2004 ANNUAL REPORT
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2004 Annual Report
Record Revenues
Record Earnings
Record Cash Flows
2004 Revenues
(Dollars in millions)
Record Dividends
Improving EVA®
No Ordinary Industrial Services Company
Contents
Financial Highlights
Report to Stockholders
Mill Services
Access Services
Engineered Products & Services
Gas Technologies
Corporate Governance
Directors and Officers
Principal Offices
Glossary of Financial Terms
Form 10-K Annual Report
Investor Information
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109
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 Form
10-K Annual Report, page 25 for further information.
Mill Services - $997.4; 40%
Access Services - $706.5; 28%
Engineered Products
& Services - $459.1; 18%
Gas Technologies - $339.1; 14%
2004 Revenue Sources
United States - 42%
Europe - 41%
Latin America - 5%
Asia-Pacific - 5%
Middle East - 3%
Other - 4%
Financial Highlights
Dollars in thousands, except per share amounts
2004
2003
2002
Operating Information
Total revenues from continuing operations
Operating income from continuing operations
Net income
$ 2,502,059
209,849
121,211
$2,118,516
173,892
92,217
$1,976,732
175,971
90,106
Ratios(1)
Current ratio
Return on average capital
Return on average equity
Return on average assets
Debt to total capitalization
Per Share
Diluted earnings
Diluted earnings from continuing operations
Book value
Cash dividends declared
Other Information
1.6:1
9.8%
13.8%
9.4%
40.6%
$ 2.91
2.73
22.07
1.125
1.5:1
8.5%
12.2%
8.5%
44.1%
1.5:1
8.3%
12.6%
8.7%
49.8%
$ 2.25
2.12
19.01
$ 2.21
2.17
15.90
1.0625
1.0125
Diluted average shares outstanding (in thousands)
Number of employees
41,598
18,500
40,973
17,500
40,680
17,500
(1) Ratios are based on continuing operations.
Total Revenues
(Dollars in millions)
Operating Income
(Dollars in millions)
Diluted Earnings
Per Share
(In dollars)
Year-end Market
Price of Stock
(In dollars)
Cash Dividends
Declared Per Share
(In dollars)
2,502
209.8
2.91
2,119
1,977
176.0 173.9
2.21 2.25
55.74
43.82
1.13
1.06
31.89
1.01
02
03
04
02
03
04
02
03
04
02
03
04
02
03
04
International
U.S.
International
U.S.
HARSCO CORPORATION 2004 ANNUAL REPORT
1
Report to Stockholders
Harsco's 2004 financial performance provides continuing evidence of the Company's
successful transformation to a global industrial services corporation.
Worldwide sales from continuing operations exceeded $2.5 billion, our second consecutive
year of record sales and an increase of 18 percent over 2003. Results were particularly strong
from international operations, led by solid Divisional results from our two largest global
business sectors, Mill Services and Access Services. The broad international scope of these
businesses is reflected in the positive exchange rate contribution of
international currencies in translation to the U.S. dollar, which added
approximately $109 million to the year's sales.
CONSISTENT WITH HARSCO'S
Income from continuing operations was a record $113.5 million, or $2.73
per diluted share, an increase of approximately 30 percent over the
preceding year. Including discontinued operations, full year 2004 net
income was $121.2 million or $2.91 per diluted share, compared with net
income of $92.2 million or $2.25 per diluted share in 2003, an increase of
approximately 31 percent. Net cash provided by operating activities was
$270 million, compared with $263 million in 2003.
TRADITION, WE WILL
CONTINUE TO EXECUTE OUR
PLANS AND STRATEGIES IN A
PRUDENT AND FINANCIALLY
SOUND MANNER.
The overall outlook for each of our businesses is encouraging. Supported by
our strong cash flows, we will be making further investments to accelerate
our industrial services growth, particularly in our Mill Services business where
we see increasing opportunities for additional contract services and expanded relationships, in
parallel with the ongoing consolidation of the world's major steel industry companies. Our
plans also include support to our manufactured products operations with the appropriate
amount of capital to ensure that these businesses remain modern and competitive, and
continue to contribute to Harsco's steady and strategic growth. Our substantial cash flows
allow us a considerable degree of financial flexibility, and we will continue to give careful
consideration to the many opportunities that become available to strengthen Harsco's value
creation for our stockholders. With the proper and appropriate execution of our objectives
and strategies by our experienced global management team, Harsco is well-prepared to
sustain a consistent stream of revenues, earnings, cash flows and dividends.
We will be focusing a considerable amount of our attention this year to improving the operat-
ing margins of each of our business units. Our Six Sigma and Economic Value Added (EVA®)
disciplines are providing meaningful insight and improvement to our operating processes and
capital investment. We will continue to give consideration to sensible, bolt-on acquisitions to
enhance our industrial services growth, recognizing that any such acquisition must be consis-
tent with our EVA improvement culture and must give us a meaningful strategic advantage.
Consistent with Harsco's tradition, we will continue to execute our plans and strategies in a
prudent and financially sound manner, preferring sustainable long-term growth and profitabil-
ity over transient, short-term gain. We are able to evaluate our opportunities with insight,
we plan with foresight, and we execute with the appropriate oversight.
2
HARSCO CORPORATION 2004 ANNUAL REPORT
I made the following exhortation to all of Harsco's worldwide employees in our most recent
Company newsletter. "Once upon a time, I was invited to meet with the Chairman of one of
the world's largest steel companies. He asked me to bring along my senior management
team. The conversation over dinner was warm and friendly. At the end of the meal, he said,
'I'd now like to address with you the purpose of my invitation.' Expecting a continuation of
the evening's cordial tone, I was, to say the least, shocked when he continued, 'You have
been a supplier for about 50 years. Of late you have been a very bad supplier, and I am firing
you from one of our plants.' Looking across the table, he then wagged his finger at me and
said, 'I have one message for you, young man. Beware the complacency of incumbency.'
Fortunately, we heeded that wakeup call, and today they remain one of Harsco's largest cus-
tomers. That indictment, however, has been indelibly impressed on my mind ever since. In
fact, in my now 39 years in business, I would rank it as being one of the best pieces of advice
that anyone has ever given to me. I think it's true of any relationship situation. When we
become complacent and think everything is going OK, it is very easy to lose one's focus and
fall into mediocrity. Complacency breeds self-satisfaction and indifference. It is also the same
in business. When we become complacent about our customers, complacent about our sup-
pliers, or perhaps more directly, complacent about the job we have, we tend to lose our com-
petitive edge, and the results are inevitably unpleasant. It is not a good thing to feel 'secure.'
We have just completed a very good year, one in which Harsco has set several new records
for performance. We all can, and should, take a substantial measure of pride and satisfaction
from these accomplishments. Harsco's transformation journey has required a considerable
degree of patience as we have rebuilt the company brick by brick. I believe that patience is
now being rewarded.
Moreover, we have many opportunities to further grow this Company, and with the proper
and appropriate execution of our strategies, I believe we will. Harsco has a bright future, and
it is my opinion that our best is yet to come. We all need to be mindful, however, that the
best can only come if we do not allow ourselves to become complacent along the way.
I intend to enjoy 2005, take a look at what I'm about, and seek new ways of refreshing my
attitudes, applying my energy and creativity. Less defense, more offense. Less personal
administration, more action. I will continue to do. . . not just to say. How about you?"
The current business "environment" is very demanding, and on behalf of the stockholders
and Board of Directors, I thank our Harsco colleagues around the world for their value-
creating endeavors and success.
Derek C. Hathaway
Chairman, President and Chief Executive Officer
March 10, 2005
HARSCO CORPORATION 2004 ANNUAL REPORT
3
Mill Services
O ur Mill Services segment led all
operations with record sales of just
under $1 billion, more than 20 percent
above 2003.
The growing momentum of this business
reflects not only higher steel production levels
but also our continuing success in capturing
increased contract responsibilities at mill sites
worldwide. At year-end 2004, the estimated
future value of our global mill services
contracts totaled $3.7 billion, the highest
level in the Company's history. Contract
renewal rates continue to exceed 95 percent,
giving long-term stability and predictability to
our financial performance and a solid base
for future growth.
We plan to continue to invest heavily to
further accelerate the already strong growth
momentum of this sector. Our outlay of
capital is not made until contracts for new
services are in place, thus giving an assured
revenue stream to our investments. We
believe there is still considerable outsourcing
potential that remains untapped, particularly
as the leading players within the steel
industry continue to consolidate and
expand their reliance on service outsourcing
for its competitive advantages in specialized
expertise and capital relief. We will also
continue to selectively assess opportunities to
expand our existing presence in such
emerging outsourcing markets as China and
Eastern Europe.
In parallel with our leading steel industry
customers, we have consolidated MultiServ's
vast mill services knowledge and experience
into a single worldwide organization. The
unified MultiServ name reflects a total
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HARSCO CORPORATION 2004 ANNUAL REPORT
commitment and focus at all levels and
all geographic locations. We will maintain
our vigorous concentration on costs,
underpinned by our successful Six Sigma
process improvement and Economic Value
Added disciplines. As a single global team,
we expect MultiServ to become even
stronger and more competitive in support
of its customers.
The world’s leading steel
and metals producers rely
on MultiServ’s modern
resources and expertise for
value-enhancing process
efficiency. Mark Thackeray,
a Project Engineer in the
Europe North Region, is
pictured in front of a new
MultiServ metal recovery
plant, designed to recover
steel scrap for re-use by the
mill.
In France, MultiServ's Aurelie Simonis and Yamina
Kacznarek package Arcelor's finished steel coils for
delivery to the end-user customer.
MultiServ operates within its
customers’ sites, providing
services and equipment
managed and operated by
our own highly-trained
people.
Access Services
S olid performance from international
operations underscored the global
breadth of our Access Services business.
Sales increased by more than 14 percent
despite continuing softness in the North
American non-residential construction
market.
The year's strong results were led in part by
increased performance from our concrete
forming and shoring sector, where Harsco's
rental equipment is used to support the
construction of large concrete decks, floors
and walls. High activity levels were achieved
in the robust Middle Eastern construction
market, including the major expansion of the
Dubai International Airport in the United
Arab Emirates, as well as several UK and
European projects. We also increased our
strategic footholds in Australia and Eastern
Europe, two expanding markets with solid
mid- to long-term opportunities for growth.
Our targeted investments in these markets
provide a springboard to further growth of
our access contracting and equipment rental
capabilities to local and regional customers.
Harsco's worldwide Access Services business,
which comprises the internationally-based
SGB Group division and the North American-
based Patent Construction Systems division,
leads the industry as the world's largest
specialized access equipment rental and
services organization.
Our continuing focus on Six Sigma
operational excellence throughout all
locations also contributed to 2004's improved
results, and will remain a top management
priority as its full implementation continues.
Lightweight yet structurally strong, the
GASS aluminum shoring system provides
heavy-duty support during construction of
a new energy facility.
SGB has supplied scaffolding for the
construction of the UK's new Spinnaker
Tower in Portsmouth. When complete,
this dramatic 170-meter tall landmark
will provide spectacular views of the
English Channel and surrounding area.
Other successful initiatives include
Patent's Power Alliance, a cross-branch
strategy to pool equipment resources and
expertise in support of the recurring plant
maintenance schedules of major power
companies. Increased collaboration
between SGB and Patent is also
underway, enabling the two organizations
to share management best practices and
state-of-the-art equipment advancements,
and execute comprehensive strategies that
target customers and markets having the
greatest potential for long-term growth.
Harsco's acquisition of
additional Mast Climbing
Work Platforms provides
customers a time-saving
alternative to traditional
scaffolding for certain
project requirements.
HARSCO CORPORATION 2004 ANNUAL REPORT
5
Engineered Products
& Services
Higher production from our Harsco Track
Technologies railway track maintenance
division underpinned a 21 percent increase in
sales for the Engineered Products and
Services ("All Other") business group
compared with the prior year. HTT finished
2004 with a record level of equipment
deliveries, principally to its growing
international customer base. The division
continues to make strategically important
inroads into China, the UK, India, and
elsewhere, gaining increased visibility and
market presence through its operator services
and equipment. These major international
markets include some of the world's most
densely-used rail systems, meaning that little
time is available for the track to be shut
down for maintenance. Opportunities for
HTT's highly efficient, cost-saving track
maintenance machines should continue to
grow as our equipment and services
demonstrate their value on an international
scale. Improving demand is also being seen
in HTT's traditional North American markets,
where the major railroads have begun to
execute selective investments in long-term
track maintenance and repair services
following the return to more favorable
economic conditions and increased rail traffic.
Reed Minerals, a leading producer of roofing
granules and slag abrasives, continued to
post strong results, led by its role as a
supplier to manufacturers serving the fast-
growing U.S. market for laminated roofing
shingles. These aesthetically-pleasing,
architectural-style shingles use 30 percent
more roofing granules than traditional
shingles. The division operated at record
levels during 2004.
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HARSCO CORPORATION 2004 ANNUAL REPORT
Built and operated
by Harsco Track
Technologies, this
12-unit, 120 stone
rail grinding train is
providing preventive
track maintenance
services under
contract throughout
one of North
America’s most
heavily-used rail
traffic corridors.
The IKG Industries industrial grating products
business successfully maintained its return to
solid profitability and continues to make
additional operating improvements to further
enhance results. New product introductions
in Patterson-Kelley's line of commercial gas-
fired boilers is giving that division a solid
presence in the growing market for high-
efficiency boiler units, while Air-X-Changers
expects improving results from its air-cooled
heat exchangers, based on increasing
demand for natural gas and expected
stabilization in the cost of steel, its primary
fabrication material.
Harsco’s successful expansion into international
markets is reflected in these new units for the Eichholz
Group, one of Germany’s largest railway track
maintenance and new track construction companies.
Operating improvements
at IKG Industries are
reinforcing the division's
leadership in industrial
grating products.
Gas Technologies
S ignaling the long-awaited turnaround to
more familiar market levels following the
dismal industrial manufacturing slump of the
past several years, the Gas Technologies
business completed 2004 with a 66 percent
increase in backlogs (its highest level since
2000), a 23 percent increase in new orders,
and a 15 percent increase in sales over 2003.
Leading the way was the international
cryogenic container business, particularly in
Asia, together with improved results from the
propane tank and high-pressure gas cylinder
businesses.
Harsco has seized the emerging market
recovery to strengthen its competitive
position and enhance future operating
results. The new Harsco GasServ market
identity, unveiled mid-year, marks the group's
fundamental departure from a traditional
manufacturing concentration towards a
broader "total gas applications" focus. One
example is our new Total Solution Selling
strategy, which builds on Taylor-Wharton's
long-standing market leadership in cryogenic
gas containment hardware to now offer the
ability to design and supply entire cryogenic
systems. End-user customers gain the
convenience and confidence of one-stop
shopping from one of the most respected
names in the business. Innovative new
product introductions in valves and
lightweight composite cylinders are expected
to reinforce our competitive leadership by
delivering substantial benefits over existing
equipment. The relocated European
manufacturing operations in Kosice, Slovakia
continue to validate their cost-effectiveness,
having assumed full European production for
the group's cryogenic bulk storage tanks.
Upgraded with additional
operating features, Taylor-
Wharton’s modern laboratory
freezers and dewars provide
reliable, long-term cryogenic
storage for laboratory and
scientific research.
Of continuing interest throughout Harsco
GasServ is the emerging alternate fuel
technologies market, where the demand for
environmentally-friendly natural gas and
hydrogen-fueled vehicles __ and the
composite CNG cylinders and cryogenic
LNG tanks that support them __ has the
potential to grow faster than the general
economy, spurred on by global clean air
requirements and rapidly advancing
"altfuels" technology.
The new DURA-LITE
composite SCBA
cylinder from
Structural Composites
Industries has been
awarded regulatory
approval for its
revolutionary non-
limited life design.
New home construction in
outlying areas relies increasingly
on American Welding & Tank’s
market-leading tanks for
propane gas service.
HARSCO CORPORATION 2004 ANNUAL REPORT
7
Corporate Governance
H arsco Corporation believes that high standards of
integrity are the essence of the Company's busi-
ness conduct. To succeed, we must have public confi-
dence and support. Every director, officer and employ-
ee of Harsco is expected to embrace the values of
integrity and honesty in every aspect of their duties.
This section summarizes several key principles within
Harsco's Corporate Governance policies and practices.
A more extensive discussion can be found on the
Harsco website at www.harsco.com under the
Corporate Governance section.
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 program
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. Printed copies can be obtained by contacting
the Harsco corporate office.
Internal Control Framework
Harsco's internal control system is built on a founda-
tion of practices and procedures that promote fraud
prevention, fraud detection, and timely and accurate
financial reporting. 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 component of a well-managed organization.
The Harsco Internal Control Framework is distributed
in multiple languages to all employees with manage-
ment or administrative responsibilities. The full text of
Harsco's Internal Control Framework is available on
the Harsco website at www.harsco.com under the
Corporate Governance section.
8
HARSCO CORPORATION 2004 ANNUAL REPORT
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 operations, finance, marketing and man-
agement, 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 man-
agement of the Company. Specifically, this includes,
but is not limited to:
(cid:122) Overseeing the conduct of the Company's business
to assure 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 objec-
tives, plans, strategies and actions;
(cid:122) Assisting management in the oversight of compli-
ance by the Company with applicable laws and reg-
ulations, including in connection with public report-
ing obligations of the Company;
(cid:122) Overseeing management with a goal of ensuring
that the assets of the Company are safeguarded
through the maintenance of appropriate account-
ing, financial, and other controls;
(cid:122) Regularly evaluating the performance and approving
the compensation of the Chief Executive Officer,
and in consultation with the Chief Executive Officer,
also reviewing the performance of the other mem-
bers 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 effec-
tiveness of the Board, by recommending appropriate
candidates for membership, by establishing appro-
priate 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 busi-
ness 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 vari-
ations between eight and twelve being appropriate
from time to time depending upon circumstances.
Harsco's Board currently comprises eleven members.
Qualities of a Director
In evaluating the suitability of individual Board mem-
bers, the Board takes into account many factors,
including strength of character, mature judgment,
business experience, availability, attendance, career
specialization and relevant 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 & Compensation; and Nominating and
Corporate Governance. The Board may establish other
committees from time to time as circumstances dic-
tate.
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 char-
ter 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 independence of all non-employee directors.
The members of the Audit; Management Development
& Compensation; and Nominating and Corporate
Governance Committees are composed of only mem-
bers 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 cur-
rently. The Lead Director will be an independent direc-
tor 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 independent directors, chairing
such sessions, and communicating the result of such
meetings to the Chairman and other members of
management, as appropriate.
Executive Sessions
The independent directors will meet, without manage-
ment present, on such occasions as they deem appro-
priate in connection with the regularly scheduled
Board meetings. Specifically, the independent direc-
tors shall meet annually to review the performance of
the Chief Executive Officer of the Company. The
Board will designate two or more independent direc-
tors, including the Lead Director, to review the conclu-
sions of the performance evaluation with the Chief
Executive Officer.
Board Compensation
The Chairman and Secretary annually formulate and
present to the Management Development &
Compensation Committee for its consideration a rec-
ommendation on director compensation based upon
industry surveys and other relevant information. The
Committee will then make its recommendation to the
Board. Directors are not compensated for services to
the Company beyond normal director 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, investment banks and the like.
Stockholding Minimums
While the Board encourages directors to be investors
in the Corporation, the Board believes it is not appro-
priate to prescribe a minimum level of stock owner-
ship. The Board believes that the quality of a direc-
tor's contribution is not directly correlated to his or her
personal share ownership.
HARSCO CORPORATION 2004 ANNUAL REPORT
9
Directors & Officers
Directors
Derek C. Hathaway
Andrew J. Sordoni, III
Corporate Officers
Derek C. Hathaway
Chairman, President and CEO
Harsco Corporation
Director since 1991
Chairman
Sordoni Construction Services, Inc.
Director since 1988
Chairman, President and CEO
Salvatore D. Fazzolari
Senior Vice President, CFO and
Geoffrey D. H. Butler
Joseph P. Viviano
Senior Vice President - Operations
Harsco Corporation
Director since 2002
Retired Vice Chairman
Hershey Foods Corporation
Director since 1999
Kathy G. Eddy
Dr. Robert C. Wilburn
Certified Public Accountant and
Founding Partner
President
Gettysburg National Battlefield
McDonough, Eddy, Parsons &
Museum Foundation
Baylous, AC
Director since 2004
Director since 1986
Currently serves as Lead Director
Salvatore D. Fazzolari
Senior Vice President, CFO and
Treasurer
Harsco Corporation
Director since 2002
Jerry J. Jasinowski
President
The Manufacturing Institute
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
Committees of the Board
Executive Committee
Derek C. Hathaway, Chairman
James I. Scheiner
Andrew J. Sordoni, III
Dr. Robert C. Wilburn
Audit Committee
James I. Scheiner, Chairman
Kathy G. Eddy
D. Howard Pierce
Carolyn F. Scanlan
Joseph P. Viviano
Management Development &
Compensation Committee
Dr. Robert C. Wilburn, Chairman
Jerry J. Jasinowski
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
Treasurer
Geoffrey D. H. Butler
Senior Vice President - Operations
Ronald W. Kaplan
Vice President
Mark E. Kimmel
General Counsel and Corporate
Secretary
Stephen J. Schnoor
Vice President and Controller
Eugene M. Truett
Vice President - Investor Relations
and Credit
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 GasServ
Richard C. Neuffer
Vice President and General Manager
Air-X-Changers, IKG Industries and
Patterson-Kelley
G. Robert Newman
President
Harsco Track Technologies
Robert S. Safier
Executive VP and General Manager
Patent Construction Systems
Brian H. Tucker
President
Reed Minerals
10
HARSCO CORPORATION 2004 ANNUAL REPORT
Principal Offices
(As of March 10, 2005)
HARSCO CORPORATION
350 Poplar Church Road
P.O. Box 8888
Camp Hill, PA 17001-8888 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
United States
MultiServ North America
8050 Rowan Road, Suite 600
Cranberry Twp., PA 16066 U.S.A.
Tel: 724-741-6600
Europe
MultiServ Europe North
MultiServ House
Bradmarsh Way
Rotherham, S Yorks S60 1BF
United Kingdom
Tel: 44.1709.536800
MultiServ Europe South
Route de Vitry
57270 Uckange, France
Tel: 33.3.82.57.40.00
South Africa
MultiServ South Africa (Pty) Ltd
P.O. Box 1258
Alberton 1450, South Africa
Tel: 27.11.862.8600
Australia
MultiServ Holdings Pty Ltd
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 Recuperacao de Metais Ltda
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, Slovakia
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: 971.6.533.4870
Asia
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: 65.6862.6122
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
Engineered Products
& 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 Pty. Ltd.
Chewton Street, Eastwood
Nottingham NG16 3HB
United Kingdom
Tel: 44.1773.539.481
Australia
Harsco Track Technologies Pty. Ltd.
4 Strathwyn St.
Strathpine, Queensland 4500
Australia
Tel: 61.7.3205.6500
Air-X-Changers
5215 Arkansas Road
Port of Catoosa, OK 74015 U.S.A.
Tel: 918.384.5000
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
Gas Technologies
Harsco GasServ
4718 Old Gettysburg Road
Mechanicsburg, PA 17055 U.S.A.
Tel: 717.763.5060
United States
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
Tel: 421.55.673.8533
Asia
Taylor-Wharton (Beijing) Cryogenic
Equipment Co., Ltd.
25 Banbidian Street
Beijing, Tongzhou District, P.R.C. 101101
Tel: 86.10.8156.4939
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
HARSCO CORPORATION 2004 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 stockholders 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 stockholders. 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 stockholders' 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 2004 ANNUAL REPORT
Form 10-K
For the fiscal year ended December 31, 2004
Table of Contents
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Supplementary Item Executive Officers of the 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.
Item 9B.
Part III.
Item 10.
Item 11.
Item 12.
Item 13
Item 14.
Part IV.
Item 15.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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
Other Information
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Signatures
Page
15
20
21
21
22
23
24
24
49
55
98
98
98
99
99
99
100
100
101
108
HARSCO CORPORATION 2004 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, 2004
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)
23-1483991
(I.R.S. employer identification number)
350 Poplar Church Road, Camp Hill, Pennsylvania
(Address of principal executive offices)
17011
(Zip Code)
Registrant's telephone number, including area code 717-763-7064
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $1.25 per share
Preferred stock purchase rights
Securities registered pursuant to Section 12(g) of the Act: NONE
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, 2004 was
$1,933,614,169.
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 28, 2005
41,503,990
Selected portions of the 2005 Proxy Statement are incorporated by reference into Part III of this Report.
DOCUMENTS INCORPORATED BY REFERENCE
The Exhibit Index (Item No. 15) located on pages 103 to 107 incorporates several documents by reference as indicated therein.
14 HARSCO CORPORATION 2004 ANNUAL REPORT
HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I
Item 1. Business
(a) General Development 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 Technologies, plus an “all other” category labeled Engineered Products and Services. The Company has locations in
42 countries, including the United States. The Company was incorporated in 1956.
The Company’s executive offices are located at 350 Poplar Church Road, Camp Hill, Pennsylvania 17011. The
Company’s main telephone number is (717) 763-7064. The Company’s Internet website address is www.harsco.com.
Through this Internet website (found in the "Investors" 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 or furnished to the Securities and
Exchange Commission. Information contained on the Company’s website is not incorporated by reference into this
Annual Report, and you should not consider information contained on the Company’s website as part of this Annual
Report.
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
• 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 boiler requirements
HARSCO CORPORATION 2004 ANNUAL REPORT 15
Principal Lines of Business
Principal Business Drivers
• Air-cooled heat exchangers
• Natural gas drilling and transmission
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 management changes, effective January 1, 2004, the air-cooled heat exchangers business was
reclassified from the Gas and Fluid Control Segment to the Other Infrastructure Products and Services (“all other”)
Category. In June 2004, the Company announced a new identity for its Gas and Fluid Control Segment and renamed it
Gas Technologies. Additionally, the Other Infrastructure Products and Services (“all other”) Category was renamed the
Engineered Products and Services (“all other”) Category. These segments and the types of products and services offered
are more fully described below. Historical information has been reclassified for comparative purposes.
In 2004, 2003 and 2002, the United States contributed sales of $1.0 billion, $0.9 billion and $0.9 billion, equal to 42%,
43% and 46% of total sales, respectively. In 2004, 2003 and 2002, the United Kingdom contributed sales of $0.5 billion,
$0.5 billion and $0.4 billion, equal to 21% of total sales for each year. No single customer represented 10% or more of the
Company's sales during 2004, 2003 and 2002. There were no significant inter-segment sales.
(b) Financial Information about Segments
Financial information concerning industry segments is included in Note 14, Information by Segment and Geographic Area,
to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data."
(c) Narrative Description of Business
(1) A narrative description of the businesses by reportable segment is as follows:
Mill Services Segment – 40% of consolidated sales for 2004
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 as a specialized, high-value-added services provider, MultiServ rarely trades steel or
scrap, or takes 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 $3.7 billion at December 31, 2004. This provides the Company with a
substantial base of long-term revenues. Approximately 59% of these revenues are expected to be recognized by
December 31, 2007. The remaining revenues are expected to be recognized principally between January 1, 2008
and December 31, 2013.
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. In 2004, this Segment’s revenues were generated in the
following regions:
Mill Services Segment
Region
Continental Europe
United States
United Kingdom
Latin America
Other
2004 Percentage
of Revenues
31%
20%
18%
10%
21%
16 HARSCO CORPORATION 2004 ANNUAL REPORT
For 2004, 2003 and 2002, the Mill Services Segment’s percentage of consolidated sales was 40%, 39% and 35%,
respectively.
Access Services Segment – 28% of consolidated sales for 2004
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 one of the world’s most complete providers of
scaffolding, shoring, forming and other access solutions. The U.K.-based SGB Group Division supports requirements
throughout Europe, the Middle East and the Pacific, while the U.S.-based Patent Construction Systems Division
serves North and South America. 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 in approximately 20 countries of operation. In 2004, this Segment’s
revenues were generated in the following regions:
Access Services Segment
Region
United Kingdom
Continental Europe
United States
Other
2004 Percentage
of Revenues
47%
22%
20%
11%
For 2004, 2003 and 2002, the Access Services Segment’s percentage of consolidated sales was 28%, 29% and 30%,
respectively.
Gas Technologies Segment – 14% of consolidated sales for 2004
The Gas Technologies Segment includes the Company’s Harsco GasServ Division. 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 Harsco GasServ to serve as a
single source to the world’s leading industrial gas producers and distributors, as well as regional and local customers.
In 2004, approximately 87% of this Segment’s revenues were 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.
For 2004, 2003 and 2002, the Gas Technologies Segment’s percentage of consolidated sales was 14%, 14% and
16%, respectively.
Engineered Products and Services (“all other”) Category – 18% of consolidated sales for 2004
The Engineered Products and Services (“all other”) Category includes the Harsco Track Technologies, Reed
Minerals, IKG Industries, Patterson-Kelley and Air-X-Changers Divisions. Approximately 89% of this category’s
revenues originate in the United States.
Export sales for this Category totaled $101.2 million, $71.1 million and $36.2 million in 2004, 2003 and 2002,
respectively. In 2004, export sales for the Harsco Track Technologies Division were $76.3 million which included
sales to China, the United Kingdom, Canada, Germany and India.
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.
HARSCO CORPORATION 2004 ANNUAL REPORT 17
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 configurations, 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.
Air-X-Changers is a leading international supplier of custom-designed and manufactured air-cooled heat exchangers
for the natural gas industry. The Company’s heat exchangers are the primary apparatus used to condition natural gas
during recovery, compression and transportation from underground reserves through the major pipeline distribution
channels.
For 2004, 2003 and 2002, the Engineered Products and Services (“all other”) Category’s percentage of consolidated
sales was 18%, 18% and 19%, 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:
Product Group
Mill Services
Access Services
Industrial Gas Products
Percentage of Consolidated Sales
2003
2002
2004
40%
28%
14%
39%
29%
14%
35%
30%
16%
(1) (ii) New products and services are added from time to time; however, in 2004 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. During 2004, the Company experienced
significant increases in the cost of steel compared with prior years. Continued increases in steel prices and
worldwide demand for steel could have an adverse effect on raw material costs, and the Company’s ability to
obtain the necessary raw materials. If this situation continues long-term and the Company is unable to
recover increased costs through price increases, it could have a material impact on the Company’s financial
position, results of operations and cash flows. Also, 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. Additionally, the Company uses carbon fiber to produce filament-wound
composite cylinders, a product line of the Gas Technologies Segment. This material currently has limited
availability. If this situation continues, it could result in increased costs to the Company. The Company
believes that it will be able to recover increased costs through price increases which would mitigate the
impact on the Company’s financial position, results of operations and cash flows.
(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.
18 HARSCO CORPORATION 2004 ANNUAL REPORT
(1) (v) The Company furnishes products and materials and certain industrial services within the Access Services
and Gas Technologies Segments and the Engineered 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. The Company’s historical revenue patterns
and cash provided by operating activities were as follows:
Historical Revenue Patterns
(In millions)
2004
2003
2002
2001
First Quarter Ended March 31
$ 556.3 $ 487.9 $ 458.6 $ 505.0
Second Quarter Ended June 30
617.6
536.4
510.3
510.1
Third Quarter Ended September 30
617.3
530.2
510.5
510.3
Fourth Quarter Ended December 31
710.9
564.0
497.3
499.7
Historical Cash Provided by Operations
(In millions)
2004
2003
2002
2001
First Quarter Ended March 31
$ 32.4
$ 31.2
$ 9.0
$ 2.6
Second Quarter Ended June 30
64.6
59.2
71.4
65.1
Third Quarter Ended September 30
68.9
64.1
83.3
66.1
Fourth Quarter Ended December 31
104.6
108.4
90.1
106.9
(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 90 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 2002 to
2004 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 adverse effect on quarterly or annual results of operations of the Segment. Further consolidation is
expected in the global steel industry. This could result in additional customers exceeding 10% of revenues
for this Segment.
(1) (viii) Backlog of orders was $243.0 million and $186.2 million as of December 31, 2004 and 2003, respectively. It
is expected that approximately 22% of the total backlog at December 31, 2004 will not be filled during 2005.
The Company’s backlog is seasonal in nature and tends to follow in the same pattern as sales and net
income which is discussed in section (1) (v) above. 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 $3.7
billion at December 31, 2004. For additional information regarding backlog, see the Backlog section
included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
HARSCO CORPORATION 2004 ANNUAL REPORT 19
(1) (ix) At December 31, 2004, the Company had no material contracts that were subject to renegotiation of profits
or termination at the election of the U.S. Government.
(1) (x) The Company encounters active competition in all of its activities from both larger and smaller companies
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 $2.6 million, $3.3 million and $2.8 million in 2004, 2003
and 2002, respectively. For additional information regarding product development activities, see the
Research and Development section included in Part II, Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
(1) (xii) The Company has become subject, 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, 2004, the Company had approximately 18,500 employees.
(d) Financial Information about Geographic Areas
Financial information concerning foreign and domestic operations is included in Note 14, Information by Segment and
Geographic Area, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and
Supplementary Data." Export sales totaled $139.3 million, $108.5 million and $76.6 million in 2004, 2003 and 2002,
respectively.
(e) Available Information
Information is provided in Part I, Item 1 (a), “General Development of Business.”
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 Technologies Segment
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
20 HARSCO CORPORATION 2004 ANNUAL REPORT
Access Equipment Maintenance
Access Equipment Maintenance
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
Location
Principal Products
Engineered Products and Services (“all other”) Category
Drakesboro, Kentucky
Gary, Indiana
Moundsville, West Virginia
Tampa, Florida
Brendale, Australia
Fairmont, Minnesota
Ludington, Michigan
West Columbia, South Carolina
Channelview, Texas
Leeds, Alabama
Nashville, Tennessee
Queretaro, Mexico
East Stroudsburg, Pennsylvania
Catoosa, Oklahoma
Roofing Granules/Abrasives
Roofing Granules/Abrasives
Roofing Granules/Abrasives
Roofing Granules/Abrasives
Railroad Equipment
Railroad Equipment
Railroad Equipment
Railroad Equipment
Industrial Grating Products
Industrial Grating Products
Industrial Grating Products
Industrial Grating Products
Process Equipment
Heat Exchangers
The Company also operates the following plants which are leased:
Location
Principal Products
Access Services Segment
Maldon, United Kingdom
DeLimiet, Netherlands
Gas Technologies Segment
Cleveland, Ohio
Pomona, California
Engineered Products and Services (“all other”) Category
Eastwood, United Kingdom
Tulsa, Oklahoma
Catoosa, Oklahoma
Sapulpa, Oklahoma
Aluminum Access Products
Access Equipment Maintenance
Brass Castings
Composite Cylinders
Railroad Equipment
Industrial Grating Products
Heat Exchangers
Heat Exchangers
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.
HARSCO CORPORATION 2004 ANNUAL REPORT 21
Supplementary Item. Executive Officers of the Registrant (Pursuant to Instruction 3 to
Item 401(b) of Regulation S-K)
Set forth below, as of March 10, 2005, are the executive officers (this excludes two corporate officers who are not deemed
"executive officers" within the meaning of applicable Securities and Exchange Commission regulations) of the Company
and certain information with respect to each of them. The executive officers were elected to their respective offices
effective April 27, 2004. All terms expire on April 26, 2005. There are no family relationships between any of the
executive officers.
Name
Age
Principal Occupation or Employment
Executive Officers:
D. C. Hathaway
60
G. D. H. Butler
58
S. D. Fazzolari
52
M. E. Kimmel
45
S. J. Schnoor
51
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 the Company’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.
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.
22 HARSCO CORPORATION 2004 ANNUAL REPORT
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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 2004, there were 41,431,249 shares outstanding. In 2004,
the Company’s common stock traded in a range of $40.10 to $56.24 and closed at $55.74 at year-end. At December 31,
2004 there were approximately 16,500 stockholders. There are no significant limitations on the payment of dividends
included in the Company’s loan agreements. For additional information regarding Harsco common stock market price and
dividends declared, see Dividend Action under Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and the Common Stock Price and Dividend Information under Part II, Item 8,
"Financial Statements and Supplementary Data.” For additional information on the Company’s equity compensation plans
see Part III, Item 11, “Executive Compensation.”
(c). Issuer Purchases of Equity Securities
Period
January 1, 2004 – January 31, 2004
February 1, 2004 – February 29, 2004
March 1, 2004 – March 31, 2004
April 1, 2004 – April 30, 2004
May 1, 2004 – May 31, 2004
June 1, 2004 – June 30, 2004
July 1, 2004 – July 31, 2004
August 1, 2004 – August 31, 2004
September 1, 2004 – September 30, 2004
October 1, 2004 – October 31, 2004
November 1, 2004 – November 30, 2004
December 1, 2004 – December 31, 2004
Total
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
The Company’s share repurchase program was extended by Board of Directors in November 2004. This was announced
to the public on November 16, 2004 as part of a Company-issued press release. The program authorizes the repurchase
of up to 1,000,000 shares of the Company’s common stock and expires January 31, 2006.
HARSCO CORPORATION 2004 ANNUAL REPORT 23
Item 6. Selected Financial Data (a)
Five-Year Statistical Summary
(In thousands, except per share, employee information and
percentages)
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)
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
Other Information
Diluted average number of shares outstanding
Number of employees
Backlog from continuing operations (f)
2004
2003
2002
2001
2000 (b)
$ 2,502,059
113,540
7,671
121,211
$ 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
$
346,527
2,389,756
594,747
625,809
184,371
204,235
270,465
(209,602)
(56,512)
$
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
4.5%
13.8%
1.6:1
40.6%
2.76
0.19
2.95
2.73
0.18
2.91
22.07
1.125
41,598
18,500
243,006
$
$
$
$
$
$
$
$
$
$
$
$
4.1%
12.2%
1.5:1
44.1%
4.5%
12.6%
1.5:1
49.8%
3.7%
11.1%
1.5:1
52.6%
5.0%
14.4%
1.3:1
55.4%
2.14
0.13
2.27
2.12
0.13
2.25
19.01
1.0625
$
$
$
$
$
2.19
0.04
2.23
2.17
0.04
2.21
15.90
1.0125
$
$
$
$
$
1.87
(0.07)
1.80
1.86
(0.07)
1.79
$
$
$
$
2.36
0.06
2.42
2.36
0.06
2.42
17.16
0.97
$
16.94
0.945
40,973
17,500
186,222
40,680
17,500
157,777
40,066
18,700
$ 214,124
40,022
19,700
$ 256,745
$
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” 2001 and 2000 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 $3.7 billion at December 31, 2004. Also
excludes backlog of the Access Services Segment and the roofing granules and slag abrasives business. These amounts are generally not
quantifiable due to the nature and timing of the products and services provided.
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
24 HARSCO CORPORATION 2004 ANNUAL REPORT
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 expenses;
(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 in 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. A further discussion of these, along with other potential factors can be found in Part II, Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-K. The Company cautions that these
factors may not be exhaustive and that many of these factors are beyond the Company’s ability to control or predict.
Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company
undertakes no duty to update forward-looking statements.
Executive Overview
The Company’s 2004 revenues were a record $2.5 billion. This is an increase of $0.4 billion or 18% over 2003. Income
from continuing operations was a record $113.5 million for 2004 compared with $87.0 million in 2003, an increase of 31%.
Diluted earnings per share from continuing operations were a record $2.73 for 2004, a 29% increase.
The 2004 results were led by the Mill Services Segment. Revenues in 2004 for this Segment were $997.4 million
compared with $827.5 million in 2003, a 21% increase. Operating income for 2004 increased by 23% to $105.5 million,
from $85.9 million in 2003. The Mill Services business accounted for 40% of the Company’s revenues and 50% of the
operating income for 2004. Operating margins for this Segment improved by 20 basis points to 10.6% from 10.4% last
year. Mill Services growth is expected to continue as worldwide steel mill production volume is expected to remain strong
in the near-term, and as the Company invests substantial cash to grow the business.
The Access Services Segment revenues in 2004 were $706.5 million compared with $619.1 million in 2003, a 14%
increase. Operating income for 2004 increased by 19% to $44.4 million, from $37.4 million in 2003. The Access Services
business accounted for 28% of the Company’s revenues and 21% of the operating income. Operating margins for the
Segment improved by 30 basis points to 6.3% from 6.0% last year. The improved performance of the Access Services
Segment was driven by the international operations.
The Gas Technologies Segment revenues in 2004 were $339.1 million compared with $294.0 million in 2003, a 15%
increase. The increased revenues in 2004 were led by the domestic propane business; the cryogenics operations,
particularly Asia; and the domestic cylinders business. Although revenue increased, operating income and operating
margins for 2004 declined in comparison with 2003 due to significant increases in commodity costs, particularly steel.
Operating income was $14.4 million for 2004 compared with $14.5 million for 2003.
All business units of the Engineered Products and Services (“all other”) Category contributed higher revenues in 2004
compared with 2003. The industrial grating business and the roofing granules and abrasives business also contributed
higher operating income compared with 2003. Operating income for the boiler and process equipment business and the
air-cooled heat exchangers business was down slightly in 2004 compared with 2003. The railway track maintenance
services and equipment business delivered record revenues in 2004 through increased international sales, but operating
income was below 2003 due to significant increases in commodity costs.
HARSCO CORPORATION 2004 ANNUAL REPORT 25
The Company’s continued improvement in net income helped drive record net cash provided by operating activities of
$270.5 million in 2004. A significant portion of this cash was reinvested in capital investments to grow and maintain the
business. Total 2004 capital investments of $204.2 million were also a record.
During 2004, the Company received formal notice that the U.S. Government accepted a proposed settlement of the
Federal Excise Tax (FET) case relating to the Company’s former production of U.S. Army five-ton trucks. The Company
recorded pre-tax income of $12.5 million in Discontinued operations as a result of this settlement in the third quarter of
2004 and received payment during the fourth quarter of 2004. Additionally, the Company collected substantially all of its
$6.3 million outstanding receivable balance related to a customer’s previously reported Court-supervised restructuring.
These are more fully discussed in Note 10, Commitments and Contingencies, to the Consolidated Financial Statements
under Part II, Item 8, “Financial Statements and Supplementary Data.”
The positive effect of foreign currency translation increased 2004 consolidated revenues by $108.9 million and pre-tax
income by $5.4 million when compared with 2003.
Revenues by Region
Total Revenues
Twelve Months Ended
December 31
(Dollars in millions)
U.S.
Europe
Latin America
Asia-Pacific
Middle East
Other
Total
2004
$ 1,047.4
1,018.1
122.9
119.7
75.9
118.1
$ 2,502.1
2003
$ 902.4
872.3
100.3
88.1
50.7
104.7
$ 2,118.5
Percentage Growth From
2003 to 2004
Currency
Volume
16.1%
6.4
21.9
28.2
50.4
1.4
13.0%
0.0%
10.3
0.6
7.7
(0.7)
11.4
5.1%
Total
16.1%
16.7
22.5
35.9
49.7
12.8
18.1%
2004 Highlights
The following significant items impacted the Company overall during 2004 in comparison with 2003:
Company Wide:
• Strong worldwide economic activity, including increased steel production, benefited the Company’s Mill Services
Segment and resulted in strong demand for the Company’s products. This included international demand for railway
track maintenance equipment, concrete forming products and cryogenic equipment; and domestic demand for
propane tanks, industrial cylinders, roofing granules and industrial grating products.
• Due to strong worldwide demand, higher commodity and other material costs (particularly steel) increased the
Company’s operating costs during 2004. Included in that increase were higher fuel and energy-related costs. For the
Company’s manufacturing businesses, these increased costs were generally offset by increased revenues during the
first six months of 2004; however, during the second half of 2004, operating income and margins were negatively
impacted by the increased costs, particularly in the Gas Technologies Segment. To the extent that such costs cannot
be passed to customers in the future, operating income may be adversely affected. The Company uses the last-in,
first-out (LIFO) method of inventory valuation for most of its manufacturing businesses. LIFO matches the most
recently incurred costs with current revenues by charging cost of goods sold with the costs of goods most recently
acquired or produced. In periods of rising prices, reported costs under LIFO are generally greater than under the first-
in, first-out (FIFO) method. Based on economic forecasts, cost inflation for certain commodities is expected to
moderate in 2005. However, there can be no assurance that will occur.
• Total pension expense for 2004 increased $6.4 million from 2003. Defined benefit pension expense for 2004
decreased approximately $5.4 million from 2003. During 2004, there were offsetting increases of approximately $9.1
million in defined contribution plan expenses related to the new plans that commenced January 1, 2004. Additionally,
pension expense was increased by the impact of foreign currency translation. During 2003, the Company
restructured its pension plans to make them more predictable and affordable. This is more fully discussed in Note 8,
Employee Benefit Plans, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and
Supplementary Data.”
• A decrease in the effective income tax rate relating to continuing operations, from 30.7% in 2003 to 28.6% in 2004,
resulted in approximately $3.5 million in lower income tax expense for 2004. This is more fully discussed in Note 9,
Income Taxes, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and
Supplementary Data.”
26 HARSCO CORPORATION 2004 ANNUAL REPORT
• During 2004, the Company was favorably affected by pre-tax benefits of $2.2 million from the termination of certain
postretirement benefit plans. This compares with pre-tax benefits of $4.9 million during 2003 for similar plan
terminations.
• Other than the impact on revenues, and included in the impact on pre-tax income effect as discussed previously,
positive foreign currency translation in 2004 resulted in a pre-tax increase to interest expense of approximately $2.7
million compared with 2003.
Mill Services Segment:
(Dollars in millions)
Revenues
Operating income
Operating margin percent
2004
2003
$ 997.4
$ 827.5
105.5
10.6%
85.9
10.4%
Mill Services Segment – Significant Impacts on Revenues:
(In millions)
Revenues – 2003
Increased volume and new business
The benefit of positive foreign currency translation
The acquisition of the industrial services unit of C. J. Langenfelder and Sons, Inc.
in June 2003
Revenues – 2004
$ 827.5
83.1
59.3
27.5
$ 997.4
Mill Services Segment – Significant Impacts on Operating Income:
• Continued strong volume and new business, particularly in Europe and the U.S., increased operating income in
2004 by $17.1 million compared with 2003.
• The benefit of positive foreign currency translation in 2004 resulted in increased operating income of $6.5 million
compared with 2003.
• Compared with 2003, the Segment’s operating income and margins in 2004 were impacted by significantly
increased fuel and energy-related costs.
• The Segment’s operating income and margins for 2004 were also negatively impacted by increased maintenance
and repair costs; higher start-up costs for new contracts; and increased selling, general and administrative costs
(including Sarbanes-Oxley Section 404-related costs). Selling, general and administrative costs increased $11.9
million or 24% (versus a 21% increase in revenues) for 2004 (including approximately $4 million related to foreign
currency translation) compared with 2003.
• During 2003, the Segment was unfavorably impacted by $4.7 million in pre-tax Other expenses. During 2004
(principally the first half), only $1.5 million in similar expenses were incurred. The decrease of $3.2 million related
principally to reduced employee termination benefits costs and costs to exit activities in 2004. This positively
impacted the operating margin on a comparative basis. Other expenses include 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 Segment was favorably affected by pre-tax benefits of $1.9 million from the reversal of bad debt
expense, and $1.4 million from the termination of certain postretirement benefit plans. The reversal of bad debt
expense related to a change in estimate regarding collectibility of certain accounts receivable. No such benefits
occurred in 2004, negatively impacting the operating margin on a comparative basis.
Access Services Segment:
(Dollars in millions)
Revenues
Operating income
Operating margin percent
2004
2003
$ 706.5
$ 619.1
44.4
6.3%
37.4
6.0%
HARSCO CORPORATION 2004 ANNUAL REPORT 27
Access Services Segment – Significant Impacts on Revenues:
(In millions)
Revenues – 2003
The benefit of positive foreign currency translation
Net increased volume driven by the international operations
Acquisitions (principally SGB Raffia in Australia)
Other
Revenues – 2004
$ 619.1
45.4
33.8
8.6
(0.4)
$ 706.5
Access Services Segment – Significant Impacts on Operating Income:
•
In 2004, the Segment was positively affected by the strength of the concrete forming business, particularly in the
Middle East and United Kingdom. Also, margins on the international powered-access equipment rental revenues
improved due to cost restructuring actions implemented during 2003.
• The international access services business continued to increase outside the U.K., predominantly in the Middle
•
East, due to certain large projects during 2004. During 2004, the international operations outside of the U.K. had
$231.5 million in revenues and $29.9 million in operating income. This compares with $178.2 million in revenues
and $20.8 million in operating income for 2003.
In the first six months of 2004, there was a continued slowdown in the U.S. non-residential construction markets.
This slowdown had a negative effect on volume (particularly equipment rental revenues) which caused overall
margins in the U.S. to decline. The third and fourth quarters of 2004 showed initial signs of strengthening of the
non-residential construction market. Equipment rental revenues, particularly in the construction sector, provide
the highest margins for this Segment. The decline in margins in the U.S. was more than offset by improvements
internationally.
• The U.S. was also negatively affected by decreased erection and dismantling labor revenue during 2004. This
decrease was due primarily to delayed industrial maintenance activities, particularly fewer maintenance outages
at power generation plants. The Company expects to see an increase in industrial maintenance activities during
mid-to-late 2005.
• The Segment’s operating income and margins for 2004 were also negatively impacted by increased selling,
general and administrative costs (including increased pension expense and Sarbanes-Oxley Section 404-related
costs).
• During 2003, the Segment was favorably affected by pre-tax income of $2.5 million from the sale of non-core
assets. During 2004, only $1.1 million of similar benefits occurred.
• The benefit of positive foreign currency translation in 2004 for this Segment resulted in increased operating
income of $1.4 million when compared with 2003.
Gas Technologies Segment:
(Dollars in millions)
Revenues
Operating income
Operating margin percent
2004
2003 (a)
$ 339.1
$ 294.0
14.4
4.2%
14.5
4.9%
(a) Segment information for 2003 has been reclassified to conform with the current presentation. Due to
management changes, effective January 1, 2004, the air-cooled heat exchangers business is
classified in the Engineered Products and Services (“all other”) Category.
28 HARSCO CORPORATION 2004 ANNUAL REPORT
Gas Technologies Segment – Significant Impacts on Revenues:
(In millions)
Revenues – 2003
Increased demand for cryogenics equipment and high-pressure cylinders
Increased sales of propane tanks
The benefit of positive foreign currency translation
Decreased demand for certain valves and composite-wrapped cylinders
Other
Revenues – 2004
$ 294.0
28.6
22.4
1.6
(7.2)
(0.3)
$ 339.1
Gas Technologies Segment – Significant Impacts on Operating Income:
• Operating income decreased slightly in 2004 compared with 2003 despite increased revenues, due mainly to
•
increased commodity costs, principally steel.
Increased revenues for propane tanks and high-pressure cylinders were due to increased demand and price
increases, which partially offset increased commodity costs.
• The international cryogenics business, principally Asia, contributed significantly to the increased performance of
the Segment during 2004 when compared with 2003.
• Commodity costs, particularly steel, increased during 2004. During the first six months of 2004, the costs were
generally offset by increased revenues. During the second half of 2004, increased costs resulted in decreased
operating income and margins. To the extent that such costs cannot be passed to customers in the future,
operating income may be adversely affected.
• Decreased demand for certain valves and composite-wrapped cylinders negatively impacted operating income for
2004 compared with 2003. A strategic action plan has been developed to improve the results of the valves
business. This plan is further discussed in the Outlook, Trends and Strategies section.
In 2004, foreign currency translation did not have a material impact on operating income for this Segment when
compared with 2003.
•
Engineered Products and Services (“all other”) Category:
(Dollars in millions)
Revenues
Operating income
Operating margin percent
2004
2003 (a)
$ 459.1
$ 377.9
47.0
10.2%
36.5
9.7%
(a) Segment information for 2003 has been reclassified to conform with the current presentation. Due to
management changes, effective January 1, 2004, the air-cooled heat exchangers business is
classified in the Engineered Products and Services (“all other”) Category.
Engineered Products and Services (“all other”) Category –
Significant Impacts on Revenues:
(In millions)
Revenues – 2003
Railway track services and equipment
Industrial grating products
Air-cooled heat exchangers
Boiler and process equipment
The benefit of positive foreign currency translation
Roofing granules and abrasives
Revenues – 2004
$ 377.9
33.6
20.1
18.9
4.1
2.5
2.0
$ 459.1
HARSCO CORPORATION 2004 ANNUAL REPORT 29
Engineered Products and Services (“all other”) Category – Significant Impacts on Operating Income:
• Operating income for the industrial grating products business increased during 2004 due to increased demand
and prices; increased focus on high-margin standard product orders; reduced low-margin fabrication orders; and
internal restructuring and cost reductions. This is in comparison with an operating loss in 2003.
• Continued and consistent profitable results from the roofing granules and abrasives business were again attained
in 2004.
• Despite increased revenues, operating income in the railway track maintenance services and equipment business
decreased in 2004. This was due principally to increased commodity and manufacturing costs and increased
sales commissions due to a change in product mix.
• The benefit of positive foreign currency translation in 2004 resulted in increased operating income of $0.9 million
for this Category when compared with 2003.
Outlook, Trends and Strategies
Looking to 2005 and beyond, the following significant items, trends and strategies are expected to affect the Company in
comparison with 2004:
Company Wide:
• A continued focus on expanding the higher-margin industrial services businesses, with a particular emphasis on
growing the Mill Services Segment through the provision of additional services to existing customers, new contracts
and strategic acquisitions. Significant capital investments are expected to be made to grow the Mill Services
business.
• Continued focus on improving Economic Value Added (EVA®).
• A target of $320 million in net cash provided by operating activities for 2005.
• Higher fuel, energy, transportation and material costs, particularly steel, encountered during 2004 are expected to
moderate during 2005. However, should these costs continue to rise during 2005, this would increase the Company’s
operating costs and reduce profitability to the extent that such costs cannot be passed to customers.
• The continued growth of the Chinese steel industry could impact the Company in several ways. Increased steel mill
production in China may provide additional service opportunities for the Mill Services Segment. However, continued
increased Chinese economic activity may result in increased commodity costs which may adversely affect the
Company’s manufacturing businesses. The impact of this risk is currently unknown.
• Foreign currency translation has had a favorable effect on the Company’s sales and income during 2004. However,
should the U.S. dollar strengthen, particularly in relationship to the euro or British pound sterling, the impact on the
Company would be negative.
• Cost reductions and Six Sigma continuous process improvement initiatives across the Company should further
enhance margins. This includes improved supply chain management and additional outsourcing in the manufacturing
businesses.
•
• An increase in general and administrative expenses related to external audit fees and internal costs for compliance
with the Sarbanes-Oxley Act of 2002, particularly Section 404, have been incurred during 2004. The external audit
fees are expected to be reduced during 2005 due to completion of the start-up phase of the project.
In 2005, pension expense is expected to approximate 2004 costs. The discount rate for the U.S. defined benefit
pension plans declined from 6.25% in 2004 to 5.75% in 2005; and the discount rate for the U.K. defined benefit
pension plan will remain constant at 5.75%. Cost savings in the U.K. and U.S. plans, as a result of the structural plan
changes made effective January 1, 2004, are expected to offset the increased U.S. defined benefit plan costs
resulting from the lower discount rate.
• On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA includes a deduction
of 85% for certain international earnings that are repatriated, as defined in the AJCA, to the U.S. The Company may
elect to apply this temporary provision to qualifying earnings repatriations during 2005. On January 13, 2005, the U.S.
Treasury Department and the U.S. Internal Revenue Service (IRS) issued the first in a series of notices that will
provide detailed guidance on the AJCA. The Company is assessing the effects of the repatriation provision and
expects to complete its evaluation within a reasonable period of time following the publication of additional guidance
by the U.S. Treasury Department and IRS. A specific range of income tax effects of these repatriations has not been
determined; however, the Company does not expect a significant impact due to the structure of its international
operations as well as the substantial amount of repatriations to the U.S. in prior years.
Mill Services Segment:
• Global steel demand and production is expected to remain strong in 2005, and bidding activity for new mill services
contracts and add-on services is strong.
30 HARSCO CORPORATION 2004 ANNUAL REPORT
• The significantly increased energy-related costs this Segment experienced during 2004 are expected to persist
through 2005.
• The risk remains that certain Mill Services customers may file for bankruptcy protection, be acquired or consolidate in
the future, which could have an adverse impact on the Company’s income and cash flows. Conversely, such
consolidation may provide additional service opportunities for the Company. A pending merger of two large
customers is expected to create the world’s largest steel company. Currently, the effect of this merger on the
Company cannot be estimated.
Access Services Segment:
• The international access services business is expected to show continued improvement during 2005.
• U.S. non-residential construction activity is expected to improve throughout 2005. The benefits of this will likely affect
the Company’s mid-to-late 2005 results.
• 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.
Gas Technologies Segment:
• Although cost inflation for certain commodities is expected to moderate in 2005, continued increases in steel prices
and worldwide demand for steel could have an adverse effect on future raw material costs, and this Segment’s ability
to obtain the necessary raw materials.
• Weak market conditions for liquid propane gas (LPG) valves; manufacturing inefficiencies; new product start-up costs;
and increased raw material costs have impacted the valves business during 2004. Several strategic actions have
been and are currently being executed to mitigate these conditions. They include the following: development and
marketing of new products; focus on an expanded international customer base; outsourcing of certain manufacturing
processes; process improvements within the manufacturing operations; and optimization of the organizational
structure of the business. If the conditions encountered during 2004 persist despite execution of the strategic action
plan, the valuation of this business could be negatively impacted.
Engineered Products and Services (“all other”) Category:
•
International demand for the railway track services and equipment business’ products and services is expected to
grow. Additionally, Six Sigma process improvements, new technologies and improved manufacturing efficiencies are
expected to assist in improving margins of this business.
• The industrial grating business is expected to sustain continued profitability for 2005. However, the ability to pass
increased commodity costs (e.g., steel) to customers may diminish.
• Although cost inflation for certain commodities is expected to moderate in 2005, continued increases in steel prices
and worldwide demand for steel could have an adverse effect on raw material costs and the ability to obtain the
necessary raw materials for most businesses in this Category.
• Consistent, profitable results are expected from the roofing granules and abrasives business.
HARSCO CORPORATION 2004 ANNUAL REPORT 31
Results of Operations for 2004, 2003 and 2002
(Dollars are in millions, except per share information and
percentages)
2004
2003
2002
Revenues from continuing operations
$ 2,502.1
$ 2,118.5
$ 1,976.7
Cost of services and products sold
1,916.4
1,604.4
1,481.8
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 from discontinued operations
Net income
Diluted earnings per common share
Effective income tax rate for continuing operations
Consolidated effective income tax rate
Comparative Analysis of Consolidated Results
Revenues
368.4
4.9
209.8
41.1
49.0
113.5
7.7
121.2
2.91
28.6%
29.1%
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%
2004 vs. 2003
Revenues for 2004 increased $383.5 million or 18% from 2003, to a record level. This increase was attributable to the
following significant items:
In millions
$ 108.9
83.1
43.5
Change in Revenues 2004 vs. 2003
Effect of foreign currency translation.
Net increased volume, new contracts and price changes in the Mill Services Segment.
Net increased revenues in the Gas Technologies Segment due principally to improved market
conditions and selling price increases partially offset by decreased demand for liquid propane
gas (LPG) valves in the patio grill market and for composite-wrapped cylinders.
36.1
Effect of business acquisitions. Increased revenues of $27.5 and $8.6 million in the Mill Services
and Access Services Segments, respectively.
33.6
Net increased revenues in the railway track maintenance services and equipment business due
33.4
Net increased revenues in the Access Services Segment due principally to the strength of the
principally to rail equipment sales and, to a lesser extent, contract services.
concrete forming business, particularly in the Middle East and U.K.
20.1
Increased revenues of the industrial grating products business due to increased demand and a focus
on higher-margin standard product orders.
18.9
5.9
$ 383.5
Increased revenues of the air-cooled heat exchangers business due to improving natural gas prices.
Other (minor changes across the various units not already mentioned).
Total Change in Revenues 2004 vs. 2003
32 HARSCO CORPORATION 2004 ANNUAL REPORT
2003 vs. 2002
Revenues for 2003 increased $141.8 million or 7% from 2002. This increase was attributable to the following significant
items:
In millions
$ 126.2
30.2
20.4
19.6
Change in Revenues 2003 vs. 2002 (a)
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 Engineered Products and Services (“all other”) Category.
Net increased revenues in the railway track maintenance services and equipment business 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.
(18.3)
Decreased revenues of the industrial grating products business due to decreased demand and, to a
lesser extent, the sale of the bridge decking product line in January 2002.
(17.7)
Net decreased revenues in the Gas Technologies Segment due to increased competition and
decreased demand.
1.3
$ 141.8
Other (minor changes across the various units not already mentioned).
Total Change in Revenues 2003 vs. 2002
(a) Segment information for prior periods has been reclassified to conform with the current presentation. Due to management
changes, effective January 1, 2004, the air-cooled heat exchangers business, which was previously classified in the Gas
Technologies Segment, is classified in the Engineered Products and Services (“all other”) Category.
Cost of Services and Products Sold
2004 vs. 2003
Cost of services and products sold for 2004 increased $312.0 million or 19% from 2003, slightly higher than the 18%
increase in revenues. This increase was attributable to the following significant items:
In millions
$ 186.2
80.9
32.8
12.1
$ 312.0
Change in Cost of Services and Products Sold 2004 vs. 2003
Increased costs due to increased revenues (exclusive of effect of foreign currency translation and
including the impact of increased costs included in increased selling prices).
Effect of foreign currency translation.
Effect of business acquisitions.
Other (due to increased commodity costs, increased fuel and energy-related costs, product mix and
minor changes across the various units not already mentioned; partially offset by stringent cost
controls, process improvements, and reorganization actions).
Total Change in Cost of Services and Products Sold 2004 vs. 2003
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
HARSCO CORPORATION 2004 ANNUAL REPORT 33
Selling, General and Administrative Expenses
2004 vs. 2003
Selling, general and administrative expenses for 2004 increased $38.4 million or 12% from 2003, less than the 18%
increase in revenues. This increase was attributable to the following significant items:
In millions
$ 17.9
5.4
Change in Selling, General and Administrative Expenses 2004 vs. 2003
Effect of foreign currency translation.
Increased professional fees due to higher external auditor fees (related to Sarbanes-Oxley Section
404) and increased consulting and legal expense.
4.4
Increased sales commission expense due to increased revenues and a larger number of orders for
4.2
1.7
4.8
the railway track maintenance equipment business.
Increased pension expense in the Access Services Segment
Effect of business acquisitions – principally SGB Raffia in Australia
Other (including energy-related costs partially offset by process improvements and reorganization
$ 38.4
Total Change in Selling, General and Administrative Expenses 2004 vs. 2003
efforts).
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
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 2004, 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 $4.9 million in 2004 compared with $7.0 million in 2003 and $3.5 million in 2002.
2004 vs. 2003
Other Expenses for 2004 decreased $2.1 million or 30% from 2003. This decrease was attributable to the following
significant items:
In millions
(2.2)
$
(1.7)
2.0
Change in Other Expenses 2004 vs. 2003
Decline in employee termination benefit costs. This decline relates principally to reduced costs in
the Mill Services and Access Services Segments compared with 2003.
Decrease in costs to exit activities.
Decline in net gains on disposals of non-core assets. This decline was attributable principally to
$3.2 million in net gains that were realized in 2003 from the sale of non-core assets within the
Access Services and Mill Services Segments compared with $1.5 million in 2004.
(0.2)
(2.1)
Increase in other expenses.
Total Change in Other Expenses 2004 vs. 2003
$
34 HARSCO CORPORATION 2004 ANNUAL REPORT
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 principally 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 a $1.9 million gain on the sale of a product line in the Engineered
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
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
2004 vs. 2003
Interest expense in 2004 was $0.5 million or 1% higher than in 2003. Approximately $2.7 million of the increase was due
to the effect of foreign currency translation. This was partially offset by a lower interest rate on the Company’s $150
million notes that were refinanced in the third quarter of 2003, and lower variable interest rate borrowings.
2003 vs. 2002
Interest expense in 2003 was $2.8 million or 6% lower than in 2002. This decline was primarily due to approximately $58
million in reduced average annual borrowings and lower average annual interest rates on certain borrowings (e.g.,
commercial paper). This was partially offset by an increase of $2.3 million due to the effect of foreign currency translation.
Provision for Income Taxes from Continuing Operations
2004 vs. 2003
The increase in 2004 of $7.3 million or 18% in the provision for income taxes from continuing operations was primarily due
to increased earnings from continuing operations for the reasons mentioned above partially offset by a decreased
effective income tax rate. The effective income tax rate relating to continuing operations for 2004 was 28.6% versus
30.7% for 2003. The decrease in the effective income tax rate from 2003 to 2004 was primarily the result of the benefit of
foreign tax credits related to the American Jobs Creation Act of 2004 (AJCA) and the result of the settlement of certain tax
contingencies. The settlements of tax contingencies included the adjustment of certain U.S. federal and state income tax
contingencies due to favorable outcomes. Additionally, during the fourth quarter of 2004, the Company recorded a
favorable income tax expense adjustment of $3.6 million related to prior periods, which was not material, and which was
mostly offset by increases in certain international tax contingencies, state income taxes and the amount of international
earnings subject to U.S. income taxes.
2003 vs. 2002
The decrease in 2003 of $0.5 million or 1% in the provision for income taxes from continuing operations was primarily 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.
Income from Continuing Operations
2004 vs. 2003
Income from continuing operations in 2004 of $113.5 million was $26.5 million or 31% higher than 2003. This increase
primarily results from increased revenues, a decreased effective income tax rate, stringent cost controls, process
improvements and reorganization actions that contained selling, general and administrative expenses growth to a 12%
increase while revenue increased 18%.
HARSCO CORPORATION 2004 ANNUAL REPORT 35
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 primarily 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.
Income from Discontinued Operations
2004 vs. 2003
Income from discontinued operations for 2004 increased $2.5 million or 47% from 2003. This increase was attributable to
the following significant items:
In millions
$ 3.1
Change in Income from Discontinued Operations 2004 vs. 2003
After-tax income due to the settlement of the Company’s Federal Excise Tax (FET) litigation in 2004
compared with after-tax income due to favorable developments in the FET litigation in 2003. 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.”
(0.6)
Decline in after-tax income related to the sale of the Company’s Capitol Manufacturing business
$ 2.5
Total Change in Income from Discontinued Operations 2004 vs. 2003
during 2002.
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 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
$ 3.5
Total Change in Income from Discontinued Operations 2003 vs. 2002
during 2002.
Net Income and Earnings Per Share
2004 vs. 2003
Net income of $121.2 million and diluted earnings per share of $2.91 in 2004 exceeded 2003 by $29.0 million and $0.66,
respectively, primarily due to increased income from both continuing and discontinued operations for the reasons
described above.
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.
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 periodically by cash proceeds from asset sales. During 2004, the Company achieved record net
cash provided by operating activities of $270.5 million. Additionally, in 2004, a record $204.2 million was expended for
capital investments including approximately $97 million for growth initiatives. Growth initiatives are capital investments
intended to increase future revenues. Over 50% of the amount expended on growth initiatives in 2004 was in the Mill
Services Segment. During 2004, net cash payments of $22.4 million were made to reduce debt; the Company paid over
36 HARSCO CORPORATION 2004 ANNUAL REPORT
$45 million in dividends to its stockholders; and the Company was able to significantly decrease its debt to capital ratio to
40.6% from 44.1% as of December 31, 2003.
In the fourth quarter of 2004, the Company received a $12.5 million settlement related to the Federal Excise Tax (FET)
litigation described in Note 10, Commitments and Contingencies, to the Consolidated Financial Statements under Part II,
Item 8, "Financial Statements and Supplementary Data.” In anticipation of the settlement, the Company chose to improve
the funded status of the Company’s defined benefit pension plans by making $10.6 million in discretionary cash
contributions, principally to the U.K. plan. The funded status of the plans was further strengthened in the first quarter of
2005 with an additional discretionary cash contribution of $9.4 million to the U.K. plan.
The Company’s strategic objectives for 2005 include generating a record $320 million in net cash provided by operating
activities, augmented by targeted asset sales. The Company’s strategy is to redeploy excess or discretionary cash in new
long-term, high renewal-rate services contracts for the Mill Services business and for growth in the Access Services and
railway track maintenance services businesses. The Company will also pursue sensible bolt-on acquisitions to further
enhance its industrial services growth and increase Economic Value Added (EVA®). The Company has targeted a
minimum of $140 million of discretionary cash flow for internal growth opportunities and acquisitions. Additionally, the
Company will use funds from targeted asset sales for acquisitions.
As of December 31, 2004, the Company had approximately $65 million of debt that may 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 to pay dividends to stockholders.
Cash Requirements
The following summarizes the Company’s expected future payments related to contractual obligations and commercial
commitments at December 31, 2004.
Contractual Obligations as of December 31, 2004 (a)
(In millions)
Short-term Debt
Long-term Debt
(including current maturities and
capital leases)
Projected interest payments on
Long-term Debt (b)
Pension and Other Post-
retirement Obligations (c)
Operating Leases
Purchase Obligations
Foreign Currency Forward
Exchange Contracts
Payments Due by Period
Total
16.1
$
Less than
1 year
$ 16.1
1-3
years
-
$
4-5
years
-
$
After 5
years
-
$
609.7
14.9
49.4
10.4
535.0
235.4
38.7
74.3
71.0
51.4
154.1
126.1
94.1
31.4
41.1
92.3
54.9
46.6
1.4
51.8
27.3
0.1
16.0
11.1
0.3
93.7
93.7
-
-
-
Total Contractual Obligations
$ 1,329.2
$ 328.2
$ 226.6
$ 160.6
$ 613.8
(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 projected interest payments on Long-term Debt are based upon borrowings, interest rates and foreign currency exchange rates as of
December 31, 2004. The interest rates on variable rate debt and the foreign currency exchange rates are subject to changes beyond the
Company’s control and may result in actual interest expense and payments differing from the amounts projected above.
(c) The total obligation for Pension and Other Postretirement Obligations is based on actuarial calculations and represents the funded status of
the Company’s Plans as of December 31, 2004. 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, 2004.
It is not practicable to estimate the actual amount to be paid after five years.
HARSCO CORPORATION 2004 ANNUAL REPORT 37
Commercial Commitments – The following table summarizes the Company’s contingent commercial commitments
at December 31, 2004. 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, 2004
(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
$ 121.1
$ 111.5
$
9.6
$
Guarantees
Performance Bonds
Other Commercial Commitments
27.6
97.2
11.1
3.6
86.8
-
1.0
1.9
-
Total Commercial Commitments
$ 257.0
$ 201.9
$ 12.5
$
-
-
-
-
-
$
-
$
-
0.8
22.2
-
-
8.5
11.1
$
0.8
$ 41.8
Standby letters of credit as of December 31, 2004 increased $32.6 million from December 31, 2003 due principally to
additional letters of credit to guarantee performance on new international orders for railway track maintenance equipment.
Performance bonds as of December 31, 2004 include an $80 million surety bond related to the FET litigation discussed in
Note 10, Commitments and Contingencies, to the Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplemental Data.” After formal dismissal of the FET litigation, the $80 million surety bond was
released in January 2005.
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 sales and income, particularly in the
services businesses. The Company’s long-term mill services contracts provide predictable cash flows for several years
into the future. Additionally, returns on capital investments made in prior years, for which no cash is currently required,
are a significant source of operating cash. Depreciation related to these investments is a non-cash charge. The
Company also continues to maintain working capital at a manageable level based upon the requirements and seasonality
of the business.
Major uses of operating cash flows and borrowed funds include payroll costs and related benefits; pension funding
payments; raw material purchases for the manufacturing businesses; income tax payments; interest payments; insurance
premiums and payments of self-insured casualty losses; and machinery, equipment, automobile and facility rental
payments. Other primary uses of cash include capital investments, principally in the industrial services businesses; debt
payments; and dividend payments. Cash will also be used for acquisitions as the appropriate opportunities arise.
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 under credit
facilities and commercial paper programs and available credit as of December 31, 2004.
38 HARSCO CORPORATION 2004 ANNUAL REPORT
Summary of Credit Facilities and
Commercial Paper Programs
(In millions)
As of December 31, 2004
Outstanding
Balance
Available
Credit
Facility Limit
U.S. commercial paper program
$ 350.0
$ 26.9
$ 323.1
Euro commercial paper program
Revolving credit facility (a)
Bilateral credit facility (b)
135.7
350.0
25.0
6.8
128.9
-
-
350.0
25.0
Totals at December 31, 2004
$ 860.7
$ 33.7
$ 827.0 (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 as of
December 31, 2004:
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 February 2005, Fitch reaffirmed its A- and F-2 ratings for the
Company’s long-term notes and U.S. commercial paper, respectively, and its stable outlook. S&P and Moody’s reaffirmed
their stable outlooks for the Company in September 2004. 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 2004 ANNUAL REPORT 39
Working Capital Position – Changes in the Company’s working capital are reflected in the following table:
December 31
2004
December 31
2003
Increase
(Decrease)
(Dollars are in millions)
Current Assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Current Liabilities
Notes payable and current maturities
Accounts payable
Accrued compensation
Income taxes
Other current liabilities
Total current liabilities
$
94.1
555.2
217.0
58.6
924.9
31.1
220.3
63.8
40.2
223.0
578.4
$
80.2
446.9
190.2
47.1
764.4
29.1
188.4
46.1
45.1
186.4
495.1
Working Capital
Current Ratio
$ 346.5
1.6:1
$ 269.3
1.5:1
$
13.9
108.3
26.8
11.5
160.5
2.0
31.9
17.7
(4.9)
36.6
83.3
$
77.2
Working capital increased 29% in 2004 due principally to the effect of increased sales activity and, to a lesser extent, 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. Changes to specific working capital components in 2004
were due to the following factors:
• Cash increased by $13.9 million as of December 31, 2004 compared with December 31, 2003 due principally to
receipts from the previously mentioned FET settlement and customer payments received too late in the year to apply
towards the Company’s debt.
• Net receivables increased by $108.3 million as of December 31, 2004 compared with December 31, 2003. The
largest increase occurred in the railway track maintenance services and equipment business followed by significant
increases in the Access Services and Mill Services Segments. Increases were due principally to increased sales and,
to a lesser extent, foreign exchange rate changes and the timing of collections. Fourth quarter 2004 revenues
increased in all of the Company’s operating units compared with the same period in 2003. The euro and British
pound sterling strengthened in relation to the U.S. dollar resulting in increased receivables in the Mill Services and
Access Services Segments of approximately $20 million.
•
Inventories increased by $26.8 million as of December 31, 2004 compared with December 31, 2003. Increases
occurred principally in the Gas Technologies Segment, the industrial grating business and the railway track
maintenance services and equipment businesses. Inventories increased in the Gas Technologies Segment due to
increased production requirements to meet increased demand and higher steel and brass costs. Inventory increases
at the Company’s industrial grating products business were due to increased sales activity, increased steel costs and
accelerated raw material purchases to secure lower cost steel. Increases at the Company’s railway track
maintenance services and equipment business were due principally to long-lead-time orders scheduled for shipment
in 2005.
• Other current liabilities increased by $36.6 million as of December 31, 2004 compared with December 31, 2003 due to
the following factors:
• The current portion of the Company’s retirement plan liability increased by $16.5 million due largely to planned
cash contributions to the Company’s defined benefit pension plans in 2005, particularly the U.K. plan.
• Contract advances increased $6.4 million due to customer advances for long-lead-time orders in the railway track
maintenance services and equipment business.
40 HARSCO CORPORATION 2004 ANNUAL REPORT
• Accrued value-added taxes (VAT) increased in the international mill services and access services businesses due
to increased sales-related activity.
• Accrued sales commissions increased principally in the railway track maintenance services and equipment
business due to increased sales in the fourth quarter of 2004, compared with the same period in 2003.
• Accounts payable increased by $31.9 million as of December 31, 2004 compared with December 31, 2003 due to
increased sales-related activity in the Mill Services and Access Services Segments as well as increased inventory
levels in the railway track maintenance services and equipment business.
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, 2004, the Company’s mill services contracts had estimated
future revenues of $3.7 billion. Of that amount, approximately $900 million is projected for 2005 and approximately 59%
is expected to be recognized by December 31, 2007. In addition, as of December 31, 2004, the Company had an order
backlog of $243.0 million for its manufacturing businesses (excluding the roofing granules and slag abrasives business)
and railway track maintenance 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
2004
2003
2002
$ 270.5
(209.6)
(56.5)
9.5
$ 262.8
(144.8)
(125.5)
17.6
$ 253.7
(53.9)
(205.5)
8.4
Net change in cash and cash equivalents
$ 13.9
$ 10.1
$
2.7
Cash From Operating Activities – Net cash provided by operating activities in 2004 was a record $270.5 million, an
increase of $7.7 million from 2003. The increased cash from operations in 2004 resulted from the following factors:
•
Increased net income in 2004 compared with 2003 that included the recognition and receipt of $12.5 million pre-
tax related to the FET litigation settlement.
• The timing of accounts payable disbursements in the railway track maintenance services and equipment
business, the Mill Services Segment and the international access services business.
• The timing of payments of other liabilities including income tax liabilities, advances from the Company’s
customers and commissions earned by the Company’s sales force.
These increases were partially offset by the following factors:
• Recorded sales (accounts receivable) for which cash will not be received until 2005. As an example, the railway
track maintenance services and equipment business recorded an increase in sales during the fourth quarter of
2004 compared with the same period in 2003. A significant portion of those sales will be collected in early 2005.
• Changes in inventory due principally to increased purchases in the Gas Technologies Segment to meet greater
demand.
• Discretionary cash contributions of $10.6 million were made to the defined benefit pension plans, principally in the
U.K.
HARSCO CORPORATION 2004 ANNUAL REPORT 41
Cash Used in Investing Activities – Capital investments in 2004 were $204.2 million, an increase of $60.4 million
from 2003. Investments were made predominantly for the industrial services businesses with 59% in the Mill Services
Segment. The Company also invested $12.3 million for two access services acquisitions. These acquisitions included
the buy-out of a minority shareholder in a joint venture and the acquisition of a business in Australia. In 2003, the
Company invested $23.5 million for two industrial service acquisitions that included the domestic mill services unit of C.J.
Langenfelder & Son, Inc. and a small product line for the international access services business. In 2005, the Company
plans to continue to invest in high-return projects and bolt-on acquisitions, principally in the industrial services businesses.
Cash Used in Financing Activities – The following table summarizes the Company’s debt and capital positions as of
December 31, 2004.
(Dollars are in millions)
Notes Payable and Current Maturities
Long-term Debt
Total Debt
Total Equity
Total Capital
December 31
2004
December 31
2003
$
31.1
594.7
625.8
914.2
$ 1,540.0
$
29.1
584.4
613.5
777.0
$ 1,390.5
Total Debt to Total Capital
40.6%
44.1%
The Company’s debt as a percent of total capital decreased in 2004 despite increased debt. The favorable decrease in
the ratio is due to increased net income and foreign currency translation adjustments positively affecting total equity. Due
to the Company’s significant net investments in Continental Europe and the United Kingdom, the weakening of the U.S.
dollar in relation to the euro and the British 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, 2004, the Company
could increase borrowings by approximately $745.5 million and still be within its debt covenants. Alternatively, keeping all
other factors constant, the Company’s equity could decrease by approximately $439.2 million and the Company would still
be within its covenants. The Company expects to be compliant with these debt covenants one year from now.
Cash and Value-Based Management
The Company plans to continue with its strategy of selective investing for strategic purposes for the foreseeable future.
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 2004, six of the Company’s nine
divisions improved their EVA from 2003.
Through the use of EVA, the Company targets its capital investments to those that management expects will create the
greatest value. In 2004, the Company made approximately 59% and 25% of its capital investments in the Mill Services
and Access Services Segments, respectively. The investments in these Segments continued to show positive results as
the Mill Services and Access Services Segments generated approximately 61% and 26% of the Company’s 2004 net
cash from operating activities, respectively. The Company continues to target the industrial services businesses for the
majority of its capital investments.
The Company is committed to continue paying dividends to stockholders. The Company has increased the dividend rate
for eleven consecutive years, and in February 2005, the Company paid its 219th consecutive quarterly cash dividend. The
Company also plans to continue paying down debt to the extent possible. Additionally, the Company has authorization to
repurchase up to 1,000,000 of its shares through January 31, 2006.
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 and acquisitions,
reducing debt and paying cash dividends as a means to enhance stockholder value.
42 HARSCO CORPORATION 2004 ANNUAL REPORT
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
other postretirement benefits, bad debts, goodwill valuation, 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 defined benefit pension plans in several countries. The largest of these plans are in the United
Kingdom and the United States. The Company’s funding policy for these plans is to contribute amounts sufficient to meet
the minimum funding pursuant to U.K. and U.S. statutory requirements, plus any additional amounts that the Company
may determine to be appropriate. The Company made cash contributions to its defined benefit pension plans of $37.8
million (including a $10.6 million discretionary payment) and $23.6 million during 2004 and 2003, respectively.
Additionally, the Company expects to make $31.1 million in cash contributions to its defined benefit pension plans during
2005, including a $9.4 million discretionary payment. 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 Stockholders’ Equity in Accumulated other comprehensive expense, net of deferred income
taxes, in the Consolidated Balance Sheet. At December 31, 2004 and 2003, the Company has a gross minimum pension
liability of $239.3 million and $233.9 million, respectively. These adjustments impacted Accumulated other
comprehensive expense in the Stockholders’ Equity section of the Consolidated Balance Sheet by $4.5 million of
comprehensive expense, net of deferred income taxes, and $1.5 million of comprehensive income, net of deferred income
taxes, at December 31, 2004 and 2003, respectively. When and if the fair market value of the pension plans’ assets
exceed the accumulated benefit obligation, the reduction to Stockholders’ 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 is no longer granted for periods after December 31,
2003, although compensation increases will continue to be recognized on actual service to-date (for the U.S. plans this is
limited to 10 years – through December 2013). In place of these plans, the Company 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 is 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 these new
retirement benefit plans will provide a more predictable and less volatile pension expense than existed under the defined
benefit plans.
HARSCO CORPORATION 2004 ANNUAL REPORT 43
Critical Estimate – Pension Benefits
Accounting for defined benefit 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.
The discount rates as of the September 30, 2004 measurement date for the U.K. defined benefit pension plan and the
October 31, 2004 measurement date for the U.S. defined benefit pension plans were 5.75% for both countries. These
rates were used in calculating the Company's projected benefit obligations as of December 31, 2004. 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, 2004 was 5.7%. The weighted average
assumed discount rate at year-end 2004 compares with the weighted average assumed discount rates of 5.9% and 6.0%
for the years ending December 31, 2003 and 2002, respectively. Annual pension expense is determined using the
discount rate as of the beginning of the year, which for 2005 is the 5.7% 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 pension
plans. The pension expense increases as the expected long-term rate of return on assets decreases. For 2004, the
weighted average expected long-term rate of return on asset assumption was 7.9%. For 2005, the expected long-term
rate of return on assets will remain at 7.9%. This rate was determined based on a model of expected asset returns for an
actively managed portfolio.
Based on the updated actuarial assumptions and the structural changes in the pension plans mentioned previously, the
Company’s 2005 pension expense is expected to stabilize. Total pension expense increased from 2003 to 2004 by $6.4
million due to lower interest rates, the effect of foreign currency translation, increased expenses for multi-employer
pension plans due to the change in the Company’s revenue mix and higher defined contribution pension expense. These
increases were partially offset by a decrease of approximately $5.6 million in defined benefit pension expense due to
design changes made to those plans. A $19.2 million increase in pension expense from 2002 to 2003 resulted from lower
interest rates and unfavorable investment performance during 2000, 2001, and 2002. 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
2005 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 $1.6 million Decrease of $5.8 million
Increase of $5.8 million
Increase of $1.6 million
Expected long-term rate of return on plan assets
One-half percent increase
One-half percent decrease
Decrease of $1.1 million Decrease of $2.8 million
Increase of $2.8 million
Increase of $1.1 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 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.
44 HARSCO CORPORATION 2004 ANNUAL REPORT
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 losses resulting from the inability or unwillingness of customers
to make required payments. The Company has policies and procedures in place requiring customers to be evaluated for
creditworthiness prior to the execution of new service contracts or shipments of products. These reviews are structured to
minimize the Company’s risk related to realizability of its receivables. Despite these policies and procedures, the
Company may 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. As of December 31, 2004 and 2003, receivables of $555.2 million and $446.9 million,
respectively, were net of reserves of $19.1 million and $24.6 million, respectively. The decrease in reserves from
December 31, 2003 relates to the write-off of previously reserved accounts receivable.
Critical Estimate – Notes and Accounts Receivable
A considerable amount of judgment is required to assess the realizability of receivables, including the current
creditworthiness of each customer, related aging of the past due balances and the facts and circumstances surrounding
any non-payment. The Company’s provisions for bad debts during 2004, 2003 and 2002 were $5.0 million, $3.4 million
and $6.9 million, respectively. Included in these provisions for bad debts were net provisions and (reversals) for steel mill
customers of $0.5 million, $(1.5) million and $1.9 million in 2004, 2003 and 2002, 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.
In the three years prior to 2004, approximately 40 U.S. steelmakers and several international steel producers filed for
bankruptcy-court protection, some of which were the Company’s customers. The Company evaluates its reserve
requirements for bankrupt 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 the 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.
On a monthly basis, customer accounts are analyzed for collectibility. Reserves are established based upon a specific-
identification method as well as historical collection experience, as appropriate. The Company also evaluates specific
accounts when it becomes aware of a situation in which a customer may not be able to meet its financial obligations due
to a deterioration in its financial condition, credit ratings or bankruptcy. The reserve requirements are based on the facts
available to the Company and are re-evaluated and adjusted as additional information is received. Reserves are also
determined by using percentages (based upon experience) applied to certain aged receivable categories. Specific issues
are discussed with Corporate Management and any significant changes in reserve amounts or the write-off of balances
must be approved by a specifically designated Corporate Officer. All approved items are monitored to ensure they are
recorded in the proper period. Additionally, any significant changes in reserve balances are reviewed to ensure the
proper Corporate approval has occurred.
If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. Conversely, an improvement in a customer’s ability to make payments
could result in a decrease of the allowance for doubtful accounts. Changes in the allowance related to both of these
situations would be recorded through income in the period the change was determined.
The Company has not materially changed its methodology for calculating allowances for doubtful accounts for the years
presented.
See Note 3, Accounts Receivable and Inventories, to the Consolidated Financial Statements under Part II, Item 8,
“Financial Statements and Supplementary Data” for additional disclosures related to these items.
Goodwill
The Company’s net goodwill balances were $433.1 million and $407.8 million, as of December 31, 2004 and 2003,
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
HARSCO CORPORATION 2004 ANNUAL REPORT 45
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, 2004 and 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.
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 both December 31, 2004 and 2003, the cumulative long-lived asset impairment valuation reserve
was $4.3 million.
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. If quoted market prices for the
asset or similar assets are unavailable, the fair value estimate is generally calculated using a discounted cash flow model.
Should circumstances change that affect these estimates, additional impairment charges may be required and would be
recorded through income in the period the change was determined.
The Company has not materially changed its methodology for calculating asset impairments for the years presented.
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, 2004 and 2003, inventories of $217.0 million and $190.2 million, respectively, are net of lower of cost or
market reserves of $0.9 million and $2.9 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/(expense) of $(4.3) million, $1.5 million and $1.4
million in 2004, 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.
See Note 3, Accounts Receivable and Inventories, to the Consolidated Financial Statements under Part II, Item 8,
“Financial Statements and Supplementary Data” for additional disclosures related to these items.
46 HARSCO CORPORATION 2004 ANNUAL REPORT
Insurance Reserves
The Company retains a significant portion of the risk for property, workers' compensation, automobile, general and
product liability losses. At December 31, 2004 and 2003 the Company has recorded liabilities of $77.4 million and $69.3
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. 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 2004, 2003 and 2002, the Company recorded retrospective insurance reserve adjustments that
decreased pre-tax insurance expense for self-insured programs by $2.7 million, $5.7 million and $5.9 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.
Legal and Other Contingencies
Reserves for contingent liabilities are recorded when it is probable that an asset has been impaired or a liability has been
incurred and the loss can be reasonably estimated. Adjustments to estimated amounts are recorded as necessary based
on new information or the occurrence of new events or the resolution of an uncertainty. Such adjustments are recorded in
the period that the required change is identified.
Critical Estimate – Legal and Other Contingencies
On a quarterly basis, recorded contingent liabilities are analyzed to determine if any adjustments are required.
Additionally, functional department heads within each business unit are consulted monthly to ensure all issues with a
potential financial accounting impact, including possible reserves for contingent liabilities have been properly identified,
addressed or disposed of. Specific issues are discussed with Corporate Management and any significant changes in
reserve amounts or the adjustment or write-off of previously recorded balances must be approved by a specifically
designated Corporate Officer. If necessary, outside legal counsel, other third parties or internal experts are consulted to
assess the likelihood and range of outcomes for a particular issue. All approved items are monitored to ensure they are
recorded in the proper period. Additionally, any significant changes in reported business unit reserve balances are
reviewed to ensure the proper Corporate approval has occurred. On a quarterly basis, the Company’s business units
submit a reserve listing to the Corporate headquarters which is reviewed in detail. All significant reserve balances are
discussed with a designated Corporate Officer to assess their validity, accuracy and completeness. Anticipated changes
in reserves are identified for follow-up prior to the end of a reporting period. Any new issues that may require a reserve
are also identified and discussed to ensure proper disposition. Additionally, on a quarterly basis, all significant
environmental reserve balances or issues are evaluated to assess their validity, accuracy and completeness.
The Company has not materially changed its methodology for calculating legal and other contingencies for the years
presented. There are currently no known trends, demands, commitments, events or uncertainties that are reasonably
likely to occur that would materially affect the methodology or assumptions described above.
See Note 10, Commitments and Contingencies, to the Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplementary Data” for additional disclosure on 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. Income tax loss
contingencies are recorded in the period when it is determined that it is probable that a liability has been incurred and the
loss can be reasonably estimated. Adjustments to estimated amounts are recorded as necessary based upon new
information, the occurrence of new events or the resolution of an uncertainty. As of December 31, 2004, 2003 and 2002,
the Company’s net effective income tax rate was 29.1%, 31.0% and 31.0%, respectively.
HARSCO CORPORATION 2004 ANNUAL REPORT 47
A valuation allowance to reduce deferred tax assets is evaluated on a quarterly basis. The valuation allowance is
principally for tax loss carryforwards which are uncertain as to realizability. The valuation allowance was $17.5 million and
$13.1 million as of December 31, 2004 and 2003, 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 Company has various tax holidays in Europe, the Middle East and Asia that expire between 2004 and
2010. These tax holidays resulted in approximately $4.2 million in reduced income tax expense in 2004. 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.
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 $2.6 million, $3.3 million and $2.8 million in internal research and development programs in 2004,
2003 and 2002, respectively. Internal funding for research and development was as follows:
(In millions)
Mill Services Segment
Access Services Segment
Gas Technologies Segment
Segment Totals
Engineered Products and Services (“all other”) Category
Consolidated Totals
Research and Development Expense
2002
2003
2004
$ 1.2
$ 1.3
$ 1.3
0.4
0.5
0.4
0.2
0.6
0.3
1.8
2.4
2.0
1.0
0.9
0.6
$ 2.8
$ 3.3
$ 2.6
Backlog
As of December 31, 2004, the Company’s order backlog, exclusive of long-term mill services contracts, access services
and roofing granules and slag abrasives, was $243.0 million compared with $186.2 million as of December 31, 2003, a
30% increase.
(In millions)
Gas Technologies Segment
Engineered Products and Services (“all other”) Category
Consolidated Backlog
2004
$ 48.7
194.3
$ 243.0
2003 (a)
$ 29.3
156.9
$ 186.2
Order Backlog
(a) Segment information for prior periods has been reclassified to conform with the current presentation. Due to management
changes, effective January 1, 2004, the air-cooled heat exchangers business, which was previously classified in the Gas
Technologies Segment, is classified in the Engineered Products and Services (“all other”) Category.
48 HARSCO CORPORATION 2004 ANNUAL REPORT
The Gas Technologies Segment order backlog at December 31, 2004 was 66% above the December 31, 2003 order
backlog. The change reflects increased order backlog for all Segment business units, particularly for high-pressure gas
cylinders and cryogenics equipment.
Order backlog for the Engineered Products and Services (“all other”) Category at December 31, 2004 was 24% above the
December 31, 2003 order backlog. The change is principally due to increased order backlog of railway track maintenance
equipment, partially offset by decreased order backlog of railway track maintenance services. Order backlog for roofing
granules and slag abrasives is excluded from the above amounts. Order backlog amounts for that product group are
generally not quantifiable due to the nature and timing of the products provided.
Mill services contracts have an estimated future value of $3.7 billion at December 31, 2004 compared with $3.4 billion at
December 31, 2003. Approximately 59% of these revenues are expected to be recognized by December 31, 2007. The
remaining revenues are expected to be recognized principally between January 1, 2008 and December 31, 2013.
Order 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.
Dividend Action
The Company paid four quarterly cash dividends of $0.275 per share in 2004, for an annual rate of $1.10. This is an
increase of 4.8% from 2003. At the November 2004 meeting, the Board of Directors increased the dividend by 9.1% to an
annual rate of $1.20 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 2005 payment marked the 219th consecutive quarterly dividend paid at the same or at an increased rate.
In 2004, 37% 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.
Cyclical industry and economic conditions may adversely affect the Company’s businesses.
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, 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 technologies business may be adversely affected by reduced industrial production, and lower
demand for industrial gases, slowdowns in demand for medical cylinders, valves and consumer barbecue grills, or
lower demand for natural gas vehicles;
• 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
HARSCO CORPORATION 2004 ANNUAL REPORT 49
• 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, or by slowdowns in the industrial and
infrastructure refurbishment industries.
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. An upward trend by
the equity and bond markets could positively affect the Company’s future earnings.
In addition to the economic issues that directly affect the Company’s businesses, changes in the performance of equity
and bond markets, particularly in the United Kingdom and the United States, impact actuarial assumptions used in
determining annual 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 negatively impacted the Company’s
pension expense and the accounting for pension assets and liabilities. This resulted in an increase in pre-tax defined
benefit pension expense from continuing operations of approximately $20.8 million for calendar year 2002 compared with
2001 and $17.7 million for calendar year 2003 compared with 2002. The upturn in certain financial markets during 2003
and certain plan design changes (discussed below) contributed to a decrease in pre-tax defined benefit pension expense
from continuing operations of approximately $5.4 million for 2004 compared with 2003. An upward trend in capital
markets would likely result in a decrease in future unfunded obligations and pension expense. This could also result in an
increase to Stockholders’ Equity and a decrease in the Company’s statutory funding requirements. If the financial
markets deteriorate, it would most likely have a negative impact on the Company’s pension expense and the accounting
for pension assets and liabilities. This could result in a decrease to Stockholders’ Equity and an increase in the
Company’s statutory funding requirements.
In response to 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 implemented design changes for most of these plans during 2003. The principal change
involved 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.
The Company’s global presence subjects it to a variety of risks arising from doing business internationally.
The Company operates 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 the
following:
• 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;
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 international 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;
50 HARSCO CORPORATION 2004 ANNUAL REPORT
•
laws in various international jurisdictions that limit the right and ability of subsidiaries to pay dividends and remit
earnings to affiliated companies unless specified conditions are met; 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, cash flows 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 2004, 2003 and 2002, these countries contributed approximately $25.5 million, $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., 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 58% and 57% of the Company’s sales and approximately 69% and
63% of the Company’s operating income from continuing operations for the years ended December 31, 2004 and 2003,
respectively, were derived from operations outside the United States. More specifically, during both 2004 and 2003,
approximately 21% of the Company’s revenues were derived from operations in the U.K. Additionally, approximately 17%
and 18% of the Company’s revenues were derived from operations with the euro as their functional currency during 2004
and 2003, respectively. Given the structure of the Company’s revenues and expenses, an increase in the value of the
U.S. dollar relative to the foreign currencies in which the Company earns its revenues generally has a negative impact on
operating income, whereas a decrease in the value of the U.S. dollar tends to have the opposite effect. The Company’s
principal foreign currency exposures are to the British pound sterling and the euro.
Compared with the corresponding period in 2003, the average values of major currencies changed as follows in relation to
the U.S. dollar during 2004, impacting the Company’s sales and income:
• British pound sterling
• Euro
• South African rand
• Brazilian real
• Australian dollar
Strengthened by 10%
Strengthened by 8%
Strengthened by 14%
Strengthened by 5%
Strengthened by 11%
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 2004,
revenues would have been approximately 4% or $108.9 million less and income from continuing operations would have
been approximately 3% or $3.8 million less if the average exchange rates for 2003 were utilized. A similar comparison for
2003 would have decreased revenues approximately 6% or $126.2 million while income from continuing operations would
have been approximately 9% or $8.2 million less if the average exchange rates for 2003 would have remained the same
as 2002. If the U.S. dollar weakens in relation to the euro and British pound sterling, the Company would expect to see a
positive impact on future sales and income from continuing operations 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 $46.4 million
and $72.0 million, at December 31, 2004 and 2003, respectively, when compared with December 31, 2003 and 2002,
respectively.
The Company seeks to reduce exposures to foreign currency transaction fluctuations through the use of forward
exchange contracts. At December 31, 2004, the notional amount of these contracts was $93.7 million, and all will mature
HARSCO CORPORATION 2004 ANNUAL REPORT 51
within the first four months of 2005. 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 foreign currency 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 prices in the face of adverse currency movements. Sales of products manufactured in the United States
for the domestic and export markets may be affected by the value of the U.S. dollar relative to other currencies. Any long-
term strengthening of the U.S. dollar could depress demand for these products and reduce sales and may cause
translation gains or losses due to the revaluation of accounts payable, accounts receivable and other asset and liability
accounts. Conversely, any long-term weakening of the U.S. dollar could improve demand for these products and increase
sales and may cause translation gains or losses due to the revaluation of accounts payable, accounts receivable and
other asset and liability accounts.
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 occurs, 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 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 recorded amounts, the Company will be required to record a write-down in the period of
determination, which will reduce net income for that period.
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 this litigation, 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 practices may limit the prices the Company can charge for its products and
services. Additionally, unfavorable foreign exchange rates can adversely impact the Company’s ability to match the
prices charged by international competitors. If the Company is unable to match the prices charged by international
competitors, it may lose customers. The Company’s strategy to overcome this competition includes 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. In 2004 and 2003, energy costs have approximated 3.5%
of the Company’s revenue. To the extent that such costs cannot be passed to customers in the future, operating income
and results of operations may be adversely affected.
52 HARSCO CORPORATION 2004 ANNUAL REPORT
Increases or decreases in purchase prices or availability of steel or other materials and commodities 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 and commodities. In 2004, the price paid for steel and certain other commodities increased significantly
compared with prior years. If steel or other material costs associated with the Company’s manufactured products
continue to increase and the costs cannot be passed on to the Company’s customers, then operating income will be
adversely affected. Additionally, decreased availability of steel or other materials could affect the Company’s ability to
produce manufactured products in a timely manner. If the Company encounters difficulty in obtaining the necessary raw
materials for its manufactured products, then revenues, operating income and cash flows 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 remediation 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 remediation or other costs or damages under these laws. The Company may be subject to
more stringent environmental laws in the future, and compliance with more stringent environmental requirements may
require the Company to make material expenditures or subject it to liabilities that the Company currently does not
anticipate.
The Company is currently involved in a number of environmental remediation investigations and 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, 2004 and 2003 includes an accrual of $2.7 million and $3.3 million, respectively, for environmental matters.
The amounts charged against pre-tax earnings related to environmental matters totaled $2.1 million, $1.4 million and $1.2
million for the years ended December 31, 2004, 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 a covenant requiring a maximum debt to
capital ratio of 60%. In addition, certain notes payable agreements also contain a covenant requiring a minimum net
worth of $475 million. 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, 2004, the Company was in compliance with these covenants and $386.3 million in indebtedness containing
these covenants was outstanding.
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
HARSCO CORPORATION 2004 ANNUAL REPORT 53
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, 2004 and 2003, the Company had recorded liabilities of $77.4 million and
$69.3 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 normally 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. Fourth quarter 2004 sales and income were higher than historical amounts. This resulted principally from the
timing of certain rail equipment sales and expanded mill services activities. If the Company is unable to successfully
manage the cash flow and other effects of seasonality on the business, its results of operations may suffer. The
Company’s historical revenue patterns and net cash provided by operating activities are included in Part I, Item 1,
“Business.”
The Company's cash flows and earnings are subject to changes in interest rates.
The Company’s total debt as of December 31, 2004 was $625.8 million. Of this amount, approximately 12% had variable
rates of interest and 88% had fixed rates of interest. The weighted average interest rate of total debt was approximately
6.3%. At current debt levels, a one-percentage increase/decrease in variable interest rates would increase/decrease
interest expense by approximately $0.7 million per year.
The future financial impact on the Company associated with the above risks cannot be estimated.
54 HARSCO CORPORATION 2004 ANNUAL REPORT
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data
Consolidated Financial Statements of Harsco Corporation:
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
December 31, 2004 and 2003
Consolidated Statements of Income
for the years 2004, 2003 and 2002
Consolidated Statements of Cash Flows
for the years 2004, 2003 and 2002
Consolidated Statements of Stockholders' Equity
for the years 2004, 2003 and 2002
Consolidated Statements of Comprehensive Income
for the years 2004, 2003 and 2002
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited):
Two-Year Summary of Quarterly Results
Common Stock Price and Dividend Information
Page
56
56
58
59
60
61
62
63
97
97
HARSCO CORPORATION 2004 ANNUAL REPORT 55
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management of Harsco Corporation, together with its consolidated subsidiaries (the Company), is responsible for
establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over
financial reporting is a process designed under the supervision of the Company’s principal executive and principal
financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the
Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting
principles.
The Company’s internal control over financial reporting includes policies and procedures that:
• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and
dispositions of assets of the Company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and the directors of the
Company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the Company’s financial statements.
Management has assessed the effectiveness of its internal control over financial reporting as of December 31, 2004
based on the framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the
Company’s internal control over financial reporting is effective as of December 31, 2004.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting
firm, as stated in their report appearing below, which expresses unqualified opinions on management’s assessment and
on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of Harsco Corporation:
We have completed an integrated audit of Harsco Corporation’s 2004 consolidated financial statements and of its internal
control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedules
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material
respects, the financial position of Harsco Corporation and its subsidiaries at December 31, 2004 and 2003, and the results
56 HARSCO CORPORATION 2004 ANNUAL REPORT
of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity
with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit of financial statements 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.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework
issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial
reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an
understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 10, 2005
HARSCO CORPORATION 2004 ANNUAL REPORT 57
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
STOCKHOLDERS' EQUITY
Preferred stock, Series A junior participating cumulative preferred stock
Common stock, par value $1.25, issued 67,911,031 and 67,357,447 shares as of
December 31, 2004 and 2003, respectively
Additional paid-in capital
Accumulated other comprehensive expense
Retained earnings
Treasury stock, at cost (26,479,782 and 26,490,977 shares, respectively)
Total stockholders' equity
Total liabilities and stockholders' equity
December 31
2004
December 31
2003 (a)
$
94,093
555,191
217,026
58,614
924,924
932,298
433,125
98,477
932
$
80,210
446,875
190,221
47,045
764,351
865,443
407,846
97,483
2,912
$ 2,389,756
$ 2,138,035
$
16,145
14,917
220,322
63,776
40,227
12,429
210,581
578,397
594,747
95,702
53,960
97,586
54,483
691
$
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
1,475,566
1,361,047
-
-
84,889
139,532
(127,491)
1,420,637
(603,377)
914,190
84,197
120,070
(169,427)
1,345,787
(603,639)
776,988
$ 2,389,756
$ 2,138,035
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” 2003 information has been reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
58 HARSCO CORPORATION 2004 ANNUAL REPORT
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 of unconsolidated entities, 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/(loss) on disposal of discontinued business
Income related to discontinued defense business
Income tax expense
Income from discontinued operations
Net Income
Average shares of common stock outstanding
Basic earnings per common share:
Continuing operations
Discontinued operations
Basic earnings per common share
Diluted average shares of common stock outstanding
Diluted earnings per common share:
Continuing operations
Discontinued operations
Diluted earnings per common share
See accompanying notes to consolidated financial statements.
2004
2003
2002
$ 1,764,159
737,900
2,502,059
$ 1,493,942
624,574
2,118,516
$ 1,341,867
634,865
1,976,732
1,313,075
603,309
368,385
2,579
4,862
2,292,210
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
209,849
128
2,319
(41,057)
171,239
(49,034)
122,205
(8,665)
113,540
(801)
(102)
12,849
(4,275)
7,671
121,211
41,129
2.76
0.19
2.95
41,598
2.73
0.18
2.91
$
$
$
$
$
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
0.13
2.27
40,973
2.12
0.13
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
0.04
2.23
40,680
2.17
0.04
2.21
$
$
$
$
$
HARSCO CORPORATION 2004 ANNUAL REPORT 59
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 of unconsolidated entities, net
Dividends or distributions from unconsolidated entities
Other, net
Changes in assets and liabilities, net of acquisitions
and dispositions of businesses:
Accounts receivable
Inventories
Accounts payable
Net receipts (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
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
2004
2003
2002
$ 121,211
$ 92,217
$ 90,106
181,914
2,457
(128)
589
(2,781)
(81,403)
(22,278)
22,310
12,280
36,294
270,465
(204,235)
(12,264)
6,897
-
(209,602)
167,161
1,774
(321)
1,383
(2,678)
(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
8,503
30,038
(13,280)
(13,055)
(1,435)
(2,566)
253,753
(114,340)
(3,332)
63,731
12
(53,929)
(5,863)
(20,013)
(16,272)
198,032
(214,551)
(45,170)
16,656
(5,616)
(56,512)
9,532
-
13,883
80,210
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
Cash and cash equivalents at end of period
$
94,093
$
80,210
$
70,132
*Purchase of businesses, net of cash acquired
Working capital, other than cash
Property, plant and equipment
Other noncurrent assets and liabilities, net
$
(60)
(3,024)
(9,180)
$
(225)
(16,694)
(6,799)
$
250
(2,705)
(877)
Net cash used to acquire businesses
$
(12,264)
$
(23,718)
$
(3,332)
See accompanying notes to consolidated financial statements.
60 HARSCO CORPORATION 2004 ANNUAL REPORT
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Accumulated Other
Comprehensive Income (Expense)
(In thousands, except share
and per share amounts)
Balances, January 1, 2002
Issued
Treasury
$ 83,106 $ (603,947)
Additional
Paid-in
Capital
Translation
$ 94,597 $ (129,338)
Cash Flow
Hedging
Instruments
$
(84)
Pension
Liability
$ (6,178)
Unrealized
Gain on
Marketable
Securities
337
$
Retained
Earnings
$(135,263) $ 1,247,680
Total
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
72,032
(8)
92,217
(43,285)
72,032
(8)
1,523
1,523
4
4
Other, 1,590 shares
61
Balances, December 31, 2003 $ 84,197 $ (603,639)
(5)
$ 120,070
$ (17,995)
$
(70)
$ (151,364) $
2
$(169,427) $ 1,345,787
Net income
Cash dividends declared,
$1.125 per share
Translation adjustments
Cash flow hedging instrument
adjustments, net of $(86)
deferred income taxes
Pension liability adjustments,
net of $2,062 deferred
income taxes
Stock options exercised,
564,529 shares
Other, 250 shares, and 3,500
46,230
159
121,211
(46,361)
46,230
159
692
253
19,308
(4,453)
(4,453)
restricted stock units
9
Balances, December 31, 2004 $ 84,889 $ (603,377)
154
$ 139,532
See accompanying notes to consolidated financial statements.
$ 28,235
$
89
$ (155,817) $
2
$(127,491) $ 1,420,637
HARSCO CORPORATION 2004 ANNUAL REPORT 61
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 $(30), $6 and $(8) in 2004, 2003 and 2002,
respectively
Reclassification adjustment for loss on cash flow hedging instruments, net
of deferred income taxes of $(56), $(2), and $(3) in 2004, 2003 and
2002, respectively
Pension liability adjustments, net of deferred income taxes of $2,062,
$(482) and $63,613 in 2004, 2003 and 2002, respectively
Unrealized gain (loss) on marketable securities, net of deferred income
taxes of $(1) and $1 in 2003 and 2002, respectively
Reclassification adjustment for (gain) loss on marketable securities
included in net income, net of deferred income taxes of $(1) and $182
in 2003 and 2002, respectively
Other comprehensive income (expense)
2004
2003 (a)
2002 (a)
$
121,211
$
92,217
$
90,106
46,230
72,032
39,311
55
104
(11)
3
16
6
(4,453)
1,523
(146,709)
-
2
(2)
-
41,936
2
73,551
(337)
(107,715)
Total comprehensive income (expense)
$
163,147
$
165,768
$
(17,609)
(a) 2003 and 2002 have been reclassified to conform with the current presentation.
See accompanying notes to consolidated financial statements.
62 HARSCO CORPORATION 2004 ANNUAL REPORT
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 it has an equity interest of 49% to 50%
and exercises management control. These three entities had combined revenues of approximately $66.7 million or 2.7%
of the Company’s total revenues in 2004. Investments in unconsolidated entities (all of which are 40-50% 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 years’ amounts to conform with current year classifications. These
reclassifications relate principally to segment information, which has been reclassified to conform to the current
presentation as described in Note 14, “Segment Information.” Additional reclassifications have been made between the
property, plant and equipment accounts and the assets held for sale account to reflect assets currently classified as held
for sale, as permitted by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
As a result of these reclassifications, certain 2003 and 2002 amounts presented for comparative purposes will not
individually agree with previously filed Forms 10-K or 10-Q.
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.
HARSCO CORPORATION 2004 ANNUAL REPORT 63
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
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 Technologies 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.
Engineered Products and Services (“all other”) Category – This category includes the Harsco Track Technologies,
Reed Minerals, IKG Industries, Patterson-Kelley and Air-X-Changers 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. A valuation allowance to reduce deferred tax assets is evaluated on a quarterly basis. The
valuation allowance is principally for tax loss carryforwards which are uncertain as to realizability. Income tax loss
contingencies are recorded in the period when it is determined that it is probable that a liability has been incurred and the
loss can be reasonably estimated. Adjustments to estimated amounts are recorded as necessary based upon new
information, the occurrence of new events or the resolution of an uncertainty.
Accrued Insurance and Loss Reserves
The Company retains a significant portion of the risk for workers’ compensation, automobile, general and product liability
losses. During 2004, 2003 and 2002, the Company recorded insurance expense related to these lines of coverage of
approximately $37 million, $36 million and $31 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 2004, 2003 and 2002, the Company recorded retrospective
insurance reserve adjustments that decreased pre-tax insurance expense for self-insured programs by $2.7 million, $5.7
million and $5.9 million, respectively. At December 31, 2004 and 2003 the Company has recorded liabilities of $77.4
million and $69.3 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.
64 HARSCO CORPORATION 2004 ANNUAL REPORT
Warranties
The Company has recorded product warranty reserves of $4.2 million, $2.8 million and $2.2 million as of December 31,
2004, 2003 and 2002, 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, 2004, 2003 and 2002:
Warranty Activity
(In thousands)
2004
2003
2002
Balance at the beginning of the period
$ 2,788
$ 2,248
$ 2,753
Accruals for warranties issued during the period 4,135 (a)
2,125
1,673
Reductions related to pre-existing warranties
(414)
(233)
(418)
Warranties paid
(2,361)
(1,344)
(1,831)
Other (principally foreign currency translation)
13
(8)
71
Balance at end of the period
$ 4,161
$ 2,788
$ 2,248
(a)
The increase from 2003 reflects changes in product mix and increased sales.
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 throughout the world. 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. Effective in 2003, the Company ceased granting stock options to employees.
HARSCO CORPORATION 2004 ANNUAL REPORT 65
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).
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
2004
2003
2002
$ 121,211
(96)
$ 121,115
$ 2.95
2.94
2.91
2.91
$ 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
(a)
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related income tax
effects.
Effective in 2005, stock option grants to employees have been replaced by performance-based restricted stock unit grants
to certain officers. See Note 12, “Stock-Based Compensation,” for additional information on the Company’s equity
compensation plans.
Earnings Per Share
Basic earnings per share are calculated using the average shares of common stock outstanding, while diluted earnings
per share reflect the dilutive effects of restricted stock units and the potential dilution that could occur if stock options were
exercised. See Note 11, “Capital Stock,” for additional information on earnings per share.
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. Actual
results could differ from those estimates.
New Financial Accounting Standards Issued
SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R)
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R which replaces SFAS No. 123,
“Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (APB) Opinion No. 25,
“Accounting for Stock Issued to Employees” (APB 25). SFAS 123R requires the cost of employee services received in
exchange for an award of equity instruments to be based upon the grant-date fair value of the award (with limited
exceptions). Additionally, this cost is to be recognized as expense over the period during which an employee is required
to provide services in exchange for the award (usually the vesting period). This is a change from APB 25’s intrinsic value
method which the Company has historically used to value stock option grants. SFAS 123R is effective as of the beginning
of the first interim or annual reporting period that begins after June 15, 2005 (as of July 1, 2005 for the Company). The
Company has not yet determined the full impact of implementing SFAS 123R, but it is not expected to have a material
impact on the Company’s financial position, results of operations or cash flows since the Company ceased granting stock
options in 2003. The Company expects to implement SFAS 123R effective July 1, 2005.
SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (SFAS 151)
In November 2004, the FASB issued SFAS 151, which amends Accounting Research Bulletin No. 43, Chapter 4
“Inventory Pricing” (ARB 43). SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs
and wasted material (spoilage) should be expensed rather than capitalized as inventory. Additionally, SFAS 151 requires
that allocation of fixed production overheads to inventory costs be based upon the normal capacity of the production
facility. The provisions of SFAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15,
66 HARSCO CORPORATION 2004 ANNUAL REPORT
2005 (as of January 1, 2006 for the Company) with earlier application permitted. The Company has not yet determined
the timing of adoption or the full impact of SFAS 151; however, it is not expected to materially impact the Company’s
financial position, results of operations or cash flows.
SFAS No. 153, “Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29” (SFAS 153)
In December 2004, the FASB issued SFAS 153 which eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for
Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance.
SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The provisions of SFAS 153 are applicable for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005 (as of July 1, 2005 for the Company) with
earlier application permitted. The Company has not yet determined the timing of adoption or the full impact of SFAS 153;
however, it is not expected to materially impact the Company’s financial position, results of operations or cash flow as the
Company has historically had a very limited number of nonmonetary exchange transactions.
2.
Acquisitions and Dispositions
Acquisitions
In October 2004, the Company’s Access Services Segment acquired full ownership of its existing Mastclimbers Ltd joint
venture partnership which is located in the United Kingdom. Previously, the Company owned 51% of the partnership.
Mastclimbers Ltd ranks as the United Kingdom’s leading supplier of mast climbing work platforms and related services.
In April 2004, the Company’s Access Services Segment acquired the Australian distributor, Raffia Contracting Pty, and
Raffia’s sister company, Tower International Pty. Both businesses are based in Sydney, New South Wales. Raffia
Contracting Pty is involved in the supply and erection of scaffolding, working with many of the major contractors in and
around the state capital, while Tower International Pty provides light access sales and rentals throughout the area. The
combined businesses have been renamed SGB Raffia.
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 pro forma impact of the above acquisitions was not material.
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 Technologies 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
years ended December 31, 2004 and December 31, 2003. 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 2003 and 2004, 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.
HARSCO CORPORATION 2004 ANNUAL REPORT 67
The major classes of assets and liabilities “held for sale” included in the Consolidated Balance Sheets are as follows:
(In thousands)
As of December 31
2004
2003 (a)
ASSETS
Accounts receivable, net
Inventories
Other current assets
Property, plant and equipment, net
$
Total assets “held for sale”
$
LIABILITIES
Accounts payable
Other current liabilities
Other liabilities
$
15
133
23
761
932
24
542
125
$
411
222
20
2,259
$ 2,912
$
512
386
-
Total liabilities associated with assets
“held for sale”
$
691
$
898
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” 2003 information has been reclassified for comparative purposes.
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. On August 25, 1997, the
Company and FMC Corporation signed an agreement to sell United Defense, L.P. for $850 million, and the sale was
completed on October 6, 1997. Prior to the sale, FMC had been the managing general partner and 60% owner of United
Defense, L.P., while the Company owned the balance of 40% as the limited partner. United Defense supplies ground
combat and naval weapons systems for the U.S. and military customers worldwide. 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 was 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 are shown separately on the Consolidated
Statements of Income and Cash Flows, respectively.
3.
Accounts Receivable and Inventories
Accounts receivable are net of an allowance for doubtful accounts of $19.1 million and $24.6 million at December 31,
2004 and 2003, respectively. The decrease from December 31, 2003 relates principally to write-offs of previously
reserved accounts receivable. The provision for doubtful accounts was $5.0 million, $3.4 million and $6.9 million for 2004,
2003 and 2002, respectively.
68 HARSCO CORPORATION 2004 ANNUAL REPORT
Inventories consist of the following:
(In thousands)
Finished goods
Work-in-process
Raw materials and purchased parts
Stores and supplies
2004
$ 60,554
37,882
91,965
26,625
2003
$ 59,739
32,121
74,231
24,130
Total Inventories
$ 217,026
$ 190,221
Valued at lower of cost or market:
Last-in, first out (LIFO) basis
First-in, first out (FIFO) basis
Average cost basis
Total Inventories
$ 129,064
17,399
70,563
$ 109,821
8,430
71,970
$ 217,026
$ 190,221
Inventories valued on the LIFO basis at December 31, 2004 and 2003 were approximately $35.8 million and $17.9 million,
respectively, less than the amounts of such inventories valued at current costs.
As a result of reducing certain inventory quantities valued on the LIFO basis, net income increased from that which would
have been recorded under the FIFO basis of valuation by $0.02 million, $1.1 million and $2.3 million in 2004, 2003 and
2002, respectively.
4.
Property, Plant and Equipment
Property, plant and equipment consists of the following:
(In thousands)
Land and improvements
Buildings and improvements
Machinery and equipment
Uncompleted construction
Gross property, plant and equipment
Less accumulated depreciation and facilities valuation allowance
Net property, plant and equipment
2004
$ 39,838
185,807
2,027,765
45,083
2,298,493
(1,366,195)
$ 932,298
2003 (a)
$ 39,311
175,482
1,803,867
37,505
2,056,165
(1,190,722)
$ 865,443
(a) As permitted by the Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets,” 2003 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
Leasehold improvements
Estimated useful life of the improvement
or, if shorter, the life of the lease
HARSCO CORPORATION 2004 ANNUAL REPORT 69
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. The Company performed required annual testing for
goodwill impairment as of October 1, 2004 and 2003 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 reflects the changes in carrying amounts of goodwill by segment for the years ended December 31,
2003 and 2004:
(In thousands)
Balance as of December 31, 2002, net of
Mill
Services
Segment
Access
Services
Segment
Gas
Technologies
Segment
Engineered
Products
and Services
(“all other”)
Category
Consolidated
Totals
accumulated amortization
$ 195,721
$ 136,624
$ 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
$ 211,318
$ 151,698
$ 36,693
$
8,137
$ 407,846
Goodwill acquired during year
-
5,046
Other (principally foreign currency
translation)
9,175
11,058
-
-
-
-
5,046
20,233
Balance as of December 31, 2004, net
of accumulated amortization
$ 220,493
$ 167,802
$ 36,693
$
8,137
$ 433,125
Goodwill is net of accumulated amortization of $108.4 million and $105.2 million at December 31, 2004 and 2003,
respectively.
70 HARSCO CORPORATION 2004 ANNUAL REPORT
Intangible assets, which are included principally in Other assets on the Consolidated Balance Sheets, totaled $10.9
million, net of accumulated amortization of $10.5 million at December 31, 2004 and $10.4 million, net of accumulated
amortization of $8.4 million at December 31, 2003. The following table reflects these intangible assets by major category:
(In thousands)
December 31, 2004
December 31, 2003
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Customer relationships
$ 7,662
$ 609
$ 6,373
$ 196
Non-compete agreements
4,898
4,032
4,863
3,671
Patents
Other
Total
4,416
3,757
4,304
3,351
4,411
2,087
3,313
1,197
$21,387
$10,485
$18,853
$ 8,415
The increase in intangible assets for 2004 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:
Acquired Intangible Assets
(In thousands)
Gross Carrying
Amount
Residual Value
Weighted-average
amortization period
Customer relationships
$ 1,144
Non-compete agreements
Other
Total
29
549
$ 1,722
None
None
None
6 years
3 years
5 years
There were no research and development assets acquired and written off in 2004 or 2003.
Amortization expense for intangible assets was $1.8 million, $1.2 million and $0.9 million for the years ended December
31, 2004, 2003 and 2002, respectively. The following chart shows the estimated amortization expense for the next five
fiscal years based on current intangible assets.
(In thousands)
2005
2006
2007
2008
2009
Estimated Amortization Expense $1,859 $1,561 $1,205
$917
$586
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, 2004. 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. These credit facilities and programs are described in
more detail below the chart.
HARSCO CORPORATION 2004 ANNUAL REPORT 71
Summary of Credit Facilities and
Commercial Paper Programs
(In thousands)
Facility Limit
As of December 31, 2004
Outstanding
Balance
Available
Credit
U.S. commercial paper program
$ 350,000
$ 26,895
$ 323,105
Euro commercial paper program
Revolving credit facility (a)
Bilateral credit facility (b)
135,670
350,000
25,000
6,770
128,900
-
-
350,000
25,000
Totals at December 31, 2004
$ 860,670
$ 33,665
$ 827,005 (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.
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 $135.7 million at December 31, 2004, which is used to fund the Company's international
operations. Commercial paper interest rates, which are based on market conditions, have been lower than comparable
rates available under the credit facilities. At December 31, 2004 and 2003, the Company had $26.9 million and $9.3
million of U.S. commercial paper outstanding, respectively, and $6.8 million and $26.0 million outstanding, respectively,
under its European-based commercial paper program. Commercial paper is classified as long-term debt at December 31,
2004 and 2003, because the Company has the ability and intent to refinance it on a long-term basis through existing long-
term credit facilities.
On August 12, 2004, the Company executed a new revolving credit facility in the amount of $350 million through a
syndicate of 15 banks which matures in August 2007. This facility serves as back-up to the Company's investment-grade
commercial paper programs. This new facility replaced the existing $350 million revolving credit facility that was divided
into two parts, a $131.3 million portion that matured on August 12, 2004 and a $218.8 million portion that would have
matured on September 29, 2005. Interest rates on the new facility 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 (.09% per annum as of December 31, 2004) that varies based upon its credit ratings. At
December 31, 2004 and 2003, there were no borrowings outstanding under either of the facilities.
The $25 million bilateral credit facility was renewed in January 2005 for an additional one year. 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 2005, 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, 2004 and 2003, there was $0 million and $3.4 million outstanding on this
credit facility, respectively.
Short-term debt amounted to $16.1 million and $14.9 million at December 31, 2004 and 2003, respectively. The weighted
average interest rate for short-term borrowings at December 31, 2004 and 2003 was 3.4% and 2.9%, respectively.
72 HARSCO CORPORATION 2004 ANNUAL REPORT
Long-term debt consists of the following:
(In thousands)
7.25% British pound sterling-denominated notes due October 27, 2010
5.125% notes due September 15, 2013
Commercial paper borrowings, with a weighted average interest rate of 2.3%
2004
$ 379,751
148,738
2003
$ 353,018
148,627
and 1.9% as of December 31, 2004 and 2003, respectively
33,665
35,347
Faber Prest loan notes due October 31, 2008 with interest based on sterling
LIBOR minus .75% (4.2% and 3.4% at December 31, 2004 and 2003,
respectively)
Industrial development bonds, payable in varying amounts from 2010 to
2011 with a weighted average interest rate of 2.1% as of December 31,
2004 and 2003
Other financing payable in varying amounts to 2009 with a weighted average
interest rate of 6.0% and 5.4% as of December 31, 2004 and 2003,
respectively
Less: current maturities
9,361
9,991
6,500
10,000
31,649
609,664
(14,917)
$ 594,747
41,694
598,677
(14,252)
$ 584,425
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%. 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, 2004, the Company was in compliance with these
covenants.
The maturities of long-term debt for the four years following December 31, 2005 are as follows:
(In thousands)
2006
2007
2008
2009
$
5,038
44,341
10,116
263
Cash payments for interest on all debt from continuing operations were $40.2 million, $40.1 million and $42.3 million in
2004, 2003 and 2002, 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 $49.4 million, $48.5 million and $46.6 million in
2004, 2003 and 2002, respectively.
Future minimum payments under operating leases with noncancelable terms are as follows:
(In thousands)
2005
2006
2007
2008
2009
After 2009
$ 41,145
27,455
19,159
11,246
16,014
11,086
Total minimum rentals to be received in the future under non-cancelable subleases as of December 31, 2004 are $9.0
million.
HARSCO CORPORATION 2004 ANNUAL REPORT 73
8.
Employee Benefit Plans
Pension Benefits
The Company has pension and profit sharing retirement plans covering a substantial number of its employees. The
defined benefits for salaried employees generally are based on years of service and the employee's level of
compensation during specified periods of employment. 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.
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. 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 is 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 these new defined contribution plans 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 losses
Amortization of transition asset
Settlement/Curtailment loss
Defined benefit plans pension
expense
Multi-employer plans
Defined contribution plans
2004
U. S. Plans
2003
2002
2004
International Plans
2003
2002
$ 2,610
13,592
(17,960)
754
2,982
(1,466)
131
643
7,674
6,197
$ 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
$ 9,561
37,876
(39,765)
1,245
13,431
(567)
-
$ 10,439
32,627
(34,083)
1,117
9,813
(626)
8
$ 9,980
28,393
(35,542)
991
4,090
(572)
-
3,062
4,705
753
21,781
5,395
5,722
19,295
4,389
2,329
7,340
4,162
1,790
Pension expense
$ 14,514
$ 15,034
$ 8,520
$ 32,898
$ 26,013
$ 13,292
74 HARSCO CORPORATION 2004 ANNUAL REPORT
The change in the financial status of the pension plans and amounts recognized in the Consolidated Balance Sheets at
December 31, 2004 and 2003 are as follows:
Defined Benefit 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
2004
2003
International Plans
2004
2003
$ 221,695
2,610
13,592
-
-
18,094
(22)
(12,401)
-
-
$ 199,959
7,339
13,201
-
226
19,066
(5,148)
(12,948)
-
-
$ 660,441
9,561
37,876
2,691
-
15,074
(54)
(30,113)
-
51,097
$ 561,509
10,439
32,627
4,044
188
9,661
(401)
(30,301)
3,823
68,852
Benefit obligation at end of year
$ 243,568
$ 221,695
$ 746,573
$ 660,441
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
Plan assets of added plans
Effect of foreign currency
$ 209,130
23,096
3,283
-
(12,401)
-
-
$ 180,277
37,917
3,884
-
(12,948)
-
-
$ 522,185
52,900
34,528
2,692
(29,774)
-
34,566
$ 418,002
60,088
19,749
4,044
(29,993)
1,724
48,571
Fair value of plan assets at end of year
$ 223,108
$ 209,130
$ 617,097
$ 522,185
Funded status:
Funded status at end of year
Unrecognized net loss
Unrecognized transition (asset) obligation
Unrecognized prior service cost
$ (20,460)
60,173
(1,817)
3,858
$ (12,565)
50,365
(3,283)
4,743
$(129,476)
240,797
478
12,085
$(138,256)
234,273
(80)
13,055
Net amount recognized
$ 41,754
$ 39,260
$ 123,884
$ 108,992
Amounts recognized in the Consolidated
Balance Sheets consist of the following:
Prepaid benefit cost
Accrued benefit liability
Intangible asset
Accumulated other comprehensive expense
$ 54,613
(37,187)
3,209
21,119
$ 46,359
(29,566)
3,935
18,532
$
-
(91,115)
11,733
203,266
$
-
(102,432)
12,088
199,336
Net amount recognized
$ 41,754
$ 39,260
$ 123,884
$ 108,992
The Company’s best estimate of expected contributions to be paid in year 2005 for the U.S. defined benefit plans is $0.9
million and for the international defined benefit plans is $30.2 million.
HARSCO CORPORATION 2004 ANNUAL REPORT 75
Future Benefit Payments
The Company’s expected benefit payments for defined benefit plans over the next ten years are as follows:
(In millions)
2005
2006
2007
2008
2009
2010 - 2014
U.S. Plans
$ 9.7
10.2
10.7
11.4
12.1
72.4
International
Plans
$ 28.5
29.4
30.7
31.2
32.0
177.1
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
2003
6.0%
2004
5.9%
2002
6.5%
7.9%
3.5%
8.0%
3.4%
8.5%
3.9%
U. S. Plans
December 31
2003
6.75%
2004
6.25%
2002
7.25%
International Plans
December 31
2003
5.8%
2004
5.7%
2002
6.2%
8.75%
4.0%
8.9%
3.8%
9.5%
3.7%
7.5%
3.4%
7.6%
3.3%
8.0%
4.0%
Defined Benefit Pension Obligation Assumptions
The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at
December 31 were as follows:
Global Weighted Average
December 31
2003
5.9%
3.5%
2004
5.7%
3.7%
2002
6.0%
3.4%
U. S. Plans
December 31
2003
6.25%
4.0%
2004
5.75%
4.0%
2002
6.75%
3.8%
Discount rates
Rates of compensation increase
Discount rates
Rates of compensation increase
76 HARSCO CORPORATION 2004 ANNUAL REPORT
International Plans
December 31
2003
5.7%
3.4%
2004
5.7%
3.6%
2002
5.8%
3.3%
Accumulated Benefit Obligations
The accumulated benefit obligation for all defined benefit pension plans at December 31 was as follows:
(In millions)
2004
2003
U.S. Plans
$231.6
211.3
International
Plans
$705.3
622.0
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
U. S. Plans
International Plans
2004
$75.6
73.8
40.7
2003
$68.6
67.3
38.3
2004
$737.3
697.8
605.4
2003
$652.7
616.5
511.5
The increase in the minimum liability included in other comprehensive income (expense) was ($4.5) million in 2004. The
decrease in the minimum liability included in other comprehensive income (expense) was $1.5 million in 2003.
The asset allocations attributable to the Company’s U.S. pension plans at October 31, 2004 and 2003 and the target
allocation of plan assets for 2005, by asset category, are as follows:
U.S. Plans
Asset Category
Domestic Equity Securities
Fixed Income Securities
International Equity Securities
Cash & Cash Equivalents
Other
Target 2005
Allocation
49% - 59%
27% - 37%
5.5% - 14.5%
0% - 5%
0% - 7%
Percentage of Plan Assets at October 31
2004
52.6%
32.5%
10.5%
1.8%
2.6%
2003
60.0%
28.5%
9.8%
1.7%
0.0%
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 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 2005, the
expected return on asset assumption is 8.75%, the same as 2004. The Company had lowered its expected return on
asset assumption from 8.9% in 2003 to 8.75% in 2004 due to changes in capital market expectations.
The U.S. defined benefit pension plans owned shares of the Company’s stock valued at $18.2 million and $27.6 million on
October 31, 2004 and 2003, respectively, representing 8.2% and 13.2%, respectively, of total plan assets. As part of a
rebalancing of the pension fund to further diversify the plan assets, approximately one-half of the pension fund’s holdings
in the Company’s stock were sold in the second quarter of 2004. Dividends paid to the pension plans on the Company
stock amounted to $0.6 million in 2004 and $0.7 million in 2003.
HARSCO CORPORATION 2004 ANNUAL REPORT 77
The asset allocations attributable to the Company’s International plans at September 30, 2004 and 2003 and the target
allocation of plan assets for 2005, by asset category, are as follows:
International Plans
Asset Category
Equity Securities
Fixed Income Securities
Cash & Cash Equivalents
Other
Target 2005
Allocation
55.5% - 64.5%
37.5% - 42.5%
0%
0% - 2%
Percentage of Plan Assets at September 30
2004
57.5%
42.0%
0.4%
0.1%
2003
60.9%
38.6%
0.5%
0.0%
Plan assets as of September 30, 2004, under the United Kingdom (U.K.) Pension Plan amounted to over 90% of the
international pension assets. These assets were divided into seven portfolios representing various categories of equities,
fixed income, cash and cash equivalents managed by four professional investment managers.
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 expected return on asset assumption was 7.75% for the U.K. plan in 2004. The
Company reviews the long-term return on asset assumption on a periodic basis and has retained 7.75% for 2005. The
remaining international pension plans with assets representing less than 10% of the international pension assets are
under the guidance of professional investment managers and have similar investment objectives.
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
Curtailment gains
Postretirement benefit expense (income)
2004
2003
2002
$
11
342
32
39
(2,236)
$ (1,812)
$
21
553
32
66
(4,898)
$ (4,226)
$
66
743
(16)
(18)
(467)
$ 308
The curtailment gains of $2.2 million for 2004 were due to the termination of certain retiree health care plans. The
curtailment gains of $4.9 million for 2003 were due to the termination of certain retiree life insurance and health care
plans.
Effective October 31, 2004, the Company adopted the provisions of Financial Accounting Standards Board Staff Position
No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003” (FSP FAS 106-2). Adoption of FSP FAS 106-2 reduced the Company’s accumulated
postretirement benefit obligation by $0.3 million. This amount is treated as an unrecognized actuarial gain. The Company
deferred re-measurement of its postretirement health care benefit obligation until its measurement date, so there is no
effect on 2004 reported expense.
78 HARSCO CORPORATION 2004 ANNUAL REPORT
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 (gain) loss
Plan participants’ contributions
Benefits paid
Plan amendments
Curtailment
Benefit obligation at end of year
Funded status:
Funded status at end of year
Unrecognized prior service cost
Unrecognized net actuarial (gain) loss
Net amount recognized as accrued benefit liability
2004
2003
$
$
$
$
7,405
11
342
(654)
48
(369)
4
(2,600)
4,187
(4,187)
296
(95)
(3,986)
$ 11,639
21
553
74
36
(424)
-
(4,494)
7,405
$
$
$
(7,405)
330
943
(6,132)
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:
2004
5.75%
10.00%
5.00%
2003
6.25%
12.00%
5.00%
2002
6.75%
12.00%
5.00%
On total service and interest cost components
On postretirement benefit obligation
$
15
$ 239
$
24
$ 373
$
28
$ 422
Effect of one percent decrease in health
care cost trend rate:
On total service and interest cost components
On postretirement benefit obligation
$ (13)
$ (212)
$ (21)
$ (336)
$
(29)
$ (382)
It is anticipated that the health care cost trend rate will decrease from 10.0% in 2005 to 5.0% in the year 2010.
The assumed discount rates to determine the postretirement benefit expense for the years 2004, 2003 and 2002 were
6.25%, 6.75% and 7.25%, respectively.
The Company’s estimate of expected contributions to be paid in year 2005 is $260 thousand.
The Company’s expected benefit payments over the next ten years are as follows:
Year
2005
2006
2007
2008
2009
2010 - 2014
(In thousands)
$ 260
276
281
293
292
1,465
HARSCO CORPORATION 2004 ANNUAL REPORT 79
Savings Plan
Prior to January 1, 2004, the Company had a 401(k) Savings Plan (the Savings Plan) which covered substantially all U.S.
employees with the exception of employees represented by a collective bargaining agreement, unless the agreement
expressly provides otherwise. Effective January 1, 2004, certain U.S. employees previously covered by the Savings Plan
have been transferred into the Harsco Retirement Savings & Investment Plan (HRSIP) which is a defined contribution
pension plan. The transferred employees were those whose credited years of service under the qualified Defined Benefit
Pension Plan were frozen as of December 31, 2003 (as discussed in the Pension Benefits section of this footnote).
Employees whose credited service was not frozen as of December 31, 2003 remained in the Savings Plan. The
expenses related to the HRSIP are included in the defined contribution pension plans disclosure in the Pension Benefits
section of this footnote.
Employee contributions to the Savings Plan are generally determined as a percentage of covered employees'
compensation. The expense for contributions to the Savings Plan by the Company was $0.4 million, $3.5 million and $3.8
million for 2004, 2003 and 2002, respectively.
Employee directed investments in the Savings Plan and HRSIP include the following amounts of Company stock:
Company Shares in Plans
December 31, 2004
December 31, 2003
December 31, 2002
Number
of Shares
Fair
Market
Value
Number
of Shares
Fair
Market
Value
Number
of Shares
Fair
Market
Value
(Dollars in millions)
Savings Plan
1,017,241
$ 56.7
2,143,820
$ 93.9
2,352,286
$ 75.0
HRSIP
954,442
53.2
-
-
-
-
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 usually paid in January or 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 $4.5 million, $4.0 million and $3.6 million in 2004, 2003 and 2002,
respectively.
80 HARSCO CORPORATION 2004 ANNUAL REPORT
9.
Income Taxes
Income before income taxes and minority interest for both continuing and discontinued operations in the Consolidated
Statements of Income consists of the following:
(In thousands)
United States
International
Total income before income taxes and
minority interest
Income tax expense/(benefit):
Currently payable:
Federal
State
International
Total income taxes currently payable
Deferred federal and state
Deferred international
Total income tax expense
Continuing Operations
Discontinued Operations
Total income tax expense
2004
2003
2002
$ 57,566
125,619
$ 53,549
90,480
$ 35,214
104,139
$ 183,185
$ 144,029
$ 139,353
$
(2,788)
(281)
31,471
28,402
17,110
7,797
$ 53,309
$ 49,034
4,275
$ 53,309
$
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
Cash payments for income taxes were $26.2 million, $23.5 million and $18.7 million, for 2004, 2003 and 2002,
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
Settlement of tax contingencies
Other, net
Effective income tax rate
2004
35.0%
1.0
(0.6)
(0.4)
0.0
(1.7)
(3.3)
(0.9)
2003
35.0%
0.3
(0.7)
(0.6)
0.1
(2.2)
(1.1)
0.2
2002
35.0%
0.3
(0.9)
(0.9)
0.4
(2.2)
(0.9)
0.2
29.1%
31.0%
31.0%
The decrease in the effective income tax rate from 2003 to 2004 was primarily the result of the benefit of foreign tax
credits related to the American Jobs Creation Act of 2004 (AJCA) and the result of the settlement of certain tax
contingencies. The settlements of tax contingencies included the adjustment of certain U.S. federal and state income tax
contingencies due to favorable outcomes. Additionally, during the fourth quarter of 2004, the Company recorded a
favorable income tax expense adjustment of $3.6 million related to prior periods, which was not material, and which was
mostly offset by increases in certain international tax contingencies, state income taxes and the amount of international
earnings subject to U.S. income taxes.
HARSCO CORPORATION 2004 ANNUAL REPORT 81
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, 2004 and 2003 are as follows:
(In thousands)
Deferred income taxes
Depreciation
Expense accruals
Inventories
Provision for receivables
Postretirement benefits
Deferred revenue
Operating loss carryforwards
Pensions
Other
Subtotal
Valuation allowance
Total deferred income taxes
2004
2003
Asset
$
-
22,437
3,268
3,225
1,475
-
19,667
25,649
5,292
81,013
(17,492)
$ 63,521
Liability
$ 111,967
-
-
-
-
3,770
-
9,493
4,071
129,301
-
$ 129,301
Asset
$
-
14,820
2,772
3,854
2,175
-
15,510
24,566
3,719
67,416
(13,098)
$ 54,318
Liability
$ 79,254
-
-
-
-
3,167
-
7,935
2,177
92,533
-
$ 92,533
At December 31, 2004 and 2003, Other current assets included deferred income tax benefits of $28.9 million and
$22.9 million, respectively.
At December 31, 2004, after-tax net operating loss carryforwards (NOLs) totaled $19.7 million. Of that amount, $4.1
million is attributable to international operations and may be carried forward indefinitely. After-tax U.S. state NOLs are
$15.6 million. Of that amount, $2.2 million expire in 2005-2011, $5.3 million expire in 2012-2019, and $8.1 million expire
in 2024. Included in the above-mentioned total are $0.3 million of preacquisition NOLs.
During both 2004 and 2003, $0.5 million of preacquisition NOLs were utilized by the Company, resulting in tax benefits of
$0.2 million.
The valuation allowance of $17.5 million and $13.1 million at December 31, 2004 and 2003, respectively, relates
principally to NOLs 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 2004 and 2003 results primarily from the utilization of NOLs, the release of
valuation allowances in certain jurisdictions based on the Company's revaluation of the realizability of future benefits, and
the increase in valuation allowances in certain jurisdictions based on the Company’s revaluation of the realizability of
future benefits.
The Company has not provided U.S. income taxes on certain of its non-U.S. subsidiaries’ undistributed earnings as such
amounts are permanently reinvested outside the U.S. At December 31, 2004, such earnings were approximately $86
million. The Company has various tax holidays in Europe, the Middle East and Asia that expire between 2004 and 2010.
These tax holidays resulted in approximately $4.2 million in reduced income tax expense in 2004.
On October 22, 2004, the American Jobs Creation Act (AJCA) was signed into law. The AJCA includes a deduction of
85% for certain international earnings that are repatriated, as defined in the AJCA, to the U.S. The Company may elect to
apply this temporary provision to qualifying earnings repatriations during 2005. On January 13, 2005, the U.S. Treasury
Department and the U.S. Internal Revenue Service (IRS) issued the first in a series of notices that will provide detailed
guidance on the AJCA. The Company is assessing the effects of the repatriation provision and expects to complete its
evaluation within a reasonable period of time following the publication of additional guidance by the U.S. Treasury
Department and IRS. A specific range of income tax effects of these repatriations has not been determined; however, the
Company does not expect a significant impact due to the structure of its international operations as well as the substantial
amount of repatriations to the U.S. in prior years.
82 HARSCO CORPORATION 2004 ANNUAL REPORT
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 preserved 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 did 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. This
increase in FET takes into account offsetting credits of $9.2 million, based on a partial allowance of the Company’s $31.9
million claim that certain truck components are exempt from FET. At that time, the IRS disallowed in full the Company's
additional claim that it is entitled to the entire $52 million of FET the Company 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 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 had paid on five-ton trucks.
The Company, by letter dated August 2, 2004, received formal notice that the Government had accepted a settlement
proposal submitted by the Company. Income of $12.5 million from the settlement was recognized by the Company in the
third quarter of 2004. This income was recorded as Income related to discontinued defense business on the Company’s
Consolidated Statement of Income. The Company received the Government’s refund of $12.5 million in December 2004.
As a result of developments during the third and fourth quarters of 2003 and during 2004, the Company adjusted an
accrual related to this matter. These adjustments were included as Income related to discontinued defense business on
the Company’s Consolidated Statements of Income for the years ended December 31, 2004 and 2003.
The Company has estimated administrative costs to close-out this matter of approximately $0.2 million. Formal dismissal
of the case occurred on January 31, 2005.
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, 2004 and 2003 include accruals of $2.7 million and $3.3
million, respectively, for environmental matters. The amounts charged against pre-tax income related to environmental
matters totaled $2.1 million $1.4 million and $1.2 million in 2004, 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 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.
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
HARSCO CORPORATION 2004 ANNUAL REPORT 83
$146,000. In August 2004, NJDEP amended its reassessment of $146,000 and revised the proposed penalty to
$325,400. The amended order has been appealed. Discussions continue between the parties to resolve this matter. 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’s net pre-petition
receivable balance with the customer as of September 30, 2004 was approximately $5.5 million. In the fourth quarter of
2004, the Company collected substantially all of the outstanding receivable balance via a non-recourse sale to a third
party.
Royalty Expense Dispute
The Company is involved in a royalty expense dispute with Canada Revenue Agency (CRA). The CRA is proposing to
disallow certain royalty expense deductions claimed by the Company’s Canadian subsidiary on its 1994-1998 tax returns.
As of December 31, 2004, the maximum assessment from the CRA for the period 1994-1998 is approximately $9 million
including tax and interest. The Company has filed an administrative appeal and will vigorously contest the disallowance.
The Company currently anticipates that some portion of the assessment may be paid in this royalty expense dispute.
However, the Company intends to utilize competent authority proceedings in the U.S. to recover a portion of any required
tax payment amount. The Company believes that any amount not recovered through these proceedings has been fully
reserved as of December 31, 2004 and, therefore will not have a material adverse affect on the Company’s future results
of operations.
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.
As of December 31, 2004, there are approximately 33,862 pending asbestos personal injury claims filed against the
Company. Approximately 26,510 of these cases were pending in the New York Supreme Court for New York County in
New York State and approximately 7,069 of the cases were pending in state courts of various counties in Mississippi. The
other claims totaling approximately 283 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, 2004, the Company has obtained dismissal by stipulation, or summary judgment prior to trial, in all
cases that have proceeded to trial. To date, the Company has been dismissed from 7,950 cases.
84 HARSCO CORPORATION 2004 ANNUAL REPORT
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
future claims filed in the New York Supreme Court for New York County and in Mississippi state courts after 2002. On
December 19, 2002, the New York Supreme Court responsible for managing all asbestos cases pending within New York
County 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. The Court is reviewing cases for docketing based on
their date of filing, with the older pending cases reviewed first. Cases designated as Active are then assigned to a "FIFO"
trial group, which groups are scheduled for trial in the designated months of either February or August. For cases in
which there has been a recent death or a diagnosis of cancer, the Court reviews such cases on an expedited basis and, if
medically supported, such cases are transferred to an "In Extremis" trial group, which groups are scheduled for trial in the
designated months of either May or November. As of September 30, 2004, the Company was listed as a defendant in
approximately 245 pending cases in the New York Supreme Court for New York County that have been designated as
Active or “In Extremis” and assigned to trial groups. To date, the Company has been dismissed as a defendant prior to
trial in all New York cases that have proceeded to trial. The number of these dismissals is currently approximately 1,150.
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 stockholders 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,
2004, 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 of common stock as follows:
2002
2003
2004
No. of Shares
Authorized to be
Purchased
499,154
499,154
1,000,000
No. of Shares
Purchased
-
-
-
Additional Shares
Authorized for
Purchase
-
500,846
-
Remaining No. of
Shares Authorized
for Purchase
499,154
1,000,000
1,000,000
HARSCO CORPORATION 2004 ANNUAL REPORT 85
On June 24, 2003, the Board of Directors increased the share repurchase authorization to 1,000,000 shares. In
November 2004, the Board of Directors extended the share purchase authorization through January 31, 2006 for the
1,000,000 shares still remaining from the June 2003 authorization.
In 2004, 2003 and 2002, additional issuances of 11,195 shares, 3,633 shares and 5,174 shares, respectively, were made
for SGB stock option exercises and employee service awards.
The following chart summarizes the Company’s common stock:
Balances Outstanding
December 31, 2002
December 31, 2003
December 31, 2004
Shares Issued
67,034,010
67,357,447
67,911,031
Treasury Shares
26,494,610
26,490,977
26,479,782
Outstanding
Shares
40,539,400
40,866,470
41,431,249
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)
2004
2003
2002
Income from continuing operations
$113,540
$ 86,999
$ 88,410
Average shares of common stock outstanding used to
compute basic earnings per common share
Dilutive effect of stock options and restricted stock units
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
41,129
469
41,598
40,690
283
40,973
40,360
320
40,680
$
2.76
$
2.14
$
2.19
$
2.73
$
2.12
$
2.17
All outstanding stock options were included in the computation of diluted earnings per share at December 31, 2004.
Options to purchase 32,000 shares and 1,369,954 shares were outstanding at December 31, 2003 and 2002,
respectively, but were not included in the computation of diluted earnings per share because the effect was antidilutive.
12. Stock-Based Compensation
In 2004, the Company’s stockholders approved an amendment to the 1995 Non-Employee Directors’ Stock Plan whereby
non-employee directors are granted restricted stock or restricted stock units instead of stock options. In 2004, 3,500
restricted stock units with a fair value of $43.42 per unit were granted to the non-employee directors. Each non-employee
director was granted 500 restricted stock units vesting after one year. The restricted stock units require no payment from
the recipient and compensation cost is measured based on the market price on the grant date and is recorded over the
vesting period. Restricted stock units issued to non-employee directors will be exchanged for a like number of shares of
Company stock following termination of the participant’s service as a director. As issued, restricted stock units do not
have an option for cash payout. Compensation expense related to the restricted stock unit awards totaled $0.1 million in
2004.
In 2004, the Company’s stockholders approved a proposal to amend the 1995 Executive Incentive Compensation Plan in
order to meet new requirements of the New York Stock Exchange and to comply with tax law changes. During 2004, no
stock options or restricted stock units were granted to officers or employees. In 2004, the Management Development and
Compensation Committee of the Board of Directors approved the granting of restricted stock units as the long-term equity
component of officer compensation. In the first quarter of 2005, the Company issued 32,700 performance-based
restricted stock units with a fair value of $50.41 per unit to certain officers of the Company. Restricted stock units granted
to officers vest after three years of continuous employment. After the restricted stock units vest, they will be exchanged
for a like number of shares of Company stock. These restricted stock units are not redeemable for cash.
86 HARSCO CORPORATION 2004 ANNUAL REPORT
No stock options were granted during 2004. During 2003, stock options were only granted to non-employee directors.
The fair value of stock options granted during 2003 and 2002 was 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
Stock Options
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
$
$
Prior to 2003, the Company had granted stock options to officers, certain key employees and directors for the purchase of
its common stock under two stockholder-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 or other equity awards such as restricted stock, restricted stock units, or stock appreciation
rights. The 1995 Non-Employee Directors' Stock Plan authorizes the issuance of up to 300,000 shares of the Company's
common stock for equity awards.
Options were granted at fair market value on the date of grant. Options issued in 2002 under the 1995 Executive
Incentive Compensation Plan generally vest and become exercisable commencing two years 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 grant. Upon
stockholder 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, 2004, there were 1,312,281 and 162,500 shares available for granting
equity awards under the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee Directors' Stock Plan,
respectively.
HARSCO CORPORATION 2004 ANNUAL REPORT 87
Changes during 2004, 2003 and 2002 in stock options outstanding were as follows:
Outstanding, January 1, 2002
Granted
Exercised
Terminated and expired
Outstanding, December 31, 2002
Granted
Exercised
Terminated and expired
Outstanding, December 31, 2003
Granted
Exercised
Terminated and expired
Shares
Under Option
Weighted Average
Exercise Price
2,135,815
614,237
(552,101)
(74,838)
2,123,113
16,000 (a)
(325,480)
(118,553)
1,695,080
-
(564,529)
(9,450)
$28.31
32.93
25.38
33.09
30.30
33.92
27.15
33.76
30.72
-
30.02
40.25
Outstanding, December 31, 2004
1,121,101 (b)
$31.01
(a) During 2003, options were only granted to non-employee directors.
(b)
Included in options outstanding at December 31, 2004 were 5,107 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 1,098,831 shares, 1,187,938 shares and 1,536,411 shares were exercisable at December 31, 2004,
2003 and 2002, respectively. The following table summarizes information concerning outstanding and exercisable options
at December 31, 2004.
Range of
Exercisable
Prices
$23.81 – $ 29.00
29.31 – 32.65
32.81 – 46.16
Number
Outstanding
470,487
395,320
255,294
1,121,101
Options Outstanding
Remaining
Contractual Life
In Years
5.5
6.4
3.5
Weighted
Average
Exercise Price
$26.88
32.25
36.69
Options Exercisable
Number
Exercisable
457,777
394,120
246,934
1,098,831
Weighted
Average
Exercise Price
$26.89
32.25
36.73
13. Financial Instruments
Off-Balance Sheet Risk
As collateral for the Company’s performance and to insurers, the Company is contingently liable under standby letters of
credit, bonds and bank guarantees in the amount of $239.1 million and $216.3 million at December 31, 2004 and 2003,
respectively. These standby letters of credit, bonds and bank guarantees are generally in force for up to four years.
Certain issues have no scheduled expiration date. The Company pays fees to various banks and insurance companies
that range from 0.08 to 1.85 percent per annum of their face value. If the Company were required to obtain replacement
standby letters of credit, bonds and bank guarantees as of December 31, 2004 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
2004 were in the United Kingdom, European Economic and Monetary Union countries, South Africa and Australia.
88 HARSCO CORPORATION 2004 ANNUAL REPORT
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 $1.0 million, $1.5 million and $1.9
million for the twelve months ended December 31, 2004, 2003 and 2002, 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, 2004 and 2003. 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 2004, September 2004 and November 2004.
The Company provided an environmental indemnification for property that was sold to a third party in 2004. The term of
this guarantee is seven years and the Company would only be required to perform under the guarantee if an
environmental matter is discovered on the property relating to the time the Company owned the property and was not
known by the buyer at the date of sale. The Company is not aware of any environmental issues related to this property.
The maximum potential amount of future payments (undiscounted) related to this guarantee is $0.8 million at December
31, 2004. There is no recognition of this potential future payment in the accompanying financial statements as the
Company believes the potential for making this payment is remote.
Every three years, the Company requires a third party to review procedures and record keeping related to the production
of certain products. Commencing in 2004, the Company provided an indemnification for any costs incurred by the third
party resulting from an injury while these services are being provided to the Company. In addition, the Company provided
an indemnification for certain costs resulting from an outside claim against the third party. The indemnification is provided
for as long as the Company is producing products which meet the third party’s specifications. At December 31, 2004, the
maximum potential amount of future payments (undiscounted) related to this guarantee is $3.0 million per claim. This
amount represents the Company’s self-insured maximum limitation. There is no specific recognition of this potential
future payment in the accompanying financial statements as the Company believes the potential for any claims is remote.
Liabilities for the fair value of each of the guarantee instruments noted above 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 or Other liabilities (as appropriate) on the Consolidated Balance Sheets. The
recognition of these liabilities did not have a material impact on the Company’s financial condition or results of operations
for the twelve months ended December 31, 2004 or 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.
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 $8.5 million and $17.1
million during 2004 and 2003, respectively, in the foreign currency translation adjustments line of Other comprehensive
income (expense) related to hedges of net investments.
At December 31, 2004 and 2003, the Company had $93.7 million and $78.4 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
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, 2004 and 2003. 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.
HARSCO CORPORATION 2004 ANNUAL REPORT 89
Forward Exchange Contracts
(In thousands)
As of December 31, 2004
Euros
Euros
British pounds sterling
Canadian Dollars
Canadian Dollars
Australian Dollars
Australian Dollars
Total
Type
Buy
Sell
Buy
Buy
Sell
Buy
Sell
U.S. Dollar
Equivalent
$ 33,210
40,779
7,287
7,210
3,149
433
1,629
$ 93,697
Maturity
Through February 2005
January 2005
January 2005
January 2005
January 2005
January 2005
Through April 2005
Recognized
Gain (Loss)
$ 368
(968)
(195)
178
(73)
14
(29)
$ (705)
At December 31, 2004, the Company held forward exchange contracts in British pounds sterling, euros, Canadian dollars
and Australian dollars which were used to offset certain future payments between the Company and its various
subsidiaries or vendors. These contracts all mature by April 2005. The Company had an outstanding forward contract
designated as a SFAS 133 cash flow hedge in the amount of $587 thousand at December 31, 2004. This forward
contract had an unrealized gain of $67 thousand that was included in Other comprehensive income (expense) net of
deferred taxes at December 31, 2004. 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, 2003
Euros
Euros
British pounds sterling
British pounds sterling
Total
Type
Sell
Buy
Buy
Sell
U.S. Dollar
Equivalent
$ 44,186
27,008
6,139
1,082
$ 78,415
Maturity
By February 2004
By February 2004
By February 2004
By February 2004
Recognized
Gain (Loss)
$ (270)
227
119
(48)
28
$
At December 31, 2003, the Company held forward exchange contracts in British pounds sterling and euros which were
used to offset certain future payments between the Company and its various subsidiaries or vendors. These contracts all
matured 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.
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 as follows:
Cash and cash equivalents
The carrying amount approximates fair value due to the relatively short period to maturity of these instruments.
Foreign currency forward exchange contracts
The fair value of foreign currency forward exchange contracts is estimated by obtaining quotes from brokers.
90 HARSCO CORPORATION 2004 ANNUAL REPORT
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.
The carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2004 and
2003 are as follows:
(In thousands)
2004
2003
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Assets:
Cash and cash equivalents
Foreign currency forward exchange contracts
Liabilities:
Long-term debt including current maturities
Foreign currency forward exchange contracts
$ 94,093
-
$ 94,093
-
$ 80,210
28
$ 80,210
28
$ 609,664
705
$ 651,456
705
$ 598,677
-
$ 633,190
-
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. There were no significant inter-segment sales.
The Company's Divisions are aggregated into three reportable segments and an “all other” category labeled Engineered
Products and Services. Due to management changes, effective January 1, 2004, the air-cooled heat exchangers
business was reclassified from the Gas and Fluid Control Segment to the Other Infrastructure Products and Services (“all
other”) Category. In June 2004, the Company announced a new identity for its Gas and Fluid Control Segment and
renamed it Gas Technologies. Additionally, the Other Infrastructure Products and Services (“all other”) Category was
renamed the Engineered Products and Services (“all other”) Category. 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 Technologies
Major products and services are gas containment cylinders and tanks; cryogenic equipment; and valves, regulators and
gauges for high pressure and liquid propane gas equipment, refrigeration, specialty, scuba and life support equipment.
Major customers include various industrial markets; petrochemical sectors; 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.
HARSCO CORPORATION 2004 ANNUAL REPORT 91
Engineered 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; boilers and
water heaters; air-cooled heat exchangers; and process equipment, including industrial blenders, dryers and mixers.
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; natural gas and process industries; and the institutional building and retrofit markets.
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 42% and 21%, respectively, in 2004; 43% and 21%,
respectively, in 2003; and 46% and 21%, respectively, in 2002. No single customer represented 10% or more of the
Company's sales during 2004, 2003 or 2002. 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 2002 to 2004 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. 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, 2004 and 2003, and are disclosed
separately in the geographic area information.
Segment Information
Twelve Months Ended
(In millions)
December 31, 2004
December 31, 2003 (a)
December 31, 2002 (a)
Sales (b)
Operating
Income (c)
Sales (b)
Operating
Income (c)
Sales (b)
Operating
Income (c)
Mill Services Segment
$ 997.4
$ 105.5
$ 827.5
$
85.9
$ 696.8
$
73.5
Access Services Segment
Gas Technologies Segment
706.5
339.1
44.4
14.4
619.1
294.0
37.4
14.5
587.9
307.9
41.7
22.0
Segment Totals
2,043.0
164.3
1,740.6
137.8
1,592.6
137.2
Engineered Products and Services
(“all other”) Category
459.1
47.0
377.9
36.5
384.1
General Corporate
-
(1.5)
-
(0.4)
-
38.6
0.2
Consolidated Totals
$ 2,502.1
$ 209.8
$ 2,118.5
$ 173.9
$ 1,976.7
$ 176.0
(a)
(b)
(c)
Segment information for 2003 and 2002 has been reclassified to conform with the current presentation.
Sales from continuing operations to unaffiliated customers.
Operating income (loss) from continuing operations.
92 HARSCO CORPORATION 2004 ANNUAL REPORT
38.6
0.2
176.0
0.3
3.7
Reconciliation of Segment Operating Income to Consolidated Income
Before Income Taxes and Minority Interest
(In millions)
Twelve Months Ended
December 31
2004
December 31
2003 (a)
December 31
2002 (a)
Segment operating income
$ 164.3
$ 137.8
$ 137.2
Engineered Products and Services
(“all other”) Category
General Corporate Income (Expense)
47.0
(1.5)
36.5
(0.4)
Operating income from continuing operations
209.8
173.9
Equity in income of unconsolidated entities, net
Interest Income
Interest Expense
0.1
2.3
0.3
2.2
(41.0)
(40.5)
(43.3)
Income from continuing operations before income taxes
and minority interest
$ 171.2
$ 135.9
$ 136.7
(a) Segment information for 2003 and 2002 has been reclassified to conform with the current presentation.
Segment Information
Assets (a)
Depreciation and
Amortization (b)
(In millions)
2004
2003 (c)
2002 (c)
2004
2003 (c)
2002 (c)
Mill Services Segment
$ 985.6
$ 898.0
$ 766.8
$ 107.7
$ 96.9
$ 86.2
Access Services Segment
Gas Technologies Segment
763.9
257.2
696.2
239.5
685.4
238.4
48.0
12.7
41.7
13.0
37.4
13.9
Segment Totals
2,006.7
1,833.7
1,690.6
168.4
151.6
137.5
Engineered Products and Services
(“all other”) Category
Corporate
Total
274.6
108.5
215.7
226.2
88.6
82.5
14.7
1.3
15.9
1.4
16.9
1.3
$ 2,389.8
$ 2,138.0
$ 1,999.3
$ 184.4
$ 168.9
$ 155.7
(a) Assets from discontinued operations of $0.5 million, $1.0 million and $1.3 million in 2004, 2003 and 2002, respectively, are included in the Gas
Technologies Segment.
(b) Depreciation and amortization from discontinued operations of $0.5 million in 2002 are included in the Gas Technologies Segment.
(c) Segment information for 2003 and 2002 has been reclassified to conform with the current presentation.
HARSCO CORPORATION 2004 ANNUAL REPORT 93
Capital Expenditures (a)
(In millions)
2004
2003 (b)
2002 (b)
Mill Services Segment
$ 120.9
$ 88.1
$ 62.5
Access Services Segment
Gas Technologies Segment
50.4
8.9
41.2
7.8
34.3
8.3
Segment Totals
180.2
137.1
105.1
Engineered Products and Services
(“all other”) Category
Corporate
Total
22.6
1.4
6.3
0.4
8.8
0.4
$ 204.2
$ 143.8
$ 114.3
(a) Capital Expenditures from discontinued operations of $0.6 million in 2002 are included in the Gas Technologies Segment.
(b) Segment information for 2003 and 2002 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
2004
2004
Assets
2003
2002
$ 1,047.4
$ 902.4
$ 903.2
$ 721.8
$ 650.0
$ 648.4
534.1
920.6
453.4
762.7
405.7
667.8
578.9
980.6
506.6
892.8
477.7
790.7
Totals excluding Corporate
$ 2,502.1
$ 2,118.5
$ 1,976.7
$ 2,281.3
$ 2,049.4
$ 1,916.8
(a) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
Information about Products and Services
Product Group
(In millions)
Mill services
Access services
Industrial gas products
Railway track maintenance services and equipment
Industrial grating products
Industrial abrasives and roofing granules
Heat exchangers
Powder processing equipment and heat transfer products
Medical waste disposal (divested in 2002)
Consolidated Sales
Sales to Unaffiliated Customers
2002
2003
2004
$ 997.4
706.5
339.1
209.8
85.6
70.9
60.1
32.7
-
$ 827.5
619.1
293.9
173.1
66.2
68.9
41.2
28.6
-
$ 2,502.1
$ 2,118.5
$ 696.8
587.9
307.8
157.2
86.0
68.7
42.8
28.5
1.0
$ 1,976.7
94 HARSCO CORPORATION 2004 ANNUAL REPORT
15. Other (Income) and Expenses
In the years 2004, 2003 and 2002, the Company recorded pre-tax Other (income) and expenses from continuing
operations of $4.9 million, $7.0 million and $3.5 million, respectively. The major components of this income statement
category are as follows:
(In thousands)
Net gains
Other (Income) and Expenses
2003
2004
2002
$ (1,524)
$ (3,543)
$ (7,091)
Impaired asset write-downs
484
168
204
Employee termination benefit costs
3,892
6,064
7,140
Costs to exit activities
975
2,725
1,934
Other expense
1,035
1,541
1,286
Total
$ 4,862
$ 6,955
$ 3,473
Net Gains
Net gains are recorded from the sales of redundant properties (primarily land, buildings and related equipment) and non-
core assets. In 2004, this included $1.1 million in the Access Services Segment and $0.4 million in the Mill Services
Segment.
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 Engineered 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.
Cash proceeds associated with these gains are included in Proceeds from the sale of assets in the investing activities
section of the Consolidated Statements of Cash Flows.
Impaired Asset Write-downs
Impairment losses are measured as the amount by which the carrying amount of assets exceeded their estimated fair
value. Fair value is estimated based upon the expected future realizable cash flows including anticipated selling prices.
Non-cash impaired asset write-downs are included in Other, net in the Consolidated Statements of Cash Flows as
adjustments to reconcile net income to net cash provided by operating activities.
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).
HARSCO CORPORATION 2004 ANNUAL REPORT 95
The total amount of employee termination benefit costs incurred for the years 2004, 2003 and 2002 was as follows. None
of the actions are expected to incur any additional costs.
(In thousands)
Employee Termination Benefit Costs
2003
2002
2004
Mill Services Segment
$ 1,338
$ 3,101
$ 3,591
Access Services Segment
Gas Technologies Segment (a)
Engineered Products and Services (“all
other”) Category (a)
Corporate
Total
1,504
229
685
136
1,778
174
749
262
1,722
247
1,475
105
$ 3,892
$ 6,064
$ 7,140
(a) Segment information for prior periods has been reclassified to conform with the current presentation. Due to management
changes, effective January 1, 2004, the air-cooled heat exchangers business, which was previously classified in the Gas
Technologies Segment, is classified in the Engineered Products and Services (“all other”) category.
The terminations for the years 2002 to 2004 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, 2005:
(In thousands)
Employee termination benefits expense
Payments:
In 2001
In 2002
In 2003
In 2004
Total payments:
Other:
Remaining payments as of December 31, 2004
Original reorganization action period
2004
2003
$ 3,892
$ 6,064
2002
$ 7,140
2001
$ 10,135
-
-
-
(2,178)
(2,178)
33
$ 1,747
-
-
(3,838)
(1,859)
(5,697)
87
$ 454
-
(4,438)
(2,627)
(52)
(7,117)
42
65
$
(6,142)
(1,997)
(2,215)
(33)
(10,387)
252
-
$
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 exit or disposal activities (e.g., costs to consolidate or close
facilities and relocate equipment or employees) are recognized and measured at their fair value in the period in which the
liability is incurred. In 2004, $1.0 million of exit costs were incurred. These were principally relocation costs and lease
run-out costs for mainly the Mill Services and Access Services Segments.
In 2003 and 2002, exit costs incurred were $2.7 million and $1.9 million, respectively. These were principally lease run-
out costs, lease termination costs and relocation costs for mainly the Mill Services and Access Services Segments.
96 HARSCO CORPORATION 2004 ANNUAL REPORT
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
2004
First
Second
Third
Fourth
$ 556.3
$ 617.6
$ 617.3
$ 710.9
127.3
149.7
146.5
162.1
16.9
0.41
0.41
30.7
0.75
0.74
38.6
0.94
0.93
35.0
0.85
0.84
2003
First
Second
Third
Fourth
$ 487.9
$ 536.4
$ 530.2
$ 564.0
112.2
132.6
130.2
139.1
12.5
0.31
0.31
25.6
0.63
0.63
28.5
0.70
0.69
25.6
0.63
0.62
(a) Gross profit is defined as Sales less costs and expenses associated directly with or allocated to products sold or services rendered.
Common Stock Price and Dividend Information
(Unaudited)
2004
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Market Price Per Share
High
Low
Dividends Declared
Per Share
$ 48.78
47.00
47.35
56.24
$ 32.60
36.88
39.49
44.39
$ 43.00
40.10
41.87
44.55
$ 27.50
30.30
35.14
37.06
$ 0.2750
0.2750
0.2750
0.3000
$ 0.2625
0.2625
0.2625
0.2750
HARSCO CORPORATION 2004 ANNUAL REPORT 97
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosures
None.
Item 9A. Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an
evaluation of the effectiveness of disclosure controls and procedures as of December 31, 2004. 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.
Management’s Report on Internal Controls Over Financial Reporting is included in Part II, Item 8, “Financial Statements
and Supplementary Data.” Management’s assessment of the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report appearing in Part II, Item 8, “Financial Statements and
Supplementary Data,” which expresses unqualified opinions on management’s assessment and on the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2004.
Item 9B. Other Information
10b5-1 Plan
The Chief Executive Officer (CEO) of the Company adopted in the Fourth Quarter of 2004, a personal trading plan, as
part of a long-term strategy for asset diversification and liquidity, in accordance with the Securities and Exchange
Commission’s Rule 10b5-1. Under the plan, the CEO will exercise, under pre-arranged terms, up to 167,500 options in
open market transactions. The 167,500 options represent approximately 38% of his total option holdings at the time the
trading plan was initiated. The trading plan will expire in December 2005. As of March 10, 2005, 75,500 shares have
been sold under the trading plan.
The Chief Financial Officer (CFO) of the Company adopted in the Third Quarter of 2004, a personal trading plan, as part
of a long-term strategy for asset diversification and liquidity, in accordance with the Securities and Exchange
Commission’s Rule 10b5-1. Under the plan, the CFO will exercise, under pre-arranged terms, up to 40,000 options in
open market transactions, some of which are set to expire within the next year. The 40,000 options represented
approximately 30% of his total option holdings at the time the trading plan was initiated. The trading plan expired in
February 2005. As of the expiration of the trading plan, all 40,000 shares had been sold.
Rule 10b5-1 allows officers and directors, at a time when they are not in possession of material non-public information, to
adopt written plans to sell shares on a regular basis under pre-arranged terms, regardless of any subsequent non-public
information they may receive. Exercises of stock options by the CEO or CFO pursuant to the terms of the plan will be
disclosed publicly through Form 144 and Form 4 filings with the Securities and Exchange Commission.
98 HARSCO CORPORATION 2004 ANNUAL REPORT
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,” “Report of the Audit Committee” and “Section 16(a) Beneficial
Ownership Reporting Compliance” of the 2005 Proxy Statement.
The Company’s Code of Ethics for the Chief Executive Officer and Senior Financial Officers (the “Code”) may be found on
the Company’s internet website, www.harsco.com. The Company intends to disclose on the website any amendments to
the Code or any waiver from a provision of the Code. The Code is available in print to any stockholder who requests it.
Item 11. Executive Compensation
Information regarding compensation of executive officers and directors is incorporated by reference to the sections
entitled “Management Development and 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 2005
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 2005
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 stockholder 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 the Company’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.
HARSCO CORPORATION 2004 ANNUAL REPORT 99
The following table gives information about equity awards under these plans as of December 31, 2004. All securities
referred to are shares of Harsco common stock.
Equity Compensation Plan Information
Column (b)
Column (a)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding
options, warrants and
rights
Column (c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
1,115,994
$30.97
1,474,781
5,107 (2)
1,121,101
$40.14 (3)
$31.01
-
1,474,781
Plan category
Equity compensation plans
approved by security
holders (1)
Equity compensation plans
not approved by
security holders
Total
(1) Plans include the 1995 Executive Incentive Compensation Plan, as amended, and the 1995 Non-Employee Directors’ Stock Plan, as
amended.
(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 British pounds sterling. The price shown is translated into U. S. dollars at an exchange
rate of $1.9185 effective December 31, 2004.
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, the Company 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, the Company 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 varied depending
on the original SGB Option date of grant and ranged from 11.45 British pounds sterling to 20.92 British pounds sterling.
All Harsco Replacement Options currently outstanding have an exercise price of 20.92 British pounds sterling. 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 2005 Proxy Statement.
Item 14. Principal Accountant 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 2005 Proxy Statement.
100 HARSCO CORPORATION 2004 ANNUAL REPORT
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a) 1. The Consolidated Financial Statements are listed in the index to Item 8, "Financial Statements and
Supplementary Data," on page 55.
(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 Registered Public
Accounting Firm
Page
56
Schedule II - Valuation and Qualifying
Accounts for the years 2004, 2003 and 2002
102
Schedules other than the schedule listed above are omitted for the reason that they are either not
applicable or not required or because the information required is contained in the financial statements
or notes thereto.
Condensed financial information of the registrant is omitted since there are no substantial amounts of
"restricted net assets" applicable to the Company's consolidated subsidiaries.
Financial statements of 50% or less owned unconsolidated companies are not submitted inasmuch as
(1) the registrant's investment in and advances to such companies do not exceed 20% of the total
consolidated assets, (2) the registrant's proportionate share of the total assets of such companies does
not exceed 20% of the total consolidated assets, and (3) the registrant's equity in the income from
continuing operations before income taxes of such companies does not exceed 20% of the total
consolidated income from continuing operations before income taxes.
HARSCO CORPORATION 2004 ANNUAL REPORT 101
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 2004:
Deducted from receivables:
Uncollectible accounts
Deducted from inventories:
Inventory valuations
Other reorganization and
valuation reserves
For the year 2003:
Deducted from receivables:
Uncollectible accounts
Deducted from inventories:
Inventory valuations
Other reorganization and
valuation reserves
For the year 2002:
Deducted from receivables:
Uncollectible accounts
Deducted from inventories:
Inventory valuations
Other reorganization and
valuation reserves
$ 24,612
$ 5,048
$
863
$ (11,428) (b)
$ 19,095
$ 5,950
$ 2,849
$
343
$ (4,084)
$ 5,058
$ 6,692
$ 4,811
$
283
$ (6,547)
$ 5,239
$ 36,483
$ 3,389
$ 1,609
$ (16,869) (c)
$ 24,612
$ 4,541
$ 2,775
$
535
$ (1,901)
$ 5,950
$ 8,373
$ 7,409
$
643
$ (9,733)
$ 6,692
$ 32,495
$ 6,913
$ 1,655
$ (4,580)
$ 36,483
$ 5,487
$ 2,514
$
467
$ (3,927)
$ 4,541
$ 19,559
$ 7,709
$
764
$ (19,659) (d)
$ 8,373
(a) Includes principally the use of previously reserved amounts.
(b) Includes $5,322 for the write-off of six accounts receivable in the Mill Services Segment as well as the write-off of other accounts
receivable for all segments.
(c) 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.
(d) Includes the use of previously reserved Bio-Oxidation balance of $10,377.
102 HARSCO CORPORATION 2004 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 2004 ANNUAL REPORT 103
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(a) (v)
Agreement extending term of $50,000,000 Facility
Exhibit to Form 8-K dated January 25, 2005
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)
Three Year Credit Agreement
Exhibit to Form 8-K dated August 12, 2004
10(i)
10(j)
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
Commercial Paper Placement Agency Agreement dated
November 6, 1998, between Chase Securities, Inc. and
Harsco Corporation
Exhibit volume, 1998 10-K
104 HARSCO CORPORATION 2004 ANNUAL REPORT
Exhibit
Number
Data Required
Location in 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)
Harsco Corporation 1995 Executive Incentive
Proxy Statement dated March 23, 2004 on
Compensation Plan As Amended and Restated
Exhibit B pages B-1 through B-15
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
10(v)
Harsco Corporation 1995 Non-Employee Directors' Stock
Plan As Amended and Restated at January 27, 2004
Proxy Statement dated March 23, 2004 on
Exhibit A pages A-1 through A-9
10(x)
Settlement and Consulting Agreement
Exhibit to 10-Q for the period ended March 31,
2003
10(y)
Restricted Stock Units Agreement
Exhibit to Form 8-K dated January 24, 2005
HARSCO CORPORATION 2004 ANNUAL REPORT 105
Exhibit
Number
Data Required
Location in 10-K
Employment Agreements -
10(q)
D. C. Hathaway
"
"
G. D. H. Butler
S. D. Fazzolari
Exhibit volume, 1989 10-K Uniform
agreement, the same as shown for
J. J. Burdge
" "
" "
10(r)
Special Supplemental Retirement Benefit Agreement for
Exhibit Volume, 1988 10-K
D. C. Hathaway
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
K. G. Eddy
Exhibit volume, 1989 10-K Uniform
agreement, same as shown for J. J. Burdge
" "
" "
" "
" "
" "
" "
Exhibit to Form 8-K dated August 27, 2004
106 HARSCO CORPORATION 2004 ANNUAL REPORT
Exhibit
Number
12
21
23
31(a)
31(b)
Data Required
Location in 10-K
Computation of Ratios of Earnings to Fixed Charges
Exhibit volume, 2004 10-K
Subsidiaries of the Registrant
Exhibit volume, 2004 10-K
Consent of Independent Accountants
Exhibit volume, 2004 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, 2004 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, 2004 10-K
32(a)
Certification Pursuant to 18 U.S.C. Section 1350, as
Exhibit volume, 2004 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, 2004 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.
HARSCO CORPORATION 2004 ANNUAL REPORT 107
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 3-10-05
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 capacity and on the dates indicated.
SIGNATURE
CAPACITY
DATE
Chairman, President and Chief
Executive Officer
Senior Vice President - Operations
and Director
Senior Vice President, Chief
Financial Officer, Treasurer and
Director (Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
3-10-05
3-10-05
3-10-05
3-10-05
3-10-05
3-10-05
3-10-05
3-10-05
3-10-05
3-10-05
3-10-05
3-10-05
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
Derek C. Hathaway
(Derek C. Hathaway)
Geoffrey D. H. Butler
(Geoffrey D. H. Butler)
Salvatore D. Fazzolari
(Salvatore D. Fazzolari)
Stephen J. Schnoor
(Stephen J. Schnoor)
Kathy G. Eddy
(Kathy G. Eddy)
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)
108 HARSCO CORPORATION 2004 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 con-
ference calls and other significant investor events are posted
when they occur.
Securities analysts, portfolio managers, representatives of insti-
tutional investors and other interested parties seeking informa-
tion about the Company should contact:
Eugene M. Truett
Vice President - Investor Relations and Credit
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.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
2001 Market Street
Philadelphia, PA 19103
Registrar, Transfer & Dividend Disbursing Agent
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
Mail: P.O. Box 3315
South Hackensack, NJ 07606
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
Registered stockholders can view current information regarding
their stockholder account online through Investor Service Direct
at https://vault.melloninvestor.com/isd/. Each investor’s account
is password-protected and available 24 hours a day, seven days
a week.
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.
Annual Meeting
April 26, 2005, 10:00 am
Radisson Penn Harris Hotel & Convention Center
1150 Camp Hill Bypass
Camp Hill, PA 17011
Tel: 717.763.7117
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.
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 Dividends Declared
High
Low
Per Share
2004
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$48.78
47.00
47.35
56.24
$32.60
36.88
39.49
44.39
$43.00
40.10
41.87
44.55
$27.50
30.30
35.14
37.06
$0.275
0.275
0.275
0.300
$0.2625
0.2625
0.2625
0.2750
High and low per share data are as quoted on the New York
Stock Exchange.
Comparison of Five Year Cumulative Total Returns
Harsco Corporation
S&P MidCap 400 Index
Dow Jones Industrial-Diversified
220
200
180
160
140
120
100
80
60
40
1999
2000
2001
2002
2003
2004
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.
HARSCO CORPORATION 2004 ANNUAL REPORT
109
MILL SERVICES
MultiServ
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381400
www.multiserv.com
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
ENGINEERED PRODUCTS
& SERVICES
Harsco Track Technologies
2401 Edmund Road, Box 20
West Columbia, SC 29171-0020 U.S.A.
Tel: 803.822.9160
www.harscotrack.com
Reed Minerals
4718 Old Gettysburg Road
Mechanicsburg, PA 17055 U.S.A.
Tel: 717.763.4200
www.reedminerals.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
Air-X-Changers
P.O. Box 1804
Tulsa, OK 74101 U.S.A.
Tel: 918.266.1850
www.airx.com
GAS TECHNOLOGIES
Harsco GasServ
4718 Old Gettysburg Road
Mechanicsburg, PA 17055 U.S.A.
Tel: 717.763.5060
www.harscogasserv.com
HARSCO CORPORATION
350 Poplar Church Road
P.O. Box 8888
Camp Hill, PA 17001-8888 U.S.A.
Tel: 717.763.7064
www.harsco.com
Produced entirely in-house by Harsco Corporation.
Printing by ITP, a subsidiary of Continental Press, Inc.