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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the fiscal year ended December 31, 1999 Commission file number 1-3970
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HARSCO CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 23-1483991
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(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
Camp Hill, Pennsylvania 17001-8888
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 717-763-7064
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common stock, par value $1.25 per share New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The aggregate market value of the Company's voting stock held by non-affiliates
of the Company as of February 29, 2000 was $991,080,725.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Classes Outstanding at February 29, 2000
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Common stock, par value $1.25 per share 39,942,800
Preferred stock purchase rights 39,942,800
Documents Incorporated by Reference
-----------------------------------
Selected portions of the Notice of 2000 Meeting and Proxy Statement are
Incorporated by Reference in Part III of this Report.
The Exhibit index (Item No. 14) is located on pages 89 to 96.
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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
INFORMATION REQUIRED IN REPORT
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PART I
Item 1. Business:
(a) Description of Business:
Harsco Corporation ("the Company") is a services and engineered products
company. The principal lines of business are: mill services that are provided to
steel and non-ferrous metal producers in over 30 countries, including the United
States; gas control and containment products for customers worldwide;
scaffolding services to the industrial maintenance and construction markets
principally in North America; railway maintenance of way services and equipment
that are provided to worldwide railroads; and several other lines of business
including, but not limited to, process equipment, industrial grating and bridge
decking, industrial pipe fittings, slag abrasives and roofing granules. The
Company's operations fall into three operating segments: Harsco Mill Services,
Harsco Gas and Fluid Control and Harsco Infrastructure. The Company has over 300
locations in 32 countries, including the United States.
In 1999, the Company acquired three businesses and divested three small non-core
operations.
Harsco Infrastructure Segment - In October 1999, the Company acquired Charter
plc's Pandrol Jackson railway track maintenance business. The transaction was
completed for approximately $48 million in cash plus assumption of liabilities,
for a total consideration of approximately $65 million. Pandrol Jackson
manufactures and markets worldwide a wide range of equipment and services used
in railway track maintenance. In December 1999, the Company completed the sale
of the railway switch, crossing and transit grinding business obtained as part
of the Pandrol Jackson railway maintenance acquisition. This business, with
annual sales of approximately $6 million, was divested in accordance with an
agreement with the Department of Justice as a condition to the acquisition of
Pandrol Jackson.
In July 1999, the Company acquired certain assets and assumed certain
liabilities of Structural Accessories, Inc. The total consideration was
approximately $2 million. Structural Accessories, Inc. manufactures and sells
bridge bearings and expansion joints.
Harsco Gas and Fluid Control Segment - In February 1999, the Company acquired
certain assets and assumed certain liabilities of Natural Gas Vehicle Systems,
Inc. Total consideration was approximately $3 million. Natural Gas Vehicle
Systems, Inc. manufactures cylinders used in vehicles which use natural gas. The
Company completed the sale of Astralloy Wear Technology in March 1999 and the
sale of the pavement marking and vegetation control business of Chemi-Trol in
August 1999.
Harsco Mill Services Segment - The Manchester truck dealership was sold in
September 1999.
The Company reports information about its operating segments according to the
"management approach". The management approach is based on the way management
organizes the segments within the enterprise for making operating decisions and
assessing performance. The Company's reportable segments are identified based
upon differences in products, services, and markets served.
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The operations of the Company in any one country, except the United States, do
not account for more than 10% of sales. No single customer represented
10% or more of the Company's sales during 1999, 1998, and 1997. There are no
significant intersegment sales.
(b) Financial Information about Industry Segments:
Financial information concerning Industry Segments is included in Note 14 to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data".
(c) Narrative Description of Business:
(1) A narrative description of the businesses by operating segment
is as follows:
Harsco Mill Services
This segment is the world leader in providing on-site highly specialized
services and technology under long-term contracts to steel producers and
non-ferrous metal industries. The Company's flame and recycling technologies
along with computerized scrap handling are several examples of the specialized
services the Company provides. These highly specialized services and
technologies include: scarfing, ferrocut, carbofer, briquetting and scrap
management. The Company provides in-plant transportation and other specialized
services, including slab management systems, general plant services, and other
recycling technology. Other services provided include metal reclamation; slag
processing, marketing and utilization; raw material management and handling;
by-product recovery and recycling; and finished product handling and transport.
Highly specialized recovery and cleaning equipment, installed and operated on
the property of steel producers, together with standard material handling
equipment are employed to reclaim metal and handle material. The customer uses
this reclaimed metal in its steel production process. The nonmetallic residual
slag is graded into various sizes at on-site Company-owned processing facilities
and then sold commercially. It is used as an aggregate material in asphalt
paving applications, railroad ballast and building blocks. Similar services are
also provided to non-ferrous metal industries, such as aluminum, copper, and
nickel.
This segment also provides roofing granules and slag abrasives. The Company's
slag abrasives and roofing granules are produced from utility coal slag and
natural rock materials at a number of locations throughout the United States.
The Company's Black Beauty(TM) abrasives are used for industrial surface
preparation, such as rust removal and cleaning of bridges, ship hulls, and
various structures. Roofing granules are sold to residential roofing shingle
manufacturers.
This segment operates at more than 160 sites in over 30 countries. Also
included is the Reed Minerals unit, which provides roofing granules and
slag abrasives.
For 1999, percentage of consolidated net sales was 42%.
Harsco Gas and Fluid Control
Major product classes in this segment are gas containment and control equipment,
industrial pipe fittings, and process equipment, principally air-cooled heat
exchangers.
Gas containment products include cryogenic gas storage tanks, high pressure and
acetylene cylinders, propane tanks, and composite vessels for industrial and
commercial gases and other products. Gas control products include valves and
regulators serving a variety of markets, including the industrial gas commercial
refrigeration, life support, and outdoor recreation industries. Products are
used in applications such as scuba diving equipment and outdoor barbecue grills.
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The segment provides custom designed and manufactured air-cooled heat
exchangers, principally for applications on field-sited natural gas compression
packages, for both domestic and international locations.
The segment is a major supplier of industrial pipe fittings and related products
for the plumbing, hardware and energy industries.
For 1999, percentage of consolidated net sales was 33%.
Harsco Infrastructure
Major product classes in this segment are scaffolding, shoring and concrete
forming services, railway maintenance-of-way services and equipment, and
industrial grating and bridge decking products.
The segment's scaffolding, shoring and concrete forming service products include
steel and aluminum support systems that are leased or sold to customers through
a North American network of some 50 branch service centers. The Company also
provides design engineering services, on-site installation, and equipment
management services.
The Company's railway maintenance-of-way services provide high technology
comprehensive track maintenance and new track construction support to railroad
customers. The railway maintenance-of-way services and equipment product class
includes specialized track maintenance equipment used by private and
government-owned railroads and urban transit systems worldwide. The equipment
manufactured by the Company includes a comprehensive range of specially-designed
systems used in the construction and maintenance of track and railbeds.
The segment manufactures a varied line of industrial grating products at several
plants in North America. The Company produces a full range of riveted,
pressure-locked and welded grating in steel, aluminum and fiberglass, used
mainly in industrial flooring, safety, and security applications for power,
paper, chemical, refining and processing applications.
The Company also produces bridge decking and related products for bridge
surfaces.
This segment also produces commercial and industrial boilers and hot water
heaters, and blenders, dryers and mixers for the chemical and food processing
industries.
For 1999, percentage of consolidated net sales was 25%.
(1) (i) The products and services of Harsco include a number of classes.
The product classes that contributed 10% or more as a percentage of
consolidated net sales in any of the last three fiscal years are as set forth in
the following table.
1999 1998 1997
---- ---- ----
Mill Services 39% 40% 38%
Gas Control and Containment Equipment 24% 21% 21%
(1) (ii) New products and services are added from time to time; however, in
1999 none required the investment of a material amount of the Company's assets.
(1) (iii) The manufacturing requirements of the Company's operations are
such that no unusual sources of supply for raw materials are required. The raw
materials used by the Company include principally steel and to a lesser extent
aluminum which usually are readily available.
(1) (iv) While Harsco has a number of trademarks, patents and patent
applications, it does not consider that any material part of its business
is dependent upon them.
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(1) (v) Harsco furnishes building products and materials and a wide
variety of specialized equipment for commercial, industrial, public works and
non-residential construction which are seasonal in nature. In 1999,
construction-related operations accounted for 12% of total sales.
(1) (vi) The practices of the Company relating to working capital items are
not unusual compared with those practices of other service providers or
manufacturers servicing mainly industrial and commercial markets.
(1) (vii) No material part of the business of the Company is dependent upon
a single customer or a few customers, the loss of any one of which would have a
material adverse effect upon the Company.
(1) (viii) Backlog of orders was $231.6 million and $188.6 million as of
December 31, 1999 and 1998, respectively. It is expected that approximately 18%
of the total backlog at December 31, 1999, will not be filled during 2000. There
is no significant seasonal aspect to the Company's backlog. Backlog for
scaffolding, shoring and forming services, and for roofing granules and slag
abrasives is not included in the total backlog, because it is generally not
quantifiable due to the nature of the products and services provided. Contracts
for the Harsco Mill Services Segment are also excluded from the total backlog.
These Contracts have an estimated value of $3.6 billion at December 31, 1999.
(1) (ix) At December 31, 1999, the Company had no material contracts that
were subject to renegotiation of profits or termination at the election
of the Government.
(1) (x) The various businesses in which the Company operates are highly
competitive and the Company encounters active competition in all of its
activities from both larger and smaller companies who produce the same or
similar products or services or who produce different products appropriate for
the same uses.
(1) (xi) The expense for product development activities was $7,759,000,
$6,977,000, and $6,090,000 in 1999, 1998, and 1997, respectively.
(1) (xii) The Company has become subject, as have others, to increasingly
stringent air and water quality control legislation. In general, the Company has
not experienced substantial difficulty in complying with these environmental
regulations in the past and does not anticipate making any major capital
expenditures for environmental control facilities. While the Company expects
that environmental regulations may expand, and its expenditures for air and
water quality control will continue, it cannot predict the effect on its
business of such expanded regulations. For additional information regarding
environmental matters see Note 10 to the Consolidated Financial Statements
included in Item 8, "Financial Statements and Supplementary Data".
(1) (xiii) As of December 31, 1999, the Company had approximately 15,700
employees.
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(d) Financial Information about Foreign and
Domestic Operations and Export Sales:
Financial information concerning foreign and domestic operations is included in
Note 14 to the Consolidated Financial Statements under Item 8, "Financial
Statements and Supplementary Data". Export sales totaled $110.0 million and
$114.7 million in 1999 and 1998, respectively.
Item 2. Properties:
Information as to the principal plants owned and operated by the Company is
summarized in the following table:
Floor Space
Location (Sq. Ft.) Principal Products
- -------- --------- ------------------
Harsco Infrastructure:
E. Syracuse, New York 48,000 Railroad Equipment
Ludington, Michigan 159,000 Railroad Equipment
Fairmont, Minnesota 312,000 Railroad Equipment
West Columbia, South Carolina 224,000 Railroad Equipment
Brendale, Australia 20,000 Railroad Equipment
Nashville, Tennessee 246,000 Grating
Nashville, Tennessee 87,000 Grating
Charlotte, North Carolina 23,000 Grating
Madera, California 48,000 Grating
Leeds, Alabama 51,000 Grating
Cheswick, Pennsylvania 56,000 Grating
Channelview, Texas 86,000 Grating
Marlboro, New Jersey 30,000 Grating
Queretaro, Mexico 63,000 Grating
Marion, Ohio 135,000 Construction Equipment
Harsco Mill Services:
Moundsville, West Virginia 12,000 Roofing Granules/Abrasives
Drakesboro, Kentucky 41,000 Roofing Granules
Gary, Indiana 19,000 Roofing Granules/Abrasives
Ione, California 33,000 Roofing Granules
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Item 2. Properties (continued):
Floor Space
Location (Sq. Ft.) Principal Products
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Harsco Gas and Fluid Control:
West Jefferson, Ohio 148,000 Pipe Fittings
Crowley, Louisiana 172,000 Pipe Fittings
Houston, Texas 26,000 Pipe Fittings
Chicago, Illinois 35,000 Pipe Fittings
Hamden, Connecticut 47,000 Pipe Fittings
Vanastra, Ontario, Canada 55,000 Pipe Fittings
East Stroudsburg, Pennsylvania 172,000 Process Equipment
Port of Catoosa, Oklahoma 131,000 Heat Exchangers
Sapulpa, Oklahoma 83,000 Heat Exchangers
Lockport, New York 104,000 Valve Manufacturing
Niagara Falls, New York 66,000 Valve Manufacturing
Washington, Pennsylvania 112,000 Valve Manufacturing
Jesup, Georgia 87,000 Propane Tanks
Jesup, Georgia 65,000 Propane Tanks
Jesup, Georgia 63,000 Cryogenic Storage Vessels
Bloomfield, Iowa 48,000 Propane Tanks
West Jordan, Utah 36,000 Propane Tanks
Fremont, Ohio 69,000 Propane Tanks
Pomona, California 56,000 Composite Pressure Vessels
Gardena, California 26,000 Composite Pressure Vessels
Harrisburg, Pennsylvania 245,000 Cylinders
Huntsville, Alabama 220,000 Acetylene Tanks
Theodore, Alabama 305,000 Cryogenic Storage Vessels
Husum, Germany 61,000 Cryogenic Storage Vessels
Shah Alam, Malaysia 25,000 Cryogenic Storage Vessels
Shah Alam, Malaysia 29,000 Cylinders
Beijing, China 134,000 Cryogenic Storage Vessels
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The Company also operates the following plants which are leased:
Expiration
Floor Space Principal Date of
Location (Sq. Ft.) Products Lease
- -------- ----------- -------- ----------
Harsco Infrastructure:
Nottingham, England 30,000 Railroad Equipment 10/23/00
Danbury, Connecticut 16,000 Railroad Equipment 11/30/01
Tulsa, Oklahoma 10,000 Grating 04/28/01
Harsco Gas and Fluid Control:
Lansing, Ohio 67,000 Pipe Fittings 01/31/03
Cleveland, Ohio 50,000 Brass Castings 09/30/00
The Company operates from a number of other plants, branches, warehouses and
offices in addition to the above. The Company has over 160 locations related to
mill services in over thirty countries, however since these facilities are on
the property of the steel mill being serviced they are not listed. The Company
considers all of its properties, at which operations are currently performed, to
be in satisfactory condition.
Item 3. Legal Proceedings:
Information regarding legal proceedings is included in Note 10 to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data".
Item 4. Submission of Matters to a
Vote of Security Holders:
There were no matters that were submitted during the fourth quarter of the year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
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PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters:
On November 19, 1996, the Board of Directors declared a two-for-one stock split
on the Company's common stock. One additional share was issued for each share of
common stock held by shareholders of record as of the close of business on
January 15, 1997. New shares were distributed on February 14, 1997.
Harsco common stock is traded on the New York, Pacific, Boston, and Philadelphia
Stock Exchanges under the symbol HSC. At the end of 1999, there were 40,071,785
shares outstanding. In 1999, the stock traded in a range of $34-3/8 - $23-1/16
and closed at $31-3/4 at year-end. At December 31, 1999 there were approximately
21,000 shareholders. For additional information regarding Harsco common stock
market price and dividends declared, see the Common Stock Price and Dividend
Information under Part II, Item 8, "Financial Statements and Supplementary
Data".
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Item 6. Selected Financial Data
FIVE-YEAR STATISTICAL SUMMARY
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(ALL DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998 1997 1996 1995
INCOME STATEMENT INFORMATION
Net sales $ 1,716,688 $ 1,733,458 $ 1,627,478 $ 1,557,643 $ 1,495,466
Income from continuing operations before
interest, income taxes, and minority interest 169,736 191,901 179,888 166,057 131,019
Income from continuing operations 90,713 107,513 100,400 83,903 61,318
Income from discontinued defense business - - 28,424(a) 35,106 36,059
Gain on disposal of discontinued defense
business - - 150,008 - -
Net income 90,713 107,513 278,832 119,009 97,377
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FINANCIAL POSITION INFORMATION
Working capital $ 182,439 $ 112,619 $ 341,160 $ 214,519 $ 145,254
Total assets 1,659,823 1,623,581 1,477,188 1,324,419 1,310,662
Long-term debt 418,504 309,131 198,898 227,385 179,926
Total debt 455,111 363,738 225,375 253,567 288,673
Depreciation and amortization 135,853 131,381 116,539 109,399 104,863
Capital expenditures 175,248 159,816 143,444 150,294 113,895
Cash provided by operating activities 213,953 189,260 148,541 217,202 258,815
Cash provided (used) by investing activities (194,674) (233,490) 196,545 (153,225) (97,331)
Cash (used) by financing activities (8,928) (134,324) (167,249) (92,944) (128,068)
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RATIOS
Return on net sales(1) 5.3% 6.2% 6.2% 5.4% 4.1%
Return on average equity(2) 13.9% 14.3% 15.1% 14.0% 10.7%
Return on average assets(3) 10.7% 12.9% 14.3% 13.7% 10.8%
Current ratio 1.4:1 1.2:1 1.9:1 1.7:1 1.4:1
Total debt to total capital(4) 41.2% 34.7% 22.4% 27.1% 31.6%
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PER SHARE INFORMATION (b)
Diluted - Income from continuing operations $ 2.21 $ 2.34 $ 2.04 $ 1.67 $ 1.20
- Income from discontinued defense
business - - .58(a) .70 .71
- Gain on disposal of discontinued defense
business - - 3.05 - -
- Net income 2.21 2.34 5.67 2.37 1.91
Book value 16.22 16.22 16.64 13.73 12.49
Cash dividends declared .91 .885 .82 .77 .75
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OTHER INFORMATION
Basic average number of shares outstanding (b) 40,882,153 45,568,256 48,754,212 49,894,515 50,504,707
Diluted average number of shares outstanding (b) 41,017,067 45,910,531 49,191,872 50,317,664 50,856,929
Number of employees 15,700 15,300 14,600 14,200 13,200
Backlog (c) $ 231,557 $ 188,594 $ 225,575 $ 211,734 $ 157,129
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FIVE-YEAR STATISTICAL SUMMARY
(a) Includes income through August 1997 (the measurement date) from the
discontinued defense business.
(b) Reflects two-for-one stock split to shareholders of record January 15,
1997.
(c) Excludes the estimated value of long-term mill service contracts, which
had an estimated value of $3.6 billion at December 31, 1999.
(1) "Return on net sales" is calculated by dividing income from continuing
operations by net sales.
(2) "Return on average equity" is calculated by dividing income from
continuing operations by quarterly weighted average equity.
(3) "Return on average assets" is calculated by dividing income from
continuing operations before interest expense, income taxes, and
minority interest by quarterly weighted average assets.
(4) "Total debt to total capital" is calculated by dividing the sum of debt
(short-term borrowings and long-term debt including current maturities)
by the sum of equity and debt.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
FINANCIAL CONDITION AND LIQUIDITY
The change in the Company's financial position and liquidity is summarized as
follows:
DECEMBER 31 DECEMBER 31 INCREASE/
(DOLLARS ARE IN MILLIONS) 1999 1998 (DECREASE)
=================================================================================
Current Assets $ 612.9 $ 587.4 $ 25.5
Current Liabilities 430.5 474.8 (44.3)
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Working Capital $ 182.4 $ 112.6 $ 69.8
Current Ratio 1.4:1 1.2:1
=================================================================================
Notes Payable and
Current Maturities $ 36.6 $ 54.6 $(18.0)
Long-term Debt 418.5 309.1 109.4
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Total Debt 455.1 363.7 91.4
Total Equity 650.1 685.3 (35.2)
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Total Capital $ 1,105.2 $1,049.0 $ 56.2
Total Debt to
Total Capital 41.2% 34.7%
=================================================================================
The improvement in the Company's working capital position and current ratio
during 1999 was due principally to a reduction in current liabilities of $44.3
million. Additionally, current assets increased, but at a lesser rate. The
largest reduction within current liabilities was an $18.0 million decrease in
notes payable and current maturities of long-term debt due principally to
refinancing short term notes into long-term debt. The reduction in current
liabilities also included $14.6 million of cash payments related to the
discontinued defense business. This is reflected as a reduction in Other current
liabilities in the Consolidated Balance Sheet.
A strategic focus of the Company is the minimization of capital employed
including inventory levels. Inventories decreased a net of $3.6 million despite
an increase of $16.3 million related to a fourth quarter 1999 acquired company
(acquisition). Receivables increased by $20.2 million principally due to the
acquisition and the timing of sales. Sales in the last two months of 1999
substantially exceeded those in the last two months of 1998.
Long-term debt increased in 1999 principally as a result of capital expenditures
(investments), share repurchases and an acquisition in the fourth quarter of
1999. Capital investments for 1999 were a record $175.2 million compared with
the previous record of $159.8 million in 1998. Investments were made for new
mill services contracts and other business growth initiatives, information
technology, new processes, and for productivity improvements. The Company
acquired 2,326,798 shares of its common stock in 1999 at a cost of $66.4
million. Due to the timing of actual cash settlements for the purchase of the
stock, the cash used in 1999 was $71.9 million. The capital investments, share
repurchases and cash dividends demonstrate the Company's continued commitment to
creating value through strategic investment and return of capital to
shareholders. In the past six years, the Company has committed over $1.7 billion
to increasing shareholder value.
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CASH UTILIZATION: FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997 1996 1995 1994
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Capital Investments $ 175.2 $ 159.8 $ 143.4 $ 150.3 $ 113.9 $ 90.9
Strategic Acquisitions 48.9 158.3 8.5 21.1 4.1 -
Share Repurchases 71.9 169.3 113.2 30.7 14.1 -
Cash Dividends 37.0 40.3 39.1 37.9 37.4 35.1
- ------------------------------------------------------------------------------------------------------
Total $ 333.0 $ 527.7 $ 304.2 $ 240.0 $ 169.5 $ 126.0
======================================================================================================
The Company's debt as a percent of total capital changed as a result of
increased debt and a decrease in equity capital due to the Company's share
repurchases and $27.3 million resulting from foreign currency translation
adjustments. The foreign currency translation adjustments are principally due to
1999's 14% decrease in the translated value of the euro and a 33% decrease in
the translated value of the Brazilian real.
FINANCIAL STATISTICS FOR THE YEAR ENDED DECEMBER 31
1999 1998
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HARSCO STOCK PRICE HIGH-LOW $34.38 - $23.06 $47.25 - $23.00
- ---------------------------------------------------------------------------------
RETURN ON AVERAGE EQUITY 13.9% 14.3%
- ---------------------------------------------------------------------------------
Return on Average Assets 10.7% 12.9%
Return on Average Capital 10.0% 11.5%
Lower returns on average equity, assets, and capital are due principally to
lower income in 1999 compared with the record income from continuing operations
for 1998. More specifically, income was lower in the first half of 1999 compared
to the first half of 1998. However, this was partially offset by higher income
for the second half of 1999 than the same period of 1998. Return on average
equity was positively affected by lower average equity due principally to share
repurchases. The Company's book value per share was unchanged at $16.22 per
share at December 31, 1998 and 1999.
(IN MILLIONS) 1999 1998 1997
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATIONS: $214.0 $189.3 $148.5
Operating cash flows were a strong $214.0 million in 1999 compared with $189.3
million in 1998. These amounts include $14.6 million in 1999 and $13.6 million
in 1998 of cash payments for the discontinued defense business. The increase in
cash from operating activities was due principally to intensified efforts to
reduce inventories in 1999. A strategic management initiative in 1999 has
focused on a reduction of working capital components including inventory. This
focus will continue in 2000 and beyond. Lower earnings in 1999, the timing of
cash receipts from accounts receivable, and the timing of payments on accounts
payable, partially offset the significant improvement in cash provided by
operations.
The Company has a U.S. commercial paper borrowing program under which it can
issue up to $400 million of short-term notes in the U.S. commercial paper
market. In addition, the Company has a three billion Belgian franc commercial
paper program, equivalent to
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approximately U.S. $75 million at December 31, 1999. The Belgian program
provides the capacity to borrow euros to fund the Company's European operations
more efficiently. The Company limits the aggregate commercial paper and
syndicated credit facility borrowings at any one time to a maximum $400 million.
At December 31, 1999, the Company had $205.4 million of U.S. commercial paper
debt outstanding, and $28.3 million of commercial paper debt outstanding under
the Belgian program.
The Company has available through a syndicate of banks a $400 million
multi-currency five-year revolving credit facility, extending through July 2001.
This facility serves as back-up to the Company's U.S. commercial paper program.
As of December 31, 1999 there were no borrowings outstanding under this
facility.
The Company's outstanding long-term notes are rated A by Standard & Poor's, A by
Fitch IBCA and A-3 by Moody's. The Company's commercial paper is rated A-1 by
Standard & Poor's, F-1 by Fitch IBCA and P-2 by Moody's. A Form S-3 shelf
registration is on file with the Securities and Exchange Commission for the
possible issuance of up to an additional $200 million of new debt securities,
preferred stock or common stock.
As supported by the above, the Company's financial position and debt capacity
should enable it to meet its current and future requirements. As additional
resources are needed, the Company should be able to obtain funds readily and at
competitive costs. The Company is positioned to continue to invest in strategic
acquisitions, selective high return capital investments, and to issue cash
dividends as means to enhance shareholder value. The Company recently completed
its strategic initiative of purchasing 20% of the Company's outstanding shares.
With the completion of this program, the Company intends to use future
discretionary cash flow principally for debt reduction and acquisitions,
although additional shares may be acquired from time to time.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS, EXCEPT PER SHARE) 1999 1998 (DECREASE) (DECREASE)
----------------------------------------- ---- ---- ---------- ----------
Revenues $ 1,720.8 $ 1,735.4 $ (14.6) (1%)
Income before interest, income taxes, and minority interest 169.7 191.9 (22.2) (12%)
Net income 90.7 107.5 (16.8) (16%)
Basic earnings per common share 2.22 2.36 (.14) (6%)
Diluted earnings per common share 2.21 2.34 (.13) (6%)
SUMMARY ANALYSIS OF RESULTS
Despite improving conditions in the steel industry during the last six months of
1999, the Company's results for the full year of 1999 reflect the adverse
effects of a steel industry affected by overcapacity, reduced prices and weak
demand in certain parts of the world. These problems contributed to reduced
steel production and financial stress at several steel mills. Certain customers
in the United States were forced to file for bankruptcy protection. In the
second half of 1999, increased levels of domestic steel production and capacity
utilization
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favorably affected the Company's results. Second half net income and earnings
per share for 1999 exceeded the same period of 1998.
Soft market conditions in the industrial gas and oil industries contributed to
lower results for 1999. However, the significant increase in crude oil prices
that was experienced in late 1999 contributed to improved results for the second
half. The Company's order backlog in the Harsco Gas and Fluid Control Segment as
of December 31, 1999 is 27% higher than as of December 31, 1998, reflecting
improved business conditions.
In 1999, the strong U.S. dollar adversely impacted the foreign currency
translation effect on results of operations in many countries in which the
Company operates.
Additionally, pre-tax pension expense for 1999, calculated in accordance with
SFAS No. 87, was $10.6 million higher than 1998. The increase unfavorably
impacted cost of services and products sold as well as selling, general, and
administrative expenses.
Despite decreases in the Company's revenues and income for 1999 when compared to
1998, certain economic and market conditions as of December 31, 1999,
particularly for the Harsco Mill Services and the Harsco Gas and Fluid Control
Segments, indicate that the unfavorable trends experienced in 1999 have begun to
dissipate.
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COMPARATIVE ANALYSIS OF CONSOLIDATED RESULTS
REVENUES
Revenues for 1999 were $1.72 billion, slightly below 1998. The decrease reflects
principally the unfavorable effects of market conditions in the steel, oil and
gas industries during the first six months of 1999. Improvements in market
conditions in the second half of 1999, as well as higher sales from
acquisitions, net of dispositions of non-core businesses, partially offset the
lower sales reported in the first six months of 1999. Excluding the adverse
foreign exchange translation effect of the strengthening U.S. dollar,
particularly relative to the Brazilian real, the euro, the South African rand
and the British pound, revenues exceeded 1998.
COST OF SALES AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Costs of services and products sold for 1999 approximated that of 1998. As a
result of divesting certain non-core businesses and the Company's continuing
cost reduction, process improvement, and reorganization efforts, selling,
general, and administrative expenses decreased despite the inclusion of acquired
companies. The total of cost of sales plus selling, general, and administrative
expenses was lower than 1998, despite a significant increase in pension expense.
NET SPECIAL CHARGES AND GAINS
In 1999 the Company incurred $6.0 million of net pre-tax expense related to
special charges and gains. Special charges include asset write-downs, employee
termination benefit costs, costs to exit activities, and other
reorganization-related costs resulting from the company's continuing efforts to
consolidate and streamline its businesses. Gains result principally from the
disposal of non-core businesses. In 1998 net special charges were $2.2 million.
Net gains for 1998 of $29.1 million consist principally of a pre-tax net gain of
$27 million recorded on the October 1998 sale of the Nutter Engineering unit of
the Harsco Gas and Fluid Control Segment. Such gains are reflected as
adjustments to reconcile net income to net cash provided by operating activities
in the Consolidated Statement of Cash Flows. Total proceeds associated with 1998
special gains were $42.9 million and are included in proceeds from the sale of
businesses and property, plant and equipment in the investing activities section
of the Consolidated Statement of Cash Flows. Net gains for 1999 were $0.6
million.
Impaired asset write-downs for 1999 of $2.9 million include a $1.9 million
pre-tax, non-cash, write-down of the Company's investment in Bio-Oxidation
Services Inc. which is included in the Harsco Gas and Fluid Control Segment. The
Company's investment in Bio-Oxidation Services Inc. is being held for disposal.
The write-down amount was measured on the basis of the lower of carrying amount
or fair value less cost to sell. Fair value was determined using available
information based upon the estimated amount at which the assets could be sold in
a current transaction between willing parties. For the year ended December 31,
1999, Bio-Oxidation Services Inc. recorded a pre-tax loss of $2.3 million which
includes the asset write-down of $1.9 million. The Company estimates that the
disposal will occur during 2000.
Impaired asset write-downs of $14.4 million for 1998 include a $6.1 million
pre-tax, non-cash, write-down of the Company's investment in Bio-Oxidation
Services Inc. For the year ended December 31, 1998, Bio-Oxidation Services Inc.
recorded a pre-tax loss of $9.8 million which includes the asset write-down of
$6.1 million.
Impaired asset write-downs for 1998 also include a $6.1 million pre-tax,
non-cash, write-down of assets, principally property, plant and equipment in the
Harsco Mill Services Segment. The
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write-down became necessary as a result of significant adverse changes in the
international economic environment and the steel industry. Impairment loss was
measured as the amount by which the carrying amount of assets exceeded their
estimated fair value. Fair value was estimated based upon the expected future
realizable net cash flows. In September 1999, assets associated with a
substantial portion of this provision were sold in conjunction with the
termination settlement of a contract in Russia.
Employee termination benefit costs consist principally of severance arrangements
to employees terminated as a result of management reorganization actions. Under
these reorganization actions, the Company's management has established and
approved specific plans of termination. Details of the termination benefit plans
have been communicated to the affected employees prior to recognition of related
provisions. Non-cash charges for employee termination benefit costs are included
as adjustments to reconcile net income to net cash provided by operating
activities in the Consolidated Statement of Cash Flows.
During 1999, $2.9 million of expense related to employee termination benefits
was incurred principally in the Harsco Mill Services Segment, primarily in
France and the United Kingdom. In 1999, 220 employees were included in employee
termination arrangements initiated by the Company and approximately $1.8 million
of cash payments were made under such arrangements. The payments are reflected
as uses of operating cash in the Consolidated Statement of Cash Flows.
During 1998, $6.5 million of expense related to employee termination benefits
occurred principally in the Harsco Mill Services Segment, primarily in South
Africa, United States, France, and Germany. In 1998, approximately 670 employees
were included in employee termination arrangements initiated by the Company and
approximately $2.4 million of cash payments were made under such arrangements.
An additional $3.3 million was disbursed in 1999 for the 1998 reorganization
actions.
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EMPLOYEE TERMINATION BENEFIT COSTS AND PAYMENTS
(IN MILLIONS)
SUMMARY OF ACTIVITY
-----------------------
Original reorganization action period 1999 1998
Employee termination benefits expense $ 2.9 $ 6.5
------ ------
Payments:
Disbursed in 1998 - (2.4)
Disbursed in 1999 (1) (1.8) (3.3)
------ ------
Total payments (1.8) (5.7)
Other - (0.4)
------ ------
Remaining payments as of
December 31, 1999 (2) $ 1.1 $ 0.4
====== ======
(1) - Disbursements in 1999 are categorized according to the original
reorganization action period to which they relate (1999 or 1998). Cash
severance payments in 1999 occurred principally in the Harsco Mill
Services Segment in South Africa principally for 1998 reorganization
actions.
(2) - Remaining payments are categorized according to the original
reorganization action period to which they relate (1999 or 1998).
EMPLOYEE TERMINATIONS - NUMBER OF EMPLOYEES
SUMMARY OF ACTIVITY
---------------------
Original reorganization action period 1999 1998
Employees affected by new reorganization actions 220 670
---- ----
Employee terminations:
Terminated in 1998 - (349)
Terminated in 1999 (172) (352)
---- ----
Total terminations (172) (701)
Other (9) 35
---- ----
Remaining terminations as of
December 31, 1999 39 4
==== ====
INTEREST EXPENSE
The Company's defense business was sold in the fourth quarter of 1997. This
resulted in $344 million of pre-tax cash proceeds. The availability of a
substantial portion of this cash in 1998 resulted in additional interest income,
as well as reduced interest expense compared to 1999. Additionally, interest
expense for 1999 was higher than 1998 as a result of increased borrowings for
record capital expenditures (investments), the Company's share repurchase
program and an acquisition in the fourth quarter of 1999. Capital investments,
$175.2 million in 1999, were made for new mill services contracts, other
business growth initiatives, information technology, new processes, and for
productivity improvements.
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INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
As a result of factors disclosed in previous sections, income before income
taxes and minority interest was down 18% from 1998.
PROVISION FOR INCOME TAXES
The effective income tax rate for 1999 was 35% versus 37.5% for 1998. The
reduction in the income tax rate is due principally to lower effective income
tax rates on domestic earnings.
NET INCOME AND EARNINGS PER SHARE
Net income of $90.7 million was below 1998. Basic earnings per common share were
$2.22 down from $2.36 in 1998. Diluted earnings per common share were $2.21 down
from $2.34 in 1998.
SEGMENT ANALYSIS
HARSCO MILL SERVICES SEGMENT
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1999 1998 (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
Sales $ 729.6 $ 751.9 $(22.3) (3%)
Income before interest, income taxes, and minority interest 81.2 84.3 (3.1) (4%)
Segment net income 45.1 43.3 1.8 4%
Sales of the Harsco Mill Services Segment were below 1998. The inclusion of
sales from an acquired company for the full year 1999 was partially offset by
the 1998 disposition of a non-core business. The decrease also reflects the
unfavorable effects of foreign exchange translation and overcapacity in the
steel industry which adversely affected worldwide steel prices and production.
This is particularly true in the United States where the steel industry filed
complaints with the government due to alleged unfairly low-priced imports. Lower
steel production adversely affected volume and margins at most steel mills in
the United States including many of the Company's customers. However, during the
last six months of 1999, steel production and capacity utilization in the United
States trended upwards reflecting the highest levels since the second quarter of
1998. Additionally, certain other key countries in which the Company conducts
business also experienced upward trends in steel production in 1999. The Harsco
Mill Services Segment fourth quarter 1999 results reflected this trend as
revenues and income, excluding special charges and gains, exceeded the same
period of 1998.
Income before interest, income taxes, and minority interest of the Harsco Mill
Services Segment was below 1998. Results in 1998 included $10.0 million of
pre-tax, non-cash write-downs of assets, principally property, plant and
equipment. Additionally, $4.9 million of employee termination benefit costs were
included in net special charges and gains in 1998. Excluding net special charges
and gains, income before interest, income taxes, and minority interest was $84.5
million in 1999 compared to $99.9 million in 1998.
The decrease in income for 1999 reflected the adverse effects of lower steel
production and prices in the first half of 1999. Results for 1999 include a
foreign currency transaction gain in Brazil, while in 1998, net foreign currency
translation exchange losses were incurred. The transaction gain in Brazil
partially offset the net unfavorable foreign currency impact associated with
translation of the results of operations of the Harsco Mill Services Segment.
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Net income of the Harsco Mill Services Segment was above 1998. Excluding net
special charges and gains, net income in 1999 was $47.3 million compared to
$52.9 million in 1998 reflecting the conditions previously disclosed.
HARSCO GAS AND FLUID CONTROL SEGMENT
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1999 1998 (1) (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
Sales $560.9 $588.7 $(27.8) (5%)
Income before interest, income taxes, and minority interest 47.5 72.3 (24.8) (34%)
Segment net income 27.0 40.9 (13.9) (34%)
(1) Segment information for 1998 has been restated to reflect the realignment
of the heat transfer and industrial blending equipment product lines from
the Harsco Gas and Fluid Control Segment to the Harsco Infrastructure
Segment. Sales of these product lines were $26.9 million and $29.2 million
for the years 1999 and 1998, respectively.
Sales of the Harsco Gas and Fluid Control Segment decreased from 1998. The
inclusion of a full year's sales of three acquired companies was more than
offset by lower sales of process equipment due in part to the disposition of
three non-core businesses. Reduced sales of gas control and containment
equipment and process equipment also reflected decreased demand in the
industrial gas and oil industries. In late 1999, these industries were favorably
affected by rising crude oil prices.
Income before interest, income taxes, and minority interest of the Harsco Gas
and Fluid Control Segment was below 1998 principally due to the inclusion in
1998 of gains on the disposal of two businesses. Excluding net special charges
and gains, income before interest, income taxes, and minority interest was $50.0
million in 1999 compared to $54.1 million in 1998. The decrease reflected the
adverse effects of reduced demand from customers in the industrial gas and oil
industries.
Segment net income was below 1998 principally due to the inclusion in 1998 of
gains on the disposal of two businesses. Net income for 1999 was adversely
affected, but to a lesser extent than 1998, by valuation provisions related to
the write-down of assets held for disposal. Excluding net special charges and
gains, net income in 1999 was $28.6 million compared to $30.0 million in 1998.
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HARSCO INFRASTRUCTURE SEGMENT
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1999 1998 (1) (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
Sales $ 426.2 $ 392.9 $ 33.3 8%
Income before interest, income taxes, and minority interest 41.2 32.9 8.3 25%
Segment net income 22.5 18.6 3.9 21%
(1) Segment information for 1998 has been restated to reflect the realignment
of the heat transfer and industrial blending equipment product lines from
the Harsco Gas and Fluid Control Segment to the Harsco Infrastructure
Segment. Sales of these product lines were $26.9 million and $29.2 million
for the years 1999 and 1998, respectively.
The Harsco Infrastructure Segment's sales for 1999 exceeded 1998 due to
increased sales of scaffolding, shoring and forming services, as well as sales
of railway maintenance-of-way equipment and contract services which included the
effect of an acquisition in the fourth quarter of 1999.
Income before interest, income taxes, and minority interest of the Harsco
Infrastructure Segment was significantly above 1998. Excluding net special
charges and gains, income before interest, income taxes, and minority interest
was $41.2 million compared to $37.7 million in 1998. The increase was due
principally to improved margins on sales of grating products and, to a lesser
extent, higher income for scaffolding, shoring and forming services.
Segment net income was above 1998 due principally to improved margins on sales
of grating products. Additionally, increased income was recorded for
scaffolding, shoring and forming services. Excluding net special charges and
gains, net income in 1999 was $22.5 million compared to $21.8 million in 1998.
INDUSTRIAL SERVICES AND ENGINEERED PRODUCTS
In addition to the segment reporting previously presented, the Company is a
diversified industrial services and engineered products company. Total
industrial services sales, include mill services, as well as scaffolding,
shoring, and forming services and railway maintenance-of-way services.
Engineered products include sales of the Reed Minerals unit in the Harsco Mill
Services Segment, and product sales of the Harsco Infrastructure and the Harsco
Gas and Fluid Control Segments.
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(DOLLARS ARE IN MILLIONS) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
SALES
- -----
Industrial Services $ 864.0 50% $ 866.4 50%
Engineered Products 852.7 50% 867.1 50
--------- ---------- ---------- ----------
Total sales $ 1,716.7 100% $ 1,733.5 100%
========== ========== =========== ==========
INCOME
- ------
Industrial Services $ 87.9 52% $ 80.2 42%
Engineered Products 82.0 48% 109.3 58
--------- ---------- ---------- ----------
Total segment income before interest,
income taxes, and minority interest $ 169.9 100% $ 189.5 100%
========== ========== =========== ==========
Industrial services income in 1999 was $87.9 million compared with $80.2 million
in 1998. Excluding losses and impaired asset write-downs associated with the
medical waste disposal service business, industrial services income was $90.2
million and $90.0 million for 1999 and 1998, respectively.
Income for engineered products in 1998 included a pre-tax net gain of $27
million.
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RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS, EXCEPT PER SHARE) 1998 1997 (DECREASE) (DECREASE)
- ------------------------------------------- ---- ---- ---------- ----------
Revenues $1,735.4 $1,629.1 $ 106.3 7%
Income from continuing operations before interest,
income taxes, and minority interest 191.9 179.9 12.0 7%
Income from continuing operations 107.5 100.4 7.1 7%
Basic earnings per common share from continuing operations 2.36 2.06 .30 15%
Diluted earnings per common share from continuing operations 2.34 2.04 .30 15%
SUMMARY ANALYSIS OF RESULTS
The Company's results for 1998 showed substantial improvement over 1997. The
acquisition of Faber Prest Plc for the Harsco Mill Services Segment and three
acquisitions for the Harsco Gas and Fluid Control Segment enhanced the market
leading position of these segments, and contributed to the overall revenue
growth. Strong results from scaffolding, shoring and forming services and
process equipment also contributed to improved operating results.
However, 1998 results were adversely affected by the Asian economic crisis,
particularly its effects on the steel industry. Beginning in the third quarter
of 1998, a significant decline in worldwide steel prices occurred due to
overcapacity in the industry. Several mills temporarily idled capacity,
impacting activity levels for the Harsco Mill Services Segment. The Asian
economic crisis also impacted the results of the Harsco Gas and Fluid Control
Segment's Asian operations, lowered export sales from certain domestic
locations, and reduced margins of certain domestic operations adversely affected
by low-priced imports.
The strong U.S. dollar also adversely impacted 1998 results compared to 1997 for
many of the company's international operations.
COMPARATIVE ANALYSIS OF CONSOLIDATED RESULTS
REVENUES
Revenues from continuing operations for 1998 were $1.74 billion, 7% above 1997.
The increase was due to the inclusion of acquired companies in 1998. Inclusion
of the acquired companies increased revenues for the Harsco Mill Services
Segment and for gas control and containment equipment in the Harsco Gas and
Fluid Control Segment. Process equipment sales also increased. Sales of
scaffolding, shoring, and forming services increased, but to a lesser extent.
These increases were partially offset by lower sales of industrial fittings,
railway maintenance-of-way equipment and contract services, and grating.
Excluding the adverse foreign exchange translation effect of the strengthening
U.S. dollar, revenues from continuing operations for 1998 were approximately 8%
above 1997.
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COST OF SALES AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Cost of products and services sold increased due to the inclusion of acquired
companies. Selling, general, and administrative expenses were only slightly
above 1997, despite the inclusion of acquired companies. This resulted from the
Company's cost control efforts. Also included in 1998 were $1.7 million of net
pre-tax foreign currency translation/transaction losses, principally due to the
weakening of the Mexican new peso and the Russian ruble in relation to the U.S.
dollar, as compared with $0.5 million of net foreign currency
translation/transaction gains in 1997.
NET SPECIAL CHARGES AND GAINS
In 1998 the Company incurred $2.2 million of net pre-tax special charges
including asset write-downs, employee termination benefit costs, costs to exit
activities, and other reorganization-related costs, compared with $2.6 million
in 1997. The charges were incurred as a result of the Company's continuing
efforts to consolidate and streamline its businesses. The $2.2 million net
special charges for 1998 include a $15.6 million net charge in the Harsco Mill
Services Segment and a $4.8 million net charge in the Harsco Infrastructure
Segment partially offset by an $18.2 million net gain in the Harsco Gas and
Fluid Control Segment. This net gain included a $27 million gain associated with
the sale of a business. The $2.6 million net special charges for 1997 include a
$1.8 million net charge in the Harsco Gas and Fluid Control Segment, a $0.4
million net charge in the Harsco Mill Services Segment and a $0.7 million net
charge in general Corporate expenses, partially offset by a $0.3 million net
gain in the Harsco Infrastructure Segment.
Net gains for 1998 consist principally of a pre-tax net gain of $27 million
recorded on the October 1998 sale of the Nutter Engineering unit of the Harsco
Gas and Fluid Control Segment. Such gains are reflected as adjustments to
reconcile net income to net cash provided by operating activities in the
Consolidated Statement of Cash Flows. Total proceeds associated with special
gains were $42.9 million and are included in proceeds from the sale of
businesses and property, plant and equipment in the investing activities section
of the Consolidated Statement of Cash Flows.
Impaired asset write-downs for 1998 include a $6.1 million pre-tax, non-cash,
write-down of the Company's investment in Bio-Oxidation Services Inc. which is
included in the Harsco Gas and Fluid Control Segment. The write-down amount was
measured on the basis of the lower of carrying amount or fair value less cost to
sell. Fair value was determined using available information based upon the
estimated amount at which the assets could be sold in a current transaction
between willing parties. For the year ended December 31, 1998 Bio-Oxidation
Services Inc. recorded a pre-tax loss of $9.8 million, which includes the asset
write-down of $6.1 million.
Impaired asset write-downs also include a fourth quarter 1998 $6.1 million
pre-tax, non-cash, write-down of assets, principally property, plant and
equipment, in the Harsco Mill Services Segment. The write-down became necessary
as a result of significant adverse changes in the international economic
environment and the steel industry. Impairment loss was measured as the amount
by which the carrying amount of assets exceeded their estimated fair value. Fair
value was estimated based upon the expected future realizable net cash flows.
Non-cash impaired asset write-downs are generally included in Other (income) and
expenses in the Consolidated Statement of Cash Flows as adjustments to reconcile
net income to net cash provided by operating activities.
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Employee termination benefit costs consist principally of severance arrangements
to employees terminated as a result of management reorganization actions. Under
these reorganization actions, the Company's management has established and
approved specific plans of termination. Details of the termination benefit plans
have been communicated to the affected employees prior to recognition of related
provisions. Non-cash charges for employee termination benefit costs are included
as adjustments to reconcile net income to net cash provided by operating
activities in the Consolidated Statement of Cash Flows.
During 1998, $6.5 million of reorganization expense related to employee
termination benefits occurred principally in the Harsco Mill Services Segment,
primarily in South Africa, United States, France, and Germany. In 1998,
approximately 670 employees were included in employee termination arrangements
initiated by the Company and approximately $2.4 million of cash payments were
made under such arrangements. An additional $3.3 million was disbursed in 1999
for the 1998 reorganization actions.
EMPLOYEE TERMINATION BENEFIT COSTS AND PAYMENTS
(IN MILLIONS) SUMMARY OF ACTIVITY
- ------------- -------------------------
Employee termination benefits expense for 1998 $6.5
----
Payments:
Disbursed in 1998 (2.4)
Disbursed in 1999 (3.3)
----
Total payments (5.7)
Other (0.4)
----
Remaining payments as of
December 31, 1999 $0.4
====
EMPLOYEE TERMINATIONS - NUMBER OF EMPLOYEES
SUMMARY OF ACTIVITY
-------------------------
Employees affected by 1998 reorganization actions 670
----
Employee terminations:
Terminated in 1998 (349)
Terminated in 1999 (352)
----
Total terminations (701)
Other 35
----
Remaining terminations as of
December 31, 1999 4
====
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26
Costs to exit activities consist of incremental direct costs of reorganization
actions and lease run-out costs. Such costs are recorded when a specific exit
plan is approved by management. Relocation expenses, such as employee moving
costs, are classified as exit costs and are expensed as incurred. Other costs
classified in this category are generally expensed as incurred. During 1998,
$1.0 million and $0.8 million of exit costs, principally relocation expenses,
were included in the Harsco Mill Services and Harsco Infrastructure Segments,
respectively. During 1997, $1.5 million of exit costs were included in the
Harsco Mill Services Segment. These costs resulted principally from the
expiration or termination of contracts at certain mill sites, as well as
facility relocation costs.
INTEREST EXPENSE
Interest expense increased in 1998 as a result of increased borrowings for the
Company's share repurchase program and for the funding of acquisitions.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST
Income from continuing operations before income taxes and minority interest
increased 5% from 1997 due principally to improved performance. Increased
earnings were achieved due principally to improved results for scaffolding,
shoring, and forming services and process equipment, as well as the inclusion of
acquired companies. These increases were partially offset by lower results for
metal reclamation and mill services, industrial fittings, grating, and gas
control and containment equipment, as well as start-up losses and asset
write-downs associated with the medical waste disposal services business.
PROVISION FOR INCOME TAXES
The effective income tax rate for continuing operations for 1998 was 37.5%
versus 38% in 1997. The reduction in the income tax rate is due to lower
effective income tax rates on state, as well as international earnings.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations was up 7% from 1997. Basic earnings per common
share from continuing operations of $2.36 were up 15% from 1997.
NET INCOME AND EARNINGS PER SHARE
Net income of $107.5 million for 1998 was below 1997, which included $178.4
million of income and a gain from the Company's discontinued defense business.
Basic earnings per common share were $2.36, down from $5.72 in 1997. Diluted
earnings per common share were $2.34, down from $5.67 in 1997.
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SEGMENT ANALYSIS
HARSCO MILL SERVICES SEGMENT
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1998 1997 (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
Sales $751.9 $672.7 $ 79.2 12%
Income before interest, income taxes, and minority interest 84.3 99.1 (14.8) (15%)
Segment net income 43.3 50.3 (7.0) (14%)
Sales of the Harsco Mill Services Segment were above 1997 despite the adverse
effect of foreign exchange translation. The increase was due to the inclusion of
an acquired company as of the second quarter of 1998.
Income before interest, income taxes, and minority interest of the Harsco Mill
Services Segment was below 1997. Excluding special charges and gains, income
before interest, income taxes, and minority interest for 1998 was $99.9 million,
a slight increase from $99.5 million for 1997. Increased income due to the
inclusion of an acquired company was offset by the adverse foreign exchange
translation effect of the strong U.S. dollar.
Net income of the Harsco Mill Services Segment was below 1997. The decrease
included after-tax net special charges of $9.8 million in 1998, as well as the
adverse foreign exchange translation effect of the strong U.S. dollar, offset by
the inclusion of an acquired company. The special charges included principally
asset write-downs and employee termination benefit costs.
HARSCO GAS AND FLUID CONTROL SEGMENT
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1998 (1) 1997 (1) (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
Sales $588.7 $558.3 $30.4 5%
Income before interest, income taxes, and minority interest 72.3 51.3 21.0 41%
Segment net income 40.9 29.5 11.4 39%
(1) Segment information for 1998 and 1997 has been restated to reflect the
realignment of the heat transfer and industrial blending equipment product
lines from the Harsco Gas and Fluid Control Segment to the Harsco
Infrastructure Segment. Sales of these product lines were $29.2 million
and $28.2 million for the years 1998 and 1997, respectively.
Sales of the Harsco Gas and Fluid Control Segment increased from 1997 due to the
inclusion of sales of three acquired companies and due to increased sales for
process equipment.
Income before interest, income taxes, and minority interest of the Harsco Gas
and Fluid Control Segment was significantly above 1997's comparable amount due
to the inclusion of special charges and gains, including a $27 million pre-tax
net gain from the sale of a business. Excluding all special charges and gains,
income before interest, income taxes, and minority interest was $54.1 million in
1998 compared to $53.1 million in 1997. This increase was due to improved
results for process equipment.
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28
Net income of the Harsco Gas and Fluid Control Segment was significantly above
1997's comparable period due principally to an after-tax $16.9 million net gain
arising from the sale of a business and, to a lesser extent, improved results
for process equipment. Income increased despite start-up losses and asset
write-downs associated with the medical waste disposal services business.
HARSCO INFRASTRUCTURE SEGMENT
AMOUNT PERCENT
INCREASE INCREASE
(DOLLARS ARE IN MILLIONS) 1998 (1) 1997 (1) (DECREASE) (DECREASE)
- ------------------------- ---- ---- ---------- ----------
Sales $392.9 $396.5 $(3.6) (1%)
Income before interest, income taxes, and minority interest 32.9 29.7 3.2 11%
Segment net income 18.6 15.5 3.1 20%
(1) Segment information for 1998 and 1997 has been restated to reflect the
realignment of the heat transfer and industrial blending equipment product
lines from the Harsco Gas and Fluid Control Segment to the Harsco
Infrastructure Segment. Sales of these product lines were $29.2 million
and $28.2 million for the years 1998 and 1997, respectively.
Sales of the Harsco Infrastructure Segment were slightly below 1997. Sales of
scaffolding, shoring, and forming services were above 1997. However, sales of
railway maintenance-of-way equipment and contract services and grating products
decreased from 1997.
Income before interest, income taxes, and minority interest was above 1997.
Special charges and gains for the Harsco Infrastructure Segment were $4.8
million in 1998, principally asset write-downs. Excluding special charges and
gains, income before interest, income taxes, and minority interest was $37.7
million compared to $29.4 million in 1997. The increase was principally due to
improved results for scaffolding, shoring, and forming services.
Net income of the Harsco Infrastructure Segment in 1998 was above 1997. The
increase is due to improved results for scaffolding, shoring, and forming
services.
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INDUSTRIAL SERVICES AND ENGINEERED PRODUCTS
In addition to the segment reporting previously presented, the Company is a
diversified industrial services and engineered products company. Industrial
services sales include mill services, as well as scaffolding, shoring, and
forming services and railway maintenance-of-way services. Engineered products
include sales of the Reed Minerals unit in the Harsco Mill Services Segment, and
product sales of the Harsco Infrastructure and the Harsco Gas and Fluid Control
Segments.
(DOLLARS ARE IN MILLIONS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
SALES
- -----
Industrial Services $ 866.4 50% $ 782.4 48%
Engineered Products 867.1 50 845.1 52
----------- ------------ ----------- ----------
Total sales $ 1,733.5 100% $ 1,627.5 100%
=========== ============ =========== ==========
INCOME
- ------
Industrial Services $ 80.2 42% $ 99.6 55%
Engineered Products 109.3 58 80.5 45
----------- ------------ ----------- ----------
Total segment income before interest,
income taxes, and minority interest $ 189.5 100% $ 180.1 100%
=========== ============ =========== =========
Industrial services income decreased 19% in 1998 compared to 1997 due to net
special charges and gains. Net special charges and gains in 1998 included asset
write-downs associated with the medical waste disposal services business and
asset write-downs and employee termination benefit costs in the Harsco Mill
Services Segment. Excluding net special charges and gains, industrial services
income was $102.5 million in 1998 compared to $98.9 million in 1997. This
increase was due to improved results for scaffolding, shoring, and forming
services.
Engineered products income increased 35% in 1998 compared to 1997. This increase
was principally due to a $27 million pre-tax net gain from the sale of a
business. Excluding net special charges and gains, engineered products income in
1998 was $89.2 million compared to $83.1 million in 1997. This increase was due
to improved results for process equipment and the inclusion of acquired
companies.
ECONOMIC ENVIRONMENT
The Company has currency exposures for its international operations which may be
subject to volatility, such as the 1999 foreign exchange fluctuations
experienced in Brazil and the decline of the euro. Such exposures may result in
reduced sales, income, and cash flows. The situations in Brazil and Europe are
not expected to have a material adverse impact on the Company's financial
position or results of operations. However, these and similar risks could result
in a material impact on the Company's financial position or results of
operations in the future. Balance sheet translation adjustments for the
Brazilian and European operations generally do not affect results of operations.
In 1998 and early 1999 the worldwide steel industry experienced selling price
reductions and production curtailments at many steel producers, particularly in
the United States. The United States steel industry was unfavorably affected by
imports of low-priced foreign steel. Additionally, certain steel producers were
forced to file for bankruptcy protection. The situation improved in
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the second half of 1999. There is a risk that the Company's future results of
operations or financial condition could be adversely affected if the steel
industry's problems were to continue. The Harsco Mill Services Segment provides
services at steel mills throughout the world. The future financial impact on the
Company associated with these risks cannot be estimated.
RESEARCH AND DEVELOPMENT
The Company invested $7.8 million in internal research and development programs
in 1999, an increase of 11% above 1998. Internal funding for the Harsco
Infrastructure Segment amounted to $3.5 million, principally for railway
maintenance-of-way equipment and services. Expenditures for the Harsco Mill
Services and Harsco Gas and Fluid Control Segments were $3.2 million and $1.1
million, respectively.
BACKLOG
As of December 31, 1999, the Company's order backlog, exclusive of long-term
mill services contracts, was $231.6 million compared to $188.6 million as of
December 31, 1998, a 23% increase. The Harsco Infrastructure Segment order
backlog at December 31, 1999 was $151.6 million, an increase of 24% over the
December 31, 1998 backlog of $122.5 million. This increase principally results
from the fourth quarter 1999 Pandrol Jackson acquisition. The Harsco Gas and
Fluid Control Segment backlog increased approximately 27% to $80.0 million from
$62.8 million as of December 31, 1998. The increase results from higher backlog
for gas control and containment equipment. Backlog for scaffolding, shoring and
forming services of the Harsco Infrastructure Segment and roofing granules and
slag abrasives of the Harsco Mill Services Segment are excluded from the backlog
amounts. They are generally not quantifiable due to the nature of the products
and services provided.
Metal reclamation and mill services contracts have an estimated value of $3.6
billion at December 31, 1999, an increase of approximately 9% over the December
31, 1998 amount of $3.3 billion.
DIVIDEND ACTION
The Company paid four quarterly cash dividends of $.225 per share in 1999, for
an annual rate of $.90. This is an increase of 2.3% from 1998. At the November
1999 meeting, the Board of Directors increased the dividend 4.4% to an annual
rate of $.94 per share. The Board normally reviews the dividend rate
periodically during the year and annually at its November meeting. There are no
material restrictions on the payment of dividends.
The Company is proud of its history of paying dividends. The Company has paid
dividends each year since 1939. The February 2000 payment marked the 199th
consecutive quarterly dividend paid at the same or at an increased rate. During
the five-year period ended December 31, 1999, dividends paid were increased five
times. In 1999, the dividend payout rate was 41%. The Company is philosophically
committed to maintaining or increasing the dividend at a sustainable level.
YEAR 2000 READINESS
The Company has taken steps to assure that its operations are not adversely
impacted by potential Year 2000 computer failures. All phases of the Company's
Year 2000 readiness process have been completed for information technology and
non-information technology systems. Those phases included awareness, assessment,
prioritization, remediation or replacement, testing and contingency planning.
Additionally, Year 2000 readiness assessments have been completed of critical
third parties including significant business
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partners, suppliers, and major customers. As of December 31, 1999, no mission
critical third parties have indicated that they are not Year 2000 ready.
Through March 16, 2000 the Company has not experienced any material Year 2000
failures.
As of December 31, 1999, the Company has incurred approximately $3.3 million in
cumulative Year 2000 readiness costs. The Company does not expect to incur
additional Year 2000 readiness costs unless a material Year 2000 failure occurs.
The Company believes that its major Year 2000 risks involve the continuing Year
2000 readiness and performance of third parties. The impact of such Year 2000
risks and potential failures on the Company's financial position or results of
operations cannot be estimated.
The Company has developed contingency plans to be invoked in the event of a
material Year 2000 failure. However, if there is an extended Year 2000 failure
by several third parties or of supporting infrastructures, there could be a
material adverse impact on the Company's financial position or results of
operations.
Year 2000 Statements contained herein about Harsco products and services are
Year 2000 Readiness Disclosures, pursuant to the Year 2000 Information and
Readiness Disclosure Act, 15 U. S. C. 1-note.
FORWARD LOOKING STATEMENTS
The nature of the Company's operations and the many countries in which it
operates subject it to changing economic, competitive, regulatory, and
technological conditions, risks, and uncertainties. In accordance with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company provides the following cautionary remarks regarding important factors
which, among others, could cause future results to differ materially from the
forward-looking statements, expectations, and assumptions expressed or implied
herein. These include statements about our management confidence and strategies
for performance; expectations for new and existing products, technologies, and
opportunities; and expectations for market segment and industry growth and
earnings.
These factors include, but are not limited to: (1) changes in the worldwide
business environment in which the Company operates, including import, licensing,
and trade restrictions, currency exchange rates, interest rates, and capital
costs; (2) changes in governmental laws and regulations, including taxes; (3)
market and competitive changes, including market demand and acceptance for new
products, services, and technologies; (4) effects of unstable governments and
business conditions in emerging economies; and (5) other risk factors listed
from time to time in the Company's SEC reports. The Company does not intend to
update this information and disclaims any legal liability to the contrary.
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Item 7A. Quantitative And Qualitative Disclosures About Market Risk
The Company is exposed to foreign currency risk in its international operations.
The Company conducts business in over thirty foreign countries and approximately
36%, 37% and 36% of the Company's net revenues for the years ended December 31,
1999, 1998 and 1997, respectively, were derived from the Company's operations
outside the United States. To illustrate the effect of foreign currency exchange
rate changes due to the strengthening of the U.S. dollar, in 1999 sales would
have been 2.5% greater using the average exchange rates for the year 1998. A
similar comparison for the year 1998, would have increased sales one percent, if
the average exchange rates for 1997 would have remained the same in 1998.
The Company seeks to reduce exposures to foreign currency fluctuations, through
the use of forward exchange contracts. At December 31, 1999, these contracts
amounted to $19.2 million and all mature within 2000. The Company does not hold
or issue financial instruments for trading purposes, and it is the Company's
policy to prohibit the use of derivatives for speculative purposes.
Also, the Company's cash flows and earnings are subject to changes in interest
rates. Total debt of $455.1 million as of December 31, 1999 had interest rates
ranging from 3.2% to 13.0%, of which approximately 35% were at fixed rates of
interest. The weighted average interest rate of total debt was approximately
5.8%. At current debt levels, a one percentage increase in interest rates would
increase interest expense by approximately three million dollars per year.
For additional information, see Note 13, Financial Instruments, to the
Consolidated Financial Statements under Item 8, "Financial Statements and
Supplementary Data."
The Company is also exposed to risks related to changing economic conditions and
their effect on the markets it serves and on the Company's supply chain, and
related costs. For additional information, see "Economic Environment" under Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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PART II
Item 8. Financial Statements and Supplementary Data:
Index to Consolidated Financial Statements and Supplementary Data
Consolidated Financial Statements of
Harsco Corporation: Page
----
Report of Independent Accountants 34
Consolidated Balance Sheet
December 31, 1999 and 1998 35
Consolidated Statement of Income
for the years 1999, 1998, and 1997 36
Consolidated Statement of Cash Flows
for the years 1999, 1998, and 1997 37
Consolidated Statement of Shareholders'
Equity for the years 1999, 1998, and 1997 38
Consolidated Statement of Comprehensive
Income for the years 1999, 1998, and 1997 39
Notes to Consolidated Financial Statements 40 - 81
Supplementary Data:
Two-Year Summary of Quarterly Results (Unaudited) 82
Common Stock Price and Dividend Information 83
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REPORT
--------------------------------------
OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Harsco Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity, of comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Harsco Corporation and Subsidiary Companies at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 27, 2000
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HARSCO CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 51,266 $ 41,562
Accounts receivable, net 331,123 310,935
Inventories 172,198 175,804
Other current assets 58,368 59,140
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 612,955 587,441
- ----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 671,546 626,194
Cost in excess of net assets of businesses acquired, net 258,698 273,708
Other assets 116,624 136,238
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,659,823 $ 1,623,581
============================================================================================================================
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ 32,014 $ 46,766
Current maturities of long-term debt 4,593 7,841
Accounts payable 132,394 142,681
Accrued compensation 46,615 43,938
Income taxes 44,154 42,908
Dividends payable 9,417 9,506
Other current liabilities 161,329 181,182
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 430,516 474,822
- ----------------------------------------------------------------------------------------------------------------------------
Long-term debt 418,504 309,131
Deferred income taxes 52,932 55,195
Insurance liabilities 37,097 30,019
Other liabilities 70,653 69,115
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,009,702 938,282
- ----------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Series A junior participating cumulative preferred stock - -
Common stock, par value $1.25, issued 66,221,544 and 66,075,380
shares as of December 31, 1999 and 1998, respectively 82,777 82,594
Additional paid-in capital 88,101 85,384
Accumulated other comprehensive income (expense) (80,538) (55,045)
Retained earnings 1,155,586 1,101,828
- ----------------------------------------------------------------------------------------------------------------------------
1,245,926 1,214,761
Treasury stock, at cost (26,149,759 and 23,825,458 shares, respectively) (595,805) (529,462)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 650,121 685,299
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,659,823 $ 1,623,581
============================================================================================================================
See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES
Service sales $ 864,035 $ 866,404 $ 782,406
Product sales 852,653 867,054 845,072
Other 4,123 1,936 1,643
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,720,811 1,735,394 1,629,121
- ---------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of services sold 666,560 666,806 584,290
Cost of products sold 662,972 660,536 645,044
Selling, general, and administrative expenses 207,765 213,438 211,231
Research and development expenses 7,759 6,977 6,090
Other (income) and expenses 6,019 (4,264) 2,578
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,551,075 1,543,493 1,449,233
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INTEREST, INCOME TAXES, AND MINORITY INTEREST 169,736 191,901 179,888
Interest income 4,662 8,378 8,464
Interest expense (26,968) (20,504) (16,741)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 147,430 179,775 171,611
Provision for income taxes 51,599 67,361 65,213
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST 95,831 112,414 106,398
Minority interest in net income 5,118 4,901 5,998
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 90,713 107,513 100,400
Discontinued operations:
Equity in income of defense business (net of income taxes
of $14,082) - - 28,424
Gain on disposal of defense business (net of income taxes
of $100,006) - - 150,008
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 90,713 $ 107,513 $ 278,832
=================================================================================================================================
Basic earnings per common share:
Income from continuing operations $ 2.22 $ 2.36 $ 2.06
Income from discontinued operations - - .58
Gain on disposal of discontinued operations - - 3.08
- ---------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $ 2.22 $ 2.36 $ 5.72
=================================================================================================================================
Average shares of common stock outstanding 40,882 45,568 48,754
=================================================================================================================================
Diluted earnings per common share:
Income from continuing operations $ 2.21 $ 2.34 $ 2.04
Income from discontinued operations - - .58
Gain on disposal of discontinued operations - - 3.05
- ---------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $ 2.21 $ 2.34 $ 5.67
=================================================================================================================================
Diluted average shares of common stock outstanding 41,017 45,911 49,192
=================================================================================================================================
See accompanying notes to consolidated financial statements.
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HARSCO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 90,713 $ 107,513 $ 278,832
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 122,777 119,044 107,350
Amortization 13,076 12,337 9,189
Gain on disposal of defense business - - (250,014)
Equity in income of unconsolidated entities (3,004) (1,354) (43,549)
Dividends or distributions from unconsolidated entities 3,369 1,494 49,142
Deferred income taxes 193 3,893 (8,175)
Other (income) and expenses 6,019 24,843 4,198
Gain on sale of non-defense businesses - (29,107) (1,620)
Other, net 5,205 5,260 (8,192)
Changes in assets and liabilities, net of acquisitions and
dispositions of businesses:
Accounts receivable (28,157) (15,718) (1,812)
Inventories 15,934 (24,991) (13,042)
Accounts payable (1,238) 8,379 4,840