G L O B A L G R O W T H
2 0 0 5 A n n u a l Re p o r t
Harsco Corporation is a diversified
industrial services and engineered
products company with market-leading
operations around the world serving
the steel, construction, railway and
energy industries.
Our ten divisions are organized in four
operating groups: Mill Services, Access
Services, Engineered Products and
Services, and Gas Technologies. We
employ approximately 21,000 people at
more than 400 locations in 45 countries.
Contents
2
Report to Stockholders
5
Stockholder Value Creation
Corporate Profile
6
Corporate Responsibility & Governance 8
10
Glossary of Financial Terms
11
Form 10-K Annual Report
Visit our Website
To learn more about
Harsco’s services,
products and history,
we invite you to visit our
newly re-designed and
expanded website at
www.harsco.com.
Financial Highlights
Total Revenues
(Dollars in millions)
Operating Income
(Dollars in millions)
Up 11% in 2005
Up 28% in 2005
,
2
0
5
9 2
1
1
2
,
5
2
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2
,
7
7
9
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,
6
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,
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9
8
6
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.
8
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3
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7
7
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.
0
6
7
1
01
02
03
04
05
01
02
03
04
05
U.S. International
U.S. International
2005 Revenues
(Dollars in millions)
Mill Services - $1,060; 38%
Access Services - $789; 29%
Engineered Products
& Services - $547; 20%
Gas Technologies - $370; 13%
2005 Revenue Sources
North America - 44%
Europe - 40%
Middle East and Africa - 6%
Latin America - 5%
Asia/Pacific - 5%
Cautionary Notice with Respect to Forward-Looking Statements
This document contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on
management's current expectations and are subject to changes and uncertainties that could cause future results to differ materially. Please refer to the section herein entitled
"Forward-Looking Statements" for further information.
Diluted Earnings
Per Share
(In dollars)
Year-end Market
Price of Stock
(In dollars)
Cash Dividends
Declared Per Share
(In dollars)
Up 28% in 2005
Up 21% in 2005
Up 9% in 2005
2
7
3
.
1
9
2
.
1
2
2
.
5
2
2
.
9
7
1
.
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7
6
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4
7
5
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.
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8
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05
01
02
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02
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04
05
Dollars in thousands, except per share amounts
2005
2004
2003
2002
2001
Operating Information
Total revenues from continuing operations
Operating income from continuing operations
Net income
$ 2,766,210 $ 2,502,059
209,849
121,211
268,948
156,657
$2,118,516
173,892
92,217
$1,976,732
175,971
90,106
$2,025,163
167,736
71,725
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
1.5:1
11.4%
16.7%
10.8%
50.4%
$ 3.72
3.73
23.79
1.225
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%
$ 2.25
2.12
19.01
1.0625
1.5:1
8.3%
12.6%
8.7%
49.8%
$ 2.21
2.17
15.90
1.0125
1.5:1
7.4%
11.1%
8.1%
52.6%
$ 1.79
1.86
17.16
0.97
Diluted average shares outstanding (in thousands)
Number of employees
42,080
21,000
41,598
18,500
40,973
17,500
40,680
17,500
40,066
18,700
(1) Ratios are based on continuing operations.
HARSCO CORPORATION 2005 ANNUAL REPORT
1
Report to Stockholders
Consistent with our strategic objectives for sustainable, long-term
growth, the outcome for 2005 was as expected.
Revenues for the year reached $2.77 billion,
an 11 percent increase over the prior year.
Harsco's geographical, political and economic
risk diversification enabled all four operating
groups to contribute to the year's success. Our
Mill Services segment topped the $1 billion
revenue mark for the first time. Strong sales
Particularly satisfying to
your Board and management
team is the fact that Harsco
stockholders have shared
substantially in our improving
performance, which is
management's fundamental
motivator and objective.
growth was
recorded in
our
Engineered
Products
and
Services
group, up
19 percent
for the year,
and our
Access
Services
segment,
up 12
percent. The Gas Technologies segment grew
sales over 9 percent against a backdrop of
improving international market conditions and a
revitalized management team.
Similar balance is evident in our 2005 income
performance, reflecting positive year-over-year
improvement from all four groups. Net income
climbed 29 percent to $156.7 million, or $3.72
per diluted share, up from $2.91 per diluted
share in the prior year. Operating income
increased to $268.9 million, up 28 percent.
Operating cash flow rose 17 percent to $315
million, compared with $270 million in 2004.
Particularly satisfying to your Board and
management team is the fact that Harsco
stockholders have shared substantially in our
improving performance, which is management's
fundamental motivator and objective. The total
return on Harsco stock was 23.7 percent in
2005, and more than 128 percent over the past
three years. In 2005, we distributed nearly $50
million in dividends to Harsco stockholders. For
2006, we have increased our dividend rate by
over 8 percent, thus marking our 12th
successive dividend increase in each of the past
12 years.
The primary underpinning of Harsco's consistent
year-over-year growth continues to be our global
industrial services business model, which
generally functions on the principle of: _ owning,
maintaining and operating equipment and
providing services as long-term contract partners
to customers around the world. De facto, we are
a capital intensive business and hence
compelled to be well-disciplined in our allocation
and management of capital. Application of the
Economic Value Added (EVA®) system ensures
that management rigorously examines every
capital undertaking for positive EVA benefit
before proceeding. I am pleased to report that
in 2005, our fourth year under EVA, we
completed our best performance yet, with all but
one division reporting improved EVA for the year.
We remain optimistic for the outlook across each
of our business groups. In 2006, we expect to
have two segments, Mill Services and Access
Services, generating combined annual revenues
in excess of $2 billion, and both having the
2
HARSCO CORPORATION 2005 ANNUAL REPORT
requisite growth opportunities to continue
their progress. A good part of their improving
performance will derive from the growth
investments we have been making in these
businesses to expand our services and
global footprint.
Our expectations also reflect the contributions
of the acquisitions we completed in 2005, and
which directly complement our growth focus.
The November acquisition of Hünnebeck GmbH
adds Europe's third-largest provider of highly
engineered construction formwork and
scaffolding services to the Harsco family, with
more than 60 branches and depots in 12
countries. Hünnebeck is a world-class
organization with strong product positions that
will further accelerate our strategic growth in
key European construction markets. With
our exit from the Youngman light access
manufacturing subsidiary in October, our Access
Services segment is now fully structured around
sales and rental services.
In late December, we availed ourselves of the
opportunity to add to our Mill Services base
when Brambles Industrial Services decided to
exit its Northern Hemisphere steel mill services
operations. These operations provide slag
processing and material handling services in the
U.K., France, Holland and the U.S. and also
include some specialty operations for the on-site
briquetting of waste materials for recycling into
the steelmaking process. The acquisition
expands our long-standing relationships with
several of the world's leading steelmakers. We
note, however, there are many opportunities to
grow our businesses organically, and that will
remain our primary focus.
The contributions of our niche manufacturing
businesses in the Engineered Products and
Services group were generally strong, giving rise
to a reasonable belief that 2006 will be another
year of solid performance. One of our principle
objectives in this group is to continue the
transition of our Harsco Track Technologies
railway track maintenance business more fully
toward our global services model. Three new
multi-year agreements signed in 2005 for 2006
start-up give us excellent momentum in this
direction. We expect contract service revenues
to represent about 40 percent of HTT's total in
2006, up from about 27 percent just three years
ago. Margins should continue to grow
accordingly, although in the immediate term we
may see a decline in HTT's comparative year-
over-year revenues, owing to the fact that service
revenues by their nature are spread over the full
life of the contract rather than being recorded in
one transaction as with the sale of equipment.
We have more demanding expectations of our
Gas Technologies group, where we have been
experiencing stronger international market
conditions for our cryogenic bulk tanks and also
seeing some improvement in our domestic
markets for certain products. A priority for 2006
will be to recapture market share and improve
operating performance, particularly in our valve
business.
China continues to be an emerging opportunity
across a number of our business units, and will
receive additional focus in 2006. Harsco
GasServ is making progress in the manufacture
and sale of cryogenic bulk tanks to the Chinese
market. China is also the largest international
customer for our railway track maintenance
equipment, and as the world's largest steel-
producing nation, a considerable potential
market for mill services. There are currently
hundreds of steel-related businesses in China of
all sizes and efficiencies, but only a small
percentage are among the strongest and most
modern. Our approach is to proceed cautiously
and selectively. There are several opportunities
under active consideration. To support our
strategic interests, we have recently opened a
centralized representative office in Beijing that
will oversee our business dealings in China.
HARSCO CORPORATION 2005 ANNUAL REPORT
3
be necessary throughout our increasingly global
organization. We will attack our costs of doing
business through our worldwide improvement
programs, as it is my firm belief that collective
and continuing diligence in this area from every
operation, every location, and every employee is
vital to our continuing progress. We have said
many times and reaffirm, "we cannot administer
our way to success." A third major initiative will
be to leverage our increasing size and scope to
become more efficient and strategic in such
areas as global purchasing.
Philosophically, we are incrementalists in our
approach to growth, preferring to build for the
long term in a deliberate, step-by-step fashion.
We have seen the stock market reward our
improving performance as it continues to more
fully appreciate Harsco's reliability to execute our
strategies and accomplish our goals. There is
much more to be achieved as we move forward,
and many opportunities to sustain our growth
momentum. In thanking all of our constituents
for your patient support, we look forward to
another year of satisfactory accomplishment.
Derek C. Hathaway
Chairman and Chief Executive Officer
March 3, 2006
In the execution of our strategies, one of the
many challenges in any business growth
initiative is to ensure that the organizational
structure and management team are in place to
achieve the expected rate of growth and returns.
It does little good to
set ambitious
targets if the right
people and structure
are not in place for
execution.
are incrementalists
Philosophically, we
in our approach to
growth, preferring to
build for the long
term in a deliberate,
step-by-step fashion.
We addressed
several of these
areas in 2005 and
followed through
with additional
appointments in
early 2006,
including the elevation of group-level executives
for our Engineered Products and Services and
Gas Technologies business groups. The
strengthening of our executive leadership team
and the handing over of certain administrative
duties to Sal Fazzolari, our Chief Financial Officer
and Treasurer, who now adds the title of
President of the Company, affords me the
opportunity to concentrate more fully on global
strategy and execution. It continues to be one
of Harsco's key attributes that, throughout the
Company, we have a capable, hands-on
management team that pays attention to what
is going on and applies its full energies to the
business at hand.
We look forward to tackling the challenges
ahead with our customary vigor and enthusiasm.
Among our initiatives will be the substantial
enhancement of our Information Technology
infrastructure to lay the foundation for the
greater connectivity and communication that will
4
HARSCO CORPORATION 2005 ANNUAL REPORT
Stockholder Value Creation
Economic Value Added
EVA
Adopted
We completed our
fourth year under the
Economic Value Added
(EVA®) discipline in
2005. Since its
inception we have
generated significant
EVA improvement. As
our share price over
this period
demonstrates, the
stock market adds a premium for expected future EVA
improvement, or subtracts a penalty for expected
EVA decline.
Harsco Year-End Share Price
$43.82
$34.30
$31.89
02
03
01
In 2005, we posted our best EVA performance yet and
our third consecutive year of improved EVA overall.
EVA represents the actual value that a company creates
after all its costs are met _ including the cost of the
capital provided by stockholders and lenders. We apply
EVA analysis to every major capital investment and
procurement decision we consider. In addition, we have
made EVA performance the principal factor in our
management incentive compensation program company-
wide. EVA ensures that our managers think and act like
owners when committing Harsco capital.
Dividends
Harsco has one of the longest traditions of any publicly-
traded company for rewarding stockholders with a
predictable and direct return on their investments. We
have paid dividends every year since 1939, and in 2005
raised our dividend for the 12th consecutive year. Our
payment of regular quarterly dividends at the same or
increased rate extends to more than 220 consecutive
quarters without interruption.
Annual Dividends Per Share
.
%
0
0
1
+
8
8
0
$
.
%
3
2
+
.
0
9
0
$
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%
4
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+
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4
9
0
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%
1
2
+
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6
9
0
$
%
0
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+
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5
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%
2
4
+
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%
7
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%
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%
3
5
+
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0
$
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%
3
8
+
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0
3
1
$
.
%
1
9
+
.
0
2
1
$
.
%
8
4
+
.
.
0
1
1
$
95
96
97
98
99
00
01
02
03
04
05
06
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 in
your checking or savings account, 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
$67.51
$55.74
04
05
(cid:139) EVA Improvement
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 our Registrar and
Transfer Agent, Mellon Investor Services LLC.
Comparison of Five Year Cumulative Total Returns
The following performance graph compares the yearly
percentage change in the cumulative total stockholder
return (assuming the reinvestment of dividends) on
Harsco common stock against the cumulative total return
of the Standard & Poor's MidCap 400 Index and Dow
Jones Industrial-Diversified Index. The graph assumes
an initial investment of $100 on December 31, 2000.
Cumulative Total Returns
$100
$314.29
$151.08
$91.66
00
01
02
03
04
05
Harsco
(cid:139) S&P Midcap
400 Index
(cid:83) Dow Jones
Industrial-Diversified
Quarterly Share Price and Dividend Information
High
Low
Dividends Declared
2005
Q1
Q2
Q3
Q4
2004
Q1
Q2
Q3
Q4
$61.35
61.10
66.20
70.57
$48.78
47.00
47.35
56.24
$49.87
52.37
53.56
59.70
$43.00
40.10
41.87
44.55
$0.3000
0.3000
0.3000
0.3250
$0.275
0.275
0.275
0.300
High and low per share data are as quoted on the
New York Stock Exchange. 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.
HARSCO CORPORATION 2005 ANNUAL REPORT
5
Corporate Profile
Mill Services
MultiServ
Countries of Operation: 32
Number of Employees: 11,500
Results (in millions of dollars)
Principal Services and Products
Sales
Operating Income
2003
2004
2005
2003
2004
2005
827.5
997.4
1,060.4
85.9
105.5
109.6
Harsco is the world's largest provider of
outsourced, on-site services to steel mills
and other metals producers. Operations
are conducted under renewable, long-term
contracts that provide a predictable cost
and revenue base, as well as
opportunities to add services for
additional mill requirements. Services
include slag handling and processing, by-
product recycling, semi- and finished
product management, raw materials
handling, and by-product slag marketing.
Access Services
Results (in millions of dollars)
Principal Services and Products
SGB
Hünnebeck
Patent Construction Systems
Countries of Operation: 27
Number of Employees: 5,250
Sales
619.1
706.5
788.8
Operating Income
37.4
44.5
74.8
2003
2004
2005
2003
2004
2005
Engineered Products and Services
Results (in millions of dollars)
Harsco Track Technologies
Sales
IKG Industries
Air-X-Changers
Reed Minerals
Patterson-Kelley
Countries of Operation: 5
Number of Employees: 2,250
2003
2004
2005
2003
2004
2005
377.9
459.1
546.9
Operating Income
36.5
47.0
69.7
Gas Technologies
Results (in millions of dollars)
Harsco GasServ
Taylor-Wharton
American Welding & Tank
Sherwood
Structural Composites Industries
Countries of Operation: 6
Number of Employees: 1,700
6
HARSCO CORPORATION 2005 ANNUAL REPORT
Sales
294.0
339.1
370.2
Operating Income
14.5
14.4
17.9
2003
2004
2005
2003
2004
2005
Harsco is a global leader in providing
access services solutions for major non-
residential construction and industrial
maintenance projects, including high-rise
hotels, condominium towers, offices,
industrial plants, stadiums and airports.
Principal rental equipment lines
include scaffolding and related access
equipment, and concrete forming and
shoring equipment.
Principal Services and Products
A diversified business group providing a
range of market-leading services
and niche manufactured products.
Principal lines include railway track
maintenance equipment and services;
industrial grating products; air-cooled heat
exchangers; roofing granules and
abrasives; and heating boilers and
process blending equipment.
Principal Services and Products
The world's leading technology, service
and manufacturing network for gas
applications involving pressure vessels
and precision valves. Principal lines
include cryogenic pressure vessels, high
pressure and acetylene cylinders,
composite wrapped cylinders and tubes,
propane tanks, and high pressure and LP
valves and regulators.
(L to R)
1. A MultiServ material transporter
moves hot steel billets at the
Aldwarke Steel Works in the U.K.
2. Hünnebeck’s formwork and
scaffolding equipment was used
extensively throughout construction
of this new office building in
Brussels.
3. Known as the Mud Mantis, this
unique Harsco Track Technologies
machine reclaims and cleans ballast
for re-use on railway track.
4. Harsco GasServ’s cryogenic bulk
tanks support an industrial gas
storage and distribution complex
in Asia.
Market Position
Near-Term Outlook
Strategic Initiatives
Currently serving approximately 160 mills
in 32 countries, with over 80% of sales
generated internationally. Competitors
include a number of regional and local
mill services providers, or to a larger
extent, the mills themselves that have not
chosen to outsource applicable services.
Global steel consumption is predicted to
increase by approximately 5% - 6% in
2006. Industry consolidation activity
among leading steel producers is
expected to continue. Further
outsourcing opportunities could result as
major producers continue to focus on
core steelmaking activities and increase
reliance on service partnerships.
Integrate Brambles
Pursue further service expansion with
existing and new customers as well as
continued geographic expansion,
including China.
Industrial Services northern hemisphere
mill services acquisition (December
2005) and Evulca conveyor belt
maintenance services acquisition
(June 2005). Drive effective cost
management at all locations. Consider
further bolt-on acquisitions.
Market Position
Near-Term Outlook
Strategic Initiatives
Largest worldwide rental equipment
branch network with more than 200
locations in 27 countries. Approximately
80% of sales generated internationally.
Harsco's competitive advantages include
the industry's widest range of products
and services, and significant technical
and engineering expertise.
Cyclical upturn is expected in non-
residential construction and
infrastructure development activity
across all markets. 2006 industry
forecasts predict 5% - 6% growth in
North America, the Middle East, and
Eastern Europe, each of which has a
strong Harsco Access Services presence.
Integrate Hünnebeck acquisition into
Harsco and capitalize on synergies
across all three Access Services
businesses: SGB, Hünnebeck, and
Patent. Build leadership positions in
regions with long-term growth potential.
Increase focus on higher margin
engineered forming and shoring work.
Leverage the group's combined
purchasing power. Consider further
bolt-on acquisitions.
Market Position
Near-Term Outlook
Strategic Initiatives
Harsco's railway track maintenance
services and equipment division ranks
number one in North America and
number two worldwide. Other units in
this business group all hold number one,
two or three market positions within their
respective niche sectors.
Market conditions remain healthy across
all product lines. Key market drivers
include major international railway
modernization and expansion projects;
increased energy demand; and
continued growth in infrastructure
revitalization and building construction.
Maintain improving operating
performance and EVA® trends. Execute
strategic transformation of the railway
track maintenance business towards
global industrial services model.
Capitalize on positive market trends and
improving backlog in each niche
manufacturing business.
Market Position
Near-Term Outlook
Strategic Initiatives
Industry's most complete range of
pressurized gas containment and control
products. Operates 23 manufacturing,
sales, warehouse and service facilities
in nine countries on five continents, and
markets its products in over 80
countries worldwide.
Demand for industrial gas products is
expected to continue to increase in
2006. Expanded services are expected
to offset the dampened demand for new
propane tanks caused by the high cost
of energy.
Continue to drive tight controls on
costs and margins through revitalized
management team and focused
operational improvements, including
restructured valve business. Leverage
international production capabilities
for increased international market
penetration, particularly in Europe
and China. Capitalize on new product
and service offerings.
HARSCO CORPORATION 2005 ANNUAL REPORT
7
Corporate Responsibility and Governance
Harsco's strength is evidenced not only by our operations and
results, but also our values. High standards of integrity remain
fundamental to the way Harsco does business.
Code of Conduct
The Harsco Corporation Code of Conduct is issued to
all Harsco directors, officers and employees. The
Code is also made available to the company's major
suppliers, representatives and consultants, who are
encouraged to comply with its applicable provisions.
A comprehensive update is being readied for
distribution in early 2006 within each of the principal
languages of our worldwide
operations.
An electronic file of the Code
of Conduct is available on
our website at
www.harsco.com, located
within the Corporate
Governance section. You
can also obtain a printed copy by contacting the
Corporate Communications department at the Harsco
corporate office.
Confidential Submission of Complaints or
Concerns Relating to Accounting or Auditing
Matters
Harsco has several methods available to report
complaints or concerns relating to our accounting,
internal accounting controls, or other related matters.
These include:
Writing to the Harsco corporate office, P.O. Box
8888, Camp Hill, Pennsylvania 17001-8888,
marked to the attention of Audit Committee
Confidential Submission;
Email to auditcommitteehotline@harsco.com; or
Calling toll-free 800.942.7726.
Contact can also be made with any member of the
Audit Committee of the Board. All reports are treated
confidentially to the fullest extent possible, and may
be made anonymously. Harsco will not tolerate any
retaliation or harassment against any individual who
in good faith raises a concern or reports misconduct.
8
HARSCO CORPORATION 2005 ANNUAL REPORT
Safety and Environmental Responsibility
Harsco's company-developed SafeGuard safety and
environmental programs reflect our commitments to
protecting the global environment, natural resources
and human health.
General Industry
Harsco
9
2
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8
2
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4
2
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00 01 02 03 04 05
Harsco
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.
.
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.
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1
6
8
4
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3
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00 01 02 03 04
Incidence of Total
Recordable Cases
Our basic safety
premise under
SafeGuard is that
all injuries and
occupational
illnesses are
preventable.
We insist that our
operations strive
for an injury-free
workplace, are
never satisfied
when injuries occur,
and take the
required action to
prevent them. Our
safety performance has continued to improve since
our formalization of the SafeGuard program, and
remains ahead of the General Industry averages. Our
ultimate goal, however, remains Zero Injuries.
Incidence of Lost
Workday Cases
General Industry
00 01 02 03 04
8
2
0
3
3
1
3
1
2
1
6
1
5
1
4
1
.
.
.
.
.
.
.
.
.
1
1
0
1
.
8
0
.
00 01 02 03 04 05
Through our SafeGuard environmental program, we
continually assess the environmental impact of our
operating facilities and products, and take actions
to eliminate unacceptable risks to customers,
employees, neighbors, and the communities in
which we operate.
Our commitment to the environment also extends to
the work we do. Harsco's on-site mill services to the
global steel industry include the processing of
approximately 45 million tons of by-product slag and
scrap material per year on behalf of our steelmaking
customers. Harsco is also the pioneer in recycling
electric utility coal slag into aesthetically pleasing,
competitively priced roofing granules as well as low-
free-silica blasting abrasives. Through our Reed
Minerals division, we convert more than one million
tons of coal slag material each year into useful,
environmentally-responsible products that would
otherwise go to landfill.
Corporate Governance
Board Committees
There are currently four standing committees of the
Harsco Board: Executive; Audit; Management
Development and Compensation; and Nominating and
Corporate Governance. The Board may establish
other committees from time to time as circumstances
dictate.
Each standing committee has a written charter which
is approved by the full Board and states the purpose
of the committee. The full text of each committee
charter is available on the Harsco website at
www.harsco.com.
Independence
Harsco's Corporate Governance principles require that
at least two-thirds of Harsco's Board 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
and Compensation, and Nominating and Corporate
Governance Committees are composed of only
members who qualify as "independent" directors and
at all times meet any other requirements of
applicable law and listing standards.
Further Information
For more information about our Board of Directors
and Corporate Governance principles and policies, we
invite you to visit our website at www.harsco.com.
Management's Certifications
The certifications of our Chief Executive Officer and
Chief Financial Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002 have been filed with the
Securities and Exchange Commission as exhibits to
our Annual Report on Form 10-K.
In addition, in May 2005, our Chief Executive Officer
provided to the New York Stock Exchange the annual
CEO certification regarding our compliance with the
New York Stock Exchange's corporate governance
listing standards.
Harsco Corporation is led by a strong and committed
Board of Directors who reflect broad executive
leadership experience in services, manufacturing,
international operations, finance, marketing and
management, as appropriate to our diversified
activities and global scope.
The primary responsibility of the Board is to oversee
and provide direction and counsel to the senior
management of the company. This includes:
Overseeing the conduct of the company's business
to assure that it is being properly managed;
Providing advice and counsel to the Chief
Executive Officer and other executives of the
company;
Reviewing and, where appropriate, approving the
company's major financial and operational
objectives, plans, strategies and actions;
Assisting management in the oversight of
compliance by the company with applicable laws
and regulations, including in connection with
public reporting obligations of the company;
Overseeing management with a goal of ensuring
that the assets of the company are safeguarded
through the maintenance of appropriate
accounting, financial, and other controls;
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 members of the company's senior
management team;
Planning for succession with respect to the Chief
Executive Officer and monitoring management's
succession planning for other key executives of the
company; and
Evaluating and taking steps to maintain the
effectiveness of the Board, by recommending
appropriate candidates for membership, by
establishing appropriate compensation, and by
regularly reviewing and evaluating the operations
of the Board, each Committee and each Board
member.
Harsco directors are expected to discharge the above
responsibilities by exercising their independent
business judgment in a manner that they believe in
good faith is in the best interest of the company and
our stockholders.
HARSCO CORPORATION 2005 ANNUAL REPORT
9
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.
10
HARSCO CORPORATION 2005 ANNUAL REPORT
Form 10-K
For the fiscal year ended December 31, 2005
Table of Contents
Part I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Supplementary Item Executive Officers of the Registrant
Business
Risk Factors
Unresolved Staff Comments
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 and Related
Stockholder Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Signatures
Page
13
18
24
24
26
26
26
28
29
29
55
56
100
100
100
101
101
101
102
102
103
110
HARSCO CORPORATION 2005 ANNUAL REPORT 11
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, 2005
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
Name of each
exchange on which registered
New York Stock Exchange and
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES
NO
NO
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
NO
requirements for the past 90 days.
YES
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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (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, 2005 was $2,271,446,562.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Common stock, par value $1.25 per share
Classes
Outstanding at February 28, 2006
41,835,886
Selected portions of the 2006 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 105 to 109 incorporates several documents by reference as indicated therein.
12
HARSCO CORPORATION 2005 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
45 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 "Investor Relations" link) the Company makes available, free of charge, its
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and all amendments to
those reports, as soon as reasonably 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 under long-
term contracts
• Steel mill production and capacity utilization
• Outsourcing of services
• Scaffolding, forming, shoring and other
access-related services, rentals and sales
• Non-residential construction
• Annual industrial and building maintenance cycles
• 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
• Air-cooled heat exchangers
• Natural gas drilling and transmission
• Gas control and containment products
- Cryogenic containers and industrial cylinders • General industrial production and industrial gas production
- Valves
- Propane Tanks
- Filament-wound composite cylinders
• Use of industrial fuel and refrigerant gases
• Respiratory care market
• Consumer barbeque grills market
• Use of propane as a primary and/or backup fuel
• Self-contained breathing apparatus (SCBA) market
• Natural gas vehicle (NGV) market
HARSCO CORPORATION 2005 ANNUAL REPORT 13
The Company reports segment information 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. These segments and the types of products and services offered are more fully described below.
Historical information has been reclassified for comparative purposes.
In 2005, 2004 and 2003, the United States contributed sales of $1.2 billion, $1.0 billion and $0.9 billion, equal to 42%,
42% and 43% of total sales, respectively. In 2005, 2004 and 2003, the United Kingdom contributed sales of $0.5 billion
each year, equal to 20%, 21% and 21% of total sales, respectively. No single customer represented 10% or more of the
Company's sales during 2005, 2004 and 2003. 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 – 38% of consolidated sales for 2005
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 on-site, outsourced 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 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 $4.3 billion at December 31, 2005. This provides the Company with a substantial base of long-term
revenues. Approximately 58% of these revenues are expected to be recognized by December 31, 2008. The
remaining revenues are expected to be recognized between January 1, 2009 and December 31, 2014.
MultiServ’s geographic reach to over 30 countries, and its increasing range of services, enhance the Company’s
financial and operating balance. In 2005, this Segment’s revenues were generated in the following regions:
Mill Services Segment
Region
Europe
North America
Latin America (a)
Asia/Pacific
Middle East and Africa
(a) Including Mexico.
2005 Percentage
of Revenues
49%
23%
12%
8%
8%
For 2005, 2004 and 2003, the Mill Services Segment’s percentage of consolidated sales was 38%, 40% and 39%,
respectively.
Access Services Segment – 29% of consolidated sales for 2005
The Access Services Segment includes the Company’s SGB Group, Hünnebeck Group GmbH 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 operates from a network of international branches throughout Europe, the Middle East and
Asia/Pacific; the Germany-based Hünnebeck Division serves Europe and the Middle East, while the U.S.-based
Patent Construction Systems Division serves the Americas. Major services include the rental and sale of scaffolding,
14
HARSCO CORPORATION 2005 ANNUAL REPORT
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 maintenance markets.
The Company’s access services are provided through branch locations in approximately 27 countries. In 2005, this
Segment’s revenues were generated in the following regions:
Access Services Segment
Region
Europe
North America
Middle East and Africa
Asia/Pacific
2005 Percentage
of Revenues
67%
22%
9%
2%
For 2005, 2004 and 2003, the Access Services Segment’s percentage of consolidated sales was 29%, 28% and 29%,
respectively.
Gas Technologies Segment – 13% of consolidated sales for 2005
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
primary source to the world’s leading industrial gas producers and distributors, as well as regional and local
customers. In 2005, approximately 86% 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 vehicles (NGV) 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 2005, 2004 and 2003, the Gas Technologies Segment’s percentage of consolidated sales was 13%, 14% and
14%, respectively.
Engineered Products and Services (“all other”) Category – 20% of consolidated sales for 2005
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 87% of this category’s
revenues originate in the United States.
Export sales for this Category totaled $116.6 million, $101.2 million and $71.1 million in 2005, 2004 and 2003,
respectively. In 2005, 2004 and 2003 export sales for the Harsco Track Technologies Division were $80.0 million,
$76.3 million and $52.8 million, respectively, which included sales to Europe, Asia, the Middle East and Africa.
Harsco Track Technologies is a global provider of equipment and services to maintain, repair and construct railway
track. The Company's railway track maintenance services provide high-technology comprehensive track maintenance
and new track construction support to railroad customers worldwide. The railway track maintenance equipment
product class includes specialized track maintenance equipment used by private and government-owned railroads
and urban transit systems worldwide.
Reed Minerals’ roofing granules and industrial abrasives are produced from utility coal slag at a number of locations
throughout the United States. The Company's Black Beauty® abrasives are used for industrial surface preparation,
such as rust removal and cleaning of bridges, ship hulls and various structures. Roofing granules are sold to
residential roofing shingle manufacturers, primarily for the replacement market. This Division is the United States’
largest manufacturer of slag abrasives and third largest manufacturer of residential roofing granules.
HARSCO CORPORATION 2005 ANNUAL REPORT 15
IKG Industries manufactures a varied line of industrial grating products at several plants in North America. These
products include a full range of bar grating configurations, which are used mainly in industrial flooring, 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 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 2005, 2004 and 2003, the Engineered Products and Services (“all other”) Category’s percentage of consolidated
sales was 20%, 18% and 18%, respectively.
(1) (i) The products and services of the Company include a number of product groups. These product groups are
more fully discussed in Note 14, Information by Segment and Geographic Area, to the Consolidated
Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.” The product
groups that contributed 10% or more as a percentage of consolidated sales in any of the last three fiscal
years are set forth in the following table:
Product Group
Mill Services
Access Services
Industrial Gas Products
Percentage of Consolidated Sales
2004
2005
2003
38%
29%
13%
40%
28%
14%
39%
29%
14%
(1) (ii) New products and services are added from time to time; however, in 2005 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. The profitability of the Company’s
manufactured products are affected by changing purchase prices of steel and other materials and
commodities. Beginning in 2004, the price paid for steel and certain other commodities increased
significantly compared with prior years. In 2005, the cost increases moderated for certain commodities.
However, if steel or other material costs associated with the Company’s manufactured products increase and
the costs cannot be passed on to the Company’s customers, operating income would be adversely affected.
Additionally, decreased availability of steel or other materials, such as carbon fiber used to manufacture
filament-wound composite cylinders, could affect the Company’s ability to produce manufactured products in
a timely manner. If the Company cannot obtain the necessary raw materials for its manufactured products,
then revenues, operating income and cash flows will be adversely affected.
(1) (iv) While the Company has a number of trademarks, patents and patent applications, it does not consider that
any material part of its business is dependent upon them.
(1) (v) The Company furnishes products and materials and certain industrial services within the Access Services
and Gas 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. Additionally, 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 latter part of the year.
The Company’s historical revenue patterns and cash provided by operating activities were as follows:
16
HARSCO CORPORATION 2005 ANNUAL REPORT
Historical Revenue Patterns
In millions
2005
2004
2003
2002
2001
First Quarter Ended March 31
$ 640.1
$ 556.3
$ 487.9
$ 458.6
$ 505.0
Second Quarter Ended June 30
696.1
Third Quarter Ended September 30
697.5
Fourth Quarter Ended December 31
732.5
617.6
617.3
710.9
536.4
530.2
564.0
510.3
510.5
497.3
510.1
510.3
499.7
Totals
$ 2,766.2
$ 2,502.1
$ 2,118.5
$ 1,976.7
$ 2,025.2 (a)
(a) Does not total due to rounding.
Historical Cash Provided by Operations
In millions
2005
2004
2003
2002
2001
First Quarter Ended March 31
$ 48.1
$ 32.4
$ 31.2
$
9.0
$
2.6
Second Quarter Ended June 30
Third Quarter Ended September 30
86.3
98.1
64.6
68.9
59.2
64.1
71.4
83.3
65.1
66.1
Fourth Quarter Ended December 31
82.7
104.6
108.4
90.1
106.9
Totals
$ 315.3 (a)
$ 270.5
$ 262.8 (a)
$ 253.8
$ 240.6 (a)
(a) Does not total due to rounding.
(1) (vi) The practices of the Company relating to working capital are similar to those practices of other industrial
service providers or manufacturers servicing both domestic and international industrial 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 in 2005, there
were three customers that each provided in excess of 10% of this segment’s revenues under multiple long-
term contracts at several mill sites, compared with two such customers for the years 2004 and 2003. The
loss of any one of the contracts would not have a material adverse effect upon the Company’s financial
position or cash flows; however, it could have a material effect on quarterly or annual results of operations.
Additionally, these customers have significant accounts receivable balances. In December 2005, the
Company acquired the Northern Hemisphere mill services operations of Brambles Industrial Services
(“BISNH”). This acquisition has increased the Company’s corresponding concentration of credit risk to these
customers. Further consolidation in the global steel industry is also possible. Should transactions occur
involving some of the steel industry’s larger companies that are customers of the Company, it would result in
an increase in concentration of credit risk for the Company. If a large customer were to experience financial
difficulty, or file for bankruptcy protection, it could adversely impact the Company’s income, cash flows and
asset valuations. In an effort to mitigate the increased concentration of credit risk, the Company is
considering the purchase of credit insurance for part of its receivable portfolio.
(1) (viii) Backlog of orders was $275.8 million and $243.0 million as of December 31, 2005 and 2004, respectively. It
is expected that approximately 32% of the total backlog at December 31, 2005 will not be filled during 2006.
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 timing and nature of the products and services provided. Contracts for the Mill
HARSCO CORPORATION 2005 ANNUAL REPORT 17
Services Segment are also excluded from the total backlog. These contracts have estimated future
revenues of $4.3 billion at December 31, 2005. 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.”
(1) (ix) At December 31, 2005, 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 $2.7 million, $2.6 million and $3.3 million in 2005, 2004
and 2003, 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, 2005, the Company had approximately 21,000 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 $171.0 million, $139.3 million and $108.5 million in 2005, 2004 and 2003,
respectively.
(e) Available Information
Information is provided in Part I, Item 1 (a), “General Development of Business.”
Item 1A. Risk Factors
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 subject to general economic slowdowns and cyclical conditions in the industries served.
In particular,
• The Company’s Mill Services business may be adversely impacted by slowdowns in steel mill production, excess
capacity, consolidation or bankruptcy of steel producers or a reversal or slowing of current outsourcing trends in the
steel industry;
• The Company’s Access Services business may be adversely impacted by slowdowns in non-residential construction
and annual industrial and building maintenance cycles;
18
HARSCO CORPORATION 2005 ANNUAL REPORT
• The railway track maintenance business may be adversely impacted by developments in the railroad industry that
lead to lower capital spending or reduced maintenance spending;
• The industrial abrasives and roofing granules business may be adversely impacted by reduced home resales or
economic conditions that slow the rate of residential roof replacement, or by slowdowns in the industrial and
infrastructure refurbishment industries;
• The industrial grating business may be adversely impacted by slowdowns in non-residential construction and
industrial production;
• The Air-X-Changers business is affected by cyclical conditions present in the natural gas industry. A high demand for
natural gas is currently creating increased demand for the Company’s air-cooled heat exchangers. However, a
slowdown in natural gas production could adversely affect the Air-X-Changers business; and
• The Company’s Gas Technologies business may be adversely impacted 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 Company’s defined benefit pension expense is directly affected by the equity and bond markets and a
downward trend in those markets could adversely impact the Company’s future earnings. An upward trend
in 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 beginning in
2003 and certain plan design changes (discussed below) contributed to a decrease in pre-tax defined benefit pension
expense from continuing operations of approximately $3.8 million for 2005 compared with 2004, and 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 pension committee continues to evaluate alternative strategies to further reduce overall pension expense
including the on-going evaluation of investment fund managers’ performance; the balancing of plan assets and liabilities;
the risk assessment of all multi-employer pension plans; the possible merger of certain plans; the consideration of
incremental cash contributions to certain plans; and other changes that are likely to reduce future pension expense
volatility and minimize risk.
The Company’s global presence subjects it to a variety of risks arising from doing business internationally.
The Company operates in 45 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;
HARSCO CORPORATION 2005 ANNUAL REPORT 19
•
•
•
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;
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 be negatively affected.
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 2005, 2004 and 2003, these countries contributed approximately $32.7 million, $25.5 million and $16.4
million, respectively, to the Company’s operating income. Additionally, the Company has operations in and sales to
countries that have encountered outbreaks of communicable diseases (e.g., Acquired Immune Deficiency Syndrome
(AIDS) and others). Should such outbreaks worsen or spread to other countries, the Company may be negatively
impacted through reduced sales to and within those countries and other countries impacted by such diseases.
Exchange rate fluctuations may adversely impact the Company’s business.
Fluctuations in foreign exchange rates between the U.S. dollar and the approximately 40 other currencies in which the
Company conducts business may adversely impact the Company’s operating income and income from continuing
operations in any given fiscal period. Approximately 58% of the Company’s sales and approximately 67% and 69% of the
Company’s operating income from continuing operations for the years ended December 31, 2005 and 2004, respectively,
were derived from operations outside the United States. More specifically, during both 2005 and 2004, approximately
20% and 21%, respectively, of the Company’s revenues were derived from operations in the U.K. Additionally,
approximately 18% and 17% of the Company’s revenues were derived from operations with the euro as their functional
currency during 2005 and 2004, 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, and the
exposure to these currencies, as well as other foreign currencies, is expected to increase in 2006 due to the fourth quarter
acquisitions of Hünnebeck and the Northern Hemisphere mill services operations of Brambles Industrial Services
(“BISNH”).
20
HARSCO CORPORATION 2005 ANNUAL REPORT
Compared with the corresponding period in 2004, the average values of major currencies changed as follows in relation to
the U.S. dollar during 2005, impacting the Company’s sales and income:
euro
• British pound sterling
•
• South African rand
• Brazilian real
• Australian dollar
Weakened by 1%
Neutral
Neutral
Strengthened by 17%
Strengthened by 3%
Compared with exchange rates at December 31, 2004, the values of major currencies changed as follows as of
December 31, 2005:
euro
• British pound sterling
•
• South African rand
• Brazilian real
• Australian dollar
Weakened by 10%
Weakened by 13%
Weakened by 11%
Strengthened by 14%
Weakened by 6%
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 2005,
revenues would have been approximately 1% or $14.8 million less and operating income would have been approximately
1% or $2.8 million less if the average exchange rates for 2004 were utilized. A similar comparison for 2004 would have
decreased revenues approximately 4% or $108.9 million, while operating income would have been approximately 4% or
$8.1 million less if the average exchange rates for 2004 would have remained the same as 2003. 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 decreased net assets of $54.4 million
at December 31, 2005 when compared with December 31, 2004, and increased net assets of $46.2 million at December
31, 2004 when compared with December 31, 2003.
The Company seeks to reduce exposures to foreign currency transaction fluctuations through the use of forward
exchange contracts. At December 31, 2005, the notional amount of these contracts was $157.9 million, and over 90% of
these contracts will mature within the first quarter of 2006. 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 impact the ability of the Company’s customers to meet their
obligations to the Company on a timely basis and impact the valuation of the Company’s assets.
If a downturn in the economy occurs, it may adversely impact the ability of the Company’s customers to meet their
obligations to the Company on a timely basis and could result in bankruptcy filings by them. If customers are unable to
meet their obligations on a timely basis, it could adversely impact the realizability of receivables, the valuation of
inventories and the valuation of long-lived assets across the Company’s businesses, 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” (SFAS 142). If management determines that goodwill or other assets are impaired or that inventories
HARSCO CORPORATION 2005 ANNUAL REPORT 21
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. Additionally, 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. The potential financial impact of this risk has increased with the
Company’s acquisition of BISNH in December 2005. Conversely, such consolidation may provide additional service
opportunities for the Company.
A negative outcome on personal injury claims against the Company may adversely impact results of
operations and financial condition.
The Company has been named as one of many defendants (approximately 90 or more in most cases) in legal actions
alleging personal injury from exposure to airborne asbestos. 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. 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 Mill Services business is sustained mainly through contract renewals. Historically, the Company’s
contract renewal rate has averaged approximately 95%. If the Company is unable to renew its contracts at the
historical rates or renewals are at reduced prices, revenue may decline.
• The Company’s Access Services business rents and sells equipment and provides erection and dismantling services
to principally the non-residential construction and industrial plant maintenance markets. Contracts are awarded based
upon the Company’s engineering capabilities, product availability, safety record, and the ability to competitively price
its rentals and services. Commencing in 2000, due to economic downturns in their home markets, certain
international competitors exported significant quantities of rental equipment to the markets the Company serves,
particularly the U.S. This resulted in an oversupply of certain equipment and a consequential reduction in product and
rental pricing in the markets receiving the excess equipment. The effect of these actions was mitigated, to some
extent, in 2005 due to a buoyant U.S. non-residential construction market. However, if the Company is unable to
consistently provide high-quality products and services at competitive prices, it may lose customers or operating
margins may decline due to reduced selling prices.
• The 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 continuous process improvement and cost reduction
programs, international customer focus and the diversification, streamlining and consolidation of operations.
Increased customer concentration and credit risk in the Mill Services Segment may adversely affect the
Company’s future earnings and cash flows.
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. In December
2005, the Company acquired BISNH. This acquisition has increased the Company’s corresponding concentration of
credit risk to customers in the steel industry. Additionally, further consolidation in the global steel industry is possible.
Should transactions occur involving some of the steel industry’s larger companies, which are customers of the Company,
it would result in an increase in concentration of credit risk for the Company. If a large customer were to experience
financial difficulty, or file for bankruptcy protection, it could adversely impact the Company’s income, cash flows and asset
valuations. As part of its credit risk management practices, the Company is developing strategies to mitigate this
increased concentration of credit risk.
22
HARSCO CORPORATION 2005 ANNUAL REPORT
Increases in energy prices could increase the Company’s operating costs and reduce its profitability.
Worldwide political and economic conditions, extreme weather 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 2005, 2004 and 2003, energy
costs have approximated 3.6%, 3.5% and 3.5% of the Company’s revenue, respectively. To the extent that such costs
cannot be passed to customers in the future, operating income and results of operations may be adversely affected.
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. Beginning in 2004, the price paid for steel and certain other commodities increased
significantly compared with prior years. In 2005, the cost increases moderated for certain commodities. However, if steel
or other material costs associated with the Company’s manufactured products increase and the costs cannot be passed
on to the Company’s customers, operating income would be adversely affected. Additionally, decreased availability of
steel or other materials, such as carbon fiber used to manufacture filament-wound composite cylinders, could affect the
Company’s ability to produce manufactured products in a timely manner. If the Company cannot obtain the necessary
raw materials for its manufactured products, then revenues, operating income and cash flows will be adversely affected.
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 international laws, regulations and ordinances
relating to the protection of health, safety and the environment, including those governing discharges to air and water,
handling and disposal practices for solid and hazardous wastes, the remediation of contaminated sites and the
maintenance of a safe 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 Sheets at
December 31, 2005 and 2004 includes an accrual of $2.8 million and $2.7 million, respectively, for environmental matters.
The amounts charged against pre-tax earnings related to environmental matters totaled $1.5 million, $2.1 million and $1.4
million for the years ended December 31, 2005, 2004 and 2003, 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, 2005, the Company was in compliance with these covenants with a debt to capital ratio
HARSCO CORPORATION 2005 ANNUAL REPORT 23
of 50.4%, and a net worth of $993.9 million. The Company had $347.6 million in outstanding indebtedness containing
these covenants at December 31, 2005.
Higher than expected claims under insurance policies, under which the Company retains a portion of the risk,
could adversely impact results of operations and cash flows.
The Company retains a significant portion of the risk for property, workers' compensation, U.K. employers’ liability,
automobile, general and product liability losses. Reserves have been recorded which reflect the undiscounted estimated
liabilities for ultimate losses including claims incurred but not reported. Inherent in these estimates are assumptions that
are based on the Company’s history of claims and losses, a detailed analysis of existing claims with respect to potential
value, and current legal and legislative trends. At December 31, 2005 and 2004, the Company had recorded liabilities of
$102.3 million and $77.4 million, respectively, related to both asserted and unasserted insurance claims. Included in the
balance at December 31, 2005 were $25.2 million of recognized liabilities covered by insurance carriers. There were no
such liabilities recognized as of December 31, 2004 since there were no probable claim amounts in excess of the
Company’s deductible limits. 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 latter part of the
year, as the Company’s business tends to follow seasonal patterns. If the Company is unable to successfully manage the
cash flow and other effects of seasonality on the business, its financial condition and results of operations may be
negatively affected. 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, 2005 was $1.0 billion. Of this amount, approximately 49.5% had variable
rates of interest and 50.5% had fixed rates of interest. The weighted average interest rate of total debt was approximately
5.3%. At current debt levels, a one-percentage increase/decrease in variable interest rates would increase/decrease
interest expense by approximately $5.0 million per year.
The future financial impact on the Company associated with the above risks cannot be estimated.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Information as to the principal 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
24
HARSCO CORPORATION 2005 ANNUAL REPORT
Access Equipment Maintenance
Access Equipment Maintenance
Valves
Valves
Valves
Location
Principal Products
Bloomfield, Iowa
Fremont, Ohio
Jesup, Georgia
West Jordan, Utah
Harrisburg, Pennsylvania
Huntsville, Alabama
Beijing, China
Jesup, Georgia
Kosice, Slovakia
Shah Alam, Malaysia
Theodore, Alabama
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
Queretaro, Mexico
East Stroudsburg, Pennsylvania
Catoosa, Oklahoma
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
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
Process Equipment
Heat Exchangers
The Company also operates the following plants which are leased:
Location
Principal Products
Access Services Segment
DeLimiet, Netherlands
Ratingen, Germany
Gas Technologies Segment
Cleveland, Ohio
Pomona, California
Engineered Products and Services (“all other”) Category
Memphis, Tennessee
Eastwood, United Kingdom
Tulsa, Oklahoma
Garrett, Indiana
Catoosa, Oklahoma
Sapulpa, Oklahoma
Access Equipment Maintenance
Access Equipment Maintenance
Brass Castings
Composite Cylinders
Roofing Granules/Abrasives
Railroad Equipment
Industrial Grating Products
Industrial Grating Products
Heat Exchangers
Heat Exchangers
The above listing includes the principal properties owned or leased by the Company. The Company also operates from a
number of other smaller plants, branches, depots, warehouses and offices in addition to the above. The Company
considers all of its properties at which operations are currently performed to be in satisfactory condition and suitable for
operations.
HARSCO CORPORATION 2005 ANNUAL REPORT 25
Item 3. Legal Proceedings
Information regarding legal proceedings is included in Note 10, Commitments and Contingencies, to the Consolidated
Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data.”
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters that were submitted to a vote of security holders, through the solicitation of proxies or otherwise,
during the fourth quarter of the year covered by this Report.
Supplementary Item. Executive Officers of the Registrant (Pursuant to Instruction 3 to
Item 401(b) of Regulation S-K)
Set forth below, as of March 13, 2006, are the executive officers (this excludes three 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. D. C. Hathaway, S. D. Fazzolari and R. C. Neuffer were
elected to their respective offices effective January 24, 2006. G. D. H. Butler, M. E. Kimmel and S. J. Schnoor were
elected to their respective offices effective April 26, 2005. All terms expire on April 26, 2006. There are no family
relationships between any of the executive officers.
Name
Age
Principal Occupation or Employment
Executive Officers:
D. C. Hathaway
61
S. D. Fazzolari
53
G. D. H. Butler
59
Chairman and Chief Executive Officer of the Corporation since January 24, 2006
and 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 from July 31,
2000 to January 23, 2006 and as 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.
President, Chief Financial Officer and Treasurer of the Corporation effective
January 24, 2006 and Director since January 2002. Served as Senior Vice
President, Chief Financial Officer and Treasurer from August 24, 1999 to January
23, 2006 and as Senior Vice President and Chief Financial Officer from January
1998 to August 1999. Served as Vice President and Controller from January 1994
to December 1997 and as Controller from January 1993 to January 1994.
Previously served as Director of Auditing from 1985 to 1993 and served in various
auditing positions from 1980 to 1985.
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.
26
HARSCO CORPORATION 2005 ANNUAL REPORT
Name
Age
Principal Occupation or Employment
M. E. Kimmel
46
S. J. Schnoor
52
R. C. Neuffer
63
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.
President of the Engineered Products and Services business group since his
appointment on January 24, 2006. Previously, he led the Patterson-Kelley, IKG
Industries and Air-X-Changers units as Vice President and General Manager since
2004. In 2003, he was Vice President and General Manager of IKG Industries and
Patterson-Kelley. Between 1997 and 2002, he was Vice President and General
Manager of Patterson-Kelley. Mr. Neuffer joined Harsco in 1991.
HARSCO CORPORATION 2005 ANNUAL REPORT 27
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Harsco Corporation common stock is listed on the New York and Pacific Stock Exchanges, and also trades on the Boston
and Philadelphia Exchanges under the symbol HSC. At the end of 2005, there were 41,783,176 shares outstanding. In
2005, the Company’s common stock traded in a range of $49.87 to $70.57 and closed at $67.51 at year-end. At
December 31, 2005 there were approximately 17,400 stockholders. There are no significant limitations on the payment of
dividends included in the Company’s loan agreements. For additional information regarding Harsco common stock
market price and dividends declared, see Dividend Action under Part II, Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and the Common Stock Price and Dividend Information under Part II,
Item 8, "Financial Statements and Supplementary Data.” For additional information on the Company’s equity
compensation plans see Part III, Item 11, “Executive Compensation.”
(c). Issuer Purchases of Equity Securities
Period
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
October 1, 2005 – October 31, 2005
November 1, 2005 – November 30, 2005
December 1, 2005 – December 31, 2005
Total
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
1,000,000
1,000,000
The Company’s share repurchase program was extended by Board of Directors in November 2005. The program
authorizes the repurchase of up to 1,000,000 shares of the Company’s common stock and expires January 31, 2007.
28
HARSCO CORPORATION 2005 ANNUAL REPORT
Item 6. Selected Financial Data
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(b)
Return on average equity(c)
Current ratio
Total debt to total capital(d)
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)
2005 (a)
2004
2003
2002
2001
$ 2,766,210
156,750
(93)
156,657
$ 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
$
352,620
2,975,804
905,859
1,009,888
198,065
290,239
315,279
(645,185)
369,325
$
346,768
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)
5.7%
16.7%
1.5:1
50.4%
3.76
-
3.76
$
$
$
3.73
-
3.72 (e) $
4.5%
13.8%
1.6:1
40.6%
2.76
0.19
2.95
2.73
0.18
2.91
23.79
$
22.07
1.225
1.125
42,080
21,000
275,790
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%
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
17.16
0.97
40,973
17,500
186,222
40,680
17,500
157,777
40,066
18,700
$ 214,124
$
(a) Includes the Northern Hemisphere mill services operations of Brambles Industrial Services (BISNH) acquired December 29, 2005 (Mill Services) and
Hünnebeck Group GmbH acquired November 21, 2005 (Access Services).
(b) "Return on sales" is calculated by dividing income from continuing operations by revenues from continuing operations.
(c) "Return on average equity" is calculated by dividing income from continuing operations by quarterly weighted-average equity.
(d) "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.
(e) Does not total due to rounding.
(f) Excludes the estimated amount of long-term mill service contracts, which had estimated future revenues of $4.3 billion at December 31, 2005. 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
HARSCO CORPORATION 2005 ANNUAL REPORT 29
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 I, Item 1A, “Risk
Factors,” of this Form 10-K. The Company cautions that these factors may not be exhaustive and that many of these
factors are beyond the Company’s ability to control or predict. Accordingly, forward-looking statements should not be
relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements.
Executive Overview
The Company’s 2005 revenues were a record $2.8 billion. This is an increase of $0.3 billion or 11% over 2004. Income
from continuing operations was a record $156.8 million for 2005 compared with $113.5 million in 2004, an increase of
38%. Diluted earnings per share from continuing operations were a record $3.73 for 2005, a 37% increase from 2004.
All four of the Company’s operating groups showed improved full-year results over the prior year. The 2005 results were
led by the Access Services Segment and the Engineered Products and Services (“all other”) Category as a result of
strong end-markets, margin improvements and share gains. The Mill Services Segment delivered increased sales and
operating income despite essentially flat global steel production (excluding China), higher fuel costs and the timing of new
contract signings. The Gas Technologies Segment experienced some moderating raw material cost inflation, in several
product lines, that benefited operating income compared with 2004. Additionally, in the fourth quarter of 2005, the
Company completed two strategic bolt-on acquisitions, one in the Access Services Segment on November 21
(Hünnebeck Group GmbH), and one in the Mill Services Segment on December 29 (the Northern Hemisphere mill
services operations of Brambles Industrial Services (“BISNH”)).
During 2005, the Company had record net cash provided by operating activities of $315.3 million, a 17% increase over the
$270.5 million achieved in 2004. For 2006, the Company has set a target of $400 million for net cash provided by
operating activities, a 27% increase over the 2005 record level. The Company’s cash flows are further discussed in the
Liquidity and Capital Resources section.
The record revenue, income from continuing operations and diluted earnings per share from continuing operations for
2005 demonstrate the balance and geographic diversity of the Company’s operations. The Company’s Mill Services,
Access Services and Gas Technologies Segments, as well as the Engineered Products and Services (“all other”)
Category all delivered improved results. This operating balance and geographic diversity provides a broad foundation for
future growth opportunities and a hedge against normal changes in economic and industrial cycles.
Segment Overview
Revenues for 2005 for the Mill Services Segment were $1.1 billion compared with $1.0 billion in 2004, a 6% increase.
Operating income increased by 4% to $109.6 million, from $105.5 million in 2004. Operating margins for this Segment
decreased by 30 basis points to 10.3% from 10.6% in 2004 due to higher energy costs and production cutbacks in the last
half of 2005 by certain steel mill customers. A benefit from the gain on the sale of certain assets related to exiting an
underperforming contract was mostly offset by the impact of higher severance costs. This Segment accounted for 38% of
the Company’s revenues and 41% of the operating income for 2005.
30
HARSCO CORPORATION 2005 ANNUAL REPORT
The Access Services Segment’s revenues in 2005 were $788.8 million compared with $706.5 million in 2004, a 12%
increase. Operating income increased by 68% to $74.7 million, from $44.5 million in 2004. Operating margins for the
Segment improved by 320 basis points to 9.5% from 6.3% in 2004. These improvements were due to increased rental
equipment utilization; better non-residential construction market conditions; market share gains; improved pricing,
particularly in the United States; and $5.4 million of pre-tax gains from the disposal of assets related to the closing of a
branch location and the sale of the Youngman light-access manufacturing business. This Segment accounted for 29% of
the Company’s revenues and 28% of the operating income for 2005. Improved performance was achieved by both the
international and domestic Access Services operations.
The Gas Technologies Segment’s revenues in 2005 were $370.2 million compared with $339.1 million in 2004, a 9%
increase. Operating income increased by 24% to $17.9 million, from $14.4 million in 2004. The increased revenues in
2005 were led by the industrial cylinder and cryogenics equipment businesses. As expected, operating income and
margins were positively affected in 2005 by moderating commodity cost increases, particularly steel, compared with 2004.
This Segment accounted for 13% of the Company’s revenues and 7% of the operating income for 2005.
Four of the five businesses in the Engineered Products and Services (“all other”) Category contributed higher revenues,
operating income and operating margins in 2005 compared with 2004. The railway track maintenance services and
equipment business delivered record revenues in 2005 through increased contracting services activity and strong
equipment and repair parts sales. The air-cooled heat exchangers business also experienced improved market
conditions that have resulted in increased volumes and backlogs. The industrial grating products business had improved
revenues and operating income due to increased demand (partially due to the effects of Hurricanes Katrina and Rita) and,
to a lesser extent, higher prices and an improved product mix. The roofing granules and abrasives business and the
boiler and process equipment business delivered solid performances in 2005, consistent with the prior year.
The positive effect of foreign currency translation increased 2005 consolidated revenues by $14.8 million and pre-tax
income by $3.1 million when compared with 2004.
Outlook Overview
The Company’s operations span several industries and products as more fully discussed in Part I, Item 1, “Business.” On
a macro basis, the Company is affected by worldwide steel mill production and capacity utilization; non-residential
construction and industrial maintenance activities; industrial production volume; and the general business trend towards
the outsourcing of services. The overall outlook for 2006 continues to be positive for these business drivers.
The Company’s Mill Services Segment expects to benefit from gradually increasing steel production at mills served by the
Company, new contract signings and a full year of accretion from the December 29, 2005 acquisition of BISNH. However,
the Company also expects to experience continued increased energy costs that may have a negative effect on operating
margins, to the extent these costs cannot be passed to customers.
Both domestic and international Access Services activity remains strong. Although the sale of the Youngman light-access
manufacturing business in late 2005 will modestly affect 2006 revenues, improvements to operating performance in 2006
for the Segment are expected to be led by a full-year of accretion from the November 21, 2005 Hünnebeck acquisition;
increased non-residential construction spending and industrial maintenance activity in the Company’s major markets;
continued development of new markets; further market penetration from new products; product cross-selling opportunities
among the markets served by the three Access Services businesses; and cost reduction opportunities through
consolidated procurement initiatives.
In the Gas Technologies Segment for 2006, demand for industrial cylinders and cryogenics equipment is expected to
show continued improvement. The propane business is expected to return to a more normal business cycle in
comparison to the prior two years, and an overall improvement in the valves business is expected. International
operations are expected to continue to perform well. However, the risk remains that certain commodity cost inflation and
the availability of certain raw materials could adversely affect this Segment’s results.
The outlook for the Engineered Products and Services (“all other”) Category remains positive for 2006. The Company’s
railway track maintenance services and equipment business’ income and margins are expected to continue to benefit
from the shift toward contract services, with several major contracts scheduled to start in 2006. The air-cooled heat
exchangers business is expected to continue to benefit from strong end-market demand due to increased natural gas
drilling and transmission. While not expecting a repeat of the same level of benefits from post-Katrina rebuilding
experienced in the second half of 2005, the industrial grating products business is expected to post another year of solid,
stable results in 2006, as are the roofing granules and abrasives and the boiler and process equipment businesses.
HARSCO CORPORATION 2005 ANNUAL REPORT 31
The stable or improved market conditions for most of the Company’s services and products and the significant
investments made for acquisitions and growth-related capital expenditures provide a solid base for achieving the
Company’s stated objective of growth in diluted earnings per share from continuing operations in 2006.
Revenues by Region
Total Revenues
Twelve Months Ended
December 31
(Dollars in millions)
North America
Europe
Middle East and Africa
Latin America
Asia/Pacific
Total
2005
$ 1,219.8
1,109.1
153.7
149.2
134.4
$ 2,766.2
2004
$ 1,103.7
1,018.1
137.7
122.9
119.7
$ 2,502.1
Percentage Growth From
2004 to 2005
Currency
0.3%
(0.7)
0.7
11.5
2.5
0.6%
Volume
10.2%
9.6
10.9
9.9
9.8
10.0%
Total
10.5%
8.9
11.6
21.4
12.3
10.6%
2005 Highlights
The following significant items impacted the Company overall during 2005 in comparison with 2004:
Company Wide:
• Strong worldwide economic activity benefited the Company in 2005. This included increased access equipment sales
and rentals, especially in the U.S., Middle East and Europe; increased global demand for railway track maintenance
services and equipment; and increased demand for air-cooled heat exchangers, industrial cylinders, cryogenics
equipment and industrial grating products. During the first half of 2005, the Company’s Mill Services Segment
benefited from strong steel production activity; however, during the second half of 2005, steel production at certain
mills served by this Segment declined, negatively impacting results.
• As expected, during 2005, the Company experienced an overall leveling-off of commodity cost increases (particularly
steel); however, fuel and energy-related costs and certain other commodity costs continued to increase. 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 accounting 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 current economic forecasts, cost inflation for certain
commodities used by the Company is expected to increase slightly in 2006, although fuel and energy-related costs
are expected to continue to increase at a higher rate. However, there can be no assurance that will occur.
• Total pension expense for 2005 decreased $1.7 million from 2004. Defined benefit pension expense for 2005
decreased approximately $3.8 million from 2004 due to plan structural changes implemented in recent years. During
2005, the defined benefit pension expense decrease was partially offset by increases of approximately $1.5 million
and $0.7 million in defined contribution plan and multi-employer plan expenses, respectively. The Company is
currently taking additional actions to further reduce pension expense volatility. This is more fully discussed in the
Outlook, Trends and Strategies section.
• Net Other expenses for 2005 included $9.7 million in net gains on the sale of non-core assets, mostly offset by $9.1
million in employee termination benefit costs. This compares with $1.5 million in net gains on the sale of assets and
$3.9 million in employee termination benefit costs in 2004.
• During 2005, international sales and income were 58% and 67%, respectively, of total sales and income. This
compares with the 2004 levels of 58% of sales and 69% of income. The international percentages are expected to
increase in 2006 as a result of the late-2005 Hünnebeck and BISNH acquisitions.
32
HARSCO CORPORATION 2005 ANNUAL REPORT
Mill Services Segment:
(Dollars in millions)
Revenues
Operating income
Operating margin percent
2005
2004
$ 1,060.4
$ 997.4
109.6
105.5
10.3%
10.6%
Mill Services Segment – Significant Impacts on Revenues:
Revenues – 2004
Increased volume and new business
Benefit of positive foreign currency translation
Acquisition – (principally Evulca SAS in France) (a)
Revenues – 2005
(In millions)
$ 997.4
42.0
17.0
4.0
$ 1,060.4
(a) Since BISNH was acquired on December 29, 2005, it did not have a significant effect on 2005 operations.
Mill Services Segment – Significant Impacts on Operating Income:
• Operating income for 2005 increased slightly as a result of increased pricing for certain contracts and new
business, particularly in Europe and Brazil, mostly offset by increased operating costs (as noted below) and
reduced volume in South Africa and North America during the majority of 2005.
• Compared with 2004, the Segment’s operating income and margins in 2005 were negatively impacted by
increased fuel and energy-related costs of approximately $13 million.
• Selling, general and administrative costs increased $5.4 million for 2005 (including approximately $1.1 million
related to foreign currency translation). These increases related primarily to increased compensation costs.
• The benefit of positive foreign currency translation in 2005 resulted in increased operating income of $2.1 million
compared with 2004.
Access Services Segment:
(Dollars in millions)
Revenues
Operating income
Operating margin percent
2005
2004
$ 788.8
$ 706.5
74.7
9.5%
44.4
6.3%
Access Services Segment – Significant Impacts on Revenues:
Revenues – 2004
Net increased volume (mostly U.S., Middle East and Continental Europe)
Net effect of acquisitions and divestitures (Hünnebeck and SGB Raffia in
Australia (acquired in April 2004)) offset by the Youngman light-access
manufacturing unit divestiture)
Impact of negative foreign currency translation
Other
Revenues – 2005
(In millions)
$ 706.5
72.0
12.5
(2.8)
0.6
$ 788.8
Access Services Segment – Significant Impacts on Operating Income:
•
In 2005, there was a continued strengthening in the U.S. non-residential construction markets that started in the
latter half of 2004. During 2005, the value of rental equipment on customer job sites was at an all-time high. This
had a positive effect on volume (particularly equipment rentals) which caused overall margins in the U.S. to
improve. Equipment rentals, particularly in the construction sector, provide the highest margins for this Segment.
HARSCO CORPORATION 2005 ANNUAL REPORT 33
• The international access services business continued to increase outside the U.K., predominantly in the Middle
East and Europe, due to certain on-going large projects as well as the Hünnebeck acquisition. During 2005, the
international operations outside of the U.K. had $305.3 million in revenues and $45.5 million in operating income.
This compares with $231.5 million in revenues and $29.9 million in operating income for 2004.
• During 2005, the Segment was favorably affected by pre-tax income of $5.4 million from the disposal of assets
related to the closing of a branch location and the sale of the Youngman light-access manufacturing unit. During
2004, only $1.1 million of similar benefits occurred.
• Lower pension expense in 2005 increased operating income by approximately $5.0 million when compared with
2004.
• The net effect of acquisitions and divestitures had a positive effect on 2005 operating income and margins, with
the Hünnebeck business contributing income during it first full month of operation.
• The benefit of positive foreign currency translation in 2005 for this Segment resulted in increased operating
income of $0.9 million when compared with 2004.
Gas Technologies Segment:
(Dollars in millions)
Revenues
Operating income
Operating margin percent
2005
2004
$ 370.2
$ 339.1
17.9
4.8%
14.4
4.2%
Gas Technologies Segment – Significant Impacts on Revenues:
Revenues – 2004
Increased demand for cryogenics equipment and industrial cylinders
Increased demand for composite-wrapped cylinders and certain valves
Decreased sales of propane tanks (due to customers accelerating purchases in
2004 to avoid price increases)
Other
Revenues – 2005
(In millions)
$ 339.1
25.3
8.1
(2.0)
(0.3)
$ 370.2
Gas Technologies Segment – Significant Impacts on Operating Income:
• Operating income increased in 2005 compared with 2004 due mainly to moderating commodity cost increases,
particularly steel. Since this Segment accounts for the majority of its U.S. inventory using the last-in, first-out
(LIFO) method, this moderation of commodity costs has resulted in improved operating income.
• The international businesses, in Europe and, to a lesser extent, Asia, contributed significantly to the increased
performance of the cryogenics business during 2005 compared with 2004.
• Higher operating income in 2005 for composite-wrapped cylinders was due to increased shipments of natural gas
vehicle (NGV) cylinders, partially offset by an unfavorable product mix and higher raw material costs for carbon
fiber and aluminum.
• Higher operating income for industrial cylinders was due to increased demand and selling price increases,
•
partially offset by higher energy-related and steel costs.
Increased costs and an unfavorable product mix in the valves business negatively impacted operating income in
2005 compared with 2004. A strategic action plan has been implemented to improve the results of the valves
business. This plan is further discussed in the Outlook, Trends and Strategies section.
• As expected, the propane business had decreased revenues and operating income in 2005 when compared with
2004. As indicated last year, there was increased demand for propane tanks in 2004 driven by customers
accelerating purchases in anticipation of future price increases due to higher steel prices.
• Foreign currency translation in 2005 did not have a material impact on operating income for this Segment
compared with 2004.
34
HARSCO CORPORATION 2005 ANNUAL REPORT
Engineered Products and Services (“all other”) Category:
(Dollars in millions)
Revenues
Operating income
Operating margin percent
2005
2004
$ 546.9
$ 459.1
69.7
12.7%
47.0
10.2%
Engineered Products and Services (“all other”) Category –
Significant Impacts on Revenues:
Revenues – 2004
Railway track services and equipment
Air-cooled heat exchangers
Industrial grating products
Boiler and process equipment
Roofing granules and abrasives
Benefit of positive foreign currency translation
Revenues – 2005
(In millions)
$ 459.1
38.0
32.2
12.4
3.3
1.4
0.5
$ 546.9
Engineered Products and Services (“all other”) Category – Significant Impacts on Operating Income:
• Higher operating income in 2005 (including a record third quarter) in comparison to 2004 for the railway track
maintenance services and equipment business was due principally to increased rail equipment sales (principally
to international customers), international contract services and repair parts sales. This was partially offset by
increased engineering costs; selling, general and administrative expenses; and Other expenses related to
employee termination benefit costs.
• Operating income for the air-cooled heat exchangers business improved in 2005 due to increased volume
•
resulting from an improved natural gas market.
Increased 2005 operating income for the industrial grating products business was due principally to reduced
commodity costs; increased demand (partially due to the effects of Hurricanes Katrina and Rita); and, to a lesser
extent, increased prices and an improved product mix.
• The boiler and process equipment business delivered improved 2005 results due to improved revenues from the
new-generation Mach boilers.
• Strong demand for roofing granules and abrasives again resulted in sustained levels of profitable results for that
business in 2005, consistent with prior periods. This is despite difficulty throughout the third and fourth quarters of
2005 in obtaining rail cars to deliver its products, and, to a lesser extent, higher energy costs.
• The impact of positive foreign currency translation in 2005 resulted in decreased operating income of $0.2 million
for this Category when compared with 2004.
Outlook, Trends and Strategies
Looking to 2006 and beyond, the following significant items, trends and strategies are expected to affect the Company in
comparison with 2005:
Company Wide:
• The Company will continue its focus on expanding the higher-margin industrial services businesses, with a particular
emphasis on growing the Mill Services Segment, Access Services Segment and railway services through the
provision of additional services to existing customers, new contracts in both mature and emerging markets and
strategic acquisitions such as the 2005 Hünnebeck and BISNH acquisitions in the Access Services and Mill Services
Segments, respectively.
• A greater focus on corporate-wide expansion into China is expected in 2006 and beyond. The opening of a
representative office in Beijing in the fourth quarter of 2005 has provided a local presence to pursue new business
opportunities for all operating units of the Company.
• 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, increased
Chinese steel exports could result in lower steel production in other parts of the world affecting the Company’s
HARSCO CORPORATION 2005 ANNUAL REPORT 35
customer base. Additionally, although certain commodity cost increases (e.g., steel) have stabilized in 2005,
continued increased Chinese economic activity may result in increased commodity costs in the future, which may
adversely affect the Company’s manufacturing businesses. The potential impact of these risks is currently unknown.
• Fuel and energy costs increased approximately $18 million in 2005 compared with 2004. Should these costs continue
to rise, the Company’s operating costs would further increase and profitability would decline to the extent that such
costs cannot be passed to customers.
• Foreign currency translation had an overall favorable effect on the Company’s sales and income during 2005
(although during the fourth quarter it was negative), but a negative impact on Stockholders’ equity as a result of
translation adjustments. Should the U.S. dollar continue to strengthen, particularly in relationship to the euro or British
pound sterling, the impact on the Company would generally be negative in terms of reduced sales, income and
Stockholders’ equity.
• The Company will continue to focus on improving Economic Value Added (EVA®). Under this program, the Company
evaluates strategic investments based upon the investment’s economic profit. EVA equals after-tax operating profits
less a charge for the use of the capital employed to create those profits (only the service cost portion of defined
benefit pension expense is included for EVA purposes). Therefore, value is created when a project or initiative
produces a return above the cost of capital.
• A record $400 million in net cash provided by operating activities has been targeted for 2006.
• Controllable cost reductions and continuous process improvement initiatives across the Company are targeted to
further enhance margins for most businesses. These initiatives include improved supply chain management;
additional outsourcing in the manufacturing businesses; and an added emphasis on corporate-wide procurement
initiatives. The Company will use its increased size and leverage due to recent acquisitions to reduce vendor costs
and focus on additional opportunities for cost reductions via procurement in low-cost countries such as China.
• Total pension expense (defined benefit, defined contribution and multi-employer) for 2006 is expected to approximate
the 2005 level, or be slightly lower. In the U.K., pension expense is expected to decline in 2006 due to the significant
level (approximately $20 million in the past 18 months) of voluntary cash contributions to the defined benefit pension
plan and the improved 2005 performance of the plan’s assets. Domestically, the majority of the twenty-year
amortization of the transition asset (from the initial implementation of SFAS No. 87 in 1986) will cease during 2006.
The elimination of this benefit is projected to increase domestic defined-benefit pension expense by approximately
$1.0 million when compared with 2005. The Company’s pension committee continues to evaluate alternative
strategies to further mitigate overall pension expense including the on-going evaluation of investment fund managers’
performance; the balancing of plan assets and liabilities; the risk assessment of all multi-employer pension plans; the
possible merger of certain plans; the consideration of incremental cash contributions to certain plans; and other
changes that will mitigate future volatility and expense.
• Changes in worldwide interest rates could have a greater effect on the Company’s overall interest expense as
currently approximately 50% of the Company’s borrowings are at variable interest rates (in comparison to
approximately 12% at December 31, 2004). The Company is considering refinancing certain variable interest-rate
borrowings at longer-term fixed rates to reduce potential volatility. However, this may increase short-term interest
expense as currently, longer-term fixed interest rates are higher than variable shorter-term interest rates.
• On October 22, 2004, the American Jobs Creation Act of 2004 (“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 completed its evaluation of the repatriation provisions of the AJCA and repatriated qualified earnings of
approximately $24 million in the fourth quarter of 2005. This resulted in the Company receiving a one-time income tax
benefit of approximately $2.7 million during the fourth quarter of 2005. In 2006, the effective income tax rate for
continuing operations is expected to approximate 33%. This compares with an effective income tax rate of 28.1% in
2005. The difference is primarily due to the one-time tax benefit from the AJCA as indicated above and, consistent
with the Company’s strategic plan of investing for growth, the Company designated certain international earnings as
permanently reinvested which resulted in a one-time income tax benefit of $3.6 million.
Mill Services Segment:
• To maintain pricing levels, a more disciplined steel industry has been adjusting production levels to bring inventories
in-line with current demand. Based on current market conditions and industry reports, the Company expects global
steel production to increase in 2006.
• The increased energy-related costs this Segment experienced during 2005 are expected to persist through 2006.
However, given the volatility of such costs, the effect cannot be quantified.
• The Company will be placing significant emphasis on improving operating margins of this Segment. Specific plans for
2006 include global procurement initiatives, process improvement programs, maintenance best practices programs
and executing its reorganization plan.
• The BISNH acquisition will provide increased sales and income for this Segment.
• Further consolidation in the global steel industry is also possible. Should transactions occur involving some of the
steel industry’s larger companies that are customers of the Company, it would result in an increase in concentration of
36
HARSCO CORPORATION 2005 ANNUAL REPORT
credit risk for the Company. If a large customer were to experience financial difficulty, or file for bankruptcy protection,
it could adversely impact the Company’s income, cash flows and asset valuations. As part of its credit risk
management practices, the Company is developing strategies to mitigate this increased concentration of credit risk.
Access Services Segment:
• Both the international and domestic Access Services businesses are expected to show continued improvement during
•
2006.
In 2005, the Youngman light-access manufacturing unit was sold and certain large customer projects in the U.K. and
Middle East are close to completion, which will eliminate the associated revenue. In 2006, these decreases are
expected to be offset by increased sales and income from the Hünnebeck acquisition and through the further
development of core activities. Additionally, the sale of the Youngman unit will allow for greater focus on the more
profitable rental business.
• U.S. non-residential construction activity continued to improve in 2005 and the overall market outlook remains
positive. Various industry sources are currently forecasting continued growth for U.S. non-residential construction
during 2006. Additionally, new product line additions should assist with growth in North America.
Gas Technologies Segment:
• Although cost inflation for steel and certain commodities moderated in 2005, worldwide supply and demand for steel,
aluminum and the availability of carbon fiber used to manufacture filament-wound composite cylinders could have
adverse effects on future raw material costs and this Segment’s ability to obtain the necessary raw materials.
Additionally, the price of brass, a raw material used for certain valves production, continued to increase during 2005,
despite expectations that it would moderate. Should brass prices continue to increase in 2006, this could result in
reduced operating income for certain products to the extent that such costs cannot be passed along to customers.
• Weak market conditions and increased costs impacted the valves business during 2005. A comprehensive strategic
plan was developed and is currently being executed to mitigate these conditions. The plan includes the following: a
new senior management team; development and marketing of new products; focus on an expanded international
customer base; consolidating certain manufacturing process; process improvements within the manufacturing
operations including outsourcing; and optimization of the organizational structure of the business. If the conditions
encountered during 2005 persist, despite execution of the strategic action plan, the valuation of this business could be
negatively impacted.
• Despite a decline in 2005, the propane business is expected to improve in 2006, as it returns to its more normal
business cycle.
• The industrial cylinder and cryogenics equipment businesses are expected to show continued improved performance
in 2006.
Engineered Products and Services (“all other”) Category:
•
International demand for the railway track maintenance services and equipment business’ products and services has
been strong and is expected to remain so in 2006. However, on a comparative basis, 2006 sales are expected to be
less than 2005 due to the shipment of several large machine orders in 2005. Despite this expected decrease in sales,
operating income is expected to increase due to increased volume of higher-margin industrial services and
manufacturing process improvements and efficiencies that are expected to improve margins on a long-term basis.
Additionally, higher-margin international equipment sales will continue to be pursued by this business.
• The industrial grating business is expected to sustain its current levels of sales and operating income for 2006. It is
expected that the incremental business received in 2005, as a result of recent hurricanes, will be replaced with new
market opportunities.
• Although cost inflation for steel and certain commodities started to moderate in 2005, worldwide supply and 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, sustained profitable results are expected from the roofing granules and abrasives business, although
increased energy costs could impact margins. This business is pursuing the use of more energy-efficient equipment
to help mitigate the increased energy-related costs.
• Due to an improving natural gas market and additional North American opportunities, demand for air-cooled heat
exchangers is expected to remain strong for 2006.
HARSCO CORPORATION 2005 ANNUAL REPORT 37
Results of Operations for 2005, 2004 and 2003
(Dollars are in millions, except per share information and
percentages)
2005
2004
2003
Revenues from continuing operations
$ 2,766.2
$ 2,502.1
$ 2,118.5
Cost of services and products sold
2,099.4
1,916.4
1,604.4
Selling, general and administrative expenses
Other expenses
Operating income from continuing operations
Interest expense
Income tax expense from continuing operations
Income from continuing operations
Income/(loss) from discontinued operations
Net income
Diluted earnings per common (continuing operations)
Diluted earnings per common share
Effective income tax rate for continuing operations
Consolidated effective income tax rate
393.2
2.0
268.9
41.9
64.8
156.8
(0.1)
156.7
3.73
3.72
28.1%
28.1%
368.4
4.9
209.8
41.1
49.0
113.5
7.7
121.2
2.73
2.91
28.6%
29.1%
330.0
7.0
173.9
40.5
41.7
87.0
5.2
92.2
2.12
2.25
30.7%
31.0%
Comparative Analysis of Consolidated Results
Revenues
2005 vs. 2004
Revenues for 2005 increased $264.1 million or 11% from 2004, to a record level. This increase was attributable to the
following significant items:
In millions
$ 72.5
Change in Revenues 2005 vs. 2004
Net increased revenues in the Access Services Segment due principally to improved markets in the
North America and the strength of the international business, particularly in the Middle East and
Europe (excluding the net effect of acquisitions and divestitures).
41.9
Net increased volume, new contracts and price changes in the Mill Services Segment (excluding
acquisitions).
38.0
Net increased revenues in the railway track maintenance services and equipment business due to
increased contract services (principally in the U.K.), rail equipment sales (primarily to
international customers) and repair part sales.
32.2
31.0
Increased revenues of the air-cooled heat exchangers business due to an improved natural gas
market.
Net increased revenues in the Gas Technologies Segment due principally to improved market
conditions for industrial cylinders, cryogenics equipment and composite-wrapped cylinders,
partially offset by slightly decreased demand for propane tanks. The decrease in propane tank
sales was due to customers accelerating purchases in 2004 to avoid anticipated price increases
due to commodity cost inflation.
16.5
Net effect of business acquisitions and divestitures. Increased revenues of $4.0 and $12.5 million in
the Mill Services and Access Services Segments, respectively.
14.8
12.4
Effect of foreign currency translation.
Increased revenues of the industrial grating products business due to increased demand (partially
due to the effects of Hurricanes Katrina and Rita) and, to a lesser extent, increased prices and a
more favorable product mix.
4.8
$ 264.1
Other (minor changes across the various units not already mentioned).
Total Change in Revenues 2005 vs. 2004
38
HARSCO CORPORATION 2005 ANNUAL REPORT
2004 vs. 2003
Revenues for 2004 increased $383.5 million or 18% from 2003, to a record level at that time. 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 improved natural gas
markets.
Other (minor changes across the various units not already mentioned).
Total Change in Revenues 2004 vs. 2003
Cost of Services and Products Sold
2005 vs. 2004
Cost of services and products sold for 2005 increased $183.0 million or 10% from 2004, slightly lower than the 11%
increase in revenues. This increase was attributable to the following significant items:
In millions
$ 177.8
Change in Cost of Services and Products Sold 2005 vs. 2004
Increased costs due to increased revenues (exclusive of the effect of foreign currency translation
and business acquisitions and including the impact of increased costs included in selling prices).
12.7
4.1
Effect of foreign currency translation.
Net effect of business acquisitions and divestitures.
(11.6) Other (due to product mix; stringent cost controls; process improvements; and minor changes across
the various units not already mentioned; partially offset by increased fuel and energy-related
costs).
$ 183.0
Total Change in Cost of Services and Products Sold 2005 vs. 2004
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
HARSCO CORPORATION 2005 ANNUAL REPORT 39
Selling, General and Administrative Expenses
2005 vs. 2004
Selling, general and administrative expenses for 2005 increased $24.8 million or 7% from 2004, less than the 11%
increase in revenues. This increase was attributable to the following significant items:
In millions
$ 6.5
Change in Selling, General and Administrative Expenses 2005 vs. 2004
Increased employee compensation expense due to salary increases, increased payroll taxes and
employee incentive plan increases due to improved performance, partially offset by decreased
defined benefit pension expense.
5.6
3.5
1.9
Net effect of business acquisitions and dispositions.
Increased sales commission expense due to increased revenues.
Increased costs on a comparative basis due to income generated by the termination of
1.4
1.0
0.4
4.5
$ 24.8
postretirement benefit plans in 2004 that were not repeated in 2005.
Increased travel expenses.
Increased professional fees due to special projects.
Effect of foreign currency translation.
Other (including energy-related costs and the cost of new technology projects).
Total Change in Selling, General and Administrative Expenses 2005 vs. 2004
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
4.2
1.7
4.8
Increased sales commission expense due to increased revenues.
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).
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 2005, the Company continued its strategy
to streamline operations. This strategy included the sale of certain assets related to exiting an underperforming Mill
Services contract; the sale of certain assets and the Youngman light access manufacturing unit in the Access Services
Segment; and, where appropriate, headcount reductions in both administrative and operating positions. These actions
resulted in net Other Expenses of $2.0 million in 2005 compared with $4.9 million in 2004 and $7.0 million in 2003.
2005 vs. 2004
Net Other Expenses for 2005 decreased $2.9 million or 59% from 2004. This decrease was attributable to the following
significant items:
In millions
(8.2)
$
5.2
Change in Other Expenses 2005 vs. 2004
Increase in net gains on disposals of non-core assets. This increase was attributable principally to
$9.7 million in net gains that were realized in 2005 from the sale of non-core assets principally
within the Access Services and Mill Services Segments compared with $1.5 million in 2004.
Increase in employee termination benefit costs. This increase related principally to increased costs
in the Mill Services and Access Services Segments as well as the Engineered Products and
Services (“all other”) Category and the Corporate headquarters compared with 2004.
0.1
(2.9)
Increase in other expenses.
Total Change in Other Expenses 2005 vs. 2004
$
40
HARSCO CORPORATION 2005 ANNUAL REPORT
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 related 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
$
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
2005 vs. 2004
Interest expense in 2005 was $0.9 million or 2% higher than in 2004. This was principally due to higher interest rates on
variable interest rate borrowings in the United States and, to a lesser extent, increased borrowings in November and
December 2005 to finance acquisitions. This was partially offset by approximately $0.3 million of decreased interest
expense due to the effect of foreign currency translation.
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.
Income Tax Expense from Continuing Operations
2005 vs. 2004
The increase in 2005 of $15.7 million or 32% 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 2005 was 28.1% versus
28.6% for 2004. The decrease related principally to reduced effective income tax rates on international earnings and
remittances, partially offset by reduced favorable settlements of tax contingencies in comparison with 2004. The
differences on international earnings and remittances from 2004 to 2005 included a one-time benefit recorded in the fourth
quarter of 2005 of $2.7 million associated with funds repatriated under the American Jobs Creation Act of 2004 (AJCA).
Additionally, during the fourth quarter of 2005, consistent with the Company’s strategic plan of investing for growth at
certain international locations, the Company received a one-time income tax benefit of $3.6 million.
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, 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 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 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.
For additional information, see Note 9, Income Taxes, to the Consolidated Financial Statements under Part II, Item 8,
“Financial Statements and Supplementary Data.”
HARSCO CORPORATION 2005 ANNUAL REPORT 41
Income from Continuing Operations
2005 vs. 2004
Income from continuing operations in 2005 of $156.8 million was $43.2 million or 38% higher than 2004. This increase
resulted from strong demand for most of the Company’s services and products (principally from the Access Services
Segment and industrial grating products) that resulted in increased revenues, as well as from stringent cost controls and
process improvements that contained selling, general and administrative expenses growth to a level below revenue
growth.
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 resulted 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%.
Income from Discontinued Operations
2005 vs. 2004
Income from discontinued operations for 2005 decreased $7.8 million or 101% from 2004. This decrease was attributable
principally to after-tax income from the one-time settlement of the Company’s Federal Excise Tax (FET) litigation in 2004.
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,” in the Company’s 2004 Form
10-K.
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,” to the Company’s 2004 Form 10-K.
(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.
Net Income and Earnings Per Share
2005 vs. 2004
Net income of $156.7 million and diluted earnings per share of $3.72 in 2005 exceeded 2004 by $35.4 million and $0.81,
respectively, primarily due to increased income from continuing operations, partially offset by the decrease in income from
discontinued operations for the reasons described above.
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.
Liquidity and Capital Resources
Overview
Building on 2004’s record cash provided by operations of $270.5 million, the Company continued that trend by achieving a
record $315.3 million in operating cash in 2005. This represents a 17% improvement from 2004. This significant source
of cash in recent years has enabled the Company to invest $290.2 million in capital expenditures (over one-half of which
were for revenue-growth projects) in 2005, in addition to paying $49.9 million in stockholder dividends. Additionally, the
42
HARSCO CORPORATION 2005 ANNUAL REPORT
Company received $39.5 million in cash from asset sales in 2005, including the sale of the Youngman light-access
manufacturing unit in October 2005. The Company almost doubled its goal of $20 million in asset sales for 2005.
In 2005, the Company continued with the execution of its strategy of sensible bolt-on acquisitions to further enhance its
industrial services growth, expand its geographic footprint, and increase Economic Value Added (EVA®). During the year
(principally the fourth quarter), the Company invested $394.5 million in three strategic acquisitions. These acquisitions
were initially financed through the U.S. and euro commercial paper programs, and are the main reason for the increase of
$415.4 million in net cash borrowings during 2005. These borrowings also resulted in an increase in the Company’s total
debt to $1.0 billion at December 31, 2005, 50% of which is variable-rate debt. For additional information on these
acquisitions, see Note 2, Acquisitions and Dispositions, to the Consolidated Financial Statements under Part II, Item 8,
“Financial Statements and Supplementary Data.”
The Company’s strategic objectives for 2006 include generating a record $400 million in net cash provided by operating
activities. The Company has targeted a minimum of $100 million of discretionary cash flows for debt reduction; however,
the amount of debt reduction will be affected by the timing of growth initiatives and the amount of asset sales. The
Company will continue its strategy to redeploy excess or discretionary cash in new long-term, high-renewal-rate service
contracts for the Mill Services business and for growth in the Access Services and railway track maintenance services
businesses, and it will continue to consider sensible bolt-on acquisitions in the industrial services business. The Company
also plans to continue its long and consistent history of paying dividends to stockholders.
The Company also intends to focus on improved working capital management. Specifically, accounts receivable in the
Access Services Segment and inventory levels in the manufacturing businesses will continue to be scrutinized and
challenged to improve the Company’s use of funds.
In order to provide increased financial flexibility for potential growth-related investments and for general corporate
requirements, the Company increased its credit facilities and commercial paper programs during the fourth quarter of
2005 as follows:
Summary of Changes to Credit Facilities and Commercial Paper Programs
(In millions)
September 30, 2005
Facility Limit
December 31, 2005
Facility Limit
Change
U.S. commercial paper program
$ 350.0
$ 400.0
Euro commercial paper program (a)
Revolving credit facility (b)
Supplemental credit facility (b)
Bilateral credit facility (c)
120.5
350.0
-
25.0
236.8
450.0
100.0
50.0
$ 50.0
116.3
100.0
100.0
25.0
Totals
$ 845.5
$ 1,236.8
$ 391.3
(a) 100 million euros expanded to 200 million euros
(b) U.S.-based program
(c)
International-based program
Additionally, the Company is considering increasing the maximum limit of the U.S. commercial paper program to $450
million and potentially refinancing some or all of its outstanding commercial paper with a longer-term facility in the first half
of 2006.
HARSCO CORPORATION 2005 ANNUAL REPORT 43
Cash Requirements
The following summarizes the Company’s expected future payments related to contractual obligations and commercial
commitments at December 31, 2005.
Contractual Obligations as of December 31, 2005 (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 (d)
Payments Due by Period
Total
98.0
$
Less than
1 year
$ 98.0
1-3
years
-
$
4-5
years
-
$
After 5
years
-
$
911.9
6.1
18.6
733.8
153.4
262.3
469.1
144.8
113.6
52.9
39.0
41.0
110.4
97.6
90.9
20.9
81.5
51.7
0.8
89.9
29.4
2.2
258.7
22.7
0.2
-
157.9
157.9
-
-
Total Contractual Obligations
$ 2,157.6
$ 505.3
$ 250.2
$ 946.2
$ 455.9
(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, 2005. The interest rates on variable-rate debt and the foreign currency exchange rates are subject to changes beyond the
Company’s control and may result in actual interest expense and payments differing from the amounts projected above.
(c) Amounts represent expected benefit payments for the next 10 years.
(d) This amount represents the notional value of the foreign currency exchange contracts outstanding at December 31, 2005. Due to the nature
of these transactions, there will be offsetting cash flows to these contracts, with the difference recognized as a gain or loss in the consolidated
income statement. See Note 13, Financial Instruments, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements
and Supplementary Data.”
Off-Balance Sheet Arrangements – The following table summarizes the Company’s contingent commercial
commitments at December 31, 2005. 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, 2005
(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
$ 113.5
$ 104.4
$
9.1
$
-
$
-
$
-
Guarantees
Performance Bonds
Other Commercial Commitments
33.4
16.2
12.8
10.1
9.7
1.7
0.7
0.8
-
0.1
0.9
-
-
-
-
21.6
5.7
11.1
Total Commercial Commitments
$ 175.9
$ 125.9
$ 10.6
$
0.1
$
0.9
$ 38.4
44
HARSCO CORPORATION 2005 ANNUAL REPORT
As of December 31, 2005, there was a decrease in the standby letters of credit and performance bonds of approximately
$88.6 million from the total $218.3 million outstanding at December 31, 2004. This decrease was due principally to the
release in January 2005 of an $80 million surety bond and a $9 million standby letter of credit, both related to the
Company’s’ settled Federal Excise Tax (FET) dispute, as previously reported on Form 10-K for 2004.
Certain guarantees and performance bonds are of a continuous nature and do not have a definite expiration date.
Sources and Uses of Cash
The Company’s principal sources of liquidity are cash from operations and borrowings under its various credit
agreements, augmented periodically by cash proceeds from asset sales. 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. (See “Certainty of Cash Flows”
section for additional information on estimated future revenues of Mill Services contracts and order backlogs for the
Company’s manufacturing businesses and railway track maintenance services business). Additionally, cash returns on
capital investments made in prior years, for which no cash is currently required, are a significant source of operating cash.
Depreciation expense related to these investments is a non-cash charge. The Company also continues to maintain
working capital at a manageable level based upon the requirements and seasonality of the 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 bolt-on 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, 2005.
Summary of Credit Facilities and
Commercial Paper Programs
(In millions)
As of December 31, 2005
Outstanding
Balance
Available
Credit
Facility Limit
U.S. commercial paper program
$ 400.0
$ 351.3
$ 48.7
Euro commercial paper program
236.8
127.5
109.3
Revolving credit facility (a)
Supplement credit facility (a)
Bilateral credit facility (b)
450.0
100.0
50.0
-
-
-
450.0
100.0
50.0
Totals at December 31, 2005
$1,236.8
$ 478.8
$ 758.0 (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 $600 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.
HARSCO CORPORATION 2005 ANNUAL REPORT 45
Credit Ratings and Outlook – The following table summarizes the Company's debt ratings as of
December 31, 2005:
Long-term Notes
U.S.–Based
Commercial Paper
Standard & Poor’s (S&P)
Moody’s
Fitch
A-
A3
A-
A-2
P-2
F2
Outlook
Stable
Stable
Stable
The Company’s euro-based commercial paper program has not been rated since the euro market does not require it. In
January 2006, 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 ratings for the Company in December 2005. 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.
Working Capital Position – Changes in the Company’s working capital are reflected in the following table:
(Dollars are in millions)
Current Assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Assets held for sale
Total current assets
Current Liabilities
Notes payable and current maturities
Accounts payable
Accrued compensation
Income taxes
Other current liabilities
Liabilities associated with assets held for sale
Total current liabilities
Working Capital
Current Ratio
December 31
2005
December 31
2004
Increase
(Decrease)
$ 120.9
666.3
251.1
60.4
2.3
1,101.0
104.0
247.2
75.7
42.3
279.2
-
748.4
$ 352.6
1.5:1
$ 94.1
555.2
217.0
58.6
1.0
925.9
31.1
220.3
63.8
40.2
223.0
0.7
579.1
$ 346.8
1.6:1
$ 26.8
111.1
34.1
1.8
1.3
175.1
72.9
26.9
11.9
2.1
56.2
(0.7)
169.3
$ 5.8
Working capital increased 2% in 2005 due principally to the effect of the Hünnebeck and BISNH acquisitions and, to a
lesser extent, increased sales activity, partially offset by negative foreign currency translation. Changes to specific
working capital components in 2005 were due to the following factors:
• Cash increased by $26.8 million as of December 31, 2005 due principally to acquisitions.
• Net receivables increased by $111.1 million in 2005. This increase was principally due to acquisitions and
increases in insurance receivables (primarily related to claims covered by third-party insurance). Partially
offsetting these increases were decreases in the Access Services Segment due to divestitures of the Youngman
operations and negative foreign currency translation related to the weakening of the British pound sterling.
•
Inventory increased by $34.1 million in 2005 due principally to acquisitions.
• Notes payable and current maturities increased $72.9 million in 2005 due principally to the increase in net cash
borrowings for the acquisitions, a portion of which has been classified to current based on the Company’s intent
and ability to repay it in 2006.
46
HARSCO CORPORATION 2005 ANNUAL REPORT
• Accounts payable increased $26.9 million in 2005. This increase was due principally to acquisitions. Partially
offsetting this increase were decreases in the Mill Services and Access Services Segments due to negative
foreign currency translation and the timing of payments.
• Other current liabilities increased $56.2 million in 2005. This increase was due principally to acquisitions and
increases in accrued insurance liabilities (primarily related to claims covered by third-party insurance).
Certainty of Cash Flows – The certainty of the Company’s future cash flows is underpinned by the long-term nature
of the Company’s mill services contracts. At December 31, 2005, the Company’s mill services contracts had estimated
future revenues of $4.3 billion, compared with $3.7 billion as of December 31, 2004. This increase is principally due to the
acquisition of BISNH. In addition, as of December 31, 2005, the Company had an order backlog of $275.8 million for its
manufacturing businesses and railway track maintenance services, compared with $243.0 million as of December 31,
2004. This increase is due principally to new railway track maintenance services contracts and new orders for heat
exchangers partially offset by decreased orders for railway track maintenance equipment in the Engineered Products and
Services (“all other”) Category. The railway track maintenance services and equipment business backlog includes a
significant portion that is long-term, which will not be realized until 2007 and later due to the long lead times necessary to
build certain equipment, and the long-term nature of certain service contracts. 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 timing and nature of the products and services provided.
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 and markets 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)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
2005
2004
2003
$ 315.3
(645.2)
369.3
(12.6)
$ 270.5
(209.6)
(56.5)
9.5
$ 262.8
(144.8)
(125.5)
17.6
Net change in cash and cash equivalents
$ 26.8
$ 13.9
$ 10.1
Cash From Operating Activities – Net cash provided by operating activities in 2005 was a record $315.3 million, an
increase of $44.8 million from 2004. The increased cash from operations in 2005 resulted from the following factors:
•
Increased net income in 2005 compared with 2004.
• The timing of accounts receivable collections at the railway track maintenance services and equipment business
and Gas Technologies businesses, partially offset by the timing of receipts on third-party insurance claims and the
timing of cash collections in the Mill Services business, resulting in a positive effect on cash from operations for
2005. The increase in receivables due to third-party insurance claims was directly offset by an increase in
insurance liabilities.
• Partially offsetting the above improvements was the timing of cash payments to vendors in the railway track
maintenance services and equipment business and Mill Services business, somewhat offset by favorable timing
differences in the Gas Technologies business.
Cash Used in Investing Activities – Capital investments in 2005 were a record $290.2 million, an increase of $86
million from 2004. Investments were made predominantly for the industrial services businesses with 54% in the Mill
Services Segment and 30% in the Access Services Segment. The Company also invested $394.5 million principally for
two acquisitions, one in Mill Services and the other in Access Services. Mill Services acquisitions included BISNH and the
smaller France-based Evulca. The Access Services acquisition was the Germany-based Hünnebeck Group GmbH. See
HARSCO CORPORATION 2005 ANNUAL REPORT 47
Note 2, Acquisitions and Dispositions, to the Consolidated Financial Statements under Part II, Item 8, “Financial
Statements and Supplementary Data,” for additional disclosures related to these items.
Cash Used in Financing Activities – The following table summarizes the Company’s debt and capital positions as of
December 31, 2005.
(Dollars are in millions)
Notes Payable and Current Maturities
Long-term Debt
Total Debt
Total Equity
Total Capital
December 31
2005
$ 104.0
905.9
1,009.9
993.9
$ 2,003.9 (a)
December 31
2004
$
31.1
594.7
625.8
914.2
$ 1,540.0
Total Debt to Total Capital
50.4%
40.6%
(a) Does not total due to rounding.
The Company’s debt as a percentage of total capital increased in 2005 due principally to the increase in net cash
borrowings related to the acquisitions. Partially offsetting the increase in this ratio was the increase in total equity. The
increase in total equity was principally due to increased net income, and was partially offset by negative foreign currency
translation adjustments. Due to the Company’s significant net investments in Continental Europe and the United
Kingdom, the strengthening of the U.S. dollar in relation to the euro and the British pound sterling had a negative 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, 2005, the Company
could increase borrowings by approximately $479.3 million and still be within its debt covenants. Alternatively, keeping all
other factors constant, the Company’s equity could decrease by approximately $321.0 million and the Company would still
be within its covenants. 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. 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 2005, eight of the Company’s nine
divisions improved their EVA from the comparable 2004 period. The EVA discipline will continue to be used to evaluate
potential acquisitions to ensure stockholder value is maximized.
The Company is committed to continue paying dividends to stockholders. The Company has increased the dividend rate
for twelve consecutive years, and in February 2006, the Company paid its 223rd 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 one million of its shares through January 31, 2007.
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, to the extent possible, and paying cash dividends as a means to enhance stockholder value.
Application of Critical Accounting Policies
The Company’s discussion and analysis of its financial condition and results of operations are based upon the
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of
48
HARSCO CORPORATION 2005 ANNUAL REPORT
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 $48.8
million (including $16.9 million of discretionary payments) and $37.8 million (including a $10.6 million discretionary
payment) during 2005 and 2004, respectively. Additionally, the Company expects to make a minimum of $20.8 million in
cash contributions to its defined benefit pension plans during 2006.
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 loss, net of deferred income taxes, in the Consolidated Balance Sheet. At December 31, 2005 and
2004, the Company has a gross minimum pension liability of $215.0 million and $239.3 million, respectively. These
adjustments impacted Accumulated other comprehensive loss in the Stockholders’ Equity section of the Consolidated
Balance Sheets by $14.7 million of comprehensive income, net of deferred income taxes, and $4.5 million of
comprehensive loss, net of deferred income taxes, at December 31, 2005 and 2004, 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 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.
The Company’s pension committee continues to evaluate alternative strategies to further reduce overall pension expense
including the on-going evaluation of investment fund managers’ performance; the balancing of plan assets and liabilities;
the risk assessment of all multi-employer pension plans; the possible merger of certain plans; the consideration of
incremental cash contributions to certain plans; and other changes that could reduce future pension expense volatility and
minimize risk.
HARSCO CORPORATION 2005 ANNUAL REPORT 49
Critical Estimate – Defined Benefit 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, 2005 measurement date for the U.K. defined benefit pension plan and the
October 31, 2005 measurement date for the U.S. defined benefit pension plans were 5.25% and 5.87%, respectively.
These rates were used in calculating the Company's projected benefit obligations as of December 31, 2005. The discount
rates selected represent the average yield on high-quality corporate bonds as of the measurement dates. The global
weighted-average of these assumed discount rates for the years ending December 31, 2005, December 31, 2004 and
December 31, 2003 were 5.3%, 5.7% and 5.9%, respectively. Annual pension expense is determined using the discount
rate as of the beginning of the year, which for 2006 is the 5.3% global weighted-average discount rate. Pension expense
and the projected benefit obligation generally increase as the selected discount rate 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 2005, the
global weighted-average expected long-term rate of return on asset assumption was 7.8%. For 2006, the expected global
long-term rate of return on assets has been reduced to 7.6%. 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 2006 pension expense is expected to stabilize. Total pension expense decreased from 2004 to 2005 by $1.7
million due principally to lower defined benefit pension expense in the United Kingdom. This resulted from plan design
changes in 2004 when certain defined benefit plans were replaced by defined contribution plans. 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 the design changes made to those plans.
Changes in pension benefit expense may occur in the future due to changes in actuarial assumptions and due to changes
in returns on plan assets resulting from financial market conditions. Holding all other assumptions constant, 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 2006 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 $1.8 million Decrease of $4.8 million
Increase of $5.2 million
Increase of $2.0 million
Expected long-term rate of return on plan assets
One-half percent increase
One-half percent decrease
Decrease of $1.2 million Decrease of $3.0 million
Increase of $3.0 million
Increase of $1.2 million
Should circumstances change that affect these estimates, changes (either increases or decreases) to the net pension
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.
50
HARSCO CORPORATION 2005 ANNUAL REPORT
Notes and Accounts Receivable
Notes and accounts receivable are stated at their net realizable value through the use of an allowance for doubtful
accounts. The allowance is maintained for estimated losses resulting from the inability or unwillingness of customers to
make required payments. The Company has policies and procedures in place requiring customers to be evaluated for
creditworthiness prior to the execution of new service contracts or shipments of products. These reviews are structured to
minimize the Company’s risk related to realizability of its receivables. Despite these policies and procedures, the
Company may still experience collection problems and potential bad debts due to economic conditions within certain
industries (e.g., construction and steel industries) and countries and regions in which the Company operates. As of
December 31, 2005 and 2004, receivables of $666.3 million and $555.2 million, respectively, were net of reserves of
$24.4 million and $19.1 million, respectively. The increase in reserves from December 31, 2004 related principally to the
acquisition of businesses.
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 2005, 2004 and 2003 were $6.5 million, $5.0 million
and $3.4 million, respectively.
On a monthly basis, customer accounts are analyzed for collectibility. Reserves are established based upon a specific-
identification method as well as historical collection experience, as appropriate. The Company also evaluates specific
accounts when it becomes aware of a situation in which a customer may not be able to meet its financial obligations due
to a deterioration in its financial condition, credit ratings or bankruptcy. The reserve requirements are based on the facts
available to the Company and are 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 $559.6 million and $433.1 million, as of December 31, 2005 and 2004,
respectively. Goodwill is not amortized but tested for impairment at the reporting unit level on an annual basis, and
between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit’s goodwill may
exceed its fair value.
Critical Estimate – Goodwill
A discounted cash flow model is used to estimate the fair value of a reporting unit. This model requires the use of long-
term planning estimates and assumptions regarding industry-specific economic conditions that are outside the control of
the Company. The annual test for impairment includes the selection of an appropriate discount rate to value cash flow
information. The basis of this discount rate calculation is derived from several internal and external factors. These factors
include, but are not limited to, the average market price of the Company’s stock, the number of shares of stock
outstanding, the book value of the Company’s debt, a long-term risk-free interest rate, and both market and size-specific
risk premiums. The Company’s annual goodwill impairment testing, performed as of October 1, 2005 and 2004, 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.
HARSCO CORPORATION 2005 ANNUAL REPORT 51
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. The amounts charged against pre-tax income related to impaired long-lived assets were $0.6 million,
$0.4 million and $0.1 million in 2005, 2004 and 2003, respectively.
Critical Estimate – Asset Impairment
The determination of a long-lived asset impairment loss involves significant judgments based upon short and long-term
projections of future asset performance. Impairment loss estimates are based upon the difference between the book
value and the fair value of the asset. The fair value is generally based upon the Company’s estimate of the amount that
the assets could be bought or sold for in a current transaction between willing parties. 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, 2005 and 2004, inventories of $251.1 million and $217.0 million, respectively, are net of lower of cost or
market reserves of $3.2 million and $0.9 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 $1.7 million, $(4.3) million and $1.5
million in 2005, 2004 and 2003, 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.
Insurance Reserves
The Company retains a significant portion of the risk for property, workers' compensation, U.K. employers’ liability,
automobile, general and product liability losses. At December 31, 2005 and 2004 the Company has recorded liabilities of
$102.3 million and $77.4 million, respectively, related to both asserted as well as unasserted insurance claims. At
December 31, 2005, $25.2 million is included in insurance liabilities related to claims covered by insurance carriers for
which a corresponding receivable has been recorded. There were no such liabilities recognized as of December 31, 2004
since there were no probable claim amounts in excess of the Company’s deductible limits.
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HARSCO CORPORATION 2005 ANNUAL REPORT
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 2005, 2004 and 2003, the Company recorded retrospective insurance reserve adjustments that
decreased pre-tax insurance expense for self-insured programs by $4.1 million, $2.7 million and $5.7 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 changes in reserve amounts are
monitored to ensure they are recorded in the proper period. Additionally, any significant changes in reported business
unit reserve balances are reviewed to ensure the proper Corporate approval has occurred. On a quarterly basis, the
Company’s business units submit a reserve listing to the Corporate headquarters which is reviewed 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 pre-tax 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, 2005, 2004 and 2003,
the Company’s net effective income tax rate was 28.1%, 29.1% and 31.0%, respectively.
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 $21.7 million
and $17.5 million as of December 31, 2005 and 2004, respectively.
HARSCO CORPORATION 2005 ANNUAL REPORT 53
Critical Estimate – Income Taxes
The annual effective income tax rates are developed giving recognition to tax rates, tax holidays, tax credits and capital
losses, as well as certain exempt income and non-deductible expenses in all of the jurisdictions where the Company does
business. The income tax provision for the quarterly period is the change in the year-to-date provision from the previous
quarterly period.
The Company considers future taxable income and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance. In the event the Company were to determine that it would more likely than not be able
to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Likewise, should the Company determine that it
would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets
would decrease income in the period in which such determination was made.
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 $2.7 million, $2.6 million and $3.3 million in internal research and development programs in 2005,
2004 and 2003, 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
2003
2004
2005
$ 1.3
$ 1.3
$ 1.4
0.5
0.4
0.5
0.6
0.3
0.2
2.4
2.0
2.1
0.9
0.6
0.6
$ 2.7
$ 2.6
$ 3.3
Backlog
As of December 31, 2005, the Company’s order backlog, exclusive of long-term mill services contracts, access services
and roofing granules and slag abrasives, was $275.8 million compared with $243.0 million as of December 31, 2004, a
13% increase.
(In millions)
Gas Technologies Segment
Engineered Products and Services (“all other”) Category
Consolidated Backlog
2005
$ 45.2
230.6
$ 275.8
2004
$ 48.7
194.3
$ 243.0
Order Backlog
The Gas Technologies Segment order backlog at December 31, 2005 was 7% below the December 31, 2004 order
backlog. The change primarily reflects decreased order backlog for propane gas tanks.
Order backlog for the Engineered Products and Services (“all other”) Category at December 31, 2005 was 19% above the
December 31, 2004 order backlog. The change is principally due to increased order backlog of air-cooled heat
exchangers and railway track maintenance services, partially offset by decreased order backlog of railway track
54
HARSCO CORPORATION 2005 ANNUAL REPORT
maintenance equipment. 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 $4.3 billion at December 31, 2005 compared with $3.7 billion at
December 31, 2004. Approximately 58% of these revenues are expected to be recognized by December 31, 2008. The
remaining revenues are expected to be recognized between January 1, 2009 and December 31, 2014.
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 $0.30 per share in 2005, for an annual rate of $1.20. This is an
increase of 9.1% from 2004. At the November 2005 meeting, the Board of Directors increased the dividend by 8.3% to an
annual rate of $1.30 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 2006 payment marked the 223rd consecutive quarterly dividend paid at the same or at an increased rate.
In 2005, 32% 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
See Part I, Item 1A, “Risk Factors,” for quantitative and qualitative disclosures about market risk.
HARSCO CORPORATION 2005 ANNUAL REPORT 55
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, 2005 and 2004
Consolidated Statements of Income
for the years 2005, 2004 and 2003
Consolidated Statements of Cash Flows
for the years 2005, 2004 and 2003
Consolidated Statements of Stockholders' Equity
for the years 2005, 2004 and 2003
Consolidated Statements of Comprehensive Income
for the years 2005, 2004 and 2003
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited):
Two-Year Summary of Quarterly Results
Common Stock Price and Dividend Information
Page
57
58
60
61
62
63
64
65
99
99
56
HARSCO CORPORATION 2005 ANNUAL REPORT
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, 2005
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, 2005. As permitted by SEC rules and
regulations, the Company’s management has excluded Hünnebeck Group GmbH and the Northern Hemisphere mill
services operations of Brambles Industrial Services (“BISNH”) from its assessment of internal control over financial
reporting as of December 31, 2005 because they were acquired in November and December 2005, respectively. Total
assets and total revenues for these acquisitions represented 18% and 1%, respectively, of the related consolidated
financial statement amounts as of and for the year ended December 31, 2005. Additional information on these
acquisitions is provided in Note 2, “Acquisitions and Dispositions.”
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2005 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, 2005.
Derek C. Hathaway
Chairman and Chief Executive Officer
March 13, 2006
Salvatore D. Fazzolari
President, Chief Financial Officer and Treasurer
March 13, 2006
HARSCO CORPORATION 2005 ANNUAL REPORT 57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Stockholders of Harsco Corporation:
We have completed integrated audits of Harsco’s 2005 and 2004 consolidated financial statements and of its internal
control over financial reporting as of December 31, 2005, and an audit of its 2003 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 schedule
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, 2005 and 2004, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity
with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 15(a)2 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements. These financial statements
and 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, 2005 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, 2005, 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
58
HARSCO CORPORATION 2005 ANNUAL REPORT
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.
As described in "Management's Report on Internal Control Over Financial Reporting,” management has excluded
Hünnebeck Group GmbH (“Hünnebeck”) and the Northern Hemisphere mill services operations of Brambles Industrial
Services (“BISNH”) from its assessment of internal control over financial reporting as of December 31, 2005 because they
were acquired by the Company in purchase business combinations during 2005. Hünnebeck and BISNH total assets and
total revenues represent 18% and 1%, respectively, of the related consolidated financial statement amounts as of and for
the year ended December 31, 2005.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 13, 2006
HARSCO CORPORATION 2005 ANNUAL REPORT 59
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
Assets held-for-sale
Total current assets
Property, plant and equipment, net
Goodwill, net
Intangible assets, net
Other assets
Total assets
LIABILITIES
Current liabilities:
Short-term borrowings
Current maturities of long-term debt
Accounts payable
Accrued compensation
Income taxes payable
Dividends payable
Insurance liabilities
Other current liabilities
Liabilities associated with assets held-for-sale
Total current liabilities
Long-term debt
Deferred income taxes
Insurance liabilities
Retirement plan liabilities
Other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, Series A junior participating cumulative preferred stock
Common stock, par value $1.25, issued 68,257,785 and 67,911,031 shares as of
December 31, 2005 and 2004, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock, at cost (26,474,609 and 26,479,782 shares, respectively)
Unearned stock-based compensation
Total stockholders' equity
Total liabilities and stockholders' equity
(a) Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
60
HARSCO CORPORATION 2005 ANNUAL REPORT
December 31
2005
December 31
2004 (a)
$
120,929
666,252
251,080
60,436
2,326
1,101,023
1,139,808
559,629
78,839
96,505
$ 2,975,804
$
97,963
6,066
247,179
75,742
42,284
13,580
47,244
218,345
-
748,403
905,859
123,334
55,049
98,946
50,319
1,981,910
$
94,093
555,191
217,026
58,614
932
925,856
932,298
433,125
10,837
87,640
$ 2,389,756
$
16,145
14,917
220,322
63,776
40,227
12,429
23,470
187,111
691
579,088
594,747
95,702
53,960
97,586
54,483
1,475,566
-
-
85,322
154,017
(167,318)
1,526,216
(603,225)
(1,118)
993,894
$ 2,975,804
84,889
139,532
(127,491)
1,420,637
(603,377)
-
914,190
$ 2,389,756
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 benefit (expense)
Income/(loss) 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
(a) Does not total due to rounding.
See accompanying notes to consolidated financial statements.
2005
2004
2003
$ 1,928,539
837,671
2,766,210
$ 1,764,159
737,900
2,502,059
$ 1,493,942
624,574
2,118,516
1,425,222
674,177
393,187
2,676
2,000
2,497,262
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
268,948
74
3,165
(41,918)
230,269
(64,771)
165,498
(8,748)
156,750
(430)
261
20
56
(93)
156,657
41,642
3.76
-
3.76
42,080
3.73
-
3.72 (a)
$
$
$
$
$
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
$
$
$
$
$
HARSCO CORPORATION 2005 ANNUAL REPORT 61
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 (including reclassifications to/from long-term debt)
Current maturities and long-term debt:
Additions
Reductions (including reclassifications to short-term borrowings)
Cash dividends paid on common stock
Common stock issued-options
Other financing activities
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
2005
2004
2003
$ 156,657
$ 121,211
$ 92,217
195,139
2,926
(74)
170
8,134
(64,580)
(25,908)
10,787
(141)
32,169
315,279
(290,239)
(394,493)
39,543
4
(645,185)
73,530
571,928
(230,010)
(49,928)
9,097
(5,292)
369,325
(12,583)
26,836
94,093
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)
(5,863)
(20,013)
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
Cash and cash equivalents at end of period
$ 120,929
$
94,093
$
80,210
*Purchase of businesses, net of cash acquired
Working capital, other than cash
Property, plant and equipment
Other noncurrent assets and liabilities, net
$
(26,832)
(169,172)
(198,490)
$
(60)
(3,024)
(9,180)
$
(225)
(16,694)
(6,799)
Net cash used to acquire businesses
$
(394,494)
$
(12,264)
$
(23,718)
See accompanying notes to consolidated financial statements.
62
HARSCO CORPORATION 2005 ANNUAL REPORT
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
(In thousands, except share and
per share amounts)
Balances, January 1, 2003
Issued
$ 83,793
Treasury
$ (603,769)
Additional
Paid-in
Capital
$ 110,639
Accumulated
Other
Comprehensive
Income (Loss)
$ (242,978)
Retained
Earnings
$ 1,296,855
Unearned
Stock-Based
Compensation
Total
$
0
$ 644,540
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
92,217
(43,285)
72,032
(8)
1,523
4
Other, 1,590 shares
Balances, December 31, 2003
$ 84,197
61
$ (603,639)
(5)
$ 120,070
$ 1,345,787
$ (169,427)
$
0
Balances, December 31, 2004
$ 84,889
9
$ (603,377)
154
$ 139,532
$ 1,420,637
$ (127,491)
$
0
121,211
(46,361)
46,230
159
(4,453)
692
253
19,308
156,657
(51,078)
(54,399)
(152)
14,724
433
116
12,596
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
restricted stock units
Net income
Cash dividends declared, $1.225
per share
Translation adjustments, net of
$2,846 deferred income taxes
Cash flow hedging instrument
adjustments, net of $82
deferred income taxes
Pension liability adjustments, net
of $(6,407) deferred income
taxes
Stock options exercised, 350,840
shares
Other, 1,087 shares, and 36,250
restricted stock units (net of
forfeitures)
Amortization of unearned
compensation on restricted
stock units
36
1,889
(1,847)
78
Balances, December 31, 2005
$ 85,322
$ (603,225)
$ 154,017
$ 1,526,216
$ (167,318)
See accompanying notes to consolidated financial statements.
729
$ (1,118)
729
$ 993,894
HARSCO CORPORATION 2005 ANNUAL REPORT 63
92,217
(43,285)
72,032
(8)
1,523
4
9,909
56
$ 776,988
121,211
(46,361)
46,230
159
(4,453)
20,253
163
$ 914,190
156,657
(51,078)
(54,399)
(152)
14,724
13,145
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years ended December 31
Net Income
Other comprehensive income (loss):
Foreign currency translation adjustments
Net gains (losses) on cash flow hedging instruments, net of deferred
income taxes of $79, $(30) and $6 in 2005, 2004 and 2003,
respectively
Reclassification adjustment for loss on cash flow hedging instruments, net
of deferred income taxes of $3, $(56), and $(2) in 2005, 2004 and
2003, respectively
Pension liability adjustments, net of deferred income taxes of $(6,407),
$2,062 and $(482) in 2005, 2004 and 2003, respectively
Unrealized gain on marketable securities, net of deferred income taxes of
$(1) in 2003
Reclassification adjustment for loss on marketable securities included in
net income, net of deferred income taxes of $(1) in 2003
Other comprehensive income (loss)
2005
2004
2003
$
156,657
$
121,211
$
92,217
(54,399)
46,230
72,032
(147)
(5)
55
104
14,724
(4,453)
-
-
(39,827)
-
-
41,936
(11)
3
1,523
2
2
73,551
Total comprehensive income
$
116,830
$
163,147
$
165,768
See accompanying notes to consolidated financial statements.
64
HARSCO CORPORATION 2005 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 $85.4 million or 3.1%
of the Company’s total revenues in 2005. Investments in unconsolidated entities (all of which are 40-50% owned) are
accounted for under the equity method. The Company does not have any off-balance sheet arrangements with
unconsolidated special-purpose entities.
Reclassifications
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 to the
components of the Consolidated Balance Sheets.
As a result of these reclassifications, certain 2004 and 2003 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 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 charged to the
allowance for depreciation to the extent of the accumulated depreciation and the balance is charged to income. Long-
lived assets to be disposed of by sale are not depreciated while they are held for sale.
Leases
The Company leases certain property and equipment under noncancelable lease agreements. All lease agreements are
evaluated and classified as either an operating lease or capital lease. A lease is classified as a capital lease if any of the
following criteria are met: transfer of ownership to the Company by the end of the lease term; the lease contains a
bargain purchase option; the lease term is equal to or greater than 75% of the asset’s economic life; or the present value
of future minimum lease payments is equal to or greater than 90% of the asset’s fair market value. Operating lease
expense is recognized ratably over the entire lease term, including rent abatement periods and rent holidays.
Goodwill and Other Intangible Assets
Goodwill is not amortized but tested for impairment at the reporting unit level. SFAS No. 142, “Goodwill and Other
Intangible Assets,” (SFAS 142) defines a reporting unit as an operating segment or one level below an operating segment
(referred to as a component). A component of an operating segment is a reporting unit if the component constitutes a
business for which discrete financial information is available and segment management regularly reviews the operating
results of that component. Accordingly, the Company performs the goodwill impairment test at the operating segment
level for the Mill Services Segment, the Access Services Segment and the Engineered Products and Services category
and at the component level for the Gas Technologies Segment. The goodwill impairment tests are performed on an
annual basis as of October 1 and between annual tests whenever events or circumstances indicate that the carrying value
of a reporting unit’s goodwill may exceed its fair value. A discounted cash flow model is used to estimate the fair value of
a reporting unit. This model requires the use of long-term planning forecasts and assumptions regarding industry-specific
economic conditions that are outside the control of the Company. 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.
HARSCO CORPORATION 2005 ANNUAL REPORT 65
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. Service sales include sales of the Mill Services and Access Services Segments as
well as railway track maintenance services. Product sales include sales of the Gas Technologies Segment as well as the
manufacturing businesses of the Engineered Products and Services (“all other”) Category. Rentals were less than 10% of
total revenues in 2005, 2004 and 2003 and are included in service sales.
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, provides services
under both fixed-fee and time-and-materials short-term contracts and, to a lesser extent, sells products to customers.
Equipment rentals are recognized as earned over the contractual rental period. Services provided on a fixed-fee basis
are recognized over the contractual period based upon the completion of specific units of accounting (i.e., erection and
dismantling of equipment). Services provided on a time-and-materials basis are recognized when earned as services are
performed. Product sales revenue is recognized when title and risk of loss transfer, and when all of the revenue
recognition criteria have been met.
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 SAB
104 have been met. Title and risk of loss for domestic shipments generally transfers to the customer at the point of
shipment. For international 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 have been met. Title and risk of loss for domestic shipments generally transfers to the
customer at the point of shipment. For export sales, title and risk of loss transfer in accordance with the international
commercial terms included in the specific customer contract. Revenue may be recognized subsequent to the transfer of
title and risk of loss for certain product sales 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. income 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.
66
HARSCO CORPORATION 2005 ANNUAL REPORT
Accrued Insurance and Loss Reserves
The Company retains a significant portion of the risk for workers’ compensation, U.K. employers’ liability, automobile,
general and product liability losses. During 2005, 2004 and 2003, the Company recorded insurance expense related to
these lines of coverage of approximately $37 million, $37 million and $36 million, respectively. Reserves have been
recorded which reflect the undiscounted estimated liabilities including claims incurred but not reported. When a
recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the
covered liability. Changes in the estimates of the reserves are included in net income in the period determined. During
2005, 2004 and 2003, the Company recorded retrospective insurance reserve adjustments that decreased pre-tax
insurance expense for self-insured programs by $4.1 million, $2.7 million and $5.7 million, respectively. At December 31,
2005 and 2004, the Company has recorded liabilities of $102.3 million and $77.4 million, respectively, related to both
asserted as well as unasserted insurance claims. Included in the balance at December 31, 2005 were $25.2 million of
recognized liabilities covered by insurance carriers. Amounts estimated to be paid within one year have been classified
as current Insurance liabilities, with the remainder included in non-current Insurance liabilities.
Warranties
The Company has recorded product warranty reserves of $5.0 million, $4.2 million and $2.8 million as of December 31,
2005, 2004 and 2003, 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, 2005, 2004 and 2003:
Warranty Activity
(In thousands)
2005
2004
2003
Balance at the beginning of the period
$ 4,161
$ 2,788
$ 2,248
Accruals for warranties issued during the period
3,851
4,135 (a)
2,125
Increase/(reductions) related to pre-existing warranties
60
(414)
(233)
Warranties paid
(3,083)
(2,361)
(1,344)
Other (principally foreign currency translation)
(27)
13
(8)
Balance at end of the period
$ 4,962
$ 4,161
$ 2,788
(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 (loss). Income and expense items are translated at average monthly exchange rates. Gains and
losses from foreign currency transactions are included in net income. For subsidiaries operating in highly inflationary
economies, and those entities for which the U.S. dollar is the currency of the primary economic environment in which the
entity operates, gains and losses on foreign currency transactions and balance sheet translation adjustments are included
in net income.
Financial Instruments and Hedging
The Company has operations throughout the world that are exposed to fluctuations in related foreign currencies in the
normal course of business. The Company seeks to reduce exposure to foreign currency fluctuations through the use of
forward exchange contracts. The Company does not hold or issue financial instruments for trading purposes, and it is the
Company's policy to prohibit the use of derivatives for speculative purposes. The Company has a Foreign Currency Risk
Management Committee that meets periodically to monitor foreign currency risks.
The Company executes foreign currency forward exchange contracts to hedge transactions for firm purchase
commitments, to hedge variable cash flows of forecasted transactions and for export sales denominated in foreign
currencies. These contracts are generally for 90 days or less. For those contracts that are designated as qualified cash
HARSCO CORPORATION 2005 ANNUAL REPORT 67
flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), gains or
losses are recorded in Other comprehensive income (loss).
Amounts recorded in Other comprehensive income (loss) are reclassified into income in the same period or periods during
which the hedged forecasted transaction affects income. The cash flows from these contracts are classified consistent
with the cash flows from the transaction being hedged (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
In prior years, when stock options were issued to employees, the Company used the intrinsic value method to account for
the options. No compensation expense was recognized on the grant date, since at that date, the option price equaled the
market price of the underlying common stock. Effective in 2003, the Company ceased granting stock options to
employees.
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
2005
2004
2003
$ 156,657
-
$ 156,657
$ 3.76
3.76
3.72
3.72
$ 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
(a)
Total stock-based employee compensation expense related to stock options determined under fair value-based method for all awards,
net of related income tax effects.
In 2004, the Management Development and Compensation Committee of the Board of Directors approved the granting of
performance-based restricted stock units as the long-term equity component of officer compensation. 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 replaced 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
68
HARSCO CORPORATION 2005 ANNUAL REPORT
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). SFAS 123R eliminates APB 25’s intrinsic value
method which the Company has historically used to account for stock option grants.
In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107)
which summarizes the views of the SEC staff regarding the interaction between SFAS 123R and certain SEC rules and
regulations. SAB 107 provides guidance on several topics including: valuation methods, the classification of
compensation expense, capitalization of compensation cost related to share-based payment arrangements, the
accounting for income tax effects of share-based payment arrangements, and disclosures in Management’s Discussion
and Analysis subsequent to adoption of SFAS 123R.
In April 2005, the SEC issued FR-74, “Amendment to Rule 4-01(a) of Regulation S-X Regarding the Compliance Date for
Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment” (FR-74). FR-74 allows
companies to implement SFAS 123R at the beginning of their next fiscal year (January 1, 2006 for the Company), instead
of the next reporting period that begins after June 15, 2005. FR-74 does not change the accounting required by SFAS
123R; it only changes the required implementation date of the standard.
The Company implemented SFAS 123R as of January 1, 2006, and it did not have a material affect on the Company’s
financial position, results of operations or cash flows.
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,
2005 (as of January 1, 2006 for the Company) with earlier application permitted. The Company implemented SFAS 151
effective January 1, 2006, and it did not have a material impact on the Company’s financial position, results of operations
or cash flows.
SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement
No. 3” (SFAS 154)
In May 2005, the FASB issued SFAS 154 which replaces APB Opinion No. 20, “Accounting Changes” (APB 20) and
SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” (SFAS 3). SFAS 154 changes the
requirements for the accounting and reporting of a change in accounting principle or correction of an error. It establishes,
unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the
absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company
implemented SFAS 154 effective January 1, 2006, and it did not have a material impact on the Company’s financial
position, results of operations or cash flows.
FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB
Statement No. 143” (FIN 47).
In March 2005, the FASB issued FIN 47 which clarifies that the term “conditional asset retirement obligation” as used in
SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143), refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not
be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated.
The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred—generally
upon acquisition, construction, or development and/or through the normal operation of the asset. Uncertainty about the
timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of
the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. The Company implemented FIN 47 as of December
31, 2005, and it did not have a material impact on the Company’s financial position, results of operations or cash flows.
HARSCO CORPORATION 2005 ANNUAL REPORT 69
SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an Amendment of FASB Statements No. 133 and
140” (SFAS 155).
In February 2006, the FASB issued SFAS 155, which amends SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities.” SFAS 155 addresses several issues relating to the accounting for financial instruments, including permitting
fair value measurement for any hybrid financial instrument that contains an embedded derivative, and eliminating the
prohibition on a qualifying special-purpose entity from holding certain derivative instruments. SFAS 155 also provides
clarification that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS 155 is
effective for all financial instruments issued or acquired after the fiscal year that begins after September 15, 2006 (January
1, 2007 for the Company), with early application permitted. The Company has not yet determined the timing of adoption
or the full impact of SFAS 155; however, it is not expected to materially impact the Company’s financial position, results of
operations or cash flows.
2.
Acquisitions and Dispositions
Acquisitions
In December 2005, the Company acquired the Northern Hemisphere steel mill services operations of Brambles Industrial
Services (BISNH), a unit of the Sydney, Australia-based Brambles Industrial Limited, for ₤137 million (approximately $236
million), excluding acquisition costs. BISNH will be included in the Company’s Mill Services Segment. The Company did
not assume debt as part of this acquisition. BISNH is a provider of on-site, outsourced mill services to the steel and
metals industries, operating at 19 locations in the U.K., France, Holland and the United States. Goodwill recognized in
this transaction was $93.1 million, of which $88.5 million is expected to be deductible for U. S. income tax purposes.
Because this acquisition occurred near the end of the year, the purchase price allocations and goodwill balance have not
been finalized as of December 31, 2005. All regulatory filings, reviews and approvals have now been completed with
respect to this transaction.
In November 2005, the Company acquired the Germany-based Hünnebeck Group GmbH (Hünnebeck) for €140 million
(approximately $164 million), which included the assumption of debt but excludes acquisition costs. Hünnebeck will be
included in the Company’s Access Services Segment. Hünnebeck is a provider of highly engineered formwork and
scaffolding equipment with more than 60 branches and depots in 12 countries and export sales worldwide. Goodwill
recognized in this transaction was $71.2 million, none of which is expected to be deductible for U. S. income tax
purposes. Because this acquisition occurred near the end of the year, the purchase price allocations and goodwill
balance have not been finalized as of December 31, 2005.
In May 2005, the Company’s Mill Services Segment acquired Evulca SAS, a France-based company with more than 30
years experience providing conveyor belt management and maintenance services to the steel industry and other industrial
clients. The privately-held company recorded 2004 sales in excess of $5 million.
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.
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. In October 2005, certain assets and liabilities related to the Company’s
Youngman light access manufacturing plant in the U.K. (a component of the Access Services Segment) were sold. The
Youngman operations consisted of a single manufacturing facility, with external sales of approximately $60 million in
2004. At the time of sale, the net book value of its assets and liabilities was $34.5 million and $15.9 million, respectively.
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 continued to recognize income from inventory consigned to the buyer in accordance with the sale
agreement and when all revenue recognition criteria were met. As of June 30, 2005, all the remaining inventory had been
70
HARSCO CORPORATION 2005 ANNUAL REPORT
sold and the corresponding income was recognized in Discontinued operations. The income from the sale of this
inventory had an immaterial effect on net income for the twelve months ended December 31, 2005.
Throughout 2004 and 2005, management approved the sale of certain long-lived assets (primarily land and buildings) of
the Gas Technologies Segment, the Mill Services Segment and the Engineered Products and Services Category.
The major classes of assets and liabilities “held-for-sale” included in the Consolidated Balance Sheets are as follows:
2005
2004
(In thousands)
As of December 31
ASSETS
Accounts receivable, net
Inventories
Other current assets
Property, plant and equipment, net
Total assets “held-for-sale”
$
-
-
-
2,326
$ 2,326
LIABILITIES
Accounts payable
Other current liabilities
Other liabilities
Total liabilities associated with assets
“held-for-sale”
$
$
-
-
-
-
$
$
$
15
133
23
761
932
24
542
125
$
691
3.
Accounts Receivable and Inventories
At December 31, 2005 and 2004, accounts receivable of $666.3 million and $555.2 million, respectively, were net of
allowances for doubtful accounts of $24.4 million and $19.1 million, respectively. Gross accounts receivable included
trade accounts receivable of $638.5 million and $557.1 million at December 31, 2005 and 2004, respectively. The
increase in accounts receivable and the allowance for doubtful accounts from December 31, 2004 related principally to
the net effect of acquisitions and divestitures discussed in Note 2, “Acquisitions and Dispositions,” and an increase of
$25.2 million in insurance claims receivable, partially offset by the write-off of previously reserved accounts receivable.
The provision for doubtful accounts was $6.5 million, $5.0 million and $3.4 million for 2005, 2004 and 2003, respectively.
Inventories consist of the following:
Inventories
(In thousands)
Finished goods
Work-in-process
Raw materials and purchased parts
Stores and supplies
2005
$ 85,325
43,830
87,251
34,674
2004
$ 60,554
37,882
91,965
26,625
Total inventories
$ 251,080
$ 217,026
Valued at lower of cost or market:
Last-in, first out (LIFO) basis
First-in, first out (FIFO) basis
Average cost basis
Total inventories
$ 137,101
26,003
87,976
$ 129,064
17,399
70,563
$ 251,080
$ 217,026
The increase in inventory balances related principally to inventories acquired as part of the Hünnebeck and BISNH
acquisitions discussed in Note 2, “Acquisitions and Dispositions.”
HARSCO CORPORATION 2005 ANNUAL REPORT 71
Inventories valued on the LIFO basis at December 31, 2005 and 2004 were approximately $34.1 million and $35.8 million,
respectively, less than the amounts of such inventories valued at current costs.
As a result of reducing certain inventory quantities valued on the LIFO basis, net income increased from that which would
have been recorded under the FIFO basis of valuation by $1.6 million, $0.02 million and $1.1 million in 2005, 2004 and
2003, 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
Net property, plant and equipment
2005
$
39,306
168,727
2,291,294
91,186
2,590,513
(1,450,705)
$ 1,139,808
2004
$
39,838
185,807
2,027,765
45,083
2,298,493
(1,366,195)
$ 932,298
The increase in net property, plant and equipment related principally to assets acquired as part of the Hünnebeck and
BISNH acquisitions discussed in Note 2, “Acquisitions and Dispositions,” as well as increases for the railway track
services business.
The estimated useful lives of different types of assets are generally:
Land improvements
5 to 20 years
Buildings and improvements
10 to 40 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
5.
Goodwill and Other Intangible Assets
In connection with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) 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, 2005 and 2004 and all reporting units of the Company passed the step one 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.
72
HARSCO CORPORATION 2005 ANNUAL REPORT
The following table reflects the changes in carrying amounts of goodwill by segment for the years ended December 31,
2004 and 2005:
Goodwill by Segment
(In thousands)
Balance as of December 31, 2003, net of
Mill
Services
Segment
Access
Services
Segment
Gas
Technologies
Segment
Engineered
Products
and Services
(“all other”)
Category
Consolidated
Totals
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 acquired during year
93,268
71,068
-
(5,370)
(16,542)
(15,920)
-
-
-
-
-
-
164,336
(5,370)
(32,462)
Goodwill written off related to sale of
business unit
Other (principally foreign currency
translation)
Balance as of December 31, 2005, net
of accumulated amortization
$ 297,219
$ 217,580
$ 36,693
$
8,137
$ 559,629
Goodwill is net of accumulated amortization of $103.0 million and $108.4 million at December 31, 2005 and 2004,
respectively.
Intangible assets, which are included principally in Other assets on the Consolidated Balance Sheets, totaled $78.8
million, net of accumulated amortization of $11.8 million at December 31, 2005 and $10.9 million, net of accumulated
amortization of $10.5 million at December 31, 2004. The following table reflects these intangible assets by major
category:
Intangible Assets
(In thousands)
December 31, 2005
December 31, 2004
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Customer relationships
$73,224
$ 1,262
$ 7,662
$ 609
Non-compete agreements
5,036
4,402
4,898
4,032
Patents
Other
Total
4,426
3,587
4,416
3,757
7,962
2,558
4,411
2,087
$90,648
$11,809
$21,387
$10,485
HARSCO CORPORATION 2005 ANNUAL REPORT 73
The increase in intangible assets for 2005 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
$67,789
Non-compete agreements
Patents
Other
Total
147
586
4,104
$72,626
None
None
None
None
18 years
10 years
10 years
11 years
There were no research and development assets acquired and written off in 2005, 2004 or 2003.
Amortization expense for intangible assets was $2.1 million, $1.8 million and $1.2 million for the years ended December
31, 2005, 2004 and 2003, respectively. The following table shows the estimated amortization expense for the next five
fiscal years based on current intangible assets.
(In thousands)
2006
2007
2008
2009
2010
Estimated amortization expense $6,335 $6,076 $5,766 $5,488 $5,302
6.
Debt and Credit Agreements
The Company has various credit facilities and commercial paper programs available for use throughout the world. The
following table illustrates the amounts outstanding on credit facilities and commercial paper programs and available credit
at December 31, 2005. The Company limits the aggregate commercial paper, syndicated credit facility and bilateral credit
facility borrowings at any one time to a maximum of $600 million. These credit facilities and programs are described in
more detail below the table.
Summary of Credit Facilities and
Commercial Paper Programs
(In thousands)
Facility Limit
As of December 31, 2005
Outstanding
Balance
Available
Credit
U.S. commercial paper program
$ 400,000
$351,317
$ 48,683
Euro commercial paper program
236,800
127,444
109,356
Revolving credit facility (a)
450,000
Supplemental credit facility (a)
100,000
Bilateral credit facility (b)
50,000
-
-
-
450,000
100,000
50,000
Totals at December 31, 2005
$1,236,800
$478,761
$ 758,039 (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 $600 million.
The Company has a U.S. commercial paper borrowing program under which it can issue up to $400 million of short-term
notes in the U.S. commercial paper market. In addition, the Company has a 200 million euro commercial paper program,
74
HARSCO CORPORATION 2005 ANNUAL REPORT
equivalent to approximately $236.8 million at December 31, 2005, 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, 2005 and 2004, the Company had $351.3 million and $26.9
million of U.S. commercial paper outstanding, respectively, and $127.4 million and $6.8 million outstanding, respectively,
under its European-based commercial paper program. Commercial paper is classified as long-term debt when the
Company has the ability and intent to refinance it on a long-term basis through existing long-term credit facilities. At
December 31, 2005, the Company classified $88.7 million of commercial paper as short-term debt because it does not
intend to carry this amount beyond the next twelve months. The remaining $390.1 million in commercial paper at
December 31, 2005 was classified as long-term debt. At December 31, 2004, all commercial paper was classified as
long-term debt.
On November 8, 2005, the Company increased the maximum amount under its euro commercial paper program from
EUR 100 million to EUR 200 million, and on December 21, 2005, the Company increased the maximum amount of its
U.S. commercial paper program from $350 million to $400 million. The increase in authorized commercial paper will
provide increased financial flexibility for potential growth-related investments and for general corporate requirements.
On November 23, 2005, the Company executed a new revolving credit facility in the amount of $450 million, through a
syndicate of 16 banks, which matures in November 2010. This facility serves as back-up to the Company's commercial
paper programs. This new facility replaced the existing $350 million revolving credit facility that would have matured on
August 12, 2007. Interest rates on the new facility are based upon the London Interbank Offered Rate (LIBOR) plus a
margin. The Company pays a facility fee (.08% per annum as of December 31, 2005) that varies based upon its credit
ratings. At December 31, 2005 and 2004, there were no borrowings outstanding under either of the facilities.
On December 23, 2005, the Company executed a new supplemental 364-day credit facility in the amount of $100 million,
through two banks, which matures in December 2006. This facility also serves as back-up to the Company’s commercial
paper programs. Interest rates on the new facility are based upon either the announced Citicorp lending rate, the Federal
Funds Effective Rate plus a margin or the London Interbank Offered Rate (LIBOR) plus a margin. The Company pays a
facility fee (.08% per annum as of December 31, 2005) that varies based upon its credit ratings. As of December 31,
2005, there were no borrowings outstanding on this credit facility.
The bilateral credit facility was renewed in December 2005 for an additional one year and the amount was increased from
$25 million to $50 million. The facility serves as back-up to the Company’s commercial paper programs and also provides
available financing for the Company’s European operations. Borrowings under this facility, which expires in December
2006, 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, 2005 and 2004,
there were no borrowings outstanding under either of the facilities.
Short-term debt amounted to $98.0 million (of which $88.7 million was commercial paper) and $16.1 million at December
31, 2005 and 2004, respectively. Other than the commercial paper borrowings, short-term debt was principally bank
overdrafts. The weighted-average interest rate for short-term borrowings at December 31, 2005 and 2004 was 4.0% and
3.4%, respectively.
HARSCO CORPORATION 2005 ANNUAL REPORT 75
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 3.9%
Long-term Debt
2005
$ 341,063
148,856
2004
$ 379,751
148,738
and 2.3% as of December 31, 2005 and 2004, respectively
390,074
33,665
Faber Prest loan notes due October 31, 2008 with interest based on sterling
LIBOR minus .75% (3.9% and 4.2% at December 31, 2005 and 2004,
respectively)
Industrial development bonds, payable in varying amounts from 2010 to
2011 with a weighted average interest rate of 3.7% and 2.1% as of
December 31, 2005 and 2004, respectively
Other financing payable in varying amounts to 2011 with a weighted average
interest rate of 5.5% and 6.0% as of December 31, 2005 and 2004,
respectively
Less: current maturities
6,731
9,361
6,500
6,500
18,701
911,925
(6,066)
$ 905,859
31,649
609,664
(14,917)
$ 594,747
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, 2005, the Company was in compliance with these
covenants.
The maturities of long-term debt for the four years following December 31, 2006 are as follows:
(In thousands)
2007
2008
2009
2010
$ 10,693
7,961
560
733,279
Cash payments for interest on all debt from continuing operations were $42.2 million, $40.2 million and $40.1 million in
2005, 2004 and 2003, 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 $52.1 million, $49.4 million and $48.5 million in
2005, 2004 and 2003, respectively.
Future minimum payments under operating leases with noncancelable terms are as follows:
(In thousands)
2006
2007
2008
2009
2010
After 2010
$ 40,981
30,866
20,882
21,746
7,624
22,661
Total minimum rentals to be received in the future under non-cancelable subleases as of December 31, 2005 are $21.2
million.
76
HARSCO CORPORATION 2005 ANNUAL REPORT
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 also makes periodic voluntary
contributions as recommended by its pension committee. The Company's policy is to amortize prior service costs of
defined benefit pension plans over the average future service period of active plan participants. The Company uses an
October 31 measurement date for its United States defined benefit pension plans and recently acquired international
plans. A September 30 measurement date is used for other 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. The two percent discretionary
contribution was recorded for the last two years, 2005 and 2004, and paid in February of the subsequent year.
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)
liability
Settlement/Curtailment loss (gain)
Defined benefit plans pension
expense
Multi-employer plans
Defined contribution plans
2005
U. S. Plans
2004
2003
2005
International Plans
2004
2003
$ 3,380
13,914
(19,112)
767
3,617
$ 2,610
13,592
(17,960)
754
2,982
$ 7,339
13,201
(15,758)
726
4,409
$ 8,195
40,475
(44,796)
1,208
12,247
$ 9,561
37,876
(39,765)
1,245
13,431
$ 10,439
32,627
(34,083)
1,117
9,813
(1,455)
(3)
(1,466)
131
(1,466)
36
117
50
(567)
-
(626)
8
1,108
8,156
7,522
643
7,674
6,197
8,487
6,020
527
17,496
5,579
5,901
21,781
5,395
5,722
19,295
4,389
2,329
Pension expense
$ 16,786
$ 14,514
$ 15,034
$ 28,976
$ 32,898
$ 26,013
HARSCO CORPORATION 2005 ANNUAL REPORT 77
The change in the financial status of the pension plans and amounts recognized in the Consolidated Balance Sheets at
December 31, 2005 and 2004 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
2005
2004
International Plans
2005
2004
$ 243,568
3,380
13,914
-
711
5,300
-
(11,244)
-
-
$ 221,695
2,610
13,592
-
-
18,094
(22)
(12,401)
-
-
$ 746,573
8,195
40,475
1,866
-
86,447
(541)
(28,602)
20,695
(76,774)
$ 660,441
9,561
37,876
2,691
-
15,074
(54)
(30,113)
-
51,097
Benefit obligation at end of year
$ 255,629
$ 243,568
$ 798,334
$ 746,573
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
$ 223,108
26,377
8,439
-
(11,244)
-
-
$ 209,130
23,096
3,283
-
(12,401)
-
-
$ 617,097
104,295
40,367
1,868
(28,225)
10,292
(75,545)
$ 522,185
52,900
34,528
2,692
(29,774)
-
34,566
Fair value of plan assets at end of year
$ 246,680
$ 223,108
$ 670,149
$ 617,097
Funded status:
Funded status at end of year
Unrecognized net loss
Unrecognized transition (asset) obligation
Unrecognized prior service cost
$ (8,949)
54,593
(361)
3,802
$ (20,460)
60,173
(1,817)
3,858
$(128,185)
229,454
332
9,643
$ (129,476)
240,797
478
12,085
Net amount recognized
$ 49,085
$ 41,754
$ 111,244
$ 123,884
Amounts recognized in the Consolidated
Balance Sheets consist of the following:
Prepaid benefit cost
Accrued benefit liability
Intangible asset
Accumulated other comprehensive loss
$ 62,407
(31,416)
2,173
15,921
$ 54,613
(37,187)
3,209
21,119
$
-
(85,625)
9,537
187,332
$
-
(91,115)
11,733
203,266
Net amount recognized
$ 49,085
$ 41,754
$ 111,244
$ 123,884
The Company’s best estimate of expected contributions to be paid in year 2006 for the U.S. defined benefit plans is $1.0
million and for the international defined benefit plans is $19.8 million.
Contributions to multiemployer pension plans were $13.6 million and $15.2 million in years 2005 and 2004, respectively.
For defined contributions, payments were $12.9 million and $9.7 million for years 2005 and 2004, respectively.
78
HARSCO CORPORATION 2005 ANNUAL REPORT
Future Benefit Payments
The expected benefit payments for defined benefit plans over the next ten years are as follows:
(In millions)
2006
2007
2008
2009
2010
2011 - 2015
U.S. Plans
$ 10.3
11.2
11.8
12.6
13.5
81.6
International
Plans
$ 28.4
28.5
29.4
30.4
32.8
175.7
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
2004
5.9%
2005
5.7%
2003
6.0%
7.8%
3.4%
7.9%
3.5%
8.0%
3.4%
U. S. Plans
December 31
2004
6.25%
2005
5.75%
2003
6.75%
International Plans
December 31
2004
5.7%
2005
5.7%
2003
5.8%
8.75%
4.0%
8.75%
4.0%
8.9%
3.8%
7.5%
3.3%
7.5%
3.4%
7.6%
3.3%
The expected long-term rates of return on plan assets for the 2006 pension expense are 8.25% for the U.S. plans and
7.4% for the international plans.
Defined Benefit Pension Obligation Assumptions
The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at
December 31 were as follows:
Discount rates
Rates of compensation increase
Discount rates
Rates of compensation increase
Global Weighted Average
December 31
2004
5.7%
3.5%
2005
5.3%
3.4%
2003
5.9%
3.5%
U. S. Plans
December 31
2004
5.75%
4.0%
2005
5.87%
4.36%
2003
6.25%
4.0%
International Plans
December 31
2004
5.7%
3.3%
2005
5.2%
3.2%
2003
5.7%
3.4%
HARSCO CORPORATION 2005 ANNUAL REPORT 79
The U.S. discount rate was determined using a yield curve that was produced from a universe containing over 500 U.S.-
issued, AA-graded corporate bonds, all of which were noncallable (or callable with make whole provisions), and excluding
the 10% of the bonds with the highest yields and the 10% with the lowest yields. The discount rate was then developed
as the level-equivalent rate that would produce the same present value as that using spot rates to discount the projected
benefit payments. For international plans, the discount rate is aligned to Corporate bond yields in the local markets,
normally AA-rated Corporations. The process and selection seeks to approximate the cash outflows with the timing and
amounts of the expected benefit payments. As of the September 30, 2005 measurement date, these rates have declined
by about one half of one percent from the prior year.
Accumulated Benefit Obligations
The accumulated benefit obligation for all defined benefit pension plans at December 31 was as follows:
(In millions)
2005
2004
U.S. Plans
$244.4
231.6
International
Plans
$744.7
705.3
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
2005
$76.8
74.2
44.9
2004
$75.6
73.8
40.7
2005
$778.2
730.1
644.8
2004
$737.3
697.8
605.4
The decrease in the minimum liability included in other comprehensive income (loss) net of taxes was $14.7 million in
2005. The increase in the minimum liability included in other comprehensive income (loss) net of taxes was ($4.5) million
in 2004.
The asset allocations attributable to the Company’s U.S. pension plans at October 31, 2005 and 2004 and the target
allocation of plan assets for 2006, 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 2006
Allocation
47% - 57%
27% - 37%
4.5% - 14.5%
0% - 5%
2% - 6%
Percentage of Plan Assets at October 31
2005
51.9%
29.0%
10.7%
4.1%
4.3%
2004
52.6%
32.5%
10.5%
1.8%
2.6%
Plan assets are allocated among various categories of equities, fixed income, cash and cash equivalents with professional
investment managers whose performance is actively monitored. The primary investment objective is long-term growth of
assets in order to meet present and future benefit obligations. The Company periodically conducts an asset/liability
modeling study to ensure the investment strategy is aligned with the profile of benefit obligations.
The Company reviews the long-term expected return on asset assumption on a periodic basis taking into account a
variety of factors including the historical investment returns achieved over a long-term period, the targeted allocation of
plan assets and future expectations based on a model of asset returns for an actively managed portfolio, inflation and
administrative/other expenses. The model simulates 500 different capital market results over 15 years. For 2006, the
expected return on asset assumption is 8.25%. The Company had lowered its expected return on asset assumption from
8.75% in 2005 and 2004 due to changes in capital market expectations.
The U.S. defined benefit pension plans assets include 382,640 shares of the Company’s stock valued at $24.4 million and
$18.2 million on October 31, 2005 and 2004, respectively, representing 9.9% and 8.2%, 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
80
HARSCO CORPORATION 2005 ANNUAL REPORT
fund’s holdings in the Company’s stock were sold in the second quarter of 2004. As of December 31, 2005, the
Company’s stock represented 9.9% of total plan assets. The Company is considering a further rebalancing of the
Company’s stock in the pension fund during 2006. Dividends paid to the pension plans on the Company stock amounted
to $0.4 million in 2005 and $0.6 million in 2004.
The asset allocations attributable to the Company’s international plans at September 30, 2005 and 2004 and the target
allocation of plan assets for 2006, by asset category, are as follows:
International Plans
Asset Category
Equity Securities
Fixed Income Securities
Cash & Cash Equivalents
Other
Target 2006
Allocation
55.5% - 64.5%
37.5% - 42.5%
0%
0%
Percentage of Plan Assets at September 30
2005
57.1%
40.8%
1.0%
1.1%
2004
57.5%
42.0%
0.4%
0.1%
Plan assets as of September 30, 2005, in the United Kingdom (U.K.) defined benefit pension plan amounted to over 90%
of the international pension assets. These assets were divided into portfolios representing various categories of equities,
fixed income, cash and cash equivalents managed by a number of 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 asset/liability modeling studies to ensure the investment strategies are aligned with
the profile of benefit obligations. For the international long-term rate of return, the Company considered the current level
of expected returns in risk-free investments (primarily government bonds), the historical level of the risk premium
associated with other asset classes in which the portfolio is invested and the expectations for future returns of each asset
class and plan expenses. The expected return for each asset class was then weighted based on the target asset
allocation to develop the expected long-term rate of return on assets. The expected return-on-asset assumption was
7.75% for the U.K. plan in 2005. The Company has reduced the expected rate of return to 7.50% for 2006. 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 income
2005
2004
2003
$
$
7
200
7
(37)
(318)
(141)
$
11
342
32
39
(2,236)
$ (1,812)
$
21
553
32
66
(4,898)
$ (4,226)
The curtailment gains of $0.3 million for 2005 and $2.2 million for 2004 were due to the termination of certain retiree
health care plans. The curtailment gain of $4.9 million for 2003 was 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 as of December 31, 2004. This amount was treated as an unrecognized
actuarial gain. The Company deferred re-measurement of its postretirement health care benefit obligation until its
measurement date, so there was no effect on 2004 reported expense. The year 2005 expense decreased by $36
thousand, after reflecting the value of the federal subsidy. The Company’s accumulated postretirement benefit obligation
decreased by $255 thousand as of December 31, 2005.
HARSCO CORPORATION 2005 ANNUAL REPORT 81
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
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
Net amount recognized as accrued benefit liability
2005
2004
$ 4,187
7
200
(117)
25
(311)
-
(670)
$ 3,321
$ (3,321)
17
(256)
$ (3,560)
$ 7,405
11
342
(654)
48
(369)
4
(2,600)
$ 4,187
$ (4,187)
296
(95)
$ (3,986)
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:
2005
5.87%
10.00%
5.00%
2004
5.75%
10.00%
5.00%
2003
6.25%
12.00%
5.00%
On total service and interest cost components
On postretirement benefit obligation
$
10
$ 166
$
15
$ 239
$
24
$ 373
Effect of one percent decrease in health
care cost trend rate:
On total service and interest cost components
On postretirement benefit obligation
$
(9)
$ (149)
$ (13)
$ (212)
$ (21)
$ (336)
It is anticipated that the health care cost trend rate will decrease from 10% in 2006 to 5.0% in the year 2011.
The assumed discount rates to determine the postretirement benefit expense for the years 2005, 2004 and 2003 were
5.75%, 6.25% and 6.75%, respectively.
The Company’s expected benefit payments over the next ten years are as follows:
(In thousands)
2006
2007
2008
2009
2010
2011 - 2015
Benefits
Payments
Before Subsidy
$ 326
320
321
319
314
1,435
Expected Subsidy
Under Medicare
Modernization Act
$ 27
27
28
28
28
125
82
HARSCO CORPORATION 2005 ANNUAL REPORT
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
were 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 $ 0.9 million, $0.4 million and $3.5
million for 2005, 2004 and 2003, respectively.
Employee directed investments in the Savings Plan and HRSIP include the following amounts of Company stock:
Company Shares in Plans
December 31, 2005
December 31, 2004
December 31, 2003
Number
of Shares
Fair
Market
Value
Number
of Shares
Fair
Market
Value
Number
of Shares
Fair
Market
Value
(Dollars in millions)
Savings Plan
929,537
$ 62.8
1,017,241
$ 56.7
2,143,820
$ 93.9
HRSIP
921,258
62.2
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 under a performance-based Economic Value Added (EVA®) plan. Actual cash 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. Total executive incentive compensation expense was $6.1
million, $4.5 million and $4.0 million in 2005, 2004 and 2003, respectively. The 2005 expense included performance-
based restricted stock units (RSUs) that were granted to certain officers of the Company. There were no RSUs granted to
officers in 2004 or 2003. See Note 12, “Stock-Based Compensation,” for additional information on the equity component
of executive compensation.
HARSCO CORPORATION 2005 ANNUAL REPORT 83
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
2005
2004
2003
$ 74,013
156,107
$ 57,566
125,619
$ 53,549
90,480
$ 230,120
$ 183,185
$ 144,029
$ 24,260
637
34,381
59,278
4,550
887
$ 64,715
$ 64,771
(56)
$ 64,715
$
(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
Cash payments for income taxes were $58.6 million, $26.2 million and $23.5 million, for 2005, 2004 and 2003,
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/domestic manufacturing deduction
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
2005
35.0%
0.7
(0.6)
(0.4)
0.0
(5.4)
(0.9)
(0.3)
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
28.1%
29.1%
31.0%
The difference in effective tax rates on international earnings and remittances from 2004 to 2005 includes a one-time
benefit recorded in the fourth quarter of 2005 of $2.7 million associated with funds repatriated under the American Jobs
Creation Act of 2004 (AJCA). Additionally, during the fourth quarter of 2005, consistent with the Company’s strategic plan
of investing for growth, the Company designated certain international earnings as permanently reinvested which resulted
in a one-time income tax benefit of $3.6 million.
84
HARSCO CORPORATION 2005 ANNUAL REPORT
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, 2005 and 2004 are as follows:
(In thousands)
Deferred income taxes
Depreciation
Expense accruals
Inventories
Provision for receivables
Postretirement benefits
Deferred revenue
Operating loss carryforwards
Deferred foreign tax credits
Pensions
Currency translation adjustment
Other
Subtotal
Valuation allowance
Total deferred income taxes
2005
2004
Asset
$
-
23,951
3,510
1,578
1,340
-
22,340
8,708
26,764
2,846
4,615
95,652
(21,682)
$ 73,970
Liability
$ 143,802
-
-
-
-
4,941
-
-
17,129
-
428
166,300
-
$ 166,300
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
At December 31, 2005 and 2004, Other current assets included deferred income tax benefits of $29.8 million and
$28.9 million, respectively.
At December 31, 2005, after-tax net operating loss carryforwards (NOLs) totaled $22.3 million. Of that amount, $10.8
million is attributable to international operations, $0.3 million can be carried forward five years, $0.8 million can be carried
forward ten years and $9.7 million can be carried forward indefinitely. After-tax federal NOLs are $2.0 million and expire
in 2018. After-tax U.S. state NOLs are $9.5 million. Of that amount, $1.3 million expire in 2006-2012, $3.9 million expire
in 2013-2020, and $4.3 million expire in 2025. Included in the above-mentioned total are $8.1 million of preacquisition
NOLs.
The valuation allowance of $21.7 million and $17.5 million at December 31, 2005 and 2004, respectively, related
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 2005 and 2004 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,
recent acquisitions 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, 2005 and 2004, such earnings were
approximately $295 million and $86 million, respectively. The Company has various tax holidays in Europe, the Middle
East and Asia that expire between 2005 and 2010. During 2005, 2004 and 2003, these tax holidays resulted in
approximately $2.4 million, $4.2 million and $3.6 million, respectively, in reduced income tax expense.
On October 22, 2004, the 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 completed its evaluation of the
repatriation provisions of the AJCA and repatriated qualified earnings of approximately $24 million in the fourth quarter of
2005. This resulted in the Company receiving a one-time income tax benefit of approximately $2.7 million during the
fourth quarter of 2005.
10. Commitments and Contingencies
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
HARSCO CORPORATION 2005 ANNUAL REPORT 85
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, 2005 and 2004 include accruals of $2.8 million and $2.7
million, respectively, for environmental matters. The amounts charged against pre-tax income related to environmental
matters totaled $1.5 million, $2.1 million and $1.4 million in 2005, 2004 and 2003, 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.
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, 2005, the maximum assessment from the CRA for the period 1994-1998 is approximately $10.0
million including tax and interest. The Ontario Ministry of Finance (“Ontario”) is also proposing to disallow these same
deductions for the period 1994-1998. As of December 31, 2005, the maximum assessment from Ontario is approximately
$3.3 million including tax and interest. The Company has filed administrative appeals and will vigorously contest these
disallowances.
The Company currently anticipates that, ultimately, it may have liability for some portion of the assessment 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, 2005 and, therefore will not have a material adverse effect on
the Company’s future results of operations or financial condition. In accordance with Canadian tax law, the Company
made a payment to the CRA in the fourth quarter of 2005 of $5.0 million, or one-half of the disputed amount. Additionally,
the Company has agreed to pay Ontario approximately $22 thousand per month until the claim with CRA has been
settled. These payments were made for tax compliance purposes and to reduce potential interest expense on the
disputed amount. These payments in no way reflect the Company’s acknowledgement as to the validity of the assessed
amounts.
Other
The Company has been named as one of many defendants (approximately 90 or more in most cases) in legal actions
alleging personal injury from exposure to airborne asbestos over the past several decades. In their suits, the plaintiffs
have named as defendants, among others, many manufacturers, distributors and installers of numerous types of
equipment or products that allegedly contained asbestos.
The Company believes that the claims against it are without merit. The Company has never been a producer,
manufacturer or processor of asbestos fibers. Any component within a Company product 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 levels of
airborne asbestos exposure, and moreover, the type of asbestos contained in any component that was used in those
products was protectively encapsulated in other materials and is not associated with the types of injuries alleged in the
pending suits. Finally, in most of the depositions taken of plaintiffs to date in the litigation against the Company, plaintiffs
have failed to specifically identify any Company products as the source of their asbestos exposure.
The majority of the asbestos complaints pending against the Company have been filed in 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 specifically 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 specifically identifying any Company product as the source of plaintiff’s alleged asbestos exposure.
As of December 31, 2005, there are 27,216 pending asbestos personal injury claims filed against the Company. Of these
cases, 26,239 were pending in the New York Supreme Court for New York County in New York State and 622 of the
cases were pending in state courts of various counties in Mississippi. The other claims, totaling approximately 355, are
86
HARSCO CORPORATION 2005 ANNUAL REPORT
filed in various counties in a number of state courts, and in certain Federal District Courts, and those complaints assert
lesser amounts of damages than the New York cases or do not state any amount claimed.
As of December 31, 2005, the Company has obtained dismissal by stipulation, or summary judgment prior to trial, in
16,114 cases.
In view of the persistence of asbestos litigation nationwide, which has not yet been sufficiently addressed either politically
or legally, the Company expects to continue to receive additional claims. However, there have been developments during
the past several years, both by certain state legislatures and by certain state courts, which could favorably affect the
Company’s ability to defend these asbestos claims in those jurisdictions. These developments include procedural
changes, docketing changes, proof of damage requirements and other changes that require plaintiffs to follow specific
procedures in bringing their claims and to show proof of damages before they can proceed with their claim. An example
is the action taken by the New York Supreme Court (a trial court), which is responsible for managing all asbestos cases
pending within New York County in the State of New York. This Court issued an order in December of 2002 that created
a Deferred or Inactive Docket for all pending and future asbestos claims filed by plaintiffs who cannot demonstrate that
they have a malignant condition or discernable physical impairment, and an Active or In Extremis Docket for plaintiffs who
are able to show such medical condition. As a result of this order, the majority of the asbestos cases filed against the
Company in New York County have been moved to the Inactive Docket until such time as the plaintiff can show that they
have incurred a physical impairment. As of December 31, 2005, the Company has been listed as a defendant in 262
Active or In Extremis asbestos cases in New York County. The Court’s Order has been challenged by plaintiffs.
The Company’s insurance carrier has paid all legal and settlement 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.
The Company intends to continue its practice of vigorously defending these cases as they are listed for trial. It is not
possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable
nature of personal injury litigation. Despite this uncertainty, and although results of operations and cash flows for a given
period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the
ultimate outcome of these cases will not have a material adverse effect on the Company’s financial condition, results of
operations or cash flows.
The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the
ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by
accruals, and if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a
material adverse effect on the financial position, results of operations or cash flows of the Company.
Insurance liabilities are recorded in accordance with SFAS 5, “Accounting for Contingencies.” Insurance reserves have
been estimated based primarily upon actuarial calculations and reflect the undiscounted estimated liabilities for ultimate
losses including claims incurred but not reported. Inherent in these estimates are assumptions 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. When a recognized liability is covered by third-party insurance, the Company records an insurance claim
receivable to reflect the covered liability. See Note 1, “Summary of Significant Accounting Policies,” for additional
information on Accrued Insurance and Loss Reserves.
11. Capital Stock
The authorized capital stock of the Company consists of 150,000,000 shares of common stock and 4,000,000 shares of
preferred stock, both having a par value of $1.25 per share. The preferred stock is issuable in series with terms as fixed
by the Board of Directors. None of the preferred stock has been issued. On June 24, 1997, the Company adopted a
revised Shareholder Rights Plan. Under that 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
HARSCO CORPORATION 2005 ANNUAL REPORT 87
announcement that a person or group has accumulated 15% or more of the Company's common stock. At December 31,
2005, 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:
No. of Shares
Authorized to be
Purchased
January 1
499,154
1,000,000
1,000,000
No. of Shares
Purchased
-
-
(133) (a)
Additional Shares
Authorized for
Purchase
500,846
-
-
Remaining No. of
Shares Authorized
for Purchase
December 31
1,000,000
1,000,000
1,000,000
2003
2004
2005
(a) The 133 shares purchased were not part of the share repurchase program. They were shares which a retired employee sold to the Company
in order to pay personal federal and state income taxes on shares issued to the employee upon retirement.
On June 24, 2003, the Board of Directors increased the share repurchase authorization to 1,000,000 shares. In
November 2005, the Board of Directors extended the share purchase authorization through January 31, 2007 for the
1,000,000 shares still remaining from the prior authorization.
In 2005, 2004 and 2003, additional issuances of treasury shares of 5,306 shares, 11,195 shares and 3,633 shares,
respectively, were made for SGB stock option exercises, employee service awards and shares related to vested restricted
stock units.
The following table summarizes the Company’s common stock:
Outstanding, January 1, 2003
Stock Options Exercised
Other
Outstanding, December 31, 2003
Stock Options Exercised
Other
Outstanding, December 31, 2004
Stock Options Exercised
Other
Purchases
Shares
Issued
67,034,010
323,437
-
67,357,447
553,584
-
67,911,031
346,754
-
-
Common Stock
Treasury
Shares
Outstanding
Shares
26,494,610
(2,043)
(1,590)
26,490,977
(10,945)
(250)
26,479,782
(4,086)
(1,220)
133
40,539,400
325,480
1,590
40,866,470
564,529
250
41,431,249
350,840
1,220
(133)
Outstanding, December 31, 2005
68,257,785
26,474,609
41,783,176
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)
Income from continuing operations
2005
2004
$156,750
$113,540
2003
$ 86,999
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
41,642
438
42,080
$
$
3.76
3.73
41,129
469
41,598
$
$
2.76
2.73
40,690
283
40,973
$
$
2.14
2.12
88
HARSCO CORPORATION 2005 ANNUAL REPORT
All outstanding stock options were included in the computation of diluted earnings per share at December 31, 2005 and
2004. Options to purchase 32,000 shares were outstanding at December 31, 2003, 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 2005, 6,000
restricted stock units with a fair value of $53.75 per unit were granted to the non-employee directors. Each non-employee
director was granted 750 restricted stock units vesting after one year. 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 non-employee directors restricted stock unit awards totaled $0.3
million in 2005.
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. Additionally, in the first quarter
of 2006, the Company issued 46,550 performance-based restricted stock units with a fair value of $67.70 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. Compensation expense related to the officers’ restricted stock
unit awards totaled $0.5 million in 2005.
No stock options were granted during 2004 and 2005. During 2003, stock options were only granted to non-employee
directors. The fair value of stock options granted during 2003 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:
Stock Options
Expected term
Expected stock volatility
Risk-free interest rate
Dividend
Rate of dividend increase
Fair value
2003
7.5 years
32.7%
3.46%
1.05
4.63%
9.70
$
$
Prior to 2003, the Company had granted stock options for the purchase of its common stock to officers, certain key
employees and directors 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, 2005, there were 1,282,931 and 156,500 shares available for granting
HARSCO CORPORATION 2005 ANNUAL REPORT 89
equity awards under the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee Directors' Stock Plan,
respectively.
Changes during 2005, 2004 and 2003 in stock options outstanding were as follows:
Outstanding, January 1, 2003
Granted
Exercised
Terminated and expired
Outstanding, December 31, 2003
Granted
Exercised
Terminated and expired
Outstanding, December 31, 2004
Granted
Exercised
Terminated and expired
Stock Options
Shares
Under Option
Weighted Average
Exercise Price
2,123,113
16,000 (a)
(325,480)
(118,553)
1,695,080
-
(564,529)
(9,450)
1,121,101 (b)
-
(370,836)
(1,240)
$30.30
33.92
27.15
33.76
30.72
-
30.02
40.25
31.01
-
29.10
33.41
Outstanding, December 31, 2005
749,025 (c)
$31.93
(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.
(c)
Included in options outstanding at December 31, 2005 were 681 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 731,705 shares, 1,098,831 shares and 1,187,938 shares were exercisable at December 31, 2005,
2004 and 2003, respectively. The following table summarizes information concerning outstanding and exercisable options
at December 31, 2005.
Stock Options Outstanding
Range of Exercisable
Prices
$25.63 – $29.00
29.31 – 32.65
32.81 – 46.16
Number
Outstanding
263,852
272,005
213,168
749,025
Remaining
Contractual Life
In Years
4.27
5.99
2.60
Weighted
Average
Exercise Price
$27.49
32.53
36.67
Stock Options Exercisable
Weighted
Average
Exercise Price
$27.56
32.53
36.72
Number
Exercisable
254,892
272,005
204,808
731,705
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 $154.0 million and $239.1 million at December 31, 2005 and 2004,
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
90
HARSCO CORPORATION 2005 ANNUAL REPORT
that range from 0.08 percent to 1.90 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, 2005 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 45 countries. The Company's primary foreign currency exposures during
2005 were in Brazil, the United Kingdom, Canada, Australia and members of the European Economic and Monetary
Union who use the euro as their currency.
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 $1.9 million, $1.0 million and $1.5
million for the twelve months ended December 31, 2005, 2004 and 2003, respectively. The guarantees are renewed on
an annual basis and the Company would only be required to perform under the guarantees if the third parties default on
their debt. The maximum potential amount of future payments (undiscounted) related to these guarantees was $2.9
million at December 31, 2005 and 2004. 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 2005, September 2005 and November 2005.
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, 2005 and 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, 2005 and
2004, the maximum potential amount of future payments (undiscounted) related to this guarantee is $3.0 million per
occurrence. 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 is not aware of any claims.
Prior to the Company’s acquisition of the business, Hünnebeck guaranteed certain third party debt to leasing companies
in connection with the sale of equipment. The guarantees expire on June 30, 2006, December 1, 2006 and December 1,
2008. At December 31, 2005, the maximum potential amount of future payments (undiscounted) related to these
guarantees was $0.3 million. The Company would only be required to perform under the guarantees if a customer
defaulted on the lease payments. There is no recognition of these potential future payments in the accompanying
financial statements as the Company believes the potential for making these payments 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). 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, 2005 or 2004.
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 credit of $16.3 million and a debit
HARSCO CORPORATION 2005 ANNUAL REPORT 91
of $8.5 million during 2005 and 2004, respectively, in the foreign currency translation adjustments line of Other
comprehensive income (loss) related to hedges of net investments.
At December 31, 2005 and 2004, the Company had $157.9 million and $93.7 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 twelve
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
and does not expect default by them. Foreign currency forward exchange contracts are used to hedge commitments,
such as foreign currency debt, firm purchase commitments and foreign currency cash flows for certain export sales
transactions.
The following tables summarize by major currency the contractual amounts of the Company's forward exchange contracts
in U.S. dollars as of December 31, 2005 and 2004. The "Buy" amounts represent the U.S. dollar equivalent of
commitments to purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar equivalent of commitments
to sell foreign currencies.
Forward Exchange Contracts
(In thousands)
As of December 31, 2005
Euros
Euros
British pounds sterling
British pounds sterling
Canadian dollars
Canadian dollars
Taiwan dollars
Total
Type
Buy
Sell
Buy
Sell
Buy
Sell
Sell
U.S. Dollar
Equivalent
$ 14,343
1,987
75,743
56,929
942
1,886
6,088
$ 157,918
Maturity
January through June 2006
January 2006
January 2006
January 2006
January 2006
January 2006
August through November 2006
$
Recognized
Gain (Loss)
(211)
15
(1,334)
436
5
15
-
$ (1,074)
At December 31, 2005, the Company held forward exchange contracts in British pounds sterling, euros, Canadian dollars
and Taiwan dollars which were used to offset certain future payments between the Company and its various subsidiaries
or vendors. These contracts all mature by November 2006. The Company had outstanding forward contracts designated
as SFAS 133 cash flow hedges in the amount of $6.1 million at December 31, 2005. These forward contracts had a net
unrealized loss of $112 thousand that was included in Other comprehensive income (loss), net of deferred taxes, at
December 31, 2005. 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, 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 matured 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 (loss), 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.
92
HARSCO CORPORATION 2005 ANNUAL REPORT
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. In December
2005, the Company acquired BISNH. This acquisition has increased the Company’s corresponding concentration of
credit risk to customers in the steel industry. Additionally, further consolidation in the global steel industry is possible.
Should transactions occur involving some of the steel industry’s larger companies, which are customers of the Company,
it would result in an increase in concentration of credit risk for the Company. As part of its credit risk management
practices, the Company is developing strategies to mitigate this increased concentration of credit risk.
The Company generally does not require collateral or other security to support customer receivables. If a receivable from
one or more of these customers becomes uncollectible, it could have a material effect on the Company’s results of
operations and cash flows.
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.
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, 2005 and
2004 are as follows:
(In thousands)
Financial Instruments
2005
2004
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Assets:
Cash and cash equivalents
Liabilities:
Long-term debt including current maturities
Foreign currency forward exchange contracts
$ 120,929
$ 120,929
$ 94,093
$ 94,093
$ 911,925
1,074
$ 947,406
1,074
$ 609,664
705
$ 651,456
705
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
HARSCO CORPORATION 2005 ANNUAL REPORT 93
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 on-site, outsourced services to steel mills and other metal producers such as aluminum. Services
include slag processing; semi-finished inventory management; material handling; scrap management; in-plant
transportation; and a variety of other services.
Access Services Segment
Major products and services include the rental and sale of scaffolding, shoring and concrete forming systems for non-
residential construction and industrial maintenance projects, and a variety of other access services including project
engineering and installation.
Products and services are provided to the oil, chemical and petrochemical industries; commercial and industrial
construction contractors; public utilities; industrial plants; and the infrastructure repair and maintenance markets.
Gas Technologies
Major products and services include tanks, cylinders and valves for the containment and control of compressed gases.
Major customers include various industrial markets and users of compressed gases; the hospital, life support, and
refrigerant gas industries; welding distributors; medical laboratories; beverage carbonation users; and the animal
husbandry industry.
Engineered Products and Services (“all other”) Category
Major products and services include railway track maintenance equipment and services; industrial grating; air-cooled heat
exchangers; granules for asphalt roofing shingles and abrasives for industrial surface preparation derived from coal slag;
and boilers, water heaters and process equipment, including industrial blenders, dryers and mixers.
Major customers include private and government-owned railroads and urban mass transit systems worldwide; industrial
plants and the non-residential and institutional construction and retrofit markets; the natural gas exploration and
processing industry; asphalt roofing manufacturers; and the chemical, food processing and pharmaceutical industries.
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 20%, respectively, in 2005; 42% and 21%,
respectively, in 2004; and 43% and 21%, respectively, in 2003. There are no significant inter-segment sales.
No single customer represented 10% or more of the Company's sales during 2005, 2004 or 2003. However, the Mill
Services Segment is dependent largely on the global steel industry and in 2005, there were three customers that each
provided in excess of 10% of this segment’s revenues under multiple long-term contracts at several mill sites, compared
with two such customers for the years 2004 and 2003. The loss of any one of the contracts would not have a material
adverse effect upon the Company’s financial position or cash flows; however, it could have a material effect on quarterly
or annual results of operations. Additionally, these customers have significant accounts receivable balances. In
December 2005, the Company acquired BISNH. This acquisition has increased the Company’s corresponding
concentration of credit risk to these customers. Further consolidation in the global steel industry is also possible. Should
transactions occur involving some of the steel industry’s larger companies that are customers of the Company, it would
result in an increase in concentration of credit risk for the Company.
Corporate assets include principally cash, insurance receivables, prepaid pension costs and United States deferred
income taxes. Net Property, Plant and Equipment in the United States represents 33%, 34% and 35% of total Net
Property, Plant and Equipment as of December 31, 2005, 2004 and 2003, respectively. Net Property, Plant and
Equipment in the United Kingdom represents 23% of total Net Property, Plant and Equipment as of December 31, 2005,
2004 and 2003 and is disclosed separately in the geographic area information.
94
HARSCO CORPORATION 2005 ANNUAL REPORT
Segment Information
December 31, 2005
December 31, 2004
December 31, 2003 (a)
Twelve Months Ended
(In thousands)
Sales
Operating
Income
(Loss)
Operating
Income
(Loss)
Sales
Operating
Income
(Loss)
Sales
Mill Services Segment
$1,060,354
$ 109,591
$ 997,410 $105,490 $ 827,521 $ 85,874
Access Services Segment
788,750
74,742
706,490
44,464
619,069
37,388
Gas Technologies Segment
370,201
17,912
339,086
14,393
293,965
14,544
Segment Totals
2,219,305
202,245
2,042,986
164,347
1,740,555
137,806
Engineered Products and Services
(“all other”) Category
546,905
69,699
459,073
47,029
377,961
36,474
General Corporate
-
(2,996)
-
(1,527)
-
(388)
Consolidated Totals
$2,766,210
$ 268,948
$2,502,059 $209,849 $2,118,516 $173,892
(a)
Segment information for 2003 has been reclassified to conform with the current presentation.
Reconciliation of Segment Operating Income to Consolidated Income
Before Income Taxes and Minority Interest
(In thousands)
Twelve Months Ended
December 31
2005
December 31
2004
December 31
2003 (a)
Segment operating income
$ 202,245
$ 164,347
$ 137,806
Engineered Products and Services
(“all other”) Category
69,699
47,029
36,474
General Corporate Expense
(2,996)
(1,527)
(388)
Operating income from continuing operations
268,948
209,849
173,892
Equity in income of unconsolidated entities, net
Interest Income
Interest Expense
74
3,165
128
2,319
321
2,202
(41,918)
(41,057)
(40,513)
Income from continuing operations before income taxes
and minority interest
$ 230,269
$ 171,239
$ 135,902
(a) Segment information for 2003 has been reclassified to conform with the current presentation.
HARSCO CORPORATION 2005 ANNUAL REPORT 95
Segment Information
Assets (a)
Depreciation and
Amortization
(In thousands)
2005
2004
2003 (b)
2005
2004
2003 (b)
Mill Services Segment
$ 1,273,522 $ 985,538 $ 898,057 $ 114,952
$ 107,682
$ 96,906
Access Services Segment
976,936
763,916
696,226
53,263
48,005
41,665
Gas Technologies Segment
253,276
257,233
239,500
12,610
12,735
13,086
Segment Totals
2,503,734
2,006,687
1,833,783
180,825
168,422
151,657
Engineered Products and Services
(“all other”) Category
Corporate
Total
315,241
274,627
215,663
15,735
14,675
15,918
156,829
108,442
88,589
1,505
1,274
1,360
$ 2,975,804 $ 2,389,756 $ 2,138,035 $ 198,065
$ 184,371
$ 168,935
(a) Assets from discontinued operations of $0.4 million, $0.5 million and $1.0 million in 2005, 2004 and 2003, respectively, are included in the Gas
Technologies Segment.
(b) Segment information for 2003 has been reclassified to conform with the current presentation.
Capital Expenditures
(In thousands)
2005
2004
2003 (a)
Mill Services Segment
$ 155,595 $ 120,890 $ 88,132
Access Services Segment
86,668
50,439
41,214
Gas Technologies Segment
6,438
8,958
7,837
Segment Totals
248,701
180,287
137,183
Engineered Products and Services
(“all other”) Category
Corporate
Total
39,834
22,585
6,274
1,704
1,363
367
$ 290,239 $ 204,235 $ 143,824
(a) Segment information for 2003 has been reclassified to conform with the current presentation.
Information by Geographic Area (a)
(In thousands)
Geographic Area
United States
United Kingdom
All Other
Sales to Unaffiliated Customers
2003
2004
2005
Net Property, Plant and Equipment
2003
2005
2004
$ 1,157,034
$1,047,416
$ 902,400
$ 371,039
$ 313,391
$ 306,997
546,673
534,097
453,388
258,786
218,127
199,631
1,062,503
920,546
762,728
509,983
400,780
358,815
Totals excluding Corporate $ 2,766,210
$2,502,059
$2,118,516
$ 1,139,808
$ 932,298
$ 865,443
(a) Revenues are attributed to individual countries based on the location of the facility generating the revenue.
96
HARSCO CORPORATION 2005 ANNUAL REPORT
Information about Products and Services
(In thousands)
Product Group
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
Consolidated Sales
Sales to Unaffiliated Customers
2003
2004
2005
$1,060,354
788,750
370,201
247,452
98,845
72,216
92,339
36,053
$2,766,210
$ 997,410
706,490
339,086
209,765
85,609
70,863
60,103
32,733
$ 2,502,059
$ 827,521
619,069
293,965
173,050
66,248
68,896
41,161
28,606
$2,118,516
15. Other (Income) and Expenses
In the years 2005, 2004 and 2003, the Company recorded pre-tax Other (income) and expenses from continuing
operations of $2.0 million, $4.9 million and $7.0 million, respectively. The major components of this income statement
category are as follows:
(In thousands)
Net gains
Other (Income) and Expenses
2004
2005
2003
$ (9,674)
$ (1,524)
$ (3,543)
Impaired asset write-downs
579
484
168
Employee termination benefit costs
9,060
3,892
6,064
Costs to exit activities
1,028
975
2,725
Other expense
1,007
1,035
1,541
Total
$ 2,000
$ 4,862
$ 6,955
Net Gains
Net gains are recorded from the sales of redundant properties (primarily land, buildings and related equipment) and non-
core assets. Most of these gains related to assets in the United States and Europe.
(In thousands)
2005
Net Gains
2004
2003
Mill Services Segment
$ (4,202)
$
(354)
$
(720)
Access Services Segment
(5,413)
(1,124)
(2,521)
Gas Technologies Segment
Engineered Products and Services (“all
other”) Category
Corporate
Total
-
(59)
-
-
(46)
-
-
(298)
(4)
$ (9,674)
$ (1,524)
$ (3,543)
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.
HARSCO CORPORATION 2005 ANNUAL REPORT 97
Impaired Asset Write-downs
Impairment losses are measured as the amount by which the carrying amount of assets exceeded their fair value. Fair
value is estimated based upon the expected future realizable cash flows including anticipated selling prices.
Non-cash impaired asset write-downs are included in Other, net in the Consolidated Statements of Cash Flows as
adjustments to reconcile net income to net cash provided by operating activities.
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 SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” (SFAS 112).
The total amount of employee termination benefit costs incurred for the years 2005, 2004 and 2003 was as follows. None
of the actions are expected to incur any additional costs.
(In thousands)
Employee Termination Benefit Costs
2004
2003
2005
Mill Services Segment
$ 4,827
$ 1,338
$ 3,101
Access Services Segment
Gas Technologies Segment
Engineered Products and Services (“all
other”) Category
Corporate
Total
1,647
107
1,256
1,223
1,504
229
685
136
1,778
174
749
262
$ 9,060
$ 3,892
$ 6,064
The terminations for the years 2003 to 2005 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, 2006:
Original reorganization action period
(In thousands)
Employee termination benefits expense
Payments:
In 2002
In 2003
In 2004
In 2005
Total payments:
Other:
Remaining payments as of December 31, 2005
2005
2004
2003
$ 9,060
$ 3,892
$ 6,064
2002
$ 7,140
-
-
-
(3,826)
(3,826)
(33)
$ 5,201
-
-
(2,178)
(1,282)
(3,460)
(52)
$ 380
-
(3,838)
(1,859)
(310)
(6,007)
53
$ 110
(4,438)
(2,627)
(52)
(60)
(7,177)
42
5
$
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
98
HARSCO CORPORATION 2005 ANNUAL REPORT
terminate a contract that is not a capital lease are recognized when an entity terminates the contract or when an entity
ceases using the right conveyed by the contract. This includes the costs to terminate the contract before the end of its
term or the costs that will continue to be incurred under the contract for its remaining term without economic benefit to the
entity (e.g., lease run-out costs). Other costs associated with exit or disposal activities (e.g., costs to consolidate or close
facilities and relocate equipment or employees) are recognized and measured at their fair value in the period in which the
liability is incurred. In 2005, $1.0 million of exit costs were incurred. These were principally relocation costs and lease
run-out costs for the Engineered Products and Services Category and the Mill Services and Access Services Segments.
In 2004, 2003 and 2002, exit costs incurred were $1.0 million, $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.
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
2005
First
Second
Third
Fourth
$ 640.1
$ 696.1
$ 697.5
$ 732.5
146.4
169.8
164.8
185.7
23.1
0.56
0.55
41.7
1.00
0.99
40.0
0.96
0.95
51.9
1.24
1.23
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
(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)
2005
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2004
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Market Price Per Share
High
Low
Dividends Declared
Per Share
$ 61.35
61.10
66.20
70.57
$ 48.78
47.00
47.35
56.24
$ 49.87
52.37
53.56
59.70
$ 43.00
40.10
41.87
44.55
$ 0.3000
0.3000
0.3000
0.3250
$ 0.2750
0.2750
0.2750
0.3000
HARSCO CORPORATION 2005 ANNUAL REPORT 99
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, 2005. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are
effective. There have been no changes in internal control over financial reporting that could materially affect, or are likely
to materially affect, internal control over financial reporting.
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, 2005 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, 2005.
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 planned to exercise, under pre-arranged terms, up to 167,500
options in open market transactions. The 167,500 options represented approximately 38% of his total option holdings at
the time the trading plan was initiated. The trading plan expired in December 2005. As of the expiration of the trading
plan, all 167,500 shares had been sold.
The CEO and the President and Chief Financial Officer (CFO) of the Company plan to adopt, in the First Quarter of 2006,
new personal trading plans 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 proposed plan, the CEO will exercise 100,000 shares
and the President and CFO will exercise 28,000 shares, under pre-arranged terms, in open market transactions. The
proposed trading plans will expire in July 2006.
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 and/or President pursuant to the terms of their
respective plans will be disclosed publicly through Form 144 and Form 4 filings with the Securities and Exchange
Commission.
100 HARSCO CORPORATION 2005 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 2006 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 2006
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the
section entitled “Share Ownership of Directors, Management and Certain Beneficial Owners” of the 2006 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. The Company authorized the issuance
of Harsco common stock to fulfill these SGB Plan stock options upon exercise from time to time. The Company 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 2005 ANNUAL REPORT 101
The following table gives information about equity awards under these plans as of December 31, 2005. 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))
748,344
$31.93
1,439,431
681 (2)
749,025
35.99 (3)
$31.93
-
1,439,431
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 $1.7205 effective December 31, 2005.
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 2006 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 2006 Proxy Statement.
102 HARSCO CORPORATION 2005 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 56.
(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
58
Schedule II - Valuation and Qualifying
Accounts for the years 2005, 2004 and 2003
104
Schedules other than that listed above are omitted for the reason that they are either not applicable or
not required, or because the information required is contained in the financial statements or notes
thereto.
Condensed financial information of the registrant is omitted since "restricted net assets" of consolidated
subsidiaries does not exceed 25% of consolidated net assets.
Financial statements of 50% or less owned unconsolidated companies are not submitted inasmuch as
(1) the registrant's investment in and advances to such companies do not exceed 20% of the total
consolidated assets, (2) the registrant's proportionate share of the total assets of such companies does
not exceed 20% of the total consolidated assets, and (3) the registrant's equity in the income from
continuing operations before income taxes of such companies does not exceed 20% of the total
consolidated income from continuing operations before income taxes.
HARSCO CORPORATION 2005 ANNUAL REPORT 103
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 2005:
Deducted from receivables:
Uncollectible accounts
Deducted from inventories:
Inventory valuations
Other reorganization and
valuation reserves
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
$ 19,095
$ 6,453
$
(832)
$ (312)
$ 24,404
$ 5,058
$ 8,736
$
(427)
$ 4,015
$ 17,382
$ 5,239
$ 9,081
$
(380)
$ (1,811)
$ 12,129
$ 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
(a) Includes principally the use of previously reserved amounts and changes related to acquired companies.
(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.
104 HARSCO CORPORATION 2005 ANNUAL REPORT
(a) 3. Listing of Exhibits Filed with Form 10-K
Exhibit
Number
Data Required
Location in Form 10-K
2(a)
Share Purchase Agreement between Sun HB Holdings,
Exhibit to Form 10-Q for the period ended
LLC, Boca Raton, Florida, United States of America and
Harsco Corporation, Camp Hill, Pennsylvania, United
States of America dated September 20, 2005 regarding
the sale and purchase of the issued share capital of
Hünnebeck Group GmbH, Ratingen, Germany.
September 30, 2005
2(b)
Agreement, dated as of December 29, 2005, by and
Exhibit volume, 2005 10-K
among the Harsco Corporation (for itself and as agent for
each of MultiServ France SA, Harsco Europa BV and
Harsco Investment Limited), Brambles U.K. Limited, a
company incorporated under the laws of England and
Wales, Brambles France SAS, a company incorporated
under the laws of France, Brambles USA, Inc., a
Delaware corporation, Brambles Holdings Europe B.V., a
company incorporated under the laws of the Netherlands,
and Brambles Industries Limited, a company incorporated
under the laws of Australia. In accordance with Item
601(b)(2) of Regulation S-K, the registrant hereby agrees
to furnish supplementally a copy of any omitted schedule
to the Commission upon request. Portions of Exhibit 2(a)
have been omitted pursuant to a request for confidential
treatment. The omitted portions have been filed
separately with the Securities and Exchange
Commission.
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
HARSCO CORPORATION 2005 ANNUAL REPORT 105
Exhibit
Number
Data Required
Location in Form 10-K
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 Form 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
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
106 HARSCO CORPORATION 2005 ANNUAL REPORT
Exhibit
Number
Data Required
Location in Form 10-K
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(a) (vi)
Agreement extending term of $50,000,000 Facility
Exhibit volume, 2005 10-K
agreement dated December 15, 2000
10(b)
Commercial Paper Dealer Agreement dated September 24,
2003, between ING Belgium SA/NV and Harsco Finance
B.V.
Exhibit volume, 2003 10-K
10(b)(i)
Commercial Paper Dealer Agreement dated September 24,
2003, between ING Belgium SA/NV and Harsco Finance
B.V. – Supplement No. 1 to the Dealer Agreement
Exhibit to Form 8-K dated November 8, 2005
10(c)
Commercial Paper Payment Agency Agreement Dated
October 1, 2000, between Salomon Smith Barney Inc.
and Harsco Corporation
Exhibit volume, 2000 10-K
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(f)
364-Day Credit Agreement
Exhibit to Form 8-K dated December 23, 2005
10(g)
Five Year Credit Agreement
Exhibit to Form 8-K dated November 23, 2005
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
Material Contracts - Management Contracts and Compensatory Plans
10(d)
Form of Change in Control Severance Agreement
(Chairman, President and CEO and Senior Vice
Presidents)
Exhibit to Form 8-K dated June 21, 2005
10(k)
Harsco Corporation Supplemental Retirement Benefit Plan
Exhibit volume, 2002 10-K
as amended October 4, 2002
HARSCO CORPORATION 2005 ANNUAL REPORT 107
Exhibit
Number
Data Required
Location in Form 10-K
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(r)
Special Supplemental Retirement Benefit Agreement for
Exhibit Volume, 1988 10-K
D. C. Hathaway
10(s)
Harsco Corporation Form of Restricted Stock Units
Exhibit to Form 8-K dated April 26, 2005
Agreement (Directors)
10(u)
Harsco Corporation Deferred Compensation Plan for Non-
Exhibit to Form 8-K dated April 26, 2005
Employee Directors, as amended and restated January 1,
2005
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, 2006
10(z)
Form of Change in Control Severance Agreement (Certain
Exhibit to Form 8-K dated June 21, 2005
Harsco Vice Presidents)
108 HARSCO CORPORATION 2005 ANNUAL REPORT
Director Indemnity Agreements -
10(t)
A. J. Sordoni, III
Exhibit volume, 1989 10-K Uniform
agreement, same as shown for J. J. Burdge
"
"
"
"
"
"
"
12
21
23
31(a)
31(b)
R. C. Wilburn
J. I. Scheiner
C. F. Scanlan
J. J. Jasinowski
J. P. Viviano
D. H. Pierce
K. G. Eddy
" "
" "
" "
" "
" "
" "
Exhibit to Form 8-K dated August 27, 2004
Computation of Ratios of Earnings to Fixed Charges
Exhibit volume, 2005 10-K
Subsidiaries of the Registrant
Exhibit volume, 2005 10-K
Consent of Independent Accountants
Exhibit volume, 2005 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, 2005 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, 2005 10-K
32(a)
Certification Pursuant to 18 U.S.C. Section 1350, as
Exhibit volume, 2005 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, 2005 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 2005 ANNUAL REPORT 109
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 3-13-06
HARSCO CORPORATION
By /S/ Salvatore D. Fazzolari
Salvatore D. Fazzolari
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 and Chief Executive Officer
3-13-06
President, Chief Financial Officer,
Treasurer and Director
(Principal Financial Officer)
Senior Vice President - Operations
and Director
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
3-13-06
3-13-06
3-13-06
3-13-06
3-13-06
3-13-06
3-13-06
3-13-06
3-13-06
3-13-06
3-13-06
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
/S/
Derek C. Hathaway
(Derek C. Hathaway)
Salvatore D. Fazzolari
(Salvatore D. Fazzolari)
Geoffrey D. H. Butler
(Geoffrey D. H. Butler)
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)
110 HARSCO CORPORATION 2005 ANNUAL REPORT
Corporate Information
Directors
Corporate Officers
Company News
Operations Executives
Annual Meeting
Derek C. Hathaway 1
Chairman and CEO
Harsco Corporation
Director since 1991
Geoffrey D. H. Butler
Derek C. Hathaway
Chairman and CEO
Salvatore D. Fazzolari
President, CFO and Treasurer
Senior Vice President - Operations
Harsco Corporation
Director since 2002
Geoffrey D. H. Butler
Senior Vice President - Operations
Kathy G. Eddy 2
CPA and Founding Partner
McDonough, Eddy, Parsons &
Baylous, AC
Director since 2004
Salvatore D. Fazzolari
President, CFO and Treasurer
Harsco Corporation
Director since 2002
Scott H. Gerson
Vice President - Information
Technology
Mark E. Kimmel
General Counsel and Corporate
Secretary
Michael H. Kolinsky
Vice President - Taxes
Jerry J. Jasinowski 3,4
Stephen J. Schnoor
President
The Manufacturing Institute
Director since 1999
D. Howard Pierce 2,4
Retired President and CEO
ABB Inc.
Director since 2001
Carolyn F. Scanlan 2,3
President and CEO
The Hospital and Healthsystem
Association of Pennsylvania
Director since 1998
James I. Scheiner 1,2,3
Chairman
Benatec Associates, Inc.
Director since 1995
Andrew J. Sordoni, III 1,3,4
Chairman
Sordoni Construction Services, Inc.
Director since 1988
Joseph P. Viviano 2,4
Retired Vice Chairman
Hershey Foods Corporation
Director since 1999
Dr. Robert C. Wilburn 1,3,4
President
Gettysburg National Battlefield
Museum Foundation
Director since 1986
Currently serves as Lead Director
Vice President and Controller
Eugene M. Truett
Vice President - Investor Relations
and Credit
Mill Services
Geoffrey D. H. Butler
President and CEO
MultiServ
Access Services
Geoffrey D. H. Butler
President and CEO
SGB Group
Dr. Frank Maassen
CEO
Hünnebeck Group GmbH
Robert S. Safier
Executive VP and General Manager
Patent Construction Systems
Engineered Products and Services
Richard C. Neuffer
President
Engineered Products and Services
Group
Gas Technologies
James E. Cline
President
Harsco GasServ
Board Committees
1 Executive
2 Audit
3 Management Development and Compensation
4 Nominating and Corporate Governance
Bold-faced type indicates Committee Chair
Company information and archived news
releases are available free of charge 24 hours a
day, seven days a week via Harsco's website at
www.harsco.com. Harsco's quarterly earnings
conference calls and other significant investor
events are posted when they occur.
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 on our website.
Securities analysts, portfolio managers,
representatives of institutional investors and
other interested parties seeking information
about Harsco should contact:
Eugene M. Truett
Vice President - Investor Relations and Credit
Phone: 717.975.5677
Fax: 717.763.6402
Email: etruett@harsco.com
April 25, 2006, 10:00 am
Radisson Penn Harris Hotel & Convention Center
Camp Hill, PA 17011
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
Philadelphia, PA 19103
Registrar, Transfer & Dividend
Disbursing Agent
For information regarding dividend checks,
share certificates, stock transfers, etc., please
contact:
Mellon Investor Services
P.O. Box 3316
South Hackensack, NJ 07606
800.850.3508
www.melloninvestor.com
Registered stockholders can view their 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.
HARSCO CORPORATION 2005 ANNUAL REPORT
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MILL SERVICES
ACCESS SERVICES
MultiServ
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381400
www.multiserv.com
SGB Group
Harsco House, Regent Park
299 Kingston Road
Leatherhead, Surrey KT22 7SG
United Kingdom
Tel: 44.1372.381300
www.sgb.co.uk
ENGINEERED PRODUCTS
AND SERVICES
Harsco Track Technologies
2401 Edmund Road, Box 20
West Columbia, SC 29171-0020 U.S.A.
Tel: 803.822.9160
www.harscotrack.com
GAS TECHNOLOGIES
Harsco GasServ
4718 Old Gettysburg Road
Mechanicsburg, PA 17055 U.S.A.
Tel: 717.763.5060
www.harscogasserv.com
Hünnebeck Group GmbH
Rehhecke 80
D-40885 Ratingen
Germany
Tel: 0049 2102 937 1
www.huennebeck.com
Patent Construction Systems
One Mack Centre Drive
Paramus, NJ 07652 U.S.A.
Tel: 201.261.5600
www.pcshd.com
IKG Industries
1514 S. Sheldon Road
Channelview, TX 77530 U.S.A.
Tel: 281.452.6637
www.ikgindustries.com
Air-X-Changers
5215 Arkansas Road
Port of Catoosa, OK 74015 U.S.A.
Tel: 918.266.1850
www.airx.com
Reed Minerals
4718 Old Gettysburg Road
Mechanicsburg, PA 17055 U.S.A.
Tel: 717.763.4200
www.reedminerals.com
Patterson-Kelley
100 Burson Street
East Stroudsburg, PA 18301 U.S.A.
Tel: 570.421.7500
www.patkelco.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