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Harsco 10-K 2008
WWW.EXFILE.COM, INC. -- 888-775-4789 -- HARSCO CORP. -- FORM 10-K
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

____________________

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number       1-3970       

___________________

HARSCO CORPORATION
(Exact name of Registrant as specified in its Charter)

Delaware
 
23-1483991
(State or other jurisdiction of
 
(I.R.S. employer identification number)
incorporation or organization)
   

350 Poplar Church Road, Camp Hill, Pennsylvania
 
17011
(Address of principal executive offices)
 
(Zip Code)

Registrants telephone number, including area code         717-763-7064        

Securities registered pursuant to Section 12(b) of the Act:
 
Name of each
Title of each class
exchange on which registered
Common stock, par value $1.25 per share
New York Stock Exchange
Preferred stock purchase rights
 

Securities registered pursuant to Section 12(g) of the Act:   NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES  x  NO  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES  o  NO  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  x  NO  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   YES  o   NO  x

The aggregate market value of the Company’s voting stock held by non-affiliates of the Company as of June 30, 2007 was $4,377,365,564.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
Classes
Outstanding at January 31, 2008
Common stock, par value $1.25 per share
84,491,031

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the 2008 Proxy Statement are incorporated by reference into Part III of this Report.

The Exhibit Index (Item No. 15) located on pages 99 to 104 incorporates several documents by reference as indicated therein.
HARSCO CORPORATION AND SUBSIDIARY COMPANIES

PART I


(a)  General Development of Business.

Harsco Corporation (“the Company) is a diversified, multinational provider of market-leading industrial services and engineered products.  The Company’s operations fall into two reportable segments: Access Services and Mill Services, plus an “all other” category labeled Minerals & Rail Services and Products.  The Company has locations in 50 countries, including the United States.  The Company was incorporated in 1956.

The Company’s executive offices are located at 350 Poplar Church Road, Camp Hill, Pennsylvania 17011.  The Company’s main telephone number is (717) 763-7064.  The Company’s Internet website address is www.harsco.com.  Through this Internet website (found in the “Investor Relations” link) the Company makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and all amendments to those reports, as soon as reasonably practicable after these reports are electronically filed or furnished to the Securities and Exchange Commission.  Information contained on the Company’s website is not incorporated by reference into this Annual Report on Form 10-K, and should not be considered as part of this Annual Report on Form 10-K.

The Company’s principal lines of business and related principal business drivers are as follows:

Principal Lines of Business
Principal Business Drivers
   
· Scaffolding, forming, shoring and other access-related services, rentals and sales
· Non-residential and infrastructure construction
· Industrial and building maintenance requirements
 
· Outsourced, on-site services to steel mills and other metals producers
· Global steel mill production and capacity utilization
· Outsourcing of services by metals producers
 
· Minerals and recycling technologies
· Outsourcing of handling and recycling of industrial co-product materials
 
· Railway track maintenance services and equipment
· Global railway track maintenance-of-way capital spending
· Outsourcing of track maintenance and new track construction by railroads
 
· Industrial grating products
· Industrial plant and warehouse construction and expansion
 
· Air-cooled heat exchangers
· Natural gas compression, transmission and demand
 
· Industrial abrasives and roofing granules
· Industrial and infrastructure surface preparation and restoration
· Residential roof replacement
 
· Heat transfer products and powder processing equipment
· Commercial and institutional boiler and water heater requirements
· Pharmaceutical, food and chemical production
 

The Company reports segment information using the “management approach” in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”).  This approach is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance.  The Company’s reportable segments are identified based upon differences in products, services and markets served.  These segments and the types of products and services offered are more fully described in section (c) below.

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In 2007, 2006 and 2005, the United States contributed sales of $1.2 billion, $1.0 billion and $0.8 billion, equal to 31%, 32% and 35% of total sales, respectively.  In 2007, 2006 and 2005, the United Kingdom contributed sales of $0.7 billion, $0.7 billion and $0.5 billion, respectively, equal to 20%, 22% and 23% of total sales, respectively.  One customer, ArcelorMittal, represented 10% or more of the Company’s sales during 2007 and 2006.  No customer represented 10% or more of the Company’s sales in 2005.  There were no significant inter-segment sales.

(b)  Financial Information about Segments

Financial information concerning industry segments is included in Note 14, Information by Segment and Geographic Area, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.”

(c)  Narrative Description of Business

(1)           A narrative description of the businesses by reportable segment is as follows:

Access Services Segment – 39% of consolidated sales for 2007

Harsco’s Access Services Segment includes the Company’s brand names of SGB Group, Hünnebeck Group and Patent Construction Systems Divisions.  The Company’s Access Services Segment is a leader in the construction services industry as one of the world’s most complete providers of rental scaffolding, shoring, forming and other access solutions.  The U.K.-based SGB Group Division operates from a network of international branches throughout Europe, the Middle East and Asia/Pacific; the Germany-based Hünnebeck Division serves Europe, the Middle East and South America, while the U.S.-based Patent Construction Systems Division serves North America including Mexico, Central America and the Caribbean.  Major services include the rental of concrete shoring and forming systems, scaffolding and powered access equipment for non-residential and infrastructure projects; as well as a variety of other access services including project engineering and equipment erection and dismantling and, to a lesser extent, access equipment sales.

The Company’s access services are provided through branch locations in over 30 countries plus export sales worldwide.  In 2007, this Segment’s revenues were generated in the following regions:

 
Access Services Segment
   
2007 Percentage
 
Region
of Revenues
     
 
Western Europe
65%
 
North America
20%
 
Middle East and Africa
  7%
 
Eastern Europe
  6%
 
Asia/Pacific
  1%
 
Latin America (a)
  1%
(a) Including Mexico.

For 2007, 2006 and 2005, the Access Services Segment’s percentage of the Company’s consolidated sales was 39%, 36% and 33%, respectively.

Mill Services Segment – 41% of consolidated sales for 2007

The Mill Services Segment, which consists of the MultiServ Division, is the world’s largest provider of on-site, outsourced mill services to the global steel and metals industries.  MultiServ provides its services on a long-term contract basis, supporting each stage of the metal-making process from initial raw material handling to post-production by-product processing and on-site recycling.  Working as a specialized, high-value-added services provider, MultiServ rarely takes ownership of its customers’ raw materials or finished products.  Similar services are provided to the producers of non-ferrous metals, such as aluminum, copper and nickel.  The Company’s multi-year Mill Services contracts had estimated future revenues of $5.0 billion at December 31, 2007.  This provides the Company with a substantial base of long-term revenues.  Approximately 61% of these revenues are expected to be recognized by December 31, 2010.  The remaining revenues are expected to be recognized principally between January 1, 2011 and December 31, 2016.

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MultiServ’s geographic reach to over 30 countries, and its increasing range of services, enhance the Company’s financial and operating balance.  In 2007, this Segment’s revenues were generated in the following regions:

 
Mill Services Segment
   
2007 Percentage
 
Region
of Revenues
     
 
Western Europe
53%
 
North America
20%
 
Latin America (a)
11%
 
Asia/Pacific
  7%
 
Middle East and Africa
  6%
 
Eastern Europe
  3%
(a) Including Mexico.

For 2007, 2006 and 2005, the Mill Services Segment’s percentage of the Company’s consolidated sales was 41%, 45% and 44%, respectively.

All Other Category - Minerals & Rail Services and Products – 20% of consolidated sales for 2007

The All Other Category includes the Excell Minerals, Reed Minerals, Harsco Track Technologies, IKG Industries, Patterson-Kelley and Air-X-Changers Divisions.  Approximately 84% of this category’s revenues originate in the United States.

Export sales for this Category totaled $57.1 million, $96.6 million and $116.6 million in 2007, 2006 and 2005, respectively.  In 2007, 2006 and 2005, export sales for the Harsco Track Technologies Division were $21.8 million, $51.5 million and $80.0 million, respectively, which included sales to Canada, Mexico, Europe, Asia, the Middle East and Africa.  A significant backlog exists at December 31, 2007 in the Harsco Track Technologies Division as a result of orders received in 2007 from the Chinese Ministry of Railways.

Excell Minerals is a multinational company that extracts high-value metallic content for production re-use on behalf of leading steelmakers and also specializes in the development of minerals technologies for commercial applications, including agriculture fertilizers and performance-enhancing additives for cement products.

Reed Minerals’ industrial abrasives and roofing granules are produced from power-plant utility coal slag at a number of locations throughout the United States.  The Company’s BLACK BEAUTY® abrasives are used for industrial surface preparation, such as rust removal and cleaning of bridges, ship hulls and various structures.  Roofing granules are sold to residential roofing shingle manufacturers, primarily for the replacement roofing market.  This Division is the United States’ largest producer of slag abrasives and third largest producer of residential roofing granules.

Harsco Track Technologies is a global provider of equipment and services to maintain, repair and construct railway track.  The Company’s railway track maintenance services support railroad customers worldwide.  The railway track maintenance equipment product class includes specialized track maintenance equipment used by private and government-owned railroads and urban transit systems worldwide.

IKG Industries manufactures a varied line of industrial grating products at several plants in North America.  These products include a full range of bar grating configurations, which are used mainly in industrial flooring, and safety and security applications in the power, paper, chemical, refining and processing industries.

Patterson-Kelley is a leading manufacturer of heat transfer products such as boilers and water heaters for commercial and institutional applications, and also powder processing equipment such as blenders, dryers and mixers for the chemical, pharmaceutical and food processing industries.

Air-X-Changers is a leading supplier of custom-designed and manufactured air-cooled heat exchangers for the natural gas industry.  The Company’s heat exchangers are the primary apparatus used to condition natural gas during recovery, compression and transportation from underground reserves through the major pipeline distribution channels.

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For 2007, 2006 and 2005, the All Other Category’s percentage of the Company’s consolidated sales was 20%, 19% and 23%, respectively.

 
(1)
(i)
The products and services of the Company include a number of product groups.  These product groups are more fully discussed in Note 14, Information by Segment and Geographic Area, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.”  The product groups that contributed 10% or more as a percentage of consolidated sales in any of the last three fiscal years are set forth in the following table:

   
Percentage of Consolidated Sales
 
Product Group
2007
2006
2005
 
Access Services
39%
36%
33%
 
Mill Services
41%
45%
44%

 
(1)
(ii)
New products and services are added from time to time; however, in 2007 none required the investment of a material amount of the Company’s assets.

 
(1)
(iii)
The manufacturing requirements of the Company’s operations are such that no unusual sources of supply for raw materials are required.  The raw materials used by the Company for its limited product manufacturing include principally steel and, to a lesser extent, aluminum, which are usually readily available.  The profitability of the Company’s manufactured products is affected by changing purchase prices of steel and other materials and commodities.  If steel or other material costs associated with the Company’s manufactured products increase and the costs cannot be passed on to the Company’s customers, operating income would be adversely impacted.  Additionally, decreased availability of steel or other materials could affect the Company’s ability to produce manufactured products in a timely manner.  If the Company cannot obtain the necessary raw materials for its manufactured products, then revenues, operating income and cash flows will be adversely affected.  Certain services performed by the Excell Minerals Division result in the recovery, processing and sale of specialty steel scrap concentrate and ferro alloys to its customers.  The selling price of the by-product material is principally market-based and varies based upon the current market value of its components.  Therefore, the revenue amounts recorded from the sale of such by-product material varies based upon the market value of the commodity components being sold.  The Company has executed hedging instruments designed to reduce the volatility of the revenue from the sale of the by-products material at varying market prices.  However, there can be no guarantee that such hedging strategies will be fully effective in reducing the variability of revenues from period to period.

 
(1)
(iv)
While the Company has a number of trademarks, patents and patent applications, it does not consider that any material part of its business is dependent upon them.

 
(1)
(v)
The Company furnishes products and materials and certain industrial services within the Access Services and the All Other Category that are seasonal in nature.  As a result, the Company’s sales and net income for the first quarter ending March 31 are normally lower than the second, third and fourth quarters.  Additionally, the Company has historically generated the majority of its cash flows in the second half of the year.  This is a direct result of normally higher sales and income during the latter part of the year.  The Company’s historical revenue patterns and cash provided by operating activities were as follows:

Historical Revenue from Continuing Operations Patterns
(In millions)
 
2007
   
2006
   
2005
   
2004
   
2003
 
                               
First Quarter Ended March 31
  $ 840.0     $ 682.1     $ 558.0     $ 478.7     $ 419.7  
                                         
Second Quarter Ended June 30
    946.1       766.0       606.0       534.6       466.7  
                                         
Third Quarter Ended September 30
    927.4       773.3       599.5       532.9       456.0  
                                         
Fourth Quarter Ended December 31
    974.6       804.2       632.5       616.8       482.1  
Totals
  $ 3,688.2 (a)   $ 3,025.6     $ 2,396.0     $ 2,163.0     $ 1,824.6 (a)

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Historical Cash Provided by Operations
(In millions)
 
2007
   
2006
   
2005
   
2004
   
2003
 
                               
First Quarter Ended March 31
  $ 41.7     $ 69.8     $ 48.1     $ 32.4     $ 31.2  
                                         
Second Quarter Ended June 30
    154.9       114.5       86.3       64.6       59.2  
                                         
Third Quarter Ended September 30
    175.7       94.6       98.1       68.9       64.1  
                                         
Fourth Quarter Ended December 31
    99.4       130.3       82.7       104.6       108.4  
Totals
  $ 471.7     $ 409.2     $ 315.3 (a)   $ 270.5     $ 262.8 (a)
(a) Does not total due to rounding.
 
 
(1)
(vi)
The practices of the Company relating to working capital are similar to those practices of other industrial service providers or manufacturers servicing both domestic and international industrial services and commercial markets.  These practices include the following:
·  
Standard accounts receivable payment terms of 30 days to 60 days, with progress payments required for certain long-lead-time or large orders.  Payment terms are longer in certain international markets.
·  
Standard accounts payable payment terms of 30 days to 90 days.
·  
Inventories are maintained in sufficient quantities to meet forecasted demand.  Due to the time required to manufacture certain railway maintenance equipment to customer specifications, inventory levels of this business tend to increase for an extended time during the production phase and then decline when the equipment is sold.

 
(1)
(vii)
One customer, ArcelorMittal, represented 10% or more of the Company’s sales in 2007 and 2006.  In 2005, no single customer represented 10% of its sales.  The Mill Services Segment is dependent largely on the global steel industry, and in 2007 and 2006 there were two customers that each provided in excess of 10% of this Segment’s revenues under multiple long-term contracts at several mill sites.  In 2005, there were three customers that each provided in excess of 10% of this Segment’s revenues.  ArcelorMittal was one of those customers in 2007, 2006 and 2005.  The loss of any one of the contracts would not have a material adverse effect upon the Company’s financial position or cash flows; however, it could have a material effect on quarterly or annual results of operations.  Additionally, these customers have significant accounts receivable balances.  Further consolidation in the global steel industry is possible.  Should transactions occur involving some of the Company’s larger steel industry customers, it would result in an increase in concentration of credit risk for the Company.  If a large customer were to experience financial difficulty, or file for bankruptcy protection, it could adversely impact the Company’s income, cash flows, and asset valuations.  As part of its credit risk management practices, the Company closely monitors the credit standing and accounts receivable position of its customer base.

 
(1)
(viii)
Backlog of manufacturing orders from continuing operations was $448.1 million and $236.5 million as of December 31, 2007 and 2006, respectively.  A significant backlog exists at December 31, 2007 in the Harsco Track Technologies Division as a result of orders received in 2007 from the Chinese Ministry of Railways.  It is expected that approximately 55% of the total backlog at December 31, 2007 will not be filled during 2008.  Exclusive of certain orders received by the Harsco Track Technologies Division such as the order from the Chinese Ministry of Railways, the Company’s backlog is seasonal in nature and tends to follow in the same pattern as sales and net income which is discussed in section (1) (v) above.  Order backlog for scaffolding, shoring and forming services of the Access Services Segment is excluded from the above amounts.  These amounts are generally not quantifiable due to 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 often unknown.  Backlog for roofing granules and slag abrasives is not included in the total backlog because it is generally not quantifiable, due to the short order lead times of the products provided.  Backlog for minerals and recycling technologies is not included in the total backlog amount because it is generally not quantifiable due to short order lead times of the products and services provided.  Contracts for the Mill Services Segment are also excluded from the total backlog.  These contracts have estimated future revenues of $5.0 billion at December 31, 2007.  For additional information regarding backlog, see the Backlog section included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

- 6 -

 
(1)
(ix)
At December 31, 2007, the Company had no material contracts that were subject to renegotiation of profits or termination at the election of the U.S. Government.

 
(1)
(x)
The Company encounters active competition in all of its activities from both larger and smaller companies who produce the same or similar products or services, or who produce different products appropriate for the same uses.

 
(1)
(xi)
The expense for product development activities was $3.2 million, $2.8 million and $2.4 million in 2007, 2006 and 2005, respectively.  For additional information regarding product development activities, see the Research and Development section included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 
(1)
(xii)
The Company has become subject, as have others, to stringent air and water quality control legislation.  In general, the Company has not experienced substantial difficulty complying with these environmental regulations in the past, and does not anticipate making any material capital expenditures for environmental control facilities.  While the Company expects that environmental regulations may expand, and that its expenditures for air and water quality control will continue, it cannot predict the effect on its business of such expanded regulations.  For additional information regarding environmental matters see Note 10, Commitments and Contingencies, to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”

 
(1)
(xiii)
As of December 31, 2007, the Company had approximately 21,500 employees.

(d)  Financial Information about Geographic Areas

Financial information concerning foreign and domestic operations is included in Note 14, Information by Segment and Geographic Area, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.”  Export sales totaled $61.7 million, $99.6 million and $118.8 million in 2007, 2006 and 2005, respectively.

(e)  Available Information

Information is provided in Part I, Item 1 (a), “General Development of Business.”


Item 1A.    Risk Factors

Market risk.

In the normal course of business, the Company is routinely subjected to a variety of risks.  In addition to the market risk associated with interest rate and currency movements on outstanding debt and non-U.S. dollar-denominated assets and liabilities, other examples of risk include collectibility of receivables, volatility of the financial markets and their effect on pension plans, and global economic and political conditions.

Cyclical industry and economic conditions may adversely affect the Company’s businesses.

The Company’s businesses are subject to general economic slowdowns and cyclical conditions in the industries served.  In particular,

·  
The Company’s Access Services business may be adversely impacted by slowdowns in non-residential or infrastructure construction and annual industrial and building maintenance cycles;

·  
The Company’s Mill Services business may be adversely impacted by slowdowns in steel mill production, excess capacity, consolidation or bankruptcy of steel producers or a reversal or slowing of current outsourcing trends in the steel industry;

·  
The railway track maintenance services and equipment business may be adversely impacted by developments in the railroad industry that lead to lower capital spending or reduced maintenance spending;

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·  
The industrial abrasives and roofing granules business may be adversely impacted by reduced home resales or economic conditions that slow the rate of residential roof replacement, or by slowdowns in the industrial and infrastructure refurbishment industries;

·  
The industrial grating business may be adversely impacted by slowdowns in non-residential construction and industrial production;

·  
The air-cooled heat exchangers business is affected by cyclical conditions present in the natural gas industry.  A high demand for natural gas is currently creating increased demand for the Company’s air-cooled heat exchangers.  However, a slowdown in natural gas production could adversely affect this business;

·  
The Excell Minerals business may be adversely impacted by a reduction in the selling price of its materials, which is market-based and varies based upon the current fair value of the components being sold.  Therefore, the revenue amounts recorded from the sale of such recycled materials vary based upon the fair value of the commodity components being sold; and

·  
The Company’s access to capital and the associated costs of borrowing may be adversely impacted by the tightening of credit markets.  Capital constraints and increased borrowing costs may also adversely impact the financial position and operations of the Company’s customers across all business segments.

The Company’s defined benefit pension expense is directly affected by the equity and bond markets and a downward trend in those markets could adversely impact the Company’s future earnings.

In addition to the economic issues that directly affect the Company’s businesses, changes in the performance of equity and bond markets, particularly in the United Kingdom and the United States, impact actuarial assumptions used in determining annual pension expense, pension liabilities and the valuation of the assets in the Company’s defined benefit pension plans.  If the financial markets deteriorate, it would most likely have a negative impact on the Company’s pension expense and the accounting for pension assets and liabilities.  This could result in a decrease to Stockholders’ Equity and an increase in the Company’s statutory funding requirements.

In response to the adverse market conditions, during 2002 and 2003 the Company conducted a comprehensive global review of its pension plans in order to formulate a plan to make its long-term pension costs more predictable and affordable.  The Company implemented design changes for most of these plans during 2003.  The principal change involved converting future pension benefits for many of the Company’s non-union employees in both the United Kingdom and United States from defined benefit plans to defined contribution plans as of January 1, 2004.  This conversion has made the Company’s pension expense more predictable and less sensitive to changes in the financial markets.

The Company’s pension committee continues to evaluate alternative strategies to further reduce overall pension expense including: conversion of certain remaining defined benefit plans to 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 are likely to reduce future pension expense volatility and minimize risk.

In addition to the Company’s defined benefit pension plans, the Company also participates in numerous multi-employer pension plans throughout the world.  Within the United States, the Pension Protection Act of 2006 may require additional funding for multiemployer plans that could cause the Company to be subject to higher cash contributions in the future.  The Company continues to assess any full and partial withdrawal liability implications associated with these plans.

The Company’s global presence subjects it to a variety of risks arising from doing business internationally.

The Company operates in 50 countries, including the United States.  The Company’s global footprint exposes it to a variety of risks that may adversely affect results of operations, cash flows or financial position.  These include the following:

·  
periodic economic downturns in the countries in which the Company does business;

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·  
fluctuations in currency exchange rates;

·  
customs matters and changes in trade policy or tariff regulations;

·  
imposition of or increases in currency exchange controls and hard currency shortages;

·  
changes in regulatory requirements in the countries in which the Company does business;

·  
higher tax rates in certain jurisdictions and potentially adverse tax consequences including restrictions on repatriating earnings, adverse tax withholding requirements and double taxation;

·  
longer payment cycles and difficulty in collecting accounts receivable;

·  
complications in complying with a variety of international laws and regulations;

·  
political, economic and social instability, civil unrest and armed hostilities in the countries in which the Company does business;

·  
inflation rates in the countries in which the Company does business;

·  
laws in various international jurisdictions that limit the right and ability of subsidiaries to pay dividends and remit earnings to affiliated companies unless specified conditions are met; and‚

·  
uncertainties arising from local business practices, cultural considerations and international political and trade tensions.

If the Company is unable to successfully manage the risks associated with its global business, the Company’s financial condition, cash flows and results of operations may be negatively impacted.

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 2007, 2006 and 2005, the Company’s Middle East operations contributed approximately $44.6 million, $34.8 million and $32.7 million, respectively, to the Company’s operating income.  Additionally, the Company has operations in and sales to countries that have encountered outbreaks of communicable diseases (e.g., Acquired Immune Deficiency Syndrome (AIDS), avian influenza and others).  Should such outbreaks worsen or spread to other countries, the Company may be negatively impacted through reduced sales to and within those countries and other countries impacted by such diseases.

Exchange rate fluctuations may adversely impact the Company’s business.

Fluctuations in foreign exchange rates between the U.S. dollar and the 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 69% and 68% of the Company’s sales and approximately 68% and 71% of the Company’s operating income from continuing operations for the years ended December 31, 2007 and 2006, respectively, were derived from operations outside the United States.  More specifically, approximately 20% and 22% of the Company’s revenues were derived from operations in the United Kingdom during 2007 and 2006, respectively.  Additionally, approximately 26% and 25% of the Company’s revenues were derived from operations with the euro as their functional currency during 2007 and 2006, respectively.  Given the structure of the Company’s revenues and expenses, an increase in the value of the U.S. dollar relative to the foreign currencies in which the Company earns its revenues generally has a negative impact on operating income, whereas a decrease in the value of the U.S. dollar tends to have the opposite effect.  The Company’s principal foreign currency exposures are to the British pound sterling and the euro.

- 9 -

Compared with the corresponding period in 2006, the average values of major currencies changed as follows in relation to the U.S. dollar during 2007, impacting the Company’s sales and income:
 
British pound sterling
Strengthened by 8%
euro
Strengthened by 8%
South African rand
Weakened by 3%
Brazilian real
Strengthened by 11%
Canadian dollar
Strengthened by 5%
Australian dollar
Strengthened by 10%
Polish zloty
Strengthened by 11%
 
Compared with exchange rates at December 31, 2006, the values of major currencies changed as follows as of December 31, 2007:
 
British pound sterling
Strengthened by 1%
euro
Strengthened by 10%
South African rand
Strengthened by 2%
Brazilian real
Strengthened by 17%
Canadian dollar
Strengthened by 15%
Australian dollar
Strengthened by 10%
Polish zloty
Strengthened by 15%
 
The Company’s foreign currency exposures increase the risk of income statement, balance sheet and cash flow volatility.  If the above currencies change materially in relation to the U.S. dollar, the Company’s financial position, results of operations, or cash flows may be materially affected.

To illustrate the effect of foreign currency exchange rate changes in certain key markets of the Company, in 2007, revenues would have been approximately 5% or $166.9 million less and operating income would have been approximately 4% or $16.5 million less if the average exchange rates for 2006 were utilized.  A similar comparison for 2006 would have decreased revenues approximately 1% or $34.1 million, while operating income would have been approximately 1% or $3.9 million less if the average exchange rates for 2006 would have remained the same as 2005.  If the U.S. dollar weakens in relation to the euro and British pound sterling, the Company would expect to see a positive impact on future sales and income from continuing operations as a result of foreign currency translation.  Currency changes also result in assets and liabilities denominated in local currencies 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 in countries in which the Company does business, the translated values of the related assets and liabilities, and therefore stockholders’ equity, would increase.  Conversely, if the U.S. dollar strengthens in relation to currencies in countries in which the Company does business, the translated values of the related assets, liabilities, and therefore stockholders’ equity, would decrease.

Although the Company engages in foreign currency forward exchange contracts and other hedging strategies to mitigate foreign exchange risk, hedging strategies may not be successful or may fail to offset the risk.

In addition, competitive conditions in the Company’s manufacturing businesses may limit the Company’s ability to increase product prices in the face of adverse currency movements.  Sales of products manufactured in the United States for the domestic and export markets may be affected by the value of the U.S. dollar relative to other currencies.  Any long-term strengthening of the U.S. dollar could depress demand for these products and reduce sales and may cause translation gains or losses due to the revaluation of accounts payable, accounts receivable and other asset and liability accounts.  Conversely, any long-term weakening of the U.S. dollar could improve demand for these products and increase sales and may cause translation gains or losses due to the revaluation of accounts payable, accounts receivable and other asset and liability accounts.

Negative economic conditions may adversely impact the ability of the Company’s customers to meet their obligations to the Companyon a timely basis and impact the valuation of the Company’s assets.>

If a downturn in the economy occurs, it may adversely impact the ability of the Company’s customers to meet their obligations to the Company on a timely basis and could result in bankruptcy filings by them.  If customers are unable to meet their obligations on a timely basis, it could adversely impact the realizability of receivables, the valuation of inventories and the valuation of long-lived assets across the Company’s businesses, as well as negatively affect the forecasts used in performing the Company’s goodwill impairment testing under SFAS No. 142, “Goodwill and Other Intangible Assets.”  If management determines that goodwill or other assets are impaired or that inventories or
 
- 10 -

receivables cannot be realized at recorded amounts, the Company will be required to record a write-down in the period of determination, which will reduce net income for that period.  Additionally, the risk remains that certain Mill Services customers may file for bankruptcy protection, be acquired or consolidate in the future, which could have an adverse impact on the Company’s income and cash flows.


The Company has been named as one of many defendants (approximately 90 or more in most cases) in legal actions alleging personal injury from exposure to airborne asbestos.  In their suits, the plaintiffs have named as defendants many manufacturers, distributors and repairers of numerous types of equipment or products that may involve asbestos.  Most of these complaints contain a standard claim for damages of $20 million or $25 million against the named defendants.  If the Company was found to be liable in any of these actions and the liability was to exceed the Company’s insurance coverage, results of operations, cash flows and financial condition could be adversely affected.  For more information concerning this litigation, see Note 10, Commitments and Contingencies, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.”

The Company may lose customers or be required to reduce prices as a result of competition.

The industries in which the Company operates are highly competitive.

·  
The Company’s Access Services business rents and sells equipment and provides erection and dismantling services to principally the non-residential and infrastructure construction and industrial plant maintenance markets.  Contracts are awarded based upon the Company’s engineering capabilities, product availability, safety record, and the ability to competitively price its rentals and services.  If the Company is unable to consistently provide high-quality products and services at competitive prices, it may lose customers or operating margins may decline due to reduced selling prices.
·  
The Company’s Mill Services business is sustained mainly through contract renewals.  Historically, the Company’s contract renewal rate has averaged approximately 95%.  If the Company is unable to renew its contracts at the historical rates or renewals are at reduced prices, revenue may decline.
·  
The Company’s manufacturing businesses compete with companies that manufacture similar products both internationally and domestically.  Certain international competitors export their products into the United States and sell them at lower prices due to lower labor costs and government subsidies for exports.  Such practices may limit the prices the Company can charge for its products and services.  Additionally, unfavorable foreign exchange rates can adversely impact the Company’s ability to match the prices charged by international competitors.  If the Company is unable to match the prices charged by international competitors, it may lose customers.

The Company’s strategy to overcome this competition includes enterprise business optimization programs, international customer focus and the diversification, streamlining and consolidation of operations.

Increased customer concentration and credit risk in the Mill Services Segment may adversely impact the Company’s future earnings and cash flows.

The Company’s Mill Services Segment (and, to a lesser extent, the All Other Category) has several large customers throughout the world with significant accounts receivable balances.  In December 2005, the Company acquired the Northern Hemisphere steel mill services operations of Brambles Industrial Services, a unit of the Sydney, Australia-based Brambles Industrial Limited.  This acquisition has increased the Company’s corresponding concentration of credit risk to customers in the steel industry.  Additionally, further consolidation in the global steel industry occurred in 2006 and 2007 and additional consolidation is possible.  Should additional transactions occur involving some of the steel industry’s larger companies, which are customers of the Company, it would result in an increase in concentration of credit risk for the Company.  If a large customer were to experience financial difficulty, or file for bankruptcy protection, it could adversely impact the Company’s income, cash flows and asset valuations.  As part of its credit risk management practices, the Company developed strategies to mitigate this increased concentration of credit risk.  In the Access Services Segment, concentrations of credit risk with respect to accounts receivable are generally limited due to the Company’s large number of customers and their dispersion across different geographies.

Increases in energy prices could increase the Company’s operating costs and reduce its profitability.

Worldwide political and economic conditions, an imbalance in the supply and demand for oil, extreme weather conditions, 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 2007, 2006 and 2005, energy costs have
 
- 11 -

approximated 3.7%, 3.9% and 3.5% of the Company’s revenue, respectively.  To the extent that such costs cannot be passed to customers in the future, operating income and results of operations may be adversely affected.

Increases or decreases in purchase prices (or selling prices) or availability of steel or other materials and commodities may affect the Company’s profitability.

The profitability of the Company’s manufactured products is affected by changing purchase prices of steel and other materials and commodities.  If raw material costs associated with the Company’s manufactured products increase and the costs cannot be passed on to the Company’s customers, operating income would be adversely affected.  Additionally, decreased availability of steel or other materials could affect the Company’s ability to produce manufactured products in a timely manner.  If the Company cannot obtain the necessary raw materials for its manufactured products, then revenues, operating income and cash flows will be adversely affected.  Certain services performed by the Excell Minerals Division result in the recovery, processing and sale of specialty steel and other high-value metal by-products to its customers.  The selling price of the by-products material is market-based and varies based upon the current fair value of its components.  Therefore, the revenue amounts recorded from the sale of such by-products material vary based upon the fair value of the commodity components being sold.  The Company has executed hedging instruments designed to reduce the volatility of the revenue from the sale of the by-products material at varying market prices.  However, there can be no guarantee that such hedging strategies will be fully effective in reducing the variability of revenues from period to period.

The Company is subject to various environmental laws and the success of existing or future environmental claims against it could adversely impact the Company’s results of operations and cash flows.>

The Company’s operations are subject to various federal, state, local and international laws, regulations and ordinances relating to the protection of health, safety and the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous wastes, the remediation of contaminated sites and the maintenance of a safe work place.  These laws impose penalties, fines and other sanctions for non-compliance and liability for response costs, property damages and personal injury resulting from past and current spills, disposals or other releases of, or exposure to, hazardous materials.  The Company could incur substantial costs as a result of non-compliance with or liability for remediation or other costs or damages under these laws.  The Company may be subject to more stringent environmental laws in the future, and compliance with more stringent environmental requirements may require the Company to make material expenditures or subject it to liabilities that the Company currently does not anticipate.

The Company is currently involved in a number of environmental remediation investigations and clean-ups and, along with other companies, has been identified as a potentially responsible party” for certain waste disposal sites under the federal Superfund law.  At several sites, the Company is currently conducting environmental remediation, and it is probable that the Company will agree to make payments toward funding certain other of these remediation activities.  It also is possible that some of these matters will be decided unfavorably to the Company and that other sites requiring remediation will be identified.  Each of these matters is subject to various uncertainties and financial exposure is dependent upon such factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the allocation of cost among potentially responsible parties, the years of remedial activity required and the remediation methods selected.  The Company has evaluated its potential liability and the Consolidated Balance Sheets at December 31, 2007 and 2006 include an accrual of $3.9 million and $3.8 million, respectively, for environmental matters.  The amounts charged against pre-tax earnings related to environmental matters totaled $2.8 million, $2.1 million and $1.4 million for the years ended December 31, 2007, 2006 and 2005, respectively.  The liability for future remediation costs is evaluated on a quarterly basis.  Actual costs to be incurred at identified sites in future periods may be greater than the estimates, given inherent uncertainties in evaluating environmental exposures.

Restrictions imposed by the Company’s credit facilities and outstanding notes may limit the Company’s ability to obtain additional financing or to pursue business opportunities.

The Company’s credit facilities and certain notes payable agreements contain a covenant requiring a maximum debt to capital ratio of 60%.  In addition, certain notes payable agreements also contain a covenant requiring a minimum net worth of $475 million.  These covenants limit the amount of debt the Company may incur, which could limit its ability to obtain additional financing or pursue business opportunities.  In addition, the Company’s ability to comply with these ratios may be affected by events beyond its control.  A breach of any of these covenants or the inability to comply with the required financial ratios could result in a default under these credit facilities.  In the event of any default under these credit facilities, the lenders under those facilities could elect to declare all borrowings outstanding, together with
 
- 12 -

accrued and unpaid interest and other fees, to be due and payable, which would cause an event of default under the notes.  This could, in turn, trigger an event of default under the cross-default provisions of the Company’s other outstanding indebtedness.  At December 31, 2007, the Company was in compliance with these covenants with a debt to capital ratio of 40.8%, and a net worth of $1.6 billion.  The Company had $395.2 million in outstanding indebtedness containing these covenants at December 31, 2007.

Higher than expected claims under insurance policies, under which the Company retains a portion of the risk, could adversely impact results of operations and cash flows.

The Company retains a significant portion of the risk for property, workers’ compensation, U.K. employers’ liability, automobile, general and product liability losses.  Reserves have been recorded which reflect the undiscounted estimated liabilities for ultimate losses including claims incurred but not reported.  Inherent in these estimates are assumptions that are based on the Company’s history of claims and losses, a detailed analysis of existing claims with respect to potential value, and current legal and legislative trends.  At December 31, 2007 and 2006, the Company had recorded liabilities of $112.0 million and $103.4 million, respectively, related to both asserted and unasserted insurance claims.  Included in the balance at December 31, 2007 and 2006 were $25.9 million and $18.9 million, respectively, of recognized liabilities covered by insurance carriers.  If actual claims are higher than those projected by management, an increase to the Company’s insurance reserves may be required and would be recorded as a charge to income in the period the need for the change was determined.  Conversely, if actual claims are lower than those projected by management, a decrease to the Company’s insurance reserves may be required and would be recorded as a reduction to expense in the period the need for the change was determined.

The seasonality of the Company’s business may cause its quarterly results to fluctuate.

The Company has historically generated the majority of its cash flows in the second half of the year.  This is a direct result of normally higher sales and income during the second half of the year, as the Company’s business tends to follow seasonal patterns.  If the Company is unable to successfully manage the cash flow and other effects of seasonality on the business, its results of operations may suffer.  The Company’s historical revenue patterns and net cash provided by operating activities are included in Part I, Item 1, “Business.”

The Company’s cash flows and earnings are subject to changes in interest rates.

The Company’s total debt as of December 31, 2007 was $1.1 billion.  Of this amount, approximately 49.2% had variable rates of interest and 50.8% had fixed rates of interest.  The weighted average interest rate of total debt was approximately 6.0%.  At current debt levels, a one-percentage increase/decrease in variable interest rates would increase/decrease interest expense by approximately $5.3 million per year.

The future financial impact on the Company associated with the above risks cannot be estimated.

Item 1B.    Unresolved Staff Comments

None.



Information as to the principal plants owned and operated by the Company is summarized in the following table:

 
Location
Principal Products
     
 
Access Services Segment
 
 
Marion, Ohio
Access Equipment Maintenance
 
Dosthill, United Kingdom
Access Equipment Maintenance
     
 
- 13 -

 
Location
Principal Products
 
All Other Category - Minerals & Rail Services and Products
 
 
Drakesboro, Kentucky
Roofing Granules/Abrasives
 
Gary, Indiana
Roofing Granules/Abrasives
 
Tampa, Florida
Roofing Granules/Abrasives
 
Brendale, Australia
Rail Maintenance Equipment
 
Fairmont, Minnesota
Rail Maintenance Equipment
 
Ludington, Michigan
Rail Maintenance Equipment
 
West Columbia, South Carolina
Rail Maintenance Equipment
 
Channelview, Texas
Industrial Grating Products
 
Leeds, Alabama
Industrial Grating Products
 
Queretaro, Mexico
Industrial Grating Products
 
East Stroudsburg, Pennsylvania
Process Equipment
 
Catoosa, Oklahoma
Heat Exchangers
 
Sarver, Pennsylvania
Minerals and Recycling Technologies

The Company also operates the following plants which are leased:

 
Location
Principal Products
 
Access Services Segment
 
 
DeLimiet, Netherlands
Access Equipment Maintenance
 
Ratingen, Germany
Access Equipment Maintenance
 
All Other Category - Minerals & Rail Services and Products
 
 
Memphis, Tennessee
Roofing Granules/Abrasives
 
Moundsville, West Virginia
Roofing Granules/Abrasives
 
Eastwood, United Kingdom
Rail Maintenance Equipment
 
Tulsa, Oklahoma
Industrial Grating Products
 
Garrett, Indiana
Industrial Grating Products
 
Catoosa, Oklahoma
Heat Exchangers
 
Sapulpa, Oklahoma
Heat Exchangers

The above listing includes the principal properties owned or leased by the Company.  The Company also operates from a number of other smaller plants, branches, depots, warehouses and offices in addition to the above.  The Company considers all of its properties at which operations are currently performed to be in satisfactory condition and suitable for operations.  Additionally, the Company has administrative offices in Camp Hill, Pennsylvania and Leatherhead, United Kingdom.



Information regarding legal proceedings is included in Note 10, Commitments and Contingencies, to the Consolidated Financial Statements under Part II, Item 8, Financial Statements and Supplementary Data.”



There were no matters that were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year covered by this Report.


- 14 -

Supplementary Item.  Executive Officers of the Registrant (Pursuant to Instruction 3 to Item 401(b) of Regulation S-K)

Set forth below, as of February 29, 2008, are the executive officers (this excludes six corporate officers who are not deemed executive officers within the meaning of applicable Securities and Exchange Commission regulations) of the Company and certain information with respect to each of them.  S. D. Fazzolari was elected to his new position effective January 1, 2008.  G. D. H. Butler, M. E. Kimmel, S. J. Schnoor and R. C. Neuffer were elected to their respective offices effective on January 1, 2008.  R. M. Wagner was elected to his new position effective January 1, 2008.  All terms expire on April 22, 2008.  There are no family relationships between any of the executive officers.

Name
Age
Principal Occupation or Employment
     
Executive Officers:
   
     
S. D. Fazzolari
55
Chief Executive Officer of the Corporation effective January 1, 2008.  Served as President and Chief Financial Officer of the Corporation from October 10, 2007 to December 31, 2007.  Served as President, Chief Financial Officer and Treasurer from January 24, 2006 to October 9, 2007, and Director since January 2002.  Served as Senior Vice President, Chief Financial Officer and Treasurer from August 24, 1999 to January 23, 2006 and as Senior Vice President and Chief Financial Officer from January 1998 to August 1999.  Served as Vice President and Controller from January 1994 to December 1997 and as Controller from January 1993 to January 1994.  Previously served as Director of Auditing from 1985 to 1993 and served in various auditing positions from 1980 to 1985.
     
G. D. H. Butler
61
President of Harsco Corporation and CEO of the Access Services and Mill Services business groups effective January 1, 2008.  Served as Senior Vice President-Operations of the Corporation from September 26, 2000 to December 31, 2007 and Director since January 2002.  Concurrently served as President of the MultiServ and SGB Group Divisions.  From September 2000 through December 2003, he was President of the Heckett MultiServ International and SGB Group Divisions.  Was President of the Heckett MultiServ-East Division from July 1, 1994 to September 26, 2000.  Served as Managing Director - Eastern Region of the Heckett MultiServ Division from January 1, 1994 to June 30, 1994.  Served in various officer positions within MultiServ International, N. V. prior to 1994 and prior to the Company’s acquisition of that corporation in August 1993.
     
M. E. Kimmel
48
Senior Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary effective January 1, 2008.  General Counsel and Corporate Secretary since January 1, 2004.  Served as Corporate Secretary and Assistant General Counsel from May 1, 2003 to December 31, 2003.  Held various legal positions within the Corporation since he joined the Company in August 2001.  Prior to joining Harsco, he was Vice President, Administration and General Counsel, New World Pasta Company from January 1, 1999 to July 2001.  Before joining New World Pasta, Mr. Kimmel spent approximately 12 years in various legal positions with Hershey Foods Corporation.
     
S. J. Schnoor
54
Senior Vice President and Chief Financial Officer effective January 1, 2008.  Served as Vice President and Controller of the Corporation from May 15, 1998 to December 31, 2007.  Served as Vice President and Controller of the Patent Construction Systems Division from February 1996 to May 1998 and as Controller of the Patent Construction Systems Division from January 1993 to February 1996.  Previously served in various auditing positions for the Corporation from 1988 to 1993.  Prior to joining Harsco, he served in various auditing positions for Coopers & Lybrand from September 1985 to April 1988.  Mr. Schnoor is a Certified Public Accountant.
     
 
- 15 -

Name
Age
Principal Occupation or Employment
     
R. C. Neuffer
65
Harsco Senior Vice President and Group President for the Company’s Minerals & Rail Services and Products group effective January 1, 2008.  Served as President of the Minerals & Rail Services and Products business group since his appointment on January 24, 2006.  Previously, he led the Patterson-Kelley, IKG Industries and Air-X-Changers units as Vice President and General Manager since 2004.  In 2003, he was Vice President and General Manager of IKG Industries and Patterson-Kelley.  Between 1997 and 2002, he was Vice President and General Manager of Patterson-Kelley.  Mr. Neuffer joined Harsco in 1991.
     
R. M. Wagner
40
Vice President and Controller effective January 1, 2008.  Mr. Wagner joined Harsco in 2007 as Assistant Controller.  Prior to joining Harsco, he held management responsibilities for financial reporting at Bayer Corporation.  He previously held a number of financial management positions both in the United States and internationally with Kennametal Inc., and also served as an audit manager with Deloitte & Touche.  Mr. Wagner is a Certified Public Accountant.


 
- 16 -

 
PART II

Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Harsco Corporation common stock is listed on the New York Stock Exchange.  At the end of 2007, there were 84,459,866 shares outstanding.  In 2007, the Company’s common stock traded in a range of $36.90 to $66.51 (on a post-split basis) and closed at $64.07 at year-end.  At December 31, 2007 there were approximately 22,000 stockholders.  There are no significant limitations on the payment of dividends included in the Company’s loan agreements.  For additional information regarding Harsco common stock market price and dividends declared, see Dividend Action under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Common Stock Price and Dividend Information under Part II, Item 8, Financial Statements and Supplementary Data.”  For additional information on the Company’s equity compensation plans see Part III, Item 11, “Executive Compensation.”

(c)           Issuer Purchases of Equity Securities

Period
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
         
October 1, 2007 – October 31, 2007
2,000,000
November 1, 2007 – November 30, 2007
2,000,000
December 1, 2007 – December 31, 2007
2,000,000
Total
 

The Company’s share repurchase program was extended by the Board of Directors in November 2007.  The program authorizes the repurchase of up to 2,000,000 shares of the Company’s common stock and expires January 31, 2009.  As announced in February 2008, the Company plans to begin the repurchase of an undetermined number of shares of the Company’s common stock under the above mentioned stock repurchase authorization.  Repurchases will be made in open market transactions at times and amounts as management deems appropriate, depending on market conditions.  Any repurchase may commence or be discontinued at any time.

- 17 -


Five-Year Statistical Summary

(In thousands, except per share, employee information and percentages)
 
2007 (a)
   
2006
   
2005 (b)
   
2004
   
2003
 
Income Statement Information (c)
                             
Revenues from continuing operations
  $ 3,688,160     $ 3,025,613     $ 2,396,009     $ 2,162,973     $ 1,824,551  
Income from continuing operations
    255,115       186,402       144,488       104,040       77,133  
Income from discontinued operations
    44,377       9,996       12,169       17,171       15,084  
Net income
    299,492       196,398       156,657       121,211       92,217  
Financial Position and Cash Flow Information
                                       
Working capital
  $ 471,367     $ 320,847     $ 352,620     $ 346,768     $ 269,276  
Total assets
    3,905,430       3,326,423       2,975,804       2,389,756       2,138,035  
Long-term debt
    1,012,087       864,817       905,859       594,747       584,425  
Total debt
    1,080,794       1,063,021       1,009,888       625,809       613,531  
Depreciation and amortization (including discontinued operations)
    306,413       252,982       198,065       184,371       168,935  
Capital expenditures
    443,583       340,173       290,239       204,235       143,824  
Cash provided by operating activities
    471,740       409,239       315,279       270,465       262,788  
Cash used by investing activities
    (386,125 )     (359,455 )     (645,185 )     (209,602 )     (144,791 )
Cash provided (used) by financing activities
    (77,687 )     (84,196 )     369,325       (56,512 )     (125,501 )
Ratios
                                       
Return on sales (d)
    6.9 %     6.2 %     6.0 %     4.8 %     4.2 %
Return on average equity (e)
    19.2 %     17.2 %     15.3 %     12.7 %     10.9 %
Current ratio
 
1.5:1
   
1.4:1
   
1.5:1
   
1.6:1
   
1.5:1
 
Total debt to total capital (f)
    40.8 %     48.1 %     50.4 %     40.6 %     44.1 %
Per Share Information (g)
                                       
Basic- Income from continuing operations
  $ 3.03     $ 2.22     $ 1.73     $ 1.26     $ 0.95  
- Income from discontinued operations
    0.53       0.12       0.15       0.21       0.19  
- Net income
  $ 3.56     $ 2.34     $ 1.88     $ 1.47     $ 1.13 (h)
Diluted- Income from continuing operations
  $ 3.01     $ 2.21     $ 1.72     $ 1.25     $ 0.94  
- Income from discontinued operations
    0.52       0.12       0.14       0.21       0.18  
- Net income
  $ 3.53     $ 2.33     $ 1.86     $ 1.46     $ 1.13 (h)
Book value
  $ 18.54     $ 13.64     $ 11.89     $ 11.03     $ 9.51  
Cash dividends declared
    0.7275       0.665       0.6125       0.5625       0.5313  
Other Information
                                       
Diluted average number of shares outstanding (g)
    84,724       84,430       84,161       83,196       81,946  
Number of employees
    21,500       21,500       21,000       18,500       17,500  
Backlog from continuing operations (i)
  $ 448,054     $ 236,460     $ 230,584     $ 194,336     $ 156,940  

(a)
Includes Excell Minerals acquired February 1, 2007 (All Other Category - Minerals & Rail Services and Products).
(b)
Includes the Northern Hemisphere mill services operations of Brambles Industrial Services (BISNH) acquired December 29, 2005 (Mill Services) and Hünnebeck Group GmbH acquired November 21, 2005 (Access Services).
(c)
Income statement information restated to reflect the Gas Technologies business group 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)
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 $5.0 billion at December 31, 2007.  Also excludes backlog of the Access Services Segment and the roofing granules and slag abrasives business.  These amounts are generally not quantifiable due to the nature and timing of the products and services provided.

- 18 -

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements provided under Part II, Item 8 of this Annual Report on Form 10-K.  Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully herein.

Forward-Looking Statements
The nature of the Company’s business and the many countries in which it operates subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties.  In accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein.  Forward-looking statements contained herein could include among other things, statements about our management confidence and strategies for performance; expectations for new and existing products, technologies, and opportunities; and expectations regarding growth, sales, cash flows, earnings and Economic Value Added (EVA®).  These statements can be identified by the use of such terms as “may,” “could,” “expect,” “anticipate,” “intend,” “believe,” or other comparable terms.

Factors which could cause results to differ include, but are not limited to:  (1) changes in the worldwide business environment in which the Company operates, including general economic conditions; (2) changes in currency exchange rates, interest rates and capital costs; (3) changes in the performance of stock and bond markets that could affect, among other things, the valuation of the assets in the Company’s pension plans and the accounting for pension assets, liabilities and expenses; (4) changes in governmental laws and regulations, including environmental, tax and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities or other calamities; (7) the seasonal nature of the business; (8) the successful integration of the Company’s strategic acquisitions; (9) the amount and timing of repurchases of the Company’s common stock, if any; and (10) other risk factors listed from time to time in the Company’s SEC reports.  A further discussion of these, along with other potential factors, can be found in Part I, Item 1A, “Risk Factors,” of this Form 10-K.  The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company’s ability to control or predict.  Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.  The Company undertakes no duty to update forward-looking statements except as may be required by law.

Executive Overview
The Company’s record performance in 2007 reflected the continued execution of the Company’s strategy of growth through increased international diversity and a balanced, industrial services-based portfolio, augmented by selective strategic acquisitions.  The 2007 results were led by the Access Services Segment and All Other Category (Minerals & Rail Services and Products).

The Company’s 2007 revenues were a record $3.7 billion.  This was an increase of $662.5 million or 22% over 2006.  Income from continuing operations was a record $255.1 million for 2007 compared with $186.4 million in 2006, an increase of 37%.  Diluted earnings per share from continuing operations were a record $3.01 for 2007, a 36% increase from 2006.

Results for 2007 benefited from continued improved performance in the Access Services Segment and the February 1, 2007 acquisition of Excell Minerals.  The improved performance in the Access Services Segment was due to continued strength in the Company’s global non-residential and infrastructure construction and industrial services markets, and positive returns from the Company’s increased investment in highly engineered formwork rental systems.

Overall, the global markets in which the Company participates, remain strong and the Company has expansion opportunities to pursue its prudent acquisition strategy of seeking further accretive bolt-on acquisitions, as well as organic investments in its industrial services platforms. The Company also expects continued strength in its operations in 2008, particularly from the Access Services Segment, as well as the All Other Category (Minerals & Rail Services and Products).  In addition, the Company expects gradual improvement in 2008 from the Mill Services Segment, as global steel production levels begin to increase from 2007 levels; the implementation of business optimization
 
- 19 -

initiatives continues; underperforming contracts are exited or renegotiated; certain low margin businesses are divested; the effects of restructuring actions are realized; and new contracts are signed and work begins as our geographic expansion strategy in high-return regions continues.

During 2007, the Company had record net cash provided by operating activities of $471.7 million, a 15% increase over the $409.2 million achieved in 2006.  The Company expects continued strong cash flows from operating activities in 2008.  The Company’s cash flows are further discussed in the Liquidity and Capital Resources section.

The record revenue, income from continuing operations and diluted earnings per share for 2007 reflect the balance and geographic diversity of the Company’s operations.  This operating balance and geographic diversity, as well as growth opportunities in the Company’s core services platforms, such as the February 1, 2007 acquisition of Excell Minerals, provide a broad foundation for future growth and a hedge against normal changes in economic and industrial cycles.  In addition, the Company’s value-based management system continued to deliver significant improvement in Economic Value Added (“EVA®”) during 2007.

On December 7, 2007, the Company completed the sale of its Gas Technologies business group to Wind Point Partners.  The terms of the sale include a total purchase price of $340 million, including $300 million paid in cash at closing and $40 million in the form of an earnout, contingent on the Gas Technologies business achieving certain performance targets in 2008 or 2009.

Effective in the first quarter of 2007, there was a two-for-one split of the Company’s common stock for which one additional share of common stock was issued to stockholders as of March 26, 2007.

Segment Overview
The Access Services Segment’s revenues in 2007 were $1.4 billion compared with $1.1 billion in 2006, a 31% increase.  Operating income increased by 53% to $183.8 million, from $120.4 million in 2006.  Operating margins for the Segment improved by 190 basis points to 13.0% from 11.1% in 2006.  These improvements were due principally to continued strength in the Company’s global non-residential and infrastructure construction and industrial services markets, particularly in Europe and North America.  This Segment accounted for 39% of the Company’s revenues and 40% of the operating income for 2007.

Mill Services Segment revenues in 2007 were $1.5 billion compared with $1.4 billion in 2006, an 11% increase.  Operating income decreased by 9% to $134.5 million, from $147.8 million in 2006.  Operating margins for this Segment decreased by 200 basis points to 8.8% from 10.8% in 2006.  The decrease in operating income and margins was due to higher operating and maintenance costs, as well as lower steel production in certain regions, particularly North America.  The 2007 results include pre-tax restructuring charges of $4.7 million, primarily related to severance costs associated with initiatives to improve operating results.  This Segment accounted for 41% of the Company’s revenues and 29% of the operating income for 2007.

The All Other Category’s revenues in 2007 were $750.0 million compared with $578.2 million in 2006, a 30% increase.  Operating income increased by 84% to $142.2 million, from $77.5 million in 2006.  Operating margins increased by 560 basis points to 19.0% in 2007 from 13.4% in 2006.  The February 1, 2007 acquisition of Excell Minerals contributed to this Category’s improved performance.  Four of the five other businesses contributed higher revenues, and all five businesses contributed higher operating income in 2007 compared with 2006.  This Category accounted for 20% of the Company’s revenue and 31% of the operating income for 2007.

The positive effect of foreign currency translation increased 2007 consolidated revenues by $166.9 million and pre-tax income by $13.9 million when compared with 2006.

Outlook Overview
The Company’s operations span several industries and products as more fully discussed in Part I, Item 1, “Business.”  On a macro basis, the Company is affected by non-residential and infrastructure construction and industrial maintenance and capital improvement activities; worldwide steel mill production and capacity utilization; industrial production volume; and the general business trend towards the outsourcing of services.  The overall outlook for 2008 continues to be positive for most of these business drivers.

Both international and domestic Access Services activity remains strong.  Operating performance in 2007 for this Segment has benefited, and is expected to continue to benefit in 2008, from increased non-residential and infrastructure construction spending and industrial services activity in the Company’s major markets; selective strategic investments and acquisitions in existing and new markets and expansion of current product lines; further market penetration from new services; service cross-selling opportunities among the markets served; and enterprise business
 
- 20 -

optimization opportunities including new technology applications, consolidated procurement, logistics and continuous process improvement initiatives.  Further prudent global expansion and market share gains are also expected from this Segment.

Overall, the outlook for the Mill Services Segment for 2008 remains positive.  However, margin improvement in this Segment in 2008 is expected to be gradual as the effects of the margin-improvement plans previously outlined are realized.  During 2007, in order to maintain pricing levels, a more disciplined and consolidated steel industry has been adjusting production levels to bring inventories in-line with current demand.  The Company expects global steel production and consumption to increase at a sustainable pace in 2008, which would generally have a favorable effect on this Segment’s revenues.  In addition, new contract signings and start-ups, as well as the Company’s geographic expansion strategy, particularly Eastern Europe and the Middle East, are expected to gradually have a positive effect on results in the longer term.  The Company continues to engage in enterprise business optimization initiatives designed to improve operating results and margins.  However, the Company may experience higher operating costs, such as maintenance and energy; that could have a negative impact on operating margins, to the extent these costs cannot be passed to customers.

The outlook for the All Other Category (Minerals & Rail Services and Products) remains positive.  Excell Minerals is expected to continue to be accretive to earnings in 2008, as full integration into the Company continues to occur.  Likewise, the railway track maintenance services and equipment business should continue to see improved year-over-year operating performance in 2008.  Contract opportunities for the business remain high (such as the signing of significant orders from China in 2007), which also provides confidence to the longer-term outlook.  The remaining businesses within this group are also expected to continue to operate at their current high levels of operating effectiveness.

The stable or improved market conditions for most of the Company’s services and products and the significant investments made recently for acquisitions and growth-related capital expenditures provide the base for achieving the Company’s stated growth objectives.  The record performance for revenue and operating income achieved in 2007 provides momentum for continued improvement in 2008.

 
Revenues by Region
 
     
Total Revenues
Twelve Months Ended December 31
   
Percentage Growth From
2006 to 2007
 
 
(Dollars in millions)
 
2007
   
2006
   
Volume
   
Currency
   
Total
 
 
Western Europe
  $ 1,758.5     $ 1,472.7       10.6 %     8.8 %     19.4 %
 
North America
    1,244.9       1,027.4       20.8       0.4       21.2  
 
Latin America (a)
    213.5       165.4       21.8       7.3       29.1  
 
Middle East and Africa
    196.4       159.5       24.1       (1.0 )     23.1  
 
Eastern Europe
    139.6       92.3       39.0       12.2       51.2  
 
Asia/Pacific
    135.3       108.3       13.9       11.1       25.0  
 
Total
  $ 3,688.2     $ 3,025.6       16.4 %     5.5 %     21.9 %

 
(a)
Includes Mexico.

2007 Highlights
The following significant items affected the Company overall during 2007 in comparison with 2006:

Company Wide:
·  
Continued strong worldwide economic activity, as well as the strong earnings performance of the Excell Minerals acquisition, benefited the Company in 2007.  This included increased access equipment services, especially in North America, Europe and the Middle East; and increased demand for air-cooled heat exchangers and industrial grating products.
·  
As expected, during 2007, the Company experienced higher fuel and energy-related costs, as well as higher commodity costs for certain manufacturing businesses.  To the extent that such costs cannot be passed to customers in the future, operating income may be adversely affected.
·  
Consistent with its overall strategic focus on global industrial services, the Company divested its Gas Technologies business group on December 7, 2007.
·  
During 2007, international sales and operating income were 69% and 68%, respectively, of total sales and operating income.  This compares with 2006 levels of 68% of sales and 71% of operating income.

- 21 -

Access Services Segment:
 
(Dollars in millions)
 
2007
   
2006
 
 
Revenues
  $ 1,415.9     $ 1,080.9  
 
Operating income
    183.8       120.4  
 
Operating margin percent
    13.0 %     11.1 %

 
Access Services Segment – Significant Impacts on Revenues:
 
(In millions)
 
 
Revenues – 2006
  $ 1,080.9  
 
Increased volume and new business
    209.3  
 
Impact of foreign currency translation
    72.2  
 
Acquisitions
    53.2  
 
Other
    0.3  
 
Revenues – 2007
  $ 1,415.9  

Access Services Segment – Significant Impacts on Operating Income:
  ·
In 2007, the international access services business, Europe and the Middle East in particular, continued to improve due to increased non-residential, multi-dwelling residential and infrastructure construction spending.  The Company has also benefited from its recent rental equipment capital investments made in these markets. Equipment rentals, particularly in the construction sector, are the highest margin revenue source in this Segment.
  ·
Continued strong North American non-residential and infrastructure construction and industrial services markets had a positive effect on volume which caused overall margins and operating income in North America to improve during 2007.
  ·
The 2006 MyATH (Chile) and Cleton (Northern Europe) acquisitions were accretive to earnings in 2007.
  ·
The impact of foreign currency translation in 2007 increased operating income for this Segment by $7.6 million, compared with 2006.

Mill Services Segment:
 
(Dollars in millions)
 
2007
   
2006
 
 
Revenues
  $ 1,522.3     $ 1,366.5  
 
Operating income
    134.5       147.8  
 
Operating margin percent
    8.8 %     10.8 %

 
Mill Services Segment – Significant Effects on Revenues:
 
(In millions)
 
 
Revenues – 2006
  $ 1,366.5  
 
Impact of foreign currency translation
    90.3  
 
Acquisitions
    34.7  
 
Increased volume and new business
    30.7  
 
Other
    0.1  
 
Revenues – 2007
  $ 1,522.3  

Mill Services Segment – Significant Impacts on Operating Income:
 ·
Operating income for 2007 was negatively impacted by increased operating and maintenance expenses as well as lower steel production in certain regions, particularly North America.
 ·
Operating income for 2007 included higher severance and other restructuring charges of $3.3 million compared with 2006.
 
- 22 -

 ·
The fourth quarter 2006 acquisition of Technic Gum and the 2007 acquisitions of Alexander Mill Services International (“AMSI”) and Performix increased operating income in 2007 compared to 2006.
 ·
The impact of foreign currency translation in 2007 increased operating income for this Segment by $9.4 million compared with 2006.

All Other Category - Minerals & Rail Services and Products:>
 
(Dollars in millions)
 
2007
   
2006
 
 
Revenues
  $ 750.0     $ 578.2  
 
Operating income
    142.2       77.5  
 
Operating margin percent
    19.0 %     13.4 %

 
All Other Category - Minerals & Rail Services and Products –
Significant Impacts on Revenues:
 
(In millions)
 
 
Revenues – 2006
  $ 578.2  
 
Acquisitions – principally Excell Minerals
    123.7  
 
Air-cooled heat exchangers
    27.7  
 
Industrial grating products
    23.8  
 
Boiler and process equipment
    1.3  
 
Roofing granules and abrasives
    (4.9 )
 
Railway track maintenance services and equipment
    (4.0 )
 
Impact of foreign currency translation
    4.4  
 
Other
    (0.2 )
 
Revenues – 2007
  $ 750.0  

All Other Category - Minerals & Rail Services and Products – Significant Effects on Operating Income:>
  ·
The Excell Minerals acquisition was accretive to the Category’s performance in 2007.  Excell Minerals had strong customer demand for its high-value material recycling services, as well as favorable market pricing.
  ·
Operating income for the air-cooled heat exchangers business benefited in 2007 due to increased volume resulting from a continued strong natural gas market.
  ·
The increase in 2007 operating income for the industrial grating products business was due principally to strong demand, as well as lower raw material costs and a gain on the sale of an asset.
  ·
The boiler and process equipment business delivered improved results in 2007 due to increased equipment sales and favorable product mix.
  ·
Despite lower volume for the roofing granules and abrasives business in 2007, operating income increased due to price increases, which offset higher costs.
  ·
Operating income for the railway track maintenance services and equipment business increased in 2007 compared with 2006 due to increased volume and reduced operating expenses for contract services, partially offset by the impact of reduced equipment sales volume.  The business also benefited from reduced raw material costs and a gain on the disposal of an asset.
  ·
The impact of foreign currency translation in 2007 increased operating income by $0.6 million for this Category compared to 2006.


Outlook, Trends and Strategies
Looking to 2008 and beyond, the following significant items, trends and strategies are expected to affect the Company:

Company Wide:
·  
The Company will continue its disciplined focus on expanding its industrial services businesses, with a particular emphasis on prudently growing the Access Services Segment, especially in emerging economies and other targeted markets.  Growth is expected to be achieved through the provision of additional services to existing
 
- 23 -

 
customers, new contracts in both developed and emerging markets, and selective strategic acquisitions, such as the February 2007 acquisition of Excell Minerals and the August 2007 acquisition of Alexander Mill Services International.  Additionally, new higher-margin service and sales opportunities in railway track maintenance services and equipment will be pursued globally.
·  
The Company will continue to invest in selective strategic acquisitions and growth capital investments; however, management will continue to be very selective and disciplined in allocating capital, choosing projects with the highest Economic Value Added (“EVA®”) potential.
·  
The Company will place a strong focus on corporate-wide expansion into emerging economies in the coming years.  More specifically, within the next three to five years, the Company’s global growth strategies include steady, targeted expansion in the Asia-Pacific, Eastern Europe, Latin America, and Middle East and Africa to further complement the Company’s already-strong presence throughout Europe and North America.  This strategy is expected to result in doubling the Company’s presence in these markets to approximately 30% of total Company revenues.
·  
The Company will continue to implement enterprise business optimization initiatives across the Company to further enhance margins for most businesses, especially the Mill Services Segment.  These initiatives include improved supply-chain and logistics management; operating site and capital employed optimization; and added emphasis on global procurement.
·  
The Company expects strong cash flow from operating activities in 2008, exceeding the record of $472 million achieved in 2007.  This will support the Company’s growth initiatives and help reduce debt.
·  
The continued growth of the Chinese steel industry, as well as other Asian emerging economies, could impact the Company in several ways.  Increased steel mill production in China, and in other Asian countries, may provide additional service opportunities for the Mill Services Segment.  However, increased Asian steel exports could result in lower steel production in other parts of the world, affecting the Company’s customer base.  Additionally, continued increased Chinese economic activity may result in increased commodity costs in the future, which may adversely affect the Company’s manufacturing businesses.  The potential impact of these risks is currently unknown.
·  
Volatility in energy and commodity costs (e.g., fuel, natural gas, steel, etc.) and worldwide demand for these commodities could have an adverse impact on the Company’s operating costs and ability to obtain the necessary raw materials.  Cost increases could result in reduced operating income for certain products, to the extent that such costs cannot be passed on to customers.  The effect of continued Middle East armed hostilities on the cost of fuel and commodities is currently unknown, but it could have an adverse impact on the Company’s operating costs.  However, increased volatility in energy and commodity costs may provide additional service opportunities for the Mill Services Segment and several businesses in the All Other Category (Minerals & Rail Services and Products) as customers may tend to outsource more services to reduce overall costs.  Such volatility may also provide opportunities for additional petrochemical plant maintenance and capital improvement projects.
·  
The armed hostilities in the Middle East could also have a significant effect on the Company’s operations in the region.  The potential impact of this risk is currently unknown.  This exposure is further discussed in Part I, Item 1A, “Risk Factors.”
·  
Foreign currency translation had an overall favorable effect on the Company’s sales, operating income and Stockholders’ Equity during 2007 in comparison to 2006.  If the U.S. dollar strengthens, particularly in relationship to the euro or British pound sterling, the impact on the Company would generally be negative in terms of reduced sales, income and Stockholders’ Equity.  Should the U.S. dollar weaken further in relationship to these currencies, the impact on the Company would generally be positive in terms of higher sales, income and Stockholders’ Equity.
·  
Total pension expense (defined benefit, defined contribution and multi-employer) for 2008 is expected to be higher than the 2007 level due to increased volume which affects defined contribution and multi-employer pension expense.  On a comparative basis, total pension expense in 2007 was $2.8 million higher than 2006 due principally to increased multi-employer and defined contribution pension expense resulting from increased volume in the Access Services Segment.
·  
Defined benefit pension expense decreased $4.4 million in 2007 compared to 2006 due 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 plan curtailment losses in the railway track maintenance services and equipment business.  Defined benefit pension expense is expected to decline for the full year 2008 compared with 2007 due to the cash contributions in 2007, including voluntary cash contributions to the defined benefit pension plans (approximately $10.1 million during 2007 and $10.6 million during 2006, mostly to the U.K. plan), coupled with the higher-than-expected plan asset returns in 2007.
·  
Financial markets in the United States and in a number of other countries where the Company operates have been volatile since mid-2007 due to the credit and liquidity issues in the market place.  This has adversely impacted the outlook for the overall U.S. economy as economic activity slowed, creating increased downside risk to growth.  In Europe, a more moderate pace of economic growth is expected in 2008 when compared with 2007.  While the Company’s global footprint; diversity of services and products; long-term mill services contracts; and large access
 
- 24 -

 
services customer base mitigate the overall exposure to changes in any one single economy, further deterioration of the global economies could have an adverse impact on the Company’s operating results.
·  
Changes in worldwide interest rates, particularly in the United States and Europe, could have a significant effect on the Company’s overall interest expense, as approximately 49% of the Company’s borrowings are at variable interest rates as of December 31, 2007 (in comparison to approximately 48% at December 31, 2006).  The Company manages the mix of fixed-rate and floating-rate debt to preserve adequate funding flexibility, as well as control the effect of interest-rate changes on consolidated interest expense.  Strategies to further reduce related risks are under consideration.
·  
As the Company continues the strategic expansion of its global footprint and implements tax planning opportunities, the 2008 effective income tax rate is expected to be lower than 2007.
·  
The implementation of the Company’s enterprise wide lean sigma program in 2008 should provide long-term efficiencies as the Company embraces its enterprise optimization initiatives.

Access Services Segment:
·  
Both the international and domestic Access Services businesses have experienced buoyant markets that are expected to remain stable into 2008.  Specifically, international and North American non-residential and infrastructure construction activity continues at high volume levels.  The North American industrial maintenance and infrastructure activities are expected to remain at high levels.
·  
The Company will continue to emphasize prudent expansion of our geographic presence in this Segment through entering new markets and further expansion in emerging economies, and will continue to leverage value-added services and highly engineered forming, shoring and scaffolding systems to grow the business.
·  
The Company will continue to implement continuous process improvement initiatives including: global procurement and logistics; the sharing of engineering knowledge and resources; continuous process improvement and lean sigma initiatives; optimizing the business under one standardized administrative and operating model at all locations worldwide; and on-going analysis for other potential synergies across the operations.

Mill Services Segment:
·  
To maintain pricing levels, a more disciplined and consolidated steel industry has been adjusting production levels to bring inventories in-line with current demand.  The Company expects global steel production to increase modestly in 2008, as inventory levels have declined during 2007.  Increased steel production would generally have a favorable effect on this Segment’s revenues.
·  
Further consolidation in the global steel industry is possible.  Should additional transactions occur involving some of the steel industry’s larger companies that are customers of the Company, it would result in an increase in concentration of revenues and credit risk for the Company.  If a large customer were to experience financial difficulty, or file for bankruptcy protection, it could adversely impact the Company’s income, cash flows and asset valuations.  As part of its credit risk management practices, the Company closely monitors the credit standing and accounts receivable position of its customer base.  Further consolidation may also increase pricing pressure on the Company and the competitive risk of services contracts which are due for renewal.  Conversely, such consolidation may provide additional service opportunities for the Company as the Company believes it is well-positioned competitively.
·  
The Company will continue to place significant emphasis on improving operating margins of this Segment and gradual improvement is expected in 2008.  Margin improvements are most likely to be achieved through internal enterprise business optimization efforts; renegotiating or exiting underperforming contracts, principally in North America; divesting low margin product lines; continuing to execute a geographic expansion strategy in Eastern Europe, the Middle East and Africa, Latin America and Asia Pacific; and implementing continuous process improvement initiatives including: lean sigma projects, global procurement initiatives, site efficiency programs, technology enhancements, maintenance best practices programs, and reorganization actions.

All Other Category - Minerals & Rail Services and Products:>
·  
The Company will emphasize prudent global expansion of Excell Minerals’ value-added services of extracting high-value metallic content from slag and responsibly handling and recycling residual materials.
·  
Market pricing volatility for some of the high-value materials involved in certain Excell Minerals services could affect the operating results of this business either favorably or unfavorably.
·  
International demand for the railway track maintenance services and equipment business’s products and services is expected to be strong in the long term.  A large equipment order signed in 2007 with China is an example of the underlying strength of the international markets.  Due to long lead-times, this order is expected to generate revenues beginning in 2008 and beyond.  In addition, increased volume of higher-margin contract services and enterprise business optimization initiatives are expected to improve margins on a long-term basis.
·  
Worldwide supply and demand for steel and other commodities could have an adverse impact on raw material costs and the ability to obtain the necessary raw materials for several businesses in this Category.  The Company
 
- 25 -

 
has implemented certain strategies to help ensure continued product supply to our customers and mitigate the potentially negative impact that rising steel and other commodity prices could have on operating income.
·  
The abrasives business is expected to continue to perform well in the near-term, although operating margins could be impacted by volatile energy prices that affect both production and transportation costs.  This business continues to pursue cost and site optimization initiatives and the use of more energy-efficient equipment to help mitigate future energy-related increases.
·  
Due to a strong natural gas market and additional North American opportunities, demand for air-cooled heat exchangers is expected to remain strong into 2008.


Results of Operations for 2007, 2006 and 2005 (a)

 
(Dollars are in millions, except per share information and percentages)
 
2007
   
2006
   
2005
 
 
Revenues from continuing operations
  $ 3,688.2     $ 3,025.6     $ 2,396.0  
 
Cost of services and products sold
    2,685.5       2,203.2       1,779.2  
 
Selling, general and administrative expenses
    538.2       472.8       361.4  
 
Other expenses
    3.4       2.5       1.9  
 
Operating income from continuing operations
    457.8       344.3       251.0  
 
Interest expense
    81.4       60.5       41.9  
 
Income tax expense from continuing operations
    117.6       93.4       59.1  
 
Income from continuing operations
    255.1       186.4       144.5  
 
Income from discontinued operations
    44.4       10.0       12.2  
 
Net income
    299.5       196.4       156.7  
 
Diluted earnings per common share from continuing operations
    3.01       2.21       1.72  
 
Diluted earnings per common share
    3.53       2.33       1.86  
 
Effective income tax rate for continuing operations
    30.7 %     32.5 %     27.9 %
 
Consolidated effective income tax rate
    31.4 %     32.3 %     28.1 %
(a)        All historical amounts in the Results of Operations section have been restated for comparative purposes to reflect discontinued operations.

- 26 -

Comparative Analysis of Consolidated Results

Revenues

2007 vs. 2006
Revenues for 2007 increased $662.5 million or 22% from 2006, to a record level.  This increase was attributable to the following significant items:

 
In millions
Change in Revenues 2007 vs. 2006
 
$211.6
Business acquisitions.  Increased revenues of $123.7 million, $53.2 million and $34.7 million in the All Other Category (Minerals & Rail Services and Products), Access Services Segment and Mill Services Segment, respectively.
 
  209.6
Net increased revenues in the Access Services 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).
 
  166.9
Effect of foreign currency translation.
 
    30.8
Net increased volume, new business and sales price changes in the Mill Services Segment (excluding acquisitions).
 
    27.7
Increased revenues of the air-cooled heat exchangers business due to a continued strong natural gas market.
 
    23.8
Increased revenues of the industrial grating products business due to continued strong demand.
 
      (4.9)
Net decreased revenues in the roofing granules and abrasives business resulting from lower demand.
 
      (3.0)
Other (minor changes across the various units not already mentioned).
 
$662.5
Total Change in Revenues 2007 vs. 2006

2006 vs. 2005
Revenues for 2006 increased $629.6 million or 26% from 2005.  This increase was attributable to the following significant items:

 
In millions
Change in Revenues 2006 vs. 2005
 
$405.2
Net effect of business acquisitions and divestitures.  Increased revenues of $219.0 million and $186.2 million in the Mill Services and Access Services Segments, respectively.
 
    91.2
Net increased revenues in the Access Services Segment due principally to strong non-residential construction markets in North America and the continued strength of the international business, particularly in Europe (excluding the net effect of acquisitions and divestitures).
 
    68.7
Net increased volume, new contracts and sales price changes in the Mill Services Segment, particularly in Europe and the United States (excluding acquisitions).
 
    34.1
Effect of foreign currency translation.
 
    32.5
Increased revenues of the air-cooled heat exchangers business due to a strong natural gas market and increased prices.
 
      8.4
Increased revenues of the industrial grating products business due to increased demand and, to a lesser extent, increased prices and a more favorable product mix.
 
    (17.0)
Net decreased revenues in the railway track maintenance services and equipment business due to decreased equipment sales, partially offset by increased contract services as well as repair part sales in the United Kingdom.  Equipment sales declined due to a large order shipped to China in 2005 which did not recur in 2006.
 
      6.5
Other (minor changes across the various units not already mentioned).
 
$629.6
Total Change in Revenues 2006 vs. 2005


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Cost of Services and Products Sold

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 2007 vs. 2006
 
$174.1
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).
 
  144.4
Business acquisitions.
 
  124.5
Effect of foreign currency translation.
 
    39.3
Other (product/service mix and increased equipment maintenance costs, partially offset by enterprise business optimization initiatives and volume-related efficiencies).
 
$482.3
Total Change in Cost of Services and Products Sold 2007 vs. 2006

2006 vs. 2005
Cost of services and products sold for 2006 increased $424.0 million or 24% from 2005, slightly lower than the 26% increase in revenues.  This increase was attributable to the following significant items:

 
In millions
Change in Cost of Services and Products Sold 2006 vs. 2005
 
$281.8
Net effect of business acquisitions and divestitures.
 
  136.9
Increased costs due to increased revenues (exclusive of the effect of foreign currency translation and business acquisitions and including the impact of increased costs included in selling prices).
 
    24.9
Effect of foreign currency translation.
 
    (19.6)
Other (due to product mix; stringent cost controls; process improvements; volume related efficiencies; and minor changes across the various units not already mentioned; partially offset by increased fuel and energy-related costs not recovered through selling prices).
 
$424.0
Total Change in Cost of Services and Products Sold 2006 vs. 2005


Selling, General and Administrative Expenses

2007 vs. 2006
Selling, general and administrative (“SG&A”) expenses for 2007 increased $65.4 million or 14% from 2006, a lower rate than the 22% increase in revenues.  The lower relative percentage increase in SG&A expense as compared with revenue was due principally to economic business optimization programs geared towards reducing costs.  This increase was attributable to the following significant items:

 
In millions
Change in Selling, General and Administrative Expenses 2007 vs. 2006
 
$  22.8
Effect of foreign currency translation.
 
    20.3
Increased compensation expense due to salary increases and employee incentive plan costs due to overall business growth and improved performance.
 
    19.2
Business acquisitions.
 
      7.9
Increased professional fees due to global optimization projects.
 
      (4.8)
Other.
 
$  65.4
Total Change in Selling, General and Administrative Expenses 2007 vs. 2006

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2006 vs. 2005
Selling, general and administrative expenses for 2006 increased $111.3 million or 31% from 2005, more than the 26% increase in revenues.  The higher relative percentage increase in SG&A expense as compared with revenue was due principally to the effect of certain acquisitions which, by their nature, have a higher percentage of SG&A-related costs.  This increase was attributable to the following significant items:

 
In millions
Change in Selling, General and Administrative Expenses 2006 vs. 2005
 
$  71.3
Net effect of business acquisitions and dispositions
 
    21.0
Increased employee compensation expense due to salary increases, increased headcount, higher commissions and employee incentive plan increases due to improved performance.
 
      5.4
Effect of foreign currency translation.
 
      3.7
Increased space and equipment rentals, supplies, utilities and fuel costs.
 
      2.9
Increased professional fees due to special projects.
 
      2.7
Increased travel expenses.
 
      4.3
Other.
 
$111.3
Total Change in Selling, General and Administrative Expenses 2006 vs. 2005


Other Expenses

This income statement classification includes impaired asset write-downs, employee termination benefit costs and costs to exit activities, offset by net gains on the disposal of non-core assets.  Net Other Expenses was $3.4 million in 2007 compared with $2.5 million in 2006 and $1.9 million in 2005.

2007 vs. 2006
Net Other Expenses for 2007 increased $1.0 million or 39% from 2006.  This increase was attributable to the following significant items:

 
In millions
Change in Other Expenses 2007 vs. 2006
 
$    3.1
Increase in employee termination benefit costs.  This increase related principally to restructuring actions in the Mill Services and Access Services Segments.
 
      0.7
Increase in impaired asset write-downs in the Mill Services and Access Services Segments.
 
      (2.8)
Decrease in other expenses, including costs to exit activities due to exit costs incurred during 2006 at certain international locations not repeated in 2007.
 
$    1.0
Total Change in Other Expenses 2007 vs. 2006

2006 vs. 2005
Net Other Expenses for 2006 increased $0.6 million or 31% from 2005.  This increase was attributable to the following significant items:

 
In millions
Change in Other Expenses 2006 vs. 2005
 
$    4.2
Decrease in net gains on disposals of non-core assets.  This decrease was attributable principally to $5.5 million in net gains that were realized in 2006 from the sale of non-core assets compared with $9.7 million in 2005.  The net gains for both years were principally within the Access Services and Mill Services Segments.
 
      1.9
Increase in other expenses, including costs to exit activities.
 
      (5.5)
Decrease in employee termination benefit costs.  This decrease related principally to decreased costs in the Mill Services and Access Services Segments.
 
$    0.6
Total Change in Other Expenses 2006 vs. 2005

For additional information, see Note 15, Other (Income) and Expenses, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.”
 
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Interest Expense

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 translation also increased interest expense by approximately $2.6 million.

2006 vs. 2005
Interest expense in 2006 was $18.6 million or 44% higher than in 2005.  This was principally due to increased borrowings to finance acquisitions in the fourth quarter of 2005 and, to a lesser extent, higher interest rates on variable interest rate borrowings.  This impact of foreign currency translation also increased interest expense by approximately $0.6 million.



Income Tax Expense from Continuing Operations

2007 vs. 2006
The increase in 2007 of $24.2 million or 26% in the provision for income 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.

2006 vs. 2005
The increase in 2006 of $34.2 million or 58% in the provision for income taxes from continuing operations was primarily due to increased earnings from continuing operations and an increased effective income tax rate.  The effective income tax rate relating to continuing operations for 2006 was 32.5% versus 27.9% for 2005.  The increase related principally to increased effective income tax rates on international earnings and remittances due in part to a one-time benefit recorded in the fourth quarter of 2005 of $2.7 million associated with funds repatriated under the American Jobs Creation Act of 2004 (AJCA).  Additionally, during the fourth quarter of 2005, consistent with the Company’s strategic plan of investing for growth at certain international locations, the Company received a one-time income tax benefit of $3.6 million.

For additional information, see Note 9, Income Taxes, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data.”



Income from Continuing Operations

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.

2006 vs. 2005
Income from continuing operations in 2006 of $186.4 million was $41.9 million or 29% higher than 2005.  This increase resulted from strong demand for most of the Company’s services and products, and the net effect of business acquisitions and divestitures.



Income from Discontinued Operations

2007 vs. 2006
Income from discontinued operations for 2007 increased by $34.4 million or 344% compared with 2006.  The increase was primarily attributable to the $26.4 million after-tax gain on the sale of the Gas Technologies business, as well as improved operating results for the business prior to the divestiture.

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2006 vs. 2005
Income from discontinued operations for 2006 decreased $2.2 million or 18% from 2005.  This decrease was attributable principally to the write-down of impaired assets associated with the exit of an underperforming product line in the Gas Technologies business.



Net Income and Earnings Per Share

2007 vs. 2006
Net income of $299.5 million and diluted earnings per share of $3.53 in 2007 exceeded 2006 by $103.1 million or 52% and $1.20 or 52%, respectively, due to increased income from both continuing and discontinued operations for the reasons described above.

2006 vs. 2005
Net income of $196.4 million and diluted earnings per share of $2.33 in 2006 exceeded 2005 by $39.7 million or 25% and $0.47 or 25%, respectively, primarily due to increased income from continuing operations, partially offset by the decrease in income from discontinued operations for the reasons described above.


Liquidity and Capital Resources

Overview
Building on its consistent historical performance of strong operating cash flows, the Company achieved a record $471.7 million in operating cash flow in 2007.  This represents a 15% improvement over 2006’s operating cash flow of $409.2 million.  In 2007, this significant source of cash combined with $317.2 million in proceeds from the sale of assets enabled the Company to invest $443.6 million in capital expenditures (56% of which were for revenue-growth projects); invest $254.6 million in business acquisitions; and pay $59.7 million in stockholder dividends.  These significant 2007 investments follow $340.2 million of capital expenditures (45% of which were for revenue–growth projects); $54.5 million in stockholder dividends; and $34.3 million in business acquisitions invested in 2006.  The Company believes these investments provide a solid foundation for future revenue and Economic Value Added (“EVA®”) growth.

During 2007, the Company’s value-based management system continued to deliver results by creating increased economic value.  Significant EVA® improvement was achieved and the Company’s return on invested capital improved 240 basis points from the year 2006.

The Company’s net cash borrowings decreased $22.7 million in 2007.  This decrease is primarily due to the strong operating cash flows achieved in 2007.  Balance sheet debt, which is affected by foreign currency translation, increased $17.8 million from December 31, 2006.  Debt to total capital ratio decreased to 40.8% as of December 31, 2007, due principally to a $419.8 increase in Stockholders’ Equity.  Debt to total capital was 48.1% at December 31, 2006.

In December 2007, the Company completed the sale of its Gas Technologies business group.  The terms of the sale included a total sale price of $340 million, including $300 million paid in cash at closing and $40 million payable in the form of an earnout, contingent on the Gas Technologies group achieving certain performance targets in 2008 or 2009.  Proceeds from the sale have provided the Company with capital to immediately reduce short-term debt and ultimately fund continuing organic growth initiatives and other opportunities in its core businesses within its balanced portfolio, as well as debt reduction.

The Company’s strategic objectives for 2008 include again generating record cash provided by operating activities.  The Company plans to sustain its balanced portfolio through its strategy of redeploying discretionary cash for prudent growth and international diversification in the Access Services Segment; in long-term, high-return and high-renewal-rate services contracts for the Mill Services Segment, principally in emerging economies; for growth and international diversification in the All Other Category (Minerals & Rail Services and Products); 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, paying down debt and repurchasing Company stock under its previously approved stock repurchase authorization.

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The Company is also focused on improved working capital management.  Specifically, enterprise business optimization programs are being used to improve the effective and efficient use of working capital, particularly accounts receivable in the Access Services and Mill Services Segments.

Cash Requirements
The following summarizes the Company’s expected future payments related to contractual obligations and commercial commitments at December 31, 2007.

 
Contractual Obligations as of December 31, 2007 (a)
                   
           
Payments Due by Period
 
 
(In millions)
 
Total
   
Less than
1 year
   
1-3
years
   
4-5
years
   
After 5
years
 
 
Short-term Debt
  $ 60.3     $ 60.3     $ -     $ -     $ -  
                                           
 
Long-term Debt
(including current maturities and capital leases)
    1,020.5       8.4       860.3       2.7       149.1  
                                           
 
Projected interest payments on Long-term Debt (b)
    196.9       61.7       114.2       15.6       5.4  
                                           
 
Pension and Other Post- retirement Obligations (c)
    623.9       50.7       110.7       118.8       343.7  
                                           
 
Operating Leases
    180.9       51.3       71.2       29.8       28.6  
                                           
 
Purchase Obligations
    175.2       173.1       1.5       0.2       0.4  
                                           
 
Foreign Currency Forward Exchange Contracts (d)
    392.2       392.2      
     
     
 
                                           
 
Uncertain Tax Benefits (e)
    5.4       5.4      
     
     
 
                                           
 
Total Contractual Obligations
  $ 2,655.3     $ 803.1     $ 1,157.9     $ 167.1     $ 527.2  

 
(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 under Part II, Item 8, “Financial Statements and Supplementary Data,” for additional disclosures on short-term and long-term debt; operating leases; pensions and other postretirement benefits; 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, 2007.  The interest rates on variable-rate debt and the foreign currency exchange rates are subject to changes beyond the Company’s control and may result in actual interest expense and payments differing from the amounts projected above.

 
(c)
Amounts represent expected benefit payments for the next 10 years.

(d)  
This amount represents the notional value of the foreign currency exchange contracts outstanding at December 31, 2007.  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, 2007, in addition to the $5.4 million classified as short-term, the Company had approximately $31.8 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, 2007.  These amounts are not included in the Company’s Consolidated Balance Sheet since there are no current circumstances known to management indicating that the Company will be required to make payments on these contingent obligations.

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Commercial Commitments as of December 31, 2007
 
           
Amount of Commitment Expiration Per Period
 
 
 (In millions)
 
Total
Amounts
Committed
   
Less
than
1 Year
   
1-3
Years
   
4-5
Years
   
Over 5
Years
   
Indefinite
Expiration
 
                                       
 
Standby Letters of Credit
  $ 127.6     $ 85.1     $ 42.5     $
    $
    $
 
                                                   
 
Guarantees
    23.8       11.4       1.7       1.0      
      9.7  
                                                   
 
Performance Bonds
    16.1       10.2       0.1      
     
      5.8  
                                                   
 
Other Commercial Commitments
    11.1