Harsco
Corporation
350
Poplar Church Road
Camp
Hill, PA 17011 USA
Mail:
P.O. Box 8888
Camp
Hill, PA 17001-8888 USA
Telephone:
717.763.7064
Fax:
717.763.6424
Web:
www.harsco.com
January
31, 2008
Via
EDGAR, FAX and FEDEX
Mr.
Terence O’Brien
Branch
Chief
Division
of Corporation Finance
Securities
and Exchange Commission
100
F
Street, NE
Washington,
DC 20549-7010
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Re:
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Harsco
Corporation
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Form
10-K for the fiscal year ended December 31, 2006
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Filed
February 27, 2007
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Form
10-Q for the quarter ended September 30, 2007
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File
No. 1-3970
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Dear
Mr.
O’Brien:
The
following are responses to your letter dated December 31, 2007:
Annual
Report on Form 10-K
for the year ended December 31, 2006
SEC
Staff
Comment:
Business,
page 2
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1.
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On
page 6, please identify the customers who accounted for 10% or more
of
your sales pursuant to Item 101(c)(vii) of Regulation S-K.
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Company’s
Response:
In
future
annual reports on Form 10-K, the Company will identify any customers who account
for 10% or more of its total sales pursuant to Item 101(c)(vii) of Regulation
S-K. The customer who accounted for 10% or more of the Company’s
total sales in 2006 was ArcelorMittal.
SEC
Staff
Comment
Item
3. Legal Proceedings, page 15 and 10. Commitments and Contingencies, page
76
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2.
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Please
tell us and, if material, disclose in future filings whether there
have
been any legal claims relating to the fatalities of two
employees. If such claims exist, please indicate whether the
claims could have or could reasonably be expected to have a material
adverse effect on your financial position, results of operations,
cash
flows or otherwise, and please provide (1) the aggregate damages
sought by
the claims, (2) any amounts accrued, and (3) the possible loss or
range of
loss when there is at least a
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reasonable
possibility that a loss or an additional loss in excess of the amounts accrued
may have been incurred. If you have determined that it is not
possible to estimate the range of loss, please provide an explanation as to
why
this is not possible.
Company’s
Response:
There
have not been any legal claims
filed against the Company in connection with the referenced fatalities
that the Company
considers to be material. Regarding your general request for information
on any
claims filed, whether material or not, to date, a lawsuit has been filed on
behalf of the family and estate of one of the employees against several
defendants, including the Company. The lawsuit includes
multiple claims against multiple parties and various requests for
damages. Due to the nature of the claims asserted, however, some of
which do not include specific requests for damages (e.g., punitive damages
claims), we are not able to reasonably quantify the aggregate amount of any
damages sought by the plaintiffs. We have determined that any
potential
liability of the Company is covered by insurance policies, except for
an immaterial retention
amount which has been accrued. Due to the
uncertainty of liability, we cannot reasonably estimate the possible loss or
range of loss. We also
reasonably anticipate that any claim filed with regard to the second fatality
would also be covered by our insurance policies, again except
for immaterial retention
amounts
payable by us under our insurance
program.
The
Company does not anticipate expanding its disclosure regarding these matters
in
future filings as it does not consider these claims to have a material adverse
effect on the Company’s financial position, results of operations, cash flows or
otherwise.
Form
10-Q for the quarter
ended September 30, 2007
SEC
Staff Comment:
C. Review
of Operations by Segment, page 6
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3.
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You
report two segments, Access Services and Mill Services, as well as
an “all
other” segment, Minerals & Rail Technologies, Services and Products,
as of September 30, 2007. We note on your website ten “business
units” under these segments, as well as various principal lines of
business as described in your Exchange Act annual and periodic reports
and
numerous subsidiaries as listed in Exhibit 21 of your December 31,
2006,
Form 10-K. Based on your disclosure, it is not clear to us what
your operating segments are and how you have aggregated these, if
at all,
into your reportable segments. In order to further analyze this
issue, please provide to us copies of all financial reports made
available
to the CODM(s) during the last two fiscal years and interim
period. Multiple versions of the same report may be
excluded. You may request that the reports be returned upon
completion of our review. See Section 240.12b-4 of the Exchange
Act Rules.
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Company’s
Response:
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.
The
Company's continuing operations are aggregated into two reportable segments
and
an “all other” category, pursuant to SFAS 131, paragraph 21. The
Company’s segments and the types of products and services offered include the
following:
Access
Services Segment (reportable segment)
The
operating segments (as defined by paragraph 10 of SFAS 131) within this
reportable segment include three brands: SGB Group, Hünnebeck Group and Patent
Construction Systems. All three of these operating segments are in
the same line of business. The principal difference between the
operating segments relates to geography. Patent Construction Systems
serves North America and Latin America, and both SGB Group and Hünnebeck Group
serve the rest of the world. They have been aggregated based upon the
following assessment of the criteria in paragraph 17 of SFAS 131:
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Economic
characteristics
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The
Company adopted an Economic Value Added (“EVA®”) financial management discipline
in January 2002. EVA has instilled an enhanced global financial
discipline with the Company’s operations that gives a single, common framework
for evaluating financial performance as well as potential investments and for
making critical business decisions. EVA is a key performance measure
used by the Company’s Senior Management. EVA provides a measure of
true economic profit, taking into account not only traditional accounting-based
profit measures but also a charge for the use of the total capital (both debt
and equity) used to create those profits.
Operating
income as percent of average EVA capital (adjusted for goodwill) is as
follows:
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Operating
Segment
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2006
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2007
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SGB
Group
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22.5%
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23.2%
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Hünnebeck
Group (acquired November 2005)
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21.9%
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27.9%
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Patent
Construction Systems
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24.5%
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28.5%
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Total
Access
Services
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22.9%
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25.9%
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The
above
table demonstrates the similarity of returns achieved by each of these operating
segments under the Company’s EVA discipline.
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Nature
of products and services
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The
nature of the services provided by all three operating segments is
identical. These services include principally the rental and the
erection and dismantling of scaffolding, shoring and concrete forming systems
for non-residential construction, multi-dwelling residential construction
projects, industrial maintenance projects, as well as other access services
including project engineering.
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Nature
of production process
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These
are
primarily services businesses, as such, the nature of the production process
is
not applicable. However, the distribution process used by each
business is the same. Services are provided via a network of branches
located strategically in the markets served. Each branch has a sales
office and a stock of rental equipment determined based upon anticipated
customer requirements.
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Type
or class of customer
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The
types
of customers are identical. Customers for all three operating
segments include: commercial and industrial construction contractors; public
utilities; petrochemical and industrial plants; and the infrastructure repair
and maintenance markets.
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Methods
used to provide services
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All
three
operating segments are dependant upon rental equipment to provide services
to
customers. This requires continued investment in long-lived assets
and on-going expenses associated with routine maintenance.
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Nature
of regulatory environment
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Consideration
of the nature of the regulatory environment is not applicable for these
businesses.
The
Company considers the Access Services Segment to be one global business
operating with one business model at multiple locations, currently operating
under three brand names. The near-term goal is to expand the business
model globally under one brand name. The business currently is led by
one segment manager. Similarly, the segment has a Chief Financial
Officer. Additionally, the Company’s Senior Management team has
established the Access Services Executive Committee (“ASEC”) to oversee and help
execute the global growth strategy of the business while also focusing on the
integration and sharing of resources and implementing a global standard
“cookie-cutter” approach to operating the business. Specific
milestones achieved in the integration of the three brands include the
following:
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2006
and 2007 – With the Company’s acquisition of Hünnebeck GmbH in November
2005 there were several overlapping markets with multiple access
services
brands. During 2006 and 2007 the Company combined overlapping
operations within certain countries under one country manager to
provide
consistent guidance and management to all operations within the respective
country.
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Second
Quarter 2006 – Commenced the implementation of one integrated enterprise
resource planning (“ERP”) system for all locations in the reportable
segment. Several key countries are already using this system
and the implementation is expected to be completed in
2008. Upon completion, there will be one ERP system for the
entire global access services
business.
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Fourth
Quarter 2006 – The Access Services Executive Committee was
formed. This Committee oversees the strategies and initiatives
of this global business. Some of these initiatives include:
global procurement and logistics; the sharing of engineering knowledge
and
resources; continuous process improvement initiatives; optimizing
the
business under one standardized administrative and operating model
at all
locations worldwide; and on-going analysis for other potential synergies
across the operations.
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Third
Quarter 2007 – Commenced the evaluation of a global branding strategy for
the entire access services business. Upon completion, the
Company expects to market the entire access services business under
one
global brand. The project is expected to be completed in 2008
with a worldwide launch as of January 1,
2009.
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Third
Quarter 2007 – the Company appointed one segment manager (as defined by
paragraph 14 of SFAS 131) for the Company’s global access services
operations.
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Mill
Services Segment (reportable segment)
The
only
operating segment (as defined by paragraph 10 of SFAS 131) within this
reportable segment is the Company’s MultiServ division.
This
segment provides on-site, outsourced services to steel mills and other metal
producers such as aluminum, copper or nickel. Services include: slag
processing; semi-finished inventory management; material handling; scrap
management; in-plant transportation; and a variety of other
services.
The
Company’s Mill Services Segment has one segment manager (as defined by paragraph
15 of SFAS 131).
Minerals
& Rail Technologies, Services and Products (“all other”)
Category
The
operating segments (as defined by paragraph 10 of SFAS 131) within this Category
include Excell Minerals, Reed Minerals, Harsco Track Technologies, IKG
Industries, Patterson-Kelley and Air-X-Changers. None of these
operating segments individually exceeded the quantitative thresholds outlined
in
paragraph 18 of SFAS 131 for separate disclosure. As such, they are
grouped into an “all other” category as defined in paragraph 21 of SFAS
131. This is noted in the second paragraph of Footnote 14 to our
financial statements included in our Form 10-K filing for the year ended
December 31, 2006 (although, as indicated in the Form 10-Q filing for quarter
ended September 30, 2007, the Category was renamed as noted above).
Major
products and services include: minerals and recycling technologies; granules
for
asphalt roofing shingles and abrasives for industrial surface preparation
derived from coal slag; railway track maintenance equipment and services;
industrial grating; boilers, water heaters and process equipment, including
industrial blenders, dryers and mixers; and air-cooled heat
exchangers.
Major
customers include: steel mills; asphalt roofing manufacturers; private and
government-owned railroads and urban mass transit systems worldwide; industrial
plants and the non-residential, commercial and public construction and retrofit
markets; the chemical, food processing and pharmaceutical industries; and the
natural gas exploration and processing industry.
The
Company’s financial statements and supplementary schedules that are provided to
its Chief Operating Decision Maker (the “CODM”) on a monthly basis are being
provided under separate cover on a supplemental basis pursuant to Rule 12b-4
under the Securities Exchange Act of 1934. We are providing only a
copy of the September 30, 2007 financial statements and supplementary schedules
because they are the same form of report that we provided to the CODM in all
periods that you requested. In accordance with Rule 12b-4, we will
request that such materials be returned following completion of your
review.
SEC
Staff Comment:
Item
4. Controls and Procedures, page 35
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4.
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Pursuant
to the requirements of Part I, Item 4 of Form 10-Q, you must disclose
any change in the
your internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Rule 13a-15 under
the
Securities Exchange Act of 1934, as amended, that occurred during
the
registrant’s last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control
over financial reporting. Please see Item 308(c) of Regulation
S-K. We note that you have qualified the required disclosure by
using the word “significant” before the word “change.” In
future filings please refrain from adding the word “significant” (or
similar qualifiers) to the text of your disclosure in response to
the
requirements of Part I, Item 4 of Form 10-Q.
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Company’s
Response:
In
future
filings, the Company will refrain from adding the word “significant” (or similar
qualifiers) to the text of disclosures in response to the requirements of Part
I, Item 4 of Form 10-Q.
SEC
Staff Comment:
Item
1A. Risk Factors, page 36
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5.
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Pursuant
to the requirements of Part II, Item 1A of Form 10-Q, you must disclose
any material
changes from the risk factors previously disclosed in your Form
10-K in response to Part 1, Item 1A. of Form 10-K. In future
filings of quarterly reports, please limit the disclosure in response
to
Part II, Item 1A of Form 10-Q to material changes from risk factors
previously disclosed your 10-K instead of repeating the risk factors
from
the 10-K.
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Company’s
Response:
In
future
filings, the Company will limit the disclosure in response to Part II, Item
1A
of Form 10-Q to material changes in risk factors previously disclosed in the
prior year Form 10-K.
*
*
*
In
connection with the Company’s
responses to the staff’s comments, the Company acknowledges that:
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the
Company is responsible for the adequacy and accuracy of the disclosure
in
its filings;
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staff
comments or changes to disclosure in response to staff comments do
not
foreclose the Commission from taking any action with respect to the
filings; and
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the
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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If
you have any questions regarding
these matters, please do not hesitate to contact the undersigned at (717)
612-5659.
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Sincerely,
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/s/
Stephen J. Schnoor
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Stephen
J. Schnoor
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Senior
Vice President and
Chief Financial
Officer
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Attachments
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cc:
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Jenn
Do
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Al
Pavot
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Dietrich
King
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Jennifer
Hardy
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