- Third quarter diluted EPS of $0.57 from continuing operations - Third quarter diluted EPS of $0.12 from discontinued operations, due to favorable developments in Federal Excise Tax litigation - Future pension costs made more predictable and affordable - Successful refinancing of 10-year notes - Company sees full-year diluted EPS from continuing operations in the range of $2.05 to $2.10 for 2003, and $2.50 to $2.65 for 2004
HARRISBURG, Pa., Oct. 23, 2003 (PRIMEZONE) -- Worldwide industrial services and products company Harsco Corporation (NYSE:HSC) today reported diluted earnings per share totaling $0.69 in the third quarter of 2003, compared with $0.63 in the third quarter of 2002. Net income was $28.5 million, compared with $25.7 million last year. Income from continuing operations was $23.4 million, or $0.57 diluted earnings per share, compared with income from continuing operations of $24.7 million, or $0.61 diluted earnings per share in the third quarter of 2002. Income from discontinued operations for the third quarter 2003 was $5.1 million, or $0.12 diluted earnings per share, reflecting favorable developments in the Company's Federal Excise Tax litigation, as discussed under the Discontinued Operations section below. Third quarter 2003 sales totaled $530 million, up approximately four percent from sales of $511 million in the same period last year.
Affecting results from continuing operations in the third quarter 2003 were increased pension expense of $4.4 million pre-tax and $1.4 million pre-tax in net severance and other reorganization costs. Positive foreign currency translation increased sales by approximately $24.5 million and pre-tax income by approximately $3.1 million in the quarter.
For the first nine months of 2003, income from continuing operations was $61.3 million, or $1.50 diluted earnings per share, compared with income from continuing operations of $64.5 million, or $1.58 diluted earnings per share in the first nine months of 2002. Including discontinued operations, net income was $66.6 million or $1.63 diluted earnings per share, compared with net income of $66.0 million or $1.62 diluted earnings per share in the first nine months of 2002. Income from discontinued operations for first nine months of 2003 was $5.3 million, compared with $1.5 million in 2002. Sales for the first nine months of 2003 were $1.6 billion, an increase of approximately 5 percent from sales of $1.5 billion in the same period a year ago.
Affecting results from continuing operations in the first nine months of 2003 were increased pension expense of $13.7 million pre-tax, partially offset by income of $4.9 million pre-tax from the termination of certain post-retirement benefit plans in the first and second quarters. Also affecting 2003 nine-month results was approximately $3.6 million pre-tax in net severance and other reorganization costs. Positive foreign currency translation increased sales in the first nine months of 2003 by approximately $86.0 million and pre-tax income by approximately $7.0 million.
Commenting on the Company's results, Harsco Chairman, President and Chief Executive Officer Derek C. Hathaway said, "While third quarter results from continuing operations were not quite as good as expected, we made significant progress on a number of key strategic objectives, including favorable developments in our long-standing Federal Excise Tax litigation, the conversion of a majority of our global defined benefit pension plans to defined contribution plans, and the completion of several cost reduction initiatives.
"The integration of our acquisition of the mill services unit of C. J. Langenfelder & Son is essentially complete, additional mill services contracts have been won, and bidding activity for new services business continues to be very active. In fact, service sales grew to almost 71 percent of total sales through the first nine months of 2003.
"Harsco's businesses are well positioned to take advantage of improvements as they present themselves in the global economies we serve. We remain confident that our substantial industrial services focus, leading market positions, and strong cash flows form a solid base for future growth."
Third Quarter Business Segment Review
Mill Services - Third quarter 2003 sales increased 17 percent to $209 million from $178 million in the third quarter of 2002. Positive foreign currency translation increased sales 9 percent, while organic growth and the acquisition of the mill services unit of C. J. Langenfelder & Son were responsible for 8 percent. Operating income for the third quarter 2003 increased slightly to $20.7 million from $20.5 million in the same period last year. Operating margins declined to 9.9 percent from 11.6 percent in 2002. Last year's third quarter income and margins were favorably affected by a gain of $2.7 million pre-tax from the sale of a minority equity interest. Without this one-time gain last year, third quarter 2003 operating income would have increased by 16 percent, and operating margins would have declined by only 10 basis points.
Adversely impacting third quarter 2003 results were temporary mill shutdowns caused by the late summer power blackout in the eastern half of the U.S. and Canada, together with production disruptions at several domestic East Coast mills caused by Hurricane Isabel. In addition, 2003 third quarter results were unfavorably impacted by $1.2 million in increased pension expense over the same period last year. Offsetting these negative items was the positive effect of foreign currency translation, which increased operating income by approximately $2.6 million pre-tax.
The outlook for the Mill Services Segment remains positive, as rising global demand for steel is expected to result in increased opportunities for the Company's wide range of mill services.
Access Services - Positive sales and earnings trends from international operations more than offset the continued difficult U.S. non-residential construction market, now at its lowest level since mid-1997. Third quarter 2003 sales of $155 million were 3 percent above third quarter 2002 sales of $150 million, due to $7 million in positive foreign exchange translation.
Operating income increased by 8 percent in the quarter to $11.0 million and operating margins improved by some 30 basis points over last year, reflecting the Company's increased focus on cost controls and productivity initiatives. Positive foreign exchange translation increased operating income by $0.7 million in the quarter, offset by higher pension expense of $2.2 million.
While a challenging fourth quarter is expected, the Company anticipates that its cost reduction initiatives and modest growth investments in 2004, together with the expected reinstatement of industrial plant maintenance projects deferred from the second half of 2003 into the first half of 2004 and the emergence of a gradual worldwide increase in non-residential construction spending, should stimulate improving performance for Access Services through the course of 2004.
Gas and Fluid Control - Sales in the third quarter 2003 were $84 million, a slight sequential improvement over this year's second quarter, but an 8 percent decline compared with sales of $91 million in the third quarter of 2002. Operating income in the third quarter 2003 declined to $3.4 million from $4.9 million in the same period last year. Likewise, operating margins declined to 4.0 percent from 5.4 percent year-over-year. The effect of foreign currency translation was not material for this operation. Pension expense increased by $0.4 million over last year.
While deliveries and backlogs have strengthened for propane products and orders are picking up for the Air-X-Changers unit, all other units within this segment continue to suffer from depressed demand, overcapacity and pricing pressures due to ongoing softness in their industrial markets. The Company will continue its aggressive strategic restructuring initiatives pending a clear recovery in demand in the end markets served by the Gas and Fluid Control Segment.
Other Infrastructure Products and Services - Third quarter 2003 sales declined by 10 percent to $83 million from $92 million in the same period last year. Operating income declined from $12.8 million to $10.8 million, or 16 percent. Operating margins also declined, to 13.0 percent from 14.0 percent last year. Results in the third quarter of 2002 included a $2.0 million pre-tax gain on the sale of a Harsco Track Technologies product line. Without this one-time gain, operating income would have been essentially even with last year, while operating margins would have improved by approximately 120 basis points. The effect of foreign currency translation was not material in the quarter. Pension expense increased $0.4 million over 2002's third quarter.
Results were below last year due to continued difficult market conditions for the IKG industrial grating products business, continued deferrals in track maintenance spending by domestic railroads, and the aforementioned one-time gain on the sale of a track maintenance product line in 2002.
The outlook for the Harsco Track Technologies unit remains positive due to increasing opportunities in its international markets. The Reed Minerals and Patterson-Kelley units continued to perform ahead of last year and their outlook also remains positive. While IKG again incurred a small operating loss in the quarter, this unit is expected to return to at least breakeven by the first half of 2004.
Discontinued Operations
During the third quarter of 2003, several significant developments occurred with respect to the Company's ongoing Federal Excise Tax litigation matter arising under a completed 1986 contract for the sale of five-ton trucks to the U.S. Army, as previously disclosed in the Company's SEC reports. On July 16, 2003, the Court denied entirely the Government's motion for summary judgment. Shortly after the ruling and at the urging of the Court, the Government and the Company commenced settlement negotiations. These settlement negotiations progressed significantly during the months of August and September. At a status conference on September 30, 2003, the Court suspended further proceedings in the litigation pending the outcome of the settlement discussions.
As of September 30, 2003, the Company reassessed its litigation reserve for this matter to reflect these significant developments, resulting in after-tax income of $5.2 million or $0.13 per share in the third quarter of 2003. No recognition has been given in the accompanying financial statements for the outcome of the ongoing settlement negotiations with respect to the Company's claims for a tax refund.
Liquidity and Capital Resources
Net cash provided by operating activities in the first nine months of 2003 was $154.4 million, compared with $163.7 million in the same period in 2002. The 6 percent year-over-year decrease was principally due to the timing of changes in working capital components, primarily accounts receivable. Cash used by investing activities of $106.1 million exceeded the $31.6 million in the first nine months of 2002, primarily due to increased capital expenditures for organic growth, the acquisition of the mill services unit of C. J. Langenfelder & Son, and lower proceeds from asset sales in 2003.
The Company's debt-to-capital ratio has declined by 330 basis points to 46.5 percent since December 31, 2002. Year-to-date debt has risen by only $3 million, due entirely to foreign exchange translation effects. As previously announced, the Company successfully refinanced its 6 percent $150 million ten-year notes with new ten-year $150 million notes at 5.125 percent. This action is expected to result in annual interest savings of $1.3 million. Economic Value Added (EVA(r)) has shown a year-over-year improvement in the first nine months, with the largest increase coming from the Mill Services Segment.
Pension Plans
A strategic objective for 2003 has been to arrest the significant increases in the Company's pension costs, particularly during the past two years. During the third quarter, the Company completed a comprehensive global review of its pension plans in order to make its long-term pension costs more predictable and affordable. The Company has now begun implementing design changes for most of these plans. The principal change involves converting future pension benefits for the majority of the Company's non-union employees in both the U.K. and U.S. from defined benefit plans to defined contribution plans. As a result of these actions, and assuming no material changes in actuarial assumptions, the Company's pension expense in 2004 is expected to approximate 2003's amount.
Outlook
The Mill Services Segment is expected to perform with historic consistency in leading the Company's performance in the fourth quarter of 2003. The Company does not anticipate a recovery in the non-residential construction market for Access Services to begin to emerge until the first half of 2004. Fourth quarter 2003 results from Gas and Fluid Control are expected to be down year-over-year due to continuing depressed demand and pricing pressures. Other Infrastructure Products and Services is expected to perform modestly better in the fourth quarter compared with last year's period. In addition, as the Company continues to position for growth in 2004, additional net severance and other reorganization costs are anticipated in the fourth quarter 2003 of approximately $1.2 million pre-tax, or $0.02 per diluted share. Accordingly, the Company foresees full-year 2003 GAAP earnings from continuing operations in the range of $2.05 to $2.10 per diluted share.
The Company's present view is that 2004 GAAP earnings from continuing operations will be in the range of $2.50 to $2.65 per diluted share. This view is underpinned by the Company's focus on increased future growth investments in its industrial service businesses, particularly Mill Services; improved performance by HTT and IKG; a modest improvement in both Access Services and Gas and Fluid Control; lower interest expense; no increase in pension expense; and no material change in foreign exchange rates. The Company's confidence in 2004 earnings growth is further underpinned by anticipated moderate economic growth in the Company's key global markets, augmented by the Company's ongoing internal improvement and cost reduction strategies. Further, the Company anticipates only a modest amount of net severance and other reorganization costs in 2004.
Forward-Looking Statements
The nature of the Company's business and the many countries in which it operates subject it to changing economic, competitive, regulatory, and technological conditions, risks, and uncertainties. In accordance with the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. Forward-looking statements include information about management's confidence and strategies for performance; expectations for new and existing products, technologies, and opportunities; and expectations regarding growth, sales, cash flows, earnings, and EVA. These statements are identified by the use of such terms as "may," "could," "expect," "anticipate," "intend,""believe," or other comparable terms.
Risk factors and uncertainties which could affect results include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including general economic conditions; (2) changes in currency exchange rates, interest rates, and capital costs; (3) changes in the performance of stock and bond markets, particularly in the United States and United Kingdom; (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 over 40 countries in which the Company operates due to political instability, civil disobedience, armed hostilities or other calamities; and (7) other risk factors listed from time to time in the Company's SEC reports. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements.
Conference Call
As previously announced, the Company will hold a conference call today at 2:00 p.m. Eastern Time (ET) to discuss its results and respond to questions from the investment community. The conference call will be broadcast live through the Harsco Corporation website at www.harsco.com. The call can also be accessed by telephone by dialing (800) 611-4920, or (706) 634-5923 from outside the United States and Canada. Listeners are advised to dial in at least five minutes prior to the call. Replays will be available via the Harsco website, or by telephone beginning approximately 5:00 pm ET today. The telephone replay dial-in number is (800) 642-1687, or (706) 645-9291 from outside the United States and Canada. Enter Conference ID number 2618607.
About Harsco
Harsco Corporation is a diversified, $2 billion industrial services and engineered products company. Harsco's market-leading businesses provide mill services, access services, gas and fluid control products, and other infrastructure products and services to customers worldwide. The Company employs approximately 17,500 people in more than 40 countries of operation. Additional information about Harsco can be found at www.harsco.com.
Harsco Corporation
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
------------------------- -------- -------- ---------- ----------
Revenues from continuing
operations:
Service sales $376,951 $342,668 $1,098,673 $ 988,226
Product sales 153,234 167,851 455,874 491,241
------------------------- -------- -------- ---------- ----------
Total revenues 530,185 510,519 1,554,547 1,479,467
------------------------- -------- -------- ---------- ----------
Costs and expenses from
continuing operations:
Cost of services sold 277,994 249,731 812,217 718,839
Cost of products sold 121,991 134,024 367,284 388,253
Selling, general and
administrative expenses 81,553 78,200 243,518 237,223
Research and development
expenses 695 642 2,367 2,206
Other (income) expenses 2,172 (137) 4,509 2,901
------------------------- -------- -------- ---------- ----------
Total costs and
expenses 484,405 462,460 1,429,895 1,349,422
------------------------- -------- -------- ---------- ----------
Operating income from
continuing operations 45,780 48,059 124,652 130,045
Equity in income of
affiliates, net 10 138 271 428
Interest income 482 1,008 1,558 3,238
Interest expense (10,271) (11,109) (30,797) (33,559)
------------------------- -------- -------- ---------- ----------
Income from continuing
operations before
income taxes and
minority interest 36,001 38,096 95,684 100,152
Income tax expense (10,781) (11,736) (29,266) (30,927)
------------------------- -------- -------- ---------- ----------
Income from continuing
operations before
minority interest 25,220 26,360 66,418 69,225
Minority interest in
net income (1,846) (1,665) (5,120) (4,698)
------------------------- -------- -------- ---------- ----------
Income from continuing
operations 23,374 24,695 61,298 64,527
------------------------- -------- -------- ---------- ----------
Discontinued operations:
Loss from operations of
discontinued business (206) (548) (415) (2,582)
Gain on disposal of
discontinued business 106 2,071 634 4,939
Income related to
discontinued defense
business 8,030 -- 8,030 --
Income tax expense (2,838) (546) (2,953) (851)
------------------------- -------- -------- ---------- ----------
Income from discontinued
operations 5,092 977 5,296 1,506
------------------------- -------- -------- ---------- ----------
Net Income $ 28,466 $ 25,672 $ 66,594 $ 66,033
========================= ======== ======== ========== ==========
Average shares of common
stock outstanding 40,752 40,514 40,637 40,304
Basic earnings per
common share:
Continuing operations $ .57 $ .61 $ 1.51 $ 1.60
Discontinued operations .12 .02 .13 .04
------------------------- -------- -------- ---------- ----------
Basic earnings per
common share $ .70(a) $ .63 $ 1.64 $ 1.64
========================= ======== ======== ========== ==========
Diluted average shares of
common shares
outstanding 41,100 40,646 40,877 40,707
Diluted earnings per
common share:
Continuing operations $ .57 $ .61 $ 1.50 $ 1.58
Discontinued operations .12 .02 .13 .04
------------------------- -------- -------- ---------- ----------
Diluted earnings per
common share $ .69 $ .63 $ 1.63 $ 1.62
========================= ======== ======== ========== ==========
(a) Does not total due to rounding.
Harsco Corporation
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30 December 31
(In thousands) 2003 2002(a)
---------------------------------------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 76,565 $ 70,132
Accounts receivable, net 458,067 388,872
Inventories 187,692 181,712
Other current assets 51,209 61,686
---------------------------------------- ---------- ----------
Total current assets 773,533 702,402
---------------------------------------- ---------- ----------
Property, plant and equipment, net 832,331 804,495
Goodwill, net 389,610 377,220
Other assets 107,629 102,493
Assets held for sale 5,804 12,687
---------------------------------------- ---------- ----------
Total assets $2,108,907 $1,999,297
======================================== ========== ==========
LIABILITIES
Current liabilities:
Short-term borrowings $ 15,915 $ 22,362
Current maturities of long-term debt 9,701 11,695
Accounts payable 168,512 166,871
Accrued compensation 44,321 39,456
Income taxes 48,217 43,411
Dividends payable 10,715 10,642
Other current liabilities 187,009 179,413
---------------------------------------- ---------- ----------
Total current liabilities 484,390 473,850
---------------------------------------- ---------- ----------
Long-term debt 617,214 605,613
Deferred income taxes 64,866 62,096
Insurance liabilities 43,544 44,090
Other liabilities 157,278 167,069
Liabilities associated
with assets held for sale 988 2,039
---------------------------------------- ---------- ----------
Total liabilities 1,368,280 1,354,757
---------------------------------------- ---------- ----------
SHAREHOLDERS' EQUITY
Common stock 84,137 83,793
Additional paid-in capital 118,645 110,639
Accumulated other comprehensive expense (189,895) (242,978)
Retained earnings 1,331,405 1,296,855
---------------------------------------- ---------- ----------
1,344,292 1,248,309
Treasury stock (603,665) (603,769)
---------------------------------------- ---------- ----------
Total shareholders' equity 740,627 644,540
---------------------------------------- ---------- ----------
Total liabilities and
shareholders' equity $2,108,907 $1,999,297
======================================== ========== ==========
(a) In order to comply with the Financial Accounting Standards Board
(FASB) Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," 2002 information has been
reclassified for comparative purposes.
Harsco Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2003 2002 2003 2002
----------------------- --------- -------- --------- ---------
Cash flows from
operating activities:
Net income $ 28,466 $ 25,672 $ 66,594 $ 66,033
Adjustments to
reconcile net income
to net cash provided
(used) by operating
activities:
Depreciation 42,660 39,740 123,433 115,911
Amortization 544 407 1,262 1,245
Equity in income of
affiliates, net (9) (138) (271) (428)
Dividends or
distributions from
affiliates -- -- 1,335 144
Other, net (6,406) 457 (3,908) 7,684
Changes in assets
and liabilities,
net of acquisitions
and dispositions of
businesses:
Accounts
receivable (17,177) (4,230) (53,637) (22,851)
Inventories (3,486) (2,225) (3,151) (5,968)
Accounts payable 4,959 16,403 (5,921) (12,713)
Net disbursements
related to
discontinued
defense business (605) (549) (1,039) (1,054)
Other assets and
liabilities 15,140 7,741 29,717 15,678
----------------------- --------- -------- --------- ---------
Net cash provided
by operating
activities 64,086 83,278 154,414 163,681
----------------------- --------- -------- --------- ---------
Cash flows from
investing activities:
Purchases of
property, plant
and equipment (34,038) (26,112) (96,827) (86,132)
Purchase of
businesses, net of
cash acquired (43) (436) (23,529) (436)
Proceeds from sales
of assets 1,261 17,720 14,218 54,906
Other investing
activities -- 35 -- 16
----------------------- --------- -------- --------- ---------
Net cash used by
investing
activities (32,820) (8,793) (106,138) (31,646)
----------------------- --------- -------- --------- ---------
Cash flows from
financing activities:
Short-term
borrowings, net (3,110) (20,073) (14,078) (19,553)
Current maturities
and long-term debt:
Additions 182,587 14,288 264,879 103,093
Reductions (192,755) (48,011) (273,862) (190,308)
Cash dividends paid
on common stock (10,685) (10,127) (31,971) (30,156)
Common stock
issued-options 3,438 282 7,485 13,459
Other financing
activities (608) (289) (4,160) (3,586)
----------------------- --------- -------- --------- ---------
Net cash used by
financing
activities (21,133) (63,930) (51,707) (127,051)
----------------------- --------- -------- --------- ---------
Effect of exchange
rate changes on cash 2,457 (248) 9,864 4,034
Net decrease in cash
of discontinued
operations -- 1 -- 1
----------------------- --------- -------- --------- ---------
Net increase in cash
and cash equivalents 12,590 10,308 6,433 9,019
Cash and cash
equivalents at
beginning of period 63,975 66,118 70,132 67,407
----------------------- --------- -------- --------- ---------
Cash and cash
equivalents at end
of period $ 76,565 $ 76,426 $ 76,565 $ 76,426
======================= ========= ======== ========= =========
Harsco Corporation
REVIEW OF OPERATIONS BY SEGMENT (a) (Unaudited)
(In thousands)
Three Months Ended Three Months Ended
September 30, 2003 September 30, 2002
Operating Operating
Income Income
Sales (b) (loss)(c) Sales (b) (loss)(c)
-------------------- -------- -------- -------- --------
Mill Services
Segment $208,591 $ 20,681 $177,580 $ 20,519
Access Services
Segment 154,771 11,008 149,849 10,155
Gas and Fluid
Control Segment 83,651 3,354 91,019 4,900
Other Infrastructure
Products and
Services 83,172 10,822 92,071 12,848
General Corporate -- (85) -- (363)
-------------------- -------- -------- -------- --------
Consolidated Totals $530,185 $ 45,780 $510,519 $ 48,059
==================== ======== ======== ======== ========
Nine Months Ended Nine Months Ended
September 30, 2003 September 30, 2002
Operating Operating
Income Income
Sales (b) (loss)(c) Sales (b) (loss)(c)
-------------------- --------- -------- -------- ---------
Mill Services
Segment $600,607 $ 63,074 $513,814 $ 53,072
Access Services
Segment 460,077 26,361 428,447 29,519
Gas and Fluid
Control Segment 240,928 10,909 264,952 17,320
Other Infrastructure
Products and
Services 252,935 23,654 272,254 30,240
General Corporate -- 654 -- (106)
-------------------- --------- -------- --------- --------
Consolidated Totals $1,554,547 $124,652 $1,479,467 $130,045
==================== ========== ======== ========== ========
(a) Segment information for prior periods has been reclassified to
conform with the current presentation.
(b) Sales from continuing operations.
(c) Operating income (loss) from continuing operations.