28, 2002 was
$1,486,970,852.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Classes
Common stock, par value $1.25 per share
Preferred stock purchase rights
Outstanding at February 28, 2002
40,058,482
40,058,482
Documents Incorporated by Reference
Selected portions of the Notice of 2002 Meeting and Proxy Statement are Incorporated by Reference in Part III of this Report.
The Exhibit index (Item No. 14) located on pages 61 to 67 incorporates several documents by reference as indicated therein.
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I
Item 1. Business
(a) Description of Business
Harsco Corporation ("the Company") is a diversified, multinational provider of market leading industrial services and engineered
products. The Company's operations fall into three operating segments: Infrastructure, Mill Services, and Gas and Fluid
Control. The Company has over 400 locations in 40 countries, including the United States. The principal lines of business are:
scaffolding, forming, and shoring and other access services to the worldwide industrial maintenance, civil engineering, and non-
residential construction markets; outsourced, on-site mill services that are provided to steel and non-ferrous metal producers in
over 30 countries; railway track maintenance services and equipment that are provided to railroad customers worldwide, gas
control and containment products for customers worldwide; and several other lines of business including, but not limited to,
industrial grating products, industrial pipe fittings, industrial abrasives and roofing granules.
The Company reports segment information using the “management approach”. The management approach is based on the way
management organizes the segments within the enterprise for making operating decisions and assessing performance. The
Company’s reportable segments are identified based upon differences in products, services, and markets served.
In 2001, 2000, and 1999, the United States contributed sales of $1.1 billion, $1.2 billion, and $1.1 billion equal to 52%, 58%,
and 64% of total sales, respectively. In 2001, 2000, and 1999 the United Kingdom contributed sales of $389.0 million, $286.5
million, and $156.6 million equal to 18 %, 14%, and 9% of total sales, respectively. The operations of the Company in any one
country, except the United States, did not account for more than 10% of sales in 1999. No single customer represented 10% or
more of the Company's sales during 2001, 2000, and 1999. There are no significant intersegment sales.
(b) Financial Information about Industry Segments
Financial information concerning industry segments is included in Note 14, Information by Segment and Geographic Area, to the
Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data".
(c) Narrative Description of Business
(1) A narrative description of the businesses by operating segment is as follows:
Infrastructure
Major product classes in this segment are access services and equipment, railway track maintenance services and
equipment, and industrial grating.
The Company’s access services and equipment businesses serve the non-residential construction, civil engineering, and
industrial maintenance markets throughout the world with a full range of scaffolding, powered access equipment, concrete
forming, shoring equipment, and other construction-related services and products that are principally rented to customers.
Along with steel and aluminum support systems, the Company also provides design engineering services, on-site
installation, and equipment management services.
The Company's railway track maintenance services provide high technology comprehensive track maintenance and new
track construction support to railroad customers worldwide. The railway track maintenance equipment product class
includes specialized track maintenance equipment used by private and government-owned railroads and urban transit
systems worldwide. The equipment manufactured by the Company includes a comprehensive range of specially-designed
systems used in the construction and maintenance of track and railbeds.
The Company manufactures a varied line of industrial grating products at several plants in North America. The Company
produces a full range of riveted, pressure-locked and welded grating in steel, aluminum and fiberglass, used mainly in
industrial flooring, safety, and security applications for power, paper, chemical, refining and processing applications.
This segment also includes the production of commercial and industrial boilers and hot water heaters; and blenders, dryers
and mixers for the chemical and food processing industries.
10 HARSCO CORPORATION 2001 A NNUAL R EPORT
For 2001, the Infrastructure Segment’s percentage of consolidated net sales was 42%.
Mill Services
This segment includes Heckett MultiServ, the world’s largest provider of outsourced, on-site mill services to the
international steel and metals industries. Heckett MultiServ’s experience, financial resources, and broad geographic
coverage are important qualities to leading metals producers, who increasingly look to Heckett MultiServ’s specialized
services and technologies to enhance their productivity, product quality, environmental compliance and commercial
competitiveness.
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 on-site recycling. Working exclusively as a
specialized, high-value-added services provider, Heckett MultiServ does not trade steel or scrap, or take ownership of its
customers’ raw materials or finished products. The Company’s multi-year contracts, with estimated future revenues of $ 3.0
billion at December 31, 2001, provide the Company with a substantial financial base of long-term revenues. Over 50% of
these revenues are expected to be recognized by December 31, 2004. The remaining revenues are expected to be
recognized principally between January 1, 2005 and December 31, 2010. Heckett MultiServ’s geographic reach to more
than 160 mills in over 30 countries, and its increasing range of services, enhance the Company’s financial and operating
balance.
The Company's flame and on-site recycling technologies along with computerized scrap handling are several examples of
the specialized services the Company provides. These highly specialized services and technologies include: scarfing,
ferrocut, carbofer, briquetting and scrap management. The Company provides in-plant transportation and other specialized
services, including slab management systems, general plant services, and other recycling technology. Other services
provided include on-site metal reclamation; slag processing, marketing and utilization; raw material management and
handling; by-product recovery and recycling; and finished product handling and transport. Highly specialized recovery and
cleaning equipment, installed and operated on the property of steel producers, together with standard material handling
equipment, are employed to reclaim metal and handle material. The customer uses this reclaimed metal as a raw material
in its steel production process. The nonmetallic residual slag is graded into various sizes at on-site Company-owned
processing facilities and then sold commercially. It is used as an aggregate material in asphalt paving applications, railroad
ballast and building blocks. Similar services are also provided to non-ferrous metal industries, such as aluminum, copper,
and nickel.
This segment also provides roofing granules and industrial abrasives, which are produced from utility coal slag and natural
rock materials at a number of locations throughout the United States. The Company's Black Beauty TM abrasives are used
for industrial surface preparation, such as rust removal and cleaning of bridges, ship hulls, and various structures. Roofing
granules are sold to residential roofing shingle manufacturers, primarily for the replacement market.
For 2001, the Mill Services Segment’s percentage of consolidated net sales was 35 %.
Gas and Fluid Control
The segment’s manufacturing and service facilities in the United States, Europe, Australia, Malaysia, and China comprise an
integrated manufacturing network for gas containment and control products. This global operating presence and product
breadth provide economies of scale and multiple code production capability, enabling the operating 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.
Gas containment products include cryogenic gas storage tanks, high pressure and acetylene cylinders, propane tanks and
composite vessels for industrial and commercial gases and other products. Gas control products include valves and
regulators serving a variety of markets, including the industrial gas, commercial refrigeration, life support, and outdoor
recreation industries.
The segment also provides custom-designed and manufactured air-cooled heat exchangers for the natural gas industry, and
is a major supplier of industrial pipe fittings and related products for the plumbing, hardware and energy industries.
For 2001, the Gas and Fluid Control Segment’s percentage of consolidated net sales was 23%.
HARSCO CORPORATION 2001 A NNUAL R EPORT 11
(1) (i)
The products and services of Harsco include a number of classes. The product classes that contributed 10% or
more as a percentage of consolidated net sales in any of the last three fiscal years are set forth in the following
table:
Mill Services
Access Services and Equipment
Gas Control and Containment Equipment
2001
32%
28%
23%
2000
35%
21%
27%
1999
39%
10%
24%
(1) (ii) New products and services are added from time to time; however, in 2001 none required the investment of a
material amount of the Company's assets.
(1) (iii) The manufacturing requirements of the Company's operations are such that no unusual sources of supply for raw
materials are required. The raw materials used by the Company include principally steel and, to a lesser extent,
aluminum which are usually readily available.
(1) (iv) While the Company has a number of trademarks, patents and patent applications, it does not consider that any
material part of its business is dependent upon them.
(1) (v)
The Company furnishes building products and materials and certain industrial services that are seasonal in
nature. In 2001, such operations accounted for 6.5% of total sales.
(1) (vi) The practices of the Company relating to working capital are similar to those practices of other service providers or
manufacturers servicing mainly industrial and commercial markets.
(1) (vii) No material part of the business of the Company is dependent upon a single customer or a few customers, the
loss of any one of which would have a material adverse effect upon the Company.
(1) (viii) Backlog of orders was $215.9 million and $258.9 million as of December 31, 2001 and 2000, respectively. It is
expected that approximately 20 % of the total backlog at December 31, 2001, will not be filled during 2002. There
is no significant seasonal aspect to the Company's backlog. Backlog for scaffolding, shoring and forming services,
and for roofing granules and slag abrasives is not included in the total backlog, because it is generally not
quantifiable due to the nature of the products and services provided. Contracts for the Mill Services Segment are
also excluded from the total backlog. These contracts have estimated future revenues of $3.0 billion at
December 31, 2001.
(1) (ix) At December 31, 2001, the Company had no material contracts that were subject to renegotiation of profits or
termination at the election of the U.S. Government.
(1) (x)
The various businesses in which the Company operates are highly competitive and the Company encounters
active competition in all of its activities from both larger and smaller companies who produce the same or similar
products or services or who produce different products appropriate for the same uses.
(1) (xi) The expense for product development activities was $4.0 million, $5.7 million, and $7.8 million in 2001, 2000,
and 1999, respectively.
(1) (xii) The Company has become subject, as have others, to stringent air and water quality control legislation. In
general, the Company has not experienced substantial difficulty in complying with these environmental regulations
in the past and does not anticipate making any material capital expenditures for environmental control facilities.
While the Company expects that environmental regulations may expand, and its expenditures for air and water
quality control will continue, it cannot predict the effect on its business of such expanded regulations. For
additional information regarding environmental matters see Note 10, Commitments and Contingencies, to the
Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data".
(1) (xiii) As of December 31, 2001, the Company had approximately 18,700 employees.
12 HARSCO CORPORATION 2001 A NNUAL R EPORT
(d) Financial Information about Foreign and Domestic Operations and Export Sales
Financial information concerning foreign and domestic operations is included in Note 14, Information by Segment and
Geographic Area, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary
Data". Export sales totaled $84.3 million and $104.6 million in 2001 and 2000, respectively.
Item 2. Properties
Information as to the principal plants owned and operated by the Company is summarized in the following table:
Location
Infrastructure
Ludington, Michigan
Fairmont, Minnesota
West Columbia, South Carolina
Brendale, Australia
Nashville, Tennessee
Leeds, Alabama
Channelview, Texas
Queretaro, Mexico
Marion, Ohio
Dosthill, England
East Stroudsburg, Pennsylvania
Mill Services
Moundsville, West Virginia
Drakesboro, Kentucky
Gary, Indiana
Gas and Fluid Control
West Jefferson, Ohio
Crowley, Louisiana
Vanastra, Ontario, Canada
Port of Catoosa, Oklahoma
Sapulpa, Oklahoma
Lockport, New York
Niagara Falls, New York
Washington, Pennsylvania
Jesup, Georgia
Jesup, Georgia
Jesup, Georgia
Bloomfield, Iowa
West Jordan, Utah
Fremont, Ohio
Pomona, California
Harrisburg, Pennsylvania
Huntsville, Alabama
Theodore, Alabama
Husum, Germany
Shah Alam, Malaysia
Shah Alam, Malaysia
Kosice, Slovakia
Beijing, China
Floor Space
(Sq. Ft.)
Principal Products
159,000
312,000
224,000
20,000
246,000
51,000
86,000
63,000
135,000
468,000
161,000
Railroad Equipment
Railroad Equipment
Railroad Equipment
Railroad Equipment
Grating
Grating
Grating
Grating
Access Equipment Maintenance
Forms
Process Equipment
12,000
41,000
19,000
Roofing Granules/Abrasives
Roofing Granules
Roofing Granules/Abrasives
187,000
260,000
60,000
135,000
79,000
104,000
66,000
112,000
87,000
65,000
63,000
48,000
36,000
69,000
56,000
245,000
220,000
305,000
61,000
34,000
29,000
125,000
134,000
Pipe Fittings
Pipe Fittings
Pipe Fittings
Heat Exchangers
Heat Exchangers
Valves
Valves
Valves
Propane Tanks
Propane Tanks
Cryogenic Storage Vessels
Propane Tanks
Propane Tanks
Propane Tanks
Composite Pressure Vessels
Gas Cylinders
Acetylene Tanks
Cryogenic Storage Vessels
Cryogenic Storage Vessels
Cryogenic Storage Vessels
Cryogenic Storage Vessels
Cryogenic Storage Vessels
Cryogenic Storage Vessels
HARSCO CORPORATION 2001 A NNUAL R EPORT 13
The Company also operates the following plants which are leased:
Location
Infrastructure
Eastwood, England
Danbury, Connecticut
Maldon, England
DeLimiet, Netherlands
Marlboro, New Jersey
Tulsa, Oklahoma
Gas and Fluid Control
Cleveland, Ohio
Floor Space
(Sq. Ft.)
Principal Products
Expiration
Date of
Lease
21,000
Railroad Equipment
16,000
Railroad Equipment
10/31/13
11/30/03
348,000
Aluminum Access Products
09/28/17
42,000
Powered Access Equipment
12/31/04
30,000
Grating
20,000
Grating
03/31/06
01/31/11
50,000
Brass Castings
09/30/05
The Company operates from a number of other plants, branches, warehouses and offices in addition to the above. The
Company has over 160 locations related to mill services in over 30 countries; however since these facilities are on the property
of the steel mill being serviced they are not listed. The Company considers all of its properties at which operations are currently
performed, to be in satisfactory condition.
Item 3. Legal Proceedings
Information regarding legal proceedings is included in Note 10, Commitments and Contingencies, to the Consolidated Financial
Statements under Part II, Item 8, "Financial Statements and Supplementary Data".
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters that were submitted during the fourth quarter of the year covered by this report to a vote of security
holders, through the solicitation of proxies or otherwise.
14 HARSCO CORPORATION 2001 A NNUAL R EPORT
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Harsco common stock is traded on the New York, Pacific, Boston, and Philadelphia Stock Exchanges under the symbol HSC. At the end of
2001, there were 39,984,849 shares outstanding. In 2001, the stock traded in a range of $23.60 – $36.00 and closed at $34.30 at year-
end. At December 31, 2001 there were approximately 18,000 shareholders. For additional information regarding Harsco common stock
market price and dividends declared, see the Common Stock Price and Dividend Information under Part II, Item 8, "Financial Statements and
Supplementary Data".
Item 6. Selected Financial Data
Five-Year Statistical Summary
(In thousands, except per share information)
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
Ratios
Return on net sales?
Return on average equity?
Return on average assets?
Current ratio
Total debt to total capital?
Per Share Information (d)
Basic
- Income from continuing operations
- Income from discontinued defense business
- Gain on disposal of discontinued defense business
- Net income
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
Diluted average number of shares outstanding (d)
Number of employees
Backlog (e)
2001
2000 (a)
1999
1998
1997
$ 2,107,111
$ 2,003,387
$ 1,749,888
$ 1,765,546
$ 1,659,729
$
$
161,763
71,725
-
-
71,725
241,393
2,090,766
720,197
761,968
176,531
156,073
240,601
(125,213)
(99,190)
3.4%
10.6%
7.8%
1.5:1
52.6%
1.80
-
-
1.80
1.79
-
-
1.79
17.16
.97
$
$
192,708
96,803
-
-
96,803
190,236
2,180,948
774,450
836,745
159,099
180,048
259,448
(459,052)
210,746
4.8%
14.7%
10.0%
1.4:1
55.4%
2.42
-
-
2.42
2.42
-
-
2.42
16.94
.945
$
$
169,736
90,713
-
-
90,713
182,439
1,659,823
418,504
455,111
135,853
175,248
213,953
(194,674)
(8,928)
5.2%
13.9%
10.7%
1.4:1
41.2%
2.22
-
-
2.22
2.21
-
-
2.21
16.22
.91
$
$
191,901
107,513
-
-
107,513
112,619
1,623,581
309,131
363,738
131,381
159,816
189,260
(233,490)
(134,324)
6.1%
14.3%
12.9%
1.2:1
34.7%
2.36
-
-
2.36
2.34
-
-
2.34
16.22
.885
179,888
100,400
28,424(c)
150,008
278,832
$
341,160
1,477,188
198,898
225,375
116,539
143,444
148,541
196,545
(167,249)
6.0%
15.1%
14.3%
1.9:1
22.4%
$
2.06
.58(c)
3.08
5.72
2.04
.58(c)
3.05
5.67
16.64
.82
40,066
18,700
215,877
$
40,022
19,700
258,858
$
41,017
15,700
231,557
$
45,911
15,300
188,594
$
49,192
14,600
225,575
$
(a)
(b)
Includes SGB Group Plc since date of acquisition (June 16, 2000) .
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, 1998 and 1997 have been reclassified to reflect this change.
Includes income through August 1997 (the measurement date) from the discontinued defense business.
(c)
(d) Reflects two-for-one stock split to shareholders of record January 15, 1997.
(e)
Excludes the estimated amount of long-term mill service contracts, which had estimated future revenues of $3.0 billion at December 31, 2001.
?
?
?
"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 2001 A NNUAL R EPORT 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements provided under Part II, Item 8
of this Annual Report on Form 10-K. Certain statements contained herein may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and
other factors that could cause actual results to differ materially, as discussed more fully herein.
Forward-Looking Statements
The nature of the Company's operations and the many countries in which it operates subject it to changing economic,
competitive, regulatory, and technological conditions, risks, and uncertainties. In accordance with the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding
important factors which, among others, could cause future results to differ materially from the forward-looking statements,
expectations and assumptions expressed or implied herein. These include statements about our management confidence and
strategies for performance; expectations for new and existing products, technologies, and opportunities; and expectations for
market segment and industry growth, sales, cash flows, and earnings.
These factors include, but are not limited to: (1) changes in the worldwide business environment in which the Company
operates, including general economic conditions, particularly in the mill services, infrastructure and industrial gas markets;
(2) changes in import, currency exchange rates, interest rates, and capital costs; (3) changes in governmental laws and
regulations, including taxes; (4) market and competitive changes, including pricing pressures, market demand and acceptance
for new products, services, and technologies; (5) effects of unstable governments and business conditions in emerging
economies; and (6) 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.
Critical Accounting Policies
The Company’s discussion and analysis of its financial condition and results of operations are based upon the consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On
an on-going basis, the Company evaluates its estimates, including those related to bad debts, inventories, asset valuations,
insurance accruals, income taxes, pensions and other post-retirement benefits, and contingencies. The Company bases its
estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements. These items should be read in conjunction with Note 1, Summary of
Significant Accounting Policies, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and
Supplementary Data.”
• Allowances for doubtful accounts are maintained for estimated losses resulting from the inability of customers to make
required payments. The Company believes that the allowance is sufficient to properly state accounts receivable at their net
realizable value. However, if the financial condition of the Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required. Conversely, an improvement in a
customer’s ability to make payments could result in a decrease of the allowance. Changes in the allowance related to both
of these situations would be recorded through income in the period the change was determined.
•
Inventory is adjusted for estimated obsolescence or unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual
market conditions are less favorable than those projected by management, additional inventory write-downs may be
required.
• Long-lived assets are reviewed for impairment when events and circumstances indicate that the book value of an asset may
be impaired. Impairment loss estimates are based upon the difference between the book value and the fair value of the
asset. The fair value is based upon the Company’s estimate of how much the assets could be bought or sold for in a
current transaction between willing parties. Should circumstances change that affect these estimates, additional
impairment charges may be required and would be recorded through income in the period the change was determined.
16 HARSCO CORPORATION 2001 A NNUAL R EPORT
• The Company retains a significant portion of the risk for workers' compensation, automobile, general, and product liability
losses. In consultation with outside professionals, reserves have been recorded which reflect the undiscounted estimated
liabilities including claims incurred but not reported. If actual claims differ from those projected by management, changes
(either increases or decreases) to insurance reserves may be required and would be recorded through income in the period
the change was determined.
• A valuation allowance is recorded to reduce deferred tax assets. This valuation allowance is principally for international tax
loss carryforwards and separate basket foreign tax credits which are uncertain as to realizability. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event the Company were to determine that it would be able to realize its deferred tax assets in
the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made. Likewise, should the Company determine that it would not be able to realize all or
part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the
period such determination was made. See Note 9, Income Taxes, to the Consolidated Financial Statements under Part II,
Item 8, “Financial Statements and Supplementary Data,” for additional disclosures related to these items.
• Pension and post-retirement benefits are determined based upon consultation with outside actuarial professionals.
Pension and benefit expenses, prepaid benefit costs and accrued benefit liabilities are recorded based on these
consultations. These estimates are based upon key assumptions related to employee life expectancy, return on plan
assets, compensation increases, and expected increases in health care costs. Should circumstances change that affect
these estimates, changes (either increases or decreases) to the liabilities may be required and would be recorded through
income in the period the change was determined. See Note 8, Employee Benefit Plans, to the Consolidated Financial
Statements under Part II, Item 8, “Financial Statements and Supplementary Data,” for additional disclosures related to
these items.
• Reserves for contingencies are recorded on the balance sheet when an event is determined to be both probable and can be
reasonably estimated. Additionally, the Company includes in Note 10, Commitments and Contingencies, to the
Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data,” disclosures of
contingencies that are reasonably possible. The Company believes that recorded reserves are sufficient to cover known
contingencies that meet these two requirements. However, should circumstances change, adjustments (either increases or
decreases) to reserves may be required and would be recorded through income in the period the change was determined.
Liquidity and Capital Resources
(Dollars are in millions)
Current Assets
Current Liabilities
Working Capital
Current Ratio
Notes Payable and Current Maturities
Long-term Debt
Total Debt
Total Equity
Total Capital
Total Debt to Total Capital
December 31
2001
$ 716.1
474.7
$ 241.4
$
1.5:1
41.8
720.2
762.0
686.2
$ 1,448.2
52.6%
December 31
2000
$ 726.4
536.2
$ 190.2
1.4:1
$ 62.3
774.4
836.7
674.2
$1,510.9
55.4%
Increase
(Decrease)
(10.3)
$
(61.5)
51.2
$
$
(20.5)
(54.2)
(74.7)
12.0
$
(62.7)
(2.8%)
A $74.7 million decrease in total debt was achieved in 2001 with $66.1 million occurring in the fourth quarter. Debt reduction
remains a principal strategic objective for 2002. The Company’s strategies for debt reduction include the sale of
underperforming assets and reductions in working capital and capital spending. Cash generated from the sale of assets was
$35.7 million and $22.5 million in 2001 and 2000, respectively. The Company has established targets of $50 million in asset
sales and $100 million in debt reduction for 2002.
The change in the Company’s working capital during 2001 is due principally to a $20.5 million decrease in short-term
borrowings and current maturities of long-term debt, a decrease in accounts payable of $22.7 million, and an increase in cash
of $11.0 million. The accounts payable decrease is due partially to the Company’s exit from S3Networks. The Company had
HARSCO CORPORATION 2001 A NNUAL R EPORT 17
previously been obligated to invest an additional $10.0 million in S3Networks, which was cancelled as part of the divestiture.
Additional decreases in accounts payable are due to the timing of payments to vendors and decreased purchase activity at the
end of 2001 as compared with 2000. The increase in cash relates principally to the timing of cash collections at the end of
2001 as compared with 2000.
The Company has made progress in its continuous strategic focus on the reduction of inventory levels. The Company lowered
inventories by $15.3 million during 2001.
The Company’s debt as a percent of total capital decreased principally as a result of the Company’s debt reduction program and
resulting $74.7 million decrease in total debt. This decrease was partially offset by a $22.4 million decrease in equity from
foreign currency translation adjustments. These adjustments are principally due to a 5% decrease in the translated value of the
British pound sterling, a 3% decrease in the euro, a 27% decrease in the Brazilian real, and a 23% decrease in the South African
rand, from December 31, 2000 to December 31, 2001.
Cash Utilization:
(In millions)
Strategic Acquisitions
Share Repurchases
Cash Dividends
Capital Investments
Total
For the Year Ended December 31
2001
$ 4.9
0.2
38.3
156.1
$ 199.5
2000
$ 302.5
7.9
37.6
180.0
$ 528.0
1999
$ 48.9
71.9
37.0
175.2
$ 333.0
1998
$ 158.3
169.3
40.3
159.8
$ 527.7
1997
$ 8.5
113.2
39.1
143.4
$ 304.2
The Company’s history of strategic acquisitions, share repurchases, when appropriate, and cash dividends, paid at the same or
increased rates for the 207th consecutive quarter in February 2002, demonstrate the Company’s continued commitment to
creating value through strategic investments and return of capital to shareholders. During 2001, capital investments were
reduced by $23.9 million compared to 2000. This is a result of more selective investing for strategic purposes that will increase
Economic Value Added (EVA®).
Financial Statistics for the Year Ended December 31
Harsco stock price high-low
$36.00 –$23.60
$31.63 – $17.69
Return on average equity
Return on average assets
Return on average capital
10.6%
7.8%
7.2%
14.7%
10.0%
9.6%
2001
2000
The Company’s lower return on average equity was due principally to decreased income in 2001 compared with 2000. Lower
returns on average assets and capital were due to the combination of lower income and the increased average assets and
capital related to the SGB Group acquired in June 2000. The Company’s book value per share increased to $17.16 per share at
December 31, 2001 from $16.94 at December 31, 2000 due principally to an increase in retained earnings partially offset by
negative foreign currency translation adjustments. These adjustments are recorded as part of other comprehensive expense.
In 2001, the Company successfully implemented the Stern Stewart Economic Value Added (EVA®) program for financial
measurement, decision making and incentive compensation. The Company’s management expects the EVA® program to
improve the return on invested capital.
(In millions)
Net Cash Provided by Operations:
2001
$ 240.6
2000
$ 259.4
1999
$ 214.0
Cash provided by operations in 2001 was $240.6 million, down $18.8 million from the record $259.4 million in 2000. The
decrease in cash provided by operations is due principally to the timing of receipts and payments for accounts receivable and
accounts payable of $5.5 million and $21.9 million, respectively. Also affecting cash provided by operations was a decrease in
net income of $25.1 million. Partially offsetting these unfavorable variances was an $18.0 million increase in depreciation
expense, $10.9 million provided by a favorable change in inventories and a $10.7 million decrease in the use of cash paid
related to the discontinued defense business.
18 HARSCO CORPORATION 2001 A NNUAL R EPORT
Contractual Obligations and Commercial Commitments
The following summarizes the Company’s expected future payments related to contractual obligations at December 31, 2001.
Contractual Obligations
Payments Due by Period
December 31 (In millions)
Short-term Debt
Total
$ 29.3
Long-term Debt
(including current maturities)
732.7
Operating Leases
Purchase Obligations
Foreign Currency Forward Exchange
Contracts
Other Long-term Obligations
136.5
81.7
1.8
1.2
Less than
1 year
$ 29.3
1-3
years
-
$
4-5
years
-
$
After 5 years
$
-
12.5
35.6
61.1
1.8
0.6
167.7
243.0
309.5
58.6
18.2
-
0.6
18.1
2.4
-
-
24.2
-
-
-
Total Contractual Cash Obligations
$ 983.2
$ 140.9
$ 245.1
$ 263.5
$ 333.7
See Note 6, Debt and Credit Agreements, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements
and Supplementary Data” for additional disclosures on short-term and long-term debt. See Note 7, Leases, to the Consolidated
Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data” for additional disclosures on
operating leases. Other contractual cash obligations are not deemed to have a material impact on the Company and are not
discussed in further detail.
Other Commercial Commitments
The following summarizes the Company’s contingent obligations at December 31, 2001. These amounts are not included in the
Company’s Consolidated Balance Sheet since there are no current circumstances known to management indicating the
Company will be required to make payments on these contingent obligations.
December 31 (In millions)
Amount of Commitment Expiration Per Period
Total
Amounts
Committed
Less Than
1 Year
1-3
Years
4-5
Years
Over 5
Years
Indefinite
Expiration
Standby Letters of Credit
$ 39.5
$ 36.6
$
2.9
$
Guarantees
19.4
Performance Bonds
125.4
Other Commercial Commitments
8.5
3.5
96.7
-
-
3.1
-
-
-
2.8
-
$
-
$
-
0.8
-
8.5
15.1
22.8
-
Total Commercial Commitments
$ 192.8
$ 136.8
$
6.0
$
2.8
$
9.3
$ 37.9
Performance bonds include an $80 million security bond related to the Federal Excise Tax litigation discussed in Note 10,
Commitments and Contingencies, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and
Supplementary Data.” Certain guarantees and performance bonds are of a continuous nature and do not have a definite
expiration.
Credit and Equity Financing Facilities
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. $66.3 million at December 31, 2001 which is used to fund the Company's international
operations. In June 2001, the Company supplemented its Belgian franc commercial paper program by adding a 250 million
euro program, equivalent to approximately U.S. $222.9 million at December 31, 2001. The Company limits the aggregate
HARSCO CORPORATION 2001 A NNUAL R EPORT 19
commercial paper and syndicated credit facility and bilateral facility borrowings at any one time to a maximum of $450 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, 2001 and 2000, the Company had $161.8 million and $216.8 million of U.S.
commercial paper outstanding, respectively, and $60.1 million and $52.0 million outstanding, respectively, under its European-
based commercial paper programs. Commercial paper is classified as long-term debt at December 31, 2001 and 2000,
because the Company has the ability and intent to refinance it on a long-term basis through existing long-term credit facilities.
The Company has a 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 commercial paper programs. The facility is in two parts. One part amounts to $131,250,000 and
is a 364-day credit agreement that permits borrowings outstanding at expiration (September 27, 2002) to be repaid no later
than September 27, 2003. The second part is for $218,750,000 and is a 5-year credit agreement that expires on September
29, 2005 at which time all borrowings are due. The first part of the facility was renegotiated in September of 2001 to extend
the expiration date to the date noted above. 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, 2001) that varies based upon its credit ratings. At December 31, 2001 and 2000,
there were no borrowings outstanding under either facility.
In the first quarter of 2001, the Company executed two $50 million bilateral credit facility agreements with European-based
banks. These agreements serve as back-up to the Company’s commercial paper programs and also help finance the
Company’s European operations. Borrowings under these facilities, which expire in January 2002 and December 2002, are
available in Eurocurrencies or U.S. dollars at interest rates based upon LIBOR plus a margin. Borrowings outstanding at
expiration may be repaid over the succeeding 4 years. As of December 31, 2001 there was $11.3 million outstanding on these
credit facilities. Subsequent to December 31, 2001 the facility expiring January 2002 was extended to January 2003.
On October 27, 2000, the Company issued 200 million British pound sterling (U.S. $287.1 million) 7.25% notes due 2010. The
annual interest payments commenced 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 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. The Company is not committed to
issuing these securities.
Short-term debt amounted to $29.3 million and $47.7 million at December 31, 2001 and 2000, respectively. The weighted
average interest rate for short-term borrowings at December 31, 2001 and 2000 was 5.5% and 5.7%, respectively.
The credit facility and certain notes payable agreements contain covenants requiring a minimum net worth of $475 million and
a maximum debt to capital ratio of 60%. At December 31, 2001, the Company was in compliance with these covenants and
does not know of any circumstances that would lead to non-compliance in the foreseeable future.
Credit Ratings and Outlook
The Company's outstanding long-term notes (both U.S. and International) are rated A- by Standard & Poor's, A- by Fitch and A-3
by Moody's. The Company's U.S.-based commercial paper is rated A-2 by Standard & Poor's, F -2 by Fitch and P-2 by Moody's,
and the Company’s London-based commercial paper program is rated A-2 by Standard & Poor’s and P-2 by Moody’s.
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 well-
positioned to continue to reduce debt, invest strategically in high return projects, and to pay cash dividends as a means to
enhance shareholder value. The Company intends to use future discretionary cash flows principally for debt reduction.
Uncertainties - Discontinued Defense Business
Currently, the Company is involved in a claim with regards to Federal Excise Tax related to a 1986 contract for the sale of five-
ton trucks to the United States Army. The Company believes that payment of this claim is not probable; however, it is possible
that resolution of this claim could result in the Company being required to remit taxes, penalties, and interest payments to the
Internal Revenue Service. If that should happen, the Company believes the payment will not have a material adverse effect on
the Company's financial position; however, it could have a material effect on quarterly or annual results of operations. If the
cargo trucks are ultimately held to be taxable, as of December 31, 2001, the Company’s net maximum liability for this claim
would be $5.8 million plus penalties and applicable interest currently estimated to be $12.4 million and $59.7 million,
respectively. See Note 10, Commitments and Contingencies, to the Consolidated Financial Statements under Part II, Item 8,
“Financial Statements and Supplementary Data” for additional disclosure on this uncertainty.
20 HARSCO CORPORATION 2001 A NNUAL R EPORT
RESULTS OF OPERATIONS for 2001, 2000, and 1999
(Dollars are in millions, except per share)
Revenues
Cost of services and products sold
Selling, general and administrative expenses
Other Expenses
Provision for income taxes
Net income
Diluted earnings per common share
Comparative Analysis of Consolidated Results
Revenues
2001
2000
1999
$ 2,108.5
$ 2,004.7
$ 1,751.0
1,594.5
322.9
23.5
37.0
71.7
1.79
1,528.9
274.1
1.3
46.8
96.8
2.42
1,362.7
207.8
6.0
51.6
90.7
2.21
2001 vs. 2000
Revenues for 2001 were up 5% from 2000 to a record level. This is attributable to the Company’s SGB Group scaffolding and
access service business that was acquired in June 2000. This increase was augmented by increased rentals in the existing
domestic scaffolding services business. Additionally abrasives and roofing granules sales increased. These increases were
somewhat offset by decreases in railway maintenance equipment sales; most product lines of the Gas and Fluid Control Group;
and the Mill Services Segment. Adjusting for the unfavorable effect of foreign currency translation, revenues would have
increased 7%.
2000 vs. 1999
Revenues for 2000 were significantly above those recorded in 1999. Sales increased principally due to the addition of acquired
companies, particularly SGB Group which was acquired in June 2000. 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
an economic slowdown in the United States manufacturing sector that began in the fourth quarter of 2000. Excluding the
unfavorable foreign currency translation effect of the strong U.S. dollar, particularly relative to the euro, revenues increased by
more than 17%.
Cost of Services and Products Sold
2001 vs. 2000
Cost of services and products sold increased, but at a lower rate than the increase in revenues. Approximately $127 million of
the increase is due to the effect of acquired companies. Excluding the net effects of business acquisitions and dispositions,
costs of services and products sold decreased approximately 4%.
2000 vs. 1999
Cost of services and products sold increased, but at a lower rate than the increase in revenues, despite a significant increase in
energy costs. On a comparative basis, 2000 was unfavorably affected by higher product costs of $8 million due to cost
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.
HARSCO CORPORATION 2001 A NNUAL R EPORT 21
Selling, General and Administrative Expenses
2001 vs. 2000
Selling, general and administrative expenses increased due to the costs related to acquired companies, principally SGB Group.
On a comparative basis, 2001 was negatively impacted by a $9.3 million pre -tax increase in provisions for uncollectible
accounts receivable, particularly in the Mill Services Segment where several customers in the steel industry have experienced
financial difficulties including bankruptcies. The Company’s continuing cost reduction, process improvement and reorganization
efforts helped contain overall selling, general and administrative expenses. Excluding the net effects of business acquisitions
and dispositions and the above noted increase in provisions for uncollectible accounts receivable, selling, general and
administrative expenses decreased approximately 3%.
2000 vs. 1999
Selling, general and administrative 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 approximately 3%.
Other Expenses
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. During 2001 (principally the fourth quarter) the
Company adopted plans to streamline operations that included the consolidation, closure and sale of certain operating
locations, as well as the exit from several underperforming product lines. Management also initiated headcount reductions in
both administrative and operating positions. Additionally, the Company recorded asset impairment charges related to Mill
Services customers that filed for bankruptcy or shut down operations. These actions resulted in net other expenses of $23.5
million in 2001 compared to $1.3 million in 2000 and $6.0 million in 1999.
For additional information, see Note 15, Other (Income) and Expenses, to the Consolidated Financial Statements under Part II,
Item 8, “Financial Statements and Supplementary Data.”
Provision for Income Taxes
2001 vs. 2000
The effective income tax rate for 2001 was 32.5% versus 31.5% for 2000. The increase in the income tax rate is due principally
to higher effective income tax rates on domestic earnings.
2000 vs. 1999
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
2001 vs. 2000
Net income of $71.7 million and diluted earnings per share of $1.79 were below 2000 due principally to increased provisions
for uncollectible accounts receivable; increased other expenses; increased interest expense and a higher effective tax rate.
2000 vs. 1999
Net income of $96.8 million and diluted earnings per share of $2.42 were above 1999 due principally to the addition of
acquired companies and a lower effective tax rate. This increase was negatively impacted by increased interest expense related
to additional borrowings for the acquisitions of SGB Group and Pandrol Jackson.
22 HARSCO CORPORATION 2001 A NNUAL R EPORT
Segment Analysis
Infrastructure Segment
(In millions)
Sales
Operating income
Segment net income
2001
$ 887.0
79.0
30.9
2000
$ 703.6
62.3
26.1
1999
$ 432.5
41.2
22.5
2001 vs. 2000
The increase in sales and operating income is primarily due to the June 2000 acquisition of SGB Group. This increase was
augmented by increased rentals in the existing domestic scaffolding services business and increased contracting of railway
maintenance equipment. These increases were partially offset by decreases in industrial grating sales and rail track
maintenance equipment and repair parts sales. These decreases reflect the downturn in the United States manufacturing
sectors that started in the fourth quarter of 2000 and resulted in a recessionary environment during 2001.
The net income increase in 2001 is directly related to the operating increases noted above. The increase was negatively
impacted by higher interest expense in 2001 resulting from the financing of the SGB Group acquisition.
2000 vs. 1999
The significant increase in sales and operating income of the Infrastructure Segment for 2000 is due to the acquisition 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
beginning in the fourth quarter of 2000 as well as significantly higher energy costs. Railroad customers delayed the purchase of
equipment 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
(In millions)
Sales
Operating income
Segment net income
2001
$ 731.0
61.3
35.0
2000
$ 757.4
92.6
58.5
1999
$ 737.8
78.2
45.1
2001 vs. 2000
A combination of strong production volumes and new contracts from the Company’s international mill services operations in
2001 partially offset the unfavorable effects of reduced steel mill production and steel mill closures and its impact on capacity
utilization at many mills in North America. This adversely affected the volume of services provided by the Company. Excluding
the unfavorable effect of foreign currency translation, 2001 sales would have been $35.8 million higher and would have fully
offset the effect of reduced domestic steel production.
HARSCO CORPORATION 2001 A NNUAL R EPORT 23
Operating income for 2001 decreased principally due to lower income in United States and due to the effects of foreign
currency translation. The downturn in domestic steel production indicated above also contributed to customer financial
difficulties that resulted in an increase of $4.3 million in provisions for uncollectible accounts receivable during the 2001 period
for customers in the United States who have filed for bankruptcy protection or shut down operations. Internationally, there was
an increase of $3.4 million in provisions for uncollectible accounts receivable during 2001. Additionally, operating income was
negatively impacted by $18.9 million of increased charges for impaired asset write-downs and employee termination benefit
costs.
Net income for 2001 was below 2000 due to the factors previously mentioned.
2000 vs. 1999
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, unfavorably affected prices, production and the profitability of many steel mills; consequently the demand for mill
services began to decline.
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 reorganization 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 international earnings.
Gas and Fluid Control Segment
(In millions)
Sales
Operating income
Segment net income
2001
$ 489.1
19.6
10.4
2000
$ 542.4
41.1
23.9
1999
$ 579.6
47.5
27.0
2001 vs. 2000
During 2001, sales, operating income and net income were below 2000 due to a continued downturn in the United States
manufacturing sector that started in the fourth quarter of 2000 and resulted in a recessionary environment during 2001. This has
affected demand for most gas control and containment equipment product lines. These decreases were partially offset by
higher sales and operating income for heat exchangers, reflecting improvement in the natural gas industry.
The 2001 operating income reflects the impact of other expenses of $5.0 million relating primarily to employee termination
benefit costs. This compares with $0.2 million and $2.9 million in other expenses for 2000 and 1999, respectively.
2000 vs. 1999
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.
24 HARSCO CORPORATION 2001 A NNUAL R EPORT
Services and Engineered Products Analysis
The Company is a diversified services and engineered products company. Over the last several years management has
transformed the Company into a global services company. Sales, operating income and EBITDA for 2001 and 2000 are
presented in the following table:
(Dollars are in millions)
Sales
2001
2000
1999
Amount
Percent
Amount
Percent
Amount
Percent
Services
$ 1,323.0
63%
$ 1,140.9
57%
$ 866.8
Engineered products
784.1
37
862.5
43
883.1
Total sales
$ 2,107.1
100%
$ 2,003.4
100%
$1,749.9
Operating Income
Services
Engineered products
$ 126.0
79%
$ 122.7
63%
$ 84.9
33.9
21
73.3
37
82.0
Total segment operating income
$ 159.9
100%
$ 196.0
100%
$ 166.9
EBITDA*
Services
$ 269.3
80%
$ 248.0
71%
$ 191.1
Engineered products
65.9
20
103.3
29
110.3
Total segment EBITDA
$ 335.2
100%
$ 351.3
100%
$ 301.4
50%
50
100%
51%
49
100%
63%
37
100%
* Earnings before interest, income taxes, 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.
2001 vs. 2000
Service sales, operating income and EBITDA in 2001 increased from 2000. The increases reflect principally the SGB Group
acquisition, as well as improvement in certain international markets served by the Company and the favorable effects of cost
reductions, process improvements and reorganization efforts.
Engineered products sales, operating income and EBITDA in 2001 decreased significantly from 2000. The decreases result
from the previously discussed recessionary manufacturing environment in the United States.
2000 vs. 1999
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.
Operating income for 2000 for engineered products was down from 1999 due to reduced margins for certain products,
principally grating and industrial fittings.
Research and Development
The Company invested $4.0 million in internal research and development programs in 2001. Internal funding for the
Infrastructure Segment amounted to $2.2 million, principally for railway track maintenance equipment and services.
Expenditures for the Mill Services and Gas and Fluid Control Segments were $1.0 million and $0.8 million, respectively.
Backlog
As of December 31, 2001, the Company’s order backlog, exclusive of long-term mill services contracts, was $215.9 million
compared with $258.9 million as of December 31, 2000, a 17% decrease. The Infrastructure Segment order backlog at
December 31, 2001 was $156.3 million, a decrease of 14 % from the December 31, 2000 backlog of $181.7 million. The
decrease is principally due to a decrease in backlog for railway track maintenance services which was partially offset by an
increase in orders for railway track maintenance equipment. Also, contributing to the Infrastructure Segment decrease was
reduced demand for bridge decking. The bridge decking product line was sold in January 2002. Backlog for scaffolding,
HARSCO CORPORATION 2001 A NNUAL R EPORT 25
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.
The Gas and Fluid Control Segment backlog at December 31, 2001 of $59.5 million was 23% below the December 31, 2000
backlog of $77.2 million. The decrease reflects reduced backlog for all product lines principally heat exchangers, high pressure
gas cylinders and cryogenic equipment.
Mill services contracts have an estimated future value of $3.0 billion at December 31, 2001, which is 14% below the $3.5
billion at December 31, 2000. The decrease is due in part to market conditions, including mill shutdowns principally in the
United States. Additionally, the continuing appreciation of the U.S. dollar in relation to several local currencies of the Company’s
international operations particularly South Africa, Australia and the United Kingdom contributed to the decrease. Over 50% of
these revenues are expected to be recognized by December 31, 2004. The remaining revenues are expected to be recognized
principally between January 1, 2005 and December 31, 2010.
Dividend Action
The Company paid four quarterly cash dividends of $.24 per share in 2001, for an annual rate of $.96. This is an increase of
2.1% from 2000. At the November 2001 meeting, the Board of Directors increased the dividend by 4.2% to an annual rate of
$1.00 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
2002 payment marked the 207th consecutive quarterly dividend paid at the same or at an increased rate. During the five-year
period ended December 31, 2001, dividends paid were increased five times. In 2001, 53% of net earnings were paid out in
dividends. The Company is philosophically committed to maintaining or increasing the dividend at a sustainable level.
New Financial Accounting Standards Issued
SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142)
In July 2001, the FASB issued SFAS 142, which eliminates the amortization of goodwill, requires annual impairment testing of
goodwill and introduces the concept of indefinite life intangible assets. SFAS 142 supersedes APB No. 17, “Intangible Assets”.
The Company adopted SFAS 142 on January 1, 2002. An initial two-step impairment test of reporting units must be performed
in 2002. Step 1 is a comparison of fair value to book value. If the fair value exceeds the book value, Step 2 of the test is not
required as no impairment of goodwill exists. Step 2 requires the allocation of fair values to assets (including goodwill) and
liabilities as if the reporting unit had just been purchased. If goodwill is determined to be impaired, a write-down to fair value
would be required. Although the Company has not completed its initial testing for impairment, it does not expect to recognize
an impairment loss related to adopting SFAS 142. However, if an impairment charge is necessary, it will be reported as a
change in accounting principle. Additionally, the Company does not expect to reclassify any goodwill to an intangible asset or
vice versa and no intangible assets are expected to be classified as indefinite-lived.
The Company recognized $17.4 million and $18.0 million of pre-tax goodwill amortization expense for the years ended
December 2001 and 2000, respectively. The effect of adoption of the new standard is estimated to reduce pre-tax amortization
expense in 2002 by approximately $16.0 million or approximately $0.27 per share. This benefit of non-amortization of goodwill
will be offset by anticipated increases in pension expenses and insurance costs in 2002 resulting from the current global
economic environment.
For additional information on new accounting standards issued (including SFAS 141, SFAS 143, and SFAS 144), see Note 1,
Summary of Significant Accounting Policies, to the Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplementary Data.”
26 HARSCO CORPORATION 2001 A NNUAL R EPORT
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to foreign currency risk in its international operations. The Company conducts business in 40
countries and approximately 48%, 42% and 36% of the Company's net revenues for the years ended December 31, 2001, 2000
and 1999, respectively, were derived from the Company's operations outside the United States. In 2001, the values of the
following currencies decreased in relation to the U.S. dollar and impacted the Company:
• Brazilian real
• South African rand
• British pound sterling
• euro
Declined 27%
Declined 23%
Declined 5%
Declined 3%
These and other foreign currency exposures increase the risk of income statement, balance sheet and cash flow volatility which
could result in a material impact to 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.
To illustrate the effect of foreign currency exchange rate changes due to the strengthening of the U.S. dollar, 2001 sales would
have been approximately 1.9% or $40.7 million greater using the average exchange rates for the year 2000. A similar
comparison for the year 2000 would have increased sales approximately 2.2% or $45 million if the average exchange rates for
1999 would have remained the same in 2000.
At December 31, 2001 and 2000, currency changes resulted in assets and liabilities denominated in local currencies being
translated into fewer dollars than at the prior year-end. This resulted in decreased net assets of $22.4 million and $28.3 million
at December 31, 2001 and 2000, respectively.
The Company seeks to reduce exposures to foreign currency transaction fluctuations through the use of forward exchange
contracts. At December 31, 2001, these contracts amounted to $1.8 million and all mature within 2002. 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.
For additional information on forward exchange contracts and hedging, see Note 13, Financial Instruments, to the Consolidated
Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data."
The Company's cash flows and earnings are subject to changes in interest rates. Total debt of $762.0 million as of December
31, 2001 was approximately 39% at variable rates of interest. The weighted average interest rate of total debt was
approximately 5.4%. At current debt levels, a one-percentage increase/decrease in interest rates would increase/decrease
interest expense by approximately $3.0 million per year.
An economic slowdown in the United States that began in the second half of 2000 has resulted in a recessionary environment
during 2001. This resulted in reduced demand for the Company’s manufactured products and mill services in North America.
Several steel producers, including certain Company customers, have filed for bankruptcy protection or shut down operations.
This recessionary environment has resulted in the Company recording $23.5 million in net pre-tax charges related to impaired
asset write-downs, employee termination benefit costs and costs to exit activities, offset by net gains on the disposal of non-core
assets during 2001. (For additional information on the $23.5 million in charges, see Note 15, Other (Income) Expenses, to the
Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data"). The Company was
also negatively impacted by $12.6 million of pre-tax provisions for uncollectible accounts receivable in 2001, an increase of
$9.3 million from 2000, primarily in the Mill Services Segment. There is a risk that the Company’s future results of operations
or financial condition could be adversely affected if the United States steel industry and manufacturing sector problems
continue. The future financial impact on the Company associated with these risks cannot be estimated.
HARSCO CORPORATION 2001 A NNUAL R EPORT 27
Item 8. Financial Statements and Supplementary Data
PART II
Index to Consolidated Financial Statements and Supplementary Data
Consolidated Financial Statements of Harsco Corporation:
Report of Independent Accountants
Consolidated Balance Sheet
December 31, 2001 and 2000
Consolidated Statement of Income
for the years 2001, 2000, and 1999
Consolidated Statement of Cash Flows
for the years 2001, 2000, and 1999
Consolidated Statement of Shareholders' Equity
for the years 2001, 2000, and 1999
Consolidated Statement of Comprehensive Income
for the years 2001, 2000, and 1999
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited):
Two-Year Summary of Quarterly Results
Common Stock Price and Dividend Information
Page
29
30
31
32
33
34
35
58
58
28 HARSCO CORPORATION 2001 A NNUAL R EPORT
REPORT OF I NDEPENDENT ACCOUNTANTS
To the Shareholders of Harsco Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
income, shareholders’ equity, comprehensive income and cash flows present fairly, in all material respects, the
financial position of Harsco Corporation and Subsidiary Companies at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles 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.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2002
HARSCO CORPORATION 2001 A NNUAL R EPORT 29
HARSCO CORPORATION
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 66,484,633 and 66,309,651 shares as of
December 31, 2001 and 2000, respectively
Additional paid-in capital
Accumulated other comprehensive expense
Retained earnings
Treasury stock, at cost (26,499,784 and 26,504,479 shares, respectively)
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying notes to consolidated financial statements.
30 HARSCO CORPORATION 2001 A NNUAL R EPORT
2001
2000
$
67,409
396,185
183,812
68,661
716,067
840,489
353,564
180,646
$ 2,090,766
$
56,422
413,654
199,117
57,222
726,415
896,781
369,199
188,553
$ 2,180,948
$
29,300
12,471
169,434
37,757
35,523
9,996
180,193
474,674
720,197
103,082
49,019
57,621
$
47,676
14,619
192,148
46,591
34,783
9,553
190,809
536,179
774,450
88,480
46,988
60,672
1,404,593
1,506,769
-
-
83,106
94,597
(135,263)
1,247,680
1,290,120
(603,947)
686,173
$ 2,090,766
82,887
90,000
(109,377)
1,214,659
1,278,169
(603,990)
674,179
$ 2,180,948
HARSCO CORPORATION
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 expenses
Total costs and expenses
2001
2000
1999
$ 1,323,000
784,111
1,363
$ 1,140,922
862,465
1,354
$ 866,839
883,049
1,119
2,108,474
2,004,741
1,751,007
954,417
640,037
322,934
3,981
23,490
1,944,859
840,501
688,385
274,079
5,714
1,334
1,810,013
669,364
693,368
207,765
7,759
6,019
1,584,275
Operating income
163,615
194,728
166,732
Equity in income (loss) of affiliates, net
Interest income
Interest expense
(1,852)
5,589
(53,557)
(2,020)
5,987
(50,104)
3,004
4,662
(26,968)
Income before income taxes and minority interest
113,795
148,591
147,430
Provision for income taxes
Income before minority interest
Minority interest in net income
36,982
76,813
5,088
46,805
101,786
4,983
51,599
95,831
5,118
Net income
$
71,725
$
96,803
$
90,713
Average shares of common stock outstanding
39,876
39,964
40,882
Basic earnings per common share
$
1.80
$
2.42
$
2.22
Diluted average shares of common stock outstanding
40,066
40,022
41,017
Diluted earnings per common share
$
1.79
$
2.42
$
2.21
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 amounting to $33 million for
the twelve months ended December 31, 1999 have been reclassified as cost of services sold or as cost of products sold rather than as
reductions of sales. The reclassification has no effect on previously reported operating income or net income for the twelve months ended
December 31, 1999.
HARSCO CORPORATION 2001 A NNUAL R EPORT 31
HARSCO CORPORATION
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
Other expenses
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
2001
2000
1999
$
71,725
$
96,803
$
90,713
159,157
17,374
1,852
895
18,940
(1,049)
12,352
11,893
(11,744)
(1,328)
(39,466)
141,128
17,971
2,020
1,729
3,397
(804)
17,811
966
10,193
(12,012)
(19,754)
122,777
13,076
(3,004)
3,369
6,019
5,205
(28,157)
15,934
(1,238)
(14,605)
3,864
Net cash provided by operating activities
240,601
259,448
213,953
Cash flows from investing activities
Purchases of property, plant and equipment
Purchases of businesses, net of cash acquired*
Proceeds from sale of assets
Other investing activities
(156,073)
(4,914)
35,668
106
(180,048)
(302,461)
22,469
988
(175,248)
(48,907)
32,099
(2,618)
Net cash (used) by investing activities
(125,213)
(459,052)
(194,674)
Cash flows from financing activities
Short-term borrowings, net
Current maturities and long-term debt:
Cash dividends paid on common stock
Common stock issued-options
Common stock acquired for treasury
Other financing activities
Additions
Reductions
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
(15,181)
195,678
(241,862)
(38,261)
4,773
(167)
(4,170)
(99,190)
(5,211)
10,987
56,422
146,552
562,993
(448,366)
(37,594)
1,792
(7,917)
(6,714)
210,746
(5,986)
5,156
51,266
(10,546)
214,133
(103,410)
(37,022)
2,272
(71,860)
(2,495)
(8,928)
(647)
9,704
41,562
Cash and cash equivalents at end of year
$
67,409
$
56,422
$
51,266
*Purchase of businesses, net of cash acquired
Working capital, other than cash
Property, plant and equipment
Other noncurrent assets and liabilities, net
$
(55)
(5,151)
292
$
(20,249)
(215,065)
(67,147)
$
18,078
(36,417)
(30,568)
Net cash used to acquire businesses
$
(4,914)
$
(302,461)
$
(48,907)
See accompanying notes to consolidated financial statements.
32 HARSCO CORPORATION 2001 A NNUAL R EPORT
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock
Issued
Translation
$ 82,594 $ (529,462) $ 85,384 $ (51,391)
Treasury
Additional
Paid-in
Capital
Accumulated Other
Comprehensive Income (Expense)
Cash Flow
Hedging
Instruments
Pension
Liability
$
-
$ (3,654)
Unrealized
Gain on
Marketable
Securities
-
$
Total
Retained
Earnings
$ (55,045) $ 1,101,828
90,713
(36,955)
(27,273)
(27,273)
1,780
1,780
(66,441)
183
2,740
(23)
98
(In thousands, except share
amounts)
Balances, January 1, 1999
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
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
(8,209)
110
1,900
(1)
24
(28,327)
(28,327)
(512)
(512)
96,803
(37,730)
Balances, December 31, 2000
82,887
(603,990)
90,000
(106,991)
-
(2,386)
-
(109,377)
1,214,659
Net income
Cash dividends declared, $.97 per
share
Translation adjustments
Cash flow hedging instrument
adjustments, net of $47
deferred income taxes
Pension liability adjustments, net
of $2,039 deferred income
taxes
Marketable securities
adjustments net of ($182)
deferred income taxes
Acquired during the year, 10,451
shares
Stock options exercised,
187,693 shares
Other, 2,435 shares
219
(167)
149
61
4,590
7
(22,347)
(84)
71,725
(38,704)
(22,347)
(84)
(3,792)
(3,792)
337
337
Balances, December 31, 2001
$ 83,106 $ (603,947) $ 94,597 $ (129,338) $
(84)
$ (6,178)
$
337
$(135,263) $ 1,247,680
See accompanying notes to consolidated financial statements.
HARSCO CORPORATION 2001 A NNUAL R EPORT 33
HARSCO CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
Years ended December 31
Net Income
Other comprehensive income (expense):
2001
2000
1999
$
71,725
$
96,803
$
90,713
Foreign currency translation adjustments
Net losses on cash flow hedging instruments, net of deferred income
taxes
Pension liability adjustments, net of deferred income taxes
Unrealized gain on marketable securities
Other comprehensive expense
(22,347)
(28,327)
(27,273)
(84)
(3,792)
337
(25,886)
-
(512)
-
(28,839)
-
1,780
-
(25,493)
Total comprehensive income
$
45,839
$
67,964
$
65,220
See accompanying notes to consolidated financial statements.
34 HARSCO CORPORATION 2001 A NNUAL R EPORT
HARSCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Harsco Corporation and its majority-owned subsidiaries (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 inventories are accounted for using the first-in, first-out (FIFO) or average cost methods.
Depreciation
Property, plant and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally
the straight-line method. When property is retired from service, the cost of the retirement is generally 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 of 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 its estimated useful life, none of which currently exceed 30 years. Accumulated amortization was $107.1 million and
$91.0 million at December 31, 2001 and 2000, respectively.
Impairment of Long-Lived Assets
Long-lived assets, including cost in excess of net assets of businesses acquired and other intangible assets, 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
of 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: persuasive 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
HARSCO CORPORATION 2001 A NNUAL R EPORT 35
1.
Summary of Significant Accounting Policies (Continued)
recorded in the cumulative translation adjustment, a separate component of Other comprehensive income (expense). Income
and expense items are translated at average monthly exchange rates. Gains and losses from foreign currency transactions are
included in net income. For subsidiaries operating in highly inflationary economies, gains and losses on foreign currency
transactions and balance sheet translation adjustments are included in net income.
Effective January 1999, the Company’s operations in Mexico were no longer accounted for as a highly inflationary economy
because the three-year cumulative rate of inflation fell below 100%. The Company measures the financial statements of its
Mexican entities using the Mexican new peso 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 are generally for 90 to 180 days or less. For those contracts that are designated as qualified cash
flow hedges, gains or losses are recorded in other comprehensive income.
Amounts recorded in other comprehensive income are reclassified into income in the same period or periods during which the
hedged forecasted transaction affects income. The cash flows from these contracts are classified consistent with the cash
flows from the transaction being hedged. The Company also enters into certain forward exchange contracts not designated as
hedges under SFAS No. 133. Gains and losses on these contracts are recognized in income based on fair market value. For
fair value hedges of a firm commitment, the gain or loss on the derivative and the offsetting gain or loss on the hedged firm
commitment are recognized currently in income.
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 in footnote number 12.
Earnings Per Share
Basic earnings per share is calculated using the average shares of common stock outstanding, while diluted earnings per share
reflects the potential dilution that could occur if stock options were exercised.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior years' amounts to conform with current year classifications.
New Financial Accounting Standards Issued
SFAS No. 141, “Business Combinations” (SFAS 141)
In July 2001, the FASB issued SFAS 141, which addresses financial accounting and reporting for business combinations. SFAS
141 supersedes Accounting Principles Board Opinion No. 16, “Business Combinations” (APB 16), and SFAS No. 38, “Accounting
for Preacquistion Contingencies of Purchased Enterprises” (SFAS 38). SFAS 141 requires the use of the purchase method of
accounting for business combinations and prohibits the use of the pooling-of-interests method. The Company historically has
not used the pooling-of-interests method and therefore, this aspect of the new rules will not have an impact on the Company’s
financial position or results of operations. SFAS 141 also changes the definition of intangible assets acquired in a business
combination.
36 HARSCO CORPORATION 2001 A NNUAL R EPORT
1.
Summary of Significant Accounting Policies (Continued)
SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142)
In July 2001, the FASB issued SFAS 142, which eliminates the amortization of goodwill, requires annual impairment testing of
goodwill and introduces the concept of indefinite life intangible assets. SFAS 142 supersedes APB No. 17, “Intangible Assets”.
The Company adopted SFAS 142 on January 1, 2002. An initial two-step impairment test of reporting units must be performed
in 2002. Step 1 is a comparison of fair value to book value. If the fair value exceeds the book value, Step 2 of the test is not
required as no impairment of goodwill exists. Step 2 requires the allocation of fair values to assets (including goodwill) and
liabilities as if the reporting unit had just been purchased. If goodwill is determined to be impaired, a write-down to fair value
would be required. Although the Company has not completed its initial testing for impairment, it does not expect to recognize
an impairment loss related to adopting SFAS 142. However, if an impairment charge is necessary, it will be reported as a
change in accounting principle. Additionally, the Company does not expect to reclassify any goodwill to an intangible asset or
vice versa and no intangible assets are expected to be classified as indefinite-lived.
The Company recognized $17.4 million and $18.0 million of pre-tax goodwill amortization expense for the years ended
December 2001 and 2000, respectively. The effect of adoption of the new standard is estimated to reduce pre-tax amortization
expense in 2002 by approximately $16.0 million or approximately $0.27 per share.
SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143)
In August 2001, the FASB issued SFAS 143, which requires entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing
the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss. The standard is effective for fiscal years beginning after June 15,
2002, with earlier adoption encouraged. The Company has not yet determined the timing of adoption or the impact of SFAS
143.
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144)
In October 2001, the FASB issued SFAS 144, which addresses financial accounting and reporting for the impairment and
disposal of long-lived assets. SFAS 144 supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.” However, it retains the fundamental provisions of SFAS 121 for recognition and
measurement of the impairment of long-lived assets to be held, used, or disposed of by sale.
Additionally, SFAS 144 supersedes the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions” (APB 30), for the disposal of a segment of a business. SFAS 144 retains the requirement of APB 30
to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity
(rather than a segment of a business) that either has been disposed of (by sale, by abandonment, or in a distribution to owners)
or is classified as held for sale. SFAS 144 also amends Accounting Research Bulletin No. 51, “Consolidated Financial
Statements” (ARB 51), to eliminate the exception to consolidation for a temporarily controlled subsidiary.
The Company adopted SFAS 144 on January 1, 2002 with no material effect on net income. Prospectively, transactions under
the scope of SFAS 144 may result in changes in the income statement classification, from that under prior standards, for
components of the Company that are disposed of or are classified as held for sale.
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 2001, 2000 and 1999.
HARSCO CORPORATION 2001 A NNUAL R EPORT 37
3.
Acquisitions and Dispositions
Acquisitions
During 2001 the Company did not acquire any businesses that individually or when aggregated together represent more than
2% of the Company’s net assets, sales, or net income.
On June 16, 2000, the Company obtained majority ownership of SGB Group Plc (“SGB”) and subsequently acquired 100% of the
shares. SGB, based in the U.K., 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 282.9
million British pounds sterling (approximately $411.9 million using a December 31, 2001 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 consolidated results of the Company since the date of acquisition. 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
Property, plant and equipment
Other assets
Cost in excess of net assets acquired
Non-current liabilities
Purchase price, net of cash received
$
19.3
210.9
45.3
130.2
(133.8)
$ 271.9
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.
All acquisitions have been accounted for using the purchase method of accounting with cost in excess of net assets of
businesses acquired totaling $3.5 million in 2001 and $137.0 million in 2000. 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 on January 1, 2000.
(In millions, except per share data)
Pro Forma Information for The Year Ended December 31
Net sales
Net income
Basic earnings per share
Diluted earnings per share
2000
$ 2,208
93
2.27
2.27
The unaudited pro forma information is not necessarily indicative of the results of operations that would have occurred had the
purchases been made on January 1, 2000, 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 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 acquisitions for the full periods presented.
Dispositions
On April 13, 2001, the Company divested its 49% interest in S3Networks, LLC. In 2001 the Company recorded $2.9 million in
losses related to its investment in S3Networks. The divesture eliminated any future dilution to the Company’s earnings as a
result of S3Networks.
38 HARSCO CORPORATION 2001 A NNUAL R EPORT
4.
Accounts Receivable and Inventories
Accounts receivable are net of an allowance for doubtful accounts of $32.7 million and $26.1 million at December 31, 2001
and 2000, respectively. The provision for doubtful accounts was $12.6 million and $3.3 million for 2001 and 2000,
respectively.
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
2001
$ 67,007
25,785
70,563
20,457
$ 183,812
$ 117,132
9,676
57,004
$ 183,812
$
2000
68,519
36,751
73,265
20,582
$ 199,117
$ 124,189
12,898
62,030
$ 199,117
Inventories valued on the LIFO basis at December 31, 2001 and 2000 were approximately $30.7 million and $33.2 million,
respectively, less than the amounts of such inventories valued at current costs.
As a result of reducing certain inventory quantities valued on the LIFO basis, net income increased from that which would have
been recorded under the FIFO basis of valuation by $0.7 million, $0.03 million and $1.1 million in 2001, 2000 and 1999 ,
respectively.
5.
Property, Plant and Equipment
Property, plant and equipment consists of:
(In thousands)
Land and improvements
Buildings and improvements
Machinery and equipment
Uncompleted construction
Less accumulated depreciation and facilities valuation allowance
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
2001
$ 40,583
167,752
1,537,692
40,958
1,786,985
946,496
2000
$
46,609
168,719
1,489,906
66,260
1,771,494
874,713
$ 840,489
$ 896,781
HARSCO CORPORATION 2001 A NNUAL R EPORT 39
6.
Debt and Credit Agreements
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. $66.3 million at December 31, 2001 which is used to fund the Company's international
operations. In June 2001, the Company supplemented its Belgian franc commercial paper program by adding a 250 million
euro program, equivalent to approximately U.S. $222.9 million at December 31, 2001. The Company limits the aggregate
commercial paper and syndicated credit facility and bilateral facility borrowings at any one time to a maximum of $450 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, 2001 and 2000, the Company had $161.8 million and $216.8 million of U.S.
commercial paper outstanding, respectively, and $60.1 million, and $52.0 million outstanding, respectively, under its European-
based commercial paper programs. Commercial paper is classified as long-term debt at December 31, 2001 and 2000,
because the Company has the ability and intent to refinance it on a long-term basis through existing long-term credit facilities.
The Company has a 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 commercial paper programs. The facility is in two parts. One part amounts to $131,250,000 and
is a 364-day credit agreement that permits borrowings outstanding at expiration (September 27, 2002) to be repaid no later
than September 27, 2003. The second part is for $218,750,000 and is a 5-year credit agreement that expires on September
29, 2005 at which time all borrowings are due. The first part of the facility was renegotiated in September of 2001 to extend
the expiration date to the date noted above. 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, 2001) that varies based upon its credit ratings. At December 31, 2001 and 2000,
there were no borrowings outstanding under either facility.
In the first quarter of 2001, the Company executed two $50 million bilateral credit facility agreements with European-based
banks. These agreements serve as back-up to the Company’s commercial paper programs and also help finance the
Company’s European operations. Borrowings under these facilities, which expire in January 2002 and December 2002 are
available in Eurocurrencies or U.S. dollars at interest rates based upon LIBOR plus a margin. Borrowings outstanding at
expiration may be repaid over the succeeding 4 years. As of December 31, 2001 there was $11.3 million outstanding on these
credit facilities. Subsequent to December 31, 2001 the facility expiring January 2002 was extended to January 2003.
On October 27, 2000, the Company issued 200 million British pound sterling (U.S. $287.1 million) 7.25% notes due 2010. The
annual interest payments commenced 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 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. The Company is not committed to
issuing these securities.
Short-term debt amounted to $29.3 million and $47.7 million at December 31, 2001 and 2000, respectively. The weighted
average interest rate for short-term borrowings at December 31, 2001 and 2000 was 5.5% and 5.7%, respectively.
Long-term debt consists of:
(In thousands)
7.25% British pound sterling-denominated notes due October 27, 2010
6.0% notes due September 15, 2003
Commercial paper borrowings, with a weighted average interest rate of 2.8% as of
December 31, 2001
Faber Prest loan notes due October 31, 2008 with interest based on sterling LIBOR
minus .75% (3.4% at December 31, 2001)
Industrial development bonds, payable in varying amounts from 2004 to 2011 with
a weighted average interest rate of 2.3% as of December 31, 2001
Other financing payable in varying amounts to 2007 with a weighted average
interest rate of 4.5% as of December 31, 2001
Less: current maturities
2001
$ 287,097
150,000
2000
$ 294,087
150,000
221,919
268,794
11,109
11,400
51,143
732,668
12,471
12,898
13,400
49,890
789,069
14,619
$ 720,197
$ 774,450
40 HARSCO CORPORATION 2001 A NNUAL R EPORT
6.
Debt and Credit Agreements (Continued)
The credit facility and certain notes payable agreements contain covenants requiring a minimum net worth of $475 million and
a maximum debt to capital ratio of 60%. At December 31, 2001, the Company was in compliance with these covenants.
The maturities of long-term debt for the four years following December 31, 2002 are:
(In thousands)
2003
2004
$ 157,796
9,885
$
2005
2006
$ 230,672
$ 12,348
Cash payments for interest on all debt were $53.7 million, $44.7 million, and $25.0 million in 2001, 2000 and 1999,
respectively.
7.
Leases
The Company leases certain property and equipment under noncancelable operating leases. Rental expense under such
operating leases was $41.3 million, $30.3 million, and $16.9 million in 2001, 2000 and 1999, respectively. Approximately
$9.0 million and $9.3 million of the increase for 2001 and 2000, respectively, is due to the inclusion of SGB as of June 2000.
Future minimum payments under operating leases with noncancelable terms are:
(In thousands)
2002
2003
2004
2005
2006
After 2006
$ 35,584
29,915
28,682
11,315
6,854
24,187
8.
Employee Benefit Plans
Pension Benefits
The Company has pension and profit sharing retirement plans, most of which are noncontributory, covering substantially all of
its employees. The benefits for salaried employees generally are based on years of service and the employee's level of
compensation during specified periods of employment. Plans covering hourly employees generally provide benefits of stated
amounts for each year of service. The multi-employer plans in which the Company participates provide benefits to certain
unionized employees. The Company's funding policy for qualified plans is consistent with statutory regulations and customarily
equals the amount deducted for income tax purposes. The Company's policy is to amortize prior service costs over the average
future service period of active plan participants.
Pension information presented for 2001 and 2000 includes SGB pension income, obligations and pension assets acquired in
June 2000.
(In thousands)
Pension Expense (Income)
Defined benefit plans:
Service cost
Interest cost
Expected return on plan assets
Recognized prior service costs
Recognized (gains) or losses
Amortization of transition asset
Settlement/Curtailment loss
Multi-employer plans
Defined contribution plans
2001
U. S. Plans
2000
1999
2001
International Plans
2000
1999
$ 8,206
12,763
(22,713)
1,429
(1,357)
(1,789)
454
(3,007)
3,780
1,768
$ 8,017
12,069
(22,448)
1,368
(1,853)
(1,834)
360
(4,321)
4,334
1,401
$ 9,514
11,427
(20,012)
1,309
272
(1,834)
-
676
3,853
1,165
$ 10,457
25,615
(41,846)
942
(1,964)
(549)
-
(7,345)
956
5,599
$ 8,559
18,727
(30,054)
949
(953)
(567)
-
(3,339)
1,039
4,386
$ 6,369
11,622
(16,836)
742
5
(613)
-
1,289
1,069
3,301
Pension expense (income)
$ 2,541
$ 1,414
$ 5,694
$
(790)
$ 2,086
$ 5,659
HARSCO CORPORATION 2001 A NNUAL R EPORT 41
8.
Employee Benefit Plans (Continued)
The change in the financial status of the pension plans and amounts recognized in the Consolidated Balance Sheet at
December 31, 2001 and 2000 are:
Pension Benefits
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial loss (gain)
Curtailment loss
Settlements
Benefits paid
Obligations of acquired companies
Effect of foreign currency
U. S. Plans
International Plans
2001
2000
2001
2000
$ 163,264
8,206
12,763
-
1,456
5,287
-
(819)
(6,903)
-
-
$ 159,055
8,017
12,069
-
1,127
(10,692)
360
-
(6,672)
-
-
$ 433,851
10,457
25,615
3,467
307
(13,895)
-
-
(19,540)
-
(11,148)
$ 203,913
8,558
18,728
2,673
298
(2,044)
-
-
(12,952)
229,608
(14,931)
Benefit obligation at end of year
$ 183,254
$ 163,264
$ 429,114
$ 433,851
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
Settlements
Plan assets of acquired companies
Effect of foreign currency
$ 241,573
(25,173)
2,821
-
(6,903)
(819)
-
-
$ 239,030
6,506
2,709
-
(6,672)
-
-
-
$ 556,862
(104,610)
4,151
3,467
(19,373)
-
-
(14,083)
$ 276,899
38,420
2,629
2,673
(12,808)
-
269,787
(20,738)
Fair value of plan assets at end of year
$ 211,499
$ 241,573
$ 426,414
$ 556,862
Funded status:
Funded status at end of year
Unrecognized net loss (gain)
Unrecognized transition (asset)
Unrecognized prior service cost
$ 28,245
11,639
(6,439)
10,728
$ 78,310
(42,621)
(8,244)
10,900
$
(2,700)
85,789
(1,651)
11,701
$ 123,011
(49,173)
(2,262)
12,683
Net amount recognized
$ 44,173
$ 38,345
$ 93,139
$ 84,259
Amounts recognized in the Consolidated Balance Sheet
consist of:
Prepaid benefit cost
Accrued benefit liability
Intangible asset
Accumulated other comprehensive income
$ 51,332
(20,199)
4,669
8,371
$ 47,235
(14,416)
2,178
3,348
$ 97,526
(6,321)
776
1,158
$ 89,171
(5,825)
539
374
Net amount recognized
$ 44,173
$ 38,345
$ 93,139
$ 84,259
Plan assets include equity and fixed-income securities. At December 31, 2001 and 2000, 732,640 shares of the Company's
common stock with a fair market value of $25.1 million and $18.1 million, respectively, are included in the U.S. plan assets.
Dividends paid on such stock amounted to $0.7 million in both 2001 and 2000.
42 HARSCO CORPORATION 2001 A NNUAL R EPORT
8.
Employee Benefit Plans (Continued)
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
2001
7.25%
U. S. Plans
2000
8.0%
1999
7.75%
International Plans
2000
6.2%
1999
6.2%
2001
6.2%
9.50%
3.70%
9.5%
4.0%
9.50%
4.00%
8.0%
4.0%
7.9%
4.4%
7.5%
4.4%
For the U.S. plans, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension
plans with accumulated benefit obligations in excess of plan assets were $45.6 million, $43.7 million, and $24.8 million,
respectively, as of December 31, 2001, and $22.7 million, $21.9 million, and $9.0 million, respectively, as of December 31,
2000.
For the international plans, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for
pension plans with accumulated benefit obligations in excess of plan assets were $10.5 million, $9.8 million, and $4.1 million,
respectively, as of December 31, 2001, and $9.8 million, $8.8 million, and $3.9 million, respectively, as of December 31, 2000.
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 postretirement health care and life insurance plans are unfunded.
The postretirement benefit expense (health care and life insurance) was $0.1 million in 2001, $0.7 million in 2000, and $0.4
million in 1999. 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
Curtailment
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
2001
2000
$ 11,253
150
812
730
38
(689)
(527)
(959)
$ 10,808
$ (10,808)
(187)
(41)
$ (11,036)
$ 10,304
182
761
231
32
(660)
403
-
$ 11,253
$ (11,253)
367
(902)
$ (11,788)
HARSCO CORPORATION 2001 A NNUAL R EPORT 43
8.
Employee Benefit Plans (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:
On cost components
On accumulated benefit obligation
2001
7.25%
9.00%
5.00%
2000
8.00%
7.50%
6.50%
1999
7.75%
7.50%
6.50%
$ 49
$ 386
$ 41
$ 510
$ 21
$ 415
For 2001, a one percent decrease in the health care cost trend rate would decrease the cost component by $45 thousand and
decrease the accumulated benefit obligation by $348 thousand.
It is anticipated that the health care cost trend rate will decrease from 9.0 % in 2002 to 5.0% in the year 2006.
Savings Plan
The Company has a 401(k) savings plan which covers substantially all U.S. employees with the exception of employees
represented by a collective bargaining agreement, unless the agreement expressly provides otherwise. Employee contributions
are generally determined as a percentage of covered employees' compensation. The expense for contributions to the plan by
the Company was $3.8 million, $4.9 million, and $4.4 million for 2001, 2000, and 1999, respectively. At December 31, 2001,
2000 and 1999, 2,519,045 shares, 2,633,984 shares and 2,470,581 shares, respectively, of the Company’s common stock
with a fair market value of $86.4 million, $65.0 million and $78.4 million, respectively, are included in the savings plan.
Other Employee Benefit Plans
The Company offers various other benefit plans to its employees. In 2001 and 2000, the Company amended certain plans in
the United States which resulted in pre -tax cost reductions of approximately $1.3 million and $5.3 million, respectively.
Executive Incentive Compensation Plan
The amended 1995 Executive Incentive Compensation Plan, as approved by the Management Development and Compensation
Committee of the Board of Directors, provides the basis for determination of annual incentive compensation awards. Actual
awards are paid in February of the following year. The Company accrues amounts reflecting the estimated value of incentive
compensation anticipated to be earned for the year. Compensation expense relating to these awards was $2.5 million, $ 5.6
million, and $3.8 million in 2001, 2000 and 1999, respectively.
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
2001
2000
1999
$ 23,875
89,920
$ 113,795
$ 68,000
80,591
$ 148,591
$ 78,689
68,741
$ 147,430
$
1,597
1,036
18,753
21,386
7,207
8,389
$ 36,982
$
5,113
(536)
21,803
26,380
17,375
3,050
$ 46,805
$ 22,474
1,743
25,203
49,420
3,890
(1,711)
$ 51,599
Cash payments for income taxes were $19.8 million, $19.3 million, and $50.7 million, for 2001, 2000, and 1999, respectively.
44 HARSCO CORPORATION 2001 A NNUAL R EPORT
9.
Income Taxes (Continued)
The following is a reconciliation of the normal expected statutory U.S. federal income tax rate to the effective rate as a
percentage of Income before income taxes and minority interest as reported in the Consolidated Statement of Income:
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 international earnings and remittances
Nondeductible acquisition costs
Other, net
Effective income tax rate
2001
35.0%
.4
(.4)
.2
(4.5)
2.5
(.7)
32.5%
2000
35.0%
.4
(.3)
1.3
(5.7)
1.9
(1.1)
31.5%
1999
35.0%
1.6
(.5)
.3
(1.9)
2.1
(1.6)
35.0%
The tax effects of the primary temporary differences giving rise to the Company's deferred tax assets and liabilities for the years
ended December 31, 2001 and 2000 are:
(In thousands)
Deferred income taxes
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 taxes
2001
2000
$
Asset
-
29,240
2,987
3,977
3,869
-
3,156
5,916
1,713
-
-
50,858
(8,048)
$ 42,810
Liability
$ 61,066
-
-
-
-
4,192
-
-
-
41,065
4,744
111,067
-
$ 111,067
$
Asset
-
29,796
3,224
2,211
2,975
-
6,566
4,749
2,085
-
459
52,065
(11,659)
$ 40,406
Liability
$ 48,918
-
-
-
-
4,181
-
-
-
37,653
-
90,752
-
$ 90,752
At December 31, 2001 and 2000, Other current assets included deferred income tax benefits of $32.8 million and
$29.8 million, respectively.
At December 31, 2001, certain of the Company's subsidiaries had total available net operating loss carryforwards ("NOLs") of
approximately $25.0 million, of which approximately $14.0 million may be carried forward indefinitely and $11.0 million have
varying expiration dates. Included in the total are $9.6 million of preacquisition NOLs.
At December 31, 2001, certain of the Company's subsidiaries had total available foreign tax credit carryforwards of
approximately $3.2 million, of which approximately $0.4 million may be carried forward five years and $2.8 million have varying
expiration dates.
During both 2001 and 2000, $1.0 million of preacquisition NOLs were utilized by the Company, resulting in tax benefits of $0.3
million and $0.4 million, respectively.
The valuation allowance of $8.0 million and $11.7 million at December 31, 2001 and 2000, respectively, relates principally 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.
HARSCO CORPORATION 2001 A NNUAL R EPORT 45
9.
Income Taxes (Continued)
The change in the valuation allowances for 2001 and 2000 results primarily from the utilization of international tax loss
carryforwards, generation of foreign tax credit carryforwards and the release of valuation allowances in certain international
jurisdictions based on the Company's revaluation 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 $23 thousand, and $0.2
million in 2001 and 2000, 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 penalties and applicable interest currently estimated to be
$12.4 million and $59.7 million, respectively. In October 1999, the Company posted an $80 million bond required as security
by the IRS. This increase in FET takes into account offsetting credits of $9.2 million, based on a partial allowance of the
Company’s $31.9 million claim that certain truck components are exempt from FET. The IRS disallowed in full the Company's
additional claim that it is entitled to the entire $52 million of FET (plus applicable interest currently estimated by the Company to
be $54.0 million) the Company has paid on the five-ton trucks, on the grounds that such trucks qualify for the FET exemption
applicable to certain vehicles specially designed for the primary function of off-highway transportation. In the event that the
Company ultimately receives from the IRS a refund of tax (including applicable interest) with respect to which the Company has
already received reimbursement from the Army, the refund would be allocated between the Company and the Army. 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 and the court has
scheduled trial for November 2002. Although there is risk of an adverse outcome, both the Company and the Army believe that
the cargo trucks are not taxable. No recognition has been given in the accompanying financial statements for the Company's
claims with the IRS.
The settlement agreement with the Army 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 the
Company this entire amount and the Company 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 $12.4 million and $59.7 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
46 HARSCO CORPORATION 2001 A NNUAL R EPORT
10. Commitments and Contingencies (Continued)
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, the Company 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 investigation and
releases the Company and BMY from further liability for the issues under investigation. The Company 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 application of technology, the allocation of cost among
potentially responsible parties, the years of remedial activity required and the remediation methods selected. The Consolidated
Balance Sheet at December 31, 2001 and December 31, 2000 includes an accrual of $3.0 million and $3.5 million,
respectively, for environmental matters. The amounts affecting pre-tax earnings related to environmental matters totaled $1.5
million, and $1.8 million of expense in 2001 and 2000, respectively, and $0.7 million of income in 1999.
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.
In the first quarter of 2000, the U.S. Environmental Protection Agency issued a Notice of Violation to the Company for violation
of the Clean Air Act arising from slag dust emissions at one of the Company’s mill services locations. The Agency is seeking
abatement of dust emissions at the site and financial penalties. In cooperation with the mill and the Agency, the Company
implemented dust abatement improvements to the site. The Agency and the Company have submitted a proposed Consent
Decree to the United States District Court requiring the dust abatement improvements and payment of a $175,000 penalty.
Upon approval by the Court, the Consent Decree will become final.
In January 2002, the New Jersey Department of Environmental Protection issued Notices of Civil Administrative Penalty
Assessment to the Company for violations of the New Jersey Air Pollution Control Act. The Notices allege that the Company
operated a slag processing plant in violation of the emission permit for control of slag dust. The Agency has assessed civil
administrative penalties totaling approximately $298,000 and the Company has filed an appeal with the Agency. The Company
ceased operations at the plant in the fourth quarter of 2001 for unrelated reasons.
Other
The Company has been named as one of many defendants (approximately 90 in most cases) in legal actions alleging personal
injury from exposure to airborne asbestos. In their suits, the plaintiffs have named as defendants many manufacturers,
distributors, and repairers of numerous types of equipment or products that involved any asbestos.
The Company believes that the claims against it are without merit. The Company has never been a producer, manufacturer or
processor of asbestos fibers. Any component within a product of the Company which might be alleged to cause asbestos
exposure would have been purchased from a supplier. Based on scientific evidence, the Company believes that its products
have never presented any harmful airborne asbestos exposure, and moreover, the type of asbestos contained in any component
that was used in those products is protectively encapsulated in other materials and is not associated with the types of injuries
alleged. Finally, in almost all of the complaints and depositions to date, the plaintiffs have failed to identify any contact that
they have had with any products of the Company that might include an asbestos containing component.
To date, the Company has obtained dismissal by stipulation, or summary judgment prior to trial, in all cases that have
proceeded to trial (approximately 380 dismissals). The Company has not paid any amounts in settlement of these cases, with
the exception of two settlements totaling less than $10,000 paid by the insurance company prior to 1998. The Company’s
insurance carrier has paid all legal costs and expenses to date. The Company has liability insurance coverage available under
various primary and excess policies that the Company believes will be available if necessary to substantially cover any liability
that might ultimately be incurred on these claims. As of January 31, 2002, there were approximately 20,520 open personal
injury claims of which approximately 5,820 were filed in 2000, and approximately 5,690 have been filed since December 31,
2000.
HARSCO CORPORATION 2001 A NNUAL R EPORT 47
10. Commitments and Contingencies (Continued)
The Company intends to continue its practice of vigorously defending these cases as they are listed for trial and expects the
insurance carriers to continue to pay the legal costs and expenses. Management believes that the outcome of these cases will
not have a material adverse effect on the Company’s results of operations, cash flows or financial condition.
The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the
ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by
accruals, and if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a material
adverse effect on the financial position or results of operations of the Company.
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, 2001, 750,000 shares of $1.25 par value preferred stock were reserved for
issuance upon exercise of the rights.
The Board of Directors has authorized the repurchase of shares as follows:
1999
2000
2001
No. of Shares Authorized to
be Purchased
3,122,500
856,354
505,154
No. of Shares Purchased
2,266,146
351,200
6,000
Remaining No. of Shares
Authorized for Purchase
856,354
505,154
499,154
In January 2002, the Board of Directors extended the share purchase authorization through January 28, 2003 for the 499,154
shares still remaining from the original authorization.
In 2001, additional issuances of 10,695 shares, net of purchases, were made principally for SGB stock option exercises. In
2000 and 1999, additional share purchases of 3,520 and 58,155, respectively, net of issuances, were made principally as part
of the 1995 Executive Compensation Plan.
The following chart summarizes the Company’s common stock:
Balances Outstanding
December 31, 1999
December 31, 2000
December 31, 2001
Shares Issued
66,221,544
66,309,651
66,484,633
Treasury Shares
26,149,759
26,504,479
26,499,784
Shares
40,071,785
39,805,172
39,984,849
48 HARSCO CORPORATION 2001 A NNUAL R EPORT
11. Capital Stock (Continued)
The following is a reconciliation of the average shares of common stock used to compute basic earnings per common share to
the shares used to compute diluted earnings per common share as shown on the Consolidated Statement of Income:
(Amounts in thousands, except per share data)
Net Income
2001
2000
1999
$ 71,725
$ 96,803
$ 90,713
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 effect of stock options
Basic earnings per common share
Diluted earnings per common share
39,876
39,964
40,882
190
40,066
$
$
1.80
1.79
58
40,022
$
$
2.42
2.42
135
41,017
$
$
2.22
2.21
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
2001
2000
1999
$ 71,725
68,033
$ 96,803
94,395
$ 90,713
89,113
1.80
1.71
1.79
1.70
2.42
2.36
2.42
2.36
2.22
2.18
2.21
2.17
The fair value of the options granted during 2001, 2000 and 1999 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
2001
4 years
36.6%
4.96%
.96
5%
6.83
$
$
2000
4 years
30.5%
6.44%
.94
5%
7.13
$
$
1999
4 years
25.0%
4.65%
.91
5%
5.18
$
$
The Company has granted stock options to officers, certain key employees, and directors for the purchase of its common stock
under two shareholder-approved plans. The 1995 Executive Incentive Compensation Plan authorizes the issuance of up to
4,000,000 shares of the Company's common stock for use in paying incentive compensation awards in the form of stock
options. The 1995 Non-Employee Directors' Stock Plan authorizes the issuance of up to 300,000 shares of the Company's
common stock for stock option awards. Options are granted at fair market value at date of grant and become exercisable
commencing one year later. The options expire ten years from the date of grant. Upon shareholder approval of these two plans
in 1995, the Company terminated the use of the 1986 stock option plan for granting of stock option awards. At December 31,
2001, there were 1,739,882 and 192,000 shares available for granting stock options under the 1995 Executive Incentive
Compensation Plan and the 1995 Non-Employee Directors' Stock Plan, respectively.
HARSCO CORPORATION 2001 A NNUAL R EPORT 49
12. Stock-Based Compensation (Continued)
Changes during 2001, 2000, and 1999 in options outstanding were:
Outstanding, January 1, 1999
Granted
Exercised
Terminated and expired
Outstanding, December 31, 1999
Granted
Exercised
Terminated and expired
Outstanding, December 31, 2000
Granted
Exercised
Terminated and expired
Shares
Under Option
Weighted Average
Exercise Price
1,122,768
428,400
(146,164)
(68,400)
1,336,604
539,247(1)
(88,107)
(105,052)
1,682,692
726,240
(187,693)
(85,424)
$ 29.14
26.92
19.06
31.36
28.97
28.18
22.11
33.01
29.18
25.69
25.00
30.28
Outstanding, December 31, 2001
2,135,815
$ 28.31
(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 1,429,087 shares, 1,162,947 shares, and 932,704 shares were exercisable at December 31, 2001,
2000, and 1999, respectively. The following table summarizes information concerning outstanding and exercisable options at
December 31, 2001.
Range of
Exercisable Prices
$16.67 – $ 23.81
24.58 – 29.47
30.46 – 46.16
Number
Outstanding
205,384
1,476,815
453,616
2,135,815
Options Outstanding
Remaining
Contractual Life In
Years
4.2
8.0
5.6
Weighted Average
Exercise Price
$ 21.15
26.99
35.83
Options Exercisable
Number
Exercisable
205,384
770,087
453,616
1,429,087
Weighted Average
Exercise Price
$ 21.15
28.16
35.83
During 2001, 2000, and 1999, the Company had non-cash transactions related to stock option exercises of $0.1 million, $0.1
million, and $0.5 million, respectively, whereby old shares were exchanged for new shares.
As of January 1, 1999, the restricted stock portion of the 1995 Executive Incentive Compensation Plan was discontinued.
13. Financial Instruments
Off-Balance Sheet Risk
As collateral for performance and to insurers, the Company is contingently liable under standby letters of credit and bonds in the
amount of $184.3 million and $181.6 million at December 31, 2001 and 2000, respectively. 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, 2001 for those currently
outstanding, it is the Company's opinion that the replacement costs would not vary significantly from the present fee structure.
50 HARSCO CORPORATION 2001 A NNUAL R EPORT
13. Financial Instruments (Continued)
The Company generally has currency exposures in 40 countries. The Company's primary foreign currency exposures are in the
United Kingdom, Brazil, South Africa, Australia, Canada, France, and Mexico.
Derivative Instruments and Hedging Activities
As of January 1, 2001, the company adopted the Financial Accounting Standards Board (FASB) Statement No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (SFAS 133). The cumulative effect adjustment as of January 1, 2001 was
comprised of other comprehensive expense of $33 thousand related to mark-to-market adjustments on derivatives in hedge
relationships, and $12 thousand of income related to mark-to-market adjustments on embedded derivatives recorded in current
earnings. All of the transition adjustment related to cash flow hedges included in other comprehensive income or expense was
reclassified into income in 2001.
The Company records any ineffective portion of the hedging instruments in cost of sales on the Consolidated Statement of
Income. The premiums paid on forward contracts are deemed to be ineffective and in 2001, there was a $17 thousand pretax
net expense recorded in cost of sales related to these premiums. Premiums are excluded from the assessment of hedge
effectiveness, and since the critical terms of the hedging instruments were the same as the underlying transactions, there was
no other hedge ineffectiveness.
In the event the underlying forecasted transaction of a cash flow hedge does not occur, or it becomes probable that it will not
occur, the Company reclassifies the gain or loss on the related cash flow hedge from accumulated other comprehensive income
(loss) to costs of sales on the Consolidated Statement of Income at that time. During 2001, there was a $36 thousand net
pretax gain recognized in cost of sales related to a hedge of a forecasted transaction that did not occur.
Of the $84 thousand net loss remaining in other comprehensive income at December 31, 2001, $6 thousand is expected to be
reclassified into earnings during 2002.
The Company has several hedges of net investment recorded in accordance with SFAS 133. In 2001, the Company recorded a
debit of $1.1 million in the foreign currency translation adjustments line of other comprehensive income (expense) related to
hedges of net investments.
At December 31, 2001 and 2000, the Company had $1.8 million and $3.1 million contracted amounts, 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 may be exposed to credit loss in the event of non-performance by the other
parties to the contracts. The Company evaluates the credit worthiness of the counterparties' financial condition and does not
expect default by the counterparties. Foreign 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.
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, 2001 and 2000. The "Buy" amounts represent the U.S. dollar equivalent of commitments to
purchase foreign curre ncies, and the "Sell" amounts represent the U.S. dollar equivalent of commitments to sell foreign
currencies.
(In thousands)
Forward exchange contracts:
British pounds
British pounds
Type
Buy
Sell
As of December 31, 2001
U.S. Dollar
Equivalent
Maturity
$ 1,720
130
$ 1,850
Various in 2002
January 10, 2002
Recognized
Gain (Loss)
$ 13
(5)
$ 8
At December 31, 2001, the Company held forward exchange contracts in British pounds, which were used to offset certain
future payments between the Company and its various subsidiaries. The Company did not elect to treat these contracts as
hedges under SFAS 133 and so mark to market gains and losses were recognized in income.
HARSCO CORPORATION 2001 A NNUAL R EPORT 51
13. Financial Instruments (Continued)
(In thousands)
Forward exchange contracts:
British pounds
British pounds
Australian dollars
Japanese yen
Euros
British pounds
Type
Buy
Sell
Buy
Buy
Buy
Sell
As of December 31, 2000
U.S. Dollar
Equivalent
Maturity
Recognized
Gain (Loss)
Unrealized
Gain (Loss)
$ 1,938
501
199
186
160
70
$ 3,054
Various in 2001
Various in 2001
Various in 2001
January 4, 2001
January 4, 2001
January 4, 2001
$ (74)
(2)
-
-
-
-
$ (76)
$ -
-
2
(12)
7
2
$ (1)
At December 31, 2000, the Company held forward exchange contracts in 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, 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 hedged identifiable foreign currency commitments, the losses were
deferred and 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 principally of cash and
cash equivalents, investments, and accounts receivable. The Company places its cash and cash equivalents with high quality
financial institutions and, by policy, limits the amount of credit exposure to any one institution. Concentrations of credit risk with
respect to accounts receivable are limited due to the Company’s large number of customers and their dispersion across
different industries and geographies. The Company generally does not require collateral or other security to support customer
receivables.
Fair Value of Financial Instruments
The major methods and assumptions used in estimating the fair values of financial instruments are:
Cash and cash equivalents
The carrying amount approximates fair value due to the relatively short period to maturity of these instruments.
Long-term debt
The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same remaining maturities.
Foreign currency exchange contracts
The fair value of foreign currency exchange contracts are estimated by obtaining quotes from brokers.
The carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2001 and 2000
are:
(In thousands)
2001
2000
Cash and cash equivalents
Long-term debt including current maturities
Foreign currency exchange contracts
Carrying
Amount
$ 67,409
732,668
1,850
Fair Value
$ 67,409
738,271
1,858
Carrying
Amount
$ 56,422
789,069
3,054
Fair Value
$ 56,422
790,070
2,973
52 HARSCO CORPORATION 2001 A NNUAL R EPORT
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.
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 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; 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 management 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 preparation are derived.
Gas and Fluid Control
Major products and services are gas containment cylinders and tanks including cryogenic equipment; valves, regulators, and
gauges, including scuba and life support equipment; industrial pipe fittings; and air-cooled heat exchangers.
Major customers include various industrial markets; hardware, plumbing, and petrochemical sectors; natural gas and process
industries; propane, compressed gas, life support, scuba, and refrigerant gas industries; gas equipment companies; welding
distributors; medical laboratories; beverage carbonation users; and the animal husbandry industry.
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 U.S. 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 52% and 18%, respectively, in 2001 and 58% and 14%, respectively, in 2000. No single
customer represented 10% or more of the Company's sales during 2001, 2000, or 1999. 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 28% of total segment assets as of December 31, 2001, and 26% of total segment assets as of
December 31, 2000, and are disclosed separately in the geographic area information.
HARSCO CORPORATION 2001 A NNUAL R EPORT 53
14.
Information by Segment and Geographic Area (Continued)
Segment Information
(In millions)
Twelve Months Ended December 31, 2001
Net sales to unaffiliated customers
Infrastructure
$ 887.0
Mill
Services
$ 731.0 $ 489.1
Gas and Fluid
Control
Operating income
Equity in income (loss) of affiliates, net
Interest income
Interest expense
Income tax (expense) benefit
Minority interest in net (income) loss
Segment net income (loss)
$ 79.0
0.9
0.4
(34.5)
(14.6)
(0.3)
$ 30.9
0.2
4.1
(8.8)
(16.9)
(4.9)
-
0.1
(1.9)
(7.5)
0.1
$ 35.0 $ 10.4
$ 61.3 $ 19.6
$
S3 Networks
LLC
General
Corporate
$
-
-
$
-
$ 3.7
(2.9)
-
-
1.0
-
-
1.0
(8.4)
1.0
-
$
(1.9) $ (2.7)
Consolidated
Total
$2,107.1
$ 163.6
(1.8)
5.6
(53.6)
(37.0)
(5.1)
$ 71.7
Twelve Months Ended December 31, 2000
Net sales to unaffiliated customers
$ 703.6
$ 757.4 $ 542.4
$
$
-
$2,003.4
Operating income (loss)
Equity in income (loss) of affiliates, net
Interest income
Interest expense
Income tax (expense) benefit
Minority interest in net income
Segment net income (loss)
$ 62.3
0.6
1.3
(24.1)
(13.8)
(0.2)
$ 26.1
$ 92.6
$ 41.1
$
0.8
4.5
(10.7)
(23.9)
(4.8)
-
0.1
(3.6)
(13.7)
-
-
(3.4)
-
-
1.2
-
$ (1.3)
-
0.1
(11.7)
3.4
-
$ 58.5
$ 23.9
$
(2.2) $ (9.5)
$ 194.7
(2.0)
6.0
(50.1)
(46.8)
(5.0)
$ 96.8
Twelve Months Ended December 31, 1999
Net sales to unaffiliated customers (1)
$ 432.5
$ 737.8 $ 579.6
$
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)
$ 41.2
$ 78.2
$ 47.5
$
-
0.2
(6.3)
(12.6)
-
3.0
4.3
(10.8)
(24.4)
(5.2)
-
0.1
(4.8)
(15.9)
0.1
$ 27.0
$ 22.5
$ 45.1
$
-
-
-
-
-
-
-
-
$
-
$1,749.9
$ (0.2)
-
0.1
(5.1)
1.3
-
$ (3.9)
$ 166.7
3.0
4.7
(27.0)
(51.6)
(5.1)
$ 90.7
(1)
In order to comply with Emerging Issues Task Force (EITF) Issue No. 00-10, all shipping and handling costs amounting to $33 million for
the twelve months ended December 31, 1999 have been reclassified as cost of services sold or as cost of products sold rather than as
reductions of sales. The reclassification had no effect on previously reported operating income or net income for the twelve months
ended December 31, 1999.
(2) Equity in income (loss) of affiliates is now separately reported. In 1999 these amounts were originally classified in operating income.
Amounts previously reported as operating income for the twelve months ended December 31, 1999 were $81.2 million for Mill Services
Segment and a consolidated total of $169.7 million. Reported operating income amounts for the other segments are unchanged.
54 HARSCO CORPORATION 2001 A NNUAL R EPORT
14.
Information by Segment and Geographic Area (Continued)
Segment Information
(In millions)
Infrastructure
Mill Services
Gas and Fluid Control
2001
Assets
2000
1999
$ 853.1 $ 906.4 $ 325.7 $ 56.0
Depreciation and Amortization
2000
$ 38.0
1999
$ 17.0
2001
Capital Expenditures
2000
$ 53.8
1999
$ 17.9
2001
$ 59.4
855.2
297.3
900.9
312.3
934.6
347.9
99.6
19.6
97.7
19.6
99.5
18.1
82.5
13.9
116.5
134.9
9.4
21.4
Segment totals
2,005.6
2,119.6
1,608.2
175.2
155.3
134.6
155.8
179.7
174.2
Corporate
Total
85.2
1.3
$ 2,090.8 $ 2,180.9 $ 1,659.8 $ 176.5
51.6
61.3
3.8
$ 159.1
1.3
$ 135.9
0.3
$ 156.1
0.3
$ 180.0
1.0
$ 175.2
Information by Geographic Area (1)
Geographic Area
(In millions)
United States
United Kingdom
All Other
Segment Totals
Net Sales to Unaffiliated Customers
Segment Assets
2001
2000
1999 (2)
2001
2000
1999
$ 1,085.5
$ 1,152.6
$ 1,126.4
$ 745.4
$ 810.6
$ 797.1
389.0
632.6
286.5
564.3
156.6
466.9
565.3
694.9
558.6
750.4
186.2
624.9
$ 2,107.1
$ 2,003.4
$ 1,749.9
$ 2,005.6
$ 2,119.6
$ 1,608.2
(1) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
(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 amounting to $33 million for the twelve months ended December 31, 1999 have
been reclassified to reflect this change.
15. Other (Income) and Expenses
In the years 2001, 2000, and 1999, the Company recorded pre-tax Other (income) and expenses of $23.5 million, $1.3 million,
and $6.0 million, respectively:
(In thousands)
Net gains
Impaired asset write-downs
Employee termination benefit costs
Costs to exit activities
Other
Total
Other (Income) and Expenses
2000
1999
2001
$ (6,880)
$ (4,325)
$
(560)
15,181
10,631
2,670
1,888
1,876
3,854
590
(661)
2,878
2,889
502
310
$ 23,490
$ 1,334
$ 6,019
Net Gains
Net gains in 2001 were recorded in all three operating segments as well as corporate headquarters principally on the sales of
redundant properties (primarily land, buildings and related equipment) and non-core product lines.
Net gains in 2000 were recorded in all three operating segments recorded principally on the sales of non-core product lines and
redundant properties. Cash proceeds associated with these gains are included in Proceeds from the sale of assets in the
investing activities section of the Consolidated Statement of Cash Flows.
HARSCO CORPORATION 2001 A NNUAL R EPORT 55
15. Other (Income) and Expenses (Continued)
Impaired Asset Write-downs
Impaired asset write-downs in 2001 (principally in the fourth quarter) include non-cash write-downs of the Company’s
investment in fixed plant and equipment. This includes a pre-tax write-down of $12.9 million in the Mill Services Segment of
which $8.0 million relates to a held-for-sale plant in the United States associated with the Company’s roofing granules business.
The remaining $4.9 million in the Mill Services Segment relates to fixed plant and equipment associated with steel mill
customers in principally the United States and Asia. Also, during 2001, $1.4 million of impaired asset write-downs, principally
for fixed plant and equipment, were recorded by the Gas and Fluid Control Segment.
The write-downs in 2001 became necessary as a result of adverse changes in the Company’s business environment. In
particular, several steel mill customers filed for bankruptcy protection or shut down operations thus necessitating the write-
downs.
Impairment losses were measured as the amount by which the carrying amount of assets exceeded their estimated fair value.
Fair value was estimated based upon the expected future realizable cash flows including anticipated selling prices.
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 communicated to the affected
employees prior to recognition of related provisions.
During 2001, $10.6 million of expense related to employee termination benefits was incurred primarily in the Mill Services and
Gas and Fluid Control Segments principally in Europe and the United States. In 2001, 915 employees were included in
employee termination arrangements initiated by the Company and approximately $6.6 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 2000, $3.9 million of employee termination benefit costs were incurred, principally in the Mill Services Segment,
primarily in Europe. Additionally, employee 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. An additional $0.9 million was disbursed in 2001 for the 2000 reorganization actions.
During 1999, $2.9 million of expense related to employee termination benefits was incurred, principally in the Mill Services
Segment, primarily in Europe. 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.
Employee Termination Benefit Costs and Payments
(In millions)
Original reorganization action period
Employee termination benefits expense
Payments: (1)
In 1999
In 2000
In 2001
Total payments
Other
Remaining payments as of December 31, 2001
2001
$ 10.6
-
-
(6.6)
(6.6)
-
$ 4.0
Summary of Activity
2000
$ 3.9
-
(3.3)
(0.9)
(4.2)
0.3
$ -
1999
$ 2.9
(1.8)
(0.8)
-
(2.6)
(0.3)
$ -
(1) Payments are categorized according to the original reorganization action period to which they relate (2001, 2000 or 1999). Cash
severance payments in 2001 and 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.
56 HARSCO CORPORATION 2001 A NNUAL R EPORT
15. Other (Income) and Expenses (Continued)
Employee Terminations – Number of Employees
Original reorganization action period
Employees affected by new reorganization actions
Employee terminations:
In 1999
In 2000
In 2001
Total terminations
Other
Remaining terminations as of December 31, 2001
2001
915
-
-
(761)
(761)
-
154
Summary of Activity
2000
294
-
(282)
(12)
(294)
-
-
1999
220
(172)
(39)
-
(211)
(9)
-
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 2001, $2.7 million of exit costs were incurred. These were incurred principally in the Mill Services and Gas and Fluid
Control Segments.
HARSCO CORPORATION 2001 A NNUAL R EPORT 57
Two-Year Summary of Quarterly Results
(Unaudited)
(In millions, except per share amounts)
Quarterly
Net sales
Gross profit (2)
Net income
Diluted earnings per share
(In millions, except per share amounts)
Quarterly
Net sales (1)
Gross profit (2)
Net income
Diluted earnings per share
2001
First
Second
Third
Fourth
$ 526.2
$ 532.2
$ 530.9
$ 517.8
115.8
10.1
.25
132.8
24.7
.62
127.5
109.1
26.8
.67
10.0
.25
2000
First
Second
Third
Fourth
$ 457.5
$ 465.6
$ 541.4
$ 538.9
92.6
20.2
.50
108.7
133.0
133.2
28.2
.70
22.3
.56
26.1
.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 amounting to $8.4 million, $8.6 million, and $8.6 million for the first,
second, and third quarters of 2000, respectively, 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.
Common Stock Price and Dividend Information
2001
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2000
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Market Price Per Share
High
Low
Dividends Declared
Per Share
$ 28.48
29.25
36.00
35.00
$ 31.63
30.00
29.875
26.75
$ 23.60
23.71
25.85
29.40
$ 24.00
25.48
21.25
17.69
$ .24
.24
.24
.25
$ .235
.235
.235
.24
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
None.
58 HARSCO CORPORATION 2001 A NNUAL R EPORT
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors:
PART III
Information regarding the identification of directors and positions held is incorporated by reference to the 2002
Proxy Statement.
(b) Identification of Executive Officers:
Set forth below, as of March 21, 2002, are the executive officers (this excludes one corporate officer who is not
deemed an "executive officer" within the meaning of applicable Securities and Exchange Commission
regulations) of the Company and certain information with respect to each of them. The executive officers were
elected to their respective offices on April 24, 2001, or at various times during the year as noted. All terms
expire on April 30, 2002. There are no family relationships between any of the officers.
Name
Age
Principal Occupation or Employment
Corporate Officers:
D. C. Hathaway
57
G. D. H. Butler
55
P. C. Coppock
51
Chairman, President and Chief Executive Officer since July 31,
2000. Chairman and Chief Executive Officer from January 1, 1998
to July 31, 2000. Served as Chairman, President and Chief
Executive Officer from April 1, 1994 to December 31, 1997, and
President and Chief Executive Officer from January 1, 1994 to April
1, 1994. Director since 1991. From 1991 to 1993, served as
President and Chief Operating Officer. From 1986 to 1991 served
as Senior Vice President-Operations of the Corporation. Served as
Group Vice President from 1984 to 1986 and as President of the
Dartmouth Division of the Corporation from 1979 until 1984.
Senior Vice President - Operations of the Corporation effective
September 26, 2000 and Director since January 2002.
Concurrently serves as President of the Heckett MultiServ-East
Division and President of the SGB Division. Was President of the
Heckett MultiServ-East Division from July 1, 1994, to September
26, 2000. Served as Managing Director - Eastern Region of the
Heckett MultiServ Division from January 1, 1994 to June 30, 1994.
Served in various officer positions within MultiServ International, N.
V. prior to 1994 and prior to Harsco’s acquisition of that corporation
in August 1993.
Senior Vice President, Chief Administrative Officer, General Counsel
and Secretary of the Corporation effective January 1, 1994. Served
as Vice President, General Counsel and Secretary of the Corporation
from May 1, 1991 to December 31, 1993. From 1989 to 1991
served as Secretary and Corporate Counsel and as Assistant
Secretary and Corporate Counsel from 1986 to 1989. Served in
various Corporate Attorney positions for the Corporation since
1981.
HARSCO CORPORATION 2001 A NNUAL R EPORT 59
Name
S. D. Fazzolari
Age
49
R. W. Kaplan
50
S. J. Schnoor
48
Principal Occupation or Employment
Senior Vice President, Chief Financial Officer and Treasurer of the
Corporation effective August 24, 1999 and Director since January
2002. Served as Senior Vice President and Chief Financial Officer
from January 1998 to August 1999. Served as Vice President and
Controller from January 1994 to December 1997 and as Controller
from January 1993 to January 1994. Previously served as Director
of Auditing from 1985 to 1993, and served in various auditing
positions from 1980 to 1985.
Senior Vice President-Operations of the Corporation effective July 1,
1998. Concurrently serves as President of the Harsco Gas & Fluid
Control Group and was President of the Taylor-Wharton Gas
Equipment Division from February 1, 1994 to November 16, 1999.
Served as Vice President and Treasurer of the Corporation from
January 1992 to February 1994. Served as Treasurer of the
Corporation from May 1991 to December 1992. Previously served
as Vice President and General Manager of the Plant City
Steel/Taylor-Wharton Division from 1987 to 1991 and Vice
President and Controller of the Division from 1985 to 1987.
Previously served in various Corporate treasury/financial positions
since 1979.
Vice President and Controller of the Corporation effective May 15,
1998. Served as Vice President and Controller of the Patent
Construction Systems Division from February 1996 to May 1998
and as Controller of the Patent Construction Systems Division from
January 1993 to February 1996. Previously served in various
auditing positions for the Corporation from 1988 to 1993.
(c) Beneficial Ownership Reporting Compliance
Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" of the 2002 Proxy
Statement.
Item 11. Executive Compensation
Information regarding compensation of executive officers and directors is incorporated by reference to the sections entitled
"Executive Compensation and Other Information" and "Directors' Compensation" of the 2002 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the
section entitled "Share Ownership of Management" of the 2002 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is incorporated by reference to the section entitled
"Employment Agreements with Officers of the Company" of the 2002 Proxy Statement.
60 HARSCO CORPORATION 2001 A NNUAL R EPORT
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8 -K
PART IV
(a) 1. The Consolidated Financial Statements are listed in the index to Item 8, "Financial Statements and
Supplementary Data," on page 28.
(a) 2. The following financial statement schedule should be read in conjunction with the Consolidated Financial
Statements (see Item 8, “Financial Statements and Supplementary Data”):
Page
Report of Independent Accountants on Financial
62
Statement Schedule
Schedule II - Valuation and Qualifying Accounts
63
for the years 2001, 2000 and 1999
Schedules other than those listed above are omitted for the reason that they are either not applicable or not
required or because the information required is contained in the financial statements or notes thereto.
Condensed financial information of the registrant is omitted since there are no substantial amounts of
"restricted net assets" applicable to the Company's consolidated subsidiaries.
Financial statements of 50% or less owned unconsolidated companies are not submitted inasmuch as (1)
the registrant's investment in and advances to such companies do not exceed 20% of the total consolidated
assets, (2) the registrant's proportionate share of the total assets of such companies does not exceed 20%
of the total consolidated assets, and (3) the registrant's equity in the income from continuing operations
before income taxes of such companies does not exceed 20% of the total consolidated income from
continuing operations before income taxes.
HARSCO CORPORATION 2001 A NNUAL R EPORT 61
REPORT OF I NDEPENDENT ACCOUNTANTS ON FI N A NCIAL STATEMENT SCHEDULE
To the Board of Directors of
Harsco Corporation:
Our audits of the consolidated financial statements referred to in our report dated January 31, 2002 appearing
on page 29 of this Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2)
of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2002
62 HARSCO CORPORATION 2001 A NNUAL R EPORT
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
COLUMN B
Balance at
Beginning of
Period
COLUMN C
Additions
Charged to Cost
and Expenses
COLUMN D (Deductions) Additions
Due to Currency
Translation
Adjustments
Other (1)
COLUMN E
Balance at End
of Period
$ 26,078
$ 12,610
$
(496)
$ (5,503)
$ 32,689
$ 9,038
$ 2,600
$
(331)
$ (5,851)
$ 5,456
$ 23,848
$ 9,308
$
(536)
$(13,016)
$ 19,604
$ 13,339
$ 3,997
$
(494)
$ 9,236 (2)
$ 26,078
$ 10,684
$ 2,121
$
(284)
$ (3,483) (3)
$ 9,038
$ 17,080
$ 2,116
$
(666)
$ 5,318 (4)
$ 23,848
$ 13,602
$ 4,844
$
(153)
$ (4,954)
$ 13,339
$ 5,777
$ 6,383
$
(132)
$ (1,344)
$ 10,684
$ 25,316
$ 5,206
$
(389)
$(13,053) (5)
$ 17,080
COLUMN A
Description
For the year 2001:
Deducted from Receivables:
Uncollectible accounts
Deducted from Inventories:
Inventory valuations
Other Reorganization and
Valuation Reserves
For the year 2000:
Deducted from Receivables:
Uncollectible accounts
Deducted from Inventories:
Inventory valuations
Other Reorganization and
Valuation Reserves
For the year 1999:
Deducted from Receivables:
Uncollectible accounts
Deducted from Inventories:
Inventory valuations
Other Reorganization and
Valuation Reserves
(1)
Includes principally the use of previously reserved balances.
(2)
Includes $18,791 increase due to opening balance sheet receivable reserves of SGB Group and $5,630 charged against those reserves.
(3)
(4)
(5)
Includes $3,309 increase due to opening balance sheet inventory reserves of SGB Group.
Includes $15,602 increase due to opening balance sheet reorganization reserves of SGB Group and $2,338 charged against those
reserves.
Includes $5,942 of charges against the opening balance sheet reorganization reserves of Faber Prest acquired in 1998.
HARSCO CORPORATION 2001 A NNUAL R EPORT 63
(a)
3.
Listing of Exhibits Filed with Form 10-K
Exhibit
Number
Data Required
Location in 10-K
3(a)
Articles of Incorporation as amended April 24, 1990
Exhibit volume, 1990 10-K
3(b)
Certificate of Amendment of Articles of Incorporation filed
Exhibit volume, 1999 10-K
June 3, 1997
3(c)
Certificate of Designation filed September 25, 1997
Exhibit volume, 1997 10-K
3(d)
By-laws as amended April 25, 1990
Exhibit volume, 1990 10-K
4(a)
Harsco Corporation Rights Agreement dated as of September
28, 1997, with Chase Mellon Shareholder Services L.L.C.
Incorporated by reference to Form 8-A, filed
September 26, 1997
4(b)
Registration of Preferred Stock Purchase Rights
Incorporated by reference to Form 8-A dated
October 2, 1987
4(c)
Current Report on dividend distribution of Preferred Stock
Incorporated by reference to Form 8-K dated
Purchase Rights
October 13, 1987
4(d)
Debt Securities Registered under Rule 415 (6% Notes)
Incorporated by reference to Form S-3,
Registration No. 33-42389 dated August 23,
1991
4(e)
6% 1993 Notes due September 15, 2003 described in
Incorporated by reference to the Prospectus
Prospectus Supplement dated September 8, 1993 to Form
S-3 Registration under Rule 415 dated August 23, 1991
Supplement dated September 8, 1993 to Form
S-3, Registration No. 33-42389 dated August
23, 1991
4(f)
Debt and Equity Securities Registered
Incorporated by reference to Form S-3,
Registration No. 33-56885 dated December
15, 1994, effective date January 12, 1995
4(g)
Harsco Finance B. V. £200 million, 7.25% Guaranteed Notes
Exhibit to 10-Q for the period ended September
due 2010
30, 2000
4(h)
Cash Offer for SGB Group PLC
Exhibit to 10-Q for the period ended
June 30, 2000
64 HARSCO CORPORATION 2001 A NNUAL R EPORT
(a)
3.
Listing of Exhibits Filed with Form 10-K (Continued)
Exhibit
Number
Data Required
Location in 10-K
Material Contracts - Credit facility
10(a) (i)
$50,000,000 Facility agreement dated December 15, 2000
Exhibit volume, 2000 10-K
10(a) (ii)
Agreement extending term of $50,000,000 Facility agreement
Exhibit volume, 2001 10-K
dated December 15, 2000
10(b) (i)
$50,000,000 Facility agreement dated January 12, 2001
Exhibit volume, 2000 10-K
10(b) (ii)
Agreement extending term of $50,000,000 Facility agreement
Exhibit volume, 2001 10-K
dated January 12, 2001
10(c)
Commercial Paper Payment Agency Agreement Dated October
1, 2000, Between Salomon Smith Barney Inc. and Harsco
Corporation
Exhibit volume, 2000 10-K
10(d)
Commercial Paper Dealer Agreement Dated October 11,
Exhibit volume, 1994 10-K
1994, Between Lehman Brothers, Inc. and Harsco
Corporation
10(e)
Issuing and Paying Agency Agreement, Dated October 12,
1994, Between Morgan Guaranty Trust Company of
New York and Harsco Corporation
Exhibit volume, 1994 10-K
10(f)
Commercial Paper Agreement with Banque Bruxelles Lambert
S.A./Bank Brussel Lambert N.V. dated September 25, 1996
Exhibit to 10-Q for the period ended September
30, 1996
10(g)
364-Day Credit Agreement
Exhibit to 10-Q for the period ended September
30, 2001
10(h)
Five Year Credit Agreement
Exhibit to 10-Q for the period ended September
10(i)
Commercial Paper Dealer Agreement dated June 7, 2001,
between Citibank International plc, National Westminster
Bank plc, The Royal Bank of Scotland plc and Harsco
Finance B.V.
Material Contracts - Underwriting
30, 2000
Exhibit to 10-Q for the period ended
June 30, 2001
10(j)
Commercial Paper Placement Agency Agreement dated
Exhibit volume, 1998 10-K
November 6, 1998, between Chase Securities, Inc. and
Harsco Corporation
HARSCO CORPORATION 2001 A NNUAL R EPORT 65
(a)
3.
Listing of Exhibits Filed with Form 10-K (Continued)
Exhibit
Number
Data Required
Location in 10-K
Material Contracts - Management Contracts and Compensatory Plans
10(k)
Harsco Corporation Supplemental Retirement Benefit Program
Exhibit volume, 1997 10-K
as amended January 27, 1998
10(l)
Trust Agreement between Harsco Corporation and Dauphin
Exhibit volume, 1987 10-K
Deposit Bank and Trust Company dated July 1, 1987
relating to the Supplemental Retirement Benefit Plan
10(m)
Harsco Corporation Supplemental Executive Retirement Plan
Exhibit volume, 1991 10-K
as amended
10(n)
Trust Agreement between Harsco Corporation and Dauphin
Deposit Bank and Trust Company dated November 22,
1988 relating to the Supplemental Executive Retirement
Plan
Exhibit volume, 1988 10-K
10(o) (i)
1995 Executive Incentive Compensation Plan
Proxy Statement dated March 22, 1995 on
Exhibit A pages A-1 through A-12
10(o) (ii)
Amendment to 1995 Incentive Compensation Plan
Proxy Statement dated March 23, 1998 on page
23
10(o) (iii)
Amendment to 1995 Incentive Compensation Plan
Proxy Statement dated March 21, 2001 on page
10(p)
Authorization, Terms and Conditions of the Annual Incentive
Awards, as amended and Restated November 15, 2001,
under the 1995 Executive Incentive Compensation Plan
26
Exhibit volume, 2001 10-K
Employment Agreements -
10(q)
D. C. Hathaway
"
"
"
"
G. D. H. Butler
P. C. Coppock
S. D. Fazzolari
R. W. Kaplan
Exhibit volume, 1989 10-K Uniform agreement,
the same as shown for J. J. Burdge
" "
" "
" "
" "
10(r)
Special Supplemental Retirement Benefit Agreement for
Exhibit Volume, 1988 10-K
D. C. Hathaway
10(s)
Settlement Agreement with Leonard A. Campanaro
Exhibit to 10-Q for the period ended
June 30, 2000
66 HARSCO CORPORATION 2001 A NNUAL R EPORT
(a)
3.
Listing of Exhibits Filed with Form 10-K (Continued)
Exhibit
Number
Data Required
Location in 10-K
Director Indemnity Agreements -
10(t)
A. J. Sordoni, III
"
"
"
"
"
"
"
R. C. Wilburn
J. I. Scheiner
C. F. Scanlan
J. J. Jasinowski
J. P. Viviano
D. H. Pierce
I. C. Strachan
Exhibit volume, 1989 10-K Uniform agreement,
same as shown for J. J. Burdge
" "
" "
" "
" "
" "
" "
" "
10(u)
Harsco Corporation Deferred Compensation Plan for Non-
Exhibit to 10-Q for the period ended
Employee Directors, as amended and restated
June 26, 2001
June 30, 2001
10(v)
Harsco Corporation 1995 Non-Employee Directors' Stock Plan
Proxy Statement dated March 22, 1995 on
Exhibit B pages B-1 through B-6
12
21
23
Computation of Ratios of Earnings to Fixed Charges
Exhibit volume, 2001 10-K
Subsidiaries of the Registrant
Exhibit volume, 2001 10-K
Consent of Independent Accountants
Exhibit volume, 2001 10-K
Exhibits other than those listed above are omitted for the reason that they are either not applicable or not material.
The foregoing Exhibits are available from the Secretary of the Company upon receipt of a fee of $10 to cover the Company's
reasonable cost of providing copies of such Exhibits.
(b)
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 2001.
HARSCO CORPORATION 2001 A NNUAL R EPORT 67
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date 3-21-02
HARSCO CORPORATION
By /S/ Salvatore D. Fazzolari
Salvatore D. Fazzolari
Senior Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
CAPACITY
DATE
Chairman, President and Chief
Executive Officer
Senior Vice President - Operations
and Director
Senior Vice President, Chief
Financial Officer, Treasurer and
Director (Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
3-21-02
3-21-02
3-21-02
3-21-02
3-21-02
3-21-02
3-21-02
3-21-02
3-21-02
3-21-02
3-21-02
3-21-02
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
Derek C. Hathaway
(Derek C. Hathaway)
Geoffrey D. H. Butler
(Geoffrey D. H. Butler)
Salvatore D. Fazzolari
(Salvatore D. Fazzolari)
Stephen J. Schnoor
(Stephen J. Schnoor)
Jerry J. Jasinowski
(Jerry J. Jasinowski)
D. Howard Pierce
(D. Howard Pierce)
Carolyn F. Scanlan
(Carolyn F. Scanlan)
James I. Scheiner
(James I. Scheiner)
Andrew J. Sordoni III
(Andrew J. Sordoni III)
Ian C. Strachan
(Ian C. Strachan)
Joseph P. Viviano
(Joseph P. Viviano)
Dr. Robert C. Wilburn
(Dr. Robert C. Wilburn)
68 HARSCO CORPORATION 2001 A NNUAL R EPORT
CORPORATE AND STOCKHOLDER I NFORMATION
Communications to Stockholders
Notice of the Annual Meeting, the Proxy Statement and Proxy Card are
mailed with the Annual Report in March. Each Form 10-Q and the quarterly
report filed with the Securities and Exchange Commission (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 web-
site 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 finan-
cial mailings, call the Harsco Financial Mailings Request Line at
717.612.5656.
Securities analysts, portfolio managers, representatives of institutional
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 30, 2002, 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 electroni-
cally 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 investments 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
Inside the United States: 800.851.9677
Outside the United States: 201.329.8660
TDD for hearing impaired: 800.231.5469
TDD outside the United States: 201.329.8354
Website: www.mellon-investor.com
Mail: P.O. Box 3315
South Hackensack, NJ 07606
Registered stockholders can view current information regarding their stock-
holder account online through Investor Service Direct at https://vault.mellon-
investor.com/isd/. Each investor’s account is password-protected and avail-
able 24 hours a day, 7 days a week.
Directors
Derek C. Hathaway 1
Chairman, President and CEO
Harsco Corporation
Geoffrey D. H. Butler
Senior Vice President - Operations
Harsco Corporation
Salvatore D. Fazzolari
Senior Vice President, Chief Financial
Officer and Treasurer
Harsco Corporation
Jerry J. Jasinowski 3,4
President, National Association of
Manufacturers
Heckett MultiServ Plc
International Advisory
Board-London
Derek C. Hathaway
Geoffrey D. H. Butler
Salvatore D. Fazzolari
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
D. Howard Pierce
Retired President and CEO
ABB Inc.
Ian C. Strachan
Former CEO
BTR, plc
Carolyn F. Scanlan 2,3
President and CEO, The Health
Alliance of Pennsylvania
Joseph P. Viviano 3
Retired Vice Chairman
Hershey Foods Corporation
James I. Scheiner 1,2,3
President and COO
Benatec Associates, Inc.
Dr. Robert C. Wilburn 1,2,4
President, Gettysburg National
Battlefield Museum Foundation
1 Member of the Executive Committee
2 Member of the Management
Development & Compensation
Committee
3 Member of the Audit Committee
4 Member of the Nominating
Committee
Andrew J. Sordoni, III 1,2,4
Chairman, Sordoni Construction
Services, Inc.
Corporate Officers
Business Unit Presidents
Derek C. Hathaway
Chairman, President and Chief Executive Officer
Paul C. Coppock
Senior Vice President, Chief Administrative Officer,
General Counsel and Secretary
Salvatore D. Fazzolari
Senior Vice President, Chief Financial Officer and Treasurer
Geoffrey D. H. Butler
Senior Vice President - Operations
Ronald W. Kaplan
Senior Vice President - Operations
Stephen J. Schnoor
Vice President and Controller
Warren A. Weisel
Vice President - Taxes
K. F. Bruch III
Heckett MultiServ-West
Geoffrey D. H. Butler
Heckett MultiServ-East
SGB Group
Ronald W. Kaplan
Gas & Fluid Control Group
James P. Mitchell
Patent Group
G. Robert Newman
Harsco Track Technologies
Brian H. Tucker
Reed Minerals
HARSCO CORPORATION 2001 ANNUAL REPORT
69
Harsco Corporation
P.O. Box 8888
Camp Hill, PA 17001-8888
www.harsco.com
Produced entirely in-house by Harsco Corporation.
Printing by ITP, a subsidiary of Continental Press, Inc.