Harsco Corporation
Annual Report 2008

Plain-text annual report

Building an Enduring Enterprise 2008 Annual Report For more than a century, our brand has stood for industrial services delivered with unrivaled competence, reliability and integrity. now, we’re taking harsco to the next level. as we expand our solutions and extend our global base, we’ll do so as one company, under one name. Contents Forward-Looking Statements 2 Letter to Shareholders This document contains certain “forward-looking statements” within 4 Financial Highlights 7 Strategy for Growth 8 Harsco Infrastructure 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 10 Harsco Metals results to differ materially. Please refer to the section herein entitled 12 Harsco Minerals & Rail “Forward-Looking Statements” for further information. 14 Harsco At a Glance 16 Financial Section 80 Board of Directors and Officers 81 Stockholder Information       Harsco Corporation 2008 Annual Report the new harsco identity projects the scale, depth and focus of a world leader. It captures the spirit of a dynamic company on the rise—one whose vital solutions power economic growth in markets around the world. and it unifies our people, inspiring us to work together—and with our customers—to engineer greater value in everything we do. Harsco Corporation 2008 Annual Report       Harsco Corporation 2008 Annual Report       Fellow Shareholders: It’s one thing to achieve record results when times are good. It’s another to still perform well under adverse conditions. Historians will view the current financial and economic crisis as arguably the most challenging and turbulent period of our generation. During the unprecedented turmoil of 2008 we contended with declining global steel production, an extremely volatile U.S. dollar, dramatic fluctuations in fuel costs, freezing of credit markets and delayed and cancelled customer orders. By the fourth quarter, the world deepened into a recessionary decline that continues to test ships, cars and railways. The co-products we recover from the fortitude of companies and investors alike. We responded metals production and coal combustion contribute to by drawing on our strengths—our diverse industrial services environmentally friendly manufacturing processes and capabilities, our strong balance sheet, our expanding global provide building blocks for specialized industrial products. footprint and our operating discipline. We proactively And the railway expansion and maintenance projects we implemented countermeasures that will significantly lower support fuel economic growth by enabling the efficient our cost structure and deliver immediate benefit in 2009. movement of goods and people. I am proud to report that, excluding a relatively modest This work continues all the time, in developed and restructuring charge in the fourth quarter, we achieved emerging global markets. And because we can deploy and another full year of record performance. scale our mobile assets wherever they’re needed, we can We also invested in our future by embracing Harsco’s core engineer sustainable growth during most economic cycles. ideology throughout the organization. I believe the best way to scale our Company’s culture across the globe is to adopt a execution Focus singular purpose supported by uniform values. This shared Our fifth consecutive year of record revenues has better commitment will help us build an enduring enterprise that positioned Harsco for even greater success when economic will create sustainable shareholder value for years to come. conditions improve. essential Services • Revenues grew 8 percent to approximately $4 billion. • Income from continuing operations, before a fourth Harsco is a different kind of industrial services company. quarter restructuring charge, increased more than We support customers that are doing the important work 5.3 percent. that underpins economic growth and development around • Cash flow from operations reached a record the world. As one analyst recently remarked, Harsco’s $574 million, an increase of 22 percent. services are “critical to the global way of life.” Our human • We invested $248 million in growth capital and capital and worldwide equipment help leading repurchased nearly 4.5 million shares of the Company’s infrastructure construction companies build the new power common stock. plants, airports, highways and municipal and industrial • We retained our investment-grade A rating. facilities that create jobs, expand commerce and improve quality of life. We work onsite to support metals and steel This performance confirms the value of our diverse producers as they forge the raw materials used in portfolio of global businesses. We generated continued everything from skyscrapers, stadiums and bridges to growth in our Harsco Infrastructure group by repositioning       Harsco Corporation 2008 Annual Report Salvatore D. Fazzolari Chairman and Chief Executive Officer our highly engineered rental assets and building a strong activity throughout its global mill services footprint, growth presence in the Middle East Gulf Cooperation because steel and other metals are essential materials in Council (GCC) states and other key emerging markets. these types of projects. Revenues from Harsco Metals were essentially flat as economic factors forced customers to slow metals commitment to Value production and accelerate scheduled maintenance Harsco wins by understanding how customers define value shutdowns. We held the line by renegotiating or exiting and by building robust service and product portfolios that unfavorable long-term contracts. Our Harsco Minerals align our expertise, resources and global network to businesses confronted the difficult climate with refocused provide Insight onsite.™ We are equally committed to energy and direction for their reclamation and recycling creating wealth and value for shareholders, and one way services. Our Harsco Rail business continued to grow as we we do so is through our unwavering commitment to started deliveries on our record China contract and expanded Economic Value Added (EVA®). This enterprise-wide metric our presence in Brazil. And Harsco Industrial’s market-leading provides a consistent and transparent way to translate portfolio enabled this business to operate at high capacity. strategy into investment decisions and compensate all key With the proactive fourth quarter 2008 countermeasures managers in the Company based on performance. We have that we implemented, coupled with our strong balance also sharpened our focus by welcoming three new sheet, Harsco enters 2009 on a solid foundation. We are directors to our Board who bring tremendous global prepared to confront the deepening global economic business experience as well as strong perspectives on EVA uncertainty that we expect throughout the year. No one and continuous improvement. EVA discipline also drove can predict how severe these challenges will be or when our restructuring initiatives in the fourth quarter of 2008. As the recovery will begin. As a global business, we also the economic climate deteriorated, we took necessary expect the soaring U.S. dollar to create particularly strong countermeasures that included rationalizing facilities, adverse headwinds throughout the year—as it did in the renegotiating contracts, amending benefit plans and fourth quarter of 2008. Nevertheless, we have a solid track trimming our global workforce. These initiatives should record of managing through turbulent times. And looking save more than $50 million per year, with a majority of forward, many Harsco businesses stand to benefit either these cost savings being realized beginning in 2009. directly or indirectly from the global economic stimulus Going forward, EVA will reflect the results from the packages that will fund new infrastructure projects. Harsco LeanSigma® continuous improvement projects that are Infrastructure and Harsco Minerals & Rail should benefit now beginning to flourish across the Company. We directly. Harsco Metals is also likely to see increased completed 40 Kaizen events in 2008 that span Harsco Corporation 2008 Annual Report       Financial highlights Dollars in thousands, except per share amounts 2008 2007 2006 2005 2004 Operating Information Total revenues from continuing operations $3,967,822 $3,688,160 $3,025,613 $2,396,009 $2,162,973 Operating income from continuing operations Income from continuing operations 411,988 245,623 457,805 255,115 344,309 186,402 251,036 144,488 195,456 104,040 Ratios Current ratio Return on average capital Return on average equity Return on average assets Debt to total capitalization Per Share 1.4:1 10.9 % 15.2 % 10.4 % 41.7 % 1.5:1 12.2 % 19.2 % 13.0 % 40.8 % 1.4:1 10.8 % 17.2 % 12.1 % 48.1 % 1.5:1 10.7 % 15.3 % 11.2 % 50.4 % 1.6:1 9.2 % 12.7 % 9.9 % 40.6 % Diluted earnings from continuing operations $ 2.92 $ 3.01 $ 2.21 $ 1.72 $ 1.25 Book value Cash dividends declared 17.63 0.78 18.54 0.7275 13.64 0.665 11.89 0.6125 11.03 0.5625 Other Information Diluted average shares outstanding (in thousands) Number of employees 84,029 21,500 84,724 21,500 84,430 21,500 84,161 21,000 83,196 18,500 All amounts from Continuing Operations Revenues Dollars in millions Operating Income Dollars in millions Diluted Earnings per Share In dollars Cash Dividends Declared per Share In dollars 8 6 9 , 3 8 8 6 , 3 6 2 0 , 3 6 9 3 , 2 3 6 1 , 2 8 5 4 2 1 4 4 4 3 1 0 . 3 2 9 . 2 8 7 . 3 7 . 7 6 . 1 2 . 2 1 6 . 6 5 . 1 5 2 5 9 1 2 7 . 1 5 2 . 1 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 100 International United States International United States 65.26 - 34.74 = 2163       Harsco Corporation 2008 Annual Report 64.92 - 35.08 = 2396 68.3 - 31.7 = 3026 68.8 - 31.2 = 3688 68.2 - 31.8 = 3968 71.19 - 28.81 = 195 69.79 - 30.21 = 251 70.8 - 29.2 = 344 69.9 - 30.1 = 458 60.8 - 39.2 = 412 harsco’s core Values Uncompromising Integrity and Ethical Business Practices People – The “A Team” Code of Conduct, Safety Policies and Practices, Internal Control and Management Framework, and General Policies and Procedures Human Capital Framework: Global Talent Management System for Recruiting, Developing, Retaining and Assessing Human Capital Continuous Improvement LeanSigma® Business Transformation Discipline Value Creation Discipline Economic Value Added (EVA®) manufacturing, service and office operations, and we improve, and instead redeploy the cash to reduce debt, expect this number to increase to over 200 in 2009 and pursue selective acquisitions and repurchase our stock. reach approximately 400 by 2010. I am convinced that Harsco enters 2009 with the capital structure and financial LeanSigma, coupled with our rigorous and disciplined strength that many companies would envy, especially in implementation, will be transformational for Harsco. today’s environment. We executed a 10-year bond issue of $450 million in May 2008 at a very favorable interest rate, a Strong and Flexible Balance Sheet leaving us with much less exposure to floating debt while Backed by the discipline of EVA, our well-balanced, extending our average debt maturities. We also renewed diversified portfolio once again generated the strong $220 million and $30 million credit facilities that bring our cash flows we use to finance our business and expand total short-term borrowing capacity to $700 million. At our geographic footprint. In 2008 our discretionary cash December 31, 2008 we have a strong liquidity position and flow—that is, cash from operations less maintenance a very manageable debt-to-capital ratio of 41.7 percent. capital expenditures—increased to a record $365 million. That gave us the resources to invest 54 percent of this Building an enduring enterprise year’s record capital expenditures, or approximately $248 Beginning in 2009, Harsco moves forward as one company, million, in critical growth initiatives such as our robust with a single unified Harsco brand identity. That means emerging markets strategy. Investments in 2008 should every Harsco business will benefit from the integrated help us reach our goal of generating 30 percent of our financial resources, best practices and market position of a revenues from these fast-growing markets by 2010–2011. strong global organization. Our focus on our core ideology Our target is 40 percent by 2018. Our Infrastructure will create meaningful opportunities for our employees as footprint includes such strategically important emerging we continue to assess our global talent base and support markets as the GCC states and the Asia/Pacific region. Our the professional growth and development of our human Metals business is also pursuing market expansion with capital. I appreciate and respect the hard work of our new opportunities there as well. And we are responding people as we continue to build our global leadership team to inquiries from around the world about our innovative and strengthen our intellectual infrastructure. I am also railway track maintenance and co-product recycling grateful for the genuine commitment that our team has technologies. Abundant cash flows also provide a critical demonstrated by embracing and embedding the advantage during turbulent times. With three years of LeanSigma core value in our culture. LeanSigma will significant growth investment behind us, we can scale back transform our business and make us a smarter and more additional growth investments in 2009 until conditions productive organization. Harsco’s core purpose is to build Harsco Corporation 2008 Annual Report       Left to right: Mark E. Kimmel Senior Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary Geoffrey D. H. Butler Harsco President and Group CEO, Harsco Infrastructure and Harsco Metals Stephen J. Schnoor Senior Vice President and Chief Financial Officer Richard C. Neuffer Harsco Senior Vice President and Group CEO, Harsco Minerals & Rail Scott H. Gerson Vice President and Chief Information Officer teams that win with integrity anywhere in the world. We These qualities give us the strength, resolve and character will continue to embrace the values and ethical business to face the continued financial and economic turmoil we practices that earn the trust and respect of customers—and expect in 2009. I am confident that Harsco has the people, of one another. the strategy, the fortitude, the discipline and the market Misperceptions often take root during troubled times, opportunities to weather the storm. We have the unwavering even for globally balanced and diversified companies. faith that we will emerge from this financial and economic Winston Churchill once said that “Facts are better than crisis an even stronger company. We appreciate your dreams.” I am proud to remind our shareholders of our support as we build an enduring enterprise. unique business profile and the powerful attributes we possess. Harsco is: • A global leader of industrial services and products, with a balanced and globally scalable portfolio of business platforms; Salvatore D. Fazzolari • A company with a clear path to growth through Chairman and Chief Executive Officer targeted organic growth opportunities, joint ventures and prudent acquisitions; March 10, 2009 • A culture of professionals who share a strong core purpose and core values that empower us to win through integrity, teamwork and discipline; • A strong and financially sound company.       Harsco Corporation 2008 Annual Report Strategy for Growth Build and operate scalable platforms 1 that give customers the vital support they need— everywhere they do business. make the most of our 2 global assets by managing them with agility and by making efficiency and continuous improvement a way of life. use disciplined financial metrics 3 to ensure that every operational and investment decision we make strengthens our competitive position. 4 unleash the passion, creativity and integrity of our people to expand our opportunities. Harsco Corporation 2008 Annual Report       InFraStructure Harsco Infrastructure grows with its global customers by turning broad market insight into focused solutions. Customers value our dependable, consistent quality and award-winning safety performance. They look to us for expert engineering support; fast, flexible delivery of equipment and highly skilled installation; and in-depth understanding of local requirements. Together, these strengths give large construction contractors and industrial plant operators the onsite expertise and local equipment resources they need to operate more efficiently and safely, and with optimal cost of ownership. Our global market presence served us well during a year when tightening economic and credit conditions forced some cus- tomers to temporarily delay or scale back new projects. Despite the economic downturn, revenues from Europe, North America and the Middle East remained solid for most of the year. We supported a large number of energy, transportation, commercial and public sector projects in such areas as bridges, hospitals and high-rise office construction. We also began the expansion of our highly portable rental equipment assets into new markets such as Panama, Romania and India. Going forward, we expect new government stimulus programs to begin funding a variety of infrastructure projects to revitalize global economic growth. We are well-positioned in our markets to support these initiatives. We see good opportunities for con- tinued growth later in 2009 as economic stability returns. We are also expanding our infrastructure services business to create more value as an onsite partner to major industrial plants for their recurring routine maintenance and plant upgrade programs. Across Harsco, our investment in LeanSigma continuous im- provement is poised to begin delivering sustainable improve- ments in operating performance. During 2008, our first year of pilot project implementation, our Harsco Infrastructure group helped confirm our optimism by identifying new process improvements that will streamline local branch logistics. We will drive improvements like these to other branches throughout our global network and anticipate similar successes across the organ- ization as we ramp up to full Company-wide implementation.       Harsco Corporation 2008 Annual Report Denotes a location where Harsco Infrastructure has equipment and service operations Pernis, The Netherlands Harsco Infrastructure is responding to the growing market demand for onsite support of industrial plant maintenance, a traditionally noncyclical sector where we can combine scaffolding with additional onsite services. At the giant Shell Netherlands petrochemi- cal plant, our 24/7 team is serving one of Europe’s largest industrial facilities as a full-time, onsite part- ner to their facility-wide maintenance requirements. With our Cleton acquisition in 2006, we expanded our support to include the installation of thermal insulation and other maintenance services. We see great potential to grow our plant maintenance sup- port services as a complementary market extension of our core expertise and global branch network. Harsco Corporation 2008  Annual Report       metalS Harsco Metals creates value for the world’s leading metals pro- ducers by helping optimize their total cost of operation. Working onsite and under long-term recurring contracts, we bring indus- try-leading technology and global experience to every stage of mill operations—from handling incoming raw materials to packaging outgoing products. Our custom-engineered service solutions deliver cost and productivity advantages, enhance safety and quality, and respond to the growing environmental demands being placed on modern metal-making operations. Customers also value our worldwide engineering and process expertise; our careful approach to managing our cost base; and the integrity that underlies our culture. Moreover, our strong bal- ance sheet and access to public debt markets allow us to grow with our customers. some 50 percent of the world’s steel production is used for con- struction. To pave the way for future growth, we’re opening more channels for our environmental solutions while placing more of our higher technology service offerings into more locations. We are also looking to increase our service presence in other metal sectors and related cross-over markets like mining and quarry- ing. At the same time, however, we are resolved to sharpen the performance of our day-to-day operations with tighter controls on costs and new LeanSigma efficiencies. We expect these ini- tiatives and others to help us deliver more traditional levels of earnings contribution. In the coming periods, we also ex- pect our worldwide customers will return to upgrading facilities and increasing production capacity—two good barometers of a healthier market outlook. We drew on these competitive strengths to see our way through a difficult year, as worldwide demand for steel declined dra- matically in the final quarter of 2008. Our broad global footprint enables us to generate recurring revenues in virtually all major market regions where steel and other metals are produced. As global stimulus programs are implemented, we look for a gradual return to more traditional levels of activity, recognizing that We will continue to diversify our customer base and broaden our geographic balance by expanding our presence in the world’s developing economies. China, India and the Gulf Cooperation Council states are all substantial metal-producing regions where we have been largely underrepresented. We look to align our- selves with each region’s strongest and most secure industry partners to create a durable foundation for growth. 0      Harsco Corporation 2008 Annual Report Denotes a location where Harsco Metals services are being used Rotherham, United Kingdom Harsco Metals is strategically focused on increas- ing the value of by-products recovered on customer sites. As one example, we take residual slag from steel production, process it and use it as a base material to manufacture “Steelphalt,” an asphalt- line product used by the road construction industry. Harsco has made a $10 million capital investment to expand and update the plant that produces this product. This energy-efficient facility uses up-to-date “clean plant” technology to produce 300,000 tons of road material per year. It also operates as a global center of excellence where we explore new products and applications produced from processed slag. Harsco Corporation 2008 Annual Report       mIneralS & raIl portunity. Our goal is to continue developing our Harsco Minerals businesses as a provider of total environmental processing solu- tions for customers worldwide. In our Industrial group, Harsco manufactures specialized, high- performance products known for quality, durability and value. In 2008 we worked with our distribution partners and major gas platform and other customers in the Gulf of Mexico to make our metal grating immediately available to support reconstruction in the wake of Hurricanes Gustav and Ike. We are also achieving greater sales penetration with key customers for our air-cooled heat exchangers, where our production levels set new records in 2008. As these customers continue to expand internationally, we intend to grow with them. Harsco’s heat exchangers help natural gas producers extend their equipment life for gas compression and pipeline distribution. And our new boiler lines continue to build sales momentum as their outstanding energy efficiency underpins growing market demand. Harsco Minerals & Rail continues to perform as our highest EVA growth platform. In each division, our outsourced services and engineered products create value by helping customers grow and improve their businesses. Global railway systems rely on Harsco’s highly engineered rail grinders, track renewal and new track construction trains, and ballast machines to increase train speed and tonnage, boost rev- enues and improve total cost of ownership. As we begin deliveries into China of our largest-ever railway equipment order, we’re encouraged by the heightened public and private investment plans around the world to expand and modernize railway infra- structures. We believe the best way to work with our customers in an adverse economic climate is to focus on value. As we save our customers money and create real economic value for them, they will continue to rely on us when conditions improve. Our Harsco Minerals businesses generate value through their specialty expertise for capturing and processing industrial co-products to serve specific commercial applications, includ- ing low-silica abrasives and fertilizers. We see our pioneering co-product recovery services as a globally scalable growth op-       Harsco Corporation 2008 Annual Report Carajás, Brazil Companhia Vale do Rio Doce (Vale) relies on a 550-mile single-track railroad to transport iron ore from its Carajás mines in northern Brazil to the port city of São Luis. Vale purchased a new 96-stone production rail grinder from Harsco to make this high-volume, heavy-tonnage system more depend- able and productive. The grinder, which can recon- tour up to 50 kilometers of track per day, features Harsco’s patented Jupiter computer system for precise operating control and onboard diagnostics. We expect important equipment and service relation- ships like this to open additional opportunities, as Brazil and other emerging market countries invest in much-needed railway infrastructure to support economic growth. Denotes a location where Harsco Minerals & Rail has equipment and service operations Harsco Corporation 2008 Annual Report       harsco at a Glance Global Revenue Sources 2008 Revenues 2008 Operating Income Western Europe 45% North America 35% Latin America 6% Middle East and Africa 6% Eastern Europe 5% Asia/Pacific 3% Infrastructure 39% Metals 40% Minerals & Rail 21% Infrastructure 45% Metals 21% Minerals & Rail 37% Corporate -3% We operate at more than 400 locations in 50 countries and employ approximately 21,500 people. operating companies description major services & products • Full-service leader for total scaffolding, access • World’s leading provider of scaffolding and formwork solutions that help developed and and cast-in-place concrete formwork for emerging economies engineer growth nonresidential construction • Strong presence in virtually every major market, • Broadest portfolio of equipment solutions operating from more than 200 locations in and expert engineering support 36 countries • 100% service-based business, offering either rental or sale of Company-designed and purchased equipment • Increasing role serving recurring plant mainte- nance programs of major industrial facilities • Portable, go-anywhere rental equipment resources – enables rapid response to growth opportunities and changing market conditions • Professional outsourced service partner to • Onsite logistics for raw materials, semifinished the global metals industry and finished products • World’s largest and most experienced onsite • Proprietary technologies for minimizing the services company environmental impacts of metals production • Comprehensive support to each stage of • Specialists in commercial applications of the metal-making process residual slag by-products • Operates globally with a full range of Company- purchased, owned, operated and maintained equipment • Diversified portfolio of market-leading niche businesses that provide vital services and products to customers in a broad range of industries • Global railway track maintenance services and equipment • Environmentally beneficial metal recovery processes and mineral-based products for • Pioneering product development and industry commercial and industrial markets innovation • Air-cooled heat exchangers, industrial grating • Strong cash and EVA® generator to Harsco’s and energy-efficient boilers growth – SGB Group – Patent Construction Systems – Hünnebeck Group – MultiServ – Harsco Rail – Excell Minerals – Reed Minerals – IKG Industries – Air-X-Changers – Patterson-Kelley       Harsco Corporation 2008 Annual Report Total Revenues Comparison of Five-Year Cumulative Total Returns $4.0 billion 8% Operating Income $412 million 10% Operating Margin 10.4 % 200 bps Diluted Earnings per Share $2.92 3% Declared Dividends per Share $0.78 7% $.0 $. $. 03 04 05 06 07 08 Harsco S&P MidCap 400 Index Dow Jones U.S. Diversified Industrials Index Harsco Corporation S&P MidCap 400 Dow Jones U.S. Diversified Industrials 12/03 12/04 12/05 12/06 12/07 12/08 $ 100.00 $ 130.31 $ 161.26 $ 184.88 $ 315.88 $ 139.04 100.00 100.00 116.48 119.18 131.11 144.64 156.18 116.07 127.13 135.70 99.59 69.14 This graph compares the yearly percentage change in the cumulative total stockholder return on Harsco common stock against the cumulative total return of the Standard & Poor’s MidCap 400 index and the Dow Jones U.S. Diversified Industrials index. The graph assumes an initial investment of $100 on December 31, 2003 and the reinvestment of dividends. markets 2008 highlights • New construction, expansion and maintenance of public works, infrastructure and commercial • Strong contract activity in Europe and North America throughout most of 2008 properties, and other major facilities • Strengthened market position in Middle East • Clients range from large, global contractors to infrastructure construction sector regional and local players • #1, 2 or 3 market presence • Entered India market with new scaffolding services for major steelworks customer • Future growth focused on additional geographic expansion into emerging markets • Serves the complete range of metals producers, • Growing role in developing and executing from multinational giants to regional and environmental solutions for waste minimization specialty producers, including both integrated mills and mini-mills • Worldwide presence at approximately 170 locations in 35 countries • Continuing global growth opportunities for expanding services with existing customers, adding new locations and end-market crossover into complementary fields • New service contracts, particularly in emerging markets, will benefit 2009 and beyond • Executing countermeasures and global best practices for improved operating performance • Estimated value of contracts totals approximately $4.1 billion in future revenues • Major domestic and international railways, • Began production deliveries on record short lines and rapid transit systems $350 million rail grinding equipment order • Global metals producers and other commercial from China’s Ministry of Railways and industrial customers for mineral-based • Supported strong natural gas market with products record deliveries and backlog • Natural gas processors, industrial plant • Mobilized grating production to support fabricators, and boiler installations for schools, reconstruction of industrial infrastructure hospitals, offices and other facilities damaged by Hurricanes Gustav and Ike Harsco Corporation 2008 Annual Report       Financial contents 17 Five-Year Statistical Summary 18 Management’s Discussion and Analysis of Financial Condition and Results of Operations 40 Management’s Report on Internal Control Over Financial Reporting 41 Report of Independent Registered Public Accounting Firm 42 Consolidated Balance Sheets 43 Consolidated Statements of Income 44 Consolidated Statements of Cash Flows 45 Consolidated Statements of Stockholders’ Equity 46 Consolidated Statements of Comprehensive Income Notes to Consolidated Financial Statements 47 Note 1 Summary of Significant Accounting Policies 51 Note 2 Acquisitions and Dispositions 52 Note 3 Accounts Receivable and Inventories 53 Note 4 Property, Plant and Equipment 53 Note 5 Goodwill and Other Intangible Assets 54 Note 6 Debt and Credit Agreements 55 Note 7 Leases 56 Note 8 Employee Benefit Plans 61 Note 9 Income Taxes 63 Note 10 Commitments and Contingencies 66 Note 11 Capital Stock 67 Note 12 Stock-Based Compensation 69 Note 13 Financial Instruments 73 Note 14 Information by Segment and Geographic Area 75 Note 15 Other (Income) and Expenses 76 Note 16 Components of Accumulated Other Comprehensive Income (Loss) 76 Note 17 2008 Restructuring Program 77 Market Risks       Harsco Corporation 2008 Annual Report Five-year Statistical Summary (In thousands, except per share, employee information and percentages) 00 2007 (a) 2006 2005 (b) 2004 Income Statement Information (c) 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 (including discontinued operations) Capital expenditures Cash provided by operating activities Cash used by investing activities Cash provided (used) by financing activities Ratios Return on sales (d) Return on average equity (e) Current ratio Total debt to total capital (f) Per Share Information (g) Basic – Income from continuing operations – Income from discontinued operations – Net income Diluted – Income from continuing operations – Income from discontinued operations – Net income Book value Cash dividends declared Other Information Diluted average number of shares outstanding (g) Number of employees Backlog from continuing operations (i) $3,967,822 245,623 (4,678) 240,945 $÷«317,062 3,562,970 891,817 1,012,883 337,949 457,617 574,276 (443,418) (155,539) 6.2% 15.2% 1.4:1 41.7% $÷÷÷÷«2.94 (0.06) $÷÷÷÷«2.88 $÷÷÷÷«2.92 (0.06) $÷÷÷÷«2.87 (h) $÷÷÷«17.63 0.78 84,029 21,500 $÷«639,693 $3,688,160 255,115 44,377 299,492 $÷«471,367 3,905,430 1,012,087 1,080,794 306,413 443,583 471,740 (386,125) (77,687) 6.9% 19.2% 1.5:1 40.8% $÷÷÷÷«3.03 0.53 $÷÷÷÷«3.56 $÷÷÷÷«3.01 0.52 $÷÷÷÷«3.53 $÷÷÷«18.54 0.7275 84,724 21,500 $÷«448,054 $3,025,613 186,402 9,996 196,398 $÷«320,847 3,326,423 864,817 1,063,021 252,982 340,173 409,239 (359,455) (84,196) 6.2% 17.2% 1.4:1 48.1% $÷÷÷÷«2.22 0.12 $÷÷÷÷«2.34 $÷÷÷÷«2.21 0.12 $÷÷÷÷«2.33 $÷÷÷«13.64 0.665 84,430 21,500 $÷«236,460 $2,396,009 144,488 12,169 156,657 $÷«352,620 2,975,804 905,859 1,009,888 198,065 290,239 315,279 (645,185) 369,325 6.0% 15.3% 1.5:1 50.4% $÷÷÷÷«1.73 0.15 $÷÷÷÷«1.88 $÷÷÷÷«1.72 0.14 $÷÷÷÷«1.86 $÷÷÷«11.89 0.6125 84,161 21,000 $÷«230,584 $2,162,973 104,040 17,171 121,211 $÷«346,768 2,389,756 594,747 625,809 184,371 204,235 270,465 (209,602) (56,512) 4.8% 12.7% 1.6:1 40.6% $÷÷÷÷«1.26 0.21 $÷÷÷÷«1.47 $÷÷÷÷«1.25 0.21 $÷÷÷÷«1.46 $÷÷÷«11.03 0.5625 83,196 18,500 $÷«194,336 (a) (b) Includes Excell Minerals acquired February 1, 2007 (All Other Category – Harsco Minerals & Rail). Includes the Northern Hemisphere mill services operations of Brambles Industrial Services (BISNH) acquired December 29, 2005 (Harsco Metals) and Hünnebeck Group GmbH acquired November 21, 2005 (Harsco Infrastructure). (c) 2006, 2005 and 2004 income statement information reclassified to reflect the Gas Technologies Segment as Discontinued Operations. (d) “Return on sales” is calculated by dividing income from continuing operations by revenues from continuing operations. (e) “Return on average equity” is calculated by dividing income from continuing operations by quarterly weighted-average equity. (f) “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. (g) 2006, 2005 and 2004 per share information restated to reflect the 2-for-1 stock split effective in the first quarter of 2007. (h) Does not total due to rounding. (i) Excludes the estimated amount of long-term mill service contracts, which had estimated future revenues of $4.1 billion at December 31, 2008 and $5.0 billion at December 31, 2007. Also excludes backlog of the Harsco Infrastructure Segment and the roofing granules and industrial abrasives business. These amounts are generally not quantifiable due to the nature and timing of the products and services provided. Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations The following discussion should be read in conjunction with the con- leveraged and those with inadequate liquidity) to maintain their credit solidated financial statements provided in this Annual Report. Certain availability; and (12) other risk factors listed from time to time in the statements contained herein may constitute forward-looking state- Company’s SEC reports. A further discussion of these, along with other ments within the meaning of the Private Securities Litigation Reform potential factors, can be found in the Company’s 2008 Form 10-K as filed Act of 1995. These statements involve a number of risks, uncertainties with the Securities and Exchange Commission. The Company cautions and other factors that could cause actual results to differ materially, as that these factors may not be exhaustive and that many of these factors discussed more fully herein. are beyond the Company’s ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction Forward-looking Statements of actual results. The Company undertakes no duty to update forward- The nature of the Company’s business and the many countries in which looking statements except as may be required by law. it operates subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance executive overview with the “safe harbor” provisions of the Private Securities Litigation Despite the challenging macroeconomic operating environment Reform Act of 1995, the Company provides the following cautionary encountered in the fourth quarter of 2008, the Company’s 2008 rev- remarks regarding important factors which, among others, could cause enues were a record $4.0 billion. This is an increase of $280 million or future results to differ materially from the forward-looking statements, 8% over 2007. Organic growth contributed 5% to the growth in sales, expectations and assumptions expressed or implied herein. Forward- while acquisitions contributed 2% and favorable foreign currency looking statements contained herein could include among other things, translation effects contributed 1%. This resulted from the Company’s statements about our management confidence and strategies for continued strategy of constructing a well-balanced industrial services- performance; expectations for new and existing products, technolo- based portfolio of businesses based on scalable operating platforms; gies, and opportunities; and expectations regarding growth, sales, cash focused organic growth; growth through prudent acquisitions; and flows, earnings and Economic Value Added (EVA®). These statements increased geographical diversity. Income from continuing operations can be identified by the use of such terms as “may,” “could,” “expect,” was $245.6 million for 2008 (which included $36.1 million of restructur- “anticipate,” “intend,” “believe,” or other comparable terms. ing charges in the fourth quarter) compared with $255.1 million in 2007, Factors which could cause results to differ include, but are not lim- a decrease of 4%. The Harsco Infrastructure Segment and All Other ited to: (1) changes in the worldwide business environment in which the Category (Harsco Minerals & Rail) led the Company’s performance. Company operates, including general economic conditions; (2) changes Diluted earnings per share from continuing operations were $2.92 in currency exchange rates, interest rates and capital costs; for 2008 (which included $0.28 of restructuring charges in the fourth (3) changes in the performance of stock and bond markets that could quarter), which was a 3% decrease from 2007 diluted earnings per affect, among other things, the valuation of the assets in the Company’s share from continuing operations of $3.01. pension plans and the accounting for pension assets, liabilities and During 2008, all major business platforms of the Company achieved expenses; (4) changes in governmental laws and regulations, including increased sales over 2007, highlighting the diversity and balance of the environmental, tax and import tariff standards; (5) market and competi- Company. The Company continued to make progress on its geographic tive changes, including pricing pressures, market demand and accep- expansion strategy as sales in 2008 reflect an increasing geographic tance for new products, services and technologies; (6) unforeseen balance, especially in emerging markets. Revenues outside Western business disruptions in one or more of the many countries in which the Europe and North America were approximately 21% of total revenues in Company operates due to political instability, civil disobedience, armed 2008 compared with 18% in 2007. The Company’s continued geographic hostilities or other calamities; (7) the seasonal nature of the business; expansion strategy is expected to result in a significant increase to the (8) the integration of the Company’s strategic acquisitions; (9) the Company’s presence in emerging markets to approximately 30% of total amount and timing of repurchases of the Company’s common stock, Company revenues over the next three years, and closer to 40% in the if any; (10) the current global financial and credit crisis, which could longer term. result in our customers curtailing development projects, construction, Overall, the global markets in which the Company participates dete- production and capital expenditures, which, in turn, could reduce the riorated in the fourth quarter of 2008 due to the financial and economic demand for our products and services and, accordingly, our sales, crisis. To counteract this, the Company initiated restructuring actions margins and profitability; (11) the financial condition of our customers, designed to improve organizational efficiency and enhance profitability including the ability of customers (especially those that may be highly and stockholder value by generating sustainable operating expense       Harsco Corporation 2008 Annual Report savings. Under this program, the Company principally exited certain such as petrochemical and power plants, remained strong particu- underperforming contracts with customers, closed certain facilities and larly in North America and Northern Europe. Harsco Infrastructure reduced global workforce during the fourth quarter of 2008. The Com- accounted for 39% of the Company’s revenues and 45% of the operating pany anticipates that these actions will generate annualized savings of income for 2008. $50 million in 2009 and beyond. The cost associated with these actions The Harsco Metals Segment’s revenues in 2008 were $1.6 billion in the fourth quarter of 2008 was $36.1 million. compared with $1.5 billion in 2007, a 4% increase. Operating income Furthermore, the Company continues to minimize its cost structure, decreased by 37% to $85.3 million, from $134.5 million in 2007. Operat- with such actions as the redeployment of its mobile asset base in the ing margins for this Segment decreased by 340 basis points to 5.4% Harsco Infrastructure and Harsco Metals Segments to focus on market from 8.8% in 2007. The decrease in operating income and margins segments that remain strong and provide growth opportunities, the was due to pre-tax restructuring costs of $27.7 million, higher fuel LeanSigma® continuous improvement initiative and prudent reductions costs and unprecedented production cuts by steel mills across the in capital spending. globe, particularly in the fourth quarter 2008. Restructuring charges The Company believes its strong balance sheet and liquidity position primarily related to severance, contract exit costs, assets disposals as well as a lower cost structure put the Company in a strong posi- and charges related to defined benefit pension plan changes. This tion to execute its long-term strategic initiatives and take advantage Segment accounted for 40% of the Company’s revenues and 21% of of near-term growth opportunities. The Company continues to have the operating income for 2008. available liquidity and remains well-positioned from a financial flexibility The All Other Category’s revenues in 2008 were $849.6 million perspective. The Company successfully executed a $450 million, 10- compared with $750.0 million in 2007, a 13% increase. Operating income year notes issue in the second quarter of 2008, providing more financial increased by 6% to $150.9 million, from $142.2 million in 2007. Operating flexibility and less exposure to variable interest rates. The debt-to-capi- margins decreased by 120 basis points to 17.8% in 2008 from 19.0% in tal ratio at December 31, 2008 was 41.7%. 2007 primarily due to higher steel costs and lower volume and pricing During 2008, the Company had record cash provided by operat- in the minerals and recycling technologies business. All six businesses ing activities of $574.3 million, a 22% increase over the $471.7 million contributed higher revenues due to strong demand. Four of the six busi- achieved in 2007. The Company expects continued strong cash flows nesses contributed higher operating income compared to 2007. This from operating activities in 2009; however, 2009 is not expected to be Category accounted for 21% of the Company’s revenue and 37% of the as strong as 2008. Additionally, in 2008, the Company invested a record operating income for 2008. $457.6 million in capital expenditures (over 54% of which was for rev- Despite the significant strengthening of the U.S. dollar during enue-growth projects). More importantly, 43% of the revenue-growth the fourth quarter of 2008, the effect of foreign currency translation capital expenditures were invested in emerging economies. The Com- increased full year 2008 consolidated revenues by $30.8 million and pre- pany also repurchased approximately 4.5 million shares during 2008 tax income by $3.8 million when compared with 2007. If the U.S. dollar at a total cost of $129 million. The Company’s cash flows are further remains at current strong levels or strengthens further, 2009 results will discussed in the Liquidity and Capital Resources section. be significantly negatively impacted. Segment Overview Outlook Overview The Harsco Infrastructure Segment’s revenues in 2008 were $1.5 billion The Company’s operations span several industries, products and end compared with $1.4 billion in 2007, a 9% increase. Operating income markets. On a macro basis, the Company is affected by non-residential increased by 1% to $185.4 million, from $183.8 million in 2007. Operat- and infrastructure construction and infrastructure maintenance and ing margins for the Segment declined by 100 basis points to 12.0% capital improvement activities; worldwide steel mill production and from 13.0% in 2007. Operating margins declined partially due to 2008 capacity utilization; industrial production volume and maintenance pre-tax restructuring costs of $5.0 million related to severance, contract activity; and the general business trend towards the outsourcing of exit costs and asset disposals. Organic growth of 6% was gener- services. The overall outlook for 2009 is guarded as a result of the deep- ated primarily in the Middle East and Asia/Pacific as these emerging ening global financial and economic crisis that has created tremendous economies continued to make significant investment in infrastructure uncertainty and volatility throughout the world. modernization and expansion. Infrastructure maintenance activities, Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations Additionally, the Company’s pension plans’ assets declined in value new technology applications, consolidated procurement and logistics; consistent with the weakening economy and will result in significant and LeanSigma continuous improvement initiatives. increased pension expense during 2009. The significant strengthening The long-term outlook for the Harsco Metals Segment remains stable of the U.S. dollar in the fourth quarter of 2008, and its continued appre- as the global steel market is expected to grow at reasonable rates over ciation in the first quarter of 2009, is expected to have a significant the next several years. The key factor behind this anticipated growth adverse impact on the 2009 Company’s performance. is the demand from emerging economies for significant infrastructure In response to these events, the Company undertook a restructuring development needs. The near-term outlook, however, is challenging action during the fourth quarter of 2008 that is expected to generate due to the deepening global economic and financial crisis which has annual savings of approximately $50 million in 2009 and beyond. The caused reductions in demand for steel and associated steel production. costs associated with these actions were $36.1 million. The Com- Steel mill production declines reached unprecedented levels at the end pany does not currently expect to incur any significant restructuring of 2008. Reduced production volumes are expected to continue into the charges during 2009, although the Company continues to proactively first half of 2009. It is expected that some of this impact will be mitigated and aggressively implement a number of additional countermeasures by substantially lower fuel costs, improved contract performance, new designed to improve future financial performance. These additional contract signings, and other cost optimization initiatives the Company is actions include: targeted reductions in capital spending; execut- currently implementing. Additionally, to ensure the segment will oper- ing LeanSigma continuous improvement initiatives; and redeploying ate at optimal efficiency in 2009 and beyond, significant restructuring equipment from slowing markets into strategically important, growing actions were executed during the fourth quarter of 2008. The recent markets. Additionally, the All Other Category (Harsco Minerals & Rail) is decline in oil prices, if sustained, should have a measurable effect on expected to benefit from declining steel prices in 2009. The current eco- operating results in the Segment in 2009. The Company continues to nomic conditions provide the Company with expansion opportunities engage in enterprise business optimization initiatives including introduc- to pursue its prudent acquisition strategy of seeking further accretive ing the LeanSigma continuous improvement program, which over time bolt-on acquisitions. is expected to result in broad-scale improvement in business practices The long-term outlook across the global footprint of the Harsco and consequently operating margin. In addition, new contract signings Infrastructure business remains positive. The near-term outlook, how- and start-ups, as well as the Company’s geographic expansion strategy, ever, is challenging due to the current economic and financial crisis. particularly in emerging markets, are expected to gradually have a posi- This Segment will leverage its global breadth and mobile asset base to tive effect on results in the longer term. relocate equipment to focus on emerging markets as well as market For the All Other Category (Harsco Minerals & Rail), the long-term segments that remain stable such as infrastructure maintenance outlook remains positive. Most end-market demand remains strong services, and institutional services such as hospitals and education, and backlogs continue near record levels for the Category. The near- and global infrastructure work. Operating performance for this Segment term outlook, however, for the Minerals business, which recovers and in the long term is expected to continue to benefit from the execution of recycles high value metals, has been negatively affected by the recent numerous global government stimulus packages which are expected steep decline in metal prices. The Company continues to experience to fund much needed infrastructure projects throughout the world; strong bidding activity in its railway track maintenance services and selective strategic investments and acquisitions in existing and new equipment business, new contract opportunities for its minerals and markets; and enterprise business optimization opportunities including recycling technologies business, and potential geographic expansion opportunities within its industrial products businesses. Total Revenues Twelve Months Ended December 31 Percentage Growth From 2007 to 2008 00 Percent 2007 Percent Volume Currency $1,770.8 1,370.0 257.5 253.7 189.0 126.8 $3,967.8 45% 35 6 6 5 3 100% $1,758.5 1,244.9 196.4 213.5 139.6 135.3 $3,688.2 48% 34 5 6 4 3 100% 0.0% 10.0 35.0 15.5 22.9 (7.3) 6.8% 0.7% 0.0 (3.9) 3.3 12.5 1.0 0.8% Total 0.7% 10.0 31.1 18.8 35.4 (6.3) 7.6% Revenues by Region (Dollars in millions) Western Europe North America Middle East and Africa Latin America (a) Eastern Europe Asia/Pacific Total (a) Includes Mexico. 0      Harsco Corporation 2008 Annual Report 2008 highlights The following significant items affected the Company overall during 2008 in comparison with 2007: Company Wide Harsco Metals Segment (Dollars in millions) Revenues Operating income Operating margin percent 00 2007 $1,577.7 85.3 5.4% $1,522.3 134.5 8.8% • Overall stronger demand benefited the Company in the first three quarters of 2008, in particular, increased infrastructure maintenance Harsco Metals Segment – Significant Effects on Revenues services and highly engineered equipment rentals, especially in the (In millions) Middle East and Eastern Europe; as well as railway track equipment sales and increased demand for air-cooled heat exchangers. • Operating income and margins for the Harsco Metals Segment were negatively impacted by unprecedented declines in global steel production during the fourth quarter of 2008; costs of restructuring actions implemented in the fourth quarter of 2008; increased operat- ing expenses, mainly higher fuel costs; as well as certain contracts with lower-than-acceptable margins. Harsco Infrastructure Segment (Dollars in millions) Revenues Operating income Operating margin percent 00 2007 $1,540.3 185.4 12.0% $1,415.9 183.8 13.0% Revenues – 2007 Acquisitions Net increased volume and new business Impact of foreign currency translation Revenues – 2008 $1,522.3 30.0 18.6 6.8 $1,577.7 Harsco Metals Segment – Significant Impacts on Operating Income • Despite overall increased volume, operating income and margins for the Harsco Metals Segment were negatively impacted by unprecedented declines in global steel production particularly during the fourth quarter of 2008; increased operating expenses, mainly higher fuel costs; as well as certain contracts with lower- than-acceptable margins. • Operating income for 2008 included higher severance and other restructuring charges of $27.7 million related to the fourth quarter Harsco Infrastructure Segment – Significant Impacts on Revenues 2008 restructuring actions. (In millions) Revenues – 2007 Net increased volume and new business Impact of foreign currency translation Acquisitions Revenues – 2008 • The 2007 acquisition of Alexander Mill Services International (“AMSI”) was accretive to earnings in 2008. • The impact of foreign currency translation in 2008 increased operat- ing income for this segment by $4.1 million compared with 2007. All Other Category – Harsco Minerals & Rail $1,415.9 80.3 28.5 15.6 $1,540.3 Harsco Infrastructure Segment – Significant Impacts on Operating Income: • In 2008, the Segment’s operating results continued to improve due to increased non-residential, and infrastructure construction through- (Dollars in millions) Revenues Operating income Operating margin percent 00 2007 $849.6 150.9 17.8% $750.0 142.2 19.0% out the world, and in particular the Middle East, Asia/Pacific and All Other Category – Harsco Minerals & Rail – Significant certain parts of Europe. The Company continues to benefit from its Impacts on Revenues highly engineered rental equipment capital investments made in (In millions) both developed and emerging markets. Additionally, infrastructure maintenance activity remained strong in both North America and certain parts of Western Europe. • This Segment benefited from $8.3 million of increased pre-tax net gain on the sale of properties during 2008 compared with 2007. • The impact of foreign currency translation in 2008 increased operat- ing income for this Segment by $5.1 million, compared with 2007. Revenues – 2007 Railway track maintenance services and equipment Air-cooled heat exchangers Industrial grating products Acquisitions Roofing granules and abrasives Boiler and process equipment Impact of foreign currency translation Reclamation and recycling services • In 2008, the segment’s operating results included $5.0 million of Revenues – 2008 costs related to the fourth quarter 2008 restructuring actions and increased costs associated with new business optimization initia- tives and further process and technology standardization. $750.0 46.8 22.0 18.7 12.9 5.9 4.3 (4.5) (6.5) $849.6 Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations All Other Category – Harsco Minerals & Rail – Significant particularly in the first half. The major challenges facing the Company Effects on Operating Income include the following: • The railway track maintenance services and equipment business • Overall instability of the global financial markets and economies delivered increased income in 2008 compared with 2007 due to • Continuing strengthening of the U.S. dollar increased rail equipment sales and repair parts, partially offset by • Tightening of credit markets that limit the ability of the Company’s reduced contract services sales and higher selling, general and customers to obtain financing administrative expenses. • Substantial and unprecedented reductions in global steel production • Strong demand in the natural gas market resulted in increased • Depressed commodity prices, particularly high-value metals volume and operating income for the air-cooled heat exchangers business in 2008. These increases were partially offset by increased costs principally due to overall higher steel costs in 2008. • The industrial grating products business experienced higher sales as a result of increased pricing; however, operating income increases were partially offset by higher costs principally due to overall higher steel costs in 2008. • Despite lower volume for the roofing granules and abrasives business in 2008, sales and operating income increased due to price increases, which were partially offset by higher selling, general and adminis- trative expenses. • Operating income for the boiler and process equipment business was higher in 2008 due to increased demand, partially offset by increased production costs and selling, general and administrative expenses. • Operating income for the reclamation and recycling services was lower in 2008 due principally to unprecedented fourth quarter steel mills production declines and a significantly lower metal prices and product mix. • The impact of foreign currency translation in 2008 decreased oper- ating income by $2.1 million for this Category compared to 2007. outlook, trends and Strategies Company Wide In response to this global financial and economic crisis, the Com- pany has and will continue to proactively and aggressively implement a number of countermeasures to reinforce 2009 performance, including: • During the fourth quarter of 2008, the Company implemented a restructuring program designed to improve organizational efficiency and enhance profitability and stockholder value. Under the restruc- turing program, the Company is principally exiting certain under- performing contracts with customers, closing certain facilities, and reducing its global workforce. The extent of the restructuring program increased from previously announced estimates to include additional actions taken as the global financial and economic crisis continued to deepen. The Company recorded a pre-tax charge of $36.1 million related to the restructuring program, or approximately $0.28 per diluted share. The annualized benefits associated with this charge are estimated to be $50 million, or approximately $0.45 per diluted share, and are expected to be realized in 2009 and beyond. • Cutting costs across the enterprise, including reducing or eliminat- ing discretionary spending to match market conditions. • Prudently reducing growth capital expenditures in 2009 while redeploying equipment from slowing markets to new projects in strategically important areas such as the Middle East and Africa, Asia-Pacific, and several other key countries. • Accelerating growth initiatives, including projects in emerging markets. Adverse economic conditions precipitated by developments in the • Selective, prudent strategic acquisitions. financial markets in the United States have created tremendous uncer- tainty and anxiety throughout the world. The erosion in confidence in the financial markets, the global recession and the soaring U.S. dollar have caused the Company’s near-term prospects to become more difficult. During the fourth quarter of 2008 there was an unprecedented reduction in global steel production as well as the postponement of some construction projects and sales due to the tightening of credit. In addition, the value of the U.S. dollar strengthened significantly against many other currencies, including the major currencies in key markets of the Company. The year 2009 is expected to be a very challenging year, While the global economic conditions remain uncertain and turbu- lent, the Company believes it is well-positioned to capitalize on oppor- tunities and execute strategic initiatives based upon its strong balance sheet, available liquidity and its ability to generate strong operating cash flows. The Company is confident that the previously mentioned actions along with its new LeanSigma continuous improvement program will significantly reduce the Company’s cost structure, further enhancing its financial strength. Additionally, the Company’s global footprint; diversity of services and products; long-term mill services contracts; portability of infrastructure services equipment; and large infrastructure services customer base help mitigate its overall exposure to changes in any one single economy. However, further deterioration of the global economies could still have an adverse impact on the Company’s operating results.       Harsco Corporation 2008 Annual Report Looking to 2009 and beyond, the following significant items, trends in reduced operating income for certain products and services, to and strategies are expected to affect the Company: the extent that such costs cannot be passed on to customers. Cost • The Company will continue its disciplined focus on expanding decreases could result in increased operating income to the extent its industrial services businesses, with a particular emphasis on that such cost savings do not need to be passed to customers. How- prudently growing the Harsco Infrastructure Segment, especially ever, increased volatility in energy and commodity costs may provide in emerging economies and other targeted markets. Growth is additional service opportunities for the Harsco Metals Segment and expected to be achieved through the provision of additional services several businesses in the All Other Category (Harsco Minerals & Rail) to existing customers, new contracts in both developed and emerg- as customers may tend to outsource more services to reduce overall ing markets, and selective strategic bolt-on acquisitions. Addition- costs. Such volatility may also provide opportunities for additional pet- ally, new higher-margin service and sales opportunities in the miner- rochemical plant maintenance and capital improvement projects. As als and rail businesses will be pursued globally. part of the enterprise-wide optimization initiatives discussed above, • The Company will continue to invest in selective strategic acquisitions the Company is implementing programs to help mitigate these costs. and growth capital investments; however, management will continue • Foreign currency translation had an overall minor favorable effect to be very selective and disciplined in allocating capital, choosing on the Company’s sales and operating income during 2008 in projects with the highest Economic Value Added (“EVA”) potential. comparison with 2007. However, due to the strengthening of the • The Company anticipates global government stimulus packages to U.S. dollar near the end of the third quarter and through the fourth fund much-needed infrastructure projects throughout the world. The quarter 2008, foreign currency translation had an overall unfavor- Harsco Infrastructure Segment is well-positioned with its engineer- able impact on the Company’s stockholders’ equity and is expected ing and logistics expertise and the capital investment base to take to have a significant negative impact on 2009 sales and earnings in advantage of these expected opportunities. relationship to 2008. If the U.S. dollar continues to strengthen (which • The implementation of the Company’s enterprise-wide LeanSigma it has through mid-February 2009), particularly in relationship to the continuous improvement program in 2008 should provide long-term euro, British pound sterling or the Eastern European currencies, benefits and improve the overall performance of the Company the impact on the Company would generally be negative in terms through a reduced cost structure and increased efficiency. of reduced revenue, operating income and stockholders’ equity. • In addition to LeanSigma, the Company will continue to implement Additionally, even if the U.S. dollar remains at its current value, enterprise-wide business optimization initiatives to further enhance the Company’s revenue and operating income will be negatively margins for most businesses. These initiatives include improved impacted in comparison to 2008. Should the U.S. dollar weaken in supply-chain and logistics management; capital employed optimiza- relationship to these currencies, the effect on the Company would tion; and added emphasis on global procurement. generally be positive in terms of higher revenue, operating income • The Company will place a strong focus on corporate-wide expan- and stockholders’ equity. sion into emerging economies in the coming years to better balance • Despite the tightening of credit during the second half of the year its geographic footprint. More specifically, within the next three to (and slightly higher borrowing rates during that time) overall variable five years, the Company’s global growth strategies include steady, borrowing rates for 2008 have been lower than 2007. A one percent- targeted expansion in the Middle East and Africa, Asia/Pacific age point change in variable interest rates would change interest and Latin America to further complement the Company’s already- expense by approximately $1.2 million per year. This is substantially strong presence throughout Western Europe and North America. lower than prior projected impacts as variable rate debt has been This strategy is expected to result in a significant increase to the reduced to approximately 12% of the Company’s borrowings as of Company’s presence in these markets to approximately 30% of total December 31, 2008, compared to approximately 49% at Decem- Company revenues over the next three years and closer to 40% in ber 31, 2007. This decrease is due to the repayment of commercial the longer term. Revenues in these markets were almost 21% for paper borrowings during the second quarter of 2008 with the 2008 compared with 18% for 2007. In the long term, the improved proceeds from the May 2008 U.S. senior notes offering coupled with geographic footprint will also benefit the Company as it further strong operating cash flows in 2008. The Company manages the mix diversifies its customer base. of fixed-rate and floating-rate debt to preserve adequate funding • Volatility in energy and commodity costs (e.g., crude oil, natural gas, flexibility, as well as control the effect of interest-rate changes on steel, etc.) and worldwide demand for these commodities could have consolidated interest expense. Strategies to further reduce related an adverse impact on the Company’s operating costs and ability risks are under consideration. to obtain the necessary raw materials. Cost increases could result Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations • Total defined benefit pension expense for 2009 will be substantially leverage its value-added services and highly engineered forming, higher than the 2008 level due to the decline in pension asset values shoring and scaffolding systems to grow the business. during the second half of 2008. This decline was due to the financial • The Company will continue to diversify this business, focusing on crisis and the deterioration of global economic conditions. In an growth in institutional and global infrastructure projects and infra- effort to mitigate a portion of this overall increased cost for 2009, the structure maintenance projects. Company implemented additional plan design changes for a certain • The Company will continue to implement its LeanSigma continuous international defined benefit pension plan so that accrued service improvement program and other key initiatives including: global pro- is no longer granted for periods after December 31, 2008. This curement and logistics; the sharing of engineering knowledge and action was part of the Company’s overall strategy to reduce pension resources; optimizing the business under one standardized adminis- expense and volatility. trative and operating model at all locations worldwide; and on-going • As the Company continues the strategic expansion of its global foot- analysis for other potential synergies across the operations. print and implements tax planning opportunities, the 2008 effective • Operating performance for this Segment in the long term is income tax rate has been lower than 2007. The effective income tax expected to benefit from the execution of global government rate for continuing operations was 26.7% for 2008, compared with stimulus packages which should fund much-needed infrastructure 30.7% for 2007. The decrease in the effective income tax rate for the projects throughout the world. year 2008 was primarily due to increased earnings in jurisdictions with lower tax rates; increased designation of certain interna- tional earnings as permanently reinvested; and the recognition of previously unrecognized tax benefits in certain state and foreign jurisdictions. Looking forward into 2009 the effective income tax rate is expected to be in the range of 28%. • The Company expects continued strong cash flows from operat- ing activities in 2009; however, 2009 is not expected to be as strong as the record 2008 cash flows. The Company plans to significantly reduce the amount of cash invested for organic growth capital expenditures during 2009. The Company’s growth capital expendi- tures were approximately $248 million in 2008. The Company expects growth capital expenditures to approximate $100 million during 2009. The Company believes that the mobile nature of its capital invest- ment pool will facilitate strategic growth initiatives in the near term, despite the reduction in growth capital expenditures for 2009. Harsco Metals Segment • The strong U.S. dollar will continue to adversely affect the sales and operating income of Harsco Metals, as over 80% of this business operates outside the U.S. Adverse economic uncertain- ties developing through the third and fourth quarters of 2008 have resulted in reduced demand for steel, causing steel companies globally to significantly scale back production. Mills have also been accelerating planned maintenance outages in an effort to better bal- ance production and end-market demand. These customer actions had a significant negative impact on the Harsco Metals Segment’s results in the fourth quarter of 2008. Entering 2009, the Company continues to see this Segment’s operations running at even lower capacity than December 2008. While global demand for steel remains weak, steel production cuts of this depth and breadth are not expected to be sustainable for long periods of time. The Com- pany does not foresee any measurable pick-up in this Segment’s Harsco Infrastructure Segment operations until the second half of 2009. • The strong U.S. dollar will continue to adversely affect sales and • Benefits from the restructuring program implemented in the fourth operating income of Harsco Infrastructure, as approximately 80% quarter of 2008 should improve the operational efficiency and of this business operates outside the U.S. The near-term outlook enhance profitability of the Harsco Metals Segment in 2009 and for the Harsco Infrastructure Segment will be negatively impacted beyond. Initiatives included the exit of underperforming contracts by continued uncertainty in the global credit markets, which has with customers and underperforming operations; defined benefit deferred equipment sales and some construction projects. The cur- pension plan design changes; overall reduction in global workforce; rent weakness in the commercial construction market, particularly and substantially reducing discretionary spending. in Western Europe and the United States, is being partially offset by • The Company will continue to place significant emphasis on improv- a steady level of activity from the Company’s infrastructure mainte- ing operating margins of this Segment. Margin improvements are nance services, institutional and global infrastructure projects, and most likely to be achieved as a result of the recent decline in fuel continued overall growth in the Middle East. costs; cost reduction initiatives, renegotiating or exiting contracts • The Company will continue to emphasize prudent expansion of its with lower-than-acceptable returns, principally in North America; geographic presence in this Segment through entering new markets internal enterprise business optimization efforts; divesting low-margin and further expansion in emerging economies, and will continue to product lines; continuing to execute a geographic expansion strategy       Harsco Corporation 2008 Annual Report in the Middle East and Africa, Latin America and Asia/Pacific; All Other Category – Harsco Minerals & Rail and implementing continuous improvement initiatives including • The Company will emphasize prudent global expansion of its recla- LeanSigma projects, global procurement initiatives, site efficiency mation and recycling value-added services for extracting high-value programs, technology enhancements, maintenance best practices metallic content from slag and responsibly handling and recycling programs and reorganization actions. Although the costs associated residual materials. with these efforts have reduced operating margins during 2008 when • Low metal prices and historical low production levels will continue compared with 2007 due to incremental costs, the overall margin to have a negative effect on certain reclamation and recycling ser- enhancements are expected to be recognized in the second half of vices in 2009, which may adversely affect the revenues, operating 2009 and beyond. income, cash flows and asset valuations of this business. • The Company will continue to diversify its customer base by • Certain businesses in this Category are dependent on a small reallocating assets to new customers in emerging markets. group of key customers. The loss of one of these customers due to • Further consolidation in the global steel industry is possible. Should competition or due to financial difficulty, or the filing for bankruptcy additional consolidations occur involving some of the steel indus- protection could adversely impact the Company’s income, cash try’s larger companies that are customers of the Company, it would flows and asset valuations. As part of its credit risk management result in an increase in concentration of revenues and credit risk practices, the Company closely monitors the credit standing and for the Company. If a large customer were to experience financial accounts receivable position of its customer base. difficulty, or file for bankruptcy protection, it could adversely impact • International demand for the railway track maintenance services the Company’s income, cash flows and asset valuations. As part of and equipment business’s products and services is expected to its credit risk management practices, the Company closely monitors be strong in both the near term and the long term. A large multi- the credit standing and accounts receivable position of its customer year equipment order signed in 2007 with China is an example of base. Further consolidation may also increase pricing pressure on the underlying strength of the international markets. Due to long the Company and the competitive risk of services contracts which lead-times, this order is expected to generate most of its revenues are due for renewal. Conversely, such consolidation may provide during 2009 through 2011. In addition, increased volume of contract additional service opportunities for the Company as the Company services and LeanSigma continuous improvement initiatives are believes it is well-positioned competitively. expected to improve margins on a long-term basis. • ArcelorMittal recently notified the Company that it would unilaterally • Worldwide supply and demand for steel and other commodities could revise the fixed-fee provisions of certain contracts between the parties have an adverse impact on raw material costs and the ability to obtain with the intended effect resulting in a significant price reduction to the the necessary raw materials for several businesses in this Category. The Company. The Company has notified ArcelorMittal that their actions Company has implemented certain strategies to help ensure continued are a breach of these contracts and that the Company will take all product supply to its customers and mitigate the potential impact that necessary and appropriate actions to protect its legal rights. Discus- changes in steel and other commodity prices could have on operating sions between the parties continue, but it is possible that the parties income. If steel or other commodity costs associated with the Company’s may need to resort to third-party resolution of this issue. ArcelorMit- manufactured products increase and the costs cannot be passed on tal represented approximately 10% of the Company’s sales in 2008, to the Company’s customers, operating income would be adversely 2007 and 2006. The Company expects ArcelorMittal sales in 2009 to affected. Conversely, reduced steel and other commodity costs would be less than 10% of the Company’s sales due primarily to reduced improve operating income to the extent such savings do not have to be steel production levels; the Company’s exiting of certain underper- passed to customers. Additionally, if the Company cannot obtain the forming contracts with ArcelorMittal; and a stronger U.S. dollar. It is necessary raw materials for its manufactured products, then revenues, possible that the eventual outcome of this unprecedented breach of operating income and cash flows could be adversely affected. contract could negatively impact the Company’s long-term relation- • Operating margins of the abrasives business could be impacted by ship with this customer and, as a result, the Company’s financial volatile energy prices that affect both production and transportation position, results of operations and cash flows could be negatively costs. This business continues to pursue cost and site optimization impacted. Of all of the Company’s major customers in the Harsco initiatives and the use of more energy-efficient equipment to help Metals Segment, the EVA on contracts with ArcelorMittal are the mitigate future energy-related increases. lowest in the portfolio. Contracts with ArcelorMittal are long-term • Due to a stable natural gas market and additional North American contracts, such that any impact on the Company’s future results of opportunities, demand for air-cooled heat exchangers is expected operations would occur over a number of years. to remain at least consistent with 2008 levels. Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations results of operations for 2008, 2007 and 2006 (a) (Dollars are in millions, except per share information and percentages) Revenues from continuing operations Cost of services and products sold 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 share from continuing operations Diluted earnings per common share Effective income tax rate for continuing operations Consolidated effective income tax rate 00 $3,967.8 2,926.4 602.2 22.0 412.0 73.2 91.8 245.6 (4.7) 240.9 2.92 2.87 26.7% 27.7% 2007 $3,688.2 2,685.5 538.2 3.4 457.8 81.4 117.6 255.1 44.4 299.5 3.01 3.53 30.7% 31.4% 2006 $3,025.6 2,203.2 472.8 2.5 344.3 60.5 93.4 186.4 10.0 196.4 2.21 2.33 32.5% 32.3% (a) All historical amounts in the Results of Operations section have been reclassified for comparative purposes to reflect discontinued operations. Comparative Analysis of Consolidated Results Revenues 2008 vs. 2007 Revenues for 2008 increased $279.7 million or 8% from 2007, to a record level. This increase was attributable to the following significant items: In millions Change in Revenues 00 vs. 00 Net increased revenues in the Harsco Infrastructure Segment due principally to non-residential and infrastructure construction in international, particularly in the Middle East and Europe, and North American markets. Effect of business acquisitions. Increased revenues of $30.0 million, $15.6 million and $12.9 million in the Harsco Metals Segment, Harsco Infrastructure Segment and the All Other Category (Harsco Minerals & Rail), respectively. Increased revenues in the railway track maintenance services and equipment business due to a higher level of rail equipment shipments in 2008 and increased repair parts sales, partially offset by decreased contract services. Effect of foreign currency translation. Increased revenues of the air-cooled heat exchangers business due to a continued strong natural gas market. Increased revenues of the industrial grating products business due to increased prices. Net increased volume, new business and sales price changes in the Harsco Metals Segment (excluding acquisitions). Increased revenues in the roofing granules and abrasives business resulting from price increases and product mix. Other (minor changes across the various units not already mentioned). Net decreased revenues in the reclamation and recycling services business due to lower metal prices and reduced volume. Total Change in Revenues 2008 vs. 2007 $÷80.3 ÷÷58.5 ÷÷46.8 ÷÷30.8 ÷÷22.0 ÷÷18.7 ÷÷18.6 ÷÷÷5.9 ÷÷÷4.6 ÷÷«(6.5) $279.7 2007 vs. 2006 Revenues for 2007 increased $662.5 million or 22% from 2006. This increase was attributable to the following significant items: In millions Change in Revenues 00 vs. 00 $211.6 ÷209.6 ÷166.9 ÷÷30.8 ÷÷27.7 ÷÷23.8 ÷÷«(4.9) ÷÷«(3.0) $662.5 Business acquisitions. Increased revenues of $123.7 million, $53.2 million and $34.7 million in the All Other Category (Harsco Minerals & Rail), Harsco Infrastructure Segment and Harsco Metals Segment, respectively. Net increased revenues in the Harsco Infrastructure Segment due principally to the continued strength of the non-residential and infrastructure construction markets in both North America and internationally, particularly in Europe and the Middle East (excluding acquisitions). Effect of foreign currency translation. Net increased volume, new business and sales price changes in the Harsco Metals Segment (excluding acquisitions). Increased revenues of the air-cooled heat exchangers business due to a continued strong natural gas market. Increased revenues of the industrial grating products business due to continued strong demand. Net decreased revenues in the roofing granules and abrasives business resulting from lower demand. Other (minor changes across the various units not already mentioned). Total Change in Revenues 2007 vs. 2006       Harsco Corporation 2008 Annual Report Cost of Services and Products Sold 2008 vs. 2007 Cost of services and products sold for 2008 increased $240.9 million or 9% from 2007, slightly higher than the 8% increase in revenues. This increase was attributable to the following significant items: In millions Change in Cost of Services and Products Sold 00 vs. 00 Increased costs due to increased revenues (exclusive of the effect of foreign currency translation and business acquisitions, and including the impact of increased commodity and energy costs included in selling prices). Business acquisitions. Other (product/service mix and increased equipment maintenance costs, partially offset by enterprise business optimization initiatives and volume-related efficiencies). Effect of foreign currency translation. Total Change in Cost of Services and Products Sold 2008 vs. 2007 $129.5 ÷÷45.7 ÷÷40.8 ÷÷24.9 $240.9 2007 vs. 2006 Cost of services and products sold for 2007 increased $482.3 million or 22% from 2006, consistent with the 22% increase in revenues. This increase was attributable to the following significant items: In millions Change in Cost of Services and Products Sold 00 vs. 00 $174.1 ÷144.4 ÷124.5 ÷÷39.3 $482.3 Increased costs due to increased revenues (exclusive of the effect of foreign currency translation and business acquisitions, and including the impact of increased commodity and energy costs included in selling prices). Business acquisitions. Effect of foreign currency translation. Other (increased equipment maintenance costs and product/service mix, partially offset by enterprise business optimization initiatives and volume-related efficiencies). Total Change in Cost of Services and Products Sold 2007 vs. 2006 Selling, General and Administrative Expenses 2008 vs. 2007 Selling, general and administrative (“SG&A”) expenses for 2008 increased $63.9 million or 12% from 2007. This increase was attributable to the following significant items: In millions Change in Selling, General and Administrative Expenses 00 vs. 00 Increased compensation expense due to salary increases resulting from overall business growth, partially offset by lower employee incentive plan costs. Increased professional fees due to global optimization projects and global business expansion. Business acquisitions. Bad debt expense. Increased travel expenses to support business expansion and optimization projects. Increased commissions, largely related to increased revenues in the railway track equipment business. Higher depreciation expense principally related to the implementation of enterprise-wide information technology systems and related hardware. Effect of foreign currency translation. Other expenses. Total Change in Selling, General and Administrative Expenses 2008 vs. 2007 $23.5 ÷÷9.5 ÷÷6.8 ÷÷4.7 ÷÷3.6 ÷÷3.2 ÷÷3.2 ÷÷2.6 ÷÷6.8 $63.9 2007 vs. 2006 Selling, general and administrative (“SG&A”) expenses for 2007 increased $65.4 million or 14% from 2006. This increase was attributable to the following significant items: In millions Change in Selling, General and Administrative Expenses 00 vs. 00 $22.8 ÷20.3 ÷19.2 ÷÷7.9 ÷«(4.8) $65.4 Effect of foreign currency translation. Increased compensation expense due to salary increases and employee incentive plan costs due to overall business growth and improved performance. Business acquisitions. Increased professional fees due to global optimization projects. Other expenses. Total Change in Selling, General and Administrative Expenses 2007 vs. 2006 Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations Other Expenses for 2008 was 26.7% versus 30.7% for 2007. The decrease in the effec- This income statement classification includes impaired asset write- tive income tax rate for the year 2008 was primarily due to increased downs, employee termination benefit costs and costs to exit activities, earnings in jurisdictions with lower tax rates; increased designation offset by net gains on the disposal of non-core assets. of certain international earnings as permanently reinvested; and the 2008 vs. 2007 Net Other Expenses of $22.0 million for 2008 increased $18.5 million from recognition of previously unrecognized tax benefits in certain state and foreign jurisdictions. the $3.4 million during 2007. This increase in other expenses primarily 2007 vs. 2006 relates to restructuring charges that the Company incurred during the The increase in 2007 of $24.2 million or 26% in the provision for income fourth quarter of 2008. 2007 vs. 2006 Net Other Expenses of $3.4 million in 2007 compared to $2.5 million in 2006, an increase of $0.9 million, due principally to employee termina- tion benefit costs. For additional information, see Note 15, Other (Income) and Expenses, to the Consolidated Financial Statements. Interest Expense 2008 vs. 2007 Interest expense in 2008 was $8.2 million or 10% lower than in 2007. This was principally due to lower overall debt levels in 2008 and, to a lesser extent, lower interest rates on variable interest rate borrowings. The impact of foreign currency translation also decreased interest expense by approximately $0.5 million. 2007 vs. 2006 Interest expense in 2007 was $20.9 million or 35% higher than in 2006. This was principally due to increased borrowings to finance business acquisitions made in 2007 and, to a lesser extent, higher interest rates on variable interest rate borrowings. The impact of foreign currency trans- taxes from continuing operations was due to increased earnings from continuing operations for the reasons mentioned above, partially offset by a lower effective income tax rate. The effective income tax rate relating to continuing operations for 2007 was 30.7% versus 32.5% for 2006. The decrease related principally from the Company increasing its designation of certain international earnings as permanently reinvested. For additional information, see Note 9, Income Taxes, to the Consoli- dated Financial Statements. Income from Continuing Operations 2008 vs. 2007 Income from continuing operations in 2008 of $245.6 million was $9.5 million or 4% lower than 2007. This decrease resulted from the overall economic downturn during the fourth quarter and the restruc- turing charges taken by the Company as a result of the downturn. 2007 vs. 2006 Income from continuing operations in 2007 of $255.1 million was $68.7 million or 37% higher than 2006. This increase resulted from strong demand for most of the Company’s services and products, and business acquisitions. lation also increased interest expense by approximately $2.6 million. Income (Loss) from Discontinued Operations Income Tax Expense from Continuing Operations 2008 vs. 2007 The decrease in 2008 of $25.8 million or 22% in the provision for income taxes from continuing operations was primarily due to a lower effec- tive income tax rate from continuing operations and lower pre-tax income. The effective income tax rate relating to continuing operations 2008 vs. 2007 A loss from discontinued operations of $4.7 million was generated in 2008 due to working capital adjustments and other costs associated with the disposition of the Gas Technologies Segment, coupled with the tax effect from the final purchase price allocation. This compares with income of $44.4 million in 2007 due principally to the sale of the Company’s Gas Technologies Segment in December 2007.       Harsco Corporation 2008 Annual Report 2007 vs. 2006 to lower trade receivables, lower inventory levels and higher cash Income from discontinued operations for 2007 increased by $34.4 million advances from customers. These increases were partially offset by or 344% compared with 2006. The increase was primarily attributable lower income tax accruals, which included the effect of a $20 million to the $26.4 million after-tax gain on the sale of the Gas Technologies income tax payment (as a result of the December 2007 gain on the sale Segment, as well as improved operating results for the business prior of the discontinued Gas Technologies Segment), and reduced accounts to the divestiture. payable levels. Net Income and Earnings Per Share 2008 vs. 2007 Net income of $240.9 million and diluted earnings per share of $2.87 in 2008 were lower than 2007 by $58.5 million or 20% and $0.66 or 19%, respectively, due to decreased income from both continuing and discontinued operations for the reasons described above. 2007 vs. 2006 In 2008, the Company invested $457.6 million in capital expendi- tures (over 54% of which were for revenue-growth projects) returned $128.6 million to stockholders through the repurchase of Company stock; and paid $65.6 million in stockholder dividends. The Company’s net cash borrowings increased $44.5 million in 2008. The incremental borrowings and operating cash flows funded capital expenditures, share repurchases, and stockholder dividends. Balance sheet debt, which is affected by foreign currency transla- Net income of $299.5 million and diluted earnings per share of $3.53 in tion, decreased $67.9 million from December 31, 2007. Debt to total 2007 exceeded 2006 by $103.1 million or 52% and $1.20 or 52%, respec- capital ratio increased to 41.7% as of December 31, 2008, due princi- tively, due to increased income from both continuing and discontinued pally to a $152.4 million decline in Stockholders’ Equity. The decline in operations for the reasons described above. Stockholders’ Equity was primarily due to foreign currency translation liquidity and capital resources decreased value of plan assets; and repurchases of treasury stock, off- adjustments; actuarial losses on pension obligations as a result of a Overview Global financial markets have been under stress due to poor lending and investment practices and sharp declines in real estate values. As a result, broad-based tightening of credit conditions has occurred which has restrained economic growth. In response to these changes in the global economic conditions, the Company has undertaken several initiatives to conserve capital and enhance liquidity including prudently reducing capital spending to only critical projects where the highest returns can be achieved while redeploying existing capital investments; optimizing worldwide cash positions; reducing or eliminating discretion- ary spending; and additional scrutiny and tightening of credit terms with customers. Despite the tightening of credit markets around the world, the Company continues to have available liquidity and has been able to issue commercial paper as needed. The Company currently expects operational and business needs to be covered by cash from operations in 2009. Building on its consistent historical performance of strong operating cash flows, the Company achieved a record $574.3 million in operat- ing cash flow in 2008. This represents a 22% improvement over 2007’s operating cash flow of $471.7 million. This increase was primarily due set by higher retained earnings at the end of 2008. Debt to total capital was 40.8% at December 31, 2007. Despite global economic conditions, the Company’s strategic objectives for 2009 include generating strong operating cash flows. The Company plans to sustain its balanced portfolio through its strategy of redeploying discretionary cash for disciplined growth and international diversification in the Harsco Infrastructure Segment; in long-term, high-return and high-renewal-rate services contracts for the Harsco Metals Segment, principally in emerging economies or for customer diversification; for growth and international diversification in the All Other Category (Harsco Minerals & Rail); and for selective bolt-on acquisitions in the industrial services businesses. The Company also foresees continuing its long and consistent history of paying dividends to stockholders. The Company is also focused on improved working capital man- agement. Specifically, short-term and long-term enterprise business optimization programs are being used to continue to further improve the effective and efficient use of working capital, particularly accounts receivable and inventories in the Harsco Infrastructure and Harsco Metals Segments. Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations Cash Requirements The following summarizes the Company’s expected future payments related to contractual obligations and commercial commitments at December 31, 2008. Contractual Obligations as of December , 00 (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 Postretirement Obligations (c) Operating Leases Purchase Obligations Foreign Currency Forward Exchange Contracts (d) Uncertain Tax Benefits (e) Total Contractual Obligations Less than 1 year $117.9 3.2 57.0 48.9 55.6 120.6 293.9 0.9 $698.0 Payments Due by Period 1-3 years 4-5 years After 5 years $÷÷÷«– 295.1 85.3 99.1 61.2 1.5 – – $542.2 $÷÷÷«– 150.0 65.0 104.9 32.9 0.6 – – $353.4 $÷÷÷«– 446.7 112.1 275.5 37.8 0.3 – – $872.4 Total $÷«117.9 895.0 319.4 528.4 187.5 123.0 293.9 0.9 $2,466.0 (a) See Note 6, Debt and Credit Agreements; Note 7, Leases; Note 8, Employee Benefit Plans; Note 9, Income Taxes; and Note 13, Financial Instruments, to the Consolidated Financial Statements for additional disclosures on short-term and long-term debt; operating leases; pensions and other postretirement benefits; income taxes; and foreign currency forward exchange contracts, respectively. (b) The total projected interest payments on Long-term Debt are based upon borrowings, interest rates and foreign currency exchange rates as of December 31, 2008. The interest rates on variable-rate debt and the foreign currency exchange rates are subject to changes beyond the Company’s control and may result in actual interest expense and payments differing from the amounts projected above. (c) Amounts represent expected benefit payments by the defined benefit plans for the next 10 years. (d) This amount represents the notional value of the foreign currency exchange contracts outstanding at December 31, 2008. 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. (e) On January 1, 2007, the Company adopted the provisions of FIN 48. As of December 31, 2008, in addition to the $0.9 million classified as short-term, the Company had approximately $31.1 million of long-term tax liabilities, including interest and penalties, related to uncertain tax positions. Because of the high degree of uncertainty regarding the timing of future cash outflows associated with these liabilities, the Company is unable to estimate the years in which settlement will occur with the respective taxing authorities. Off-Balance Sheet Arrangements – The following table summarizes the Company’s contingent commercial commitments at December 31, 2008. These amounts are not included in the Company’s Consolidated Balance Sheets since there are no current circumstances known to management indicating that the Company will be required to make payments on these contingent obligations. Commercial Commitments as of December , 00 (In millions) Standby Letters of Credit Guarantees Performance Bonds Other Commercial Commitments Total Commercial Commitments Total Amounts Committed Less than 1 Year 1-3 Years 4-5 Years Over 5 Years Amount of Commitment Expiration Per Period $197.9 30.5 20.5 11.1 $260.0 $61.7 11.3 8.4 – $81.4 $136.2 1.4 – – $137.6 $÷«– 0.8 – – $0.8 $÷«– 5.1 – – $5.1 Indefinite Expiration $÷÷«– 11.9 12.1 11.1 $35.1 Certain guarantees and performance bonds are of a continuous nature and do not have a definite expiration date. 0      Harsco Corporation 2008 Annual Report Sources and Uses of Cash The following table illustrates the amounts outstanding under credit The Company’s principal sources of liquidity are cash from opera- facilities and commercial paper programs and available credit as of tions and borrowings under its various credit agreements, augmented December 31, 2008: 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 Harsco Metals 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 Harsco Metals contracts and order backlogs for the Company’s manufacturing businesses and railway track maintenance services and equipment business). Cash returns on capital investments made in prior years, for which no cash is currently required, are a significant source of operat- ing 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 capital investments, principally in the industrial services business; payroll costs and related benefits; pension funding payments; inven- tory purchases for the manufacturing businesses; income tax pay- ments; debt principal and interest payments; insurance premiums and payments of self-insured casualty losses; and machinery, equipment, automobile and facility rental payments. Cash is also used for share repurchases and selective or bolt-on acquisitions as the appropriate opportunities arise. Resources Available for Cash Requirements – The Company meets its on-going cash requirements for operations and growth initiatives by accessing the public debt markets and by borrowing from banks. Public markets in the United States and Europe are accessed through its commercial paper programs and through discrete term note issuance to investors. Various bank credit facilities are available throughout the world. The Company expects to utilize both the public debt markets and bank facilities to meet its cash requirements in the future. In May 2008, the Company completed an offering in the United Summary of Credit Facilities and Commercial Paper Programs (In millions) U.S. commercial paper program Euro commercial paper program Multi-year revolving credit facility (a) 364-day revolving credit facility (a) Bilateral credit facility (b) Totals at December , 00 As of December 31, 2008 Facility Limit Outstanding Balance $÷«550.0 279.4 450.0 220.0 30.0 $1,529.4 $35.9 9.0 – 50.0 – $94.9 Available Credit $÷«514.1 270.4 450.0 170.0 30.0 $1,434.5 (c) (a) U.S.-based program. (b) (c) Although the Company has significant available credit, for practical purposes, the International-based program. Company limits aggregate commercial paper and credit facility borrowings at any one time to a maximum of $700 million (the aggregate amount of the back-up facilities). The Company’s bilateral credit facility was renewed in December 2008. The facility, in the amount of $30 million, 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 2009, 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, 2008 and 2007, there were no borrowings outstanding on this facility. See Note 6, Debt and Credit Agreements, to the Consolidated Finan- cial Statements for more information on the Company’s credit facilities. Credit Ratings and Outlook – The following table summarizes the Company’s debt ratings as of December 31, 2008: Standard & Poor’s (“S&P”) Moody’s Fitch Long-term Notes U.S.-Based Commercial Paper A- A3 A- A-2 P-2 F2 Outlook Stable Stable(a) Stable (a) In January 2009, Moody’s reaffirmed the Company’s long-term notes and U.S. based commercial paper ratings, but changed its outlook from stable to negative. States of 5.75%, 10-year senior notes totaling $450.0 million. After The Company’s euro-based commercial paper program has pricing and underwriting discounts, the Company received a total not been rated since the euro market does not require it. Fitch and of $446.6 million in cash proceeds from the offering. The proceeds Standard & Poor’s ratings were reaffirmed as shown above in August were used to reduce the Company’s U.S. and euro commercial paper and October 2008, respectively. In January 2009, Moody’s reaffirmed programs by $286.4 million and $160.2 million, respectively. the Company’s long-term notes and U.S. based commercial paper Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations ratings, but changed its outlook from stable to negative. Any contin- • Accounts payable decreased $45.0 million primarily due to reduced ued tightening of the credit markets, which began during 2007 and activity levels in 2008 and foreign currency translation. significantly accelerated in 2008, may adversely impact the Company’s • Accrued compensation decreased $23.7 million due principally to access to capital and the associated costs of borrowing; however reduced 2008 incentive compensation accrual based on 2008 results this is somewhat mitigated by the Company’s strong financial posi- and the payments of incentive compensation earned during 2007, tion. A downgrade to the Company’s credit ratings would probably partially offset by normal incentive compensation accruals within increase borrowing costs to the Company, while an improvement in the the All Other Category. Company’s credit ratings would probably decrease borrowing costs to • Other current liabilities increased $58.6 million due principally the Company. Additionally, a downgrade in the Company’s credit ratings to advances on contracts within the railway track maintenance could result in reduced access to credit markets. services and equipment business; partially offset by payments on 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 Trade accounts receivable, net Other receivables, 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 payable Other current liabilities Total current liabilities Working Capital Current Ratio December  00 December 31 2007 Increase (Decrease) $÷÷«91.3 648.9 46.0 309.5 104.5 5.3 1,205.5 121.1 262.8 85.2 13.4 405.9 888.4 $÷«121.8 779.6 44.5 310.9 88.0 0.5 1,345.3 68.7 307.8 108.9 41.3 347.3 874.0 $÷(30.5) (130.7) 1.5 (1.4) 16.5 4.8 (139.8) 52.4 (45.0) (23.7) (27.9) 58.6 14.4 $÷«317.1 $÷«471.3 $(154.2) 1.4:1 1.5:1 Working capital decreased 33% in 2008 due principally to the following factors: • Cash decreased $30.5 million principally due to foreign currency translation and the Company’s objective to efficiently use cash by reducing global cash balances. • Net trade accounts receivable decreased $130.7 million primarily due to foreign currency translation, the timing of collections and reduced sales in the fourth quarter of 2008, partially offset by growth within the All Other Category due to higher sales levels in these businesses. • Other current assets increased $16.5 million primarily due to higher prepayments made by the Company, mark-to-market commodity hedging and tax prepayments. • Notes payable and current maturities increased $52.4 million due to the anticipated payments of commercial paper borrowings during 2009, reduction of other short-term borrowings and foreign currency translation. existing accruals; decrease in insurance liabilities; foreign currency translation and accrued interest. Certainty of Cash Flows – The certainty of the Company’s future cash flows is underpinned by the long-term nature of the Company’s metals services contracts and the strong discretionary cash flows (operating cash flows in excess of the amounts necessary for capital expendi- tures to maintain current revenue levels) generated by the Company. Traditionally the Company has utilized these discretionary cash flows for growth-related capital expenditures. At December 31, 2008, the Company’s metals services contracts had estimated future revenues of $4.1 billion, compared with $5.0 billion as of December 31, 2007. The decline is primarily attributable to foreign currency translation effects. In addition, as of December 31, 2008, the Company had an order backlog of $639.7 million in its All Other Category (Harsco Minerals & Rail). This compares with $448.1 million as of December 31, 2007. The increase from December 31, 2007 is due principally to increased demand for certain products within the railway track maintenance services and equipment business, as a result of new international orders, as well as increased demand for heat exchangers. The railway track maintenance services and equipment business backlog includes a significant portion that will not be realized until 2009 and later due to the long lead-time necessary to build certain equipment, and the long-term nature of certain service contracts. Order backlog for scaffolding, shoring and forming services; for roofing granules and slag abrasives; and the reclamation and recycling services of high-value content from steelmaking slag is excluded from the above amounts. These amounts are generally not quantifiable due to the short order lead times for certain services, the nature and timing of the products and services provided and equipment rentals with the ultimate length of the rental period unknown. The types of products and services that the Company provides are not subject to rapid technological change, which increases the stability of related cash flows. Additionally, each of the Company’s businesses, in its balanced portfolio, is among the top three companies (relative to sales) in the industries and markets the Company serves. Due to these factors, the Company is confident in its future ability to generate posi- tive cash flows from operations.       Harsco Corporation 2008 Annual Report Cash Flow Summary Cash Used in Financing Activities – The following table summarizes the The Company’s cash flows from operating, investing and financing Company’s debt and capital positions as of December 31, 2008 and 2007. activities, as reflected in the Consolidated Statements of Cash Flows, are summarized in the following table: Summarized Cash Flow Information (In millions) 00 2007 2006 Net cash provided by (used in): Operating activities Investing activities Financing activities Effect of exchange rate changes on cash Net change in cash and cash equivalents $«574.3 (443.4) (155.6) (5.8) $÷(30.5) $«471.7 (386.1) (77.7) 12.7 $÷«20.6 $409.2 (359.4) (84.2) 14.7 $«(19.7) Cash From Operating Activities – Net cash provided by operating (Dollars are in millions) Notes Payable and Current Maturities Long-term Debt Total Debt Total Equity Total Capital Total Debt to Total Capital December , 00 December 31, 2007 $÷«121.1 891.8 1,012.9 1,413.7 $÷÷«68.7 1,012.1 1,080.8 1,566.1 $2,426.6 $2,646.9 41.7% 40.8% The Company’s debt as a percentage of total capital increased in 2008. Total equity decreased due principally to foreign currency translation, treasury stock purchases and pension liability adjustments activities in 2008 was a record $574.3 million, an increase of $102.5 mil- partially offset by current net income. lion from 2007. The increase was primarily due to the following: • Improved trade receivable collections coupled with lower sales Debt Covenants volume during the fourth quarter of 2008. • Reducing inventory growth throughout the Company. • Higher levels of cash advances from customers received within the railway track maintenance services and equipment business. These benefits were partially offset by the following: • Lower income tax accruals (including a $20 million income tax pay- ment due to gain on the 2007 sale of discontinued Gas Technologies Segment). • Lower net income in 2008 as compared with 2007. • Decrease in accounts payable due to reduced activity levels in 2008 and foreign currency translation. Cash Used in Investing Activities – Net cash used in investing activities in 2008 increased compared with 2007 due principally to the proceeds from the sale of the Company’s Gas Technologies Segment in December 2007, partially offset by the purchase of Excell Minerals in 2007. In 2008, cash used in investing activities was $443.4 million consisting primar- ily of capital investments of $457.6 million. Capital investments were $14.0 million higher compared to 2007 and over 54% of the investments were for projects intended to grow future revenues. Investments were made predominantly in the industrial services businesses, with 50% in the Harsco Infrastructure Segment and 45% in the Harsco Metals Seg- ment. Throughout 2009, the Company plans to continue to manage its balanced portfolio and consider opportunities to invest in value creation projects including prudent, strategic, bolt-on acquisitions, principally in the Harsco Infrastructure business. Additionally, the Company will shift more growth investments into the All Other Category (Harsco Minerals & Rail) in 2009 and beyond, as this group continues to expand globally and operate at near maximum capacity. 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%. At December 31, 2008, the Com- pany was in compliance with these covenants with a debt to capital ratio of 41.7% and total net worth of $1.4 billion. Based on balances at December 31, 2008, the Company could increase borrowings by approx- imately $1,108.2 million and still be within its debt covenants. Alterna- tively, keeping all other factors constant, the Company’s equity could decrease by approximately $739.1 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, and its 5.75% notes, due May 2018, also include covenants that permit the note holders to redeem their notes, at par and 101% of par, respectively, in the event of a change of control of the Company or disposition of a significant portion of the Company’s assets in combination with the Company’s credit rating downgraded to non-investment grade. 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, prudent investing for strategic purposes for the foreseeable future, although 2009 capital investments are expected to significantly decline from 2008 as existing investments are used more efficiently. The goal of this strategy is to improve the Company’s EVA under the program adopted in 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. Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations The Company currently expects to continue paying dividends to disclosure relating to these estimates in this Management’s Discussion stockholders. The Company has increased the dividend rate for fifteen and Analysis of Financial Condition and Results of Operations. These consecutive years, and in February 2009, the Company paid its 235th items should be read in conjunction with Note 1, Summary of Signifi- consecutive quarterly cash dividend. cant Accounting Policies, to the Consolidated Financial Statements. The Company repurchased 4.5 million shares of the Company’s common stock under its stock repurchase authorization. Repurchases were made in open market transactions at times and amounts as management deemed appropriate, depending on market conditions. The Company has authorization to repurchase up to 1.5 million of its shares through January 31, 2010. Future repurchase may commence or be discontinued at any time. The Company will be extremely prudent in any decision to resume repurchases. 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 prudently and strategically in high-return projects, generally in emerging markets; and strategic acquisitions; to reduce debt; and pay 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 state- ments, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. On an on-going basis, the Company evaluates its estimates, including those related to pensions and other postretirement benefits, bad debts, goodwill valuation, long-lived asset valuations, inventory valuations, insurance reserves, contingencies and income taxes. The impact of changes in these estimates, as necessary, is reflected in the respective segment’s operating income in the period of the change. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circum- stances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different outcomes, assumptions or conditions. The Company believes the following critical accounting policies are affected by its more significant judgments and estimates used in the preparation of its consolidated financial statements. Management has discussed the development and selection of the critical account- ing estimates described below with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the Company’s 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 $30.5 million and $42.0 million (including $10.1 million of voluntary payments) during 2008 and 2007, respectively. Additionally, the Company expects to make a minimum of $37.9 million in cash contributions to its defined benefit pension plans during 2009. As of December 31, 2006, the Company accounted for its defined benefit pension plans in accordance with SFAS 158, which requires the Company to recognize in its balance sheet, the overfunded or under- funded status of its defined benefit postretirement plans measured as the difference between the fair value of the plan assets and the benefit obligation (projected benefit obligation for a pension plan) as an asset or liability. The charge or credit is recorded as adjustment to Accumu- lated other comprehensive income (loss), net of tax. This reduced the Company’s equity on an after-tax basis by approximately $88.2 million compared with measurement under prior standards. The results of operations were not affected. The adoption of SFAS 158 did not have a negative impact on compliance with the Company’s debt covenants. During 2008, the Company eliminated early measurement dates for its defined benefit pension plans. In accordance with SFAS 158, all defined benefit pension plans are now measured at the end-of-year balance sheet date. The incremental effect of this transition resulted in an increase of $0.9 million to beginning Stockholders’ Equity as of January 1, 2008. As of December 31, 2008, the Company recorded an after-tax charge of $74.3 million to Accumulated other comprehensive loss. This is pri- marily due to actuarial losses as a result of actual pension asset returns being lower than assumed pension asset returns. Actual pension asset returns were impacted by the 2008 financial crisis and the deterioration of global economic conditions. As a result, total defined benefit pension expense for 2009 will be substantially higher than the 2008 level due to the decline in pension asset values during the second half of 2008. In an effort to mitigate a portion of this overall increased cost for 2009, the Company imple- mented additional plan design changes for a certain international       Harsco Corporation 2008 Annual Report defined benefit pension plans so that accrued service is no longer Changes in defined benefit pension expense may occur in the future granted for periods after December 31, 2008. This action was a con- due to changes in actuarial assumptions and due to changes in returns tinuation of the Company’s overall strategy to reduce overall pension on plan assets resulting from financial market conditions. Holding all expense and volatility. other assumptions constant, using December 31, 2008 plan data, a one- The Company’s pension task force continues to evaluate alterna- half percent increase or decrease in the discount rate and the expected tive strategies to further reduce overall pension expense including long-term rate-of-return on plan assets would increase or decrease the consideration of converting the remaining defined benefit plans to annual 2009 pre-tax defined benefit pension expense as follows: defined contribution plans; 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. Discount rate One-half percent increase One-half percent decrease Critical Estimate – Defined Benefit Pension Benefits Accounting for defined benefit pensions and other postretirement benefits requires the use of actuarial assumptions. The principal Expected long-term rate-of-return on plan assets One-half percent increase assumptions used include the discount rate and the expected long-term One-half percent decrease rate-of-return on plan assets. Each assumption is reviewed annually and Approximate Changes in Pre-tax Defined Benefit Pension Expense U.S. Plans U.K. Plan Decrease of $1.5 million Increase of $1.8 million Decrease of $2.6 million Increase of $1.9 million Decrease of $0.9 million Increase of $0.9 million Decrease of $2.4 million Increase of $2.4 million represents management’s best estimate at that time. The assumptions Should circumstances change that affect these estimates, changes are selected to represent the average expected experience over time (either increases or decreases) to the net pension obligations may be and may differ in any one year from actual experience due to changes in required and would be recorded in accordance with the provisions of capital markets and the overall economy. These differences will impact SFAS 87 and SFAS 158. Additionally, certain events could result in the the amount of unfunded benefit obligation and the expense recognized. pension obligation changing at a time other than the annual measure- The discount rates as of the December 31, 2008 measurement date ment date. This would occur when the benefit plan is amended or when for the U.K. and U.S. defined benefit pension plans were 6.0% and plan curtailments occur under the provisions of SFAS No. 88, “Employ- 6.1%, respectively. These rates were used in calculating the Company’s ers’ Accounting for Settlements and Curtailments of Defined Benefit projected benefit obligations as of December 31, 2008. The discount Pension Plans and for Termination Benefits” (“SFAS 88”). rates selected represent the average yield on high-quality corporate See Note 8, Employee Benefit Plans, to the Consolidated Financial bonds as of the measurement dates. The global weighted-average of Statements for additional disclosures related to these items. these assumed discount rates for the years ending December 31, 2008, 2007 and 2006 were 6.1%, 5.9% and 5.3%, respectively. Annual pension expense is determined using the discount rates as of the measurement date, which for 2008 was the 5.9% 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 2008, the global weighted-average expected long-term rate-of-return on asset assumption was 7.6%. For 2009, the expected global long-term rate-of-return on assets is 7.4%. This rate was determined based on a model of expected asset returns for an actively managed portfolio. 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 unwill- ingness of customers to make required payments. The Company has policies and procedures in place requiring customers to be evaluated for creditworthiness prior to the execution of new service contracts or shipments of products. These reviews are structured to minimize the Company’s risk related to realizability of its receivables. Despite these policies and procedures, the Company may at times still experience collection problems and potential bad debts due to economic condi- tions within certain industries (e.g., construction and steel industries) and countries and regions in which the Company operates. As of December 31, 2008 and 2007, trade accounts receivable of $648.9 million and $779.6 million, respectively, were net of reserves of $27.9 million and $25.6 million, respectively. Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations Critical Estimate – Notes and Accounts Receivable Critical Estimate – Goodwill A considerable amount of judgment is required to assess the realiz- A discounted cash flow model is used to estimate the fair value of ability of receivables, including the current creditworthiness of each a reporting unit. This model requires the use of long-term planning customer, related aging of the past due balances and the facts and estimates and assumptions regarding industry-specific economic circumstances surrounding any non-payment. The Company’s provisions conditions that are outside the control of the Company. The annual test for bad debts during 2008, 2007 and 2006 were $12.5 million, $7.8 million for impairment includes the selection of an appropriate discount rate and $9.2 million, respectively. The increase from 2007 to 2008 is due to to value cash flow information. The basis of this discount rate calcula- higher bad debt expense in the Harsco Infrastructure Segment due tion is derived from several internal and external factors. These factors principally to deteriorating economic conditions in certain markets. The include, but are not limited to, the average market price of the Compa- decrease from 2006 to 2007 is due to lower bad debt expense in the ny’s stock, the number of shares of stock outstanding, the book value of Harsco Infrastructure and Harsco Metals Segments. the Company’s debt, a long-term risk-free interest rate, and both market On a monthly basis, customer accounts are analyzed for collect- and size-specific risk premiums. Additionally, assessments of future ibility. Reserves are established based upon a specific-identification cash flows would consider, but not be limited to the following: infra- method as well as historical collection experience, as appropriate. The structure plant maintenance requirements; global metals production Company also evaluates specific accounts when it becomes aware of and capacity utilization; global railway track maintenance-of-way capi- a situation in which a customer may not be able to meet its financial tal spending; and other drivers of the Company’s businesses. Changes obligations due to a deterioration in its financial condition, credit ratings in the overall interest rate environment may also impact the fair market or bankruptcy. The reserve requirements are based on the facts avail- value of the Company’s reporting units as this would directly influence able to the Company and are re-evaluated and adjusted as additional the discount rate utilized for discounting operating cash flows, and ulti- information is received. Reserves are also determined by using per- mately determining a reporting unit’s fair value. The Company’s overall centages (based upon experience) applied to certain aged receivable market capitalization is also a factor in evaluating the fair market values categories. Specific issues are discussed with Corporate Management of the Company’s reporting units. While the Company’s stock price and any significant changes in reserve amounts or the write-off of bal- has declined approximately 57% during 2008, the Company’s market ances must be approved by a specifically designated Corporate Officer. capitalization continues to exceed its book value as of December 31, All approved items are monitored to ensure they are recorded in the 2008. As a result of this and other factors, the Company concluded that proper period. Additionally, any significant changes in reserve balances an interim impairment test was not required subsequent to its annual are reviewed to ensure the proper Corporate approval has occurred. test performed as of October 1, 2008. Further significant declines in the If the financial condition of the Company’s customers were to overall market capitalization of the Company could lead to the determi- deteriorate, resulting in an impairment of their ability to make payments, nation that the book value of one or more of the Company’s reporting additional allowances may be required. Conversely, an improvement units exceeds their fair value. The Company’s annual goodwill impair- in a customer’s ability to make payments could result in a decrease of ment testing, performed as of October 1, 2008 and 2007, indicated that the allowance for doubtful accounts. Changes in the allowance related the fair value of all reporting units tested exceeded their respective to both of these situations would be recorded through income in the book values and therefore no additional goodwill impairment testing period the change was determined. was required. The Company has not materially changed its methodology for calcu- The Company’s customers may be impacted adversely by the lating allowances for doubtful accounts for the years presented. current tightening of credit in financial markets, which may result in See Note 3, Accounts Receivable and Inventories, to the Consolidated postponed spending and cancellation or delay of existing and future Financial Statements for additional disclosures related to these items. orders with the Company. Continued economic decline could further Goodwill The Company’s net goodwill balances were $631.5 million and $720.1 mil- lion, as of December 31, 2008 and 2007, respectively. The decline in goodwill is due to foreign currency translation effects. Goodwill is not amortized but tested for impairment at the reporting unit level on an annual basis, and between annual tests whenever events or circum- stances indicate that the carrying value of a reporting unit’s goodwill may exceed its fair value. impact the ability of the Company’s customers to meet their obligations to the Company and possibly result in bankruptcy filings by them. This, in turn, could negatively impact the forecasts used in performing the Company’s goodwill impairment testing. If management determines that goodwill is impaired, the Company will be required to record a write- down in the period of determination, which will reduce net income for that period. Therefore, there can be no assurance that future goodwill impairment tests will not result in a charge to earnings.       Harsco Corporation 2008 Annual Report The Company has not materially changed its methodology for good- levels. If actual market conditions are determined to be less favorable will impairment testing for the years presented. than those projected by management, additional inventory write- See Note 5, Goodwill and Other Intangible Assets, to the Consoli- downs may be required and would be recorded through income in the dated Financial Statements for additional information on goodwill and period the determination is made. Additionally, the Company records other intangible assets. Asset Impairment Long-lived assets are reviewed for impairment when events and circum- stances indicate that the book value of an asset may be impaired. The amounts charged against pre-tax continuing operations income related to impaired long-lived assets were $12.6 million, $0.9 million and $0.2 mil- lion in 2008, 2007 and 2006, respectively. reserves to adjust a substantial portion of its U.S. inventory balances to the last-in, first-out (“LIFO”) method of inventory valuation. In adjust- ing these reserves throughout the year, the Company estimates its year-end inventory costs and quantities. At December 31 of each year, the reserves are adjusted to reflect actual year-end inventory costs and quantities. During periods of inflation, the LIFO expense usually increases and during periods of deflation it decreases. These year- end adjustments resulted in pre-tax income (expense) of $1.1 million, Critical Estimate – Asset Impairment $1.4 million and $(2.3) million in 2008, 2007 and 2006, respectively. The determination of a long-lived asset impairment loss involves The Company has not materially changed its methodology for calcu- significant judgments based upon short-term and long-term projections lating inventory reserves for the years presented. of future asset performance. If the undiscounted cash flows associated See Note 3, Accounts Receivable and Inventories, to the Consolidated with an asset do not exceed the book value, impairment loss estimates Financial Statements for additional disclosures related to these items. would be based upon the difference between the book value and the fair value of the asset. The fair value is generally based upon the Company’s estimate of the amount that the assets could be bought or sold for in a current transaction between willing parties. If quoted market prices for the asset or similar assets are unavailable, the fair value estimate is generally calculated using a discounted cash flow model. Should circumstances change that affect these estimates, additional impairment charges may be required and would be recorded through income in the period the change was determined. The Company has not materially changed its methodology for calcu- Insurance Reserves The Company retains a significant portion of the risk for property, work- ers’ compensation, U.K. employers’ liability, automobile, general and product liability losses. At December 31, 2008 and 2007, the Company has recorded liabilities of $97.2 million and $112.0 million, respectively, related to both asserted as well as unasserted insurance claims. At December 31, 2008 and 2007, $17.8 million and $25.9 million, respectively, is included in insurance liabilities related to claims covered by insurance carriers for which a corresponding receivable has been recorded. lating asset impairments for the years presented. SFAS 157 will affect Critical Estimate – Insurance Reserves the methodology of assessments after its January 1, 2009 effective date, Reserves have been recorded based upon actuarial calculations by requiring consideration of all valuation techniques for which market which reflect the undiscounted estimated liabilities for ultimate losses participant inputs can be obtained without undue cost and effort. The including claims incurred but not reported. Inherent in these estimates use of discounted cash flows may be appropriate; however, methodolo- are assumptions which are based on the Company’s history of claims gies other than quoted market prices must also be considered. and losses, a detailed analysis of existing claims with respect to 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, 2008 and 2007, inventories of $309.5 million and $310.9 million, respectively, are net of lower of cost or market reserves and obsolescence reserves of $15.7 million and $13.9 million, respectively. Critical Estimate – Inventories 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 2008, 2007 and 2006, the Company recorded a retrospective insurance reserve adjustment that decreased pre-tax insurance expense from continuing operations for self-insured programs by $1.8 million, $1.2 million and $1.3 million, respectively. The Company has programs in place to improve claims experience, such as aggressive In assessing the ultimate realization of inventory balance amounts, the claim and insured litigation management and a focused approach to Company is required to make judgments as to future demand require- workplace safety. ments and compare these with the current or committed inventory Harsco Corporation 2008 Annual Report       management’s Discussion and analysis of Financial condition and results of operations The Company has not materially changed its methodology for calcu- See Note 10, Commitments and Contingencies, to the Consolidated lating insurance reserves for the years presented. There are currently Financial Statements for additional disclosure on this uncertainty and no known trends, demands, commitments, events or uncertainties that other contingencies. are reasonably likely to occur that would materially affect the method- ology or assumptions described above. Legal 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 Reserves for contingent liabilities are recorded when it is probable that of each quarterly period, the Company makes its best estimate of the an asset has been impaired or a liability has been incurred and the loss annual effective income tax rate and applies that rate to year-to-date can be reasonably estimated. Adjustments to estimated amounts are income before income taxes and minority interest to arrive at the year- recorded as necessary based on new information or the occurrence of to-date income tax provision. As of December 31, 2008, 2007 and 2006, new events or the resolution of an uncertainty. Such adjustments are the Company’s net effective income tax rate on income from continuing recorded in the period that the required change is identified. operations was 26.7%, 30.7% and 32.5%, respectively. Critical Estimate – Legal and Other Contingencies Critical Estimate – Income Taxes On a quarterly basis, recorded contingent liabilities are analyzed to The annual effective income tax rates are developed giving recogni- determine if any adjustments are required. Additionally, functional tion to tax rates, tax holidays, tax credits and capital losses, as well department heads within each business unit are consulted monthly to as certain exempt income and non-deductible expenses in all of the ensure all issues with a potential financial accounting impact, includ- jurisdictions where the Company does business. The income tax provi- ing possible reserves for contingent liabilities have been properly sion for the quarterly period is the change in the year-to-date provision identified, addressed or disposed of. Specific issues are discussed from the previous quarterly period. The Company has not materially with Corporate Management and any significant changes in reserve changed its methodology for calculating income tax expense for the amounts or the adjustment or write-off of previously recorded balances years presented. must be approved by a specifically designated Corporate Officer. If The Company records deferred tax assets to the extent the necessary, outside legal counsel, other third parties or internal experts Company believes these assets will more-likely-than-not be realized. are consulted to assess the likelihood and range of outcomes for a In making such determinations, the Company considers all available particular issue. All approved changes in reserve amounts are moni- positive and negative evidence, including future reversals of existing tored to ensure they are recorded in the proper period. Additionally, temporary differences, projected future taxable income, tax planning any significant changes in reported business unit reserve balances are strategies and recent financial operating results. In the event the reviewed to ensure the proper Corporate approval has occurred. On a Company were to determine that it would be able to realize deferred quarterly basis, the Company’s business units submit a reserve listing to income tax assets in the future in excess of their net recorded amount, the Corporate headquarters which is reviewed in detail. All significant an adjustment to the valuation allowance would be made which reserve balances are discussed with a designated Corporate Officer to would reduce the provision for income taxes. The valuation allowance assess their validity, accuracy and completeness. Anticipated changes was $21.5 million and $15.3 million as of December 31, 2008 and 2007, in reserves are identified for follow-up prior to the end of a reporting respectively. The valuation allowance is principally for state and inter- period. Any new issues that may require a reserve are also identified national tax net operating loss carryforwards. and discussed to ensure proper disposition. Additionally, on a quarterly FASB Interpretation (“FIN”) 48, “Accounting for Uncertainty in basis, all significant environmental reserve balances or issues are Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”) evaluated to assess their validity, accuracy and completeness. provides that a tax benefit from an uncertain position may be recog- The Company has not materially changed its methodology for cal- nized when it is more-likely-than-not that the position will be sustained culating legal and other contingencies for the years presented. There upon examination, including resolutions of any related appeals or are currently no known trends, demands, commitments, events or litigation processes, based on technical merits. Income tax positions uncertainties that are reasonably likely to occur that would materially must meet a more-likely-than-not recognition threshold at the effective affect the methodology or assumptions described above. date to be recognized upon the adoption of FIN 48 and in subsequent       Harsco Corporation 2008 Annual Report periods. This interpretation also provides guidance on measurement, decreased order backlog for railway track maintenance services and derecognition, classification, interest and penalties, accounting for industrial grating products. interim periods, disclosure and transition. The Company adopted FIN 48 Long-term metals industry services contracts have an estimated effective January 1, 2007. The unrecognized tax benefits that would future value of $4.1 billion at December 31, 2008 compared with $5.0 bil- impact the effective income tax rate at December 31, 2008 are approxi- lion at December 31, 2007. The decline is primarily attributable to foreign mately $31 million including interest and penalties. currency translation effects. Approximately 65% of these revenues are See Note 9, Income Taxes, to the Consolidated Financial Statements expected to be recognized by December 31, 2011. The majority of the for additional disclosures related to these items. remaining revenues are expected to be recognized between January 1, research and Development Order backlog for infrastructure-related services, such as highly The Company invested $5.3 million, $3.2 million and $2.8 million in internal engineered scaffolding, shoring and forming services of the Harsco research and development programs in 2008, 2007 and 2006, respec- Infrastructure Segment, is excluded from the above, as these amounts tively. Internal funding for research and development was as follows: are generally not quantifiable due to short order lead times for certain 2012 and December 31, 2017. (In millions) Harsco Infrastructure Segment Harsco Metals Segment Segment Totals All Other Category – Harsco Minerals & Rail Consolidated Totals Research and Development Expense 00 $2.0 1.6 3.6 1.7 $5.3 2007 $0.7 1.3 2.0 1.2 $3.2 2006 $0.7 1.1 1.8 1.0 $2.8 new Financial accounting Standards Issued services, the nature and timing of the products and services provided, and equipment rentals with the ultimate length of the rental period often unknown. Order backlog for roofing granules and industrial abrasives products, and for minerals and recycling technologies services, is also not included in the total backlog amount above because it is gener- ally not quantifiable due to short order lead times of the products and services provided. The minerals and recycling technology business does enter into contracts for some of its services. These contracts have estimated future revenues of $91.6 million as of December 31, 2008 of which 85% is expected to be filled by December 31, 2011. See Note 1, Summary of Significant Accounting Policies, to the Consoli- dated Financial Statements for disclosures on new financial accounting Dividend action standards issued and their effect on the Company. Backlog The Company has paid dividends each year since 1939. Four quarterly cash dividends of $0.195 were paid in 2008, for an annual rate of $0.78, or an increase of 9.9% from 2007. In 2008, 27.2% of net earnings were As of December 31, 2008, the Company’s order backlog, exclusive of paid out in dividends. There are no significant restrictions on the pay- long-term metals industry services contracts, infrastructure-related ment of dividends. services, roofing granules and industrial abrasives products, and The Company is philosophically committed to maintaining or increas- minerals and metal recovery technologies services, was $639.7 million ing the dividend at a sustainable level. The Board normally reviews the compared with $448.1 million as of December 31, 2007, a 43% increase. dividend rate periodically during the year and annually at its November Of the order backlog at December 31, 2008, approximately $298.4 million meeting. At its November 2008 meeting, the Board of Directors declared or 47% is not expected to be filled in 2009. This backlog is expected to the Company’s 235th consecutive quarterly dividend, payable in February be filled in 2010. 2009, at $0.195 per share. The increase in order backlog is principally due to increased In December 2008, the Board increased the dividend rate to $0.20 per order backlog for railway track maintenance equipment as a result of share to become effective with the next scheduled quarterly dividend orders from the Chinese Ministry of Railways, along with increased declaration in early 2009. The December 2008 action increased the order backlog of air-cooled heat exchangers due to stable demand in dividend rate by 2.6% to $0.80 per share on an annualized basis, and the natural gas compression market. These were partially offset by represented the Company’s 15th consecutive year of dividend increases. Harsco Corporation 2008 Annual Report       management’s report on Internal control over Financial reporting Management of Harsco Corporation, together with its consolidated Management has assessed the effectiveness of its internal control subsidiaries (the Company), is responsible for establishing and over financial reporting as of December 31, 2008 based on the frame- maintaining adequate internal control over financial reporting. The work established in Internal Control – Integrated Framework issued by Company’s internal control over financial reporting is a process the Committee of Sponsoring Organizations of the Treadway Commis- designed under the supervision of the Company’s principal execu- sion (COSO). Based on this assessment, management has determined tive and principal financial officers to provide reasonable assurance that the Company’s internal control over financial reporting is effective regarding the reliability of financial reporting and the preparation of as of December 31, 2008. the Company’s financial statements for external reporting purposes in The effectiveness of the Company’s internal control over financial accordance with U.S. generally accepted accounting principles. reporting as of December 31, 2008 has been audited by Pricewater- The Company’s internal control over financial reporting includes houseCoopers LLP, an independent registered public accounting firm, policies and procedures that: as stated in their report appearing in the Company’s Annual Report on • Pertain to the maintenance of records that, in reasonable detail, Form 10-K, which expresses an unqualified opinion on the effective- accurately and fairly reflect transactions and dispositions of assets ness of the Company’s internal control over financial reporting as of of the Company; December 31, 2008. • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accor- dance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to Salvatore D. Fazzolari Chairman and Chief Executive Officer February 24, 2009 the risk that controls may become inadequate because of changes Stephen J. Schnoor in conditions, or that the degree of compliance with the policies and Senior Vice President and Chief Financial Officer procedures may deteriorate. February 24, 2009 0      Harsco Corporation 2008 Annual Report report of Independent registered Public accounting Firm To the Stockholders of Harsco Corporation: internal control based on the assessed risk. Our audits also included In our opinion, the accompanying consolidated balance sheets and performing such other procedures as we considered necessary in the the related consolidated statements of income, cash flows, stockhold- circumstances. We believe that our audits provide a reasonable basis ers’ equity and comprehensive income present fairly, in all material for our opinions. respects, the financial position of Harsco Corporation and its subsid- A company’s internal control over financial reporting is a process iaries at December 31, 2008 and 2007, and the results of their opera- designed to provide reasonable assurance regarding the reliability of tions and their cash flows for each of the three years in the period financial reporting and the preparation of financial statements for exter- ended December 31, 2008 in conformity with accounting principles nal purposes in accordance with generally accepted accounting prin- generally accepted in the United States of America. Also in our opin- ciples. A company’s internal control over financial reporting includes ion, the Company maintained, in all material respects, effective internal those policies and procedures that (i) pertain to the maintenance of control over financial reporting as of December 31, 2008, based on records that, in reasonable detail, accurately and fairly reflect the criteria established in Internal Control – Integrated Framework issued transactions and dispositions of the assets of the company; (ii) provide by the Committee of Sponsoring Organizations of the Treadway reasonable assurance that transactions are recorded as necessary to Commission (COSO). The Company’s management is responsible for permit preparation of financial statements in accordance with generally these financial statements, for maintaining effective internal control accepted accounting principles, and that receipts and expenditures of over financial reporting and for its assessment of the effectiveness of the company are being made only in accordance with authorizations of internal control over financial reporting, included in the accompany- management and directors of the company; and (iii) provide reasonable ing Management’s Report on Internal Control Over Financial Reporting. assurance regarding prevention or timely detection of unauthorized Our responsibility is to express opinions on these financial statements acquisition, use, or disposition of the company’s assets that could have and on the Company’s internal control over financial reporting based on a material effect on the financial statements. our integrated audits. We conducted our audits in accordance with the Because of its inherent limitations, internal control over financial standards of the Public Company Accounting Oversight Board (United reporting may not prevent or detect misstatements. Also, projections of States). Those standards require that we plan and perform the audits any evaluation of effectiveness to future periods are subject to the risk to obtain reasonable assurance about whether the financial state- that controls may become inadequate because of changes in condi- ments are free of material misstatement and whether effective internal tions, or that the degree of compliance with the policies or procedures control over financial reporting was maintained in all material respects. may deteriorate. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over PricewaterhouseCoopers LLP financial reporting, assessing the risk that a material weakness exists, Philadelphia, Pennsylvania and testing and evaluating the design and operating effectiveness of February 24, 2009 Harsco Corporation 2008 Annual Report       consolidated Balance Sheets (In thousands, except share and per share amounts) December , 00 December 31, 2007 $÷÷«91,336 648,880 46,032 309,530 104,430 5,280 1,205,488 1,482,833 631,490 141,493 101,666 $÷«121,833 779,619 44,475 310,931 88,016 463 1,345,337 1,535,214 720,069 188,864 115,946 $3,562,970 $3,905,430 $÷«117,854 3,212 262,783 85,237 13,395 15,637 36,553 144,237 209,518 888,426 891,817 35,442 60,663 190,153 82,793 2,149,294 – 138,925 137,083 (208,299) 2,079,170 (733,203) 1,413,676 $÷÷«60,323 8,384 307,814 108,871 41,300 16,444 44,823 52,763 233,248 873,970 1,012,087 174,423 67,182 120,536 91,113 2,339,311 – 138,665 128,622 (2,501) 1,904,502 (603,169) 1,566,119 $3,562,970 $3,905,430 ASSETS Current assets: Cash and cash equivalents Trade accounts receivable, net Other receivables, 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 Advances on contracts Other current liabilities 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 111,139,988 and 110,932,619 shares as of December 31, 2008 and 2007, respectively Additional paid-in capital Accumulated other comprehensive loss Retained earnings Treasury stock, at cost (30,965,452 and 26,472,753, respectively) Total stockholders’ equity Total liabilities and stockholders’ equity See accompanying notes to consolidated financial statements.       Harsco Corporation 2008 Annual Report consolidated Statements of Income (In thousands, except per share amounts) Years ended December 31 Revenues from continuing operations: Service revenues Product revenues Total revenues Costs and expenses from continuing operations: Costs 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: Income from operations of discontinued business Gain (loss) on disposal of discontinued business Income tax expense related to discontinued business 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 Income statement information reclassified to reflect the Gas Technologies Segment as Discontinued Operations. (a) (b) Does not total due to rounding. 00 2007 2006 (a) $3,340,456 627,366 3,967,822 2,484,975 441,445 602,169 5,295 21,950 3,555,834 411,988 901 3,608 (73,160) 343,337 (91,820) 251,517 (5,894) 245,623 – (1,747) (2,931) (4,678) $÷«240,945 83,599 $÷÷÷÷«2.94 (0.06) $÷÷÷÷«2.88 84,029 $÷÷÷÷«2.92 (0.06) $÷÷÷÷«2.87 (b) $3,166,561 521,599 3,688,160 2,316,904 368,600 538,233 3,175 3,443 3,230,355 457,805 1,049 4,968 (81,383) 382,439 (117,598) 264,841 (9,726) 255,115 26,897 41,414 (23,934) 44,377 $÷«299,492 84,169 $÷÷÷÷«3.03 0.53 $÷÷÷÷«3.56 84,724 $÷÷÷÷«3.01 0.52 $÷÷÷÷«3.53 $2,538,068 487,545 3,025,613 1,851,230 351,962 472,790 2,846 2,476 2,681,304 344,309 192 3,582 (60,479) 287,604 (93,354) 194,250 (7,848) 186,402 14,070 28 (4,102) 9,996 $÷«196,398 83,905 $÷÷÷÷«2.22 0.12 $÷÷÷÷«2.34 84,430 $÷÷÷÷«2.21 0.12 $÷÷÷÷«2.33 See accompanying notes to consolidated financial statements. Harsco Corporation 2008 Annual Report       00 2007 2006 $«240,945 $«299,492 $«196,398 307,847 30,102 (901) 484 1,747 67,138 34,198 (24,238) (22,144) 3,841 (15,843) (76,346) 92,580 (65,134) 574,276 (457,617) (15,539) 24,516 5,222 (443,418) 65,239 975,393 (996,173) (65,632) 1,831 (128,577) (7,620) (155,539) (5,816) (30,497) 121,833 277,397 29,016 (1,049) 181 (41,414) (662) (60,721) (106,495) 18,268 (1,291) 8,516 2,971 46,159 1,372 471,740 (443,583) (254,639) 317,189 (5,092) (386,125) (137,645) 1,023,282 (908,295) (59,725) 11,765 – (7,069) (77,687) 12,645 20,573 101,260 245,397 7,585 (188) – (28) 8,036 (27,261) (20,347) 13,017 497 11,846 15,722 (1,160) (40,275) 409,239 (340,173) (34,333) 17,650 (2,599) (359,455) 73,050 315,010 (423,769) (54,516) 11,574 – (5,545) (84,196) 14,743 (19,669) 120,929 $÷«91,336 $«121,833 $«101,260 $÷÷÷«(263) (11,961) (3,315) $÷(15,539) $÷(17,574) (45,398) (191,667) $(254,639) $÷÷(2,547) (15,106) (16,680) $÷(34,333) 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 affiliates (Gain) loss on disposal of discontinued business Other, net Changes in assets and liabilities, net of acquisitions and dispositions of businesses: Accounts receivable Inventories Accounts payable Accrued interest payable Accrued compensation Income taxes Advances on contracts Other assets and liabilities Net cash provided by operating activities Cash flows from investing activities: Purchases of property, plant and equipment Purchase of businesses, net of cash acquired* Proceeds from sales of assets Other investing activities Net cash used by investing activities Cash flows from financing activities: Short-term borrowings, net Current maturities and long-term debt: Additions Reductions Cash dividends paid on common stock Common stock issued-options Common stock acquired for treasury Other financing activities Net cash used by financing activities Effect of exchange rate changes on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period *Purchase of businesses, net of cash acquired Working capital, other than cash Property, plant and equipment Other noncurrent assets and liabilities, net Net cash used to acquire businesses See accompanying notes to consolidated financial statements.       Harsco Corporation 2008 Annual Report consolidated Statements of Stockholders’ equity (In thousands, except share and per share amounts) Common Stock Issued Treasury Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Unearned Stock-Based Compensation Total Balances, January , 00 $÷85,322 $(603,225) $154,017 $1,526,216 $(167,318) $(1,118) $÷«993,894 Net income Adoption of SFAS 123(R) Cash dividends declared, $1.33 per share Translation adjustments, net of deferred income taxes of $(5,643) Cash flow hedging instrument adjustments, net of deferred income taxes of $(72) Pension liability adjustments, net of deferred income taxes of $1,307 Adoption of SFAS 158, net of deferred income taxes of $40,313 Marketable securities unrealized gains, net of deferred income taxes of $1 (1,118) 196,398 (55,853) 1,118 91,578 134 (5,523) (88,207) 2 Stock options exercised, 234,419 shares Other, 1,085 shares, and 50,700 restricted stock units (net of forfeitures) Amortization of unearned compensation on restricted stock units 292 19 35 11,659 (3) 1,939 196,398 – (55,853) 91,578 134 (5,523) (88,207) 2 11,970 32 1,939 Balances, December , 00 Cumulative effect from adoption of FIN 48 Beginning Balances, January , 00 $÷85,614 $(603,171) $166,494 $1,666,761 $(169,334) $÷÷÷÷– $1,146,364 (499) (499) $÷85,614 $(603,171) $166,494 $1,666,262 $(169,334) $÷÷÷÷– $1,145,865 Net income 2-for-1 stock split, 42,029,232 shares Cash dividends declared, $0.71 per share Translation adjustments, net of deferred income taxes of $(4,380) Cash flow hedging instrument adjustments, net of deferred income taxes of $(64) Pension liability adjustments, net of deferred income taxes of $(24,520) Marketable securities unrealized gains, net of deferred income taxes of $(3) 52,536 (52,536) 299,492 (61,252) Stock options exercised, 411,864 shares Other, 90 shares, and 82,700 restricted stock units (net of forfeitures) Amortization of unearned compensation on restricted stock units 515 2 11,224 26 3,414 110,451 119 56,257 6 299,492 – (61,252) 110,451 119 56,257 6 11,739 28 3,414 Balances, December , 00 $138,665 $(603,169) $128,622 $1,904,502 $÷÷(2,501) $÷÷÷÷– $1,566,119 Cumulative effect from adoption of SFAS 158 measurement date provision, net of deferred income taxes of $(413) (1,453) 2,372 919 Beginning Balances, January , 00 $138,665 $(603,169) $128,622 $1,903,049 $÷÷÷«(129) $÷÷÷÷– $1,567,038 Net income Cash dividends declared, $0.78 per share Translation adjustments, net of deferred income taxes of $85,526 Cash flow hedging instrument adjustments, net of deferred income taxes of $(7,655) Pension liability adjustments, net of deferred income taxes of $29,057 Marketable securities unrealized gains, net of deferred income taxes of $38 Stock options exercised, 121,176 shares Net issuance of stock – vesting of restricted stock units, 56,847 shares Treasury shares repurchased, 4,463,353 shares Amortization of unearned compensation on restricted stock units, 152 108 (1,457) (128,577) net of forfeitures Balances, December , 00 240,945 (64,824) (154,572) 20,812 (74,340) (70) 3,336 (108) 5,233 240,945 (64,824) (154,572) 20,812 (74,340) (70) 3,488 (1,457) (128,577) 5,233 $138,925 $(733,203) $137,083 $2,079,170 $(208,299) $÷÷÷÷– $1,413,676 See accompanying notes to consolidated financial statements. Harsco Corporation 2008 Annual Report       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 $(7,681), $2 and $(40) in 2008, 2007 and 2006, respectively Reclassification adjustment for (gain) loss on cash flow hedging instruments, net of deferred income taxes of $26, $(66) and $(32) in 2008, 2007 and 2006, respectively Pension liability adjustments, net of deferred income taxes of $29,057, $(24,520) and $1,307 in 2008, 2007 and 2006, respectively Unrealized gain (loss) on marketable securities, net of deferred income taxes of $38, $(3) and $(1) in 2008, 2007 and 2006, respectively Other comprehensive income (loss) Total comprehensive income 00 $«240,945 2007 $299,492 2006 $196,398 (154,572) 110,451 91,578 20,859 (47) (74,340) (70) (208,170) $÷«32,775 (3) 122 56,257 6 166,833 $466,325 75 59 (5,523) 2 86,191 $282,589 See accompanying notes to consolidated financial statements.       Harsco Corporation 2008 Annual Report 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 four entities in which it has an equity interest of 49% to 50% and exercises management con- trol. These four entities had combined revenues of approximately $172.3 million, $117.0 million and $85.6 million, or 4.3%, 3.2% and 2.8% of the Company’s total revenues for the years ended 2008, 2007 and 2006, respectively. Investments in unconsolidated entities (all of which are 40-50% owned) are accounted for under the equity method. The Leases The Company leases certain property and equipment under noncan- celable 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. Company does not have any off-balance sheet arrangements with Goodwill and Other Intangible Assets unconsolidated special-purpose entities. Goodwill is not amortized but tested for impairment at the report- Reclassifications Certain reclassifications have been made to prior years’ amounts to conform with current year classifications. These reclassifications relate principally to the Gas Technologies Segment that is currently classified as Discontinued Operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) as discussed in Note 2, “Acquisitions and Dispositions.” Additionally, all historical share and per share data have been restated to reflect the two-for-one stock split that was effective at the close of business on March 26, 2007. As a result of these reclassifications, certain prior amounts presented for comparative purposes will not individually agree with previously filed Forms 10-K or 10-Q. Cash and Cash Equivalents ing 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 avail- able 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 Harsco Metals Segment and the All Other Category (Harsco Minerals & Rail) and at the component level for the Harsco Infrastructure 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 Cash and cash equivalents include cash on hand, demand deposits of a reporting unit. This model requires the use of long-term planning and short-term investments which are highly liquid in nature and have forecasts and assumptions regarding industry-specific economic an original maturity of three months or less. conditions that are outside the control of the Company. See Note 5, Inventories Inventories are stated at the lower of cost or market. Inventories in the United States are principally accounted for using principally the last-in, “Goodwill and Other Intangible Assets,” for additional information on intangible assets and goodwill impairment testing. Finite-lived intan- gible assets are amortized over their estimated useful lives. first-out (“LIFO”) method. Other inventories are accounted for using the Impairment of Long-Lived Assets (Other than Goodwill) first-in, first-out (“FIFO”) or average cost methods. Long-lived assets are reviewed for impairment when events and 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 accu- mulated 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. 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. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements Revenue Recognition may be recognized subsequent to the transfer of title and risk of loss Product revenues and service revenues are recognized when they for certain product sales of Harsco Rail if the specific sales contract are realized or realizable and when earned. Revenue is realized includes a customer acceptance clause which provides for different or realizable and earned when all of the following criteria are met: timing. In those situations revenue is recognized after transfer of title and persuasive evidence of an arrangement exists, delivery has occurred risk of loss and after customer acceptance. Harsco Rail also provides or services have been rendered, the Company’s price to the buyer is services predominantly on a long-term, time-and-materials contract fixed or determinable and collectibility is reasonably assured. Service basis. Revenue is recognized when earned as services are performed. revenues include the Harsco Metals and Harsco Infrastructure Seg- The Excell Minerals Division also provides services predominantly on a ments as well as service revenues of the All Other Category (Harsco long-term, volume-of-production contract basis. Contracts may include Minerals & Rail). Product revenues include the manufacturing busi- both fixed monthly fees as well as variable fees based upon specific nesses of the All Other Category (Harsco Minerals & Rail). services provided to the customer. The fixed-fee portion is recognized Harsco Infrastructure 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, periodically as earned (normally monthly) over the contractual period. The variable-fee portion is recognized as services are performed and dif- fers from period-to-period based upon the actual provision of services. sells products to customers. Equipment rentals are recognized as Income Taxes earned over the contractual rental period. Services provided on a fixed- The Company accounts for income taxes under the asset and liability fee basis are recognized over the contractual period based upon the method, which requires the recognition of deferred tax assets and completion of specific units of accounting (i.e., erection and dismantling liabilities for the expected future tax consequences of the events that of equipment). Services provided on a time-and-materials basis are have been included in the consolidated financial statements. Under recognized when earned as services are performed. Product sales this method, deferred tax assets and liabilities are determined based revenue is recognized when title and risk of loss transfer, and when all on the differences between the financial statements and tax bases of of the revenue recognition criteria have been met. assets and liabilities using enacted tax rates in effect for the year in Harsco Metals Segment – This Segment provides services predomi- nantly 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 por- tion 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. which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company records deferred tax assets to the extent the Company believes these assets will more-likely-than-not be realized. In making such determinations, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company All Other Category (Harsco Minerals & Rail) – This category includes were to determine that it would be able to realize deferred income tax the Harsco Rail, Excell Minerals, Reed Minerals, IKG Industries, Patter- assets in the future in excess of their net recorded amount, an adjust- son-Kelley, and Air-X-Changers operating segments. These operating ment to the valuation allowance would be made which would reduce segments principally sell products. Harsco Rail Division and the Excell the provision for income taxes. Minerals Division sell products and provide services. Product sales FASB Interpretation (“FIN”) 48, “Accounting for Uncertainty in revenue for each of these operating segments is recognized generally Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”) when title and risk of loss transfer, and when all of the revenue recogni- provides that a tax benefit from an uncertain position may be recog- tion criteria have been met. Title and risk of loss for domestic shipments nized when it is more-likely-than-not that the position will be sustained generally transfers to the customer at the point of shipment. For export upon examination, including resolutions of any related appeals or sales, title and risk of loss transfer in accordance with the international litigation processes, based on technical merits. Income tax positions commercial terms included in the specific customer contract. Revenue must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent       Harsco Corporation 2008 Annual Report periods. This interpretation also provides guidance on measurement, Contingencies.” The following table summarizes the warranty activity derecognition, classification, interest and penalties, accounting for for the years ended December 31, 2008, 2007 and 2006: interim periods, disclosure and transition. The Company adopted FIN 48 effective January 1, 2007. The Company recognizes interest and penalties related to unrec- ognized tax benefits within Income tax expense in the accompanying Consolidated Statements of Income. Accrued interest and penalties are included in Other liabilities in the Consolidated Balance Sheets. In general, it is the practice and intention of the Company to reinvest the undistributed earnings of its non-U.S. subsidiaries. Should the Company repatriate undistributed earnings, such amounts become subject to U.S. taxation giving recognition to current tax expense and foreign tax credits upon remittance of dividends and under certain other circumstances. Accrued Insurance and Loss Reserves The Company retains a significant portion of the risk for workers’ Warranty Activity (In thousands) Balance at the beginning of the period Accruals for warranties issued during the period Reductions related to pre-existing warranties Divestiture Warranties paid Other (principally foreign currency translation) 00 2007 2006 $«2,907 $«4,805 $«4,962 3,683 (1,524) – (2,157) 3,112 3,371 (1,112) (980) (2,810) (868) – (2,731) (46) (108) 71 Balance at end of the period $«2,863 $«2,907 $«4,805 Foreign Currency Translation The financial statements of the Company’s subsidiaries outside the United States, except for those subsidiaries located in highly infla- tionary economies and those entities for which the U.S. dollar is the compensation, U.K. employers’ liability, automobile, general and product currency of the primary economic environment in which the entity liability losses. During 2008, 2007 and 2006, the Company recorded insur- operates, are measured using the local currency as the functional ance expense from continuing operations related to these lines of cover- currency. Assets and liabilities of these subsidiaries are translated at age of approximately $43 million, $37 million and $34 million, respectively. the exchange rates as of the balance sheet date. Resulting translation Reserves have been recorded which reflect the undiscounted estimated adjustments are recorded in the cumulative translation adjustment liabilities including claims incurred but not reported. When a recognized account, a separate component of Other comprehensive income (loss). liability is covered by third-party insurance, the Company records an Income and expense items are translated at average monthly exchange insurance claim receivable to reflect the covered liability. Changes in rates. Gains and losses from foreign currency transactions are included the estimates of the reserves are included in net income in the period in net income. For subsidiaries operating in highly inflationary econo- determined. During 2008, 2007 and 2006, the Company recorded retro- mies, and those entities for which the U.S. dollar is the currency of the spective insurance reserve adjustments that decreased pre-tax insur- primary economic environment in which the entity operates, gains and ance expense from continuing operations for self-insured programs by losses on foreign currency transactions and balance sheet translation $1.8 million, $1.2 million and $1.3 million, respectively. At December 31, adjustments are included in net income. 2008 and 2007, the Company has recorded liabilities of $97.2 million and $112.0 million, respectively, related to both asserted as well as unasserted insurance claims. Included in the balance at December 31, 2008 and 2007 were $17.8 million and $25.9 million, respectively, of recognized liabilities covered by insurance carriers. Amounts estimated to be paid within one year have been classified as current Insurance liabilities, with the remainder included in non-current Insurance liabilities in the Consoli- dated Balance Sheets. Warranties 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 busi- ness. The Company seeks to reduce exposure to foreign currency fluc- tuations 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 specula- tive purposes. The Company has a Foreign Currency Risk Management Committee that meets periodically to monitor foreign currency risks. The Company has recorded product warranty reserves of $2.9 million, The Company executes foreign currency forward exchange con- $2.9 million and $4.8 million as of December 31, 2008, 2007 and 2006, tracts to hedge transactions for firm purchase commitments, to hedge respectively. The Company provides for warranties of certain prod- variable cash flows of forecasted transactions and for export sales ucts as they are sold in accordance with SFAS No. 5, “Accounting for denominated in foreign currencies. These contracts are generally for Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements 90 days or less; however, where appropriate longer-term contracts as well as other accounting pronouncements that address fair value may be utilized. For those contracts that are designated as qualified measurements on lease classification or measurement under SFAS 13, cash flow hedges under SFAS No. 133, “Accounting for Derivative from the scope of SFAS 157. FSP FAS 157-2 delays the effective date of Instruments and Hedging Activities” (“SFAS 133”), gains or losses are SFAS 157 for all nonrecurring fair value measurements of nonfinancial recorded in Other comprehensive income (loss). assets and nonfinancial liabilities until fiscal years beginning after Amounts recorded in Other comprehensive income (loss) are November 15, 2008 (January 1, 2009 for the Company). reclassified into income in the same period or periods during which the SFAS 157, as amended by FSP SFAS 157-2, was adopted by the hedged forecasted transaction affects income. The cash flows from Company as of January 1, 2008. The adoption of SFAS 157, as it relates these contracts are classified consistent with the cash flows from the to financial assets and financial liabilities, had no impact on the transaction being hedged (e.g., the cash flows related to contracts to Company’s financial position, results of operations or cash flows. The hedge the purchase of fixed assets are included in cash flows from Company is still in the process of evaluating the impact that SFAS 157 investing activities, etc.). The Company also enters into certain forward will have on nonfinancial assets and liabilities not valued on a recurring exchange contracts not designated as hedges under SFAS 133. Gains basis (at least annually). The disclosure requirements of SFAS 157 are and losses on these contracts are recognized in income based on fair presented in Note 13, “Financial Instruments.” market value. For fair value hedges of a firm commitment, the gain or loss on the derivative and the offsetting gain or loss on the hedged firm commitment are recognized currently in income. Earnings Per Share SFAS No. 0, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 0”). In December 2007, the FASB issued SFAS 160, which amends ARB No. 51, “Consolidated Financial Statements.” SFAS 160 requires, among Basic earnings per share are calculated using the average shares of other items, that a noncontrolling interest be included in the consoli- common stock outstanding, while diluted earnings per share reflect dated statement of financial position within equity separate from the dilutive effects of restricted stock units and the potential dilution the parent’s equity; consolidated net income be reported at amounts that could occur if stock options were exercised. See Note 11, “Capital inclusive of both the parent’s and noncontrolling interest’s shares and, Stock,” for additional information on earnings per share. separately, the amounts of consolidated net income attributable to the Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. New Financial Accounting Standards Issued SFAS No. , “Fair Value Measurements” (“SFAS ”) In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157 which formally defines fair value, creates a standardized framework for measuring fair value under GAAP, and expands fair value measurement disclosures. SFAS 157 was amended by FASB Staff Posi- tion (“FSP”) No.157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Mea- surement under Statement 13” (“FSP SFAS 157-1”) and FSP No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP SFAS 157-2”). FSP SFAS 157-1 excludes SFAS No. 13, “Accounting for Leases,” (“SFAS 13”) parent and noncontrolling interest all on the Consolidated Statements of Income; if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value; and changes in a parent’s ownership interest while the parent retains its controlling interest are accounted for as equity transactions. SFAS 160 became effective for the Company on January 1, 2009. Adoption of this statement had no material impact on the Company’s consolidated finan- cial position or results of operations when it became effective. SFAS No. (R), “Business Combinations” (“SFAS (R)”) In December 2007, the FASB issued SFAS 141(R) which significantly modifies the accounting for business combinations. SFAS 141(R) requires the acquiring entity in a business combination to recognize and measure the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, at their fair values as of that date, with limited exceptions. Liabilities related to contingent consideration are required to be recognized at acquisi- tion and remeasured at fair value in each subsequent reporting period. Restructuring charges, and all pre-acquisition related costs (e.g., deal fees for attorneys, accountants and investment bankers), must be expensed in the period they are incurred. In addition, changes to 0      Harsco Corporation 2008 Annual Report acquisition-related deferred tax assets and unrecognized tax benefits 2 acquisitions and Dispositions recorded under FIN 48 made subsequent to the measurement period will generally impact income tax expense in that period as opposed to being recorded to goodwill. SFAS 141(R) became effective for the Company’s acquisitions that are completed on or after January 1, 2009. The impact of adopting SFAS 141(R) will depend on the nature, terms and size of business combinations that occur after the effective date. The Company expensed acquisition-related costs for any business combinations not concluded prior to the January 1, 2009 effective date in accordance with the transition guidance of SFAS 141(R). Acquisitions In April 2008, the Company acquired Sovereign Access Services Limited (“Sovereign”), a United Kingdom-based provider of mastclimber work platform rental equipment. Sovereign recorded revenues of approximately $7 million in 2007 and has been included in the Harsco Infrastructure Segment. In March 2008, the Company acquired Romania-based Baviera S.R.L. (“Baviera”), a distributor of formwork and scaffolding products in Romania. Baviera recorded revenues of approximately $3 million in SFAS No. , “Disclosures About Derivative Instruments and Hedging 2007 and has been included in the Harsco Infrastructure Segment. Activities – an amendment of FASB Statement No. ” (“SFAS ”). In February 2008, the Company acquired Northern Ireland-based In March 2008, the FASB issued SFAS 161 which requires enhanced Buckley Scaffolding (“Buckley”), a provider of scaffolding and erection disclosures about the use of derivative instruments, the accounting for and dismantling services to customers in the construction, industrial and derivatives, and how derivatives impact financial statements to enable events businesses. Buckley recorded revenues of approximately $3 mil- investors to better understand their effects on a company’s financial lion in 2007 and has been included in the Harsco Infrastructure Segment. position, financial performance and cash flows. These requirements In August 2007, the Company acquired Alexander Mill Services include the disclosure of the fair values of derivative instruments and International (“AMSI”), a privately held company that provides services their gains and losses in a tabular format. SFAS 161 became effective for to some of the leading steel producers in Poland and Romania. AMSI the Company on January 1, 2009. As SFAS 161 only requires enhanced also provides mill services on a smaller scale in Portugal. AMSI disclosures, this standard will only impact notes to the consolidated recorded 2006 revenues of approximately $21 million and has been financial statements. included in the Harsco Metals Segment. FSP No. FAS - “Determination of the Useful Life of Intangible Assets” (“FSP FAS -”) In April 2008, the FASB issued FSP FAS 142-3, which amends the factors that should be considered in developing renewal or extension assump- tions used to determine the useful life of a recognized intangible asset under SFAS 142, in order to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other GAAP. FSP FAS 142-3 is effective prospectively for intangible assets acquired or renewed after January 1, 2009. The effect of adopting FSP FAS 142-3 will depend on the nature of intangible assets acquired after the effective date. In August 2007, the Company acquired ZETA-TECH Associates, Inc. (“ZETA-TECH”), a Cherry Hill, NJ-based niche technical services and applied technology company serving the railway industry with special- ized expertise in railway engineering services and track maintenance software. ZETA-TECH produces a range of proprietary software tools that are used by railways to regularly monitor and evaluate the perfor- mance of their rail and track assets. ZETA-TECH recorded 2006 revenues of approximately $4 million and has been included in the Company’s Harsco Rail Group of the All Other Category (Harsco Minerals & Rail). In April 2007, the Company acquired Performix Technologies, Ltd. (“Performix”), an Ohio-based company that is one of the United States’ leading producers of specialty additives used by steelmakers in the ladle refining of molten steel. Performix operates from two plants in the FSP No. EITF 0--, “Determining Whether Instruments Granted in United States and serves most of the major steelmakers in the upper Share-Based Payment Transactions Are Participating Securities,” Midwest and Canada. Performix recorded 2006 sales of approximately (“FSP EITF 0--”) $29 million and has been included in the Harsco Metals Segment. In June 2008, the FASB issued FSP EITF 03-6-1 which states that In February 2007, the Company acquired Excell Materials, Inc. unvested share-based payment awards that contain nonforfeitable (“Excell”), a Pittsburgh-based multinational company, for approximately rights to dividends or dividend equivalents (whether paid or unpaid) $210 million, which excluded direct acquisition costs. Excell specializes are participating securities and shall be included in the computation of in the reclamation and recycling of high-value content from principally earnings per share pursuant to the two-class method. FSP EITF 03-6-1 steelmaking slag. Excell is also involved in the development of mineral- became effective for the Company on January 1, 2009. The adoption of based products for commercial applications. Excell recorded 2006 sales FSP EITF 03-6-1 had no impact on the consolidated financial statements. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements in excess of $100 million and maintains operations at nine locations in Assets Held for Sale the United States, Canada, Brazil, South Africa and Germany. Goodwill Throughout the past several years, management approved the sale of recognized in this transaction (based on foreign exchange rates at the certain long-lived assets throughout the Company’s operations. The transaction date) was $101.9 million, none of which is expected to be net property, plant and equipment reflected as assets held-for-sale in deductible for U.S. income tax purposes. Excell has been included in the December 31, 2008 and 2007 Consolidated Balance Sheets were the All Other Category (Harsco Minerals & Rail) and has been renamed $5.3 million and $0.5 million, respectively. Excell Minerals to emphasize its long-term growth strategy. Dispositions 3 accounts receivable and Inventories Consistent with the Company’s strategic focus to grow and allocate At December 31, 2008 and 2007, Trade accounts receivable of financial resources to its industrial services businesses, on December 7, $648.9 million and $779.6 million, respectively, were net of allowances 2007, the Company sold the Gas Technologies Segment to Wind Point for doubtful accounts of $27.9 million and $25.6 million, respectively. Partners, a private equity investment firm with offices in Chicago, Illi- The decrease in accounts receivable from December 31, 2007 related nois. The terms of the sale include a total purchase price of $340 million, principally to foreign currency translation and lower sales levels in the including $300 million paid in cash at closing and $40 million payable fourth quarter. The provision for doubtful accounts was $12.5 million, in the form of an earnout, contingent on the Gas Technologies group $7.8 million and $9.2 million for 2008, 2007 and 2006, respectively. Other achieving certain performance targets in 2008 or 2009. The Company receivables include insurance claim receivables, employee receiv- recorded a $26.4 million after-tax gain on the sale in the fourth quarter of ables, tax claim receivables and other miscellaneous receivables not 2007. In 2008, the Company recorded a loss from discontinued operations included in Trade accounts receivable, net. of $4.7 million. This comprised $1.7 million of working capital adjustments Inventories consist of the following: and other costs associated with this disposition, coupled with the tax effect from the final purchase price allocation. The purchase price is Inventories (In thousands) not final at December 31, 2008 due to final working capital adjustments as provided in the purchase agreement, and the potential earnout. This business recorded revenues and operating income of $384.9 million and $26.9 million and $397.7 million and $14.2 million, respectively, for the years ended 2007 and 2006. The Consolidated Statements of Income for the years ended 2008, 2007 and 2006 reflect the Gas Technologies Segment’s results in discontinued operations. The major classes of assets and liabilities sold as part of this Finished goods Work-in-process Raw materials and purchased parts Stores and supplies Total inventories Valued at lower of cost or market: Last-in, first out (“LIFO”) basis First-in, first out (“FIFO”) basis Average cost basis Total inventories 00 2007 $156,490 21,918 83,372 47,750 $161,013 23,776 76,735 49,407 $309,530 $310,931 $105,959 15,140 188,431 $÷99,433 16,742 194,756 $309,530 $310,931 December 7, 2007 Inventories valued on the LIFO basis at December 31, 2008 and 2007 were approximately $32.8 million and $23.4 million, respectively, less than the amounts of such inventories valued at current costs. As a result of reducing certain inventory quantities valued on the LIFO basis, net income increased from that which would have been recorded under the FIFO basis of valuation by $0.3 million in 2008, less than $0.1 million in 2007 and $0.3 million in 2006. $÷61,444 103,592 2,608 72,814 36,930 2,617 $280,005 $÷28,210 2,354 449 11,528 959 $÷43,500 transaction were as follows: (In thousands) Assets Accounts receivable, net Inventories Other current assets Property, plant and equipment, net Goodwill, net Other assets Total assets sold Liabilities Accounts payable Accrued compensation Income taxes payable Other current liabilities Retirement plan liabilities Total liabilities sold       Harsco Corporation 2008 Annual Report 4 Property, Plant and equipment is a comparison of each reporting unit’s fair value to its book value. If Property, plant and equipment consists of the following: 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 00 2007 to assets and liabilities as if the reporting unit had just been purchased (In thousands) Land and improvements Buildings and improvements Machinery and equipment Uncompleted construction Gross property, plant and equipment Less accumulated depreciation $÷÷÷41,913 167,606 2,905,398 75,210 3,190,127 (1,707,294) $÷÷÷47,250 175,744 2,997,425 75,167 3,295,586 (1,760,372) Net property, plant and equipment $«1,482,833 $«1,535,214 The estimated useful lives of different types of assets are generally: Land improvements Buildings and improvements Machinery and equipment Leasehold improvements 5 to 20 years 5 to 40 years 3 to 20 years Estimated useful life of the improvement or, if shorter, the life of the lease 5 Goodwill and other Intangible assets 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. Assessments of future cash flows would con- sider, but not be limited to the following: infrastructure plant maintenance requirements; global metals production and capacity utilization; global railway track maintenance-of-way capital spending; and other drivers of the Company’s businesses. Changes in the overall interest rate environ- ment may also impact the fair market value of the Company’s report- ing units as this would directly influence the discount rate utilized for discounting operating cash flows, and ultimately determining a reporting In connection with the provisions of SFAS No. 142, “Goodwill and Other unit’s fair value. The Company’s overall market capitalization is also a fac- Intangible Assets,” (“SFAS 142”) goodwill and intangible assets with tor in evaluating the fair market values of the Company’s reporting units. indefinite useful lives are no longer amortized. Goodwill is tested for Significant declines in the overall market capitalization of the Company impairment at the reporting unit level on an annual basis, and between could lead to the determination that the book value of one or more of the annual tests, whenever events or circumstances indicate that the Company’s reporting units exceeds their fair value. The Company per- carrying value of a reporting unit’s goodwill may exceed its fair value. formed required annual testing for goodwill impairment as of October 1, The Company has determined that the reporting units for goodwill 2008 and 2007 and all reporting units of the Company passed the step one impairment testing purposes are the Company’s operating segments testing thereby indicating that no goodwill impairment exists. Additionally, for the Harsco Metals Segment and the All Other Category and the the Company determined that as of December 31, 2008 no interim impair- component level for the Harsco Infrastructure Segment. This impair- ment testing was necessary. However, there can be no assurance that ment testing is a two-step process as outlined in SFAS 142. Step one future goodwill impairment tests will not result in a charge to earnings. The following table reflects the changes in carrying amounts of goodwill by segment for the years ended December 31, 2007 and 2008: Goodwill by Segment (In thousands) Balance as of December 31, 2006, net of accumulated amortization Goodwill acquired during year (a) Changes to Goodwill (b) Goodwill disposed during year (c) Foreign currency translation Balance as of December 31, 2007, net of accumulated amortization Goodwill acquired during year (d) Changes to Goodwill (b) Foreign currency translation Harsco Infrastructure Segment Harsco Metals Segment All Other Category – Harsco Minerals & Rail Gas Technologies Segment Consolidated Totals $241,937 – 1,686 – 11,233 $254,856 12,045 1,262 (47,616) $325,492 13,621 (1,301) – 10,499 $348,311 – (4,892) (43,806) $÷÷8,137 103,935 – – 4,830 $116,902 – 266 (5,838) $«36,914 – – (36,930) 16 $÷÷÷÷÷– – – – $612,480 117,556 385 (36,930) 26,578 $720,069 12,045 (3,364) (97,260) Balance as of December 31, 2008, net of accumulated amortization $220,547 $299,613 $111,330 $÷÷÷÷÷– $631,490 (a) Relates principally to the Excell Minerals acquisition in the All Other Category – Harsco Minerals & Rail. (b) Relates principally to opening balance sheet adjustments. (c) Relates to the sale of the Company’s Gas Technologies Segment. (d) Relates to acquisitions of Baviera S.R.L., Buckley Scaffolding and Sovereign Access Services Limited. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements Goodwill is net of accumulated amortization of $95.9 million and 6 Debt and credit agreements $103.7 million at December 31, 2008 and 2007, respectively. The reduc- tion in accumulated amortization from December 31, 2007 is due to foreign currency translation. Intangible assets totaled $141.5 million, net of accumulated amor- tization of $65.4 million at December 31, 2008 and $189.0 million, net of accumulated amortization of $45.2 million at December 31, 2007. The following table reflects these intangible assets by major category: Intangible Assets (In thousands) Customer relationships Non-compete agreements Patents Other Total December , 00 December 31, 2007 Gross Carrying Amount $138,752 1,414 6,316 60,495 $206,977 Accumulated Amortization $40,821 1,196 4,116 19,309 $65,442 Gross Carrying Amount $157,717 3,382 6,805 66,266 $234,170 Accumulated Amortization $25,137 2,952 4,241 12,821 $45,151 The decrease in intangible assets for 2008 was due principally to for- 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, 2008. These credit facilities and programs are described in more detail below the table. (In thousands) U.S. commercial paper program Euro commercial paper program Multi-year revolving credit facility (a) 364-day revolving credit facility (a) Bilateral credit facility (b) As of December , 00 Facility Limit Outstanding Balance Available Credit $÷«550,000 279,380 450,000 220,000 30,000 $35,943 9,012 – 50,000 – $÷«514,057 270,368 450,000 170,000 30,000 Totals at December 31, 2008 $1,529,380 $94,955 $1,434,425(c) (a) U.S.-based program. (b) (c) Although the Company has significant available credit, in practice, the Company limits International-based program. aggregate commercial paper and credit facility borrowings at any one time to a maximum of $700.0 million (the aggregate amount of the back-up facilities). eign currency translation, partially offset by intangible assets acquired The Company has a U.S. commercial paper borrowing program in the acquisitions discussed in Note 2, “Acquisitions and Dispositions.” under which it can issue up to $550 million of short-term notes in As part of these transactions, the Company acquired the following intan- the U.S. commercial paper market. In addition, the Company has a gible assets (by major class) which are subject to amortization: 200 million euro commercial paper program, equivalent to approxi- Acquired Intangible Assets (In thousands) Customer relationships Non-compete agreements Other Total Weighted- average amortization period 6 years 2 years 2 years Residual Value None None None Gross Carrying Amount $2,087 78 478 $2,643 mately $279.4 million at December 31, 2008, which is used to fund the Company’s international operations. At December 31, 2008 and 2007, the Company had $35.9 million and $333.4 million of U.S. commercial paper outstanding, respectively; and $9.0 million and $132.8 million outstanding, respectively, under its European-based commercial paper program. Additionally, the Company had $50.0 million outstanding under its 364-day revolving credit facility at December 31, 2008. These borrow- ings are classified as long-term debt when the Company has the ability There were no research and development assets acquired and and intent to refinance it on a long-term basis through existing long-term written off in 2008, 2007 or 2006. credit facilities. At December 31, 2008 and 2007, the Company classified Amortization expense for intangible assets was $28.1 million, $94.9 million and $8.0 million, respectively, of commercial paper and $27.4 million and $6.7 million for the years ended December 31, 2008, advances as short-term debt. There was no remaining commercial 2007 and 2006, respectively. The following table shows the estimated paper or advances to be reclassified as long-term debt at December 31, amortization expense for the next five fiscal years based on current 2008, while $458.2 million was reclassified at December 31, 2007. intangible assets. (In thousands) 2009 2010 2011 2012 2013 Estimated amortization expense (a) $24,742 $24,308 $23,077 $10,908 $9,472 (a) These estimated amortization expense amounts do not reflect the potential effect of future foreign currency exchange rate fluctuations. The Company has a multi-year 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 com- mercial paper programs. Interest rates on the facility are based upon either the announced JPMorgan Chase Bank Prime Rate, the Federal Funds Effective Rate plus a margin or LIBOR plus a margin. The Com- pany pays a facility fee (.08% per annum as of December 31, 2008) that varies based upon its credit ratings. At December 31, 2008 and 2007, there were no borrowings outstanding on this credit facility.       Harsco Corporation 2008 Annual Report In November 2008, the Company, Citibank N.A., as administrative As reflected in the above table, in May 2008, the Company com- agent, and a syndicate of nine other banks entered into a 364-day credit pleted an offering in the United States of 5.75%, ten-year senior notes agreement that enables the Company to borrow up to $220 million. The totaling $450.0 million. Net proceeds of $446.6 million were used to facility matures in November 2009. Any borrowings outstanding at the reduce the Company’s U.S. and euro commercial paper borrowings termination of the facility may, at the Company’s option, be repaid over by $286.4 million and $160.2 million, respectively. The notes include a the following 12 months. The Company has the option to increase the covenant that permits the note holders to redeem their notes at 101% size of the facility at a later date to up to $300 million with the consent of of par in the event of a change in control of the Company, or disposition the lenders. Interest rates on the facility are based upon the announced of a significant portion of the Company’s assets in combination with a Citibank Prime Rate plus a margin, the Federal Funds Effective rate plus downgrade of the Company’s credit rating to non-investment grade. a margin, or LIBOR plus a margin. The Company pays a commitment fee The Company’s credit facilities and certain notes payable agreements (0.125% per annum as of entry into the facility) that varies based upon contain covenants requiring a minimum net worth of $475 million and a its credit ratings. At December 31, 2008, the Company had $50 million maximum debt to capital ratio of 60%. Additionally, the Company’s 7.25% outstanding under this facility. British pound sterling-denominated notes, due October 27, 2010, and its The Company’s bilateral credit facility was amended in December 2008 5.75% notes, due May 2018, also include covenants that permit the note to extend the maturity date to December 2009 and to reduce the amount holders to redeem their notes, at par and 101% of par, respectively, in the of the credit facility to $30 million from $50 million. The reduction in amount event of a change of control of the Company or disposition of a significant accommodates the Company’s current anticipated liquidity needs and portion of the Company’s assets in combination with the Company’s credit reduces borrowing costs. The facility serves as back-up to the Company’s rating being downgraded to non-investment grade. At December 31, 2008, commercial paper programs and also provides available financing for the the Company was in compliance with these covenants. Company’s European operations. Borrowings under this facility are avail- The maturities of long-term debt for the four years following able in most major currencies with active markets at interest rates based December 31, 2009 are as follows: upon LIBOR plus a margin. Borrowings outstanding at expiration may be (In thousands) repaid over the succeeding 12 months. As of December 31, 2008 and 2007, there were no borrowings outstanding on this facility. Short-term borrowings amounted to $117.9 million and $60.3 million at December 31, 2008 and 2007, respectively. This included commer- cial paper and short-term advances of $94.9 million and $8.0 million at December 31, 2008 and 2007, respectively. Other than the commercial 2010 2011 2012 2013 $293,192 1,911 699 149,253 Cash payments for interest on all debt from continuing operations were $71.6 million, $80.3 million and $59.7 million in 2008, 2007 and 2006, paper borrowings and advances, short-term debt was principally bank respectively. overdrafts. The weighted-average interest rate for short-term borrow- ings at December 31, 2008 and 2007 was 3.8% and 6.0%, respectively. Long-term debt consists of the following: 7 leases Long-term Debt (In thousands) 5.75% notes due May 1, 2018 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 5.2% as of December 31, 2007 Faber Prest loan notes due October 31, 2008 with interest based on sterling LIBOR minus .75% (5.1% at December 31, 2007) Other financing payable in varying amounts due through 2013 with a weighted average interest rate of 7.5% and 7.0% as of December 31, 2008 and 2007, respectively Less: current maturities 00 2007 $446,762 $÷÷÷÷÷÷÷– 290,777 149,247 – – 395,197 149,110 458,180 3,120 8,243 895,029 (3,212) 14,864 1,020,471 (8,384) The Company leases certain property and equipment under noncancel- able operating leases. Rental expense (for continuing operations) under such operating leases was $65.0 million, $70.4 million and $69.6 million in 2008, 2007 and 2006, respectively. Future minimum payments under operating leases with noncancel- able terms are as follows: (In thousands) 2009 2010 2011 2012 2013 After 2013 $55,592 36,200 25,029 18,133 14,742 37,811 $891,817 $1,012,087 Total minimum rentals to be received in the future under non- cancelable subleases as of December 31, 2008 are $8.9 million. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements 8 employee Benefit Plans In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). The Company adopted the recognition provisions of SFAS 158 effective December 31, 2006. SFAS 158 also requires the consistent measurement of plan assets and benefit obligations as of the date of the Company’s fiscal year-end state- ment of financial position effective for the year ending December 31, 2008. Since the Company previously used an October 31 measurement date for its United States defined benefit pension plans and a September 30 measurement date for most of its international defined benefit pension plans, the standard required the Company to change those measurement dates in 2008 to December 31. In order to record the effects of the change to a December 31 measurement date, the Company chose to use the measurements determined as of October 31, 2007 and September 30, 2007 and estimate the net periodic benefit cost for the 14-month and 15-month periods, respectively, ending December 31, 2008, exclusive of any curtail- ment or settlement gains or losses. Amounts allocated proportionately to the 2-month and 3-month periods ended December 31, 2007 (the “short periods”) were recorded as an adjustment to retained earnings, effective January 1, 2008. The remaining costs were recognized as net periodic pension expense during the year ended December 31, 2008. The following table sets forth the adjustments to retained earnings and Accumulated other comprehensive income (“AOCI”) resulting from the measurement date change, net of tax for the short periods: Impact of SFAS  Measurement Date Change (In thousands) Service cost, interest cost and expected return on plan assets Amortization of prior service cost and actuarial gain (loss) Net adjustment recognized Pension Benefits U. S. Defined Benefit Pension Plans International Defined Benefit Pension Plans Other Post-Retirement Benefit Plans Retained Earnings $«576 (169) $«407 AOCI $÷÷– 169 $169 Retained Earnings $÷÷364 (2,207) $(1,843) AOCI $÷÷÷«– 2,207 $2,207 Retained Earnings $(21) 4 $(17) AOCI $«– (4) $(4) Segment, so that accrued service is no longer granted for periods after The Company has pension and profit sharing retirement plans covering December 31, 2008. As a result, for most of the U.S. defined benefit pen- a substantial number of its employees. The defined benefits for salaried sion plans and a majority of international defined benefit pension plans, employees generally are based on years of service and the employee’s accrued service is no longer granted. In place of these plans, the Com- level of compensation during specified periods of employment. Defined pany has established defined contribution pension plans providing for benefit plans covering hourly employees generally provide benefits of the Company to contribute a specified matching amount for participating stated amounts for each year of service. The multi-employer plans in employees’ contributions to the plan. Domestically, this match is made which the Company participates provide benefits to certain unionized on employee contributions up to four percent of their eligible compensa- employees. The Company’s funding policy for qualified plans is consistent tion. Additionally, the Company may provide a discretionary contribution with statutory regulations and customarily equals the amount deducted of up to two percent of compensation for eligible employees. The two for income tax purposes. The Company also makes periodic voluntary percent discretionary contribution was recorded for 2007 and 2006, and contributions as recommended by its pension committee. The Company’s paid in February of the subsequent year. Internationally, this match is up policy is to amortize prior service costs of defined benefit pension plans to six percent of eligible compensation with an additional two percent over the average future service period of active plan participants. going towards insurance and administrative costs. In an effort to mitigate a portion of the increased pension expense for The Company believes the defined contribution plans will provide a 2009, the Company implemented plan design changes for certain inter- more predictable and less volatile pension expense than exists under national defined benefit pension plans, principally in the Harsco Metals the defined benefit plans.       Harsco Corporation 2008 Annual Report (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 (income) expense Less Discontinued Operations included in above Defined benefit plans pension (income) expense – continuing operations Multi-employer plans (a) Defined contribution plans (a) U.S. Plans International Plans 00 2007 2006 00 2007 2006 $÷«1,740 15,197 (23,812) 333 1,167 – (620) (5,995) (694) (5,301) 15,231 6,969 $÷«3,033 15,511 (22,943) 686 1,314 – 2,091 (308) 2,748 (3,056) 13,552 8,999 $÷«3,685 14,919 (19,942) 742 2,949 (361) 78 2,070 1,848 222 10,560 7,544 $÷«8,729 50,146 (58,166) 897 10,317 29 1,536 13,488 – 13,488 10,143 7,894 $÷«9,031 50,118 (61,574) 938 15,254 36 – 13,803 477 13,326 10,361 7,589 $÷«9,168 43,506 (52,081) 1,446 12,882 36 (51) 14,906 447 14,459 8,662 6,518 Pension expense – continuing operations $«16,899 $«19,495 $«18,326 $«31,525 $«31,276 $«29,639 (a) Excludes discontinued operations. In 2008, the Company recognized a settlement gain of $0.9 million The change in the financial status of the pension plans and amounts related to the Gas Technologies Segment that was sold in December recognized in the Consolidated Balance Sheets at December 31, 2008 2007. The settlement gain was recognized upon final transfer of pension and 2007 are as follows: assets and liabilities to an authorized trust established by the purchaser Defined Benefit Pension Benefits of the Segment and is included above in U.S. Plans discontinued opera- tions. Also in 2008, the Company implemented plan design changes for (In thousands) certain domestic and international defined benefit pension plans so that accrued service is no longer granted for periods after December 31, 2008. These actions resulted in a net curtailment loss of $1.5 million. See Note 17, “2008 Restructuring Program” for additional information. In 2007, the Company recognized a $2.1 million curtailment loss in connection with the remeasurement of plan obligations related to the divestiture of the Gas Technologies Segment. Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan participants’ contributions Amendments Adoption of SFAS 158 measurement date change Actuarial loss (gain) Settlements/curtailments Benefits paid Divestiture of Gas Technologies Segment Effect of foreign currency U. S. Plans International Plans 00 2007 00 2007 $268,710 1,740 15,197 – 890 598 (10,145) – (15,721) (22,922) – $266,441 3,033 15,511 – 349 – (1,857) (1,315) (13,452) $987,894 8,729 50,146 2,311 (111) 5,154 (58,507) (10,388) (35,695) – – (678) (250,019) $981,618 9,031 50,118 2,354 – – (39,523) – (40,156) – 24,452 Benefit obligation at end of year $238,347 $268,710 $698,836 $987,894 Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Plan participants’ contributions Settlements/curtailments Benefits paid Adoption of SFAS 158 measurement date change Divestiture of Gas Technologies Segment Effect of foreign currency Fair value of plan assets at end of year $311,193 (83,794) 1,600 – – (15,721) (2,495) (21,097) – $271,899 49,731 3,015 – – (13,452) $«905,849 (99,645) 28,865 2,310 (237) (34,182) $829,927 58,477 39,016 2,354 – (38,987) – – – (5,946) – – (238,257) – 15,062 $189,686 $311,193 $«558,757 $905,849 Funded status at end of year $«(48,661) $÷42,483 $(140,079) $«(82,045) Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements The actual return on the Company’s U.S. and international plans’ Net Periodic Pension Expense Assumptions assets reflects the decline in pension asset values during the second The weighted-average actuarial assumptions used to determine the half of 2008. This decline was due to the financial crisis and the deterio- net periodic pension expense for the years ended December 31 were ration of global economic conditions. Defined Benefit Pension Benefits as follows: Global Weighted Average U. S. Plans International Plans December 31 00 2007 2006 (In thousands) 00 2007 00 2007 Amounts recognized in the Consolidated Balance Sheets consist of the following: Noncurrent assets Current liabilities Noncurrent liabilities Accumulated other $÷÷÷«232 (2,111) (46,782) $«70,154 (1,172) (26,499) $÷÷«5,072 (1,897) (143,254) $÷÷9,604 (1,446) (90,203) comprehensive loss before tax 109,523 9,947 260,765 246,526 Amounts recognized in Accumulated other comprehensive loss consist of the following: Discount rates Expected long-term rates of return on plan assets Rates of compensation increase 5.9% 7.6% 3.6% 5.3% 7.6% 3.3% 5.3% 7.6% 3.4% December 31 00 2007 2006 00 2007 2006 U.S. Plans International Plans Discount rates Expected long-term rates of return on plan assets Rates of compensation increase 6.2% 8.3% 4.8% 5.9% 8.3% 4.5% 5.9% 8.3% 4.4% 5.8% 7.3% 3.5% 5.1% 7.3% 3.2% 5.2% 7.4% 3.2% (In thousands) Net actuarial loss Prior service cost Transition obligation Total U. S. Plans International Plans The expected long-term rates of return on plan assets for the 2009 00 2007 00 2007 pension expense are 8.00% for the U.S. plans and 7.1% for the interna- $107,672 1,851 – $109,523 $8,346 1,601 – $9,947 $257,393 3,184 188 $240,193 6,026 307 tional plans. Defined Benefit Pension Obligation Assumptions $260,765 $246,526 The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at December 31 were The estimated amounts that will be amortized from Accumulated as follows: other comprehensive loss into defined benefit pension expense in 2009 are as follows: (In thousands) Net actuarial loss Prior service cost Transition obligation Total U. S. Plans International Plans $10,098 351 – $10,449 $15,206 357 26 $15,589 The Company’s estimate of expected contributions to be paid in year 2009 for the U.S. defined benefit plans is $4.4 million and for the international defined benefit plans is $33.5 million. Contributions to multi-employer pension plans were $26.1 million, $24.2 million and $18.3 million in years 2008, 2007 and 2006, respectively. For defined contribution plans, payments were $18.8 million, $16.6 mil- lion and $13.7 million for years 2008, 2007 and 2006, respectively. Future Benefit Payments The expected benefit payments for defined benefit plans over the next ten years are as follows: (In millions) 2009 2010 2011 2012 2013 2014–2018 U.S.Plans International Plans $15.8 15.0 16.1 16.0 17.8 90.0 $32.8 32.8 34.6 35.4 35.1 184.0       Harsco Corporation 2008 Annual Report Global Weighted Average December 31 Discount rates Rates of compensation increase 00 6.1% 3.4% 2007 5.9% 3.6% 2006 5.3% 3.3% December 31 00 2007 2006 00 2007 2006 U.S. Plans International Plans Discount rates Rates of compensation increase 6.1% 4.0% 6.2% 4.8% 5.9% 4.5% 6.0% 3.4% 5.8% 3.5% 5.1% 3.2% The U.S. discount rate was determined using a yield curve that was produced from a universe containing over 300 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 corpo- rate 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 measurement dates, these international rates have increased by 20 basis points from the prior year. Accumulated Benefit Obligations the expected return-on-asset assumption for 2008 which was 8.25%. The accumulated benefit obligation for all defined benefit pension The decrease reflects the impact of the financial crisis that began in plans at December 31 was as follows: the second half of 2008 and the long-term effect on recovery. (In millions) 2008 2007 U.S.Plans International Plans $237.8 $257.0 $687.7 $899.4 Plans with Accumulated Benefit Obligation in Excess of Plan Assets The projected benefit obligation, accumulated benefit obligation and The U.S. defined benefit pension plans assets include 434,088 shares of the Company’s stock valued at $12.0 million at December 31, 2008 and 765,280 shares of the Company’s common stock valued at $46.4 million at October 31, 2007. These shares represented 6.4% and 14.4%, respectively, of total plan assets. Dividends paid to the pen- sion plans on the Company stock amounted to $0.3 million in 2008 and fair value of plan assets for pension plans with accumulated benefit $0.5 million in 2007. obligations in excess of plan assets at December 31 were as follows: The asset allocations attributable to the Company’s international U. S. Plans International Plans defined benefit pension plans at December 31, 2008 and September 30, (In millions) Projected benefit obligation Accumulated benefit obligation Fair value of plan assets 00 $228.7 228.5 179.8 2007 $38.1 34.8 10.5 00 $659.5 656.1 517.3 2007 2007 and the target allocation of plan assets for 2009, by asset category, $88.5 83.1 51.7 are as follows: International Plans Asset Category The asset allocations attributable to the Company’s U.S. defined benefit pension plans at December 31, 2008, and October 31, 2007 and the target allocation of plan assets for 2009, by asset category, are as follows: U.S. Plans Asset Category Target Long- Term Allocation Percentage of Plan Assets at December , 00 October 31, 2007 Domestic Equity Securities Fixed Income Securities International Equity Securities Cash & Cash Equivalents Other 45%–55% 27%–37% 4.5%–14.5% 0%–5% 4%–12% 42.5% 39.6% 8.8% 1.4% 7.7% 54.1% 25.5% 13.0% 0.9% 6.5% Target Long- Term Allocation Percentage of Plan Assets at December , 00 September 30, 2007 Equity Securities Fixed Income Securities Cash & Cash Equivalents Other 50.0% 40.0% 5.0% 5.0% 42.0% 47.4% 0.2% 10.4% 54.3% 40.3% 0.7% 4.7% Plan assets as of December 31, 2008, in the U.K. defined benefit pension plan amounted to 85.6% of the international pension assets. These assets are allocated among various categories of equities, fixed income, cash and cash equivalents with professional investment man- agers whose performance is actively monitored. The primary invest- ment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts Plan assets are allocated among various categories of equities, asset/liability modeling studies and accordingly adjusts investment fixed income, cash and cash equivalents with professional investment amounts within asset categories to ensure the long-term investment managers whose performance is actively monitored. The primary strategy is aligned with the profile of benefit obligations. investment objective is long-term growth of assets in order to meet For the international long-term rate-of-return assumption, the present and future benefit obligations. The Company periodically Company considered the current level of expected returns in risk-free conducts an asset/liability modeling study and accordingly adjusts investments (primarily government bonds), the historical level of the investments among and within asset categories to ensure the long-term risk premium associated with other asset classes in which the portfolio investment strategy is aligned with the profile of benefit obligations. is invested and the expectations for future returns of each asset class The Company reviews the long-term expected return-on-asset and plan expenses. The expected return for each asset class was then assumption on a periodic basis taking into account a variety of factors weighted based on the target asset allocation to develop the expected including the historical investment returns achieved over a long-term long-term rate-of-return on assets. The Company’s expected rate-of- period, the targeted allocation of plan assets and future expectations return assumption for the U.K. plan was 7.23% and 7.5% for 2009 and based on a model of asset returns for an actively managed portfolio, 2008, respectively. The remaining international pension plans with inflation and administrative/other expenses. The model simulates 500 assets representing 14.4% of the international pension assets are different capital market results over 15 years. For 2009, the expected under the guidance of professional investment managers and have return-on-asset assumption for U.S. plans is 8.00%, as compared with similar investment objectives. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements The impact of adopting the recognition provisions of SFAS 158 effec- The changes in the postretirement benefit liability recorded in the tive December 31, 2006 has been reflected in the consolidated financial Consolidated Balance Sheets are as follows: statements as of December 31, 2008, 2007 and 2006 and the incremental Postretirement Benefits effect of applying SFAS 158 to pension benefits is disclosed below. (In thousands) 00 2007 Incremental Effect on Consolidated Balance Sheet of Adopting the Recognition Provisions of SFAS  for Pension Plans – December , 00 Balance Sheet Before Adopting SFAS 158 (a) Adjustments to Adopt SFAS 158 Balance Sheet After Adopting SFAS 158 (a) $164,571 $(92,881) $÷«71,690 $210,061 186,014 113,425 $÷«1,716 3,443 (9,833) $«211,777 189,457 103,592 Change in benefit obligation: Benefit obligation at beginning of year Effect of eliminating early measurement date Service cost Interest cost Actuarial loss Benefits paid Acquisitions Curtailment Settlement Benefit obligation at end of year (In thousands) Assets: Other assets Liabilities: Other current liabilities Retirement plan liabilities Deferred income tax liabilities Stockholders’ Equity: Accumulated other comprehensive loss $«(81,127) $(88,207) $(169,334) position consist of the following: Amounts recognized in the statement of financial (a) Balances represent major captions as presented on the Consolidated Balance Sheet. Postretirement Benefits Current liability Noncurrent liability Net amount recognized 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. Amounts recognized in Accumulated other comprehensive income consist of the following: Net actuarial loss (gain) Prior service cost The costs of health care and life insurance benefits are accrued for Net amount recognized (before tax adjustment) current and future retirees and are recognized as determined under the $«3,202 33 4 187 223 (260) – – – $«3,389 $«÷(333) (3,056) $(3,389) $198 9 $207 $«3,193 – 5 182 52 (240) 85 (39) (36) $«3,202 $÷«(300) (2,902) $(3,202) $(62) 18 $(44) projected unit credit actuarial method. Under this method, the Company’s The estimated amounts that will be amortized from Accumulated obligation for postretirement benefits is to be fully accrued by the date other comprehensive income into net periodic benefit cost are as follows: employees attain full eligibility for such benefits. The Company’s post- retirement health care and life insurance plans are unfunded. Effective December 31, 2008, the Company uses a December 31 measurement Actuarial loss Prior service cost date for its postretirement benefit plans in accordance with the provi- Total sions of SFAS 158. The actuarial assumptions used to determine the postretirement benefit obligation are as follows: (Dollars in thousands) Assumed discount rate Health care cost trend rate Decreasing to ultimate rate Effect of one percent increase in health care cost trend rate: On total service and interest cost components On postretirement benefit obligation Effect of one percent decrease in health care cost trend rate: On total service and interest cost components On postretirement benefit obligation 00 6.10% 8.50% 5.00% $÷«10 202 $÷÷(9) (182) 2007 6.17% 9.00% 5.00% $÷«8 164 $÷÷(8) (148) 2009 $3 2 $5 2006 5.87% 9.00% 5.00% $÷«10 144 $÷÷(9) (130) (In thousands) 00 2007 2006 Postretirement Benefits Expense (Income) Service cost Interest cost Recognized prior service costs Recognized gains Curtailment gains Postretirement benefit expense (income) $÷÷4 187 3 (26) – $168 $÷÷«5 182 3 (126) (82) $÷(18) $÷÷5 186 3 (38) (20) $136 0      Harsco Corporation 2008 Annual Report It is anticipated that the health care cost trend rate will decrease Employee directed investments in the Savings Plan and HRSIP from 8.5% in 2009 to 5.0% in the year 2016. include the following amounts of Company stock: The assumed discount rates to determine the postretirement benefit Company Shares in Plans expense for the years 2008, 2007 and 2006 were 6.17%, 5.87% and 5.87%, respectively. The Company’s expected benefit payments over the next ten years (Dollars in millions) December , 00 December 31, 2007 December 31, 2006 Number of Shares Fair Market Value Number of Shares Fair Market Value Number of Shares (a) Fair Market Value are as follows: (In thousands) 2009 2010 2011 2012 2013 2014–2018 Benefits Payments $÷«333 335 334 331 326 1,482 During 2008, the Company decided to no longer file for Medicare Part D federal subsidies that would provide retiree drug coverage, as the administrative cost associated with pursuing the reimbursement is expected to exceed the benefits received. Therefore, the Company does not expect any future subsidy payments under the Medicare Modernization Act. Savings Plan Savings Plan HRSIP 1,129,708 1,751,098 $31.3 48.5 1,435,289 1,783,462 $÷92.0 114.3 1,714,298 1,818,474 $65.2 69.2 (a) Adjusted to reflect the March 2007 stock split. Executive Incentive Compensation Plan The amended 1995 Executive Incentive Compensation Plan 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 for continuing operations was $9.4 million, $12.1 million and $7.0 million in 2008, 2007 and 2006, respectively. The expenses include performance-based restricted stock units (“RSUs”) that were granted to certain officers and key employees of the Company. See Note 12, “Stock-Based Compensation,” for addi- Prior to January 1, 2004, the Company had a 401(k) Savings Plan (“the tional information on the equity component of executive compensation. Savings Plan”) which covered substantially all U.S. employees with the exception of employees represented by a collective bargaining 9 Income taxes agreement, unless the agreement expressly provides otherwise. Effec- tive January 1, 2004, certain U.S. employees previously covered by the Savings Plan were transferred into the Harsco Retirement Savings and Investment Plan (“HRSIP”), which is a defined contribution pension plan. Income from continuing operations before income taxes and minor- ity interest in the Consolidated Statements of Income consists of the following: The transferred employees were those whose credited years of service (In thousands) under the qualified Defined Benefit Pension Plan were frozen as of December 31, 2003. 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 continu- ing operations expense for contributions to the Savings Plan by the Total income taxes currently payable Company was $0.8 million, $0.6 million and $0.6 million for 2008, 2007 and 2006, respectively. Total income before income taxes and minority interest $343,337 $382,439 $287,604 United States International Income tax expense (benefit): Currently payable: Federal State International Deferred federal and state Deferred international 00 2007 2006 $÷98,842 244,495 $110,926 271,513 $÷69,620 217,984 $÷33,873 1,988 54,817 90,678 1,478 (336) $÷37,917 8,670 68,688 115,275 (3,695) 6,018 $÷33,525 2,338 56,156 92,019 (1,328) 2,663 Total income tax expense $÷91,820 $117,598 $÷93,354 Cash payments for income taxes, including Discontinued Operations, were $120.6 million, $125.4 million and $98.9 million for 2008, 2007 and 2006, respectively. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements The following is a reconciliation of the normal expected statutory The deferred tax asset and liability balances are included in the U.S. federal income tax rate to the effective rate as a percentage of following Consolidated Balance Sheets line items: Income from continuing operations before income taxes and minority interest as reported in the Consolidated Statements of Income: Deferred Income Tax Assets (Liabilities) 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 Difference in effective tax rates on international earnings and remittances FIN 48 tax contingencies and settlements Cumulative effect in change in statutory tax rates Other, net Effective income tax rate 00 35.0% 0.8 (0.2) (0.2) (7.7) (0.5) (0.4) (0.1) 26.7% 2007 35.0% 1.0 (0.3) (0.2) (3.7) 0.1 (0.7) (0.5) 30.7% 2006 35.0% 0.7 (0.3) (0.3) (2.5) (0.3) – 0.2 32.5% The difference in effective tax rates on international earnings and remittances from 2006 to 2008 was primarily due to increased earnings in jurisdictions with lower tax rates and the Company increasing its designation of certain international earnings as permanently rein- vested. The difference in effective tax rates for FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”) tax contingencies and settlements from 2007 to 2008 resulted from the recognition of previously unrecog- nized tax benefits in various state and foreign jurisdictions. 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, 2008 and 2007 are as follows: Deferred Income Taxes (In thousands) Other current assets Other assets Other current liabilities Deferred income taxes December 31 00 2007 $«35,065 27,013 (4,194) (35,442) $÷«37,834 15,535 (5,701) (174,423) At December 31, 2008, the tax effected amount of net operating loss carryforwards (“NOLs”) totaled $21.2 million. Tax effected NOLs from international operations are $13.5 million. Of that amount, $12.7 mil- lion can be carried forward indefinitely, and $0.8 million will expire at various times between 2012 and 2023. Tax effected U.S. federal NOLs are $0.4 million, expire in 2018, and relate to preacquisition NOLs. Tax effected U.S. state NOLs are $7.3 million. Of that amount, $0.1 million expire at various times between 2009 and 2015, $4.8 million expire at various times between 2016 and 2023, and $2.4 million expire at various times between 2024 and 2028. The valuation allowance of $21.5 million and $15.3 million at Decem- ber 31, 2008 and 2007, respectively, related principally to NOLs and foreign investment tax credits which are uncertain as to realizability. The change in the valuation allowances for 2008 and 2007 results primarily from the increase in valuation allowances in certain jurisdic- tions based on the Company’s evaluation of the realizability of future benefits partially offset by the utilization of NOLs and the release of valuation allowances in certain jurisdictions based on the Company’s revaluation of the realizability of future benefits. The Company has not provided U.S. income taxes on certain of its non-U.S. subsidiaries’ undistributed earnings as such amounts are per- 00 2007 manently reinvested outside the United States. At December 31, 2008 (In thousands) Asset Liability Asset Liability Depreciation Expense accruals Inventories Provision for receivables Postretirement benefits Deferred revenue Operating loss carryforwards Deferred foreign tax credits Pensions Currency adjustments and outside basis differences on foreign investments Other Subtotal Valuation allowance $÷÷÷÷÷«– 30,371 4,866 2,587 1,223 – 21,211 3,601 58,226 71,030 11,240 204,355 (21,459) $152,750 – – – – 7,704 – – – $÷÷÷÷÷– 32,074 4,020 2,093 1,157 – 14,954 – 24,631 – – – – 160,454 – 78,929 (15,317) $142,102 – – – – 3,430 – – 18,754 13,120 12,961 190,367 – Total deferred income taxes $182,896 $160,454 $«63,612 $190,367 and 2007, such earnings were approximately $741 million and $697 mil- lion, respectively. If these earnings were repatriated at December 31, 2008, the one time tax cost associated with the repatriation would be approximately $99.6 million. The Company has various tax holidays in the Middle East and Asia that expire between 2009 and 2012. The Company no longer has tax holidays in Europe as they have all expired. During 2008, 2007 and 2006, these tax holidays resulted in approximately $0.2 million, $2.8 million and $2.3 million, respectively, in reduced income tax expense. The Company adopted the provisions of FIN 48, effective January 1, 2007. As a result of the adoption, the Company recognized a cumula- tive effect reduction to the January 1, 2007 retained earnings bal- ance of $0.5 million. As of the adoption date, the Company had gross       Harsco Corporation 2008 Annual Report unrecognized income tax benefits of $46.0 million, of which $17.8 million, During the third quarter of 2008, the U.S. Internal Revenue Service if recognized, would affect the Company’s effective income tax rate. completed its audit of the Company’s U.S. income tax returns for 2004 Of this amount, $0.8 million was classified as current and $45.2 million and 2005. The resolution of the audit resulted in a payment of $2.8 million. was classified as non-current on the Company’s balance sheet. While In July 2008, the Company and the Ontario Ministry of Finance the Company believes it has adequately provided for all tax positions, settled its royalty dispute matter consistent with the results obtained amounts asserted by taxing authorities could be different than the by the Company with the Canada Revenue Agency (“CRA”). This matter accrued position. is more fully discussed in Note 10, “Commitments and Contingencies,” The Company recognizes accrued interest and penalty expense to the consolidated financial statements. related to unrecognized income tax benefits (“UTB”) in income tax The Company filed voluntary disclosure agreements with various expense. In conjunction with the adoption of FIN 48, the total amount U.S. state jurisdictions which resulted in a 2008 payment of $2.3 million of accrued interest and penalties resulting from such unrecognized tax and a realization of UTBs of approximately $1.0 million. benefits was $4.4 million. During the year ended December 31, 2008, the The Company files its income tax returns as prescribed by the tax Company recognized a benefit of $3.2 million for interest and penalties. laws of the jurisdictions in which it operates. With few exceptions, the During the year ended December 31, 2007, the Company recognized Company is no longer subject to the U.S. and foreign examinations by expense of $6.5 million for interest and penalties. The Company had tax authorities for the years through 2002. $7.7 million and $10.9 million for the payment of interest and penalties Upon the adoption of SFAS 141(R) on January 1, 2009, the resolution accrued at December 31, 2008 and 2007, respectively. of all UTBs accounted for under FIN 48 from business combinations and A reconciliation of the change in the UTB balance from January 1, changes in valuation allowances for acquired deferred tax assets will 2007 to December 31, 2008 is as follows: be recognized in income tax expense rather than as an additional cost Balance at December 31, 2007 $÷30,176 $÷«(2,332) $27,844 (In thousands) Balance at January 1, 2007 Additions for tax positions related to the current year (includes currency translation adjustment) Additions for tax positions related to prior years (includes currency translation adjustment) Reductions for tax positions related to acquired entities in prior years, offset to goodwill Other reductions for tax positions related to prior years Settlements Additions for tax positions related to the current year (includes currency translation adjustment) Additions for tax positions related to prior years (includes currency translation adjustment) Reductions for tax positions related to acquired entities in prior years, offset to goodwill Other reductions for tax positions related to prior years Settlements Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate as of December , 00 Unrecognized Income Tax Benefits Deferred Income Tax Benefits Unrecognized Income Tax Benefits, Net of Deferred Income Tax Benefits $«45,965 $(15,016) $30,949 of the acquisition or goodwill. Such adjustments will impact the effec- tive income tax rate. The amount of UTBs accounted for under FIN 48 from business combinations that may impact the effective income tax rate as of December 31, 2008 is $4.6 million. 3,849 (172) 3,677 Royalty Expense Dispute 10 commitments and contingencies 6,516 (3,568) (22,086) (500) – – 12,681 175 6,516 (3,568) (9,405) (325) 2,723 – 2,723 The Company was involved in a royalty expense dispute with the Canada Revenue Agency (“CRA”). The CRA disallowed certain expense deduc- tions claimed by the Company’s Canadian subsidiary on its 1994–1998 tax returns. The Company completed settlement discussions with the CRA which resulted in a resolution and closure of the matter in the fourth quarter of 2007. The settlement resulted in a refund to the Company in the amount of approximately $5.9 million Canadian dollars, representing a refund of the payment made to the CRA in the fourth quarter of 2005, with the interest accrued on the 2005 settlement being utilized to satisfy 2,753 (629) 2,124 the final assessment of $0.6 million Canadian dollars. (92) (6,080) (5,181) – 1,077 705 (92) (5,003) (4,476) The Ontario Ministry of Finance (“Ontario”) also proposed to disallow certain expense deductions for the period 1994–1998. In July 2008, the Company and Ontario settled this matter in a manner consistent with the results obtained by the Company with the CRA. The settlement resulted in a total refund to the Company of approximately $4.9 million Canadian dollars, representing a refund of payments made to Ontario, $«24,299 $÷(1,179) $23,120 plus accrued interest. A portion of these amounts was utilized to satisfy the final assessment of $0.4 million Canadian dollars. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements Environmental the clean-up and salvage efforts were completed during 2007, and the The Company is involved in a number of environmental remediation site is in a closure monitoring phase. Estimated environmental remedia- investigations and clean-ups and, along with other companies, has tion expenses to complete the clean-up have been recognized in the been identified as a “potentially responsible party” for certain waste financial statements as of December 31, 2008. Following the incident, disposal sites. While each of these matters is subject to various the Company’s remaining rail grinders were inspected by the Federal uncertainties, it is probable that the Company will agree to make pay- Railroad Administration (“FRA”) and each grinder was found to be ments toward funding certain of these activities and it is possible that in compliance with legal requirements. The Company also regularly some of these matters will be decided unfavorably to the Company. inspects its grinders to ensure they are in proper working condition and The Company has evaluated its potential liability, and its financial in compliance with contractual commitments. The Company believes exposure is dependent upon such factors as the continuing evolution that the insurance proceeds already received from the loss of the rail of environmental laws and regulatory requirements, the availability grinder have offset the majority of incurred expenses, which have been and application of technology, the allocation of cost among potentially recognized in the financial statements as of December 31, 2008, and responsible parties, the years of remedial activity required and the insurance proceeds should be available to cover any future liabilities. remediation methods selected. The Consolidated Balance Sheets Therefore, the Company does not believe that the derailment will have at December 31, 2008 and December 31, 2007 include accruals of a material adverse effect on its financial position, results of operations, $3.2 million and $3.9 million, respectively, for environmental matters. or cash flows. The amounts charged against pre-tax income related to environmental matters totaled $1.5 million, $2.8 million and $2.0 million in 2008, 2007 and 2006, respectively. The Company and an unrelated third party received a notice of violation in November 2007 from the United States Environmental Protection Agency (“the EPA”), in connection with an alleged violation by the Company and such third party of certain applicable federally enforceable air pollution control requirements in connection with the operation of a slag processing area located on the third party’s Pennsylvania facility. The Company and such third party have promptly taken steps to remedy the situation. The Company and the third party have reached an agreement in principle with the EPA to resolve this matter and are in the process of finalizing this agreement. The Company anticipates that its portion of any penalty would exceed $0.1 million. However, the Company does not expect that any sum it may have to pay in connection with this matter would have a material adverse effect on its financial position, results of operations or cash flows. The Company evaluates its liability for future environmental reme- diation costs on a quarterly basis. Actual costs to be incurred at identi- fied 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 Customer Contract Breach ArcelorMittal recently notified the Company that it would unilaterally revise the fixed fee provisions of certain contracts between the parties with the intended effect resulting in a significant price reduction to the Company. The Company has notified ArcelorMittal that their actions are a breach of these contracts and that the Company will take all neces- sary and appropriate actions to protect its legal rights. Discussions between the parties continue but it is possible that the parties may need to resort to third party resolution of this issue. ArcelorMittal rep- resented approximately 10% of the Company’s sales in 2008, 2007 and 2006. The Company expects ArcelorMittal sales in 2009 to be less than 10% of the Company’s sales due primarily to reduced steel production levels; the Company’s exiting of certain underperforming contracts with ArcelorMittal; and a stronger U.S. dollar. It is possible that the eventual outcome of this unprecedented breach of contract could negatively impact the Company’s long-term relationship with this customer and, as a result, the Company’s financial position, results of operations and cash flows could be negatively impacted. Of all of the Company’s major customers in the Harsco Metals Segment, the EVA on contracts with ArcelorMittal are the lowest in the portfolio. Contracts with ArcelorMit- tal are long-term contracts, such that any impact on the Company’s future results of operations would occur over a number of years. above would have a material adverse effect on its financial position, Other results of operations or cash flows. The Company has been named as one of many defendants (approxi- Derailment One of the Company’s production rail grinders derailed near Baxter, California on November 9, 2006, resulting in two crew member fatali- ties and the near total loss of the rail grinder. Government and private investigations into the cause of the derailment are on-going. Most of mately 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.       Harsco Corporation 2008 Annual Report The Company believes that the claims against it are without merit. Docket for plaintiffs who are able to show such medical condition. As a The Company has never been a producer, manufacturer or processor of result of this order, the majority of the asbestos cases filed against the asbestos fibers. Any component within a Company product which may Company in New York County have been moved to the Inactive Docket have contained asbestos would have been purchased from a supplier. until such time as the plaintiff can show that they have incurred a physi- Based on scientific and medical evidence, the Company believes that cal impairment. As of December 31, 2008, the Company has been listed any asbestos exposure arising from normal use of any Company product as a defendant in 443 Active or In Extremis asbestos cases in New York never presented any harmful levels of airborne asbestos exposure, and County. The Court’s Order has been challenged by plaintiffs. moreover, the type of asbestos contained in any component that was The Company’s insurance carrier has paid all legal and settlement used in those products was protectively encapsulated in other materials costs and expenses to date. The Company has liability insurance and is not associated with the types of injuries alleged in the pending coverage under various primary and excess policies that the Company suits. Finally, in most of the depositions taken of plaintiffs to date in the believes will be available, if necessary, to substantially cover any liabil- litigation against the Company, plaintiffs have failed to specifically iden- ity that might ultimately be incurred on these claims. tify any Company products as the source of their asbestos exposure. The Company intends to continue its practice of vigorously defending The majority of the asbestos complaints pending against the Com- these cases as they are listed for trial. It is not possible to predict the pany have been filed in New York. Almost all of the New York complaints ultimate outcome of asbestos-related lawsuits, claims and proceedings contain a standard claim for damages of $20 million or $25 million against due to the unpredictable nature of personal injury litigation. Despite the approximately 90 defendants, regardless of the individual plaintiff’s this uncertainty, and although results of operations and cash flows for a alleged medical condition, and without specifically identifying any given period could be adversely affected by asbestos-related lawsuits, Company product as the source of plaintiff’s asbestos exposure. claims and proceedings, management believes that the ultimate outcome As of December 31, 2008, there are 26,235 pending asbestos per- of these cases will not have a material adverse effect on the Company’s sonal injury claims filed against the Company. Of these cases, 25,728 financial condition, results of operations or cash flows. were pending in the New York Supreme Court for New York County in The Company is subject to various other claims and legal proceed- New York State. The other claims, totaling 507, are filed in various coun- ings covering a wide range of matters that arose in the ordinary course of ties in a number of state courts, and in certain Federal District Courts business. In the opinion of management, all such matters are adequately (including New York), and those complaints generally assert lesser covered by insurance or by accruals, and if not so covered, are without amounts of damages than the New York State court cases or do not merit or are of such kind, or involve such amounts, as would not have a state any amount claimed. material adverse effect on the financial position, results of operations or As of December 31, 2008, the Company has obtained dismissal by cash flows of the Company. stipulation, or summary judgment prior to trial, in 17,892 cases. Insurance liabilities are recorded in accordance with SFAS 5, In view of the persistence of asbestos litigation nationwide, which “Accounting for Contingencies.” Insurance reserves have been has not yet been sufficiently addressed either politically or legally, the estimated based primarily upon actuarial calculations and reflect the Company expects to continue to receive additional claims. However, undiscounted estimated liabilities for ultimate losses including claims there have been developments during the past several years, both incurred but not reported. Inherent in these estimates are assump- by certain state legislatures and by certain state courts, which could tions which are based on the Company’s history of claims and losses, a favorably affect the Company’s ability to defend these asbestos claims detailed analysis of existing claims with respect to potential value, and in those jurisdictions. These developments include procedural changes, current legal and legislative trends. If actual claims differ from those docketing changes, proof of damage requirements and other changes projected by management, changes (either increases or decreases) to that require plaintiffs to follow specific procedures in bringing their insurance reserves may be required and would be recorded through claims and to show proof of damages before they can proceed with income in the period the change was determined. When a recognized their claim. An example is the action taken by the New York Supreme liability is covered by third-party insurance, the Company records an Court (a trial court), which is responsible for managing all asbestos insurance claim receivable to reflect the covered liability. Insurance cases pending within New York County in the State of New York. This claim receivables are included in Other receivables in the Company’s Court issued an order in December 2002 that created a Deferred or Consolidated Balance Sheets. See Note 1, “Summary of Significant Inactive Docket for all pending and future asbestos claims filed by Accounting Policies,” for additional information on Accrued Insurance plaintiffs who cannot demonstrate that they have a malignant condi- and Loss Reserves. tion or discernable physical impairment, and an Active or In Extremis Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements As has been indicated in previous disclosure filings, the working Agreement also includes an exchange feature. At December 31, 2008, capital adjustments associated with the Gas Technologies divestiture 801,745 shares of $1.25 par value preferred stock were reserved for have not yet been finalized. The Company has reflected a portion of the issuance upon exercise of the rights. claimed amount of the adjustment in the Company’s financial statements On January 23, 2007, the Company’s Board of Directors approved a as of December 31, 2008. Any additional final adjustment amounts are two-for-one stock split of the Company’s common stock. One additional not expected to be material to the Company’s financial position, results share of common stock was issued on March 26, 2007, for each share of operations or cash flows. As part of its effort to resolve the working that was issued and outstanding at the close of business on February 28, capital adjustment claims, the Company recently submitted this matter 2007. The Company’s treasury stock was not included in the stock split. to arbitration. In response to this filing, Taylor-Wharton International, The Board of Directors has authorized the repurchase of shares of the purchaser of the business, submitted certain counter-claims seek- common stock as follows: ing damages in excess of $30 million, relating primarily to the alleged breach of certain representations and warranties made by the Company under the Purchase Agreement. The Company intends to vigorously defend against the counter-claims. The Company believes that it will be successful in its defense of these claims and does not believe that any amount it will have to pay in connection with these claims would have a material adverse effect on its financial position, results of operations or cash flows. 11 capital Stock No. of Shares Authorized to be Purchased January 1 (a) Additional Shares Authorized for Purchase No. of Shares Purchased (a) Remaining No. of Shares Authorized for Purchase December 31 (a) 2006 2007 00 2,000,000 2,000,000 2,000,000 – – 4,000,000 – – 4,463,353 2,000,000 2,000,000 1,536,647 (a) Authorization and number of shares purchased adjusted to reflect the two-for-one stock split effective at the end of business on March 26, 2007. The Company’s share repurchase program was extended by the Board of Directors in September 2008. The Board authorized an increase of 4,000,000 shares to the 946,367 remaining from the Board’s The authorized capital stock of the Company consists of 150,000,000 previous stock repurchase authorization. The repurchase program shares of common stock and 4,000,000 shares of preferred stock, both expires January 31, 2010. having a par value of $1.25 per share. The preferred stock is issuable in In addition to the above purchases, 29,346 shares were repurchased series with terms as fixed by the Board of Directors (the “Board”). None in 2008 in connection with the issuance of shares as a result of vested of the preferred stock has been issued. On September 25, 2007, the restricted stock units. In 2007 and 2006, 90 treasury shares and 1,766 Board approved a revised Preferred Stock Purchase Rights Agreement treasury shares, respectively, were issued in connection with SGB (the “Agreement”). Under the Agreement, the Board authorized and stock option exercises, employee service awards, and shares related to declared a dividend distribution to stockholders of record on October 9, vested restricted stock units. 2007, of one right for each share of common stock outstanding on the The following table summarizes the Company’s common stock: record date. The rights may only be exercised if, among other things Common Stock (a) and with certain exceptions, a person or group has acquired 15% or more of the Company’s common stock without the prior approval of the Board. Each right entitles the holder to purchase 1/100th share of Harsco Series A Junior Participating Cumulative Preferred Stock at an exercise price of $230. Once the rights become exercisable, the holder of a right will be entitled, upon payment of the exercise price, to pur- chase a number of shares of common stock calculated to have a value of two times the exercise price of the right. The rights, which expire on October 9, 2017, do not have voting power, and may be redeemed by the Company at a price of $0.001 per right at any time until the 10th Outstanding, January 1, 2006 Stock Options Exercised Other Outstanding, December 31, 2006 Stock Options Exercised Other Outstanding, December , 00 Stock Options Exercised Vested Restricted Stock Units Purchases Shares Issued Treasury Shares Outstanding Shares 110,040,961 468,157 1,085 110,510,203 422,416 – 110,932,619 121,176 86,193 – 26,474,609 (681) (1,085) 26,472,843 – (90) 26,472,753 – 29,346 4,463,353 83,566,352 468,838 2,170 84,037,360 422,416 90 84,459,866 121,176 56,847 (4,463,353) business day following public announcement that a person or group Outstanding, December , 00 111,139,988 30,965,452 80,174,536 has accumulated 15% or more of the Company’s common stock. The (a) All share data has been restated for comparison purposes to reflect the effect of the March 2007 stock split.       Harsco Corporation 2008 Annual Report The following is a reconciliation of the average shares of common directors, respectively. Primarily because of this, the effect of adopting stock used to compute basic earnings per common share to the shares SFAS 123(R) was not material to the Company’s income from continuing used to compute diluted earnings per common share as shown on the operations, income before income taxes, net income, basic or diluted Consolidated Statements of Income: (Amounts in thousands, except per share data) 00 2007 2006 (a) Income from continuing operations $245,623 $255,115 $186,402 (b) earnings per share or cash flows from operating and financing activi- ties for the year ended December 31, 2006, and the cumulative effect of adoption using the modified-prospective transition method was not material. In addition, the Company elected to use the short-cut transi- tion method for calculating the historical pool of windfall tax benefits. In 2004, the Board of Directors approved the granting of perfor- 83,599 84,169 83,905 430 555 525 mance-based restricted stock units as the long-term equity com- ponent of director, officer and certain key employee compensation. 84,029 84,724 84,430 The restricted stock units require no payment from the recipient and $÷÷2.94 $÷÷3.03 $÷÷2.22 grant date and is generally recorded over the vesting period. The vest- compensation cost is measured based on the market price on the Average shares of common stock outstanding used to compute basic earnings per common share Dilutive effect of stock options and restricted stock units Average shares of common stock outstanding used to compute dilutive earnings per common share Basic earnings per common share from continuing operations Diluted earnings per common share from continuing operations $÷÷2.92 $÷÷3.01 $÷÷2.21 (a) Shares have been adjusted for comparison purposes to reflect the effect of the March 2007 (b) stock split. Income from continuing operations has been adjusted to reflect reclassification of Discontinued Operations for comparative purposes. All outstanding stock options were included in the computation of average shares of common stock outstanding used to compute diluted earnings per share at December 31, 2008, 2007 and 2006. 12 Stock-Based compensation ing period for restricted stock units granted to non-employee directors is one year and each restricted stock unit will be exchanged for a like number of shares of Company stock following the termination of the participant’s service as a director. The vesting period for restricted stock units granted to officers and certain key employees is three years, and, upon vesting, each restricted stock unit will be exchanged for a like number of shares of the Company’s stock. In September 2006, the Board of Directors approved changes to the employee restricted stock units program where future awards will vest on a pro rata basis over a three-year period and the specified retirement age will be 62. Effective January 1, 2006, the Company adopted SFAS No. 123 (revised This compares with the prior three-year cliff vesting and retirement age 2004), “Share-Based Payments” (“SFAS 123(R)”), which replaced SFAS of 65 for awards prior to September 2006. Restricted stock units do not No. 123, “Accounting for Stock-Based Compensation,” and superseded have an option for cash payment. Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for The following table summarizes restricted stock units issued and Stock Issued to Employees” (“APB 25”). SFAS 123(R) requires the cost the compensation expense (including both continuing and discontinued of employee services received in exchange for an award of equity operations) recorded for the years ended December 31, 2008, 2007 instruments to be based upon the grant-date fair value of the award and 2006: (with limited exceptions). Additionally, this cost is to be recognized Stock-Based Compensation Expense (Dollars in thousands, except per unit) Restricted Stock Units Fair Value per Unit Expense 00 2007 2006 as expense over the period during which an employee is required to provide services in exchange for the award (usually the vesting period). However, this recognition period would be shorter if the recipient becomes retirement-eligible prior to the vesting date. SFAS 123(R) also requires that the additional tax benefits the Company receives from stock-based compensation be recorded as cash inflows from financing activities in the statement of cash flows. Prior to January 1, 2006, the Company applied the provisions of APB 25 in accounting for awards made under the Company’s stock-based compensation plans. Directors: May 1, 2005 (a) May 1, 2006 (a) May 1, 2007 May 1, 2008 Employees: January 24, 2005 (a) January 24, 2006 (a) January 22, 2007 January 22, 2008 $26.88 41.30 50.62 58.36 25.21 33.85 38.25 45.95 12,000 16,000 16,000 16,000 65,400 93,100 101,700 130,950 451,150 $÷÷÷«– – 270 623 21 632 1,035 2,652 $÷÷÷«– 220 539 – 328 839 1,488 – $÷«108 440 – – 477 914 – – $5,233 $3,414 $1,939 The Company adopted the provisions of SFAS 123(R) using the modi- Total fied-prospective transition method. Under this method, results from (a) Restricted stock units and fair values have been restated to reflect the March 2007 two-for- prior periods have not been restated. During 2002 and 2003, the Com- one stock split. pany ceased granting stock options to employees and non-employee Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements Restricted stock unit activity for the years ended December 31, 2008, the Executive Incentive Compensation and Non-Employee Directors’ 2007 and 2006 was as follows: Stock Plans are stated on a post-split basis. Generally, new shares are Nonvested at January 1, 2006 Granted Vested Forfeited Nonvested at December 31, 2006 Granted Vested Forfeited Nonvested at December , 00 Granted Vested Forfeited Nonvested at December , 00 Weighted Average Grant-Date Fair Value (a) Restricted Stock Units (a) 63,500 109,100 (15,666) (11,700) 145,234 117,700 (16,000) (35,000) 211,934 146,950 (95,570) (5,584) 257,730 $25.31 34.94 36.59 30.90 $30.88 39.93 47.51 34.06 $34.12 47.30 34.43 39.78 $41.40 (a) Restricted stock units and fair values have been restated to reflect the March 2007 two-for-one stock split. As of December 31, 2008, the total unrecognized compensation cost related to nonvested restricted stock units was $4.1 million, which is expected to be recognized over a weighted-average period of approximately 1.7 years. As of December 31, 2008, 2007 and 2006, excess tax benefits, resulting principally from stock options, were $1.7 million, $5.1 million and $3.6 million, respectively. No stock options have been granted to officers and employees since February 2002. No stock options have been granted to non- employee directors since May 2003. Prior to these dates, the Company had granted stock options for the purchase of its common stock to issued for exercised stock options and vested restricted stock units. Options issued under the 1995 Executive Incentive Compensation Plan generally vested and became exercisable one year following the date of grant except options issued in 2002 generally vested and became exercisable two years following the date of grant. Options issued under the 1995 Non-Employee Director’s Stock Plan generally became exercisable one year following the date of grant but vested immediately. The options under both Plans expire ten years from the date of grant. Stock option activity for the years ended December 31, 2008, 2007 and 2006 was as follows: Stock Options Outstanding, January 1, 2006 Exercised Terminated and Expired Outstanding, December 31, 2006 Exercised Outstanding, December , 00 Exercised Outstanding, December , 00 Shares Under Option (a) 1,498,050 (c) (468,838) (1,800) 1,027,412 (422,416) 604,996 (121,176) 483,820 Weighted Average Exercise Price (a) Aggregate Intrinsic Value (in millions) (b) $15.97 17.03 14.38 $15.49 15.74 $15.30 14.96 $15.39 $26.9 – – $23.4 – $29.9 – $÷5.7 (a) Stock options and weighted average exercise prices have been restated to reflect the (b) (c) March 2007 two-for-one stock split. Intrinsic value is defined as the difference between the current market value and the exercise price. Included in options outstanding at January 1, 2006 were 681 options granted to SGB key employees as part of the Company’s acquisition of SGB in 2000. These options were not a part of the 1995 Executive Compensation Plan, or the 1995 Non-Employee Directors’ Stock Plan. officers, certain key employees and non-employee directors under two The total intrinsic value of options exercised during the twelve stockholder-approved plans. The exercise price of the stock options months ended December 31, 2008, 2007 and 2006 was $4.5 million, was the fair value on the grant date, which was the date the Board of $17.1 million and $10.8 million, respectively. Directors approved the respective grants. The 1995 Executive Incentive Options to purchase 483,820 shares were exercisable at December 31, Compensation Plan authorizes the issuance of up to 8,000,000 shares 2008. The following table summarizes information concerning outstand- of the Company’s common stock for use in paying incentive compensa- ing and exercisable options at December 31, 2008. tion awards in the form of stock options or other equity awards such as restricted stock, restricted stock units or stock appreciation rights. The 1995 Non-Employee Directors’ Stock Plan authorizes the issuance of up to 600,000 shares of the Company’s common stock for equity awards. At December 31, 2008, there were 2,292,396 and 265,000 shares available for granting equity awards under the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee Directors’ Stock Plan, Stock Options Outstanding and Exercisable (a) Range of Exercisable Prices Number Outstanding and Exercisable Remaining Contractual Life In Years Weighted Average Exercise Price $12.81–14.50 ÷14.65–16.33 ÷16.40–23.08 219,715 197,905 66,200 483,820 1.43 3.02 3.47 $13.64 16.29 18.51 respectively. The above referenced authorized and available shares for (a) All share and price values reflect the effect of the March 2007 two-for-one stock split.       Harsco Corporation 2008 Annual Report 13 Financial Instruments Off-Balance Sheet Risk related to these properties. There is no recognition of this potential future payment in the accompanying financial statements as the Company believes the potential for making this payment is remote. As collateral for the Company’s performance and to insurers, the The Company provided an environmental indemnification for prop- Company is contingently liable under standby letters of credit, bonds erty that was sold to a third party in 2006. The term of this guarantee is and bank guarantees in the amounts of $234.1 million and $159.2 million three years and the Company would only be required to perform under at December 31, 2008 and 2007, respectively. These standby letters of the guarantee if an environmental matter were discovered on the prop- credit, bonds and bank guarantees are generally in force for up to four erty. The Company is not aware of any environmental issues related years. Certain issues have no scheduled expiration date. The Company to the property. The maximum potential amount of future payments pays fees to various banks and insurance companies that range from (undiscounted) related to this guarantee is $0.2 million at December 31, 0.25 percent to 1.60 percent per annum of the instruments’ face value. 2008 and 2007. There is no recognition of this potential future payment If the Company were required to obtain replacement standby letters of in the accompanying financial statements as the Company believes the credit, bonds and bank guarantees as of December 31, 2008 for those potential for making this payment is remote. currently outstanding, it is the Company’s opinion that based on current The Company provided an environmental indemnification for prop- economic conditions the replacement costs would be higher than the erty that was sold to a third party in 2006. The term of this guarantee is present fee structure. indefinite, and the Company would only be required to perform under The Company has currency exposures in approximately 50 coun- the guarantee if an environmental matter were discovered on the prop- tries. The Company’s primary foreign currency exposures during 2008 erty relating to the time the Company owned the property. The Company were in the United Kingdom, members of the European Economic and is not aware of any environmental issues related to this property. The Monetary Union, Brazil, Poland and South Africa. maximum potential amount of future payments (undiscounted) related Off-Balance Sheet Risk – Third Party Guarantees In connection with the licensing of one of the Company’s trade names and providing certain management services (the furnishing of selected employees), the Company guarantees the debt of certain third parties related to its international operations. These guarantees are provided to enable the third parties to obtain financing of their operations. The Company receives fees from these operations, which are included as Services revenues in the Company’s Consolidated Statements of Income. The revenue the Company recorded from these entities was $6.3 million, $3.0 million and $2.2 million for the twelve months ended December 31, 2008, 2007 and 2006, 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, 2008 and 2007. 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 2008, September 2008 and November 2008. The Company provided an environmental indemnification for prop- erties that were sold to a third party in 2007. The maximum term of this guarantee is twenty years, and the Company would only be required to perform under the guarantee if an environmental matter is discovered on the properties. The Company is not aware of environmental issues to this guarantee is estimated to be $3.0 million at December 31, 2008 and 2007. There is no recognition of this potential future payment in the accompanying financial statements as the Company believes the potential for making this payment is remote. The Company provides guarantees related to arrangements with certain customers that include joint and several liability for actions for which the Company may be partially at fault. The terms of these guarantees generally do not exceed four years and the maximum amount of future payments (undiscounted) related to these guarantees is $3.0 million per occurrence. This amount represents the Company’s self-insured maximum limitation. There is no specific recognition of potential future payments in the accompanying financial statements as the Company is not aware of any claims. The Company provided a guarantee related to the payment of taxes for a product line that was sold to a third party in 2005. The term of this guarantee is five years, and the Company would only be required to perform under the guarantee if taxes were not properly paid to the government while the Company owned the product line in accordance with applicable statutes. The Company is not aware of any instances of noncompliance related to these statutes. The maximum potential amount of future payments (undiscounted) related to this guarantee is estimated to be $1.3 million at December 31, 2008 and 2007. There is no recognition of any potential future payment in the accompanying financial statements as the Company believes the potential for making this payment is remote. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements The Company provided an environmental indemnification for prop- All derivative instruments are recorded on the balance sheet at fair erty that was sold to a third party in 2004. The term of this guarantee value. Derivatives used to hedge foreign-currency-denominated bal- is seven years and the Company would only be required to perform ance sheet items are reported directly in earnings along with offsetting under the guarantee if an environmental matter were discovered on transaction gains and losses on the items being hedged. Derivatives the property relating to the time the Company owned the property used to hedge forecasted cash flows associated with foreign currency that was not known by the buyer at the date of sale. The Company is commitments or forecasted commodity purchases may be accounted not aware of any environmental issues related to this property. The for as cash flow hedges, as deemed appropriate and if the criteria of maximum potential amount of future payments (undiscounted) related SFAS 133 are met. Gains and losses on derivatives designated as cash to this guarantee is $0.8 million at December 31, 2008 and 2007. There flow hedges are deferred as a separate component of stockholders’ is no recognition of this potential future payment in the accompanying equity and reclassified to earnings in a manner that matches the timing financial statements as the Company believes the potential for making of the earnings impact of the hedged transactions. The ineffective this payment is remote. portion of all hedges, if any, is recognized currently in earnings. Liabilities for the fair value of each of the guarantee instruments noted above were recognized in accordance with FASB Interpreta- tion 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, 2008 or 2007. In the normal course of business, the Company provides legal indemnifications related primarily to the performance of its products and services and patent and trademark infringement of its goods and services sold. These indemnifications generally relate to the per- formance (regarding function, not price) of the respective goods or services and therefore no liability is recognized related to the fair value of such guarantees. Commodity Derivatives The Company may periodically use derivative instruments to hedge cash flows associated with selling price exposure to certain commodities. The Company’s commodity derivative activities are subject to the manage- ment, direction and control of the Company’s Risk Management Commit- tee, which approves the use of all commodity derivative instruments. The following tables summarize the open positions of contracts qualifying as cash flow hedges at December 31, 2008 and 2007 under the requirements of SFAS 133. All contracts are with major financial institutions. The Company may be exposed to credit loss in the event of non-performance by the other parties to the contracts. The Company evaluates the creditworthiness of the counterparties and does not expect default by them. Commodity Cash Flow Hedges as of December , 00 (In thousands) Amount Recognized in Notional Value (a) Operating Income from Continuing Operations in 2008 Other Comprehensive Income(b) Derivative Instruments and Hedging Activities The Company conducts business in many different currencies and, Hedge Type accordingly, is subject to the inherent risks associated with foreign exchange rate movements. The financial position and results of opera- tions of substantially all of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Foreign currency denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the respective balance sheet dates, and income and expense items are translated at the average Swap contracts; unsecured, maturing monthly through December 2009 Swap contracts and cashless collars closed in 2008 $10,923 $÷«102 $4,377(c) – 6,277 – (a) Notional value is equal to the hedged volume multiplied by the strike price of the derivative. (b) Amounts are shown pre-tax. (c) All amounts will be reclassified to earnings over the next twelve months. Commodity Cash Flow Hedges as of December , 00 exchange rates during the respective periods. The aggregate effects of (In thousands) translating the balance sheets of these subsidiaries are deferred as a separate component of stockholders’ equity. The Company has used derivative instruments, including swaps Hedge Type Amount Recognized in Notional Value (a) Operating Income from Continuing Operations in 2007 Other Comprehensive Income (b) and forward contracts, to manage certain foreign currency, commodity price and interest rate exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for trading or speculative purposes. Cashless Collars; unsecured, maturing monthly through November 2008 $6,048 $527 $– (a) Notional value is equal to the hedged volume multiplied by the strike price of the derivative. (b) Amounts are shown pre-tax. 0      Harsco Corporation 2008 Annual Report Although earnings volatility may occur between fiscal quarters due flow hedges in the amount of $2.1 million at December 31, 2008. These to hedge ineffectiveness or if the derivatives do not qualify as cash forward contracts had a net unrealized gain of $6 thousand that was flow hedges under SFAS 133, the economic substance of the deriva- included in Other comprehensive income (loss), net of deferred taxes, tives provides more predictable cash flows by reducing the Company’s at December 31, 2008. The Company did not elect to treat the remaining exposure to the commodity price fluctuations. contracts as hedges under SFAS 133, and mark-to-market gains and Foreign Currency Forward Exchange Contracts losses were recognized in net income. The Company may use derivative instruments to hedge cash flows Forward Exchange Contracts related to foreign currency fluctuations. At December 31, 2008 and 2007, the Company had $293.9 million and $392.2 million contracted amounts, (In thousands) respectively, of foreign currency forward exchange contracts out- standing. These contracts are part of a worldwide program to minimize foreign currency exchange operating income and balance sheet exposure. The unsecured contracts outstanding at December 31, 2008 mature within nine months and are with major financial institutions. The Company may be exposed to credit loss in the event of non-perfor- mance by the other parties to the contracts. The Company evaluates the creditworthiness of the counterparties and does not expect default Australian dollar Canadian dollar Canadian dollar Euros Euros British pounds sterling British pounds sterling Mexican pesos South African rand by them. Foreign currency forward exchange contracts are used to Total Type Sell Buy Sell Buy Sell Buy Sell Sell Sell As of December 31, 2007 U.S. Dollar Equivalent Maturity Recognized Gain (Loss) $÷÷1,447 7,149 4,008 197,597 9,005 48,801 115,489 1,318 7,354 $392,168 January 2008 January 2008 January 2008 January 2008 January 2008 January through March 2008 January 2008 January 2008 January through May 2008 $÷÷(36) 150 (83) 1,859 66 (222) 3,296 10 (166) $4,874 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, 2008 and 2007. 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 commit- ments to sell foreign currencies. Forward Exchange Contracts As of December 31, 2008 Maturity Recognized Gain (Loss) At December 31, 2007, the Company held forward exchange contracts which were used to offset certain future payments between the Company and its various subsidiaries, vendors or customers. The Company did not have any outstanding forward contracts designated as SFAS 133 cash flow hedges at December 31, 2007, and mark-to- market gains and losses were recognized in net income. In addition to foreign currency forward exchange contracts, the Company designates certain loans as hedges of net investments in foreign subsidiaries. The Company recorded charges of $7.6 million and $12.8 million during 2008 and 2007, respectively, as Accumulated other comprehensive expense, which is a separate component of stockholders’ equity, related to hedges of net investments. (In thousands) Canadian dollar Euros Euros British pounds sterling British pounds sterling South African rand Other currencies Other currencies Total Type Sell Sell Buy Sell Buy Sell Sell Buy U.S. Dollar Equivalent $÷÷1,342 19,749 113,084 56,671 98,878 2,175 292 1,692 $293,883 January through September 2009 January through March 2009 January through August 2009 January 2009 January through February 2009 January 2009 January 2009 January through May 2009 $÷÷(14) (248) Cross-Currency Interest Rate Swap In May 2008, the Company entered into a ten-year, $250.0 million cross- 5,625 currency interest rate swap in conjunction with the May 2008 note 1,450 (3,335) (41) 3 (62) $3,378 issuance (see Note 6, “Debt and Credit Agreements”) in order to lock in a fixed euro interest rate for $250.0 million of the borrowing. Under the swap, the Company receives interest based on a fixed U.S. dollar rate and pays interest on a fixed euro rate on the outstanding notional principal amounts in dollars and euros, respectively. The cross-currency interest rate swap is recorded in the consolidated balance sheet at fair value, with changes in value attributed to the effect of the swaps’ At December 31, 2008, the Company held forward exchange con- interest spread recorded in Accumulated other comprehensive income tracts which were used to offset certain future payments between the which is a separate component of stockholders’ equity. At December 31, Company and its various subsidiaries, vendors or customers. The Com- 2008, the fair value asset of the swap was $49.4 million. pany had outstanding forward contracts designated as SFAS 133 cash Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements Concentrations of Credit Risk between (1) market participant assumptions developed based on mar- Financial instruments, which potentially subject the Company to concen- ket data obtained from independent sources (observable inputs) and trations of credit risk, consist principally of cash and cash equivalents and (2) an entity’s own assumptions about market participant assumptions accounts receivable. The Company places its cash and cash equivalents developed based on the best information available in the circumstances with high-quality financial institutions and, by policy, limits the amount of (unobservable inputs). The fair value hierarchy consists of three broad credit exposure to any one institution. levels, which gives the highest priority to unadjusted quoted prices in Concentrations of credit risk with respect to accounts receivable active markets for identical assets or liabilities (Level 1) and the lowest are generally limited in the Harsco Infrastructure Segment and the “All priority to unobservable inputs (Level 3). The three levels of the fair Other” Category due to the Company’s large number of customers and value hierarchy under SFAS 157 are described below: their dispersion across different industries and geographies. However, • Level 1 – Unadjusted quoted prices in active markets that are the Company’s Harsco Metals Segment has several large customers accessible at the measurement date for identical, unrestricted throughout the world with significant accounts receivable balances. assets or liabilities. Additionally, consolidation in the global steel industry has increased the • Level 2 – Inputs other than quoted prices included within Level 1 that Company’s exposure to specific customers. Additional consolidation is are observable for the asset or liability, either directly or indirectly, possible. Should transactions occur involving some of the steel indus- including quoted prices for similar assets or liabilities in active try’s larger companies, which are customers of the Company, it would markets; quoted prices for identical or similar assets or liabilities in result in an increase in concentration of credit risk for the Company. markets that are not active; inputs other than quoted prices that are The Company generally does not require collateral or other security observable for the asset or liability (e.g., interest rates); and inputs to support customer receivables. If a receivable from one or more of that are derived principally from or corroborated by observable the Company’s larger customers becomes uncollectible, it could have a market data by correlation or other means. material effect on the Company’s results of operations or cash flows. • Level 3 – Inputs that are both significant to the fair value measure- Fair Value of Financial Instruments ment and unobservable. The carrying amounts of cash and cash equivalents, accounts receiv- In instances in which multiple levels of inputs are used to measure able, accounts payable, accrued liabilities, and short-term borrowings fair value, hierarchy classification is based on the lowest level input approximate fair value due to the short-term maturities of these assets that is significant to the fair value measurement in its entirety. The and liabilities. At December 31, 2008 and 2007, total fair value of long- Company’s assessment of the significance of a particular input to the term debt, including current maturities, was $900 million and $1,049 mil- fair value measurement in its entirety requires judgment, and considers lion, respectively, compared to carrying value of $895 million and factors specific to the asset or liability. $1,020 million, respectively. Fair values for debt are based on quoted The following table presents information about the Company’s market prices for the same or similar issues or on the current rates assets and liabilities measured at fair value on a recurring basis at offered to the Company for debt of the same remaining maturities. December 31, 2008, and indicates the fair value hierarchy of the valua- Effective January 1, 2008, the Company adopted SFAS 157, as tion techniques utilized by the Company to determine such fair value. amended by FSP SFAS 157-2, which provides a framework for measur- Fair Value Measurements as of December , 00 ing fair value under GAAP. As defined in SFAS 157, fair value is the price (In thousands) Level 1 Level 2 Level 3 Total that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that Assets Commodity derivatives Foreign currency forward exchange contracts the Company believes market participants would use in pricing the Cross-currency interest rate swap asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. This standard is now the single source in GAAP for the definition Liabilities Foreign currency forward exchange contracts – – – – $÷4,479 7,332 49,433 3,954 – – – – $÷4,479 7,332 49,433 3,954 of fair value, except for the fair value of leased property as defined in The Company primarily applies the market approach for recurring SFAS 13. SFAS 157 establishes a fair value hierarchy that distinguishes fair value measurements and endeavors to utilize the best available       Harsco Corporation 2008 Annual Report information. Accordingly, the Company utilizes valuation techniques Harsco Metals Segment that maximize the use of observable inputs, such as forward rates, This segment provides on-site, outsourced services to steel mills and interest rates, the Company’s credit risk and counterparties’ credit risks, other metal producers such as aluminum and copper. Services include and minimize the use of unobservable inputs. The Company is able to slag processing; semi-finished inventory management; material classify fair value balances based on the observability of those inputs. handling; scrap management; in-plant transportation; and a variety of Commodity derivatives, foreign currency forward exchange contracts, other services. and cross-currency interest rate swaps are classified as Level 2 fair value based upon pricing models using market-based inputs. Model inputs can be verified and valuation techniques do not involve signifi- cant management judgment. FSP SFAS 157-2, issued in February 2008, delayed until Janu- ary 1, 2009 the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are measured on a nonrecurring basis. The Company’s nonfinancial assets consist principally of property, plant and equipment, goodwill, and other intangible assets associated with acquired businesses. For these assets, measurement at fair value in periods subsequent to their initial recognition will be applicable if one or more of these assets are determined to be impaired. When and if recognition of these assets at their fair value is necessary, such mea- surements would be determined utilizing principally Level 3 inputs. All Other Category – Harsco Minerals & Rail Major products and services include railway track maintenance equipment and services; minerals and recycling technologies; gran- ules for asphalt roofing shingles and abrasives for industrial surface preparation derived from coal slag; industrial grating; air-cooled heat exchangers; 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; steel mills; industrial plants and the non-residential, commercial and public construction and retrofit markets; the natural gas exploration and processing industry; asphalt roofing manufacturers; and the chemical, food processing and pharmaceutical industries. Other Information 14 Information by Segment and The measurement basis of segment profit or loss is operating income. 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 Informa- tion” (“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. The Company has two reportable segments and an “All Other” category labeled Harsco Minerals & Rail. These segments and the types of products and services offered include the following: Harsco Infrastructure Segment Sales of the Company in the United States and the United Kingdom exceeded 10% of consolidated sales with 32% and 17%, respectively, in 2008; 31% and 20%, respectively, in 2007; and 32% and 22%, respec- tively, in 2006. There are no significant inter-segment sales. In 2008, 2007 and 2006, sales to one customer, ArcelorMittal, princi- pally in the Harsco Metals Segment were $416.6 million, $396.2 million and $351.0 million, respectively, which represented more than 10% of the Company’s consolidated sales for those years. These sales were provided under multiple long-term contracts at several mill sites. In addition, the Harsco Metals Segment is dependent largely on the global steel industry, and in 2008, 2007 and 2006 there were two customers, including ArcelorMittal, that each provided in excess of 10% of this Segment’s revenues under multiple long-term contracts at several mill sites. The loss of any one of these contracts would not have a material Major services include project engineering and equipment installation; adverse impact upon the Company’s financial position or cash flows; as well as the rental and sale of scaffolding, shoring and concrete however, it could have a material effect on quarterly or annual results forming systems for industrial maintenance and capital improvement of operations. Additionally, these customers have significant accounts projects, non-residential construction, and international multi-dwelling receivable balances. Further consolidation in the global steel industry residential construction projects. is possible. Should transactions occur involving some of the Company’s Services are provided to industrial and petrochemical plants; the larger steel industry customers, it would result in an increase in con- infrastructure construction, repair and maintenance markets; commer- centration of credit risk for the Company. cial and industrial construction contractors; and public utilities. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements Corporate assets include principally cash, insurance receivables, prepaid pension costs and U.S. deferred income taxes. Net Property, Plant and Equipment in the United States represented 24%, 24% and 30% of total net Property, Plant and Equipment as of December 31, 2008, 2007 and 2006, respectively. Net Property, Plant and Equipment in the United Kingdom represented 15%, 20% and 23% of total Net Property, Plant and Equipment as of December 31, 2008, 2007 and 2006, respectively. Segment Information (In thousands) Harsco Infrastructure Segment Harsco Metals Segment Segment Totals All Other Category – Harsco Minerals & Rail General Corporate 00 2007 2006 Twelve Months Ended December 31, Sales $1,540,258 1,577,720 3,117,978 849,604 240 Operating Income (Loss) $185,382 85,344 270,726 150,922 (9,660) Sales $1,415,873 1,522,274 2,938,147 749,997 16 Operating Income (Loss) $183,752 134,504 318,256 142,191 (2,642) Sales $1,080,924 1,366,530 2,447,454 578,159 – Operating Income (Loss) $120,382 147,798 268,180 77,466 (1,337) Total $3,967,822 $411,988 $3,688,160 $457,805 $3,025,613 $344,309 Reconciliation of Segment Operating Income to Consolidated Income from Continuing Operations Before Income Taxes and Minority Interest (In thousands) Segment operating income All Other Category – Harsco Minerals & Rail General corporate expense 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 00 $270,726 150,922 (9,660) 411,988 901 3,608 (73,160) $343,337 Twelve Months Ended December 31, 2007 $318,256 142,191 (2,642) 457,805 1,049 4,968 (81,383) $382,439 2006 $268,180 77,466 (1,337) 344,309 192 3,582 (60,479) $287,604 Segment Information (In thousands) Harsco Infrastructure Segment Harsco Metals Segment Gas Technologies Segment Segment Totals All Other Category – Harsco Minerals & Rail Corporate 00 $1,607,171 1,338,633 – 2,945,804 565,348 51,818 Assets 2007 $1,563,630 1,585,921 – 3,149,551 587,182 168,697 2006 $1,239,892 1,401,603 271,367 2,912,862 287,482 126,079 Depreciation and Amortization (a) 00 2007 2006 $110,227 181,180 – 291,407 42,580 3,962 $÷90,477 167,179 – 257,656 44,498 3,019 $÷69,781 151,005 – 220,786 18,922 1,863 Total $3,562,970 $3,905,430 $3,326,423 $337,949 $305,173 $241,571 (a) Excludes Depreciation and Amortization for the Gas Technologies Segment in the amounts of $1.2 million and $11.4 million for 2007 and 2006, respectively because this Segment was reclassified to Discontinued Operations. Capital Expenditures (In thousands) Harsco Infrastructure Segment Harsco Metals Segment Gas Technologies Segment Segment Totals All Other Category – Harsco Minerals & Rail Corporate Total       Harsco Corporation 2008 Annual Report 00 $226,559 205,766 – 432,325 23,025 2,267 $457,617 2007 $228,130 193,244 8,618 429,992 11,263 2,328 $443,583 2006 $138,459 161,651 9,330 309,440 27,635 3,098 $340,173 Information by Geographic Area (a) (In thousands) United States United Kingdom All Other Revenues from Unaffiliated Customers (b) Net Property, Plant and Equipment (c) 00 2007 2006 00 2007 2006 $1,260,967 677,598 2,029,257 $1,152,623 746,261 1,789,276 $÷«959,486 676,520 1,389,607 $÷«361,071 225,368 896,394 $÷«364,950 312,375 857,889 $÷«401,997 298,582 621,888 Totals including Corporate $3,967,822 $3,688,160 $3,025,613 $1,482,833 $1,535,214 $1,322,467 (a) Revenues are attributed to individual countries based on the location of the facility generating the revenue. (b) Excludes the sales of the Gas Technologies Segment. (c) Includes net Property, Plant and Equipment for the Gas Technologies Segment for 2006. Information about Products and Services (In thousands) Product Group Services and equipment for infrastructure construction and maintenance On-site services to metal producers Railway track maintenance services and equipment Heat exchangers Industrial grating products Minerals and recycling technologies (b) Industrial abrasives and roofing granules Powder processing equipment and heat transfer products General Corporate Consolidated Revenues (a) Excludes the sales of the Gas Technologies Segment. (b) Acquired February 2007. Revenues from Unaffiliated Customers (a) 00 2007 2006 $1,540,258 1,577,720 277,595 174,513 149,168 127,140 74,118 47,070 240 $3,967,822 $1,415,873 1,522,274 232,402 152,493 130,919 123,240 68,165 42,778 16 $3,688,160 $1,080,924 1,366,530 231,625 124,829 107,048 – 73,112 41,545 – $3,025,613 15 other (Income) and expenses Net Gains (In thousands) During 2008, 2007 and 2006, the Company recorded pre-tax Other (income) and expenses from continuing operations of $22.0 million, $3.4 million and $2.5 million, respectively. The major components of this income statement category are as follows: Harsco Infrastructure Segment Harsco Metals Segment All Other Category – Harsco Minerals & Rail Total 00 2007 2006 $(10,399) (4,538) (986) $(15,923) $(2,342) (3) (3,246) $(5,591) $(2,510) (2,823) (117) $(5,450) Other (Income) and Expenses (In thousands) Net gains Impaired asset write-downs Employee termination benefit costs Costs to exit activities Other expense Total Net Gains 00 2007 2006 from the sale of assets in the investing activities section of the Consoli- Cash proceeds associated with these gains are included in Proceeds $(15,923) 12,588 19,027 5,269 989 $«21,950 $(5,591) 903 6,552 1,278 301 $«3,443 $(5,450) 221 3,495 1,290 2,920 $«2,476 dated Statements of Cash Flows. Impaired Asset Write-downs Impairment losses are measured as the amount by which the carrying amount of assets exceeded their fair value. Fair value is estimated based upon the expected future realizable cash flows including anticipated selling prices. Non-cash impaired asset write-downs are included in Net gains are recorded from the sales of redundant properties (primar- Other, net in the Consolidated Statements of Cash Flows as adjustments ily land, buildings and related equipment) and non-core assets. In 2008, to reconcile net income to net cash provided by operating activities. In gains related to assets sold principally in the United States, Australia 2008, impaired asset write-downs of $12.6 million were recorded prin- and the United Kingdom. In 2007, gains related to assets sold principally cipally in the Harsco Metals Segment due to contract terminations and in the United States and in 2006, gains related to assets sold principally costs associated with existing underperforming contracts. Impaired in Europe, South America and the United States. asset write-downs related to assets principally in Australia, the United Kingdom and the United States. Harsco Corporation 2008 Annual Report       notes to consolidated Financial Statements Employee Termination Benefit Costs In 2007 and 2006, exit costs incurred were $1.3 million in each year, and SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal principally related to relocation costs, lease run-out costs and lease Activities,” (“SFAS 146”) addresses involuntary termination costs termination costs. associated with one-time benefit arrangements provided as part of Costs Associated with Exit or Disposal Activities an exit or disposal activity. These costs and the related liabilities are (In thousands) 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- Harsco Infrastructure Segment Harsco Metals Segment All Other Category – Harsco Minerals & Rail Corporate going benefit arrangements, or in certain countries where statutory Total requirements dictate a minimum required benefit, are recognized when 00 2007 2006 $1,724 1,092 5 2,448 $5,269 $÷«803 375 100 – $1,278 $÷«146 189 955 – $1,290 they are probable and estimable, in accordance with SFAS No. 112, See Note 17, “2008 Restructuring Program,” for additional information “Employers’ Accounting for Postemployment Benefits,” (“SFAS 112”). on net gains, impaired asset write-downs, employee termination benefit The total amount of employee termination benefit costs incurred for costs and costs associated with exit and disposal activities. the years 2008, 2007 and 2006 is detailed in the table below. None of the actions are expected to incur any additional costs. The terminations in 16 components of accumulated other 2008 related primarily to the fourth quarter 2008 restructuring program comprehensive Income (loss) and occurred globally, but primarily in Western Europe and the United States. The terminations in 2007 and 2006 occurred principally in Europe and the United States. Employee Termination Benefit Costs Total Accumulated other comprehensive income (loss) is included in the Consolidated Statements of Stockholders’ Equity. The components of Accumulated other comprehensive income (loss) are as follows: (In thousands) 00 2007 2006 Accumulated Other Comprehensive Income (Loss) – Net of Tax Harsco Infrastructure Segment Harsco Metals Segment All Other Category – Harsco Minerals & Rail Corporate Total $÷5,317 11,961 1,648 101 $19,027 $1,130 4,935 382 105 $6,552 $÷«799 1,820 821 55 $3,495 (In thousands) Cumulative foreign exchange translation adjustments Fair value of effective cash flow hedges Pension liability adjustments Unrealized gain (loss) on marketable securities December 31 00 2007 $÷«21,295 21,001 (250,536) (59) $«175,867 189 (178,568) 11 Costs Associated with Exit or Disposal Activities Costs associated with exit or disposal activities are recognized in Total Accumulated other comprehensive income (loss) $(208,299) $÷÷(2,501) accordance with SFAS 146, which addresses involuntary termination 17 2008 restructuring Program costs (as discussed above) and other costs associated with exit or disposal activities (exit costs). Costs to terminate a contract that is not a capital lease are recognized when an entity terminates the contract or when an entity ceases using the right conveyed by the contract. This includes the costs to terminate the contract before the end of its term or the costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity (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 2008, $5.3 million of exit costs were incurred, principally lease run-out costs and relocation costs for Corporate, and the Harsco Infrastructure and Harsco Metals Segments. As a result of the deepening financial and economic crisis, in the fourth quarter of 2008 the Company initiated a restructuring program designed to improve organizational efficiency and enhance profitability and shareholder value by generating sustainable operating expense savings. Under this program, the Company is principally exiting certain underperforming contracts with customers, closing certain facilities and reducing the global workforce. Restructuring costs were incurred primarily at the Harsco Metals and Harsco Infrastructure Segments. In the fourth quarter of 2008, the Company recorded net pre-tax restructuring and other related charges totaling $36.1 million, including $28.0 million in Other expenses, $5.8 million reduction in services reve- nue, a net $1.5 million related to pension curtailments and $0.8 million of other costs. These restructuring actions are expected to be completed over the next twelve months, but principally in the first quarter of 2009.       Harsco Corporation 2008 Annual Report At December 31, 2008, the Company completed workforce reduc- cost to exit activities are targeted for completion during 2009, principally tions of 407 employees of a total expected workforce reduction of 1,429 in the first quarter. employees. The majority of the remaining workforce reductions and The restructuring accrual attributable to each segment at Decem- (In thousands) Harsco Infrastructure Segment Impaired asset write-downs Employee termination benefit costs Cost to exit activities and contracts Pension curtailment gain Total Harsco Infrastructure Segment Harsco Metals Segment Impaired asset write-downs Employee termination benefit costs Cost to exit activities and contracts and related impaired asset write-downs Pension curtailment charge Total Harsco Metals Segment All Other Category – Harsco Minerals & Rail Employee termination benefit costs Pension curtailment charge Total All Other Category – Harsco Minerals & Rail Corporate Employee termination benefit costs Cost to exit activities Total Corporate Total ber 31 is as follows: Expense Utilization of Reserves Cash Expenditures Remaining Accrual December 31 2008 $÷1,147 2,286 2,508 (973) 4,968 1,268 11,811 12,396 2,178 27,653 654 246 900 113 2,448 2,561 $36,082 $÷(1,147) – – 973 (174) (1,268) – (11,740) (2,178) (15,186) – (246) (246) – – – $÷÷÷÷– (480) (545) – (1,025) – (1,923) – – (1,923) (123) – (123) – – – $(15,606) $(3,071) $÷÷÷÷«– 1,806 1,963 – 3,769 – 9,888 656 – 10,544 531 – 531 113 2,448 2,561 $17,405 The remaining cash expenditures related to the 2008 actions of in the Consolidated Balance Sheets as a reduction in the value of the $17.4 million are expected to be paid within the next twelve months. The respective long-term assets. The cost to exit activities in the Harsco pension curtailment (gains) charges were recorded primarily as a com- Metals Segment represents impaired asset write-downs of $5.9 million ponent of cost of services sold. See Note 8, “Employee Benefit Plans,” and a customer concession of $5.8 million, which were both directly for additional information. Impaired asset write-downs are reflected related to the exiting of underperforming contracts. See Note 15, “Other (Income) and Expenses,” for additional information. market risks Set forth below and elsewhere in this report and in other documents non-U.S. dollar-denominated assets and liabilities, other examples the Company files with the Securities and Exchange Commission are of risk include customer concentration in Harsco Metals and certain risks and uncertainties that could cause the Company’s actual results businesses of the “All Other” Category, collectibility of receivables, to materially differ from the results contemplated by the forward-look- volatility of the financial markets and their effect on pension plans, ing statements contained in this report and in other documents the and global economic and political conditions. Company files with the Securities and Exchange Commission. The financial markets in the United States, Europe and Asia experi- Market Risk In the normal course of business, the Company is routinely sub- jected to a variety of risks. In addition to the market risk associated with interest rate and currency movements on outstanding debt and enced extreme disruption in the last half of 2008 and into 2009, including, among other things, severely diminished liquidity and credit availability for many business entities, declines in consumer confidence, negative economic growth, declines in real estate values, increases in unemploy- ment rates, significant volatility in equities, rating agency downgrades, Harsco Corporation 2008 Annual Report       and uncertainty about economic stability. This has led to a global reces- an increase in the value of the U.S. dollar relative to the foreign curren- sion. Governments across the globe have taken unprecedented actions, cies in which the Company earns its revenues generally has a negative including economic stimulus programs, intended to address these impact on operating income, whereas a decrease in the value of the U.S. difficult market conditions. These economic uncertainties affect all busi- dollar tends to have the opposite effect. The Company’s principal foreign nesses in a number of ways, making it difficult to accurately forecast currency exposures are to the British pound sterling and the euro. and plan future business activities. Compared with the corresponding period in 2007, the average values The continuing disruption in the credit markets has severely of major currencies changed as follows in relation to the U.S. dollar during restricted access to capital for many companies. If credit markets 2008, impacting the Company’s sales and income: continue to deteriorate, the Company’s ability to incur additional indebt- edness to fund operations or refinance maturing obligations as they • British pound sterling • euro become due may be significantly constrained. The Company is unable • South African rand to predict the likely duration and severity of the current disruptions in • Brazilian real the credit and financial markets and adverse global economic condi- • Canadian dollar tions. While these conditions have not impaired the Company’s ability to • Australian dollar access credit markets and finance operations at this time, if the current • Polish zloty Weakened by 10% Strengthened by 6% Weakened by 17% Strengthened by 5% Relatively constant Relatively constant Strengthened by 13% uncertain economic conditions continue or further deteriorate, the Company’s business and results of operations could be materially and adversely 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, Iran, Israel, Lebanon and other countries with a continued high risk of armed hostilities. During 2008, 2007 and 2006, the Company’s Middle East operations contributed approximately $66.7 million, $44.6 million and $34.8 million, respectively, to the Company’s operating income. Additionally, the Company has Compared with exchange rates at December 31, 2007, the values of major currencies changed as follows as of December 31, 2008: • British pound sterling • euro • South African rand • Brazilian real • Canadian dollar • Australian dollar • Polish zloty Weakened by 36% Weakened by 5% Weakened by 37% Weakened by 30% Weakened by 22% Weakened by 23% Weakened by 20% operations in and sales to countries that have encountered outbreaks The Company’s foreign currency exposures increase the risk of income of communicable diseases (e.g., Acquired Immune Deficiency Syndrome statement, balance sheet and cash flow volatility. If the above currencies (“AIDS”) and others). In countries in which such outbreaks occur, change materially in relation to the U.S. dollar, the Company’s financial worsen or spread to other countries, the Company may be negatively position, results of operations, or cash flows may be materially affected. impacted through reduced sales to and within those countries and other To illustrate the effect of foreign currency exchange rate changes countries impacted by such diseases. in certain key markets of the Company, in 2008, revenues would have Exchange Rate Fluctuations May Adversely Impact the Company’s Business Fluctuations in foreign exchange rates between the U.S. dollar and the over 40 other currencies in which the Company conducts business may adversely impact the Company’s operating income and income from continuing operations in any given fiscal period. Approximately 68% and 69% of the Company’s sales and approximately 61% and 68% of the Company’s operating income from continuing operations for the years ended December 31, 2008 and 2007, respectively, were derived from operations outside the United States. More specifically, approximately 17% and 20% of the Company’s revenues were derived from operations in the United Kingdom during 2008 and 2007, respectively. Addition- ally, approximately 26% of the Company’s revenues were derived from operations with the euro as their functional currency during both 2008 and 2007. Given the structure of the Company’s revenues and expenses, been approximately 1% or $30.8 million less and operating income would have been approximately 1% or $3.3 million less if the average exchange rates for 2007 were utilized. A similar comparison for 2007 would have decreased revenues approximately 5% or $166.9 mil- lion, while operating income would have been approximately 4% or $16.5 million less if the average exchange rates for 2007 would have remained the same as 2006. 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 opera- tions as a result of foreign currency translation. Additionally, based on current foreign currency exchange rates, earnings for 2009 will be significantly negatively impacted in comparison to 2008. Currency changes also result in assets and liabilities denominated in local cur- rencies being translated into U.S. dollars at different amounts than at the prior period end. If the U.S. dollar weakens in relation to currencies       Harsco Corporation 2008 Annual Report in countries in which the Company does business, the translated values cant assumptions used to estimate defined benefit pension income or of the related assets and liabilities, and therefore stockholders’ equity, expense for the upcoming year are the discount rate and the expected would increase. Conversely, if the U.S. dollar strengthens in relation to long-term rate of return on plan assets. Significant changes in key eco- currencies in countries in which the Company does business, the trans- nomic indicators may materially affect the Company’s financial position, lated values of the related assets, liabilities, and therefore stockholders’ results of operations, or cash flows. These key economic factors would equity, would decrease. also likely affect the amount of cash the Company would contribute to Although the Company engages in foreign currency forward exchange the defined benefit pension plans. For a discussion regarding how the contracts and other hedging strategies to mitigate foreign exchange risk, Company’s financial statements can be affected by defined benefit pen- hedging strategies may not be successful or may fail to offset the risk. sion plan accounting policies, see the Pension Benefits section of the The Company has a Foreign Currency Risk Management Committee that Application of Critical Accounting Policies in “Management’s Discus- develops and implements strategies to mitigate these risks. sion and Analysis of Financial Condition and Results of Operations.” In addition, competitive conditions in the Company’s manufacturing In response to adverse market conditions during 2002 and 2003, businesses may limit the Company’s ability to increase product prices in the Company conducted a comprehensive global review of its defined the face of adverse currency movements. Sales of products manufac- benefit pension plans in order to formulate a plan to make its long-term tured in the United States for the domestic and export markets may be pension costs more predictable and affordable. In 2008, as a response affected by the value of the U.S. dollar relative to other currencies. Any to worsening economic conditions, the Company implemented design long-term strengthening of the U.S. dollar could depress demand for changes for additional defined benefit plans, of which the principal these products and reduce sales and may cause translation gains or change involved converting future pension benefits for many of the losses due to the revaluation of accounts payable, accounts receiv- Company’s non-union employees in the United Kingdom from a defined able and other asset and liability accounts. Conversely, any long-term benefit plan to a defined contribution plan. Defined benefit pension weakening of the U.S. dollar could improve demand for these products expense is expected to increase by approximately $28 million in 2009 and increase sales and may cause translation gains or losses due to when compared with 2008. the revaluation of accounts payable, accounts receivable and other The Company’s pension committee continues to evaluate alternative asset and liability accounts. The Company’s cash flows and earnings are subject to changes in interest rates. The Company’s total debt as of December 31, 2008 was $1.0 billion. Of this amount, approximately 12.0% had variable rates of interest and 88.0% had fixed rates of interest. The weighted average interest rate of total debt was approximately 5.8%. At current debt levels, a one-per- centage increase/decrease in variable interest rates would increase/ strategies to further reduce overall pension expense including: conver- sion of certain remaining defined benefit plans to defined contribution plans; the on-going evaluation of investment fund managers’ perfor- mance; 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. decrease interest expense by approximately $1.2 million per year. Energy prices impact the Company’s operating costs and profitability. The Company’s defined benefit pension expense is directly affected by the equity and bond markets. 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 actuar- ial assumptions used in determining annual pension expense, pension liabilities and the valuation of the assets in the Company’s defined benefit pension plans. The Company’s earnings may be positively or negatively impacted by the amount of income or expense the Company records for defined benefit pension plans. The Company calculates income or expense for the plans using actuarial valuations that reflect assumptions relating to financial market and other economic conditions. The most signifi- Worldwide political and economic conditions, an imbalance in the supply and demand for oil, extreme weather conditions and armed hostilities in oil-producing regions, among other factors, may result in an increase in the volatility of energy costs, both on a macro basis and for the Company specifically. In the first half of 2008, unprecedented increases in oil prices were incurred, while in the second half of 2008, oil prices declined sharply to levels below 2007. In 2008, 2007 and 2006, energy costs have approximated 4.5%, 3.7% and 3.9% of the Company’s revenue, respectively. To the extent that increased energy costs cannot be passed to customers in the future, the financial condition, results of operations and cash flows of the Company may be adversely affected. To the extent that reduced energy costs are not passed to customers in the future, this may have a favorable impact on the financial condition, results of operations and cash flows of the Company. Harsco Corporation 2008 Annual Report       Board of Directors and officers (As of March 10, 2009) Carolyn F. Scanlan 2, 3 President and Chief Executive Officer The Hospital & Healthsystem Association of Pennsylvania Director since 1998 James I. Scheiner 2, 3 Vice President Century Engineering Director since 1995 Andrew J. Sordoni, III 1, 3, 4C Chairman Sordoni Construction Services, Inc. Director since 1988 Dr. Robert C. Wilburn 1, 4 President The Gettysburg Foundation Director since 1986 Serves as Lead Director Board Committees 1 Executive Committee 2 Audit Committee 3 Management Development and Compensation Committee 4 Nominating and Corporate Governance Committee C Indicates Committee Chair Board of Directors Salvatore D. Fazzolari 1C Chairman and Chief Executive Officer Harsco Corporation Director since 2002 Geoffrey D. H. Butler President Harsco Corporation Director since 2002 Kathy G. Eddy 1, 2C, 4 CPA and Founding Partner McDonough, Eddy, Parsons & Baylous, AC Director since 2004 Stuart E. Graham 2 Retired Chief Executive Officer Skanska AB Chairman Skanska USA Director since 2009 Terry D. Growcock 3, 4 Retired Chairman The Manitowoc Company Director since 2008 Jerry J. Jasinowski 4 Former President The Manufacturing Institute Director since 1999 Henry W. Knueppel 3 Chairman and Chief Executive Officer Regal Beloit Corporation Director since 2008 D. Howard Pierce 1, 2, 3C Retired President and Chief Executive Officer ABB Inc. Director since 2001 0      Harsco Corporation 2008 Annual Report 0      Harsco Corporation 2008 Annual Report corporate officers Salvatore D. Fazzolari Chairman and Chief Executive Officer Geoffrey D. H. Butler President Richard C. Neuffer Sr. Vice President Mark E. Kimmel Sr. Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary Stephen J. Schnoor Sr. Vice President and Chief Financial Officer Scott H. Gerson Vice President and Chief Information Officer Michael A. Higgins Vice President – Audit Michael H. Kolinsky Vice President – Taxes Richard A. Sullivan Vice President – Business Transformation Eugene M. Truett Vice President – Investor Relations and Credit Gerald F. Vinci Vice President – Human Resources Americas Richard M. Wagner Vice President and Controller Sr. operations executives Geoffrey D. H. Butler Chief Executive Officer Harsco Infrastructure and Harsco Metals John W. Barrett Chief Operating Officer Harsco Infrastructure Richard C. Neuffer Chief Executive Officer Harsco Minerals & Rail Stockholder Information company news Company information, archived news releases and SEC Quarterly Share Price and Dividend Information filings are available free of charge 24 hours a day, seven Harsco Corporation common stock is listed on the New York days a week via Harsco’s website at www.harsco.com. Stock Exchange (NYSE) under ticker symbol HSC. At year- Harsco’s quarterly earnings conference calls and other end 2008, there were 80,174,536 shares outstanding and significant investor events are posted when they occur. approximately 22,000 stockholders. Securities analysts, portfolio managers, other represen- As shown below, during 2008, the Company’s common tatives of institutional investors and other interested parties stock traded in a range of $17.55 to $64.75 and closed at $27.68 seeking information about Harsco should contact: at year-end. High and low per share data are as quoted on Eugene M. Truett Vice President – Investor Relations and Credit Phone: 717.975.5677 Fax: 717.265.8152 Email: etruett@harsco.com annual meeting April 28, 2009, 10:00 am the NYSE. Four quarterly cash dividends of $0.195 were paid in 2008 for an annual rate of $0.78, an increase of 9.9% from 2007. In 2008, 27.2% of net earnings were paid out in dividends. There are no significant restrictions on the payment of dividends. In December 2008, the Company’s Board increased the dividend rate to $0.20 per share, effective with the next scheduled quarterly dividend declaration in Radisson Penn Harris Hotel and Convention Center early 2009. This action increased the dividend rate by 2.6% Camp Hill, PA 17011 to $0.80 per share on an annualized basis. registrar, transfer and Dividend Disbursing agent BNY Mellon Shareowner Services P.O. Box 358015 Pittsburgh, PA 15252-8015 Phone: 800.850.3508 www.bnymellon.com/shareowner/isd BNY Mellon Shareowner Services maintains the records for our registered stockholders and can help you with a variety of stockholder-related services at no charge, including: • Change of name or address • Consolidation of accounts • Duplicate mailings • Dividend reinvestment enrollment • Lost stock certificates • Transfer of stock to another person • Additional administrative services You can also access your investor statements online 24 hours a day, seven days a week with MLinkSM. For more information, go to www.bnymellon.com/shareowner/isd. Independent registered Public accounting Firm PricewaterhouseCoopers LLP Philadelphia, PA 19103 First Quarter Second Quarter Third Quarter Fourth Quarter High Low Dividends Declared High Low Dividends Declared High Low Dividends Declared High Low Dividends Declared 2008 $ 64.50 46.10 0.1950 64.75 53.75 0.1950 56.32 33.50 0.1950 37.41 17.55 0.1950 (a) 2007 $ 45.325 36.90 0.1775 54.00 44.49 0.1775 59.99 47.85 0.1775 66.51 55.37 0.1950 (a) Historical per share data restated to reflect the two-for-one stock split that was effective at the close of business March 26, 2007. 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 2008 our Chief Executive Officer provided to the New York Stock Exchange the annual Section 303A CEO certification regarding our compliance with the New York Stock Exchange’s corporate governance listing standards. Harsco Corporation World Headquarters 350 Poplar Church Road Camp Hill, PA 17011 USA Tel: 717.763.7064 www.harsco.com SGB Group Harsco House, Regent Park 299 Kingston Road Leatherhead, Surrey KT22 7SG United Kingdom Tel: 44.1372.381300 www.sgb.co.uk Hünnebeck Group GmbH Rehhecke 80 D-40885 Ratingen Germany Tel: 49.2102.937-1 www.hunnebeck-group.com Patent Construction Systems 650 From Road, Suite 525 Paramus, NJ 07652 USA Tel: 201.261.5600 www.pcshd.com MultiServ Harsco House, Regent Park 299 Kingston Road Leatherhead, Surrey KT22 7SG United Kingdom Tel: 44.1372.381400 www.multiserv.com Harsco Rail 2401 Edmund Road West Columbia, SC 29171 USA Tel: 803.822.9160 www.harscotrack.com Excell Minerals 5040 Louise Drive Mechanicsburg, PA 17055 USA Tel: 717.506.2071 www.excellminerals.com Reed Minerals 5040 Louise Drive Mechanicsburg, PA 17055 USA Tel: 717.506.2071 www.reedminerals.com IKG Industries 1514 S. Sheldon Road Channelview, TX 77530 USA Tel: 281.452.6637 www.ikgindustries.com Air-X-Changers 5215 Arkansas Road Catoosa, OK 74015 USA Tek: 918.619.8000 www.airx.com Patterson-Kelley 100 Burson Street East Stroudsburg, PA 18301 USA Tel: 570.421.7500 www.patkelco.com 

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