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

FORM 10-Q

x    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2003

OR

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

For the transition period from _____ to ______

Commission File Number 1-3970

HARSCO CORPORATION

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES     x              NO    o   

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES    x             NO    o  

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

See accompanying notes to consolidated financial statements.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)

See accompanying notes to consolidated financial statements.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

See accompanying notes to consolidated financial statements.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)

See accompanying notes to consolidated financial statements.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

Notes to Consolidated Financial Statements

A.  Opinion of Management

Financial information furnished herein, which is unaudited, in the opinion of management reflects all adjustments (all of which are of a normal recurring nature) that are necessary to present a fair statement of the interim period. This unaudited interim information should be read in conjunction with the Company’s annual Form 10-K filing for the year ended December 31, 2002.

B.  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, “Information by Segment and Geographic Area,” to the Company’s Form 10-K for the year ended December 31, 2002.

As a result of these reclassifications, certain 2002 amounts presented for comparative purposes will not individually agree with previously filed Forms 10-Q.

C.   Options for Common Stock

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).

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

D.   Review of Operations by Segment

    (a)        Sales from continuing operations.

    (b)        Operating income from continuing operations.

E.  Accounts Receivable and Inventories

Accounts receivable are net of an allowance for doubtful accounts of $36.1 million and $36.5 million at March 31, 2003 and December 31, 2002, respectively. The provision for doubtful accounts was $0.5 million and $1.4 million for the three months ended March 31, 2003 and 2002, respectively.

Inventories consists of:

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

F.  Property, Plant and Equipment

Property, plant and equipment consists of:

G.  Goodwill and Other Intangible Assets

The following table reflects the changes in carrying amounts of goodwill by segment for the three months ended March 31, 2003:

Goodwill is net of accumulated amortization of $99.9 million and $100.8 million at March 31, 2003 and December 31, 2002, respectively.

Intangible assets, which are included in Other assets on the Condensed Consolidated Balance Sheet, totaled $3.0 million, net of accumulated amortization of $7.3 million at March 31, 2003 and $3.2 million, net of accumulated amortization of $7.1 million at December 31, 2002. All intangible assets have been classified as finite-lived and are subject to amortization. The following chart reflects these intangible assets by major category.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

Amortization expense for intangible assets was $0.2 million for the three months ended March 31, 2003 and 2002. The following chart shows the estimated amortization expense for the next five fiscal years based on current intangible assets.

H.  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. Effective March 21, 2002, the Board of Directors authorized the sale of the Capitol Manufacturing business, a business unit of the Gas and Fluid Control Segment. A significant portion of the Capitol Manufacturing business was sold on June 28, 2002. The Company continues to recognize income from inventory consigned to the buyer in accordance with the sale agreement and when all revenue recognition criteria have been met. This business has been included in discontinued operations and the assets and liabilities have been separately identified on the Balance Sheet as “held for sale” for all periods presented. There were no sales from discontinued operations for the three months ended March 31, 2003 as the business was sold during 2002. The sales from discontinued operations for the three months ended March 31, 2002 were $17.7 million. These sales were excluded from revenues from continuing operations reported on the Income Statement. The income (loss) from discontinued operations does not include any charges to reduce the book value of the business held for sale to its fair market value less cost to sell, since the fair value of the business exceeded the book value.

Throughout 2002, management approved the sale of certain long-lived assets (primarily land and buildings) of the Access Services and Mill Services Segments. Accordingly, these assets have been separately identified on the Balance Sheet as “held for sale” for all periods presented. Several of these assets were sold during the first quarter of 2003 resulting in the decrease noted below.

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

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

I.  Commitments and Contingencies

        Federal Excise Tax and Other Matters Related to the Five-Ton Truck Contract – In 1995, the Company, the United States Army (“Army”), and the United States Department of Justice concluded a settlement of Harsco’s previously reported claims against the Army relating to Federal Excise Tax (“FET”) arising under a completed 1986 contract for the sale of five-ton trucks to the Army. On September 27, 1995, the Army paid the Company $49 million in accordance with the settlement terms. The Company released the Army from any further liability for those claims, and the Department of Justice released the Company from a threatened action for damages and civil penalties based on an investigation conducted by the Department’s Commercial Litigation Branch that had been pending for several years.

The settlement preserves the rights of the parties to assert claims and defenses under the Internal Revenue Code, and rights of the Army and the Company to claim certain amounts that may be owed by either party to reconcile possible underpayments or overpayments on the truck contract as part of the formal contract close-out process.

The settlement does not resolve the claim by the Internal Revenue Service (“IRS”) that, contrary to the Company’s position, certain cargo truck models sold by the Company should be considered to have gross vehicle weights in excess of the 33,000 pound threshold under FET law, are not entitled to an exemption from FET under any other theory, and therefore are taxable. In 1999, the IRS assessed an increase in FET of $30.4 million plus penalties and applicable interest currently estimated to be $12.4 million and $66.8 million, respectively. In October 1999, the Company posted an $80 million bond required as security by the IRS. This increase in FET takes into account offsetting credits of $9.2 million, based on a partial allowance of the Company’s $31.9 million claim that certain truck components are exempt from FET. The IRS disallowed in full the Company’s additional claim that it is entitled to the entire $52 million of FET (plus applicable interest currently estimated by the Company to be $59.0 million) the Company has paid on the five-ton trucks, on the grounds that such trucks qualify for the FET exemption applicable to certain vehicles specially designed for the primary function of off-highway transportation. In the event that the Company ultimately receives from the IRS a refund of tax (including applicable interest) with respect to which the Company has already received reimbursement from the Army, the refund would be allocated between the Company and the Army. In August 2000, the Company filed legal action against the Government in the U.S. Court of Federal Claims challenging the assessment and seeking a refund of all FET that the Company has paid on five-ton trucks. That action is proceeding and management expects the trial to be scheduled to commence prior to the end of the third quarter of 2003. Although there is risk of an adverse outcome, both the Company and the Army believe that the cargo trucks are not taxable. No recognition has been given in the accompanying financial statements for the Company’s claims for refund from the IRS.

The settlement agreement with the Army preserved the Company’s right to seek reimbursement of after-imposed tax from the Army in the event that the cargo trucks are determined to be taxable, but the agreement limited the reimbursement to a maximum of $21 million. Additionally, in an earlier contract modification, the Army accepted responsibility for $3.6 million of the potential tax, bringing its total potential responsibility up to $24.6 million. As of September 30, 2000, the Army paid the Company this entire amount and the Company paid those funds to the IRS, subject to its pending refund claim. Thus, the Company has satisfied a portion of the disputed tax assessment. If the Company succeeds in its refund claim against the IRS, it will owe the Army the amount recovered that corresponds to the $24.6 million.

Even if the cargo trucks are ultimately held to be taxable, the Army’s contribution of $24.6 million toward payment of the tax (but not interest or penalty, if any), would result in a net maximum liability for the Company of $5.8 million plus penalties and applicable interest currently estimated to be $12.4 million and $66.8 million, respectively. The Company believes it is unlikely that resolution of this matter will have a material adverse effect on the Company’s financial position; however, it could have a material effect on quarterly or annual results of operations and cash flows.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

        Environmental – The Company is involved in a number of environmental remediation investigations and clean-ups and, along with other companies, has been identified as a “potentially responsible party” for certain waste disposal sites. While each of these matters is subject to various uncertainties, it is probable that the Company will agree to make payments toward funding certain of these activities and it is possible that some of these matters will be decided unfavorably to the Company. The Company has evaluated its potential liability, and its financial exposure is dependent upon such factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the allocation of cost among potentially responsible parties, the years of remedial activity required and the remediation methods selected. The Consolidated Balance Sheet at March 31, 2003 and December 31, 2002 includes an accrual of $3.1 million and $3.2 million, respectively, for environmental matters. The amounts charged against pre-tax earnings related to environmental matters totaled $0.2 million and $0.1 million for the first three months of 2003 and 2002, 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 or results of operations or cash flows.

In January 2002, the New Jersey Department of Environmental Protection issued Notices of Civil Administrative Penalty Assessment to the Company for violations of the New Jersey Air Pollution Control Act. The Notices allege that the Company operated a slag processing plant in violation of the emission permit for control of slag dust. The Agency has assessed civil administrative penalties totaling approximately $298,000 and the Company has filed an appeal with the Agency. The Company ceased operations at the plant in the fourth quarter of 2001 for unrelated reasons.

        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. In their suits, the plaintiffs have named as defendants many manufacturers, distributors and repairers of numerous types of equipment or products that involved any 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 product of the Company which might be alleged to cause asbestos exposure would have been purchased from a supplier. Based on scientific evidence, the Company believes that its products have never presented any harmful airborne asbestos exposure, and moreover, the type of asbestos contained in any component that was used in those products is protectively encapsulated in other materials and is not associated with the types of injuries alleged. Finally, in almost all of the complaints and depositions to date, the plaintiffs have failed to identify any contact that they have had with any products of the Company that might include an asbestos containing component.

As of March 31, 2003, the Company has obtained dismissal by stipulation, or summary judgment prior to trial, in all cases that have proceeded to trial (approximately 648 dismissals). The Company has not paid any amounts in settlement of these cases, with the exception of two settlements totaling less than $10,000 paid by the insurance company prior to 1998. The Company’s insurance carrier has paid all legal 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.

As of March 31, 2003, there were approximately 35,430 open personal injury claims of which approximately 3,210 were filed in the quarter ended March 31, 2003. Approximately 25,940 of these cases are filed in the New York State court for New York County. Almost all of these 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 identifying any product of the Company. Approximately 9,190 of these cases are filed in the state courts of various counties in Mississippi. Almost all of these complaints contain a standard claim for an unstated amount of damages against the numerous defendants (typically 240 to 270), without identifying any product of the Company. The other claims totaling approximately 300 are filed in various counties in a number of state courts, and in U.S. Federal District Court for the Eastern District of Pennsylvania, and the complaints assert lesser amounts than the New York County cases or do not state any amount claimed.

In view of the current litigation climate, which as of yet has not been sufficiently addressed either politically or legally, the Company expects to continue to receive further claims. However, there were developments during the fourth quarter of

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

2002 that could have a favorable effect for the Company regarding pending and future claims in New York County, and claims filed in Mississippi after 2002. In December 2002, the court in New York County issued an order which created a Deferred Docket for all pending and future asbestos claims of plaintiffs who do not meet minimum criteria for discernible physical impairment, and an Active Docket for plaintiffs who meet the minimum criteria. Each claim on the Deferred Docket will remain inactive unless the plaintiff can show to the court impairment which meets the minimum criteria for placement on the Active Docket. The list of claims placed on the Deferred Docket is scheduled to be issued in May 2003. The Company expects that a substantial majority of the 25,940 claims against it in New York County will be placed on the Deferred Docket. Also, in the fourth quarter of 2002, Mississippi enacted tort reform legislation that made changes in the law favorable to the Company’s defense, which will apply to all cases filed on or after January 1, 2003. Most of the approximately 9,190 claims pending against the Company in Mississippi were filed in the fourth quarter of 2002, in advance of this more restrictive legislation taking effect.

The Company intends to continue its practice of vigorously defending these cases as they are listed for trial and expects the insurance carriers to continue to pay the legal costs and expenses. Management believes that the 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.

J.  Costs Associated with Exit or Disposal Activities

As described in Note 1, “Summary of Significant Accounting Policies”, to the Company’s Form 10-K for the year ended December 31, 2002, the Company adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (SFAS 146) on January 1, 2003. SFAS 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities. These activities include restructuring activities that were previously accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) had set forth in EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract.

Costs associated with exit or disposal activities are included as a component of Other expenses on the Company’s Condensed Consolidated Statement of Income. This income statement classification principally includes impaired asset write-downs, employee termination benefit costs and costs to exit activities, offset by net gains on the disposal of non-core assets and is more fully described in Note 15, “Other (Income) and Expenses,” to the Company’s Form 10-K for the year ended December 31, 2002.

During the first quarter of 2003, the Company continued its strategy to streamline operations. This strategy included the sale of certain operating locations, as well as continued staff reductions in both administrative and operating positions. Under these reorganization actions, the Company and its management have established and approved specific plans of termination. During the three months ended March 31, 2003, the Company initiated reorganization actions in several operations, including, but not limited to, certain operations located in the U.S., the U.K., Belgium, Germany and Canada. There were no individually material reorganization actions initiated during the three months ended March 31, 2003; however, the following table summarizes these actions in aggregate for the Company:

The total amount of costs expected to be incurred for the components of the streamlining initiatives which have met the criteria described in SFAS 146 and the costs incurred to date for the three months ended March 31, 2003 by reportable segment were as follows:

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

The following table summarizes employee termination benefit costs and payments (associated with continuing operations) related to reorganization actions initiated prior to January 1, 2003:

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

K.  Reconciliation of Basic and Diluted Shares

Options to purchase 937,047 shares and 201,556 shares were outstanding at March 31, 2003 and 2002, respectively, but were not included in the computation of diluted earnings per share because the effect was antidilutive.

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements
The nature of the Company’s operations and the many countries in which it operates subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. These include statements about our management confidence and strategies for performance; expectations for new and existing products, technologies, and opportunities; and expectations for market segment and industry growth, sales, cash flows and earnings.

Factors which could cause results to differ include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including general economic conditions, particularly in the mill services, steel, infrastructure, non-residential construction and industrial gas markets; (2) changes in currency exchange rates, interest rates and capital costs; (3) changes in the performance of stock and bond markets, particularly in the United States and United Kingdom, that could affect the valuation of the assets in the Company’s pension plans and the accounting for pension assets, liabilities and expense; (4) changes in governmental laws and regulations, including taxes and import tariffs; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) unforeseen business disruptions in one or more of the many countries which the Company operates due to political instability, civil unrest, armed hostilities or other calamities; (7) the potential loss of sales to customers in countries encountering outbreaks of Severe Acute Respiratory Syndrome (SARS) and the wider economic impact of this disease; and (8) other risk factors listed from time to time in the Company’s SEC reports. The Company does not intend to update this information and disclaims any legal liability to the contrary.

Liquidity and Capital Resources
The Company’s principal sources of liquidity are net cash provided by operating activities and short-term borrowings under its various credit agreements. One of the Company’s strategic objectives for 2003 revolves around generating excess or discretionary cash and redeploying the cash to strategically grow the services businesses, primarily the mill services and railway track maintenance businesses. The Company’s strategies for generating discretionary cash flows for growth initiatives will come principally from generating cash flows from the sale of underperforming assets and continuing the strong net cash provided by operating activities. Changes in the Company’s overall liquidity and capital resources from continuing operations are reflected in the following table:

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

        Working Capital Position – Working capital increased 23% in the first quarter of 2003 and the current ratio increased to 1.6:1 when compared to December 31, 2002. Current assets increased by $44.8 million due principally to an increase in cash of $20.1 million and an increase in accounts receivable of $22.4 million. The increase in cash was principally due to the following factors: approximately $7.8 million proceeds from the sale of underperforming assets that were received late in the quarter and had not yet been reinvested in the business or used to reduce borrowings at March 31 and from increased cash collections on the last day of the quarter. The $22.4 million increase in receivables was due principally to increased receivables of approximately $12.0 million and $3.6 million in the Mill Services and Access Services Segments, respectively, and approximately $6.5 million in certain businesses (Harsco Track Technologies and Reed Minerals) of Other Infrastructure Products and Services. The increase in the Mill Services Segment was due principally to the timing of cash receipts due in part to customers making accelerated payments in December 2002 that were not repeated in March 2003. The increase in the Access Services Segment and Other Infrastructure Products and Services was due principally to increased volume in the first quarter of 2003 when compared with the fourth quarter of 2002.

Also contributing to the increase in working capital was an $8.1 million decrease in current liabilities. This net decrease was the result of several offsetting changes that included: a $7.1 million decrease in short-term borrowings and current maturities of long-term debt; a $5.5 million decrease in accounts payable; a $4.9 million decrease in accrued compensation; a $7.1 million increase in other current liabilities and a $2.2 million increase in accrued taxes. The decrease in short term borrowings was due to the Company financing current liquidity needs with lower cost commercial paper, which is classified as long-term debt, versus higher cost short-term credit facilities. Accounts payable decreased as a result of inventory reductions in the Access Services Segment and the timing of payments in the Mill Services and Access Services Segment and Other Infrastructure Products and Services. These decreases were partially offset by increased purchases (which were not paid until subsequent to March 31) for certain large volume orders in Other Infrastructure Products and Services. Accrued compensation decreased principally as a result of the 2002 incentive compensation being paid out in the first quarter of 2003. The increased accrued taxes was due to the timing of tax payments and increased other current liabilities was due principally to $5.6 million increased accrued interest on the 200 million British pound sterling notes payable. The interest on these notes is paid annually in October.

        Net Cash Provided by Operating Activities

The increase in net cash provided by operating activities reflects working capital improvements and changes to Other assets and liabilities, principally accrued income taxes and pension liabilities in the first quarter of 2003 when compared with the first quarter of 2002. Increases in cash flows from the change in Other assets and liabilities are principally due to approximately $9.6 million from the timing of tax payments, and $8.6 million from changes in long-term pension liabilities due to the timing of pension funding. These increases were partially offset by a $7.1 million use of cash from the change in deferred taxes.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

        Cash Investing and Financing Activities – Capital investments for the first three months of 2003 were $30.2 million, down $1.1 million from the first three months of 2002. Investments were made predominantly in the services businesses. The Company realized $12.3 million in cash from asset sales during the first three months of 2003, which was an increase of $1.8 million over the 2002 period. The Company expects targeted asset sales in 2003 to be approximately $30 million.

Long-term debt increased slightly in the first quarter of 2003, principally as a result of timing of cash receipts which prevented the repayment of additional debt. Despite the slight increase in debt, the Company’s debt as a percent of total capital decreased in the first three months of 2003 due principally to a $29.5 million increase in equity. The principal cause for the increase in equity was a pension equity adjustment that increased equity $22.7 million as a result of an amendment to the Company’s U.K. pension plan that required the company to recalculate the pension minimum liability equity adjustment that was originally recorded in the fourth quarter of 2002.

The Company’s history of cash dividends, paid at the same or increased rates for the 211th consecutive quarter in February 2003, demonstrate the Company’s continued commitment to creating value through returns to stockholders.

        Financial Statistics from Continuing Operations for the Three Months Ended March 31

The Company’s lower return on average equity was due to decreased income in the first three months of 2003 compared with the first three months of 2002. The Company’s book value per share increased to $16.62 per share at March 31, 2003 from $15.90 at December 31, 2002 due principally to a combination of the pension adjustment to shareholders’ equity, an increase to retained earnings (due to income), and increased equity from positive foreign currency translation adjustments. Foreign currency translation adjustments and the pension adjustment to shareholders’ equity are recorded as part of other comprehensive income or expense.

        Credit and Equity Financing Facilities – The Company has various credit facilities and commercial paper programs available for use throughout the world. These facilities and programs are explained in detail in the Company’s Form 10-K for the year ended December 31, 2002. The following chart illustrates the amounts outstanding on credit facilities and commercial paper programs and available credit at March 31, 2003. The Company limits the aggregate commercial paper and syndicated credit facility borrowings at any one time to a maximum of $375 million. This reduction of $50 million from the $425 million self-imposed limit at December 31, 2002 was made in conjunction with the Company’s decision in January 2003 not to renew one of the $50 million bilateral credit facilities that was considered excess to the Company’s financing needs.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

A Form S-3 shelf registration is on file with the Securities and Exchange Commission for the possible issuance of up to an additional $200 million of new debt securities, preferred stock or common stock. The Company is not obligated to issue these securities. The Company intends to refinance its $150 million, 6.0% notes due September 15, 2003 with debt securities and may use this shelf registration for the refinancing.

        Credit Ratings and Outlook – The Company’s outstanding long-term notes (both U.S. and International) are rated A- by Standard & Poor’s, A- by Fitch and A-3 by Moody’s. The Company’s U.S.-based commercial paper is rated A-2 by Standard & Poor’s, F-2 by Fitch and P-2 by Moody’s, and the Company’s London-based commercial paper program is rated A-2 by Standard & Poor’s and P-2 by Moody’s. A downgrade to the Company’s credit rating would probably increase the costs to the Company to borrow funds. An improvement in the Company’s credit rating would probably decrease the costs to the Company to borrow funds.

The Company’s financial position and debt capacity should enable it to meet current and future requirements. As additional resources are needed, the Company should be able to obtain funds readily and at competitive costs. The Company is well-positioned to continue to invest strategically in high return projects, pay cash dividends and reduce debt as a means to enhance shareholder value. The Company intends to use future discretionary cash flows for investment in high return projects.

RESULTS OF OPERATIONS
First Quarter of 2003 Compared with First Quarter of 2002

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

Summary Analysis of Results

Revenues for the first quarter of 2003 increased $29.3 million from 2002 while operating income from continuing operations declined $3.6 million. The Company was positively affected by the weakening of the U.S. dollar in relation to the euro, the British pound sterling and the South African rand in the first quarter of 2003 when compared with the first quarter of 2002. These were partially offset by the strengthening of the U.S. dollar in relation to the Brazilian real in the first quarter of 2003 when compared with the first quarter of 2002. The overall impact of foreign currency translation resulted in increased sales and operating income in the first quarter of 2003 of approximately $30 million and $2 million, respectively, when compared with the first quarter of 2002. Additionally, the Company benefited from the continued strong performance of the international mill services business. Increased global steel production in the first quarter of 2003 is a positive sign; however, the current and future instability of certain steel mills (some of which are customers of the Company) could negatively impact the Company’s future financial position, results of operations and cash flows. These increases were somewhat offset by continued weakness in the non-residential construction business in the U.S. and the U.K. due to the initiation of war with Iraq and the generally unsettled global economic conditions which negatively impacted results in the first quarter of 2003 for the Access Services Segment. This segment was also negatively impacted by difficult weather conditions. The Company does not anticipate a rebound in the access services market until the emergence of stronger confidence in the economic outlook. The Company continued to experience reduced demand for several of its manufactured products due to the continued recessionary environment in the domestic manufacturing sector. This impact was most pronounced in the Gas and Fluid Control Segment and the IKG grating product line of Other Infrastructure Products and Services. Additionally, in the first quarter of 2003, the Company recognized $4.1 million of pre-tax income from the termination of a post-retirement benefit plan; however, it was more than offset by approximately $5.9 million in increased pre-tax pension expense and increased energy costs.

Comparative Analysis of Consolidated Results

        Revenues from Continuing Operations – Revenues from continuing operations for the first quarter of 2003 increased 6% from last year’s comparable period. This increase included the favorable effect of foreign currency translation which increased 2003 first quarter revenues $30.0 million when compared with the first quarter of 2002. Increased revenue in the Mill Services and Access Services Segments was partially offset by decreased revenues in the Gas and Fluid Control Segment and Other Infrastructure Products and Services. Additionally, revenues decreased $4.7 million due to the net effect of business acquisition and dispositions. These changes are more fully discussed in the Segment Analysis section below.

        Cost of Services and Products Sold – Cost of services and products sold for the first quarter of 2003 increased 9% from the first quarter of 2002. This increase included the effect of foreign currency translation which increased the first quarter of 2003 cost of services and products sold approximately $23 million when compared with the first quarter of 2002. Costs also increased as a result of a change in product mix of the access services business, increased energy costs and approximately $3 million in increased pension expense due to financial market conditions and lower interest rates which affected the SFAS No. 87 pension expense computation for 2003. These increases were partially offset by income of $2.8 million from the termination of a post-retirement benefit plan and reduced costs of $3.5 million due to the net effect of business acquisitions and dispositions.

        Selling, General and Administrative Expenses – Selling, general and administrative expenses for the first quarter of 2003 increased 3% from the first quarter of 2002. This increase included the effect of foreign currency translation which increased 2003 selling, general and administrative expenses by approximately $5 million when compared with 2002 and increased pension costs of approximately $2.9 million. These increases were partially offset by income of $1.3 million from the termination of a post-retirement benefit plan across all business segments and reduced commission expense of $1.1 million principally in the Gas and Fluid Control and Access Services Segments and Other Infrastructure Products and Services. However, as a percentage of sales, selling, general and administrative expenses decreased from 17.1% in the first quarter of 2002 to 16.5% in the first quarter of 2003. This relative decrease is a result of continued cost reductions, process improvements and reorganization efforts.

        Other Expenses – This income statement classification principally includes impaired asset write-downs, employee termination benefit costs and costs to exit activities, offset by net gains on the disposal of non-core assets. During the first quarter of 2003, the Company continued its strategy to streamline operations. This strategy included the sale of certain operating locations, as well as continued staff reductions in both administrative and operating positions. These actions resulted in net other expenses of $0.9 million in the first quarter of 2003 compared with $1.3 million in the first quarter of 2002.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

Expenses for the first quarter of 2003 include $1.6 million of employee termination benefits expense, principally in the Mill Services and Access Services Segments and Other Infrastructure Products and Services related to operations in the United States and Europe. Additionally, $0.5 million of expense was incurred to exit certain activities principally in the Mill Services Segment. These expenses were partially offset by $1.5 million in gains resulting from the sale of non-core assets principally in the Access Services Segment.

Expenses for the first quarter of 2002 include $1.0 million of employee termination benefits expense, principally in the Mill Services and Gas and Fluid Control Segments related to operations in the United States and Europe.

For additional information on employee termination benefits, see Note J, Costs Associated with Exit or Disposal Activities, in Part I, Item I “Financial Statements.”

        Income from Continuing Operations – Income from continuing operations in the first quarter of 2003 was below 2002 levels despite an increase in revenues. The decrease of $2.5 million results principally from the increased after-tax pension expense of $4.1 million. This increase in expense was partially offset by income of $2.8 million after-tax from the termination of a post-retirement benefit plan and reduced interest expense of $0.7 million after-tax due to decreased borrowings.

        Net Income and Earnings Per Share – Net income and diluted earnings per share for the first quarter of 2003 were below last year’s comparable period despite increased revenue due to the factors previously discussed.

Segment Analysis

Due to reorganization changes, the Company adopted a new segment reporting structure for its operations as of December 31, 2002. Historical information by segment has been reclassified for comparative purposes. See Note 14, “Information by Segment and Geographic Area,” to the Company’s Form 10-K for the year ended December 31, 2002 for additional information on the Company’s segments.

        Mill Services Segment

The quarter-over-quarter revenue increase for the Mill Services Segment related to the continued strong international mill services business and, to a lesser extent, increased volume of the U.S. mill services business. The continued strong international business is a result of increased volume with current customers and new contracts. The increased volume in the U.S. mill services business was a direct result of certain steel mills that commenced operations under new ownership during the second half of 2002. Increased global steel production in the first quarter of 2003 is a positive sign; however, there are still several challenges this industry must overcome to attain a full recovery. The current and future instability of certain steel mills (some of which are customers of the Company) could negatively impact the Company’s future financial position, results of operations and cash flows. The effect of foreign currency translation increased 2003 first quarter revenues by approximately $16.5 million compared with the first quarter of 2002.

Operating income of the Mill Services Segment for the first quarter of 2003 was above the comparable 2002 period. This increase was a result of the effect of foreign currency translation, which increased 2003 first quarter operating income by approximately $1.7 million when compared with the first quarter of 2002; new business; and increased volume, primarily in the international markets. In the first quarter of 2003, this segment was positively affected by $0.5 million of income from the termination of a post-retirement benefit plan and $0.3 million in reduced expenses due to reorganization actions implemented in the third quarter of 2002. These benefits were partially offset by $1.9 million in increased pension expense, $1.2 million in increased reorganization expenses and increased energy costs.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

        Access Services Segment

The quarter-over-quarter revenue increase for the Access Services Segment related primarily to the positive effect of foreign currency translation, which increased first quarter 2003 revenues by approximately $12.6 million when compared with the first quarter of 2002. Revenues in the first quarter of 2003 were negatively impacted by difficult weather conditions in certain parts of the U.S. and continued weakness in the non-residential construction markets due to the generally unsettled economic conditions. The Company does not anticipate a rebound in the access services market until the emergence of stronger confidence in the economic outlook.

Operating income of the Access Services Segment for the first quarter of 2003 was below the comparable 2002 period despite increased revenue. This was due principally to a reduction in the high-margin access equipment rental business and pricing pressures when compared with the first quarter of 2002. This reduction in operating income resulted from a continued decline in non-residential construction activity and industry overcapacity. The first quarter of 2003 was also impacted by $2.9 million of increased pension expense. These declines in operating income were only partially offset by a $1.4 million gain on the sale of underutilized assets and $0.5 million of income from the termination of a post-retirement benefit plan. The effect of foreign currency translation increased 2003 first quarter operating income by approximately $0.4 million when compared with the first quarter of 2002.

      Gas and Fluid Control Segment

The quarter-over-quarter revenue decline of the Gas and Fluid Control Segment related primarily to the continued recessionary market conditions affecting demand for manufactured products. The Segment was principally affected by the decline in the natural gas transmission market and to a lesser extent by a decline in demand for composite-wrapped aluminum tanks for natural gas vehicles. This declining demand was partially offset by increased demand for propane cylinders due to colder winter weather in the U.S. during 2003; increased demand for valves, most notably in the liquid propane gas (LPG) product line; and increased demand for cryogenic storage tanks. The effect of foreign currency translation increased 2003 first quarter revenues by approximately $1.1 million when compared with the first quarter of 2002.

Operating income of the Gas and Fluid Control Segment for the first quarter of 2003 was below the comparable 2002 period. The larger relative decline in operating income from continuing operations (30%) as compared with revenue (8%) was due to a significant decrease in natural gas transmission equipment revenues, which historically has been a high-margin business of the segment. In the first quarter of 2003, $0.6 million of income from the termination of a post-retirement benefit plan was mostly offset by a $0.5 million increase in pension expense.

      Other Infrastructure Products and Services

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

The Other Infrastructure Products and Services category includes the Company’s Harsco Track Technologies Division and the Reed Minerals, IKG Industries and Patterson-Kelley business units. See Item 1, “Business,” to the Company’s Form 10-K for the year ended December 31, 2002 for additional information on this category.

The quarter-over-quarter revenue decline in Other Infrastructure Products and Services related primarily to a decline in the IKG industrial grating products business (which included the effect of selling the bridge decking product line in January 2002); the sale of a product line of Harsco Track Technologies (HTT) in the third quarter of 2002; and the sale of the Bio-Oxidation business in the first quarter of 2002. These decreases were partially offset by increased rail equipment sales, increased revenues in the Reed Minerals roofing granules and abrasives business unit and increased revenues in the Patterson-Kelley process equipment business unit. The increased rail equipment sales relate primarily to sales to international customers as HTT continues to focus on growing its international market.

Operating income of Other Infrastructure Products and Services for the first quarter of 2003 was below the comparable 2002 period. The larger relative decline in operating income from continuing operations (32%) as compared with revenue (7%) was due to an operating loss in the IKG business unit compared with income in 2002 and a decline in HTT’s operating income despite increased revenue. The operating loss at IKG was the result of the reduced revenue in conjunction with a change in product mix. The decline in HTT’s operating income was the result of the sale of the above-mentioned product line and to a lesser extent reduced margins on rail equipment revenues due to several high margin sales in the first quarter of 2002. In the first quarter of 2003, $1.1 million of income from the termination of a post-retirement benefit plan was partially offset by a $0.5 million increase in pension expense.

Industrial Services and Engineered Products Analysis

The Company is a diversified industrial services and engineered products company. Sales and operating income for the first quarter of 2003 and 2002 are presented in the following table:

The Company continues to direct its efforts towards expanding its industrial services businesses. This is evident in the chart above as industrial services revenue and operating income as a percent of the Company’s total revenues and operating income, respectively, has grown in the first quarter of 2003 when compared with the first quarter of 2002. The goal of the Company is to grow the services businesses to approximately 75% of revenue by the end of 2003.

First quarter 2003 sales for industrial services increased from the comparable period in 2002. This was due to increases in the Company’s international and domestic mill services business and its international access services business, offset by decreases in the domestic scaffolding and access business and railway maintenance services. First quarter 2003 operating income decreased primarily due to the change in product mix of the Access Services Segment, as previously discussed. The effect of foreign currency translation increased 2003 first quarter service sales and operating income by approximately $29 million and $2 million, respectively, when compared with the first quarter of 2002.

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HARSCO CORPORATION AND SUBSIDIARY COMPANIES
PART I — FINANCIAL INFORMATION

First quarter 2003 sales and operating income for engineered products decreased from the comparable period in 2002. This was due to decreases in the Company’s Gas and Fluid Control Segment and the IKG industrial grating business unit, as previously discussed. The effect of foreign currency translation increased 2003 first quarter sales by approximately $1 million when compared with the first quarter of 2002.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to foreign currency risk in its international operations. The Company conducts business in approximately 35 currencies. Approximately 58% and 53% of the Company’s sales from continuing operations for the three months ended March 31, 2003 and 2002, respectively, were derived from the Company’s operations outside the United States. Compared to the corresponding period in 2002, the values of the following major currencies changed in relation to the U.S. dollar in 2003, impacting the Company’s sales and income: