Attached files
file | filename |
---|---|
EX-12 - COMPUTATION OF EARNINGS - HARSCO CORP | exh12_16744.htm |
EX-32 - EXECUTIVE OFFICER CERTIFICATIONS - HARSCO CORP | exh32_16744.htm |
EX-21 - SUBSIDIARIES OF THE REGISTRANT - HARSCO CORP | exh21_16744.htm |
EX-23 - ACCOUNTANTS CONSENT - HARSCO CORP | exh23_16744.htm |
EX-31.(B) - EXECUTIVE OFFICER CERTIFICATION - HARSCO CORP | exh31b_16744.htm |
EX-10.(A)(X) - EXTENTION AGREEMENT - HARSCO CORP | exh10ax_16744.htm |
EX-31.(A) - EXECUTIVE OFFICER CERTIFICATION - HARSCO CORP | exh31a_16744.htm |
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,
2009
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
File Number 1-3970
HARSCO
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
23-1483991
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
employer identification number)
|
|
350
Poplar Church Road, Camp Hill, Pennsylvania
|
17011
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
Registrant’s telephone
number, including area
code 717-763-7064
|
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
|
Name of each exchange on which
registered
|
Common
stock, par value $1.25 per share
|
New
York Stock Exchange
|
Preferred
stock purchase rights
|
Securities
registered pursuant to Section 12(g) of the
Act: NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.YES x
NO o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.YES o NO x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES x
NO o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES o NO
o
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. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer x
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Accelerated
filer o
Smaller reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).YES oNO x
The
aggregate market value of the Company’s voting stock held by non-affiliates of
the Company as of June 30, 2009 was $2,272,391,000.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:
Class
|
Outstanding at January 31,
2010
|
|
Common
stock, par value $1.25 per share
|
80,505,994
|
DOCUMENTS INCORPORATED BY
REFERENCE
Selected
portions of the 2009 Proxy Statement are incorporated by reference into Part III
of this Report.
The
Exhibit Index (Item No. 15) located on pages 110 to 115 incorporates several
documents by reference as indicated therein.
HARSCO
CORPORATION
FORM
10-K
INDEX
Page
|
|||
PART I
|
|||
Item
1.
|
Business.
|
3 -
8
|
|
Item
1A.
|
Risk
Factors.
|
8 -
17
|
|
Item
1B.
|
Unresolved
Staff Comments.
|
17
|
|
Item
2.
|
Properties.
|
17
- 18
|
|
Item
3.
|
Legal
Proceedings.
|
18
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders.
|
18
|
|
Supplementary
Item.
|
Executive
Officers of the Registrant (Pursuant to Instruction 3 to Item 401(b) of
Regulation S-K).
|
19
- 20
|
|
PART II
|
|||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities.
|
21
|
|
Item
6.
|
Selected
Financial Data.
|
22
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
23
- 50
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
50
|
|
Item
8.
|
Financial
Statements and Supplementary Data.
|
51
- 105
|
|
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
105
|
|
Item
9A.
|
Controls
and Procedures.
|
105
|
|
Item
9B.
|
Other
Information.
|
105
|
|
PART III
|
|||
Item
10.
|
Directors,
Executive Officers and Corporate Governance.
|
106
|
|
Item
11.
|
Executive
Compensation.
|
106
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
106
|
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
107
|
|
Item
14.
|
Principal
Accounting Fees and Services.
|
107
|
|
PART IV
|
|||
Item
15.
|
Exhibits,
Financial Statement Schedules.
|
108
- 115
|
|
SIGNATURES
|
116
|
- 2
-
PART
I
Item
1.
|
Business.
|
(a) General
Development of Business.
Harsco
Corporation (“the Company”) is a
diversified, multinational provider of industrial services and engineered
products serving global industries that are fundamental to worldwide economic
growth. The Company’s operations fall into three reportable segments:
Harsco Infrastructure, Harsco Metals and Harsco Rail (formerly included as a
part of the “All Other” Category), plus an “All Other” Category labeled Harsco
Minerals & Harsco Industrial. The Company has locations in 51
countries, including the United States. The Company was incorporated
in 1956.
The
Company’s executive offices are located at 350 Poplar Church Road, Camp Hill,
Pennsylvania 17011. The Company’s main telephone number is (717)
763-7064. The Company’s Internet website address is www.harsco.com.
Through this Internet website (in the “Investor Relations” link) the Company
makes available, free of charge, its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K and all amendments to those
reports, as soon as reasonably practical after those reports are electronically
filed or furnished to the Securities and Exchange
Commission. Information contained on the Company’s website is not
incorporated by reference into this Annual Report on Form 10-K, and should not
be considered as part of this Annual Report on Form 10-K.
The
Company’s principal lines of business and related principal business drivers are
as follows:
Principal
Lines of Business
|
Principal
Business Drivers
|
||
· |
Engineered
scaffolding, concrete forming and shoring, and other access-related
services, rentals and sales
|
·
·
|
Infrastructure
and non-residential construction
Industrial
plant maintenance requirements
|
· |
Outsourced,
on-site services to steel mills and other metals producers
|
·
·
|
Global
metals production and capacity utilization
Outsourcing
of services by metals producers
|
· |
Railway
track maintenance services and equipment
|
·
·
|
Global
railway track maintenance-of-way capital spending
Outsourcing
of track maintenance and new track construction by railroads
|
· |
Minerals
and recycling technologies
|
· |
Demand
for high-value specialty steel and ferro alloys
|
· |
Industrial
grating products
|
·
·
|
Industrial
plant and warehouse construction and expansion
Off-shore
drilling and new rig construction
|
· |
Air-cooled
heat exchangers
|
· |
Natural
gas compression, transmission and demand
|
· |
Industrial
abrasives and roofing granules
|
·
·
|
Industrial
and infrastructure surface preparation and restoration
Residential
roof replacement
|
· |
Heat
transfer products
|
· |
Commercial
and institutional boiler and water heater
requirements
|
The
Company reports segment information using the “management approach,” based on
the way management organizes and reports 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. These segments and the types of products and
services offered are more fully described in section (c) below.
In 2009,
2008 and 2007, the United States contributed sales of $1.0 billion, $1.3 billion
and $1.2 billion, equal to 34%, 32% and 31% of total sales,
respectively. In 2009, 2008 and 2007, the United Kingdom contributed
sales of $0.4 billion, $0.7 billion and $0.7 billion, equal to 15%, 17% and 20%
of total sales, respectively. One customer, ArcelorMittal,
represented approximately 10% of the Company’s sales during 2009, 2008 and
2007. There were no significant inter-segment sales.
- 3
-
(b) Financial
Information about 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 reportable segment is as
follows:
Harsco
Infrastructure Segment – 39% of consolidated sales for 2009
The
Harsco Infrastructure Segment is one of the world’s most complete global
organizations for engineered rental scaffolding, shoring, concrete forming and
other access-related solutions. The Segment operates from a network
of branches throughout the world, including North America, Europe, the Gulf
Region of the Middle East, Africa, Asia-Pacific and Latin
America. Major services include the rental of concrete shoring and
forming systems; scaffolding for non-residential and infrastructure construction
projects and industrial maintenance requirements; as well as a variety of other
infrastructure services including project engineering and equipment erection and
dismantling and, to a lesser extent, equipment sales.
The
Company’s infrastructure
services are provided through branch locations in approximately 40 countries
plus export sales worldwide. In 2009, this Segment’s revenues were
generated in the following regions:
Harsco
Infrastructure Segment
|
||
2009
Percentage
|
||
Region
|
of
Revenues
|
|
Western
Europe
|
58%
|
|
North
America
|
20%
|
|
Middle
East and Africa
|
12%
|
|
Eastern
Europe
|
6%
|
|
Latin
America (a) (b)
|
2%
|
|
Asia-Pacific
(b)
|
2%
|
(a)
|
Including
Mexico.
|
(b)
|
Revenues
in these regions are expected to increase
in
|
|
2010
as a result of recent acquisitions.
|
For 2009,
2008 and 2007, the Harsco Infrastructure Segment’s percentage of the Company’s
consolidated sales was 39% for each year.
Harsco
Metals Segment – 36% of consolidated sales for 2009
The
Harsco Metals Segment is the world’s largest provider of on-site, outsourced
services to the global metals industries. Harsco Metals provides its
services and solutions 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, including providing environmental
services for the processing of residual by-products. Working as a
specialized, value-added services provider, Harsco Metals rarely takes ownership
of its customers’ raw materials or finished products. This Segment’s
multi-year contracts had estimated future revenues of $3.6 billion at December
31, 2009. This provides the Company with a substantial base of
long-term revenues. Approximately 61% of these revenues are expected
to be recognized by December 31, 2012. The remaining revenues are
expected to be recognized principally between January 1, 2013 and December 31,
2018.
- 4
-
Harsco
Metals operates in over 30 countries. In 2009, this Segment’s
revenues were generated in the following regions:
Harsco
Metals Segment
|
||
2009
Percentage
|
||
Region
|
of
Revenues
|
|
Western
Europe
|
49%
|
|
North
America
|
16%
|
|
Latin
America (a)
|
14%
|
|
Middle
East and Africa
|
9%
|
|
Asia-Pacific
|
8%
|
|
Eastern
Europe
|
4%
|
(a) Including Mexico.
For 2009,
2008 and 2007, the Harsco Metals Segment’s percentage of the Company’s
consolidated sales was 36%, 40% and 41%, respectively.
Harsco
Rail Segment – 10% of consolidated sales for 2009
The
Harsco Rail Segment is a global provider of equipment and services to maintain,
repair and construct railway track. The Company’s railway track
maintenance services, solutions and specialized track maintenance equipment
support private and government-owned railroads and urban transit system
worldwide.
The
Company’s rail products are produced in three countries and products and
services are provided worldwide. In 2009, 2008 and 2007, export sales
from the U.S. for the Harsco Rail Segment were $119.7 million, $68.1 million and
$21.8 million, respectively. These represent 39%, 25% and 9% of this
Segment’s revenues for the years ended December 31, 2009, 2008 and 2007,
respectively. In 2009, this Segment’s revenues were generated from
operations in the following regions:
Harsco
Rail Segment
|
||
2009
Percentage
|
||
Region
|
of
Revenues
|
|
North
America (a)
|
83%
|
|
Western
Europe
|
12%
|
|
Asia-Pacific
|
4%
|
|
Middle
East and Africa
|
1%
|
|
(a)
|
North
America revenues include export sales throughout
the
world that originate from North
America.
|
For 2009,
2008 and 2007, the Harsco Rail Segment’s percentage of the Company’s
consolidated sales was 10%, 7% and 6%, respectively.
All
Other Category - Harsco Minerals & Harsco Industrial – 15% of consolidated
sales for 2009
The All
Other Category includes the Harsco Minerals, Harsco Industrial IKG, Harsco
Industrial Air-X-Changers and Harsco Industrial Patterson-Kelley business
units. Approximately 86% of this category’s revenues originate in the
United States.
Harsco
Minerals is a multinational company that extracts high-value metallic content
for production re-use on behalf of leading steelmakers and also specializes in
the development of minerals technologies for commercial applications, including
agriculture fertilizers. It also produces industrial abrasives and
roofing granules from power-plant utility coal slag at a number of locations
throughout the United States. The Company’s BLACK BEAUTY® 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
roofing market. This business unit is the United States’ largest
producer of slag abrasives and third-largest producer of residential roofing
granules.
- 5
-
Harsco
Industrial IKG manufactures a varied line of industrial grating products at
several plants in North America. These products include a full range
of bar grating configurations, which are used mainly in industrial flooring, as
well as safety and security applications in the power, paper, chemical, refining
and processing industries.
Harsco
Industrial Air-X-Changers is a leading supplier of custom-designed and
manufactured air-cooled heat exchangers for the natural gas
industry. The Company’s heat exchangers are the primary apparatus
used to condition natural gas during recovery, compression and transportation
from underground reserves through the major pipeline distribution
channels.
Harsco
Industrial Patterson-Kelley is a leading manufacturer of heat transfer products
such as boilers and water heaters for commercial and institutional
applications.
For 2009,
2008 and 2007, the All Other Category’s percentage of the Company’s consolidated
sales was 15%, 14% and 14%, respectively.
|
(1)
|
(i)
|
The
products and services of the Company are generated through a number of
product groups. These product groups are more fully discussed
in Note 14, Information by Segment and Geographic Area, to the
Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplementary Data.” The product groups that
contributed 10% or more as a percentage of consolidated sales in any of
the last three fiscal years are set forth in the following
table:
|
Percentage
of Consolidated Sales
|
||||
Product
Group
|
2009
|
2008
|
2007
|
|
Services
and equipment for infrastructure construction and industrial
maintenance
|
39%
|
39%
|
39%
|
|
On-site
services to metal producers
|
36%
|
40%
|
41%
|
|
Railway
track maintenance services and equipment
|
10%
|
7%
|
6%
|
|
(1)
|
(ii)
|
New
products and services are added from time to time; however, in 2009 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 for its limited product manufacturing
include principally steel and, to a lesser extent, aluminum, which are
usually readily available. The profitability of the Company’s
manufactured products is affected by changing purchase prices of steel and
other materials and commodities. If steel or other material
costs associated with the Company’s manufactured products increase and the
costs cannot be passed on to the Company’s customers, operating income
would be adversely impacted. Additionally, decreased
availability of steel or other materials could affect the Company’s
ability to produce manufactured products in a timely manner. The
Harsco Minerals business unit uses raw materials sourced from boiler slag,
which is a coal combustion by-product. If the Company cannot
obtain the necessary raw materials for its manufactured products, then
revenues, operating income and cash flows will be adversely
affected. Certain services performed by the Harsco Minerals
business result in the recovery, processing and sale of specialty steel
scrap concentrate and ferro alloys to its customers. The selling
price of the by-product material is principally market-based and varies
based upon the current market value of its components. Therefore,
the revenue amounts recorded from the sale of such by-product material
varies based upon the market value of the commodity components being
sold.
|
|
(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 products and materials and certain industrial services
within the Harsco Infrastructure and the All Other Category that are
seasonal in nature. As a result, the Company’s sales and net
income for the first quarter ending March 31 are normally lower than the
second, third and fourth quarters. Additionally, the Company
has historically generated the majority of its cash flows in the second
half of the year. This is a result of normally higher income
during the latter part of the year. The Company’s historical
revenue patterns and cash provided by operating activities were as
follows:
|
- 6
-
Historical
Pattern of Revenue from Continuing Operations
(In
millions)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
First
Quarter Ended March 31
|
$ | 696.9 | $ | 987.8 | $ | 840.0 | $ | 682.1 | $ | 558.0 | ||||||||||
Second
Quarter Ended June 30
|
777.0 | 1,099.6 | 946.1 | 766.0 | 606.0 | |||||||||||||||
Third
Quarter Ended September 30
|
744.2 | 1,044.9 | 927.4 | 773.3 | 599.5 | |||||||||||||||
Fourth
Quarter Ended December 31
|
772.5 | 835.5 | 974.6 | 804.2 | 632.5 | |||||||||||||||
Totals
|
$ | 2,990.6 | $ | 3,967.8 | $ | 3,688.2 | (a) | $ | 3,025.6 | $ | 2,396.0 |
Historical
Pattern of Cash Provided by Operations
(In
millions)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
First
Quarter Ended March 31
|
$ | 39.6 | $ | 32.0 | $ | 41.7 | $ | 69.8 | $ | 48.1 | ||||||||||
Second
Quarter Ended June 30
|
116.7 | 178.5 | 154.9 | 114.5 | 86.3 | |||||||||||||||
Third
Quarter Ended September 30
|
120.4 | 171.6 | 175.7 | 94.6 | 98.1 | |||||||||||||||
Fourth
Quarter Ended December 31
|
157.8 | 192.2 | 99.4 | 130.3 | 82.7 | |||||||||||||||
Totals
|
$ | 434.5 | $ | 574.3 | $ | 471.7 | $ | 409.2 | $ | 315.3 | (a) |
(a)
|
Does
not total due to rounding.
|
|
(1)
|
(vi)
|
The
practices of the Company relating to working capital are similar to those
practices of other industrial service providers or manufacturers servicing
both domestic and international industrial customers and commercial
markets. These practices include the
following:
|
·
|
Standard
accounts receivable payment terms of 30 days to 60 days, with progress or
advance payments required for certain long-lead-time or large
orders. Payment terms are slightly longer in certain
international markets.
|
·
|
Standard
accounts payable payment terms of 30 days to 90
days.
|
·
|
Inventories
are maintained in sufficient quantities to meet forecasted
demand. Due to the time required to manufacture certain railway
track maintenance equipment to customer specifications, inventory levels
of this business tend to increase for an extended time during the
production phase and then decline when the equipment is
sold.
|
|
(1)
|
(vii)
|
One
customer, ArcelorMittal, represented approximately 10% of the Company’s
sales in 2009, 2008 and 2007. The Harsco Metals Segment is
dependent largely on the global steel industry, and in 2009, 2008 and 2007
there were two customers that each provided in excess of 10% of this
Segment’s revenues under multiple long-term contracts at numerous mill
sites. ArcelorMittal was one of those customers in 2009, 2008
and 2007. The loss of any one of the contracts would not have a
material adverse effect upon the Company’s financial position or cash
flows; however, it could have a significant effect on quarterly or annual
results of operations. Additionally, these customers have
significant accounts receivable balances. Further consolidation
in the global steel industry is possible. Should transactions
occur involving some of the Company’s larger steel industry customers, it
would result in an increase in concentration of revenues and credit risk
for the Company. If a large customer were to experience
financial difficulty, or file for bankruptcy protection, it could
adversely impact the Company’s income, cash flows and asset
valuations. As part of its credit risk management practices,
the Company closely monitors the credit standing and accounts receivable
position of its customer base.
|
|
(1)
|
(viii)
|
At
December 31, 2009, the Company’s metals services contracts had estimated
future revenues of $3.6 billion, compared with $4.1 billion as of December
31, 2008. The decline is primarily attributable to the revenues
recognized during 2009 offset by projected volume from new and renewed
contracts. At December 31, 2009, the Company’s railway track
maintenance services and equipment business had estimated future revenues
of $442.3 million, compared with $518.1 million as of December 31,
2008. This is primarily due to shipment of orders during 2009,
partially offset by new orders. The railway track maintenance
services and equipment business backlog includes a significant portion
that will not be
|
- 7
-
|
|
|
realized
until late 2010 and 2011 due to the long lead-time necessary to build
certain equipment, and the long-term nature of certain service
contracts. In addition, as of December 31, 2009, the Company
had an order backlog of $48.6 million in its All Other Category (Harsco
Minerals & Harsco Industrial). This compares with $121.6
million as of December 31, 2008. The decrease from December 31,
2008 is due principally to lower demand and completion of orders during
2009. Order backlog for scaffolding, shoring and forming
services; for roofing granules and slag abrasives; and for the reclamation
and recycling services of high-value content from steelmaking slag is
excluded from the above amounts. These amounts are generally
not quantifiable due to the short order lead times for certain services,
the nature and timing of the products and services provided and equipment
rentals with the ultimate length of the rental period
unknown.
As of December 31, 2009, approximately $252.9 million or
52% of the Company’s order backlog is not expected to be filled in
2010. The majority of this backlog is expected to be filled in
2011. This is exclusive of long-term metals industry services
contracts, infrastructure-related services, roofing granules and
industrial abrasives products, and minerals and metal recovery
technologies services.
|
|
(1)
|
(ix)
|
At
December 31, 2009, 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
Company encounters active competition in all of its activities from both
larger and smaller companies that produce the same or similar products or
services, or that produce different products appropriate for the same
uses.
|
|
(1)
|
(xi)
|
The
expense for product development activities was $3.2 million, $5.3 million
and $3.2 million in 2009, 2008 and 2007, respectively. For
additional information regarding product development activities, see the
Research and Development section included in Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
|
|
(1)
|
(xii)
|
The
Company has become subject to, as have others, stringent air and water
quality control legislation. In general, the Company has not
experienced substantial difficulty complying with these environmental
regulations, and does not anticipate making any material capital
expenditures for environmental control facilities. While the
Company expects that environmental regulations may expand, and that 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, 2009, the Company had approximately 19,600
employees.
|
(d) Financial
Information about Geographic Areas
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 from the United States totaled $149.0 million,
$105.7 million and $61.7 million in 2009, 2008 and 2007,
respectively.
(e) Available
Information
Information
is provided in Part I, Item 1 (a), “General Development of
Business.”
Item
1A.
|
Risk
Factors.
|
Set forth
below and elsewhere in this report and in other documents the Company files with
the Securities and Exchange Commission are risks and uncertainties that could
cause the Company’s actual results to materially differ from the results
contemplated by the forward-looking statements contained in this report and in
other documents the Company files with the Securities and Exchange
Commission.
- 8
-
Market
risk.
In the
normal course of business, the Company is routinely subjected to a variety of
risks. In addition to the market risk associated with interest rate
and currency movements on outstanding debt and non-U.S. dollar-denominated
assets and liabilities, other examples of risk include customer concentration in
the Harsco Metals and Harsco Rail Segments and certain businesses of the “All
Other” Category; collectibility of receivables; volatility of the financial
markets and their effect on pension plans; and global economic and political
conditions.
The
global financial markets experienced extreme disruption in the last half of 2008
and into 2009, including, among other things, severely diminished liquidity and
credit availability for many business entities; declines in consumer confidence;
negative economic growth; declines in real estate values; increases in
unemployment rates; significant volatility in equities; rating agency downgrades
and uncertainty about economic stability. Governments across the
globe have taken aggressive actions, including economic stimulus programs,
intended to address these difficult market conditions. These economic
uncertainties affect the Company’s businesses in a number of ways, making it
difficult to accurately forecast and plan future business
activities.
The
continuing disruption in the credit markets has severely restricted access to
capital for many companies. If credit markets continue to
deteriorate, the Company’s ability to incur additional indebtedness to fund
operations or refinance maturing obligations as they become due may be
significantly constrained. The Company is unable to predict the
likely duration and severity of the current disruptions in the credit and
financial markets and adverse global economic conditions. While these
conditions have not impaired the Company’s ability to access credit markets and
finance operations at this time, if the current uncertain economic conditions
continue or further deteriorate, the Company’s business and results of
operations could be materially and adversely affected.
Negative economic
conditions may adversely impact the demand for the Company’s services, the
ability of the Company’s customers to meet
their obligations to the Company on a timely basis
and the valuation of the Company’s assets.
The
continuing tightening of credit in financial markets may lead businesses to
postpone spending, which may impact the Company’s customers, causing them to
cancel, decrease or delay their existing and future orders with the
Company. Continuing decline in the economy may further impact the
ability of the Company’s customers to meet their obligations to the Company on a
timely basis and could result in bankruptcy filings by them. If
customers are unable to meet their obligations on a timely basis, it could
adversely impact the realizability of receivables, the valuation of inventories
and the valuation of long-lived assets across the Company’s
businesses. The risk remains that certain significant Harsco Metals
customers may file for bankruptcy protection, be acquired or consolidate in the
future. Additionally, the Company may be negatively affected by
contractual disputes with customers and attempts by customers to unilaterally
change the terms and pricing of certain contracts to their sole advantage
without adequate consideration to the Company, which could have an adverse
impact on the Company’s income and cash flows.
The
current tightening of credit in financial markets could also negatively affect
the forecasts used in performing the Company’s goodwill impairment testing under
Generally Accepted Accounting Principles in the United States
(“GAAP”). In accordance with these principles, the Company is
required to test acquired goodwill for impairment on an annual basis based upon
a fair value approach. If the fair market value of the Company’s
reporting units is less than their book value, the Company could be required to
record an impairment charge. The valuation of reporting units
requires judgment in estimating future cash flows, discount rates and other
factors. The basis of this discount rate calculation is derived from
several internal and external factors. These factors include, but are
not limited to, the average market price of the Company’s stock, the number of
shares of stock outstanding, the fair value of the Company’s debt, a long-term
risk-free interest rate, and both market and size-specific risk
premiums. Additionally, assessments of future cash flows would
consider, but not be limited to, the following: infrastructure plant maintenance
requirements; global metals production and capacity utilization; global railway
track maintenance-of-way capital spending; and other drivers of the Company’s
businesses. Changes in the overall interest rate environment may also
impact the fair market value of the Company’s reporting units as this would
directly influence the rate utilized for discounting operating cash flows, and
ultimately determining a reporting unit’s fair value. The Company’s
overall market capitalization is also a factor in evaluating the fair market
values of the Company’s reporting units. During 2008 the Company’s
stock price had decreased approximately 57%, but its market capitalization
exceeded its book value as of December 31, 2008. During 2009 the
Company’s stock price increased approximately 16%, and its market capitalization
continued to exceed its book value as of December 31, 2009. As a
result of this and other factors, the Company concluded that any interim
impairment test was not required during 2009 and performed its regular annual
test as of October 1, 2009. Any significant declines in the overall
market capitalization of the Company could lead to the determination that the
book value of one or more of the Company’s reporting units exceeds their fair
value.
- 9
-
If
management determines that goodwill or other assets are impaired or that
inventories or receivables cannot be realized at recorded amounts, the Company
will be required to record a write-down in the period of determination, which
will reduce net income for that period. Although any potential
impairment would be a non-cash charge, the amount could be significant and could
have a significant adverse effect on the Company’s results of operations for the
period in which the charge is recorded.
The
Company’s global presence subjects it to a variety of risks arising from doing
business internationally.
The
Company operates in 51 countries, including the United States. The
Company’s global footprint exposes it to a variety of risks that may adversely
affect results of operations, cash flows or financial position. These
include, but may not be limited to, the following:
·
|
periodic
economic downturns in the countries in which the Company does
business;
|
·
|
fluctuations
in currency exchange rates;
|
·
|
imposition
of or increases in currency exchange controls and hard currency
shortages;
|
·
|
customs
matters and changes in trade policy or tariff
regulations;
|
·
|
changes
in regulatory requirements in the countries in which the Company does
business;
|
·
|
changes
in tax regulations, higher tax rates in certain jurisdictions and
potentially adverse tax consequences including restrictions on
repatriating earnings, adverse tax withholding requirements and “double
taxation”;
|
·
|
longer
payment cycles and difficulty in collecting accounts
receivable;
|
·
|
complexities
in complying with a variety of U.S. and international laws and
regulations;
|
·
|
political,
economic and social instability, civil unrest, terrorist actions and armed
hostilities in the regions or countries in which the Company does
business;
|
·
|
inflation
rates in the countries in which the Company does
business;
|
·
|
laws
in various international jurisdictions that limit the right and ability of
subsidiaries to pay dividends and remit earnings to affiliated companies
unless specified conditions are
met;
|
·
|
sovereign
risk related to foreign governments and the potential risks that include,
but may not be limited to, that those governments stop paying interest or
repudiate their debt, that they nationalize their private businesses or
that they alter their foreign-exchange regulations;
and‚
|
·
|
uncertainties
arising from local business practices, cultural considerations and
international political and trade tensions. The Company
operates in many parts of the world that have experienced governmental
corruption to some degree. Accordingly, in certain circumstances,
strict compliance with local laws and anti-bribery laws may conflict with
local customs and practices.
|
If the Company is unable to successfully manage the risks associated with its global business, the Company’s financial condition, cash flows and results of operations may be negatively impacted.
The
Company has operations in several countries in the Middle East, including
Bahrain, Egypt, Israel, Qatar, Saudi Arabia and the United Arab Emirates, as
well as India, which are geographically close to countries with a continued high
risk of armed hostilities. During 2009, 2008 and 2007, the Company’s
Middle East operations contributed approximately $71.8 million, $66.7 million
and $44.6 million, respectively, to the Company’s operating
income. Additionally, the Company has operations in and sales to
countries that have encountered outbreaks of communicable diseases (e.g.,
Acquired Immune Deficiency Syndrome (“AIDS”) and others). In
countries in which such outbreaks occur, worsen or spread to other countries,
the Company may be negatively impacted through reduced sales to and within those
countries and other countries impacted by such diseases.
- 10
-
Exchange
rate fluctuations may adversely impact the Company’s business.
Fluctuations
in foreign exchange rates between the U.S. dollar and the over 40 other
currencies in which the Company conducts business may adversely impact the
Company’s operating income and income from continuing operations in any given
fiscal period. Approximately 66% and 68% of the Company’s sales and
approximately 52% and 61% of the Company’s operating income from continuing
operations for the years ended December 31, 2009 and 2008, respectively, were
derived from operations outside the United States. More specifically,
approximately 15% and 17% of the Company’s revenues were derived from operations
in the United Kingdom during 2009 and 2008,
respectively. Additionally, approximately 27% and 26% of the
Company’s revenues were derived from operations with the euro as their
functional currency during 2009 and 2008, respectively. Given the
structure of the Company’s revenues and expenses, an increase in the value of
the U.S. dollar relative to the foreign currencies in which the Company earns
its revenues generally has a negative impact on operating income, whereas a
decrease in the value of the U.S. dollar tends to have the opposite
effect. The Company’s principal foreign currency exposures are to the
British pound sterling and the euro.
Compared
with the corresponding period in 2008, the average values of major currencies
changed as follows in relation to the U.S. dollar during 2009, impacting the
Company’s sales and income:
•
|
British
pound sterling
|
Weakened
by 17%
|
|
•
|
euro
|
Weakened
by 6%
|
|
•
|
South
African rand
|
Relatively
constant
|
|
•
|
Brazilian
real
|
Weakened
by 9%
|
|
•
|
Canadian
dollar
|
Weakened
by 7%
|
|
•
|
Australian
dollar
|
Weakened
by 7%
|
|
•
|
Polish
zloty
|
Weakened
by 30%
|
Compared
with exchange rates at December 31, 2008, the values of major currencies changed
as follows as of December 31, 2009:
•
|
British
pound sterling
|
Strengthened
by 10%
|
|
•
|
euro
|
Strengthened
by 2%
|
|
•
|
South
African rand
|
Strengthened
by 21%
|
|
•
|
Brazilian
real
|
Strengthened
by 25%
|
|
•
|
Canadian
dollar
|
Strengthened
by 14%
|
|
•
|
Australian
dollar
|
Strengthened
by 21%
|
|
•
|
Polish
zloty
|
Strengthened
by 3%
|
The Company’s foreign currency exposures increase the risk of income statement, balance sheet and cash flow volatility. If the above currencies change materially in relation to the U.S. dollar, the Company’s financial position, results of operations, or cash flows may be materially affected.
To
illustrate the effect of foreign currency exchange rate changes in certain key
markets of the Company, in 2009, revenues would have been approximately 9% or
$254.7 million less and operating income would have been approximately 14% or
$30.6 million less if the average exchange rates for 2008 were
utilized. A similar comparison for 2008 would have decreased revenues
approximately 1% or $30.8 million, while operating income would have been
approximately 1% or $3.3 million less if the average exchange rates for 2008
would have remained the same as 2007. If the U.S. dollar weakens in
relation to the euro and British pound sterling, the Company would generally
expect to see a positive effect on future sales and income from continuing
operations as a result of foreign currency translation. Currency
changes also result in assets and liabilities denominated in local currencies
being translated into U.S. dollars at different amounts than at the prior period
end. If the U.S. dollar weakens in relation to currencies in
countries in which the Company does business, the translated amounts of the
related assets and liabilities, and therefore stockholders’ equity, would
increase. Conversely, if the U.S. dollar strengthens in relation to
currencies in countries in which the Company does business, the translated
amounts of the related assets, liabilities, and therefore stockholders’ equity,
would decrease.
Although
the Company engages in foreign currency forward exchange contracts and other
hedging strategies to mitigate foreign exchange risk, hedging strategies may not
be successful or may fail to completely offset the risk. The Company
has a Foreign Currency Risk Management Committee that develops and implements
strategies to mitigate these risks.
- 11
-
In
addition, competitive conditions in the Company’s manufacturing businesses may
limit the Company’s ability to increase product prices in the face of adverse
currency movements. Sales of products manufactured in the United
States for the domestic and export markets may be affected by the value of the
U.S. dollar relative to other currencies. Any long-term strengthening
of the U.S. dollar could depress demand for these products and reduce sales and
may cause translation gains or losses due to the revaluation of accounts
payable, accounts receivable and other asset and liability
accounts. Conversely, any long-term weakening of the U.S. dollar
could improve demand for these products and increase sales and may cause
translation gains or losses due to the revaluation of accounts payable, accounts
receivable and other asset and liability accounts.
Cyclical
industry and economic conditions may adversely affect the Company’s
businesses.
The
Company’s businesses are subject to general economic slowdowns and cyclical
conditions in the industries served. In particular:
·
|
The
Company’s Harsco Infrastructure Segment may be adversely impacted by
slowdowns in non-residential, multi-dwelling residential or infrastructure
construction and annual industrial and building maintenance
cycles;
|
·
|
The
Company’s Harsco Metals Segment may be adversely impacted by slowdowns in
steel mill production, excess capacity, consolidation or bankruptcy of
steel producers or a reversal or slowing of current outsourcing trends in
the steel industry;
|
·
|
The
Company’s Harsco Rail Segment may be adversely impacted by developments in
the railroad industry that lead to lower capital spending or reduced
maintenance spending;
|
·
|
The
reclamation recycling services business may be adversely impacted by
slowdowns in customer production or a reduction in the selling price of
its materials, which is market-based and varies based upon the current
fair value of the components being sold. Therefore, the revenue
amounts generated from the sale of such recycled materials vary based upon
the fair value of the commodity components being
sold;
|
·
|
The
roofing granules and abrasives business may be adversely impacted by
reduced home resales or economic conditions that slow the rate of
residential roof replacement, or by slowdowns in the industrial and
infrastructure refurbishment
industries;
|
·
|
The
industrial grating products business may be adversely impacted by
slowdowns in non-residential construction and industrial
production;
|
·
|
The
air-cooled heat exchangers business is affected by cyclical conditions
present in the natural gas industry. Therefore, a slowdown in
natural gas production could adversely affect this
business;
|
·
|
The
Company’s access to capital and the associated costs of borrowing may be
adversely impacted by the tightening of credit markets. Capital
constraints and increased borrowing costs may also adversely impact the
financial position and operations of the Company’s customers across all
business segments. Such customer capital constraints may result
in cancelled or postponed construction projects negatively affecting the
Harsco Infrastructure Segment.
|
The
seasonality of the Company’s business may cause its quarterly results to
fluctuate.
The
Company has historically generated the majority of its cash flows provided by
operations in the second half of the year. This is a result of
normally higher income during the second half of the year, as the Company’s
business tends to follow seasonal patterns. If the Company is unable
to successfully manage the cash flow and other effects of seasonality on the
business, its results of operations may suffer. The Company’s
historical revenue patterns and net cash provided by operating activities are
included in Part I, Item 1, “Business.”
The
Company may lose customers or be required to reduce prices as a result of
competition.
The
industries in which the Company operates are highly
competitive.
·
|
The
Harsco Infrastructure Segment rents and sells equipment and provides
erection and dismantling services to principally the non-residential and
infrastructure construction and industrial plant maintenance
markets. Contracts are awarded based upon the Company’s engineering
capabilities, product availability and efficiency, safety
record,
|
- 12
-
|
and
the ability to competitively price its rentals and services. If the
Company is unable to consistently provide high-quality products and
services at competitive prices, it may lose customers or operating margins
may decline due to reduced selling
prices.
|
·
|
The
Harsco Metals Segment is sustained mainly through contract renewals.
Historically, the Company has a high contract renewal rate. If the
Company is unable to renew its contracts at the historical rates or
renewals are at reduced prices, revenue and operating profits may
decline. Additionally, the Company has been exiting certain
underperforming contracts in an effort to improve overall
profitability. The Company will continue to exit underperforming
contracts as considered necessary to achieving its strategic
initiatives.
|
·
|
The
Harsco Rail Segment and the Company’s manufacturing businesses compete
with companies that manufacture similar products both internationally and
domestically. Certain international competitors export their
products into the United States and sell them at lower prices due to lower
labor costs and government subsidies for exports. Such practices may
limit the prices the Company can charge for its products and
services. Additionally, unfavorable foreign exchange rates can
adversely impact the Company’s ability to match the prices charged by
international competitors. If the Company is unable to match the
prices charged by international competitors, it may lose
customers.
|
The
Company’s strategy to overcome this competition includes enterprise business
optimization programs, international customer expansion, particularity in
emerging economies, and the diversification, streamlining and consolidation of
operations.
Increased customer concentration and credit risk in the Harsco Metals Segment may adversely impact the Company’s future earnings and cash flows.
·
|
The
Harsco Metals Segment and, to a lesser extent, the Harsco Rail Segment and
the All Other Category have several large customers throughout the world
with significant accounts receivable balances. Consolidation in the
global steel industry has occurred in recent years and additional
consolidation is possible. Should additional transactions occur
involving some of the steel industry’s larger companies which are
customers of the Company, it would result in an increase in concentration
of credit risk for the Company. If a large customer were to
experience financial difficulty, or file for bankruptcy protection, it
could adversely impact the Company’s income, cash flows and asset
valuations. As part of its credit risk management practices,
the Company has developed strategies to mitigate, although not eliminate,
this increased concentration of credit
risk.
|
·
|
In
the Harsco Infrastructure Segment, concentrations of credit risk with
respect to accounts receivable are generally limited due to the Company’s
large number of customers and their dispersion across different
geographies. However, continued economic declines in particular
regions of the world could result in higher customer defaults and could
adversely impact the Company’s income, cash flows and asset
valuations. The Company has developed strategies to mitigate,
but not eliminate, this risk.
|
·
|
The
Company’s businesses may be negatively affected by contractual disputes
with customers and attempts by major customers to unilaterally change the
terms and pricing of certain contracts to their sole advantage without
adequate consideration to the
Company.
|
The
Company is subject to changes in legislative, regulatory and legal developments
involving income taxes.
The
Company is subject to U.S. federal, state and international income, payroll,
property, sales and use, fuel, and other types of taxes. Changes in tax
rates, enactment of new tax laws, revisions of tax regulations, and claims or
litigation with taxing authorities could result in substantially higher taxes
and, therefore, could have a significant adverse effect on the Company’s results
of operations, financial condition and liquidity. Currently, a
majority of the Company’s revenue is generated from customers located outside
the United States, and a substantial portion of the Company’s assets and
employees are located outside the United States. U.S. income tax and
foreign withholding taxes have not been provided on undistributed earnings for
certain non-U.S. subsidiaries, because such earnings are intended to be
indefinitely reinvested in the operations of those
subsidiaries.
Several
U.S. legislation proposals have been announced that would substantially reduce
(or have the effect of substantially reducing) the Company’s ability to defer
U.S. taxes on profit permanently reinvested outside the United States.
Proposals to date could have a negative impact on the Company’s financial
position and operating results. Additionally, they could have a negative
impact on the Company’s ability to compete in the global marketplace. The
probability of any of these proposals being enacted cannot be predicted with any
certainty. Indications are that reform
- 13
-
in 2010
is still likely, but such reform may be structured with more of the business
community’s concerns in mind. Nonetheless, the Company is working with
legislators with the goal of achieving a balanced and fair approach to tax
reform. The Company continues to monitor legislation to be in position to
structure operations in a manner that will reduce the impact of enacted
changes.
The
Company’s defined benefit net periodic pension cost is directly affected by the
equity and bond markets, and a downward trend in those markets could adversely
impact the Company’s future earnings.
In
addition to the economic issues that directly affect the Company’s businesses,
changes in the performance of equity and bond markets, particularly in the
United Kingdom and the United States, impact actuarial assumptions used in
determining annual net periodic pension cost, pension liabilities and the
valuation of the assets in the Company’s defined benefit pension
plans. Further financial market deterioration would most likely have
a negative impact on the Company’s net periodic pension cost and the accounting
for pension assets and liabilities. This could result in a decrease
to Stockholders’ Equity and an increase in the Company’s statutory funding
requirements.
The
Company’s earnings may be positively or negatively impacted by the amount of
income or expense the Company records for defined benefit pension
plans. The Company calculates income or expense for the plans using
actuarial valuations that reflect assumptions relating to financial market and
other economic conditions. The most significant assumptions used to
estimate defined benefit pension income or expense for the upcoming year are the
discount rate and the expected long-term rate of return on plan
assets. If there are significant changes in key economic indicators,
these assumptions may materially affect the Company’s financial position,
results of operations or cash flows. These key economic indicators
would also likely affect the amount of cash the Company would contribute to the
defined benefit pension plans. For a discussion regarding how the
Company’s financial statements can be affected by defined benefit pension plan
accounting policies, see the Pension Benefits section of the Application of
Critical Accounting Policies in Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
In
response to adverse market conditions during 2002 and 2003, the Company
conducted a comprehensive global review of its defined benefit pension plans in
order to formulate a strategy to make its long-term pension costs more
predictable and affordable. In 2008 and 2009, as a response to
worsening economic conditions, the Company implemented design changes for
additional defined benefit plans, of which the principal change involved
converting future pension benefits for many of the Company’s non-union employees
in the United Kingdom from a defined benefit plan to a defined contribution
plan.
The
Company’s pension committee continues to evaluate alternative strategies to
further reduce overall net periodic pension cost including: conversion of
certain remaining defined benefit plans to defined contribution plans; the
ongoing evaluation of investment fund managers’ performance; the balancing of
plan assets and liabilities; the risk assessment of all multi-employer pension
plans; the possible merger of certain plans; the consideration of incremental
voluntary cash contributions to certain plans; and other changes that are likely
to reduce future net periodic pension cost volatility and minimize
risk.
In
addition to the Company’s defined benefit pension plans, the Company also
participates in numerous multi-employer pension plans throughout the world.
Within the United States, the Pension Protection Act of 2006 may require
additional funding for multi-employer plans that could cause the Company to be
subject to higher cash contributions in the future. Additionally,
market conditions may affect the funded status of multi-employer plans and
consequently any Company withdrawal liability, if applicable. The
Company continues to monitor and assess any full and partial withdrawal
liability implications associated with these plans.
Further
tightening of credit, as well as downgrades in Harsco’s credit ratings, could
increase Harsco’s cost of borrowing and could adversely affect Harsco’s future
earnings and ability to access the capital markets.
Continued
tightening of the credit markets may adversely impact the Company’s access to
capital and the associated costs of borrowing; however, this is somewhat
mitigated by the Company’s strong financial position. The Company’s
cost of borrowing and ability to access the capital markets are affected not
only by market conditions but also by the short- and long-term debt ratings
assigned to Harsco’s debt by the major credit rating agencies. These
ratings are based, in part, on the Company’s financial position and liquidity as
measured by credit metrics such as interest coverage and leverage
ratios. See Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources” for further discussion on credit ratings and
outlook. An inability to access the capital markets could have a
material adverse effect on the Company’s financial condition, results of
operations or cash flows.
- 14
-
Restrictions
imposed by the Company’s credit facilities and outstanding notes may limit the
Company’s ability to obtain additional financing or to pursue business
opportunities.
The
Company’s credit facilities and certain notes payable agreements contain a
covenant stipulating a maximum debt to capital ratio of 60%. Certain
notes payable agreements also contain a covenant requiring a minimum net worth
of $475 million. In addition, one credit facility limits the
proportion of subsidiary consolidated indebtedness to a maximum of 10% of
consolidated tangible assets. These covenants limit the amount of
debt the Company may incur, which could limit its ability to obtain additional
financing or pursue business opportunities. In addition, the
Company’s ability to comply with these ratios may be affected by events beyond
its control. A breach of any of these covenants or the inability to
comply with the required financial ratios could result in a default under these
credit facilities. In the event of any default under these credit
facilities, the lenders under those facilities could elect to declare all
borrowings outstanding, together with accrued and unpaid interest and other
fees, to be due and payable, which would cause an event of default under the
notes. This could, in turn, trigger an event of default under the
cross-default provisions of the Company’s other outstanding
indebtedness. At December 31, 2009, the Company was in compliance
with these covenants with a debt to capital ratio of 39.5%, a net worth of $1.5
billion and less than 1% of consolidated subsidiary indebtedness to consolidated
tangible assets. The Company had $322.7 million in outstanding
indebtedness containing these covenants at December 31, 2009.
Failure
of financial institutions to fulfill their commitments under committed credit
facilities and derivative financial instruments may adversely affect the
Company’s future earnings and cash flows.
The
Company has committed revolving credit facilities with financial institutions
available for its use, for which the Company pays commitment fees. One
facility is provided by a syndicate of several financial institutions, with each
institution agreeing severally (and not jointly) to make revolving credit loans
to the Company in accordance with the terms of the related credit
agreement. If one or more of the financial institutions providing
these committed credit facilities were to default on its obligation to fund its
commitment, the portion of the committed facility provided by such defaulting
financial institution would not be available to the Company. The
Company periodically evaluates the creditworthiness of financial institution
counterparties and does not expect default by them. However, given
the current global financial environment, such default remains
possible.
The
Company has foreign currency forward exchange contracts outstanding as part of a
worldwide program to minimize foreign currency exchange operating income and
balance sheet exposure. 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 Company may also enter into derivative contracts to
hedge commodity exposures. The unsecured contracts outstanding at
December 31, 2009 mature at various times within three 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 creditworthiness of the
counterparties and does not expect default by them. However, given
the current global financial environment, such default remains
possible.
The
inability of a counterparty to fulfill its obligation under committed credit
facilities or derivative financial instruments may have a material adverse
effect on the Company’s financial condition, results of operations or cash
flows.
See Part
II, Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources” of this report
for more information.
The
Company’s cash flows and earnings are subject to changes in interest
rates.
The
Company’s total debt as of December 31, 2009 was $1.0 billion. Of
this amount, approximately 6.4% had variable rates of interest and 93.6% had
fixed rates of interest. The weighted average interest rate of total
debt was approximately 5.8%. At current debt levels, a one percentage
point increase/decrease in variable interest rates would increase/decrease
interest expense by approximately $0.6 million per year. If the
Company is unable to successfully manage its exposure to variable interest
rates, its results of operations may be negatively impacted.
A negative
outcome on personal injury claims against the Company may adversely
impact results of operations and financial condition.
The
Company has been named as one of many defendants (approximately 90 or more in
most cases) in legal actions alleging personal injury from exposure to airborne
asbestos over the past several decades. In their suits, the
plaintiffs have named as defendants, among others, many manufacturers,
distributors and installers of numerous types of equipment or products that
allegedly contained asbestos. The majority of the asbestos complaints
pending against the
- 15
-
Company
have been filed in New York. Almost all of the New York complaints
contain a standard claim for damages of $20 million or $25 million against the
approximately 90 defendants, regardless of the individual plaintiff’s alleged
medical condition, and without specifically identifying any Company product as
the source of plaintiff’s asbestos exposure. If the Company is found
to be liable in any of these actions and the liability exceeds the Company’s
insurance coverage, results of operations, cash flows and financial condition
could be adversely affected. For more information concerning this
litigation, see Note 10, Commitments and Contingencies, to the Consolidated
Financial Statements under Part II, Item 8, “Financial Statements and
Supplementary Data.”
Higher
than expected claims under insurance policies, under which the Company retains a
portion of the risk, could adversely impact results of operations and cash
flows.
The
Company retains a significant portion of the risk for property, workers’
compensation, U.K. employers’ liability, automobile, general and product
liability losses. Reserves have been recorded that reflect the
undiscounted estimated liabilities for ultimate losses including claims incurred
but not reported. Inherent in these estimates are assumptions that
are based on the Company’s history of claims and losses, a detailed analysis of
existing claims with respect to potential value, and current legal and
legislative trends. At December 31, 2009 and 2008, the Company had
recorded liabilities of $87.2 million and $97.2 million, respectively, related
to both asserted and unasserted insurance claims. Included in the
balance at December 31, 2009 and 2008 were $6.9 million and $17.8 million,
respectively, of recognized liabilities covered by insurance
carriers. If actual claims are higher than those projected by
management, an increase to the Company’s insurance reserves may be required and
would be recorded as a charge to income in the period the need for the change
was determined. Conversely, if actual claims are lower than those
projected by management, a decrease to the Company’s insurance reserves may be
required and would be recorded as a reduction to expense in the period the need
for the change was determined. The Company periodically evaluates the
creditworthiness of the insurance providers and does not expect default by
them. However, given the current global financial environment, such
default remains possible.
The Company is
subject to various environmental laws, and the success of existing or future
environmental claims against it could adversely impact the Company’s
results of
operations and cash flows.
The
Company’s operations are subject to various federal, state, local and
international laws, regulations and ordinances relating to the protection of
health, safety and the environment, including those governing discharges to air
and water, handling and disposal practices for solid and hazardous wastes, the
remediation of contaminated sites and the maintenance of a safe
workplace. These laws impose penalties, fines and other sanctions for
non-compliance and liability for response costs, property damages and personal
injury resulting from past and current spills, disposals or other releases of,
or exposure to, hazardous materials. The Company could incur
substantial costs as a result of non-compliance with or liability for
remediation or other costs or damages under these laws. The Company
may be subject to more stringent environmental laws in the future, and
compliance with more stringent environmental requirements may require the
Company to make material expenditures or subject it to liabilities that the
Company currently does not anticipate.
The
Company is currently involved in a number of environmental remediation
investigations and cleanups and, along with other companies, has been identified
as a “potentially responsible party” for certain waste disposal sites under the
federal “Superfund” law. At several sites, the Company is currently
conducting environmental remediation, and it is probable that the Company will
agree to make payments toward funding certain other of these remediation
activities. It also is possible that some of these matters will be
decided unfavorably to the Company and that other sites requiring remediation
will be identified. Each of these matters is subject to various
uncertainties, and 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 Company has evaluated its
potential liability and the Consolidated Balance Sheets at December 31, 2009 and
2008 include an accrual of $3.1 million and $3.2 million, respectively, for
future expenditures related to environmental matters. The amounts
charged against pre-tax earnings related to environmental matters totaled $1.5
million, $1.5 million and $2.8 million for the years ended December 31, 2009,
2008 and 2007, respectively. The liability for future remediation
costs is evaluated on a quarterly basis. Actual costs to be incurred
at identified sites in future periods may be greater than the estimates, given
inherent uncertainties in evaluating environmental exposures.
Increases
in energy prices could increase the Company’s operating costs and reduce its
profitability.
Worldwide
political and economic conditions, an imbalance in the supply and demand for
oil, extreme weather conditions and armed hostilities in oil-producing regions,
among other factors, may result in an increase in the volatility of energy
costs, both on a macro basis and for the Company specifically. To the
extent that increased energy costs
- 16
-
cannot be
passed on to customers in the future, the financial condition, results of
operations and cash flows of the Company may be adversely
affected. To the extent that reduced energy costs are not passed on
to customers in the future, this may have a favorable impact on the financial
condition, results of operations and cash flows of the Company. The
Company has established a Risk Management Committee to manage the risk of
increased energy prices that affect the Company’s operations.
Increases
or decreases in purchase prices (or selling prices) or availability of steel or
other materials and commodities may affect the Company’s
profitability.
The
profitability of the Company’s manufactured products is affected by changing
purchase prices of steel and other materials and commodities. If raw
material costs associated with the Company’s manufactured products increase and
the costs cannot be transferred to the Company’s customers, operating income
would be adversely affected. Additionally, decreased availability of
steel or other materials could affect the Company’s ability to produce
manufactured products in a timely manner. If the Company cannot obtain the
necessary raw materials for its manufactured products, then revenues, operating
income and cash flows will be adversely affected.
Certain
services performed by the Harsco Minerals business result in the recovery,
processing and sale of specialty steel and other high-value metal by-products to
its customers. The selling price of the by-products material is
market-based and varies based upon the current fair value of its
components. Therefore, the revenue amounts generated from the sale of
such by-products material vary based upon the fair value of the commodity
components being sold.
The
Company may not be able to manage and integrate acquisitions
successfully.
In the
past, the Company has acquired businesses and continues to evaluate strategic
acquisition opportunities that have the potential to support and strengthen the
business. The Company can give no assurances, however, that any
acquisition opportunities will arise or, if they do, that they will be
consummated, or that additional financing or capital, if needed, will be
available on satisfactory terms. In addition, acquisitions involve
inherent risks that the businesses acquired will not perform in accordance with
the Company’s expectations. The Company may not be able to achieve
the synergies and other benefits that are expected from the integration of
acquisitions as successfully or rapidly as projected, if at all. The
Company’s failure to effectively integrate newly acquired operations could
prevent the Company from recognizing expected rates of return on an acquired
business and could have a material and adverse effect on the results of
operations, financial condition and cash flows.
The
future financial impact on the Company associated with the above risks cannot be
estimated.
Item
1B.
|
Unresolved
Staff Comments.
|
None.
Item
2.
|
Properties.
|
Information
as to the principal properties owned and operated by the Company is summarized
in the following table:
Location
|
Principal
Products
|
|
Harsco
Infrastructure Segment
|
||
Dosthill,
United Kingdom
|
Infrastructure
Services, Rentals and Sales
|
|
Trevoux,
France
|
Infrastructure
Services, Rentals and Sales
|
|
Arkel,
The Netherlands
|
Infrastructure
Services, Rentals and Sales
|
|
Lubna,
Poland
|
Infrastructure
Services, Rentals and Sales
|
|
Harsco
Rail Segment
|
||
Brendale,
Australia
|
Rail
Maintenance Equipment
|
|
Fairmont,
Minnesota
|
Rail
Maintenance Equipment
|
|
Ludington,
Michigan
|
Rail
Maintenance Equipment
|
|
West
Columbia, South Carolina
|
Rail
Maintenance Equipment
|
- 17
-
Location
|
Principal
Products
|
|
All
Other Category – Harsco Minerals
& Harsco Industrial
|
||
Drakesboro,
Kentucky
|
Roofing
Granules/Abrasives
|
|
Gary,
Indiana
|
Roofing
Granules/Abrasives
|
|
Channelview,
Texas
|
Industrial
Grating Products
|
|
Leeds,
Alabama
|
Industrial
Grating Products
|
|
Queretaro,
Mexico
|
Industrial
Grating Products
|
|
East
Stroudsburg, Pennsylvania
|
Heat
Transfer Products
|
|
Catoosa,
Oklahoma
|
Heat
Exchangers
|
|
Sarver,
Pennsylvania
|
Minerals
and Recycling Technologies
|
The
Company also operates at the following principal properties that are
leased:
Location
|
Principal
Products
|
||
Harsco
Infrastructure Segment
|
|||
Ratingen,
Germany
|
Infrastructure
Services, Rentals and Sales
|
||
Berlin,
Germany
|
Infrastructure
Services, Rentals and Sales
|
||
Darmstadt,
Germany
|
Infrastructure
Services, Rentals and Sales
|
||
Mitry-Mory,
France
|
Infrastructure
Services, Rentals and Sales
|
||
Manchester,
United Kingdom
|
Infrastructure
Services, Rentals and Sales
|
||
Dubai,
United Arab Emirates
|
Infrastructure
Services, Rentals and Sales
|
||
Abu
Dhabi, United Arab Emirates
|
Infrastructure
Services, Rentals and Sales
|
||
Al
Khor, Qatar
|
Infrastructure
Services, Rentals and Sales
|
||
Pittsburgh,
Pennsylvania
|
Infrastructure
Services, Rentals and Sales
|
||
All
Other Category – Harsco Minerals & Harsco Industrial
|
|||
Fairless
Hills, Pennsylvania
|
Roofing
Granules/Abrasives
|
||
Tulsa,
Oklahoma
|
Industrial
Grating Products
|
||
Garrett,
Indiana
|
Industrial
Grating Products
|
||
Catoosa,
Oklahoma
|
Heat
Exchangers
|
||
Sapulpa,
Oklahoma
|
Heat
Exchangers
|
||
Sorel
– Tracy, Canada
|
Minerals
and Recycling Technologies
|
||
Timoteo,
Brazil
|
Minerals
and Recycling Technologies
|
The
Harsco Metals Segment principally operates on customer-owned sites and has
administrative offices in Camp Hill, Pennsylvania, and Leatherhead, United
Kingdom.
The above
listing includes the principal properties owned or leased by the
Company. The Company also operates from a number of other smaller
plants, branches, depots, warehouses and offices in addition to the
above. The Company considers all of its properties at which
operations are currently performed to be in satisfactory condition and suitable
for their intended use.
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 to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
covered by this report.
- 18
-
Supplementary
Item. Executive Officers of the Registrant (Pursuant to Instruction 3
to Item 401(b) of Regulation S-K).
Set forth
below, as of February 23, 2010, are the executive officers (this excludes five
corporate officers who are not deemed “executive officers” within the meaning of
applicable Securities and Exchange Commission regulations) of the Company and
certain information with respect to each of
them. S. D. Fazzolari, G. D. H. Butler,
M. E. Kimmel, S. J. Schnoor, R. C. Neuffer and
R. M. Wagner were elected to their respective positions effective
April 28, 2009. G. J. Claro was elected to his position
effective June 1, 2009. All terms expire on April 27,
2010. There are no family relationships between any of the executive
officers.
Name
|
Age
|
Principal Occupation or
Employment
|
Executive
Officers:
|
||
S.
D. Fazzolari
|
57
|
Chairman
and Chief Executive Officer of the Company since April 22,
2008. Chief Executive Officer of the Company since January 1,
2008. Served as President and Chief Financial Officer of the
Company from October 10, 2007 to December 31, 2007. Served as
President, Chief Financial Officer and Treasurer of the Company from
January 24, 2006 to October 9, 2007 and as a Director since January
2002. Served as Senior Vice President, Chief Financial Officer
and Treasurer from August 1999 to January 2006 and 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.
|
G.
D. H. Butler
|
63
|
President
of the Company and CEO of the Harsco Infrastructure business group since
January 1, 2008. Also served as CEO of the Harsco Metals
business group between January 1, 2008 and June 1, 2009. Served
as Senior Vice President-Operations of the Company from September 26, 2000
to December 31, 2007 and as a Director since January
2002. Concurrently served as President of the MultiServ and SGB
Group Divisions. From September 2000 through December 2003, he
was President of the Heckett MultiServ International and SGB Group
Divisions. 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 in
1994. Served in various officer positions within MultiServ
International, N. V. prior to 1994 and prior to the Company’s acquisition
of that company in 1993.
|
M.
E. Kimmel
|
50
|
Senior
Vice President, Chief Administrative Officer, General Counsel and
Corporate Secretary since January 1, 2008. Served as General
Counsel and Corporate Secretary from January 1, 2004 to December 31,
2007. Served as Corporate Secretary and Assistant General
Counsel from May 1, 2003 to December 31, 2003. Held various
legal positions within the Company since he joined Harsco in August
2001. Prior to joining the Company, he was Vice President,
Administration and General Counsel, New World Pasta Company from January
1999 to July 2001. Before joining New World Pasta, Mr. Kimmel
spent approximately 12 years in various legal positions with Hershey Foods
Corporation.
|
S.
J. Schnoor
|
56
|
Senior
Vice President and Chief Financial Officer since January 1,
2008. Served as Vice President and Controller of the Company
from May 15, 1998 to December 31, 2007. 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 Company from 1988 to
1993. Prior to joining Harsco, he served in various auditing
positions for Coopers & Lybrand from September 1985 to
April 1988. Mr. Schnoor is a Certified Public
Accountant.
|
- 19
-
Name
|
Age
|
Principal Occupation or
Employment
|
G.
J. Claro
|
50
|
CEO
of the Company’s Harsco Metals and Harsco Minerals business groups since
September 1, 2009. Served as CEO of the Company’s Metals Group
since June 1, 2009. Prior to joining the Company, he was
CEO-Aleris Americas for Aleris International, a global leader in the
production of aluminum rolled and extruded products, recycled aluminum and
special alloys, from 2008 to 2009. Before joining Aleris
International, Mr. Claro served as President and CEO of the Heico Metals
Processing Group, a diversified conglomerate with operations in the U.S.,
Canada and Europe, between 2007 and 2008. Between 2005 and
2006, Mr. Claro served as Global Packaging Vice President of Operations
for Alcoa, Inc., overseeing manufacturing facilities and Products &
Brands Innovation Centers in the U.S., Latin America and
Europe.
|
R.
C. Neuffer
|
67
|
Harsco
Senior Vice President since January 1, 2008 and CEO for the Company’s
Harsco Rail Segment and Harsco Industrial Group since January 1,
2009. Served as CEO of the Company’s Minerals Group between
January 1, 2009 and September 1, 2009. Served as President of
the Minerals & Rail Group since his appointment on January 24,
2006. Previously, he led the Patterson-Kelley, IKG Industries
and Air-X-Changers units as Vice President and General Manager since
2004. In 2003, he was Vice President and General Manager of IKG
Industries and Patterson-Kelley. Between 1997 and 2002, he was
Vice President and General Manager of Patterson-Kelley. Mr.
Neuffer joined the Company in 1991.
|
R.
M. Wagner
|
42
|
Vice
President and Controller since January 1, 2008. Mr. Wagner
joined the Company in 2007 as Assistant Controller. Prior to
joining the Company, he held management responsibilities for financial
reporting at Bayer Corporation. He previously held a number of
financial management positions both in the United States and
internationally with Kennametal Inc., and also served as an audit manager
with Deloitte & Touche. Mr. Wagner is a Certified Public
Accountant.
|
- 20
-
PART
II
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
Harsco
Corporation common stock is listed on the New York Stock Exchange. At
the end of 2009, there were 80,353,059 shares outstanding. In 2009,
the Company’s common stock traded in a range of $16.90 to $37.65 and closed at
$32.23 at year-end. At December 31, 2009, there were approximately
19,500 stockholders. There are no significant limitations on the
payment of dividends included in the Company’s loan agreements. For
additional information regarding Harsco common stock market price and dividends
declared, see Dividend Action under Part II, Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and the Common
Stock Price and Dividend Information under Part II, Item 8, “Financial
Statements and Supplementary Data.” For additional information on the
Company’s equity compensation plans see Part III, Item 11, “Executive
Compensation.”
(c) Issuer
Purchases of Equity Securities
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
October
1, 2009 – October 31, 2009
|
-
|
-
|
-
|
2,000,000
|
November
1, 2009 – November 30, 2009
|
-
|
-
|
-
|
2,000,000
|
December
1, 2009 – December 31, 2009
|
-
|
-
|
-
|
2,000,000
|
Total
|
-
|
-
|
-
|
The
Company’s share repurchase program was extended by the Board of Directors in
September 2009. At that time, the Board authorized an increase of 463,353
shares to the 1,536,647 remaining from the Board’s previous stock repurchase
authorization. The repurchase program expires January 31, 2011. As
of December 31, 2009, there are 2,000,000 authorized shares remaining in the
program. When and if appropriate, repurchases are made in open market
transactions, depending on market conditions. Repurchases may not be made
and may be discontinued at any time.
- 21
-
Item
6.
|
Selected
Financial Data.
|
Five-Year
Statistical Summary
(In
thousands, except per share, employee information and
percentages)
|
2009
(a)
|
2008
|
2007
(b)
|
2006
|
2005
(c)
|
|||||||||||||||
Income
Statement Information attributable to Harsco Corporation common
stockholders (d)
|
||||||||||||||||||||
Revenues
from continuing operations
|
$ | 2,990,577 | $ | 3,967,822 | $ | 3,688,160 | $ | 3,025,613 | $ | 2,396,009 | ||||||||||
Income
from continuing operations
|
133,838 | 245,623 | 255,115 | 186,402 | 144,488 | |||||||||||||||
Income
(loss) from discontinued operations
|
(15,061 | ) | (4,678 | ) | 44,377 | 9,996 | 12,169 | |||||||||||||
Net
income attributable to Harsco Corporation
|
118,777 | 240,945 | 299,492 | 196,398 | 156,657 | |||||||||||||||
Financial
Position and Cash Flow Information
|
||||||||||||||||||||
Working
capital
|
$ | 418,237 | $ | 317,062 | $ | 471,367 | $ | 320,847 | $ | 352,620 | ||||||||||
Total
assets
|
3,639,240 | 3,562,970 | 3,905,430 | 3,326,423 | 2,975,804 | |||||||||||||||
Long-term
debt
|
901,734 | 891,817 | 1,012,087 | 864,817 | 905,859 | |||||||||||||||
Total
debt
|
984,927 | 1,012,883 | 1,080,794 | 1,063,021 | 1,009,888 | |||||||||||||||
Depreciation
and amortization (including discontinued operations)
|
311,531 | 337,949 | 306,413 | 252,982 | 198,065 | |||||||||||||||
Capital
expenditures
|
165,320 | 457,617 | 443,583 | 340,173 | 290,239 | |||||||||||||||
Cash
provided by operating activities
|
434,458 | 574,276 | 471,740 | 409,239 | 315,279 | |||||||||||||||
Cash
used by investing activities
|
(269,360 | ) | (443,418 | ) | (386,125 | ) | (359,455 | ) | (645,185 | ) | ||||||||||
Cash
provided (used) by financing activities
|
(164,083 | ) | (155,539 | ) | (77,687 | ) | (84,196 | ) | 369,325 | |||||||||||
Ratios
|
||||||||||||||||||||
Return
on sales (e)
|
4.5 | % | 6.2 | % | 6.9 | % | 6.2 | % | 6.0 | % | ||||||||||
Return
on average equity (f) (g)
|
9.1 | % | 14.6 | % | 18.9 | % | 16.4 | % | 14.9 | % | ||||||||||
Current
ratio
|
1.6:1
|
1.4:1
|
1.5:1
|
1.4:1
|
1.5:1
|
|||||||||||||||
Total
debt to total capital (g) (h)
|
39.5 | % | 41.1 | % | 40.3 | % | 47.4 | % | 49.6 | % | ||||||||||
Per
Share Information attributable to Harsco Corporation common stockholders
(i)
|
||||||||||||||||||||
Basic-
Income from continuing operations
|
$ | 1.67 | $ | 2.94 | $ | 3.03 | $ | 2.22 | $ | 1.73 | ||||||||||
- Income from discontinued
operations
|
(0.19 | ) | (0.06 | ) | 0.53 | 0.12 | 0.15 | |||||||||||||
- Net income
|
$ | 1.48 | $ | 2.88 | $ | 3.56 | $ | 2.34 | $ | 1.88 | ||||||||||
Diluted-
Income from continuing operations
|
$ | 1.66 | $ | 2.92 | $ | 3.01 | $ | 2.21 | $ | 1.72 | ||||||||||
- Income from discontinued
operations
|
(0.19 | ) | (0.06 | ) | 0.52 | 0.12 | 0.14 | |||||||||||||
- Net income
|
$ | 1.47 | $ | 2.87 | (j) | $ | 3.53 | $ | 2.33 | $ | 1.86 | |||||||||
Book
value (g)
|
$ | 18.79 | $ | 18.09 | $ | 18.99 | $ | 14.01 | $ | 12.30 | ||||||||||
Cash
dividends declared per share
|
$ | 0.805 | $ | 0.78 | $ | 0.7275 | $ | 0.665 | $ | 0.6125 | ||||||||||
Other
Information
|
||||||||||||||||||||
Diluted
average number of shares outstanding (i)
|
80,586 | 84,029 | 84,724 | 84,430 | 84,161 | |||||||||||||||
Number
of employees
|
19,600 | 21,500 | 21,500 | 21,500 | 21,000 | |||||||||||||||
Backlog
from continuing operations (k)
|
$ | 490,863 | $ | 639,693 | $ | 448,054 | $ | 236,460 | $ | 230,584 |
(a)
|
Includes
ESCO Interamerica, Ltd. acquired November 10, 2009 (Harsco
Infrastructure).
|
(b)
|
Includes
Excell Minerals acquired February 1, 2007 (All Other
Category-HarscoMinerals & Harsco
Industrial).
|
(c)
|
Includes
the Northern Hemisphere mill services operations of Brambles Industrial
Services (BISNH) acquired December 29, 2005 (Harsco Metals) and Hünnebeck
Group GmbH acquired November 21, 2005 (Harsco
Infrastructure).
|
(d)
|
2006
and 2005 income statement information is reclassified to reflect the Gas
Technologies Segment as Discontinued Operations. This Segment was
disposed on December 7, 2007.
|
(e)
|
“Return
on sales” is calculated by dividing income from continuing operations by
revenues from continuing
operations.
|
(f)
|
“Return
on average equity” is calculated by dividing income from continuing
operations by average equity throughout the
year.
|
(g)
|
2005
through 2008 have been restated in order to include noncontrolling
interests, previously referred to as minority interests, as a component of
equity in accordance with the changes to consolidation accounting and
reporting issued by the Financial Accounting Standards Board January 1,
2009.
|
(h)
|
“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.
|
(i)
|
2006
and 2005 per share information is restated to reflect the 2-for-1 stock
split effective in the first quarter of
2007.
|
(j)
|
Does
not total due to rounding.
|
(k)
|
Excludes
the estimated amount of long-term mill service contracts, which had
estimated future revenues of $3.6 billion at December 31, 2009 and $4.1
billion at December 31, 2008. Also excludes backlog of the Harsco
Infrastructure Segment and the roofing granules and industrial abrasives
business. These amounts are generally not quantifiable due to the
nature and timing of the products and services
provided.
|
- 22
-
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 business 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
that, among others, could cause future results to differ materially from the
forward-looking statements, expectations and assumptions expressed or implied
herein. Forward-looking statements contained herein could include,
among other things, statements about our management confidence and strategies
for performance; expectations for new and existing products, technologies and
opportunities; and expectations regarding growth, sales, cash flows, earnings
and Economic Value Added (“EVA®”). These statements can be identified
by the use of such terms as “may,” “could,” “expect,” “anticipate,” “intend,”
“believe” or other comparable terms.
Factors
that could cause results to differ include, but are not limited
to: (1) changes in the worldwide business environment in which the
Company operates, including general economic conditions; (2) changes in currency
exchange rates, interest rates, commodity and fuel costs and capital costs; (3)
changes in the performance of stock and bond markets that could affect, among
other things, the valuation of the assets in the Company’s pension plans and the
accounting for pension assets, liabilities and expenses; (4) changes in
governmental laws and regulations, including environmental, tax and import
tariff standards; (5) market and competitive changes, including pricing
pressures, market demand and acceptance for new products, services and
technologies; (6) unforeseen business disruptions in one or more of the many
countries in which the Company operates due to political instability, civil
disobedience, armed hostilities, public health issues or other calamities; (7)
the seasonal nature of the business; (8) our ability to successfully enter into
new contracts and complete new acquisitions or joint ventures in the timeframe
contemplated or at all; (9) the integration of the Company’s strategic
acquisitions; (10) the amount and timing of repurchases of the Company’s common
stock, if any; (11) the ongoing global financial and credit crisis, which could
result in our customers curtailing development projects, construction,
production and capital expenditures, which, in turn, could reduce the demand for
our products and services and, accordingly, our sales, margins and
profitability; (12) the financial condition of our customers, including the
ability of customers (especially those that may be highly leveraged and those
with inadequate liquidity) to maintain their credit availability; (13) our
ability to successfully implement cost-reduction initiatives; and (14) other
risk factors listed from time to time in the Company’s SEC reports. A
further discussion of these, along with other potential factors, can be found in
Part I, Item 1A, “Risk Factors,” of this Form 10-K. The Company
cautions that these factors may not be exhaustive and that many of these factors
are beyond the Company’s ability to control or predict. Accordingly,
forward-looking statements should not be relied upon as a prediction of actual
results. The Company undertakes no duty to update forward-looking
statements except as may be required by law.
Executive
Overview
The
following major challenges, emanating from the global recession that began in
2008, impacted the Company in 2009:
·
|
Unprecedented
low steel production throughout the
world;
|
·
|
A
lack of available credit to certain customers that caused commercial and
multi-family construction contracts to be cancelled or
postponed;
|
·
|
An
overall stronger U.S. dollar during 2009 compared with 2008;
and
|
·
|
Pricing
pressure across all businesses as customers sought to control costs during
the recession and increased competition for the remaining
projects.
|
In
response to further deterioration of global markets during 2009, the Company
supplemented its 2008 restructuring initiatives with additional countermeasures
targeting expense reduction, revenue enhancement and asset
optimization. The combination of the 2008 and 2009 countermeasures
have enabled the Company to make substantial progress in reducing its cost
structure. The savings realized from these initiatives will continue
to benefit 2010 and beyond. The Company’s actions to minimize its
cost base and increase efficient asset utilization have included the
following:
·
|
Redeployment
of its mobile asset base in the Harsco Infrastructure and Harsco Metals
Segments to focus on market segments that remain strong and provide growth
opportunities, such as the relocation of
infrastructure
|
- 23
-
|
rental
assets from the United Kingdom and Ireland to the Gulf Region of the
Middle East and Asia-Pacific, and to markets served by recent acquisitions
in Latin America; this helped enable a substantial reduction in capital
spending;
|
·
|
Reduction
in the global workforce of approximately 20% since September 2008 and
substantial reductions in discretionary
spending;
|
·
|
Continued
expansion of the Company’s Continuous Improvement
initiatives;
|
·
|
Substantial
reductions in capital spending resulting in record discretionary cash
flows;
|
·
|
Strengthening
certain key positions in the global leadership team with new
personnel;
|
·
|
Implementation
of supply chain optimization initiatives;
and
|
·
|
Implementation
of countermeasures to improve efficiency and remove unnecessary
costs.
|
The
Company’s 2009 revenues from continuing operations totaled $3.0 billion, a
decrease of $1.0 billion or 25% from 2008. The Company experienced
lower volume levels resulting from a deterioration of global steel markets and
weaker demand for infrastructure services resulting, in part, from the lack of
credit to finance projects, particularly in the United Kingdom, North America
and several other key European countries. Foreign currency
translation decreased sales by $254.7 million and accounted for approximately
26% of the decline in sales.
Operating
income from continuing operations was $218.7 million compared with $412.0
million in 2008, a decrease of 47%. Diluted earnings per share from
continuing operations were $1.66, a 43% decrease from 2008. Results
in 2008 included a charge of $0.28 per share in the fourth quarter for a
significant restructuring initiative. In the third quarter of 2009,
the Company recorded a net non-cash charge of $0.11 per basic and diluted share
for adjustments related principally to the improper recording of revenue by one
business unit in one country, over a period of approximately three
years. Previously issued financial statements were not revised based
on the Company’s determination that the cumulative effect was not material to
the full-year 2009 results or previously issued annual or quarterly financial
statements.
Revenues
from the Company’s targeted growth markets were approximately 23% and 20% of
total revenues for 2009 and 2008, respectively. Revenues by region
were as follows:
Revenues
by Region
|
|||||||||||||||||||||||||||||
Total
Revenues
Twelve
Months Ended December 31
|
Percentage
Growth From
2008
to 2009
|
||||||||||||||||||||||||||||
(Dollars
in millions)
|
2009
|
Percent
|
2008
|
Percent
|
Volume
|
Currency
|
Total
|
||||||||||||||||||||||
Western
Europe
|
$ | 1,268.5 | 42 | % | $ | 1,770.8 | 45 | % | (18.4 | %) | (10.0 | %) | (28.4 | %) | |||||||||||||||
North
America
|
1,062.6 | 35 | 1,370.0 | 35 | (21.8 | ) | (0.6 | ) | (22.4 | ) | |||||||||||||||||||
Middle
East and Africa
|
228.7 | 8 | 257.5 | 6 | (10.8 | ) | (0.4 | ) | (11.2 | ) | |||||||||||||||||||
Latin
America (a)
|
197.0 | 7 | 253.7 | 6 | (12.5 | ) | (9.9 | ) | (22.4 | ) | |||||||||||||||||||
Eastern
Europe
|
120.0 | 4 | 189.0 | 5 | (19.1 | ) | (17.4 | ) | (36.5 | ) | |||||||||||||||||||
Asia-Pacific
|
113.8 | 4 | 126.8 | 3 | (2.3 | ) | (7.9 | ) | (10.2 | ) | |||||||||||||||||||
Total
|
$ | 2,990.6 | 100 | % | $ | 3,967.8 | 100 | % | (18.2 | %) | (6.4 | %) | (24.6 | %) |
(a)
|
Includes
Mexico
|
During
2009, the Company generated net cash from operating activities of $434.5 million
compared with $574.3 million achieved in 2008. For 2009, capital
expenditures were reduced to $165.3 million compared with $457.6 million in 2008
as existing capital assets were used more efficiently. The Company
continues to have significant available liquidity and remains well-positioned
from a financial flexibility perspective. Net cash from operating
activities for 2009 is less than in 2008 due primarily to lower income as a
result of the global recession, but was offset by lower capital expenditures
compared with prior years, as the mobility of the capital asset base provided
the ability to reallocate resources globally. This reallocation was
performed without substantial new investments or harm to the productivity of the
equipment in the short-term, and confirmed the flexibility of the Company’s
capital allocation model. The reduction in capital spending has thus
allowed the Company to further enhance its balance sheet, maintain its dividend,
reduce debt to the extent possible under borrowing agreements and pursue
prudent, bolt-on acquisitions that are consistent with the Company’s growth
strategies. The Company’s cash flows are further discussed in the
“Liquidity and Capital Resources” section.
Segment
Summary
The
Harsco Infrastructure Segment generated lower revenue and operating income in
2009 compared with 2008. The reductions in 2009 were due principally
to reduced end-market demand, particularly in the United Kingdom, North America
and several other key European countries, and negative foreign currency
translation effects. Lower demand
- 24
-
was
driven by the lack of available credit to certain customers that has resulted in
cancelled and delayed non-residential construction projects, as well as a
significant decline in export sales of infrastructure-related
equipment. This Segment’s revenues in 2009 were $1.2 billion compared
with $1.5 billion in 2008, a 25% decrease. Operating income decreased
by 63% to $68.4 million, from $185.4 million in 2008. Operating
margins for the Segment declined to 5.9% from 12.0% in 2008. Foreign
currency translation decreased revenues and operating income for 2009 by $113.1
million and $14.2 million, respectively, in comparison with
2008. Harsco Infrastructure accounted for 39% and 31% of the
Company’s revenues and operating income, respectively, in 2009; compared with
39% and 45% of the revenues and operating income, respectively, for
2008.
Results
for the Harsco Metals Segment for 2009 reflected unprecedented customer steel
production cuts resulting from lower end-market demand due to the global
recession. Revenues for 2009 for the Harsco Metals Segment were $1.1
billion compared with $1.6 billion in 2008, a 31% decrease. Volume
decreases attributable to steel production cuts drove 72% of the reduction in
year-over-year sales and negative foreign currency translation contributed 26%
of the decline. This Segment generated operating income of $15.9
million during 2009 compared with operating income of $85.3 million in
2008. Foreign currency translation decreased revenues and operating
income for 2009 by $126.5 million and $16.4 million, respectively, in comparison
with 2008. Harsco Metals accounted for 36% and 7% of the Company’s
revenues and operating income, respectively, in 2009; compared with 40% and 21%
of the revenues and operating income, respectively, for 2008.
The
Harsco Rail Segment’s revenues in 2009 were $306.0 million compared with $277.6
million in 2008, a 10% increase. Operating income increased by 55% to
$56.5 million from $36.4 million in 2008. Operating margins for this
Segment increased by 540 basis points to 18.5% from 13.1% in
2008. The Harsco Rail business generated higher revenues in 2009
compared with 2008 due principally to shipments of equipment to China under
contracts with the China Ministry of Railways. Harsco Rail accounted
for 10% and 26% of the Company’s revenues and operating income, respectively, in
2009, compared with 7% and 9% of the revenues and operating income,
respectively, for 2008.
In the
All Other Category (“Harsco Minerals & Harsco Industrial”), revenues in 2009
were $440.3 million compared with $572.0 million in 2008, a decrease of
23%. Operating income decreased by 28% to $82.5 million from $114.5
million in 2008, due principally to volume and commodity price declines in the
minerals business and an overall market decline in the industrial grating
products business. Operating margins for the All Other Category
decreased by 130 basis points to a still respectable 18.7% from 20.0% in
2008. The minerals business continued to be adversely impacted by the
downturn in metals production and fluctuating commodity prices and the
industrial products business experienced an overall market decline as customers
reduced stock levels from high 2008 inventory levels. The All Other
Category accounted for 15% and 38% of the Company’s revenues and operating
income, respectively, in 2009 compared with 14% and 28% of the revenues and
operating income, respectively, for 2008.
2009
Highlights
The
following significant items affected the Company overall during 2009 in
comparison with 2008:
Company-Wide:
·
|
Revenues
and operating income were impacted by the global recession
as:
|
o
|
The
average value of the U.S. dollar increased significantly from 2008 to
2009, accounting for 26% of the sales decline and 16% of the decline in
operating income;
|
o
|
Global
steel production, which began to decline in the latter part of 2008,
remained at unprecedented low levels in 2009;
and
|
o
|
Restrictive
lending and credit practices continued to adversely affect non-residential
construction projects worldwide; this was coupled with pricing pressure as
customers sought price breaks and competitors pursued the limited number
of available projects.
|
·
|
During
2009, the Company’s operating income benefited from the restructuring
actions implemented in the fourth quarter of 2008. Operational
improvements were also recognized as a result of additional
countermeasures implemented throughout 2009 targeting expense reduction,
revenue enhancement and asset optimization. Cost savings from
the combination of the 2008 and 2009 countermeasures should manifest
themselves throughout 2010 and beyond with significant annualized
benefits.
|
·
|
Due
to strong operating cash flows and controlled capital spending, the
Company repaid debt of $84.3 million in 2009. Balance sheet
debt declined by a lower $28.0 million in the same period due to foreign
currency translation.
|
·
|
Cash
flow from operations for 2009 was $434.5 million. This was more
than sufficient to fund the cash requirements for investing activities of
$269.4 million while also providing excess funds to reduce
debt.
|
- 25
-
Harsco Infrastructure
Segment:
(Dollars
in millions)
|
2009
|
2008
|
|||||||
Revenues
|
$ | 1,159.2 | $ | 1,540.3 | |||||
Operating
income
|
68.4 | 185.4 | |||||||
Operating
margin percent
|
5.9 | % | 12.0 | % |
Harsco Infrastructure Segment –
Significant Effects on Revenues:
|
(In
millions)
|
||||
Revenues
– 2008
|
$ | 1,540.3 | |||
Net
decreased volume
|
(277.9 | ) | |||
Impact
of foreign currency translation
|
(113.1 | ) | |||
Acquisitions
|
9.9 | ||||
Revenues
– 2009
|
$ | 1,159.2 |
Harsco
Infrastructure Segment – Significant Effects on Operating Income:
·
|
In
2009, the Segment’s operating results decreased due to reduced
non-residential, commercial and infrastructure construction spending,
particularly in the United Kingdom, North America and several other key
European countries. This was partially offset by continued
strength in emerging economies in the Gulf Region of the Middle East and
Asia-Pacific regions, as well as the global industrial maintenance
sector. The Company has benefited from its capital investments
made in these markets in prior years and its ability to redeploy equipment
throughout the world.
|
·
|
In
response to further deterioration of global infrastructure markets during
2009, this Segment implemented additional countermeasures targeting
expense reduction, asset optimization and facility
rationalization.
|
·
|
Foreign
currency translation in 2009 decreased operating income for this Segment
by $14.2 million compared with
2008.
|
Harsco Metals
Segment:
(Dollars
in millions)
|
2009
|
2008
|
|||||||
Revenues
|
$ | 1,084.8 | $ | 1,577.7 | |||||
Operating
income
|
15.9 | 85.3 | |||||||
Operating
margin percent
|
1.5 | % | 5.4 | % |
Harsco Metals Segment –
Significant Effects on Revenues:
|
(In
millions)
|
||||
Revenues
– 2008
|
$ | 1,577.7 | |||
Net
decreased volume
|
(356.1 | ) | |||
Impact
of foreign currency translation
|
(126.5 | ) | |||
Adjustments
and other charges
|
(10.3 | ) | |||
Revenues
– 2009
|
$ | 1,084.8 |
Harsco
Metals Segment – Significant Effects on Operating Income:
·
|
Revenues,
operating income and margins for 2009 were negatively impacted by
unprecedented declines in global steel production and the stronger U.S.
dollar in 2009 compared with 2008. Liquid steel tons produced
by customers were reduced by approximately 30% compared with
2008.
|
·
|
During
2009, this Segment’s operating income benefited from the restructuring
actions implemented in the fourth quarter of 2008. Operating
results also benefited from additional countermeasures implemented during
2009 targeting expense reduction, revenue enhancement and asset
optimization.
|
- 26
-
·
|
A
reversal of revenue improperly recognized over the prior three years
resulted in an operating income decrease that was recorded in the third
quarter of 2009. The improperly recorded revenue related to the
failure to receive advance customer agreement and to invoice on a timely
basis for additional work performed for two customers. This
matter was isolated to a business unit in one country and is considered a
one-time event.
|
·
|
Foreign
currency translation in 2009 decreased operating income for this Segment
by $16.4 million compared with
2008.
|
Harsco Rail Segment:
(Dollars
in millions)
|
2009
|
2008
|
|||||||
Revenues
|
$ | 306.0 | $ | 277.6 | |||||
Operating
income
|
56.5 | 36.4 | |||||||
Operating
margin percent
|
18.5 | % | 13.1 | % |
Harsco Rail Segment – Significant
Effects on Revenues:
|
(In
millions)
|
||||
Revenues
– 2008
|
$ | 277.6 | |||
Net
increased volume
|
35.6 | ||||
Impact
of foreign currency translation
|
(7.2 | ) | |||
Revenues
– 2009
|
$ | 306.0 |
Harsco
Rail Segment – Significant Effects on Operating Income:
·
|
This
Segment’s operating income increased for 2009 due in part to shipments of
equipment to China under contracts with the China Ministry of Railways,
partially offset by lower spare parts
sales.
|
·
|
During
2009, this Segment’s operating income and margins also benefited from
ongoing Continuous Improvement
initiatives.
|
·
|
Foreign
currency translation in 2009 reduced operating income for this Segment by
$1.3 million compared with 2008.
|
All Other
Category – Harsco Minerals
& Harsco Industrial:
(Dollars
in millions)
|
2009
|
2008
|
|||||||
Revenues
|
$ | 440.3 | $ | 572.0 | |||||
Operating
income
|
82.5 | 114.5 | |||||||
Operating
margin percent
|
18.7 | % | 20.0 | % |
All
Other Category – Harsco Minerals & Harsco Industrial –
Significant Effects on
Revenues:
|
(In
millions)
|
||||
Revenues
– 2008
|
$ | 572.0 | |||
Industrial
grating products
|
(51.7 | ) | |||
Air-cooled
heat exchangers
|
(45.1 | ) | |||
Reclamation
and recycling services
|
(19.8 | ) | |||
Impact
of foreign currency translation
|
(7.9 | ) | |||
Roofing
granules and abrasives
|
(5.9 | ) | |||
Heat
transfer equipment
|
(1.3 | ) | |||
Revenues
– 2009
|
$ | 440.3 |
- 27
-
All
Other Category – Harsco Minerals & Harsco Industrial – Significant Effects
on Operating Income:
·
|
The
economic downturn and customer decreases in inventory levels compared with
2008 contributed to a reduction in operating income for the industrial
grating products business.
|
·
|
The
air-cooled heat exchangers business experienced a modest increase in
operating income in 2009 as declines in operating income due to sales
volume decreases were offset by lower commodity costs and benefits from
Continuous Improvement actions.
|
·
|
Operating
income for the minerals business decreased in 2009 due to significantly
lower metal prices and product mix.
|
·
|
Countermeasures
targeting expense reduction, revenue enhancement and asset optimization
were implemented in these businesses and partially offset the declines in
operating income.
|
·
|
Foreign
currency translation in 2009 decreased operating income for the All Other
Category by $1.4 million compared with
2008.
|
Outlook,
Trends and Strategies
Company-Wide:
Economic
uncertainty remains throughout the world as a result of the global financial and
economic crisis that started in 2008. During the latter part of 2009,
certain negative economic trends began to slowly abate, as overall steel
production at mills served by the Company’s operations showed a modest
sequential quarterly increase and the U.S. dollar weakened against certain major
currencies. While improving steel production and a weaker U.S. dollar
generally contribute positively to the Company’s performance, expectations are
that many of the challenges stemming from the global recession will continue in
2010, particularly in the first half, with the first quarter being the worst of
the year.
The lack
of activity in many of the non-residential, commercial construction markets
served by the Company poses near-term challenges that include further pressure
on pricing and equipment utilization. These lower levels of activity
have been exacerbated by extreme winter weather conditions across many parts of
Europe and the United States, which are also expected to have a negative impact
on operating results in the first quarter of 2010.
Although
global economic conditions remain uncertain, the Company believes it is
well-positioned to capitalize on opportunities and execute appropriate
countermeasures based on its strong balance sheet, available liquidity and
ability to generate strong operating cash flows. The Company has
implemented and will continue to proactively and aggressively implement
countermeasures to reinforce current and future performance. The
Company is confident that its on-going cost-reduction initiatives, its global
supply chain initiative with IBM, along with its Continuous Improvement program,
have significantly reduced, and will continue to reduce, the Company’s cost
structure and further enhanced its financial strength. The Company’s
expansion of its global footprint in emerging markets; its diversity of services
and products in industries that are fundamental to global growth; its long-term
mill services and minerals supply contracts; the portability and mobility of its
infrastructure services equipment; and its large infrastructure services
customer base help mitigate its overall exposure to changes in any single
economy. However, continued or further deterioration of global
economies could still have an adverse impact on the Company’s operating
results.
The
following significant items, risks, trends and strategies are expected to affect
the Company in 2010 and beyond:
·
|
The
Company expects continued strong cash flows from operating
activities. The Company also expects to maintain discipline to
limit capital expenditures through its ability to redeploy equipment to
new projects, without jeopardizing the productivity of the
equipment. The Company believes that in the current economic
environment, the mobile nature of its capital investment pool will
facilitate strategic growth initiatives in the near term, lessening the
need for growth capital expenditures for
2010.
|
·
|
Management
will continue to be very selective and disciplined in allocating capital,
choosing projects with the highest Economic Value Added (“EVA®”)
potential.
|
·
|
The
Company will continue to develop and implement countermeasures, as it has
on an ongoing basis since the fourth quarter of 2008, to further compress
underlying administration and operating costs to match the current
economic environment and lower its break-even point without sacrificing
quality of output.
|
·
|
Continued
implementation of the Company’s enterprise-wide Continuous Improvement
program is expected to provide long-term benefits and enhance the overall
performance of the Company through increased efficiency and a reduced cost
structure.
|
- 28
-
·
|
The
Company announced in January 2010 that it has embarked upon a business
transformation initiative designed to create significant operating and
cost efficiencies by improving the Company’s internal supply chain
planning, logistics, scheduling and integration throughout its worldwide
operations. This project is expected to contribute to the
Company’s EVA growth but could result in near-term, cost increases and
capital expenditures.
|
·
|
The
Company will continue to place a strong focus on corporate-wide expansion
into emerging economies to grow and better balance its geographic
footprint. More specifically, the Company’s global growth strategies
include steady, targeted expansion, particularly in the Gulf Region of the
Middle East and Africa, Asia-Pacific and Latin America to further
complement the Company’s already-strong presence throughout Europe and
North America. Growth is expected to be achieved through the
provision of additional services to existing customers, new contracts in
both developed and emerging markets, and targeted, strategic, bolt-on
acquisitions in strategic countries and market
sectors. Additionally, new higher-margin service and sales
opportunities in the minerals and rail businesses will be pursued
globally. This strategy is expected to develop a significant
increase to the Company’s presence in these markets to achieve
approximately 30% of total Company revenues from emerging markets over the
next several years and closer to 40% in the longer-term. Over
time, the improved geographic footprint will also benefit the Company
through further diversification of its customer
base.
|
·
|
Fluctuations
in the U.S. dollar can have significant impacts in the Harsco
Infrastructure and Harsco Metals Segments, as approximately 80% to 85% of
the revenues generated in these businesses are outside the United
States. If the U.S. dollar would strengthen, as it did overall
from 2008 to 2009, sales and operating income would generally be
reduced. If the U.S. dollar were to weaken, sales and operating
income would generally improve.
|
·
|
Governments
around the world have enacted stimulus packages to promote much-needed
infrastructure projects. Any substantial near-term benefit from
stimulus packages is uncertain, particularly in the United States and the
United Kingdom. When stimulus package funding becomes available
for infrastructure projects, which has been limited thus far, the Harsco
Infrastructure and the Harsco Rail Segments are well positioned with their
engineering expertise and the Company’s capital investment base to take
advantage of any expected opportunities. The Harsco Minerals
business should also benefit from increased demand for its abrasive
products as required by refurbishment stimulus
projects.
|
·
|
Steel
production in 2010 is expected to increase over levels in 2009,
benefitting the Harsco Metals
Segment.
|
·
|
Volatility
in energy and commodity costs (e.g., crude oil, natural gas, steel, etc.)
and worldwide demand for these commodities could impact the Company’s
operations. Cost increases could result in reduced operating
income for certain products and services, to the extent that such costs
cannot be passed to customers. Cost decreases could result in
increased operating income to the extent that such cost savings do not
need to be passed on to customers. However, volatility in
energy and commodity costs may provide additional service opportunities
for the Harsco Metals Segment and several businesses in the All Other
Category as customers may outsource more services to reduce overall
costs. Volatility may also provide opportunities in the Harsco
Infrastructure Segment for additional industrial plant maintenance and
capital improvement projects. In addition to embracing
opportunities for revenue enhancement, the Company seeks to mitigate these
costs as part of its ongoing enterprise-wide optimization
initiatives.
|
·
|
Total
defined benefit net periodic pension expense for 2010 is expected to be
approximately $21 million, slightly higher than 2009. The
increased expense is due to a lower discount rate at December 31, 2009,
partially offset by higher than expected returns on plan assets in
2009. These two factors are the primary drivers of the
Company’s defined benefit net periodic pension expense as future service
is no longer a factor in substantially all of the Company’s significant
defined benefit plans.
|
·
|
The
Company has maintained a capital structure with a balance sheet debt to
capital ratio approximating 40% for the last several years. In
October 2010, the Company’s 200 million British pound sterling-denominated
notes (approximately $323 million at December 31, 2009) will
mature. The Company expects to refinance these notes during
2010 through public debt, commercial paper borrowings or its revolving
credit facilities.
|
·
|
As
the Company has continued the strategic expansion of its global footprint,
it has lowered its effective income tax rate. The reduction reflects
earnings in jurisdictions with lower tax rates coupled with the deferral
of profits generated internationally. The effective income tax
rate for 2010, before discrete items, is currently expected to be
approximately 24% to 26%.
|
·
|
Currently,
a majority of the Company’s revenue is generated from customers located
outside the United States, and a substantial portion of the Company’s
assets and employees are located outside the United States. U.S.
income tax and foreign withholding taxes have not been provided on
undistributed earnings for certain non-U.S. subsidiaries, because such
earnings are intended to be indefinitely reinvested in the operations of
those subsidiaries. Several U.S. legislation proposals have been
announced that would substantially reduce (or have the effect of
substantially reducing) the Company’s ability to defer U.S. taxes on
profit permanently reinvested outside the United States. Proposals
to date could have a negative impact on the Company’s financial position
and operating results. Additionally, they could have a negative
impact on the Company’s ability to compete in the global marketplace.
The probability of any of these proposals being enacted cannot be
predicted with any certainty. Indications are that reform in 2010 is
still likely, but such reform may be structured with more of
the
|
|
|
- 29
-
|
business
community’s concerns in mind. Nonetheless, the Company is working
with legislators with the goal of achieving a balanced and fair approach
to tax reform. The Company continues to monitor legislation to be in
position to structure operations in a manner that will reduce the impact
of enacted changes.
|
·
|
The
Company’s Harsco Minerals business generates value by capturing and
processing boiler slag, which is a coal combustion
by-product. The EPA is considering increased regulation of the
management of coal combustion by-products. Such requirement
could affect the Harsco Minerals business. The Company is
confident at this time, based upon EPA confirmation in the year 2000 and
again in 2009, that there is no change in science that requires increased
regulation of boiler slag. Additionally, the Company believes
no scientific data exists to support reclassification of boiler
slag.
|
Harsco Infrastructure
Segment:
·
|
The
near-term outlook for the Harsco Infrastructure Segment is impacted by
continued uncertainty in global credit markets, which has caused
construction projects to be deferred or cancelled, thus contributing to
pricing pressure. The current lack of activity in
non-residential, commercial construction markets, particularly in the
United Kingdom, Ireland, other parts of Europe and the United States,
coupled with harsh winter weather conditions across many parts of Europe
and the United States, are expected to present very challenging business
conditions in the first half of 2010, particularly in the first
quarter. As a result, the Company expects an operating loss for
the quarter ending March 31, 2010.
|
·
|
The
Company has initiated a transformational strategy in the Harsco
Infrastructure Segment that includes the
following:
|
o
|
Effective
in January 2010, all operations within this Segment have been rebranded as
Harsco Infrastructure. Previously, the Harsco Infrastructure
Segment utilized three brand names (SGB Group, Hünnebeck Group and Patent
Construction Systems).
|
o
|
The
costs and viability of the existing branch structure will continue to be
scrutinized with a targeted goal of reducing the number of branches by 25%
from the 2008 number, exclusive of recent
acquisitions.
|
o
|
A
global supply chain optimization plan is being developed to identify
initiatives that, when implemented should generate considerable operating
and cost efficiencies.
|
o
|
The
productivity of branches will be improved through the continued use of the
Company’s Continuous Improvement program and implementation of best
practices across the network of
branches.
|
o
|
Additional
countermeasures to adjust administration and operating costs to match the
economic environment and to lower the Segment’s cost structure are being
implemented. To assist in accelerating these initiatives, the
Company expects to incur approximately $8 million to $10 million in
restructuring costs during the first quarter of
2010.
|
o
|
The
Company has initiated strategies to reposition the business, focusing
increasingly on projects in the global industrial maintenance and
infrastructure construction sectors. In 2009, approximately 40%
of the Segment’s business was in the commercial and multi-family sector,
which has been impacted the most by tightened credit restrictions and the
global economic downturn. The remainder of current business was
spread approximately 30% each to the industrial maintenance and the
infrastructure sectors. Over the next few years, the Company is
targeting an allocation of approximately 40% each in the industrial
maintenance and infrastructure sectors, with 20% in the commercial and
multi-family sector. Industrial maintenance contracts generally
are long-term contracts with sustainable revenue streams serving the oil
and gas, pharmaceutical, chemical, electric utility power plant and steel
industries. Infrastructure contracts also tend to be
longer-term contracts with “blue-chip” contractors and include
government-sponsored projects from stimulus
programs.
|
·
|
The
Company will continue to emphasize prudent expansion of its geographic
presence in this Segment through entering new markets and through further
expansion in emerging economies, with a focus on China, India and Latin
America. The Harsco Infrastructure Segment’s value-added
services and engineered forming, shoring and scaffolding systems, combined
with its mobile capital investment base, will continue to be leveraged to
grow the business as expansion opportunities
occur.
|
·
|
In
2010, the Company will fully integrate its recent acquisitions: ESCO, a
regional leader in infrastructure services in seven countries in Central
and South America, and Bell Scaffolding Group, with operations across the
eastern seaboard of Australia. ESCO is expected to provide an
opportunity for the Company to scale its operations across the Latin
American region, while Bell Scaffolding provides opportunities for further
growth throughout Australia and other neighboring
regions.
|
·
|
Further
declines in the economy and, more specifically, the construction industry
may impact the ability of customers to meet their obligations to the
Company on a timely basis and could adversely impact the realizability of
receivables, particularly if customers file for bankruptcy protection or
receivership.
|
- 30
-
Harsco Metals
Segment:
·
|
Steel
industry expectations are that steel production will increase in 2010
compared with 2009, but not to the levels of the first half of 2008, prior
to the beginning of the global recession. Consistent with the
industry overall, the Harsco Metals Segment’s customers increased their
production in the last half of 2009, and those production levels are
expected to increase modestly throughout
2010.
|
·
|
The
Company expects that customer production growth in 2010 can be
accommodated with minimal headcount additions and limited capital spending
by continued adherence to the Company’s Continuous Improvement program and
prudent redeployment of labor and
capital.
|
·
|
Benefits
from the Company’s 2008 restructuring program and additional
countermeasures implemented in 2009 should continue to improve the
operational efficiency and enhance profitability of the Harsco Metals
Segment in 2010 and beyond. Additional countermeasures will be
undertaken in 2010 to continue to lower the cost base of this
Segment. Restructuring and countermeasure initiatives to date
have included: improved terms or exit from underperforming contracts with
customers and underperforming operations; defined benefit pension plan
design changes; overall reduction in the global workforce; and a
substantial reduction in discretionary
spending.
|
·
|
The
Company anticipates that tightening environmental regulations will compel
customers to address their production waste streams as an opportunity to
maximize environmental compliance. This should provide
additional revenue opportunities for the Company. The Harsco
Metals Segment’s 2009 award of a $50 million, multi-year contract to clean
up 3 million cubic yards of material left behind at an abandoned
steelworks may be seen as a model for similar sites by the U.S.
Environmental Protection Agency. The Company will continue to
pursue growth opportunities in environmental services as awareness of
environmental issues creates additional outsourced functions in slag
management.
|
·
|
As
the steel manufacturing footprint moves towards developing countries, the
Company will continue to execute a geographic expansion strategy in
emerging markets in the Gulf Region of the Middle East and Africa, Latin
America and Asia-Pacific.
|
·
|
Further
consolidation in the global steel industry is possible. Should
additional consolidations occur involving some of the steel industry’s
larger companies that are customers of the Company, it could result in an
increase in concentration of revenues and credit risk for the
Company. If a large customer were to experience financial
difficulty, or file for bankruptcy protection, it could adversely impact
the Company’s income, cash flows and asset valuations. As part
of its credit risk management practices, the Company closely monitors the
credit standing and accounts receivable position of its customer
base. Further consolidation may also increase pricing pressure
on the Company and the competitive risk of services contracts that are due
for renewal. Conversely, such consolidation may provide
additional service opportunities for the Company as the Company believes
it is well-positioned competitively. As a result of this
customer concentration, a key strategy of the Company is to diversify its
customer base and expand to emerging market
customers.
|
Harsco Rail
Segment:
·
|
The
Harsco Rail Segment has a strong backlog for 2010 due principally to
ongoing production of rail grinding machines for the China Ministry of
Railways. The contract will generate revenues through
2011.
|
·
|
Further
implementation of the Company’s Continuous Improvement initiatives are
expected to improve margins on a long-term
basis.
|
·
|
U.S.
and global customers are investing heavily in rebuilding their physical
assets. Although reduced freight revenues experienced by a
customer may involve a cut in track maintenance budgets, improved margins
can be realized due to extended work windows as increased track time is
available for maintenance activity. U.S. railway track
maintenance service opportunities are expected to increase over the
mid-term as many states have budget proposals for track services under the
U.S. stimulus package. New construction of high-speed rail
systems is also expected to be financed with government funds over the
near and long term.
|
·
|
International
demand for railway track maintenance services, solutions and equipment is
expected to be strong in both the near term and the long
term. The Harsco Rail Segment expects to develop a larger
presence in certain developing countries as track maintenance and
construction needs grow. Global bidding activity has been
strong.
|
·
|
This
Segment will continue to pursue cost-reduction initiatives to reduce its
overall cost base. These initiatives could result in near-term
capital expenditures and restructuring
costs.
|
All Other
Category – Harsco
Minerals & Harsco Industrial:
·
|
The
Company will emphasize prudent global expansion of its minerals business
for extracting high-value metallic content from slag and responsibly
handling and recycling residual materials. Environmental
services provide growth opportunities in the minerals business as
additional outsourced functions in slag management of stainless steel and
other high-value metals arise.
|
·
|
Improved
customer production levels should have an overall positive effect on
certain reclamation and recycling services in the
near-term. Metal prices remained relatively flat in the latter
part of 2009; however, any increases would have a positive effect on
operating results, while decreases would have a negative
impact.
|
- 31
-
·
|
Certain
businesses in this Category are dependent on a small group of key
customers. The loss of one of these customers due to
competition or due to financial difficulty, or the filing for bankruptcy
protection, could adversely impact the Company’s income, cash flows and
asset valuations. As part of its credit risk management
practices, the Company closely monitors the credit standing and accounts
receivable position of its customer
base.
|
·
|
Worldwide
supply and demand for steel and other commodities impact raw material
costs for certain businesses in this Category. The Company has
implemented strategies to help mitigate the potential impact that changes
in steel and other commodity prices could have on operating
income. If steel or other commodity costs associated with the
Company’s manufactured products increase and the costs cannot be passed on
to the Company’s customers, operating income would be adversely
affected. Conversely, reduced steel and other commodity costs
would improve operating income to the extent such savings do not have to
be transferred to customers.
|
·
|
The
air-cooled heat exchangers business continues to explore international
opportunities in addition to further growth in its customary North
American markets. Overall sales are expected to be negatively
impacted by a lower level of industrial demand for natural gas as a result
of lower natural gas prices and the global recession. Low
natural gas prices throughout 2009 curtailed the need for additional gas
compression and coolers to support that compression. Increased
industrial use due to improving economic conditions, as well as weather
patterns over the winter months, will influence the price and demand for
natural gas and, consequently, the demand for heat exchanger
equipment. Colder weather tends to increase demand for heat
exchanger equipment while warmer weather tends to result in reduced
demand.
|
Results
of Operations for 2009, 2008 and 2007
(Dollars
are in millions, except per share information and
percentages)
|
2009
|
2008
|
2007
|
||||||||||
Revenues
from continuing operations
|
$ | 2,990.6 | $ | 3,967.8 | $ | 3,688.2 | |||||||
Cost
of services and products sold
|
2,252.1 | 2,926.4 | 2,685.5 | ||||||||||
Selling,
general and administrative expenses
|
509.1 | 602.2 | 538.2 | ||||||||||
Other
expenses
|
7.6 | 22.0 | 3.4 | ||||||||||
Operating
income from continuing operations
|
218.7 | 412.0 | 457.8 | ||||||||||
Interest
expense
|
62.7 | 73.2 | 81.4 | ||||||||||
Income
tax expense from continuing operations
|
18.5 | 91.8 | 117.6 | ||||||||||
Income
from continuing operations (a)
|
140.8 | 251.5 | 264.8 | ||||||||||
Income
(loss) from discontinued operations
|
(15.1 | ) | (4.7 | ) | 44.4 | ||||||||
Net
income attributable to Harsco Corporation
|
118.8 | 240.9 | 299.5 | ||||||||||
Diluted
earnings per common share from continuing operations attributable to
Harsco Corporation common stockholders
|
1.66 | 2.92 | 3.01 | ||||||||||
Effective
income tax rate for continuing operations
|
11.6 | % | 26.7 | % | 30.7 | % |
(a)
|
On
January 1, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board related to consolidation accounting and
reporting. These changes, among others, require that minority
interests be renamed noncontrolling interests and that a company present a
consolidated net income measure that includes the amount attributable to
such noncontrolling interests for all periods presented. Results for
2008 and 2007 have been reclassified
accordingly.
|
- 32
-
Comparative
Analysis of Consolidated Results
Revenues
2009 vs.
2008
Revenues
for 2009 decreased $977.2 million or 25% from 2008. This decrease was
attributable to the following significant items:
(In
millions)
|
Change
in Revenues 2009 vs. 2008
|
|
$(356.1)
|
Net
decreased volume due principally to the deterioration of the global steel
markets in the Harsco Metals Segment.
|
|
(277.9)
|
Net
decreased revenues in the Harsco Infrastructure Segment due to lower sales
and rentals, principally due to lower construction activity globally as a
result of economic decline.
|
|
(254.7)
|
Effect
of foreign currency translation.
|
|
(51.7)
|
Reduced
demand for industrial grating products coupled with lower pricing
levels.
|
|
(45.1)
|
Decreased
revenues of the air-cooled heat exchangers business due to a weaker
natural gas market.
|
|
(19.8)
|
Net
decreased revenues in the reclamation and recycling services business due
to lower commodity pricing, partially offset by net increased
volume.
|
|
(5.9)
|
Decreased
volume in the roofing granules and abrasives business.
|
|
(11.5)
|
Other
(minor changes across the various units not already
mentioned).
|
|
35.6
|
Net
increased revenues in the Harsco Rail Segment due principally to a higher
level of rail equipment shipments to China in 2009 and increased contract
services, partially offset by lower repair parts sales.
|
|
9.9
|
Effect
of business acquisitions in the Harsco Infrastructure
Segment.
|
|
$(977.2)
|
Total
Change in Revenues 2009 vs. 2008
|
2008 vs.
2007
Revenues
for 2008 increased $279.7 million or 8% from 2007. This increase was
attributable to the following significant items:
(In
millions)
|
Change
in Revenues 2008 vs. 2007
|
|
$ 80.3
|
Net
increased revenues in the Harsco Infrastructure Segment due principally to
non-residential and infrastructure construction in international markets,
particularly in the Middle East and Europe, and North American
markets.
|
|
58.5
|
Effect
of business acquisitions. Increased revenues of $30.0 million,
$15.6 million, $2.0 and $10.9 million in the Harsco Metals Segment, Harsco
Infrastructure Segment, Harsco Rail Segment and the All Other Category
(Harsco Minerals & Harsco Industrial),
respectively.
|
|
46.8
|
Increased
revenues in the Harsco Rail Segment due to a higher level of rail
equipment shipments in 2008 and increased repair parts sales, partially
offset by decreased contract services.
|
|
30.8
|
Effect
of foreign currency translation.
|
|
22.0
|
Increased
revenues of the air-cooled heat exchangers business due to a strong
natural gas market.
|
|
18.7
|
Increased
revenues of the industrial grating products business due to increased
prices.
|
|
18.6
|
Net
increased volume, new business and sales price changes in the Harsco
Metals Segment (excluding acquisitions).
|
|
5.9
|
Increased
revenues in the roofing granules and abrasives business resulting from
price increases and product mix.
|
|
4.6
|
Other
(minor changes across the various units not already
mentioned).
|
|
(6.5)
|
Net
decreased revenues in the reclamation and recycling services business due
to lower metal prices and reduced volume.
|
|
$279.7
|
Total
Change in Revenues 2008 vs. 2007
|
- 33
-
Cost
of Services and Products Sold
2009 vs.
2008
Cost of
services and products sold for 2009 decreased $674.3 million or 23% from
2008. This decrease was attributable to the following significant
items:
(In
millions)
|
Change
in Cost of Services and Products Sold 2009 vs. 2008
|
|
$(500.9)
|
Decreased
costs due to lower revenues (exclusive of the effect of foreign currency
translation and business acquisitions, and including the impact of lower
commodity and energy costs included in selling prices).
|
|
(180.4)
|
Effect
of foreign currency translation.
|
|
(2.7)
|
Other
(product/service mix and increased equipment maintenance costs, partially
offset by enterprise business optimization initiatives and volume-related
efficiencies).
|
|
9.7
|
Business
acquisitions.
|
|
$(674.3)
|
Total
Change in Cost of Services and Products Sold 2009 vs.
2008
|
2008 vs.
2007
Cost of
services and products sold for 2008 increased $240.9 million or 9% from 2007,
slightly higher than the 8% increase in revenues. This increase was
attributable to the following significant items:
(In
millions)
|
Change
in Cost of Services and Products Sold 2008 vs. 2007
|
|
$129.5
|
Increased
costs due to increased revenues (exclusive of the effect of foreign
currency translation and business acquisitions, and including the impact
of increased commodity and energy costs included in selling
prices).
|
|
45.7
|
Business
acquisitions.
|
|
40.8
|
Other
(product/service mix and increased equipment maintenance costs, partially
offset by enterprise business optimization initiatives and volume-related
efficiencies).
|
|
24.9
|
Effect
of foreign currency translation.
|
|
$240.9
|
Total
Change in Cost of Services and Products Sold 2008 vs.
2007
|
Selling,
General and Administrative Expenses
2009 vs.
2008
Selling,
general and administrative (“SG&A”) expenses for 2009 decreased $93.1
million or 16% from 2008. This decrease was attributable to the
following significant items:
(In
millions)
|
Change
in Selling, General and Administrative Expenses 2009 vs.
2008
|
|
$(43.7)
|
Effect
of foreign currency translation.
|
|
(22.3)
|
Decreased
compensation expense due to lower employment levels.
|
|
(12.8)
|
Other
(due to spending reductions).
|
|
(8.4)
|
Decreased
travel expenses due to discretionary spending
reductions.
|
|
(8.2)
|
Lower
professional fees due to discretionary spending
reductions.
|
|
(2.9)
|
Lower
bad debt expense.
|
|
2.6
|
Increased
sales commissions, largely related to increased revenues in the Harsco
Rail Segment.
|
|
2.6
|
Effect
of business acquisitions.
|
|
$(93.1)
|
Total
Change in Selling, General and Administrative Expenses 2009 vs.
2008
|
- 34
-
2008 vs.
2007
SG&A
expenses for 2008 increased $63.9 million or 12% from 2007. This
increase was attributable to the following significant items:
(In
millions)
|
Change
in Selling, General and Administrative Expenses 2008 vs.
2007
|
|
$ 23.5
|
Increased
compensation expense due to salary increases resulting from overall
business growth, partially offset by lower employee incentive plan
costs.
|
|
9.5
|
Increased
professional fees due to global optimization projects and global business
expansion.
|
|
6.8
|
Business
acquisitions.
|
|
6.8
|
Other
expenses.
|
|
4.7
|
Increased
bad debt expense.
|
|
3.6
|
Increased
travel expenses to support business expansion and optimization
projects.
|
|
3.2
|
Increased
sales commissions, largely related to increased revenues in the Harsco
Rail Segment.
|
|
3.2
|
Higher
depreciation expense principally related to the implementation of
enterprise-wide information technology systems and related
hardware.
|
|
2.6
|
Effect
of foreign currency translation.
|
|
$ 63.9
|
Total
Change in Selling, General and Administrative Expenses 2008 vs.
2007
|
Other
Expenses
This
income statement classification 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.
2009 vs.
2008
Net Other
Expenses of $7.6 million for 2009 decreased $14.4 million from $22.0 million in
2008. This decrease in other expenses primarily relates to
restructuring charges that the Company incurred during the fourth quarter of
2008 that were not repeated at the same level.
2008 vs.
2007
Net Other
Expenses of $22.0 million for 2008 increased $18.5 million from $3.4 million for
2007. This increase in other expenses primarily relates to
restructuring charges that the Company incurred during the fourth quarter of
2008.
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.”
Interest
Expense
2009 vs.
2008
Interest
expense in 2009 was $62.7 million, a decline of $10.4 million or 14% compared
with 2008. This was principally due to lower overall debt levels in
2009 and, to a lesser extent, lower interest rates on variable interest rate
borrowings. The impact of foreign currency translation also reduced
interest expense by approximately $4.4 million.
2008 vs.
2007
Interest
expense in 2008 was $73.2 million, a decline of $8.2 million or 10% compared
with 2007. This was principally due to lower overall debt levels in
2008 and, to a lesser extent, lower interest rates on variable interest rate
borrowings. The impact of foreign currency translation also reduced
interest expense by approximately $0.5 million.
- 35
-
Income
Tax Expense from Continuing Operations
2009 vs.
2008
Income
tax expense from continuing operations decreased $73.3 million or 80% in 2009
compared with 2008. This decline was due to lower earnings from continuing
operations and a decrease in the effective income tax rate from continuing
operations. The effective income tax rate relating to continuing
operations for 2009 was 11.6% versus 26.7% for 2008. The decrease in the
effective income tax rate for 2009 compared with 2008 reflected a decline in
earnings in jurisdictions with higher tax rates, a change in the permanent
reinvestment in current year earnings, and certain net discrete tax benefits
recognized in 2009. The net discrete benefits include a change in the
permanent reinvestment of prior year undistributed earnings and the recognition
of previously unrecognized tax benefits in certain foreign and state
jurisdictions, offset by an increase in unrecognized tax benefits related to an
ongoing dispute between the European Union and a specific European
country.
2008 vs.
2007
The
decrease in 2008 of $25.8 million or 22% in the provision for income taxes from
continuing operations was primarily due to a lower effective income tax rate
from continuing operations and lower pre-tax income. The effective income
tax rate relating to continuing operations for 2008 was 26.7% versus 30.7% for
2007. The decrease in the effective income tax rate for the year 2008 was
primarily due to increased earnings in jurisdictions with lower tax rates;
increased designation of certain international earnings as permanently
reinvested; and the recognition of previously unrecognized tax benefits in
certain state and foreign jurisdictions.
For
additional information, see Note 9, Income Taxes, to the Consolidated Financial
Statements under Part II, Item 8, “Financial Statements and Supplementary
Data.”
Income
from Continuing Operations
2009 vs.
2008
Income
from continuing operations in 2009 of $140.8 million was $110.7 million or 44%
lower than 2008. This decrease resulted from the global economic
downturn that continued throughout 2009 and the slower than expected
recovery.
2008 vs.
2007
Income
from continuing operations in 2008 of $251.5 million was $13.3 million or 5%
lower than 2007. This decrease resulted from the overall economic
downturn beginning in the fourth quarter and the restructuring charges taken by
the Company as a result of the downturn.
Loss
from Discontinued Operations
2009 vs.
2008
A loss
from discontinued operations of $15.1 million was generated in 2009 due to the
resolution of open claims and counterclaims that had been submitted to
arbitration related to the disposition of the Gas Technologies Segment, coupled
with the tax effect from the final purchase price allocation. This
compares with a loss of $4.7 million in 2008 due principally to working capital
adjustments and other costs associated with the disposition of the Gas
Technologies Segment.
2008 vs.
2007
A loss
from discontinued operations of $4.7 million was generated in 2008 due to
working capital adjustments and other costs associated with the disposition of
the Gas Technologies Segment, coupled with the tax effect of the purchase price
allocation. This compares with income of $44.4 million in 2007 due
principally to the sale of the Company’s Gas Technologies Segment in December
2007.
- 36
-
Net
Income Attributable to Harsco Corporation and Earnings Per Share
2009 vs.
2008
Net
income attributable to Harsco Corporation of $118.8 million and diluted earnings
per share of $1.47 in 2009 were lower than 2008 by $122.2 million or 51% and
$1.40 or 49%, respectively, due to decreased income from continuing operations
and increased losses from discontinued operations for the reasons described
above.
2008 vs.
2007
Net
income attributable to Harsco Corporation of $240.9 million and diluted earnings
per share of $2.87 in 2008 were lower than 2007 by $58.5 million or 20% and
$0.66 or 19%, respectively, due to decreased income from both continuing and
discontinued operations for the reasons described above.
Liquidity
and Capital Resources
Overview
Global
financial markets, which have been under stress since 2008 due to poor financial
institution lending and investment practices and sharp declines in real estate
values, have started to show signs of improvement for certain highly rated
credit issuers. However, during 2009, tightened credit conditions for
funding of non-residential construction projects, particularly commercial
construction, restrained growth in that sector and that continues
today. In response to these changes in global economic conditions,
the Company has undertaken several initiatives to conserve capital and enhance
liquidity, including: prudently reducing capital spending to only critical
projects where the highest returns can be achieved while redeploying existing
capital investments; optimizing worldwide cash positions; reducing or
eliminating discretionary spending; and additional scrutiny and tightening of
credit terms with customers.
Despite
the global financial market environment, the Company continues to have
sufficient available liquidity and has been able to issue commercial paper as
needed. The Company currently expects operational and business needs
to be covered by cash from operations in 2010 and beyond. Despite the
global recession, the Company generated strong operating cash flows of $434.5
million in 2009. This represents a 24% decrease from 2008 operating
cash flow of $574.3 million. This decrease was primarily due to lower
net income in 2009 compared with 2008.
In 2009,
the Company invested $165.3 million in capital expenditures (53% of which were
for revenue-growth projects) and paid $63.8 million in stockholder
dividends. Capital expenditures in 2009 were significantly lower than
the $457.6 million invested in capital expenditures during 2008.
The
Company’s net cash borrowings decreased $84.3 million in 2009. The
decrease in borrowings was driven by the Company’s prudent spending on capital
investments, which enabled the Company to pay down debt. Balance
sheet debt, which is affected by foreign currency translation, decreased $28.0
million from December 31, 2008. The Company’s debt to total capital
ratio decreased to 39.5% as of December 31, 2009, due principally to lower debt
and increased equity at December 31, 2009. This was the lowest debt
to total capital ratio at year-end since December 31, 1998. Debt to
total capital was 41.1% at December 31, 2008.
Despite
the current global economic conditions, the Company expects to generate strong
operating cash flows for 2010. The Company plans to sustain its
balanced portfolio through its strategy of redeploying discretionary cash for
disciplined growth and international diversification in the Harsco
Infrastructure Segment; for growth in long-term, high-return and
high-renewal-rate services contracts for the Harsco Metals Segment, principally
in emerging economies or for customer diversification; for growth in the Harsco
Rail Segment; for growth and international diversification in the All Other
Category (Harsco Minerals & Harsco Industrial); and for targeted, bolt-on
acquisitions in the industrial services and rail businesses. The
Company also foresees continuing its long and consistent history of paying
dividends to stockholders.
The
Company is also focused on improved working capital
management. Specifically, short-term and long-term enterprise
business optimization programs are being used to continue to further improve the
effective and efficient use of working capital, particularly accounts receivable
and inventories in the Harsco Infrastructure, Harsco Metals and Harsco Rail
Segments.
- 37
-
Cash
Requirements
The
following summarizes the Company’s expected future payments related to
contractual obligations and commercial commitments at December 31,
2009.
Contractual
Obligations as of December 31, 2009 (a)
|
|||||||||||||||||||||
Payments
Due by Period
|
|||||||||||||||||||||
(In
millions)
|
Total
|
Less
than
1
year
|
1-3
years
|
4-5
years
|
After
5 years
|
||||||||||||||||
Short-term
Debt
|
$ | 57.4 | $ | 57.4 | $ | - | $ | - | $ | - | |||||||||||
Long-term
Debt
(including
current maturities and capital leases)
|
927.5 | 325.8 | 5.0 | 149.6 | 447.1 | ||||||||||||||||
Projected
interest payments on Long-term Debt (b)
|
265.2 | 54.1 | 67.6 | 57.2 | 86.3 | ||||||||||||||||
Pension
benefit payments (c)
|
589.2 | 49.4 | 105.7 | 114.9 | 319.2 | ||||||||||||||||
Operating
Leases
|
162.3 | 45.5 | 54.8 | 34.5 | 27.5 | ||||||||||||||||
Purchase
Obligations
|
88.1 | 86.0 | 1.7 | 0.2 | 0.2 | ||||||||||||||||
Foreign
Currency Forward Exchange Contracts (d)
|
122.1 | 122.1 | - | - | - | ||||||||||||||||
Total
Contractual Obligations (e)
|
$ | 2,211.8 | $ | 740.3 | $ | 234.8 | $ | 356.4 | $ | 880.3 |
|
(a)
|
See
Note 6, Debt and Credit Agreements; Note 7, Leases; Note 8, Employee
Benefit Plans; Note 9, Income Taxes; and Note 13, Financial Instruments,
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; operating leases; pensions; income taxes;
and foreign currency forward exchange contracts,
respectively.
|
|
(b)
|
The
total projected interest payments on Long-term Debt are based upon
borrowings, interest rates and foreign currency exchange rates as of
December 31, 2009. The interest rates on variable-rate debt and
the foreign currency exchange rates are subject to changes beyond the
Company’s control and may result in actual interest expense and payments
differing from the amounts projected
above.
|
|
(c)
|
Amounts
represent expected benefit payments by the defined benefit plans for the
next 10 years.
|
(d)
|
This
amount represents the notional value of the foreign currency exchange
contracts outstanding at December 31, 2009. Due to the nature
of these transactions, there will be offsetting cash flows to these
contracts, with the difference recognized as a gain or loss in the
Consolidated Statement of
Income.
|
(e)
|
As
of December 31, 2009, in addition to the above contractual obligations,
the Company had approximately $47.8 million of long-term tax liabilities,
including interest and penalties, related to uncertain tax
positions. Because of the high degree of uncertainty regarding
the timing of future cash outflows associated with these liabilities, the
Company is unable to estimate the years in which settlement will occur
with the respective taxing
authorities.
|
Off-Balance Sheet Arrangements –
The following table summarizes the Company’s contingent commercial
commitments at December 31, 2009. These amounts are not included in
the Company’s Consolidated Balance Sheets since there are no current
circumstances known to management indicating that the Company will be required
to make payments on these contingent obligations.
- 38
-
Commercial
Commitments as of December 31, 2009
|
|||||||||||||||||||||||||
Amount
of Commitment Expiration Per Period
|
|||||||||||||||||||||||||
(In
millions)
|
Total
Amounts Committed
|
Less
than
1
Year
|
1-3
Years
|
4-5
Years
|
Over
5
Years
|
Indefinite
Expiration
|
|||||||||||||||||||
Standby
Letters of Credit
|
$ | 193.0 | $ | 137.6 | $ | 51.0 | $ | 1.0 | $ | - | $ | 3.4 | |||||||||||||
Guarantees
|
75.4 | 11.9 | 1.0 | - | 5.6 | 56.9 | |||||||||||||||||||
Performance
Bonds
|
13.2 | 11.4 | 0.3 | - | - | 1.5 | |||||||||||||||||||
Other
Commercial Commitments
|
11.1 | - | - | - | - | 11.1 | |||||||||||||||||||
Total
Commercial Commitments
|
$ | 292.7 | $ | 160.9 | $ | 52.3 | $ | 1.0 | $ | 5.6 | $ | 72.9 |
Certain
guarantees and performance bonds, that are of a continuous nature do not have an
expiration date and are therefore considered to be indefinite in
nature.
Sources
and Uses of Cash
The
Company’s principal sources of liquidity are cash from operations and borrowings
under its various credit agreements, augmented periodically by cash proceeds
from non-core asset sales. The primary drivers of the Company’s cash
flow from operations are the Company’s sales and income. The
Company’s long-term Harsco Metals contracts, in addition to the backlog of
certain equipment and the long-term nature of certain service contracts within
the Harsco Rail Segment, provide predictable cash flows for several years into
the future. (See “Certainty of Cash Flows” section for additional
information on estimated future revenues of Harsco Metals and Harsco Rail
contracts and order backlogs for the Company’s manufacturing
businesses). Cash returns on capital investments made in prior years,
for which no cash is currently required, are a significant source of cash from
operations. Depreciation expense related to these investments is a
non-cash charge. The Company also continues to maintain working
capital at a manageable level based upon the requirements and seasonality of the
businesses.
Major
uses of operating cash flows and borrowed funds include: capital
investments, principally in the industrial services business; payroll costs and
related benefits; dividend payments; pension funding payments; inventory
purchases for the manufacturing businesses; income tax payments; debt principal
and interest payments; insurance premiums and payments of self-insured casualty
losses; and machinery, equipment, automobile and facility rental
payments. Cash is also used for targeted, bolt-on acquisitions as the
appropriate opportunities arise.
Resources available for cash
requirements – The Company meets its ongoing cash requirements for
operations and growth initiatives by accessing the public debt markets and by
borrowing from banks. Public markets in the United States and Europe
are accessed through the Company’s commercial paper programs and through
discrete-term note issuance to investors. Various bank credit
facilities are available throughout the world. The Company’s 200
million British pound sterling-denominated notes mature in October
2010. The Company expects to utilize both the public debt markets and
bank facilities to meet its cash requirements in the future.
The
following table illustrates the amounts outstanding under credit facilities and
commercial paper programs and available credit as of December 31,
2009:
- 39
-
Summary
of Credit Facilities and Commercial Paper Programs
|
As
of December 31, 2009
|
||||||||||||
(In
millions)
|
Facility
Limit
|
Outstanding
Balance
|
Available
Credit
|
||||||||||
U.S.
commercial paper program
|
$ | 550.0 | $ | 20.9 | $ | 529.1 | |||||||
Euro
commercial paper program
|
286.3 | 29.0 | 257.3 | ||||||||||
Multi-year
revolving credit facility (a)
|
570.0 | - | 570.0 | ||||||||||
Bilateral
credit facility (b)
|
30.0 | - | 30.0 | ||||||||||
Totals
at December 31, 2009
|
$ | 1,436.3 | $ | 49.9 | $ | 1,386.4 | (c) |
|
(a)
|
U.S.-based
program.
|
|
(b)
|
International-based
program.
|
|
(c)
|
Although
the Company has significant available credit, for practical purposes, the
Company limits aggregate commercial paper and credit facility borrowings
at any one-time to a maximum of $600 million (the aggregate amount of the
back-up facilities).
|
During
the fourth quarter of 2009, the Company entered into a new three-year revolving
credit facility in the amount of $570 million, through a multi-national
syndicate of 21 banks co-led by Citibank and Royal Bank of
Scotland. This new facility replaces the $220 million 364-day
revolving credit facility that expired in November 2009, and the $450 million
credit facility the Company terminated in the fourth quarter of
2009. This facility serves as back-up to the Company’s commercial
paper programs. Interest rates on the facility are based upon either
the announced Citibank Prime Rate, the Federal Funds Effective Rate plus a
margin or LIBOR plus a margin. The Company pays a facility fee
(0.275% per annum as of December 31, 2009) that varies based upon its credit
ratings. At December 31, 2009, there were no borrowings outstanding
on this credit facility.
The
Company’s bilateral credit facility was renewed in December
2009. This $30 million facility serves as back-up to the Company’s
commercial paper programs and also provides available financing for the
Company’s European operations. Borrowings under this facility, which
expires in December 2010, are available in most major currencies with active
markets at interest rates based upon LIBOR plus a margin. Borrowings
outstanding at expiration may be repaid over the succeeding 12
months. As of December 31, 2009 and 2008, there were no borrowings
outstanding on this facility.
See Note
6, Debt and Credit Agreements, to the Consolidated Financial Statements under
Part II, Item 8, “Financial Statements and Supplementary Data,” for more
information on the Company’s credit facilities.
Credit Ratings and Outlook –
The following table summarizes the Company’s debt ratings as of
December 31, 2009:
Long-term
Notes
|
U.S.-Based
Commercial Paper
|
Outlook
|
|
Standard
& Poor’s (S&P)
|
A-
|
A-2
|
Stable
|
Moody’s
|
Baa1
|
P-2
|
Stable
|
Fitch
|
A-
|
F2
|
Stable
|
The
Company’s euro-based commercial paper program has not been rated since the euro
market does not require it. In January 2010, Moody’s reaffirmed the
Company’s ratings. Standard & Poor’s and Fitch ratings were
reaffirmed in April 2009 and August 2009, respectively. A downgrade
to the Company’s credit ratings may increase borrowing costs to the Company,
while an improvement in the Company’s credit ratings may decrease borrowing
costs to the Company. Additionally, a downgrade in the Company’s
credit ratings may result in reduced access to credit markets.
- 40
-
Working Capital Position –
Changes in the Company’s working capital are reflected in the following
table:
(Dollars
are in millions)
|
December
31
2009
|
December
31
2008
|
Increase
(Decrease)
|
||||||||||
Current
Assets
|
|||||||||||||
Cash
and cash equivalents
|
$ | 94.2 | $ | 91.3 | $ | 2.9 | |||||||
Trade
accounts receivable, net
|
598.3 | 648.9 | (50.6 | ) | |||||||||
Other
receivables, net
|
30.9 | 46.0 | (15.1 | ) | |||||||||
Inventories
|
291.2 | 309.5 | (18.3 | ) | |||||||||
Other
current assets
|
151.9 | 104.5 | 47.4 | ||||||||||
Assets
held-for-sale
|
2.8 | 5.3 | (2.5 | ) | |||||||||
Total
current assets
|
1,169.3 | 1,205.5 | (36.2 | ) | |||||||||
Current
Liabilities
|
|||||||||||||
Notes
payable and current maturities
|
83.2 | 121.1 | (37.9 | ) | |||||||||
Accounts
payable
|
215.5 | 262.8 | (47.3 | ) | |||||||||
Accrued
compensation
|
67.7 | 85.2 | (17.5 | ) | |||||||||
Income
taxes payable
|
5.9 | 13.4 | (7.5 | ) | |||||||||
Other
current liabilities
|
378.8 | 405.9 | (27.1 | ) | |||||||||
Total
current liabilities
|
751.1 | 888.4 | (137.3 | ) | |||||||||
Working
Capital
|
$ | 418.2 | $ | 317.1 | $ | 101.1 | |||||||
Current
Ratio
|
1.6:1
|
1.4:1
|
Working
capital increased 32% in 2009 due principally to the following
factors:
·
|
Net
trade accounts receivable decreased $50.6 million primarily due to lower
revenues in 2009 partially offset by foreign currency translation
effects.
|
·
|
Other
receivables decreased $15.1 million primarily due to collections of
insurance proceeds related to insured claims settled during the first
quarter of 2009 and an income tax refund received in the third quarter of
2009.
|
·
|
Inventories
decreased $18.3 million primarily due to the Company’s focus on reducing
inventory levels based upon current market demand, partially offset by
higher inventory levels in the Harsco Rail Segment to satisfy current
international contracts and foreign currency translation
effects.
|
·
|
Other
current assets increased $47.4 million primarily due to reclassification
of noncurrent deferred taxes to current deferred taxes as a result of the
expected utilization of these assets in
2010.
|
·
|
Notes
payable and current maturities decreased $37.9 million due to strong
operating cash flows in 2009 that facilitated repayments of short-term
commercial paper borrowings and other short-term borrowings, partially
offset by the current portion of long-term
debt.
|
·
|
Accounts
payable decreased $47.3 million primarily due to reduced spending levels
partially offset by foreign currency translation
effects.
|
·
|
Accrued
compensation decreased $17.5 million due principally to the payment of
incentive compensation earned during 2008, coupled with lower incentive
compensation accruals at the end of
2009.
|
·
|
Other
current liabilities decreased $27.1 million due principally to a decline
in restructuring reserves from 2008 due to severance payments and a
decline in accrued expenses and accrued non-income tax obligations
primarily as a result of reduced business
activity.
|
Certainty of Cash Flows – The
certainty of the Company’s future cash flows is underpinned by the long-term
nature of the Company’s metals services contracts, the order backlog for the
Company’s railway track maintenance services and equipment and the strong
discretionary cash flows (operating cash flows in excess of the amounts
necessary for
- 41
-
capital
expenditures to maintain current revenue levels) generated by the
Company. Historically, the Company has utilized these discretionary
cash flows for growth-related capital expenditures and strategic
acquisitions. As the Company has demonstrated this year, it has the
ability to substantially reduce its capital expenditures without negatively
impacting the business. The Company has continued to grow in
countries with increased demand through prudent redeployment of its existing
equipment.
At
December 31, 2009, the Company’s metals services contracts had estimated future
revenues of $3.6 billion, compared with $4.1 billion as of December 31,
2008. The decline is primarily attributable to the revenues
recognized during 2009 offset by projected volume from new and renewed
contracts. At December 31, 2009, the Company’s railway track
maintenance services and equipment business had estimated future revenues of
$442.3 million compared with $518.1 million as of December 31,
2008. This is primarily due to shipment of orders during 2009,
partially offset by new orders. The railway track maintenance
services and equipment business backlog includes a significant portion that will
not be realized until late 2010 and later due to the long lead-time necessary to
build certain equipment, and the long-term nature of certain service
contracts. In addition, as of December 31, 2009, the Company had an
order backlog of $48.6 million in its All Other Category (principally for Harsco
Industrial). This compares with $121.6 million as of December 31,
2008. The decrease from December 31, 2008 is due principally to lower
demand and completion of orders during 2009. Order backlog for
scaffolding, shoring and forming services; for roofing granules and slag
abrasives; and for the reclamation and recycling services of high-value content
from steelmaking slag is excluded from the above amounts. These
amounts are generally not quantifiable due to the short order lead times for
certain services, the nature and timing of the products and services provided
and equipment rentals with the ultimate length of the rental period
unknown.
The types
of products and services that the Company provides are not subject to rapid
technological change, which increases the stability of related cash
flows. Additionally, each of the Company’s businesses, in its
balanced portfolio, is among the top three companies (relative to sales) in the
industries the Company serves. Due to these factors, the Company is
confident in its future ability to generate positive cash flows from
operations.
Cash
Flow Summary
The
Company’s cash flows from operating, investing and financing activities, as
reflected in the Consolidated Statements of Cash Flows, are summarized in the
following table:
Summarized
Cash Flow Information
(In
millions)
|
2009
|
2008
|
2007
|
||||||||||
Net
cash provided by (used in):
|
|||||||||||||
Operating
activities
|
$ | 434.5 | $ | 574.3 | $ | 471.7 | |||||||
Investing
activities
|
(269.4 | ) | (443.4 | ) | (386.1 | ) | |||||||
Financing
activities
|
(164.1 | ) | (155.6 | ) | (77.7 | ) | |||||||
Effect of exchange rate changes on
cash
|
1.8 | (5.8 | ) | 12.7 | |||||||||
Net change in cash and cash
equivalents
|
$ | 2.8 | $ | (30.5 | ) | $ | 20.6 |
Cash From Operating Activities
– Net cash provided by operating activities in 2009 was $434.5 million, a
decrease of $139.8 million from 2008. The decrease was primarily due
to the following:
·
|
Lower
net income in 2009 compared with
2008.
|
·
|
Higher
accounts payable payments due to
timing.
|
·
|
Reduction
in advances on contracts due to shipments in
2009.
|
These
decreases were partially offset by the following:
·
|
Higher
trade receivable collections due to
timing.
|
·
|
Initiatives
to reduce inventory levels coupled with reduced spending on inventory
throughout the Company based upon current market
demand.
|
Cash Used in Investing Activities –
In 2009, cash used in investing activities was $269.4 million consisting
primarily of capital investments of $165.3 million and $103.2 million used for
strategic acquisitions. Capital investments declined $292.3 million
compared with 2008, reflecting management’s initiatives to conserve capital and
enhance liquidity through prudent reduction of capital
investments. Growth capital constituted 53% of investments made in
2009, with capital investments made predominantly in the industrial services
businesses. Throughout 2010, the Company plans to continue to manage
its balanced portfolio and consider opportunities to invest in value creation
- 42
-
projects. Additionally,
the Company intends to increase growth investments in the Harsco Rail Segment
and the All Other Category (Harsco Minerals & Harsco Industrial) in 2010 and
beyond, as these businesses continue to expand globally.
Cash Used in Financing Activities
– The following table summarizes the Company’s debt and capital positions
as of December 31, 2009 and 2008.
(Dollars
are in millions)
|
December
31
2009
|
December
31
2008
(a)
|
|||||||
Notes
Payable and Current Maturities
|
$ | 83.2 | $ | 121.1 | |||||
Long-term
Debt
|
901.7 | 891.8 | |||||||
Total
Debt
|
984.9 | 1,012.9 | |||||||
Total
Equity
|
1,509.8 | 1,450.0 | |||||||
Total
Capital
|
$ | 2,494.7 | $ | 2,462.9 | |||||
Total
Debt to Total Capital
|
39.5 | % | 41.1 | % |
|
(a)
|
December
2008 Equity has been retroactively adjusted to include Noncontrolling
Interest as a component of Equity in accordance with changes issued by the
Financial Accounting Standards Board related to consolidation accounting
and reporting.
|
The
Company’s debt as a percent of total capital decreased in 2009. The
decrease results principally from increased equity and a decline in overall
debt, primarily due to lower capital expenditures.
Debt
Covenants
The
Company’s credit facilities and certain notes payable agreements contain a
covenant stipulating a maximum debt to capital ratio of 60%. Certain
notes payable agreements also contain a covenant requiring a minimum net worth
of $475 million. In addition, one credit facility limits the
proportion of subsidiary consolidated indebtedness to 10% of consolidated
tangible assets. At December 31, 2009, the Company was in compliance
with these covenants with a debt to capital ratio of 39.5% and total net worth
of $1.5 billion. Based on balances at December 31, 2009, the Company
could increase borrowings by approximately $1.3 billion and still be within its
debt covenants. Alternatively, keeping all other factors constant,
the Company’s equity could decrease by approximately $0.9 billion and the
Company would still be within its debt covenants. Additionally, the
Company’s 7.25% British pound sterling-denominated notes and its 5.75% notes
include covenants that permit the note holders to redeem their notes, at par and
101% of par, respectively, in the event of a change of control of the Company or
disposition of a significant portion of the Company’s assets in combination with
the Company’s credit rating downgraded to non-investment grade. The
Company expects to continue to be compliant with these debt covenants one year
from now.
Cash
and Value-Based Management
The
Company plans to continue with its strategy of targeted, prudent investing for
strategic purposes for the foreseeable future, although 2009 capital investments
are significantly less than 2008 as existing investments are being used more
efficiently. The long-term goal of this strategy is to create
shareholder value by improving the Company’s EVA. Under
this program the Company evaluates strategic investments based upon the
investment’s economic profit. EVA equals after-tax operating profits
less a charge for the use of the capital employed to create those profits (only
the service cost portion of net periodic pension cost is included for EVA
purposes). Therefore, value is created when a project or initiative
produces a return above the cost of capital. In 2009, EVA was lower
compared with 2008 due principally to lower operating profits.
The
Company currently expects to continue paying dividends to
stockholders. The Company has increased the dividend rate for 16
consecutive years, and in February 2010, the Company paid its 239th
consecutive quarterly cash dividend.
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 financially and intends to
continue investing in high-return projects and prudent, strategic bolt-on
acquisitions; to reduce debt and pay cash dividends as a means of enhancing
stockholder value.
- 43
-
Application
of 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
liabilities. On an ongoing basis, the Company evaluates its
estimates, including those related to pensions and benefits, bad debts, goodwill
valuation, long-lived asset valuations, inventory valuations, insurance
reserves, contingencies and income taxes. The impact of changes in
these estimates, as necessary, is reflected in the respective segment’s
operating income in the period of the change. 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 outcomes, assumptions or
conditions.
The
Company believes the following critical accounting policies are affected by its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. Management has discussed the
development and selection of the critical accounting estimates described below
with the Audit Committee of the Board of Directors and the Audit Committee has
reviewed the Company’s disclosure relating to these estimates in this
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. 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.”
Defined
Benefit Pension Benefits
The
Company has defined benefit pension plans in several countries. The
largest of these plans are in the United Kingdom and the United
States. The Company’s funding policy for these plans is to contribute
amounts sufficient to meet the minimum funding pursuant to U.K. and U.S.
statutory requirements, plus any additional amounts that the Company may
determine to be appropriate. The Company made cash contributions to
its defined benefit pension plans of $28.7 million (including $8.1 million of
voluntary payments) and $30.5 million during 2009 and 2008,
respectively. Additionally, the Company expects to make a minimum of
$30.0 million in cash contributions to its defined benefit pension plans during
2010.
Total
defined benefit net periodic pension cost for 2009 was substantially higher than
the 2008 level due to the decline in pension asset values during the second half
of 2008. In an effort to mitigate a portion of this overall increased
cost for future years, the Company implemented additional plan design changes
for a certain international defined benefit pension plans so that accrued
service is no longer granted for periods after December 31,
2008. This action was a continuation of the Company’s overall
strategy to reduce overall net periodic pension cost and
volatility.
The
Company continues to evaluate alternative strategies to further reduce overall
net periodic pension cost including the consideration of converting the
remaining defined benefit plans to defined contribution plans; the ongoing
evaluation of investment fund managers’ performance; the balancing of plan
assets and liabilities; the risk assessment of multi-employer pension plans; the
possible merger of certain plans; the consideration of incremental cash
contributions to certain plans; and other changes that could reduce future net
periodic pension cost volatility and minimize risk.
Critical
Estimate – Defined Benefit Pension Benefits
Accounting
for defined benefit pensions requires the use of actuarial
assumptions. The principal assumptions used include the discount rate
and the expected long-term rate of return on plan assets. Each
assumption is reviewed annually and represents management’s best estimate at
that time. The assumptions are selected to represent the average
expected experience over time and may differ in any one year from actual
experience due to changes in capital markets and the overall
economy. These differences will impact the amount of unfunded benefit
obligation and the expense recognized.
The
discount rates used in calculating the Company’s projected benefit obligations
as of the December 31, 2009 measurement date for the U.K. and U.S. defined
benefit pension plans were 5.7% and 5.9%, respectively, and the global
weighted-average discount rate was 5.8%. The discount rates selected
represent the average yield on high-quality corporate bonds as of the
measurement dates. Annual net periodic pension cost is determined
using the discount rates as of the measurement date at the beginning of the
year. The discount rates for 2009 expense were 6.0% for the U.K. plan
and 6.1% for both the U.S. plans and the global weighted-average of
plans. Net periodic pension cost and the projected benefit obligation
generally increase as the selected discount rate decreases.
- 44
-
The
expected long-term rate of return on plan assets is determined by evaluating the
asset return expectations with the Company’s advisors as well as actual,
long-term, historical results of asset returns for the pension
plans. Generally the net periodic pension cost increases as the
expected long-term rate of return on assets decreases. For 2009, the
global weighted-average expected long-term rate of return on asset assumption
was 7.4%. For 2010, the expected global long-term rate of return on
assets is 7.5%. This rate was determined based on a model of expected
asset returns for an actively managed portfolio.
Changes
in defined benefit net periodic pension cost may occur in the future due to
changes in actuarial assumptions and due to changes in returns on plan assets
resulting from financial market conditions. Holding all other
assumptions constant, using December 31, 2009 plan data, a one-half percent
increase or decrease in the discount rate and the expected long-term rate of
return on plan assets would increase or decrease annual 2010 pre-tax defined
benefit net periodic pension cost as follows:
Approximate Changes in Pre-tax Defined
Benefit
Net Periodic Pension Cost
|
|||
U.S. Plans
|
U.K. Plan
|
||
Discount rate
|
|||
One-half
percent increase
|
Decrease
of $0.4 million
|
Decrease
of $2.1 million
|
|
One-half
percent decrease
|
Increase
of $0.3 million
|
Increase
of $2.2 million
|
|
Expected long-term rate of return on plan
assets
|
|||
One-half
percent increase
|
Decrease
of $1.0 million
|
Decrease
of $2.8 million
|
|
One-half
percent decrease
|
Increase
of $ 1.0 million
|
Increase
of $2.8 million
|
Should
circumstances change that affect these estimates, changes (either increases or
decreases) to the net pension obligations may be
required. Additionally, certain events could result in the pension
obligation changing at a time other than the annual measurement
date. This would occur when a benefit plan is amended or when plan
curtailments occur.
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.
Notes
and Accounts Receivable
Notes and
accounts receivable are stated at their net realizable value through the use of
an allowance for doubtful accounts. The allowance is maintained for
estimated losses resulting from the inability or unwillingness of customers to
make required payments. The Company has policies and procedures in
place requiring customers to be evaluated for creditworthiness prior to the
execution of new service contracts or shipments of products. These
reviews are structured to minimize the Company’s risk related to realizability
of its receivables. Despite these policies and procedures, the
Company may at times still experience collection problems and potential bad
debts due to economic conditions within certain industries (e.g., construction
and steel industries) and countries and regions in which the Company
operates. As of December 31, 2009 and 2008, trade accounts receivable
of $598.3 million and $648.9 million, respectively, were net of reserves of
$24.5 million and $27.9 million, respectively.
Critical
Estimate – Notes and Accounts Receivable
A
considerable amount of judgment is required to assess the realizability of
receivables, including the current creditworthiness of each customer, related
aging of the past due balances and the facts and circumstances surrounding any
non-payment. The Company’s provisions for bad debts during 2009, 2008
and 2007 were $9.3 million, $12.5 million and $7.8 million,
respectively.
On a
monthly basis, customer accounts are analyzed for
collectibility. Reserves are established based upon a
specific-identification method as well as historical collection experience, as
appropriate. The Company also evaluates specific accounts when it
becomes aware of a situation in which a customer may not be able to meet its
financial obligations due to a deterioration in its financial condition, credit
ratings or bankruptcy. The reserve requirements are based on the
facts available to the Company and are reevaluated and adjusted as additional
information is received. Reserves are also determined by using
percentages (based upon experience) applied to certain aged receivable
categories. Specific issues are discussed with Corporate Management,
and any significant changes in reserve amounts or the write-off of balances must
be approved by a specifically designated Corporate Officer. All
approved items are monitored to ensure they are recorded in the proper
period. Additionally, any significant changes in reserve
- 45
-
balances
are reviewed to ensure the proper corporate approval has occurred.
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 for doubtful
accounts. Changes in the allowance related to both of these
situations would be recorded through income in the period the change was
determined.
The
Company has not materially changed its methodology for calculating allowances
for doubtful accounts for the years presented.
See Note
3, Accounts Receivable and Inventories, to the Consolidated Financial Statements
under Part II, Item 8, “Financial Statements and Supplementary Data,” for
additional disclosures related to these items.
Goodwill
The
Company’s goodwill balances were $699.0 million and $631.5 million, as of
December 31, 2009 and 2008, respectively. Goodwill is not amortized
but tested for impairment at the reporting unit level on an annual basis, and
between annual tests whenever events or circumstances indicate that the carrying
value of a reporting unit’s goodwill may exceed its fair value.
Critical
Estimate – Goodwill
A
discounted cash flow model is used to estimate the fair value of a reporting
unit. This model requires the use of long-term planning estimates and
assumptions regarding industry-specific economic conditions that are outside the
control of the Company. The annual test for impairment includes the
selection of an appropriate discount rate to value cash flow
information. The basis of this discount rate calculation is derived
from several internal and external factors. These factors include,
but are not limited to, the average market price of the Company’s stock, the
number of shares of stock outstanding, the book value of the Company’s debt, a
long-term risk-free interest rate, and both market and size-specific risk
premiums. Additionally, assessments of future cash flows would
consider, but not be limited to, the following: infrastructure plant maintenance
requirements; global metals production and capacity utilization; global railway
track maintenance-of-way capital spending; and other drivers of the Company’s
businesses. Changes in the overall interest rate environment may also
impact the fair market value of the Company’s reporting units as this would
directly influence the discount rate utilized for discounting operating cash
flows, and ultimately determining a reporting unit’s fair value. The
Company’s overall market capitalization is also a factor in evaluating the fair
market values of the Company’s reporting units. Significant declines
in the overall market capitalization of the Company could lead to the
determination that the book value of one or more of the Company’s reporting
units exceeds its fair value. The Company’s annual goodwill
impairment testing, performed as of October 1, 2009 and 2008, indicated that the
fair value of all reporting units tested exceeded their respective book values
and therefore no goodwill impairment was required.
The
Company’s customers may be impacted adversely by the current tightening of
credit in financial markets, which may result in postponed spending and
cancellation or delay of existing and future orders with the
Company. Continued economic decline could further impact the ability
of the Company’s customers to meet their obligations to the Company and possibly
result in bankruptcy filings by them. This, in turn, could negatively
impact the forecasts used in performing the Company’s goodwill impairment
testing. If management determines that goodwill is impaired, the
Company will be required to record a write-down in the period of determination,
which will reduce net income for that period. Therefore, there can be
no assurance that future goodwill impairment tests will not result in a charge
to earnings.
The
Company has not materially changed its methodology for goodwill impairment
testing for the years presented. For 2009, the goodwill impairment
testing was conducted at the operating segment level for the Harsco
Infrastructure, Harsco Metals and Harsco Rail Segments and the All Other
Category. For 2008, the goodwill impairment testing was conducted at
the operating segment level for the Harsco Metals and Harsco Rail Segments and
the All Other Category; and at the component level for the Harsco Infrastructure
Segment. Goodwill testing for the Harsco Infrastructure Segment was
changed to the operating segment level in 2009 due to the integration of the
historic business units (components) within this Segment as part of generating
further operational efficiencies, global branding and facilitating global
growth.
See Note
5, Goodwill and Other Intangible Assets, to the Consolidated Financial
Statements under Part II, Item 8, “Financial Statements and Supplementary Data,”
for additional information on goodwill and other intangible assets.
- 46
-
Asset
Impairment
Long-lived
assets are reviewed for impairment when events and circumstances indicate that
the book value of an asset may be impaired. The amounts charged
against pre-tax income from continuing operations related to impaired long-lived
assets were $1.5 million, $12.6 million and $0.9 million in 2009, 2008 and 2007,
respectively.
Critical
Estimate – Asset Impairment
The
determination of a long-lived asset impairment loss involves significant
judgments based upon short-term and long-term projections of future asset
performance. If the undiscounted cash flows associated with an asset
do not exceed the book value, impairment loss estimates would be based upon the
difference between the book value and the fair value of the
asset. The fair value is generally based upon the Company’s estimate
of the amount that the assets could be bought or sold for in a current
transaction between willing parties. If quoted market prices for the
asset or similar assets are unavailable, the fair value estimate is generally
calculated using a discounted cash flow model. 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.
The
Company has not materially changed its methodology for calculating asset
impairments for the years presented. Commencing January 1, 2009 GAAP
requires consideration of all valuation techniques for which market participant
inputs can be obtained without undue cost and effort. The use of
discounted cash flows continues to be an appropriate method for determining fair
value; however, methodologies such as quoted market prices must also be
evaluated.
Inventories
Inventories
are stated at the lower of cost or market. Inventory balances are
adjusted for estimated obsolete or unmarketable inventory equal to the
difference between the cost of inventory and its estimated market
value. At December 31, 2009 and 2008, inventories of $291.2 million
and $309.5 million, respectively, are net of lower of cost or market reserves
and obsolescence reserves of $14.6 million and $15.7 million,
respectively.
Critical
Estimate – Inventories
In
assessing the ultimate realization of inventory balance amounts, the Company is
required to make judgments as to future demand requirements and compare these
with the current or committed inventory levels. If actual market
conditions are determined to be less favorable than those projected by
management, additional inventory write-downs may be required and would be
recorded through income in the period the determination is
made. Additionally, the Company records reserves to adjust a
substantial portion of its U.S. inventory balances to the last-in, first-out
(“LIFO”) method of inventory valuation. In adjusting these reserves
throughout the year, the Company estimates its year-end inventory costs and
quantities. At December 31 of each year, the reserves are adjusted to
reflect actual year-end inventory costs and quantities. During
periods of inflation, the LIFO expense usually increases and during periods of
deflation it decreases. These year-end adjustments resulted in
pre-tax income of $2.9 million, $1.1 million and $1.4 million in 2009, 2008 and
2007, respectively.
The
Company has not materially changed its methodology for calculating inventory
reserves for the years presented.
See Note
3, Accounts Receivable and Inventories, to the Consolidated Financial Statements
under Part II, Item 8, “Financial Statements and Supplementary Data,” for
additional disclosures related to these items.
Insurance
Reserves
The
Company retains a significant portion of the risk for U.S. workers’
compensation, U.K. employers’ liability, automobile, general and product
liability losses. At December 31, 2009 and 2008, the Company has
recorded liabilities of $87.2 million and $97.2 million, respectively, related
to both asserted as well as unasserted insurance claims. At December
31, 2009 and 2008, $6.9 million and $17.8 million, respectively, was included in
insurance liabilities related to claims covered by insurance carriers for which
a corresponding receivable has been recorded.
Critical
Estimate – Insurance Reserves
Reserves
have been recorded based upon actuarial calculations that reflect the
undiscounted estimated liabilities for ultimate losses including claims incurred
but not reported. Inherent in these estimates are assumptions that
are based on the Company’s history of claims and losses, a detailed analysis of
existing claims with respect to potential value, and current legal and
legislative trends. 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. During 2009, 2008 and 2007, the Company recorded a
retrospective insurance reserve
- 47
-
adjustment
that decreased pre-tax insurance expense from continuing operations for
self-insured programs by $3.7 million, $1.8 million and $1.2 million,
respectively. The Company has programs in place to improve claims
experience, such as disciplined claim and insured litigation management and a
focused approach to workplace safety.
The
Company has not materially changed its methodology for calculating insurance
reserves for the years presented. There are currently no known
trends, demands, commitments, events or uncertainties that are reasonably likely
to occur that would materially affect the methodology or assumptions described
above.
Legal
and Other Contingencies
Reserves
for contingent liabilities are recorded when it is probable that an asset has
been impaired or a liability has been incurred and the loss can be reasonably
estimated. Adjustments to estimated amounts are recorded as necessary
based on new information or the occurrence of new events or the resolution of an
uncertainty. Such adjustments are recorded in the period that the
required change is identified.
Critical
Estimate – Legal and Other Contingencies
On a
quarterly basis, recorded contingent liabilities are analyzed to determine if
any adjustments are required. Additionally, functional department
heads within each business unit are consulted monthly to ensure all issues with
a potential financial accounting impact, including possible reserves for
contingent liabilities, have been properly identified, addressed or disposed
of. Specific issues are discussed with Corporate Management and any
significant changes in reserve amounts or the adjustment or write-off of
previously recorded balances must be approved by a specifically designated
Corporate Officer. If necessary, outside legal counsel, other third
parties or internal experts are consulted to assess the likelihood and range of
outcomes for a particular issue. All approved changes in reserve
amounts are monitored to ensure they are recorded in the proper
period. Additionally, any significant changes in reported business
unit reserve balances are reviewed to ensure the proper Corporate approval has
occurred. On a quarterly basis, the Company’s business units submit a
reserve listing to the Corporate headquarters which is reviewed with Corporate
Management. All significant reserve balances are discussed with a
designated Corporate Officer to assess their validity, accuracy and
completeness. Anticipated changes in reserves are identified for
further consideration prior to the end of a reporting period. Any new
issues that may require a reserve are also identified and discussed to ensure
proper disposition. Additionally, on a quarterly basis, all
significant environmental reserve balances or issues are evaluated to assess
their validity, accuracy and completeness.
The
Company has not materially changed its methodology for calculating legal and
other contingencies for the years presented. There are currently no
known trends, demands, commitments, events or uncertainties that are reasonably
likely to occur that would materially affect the methodology or assumptions
described above.
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 contingencies.
Income
Taxes
The
Company is subject to various federal, state and local income taxes in the
taxing jurisdictions where the Company operates. At the end of each
quarterly period, the Company makes its best estimate of the annual effective
income tax rate and applies that rate to year-to-date income before income taxes
to arrive at the year-to-date income tax provision. As of December
31, 2009, 2008 and 2007, the Company’s net effective income tax rate on income
from continuing operations was 11.6%, 26.7% and 30.7%,
respectively.
Critical
Estimate – Income Taxes
The
annual effective income tax rates are developed giving recognition to tax rates,
tax holidays, tax credits and capital losses, as well as certain exempt income
and non-deductible expenses in all of the jurisdictions where the Company does
business. The income tax provision for a quarterly period
incorporates any change in the year-to-date provision from the previous
quarterly periods. The Company has not materially changed its
methodology for calculating income tax expense for the years presented or for
quarterly periods.
The
Company records deferred tax assets to the extent the Company believes these
assets will more-likely-than-not be realized. In making such
determinations, the Company considers all available positive and negative
evidence, including future reversals of existing temporary differences,
projected future taxable income, tax planning strategies and recent financial
operating results. In the event the Company were to determine that it
would be able to realize deferred income tax assets in the future in excess of
their net recorded amount, an adjustment to the valuation allowance would be
made that would reduce the provision for income taxes. The valuation
allowance was $22.7
- 48
-
million
and $21.5 million as of December 31, 2009 and 2008, respectively. The
valuation allowance is principally for state and international tax net operating
loss carryforwards.
A tax
benefit from an uncertain position may be recognized when it is
more-likely-than-not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, based on
technical merits. The unrecognized tax benefits at December 31, 2009 are
$39 million including interest and penalties. The unrecognized tax
benefit may decrease as a result of the lapse of statute of limitations or as a
result of final settlement and resolution of outstanding tax matters in various
state and foreign jurisdictions.
The
Company has not provided U.S. income taxes on certain of its non-U.S.
subsidiaries’ undistributed earnings as such amounts are permanently reinvested
outside the United States. The Company evaluates future financial
projections for its most significant subsidiaries, the need to reinvest earnings
locally and the overall cash requirements of the Company. Based upon this
evaluation, the Company determined that certain undistributed earnings from
non-U.S. subsidiaries are permanently reinvested. The Company believes
that it can generate sufficient cash flows to avoid the one-time tax costs
associated with repatriation of U.S. undistributed earnings from prior periods.
At December 31, 2009 and 2008, such earnings were approximately $843
million and $741 million, respectively. If these earnings were repatriated
at December 31, 2009, the one-time tax cost associated with the repatriation
would be approximately $163 million.
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.
Research
and Development
The
Company invested $3.2 million, $5.3 million and $3.2 million in internal
research and development programs in 2009, 2008 and 2007,
respectively. Internal funding for research and development was as
follows:
Research
and Development Expense
|
|||||||||||||
(In
millions)
|
2009
|
2008
|
2007
|
||||||||||
Harsco
Infrastructure Segment
|
$ | 1.7 | $ | 2.0 | $ | 0.7 | |||||||
Harsco
Metals Segment
|
0.8 | 1.6 | 1.3 | ||||||||||
Harsco
Rail Segment (a)
|
0.2 | 0.8 | 0.8 | ||||||||||
Segment Totals
|
2.7 | 4.4 | 2.8 | ||||||||||
All
Other Category – Harsco
Minerals & Harsco Industrial (a)
|
0.5 | 0.9 | 0.4 | ||||||||||
Consolidated
Totals
|
$ | 3.2 | $ | 5.3 | $ | 3.2 |
|
(a)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which was
previously a component of the All Other Category, is now reported
separately.
|
- 49
-
Recently
Adopted and Recently Issued Accounting Standards
See Note
1, Summary of Significant Accounting Policies, to the Consolidated Financial
Statements under Part II, Item 8, “Financial Statements and Supplementary Data,”
for disclosures on recently adopted and recently issued accounting standards and
their effect on the Company.
Dividend
Action
The
Company has paid dividends each year since 1939. The Company paid one
quarterly cash dividend of $0.195 per share and three quarterly cash dividends
of $0.20 per share in 2009, for an annual rate of $0.795 per
share. This is an increase of 1.9% from 2008. At the
November 2009 meeting, the Board of Directors increased the dividend by 2.5% to
an annual rate of $0.82 per share representing the Company’s 16th
consecutive year of dividend increases. The Board normally reviews
the dividend rate periodically during the year and annually at its November
meeting. There are no significant restrictions on the payment of
dividends.
The
February 2010 dividend payment of $0.205 per share marked the 239th
consecutive quarterly dividend. In 2009, 50.7% of net earnings were
paid out in dividends. The Company is philosophically committed to
maintaining or increasing the dividend at a sustainable level.
See Part
I, Item 1A, “Risk Factors,” for quantitative and qualitative disclosures about
market risk.
- 50
-
Item
8.
Financial Statements and Supplementary Data.
Index to Consolidated Financial
Statements and Supplementary Data
Page | ||||
Consolidated Financial Statements of Harsco Corporation: | ||||
Management’s
Report on Internal Control Over Financial Reporting
|
52
|
|||
Report
of Independent Registered Public Accounting Firm
|
53
|
|||
Consolidated
Balance Sheets
|
||||
December
31, 2009 and 2008
|
54
|
|||
Consolidated
Statements of Income
|
||||
for
the years 2009, 2008 and 2007
|
55
|
|||
Consolidated
Statements of Cash Flows
|
||||
for
the years 2009, 2008 and 2007
|
56
- 57
|
|||
Consolidated
Statements of Changes in Equity
|
||||
for
the years 2009, 2008 and 2007
|
58
- 59
|
|||
Consolidated
Statements of Comprehensive Income
|
||||
for
the years 2009, 2008 and 2007
|
60
|
|||
Notes
to Consolidated Financial Statements
|
61
- 103
|
|||
Supplementary
Data (Unaudited):
|
||||
Two-Year
Summary of Quarterly Results
|
104 | |||
Common
Stock Price and Dividend Information
|
|
105 |
- 51
-
Management’s
Report on Internal Control Over
Financial
Reporting
Management
of Harsco Corporation, together with its consolidated subsidiaries (the
Company), is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over
financial reporting is a process designed under the supervision of the Company’s
principal executive and principal financial officers to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of the Company’s financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles.
The
Company’s internal control over financial reporting includes policies and
procedures that:
·
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of assets of the
Company;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and the directors of the Company;
and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the Company’s financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
Management
has assessed the effectiveness of its internal control over financial reporting
as of December 31, 2009 based on the framework established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this assessment, management has
determined that the Company’s internal control over financial reporting is
effective as of December 31, 2009.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report
appearing in this Annual Report on Form 10-K, which expresses an unqualified
opinion on the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009.
/S/ Salvatore D. Fazzolari | /S/ Stephen J. Schnoor | ||
Salvatore D. Fazzolari | Stephen J. Schnoor | ||
Chairman and Chief Executive Officer | Senior Vice President and Chief Financial Officer | ||
February 23, 2010 | February 23, 2010 |
- 52
-
Report
of Independent Registered Public Accounting Firm
To The
Stockholders of Harsco Corporation
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Harsco
Corporation and its subsidiaries at December 31, 2009 and December 31, 2008 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 15(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial
Reporting. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and on the Company's
internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included 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. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis
for our opinions.
As
discussed in Note 1 to the consolidated financial statements, the
Company changed the manner in which it accounts for noncontrolling interests in
2009.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers
LLP
Philadelphia,
Pennsylvania
February
23, 2010
- 53
-
HARSCO
CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
||||||||
(In
thousands, except share and per share amounts)
|
December
31
2009
|
December
31
2008
(a)
|
||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash and cash
equivalents
|
$ | 94,184 | $ | 91,336 | ||||
Trade accounts receivable,
net
|
598,318 | 648,880 | ||||||
Other
receivables
|
30,865 | 46,032 | ||||||
Inventories
|
291,174 | 309,530 | ||||||
Other current
assets
|
154,797 | 109,710 | ||||||
Total current
assets
|
1,169,338 | 1,205,488 | ||||||
Property,
plant and equipment, net
|
1,510,801 | 1,482,833 | ||||||
Goodwill
|
699,041 | 631,490 | ||||||
Intangible
assets, net
|
150,746 | 141,493 | ||||||
Other
assets
|
109,314 | 101,666 | ||||||
Total assets
|
$ | 3,639,240 | $ | 3,562,970 | ||||
LIABILITIES
|
||||||||
Current
liabilities:
|
||||||||
Short-term
borrowings
|
$ | 57,380 | $ | 117,854 | ||||
Current maturities of long-term
debt
|
25,813 | 3,212 | ||||||
Accounts
payable
|
215,504 | 262,783 | ||||||
Accrued
compensation
|
67,652 | 85,237 | ||||||
Income taxes
payable
|
5,931 | 13,395 | ||||||
Dividends
payable
|
16,473 | 15,637 | ||||||
Insurance
liabilities
|
25,533 | 36,553 | ||||||
Advances on
contracts
|
149,413 | 144,237 | ||||||
Other current
liabilities
|
187,403 | 209,518 | ||||||
Total current
liabilities
|
751,102 | 888,426 | ||||||
Long-term
debt
|
901,734 | 891,817 | ||||||
Deferred
income taxes
|
90,993 | 35,442 | ||||||
Insurance
liabilities
|
61,660 | 60,663 | ||||||
Retirement
plan liabilities
|
250,075 | 190,153 | ||||||
Other
liabilities
|
73,842 | 46,497 | ||||||
Total liabilities
|
2,129,406 | 2,112,998 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
HARSCO
CORPORATION STOCKHOLDERS' EQUITY
|
||||||||
Preferred
stock, Series A junior participating cumulative preferred
stock
|
— | — | ||||||
Common
stock, par value $1.25, issued 111,387,185 and 111,139,988 shares as of
December 31, 2009 and 2008, respectively
|
139,234 | 138,925 | ||||||
Additional
paid-in capital
|
137,746 | 137,083 | ||||||
Accumulated
other comprehensive loss
|
(201,684 | ) | (208,299 | ) | ||||
Retained
earnings
|
2,133,297 | 2,079,170 | ||||||
Treasury
stock, at cost (31,034,126 and 30,965,452, respectively)
|
(735,016 | ) | (733,203 | ) | ||||
Total Harsco Corporation
stockholders’ equity
|
1,473,577 | 1,413,676 | ||||||
Noncontrolling
interests
|
36,257 | 36,296 | ||||||
Total equity
|
1,509,834 | 1,449,972 | ||||||
Total liabilities and
equity
|
$ | 3,639,240 | $ | 3,562,970 |
(a)
|
On
January 1, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board related to consolidation accounting and
reporting. These changes, among others, require that minority
interests be renamed noncontrolling interests and that a company present
such noncontrolling interests as equity for all periods presented.
Balances have been reclassified
accordingly.
|
See
accompanying notes to consolidated financial statements.
- 54
-
HARSCO
CORPORATION
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share amounts)
Years
ended December 31
|
2009
|
2008
(a)
|
2007
(a)
|
|||||||||
Revenues
from continuing operations:
|
||||||||||||
Service
revenues
|
$ | 2,442,198 | $ | 3,340,456 | $ | 3,166,561 | ||||||
Product
revenues
|
548,379 | 627,366 | 521,599 | |||||||||
Total revenues
|
2,990,577 | 3,967,822 | 3,688,160 | |||||||||
Costs
and expenses from continuing operations:
|
||||||||||||
Cost of services
sold
|
1,897,408 | 2,484,975 | 2,316,904 | |||||||||
Cost of products
sold
|
354,730 | 441,445 | 368,600 | |||||||||
Selling, general and
administrative expenses
|
509,071 | 602,169 | 538,233 | |||||||||
Research and development
expenses
|
3,151 | 5,295 | 3,175 | |||||||||
Other expenses
|
7,561 | 21,950 | 3,443 | |||||||||
Total costs and
expenses
|
2,771,921 | 3,555,834 | 3,230,355 | |||||||||
Operating income from
continuing operations
|
218,656 | 411,988 | 457,805 | |||||||||
Equity
in income of unconsolidated entities, net
|
504 | 901 | 1,049 | |||||||||
Interest
income
|
2,928 | 3,608 | 4,968 | |||||||||
Interest
expense
|
(62,746 | ) | (73,160 | ) | (81,383 | ) | ||||||
Income from continuing
operations before income taxes
|
159,342 | 343,337 | 382,439 | |||||||||
Income
tax expense
|
(18,509 | ) | (91,820 | ) | (117,598 | ) | ||||||
Income from continuing
operations
|
140,833 | 251,517 | 264,841 | |||||||||
Discontinued
operations:
|
||||||||||||
Income from operations of
discontinued business
|
— | — | 26,897 | |||||||||
Gain (loss) on disposal of
discontinued business
|
(21,907 | ) | (1,747 | ) | 41,414 | |||||||
Income tax benefit (expense)
related to discontinued business
|
6,846 | (2,931 | ) | (23,934 | ) | |||||||
Income
(loss) from discontinued operations
|
(15,061 | ) | (4,678 | ) | 44,377 | |||||||
Net
Income
|
125,772 | 246,839 | 309,218 | |||||||||
Less: Net income attributable
to noncontrolling interests
|
(6,995 | ) | (5,894 | ) | (9,726 | ) | ||||||
Net
Income attributable to Harsco Corporation
|
$ | 118,777 | $ | 240,945 | $ | 299,492 | ||||||
Amounts
attributable to Harsco Corporation common stockholders:
|
||||||||||||
Income from continuing
operations, net of tax
|
$ | 133,838 | $ | 245,623 | $ | 255,115 | ||||||
Income (loss) from discontinued
operations, net of tax
|
(15,061 | ) | (4,678 | ) | 44,377 | |||||||
Net income attributable to
Harsco Corporation common stockholders
|
$ | 118,777 | $ | 240,945 | $ | 299,492 | ||||||
Weighted-average
shares of common stock outstanding
|
80,295 | 83,599 | 84,169 | |||||||||
Basic
earnings per common share attributable to Harsco Corporation common
stockholders:
|
||||||||||||
Continuing
operations
|
$ | 1.67 | $ | 2.94 | $ | 3.03 | ||||||
Discontinued
operations
|
(0.19 | ) | (0.06 | ) | 0.53 | |||||||
Basic
earnings per share attributable to Harsco Corporation common
stockholders
|
$ | 1.48 | $ | 2.88 | $ | 3.56 | ||||||
Diluted
weighted-average shares of common stock outstanding
|
80,586 | 84,029 | 84,724 | |||||||||
Diluted
earnings per common share attributable to Harsco Corporation common
stockholders:
|
||||||||||||
Continuing
operations
|
$ | 1.66 | $ | 2.92 | $ | 3.01 | ||||||
Discontinued
operations
|
(0.19 | ) | (0.06 | ) | 0.52 | |||||||
Diluted
earnings per share attributable to Harsco Corporation common
stockholders
|
$ | 1.47 | $ | 2.87 | (b) | $ | 3.53 |
(a)
|
On
January 1, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board related to consolidation accounting and
reporting. These changes, among others, require that minority
interests be renamed noncontrolling interests and that a company present a
consolidated net income measure that includes the amount attributable to
such noncontrolling interests for all periods presented. Results
have been reclassified accordingly.
|
(b)
|
Does
not total due to rounding.
|
See
accompanying notes to consolidated financial statements.
- 55
-
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
Years
ended December 31
|
2009
|
2008
(a)
|
2007
(a)
|
|||||||||
Cash
flows from operating activities:
|
||||||||||||
Net income
|
$ | 125,772 | $ | 246,839 | $ | 309,218 | ||||||
Adjustments to reconcile net
income to net
|
||||||||||||
cash provided (used) by operating
activities:
|
||||||||||||
Depreciation
|
282,976 | 307,847 | 277,397 | |||||||||
Amortization
|
28,555 | 30,102 | 29,016 | |||||||||
Equity in income of
unconsolidated entities, net
|
(504 | ) | (901 | ) | (1,049 | ) | ||||||
Dividends or distributions from
unconsolidated entities
|
410 | 484 | 181 | |||||||||
(Gain) loss on disposal of
discontinued business
|
21,907 | 1,747 | (41,414 | ) | ||||||||
Other, net
|
(15,762 | ) | 61,244 | (10,388 | ) | |||||||
Changes in assets and
liabilities, net of acquisitions
|
||||||||||||
and dispositions of
businesses:
|
||||||||||||
Accounts
receivable
|
111,207 | 34,198 | (60,721 | ) | ||||||||
Inventories
|
35,798 | (24,238 | ) | (106,495 | ) | |||||||
Accounts
payable
|
(54,701 | ) | (22,144 | ) | 18,268 | |||||||
Accrued interest
payable
|
(1,305 | ) | 3,841 | (1,291 | ) | |||||||
Accrued
compensation
|
(23,402 | ) | (15,843 | ) | 8,516 | |||||||
Income taxes
|
(36,692 | ) | (76,346 | ) | 2,971 | |||||||
Advances on
contracts
|
4,242 | 92,580 | 46,159 | |||||||||
Other assets and
liabilities
|
(44,043 | ) | (65,134 | ) | 1,372 | |||||||
Net cash provided by operating
activities
|
434,458 | 574,276 | 471,740 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases of property, plant and
equipment
|
(165,320 | ) | (457,617 | ) | (443,583 | ) | ||||||
Purchase of businesses, net of
cash acquired*
|
(103,241 | ) | (15,539 | ) | (254,639 | ) | ||||||
Proceeds from sales of
assets
|
2,115 | 24,516 | 317,189 | |||||||||
Other investing
activities
|
(2,914 | ) | 5,222 | (5,092 | ) | |||||||
Net cash used by investing
activities
|
(269,360 | ) | (443,418 | ) | (386,125 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Short-term borrowings,
net
|
(79,670 | ) | 65,239 | (137,645 | ) | |||||||
Current maturities and long-term
debt:
|
||||||||||||
Additions
|
482,493 | 975,393 | 1,023,282 | |||||||||
Reductions
|
(487,171 | ) | (996,173 | ) | (908,295 | ) | ||||||
Cash dividends paid on common
stock
|
(63,813 | ) | (65,632 | ) | (59,725 | ) | ||||||
Dividends paid to noncontrolling
interests
|
(3,487 | ) | (5,595 | ) | (5,668 | ) | ||||||
Purchase of noncontrolling
interests
|
(13,057 | ) | — | — | ||||||||
Contributions of equity from
noncontrolling interest
|
5,332 | — | — | |||||||||
Common stock
issued-options
|
995 | 1,831 | 11,765 | |||||||||
Common stock acquired for
treasury
|
— | (128,577 | ) | — | ||||||||
Other financing
activities
|
(5,705 | ) | (2,025 | ) | (1,401 | ) | ||||||
Net cash used by financing
activities
|
(164,083 | ) | (155,539 | ) | (77,687 | ) | ||||||
Effect
of exchange rate changes on cash
|
1,833 | (5,816 | ) | 12,645 | ||||||||
Net
increase (decrease) in cash and cash equivalents
|
2,848 | (30,497 | ) | 20,573 | ||||||||
Cash
and cash equivalents at beginning of period
|
91,336 | 121,833 | 101,260 | |||||||||
Cash
and cash equivalents at end of period
|
$ | 94,184 | $ | 91,336 | $ | 121,833 |
(Continued
on next page)
- 56
-
HARSCO
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(In
thousands)
Years
ended December 31
|
2009
|
2008
(a)
|
2007
(a)
|
|||||||||
*Purchase
of businesses, net of cash acquired
|
||||||||||||
Working capital, other than
cash
|
$ | (2,399 | ) | $ | (263 | ) | $ | (17,574 | ) | |||
Property, plant and
equipment
|
(68,906 | ) | (11,961 | ) | (45,398 | ) | ||||||
Other noncurrent assets and
liabilities, net
|
(31,936 | ) | (3,315 | ) | (191,667 | ) | ||||||
Net cash used to acquire
businesses
|
$ | (103,241 | ) | $ | (15,539 | ) | $ | (254,639 | ) |
(a)
|
On
January 1, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board related to consolidation accounting and
reporting. These changes, among others, require that minority
interests be renamed noncontrolling interests for all periods
presented. Results have been reclassified
accordingly.
|
See
accompanying notes to consolidated financial statements.
- 57
-
HARSCO
CORPORATION
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
Common
Stock
|
||||||||||||||||||||||||||||
(In
thousands, except share and per share amounts)
|
Issued
|
Treasury
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other Comprehensive Income (Loss)
|
Noncontrolling
Interest (a)
|
Total
|
|||||||||||||||||||||
Balances,
January 1, 2007
|
$ | 85,614 | $ | (603,171 | ) | $ | 166,494 | $ | 1,666,262 | $ | (169,334 | ) | $ | 31,130 | $ | 1,176,995 | ||||||||||||
Net
income
|
299,492 | 9,726 | 309,218 | |||||||||||||||||||||||||
2-for-1
stock split, 42,029,232 shares
|
52,536 | (52,536 | ) | — | ||||||||||||||||||||||||
Cash
dividends declared:
|
(61,252 | ) | ||||||||||||||||||||||||||
Common @ $0.71 per
share
|
(61,252 | ) | ||||||||||||||||||||||||||
Noncontrolling
interests
|
(5,668 | ) | (5,668 | ) | ||||||||||||||||||||||||
Translation
adjustments, net of deferred income taxes of $(4,380)
|
110,451 | 2,835 | 113,286 | |||||||||||||||||||||||||
Cash
flow hedging instrument adjustments, net of deferred income taxes of
$(64)
|
119 | 119 | ||||||||||||||||||||||||||
Pension
liability adjustments, net of deferred income taxes of
$(24,520)
|
56,257 | 56,257 | ||||||||||||||||||||||||||
Marketable
securities unrealized gains, net of deferred income taxes of
$(3)
|
6 | 6 | ||||||||||||||||||||||||||
Stock
options exercised, 411,864 shares
|
515 | 11,224 | 11,739 | |||||||||||||||||||||||||
Other,
90 shares, and 82,700 restricted stock units (net of
forfeitures)
|
2 | 26 | 28 | |||||||||||||||||||||||||
Amortization
of unearned compensation on restricted stock units
|
3,414 | 3,414 | ||||||||||||||||||||||||||
Balances,
December 31, 2007
|
$ | 138,665 | $ | (603,169 | ) | $ | 128,622 | $ | 1,904,502 | $ | (2,501 | ) | $ | 38,023 | $ | 1,604,142 | ||||||||||||
Cumulative
effect from adoption of pension accounting changes, net of deferred income
taxes of $(413)
|
(1,453 | ) | 2,372 | 919 | ||||||||||||||||||||||||
Beginning
Balances, January 1, 2008
|
$ | 138,665 | $ | (603,169 | ) | $ | 128,622 | $ | 1,903,049 | $ | (129 | ) | $ | 38,023 | $ | 1,605,061 | ||||||||||||
Net
income
|
240,945 | 5,894 | 246,839 | |||||||||||||||||||||||||
Cash
dividends declared:
|
||||||||||||||||||||||||||||
Common @ $0.78 per
share
|
(64,824 | ) | (64,824 | ) | ||||||||||||||||||||||||
Noncontrolling
interests
|
(5,595 | ) | (5,595 | ) | ||||||||||||||||||||||||
Translation
adjustments, net of deferred income taxes of $85,526
|
(154,572 | ) | (2,026 | ) | (156,598 | ) | ||||||||||||||||||||||
Cash
flow hedging instrument adjustments, net of deferred income taxes of
$(7,655)
|
20,812 | 20,812 | ||||||||||||||||||||||||||
Pension
liability adjustments, net of deferred income taxes of
$29,057
|
(74,340 | ) | (74,340 | ) | ||||||||||||||||||||||||
Marketable
securities unrealized gains, net of deferred income taxes of
$38
|
(70 | ) | (70 | ) | ||||||||||||||||||||||||
Stock
options exercised, 121,176 shares
|
152 | 3,336 | 3,488 | |||||||||||||||||||||||||
Net
issuance of stock – vesting of restricted stock units, 56,847
shares
|
108 | (1,457 | ) | (108 | ) | (1,457 | ) | |||||||||||||||||||||
Treasury
shares repurchased, 4,463,353 shares
|
(128,577 | ) | (128,577 | ) | ||||||||||||||||||||||||
Amortization
of unearned compensation on restricted stock units, net of
forfeitures
|
5,233 | 5,233 | ||||||||||||||||||||||||||
Balances,
December 31, 2008
|
$ | 138,925 | $ | (733,203 | ) | $ | 137,083 | $ | 2,079,170 | $ | (208,299 | ) | $ | 36,296 | $ | 1,449,972 |
(Continued
on next page)
- 58
-
HARSCO
CORPORATION
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY (Continued)
Common
Stock
|
||||||||||||||||||||||||||||
(In
thousands, except share and per share amounts)
|
Issued
|
Treasury
|
Additional
Paid-in Capital
|
Retained
Earnings
|
Accumulated
Other Comprehensive Income (Loss)
|
Noncontrolling
Interest (a)
|
Total
|
|||||||||||||||||||||
Balances,
December 31, 2008
|
$ | 138,925 | $ | (733,203 | ) | $ | 137,083 | $ | 2,079,170 | $ | (208,299 | ) | $ | 36,296 | $ | 1,449,972 | ||||||||||||
Net
income
|
118,777 | 6,995 | 125,772 | |||||||||||||||||||||||||
Cash
dividends declared:
|
||||||||||||||||||||||||||||
Common @ $0.805 per
share
|
(64,650 | ) | (64,650 | ) | ||||||||||||||||||||||||
Noncontrolling
interests
|
(3,487 | ) | (3,487 | ) | ||||||||||||||||||||||||
Translation
adjustments, net of deferred income taxes of $(21,866)
|
96,802 | 262 | 97,064 | |||||||||||||||||||||||||
Cash
flow hedging instrument adjustments, net of deferred income taxes of
$10,849
|
(30,041 | ) | (30,041 | ) | ||||||||||||||||||||||||
Purchase
of subsidiary shares from noncontrolling interests
|
(3,905 | ) | (9,141 | ) | (13,046 | ) | ||||||||||||||||||||||
Contributions
of equity from noncontrolling interest
|
5,332 | 5,332 | ||||||||||||||||||||||||||
Pension
liability adjustments, net of deferred income taxes of
$26,012
|
(60,150 | ) | (60,150 | ) | ||||||||||||||||||||||||
Marketable
securities unrealized loss, net of deferred income taxes of
$(2)
|
4 | 4 | ||||||||||||||||||||||||||
Stock
options exercised, 92,250 shares
|
115 | (423 | ) | 1,366 | 1,058 | |||||||||||||||||||||||
Net
issuance of stock – vesting of restricted stock units, 101,918
shares
|
194 | (1,390 | ) | (684 | ) | (1,880 | ) | |||||||||||||||||||||
Amortization
of unearned compensation on restricted stock units, net of
forfeitures
|
3,886 | 3,886 | ||||||||||||||||||||||||||
Balances,
December 31, 2009
|
$ | 139,234 | $ | (735,016 | ) | $ | 137,746 | $ | 2,133,297 | $ | (201,684 | ) | $ | 36,257 | $ | 1,509,834 |
(a)
|
On
January 1, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board related to consolidation accounting and
reporting. These changes, among others, require that minority
interests be renamed noncontrolling interests and that a company present
such noncontrolling interests as equity for all periods presented.
Amounts have been reclassified
accordingly.
|
See
accompanying notes to consolidated financial statements.
- 59
-
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(In
thousands)
Years
ended December 31
|
2009
|
2008
(a)
|
2007
(a)
|
|||||||||
Net
income
|
$ | 125,772 | $ | 246,839 | $ | 309,218 | ||||||
Other
comprehensive income (loss):
|
||||||||||||
Foreign
currency translation adjustments, net of deferred income
taxes
|
97,064 | (156,598 | ) | 113,286 | ||||||||
Net
gains (losses) on cash flow hedging instruments, net of deferred income
taxes of $10,490, $(7,681) and $2 in 2009, 2008 and 2007,
respectively
|
(29,375 | ) | 20,859 | (3 | ) | |||||||
Reclassification
adjustment for (gain) loss on cash flow hedging instruments, net of
deferred income taxes of $359, $26 and $(66) in 2009, 2008 and 2007,
respectively
|
(666 | ) | (47 | ) | 122 | |||||||
Pension
liability adjustments, net of deferred income taxes of $26,012, $29,057
and $(24,520) in 2009, 2008 and 2007, respectively
|
(60,150 | ) | (74,340 | ) | 56,257 | |||||||
Unrealized
gain (loss) on marketable securities, net of deferred income taxes of
$(2), $38 and $(3) in 2009, 2008 and 2007, respectively
|
4 | (70 | ) | 6 | ||||||||
Total
other comprehensive income (loss)
|
6,877 | (210,196 | ) | 169,668 | ||||||||
Total
comprehensive income
|
132,649 | 36,643 | 478,886 | |||||||||
Less:
Comprehensive income attributable to noncontrolling
interests
|
(7,257 | ) | (3,868 | ) | (12,561 | ) | ||||||
Comprehensive
income attributable to Harsco Corporation
|
$ | 125,392 | $ | 32,775 | $ | 466,325 |
(a)
|
On
January 1, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board related to consolidation accounting and
reporting. These changes, among others, require that minority
interests be renamed noncontrolling interests and that a company present a
consolidated net income measure that includes the amount attributable to
such noncontrolling interests for all periods presented. Results
have been reclassified accordingly.
|
See
accompanying notes to consolidated financial statements.
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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"). Additionally, the
Company consolidated five entities in 2009 and four entities in 2008 and 2007 in
which it has an equity interest of 49% to 50% and exercises management
control. These entities had combined revenues of approximately $126.3
million, $172.3 million and $117.0 million, or 4.2%, 4.3% and 3.2% of the
Company’s total revenues for the years ended 2009, 2008 and 2007,
respectively. Investments in unconsolidated entities (all of which
are 40-50% owned) are accounted for under the equity method. The
Company does not have any off-balance sheet arrangements with unconsolidated
special-purpose entities.
Reclassifications
and Out-of-Period Adjustments
Certain
reclassifications have been made to prior years’ amounts to conform with current
year classifications. These reclassifications relate principally to
segment reporting. The Harsco Rail operating segment, which was
previously a component of the All Other Category, is now reported
separately. Also, the Gas Technologies Segment is classified as
Discontinued Operations as discussed in Note 2, “Acquisitions and
Dispositions.” Additionally, all historical share and per share data
have been adjusted to reflect the two-for-one stock split that was effective at
the close of business on March 26, 2007. As a result of these
reclassifications, certain prior-period amounts presented for comparative
purposes will not individually agree with previously filed Forms 10-K or
10-Q.
During
2009, the Company recorded non-cash out-of-period adjustments that had the net
effect of reducing after-tax income by $4 million or $0.05 per diluted
share. The adjustments correct errors generated principally by the
improper recognition of certain revenues and delaying the recognition of certain
expenses ($9 million or $0.11 per diluted share) by one subsidiary, in one
country, during the past three years. Based upon the investigation,
which is completed, these errors primarily related to the failure to receive
advance customer agreement and to invoice on a timely basis for additional work
performed for two customers. The Company assessed the individual and
aggregate impact of these adjustments on the current year and all prior periods
and determined that the cumulative effect of the adjustments was not material to
the full-year 2009 results and did not result in a material misstatement to any
previously issued annual or quarterly financial statements. Consequently,
the Company recorded the $4 million net adjustment in the current year and has
not revised any previously issued annual financial statements or interim
financial data.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash on hand, demand deposits and short-term
investments that 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 principally accounted for using 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 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 by sale are not
depreciated while they are held for sale.
Leases
The
Company leases certain property and equipment under noncancelable lease
agreements. All lease agreements are evaluated and classified as
either an operating lease or capital lease. A lease is classified as
a capital lease if any of the following criteria are met: transfer of
ownership to the Company by the end of the lease term; the lease contains a
bargain purchase option; the lease term is equal to or greater than 75% of the
asset’s economic life; or the present value of future minimum lease payments is
equal to or greater than 90% of the asset’s fair market
value. Operating lease expense is recognized ratably over the entire
lease term, including rent abatement periods and rent holidays.
Goodwill
and Other Intangible Assets
Goodwill
is not amortized but tested for impairment at the reporting unit
level. A reporting unit is an operating segment or one level below an
operating segment (referred to as a component). A component of an
operating segment is a reporting unit if the component constitutes a business
for which discrete financial information is available and segment management
regularly reviews the operating results of that
component. Accordingly, the Company performs the
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goodwill
impairment test at the operating segment level. The goodwill
impairment tests are performed on an annual basis as of October 1 and between
annual tests whenever events or circumstances indicate that the carrying value
of a reporting unit’s goodwill may exceed its fair value. A
discounted cash flow model is used to estimate the fair value of a reporting
unit. This model requires the use of long-term planning forecasts and
assumptions regarding industry-specific economic conditions that are outside the
control of the Company. Finite-lived intangible assets are amortized
over their estimated useful lives. See Note 5, “Goodwill and Other
Intangible Assets,” for additional information on intangible assets and goodwill
impairment testing.
Impairment
of Long-Lived Assets (Other than Goodwill)
Long-lived
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, normally as determined
in either open market transactions or through the use of a discounted cash flow
model. 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
Product
revenues and service revenues are recognized when they are realized or
realizable and when earned. Revenue 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
collectability is reasonably assured. Service revenues include the
Harsco Infrastructure and Harsco Metals Segments as well as service revenues of
the Harsco Rail Segment and the All Other Category (Harsco Minerals & Harsco
Industrial). Product revenues include the Harsco Rail Segment and the
manufacturing businesses of the All Other Category (Harsco Minerals & Harsco
Industrial).
Harsco Infrastructure
Segment – This Segment provides services under both fixed-fee and
time-and-materials short-term contracts, rents equipment under month-to-month
rental contracts and, to a lesser extent, sells products to
customers. Equipment rentals are recognized as earned over the
contractual rental period. Services provided on a fixed-fee basis are
recognized over the contractual period based upon the completion of specific
units of accounting (i.e., erection and dismantling of
equipment). Services provided on a time-and-materials basis are
recognized when earned as services are performed. Product sales
revenue is recognized when title and risk of loss transfer, and when all of the
revenue recognition criteria have been met.
Harsco Metals Segment
– This Segment provides services predominantly on a long-term,
volume-of-production contract basis. Contracts may include both fixed
monthly fees as well as variable fees based upon specific services provided to
the customer. The fixed-fee portion is recognized periodically as
earned (normally monthly) over the contractual period. The
variable-fee portion is recognized as services are performed and differs from
period-to-period based upon the actual provision of services.
Harsco Rail Segment –
This Segment sells railway track maintenance equipment and provides railway
track maintenance services. Product sales revenue is recognized
generally when title and risk of loss transfer, and when all of the revenue
recognition criteria have been met. Title and risk of loss for
domestic shipments generally transfers to the customer at the point of
shipment. For export sales, title and risk of loss transfer in
accordance with the international commercial terms included in the specific
customer contract. Revenue may be recognized subsequent to the
transfer of title and risk of loss for certain product sales, if the specific
sales contract includes a customer acceptance clause that provides for different
timing. In those situations revenue is recognized after transfer of
title and risk of loss and after customer acceptance. Services are
predominantly on a long-term, time-and-materials contract
basis. Revenue is recognized when earned as services are performed
within the long-term contracts.
All Other Category (Harsco
Minerals & Harsco Industrial) – This category includes the Minerals
and Recycling Technologies and the Industrial Abrasives and Roofing Granules
operating segments, as well as the Harsco Industrial IKG, Harsco Industrial
Patterson-Kelley and Harsco Industrial Air-X-Changers operating
segments. These operating segments principally sell
products. Product sales revenue are recognized generally when title
and risk of loss transfer, and when all of the revenue recognition criteria have
been met. Title and risk of loss for domestic shipments generally
transfers to the customer at the point of shipment. For export sales,
title and risk of loss transfer in accordance with the international commercial
terms included in the specific customer contract. The Minerals and
Recycling Technologies operating segment sells products and provides
services. These services are predominantly on a long-term,
volume-of-production contract basis. Contracts may include both fixed
monthly fees as well as variable fees based upon specific services provided to
the customer. The fixed-fee portion is recognized periodically as
earned (normally monthly) over the contractual period. The
variable-fee portion is recognized as services are performed and differs from
period-to-period based upon the actual provision of services.
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Income
Taxes
The
Company accounts for income taxes under the asset and liability method, which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of the events that have been included in the
consolidated financial statements. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment
date.
The
Company records deferred tax assets to the extent the Company believes these
assets will more-likely-than-not be realized. In making such
determinations, the Company considers all available positive and negative
evidence, including future reversals of existing temporary differences,
projected future taxable income, tax planning strategies and recent financial
operations. In the event the Company were to determine that it would be
able to realize deferred income tax assets in the future in excess of their net
recorded amount, an adjustment to the valuation allowance would be made that
would reduce the provision for income taxes.
The tax
benefit from an uncertain position is recognized when it is more-likely-than-not
that the position will be sustained upon examination, including resolutions of
any related appeals or litigation processes, based on technical merits.
Each subsequent period the Company determines if existing or new uncertain
positions meet a more-likely-than-not recognition threshold and adjust
accordingly.
The
Company recognizes interest and penalties related to unrecognized tax benefits
within Income tax expense in the accompanying Consolidated Statements of
Income. Accrued interest and penalties are included in Other liabilities
in the Consolidated Balance Sheets.
In
general, it is the practice and intention of the Company to reinvest the
undistributed earnings of its non-U.S. subsidiaries. Should the
Company repatriate future earnings, such amounts become subject to U.S. taxation
giving recognition to current tax expense and foreign tax credits upon
remittance of dividends and under certain other circumstances.
Accrued
Insurance and Loss Reserves
The
Company retains a significant portion of the risk for U.S. workers’
compensation, U.K. employers’ liability, automobile, general and product
liability losses. During 2009, 2008 and 2007 the Company recorded
insurance expense from continuing operations related to these lines of coverage
of approximately $40 million, $43 million and $37 million,
respectively. Reserves have been recorded that reflect the
undiscounted estimated liabilities including claims incurred but not
reported. When a recognized liability is covered by third-party
insurance, the Company records an insurance claim receivable to reflect the
covered liability. Changes in the estimates of the reserves are
included in net income in the period determined. During 2009, 2008
and 2007, the Company recorded retrospective insurance reserve adjustments that
decreased pre-tax insurance expense from continuing operations for self-insured
programs by $3.7 million, $1.8 million and $1.2 million,
respectively. At December 31, 2009 and 2008, the Company has recorded
liabilities of $87.2 million and $97.2 million, respectively, related to both
asserted as well as unasserted insurance claims. Included in the
balance at December 31, 2009 and 2008 were $6.9 million and $17.8 million,
respectively, of recognized liabilities covered by insurance
carriers. Amounts estimated to be paid within one year have been
classified as current Insurance liabilities, with the remainder included in
non-current Insurance liabilities in the Consolidated Balance
Sheets.
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Warranties
The
Company has recorded product warranty reserves of $4.1 million, $2.9 million and
$2.9 million as of December 31, 2009, 2008 and 2007,
respectively. The Company provides for warranties of certain products
as they are sold. The following table summarizes the warranty
activity for the years ended December 31, 2009, 2008 and 2007:
Warranty
Activity
|
|||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
||||||||||
Balance
at the beginning of the period
|
$ | 2,863 | $ | 2,907 | $ | 4,805 | |||||||
Accruals
for warranties issued during the period
|
4,623 | 3,683 | 3,112 | ||||||||||
Reductions
related to pre-existing warranties
|
(1,388 | ) | (1,524 | ) | (1,112 | ) | |||||||
Divestiture
|
— | — | (980 | ) | |||||||||
Warranties
paid
|
(2,059 | ) | (2,157 | ) | (2,810 | ) | |||||||
Other
(principally foreign currency translation)
|
39 | (46 | ) | (108 | ) | ||||||||
Balance
at end of the period
|
$ | 4,078 | $ | 2,863 | $ | 2,907 |
Foreign
Currency Translation
The
financial statements of the Company's subsidiaries outside the United States,
except for those subsidiaries located in highly inflationary economies and those
entities for which the U.S. dollar is the currency of the primary economic
environment in which the entity operates, are measured using the local currency
as the functional currency. Assets and liabilities of these
subsidiaries are translated at the exchange rates as of the balance sheet
date. Resulting translation adjustments are recorded in the
cumulative translation adjustment account, a separate component of Other
comprehensive income (loss). 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, and those entities for which the
U.S. dollar is the currency of the primary economic environment in which the
entity operates, gains and losses on foreign currency transactions and balance
sheet translation adjustments are included in net income.
Financial
Instruments and Hedging
The
Company has operations throughout the world that 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 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 days or less;
however, where appropriate, longer-term contracts may be
utilized. For those contracts that are designated as qualified cash
flow hedges, gains or losses are recorded in Other comprehensive income
(loss).
Amounts
recorded in Other comprehensive income (loss) 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 (i.e., the cash
flows related to contracts to hedge the purchase of fixed assets are included in
cash flows from investing activities, etc.). The Company also enters
into certain forward exchange contracts that are not designated as
hedges. 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.
Earnings
Per Share
Basic
earnings per share are calculated using the weighted-average shares of common
stock outstanding, while diluted earnings per share reflect the dilutive effects
of restricted stock units and the potential dilution that could occur if stock
options were exercised. See Note 11, “Capital Stock,” for additional
information on earnings per share.
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Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States (“GAAP”) 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. Actual results could differ from those
estimates.
Recently
Adopted and Recently Issued Accounting Standards
The
following accounting standards were adopted in 2009:
On
September 30, 2009, the Company adopted changes issued by the FASB to the
authoritative hierarchy of GAAP. These changes established the FASB
Accounting Standards CodificationTM
(“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. Rules and interpretive
releases of the Securities and Exchange Commission (“SEC”) under authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. The FASB will no longer issue new standards in the form
of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts;
instead the FASB will issue Accounting Standards Updates. Accounting
Standards Updates will not be authoritative in their own right as they will only
serve to update the Codification. These changes and the Codification
itself do not change GAAP. The adoption of these changes had no
impact on the Company’s consolidated financial statements, other than the manner
in which new accounting standards are referenced.
On
June 30, 2009, the Company adopted changes issued by the FASB related to
the accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be
issued. Specifically, these changes set forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. The adoption
of these changes had no impact on the Company’s consolidated financial
statements as the Company’s existing method of accounting for and disclosing
subsequent events did not significantly change.
On June
30, 2009, the Company adopted changes issued by the FASB that require a publicly
traded company to disclose the fair value of its financial instruments whenever
summarized financial information for interim reporting periods is
issued. Such disclosures include the fair value of all financial
instruments, for which it is practicable to estimate that value, whether
recognized or not recognized in the statement of financial position; the related
carrying amount of these financial instruments; and the method(s) and
significant assumptions used to estimate the fair value. The adoption
of these changes had no impact on the Company’s consolidated financial
statements other than the required disclosures included in the Company’s interim
financial statements.
On
January 1, 2009, the Company adopted changes issued by the FASB related to
disclosures about an entity’s derivative and hedging activities,
including:
·
|
how
and why an entity uses derivative
instruments,
|
·
|
how
derivative instruments and related hedged items are accounted for,
and
|
·
|
how
derivative instruments and related hedged items affect an entity’s
financial position, financial performance and cash
flows.
|
Other
than the required disclosures included in Note 13, “Financial Instruments,” the
adoption of these changes had no material impact on the Company’s consolidated
financial statements.
On
January 1, 2009, the Company adopted changes issued by the FASB related to
the consolidation accounting and reporting for a noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. These changes
define a noncontrolling interest, previously called a minority interest, as the
portion of equity in a subsidiary not attributable, directly or indirectly, to a
parent. These changes require, among other items, that a
noncontrolling interest be included in the consolidated statement of financial
position within equity separate from the parent’s equity; consolidated net
income to be reported at amounts inclusive of both the parent’s and
noncontrolling interest’s shares and, separately, the amounts of consolidated
net income attributable to the parent and noncontrolling interest all on the
consolidated statement of income; and if a subsidiary is deconsolidated, any
retained noncontrolling equity investment in the former subsidiary be measured
at fair value and a gain or loss be recognized in net income based on such fair
value. The presentation and disclosure requirements of these changes have been
applied retrospectively. Other than the change in presentation of
noncontrolling interests, the adoption of these changes had no material impact
on the Company’s consolidated financial statements.
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-
On
January 1, 2009, the Company adopted changes issued by the FASB related to the
fair value accounting and reporting of nonfinancial assets and nonfinancial
liabilities that are not recognized or disclosed at fair value in the financial
statements on at least an annual basis. These changes define fair
value, establish a framework for measuring fair value in GAAP and expand
disclosures about fair value measurements. This standard applies to
other GAAP that require or permit fair value measurements and is to be applied
prospectively with limited exceptions. The adoption of these changes
as they relate to nonfinancial assets and nonfinancial liabilities had no impact
on the Company’s consolidated financial statements. These provisions
will be applied at such time when a nonrecurring fair value measurement of a
nonfinancial asset or nonfinancial liability is required, which may result in a
fair value that could be materially different than would have been calculated
prior to the adoption of these changes.
Effective
January 1, 2009, the Company adopted changes issued by the FASB on April 1, 2009
related to the accounting for business combinations. These changes
apply to all assets acquired and liabilities assumed in a business combination
that arise from certain contingencies and requires (i) an acquirer to
recognize at fair value, at the acquisition date, an asset acquired or liability
assumed in a business combination that arises from a contingency if the
acquisition-date fair value of that asset or liability can be determined during
the measurement period; otherwise the asset or liability should be recognized at
the acquisition date if certain defined criteria are met; (ii) contingent
consideration arrangements of an acquiree assumed by the acquirer in a business
combination be recognized initially at fair value; (iii) subsequent
measurements of assets and liabilities arising from contingencies be based on a
systematic and rational method depending on their nature and contingent
consideration arrangements be measured subsequently; and (iv) disclosures
of the amounts and measurement basis of such assets and liabilities and the
nature of the contingencies. These changes are effective for the
Company for all business combinations after December 31, 2008. The
effect of its adoption had no material impact for business combinations
occurring in 2009.
In
December 2008, the FASB issued changes related to employers’ disclosures about
postretirement benefit plan assets. These changes require disclosure of how
investment allocation decisions are made; major categories of plan assets;
inputs and valuation techniques used to measure fair value of plan assets; the
effect of fair value measurements using significant unobservable inputs on
changes in plan assets; and significant concentrations of risk within plan
assets. These changes became effective for the Company’s year-end December 31,
2009 consolidated financial statements. As these changes only required enhanced
disclosures, the adoption of these changes only impacted the notes to the
Company’s consolidated financial statements.
The
following accounting standards were issued in 2009 and become effective for the
Company at various future dates:
In
October 2009, the FASB issued changes related to the accounting for revenue
recognition when multiple-deliverable revenue arrangements are
present. The changes eliminate the residual method of revenue
allocation and require revenue to be allocated using the relative selling price
method. This method allows a vendor to use its best estimate of
selling price if neither vendor-specific objective evidence nor third-party
evidence of selling price exists when evaluating multiple deliverable
arrangements. These changes must be adopted no later than
January 1, 2011 and may be adopted prospectively for revenue arrangements
entered into or materially modified after the date of adoption or
retrospectively for all revenue arrangements for all periods
presented. The Company is currently evaluating the requirements of
these changes and has not yet determined the impact on the consolidated
financial statements.
In June
2009, the FASB issued changes related to the accounting for variable interest
entities. These changes require an enterprise:
·
|
to
perform an analysis to determine whether the enterprise’s variable
interest or interests give it a controlling financial interest in a
variable interest entity;
|
·
|
to
require ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest
entity;
|
·
|
to
eliminate the quantitative approach previously required for determining
the primary beneficiary of a variable interest
entity;
|
·
|
to
add an additional reconsideration event for determining whether an entity
is a variable interest entity when any changes in facts and circumstances
occur such that holders of the equity investment at risk, as a group, lose
the power from voting rights or similar rights of those investments to
direct the activities of the entity that most significantly impact the
entity’s economic performance; and
|
·
|
to
provide enhanced disclosures that will provide users of financial
statements with more transparent information about an enterprise’s
involvement in a variable interest
entity.
|
These
changes became effective for the Company on January 1, 2010. The
adoption of these changes had no impact on the Company’s consolidated financial
statements other than the required disclosures that will be included in the
Company’s future financial statements.
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2. Acquisitions
and Dispositions
Acquisitions
In
November 2009, the Company acquired ESCO Interamerica, Ltd. (“ESCO”), a Costa
Rica-based provider of engineering and equipment services to the infrastructure
sector in seven countries within Central and South America and the
Caribbean. ESCO generated revenues of approximately $50 million in
2008 and has been included in the Harsco Infrastructure Segment.
In
October 2009, the Company acquired Nicol UK Ltd. (“Nicol”), a United
Kingdom-based multi-disciplined provider of industrial maintenance services,
multi-craft site services and scaffolding to major petrochemical, energy and
industrial clients. This business generated revenues of approximately
$25 million in 2008 and has been included in the Harsco Infrastructure
Segment.
In
September 2009, the Company formed a partnership in Saudi Arabia that will
provide highly-engineered scaffolding and formwork systems and expert
installation services to the infrastructure and construction
markets. The Company contributed $5.3 million to form this
partnership, which has been included in the Harsco Infrastructure
Segment. In September 2009, the partnership acquired the net assets
of Saudi Express Transport LLC, which generated revenues of approximately $22
million in 2008.
In August
2009, the Company acquired the noncontrolling interests of four of its Eastern
Europe region consolidated subsidiaries in the Harsco Infrastructure Segment for
$0.6 million. The acquisition of these partnership interests was
accounted for as an equity transaction since the Company retained its
controlling interest in the subsidiaries.
In April
2009, the Company acquired the noncontrolling interests of three of its
Asia-Pacific region consolidated subsidiaries in the Harsco Metals Segment for
$12.9 million. The acquisition of these partnership interests was
accounted for as an equity transaction since the Company retained its
controlling interest in the subsidiaries.
In April
2008, the Company acquired Sovereign Access Services Limited (“Sovereign”), a
United Kingdom-based provider of mastclimber work platform rental
equipment. Sovereign recorded revenues of approximately $7 million in
2007 and has been included in the Harsco Infrastructure Segment.
In March
2008, the Company acquired Romania-based Baviera S.R.L. (“Baviera”), a
distributor of formwork and scaffolding products in Romania. Baviera
recorded revenues of approximately $3 million in 2007 and has been included in
the Harsco Infrastructure Segment.
In
February 2008, the Company acquired Northern Ireland-based Buckley Scaffolding
(“Buckley”), a provider of scaffolding and erection and dismantling services to
customers in the construction, industrial and events
businesses. Buckley recorded revenues of approximately $3 million in
2007 and has been included in the Harsco Infrastructure Segment.
Inclusion
of the pro-forma financial information for the above transactions is not
necessary due to the immaterial size of the acquisitions, individually and in
the aggregate.
In
January 2010, the Company acquired Bell Scaffolding Group (“Bell”), an
Australia-based infrastructure solutions provider serving the industrial,
infrastructure and commercial construction sectors. Bell’s
capabilities range from technical design and support through supply and erect
contracts. Bell generated revenues of approximately $40 million in
2008 and will be included in the Harsco Infrastructure Segment.
- 67
-
Net
Income Attributable to the Company and Transfers to Noncontrolling
Interest
The
purpose of the following schedule is to disclose the effects of changes in the
Company’s ownership interest in its subsidiaries on the Company’s
equity.
For
the Years Ended December 31
|
|||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
||||||||||
Net
income attributable to the Company
|
$ | 118,777 | $ | 240,945 | $ | 299,492 | |||||||
Decrease
in the Company’s paid-in capital for purchase of partnership
interests
|
(3,905 | ) | — | — | |||||||||
Change
from net income attributable to the Company and transfers to
noncontrolling interest
|
$ | 114,872 | $ | 240,945 | $ | 299,492 |
Dispositions
Consistent
with the Company’s strategic focus to grow and allocate financial resources to
its industrial services businesses, on December 7, 2007, the Company sold its
Gas Technologies Segment to Taylor Wharton International. The terms
of the sale include a total purchase price of $340 million, including $300
million paid in cash at closing and $40 million payable in the form of an
earnout contingent on the Gas Technologies group achieving certain performance
targets in 2008 or 2009. The thresholds for achieving the earnout for
both 2008 and 2009 were not met. The Company recorded a $26.4 million
after-tax gain on the sale in the fourth quarter of 2007. In 2008,
the Company recorded a loss from discontinued operations of $4.7 million,
comprised of $1.7 million of working capital adjustments and other costs
associated with this disposition, coupled with the tax effect from the final
purchase price allocation. The Company recorded $15.1 million in
after-tax charges in Discontinued Operations in 2009 related to the settlement
of working capital adjustment claims and other costs associated with arbitration
proceedings as described in Note 10, “Commitments and
Contingencies.” This business recorded revenues and operating income
of $384.9 million and $26.9 million, respectively, for the year ended December
31, 2007. The Consolidated Statements of Income for the years ended
2009, 2008 and 2007 reflect the Gas Technologies Segment’s results in
discontinued operations.
3. Accounts
Receivable and Inventories
At
December 31, 2009 and 2008, Trade accounts receivable of $598.3 million and
$648.9 million, respectively, were net of allowances for doubtful accounts of
$24.5 million and $27.9 million, respectively. The decrease in
accounts receivable from December 31, 2008 related principally to lower sales
levels in the fourth quarter of 2009. The provision for doubtful
accounts was $9.3 million, $12.5 million and $7.8 million for 2009, 2008 and
2007, respectively. Other receivables of $30.9 million and $46.0
million at December 31, 2009 and 2008, respectively, include insurance claim
receivables, employee receivables, tax claim receivables and other miscellaneous
receivables not included in Trade accounts receivable, net.
Inventories
consist of the following:
Inventories
|
|||||||||
(In
thousands)
|
2009
|
2008
|
|||||||
Finished
goods
|
$ | 146,104 | $ | 156,490 | |||||
Work-in-process
|
19,381 | 21,918 | |||||||
Raw
materials and purchased parts
|
84,542 | 83,372 | |||||||
Stores
and supplies
|
41,147 | 47,750 | |||||||
Total
inventories
|
$ | 291,174 | $ | 309,530 | |||||
Valued
at lower of cost or market:
|
|||||||||
Last-in,
first-out (“LIFO”) basis
|
$ | 111,641 | $ | 105,959 | |||||
First-in,
first-out (“FIFO”) basis
|
13,877 | 15,140 | |||||||
Average
cost basis
|
165,656 | 188,431 | |||||||
Total
inventories
|
$ | 291,174 | $ | 309,530 |
Inventories
valued on the LIFO basis at December 31, 2009 and 2008 were approximately $24.2
million and $32.8 million, respectively, less than the amounts of such
inventories valued at current costs.
- 68
-
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 $1.7 million in 2009, $0.3 million in 2008 and less than $0.1
million in 2007.
4. Property,
Plant and Equipment
Property,
plant and equipment consists of the following:
(In
thousands)
|
2009
|
2008
|
|||||||
Land
and improvements
|
$ | 46,198 | $ | 41,913 | |||||
Buildings
and improvements
|
207,280 | 167,606 | |||||||
Machinery
and equipment
|
3,146,358 | 2,905,398 | |||||||
Uncompleted
construction
|
50,252 | 75,210 | |||||||
Gross
property, plant and equipment
|
3,450,088 | 3,190,127 | |||||||
Less
accumulated depreciation
|
(1,939,287 | ) | (1,707,294 | ) | |||||
Net
property, plant and equipment
|
$ | 1,510,801 | $ | 1,482,833 |
The
estimated useful lives of different types of assets are generally:
Land
improvements
|
5
to 20 years
|
|
Buildings
and improvements
|
5
to 40 years
|
|
Machinery
and equipment
|
3
to 20 years
|
|
Leasehold
improvements
|
Estimated
useful life of the improvement or, if shorter, the life of the
lease
|
5. Goodwill
and Other Intangible Assets
Goodwill
is tested for impairment at the reporting unit level on an annual basis, and
between annual tests whenever events or circumstances indicate that the carrying
value of a reporting unit’s goodwill may exceed its fair
value. Reporting units are either the Company’s operating segments,
or business units within these segments, which are referred to herein as
components. For 2009, the goodwill impairment testing was conducted
at the operating segment level for the Harsco Infrastructure, Harsco Metals and
Harsco Rail Segments and the All Other Category. For 2008, the
goodwill impairment testing was conducted at the operating segment level for the
Harsco Metals and Harsco Rail Segments and the All Other Category; and at the
component level for the Harsco Infrastructure Segment. Goodwill
testing for the Harsco Infrastructure Segment was changed to the operating
segment level in 2009 due to the integration of the historic business units
(components) within this Segment as part of generating further operational
efficiencies, global branding and facilitating global growth.
Impairment
testing is a two-step process. Step one is a comparison of each
reporting unit’s fair value to its book value. If the fair value of
the reporting unit exceeds the book value, step two of the test is not
required. Step two requires the allocation of fair values to assets
and liabilities as if the reporting unit had just been purchased, resulting in
the implied fair value of goodwill. If the carrying value of the
goodwill exceeds the implied fair value of goodwill, a write down to the implied
fair value of goodwill would be required.
The
Company uses a discounted cash flow model to estimate the fair value of a
reporting unit in performing step one of the testing. This model
requires the use of long-term planning estimates and assumptions regarding
industry-specific economic conditions that are outside the control of the
Company. Assessments of future cash flows would consider, but not be
limited to, the following: global industrial plant maintenance requirements;
global infrastructure construction; global metals production and capacity
utilization; global railway track maintenance-of-way capital spending; and other
drivers of the Company’s businesses. Changes in the overall interest
rate environment may also impact the fair market value of the Company’s
reporting units as this would directly influence the rate utilized for
discounting operating cash flows, and ultimately determining a reporting unit’s
fair value. The Company’s overall market capitalization is also a
factor in evaluating the fair market values of the Company’s reporting
units. Significant declines in the overall market capitalization of
the Company could lead to the determination that the book value of one
- 69
-
or more
of the Company’s reporting units exceeds their fair value. The
Company performed required annual testing for goodwill impairment as of October
1, 2009 and 2008 and all reporting units of the Company passed the step one
testing thereby indicating that no goodwill impairment
exists. Additionally, the Company determined that as of December 31,
2009 no interim impairment testing was necessary. However, there can
be no assurance that future goodwill impairment tests will not result in a
charge to earnings.
The
following table reflects the changes in carrying amounts of goodwill by segment
for the years ended December 31, 2008 and 2009:
Goodwill
by Segment
|
||||||||||||||||||||
(In
thousands)
|
Harsco
Infrastructure Segment
|
Harsco
Metals Segment
|
Harsco
Rail Segment
|
All
Other Category (a) –
Harsco Minerals & Harsco Industrial
|
Consolidated
Totals
|
|||||||||||||||
Balance
as of December 31, 2007
|
$ | 254,856 | $ | 348,311 | $ | 8,118 | $ | 108,784 | $ | 720,069 | ||||||||||
Goodwill
acquired during year (b)
|
12,045 | — | — | — | 12,045 | |||||||||||||||
Changes
to Goodwill (c)
|
1,262 | (4,892 | ) | 254 | 12 | (3,364 | ) | |||||||||||||
Foreign
currency translation
|
(47,616 | ) | (43,806 | ) | — | (5,838 | ) | (97,260 | ) | |||||||||||
Balance
as of December 31, 2008
|
$ | 220,547 | $ | 299,613 | $ | 8,372 | $ | 102,958 | $ | 631,490 | ||||||||||
Goodwill
acquired during year (d)
|
29,601 | — | — | — | 29,601 | |||||||||||||||
Changes
to Goodwill (e)
|
(68 | ) | 480 | 607 | 1,137 | 2,156 | ||||||||||||||
Foreign
currency translation
|
16,039 | 15,652 | — | 4,103 | 35,794 | |||||||||||||||
Balance
as of December 31, 2009
|
$ | 266,119 | $ | 315,745 | $ | 8,979 | $ | 108,198 | $ | 699,041 |
(a)
|
All
Other Category has been adjusted for comparative purposes to exclude the
Harsco Rail Segment, which has been reclassified as a reportable Segment
based on 2009 results.
|
(b)
|
Relates
to acquisitions of Baviera S.R.L., Buckley Scaffolding and Sovereign
Access Services Limited.
|
(c)
|
Relates
principally to opening balance sheet
adjustments.
|
(d)
|
Relates
principally to the ESCO
acquisition.
|
(e)
|
Relates
principally to payment of contingent consideration on acquisitions made
prior to 2009.
|
Goodwill
is net of accumulated amortization of $98.7 million and $95.9 million at
December 31, 2009 and 2008, respectively. The increase in accumulated
amortization from December 31, 2008 is due to foreign currency
translation.
- 70
-
Intangible
assets totaled $150.9 million, net of accumulated amortization of $95.8 million
at December 31, 2009 and $141.5 million, net of accumulated amortization of
$65.4 million at December 31, 2008. The following table reflects
these intangible assets by major category:
Intangible
Assets
|
|||||||||||||||||
December
31, 2009
|
December
31, 2008
|
||||||||||||||||
(In
thousands)
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
|||||||||||||
Customer
relationships
|
$ | 165,092 | $ | 61,547 | $ | 138,752 | $ | 40,821 | |||||||||
Non-compete
agreements
|
1,440 | 1,346 | 1,414 | 1,196 | |||||||||||||
Patents
|
7,043 | 4,597 | 6,316 | 4,116 | |||||||||||||
Other
|
73,143 | 28,336 | 60,495 | 19,309 | |||||||||||||
Total
|
$ | 246,718 | $ | 95,826 | $ | 206,977 | $ | 65,442 |
The
increase in intangible assets for 2009 was due principally to intangible assets
acquired in the acquisitions discussed in Note 2, “Acquisitions and
Dispositions.” As part of these transactions, the Company acquired
the following intangible assets (by major class) that are subject to
amortization:
Acquired
Intangible Assets
|
|||||||
(In
thousands)
|
Gross
Carrying
Amount
|
Residual
Value
|
Weighted-average
amortization
period
|
||||
Customer
relationships
|
$ | 19,823 |
None
|
9
years
|
|||
Patents
|
574 |
None
|
15
years
|
||||
Other
|
7,677 |
None
|
5
years
|
||||
Total
|
$ | 28,074 |
There
were no research and development assets acquired and written off in 2009, 2008
or 2007.
Amortization
expense for intangible assets was $26.4 million, $28.1 million and $27.4 million
for the years ended December 31, 2009, 2008 and 2007,
respectively. The following table shows the estimated amortization
expense for the next five fiscal years based on current intangible
assets.
(In
thousands)
|
2010
|
2011
|
2012
|
2013
|
2014
|
||||||||||||||||
Estimated
amortization expense (a)
|
$ | 31,865 | $ | 29,953 | $ | 16,353 | $ | 14,496 | $ | 12,761 |
(a)
|
These
estimated amortization expense amounts do not reflect the potential effect
of future foreign currency exchange rate
fluctuations.
|
6. Debt
and Credit Agreements
The
Company has various credit facilities and commercial paper programs available
for use throughout the world. The following table illustrates the
amounts outstanding on credit facilities and commercial paper programs, and
available credit at December 31, 2009. These credit facilities and
programs are described in more detail below the table.
- 71
-
Credit
Facilities as of December 31, 2009
|
|||||||||||||
(In
thousands)
|
Facility
Limit
|
Outstanding
Balance
|
Available
Credit
|
||||||||||
U.S.
commercial paper program
|
$ | 550,000 | $ | 20,949 | $ | 529,051 | |||||||
Euro
commercial paper program
|
286,320 | 28,999 | 257,321 | ||||||||||
Multi-year
revolving credit facility (a)
|
570,000 | — | 570,000 | ||||||||||
Bilateral
credit facility (b)
|
30,000 | — | 30,000 | ||||||||||
Totals
at December 31, 2009
|
$ | 1,436,320 | $ | 49,948 | $ | 1,386,372 | (c) |
|
(a)
|
U.S.-based
program.
|
|
(b)
|
International-based
program.
|
|
(c)
|
Although
the Company has significant available credit, in practice, the Company
limits aggregate commercial paper and credit facility borrowings at any
one-time to a maximum of $600.0 million (the aggregate amount of the
back-up facilities).
|
The
Company has a U.S. commercial paper borrowing program under which it can issue
up to $550 million of short-term notes in the U.S. commercial paper
market. In addition, the Company has a 200 million euro commercial
paper program, equivalent to approximately $286.3 million at December 31, 2009,
which is used to fund the Company's international operations. At
December 31, 2009 and 2008, the Company had $20.9 million and $35.9 million of
U.S. commercial paper outstanding, respectively; and $29.0 million and $9.0
million outstanding, respectively, under its European-based commercial paper
program. At December 31, 2008, the Company also had $50.0 million
outstanding under its previous 364-day revolving credit line, which was repaid
in 2009 and subsequently replaced by the $570 million multi-year credit
facility. These borrowings are classified as long-term debt when the
Company has the ability and intent to refinance them on a long-term basis
through existing long-term credit facilities. At December 31, 2009 and
2008, the Company classified $49.9 million and $94.9 million, respectively, of
commercial paper and advances as short-term debt. There were no
remaining commercial paper or advances to be reclassified as long-term debt at
December 31, 2009 or 2008.
During
the fourth quarter of 2009, the Company entered into a multi-year revolving
credit facility in the amount of $570 million, through a syndicate of 21 banks,
which matures in December 2012. This new facility replaces the $220
million 364-day revolving credit facility, which expired in November 2009, and
the $450 million credit facility the Company terminated in the fourth quarter of
2009. This facility serves as back-up to the Company's commercial
paper programs. Interest rates on the facility are based upon either
the announced Citibank Prime Rate, the Federal Funds Effective Rate plus a
margin or LIBOR plus a margin. The Company pays a facility fee
(0.275% per annum as of December 31, 2009) that varies based upon its credit
ratings. At December 31, 2009, there were no borrowings outstanding
on this credit facility.
The
Company’s bilateral credit facility was amended in December 2009 to extend the
maturity date to December 2010. The facility serves as back-up to the
Company’s commercial paper programs and also provides available financing for
the Company’s European operations. Borrowings under this facility are
available in most major currencies with active markets at interest rates based
upon LIBOR plus a margin. Borrowings outstanding at expiration may be
repaid over the succeeding 12 months. As of December 31, 2009 and
2008, there were no borrowings outstanding on this facility.
Short-term
borrowings amounted to $57.4 million and $117.9 million at December 31, 2009 and
2008, respectively. This included commercial paper and advances of
$49.9 million and $94.9 million at December 31, 2009 and 2008,
respectively. Other than the commercial paper borrowings and
advances, short-term debt was principally bank overdrafts. The
weighted-average interest rate for short-term borrowings at December 31, 2009
and 2008 was 0.9% and 3.8%, respectively.
- 72
-
Long-Term
Debt
|
|||||||||
(In
thousands)
|
2009
|
2008
|
|||||||
5.75%
notes due May 1, 2018
|
$ | 447,029 | $ | 446,762 | |||||
7.25%
British pound sterling-denominated notes due October 27,
2010
|
322,700 | 290,777 | |||||||
5.125%
notes due September 15, 2013
|
149,392 | 149,247 | |||||||
Other
financing payable in varying amounts due through 2016 with a weighted
average interest rate of 8.0% and 7.5% as of December 31, 2009 and 2008,
respectively
|
8,426 | 8,243 | |||||||
927,547 | 895,029 | ||||||||
Less:
current maturities
|
(25,813 | ) | (3,212 | ) | |||||
Total
Long-term Debt
|
$ | 901,734 | $ | 891,817 |
At
December 31, 2009, most of the Company’s 7.25% British pound
sterling-denominated notes that are due in October 2010 are classified as
long-term debt based on the Company’s ability and intent to refinance this debt
using either the public debt markets or its existing multi-year revolving credit
facility, which matures in 2012. Current maturities of long-term debt
include a portion of the 7.25% British pound sterling-denominated notes that the
Company believes exceeds the amount it will refinance and a portion of other
financing payables.
The
maturities of long-term debt for the four years following December 31, 2010 are
as follows:
(In
thousands)
|
|||||
2011
|
$ | 3,739 | |||
2012
|
301,247 | ||||
2013
|
149,536 | ||||
2014
|
57 |
Cash
payments for interest on all debt from continuing operations were $61.5 million,
$71.6 million and $80.3 million in 2009, 2008 and 2007,
respectively.
The
Company’s credit facilities and certain notes payable agreements contain a
covenant stipulating a maximum debt to capital ratio of 60%. Certain
notes payable agreements also contain a covenant requiring a minimum net worth
of $475 million. In addition, one credit facility limits the
proportion of subsidiary consolidated indebtedness to a maximum of 10% of
consolidated tangible assets. The Company’s 7.25% British pound
sterling-denominated notes and its 5.75% notes also include covenants that
permit the note holders to redeem their notes, at par and 101% of par,
respectively, in the event of a change of control of the Company or disposition
of a significant portion of the Company’s assets in combination with the
Company’s credit rating being downgraded to non-investment grade. At
December 31, 2009, the Company was in compliance with these
covenants.
7. Leases
The
Company leases certain property and equipment under noncancelable operating
leases. Rental expense (for continuing operations) under such
operating leases was $64.3 million, $65.0 million and $70.4 million in 2009,
2008 and 2007, respectively.
Future
minimum payments under operating leases with noncancelable terms are as
follows:
(In
thousands)
|
|||||
2010
|
$ | 45,500 | |||
2011
|
31,540 | ||||
2012
|
23,230 | ||||
2013
|
18,749 | ||||
2014
|
15,737 | ||||
After
2014
|
27,521 |
Total
minimum rentals to be received in the future under noncancelable subleases as of
December 31, 2009 are $8.0 million.
- 73
-
8. Employee
Benefit Plans
Pension
Benefits
The
Company has pension and profit sharing retirement plans covering a substantial
number of its employees. The defined benefits for salaried employees
generally are based on years of service and the employee's level of compensation
during specified periods of employment. Defined benefit 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 also makes periodic voluntary contributions as
recommended by its pension committee. The Company's policy is to
amortize prior service costs of defined benefit pension plans over the average
future service period of active plan participants.
For most
U.S. defined benefit pension plans and a majority of international defined
benefit pension plans, accrued service is no longer granted. In place
of these plans, the Company has established defined contribution pension plans
providing for the Company to contribute a specified matching amount for
participating employees’ contributions to the plan. Domestically,
this match is made on employee contributions up to 4% of their eligible
compensation. Additionally, the Company may provide a discretionary
contribution of up to 2% of compensation for eligible
employees. Internationally, this match is up to 6% of eligible
compensation with an additional 2% going towards insurance and administrative
costs. The Company believes the defined contribution plans provide a
more predictable and less volatile net periodic pension cost than exists under
defined benefit plans.
(In
thousands)
|
U.S.
Plans
|
International
Plans
|
||||||||||||||||||||||
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
Net
Periodic Pension Cost (Income)
|
||||||||||||||||||||||||
Defined
benefit plans:
|
||||||||||||||||||||||||
Service cost
|
$ | 1,790 | $ | 1,740 | $ | 3,033 | $ | 3,977 | $ | 8,729 | $ | 9,031 | ||||||||||||
Interest cost
|
14,104 | 15,197 | 15,511 | 42,854 | 50,146 | 50,118 | ||||||||||||||||||
Expected return on plan
assets
|
(14,598 | ) | (23,812 | ) | (22,943 | ) | (41,453 | ) | (58,166 | ) | (61,574 | ) | ||||||||||||
Recognized prior service
costs
|
351 | 333 | 686 | 353 | 897 | 938 | ||||||||||||||||||
Recognized
losses
|
3,466 | 1,167 | 1,314 | 9,353 | 10,317 | 15,254 | ||||||||||||||||||
Amortization of
transition liability
|
— | — | — | 33 | 29 | 36 | ||||||||||||||||||
Settlement/Curtailment loss
(gain)
|
4 | (620 | ) | 2,091 | (341 | ) | 1,536 | — | ||||||||||||||||
Defined
benefit plans pension cost (income)
|
5,117 | (5,995 | ) | (308 | ) | 14,776 | 13,488 | 13,803 | ||||||||||||||||
Less
Discontinued Operations included in above
|
— | (694 | ) | 2,748 | — | — | 477 | |||||||||||||||||
Defined
benefit plans pension cost (income) – continuing
operations
|
5,117 | (5,301 | ) | (3,056 | ) | 14,776 | 13,488 | 13,326 | ||||||||||||||||
Multi-employer
plans (a)
|
12,533 | 15,231 | 13,552 | 9,201 | 10,143 | 10,361 | ||||||||||||||||||
Defined
contribution plans (a)
|
7,104 | 7,806 | 9,628 | 8,235 | 8,131 | 7,741 | ||||||||||||||||||
Net periodic pension cost –
continuing operations
|
$ | 24,754 | $ | 17,736 | $ | 20,124 | $ | 32,212 | $ | 31,762 | $ | 31,428 |
(a)
Excludes
discontinued operations.
In 2008,
the Company recognized a settlement gain of $0.9 million related to the Gas
Technologies Segment that was sold in December 2007. The settlement
gain was recognized upon final transfer of pension assets and liabilities to an
authorized trust established by the purchaser of the Segment and is included
above in U.S. Plans discontinued operations. Also in 2008, the
Company implemented plan design changes for certain domestic and international
defined benefit pension plans so that accrued service is no longer granted for
periods after December 31, 2008. These actions resulted in a net
curtailment loss of $1.5 million. See Note 17, “2008 Restructuring
Program” for additional information.
In 2007,
the Company recognized a $2.1 million curtailment loss in connection with the
remeasurement of plan obligations related to the divestiture of the Gas
Technologies Segment.
- 74
-
The
change in the financial status of the pension plans and amounts recognized in
the Consolidated Balance Sheets at December 31, 2009 and 2008 are as
follows:
Defined
Benefit Pension Benefits
|
U.
S. Plans
|
International
Plans
|
||||||||||||||
(In
thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Change
in benefit obligation:
|
||||||||||||||||
Benefit
obligation at beginning of year
|
$ | 238,347 | $ | 268,710 | $ | 698,836 | $ | 987,894 | ||||||||
Service
cost
|
1,790 | 1,740 | 3,977 | 8,729 | ||||||||||||
Interest
cost
|
14,104 | 15,197 | 42,854 | 50,146 | ||||||||||||
Plan
participants’ contributions
|
— | — | 1,131 | 2,311 | ||||||||||||
Amendments
|
— | 890 | — | (111 | ) | |||||||||||
Adoption
of measurement date change
|
— | 598 | — | 5,154 | ||||||||||||
Actuarial
loss (gain)
|
8,638 | (10,145 | ) | 102,390 | (58,507 | ) | ||||||||||
Settlements/curtailments
|
— | — | (1,564 | ) | (10,388 | ) | ||||||||||
Benefits
paid
|
(15,616 | ) | (15,721 | ) | (35,771 | ) | (35,695 | ) | ||||||||
Divestiture
of Gas Technologies Segment
|
— | (22,922 | ) | — | (678 | ) | ||||||||||
Effect
of foreign currency
|
— | — | 76,029 | (250,019 | ) | |||||||||||
Benefit
obligation at end of year
|
$ | 247,263 | $ | 238,347 | $ | 887,882 | $ | 698,836 | ||||||||
Change
in plan assets:
|
||||||||||||||||
Fair
value of plan assets at beginning of year
|
$ | 189,686 | $ | 311,193 | $ | 558,757 | $ | 905,849 | ||||||||
Actual
return on plan assets
|
39,730 | (83,794 | ) | 67,925 | (99,645 | ) | ||||||||||
Employer
contributions
|
3,119 | 1,600 | 25,601 | 28,865 | ||||||||||||
Plan
participants’ contributions
|
— | — | 1,131 | 2,310 | ||||||||||||
Settlements/curtailments
|
— | — | (1,110 | ) | (237 | ) | ||||||||||
Benefits
paid
|
(15,616 | ) | (15,721 | ) | (33,238 | ) | (34,182 | ) | ||||||||
Adoption
of measurement date change
|
— | (2,495 | ) | — | (5,946 | ) | ||||||||||
Divestiture
of Gas Technologies Segment
|
— | (21,097 | ) | — | — | |||||||||||
Effect
of foreign currency
|
— | — | 59,952 | (238,257 | ) | |||||||||||
Fair
value of plan assets at end of year
|
$ | 216,919 | $ | 189,686 | $ | 679,018 | $ | 558,757 | ||||||||
Funded
status at end of year
|
$ | (30,344 | ) | $ | (48,661 | ) | $ | (208,864 | ) | $ | (140,079 | ) |
In 2008,
the actual return on the Company’s U.S. and international plans’ assets reflects
the decline in pension asset values during the second half of
2008. This decline was due to the financial crisis and the
deterioration of global economic conditions.
Defined
Benefit Pension Benefits
|
U.
S. Plans
|
International
Plans
|
||||||||||||||
(In
thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Amounts
recognized in the Consolidated Balance Sheets consist of the
following:
|
||||||||||||||||
Noncurrent
assets
|
$ | 1,676 | $ | 232 | $ | 7,929 | $ | 5,072 | ||||||||
Current
liabilities
|
(2,175 | ) | (2,111 | ) | (1,129 | ) | (1,897 | ) | ||||||||
Noncurrent
liabilities
|
(29,845 | ) | (46,782 | ) | (215,664 | ) | (143,254 | ) | ||||||||
Accumulated
other comprehensive loss before tax
|
89,209 | 109,523 | 357,388 | 260,765 |
- 75
-
Amounts
recognized in Accumulated other comprehensive loss consist of the
following:
U. S. Plans
|
International Plans
|
|||||||||||||||
(In
thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Net
actuarial loss
|
$ | 87,712 | $ | 107,672 | $ | 354,201 | $ | 257,393 | ||||||||
Prior
service cost
|
1,497 | 1,851 | 2,972 | 3,184 | ||||||||||||
Transition
obligation
|
— | — | 215 | 188 | ||||||||||||
Total
|
$ | 89,209 | $ | 109,523 | $ | 357,388 | $ | 260,765 |
The
estimated amounts that will be amortized from accumulated other comprehensive
loss into defined benefit net periodic pension cost in 2010 are as
follows:
(In
thousands)
|
U.
S. Plans
|
International
Plans
|
||||||
Net
actuarial loss
|
$ | 2,611 | $ | 12,644 | ||||
Prior
service cost
|
339 | 384 | ||||||
Transition
obligation
|
— | 56 | ||||||
Total
|
$ | 2,950 | $ | 13,084 |
The
Company’s estimate of expected contributions to be paid in year 2010 for the
U.S. defined benefit plans is $2.2 million and for the international defined
benefit plans is $27.8 million.
Contributions
to multi-employer pension plans were $22.5 million, $26.1 million and $24.2
million in years 2009, 2008 and 2007, respectively.
Future
Benefit Payments
The
expected benefit payments for defined benefit plans over the next 10 years are
as follows:
(In
millions)
|
U.S.
Plans
|
International
Plans
|
||||||
2010
|
$ | 15.2 | $ | 34.2 | ||||
2011
|
16.7 | 35.8 | ||||||
2012
|
15.9 | 37.3 | ||||||
2013
|
17.4 | 38.9 | ||||||
2014
|
18.0 | 40.6 | ||||||
2015
- 2019
|
87.8 | 231.4 |
- 76
-
Net
Periodic Pension Cost Assumptions
The
weighted-average actuarial assumptions used to determine the net periodic
pension cost for the years ended December 31 were as follows:
Global
Weighted Average
December
31
|
|||||
2009
|
2008
|
2007
|
|||
Discount
rates
|
6.1%
|
5.9%
|
5.3%
|
||
Expected
long-term rates of return on plan assets
|
7.4%
|
7.6%
|
7.6%
|
||
Rates
of compensation increase
|
3.4%
|
3.6%
|
3.3%
|
U.
S. Plans
December
31
|
International
Plans
December
31
|
||||||
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||
Discount
rates
|
6.1%
|
6.2%
|
5.9%
|
6.0%
|
5.8%
|
5.1%
|
|
Expected
long-term rates of return on plan assets
|
8.0%
|
8.3%
|
8.3%
|
7.1%
|
7.3%
|
7.3%
|
|
Rates
of compensation increase
|
4.0%
|
4.8%
|
4.5%
|
3.4%
|
3.5%
|
3.2%
|
The
expected long-term rates of return on plan assets for the 2010 net periodic
pension cost are 8.0% for the U.S. plans and 7.1% for the international
plans.
Defined
Benefit Pension Obligation Assumptions
The
weighted-average actuarial assumptions used to determine the defined benefit
pension plan obligations at December 31 were as follows:
Global
Weighted Average
December
31
|
||||
2009
|
2008
|
|||
Discount
rates
|
5.8%
|
6.1%
|
||
Rates
of compensation increase
|
3.6%
|
3.4%
|
U.S.
Plans
December
31
|
International
Plans
December
31
|
|||||
2009
|
2008
|
2009
|
2008
|
|||
Discount
rates
|
5.9%
|
6.1%
|
5.7%
|
6.0%
|
||
Rates
of compensation increase
|
3.0%
|
4.0%
|
3.6%
|
3.4%
|
The U.S.
discount rate was determined using a yield curve that was produced from a
universe containing approximately 500 U.S. dollar-denominated, AA-graded
corporate bonds, all of which were noncallable (or callable with make-whole
provisions), and excluding the 10% of the bonds with the highest yields and the
10% with the lowest yields. The discount rate was then developed as
the level-equivalent rate that would produce the same present value as that
using spot rates to discount the projected benefit payments. For
international plans, the discount rate is aligned to corporate bond yields in
the local markets, normally AA-rated corporations. The process and
selection seeks to approximate the cash outflows with the timing and amounts of
the expected benefit payments.
- 77
-
Accumulated
Benefit Obligations
The
accumulated benefit obligation for all defined benefit pension plans at December
31 was as follows:
(In
millions)
|
U.S.
Plans
|
International
Plans
|
|||||||
2009
|
$ | 247.1 | $ | 877.7 | |||||
2008
|
$ | 237.8 | $ | 687.7 |
Plans
with Accumulated Benefit Obligation in Excess of Plan Assets
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 at December 31 were as follows:
U.
S. Plans
|
International
Plans
|
||||||||||||||||
(In
millions)
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Projected
benefit obligation
|
$ | 238.0 | $ | 228.7 | $ | 843.7 | $ | 659.5 | |||||||||
Accumulated
benefit obligation
|
238.0 | 228.5 | 838.5 | 656.1 | |||||||||||||
Fair
value of plan assets
|
206.0 | 179.8 | 627.5 | 517.3 |
The asset
allocations attributable to the Company’s U.S. defined benefit pension plans at
December 31, 2009 and 2008, and the long-term target allocation of plan assets,
by asset category, are as follows:
U.S.
Plans
Asset
Category
|
Target
Long-Term Allocation
|
Percentage
of Plan Assets at
|
|
December
31, 2009
|
December
31, 2008
|
||
Domestic
Equity Securities
|
41%
- 51%
|
47.5%
|
42.5%
|
International
Equity Securities
|
4.5%
- 14.5%
|
11.1%
|
8.8%
|
Fixed
Income Securities
|
27%
- 37%
|
32.7%
|
39.6%
|
Cash
& Cash Equivalents
|
0%
- 5%
|
1.4%
|
1.4%
|
Other
|
6%
- 18%
|
7.3%
|
7.7%
|
Plan
assets are allocated among various categories of equities, fixed income, cash
and cash equivalents with professional investment managers whose performance is
actively monitored. The primary investment objective is long-term
growth of assets in order to meet present and future benefit
obligations. The Company periodically conducts an asset/liability
modeling study and accordingly adjusts investments among and within asset
categories to ensure the long-term investment strategy is aligned with the
profile of benefit obligations.
The
Company reviews the long-term expected return-on-asset assumption on a periodic
basis taking into account a variety of factors including the historical
investment returns achieved over a long-term period, the targeted allocation of
plan assets and future expectations based on a model of asset returns for an
actively managed portfolio, inflation and administrative/other
expenses. The model simulates 500 different capital market results
over 15 years. For 2010, the expected return-on-asset assumption for
U.S. plans is 8.00%, which is the same assumption as for 2009.
The U.S.
defined benefit pension plans assets include 431,033 shares of the Company’s
stock valued at $13.9 million at December 31, 2009 and 434,088 shares of the
Company’s common stock valued at $12.0 million at December 31,
2008. These shares represented 6.4% of total plan assets at December
31, 2009 and 2008. Dividends paid to the pension plans on the Company
stock amounted to $0.3 million, $0.3 million and $0.5 million in 2009, 2008 and
2007, respectively.
The asset
allocations attributable to the Company’s international defined benefit pension
plans at December 31, 2009 and 2008 and the long-term target allocation of plan
assets, by asset category, are as follows:
International
Plans
Asset
Category
|
Target
Long-Term Allocation
|
Percentage
of Plan Assets at
|
|
December
31, 2009
|
December
31, 2008
|
||
Equity
Securities
|
50.0%
|
46.0%
|
42.0%
|
Fixed
Income Securities
|
40.0%
|
43.9%
|
47.4%
|
Cash
& Cash Equivalents
|
0.0%
|
1.5%
|
0.2%
|
Other
|
10.0%
|
8.6%
|
10.4%
|
- 78
-
Plan
assets as of December 31, 2009 in the U.K. defined benefit pension plan amounted
to 84.7% of the international pension assets. These assets are
allocated among various categories of equities, fixed income, cash and cash
equivalents with professional investment managers whose performance is actively
monitored. The primary investment objective is long-term growth of
assets in order to meet present and future benefit obligations. The
Company periodically conducts asset/liability modeling studies and accordingly
adjusts investment amounts within asset categories to ensure the long-term
investment strategy is aligned with the profile of benefit
obligations.
For the
international long-term rate of return assumption, the Company considered the
current level of expected returns in risk-free investments (primarily government
bonds), the historical level of the risk premium associated with other asset
classes in which the portfolio is invested and the expectations for future
returns of each asset class and plan expenses. The expected return
for each asset class was then weighted based on the target asset allocation to
develop the expected long-term rate of return on assets. For 2010,
the expected return-on-asset assumption for the U.K. plan is 7.5%, which is the
same assumption as for 2009. The remaining international pension
plans, with assets representing 15.3% of the international pension assets, are
under the guidance of professional investment managers and have similar
investment objectives.
The fair
values of the Company’s U.S. pension plans’ assets at December 31, 2009 by asset
category are as follows:
(In
thousands)
|
Total
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||
Domestic
equities:
|
||||||||||||||||
Common
stocks
|
$ | 50,211 | $ | 50,211 | $ | — | $ | — | ||||||||
Mutual
funds - equities
|
52,734 | 13,892 | 38,842 | — | ||||||||||||
International
equities – mutual funds
|
24,035 | 11,012 | 13,023 | — | ||||||||||||
Fixed
income securities
|
||||||||||||||||
U.S.
Treasuries and collateralized securities
|
25,525 | — | 25,525 | — | ||||||||||||
Corporate
bonds and notes
|
6,327 | 6,327 | — | — | ||||||||||||
Mutual
funds - bonds
|
39,110 | 39,110 | — | — | ||||||||||||
Other
– mutual funds
|
16,039 | 15,918 | 121 | — | ||||||||||||
Cash
and money market accounts
|
2,938 | 2,938 | — | — | ||||||||||||
Total
|
$ | 216,919 | $ | 139,408 | $ | 77,511 | $ | — |
The fair
values of the Company’s international pension plans’ assets at December 31, 2009
by asset category are as follows:
(In
thousands)
|
Total
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||
Equity
securities
|
||||||||||||||||
Common
stocks
|
$ | 35,037 | $ | 35,037 | $ | — | $ | — | ||||||||
Mutual
funds - equities
|
277,069 | 120,356 | 156,713 | — | ||||||||||||
Fixed
income investments
|
||||||||||||||||
British
government securities
|
46,299 | — | 46,299 | — | ||||||||||||
Corporate
bonds and notes
|
26,809 | 26,809 | — | — | ||||||||||||
Mutual
funds – bonds
|
168,201 | — | 168,201 | — | ||||||||||||
Insurance
contracts
|
56,955 | — | 56,955 | — | ||||||||||||
Other:
|
||||||||||||||||
Real
estate funds / limited partnerships
|
40,177 | — | 29,183 | 10,994 | ||||||||||||
Other
mutual funds
|
18,190 | 15,033 | 3,157 | — | ||||||||||||
Cash
and money market accounts
|
10,281 | 10,281 | — | — | ||||||||||||
Total
|
$ | 679,018 | $ | 207,516 | $ | 460,508 | $ | 10,994 |
- 79
-
The
following table summarizes changes in the fair value of Level 3 assets for the
year ended December 31, 2009:
(In
thousands)
|
Real
Estate Limited Partnerships
|
||||
Balance
at December 31, 2008
|
$ | 8,438 | |||
Actual
return on plan assets:
|
|||||
Relating
to assets still held at year—end
|
2,556 | ||||
Balance
at December 31, 2009
|
$ | 10,994 |
Following
is a description of the valuation methodologies used for the plans’ investments
measured at fair value:
·
|
Level
1 Fair Value Measurements - Investments in interest-bearing cash are
stated at cost, which approximates fair value. The fair values
of money market accounts and certain mutual funds are based on quoted net
asset values of the shares held by the Plan at year-end. The
fair values of common and foreign stocks and corporate bonds, notes and
convertible debentures are valued at the closing price reported in the
active market on which the individual securities are
traded.
|
·
|
Level
2 Fair Value Measurements - The fair values of investments in mutual funds
for which quoted net asset values in an active market are not available
are valued by the investment advisor based on the current market values of
the underlying assets of the mutual fund based on information reported by
the investment consistent with audited financial statements of the mutual
fund. Further information concerning these mutual funds may be
obtained from their separate audited financial
statements. Investments in U.S. Treasury notes and
collateralized securities are valued based on yields currently available
on comparable securities of issuers with similar credit
ratings.
|
·
|
Level
3 Fair Value Measurements – Real estate limited partnership interests are
valued by the general partners based on the underlying
assets. The limited partnership interests are valued using
unobservable inputs and have been classified within Level 3 of the fair
value hierarchy.
|
Effective
for the year ending December 31, 2008, changes in pension accounting issued by
the FASB required the consistent measurement of plan assets and benefit
obligations as of the date of the Company’s fiscal year-end statement of
financial position. Since the Company previously used an October 31
measurement date for its U.S. defined benefit pension plans and a September 30
measurement date for most of its international defined benefit pension plans,
the standard required the Company to change those measurement dates in 2008 to
December 31. In order to record the effects of the change to a
December 31 measurement date, the Company chose to use the measurements
determined as of October 31, 2007 and September 30, 2007 and estimate the net
periodic benefit cost for the 14-month and 15-month periods, respectively,
ending December 31, 2008, exclusive of any curtailment or settlement gains
or losses. Amounts allocated proportionately to the 2-month and
3-month periods ended December 31, 2007 (the “short periods”) were recorded
as an adjustment to retained earnings, effective January 1, 2008. The
remaining costs were recognized as net periodic pension cost during the year
ended December 31, 2008. The following table sets forth the
adjustments to retained earnings and Accumulated other comprehensive income
(“AOCI”) resulting from the measurement date change, net of tax for the short
periods:
Impact
of Measurement Date Change
|
||||||||||||||||||||||||
U.
S. Defined Benefit
Pension
Plans
|
International
Defined
Benefit
Pension
Plans
|
Other
Post-Retirement
Benefit
Plans
|
||||||||||||||||||||||
(In
thousands)
|
Retained
Earnings
|
AOCI
|
Retained
Earnings
|
AOCI
|
Retained
Earnings
|
AOCI
|
||||||||||||||||||
Service
cost, interest cost and expected return on plan assets
|
$ | 576 | $ | — | $ | 364 | $ | — | $ | (21 | ) | $ | — | |||||||||||
Amortization
of prior service cost and actuarial gain (loss)
|
(169 | ) | 169 | (2,207 | ) | 2,207 | 4 | (4 | ) | |||||||||||||||
Net
adjustment recognized
|
$ | 407 | $ | 169 | $ | (1,843 | ) | $ | 2,207 | $ | (17 | ) | $ | (4 | ) |
- 80
-
9.
|
Income
Taxes
|
Income
from continuing operations before income taxes and noncontrolling interest as
reported in the Consolidated Statements of Income consists of the
following:
(In
thousands)
|
2009
|
2008
|
2007
|
||||||||||
United
States
|
$ | 51,529 | $ | 98,842 | $ | 110,926 | |||||||
International
|
107,813 | 244,495 | 271,513 | ||||||||||
Total
income before income taxes and noncontrolling interest
|
$ | 159,342 | $ | 343,337 | $ | 382,439 | |||||||
Income
tax expense (benefit):
|
|||||||||||||
Currently
payable:
|
|||||||||||||
Federal
|
$ | 23,886 | $ | 33,873 | $ | 37,917 | |||||||
State
|
1,591 | 1,988 | 8,670 | ||||||||||
International
|
26,938 | 54,817 | 68,688 | ||||||||||
Total
income taxes currently payable
|
52,415 | 90,678 | 115,275 | ||||||||||
Deferred
federal and state
|
(28,018 | ) | 1,478 | (3,695 | ) | ||||||||
Deferred
international
|
(5,888 | ) | (336 | ) | 6,018 | ||||||||
Total income tax
expense
|
$ | 18,509 | $ | 91,820 | $ | 117,598 |
Cash
payments for income taxes, including taxes on the gain or loss from discontinued
business, were $57.1 million, $120.6 million and $125.4 million for 2009, 2008
and 2007, respectively.
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 from continuing
operations before income taxes and noncontrolling interest as reported in the
Consolidated Statements of Income:
2009
|
2008
|
2007
|
|
U.S.
federal income tax rate
|
35.0%
|
35.0%
|
35.0%
|
State
income taxes, net of federal income tax benefit
|
1.0
|
0.8
|
1.0
|
Export
sales corporation benefit/domestic manufacturing deduction
|
(1.5)
|
(0.2)
|
(0.3)
|
Change
in permanent reinvestment assertion
|
(5.0)
|
—
|
(0.8)
|
Difference
in effective tax rates on international earnings and
remittances
|
(25.0)
|
(7.7)
|
(3.0)
|
Uncertain
tax position contingencies and settlements
|
4.0
|
(0.5)
|
0.2
|
Cumulative
effect in change in statutory tax rates/laws
|
2.8
|
(0.4)
|
(0.7)
|
Other,
net
|
0.3
|
(0.3)
|
(0.7)
|
Effective
income tax rate
|
11.6%
|
26.7%
|
30.7%
|
The
difference in effective tax rates on international earnings and remittances from
2008 to 2009 was primarily due to a decrease in earnings in jurisdictions with
higher tax rates and a change in the permanent reinvestment in current year
earnings. In 2009, the company changed its permanent reinvestment
assertion in prior year undistributed earnings for certain non-US subsidiaries
which were previously not considered permanently reinvested.
The
difference in effective tax rates for uncertain tax position contingencies and
settlements from 2008 to 2009 resulted from an increase in unrecognized tax
benefits related to an ongoing dispute between the European Union (“EU”) and
specific EU countries partially offset by the recognition of previously
unrecognized tax benefits in various state and foreign jurisdictions as a result
of the lapse of statute of limitations and final settlements and resolution of
outstanding tax matters in various state and foreign
jurisdictions. While the Company believes it has adequately provided
for all tax positions, amounts asserted by taxing authorities could be different
than the accrued position.
- 81
-
The tax
effects of the temporary differences giving rise to the Company's deferred tax
assets and liabilities for the years ended December 31, 2009 and 2008 are as
follows:
2009
|
2008
|
||||||||||||||||
(In
thousands)
|
Asset
|
Liability
|
Asset
|
Liability
|
|||||||||||||
Depreciation
and amortization
|
$ | — | $ | 177,393 | $ | — | $ | 169,729 | |||||||||
Expense
accruals
|
37,720 | — | 36,909 | — | |||||||||||||
Inventories
|
4,813 | — | 4,866 | — | |||||||||||||
Provision
for receivables
|
2,129 | — | 2,587 | — | |||||||||||||
Deferred
revenue
|
— | 4,838 | — | 7,704 | |||||||||||||
Operating
loss carryforwards
|
48,822 | — | 21,211 | — | |||||||||||||
Deferred
foreign tax credits
|
17,061 | — | 3,601 | — | |||||||||||||
Pensions
|
61,403 | — | 58,226 | — | |||||||||||||
Currency
adjustments
|
66,791 | — | 85,561 | — | |||||||||||||
Outside
basis differences on foreign investments
|
— | — | — | 7,963 | |||||||||||||
Other
|
13,358 | — | 16,336 | — | |||||||||||||
Subtotal
|
252,097 | 182,231 | 229,297 | 185,396 | |||||||||||||
Valuation
allowance
|
(22,744 | ) | — | (21,459 | ) | — | |||||||||||
Total
deferred income taxes
|
$ | 229,353 | $ | 182,231 | $ | 207,838 | $ | 185,396 |
The
deferred tax asset and liability balances recognized in the Consolidated Balance
Sheets for the years ended December 31, 2009 and 2008 are as
follows:
(In
thousands)
|
2009
|
2008
|
|||||||
Other
current assets
|
$ | 82,606 | $ | 35,065 | |||||
Other
assets
|
57,083 | 27,013 | |||||||
Other
current liabilities
|
(1,574 | ) | (4,194 | ) | |||||
Deferred
income taxes
|
(90,993 | ) | (35,442 | ) |
At
December 31, 2009, the tax-effected amount of net operating loss carryforwards
(“NOLs”) totaled $48.8 million. Tax-effected NOLs from international
operations are $41.0 million. Of that amount, $33.7 million can be
carried forward indefinitely, and $7.3 million will expire at various times
between 2012 and 2029. Tax-effected U.S. federal NOLs are $0.2
million, expire in 2022, and relate to preacquisition
NOLs. Tax-effected U.S. state NOLs are $7.6 million. Of
that amount, $0.2 million expire at various times between 2010 and 2016, $6.0
million expire at various times between 2017 and 2024, and $1.4 million expire
at various times between 2025 and 2029.
The
valuation allowances of $22.7 million and $21.5 million at December 31, 2009 and
2008, respectively, related principally to NOLs, currency and foreign investment
tax credits that are uncertain as to realizability.
The
change in the valuation allowances for 2009 and 2008 results primarily from the
increase in valuation allowances in certain jurisdictions based on the Company’s
evaluation of the realizability of future benefits partially offset by the
utilization of NOLs and the release of valuation allowances in certain
jurisdictions based on the Company's revaluation of the realizability of future
benefits.
- 82
-
The
Company has not provided U.S. income taxes on certain of its non-U.S.
subsidiaries’ undistributed earnings as such amounts are permanently reinvested
outside the United States. At December 31, 2009 and 2008, such
earnings were approximately $843 million and $741 million,
respectively. If these earnings were repatriated at December 31,
2009, the one-time tax cost associated with the repatriation would be
approximately $163 million. The Company has various tax holidays in
the Middle East and Asia that expire between 2010 and 2012. The
Company no longer has tax holidays in Europe as they have all
expired. During 2009, 2008 and 2007, these tax holidays resulted in
approximately $0.0 million, $0.2 million and $2.8 million, respectively, in
reduced income tax expense.
The
Company adopted changes in accounting for uncertain tax provisions effective
January 1, 2007. As a result of the adoption, the Company recognized
a cumulative effect reduction to the January 1, 2007 retained earnings balance
of $0.5 million. As of the adoption date, the Company had gross
unrecognized income tax benefits of $46.0 million, of which $17.8 million, if
recognized, would affect the Company’s effective income tax rate. Of
this amount, $0.8 million was classified as current and $45.2 million was
classified as non-current on the Company’s balance sheet. While the
Company believes it has adequately provided for all tax positions, amounts
asserted by taxing authorities could be different than the accrued
position.
The
Company recognizes accrued interest and penalty expense related to unrecognized
income tax benefits (“UTB”) in income tax expense. During the years
ended December 31, 2009, 2008 and 2007, the Company recognized an income tax
expense for interest and penalties of $3.3 million, $3.2 million and $6.5
million, respectively. The Company had $11.0 million and $7.7 million
for the payment of interest and penalties accrued at December 31, 2009 and 2008,
respectively.
- 83
-
A
reconciliation of the change in the UTB balance from January 1, 2007 to December
31, 2009 is as follows:
(In
thousands)
|
Unrecognized
Income
Tax
Benefits
|
Deferred
Income
Tax
Benefits
|
Unrecognized
Income
Tax
Benefits,
Net of Deferred Income
Tax
Benefits
|
|||||||||
Balance
at January 1, 2007
|
$ | 45,965 | $ | (15,016 | ) | $ | 30,949 | |||||
Additions
for tax positions related to the current year (includes currency
translation adjustment)
|
3,849 | (172 | ) | 3,677 | ||||||||
Additions
for tax positions related to prior years (includes currency translation
adjustment)
|
6,516 | — | 6,516 | |||||||||
Reductions
for tax positions related to acquired entities in prior years, offset to
goodwill
|
(3,568 | ) | — | (3,568 | ) | |||||||
Other
reductions for tax positions related to prior years
|
(22,086 | ) | 12,681 | (9,405 | ) | |||||||
Settlements
|
(500 | ) | 175 | (325 | ) | |||||||
Balance
at December 31, 2007
|
$ | 30,176 | $ | (2,332 | ) | $ | 27,844 | |||||
Additions
for tax positions related to the current year (includes currency
translation adjustment)
|
2,723 | — | 2,723 | |||||||||
Additions
for tax positions related to prior years (includes currency translation
adjustment)
|
2,753 | (629 | ) | 2,124 | ||||||||
Reductions
for tax positions related to acquired entities in prior years, offset to
goodwill
|
(92 | ) | — | (92 | ) | |||||||
Other
reductions for tax positions related to prior years
|
(6,080 | ) | 1,077 | (5,003 | ) | |||||||
Settlements
|
(5,181 | ) | 705 | (4,476 | ) | |||||||
Balance
at December 31, 2008
|
$ | 24,299 | $ | (1,179 | ) | $ | 23,120 | |||||
Additions
for tax positions related to the current year (includes currency
translation adjustment)
|
7,868 | (11 | ) | 7,857 | ||||||||
Additions
for tax positions related to prior years (includes currency translation
adjustment)
|
10,625 | (49 | ) | 10,576 | ||||||||
Other
reductions for tax positions related to prior years
|
(4,007 | ) | 117 | (3,890 | ) | |||||||
Statute
of Limitations expirations
|
(1,934 | ) | 152 | (1,782 | ) | |||||||
Settlements
|
(60 | ) | 21 | (39 | ) | |||||||
Total
unrecognized income tax benefits that, if recognized, would impact the
effective income tax rate as of December 31, 2009
|
$ | 36,791 | $ | (949 | ) | $ | 35,842 |
Included
in the additions for tax positions related to prior years for 2009 is $6.8
million recorded in purchase accounting related to acquired
entities.
Included
in the additions for tax positions related to current and prior years is
approximately $8.0 million of unrecognized tax benefits that created an
additional net operating loss in a foreign jurisdiction. To the
extent the unrecognized tax benefit is recognized, a full valuation allowance
would be recorded against the net operating loss.
The
Company files its income tax returns as prescribed by the tax laws of the
jurisdictions in which it operates. With few exceptions, the Company
is no longer subject to U.S. and foreign examinations by tax authorities for the
years through 2003.
- 84
-
It is
reasonably possible the Company’s unrecognized tax benefits may decrease within
the next 12 months by $3.0 million as a result of the lapse of statute of
limitations and as a result of final settlement and resolution of outstanding
tax matters in various state and foreign jurisdictions.
10.
|
Commitments
and Contingencies
|
Environmental
The
Company is involved in a number of environmental remediation investigations and
cleanups and, along with other companies, has been identified as a "potentially
responsible party" for certain waste disposal sites. While each of
these matters is subject to various uncertainties, it is probable that the
Company will agree to make payments toward funding certain of these activities
and it is possible that some of these matters will be decided unfavorably to the
Company. The Company has evaluated its potential liability, and its
financial exposure is dependent upon such factors as the continuing evolution of
environmental laws and regulatory requirements, the availability and application
of technology, the allocation of cost among potentially responsible parties, the
years of remedial activity required and the remediation methods
selected. The Consolidated Balance Sheets at December 31, 2009 and
2008 include accruals in Other current liabilities of $3.1 million and $3.2
million, respectively, for environmental matters. The amounts charged
against pre-tax income related to environmental matters totaled $1.5 million,
$1.5 million and $2.8 million in 2009, 2008 and 2007, respectively.
The
Company and an unrelated third party received a notice of violation in November
2007 from the United States Environmental Protection Agency (“the EPA”), in
connection with an alleged violation by the Company and such third party of
certain applicable federally enforceable air pollution control requirements in
connection with the operation of a slag processing area located on the third
party’s Pennsylvania facility. The Company and such third party have
promptly taken steps to remedy the situation. The Company and the
third party have reached an agreement in principle with the EPA to resolve this
matter and are in the process of finalizing this agreement. The
Company anticipates that its portion of any penalty would exceed $0.1
million. However, the Company does not expect that any sum it may
have to pay in connection with this matter would have a material adverse effect
on its financial position, results of operations or cash flows.
The
Company evaluates its liability for future environmental remediation costs 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, results of operations or cash flows.
Gas
Technologies Divestiture
In
October 2009, the Company and Taylor-Wharton International (“TWI”), the
purchaser of the Company’s Gas Technologies business, satisfactorily resolved
the open claims and counterclaims that were submitted to
arbitration. The claims and counterclaims related to both net working
capital adjustments associated with the divestiture and the alleged breach of
certain representations and warranties made by the Company. The
settlement and related costs and fees were reflected in the $15.1 million
after-tax loss from discontinued operations for 2009. In November
2009, TWI filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code. TWI has not yet emerged from bankruptcy protection
and has yet to confirm any plan of reorganization; however, TWI has filed a
motion to reject certain executory contracts entered into between the Company
and TWI. TWI has not sought to reject the settlement agreement
finalized in October 2009 between the Company and TWI. The Company
has not yet been able to determine the effect of such proceedings on ongoing
contractual relationships between the Company and TWI.
Value-Added
Tax Dispute
The
Company is involved in a value-added and services (“ICMS”) tax dispute with the
State Revenue Authorities from the State of São Paulo, Brazil (the
“SPRA”). In October 2009, the Company received notification of the
SPRA’s administrative decision regarding the levying of ICMS in the State of São
Paulo in relation to services provided to one of the Company’s customers in the
State between January 2004 and May 2005. The assessment from the SPRA
is approximately $12 million, including tax, penalty and interest and could
increase to reflect additional interest accrued since December
2007.
The
Company believes that it does not have liability for this assessment and will
vigorously contest it under various alternatives, including judicial
appeal. Any ultimate final determination of this assessment is not
likely to have a material adverse effect on the Company’s annual results of
operations, cash flows or financial condition.
- 85
-
Other
The
Company has been named as one of many defendants (approximately 90 or more in
most cases) in legal actions alleging personal injury from exposure to airborne
asbestos over the past several decades. In their suits, the
plaintiffs have named as defendants, among others, many manufacturers,
distributors and installers of numerous types of equipment or products that
allegedly contained 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 Company product that may have
contained asbestos would have been purchased from a supplier. Based
on scientific and medical evidence, the Company believes that any asbestos
exposure arising from normal use of any Company product never presented any
harmful levels of airborne asbestos exposure, and moreover, the type of asbestos
contained in any component that was used in those products was protectively
encapsulated in other materials and is not associated with the types of injuries
alleged in the pending suits. Finally, in most of the depositions
taken of plaintiffs to date in the litigation against the Company, plaintiffs
have failed to specifically identify any Company products as the source of their
asbestos exposure.
The
majority of the asbestos complaints pending against the Company have been filed
in New York. Almost all of the New York complaints contain a standard
claim for damages of $20 million or $25 million against the approximately 90
defendants, regardless of the individual plaintiff’s alleged medical condition,
and without specifically identifying any Company product as the source of
plaintiff’s asbestos exposure.
As of
December 31, 2009, there are 26,084 pending asbestos personal injury claims
filed against the Company. Of these cases, 25,576 were pending in the
New York Supreme Court for New York County in New York State. The
other claims, totaling 508, are filed in various counties in a number of state
courts, and in certain Federal District Courts (including New York), and those
complaints generally assert lesser amounts of damages than the New York State
court cases or do not state any amount claimed.
As of
December 31, 2009, the Company has obtained dismissal by stipulation, or summary
judgment prior to trial, in 18,366 cases.
In view
of the persistence of asbestos litigation nationwide, the Company expects to
continue to receive additional claims. However, there have been
developments during the past several years, both by certain state legislatures
and by certain state courts, which could favorably affect the Company’s ability
to defend these asbestos claims in those jurisdictions. These
developments include procedural changes, docketing changes, proof of damage
requirements and other changes that require plaintiffs to follow specific
procedures in bringing their claims and to show proof of damages before they can
proceed with their claim. An example is the action taken by the New
York Supreme Court (a trial court), which is responsible for managing all
asbestos cases pending within New York County in the State of New
York. This Court issued an order in December 2002 that created a
Deferred or Inactive Docket for all pending and future asbestos claims filed by
plaintiffs who cannot demonstrate that they have a malignant condition or
discernable physical impairment, and an Active or In Extremis Docket for
plaintiffs who are able to show such medical condition. As a result
of this order, the majority of the asbestos cases filed against the Company in
New York County have been moved to the Inactive Docket until such time as the
plaintiffs can show that they have incurred a physical impairment. As
of December 31, 2009, the Company has been listed as a defendant in 443 Active
or In Extremis asbestos cases in New York County. The Court’s Order
has been challenged by plaintiffs.
Except
with regard to the legal costs in a few limited, exceptional cases, the
Company’s insurance carrier has paid all legal and settlement costs and expenses
to date. The Company has liability insurance coverage 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.
The
Company intends to continue its practice of vigorously defending these cases as
they are listed for trial. It is not possible to predict the ultimate
outcome of asbestos-related lawsuits, claims and proceedings due to the
unpredictable nature of personal injury litigation. Despite this
uncertainty, and although results of operations and cash flows for a given
period could be adversely affected by asbestos-related lawsuits, claims and
proceedings, management believes that the ultimate outcome of these cases will
not have a material adverse effect on the Company’s financial condition, results
of operations or cash flows.
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, results of operations or cash flows of the
Company.
- 86
-
Insurance
liabilities are recorded when it is probable that a liability has been incurred
for a particular event and the amount of loss associated with the event can be
reasonably estimated. Insurance reserves have been estimated based
primarily upon actuarial calculations and reflect the undiscounted estimated
liabilities for ultimate losses including claims incurred but not
reported. Inherent in these estimates are assumptions that are based
on the Company’s history of claims and losses, a detailed analysis of existing
claims with respect to potential value, and current legal and legislative
trends. 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. When a recognized liability is covered by third-party
insurance, the Company records an insurance claim receivable to reflect the
covered liability. Insurance claim receivables are included in Other
receivables in the Company’s Consolidated Balance Sheets. See Note 1,
“Summary of Significant Accounting Policies,” for additional information on
Accrued Insurance and Loss Reserves.
11. Capital
Stock
The
authorized capital stock of the Company 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 (the “Board”). None of the preferred
stock has been issued. On September 25, 2007, the Board approved a
revised Preferred Stock Purchase Rights Agreement (the
“Agreement”). Under the Agreement, the Board authorized and declared
a dividend distribution to stockholders of record on October 9, 2007, of one
right for each share of common stock outstanding on the record
date. The rights may only be exercised if, among other things and
with certain exceptions, a person or group has acquired 15% or more of the
Company's common stock without the prior approval of the Board. Each
right entitles the holder to purchase 1/100th share of Harsco Series A Junior
Participating Cumulative Preferred Stock at an exercise price of
$230. Once the rights become exercisable, the holder of a right will
be entitled, upon payment of the exercise price, to purchase a number of shares
of common stock calculated to have a value of two times the exercise price of
the right. The rights, which expire on October 9, 2017, do not have
voting power, and may be redeemed by the Company at a price of $0.001 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. The Agreement also includes an exchange feature. At
December 31, 2009, 803,531 shares of $1.25 par value preferred stock were
reserved for issuance upon exercise of the rights.
On
January 23, 2007, the Company’s Board of Directors approved a two-for-one stock
split of the Company’s common stock. One additional share of common
stock was issued on March 26, 2007 for each share that was issued and
outstanding at the close of business on February 28, 2007. The
Company’s treasury stock was not included in the stock split.
The Board
of Directors has authorized the repurchase of shares of common stock as
follows:
No.
of Shares Authorized to be Purchased
January
1 (a)
|
Additional
Shares Authorized for Purchase
|
No.
of Shares Purchased
|
Remaining
No. of Shares Authorized for Purchase
December
31
|
||||||||||||||
2007
|
2,000,000 | — | — | 2,000,000 | |||||||||||||
2008
|
2,000,000 | 4,000,000 | 4,463,353 | 1,536,647 | |||||||||||||
2009
|
1,536,647 | 463,353 | — | 2,000,000 |
(a)
|
Authorization
adjusted to reflect the two-for-one stock split effective at the end of
business on March 26, 2007.
|
The
Company’s share repurchase program was extended by the Board of Directors in
September 2009. At that time, the Board authorized an increase of
463,353 shares to the 1,536,647 remaining from the Board’s previous stock
repurchase authorization. The repurchase program expires January 31,
2011. When and if appropriate, repurchases are made in open market
transactions, depending on market conditions. Repurchases may not be
made and may be discontinued at any time.
In
addition to the above purchases, 53,029 and 29,346 shares were repurchased in
2009 and 2008, respectively, in connection with the issuance of shares as a
result of vested restricted stock units. In 2009, 15,645 shares were
repurchased in connection with the issuance of shares as a result of stock
option exercises. In 2007, 90 treasury shares were issued in
connection with stock option exercises, employee service awards and shares
related to vested restricted stock units.
- 87
-
The
following table summarizes the Company’s common stock:
Common
Stock
|
|||||||||||||
Shares
Issued
|
Treasury
Shares
|
Outstanding
Shares
|
|||||||||||
Outstanding,
January 1, 2007 (a)
|
110,510,203 | 26,472,843 | 84,037,360 | ||||||||||
Stock
Options Exercised (a)
|
422,416 | — | 422,416 | ||||||||||
Other
(a)
|
— | (90 | ) | 90 | |||||||||
Outstanding,
December 31, 2007
|
110,932,619 | 26,472,753 | 84,459,866 | ||||||||||
Stock
Options Exercised
|
121,176 | — | 121,176 | ||||||||||
Vested
Restricted Stock Units
|
86,193 | 29,346 | 56,847 | ||||||||||
Purchases
|
— | 4,463,353 | (4,463,353 | ) | |||||||||
Outstanding,
December 31, 2008
|
111,139,988 | 30,965,452 | 80,174,536 | ||||||||||
Stock
Options Exercised
|
92,250 | 15,645 | 76,605 | ||||||||||
Vested
Restricted Stock Units
|
154,947 | 53,029 | 101,918 | ||||||||||
Outstanding,
December 31, 2009
|
111,387,185 | 31,034,126 | 80,353,059 |
(a) Share
data has been restated for comparison purposes to reflect the effect of the
March 2007 stock split.
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 Statements of
Income:
(Amounts
in thousands, except per share data)
|
2009
|
2008
|
2007
|
||||||||||
Income
from continuing operations attributable to Harsco Corporation common
stockholders
|
$ | 133,838 | $ | 245,623 | $ | 255,115 | |||||||
Weighted
average shares outstanding - basic
|
80,295 | 83,599 | 84,169 | ||||||||||
Dilutive
effect of stock-based compensation
|
291 | 430 | 555 | ||||||||||
Weighted
average shares outstanding - diluted
|
80,586 | 84,029 | 84,724 | ||||||||||
Earnings
from continuing operations per common share, attributable to Harsco
Corporation common stockholders:
|
|||||||||||||
Basic
|
$ | 1.67 | $ | 2.94 | $ | 3.03 | |||||||
Diluted
|
$ | 1.66 | $ | 2.92 | $ | 3.01 |
At
December 31, 2009, 21,675 restricted stock units outstanding were not included
in diluted weighted average shares outstanding because the effect was
antidilutive. All outstanding stock options at December 31, 2009 and
all outstanding stock options and restricted stock units at December 31, 2008
and 2007 were included in the computation of diluted earnings per
share.
12. Stock-Based
Compensation
The 1995
Executive Incentive Compensation Plan authorizes the issuance of up to 8,000,000
shares of the Company's common stock for use in paying incentive compensation
awards in the form of stock options or other equity awards such as restricted
stock, restricted stock units or stock appreciation rights. The 1995
Non-Employee Directors' Stock Plan authorizes the issuance of up to 600,000
shares of the Company's common stock for equity awards. At December
31, 2009, there were 2,184,952 and 249,000 shares available for granting equity
awards under the 1995 Executive Incentive Compensation Plan and the 1995
Non-Employee Directors' Stock Plan, respectively. The
above-referenced authorized and available shares for the Executive Incentive
Compensation and Non-Employee Directors’ Stock Plans are stated to reflect the
March 2007 two-for-one stock split. Generally, new shares are issued
for exercised stock options and vested restricted stock units.
- 88
-
The Board
of Directors approves the granting of performance-based restricted stock units
as the long-term equity component of director, officer and certain key employee
compensation. The restricted stock units require no payment from the
recipient and compensation cost is measured based on the market price on the
grant date and is generally recorded over the vesting period. The
vesting period for restricted stock units granted to non-employee directors is
one year, and each restricted stock unit will be exchanged for a like number of
shares of Company stock following the termination of the participant’s service
as a director. Restricted stock units granted to officers and certain
key employees after September 2006 vest on a pro rata basis over a three-year
period, and the specified retirement age is 62. Prior grants utilized
three-year cliff vesting and a retirement age of 65. Upon vesting,
each restricted stock unit will be exchanged for a like number of shares of the
Company’s stock. Restricted stock units do not have an option for
cash payment.
The
following table summarizes restricted stock units issued and the compensation
expense (including both continuing and discontinued operations) recorded for the
years ended December 31, 2009, 2008 and 2007:
Stock-Based
Compensation Expense (Income)
|
||||||||||||||||||||
(Dollars
in thousands, except per unit)
|
||||||||||||||||||||
Restricted
|
Fair
Value
|
Expense
(Income)
|
||||||||||||||||||
Stock
Units
|
per
Unit
|
2009 |
2008
|
2007
|
||||||||||||||||
Directors:
|
||||||||||||||||||||
May 1, 2006 (a)
|
16,000 | $ | 41.30 | $ | — | $ | — | $ | 220 | |||||||||||
May 1, 2007
|
16,000 | 50.62 | — | 270 | 539 | |||||||||||||||
May 1, 2008
|
16,000 | 58.36 | 311 | 623 | — | |||||||||||||||
May 1, 2009
|
16,000 | 27.28 | 291 | — | — | |||||||||||||||
Employees:
|
||||||||||||||||||||
January 24, 2005
(a)
|
65,400 | 25.21 | — | 21 | 328 | |||||||||||||||
January 24, 2006
(a)
|
93,100 | 33.85 | (191 | )(b) | 632 | 839 | ||||||||||||||
January 23, 2007
|
101,700 | 38.25 | 761 | 1,035 | 1,488 | |||||||||||||||
January 22, 2008
|
130,950 | 45.95 | 1,371 | 2,652 | — | |||||||||||||||
January 27, 2009
|
106,625 | 25.15 | 1,174 | — | — | |||||||||||||||
November 19,
2009
|
15,000 | 31.90 | 169 | — | — | |||||||||||||||
Total
|
576,775 | $ | 3,886 | $ | 5,233 | $ | 3,414 |
(a)
|
Restricted
stock units and fair values have been restated to reflect the March 2007
two-for-one stock split.
|
(b)
|
Due
primarily to forfeitures of restricted stock
units.
|
- 89
-
Restricted
stock unit activity for the years ended December 31, 2009, 2008 and 2007 was as
follows:
Restricted
Stock Units (a)
|
Weighted
Average Grant-Date
Fair
Value (a)
|
||||||||
Nonvested
at January 1, 2007
|
145,234 | $ | 30.88 | ||||||
Granted
|
117,700 | 39.93 | |||||||
Vested
|
(16,000 | ) | 47.51 | ||||||
Forfeited
|
(35,000 | ) | 34.06 | ||||||
Nonvested
at December 31, 2007
|
211,934 | 34.12 | |||||||
Granted
|
146,950 | 47.30 | |||||||
Vested
|
(95,570 | ) | 34.43 | ||||||
Forfeited
|
(5,584 | ) | 39.78 | ||||||
Nonvested
at December 31, 2008
|
257,730 | 41.40 | |||||||
Granted
|
137,625 | 26.13 | |||||||
Vested
|
(153,283 | ) | 38.46 | ||||||
Forfeited
|
(12,581 | ) | 36.97 | ||||||
Nonvested
at December 31, 2009
|
229,491 | $ | 34.45 |
(a)
|
Restricted
stock units and fair values have been restated to reflect the March 2007
two-for-one stock split.
|
As of
December 31, 2009, the total unrecognized compensation cost related to nonvested
restricted stock units was $3.2 million, which is expected to be recognized over
a weighted-average period of approximately 1.5 years.
There was
a $0.3 million decrease of excess tax benefits principally from restricted stock
units recognized in 2009, while increases in excess tax benefits principally
from stock options of $1.7 million and $5.1 million were recognized during 2008
and 2007, respectively.
No stock
options have been granted to officers and employees since February
2002. No stock options have been granted to non-employee directors
since May 2003. Prior to these dates, the Company had granted stock
options for the purchase of its common stock to officers, certain key employees
and non-employee directors under two stockholder-approved plans. The
exercise price of the stock options was the fair value on the grant date, which
was the date the Board of Directors approved the respective grants.
Options
issued under the 1995 Executive Incentive Compensation Plan generally vested and
became exercisable one year following the date of grant except options issued in
2002, which generally vested and became exercisable two years following the date
of grant. Options issued under the 1995 Non-Employee Director’s Stock
Plan generally became exercisable one year following the date of grant but
vested immediately. The options under both Plans expire ten years
from the date of grant.
- 90
-
Stock
option activity for the years ended December 31, 2009, 2008 and 2007 was as
follows:
Stock
Options
|
|||||||||||||
Shares
Under
Option (a)
|
Weighted
Average Exercise Price (a)
|
Aggregate
Intrinsic Value (in millions) (b)
|
|||||||||||
Outstanding,
January 1, 2007
|
1,027,412 | $ | 15.49 | $ | 23.4 | ||||||||
Exercised
|
(422,416 | ) | 15.74 | — | |||||||||
Outstanding,
December 31, 2007
|
604,996 | 15.30 | 29.9 | ||||||||||
Exercised
|
(121,176 | ) | 14.96 | — | |||||||||
Outstanding,
December 31, 2008
|
483,820 | 15.39 | 5.7 | ||||||||||
Exercised
|
(92,250 | ) | 14.25 | — | |||||||||
Expired
|
(1,600 | ) | 14.57 | — | |||||||||
Outstanding,
December 31, 2009
|
389,970 | $ | 15.66 | $ | 6.7 |
(a)
|
Stock
options and weighted average exercise prices have been restated to reflect
the March 2007 two-for-one stock
split.
|
(b)
|
Intrinsic
value is defined as the difference between the current market value and
the exercise price.
|
The total
intrinsic value of options exercised during the twelve months ended December 31,
2009, 2008 and 2007 was $1.4 million, $4.5 million and $17.1 million,
respectively.
Options
to purchase 389,970 shares were exercisable at December 31, 2009. The
following table summarizes information concerning outstanding and exercisable
options at December 31, 2009.
Stock
Options Outstanding and Exercisable
|
|||||||||||||||
Range
of Exercisable Prices
|
Number
Outstanding
and
Exercisable
|
Remaining
Contractual
Life
In
Years
|
Weighted
Average
Exercise
Price
|
||||||||||||
$12.81 – $14.50 | 137,815 | 0.79 | $ | 13.52 | |||||||||||
14.65 – 16.33 | 195,955 | 2.01 | 16.29 | ||||||||||||
16.96 – 20.96 | 56,200 | 2.78 | 18.73 | ||||||||||||
389,970 |
13.
|
Financial
Instruments
|
Off-Balance
Sheet Risk
As
collateral for the Company’s performance and to insurers, the Company is
contingently liable under standby letters of credit, bonds and bank guarantees
in the amounts of $280.1 million and $234.1 million at December 31, 2009 and
2008, respectively. These standby letters of credit, bonds and bank
guarantees are generally in force for up to four years. Certain
issues have no scheduled expiration date. The Company pays fees to
various banks and insurance companies that range from 0.25 percent to 1.60
percent per annum of the instruments’ face value. If the Company were
required to obtain replacement standby letters of credit, bonds and bank
guarantees as of December 31, 2009 for those currently outstanding, it is the
Company's opinion that the replacement costs would be within the present fee
structure.
The
Company has currency exposures in more than 50 countries. The
Company's primary foreign currency exposures during 2009 were in the United
Kingdom, the European Economic and Monetary Union, Poland, Brazil and
Mexico.
Off-Balance
Sheet Risk – Third Party Guarantees
In
connection with the licensing of one of the Company’s trade names and providing
certain management services (the furnishing of selected employees), the Company
guarantees the debt of certain third parties related to its international
operations. These guarantees are provided to enable the third parties
to obtain financing of their operations. The Company receives fees
from these operations, which are included as Services revenues in the Company’s
Consolidated Statements of Income. The revenue the Company recorded
from these entities was $9.6 million, $6.3 million and $3.0 million for the
twelve months ended December 31, 2009, 2008 and 2007,
respectively. The
- 91
-
guarantees
are renewed on an annual basis and the Company would only be required to perform
under the guarantees if the third parties default on their debt. The
maximum potential amount of future payments (undiscounted) related to these
guarantees was $1.6 million and $2.9 million at December 31, 2009 and 2008,
respectively. There is no recognition of this potential future
payment in the accompanying financial statements as the Company believes the
potential for making these payments is remote. These guarantees were
renewed in June 2009 and November 2009.
The
Company provided an environmental indemnification for properties that were sold
to a third party in 2007. The maximum term of this guarantee is 20
years, and the Company would be required to perform under the guarantee only if
an environmental matter is discovered on the properties. The Company
is not aware of environmental issues related to these
properties. There is no recognition of this potential future payment
in the accompanying financial statements as the Company believes the potential
for making this payment is remote.
The
Company provided an environmental indemnification for property from a lease that
terminated in 2006. The term of this guarantee is indefinite, and the
Company would be required to perform under the guarantee only if an
environmental matter were discovered on the property relating to the time the
Company leased the property. The Company is not aware of any
environmental issues related to this property. The maximum potential
amount of future payments (undiscounted) related to this guarantee is estimated
to be $3.0 million at December 31, 2009 and 2008. There is no
recognition of this potential future payment in the accompanying financial
statements as the Company believes the potential for making this payment is
remote.
The
Company provides guarantees related to arrangements with certain customers that
include joint and several liability for actions for which the Company may be
partially at fault. The terms of these guarantees generally do not
exceed four years, and the maximum amount of future payments (undiscounted)
related to these guarantees is $3.0 million per occurrence. This
amount represents the Company’s self-insured maximum
limitation. There is no specific recognition of potential future
payments in the accompanying financial statements as the Company is not aware of
any claims.
The
Company provided a guarantee related to the payment of taxes for a product line
that was sold to a third party in 2005. The term of this guarantee is five
years, and the Company would be required to perform under the guarantee only if
taxes were not properly paid to the government while the Company owned the
product line in accordance with applicable statutes. The Company is
not aware of any instances of noncompliance related to these
statutes. The maximum potential amount of future payments
(undiscounted) related to this guarantee is estimated to be $1.3 million at
December 31, 2009 and 2008. There is no recognition of any potential
future payment in the accompanying financial statements as the Company believes
the potential for making this payment is remote.
The
Company provided an environmental indemnification for property that was sold to
a third party in 2004. The term of this guarantee is seven years, and
the Company would be required to perform under the guarantee only if an
environmental matter were discovered on the property relating to the time the
Company owned the property that was not known by the buyer at the date of
sale. The Company is not aware of any environmental issues related to
this property. The maximum potential amount of future payments
(undiscounted) related to this guarantee is $0.8 million at December 31, 2009
and 2008. There is no recognition of this potential future payment in
the accompanying financial statements as the Company believes the potential for
making this payment is remote.
The above
liabilities related to the Company’s obligation to stand ready to act on these
off-balance sheet guarantees are included in Other current liabilities or Other
liabilities (as appropriate) in the Consolidated Balance Sheets. The
recognition of these liabilities did not have a material impact on the Company’s
financial condition or results of operations for the twelve months ended
December 31, 2009, 2008 or 2007.
In the
normal course of business, the Company provides legal indemnifications related
primarily to the performance of its products and services and patent and
trademark infringement of its goods and services sold. These
indemnifications generally relate to the performance (regarding function, not
price) of the respective goods or services and therefore no liability is
recognized related to the fair value of such guarantees.
Derivative
Instruments and Hedging Activities
The
Company uses derivative instruments, including swaps and forward contracts, to
manage certain foreign currency, commodity price and interest rate
exposures. Derivative instruments are viewed as risk management tools
by the Company and are not used for trading or speculative
purposes.
All
derivative instruments are recorded on the balance sheet at fair
value. Changes in the fair value of derivatives used to hedge
foreign-currency-denominated balance sheet items are reported directly in
earnings along with offsetting transaction gains and losses on the items being
hedged. Derivatives used to hedge forecasted cash flows
- 92
-
associated
with foreign currency commitments or forecasted commodity purchases may be
accounted for as cash flow hedges, as deemed appropriate and if the criteria for
hedge accounting are met. Gains and losses on derivatives designated
as cash flow hedges are deferred as a separate component of equity and
reclassified to earnings in a manner that matches the timing of the earnings
impact of the hedged transactions. Generally, as of December 31,
2009, these deferred gains and losses will be reclassified to earnings over 10
to 15 years from the balance sheet date. The ineffective portion of
all hedges, if any, is recognized currently in earnings.
The fair
value of outstanding derivative contracts recorded as assets and liabilities in
the accompanying December 31, 2009 Consolidated Balance Sheet were as
follows:
Fair
Values of Derivative Contracts
|
|||||||||||||
At
December 31, 2009
|
|||||||||||||
(In
thousands)
|
Other
current assets
|
Other
assets
|
Other
current liabilities
|
||||||||||
Derivatives
designated as hedging instruments:
|
|||||||||||||
Foreign
currency forward exchange contracts
|
$ | — | $ | — | $ | 14 | |||||||
Cross-currency
interest rate swap
|
— | 7,357 | — | ||||||||||
Total
derivatives designated as hedging instruments
|
$ | — | $ | 7,357 | $ | 14 | |||||||
Derivatives
not designated as hedging instruments:
|
|||||||||||||
Foreign
currency forward exchange contracts
|
$ | 2,187 | $ | — | $ | 590 |
The
effect of derivative instruments on the Consolidated Statements of Income and
the Consolidated Statements of Comprehensive Income for the twelve months ended
December 31, 2009 was as follows:
Derivatives
Designated as Hedging Instruments
|
||||||||||||||
(In
thousands)
|
Amount
of Loss Recognized in Other Comprehensive Income (“OCI”) on Derivative -
Effective Portion
|
Location
of Gain Reclassified from Accumulated OCI into Income - Effective
Portion
|
Amount
of Gain Reclassified from Accumulated OCI into Income - Effective
Portion
|
Location
of Loss Recognized in Income on Derivative - Ineffective Portion and
Amount Excluded from Effectiveness Testing
|
Amount
of Loss Recognized in Income on Derivative - Ineffective Portion and
Amount Excluded from Effectiveness Testing
|
|||||||||
For
the twelve months ended
December
31, 2009:
|
||||||||||||||
Foreign
currency forward exchange contracts
|
$ | (23 | ) | $ | — | $ | — | |||||||
Commodity
contracts
|
(3,352 | ) |
Service
Revenues
|
1,025 |
Service
Revenues
|
(318 | ) | |||||||
Cross-currency
interest rate swap
|
(36,490 | ) | — |
Cost
of services and products sold
|
(5,586 | ) (a) | ||||||||
$ | (39,865 | ) | $ | 1,025 | $ | (5,904 | ) | |||||||
(a)
|
The
net losses offset foreign currency fluctuation effects on the debt
principal.
|
- 93
-
Derivatives
Not Designated as Hedging Instruments
|
||
Amount
of Loss Recognized in Income on Derivative
For
the Twelve Months Ended December 31, 2009 (a)
|
||
(In
thousands)
|
Location
of Loss
Recognized
in
Income
on Derivative
|
|
Foreign
currency forward exchange contracts
|
Cost
of services
and
products sold
|
$ (6,308)
|
(a)
|
These
losses offset gains recognized in cost of service and products sold
principally as a result of intercompany or third party foreign currency
exposures.
|
Commodity
Derivatives
The
Company periodically uses derivative instruments to hedge cash flows associated
with selling price exposure to certain commodities. The Company’s
commodity derivative activities are subject to the management, direction and
control of the Company’s Risk Management Committee, which approves the use of
all commodity derivative instruments. The Company’s commodity
derivative contract positions that qualified as cash flow hedges under the
requirements for hedge accounting consisted of unsecured swap
contracts. There were no such outstanding contracts at December 31,
2009 as all previously open positions matured in 2009. At December
31, 2008, the Company had swap contracts with a notional value of $10.9 million
that had related amounts recognized in operating income from continuing
operations and other comprehensive income of $6.4 million and $4.4 million,
respectively. At December 31, 2007, the Company had cashless collars
with a notional value of $6.0 million with a related $0.5 million recognized in
operating income from continuing operations.
Foreign
Currency Forward Exchange Contracts
The
Company conducts business in multiple currencies and, accordingly, is subject to
the inherent risks associated with foreign exchange rate
movements. The financial position and results of operations of
substantially all of the Company’s foreign subsidiaries are measured using the
local currency as the functional currency. Foreign
currency-denominated assets and liabilities are translated into U.S. dollars at
the exchange rates existing at the respective balance sheet dates, and income
and expense items are translated at the average exchange rates during the
respective periods. The aggregate effects of translating the balance
sheets of these subsidiaries are deferred and recorded in Accumulated other
comprehensive loss or income, which is a separate component of
equity.
The
Company uses derivative instruments to hedge cash flows related to foreign
currency fluctuations. At December 31, 2009 and 2008, the Company had
$122.1 million and $293.9 million of 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 by offsetting foreign currency
exposures of certain future payments between the Company and it various
subsidiaries, vendors or customers. The unsecured contracts
outstanding at December 31, 2009 mature at various times within three months and
are with major financial institutions. The Company may be exposed to
credit loss in the event of non-performance by the contract
counterparties. The Company evaluates the creditworthiness of the
counterparties and does not expect default by them. 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 foreign currency forward exchange contracts in U.S. dollars as of
December 31, 2009 and 2008. The "Buy" amounts represent the U.S.
dollar equivalent of commitments to purchase foreign currencies, and the "Sell"
amounts represent the U.S. dollar equivalent of commitments to sell foreign
currencies. Recognized gains and losses offset amounts recognized in
cost of services and products sold principally as a result of intercompany or
third party foreign currency exposures.
As
of December 31, 2009
|
||||||||||
(In
thousands)
|
Type
|
U.S.
Dollar
Equivalent
|
Maturity
|
Recognized
Gain
(Loss)
|
||||||
British
pounds sterling
|
Sell
|
$ | 715 |
January
2010 through March 2010
|
$ | (18 | ) | |||
British
pounds sterling
|
Buy
|
3,354 |
January
2010
|
67 | ||||||
Euros
|
Sell
|
72,068 |
January
2010 through February 2010
|
1,820 | ||||||
Euros
|
Buy
|
38,967 |
January
2010
|
(346 | ) | |||||
Other
currencies
|
Sell
|
4,155 |
January
2010 through February 2010
|
72 | ||||||
Other
currencies
|
Buy
|
2,867 |
January
2010 through March 2010
|
(12 | ) | |||||
Total
|
$ | 122,126 | $ | 1,583 |
- 94
-
As
of December 31, 2008
|
||||||||||
(In
thousands)
|
Type
|
U.S.
Dollar
Equivalent
|
Maturity
|
Recognized
Gain
(Loss)
|
||||||
Canadian
dollar
|
Sell
|
$ | 1,342 |
January
through September 2009
|
$ | (14 | ) | |||
Euros
|
Sell
|
19,749 |
January
through March 2009
|
(248 | ) | |||||
Euros
|
Buy
|
113,084 |
January
through August 2009
|
5,625 | ||||||
British
pounds sterling
|
Sell
|
56,671 |
January
2009
|
1,450 | ||||||
British
pounds sterling
|
Buy
|
98,878 |
January
through February 2009
|
(3,335 | ) | |||||
South
African rand
|
Sell
|
2,175 |
January
2009
|
(41 | ) | |||||
Other
currencies
|
Sell
|
292 |
January
2009
|
3 | ||||||
Other
currencies
|
Buy
|
1,692 |
January
through May 2009
|
(62 | ) | |||||
Total
|
$ | 293,883 | $ | 3,378 |
The
Company had outstanding forward contracts designated as cash flow hedges in the
amount of $2.1 million at December 31, 2008. These forward contracts
had a net unrealized gain of $6 thousand that was included in Other
comprehensive income (loss), net of deferred taxes, at December 31,
2008. The Company did not elect to treat the remaining contracts as
hedges, and mark-to-market gains and losses were recognized in net
income.
In
addition to foreign currency forward exchange contracts, the Company designates
certain loans as hedges of net investments in foreign
subsidiaries. The Company recorded charges of $9.2 million and $7.6
million during 2009 and 2008, respectively, as Accumulated other comprehensive
loss, which is a separate component of stockholders’ equity, related to hedges
of net investments.
Cross-Currency
Interest Rate Swap
In May
2008, the Company entered into a 10-year, $250.0 million cross-currency interest
rate swap in conjunction with a debt issuance in order to lock in a fixed euro
interest rate for $250.0 million of the issuance. Under the swap, the
Company receives interest based on a fixed U.S. dollar rate and pays interest on
a fixed euro rate on the outstanding notional principal amounts in dollars and
euros, respectively. The cross-currency interest rate swap is
recorded in the consolidated balance sheet at fair value, with changes in value
attributed to the effect of the swaps’ interest spread recorded in Accumulated
other comprehensive loss or income, which is a separate component of
equity. Changes in value attributed to the effect of foreign currency
fluctuations are recorded in the income statement and offset currency
fluctuation effects on the debt principal.
Fair
Value of Derivative Assets and Liabilities and Other Financial
Instruments
Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price). The Company utilizes market data or
assumptions that the Company believes market participants would use in pricing
the asset or liability, including assumptions about risk and the risks inherent
in the inputs to the valuation technique.
The fair
value hierarchy distinguishes between (1) market participant assumptions
developed based on market data obtained from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant
assumptions developed based on the best information available in the
circumstances (unobservable inputs). The fair value hierarchy
consists of three broad levels, which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1)
and the lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy are described below:
·
|
Level
1—Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or
liabilities.
|
·
|
Level
2—Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly,
including quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; inputs other than quoted prices that are
observable for the asset or liability (e.g., interest rates); and inputs
that are derived principally from or corroborated by observable market
data by correlation or other means.
|
·
|
Level
3—Inputs that are both significant to the fair value measurement and
unobservable.
|
In
instances in which multiple levels of inputs are used to measure fair value,
hierarchy classification is based on the lowest level input that is significant
to the fair value measurement in its entirety. The Company’s
assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to
the asset or liability.
- 95
-
At
December 31, 2009 and 2008, all derivative assets and liabilities were valued at
Level 2 of the fair value hierarchy. The following table indicates
the different financial instruments of the Company.
Level
2 Fair Value Measurements as of December 31, 2009 and 2008
|
|||||||||
(In
thousands)
|
2009
|
2008
|
|||||||
Assets
|
|||||||||
Commodity
derivatives
|
$ | — | $ | 4,479 | |||||
Foreign
currency forward exchange contracts
|
2,187 | 7,332 | |||||||
Cross-currency
interest rate swap
|
7,357 | 49,433 | |||||||
Liabilities
|
|||||||||
Foreign
currency forward exchange contracts
|
604 | 3,954 |
The
Company primarily applies the market approach for recurring fair value
measurements and endeavors to utilize the best available
information. Accordingly, the Company utilizes valuation techniques
that maximize the use of observable inputs, such as forward rates, interest
rates, the Company’s credit risk and counterparties’ credit risks, and minimize
the use of unobservable inputs. The Company is able to classify fair
value balances based on the observability of those inputs. Commodity
derivatives, foreign currency forward exchange contracts and cross-currency
interest rate swaps are classified as Level 2 fair value based upon pricing
models using market-based inputs. Model inputs can be verified, and
valuation techniques do not involve significant management
judgment.
The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities and short-term borrowings approximate fair value
due to the short-term maturities of these assets and liabilities. At
December 31, 2009 and 2008, total fair value of long-term debt, including
current maturities, was $965.5 million and $900.1 million, respectively,
compared to carrying value of $927.5 million and $895.0 million,
respectively. Fair values for debt are based on 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.
Concentrations
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and cash equivalents 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 trade accounts receivable are generally limited
in the Harsco Infrastructure and Harsco Rail Segments and the “All Other”
Category due to the Company’s large number of customers and their dispersion
across different industries and geographies. However, the Company’s
Harsco Metals Segment has several large customers throughout the world with
significant accounts receivable balances. Additionally, consolidation
in the global steel industry has increased the Company’s exposure to specific
customers. Additional consolidation is possible. Should
transactions occur involving some of the steel industry’s larger companies,
which are customers of the Company, it would result in an increase in
concentration of credit risk for the Company.
The
Company generally does not require collateral or other security to support
customer receivables. If a receivable from one or more of the
Company’s larger customers becomes uncollectible, it could have a material
effect on the Company’s results of operations or cash flows.
14.
|
Information
by Segment and Geographic Area
|
The
Company reports information about its operating segments using the "management
approach," which is based on the way management organizes and reports 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 has three reportable segments and an “All Other” Category labeled Harsco
Minerals & Harsco Industrial. These segments and the types of
products and services offered include the following:
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-
Harsco
Infrastructure Segment
Major
services include project engineering and equipment installation, as well as the
sale and rental of scaffolding, shoring and concrete forming systems for
industrial maintenance and capital improvement projects, non-residential
construction, and international multi-dwelling residential construction
projects. Services are provided to industrial and petrochemical
plants; the infrastructure construction, repair and maintenance markets;
commercial and industrial construction contractors; and public
utilities.
Harsco
Metals Segment
This
segment provides on-site, outsourced services to steel mills and other metal
producers such as aluminum and copper. Services include slag
processing; semi-finished inventory management; material handling; scrap
management; in-plant transportation; and a variety of other
services.
Harsco
Rail Segment
This
segment manufactures railway track maintenance equipment and provides track
maintenance services. The major customers include private and
government-owned railroads and urban mass transit systems
worldwide.
All Other Category - Harsco Minerals & Harsco
Industrial
Major
products and services include minerals and recycling technologies; granules for
asphalt roofing shingles and abrasives for industrial surface preparation
derived from coal slag; industrial grating; air-cooled heat exchangers; and
boilers and water heaters.
Major
customers include steel mills; industrial plants and the non-residential,
commercial and public construction and retrofit markets; the natural gas
exploration and processing industry; and asphalt roofing
manufacturers.
Other
Information
The
measurement basis of segment profit or loss is operating
income. Sales of the Company in the United States and the United
Kingdom exceeded 10% of consolidated sales with 34% and 15%, respectively, in
2009; 32% and 17%, respectively, in 2008; and 31% and 20%, respectively, in
2007. There are no significant inter-segment sales.
In 2009,
2008 and 2007, sales to one customer, ArcelorMittal, principally in the Harsco
Metals Segment, were $305.6 million, $416.6 million and $396.2 million,
respectively, which represented more than 10% of the Company’s consolidated
sales for those years. These sales were provided under multiple
long-term contracts at several mill sites. In addition, the Harsco
Metals Segment is dependent largely on the global steel industry, and in 2009,
2008 and 2007 there were two customers, including ArcelorMittal, that each
provided in excess of 10% of this Segment’s revenues under multiple long-term
contracts at several mill sites. The loss of any one of these
contracts would not have a material adverse impact upon the Company’s financial
position or cash flows; however, it could have a material effect on quarterly or
annual results of operations. Additionally, these customers have
significant accounts receivable balances. Further consolidation in
the global steel industry is possible. Should transactions occur
involving some of the Company’s larger steel industry customers, it would result
in an increase in concentration of credit risk for the Company.
Corporate
assets include principally cash, insurance receivables, prepaid taxes and U.S.
deferred income taxes. Net Property, Plant and Equipment in the
United States represented 22%, 24% and 24% of total net Property, Plant and
Equipment as of December 31, 2009, 2008 and 2007, respectively. Net
Property, Plant and Equipment in the United Kingdom represented 14%, 15% and 20%
of total Net Property, Plant and Equipment as of December 31, 2009, 2008 and
2007, respectively.
- 97
-
Segment
Information
|
||||||||||||||||||||||||
Twelve
Months Ended December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
(In
thousands)
|
Sales
|
Operating
Income
(Loss)
|
Sales
|
Operating
Income
(Loss)
|
Sales
|
Operating
Income
(Loss)
|
||||||||||||||||||
Harsco
Infrastructure Segment
|
$ | 1,159,200 | $ | 68,437 | $ | 1,540,258 | $ | 185,382 | $ | 1,415,873 | $ | 183,752 | ||||||||||||
Harsco
Metals Segment
|
1,084,826 | 15,927 | 1,577,720 | 85,344 | 1,522,274 | 134,504 | ||||||||||||||||||
Harsco
Rail Segment (a)
|
306,016 | 56,542 | 277,595 | 36,406 | 232,402 | 23,050 | ||||||||||||||||||
Segment
Totals
|
2,550,042 | 140,906 | 3,395,573 | 307,132 | 3,170,549 | 341,306 | ||||||||||||||||||
All
Other Category - Harsco Minerals & Harsco Industrial
(a)
|
440,295 | 82,460 | 572,009 | 114,516 | 517,595 | 119,141 | ||||||||||||||||||
General
Corporate
|
240 | (4,710 | ) | 240 | (9,660 | ) | 16 | (2,642 | ) | |||||||||||||||
Total
|
$ | 2,990,577 | $ | 218,656 | $ | 3,967,822 | $ | 411,988 | $ | 3,688,160 | $ | 457,805 |
(a)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which
was previously a component of the All Other Category, is now reported
separately.
|
Reconciliation
of Segment Operating Income to Consolidated Income From Continuing
Operations
Before
Income Taxes and Minority Interest
|
||||||||||||
Twelve
Months Ended December 31,
|
||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Segment
operating income (a)
|
$ | 140,906 | $ | 307,132 | $ | 341,306 | ||||||
All
Other Category - Harsco Minerals
& Harsco Industrial (a)
|
82,460 | 114,516 | 119,141 | |||||||||
General
corporate expense
|
(4,710 | ) | (9,660 | ) | (2,642 | ) | ||||||
Operating
income from continuing operations
|
218,656 | 411,988 | 457,805 | |||||||||
Equity
in income of unconsolidated entities, net
|
504 | 901 | 1,049 | |||||||||
Interest
income
|
2,928 | 3,608 | 4,968 | |||||||||
Interest
expense
|
(62,746 | ) | (73,160 | ) | (81,383 | ) | ||||||
Income
from continuing operations before income taxes
|
$ | 159,342 | $ | 343,337 | $ | 382,439 |
(a)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which
was previously a component of the All Other Category, is now reported
separately.
|
- 98
-
Segment
Information
|
||||||||||||||||||||||||
Assets
|
Depreciation
and
Amortization
|
|||||||||||||||||||||||
Twelve
Months Ended December 31,
|
||||||||||||||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
(a)
|
||||||||||||||||||
Harsco
Infrastructure Segment
|
$ | 1,669,401 | $ | 1,607,171 | $ | 1,563,630 | $ | 101,465 | $ | 110,227 | $ | 90,477 | ||||||||||||
Harsco
Metals Segment
|
1,372,224 | 1,338,633 | 1,585,921 | 165,099 | 181,180 | 167,179 | ||||||||||||||||||
Harsco
Rail Segment (b)
|
208,877 | 207,926 | 204,278 | 11,106 | 12,320 | 15,206 | ||||||||||||||||||
Segment
Totals
|
3,250,502 | 3,153,730 | 3,353,829 | 277,670 | 303,727 | 272,862 | ||||||||||||||||||
All
Other Category - Harsco Minerals & Harsco Industrial
(b)
|
335,241 | 357,422 | 382,904 | 29,471 | 30,260 | 29,292 | ||||||||||||||||||
Corporate
|
53,497 | 51,818 | 168,697 | 4,390 | 3,962 | 3,019 | ||||||||||||||||||
Total
|
$ | 3,639,240 | $ | 3,562,970 | $ | 3,905,430 | $ | 311,531 | $ | 337,949 | $ | 305,173 |
(a)
|
Excludes
Depreciation and Amortization for the Gas Technologies Segment in the
amounts of $1.2 million because this Segment was reclassified to
Discontinued Operations.
|
(b)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which
was previously a component of the All Other Category, is now reported
separately.
|
Capital
Expenditures
|
||||||||||||
Twelve
Months Ended December 31,
|
||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Harsco
Infrastructure Segment
|
$ | 41,530 | $ | 226,559 | $ | 228,130 | ||||||
Harsco
Metals Segment
|
96,423 | 205,766 | 193,244 | |||||||||
Harsco
Rail Segment (a)
|
7,699 | 5,393 | 2,162 | |||||||||
Gas
Technologies Segment
|
— | — | 8,618 | |||||||||
Segment
Totals
|
145,652 | 437,718 | 432,154 | |||||||||
All
Other Category - Harsco Minerals
& Harsco Industrial (a)
|
9,013 | 17,632 | 9,101 | |||||||||
Corporate
|
10,655 | 2,267 | 2,328 | |||||||||
Total
|
$ | 165,320 | $ | 457,617 | $ | 443,583 |
(a)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which
was previously a component of the All Other Category, is now reported
separately.
|
Information
by Geographic Area (a)
|
||||||||||||||||||||||||
Revenues
from Unaffiliated Customers
|
Net
Property, Plant and Equipment
|
|||||||||||||||||||||||
Twelve
Months Ended December 31,
|
||||||||||||||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
(b)
|
2009
|
2008
|
2007
|
||||||||||||||||||
United
States
|
$ | 1,010,076 | $ | 1,260,967 | $ | 1,152,623 | $ | 326,952 | $ | 361,071 | $ | 364,950 | ||||||||||||
United
Kingdom
|
436,039 | 677,598 | 746,261 | 205,681 | 225,368 | 312,375 | ||||||||||||||||||
All
Other
|
1,544,462 | 2,029,257 | 1,789,276 | 978,168 | 896,394 | 857,889 | ||||||||||||||||||
Totals
including Corporate
|
$ | 2,990,577 | $ | 3,967,822 | $ | 3,688,160 | $ | 1,510,801 | $ | 1,482,833 | $ | 1,535,214 |
(a)
|
Revenues
are attributed to individual countries based on the location of the
facility generating the revenue.
|
(b)
|
Excludes
the sales of the Gas Technologies Segment because the Segment was
reclassified to Discontinued
Operations.
|
- 99
-
Information
about Products and Services
|
||||||||||||
Revenues
from Unaffiliated Customers
|
||||||||||||
Twelve
Months Ended December 31,
|
||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
(a)
|
|||||||||
Product
Group
|
||||||||||||
Services
and equipment for infrastructure construction and
maintenance
|
$ | 1,159,200 | $ | 1,540,258 | $ | 1,415,873 | ||||||
On-site
services to metal producers
|
1,084,826 | 1,577,720 | 1,522,274 | |||||||||
Railway
track maintenance services and equipment
|
306,016 | 277,595 | 232,402 | |||||||||
Heat
exchangers
|
129,365 | 174,513 | 152,493 | |||||||||
Minerals
and recycling technologies (b)
|
104,028 | 127,140 | 123,240 | |||||||||
Industrial
grating products
|
92,903 | 149,168 | 130,919 | |||||||||
Industrial
abrasives and roofing granules
|
68,244 | 74,118 | 68,165 | |||||||||
Heat
transfer products
|
45,755 | 47,070 | 42,778 | |||||||||
General
Corporate
|
240 | 240 | 16 | |||||||||
Consolidated
Revenues
|
$ | 2,990,577 | $ | 3,967,822 | $ | 3,688,160 |
(a)
|
Excludes
the sales of the Gas Technologies Segment because the Segment was
reclassified to Discontinued
Operations.
|
(b)
|
Acquired
February 2007.
|
15.
|
Other
(Income) and Expenses
|
During
2009, 2008 and 2007, the Company recorded pre-tax Other (income) and expenses
from continuing operations of $7.6 million, $22.0 million and $3.4 million,
respectively. The major components of this income statement category
are as follows:
Other
(Income) and Expenses
|
|||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
||||||||||
Net
gains
|
$ | (8,047 | ) | $ | (15,923 | ) | $ | (5,591 | ) | ||||
Impaired
asset write-downs
|
1,494 | 12,588 | 903 | ||||||||||
Employee
termination benefit costs
|
10,931 | 19,027 | 6,552 | ||||||||||
Costs
to exit activities
|
4,297 | 5,269 | 1,278 | ||||||||||
Other
(income) expense
|
(1,114 | ) | 989 | 301 | |||||||||
Total
|
$ | 7,561 | $ | 21,950 | $ | 3,443 |
Net
Gains
Net gains
are recorded from the sales of redundant properties (primarily land, buildings
and related equipment) and non-core assets. In 2009, gains related to
assets sold principally in the United States, the United Kingdom and Western
Europe. In 2008, gains related to assets sold principally in the
United States, Australia and the United Kingdom, and in 2007, in the United
States.
Net
Gains
|
|||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
||||||||||
Harsco
Infrastructure Segment
|
$ | (4,641 | ) | $ | (10,399 | ) | $ | (2,342 | ) | ||||
Harsco
Metals Segment
|
(3,427 | ) | (4,538 | ) | (3 | ) | |||||||
All
Other Category - Harsco Minerals
& Harsco Industrial (a)
|
21 | (986 | ) | (3,246 | ) | ||||||||
Total
|
$ | (8,047 | ) | $ | (15,923 | ) | $ | (5,591 | ) |
(a)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which
was previously a component of the All Other Category, is not included
since there was no activity for this
segment.
|
- 100
-
Cash
proceeds associated with these gains are included in Proceeds from the sale of
assets in the investing activities section of the Consolidated Statements of
Cash Flows.
Impaired
Asset Write-downs
Impairment
losses are measured as the amount by which the carrying amount of assets
exceeded their fair value. Fair value is estimated based upon the
expected future realizable cash flows including anticipated selling
prices. Non-cash impaired asset write-downs are included in Other,
net in the Consolidated Statements of Cash Flows as adjustments to reconcile net
income to net cash provided by operating activities. In 2009,
impaired asset write-downs of $1.5 million were recorded principally in the
Harsco Metals Segment in the United Kingdom. In 2008, impaired asset
write-downs of $12.6 million were recorded principally in the Harsco Metals
Segment due to contract terminations and costs associated with existing
underperforming contracts. Impaired asset write-downs related to
assets principally in Australia, the United Kingdom and the United
States.
Employee
Termination Benefit Costs
Costs and
the related liabilities associated with involuntary termination costs associated
with one-time benefit arrangements provided as part of an exit or disposal
activity are recognized by the Company when a formal plan for reorganization is
approved at the appropriate level of management and communicated to the affected
employees. Additionally, costs associated with ongoing benefit
arrangements, or in certain countries where statutory requirements dictate a
minimum required benefit, are recognized when they are probable and
estimable.
The total
amount of employee termination benefit costs incurred for the years 2009, 2008
and 2007 is presented in the table below. The terminations in 2009
related primarily to actions implemented in Western Europe, North America and
South America. The terminations in 2008 related primarily to the
fourth quarter 2008 restructuring program and occurred globally, primarily in
Western Europe and the United States. The terminations in 2007
occurred principally in Europe and the United States.
Employee
Termination Benefit Costs
|
||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Harsco
Infrastructure Segment
|
$ | 2,352 | $ | 5,317 | $ | 1,130 | ||||||
Harsco
Metals Segment
|
7,172 | 11,961 | 4,935 | |||||||||
Harsco
Rail Segment (a)
|
246 | 492 | 276 | |||||||||
All
Other Category - Harsco Minerals & Harsco Industrial
(a)
|
1,129 | 1,156 | 106 | |||||||||
Corporate
|
32 | 101 | 105 | |||||||||
Total
|
$ | 10,931 | $ | 19,027 | $ | 6,552 |
(a)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which
was previously a component of the All Other Category, is now reported
separately.
|
Costs
Associated with Exit or Disposal Activities
Costs
associated with exit or disposal activities are recognized as
follows:
·
|
Costs
to terminate a contract that is not a capital lease are recognized when an
entity terminates the contract or when an entity ceases using the right
conveyed by the contract. This includes the costs to terminate
the contract before the end of its term or the costs that will continue to
be incurred under the contract for its remaining term without economic
benefit to the entity (e.g., lease run-out
costs).
|
·
|
Other
costs associated with exit or disposal activities (e.g., costs to
consolidate or close facilities and relocate equipment or employees) are
recognized and measured at their fair value in the period in which the
liability is incurred.
|
In 2009,
$4.3 million of exit costs were incurred, principally related to relocation
costs for Western Europe, North America and Asia-Pacific. In 2008,
$5.3 million of exit costs were incurred, principally lease run-out costs
and relocation costs for Corporate, and the Harsco Infrastructure and Harsco
Metals Segments. In 2007, exit costs of $1.3 million principally
related to relocation costs, lease run-out costs and lease termination
costs.
- 101
-
Costs
Associated with Exit or Disposal Activities
|
|||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
||||||||||
Harsco
Infrastructure Segment
|
$ | 1,720 | $ | 1,724 | $ | 803 | |||||||
Harsco
Metals Segment
|
2,519 | 1,092 | 375 | ||||||||||
All
Other Category - Harsco Minerals & Harsco Industrial
(a)
|
58 | 5 | 100 | ||||||||||
Corporate
|
— | 2,448 | — | ||||||||||
Total
|
$ | 4,297 | $ | 5,269 | $ | 1,278 |
(a)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which
was previously a component of the All Other Category, is not included
since there was no activity for this
segment.
|
See Note
17, “2008 Restructuring Program,” for additional information on net gains,
impaired asset write-downs, employee termination benefit costs and costs
associated with exit and disposal activities.
16.
|
Components
of Accumulated Other Comprehensive Income
(Loss)
|
Total
Accumulated other comprehensive income (loss) is included in the Consolidated
Statements of Stockholders’ Equity. The components of Accumulated
other comprehensive income (loss) are as follows:
Accumulated
Other Comprehensive Income (Loss) – Net of Tax
|
|||||||||
|
|||||||||
December
31
|
|||||||||
(In
thousands)
|
2009
|
2008
|
|||||||
Cumulative
foreign exchange translation adjustments
|
$ | 118,097 | $ | 21,295 | |||||
Fair
value of effective cash flow hedges
|
(9,040 | ) | 21,001 | ||||||
Pension
liability adjustments
|
(310,686 | ) | (250,536 | ) | |||||
Unrealized
loss on marketable securities
|
(55 | ) | (59 | ) | |||||
Total
Accumulated other comprehensive income (loss)
|
$ | (201,684 | ) | $ | (208,299 | ) |
17.
|
2008
Restructuring Program
|
As a
result of the deepening financial and economic crisis, the Company initiated a
restructuring program in the fourth quarter of 2008. The program was
designed to improve organizational efficiency and enhance profitability and
shareholder value by generating sustainable operating expense
savings. Under this program, the Company principally exited certain
underperforming contracts with customers, closed certain facilities and reduced
the global workforce. Restructuring costs were incurred primarily in
the Harsco Metals and Harsco Infrastructure Segments and recorded in the Other
(income) expense line of the Condensed Consolidated Income
Statements. In the fourth quarter of 2008, the Company recorded net
pre-tax restructuring and other related charges totaling $36.1 million,
including $28.0 million in Other expense, $5.8 million reduction in services
revenue, a net $1.5 million related to pension curtailments and $0.8 million of
other costs. Restructuring actions are expected to be completed by
March 31, 2010.
At
December 31, 2009, the Company has completed workforce reductions of 1,300
employees of a total expected workforce reduction of 1,429 employees related to
the fourth quarter 2008 restructuring program. The majority of the
remaining workforce reductions and exit activities relate to the Harsco Metals
Segment and are targeted for completion during the first quarter of
2010. These restructuring activities were not completed in 2009 due
to continued negotiations with labor unions and customers that resulted in
changes to estimates of the amount of restructuring costs and the timing of
their settlement.
- 102
-
The
restructuring accrual at December 31, 2009 and the activity for the year then
ended attributable to each segment is as follows:
2008
Restructuring Program
|
||||||||||||||||
(In
thousands)
|
Accrual
December
31
2008
|
Adjustments
to Previously
Recorded
Restructuring Charges (a)
|
Cash
Expenditures
|
Remaining
Accrual
December
31
2009
|
||||||||||||
Harsco
Infrastructure Segment
|
||||||||||||||||
Employee
termination benefit costs
|
$ | 1,806 | $ | 215 | $ | (1,899 | ) | $ | 122 | |||||||
Cost
to exit activities
|
1,963 | (1,136 | ) | (827 | ) | — | ||||||||||
Total
Harsco Infrastructure Segment
|
3,769 | (921 | ) | (2,726 | ) | 122 | ||||||||||
Harsco
Metals Segment
|
||||||||||||||||
Employee
termination benefit costs
|
9,888 | 945 | (7,516 | ) | 3,317 | |||||||||||
Cost
to exit activities
|
656 | (150 | ) | (320 | ) | 186 | ||||||||||
Total
Harsco Metals Segment
|
10,544 | 795 | (7,836 | ) | 3,503 | |||||||||||
All
Other Category - Harsco Minerals & Harsco Industrial
(b)
|
||||||||||||||||
Employee
termination benefit costs
|
531 | 215 | (746 | ) | — | |||||||||||
Total
All Other Category - Harsco Minerals & Harsco
Industrial
|
531 | 215 | (746 | ) | — | |||||||||||
Corporate
|
||||||||||||||||
Employee
termination benefit costs
|
113 | — | (113 | ) | — | |||||||||||
Cost
to exit activities
|
2,448 | (1,171 | ) | (1,277 | ) | — | ||||||||||
Total
Corporate
|
2,561 | (1,171 | ) | (1,390 | ) | — | ||||||||||
Total
|
$ | 17,405 | $ | (1,082 | ) | $ | (12,698 | ) | $ | 3,625 |
(a)
|
Adjustments
to previously recorded cost to exit activities resulted from changes in
facts and circumstances in the implementation of these
activities.
|
(b)
|
Segment
information for prior periods has been reclassified to conform with the
current presentation. The Harsco Rail operating segment, which
was previously a component of the All Other Category, is not included
since there was no activity for this
segment.
|
The
majority of the remaining cash expenditures of $3.6 million related to the 2008
actions are expected to be paid by March 31, 2010.
18. Subsequent
Events
The
Company’s management has evaluated all activity of the Company through February
23, 2010 (the issue date of the consolidated financial statements) and concluded
that subsequent events are properly reflected in the Company’s financial
statements and notes as required by standards for accounting and disclosure of
subsequent events.
- 103
-
(Unaudited)
(In
millions, except per share amounts)
|
2009
|
|||||||||||||||
Quarterly
|
First
|
Second
|
Third
|
Fourth
|
||||||||||||
Sales
|
$ | 696.9 | $ | 777.0 | $ | 744.2 | $ | 772.5 | ||||||||
Gross
profit (a)
|
160.0 | 204.3 | 189.6 | 184.5 | ||||||||||||
Net
income attributable to Harsco Corporation
|
18.6 | 40.6 | 20.2 | (b) | 39.4 | |||||||||||
Basic
earnings per common share attributable to Harsco
Corporation
|
||||||||||||||||
Continuing
operations
|
$ | 0.25 | $ | 0.52 | $ | 0.40 | $ | 0.50 | ||||||||
Discontinued
operations (c)
|
(0.02 | ) | (0.02 | ) | (0.15 | ) | (0.01 | ) | ||||||||
Basic
earnings per common share attributable to Harsco Corporation common
stockholders
|
$ | 0.23 | $ | 0.51 | (d) | $ | 0.25 | (b) | $ | 0.49 | ||||||
Diluted
earnings per common share attributable to Harsco
Corporation
|
||||||||||||||||
Continuing
operations
|
$ | 0.25 | $ | 0.52 | $ | 0.40 | $ | 0.50 | ||||||||
Discontinued
operations (c)
|
(0.02 | ) | (0.02 | ) | (0.15 | ) | (0.01 | ) | ||||||||
Diluted
earnings per common share attributable to Harsco Corporation common
stockholders
|
$ | 0.23 | $ | 0.50 | $ | 0.25 | (b) | $ | 0.49 | |||||||
|
||||||||||||||||
(In
millions, except per share amounts)
|
2008
|
|||||||||||||||
Quarterly
|
First
|
Second
|
Third
|
Fourth
|
||||||||||||
Sales
|
$ | 987.8 | $ | 1,099.6 | $ | 1,044.9 | $ | 835.5 | ||||||||
Gross
profit (a)
|
256.8 | 307.8 | 282.6 | 194.2 | ||||||||||||
Net
income attributable to Harsco Corporation
|
57.0 | 89.9 | 80.3 | 13.7 | (e) | |||||||||||
Basic
earnings per common share attributable to Harsco
Corporation
|
||||||||||||||||
Continuing
operations
|
$ | 0.67 | $ | 1.07 | $ | 1.00 | $ | 0.18 | ||||||||
Discontinued operations
(c)
|
0.00 | (0.01 | ) | (0.04 | ) | (0.01 | ) | |||||||||
Basic
earnings per common share attributable to Harsco Corporation common
stockholders
|
$ | 0.68 | (d) | $ | 1.07 | (d) | $ | 0.95 | (d) | $ | 0.17 | (e) | ||||
Diluted
earnings per common share attributable to Harsco
Corporation
|
||||||||||||||||
Continuing
operations
|
$ | 0.67 | $ | 1.07 | $ | 0.99 | $ | 0.18 | ||||||||
Discontinued operations
(c)
|
0.00 | (0.01 | ) | (0.04 | ) | (0.01 | ) | |||||||||
Diluted
earnings per common share attributable to Harsco Corporation common
stockholders
|
$ | 0.67 | $ | 1.06 | $ | 0.95 | $ | 0.17 | (e) |
(a)
|
Gross
profit is defined as Sales less costs and expenses associated directly
with or allocated to products sold or services
rendered.
|
(b)
|
In
the third quarter of 2009, the Company recorded a net non-cash charge of
$0.11 per basic and diluted share for adjustments related principally to
the improper recording of revenue by one business unit in one country,
over a period of approximately three years. Previously issued
financial statements were not revised based on the Company’s determination
that the cumulative effect was not material to the full-year 2009 results
or previously issued annual or quarterly financial
statements.
|
(c)
|
Discontinued
operations related principally to the Gas Technologies Segment which was
sold in the fourth quarter of 2007. In the third quarter of
2009, the Company recorded an after-tax loss of $11.8 million, or $0.15
per basic and diluted share, related to the settlement of working capital
adjustment claims and other costs associated with arbitration
proceedings.
|
(d)
|
Does
not total due to rounding.
|
(e)
|
In
the fourth quarter of 2008, the Company recorded after–tax restructuring
charges of $23.1 million, or $0.28 per basic and diluted
share.
|
- 104
-
Common
Stock Price and Dividend Information
(Unaudited)
Market Price Per Share
|
Dividends
Declared
|
||||||||||||
High
|
Low
|
Per
Share
|
|||||||||||
2009
|
|||||||||||||
First
Quarter
|
$ | 31.65 | $ | 16.90 | $ | 0.2000 | |||||||
Second
Quarter
|
32.07 | 21.39 | 0.2000 | ||||||||||
Third
Quarter
|
36.33 | 26.69 | 0.2000 | ||||||||||
Fourth
Quarter
|
37.65 | 29.38 | 0.2050 | ||||||||||
2008
|
|||||||||||||
First
Quarter
|
$ | 64.50 | $ | 46.10 | $ | 0.1950 | |||||||
Second
Quarter
|
64.75 | 53.75 | 0.1950 | ||||||||||
Third
Quarter
|
56.32 | 33.50 | 0.1950 | ||||||||||
Fourth
Quarter
|
37.41 | 17.55 | 0.1950 |
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosures.
|
None.
Item
9A.
|
Controls
and Procedures.
|
The
Company’s management, including the Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of disclosure controls and
procedures as of December 31, 2009. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective. There have been no
changes in internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, internal control over
financial reporting during the fourth quarter of 2009.
Management’s
Report on Internal Controls Over Financial Reporting is included in Part II,
Item 8, “Financial Statements and Supplementary Data.” The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report
appearing in Part II, Item 8, “Financial Statements and Supplementary Data,”
which expresses an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of December 31,
2009.
Item
9B.
|
Other
Information.
|
None.
- 105
-
PART
III
Information
regarding executive officers required by this Item is set forth as a
Supplementary Item at the end of Part I hereof (pursuant to Instruction 3 to
Item 401(b) of Regulation S-K). Other information required by this
Item is incorporated by reference to the sections entitled “Corporate
Governance,” “Nominees for Director,” “Report of the Audit Committee” and
“Section 16(a) Beneficial Ownership Reporting Compliance” of the 2010 Proxy
Statement.
The
Company’s Code of Ethics for the Chief Executive Officer and Senior Financial
Officers (the “Code”) may be found on the Company’s Internet website,
www.harsco.com. The Company intends to disclose on its website any
amendments to the Code or any waiver from a provision of the
Code. The Code is available in print to any stockholder who requests
it.
Information
regarding compensation of executive officers and directors is incorporated by
reference to the following sections of the 2010 Proxy Statement:
·
|
Compensation
Discussion and Analysis,
|
·
|
Compensation
Committee Report,
|
·
|
Executive
Compensation,
|
·
|
Non-Employee
Director Compensation, and
|
·
|
Compensation
Committee Interlocks and Insider
Participation.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
Information
regarding security ownership of certain beneficial owners and management is
incorporated by reference to the section entitled “Share Ownership of Directors,
Management and Certain Beneficial Owners” of the 2010 Proxy
Statement.
Equity
Compensation Plan Information
The
Company maintains the 1995 Executive Incentive Compensation Plan, as amended,
and the 1995 Non-Employee Directors’ Stock Plan, as amended, which allow the
Company to grant equity awards to eligible persons.
The
following table gives information about equity awards under these plans as of
December 31, 2009. All securities referred to are shares of Harsco
common stock.
Equity
Compensation Plan Information
|
||||||||||||
Column
(a)
|
Column
(b)
|
Column
(c)
|
||||||||||
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in Column
(a))
|
|||||||||
Equity
compensation plans approved by security holders (1)
|
619,461 | $ | 22.62 | (2) | 2,433,952 | |||||||
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
Total
|
619,461 | $ | 22.62 | 2,433,952 |
(1)
|
Plans
include the 1995 Executive Incentive Compensation Plan, as amended, and
the 1995 Non-Employee Directors’ Stock Plan, as
amended.
|
(2)
|
Includes
the average of the weighted average exercise price for stock options and
the weighted average grant-date fair value for the restricted stock
units.
|
- 106
-
Information
regarding certain relationships and related transactions is incorporated by
reference to the sections entitled "Transactions with Related Persons" and
“Corporate Governance” of the 2010 Proxy Statement.
Item
14.
|
Principal
Accounting Fees and Services.
|
Information
regarding principal accounting fees and services is incorporated by reference to
the sections entitled “Report of the Audit Committee” and “Fees Billed by the
Independent Auditors for Audit and Non-Audit Services” of the 2010 Proxy
Statement.
- 107
-
PART
IV
(a)
|
1. The
Consolidated Financial Statements are listed in the index to Item 8,
"Financial Statements and Supplementary Data," on page
51.
|
(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
|
|
Schedule II - Valuation and
Qualifying Accounts for the years 2009, 2008 and 2007
|
109
|
Schedules
other than that 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 "restricted net
assets" of consolidated subsidiaries does not exceed 25% of consolidated
net assets.
|
|
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.
|
- 108
-
Continuing
Operations
(In
thousands)
COLUMN A
|
COLUMN B
|
COLUMN C
Additions
|
COLUMN D
Additions (Deductions)
|
COLUMN E
|
||||||||||||||||
Description
|
Balance
at Beginning of Period
|
Charged
to Cost and Expenses
|
Due
to Currency Translation Adjustments
|
Other
|
Balance
at End of Period
|
|||||||||||||||
For
the year 2009:
|
||||||||||||||||||||
Allowance
for Doubtful Accounts
|
$ | 27,853 | $ | 9,318 | $ | 694 | $ | (13,370 | ) (a) | $ | 24,495 | |||||||||
Deferred
Tax Assets – Valuation Allowance
|
$ | 21,459 | $ | (980 | ) | $ | (75 | ) | $ | 2,340 | $ | 22,744 | ||||||||
For
the year 2008:
|
||||||||||||||||||||
Allowance
for Doubtful Accounts
|
$ | 25,580 | $ | 12,493 | $ | (2,666 | ) | $ | (7,554 | ) (a) | $ | 27,853 | ||||||||
Deferred
Tax Assets – Valuation Allowance
|
$ | 15,318 | $ | 241 | $ | (804 | ) | $ | 6,704 | (b) | $ | 21,459 | ||||||||
For
the year 2007:
|
||||||||||||||||||||
Allowance
for Doubtful Accounts
|
$ | 25,351 | $ | 7,842 | $ | 992 | $ | (8,605 | ) (a) | $ | 25,580 | |||||||||
Deferred
Tax Assets – Valuation Allowance
|
$ | 13,892 | $ | (353 | ) | $ | 372 | $ | 1,407 | $ | 15,318 | |||||||||
(a)
|
Includes
principally the utilization of previously reserved
amounts.
|
(b)
|
Includes
principally valuation allowance established against the deferred tax asset
related to a net investment hedge.
|
- 109
-
(a) 3. Listing
of Exhibits Filed with Form 10-K
Exhibit
Number
|
Data Required
|
Location in Form 10-K
|
2(a)
|
Share
Purchase Agreement between Sun HB Holdings, LLC, Boca Raton, Florida,
United States of America and Harsco Corporation, Camp Hill, Pennsylvania,
United States of America dated September 20, 2005 regarding the sale and
purchase of the issued share capital of Hünnebeck Group GmbH, Ratingen,
Germany.
|
Exhibit
to Form 10-Q for the period ended September 30, 2005
|
2(b)
|
Agreement,
dated as of December 29, 2005, by and among the Harsco Corporation (for
itself and as agent for each of MultiServ France SA, Harsco Europa BV and
Harsco Investment Limited), Brambles U.K. Limited, a company incorporated
under the laws of England and Wales, Brambles France SAS, a company
incorporated under the laws of France, Brambles USA, Inc., a Delaware
corporation, Brambles Holdings Europe B.V., a company incorporated under
the laws of the Netherlands, and Brambles Industries Limited, a company
incorporated under the laws of Australia. In accordance with
Item 601(b)(2) of Regulation S-K, the registrant hereby agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon
request. Portions of Exhibit 2(a) have been omitted pursuant to
a request for confidential treatment. The omitted portions have
been filed separately with the Securities and Exchange
Commission.
|
Exhibit
volume, 2005 Form 10-K
|
2(c)
|
Stock
Purchase Agreement among Excell Materials, Inc., the Stockholders of
Excell Materials, Inc. and Harsco Corporation dated as of January 4,
2007.
|
Exhibit
volume, 2006 Form 10-K
|
2(d)
|
Asset
and Stock Purchase Agreement By and Between Harsco Corporation and
Taylor-Wharton International LLC dated as of November 28,
2007
|
Exhibit
volume, 2007 Form 10-K
|
3(a)
|
Restated
Certificate of Incorporation as amended April 24,
1990
|
Exhibit
volume, 1990 Form 10-K
|
3(b)
|
Certificate
of Amendment of Restated Certificate of Incorporation filed June 3,
1997
|
Exhibit
volume, 1999 Form 10-K
|
3(c)
|
Certificate
of Designation filed September 25, 1997
|
Exhibit
volume, 1997 Form 10-K
|
3(d)
|
By-laws
as amended January 23, 2007
|
Exhibit
to Form 8-K dated January 23, 2007
|
3(e)
|
Certificate
of Amendment of Restated Certificate of Incorporation filed April 26,
2005
|
Proxy
Statement dated March 22, 2005 on Appendix A pages A-1 through
A-2
|
- 110
-
Exhibit
Number
|
Data
Required
|
Location
in Form 10-K
|
4(a)
|
Harsco
Corporation Rights Agreement dated as of September 25, 2007, with Chase
Mellon Shareholder Services L.L.C.
|
Incorporated
by reference to Form 8-A, filed September 26, 2007
|
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 Purchase
Rights
|
Incorporated
by reference to Form 8-K dated September 25, 2007
|
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 due
2010
|
Exhibit
to Form 10-Q for the period ended September 30, 2000
|
4(h)
(i)
|
Indenture,
dated as of May 1, 1985, by and between Harsco Corporation and The Chase
Manhattan Bank (National Association), as trustee (incorporated herein by
reference to Exhibit 4(d) to the Registration Statement on Form S-3, filed
by Harsco Corporation on August 23, 1991 (Reg. No.
33-42389))
|
Exhibit
to Form 8-K dated September 8, 2003
|
4(h)
(ii)
|
First
Supplemental Indenture, dated as of April 12, 1995, by and among Harsco
Corporation, The Chase Manhattan Bank (National Association), as resigning
trustee, and Chemical Bank, as successor trustee
|
Exhibit
to Form 8-K dated September 8, 2003
|
4(h)
(iii)
|
Form
of Second Supplemental Indenture, by and between Harsco Corporation and
JPMorgan Chase Bank, as Trustee
|
Exhibit
to Form 8-K dated September 8, 2003
|
4(h)
(iv)
|
Second
Supplemental Indenture, dated as of September 12, 2003, by and
between Harsco Corporation and J.P. Morgan Chase Bank, as
Trustee
|
Exhibit
to Form 10-Q for the period ended September 30, 2003
|
4(i)
(i)
|
Form
of 5.125% Global Senior Note due September 15, 2013
|
Exhibit
to Form 8-K dated September 8, 2003
|
4(i)
(ii)
|
5.125%
2003 Notes due September 15, 2013 described in Prospectus Supplement dated
September 8, 2003 to Form S-3 Registration under Rule 415 dated
December 15, 1994
|
Incorporated
by reference to the Prospectus Supplement dated September 8, 2003 to Form
S-3, Registration No. 33-56885 dated December 15,
1994
|
- 111
-
Exhibit
Number
|
Data
Required
|
Location
in Form 10-K
|
4(j)
|
5.75%
Senior Notes due 2018 described in Prospectus Supplement dated May 12,
2008 to Form S-3ASR Registration dated May 12, 2008
|
Incorporated
by reference to the Prospectus Supplement dated May 12, 2008 to Form S-3,
Registration No. 333-150825 dated May 12, 2008
|
Material
Contracts - Credit and Underwriting Agreements
|
||
10(a)
(i)
|
$50,000,000
Facility agreement dated December 15, 2000
|
Exhibit
volume, 2000 Form 10-K
|
10(a)
(ii)
|
Agreement
extending term of $50,000,000 Facility agreement dated December 15,
2000
|
Exhibit
volume, 2001 Form 10-K
|
10(a)
(iii)
|
Agreement
amending term and amount of $50,000,000 Facility agreement dated December
15, 2000
|
Exhibit
volume, 2002 Form 10-K
|
10(a)
(iv)
|
Agreement
extending term of $50,000,000 Facility agreement dated December 15,
2000
|
Exhibit
volume, 2003 Form 10-K
|
10(a)
(v)
|
Agreement
extending term of $50,000,000 Facility agreement dated December 15,
2000
|
Exhibit
to Form 8-K dated January 25, 2005
|
10(a)
(vi)
|
Agreement
extending term of $50,000,000 Facility agreement dated December 15,
2000
|
Exhibit
volume, 2005 Form 10-K
|
10(a)
(vii)
|
Agreement
extending term of $50,000,000 Facility agreement dated December 15,
2000
|
Exhibit
to Form 8-K dated December 22, 2006
|
10(a)
(viii)
|
Agreement
extending term of $50,000,000 Facility agreement dated December 15,
2000
|
Exhibit
to Form 8-K dated February 4, 2008
|
10(a)
(ix)
|
Agreement
extending term of Facility agreement dated December 15, 2000 and reducing
the amount to $30,000,000
|
Exhibit
to Form 8-K dated December 22, 2008
|
10(a)
(x)
|
Agreement
extending term of Facility agreement dated December 15, 2000 in the amount
of $30,000,000
|
Exhibit
volume, 2009 Form 10-K
|
10(b)
|
Commercial
Paper Dealer Agreement dated September 24, 2003, between ING Belgium SA/NV
and Harsco Finance B.V.
|
Exhibit
volume, 2003 Form 10-K
|
- 112
-
Exhibit
Number
|
Data
Required
|
Location
in Form 10-K
|
10(b)(i)
|
Commercial
Paper Dealer Agreement dated September 24, 2003, between ING Belgium SA/NV
and Harsco Finance B.V. – Supplement No. 1 to the Dealer
Agreement
|
Exhibit
to Form 8-K dated November 8, 2005
|
10(c)
|
Commercial
Paper Payment Agency Agreement Dated October 1, 2000, between Salomon
Smith Barney Inc. and Harsco Corporation
|
Exhibit
volume, 2000 Form 10-K
|
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 Form 10-K
|
10(f)
|
364-Day
Credit Agreement
|
Exhibit
to Form 10-Q for the period ended
September
30, 2008
|
10(g)
|
Three-Year
Credit Agreement
|
Exhibit
to Form 8-K dated December 23, 2009
|
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.
|
Exhibit
to Form 10-Q for the period ended
June
30, 2001
|
Material
Contracts - Management Contracts and Compensatory Plans
|
||
10(d)
|
Form
of Change in Control Severance Agreement (CEO)
|
Exhibit
volume, 2008 Form 10-K
|
10(k)
|
Harsco
Corporation Supplemental Retirement Benefit Plan as amended and restated
January 1, 2009
|
Exhibit
volume, 2008 Form 10-K
|
10(l)
|
Trust
Agreement between Harsco Corporation and Dauphin Deposit Bank and Trust
Company dated July 1, 1987 relating to the Supplemental Retirement Benefit
Plan
|
Exhibit
volume, 1987 Form 10-K
|
10(m)
|
Harsco
Corporation Supplemental Executive Retirement Plan as
amended
|
Exhibit
volume, 1991 Form 10-K
|
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 Form 10-K
|
10(o)
(i)
|
Harsco
Corporation 1995 Executive Incentive Compensation Plan As Amended and
Restated
|
Proxy
Statement dated March 23, 2004 on Exhibit B pages B-1 through
B-15
|
- 113
-
Exhibit
Number
|
Data
Required
|
Location
in Form 10-K
|
10(o)
(ii)
|
Amendment
No. 1 to the Harsco Corporation 1995 Executive Incentive Compensation
Plan
|
Exhibit
volume, 2008 Form 10-K
|
10(p)
|
Authorization,
Terms and Conditions of the Annual Incentive Awards, as Amended and
Restated April 27, 2004, under the 1995 Executive Incentive Compensation
Plan
|
Exhibit
to Form 8-K dated March 23, 2006
|
10(q)
|
Authorization,
Terms and Conditions of Other Performance Awards under the Harsco
Corporation 1995 Executive Incentive Compensation Plan (as amended and
restated)
|
Exhibit
to Form 8-K dated March 22, 2007
|
10(r)
|
Special
Supplemental Retirement Benefit Agreement for
D. C. Hathaway
|
Exhibit
Volume, 1988 Form 10-K
|
10(s)
|
Harsco
Corporation Form of Restricted Stock Units Agreement
(Directors)
|
Exhibit
to Form 8-K dated April 26, 2005
|
10(u)
|
Harsco
Corporation Deferred Compensation Plan for Non-Employee Directors (as
Amended and Restated as of December 31, 2008)
|
Exhibit
Volume, 2008 Form 10-K
|
10(v)
(i)
|
Harsco
Corporation 1995 Non-Employee Directors' Stock Plan As Amended and
Restated at January 27, 2004
|
Proxy
Statement dated March 23, 2004 on Exhibit A pages A-1 through
A-9
|
10(v)
(ii)
|
Amendment
No. 1 to the Harsco Corporation 1995 Non-Employee Directors’ Stock
Plan
|
Exhibit
volume, 2008 Form 10-K
|
10(w)
|
Restricted
Stock Units Agreement for International Employees
|
Exhibit
volume, 2007 Form 10-K
|
10(x)
|
Settlement
and Consulting Agreement
|
Exhibit
to Form 10-Q for the period ended March 31, 2003
|
10(y)
|
Restricted
Stock Units Agreement
|
Exhibit
to Form 8-K dated January 23, 2007
|
10(aa)
|
Harsco
Non-Qualified Retirement Savings & Investment Plan Part B – Amendment
and Restatement as of January 1, 2009
|
Exhibit
volume, 2008 Form 10-K
|
10(ab)
|
Form
of Change in Control Severance Agreement (Non-CEO)
|
Exhibit
volume, 2008 Form 10-K
|
- 114
-
Exhibit
Number
|
Data
Required
|
Location
in Form 10-K
|
Director
Indemnity Agreements -
|
||
10(t)
|
A.
J. Sordoni, III
|
Exhibit
volume, 1989 Form 10-K Uniform agreement, same as shown for J. J.
Burdge
|
"
|
R.
C. Wilburn
|
" "
|
"
|
J.
I. Scheiner
|
" "
|
"
|
D.
H. Pierce
|
" "
|
"
|
K.
G. Eddy
|
Exhibit
to Form 8-K dated August 27, 2004
|
"
|
T.
D. Growcock
|
Exhibit
to Form 8-K dated August 27, 2004, same as shown for K. G.
Eddy
|
"
|
H.W.
Knueppel
|
" "
|
"
|
S.E.
Graham
|
" "
|
12
|
Computation
of Ratios of Earnings to Fixed Charges
|
Exhibit
volume, 2009 Form 10-K
|
21
|
Subsidiaries
of the Registrant
|
Exhibit
volume, 2009 Form 10-K
|
23
|
Consent
of Independent Registered Public Accounting Firm
|
Exhibit
volume, 2009 Form 10-K
|
31(a)
|
Certification
Pursuant to Rule 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer)
|
Exhibit
volume, 2009 Form 10-K
|
31(b)
|
Certification
Pursuant to Rule 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer)
|
Exhibit
volume, 2009 Form 10-K
|
32
|
Certifications
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief
Financial Officer)
|
Exhibit
volume, 2009 Form 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.
- 115
-
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HARSCO
CORPORATION
|
|||
(Registrant)
|
|||
Date
|
2-23-2010
|
/S/
Stephen J. Schnoor
|
|
Stephen
J. Schnoor
|
|||
Senior
Vice President and
Chief
Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
Capacity
|
Date
|
|
/S/
|
Salvatore
D. Fazzolari
|
Chairman,
Chief Executive Officer
|
2-23-2010
|
(Salvatore
D. Fazzolari)
|
and
Director
|
||
/S/
|
Geoffrey
D. H. Butler
|
President
Harsco Corporation,
|
2-23-2010
|
(Geoffrey
D. H. Butler)
|
CEO
Harsco Infrastructure and Director
|
||
/S/
|
Stephen
J. Schnoor
|
Senior
Vice President and
|
2-23-2010
|
(Stephen
J. Schnoor)
|
Chief
Financial Officer
(Principal
Financial Officer)
|
||
/S/
|
Richard
M. Wagner
|
Vice
President and Controller
|
2-23-2010
|
(Richard
M. Wagner)
|
(Principal
Accounting Officer)
|
||
/S/
|
Kathy
G. Eddy
|
Director
|
2-23-2010
|
(Kathy
G. Eddy)
|
|||
/S/
|
Stuart
E. Graham
|
Director
|
2-23-2010
|
(Stuart
E. Graham)
|
|||
/S/
|
Terry
D. Growcock
|
Director
|
2-23-2010
|
(Terry
D. Growcock)
|
|||
/S/
|
Henry
W. Knueppel
|
Director
|
2-23-2010
|
(Henry
W. Knueppel)
|
|||
/S/
|
D.
Howard Pierce
|
Director
|
2-23-2010
|
(D.
Howard Pierce)
|
|||
/S/
|
James
I. Scheiner
|
Director
|
2-23-2010
|
(James
I. Scheiner)
|
|||
/S/
|
Andrew
J. Sordoni, III
|
Director
|
2-23-2010
|
(Andrew
J. Sordoni, III)
|
|||
/S/
|
Dr.
Robert C. Wilburn
|
Director
|
2-23-2010
|
(Dr.
Robert C. Wilburn)
|
- 116
-