Notes
to Condensed Consolidated Financial Statements
(Unaudited)
A.
Opinion of Management
Financial
information furnished herein, which is unaudited, in the opinion of management
reflects all adjustments (all of which are of a normal recurring nature) that
are necessary to present a fair statement of the interim period. The
year-end condensed balance sheet information contained in this Form 10-Q was
derived from 2006 audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the United
States of America for a year-end report. The unaudited interim
information contained herein should also be read in conjunction with the
Company’s 2006 Form 10-K filing.
B.
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 G,
“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 2006 amounts presented for
comparative purposes will not individually agree with previously filed Forms
10-K or 10-Q.
C.
Review of Operations by Segment
|
|
|
Three
Months Ended
September
30, 2007
|
|
|
Three
Months Ended
September
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Sales
|
|
|
Operating
Income
(loss)
|
|
|
Sales
|
|
|
Operating
Income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Access
Services Segment
|
|
$
|
351,262
|
|
|
$
|
48,056
|
|
|
$
|
278,627
|
|
|
$
|
35,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
Services Segment
|
|
|
375,935
|
|
|
|
34,464
|
|
|
|
345,864
|
|
|
|
37,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Totals
|
|
|
727,197
|
|
|
|
82,520
|
|
|
|
624,491
|
|
|
|
72,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minerals
& Rail Technologies, Services and Products
(“all
other”) Category (a)
|
|
|
200,167
|
|
|
|
42,329
|
|
|
|
148,799
|
|
|
|
25,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Corporate
|
|
|
-
|
|
|
|
(121
|
)
|
|
|
-
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
927,364
|
|
|
$
|
124,728
|
|
|
$
|
773,290
|
|
|
$
|
97,944
|
|
|
(a)
|
In
March 2007, after the completion of the Excell Minerals acquisition,
the
“all other” Category was renamed Minerals & Rail Technologies,
Services and Products to reflect the Company’s strengthening strategic
presence in the minerals technologies and railway services
sectors.
|
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
|
|
|
Nine
Months Ended
September
30, 2007
|
|
|
Nine
Months Ended
September
30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Sales
|
|
|
Operating
Income
(loss)
|
|
|
Sales
|
|
|
Operating
Income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Access
Services Segment
|
|
$
|
1,028,392
|
|
|
$
|
132,402
|
|
|
$
|
774,081
|
|
|
$
|
88,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
Services Segment
|
|
|
1,117,529
|
|
|
|
103,441
|
|
|
|
1,016,394
|
|
|
|
109,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Totals
|
|
|
2,145,921
|
|
|
|
235,843
|
|
|
|
1,790,475
|
|
|
|
198,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minerals
& Rail Technologies, Services and Products
(“all
other”) Category (a)
|
|
|
567,617
|
|
|
|
112,247
|
|
|
|
430,901
|
|
|
|
62,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Corporate
|
|
|
-
|
|
|
|
(940
|
)
|
|
|
-
|
|
|
|
(1,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
2,713,538
|
|
|
$
|
347,150
|
|
|
$
|
2,221,376
|
|
|
$
|
259,411
|
|
|
(a)
|
In
March 2007, after the completion of the Excell Minerals acquisition,
the
“all other” Category was renamed Minerals & Rail Technologies,
Services and Products to reflect the Company’s strengthening strategic
presence in the minerals technologies and railway services
sectors.
|
Reconciliation
of Segment Operating Income to Consolidated Income from Continuing
Operations
Before
Income Taxes and Minority Interest
|
|
|
Three
Months Ended
September
30
|
|
|
Nine
Months Ended
September
30
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Operating Income
|
|
$
|
82,520
|
|
|
$
|
72,790
|
|
|
$
|
235,843
|
|
|
$
|
198,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minerals
& Rail Technologies, Services and Products
(“all
other”) Category
|
|
|
42,329
|
|
|
|
25,242
|
|
|
|
112,247
|
|
|
|
62,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
Corporate
|
|
|
(121
|
)
|
|
|
(88
|
)
|
|
|
(940
|
)
|
|
|
(1,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income from continuing operations
|
|
|
124,728
|
|
|
|
97,944
|
|
|
|
347,150
|
|
|
|
259,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in income of unconsolidated entities, net
|
|
|
326
|
|
|
|
92
|
|
|
|
739
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
744
|
|
|
|
831
|
|
|
|
2,956
|
|
|
|
2,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(20,976
|
)
|
|
|
(15,254
|
)
|
|
|
(60,092
|
)
|
|
|
(43,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes and minority
interest
|
|
$
|
104,822
|
|
|
$
|
83,613
|
|
|
$
|
290,753
|
|
|
$
|
218,284
|
|
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
D. Accounts
Receivable and Inventories
At
September 30, 2007 and December 31, 2006, accounts receivable of $837.5 million
and $753.2 million, respectively, were net of an allowance for doubtful accounts
of $24.0 million and $25.4 million, respectively. Gross accounts
receivable included trade accounts receivable of $819.0 million and $737.1
million at September 30, 2007 and December 31, 2006,
respectively. Other receivables included insurance claim receivables
of $19.8 million and $18.9 million at September 30, 2007 and December 31, 2006,
respectively. The provision for doubtful accounts for the three
months ended September 30, 2007 was less than $0.1 million as recoveries offset
provisions recorded during the quarter. The provision for doubtful
accounts was $1.5 million for the three months ended September 30,
2006. For nine months ended September 30, 2007 and 2006, the
provision for doubtful accounts was $4.6 million and $5.9 million,
respectively.
Inventories
consist of the following:
|
|
|
Inventories
|
|
|
(In
thousands)
|
|
September
30
2007
|
|
|
December
31
2006
|
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
128,366
|
|
|
$
|
117,072
|
|
|
Work-in-process
|
|
|
20,105
|
|
|
|
31,489
|
|
|
Raw
materials and purchased parts
|
|
|
71,716
|
|
|
|
96,750
|
|
|
Stores
and supplies
|
|
|
49,006
|
|
|
|
39,918
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Inventories
|
|
$
|
269,193
|
|
|
$
|
285,229
|
|
E. Property,
Plant and Equipment
Property,
plant and equipment consists of the following:
|
(In
thousands)
|
|
September
30
2007
|
|
|
December
31
2006
|
|
|
Land
and improvements
|
|
$
|
47,184
|
|
|
$
|
41,255
|
|
|
Buildings
and improvements
|
|
|
177,288
|
|
|
|
192,575
|
|
|
Machinery
and equipment
|
|
|
2,930,206
|
|
|
|
2,699,131
|
|
|
Uncompleted
construction
|
|
|
77,015
|
|
|
|
52,640
|
|
|
Gross
property, plant and equipment
|
|
|
3,231,693
|
|
|
|
2,985,601
|
|
|
Less
accumulated depreciation
|
|
|
(1,753,403
|
)
|
|
|
(1,663,134
|
)
|
|
Net
property, plant and equipment
|
|
$
|
1,478,290
|
|
|
$
|
1,322,467
|
|
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
F. Goodwill
and Other Intangible Assets
The
following table reflects the changes in carrying amounts of goodwill by segment
for the nine months ended September 30, 2007:
Goodwill
by Segment
|
|
|
|
(In
thousands)
|
|
Access
Services
Segment
|
|
|
Mill
Services
Segment
|
|
|
Minerals
&
Rail
Technologies,
Services
and
Products
(“all
other”)
Category
|
|
|
Gas
Technologies
Segment
|
|
|
Consolidated
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2006, net of accumulated amortization
|
|
$
|
241,937
|
|
|
$
|
325,492
|
|
|
$
|
8,137
|
|
|
$
|
36,914
|
|
|
$
|
612,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
acquired during the year
|
|
|
-
|
|
|
|
12,728
|
|
|
|
109,583
|
|
|
|
-
|
|
|
|
122,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
to goodwill (a)
|
|
|
2,201
|
|
|
|
(2,483
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
11,179
|
|
|
|
9,749
|
|
|
|
2,387
|
|
|
|
9
|
|
|
|
23,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
transferred to assets held-for-sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,923
|
)
|
|
|
(36,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2007, net of accumulated
amortization
|
|
$
|
255,317
|
|
|
$
|
345,486
|
|
|
$
|
120,107
|
|
|
$
|
-
|
|
|
$
|
720,910
|
|
(a)
Relate principally to opening balance sheet adjustments.
Goodwill
is net of accumulated amortization of $103.3 million and $109.3 million at
September 30, 2007 and December 31, 2006, respectively. The reduction
in accumulated amortization from December 31, 2006 is due to the transfer of
the
Gas Technologies Segment’s balance to assets held-for-sale.
The
following table reflects intangible assets by major category:
Intangible
Assets
|
|
|
|
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
(In
thousands)
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
Customer
relationships
|
|
$
|
156,500
|
|
|
$
|
20,124
|
|
|
$
|
87,426
|
|
|
$
|
7,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete
agreements
|
|
|
3,368
|
|
|
|
2,884
|
|
|
|
5,648
|
|
|
|
4,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
6,816
|
|
|
|
4,187
|
|
|
|
4,700
|
|
|
|
3,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(a)
|
|
|
65,576
|
|
|
|
10,183
|
|
|
|
9,800
|
|
|
|
3,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
232,260
|
|
|
$
|
37,378
|
|
|
$
|
107,574
|
|
|
$
|
19,410
|
|
(a) Principally
technical know-how and contractual revenue.
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
Intangible
assets are included in the Intangible assets, net, and Other current assets
line
items in the Condensed Consolidated Balance Sheets.
During
the first nine months of 2007, the Company acquired the following intangible
assets (by major class) which are subject to amortization. These
intangible assets relate principally to the Excell Minerals acquisition more
fully discussed in Note G, “Acquisitions and Dispositions.”
|
Acquired
Intangible Assets
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Gross
Carrying
Amount
|
|
Residual
Value
|
|
Weighted-average
amortization
period
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
65,443
|
|
None
|
|
6
years
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
2,010
|
|
None
|
|
10
years
|
|
|
|
|
|
|
|
|
|
|
Other
(a)
|
|
|
52,270
|
|
None
|
|
9
years
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
119,723
|
|
|
|
|
(a) Principally
technical know-how and contractual revenue.
There
were no research and development assets acquired and written off in the first
nine months of 2007 or 2006.
Amortization
expense for intangible assets was $7.2 million and $19.5 million for the third
quarter and first nine months of 2007, respectively. This compares
with $1.6 million and $5.0 million for the third quarter and first nine months
of 2006, respectively. The following table shows the estimated
amortization expense for the next five fiscal years based on current intangible
assets:
|
(In
thousands)
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
amortization expense (a)
|
|
$
|
26,400
|
|
|
$
|
26,300
|
|
|
$
|
25,200
|
|
|
$
|
24,900
|
|
|
$
|
23,700
|
|
(a)
These
estimated amortization expense amounts do not reflect the potential effect
of
future foreign currency exchange rate fluctuations.
G. Acquisitions
and Dispositions
Acquisitions
In
August
2007, the Company acquired Alexander Mill Services International (“AMSI”), a
privately held company that provides mill services to some of the leading steel
producers in Poland and Romania. AMSI also provides mill services on
a smaller scale in Greece and Portugal. AMSI recorded 2006 revenues
of approximately $21 million and has been included in the Mill Services
Segment.
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 specialized 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 performance of their rail and track assets. ZETA-TECH
recorded 2006 revenues of approximately $4 million and has been included in
the Company’s Harsco Track Technologies Division of the Minerals & Rail
Technologies, Services and Products (“all other”) Category.
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 U.S. and serves most
of the major steelmakers in the upper Midwest and Canada. Performix
recorded 2006 sales of approximately $29 million and employs approximately
60
people. Performix has been included in the Mill Services
Segment.
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
In
February 2007, the Company acquired Excell Materials, Inc. (“Excell”), a
Pittsburgh-based multinational company, for approximately $210 million, which
excluded direct acquisition costs. Excell specializes in the
reclamation and recycling of high-value content from principally steelmaking
slag. Excell is also involved in the development of mineral-based
products for commercial applications. Excell recorded 2006 sales in
excess of $100 million and maintains operations at nine locations in the
United
States, Canada, Brazil, South Africa and Germany. Goodwill recognized
in this transaction (based on foreign exchange rates at the transaction date)
was $107.6 million, none of which is expected to be deductible for U.S. income
tax purposes. The purchase price allocation and goodwill balance have
not been finalized as of September 30, 2007. Excell has been included
in the Minerals & Rail Technologies, Services and Products (“all other”)
Category and has been renamed Excell Minerals to emphasize its long-term
growth
strategy.
In
November 2006, the Company acquired the Santiago, Chile-based company Moldajes
y
Andamios TH S.A. (“MyATH”), a supplier of rental formwork, scaffolding and
related services to the construction, infrastructure and building maintenance
sectors. MyATH employs approximately 100 people and its annual
revenues are approximately $8 million. MyATH has been included in the
Hünnebeck Division of the Access Services Segment.
In
November 2006, the Company acquired the conveyor services and trading arm of
Technic Gum, a Belgium-based provider of conveyor belt maintenance services
for
the steel and cement-producing industries. Technic Gum Services
recorded revenues of approximately $8 million in 2005 and employs approximately
50 people. Technic Gum Services has been included in the Mill
Services Segment.
In
July
2006, the Company acquired the assets of U.K.-based Cape PLC’s Cleton industrial
maintenance services (“Cleton”) subsidiaries in the Netherlands, Belgium and
Germany for €8 million (approximately $10 million). Cleton posted
2005 revenues in excess of $50 million and employs close to 400
people. Cleton specializes in providing scaffolding and related
insulation services for the maintenance of large-scale industrial plants, and
serves some of the largest oil refinery, petrochemical and process plant sites
in the Benelux countries. Cleton has been included in the SGB
Division of the Access Services Segment.
Dispositions
– Assets Held for Sale and Discontinued Operations
Consistent
with the Company’s strategic focus to grow and allocate financial resources to
its industrial services businesses, in January 2007, the Company’s Board of
Directors approved the divestiture of its Gas Technologies Segment, which
consists of manufacturing businesses. This Segment recorded revenues
and operating income of $397.7 million and $14.2 million, respectively, for
2006. The Company expects the divestiture to occur within the fourth
quarter of 2007. Results of operations of the Segment have been
included in Discontinued Operations of the income statement effective with
the
first quarter 2007 report. The Segment’s assets and liabilities are
classified as held-for-sale in the September 30, 2007 balance
sheet.
The
major
classes of assets and liabilities “held-for-sale” included in the Consolidated
Balance Sheets are as follows:
(In
thousands)
|
|
September
30
(a)
2007
|
|
|
December
31
2006
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$
|
75,513
|
|
|
$
|
-
|
|
Inventories
|
|
|
110,391
|
|
|
|
-
|
|
Other
current assets
|
|
|
2,128
|
|
|
|
-
|
|
Property,
plant and equipment, net
|
|
|
72,850
|
|
|
|
3,567
|
|
Goodwill,
net
|
|
|
36,923
|
|
|
|
-
|
|
Other
assets
|
|
|
4,010
|
|
|
|
-
|
|
Total
assets “held-for-sale”
|
|
$
|
301,815
|
|
|
$
|
3,567
|
|
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
(In
thousands)
|
|
September
30
(a)
2007
|
|
|
December
31
2006
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
1,360
|
|
|
$
|
-
|
|
Accounts
payable
|
|
|
36,939
|
|
|
|
-
|
|
Accrued
compensation
|
|
|
1,775
|
|
|
|
-
|
|
Income
taxes payable
|
|
|
-
|
|
|
|
-
|
|
Other
current liabilities
|
|
|
13,852
|
|
|
|
-
|
|
Long-term
debt
|
|
|
1,394
|
|
|
|
-
|
|
Retirement
plan liabilities
|
|
|
500
|
|
|
|
-
|
|
Other
liabilities
|
|
|
269
|
|
|
|
-
|
|
Total
liabilities associated with assets
“held-for-sale”
|
|
$
|
56,089
|
|
|
$
|
-
|
|
(a)
|
September
30, 2007 amounts are predominantly assets and liabilities associated
with
the Gas Technologies Segment.
|
Subsequent
to the reclassification of the Gas Technologies Segment’s results to
Discontinued Operations, the Company’s results from continuing operations for
2006 are as follows:
|
|
Three
Months Ended
|
|
(In
millions, except per share amounts)
|
|
March
31
2006
|
|
|
June
30
2006
|
|
|
September
30
2006
|
|
|
December
31
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
from continuing operations
|
|
$
|
682.1
|
|
|
$
|
766.0
|
|
|
$
|
773.3
|
|
|
$
|
804.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
32.6
|
|
|
|
53.2
|
|
|
|
54.2
|
|
|
|
46.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings per share from continuing operations
|
|
|
0.39
|
|
|
|
0.63
|
|
|
|
0.64
|
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. Income
Taxes
The
Company adopted the provisions of FASB Interpretation (“FIN”) No. 48,
“Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109”
(“FIN 48”), effective January 1,
2007. As a result of the adoption, the Company recognized a
cumulative effect reduction to the January 1, 2007 retained earnings balance
of
$0.5 million. As of the adoption date, the Company had gross
tax-affected unrecognized income tax benefits of $46.0 million, of which $17.8
million, if recognized, would affect the Company’s effective income tax
rate. Of this amount, $0.8 million was classified as current and
$45.2 million was classified as non-current on the Company’s balance
sheet. While the Company believes it has adequately provided for all
tax positions, amounts asserted by taxing authorities could be different than
the accrued position.
The
Company recognizes accrued interest and penalty expense related to unrecognized
income tax benefits within its global operations in income tax
expense. In conjunction with the adoption of FIN 48, the total amount
of accrued interest and penalties resulting from such unrecognized tax benefits
was $4.4 million.
The
Company files its income tax returns as prescribed by the tax laws of the
jurisdictions in which it operates. With few exceptions, the Company
is no longer subject to U.S. and foreign examinations by tax authorities for
years through 1999.
During
the first quarter of 2007, the U.S. Internal Revenue Service commenced its
audit
of the Company’s U.S. income tax returns for 2004 and 2005. It is
reasonably possible that this audit will be completed by the first quarter
of
2008. At this point, an estimate of changes, if any, to unrecognized
tax benefit amounts cannot be made.
The
Company is involved in a royalty dispute with the Canada Revenue Agency
(“CRA”). This matter is more fully discussed in Note I, “Commitments
and Contingencies,” to the Consolidated Financial Statements.
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
I. Commitments
and Contingencies
Royalty
Expense Dispute
The
Company is involved in a royalty expense dispute with the Canada Revenue Agency
(“CRA”). The CRA is proposing to disallow certain royalty expense
deductions claimed by the Company’s Canadian subsidiary on its 1994-1998 tax
returns. As of September 30, 2007, the maximum assessment from the CRA for
the period 1994-1998 is approximately 12.6 million Canadian dollars, including
tax and interest. The Company has initiated settlement discussions with
the CRA and they are progressing. It is reasonably possible that
these settlement discussions will lead to a resolution of this matter by
December 31, 2007 and that the resolution will be favorable to the Company
resulting in a significant decrease to the unrecognized tax
benefit. It is premature to discuss the details of any potential
settlement including the quantification of any settlement amounts.
The
Ontario Ministry of Finance (“Ontario”) is also proposing to disallow these same
royalty expense deductions for the period 1994-1998. As of September 30,
2007, the maximum assessment from Ontario is approximately 3.8 million Canadian
dollars, including tax and interest. The Company has filed an
administrative appeal of this assessment and will vigorously contest these
disallowances. We anticipate that Ontario will approach the settlement and
resolution of this matter in a manner consistent with the results obtained
in
the CRA dispute.
The
Company believes that any amount of potential liability regarding this matter
has been fully reserved as of September 30, 2007 and, therefore will not have
a
material adverse impact on the Company’s future results of operations or
financial condition. In accordance with Canadian tax law, the Company made
a payment to the CRA in the fourth quarter of 2005 of 5.9 million Canadian
dollars. Additionally, the Company made a payment to the Ontario Ministry
of Finance in the first quarter of 2006 for the entire disputed amount.
These payments were made for tax compliance purposes and to reduce potential
interest expense on the disputed amount. These payments in no way reflect
the Company’s acknowledgement as to the validity of the assessed
amounts.
Environmental
The
Company is involved in a number of environmental remediation investigations
and
clean-ups and, along with other companies, has been identified as a "potentially
responsible party" for certain waste disposal sites. While each of
these matters is subject to various uncertainties, it is probable that the
Company will agree to make payments toward funding certain of these activities,
and it is possible that some of these matters will be decided unfavorably to
the
Company. The Company has evaluated its potential liability, and its
financial exposure is dependent upon such factors as the continuing evolution
of
environmental laws and regulatory requirements; the availability and application
of technology; the allocation of cost among potentially responsible parties;
the
years of remedial activity required and the remediation methods
selected. The Consolidated Balance Sheets at September 30, 2007 and
December 31, 2006 include accruals of $3.8 million and $3.8 million,
respectively, for environmental matters. The amounts charged against
pre-tax income related to environmental matters totaled $1.7 million and $1.1
million for the first nine months of 2007 and 2006, respectively.
The
liability for future remediation costs is evaluated on a quarterly
basis. Actual costs to be incurred at identified sites in future
periods may vary from the estimates, given inherent uncertainties in evaluating
environmental exposures. The Company does not expect that any sum it
may have to pay in connection with environmental matters in excess of the
amounts recorded or disclosed above would have a material adverse impact on
its
financial position, results of operations or cash flows.
Derailment
One
of
the Company’s production rail grinders derailed near Baxter, California on
November 9, 2006, resulting in two crew member fatalities and the near total
loss of the rail grinder. Government and private investigations into
the cause of the derailment are ongoing. The initial clean-up and
salvage efforts are completed, although work on environmental remediation is
ongoing. Estimated environmental remediation expenses have been
recognized in the financial statements as of September 30, 2007. All
remaining Company rail grinders have been inspected by the Federal Railroad
Administration (“FRA”). The Company also regularly inspects its
grinders to ensure that its grinders are safe and in compliance with contractual
commitments. The Company believes that the insurance proceeds already
received from the loss of the rail grinder will offset the majority of incurred
expenses and contingent liabilities, which have been recognized as of September
30, 2007. Therefore, the Company does not believe that the derailment
will have a material adverse impact on its financial position, results of
operations or cash flows.
Other
The
Company has been named as one of many defendants (approximately 90 or more
in
most cases) in legal actions alleging personal injury from exposure to airborne
asbestos over the past several decades. In their suits, the
plaintiffs
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
have
named as defendants, among others, many manufacturers, distributors and
installers of numerous types of equipment or products that allegedly contained
asbestos.
The
Company believes that the claims against it are without merit. The
Company has never been a producer, manufacturer or processor of asbestos
fibers. Any component within a Company product which may have
contained asbestos would have been purchased from a supplier. Based
on scientific and medical evidence, the Company believes that any asbestos
exposure arising from normal use of any Company product never presented any
harmful levels of airborne asbestos exposure, and moreover, the type of asbestos
contained in any component that was used in those products was protectively
encapsulated in other materials and is not associated with the types of injuries
alleged in the pending suits. Finally, in most of the depositions
taken of plaintiffs to date in the litigation against the Company, plaintiffs
have failed to specifically identify any Company products as the source of
their
asbestos exposure.
The
majority of the asbestos complaints pending against the Company have been filed
in New York. Almost all of the New York complaints contain a standard
claim for damages of $20 million or $25 million against the approximately 90
defendants, regardless of the individual plaintiff’s alleged medical condition,
and without specifically identifying any Company product as the source of
plaintiff’s asbestos exposure.
As
of
September 30, 2007, there are 26,376 pending asbestos personal injury claims
filed against the Company. Of these cases, 25,914 were pending in the
New York Supreme Court (a trial court) for New York County in New York
State. The other claims, totaling 462, are filed in various counties
in a number of state courts, and in certain Federal District Courts (including
New York), and those complaints generally assert lesser amounts of damages
than
the New York State court cases or do not state any amount claimed.
As
of
September 30, 2007, the Company has obtained dismissal by stipulation, or
summary judgment prior to trial, in 17,343 cases.
In
view
of the persistence of asbestos litigation nationwide, which has not yet been
sufficiently addressed either politically or legally, the Company expects to
continue to receive additional claims. However, there have been
developments during the past several years, both by certain state legislatures
and by certain state courts, which could favorably affect the Company’s ability
to defend these asbestos claims in those jurisdictions. These
developments include procedural changes, docketing changes, proof of damage
requirements and other changes that require plaintiffs to follow specific
procedures in bringing their claims and to show proof of damages before they
can
proceed with their claim. An example is the action taken by the New
York Supreme Court, which is responsible for managing all asbestos cases pending
within New York County in the State of New York. This Court issued an
order in December 2002 that created a Deferred or Inactive Docket for all
pending and future asbestos claims filed by plaintiffs who cannot demonstrate
that they have a malignant condition or discernable physical impairment, and
an
Active or In Extremis Docket for plaintiffs who are able to show such medical
condition. As a result of this order, the majority of the asbestos
cases filed against the Company in New York County have been moved to the
Inactive Docket until such time as the plaintiff can show that they have
incurred a physical impairment. As of September 30, 2007, the Company
has been listed as a defendant in 298 Active or In Extremis asbestos cases
in
New York County. The Court’s Order has been challenged by
plaintiffs.
The
Company’s insurance carrier has paid all legal and settlement costs and expenses
relating to the asbestos litigation to date. The Company has
liability insurance coverage available under various primary and excess policies
that the Company believes will be available, if necessary, to substantially
cover any liability that might ultimately be incurred on these
claims.
The
Company intends to continue its practice of vigorously defending these cases
as
they are listed for trial. It is not possible to predict the ultimate
outcome of asbestos-related lawsuits, claims and proceedings due to the
unpredictable nature of personal injury litigation. Despite this
uncertainty, and although results of operations and cash flows for a given
period could be adversely affected by asbestos-related lawsuits, claims and
proceedings, management believes that the ultimate outcome of these cases will
not have a material adverse impact on the Company’s financial condition, results
of operations or cash flows.
The
Company is subject to various other claims and legal proceedings covering a
wide
range of matters that arose in the ordinary course of business. In
the opinion of management, all such matters are adequately covered by insurance
or by accruals, and if not so covered, are without merit or are of such kind,
or
involve such amounts, as would not have a material adverse impact on the
financial position, results of operations or cash flows of the
Company.
Insurance
liabilities are recorded in accordance with SFAS 5, “Accounting for
Contingencies.” Insurance reserves have been estimated based
primarily upon actuarial calculations and reflect the undiscounted estimated
liabilities for ultimate
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
losses
including claims incurred but not reported. Inherent in these
estimates are assumptions which are based on the Company’s history of claims and
losses, a detailed analysis of existing claims with respect to potential value,
and current legal and legislative trends. If actual claims differ
from those projected by management, changes (either increases or decreases)
to
insurance reserves may be required and would be recorded through income in
the
period the change was determined. When a recognized liability is
covered by third-party insurance, the Company records an insurance claim
receivable to reflect the covered liability. See Note 1, “Summary of
Significant Accounting Policies,” of the Company’s Form 10-K for the year ended
December 31, 2006 for additional information on Accrued Insurance and Loss
Reserves.
J. Reconciliation
of Basic and Diluted Shares
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30
|
|
|
September
30
|
|
|
(Amounts
in thousands, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
70,253
|
|
|
$
|
54,185
|
|
|
$
|
192,736
|
|
|
$
|
139,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares of common stock outstanding used to compute basic earnings
per
common share
|
|
|
84,189
|
|
|
|
84,019
|
|
|
|
84,128
|
|
|
|
83,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock-based compensation
|
|
|
573
|
|
|
|
486
|
|
|
|
554
|
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used to compute dilutive effect of stock-based
compensation
|
|
|
84,762
|
|
|
|
84,505
|
|
|
|
84,682
|
|
|
|
84,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share from continuing operations
|
|
$
|
0.83
|
|
|
$
|
0.64
|
|
|
$
|
2.29
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share from continuing operations
|
|
$
|
0.83
|
|
|
$
|
0.64
|
|
|
$
|
2.28
|
|
|
$
|
1.66
|
|
All
outstanding stock options and restricted stock units were included in the
computation of diluted earnings per share at September 30, 2007 and
2006.
K. Employee
Benefit Plans
|
|
|
Three
Months Ended
September
30
|
|
|
Defined
Benefit Pension Expense (Income)
|
|
U.
S. Plans
|
|
|
International
Plans
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
752
|
|
|
$
|
921
|
|
|
$
|
2,218
|
|
|
$
|
2,303
|
|
|
Interest
cost
|
|
|
3,872
|
|
|
|
3,730
|
|
|
|
12,664
|
|
|
|
11,017
|
|
|
Expected
return on plan
assets
|
|
|
(5,836
|
)
|
|
|
(4,986
|
)
|
|
|
(15,512
|
)
|
|
|
(13,210
|
)
|
|
Recognized
prior service
costs
|
|
|
170
|
|
|
|
186
|
|
|
|
241
|
|
|
|
316
|
|
|
Recognized
losses
|
|
|
306
|
|
|
|
737
|
|
|
|
3,872
|
|
|
|
3,304
|
|
|
Amortization
of transition
liability (asset)
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
7
|
|
|
|
9
|
|
|
Curtailment/settlement
gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
Defined
benefit pension expense
|
|
$
|
(736
|
)
|
|
$
|
498
|
|
|
$
|
3,490
|
|
|
$
|
3,726
|
|
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
|
|
|
Nine
Months Ended
September
30
|
|
|
Defined
Benefit Pension Expense (Income)
|
|
U.
S. Plans
|
|
|
International
Plans
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
2,278
|
|
|
$
|
2,764
|
|
|
$
|
6,409
|
|
|
$
|
6,696
|
|
|
Interest
cost
|
|
|
11,605
|
|
|
|
11,190
|
|
|
|
37,227
|
|
|
|
32,035
|
|
|
Expected
return on plan
assets
|
|
|
(16,971
|
)
|
|
|
(14,957
|
)
|
|
|
(45,618
|
)
|
|
|
(38,437
|
)
|
|
Recognized
prior service
costs
|
|
|
595
|
|
|
|
557
|
|
|
|
700
|
|
|
|
919
|
|
|
Recognized
losses
|
|
|
1,004
|
|
|
|
2,211
|
|
|
|
11,471
|
|
|
|
9,588
|
|
|
Amortization
of transition
liability (asset)
|
|
|
-
|
|
|
|
(271
|
)
|
|
|
20
|
|
|
|
27
|
|
|
Curtailment/settlement
loss
|
|
|
2,091
|
|
|
|
78
|
|
|
|
-
|
|
|
|
223
|
|
|
Defined
benefit pension expense
|
|
$
|
602
|
|
|
$
|
1,572
|
|
|
$
|
10,209
|
|
|
$
|
11,051
|
|
Defined
benefit pension expense in the third quarter and nine months ended September
30,
2007 was $1.5 million and $1.8 million, respectively, lower than the comparable
2006 periods. The decreases relate primarily to higher plan asset
bases in 2007 resulting from cash contributions and significant returns on
plan
assets in 2006. The decreases were partially offset by curtailment
losses in the U.S. in the Gas Technologies Segment in the first quarter of
2007
as a result of the decision to sell the business, and in the railway track
maintenance services and equipment business in the second quarter of 2007,
as a
result of a plan change.
U.S.
defined benefit pension expense in the third quarter and nine months ended
September 30, 2007 includes $0.3 million and $2.5 million, respectively, for
the
Gas Technologies Segment which has been reclassified to Discontinued
Operations. Of the $2.5 million in expense for the nine months ended
September 30, 2007, $1.5 million relates to a one-time curtailment loss in
the
first quarter of 2007. Defined benefit expense in the third quarter
and nine months ended September 30, 2006 includes $0.5 million and $1.4 million,
respectively, for the Gas Technologies Segment.
In
the
quarter ended September 30, 2007, the Company contributed $1.9 million and
$5.8
million to the U.S. and international defined benefit pension plans,
respectively. In the nine months ended September 30, 2007, the
Company contributed $2.8 million and $17.8 million to the U.S. and international
defined benefit pension plans, respectively. During the fourth
quarter of 2007, the Company currently anticipates contributing an additional
$17.4 million to international plans, of which $10.1 million will be voluntary
contributions. No additional contributions are anticipated for the
U.S. plans.
Contributions
to multiemployer pension plans during the third quarter and nine months ended
September 30, 2007 were $5.3 million and $16.9 million,
respectively. Contributions to defined contribution plans during the
third quarter and nine months ended September 30, 2007 were $5.9 million and
$16.0 million, respectively.
|
|
|
Three
Months Ended
|
|
|
Postretirement
Benefits Expense (Income)
|
|
September
30
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
Interest
cost
|
|
|
46
|
|
|
|
46
|
|
|
Recognized
prior service
costs
|
|
|
1
|
|
|
|
1
|
|
|
Recognized
gains
|
|
|
(32
|
)
|
|
|
(9
|
)
|
|
Curtailment
gains
|
|
|
-
|
|
|
|
(20
|
)
|
|
Postretirement
benefits expense
|
|
$
|
16
|
|
|
$
|
19
|
|
|
|
|
Nine
Months Ended
|
|
|
Postretirement
Benefits Expense (Income)
|
|
September
30
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
3
|
|
|
$
|
4
|
|
|
Interest
cost
|
|
|
136
|
|
|
|
140
|
|
|
Recognized
prior service
costs
|
|
|
2
|
|
|
|
2
|
|
|
Recognized
gains
|
|
|
(95
|
)
|
|
|
(29
|
)
|
|
Curtailment
gains
|
|
|
-
|
|
|
|
(20
|
)
|
|
Postretirement
benefits expense
|
|
$
|
46
|
|
|
$
|
97
|
|
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
In
the
quarter ended September 30, 2007, the Company contributed $57 thousand to
the
postretirement plans. For the nine months ended September 30, 2007,
the Company contributed $195 thousand to the postretirement plans and
anticipates contributing approximately $109 thousand during the remainder
of
2007.
L. New
Financial Accounting Standards Issued
FASB
Interpretation (“FIN”) 48, “
Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109
” (“FIN 48”)
In
July
2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty
in
income taxes recognized in an entity’s financial statements in accordance with
SFAS No. 109, “Accounting for Income Taxes.” It prescribes a recognition
threshold and measurement attribute for financial statement recognition and
disclosure of tax positions taken or expected to be taken on a tax return.
The provisions of FIN 48 are required to be applied to all tax positions upon
initial adoption with any cumulative effect adjustment to be recognized as
an
adjustment to retained earnings. FIN 48 is effective for fiscal
periods beginning after December 15, 2006 (January 1, 2007 for the
Company). The Company implemented FIN 48 effective January 1, 2007
and recognized a cumulative effect reduction to 2007 beginning retained earnings
of $0.5 million.
SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”)
In
September 2006, the FASB issued SFAS 157 to provide a single definition of
fair
value, establish a framework for measuring fair value in U.S. generally accepted
accounting principles (“GAAP”), and expand the disclosure requirements regarding
fair value measurements. SFAS 157 is applicable in the application of
other accounting pronouncements that require or permit fair value measurements,
but does not require new fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007 (January 1, 2008
for the Company), with limited retrospective application
required. The Company is currently evaluating the requirements of
SFAS 157 and has not yet determined the impact on the consolidated financial
statements.
SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS 159”)
In
February 2007, the FASB issued SFAS 159, which permits all entities to choose
to
measure eligible items at fair value at specified election
dates. Unrealized gains and losses on items for which the fair value
option has been elected will be reported in earnings at each subsequent
reporting date. The fair value option may be applied financial
instrument by financial instrument (with limited exceptions), is generally
irrevocable, and must be applied to the entire financial
instrument. SFAS 159 is effective for fiscal years that begin after
November 15, 2007 (January 1, 2008 for the Company). The Company is
currently evaluating the requirements of SFAS 159, and has not yet determined
the impact on the consolidated financial statements.
M. Derivative
Instruments
The
Company may periodically use derivative instruments to hedge cash flows
associated with selling price exposure to certain commodities, as well as cash
flows related to foreign currency fluctuations. The Company’s commodity
derivative activities are subject to the management, direction and control
of
the Company’s Risk Management Committee (“the Committee”). The Committee
approves the use of all commodity derivative instruments. During the first
quarter of 2007, the Company executed fixed price swap agreements to hedge
cash
flows associated with the selling price exposure to certain commodities.
During the third quarter of 2007, the Company entered into a cashless collars
(purchased put options and written call options) also designed to hedge cash
flows associated with the selling price exposure to certain
commodities. The unsecured contracts outstanding at September 30,
2007 mature monthly through November 2008 and are with major financial
institutions.
Based
on
the requirements of SFAS No. 133, “Accounting for Derivative Instruments and
hedging Activities” (“SFAS 133”), these contracts qualified as cash flow hedges
for the quarter ending September 30, 2007. During the first and second
quarters of 2007, these contracts did not qualify as cash flow hedges under
SFAS
133. The following table summarizes the open positions as of
September 30, 2007:
HARSCO
CORPORATION AND SUBSIDIARY
COMPANIES
PART
I -
FINANCIAL INFORMATION
|
Open
Commodity Cash Flow Hedges as of September 30,
2007
|
|
|
(In
thousands)
|
|
|
|
|
Amount
Recognized in
|
|
|
Hedge
Type
|
|
Notional
Value (a)
|
|
|
Operating
Income (Loss)
|
|
|
Other
Comprehensive Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
Contracts
|
|
$
|
10,162
|
|
|
$
|
1,043
|
(b)
|
|
$
|
551
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless
Collars
|
|
|
6,048
|
|
|
|
(214
|
)
|
|
|
(132
|
)(c)
|
(a)
|
Notional
value is equal to the hedged volume multiplied by the strike price
of the
derivative.
|
(b)
|
Represents
the cumulative impact on earnings since inception of the
contracts. This includes $503 thousand through June 30, 2007
when the contracts did not qualify as cash flow hedges under SFAS
133 and
$540 thousand of hedge ineffectiveness in the third quarter of
2007.
|
(c)
|
Approximately
$847 thousand of income related to the swaps and $152 thousand of
expense
related to the collars will be classified to earnings over the next
twelve
months.
|
Although
earnings volatility may occur between fiscal quarters if the derivatives do
not
qualify as cash flow hedges under SFAS 133, the economic substance of the
derivatives provides more predictable cash flows by reducing the Company’s
exposure to the commodity price fluctuations.
See
Note
13, “Financial Instruments,” of the Company’s Form 10-K for the year ended
December 31, 2006 for additional information on derivative instruments and
hedging activities.
N. Capital
Stock
The
authorized capital stock of the Company consists of 150,000,000 shares of common
stock and 4,000,000 shares of preferred stock, both having a par value of $1.25
per share. The preferred stock is issuable in series with terms as
fixed by the Board of Directors (the “Board”). None of the preferred
stock has been issued. On September 25, 2007, the Board approved a
revised Preferred Stock Purchase Rights Agreement (the
“Agreement”). Under the Agreement, the Board authorized and declared
a dividend distribution to stockholders of record on October 9, 2007, of one
right for each share of common stock outstanding on the record
date. The rights may only be exercised if, among other things 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 purchase 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 business day following public announcement that
a
person or group has accumulated 15% or more of the Company's common
stock. The Agreement also includes an exchange feature. At
September 30, 2007, 841,973 shares of $1.25 par value preferred stock were
reserved for issuance upon exercise of the rights.