WWW.EXFILE.COM, INC. -- 14195 -- HARSCO CORPORATION -- FORM 10-K

HARSCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of Harsco Corporation and its majority-owned subsidiaries (the "Company"). Additionally, the Company consolidates three entities in which it has an equity interest of 49% to 50% and exercises management control. These three entities had combined revenues of approximately $85.4 million or 3.1% of the Company’s total revenues in 2005. Investments in unconsolidated entities (all of which are 40-50% owned) are accounted for under the equity method. The Company does not have any off-balance sheet arrangements with unconsolidated special-purpose entities.

Reclassifications

Certain reclassifications have been made to prior years’ amounts to conform with current year classifications. These reclassifications relate principally to segment information, which has been reclassified to conform to the current presentation as described in Note 14, “Segment Information.” Additional reclassifications have been made to the components of the Consolidated Balance Sheets.

As a result of these reclassifications, certain 2004 and 2003 amounts presented for comparative purposes will not individually agree with previously filed Forms 10-K or 10-Q.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits and short-term investments which are highly liquid in nature and have an original maturity of three months or less.

Inventories

Inventories are stated at the lower of cost or market. Inventories in the United States are accounted for using principally the last-in, first-out (LIFO) method. Other inventories are accounted for using the first-in, first-out (FIFO) or average cost methods.

Depreciation

Property, plant and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When property is retired from service, the cost of the retirement is charged to the allowance for depreciation to the extent of the accumulated depreciation and the balance is charged to income. Long-lived assets to be disposed of by sale are not depreciated while they are held for sale.

Leases

The Company leases certain property and equipment under noncancelable lease agreements. All lease agreements are evaluated and classified as either an operating lease or capital lease. A lease is classified as a capital lease if any of the following criteria are met: transfer of ownership to the Company by the end of the lease term; the lease contains a bargain purchase option; the lease term is equal to or greater than 75% of the asset’s economic life; or the present value of future minimum lease payments is equal to or greater than 90% of the asset’s fair market value. Operating lease expense is recognized ratably over the entire lease term, including rent abatement periods and rent holidays.

Goodwill and Other Intangible Assets

Goodwill is not amortized but tested for impairment at the reporting unit level. SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) defines a reporting unit as an operating segment or one level below an operating segment (referred to as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. Accordingly, the Company performs the goodwill impairment test at the operating segment level for the Mill Services Segment, the Access Services Segment and the Engineered Products and Services category and at the component level for the Gas Technologies Segment. The goodwill impairment tests are performed on an annual basis as of October 1 and between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit’s goodwill may exceed its fair value. A discounted cash flow model is used to estimate the fair value of a reporting unit. This model requires the use of long-term planning forecasts and assumptions regarding industry-specific economic conditions that are outside the control of the Company. See Note 5, “Goodwill and Other Intangible Assets,” for additional information on intangible assets and goodwill impairment testing. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives.

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Impairment of Long-Lived Assets (Other than Goodwill)

Long-lived assets are reviewed for impairment when events and circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's policy is to record an impairment loss when it is determined that the carrying amount of the asset exceeds the sum of the expected undiscounted future cash flows resulting from use of the asset and its eventual disposition. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds its fair value. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

Revenue Recognition

Product sales and service sales are recognized when they are realized or realizable and when earned. Revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the Company’s price to the buyer is fixed or determinable and collectibility is reasonably assured. Service sales include sales of the Mill Services and Access Services Segments as well as railway track maintenance services. Product sales include sales of the Gas Technologies Segment as well as the manufacturing businesses of the Engineered Products and Services (“all other”) Category. Rentals were less than 10% of total revenues in 2005, 2004 and 2003 and are included in service sales.

Mill Services Segment - This Segment provides services predominantly on a long-term, volume-of-production contract basis. Contracts may include both fixed monthly fees as well as variable fees based upon specific services provided to the customer. The fixed-fee portion is recognized periodically as earned (normally monthly) over the contractual period. The variable-fee portion is recognized as services are performed and differs from period-to-period based upon the actual provision of services.

Access Services Segment - This Segment rents equipment under month-to-month rental contracts, provides services under both fixed-fee and time-and-materials short-term contracts and, to a lesser extent, sells products to customers. Equipment rentals are recognized as earned over the contractual rental period. Services provided on a fixed-fee basis are recognized over the contractual period based upon the completion of specific units of accounting (i.e., erection and dismantling of equipment). Services provided on a time-and-materials basis are recognized when earned as services are performed. Product sales revenue is recognized when title and risk of loss transfer, and when all of the revenue recognition criteria have been met.

Gas Technologies Segment - This Segment sells products under customer-specific sales contracts. Product sales revenue is recognized when title and risk of loss transfer, and when all of the revenue recognition criteria detailed in SAB 104 have been met. Title and risk of loss for domestic shipments generally transfers to the customer at the point of shipment. For international sales, title and risk of loss transfer in accordance with the international commercial terms included in the specific customer contract.

Engineered Products and Services (“all other”) Category - This category includes the Harsco Track Technologies, Reed Minerals, IKG Industries, Patterson-Kelley and Air-X-Changers operating segments. These operating segments principally sell products. The Harsco Track Technologies Division sells products and provides services. Product sales revenue for each of these operating segments is recognized generally when title and risk of loss transfer, and when all of the revenue recognition criteria have been met. Title and risk of loss for domestic shipments generally transfers to the customer at the point of shipment. For export sales, title and risk of loss transfer in accordance with the international commercial terms included in the specific customer contract. Revenue may be recognized subsequent to the transfer of title and risk of loss for certain product sales of the Harsco Track Technologies Division if the specific sales contract includes a customer acceptance clause which provides for different timing. In those situations revenue is recognized after transfer of title and risk of loss and after customer acceptance. The Harsco Track Technologies Division provides services predominantly on a long-term, time-and-materials contract basis. Revenue is recognized when earned as services are performed.

Income Taxes

United States federal and state income taxes and non-U.S. income taxes are provided currently on the undistributed earnings of international subsidiaries and unconsolidated affiliated entities, giving recognition to current tax rates and applicable foreign tax credits, except when management has specific plans for reinvestment of undistributed earnings which will result in the indefinite postponement of their remittance. Deferred taxes are provided using the asset and liability method for temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance to reduce deferred tax assets is evaluated on a quarterly basis. The valuation allowance is principally for tax loss carryforwards which are uncertain as to realizability. Income tax loss contingencies are recorded in the period when it is determined that it is probable that a liability has been incurred and the loss can be reasonably estimated. Adjustments to estimated amounts are recorded as necessary based upon new information, the occurrence of new events or the resolution of an uncertainty.

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Accrued Insurance and Loss Reserves

The Company retains a significant portion of the risk for workers’ compensation, U.K. employers’ liability, automobile, general and product liability losses. During 2005, 2004 and 2003, the Company recorded insurance expense related to these lines of coverage of approximately $37 million, $37 million and $36 million, respectively. Reserves have been recorded which reflect the undiscounted estimated liabilities including claims incurred but not reported. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. Changes in the estimates of the reserves are included in net income in the period determined. During 2005, 2004 and 2003, the Company recorded retrospective insurance reserve adjustments that decreased pre-tax insurance expense for self-insured programs by $4.1 million, $2.7 million and $5.7 million, respectively. At December 31, 2005 and 2004, the Company has recorded liabilities of $102.3 million and $77.4 million, respectively, related to both asserted as well as unasserted insurance claims. Included in the balance at December 31, 2005 were $25.2 million of recognized liabilities covered by insurance carriers. Amounts estimated to be paid within one year have been classified as current Insurance liabilities, with the remainder included in non-current Insurance liabilities.

Warranties

The Company has recorded product warranty reserves of $5.0 million, $4.2 million and $2.8 million as of December 31, 2005, 2004 and 2003, respectively. The Company provides for warranties of certain products as they are sold in accordance with SFAS No. 5, “Accounting for Contingencies.” The following table summarizes the warranty activity for the years ended December 31, 2005, 2004 and 2003:

Warranty Activity
(In thousands)	2005			2004			2003

Balance at the beginning of the period	$	4,161		$	2,788		$	2,248

Accruals for warranties issued during the period		3,851			4,135	(a)		2,125

Increase/(reductions) related to pre-existing warranties		60			(414	)		(233	)

Warranties paid		(3,083	)		(2,361	)		(1,344	)

Other (principally foreign currency translation)		(27	)		13			(8	)

Balance at end of the period	$	4,962		$	4,161		$	2,788

(a) The increase from 2003 reflects changes in product mix and increased sales.

Foreign Currency Translation

The financial statements of the Company's subsidiaries outside the United States, except for those subsidiaries located in highly inflationary economies and those entities for which the U.S. dollar is the currency of the primary economic environment in which the entity operates, are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rates as of the balance sheet date. Resulting translation adjustments are recorded in the cumulative translation adjustment account, a separate component of Other comprehensive income (loss). Income and expense items are translated at average monthly exchange rates. Gains and losses from foreign currency transactions are included in net income. For subsidiaries operating in highly inflationary economies, and those entities for which the U.S. dollar is the currency of the primary economic environment in which the entity operates, gains and losses on foreign currency transactions and balance sheet translation adjustments are included in net income.

Financial Instruments and Hedging

The Company has operations throughout the world that are exposed to fluctuations in related foreign currencies in the normal course of business. The Company seeks to reduce exposure to foreign currency fluctuations through the use of forward exchange contracts. The Company does not hold or issue financial instruments for trading purposes, and it is the Company's policy to prohibit the use of derivatives for speculative purposes. The Company has a Foreign Currency Risk Management Committee that meets periodically to monitor foreign currency risks.

The Company executes foreign currency forward exchange contracts to hedge transactions for firm purchase commitments, to hedge variable cash flows of forecasted transactions and for export sales denominated in foreign currencies. These contracts are generally for 90 days or less. For those contracts that are designated as qualified cash

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flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), gains or losses are recorded in Other comprehensive income (loss).

Amounts recorded in Other comprehensive income (loss) are reclassified into income in the same period or periods during which the hedged forecasted transaction affects income. The cash flows from these contracts are classified consistent with the cash flows from the transaction being hedged (e.g., the cash flows related to contracts to hedge the purchase of fixed assets are included in cash flows from investing activities, etc.). The Company also enters into certain forward exchange contracts not designated as hedges under SFAS 133. Gains and losses on these contracts are recognized in income based on fair market value. For fair value hedges of a firm commitment, the gain or loss on the derivative and the offsetting gain or loss on the hedged firm commitment are recognized currently in income.

Options for Common Stock

In prior years, when stock options were issued to employees, the Company used the intrinsic value method to account for the options. No compensation expense was recognized on the grant date, since at that date, the option price equaled the market price of the underlying common stock. Effective in 2003, the Company ceased granting stock options to employees.

The Company's net income and net income per common share would have been reduced to the pro forma amounts indicated below if compensation cost for the Company's stock option plan had been determined based on the fair value at the grant date for awards in accordance with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).

Pro forma Impact of SFAS 123 on Earnings
(In thousands, except per share)	2005		2004			2003
Net income:
As reported	$	156,657	$	121,211		$	92,217
Compensation expense (a)		—		(96	)		(1,673	)
Pro forma	$	156,657	$	121,115		$	90,544
Basic earnings per share:
As reported	$	3.76	$	2.95		$	2.27
Pro forma		3.76		2.94			2.23
Diluted earnings per share:
As reported		3.72		2.91			2.25
Pro forma		3.72		2.91			2.21

(a)	Total stock-based employee compensation expense related to stock options determined under fair value-based method for all awards, net of related income tax effects.

In 2004, the Management Development and Compensation Committee of the Board of Directors approved the granting of performance-based restricted stock units as the long-term equity component of officer compensation. See Note 12, “Stock-Based Compensation,” for additional information on the Company’s equity compensation plans.

Earnings Per Share

Basic earnings per share are calculated using the average shares of common stock outstanding, while diluted earnings per share reflect the dilutive effects of restricted stock units and the potential dilution that could occur if stock options were exercised. See Note 11, “Capital Stock,” for additional information on earnings per share.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

New Financial Accounting Standards Issued

SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R)

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R which replaced SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). SFAS 123R requires the cost of employee services received in exchange for an award of equity instruments to be based upon the grant-date fair value of the award (with limited

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exceptions). Additionally, this cost is to be recognized as expense over the period during which an employee is required to provide services in exchange for the award (usually the vesting period). SFAS 123R eliminates APB 25’s intrinsic value method which the Company has historically used to account for stock option grants.

In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107) which summarizes the views of the SEC staff regarding the interaction between SFAS 123R and certain SEC rules and regulations. SAB 107 provides guidance on several topics including: valuation methods, the classification of compensation expense, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements, and disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS 123R.

In April 2005, the SEC issued FR-74, “Amendment to Rule 4-01(a) of Regulation S-X Regarding the Compliance Date for Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment” (FR-74). FR-74 allows companies to implement SFAS 123R at the beginning of their next fiscal year (January 1, 2006 for the Company), instead of the next reporting period that begins after June 15, 2005. FR-74 does not change the accounting required by SFAS 123R; it only changes the required implementation date of the standard.

The Company implemented SFAS 123R as of January 1, 2006, and it did not have a material affect on the Company’s financial position, results of operations or cash flows.

SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (SFAS 151)

In November 2004, the FASB issued SFAS 151, which amends Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing” (ARB 43). SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be expensed rather than capitalized as inventory. Additionally, SFAS 151 requires that allocation of fixed production overheads to inventory costs be based upon the normal capacity of the production facility. The provisions of SFAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005 (as of January 1, 2006 for the Company) with earlier application permitted. The Company implemented SFAS 151 effective January 1, 2006, and it did not have a material impact on the Company’s financial position, results of operations or cash flows.

SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3” (SFAS 154)

In May 2005, the FASB issued SFAS 154 which replaces APB Opinion No. 20, “Accounting Changes” (APB 20) and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements” (SFAS 3). SFAS 154 changes the requirements for the accounting and reporting of a change in accounting principle or correction of an error. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company implemented SFAS 154 effective January 1, 2006, and it did not have a material impact on the Company’s financial position, results of operations or cash flows.

FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143” (FIN 47).

In March 2005, the FASB issued FIN 47 which clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143), refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred—generally upon acquisition, construction, or development and/or through the normal operation of the asset. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The Company implemented FIN 47 as of December 31, 2005, and it did not have a material impact on the Company’s financial position, results of operations or cash flows.

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SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an Amendment of FASB Statements No. 133 and 140” (SFAS 155).

In February 2006, the FASB issued SFAS 155, which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 addresses several issues relating to the accounting for financial instruments, including permitting fair value measurement for any hybrid financial instrument that contains an embedded derivative, and eliminating the prohibition on a qualifying special-purpose entity from holding certain derivative instruments. SFAS 155 also provides clarification that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS 155 is effective for all financial instruments issued or acquired after the fiscal year that begins after September 15, 2006 (January 1, 2007 for the Company), with early application permitted. The Company has not yet determined the timing of adoption or the full impact of SFAS 155; however, it is not expected to materially impact the Company’s financial position, results of operations or cash flows.

2. Acquisitions and Dispositions

Acquisitions

In December 2005, the Company acquired the Northern Hemisphere steel mill services operations of Brambles Industrial Services (BISNH), a unit of the Sydney, Australia-based Brambles Industrial Limited, for ₤137 million (approximately $236 million), excluding acquisition costs. BISNH will be included in the Company’s Mill Services Segment. The Company did not assume debt as part of this acquisition. BISNH is a provider of on-site, outsourced mill services to the steel and metals industries, operating at 19 locations in the U.K., France, Holland and the United States. Goodwill recognized in this transaction was $93.1 million, of which $88.5 million is expected to be deductible for U. S. income tax purposes. Because this acquisition occurred near the end of the year, the purchase price allocations and goodwill balance have not been finalized as of December 31, 2005. All regulatory filings, reviews and approvals have now been completed with respect to this transaction.

In November 2005, the Company acquired the Germany-based Hünnebeck Group GmbH (Hünnebeck) for €140 million (approximately $164 million), which included the assumption of debt but excludes acquisition costs. Hünnebeck will be included in the Company’s Access Services Segment. Hünnebeck is a provider of highly engineered formwork and scaffolding equipment with more than 60 branches and depots in 12 countries and export sales worldwide. Goodwill recognized in this transaction was $71.2 million, none of which is expected to be deductible for U. S. income tax purposes. Because this acquisition occurred near the end of the year, the purchase price allocations and goodwill balance have not been finalized as of December 31, 2005.

In May 2005, the Company’s Mill Services Segment acquired Evulca SAS, a France-based company with more than 30 years experience providing conveyor belt management and maintenance services to the steel industry and other industrial clients. The privately-held company recorded 2004 sales in excess of $5 million.

In October 2004, the Company’s Access Services Segment acquired full ownership of its existing Mastclimbers Ltd joint venture partnership which is located in the United Kingdom. Previously, the Company owned 51% of the partnership. Mastclimbers Ltd ranks as the United Kingdom’s leading supplier of mast climbing work platforms and related services.

In April 2004, the Company’s Access Services Segment acquired the Australian distributor, Raffia Contracting Pty, and Raffia’s sister company, Tower International Pty. Both businesses are based in Sydney, New South Wales. Raffia Contracting Pty is involved in the supply and erection of scaffolding, working with many of the major contractors in and around the state capital, while Tower International Pty provides light access sales and rentals throughout the area. The combined businesses have been renamed SGB Raffia.

Dispositions - Assets Held for Sale and Discontinued Operations

In management’s ongoing strategic efforts to increase the Company’s focus on core industrial services, certain manufacturing operations have been divested. In October 2005, certain assets and liabilities related to the Company’s Youngman light access manufacturing plant in the U.K. (a component of the Access Services Segment) were sold. The Youngman operations consisted of a single manufacturing facility, with external sales of approximately $60 million in 2004. At the time of sale, the net book value of its assets and liabilities was $34.5 million and $15.9 million, respectively.

Effective March 21, 2002, the Board of Directors authorized the sale of the Capitol Manufacturing business, a business unit of the Gas Technologies Segment. A significant portion of the Capitol Manufacturing business was sold on June 28, 2002. The Company continued to recognize income from inventory consigned to the buyer in accordance with the sale agreement and when all revenue recognition criteria were met. As of June 30, 2005, all the remaining inventory had been

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sold and the corresponding income was recognized in Discontinued operations. The income from the sale of this inventory had an immaterial effect on net income for the twelve months ended December 31, 2005.

Throughout 2004 and 2005, management approved the sale of certain long-lived assets (primarily land and buildings) of the Gas Technologies Segment, the Mill Services Segment and the Engineered Products and Services Category.

The major classes of assets and liabilities “held-for-sale” included in the Consolidated Balance Sheets are as follows:

(In thousands) As of December 31	2005		2004

ASSETS
Accounts receivable, net	$	—	$	15
Inventories		—		133
Other current assets		—		23
Property, plant and equipment, net		2,326		761
Total assets “held-for-sale”	$	2,326	$	932

LIABILITIES
Accounts payable	$	—	$	24
Other current liabilities		—		542
Other liabilities		—		125
Total liabilities associated with assets “held-for-sale”	$	—	$	691

3. Accounts Receivable and Inventories

At December 31, 2005 and 2004, accounts receivable of $666.3 million and $555.2 million, respectively, were net of allowances for doubtful accounts of $24.4 million and $19.1 million, respectively. Gross accounts receivable included trade accounts receivable of $638.5 million and $557.1 million at December 31, 2005 and 2004, respectively. The increase in accounts receivable and the allowance for doubtful accounts from December 31, 2004 related principally to the net effect of acquisitions and divestitures discussed in Note 2, “Acquisitions and Dispositions,” and an increase of $25.2 million in insurance claims receivable, partially offset by the write-off of previously reserved accounts receivable. The provision for doubtful accounts was $6.5 million, $5.0 million and $3.4 million for 2005, 2004 and 2003, respectively.

Inventories consist of the following:

	Inventories
(In thousands)	2005		2004
Finished goods	$	85,325	$	60,554
Work-in-process		43,830		37,882
Raw materials and purchased parts		87,251		91,965
Stores and supplies		34,674		26,625
Total inventories	$	251,080	$	217,026
Valued at lower of cost or market:
Last-in, first out (LIFO) basis	$	137,101	$	129,064
First-in, first out (FIFO) basis		26,003		17,399
Average cost basis		87,976		70,563
Total inventories	$	251,080	$	217,026

The increase in inventory balances related principally to inventories acquired as part of the Hünnebeck and BISNH acquisitions discussed in Note 2, “Acquisitions and Dispositions.”

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Inventories valued on the LIFO basis at December 31, 2005 and 2004 were approximately $34.1 million and $35.8 million, respectively, less than the amounts of such inventories valued at current costs.

As a result of reducing certain inventory quantities valued on the LIFO basis, net income increased from that which would have been recorded under the FIFO basis of valuation by $1.6 million, $0.02 million and $1.1 million in 2005, 2004 and 2003, respectively.

4. Property, Plant and Equipment

Property, plant and equipment consists of the following:

(In thousands)	2005			2004
Land and improvements	$	39,306		$	39,838
Buildings and improvements		168,727			185,807
Machinery and equipment		2,291,294			2,027,765
Uncompleted construction		91,186			45,083
Gross property, plant and equipment		2,590,513			2,298,493
Less accumulated depreciation		(1,450,705	)		(1,366,195	)
Net property, plant and equipment	$	1,139,808		$	932,298

The increase in net property, plant and equipment related principally to assets acquired as part of the Hünnebeck and BISNH acquisitions discussed in Note 2, “Acquisitions and Dispositions,” as well as increases for the railway track services business.

The estimated useful lives of different types of assets are generally:

	Land improvements		5 to 20 years
	Buildings and improvements		10 to 40 years
	Certain plant, buildings and installations (Principally Mill Services Segment)		3 to 10 years
	Machinery and equipment		3 to 20 years
	Leasehold improvements		Estimated useful life of the improvement or, if shorter, the life of the lease

5. Goodwill and Other Intangible Assets

In connection with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) goodwill and intangible assets with indefinite useful lives are no longer amortized. Goodwill is tested for impairment at the reporting unit level on an annual basis, and between annual tests, whenever events or circumstances indicate that the carrying value of a reporting unit’s goodwill may exceed its fair value. This impairment testing is a two-step process as outlined in SFAS 142. Step one is a comparison of each reporting unit’s fair value to its book value. If the fair value of the reporting unit exceeds the book value, step two of the test is not required. Step two requires the allocation of fair values to assets and liabilities as if the reporting unit had just been purchased resulting in the implied fair value of goodwill. If the carrying value of the goodwill exceeds the implied fair value, a write down to the implied fair value would be required.

The Company uses a discounted cash flow model to estimate the fair value of a reporting unit in performing step one of the testing. This model requires the use of long-term planning estimates and assumptions regarding industry-specific economic conditions that are outside the control of the Company. The Company performed required annual testing for goodwill impairment as of October 1, 2005 and 2004 and all reporting units of the Company passed the step one testing thereby indicating that no goodwill impairment exists. However, there can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

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The following table reflects the changes in carrying amounts of goodwill by segment for the years ended December 31, 2004 and 2005:

Goodwill by Segment
(In thousands)	Mill Services Segment			Access Services Segment			Gas Technologies Segment		Engineered Products and Services (“all other”) Category		Consolidated Totals
Balance as of December 31, 2003, net of accumulated amortization	$	211,318		$	151,698		$	36,693	$	8,137	$	407,846

Goodwill acquired during year		—			5,046			—		—		5,046

Other (principally foreign currency translation)		9,175			11,058			—		—		20,233

Balance as of December 31, 2004, net of accumulated amortization	$	220,493		$	167,802		$	36,693	$	8,137	$	433,125

Goodwill acquired during year		93,268			71,068			—		—		164,336

Goodwill written off related to sale of business unit		—			(5,370	)		—		—		(5,370	)

Other (principally foreign currency translation)		(16,542	)		(15,920	)		—		—		(32,462	)

Balance as of December 31, 2005, net of accumulated amortization	$	297,219		$	217,580		$	36,693	$	8,137	$	559,629

Goodwill is net of accumulated amortization of $103.0 million and $108.4 million at December 31, 2005 and 2004, respectively.

Intangible assets, which are included principally in Other assets on the Consolidated Balance Sheets, totaled $78.8 million, net of accumulated amortization of $11.8 million at December 31, 2005 and $10.9 million, net of accumulated amortization of $10.5 million at December 31, 2004. The following table reflects these intangible assets by major category:

Intangible Assets
	December 31, 2005				December 31, 2004
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Customer relationships	$	73,224	$	1,262	$	7,662	$	609

Non-compete agreements		5,036		4,402		4,898		4,032

Patents		4,426		3,587		4,416		3,757

Other		7,962		2,558		4,411		2,087

Total	$	90,648	$	11,809	$	21,387	$	10,485

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The increase in intangible assets for 2005 is due principally to the acquisitions discussed in Note 2, “Acquisitions and Dispositions.” As part of these transactions, the Company acquired the following intangible assets (by major class) which are subject to amortization:

Acquired Intangible Assets
(In thousands)	Gross Carrying Amount		Residual Value		Weighted-average amortization period

Customer relationships	$	67,789		None		18 years

Non-compete agreements		147		None		10 years

Patents		586		None		10 years

Other		4,104		None		11 years

Total	$	72,626

There were no research and development assets acquired and written off in 2005, 2004 or 2003.

Amortization expense for intangible assets was $2.1 million, $1.8 million and $1.2 million for the years ended December 31, 2005, 2004 and 2003, respectively. The following table shows the estimated amortization expense for the next five fiscal years based on current intangible assets.

(In thousands)	2006		2007		2008		2009		2010

Estimated amortization expense	$	6,335	$	6,076	$	5,766	$	5,488	$	5,302

6. Debt and Credit Agreements

The Company has various credit facilities and commercial paper programs available for use throughout the world. The following table illustrates the amounts outstanding on credit facilities and commercial paper programs and available credit at December 31, 2005. The Company limits the aggregate commercial paper, syndicated credit facility and bilateral credit facility borrowings at any one time to a maximum of $600 million. These credit facilities and programs are described in more detail below the table.

Summary of Credit Facilities and Commercial Paper Programs	As of December 31, 2005
(In thousands)	Facility Limit		Outstanding Balance		Available Credit

U.S. commercial paper program	$	400,000	$	351,317	$	48,683

Euro commercial paper program		236,800		127,444		109,356

Revolving credit facility (a)		450,000		—		450,000

Supplemental credit facility (a)		100,000		—		100,000

Bilateral credit facility (b)		50,000		—		50,000

Totals at December 31, 2005	$	1,236,800	$	478,761	$	758,039	(c)

(a)	U.S.-based program

(b)	International-based program

(c)	Although the Company has significant available credit, it is the Company’s policy to limit aggregate commercial paper and credit facility borrowings at any one time to a maximum of $600 million.

The Company has a U.S. commercial paper borrowing program under which it can issue up to $400 million of short-term notes in the U.S. commercial paper market. In addition, the Company has a 200 million euro commercial paper program,

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equivalent to approximately $236.8 million at December 31, 2005, which is used to fund the Company's international operations. Commercial paper interest rates, which are based on market conditions, have been lower than comparable rates available under the credit facilities. At December 31, 2005 and 2004, the Company had $351.3 million and $26.9 million of U.S. commercial paper outstanding, respectively, and $127.4 million and $6.8 million outstanding, respectively, under its European-based commercial paper program. Commercial paper is classified as long-term debt when the Company has the ability and intent to refinance it on a long-term basis through existing long-term credit facilities. At December 31, 2005, the Company classified $88.7 million of commercial paper as short-term debt because it does not intend to carry this amount beyond the next twelve months. The remaining $390.1 million in commercial paper at December 31, 2005 was classified as long-term debt. At December 31, 2004, all commercial paper was classified as long-term debt.

On November 8, 2005, the Company increased the maximum amount under its euro commercial paper program from EUR 100 million to EUR 200 million, and on December 21, 2005, the Company increased the maximum amount of its U.S. commercial paper program from $350 million to $400 million. The increase in authorized commercial paper will provide increased financial flexibility for potential growth-related investments and for general corporate requirements.

On November 23, 2005, the Company executed a new revolving credit facility in the amount of $450 million, through a syndicate of 16 banks, which matures in November 2010. This facility serves as back-up to the Company's commercial paper programs. This new facility replaced the existing $350 million revolving credit facility that would have matured on August 12, 2007. Interest rates on the new facility are based upon the London Interbank Offered Rate (LIBOR) plus a margin. The Company pays a facility fee (.08% per annum as of December 31, 2005) that varies based upon its credit ratings. At December 31, 2005 and 2004, there were no borrowings outstanding under either of the facilities.

On December 23, 2005, the Company executed a new supplemental 364-day credit facility in the amount of $100 million, through two banks, which matures in December 2006. This facility also serves as back-up to the Company’s commercial paper programs. Interest rates on the new facility are based upon either the announced Citicorp lending rate, the Federal Funds Effective Rate plus a margin or the London Interbank Offered Rate (LIBOR) plus a margin. The Company pays a facility fee (.08% per annum as of December 31, 2005) that varies based upon its credit ratings. As of December 31, 2005, there were no borrowings outstanding on this credit facility.

The bilateral credit facility was renewed in December 2005 for an additional one year and the amount was increased from $25 million to $50 million. The facility serves as back-up to the Company’s commercial paper programs and also provides available financing for the Company’s European operations. Borrowings under this facility, which expires in December 2006, are available in most major currencies with active markets at interest rates based upon LIBOR plus a margin. Borrowings outstanding at expiration may be repaid over the succeeding 12 months. As of December 31, 2005 and 2004, there were no borrowings outstanding under either of the facilities.

Short-term debt amounted to $98.0 million (of which $88.7 million was commercial paper) and $16.1 million at December 31, 2005 and 2004, respectively. Other than the commercial paper borrowings, short-term debt was principally bank overdrafts. The weighted-average interest rate for short-term borrowings at December 31, 2005 and 2004 was 4.0% and 3.4%, respectively.

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Long-term debt consists of the following:

	Long-term Debt
(In thousands)	2005			2004
7.25% British pound sterling-denominated notes due October 27, 2010	$	341,063		$	379,751
5.125% notes due September 15, 2013		148,856			148,738
Commercial paper borrowings, with a weighted average interest rate of 3.9% and 2.3% as of December 31, 2005 and 2004, respectively		390,074			33,665
Faber Prest loan notes due October 31, 2008 with interest based on sterling LIBOR minus .75% (3.9% and 4.2% at December 31, 2005 and 2004, respectively)		6,731			9,361
Industrial development bonds, payable in varying amounts from 2010 to 2011 with a weighted average interest rate of 3.7% and 2.1% as of December 31, 2005 and 2004, respectively		6,500			6,500
Other financing payable in varying amounts to 2011 with a weighted average interest rate of 5.5% and 6.0% as of December 31, 2005 and 2004, respectively		18,701			31,649
		911,925			609,664
Less: current maturities		(6,066	)		(14,917	)
	$	905,859		$	594,747

The Company’s credit facilities and certain notes payable agreements contain covenants requiring a minimum net worth of $475 million and a maximum debt to capital ratio of 60%. Additionally, the Company’s 7.25% British pound sterling-denominated notes due October 27, 2010 include a covenant that permits the note holders to redeem their notes, at par, in the event of a change of control of the Company. At December 31, 2005, the Company was in compliance with these covenants.

The maturities of long-term debt for the four years following December 31, 2006 are as follows:

(In thousands)
2007	$	10,693
2008		7,961
2009		560
2010		733,279

Cash payments for interest on all debt from continuing operations were $42.2 million, $40.2 million and $40.1 million in 2005, 2004 and 2003, respectively.

7. Leases

The Company leases certain property and equipment under noncancelable operating leases. Rental expense (for both continuing and discontinued operations) under such operating leases was $52.1 million, $49.4 million and $48.5 million in 2005, 2004 and 2003, respectively.

Future minimum payments under operating leases with noncancelable terms are as follows:

(In thousands)
2006	$	40,981
2007		30,866
2008		20,882
2009		21,746
2010		7,624
After 2010		22,661

Total minimum rentals to be received in the future under non-cancelable subleases as of December 31, 2005 are $21.2 million.

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8. Employee Benefit Plans

Pension Benefits

The Company has pension and profit sharing retirement plans covering a substantial number of its employees. The defined benefits for salaried employees generally are based on years of service and the employee's level of compensation during specified periods of employment. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The multi-employer plans in which the Company participates provide benefits to certain unionized employees. The Company's funding policy for qualified plans is consistent with statutory regulations and customarily equals the amount deducted for income tax purposes. The Company also makes periodic voluntary contributions as recommended by its pension committee. The Company's policy is to amortize prior service costs of defined benefit pension plans over the average future service period of active plan participants. The Company uses an October 31 measurement date for its United States defined benefit pension plans and recently acquired international plans. A September 30 measurement date is used for other international defined benefit pension plans.

For a majority of the U.S. defined benefit pension plans and certain international defined benefit pension plans, accrued service will no longer be granted for periods after December 31, 2003. In place of these plans, the Company has established, effective January 1, 2004, defined contribution pension plans providing for the Company to contribute a specified matching amount for participating employees’ contributions to the plan. Domestically, this match is made on employee contributions up to four percent of their eligible compensation. Additionally, the Company may provide a discretionary contribution of up to two percent of compensation for eligible employees. The two percent discretionary contribution was recorded for the last two years, 2005 and 2004, and paid in February of the subsequent year. Internationally, this match is up to six percent of eligible compensation with an additional two percent going towards insurance and administrative costs. The Company believes these new defined contribution plans will provide a more predictable and less volatile pension expense than exists under the defined benefit plans.


(In thousands)	U. S. Plans									International Plans
	2005			2004			2003			2005			2004			2003
Pension Expense (Income)
Defined benefit plans:
Service cost	$	3,380		$	2,610		$	7,339		$	8,195		$	9,561		$	10,439
Interest cost		13,914			13,592			13,201			40,475			37,876			32,627
Expected return on plan assets		(19,112	)		(17,960	)		(15,758	)		(44,796	)		(39,765	)		(34,083	)
Recognized prior service costs		767			754			726			1,208			1,245			1,117
Recognized losses		3,617			2,982			4,409			12,247			13,431			9,813
Amortization of transition (asset) liability		(1,455	)		(1,466	)		(1,466	)		117			(567	)		(626	)
Settlement/Curtailment loss (gain)		(3	)		131			36			50			—			8
Defined benefit plans pension expense		1,108			643			8,487			17,496			21,781			19,295
Multi-employer plans		8,156			7,674			6,020			5,579			5,395			4,389
Defined contribution plans		7,522			6,197			527			5,901			5,722			2,329

Pension expense	$	16,786		$	14,514		$	15,034		$	28,976		$	32,898		$	26,013

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The change in the financial status of the pension plans and amounts recognized in the Consolidated Balance Sheets at December 31, 2005 and 2004 are as follows:

Defined Benefit Pension Benefits	U. S. Plans						International Plans
(In thousands)	2005			2004			2005			2004
Change in benefit obligation:
Benefit obligation at beginning of year	$	243,568		$	221,695		$	746,573		$	660,441
Service cost		3,380			2,610			8,195			9,561
Interest cost		13,914			13,592			40,475			37,876
Plan participants’ contributions		—			—			1,866			2,691
Amendments		711			—			—			—
Actuarial loss		5,300			18,094			86,447			15,074
Settlements/curtailments		—			(22	)		(541	)		(54	)
Benefits paid		(11,244	)		(12,401	)		(28,602	)		(30,113	)
Obligations of added plans		—			—			20,695			—
Effect of foreign currency		—			—			(76,774	)		51,097
Benefit obligation at end of year	$	255,629		$	243,568		$	798,334		$	746,573
Change in plan assets:
Fair value of plan assets at beginning of year	$	223,108		$	209,130		$	617,097		$	522,185
Actual return on plan assets		26,377			23,096			104,295			52,900
Employer contributions		8,439			3,283			40,367			34,528
Plan participants’ contributions		—			—			1,868			2,692
Benefits paid		(11,244	)		(12,401	)		(28,225	)		(29,774	)
Plan assets of added plans		—			—			10,292			—
Effect of foreign currency		—			—			(75,545	)		34,566
Fair value of plan assets at end of year	$	246,680		$	223,108		$	670,149		$	617,097
Funded status:
Funded status at end of year	$	(8,949	)	$	(20,460	)	$	(128,185	)	$	(129,476	)
Unrecognized net loss		54,593			60,173			229,454			240,797
Unrecognized transition (asset) obligation		(361	)		(1,817	)		332			478
Unrecognized prior service cost		3,802			3,858			9,643			12,085
Net amount recognized	$	49,085		$	41,754		$	111,244		$	123,884
Amounts recognized in the Consolidated Balance Sheets consist of the following:
Prepaid benefit cost	$	62,407		$	54,613		$	—		$	—
Accrued benefit liability		(31,416	)		(37,187	)		(85,625	)		(91,115	)
Intangible asset		2,173			3,209			9,537			11,733
Accumulated other comprehensive loss		15,921			21,119			187,332			203,266
Net amount recognized	$	49,085		$	41,754		$	111,244		$	123,884

The Company’s best estimate of expected contributions to be paid in year 2006 for the U.S. defined benefit plans is $1.0 million and for the international defined benefit plans is $19.8 million.

Contributions to multiemployer pension plans were $13.6 million and $15.2 million in years 2005 and 2004, respectively. For defined contributions, payments were $12.9 million and $9.7 million for years 2005 and 2004, respectively.

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Future Benefit Payments

The expected benefit payments for defined benefit plans over the next ten years are as follows:

(In millions)	U.S. Plans		International Plans
2006	$	10.3	$	28.4
2007		11.2		28.5
2008		11.8		29.4
2009		12.6		30.4
2010		13.5		32.8
2011 - 2015		81.6		175.7

Net Periodic Pension Expense Assumptions

The weighted-average actuarial assumptions used to determine the net periodic pension expense for the years ended December 31 were as follows:

	Global Weighted Average December 31
	2005			2004			2003
Discount rates		5.7	%		5.9	%		6.0	%
Expected long-term rates of return on plan assets		7.8	%		7.9	%		8.0	%
Rates of compensation increase		3.4	%		3.5	%		3.4	%

	U. S. Plans December 31									International Plans December 31
	2005			2004			2003			2005			2004			2003
Discount rates		5.75	%		6.25	%		6.75	%		5.7	%		5.7	%		5.8	%
Expected long-term rates of return on plan assets		8.75	%		8.75	%		8.9	%		7.5	%		7.5	%		7.6	%
Rates of compensation increase		4.0	%		4.0	%		3.8	%		3.3	%		3.4	%		3.3	%

The expected long-term rates of return on plan assets for the 2006 pension expense are 8.25% for the U.S. plans and 7.4% for the international plans.

Defined Benefit Pension Obligation Assumptions

The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at December 31 were as follows:

	Global Weighted Average December 31
	2005			2004			2003
Discount rates		5.3	%		5.7	%		5.9	%
Rates of compensation increase		3.4	%		3.5	%		3.5	%

	U. S. Plans December 31									International Plans December 31
	2005			2004			2003			2005			2004			2003
Discount rates		5.87	%		5.75	%		6.25	%		5.2	%		5.7	%		5.7	%
Rates of compensation increase		4.36	%		4.0	%		4.0	%		3.2	%		3.3	%		3.4	%

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The U.S. discount rate was determined using a yield curve that was produced from a universe containing over 500 U.S.-issued, AA-graded corporate bonds, all of which were noncallable (or callable with make whole provisions), and excluding the 10% of the bonds with the highest yields and the 10% with the lowest yields. The discount rate was then developed as the level-equivalent rate that would produce the same present value as that using spot rates to discount the projected benefit payments. For international plans, the discount rate is aligned to Corporate bond yields in the local markets, normally AA-rated Corporations. The process and selection seeks to approximate the cash outflows with the timing and amounts of the expected benefit payments. As of the September 30, 2005 measurement date, these rates have declined by about one half of one percent from the prior year.

Accumulated Benefit Obligations

The accumulated benefit obligation for all defined benefit pension plans at December 31 was as follows:

(In millions)	U.S. Plans		International Plans
2005	$	244.4	$	744.7
2004		231.6		705.3

Plans with Accumulated Benefit Obligation in Excess of Plan Assets

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at December 31 were as follows:

U. S. Plans

International Plans

(In millions)

2005

2004

2005

2004

Projected benefit obligation

76.8

75.6

778.2

737.3

Accumulated benefit obligation

74.2

73.8

730.1

697.8

Fair value of plan assets

44.9

40.7

644.8

605.4

The decrease in the minimum liability included in other comprehensive income (loss) net of taxes was $14.7 million in 2005. The increase in the minimum liability included in other comprehensive income (loss) net of taxes was ($4.5) million in 2004.

The asset allocations attributable to the Company’s U.S. pension plans at October 31, 2005 and 2004 and the target allocation of plan assets for 2006, by asset category, are as follows:


U.S. Plans	Target 2006		Percentage of Plan Assets at October 31
Asset Category	Allocation		2005		2004
Domestic Equity Securities	47% - 57	%	51.9	%	52.6	%
Fixed Income Securities	27% - 37	%	29.0	%	32.5	%
International Equity Securities	4.5% - 14.5	%	10.7	%	10.5	%
Cash & Cash Equivalents	0% - 5	%	4.1	%	1.8	%
Other	2% - 6	%	4.3	%	2.6	%

Plan assets are allocated among various categories of equities, fixed income, cash and cash equivalents with professional investment managers whose performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts an asset/liability modeling study to ensure the investment strategy is aligned with the profile of benefit obligations.

The Company reviews the long-term expected return on asset assumption on a periodic basis taking into account a variety of factors including the historical investment returns achieved over a long-term period, the targeted allocation of plan assets and future expectations based on a model of asset returns for an actively managed portfolio, inflation and administrative/other expenses. The model simulates 500 different capital market results over 15 years. For 2006, the expected return on asset assumption is 8.25%. The Company had lowered its expected return on asset assumption from 8.75% in 2005 and 2004 due to changes in capital market expectations.

The U.S. defined benefit pension plans assets include 382,640 shares of the Company’s stock valued at $24.4 million and $18.2 million on October 31, 2005 and 2004, respectively, representing 9.9% and 8.2%, respectively, of total plan assets. As part of a rebalancing of the pension fund to further diversify the plan assets, approximately one-half of the pension

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fund’s holdings in the Company’s stock were sold in the second quarter of 2004. As of December 31, 2005, the Company’s stock represented 9.9% of total plan assets. The Company is considering a further rebalancing of the Company’s stock in the pension fund during 2006. Dividends paid to the pension plans on the Company stock amounted to $0.4 million in 2005 and $0.6 million in 2004.

The asset allocations attributable to the Company’s international plans at September 30, 2005 and 2004 and the target allocation of plan assets for 2006, by asset category, are as follows:


International Plans	Target 2006		Percentage of Plan Assets at September 30
Asset Category	Allocation		2005		2004
Equity Securities	55.5% - 64.5	%	57.1	%	57.5	%
Fixed Income Securities	37.5% - 42.5	%	40.8	%	42.0	%
Cash & Cash Equivalents	0	%	1.0	%	0.4	%
Other	0	%	1.1	%	0.1	%

Plan assets as of September 30, 2005, in the United Kingdom (U.K.) defined benefit pension plan amounted to over 90% of the international pension assets. These assets were divided into portfolios representing various categories of equities, fixed income, cash and cash equivalents managed by a number of professional investment managers.

The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts asset/liability modeling studies to ensure the investment strategies are aligned with the profile of benefit obligations. For the international long-term rate of return, the Company considered the current level of expected returns in risk-free investments (primarily government bonds), the historical level of the risk premium associated with other asset classes in which the portfolio is invested and the expectations for future returns of each asset class and plan expenses. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets. The expected return-on-asset assumption was 7.75% for the U.K. plan in 2005. The Company has reduced the expected rate of return to 7.50% for 2006. The remaining international pension plans with assets representing less than 10% of the international pension assets are under the guidance of professional investment managers and have similar investment objectives.

Postretirement Benefits

The Company has postretirement health care benefits for a limited number of employees mainly under plans related to acquired companies and postretirement life insurance benefits for certain hourly employees. The costs of health care and life insurance benefits are accrued for current and future retirees and are recognized as determined under the projected unit credit actuarial method. Under this method, the Company's obligation for postretirement benefits is to be fully accrued by the date employees attain full eligibility for such benefits. The Company's postretirement health care and life insurance plans are unfunded. The Company uses an October 31 measurement date for its postretirement benefit plans.

(In thousands)	2005			2004			2003
Postretirement Benefits Expense (Income)
Service cost	$	7		$	11		$	21
Interest cost		200			342			553
Recognized prior service costs		7			32			32
Recognized (gains) or losses		(37	)		39			66
Curtailment gains		(318	)		(2,236	)		(4,898	)
Postretirement benefit income	$	(141	)	$	(1,812	)	$	(4,226	)

The curtailment gains of $0.3 million for 2005 and $2.2 million for 2004 were due to the termination of certain retiree health care plans. The curtailment gain of $4.9 million for 2003 was due to the termination of certain retiree life insurance and health care plans.

Effective October 31, 2004, the Company adopted the provisions of Financial Accounting Standards Board Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP FAS 106-2). Adoption of FSP FAS 106-2 reduced the Company’s accumulated postretirement benefit obligation by $0.3 million as of December 31, 2004. This amount was treated as an unrecognized actuarial gain. The Company deferred re-measurement of its postretirement health care benefit obligation until its measurement date, so there was no effect on 2004 reported expense. The year 2005 expense decreased by $36 thousand, after reflecting the value of the federal subsidy. The Company’s accumulated postretirement benefit obligation decreased by $255 thousand as of December 31, 2005.

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The changes in the postretirement benefit liability recorded in the Consolidated Balance Sheets are as follows:

Postretirement Benefits

(In thousands)	2005			2004
Change in benefit obligation:
Benefit obligation at beginning of year	$	4,187		$	7,405
Service cost		7			11
Interest cost		200			342
Actuarial gain		(117	)		(654	)
Plan participants’ contributions		25			48
Benefits paid		(311	)		(369	)
Plan amendments		—			4
Curtailment		(670	)		(2,600	)
Benefit obligation at end of year	$	3,321		$	4,187

Funded status:
Funded status at end of year	$	(3,321	)	$	(4,187	)
Unrecognized prior service cost		17			296
Unrecognized net actuarial gain		(256	)		(95	)
Net amount recognized as accrued benefit liability	$	(3,560	)	$	(3,986	)

The actuarial assumptions used to determine the postretirement benefit obligation are as follows:

(Dollars in thousands)	2005			2004			2003
Assumed discount rate		5.87	%		5.75	%		6.25	%
Health care cost trend rate		10.00	%		10.00	%		12.00	%
Decreasing to ultimate rate		5.00	%		5.00	%		5.00	%

Effect of one percent increase in health care cost trend rate:
On total service and interest cost components	$	10		$	15		$	24
On postretirement benefit obligation	$	166		$	239		$	373
Effect of one percent decrease in health care cost trend rate:
On total service and interest cost components	$	(9	)	$	(13	)	$	(21	)
On postretirement benefit obligation	$	(149	)	$	(212	)	$	(336	)

It is anticipated that the health care cost trend rate will decrease from 10% in 2006 to 5.0% in the year 2011.

The assumed discount rates to determine the postretirement benefit expense for the years 2005, 2004 and 2003 were 5.75%, 6.25% and 6.75%, respectively.

The Company’s expected benefit payments over the next ten years are as follows:

(In thousands)	Benefits Payments Before Subsidy		Expected Subsidy Under Medicare Modernization Act
2006	$	326	$	27
2007		320		27
2008		321		28
2009		319		28
2010		314		28
2011 - 2015		1,435		125

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Savings Plan

Prior to January 1, 2004, the Company had a 401(k) Savings Plan (the Savings Plan) which covered substantially all U.S. employees with the exception of employees represented by a collective bargaining agreement, unless the agreement expressly provides otherwise. Effective January 1, 2004, certain U.S. employees previously covered by the Savings Plan were transferred into the Harsco Retirement Savings & Investment Plan (HRSIP) which is a defined contribution pension plan. The transferred employees were those whose credited years of service under the qualified Defined Benefit Pension Plan were frozen as of December 31, 2003 (as discussed in the Pension Benefits section of this footnote). Employees whose credited service was not frozen as of December 31, 2003 remained in the Savings Plan. The expenses related to the HRSIP are included in the defined contribution pension plans disclosure in the Pension Benefits section of this footnote.

Employee contributions to the Savings Plan are generally determined as a percentage of covered employees' compensation. The expense for contributions to the Savings Plan by the Company was $ 0.9 million, $0.4 million and $3.5 million for 2005, 2004 and 2003, respectively.

Employee directed investments in the Savings Plan and HRSIP include the following amounts of Company stock:

Company Shares in Plans

December 31, 2005

December 31, 2004

December 31, 2003

(Dollars in millions)

Number of Shares

Fair Market Value

Number of Shares

Fair Market Value

Number of Shares

Fair Market Value

Savings Plan

929,537

62.8

1,017,241

56.7

2,143,820

93.9

HRSIP

921,258

62.2

954,442

53.2

—

Executive Incentive Compensation Plan

The amended 1995 Executive Incentive Compensation Plan, as approved by the Management Development and Compensation Committee of the Board of Directors, provides the basis for determination of annual incentive compensation awards under a performance-based Economic Value Added (EVA®) plan. Actual cash awards are usually paid in January or February of the following year. The Company accrues amounts reflecting the estimated value of incentive compensation anticipated to be earned for the year. Total executive incentive compensation expense was $6.1 million, $4.5 million and $4.0 million in 2005, 2004 and 2003, respectively. The 2005 expense included performance-based restricted stock units (RSUs) that were granted to certain officers of the Company. There were no RSUs granted to officers in 2004 or 2003. See Note 12, “Stock-Based Compensation,” for additional information on the equity component of executive compensation.

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9. Income Taxes

Income before income taxes and minority interest for both continuing and discontinued operations in the Consolidated Statements of Income consists of the following:

(In thousands)	2005			2004			2003

United States	$	74,013		$	57,566		$	53,549
International		156,107			125,619			90,480
Total income before income taxes and minority interest	$	230,120		$	183,185		$	144,029

Income tax expense/(benefit):
Currently payable:
Federal	$	24,260		$	(2,788	)	$	5,275
State		637			(281	)		(961	)
International		34,381			31,471			24,233
Total income taxes currently payable		59,278			28,402			28,547

Deferred federal and state		4,550			17,110			12,255
Deferred international		887			7,797			3,815
Total income tax expense	$	64,715		$	53,309		$	44,617

Continuing Operations	$	64,771		$	49,034		$	41,708
Discontinued Operations		(56	)		4,275			2,909
Total income tax expense	$	64,715		$	53,309		$	44,617

Cash payments for income taxes were $58.6 million, $26.2 million and $23.5 million, for 2005, 2004 and 2003, respectively.

The following is a reconciliation of the normal expected statutory U.S. federal income tax rate to the effective rate as a percentage of Income before income taxes and minority interest for both continuing and discontinued operations as reported in the Consolidated Statements of Income:

	2005			2004			2003
U.S. federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		0.7			1.0			0.3
Export sales corporation benefit/domestic manufacturing deduction		(0.6	)		(0.6	)		(0.7	)
Deductible 401(k) dividends		(0.4	)		(0.4	)		(0.6	)
Losses for which no tax benefit was recorded		0.0			0.0			0.1
Difference in effective tax rates on international earnings and remittances		(5.4	)		(1.7	)		(2.2	)
Settlement of tax contingencies		(0.9	)		(3.3	)		(1.1	)
Other, net		(0.3	)		(0.9	)		0.2
Effective income tax rate		28.1	%		29.1	%		31.0	%

The difference in effective tax rates on international earnings and remittances from 2004 to 2005 includes a one-time benefit recorded in the fourth quarter of 2005 of $2.7 million associated with funds repatriated under the American Jobs Creation Act of 2004 (AJCA). Additionally, during the fourth quarter of 2005, consistent with the Company’s strategic plan of investing for growth, the Company designated certain international earnings as permanently reinvested which resulted in a one-time income tax benefit of $3.6 million.

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The tax effects of the primary temporary differences giving rise to the Company's deferred tax assets and liabilities for the years ended December 31, 2005 and 2004 are as follows:

(In thousands)	2005					2004
Deferred income taxes	Asset			Liability		Asset			Liability
Depreciation	$	—		$	143,802	$	—		$	111,967
Expense accruals		23,951			—		22,437			—
Inventories		3,510			—		3,268			—
Provision for receivables		1,578			—		3,225			—
Postretirement benefits		1,340			—		1,475			—
Deferred revenue		—			4,941		—			3,770
Operating loss carryforwards		22,340			—		19,667			—
Deferred foreign tax credits		8,708			—		—			—
Pensions		26,764			17,129		25,649			9,493
Currency translation adjustment		2,846			—		—			—
Other		4,615			428		5,292			4,071
Subtotal		95,652			166,300		81,013			129,301
Valuation allowance		(21,682	)		—		(17,492	)		—
Total deferred income taxes	$	73,970		$	166,300	$	63,521		$	129,301

At December 31, 2005 and 2004, Other current assets included deferred income tax benefits of $29.8 million and $28.9 million, respectively.

At December 31, 2005, after-tax net operating loss carryforwards (NOLs) totaled $22.3 million. Of that amount, $10.8 million is attributable to international operations, $0.3 million can be carried forward five years, $0.8 million can be carried forward ten years and $9.7 million can be carried forward indefinitely. After-tax federal NOLs are $2.0 million and expire in 2018. After-tax U.S. state NOLs are $9.5 million. Of that amount, $1.3 million expire in 2006-2012, $3.9 million expire in 2013-2020, and $4.3 million expire in 2025. Included in the above-mentioned total are $8.1 million of preacquisition NOLs.

The valuation allowance of $21.7 million and $17.5 million at December 31, 2005 and 2004, respectively, related principally to NOLs which are uncertain as to realizability. To the extent that the preacquisition NOLs are utilized in the future and the associated valuation allowance reduced, the tax benefit will be allocated to reduce goodwill.

The change in the valuation allowances for 2005 and 2004 results primarily from the utilization of NOLs, the release of valuation allowances in certain jurisdictions based on the Company's revaluation of the realizability of future benefits, recent acquisitions and the increase in valuation allowances in certain jurisdictions based on the Company’s revaluation of the realizability of future benefits.

The Company has not provided U.S. income taxes on certain of its non-U.S. subsidiaries’ undistributed earnings as such amounts are permanently reinvested outside the U.S. At December 31, 2005 and 2004, such earnings were approximately $295 million and $86 million, respectively. The Company has various tax holidays in Europe, the Middle East and Asia that expire between 2005 and 2010. During 2005, 2004 and 2003, these tax holidays resulted in approximately $2.4 million, $4.2 million and $3.6 million, respectively, in reduced income tax expense.

On October 22, 2004, the AJCA was signed into law. The AJCA includes a deduction of 85% for certain international earnings that are repatriated, as defined in the AJCA, to the U.S. The Company completed its evaluation of the repatriation provisions of the AJCA and repatriated qualified earnings of approximately $24 million in the fourth quarter of 2005. This resulted in the Company receiving a one-time income tax benefit of approximately $2.7 million during the fourth quarter of 2005.

10. Commitments and Contingencies

Environmental

The Company is involved in a number of environmental remediation investigations and clean-ups and, along with other companies, has been identified as a "potentially responsible party" for certain waste disposal sites. While each of these

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matters is subject to various uncertainties, it is probable that the Company will agree to make payments toward funding certain of these activities and it is possible that some of these matters will be decided unfavorably to the Company. The Company has evaluated its potential liability, and its financial exposure is dependent upon such factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the allocation of cost among potentially responsible parties, the years of remedial activity required and the remediation methods selected. The Consolidated Balance Sheets at December 31, 2005 and 2004 include accruals of $2.8 million and $2.7 million, respectively, for environmental matters. The amounts charged against pre-tax income related to environmental matters totaled $1.5 million, $2.1 million and $1.4 million in 2005, 2004 and 2003, respectively.

The liability for future remediation costs is evaluated on a quarterly basis. Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures. The Company does not expect that any sum it may have to pay in connection with environmental matters in excess of the amounts recorded or disclosed above would have a material adverse effect on its financial position, results of operations or cash flows.

Royalty Expense Dispute

The Company is involved in a royalty expense dispute with Canada Revenue Agency (“CRA”). The CRA is proposing to disallow certain royalty expense deductions claimed by the Company’s Canadian subsidiary on its 1994-1998 tax returns. As of December 31, 2005, the maximum assessment from the CRA for the period 1994-1998 is approximately $10.0 million including tax and interest. The Ontario Ministry of Finance (“Ontario”) is also proposing to disallow these same deductions for the period 1994-1998. As of December 31, 2005, the maximum assessment from Ontario is approximately $3.3 million including tax and interest. The Company has filed administrative appeals and will vigorously contest these disallowances.

The Company currently anticipates that, ultimately, it may have liability for some portion of the assessment in this royalty expense dispute. However, the Company intends to utilize competent authority proceedings in the U.S. to recover a portion of any required tax payment amount. The Company believes that any amount not recovered through these proceedings has been fully reserved as of December 31, 2005 and, therefore will not have a material adverse effect on the Company’s future results of operations or financial condition. In accordance with Canadian tax law, the Company made a payment to the CRA in the fourth quarter of 2005 of $5.0 million, or one-half of the disputed amount. Additionally, the Company has agreed to pay Ontario approximately $22 thousand per month until the claim with CRA has been settled. These payments were made for tax compliance purposes and to reduce potential interest expense on the disputed amount. These payments in no way reflect the Company’s acknowledgement as to the validity of the assessed amounts.

Other

The Company has been named as one of many defendants (approximately 90 or more in most cases) in legal actions alleging personal injury from exposure to airborne asbestos over the past several decades. In their suits, the plaintiffs have named as defendants, among others, many manufacturers, distributors and installers of numerous types of equipment or products that allegedly contained asbestos.

The Company believes that the claims against it are without merit. The Company has never been a producer, manufacturer or processor of asbestos fibers. Any component within a Company product which may have contained asbestos would have been purchased from a supplier. Based on scientific and medical evidence, the Company believes that any asbestos exposure arising from normal use of any Company product never presented any harmful levels of airborne asbestos exposure, and moreover, the type of asbestos contained in any component that was used in those products was protectively encapsulated in other materials and is not associated with the types of injuries alleged in the pending suits. Finally, in most of the depositions taken of plaintiffs to date in the litigation against the Company, plaintiffs have failed to specifically identify any Company products as the source of their asbestos exposure.

The majority of the asbestos complaints pending against the Company have been filed in either New York or Mississippi. Almost all of the New York complaints contain a standard claim for damages of $20 million or $25 million against the approximately 90 defendants, regardless of the individual’s alleged medical condition, and without specifically identifying any Company product as the source of plaintiff’s asbestos exposure. With respect to the Mississippi complaints, most contain a standard claim for an unstated amount of damages against the numerous defendants (typically 240 to 270), without specifically identifying any Company product as the source of plaintiff’s alleged asbestos exposure.

As of December 31, 2005, there are 27,216 pending asbestos personal injury claims filed against the Company. Of these cases, 26,239 were pending in the New York Supreme Court for New York County in New York State and 622 of the cases were pending in state courts of various counties in Mississippi. The other claims, totaling approximately 355, are

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filed in various counties in a number of state courts, and in certain Federal District Courts, and those complaints assert lesser amounts of damages than the New York cases or do not state any amount claimed.

As of December 31, 2005, the Company has obtained dismissal by stipulation, or summary judgment prior to trial, in 16,114 cases.

In view of the persistence of asbestos litigation nationwide, which has not yet been sufficiently addressed either politically or legally, the Company expects to continue to receive additional claims. However, there have been developments during the past several years, both by certain state legislatures and by certain state courts, which could favorably affect the Company’s ability to defend these asbestos claims in those jurisdictions. These developments include procedural changes, docketing changes, proof of damage requirements and other changes that require plaintiffs to follow specific procedures in bringing their claims and to show proof of damages before they can proceed with their claim. An example is the action taken by the New York Supreme Court (a trial court), which is responsible for managing all asbestos cases pending within New York County in the State of New York. This Court issued an order in December of 2002 that created a Deferred or Inactive Docket for all pending and future asbestos claims filed by plaintiffs who cannot demonstrate that they have a malignant condition or discernable physical impairment, and an Active or In Extremis Docket for plaintiffs who are able to show such medical condition. As a result of this order, the majority of the asbestos cases filed against the Company in New York County have been moved to the Inactive Docket until such time as the plaintiff can show that they have incurred a physical impairment. As of December 31, 2005, the Company has been listed as a defendant in 262 Active or In Extremis asbestos cases in New York County. The Court’s Order has been challenged by plaintiffs.

The Company’s insurance carrier has paid all legal and settlement costs and expenses to date. The Company has liability insurance coverage available under various primary and excess policies that the Company believes will be available, if necessary, to substantially cover any liability that might ultimately be incurred on these claims.

The Company intends to continue its practice of vigorously defending these cases as they are listed for trial. It is not possible to predict the ultimate outcome of asbestos-related lawsuits, claims and proceedings due to the unpredictable nature of personal injury litigation. Despite this uncertainty, and although results of operations and cash flows for a given period could be adversely affected by asbestos-related lawsuits, claims and proceedings, management believes that the ultimate outcome of these cases will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

The Company is subject to various other claims and legal proceedings covering a wide range of matters that arose in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or by accruals, and if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.

Insurance liabilities are recorded in accordance with SFAS 5, “Accounting for Contingencies.” Insurance reserves have been estimated based primarily upon actuarial calculations and reflect the undiscounted estimated liabilities for ultimate losses including claims incurred but not reported. Inherent in these estimates are assumptions which are based on the Company’s history of claims and losses, a detailed analysis of existing claims with respect to potential value, and current legal and legislative trends. If actual claims differ from those projected by management, changes (either increases or decreases) to insurance reserves may be required and would be recorded through income in the period the change was determined. When a recognized liability is covered by third-party insurance, the Company records an insurance claim receivable to reflect the covered liability. See Note 1, “Summary of Significant Accounting Policies,” for additional information on Accrued Insurance and Loss Reserves.

11. Capital Stock

The authorized capital stock of the Company consists of 150,000,000 shares of common stock and 4,000,000 shares of preferred stock, both having a par value of $1.25 per share. The preferred stock is issuable in series with terms as fixed by the Board of Directors. None of the preferred stock has been issued. On June 24, 1997, the Company adopted a revised Shareholder Rights Plan. Under that Plan, the Board declared a dividend to stockholders of record on September 28, 1997, of one right for each share of common stock. The rights may only be exercised if, among other things, a person or group has acquired 15% or more, or intends to commence a tender offer for 20% or more, of the Company's common stock. Each right entitles the holder to purchase 1/100th share of a new Harsco Junior Participating Cumulative Preferred Stock at an exercise price of $150. Once the rights become exercisable, if any person acquires 20% or more of the Company's common stock, the holder of a right will be entitled to receive common stock calculated to have a value of two times the exercise price of the right. The rights, which expire on September 28, 2007, do not have voting power, and may be redeemed by the Company at a price of $.05 per right at any time until the 10th business day following public

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announcement that a person or group has accumulated 15% or more of the Company's common stock. At December 31, 2005, 750,000 shares of $1.25 par value preferred stock were reserved for issuance upon exercise of the rights.

The Board of Directors has authorized the repurchase of shares of common stock as follows:

	No. of Shares Authorized to be Purchased January 1		No. of Shares Purchased			Additional Shares Authorized for Purchase		Remaining No. of Shares Authorized for Purchase December 31
2003		499,154		—			500,846		1,000,000
2004		1,000,000		—			—		1,000,000
2005		1,000,000		(133)	(a)		—		1,000,000

(a)	The 133 shares purchased were not part of the share repurchase program. They were shares which a retired employee sold to the Company in order to pay personal federal and state income taxes on shares issued to the employee upon retirement.

On June 24, 2003, the Board of Directors increased the share repurchase authorization to 1,000,000 shares. In November 2005, the Board of Directors extended the share purchase authorization through January 31, 2007 for the 1,000,000 shares still remaining from the prior authorization.

In 2005, 2004 and 2003, additional issuances of treasury shares of 5,306 shares, 11,195 shares and 3,633 shares, respectively, were made for SGB stock option exercises, employee service awards and shares related to vested restricted stock units.

The following table summarizes the Company’s common stock:

	Common Stock
	Shares Issued		Treasury Shares			Outstanding Shares

Outstanding, January 1, 2003		67,034,010		26,494,610			40,539,400
Stock Options Exercised		323,437		(2,043	)		325,480
Other		—		(1,590	)		1,590

Outstanding, December 31, 2003		67,357,447		26,490,977			40,866,470
Stock Options Exercised		553,584		(10,945	)		564,529
Other		—		(250	)		250

Outstanding, December 31, 2004		67,911,031		26,479,782			41,431,249
Stock Options Exercised		346,754		(4,086	)		350,840
Other		—		(1,220	)		1,220
Purchases		—		133			(133	)

Outstanding, December 31, 2005		68,257,785		26,474,609			41,783,176

The following is a reconciliation of the average shares of common stock used to compute basic earnings per common share to the shares used to compute diluted earnings per common share as shown on the Consolidated Statements of Income:

(Amounts in thousands, except per share data)	2005		2004		2003
Income from continuing operations	$	156,750	$	113,540	$	86,999
Average shares of common stock outstanding used to compute basic earnings per common share		41,642		41,129		40,690
Dilutive effect of stock options and restricted stock units		438		469		283
Shares used to compute dilutive effect of stock options		42,080		41,598		40,973
Basic earnings per common share from continuing operations	$	3.76	$	2.76	$	2.14
Diluted earnings per common share from continuing operations	$	3.73	$	2.73	$	2.12

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All outstanding stock options were included in the computation of diluted earnings per share at December 31, 2005 and 2004. Options to purchase 32,000 shares were outstanding at December 31, 2003, but were not included in the computation of diluted earnings per share because the effect was antidilutive.

12. Stock-Based Compensation

In 2004, the Company’s stockholders approved an amendment to the 1995 Non-Employee Directors’ Stock Plan whereby non-employee directors are granted restricted stock or restricted stock units instead of stock options. In 2005, 6,000 restricted stock units with a fair value of $53.75 per unit were granted to the non-employee directors. Each non-employee director was granted 750 restricted stock units vesting after one year. In 2004, 3,500 restricted stock units with a fair value of $43.42 per unit were granted to the non-employee directors. Each non-employee director was granted 500 restricted stock units vesting after one year. The restricted stock units require no payment from the recipient and compensation cost is measured based on the market price on the grant date and is recorded over the vesting period. Restricted stock units issued to non-employee directors will be exchanged for a like number of shares of Company stock following termination of the participant’s service as a director. As issued, restricted stock units do not have an option for cash payout. Compensation expense related to the non-employee directors restricted stock unit awards totaled $0.3 million in 2005.

In 2004, the Company’s stockholders approved a proposal to amend the 1995 Executive Incentive Compensation Plan in order to meet new requirements of the New York Stock Exchange and to comply with tax law changes. During 2004, no stock options or restricted stock units were granted to officers or employees. In 2004, the Management Development and Compensation Committee of the Board of Directors approved the granting of restricted stock units as the long-term equity component of officer compensation. In the first quarter of 2005, the Company issued 32,700 performance-based restricted stock units with a fair value of $50.41 per unit to certain officers of the Company. Additionally, in the first quarter of 2006, the Company issued 46,550 performance-based restricted stock units with a fair value of $67.70 per unit to certain officers of the Company. Restricted stock units granted to officers vest after three years of continuous employment. After the restricted stock units vest, they will be exchanged for a like number of shares of Company stock. These restricted stock units are not redeemable for cash. Compensation expense related to the officers’ restricted stock unit awards totaled $0.5 million in 2005.

No stock options were granted during 2004 and 2005. During 2003, stock options were only granted to non-employee directors. The fair value of stock options granted during 2003 was estimated on the date of grant using the binomial option pricing model. The Company discloses the pro forma effect of accounting for stock options under the fair value method in Note 1, “Summary of Significant Accounting Policies.” The weighted-average assumptions used and the estimated fair value are as follows:

Stock Options	2003
Expected term		7.5 years
Expected stock volatility		32.7	%
Risk-free interest rate		3.46	%
Dividend	$	1.05
Rate of dividend increase		4.63	%
Fair value	$	9.70

Prior to 2003, the Company had granted stock options for the purchase of its common stock to officers, certain key employees and directors under two stockholder-approved plans. The 1995 Executive Incentive Compensation Plan authorizes the issuance of up to 4,000,000 shares of the Company's common stock for use in paying incentive compensation awards in the form of stock options or other equity awards such as restricted stock, restricted stock units, or stock appreciation rights. The 1995 Non-Employee Directors' Stock Plan authorizes the issuance of up to 300,000 shares of the Company's common stock for equity awards.

Options were granted at fair market value on the date of grant. Options issued in 2002 under the 1995 Executive Incentive Compensation Plan generally vest and become exercisable commencing two years following the date of grant. Options issued under the 1995 Non-Employee Directors’ Stock Plan become exercisable commencing one year following the date of grant but vest immediately. The options under both Plans expire ten years from the date of grant. Upon stockholder approval of these two plans in 1995, the Company terminated the use of the 1986 Stock Option Plan for granting of stock option awards. At December 31, 2005, there were 1,282,931 and 156,500 shares available for granting

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equity awards under the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee Directors' Stock Plan, respectively.

Changes during 2005, 2004 and 2003 in stock options outstanding were as follows:

	Stock Options
	Shares Under Option			Weighted Average Exercise Price

Outstanding, January 1, 2003		2,123,113		$	30.30
Granted		16,000	(a)		33.92
Exercised		(325,480	)		27.15
Terminated and expired		(118,553	)		33.76

Outstanding, December 31, 2003		1,695,080			30.72
Granted		—			—
Exercised		(564,529	)		30.02
Terminated and expired		(9,450	)		40.25

Outstanding, December 31, 2004		1,121,101	(b)		31.01
Granted		—			—
Exercised		(370,836	)		29.10
Terminated and expired		(1,240	)		33.41

Outstanding, December 31, 2005		749,025	(c)	$	31.93

(a)	During 2003, options were only granted to non-employee directors.

(b)	Included in options outstanding at December 31, 2004 were 5,107 options granted to SGB key employees as part of the Company’s acquisition of SGB in 2000. These options are not a part of the 1995 Executive Compensation Plan, or the 1995 Non-Employee Directors’ Stock Plan.

(c)	Included in options outstanding at December 31, 2005 were 681 options granted to SGB key employees as part of the Company's acquisition of SGB in 2000. These options are not a part of the 1995 Executive Compensation Plan, or the 1995 Non-Employee Directors' Stock Plan.

Options to purchase 731,705 shares, 1,098,831 shares and 1,187,938 shares were exercisable at December 31, 2005, 2004 and 2003, respectively. The following table summarizes information concerning outstanding and exercisable options at December 31, 2005.

	Stock Options Outstanding						Stock Options Exercisable
Range of Exercisable Prices	Number Outstanding		Remaining Contractual Life In Years		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$25.63 - $29.00		263,852		4.27	$	27.49		254,892	$	27.56
29.31 - 32.65		272,005		5.99		32.53		272,005		32.53
32.81 - 46.16		213,168		2.60		36.67		204,808		36.72
		749,025						731,705

13. Financial Instruments

Off-Balance Sheet Risk

As collateral for the Company’s performance and to insurers, the Company is contingently liable under standby letters of credit, bonds and bank guarantees in the amount of $154.0 million and $239.1 million at December 31, 2005 and 2004, respectively. These standby letters of credit, bonds and bank guarantees are generally in force for up to four years. Certain issues have no scheduled expiration date. The Company pays fees to various banks and insurance companies

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that range from 0.08 percent to 1.90 percent per annum of their face value. If the Company were required to obtain replacement standby letters of credit, bonds and bank guarantees as of December 31, 2005 for those currently outstanding, it is the Company's opinion that the replacement costs would not vary significantly from the present fee structure.

The Company has currency exposures in over 45 countries. The Company's primary foreign currency exposures during 2005 were in Brazil, the United Kingdom, Canada, Australia and members of the European Economic and Monetary Union who use the euro as their currency.

Off-Balance Sheet Risk - Third Party Guarantees

In connection with the licensing of one of the Company’s trade names and providing certain management services (the furnishing of selected employees), the Company guarantees the debt of certain third parties related to its international operations. These guarantees are provided to enable the third parties to obtain financing of their operations. The Company receives fees from these operations, which are included as Services sales in the Company’s Consolidated Statements of Income. The revenue the Company recorded from these entities was $1.9 million, $1.0 million and $1.5 million for the twelve months ended December 31, 2005, 2004 and 2003, respectively. The guarantees are renewed on an annual basis and the Company would only be required to perform under the guarantees if the third parties default on their debt. The maximum potential amount of future payments (undiscounted) related to these guarantees was $2.9 million at December 31, 2005 and 2004. There is no recognition of this potential future payment in the accompanying financial statements as the Company believes the potential for making these payments is remote. These guarantees were renewed in June 2005, September 2005 and November 2005.

The Company provided an environmental indemnification for property that was sold to a third party in 2004. The term of this guarantee is seven years and the Company would only be required to perform under the guarantee if an environmental matter is discovered on the property relating to the time the Company owned the property and was not known by the buyer at the date of sale. The Company is not aware of any environmental issues related to this property. The maximum potential amount of future payments (undiscounted) related to this guarantee is $0.8 million at December 31, 2005 and 2004. There is no recognition of this potential future payment in the accompanying financial statements as the Company believes the potential for making this payment is remote.

Every three years, the Company requires a third party to review procedures and record keeping related to the production of certain products. Commencing in 2004, the Company provided an indemnification for any costs incurred by the third party resulting from an injury while these services are being provided to the Company. In addition, the Company provided an indemnification for certain costs resulting from an outside claim against the third party. The indemnification is provided for as long as the Company is producing products which meet the third party’s specifications. At December 31, 2005 and 2004, the maximum potential amount of future payments (undiscounted) related to this guarantee is $3.0 million per occurrence. This amount represents the Company’s self-insured maximum limitation. There is no specific recognition of this potential future payment in the accompanying financial statements as the Company is not aware of any claims.

Prior to the Company’s acquisition of the business, Hünnebeck guaranteed certain third party debt to leasing companies in connection with the sale of equipment. The guarantees expire on June 30, 2006, December 1, 2006 and December 1, 2008. At December 31, 2005, the maximum potential amount of future payments (undiscounted) related to these guarantees was $0.3 million. The Company would only be required to perform under the guarantees if a customer defaulted on the lease payments. There is no recognition of these potential future payments in the accompanying financial statements as the Company believes the potential for making these payments is remote.

Liabilities for the fair value of each of the guarantee instruments noted above were recognized in accordance with FASB Interpretation No. 45, “Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). These liabilities are included in Other current liabilities or Other liabilities (as appropriate) on the Consolidated Balance Sheets. The recognition of these liabilities did not have a material impact on the Company’s financial condition or results of operations for the twelve months ended December 31, 2005 or 2004.

In the normal course of business, the Company provides legal indemnifications related primarily to the performance of its products and services and patent and trademark infringement of its goods and services sold. These indemnifications generally relate to the performance (regarding function, not price) of the respective goods or services and therefore no liability is recognized related to the fair value of such guarantees.

Derivative Instruments and Hedging Activities

The Company has several hedges of net investment recorded in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). The Company recorded a credit of $16.3 million and a debit

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of $8.5 million during 2005 and 2004, respectively, in the foreign currency translation adjustments line of Other comprehensive income (loss) related to hedges of net investments.

At December 31, 2005 and 2004, the Company had $157.9 million and $93.7 million contracted amounts, respectively, of foreign currency forward exchange contracts outstanding. These contracts are part of a worldwide program to minimize foreign currency exchange operating income and balance sheet exposure. The unsecured contracts mature within twelve months and are with major financial institutions. The Company may be exposed to credit loss in the event of non-performance by the other parties to the contracts. The Company evaluates the credit worthiness of the counterparties and does not expect default by them. Foreign currency forward exchange contracts are used to hedge commitments, such as foreign currency debt, firm purchase commitments and foreign currency cash flows for certain export sales transactions.

The following tables summarize by major currency the contractual amounts of the Company's forward exchange contracts in U.S. dollars as of December 31, 2005 and 2004. The "Buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies.

Forward Exchange Contracts
(In thousands)	As of December 31, 2005
	Type		U.S. Dollar Equivalent		Maturity		Recognized Gain (Loss)
Euros		Buy	$	14,343		January through June 2006	$	(211	)
Euros		Sell		1,987		January 2006		15
British pounds sterling		Buy		75,743		January 2006		(1,334	)
British pounds sterling		Sell		56,929		January 2006		436
Canadian dollars		Buy		942		January 2006		5
Canadian dollars		Sell		1,886		January 2006		15
Taiwan dollars		Sell		6,088		August through November 2006		—
Total			$	157,918			$	(1,074	)

At December 31, 2005, the Company held forward exchange contracts in British pounds sterling, euros, Canadian dollars and Taiwan dollars which were used to offset certain future payments between the Company and its various subsidiaries or vendors. These contracts all mature by November 2006. The Company had outstanding forward contracts designated as SFAS 133 cash flow hedges in the amount of $6.1 million at December 31, 2005. These forward contracts had a net unrealized loss of $112 thousand that was included in Other comprehensive income (loss), net of deferred taxes, at December 31, 2005. The Company did not elect to treat the remaining contracts as hedges under SFAS 133 and so mark-to-market gains and losses were recognized in net income.

Forward Exchange Contracts
(In thousands)	As of December 31, 2004
	Type		U.S. Dollar Equivalent		Maturity		Recognized Gain (Loss)
Euros		Buy	$	33,210		Through February 2005	$	368
Euros		Sell		40,779		January 2005		(968	)
British pounds sterling		Buy		7,287		January 2005		(195	)
Canadian dollars		Buy		7,210		January 2005		178
Canadian dollars		Sell		3,149		January 2005		(73	)
Australian dollars		Buy		433		January 2005		14
Australian dollars		Sell		1,629		Through April 2005		(29	)
Total			$	93,697			$	(705	)

At December 31, 2004, the Company held forward exchange contracts in British pounds sterling, euros, Canadian dollars and Australian dollars which were used to offset certain future payments between the Company and its various subsidiaries or vendors. These contracts all matured by April 2005. The Company had an outstanding forward contract designated as a SFAS 133 cash flow hedge in the amount of $587 thousand at December 31, 2004. This forward contract had an unrealized gain of $67 thousand that was included in Other comprehensive income (loss), net of deferred taxes, at December 31, 2004. The Company did not elect to treat the remaining contracts as hedges under SFAS 133 and so mark-to-market gains and losses were recognized in net income.

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Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, investments and accounts receivable. The Company places its cash and cash equivalents with high quality financial institutions and, by policy, limits the amount of credit exposure to any one institution.

Concentrations of credit risk with respect to accounts receivable are generally limited due to the Company’s large number of customers and their dispersion across different industries and geographies. However, the Company’s Mill Services Segment has several large customers throughout the world with significant accounts receivable balances. In December 2005, the Company acquired BISNH. This acquisition has increased the Company’s corresponding concentration of credit risk to customers in the steel industry. Additionally, further consolidation in the global steel industry is possible. Should transactions occur involving some of the steel industry’s larger companies, which are customers of the Company, it would result in an increase in concentration of credit risk for the Company. As part of its credit risk management practices, the Company is developing strategies to mitigate this increased concentration of credit risk.

The Company generally does not require collateral or other security to support customer receivables. If a receivable from one or more of these customers becomes uncollectible, it could have a material effect on the Company’s results of operations and cash flows.

Fair Value of Financial Instruments

The major methods and assumptions used in estimating the fair values of financial instruments are as follows:

Cash and cash equivalents

The carrying amount approximates fair value due to the relatively short period to maturity of these instruments.

Foreign currency forward exchange contracts

The fair value of foreign currency forward exchange contracts is estimated by obtaining quotes from brokers.

Long-term debt

The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.

The carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2005 and 2004 are as follows:

	Financial Instruments
(In thousands)	2005				2004
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Cash and cash equivalents	$	120,929	$	120,929	$	94,093	$	94,093
Liabilities:
Long-term debt including current maturities	$	911,925	$	947,406	$	609,664	$	651,456
Foreign currency forward exchange contracts		1,074		1,074		705		705

14. Information by Segment and Geographic Area

The Company reports information about its operating segments using the "management approach" in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS 131). This approach is based on the way management organizes and reports the segments within the enterprise for making operating decisions and assessing performance. The Company's reportable segments are identified based upon differences in products, services and markets served. There were no significant inter-segment sales.

The Company's Divisions are aggregated into three reportable segments and an “all other” category labeled Engineered Products and Services. Due to management changes, effective January 1, 2004, the air-cooled heat exchangers business was reclassified from the Gas and Fluid Control Segment to the Other Infrastructure Products and Services (“all other”) Category. In June 2004, the Company announced a new identity for its Gas and Fluid Control Segment and renamed it Gas Technologies. Additionally, the Other Infrastructure Products and Services (“all other”) Category was

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renamed the Engineered Products and Services (“all other”) Category. These segments and the types of products and services offered include the following:

Mill Services Segment

This segment provides on-site, outsourced services to steel mills and other metal producers such as aluminum. Services include slag processing; semi-finished inventory management; material handling; scrap management; in-plant transportation; and a variety of other services.

Access Services Segment

Major products and services include the rental and sale of scaffolding, shoring and concrete forming systems for non-residential construction and industrial maintenance projects, and a variety of other access services including project engineering and installation.

Products and services are provided to the oil, chemical and petrochemical industries; commercial and industrial construction contractors; public utilities; industrial plants; and the infrastructure repair and maintenance markets.

Gas Technologies

Major products and services include tanks, cylinders and valves for the containment and control of compressed gases.

Major customers include various industrial markets and users of compressed gases; the hospital, life support, and refrigerant gas industries; welding distributors; medical laboratories; beverage carbonation users; and the animal husbandry industry.

Engineered Products and Services (“all other”) Category

Major products and services include railway track maintenance equipment and services; industrial grating; air-cooled heat exchangers; granules for asphalt roofing shingles and abrasives for industrial surface preparation derived from coal slag; and boilers, water heaters and process equipment, including industrial blenders, dryers and mixers.

Major customers include private and government-owned railroads and urban mass transit systems worldwide; industrial plants and the non-residential and institutional construction and retrofit markets; the natural gas exploration and processing industry; asphalt roofing manufacturers; and the chemical, food processing and pharmaceutical industries.

Other Information

The measurement basis of segment profit or loss is operating income. Sales of the Company in the United States and the United Kingdom exceeded 10% of consolidated sales with 42% and 20%, respectively, in 2005; 42% and 21%, respectively, in 2004; and 43% and 21%, respectively, in 2003. There are no significant inter-segment sales.

No single customer represented 10% or more of the Company's sales during 2005, 2004 or 2003. However, the Mill Services Segment is dependent largely on the global steel industry and in 2005, there were three customers that each provided in excess of 10% of this segment’s revenues under multiple long-term contracts at several mill sites, compared with two such customers for the years 2004 and 2003. The loss of any one of the contracts would not have a material adverse effect upon the Company’s financial position or cash flows; however, it could have a material effect on quarterly or annual results of operations. Additionally, these customers have significant accounts receivable balances. In December 2005, the Company acquired BISNH. This acquisition has increased the Company’s corresponding concentration of credit risk to these customers. Further consolidation in the global steel industry is also possible. Should transactions occur involving some of the steel industry’s larger companies that are customers of the Company, it would result in an increase in concentration of credit risk for the Company.

Corporate assets include principally cash, insurance receivables, prepaid pension costs and United States deferred income taxes. Net Property, Plant and Equipment in the United States represents 33%, 34% and 35% of total Net Property, Plant and Equipment as of December 31, 2005, 2004 and 2003, respectively. Net Property, Plant and Equipment in the United Kingdom represents 23% of total Net Property, Plant and Equipment as of December 31, 2005, 2004 and 2003 and is disclosed separately in the geographic area information.

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Segment Information
	Twelve Months Ended
	December 31, 2005					December 31, 2004					December 31, 2003 (a)

(In thousands)	Sales		Operating Income (Loss)			Sales		Operating Income (Loss)			Sales		Operating Income (Loss)

Mill Services Segment	$	1,060,354	$	109,591		$	997,410	$	105,490		$	827,521	$	85,874

Access Services Segment		788,750		74,742			706,490		44,464			619,069		37,388

Gas Technologies Segment		370,201		17,912			339,086		14,393			293,965		14,544

Segment Totals		2,219,305		202,245			2,042,986		164,347			1,740,555		137,806

Engineered Products and Services (“all other”) Category		546,905		69,699			459,073		47,029			377,961		36,474

General Corporate		—		(2,996	)		—		(1,527	)		—		(388	)

Consolidated Totals	$	2,766,210	$	268,948		$	2,502,059	$	209,849		$	2,118,516	$	173,892

(a)	Segment information for 2003 has been reclassified to conform with the current presentation.

Reconciliation of Segment Operating Income to Consolidated Income Before Income Taxes and Minority Interest
	Twelve Months Ended

(In thousands)	December 31 2005			December 31 2004			December 31 2003 (a)

Segment operating income	$	202,245		$	164,347		$	137,806

Engineered Products and Services (“all other”) Category		69,699			47,029			36,474

General Corporate Expense		(2,996	)		(1,527	)		(388	)

Operating income from continuing operations		268,948			209,849			173,892

Equity in income of unconsolidated entities, net		74			128			321

Interest Income		3,165			2,319			2,202

Interest Expense		(41,918	)		(41,057	)		(40,513	)
Income from continuing operations before income taxes and minority interest	$	230,269		$	171,239		$	135,902

(a)	Segment information for 2003 has been reclassified to conform with the current presentation.

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Segment Information
	Assets (a)						Depreciation and Amortization

(In thousands)	2005		2004		2003 (b)		2005		2004		2003 (b)
Mill Services Segment	$	1,273,522	$	985,538	$	898,057	$	114,952	$	107,682	$	96,906
Access Services Segment		976,936		763,916		696,226		53,263		48,005		41,665
Gas Technologies Segment		253,276		257,233		239,500		12,610		12,735		13,086
Segment Totals		2,503,734		2,006,687		1,833,783		180,825		168,422		151,657
Engineered Products and Services (“all other”) Category		315,241		274,627		215,663		15,735		14,675		15,918
Corporate		156,829		108,442		88,589		1,505		1,274		1,360
Total	$	2,975,804	$	2,389,756	$	2,138,035	$	198,065	$	184,371	$	168,935

(a)	Assets from discontinued operations of $0.4 million, $0.5 million and $1.0 million in 2005, 2004 and 2003, respectively, are included in the Gas Technologies Segment.

(b)	Segment information for 2003 has been reclassified to conform with the current presentation.

Capital Expenditures

(In thousands)	2005		2004		2003 (a)
Mill Services Segment	$	155,595	$	120,890	$	88,132
Access Services Segment		86,668		50,439		41,214
Gas Technologies Segment		6,438		8,958		7,837
Segment Totals		248,701		180,287		137,183
Engineered Products and Services (“all other”) Category		39,834		22,585		6,274
Corporate		1,704		1,363		367
Total	$	290,239	$	204,235	$	143,824

(a)	Segment information for 2003 has been reclassified to conform with the current presentation.

Information by Geographic Area(a)
	Sales to Unaffiliated Customers						Net Property, Plant and Equipment
(In thousands)	2005		2004		2003		2005		2004		2003
Geographic Area

United States	$	1,157,034	$	1,047,416	$	902,400	$	371,039	$	313,391	$	306,997
United Kingdom		546,673		534,097		453,388		258,786		218,127		199,631
All Other		1,062,503		920,546		762,728		509,983		400,780		358,815
Totals excluding Corporate	$	2,766,210	$	2,502,059	$	2,118,516	$	1,139,808	$	932,298	$	865,443

(a)	Revenues are attributed to individual countries based on the location of the facility generating the revenue.

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Information about Products and Services
	Sales to Unaffiliated Customers
(In thousands)	2005		2004		2003
Product Group
Mill services	$	1,060,354	$	997,410	$	827,521
Access services		788,750		706,490		619,069
Industrial gas products		370,201		339,086		293,965
Railway track maintenance services and equipment		247,452		209,765		173,050
Industrial grating products		98,845		85,609		66,248
Industrial abrasives and roofing granules		72,216		70,863		68,896
Heat exchangers		92,339		60,103		41,161
Powder processing equipment and heat transfer products		36,053		32,733		28,606
Consolidated Sales	$	2,766,210	$	2,502,059	$	2,118,516

15. Other (Income) and Expenses

In the years 2005, 2004 and 2003, the Company recorded pre-tax Other (income) and expenses from continuing operations of $2.0 million, $4.9 million and $7.0 million, respectively. The major components of this income statement category are as follows:

	Other (Income) and Expenses
(In thousands)	2005			2004			2003
Net gains	$	(9,674	)	$	(1,524	)	$	(3,543	)
Impaired asset write-downs		579			484			168
Employee termination benefit costs		9,060			3,892			6,064
Costs to exit activities		1,028			975			2,725
Other expense		1,007			1,035			1,541
Total	$	2,000		$	4,862		$	6,955

Net Gains

Net gains are recorded from the sales of redundant properties (primarily land, buildings and related equipment) and non-core assets. Most of these gains related to assets in the United States and Europe.

	Net Gains
(In thousands)	2005			2004			2003

Mill Services Segment	$	(4,202	)	$	(354	)	$	(720	)

Access Services Segment		(5,413	)		(1,124	)		(2,521	)

Gas Technologies Segment		—			—			—

Engineered Products and Services (“all other”) Category		(59	)		(46	)		(298	)

Corporate		—			—			(4	)

Total	$	(9,674	)	$	(1,524	)	$	(3,543	)

Cash proceeds associated with these gains are included in Proceeds from the sale of assets in the investing activities section of the Consolidated Statements of Cash Flows.

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Impaired Asset Write-downs

Impairment losses are measured as the amount by which the carrying amount of assets exceeded their fair value. Fair value is estimated based upon the expected future realizable cash flows including anticipated selling prices.

Non-cash impaired asset write-downs are included in Other, net in the Consolidated Statements of Cash Flows as adjustments to reconcile net income to net cash provided by operating activities.

Employee Termination Benefit Costs

The Company adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (SFAS 146) on January 1, 2003. This standard addresses involuntary termination costs associated with one-time benefit arrangements provided as part of an exit or disposal activity. These costs and the related liabilities are recognized by the Company when a formal plan for reorganization is approved at the appropriate level of management and communicated to the affected employees. Additionally, costs associated with on-going benefit arrangements, or in certain countries where statutory requirements dictate a minimum required benefit, are recognized when they are probable and estimable, in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” (SFAS 112).

The total amount of employee termination benefit costs incurred for the years 2005, 2004 and 2003 was as follows. None of the actions are expected to incur any additional costs.

	Employee Termination Benefit Costs
(In thousands)	2005		2004		2003

Mill Services Segment	$	4,827	$	1,338	$	3,101

Access Services Segment		1,647		1,504		1,778

Gas Technologies Segment		107		229		174

Engineered Products and Services (“all other”) Category		1,256		685		749

Corporate		1,223		136		262

Total	$	9,060	$	3,892	$	6,064

The terminations for the years 2003 to 2005 occurred principally in Europe and the United States.

The following table summarizes employee termination benefit costs and payments (associated with continuing operations) related to reorganization actions initiated prior to January 1, 2006:

	Original reorganization action period
(In thousands)	2005			2004			2003			2002
Employee termination benefits expense	$	9,060		$	3,892		$	6,064		$	7,140
Payments:
In 2002		—			—			—			(4,438	)
In 2003		—			—			(3,838	)		(2,627	)
In 2004		—			(2,178	)		(1,859	)		(52	)
In 2005		(3,826	)		(1,282	)		(310	)		(60	)
Total payments:		(3,826	)		(3,460	)		(6,007	)		(7,177	)
Other:		(33	)		(52	)		53			42
Remaining payments as of December 31, 2005	$	5,201		$	380		$	110		$	5

The payments for employee termination benefit costs are reflected as uses of operating cash in the Consolidated Statements of Cash Flows.

Costs Associated with Exit or Disposal Activities

Costs associated with exit or disposal activities are recognized in accordance with SFAS 146 and are included as a component of Other expenses in the Company’s Consolidated Statements of Income. SFAS 146 addresses involuntary termination costs (as discussed above) and other costs associated with exit or disposal activities (exit costs). Costs to

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terminate a contract that is not a capital lease are recognized when an entity terminates the contract or when an entity ceases using the right conveyed by the contract. This includes the costs to terminate the contract before the end of its term or the costs that will continue to be incurred under the contract for its remaining term without economic benefit to the entity (e.g., lease run-out costs). Other costs associated with exit or disposal activities (e.g., costs to consolidate or close facilities and relocate equipment or employees) are recognized and measured at their fair value in the period in which the liability is incurred. In 2005, $1.0 million of exit costs were incurred. These were principally relocation costs and lease run-out costs for the Engineered Products and Services Category and the Mill Services and Access Services Segments.

In 2004, 2003 and 2002, exit costs incurred were $1.0 million, $2.7 million and $1.9 million, respectively. These were principally lease run-out costs, lease termination costs and relocation costs for mainly the Mill Services and Access Services Segments.

Two-Year Summary of Quarterly Results

(Unaudited)

(In millions, except per share amounts)

2005

Quarterly

First

Second

Third

Fourth

Sales

640.1

696.1

697.5

732.5

Gross profit (a)

146.4

169.8

164.8

185.7

Net income

23.1

41.7

40.0

51.9

Basic earnings per share

0.56

1.00

0.96

1.24

Diluted earnings per share

0.55

0.99

0.95

1.23

(In millions, except per share amounts)	2004
Quarterly	First		Second		Third		Fourth
Sales	$	556.3	$	617.6	$	617.3	$	710.9
Gross profit (a)		127.3		149.7		146.5		162.1
Net income		16.9		30.7		38.6		35.0
Basic earnings per share		0.41		0.75		0.94		0.85
Diluted earnings per share		0.41		0.74		0.93		0.84

(a)	Gross profit is defined as Sales less costs and expenses associated directly with or allocated to products sold or services rendered.

Common Stock Price and Dividend Information

(Unaudited)

	Market Price Per Share				Dividends Declared
	High		Low		Per Share
2005
First Quarter	$	61.35	$	49.87	$	0.3000
Second Quarter		61.10		52.37		0.3000
Third Quarter		66.20		53.56		0.3000
Fourth Quarter		70.57		59.70		0.3250

2004
First Quarter	$	48.78	$	43.00	$	0.2750
Second Quarter		47.00		40.10		0.2750
Third Quarter		47.35		41.87		0.2750
Fourth Quarter		56.24		44.55		0.3000

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Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosures

None.

Item 9A.

Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of December 31, 2005. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective. There have been no changes in internal control over financial reporting that could materially affect, or are likely to materially affect, internal control over financial reporting.

Management’s Report on Internal Controls Over Financial Reporting is included in Part II, Item 8, “Financial Statements and Supplementary Data.” Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing in Part II, Item 8, “Financial Statements and Supplementary Data,” which expresses unqualified opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005.

Item 9B.

Other Information

10b5-1 Plan

The Chief Executive Officer (CEO) of the Company adopted, in the Fourth Quarter of 2004, a personal trading plan as part of a long-term strategy for asset diversification and liquidity, in accordance with the Securities and Exchange Commission’s Rule 10b5-1. Under the plan, the CEO planned to exercise, under pre-arranged terms, up to 167,500 options in open market transactions. The 167,500 options represented approximately 38% of his total option holdings at the time the trading plan was initiated. The trading plan expired in December 2005. As of the expiration of the trading plan, all 167,500 shares had been sold.

The CEO and the President and Chief Financial Officer (CFO) of the Company plan to adopt, in the First Quarter of 2006, new personal trading plans as part of a long-term strategy for asset diversification and liquidity, in accordance with the Securities and Exchange Commission’s Rule 10b5-1. Under the proposed plan, the CEO will exercise 100,000 shares and the President and CFO will exercise 28,000 shares, under pre-arranged terms, in open market transactions. The proposed trading plans will expire in July 2006.

Rule 10b5-1 allows officers and directors, at a time when they are not in possession of material non-public information, to adopt written plans to sell shares on a regular basis under pre-arranged terms, regardless of any subsequent non-public information they may receive. Exercises of stock options by the CEO and/or President pursuant to the terms of their respective plans will be disclosed publicly through Form 144 and Form 4 filings with the Securities and Exchange Commission.

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PART III

Item 10. Directors and Executive Officers of the Registrant

Information regarding executive officers required by this Item is set forth as a Supplementary Item at the end of Part I hereof (pursuant to Instruction 3 to Item 401(b) of Regulation S-K). Other information required by this Item is incorporated by reference to the sections entitled “Director Information,” “Report of the Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the 2006 Proxy Statement.

The Company’s Code of Ethics for the Chief Executive Officer and Senior Financial Officers (the “Code”) may be found on the Company’s internet website, www.harsco.com. The Company intends to disclose on the website any amendments to the Code or any waiver from a provision of the Code. The Code is available in print to any stockholder who requests it.

Item 11. Executive Compensation

Information regarding compensation of executive officers and directors is incorporated by reference to the sections entitled “Management Development and Compensation Committee Report on Executive Compensation”; "Executive Compensation and Other Information"; “Stock Options”; “Options Exercises and Holdings”; “Stock Performance Graph”; “Retirement Plans”; “Employment Agreements with Officers of the Company”; and "Directors' Compensation" of the 2006 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the section entitled “Share Ownership of Directors, Management and Certain Beneficial Owners” of the 2006 Proxy Statement.

Equity Compensation Plan Information

The Company maintains the 1995 Executive Incentive Compensation Plan and the 1995 Non-Employee Directors’ Stock Plan, which allow the Company to grant equity awards to eligible persons. Upon stockholder approval of these two plans in 1995, the Company terminated the use of the 1986 Stock Option Plan for granting stock option awards.

The Company also assumed options under the SGB Group Plc Discretionary Share Option Plan 1997 (the “SGB Plan”) upon the Company’s acquisition of SGB Group Plc (“SGB”) in 2000. At the time of the acquisition, various employees of the U.K.-based SGB held previously granted stock options under the SGB Plan. The Company authorized the issuance of Harsco common stock to fulfill these SGB Plan stock options upon exercise from time to time. The Company has not made any additional stock option grants under the SGB Plan since the acquisition and will not make any further grants in the future.

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The following table gives information about equity awards under these plans as of December 31, 2005. All securities referred to are shares of Harsco common stock.

Equity Compensation Plan Information
	Column (a)	Column (b)	Column (c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column (a))
Equity compensation plans approved by security holders (1)	748,344	$31.93	1,439,431

Equity compensation plans not approved by security holders	681 (2)	35.99 (3)	—
Total	749,025	$31.93	1,439,431

(1)	Plans include the 1995 Executive Incentive Compensation Plan, as amended, and the 1995 Non-Employee Directors’ Stock Plan, as amended.

(2)	Represents the shares of Harsco common stock issuable as replacement option shares in satisfaction of the exercise of stock options granted by SGB under the SGB Plan as described below. This plan is not a material equity compensation plan of the Company.

(3)	These stock options denominate the exercise price in British pounds sterling. The price shown is translated into U. S. dollars at an exchange rate of $1.7205 effective December 31, 2005.

Description of the Equity Compensation Plan Not Approved by Security Holders

The SGB Group Plc Discretionary Share Option Plan 1997

Upon the acquisition of SGB in June 2000, the Company authorized the assumption of outstanding options granted under the SGB Plan and the issuance of options (“Harsco Replacement Options”) exercisable for shares of Harsco common stock in exchange for options granted by SGB pursuant to the SGB Plan and exercisable for shares of SGB common stock (“SGB Options”). On June 30, 2000, the Company commenced an offer (“Option Exchange Offer”) to the holders of SGB Options for an equivalent Harsco Replacement Option. Upon completion of the Option Exchange Offer, each SGB Option exercisable for one SGB share was exchanged for a Harsco Replacement Option exercisable for a fraction, equal to 0.1362, of one share of Harsco common stock. The Company has authorized the issuance of Harsco common stock from treasury or from authorized but unissued shares as necessary to fulfill the terms of the Harsco Replacement Options. The maximum number of shares of Harsco common stock that were issuable upon exercise of the Harsco Replacement Options was 61,097. Only those SGB participants who accepted the Option Exchange Offer and received Harsco Replacement Options were eligible to continue participation in the SGB Plan. SGB Options were granted under the Plan on five different dates prior to the acquisition. The exercise prices of the Harsco Replacement Options varied depending on the original SGB Option date of grant and ranged from 11.45 British pounds sterling to 20.92 British pounds sterling. All Harsco Replacement Options currently outstanding have an exercise price of 20.92 British pounds sterling. The options are exercisable during the period commencing on the third anniversary of the date the original SGB Options were granted and ending on the day before the tenth anniversary of the date the SGB Options were granted. If a participant ceases to be an Eligible Employee (as defined under the Plan), the participant’s Harsco Replacement Options will lapse, except in the event that the participant ceases to be an Eligible Employee due to death or injury, disability, redundancy or retirement.

Item 13. Certain Relationships and Related Transactions

Information regarding certain relationships and related transactions is incorporated by reference to the section entitled "Employment Agreements with Officers of the Company" of the 2006 Proxy Statement.

Item 14. Principal Accountant Fees and Services

Information regarding principal accounting fees and services is incorporated by reference to the section entitled “Fees Billed by the Accountants for Audit and Non-Audit Services” of the 2006 Proxy Statement.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) 1.

The Consolidated Financial Statements are listed in the index to Item 8, "Financial Statements and Supplementary Data," on page 45.

(a) 2.

The following financial statement schedule should be read in conjunction with the Consolidated Financial Statements (see Item 8, “Financial Statements and Supplementary Data”):

	Page
Report of Independent Registered Public Accounting Firm	47

Schedule II - Valuation and Qualifying Accounts for the years 2005, 2004 and 2003	93

Schedules other than that listed above are omitted for the reason that they are either not applicable or not required, or because the information required is contained in the financial statements or notes thereto.

Condensed financial information of the registrant is omitted since "restricted net assets" of consolidated subsidiaries does not exceed 25% of consolidated net assets.

Financial statements of 50% or less owned unconsolidated companies are not submitted inasmuch as (1) the registrant's investment in and advances to such companies do not exceed 20% of the total consolidated assets, (2) the registrant's proportionate share of the total assets of such companies does not exceed 20% of the total consolidated assets, and (3) the registrant's equity in the income from continuing operations before income taxes of such companies does not exceed 20% of the total consolidated income from continuing operations before income taxes.

-92-

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

Continuing Operations

(Dollars in thousands)

COLUMN A	COLUMN B		COLUMN C Additions		COLUMN D (Deductions) Additions						COLUMN E
Description	Balance at Beginning of Period		Charged to Cost and Expenses		Due to Currency Translation Adjustments			Other (a)			Balance at End of Period
For the year 2005:
Deducted from receivables:
Uncollectible accounts	$	19,095	$	6,453	$	(832	)	$	(312	)	$	24,404
Deducted from inventories:
Inventory valuations	$	5,058	$	8,736	$	(427	)	$	4,015		$	17,382
Other reorganization and valuation reserves	$	5,239	$	9,081	$	(380	)	$	(1,811	)	$	12,129
For the year 2004:
Deducted from receivables:
Uncollectible accounts	$	24,612	$	5,048	$	863		$	(11,428(b	))	$	19,095
Deducted from inventories:
Inventory valuations	$	5,950	$	2,849	$	343		$	(4,084	)	$	5,058
Other reorganization and valuation reserves	$	6,692	$	4,811	$	283		$	(6,547	)	$	5,239
For the year 2003:
Deducted from receivables:
Uncollectible accounts	$	36,483	$	3,389	$	1,609		$	(16,869(c	))	$	24,612
Deducted from inventories:
Inventory valuations	$	4,541	$	2,775	$	535		$	(1,901	)	$	5,950
Other reorganization and valuation reserves	$	8,373	$	7,409	$	643		$	(9,733	)	$	6,692

(a)	Includes principally the use of previously reserved amounts and changes related to acquired companies.

(b)	Includes $5,322 for the write-off of six accounts receivable in the Mill Services Segment as well as the write-off of other accounts receivable for all segments.

(c)	Includes $6,276 for the write-off of two accounts receivable in the Mill Services Segment as well as the write-off of other accounts receivable for all segments.

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(a) 3. Listing of Exhibits Filed with Form 10-K

Exhibit Number	Data Required	Location in Form 10-K
2(a)	Share Purchase Agreement between Sun HB Holdings, LLC, Boca Raton, Florida, United States of America and Harsco Corporation, Camp Hill, Pennsylvania, United States of America dated September 20, 2005 regarding the sale and purchase of the issued share capital of Hünnebeck Group GmbH, Ratingen, Germany.	Exhibit to Form 10-Q for the period ended September 30, 2005
2(b)	Agreement, dated as of December 29, 2005, by and among the Harsco Corporation (for itself and as agent for each of MultiServ France SA, Harsco Europa BV and Harsco Investment Limited), Brambles U.K. Limited, a company incorporated under the laws of England and Wales, Brambles France SAS, a company incorporated under the laws of France, Brambles USA, Inc., a Delaware corporation, Brambles Holdings Europe B.V., a company incorporated under the laws of the Netherlands, and Brambles Industries Limited, a company incorporated under the laws of Australia. In accordance with Item 601(b)(2) of Regulation S-K, the registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. Portions of Exhibit 2(a) have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed separately with the Securities and Exchange Commission.	Exhibit volume, 2005 10-K
3(a)	Articles of Incorporation as amended April 24, 1990	Exhibit volume, 1990 10-K
3(b)	Certificate of Amendment of Articles of Incorporation filed June 3, 1997	Exhibit volume, 1999 10-K
3(c)	Certificate of Designation filed September 25, 1997	Exhibit volume, 1997 10-K
3(d)	By-laws as amended April 25, 1990	Exhibit volume, 1990 10-K
4(a)	Harsco Corporation Rights Agreement dated as of September 28, 1997, with Chase Mellon Shareholder Services L.L.C.	Incorporated by reference to Form 8-A, filed September 26, 1997
4(b)	Registration of Preferred Stock Purchase Rights	Incorporated by reference to Form 8-A dated October 2, 1987
4(c)	Current Report on dividend distribution of Preferred Stock Purchase Rights	Incorporated by reference to Form 8-K dated October 13, 1987

-94-

Exhibit

Number

Data Required

Location in Form 10-K

4(f)	Debt and Equity Securities Registered	Incorporated by reference to Form S-3, Registration No. 33-56885 dated December 15, 1994, effective date January 12, 1995
4(g)	Harsco Finance B. V. £200 million, 7.25% Guaranteed Notes due 2010	Exhibit to Form 10-Q for the period ended September 30, 2000
4(h) (i)	Indenture, dated as of May 1, 1985, by and between Harsco Corporation and The Chase Manhattan Bank (National Association), as trustee (incorporated herein by reference to Exhibit 4(d) to the Registration Statement on Form S-3, filed by Harsco Corporation on August 23, 1991 (Reg. No. 33-42389))	Exhibit to Form 8-K dated September 8, 2003
4(h) (ii)	First Supplemental Indenture, dated as of April 12, 1995, by and among Harsco Corporation, The Chase Manhattan Bank (National Association), as resigning trustee, and Chemical Bank, as successor trustee	Exhibit to Form 8-K dated September 8, 2003
4(h) (iii)	Form of Second Supplemental Indenture, by and between Harsco Corporation and JPMorgan Chase Bank, as Trustee	Exhibit to Form 8-K dated September 8, 2003
4(h) (iv)	Second Supplemental Indenture, dated as of September 12, 2003, by and between Harsco Corporation and J.P. Morgan Chase Bank, as Trustee	Exhibit to 10-Q for the period ended September 30, 2003
4(i) (i)	Form of 5.125% Global Senior Note due September 15, 2013	Exhibit to Form 8-K dated September 8, 2003
4(i) (ii)	5.125% 2003 Notes due September 15, 2013 described in Prospectus Supplement dated September 8, 2003 to Form S-3 Registration under Rule 415 dated December 15, 1994	Incorporated by reference to the Prospectus Supplement dated September 8, 2003 to Form S-3, Registration No. 33-56885 dated December 15, 1994

Material Contracts - Credit and Underwriting Agreements

10(a) (i)	$50,000,000 Facility agreement dated December 15, 2000	Exhibit volume, 2000 10-K
10(a) (ii)	Agreement extending term of $50,000,000 Facility agreement dated December 15, 2000	Exhibit volume, 2001 10-K
10(a) (iii)	Agreement amending term and amount of $50,000,000 Facility agreement dated December 15, 2000	Exhibit volume, 2002 10-K
10(a) (iv)	Agreement extending term of $50,000,000 Facility agreement dated December 15, 2000	Exhibit volume, 2003 10-K

-95-

Exhibit

Number

Data Required

Location in Form 10-K

10(a) (v)	Agreement extending term of $50,000,000 Facility agreement dated December 15, 2000	Exhibit to Form 8-K dated January 25, 2005
10(a) (vi)	Agreement extending term of $50,000,000 Facility agreement dated December 15, 2000	Exhibit volume, 2005 10-K
10(b)	Commercial Paper Dealer Agreement dated September 24, 2003, between ING Belgium SA/NV and Harsco Finance B.V.	Exhibit volume, 2003 10-K
10(b)(i)	Commercial Paper Dealer Agreement dated September 24, 2003, between ING Belgium SA/NV and Harsco Finance B.V. - Supplement No. 1 to the Dealer Agreement	Exhibit to Form 8-K dated November 8, 2005
10(c)	Commercial Paper Payment Agency Agreement Dated October 1, 2000, between Salomon Smith Barney Inc. and Harsco Corporation	Exhibit volume, 2000 10-K
10(e)	Issuing and Paying Agency Agreement, Dated October 12, 1994, between Morgan Guaranty Trust Company of New York and Harsco Corporation	Exhibit volume, 1994 10-K
10(f)	364-Day Credit Agreement	Exhibit to Form 8-K dated December 23, 2005
10(g)	Five Year Credit Agreement	Exhibit to Form 8-K dated November 23, 2005
10(i)	Commercial Paper Dealer Agreement dated June 7, 2001, between Citibank International plc, National Westminster Bank plc, The Royal Bank of Scotland plc and Harsco Finance B.V.	Exhibit to 10-Q for the period ended June 30, 2001
10(j)	Commercial Paper Placement Agency Agreement dated November 6, 1998, between Chase Securities, Inc. and Harsco Corporation	Exhibit volume, 1998 10-K

Material Contracts - Management Contracts and Compensatory Plans

10(d)	Form of Change in Control Severance Agreement (Chairman, President and CEO and Senior Vice Presidents)		Exhibit to Form 8-K dated June 21, 2005
10(k)	Harsco Corporation Supplemental Retirement Benefit Plan as amended October 4, 2002		Exhibit volume, 2002 10-K

-96-

Exhibit

Number

Data Required

Location in Form 10-K

10(l)	Trust Agreement between Harsco Corporation and Dauphin Deposit Bank and Trust Company dated July 1, 1987 relating to the Supplemental Retirement Benefit Plan	Exhibit volume, 1987 10-K
10(m)	Harsco Corporation Supplemental Executive Retirement Plan as amended	Exhibit volume, 1991 10-K
10(n)	Trust Agreement between Harsco Corporation and Dauphin Deposit Bank and Trust Company dated November 22, 1988 relating to the Supplemental Executive Retirement Plan	Exhibit volume, 1988 10-K
10(o)	Harsco Corporation 1995 Executive Incentive Compensation Plan As Amended and Restated	Proxy Statement dated March 23, 2004 on Exhibit B pages B-1 through B-15
10(p)	Authorization, Terms and Conditions of the Annual Incentive Awards, as amended and Restated November 15, 2001, under the 1995 Executive Incentive Compensation Plan	Exhibit volume, 2001 10-K
10(r)	Special Supplemental Retirement Benefit Agreement for D. C. Hathaway	Exhibit Volume, 1988 10-K
10(s)	Harsco Corporation Form of Restricted Stock Units Agreement (Directors)	Exhibit to Form 8-K dated April 26, 2005
10(u)	Harsco Corporation Deferred Compensation Plan for Non-Employee Directors, as amended and restated January 1, 2005	Exhibit to Form 8-K dated April 26, 2005
10(v)	Harsco Corporation 1995 Non-Employee Directors' Stock Plan As Amended and Restated at January 27, 2004	Proxy Statement dated March 23, 2004 on Exhibit A pages A-1 through A-9
10(x)	Settlement and Consulting Agreement	Exhibit to 10-Q for the period ended March 31, 2003
10(y)	Restricted Stock Units Agreement	Exhibit to Form 8-K dated January 24, 2006
10(z)	Form of Change in Control Severance Agreement (Certain Harsco Vice Presidents)	Exhibit to Form 8-K dated June 21, 2005

-97-

Director Indemnity Agreements -

10(t)	A. J. Sordoni, III	Exhibit volume, 1989 10-K Uniform agreement, same as shown for J. J. Burdge
″	R. C. Wilburn	″ ″
″	J. I. Scheiner	″ ″
″	C. F. Scanlan	″ ″
″	J. J. Jasinowski	″ ″
″	J. P. Viviano	″ ″
″	D. H. Pierce	″ ″
″	K. G. Eddy	Exhibit to Form 8-K dated August 27, 2004
12	Computation of Ratios of Earnings to Fixed Charges	Exhibit volume, 2005 10-K
21	Subsidiaries of the Registrant	Exhibit volume, 2005 10-K
23	Consent of Independent Accountants	Exhibit volume, 2005 10-K
31(a)	Certification Pursuant to Rule 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Exhibit volume, 2005 10-K
31(b)	Certification Pursuant to Rule 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Exhibit volume, 2005 10-K
32(a)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Exhibit volume, 2005 10-K
32(b)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Exhibit volume, 2005 10-K

Exhibits other than those listed above are omitted for the reason that they are either not applicable or not material.

The foregoing Exhibits are available from the Secretary of the Company upon receipt of a fee of $10 to cover the Company's reasonable cost of providing copies of such Exhibits.

-98-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	HARSCO CORPORATION

Date 3-13-06	By:	/s/ Salvatore D. Fazzolari
		Salvatore D. Fazzolari
		President, Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.

SIGNATURE	CAPACITY	DATE

/S/ Derek C. Hathaway (Derek C. Hathaway)	Chairman and Chief Executive Officer	3-13-06

/S/ Salvatore D. Fazzolari (Salvatore D. Fazzolari)	President, Chief Financial Officer, Treasurer and Director (Principal Financial Officer)	3-13-06

/S/ Geoffrey D. H. Butler (Geoffrey D. H. Butler)	Senior Vice President - Operations and Director	3-13-06

/S/ Stephen J. Schnoor (Stephen J. Schnoor)	Vice President and Controller (Principal Accounting Officer)	3-13-06

/S/ Kathy G. Eddy (Kathy G. Eddy)	Director	3-13-06

/S/ Jerry J. Jasinowski (Jerry J. Jasinowski)	Director	3-13-06

/S/ D. Howard Pierce (D. Howard Pierce)	Director	3-13-06

/S/ Carolyn F. Scanlan (Carolyn F. Scanlan)	Director	3-13-06

/S/ James I. Scheiner (James I. Scheiner)	Director	3-13-06

/S/ Andrew J. Sordoni, III (Andrew J. Sordoni, III)	Director	3-13-06

/S/ Joseph P. Viviano (Joseph P. Viviano)	Director	3-13-06

/S/ Dr. Robert C. Wilburn (Dr. Robert C. Wilburn)	Director	3-13-06

-99-

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)

	Name of each
Title of each class	exchange on which registered
Common stock, par value $1.25 per share	New York Stock Exchange and
Preferred stock purchase rights	Pacific Stock Exchange

Classes	Outstanding at February 28, 2006
Common stock, par value $1.25 per share	41,835,886

Principal Lines of Business	Principal Business Drivers

· Outsourced, on-site mill services under long-term contracts	· Steel mill production and capacity utilization · Outsourcing of services
· Scaffolding, forming, shoring and other access-related services, rentals and sales	· Non-residential construction · Annual industrial and building maintenance cycles
· Railway track maintenance services and equipment	· Domestic and international railway track maintenance-of-way capital spending · Outsourcing of track maintenance and new track construction by railroads
· Industrial grating products	· Industrial production · Non-residential construction
· Industrial abrasives and roofing granules	· Industrial and infrastructure surface preparation and restoration · Residential roof replacement
· Powder processing equipment and heat transfer products	· Pharmaceutical, food and chemical production · Commercial and institutional boiler requirements
· Air-cooled heat exchangers	· Natural gas drilling and transmission
· Gas control and containment products
- Cryogenic containers and industrial cylinders	· General industrial production and industrial gas production
- Valves	· Use of industrial fuel and refrigerant gases · Respiratory care market · Consumer barbeque grills market
- Propane Tanks	· Use of propane as a primary and/or backup fuel
- Filament-wound composite cylinders	· Self-contained breathing apparatus (SCBA) market · Natural gas vehicle (NGV) market

	Mill Services Segment
		2005 Percentage
	Region	of Revenues

	Europe	49%
	North America	23%
	Latin America (a)	12%
	Asia/Pacific	8%
	Middle East and Africa	8%

	Percentage of Consolidated Sales
Product Group	2005	2004	2003
Mill Services	38%	40%	39%
Access Services	29%	28%	29%
Industrial Gas Products	13%	14%	14%

In millions	2005		2004		2003		2002		2001

First Quarter Ended March 31	$	640.1	$	556.3	$	487.9	$	458.6	$	505.0

Second Quarter Ended June 30		696.1		617.6		536.4		510.3		510.1

Third Quarter Ended September 30		697.5		617.3		530.2		510.5		510.3

Fourth Quarter Ended December 31		732.5		710.9		564.0		497.3		499.7
Totals	$	2,766.2	$	2,502.1	$	2,118.5	$	1,976.7	$	2,025.2 (a	)

•	British pound sterling	Weakened by 1%
•	euro	Neutral
•	South African rand	Neutral
•	Brazilian real	Strengthened by 17%
•	Australian dollar	Strengthened by 3%

•	British pound sterling	Weakened by 10%
•	euro	Weakened by 13%
•	South African rand	Weakened by 11%
•	Brazilian real	Strengthened by 14%
•	Australian dollar	Weakened by 6%

Location	Principal Products

Access Services Segment
Marion, Ohio	Access Equipment Maintenance
Dosthill, United Kingdom	Access Equipment Maintenance
Gas Technologies Segment
Lockport, New York	Valves
Niagara Falls, New York	Valves
Washington, Pennsylvania	Valves

Bloomfield, Iowa	Propane Tanks
Fremont, Ohio	Propane Tanks
Jesup, Georgia	Propane Tanks
West Jordan, Utah	Propane Tanks
Harrisburg, Pennsylvania	High Pressure Cylinders
Huntsville, Alabama	High Pressure Cylinders
Beijing, China	Cryogenic Storage Vessels
Jesup, Georgia	Cryogenic Storage Vessels
Kosice, Slovakia	Cryogenic Storage Vessels
Shah Alam, Malaysia	Cryogenic Storage Vessels
Theodore, Alabama	Cryogenic Storage Vessels

Engineered Products and Services (“all other”) Category
Drakesboro, Kentucky	Roofing Granules/Abrasives
Gary, Indiana	Roofing Granules/Abrasives
Moundsville, West Virginia	Roofing Granules/Abrasives
Tampa, Florida	Roofing Granules/Abrasives
Brendale, Australia	Railroad Equipment
Fairmont, Minnesota	Railroad Equipment
Ludington, Michigan	Railroad Equipment
West Columbia, South Carolina	Railroad 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

Name	Age	Principal Occupation or Employment

Executive Officers:

D. C. Hathaway	61	Chairman and Chief Executive Officer of the Corporation since January 24, 2006 and from January 1, 1998 to July 31, 2000. Served as Chairman, President and Chief Executive Officer from April 1, 1994 to December 31, 1997 and from July 31, 2000 to January 23, 2006 and as President and Chief Executive Officer from January 1, 1994 to April 1, 1994. Director since 1991. From 1991 to 1993, served as President and Chief Operating Officer. From 1986 to 1991 served as Senior Vice President-Operations of the Corporation. Served as Group Vice President from 1984 to 1986 and as President of the Dartmouth Division of the Corporation from 1979 until 1984.

S. D. Fazzolari	53	President, Chief Financial Officer and Treasurer of the Corporation effective January 24, 2006 and Director since January 2002. Served as Senior Vice President, Chief Financial Officer and Treasurer from August 24, 1999 to January 23, 2006 and as Senior Vice President and Chief Financial Officer from January 1998 to August 1999. Served as Vice President and Controller from January 1994 to December 1997 and as Controller from January 1993 to January 1994. Previously served as Director of Auditing from 1985 to 1993 and served in various auditing positions from 1980 to 1985.

G. D. H. Butler	59	Senior Vice President-Operations of the Corporation effective September 26, 2000 and Director since January 2002. Concurrently serves as President of the MultiServ and SGB Divisions. From September 2000 through December 2003, he was President of the Heckett MultiServ International and SGB Divisions. Was President of the Heckett MultiServ-East Division from July 1, 1994 to September 26, 2000. Served as Managing Director - Eastern Region of the Heckett MultiServ Division from January 1, 1994 to June 30, 1994. Served in various officer positions within MultiServ International, N. V. prior to 1994 and prior to the Company’s acquisition of that corporation in August 1993.


M. E. Kimmel	46	General Counsel and Corporate Secretary effective January 1, 2004. Served as Corporate Secretary and Assistant General Counsel from May 1, 2003 to December 31, 2003. Held various legal positions within the Corporation since he joined the Company in August 2001. Prior to joining Harsco, he was Vice President, Administration and General Counsel, New World Pasta Company from January 1, 1999 to July 2001. Before joining New World Pasta, Mr. Kimmel spent approximately 12 years in various legal positions with Hershey Foods Corporation.

S. J. Schnoor	52	Vice President and Controller of the Corporation effective May 15, 1998. Served as Vice President and Controller of the Patent Construction Systems Division from February 1996 to May 1998 and as Controller of the Patent Construction Systems Division from January 1993 to February 1996. Previously served in various auditing positions for the Corporation from 1988 to 1993. Prior to joining Harsco, he served in various auditing positions for Coopers & Lybrand from September 1985 to April 1988.

R. C. Neuffer	63	President of the Engineered Products and Services business group since his appointment on January 24, 2006. Previously, he led the Patterson-Kelley, IKG Industries and Air-X-Changers units as Vice President and General Manager since 2004. In 2003, he was Vice President and General Manager of IKG Industries and Patterson-Kelley. Between 1997 and 2002, he was Vice President and General Manager of Patterson-Kelley. Mr. Neuffer joined Harsco in 1991.

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

October 1, 2005 - October 31, 2005	—	—	—	1,000,000
November 1, 2005 - November 30, 2005	—	—	—	1,000,000
December 1, 2005 - December 31, 2005	—	—	—	1,000,000
Total	—	—	—

(In thousands, except per share, employee information and percentages)	2005 (a)			2004			2003			2002			2001
Income Statement Information
Revenues from continuing operations	$	2,766,210		$	2,502,059		$	2,118,516		$	1,976,732		$	2,025,163
Income from continuing operations		156,750			113,540			86,999			88,410			74,642
Income (loss) from discontinued operations		(93	)		7,671			5,218			1,696			(2,917	)
Net income		156,657			121,211			92,217			90,106			71,725
Financial Position and Cash Flow Information
Working capital	$	352,620		$	346,768		$	269,276		$	228,552		$	231,156
Total assets		2,975,804			2,389,756			2,138,035			1,999,297			2,090,766
Long-term debt		905,859			594,747			584,425			605,613			720,133
Total debt		1,009,888			625,809			613,531			639,670			762,115
Depreciation and amortization		198,065			184,371			168,935			155,661			176,531
Capital expenditures		290,239			204,235			143,824			114,340			156,073
Cash provided by operating activities		315,279			270,465			262,788			253,753			240,601
Cash used by investing activities		(645,185	)		(209,602	)		(144,791	)		(53,929	)		(125,213	)
Cash provided (used) by financing activities		369,325			(56,512	)		(125,501	)		(205,480	)		(99,190	)
Ratios
Return on sales(b)		5.7	%		4.5	%		4.1	%		4.5	%		3.7	%
Return on average equity(c)		16.7	%		13.8	%		12.2	%		12.6	%		11.1	%
Current ratio		1.5:1			1.6:1			1.5:1			1.5:1			1.5:1
Total debt to total capital(d)		50.4	%		40.6	%		44.1	%		49.8	%		52.6	%
Per Share Information
Basic - Income from continuing operations	$	3.76		$	2.76		$	2.14		$	2.19		$	1.87
- Income (loss) from discontinued operations		—			0.19			0.13			0.04			(0.07	)
- Net income	$	3.76		$	2.95		$	2.27		$	2.23		$	1.80
Diluted - Income from continuing operations	$	3.73		$	2.73		$	2.12		$	2.17		$	1.86
- Income (loss) from discontinued operations		—			0.18			0.13			0.04			(0.07	)
- Net income	$	3.72 (e	)	$	2.91		$	2.25		$	2.21		$	1.79
Book value	$	23.79		$	22.07		$	19.01		$	15.90		$	17.16
Cash dividends declared		1.225			1.125			1.0625			1.0125			0.97
Other Information
Diluted average number of shares outstanding		42,080			41,598			40,973			40,680			40,066
Number of employees		21,000			18,500			17,500			17,500			18,700
Backlog from continuing operations (f)	$	275,790		$	243,006		$	186,222		$	157,777		$	214,124

In millions	2005			2004		2003			2002		2001

First Quarter Ended March 31	$	48.1		$	32.4	$	31.2		$	9.0	$	2.6

Second Quarter Ended June 30		86.3			64.6		59.2			71.4		65.1

Third Quarter Ended September 30		98.1			68.9		64.1			83.3		66.1

Fourth Quarter Ended December 31		82.7			104.6		108.4			90.1		106.9
Totals	$	315.3 (a	)	$	270.5	$	262.8 (a	)	$	253.8	$	240.6 (a	)


Revenues by Region
	Total Revenues Twelve Months Ended December 31				Percentage Growth From 2004 to 2005
(Dollars in millions)	2005		2004		Volume			Currency			Total
North America	$	1,219.8	$	1,103.7		10.2	%		0.3	%		10.5	%
Europe		1,109.1		1,018.1		9.6			(0.7	)		8.9
Middle East and Africa		153.7		137.7		10.9			0.7			11.6
Latin America		149.2		122.9		9.9			11.5			21.4
Asia/Pacific		134.4		119.7		9.8			2.5			12.3
Total	$	2,766.2	$	2,502.1		10.0	%		0.6	%		10.6	%


Mill Services Segment - Significant Impacts on Revenues:	(In millions)
Revenues - 2004	$	997.4
Increased volume and new business		42.0
Benefit of positive foreign currency translation		17.0
Acquisition - (principally Evulca SAS in France) (a)		4.0
Revenues - 2005	$	1,060.4


Access Services Segment - Significant Impacts on Revenues:	(In millions)
Revenues - 2004	$	706.5
Net increased volume (mostly U.S., Middle East and Continental Europe)		72.0
Net effect of acquisitions and divestitures (Hünnebeck and SGB Raffia in Australia (acquired in April 2004)) offset by the Youngman light-access manufacturing unit divestiture)		12.5
Impact of negative foreign currency translation		(2.8	)
Other		0.6
Revenues - 2005	$	788.8

Gas Technologies Segment - Significant Impacts on Revenues:	(In millions)
Revenues - 2004	$	339.1
Increased demand for cryogenics equipment and industrial cylinders		25.3
Increased demand for composite-wrapped cylinders and certain valves		8.1
Decreased sales of propane tanks (due to customers accelerating purchases in 2004 to avoid price increases)		(2.0	)
Other		(0.3	)
Revenues - 2005	$	370.2

(Dollars are in millions, except per share information and percentages)	2005			2004			2003
Revenues from continuing operations	$	2,766.2		$	2,502.1		$	2,118.5
Cost of services and products sold		2,099.4			1,916.4			1,604.4
Selling, general and administrative expenses		393.2			368.4			330.0
Other expenses		2.0			4.9			7.0
Operating income from continuing operations		268.9			209.8			173.9
Interest expense		41.9			41.1			40.5
Income tax expense from continuing operations		64.8			49.0			41.7
Income from continuing operations		156.8			113.5			87.0
Income/(loss) from discontinued operations		(0.1	)		7.7			5.2
Net income		156.7			121.2			92.2
Diluted earnings per common (continuing operations)		3.73			2.73			2.12
Diluted earnings per common share		3.72			2.91			2.25
Effective income tax rate for continuing operations		28.1	%		28.6	%		30.7	%
Consolidated effective income tax rate		28.1	%		29.1	%		31.0	%

	In millions	Change in Revenues 2005 vs. 2004
	$ 72.5	Net increased revenues in the Access Services Segment due principally to improved markets in the North America and the strength of the international business, particularly in the Middle East and Europe (excluding the net effect of acquisitions and divestitures).
	41.9	Net increased volume, new contracts and price changes in the Mill Services Segment (excluding acquisitions).
	38.0	Net increased revenues in the railway track maintenance services and equipment business due to increased contract services (principally in the U.K.), rail equipment sales (primarily to international customers) and repair part sales.
	32.2	Increased revenues of the air-cooled heat exchangers business due to an improved natural gas market.
	31.0	Net increased revenues in the Gas Technologies Segment due principally to improved market conditions for industrial cylinders, cryogenics equipment and composite-wrapped cylinders, partially offset by slightly decreased demand for propane tanks. The decrease in propane tank sales was due to customers accelerating purchases in 2004 to avoid anticipated price increases due to commodity cost inflation.
	16.5	Net effect of business acquisitions and divestitures. Increased revenues of $4.0 and $12.5 million in the Mill Services and Access Services Segments, respectively.
	14.8	Effect of foreign currency translation.
	12.4	Increased revenues of the industrial grating products business due to increased demand (partially due to the effects of Hurricanes Katrina and Rita) and, to a lesser extent, increased prices and a more favorable product mix.
	4.8	Other (minor changes across the various units not already mentioned).
	$ 264.1	Total Change in Revenues 2005 vs. 2004

	In millions	Change in Revenues 2004 vs. 2003
	$ 108.9	Effect of foreign currency translation.
	83.1	Net increased volume, new contracts and price changes in the Mill Services Segment.
	43.5	Net increased revenues in the Gas Technologies Segment due principally to improved market conditions and selling price increases, partially offset by decreased demand for liquid propane gas (LPG) valves in the patio grill market and for composite-wrapped cylinders.
	36.1	Effect of business acquisitions. Increased revenues of $27.5 and $8.6 million in the Mill Services and Access Services Segments, respectively.
	33.6	Net increased revenues in the railway track maintenance services and equipment business due principally to rail equipment sales and, to a lesser extent, contract services.
	33.4	Net increased revenues in the Access Services Segment due principally to the strength of the concrete forming business, particularly in the Middle East and U.K.
	20.1	Increased revenues of the industrial grating products business due to increased demand and a focus on higher-margin standard product orders.
	18.9	Increased revenues of the air-cooled heat exchangers business due to improved natural gas markets.
	5.9	Other (minor changes across the various units not already mentioned).
	$ 383.5	Total Change in Revenues 2004 vs. 2003

	In millions	Change in Cost of Services and Products Sold 2005 vs. 2004
	$ 177.8	Increased costs due to increased revenues (exclusive of the effect of foreign currency translation and business acquisitions and including the impact of increased costs included in selling prices).
	12.7	Effect of foreign currency translation.
	4.1	Net effect of business acquisitions and divestitures.
	(11.6)	Other (due to product mix; stringent cost controls; process improvements; and minor changes across the various units not already mentioned; partially offset by increased fuel and energy-related costs).
	$ 183.0	Total Change in Cost of Services and Products Sold 2005 vs. 2004

	In millions	Change in Cost of Services and Products Sold 2004 vs. 2003
	$ 186.2	Increased costs due to increased revenues (exclusive of effect of foreign currency translation and including the impact of increased costs included in increased selling prices).
	80.9	Effect of foreign currency translation.
	32.8	Effect of business acquisitions.
	12.1	Other (due to increased commodity costs, increased fuel and energy-related costs, product mix and minor changes across the various units not already mentioned; partially offset by stringent cost controls, process improvements, and reorganization actions).
	$ 312.0	Total Change in Cost of Services and Products Sold 2004 vs. 2003

	In millions	Change in Selling, General and Administrative Expenses 2005 vs. 2004
	$ 6.5	Increased employee compensation expense due to salary increases, increased payroll taxes and employee incentive plan increases due to improved performance, partially offset by decreased defined benefit pension expense.
	5.6	Net effect of business acquisitions and dispositions.
	3.5	Increased sales commission expense due to increased revenues.
	1.9	Increased costs on a comparative basis due to income generated by the termination of postretirement benefit plans in 2004 that were not repeated in 2005.
	1.4	Increased travel expenses.
	1.0	Increased professional fees due to special projects.
	0.4	Effect of foreign currency translation.
	4.5	Other (including energy-related costs and the cost of new technology projects).
	$ 24.8	Total Change in Selling, General and Administrative Expenses 2005 vs. 2004

	In millions	Change in Selling, General and Administrative Expenses 2004 vs. 2003
	$ 17.9	Effect of foreign currency translation.
	5.4	Increased professional fees due to higher external auditor fees (related to Sarbanes-Oxley Section 404) and increased consulting and legal expense.
	4.4	Increased sales commission expense due to increased revenues.
	4.2	Increased pension expense in the Access Services Segment
	1.7	Effect of business acquisitions - principally SGB Raffia in Australia
	4.8	Other (including energy-related costs partially offset by process improvements and reorganization efforts).
	$ 38.4	Total Change in Selling, General and Administrative Expenses 2004 vs. 2003

	In millions	Change in Other Expenses 2005 vs. 2004
	$ (8.2)	Increase in net gains on disposals of non-core assets. This increase was attributable principally to $9.7 million in net gains that were realized in 2005 from the sale of non-core assets principally within the Access Services and Mill Services Segments compared with $1.5 million in 2004.
	5.2	Increase in employee termination benefit costs. This increase related principally to increased costs in the Mill Services and Access Services Segments as well as the Engineered Products and Services (“all other”) Category and the Corporate headquarters compared with 2004.
	0.1	Increase in other expenses.
	$ (2.9)	Total Change in Other Expenses 2005 vs. 2004

	In millions	Change in Other Expenses 2004 vs. 2003
	$ (2.2)	Decline in employee termination benefit costs. This decline related principally to reduced costs in the Mill Services and Access Services Segments compared with 2003.
	(1.7)	Decrease in costs to exit activities.
	2.0	Decline in net gains on disposals of non-core assets. This decline was attributable principally to $3.2 million in net gains that were realized in 2003 from the sale of non-core assets within the Access Services and Mill Services Segments compared with $1.5 million in 2004.
	(0.2)	Increase in other expenses.
	$ (2.1)	Total Change in Other Expenses 2004 vs. 2003

	In millions	Change in Income from Discontinued Operations 2004 vs. 2003
	$ 3.1	After-tax income due to the settlement of the Company’s Federal Excise Tax (FET) litigation in 2004 compared with after-tax income due to favorable developments in the FET litigation in 2003. For additional information on the FET litigation see Note 10, Commitments and Contingencies, to the Consolidated Financial Statements under Part II, Item 8, "Financial Statements and Supplementary Data,” to the Company’s 2004 Form 10-K.
	(0.6)	Decline in after-tax income related to the sale of the Company’s Capitol Manufacturing business during 2002.
	$ 2.5	Total Change in Income from Discontinued Operations 2004 vs. 2003

Summary of Changes to Credit Facilities and Commercial Paper Programs
(In millions)	September 30, 2005 Facility Limit		December 31, 2005 Facility Limit		Change

U.S. commercial paper program	$	350.0	$	400.0	$	50.0

Euro commercial paper program (a)		120.5		236.8		116.3

Revolving credit facility (b)		350.0		450.0		100.0

Supplemental credit facility (b)		—		100.0		100.0

Bilateral credit facility (c)		25.0		50.0		25.0

Totals	$	845.5	$	1,236.8	$	391.3

Contractual Obligations as of December 31, 2005 (a)
			Payments Due by Period
(In millions)	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Short-term Debt	$	98.0	$	98.0	$	—	$	—	$	—

Long-term Debt (including current maturities and capital leases)		911.9		6.1		18.6		733.8		153.4

Projected interest payments on Long-term Debt (b)		262.3		52.9		97.6		90.9		20.9

Pension and Other Post- retirement Obligations (c)		469.1		39.0		81.5		89.9		258.7

Operating Leases		144.8		41.0		51.7		29.4		22.7

Purchase Obligations		113.6		110.4		0.8		2.2		0.2

Foreign Currency Forward Exchange Contracts (d)		157.9		157.9		—		—		—

Total Contractual Obligations	$	2,157.6	$	505.3	$	250.2	$	946.2	$	455.9

Commercial Commitments as of December 31, 2005
			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	$	113.5	$	104.4	$	9.1	$	—	$	—	$	—

Guarantees		33.4		10.1		0.7		0.1		0.9		21.6

Performance Bonds		16.2		9.7		0.8		—		—		5.7

Other Commercial Commitments		12.8		1.7		—		—		—		11.1

Total Commercial Commitments	$	175.9	$	125.9	$	10.6	$	0.1	$	0.9	$	38.4

	Long-term Notes	U.S.-Based Commercial Paper	Outlook

Standard & Poor’s (S&P)	A-	A-2	Stable
Moody’s	A3	P-2	Stable
Fitch	A-	F2	Stable

(Dollars are in millions)	December 31 2005		December 31 2004		Increase (Decrease)
Current Assets
Cash and cash equivalents	$	120.9	$	94.1	$	26.8
Accounts receivable, net		666.3		555.2		111.1
Inventories		251.1		217.0		34.1
Other current assets		60.4		58.6		1.8
Assets held for sale		2.3		1.0		1.3
Total current assets		1,101.0		925.9		175.1
Current Liabilities
Notes payable and current maturities		104.0		31.1		72.9
Accounts payable		247.2		220.3		26.9
Accrued compensation		75.7		63.8		11.9
Income taxes		42.3		40.2		2.1
Other current liabilities		279.2		223.0		56.2
Liabilities associated with assets held for sale		—		0.7		(0.7	)
Total current liabilities		748.4		579.1		169.3
Working Capital	$	352.6	$	346.8	$	5.8
Current Ratio		1.5:1		1.6:1

	Approximate Changes in Pre-tax Defined Benefit Pension Expense
	U.S. Plans	U.K. Plan
Discount rate

One-half percent increase	Decrease of $1.8 million	Decrease of $4.8 million
One-half percent decrease	Increase of $2.0 million	Increase of $5.2 million

Expected long-term rate of return on plan assets

One-half percent increase	Decrease of $1.2 million	Decrease of $3.0 million
One-half percent decrease	Increase of $1.2 million	Increase of $3.0 million