2 0 0 3 A N N U A L R E P O R T
M I L L S E R V I C E S
A C C E S S S E R V I C E S
E N G I N E E R E D P R O D U C T S
T R A C K S E R V I C E S
. . . A R O U N D T H E W O R L D
HARSCO CORPORATION
Harsco Corporation is a diversified, worldwide
company providing high-value industrial services
and engineered products to major global industries.
The Company's businesses are each market leaders,
organized in four market sectors. Over 70% of
Harsco's revenues are generated from industrial
services, while nearly 60% are generated internationally.
Harsco's mission is to achieve consistent, superior
financial returns from operations, and the creation of
stockholder value through the use of an Economic
Value Added (EVA®) model which emphasizes asset
use optimization and profit maximization. Harsco
targets its growth in markets and technologies familiar
to the Company. Harsco common stock is listed on the
New York and Pacific Stock Exchanges under the
symbol HSC.
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Inside
Back Cover
2003 Revenues
(Dollars in millions)
2003 Revenue Sources
CONTENTS
Financial Highlights
Report to Stockholders
Mill Services
Access Services
Track Services
Engineered Products
Corporate Governance
Directors and Officers
Principal Offices
Glossary of Financial Terms
Form 10-K Annual Report
Investor Information
Cautionary Notice with Respect to Forward-
Looking Statements
The forward-looking statements expressed or
implied in this report are based on current
expectations regarding important factors which,
among others, could cause future results to
differ materially. Please refer to the section
entitled "Forward-Looking Statements" under
Item 7 of the enclosed Form 10-K Annual
Report for further information.
(cid:132) Mill Services - $827.5; 39%
(cid:132) Access Services - $619.1; 29%
(cid:132) Gas & Fluid Control - $335.1; 16%
(cid:132) Other Infrastructure Products &
Services - $336.8; 16%
(cid:132) United States - 43%
(cid:132) Europe - 41%
(cid:132) Latin America - 5%
(cid:132) Asia-Pacific - 4%
(cid:132) Other - 7%
FINANCIAL
HIGHLIGHTS
Dollars in thousands, except per share amounts
2003
2002
2001(1)
Operating Information
Total revenues from continuing operations
Operating income from continuing operations
Net income
Effective income tax rate
$ 2,118,516
173,892
92,217
$ 1,976,732
175,971
90,106
$ 2,025,163
167,736
71,725
31.0%
31.0%
32.5%
Ratios (2)
Current ratio
Return on average capital
Return on average equity
Return on average assets
Debt to total capitalization
Per Share
Diluted earnings
Book value
Cash dividends declared
Other Information
1.5:1
8.5%
12.2%
8.5%
44.1%
1.5:1
8.3%
12.6%
8.7%
49.8%
1.5:1
7.4%
11.1%
8.1%
52.6%
$ 2.25
19.01
1.0625
$ 2.21
15.90
1.0125
$ 1.79
17.16
.97
Diluted average shares outstanding (in thousands)
Number of employees
40,973
17,500
40,680
17,500
40,066
18,700
(1) In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," 2001 information has been reclassified for comparative
purposes.
(2) Ratios are based on continuing operations.
Total Revenues
(Dollars in millions)
Operating Income
(Dollars in millions)
2,025 1,977
2,119
Diluted Earnings
Per Share
(In dollars)
Year-end Market
Price of Stock
(In dollars)
43.82
Cash Dividends
Declared Per Share
(In dollars)
176.0 173.9
167.7
2.21
2.25
1.79
34.30
31.89
1.06
1.01
.97
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02
03
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02
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(cid:132) International
(cid:132) U.S.
(cid:132) International
(cid:132) U.S.
HARSCO CORPORATION 2003 ANNUAL REPORT
1
REPORT TO
STOCKHOLDERS
T
T he theme of this year's cover reflects the successful transformation of your Company,
begun some years ago. Once an old-style U.S. manufacturing business with limited
international activity, Harsco is now recognized as a modern, industrial services-focused business
having broad international scope and global opportunities for growth.
The success of our principal strategies for industrial services and international expansion are
evidenced in our major accomplishments of this past year. Led by solid performance in our mill
services and track technologies businesses and the strengthening of several of the key
international currencies in which we operate, Harsco revenues increased to more than
$2.1 billion, a new record for the Company and an improvement of more than 7 percent over
the previous year. Net cash provided by operating activities totaled nearly $263 million, also a
record. Consistent with our change objectives, industrial services exceeded 70 percent of total
revenues for the first time in our history. Nearly 60 percent of total revenues were generated
outside the United States.
In 2003, income from continuing operations was $87.0 million, or $2.12 diluted earnings per
share, compared with income of $88.4 million, or $2.17 diluted earnings per share in 2002.
Including discontinued operations, net income was $92.2 million or $2.25 diluted earnings per
share, compared with net income of $90.1 million, or $2.21 diluted earnings per share in 2002.
Income from discontinued operations was $5.2 million, compared with $1.7 million in 2002.
The year was not without its challenges, notably the lingering U.S. manufacturing recession and
the weak non-residential construction market that continued to impede the better performance
expected from our manufacturing and access services businesses. We also experienced a second
year of significant pension expense increase. To arrest further increases, we took decisive
pension plan design actions that will assure more predictability and affordability in this area,
while forecasts of a modest recovery in the manufacturing and non-residential construction
sectors add to our improving outlook overall.
Harsco's ability to generate substantial cash from operations remains one of the Company's
strengths and the principal catalyst to our future growth. In the past five years alone, our
transformed business model has enabled us to channel more than $1.1 billion into capital
expenditures and targeted acquisitions in execution of our long-range growth plan. This past
year, we increased our capital expenditures by approximately $30 million to further reinforce the
growth of our core industrial services businesses. Our cash resources have also enabled us to re-
arm our balance sheet, including the further pay-down of debt by approximately $86 million on
2
HARSCO CORPORATION 2003 ANNUAL REPORT
a cash basis this past year. The Company's debt-to-capital ratio now stands at approximately
44 percent, its lowest level in four years and well within the ranges of our long-held investment
grade credit rating. We continue to reward our stockholders with an immediate and predictable
return on your investment, having paid out nearly $200 million in cash dividends over the past
five years.
The rigorous discipline of our Economic Value Added (EVA®) system has enhanced our strategic
ability to prudently manage the Company's assets for long-term growth. Now entering our
third year since formal implementation, EVA reinforces the responsibility held by all Harsco
employees to think and act like owners when committing the Company's capital, and has
become the principal driver of our management incentive compensation program. The
Company's improved EVA performance in 2003 exceeded our targets. We look for further EVA
improvement in 2004 and beyond.
We note that our continued diligent communication to the investment community of Harsco's
strategies and accomplishments has heightened awareness as well as market valuations of HSC
common stock. Our strong commitment to long-term growth in expanding worldwide industry
sectors is being understood and appreciated by analysts and investors.
We have established a solid foundation for Harsco's future. We have worked hard to build
market-leading positions in long-term businesses that we know and understand. We will
continue to invest strategically and prudently, carefully considering the political, economic and
cultural risks that may arise.
It has been my privilege to lead your Company for ten years, and I am looking forward to the
next phase of our journey.
"Let us go forward together."
Winston Churchill
Derek C. Hathaway
Chairman, President and Chief Executive Officer
March 11, 2004
HARSCO CORPORATION 2003 ANNUAL REPORT
3
MILL
SERVICES
Harsco's MultiServ mill services division is the world's single largest provider of on-site,
outsourced mill services to the steel and metals industries. The global MultiServ division
operates under long-term contracts at more than 160 mills in over 30 countries, serving its
customers as a 24/7 on-site partner. Harsco's mill services support the entire steelmaking process.
Similar services are provided to the world's non-ferrous metals producers, including aluminum,
copper and nickel.
(cid:122)
Steelmakers outsource to maximize returns on their internal resources and
increase their competitive advantages. Harsco provides valuable capital
relief and cost-effective service expertise, developed from over 100 years of
operational experience.
(cid:122) Harsco's services are provided through long-term, annuity-like contracts
that deliver a predictable cost and revenue base to Harsco's performance.
(cid:122) Harsco's market share is approximately 20% of the estimated $4 billion
annual target market for outsourced mill services. Considerable
opportunities are available to substantially increase Harsco's share.
(cid:122)
The Company's growth strategy is focused in four areas:
MultiServ's efficient on-site
management of semi-finished
materials is of critical importance to
steelmaking operations. This specialized
slab carrier can transport 100 tons of
steel slabs.
(cid:132)
(cid:132)
Add-on Development _ Introduce additional services to existing
customers, or to new customers where we can leverage our existing
infrastructure
Service Development _ Develop new
service-creating technologies, either
with existing or new customers
(cid:132) Geographic Development _ Enter new
countries where the risks and rewards
are properly evaluated and
appropriately balanced
Acquisition _ Consider acquisitions
which are accretive and add market
share and/or technologies
(cid:132)
(cid:122)
The new MultiServ logo symbolizes the
close partnership that exists between
MultiServ and its customers. The red stripes portray the fire of the metals
industry, while the green stripes signify MultiServ and the environment.
Harsco serves almost every major region of the
world with the competitive quality, specialized
technologies, and professional expertise demanded by
the world's top metals producers.
(cid:122) At year-end 2003, the estimated future value of Harsco's worldwide multi-
year mill services contracts totaled $3.4 billion.
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HARSCO CORPORATION 2003 ANNUAL REPORT
ACCESS
SERVICES
Harsco serves the non-residential construction and industrial plant maintenance markets as
the industry's most complete resource for scaffolding, shoring, forming and other access
solutions. A strategic global network of regional branches enables the Company to respond
quickly and efficiently to customer requirements virtually anywhere in the world.
(cid:122) Harsco's rental equipment assets are mobile and readily transportable
wherever market demand exists. Penetration of emerging growth markets
is a key Harsco strategy.
(cid:122)
Tight controls on operating costs and further improvement in operational
systems and performance have enabled Harsco to weather a severe three-
year downturn in non-residential construction spending. Harsco's access
businesses are well-primed to benefit from the gradual market
improvement now being forecast.
(cid:122) Harsco has responded to the tighter market climate by strengthening its
supply partnerships with major international contractors as well as many of
the principal firms in the petrochemical, power generation and industrial
maintenance sectors.
(cid:122) Harsco's role in several large-scale projects helps underpin the Company's
growth expectations for 2004-2005. These include several major
international airport terminal expansions and a number of commercial and
manufacturing plant projects.
Harsco leads the industry in its ability
to support major construction projects
with comprehensive engineering design
services, rental equipment, and on-site
erection and dismantling.
(cid:122)
(cid:122)
The Company is also developing positions
in complementary niche markets, such as
mast climbing work platforms and
temporary staging and seating for major
European sporting and concert events.
The target market for access and related
services is estimated at approximately
$12 billion. Harsco's share, among the
industry's largest, comprises about
5 percent.
SGB's rental scaffolding is in wide use at this
construction project in Glasgow Harbour, Scotland.
Also included is SGB’s new EnviroWrap shrink-cladding
system which allows light inside during construction,
but keeps weather out.
HARSCO CORPORATION 2003 ANNUAL REPORT
5
TRACK
SERVICES
Harsco's railway track maintenance-of-way equipment and services are used in nearly every
part of the world to maintain and expand railroads. Already the number one resource for
track maintenance services and products in North America, Harsco has successfully established
itself in key international markets where substantial national railway modernization programs are
underway. International railways account for more than 80 percent of the world's track.
Harsco is supporting China's railway
modernization and expansion
initiatives with leading equipment like
this New Track Construction train. With
approximately 44,000 miles (71,000 km)
of track, China's railway system is the
third largest in the world, and the
largest in Asia.
(cid:122) Major new business includes Harsco Track Technologies' largest-ever order
from a single customer, a $68 million, 11-machine contract from China for
delivery in 2004 - 2006.
(cid:122)
Significant new orders have also been received from the U.K. and Europe
for a range of state-of-the-art rail grinding, track renewal and new track
construction machines.
(cid:122) Harsco Track Technologies is gaining extensive experience in designing,
building and contracting for international customers.
(cid:122) Harsco produces over 140 types and models of specialized track
maintenance equipment. Each machine sold generates additional
opportunities for repair parts sales and, in some cases, long-term
operator services.
(cid:122) As North American markets remain soft for new equipment purchases,
Harsco is shifting its domestic market growth focus to the higher-margin
services sector.
(cid:122) Harsco will continue to emphasize its
competitive advantages in track
maintenance technologies:
(cid:132) Harsco's Jupiter Control System is
changing the future of railway
maintenance equipment controls.
The module-based Jupiter system
eliminates wiring complexity and
simplifies machine servicing through
continuous on-board diagnostics
(cid:132) Harsco has also developed the
industry's most advanced technology
for rail grinding, a key preventive
maintenance practice to maximize rail life
The U.K. has become a major international
customer for Harsco's railway track maintenance
services and equipment. This rail grinder for Network
Rail is one of several units that Harsco will operate and
maintain.
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HARSCO CORPORATION 2003 ANNUAL REPORT
ENGINEERED
PRODUCTS
Engineered products continue to be a sizeable component of Harsco's operating profile. These
manufacturing-based businesses generally operate in smaller niche markets with minimal
capital investment requirements. All are market leaders in their respective sectors, and are
expected to play a supporting part in Harsco's future growth through their continued earnings
and cash flow performance.
Two new valve
products are
being introduced
to the market in
2004. The new
Oxy-Gen 1
integrates valve
and regulator
functions into a single compact unit ideal
for hospital and home oxygen supply. The
new Global Valve for industrial gases raises
valve technology to a new level of
compliance with virtually all international
regulations and customer specifications.
(cid:122)
(cid:122)
The prolonged domestic manufacturing recession of 2000-2003 proved
especially challenging for the industrial gas cylinders, tanks and valve
products manufactured by Harsco's Gas and Fluid Control Group. Despite
these difficulties, the Group has maintained overall profitability and
continues to be a positive cash flow generator.
Improving economic conditions, both in the United States and
internationally, are expected to stimulate a manufacturing recovery this
year. This should result in improved demand for Harsco's gas and fluid
control products, although competitive pressures remain intense.
(cid:122) Harsco's Reed Minerals and Patterson-Kelley businesses continue to be
among the Company's most consistent performers. These businesses
operate in stable markets, generate consistent earnings and margin
performance, and produce superior returns on capital and Economic Value
Added (EVA®).
(cid:122)
Increased capital spending for natural gas exploration and drilling is
expected to generate additional orders for Harsco's Air-X-Changers air-
cooled heat exchangers.
(cid:122) A sustainable return to profitability is anticipated in
Harsco's IKG industrial grating business following
substantial consolidation and cost reduction actions
taken in 2003.
(cid:122)
Several new specialty products for 2004 are
expected to support an improving sales outlook for
the Company's manufacturing businesses.
Harsco's air-cooled heat exchangers
provide critical pipeline and compressor
cooling for natural gas exploration and
distribution locations.
HARSCO CORPORATION 2003 ANNUAL REPORT
7
CORPORATE
GOVERNANCE
Harsco Corporation believes that high standards of integrity are the essence of the Company's business
conduct. To succeed, we must have public confidence and support. Every director, officer and employee of
Harsco is expected to embrace the values of integrity and honesty in every aspect of their duties.
CODE OF CONDUCT
The basic principles of Harsco's ethical standards are
documented in the Company's Code of Conduct. The
Code is issued in multiple languages to all Harsco directors,
officers and employees, and supported by regular training
programs. An online training course facilitates new
employee orientations and individual refresher training.
The full text of Harsco's Code of Conduct is available on
the Harsco website at www.harsco.com under the
Corporate Governance section, and can be obtained in
BOARD OF DIRECTORS PRINCIPLES
Harsco Corporation is led by a strong and committed Board
of Directors reflecting a diversified executive leadership
background in services, manufacturing, international opera-
tions, finance, marketing and management, as appropriate
to the Company’s diversified activities and global scope.
The primary responsibility of the Board is to oversee and
provide direction and counsel to the senior management of
the Company. Specifically, this includes, but is not limited
to:
print by contacting the Harsco corporate office.
(cid:122) Overseeing the conduct of the Company's business to assure
INTERNAL CONTROL FRAMEWORK
Harsco's internal control system is built on a foundation of
practices and procedures that promote fraud prevention,
fraud detection, and timely and accurate financial report-
ing. Harsco believes that an effective
internal control system is a
basic standard for both the
operational and financial
integrity of results, and
is an integral compo-
nent of a well-man-
aged organization. The
Harsco Internal Control
Framework is distributed
in multiple languages to all
employees with management or
administrative responsibilities. The full text of Harsco's
Internal Control Framework is available on the Harsco web-
site at www.harsco.com under the Corporate Governance
section.
8
HARSCO CORPORATION 2003 ANNUAL REPORT
that it is being properly managed;
(cid:122) Providing advice and counsel to the Chief Executive Officer
and other executives of the Company;
(cid:122) Reviewing and, where appropriate, approving the
Company's major financial and operational objectives, plans,
strategies and actions;
(cid:122) Assisting management in the oversight of compliance by the
Company with applicable laws and regulations, including in
connection with public reporting obligations of the
Company;
(cid:122) Overseeing management with a goal of ensuring that the
assets of the Company are safeguarded through the mainte-
nance of appropriate accounting, financial, and other con-
trols;
(cid:122) Regularly evaluating the performance and approving the
compensation of the Chief Executive Officer, and in consul-
tation with the Chief Executive Officer, also reviewing the
performance of the other members of the Company's senior
management team;
(cid:122) Planning for succession with respect to the Chief Executive
Officer and monitoring management's succession planning
for other key executives of the Company; and
(cid:122) Evaluating and taking steps to maintain the effectiveness of
the Board, by recommending appropriate candidates for
membership, by establishing appropriate compensation, and
by regularly reviewing and evaluating the operations of the
Board, each Committee and each Board member.
Harsco Directors are expected to discharge the above
responsibilities by exercising their independent business
judgment in a manner that they believe in good faith is in
the best interest of the Company and its stockholders.
Size of the Board
The number of directors is established with a view toward
balancing the need for diversity of experience and talent
against the risk of diluting responsibility and participation
of members. A ten-member Board is viewed as the optimal
size for the Company with variations between eight and
twelve being appropriate from time to time depending
upon circumstances. Harsco's Board currently comprises
ten members.
Qualities of a Director
In evaluating the suitability of individual Board members,
the Board takes into account many factors, including
strength of character, mature judgment, business experi-
ence, availability, attendance, career specialization and rele-
vant technical skills and such other characteristics as the
Board may deem necessary in the make-up of the Board to
adequately address the circumstances facing the Company.
Board Committees
Currently there are four standing committees of the Harsco
Board: Executive; Audit; Management Development and
Compensation; and Nominating and Corporate
Governance. The Board may establish other committees
from time to time as circumstances dictate.
Each standing Committee has a written charter which is
approved by the full Board and states the purpose of the
Committee. The full text of each committee charter is
available on the Harsco website at www.harsco.com under
the Corporate Governance section.
Independence
At least two-thirds of Harsco's Board are required to be
"independent" directors as defined by the New York Stock
Exchange and other applicable regulatory requirements.
The Board undertakes an annual review of the independ-
ence of all non-employee directors.
The members of the Audit; Management Development and
Compensation; and Nominating and Corporate Governance
committees are composed of only members who qualify as
"independent" directors and at all times meet any other
requirements of applicable law and listing standards.
Lead Director
The Lead Director position is established when there is an
executive Chairman of the Board, as there is currently. The
Lead Director will be an independent director selected
annually by the independent directors in consultation with
the Chairman of the Board. The Lead Director is responsible
for establishing the agenda for the sessions of the inde-
pendent directors, chairing such sessions, and communicat-
ing the result of such meetings to the Chairman and other
members of management, as appropriate.
Executive Sessions
The independent directors will meet, without management
present, on such occasions as they deem appropriate in
connection with the regularly scheduled Board meetings.
Specifically, the independent directors shall meet annually
to review the performance of the Chief Executive Officer of
the Company. The Board will designate two or more inde-
pendent directors, including the Lead Director, to review
the conclusions of the performance evaluation with the
Chief Executive Officer.
Board Compensation
The Chairman and Secretary annually formulate and pres-
ent to the Management Development and Compensation
Committee for its consideration a recommendation on
director compensation based upon industry surveys and
other relevant information. The Committee will then make
its recommendation to the Board. Directors are not com-
pensated for services to the Company beyond normal direc-
tor fees. The Company does not pay fees for professional
services (as distinguished from standard per diem director's
fees established by the Board for services rendered in the
capacity as directors, e.g. mentoring) to a director or a
director's firm, including law firms, accounting firms, invest-
ment banks and the like.
Stockholding Minimums
While the Board encourages directors to be investors in the
Corporation, the Board believes it is not appropriate to pre-
scribe a minimum level of stock ownership. The Board
believes that the quality of a director's contribution is not
directly correlated to his or her personal stock ownership.
A more extensive discussion of Harsco's corporate gover-
nance guidelines can be found on the Harsco website at
www.harsco.com under the Corporate Governance section.
HARSCO CORPORATION 2003 ANNUAL REPORT
9
DIRECTORS &
OFFICERS
DIRECTORS
COMMITTEES OF THE BOARD
CORPORATE OFFICERS
Executive Committee
Derek C. Hathaway
Derek C. Hathaway, Chairman
James I. Scheiner
Andrew J. Sordoni, III
Dr. Robert C. Wilburn
Audit Committee
James I. Scheiner, Chairman
Jerry J. Jasinowski
D. Howard Pierce
Carolyn F. Scanlan
Joseph P. Viviano
Management Development and
Compensation Committee
Dr. Robert C. Wilburn, Chairman
Carolyn F. Scanlan
James I. Scheiner
Andrew J. Sordoni, III
Nominating and Corporate
Governance Committee
Andrew J. Sordoni, III, Chairman
Jerry J. Jasinowski
D. Howard Pierce
Joseph P. Viviano
Dr. Robert C. Wilburn
Chairman, President and Chief
Executive Officer
Salvatore D. Fazzolari
Senior Vice President, Chief Financial
Officer and Treasurer
Geoffrey D. H. Butler
Senior Vice President - Operations
Stephen J. Schnoor
Vice President and Controller
Mark E. Kimmel
General Counsel and Corporate Secretary
Ronald W. Kaplan
Vice President
Warren A. Weisel
Vice President - Taxes
DIVISION EXECUTIVES
Geoffrey D. H. Butler
President and CEO
MultiServ and SGB Group
Gene A. Iannazzo
President
MultiServ North America
Ronald W. Kaplan
President
Harsco Gas and Fluid Control Group
Richard C. Neuffer
Vice President and General Manager
IKG Industries and Patterson-Kelley
G. Robert Newman
President
Harsco Track Technologies
Charles L. Regan
Vice President and General Manager
Air-X-Changers
Robert S. Safier
Executive VP and General Manager
Patent Construction Systems
Brian H. Tucker
President
Reed Minerals
Derek C. Hathaway
Chairman, President and Chief
Executive Officer
Harsco Corporation
Director since 1991
Geoffrey D. H. Butler
President and CEO
MultiServ and SGB Group
Harsco Corporation
Director since 2002
Salvatore D. Fazzolari
Senior Vice President, Chief Financial
Officer and Treasurer
Harsco Corporation
Director since 2002
Jerry J. Jasinowski
President
National Association of Manufacturers
Director since 1999
D. Howard Pierce
Retired President and CEO
ABB Inc.
Director since 2001
Carolyn F. Scanlan
President and CEO
The Hospital and Healthsystem Association
of Pennsylvania
Director since 1998
James I. Scheiner
President and COO
Benatec Associates, Inc.
Director since 1995
Andrew J. Sordoni, III
Chairman
Sordoni Construction Services, Inc.
Director since 1988
Joseph P. Viviano
Retired Vice Chairman
Hershey Foods Corporation
Director since 1999
Dr. Robert C. Wilburn
President
Gettysburg National Battlefield
Museum Foundation
Director since 1986
Currently serves as Lead Director
10
HARSCO CORPORATION 2003 ANNUAL REPORT
(As of March 3, 2004)
Harsco Corporation
350 Poplar Church Road
Camp Hill, PA 17011 U.S.A.
Tel: 717.763.7064
MILL SERVICES
MultiServ
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381400
North America
MultiServ North America
612 North Main Street
P.O. Box 1071
Butler, PA 16003-1071 U.S.A.
Tel: 724.283.5741
Europe
MultiServ Europe - North
169 Bawtry Road
Wickersley
Rotherham, S Yorks S66 2BW
United Kingdom
Tel: 44.1709.323500
MultiServ Europe - South
Route de Vitry
57270 Uckange
France
Tel: 33.3.82.57.40.00
South Africa
MultiServ South Africa
P.O. Box 1258
Alberton 1450
South Africa
Tel: 27.11.862.8600
Asia-Pacific
MultiServ Asia-Pacific
P.O. Box 5365
Wollongong, NSW 2500
Australia
Tel: 61.2.42.26.3400
Latin America
MultiServ Latin America
400 Perimeter Center Place, Suite 200
Atlanta, GA 30346 U.S.A.
Tel: 770.350.8500
Sobremetal
Avenida Marechal Camara, 160-GR. 1901
Edificio Le Bourget - Castelo
20020-080 Rio de Janeiro
Brazil
Tel: 55.212.510.5151
ACCESS SERVICES
SGB Group
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381300
Europe
SGB Cz s.r.o.
Becovska 939
Praha 10 -Uhrineves
Czech Republic
Tel: 420.2.7210.1511
SGB Slovakia
Contact via SGB Cz
Tel: 421.556.33.25.92
SGB Denmark ApS
Industriholmen 31-33
Postboks 1059
DK-2650 Hvidovre
Denmark
Tel: 45.3678.8222
SGB France SAS
256 Allée de Fétan BP 130
01601 Trevoux, France
Tel: 33.4.74.08.90.50
SGB Scafform
Newcourt Business Park
St Margarets
Co Dublin
Ireland
Tel: 353.1.834.0707
SGB Latvia
Mazcenu alaja 3
Jaunmarupe
Riga distr
LV2166
Latvia
Tel: 371.783.4903
SGB North Europe bv
Europaweg 97, 5707 Helmond
Postbus 112, 5700 AC Helmond
The Netherlands
Tel: 31.492.598.698
SGB Poland
Bochenskiego 81
40-859 Katowice
Poland
Tel: 48.322.54.5058
Trenci SGB
Almeda de Linhas
De Torres 61-7, 1700 Lisbon
Portugal
Tel: 351.2175.76641
SGB Slovensko sro
Vajnorská 135
832 37 Bratislava 3, Slovenia
Tel.: 386.2.4445.9871
Middle East
SGB Egypt
Street No 263, Building No 19
New Maadi
Cairo, Egypt
Tel: 20.2.519.3863
SGB Al-Darwish
United WLL
PO Box 1811
Doha, Qatar
Tel: 974.4603.983
SGB Baroom
PO Box 1346
Jeddah 21431
Saudi Arabia
Tel: 966.2.619.200
SGB Dabal Head Office
PO Box 1102
Dammam 31431
Saudi Arabia
Tel: 966.3.827.3218
Quebeisi SGB
Middle Eastern Head Office
PO Box 5682, Sharjah
United Arab Emirates
Tel: 971.6.5330.911
Asia
SGB Asia Pacific Ltd
Unit 07A 38/F Cable TV Tower
9 Hoi Shing Road
Tsuen Wan, NT, Hong Kong
Tel: 852.2.8577008/2690 2606
PRINCIPAL
OFFICES
SGB Asia Pacific (M) Sdn Bhd
3A-01 & 3A-02, Level 3A
Menara Maxisegar
Jalan Pandan Indah 4/2
Pandan Indah, 55100
Kuala Lumpur, Malaysia
Tel: 603.42965455
SGB Asia Pacific (S) Pte Ltd
23 Gul Road
Singapore 629356
Tel: 65.862.6122
Patent Construction Systems
One Mack Centre Drive
Paramus, NJ 07652 U.S.A.
Tel: 201.261.5600
Canada
Patent - Canada
175 Duncan St.
New Westminster, BC
Canada V3M5G3
Tel: 604.525.5637
Latin America
Patent - Latin America
1940 N. 30th Rd.
Hollywood, FL 33021 U.S.A.
Tel: 954.961.2777
Patent/APSA - Mexico City
Prolongacion Sur 128 No. 134
Colonia Jose Maria Pino Suarez
Mexico, D.F. 01140
Tel: 52.55.26.14.1414
GAS AND FLUID CONTROL
Harsco Gas & Fluid Control Group
350 Poplar Church Road
Camp Hill, PA 17011 U.S.A.
Tel: 717.763.5060
United States
Air-X-Changers
P.O. Box 1804
Tulsa, OK 74101
Tel: 918.266.1850
American Welding & Tank _ Mfg.
201 Tank Rd.
Jesup, GA 31545
Tel: 912.427.5605
American Welding & Tank _ Sales
4718 Old Gettysburg Road
Mechanicsburg, PA 17055
Tel: 717.763.5080
Sherwood
2111 Liberty Drive
Niagara Falls, NY 14304
Tel: 716.505.4800
Structural Composites Industries
325 Enterprise Place
Pomona, CA 91768
Tel: 909.594.7777
Taylor-Wharton Cryogenics
4075 Hamilton Blvd.
Theodore, AL 36582
Tel: 251.443.8680
Taylor-Wharton Cylinders
521 Green Cove Rd.
Huntsville, AL 35803
Tel: 256.650.9100
Mexico
Taylor-Wharton International
Prolongacion Sur 128 No. 134
Mexico, D.F. 01140
Tel: 52.55.5364.0330
Europe
Taylor-Wharton Harsco GmbH
Mildstedter Landstrasse 1
D-25866 Mildstedt
Germany
Tel: 49.4841.9850
Taylor-Wharton Harsco S. R. O.
Vstupny Areal U.S. Steel
04454 Kosice, Slovakia
Asia
Taylor-Wharton (Beijing) Cryogenic
Equipment Co., Ltd.
25 Banbidian Street
Beijing, Tongzhou District, P.R.C. 101101
Tel: 86.10.6052.4939
Taylor-Wharton Asia (M) Sdn Bhd
Lots PT 5076 & PT 5077
Jalan Janqur 28/43
Hicom Industrial Estate
PO Box 7193, Pejabat Pos Besar
40706 Shah Alam,
Selangor Darul Ehsan
Malaysia
Tel: 60.3.511.3003
Australia
Taylor-Wharton Australia Pty. Ltd.
Unit 1/882 Leslie Drive
Albury, NSW 2640
Australia
Tel: 61.2.6040.2533
OTHER INFRASTRUCTURE
PRODUCTS AND SERVICES
Harsco Track Technologies
2401 Edmund Road, Box 20
West Columbia, SC 29171-0020 U.S.A.
Tel: 803.822.9160
Europe
Harsco Track Technologies Limited
Chewton Street, Eastwood
Nottingham NG16 3HB
United Kingdom
Tel: 44.1773.539.480
Australia
Harsco Track Technologies Pty. Ltd.
4 Strathwyn St.
P.O. Box 5287
Brendale, Queensland 4500
Australia
Tel: 61.7.3205.6500
IKG Industries
1514 S. Sheldon Road
Channelview, TX 77530 U.S.A.
Tel: 281.452.6637
Mexico
IKG/Irving - Queretaro
Prol. Corregidora Norte No. 487
Col. Parques Industriales
Queretaro, Qro 76160
Mexico
Tel: 52.442.214.24.04
Patterson-Kelley
100 Burson Street
East Stroudsburg, PA 18301 U.S.A.
Tel: 570.421.7500
Reed Minerals
4718 Old Gettysburg Road
Mechanicsburg, PA 17055 U.S.A.
Tel: 717.763.4200
HARSCO CORPORATION 2003 ANNUAL REPORT
11
FINANCIAL
SECTION
GLOSSARY OF FINANCIAL TERMS
Economic Value Added (EVA®)
EVA is net operating profit after tax minus an appropriate charge for the opportunity cost of all capital
invested. As such, EVA is an estimate of true "economic" profit, or the amount by which earnings exceed
or fall short of the required minimum rate of return that shareholders and lenders could get by investing in
other securities of comparable risk.
Return on Sales
Measures income in relation to sales. Return on sales is calculated by dividing income from continuing
operations by total revenues.
Return on Average Equity (ROE)
Measures the rate of return on the equity held by common stock shareholders. Return on average equity is
calculated by dividing income from continuing operations by the quarterly weighted average equity.
Current Ratio
Measures the short-term liquidity of the Company by reflecting its ability to meet current obligations from
current assets. The current ratio is calculated by dividing current assets by current liabilities.
Total Debt to Total Capital
Measures the relative capital contributions of debt and equity and indicates the degree of leverage. Total
debt to capital is calculated by dividing total debt (short-term borrowings and long-term debt including
current maturities) by total capital (the sum of total debt and shareholders' equity).
Return on Average Assets (ROA)
Measures how efficiently the Company's total assets are being utilized. Return on average assets is
calculated by dividing income from continuing operations before interest expense, income taxes and
minority interest by quarterly weighted average assets (excluding assets of discontinued operations).
Return on Capital (ROC)
Measures how effectively the Company is using capital to produce earnings. Return on capital is calculated
by dividing income from continuing operations, excluding after-tax interest expense charges, by quarterly
weighted average total debt and equity.
Gross Profit
Measures the profitability of the Company by calculating total revenues less costs and expenses associated
directly with or allocated to products sold or services rendered.
12
HARSCO CORPORATION 2003 ANNUAL REPORT
Form 10-K
For the fiscal year ended December 31, 2003
Table of Contents
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Supplementary Item Executive Officers of Registrant
Business
Properties
Legal Proceedings
Submissions of Matters to a Vote of Security Holders
Part II.
Item 5.
Item 6.
Item 7.
Item 7a.
Item 8.
Item 9.
Item 9A
Part III
Item 10.
Item 11.
Item 12.
Item 13
Item 14.
Part IV.
Item 15.
Market for the Registrant’s Common Stock and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
Page
15
19
20
20
20
22
22
23
41
47
86
87
88
88
88
89
89
90
98
HARSCO CORPORATION 2003 ANNUAL REPORT 13
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-3970
___________________
HARSCO CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
Camp Hill, Pennsylvania
(Address of principal executive offices)
Registrant's telephone number, including area code 717-763-7064
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $1.25 per share
Preferred stock purchase rights
Securities registered pursuant to Section 12(g) of the Act: NONE
23-1483991
(I.R.S. employer identification number)
17001-8888
(Zip Code)
Name of each
exchange on which registered
New York Stock Exchange and
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES
NO
The aggregate market value of the Company's voting stock held by non-affiliates of the Company as of June 30, 2003 was
$1,467,128,400.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Classes
Common stock, par value $1.25 per share
Outstanding at February 29, 2004
40,948,830
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the 2004 Proxy Statement are Incorporated by Reference in Part III of this Report.
The Exhibit Index (Item No. 15) located on pages 90 to 97 incorporates several documents by reference as indicated therein.
14 HARSCO CORPORATION 2003 ANNUAL REPORT
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I
Item 1. Business
(a) Description of Business
Harsco Corporation ("the Company") is a diversified, multinational provider of market-leading industrial services and
engineered products. The Company's operations fall into three reportable segments: Mill Services, Access Services and
Gas and Fluid Control, plus an “all other” category labeled Other Infrastructure Products and Services. The Company has
over 400 locations in 43 countries, including the United States.
The Company’s executive offices are located at 350 Poplar Church Road, Camp Hill, Pennsylvania 17011. The
Company’s main telephone number is (717) 763-7064. The Company’s Internet website address is www.harsco.com.
Through this Internet website (found in the "Investor Information" link) the Company makes available, free of charge, its
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and all amendments to
those reports, as soon as reasonably practicable after these reports are electronically filed with or furnished to the
Securities and Exchange Commission.
The Company’s principal lines of business and related principal business drivers are as follows:
Principal Lines of Business
Principal Business Drivers
• Outsourced, on-site mill services
• Steel mill production and capacity utilization
• Outsourcing of services by mills
• Scaffolding, forming, shoring and other
access-related services
• Non-residential construction
• Annual industrial and building maintenance cycles
• Gas control and containment products
- Cryogenic containers and industrial cylinders
• General industrial production and industrial gas production
- Valves
• Use of industrial, fuel and refrigerant gases
• Respiratory care
• Consumer barbeque grills
- Propane Tanks
• Use of propane as a primary and/or backup fuel
- Filament-wound composite cylinders
• Self-contained breathing apparatus (SCBA) market
• Natural gas vehicle (NGV) market
- Air-cooled heat exchangers
• Natural gas drilling and transmission
• Railway track maintenance services and
• Domestic and international railway track maintenance-of-way
equipment
capital spending
• Outsourcing of track maintenance and new track
construction by railroads
•
Industrial grating products
Industrial production
•
• Non-residential construction
•
Industrial abrasives and roofing granules
•
Industrial and infrastructure surface preparation and
restoration
• Residential roof replacement
• Powder processing equipment and heat
transfer products
• Pharmaceutical, food and chemical production
• Commercial and institutional heating requirements
HARSCO CORPORATION 2003 ANNUAL REPORT 15
The Company reports segment information using the “management approach” in accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information.” The management approach is based on the way
management organizes and reports the segments within the enterprise for making operating decisions and assessing
performance. The Company’s reportable segments are identified based upon differences in products, services and
markets served. Due to reorganization changes, the Company adopted a new segment reporting structure for its
operations as of December 31, 2002. The new segments are Mill Services, Access Services, Gas and Fluid Control and
an “all other” category labeled Other Infrastructure Products and Services, as more fully described below. Historical
information has been reclassified for comparative purposes.
In 2003, 2002 and 2001, the United States contributed sales of $0.9 billion, $0.9 billion and $1.0 billion, equal to 43%,
46% and 50% of total sales, respectively. In 2003, 2002 and 2001 the United Kingdom contributed sales of $0.5 billion,
$0.4 billion and $0.4 billion, equal to 21%, 21% and 19% of total sales, respectively. No single customer represented 10%
or more of the Company's sales during 2003, 2002 and 2001. There were no significant inter-segment sales.
(b) Financial Information about Industry Segments
Financial information concerning industry segments is included in Note 14, Information by Segment and Geographic Area,
to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data."
(c) Narrative Description of Business
(1) A narrative description of the businesses by reportable segment is as follows:
Mill Services Segment – 39% of consolidated sales for 2003
The Mill Services Segment, which consists of the MultiServ Division, is the Company’s largest operating segment in
terms of revenues and operating income. MultiServ is the world’s largest provider of outsourced, on-site mill services
to the global steel and metals industries. MultiServ provides its services on a long-term contract basis, supporting
each stage of the metal-making process from initial raw material handling to post-production by-product processing
and on-site recycling. Working exclusively as a specialized, high-value-added services provider, MultiServ does not
trade steel or scrap, or take ownership of its customers’ raw materials or finished products. Similar services are
provided to the producers of non-ferrous metals, such as aluminum, copper and nickel. The Company’s multi-year
Mill Services contracts had estimated future revenues of $3.4 billion at December 31, 2003, which provides the
Company with a substantial base of long-term revenues. Approximately 60% of these revenues are expected to be
recognized by December 31, 2006. The remaining revenues are expected to be recognized principally between
January 1, 2007 and December 31, 2012.
MultiServ’s geographic reach to approximately 160 locations in over 30 countries, and its increasing range of services,
enhance the Company’s financial and operating balance. Approximately 32%, 19%, 17% and 11% of this Segment’s
revenues are generated in Continental Europe, the United Kingdom, the United States and Latin America,
respectively.
For 2003, 2002 and 2001, the Mill Services Segment’s percentage of consolidated sales was 39%, 35% and 33%,
respectively.
Access Services Segment – 29% of consolidated sales for 2003
The Access Services Segment includes the Company’s SGB Group and Patent Construction Systems Divisions. The
Company’s Access Services Segment leads the access industry as the world’s most complete provider of scaffolding,
shoring, forming and other access solutions. Major products and services include the rental and sale of scaffolding,
powered access equipment, shoring and concrete forming products. The Company also provides access design
engineering services, on-site installation and dismantling services, and a variety of other access equipment services.
These businesses serve principally the non-residential construction and industrial plant maintenance markets.
The Company’s access services are provided from over 20 countries of operation. Approximately 47%, 25% and 23%
of this Segment’s revenues are generated in the United Kingdom, the United States and Continental Europe,
respectively.
16 HARSCO CORPORATION 2003 ANNUAL REPORT
For 2003, 2002 and 2001, the Access Services Segment’s percentage of consolidated sales was 29%, 30% and 29%,
respectively.
Gas and Fluid Control Segment – 16% of consolidated sales for 2003
The Gas and Fluid Control Segment includes the Company’s Gas and Fluid Control Group. The Segment’s
manufacturing and service facilities in the United States, Europe, Australia, Malaysia and China comprise an
integrated manufacturing network for gas containment and control products. This global operating presence and
product breadth provide economies of scale and multiple code production capability, enabling the Gas and Fluid
Control Group to serve as a single source to the world’s leading industrial gas producers and distributors, as well as
regional and local customers. Approximately 91% of this Segment’s revenues are generated in the United States.
The Company’s gas containment products include cryogenic gas storage tanks; high pressure and acetylene
cylinders; propane tanks; and composite vessels for industrial and commercial gases, natural gas vehicle (NGV)
products and other products. The Company’s gas control products include valves and regulators serving a variety of
markets, including the industrial gas, commercial refrigeration, life support and outdoor recreation industries. The
segment also provides custom-designed and manufactured air-cooled heat exchangers for the natural gas industry.
For 2003, 2002 and 2001, the Gas and Fluid Control Segment’s percentage of consolidated sales was 16%, 18% and
20%, respectively.
Other Infrastructure Products and Services (“all other”) Category – 16% of consolidated sales for 2003
The Other Infrastructure Products and Services (“all other”) Category includes the Harsco Track Technologies, Reed
Minerals, IKG Industries and Patterson-Kelley Divisions. Approximately 90% of this category’s revenues are
generated in the United States.
Harsco Track Technologies is a global provider of equipment and services to maintain, repair and construct railway
track. The Company's railway track maintenance services provide high technology comprehensive track maintenance
and new track construction support to railroad customers worldwide. The railway track maintenance equipment
product class includes specialized track maintenance equipment used by private and government-owned railroads
and urban transit systems worldwide.
Reed Minerals’ roofing granules and industrial abrasives are produced from utility coal slag at a number of locations
throughout the United States. The Company's Black Beauty® abrasives are used for industrial surface preparation,
such as rust removal and cleaning of bridges, ship hulls and various structures. Roofing granules are sold to
residential roofing shingle manufacturers, primarily for the replacement market. This Division is the United States’
largest manufacturer of slag abrasives and third largest manufacturer of residential roofing granules.
IKG Industries manufactures a varied line of industrial grating products at several plants in North America. These
products include a full range of riveted, pressure-locked and welded grating in steel, aluminum and fiberglass, which
are used mainly in industrial flooring, safety and security applications in the power, paper, chemical, refining and
processing industries.
Patterson-Kelley is a leading manufacturer of powder processing equipment such as blenders, dryers and mixers for
the chemical, pharmaceutical and food processing industries and heat transfer products such as water heaters and
boilers for commercial and institutional applications.
For 2003, 2002 and 2001, the Other Infrastructure Products and Services (“all other”) Category’s percentage of
consolidated sales was 16%, 17% and 18%, respectively.
(1) (i) The products and services of the Company include a number of product groups. These product groups are
more fully discussed in Note 14, Information by Segment and Geographic Area, to the Consolidated
Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.” The product
groups that contributed 10% or more as a percentage of consolidated sales in any of the last three fiscal
years are set forth in the following table:
HARSCO CORPORATION 2003 ANNUAL REPORT 17
Product Group
Mill Services
Access Services
Industrial Gas Products
Percentage of Consolidated Sales
2002
2001
2003
39%
29%
14%
35%
30%
16%
33%
29%
16%
(1) (ii) New products and services are added from time to time; however, in 2003 none required the investment of a
material amount of the Company's assets.
(1) (iii) The manufacturing requirements of the Company's operations are such that no unusual sources of supply
for raw materials are required. The raw materials used by the Company include principally steel and, to a
lesser extent, aluminum which are usually readily available. Currently, due to strong worldwide demand for
steel, its general availability has decreased. The Company believes that this is a short-term situation.
However, if this situation continues long-term, it could have a material impact on the Company’s financial
position, results of operations and cash flows. Additionally, the Company uses coal slag for its roofing
granule and abrasives manufacturing. Although this raw material has limited availability, the Company has
an adequate supply for the foreseeable future.
(1) (iv) While the Company has a number of trademarks, patents and patent applications, it does not consider that
any material part of its business is dependent upon them.
(1) (v) The Company furnishes products and materials and certain industrial services within the Access Services
and Gas and Fluid Control Segments and the Other Infrastructure Products and Services (“all other”)
Category that are seasonal in nature. As a result, the Company’s sales and net income for the first quarter
ending March 31 are normally lower than the second, third and fourth quarters.
(1) (vi) The practices of the Company relating to working capital are similar to those practices of other industrial
service providers or manufacturers servicing both domestic and international industrial services and
commercial markets. These practices include the following:
• Standard accounts receivable payment terms of 30 days to 60 days, with progress payments required
for certain long-lead-time or large orders.
• Standard accounts payable payment terms of 30 days to 75 days.
•
Inventories are maintained in sufficient quantities to meet forecasted demand. Due to the time required
to manufacture certain railway maintenance equipment to customer specifications, inventory levels of
this business tend to increase during the production phase and then decline when the equipment is sold.
(1) (vii) The Company as a whole is not dependent upon any one customer for 10% or more of its revenues.
However, the Mill Services Segment is dependent largely on the global steel industry and has two European-
based customers that each provided in excess of 10% of this segment’s revenues for the years 2001 to 2003
under multiple long-term contracts at several mill sites. The loss of any one of the contracts would not have
a material adverse effect upon the Company’s financial position or cash flows; however, it could have a
material effect on quarterly or annual results of operations. Additionally, the Other Infrastructure Products
and Services (“all other”) Category has one U.S.-based customer that provided in excess of 10% of this
Category’s revenue. The loss of this customer would not have a material adverse effect upon the
Company’s financial position or cash flows; however, it could have a material effect on quarterly or annual
results of operations.
(1) (viii) Backlog of orders was $186.2 million and $157.8 million as of December 31, 2003 and 2002, respectively. It
is expected that approximately 27% of the total backlog at December 31, 2003 will not be filled during 2004.
There is no significant seasonal aspect to the Company's backlog. Backlog for scaffolding, shoring and
forming services and for roofing granules and slag abrasives is not included in the total backlog because it is
generally not quantifiable, due to the nature of the products and services provided. Contracts for the Mill
Services Segment are also excluded from the total backlog. These contracts have estimated future
revenues of $3.4 billion at December 31, 2003.
(1) (ix) At December 31, 2003, the Company had no material contracts that were subject to renegotiation of profits
or termination at the election of the U.S. Government.
18 HARSCO CORPORATION 2003 ANNUAL REPORT
(1) (x) The Company encounters active competition in all of its activities from both larger and smaller companies
who produce the same or similar products or services, or who produce different products appropriate for the
same uses.
(1) (xi) The expense for product development activities was $3.3 million, $2.8 million and $4.0 million in 2003, 2002
and 2001, respectively.
(1) (xii) The Company has become subject, as have others, to stringent air and water quality control legislation. In
general, the Company has not experienced substantial difficulty complying with these environmental
regulations in the past, and does not anticipate making any material capital expenditures for environmental
control facilities. While the Company expects that environmental regulations may expand, and that its
expenditures for air and water quality control will continue, it cannot predict the effect on its business of such
expanded regulations. For additional information regarding environmental matters see Note 10,
Commitments and Contingencies, to the Consolidated Financial Statements included in Part II, Item 8,
"Financial Statements and Supplementary Data."
(1) (xiii) As of December 31, 2003, the Company had approximately 17,500 employees.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
Financial information concerning foreign and domestic operations is included in Note 14, Information by Segment and
Geographic Area, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and
Supplementary Data." Export sales totaled $108.5 million, $76.6 million and $84.3 million in 2003, 2002 and 2001,
respectively.
Item 2. Properties
Information as to the principal plants owned and operated by the Company is summarized in the following table:
Location
Principal Products
Access Services Segment
Marion, Ohio
Dosthill, United Kingdom
Gas and Fluid Control Segment
Catoosa, Oklahoma
Lockport, New York
Niagara Falls, New York
Washington, Pennsylvania
Bloomfield, Iowa
Fremont, Ohio
Jesup, Georgia
West Jordan, Utah
Harrisburg, Pennsylvania
Huntsville, Alabama
Beijing, China
Jesup, Georgia
Kosice, Slovakia
Shah Alam, Malaysia
Theodore, Alabama
Access Equipment Maintenance
Access Equipment Maintenance
Heat Exchangers
Valves
Valves
Valves
Propane Tanks
Propane Tanks
Propane Tanks
Propane Tanks
High Pressure Cylinders
High Pressure Cylinders
Cryogenic Storage Vessels
Cryogenic Storage Vessels
Cryogenic Storage Vessels
Cryogenic Storage Vessels
Cryogenic Storage Vessels
Other Infrastructure Products and Services
(“all other”) Category
Drakesboro, Kentucky
Gary, Indiana
Moundsville, West Virginia
Roofing Granules/Abrasives
Roofing Granules/Abrasives
Roofing Granules/Abrasives
HARSCO CORPORATION 2003 ANNUAL REPORT 19
Location
Brendale, Australia
Fairmont, Minnesota
Ludington, Michigan
West Columbia, South Carolina
Channelview, Texas
Leeds, Alabama
Nashville, Tennessee
Queretaro, Mexico
Principal Products
Railroad Equipment
Railroad Equipment
Railroad Equipment
Railroad Equipment
Grating
Grating
Grating
Grating
East Stroudsburg, Pennsylvania
Process Equipment
The Company also operates the following plants which are leased:
Location
Principal Products
Access Services Segment
Maldon, United Kingdom
DeLimiet, Netherlands
Gas and Fluid Control Segment
Cleveland, Ohio
Catoosa, Oklahoma
Sapulpa, Oklahoma
Pomona, California
Aluminum Access Products
Access Equipment Maintenance
Brass Castings
Heat Exchangers
Heat Exchangers
Composite Cylinders
Other Infrastructure Products and Services
(“all other”) Category
Eastwood, United Kingdom
Railroad Equipment
Marlboro, New Jersey
Tulsa, Oklahoma
Grating
Grating
The Company operates from a number of other plants, branches, warehouses and offices in addition to the above. The
Company has approximately 160 locations related to mill services in over 30 countries; however since these facilities are
on the property of the steel mill being serviced they are not listed. The Company considers all of its properties at which
operations are currently performed to be in satisfactory condition and suitable for operations.
Item 3. Legal Proceedings
Information regarding legal proceedings is included in Note 10, Commitments and Contingencies, to the Consolidated
Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data.”
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters that were submitted to a vote of security holders, through the solicitation of proxies or otherwise,
during the fourth quarter of the year covered by this report.
Supplementary Item. Executive Officers of Registrant (Pursuant to Instruction 3 to
Item 401(b) of Regulation S-K)
Set forth below, as of March 11, 2004, are the executive officers (this excludes one corporate officer who is not deemed
an "executive officer" within the meaning of applicable Securities and Exchange Commission regulations) of the Company
and certain information with respect to each of them. The executive officers were elected to their respective offices on
April 29, 2003, or at various times during the year as noted. All terms expire on April 27, 2004. There are no family
relationships between any of the executive officers.
20 HARSCO CORPORATION 2003 ANNUAL REPORT
Name
Age
Principal Occupation or Employment
Executive Officers:
D. C. Hathaway
59
G. D. H. Butler
57
S. D. Fazzolari
51
R. W. Kaplan
52
M. E. Kimmel
44
S. J. Schnoor
50
Chairman, President and Chief Executive Officer of the Corporation since July 31,
2000. Chairman and Chief Executive Officer from January 1, 1998 to July 31, 2000.
Served as Chairman, President and Chief Executive Officer from April 1, 1994 to
December 31, 1997 and President and Chief Executive Officer from January 1,
1994 to April 1, 1994. Director since 1991. From 1991 to 1993, served as
President and Chief Operating Officer. From 1986 to 1991 served as Senior Vice
President-Operations of the Corporation. Served as Group Vice President from
1984 to 1986 and as President of the Dartmouth Division of the Corporation from
1979 until 1984.
Senior Vice President - Operations of the Corporation effective September 26, 2000
and Director since January 2002. Concurrently serves as President of the MultiServ
and SGB Divisions. From September 2000 through December 2003, he was
President of the Heckett MultiServ International and SGB Divisions. Was President
of the Heckett MultiServ-East Division from July 1, 1994, to September 26, 2000.
Served as Managing Director - Eastern Region of the Heckett MultiServ Division
from January 1, 1994 to June 30, 1994. Served in various officer positions within
MultiServ International, N. V. prior to 1994 and prior to Harsco’s acquisition of that
corporation in August 1993.
Senior Vice President, Chief Financial Officer and Treasurer of the Corporation
effective August 24, 1999 and Director since January 2002. Served as Senior Vice
President and Chief Financial Officer from January 1998 to August 1999. Served as
Vice President and Controller from January 1994 to December 1997 and as
Controller from January 1993 to January 1994. Previously served as Director of
Auditing from 1985 to 1993 and served in various auditing positions from 1980 to
1985.
Vice President of the Corporation effective January 1, 2004. Concurrently serves as
President of the Harsco Gas & Fluid Control Group. Served as Senior Vice
President – Operations of the Corporation from July 1, 1998 to December 31, 2003.
Prior to that, he was President of the Taylor-Wharton Gas Equipment Division from
February 1, 1994 to November 16, 1999. Served as Vice President and Treasurer
of the Corporation from January 1992 to February 1994. Served as Treasurer of the
Corporation from May 1991 to December 1992. Previously served as Vice
President and General Manager of the Plant City Steel/Taylor-Wharton Division
from 1987 to 1991 and Vice President and Controller of the Division from 1985 to
1987. Previously served in various Corporate treasury/financial positions since
1979.
General Counsel and Corporate Secretary effective January 1, 2004. Served as
Corporate Secretary and Assistant General Counsel from May 1, 2003 to December
31, 2003. Held various legal positions within the Corporation since he joined the
Company in August, 2001. Prior to joining Harsco, he was Vice President,
Administration and General Counsel, New World Pasta Company from January 1,
1999 to July 2001. Before joining New World Pasta, Mr. Kimmel spent
approximately 12 years in various legal positions with Hershey Foods Corporation.
Vice President and Controller of the Corporation effective May 15, 1998. Served as
Vice President and Controller of the Patent Construction Systems Division from
February 1996 to May 1998 and as Controller of the Patent Construction Systems
Division from January 1993 to February 1996. Previously served in various auditing
positions for the Corporation from 1988 to 1993. Prior to joining Harsco, he served
in various auditing positions for Coopers & Lybrand from September 1985 to
April 1988.
HARSCO CORPORATION 2003 ANNUAL REPORT 21
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Harsco common stock is listed on the New York and Pacific Stock Exchanges, and also trades on the Boston and
Philadelphia Exchanges under the symbol HSC. At the end of 2003, there were 40,866,470 shares outstanding. In 2003,
the stock traded in a range of $27.50 to $44.39 and closed at $43.82 at year-end. At December 31, 2003 there were
approximately 17,000 shareholders. There are no significant limitations on the payment of dividends included in the
Company’s loan agreements. For additional information regarding Harsco common stock market price and dividends
declared, see Dividend Action under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the Common Stock Price and Dividend Information under Part II, Item 8, "Financial Statements
and Supplementary Data.”
Item 6. Selected Financial Data (a)
Five-Year Statistical Summary
(In thousands, except per share and employee information)
Income Statement Information
Revenues from continuing operations
Income from continuing operations
Income (loss) from discontinued operations
Net income
Financial Position and Cash Flow Information
Working capital
Total assets
Long-term debt
Total debt
Depreciation and amortization
Capital expenditures
Cash provided by operating activities
Cash used by investing activities
Cash provided (used) by financing activities
Ratios
Return on sales(c)
Return on average equity(d)
Current ratio
Total debt to total capital(e)
2003
2002
2001
2000 (b)
1999
$ 2,118,516
86,999
5,218
92,217
$ 1,976,732
88,410
1,696
90,106
$ 2,025,163
74,642
(2,917)
71,725
$ 1,904,691
94,343
2,460
96,803
$ 1,649,092
86,391
4,322
90,713
$
269,276
2,138,035
584,425
613,531
168,935
143,824
262,788
(144,791)
(125,501)
$
228,552
1,999,297
605,613
639,670
155,661
114,340
253,753
(53,929)
(205,480)
$ 231,156
2,090,766
720,133
762,115
176,531
156,073
240,601
(125,213)
(99,190)
$ 181,489
2,180,948
774,448
837,473
159,099
180,048
259,448
(459,052)
210,746
$ 174,147
1,659,823
418,504
455,343
135,853
175,248
213,953
(194,674)
(8,928)
4.1%
12.2%
1.5:1
44.1%
4.5%
12.6%
1.5:1
49.8%
Per Share Information
Basic - Income from continuing operations
$
- Income (loss) from discontinued operations
- Net income
Diluted - Income from continuing operations
- Income (loss) from discontinued operations
- Net income
Book value
Cash dividends declared
$
$
2.14
0.13
2.27
2.12
0.13
2.25
19.01
1.0625
2.19
.04
2.23
2.17
.04
2.21
15.90
1.0125
3.7%
11.1%
1.5:1
52.6%
1.87
(.07)
1.80
1.86
(.07)
1.79
17.16
.97
$
5.0%
14.4%
1.3:1
55.4%
2.36
.06
2.42
2.36
.06
2.42
16.94
.945
$
5.2%
13.3%
1.4:1
41.2%
2.11
.11
2.22
2.11
.10
2.21
16.22
.91
Other Information
40,973
Diluted average number of shares outstanding
17,500
Number of employees
186,222
Backlog from continuing operations (f)
(a) In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived
40,022
19,700
$ 256,745
40,066
18,700
$ 214,124
40,680
17,500
157,777
41,017
15,700
$ 227,541
$
$
Assets,” 2001, 2000 and 1999 information has been reclassified for comparative purposes.
(b) Includes SGB Group Plc which was acquired June 16, 2000.
(c) "Return on sales" is calculated by dividing income from continuing operations by revenues from continuing operations.
(d) "Return on average equity" is calculated by dividing income from continuing operations by quarterly weighted average equity.
(e) "Total debt to total capital" is calculated by dividing the sum of debt (short-term borrowings and long-term debt including current maturities) by the sum of
equity and debt.
(f) Excludes the estimated amount of long-term mill service contracts, which had estimated future revenues of $3.4 billion at December 31, 2003. Also excludes
backlog of the Access Services Segment. These amounts are generally not quantifiable due to the nature and timing of the products and services provided.
22 HARSCO CORPORATION 2003 ANNUAL REPORT
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the consolidated financial statements provided under Part II,
Item 8 of this Annual Report on Form 10-K. Certain statements contained herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a
number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully
herein.
Forward-Looking Statements
The nature of the Company's business and the many countries in which it operates subject it to changing economic,
competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks
regarding important factors which, among others, could cause future results to differ materially from the forward-looking
statements, expectations and assumptions expressed or implied herein. Forward-looking statements contained herein
could include statements about our management confidence and strategies for performance; expectations for new and
existing products, technologies, and opportunities; and expectations regarding growth, sales, cash flows, earnings and
Economic Value Added (EVA®). These statements can be identified by the use of such terms as “may,” “could,” “expect,”
“anticipate,” “intend,” “believe,” or other comparable terms.
Factors which could cause results to differ include, but are not limited to: (1) changes in the worldwide business
environment in which the Company operates, including general economic conditions; (2) changes in currency exchange
rates, interest rates and capital costs; (3) changes in the performance of stock and bond markets that could affect the
valuation of the assets in the Company’s pension plans and the accounting for pension assets, liabilities and expense; (4)
changes in governmental laws and regulations, including taxes and import tariffs; (5) market and competitive changes,
including pricing pressures, market demand and acceptance for new products, services and technologies; (6) unforeseen
business disruptions in one or more of the many countries which the Company operates due to political instability, civil
disobedience, armed hostilities or other calamities; and (7) other risk factors listed from time to time in the Company's
SEC reports. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond
the Company’s ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a
prediction of actual results. The Company undertakes no duty to update forward-looking statements.
Executive Overview
The Company’s full year 2003 revenues and net cash provided by operating activities reached record levels at $2.1 billion
and $262.8 million, respectively. Driving the revenues increase were strong results from the Mill Services Segment which
showed year-over-year revenues growth of $130.7 million or 19%. Also contributing to the achievement of record
revenues were increases in the Access Services Segment of $31.2 million or 5%, and in the Harsco Track Technologies
(HTT) Division of $15.9 million or 10%. The positive effect of foreign currency translation increased revenues in the Mill
Services and Access Services Segments by $76.7 million and $46.3 million, respectively. Additionally, the positive effect
of foreign currency translation increased 2003 consolidated revenues by $126.2 million when compared with 2002.
This strong revenues growth was somewhat tempered by increased pension expense; the continued slowdown in the
non-residential construction markets served by the Company, which negatively impacted the operating income of the
Access Services Segment; and a continued depressed manufacturing environment in the U.S., which negatively impacted
the operating income of the Gas and Fluid Control Segment and the IKG Industries Division. These factors contributed to
a reduction in operating income and income from continuing operations of $2.1 million and $1.4 million, respectively, when
compared with 2002.
Revenues by Region
Total Revenues
Twelve Months Ended
December 31
Percentage Growth From
2002 to 2003
Currency
(Dollars in millions)
U.S.
Europe
Latin America
Asia - Pacific
Other
Total
2003
$ 902.4
873.8
100.3
88.1
153.9
$ 2,118.5
2002
$ 903.2
773.6
94.5
73.9
131.5
$ 1,976.7
Volume
(0.1)%
(0.8)
13.5
6.3
4.2
0.8%
0.0%
13.8
(7.4)
12.9
12.8
6.4%
Total
(0.1)%
13.0
6.1
19.2
17.0
7.2%
HARSCO CORPORATION 2003 ANNUAL REPORT 23
2003 Highlights
On a macro basis, the following significant items impacted the Company during 2003 in comparison with 2002:
Company Wide:
•
Increased pre-tax defined benefit pension expense of $17.4 million due to the decline in equity markets prior to 2003
and lower interest rates which affected the SFAS No. 87 pension expense computation for 2003.
• The benefit of foreign currency translation resulted in an overall increase in pre-tax income of $11.9 million.
• A pre-tax benefit of $4.9 million from the termination of certain postretirement benefit plans.
Mill Services Segment:
(In millions)
Revenues
Operating income
2003
$ 827.5
85.9
2002
$ 696.8
73.5
• The benefit of foreign currency translation resulted in increased revenues and operating income of $76.7 million and
$10.2 million, respectively.
• Continued strong volume and new business increased revenues and operating income $30.2 million and $6.3 million,
respectively.
• The acquisition of the industrial services unit of C. J. Langenfelder and Sons, Inc. increased Segment revenues by
$23.1 million.
• Pre-tax defined benefit pension expense increased $6.2 million.
Access Services Segment:
(In millions)
Revenues
Operating income
2003
$ 619.1
37.4
2002
$ 587.9
41.7
• Pre-tax defined benefit pension expense increased $7.5 million.
• The continued slowdown in the non-residential construction markets served by the Company, especially in the U.S.,
resulted in decreased revenues and operating income of $19.9 million and $6.3 million, respectively. This slowdown
had a significant negative effect on rental rates on equipment rentals, which is the highest margin product line of this
Segment.
• The benefit of foreign currency translation resulted in increased revenues and operating income of $46.3 million and
$3.3 million, respectively.
Gas and Fluid Control Segment:
(In millions)
Revenues
Operating income
2003
$ 335.1
17.0
2002
$ 350.6
23.0
•
•
Increased competition (from both international and domestic competitors) and decreased demand for certain valves
and composite-wrapped cylinders reduced revenues and operating income by $30.2 million and $8.2 million,
respectively.
Increased demand for propane tanks, cryogenics and cylinders increased revenues and operating income by $12.5
million and $3.0 million, respectively.
• Pre-tax defined benefit pension expense increased $1.6 million.
24 HARSCO CORPORATION 2003 ANNUAL REPORT
Other Infrastructure Products and Services (“all other”) Category:
(In millions)
Revenues
Operating income
2003
$ 336.8
34.0
2002
$ 341.4
37.6
• Revenues and operating income from the IKG Division decreased due to the depressed U.S. manufacturing
environment and reorganization costs.
• Continued and consistent profitable results from the Reed Minerals and Patterson-Kelley Divisions were attained.
•
• Pre-tax defined benefit pension expense increased $1.9 million.
Improved international demand for rail equipment sales of the HTT Division increased export sales by $30.8 million.
Outlook, Trends and Strategies
Looking to 2004 and beyond, the following significant items, trends and strategies are expected to affect the Company in
comparison with 2003:
Company Wide:
• A continued focus on expanding the higher-margin industrial services businesses, with a particular emphasis on
growing the Mill Services Segment through additional services, new contracts and strategic acquisitions.
• Continued international diversification through growth in the Mill Services Segment; targeted niche acquisitions in the
Access Services Segment; increased export sales in the manufacturing businesses; and increased production at
international manufacturing facilities.
• Continued focus on Economic Value Added (EVA®)-positive investments and a reduction in capital employed to
improve EVA.
• A target of $280 million in cash provided by operating activities for 2004, which would be another record.
• Reduction of debt to the extent possible. The Company has approximately $70 million of debt that can be paid prior
to maturity. The balance of the debt, principally the £200 million notes and the $150 million notes, cannot be paid until
maturity in 2010 and 2013, respectively.
• Due to structural changes in the Company’s pension plans, pension expense is expected to stabilize or decrease
slightly in 2004. These structural changes include the replacement of the majority of the U.S. defined benefit pension
plans and certain international defined benefit pension plans with defined contribution pension plans, effective
January 1, 2004.
• A continued benefit from favorable foreign currency translation is expected. However, should the U.S. dollar start to
strengthen, particularly in relationship to the euro or U.K. pound sterling, the effect of this benefit would diminish.
• Reduced interest expense is expected due to the September 2003 refinancing of the Company’s $150 million ten-year
notes at a lower interest rate. This interest expense reduction may be offset due to the foreign currency translation
effect on international interest expense.
• Cost reductions and Six-Sigma continuous process improvement initiatives across the Company should further
enhance margins. This includes improved supply chain management and outsourcing in the manufacturing
businesses.
• An increase in general and administrative expenses is expected related to external audit fees and internal costs for
compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
• Higher fuel, transportation and material costs, particularly steel prices, could increase the Company’s operating costs
and reduce profitability. To the extent that such costs cannot be passed to customers, operating income and results
of operations may be adversely affected.
Mill Services Segment:
• Global steel production is forecasted to rise in 2004, and bidding activity for new mill services contracts and add-on
•
services is strong.
Increases in steel prices and worldwide demand could provide increased production volumes and additional
opportunities for mill services contracts.
• The risk remains that certain Mill Services customers may file for bankruptcy protection in the future which could have
an adverse affect on the Company’s income.
Access Services Segment:
• The outlook for non-residential construction spending is expected to modestly improve. The benefits of this will likely
affect late 2004 and 2005 results.
HARSCO CORPORATION 2003 ANNUAL REPORT 25
• There is continued concern over the competitive environment in the United States. International competitors have
invested heavily in the U.S. access services market, substantially increasing the supply of certain types of rental
equipment.
• The international defined benefit pension expense has grown significantly and disproportionately to the domestic
defined benefit pension expense over the past few years. Effective January 1, 2004, structural changes have been
made to several of the Company’s pension plans whereby both domestic and international employees of this Segment
will have defined contribution pension plans. This is expected to make future pension expense more consistent with
prior years and more predictable.
Gas and Fluid Control Segment:
• This Segment is expected to remain the Company’s most challenging business in 2004. However, an overall net
improvement is expected to be led by the propane tank product line along with modest improvements from the
cryogenic and composites product lines.
Increases in steel prices and worldwide demand for steel could have an adverse effect on raw material costs, and this
Segment’s ability to obtain the necessary raw materials.
•
Other Infrastructure Products and Services (“all other”) Category:
• A continued positive outlook is anticipated for railway track services and equipment sales as international orders
continue to grow.
• The IKG Industries industrial grating division is expected to return to profitability.
•
Increases in steel prices and worldwide demand for steel could have an adverse effect on raw material costs, and
both HTT’s and IKG’s ability to obtain the necessary raw materials.
• Continued strong results are expected from the Reed Minerals and Patterson-Kelley Divisions.
Results of Operations for 2003, 2002 and 2001
(Dollars are in millions, except per share)
2003
2002
2001 (a)
Revenues from continuing operations
$ 2,118.5
$ 1,976.7
$ 2,025.2
Cost of services and products sold
1,604.4
1,481.8
1,516.4
Selling, general and administrative expenses
Other expenses
Operating income from continuing operations
Interest expense
Provision for income taxes from continuing operations
Income from continuing operations
Income (loss) from discontinued operations
Net income
Diluted earnings per common share
Effective income tax rate for continuing operations
Consolidated effective income tax rate
330.0
7.0
173.9
40.5
41.7
87.0
5.2
92.2
2.25
30.7%
31.0%
312.7
3.5
176.0
43.3
42.2
88.4
1.7
90.1
2.21
30.9%
31.0%
314.3
22.8
167.7
53.2
38.6
74.6
(2.9)
71.7
1.79
32.6%
32.5%
(a)
In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” 2001 information has been reclassified for comparative purposes.
26 HARSCO CORPORATION 2003 ANNUAL REPORT
Comparative Analysis of Consolidated Results
Revenues
2003 vs. 2002
Revenues for 2003 were up $141.8 million or 7% from 2002, to record levels. This increase was attributable to the
following significant items:
In millions
$126.2
30.2
20.4
Change in Revenues 2003 vs. 2002
Effect of foreign currency translation.
Net increased volume, new contracts and price changes in the Mill Services Segment.
Net effect of business acquisitions and dispositions. Increased revenues of $23.1 and $6.4 million in
the Mill Services and Access Services Segments, respectively, partially offset by decreased
revenues of $9.1 million in the Other Infrastructure Products and Services (“all other”) Category.
19.6
Net increased revenues in the Harsco Track Technologies (HTT) Division due principally to rail
equipment sales.
(19.9) Net decreased revenues in the Access Services Segment due to continued slowdown in the non-
residential construction markets.
(19.3)
Net decreased revenues in the Gas and Fluid Control Segment due to increased competition and
decreased demand.
(18.3)
Decreased revenues of the IKG Industries Division due to decreased demand and to a lesser extent,
the sale of the bridge decking product line in January 2002.
2.9
$141.8
Other (minor changes across the various units not already mentioned).
Total Change in Revenues 2003 vs. 2002
2002 vs. 2001
Revenues for 2002 were down $48.5 million or 2% from 2001. This decrease was attributable to the following significant
items:
In millions
$(50.0)
Change in Revenues 2002 vs. 2001
Net decreased revenues in the Gas and Fluid Control Segment due to the continued recessionary
environment in the manufacturing sector, primarily in the United States, that impacted most
product lines of this Segment. These decreases were only partially offset by higher demand for
valves.
(23.3)
Net reduced revenues in the Access Services Segment due to continued weakness in the non-
residential construction markets due to generally unsettled economic conditions.
(21.8)
Decreased revenues of the IKG Industries Division due to the sale of the bridge decking product line
in January 2002 and decreased demand.
(6.6)
30.5
24.5
Net reduced revenues in the HTT Division due principally to decreased contracting services related
primarily to a maintenance contract with a U.S. railroad that was completed in December 2001.
Effect of foreign currency translation.
Net increased volume, new contracts and price changes in the Mill Services Segment. The overall
increase is a combination of increased international revenues partially offset by decreased
domestic revenues principally due to steel mill customer plant closures in 2001.
(1.8) Other (minor changes across the various units not already mentioned).
$(48.5)
Total Change in Revenues 2002 vs. 2001
HARSCO CORPORATION 2003 ANNUAL REPORT 27
Cost of Services and Products Sold
2003 vs. 2002
Cost of services and products sold for 2003 increased $122.6 million or 8% from 2002, slightly higher than the 7%
increase in revenues. This increase was attributable to the following significant items:
In millions
$95.6
17.5
11.8
7.8
Change in Cost of Services and Products Sold 2003 vs. 2002
Effect of foreign currency translation.
Net effect of business acquisitions and dispositions.
Increased costs due to increased revenues (exclusive of effect of foreign currency translation).
Increased defined benefit pension expense due to financial market conditions and lower interest
rates in 2001 and 2002 which affected the SFAS No. 87 pension expense computation for 2003.
(10.1) Other (due to stringent cost controls, process improvements, reorganization actions and minor
$122.6
changes across the various units not already mentioned).
Total Change in Cost of Services and Products Sold 2003 vs. 2002
2002 vs. 2001
Cost of services and products sold for 2002 decreased $34.6 million or 2% from 2001, consistent with the 2% decrease in
revenues. This decrease was attributable to the following significant items:
In millions
$(59.2)
(16.1)
22.9
10.5
7.3
Change in Cost of Services and Products Sold 2002 vs. 2001
Reduced costs due to decreased revenues (exclusive of effect of foreign currency translation).
Elimination of goodwill amortization as a result of implementing SFAS No. 142.
Effect of foreign currency translation.
Increased defined benefit pension expense due to financial market conditions and lower interest
rates in 2001 which affected the SFAS No. 87 pension expense computation for 2002.
Other (due to product mix and minor changes across the various units not already mentioned,
partially offset by decreased variable costs due to lower sales, stringent cost controls, process
improvements and reorganization actions).
$(34.6)
Total Change in Cost of Services and Products Sold 2002 vs. 2001
Selling, General and Administrative Expenses
2003 vs. 2002
Selling, general and administrative expenses for 2003 increased $17.3 million or 6% from 2002, less than the 7% increase
in revenues. This increase was attributable to the following significant items:
In millions
$19.7
9.9
Change in Selling, General and Administrative Expenses 2003 vs. 2002
Effect of foreign currency translation.
Increased defined benefit pension expense due to financial market conditions and lower interest
rates in 2001 and 2002 which affected the SFAS No. 87 pension expense computation for 2003.
This increased pension expense was spread across all operations, with $8.0 million of the
increase in the Access Services Segment.
(3.5)
Reduction in provisions for uncollectible accounts receivable due to significant charges in 2002 for
Mill Services customers that were experiencing financial difficulties including bankruptcy.
(8.8) Other (due to continuing cost reduction, process improvement and reorganization efforts).
$17.3
Total Change in Selling, General and Administrative Expenses 2003 vs. 2002
2002 vs. 2001
Selling, general and administrative expenses for 2002 decreased $1.6 million or 0.5% from 2001, less than the 2%
decrease in revenues. This decrease was attributable to the following significant items:
In millions
$(5.8)
9.2
Change in Selling, General and Administrative Expenses 2002 vs. 2001
Reduction in provisions for uncollectible accounts receivable due to significant charges in 2001 for
Mill Services customers that were experiencing financial difficulties including bankruptcy.
Increased defined benefit pension expense due to financial market conditions and lower interest
rates in 2001 which affected the SFAS No. 87 pension expense computation for 2002.
4.8
(9.8) Other (due to continuing cost reduction, process improvement and reorganization efforts).
Effect of foreign currency translation.
$(1.6)
Total Change in Selling, General and Administrative Expenses 2002 vs. 2001
28 HARSCO CORPORATION 2003 ANNUAL REPORT
Other Expenses
This income statement classification includes impaired asset write-downs, employee termination benefit costs and costs
to exit activities, offset by net gains on the disposal of non-core assets. During 2003, the Company continued its strategy
to streamline operations. This strategy included the consolidation, closure and sale of certain operating locations and
continued headcount reductions in both administrative and operating positions. These actions resulted in net Other
Expenses of $7.0 million in 2003 compared with $3.5 million in 2002 and $22.8 million in 2001.
2003 vs. 2002
Other Expenses for 2003 increased $3.5 million or 100% from 2002. This increase was attributable to the following
significant items:
In millions
$3.5
Change in Other Expenses 2003 vs. 2002
Decline in net gains on disposals of non-core assets. This decline was attributable to a $2.7 million
net gain that was realized in 2002 from the sale of an equity investment within the Mill Services
Segment and $1.9 million gain on the sale of a product line in the Other Infrastructure Products
and Services (“all other”) Category that were not repeated in 2003.
0.8
0.3
(1.1)
$3.5
Increase in costs to exit activities.
Increase in other expenses.
Decline in employee termination benefit costs.
Total Change in Other Expenses 2003 vs. 2002
2002 vs. 2001
Other Expenses for 2002 decreased $19.3 million or 85% from 2001. This decrease was attributable to the following
significant items:
In millions
$(15.0)
Change in Other Expenses 2002 vs. 2001
Decline in impaired asset write-downs. Impaired asset write-downs in 2001 included $8.0 million
related to an under-performing plant associated with the Company’s roofing granules business.
The plant was sold in 2002. In addition, 2001’s expense included $4.8 million of impaired asset
write-downs in the Mill Services Segment related to fixed plant and equipment associated with
steel mill customers which filed for reorganization proceedings under local laws principally in the
United States and Asia.
(3.0)
(1.3)
Decline in employee termination benefit costs.
Decline in costs to exit activities, other expenses and increased net gains on the disposal of non-
core assets.
$(19.3)
Total Change in Other Expenses 2002 vs. 2001
For additional information, see Note 15, Other (Income) and Expenses, to the Consolidated Financial Statements under
Part II, Item 8, “Financial Statements and Supplementary Data.”
Interest Expense
2003 vs. 2002
Interest expense in 2003 was $2.8 million or 6% lower than in 2002. This decline was due to approximately $58 million in
reduced average annual borrowings and lower average annual interest rates on certain borrowings (e.g., commercial
paper) partially offset by an increase of $2.3 million due to the effect of foreign currency translation.
2002 vs. 2001
Interest expense in 2002 was $9.9 million or 19% lower than in 2001. This decline was due to approximately $110 million
in reduced average annual borrowings and lower average annual interest rates partially offset by an increase of $1.1
million due to the effect of foreign currency translation.
HARSCO CORPORATION 2003 ANNUAL REPORT 29
Provision for Income Taxes from Continuing Operations
2003 vs. 2002
The decrease in 2003 of $0.5 million or 1% in the provision for income taxes from continuing operations was due to
decreased earnings from continuing operations for the reasons mentioned above and a decreased effective income tax
rate. The effective tax rate relating to continuing operations for 2003 was 30.7% versus 30.9% for 2002.
2002 vs. 2001
The increase in 2002 of $3.6 million or 9% in the provision for income taxes from continuing operations was due to
increased earnings offset by a decreased effective income tax rate. The effective income tax rate relating to continuing
operations for 2002 was 30.9% versus 32.6% for 2001. The decrease in the income tax rate was due principally to the
elimination of goodwill amortization for book purposes in accordance with SFAS No. 142.
Income from Continuing Operations
2003 vs. 2002
Income from continuing operations in 2003 was slightly below 2002 levels despite increased revenues. This decrease of
$1.4 million or 2% results from increased pension expense and reduced interest income of $1.5 million. This reduced
interest income related to lower average annual interest rates. These items were partially offset by the positive impact of
foreign currency translation and the termination of certain postretirement benefit plans.
2002 vs. 2001
Income from continuing operations in 2002 was significantly above 2001 levels despite a decrease in revenues. The
increase of $13.8 million or 18% results from the items discussed above, including decreased asset write-downs as well
as a reduced equity loss in affiliates. The reduced equity loss in affiliates was due primarily to $2.9 million of pre-tax
losses during 2001 associated with the Company’s S3Networks equity investment. This investment was disposed of in
2001.
Income (Loss) from Discontinued Operations
2003 vs. 2002
Income from discontinued operations for 2003 increased $3.5 million or 208% from 2002. This increase was attributable
to the following significant items:
In millions
$5.2
Change in Income (Loss) from Discontinued Operations 2003 vs. 2002
After-tax income due to favorable developments in the Company’s Federal Excise Tax (FET)
litigation. For additional information on the FET litigation see Note 10, Commitments and
Contingencies, to the Consolidated Financial Statements under Part II, Item 8, "Financial
Statements and Supplementary Data.”
(1.7)
Decline in after-tax income related to the sale of the Company’s Capitol Manufacturing business
during 2002.
$3.5
Total Change in Income (Loss) from Discontinued Operations 2003 vs. 2002
2002 vs. 2001
Income from discontinued operations for 2002 was $4.6 million higher than 2001’s loss of $2.9 million. This increase was
attributable to the following significant items:
In millions
$3.6
Change in Income (Loss) from Discontinued Operations 2002 vs. 2001
After-tax gain recognized on the sale of the Company’s Capitol Manufacturing business, of which a
substantial part of the assets was divested in the second quarter of 2002.
1.0
Decline in after-tax loss from operations of the Company’s Capitol Manufacturing business, due to
the sale in the second quarter of 2002.
$4.6
Total Change in Income (Loss) from Discontinued Operations 2002 vs. 2001
30 HARSCO CORPORATION 2003 ANNUAL REPORT
Net Income and Earnings Per Share
2003 vs. 2002
Net income of $92.2 million and diluted earnings per share of $2.25 in 2003 exceeded 2002 by $2.1 million and $0.04,
respectively, due principally to increased income from discontinued operations partially offset by decreased income from
continuing operations for the reasons described above.
2002 vs. 2001
Net income of $90.1 million and diluted earnings per share of $2.21 in 2002 exceeded 2001 by $18.4 million and $0.42,
respectively, due principally to decreased provisions for uncollectible accounts receivable; decreased Other expenses
related to restructuring activities; decreased interest expense; and a lower effective income tax rate.
Liquidity and Capital Resources
Overview
The Company’s principal sources of liquidity are cash from operations and short-term borrowings under its various credit
agreements, augmented by cash proceeds from asset sales. Principal borrowings for working capital requirements are
commercial paper. During 2003, record cash flows from operations of $262.8 million enabled the Company to make
significant progress toward its strategic objectives. This included net cash payments to reduce debt of $86.2 million,
increased capital expenditures of $29.5 million for growth in the Company’s industrial services businesses and two
industrial services acquisitions totaling $23.5 million. Since peaking in mid-2000 in connection with the SGB acquisition,
the Company has reduced its total debt by almost $300 million or approximately 31% as of December 31, 2003.
The Company’s strategic objectives for 2004 include generating a record $280 million in cash from operations, augmented
by $30 million in targeted asset sales. The Company’s strategy is to redeploy excess or discretionary cash to grow
primarily the mill services business and to further reduce debt. The Company has targeted $125 million for growth capital
investments and acquisitions and $40 million for debt reduction.
As of December 31, 2003 the Company had approximately $70 million of debt that can be paid prior to maturity. The
balance of the debt, principally, the £200 million notes and the $150 million notes, cannot be paid until maturity in 2010
and 2013, respectively. The Company also plans to continue its history of paying dividends to shareholders.
HARSCO CORPORATION 2003 ANNUAL REPORT 31
Cash Requirements
The following summarizes the Company’s expected future payments related to contractual obligations and commercial
commitments at December 31, 2003.
Contractual Obligations as of December 31, 2003 (a)
(In millions)
Short-term Debt
Long-term Debt
(including current maturities and
capital leases)
Pension and Other Post-
retirement Obligations (b)
Operating Leases
Purchase Obligations
Foreign Currency Forward
Exchange Contracts
Other Obligations (c)
Payments Due by Period
Total
14.9
$
Less than
1 year
$ 14.9
1-3
years
-
$
4-5
years
-
$
After 5
years
-
$
598.7
14.3
56.5
19.8
508.1
154.4
141.9
88.0
78.4
0.1
24.4
48.3
84.4
78.4
0.1
47.8
49.0
3.0
-
-
44.3
21.5
0.6
-
-
37.9
23.1
-
-
-
Total Contractual Obligations
$ 1,076.4
$ 264.8
$ 156.3
$ 86.2
$ 569.1
(a) See Note 6, Debt and Credit Agreements; Note 7, Leases; Note 8, Employee Benefit Plans; and Note 13, Financial Instruments, to the
Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data,” for additional disclosures on short-
term and long-term debt; operating leases; pensions and other postretirement benefits; and foreign currency forward exchange contracts,
respectively.
(b) The total obligation for Pension and Other Postretirement Obligations is based on actuarial calculations and represents the obligation recorded
on the Company’s balance sheet. Payments due by period are based on the expected undiscounted amounts to be paid in the years shown.
The amount shown in the After 5 years column is the remaining balance of the obligation as calculated at December 31, 2003. It is not
practicable to estimate the actual amount to be paid after five years.
(c) Other contractual obligations are not deemed to have a material impact on the Company and are not discussed in detail.
Commercial Commitments – The following table summarizes the Company’s contingent commercial commitments
at December 31, 2003. These amounts are not included in the Company’s Consolidated Balance Sheet since there are
no current circumstances known to management indicating that the Company will be required to make payments on these
contingent obligations.
Commercial Commitments as of December 31, 2003
(In millions)
Amount of Commitment Expiration Per Period
Total
Amounts
Committed
Less
Than
1 Year
1-3
Years
4-5
Years
Over 5
Years
Indefinite
Expiration
Standby Letters of Credit
$ 88.5
$ 84.8
$
3.3
$
0.4
$
-
$
-
Guarantees
22.9
Performance Bonds
107.8
Other Commercial Commitments
11.1
3.5
96.4
-
-
1.6
-
0.4
0.1
18.9
-
-
-
-
9.8
11.1
Total Commercial Commitments
$ 230.3
$ 184.7
$
4.9
$
0.8
$
0.1
$ 39.8
32 HARSCO CORPORATION 2003 ANNUAL REPORT
Performance bonds include an $80 million security bond and standby letters of credit include a $9 million letter of credit
both related to the Federal Excise Tax litigation discussed in Note 10, Commitments and Contingencies, to the
Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.” Certain
guarantees and performance bonds are of a continuous nature and do not have a definite expiration date.
Sources and Uses of Cash
The primary drivers of the Company’s cash flow from operations are the Company’s strong sales and income, particularly
in the services businesses. Additionally, returns on capital investments made in prior years, for which no cash is currently
required, are a significant source of cash. Depreciation related to these investments is a non-cash charge. The Company
also continues to maintain working capital at a manageable level.
Major uses of cash include payroll costs and related benefits; raw material purchases for the manufacturing businesses;
income tax payments; interest payments; insurance premiums and payments of self-insured casualty losses; and facility
rental payments. Other primary uses of cash include capital investments, principally in the industrial services businesses;
debt payments; and dividend payments.
Resources available for cash requirements – The Company has various credit facilities and commercial paper
programs available for use throughout the world. The following chart illustrates the amounts outstanding on credit
facilities and commercial paper programs and available credit at December 31, 2003.
Summary of Credit Facilities
(In millions)
As of December 31, 2003
Outstanding
Balance
Available
Credit
Facility Limit
U.S. commercial paper program
$ 350.0
$
9.3
$ 340.7
Euro commercial paper program
125.8
Revolving credit facility (a)
350.0
Bilateral credit facility (b)
25.0
26.1
-
3.4
99.7
350.0
21.6
Totals at December 31, 2003
$ 850.8
$ 38.8
$ 812.0 (c)
(a) U.S.-based Program
(b)
(c) Although the Company has significant available credit, it is the Company’s policy to limit aggregate commercial paper and credit facility
International-based Program
borrowings at any one time to a maximum of $375 million.
See Note 6, Debt and Credit Agreements, to the Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplementary Data,” for more information on the Company’s credit facilities.
Credit Ratings and Outlook – The following table summarizes the Company's debt ratings at December 31, 2003:
Long-term Notes
U.S.–Based
Commercial Paper
Standard & Poor’s (S&P)
Moody’s
Fitch (a)
A-
A3
A-
A-2
P-2
F-2
(a) The Company’s £200 million notes are not rated by Fitch.
Outlook
Stable
Stable
Stable
The euro commercial paper market does not require commercial paper to be rated; accordingly, the Company’s euro-
based commercial paper program has not been rated. In the third quarter of 2003, S&P, Fitch and Moody’s all reaffirmed
their stable outlooks for the Company. A downgrade to the Company’s credit rating would probably increase the costs to
the Company to borrow funds. An improvement in the Company’s credit rating would probably decrease the costs to the
Company to borrow funds.
HARSCO CORPORATION 2003 ANNUAL REPORT 33
Working Capital Position – Changes in the Company’s working capital are reflected in the following table:
(Dollars are in millions)
Current Assets
Less: Current Liabilities
Working Capital
Current Ratio
December 31
2003
$ 764.4
495.1
$ 269.3
December 31
2002
$ 702.4
473.8
$ 228.6
1.5:1
1.5:1
Increase
(Decrease)
62.0
$
21.3
40.7
$
Working capital increased 18% in 2003 due principally to the effect of foreign currency translation. Foreign currency
translation changes were due principally to the weakening of the U.S. dollar in relation to the British pound sterling and the
euro. Also contributing to the increase in working capital was the acquisition of the mill services unit of C. J. Langenfelder
& Son, Inc.
Certainty of Cash Flows – The certainty of the Company’s future cash flows is strengthened by the long-term nature
of the Company’s mill services contracts. At December 31, 2003, the Company’s mill services contracts had estimated
future revenues of $3.4 billion. Of that amount, over $800 million is projected for 2004 and approximately 60% is
expected to be recognized by December 31, 2006. In addition, the Company had an order backlog of $186.2 million for
its manufacturing businesses and railway track services.
The types of products and services that the Company provides are not subject to rapid technological change which
increases the stability of related cash flows. Additionally, each of the Company’s businesses is among the top three
companies (relative to sales) in the industries the Company serves. Due to these factors, the Company is confident in its
future ability to generate positive cash flows from operations.
Cash Flow Summary
The Company’s cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements
of Cash Flows, are summarized in the following table:
Summarized Cash Flow Information
(In millions)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
2003
2002
2001
$ 262.8
(144.8)
(125.5)
17.6
$ 253.7
(53.9)
(205.5)
8.4
$ 240.6
(125.2)
(99.2)
(5.2)
Net change in cash and cash equivalents
$ 10.1
$
2.7
$ 11.0
Cash From Operating Activities – Cash provided by operations in 2003 was a record $262.8 million, up $9.0 million
from 2002. The increased cash from operations in 2003 resulted from the following:
• Positive year-over-year changes in inventories due principally to planned reductions in inventories at IKG
Industries and international mill services locations.
• Timing of accounts payable disbursements.
• Timing of funding of pension and insurance liabilities for which expense was recorded during the year but for
which payments will be made in subsequent years.
• Partially offsetting these increases were recorded sales (accounts receivable) for which cash will not be received
until 2004. As an example, the Harsco Track Technologies Division recorded a $21.1 million increase in sales in
December 2003 compared with December 2002. A significant portion of those sales will be collected in 2004.
Cash Used in Investing Activities – Capital investments for 2003 were $143.8 million, up $29.5 million from 2002.
Investments were made predominantly for the industrial services businesses with 60% in the Mill Services Segment. The
Company also invested $23.5 million on two industrial service acquisitions. These acquisitions included the domestic mill
services unit of C.J. Langenfelder & Son, Inc. and a small product line for the international access services business.
Proceeds from sales of assets decreased $40.9 million. This decrease, on a comparative basis, included the sale of
34 HARSCO CORPORATION 2003 ANNUAL REPORT
Capitol Manufacturing and a product line of the Harsco Track Technologies Division in 2002. In 2004, the Company plans
to continue to invest in high-return projects, principally in the industrial services businesses.
Cash Used in Financing Activities – The following table summarizes the Company’s debt and capital positions at
December 31, 2003.
(Dollars are in millions)
Notes Payable and Current Maturities
Long-term Debt
Total Debt
Total Equity
Total Capital
December 31
2003
December 31
2002
$
29.1
584.4
613.5
777.0
$ 1,390.5
$
34.1
605.6
639.7
644.5
$ 1,284.2
Total Debt to Total Capital
44.1%
49.8%
The Company's debt as a percent of total capital decreased in 2003 due principally to the Company’s continued debt
reduction combined with the increase in the cumulative translation adjustment equity account and increased retained
earnings. Due to the Company’s significant net investments in Europe and the United Kingdom, foreign currency
translation increases in the euro and the pound sterling had a positive effect on total equity.
Debt Covenants
The Company’s credit facilities and certain notes payable agreements contain covenants requiring a minimum net worth
of $475 million and a maximum debt to capital ratio of 60%. Based on balances at December 31, 2003, the Company
could borrow approximately $550 million and still be within its debt covenants. Alternatively, keeping all other factors
constant, the Company’s equity could decrease by $300 million and the Company would still be within its covenants.
Cash and Value-Based Management
In 2004, the Company plans to continue with its strategy of selective investing for strategic purposes. The goal of this
strategy is to improve the Company’s Economic Value Added (EVA®) under the program that commenced January 1,
2002. Under this program the Company evaluates strategic investments based upon the investment’s economic profit.
EVA equals after-tax operating profits less a charge for the use of the capital employed to create those profits (only the
service cost portion of pension expense is included for EVA purposes). Therefore, value is created when a project or
initiative produces a return above the cost of capital. In 2003, the Company as a whole exceeded its EVA improvement
target by 125%.
Through the Company’s use of EVA to evaluate all capital expenditures, the Company targets its capital investments
where management expects they will create the greatest positive EVA. In 2003, the Company made approximately 60%
and 30% of its capital expenditures in the Mill Services and Access Services Segments, respectively. The investments in
these segments continue to show positive results as the Mill Services and Access Services Segments generated
approximately 50% and 30% of the Company’s 2003 cash from operations, respectively. Additionally, both these
Segments had improved EVA in 2003 when compared with 2002. In 2004, the Company is again targeting the industrial
services businesses for the majority of its capital investments.
The Company is committed to continue paying dividends to shareholders. The Company has increased the dividend rate
for ten consecutive years, and in February 2004, the Company paid its 215th consecutive quarterly cash dividend. The
Company also plans to continue paying down debt to the extent possible.
The Company's financial position and debt capacity should enable it to meet current and future requirements. As
additional resources are needed, the Company should be able to obtain funds readily and at competitive costs. The
Company is well-positioned and intends to continue investing strategically in high-return projects, reducing debt and
paying cash dividends as a means to enhance shareholder value.
Application of Critical Accounting Policies
The Company’s discussion and analysis of its financial condition and results of operations are based upon the
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent liabilities. On an on-going basis the Company evaluates its estimates, including those related to pensions and
HARSCO CORPORATION 2003 ANNUAL REPORT 35
other postretirement benefits, bad debts, goodwill, long-lived asset valuations, inventory valuations, insurance accruals,
contingencies and income taxes. The impact of changes in these estimates, as necessary, is reflected in the respective
segment’s operating income. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used
in the preparation of its consolidated financial statements. Management has discussed the development and selection of
the critical accounting estimates described below with the Audit Committee of the Board of Directors and the Audit
Committee has reviewed the Company’s disclosure relating to these estimates in this Management’s Discussion and
Analysis of Financial Condition and Results of Operations. These items should be read in conjunction with Note 1,
Summary of Significant Accounting Policies, to the Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplementary Data.”
Pension Benefits
The Company has noncontributory defined benefit pension plans throughout the world. The largest of these plans are in
the United Kingdom and the United States. The Company’s funding policy for these plans is to contribute amounts
sufficient to meet the minimum funding pursuant to U.K. and U.S. statutory requirements, plus any additional amounts that
the Company may determine to be appropriate. The Company made cash contributions to its defined benefit pension
plans of $23.6 million and $10.1 million during 2003 and 2002, respectively. Additionally, the Company expects to make
$24.0 in cash contributions to its defined benefit pension plans during 2004. The Company accounts for its defined
benefit pension plans in accordance with SFAS No. 87, “Employer’s Accounting for Pensions” (SFAS 87), which requires
that amounts recognized in financial statements be determined on an actuarial basis. A minimum liability is required to be
established on the Consolidated Balance Sheet representing the amount of unfunded accumulated benefit obligation.
The unfunded accumulated benefit obligation is the difference between the accumulated benefit obligation and the fair
value of the plan assets at the measurement date. When it is necessary to establish an additional minimum pension
liability, an equal amount is recorded as an intangible pension asset limited to unrecognized prior service cost. Any
excess amount is recorded as a reduction to shareholders’ equity in accumulated other comprehensive expense, net of
deferred income taxes, in the Consolidated Balance Sheet. At December 31, 2003 and 2002, the Company has a gross
minimum pension liability of $233.9 million and $236.2 million, respectively. These adjustments impacted accumulated
other comprehensive expense in the shareholders’ equity section of the Balance Sheet by $1.5 million of comprehensive
income, net of deferred income taxes, and $146.7 million of comprehensive expense, net of deferred income taxes, at
December 31, 2003 and 2002, respectively. When and if the fair market value of the pension plans’ assets exceed the
accumulated benefit obligation, the reduction to shareholders’ equity would be fully restored to the Consolidated Balance
Sheet.
Management has implemented a three-part strategy to deal with the adverse market forces that have increased the
unfunded benefit obligations over the last several years. These strategies included pension plan design changes, a
review of funding policy alternatives and a review of the asset allocation policy and investment manager structure. With
regards to plan design, the Company amended a majority of the U.S. defined benefit pension plans and certain
international defined benefit pension plans so that accrued service will no longer be granted for periods after December
31, 2003, although compensation increases will continue to be recognized on actual service to-date. In place of these
plans, the Company has established, effective January 1, 2004, defined contribution pension plans providing for the
Company to contribute a specified matching amount for participating employees’ contributions to the plan. Domestically,
this match will be made on employee contributions up to four percent of their eligible compensation. Additionally, the
Company may provide a discretionary contribution of up to two percent of compensation for eligible employees.
Internationally, this match is up to six percent of eligible compensation with an additional two percent going towards
insurance and administrative costs. The Company believes this new retirement benefit plan will provide a more
predictable and less volatile pension expense than existed under the defined benefit plans.
Critical Estimate – Pension Benefits
Accounting for pensions and other postretirement benefits requires the use of actuarial assumptions. The principal
assumptions used include the discount rate and the expected long-term rate of return on plan assets. Each assumption is
reviewed annually and represents management’s best estimate at that time. The assumptions are selected to represent
the average expected experience over time and may differ in any one year from actual experience due to changes in
capital markets and the overall economy. These differences will impact the amount of unfunded benefit obligation and the
expense recognized.
36 HARSCO CORPORATION 2003 ANNUAL REPORT
The discount rates as of the September 30, 2003 measurement date for the U.K. pension plan and the October 31, 2003
measurement date for the U.S. pension plans were 5.7% and 6.25%, respectively. These rates were used in calculating
the Company's projected benefit obligations as of December 31, 2003. The discount rates selected represent the
average yield on high-quality corporate bonds as of the measurement dates. The weighted average of these assumed
discount rates for the year ending December 31, 2003 was 5.9%. The weighted average assumed discount rate at year-
end 2003 compares with the weighted average assumed discount rates of 6.0% and 6.5% for the years ending December
31, 2002 and 2001, respectively. Annual pension expense is determined using the discount rate as of the beginning of
the year, which for 2004 is the 5.9% assumed weighted average discount rate. Pension expense and the projected
benefit obligation generally increase as the discount rate selected decreases.
The expected long-term rate of return on plan assets is determined by evaluating the portfolios’ asset class return
expectations with the Company’s advisors as well as actual, long-term, historical results of asset returns for the U.S.
pension plans and the U.K. pension plan. The pension expense increases as the expected long-term rate of return on
assets decreases. For fiscal 2003 the weighted average expected long-term rate of return on asset assumption was
8.0%. The weighted average assumption for the U.S. and U.K. has been lowered to 7.9% for fiscal 2004. This rate was
determined based on a model of expected asset returns for an actively managed portfolio.
Based on these updated actuarial assumptions and the structural changes in the pension plans mentioned previously, the
Company’s 2004 pension expense is expected to stabilize. This is in comparison to the increase in pension expense from
2002 to 2003 of $20.4 million that resulted from lower interest rates and unfavorable investment performance during 2000,
2001, and 2002. Additionally, the increase in pension expense from 2001 to 2002 was approximately $20 million.
Changes in the related pension benefit costs may occur in the future due to changes in the assumptions and due to
changes in returns on plan assets resulting from financial market conditions. Holding all other assumptions constant, a
one-half percent increase or decrease in the discount rate and the expected long-term rate of return on plan assets would
increase or decrease annual fiscal 2004 pre-tax defined benefit pension expense as follows:
Approximate Changes in Pre-tax Defined Benefit
Pension Expense
U.S. Plans
U.K. Plan
Discount rate
One-half percent increase
One-half percent decrease
Decrease of $2 million
Increase of $2 million
Decrease of $4 million
Increase of $4 million
Expected long-term rate of return on plan assets
One-half percent increase
One-half percent decrease
Decrease of $1 million
Increase of $1 million
Decrease of $2 million
Increase of $2 million
Should circumstances change that affect these estimates, changes (either increases or decreases) to the unfunded
obligations may be required and would be recorded in accordance with the provisions of SFAS 87. Additionally, certain
events could result in the pension unfunded obligation changing at a time other than the annual measurement date. This
would occur when the benefit plan is amended or when plan curtailments occur.
See Note 8, Employee Benefit Plans, to the Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplementary Data,” for additional disclosures related to these items.
Notes and Accounts Receivable
Notes and accounts receivable are stated at their net realizable value through the use of allowances for doubtful
accounts. These allowances are maintained for estimated future losses resulting from the inability of customers to make
required payments on notes or accounts receivable. The Company has policies and procedures in place requiring
customers to be evaluated for creditworthiness prior to the execution of new service contracts or shipments of products.
These reviews are structured to assist in minimizing the Company’s risk related to realizability of its receivables. Despite
these policies and procedures, the Company may still experience collection problems and potential bad debts due to
economic conditions within certain industries (e.g., construction and steel industries) and countries and regions (e.g.,
U.S., U.K., Middle East, etc.) in which the Company operates. At December 31, 2003 and 2002, receivables of $446.9
million and $388.9 million, respectively, were net of reserves of $24.6 million and $36.5 million, respectively.
HARSCO CORPORATION 2003 ANNUAL REPORT 37
Critical Estimate – Notes and Accounts Receivable
A considerable amount of judgment is required in assessing the realizability of receivables, including the current
creditworthiness of each customer, related aging of the past due balances and the facts and circumstances surrounding
any non-payment. The Company’s provisions for bad debts during 2003, 2002 and 2001 were $3.4 million, $6.9 million
and $12.6 million, respectively. Included in these provisions for bad debts were net (reversals) and provisions for steel
mill customers of $(1.5) million, $1.9 million and $8.1 million in 2003, 2002 and 2001, respectively. The 2003 amount
includes approximately $1.9 million in net reserve reductions related to changes in estimates during the year due
principally to the recovery of receivables related to a customer that had previously filed for bankruptcy protection.
During the last three years, approximately 40 U.S. steelmakers and several international steel producers have filed for
bankruptcy-court protection, some of which were the Company’s customers. The Company evaluates its reserve
requirements for bankrupt steel customers based upon contractual rights and obligations, the rights and obligations under
the respective country’s bankruptcy laws, details of the proposed reorganization plan, and our history in collecting pre-
petition receivable amounts from bankrupt customers. The Company has been successful in collecting substantially all of
the pre-petition receivable amounts in several cases where the customer has filed for bankruptcy-court protection.
The Company evaluates specific accounts when it becomes aware of a situation where a customer may not be able to
meet its financial obligations due to a deterioration of its financial condition, credit ratings or bankruptcy. The reserve
requirements are based on the best facts available to the Company and are re-evaluated and adjusted as additional
information is received. Reserves are also determined by using percentages (based upon historical results) applied to
certain aged receivable categories.
If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. Conversely, an improvement in a customer’s ability to make payments
could result in a decrease of the allowance for doubtful accounts. Changes in the allowance related to both of these
situations would be recorded through income in the period the change was determined.
The Company has not materially changed its methodology for calculating allowances for doubtful accounts for the years
presented.
Goodwill
The Company’s net goodwill balances were $407.8 million and $377.2 million, at December 31, 2003 and 2002,
respectively. Goodwill is not amortized but tested for impairment at the reporting unit level on an annual basis, and
between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit’s goodwill may
exceed its fair value.
Critical Estimate – Goodwill
A discounted cash flow model is used to estimate the fair value of a reporting unit. This model requires the use of long-
term planning estimates and assumptions regarding industry-specific economic conditions that are outside the control of
the Company. The annual test for impairment includes the selection of an appropriate discount rate to value cash flow
information. The basis of this discount rate calculation is derived from several internal and external factors. These factors
include, but are not limited to, the average market price of the Company’s stock, the number of shares of stock
outstanding, the book value of the Company’s debt, a long-term risk free interest rate, and both market and size specific
risk premiums. The Company’s annual goodwill impairment testing, performed as of October 1, 2003, indicated that the
fair value of all reporting units tested exceeded their respective book values and therefore no additional goodwill
impairment testing was required. Due to uncertain market conditions, it is possible that estimates used for goodwill
impairment testing may change in the future. Therefore, there can be no assurance that future goodwill impairment tests
will not result in a charge to earnings.
The Company has not materially changed its methodology for goodwill impairment testing for the years presented. There
are currently no known trends, demands, commitments, events or uncertainties that are reasonably likely to occur that
would materially affect the methodology or assumptions described above.
See Note 5, Goodwill and Other Intangible Assets, to the Consolidated Financial Statements under Part II, Item 8,
“Financial Statements and Supplementary Data” for additional information on goodwill and other intangible assets.
38 HARSCO CORPORATION 2003 ANNUAL REPORT
Asset Impairment
Long-lived assets are reviewed for impairment when events and circumstances indicate that the book value of an asset
may be impaired. At December 31, 2003 and 2002, the cumulative long-lived asset impairment valuation reserve was
$4.3 million and $4.5 million, respectively.
Critical Estimate – Asset Impairment
The determination of a long-lived asset impairment loss involves significant judgments based upon short and long-term
projections of future asset performance. Impairment loss estimates are based upon the difference between the book
value and the fair value of the asset. The fair value is generally based upon the Company’s estimate of the amount that
the assets could be bought or sold for in a current transaction between willing parties. Should circumstances change that
affect these estimates, additional impairment charges may be required and would be recorded through income in the
period the change was determined.
The Company has not materially changed its methodology for calculating asset impairments for the years presented.
There are currently no known trends, demands, commitments, events or uncertainties that are reasonably likely to occur
that would materially affect the methodology or assumptions described above.
Inventories
Inventories are stated at the lower of cost or market. Inventory balances are adjusted for estimated obsolete or
unmarketable inventory equal to the difference between the cost of inventory and its estimated market value. At
December 31, 2003 and 2002, inventories of $190.2 million and $181.7 million, respectively, are net of lower of cost or
market reserves of $4.1 million and $4.8 million, respectively.
Critical Estimate – Inventories
In assessing the ultimate realization of inventory balance amounts, the Company is required to make judgments as to
future demand requirements and compare these with the current or committed inventory levels. If actual market
conditions are determined to be less favorable than those projected by management, additional inventory write-downs
may be required and would be recorded through income in the period the determination is made. Additionally, the
Company records reserves to adjust a substantial portion of its U.S. inventory balances to the last-in, first-out (LIFO)
method of inventory valuation. In adjusting these reserves throughout the year, the Company estimates its year-end
inventory costs and quantities. At December 31 of each year, the reserves are adjusted to reflect actual year-end
inventory costs and quantities. During periods of inflation, the LIFO expense usually increases and during periods of
deflation it decreases. These adjustments resulted in pre-tax income of $1.5 million and $1.4 million in 2003 and 2002,
respectively.
The Company has not materially changed its methodology for calculating inventory reserves for the years presented.
There are currently no known trends, demands, commitments, events or uncertainties that are reasonably likely to occur
that would materially affect the methodology or assumptions described above.
Insurance Reserves
The Company retains a significant portion of the risk for property, workers' compensation, automobile, general and
product liability losses. At December 31, 2003 and 2002 the Company has recorded liabilities of $69.3 million and $65.0
million, respectively, related to both asserted as well as unasserted insurance claims.
Critical Estimate – Insurance Reserves
Reserves have been recorded based upon actuarial calculations which reflect the undiscounted estimated liabilities for
ultimate losses including claims incurred but not reported. Inherent in these estimates are assumptions which are based
on the Company’s history of claims and losses, a detailed analysis of existing claims with respect to potential value, and
current legal and legislative trends in the law. If actual claims differ from those projected by management, changes (either
increases or decreases) to insurance reserves may be required and would be recorded through income in the period the
change was determined. During 2003, 2002 and 2001, the Company recorded retrospective insurance reserve
adjustments that decreased pre-tax insurance expense for self-insured programs by $5.7 million, $5.9 million and $4.4
million, respectively. The adjustments resulted from improved claims experience, aggressive claim and insured litigation
management programs and an improved focus on workplace safety.
The Company has not materially changed its methodology for calculating insurance reserves for the years presented.
There are currently no known trends, demands, commitments, events or uncertainties that are reasonably likely to occur
that would materially affect the methodology or assumptions described above.
HARSCO CORPORATION 2003 ANNUAL REPORT 39
Legal and Other Contingencies
Reserves for contingent liabilities are recorded on the balance sheet when an event is determined to be both probable
and can be reasonably estimated. These reserves are recorded using the estimated amount of the most likely outcome.
If there is no best estimate within a range of possible outcomes, the estimated amount at the lower end of the range is
recorded.
Critical Estimate – Legal and Other Contingencies
Currently, the Company is involved in a claim regarding Federal Excise Tax related to a 1986 contract for the sale of five-
ton trucks to the United States Army. The Company believes that payment of this claim is not probable; however, it is
possible that resolution of this claim could result in the Company being required to remit taxes, penalties and interest
payments to the Internal Revenue Service. If that should happen, the Company believes the payment will not have a
material adverse effect on the Company's financial position; however, it could have a material effect on quarterly or annual
results of operations and cash flows. If the cargo trucks are ultimately held to be taxable, as of December 31, 2003, the
Company’s net maximum liability for this claim would be $5.8 million plus penalties and applicable interest, currently
estimated to be $12.4 million and $70.6 million, respectively. However, should circumstances change with regard to this
or any other contingency, adjustments (either increases or decreases) to reserves may be required and would be
recorded through income in the period the change was determined. During 2003, the Company adjusted an accrual
related to this matter resulting in $8.0 million in pre-tax income. This adjustment was included in Income related to
discontinued defense business on the Company’s Consolidated Statements of Income. The Company’s current
expectation is that its future obligations for finalizing this matter will approximate $0.8 million.
In addition to the above Federal Excise Tax contingency, the Company is involved in certain environmental actions, as
well as litigation related to its products and services. When reserves are necessary, they are established based upon
consultation with legal counsel; consideration of the facts and circumstances surrounding the contingency; our experience
with similar matters; consideration of contractual rights and obligations; and other relevant factors. Should circumstances
change with regards to such matters, adjustments (either increases or decreases) to associated contingency reserves
may be required and would be recorded through income in the period the change was determined.
The Company has not materially changed its methodology for calculating legal and other contingencies for the years
presented. There are currently no known trends, demands, commitments, events or uncertainties that are reasonably
likely to occur that would materially affect the methodology or assumptions described above.
See Note 10, Commitments and Contingencies, to the Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplementary Data” for additional disclosure on this uncertainty and other contingencies.
Income Taxes
The Company is subject to various federal, state and local income taxes in the taxing jurisdictions where the Company
operates. At the end of each quarterly period, the Company makes its best estimate of the annual effective income tax
rate and applies that rate to year-to-date pretax income to arrive at the year-to-date income tax provision. At December
31, 2003, 2002 and 2001 the Company’s net effective income tax rate was 31.0%, 31.0% and 32.5%, respectively.
A valuation allowance to reduce deferred tax assets is evaluated on a quarterly basis. The valuation allowance is
principally for tax loss carryforwards and cumulative unrelieved foreign tax credits which are uncertain as to realizability.
The valuation allowance was $1.7 million and $2.7 million at December 31, 2003 and 2002, respectively.
Critical Estimate – Income Taxes
The annual effective income tax rates are developed giving recognition to tax rates, tax holidays, tax credits and capital
losses, as well as certain exempt income and non-deductible expenses in all of the jurisdictions where the Company does
business. The income tax provision for the quarterly period is the change in the year-to-date provision from the previous
quarterly period.
The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance. In the event the Company were to determine that it would more likely than not be able
to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Likewise, should the Company determine that it
would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets
would decrease income in the period in which such determination was made.
40 HARSCO CORPORATION 2003 ANNUAL REPORT
The Company has not materially changed its methodology for calculating income tax expense for the years presented.
There are currently no known trends, demands, commitments, events or uncertainties that are reasonably likely to occur
that would materially affect the methodology or assumptions described above.
See Note 9, Income Taxes, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and
Supplementary Data” for additional disclosures related to these items.
New Financial Accounting Standards Issued
See Note 1, Summary of Significant Accounting Policies, to the Consolidated Financial Statements under Part II, Item 8,
“Financial Statements and Supplementary Data” for disclosures on new financial accounting standards issued and their
effect on the Company.
Research and Development
The Company invested $3.3 million in internal research and development programs in 2003. Internal funding for the Mill
Services Segment amounted to $1.3 million. Expenditures for the Other Infrastructure Products and Services (“all other”)
Category, Gas and Fluid Control Segment and the Access Services Segment were $0.9 million, $0.5 million and $0.5
million, respectively.
Backlog
As of December 31, 2003, the Company’s order backlog, exclusive of long-term mill services contracts and access
services, was $186.2 million compared with $157.8 million as of December 31, 2002, an 18% increase.
Mill services contracts have an estimated future value of $3.4 billion at December 31, 2003 compared with $3.0 billion at
December 31, 2002. Approximately 60% of these revenues are expected to be recognized by December 31, 2006. The
remaining revenues are expected to be recognized principally between January 1, 2007 and December 31, 2012.
Backlog for scaffolding, shoring and forming services of the Access Services Segment is excluded from the above
amounts. These amounts are generally not quantifiable due to the nature and timing of the products and services
provided.
The Gas and Fluid Control Segment backlog at December 31, 2003 of $36.5 million was 11% below the December 31,
2002 backlog of $40.8 million. The decrease reflects a reduced order backlog of valves. This decrease was partially
offset by an increase in the backlog of propane tanks and heat exchangers.
Order backlog for the Other Infrastructure Products and Services (“all other”) Category at December 31, 2003 was $149.7
million, an increase of 28% from the December 31, 2002 backlog of $117.0 million. The increase is principally due to an
increase in backlog of railway track maintenance services. The railway track maintenance services increase relates
principally to a five-year contract renewal for a minimum of $47.6 million with a major railroad. Backlog for roofing
granules and slag abrasives is excluded from the above amounts. These amounts are generally not quantifiable due to
the nature and timing of the products provided.
Dividend Action
The Company paid four quarterly cash dividends of $.2625 per share in 2003, for an annual rate of $1.05. This is an
increase of 5% from 2002. At the November 2003 meeting, the Board of Directors increased the dividend by 4.8% to an
annual rate of $1.10 per share. The Board normally reviews the dividend rate periodically during the year and annually at
its November meeting. There are no material restrictions on the payment of dividends.
The February 2004 payment marked the 215th consecutive quarterly dividend paid at the same or at an increased rate.
In 2003, 46% of net earnings were paid out in dividends. The Company is philosophically committed to maintaining or
increasing the dividend at a sustainable level. The Company has paid dividends each year since 1939.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk.
In the normal course of business, the Company is routinely subjected to a variety of risks. In addition to the market risk
associated with interest rate and currency movements on outstanding debt and non-U.S. dollar-denominated assets and
liabilities, other examples of risk include collectibility of receivables, volatility of the financial markets and their effect on
pension plans, and global economic and political conditions.
HARSCO CORPORATION 2003 ANNUAL REPORT 41
Cyclical industry and economic conditions may adversely affect the Company’s business.
The Company’s businesses are vulnerable to general economic slowdowns and cyclical conditions in the industries
served. In particular,
• The Company’s mill services business may be adversely affected by slowdowns in steel mill production, excess
capacity, continued consolidation or bankruptcy of steel producers or a reversal or slowing of current outsourcing
trends in the steel industry;
• The Company’s access services business may be adversely affected by slowdowns in non-residential construction
and annual industrial and building maintenance cycles;
• The Company’s gas and fluid control business may be adversely affected by slowdowns in demand for consumer
barbecue grills, reduced industrial production or lower demand for natural gas vehicles and products for the natural
gas drilling and transmission industry;
• The industrial grating business may be adversely affected by slowdowns in non-residential construction and industrial
production;
• The railway track maintenance business may be adversely affected by developments in the railroad industry that lead
to lower capital spending or reduced maintenance spending; and
• The industrial abrasives and roofing granules business may be adversely affected by slower home resales or
economic conditions that slow the rate of residential roof replacement.
The Company’s defined benefit pension expense is directly affected by the equity and bond markets and a
downward trend in those markets could adversely affect the Company’s future earnings.
In addition to the economic issues that directly affect the Company’s business, changes in the performance of equity and
bond markets, particularly in the United Kingdom and the United States, impact actuarial assumptions used in determining
annual pension expense, pension liabilities and the valuation of the assets in the Company’s defined benefit pension
plans. The downturn in financial markets during 2000, 2001 and 2002 has negatively impacted the Company’s pension
expense and the accounting for pension assets and liabilities. This has resulted in an increase in pre-tax defined benefit
pension expense from continuing operations of approximately $17.7 million for calendar year 2003 compared with 2002.
Should a downward trend in capital markets continue, future unfunded obligations and pension expense would likely
increase. This could result in an additional reduction to shareholders’ equity and increase the Company’s statutory
funding requirements. If the financial markets improve, it would most likely have a positive impact on the Company’s
pension expense and the accounting for pension assets and liabilities. This could result in an increase to shareholders’
equity and a decrease in the Company’s statutory funding requirements.
In response to dealing with the adverse market conditions, during 2002 and 2003 the Company conducted a
comprehensive global review of its pension plans in order to formulate a plan to make its long-term pension costs more
predictable and affordable. The Company has implemented design changes for most of these plans. The principal
change involves converting future pension benefits for many of the Company’s non-union employees in both the U.K. and
U.S. from defined benefit plans to defined contribution plans as of January 1, 2004. This conversion is expected to make
the Company’s pension expense more predictable and affordable and less sensitive to changes in the financial markets.
Overall, pension expense is expected to stabilize in 2004.
The Company’s global presence subjects it to a variety of risks arising from doing business in foreign
countries.
The Company operates in over 400 locations in over 40 countries, including the United States. The Company’s global
footprint exposes it to a variety of risks that may adversely affect results of operations, cash flows or financial position.
These include:
• periodic economic downturns in the countries in which the Company does business;
•
•
fluctuations in currency exchange rates;
customs matters and changes in trade policy or tariff regulations;
42 HARSCO CORPORATION 2003 ANNUAL REPORT
•
•
imposition of or increases in currency exchange controls and hard currency shortages;
changes in regulatory requirements in the countries in which the Company does business;
• higher tax rates and potentially adverse tax consequences including restrictions on repatriating earnings, adverse
tax withholding requirements and "double taxation'';
•
•
longer payment cycles and difficulty in collecting accounts receivable;
complications in complying with a variety of foreign laws and regulations;
• political, economic and social instability, civil unrest and armed hostilities in the countries in which the Company
does business;
•
•
inflation rates in the countries in which the Company does business;
laws in various foreign jurisdictions that limit the right and ability of foreign subsidiaries to pay dividends and remit
earnings to affiliated companies unless specified conditions are met; and‚
• uncertainties arising from local business practices, cultural considerations and international political and trade
tensions.
If the Company is unable to successfully manage the risks associated with its global business, the Company’s financial
condition and results of operations may suffer.
The Company has operations in several countries in the Middle East, including Bahrain, Egypt, Saudi Arabia, United Arab
Emirates and Qatar, which are geographically close to Iraq and other countries with a continued high risk of armed
hostilities. During 2003 and 2002, these countries contributed approximately $16.4 million and $14.6 million, respectively,
to the Company’s operating income. Additionally, the Company has operations in and sales to countries that have
encountered outbreaks of communicable diseases (e.g., Severe Acute Respiratory Syndrome (SARS) and Acquired
Immune Deficiency Syndrome (AIDS). Should these outbreaks worsen or spread to other countries, the Company may
be negatively impacted through reduced sales to and within these countries and other countries affected by such
diseases.
Exchange rate fluctuations may adversely affect the Company’s business.
Fluctuations in foreign exchange rates between the U.S. dollar and the approximately 35 other currencies in which the
Company conducts business may adversely affect the Company’s operating income and income from continuing
operations in any given fiscal period. Approximately 57% and 54% of the Company’s sales and approximately 63% and
58% of the Company’s operating income from continuing operations for the years ended December 31, 2003 and 2002,
respectively, were derived from operations outside the United States. Given the structure of the Company’s revenues and
expenses, an increase in the value of the U.S. dollar relative to the foreign currencies in which the Company earns its
revenues generally has a negative impact on operating income, whereas a decrease in the value of the U.S. dollar tends
to have the opposite effect. The Company’s principal foreign currency exposures are to the British pound sterling and the
euro.
Compared with the corresponding period in 2002, the average values of major currencies changed as follows in relation to
the U.S. dollar during 2003, impacting the Company’s sales and income:
• British pound sterling
• Euro
• South African rand
• Brazilian real
Strengthened by 8%
Strengthened by 17%
Strengthened by 28%
Weakened by 5%
The Company’s foreign currency exposures increase the risk of income statement, balance sheet and cash flow volatility.
If the above currencies change materially in relation to the U.S. dollar, the Company’s financial position, results of
operations, or cash flows may be materially affected.
To illustrate the effect of foreign currency exchange rate changes in certain key markets of the Company, in 2003,
revenues would have been approximately 6% or $126.2 million less and income from continuing operations would have
HARSCO CORPORATION 2003 ANNUAL REPORT 43
been approximately 9% or $8.2 million less if the average exchange rates for 2002 were utilized. A similar comparison for
2002 would have decreased sales approximately 2% or $30.5 million while income from continuing operations would have
been approximately 2% or $2.1 million less if the average exchange rates for 2002 would have remained the same as
2001. If the weakening of the U.S. dollar in relation to the euro and British pound sterling that started in the second
quarter of 2002 would continue, the Company would expect to see a positive impact on future sales and net income as a
result of foreign currency translation.
Currency changes result in assets and liabilities denominated in local currencies being translated into U.S. dollars at
different amounts than at the prior period end. These currency changes resulted in increased net assets of $72.0 million
and $39.3 million, at December 31, 2003 and 2002, respectively, when compared with December 31, 2002 and 2001,
respectively.
The Company seeks to reduce exposures to foreign currency transaction fluctuations through the use of forward
exchange contracts. At December 31, 2003, these contracts amounted to $78.4 million, and all will mature within the first
two months of 2004. 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.
Although the Company engages in forward exchange contracts and other hedging strategies to mitigate foreign exchange
risk, hedging strategies may not be successful or may fail to offset the risk.
In addition, competitive conditions in the Company’s manufacturing businesses may limit the Company’s ability to
increase product price in the face of adverse currency movements. Products manufactured in the United States for the
domestic and export markets may be affected by the value of the U.S. dollar relative to other currencies. Any long-term
strengthening of the U.S. dollar could depress demand for these products and reduce sales and may cause translation
losses due to the revaluation of accounts payable, accounts receivable and other asset and liability accounts.
Conversely, any long-term weakening of the U.S. dollar could improve demand for these products and increase sales and
may cause translation gains due to the revaluation of accounts payable, accounts receivable and other asset and liability
accounts.
Negative economic conditions may adversely affect the ability of the Company’s customers to meet their
obligations to the Company on a timely basis and affect the valuation of the Company’s assets.
If a downturn in the economy persists, it may adversely affect the ability of the Company’s customers to meet their
obligations to the Company on a timely basis and could result in additional bankruptcy filings by them. If customers are
unable to meet their obligations on a timely basis, it could adversely impact the realizability of receivables, the valuation of
inventories and the valuation of long-lived assets across the Company’s businesses, as well as negatively affect the
forecasts used in performing the Company’s goodwill impairment testing under SFAS No. 142, "Goodwill and Other
Intangible Assets.'' If management determines that goodwill or assets are impaired or that inventories or receivables
cannot be realized at projected rates, the Company will be required to record a write-down in the period of determination,
which will reduce net income for that period.
A negative outcome on personal injury claims against the Company may adversely affect results of
operations and financial condition.
The Company has been named as one of many defendants (approximately 90 or more in most cases) in legal actions
alleging personal injury from exposure to airborne asbestos. In their suits, the plaintiffs have named as defendants many
manufacturers, distributors and repairers of numerous types of equipment or products that may involve asbestos. Most of
these complaints contain a standard claim for damages of $20 million or more against the named defendants. The
Company has not paid any amounts in settlement of these cases, with the exception of two settlements totaling less than
$10,000 paid by the insurance carrier prior to 1998. However, if the Company was found to be liable in any of these
actions and the liability was to exceed the Company’s insurance coverage, results of operations, cash flows and financial
condition could be adversely affected. For more information concerning these litigations, see Note 10, Commitments and
Contingencies, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary
Data.”
The Company may lose customers or be required to reduce prices as a result of competition.
The industries in which the Company operates are highly competitive. The Company’s manufacturing businesses
compete with companies that manufacture similar products both internationally and domestically. Certain international
competitors export their products into the United States and sell them at lower prices due to lower labor costs and
government subsidies for exports. Such prices may limit the prices the Company can charge for its products and
44 HARSCO CORPORATION 2003 ANNUAL REPORT
services. Additionally, unfavorable foreign exchange rates can adversely impact the Company’s ability to match the
prices charged by foreign competitors. If the Company is unable to match the prices charged by foreign competitors, it
may lose customers. The Company’s strategy to overcome this competition includes Six Sigma continuous process
improvement and cost reduction programs, international customer focus and the diversification, streamlining and
consolidation of operations.
Increases in energy prices could increase the Company’s operating costs and reduce its profitability.
Worldwide political and economic conditions, among other factors, may result in an increase in the volatility of energy
costs, both on a macro basis and for the Company specifically. Historically, direct energy costs have approximated
between 2.5% to 3.5% of the Company’s revenue. To the extent that such costs cannot be passed to customers,
operating income and results of operations may be adversely affected.
Increases or decreases in purchase prices of steel or other materials may affect the Company’s profitability.
The profitability of the Company’s manufactured products are affected by changing purchase prices of steel and other
materials. If higher steel or other material costs associated with the Company’s manufactured products cannot be passed
on to the Company’s customers, then operating income will be adversely affected.
The Company is subject to various environmental laws and the success of existing or future environmental
claims against it could adversely affect the Company’s results of operations and cash flows.
The Company’s operations are subject to various federal, state, local and foreign laws, regulations and ordinances
relating to the protection of health, safety and the environment, including those governing discharges to air and water,
handling and disposal practices for solid and hazardous wastes, the cleaning up of contaminated sites and the
maintenance of a safe work place. These laws impose penalties, fines and other sanctions for non-compliance and
liability for response costs, property damages and personal injury resulting from past and current spills, disposals or other
releases of, or exposure to, hazardous materials. The Company could incur substantial costs as a result of non-
compliance with or liability for cleanup or other costs or damages under these laws. The Company may be subject to
more stringent environmental laws in the future, and compliance with more stringent environmental requirements may
require the Company to make material expenditures or subject it to liabilities that the Company currently does not
anticipate.
The Company is currently involved in a number of environmental remediation investigations and clean-ups and, along with
other companies, has been identified as a "potentially responsible party'' for certain waste disposal sites under the federal
"Superfund'' law. At several sites, the Company is currently conducting environmental remediation, and it is probable that
the Company will agree to make payments toward funding certain other of these remediation activities. It also is possible
that some of these matters will be decided unfavorably to the Company and that other sites requiring remediation will be
identified. Each of these matters is subject to various uncertainties and financial exposure is dependent upon such
factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of
technology, the allocation of cost among potentially responsible parties, the years of remedial activity required and the
remediation methods selected. The Company has evaluated its potential liability and the consolidated balance sheet at
December 31, 2003 and 2002 includes an accrual of $3.3 million and $3.2 million, respectively, for environmental matters.
The amounts charged against pre-tax earnings related to environmental matters totaled $1.4 million and $1.2 million for
the years ended December 31, 2003 and 2002, respectively. The liability for future remediation costs is evaluated on a
quarterly basis. Actual costs to be incurred at identified sites in future periods may be greater than the estimates, given
inherent uncertainties in evaluating environmental exposures.
Restrictions imposed by the Company’s credit facilities and outstanding notes may limit the Company’s
ability to obtain additional financing or to pursue business opportunities.
The Company’s credit facilities and certain notes payable agreements contain covenants requiring a minimum net worth
of $475 million and a maximum debt to capital ratio of 60%. These covenants limit the amount of debt the Company may
incur, which could limit its ability to obtain additional financing or to pursue business opportunities. In addition, the
Company’s ability to comply with these ratios may be affected by events beyond its control. A breach of any of these
covenants or the inability to comply with the required financial ratios could result in a default under these credit facilities.
In the event of any default under these credit facilities, the lenders under those facilities could elect to declare all
borrowings outstanding, together with accrued and unpaid interest and other fees, to be due and payable, which would
cause an event of default under the notes. This could in turn trigger an event of default under the cross-default provisions
of the Company’s other outstanding indebtedness. At December 31, 2003, the Company was in compliance with these
covenants and $362.9 million in indebtedness containing these covenants was outstanding.
HARSCO CORPORATION 2003 ANNUAL REPORT 45
Higher than expected claims under insurance policies, under which the Company retains a portion of risk,
could adversely affect results of operations and cash flows.
The Company retains a significant portion of the risk for property, workers' compensation, automobile, general and
product liability losses. Reserves have been recorded which reflect the undiscounted estimated liabilities for ultimate
losses including claims incurred but not reported. Inherent in these estimates are assumptions that are based on the
Company’s history of claims and losses, a detailed analysis of existing claims with respect to potential value, and current
legal and legislative trends. At December 31, 2003 and 2002, the Company had recorded liabilities of $69.3 million and
$65.0 million, respectively, related to both asserted and unasserted insurance claims. If actual claims are higher than
those projected by management, an increase to the Company’s insurance reserves may be required and would be
recorded as a charge to income in the period the need for the change was determined. Conversely, if actual claims are
lower than those projected by management, a decrease to the Company’s insurance reserves may be required and would
be recorded as a reduction to expense in the period the need for the change was determined.
The seasonality of the Company’s business may cause its quarterly results to fluctuate.
The Company has historically generated the majority of its cash flows in the third and fourth quarters (periods ending
September 30 and December 31). This is a direct result of traditionally higher sales and income during the second and
third quarters (periods ending June 30 and September 30) of the year, as the Company’s business tends to follow
seasonal patterns. If the Company is unable to successfully manage the cash flow and other effects of seasonality on the
business, its results of operations may suffer.
The Company's cash flows and earnings are subject to changes in interest rates.
The Company’s total debt as of December 31, 2003 was $613.5 million. Of this amount, approximately 13% had variable
rates of interest and 87% had fixed rates of interest. The weighted average interest rate of total debt was approximately
6.1%. At current debt levels, a one-percentage increase/decrease in variable interest rates would increase/decrease
interest expense by approximately $0.8 million per year.
The future financial impact on the Company associated with the above risks cannot be estimated.
46 HARSCO CORPORATION 2003 ANNUAL REPORT
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data
PART II
Consolidated Financial Statements of Harsco Corporation:
Management’s Report on Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets
December 31, 2003 and 2002
Consolidated Statements of Income
for the years 2003, 2002 and 2001
Consolidated Statements of Cash Flows
for the years 2003, 2002 and 2001
Consolidated Statements of Shareholders' Equity
for the years 2003, 2002 and 2001
Consolidated Statements of Comprehensive Income
for the years 2003, 2002 and 2001
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited):
Two-Year Summary of Quarterly Results
Common Stock Price and Dividend Information
Page
48
48
49
50
51
52
53
54
86
86
HARSCO CORPORATION 2003 ANNUAL REPORT 47
MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS
To the Shareholders of Harsco Corporation:
Primary responsibility for the integrity and objectivity of the Company’s financial statements rests with management. These statements
are prepared in conformity with generally accepted accounting principles and, accordingly, include amounts that are based on
management’s best estimates and judgments. Non-financial information included in this Form 10-K has also been prepared by
management and is consistent with the financial statements.
The Company’s internal control framework maintains systems, supported by a code of conduct, designed to provide reasonable
assurance, at reasonable cost, that its assets and resources are safeguarded against loss from unauthorized use or disposition and
that transactions are executed and recorded in accordance with established procedures. These systems are implemented through
clear and accessible written policies and procedures, employee training and appropriate delegation of authority and segregation of
responsibilities. These systems of internal control are reviewed, modified and improved as changes occur in business conditions and
operations and as a result of suggestions from managers, internal auditors and independent accountants. These systems are the
responsibility of the management of the Company.
The independent accountants are engaged to perform an audit of the consolidated financial statements in accordance with generally
accepted auditing standards. Their report appears below.
The Audit Committee of the Board of Directors is comprised entirely of individuals who are independent of the Company. This
Committee meets periodically and privately with the independent accountants, with the internal auditors and with the management of
the Company to review matters relating to the quality of the financial reporting, the internal control framework and the scope and results
of audits.
Derek C. Hathaway
Chairman, President and Chief
Executive Officer
Salvatore D. Fazzolari
Senior Vice President, Chief
Financial Officer and Treasurer
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Harsco Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
shareholders’ equity, comprehensive income and cash flows present fairly, in all material respects, the financial position of
Harsco Corporation and Subsidiary Companies at December 31, 2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. These financial statements are the responsibility of the Company’s
management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 5 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangibles” effective January 1, 2002.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 4, 2004
48 HARSCO CORPORATION 2003 ANNUAL REPORT
HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill, net
Other assets
Assets held for sale
Total assets
LIABILITIES
Current liabilities:
Short-term borrowings
Current maturities of long-term debt
Accounts payable
Accrued compensation
Income taxes
Dividends payable
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Insurance liabilities
Retirement plan liabilities
Other liabilities
Liabilities associated with assets held for sale
Total liabilities
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Series A junior participating cumulative preferred stock
Common stock, par value $1.25, issued 67,357,447 and 67,034,010 shares as of
December 31, 2003 and 2002, respectively
Additional paid-in capital
Accumulated other comprehensive expense
Retained earnings
Treasury stock, at cost (26,490,977 and 26,494,610 shares, respectively)
Total shareholders' equity
Total liabilities and shareholders' equity
December 31
2003
December 31
2002 (a)
$
80,210
446,875
190,221
47,045
764,351
866,918
407,846
97,483
1,437
$
70,132
388,872
181,712
61,686
702,402
804,495
377,220
102,493
12,687
$ 2,138,035
$ 1,999,297
$
14,854
14,252
188,430
46,034
45,116
11,238
175,151
495,075
584,425
66,855
47,897
115,190
50,707
898
$
22,362
11,695
166,871
39,456
43,411
10,642
179,413
473,850
605,613
62,096
44,090
118,875
48,194
2,039
1,361,047
1,354,757
-
-
84,197
120,070
(169,427)
1,345,787
1,380,627
(603,639)
776,988
83,793
110,639
(242,978)
1,296,855
1,248,309
(603,769)
644,540
$ 2,138,035
$ 1,999,297
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” 2002 information has been reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
HARSCO CORPORATION 2003 ANNUAL REPORT 49
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended December 31
Revenues from continuing operations:
Service sales
Product sales
Total revenues
Costs and expenses from continuing operations:
Cost of services sold
Cost of products sold
Selling, general and administrative expenses
Research and development expenses
Other expenses
Total costs and expenses
Operating income from continuing operations
Equity in income (loss) of affiliates, net
Interest income
Interest expense
Income from continuing operations before income taxes and
minority interest
Income tax expense
Income from continuing operations before minority interest
Minority interest in net income
Income from continuing operations
Discontinued operations:
Loss from operations of discontinued business
Gain on disposal of discontinued business
Income related to discontinued defense business
Income tax benefit (expense)
Income (loss) from discontinued operations
Net Income
Average shares of common stock outstanding
Basic earnings (loss) per common share:
Continuing operations
Discontinued operations
Basic earnings per common share
Diluted average shares of common stock outstanding
Diluted earnings (loss) per common share:
Continuing operations
Discontinued operations
Diluted earnings per common share
2003
2002
2001 (a)
$ 1,493,942
624,574
2,118,516
$ 1,341,867
634,865
1,976,732
$ 1,324,233
700,930
2,025,163
1,104,873
499,500
329,983
3,313
6,955
1,944,624
981,754
500,010
312,704
2,820
3,473
1,800,761
954,417
561,983
314,268
3,973
22,786
1,857,427
173,892
321
2,202
(40,513)
135,902
(41,708)
94,194
(7,195)
86,999
(668)
765
8,030
(2,909)
5,218
92,217
40,690
2.14
.13
2.27
40,973
2.12
.13
2.25
$
$
$
$
$
175,971
363
3,688
(43,323)
136,699
(42,240)
94,459
(6,049)
88,410
(2,952)
5,606
-
(958)
1,696
90,106
40,360
2.19
.04
2.23
40,680
2.17
.04
2.21
$
$
$
$
$
167,736
(1,852)
5,589
(53,190)
118,283
(38,553)
79,730
(5,088)
74,642
(4,488)
-
-
1,571
(2,917)
71,725
39,876
1.87
(.07)
1.80
40,066
1.86
(.07)
1.79
$
$
$
$
$
(a) In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets,” 2001 information has been reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
50 HARSCO CORPORATION 2003 ANNUAL REPORT
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation
Amortization
Equity in (income) loss of affiliates, net
Dividends or distributions from affiliates
Other (income) and expenses
Other, net
Changes in assets and liabilities, net of acquisitions
and dispositions of businesses:
Accounts receivable
Inventories
Accounts payable
Net disbursements related to discontinued defense business
Other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Purchase of businesses, net of cash acquired*
Proceeds from sales of assets
Other investing activities
Net cash used by investing activities
Cash flows from financing activities:
Short-term borrowings, net
Current maturities and long-term debt:
Additions
Reductions
Cash dividends paid on common stock
Common stock issued-options
Common stock acquired for treasury
Other financing activities
Net cash used by financing activities
Effect of exchange rate changes on cash
Net decrease in cash of discontinued operations
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
2003
2002
2001 (a)
$ 92,217
$ 90,106
$
71,725
167,161
1,774
(321)
1,383
(1,216)
(1,462)
(21,211)
(2,078)
5,834
(1,328)
22,035
262,788
(143,824)
(23,718)
22,794
(43)
(144,791)
153,979
1,682
(363)
144
(273)
8,776
30,038
(13,280)
(13,055)
(1,435)
(2,566)
253,753
(114,340)
(3,332)
63,731
12
(53,929)
(20,013)
(16,272)
323,366
(389,599)
(42,688)
8,758
-
(5,325)
(125,501)
17,582
-
10,078
70,132
136,970
(294,799)
(40,286)
14,011
-
(5,104)
(205,480)
8,380
1
2,725
67,407
159,157
17,374
1,852
895
18,940
(1,049)
12,352
11,893
(11,744)
(1,328)
(39,466)
240,601
(156,073)
(4,914)
35,668
106
(125,213)
(15,181)
195,678
(241,862)
(38,261)
4,773
(167)
(4,170)
(99,190)
(5,211)
-
10,987
56,420
Cash and cash equivalents at end of period
$
80,210
$
70,132
$
67,407
*Purchase of businesses, net of cash acquired
Working capital, other than cash
Property, plant and equipment
Other noncurrent assets and liabilities, net
$
(225)
(16,694)
(6,799)
$
250
(2,705)
(877)
$
(55)
(5,151)
292
Net cash used to acquire businesses
$
(23,718)
$
(3,332)
$
(4,914)
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” 2001 information has been reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
HARSCO CORPORATION 2003 ANNUAL REPORT 51
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
Accumulated Other
Comprehensive Income (Expense)
(In thousands, except share
and per share amounts)
Balances, January 1, 2001
Issued
Treasury
82,887 $ (603,990)
$
Additional
Paid-in
Capital
Translation
$ 90,000 $ (106,991)
Cash Flow
Hedging
Instruments
-
Pension
Liability
$ (2,386)
Unrealized
Gain on
Marketable
Securities
-
Retained
Earnings
$(109,377) $ 1,214,659
Total
Net income
Cash dividends declared, $.97
per share
Translation adjustments
Cash flow hedging instrument
adjustments, net of $47
deferred income taxes
Pension liability adjustments,
net of $2,039 deferred
income taxes
Marketable securities
adjustments, net of $(182)
deferred income taxes
Acquired during the year,
10,451 shares
Stock options exercised,
187,693 shares
(167)
219
149
4,590
(22,347)
(84)
71,725
(38,704)
(22,347)
(84)
(3,792)
(3,792)
337
337
Other, 2,435 shares
61
Balances, December 31, 2001 $ 83,106 $ (603,947)
7
$ 94,597 $ (129,338)
$
(84)
$ (6,178)
$
337
$(135,263) $ 1,247,680
Net income
Cash dividends declared,
$1.0125 per share
Translation adjustments
Cash flow hedging instrument
adjustments, net of $(11)
deferred income taxes
Pension liability adjustments,
net of $63,613 deferred
income taxes
Marketable securities
adjustments, net of $183
deferred income taxes
Stock options exercised,
552,101 shares
687
83
16,048
39,311
22
90,106
(40,931)
39,311
22
(146,709)
(146,709)
(339)
(339)
Other, 2,450 shares
95
Balances, December 31, 2002 $ 83,793 $ (603,769)
(6)
$ 110,639
$ (90,027)
$
(62)
$ (152,887)
$
(2)
$(242,978) $ 1,296,855
Net income
Cash dividends declared,
$1.0625 per share
Translation adjustments
Cash flow hedging instrument
adjustments, net of $4
deferred income taxes
Pension liability adjustments,
net of $(482) deferred
income taxes
Marketable securities
adjustments, net of $(2)
deferred income taxes
Stock options exercised,
325,480 shares
404
69
9,436
Other, 1,590 shares
61
Balances, December 31, 2003 $ 84,197 $ (603,639)
(5)
$ 120,070
See accompanying notes to consolidated financial statements.
52 HARSCO CORPORATION 2003 ANNUAL REPORT
72,032
(8)
92,217
(43,285)
72,032
(8)
1,523
1,523
4
4
$ (17,995)
$
(70)
$ (151,364) $
2
$(169,427)
$1,345,787
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years ended December 31
Net Income
Other comprehensive income (expense):
Foreign currency translation adjustments
Net gains (losses) on cash flow hedging instruments, net of
deferred income taxes of $4, $(11) and $47 in 2003, 2002
and 2001, respectively
Pension liability adjustments, net of deferred income taxes
of $(482), $63,613 and $2,039 in 2003, 2002 and 2001,
respectively
Unrealized gain (loss) on marketable securities, net of
deferred income taxes of $(1), $1 and $(182) in 2003,
2002 and 2001, respectively
Reclassification adjustment for gain included in net income,
net of deferred income taxes of $(1) and $182 in 2003
and 2002, respectively
Other comprehensive income (expense)
2003
2002
2001
$
92,217
$
90,106
$
71,725
72,032
39,311
(22,347)
(8)
22
(84)
1,523
(146,709)
(3,792)
2
(2)
337
2
73,551
(337)
(107,715)
-
(25,886)
Total comprehensive income (expense)
$ 165,768
$
(17,609)
$
45,839
See accompanying notes to consolidated financial statements.
HARSCO CORPORATION 2003 ANNUAL REPORT 53
HARSCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Harsco Corporation and its majority-owned subsidiaries
(the "Company"). Additionally, the Company consolidates three entities in which the Company owns a 20-50% interest
and exercises management control. These three entities had combined revenues of approximately $35.5 million or 1.7%
of the Company’s total revenues in 2003. Investments in unconsolidated entities (all of which are 20-50% owned) are
accounted for under the equity method. The Company does not have any consolidated variable interest entities or off-
balance sheet arrangements with unconsolidated special-purpose entities.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with current year classifications. These
reclassifications relate principally to assets currently classified as held for sale in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS 144) as discussed in Note 2, “Acquisitions and
Dispositions.”
As a result of these reclassifications, several amounts presented for comparative purposes from 2001 and 2002 may not
individually agree to previously filed Forms 10-K.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short-term investments which are highly liquid in
nature and have an original maturity of three months or less.
Inventories
Inventories, which are principally located in the U.S., are stated at the lower of cost or market. Inventories in the United
States are accounted for using principally the last-in, first-out (LIFO) method. Other inventories are accounted for using
the first-in, first-out (FIFO) or average cost methods.
Depreciation
Property, plant and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using
principally the straight-line method. When property is retired from service, the cost of the retirement is generally charged
to the allowance for depreciation to the extent of the accumulated depreciation and the balance is charged to income.
Long-lived assets to be disposed of by sale are not depreciated while they are held for sale.
Goodwill and Intangible Assets
Intangible assets consist principally of goodwill. Goodwill is not amortized but tested for impairment, at the reporting unit
level, on an annual basis as of October 1 and between annual tests whenever events or circumstances indicate that the
carrying value of a reporting unit’s goodwill may exceed its fair value. A discounted cash flow model is used to estimate
the fair value of a reporting unit. This model requires the use of long-term planning forecasts and assumptions regarding
industry specific economic conditions that are outside the control of the Company. See Note 5, “Goodwill and Other
Intangible Assets,” for additional information on intangible assets and goodwill impairment testing. Finite-lived intangible
assets are amortized on a straight-line basis over their estimated useful lives.
Impairment of Long-Lived Assets (Other than Goodwill)
Long-lived assets are reviewed for impairment when events and circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company's policy is to record an impairment loss when it is determined that the
carrying amount of the asset exceeds the sum of the expected undiscounted future cash flows resulting from use of the
asset and its eventual disposition. Impairment losses are measured as the amount by which the carrying amount of the
asset exceeds its fair value. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair
value less cost to sell.
Revenue Recognition
Product sales and service sales are recognized when they are realized or realizable and when earned. Revenue is
realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the Company’s price to the buyer is fixed or determinable and
collectibility is reasonably assured.
Mill Services Segment – This Segment provides services predominantly on a long-term, volume-of-production
contract basis. Contracts may include both fixed monthly fees as well as variable fees based upon specific services
54 HARSCO CORPORATION 2003 ANNUAL REPORT
provided to the customer. The fixed-fee portion is recognized periodically as earned (normally monthly) over the
contractual period. The variable-fee portion is recognized as services are performed and differs from period-to-period
based upon the actual provision of services.
Access Services Segment – This Segment rents equipment under month-to-month rental contracts and provides
services under both fixed-fee and time-and-materials short-term contracts. Equipment rentals are recognized as earned
over the contractual rental period. Services provided on a fixed-fee basis are recognized over the contractual period
based upon the completion of specific units of accounting (i.e., erection and dismantling of scaffolding). Services provided
on a time-and-materials basis are recognized when earned as services are performed.
Gas and Fluid Control Segment – This Segment sells products under customer-specific sales contracts. Product
sales revenue is recognized when title and risk of loss transfer, and when all of the revenue recognition criteria detailed in
Staff Accounting Bulletin 104 (SAB 104) have been met. Title and risk of loss for domestic shipments transfers to the
customer at the point of shipment. For export sales, title and risk of loss transfer in accordance with the international
commercial terms included in the specific customer contract.
Other Infrastructure Products and Services (“all other”) Category – This category includes the Harsco Track
Technologies, Reed Minerals, IKG Industries and Patterson-Kelley operating segments. These operating segments
principally sell products. The Harsco Track Technologies Division sells products and provides services. Product sales
revenue for each of these operating segments is recognized generally when title and risk of loss transfer, and when all of
the revenue recognition criteria detailed in SAB 104 have been met. Title and risk of loss for domestic shipments
transfers to the customer at the point of shipment. For export sales, title and risk of loss transfer in accordance with the
international commercial terms included in the specific customer contract. Revenue may be recognized subsequent to the
transfer of title and risk of loss for certain product sales of the Harsco Track Technologies Division if the specific sales
contract includes a customer acceptance clause which provides for different timing. In those situations revenue is
recognized after transfer of title and risk of loss and after customer acceptance. The Harsco Track Technologies Division
provides services predominantly on a long-term, time-and-materials contract basis. Revenue is recognized when earned
as services are performed.
Income Taxes
United States federal and state income taxes and non-U.S. taxes are provided currently on the undistributed earnings of
international subsidiaries and unconsolidated affiliated entities, giving recognition to current tax rates and applicable
foreign tax credits, except when management has specific plans for reinvestment of undistributed earnings which will
result in the indefinite postponement of their remittance. Deferred taxes are provided using the asset and liability method
for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases.
Accrued Insurance and Loss Reserves
The Company retains a significant portion of the risk for workers’ compensation, automobile, general and product liability
losses. During 2003, 2002 and 2001, the Company recorded insurance expense related to these lines of coverage of
approximately $34 million, $31 million and $29 million, respectively. Reserves have been recorded which reflect the
undiscounted estimated liabilities including claims incurred but not reported. Changes in the estimates of the reserves are
included in net income in the period determined. During 2003, 2002 and 2001, the Company recorded retrospective
insurance reserve adjustments that decreased pre-tax insurance expense for self-insured programs by $5.7 million, $5.9
million and $4.4 million, respectively. At December 31, 2003 and 2002 the Company has recorded liabilities of $69.3
million and $65.0 million, respectively, related to both asserted as well as unasserted insurance claims. Amounts
estimated to be paid within one year have been classified as Other current liabilities, with the remainder included in
Insurance liabilities.
Warranties
The Company has recorded product warranty reserves of $2.8 million, $2.2 million and $2.8 million as of December 31,
2003, 2002 and 2001, respectively. The Company provides for warranties of certain products as they are sold in
accordance with SFAS No. 5, “Accounting for Contingencies.” The following table summarizes the warranty activity for
the years ended December 31, 2003, 2002 and 2001.
HARSCO CORPORATION 2003 ANNUAL REPORT 55
Warranty Activity
(In thousands)
2003
2002
2001
Balance at the beginning of the period
$ 2,248
$ 2,753
$ 3,593
Accruals for warranties issued during the period 2,125
1,673
1,807
Reductions related to pre-existing warranties
(233)
(418)
(88)
Warranties paid
(1,344)
(1,831)
(2,409)
Other (principally foreign currency translation
and acquired businesses)
(8)
71
(150)
Balance at end of the period
$ 2,788
$ 2,248
$ 2,753
Foreign Currency Translation
The financial statements of the Company's subsidiaries outside the United States, except for those subsidiaries located in
highly inflationary economies and those entities for which the U.S. dollar is the currency of the primary economic
environment in which the entity operates, are measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the exchange rates as of the balance sheet date. Resulting translation
adjustments are recorded in the cumulative translation adjustment account, a separate component of Other
comprehensive income (expense). Income and expense items are translated at average monthly exchange rates. Gains
and losses from foreign currency transactions are included in net income. For subsidiaries operating in highly inflationary
economies, and those entities for which the U.S. dollar is the currency of the primary economic environment in which the
entity operates, gains and losses on foreign currency transactions and balance sheet translation adjustments are included
in net income.
Financial Instruments and Hedging
The Company has subsidiaries operating in North America, South America, Europe, Africa and Asia-Pacific. These
operations are exposed to fluctuations in related foreign currencies in the normal course of business. The Company
seeks to reduce exposure to foreign currency fluctuations through the use of forward exchange contracts. The Company
does not hold or issue financial instruments for trading purposes, and it is the Company's policy to prohibit the use of
derivatives for speculative purposes. The Company has a Foreign Currency Risk Management Committee that meets
periodically to monitor foreign currency risks.
The Company executes foreign currency forward exchange contracts to hedge transactions of its non-U.S. subsidiaries
for firm purchase commitments, to hedge variable cash flows of forecasted transactions and for export sales denominated
in foreign currencies. These contracts are generally for 90 to 180 days or less. For those contracts that are designated
as qualified cash flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(SFAS 133), gains or losses are recorded in other comprehensive income (expense).
Amounts recorded in other comprehensive income (expense) are reclassified into income in the same period or periods
during which the hedged forecasted transaction affects income. The cash flows from these contracts are classified
consistent with the cash flows from the transaction being hedged (e.g., the cash flows related to contracts to hedge the
purchase of fixed assets are included in cash flows from investing activities, etc.). The Company also enters into certain
forward exchange contracts 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 gain or loss on the hedged firm commitment are recognized currently in income.
Options for Common Stock
The Company uses the intrinsic value method to account for options granted to employees for the purchase of common
stock. No compensation expense is recognized on the grant date, since at that date, the option price equals the market
price of the underlying common stock.
The Company's net income and net income per common share would have been reduced to the pro forma amounts
indicated below if compensation cost for the Company's stock option plan had been determined based on the fair value at
the grant date for awards in accordance with the provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation” (SFAS 123).
56 HARSCO CORPORATION 2003 ANNUAL REPORT
Pro forma Impact of SFAS 123 on Earnings
(In thousands, except per share)
Net income:
As reported
Compensation expense (a)
Pro forma
Basic earnings per share:
As reported
Pro forma
Diluted earnings per share:
As reported
Pro forma
2003
2002
2001
$ 92,217
(1,673)
$ 90,544
$ 2.27
2.23
2.25
2.21
$ 90,106
(2,300)
$ 87,806
$ 2.23
2.18
2.21
2.16
$ 71,725
(3,692)
$ 68,033
$ 1.80
1.71
1.79
1.70
(a)
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related income tax
effects.
During 2003, stock options were only granted to non-employee directors. See Note 12, “Stock-Based Compensation,” for
additional information on options for common stock.
Earnings Per Share
Basic earnings per share are calculated using the average shares of common stock outstanding, while diluted earnings
per share reflect the potential dilution that could occur if stock options were exercised. See Note 11, “Capital Stock,” for
additional information on earnings per share.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
New Financial Accounting Standards Issued
SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS 149)
In April 2003, the Financial Accounting Standards Board (FASB) issued SFAS 149 which amends and clarifies the
accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS 133. SFAS 149 is generally effective for contracts entered into or modified after June 30,
2003 and for hedging relationships designated after June 30, 2003. The Company adopted SFAS 149 on July 1, 2003.
The adoption of SFAS 149 did not have a material effect on the Company’s financial position, results of operations or
cash flows.
SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”
(SFAS 150)
In May 2003, the FASB issued SFAS 150 which requires that certain financial instruments, which under previous
guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected
include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back
some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock.
SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to the
Company’s existing financial instruments effective July 1, 2003, the beginning of the first fiscal period after June 15, 2003.
The Company adopted SFAS 150 on June 1, 2003. The adoption of SFAS 150 did not have a material effect on the
Company’s financial position, results of operations or cash flows.
SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits—an
amendment of FASB Statements No. 87, 88, and 106” (SFAS 132R)
In December 2003, the FASB issued SFAS 132R which replaced SFAS No. 132, “Employers’ Disclosures about Pensions
and Other Postretirement Benefits,” (SFAS 132). SFAS 132R retains the disclosure requirements of SFAS 132 and
requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The disclosure requirements of SFAS 132R are generally
effective for fiscal years ending after December 15, 2003 (as of December 31, 2003 for the Company). Disclosure of the
HARSCO CORPORATION 2003 ANNUAL REPORT 57
estimated future benefit payments and certain information about foreign plans shall be effective for fiscal years ending
after June 15, 2004 (as of December 31, 2004 for the Company). The interim-period disclosures required by this
Statement shall be effective for interim periods beginning after December 15, 2003 (commencing January 1, 2004 for the
Company).
The Company has incorporated the required disclosures of SFAS 132 in Note 8, “Employee Benefit Plans.” Disclosures
related to the estimated future benefit payments and foreign plans shall be incorporated into the footnotes to the
Company’s 2004 financial statements. The adoption of SFAS 132R did not have a material impact on the Company's
financial position, results of operations, or cash flows.
FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51” (FIN 46R)
In December 2003, the FASB issued FIN 46R which replaced FASB Interpretation 46, “Consolidation of Variable Interest
Entities,” and clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to
certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The
disclosure requirements of FIN 46R are effective for financial statements issued after December 31, 2003. The initial
recognition provisions of FIN 46R are to be implemented no later than the end of the first reporting period that ends after
March 15, 2004 (as of March 31, 2004 for the Company).
The Company has adopted FIN 46R as of December 31, 2003. The Company has determined that it does have an
interest in a variable interest entity (VIE). This VIE is a small joint venture of the Company’s Mill Services Segment. The
entity markets and sells steel slag with revenues of approximately $1.5 million and $0.5 million in 2003 and 2002,
respectively. The entity is a VIE because the equity investment at risk is less than ten percent of the entity’s total assets.
However, the Company is not the primary beneficiary and therefore consolidation of this entity is not required.
The adoption of FIN 46R did not have a material impact on the Company's financial position, results of operations, or cash
flows.
Emerging Issues Task Force Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”
(EITF 00-21)
In November 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached
a consensus on EITF 00-21 which provides guidance on how to determine when an arrangement that involves multiple
revenue-generating activities or deliverables should be divided into separate units of accounting for revenue recognition
purposes. It further states, that if this division is required, the arrangement consideration should be allocated among the
separate units of accounting. The guidance in the consensus is effective for revenue arrangements entered into in fiscal
periods that begin after June 15, 2003. The Company adopted EITF 00-21 effective July 1, 2003. The adoption of EITF
00-21 did not have a material effect on the Company’s financial position, results of operations or cash flows.
Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB 104)
In December 2003, the Securities and Exchange Commission issued SAB 104, which supersedes SAB No. 101,
“Revenue Recognition in Financial Statements,” and updates portions of the interpretative guidance included in Topic 13
of the codification of staff accounting bulletins in order to make this interpretive guidance consistent with current
authoritative accounting guidance. The principal revisions relate to the deletion of interpretive material no longer
necessary because of private sector developments in U.S. generally accepted accounting principles, and the
incorporation of certain sections of the Staff's "Revenue Recognition in Financial Statements — Frequently Asked
Questions and Answers" document into Topic 13. The Company had previously adopted the necessary changes
incorporated into SAB 104 without any material effect on the Company’s financial position, results of operations or cash
flows.
2.
Acquisitions and Dispositions
Acquisitions
In June 2003, the Company completed the acquisition of the domestic mill services unit of C.J. Langenfelder & Son, Inc.,
an industrial services company. This acquisition gives the Company an expanded presence with two major North
American steel producers. In June 2003, the Company also acquired a small product line for the Company’s international
access services business. The proforma impact of these acquisitions is not material.
58 HARSCO CORPORATION 2003 ANNUAL REPORT
During 2002, the Company did not acquire any businesses that individually or when aggregated together had a material
impact on the Company’s net assets, sales or net income.
Dispositions – Assets Held for Sale and Discontinued Operations
In management’s ongoing strategic efforts to increase the Company’s focus on core industrial services, certain
manufacturing operations have been divested. Effective March 21, 2002, the Board of Directors authorized the sale of the
Capitol Manufacturing business, a business unit of the Gas and Fluid Control Segment. A significant portion of the Capitol
Manufacturing business was sold on June 28, 2002. The Company continues to recognize income from inventory
consigned to the buyer in accordance with the sale agreement and when all revenue recognition criteria have been met.
This business has been included in Discontinued operations and the assets and liabilities have been separately identified
on the Balance Sheet as held for sale for all periods presented. There were no sales from discontinued operations for the
year ended December 31, 2003. The sales from discontinued operations for the years ended December 31, 2002 and
2001 were $35.5 million and $83.3 million, respectively. These sales were excluded from revenues from continuing
operations reported on the income statement. The income (loss) from discontinued operations does not include any
charges to reduce the book value of the business held for sale to its fair market value less cost to sell, since the fair value
of the business exceeded the book value.
Throughout 2002 and 2003, management approved the sale of certain long-lived assets (primarily land and buildings) of
the Access Services and Mill Services Segments. Accordingly, these assets have been separately identified on the
balance sheet as Assets held for sale for all periods presented. Several of these assets were sold during 2003 resulting
in the decrease noted below.
The major classes of assets and liabilities “held for sale” included in the Consolidated Balance Sheet are as follows:
(In thousands)
As of December 31
2003
2002
ASSETS
Accounts receivable, net
Inventories
Other current assets
Property, plant and equipment, net
Total assets “held for sale”
LIABILITIES
Accounts payable
Income taxes
Other current liabilities
$
411
222
20
784
$ 1,437
$
595
727
21
11,344
$ 12,687
$
512
-
386
$
463
958
618
Total liabilities associated with assets
“held for sale”
$
898
$ 2,039
Discontinued Defense Business
In January 1994, FMC Corporation and the Company combined certain assets and liabilities of FMC’s Defense Systems
Group and the Company’s BMY-Combat Systems Division to form United Defense, L.P. United Defense supplies ground
combat and naval weapons systems for the U.S. and military customers worldwide. On August 25, 1997, the Company
and FMC Corporation signed an agreement to sell United Defense, L.P. for $850 million, and the sale was completed on
October 6, 1997. Prior to the sale, FMC had been the managing general partner and 60% owner of United Defense, L.P.,
while the Company owned the balance of 40% as the limited partner. These transactions did not include any of the
assets or liabilities of the Company’s BMY-Wheeled Vehicles Division, which were retained by the Company. This
division, which was exited by the Company in 1995, sold five-ton trucks to the United States Army under a completed
1986 contract that is the subject of a federal excise tax dispute as more fully discussed in Note 10, “Commitments and
Contingencies.”
Income and cash flows related to the discontinued defense business, principally accrual adjustments and legal fees, are
shown separately on the Consolidated Statements of Income and Cash Flows, respectively.
HARSCO CORPORATION 2003 ANNUAL REPORT 59
3.
Accounts Receivable and Inventories
Accounts receivable are net of an allowance for doubtful accounts of $24.6 million and $36.5 million at December 31,
2003 and 2002, respectively. The decrease from December 31, 2002 relates principally to write-offs of previously
reserved accounts receivable and a $1.7 million reversal of bad debt expense in the Mill Services Segment due to a
change in estimate. The provision for doubtful accounts was $3.4 million, $6.9 million and $12.6 million for 2003, 2002
and 2001, respectively.
Inventories consist of:
(In thousands)
Finished goods
Work-in-process
Raw materials and purchased parts
Stores and supplies
2003
$ 59,739
32,121
74,231
24,130
2002
$ 58,906
24,287
74,775
23,744
$ 190,221
$ 181,712
Valued at lower of cost or market:
Last-in, first out (LIFO) basis
First-in, first out (FIFO) basis
Average cost basis
$ 109,821
8,430
71,970
$ 107,205
10,103
64,404
$ 190,221
$ 181,712
Inventories valued on the LIFO basis at December 31, 2003 and 2002 were approximately $17.9 million and $19.3 million,
respectively, less than the amounts of such inventories valued at current costs.
As a result of reducing certain inventory quantities valued on the LIFO basis, net income increased from that which would
have been recorded under the FIFO basis of valuation by $1.1 million, $2.3 million and $0.7 million in 2003, 2002 and
2001, respectively.
4.
Property, Plant and Equipment
Property, plant and equipment consists of:
(In thousands)
Land and improvements
Buildings and improvements
Machinery and equipment
Uncompleted construction
Less accumulated depreciation and facilities valuation allowance
2003
$ 39,741
178,110
1,803,867
37,505
2,059,223
(1,192,305)
$ 866,918
2002 (a)
$ 36,444
167,184
1,590,890
20,078
1,814,596
(1,010,101)
$ 804,495
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets,” 2002 information has been reclassified for comparative purposes.
The estimated useful lives of different types of assets are generally:
Land improvements
5 to 20 years
Buildings and improvements
10 to 50 years
Certain plant, buildings and installations
(Principally Mill Services Segment)
3 to 10 years
Machinery and equipment
3 to 20 years
60 HARSCO CORPORATION 2003 ANNUAL REPORT
5.
Goodwill and Other Intangible Assets
The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) on January 1, 2002. Under
this standard, goodwill and intangible assets with indefinite useful lives are no longer amortized. Goodwill is tested for
impairment at the reporting unit level on an annual basis, and between annual tests, whenever events or circumstances
indicate that the carrying value of a reporting unit’s goodwill may exceed its fair value. This impairment testing is a two-
step process as outlined in SFAS 142. Step one is a comparison of each reporting unit’s fair value to its book value. If
the fair value of the reporting unit exceeds the book value, step two of the test is not required. Step two requires the
allocation of fair values to assets and liabilities as if the reporting unit had just been purchased resulting in the implied fair
value of goodwill. If the carrying value of the goodwill exceeds the implied fair value, a write down to the implied fair value
would be required.
The Company uses a discounted cash flow model to estimate the fair value of a reporting unit in performing step one of
the testing. This model requires the use of long-term planning estimates and assumptions regarding industry-specific
economic conditions that are outside the control of the Company. In accordance with SFAS 142, the Company completed
transitional goodwill impairment testing by June 30, 2002. All reporting units of the Company passed step one of the
transitional testing thereby indicating that no goodwill impairment exists. Additionally, no reclassification of goodwill or
intangible assets was necessary as a result of the adoption of SFAS 142. The Company also performed required annual
testing for goodwill impairment as of October 1, 2003 and 2002 and all reporting units of the Company passed the step 1
testing thereby indicating that no goodwill impairment exists. However, there can be no assurance that future goodwill
impairment tests will not result in a charge to earnings.
The following table illustrates the effects of adopting SFAS 142 as it relates to net income, basic earnings per share (EPS)
and diluted earnings per share (EPS) for the years ended December 31, 2003, 2002 and 2001.
(In thousands,
except per share amounts)
Net Income
2002
2001
2003
Basic EPS
2002
2003
2001
Diluted EPS
2001
2001
2002
Reported net income
$ 92,217 $ 90,106 $ 71,725
$ 2.27 $ 2.23 $ 1.80
$ 2.25 $ 2.21 $ 1.79
Add: goodwill amortization,
net of tax
-
-
10,878
-
-
.27
-
-
.27
Adjusted net income
$ 92,217 $ 90,106 $ 82,603
$ 2.27 $ 2.23 $ 2.07
$ 2.25 $ 2.21 $ 2.06
HARSCO CORPORATION 2003 ANNUAL REPORT 61
The following table reflects the changes in carrying amounts of goodwill by segment for the year ended December 31,
2003:
Mill
Services
Segment
Access
Services
Segment
Gas and
Fluid
Control
Segment
Other
Infrastructure
Products and
Services
(“all other”)
Category
Consolidated
Totals
(In thousands)
Balance as of December 31, 2001, net of
accumulated amortization (a)
$ 180,656
$ 125,119
$ 37,778
$
9,668
$ 353,221
Goodwill acquired during year
Goodwill written off related to sale of
business
Other (principally foreign currency
translation)
Balance as of December 31, 2002, net of
-
-
1,628
-
-
-
-
1,628
(1,496)
(1,496)
12,465
12,477
(1,085)
10
23,867
accumulated amortization
$ 193,121
$ 139,224
$ 36,693
$
8,182
$ 377,220
Goodwill acquired during year
-
441
Other (principally foreign currency
translation)
15,597
14,633
-
-
-
441
(45)
30,185
Balance as of December 31, 2003, net of
accumulated amortization
$ 208,718
$ 154,298
$ 36,693
$
8,137
$ 407,846
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” 2001 information has been reclassified for comparative purposes.
Goodwill is net of accumulated amortization of $105.2 million and $100.8 million at December 31, 2003 and 2002,
respectively.
Intangible assets, which are included principally in Other assets on the Consolidated Balance Sheets, totaled $10.4
million, net of accumulated amortization of $8.4 million at December 31, 2003 and $3.2 million, net of accumulated
amortization of $7.1 million at December 31, 2002. The following chart reflects these intangible assets by major category.
(In thousands)
December 31, 2003
December 31, 2002
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Customer relationships
$ 6,373
$ 196
$
559
$
6
Non-compete agreements
4,863
3,671
4,150
3,346
Patents
Other
Total
4,304
3,351
4,063
2,908
3,313
1,197
1,514
833
$18,853
$ 8,415
$ 10,286
$ 7,093
The increase in intangible assets is due principally to the acquisitions discussed in Note 2, “Acquisitions and Dispositions.”
As part of these transactions, the Company acquired the following intangible assets (by major class) which are subject to
amortization:
62 HARSCO CORPORATION 2003 ANNUAL REPORT
Acquired Intangible Assets
(In thousands)
Gross Carrying
Amount
Residual Value
Weighted-average
amortization period
Customer relationships
$ 5,734
Non-compete agreements
686
Other
Total
1,435
$ 7,855
None
None
None
29 years
3 years
5 years
There were no research and development assets acquired and written off in 2003 or 2002.
Amortization expense for intangible assets was $1.2 million, $0.9 million and $1.1 million for the years ended December
31, 2003, 2002 and 2001, respectively. The following chart shows the estimated amortization expense for the next five
fiscal years based on current intangible assets.
(In thousands)
2004
2005
2006
2007
2008
Estimated Amortization Expense $1,499 $1,311 $1,080
$885
$701
6.
Debt and Credit Agreements
The Company has various credit facilities and commercial paper programs available for use throughout the world. The
following chart illustrates the amounts outstanding on credit facilities and commercial paper programs and available credit
at December 31, 2003. The Company limits the aggregate commercial paper, syndicated credit facility and bilateral credit
facility borrowings at any one time to a maximum of $375 million. This reduction of $50 million from the $425 million self-
imposed limit at December 31, 2002 was made in conjunction with the Company’s decision in January 2003 not to renew
one of the $50 million bilateral credit facilities, as noted below. These credit facilities and programs are described in more
detail below the chart.
Summary of Credit Facilities
(In thousands)
Facility Limit
As of December 31, 2003
Outstanding
Balance
Available
Credit
U.S. commercial paper program
$ 350,000
$ 9,299
$ 340,701
Euro commercial paper program
125,790
26,048
99,742
Revolving credit facility
350,000
Bilateral credit facility
25,000
-
3,412
350,000
21,588
Totals at December 31, 2003
$ 850,790
$ 38,759
$ 812,031 (a)
(a) Although the Company has significant available credit, it is the Company’s policy to limit aggregate commercial paper and credit facility
borrowings at any one time to a maximum of $375 million.
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 100 million euro commercial paper program
equivalent to approximately $125.8 million at December 31, 2003 which is used to fund the Company's international
operations. This program, which commenced in October 2003, replaced the Company’s 74.4 million euro commercial
paper program. Additionally, the Company discontinued its 250 million euro commercial paper program in the second
quarter of 2003 since it was excess to the Company’s credit needs. If needed in the future, the Company has the ability to
reinstate the program. Commercial paper interest rates, which are based on market conditions, have been lower than
comparable rates available under the credit facility. At December 31, 2003 and 2002, the Company had $9.3 million and
$44.4 million of U.S. commercial paper outstanding, respectively, and $26.0 million and $37.5 million outstanding,
respectively, under its European-based commercial paper program. Commercial paper is classified as long-term debt at
HARSCO CORPORATION 2003 ANNUAL REPORT 63
December 31, 2003 and 2002, because the Company has the ability and intent to refinance it on a long-term basis
through existing long-term credit facilities.
The Company has a revolving credit facility in the amount of $350 million through a syndicate of 13 banks. This facility
serves as back-up to the Company's commercial paper programs. The facility is in two parts. One part amounts to
$131.3 million and is a 364-day credit agreement that permits borrowings outstanding at expiration (August 12, 2004) to
be repaid no later than August 12, 2005. The second part is for $218.8 million and is a five-year credit agreement that
expires on September 29, 2005 at which time all borrowings are due. The 364-day part of the facility was renegotiated in
August of 2003 to extend the expiration date to August 12, 2004. Interest rates are either negotiated, based upon the
U.S. federal funds interbank market, prime rate, or based upon the London Interbank Offered Rate (LIBOR) plus a margin.
The Company pays a facility fee (.0825% per annum as of December 31, 2003) that varies based upon its credit ratings.
At December 31, 2003 and 2002, there were no borrowings outstanding under either part of the facility.
In the first quarter of 2003, the Company chose not to renew one of its two $50 million bilateral credit facilities with
European-based banks. The other $50 million bilateral credit facility was renewed, in the first quarter of 2003, but for a
lower amount of $25 million since the Company’s financing needs have decreased. This agreement was renewed again
in December 2003. The facility serves as back-up to the Company’s commercial paper programs and also helps finance
the Company’s European operations. Borrowings under this facility, which expires in December 2004, are available in
most major currencies with active markets at interest rates based upon LIBOR plus a margin. Borrowings outstanding at
expiration may be repaid over the succeeding 12 months. As of December 31, 2003 and 2002, there was $3.4 million and
$5.0 million outstanding on this credit facility, respectively.
In September 2003, the Company issued $150 million, 5.125% notes due in 2013. The net proceeds from this issuance
were used to repay the Company’s $150 million, 6% notes that were due on September 15, 2003. The notes were issued
at 99.713% of face value and had a balance of $148.6 million at December 31, 2003.
Short-term debt amounted to $14.9 million and $22.4 million at December 31, 2003 and 2002, respectively. The weighted
average interest rate for short-term borrowings at December 31, 2003 and 2002 was 2.9% and 4.0%, respectively.
Long-term debt consists of:
(In thousands)
7.25% British pound sterling-denominated notes due October 27, 2010
5.125% notes due September 15, 2013
6.0% notes matured September 15, 2003 (a)
Commercial paper borrowings, with a weighted average interest rate of 1.9%
2003
$ 353,018
148,627
-
2002
$ 317,781
-
150,000
and 2.3% as of December 31, 2003 and 2002, respectively
35,347
81,944
Faber Prest loan notes due October 31, 2008 with interest based on sterling
LIBOR minus .75% (3.4% and 3.2% at December 31, 2003 and 2002,
respectively)
Industrial development bonds, payable in varying amounts from 2004 to
2011 with a weighted average interest rate of 2.1% and 2.4% as of
December 31, 2003 and 2002, respectively
Other financing payable in varying amounts to 2008 with a weighted average
interest rate of 5.4% and 6.0% as of December 31, 2003 and 2002,
respectively
Less: current maturities
9,991
10,207
10,000
10,000
41,694
598,677
(14,252)
$ 584,425
47,376
617,308
(11,695)
$ 605,613
(a) 6% notes were classified as long-term because the Company had the ability and intent to refinance them on a long-term basis through existing
long-term credit facilities.
The credit facilities and certain notes payable agreements contain covenants requiring a minimum net worth of $475
million and a maximum debt to capital ratio of 60%. Additionally, the Company’s 7.25% British pound sterling-
denominated notes due October 27, 2010 include a covenant that permits the note holders to redeem their notes, at par,
in the event of a change of control of the Company. At December 31, 2003, the Company was in compliance with these
covenants.
64 HARSCO CORPORATION 2003 ANNUAL REPORT
The maturities of long-term debt for the four years following December 31, 2004 are:
(In thousands)
2005
2006
2007
2008
$ 52,226
4,254
9,455
10,343
Cash payments for interest on all debt from continuing operations were $40.1 million, $42.3 million and $53.4 million in
2003, 2002 and 2001, respectively.
7.
Leases
The Company leases certain property and equipment under noncancelable operating leases. Rental expense (for both
continuing and discontinued operations) under such operating leases was $48.5 million, $46.6 million and $41.3 million in
2003, 2002 and 2001, respectively.
Future minimum payments under operating leases with noncancelable terms are:
(In thousands)
2004
2005
2006
2007
2008
After 2008
$ 48,331
30,355
18,634
13,111
8,367
23,128
Total minimum rentals to be received in the future under non-cancelable subleases as of December 31, 2003 are $10.5
million.
8.
Employee Benefit Plans
Pension Benefits
The Company has pension and profit sharing retirement plans covering substantially all of its employees. The benefits for
salaried employees generally are based on years of service and the employee's level of compensation during specified
periods of employment. Plans covering hourly employees generally provide benefits of stated amounts for each year of
service. The multi-employer plans in which the Company participates provide benefits to certain unionized employees.
The Company's funding policy for qualified plans is consistent with statutory regulations and customarily equals the
amount deducted for income tax purposes. The Company's policy is to amortize prior service costs of defined benefit
pension plans over the average future service period of active plan participants. The Company uses an October 31
measurement date for its United States defined benefit pension plans and a September 30 measurement date for
international defined benefit pension plans.
HARSCO CORPORATION 2003 ANNUAL REPORT 65
For a majority of the U.S. defined benefit pension plans and certain international defined benefit pension plans, accrued
service will no longer be granted for periods after December 31, 2003. To replace this benefit, the Company has
established, effective January 1, 2004, a defined contribution pension plan pursuant to which the Company will contribute
a specified matching contribution for participating employees’ contributions to the plan of up to four percent of their eligible
compensation. Additionally, the Company may provide a discretionary contribution of up to two percent of compensation
for eligible employees. The Company believes this new retirement benefit plan will provide a more predictable and less
volatile pension expense than exists under the defined benefit plans.
(In thousands)
Pension Expense (Income)
Defined benefit plans:
Service cost
Interest cost
Expected return on plan assets
Recognized prior service costs
Recognized (gains) or losses
Amortization of transition asset
Settlement/Curtailment loss
Defined benefit plans pension
expense (income)
Multi-employer plans
Defined contribution plans
2003
U. S. Plans
2002
2001
2003
International Plans
2002
2001
$ 7,339
13,201
(15,758)
726
4,409
(1,466)
36
8,487
6,020
527
$ 8,375
13,034
(19,845)
1,442
822
(1,684)
918
$ 8,206
12,763
(22,713)
1,429
(1,357)
(1,789)
454
$ 10,439
32,627
(34,083)
1,117
9,813
(626)
8
$ 9,980
28,393
(35,542)
991
4,090
(572)
-
$ 10,457
25,615
(41,846)
942
(1,964)
(549)
-
3,062
4,705
753
(3,007)
3,780
1,768
19,295
1,599
6,191
7,340
1,186
4,688
(7,345)
956
5,599
Pension expense (income)
$ 15,034
$ 8,520
$ 2,541
$ 27,085
$ 13,214
$
(790)
66 HARSCO CORPORATION 2003 ANNUAL REPORT
The change in the financial status of the pension plans and amounts recognized in the Consolidated Balance Sheets at
December 31, 2003 and 2002 are as follows:
Pension Benefits
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial loss
Settlements/curtailments
Benefits paid
Obligations of added plans
Effect of foreign currency
U. S. Plans
2003
2002
International Plans
2003
2002
$ 199,959
7,339
13,201
-
226
19,066
(5,148)
(12,948)
-
-
$ 183,254
8,375
13,034
-
(3,198)
14,549
(349)
(15,706)
-
-
$ 561,509
10,439
32,627
4,044
188
9,661
(401)
(30,301)
3,823
68,852
$ 429,114
9,980
28,393
3,916
(68)
43,532
-
(23,672)
22,481
47,833
Benefit obligation at end of year
$ 221,695
$ 199,959
$ 660,441
$ 561,509
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Settlements/curtailments
Plan assets of added plans
Effect of foreign currency
$ 180,277
37,917
3,884
-
(12,948)
-
-
-
$ 211,499
(17,781)
2,614
-
(15,706)
(349)
-
-
$ 418,002
60,088
19,749
4,044
(29,993)
-
1,724
48,571
$ 426,414
(60,764)
7,515
3,916
(23,177)
-
20,258
43,840
Fair value of plan assets at end of year
$ 209,130
$ 180,277
$ 522,185
$ 418,002
Funded status:
Funded status at end of year
Unrecognized net loss
Unrecognized transition asset
Unrecognized prior service cost
$ (12,565)
50,365
(3,283)
4,743
$ (19,682)
63,015
(4,749)
5,279
$(138,256)
234,273
(80)
13,055
$(143,507)
233,148
(666)
11,809
Net amount recognized
$ 39,260
$ 43,863
$ 108,992
$ 100,784
Amounts recognized in the Consolidated
Balance Sheets consist of:
Prepaid benefit cost
Accrued benefit liability
Intangible asset
Accumulated other comprehensive expense
$ 46,359
(29,566)
3,935
18,532
$ 49,577
(28,717)
4,683
18,320
$
-
(102,432)
12,088
199,336
$
-
(112,400)
11,630
201,554
Net amount recognized
$ 39,260
$ 43,863
$ 108,992
$ 100,784
The Company’s best estimate of expected contributions to be paid in year 2004 for the U.S. plans is $2.6 million and for
international plans is $21.4 million.
HARSCO CORPORATION 2003 ANNUAL REPORT 67
Net Periodic Pension Expense Assumptions
The weighted-average actuarial assumptions used to determine the net periodic pension expense for the years ended
December 31 were as follows:
Discount rates
Expected long-term rates of return on plan
assets
Rates of compensation increase
Discount rates
Expected long-term rates of return on plan
assets
Rates of compensation increase
Global Weighted Average
December 31
2002
6.5%
2003
6.0%
2001
6.7%
8.0%
3.4%
8.5%
3.9%
8.4%
4.3%
U. S. Plans
December 31
2002
7.25%
2003
6.75%
8.9%
3.8%
9.5%
3.7%
2001
8.0%
9.5%
4.0%
International Plans
December 31
2002
6.2%
2003
5.8%
2001
6.2%
7.6%
3.3%
8.0%
4.0%
7.9%
4.4%
Defined Benefit Pension Obligation Assumptions
The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at
December 31 were as follows:
Discount rates
Rates of compensation increase
Discount rates
Rates of compensation increase
Global Weighted Average
December 31
2002
6.0%
3.4%
2003
5.9%
3.5%
2001
6.5%
3.9%
U. S. Plans
December 31
2002
6.75%
3.8%
2003
6.25%
4.0%
2001
7.25%
3.7%
International Plans
December 31
2002
5.8%
3.3%
2003
5.7%
3.4%
2001
6.2%
4.0%
Accumulated Benefit Obligations
The accumulated benefit obligation for all defined benefit pension plans at December 31 was as follows:
(In millions)
2003
2002
U.S. Plans
$211.3
191.4
International
Plans
$622.0
526.5
Plans with Accumulated Benefit Obligation in Excess of Plan Assets
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets at December 31 were as follows:
(In millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
68 HARSCO CORPORATION 2003 ANNUAL REPORT
U. S. Plans
International Plans
2003
$68.6
67.3
38.3
2002
$60.0
59.2
31.0
2003
$652.7
616.5
511.5
2002
$559.2
524.3
415.5
The decrease in the minimum liability included in other comprehensive income (expense) was $2.0 million in 2003. The
increase in the minimum liability included in other comprehensive income (expense) was ($210.3) million in 2002.
The asset allocations attributable to the Company’s U.S. pension plans at October 31, 2003 and 2002 and the target
allocation of plan assets for 2004, by asset category, are as follows (as permitted by SFAS No. 132 (revised 2003),
“Employers’ Disclosures about Pensions and Other Postretirement Benefits—an amendment of FASB Statements No. 87,
88, and 106,” the Company has deferred reporting of this information for international plan assets):
Asset Category
Domestic Equity Securities
International Equity Securities
Fixed Income Securities
Cash & Cash Equivalents
Target 2004
Allocation
51% - 61%
5% - 15%
27% - 37%
0% - 5%
Percentage of Plan Assets at October 31
2003
60.0%
9.8%
28.5%
1.7%
2002
52.1%
8.8%
36.5%
2.6%
Plan assets are allocated among various categories of equities, fixed income, cash and cash equivalents with professional
investment managers whose performance is actively monitored. The primary investment objective is long-term growth of
assets in order to meet present and future benefit obligations. The Company periodically conducts an asset/liability
modeling study to ensure the investment strategy is aligned with the profile of benefit obligations.
The Company lowered its expected return on asset assumption from 9.5% in 2002 to 8.9% in 2003 due to changes in
capital market expectations. The Company reviews the long-term expected return on asset assumption on a periodic
basis taking into account a variety of factors including the historical investment returns achieved over a long-term period,
the targeted allocation of plan assets and future expectations based on a model of asset returns for an actively managed
portfolio. For 2004, the expected return assumption is 8.75%.
The U.S. pension plans owned shares of the Company’s stock valued at $27.6 million and $18.3 million on October 31,
2003 and 2002, respectively, representing 13.2% and 10.2%, respectively, of total plan assets. The Board of Directors
has approved the rebalancing of the pension fund to further diversify the plan assets. Dividends paid to the pension plans
on the Company stock amounted to $0.7 million in both 2003 and 2002.
Postretirement Benefits
The Company has postretirement health care benefits for a limited number of employees mainly under plans related to
acquired companies and postretirement life insurance benefits for certain hourly employees. The costs of health care and
life insurance benefits are accrued for current and future retirees and are recognized as determined under the projected
unit credit actuarial method. Under this method, the Company's obligation for postretirement benefits is to be fully
accrued by the date employees attain full eligibility for such benefits. The Company's postretirement health care and life
insurance plans are unfunded. The Company uses an October 31 measurement date for its postretirement benefit plans.
(In thousands)
Postretirement Benefits Expense (Income)
Service cost
Interest cost
Recognized prior service costs
Recognized (gains) or losses
Settlement/Curtailment gain
Postretirement benefit expense (income)
2003
2002
2001
$
21
553
32
66
(4,898)
$ (4,226)
$
66
743
(16)
(18)
(467)
$ 308
$ 150
812
27
(131)
(959)
(101)
$
The income of $4.2 million for 2003 was due principally to the termination of certain retiree life insurance and health care
plans.
HARSCO CORPORATION 2003 ANNUAL REPORT 69
The benefit obligation noted below does not give recognition to the recently enacted (December 8, 2003) Medicare
Prescription Drug, Improvement and Modernization Act of 2003. In accordance with the provisions of Financial
Accounting Standards Board Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003” (FSP FAS 106-1), the Company has deferred any re-
measurement of its benefit obligation until authoritative guidance on the accounting for this federal subsidy is issued. The
postretirement health care plans of the Company will be reviewed during 2004 to determine the impact of this U.S.
legislation. The changes in the postretirement benefit liability recorded in the Consolidated Balance Sheets are as
follows:
Postretirement Benefits
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss
Plan participants’ contributions
Benefits paid
Plan amendments
Curtailment
Benefit obligation at end of year
Funded status:
Funded status at end of year
Unrecognized prior service cost
Unrecognized net actuarial loss
Net amount recognized as accrued benefit liability
2003
2002
$ 11,639
21
553
74
36
(424)
-
(4,494)
7,405
$
$
$
(7,405)
330
943
(6,132)
$ 10,808
66
743
795
29
(628)
3
(177)
$ 11,639
$ (11,639)
362
532
$ (10,745)
The actuarial assumptions used to determine the postretirement benefit obligation are as follows:
(Dollars in thousands)
Assumed discount rate
Health care cost trend rate
Decreasing to ultimate rate
Effect of one percent increase in health
care cost trend rate:
On cost components
On accumulated benefit obligation
Effect of one percent decrease in health
care cost trend rate:
On cost components
On accumulated benefit obligation
2003
6.25%
12.00%
5.00%
2002
6.75%
12.00%
5.00%
2001
7.25%
9.00%
5.00%
$
24
$ 373
$
28
$ 422
$
49
$ 386
$ (21)
$ (336)
$
(29)
$ (382)
$
(45)
$ (348)
It is anticipated that the health care cost trend rate will decrease from 12.0% in 2004 to 5.0% in the year 2008.
The assumed discount rates to determine the postretirement benefit expense for the years 2003, 2002, 2001 were 6.75%,
7.25% and 8.0%, respectively.
Savings Plan
The Company has a 401(k) savings plan which covers substantially all U.S. employees with the exception of employees
represented by a collective bargaining agreement, unless the agreement expressly provides otherwise. Employee
contributions are generally determined as a percentage of covered employees' compensation. The expense from
continuing and discontinued operations for contributions to the plan by the Company was $3.5 million, $3.8 million and
$3.8 million for 2003, 2002 and 2001 respectively. At December 31, 2003, 2002 and 2001, 2,143,820 shares, 2,352,286
70 HARSCO CORPORATION 2003 ANNUAL REPORT
shares and 2,519,045 shares, respectively, of the Company’s common stock with a fair market value of $93.9 million,
$75.0 million and $86.4 million, respectively, are included in the savings plan.
Executive Incentive Compensation Plan
The amended 1995 Executive Incentive Compensation Plan, as approved by the Management Development and
Compensation Committee of the Board of Directors, provides the basis for determination of annual incentive
compensation awards. Actual awards are paid in February of the following year. The Company accrues amounts
reflecting the estimated value of incentive compensation anticipated to be earned for the year. Compensation expense
relating to these awards was $4.0 million, $3.6 million and $2.5 million in 2003, 2002 and 2001, respectively.
9.
Income Taxes
Income before income taxes and minority interest for both continuing and discontinued operations in the Consolidated
Statements of Income consists of:
(In thousands)
United States
International
Provision for income taxes:
Currently payable:
Federal
State
International
Deferred federal and state
Deferred international
Continuing Operations
Discontinued Operations
2003
2002
2001
$ 53,549
90,480
$ 144,029
$ 35,214
104,139
$ 139,353
$ 23,875
89,920
$ 113,795
$
5,275
(961)
24,233
28,547
12,255
3,815
$ 44,617
$ 41,708
2,909
$ 44,617
$
1,053
(1,718)
24,897
24,232
13,048
5,918
$ 43,198
$ 42,240
958
$ 43,198
$
1,597
1,036
18,753
21,386
7,207
8,389
$ 36,982
$ 38,553
(1,571)
$ 36,982
Cash payments for income taxes were $23.5 million, $18.7 million and $19.8 million, for 2003, 2002 and 2001,
respectively.
The following is a reconciliation of the normal expected statutory U.S. federal income tax rate to the effective rate as a
percentage of Income before income taxes and minority interest for both continuing and discontinued operations as
reported in the Consolidated Statements of Income:
U.S. federal income tax rate
State income taxes, net of federal income tax benefit
Export sales corporation benefit
Deductible 401(k) dividends
Losses for which no tax benefit was recorded
Difference in effective tax rates on international earnings and
remittances
Nondeductible acquisition costs
Other, net
Effective income tax rate
2003
35.0%
0.3
(0.7)
(0.6)
0.1
(2.2)
-
(0.9)
2002
35.0%
0.3
(0.9)
(0.9)
0.4
(2.2)
-
(0.7)
2001
35.0%
0.4
(0.4)
-
0.2
(4.5)
2.5
(0.7)
31.0%
31.0%
32.5%
HARSCO CORPORATION 2003 ANNUAL REPORT 71
The tax effects of the primary temporary differences giving rise to the Company's deferred tax assets and liabilities for the
years ended December 31, 2003 and 2002 are:
(In thousands)
Deferred income taxes
Depreciation
Expense accruals
Inventories
Provision for receivables
Postretirement benefits
Deferred revenue
Unrelieved foreign tax losses
Pensions
Other
Valuation allowance
Total deferred income taxes
2003
2002
Asset
$
-
14,820
2,772
3,854
2,175
-
4,130
24,566
3,719
56,036
(1,718)
$ 54,318
Liability
$ 79,254
-
-
-
-
3,167
-
7,935
2,177
92,533
-
$ 92,533
Asset
$
-
21,212
2,681
3,525
3,683
-
6,075
23,170
11,257
71,603
(2,681)
$ 68,922
Liability
$ 75,547
-
-
-
-
3,571
-
9,444
-
88,562
-
$ 88,562
At December 31, 2003 and 2002, Other current assets included deferred income tax benefits of $22.9 million and
$29.4 million, respectively.
At December 31, 2003, certain of the Company's subsidiaries had total available net operating loss carryforwards
("NOLs") of approximately $11.6 million, of which approximately $9.1 million may be carried forward indefinitely and $2.5
million have varying expiration dates. Included in the total are $3.5 million of preacquisition NOLs.
During 2003 and 2002, $0.5 million and $0.6 million, respectively, of preacquisition NOLs were utilized by the Company,
resulting in tax benefits of $0.2 million and $0.2 million, respectively.
The valuation allowance of $1.7 million and $2.7 million at December 31, 2003 and 2002, respectively, relates principally
to foreign tax losses which are uncertain as to realizability. To the extent that the preacquisition NOLs are utilized in the
future and the associated valuation allowance reduced, the tax benefit will be allocated to reduce goodwill.
The change in the valuation allowances for 2003 and 2002 results primarily from the utilization of international tax loss
carryforwards and the release of valuation allowances in certain international jurisdictions based on the Company's
revaluation of the realizability of future benefits.
10. Commitments and Contingencies
Federal Excise Tax and Other Matters Related to the Five-Ton Truck Contract
In 1995, the Company, the United States Army ("Army"), and the United States Department of Justice concluded a
settlement of Harsco's previously reported claims against the Army relating to Federal Excise Tax ("FET") arising under a
completed 1986 contract for the sale of five-ton trucks to the Army. On September 27, 1995, the Army paid the Company
$49 million in accordance with the settlement terms. The Company released the Army from any further liability for those
claims, and the Department of Justice released the Company from a threatened action for damages and civil penalties
based on an investigation conducted by the Department’s Commercial Litigation Branch that had been pending for several
years.
The settlement preserves the rights of the parties to assert claims and defenses under the Internal Revenue Code, and
rights of the Army and the Company to claim certain amounts that may be owed by either party to reconcile possible
underpayments or overpayments on the truck contract as part of the formal contract close-out process.
The settlement does not resolve the claim by the Internal Revenue Service ("IRS") that, contrary to the Company's
position, certain cargo truck models sold by the Company should be considered to have gross vehicle weights in excess
of the 33,000 pound threshold under FET law, are not entitled to an exemption from FET under any other theory, and
therefore are taxable. In 1999, the IRS assessed an increase in FET of $30.4 million plus penalties and applicable
interest currently estimated to be $12.4 million and $70.6 million, respectively, as of December 31, 2003. In October
1999, the Company posted an $80 million bond required as security by the IRS. This increase in FET takes into account
72 HARSCO CORPORATION 2003 ANNUAL REPORT
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 estimated by the Company to be $61.1 million as of December 31,
2003) 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. Although there
is risk of an adverse outcome, both the Company and the Army believe that the cargo trucks are not taxable.
The settlement agreement with the Army preserved the Company’s right to seek reimbursement of after-imposed tax from
the Army in the event that the cargo trucks are determined to be taxable, but the agreement limited the reimbursement to
a maximum of $21 million. Additionally, in an earlier contract modification, the Army accepted responsibility for $3.6
million of the potential tax, bringing its total potential responsibility up to $24.6 million. As of September 30, 2000, the
Army paid the Company this entire amount and the Company paid those funds to the IRS, subject to its pending refund
claim plus applicable interest. Thus, the Company has satisfied a portion of the disputed tax assessment.
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 estimated as of December 31, 2003, to be $12.4 million and $70.6 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 and cash flows.
During the third quarter of 2003, several significant developments occurred with respect to this matter. On July 16, 2003,
the Court denied entirely the Government’s motion for summary judgment. Shortly after the ruling and at the urging of the
Court, the Government and the Company commenced settlement negotiations. These settlement negotiations
progressed significantly during the months of August and September. At a status conference on September 30, 2003, the
Court suspended further proceedings in the litigation pending the outcome of the settlement discussions. Since
September, continued progress has been made toward finalizing a settlement. The Company has been notified that the
U.S. Internal Revenue Service’s Chief Counsel Office and the Court of Federal Claims Section of the U.S. Department of
Justice (Tax Division) have recommended for approval a Company-sponsored settlement proposal in this matter. The
settlement proposal, which still requires approval by several levels within the U.S. Department of Justice, would result in a
refund to Harsco of an estimated $12 million to $13 million in taxes and interest. Final approval by the Department of
Justice may take several months.
As a result of these developments during the third quarter of 2003, the Company adjusted an accrual related to this
matter. This adjustment is included as Income related to discontinued defense business on the Company’s Consolidated
Statements of Income for the year ended December 31, 2003. The Company’s current expectation is that its future
obligations for finalizing this matter will approximate $0.8 million. No recognition has been given in the accompanying
financial statements for the outcome of the ongoing settlement discussions with respect to the Company's claim for a tax
refund or the proposed settlement.
Environmental
The Company is involved in a number of environmental remediation investigations and clean-ups and, along with other
companies, has been identified as a "potentially responsible party" for certain waste disposal sites. While each of these
matters is subject to various uncertainties, it is probable that the Company will agree to make payments toward funding
certain of these activities and it is possible that some of these matters will be decided unfavorably to the Company. The
Company has evaluated its potential liability, and its financial exposure is dependent upon such factors as the continuing
evolution of environmental laws and regulatory requirements, the availability and application of technology, the allocation
of cost among potentially responsible parties, the years of remedial activity required and the remediation methods
selected. The Consolidated Balance Sheets at December 31, 2003 and 2002 include accruals of $3.3 million and $3.2
million, respectively, for environmental matters. The amounts charged against pre-tax income related to environmental
matters totaled $1.4 million $1.2 million and $1.5 million in 2003, 2002 and 2001, respectively.
The liability for future remediation costs is evaluated on a quarterly basis. Actual costs to be incurred at identified sites in
future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures. The
Company does not expect that any sum it may have to pay in connection with environmental matters in excess of the
amounts recorded or disclosed above would have a material adverse effect on its financial position, results of operations
or cash flows.
HARSCO CORPORATION 2003 ANNUAL REPORT 73
In January 2002, the New Jersey Department of Environmental Protection (“NJDEP”) issued Notices of Civil
Administrative Penalty Assessment to the Company for violations of the New Jersey Air Pollution Control Act. The
Notices allege that the Company operated a slag processing plant in violation of the emission permit for control of slag
dust. The Agency assessed civil administrative penalties totaling approximately $311,000 and the Company filed an
appeal with the Agency. In March 2003, NJDEP amended its assessment and reduced the proposed penalty to
$146,000. This amended order has been appealed. The Company ceased operations at the plant in the fourth quarter of
2001 for unrelated reasons.
Customer Restructuring
On January 29, 2004, a customer of the Company announced that it had obtained an order to initiate a Court-supervised
restructuring under Canada’s Companies’ Creditors Arrangement Act (the Act). The Company is actively monitoring this
restructuring to determine the Company’s potential loss exposure, if any. The Company’s net receivable balance with the
customer as of January 29, 2004 was approximately $5.3 million. The Company intends to vigorously pursue collection of
the entire receivable balance pursuant to our rights and obligations under the Act. The Company has been successful in
collecting substantially all of the pre-petition receivable amounts in several similar cases where the customer has filed for
bankruptcy-court protection. Accordingly, no reserve has been recognized as of December 31, 2003.
Other
The Company has been named as one of many defendants (approximately 90 or more in most cases) in legal actions
alleging personal injury from exposure to airborne asbestos over the past several decades. In their suits, the plaintiffs
have named as defendants many manufacturers, distributors and installers of numerous types of equipment or products
that allegedly contained asbestos.
The Company believes that the claims against it are without merit. The Company has never been a producer,
manufacturer or processor of asbestos fibers. Any component within a Company product which may have contained
asbestos would have been purchased from a supplier. Based on scientific and medical evidence, the Company believes
that any asbestos exposure arising from normal use of any Company product never presented any harmful airborne
asbestos exposure, and moreover, the type of asbestos contained in any component that was used in those products is
protectively encapsulated in other materials and is not associated with the types of injuries alleged. Finally, in most of the
depositions taken of plaintiffs to date in the litigation against the Company, plaintiffs have failed to identify any Company
products as the source of their asbestos exposure.
The majority of the asbestos complaints have been filed in either New York or Mississippi. Almost all of the New York
complaints contain a standard claim for damages of $20 million or $25 million against the approximately 90 defendants,
regardless of the individual’s alleged medical condition, and without identifying any Company product as the source of
plaintiff’s asbestos exposure. With respect to the Mississippi complaints, most contain a standard claim for an unstated
amount of damages against the numerous defendants (typically 240 to 270), without identifying any Company product as
the source of plaintiff’s asbestos exposure.
The Company has not paid any amounts in settlement of these cases, with the exception of two settlements totaling less
than $10,000 paid in 1998 from insurance proceeds. The Company’s insurance carrier has paid all legal costs and
expenses to date. The Company has liability insurance coverage available under various primary and excess policies that
the Company believes will be available if necessary to substantially cover any liability that might ultimately be incurred on
these claims.
During the fourth quarter of 2003, there was no significant increase in the number of pending cases, either in total or in
any particular jurisdiction. There are approximately 39,800 pending asbestos personal injury claims filed against the
Company. Approximately 25,000 of these cases were pending in the New York Supreme Court for various counties in
New York State and approximately 14,500 of the cases were pending in state courts of various counties in Mississippi.
The other claims totaling approximately 300 are filed in various counties in a number of state courts, and in U.S. Federal
District Court for the Eastern District of Pennsylvania, and those complaints assert lesser amounts of damages than the
New York cases or do not state any amount claimed.
As of December 31, 2003, the Company has obtained dismissal by stipulation, or summary judgment prior to trial, in all
cases that have proceeded to trial. Further, we reached agreement with one plaintiff’s counsel in Mississippi to dismiss
the Company from approximately 2,900 cases in that state. We are awaiting entry by the Mississippi courts of the
appropriate orders of dismissal of those cases.
In view of the persistence of asbestos litigation nationwide, which has not yet been sufficiently addressed either politically
or legally, the Company expects to continue to receive additional claims. However, there were developments during the
fourth quarter of 2002 that could have a favorable effect for the Company regarding the pending claims and the number of
74 HARSCO CORPORATION 2003 ANNUAL REPORT
future claims filed in counties within New York City and in Mississippi state courts after 2002. On December 19, 2002, the
New York Supreme Court responsible for managing all asbestos cases pending in the counties within New York City
issued an Order which created a Deferred or Inactive Docket for all pending and future asbestos claims filed by plaintiffs
who cannot demonstrate that they have a malignant condition or discernible physical impairment, and an Active Docket
for plaintiffs who are able to show such medical conditions. Of the thousands of cases that were filed in 1997 and 1998
and still remained on the Court’s docket, only approximately 245 cases have been placed on the Active Docket to date,
while all others will remain deferred until such time as those plaintiffs can show by appropriate medical evidence that they
have a qualifying malignant condition or physical impairment as defined by the court. Cases filed since 1998 are currently
under review to determine which will be placed on the Inactive Docket and which will be placed on the Active Docket.
Also, in the fourth quarter of 2002, Mississippi enacted tort reform legislation that made various changes in the law
favorable to the Company’s defense and that will apply to all cases filed on or after January 1, 2003. The majority of the
claims pending against the Company in Mississippi were filed in the fourth quarter of 2002, in advance of the effective
date of this more restrictive legislation.
The Company intends to continue its practice of vigorously defending these cases as they are listed for trial and expects
the insurance carriers to continue to pay the legal costs and expenses. Management believes that the outcome of these
cases will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the
ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by
accruals, and if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a
material adverse effect on the financial position, results of operations or cash flows of the Company.
11. Capital Stock
The authorized capital stock consists of 150,000,000 shares of common stock and 4,000,000 shares of preferred stock,
both having a par value of $1.25 per share. The preferred stock is issuable in series with terms as fixed by the Board of
Directors. None of the preferred stock has been issued. On June 24, 1997, the Company adopted a revised Shareholder
Rights Plan. Under the new Plan, the Board declared a dividend to shareholders of record on September 28, 1997, of
one right for each share of common stock. The rights may only be exercised if, among other things, a person or group
has acquired 15% or more, or intends to commence a tender offer for 20% or more, of the Company's common stock.
Each right entitles the holder to purchase 1/100th share of a new Harsco Junior Participating Cumulative Preferred Stock
at an exercise price of $150. Once the rights become exercisable, if any person acquires 20% or more of the Company's
common stock, the holder of a right will be entitled to receive common stock calculated to have a value of two times the
exercise price of the right. The rights, which expire on September 28, 2007, do not have voting power, and may be
redeemed by the Company at a price of $.05 per right at any time until the 10th business day following public
announcement that a person or group has accumulated 15% or more of the Company's common stock. At December 31,
2003, 750,000 shares of $1.25 par value preferred stock were reserved for issuance upon exercise of the rights.
The Board of Directors has authorized the repurchase of shares as follows:
2001
2002
2003
No. of Shares
Authorized to be
Purchased
505,154
499,154
499,154
No. of Shares
Purchased
6,000
-
-
Additional Shares
Authorized for
Purchase
-
-
500,846
Remaining No. of
Shares Authorized
for Purchase
499,154
499,154
1,000,000
On June 24, 2003, the Board of Directors increased the share repurchase authorization to 1,000,000 shares. In January
2004, the Board of Directors extended the share purchase authorization through January 31, 2005 for the 1,000,000
shares still remaining from the June 2003 authorization.
In 2003, 2002 and 2001, additional issuances of 3,633 shares, 5,174 shares and 10,695 shares, respectively, net of
purchases, were made for SGB stock option exercises and employee service awards.
HARSCO CORPORATION 2003 ANNUAL REPORT 75
The following chart summarizes the Company’s common stock:
Balances Outstanding
December 31, 2001
December 31, 2002
December 31, 2003
Shares Issued
66,484,633
67,034,010
67,357,447
Treasury Shares
26,499,784
26,494,610
26,490,977
Outstanding
Shares
39,984,849
40,539,400
40,866,470
The following is a reconciliation of the average shares of common stock used to compute basic earnings per common
share to the shares used to compute diluted earnings per common share as shown on the Consolidated Statements of
Income:
(Amounts in thousands, except per share data)
2003
2002
2001
Income from continuing operations
$ 86,999
$ 88,410
$ 74,642
Average shares of common stock outstanding used to
compute basic earnings per common share
40,690
40,360
39,876
Additional common shares to be issued assuming
exercise of stock options, net of shares assumed
reacquired
Shares used to compute dilutive effect of stock options
Basic earnings per common share from continuing
operations
Diluted earnings per common share from continuing
operations
283
40,973
320
40,680
190
40,066
$
2.14
$
2.19
$
1.87
$
2.12
$
2.17
$
1.86
Options to purchase 32,000 shares, 1,369,954 shares and 416,856 shares were outstanding at December 31, 2003,
2002 and 2001, respectively, but were not included in the computation of diluted earnings per share because the effect
was antidilutive.
12. Stock-Based Compensation
The fair value of stock options granted during 2003, 2002 and 2001 is estimated on the date of grant using the binomial
option pricing model. The Company discloses the pro forma effect of accounting for stock options under the fair value
method in Note 1, “Summary of Significant Accounting Policies.” The weighted-average assumptions used and the
estimated fair value are as follows:
Expected term
Expected stock volatility
Risk-free interest rate
Dividend
Rate of dividend increase
Fair value
2003
7.5 years
32.7%
3.46%
1.05
4.63%
9.70
$
$
2002
5 years
35.2%
4.24%
1.00
3.25%
9.48
$
$
2001
4 years
36.6%
4.96%
.96
5%
6.83
$
$
The Company has granted stock options to officers, certain key employees and directors for the purchase of its common
stock under two shareholder-approved plans. The 1995 Executive Incentive Compensation Plan authorizes the issuance
of up to 4,000,000 shares of the Company's common stock for use in paying incentive compensation awards in the form
of stock options. The 1995 Non-Employee Directors' Stock Plan authorizes the issuance of up to 300,000 shares of the
Company's common stock for stock option awards.
Options are granted at fair market value on the date of grant. Options issued under the 1995 Executive Incentive
Compensation Plan vest and become exercisable commencing two years following the date of grant. All options granted
before 2002 under the 1995 Executive Incentive Compensation Plan vested and became exercisable one year following
the date of grant. Options issued under the 1995 Non-Employee Directors’ Stock Plan become exercisable commencing
one year following the date of grant but vest immediately. The options under both Plans expire ten years from the date of
76 HARSCO CORPORATION 2003 ANNUAL REPORT
grant. Upon shareholder approval of these two plans in 1995, the Company terminated the use of the 1986 Stock Option
Plan for granting of stock option awards. At December 31, 2003, there were 1,308,831 and 160,000 shares available for
granting stock options under the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee Directors'
Stock Plan, respectively.
No stock options were granted to employees in 2003 and none will be granted in 2004. The Management Development
and Compensation Committee of the Board of Directors is currently reviewing the long-term equity component of
management compensation, and is considering performance-based restricted stock or restricted stock units as a
replacement for stock options.
Changes during 2003, 2002 and 2001 in options outstanding were:
Outstanding, January 1, 2001
Granted
Exercised
Terminated and expired
Outstanding, December 31, 2001
Granted
Exercised
Terminated and expired
Outstanding, December 31, 2002
Granted
Exercised
Terminated and expired
Shares
Under Option
Weighted Average
Exercise Price
1,682,692
726,240
(187,693)
(85,424)
2,135,815
614,237
(552,101)
(74,838)
2,123,113
16,000 (a)
(325,480)
(118,553)
29.18
25.69
25.00
30.28
28.31
32.93
25.38
33.09
30.30
33.92
27.15
33.76
Outstanding, December 31, 2003
1,695,080 (b)
$30.72
(a) During 2003, options were only granted to non-employee directors.
(b)
Included in options outstanding at December 31, 2003 were 16,052 options granted to SGB key employees as part of the Company’s
acquisition of SGB in 2000. These options are not a part of the 1995 Executive Compensation Plan, or the 1995 Non-Employee Directors’
Stock Plan.
Options to purchase 1,187,938 shares, 1,536,411 shares and 1,429,087 shares were exercisable at December 31, 2003,
2002 and 2001, respectively. The following table summarizes information concerning outstanding and exercisable options
at December 31, 2003.
Range of
Exercisable
Prices
$21.00 – $ 27.52
27.93 – 32.65
32.81 – 46.16
Number
Outstanding
518,744
802,426
373,910
1,695,080
Options Outstanding
Remaining
Contractual Life
In Years
6.2
7.0
4.1
Weighted
Average
Exercise Price
$25.74
31.21
36.56
Options Exercisable
Number
Exercisable
505,584
330,804
351,550
1,187,938
Weighted
Average
Exercise Price
$25.74
29.20
36.69
During 2003 and 2002, the Company did not have any non-cash transactions related to stock option exercises.
During 2001, the Company had non-cash transactions related to stock option exercises of $0.1 million whereby old shares
were exchanged for new shares.
HARSCO CORPORATION 2003 ANNUAL REPORT 77
13. Financial Instruments
Off-Balance Sheet Risk
As collateral for the Company’s performance and to insurers, the Company is contingently liable under standby letters of
credit and bonds in the amount of $216.3 million and $193.7 million at December 31, 2003 and 2002, respectively. These
standby letters of credit and bonds are generally in force for up to three years. Certain issues have expiration dates
beyond three years or no scheduled expiration date. The Company pays fees to various banks and insurance companies
that range from 0.08 to 0.75 percent per annum of their face value. If the Company were required to obtain replacement
standby letters of credit and bonds as of December 31, 2003 for those currently outstanding, it is the Company's opinion
that the replacement costs would not vary significantly from the present fee structure.
The Company has currency exposures in over 40 countries. The Company's primary foreign currency exposures during
2003 were in the United Kingdom, European Economic and Monetary Union countries, South Africa and Australia.
Off-Balance Sheet Risk – Third Party Guarantees
In connection with the licensing of one of the Company’s trade names and providing certain management services (the
furnishing of selected employees), the Company guarantees the debt of certain third parties related to its international
operations. These guarantees are provided to enable the third parties to obtain financing of their operations. The
Company receives fees from these operations, which are included as Services sales in the Company’s Consolidated
Statements of Income. The revenue the Company recorded from these entities was $1.5 million, $1.9 million and $2.0
million for the twelve months ended December 31, 2003, 2002 and 2001, respectively. The guarantees are renewed on
an annual basis and the Company would only be required to perform under the guarantee if the third parties default on
their debt. The maximum potential amount of future payments (undiscounted) related to these guarantees was $2.9
million at December 31, 2003 and 2002. There is no recognition of this potential future payment in the accompanying
financial statements as the Company believes the potential for making these payments is remote. These guarantees
were renewed in June 2003, September 2003 and November 2003; accordingly, liabilities for the fair value of the
guarantee instruments were recognized in accordance with FASB Interpretation No. 45, “Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45) which the
Company adopted January 1, 2003. These liabilities are included in Other current liabilities on the Consolidated Balance
Sheet. The recognition of these liabilities did not have a material impact on the Company’s financial condition or results of
operations for the twelve months ended December 31, 2003.
In the normal course of business, the Company provides legal indemnifications related primarily to the performance of its
products and services and patent and trademark infringement of its goods and services sold. These indemnifications
generally relate to the performance (regarding function, not price) of the respective goods or services and therefore no
liability is recognized related to the fair value of such guarantees.
Off-Balance Sheet Risk – Unconditional Purchase Commitments
The Company entered into an unconditional purchase commitment during 2001 for scaffolding equipment that can be
used by the Company for either rental or sale. This commitment is not recorded on the Company’s Balance Sheets. The
Company purchased $15.1 million and $15.4 million of equipment under this commitment during 2003 and 2002,
respectively. The future obligations (undiscounted) of the Company under this commitment are as follows:
(In thousands)
2004
2005
$ 8,335
2,381
Derivative Instruments and Hedging Activities
The Company has several hedges of net investment recorded in accordance with SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (SFAS 133). The Company recorded a debit of $17.1 million and $12.1
million during 2003 and 2002, respectively, in the foreign currency translation adjustments line of other comprehensive
income (expense) related to hedges of net investments.
At December 31, 2003 and 2002, the Company had $78.4 million and $2.9 million contracted amounts, respectively, of
foreign currency forward exchange contracts outstanding. These contracts are part of a worldwide program to minimize
foreign currency exchange operating income and balance sheet exposure. The unsecured contracts mature within six
months and are with major financial institutions. The Company may be exposed to credit loss in the event of non-
performance by the other parties to the contracts. The Company evaluates the credit worthiness of the counterparties'
financial condition and does not expect default by the counterparties. Foreign currency forward exchange contracts are
78 HARSCO CORPORATION 2003 ANNUAL REPORT
used to hedge commitments, such as foreign currency debt, firm purchase commitments and foreign currency cash flows
for certain export sales transactions.
The following tables summarize by major currency the contractual amounts of the Company's forward exchange contracts
in U.S. dollars as of December 31, 2003 and 2002. The "Buy" amounts represent the U.S. dollar equivalent of
commitments to purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar equivalent of commitments
to sell foreign currencies.
Forward Exchange Contracts
(In thousands)
As of December 31, 2003
Type
U.S. Dollar
Equivalent
Forward exchange contracts:
Euros
Euros
Pounds
Pounds
Sell
Buy
Buy
Sell
$ 44,186
27,008
6,139
1,082
$ 78,415
Maturity
Various in 2004
Various in 2004
Various in 2004
Various in 2004
Recognized
Gain (Loss)
$ (270)
227
119
(48)
28
$
At December 31, 2003, the Company held forward exchange contracts in British pounds and euros which were used to
offset certain future payments between the Company and its various subsidiaries or vendors. These contracts all mature
by February 2004. The Company had outstanding forward contracts designated as SFAS 133 cash flow hedges in the
amount of $1.6 million at December 31, 2003. These forward contracts had a net unrealized loss of $47 thousand that
was included in Other comprehensive income (expense) net of deferred taxes at December 31, 2003. The Company did
not elect to treat the remaining contracts as hedges under SFAS 133 and so mark-to-market gains and losses were
recognized in net income.
Forward Exchange Contracts
(In thousands)
As of December 31, 2002
Forward exchange contracts:
British pounds
Euros
South African rand
Euros
Type
Buy
Buy
Sell
Sell
U.S. Dollar
Equivalent
$ 1,770
220
927
2
$ 2,919
Maturity
Various in 2003
January 7, 2003
Various in 2003
January 7, 2003
Recognized
Gain (Loss)
$
(53)
15
(73)
-
$ (111)
At December 31, 2002, the Company held forward exchange contracts in British pounds, euros and South African rands
which were used to offset certain future payments between the Company and its various subsidiaries or vendors. The
Company did not elect to treat these contracts as hedges under SFAS 133 and so mark-to-market gains and losses were
recognized in net income. The Company did not have any material cash flow or fair value hedge transactions to be
accounted for under SFAS 133 as of December 31, 2002.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash
and cash equivalents, investments and accounts receivable. The Company places its cash and cash equivalents with
high quality financial institutions and, by policy, limits the amount of credit exposure to any one institution. Concentrations
of credit risk with respect to accounts receivable are generally limited due to the Company’s large number of customers
and their dispersion across different industries and geographies. However, the Company’s Mill Services Segment has
several large customers throughout the world with significant accounts receivable balances. If a receivable from one or
more of those customers became uncollectible, it could have a material effect on the Company’s results of operations.
The Company generally does not require collateral or other security to support customer receivables.
Fair Value of Financial Instruments
The major methods and assumptions used in estimating the fair values of financial instruments are:
Cash and cash equivalents
The carrying amount approximates fair value due to the relatively short period to maturity of these instruments.
HARSCO CORPORATION 2003 ANNUAL REPORT 79
Long-term debt
The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for debt of the same remaining maturities.
Foreign currency forward exchange contracts
The fair value of foreign currency forward exchange contracts is estimated by obtaining quotes from brokers.
The carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2003 and
2002 are as follows:
(In thousands)
Cash and cash equivalents
Long-term debt including current maturities
Foreign currency forward exchange contracts
2003
2002
Carrying
Amount
$ 80,210
598,677
28
Fair
Value
$ 80,210
633,190
28
Carrying
Amount
$ 70,132
617,308
2,919
Fair
Value
$ 70,132
653,144
2,808
14.
Information by Segment and Geographic Area
The Company reports information about its operating segments using the "management approach" in accordance with
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS 131). This approach is
based on the way management organizes and reports the segments within the enterprise for making operating decisions
and assessing performance. The Company's reportable segments are identified based upon differences in products,
services and markets served.
Due to reorganization changes, the Company adopted a new segment reporting structure for its operations as of
December 31, 2002. Information for 2001 has been reclassified to reflect those changes. The Company's Divisions are
aggregated into three reportable segments and an “all other” category labeled Other Infrastructure Products and Services.
These segments and the types of products and services offered include the following:
Mill Services Segment
This segment provides mill services, principally for the global steel industry. Mill services include slag processing,
marketing and disposal; metal reclamation; slab management systems; materials handling; scrap management programs;
in-plant transportation; and a variety of other services. Similar services are provided to non-ferrous metallurgical
industries, such as aluminum, nickel and copper.
Access Services Segment
Major products and services include the rental and sales of scaffolding, powered access equipment, shoring and concrete
forming products as well as erection and dismantling services and a variety of other access equipment services.
Products and services are provided to the oil, chemical and petrochemical industries; commercial and industrial
construction firms; public utilities; industrial plants; and infrastructure repair and maintenance markets.
Gas and Fluid Control Segment
Major products and services are gas containment cylinders and tanks; cryogenic equipment; valves, regulators and
gauges, for scuba and life support equipment; and air-cooled heat exchangers.
Major customers include various industrial markets; petrochemical sectors; natural gas and process industries; propane,
compressed gas, life support, scuba and refrigerant gas industries; gas equipment companies; automotive industry;
welding distributors; medical laboratories; beverage carbonation users; and the animal husbandry industry.
Other Infrastructure Products and Services (“all other”) Category
Major products and services include granules for asphalt roofing shingles and slag abrasives for industrial surface
preparation derived from coal slag; railway track maintenance equipment and services; industrial grating; and process
equipment, including industrial blenders, dryers, mixers, water heaters and boilers.
Major customers include asphalt roofing manufacturers; private and government-owned railroads worldwide; urban mass
transit operators; and industrial plants. Other customers include the chemical, food processing and pharmaceutical
industries; and the institutional building and retrofit markets.
80 HARSCO CORPORATION 2003 ANNUAL REPORT
Other Information
The measurement basis of segment profit or loss is operating income. Sales of the Company in the United States and the
United Kingdom exceeded 10% of consolidated sales with 43% and 21%, respectively, in 2003; 46% and 21%,
respectively, in 2002; and 50% and 19%, respectively, in 2001. No single customer represented 10% or more of the
Company's sales during 2003, 2002 or 2001. There are no significant inter-segment sales.
Corporate assets include principally cash, prepaid pension costs and United States deferred taxes. Assets in the United
Kingdom represent 25% of total assets excluding corporate assets as of December 31, 2003 and 2002, and are disclosed
separately in the geographic area information.
Segment Information
(In millions)
Twelve Months Ended
December 31, 2003
December 31, 2002
December 31, 2001 (a)
Sales (b)
Operating
Income (c)
Sales (b)
Operating
Income (c)
Sales (b)
Operating
Income (c)
Mill Services Segment
$ 827.5
$
85.9
$ 696.8
$
73.5
$ 664.7 $ 57.5
Access Services Segment
619.1
Gas and Fluid Control Segment
335.1
37.4
17.0
587.9
350.6
41.7
23.0
583.4
59.1
400.1
24.3
Segment Totals
1,781.7
140.3
1,635.3
138.2
1,648.2 140.9
Other Infrastructure Products and
Services (“all other”) Category
336.8
34.0
341.4
General Corporate
-
(0.4)
-
37.6
0.2
377.0
23.1
-
3.7
Consolidated Totals
$ 2,118.5
$ 173.9
$ 1,976.7
$ 176.0
$ 2,025.2 $ 167.7
(a)
(b)
(c)
Segment information for 2001 has been reclassified to conform with the current presentation. Additionally, in order to comply with the
Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” 2001
information has been reclassified for comparative purposes.
Sales from continuing operations to unaffiliated customers.
Operating income (loss) from continuing operations.
HARSCO CORPORATION 2003 ANNUAL REPORT 81
Reconciliation of Segment Operating Income to Consolidated Income
Before Income Taxes and Minority Interest
(In millions)
Twelve Months Ended
December 31
2003
December 31
2002
December 31
2001 (a)
Segment operating income
$ 140.3
$ 138.2
$ 140.9
Other Infrastructure Products and Services
(“all other”) Category
General Corporate Income (Expense)
Operating income from continuing operations
Equity in income (loss) of affiliates, net
Interest Income
Interest Expense
34.0
(0.4)
173.9
0.3
2.2
37.6
0.2
176.0
0.3
3.7
(40.5)
(43.3)
23.1
3.7
167.7
(1.8)
5.6
(53.2)
Income from continuing operations before income taxes
and minority interest
$ 135.9
$ 136.7
$ 118.3
(a)
In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” 2001 information has been reclassified for comparative purposes.
Segment Information
Assets (a)
Depreciation and
Amortization (b)
(In millions)
2003
2002
2001 (c)
2003
2002
2001 (c)
Mill Services Segment
$ 898.0
$ 766.8
$ 806.6
$ 96.9
$ 86.2
$ 93.7
Access Services Segment
Gas and Fluid Control Segment
696.2
251.8
685.4
248.1
646.5
292.5
41.7
14.1
37.4
15.0
41.6
19.6
Segment Totals
1,846.0
1,700.3
1,745.6
152.7
138.6
154.9
Other Infrastructure Products and
Services (“all other”) Category
Corporate
Total
203.4
88.6
216.5
260.0
82.5
85.2
14.8
1.4
15.8
1.3
20.3
1.3
$ 2,138.0
$ 1,999.3
$ 2,090.8
$ 168.9
$ 155.7
$ 176.5
(a) Assets from discontinued operations of $1.0 million, $1.3 million and $22.5 million in 2003, 2002 and 2001, respectively, are included in the
Gas and Fluid Control Segment.
(b) Depreciation and amortization from discontinued operations of $0.5 million and $1.8 million in 2002 and 2001, respectively, are included in the
Gas and Fluid Control Segment.
(c) Segment information for 2001 has been reclassified to conform with the current presentation.
82 HARSCO CORPORATION 2003 ANNUAL REPORT
Capital Expenditures (a)
(In millions)
2003
2002
2001 (b)
Mill Services Segment
$ 88.1
$ 62.5
$ 77.5
Access Services Segment
Gas and Fluid Control Segment
41.2
8.0
34.3
8.7
47.6
13.6
Segment Totals
137.3
105.5
138.7
Other Infrastructure Products and
Services (“all other”) Category
Corporate
Total
6.1
0.4
8.4
0.4
17.1
0.3
$ 143.8
$ 114.3
$ 156.1
(a) Capital Expenditures from discontinued operations of $0.6 million and $2.3 million in 2002 and 2001, respectively, are included in the Gas and
Fluid Control Segment.
(b) Segment information for 2001 has been reclassified to conform with the current presentation.
Information by Geographic Area (a)
Geographic Area
(In millions)
United States
United Kingdom
All Other
Sales to Unaffiliated Customers
2002
2003
2001 (b)
2003
Assets
2002
2001
$ 902.4
$ 903.2
$ 1,007.2
$ 650.0
$ 648.4
$ 745.4
453.4
762.7
405.7
667.8
389.8
628.2
506.6
892.8
477.7
790.7
565.3
694.9
Totals excluding Corporate
$ 2,118.5
$ 1,976.7
$ 2,025.2
$ 2,049.4
$ 1,916.8
$ 2,005.6
(a) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
(b)
In order to comply with the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets,” 2001 information has been reclassified for comparative purposes.
Information about Products and Services
Product Group
(In millions)
Mill services
Access services
Industrial gas products
Railway track maintenance services and equipment
Industrial abrasives and roofing granules
Industrial grating products
Heat exchangers
Powder processing equipment and heat transfer products
Medical waste disposal (divested in 2002)
Consolidated Sales
Sales to Unaffiliated Customers
2001
2002
2003
$ 827.5
619.1
293.9
173.1
68.9
66.2
41.2
28.6
-
$ 2,118.5
$ 696.8
587.9
307.8
157.2
68.7
86.0
42.8
28.5
1.0
$ 1,976.7
$ 664.7
583.4
326.7
167.2
66.9
107.1
73.4
30.0
5.8
$ 2,025.2
HARSCO CORPORATION 2003 ANNUAL REPORT 83
15. Other (Income) and Expenses
In the years 2003, 2002 and 2001, the Company recorded pre-tax Other (income) and expenses from continuing
operations of $7.0 million, $3.5 million and $22.8 million, respectively:
(In thousands)
Net gains
Other (Income) and Expenses
2002
2003
2001 (a)
$ (3,543)
$ (7,091)
$ (6,880)
Impaired asset write-downs
168
204
15,181
Employee termination benefit costs
6,064
7,140
10,135
Costs to exit activities
2,725
1,934
2,584
Other expense
1,541
1,286
1,766
Total
$ 6,955
$ 3,473
$22,786
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets,” 2001 information has been reclassified for comparative purposes.
Net Gains
Net gains are recorded from the sales of redundant properties (primarily land, buildings and related equipment) and non-
core assets. In 2003, this included $2.5 million in the Access Services Segment and $0.7 million in the Mill Services
Segment.
In 2002, net gains included $2.2 million in the Access Services Segment as well as $1.9 million for assets of a product line
in the Other Infrastructure Products and Services (“all other”) Category. A $2.7 million net gain was also realized from the
sale of an equity investment which was part of the Mill Services Segment.
In 2001, net gains on the sale of redundant properties were recorded at the Corporate Headquarters for $2.7 million, in
the Gas and Fluid Control Segment for $1.9 million and in the Other Infrastructure Products and Services (“all other”)
Category for $1.0 million. Also included in the Other Infrastructure Products and Services (“all other”) Category was a
$0.9 million net gain related to the sale of non-core product lines.
Cash proceeds associated with these gains are included in Proceeds from the sale of assets in the investing activities
section of the Consolidated Statements of Cash Flows.
Impaired Asset Write-downs
Impaired asset write-downs in 2001 included principally valuation reserves recorded for certain investments in property,
plant and equipment. This included a pre-tax write down of $9.8 million in the Other Infrastructure Products and Services
(“all other”) Category of which $8.0 million related to an underperforming plant in the United States associated with the
Company’s roofing granules business. The plant was sold in 2002. In addition, $4.8 million was recorded in the Mill
Services Segment related to fixed plant and equipment associated with steel mill customers which filed for reorganization
proceedings under local laws in principally the United States and Asia. Also, during 2001, $0.6 million of impaired asset
write-downs were recorded by the Gas and Fluid Control Segment.
Impairment losses were measured as the amount by which the carrying amount of assets exceeded their estimated fair
value. Fair value was estimated based upon the expected future realizable cash flows including anticipated selling prices.
Non-cash impaired asset write-downs are included in Other (income) and expenses in the Consolidated Statements of
Cash Flows as adjustments to reconcile net income to net cash provided by operating activities.
Employee Termination Benefit Costs
The Company adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (SFAS 146) on
January 1, 2003. This standard addresses involuntary termination costs associated with one-time benefit arrangements
provided as part of an exit or disposal activity. These costs and the related liabilities are recognized by the Company
when a formal plan for reorganization is approved at the appropriate level of management and communicated to the
affected employees. Additionally, costs associated with on-going benefit arrangements, or in certain countries where
statutory requirements dictate a minimum required benefit, are recognized when they are probable and estimable, in
accordance with existing guidance in SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” (SFAS 112).
84 HARSCO CORPORATION 2003 ANNUAL REPORT
The total amount of employee termination benefit costs incurred for the years 2003, 2002 and 2001 was as follows. None
of the actions are expected to incur any additional costs.
(In thousands)
Employee Termination Benefit Costs
2002
2001
2003
Mill Services Segment
$ 3,101
$ 3,591
$ 4,813
Access Services Segment
Gas and Fluid Control Segment
Other Infrastructure Products and Services
(“all other”) Category
Corporate
Total
1,778
252
671
262
1,722
375
1,347
105
26
3,577
1,624
95
$ 6,064
$ 7,140
$ 10,135
The terminations for the years 2001 to 2003 occurred principally in Europe and the United States.
The following table summarizes employee termination benefit costs and payments (associated with continuing operations)
related to reorganization actions initiated prior to January 1, 2004:
Original reorganization action period
(In thousands)
Employee termination benefits expense
Payments:
In 2001
In 2002
In 2003
Total payments:
Other (principally foreign currency translation):
Remaining payments as of December 31, 2003
2003
$ 6,064
-
-
(3,838)
(3,838)
58
$ 2,284
2002
$ 7,140
-
(4,438)
(2,627)
(7,065)
42
$ 117
2001
$10,135
(6,142)
(1,997)
(2,215)
(10,354)
254
35
$
The payments for employee termination benefit costs are reflected as uses of operating cash in the Consolidated
Statements of Cash Flows.
Costs Associated with Exit or Disposal Activities
Costs associated with exit or disposal activities are recognized in accordance with SFAS 146 and are included as a
component of Other expenses in the Company’s Consolidated Statements of Income. SFAS 146 addresses involuntary
termination costs (as discussed above) and other costs associated with exit or disposal activities (exit costs). Costs to
terminate a contract that is not a capital lease are recognized when an entity terminates the contract or when an entity
ceases using the right conveyed by the contract. This includes the costs to terminate the contract before the end of its
term or the costs that will continue to be incurred under the contract for its remaining term without economic benefit to the
entity (lease run-out costs). Other costs associated with an exit or disposal activity (e.g., costs to consolidate or close
facilities and relocate employees) are recognized and measured at their fair value in the period in which the liability is
incurred. In 2003, $2.7 million of exit costs were incurred. These were principally lease run-out and termination costs and
relocation costs for mainly the Mill Services and Access Services Segments.
HARSCO CORPORATION 2003 ANNUAL REPORT 85
Two-Year Summary of Quarterly Results
(Unaudited)
(In millions, except per share amounts)
Quarterly
Sales
Gross profit (a)
Net income
Basic earnings per share
Diluted earnings per share
(In millions, except per share amounts)
Quarterly
Sales
Gross profit (a)
Net income
Basic earnings per share
Diluted earnings per share
2003
First
Second
Third
Fourth
$ 487.9
$ 536.4
$ 530.2
$ 564.0
112.2
12.5
.31
.31
132.6
25.6
.63
.63
130.2
28.5
.70
.69
139.1
25.6
.63
.62
2002
First
Second (b)
Third
Fourth
$ 458.6
$ 510.3
$ 510.5
$ 497.3
114.1
14.2
.35
.35
131.5
26.2
.65
.64
126.8
25.7
.63
.63
122.6
24.1
.59
.59
(a) Gross profit is defined as Sales less costs and expenses associated directly with or allocated to products sold or services rendered.
(b) Sales and Gross profit have been reclassified to include the results of IKG Industries that were originally classified as discontinued operations
as of June 30, 2002. Due to management’s decision not to sell this business, it is no longer classified as discontinued operations.
Common Stock Price and Dividend Information
(Unaudited)
2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2002
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Market Price Per Share
High
Low
Dividends Declared
Per Share
$ 32.60
36.88
39.49
44.39
$ 39.76
44.48
38.39
32.28
$ 27.50
30.30
35.14
37.06
$ 32.00
34.32
25.75
24.20
$
.2625
.2625
.2625
.2750
.25
.25
.25
.2625
$
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosures
None.
86 HARSCO CORPORATION 2003 ANNUAL REPORT
Item 9A. Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an
evaluation of the effectiveness of disclosure controls and procedures as of December 31, 2003. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are
effective. There have been no significant changes in internal controls, or in factors that could significantly affect internal
controls, subsequent to the date of their evaluation.
HARSCO CORPORATION 2003 ANNUAL REPORT 87
Item 10. Directors and Executive Officers of the Registrant
PART III
Information regarding executive officers required by this Item is set forth as a Supplementary Item at the end of Part I
hereof (pursuant to Instruction 3 to Item 401(b) of Regulation S-K). Other information required by this Item is incorporated
by reference to the sections entitled “Director Information” and “Section 16(a) Beneficial Ownership Reporting
Compliance” of the 2004 Proxy Statement.
In 2003, the Company updated its Code of Ethics for the Chief Executive Officer and Senior Financial Officers (the
“Code”). A copy of the Code may be found on the Internet at the Company’s website, www.harsco.com. The Company
intends to disclose on our website any amendments to the Code or any waiver from a provision of the Code.
Item 11. Executive Compensation
Information regarding compensation of executive officers and directors is incorporated by reference to the sections
entitled “Board Compensation Committee Report on Executive Compensation”; "Executive Compensation and Other
Information"; “Stock Options”; “Options Exercises and Holdings”; “Stock Performance Graph”; “Retirement Plans”;
“Employment Agreements with Officers of the Company”; and "Directors' Compensation" of the 2004 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the
sections entitled “Share Ownership of Certain Beneficial Owners” and "Share Ownership of Management" of the 2004
Proxy Statement.
Equity Compensation Plan Information
The Company maintains the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee Directors’ Stock
Plan, which allow the Company to grant equity awards to eligible persons. Upon shareholder approval of these two plans
in 1995, the Company terminated the use of the 1986 Stock Option Plan for granting stock option awards.
The Company also assumed options under the SGB Group Plc Discretionary Share Option Plan 1997 (the “SGB Plan”)
upon Harsco’s acquisition of SGB Group Plc (“SGB”) in 2000. At the time of the acquisition, various employees of the
U.K.–based SGB held previously granted stock options under the SGB Plan. Harsco authorized the issuance of Harsco
common stock to fulfill these SGB Plan stock options upon exercise from time to time. Harsco has not made any
additional stock option grants under the SGB Plan since the acquisition and will not make any further grants in the future.
88 HARSCO CORPORATION 2003 ANNUAL REPORT
The following table gives information about equity awards under these plans as of December 31, 2003. All securities
referred to are shares of Harsco common stock.
(a)
(b)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding
options, warrants and
rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
1,679,028
$30.74
1,468,831
16,052
1,695,080
(2)
$28.01 (3)
$30.72
-
1,468,831
Plan category
Equity compensation plans
approved by security
holders (1)
Equity compensation plans
not approved by
security holders
Total
(1) Plans include the 1986 Stock Option Plan, as amended, the 1995 Executive Incentive Compensation Plan, as amended, and the 1995 Non-
Employee Directors’ Stock Plan.
(2) Represents the shares of Harsco common stock issuable as replacement option shares in satisfaction of the exercise of stock options granted
by SGB under the SGB Plan as described below. This plan is not a material equity compensation plan of the Company.
(3) These stock options denominate the exercise price in U.K. pounds sterling. The price shown is translated into U. S. dollars at an exchange
rate of $1.7859 effective December 31, 2003.
Description of the Equity Compensation Plan Not Approved by Security Holders
The SGB Group Plc Discretionary Share Option Plan 1997
Upon the acquisition of SGB in June 2000, Harsco authorized the assumption of outstanding options granted under the
SGB Plan and the issuance of options (“Harsco Replacement Options”) exercisable for shares of Harsco common stock in
exchange for options granted by SGB pursuant to the SGB Plan and exercisable for shares of SGB common stock (“SGB
Options”). On June 30, 2000, Harsco commenced an offer (“Option Exchange Offer”) to the holders of SGB Options for
an equivalent Harsco Replacement Option. Upon completion of the Option Exchange Offer, each SGB Option
exercisable for one SGB share was exchanged for a Harsco Replacement Option exercisable for a fraction, equal to
0.1362, of one share of Harsco common stock. The Company has authorized the issuance of Harsco common stock from
treasury or from authorized but unissued shares as necessary to fulfill the terms of the Harsco Replacement Options. The
maximum number of shares of Harsco common stock that were issuable upon exercise of the Harsco Replacement
Options was 61,097. Only those SGB participants who accepted the Option Exchange Offer and received Harsco
Replacement Options were eligible to continue participation in the SGB Plan. SGB Options were granted under the Plan
on five different dates prior to the acquisition. The exercise prices of the Harsco Replacement Options vary depending on
the original SGB Option date of grant and range from 1145.0 U.K. pence to 2092.0 U.K. pence. The options are
exercisable during the period commencing on the third anniversary of the date the original SGB Options were granted and
ending on the day before the tenth anniversary of the date the SGB Options were granted. If a participant ceases to be
an Eligible Employee (as defined under the Plan), the participant’s Harsco Replacement Options will lapse, except in the
event that the participant ceases to be an Eligible Employee due to death or injury, disability, redundancy or retirement.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is incorporated by reference to the section entitled
"Employment Agreements with Officers of the Company" of the 2004 Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information regarding principal accounting fees and services is incorporated by reference to the section entitled “Fees
Billed by the Accountants for Audit and Non-Audit Services” of the 2004 Proxy Statement.
HARSCO CORPORATION 2003 ANNUAL REPORT 89
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. The Consolidated Financial Statements are listed in the index to Item 8, "Financial Statements and
Supplementary Data," on page 47.
(a) 2. The following financial statement schedule should be read in conjunction with the Consolidated
Financial Statements (see Item 8, “Financial Statements and Supplementary Data”):
Report of Independent Auditors on Financial
Statement Schedule
Page
91
Schedule II - Valuation and Qualifying
Accounts for the years 2003, 2002 and 2001
92
Schedules other than those listed above are omitted for the reason that they are either not applicable or
not required or because the information required is contained in the financial statements or notes
thereto.
Condensed financial information of the registrant is omitted since there are no substantial amounts of
"restricted net assets" applicable to the Company's consolidated subsidiaries.
Financial statements of 50% or less owned unconsolidated companies are not submitted inasmuch as
(1) the registrant's investment in and advances to such companies do not exceed 20% of the total
consolidated assets, (2) the registrant's proportionate share of the total assets of such companies does
not exceed 20% of the total consolidated assets, and (3) the registrant's equity in the income from
continuing operations before income taxes of such companies does not exceed 20% of the total
consolidated income from continuing operations before income taxes.
90 HARSCO CORPORATION 2003 ANNUAL REPORT
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Harsco Corporation:
Our audits of the consolidated financial statements referred to in our report dated February 4, 2004
appearing in this Form 10-K also included an audit of the financial statement schedule listed in Item
15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 4, 2004
HARSCO CORPORATION 2003 ANNUAL REPORT 91
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
Continuing Operations
(Dollars in thousands)
COLUMN A
COLUMN B
COLUMN C
Additions
Balance at
Beginning of
Period
Charged to
Cost and
Expenses
COLUMN D
(Deductions) Additions
Due to
Currency
Translation
Adjustments
Other (a)
COLUMN E
Balance at
End of Period
Description
For the year 2003:
Deducted from Receivables:
Uncollectible accounts
Deducted from Inventories:
Inventory valuations
Other Reorganization and
$ 36,483
$ 3,389
$ 1,609
$ (16,869) (b)
$ 24,612
$ 4,541
$ 2,775
$
535
$ (1,901)
$ 5,950
Valuation Reserves
$ 8,373
$ 7,409
$
643
$ (9,733)
$ 6,692
For the year 2002:
Deducted from Receivables:
Uncollectible accounts
Deducted from Inventories:
Inventory valuations
Other Reorganization and
$ 32,495
$ 6,913
$ 1,655
$ (4,580)
$ 36,483
$ 5,487
$ 2,514
$
467
$ (3,927)
$ 4,541
Valuation Reserves
$ 19,559
$ 7,709
$
764
$ (19,659)(c)
$ 8,373
For the year 2001:
Deducted from Receivables:
Uncollectible accounts
Deducted from Inventories:
Inventory valuations
Other Reorganization and
$ 25,873
$ 12,612
$
(495)
$ (5,495)
$ 32,495
$ 8,809
$ 2,916
$
(331)
$ (5,907)
$ 5,487
Valuation Reserves
$ 23,841
$ 9,135
$
(536)
$ (12,881)
$ 19,559
(a) Includes principally the use of previously reserved balances.
(b) Includes $6,276 for the write-off of two accounts receivable in the Mill Services Segment as well as the write-off of other accounts
receivable for all segments.
(c) Includes the use of previously reserved Bio-Oxidation balance of $10,377.
92 HARSCO CORPORATION 2003 ANNUAL REPORT
(a) 3. Listing of Exhibits Filed with Form 10-K
Exhibit
Number
Data Required
Location in 10-K
3(a)
Articles of Incorporation as amended April 24, 1990
Exhibit volume, 1990 10-K
3(b)
Certificate of Amendment of Articles of Incorporation filed
Exhibit volume, 1999 10-K
June 3, 1997
3(c)
Certificate of Designation filed September 25, 1997
Exhibit volume, 1997 10-K
3(d)
By-laws as amended April 25, 1990
Exhibit volume, 1990 10-K
4(a)
Harsco Corporation Rights Agreement dated as of
Incorporated by reference to Form 8-A, filed
September 28, 1997, with Chase Mellon Shareholder
Services L.L.C.
September 26, 1997
4(b)
Registration of Preferred Stock Purchase Rights
Incorporated by reference to Form 8-A dated
October 2, 1987
4(c)
Current Report on dividend distribution of Preferred Stock
Incorporated by reference to Form 8-K dated
Purchase Rights
October 13, 1987
4(f)
Debt and Equity Securities Registered
Incorporated by reference to Form S-3,
Registration No. 33-56885 dated December
15, 1994, effective date January 12, 1995
4(g)
Harsco Finance B. V. £200 million, 7.25% Guaranteed
Exhibit to 10-Q for the period ended
Notes due 2010
September 30, 2000
4(h) (i)
Indenture, dated as of May 1, 1985, by and between
Exhibit to Form 8-K dated September 8, 2003
Harsco Corporation and The Chase Manhattan Bank
(National Association), as trustee (incorporated herein by
reference to Exhibit 4(d) to the Registration Statement on
Form S-3, filed by Harsco Corporation on August 23,
1991 (Reg. No. 33-42389))
4(h) (ii)
First Supplemental Indenture, dated as of April 12, 1995,
Exhibit to Form 8-K dated September 8, 2003
by and among Harsco Corporation, The Chase
Manhattan Bank (National Association), as resigning
trustee, and Chemical Bank, as successor trustee
4(h) (iii)
Form of Second Supplemental Indenture, by and between
Exhibit to Form 8-K dated September 8, 2003
Harsco Corporation and JPMorgan Chase Bank, as
Trustee
4(h) (iv)
Second Supplemental Indenture, dated as of
Exhibit to 10-Q for the period ended
September 12, 2003, by and between Harsco
Corporation and J.P. Morgan Chase Bank, as Trustee
September 30, 2003
HARSCO CORPORATION 2003 ANNUAL REPORT 93
Exhibit
Number
Data Required
Location in 10-K
4(i) (i)
Form of 5.125% Global Senior Note due September 15,
Exhibit to Form 8-K dated September 8, 2003
2013
4(i) (ii)
5.125% 2003 Notes due September 15, 2013 described in
Prospectus Supplement dated September 8, 2003 to
Form S-3 Registration under Rule 415 dated
December 15, 1994
Incorporated by reference to the Prospectus
Supplement dated September 8, 2003 to
Form S-3, Registration No. 33-56885 dated
December 15, 1994
Material Contracts - Credit and Underwriting Agreements
10(a) (i)
$50,000,000 Facility agreement dated December 15, 2000 Exhibit volume, 2000 10-K
10(a) (ii)
Agreement extending term of $50,000,000 Facility
Exhibit volume, 2001 10-K
agreement dated December 15, 2000
10(a) (iii)
Agreement amending term and amount of $50,000,000
Exhibit volume, 2002 10-K
Facility agreement dated December 15, 2000
10(a) (iv)
Agreement extending term of $50,000,000 Facility
Exhibit volume, 2003 10-K
agreement dated December 15, 2000
10(b)
Commercial Paper Dealer Agreement dated September 24,
2003, between ING Belgium SA/NV and Harsco Finance
B.V.
Exhibit volume, 2003 10-K
10(c)
Commercial Paper Payment Agency Agreement Dated
Exhibit volume, 2000 10-K
October 1, 2000, Between Salomon Smith Barney Inc.
and Harsco Corporation
10(e)
Issuing and Paying Agency Agreement, Dated October 12,
Exhibit volume, 1994 10-K
1994, Between Morgan Guaranty Trust Company of
New York and Harsco Corporation
10(g)
364-Day Credit Agreement
10(h) (i)
Five Year Credit Agreement
Exhibit to 10-Q for the period ended
September 30, 2003
Exhibit to 10-Q for the period ended
September 30, 2000
10(h) (ii)
Amendment No. 1 dated as of September 27, 2002, to the
Five-Year Credit Agreement dated as of September 29,
2000
Exhibit to 10-Q for the period ended
September 30, 2003
10(h) (iii)
Amendment No. 2 dated as of August 15, 2003, to the Five
Year Credit Agreement dated as of September 29, 2000
Exhibit to 10-Q for the period ended
September 30, 2003
94 HARSCO CORPORATION 2003 ANNUAL REPORT
Exhibit
Number
10(i)
Data Required
Location in 10-K
Commercial Paper Dealer Agreement dated June 7, 2001,
between Citibank International plc, National Westminster
Bank plc, The Royal Bank of Scotland plc and Harsco
Finance B.V.
Exhibit to 10-Q for the period ended
June 30, 2001
10(j)
Commercial Paper Placement Agency Agreement dated
November 6, 1998, between Chase Securities, Inc. and
Harsco Corporation
Exhibit volume, 1998 10-K
10(w)
Commercial Paper Placement Agency Agreement dated
Exhibit volume, 2002 10-K
April 12, 2002, between Credit Suisse First Boston Corp.
and Harsco Corporation
Material Contracts - Management Contracts and Compensatory Plans
10(k)
Harsco Corporation Supplemental Retirement Benefit Plan
Exhibit volume, 2002 10-K
as amended October 4, 2002
10(l)
Trust Agreement between Harsco Corporation and
Exhibit volume, 1987 10-K
Dauphin Deposit Bank and Trust Company dated July 1,
1987 relating to the Supplemental Retirement Benefit
Plan
10(m)
Harsco Corporation Supplemental Executive Retirement
Exhibit volume, 1991 10-K
Plan as amended
10(n)
Trust Agreement between Harsco Corporation and
Dauphin Deposit Bank and Trust Company dated
November 22, 1988 relating to the Supplemental
Executive Retirement Plan
Exhibit volume, 1988 10-K
10(o) (i)
1995 Executive Incentive Compensation Plan
Proxy Statement dated March 22, 1995 on
Exhibit A pages A-1 through A-12
10(o) (ii)
Amendment to 1995 Incentive Compensation Plan
Proxy Statement dated March 23, 1998 on
page 23
10(o) (iii)
Amendment to 1995 Incentive Compensation Plan
Proxy Statement dated March 21, 2001 on
page 26
10(p)
Authorization, Terms and Conditions of the Annual
Exhibit volume, 2001 10-K
Incentive Awards, as amended and Restated November
15, 2001, under the 1995 Executive Incentive
Compensation Plan
10(u)
Harsco Corporation Deferred Compensation Plan for Non-
Exhibit volume, 2002 10-K
Employee Directors, as amended and restated
November 19, 2002
HARSCO CORPORATION 2003 ANNUAL REPORT 95
Exhibit
Number
Data Required
Location in 10-K
10(v)
Harsco Corporation 1995 Non-Employee Directors' Stock
Proxy Statement dated March 22, 1995 on
Plan
Exhibit B pages B-1 through B-6
10(x)
Settlement and Consulting Agreement
Exhibit to 10-Q for the period ended March 31,
2003
Employment Agreements -
10(q)
D. C. Hathaway
Exhibit volume, 1989 10-K Uniform
agreement, the same as shown for
J. J. Burdge
"
G. D. H. Butler
" "
"
"
S. D. Fazzolari
R. W. Kaplan
" "
" "
10(r)
Special Supplemental Retirement Benefit Agreement for
Exhibit Volume, 1988 10-K
Exhibit volume, 1989 10-K Uniform
agreement, same as shown for J. J. Burdge
" "
" "
" "
" "
" "
" "
D. C. Hathaway
Director Indemnity Agreements -
10(t)
A. J. Sordoni, III
R. C. Wilburn
J. I. Scheiner
C. F. Scanlan
J. J. Jasinowski
J. P. Viviano
D. H. Pierce
"
"
"
"
"
"
12
21
23
Computation of Ratios of Earnings to Fixed Charges
Exhibit volume, 2003 10-K
Subsidiaries of the Registrant
Exhibit volume, 2003 10-K
Consent of Independent Accountants
Exhibit volume, 2003 10-K
31(a)
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit volume, 2003 10-K
96 HARSCO CORPORATION 2003 ANNUAL REPORT
Exhibit
Number
31(b)
Data Required
Location in 10-K
Certification Pursuant to Rule 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit volume, 2003 10-K
32(a)
Certification Pursuant to 18 U.S.C. Section 1350, as
Exhibit volume, 2003 10-K
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
32(b)
Certification Pursuant to 18 U.S.C. Section 1350, as
Exhibit volume, 2003 10-K
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibits other than those listed above are omitted for the reason that they are either not applicable or not material.
The foregoing Exhibits are available from the Secretary of the Company upon receipt of a fee of $10 to cover the
Company's reasonable cost of providing copies of such Exhibits.
(b) Reports on Form 8-K
During the fourth quarter 2003 (and thereafter to the date hereof), the Company furnished to the Commission the following
reports on Form 8-K under Item 12:
(1) A Form 8-K dated October 23, 2003, furnishing a copy of the press release announcing the Company’s third quarter
2003 earnings;
(2) A Form 8-K dated January 29, 2004, furnishing a copy of the press release announcing the Company’s fourth quarter
and full year of 2003 earnings.
HARSCO CORPORATION 2003 ANNUAL REPORT 97
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date 3-11-04
HARSCO CORPORATION
By /S/ Salvatore D. Fazzolari
Salvatore D. Fazzolari
Senior Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
CAPACITY
DATE
Chairman, President and Chief
Executive Officer
Senior Vice President - Operations
and Director
Senior Vice President, Chief
Financial Officer, Treasurer and
Director (Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
3-11-04
3-11-04
3-11-04
3-11-04
3-11-04
3-11-04
3-11-04
3-11-04
3-11-04
3-11-04
3-11-04
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
Derek C. Hathaway
(Derek C. Hathaway)
Geoffrey D. H. Butler
(Geoffrey D. H. Butler)
Salvatore D. Fazzolari
(Salvatore D. Fazzolari)
Stephen J. Schnoor
(Stephen J. Schnoor)
Jerry J. Jasinowski
(Jerry J. Jasinowski)
D. Howard Pierce
(D. Howard Pierce)
Carolyn F. Scanlan
(Carolyn F. Scanlan)
James I. Scheiner
(James I. Scheiner)
Andrew J. Sordoni III
(Andrew J. Sordoni III)
Joseph P. Viviano
(Joseph P. Viviano)
Dr. Robert C. Wilburn
(Dr. Robert C. Wilburn)
98 HARSCO CORPORATION 2003 ANNUAL REPORT
INVESTOR
INFORMATION
COMPANY NEWS
Company information and archived news releases are available
free of charge 24 hours a day, seven days a week via Harsco's
website at www.harsco.com. Harsco's quarterly earnings
conference calls and other significant investor events are posted
when they occur.
DIVIDEND REINVESTMENT PLAN
Harsco stockholders can choose from among three dividend
payment plans. You may receive your dividends through the mail,
have them deposited electronically into your checking or savings
accounts, or reinvest them through Harsco’s Dividend
Reinvestment Plan. All three options are offered free of charge.
Securities analysts, portfolio managers, representatives of
institutional investors and other interested parties seeking
information about the Company should contact:
Eugene M. Truett
Director - Investor Relations, Credit and Specialized Finance
Phone: 717.975.5677
Fax: 717.763.6402
E-mail: etruett@harsco.com
SHARE LISTING
Harsco common shares are listed on the New York
and Pacific Stock Exchanges under ticker symbol
"HSC" and also trade on the Boston and
Philadelphia Exchanges.
COMMUNICATIONS TO STOCKHOLDERS
Notice of the Annual Meeting, the Proxy Statement and Proxy
Card are mailed with the Annual Report in March. Each Form
10-Q quarterly report filed with the Securities and Exchange
Commission (SEC) is available following the close of the first,
second and third quarters. Copies of the reports and other SEC
filings can be obtained free of charge by accessing them via
Harsco’s website at www.harsco.com.
Mail: P.O. Box 3315
REGISTRAR, TRANSFER & DIVIDEND DISBURSING AGENT
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
Inside the United States: 800.851.9677
Outside the United States: 201.329.8660
TDD for hearing impaired: 800.231.5469
TDD outside the United States: 201.329.8354
Website: www.melloninvestor.com
South Hackensack, NJ 07606
Registered stockholders can view current information regarding
their stockholder account online through Investor Service Direct
at https://vault.mellon-investor.com/isd/. Each investor’s account
is password-protected and available 24 hours a day, seven days
a week.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2001 Market Street
Philadelphia, PA 19103
ANNUAL MEETING
April 27, 2004, 10:00 am
Radisson Penn Harris Hotel & Convention Center
1150 Camp Hill Bypass
Camp Hill, PA 17011
The Dividend Reinvestment Plan provides stockholders with a
simple and convenient way to increase your investment in Harsco
without paying brokerage or service fees. In addition to the
automatic reinvestment of dividends, the Plan allows for
additional cash investments as often as once a month. The
minimum cash investment is $10.00 per month. There are no
limitations on the maximum amount. For further information,
contact Mellon Investor Services LLC at the address to the left.
QUARTERLY SHARE PRICE AND DIVIDEND INFORMATION
Market Price Per Share
High
Low
Dividends Declared
Per Share
2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2002
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$32.60
36.88
39.49
44.39
$39.76
44.48
38.39
32.28
$ 27.50
30.30
35.14
37.06
$ 32.00
34.32
25.75
24.20
$.2625
.2625
.2625
.2750
$.25
.25
.25
.2625
High and low per share data are as quoted on the New York
Stock Exchange.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN
Harsco Corporation
S&P MidCap 400 Index
Dow Jones Industrial-Diversified
200
180
160
140
120
100
80
60
40
1998
1999
2000
2001
2002
2003
STOCKHOLDER INQUIRIES
Questions concerning transfer requirements, lost certificates,
dividends, duplicate mailings, change of address, or
other stockholder matters should be addressed to the
Transfer Agent.
HARSCO CORPORATION
350 Poplar Church Road
Camp Hill, PA 17011 U.S.A.
Tel: 717.763.7064
www.harsco.com
MILL SERVICES
MultiServ
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381400
www.multiservgroup.com
Produced entirely in-house by Harsco Corporation.
Printing by ITP, a subsidiary of Continental Press, Inc.
ACCESS SERVICES
SGB Group
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381300
www.sgb.co.uk
Patent Construction Systems
One Mack Centre Drive
Paramus, NJ 07652 U.S.A.
Tel: 201.261.5600
www.pcshd.com
GAS AND FLUID CONTROL
Harsco Gas and Fluid Control Group
350 Poplar Church Road
Camp Hill, PA 17011 U.S.A.
Tel: 717.763.5060
www.harscogfc.com
OTHER INFRASTRUCTURE PRODUCTS AND
SERVICES
Harsco Track Technologies
2401 Edmund Road, Box 20
West Columbia, SC 29171-0020 U.S.A.
Tel: 803.822.9160
www.harscotrack.com
IKG Industries
1514 S. Sheldon Road
Channelview, TX 77530 U.S.A.
Tel: 281.452.6637
www.ikgindustries.com
Patterson-Kelley
100 Burson Street
East Stroudsburg, PA 18301 U.S.A.
Tel: 570.421.7500
www.patkelco.com
Reed Minerals
4718 Old Gettysburg Road
Mechanicsburg, PA 17055 U.S.A.
Tel: 717.763.4200
www.reedminerals.com