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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950123-01-505462.txt : 20010814
<SEC-HEADER>0000950123-01-505462.hdr.sgml : 20010814
ACCESSION NUMBER:		0000950123-01-505462
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20010630
FILED AS OF DATE:		20010813

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			HARSCO CORP
		CENTRAL INDEX KEY:			0000045876
		STANDARD INDUSTRIAL CLASSIFICATION:	FABRICATED STRUCTURAL METAL PRODUCTS [3440]
		IRS NUMBER:				231483991
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-03970
		FILM NUMBER:		1706835

	BUSINESS ADDRESS:	
		STREET 1:		P O BOX 8888
		CITY:			CAMP HILL
		STATE:			PA
		ZIP:			17001-8888
		BUSINESS PHONE:		7177637064

	MAIL ADDRESS:	
		STREET 1:		PO BOX 8888
		CITY:			CAMP HILL
		STATE:			PA
		ZIP:			17001-8888
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>y52239e10-q.txt
<DESCRIPTION>HARSCO CORPORATION
<TEXT>
<PAGE>   1


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[ X ]       QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended June 30, 2001
                                                 -------------
                                       OR

[   ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from _____ to ______

                          Commission File Number  1-3970
                                                ----------

                               HARSCO CORPORATION
- --------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                Delaware                             23-1483991
- --------------------------------------------------------------------------------
       (State of incorporation)         (I.R.S. Employer Identification No.)


          Camp Hill, Pennsylvania                       17001-8888
- --------------------------------------------------------------------------------
  (Address of principal executive offices)              (Zip Code)

Registrant's Telephone Number   (717) 763-7064
- --------------------------------------------------------------------------------


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  [ ]


<TABLE>
<CAPTION>
Title of Each Class                              Outstanding Shares at July 31, 2001
- -------------------                              -----------------------------------

<S>                                                          <C>
Common Stock Par Value $1.25                                     39,871,431
Preferred Stock Purchase Rights                                  39,871,431
</TABLE>


                                       -1-


<PAGE>   2


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                   CONDENSED CONSOLIDATED STATEMENT OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months Ended                Six Months Ended
                                                                          June 30                          June 30
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                           2001            2000             2001            2000
===============================================================================================================================
<S>                                                             <C>             <C>              <C>             <C>
REVENUES:
    Service sales (1)                                           $  332,185      $  256,328       $  657,249      $  487,577
    Product sales (1)                                              200,027         209,248          401,175         435,453
    Other                                                              132             236              558             439
- -------------------------------------------------------------------------------------------------------------------------------
      TOTAL REVENUES                                               532,344         465,812        1,058,982         923,469
- -------------------------------------------------------------------------------------------------------------------------------

COSTS AND EXPENSES:
    Cost of services sold (1)                                      237,635         190,453          475,278         369,547
    Cost of products sold (1)                                      160,893         165,635          329,052         349,360
    Selling, general, and administrative expenses                   79,937          56,265          163,303         110,059
    Research and development expenses                                  893           1,441            1,478           3,088
    Other expense (income)                                               2            (650)           4,042            (276)
- -------------------------------------------------------------------------------------------------------------------------------
      TOTAL COSTS AND EXPENSES                                     479,360         413,144          973,153         831,778
- -------------------------------------------------------------------------------------------------------------------------------

      OPERATING INCOME                                              52,984          52,668           85,829          91,691

Equity in income (loss) of affiliates, net                             190            (588)          (2,048)           (438)
Interest income                                                      1,197           1,262            2,419           2,450
Interest expense                                                   (14,262)         (8,727)         (28,818)        (16,217)
- -------------------------------------------------------------------------------------------------------------------------------

      INCOME BEFORE INCOME TAXES AND MINORITY INTEREST              40,109          44,615           57,382          77,486

Provision for income taxes                                          14,038          15,615           20,084          27,120
- -------------------------------------------------------------------------------------------------------------------------------

      INCOME BEFORE MINORITY INTEREST                               26,071          29,000           37,298          50,366


Minority interest in net income                                      1,366             769            2,452           1,933
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                      $   24,705      $   28,231       $   34,846      $   48,433
===============================================================================================================================

Average shares of common stock outstanding                          39,828          39,964           39,818          39,989

- -------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE                                 $      .62      $      .71       $      .88      $     1.21
===============================================================================================================================

Diluted average shares of common shares outstanding                 39,933          40,048           39,906          40,067

- -------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE                               $      .62      $      .70       $      .87      $     1.21
===============================================================================================================================

CASH DIVIDENDS DECLARED PER COMMON SHARE                        $      .24      $     .235       $      .48      $      .47
</TABLE>

(1) In order to comply with Emerging Issues Task Force (EITF) Issue No. 00-10,
    all shipping and handling costs have been classified as cost of services
    sold or as cost of products sold rather than as reductions of sales. The
    income statements for the three months and six months ended June 30, 2000
    have been reclassified to reflect this change. The reclassifications have no
    effect on previously reported operating income or net income for the three
    months and six months ended June 30, 2000.

See accompanying notes to consolidated financial statements.


                                       -2-


<PAGE>   3


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (Continued)

                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                               JUNE 30           December 31
(IN THOUSANDS)                                                                                   2001                2000
==================================================================================================================================
<S>                                                                                       <C>              <C>
ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                                              $     57,152        $     56,422
    Receivables, less allowance for doubtful accounts of
       $27,783 in 2001 and $26,078 in 2000                                                      436,711             413,654
    Inventories                                                                                 202,051             199,117
    Other current assets                                                                         54,830              57,222
- ----------------------------------------------------------------------------------------------------------------------------------
       TOTAL CURRENT ASSETS                                                                     750,744             726,415
- ----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost                                                        1,753,530           1,771,494
Allowance for depreciation                                                                      897,293             874,713
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                856,237             896,781
Cost in excess of net assets of businesses acquired, net                                        354,736             369,199
Other assets                                                                                    176,175             188,553
- ----------------------------------------------------------------------------------------------------------------------------------
       TOTAL ASSETS                                                                        $  2,137,892        $  2,180,948
==================================================================================================================================

LIABILITIES
CURRENT LIABILITIES:
    Notes payable and current maturities                                                   $     63,513        $     62,295
    Accounts payable                                                                            156,243             192,148
    Accrued compensation                                                                         39,182              46,591
    Income taxes                                                                                 40,956              34,783
    Other current liabilities                                                                   203,595             200,362
- ----------------------------------------------------------------------------------------------------------------------------------
       TOTAL CURRENT LIABILITIES                                                                503,489             536,179
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt                                                                                  769,287             774,450
Deferred income taxes                                                                            91,571              88,480
Other liabilities                                                                               105,734             107,660
- ----------------------------------------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES                                                                      1,470,081           1,506,769
- ----------------------------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital                                                     173,627             172,887
Accumulated other comprehensive income (expense)                                               (132,204)           (109,377)
Retained earnings                                                                             1,230,388           1,214,659
Treasury stock                                                                                 (604,000)           (603,990)
- ----------------------------------------------------------------------------------------------------------------------------------
       TOTAL SHAREHOLDERS' EQUITY                                                               667,811             674,179
- ----------------------------------------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                          $  2,137,892        $  2,180,948
==================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -3-
<PAGE>   4


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS (Continued)

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   SIX MONTHS ENDED
                                                                                                        JUNE 30
(IN THOUSANDS)                                                                                2001                  2000
- ----------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                      <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                            $    34,846           $    48,433
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Depreciation                                                                           79,508                64,651
       Amortization                                                                            8,718                 6,753
       Equity in (income) loss of affiliates, net                                              2,048                   438
       Dividends or distributions from affiliates                                                108                   587
       Deferred income taxes                                                                   4,843                 9,194
       Other, net                                                                              4,615                  (551)
       Changes in assets and liabilities, net of acquisitions and dispositions of
         businesses:
           Accounts receivable                                                               (32,211)                4,968
           Inventories                                                                        (7,087)              (18,332)
           Accounts payable                                                                  (22,072)               (4,976)
           Disbursements related to discontinued defense business                               (468)                 (617)
           Other assets and liabilities                                                       (5,235)              (18,869)
- ----------------------------------------------------------------------------------------------------------------------------------

       NET CASH PROVIDED BY OPERATING ACTIVITIES                                              67,613                91,679
- ----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment                                                (77,850)              (78,046)
   Proceeds from sale of property, plant and equipment                                        13,923                 2,402
   Purchase of business, net of cash acquired                                                 (4,880)             (263,711)
   Proceeds from sale of business                                                              3,650                 9,745
   Other investing activities                                                                     50                   101
- ----------------------------------------------------------------------------------------------------------------------------------

       NET CASH (USED) BY INVESTING ACTIVITIES                                               (65,107)             (329,509)
- ----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Short-term borrowings, net                                                                  6,891               268,561
   Current maturities and long-term debt:
     Additions                                                                               107,331                59,971
     Reductions                                                                              (90,188)              (46,212)
   Cash dividends paid on common stock                                                       (19,109)              (18,808)
   Common stock issued-options                                                                   659                   853
   Common stock acquired for treasury                                                            (50)               (3,768)
   Other financing activities                                                                 (2,280)               (3,114)
- ----------------------------------------------------------------------------------------------------------------------------------

       NET CASH PROVIDED BY FINANCING ACTIVITIES                                               3,254               257,483
- ----------------------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                                       (5,030)               (2,737)
- ----------------------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                                        730                16,916

Cash and cash equivalents at beginning of period                                              56,422                51,266
- ----------------------------------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                               $    57,152           $    68,182
==================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -4-


<PAGE>   5


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS (Continued)

                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                       JUNE 30                            JUNE 30
(IN THOUSANDS)                                                   2001             2000              2001             2000
===============================================================================================================================

<S>                                                          <C>              <C>               <C>              <C>
Net income                                                   $    24,705      $    28,231       $    34,846      $    48,433

Other comprehensive income (expense):
     Foreign currency translation adjustments                     (5,103)         (10,996)          (22,708)         (18,623)
     Net gains (losses) on cash flow hedging
       instruments, net of deferred income taxes                      36                -              (124)               -
     Pension liability adjustments, net of deferred
       income taxes                                                   (7)               -                 5                -

- -------------------------------------------------------------------------------------------------------------------------------
Other comprehensive (expense)                                     (5,074)         (10,996)          (22,827)         (18,623)
- -------------------------------------------------------------------------------------------------------------------------------

TOTAL COMPREHENSIVE INCOME                                   $    19,631      $    17,235       $    12,019      $    29,810
===============================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                      -5-


<PAGE>   6


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (Continued)

                         REVIEW OF OPERATIONS BY SEGMENT
                                   (Unaudited)

(IN MILLIONS)
<TABLE>
<CAPTION>
                                                                  MILL         GAS AND     S3NETWORKS     GENERAL    CONSOLIDATED
THREE MONTHS ENDED JUNE 30, 2001               INFRASTRUCTURE   SERVICES    FLUID CONTROL      LLC       CORPORATE      TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------

<S>                                               <C>             <C>          <C>            <C>          <C>          <C>
   NET SALES TO UNAFFILIATED CUSTOMERS            $ 225.8         $ 185.2      $ 121.2        $   -        $   -        $ 532.2
- ------------------------------------------------------------------------------------------------------------------------------------

   OPERATING INCOME                               $  23.3         $  21.6      $   8.1        $   -        $   -        $  53.0
   EQUITY IN INCOME (LOSS) OF AFFILIATES, NET         0.4             -            -             (0.2)         -            0.2
   INTEREST INCOME                                    0.1             1.0          0.1            -            -            1.2
   INTEREST EXPENSE                                  (8.9)           (2.5)        (0.5)           -           (2.4)       (14.3)
   INCOME TAX (EXPENSE) BENEFIT                      (6.1)           (6.1)        (2.7)           0.1          0.8        (14.0)
   MINORITY INTEREST IN NET INCOME                   (0.1)           (1.3)         -              -            -           (1.4)
- ------------------------------------------------------------------------------------------------------------------------------------

   SEGMENT NET INCOME (LOSS)                      $   8.7         $  12.7      $   5.0        $  (0.1)     $  (1.6)     $  24.7
====================================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                  MILL         GAS AND     S3NETWORKS     GENERAL    CONSOLIDATED
THREE MONTHS ENDED JUNE 30, 2000               INFRASTRUCTURE   SERVICES    FLUID CONTROL      LLC       CORPORATE      TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------

<S>                                               <C>             <C>          <C>            <C>          <C>          <C>
   Net sales to unaffiliated customers (1)        $ 138.3         $ 197.3      $ 130.0        $    -       $    -       $ 465.6
- ------------------------------------------------------------------------------------------------------------------------------------

   Operating income                               $  14.5         $  27.2      $  10.7        $    -       $   0.3      $  52.7
   Equity in income (loss) of affiliates, net          -              0.3           -            (0.9)          -          (0.6)
   Interest income                                    0.2             1.0           -              -            -           1.2
   Interest expense                                  (2.3)           (2.3)        (1.0)            -          (3.1)        (8.7)
   Income tax (expense) benefit                      (4.5)           (8.7)        (3.5)           0.3          0.8        (15.6)
   Minority interest in net income                   (0.1)           (0.7)          -              -            -          (0.8)
- ------------------------------------------------------------------------------------------------------------------------------------

   Segment net income (loss)                      $   7.8         $  16.8      $   6.2        $  (0.6)     $  (2.0)     $  28.2
====================================================================================================================================
</TABLE>

(1) In order to comply with Emerging Issues Task Force (EITF) Issue No. 00-10,
    all shipping and handling costs have been classified as cost of services
    sold or as cost of products sold rather than as reductions of sales. The
    income statement for the three months ended June 30, 2000 has been
    reclassified to reflect this change. The reclassification has no effect on
    previously reported operating income or net income for the three months
    ended June 30, 2000.

See accompanying notes to consolidated financial statements.


                                      -6-


<PAGE>   7


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (Continued)

                         REVIEW OF OPERATIONS BY SEGMENT
                                   (Unaudited)


<TABLE>
<CAPTION>
(IN MILLIONS)
                                                                  MILL        GAS AND    S3NETWORKS     GENERAL     CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 2001                 INFRASTRUCTURE   SERVICES   FLUID CONTROL     LLC       CORPORATE       TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------

<S>                                               <C>            <C>           <C>          <C>         <C>            <C>
   NET SALES TO UNAFFILIATED CUSTOMERS            $ 440.9        $ 368.3       $ 249.2      $   -       $   -          $1,058.4
- ------------------------------------------------------------------------------------------------------------------------------------

   OPERATING INCOME (LOSS)                        $  31.5        $  40.1       $  14.4      $   -       $  (0.2)       $  85.8
   EQUITY IN INCOME (LOSS) OF AFFILIATES, NET         0.8            0.1           -           (2.9)        -             (2.0)
   INTEREST INCOME                                    0.3            2.0           0.1          -           -              2.4
   INTEREST EXPENSE                                 (18.0)          (4.7)         (0.8)         -          (5.3)         (28.8)
   INCOME TAX (EXPENSE) BENEFIT                      (5.9)         (11.3)         (5.1)         1.0         1.2          (20.1)
   MINORITY INTEREST IN NET INCOME                   (0.1)          (2.4)          -            -           -             (2.5)
- ------------------------------------------------------------------------------------------------------------------------------------

   SEGMENT NET INCOME (LOSS)                      $   8.6        $  23.8       $   8.6      $  (1.9)    $  (4.3)       $  34.8
====================================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                 MILL        GAS AND    S3NETWORKS     GENERAL      CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 2000                INFRASTRUCTURE   SERVICES   FLUID CONTROL     LLC       CORPORATE        TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------

<S>                                              <C>            <C>           <C>          <C>         <C>             <C>
   Net sales to unaffiliated customers (1)       $ 262.1        $ 390.8       $ 270.1      $    -      $    -          $ 923.0
- ------------------------------------------------------------------------------------------------------------------------------------

   Operating income (loss)                       $  23.3        $  47.0       $  21.8      $    -      $  (0.5)        $  91.6
   Equity in income (loss) of affiliates, net         -             0.5           -           (0.9)         -             (0.4)
   Interest income                                   0.2            2.1           0.1           -           -              2.4
   Interest expense                                 (4.1)          (4.4)         (2.0)          -         (5.7)          (16.2)
   Income tax (expense) benefit                     (6.9)         (15.4)         (7.3)         0.3         2.2           (27.1)
   Minority interest in net income                  (0.1)          (1.8)          -             -           -             (1.9)
- ------------------------------------------------------------------------------------------------------------------------------------

   Segment net income (loss)                     $  12.4        $  28.0       $  12.6      $  (0.6)    $  (4.0)        $  48.4
====================================================================================================================================
</TABLE>

(1)      In order to comply with Emerging Issues Task Force (EITF) Issue No.
         00-10, all shipping and handling costs have been classified as cost of
         services sold or as cost of products sold rather than as reductions of
         sales. The income statement for the six months ended June 30, 2000 has
         been reclassified to reflect this change. The reclassification has no
         effect on previously reported operating income or net income for the
         six months ended June 30, 2000.

See accompanying notes to consolidated financial statements.




                                      -7-


<PAGE>   8


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS (Continued)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OPINION OF MANAGEMENT

Financial information furnished herein, which is unaudited, reflects in the
opinion of management all adjustments (all of which are of a recurring nature)
that are necessary to present a fair statement of the interim period. This
unaudited interim information should be read in conjunction with the Company's
annual Form 10-K filing for the year ended December 31, 2000.

INVENTORIES

<TABLE>
<CAPTION>
                                                                               JUNE 30                 December 31
(in thousands)                                                                   2001                      2000
- --------------------------------------------------------------------------------------------------------------------------

<S>                                                                          <C>                       <C>
Finished goods                                                               $      75,558             $      68,519
Work-in-process                                                                     36,168                    36,751
Raw materials and purchased parts                                                   68,754                    73,265
Stores and supplies                                                                 21,571                    20,582
- --------------------------------------------------------------------------------------------------------------------------

                                                                             $     202,051             $     199,117
==========================================================================================================================

- --------------------------------------------------------------------------------------------------------------------------
</TABLE>


COMMITMENTS AND CONTINGENCIES

Discontinued Defense Business - Contingencies

Federal Excise Tax and Other Matters Related to the Five-Ton Truck Contract
In 1995, the Company, the United States Army ("Army"), and the United States
Department of Justice concluded a settlement of Harsco's previously reported
claims against the Army relating to Federal Excise Tax ("FET") arising under a
completed 1986 contract for the sale of five-ton trucks to the Army. On
September 27, 1995, the Army paid the Company $49 million in accordance with the
settlement terms. The Company released the Army from any further liability for
those claims, and the Department of Justice released the Company from a
threatened action for damages and civil penalties based on an investigation
conducted by the Department's Commercial Litigation Branch that had been pending
for several years.

The settlement preserves the rights of the parties to assert claims and defenses
under the Internal Revenue Code, and rights of the Army and the Company to claim
certain amounts that may be owed by either party to reconcile possible
underpayments or overpayments on the truck contract as part of the formal
contract close-out process.

The settlement does not resolve the claim by the Internal Revenue Service
("IRS") that, contrary to the Company's position, certain cargo truck models
sold by the Company should be considered to have gross vehicle weights in excess
of the 33,000 pound threshold under FET law, are not entitled to an exemption
from FET under any other theory, and therefore are


                                       -8-
<PAGE>   9


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS (Continued)

taxable. In 1999, the IRS assessed an increase in FET of $30.4 million plus
penalties and applicable interest currently estimated to be $12.4 million and
$56.7 million, respectively. In October 1999, the Company posted an $80 million
bond required as security by the IRS. This increase in FET takes into account
offsetting credits of $9.2 million, based on a partial allowance of the
Company's $31.9 million claim that certain truck components are exempt from FET.
The IRS disallowed in full the Company's additional claim that it is entitled to
the entire $52 million of FET (plus applicable interest currently estimated by
the Company to be $51.4 million) the Company has paid on the five-ton trucks, on
the grounds that such trucks qualify for the FET exemption applicable to certain
vehicles specially designed for the primary function of off-highway
transportation. In the event that the Company ultimately receives from the IRS a
refund of tax (including applicable interest) with respect to which the Company
has already received reimbursement from the Army, the refund would be allocated
between the Company and the Army. In August 2000, the Company filed legal action
against the Government in the U.S. Court of Federal Claims challenging the
assessment and seeking a refund of all FET that the Company has paid on five-ton
trucks. That action is proceeding. Although there is risk of an adverse outcome,
both the Company and the Army believe that the cargo trucks are not taxable. No
recognition has been given in the accompanying financial statements for the
Company's claims with the IRS.

The settlement agreement with the Army preserved the Company's right to seek
reimbursement of after-imposed tax from the Army in the event that the cargo
trucks are determined to be taxable, but the agreement limited the reimbursement
to a maximum of $21 million. Additionally, in an earlier contract modification,
the Army accepted responsibility for $3.6 million of the potential tax, bringing
its total potential responsibility up to $24.6 million. As of September 30,
2000, the Army paid Harsco this entire amount and Harsco paid those funds to the
IRS, subject to its pending refund claim. Thus, the Company has satisfied a
portion of the disputed tax assessment. If the Company succeeds in its refund
claim against the IRS, it will owe the Army the amount recovered that
corresponds to the $24.6 million.

Even if the cargo trucks are ultimately held to be taxable, the Army's
contribution of $24.6 million toward payment of the tax (but not interest or
penalty, if any), would result in a net maximum liability for the Company of
$5.8 million plus penalties and applicable interest currently estimated to be
$12.4 million and $56.7 million, respectively. The Company believes it is
unlikely that resolution of this matter will have a material adverse effect on
the Company's financial position; however, it could have a material effect on
quarterly or annual results of operations.

Environmental
The Company is involved in a number of environmental remediation investigations
and clean-ups and, along with other companies, has been identified as a
"potentially responsible party" for certain waste disposal sites. While each of
these matters is subject to various uncertainties, it is probable that the
Company will agree to make payments toward funding certain of these activities
and it is possible that some of these matters will be decided unfavorably to the
Company. The Company has evaluated its potential liability, and its financial
exposure is dependent upon such factors as the continuing evolution of
environmental laws and regulatory requirements, the availability and application
of technology, the allocation of cost among potentially responsible parties, the
years of remedial activity


                                      -9-
<PAGE>   10


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS (Continued)


required and the remediation methods selected. The Consolidated Balance Sheet at
June 30, 2001 and December 31, 2000 includes an accrual of $3.2 million and $3.5
million, respectively, for environmental matters. The amounts charged against
pre-tax earnings related to environmental matters totaled $0.6 million for the
first six months of 2001, and $1.2 million for the first six months of 2000.

The liability for future remediation costs is evaluated on a quarterly basis.
Actual costs to be incurred at identified sites in future periods may vary from
the estimates, given inherent uncertainties in evaluating environmental
exposures. The Company does not expect that any sum it may have to pay in
connection with environmental matters in excess of the amounts recorded or
disclosed above would have a material adverse effect on its financial position
or results of operations.

Other
The Company is subject to various other claims and legal proceedings covering a
wide range of matters that arose in the ordinary course of business. These
include, among others, proceedings based on product liability and contract
claims. 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 be reasonably likely to have a
material adverse effect on the financial position or results of operations of
the Company.

FINANCIAL INSTRUMENTS AND HEDGING

The Company has subsidiaries principally operating in North America, Latin
America, Europe and Asia-Pacific. These operations are exposed to fluctuations
in related foreign currencies, in the normal course of business. The Company
seeks to reduce exposure to foreign currency fluctuations through the use of
forward exchange contracts. The Company does not hold or issue financial
instruments for trading purposes, and it is the Company's policy to prohibit the
use of derivatives for speculative purposes. The Company has a Foreign Currency
Risk Management Committee that meets periodically to monitor foreign currency
risks.

As of January 1, 2001, the company adopted the Financial Accounting Standards
Board (FASB) Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133). The cumulative effect adjustment as of January
1, 2001 was comprised of other comprehensive expense of $33 thousand related to
mark-to-market adjustments on derivatives in hedge relationships, and $12
thousand of income related to mark-to-market adjustments on embedded derivatives
recorded in current earnings. Principally all of the transition adjustment
related to cash flow hedges included in other comprehensive income was
reclassified into earnings in the first six months of 2001.

The Company executes foreign currency forward exchange contracts to hedge
transactions of its non-U.S. subsidiaries for firm purchase commitments, to
hedge variable cash flows of forecasted transactions and for export sales
denominated in foreign currencies. These contracts generally are for 90 to 180
days or less. For those contracts that are designated as qualified cash flow
hedges, gains or losses are recorded in other comprehensive income. Amounts
recorded in other comprehensive income are reclassified into earnings in the
same


                                      -10-
<PAGE>   11


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS (Continued)


period or periods during which the hedged forecasted transaction affects
earnings. The cash flows from these contracts are classified consistent with the
cash flows from the transaction being hedged. The Company also enters into
certain forward exchange contracts not designated as hedges under SFAS 133.
Gains and losses on these contracts are recognized in income based on fair
market value. For fair value hedges of a firm commitment, the gain or loss on
the derivative and the offsetting loss or gain on the hedged firm commitment are
recognized currently in income. As of June 30, 2001, the notional total of all
forward exchange contracts amounted to $6.3 million.

The Company has several hedges of net investment recorded in accordance with
SFAS 133. In the first six months of 2001, the Company recorded a credit of $2.0
million in the foreign currency translation adjustments line of other
comprehensive income related to hedges of net investments.

<TABLE>
<CAPTION>
RECONCILIATION OF BASIC AND DILUTED SHARES
                                                                   THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                                         JUNE 30                               JUNE 30
(In thousands, except amounts per share)                         2001                2000              2001              2000
- ---------------------------------------------------------------------------------------------------------------------------------

<S>                                                       <C>                 <C>               <C>                <C>
Net income                                                 $      24,705        $     28,231     $      34,846      $     48,433
                                                           =============        ============     =============      ============

Average shares of common stock
       outstanding used to compute basic
       earnings per common share                                  39,828              39,964            39,818            39,989
Additional common shares to be
       issued assuming exercise of
       stock options, net of shares
       assumed reacquired                                            105                  84                88                78
                                                           -------------        ------------     -------------      ------------
Shares used to compute dilutive
       effect of stock options                                    39,933              40,048            39,906            40,067
                                                           =============        ============     =============      ============
Basic earnings per common share                            $         .62        $        .71     $         .88      $       1.21
                                                           =============        ============     =============      ============
Diluted earnings per common share                          $         .62        $        .70     $         .87      $       1.21
                                                           =============        ============     =============      ============
</TABLE>

NEW FINANCIAL ACCOUNTING STANDARDS ISSUED

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 140),
which replaced SFAS No. 125 (SFAS 125) with the same title. It revises the
standards for securitizations and other transfers of financial assets and
collateral and requires additional disclosures, but otherwise retains most of
SFAS 125's provisions. The Company adopted SFAS 140 as of April 1, 2001. The
implementation of SFAS 140 has not had a material effect on the Company's
financial position or results of operations.


                                      -11-
<PAGE>   12


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS (Continued)

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" (SFAS 141),
which supercedes Accounting Principles Board Opinion No. 16 "Business
Combinations" (APB 16) and SFAS No. 38 "Accounting for Preacquistion
Contingencies of Purchased Enterprises" (SFAS 38). It is expected that SFAS 141
will improve the transparency of the accounting and reporting for business
combinations by requiring that all business combinations be accounted for under
the purchase method. Use of the pooling-of-interests method is no longer
permitted. The Company will adopt SFAS 141 in the third quarter of 2001. The
adoption of SFAS 141 is not expected to have a material effect on the Company's
financial position or results of operations since the Company does not use the
pooling-of-interests method of accounting.

In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets" (SFAS 142), which supercedes APB No. 17 "Intangible Assets". SFAS 142
requires that goodwill no longer be amortized to earnings, but instead be
reviewed for impairment. It is expected that this change will provide investors
with greater transparency regarding the economic value of goodwill and its
impact on earnings. The Company will adopt SFAS 142 effective January 1, 2002.
The Company recognized $6.2 million and $8.1 million of goodwill amortization
expense for the six months ended June 30, 2000 and 2001, respectively. These
amounts are disclosed for informational purposes only and are not necessarily
reflective of future reductions to amortization expense. The impact of adopting
SFAS 142 has not yet been determined.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" (SFAS 143). SFAS 143 requires entities to record the fair value of
a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application encouraged. The Company has not yet determined the timing of
adoption or the impact of SFAS 143.

ACQUISITIONS

On June 16, 2000 the Company obtained majority ownership of SGB Group Plc
("SGB") and subsequently acquired 100% of the shares. SGB, based in the UK, is
one of Europe's largest suppliers of scaffolding, forming and related access
products and services. SGB also has operations in North America, the Middle East
and the Asia-Pacific region. SGB had 1999 sales of 282.9 million British pounds
sterling (approximately $398.5 million using a June 30, 2001 exchange rate).

The acquisition of SGB has been accounted for using the purchase method of
accounting, and accordingly, the operating results of SGB have been included in
the consolidated results of the Company since the date of acquisition. The
purchase price allocation is based upon appraisal values and management
estimates.


                                      -12-
<PAGE>   13


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS (Continued)

  The purchase price of SGB has been allocated as follows:

<TABLE>
<S>                                                                     <C>
         (in millions)
         Working capital, other than cash                                    $      19.3
         Property, plant and equipment                                             210.9
         Other assets                                                               45.3
         Cost in excess of net assets acquired                                     130.2
         Non-current liabilities                                                  (133.8)
                                                                              ----------

         Purchase price, net of cash received                                $     271.9
                                                                              ==========
</TABLE>

The following unaudited pro forma summary combines the consolidated results of
operations of the Company and SGB as if the acquisition had occurred on January
1, 2000 for the six months ended June 30, 2000.

<TABLE>
<CAPTION>
                                                                                 PRO FORMA
                                                                             SIX MONTHS ENDED
        (in millions, except per share data)                                   JUNE 30, 2000

<S>                                                                                 <C>
        Total revenues                                                              $1,123.9

        Net income                                                                      41.5

        Diluted earnings per share                                                     $1.04
        ====================================================================================================
</TABLE>

The unaudited pro forma information is not necessarily indicative of the results
of operations that would have occurred had the purchase been made at the
beginning of the period presented, or of the future results of the combined
operations.

The unaudited pro forma information includes the actual results of SGB prior to
the acquisition date. These results do no reflect the effect of reorganization
actions, synergies, cost reductions and other benefits resulting from the
combination. Additionally, the unaudited pro forma information reflects
amortization of the cost in excess of net assets acquired and interest expense
on assumed borrowings for the acquisition for the full period presented.

DIVESTITURE

On April 13, 2001, the Company divested its 49% interest in S3Networks, LLC. In
2001 the Company recorded $2.9 million of losses related to its investment in
S3Networks. The divestiture will eliminate any future dilution to the Company's
earnings as a result of S3Networks.




                                      -13-
<PAGE>   14


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

This section focuses on material changes and presumes that the reader is
familiar with the Company's annual Form 10-K filing for the year ended December
31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

The major changes in liquidity and capital resources are as follows:

<TABLE>
<CAPTION>
                                             JUNE 30                 DECEMBER 31                INCREASE/
(DOLLARS ARE IN MILLIONS)                     2001                      2000                   (DECREASE)
===========================================================================================================================

<S>                                     <C>                       <C>                     <C>
Current assets                          $       750.7             $       726.4           $        24.3
Current liabilities                             503.5                     536.2                   (32.7)
- ---------------------------------------------------------------------------------------------------------------------------
Working capital                         $       247.2             $       190.2           $        57.0

Current ratio                                  1.5:1                      1.4:1
===========================================================================================================================

Notes payable and
   current maturities                   $        63.5             $        62.3           $         1.2
Long-term debt                                  769.3                     774.4                    (5.1)
- ---------------------------------------------------------------------------------------------------------------------------
Total debt                                      832.8                     836.7                    (3.9)
Total equity                                    667.8                     674.2                    (6.4)
- ---------------------------------------------------------------------------------------------------------------------------
Total capital                           $     1,500.6             $     1,510.9           $       (10.3)
Total debt to
   total capital                                 55.5%                     55.4%
===========================================================================================================================
</TABLE>

A $30.1 million decrease in debt was achieved in the second quarter of 2001, as
compared to the first quarter of 2001. Debt reduction remains the principal
strategic objective for the remainder of 2001. The Company's strategies for debt
reduction include the sale of underperforming assets and a reduction in working
capital and capital spending.

WORKING CAPITAL POSITION
The change in the Company's working capital position and current ratio during
the first six months of 2001 is due principally to a reduction in accounts
payable of $35.9 million, and a $23.1 million increase in receivables. Accounts
payable decreases are due partially to the Company's exit of S3Networks. The
Company had previously been obligated to invest an additional $10.0 million in
S3Networks which was cancelled as part of the divestiture. Accounts receivable
increases are due to seasonal increases in sales, especially in the
Infrastructure and Mill Services Segments when compared with December 2000.

CASH INVESTING AND FINANCING ACTIVITIES
The Company's debt as a percent of total capital increased slightly in the first
six months of 2001 due to foreign currency translation adjustments of $22.7
million that decreased equity. These currency adjustments were partially offset
by an increase in retained earnings and a decrease in debt. The foreign currency
translation adjustments were principally due to a 10% decrease in the translated
value of the euro, a 6% decrease in the British pound sterling, a 15% decrease
in the


                                      -14-
<PAGE>   15


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

Brazilian real and a 6% decrease in the South African rand from December
31, 2000 to June 30, 2001.

Capital investments for the first six months of 2001 were $77.9 million, down
slightly from the first six months of 2000. This decrease was despite the
inclusion in 2001 of capital investments by SGB which was acquired June 16,
2000. Excluding SGB, capital investments declined 26%. Investments were made
predominantly for the services businesses.

The Company's history of strategic acquisitions, share repurchases and cash
dividends, paid at the same or increased rates for the 204th consecutive quarter
in May 2001, demonstrate the Company's continued commitment to creating value
through strategic investments and return of capital to shareholders.
Additionally, the Company declared a 24 cents per share dividend in June 2001,
to shareholders of record July 16, 2001, payable August 15, 2001.

In the first six months of 2001, the Company realized $17.6 million in cash from
asset sales and sales of businesses. This represents significant progress on the
Company's strategic goal of producing substantial cash flows from the sale of
underperforming assets.

<TABLE>
<CAPTION>
SIX MONTH FINANCIAL STATISTICS
                                                            FOR THE PERIOD                  FOR THE PERIOD
                                                             ENDED JUNE 30                   ENDED JUNE 30
                                                                 2001                            2000
- ----------------------------------------------------------------------------------------------------------------------------

<S>                                                         <C>                             <C>
Harsco stock price high-low                                 $29.25 - $23.60                 $31.63 - $24.00

Annualized return on average equity                             10.4%                           14.9%
Annualized return on average assets                              8.0%                           10.7%
Annualized return on average capital                             7.0%                            9.8%
</TABLE>

The Company's lower annualized return on average equity was due principally to
lower income in the first six months of 2001 compared with the first six months
of 2000. Lower annualized returns on average assets and capital were due to the
combination of lower income and the increased assets and capital related to the
SGB acquisition. SGB's operating income has historically peaked in the third and
fourth quarters. The company's book value per share decreased to $16.76 per
share at June 30, 2001 from $16.94 at December 31, 2000 due principally to a
decrease in equity related to foreign currency translation adjustments recorded
as part of accumulated other comprehensive expense.

In the first quarter of 2001, the Company engaged Stern Stewart & Co. to assist
in the implementation of the Economic Value Added (EVA(R)) measurement and
management system. Significant progress was made in the second quarter toward
implementation of EVA(R). Training is underway within all operations of the
Company, new EVA(R)-based financial models are being implemented, and an EVA(R)
incentive compensation plan is being developed to begin January 1, 2002. These
efforts are expected to generate improved returns on invested capital in future
periods.


                                      -15-
<PAGE>   16


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

<TABLE>
<CAPTION>
CASH FROM OPERATING ACTIVITIES
                                                                FOR THE SIX MONTHS           FOR THE SIX MONTHS
                                                                   ENDED JUNE 30                ENDED JUNE 30
(In millions)                                                          2001                         2000
- --------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                          <C>
Net cash provided by operating activities:                              $67.6                        $91.7
</TABLE>

Operating cash flows were $24.1 million less in the first six months of 2001
than the first six months of 2000. The decrease in cash from operating
activities was due principally to the timing of receipts and payments for
accounts receivable and accounts payable, causing a decrease in cash flows of
$37.2 million and $17.1 million, respectively, from the first six months of
2000. In the second quarter of 2000, the Infrastructure Segment had unusually
high collections on some very large orders which significantly improved cash
flows. On a comparative basis, this negatively impacted the first six months of
2001 cash flows by $15.1 million. These decreases were partially offset by
increased cash flows resulting from the Company's timing of payments for
inventories. Looking to the second half of 2001, the Company expects cash
provided by operating activities to improve based on historically strong
increases during that period.


CREDIT AND EQUITY FINANCING FACILITIES
The Company has a revolving credit facility in the amount of $350 million
through a syndicate of 13 banks. This facility serves as back-up to the
Company's commercial paper programs. The facility is in two parts. One part
amounts to $131,250,000 and is a 364-day credit agreement that permits
borrowings outstanding at expiration to be repaid no later than September 28,
2002. The second part is for $218,750,000 and is a 5-year credit agreement that
expires on September 29, 2005 at which time all borrowings are due. The first
part of the facility is expected to be renegotiated in the third quarter of 2001
to extend the expiration date. As of June 30, 2001 there were no borrowings
outstanding under this facility.

In the first quarter of 2001, the Company executed two $50 million bilateral
credit facility agreements with European-based banks. These agreements serve as
back-up to the Company's commercial paper programs and also help finance the
Company's European operations. Borrowings under these facilities, which expire
in December 2001 and January 2002, are available in Eurocurrencies or U.S.
dollars at interest rates based upon LIBOR plus a margin. Borrowings outstanding
at expiration may be repaid over the succeeding 4 years. As of June 30, 2001
there was $12.1 million outstanding on these credit facilities.

The Company has a U.S. commercial paper borrowing program under which it can
issue up to $350 million of short-term notes in the U.S. commercial paper
market. In addition, the Company has a three billion Belgian franc commercial
paper program, equivalent to approximately U.S. $63 million at June 30, 2001. In
June 2001, the Company supplemented its Belgian franc commercial paper program
by adding a 250 million euro program, equivalent to approximately U.S. $211
million at June 30, 2001. The new program was established in London through the
offices of the Royal Bank of Scotland plc and Citibank International plc. The
program is expected to lower the Company's cost of borrowing and will replace
existing sources of credit. The program has been assigned an A-2 rating by
Standard & Poor's and a P-2 rating from Moody's Investors Service,


                                      -16-
<PAGE>   17


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

consistent with the ratings assigned to Harsco's US-based commercial paper
program. The European-based programs provide the capacity for the Company to
borrow euros and British pounds to fund its European operations more
efficiently.

The Company limits the aggregate commercial paper, syndicated credit facility
and bilateral facilities borrowings at any one time to a maximum of $450
million. At June 30, 2001, the Company had $237.8 million of U.S. commercial
paper debt outstanding, and $60.3 million outstanding under its European-based
programs.

A Form S-3 shelf registration is on file with the Securities and Exchange
Commission for the possible issuance of up to an additional $200 million of new
debt securities, preferred stock or common stock.

CREDIT RATINGS AND OUTLOOK
The Company's outstanding long-term notes are rated A- by Standard & Poor's, A-
by Fitch and A-3 by Moody's. The Company's commercial paper is rated A-2 by
Standard & Poor's, F-2 by Fitch and P-2 by Moody's.

The Company's financial position and debt capacity should enable it to meet
current and future requirements. As additional resources are needed, the Company
should be able to obtain funds readily and at competitive costs. The Company is
positioned to continue to reduce debt, invest strategically in high return
projects, and to pay cash dividends as a means to enhance shareholder value. The
Company intends to use future discretionary cash flows principally for debt
reduction.

RESULTS OF OPERATIONS
SECOND QUARTER OF 2001 COMPARED WITH SECOND QUARTER OF 2000

<TABLE>
<CAPTION>
                                                                                                       AMOUNT             PERCENT
                                                                                                      INCREASE           INCREASE
(DOLLARS ARE IN MILLIONS, EXCEPT PER SHARE)                           2001             2000          (DECREASE)         (DECREASE)
 -----------------------------------------                            ----             ----           --------           --------
<S>                                                                   <C>             <C>                <C>              <C>
Revenues                                                              $532.3          $465.8              $66.5             14%
Cost of services and products sold                                     398.5           356.1               42.4             12
Selling, general and administrative expenses                            79.9            56.3               23.6             42
Operating income                                                        53.0            52.7                0.3              1
Provision for income taxes                                              14.0            15.6              (1.6)            (10)
Net income                                                              24.7            28.2              (3.5)            (12)
Diluted earnings per common share                                        .62             .70              (.08)            (11)
</TABLE>


                                      -17-
<PAGE>   18


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

COMPARATIVE ANALYSIS OF RESULTS

REVENUES
Second quarter 2001 revenues were up 14% from last year's comparable period to a
record level. This is attributable to the Company's SGB scaffolding and access
service business that was acquired in June 2000. This increase was augmented by
increased rentals in the existing domestic scaffolding services business.
Additionally, sales of grating products and process equipment increased, while
sales for certain product lines of the Gas and Fluid Control and Mill Services
Segments decreased. Adjusting for the unfavorable effect of foreign currency
translation, sales would have increased 17%.

COST OF SALES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Costs of services and products sold increased but at a lower rate than the
increase in total revenues, despite the continued impact of increased energy
costs. Selling, general and administrative expenses increased due to the
Company's acquisition of SGB in June of 2000. The Mill Services Segment recorded
increased provisions for uncollectible accounts receivable as several customers
in the steel industry have experienced financial difficulties and have filed for
bankruptcy protection. Additionally, on a comparative basis, bad debt expense
increased in the Infrastructure Segment due principally to a collection of a
previously written-off receivable in 2000.

Excluding the effects of business acquisitions less divestitures of non-core
business, selling, general and administrative expenses for the second quarter of
2001 approximated the second quarter of 2000. The Company's continued cost
reduction, process improvement and reorganization efforts continue to contribute
towards slowing the rate of growth of these costs.

OPERATING INCOME
The increase in operating income is attributable to the Company's acquisition of
SGB, and the railway maintenance-of-way and domestic scaffolding access
businesses. The strong performance of these businesses was negatively impacted
by an economic slowdown in the United States that began in the second half of
2000. This has resulted in reduced demand for manufactured products of the
Infrastructure and the Gas and Fluid Control Segments and lower steel production
in North America affecting the Mill Services Segment. Additionally, an increase
of $2.6 million in provisions for uncollectible accounts receivable, unfavorable
foreign currency translation and higher energy costs affected results in all
three segments.

PROVISION FOR INCOME TAXES
The effective income tax rate for both the second quarter of 2001 and 2000 was
35%.

NET INCOME
Net income for the second quarter of 2001 was below last year's comparable
period despite record sales and increased operating income. This is principally
due to interest expense of $14.3 million, an increase of $5.6 million over last
year's comparable period. Interest expense on the acquisition of SGB is
principally responsible for this increase. However, SGB was accretive to
earnings in the quarter.


                                      -18-
<PAGE>   19


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

SEGMENT ANALYSIS

<TABLE>
<CAPTION>
                                                                  THREE MONTHS
INFRASTRUCTURE SEGMENT                                            ENDED JUNE 30
                                                                  -------------
                                                                                                AMOUNT            PERCENT
(DOLLARS ARE IN MILLIONS)                                    2001             2000             INCREASE          INCREASE
 -----------------------                                     ----             ----             --------          --------
<S>                                                       <C>                <C>                 <C>                <C>
Sales                                                        $225.8          $138.3              $87.5              63%
Operating income                                               23.3            14.5                8.8              61
Segment net income                                              8.7             7.8                0.9              12
</TABLE>

The significant quarter-over-quarter sales increase for the Infrastructure
Segment results primarily from the June 2000 acquisition of SGB. This increase
was augmented by increased rentals in the existing domestic scaffolding services
business.

Operating income increases are attributable to strong performances by all
business units with the exception of industrial grating. The domestic and
international scaffolding and access businesses experienced strong demand for
their services during the quarter. Improved performance of the railway
maintenance-of-way business resulted from increased international orders, a
higher level of contract services, and lower operating expenses due to stringent
cost controls. Increased provisions for uncollectible accounts of $1.3 million
impacted operating income as well.

The strong performances noted above were impacted by higher interest expense
resulting from the financing of the SGB acquisition. This reduced net income for
2001 compared to 2000.

<TABLE>
<CAPTION>
                                                                    THREE MONTHS
MILL SERVICES SEGMENT                                              ENDED JUNE 30
                                                                   -------------
                                                                                                 AMOUNT            PERCENT
(DOLLARS ARE IN MILLIONS)                                      2001             2000           (DECREASE)        (DECREASE)
 -----------------------                                       ----             ----            --------          --------
<S>                                                           <C>            <C>                 <C>             <C>
Sales                                                           $185.2          $197.3           $(12.1)               (6)%
Operating income                                                  21.6            27.2             (5.6)              (21)
Segment net income                                                12.7            16.8             (4.1)              (24)
</TABLE>

Despite strong international results, second quarter sales, operating income,
and net income of the Mill Services Segment continued to be negatively impacted
by foreign currency translation, difficult market conditions and reduced steel
mill production in North America. The difficult market condition in North
America contributed to customer financial difficulties that resulted in
additional provisions for uncollectible accounts receivable of $1.2 million
compared to the second quarter 2000. The effect of foreign currency translation
reduced sales and operating income by approximately $11.4 million and $1.3
million, respectively.


                                      -19-
<PAGE>   20


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS
GAS AND FLUID CONTROL SEGMENT                                     ENDED JUNE 30
                                                                  -------------
                                                                                                AMOUNT            PERCENT
(DOLLARS ARE IN MILLIONS)                                     2001             2000           (DECREASE)        (DECREASE)
 -----------------------                                      ----             ----            --------          --------
<S>                                                       <C>                  <C>                <C>                <C>
Sales                                                         $121.2           $130.0             $(8.8)             (7)%
Operating income                                                 8.1             10.7              (2.6)            (24)
Segment net income                                               5.0              6.2              (1.2)            (19)
</TABLE>

Sales, operating income, and net income of the Gas and Fluid Control Segment
continued to be negatively impacted by soft market conditions affecting demand
for all manufactured products including most gas control and containment
equipment product lines. This declining demand is partially offset by increased
demand for heat exchangers and cylinders for natural gas vehicles.






                                      -20-
<PAGE>   21


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

SERVICES AND ENGINEERED PRODUCTS ANALYSIS

In addition to the segment reporting previously presented, the Company is a
diversified industrial services and engineered products company. The Company is
committed towards increasing its presence and strategic growth in
services-related businesses. This is evidenced by the June 2000 acquisition of
SGB, which is principally a services business. The acquisitions of Scafform Ltd.
and Mastclimbers Ltd. in May 2001 have also increased the Company's service
revenue base. Sales and operating income for the second quarter of 2001 and 2000
are presented in the following table:

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                    THREE MONTHS ENDED
(DOLLARS ARE IN MILLIONS)                                     JUNE 30, 2001                         JUNE 30, 2000
- ----------------------------------------------------------------------------------------------------------------------------
                                                          AMOUNT         PERCENT               AMOUNT          PERCENT
                                                          ------         -------               ------          -------
<S>                                                     <C>              <C>                 <C>              <C>
SALES
- -----
Services                                                   $332.2            62%                $256.3            55%

Engineered products                                         200.0            38                  209.2            45
                                                            -----         -----                -------           ---

    Total sales                                            $532.2           100%                $465.5           100%
                                                            =====           ===               ========           ===

OPERATING INCOME
- ----------------
Services                                                   $ 37.1            70%                $ 33.6            64%

Engineered products                                          15.9            30                   18.8            36
                                                          -------         -----                -------           ---

    Total segment operating income                         $ 53.0           100%                $ 52.4           100%
                                                         ========         =====               ========           ===

EBITDA*
- -------
Services                                                   $ 73.4            75%                $ 61.4            70%

Engineered products                                          23.9            25                   26.2            30
                                                          -------         -----                -------         -----

    Total segment EBITDA                                   $ 97.3           100%                $ 87.6           100%
                                                         ========         =====               ========         =====
</TABLE>

*  Earnings before interest, income taxes, minority interest, depreciation and
   amortization (EBITDA) is not a measure of performance under generally
   accepted accounting principles, however, the Company and the investment
   community consider it an important calculation.

Second quarter 2001 sales, operating income and EBITDA for services increased
substantially from the comparable period in 2000. The increases reflect
principally the SGB acquisition and the favorable effects of cost reductions,
process improvements and reorganization efforts.


                                      -21-
<PAGE>   22


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

RESULTS OF OPERATIONS
SIX MONTHS OF 2001 COMPARED WITH SIX MONTHS OF 2000

<TABLE>
<CAPTION>
                                                                                                       AMOUNT             PERCENT
                                                                                                      INCREASE           INCREASE
(DOLLARS ARE IN MILLIONS, EXCEPT PER SHARE)                           2001             2000          (DECREASE)         (DECREASE)
 -----------------------------------------                            ----             ----           --------           --------
<S>                                                                 <C>               <C>             <C>               <C>
Revenues                                                            $1,059.0            $923.5          $135.5              15%
Cost of services and products sold                                     804.3             718.9            85.4              12
Selling, general and administrative expenses                           163.3             110.1            53.2              48
Other Expenses                                                           4.0              (0.3)            4.3           1,433
Operating income                                                        85.8              91.7            (5.9)             (6)
Equity in (loss) of affiliates                                          (2.0)             (0.4)           (1.6)            400
Provision for income taxes                                              20.1              27.1            (7.0)            (26)
Net income                                                              34.8              48.4           (13.6)            (28)
Diluted earnings per common share                                        .87              1.21            (.34)            (28)
</TABLE>

COMPARATIVE ANALYSIS OF RESULTS

REVENUES
Revenues for the first six months of 2001 were up 15% from last year's
comparable period due to the SGB acquisition. In addition, higher sales were
also recorded for other access services and products as well as process
equipment. These increases were somewhat offset by decreases in certain product
lines of the Gas and Fluid Control and Mill Services Segments. Adjusting for the
unfavorable effect of foreign currency translation, sales would have increased
17%.

COST OF SALES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Cost of services and products sold increased but at a lower rate than the
increase in total revenues despite an increase in energy costs. Selling, general
and administrative expenses increased due principally to the costs related to
acquired companies, but also included increased provisions for uncollectible
accounts receivable, particularly in the Mill Services Segment where several
customers in the steel industry have experienced financial difficulties.

Excluding the effects of business acquisitions less divestitures of non-core
business, selling, general and administrative expenses decreased approximately
2%. The Company's continuing cost reduction, process improvement and
reorganization efforts continue to contribute towards slowing the rate of growth
of these costs.

OTHER EXPENSE (INCOME)
The Company incurred $4.0 million of net other expense in the first six months
of 2001 compared to a net $0.3 million of income in the first six months of
2000. This income statement classification principally includes employee
termination benefits costs, impaired asset write-downs, and costs to exit
activities, partially offset by net gains on the disposal of non-core assets.


                                      -22-
<PAGE>   23


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

Expenses for the first six months of 2001 include $4.1 million of employee
termination benefits expense principally in the Mill Services and Infrastructure
Segments related to operations in the United States and Germany. Additionally,
$1.5 million of expense was incurred in the first six months of 2001 due to
impaired asset write-downs. Finally, $1.3 million of costs to exit activities
were incurred in the period. These expenses were offset by gains of $2.9
million, principally from the sales of non-core assets in the United States,
resulting in a net $4.0 million expense.

In the first six months of 2000, $2.4 million of gains on the disposal of two
non-core businesses and certain redundant assets more than offset other
expenses.

Employee termination benefits costs consist principally of severance
arrangements to employees terminated as a result of management reorganization
actions. Under these reorganization actions, the Company and its management have
established and approved specific plans of termination. The affected employees
have been notified prior to recognition of related provisions. The following
tables provide details related to reorganization actions:

EMPLOYEE TERMINATION BENEFITS COSTS AND PAYMENTS

<TABLE>
<CAPTION>
(In millions)                                                                   SUMMARY OF ACTIVITY
- -------------------------------------------------------------------------------------------------------------------------------
                                                               2001                           2000
                                                      ---------------------  -----------------------------------      1999
                                                        SIX MONTHS ENDING      SIX MONTHS ENDING      JULY 1 -         AND
Original reorganization action period:                       JUNE 30                JUNE 30            DEC 31         1998
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                    <C>               <C>            <C>
Employee termination benefits expense:                       $   4.1                $   1.2           $    2.7       $   9.4
- -------------------------------------------------------------------------------------------------------------------------------
Disbursements:(1)
    In 1998 and 1999                                             -                      -                  -            (7.5)
    In January - June 2000                                       -                     (1.2)               -            (0.7)
    In July - December 2000                                      -                      -                 (2.1)         (0.3)
    In 2001                                                     (2.9)                   -                 (0.7)         (0.1)
- -------------------------------------------------------------------------------------------------------------------------------
Total disbursements:                                            (2.9)                  (1.2)              (2.8)         (8.6)
Other:                                                           -                      -                  0.3          (0.8)
- -------------------------------------------------------------------------------------------------------------------------------
Remaining payments as of June 30, 2001(2):                   $   1.2                $   -             $    0.2       $   -
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Disbursements are categorized according to the original reorganization
    action period to which they relate (2001, 2000, or prior to 2000).

(2) Remaining payments are categorized according to the original reorganization
    action period to which they relate (2001 or 2000).




                                      -23-
<PAGE>   24


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

EMPLOYEE TERMINATIONS - NUMBER OF EMPLOYEES

<TABLE>
<CAPTION>
                                                                                SUMMARY OF ACTIVITY
- -------------------------------------------------------------------------------------------------------------------------------
                                                               2001                           2000
                                                      ---------------------  -----------------------------------      1999
                                                        SIX MONTHS ENDING      SIX MONTHS ENDING      JULY 1 -         AND
Original reorganization action period:                       JUNE 30                JUNE 30            DEC 31         1998
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                    <C>             <C>               <C>
Employees affected by reorganization actions:                  418                    72                 222            890
- -------------------------------------------------------------------------------------------------------------------------------
Employee Terminations:
    In 1998 and 1999                                            -                      -                  -            (873)
    In January - June 2000                                      -                    (66)                 -             (31)
    In July - December 2000                                     -                     (6)               (210)            (9)
    In 2001                                                   (372)                    -                 (12)            (3)
- -------------------------------------------------------------------------------------------------------------------------------
Total terminations:                                           (372)                  (72)               (222)          (916)
Other:                                                          -                      -                  -              26
- -------------------------------------------------------------------------------------------------------------------------------
Remaining terminations as of June 30, 2001:                     46                     -                  -             -
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

OPERATING INCOME
Operating income for the second quarter of 2001 improved significantly over the
first quarter of 2001; nonetheless, year-to-date operating income for 2001 is
below 2000. An economic slowdown in the United States that began in the second
half of 2000 adversely affected results in the first six months of 2001. This
resulted in reduced demand for the Company's manufactured products of the
Infrastructure and the Gas and Fluid Control Segments and lower steel production
in North America affecting the Mill Services Segment.

A strong performance from the Company's international operations, which
accounted for 48% of the Company's sales but approximately 58% of operating
earnings in the first six months of 2001, favorably impacted results in 2001. In
last year's comparable period, only 41% of the Company's operating income was
from international operations. Strong international Mill Services Segment
performance partially offset the effects of services volume decreases resulting
from reduced steel mill capacity utilization in North America. The Company's
strategic diversification decisions to expand its international presence and
reduce its exposure to the United States economic environment were affirmed in
the first six months of 2001.

Pre-tax charges of $6.9 million for reorganization, asset write-downs, and costs
to exit activities and $4.9 million in provisions for uncollectible accounts
receivable impacted operating income during the 2001 period. Additionally,
unfavorable foreign currency translation and higher energy costs affected
results in all three segments, as compared to 2000.

EQUITY IN LOSS OF AFFILIATES
Equity in loss of affiliates increased from $0.4 million in the first six months
of 2000 to a loss of $2.0 million in the first six months of 2001. This includes
$2.9 million of pre-tax losses ($1.9 million net of income taxes) associated
with the Company's S3Networks investment, which the Company exited in April
2001.

PROVISION FOR INCOME TAXES
The effective income tax rate for the first six months of 2001 and 2000 was 35%.


                                      -24-
<PAGE>   25


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

NET INCOME AND EARNINGS PER SHARE
Net income and earnings per share for the first six months of 2001 were below
last year's comparable period despite increased revenues. This was primarily due
to interest expense being significantly higher than the 2000 comparable period
due to additional borrowings principally as a result of the SGB acquisition.
However, SGB was accretive to earnings in the period. Increased interest rates
also contributed to the increase in interest expense.

SEGMENT ANALYSIS

<TABLE>
<CAPTION>
INFRASTRUCTURE SEGMENT                                             SIX MONTHS
                                                                  ENDED JUNE 30                 AMOUNT           PERCENT
                                                                  -------------                INCREASE         INCREASE
(DOLLARS ARE IN MILLIONS)                                     2001             2000           (DECREASE)       (DECREASE)
 -----------------------                                      ----             ----            --------         --------
<S>                                                          <C>          <C>                   <C>               <C>
Sales                                                        $440.9          $262.1             $178.8              68%
Operating income                                               31.5            23.3                8.2              35
Segment net income                                              8.6            12.4               (3.8)            (31)
</TABLE>

The significant increase in sales for the Infrastructure Segment results from
the June 2000 acquisition of SGB. This was partially offset by a decrease in
sales of railway track maintenance-of-way equipment and repair parts as well as
industrial grating which reflected lower capital spending by United States
railroads and reduced manufacturing activity in the United States, respectively.

Operating income of the Infrastructure Segment also increased significantly.
This was due to higher income from the rentals and sales of scaffolding and
other access products due principally to the SGB acquisition. SGB's operating
income is seasonal in nature and has historically peaked in the third and fourth
quarters. Lower income for railway track maintenance-of-way equipment and repair
parts, an operating loss for grating compared with a profit in 2000 and
increased charges of $0.8 million for facilities discontinuance and
reorganization, mainly in the railway track maintenance-of-way equipment and
services product line, partially offset the increase in operating income.
Additionally an increase of $2.6 million of provisions for uncollectible
accounts receivable impacted operating income.

The decrease in net income was due to higher interest expense resulting from
financing the SGB acquisition.


                                      -25-
<PAGE>   26


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

<TABLE>
<CAPTION>
MILL SERVICES SEGMENT                                                SIX MONTHS
                                                                   ENDED JUNE 30
                                                                   -------------
                                                                                                  AMOUNT           PERCENT
(DOLLARS ARE IN MILLIONS)                                        2001             2000          (DECREASE)        (DECREASE)
 -----------------------                                         ----             ----           --------          --------
<S>                                                             <C>              <C>             <C>               <C>
Sales                                                           $368.3           $390.8          $(22.5)              (6)%
Operating income                                                  40.1             47.0            (6.9)             (15)
Segment net income                                                23.8             28.0            (4.2)             (15)
</TABLE>

Excluding the unfavorable effect of foreign currency translation, 2001 sales of
the Mill Services Segment would have slightly increased over the 2000 comparable
period.

Operating income for the first six months of 2001 of the Mill Services Segment
decreased principally due to lower income in United States and due to the
effects of foreign currency translation. Excluding the unfavorable effect of
foreign currency translation, operating income in the Mill Services Segment
would have decreased only 7%. The strong performance from the Company's
international mill services operations partially mitigated the unfavorable
effects of reduced steel mill production and its impact on capacity utilization
at many mills in North America. This adversely affected the volume of services
provided by the Company. This also contributed to customer financial
difficulties that resulted in an increase of $2.9 million in provisions for
uncollectible accounts receivable during the 2001 period including amounts for
customers in the United States who have filed for bankruptcy protection.
Additionally, operating income was negatively impacted by $2.6 million of
increased charges for reorganization, asset write-downs and facilities
discontinuance.

Net income of the Mill Services Segment was below the comparable period in 2000
due to the factors previously mentioned.

<TABLE>
<CAPTION>
GAS AND FLUID CONTROL SEGMENT                                        SIX MONTHS
                                                                    ENDED JUNE 30
                                                                    -------------
                                                                                                  AMOUNT           PERCENT
(DOLLARS ARE IN MILLIONS)                                      2001             2000            (DECREASE)        (DECREASE)
 -----------------------                                       ----             ----             --------          --------
<S>                                                           <C>              <C>               <C>                <C>
Sales                                                         $249.2           $270.1            $(20.9)              (8)%
Operating income                                                14.4             21.8              (7.4)             (34)
Segment net income                                               8.6             12.6              (4.0)             (32)
</TABLE>

In the first six months of 2001, sales, operating income and net income of the
Gas and Fluid Control Segment were below 2000's comparable period due to soft
manufacturing sector market conditions, primarily in the United States,
affecting demand for most gas control and containment equipment product lines.
Additionally, operating income was negatively impacted by $1.2 million of
increased charges for facilities discontinuance and reorganization. Higher
income for heat exchangers reflected improvement in the gas and oil exploration
industry.


                                      -26-
<PAGE>   27


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

SERVICES AND ENGINEERED PRODUCTS ANALYSIS

The Company is a diversified services and engineered products company. The
Company is committed to increasing its presence and strategic growth in
services-related businesses. This is evidenced by the service business
acquisitions of SGB and Bergslagens in the first half of 2000 and Scafform Ltd.
and Mastclimbers Ltd. in May of 2001.

<TABLE>
<CAPTION>
                                                             SIX MONTHS ENDED                      SIX MONTHS ENDED
(DOLLARS ARE IN MILLIONS)                                     JUNE 30, 2001                         JUNE 30, 2000
- ----------------------------------------------------------------------------------------------------------------------------
                                                          AMOUNT         PERCENT               AMOUNT          PERCENT
                                                          ------         -------               ------          -------
<S>                                                   <C>                <C>                <C>               <C>
SALES
- -----
Services                                              $     657.2            62%                $487.6            53%

Engineered products                                         401.2            38                  435.4            47
                                                        ---------         -----                -------           ---

    Total sales                                         $ 1,058.4           100%             $   923.0           100%
                                                         ========         =====               ========         =====

OPERATING INCOME
- ----------------
Services                                              $      63.7            74%             $    56.5            61%

Engineered products                                          22.3            26                   35.7            39
                                                        ---------         -----                --------        -----

    Total segment operating income                    $      86.0           100%             $    92.2           100%
                                                       ==========          ====               ========         =====

EBITDA*
- ------
Services                                                $   134.9            78%             $   111.5            69%

Engineered products                                          38.7            22%                  51.0            31
                                                          -------         -----                -------         -----

    Total segment EBITDA                                $   173.6           100%             $   162.5           100%
                                                         ========         =====               ========         =====
</TABLE>

*  Earnings before interest, income taxes, minority interest, depreciation and
   amortization (EBITDA) is not a measure of performance under generally
   accepted accounting principles, however, the Company and the investment
   community consider it an important calculation.

For the first six months of 2001 sales, operating income and EBITDA for services
increased substantially from the first six months of 2000. The increases reflect
principally the SGB acquisition, as well as improvement in certain international
markets served by the company and the favorable effects of cost reductions,
process improvements and reorganization efforts.

Decreases for engineered products result from the previously discussed economic
slowdown in the United States.


                                      -27-
<PAGE>   28


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

FORWARD LOOKING STATEMENTS

The nature of the Company's operations and the many countries in which it
operates subject it to changing economic, competitive, regulatory, and
technological conditions, risks, and uncertainties. In accordance with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company provides the following cautionary remarks regarding important factors
which, among others, could cause future results to differ materially from the
forward-looking statements, expectations and assumptions expressed or implied
herein. These include statements about our management confidence and strategies
for performance; expectations for new and existing products, technologies, and
opportunities; and expectations for market segment and industry growth, sales,
and earnings.

These factors include, but are not limited to: (1) changes in the worldwide
business environment in which the Company operates, including general economic
conditions, particularly in the mill services, infrastructure and industrial gas
markets; import, currency exchange rates, interest rates, and capital costs; (2)
changes in governmental laws and regulations, including taxes; (3) market and
competitive changes, including pricing pressures, market demand and acceptance
for new products, services, and technologies; (4) effects of unstable
governments and business conditions in emerging economies; and (5) other risk
factors listed from time to time in the Company's SEC reports. The Company does
not intend to update this information and disclaims any legal liability to the
contrary.






                                      -28-
<PAGE>   29


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                         PART I - FINANCIAL INFORMATION

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to foreign currency risk in its international operations.
The Company conducts business in 40 countries and approximately 42%, 36%, and
37% of the Company's net revenues for the years ended December 31, 2000, 1999,
and 1998, respectively, were derived from the Company's operations outside the
United States. In the first six months of 2001, the following significant
currency decreases in relation to the U.S. dollar impacted the Company:

<TABLE>
<S>                                     <C>
Brazilian real                           Declined 15%
euro                                     Declined 10%
British pound sterling                   Declined 6%
South African rand                       Declined 6%
</TABLE>

These and other foreign currency exposures increase the risk of income
statement, balance sheet and cash flow volatility.

To illustrate the effect of foreign currency exchange rate changes due to the
strengthening of the U.S. dollar, in the first six months of 2001, sales would
have been approximately 2.5% or $25.9 million greater using the average exchange
rates for the first six months of 2000. A similar comparison for the year 2000
shows that sales would have increased by approximately 1.7% if the average
exchange rates for 1999 had remained the same in 2000.

The Company seeks to reduce exposures to foreign currency fluctuations through
the use of forward exchange contracts. At June 30, 2001, these contracts
amounted to $6.3 million and all mature within 2001. 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's cash flows and earnings are subject to changes in interest rates.
Total debt of $832.8 million as of June 30, 2001 was approximately 54.9% at
fixed rates of interest. The weighted average interest rate of total debt was
approximately 5.8%. At current debt levels a one-percentage increase/decrease in
interest rates would increase/decrease interest expense by approximately $3.8
million per year.

An economic slowdown in the United States that began in the second half of 2000
continued to adversely affect results in the first six months of 2001. This
resulted in reduced demand for the Company's manufactured products and mill
services in North America. Certain steel producers, including certain Company
customers, have been forced to file for bankruptcy protection. There is a risk
that the Company's future results of operations or financial condition could be
adversely affected if the United States steel industry and manufacturing sector
problems continue. This risk is somewhat mitigated since approximately 80% of
the Company's mill services sales are generated outside the United States. The
future financial impact on the Company associated with these risks cannot be
estimated.


                                      -29-
<PAGE>   30


                   HARSCO CORPORATION AND SUBSIDIARY COMPANIES
                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

Information on legal proceedings is included under Part I, Item 1., the section
labeled "Commitments and Contingencies."


ITEM 5. OTHER INFORMATION

DIVIDEND INFORMATION

On June 26, 2001, the Board of Directors declared a quarterly cash dividend of
24 cents per share, payable August 15, 2001, to shareholders of record on July
16, 2001.


ITEM 6(a).   EXHIBITS

The following exhibits are attached:

Exhibit No. 10(a) Harsco Corporation Deferred Compensation Plan for Non-Employee
Directors as Amended and Restated June 26, 2001.

Exhibit No. 10(b) 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.


ITEM 6(b).   REPORTS ON FORM 8-K

There were no reports filed on Form 8-K during the second quarter ending June
30, 2001.






                                      -30-
<PAGE>   31


                                   SIGNATURES



Pursuant to the requirements 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       August 13, 2001                /S/ Salvatore D. Fazzolari
     ---------------------------          --------------------------------------
                                          Salvatore D. Fazzolari
                                          Senior Vice President, Chief
                                          Financial Officer and Treasurer



DATE       August 13, 2001                /S/ Stephen J. Schnoor
     ---------------------------          --------------------------------------
                                          Stephen J. Schnoor
                                          Vice President and Controller





                                      -31-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.A
<SEQUENCE>3
<FILENAME>y52239ex10-a.txt
<DESCRIPTION>HARSCO CORPORATION DEFERRED COMPENSATION PLAN
<TEXT>
<PAGE>   1
                                                                   Exhibit 10(a)
                               HARSCO CORPORATION

              DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
                     (AS AMENDED AND RESTATED JUNE 26, 2001)

         Harsco Corporation (the "Corporation") hereby adopts this Deferred
Compensation Plan for Non-Employee Directors (the "Plan") pursuant to which
eligible members of its Board of Directors may elect to defer receipt of all or
any portion of the compensation payable to them for services rendered to the
Corporation as Directors.

         1. Eligible Directors. The Directors of the Corporation eligible to
make deferral elections under this Plan shall be those Directors who are not
actively employed officers or employees of the Corporation or of any of its
subsidiaries or affiliates (hereinafter referred to individually as a
"Non-Employee Director" and collectively as the "Non-Employee Directors").

         2. Deferrable Compensation. A Non-Employee Director may elect to defer
receipt of all, any part or none of the aggregate compensation payable by the
Corporation for services rendered as a Director, including the annual base
retainer, Committee Chairman annual retainer increment, attendance fees for
board and committee meetings, and other fees for special services (in the
aggregate, the "Director's Fees").

         3. Election to Defer. A Non-Employee Director who desires to defer
receipt of all or a portion of his Director's Fees in any calendar quarter shall
so notify the Corporation's Pension Committee in writing before the first day of
the calendar quarter, specifying on a form supplied by the Committee (a) the
dollar amount or percentage of the Director's Fees to be deferred, (b) the
deferral period, (c) the form of payment, and (d) the notional investment
direction. Elections to take effect with respect to the initial year of this
Plan may be made by Non-Employee Directors until the first regularly scheduled
Board of Directors meeting in 1995. A newly-appointed Non-Employee Director
shall be eligible to defer payment of future Director's Fees by so notifying the


                                      -1-
<PAGE>   2
                                                                   Exhibit 10(a)


Pension Committee on the appropriate form at any time within 30 days of his
appointment to the Board of Directors. The elections made pursuant to this
Paragraph shall be irrevocable with respect to those Director's Fees to which
such elections pertain and shall also apply to Director's Fees payable in
subsequent quarterly periods unless the Non-Employee Director notifies the
Pension Committee in writing, before the first day of the calendar quarter, that
different elections shall apply with respect to Director's Fees payable during
such calendar quarter. Such new elections shall likewise continue in effect and
apply to subsequent calendar quarters until similarly changed.

         4. Non-Deferred Compensation. Any Director's Fees not deferred under
this Plan shall be paid in accordance with normal Corporation policy.

         5. Deferred Compensation Accounts and Notional Investment Directions.

                  (a) Accounts: At the time a Non-Employee Director elects to
defer the receipt of compensation pursuant to Paragraph 3 above, he shall also
direct the amount of the deferral to be notionally invested in an
Interest-Bearing Account and the amount to be notionally invested in a Harsco
Stock Account. Pursuant to such investment direction, the deferral amounts shall
be credited to the appropriate accounts as set forth below:

                           (i) Interest-Bearing Account: To the extent that a
Non-Employee Director elects a notional investment in an Interest-Bearing
Account, the Corporation shall, on the business day the Director's Fees would
have been paid absent the deferral election, credit an Interest-Bearing Account
established in his name with the amount of the deferred Director's Fees to be so
invested.

                           (ii) Harsco Stock Account: To the extent that a
Non-Employee Director elects a notional investment in a Harsco Stock Account,
the Corporation shall, on the business day the Director's Fees would have been
paid absent the deferral election, credit a Harsco Stock Account established in
his name with units (including


                                      -2-
<PAGE>   3
fractions), the number of which shall be obtained by dividing the amount of the
deferred Director's Fees to be so invested by the Fair Market Value of the
Corporation's common stock. These units, thus calculated, are hereinafter
referred to as "Stock Equivalents." For purposes of the Plan, Fair Market Value
of a share of the Corporation's common stock on any date shall be equal to the
mean between the high and low prices at which such shares were traded on the New
York Stock Exchange ("NYSE") on such date, or, if no sales were quoted on such
date, on the most recent preceding date on which sales were quoted. In the event
of any change in the common stock of the Corporation by reason of any stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, or a rights offering to purchase common stock
at a price substantially below Fair Market Value, or of any similar change
affecting the common stock, the value and attributes of each Stock Equivalent
shall be appropriately adjusted consistent with such change to the same extent
as if such Stock Equivalents were issued and outstanding shares of common stock
of the Corporation.

                  (b) Earnings: The Corporation shall credit earnings to each
account as follows:

                           (i) Interest-Bearing Account: As of the last day of
each calendar month, the Corporation shall credit as earnings to each
Interest-Bearing Account established on behalf of a Non-Employee Director an
amount equal to the Five Year U.S. Treasury Note Percentage Rate multiplied by
the average daily balance in such Interest-Bearing Account during such calendar
month. Such Five Year U.S. Treasury Note Percentage Rate shall be equal to one
twelfth (1/12) of the yield on U.S. Treasury Notes having a maturity date five
(5) years hence as listed in The Wall Street Journal or any successor
publication, as of market closing on the first day of the calendar quarter which
includes that month.

                           (ii) Harsco Stock Account: As of each quarterly
dividend payment date, the Corporation shall credit as earnings to each Harsco
Stock Account an amount equal to the cash dividends payable on such date with
respect to that number of shares


                                      -3-
<PAGE>   4
                                                                   Exhibit 10(a)


(including fractional shares) of its common stock equal to the number of Stock
Equivalents credited to the Harsco Stock Account on the relevant dividend record
date. The amount so credited shall then be converted into additional Stock
Equivalents in the manner described earlier using the dividend payment date as
the valuation date.

         (c) Account Transfers: A Non-Employee Director may transfer all or part
of the amount in one account to the other account by irrevocable written notice
to the Corporation's Pension Committee. Any such transfer will be effective upon
the date that the Corporation receives the written notice, and the value of the
Harsco Stock Account for purposes of the transfer shall be calculated using the
Fair Market Value on the date of the transfer. No Non-Employee Director, may
make a transfer between accounts within six months of any previous transfer by
such Director or within six months of any other transaction in Company stock
that could cause liability under Section 16(b) of the Securities and Exchange
Act of 1934, and any notice of transfer in contravention of this provision will
be void.

         6. Deferral Period. At the time a Non-Employee Director elects to defer
the receipt of compensation pursuant to Paragraph 3 above, he shall indicate the
deferral period applicable to such deferred compensation by specifying the year
(the "Payment Year") in which the deferred amounts are to be paid in a lump sum
or in which installment payments shall commence; provided, however, that in no
event shall the Payment Year be later than the year following the year in which
the Non-Employee Director will attain age 72.

         7. Form of Payment of Deferred Compensation. Initial payments made
under the Plan shall be based upon the aggregate balance in a Non-Employee
Director's account(s) determined on the first business day of the Payment Year.
The balance in the Non-Employee Director's Interest-Bearing Account shall be the
dollar amount credited to such account as of the first business day of the
Payment Year. The balance in the Non-Employee Director's Stock Account shall be
the dollar amount determined by multiplying the Stock Equivalents credited to
such account on the first


                                      -4-
<PAGE>   5
                                                                   Exhibit 10(a)


business day of the Payment Year by the Fair Market Value of a share of common
stock of the Corporation on such date. The aggregate balance as thus determined
shall be paid to him in cash either in a lump sum within 30 days following the
first business day of the Payment Year or in up to ten (10) annual installments
commencing with the Payment Year as specified in the election to defer made
pursuant to Paragraph 3 above. If an election to receive installment payments is
made, the Non-Employee Director shall receive the first installment within 30
days following the first business day of the Payment Year in an amount equal to
the aggregate balance in his account(s) divided by the number of years in the
installment payment period. Subsequent installments shall be computed and paid
in similar fashion; provided, however, that pending distributions in the second
through final years of the installment payment period, the aggregate balance in
the Non-Employee Director's account(s) shall be deemed to be invested in an
Interest-Bearing Account and in a Harsco Stock Account, as applicable, in the
same proportion as deferred amounts under the Plan were notionally invested on
the first business day of the Payment Year, and increased by earnings
accordingly. Exhibit A attached hereto presents an example illustrating how such
a calculation is made.

         8. Early Withdrawal.

                  (a) In the event of an "Early Withdrawal", all or part of the
amounts credited to the account(s) of a Non-Employee Director under the Plan,
net of the forfeited amount described in (c) below, shall be payable to the
Non-Employee Director in a single lump sum notwithstanding the deferral period
and form of payment specified pursuant to Paragraph 3 above.

                  (b) For purposes of the Plan, an "Early Withdrawal" shall have
occurred if:

                           (i) Written Notice: A Non-Employee Director notifies
the Corporation's Pension committee in writing at least 30 days in advance of
the proposed withdrawal date that he wishes to make an Early Withdrawal.

                                      -5-
<PAGE>   6
                                                                   Exhibit 10(a)


                           (ii) Designation of Amounts: The notice described in
(a) above shall be made on a form supplied by the Pension Committee which shall
require, at minimum, that the Non-Employee Director specify the amount of the
withdrawal (subject to the limitations in (iii) below) and whether the full
amount of the withdrawal is to be taken from the Non-Employee Director's
Interest-Bearing Account or Harsco Stock Account or apportioned between them.

                           (iii) Minimum Amount: The amount to be withdrawn
shall equal at least fifty-percent (50%) of the aggregate balance of the
Non-Employee Director's account(s) determined as of the first business day of
the calendar month immediately preceding the calendar month of the withdrawal
date. Such minimum amount shall be determined without regard to the forfeited
amount described in (c) below.

         (c) In the event of an Early Withdrawal, the Non-Employee Director
shall forfeit from the amount withdrawn an amount equal to ten-percent (10%) of
the amount withdrawn. The Non-Employee Director and the Non-Employee Director's
designated beneficiary shall not have any right or claim to the forfeited
amount, and the Corporation shall have no obligation whatsoever to the
Non-Employee Director, the Non-Employee Director's designated beneficiary or any
other person with regard to the forfeited amount.

         (d) If a Non-Employee Director seeks to make an Early Withdrawal at a
time when the Non-Employee Director is subject to Section 16 of the Securities
Exchange Act ("Exchange Act"), the Non-Employee Director shall be responsible
for determining whether such Early Withdrawal may be considered a nonexempt sale
under Section 16 of the Exchange Act and shall be subject to any liability which
may result therefrom.

         9. Change in Control.


                                      -6-
<PAGE>   7
                                                                   Exhibit 10(a)


                  (a) In the event of a "Change in Control" of the Corporation
followed by a Non-Employee Director's cessation of service to the Corporation as
a Director, all amounts credited to the account(s) of the Non-Employee Director
under the Plan shall be immediately due and payable to the Non-Employee Director
in a single lump sum notwithstanding the deferral period and form of payment
specified pursuant to Paragraph 3 above.

                  (b) For purposes of this Plan, a "Change in Control" shall
have occurred if:

                           (i) Stock Acquisition. Any "person" (as such term is
used in Section 13(d) and 14(d) (2) of the Exchange Act), other than the
Corporation or a corporation a majority of whose outstanding stock entitled to
vote is owned, directly or indirectly, by the Corporation, is or becomes, other
than by purchase from the Corporation or such a corporation, the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding voting securities.
Such a Change in Control shall be deemed to have occurred on the first to occur
of the business day immediately preceding the date securities are first
purchased by a tender or exchange offer, or the date on which the Corporation
first learns of the acquisition of 20% of such securities, or the earlier of the
business day immediately preceding the effective date of an agreement for the
merger, consolidation or other reorganization of the Corporation or the date of
approval thereof by the stockholder of the Corporation, as the case may be.

                           (ii) Change in Board. During any period of two
consecutive years, individuals who at the beginning of such period were members
of the Board of Directors, and any new director whose election by the Board or
nomination for election by the Corporation's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any



                                      -7-
<PAGE>   8
                                                                   Exhibit 10(a)


reason to constitute at least a majority of the Board of Directors. Such a
Change in Control shall be deemed to have occurred on the date upon which the
requisite majority of directors fails to be elected by the stockholders of the
Corporation.

                           (iii) Other Events. There occurs a change in control
of the Corporation of a nature that would be required to be reported as such in
response to Item 1(a) of the Current Report on Form 8-K pursuant to Section 13
of 15(d) of the Exchange Act, or any successor provision to such Item relating
to a "change in control," or in any other filings under the Exchange Act.

         10. Designation of Beneficiary. If a Non-Employee Director dies prior
to receiving the entire balance of his account(s) under the Plan, any balance
remaining in his account(s) shall be paid in a lump sum as soon as practicable
to the Non-Employee Director's designated beneficiary or, if the Non-Employee
Director has not designated a beneficiary or the designated beneficiary is dead,
then to his estate. Any designation of a beneficiary may be revoked or modified
at any time by the Non-Employee Director, except that no designation shall be
recognized as valid unless properly filed with the Pension Committee during the
lifetime of the Non-Employee Director while he is legally competent.

         11. Withholding of Taxes. The rights of a Non-Employee Director to
payments or credits under this all be subject to the Corporation's obligations,
if any, to withhold income or other taxes from such payments.

         12. Status of Plan. This Plan is a nonqualified deferred compensation
plan covering no employees of the Corporation. As such, the Plan is exempt from
the requirements of the Employee Retirement Income Security Act of 1974, as
amended. The Corporation intends that the Plan shall at all times be maintained
on an unfunded basis for federal income tax purposes. Hence, all payments from
this Plan shall be made from the general assets of the Corporation. This Plan
shall not require the Corporation to set aside, segregate, earmark, pay into a
trust or special account or

                                      -8-
<PAGE>   9
                                                                   Exhibit 10(a)


otherwise restrict the use of its assets in the operation of its business. A
Non-Employee Director (or, if applicable, his designated beneficiary) shall have
no greater right or status than as an unsecured general creditor of the
Corporation with respect to any amounts owed hereunder.

         13. Rights Nonassignable. All payments to persons entitled to benefits
hereunder shall be made to such persons and shall not be grantable, transferable
or otherwise assignable in anticipation of payment thereof, in whole or in part,
by the voluntary or involuntary acts of any such persons or by operation of law
subject to garnishment, execution, attachment or any other similar legal process
of creditors of such persons.

         14. Administration. Full power and authority to construe, interpret and
administer this Plan shall be vested in the Corporation's Pension Committee. The
Pension Committee shall have full power and authority to make each determination
provided for in this Plan. All determinations made by the Pension Committee
shall be conclusive and binding upon the Company and any other party claiming
rights hereunder.

15. Termination. The Board of Directors may, in its discretion, terminate this
Plan at any time. Upon termination of the Plan, benefits shall be paid in
accordance with the deferral elections made by the Non-Employee Director;
provided, however, that the Pension Committee shall have the right to determine
the total amount payable to each Non-Employee Director (or, if applicable, his
beneficiary) and to cause the amount so determined to be paid in lump sum,
thereby discharging the Corporation from any further liability or obligation
under this Plan.

         16. Amendment. The Board of Directors may, in its discretion, amend
this Plan from time to time. In addition, the Pension Committee may from time to
time amend this Plan to make such administrative changes as it may deem
necessary or desirable. No such amendment shall divest any Non-Employee Director
(or person



                                      -9-
<PAGE>   10
                                                                   Exhibit 10(a)


claiming through him) of any rights to amounts previously credited to his
accounts hereunder.

         17. Incompetency. If a person to receive payment hereunder is deemed by
the Pension Committee or is adjusted to be legally incompetent, the payments
shall be made to the duly appointed guardian of such incompetent, or they may be
made to such person or persons who the Pension Committee believes are caring for
or supporting such incompetent; and the receipt thereof by such person or
persons shall constitute complete satisfaction of the Company's obligations
under this Plan.

         18. Expenses. The expenses of administering this Plan shall be borne by
the Corporation.

         19. Gender. The masculine pronoun shall be deemed to include the
feminine, and the singular to include the plural, unless a different meaning is
plainly required by context.

         20. Governing Law. This Plan shall be construed, administered and
enforced according to the laws of the Commonwealth of Pennsylvania.


                                      -10-
<PAGE>   11
                                                                   Exhibit 10(a)


         21. Effective Date. The effective date of this Plan is January 1, 1995
and shall apply with respect to the Director's Fees payable by the Corporation
in respect of services performed on or after such date.


Executed this 9th day of July, 2001.


ATTEST:                                              HARSCO CORPORATION

/s/ Paul C. Coppock                                  /s/ Derek C. Hathaway
- -------------------------------------------          ---------------------------
Paul C. Coppock                                      Derek C. Hathaway
Senior Vice President, Chief Administrative          Chairman, President and
  Officer, General Counsel and Secretary               Chief Executive Officer



                                      -11-
<PAGE>   12
                                                                   Exhibit 10(a)


                                                                     "Exhibit A"
                           Deferred Compensation Plan
                           for Non-Employee Directors

                                     Example

                  This example, prepared for illustrative purposes only,
describes the operation of the installment payout option set forth in Paragraph
7 of the Plan.

                  Director Green, age 62, elects to defer all of his Director
Fees until the year following the year he attains age 72. During his service as
a Director, Green directs 60% of his Fees to be invested in the Harsco Stock
Account (HSA) and 40% to be invested in the Interest-Bearing Account (IBA).
Pursuant to Green's prior direction, his accounts are to be paid out in three
annual installments. If Green attains age 72 in 2004 his installment should be
calculated and paid as follows:

                  1st Installment

                  - When paid - Within 30 days of the first business day (assume
January 2) in 2005.

                  - How much - First installment equals one-third of the
aggregate dollar value of Green's accounts as of January 2, 2005. Assume Green's
HSA on January 2, 2005 is credited with 1,000 Stock Equivalents and the FMV of a
share of Harsco common stock on such date is $60, thus giving his HSA a value of
$60,000. Assume further, that as of January 2, 2005, Green's IBA is credited
with $30,000 (representing his prior deferrals plus interest). Accordingly,
Green's first installment should equal $30,000 ($90,000 aggregate account
balance value divided by 3).

                  - Balance in Account after 1st Installment - In order to
continue the 60/40 proportionality going forward, the $60,000 in remaining value
under the Plan should result in the HSA holding 60% of that value and the IBA
holding the remaining 40%. Thus, as of January 2, 2005, the HSA is debited
333.33 shares leaving 666.66 shares (which at $60 FMV equal $40,000) and the IBA
is debited $10,000, thus leaving $20,000.

                  2nd Installment

                  - When paid - Within 30 days of January 2, 2006.

                  - How much - Second installment equals one-half of the
aggregate dollar value of Green's accounts as of January 2, 2006. Assume that as
of this date, Green's HSA was credited with 700 Stock Equivalents (666.66 from
prior year plus 33.34 new units attributable to dividends in the interim) and
that the FMV of a share of Harsco stock on that date was $62. Thus, Green's HSA
would be worth $43,400 at

                                      -12-
<PAGE>   13
                                                                   Exhibit 10(a)


January 2, 2006. Assume further that Green's IBA was worth $21,000 ($20,000 from
prior year plus interim interest of $1,000). Green's second installment would
thus equal $32,200 (($43,400 + $21,000) divided by 2).

                  - Balance is Accounts after 2nd Installment - The same
methodology would be used again to retain the 60/40 proportionality. As of
January 2, 2006, the combined value of HSA and the IBA was worth $64,400, and
after the payout of half this amount, the combined value was $32,200. This means
that the HSA would have 60% of the total value (or $19,320) and the IBA should
have 40% (or $12,880). Thus, the HSA should be debited 38.39 shares
(representing $24,080 or 3888.39 x $62 FMV/share) leaving 311.61 shares (or
$19,320 in value). The IBA should be debited $8,120, leaving $12,880.

                  3rd and Last Installment

                  - When paid - Within 30 days of January 2, 2007.

                  - How much - Calculate value of both HSA and IBA as of January
2, 2007 (as described above) and pay out total.


                                      -13-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.B
<SEQUENCE>4
<FILENAME>y52239ex10-b.txt
<DESCRIPTION>COMMERCIAL PAPER DEALER AGREEMENT
<TEXT>
<PAGE>   1
Dated: 7 JUNE 20017 JUNE 2001
FMDCM/Y17007/HMH/PMS

Dealer Agreement

between

Harsco Finance B.V. (a private company with limited liability incorporated under
the laws of The Netherlands and with its statutory seat in Amsterdam, The
Netherlands)
as Issuer

Harsco Corporation
as Guarantor

The Royal Bank of Scotland plc
as Arranger

and

Citibank International plc, National Westminster Bank Plc and The Royal Bank of
Scotland plc
as Dealers

relating to



an EUR 250,000,000
Euro-Commercial Paper Programme
<PAGE>   2
                                    CONTENTS

<TABLE>
<S>                                                                                                               <C>
1.       Interpretation............................................................................................1

2.       Issue.....................................................................................................5

3.       Representations and Warranties............................................................................8

4.       Covenants and Agreements.................................................................................13

5.       Indemnity................................................................................................13

6.       Obligations of the Dealers...............................................................................16

7.       Conditions Precedent.....................................................................................16

8.       Termination and Appointment..............................................................................17

9.       Communications...........................................................................................18

10.      Counterparts.............................................................................................18

11.      Third party rights.......................................................................................18

12.      Governing Law, Submission to Jurisdiction and Service of Process.........................................19

SCHEDULE 1 :  Conditions Precedent Documents......................................................................20

SCHEDULE 2 :  Selling Restrictions................................................................................22

SCHEDULE 3 :  Notification Letter for an increase in the Maximum Amount...........................................24

SCHEDULE 4 :  Dealer Accession Letter.............................................................................26

SCHEDULE 5 :  Programme Summary...................................................................................28
</TABLE>




                                      i
<PAGE>   3
THIS AGREEMENT is dated 7 June 2001 and made

BETWEEN:

(1)      HARSCO FINANCE B.V., a private company with limited liability
         incorporated under the laws of The Netherlands and with its statutory
         seat in Amsterdam, The Netherlands in its capacity as an issuer of
         Notes under the Programme (as defined below);

(2)      HARSCO CORPORATION, in its capacity as the guarantor of the Notes under
         the Programme;

(3)      THE ROYAL BANK OF SCOTLAND PLC, as arranger (the "Arranger"); and

(4)      CITIBANK INTERNATIONAL plc, NATIONAL WESTMINSTER BANK PLC AND THE ROYAL
         BANK OF SCOTLAND PLC, (the "Dealers").

IT IS HEREBY AGREED as follows

1.       INTERPRETATION

1.1      DEFINITIONS

         In this Agreement:

         "Additional Dealer" means any institution appointed as a Dealer (either
         generally or in respect of a single issue of Notes) in accordance with
         clause 8.2.

         "Affiliate" means, in relation to any person, any entity controlled,
         directly or indirectly, by such person, any entity that controls,
         directly or indirectly, such person, or any entity under common control
         with such person.

         "Agency Agreement" means the issue and paying agency agreement, dated
         the date of this Agreement, between the Issuer, the Guarantor, and the
         Issue Agent and Paying Agent providing for the issue of, and payment
         under, the Notes (and as such agreement may be amended, restated or
         replaced from time to time).

         "Agreements" means this Agreement (as amended, restated or replaced
         from time to time), any agreement for a Note Transaction, the
         Guarantee, the Deed of Covenant and the Agency Agreement.

         "Arranger" means The Royal Bank of Scotland plc.

         "AU$", "AU Dollars" and "AUD" denote the lawful currency of Australia;
         and "AUD Note" means a Note denominated in Australian Dollars.

         "Clearing System" means Clearstream, Luxembourg, Euroclear or any other
         recognised clearing system from time to time agreed in writing between
         the Dealers and the Issuer.

         "Clearstream, Luxembourg" means Clearstream Banking, societe anonyme or
         any successor entity.

         "Control" of any entity or person means ownership of a majority of the
         voting power of such entity or person;


                                       1
<PAGE>   4
         "Dealers" means the institution or institutions specified as a Dealer
         in the Programme Summary, together with any Additional Dealer(s) but
         excluding any institution or institutions whose appointment has been
         terminated under clause 8.1.

         "Dealer Accession Letter" means a letter substantially in the form of
         Schedule 4, delivered to the Additional Dealer in accordance with
         clause 8.2

         "Deed of Covenant" means a Deed of Covenant, dated the date of this
         Agreement, executed by the Issuer in respect of Global Notes issued
         under the Agency Agreement (and as such deed may be amended, restated
         or replaced from time to time).

         "Definitive Note" means a security printed Note in definitive form.

         "Disclosure Documents" means, at any particular date:

         (A)      the Information Memorandum;

         (B)      the most recently published audited financial statements of
                  the Guarantor and any subsequent interim financial statements;
                  and

         (C)      any other document delivered by the Issuer or the Guarantor to
                  the Dealer(s) which the Issuer or the Guarantor has expressly
                  authorised to be distributed in connection with the
                  transactions contemplated by this Agreement.

         "Dollars", "US$" and "U.S.$" denote the lawful currency of the United
         States of America; and "Dollar Note" means a Note denominated in
         Dollars.

         "EUR Equivalent" means, on any day:

         (A)      in relation to any Euro Note, the principal amount of such
                  Note; and

         (B)      in relation to any Note denominated or to be denominated in
                  any currency other than the Euro, the amount of Euro which
                  would be required to purchase the principal amount of that
                  Note as expressed in such other currency at the spot rate of
                  exchange for the purchase of such other currency with Euro
                  quoted by the Issue Agent at or about 11.00am (London time) on
                  that day.

         "Euro" and "EUR" denote the single currency of participating member
         states of the European Union, as contemplated by the Treaty on European
         Union and "Euro Note" means a Note denominated in Euro.

         "Euroclear" means Euroclear Bank S.A./N.V., as operator of the
         Euroclear System or any successor entity.

         "Global Note" means a bearer promissory Note in global form,
         representing an issue of promissory notes of a like maturity which may
         be issued by the Issuer under the Agency Agreement and which is
         exchangeable with Definitive Notes subject to and in accordance with
         its terms.

         "Group" means, in relation to a person, that person and its
         Subsidiaries.

         "Guarantee" means the deed of guarantee executed by the Guarantor dated
         7 June 2001 pursuant to which the Guarantor guarantees the Issuer's
         obligations in respect of each


                                       2
<PAGE>   5
         Note and under the Deed of Covenant (and as such deed may be amended,
         restated or replaced from time to time).

         "Information Memorandum" means the most recent information memorandum,
         as the same may be amended or supplemented from time to time,
         containing information about the Issuer, the Guarantor and the Notes,
         the text of which has been prepared by or on behalf of the Issuer and
         the Guarantor for use by the Dealer(s) in connection with the
         transactions contemplated by this Agreement.

         "Issue Agent" and "Paying Agent" mean, respectively, the person or
         persons specified as such in the Programme Summary and any successor
         issue agent or, as the case may be, paying agent appointed in
         accordance with the Agency Agreement.

         "Issue Date" means, in relation to any Note, the date for the issue of
         that Note as agreed between the Issuer and the relevant Dealer.

         "Issuer" means Harsco Finance B.V., in its capacity as the issuer of
         Notes pursuant to this Agreement and the Agency Agreement.

         "Maturity Date" means, in relation to any Note, the date of maturity of
         that Note in accordance with the terms of that Note.

         "Maximum Amount" means the maximum amount of Notes which, when
         aggregated with the Notes for the time being outstanding under the
         Programme, are permitted to be outstanding, being at the date hereof
         EUR 250,000,000 (or its equivalent in other currencies).

         "Note" means a bearer promissory note of the Issuer purchased or to be
         purchased by a Dealer under this Agreement, in global or definitive
         form, in the respective forms set out in Schedule 1 to the Agency
         Agreement or such other form as may be agreed from time to time between
         the Issuer, the Guarantor, that Dealer, the Issue Agent and the Paying
         Agent and, unless the context otherwise requires, the promissory notes
         represented by the Global Notes.

         "Notices" means the Bank of England Notice dated 18 March 1997 entitled
         "The Banking Act 1987 (Exempt Transactions) Regulations 1997 and issues
         of Commercial Paper" and "Explanatory Memorandum - Issues of Commercial
         Paper and Debt Securities of one year or over under The Banking Act
         1987 (Exempt Transactions) Regulations 1997" respectively and, in each
         case, relating to the Regulations (as the same may be amended and/or
         replaced from time to time).

         "Note Transaction" means the sale by the Issuer and the purchase by a
         Dealer of Notes in accordance with clause 2.

         "Programme" means the uncommitted euro-commercial paper programme to be
         managed by the Dealers for the Issuer and established by the
         Agreements.

         "Programme Summary" means the programme summary set out in schedule 5,
         as such summary may be amended or superseded from time to time.

         "Regulations" means The Banking Act (Exempt Transactions) 1997 which
         came into force on 3 April 1997 (as the same may be amended, varied or
         replaced from time to time).


                                       3
<PAGE>   6
         "relevant jurisdiction" means any one or more of the United Kingdom,
         the jurisdiction of incorporation of the Issuer and the Guarantor, any
         jurisdiction from or through which any payment under or in respect of
         any Note or any Agreement may be made and any jurisdiction in which the
         Issuer or the Guarantor is or becomes subject to taxes generally.

         "Relevant Notes" means any Notes the purchase price or issue proceeds
         in respect of which are accepted by the Issuer in the United Kingdom
         and shall include, without limitation, Sterling Notes where the context
         so admits.

         "Relevant Party" means, in relation to a person, any director, officer,
         employee, affiliate or agent of such person.

         "Securities Act" means the United States Securities Act of 1933 (as
         amended from time to time);

         "Sterling" and "L" denote the lawful currency of the United Kingdom;
         and "Sterling Note" means a Note denominated in Sterling.

         "Subsidiary" means, in respect of any person (the "first person") at
         any particular time, any other person (the "second person"):

         (A)      CONTROL: who the first person controls or has the power to
                  control, directly or indirectly, through the ownership of
                  voting securities entitling it to elect a majority of the
                  members of the governing body of the second person or
                  otherwise; or

         (B)      CONSOLIDATION: whose financial statements are, in accordance
                  with applicable law and generally accepted accounting
                  principles, consolidated with those of the first person.

         "Swiss Francs" and "CHF" denote the lawful currency of Switzerland; and
         "CHF Note" means a Note denominated in Swiss Francs.

         "Third Party" means any person other than a member of the Group.

         "Treaty on European Union" means the Treaty of Rome of 25 March 1957,
         as amended by the Single European Act 1986 and the Maastricht Treaty
         (which was signed at Maastricht on 07 February, 1992 and came into
         force on 01 November 1993) as amended from time to time.

         "Yen" and "Y" denote the lawful currency of Japan; and "Yen Note" means
         a Note denominated in Yen.

1.2      CONSTRUCTION

         (A)      In this Agreement, unless the contrary intention appears, a
                  reference to:

                  (1)      a provision of a law is a reference to that
                           provision as amended or re-enacted;

                  (2)      a clause or a schedule is a reference to a clause of
                           or a schedule to this Agreement;

                  (3)      a person includes any individual, company, body
                           corporate, corporation sole or aggregate, government,
                           state or agency of a state, firm, partnership, joint


                                       4
<PAGE>   7
                           venture, association, organisation or trust (in each
                           case, whether or not having separate legal
                           personality and irrespective of the jurisdiction in
                           or under the law of which it was incorporated or
                           exists) and references to any person shall include
                           its respective successors and assigns; and

                  (4)      this Agreement or any of the other Agreements or
                           other documents is a reference to that Agreement or
                           that other document as amended, novated, restated or
                           supplemented from time to time.

         (B)      The index to and the headings in this Agreement are for
                  convenience only and are to be ignored in construing this
                  Agreement.

         (C)      Words denoting the singular number only shall include the
                  plural number also and vice versa and words denoting one
                  gender only shall include the other gender.

         (D)      Any terms not expressly defined in clause 1.1 shall have the
                  meanings set out in the Programme Summary.

2.       ISSUE

2.1      THE PROGRAMME

         The Programme is uncommitted. Accordingly, the Issuer shall not be
         under any obligation to issue and sell any Notes, and the Dealers shall
         not be under any obligation to purchase or procure the purchase of any
         Notes, until such time as an agreement for a Note Transaction has been
         reached.

2.2      ISSUE OF NOTES

         (A)      Subject to the terms of this Agreement, the Issuer may issue
                  and sell Notes to the Dealers from time to time at such prices
                  and upon such terms as the Issuer and the relevant Dealer may
                  agree. The Issuer acknowledges that the Dealers may resell
                  Notes purchased by such Dealers.

         (B)      Each issue of Notes will be of an aggregate principal amount
                  as may be agreed between the Issuer and the relevant Dealer
                  and each Note issued will be represented initially by one or
                  more Global Notes or, in the case of Sterling Notes, may be
                  represented by Definitive Notes in the denominations stated in
                  the Programme Summary or (in the case of Global Notes) an
                  integral multiple thereof. Sterling Global Notes will be
                  exchangeable, in accordance with their terms, for Sterling
                  Definitive Notes upon request, upon a default by the Issuer or
                  if Euroclear or Clearstream, Luxembourg or any other Clearing
                  System is closed for a continuous period of 14 days or more
                  (other than by reason of weekends or public holidays,
                  statutory or otherwise) or if Euroclear or Clearstream,
                  Luxembourg or any other Clearing System announces an intention
                  to cease permanently to do business or does in fact
                  permanently so cease to do business. Global Notes issued in
                  any other currency pursuant to this Agreement will be
                  exchangeable, in accordance with their terms, for Definitive
                  Notes denominated in that currency only upon default by the
                  Issuer or if Euroclear or Clearstream, Luxembourg or any other
                  Clearing System is closed for a continuous period of 14 days
                  or more (other than by reason of weekends or public holidays,
                  statutory or otherwise) or if Euroclear or Clearstream,
                  Luxembourg or any other Clearing System announces an intention
                  to cease permanently to do business or does in fact
                  permanently so cease to do business.


                                       5
<PAGE>   8
         (C)      The tenor of each Note shall not be less than the Minimum Term
                  nor greater than the Maximum Term specified in the Programme
                  Summary calculated from (and including) the Issue Date to (but
                  excluding) the Maturity Date of that Note.

         (D)      Definitive Notes (if any) shall be issued in the denominations
                  specified in the Programme Summary.

         (E)      In addition to the requirements of this clause 2.2 above and
                  subject to clause 2.5 below:

                  (1)      Notes to be denominated in Sterling will be issued in
                           denominations of at least L100,000 and Relevant Notes
                           to be denominated in any currency other than Sterling
                           will be issued in denominations of at least the
                           amount calculated by the Issue Agent to be the
                           equivalent of L100,000 in the relevant currency on
                           the basis of the spot rate of exchange for the
                           purchase of the relevant currency with Sterling
                           quoted by the Issue Agent at or about 11.00 am
                           (London time) on the Issue Date; and

                  (2)      the terms of any Global Note to be denominated in
                           Sterling will be such that interests therein will be
                           transferable in a minimum amount of L100,000 or an
                           integral multiple thereof and the terms of any
                           Relevant Notes to be denominated in any currency
                           other than Sterling will be such that interests
                           therein will be transferable in an amount calculated
                           by the Issue Agent to be at least the equivalent of
                           L100,000 in the relevant currency on the basis of the
                           spot rate of exchange for the purchase of the
                           relevant currency with Sterling quoted by the Issue
                           Agent at or about 11.00 am (London time) on the Issue
                           Date thereof.

2.3      AGREEMENT FOR NOTE TRANSACTIONS

         Subject as provided in this Agreement, and in particular (but without
         limitation) in clause 2.2 above, if the Issuer and any Dealer shall
         agree on the terms of the purchase of any Note by that Dealer
         (including agreement with respect to the Issue Date, aggregate
         principal amount, denomination, currency, purchase price, Maturity
         Date, interest rate and discount, and, in the case of Sterling Notes
         only, whether that Note will be a Definitive Note or a Global Note),
         then:

         (A)      the Issuer shall cause such Note to be issued and delivered in
                  accordance with the terms of the Agency Agreement;

         (B)      the relevant Dealer shall cause the purchase price of such
                  Note to be paid on the date of issue:

                  (1)      in the case of a Dollar Note, by transfer of funds
                           settled through the New York Clearing House Interbank
                           Payments System (or such other same-day funds as at
                           the time shall be customary for the settlement in New
                           York City of international banking transactions
                           denominated in Dollars) to the account in New York as
                           the Issue Agent shall from time to time have
                           specified for this purpose; or

                  (2)      in the case of a Sterling Note, by transfer of
                           same-day funds to the Sterling account in the City of
                           London as the Issue Agent shall from time to time
                           have specified for this purpose; or


                                       6
<PAGE>   9
                  (3)      in the case of a Euro Note, by transfer of funds
                           settled through the Trans-European Automated
                           Real-Time Gross Settlement Express Transfer (TARGET)
                           System to such account of the Issue Agent outside the
                           United Kingdom denominated in Euro as the Issue Agent
                           shall have specified for this purpose; or

                  (4)      in all other cases by transfer of freely transferable
                           same-day funds in the relevant currency to the
                           account of the Issue Agent at the bank in the
                           principal domestic financial centre for such currency
                           as the Issue Agent may from time to time have
                           specified for this purpose; and

         (C)      the relevant Dealer shall notify the Issue Agent of the
                  delivery instructions applicable to such Note in accordance
                  with prevailing market practice and in sufficient time to
                  enable the Issue Agent to deliver such Note (or make the same
                  available for collection) on its Issue Date.

2.4      FAILURE TO ISSUE

         If, for any reason (including, without limitation, the failure of the
         relevant trade), a Note in a Note Transaction is not to be issued, the
         Issuer and the relevant Dealer shall immediately notify the Issue Agent
         of that failure.

2.5      OPTIONAL CURRENCIES

         Any Note Transaction or agreement therefor in respect of a Note
         denominated in a currency other than Euro, Dollars, Sterling, Swiss
         Francs, Yen or Australian Dollars shall be conditional upon:

         (A)      it being lawful and in compliance with all requirements of any
                  relevant central bank and any other relevant fiscal, monetary,
                  regulatory or other authority, for deposits to be made in such
                  currency and for such Note to be issued, offered for sale,
                  sold and delivered;

         (B)      such other currency being freely transferable and freely
                  convertible into Euro; and

         (C)      any appropriate amendments which the relevant Dealer or the
                  Issuer shall require having been made to this Agreement and/or
                  the Agency Agreement.

2.6      INCREASE IN MAXIMUM AMOUNT

         The Issuer and the Guarantor may from time to time increase the Maximum
         Amount by:

         (A)      giving at least ten days' notice by letter in substantially
                  the form of Schedule 3 to each Dealer and to the Issue Agent
                  and the Paying Agent; and

         (B)      delivering to each Dealer the documents referred to in that
                  letter, in each case in form and substance acceptable to each
                  Dealer.

2.7      FLOATING RATE INTEREST NOTES

         (A)      If Floating Rate Interest Notes are to be issued, a person
                  (being a reputable bank or other financial institution
                  experienced in acting as calculation agent, which may be a
                  Dealer) agreed between the Issuer and the Dealers will be
                  appointed as the calculation agent in respect of such Floating
                  Rate Interest Notes.


                                       7
<PAGE>   10
         (B)      If a Dealer or any other nominated person is to be the
                  calculation agent, its appointment as such shall be on
                  substantially the terms of the form of agreement set out in
                  Schedule 3 to the Agency Agreement, but with such amendments
                  as the Dealer and the Issuer shall agree.

         (C)      If the Agent is to be the calculation agent, its appointment
                  as such shall be on the terms set out in schedule 3 to the
                  Agency Agreement.

3.       REPRESENTATIONS AND WARRANTIES

3.1      The Issuer (in respect of itself) and the Guarantor (in respect of
         itself and the Issuer) make the following representations and
         warranties in this Clause 3 to each Dealer:

         (A)      ISSUER INCORPORATION:

                  that the Issuer has been duly incorporated and is an existing
                  corporation in good standing under the laws of The
                  Netherlands, has full power and authority (corporate and
                  other) to conduct its business as described in the Disclosure
                  Documents and is duly qualified to do business in each
                  jurisdiction in which it owns or leases real property or in
                  which the conduct of its business requires such qualification
                  except where the failure to be so qualified, considering all
                  such cases in the aggregate, does not involve a material risk
                  to the business, properties, financial position, or results of
                  operations of the Issuer;

         (B)      GUARANTOR INCORPORATION:

                  that the Guarantor and each of its Subsidiaries has been duly
                  incorporated and is an existing corporation in good standing
                  under the laws of the State of Delaware, has full power and
                  authority (corporate and other) to conduct its business as
                  described in the Disclosure Documents and is duly qualified to
                  do business in each jurisdiction in which it owns or leases
                  real property or in which the conduct of its business requires
                  such qualification except where the failure to be so
                  qualified, considering all such cases in the aggregate, does
                  not involve a material risk to the business, properties,
                  consolidated financial position, or consolidated results or
                  operations of the Guarantor and its Subsidiaries; and all of
                  the outstanding shares of capital stock of each such
                  Subsidiary have been duly authorised and validly issued, are
                  fully paid and non-assessable and (except as otherwise stated
                  in the Information Memorandum) are beneficially owned,
                  directly or indirectly, by the Guarantor subject to no
                  security interests, other encumbrance or adverse claim;

         (C)      NO BREACH, APPROVALS, CAPACITY AND AUTHORISATION:

                  that (i) the creation and issue of Notes by the Issuer, the
                  giving of the Guarantee by the Guarantor, the execution of
                  this Agreement and the Agency Agreement by the Issuer and the
                  Guarantor and the execution of the Deed of Covenant by the
                  Issuer and the consummation of the transactions herein and
                  therein contemplated will not result in a breach or violation
                  of any of the terms and provisions of, or constitute a default
                  under, the laws of The Netherlands or of the United States of
                  America, any statute, any agreement or instrument to which the
                  Issuer or the Guarantor is a party or by which the Issuer or
                  the Guarantor is bound or to which any of the property of the
                  Issuer or the Guarantor is subject, the Issuer's or the
                  Guarantor's constitutive documents, or any order, rule, or
                  regulation of any court or governmental agency or body having
                  jurisdiction over the Issuer or the Guarantor or any of their
                  respective properties; (ii) no consent, approval,
                  authorisation, or


                                       8
<PAGE>   11
                  order of, or filing with, any court or governmental agency or
                  body is required for the creation and issue of the Notes, the
                  execution of this Agreement or the Agency Agreement by the
                  Issuer and the Guarantor, the execution of the Guarantee by
                  the Guarantor and the execution of the Deed of Covenant by the
                  Issuer, the consummation of the transactions contemplated by
                  this Agreement, the Guarantee, the Deed of Covenant or the
                  Agency Agreement (except such as may be required under the
                  Securities Act or state securities laws of the United States
                  of America) and any consents, approvals and authorisations
                  required for the distribution of the Disclosure Documents in
                  accordance with the provisions set out in Schedule 2 to this
                  Agreement have been obtained and are in full force and effect;
                  and (iii) the Issuer has full power and capacity to create and
                  issue the Notes, to execute this Agreement, the Agency
                  Agreement and the Deed of Covenant and to undertake and
                  perform the obligations expressed to be assumed by it herein
                  and therein, and the Issuer has taken all necessary action to
                  approve and authorise the same and the Guarantor has full
                  power and capacity to give the Guarantee, to execute this
                  Agreement, the Agency Agreement and the Guarantee and to
                  undertake and perform the obligations expressed to be assumed
                  by it herein and therein, and the Guarantor has taken all
                  necessary action to approve and authorise the same;

         (D)      LEGAL, VALID, BINDING AND ENFORCEABLE:

                  (i) that this Agreement constitutes and, upon due execution by
                  or on behalf of the Issuer and (in the case of the Notes) due
                  authentication and delivery, each of the Agency Agreement, the
                  Deed of Covenant and the Notes will constitute, valid and
                  legally binding obligations of the Issuer, enforceable in
                  accordance with their terms, subject, as to enforcement, to
                  bankruptcy, insolvency, fraudulent transfer, reorganisation,
                  moratorium and other laws of general applicability relating to
                  or affecting creditors' rights and to general equitable
                  principles and (ii) that this Agreement constitutes and upon
                  due execution by or on behalf of the Guarantor, each of this
                  Agreement, the Agency Agreement and the Guarantee will
                  constitute, valid and legally binding obligations of the
                  Guarantor enforceable in accordance with their terms, subject,
                  as to enforcement, to bankruptcy, insolvency, fraudulent
                  transfer, reorganisation, moratorium and other laws of general
                  applicability relating to or affecting creditors' rights and
                  to general equitable principles;

         (E)      STATUS:

                  that each of the Notes and the Guarantee will constitute
                  direct, general and unconditional obligations of the Issuer
                  and the Guarantor, respectively which (a) rank pari passu
                  among themselves and (b) will at all times rank at least pari
                  passu with all other present and future unsecured and
                  unsubordinated obligations of or guarantees by the Issuer and
                  the Guarantor, respectively, save for such obligations as may
                  be preferred by provisions of law that are both mandatory and
                  of general application;

         (F)      TAXATION:

                  that all payments of principal and interest in respect of the
                  Notes by the Issuer, all payments by the Issuer under the Deed
                  of Covenant and all payments by the Guarantor in respect of
                  the Guarantee and all payments by the Issuer and the Guarantor
                  under this Agreement and the Agency Agreement, may be made
                  free and clear of, and without withholding or deduction for,
                  any taxes, duties, assessments or governmental charges of
                  whatsoever nature imposed, levied, collected, withheld or
                  assessed by The Netherlands or the United States of


                                       9
<PAGE>   12
                  America, respectively, or any political subdivision or
                  authority thereof or therein having power to tax;

         (G)      ACCURACY OF DISCLOSURE DOCUMENTS:

                  that the Disclosure Documents contain all information which is
                  (in the context of the issue of the Notes) material; such
                  information is true and accurate in all material respects and
                  is not misleading in any material respect; any opinions,
                  predictions or intentions expressed in the Disclosure
                  Documents are honestly held or made and are not misleading in
                  any material respect; the Disclosure Documents do not omit to
                  state any material fact necessary to make such information,
                  opinions, predictions or intentions (in such context) not
                  misleading in any material respect; and all proper enquiries
                  have been made by the Issuer and the Guarantor to ascertain or
                  verify the foregoing;

         (H)      FINANCIAL STATEMENTS:

                  that the financial statements of the Guarantor and its
                  respective Subsidiaries included in the Disclosure Documents
                  fairly present the financial condition of the Guarantor and
                  its respective Subsidiaries in each case as of the dates
                  indicated and the results of the operations and cash flows for
                  the periods therein specified in conformity with generally
                  accepted accounting principles in the United States of
                  America, respectively, consistently applied throughout the
                  periods involved (except as otherwise stated therein);

         (I)      COMPLETENESS OF DISCLOSURE DOCUMENTS:

                  that the Disclosure Documents contain all such information as
                  investors and their professional advisers would reasonably
                  require, and reasonably expect to find there, for the purpose
                  of making an informed assessment of the assets and
                  liabilities, financial position, profits and losses, and
                  prospects of the Issuer and of the rights attaching to the
                  Notes and of the Guarantor and the rights attaching to the
                  Guarantee;

         (J)      ABSENCE OF LITIGATION:

                  that except as disclosed in note 10 of the audited annual
                  consolidated financial statements of the Guarantor included in
                  the Guarantor's Form 10-K dated March 19, 2001, and in the
                  notes to the unaudited quarterly financial statements of the
                  Guarantor included in the Guarantor's Form 10-Q dated May 15,
                  2001, which forms were filed with the U.S. Securities and
                  Exchange Commission, there are no litigation or arbitration
                  proceedings against or affecting the Issuer or the Guarantor
                  or any of their respective Subsidiaries or any of their
                  respective assets or revenues, nor is the Issuer or the
                  Guarantor aware of any pending or threatened proceedings of
                  such kind, which are or might be material in the context of
                  the issue of the Notes or of the giving of the guarantee;

         (K)      NO MATERIAL ADVERSE CHANGE:

                  that subsequent to the respective dates as of which
                  information is given in the Disclosure Documents, neither the
                  Issuer nor the Guarantor (nor any of their respective
                  Subsidiaries) has incurred any liabilities or obligations,
                  direct or contingent, or entered into any transactions, not in
                  the ordinary course of business, that are material (in the
                  case of the Issuer) to the Issuer or (in the case of the


                                       10
<PAGE>   13
                  Guarantor and its Subsidiaries) to the Guarantor and its
                  Subsidiaries taken as a whole and there has not been any
                  material change in the capital stock or short-term debt and
                  long-term debt of the Issuer or of the Guarantor or its
                  Subsidiaries, or any material adverse change, or any
                  development involving a prospective material adverse change,
                  in the condition (financial or other), business, prospects,
                  net worth, or results of operations of the Issuer, or of the
                  Guarantor and its Subsidiaries considered as a whole;

         (L)      U.S. TREASURY REGULATIONS:

                  that the Notes will be issued under the provisions of U.S.
                  Treasury Regulations section 1.163-5(c)(2)(1)(D) (the "D
                  RULES") and the Issuer will not offer or sell the Notes in the
                  United States or its possessions or to United States persons
                  (terms used in this paragraph have the meanings given to them
                  by the U.S. Internal Revenue Code of 1986, as amended, and
                  regulations thereunder, including the D Rules);

         (M)      REGULATION D:

                  that neither the Issuer, nor the Guarantor, nor any of their
                  respective affiliates (as defined in Rule 501(b) of Regulation
                  D under the Securities Act) has directly, or through any
                  agent, sold, offered for sale, solicited offers to buy or
                  otherwise negotiated in respect of, any security (as defined
                  in the Securities Act) which is or will be integrated with the
                  sale of the Notes in a manner what would require the
                  registration under the Securities Act of the offering
                  contemplated by the Disclosure Documents or engaged in any
                  form of general solicitation or general advertising in
                  connection with the offering of the Notes;

         (N)      REGULATION S:

                  that none of the Issuer, the Guarantor or any affiliate,
                  either of them or any person acting on its or their behalf has
                  engaged or will engage in any directed selling efforts (as
                  defined in Regulation S under the Securities Act) with respect
                  to the Notes and it and they have complied and will comply
                  with the offering restrictions requirement of Regulation S
                  under the Securities Act;

         (O)      U.S. INVESTMENT COMPANY ACT:

                  that neither the Issuer nor the Guarantor is an "investment
                  company" or an entity "controlled" by an "investment company"
                  as such terms are defined in the United States Investment
                  Company Act of 1940, as amended and that it is not necessary
                  in connection with the offer, sale and delivery of the Notes
                  in the manner contemplated by this Agreement to register the
                  Notes under the Securities Act;

         (P)      (1)  that no present or future indebtedness of the Issuer, the
                       Guarantor or any of their respective Subsidiaries has
                       become due and payable prior to its stated maturity by
                       reason of a default (howsoever described) otherwise
                       than at the option of the Issuer, the Guarantor
                       relevant Subsidiaries, as the case may be; and

                  (2)  that no present or future indebtedness of the Issuer, the
                       Guarantor or any Subsidiary has not been paid when due
                       or (as the case may be) within any applicable grace
                       period originally provided therefor; and


                                       11
<PAGE>   14
                  (3)   that none of the Issuer, the Guarantor or any of their
                        respective Subsidiaries has failed to pay when due or
                        (as the case may be) within any applicable grace period
                        originally provided therefor any amount payable by it
                        under any present or future guarantee (other than a
                        guarantee issued in the ordinary course of business and
                        relating to indebtedness of less than U.S.$20,000,000 in
                        aggregate) or indemnity in respect of any present or
                        future indebtedness in respect of which demand has been
                        made therefor (unless the giver of the guarantee or
                        indemnity is contesting in good faith its liability
                        thereunder); and

                  (4)   that no mortgage, charge, pledge, lien or other
                        encumbrance present or future securing any present or
                        future indebtedness, guarantee or indemnity created or
                        assumed by the Issuer, the Guarantor or any Subsidiary
                        has become enforceable (and the holder thereof has
                        taken steps to enforce the same),

                  such that (for the purpose of sub-paragraphs (1) to (4)
                  above) the aggregate of the principal amounts of all such
                  indebtedness of the Issuer, the Guarantor and all their
                  respective Subsidiaries (taken together) of either of them
                  and the amounts payable by the Issuer, the Guarantor and all
                  Subsidiaries (taken together) either of them under any such
                  guarantee and/or indemnity exceeds U.S.$20,000,000 (or its
                  equivalent in any other currency or currencies).

3.2      MAXIMUM AMOUNT

         The aggregate outstanding principal amount of the Notes on the date of
         issue of any Note does not and will not exceed the Maximum Amount set
         out in the Programme Summary (as increased from time to time under
         Clause 2.6). The principal amount outstanding in relation to any Note
         denominated or to be denominated in a currency other than Dollars will
         be calculated by taking the Dollar Equivalent of that principal amount
         as at the date of calculation.

3.3      STERLING NOTES AND OTHER RELEVANT NOTES

         In relation to any issue of Sterling Notes and any other Relevant Notes
         the Issuer is, or will be prior to the date on which the first Sterling
         Notes or Relevant Notes are issued pursuant to this Agreement, eligible
         to issue commercial paper under the legal and regulatory requirements
         (including, without limitation, the Regulations, the Notices and any
         other requirements or guidelines of the Bank of England) in or of the
         United Kingdom from time to time applicable thereto, and has complied
         with all such requirements and each such Note will be issued in
         compliance with those requirements.

3.4      TIMES FOR MAKING REPRESENTATIONS AND WARRANTIES

         The representations and warranties set out in this Clause 3:

         (A)      are made on the date of this Agreement; and

         (B)      are deemed to be repeated on each date upon which a Note
                  Transaction is agreed and each date upon which Notes are, or
                  are to be, issued.


                                       12
<PAGE>   15
4.       COVENANTS AND AGREEMENTS

4.1      DURATION

         The undertakings in this clause 4 remain in force from the date of this
         Agreement for so long as any amount is or may be outstanding under the
         Agreements.

4.2      INFORMATION

         Whenever the Issuer or the Guarantor shall publish or make available to
         its shareholders or to the public (by filing with any regulatory
         authority, securities exchange or otherwise) any information which
         could reasonably be expected to be material in the context of this
         Agreement, the Notes, the Guarantee and the transactions contemplated
         hereby and thereby, the Issuer or the Guarantor (as appropriate) shall:

         (A)      notify each Dealer as to the nature of such information;

         (B)      make a reasonable number of copies of such information
                  available to each Dealer upon request to permit distribution
                  to investors and prospective investors; and

         (C)      take such action as may be necessary to ensure that the
                  representation and warranty contained in clause 3.1(G) is true
                  and accurate on the dates when it is made as contemplated by
                  clause 3.

5.       INDEMNITY

5.1      Without prejudice to the other rights or remedies of the Dealers, each
         of the Issuer and the Guarantor (each an "indemnifying person")
         undertakes with the Dealers and each of them that, if that Dealer or
         any Relevant Party relating to such Dealer incurs any losses,
         liabilities, claims, actions or demands which it may incur or which may
         be made against it as a result of or in relation to:

         (A)      any failure by the Issuer to issue on the agreed Issue Date
                  any Notes which a Dealer has agreed to purchase; or

         (B)      any breach or alleged breach of any of the representations,
                  warranties, covenants, agreements or undertakings made by the
                  Issuer or by the Guarantor in this Agreement or any materially
                  untrue statement or alleged materially untrue statement of any
                  material fact contained in the Disclosure Documents or the
                  omission or alleged omission to state therein a material fact
                  necessary in order to make the statements therein, in the
                  light of the circumstances on which they were made, not
                  misleading in any material respect,

         the Issuer (or as the case may be), the Guarantor shall pay to such
         Dealer an amount equal to any such losses, liabilities, claims, actions
         or demands and the indemnity shall extend to include all costs, charges
         and expenses (including legal expenses) which that Relevant Party may
         pay or incur in investigating, disputing or defending any claim or
         action in respect of which an indemnity may be sought against the
         Issuer or the Guarantor under this clause.

         The liability of the Issuer and of the Guarantor under the foregoing
         indemnity includes (without limitation) any loss or expense arising
         directly on account of funds borrowed, contracted for or utilised by
         the Relevant Party to fund any amount payable under the Notes and not
         received in breach of this Agreement.


                                       13
<PAGE>   16
5.2      In case any action shall be brought against any Relevant Party in
         respect of which an indemnity may be sought from an indemnifying
         person, the relevant Dealer shall promptly notify the indemnifying
         person in writing and the indemnifying person shall have the option to
         assume the defence thereof and to retain lawyers reasonably
         satisfactory to the Relevant Party in which case the indemnifying
         person shall be liable to pay the fees and expenses of such lawyers
         relating to such proceedings.

5.3      In any such proceedings, the Relevant Party shall have the right to
         retain its own lawyers, but the fees and expenses of such lawyers shall
         be at the expense of the indemnified person unless:

         (A)      the Relevant Party has defences additional to or different
                  from the indemnifying person; or

         (B)      the indemnifying person and the Relevant Party have mutually
                  agreed to the retention of such lawyers; or

         (C)      the indemnifying person has failed to employ legal advisers
                  reasonably satisfactory to the Relevant Party within a
                  reasonable period of time after notice by the indemnified
                  person of the commencement of such proceedings.

5.4      Subject as set out in clause 5.3 above, in no event shall the
         indemnifying person be liable for the fees and expenses of more than
         one legal adviser or firm of legal advisers of any Relevant Party in
         any jurisdiction in connection with any one action or separate but
         similar or related actions in the same jurisdiction arising out of the
         same general allegation or circumstances.

5.5      The indemnifying person shall not be liable to indemnify any Relevant
         Party for any settlement of any proceeding effected without the
         authority and written consent of the indemnifying person (which consent
         shall not be unreasonably withheld or delayed).

5.6      COSTS AND EXPENSES

         The Issuer, failing which the Guarantor, will:

         (A)      pay, or reimburse the Arranger for, all reasonable
                  out-of-pocket costs and expenses (including, without
                  limitation, United Kingdom value added tax and any other taxes
                  or duties and fees and disbursements of counsel to the
                  Arranger) incurred by the Arranger in connection with the
                  preparation, negotiation, printing, execution and delivery of
                  the Agreements, all documents contemplated by the Agreements
                  and the Notes;

         (B)      pay, or reimburse each Dealer for, all reasonable
                  out-of-pocket costs and expenses (including, without
                  limitation, United Kingdom value added tax and any other taxes
                  or duties and fees and disbursements of counsel to such
                  Dealer) incurred by that Dealer in connection with the
                  enforcement or protection of its rights under this Agreement,
                  all documents contemplated by this Agreement, the Notes, any
                  Note Transaction, the Deed of Covenant and the Guarantee; and

         (C)      pay any stamp duty or other taxes (including, without
                  limitation, any penalties and interest in respect thereof)
                  payable in The Netherlands, the United States of America, the
                  United Kingdom, Belgium, Luxembourg and any jurisdiction in
                  which the Issuer is or becomes subject to taxes in connection
                  with the execution, delivery


                                       14
<PAGE>   17
                  and performance of this Agreement, any Note Transaction, the
                  Deed of Covenant, the Agency Agreement, the Guarantee or any
                  Notes.

5.7      CHANGES TO THE PROGRAMME

         (A)      The Issuer, failing which the Guarantor, will notify each
                  Dealer of:

                  (1)      any change in the Issue Agent and/or the Paying Agent
                           or any change in any of the offices of such Issue
                           Agent and/or such Paying Agent; and

                  (2)      any material change or amendment to or termination of
                           the Agency Agreement, the Guarantee or the Deed of
                           Covenant,

                  in any case not later than ten days prior to the making of any
                  such change, amendment or termination.

         (B)      Neither the Issuer nor the Guarantor will permit to become
                  effective any such change, amendment or termination as
                  referred to in Clause 5.7(A) above which could reasonably be
                  expected to affect adversely the interests of any Dealer or
                  the holder of any Notes then outstanding.

5.8      CONTINUING OBLIGATIONS

         The Issuer and the Guarantor will take such steps (in conjunction with
         the Dealer(s), where appropriate) to ensure that any laws and
         regulations or requirements of any governmental agency, authority or
         institution which may from time to time be applicable to any Notes
         shall be fully observed and complied with, and in particular (but
         without limitation):

         (A)      that the monitoring requirements set out in paragraph 9(i) of
                  the Notice issued by the Bank of England on 18 March 1997 as
                  the same may be amended or superseded from time to time shall
                  be fully observed and complied with; and

         (B)      in respect of Yen Notes, subject to clause 5.10, the Issuer
                  and the Guarantor will comply with any applicable laws,
                  regulations and guidelines of Japanese governmental and
                  regulatory authorities relevant in the context of the issue of
                  Yen Notes, as amended from time to time, and shall submit (or
                  procure the submission on its behalf of) such reports or
                  information as may be required for compliance with such laws,
                  regulations and guidelines from time to time within the
                  applicable time period.

5.9      U.S. SELLING RESTRICTIONS

         Each of the Issuer and the Guarantor represents, warrants and agrees
         that neither it, nor any of its affiliates, nor any person acting on
         its behalf or on behalf of any of its affiliates has engaged or will
         engage in any directed selling efforts with respect to the Notes, and
         that it and its affiliates have complied and will comply with the
         offering restrictions requirement of Regulation S. Terms used in this
         clause 5.9 have the meanings given to them by Regulation S under the
         U.S. Securities Act of 1933, as amended.

5.10     YEN NOTES

         Yen Notes may be offered or sold in circumstances which would not be so
         permissible at the date of this Agreement if permitted by any change or
         amendment which is made after


                                       15
<PAGE>   18
         the date of this Agreement in such rules, regulations and guidelines or
         in such laws or directives as are applicable to Yen Notes from time to
         time.

6.       OBLIGATIONS OF THE DEALERS

6.1      SELLING RESTRICTIONS

         Each Dealer represents, covenants and agrees that it has complied and
         will comply with the selling restrictions set out in schedule 2.
         Subject to those restrictions, each Dealer is authorised by the Issuer
         and the Guarantor to circulate the Disclosure Documents or any other
         publicly available information in relation to the Issuer or the
         Guarantor to purchasers or potential purchasers of the Notes.

6.2      OBLIGATIONS SEVERAL

         The representations, warranties, agreements and obligations of each
         Dealer under this Agreement are several.

6.3      ARRANGER'S CAPACITY

         Each of the Dealers agrees that the Arranger has only acted in an
         administrative capacity to facilitate the establishment and/or
         maintenance of the Programme and has no responsibility to it for:

         (A)      the adequacy, accuracy, completeness or reasonableness of any
                  representation, warranty, undertaking, agreement, statement or
                  information in the Information Memorandum, this Agreement or
                  any information provided in connection with the Programme; or

         (B)      the nature and suitability to it of all legal, tax and
                  accounting matters and all documentation in connection with
                  the Programme or any Notes.

7.       CONDITIONS PRECEDENT

7.1      CONDITIONS PRECEDENT

         (A)      At least three business days (being a day (other than a
                  Saturday or Sunday) on which banks are open for business in
                  London) before the date upon which the Issuer and any Dealer
                  shall first agree terms for a Note Transaction, the Issuer and
                  the Guarantor jointly and severally covenant and agree with
                  the Dealers that they shall deliver to the relevant Dealer
                  each of the documents listed in schedule 1, in form and
                  substance satisfactory to such Dealer.

         (B)      Any Dealer may at its discretion waive compliance with the
                  obligation of the Issuer to deliver any document under clause
                  7.1(A) above, and any document so waived shall be deemed to
                  have been satisfied for that Dealer only.

7.2      FURTHER CONDITIONS PRECEDENT

         The obligations of any Dealer in respect of any agreement for a Note
         Transaction shall be conditional upon:

         (A)      the representations and warranties of the Issuer and the
                  Guarantor contained in clause 3 being true and correct:


                                       16
<PAGE>   19
                  (1)      on each date upon which an agreement for a Note
                           Transaction is made; and

                  (2)      on each date on which Notes are issued,

                  by reference to the facts and circumstances then subsisting;
                  and

         (B)      there being no material breach as at the relevant Issue Date
                  in the performance of the obligations of the Issuer or the
                  Guarantor under any of the Agreements (including, without
                  limitation, under the Guarantee) or any Note.

8.       TERMINATION AND APPOINTMENT

8.1      TERMINATION

         The Issuer and the Guarantor (acting together) may terminate the
         appointment of the Arranger or any Dealer, and the Arranger or any
         Dealer may resign, on not less than thirty days' written notice to the
         Arranger, the relevant Dealer or the Issuer and the Guarantor, as the
         case may be. The other Dealer(s), the Issue Agent and the Paying Agent
         will be promptly informed by the Issuer of such termination or
         resignation. The rights and obligations of each party to this Agreement
         shall not terminate in respect of any rights or obligations accrued or
         incurred before the date on which such termination or resignation takes
         effect or which shall accrue thereafter in respect of any act or
         omission which occurred prior to such date and the provisions of
         clauses 5.1 to 5.7 inclusive shall survive termination of this
         Agreement or termination of the appointment of the Arranger or any
         Dealer or resignation of the Arranger or any Dealer and delivery
         against payment for any of the Notes.

8.2      APPOINTMENT OF DEALERS

         (A)      The Issuer and the Guarantor (acting together) may appoint one
                  or more Additional Dealers upon the terms of this Agreement
                  (either generally or in respect of a single issue of Notes) by
                  sending to the Additional Dealer a Dealer Accession Letter
                  substantially in the form set out in schedule 4. The
                  appointment will only become effective if the Additional
                  Dealer confirms acceptance of its appointment to the Issuer
                  and the Guarantor in or substantially in the form of the
                  acceptance set out in the Dealer Accession Letter.

         (B)      The Additional Dealer shall, subject to the proviso set out
                  below in the case of an Additional Dealer appointed in respect
                  of a single issue of Notes, become a party to this Agreement
                  on the later of:

                  (1)      the date that the Issuer and the Guarantor (and if
                           received on different dates by the Issuer and the
                           Guarantor, on the later of such dates) receive the
                           confirmation in clause 8.2(A) above; and

                  (2)      the date specified in the Dealer Accession Letter as
                           the date of appointment,

                  and the Additional Dealer shall then be vested with all the
                  authority, rights, powers, duties and obligations as if
                  originally named as a Dealer under this Agreement, provided
                  that, in the case of an Additional Dealer appointed in respect
                  of a single issue of Notes, following the issue of the
                  relevant Global Note or Definitive Notes, the relevant
                  Additional Dealer shall have no further such authority,
                  rights, duties or obligations except such as may have accrued
                  or been incurred prior to, or in


                                       17
<PAGE>   20

         connection with, the issue of such Global Note (and the Notes
         represented thereby) or such Definitive Notes.

         (C)      The Issuer and the Guarantor shall, in the case of an
                  Additional Dealer appointed generally to the Programme,
                  promptly notify the Issue Agent and the Paying Agent and the
                  other Dealer(s) of any such appointment. No such notification
                  shall be required to be given in the case of the appointment
                  of an Additional Dealer in respect of a single issue
                  of Notes.

         (D)      Without prejudice to the foregoing provisions of this
                  Clause 8.2, the Issuer and the Guarantor agree that if, at
                  any time, a Dealer shall transfer all or substantially all of
                  its Euro-commercial paper business to any affiliate then, on
                  the date such transfer becomes effective, such affiliate
                  shall become the successor to such Dealer under this
                  Agreement without the execution or filing of any paper or any
                  further act on the part of the parties hereto so that the
                  Issuer and the Guarantor and such affiliate shall acquire and
                  become subject to the same rights and obligations between
                  themselves as if they had entered into an agreement in the
                  form (the relevant changes having been made) of this
                  Agreement. After the said effective date all references in
                  this Agreement to such original Dealer shall be deemed to be
                  references to such affiliate. A Dealer shall, as soon as
                  reasonably possible, give notice of any such transfer as is
                  referred to in this Clause 8.2(D) to the Issuer and the
                  Guarantor.

9.       COMMUNICATIONS

9.1      Each communication to be made under this Agreement shall, unless
         otherwise agreed between the relevant parties, be made by facsimile,
         letter or telephone (in the case of a communication by telephone, to be
         confirmed promptly by facsimile or letter).

9.2      Any communication (unless made by facsimile or telephone) shall be made
         to the intended recipient and marked for the attention of the person,
         or any one of them, at the relevant address specified in the Programme
         Summary or otherwise from time to time designated by that party to the
         other parties hereto for the purpose of this Agreement and shall be
         deemed to have been made upon delivery (in the case of any
         communication made by letter).

9.3      Any communication to be made by facsimile or telephone shall be made to
         the intended recipient at the relevant facsimile or telephone number
         specified in the Programme Summary or otherwise from time to time
         designated by that party to the other parties hereto for the purpose of
         this Agreement and shall be deemed to have been received when made (in
         the case of any communication by telephone) or (in the case of any
         communication by facsimile) when transmission of that telefax
         communication has been completed.

10.      COUNTERPARTS

         This Agreement may be signed in counterparts, all of which when taken
         together shall constitute a single agreement.

11.      THIRD PARTY RIGHTS

         A person who is not a party to this Agreement has no right under the
         Contracts (Rights of Third Parties) Act 1999 to enforce any term of
         this Agreement, but this does not affect any right or remedy of a third
         party that exists or is available apart from that Act.


                                       18
<PAGE>   21
12.      GOVERNING LAW, SUBMISSION TO JURISDICTION AND SERVICE OF PROCESS

12.1     GOVERNING LAW

         This Agreement, any agreement for a Note Transaction and the Notes
         shall be governed by, and construed in accordance with, English law.

12.2     SUBMISSION TO JURISDICTION

         For the benefit of the Dealers, each of the Issuer and the Guarantor
         irrevocably agrees:

         (A)      that the courts of England are to have jurisdiction to settle
                  any disputes which may arise out of or in connection with this
                  Agreement, any agreement for a Note Transaction or the Notes
                  and that accordingly any suit, action or proceedings (together
                  "PROCEEDINGS") so arising may be brought in such courts;

         (B)      to waive any sovereign or other immunity to which it or its
                  assets may now or after the date of this Agreement be
                  entitled, and any objection which it may now or hereafter have
                  to the laying of the venue of any Proceedings in such courts
                  and any claim that such Proceedings have been brought in an
                  inconvenient or inappropriate forum; and

         (C)      that a judgment in any Proceedings brought in the English
                  courts may be enforced in the courts of any other
                  jurisdiction.

         Nothing in this Agreement shall limit the right of any Dealer to take
         Proceedings in any other court of competent jurisdiction. The taking of
         Proceedings in any one or more jurisdictions shall not preclude the
         taking of Proceedings in any other jurisdiction, whether concurrently
         or not.

12.3     SERVICE OF PROCESS

         The Issuer and the Guarantor each hereby irrevocably appoints Heckett
         MultiServ PLC whose address at the date hereof is specified in the
         Programme Summary as its agent to accept service of process in any
         Proceedings in England in connection with this Agreement. If for any
         reason the agent for service of process ceases to be so appointed or
         shall otherwise cease to act as agent for service of process, the
         Issuer and the Guarantor each hereby irrevocably agrees promptly to
         appoint another agent in England to accept service of process
         acceptable to each Dealer and to notify the Dealers of the appointment
         or, if the Issuer, or Guarantor fails to appoint another agent in
         England to accept service of process within 15 days, any Dealer Account
         Holder shall be entitled to appoint such person by written notice to
         the Issuer or the Guarantor (as the case may be). Nothing in this
         Agreement shall affect or restrict the right of any party to serve
         process on the Issuer or the Guarantor in any other manner permitted by
         law.

IN WITNESS whereof the parties hereto have executed this Agreement on the date
which appears first on page 1.


                                       19
<PAGE>   22
                   SCHEDULE 1: CONDITIONS PRECEDENT DOCUMENTS

1.       A certified copy of the Issuer's and the Guarantor's constitutional
         documents.

2.       Certified copies of all board, management or other resolutions and
         other documents evidencing the internal authorisations and approvals
         required to be granted by each of the Issuer and the Guarantor in
         connection with the Programme and the Agreements to which it is a party
         and (in the case of the Issuer) the Notes.

3.       Certified copies of any governmental or other consents or filings
         required by the Issuer or the Guarantor (as the case may be) in
         connection with the Programme including (without limitation) a copy of
         the notification sent to the Bank of England of the establishment of
         the Programme.

4.       Certified copies of:

         (A)      this Agreement, as executed;

         (B)      the Agency Agreement, as executed;

         (C)      the Deed of Covenant, as executed;

         (D)      the Guarantee, as executed; and

         (E)      written confirmation of the acceptance of appointment from the
                  agent for service of process for the Issuer and the Guarantor;

         together with confirmation that the original Deed of Covenant and the
         original Guarantee have each been delivered to the Paying Agent.

5.       Legal opinions from:

         (A)      Simmons & Simmons, English legal advisers to the Dealers;

         (B)      De Brauw Blackstone Westbroek, Dutch legal advisers to the
                  Issuer;

         (C)      Kirkpatrick & Lockhart LLP, legal advisers to the Guarantor as
                  to the laws of the State of Delaware and the Federal laws of
                  the United States of America; and

         (D)      internal counsel of the Guarantor.

6.       The Information Memorandum.

7.       A list of the names and titles and specimen signatures of the persons
         authorised:

         (A)      to sign and execute on behalf of the Issuer and the Guarantor
                  (as applicable) this Agreement, the Deed of Covenant, the
                  Agency Agreement, the Guarantee and the Notes (as applicable);

         (B)      to sign and execute on behalf of the Issuer and the Guarantor
                  (as applicable) all notices and other documents to be
                  delivered in connection therewith; and


                                       20
<PAGE>   23
         (C)      to take any other action on behalf of the Issuer and the
                  Guarantor (as applicable) in relation to the Programme.

8.       Confirmation from the Issuer or the Issue Agent that the relevant forms
         of Sterling Definitive Note will be security printed and that the
         relevant forms of Global Note have been prepared and the same delivered
         to the Issue Agent.

9.       Confirmation that ratings of A2 and P2 have been granted by Standard &
         Poor's Rating Services, a Division of the McGraw-Hill Companies and
         Moody's Investors Service, respectively, for the Programme.


                                       21
<PAGE>   24
                        SCHEDULE 2: SELLING RESTRICTIONS

1.       GENERAL

         By its purchase and acceptance of Notes issued under the Agreement to
         which these Selling Restrictions are scheduled (the "Dealer
         Agreement"), each Dealer represents, warrants and agrees that it will
         comply with all applicable laws and regulations in any jurisdiction in
         which it may offer, sell, or deliver Notes; and it will not directly or
         indirectly offer, sell, resell, re-offer or deliver Notes or distribute
         any Disclosure Document, circular, advertisement or other offering
         material in any country or jurisdiction except under circumstances that
         will result, to the best of its knowledge and belief, in compliance
         with all applicable laws and regulations. The Issuer acknowledges that
         the Dealers do not have any practical or legal means at their disposal
         to seek to enforce any restrictions on the secondary trading of Notes,
         nor to monitor or control the activities of the participants in such
         secondary market.

2.       UNITED STATES OF AMERICA

         The Notes and the Guarantee have not been and will not be registered
         under the United States Securities Act of 1933, as amended, (the
         "Securities Act") and the Notes may not be offered or sold within the
         United States or to, or for the account or benefit of, U.S. persons.
         Each Dealer represents and agrees that it has offered and sold, and
         will offer and sell, Notes only outside the United States to non-U.S.
         persons in accordance with Rule 903 of Regulation S under the
         Securities Act. Accordingly, each Dealer represents and agrees that
         neither it, nor any of its affiliates nor any person acting on its or
         their behalf has engaged or will engage in any directed selling efforts
         with respect to the Notes, and that it has and they have complied and
         will comply with the offering restrictions requirement of Regulation S
         under the Securities Act. Each Dealer also agrees that, at or prior to
         confirmation of sale of Notes, it will have sent to each distributor,
         dealer or person receiving a selling concession, fee or other
         remuneration that purchases Notes from it a confirmation or notice to
         substantially the following effect:

         "The securities covered hereby have not been registered under the
         United States Securities Act of 1933, as amended (the "Securities Act")
         and may not be offered or sold within the United States or to, or for
         the account or benefit of, U.S. persons. Terms used above have the
         meanings given to them by Regulation S under the Securities Act."

         Terms used in this paragraph have the meanings given to them by
         Regulation S under the Securities Act.

3.       THE NETHERLANDS

         Each Dealer represents and agrees and each further Dealer appointed
         under the Programme will represent and agree that it will in accordance
         with the Netherlands Savings Certificate Act of 21 May 1985, as amended
         (Wet inzake spaarbewijzen, the "Savings Certificates Act"), not
         transfer or accept any Notes which fall within the definition of
         savings certificates (spaarbewijzen) in the Savings Certificate Act,
         unless the transfer and acceptance is done through the mediation of
         either the Issuer or a securities institution which is admitted to the
         trade or settlement on or through one or more of the exchanges or
         systems held by the Amsterdam Exchanges N.V. (toegelaten instelling).
         The aforesaid prohibition does not apply (i) to the transfer and
         acceptance by individuals not acting in the conduct of their business
         or profession, or (ii) to the initial issue of the Notes qualifying as
         savings certificates to the first holders thereof. Pursuant to the


                                       22
<PAGE>   25
         Savings Certificate Act, certain identification requirements in
         relation to the issue of, transfer of, acceptance of, or payment on the
         Notes, qualifying as savings certificates, have to be complied with.
         The Savings Certificate Act is not applicable to the issue and trading
         of the Notes if the Notes are physically issued outside The Netherlands
         and are not immediately thereafter distributed within The Netherlands
         or to residents in the course of primary trading.

         In addition each dealer acknowledges that Notes issued by the Issuer in
         respect of which no recognition of the Information Memorandum as
         referred to in EC Directive 89/298/EEC has been confirmed by the Dutch
         Securities Board (Stichting Toezicht Effectenverkeer) (the "Securities
         Board) shall, if the prohibition referred to in article 3, paragraph 1
         of the Dutch 1995 Act on the supervision of the securities trade (Wet
         toezicht effectenverkeer 1995) applies, only be issued and offered in
         individual denomination of at least NLG 100,000 or the equivalent in
         any other currency.

4.       THE UNITED KINGDOM

         Each Dealer represents and agrees that it has complied and will comply
         with all applicable provisions of the Financial Services Act 1986 with
         respect to anything done by it in relation to the Notes in, from or
         otherwise involving the United Kingdom and, furthermore that it is a
         person of a kind described in Article 11(3) of the Financial Services
         Act 1986 (Investment Advertisements) (Exemptions) Order 1996 (as
         amended), and it will only issue or pass on in the United Kingdom any
         publication or document received by it in connection with the issue of
         Notes to a person who falls within Article 11(3) of the Financial
         Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
         (as amended) or is a person to whom such publication or document may
         otherwise be lawfully issued or passed on.

5.       JAPAN

         The Notes have not been and will not be registered under the Securities
         and Exchange Law of Japan and each Dealer has agreed that it will not
         offer or sell any Notes, directly or indirectly, in Japan or to or for
         the benefit of any resident of Japan (which term as used herein means
         any person resident in Japan, including any corporation or other entity
         organised under the laws of Japan) or to others for re-offering or
         resale, directly or indirectly, in Japan or to a resident of Japan,
         except pursuant to an exemption from the registration requirements of,
         and otherwise in compliance with, the Securities and Exchange Law of
         Japan and any other applicable laws, regulations and ministerial
         guidelines of Japan.

6.       SWITZERLAND

         Each Dealer agrees in respect of Swiss Franc Notes that it will comply
         with any laws, regulations or guidelines in Switzerland from time to
         time, including, but not limited to, any made by the Swiss National
         Bank, in relation to the offer, sale, delivery or transfer of Swiss
         Franc Notes or the distribution of any offering material in respect of
         such Swiss Franc Notes.


                                       23
<PAGE>   26
      SCHEDULE 3: NOTIFICATION LETTER FOR AN INCREASE IN THE MAXIMUM AMOUNT



To:      The Royal Bank of Scotland plc (as Arranger) and the Dealers referred
         to below

cc       - (as Issue Agent and Paying Agent)



[Date]



Dear Sirs

EUR [          ] EURO-COMMERCIAL PAPER PROGRAMME (THE "PROGRAMME")

We refer to a dealer agreement dated 7 June 2001(as the same may be amended and
supplemented from time to time, the "Dealer Agreement") between Harsco Finance
B.V. as Issuer, Harsco Corporation as Guarantor, The Royal Bank of Scotland plc
as Arranger and the persons appointed thereunder as Dealers (the "Dealers")
relating to the Programme. Terms used in the Dealer Agreement shall have the
same meaning in this letter.

In accordance with clause 2.6 of the Dealer Agreement, we hereby notify each of
the addressees listed above that the Maximum Amount is to be increased from EUR
[-] to EUR [-] with effect from [Date], subject to delivery to the Dealers, the
Arranger and the Issue Agent and [Principal] Paying Agent of the following
documents:

1.       certificates from a duly authorised officer of each of the Issuer and
         the Guarantor confirming that no changes have been made to the
         constitutional documents of the Issuer or the Guarantor (respectively)
         since the date of the Dealer Agreement which would have a material
         effect on the Programme or, if there has been such a change, a
         certified copy of the constitutional documents currently in force;

2.       certified copies of all board, management or other resolutions and
         other documents evidencing the internal authorisation and approval
         required to be given by the Issuer and the Guarantor for such an
         increase in the Maximum Amount;

3.       certified copies of [specify any applicable governmental or other
         consents required by the Issuer and the Guarantor];

4.       legal opinions in form and substance satisfactory to the Dealers from
         Simmons & Simmons, the Dealers' English legal advisers and from legal
         advisers in The Netherlands and the United States of America acceptable
         to the Dealers; and

5.       confirmation that Standard & Poor's Ratings Services, a Division of the
         McGraw-Hill Companies and Moody's Investors Service are maintaining
         their current ratings for the Programme; and


                                       24
<PAGE>   27
6.       a list of names, titles and specimen signatures of the persons
         authorised to sign on behalf of the Issuer all notices and other
         documents to be delivered in connection with such increase in Maximum
         Amount (including, without limitation, this letter).



Yours faithfully



 .............................                    ..............................

for and on behalf of                             for and on behalf of
Harsco Finance B.V. as Issuer                    Harsco Corporation as Guarantor


                                       25
<PAGE>   28
                       SCHEDULE 4: DEALER ACCESSION LETTER

[On Letterhead of Issuer/Guarantor]

[Date]



To:      [Name of Dealer]



Dear Sirs

EUR [          ] EURO-COMMERCIAL PAPER PROGRAMME

We refer to a dealer agreement dated 7 June 2001 (as the same may be amended and
supplemented from time to time, the "Dealer Agreement") between Harsco Finance
B.V. as Issuer, Harsco Corporation as Guarantor, The Royal Bank of Scotland plc
as Arranger and the persons appointed thereunder as Dealers (the "Dealers")
relating to the Programme. Terms used in the Dealer Agreement shall have the
same meaning in this letter.

In accordance with clause 8.2 of the Dealer Agreement, we hereby appoint you as
an Additional Dealer [1for the Programme/in respect of the issue of [specify
principal amount] Notes due [specify Maturity Date] (Series No: [-]) (the
"Issue")] upon the terms of the Dealer Agreement with [immediate effect/effect
from [Date]]. Copies of each of the condition precedent documents set out in
schedule 1 to the Dealer Agreement have been sent to you.

Please confirm acceptance of your appointment upon such terms by signing and
returning to us the enclosed copy of this letter, whereupon you will, in
accordance with clause 8.2 of the Dealer Agreement, become a party to the Dealer
Agreement 2[in relation to the Issue] vested with all the authority, rights,
powers, duties and obligations as if originally named as a Dealer thereunder.



Yours faithfully



 ..............................                      ............................

for and on behalf of                                for and on behalf of
HARSCO FINANCE B.V.                                 HARSCO CORPORATION

- ------------------
1 Delete as appropriate
2 Delete if Additional Dealer appointed for the Programme


                                       26
<PAGE>   29
We hereby confirm acceptance of our appointment as a Dealer upon the terms of
the Dealer Agreement referred to above. For the purposes of clause 9 of the
Dealer Agreement our contact details are as follows:

[NAME OF DEALER]

Address:                     -





Telephone:                   -

Telex:                       -

Facsimile:                   -

Contact:                     -



Dated:  ......................



Signed: ......................



for [Name of Additional Dealer]


                                       27
<PAGE>   30
                          SCHEDULE 5: PROGRAMME SUMMARY

<Table>
<Caption>
<S>            <C>                                        <C>            <C>
ISSUER:        HARSCO FINANCE B.V.                        GUARANTOR:     HARSCO CORPORATION

Address:       Wenckebachstraat 1                         Address:       350 Poplar Church Road
               1951 JZ Velsen-Noord                                      P.O. Box 8888
               Postbus 83                                                Camp Hill, PA 17001-8888
               1970 AB IJmuiden
               The Netherlands                            Telephone:     001 717 763 6409
                                                          Facsimile:     001 717 763 6424
                                                          Contact:       Robert G. Yocum
Telephone:     +31 251 262 520
Facsimile:     + 31 251 228 312
Contact:       Financial Manager


DEALER AND ARRANGER: THE ROYAL BANK OF SCOTLAND Plc       DEALER:  CITIBANK INTERNATIONAL plc

Address:       135 Bishopsgate                            Address:       Citigroup Centre
               London EC2M 3UR                                           33 Canada Square
                                                                         Canary Wharf
Telephone:     020 7588 3968                                             London E14 5LB
Telex:         913000 NWGTCMG
Facsimile:     020 7334 1900                              Telephone:     020 7986 9070
Contact:       Commercial Paper Group                     Telex:         299831CITIUK G
                                                          Facsimile:     020 7986 6837
                                                          Contact:       Commercial Paper Desk

DEALER: NATIONAL WESTMINSTER BANK Plc                     ISSUE AGENT AND PAYING AGENT: THE CHASE MANHATTAN BANK

Address:       135 Bishopsgate                            Address:       Trinity Tower
               London  EC2M 3UR                                          9 Thomas More Street
                                                                         London E1W 1YT
Telephone:     020 7588 3968
Telex:         913000 NWGTCMG                             Telephone:     01202 34 7431
Facsimile:     020 7334 1900                              Facsimile:     01202 34 7601
Contact:       Commercial Paper Group                     Contact:       Manager, Institutional Trust Services


MAXIMUM AMOUNT                                            DENOMINATIONS

EUR 250,000,000                                           US$500,000
                                                          EUR 1,000,000
                                                          L500,000 L1,000,000
                                                          CHF1,000,000
                                                          Y100,000,000
                                                          AUD 1,000,000
                                                          (or other conventionally accepted denominations in
                                                          other currencies subject as provided in the Dealer Agreement.
                                                          Provided that Notes in any currency must have
                                                          a minimum denomination of NLG 100,000 (or its
                                                          equivalent in any other currency) as at the date of agreement
                                                          between the Issuer and the relevant Dealer to issue
                                                          such Note thereof)

</Table>









                                       28
<PAGE>   31

<Table>
<Caption>
<S>                                                     <C>
GOVERNING LAW                                           FORM OF NOTES

Agreements and Notes: English                           Security printed Definitive Notes (Sterling Notes only)
                                                        Exchangeable Global Notes with Definitive Notes
                                                        available upon request (subject to certain conditions)
                                                        (Sterling Notes only) or on default or closure of
                                                        clearing system. Exchangeable Multicurrency Global
                                                        Notes with Definitive Notes only available on default.

                                                        Notes will be issued at a discount to face value
                                                        or may bear interest.

MINIMUM TERM:                                           MAXIMUM TERM:
All currencies                                          All currencies
1 day                                                   364 days

CLEARING SYSTEMS:                                       SELLING RESTRICTIONS:
Euroclear                                               U.S.A.
Clearstream, Luxembourg                                 United Kingdom
or any other recognised clearing                        Japan
system agreed by the Issuer, the                        Switzerland
Guarantor and the relevant Dealers                      The Netherlands

AGENT FOR SERVICE OF PROCESS

Issuer, and Guarantor:
Heckett MultiServ PLC

Address:       Commonwealth House
               2 Chalkhill Road
               London  W6 8DW

Telephone:     020 7314 1491
Facsimile:     020 7314 1480
Contact:       Graham T. Goulding

</Table>










                                       29
<PAGE>   32
HARSCO FINANCE B.V

as Issuer

By:



By:



HARSCO CORPORATION

as Guarantor

By:



THE ROYAL BANK OF SCOTLAND PLC

as Arranger and a Dealer

By:



CITIBANK INTERNATIONAL plc

as a Dealer

By:



NATIONAL WESTMINSTER BANK PLC

as Dealer

By:


                                       30

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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