HARRISBURG, Pa., April 23, 2002 (PRIMEZONE) -- Worldwide industrial services and products company Harsco Corporation (NYSE:HSC) today reported first quarter 2002 results. Income and diluted earnings per share (EPS) for the quarter were as follows:
$ Millions Per Share - Diluted
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Quarter Ending March 31 March 31
2002 2001 2002 2001
------ ------ ------ ------
Income from
Continuing Operations $ 15.0 $ 11.2 $ 0.37 $ 0.28
Loss from
Discontinued Operations (0.8) (1.1) (0.02) (0.03)
----- ----- ----- -----
Net Income $ 14.2 $ 10.1 $ 0.35 $ 0.25
===== ===== ===== =====
Net Unusual Costs,
Special Charges
and Gains (1.5) (6.9) (0.04) (0.17)
Income Excluding Net
Unusual Costs, Special
Charges and Gains $ 15.7 $ 17.0 $ 0.39 $ 0.42
===== ===== ===== =====
First quarter earnings were negatively affected by $1.1 million after-tax or $0.03 per share from foreign exchange translation due to the strong U.S. dollar, and higher pension expense of $3.3 million after-tax or $0.08 per share, which more than offset the elimination of $2.7 million after-tax or $0.07 per share in goodwill amortization under the Company's adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." After-tax net unusual costs, special charges and gains totaled $1.5 million, related principally to employee reductions, other exit costs and a customer bankruptcy charge. Sales from continuing operations in the quarter were $459 million, compared with $505 million in the prior year. Negative foreign currency translation lowered sales in the first quarter by $10 million.
Continuing the Company's focus on higher margin, recurring revenue industrial services businesses, the Company is considering the divestiture of additional business lines. As required by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," adopted by the Company on January 1, 2002, the Company is now reporting operations which have been identified for divestiture as discontinued operations.
Commenting on the Company's performance, Harsco Chairman, President and Chief Executive Officer Derek C. Hathaway said, "As anticipated, our first quarter results reflect our historical pattern as our slowest quarter of the year in both the services and products sectors. Given that our manufacturing businesses have not yet seen the benefit of the projected economic rebound, and recognizing also the continuing negative effects of foreign currency translation, we are pleased with our performance for the first three months of the year.
"Our services-based Infrastructure and Mill Services segments performed relatively well, offsetting weaker performance from our Gas and Fluid Control segment, which represents the majority of our manufacturing business. Service sales increased to 68 percent of our total sales in the first quarter, compared with 64 percent last year. Conversely, manufacturing sales declined from 36 percent of total sales to 32 percent.
"We realized in excess of $10 million in cash from asset sales during the quarter, and have made further progress already this month. We hope to complete the second quarter with an additional $15 to $40 million in cash from asset sales, which if fully realized, would put us at our 2002 target of $50 million in cash from asset sales by mid-year, six months ahead of schedule.
"With our traditionally strong quarters ahead of us and the expected benefits of our debt reduction efforts as they accelerate through the year, and given the modest upturn from manufacturing that we anticipate in the second half, we remain confident in our previously announced objective for 2002 earnings per share growth in the area of 10 percent."
First Quarter Business Segment Review
Infrastructure - Overall, this segment performed well given the anticipated slower conditions. Sales were down 8 percent, but operating margins improved by 40 basis points from the prior year period. The lower sales are due principally to weak market conditions in both the industrial grating business and domestic railway track repair parts and equipment business, as well as timing factors in the access services and equipment business. Operating income, excluding net unusual costs, special charges and gains of $0.4 million in 2002 and $3.6 million in 2001, was $11.7 million, compared with $11.8 million last year. Operating income was negatively affected by a net $1.3 million resulting from negative foreign currency translation and higher pension expense, partially offset by the elimination of goodwill amortization expense.
Mill Services - Aggressive cost cutting, global diversity, and the continuing positive contribution from the roofing granules business enabled this segment to achieve planned results, despite the difficult, albeit improving, market conditions in North America as well as the continuing appreciation of the U.S. dollar. Operating income, excluding net unusual costs, special charges and gains of $1.1 million in 2002 and $2.4 million in 2001, was $18.8 million, compared with $20.9 million in the prior year quarter. Here again, operating income was negatively affected by a net $1.1 million from foreign currency translation and higher pension expense, partially offset by the elimination of goodwill amortization expense. Margins declined from 11.4 percent to 10.6 percent. Sales were down 3 percent year-over-year, but would have been up slightly if not for an almost $9 million reduction due to negative foreign currency translation.
Gas and Fluid Control - Depressed market conditions and pricing pressures across many product lines, exacerbated by an unusually warm winter, continued to negatively affect results in the first quarter. Operating income, excluding net unusual costs, special charges and gains of $1.0 million in 2002 and $0.7 million in 2001, declined to $5.2 million, compared with $8.6 million last year. Operating margins were 6.2 percent, down from 8.1 percent last year, and sales declined to $83.6 million from $106.4 million last year.
During this period of depressed demand, the Company continued its focus on lowering costs and improving working capital performance, and expects these actions to better position the segment for the gradual upturn that is expected to begin in the second half of the year.
Financial Position
Harsco made further progress in its strategic objectives for cash optimization during the first quarter of 2002. Net cash from operating activities improved by $6.5 million and proceeds from asset sales grew by $7.4 million compared with the prior year period. Coupled with a reduction in capital expenditures of $2.4 million, free cash flow in the quarter improved approximately $16 million. The Company expects free cash flow to accelerate as it enters the later quarters of the year, traditionally its stronger quarters.
While its debt-to-capital ratio remained unchanged from year-end 2001, the Company continues to expect a significant reduction in debt levels as the year progresses. In the first quarter, net interest expense was reduced by almost $3.5 million, as debt has declined by almost $100 million since March 31, 2001. The effective tax rate was reduced 400 basis points below the first quarter of last year.
The first quarter of 2002 also marked the Company's first under the Stern Stewart Economic Value Added (EVA(r)) program for financial management decision-making and incentive compensation. EVA for the quarter met plan, although slightly behind the corresponding year-ago quarter. The Company expects gradual improvement in EVA through the year and anticipates meaningful EVA improvement for the full year.
As previously announced, Harsco will hold a conference call today at 2:00 p.m. Eastern Time to discuss its results and respond to questions from the investment community. The conference call will be Webcast live via Harsco's corporate Web site 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 both the Harsco Web site and by telephone beginning approximately 5:00 p.m. Eastern Time today until approximately 4:00 p.m. Eastern Time Tuesday, April 30. 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 3745920.
Forward-Looking Statements
The nature of Harsco'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, Harsco 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, earnings, and other financial performance measures.
These factors 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 service, infrastructure and industrial gas markets; currency exchange rates; interest rates; and capital costs; (2) changes in governmental laws and regulations, including taxes; (3) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services, and technologies; (4) effects of unstable governments and business conditions in emerging economies; and (5) 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.
Harsco Corporation is a diversified provider of market-leading industrial services and products serving the worldwide infrastructure development, steel and metals, railway transportation, and gas and energy industries. The company employs approximately 18,700 people in 40 countries of operation. Additional information can be found at www.harsco.com
Harsco Corporation
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended
March 31
(In thousands, except per share amounts) 2002 2001(a)
--------- ---------
Revenues from continuing operations:
Service sales $ 309,861 $ 325,064
Product sales 148,723 179,559
Other 19 421
--------- ---------
Total revenues 458,603 505,044
========= =========
Costs and expenses from
continuing operations:
Cost of services sold 227,187 237,643
Cost of products sold 117,330 147,470
Selling, general, and
administrative expenses 78,394 81,060
Research and development expenses 857 585
Other expense 1,335 3,848
--------- ---------
Total costs and expenses 425,103 470,606
========= =========
Operating income from
continuing operations: 33,500 34,438
Equity in income (loss) of
affiliates, net 205 (2,238)
Interest income 1,363 1,220
Interest expense (11,226) (14,540)
--------- ---------
Income from continuing operations
before income taxes and
minority interest 23,842 18,880
Provision for income taxes 7,392 6,608
--------- ---------
Income from continuing operations
before minority interest 16,450 12,272
Minority interest in net income 1,445 1,086
--------- ---------
Income from continuing operations 15,005 11,186
--------- ---------
Discontinued Operations:
Loss from operations of
discontinued business (1,319) (1,607)
Provision for income taxes 475 562
--------- ---------
Loss from discontinued operations (844) (1,045)
--------- ---------
Net Income $ 14,161 $ 10,141
========= =========
Average shares of common
stock outstanding 40,041 39,807
Basic earnings per common share:
Income from continuing operations .37 .28
Income from discontinued operations (.02) (.03)
--------- ---------
Basic earnings per common share $ .35 $ .25
========= =========
Diluted average shares of common
stock outstanding 40,535 39,879
Diluted earnings per common share:
Income from continuing operations .37 .28
Income from discontinued operations (.02) (.03)
--------- ---------
Diluted earnings per common share $ .35 $ .25
========= =========
(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," 2001 information has been
reclassified for comparative purposes.
Harsco Corporation
CONSOLIDATED BALANCE SHEET (Unaudited)
March 31 December 31
(In thousands) 2002 2001(a)
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 60,454 $ 67,409
Accounts receivable, net 390,227 386,230
Inventories 186,658 176,970
Other current assets 69,759 68,545
----------- -----------
Total current assets 707,098 699,154
=========== ===========
Property, plant and
equipment, net 817,771 834,917
Cost in excess of net assets
of businesses acquired, net 347,778 353,564
Other assets 175,796 180,439
Assets from discontinued
operations 24,428 22,692
----------- -----------
Total assets $ 2,072,871 $ 2,090,766
=========== ===========
LIABILITIES
Current liabilities
Short-term borrowings $ 15,527 $ 29,559
Current maturities of
long term debt 10,089 12,422
Accounts payable 138,519 162,481
Accrued compensation 33,802 37,245
Income taxes 27,306 34,755
Dividends payable 10,030 9,996
Other current liabilities 179,357 178,699
----------- -----------
Total current liabilities 414,630 465,157
=========== ===========
Long-term debt 741,242 720,133
Deferred income taxes 108,462 103,082
Insurance liabilities 50,005 49,019
Other liabilities 57,977 57,621
Liabilities from discontinued
operations 10,078 9,581
----------- -----------
Total liabilities 1,382,394 1,404,593
=========== ===========
SHAREHOLDERS' EQUITY
Common stock 83,275 83,106
Additional paid-in capital 98,518 94,597
Accumulated other
comprehensive expense (139,221) (135,263)
Retained earnings 1,251,810 1,247,680
----------- -----------
1,294,382 1,290,120
Treasury stock (603,905) (603,947)
----------- -----------
Total shareholders' equity 690,477 686,173
=========== ===========
Total liabilities and
shareholders' equity $ 2,072,871 $ 2,090,766
=========== ===========
(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," 2001 information has been
reclassified for comparative purposes.
Harsco Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended
March 31
(In thousands) 2002 2001
-------- --------
Cash flows from operating
activities:
Net income $ 14,161 $ 10,141
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 37,975 39,274
Amortization 337 4,327
Equity in (income) loss of
affiliates, net (205) 2,238
Other, net 1,407 3,896
Changes in assets and liabilities,
net of acquisitions and dispositions
of businesses:
Accounts receivable (9,319) (26,116)
Inventories (12,766) (6,175)
Accounts payable (20,713) (21,779)
Net disbursements related to
discontinued defense business (291) (186)
Other assets and liabilities (1,573) (3,066)
-------- --------
Net cash provided by operating activities 9,013 2,554
======== ========
Cash flows from investing activities:
Purchases of property, plant
and equipment (31,255) (33,609)
Proceeds from sale of assets 10,463 3,035
Other investing activities -- 9
-------- --------
Net cash (used) by investing activities (20,792) (30,565)
======== ========
Cash flows from financing activities:
Short-term borrowings, net (12,563) (1,515)
Current maturities and long-term debt:
Additions 61,136 80,183
Reductions (34,583) (31,180)
Cash dividends paid on common stock (9,996) (9,553)
Common stock issued-options 3,611 151
Common stock acquired for treasury -- (50)
Other financing activities (1,378) (1,206)
-------- --------
Net cash provided by
financing activities 6,227 36,830
======== ========
Effect of exchange rate changes on cash (1,403) (3,874)
-------- --------
Net increase (decrease) in cash
and cash equivalents (6,955) 4,945
Cash and cash equivalents at
beginning of period 67,409 56,422
======== ========
Cash and cash equivalents at
end of period $ 60,454 $ 61,367
======== ========
Harsco Corporation
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)
(In millions)
Infra- Gas and S3- Gen'l Consol-
struc- Mill Fluid Networks Corpo- idated
ture Svcs Control LLC rate Totals
====== ====== ====== ===== ===== =======
Three Months Ended
March 31, 2002
Net sales from
continuing
operations to
unaffiliated
customers $198.2 $176.8 $3.6 $ -- $-- $458.6
------ ------ ---- ------ ----- ------
Operating income
from continuing
operations $ 11.3 $ 17.7 $4.2 $ -- $ 0.3 $ 33.5
Equity in income
of affiliates, net 0.2 -- - -- -- 0.2
Interest income 0.3 0.9 - -- 0.2 1.4
Interest expense (7.0) (1.3) 0.1) -- (2.8) (11.2)
Income tax (expense)
benefit (1.4) (5.5) 1.2) -- 0.7 (7.4)
Minority interest
in net income (0.1) (1.4) - -- -- (1.5)
------ ------ ---- ------ ----- ------
Segment income
(loss) from
continuing
operations 3.3 10.4 2.9 -- (1.6) 15.0
Loss from
discontinued
operations -- -- (0.8) -- -- (0.8)
------ ------ ---- ------ ----- ------
Segment net
income (loss) $ 3.3 $ 10.4 $2.1 $ -- $(1.6) $ 14.2
====== ====== ==== ====== ===== ======
Three Months Ended
March 31, 2001 (a)
Net sales from
continuing
operations to
unaffiliated
customers $215.1 $183.1 $106.4 $ -- $ -- $504.6
------ ------ ---- ------ ----- ------
Operating income
(loss) from
continuing
operations $ 8.2 $ 18.5 $7.9 $ -- $(0.2) $ 34.4
Equity in income
(loss) of
affiliates, net 0.4 0.1 -- (2.7) -- (2.2)
Interest income 0.2 1.0 -- -- -- 1.2
Interest expense (9.1) (2.2) (0.3) -- (2.9) (14.5)
Income tax
(expense)
benefit 0.2 (5.2) (2.9) 0.9 0.4 (6.6)
Minority interest
in net income -- (1.1) -- -- -- (1.1)
------ ------ ---- ------ ----- ------
Segment income
(loss) from
continuing
operations (0.1) 11.1 4.7 (1.8) (2.7) 11.2
Loss from
discontinued
operations -- -- (1.1) -- -- (1.1)
------ ------ ---- ------ ----- ------
Segment net
income (loss) $ (0.1) $ 11.1 $3.6 $ (1.8) $(2.7) $ 10.1
====== ====== ==== ====== ===== ======
(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," 2001 information has been
reclassified for comparative purposes.
Harsco Corporation
REVIEW OF OPERATIONS BY SEGMENT - Addendum (Unaudited)
(In millions)
Infra- Gas and S3- Gen'l Consol-
struc- Mill Fluid Networks Corpo- idated
ture Svcs Control LLC rate Totals
====== ====== ====== ===== ===== =======
Three Months Ended
March 31, 2002
Net sales from
continuing
operations to
unaffiliated
customers $198.2 $176.8 $83.6 $ -- $ -- $458.6
------ ------ ----- ------ ----- ------
Operating income
from continuing
operations before
special items $ 11.7 $ 18.8 $5.2 $ -- $ -- $ 35.7
Net unusual costs,
special (charges)
and gains (0.4) (1.1) (1.0) -- 0.3 (2.2)
------ ------ ----- ------ ----- ------
Operating income
from continuing
operations 11.3 17.7 4.2 -- 0.3 33.5
Equity in income
of affiliates, net 0.2 -- -- -- -- 0.2
Interest income 0.3 0.9 -- -- 0.2 1.4
Interest expense (7.0) (1.3) (0.1) -- (2.8) (11.2)
Income tax
(expense) benefit (1.4) (5.5) (1.2) -- 0.7 (7.4)
Minority interest
in net income (0.1) (1.4) -- -- -- (1.5)
------ ------ ----- ------ ----- ------
Segment net
income (loss)
from continuing
operations 3.3 10.4 2.9 -- (1.6) 15.0
Loss from
discontinued
operations -- -- (0.8) -- -- (0.8)
------ ------ ----- ------ ----- ------
Segment net
income (loss) $ 3.3 $ 10.4 $2.1 $ -- $(1.6) $ 14.2
====== ====== ===== ====== ===== ======
Three Months Ended
March 31, 2001 (a)
Net sales from
continuing
operations to
unaffiliated
customers $215.1 $183.1 $106.4 $ -- $ -- $504.6
------ ------ ----- ------ ----- ------
Operating income
from continuing
operations before
special items $ 11.8 $ 20.9 $ 8.6 $ -- $ 0.7 $ 42.0
Net unusual costs,
special charges (3.6) (2.4) (0.7) (2.7) (0.9) (10.3)
------ ------ ----- ------ ----- ------
Operating income
(loss) from
continuing
operations 8.2 18.5 7.9 -- (0.2) 34.4(b)
Equity in income
(loss) of
affiliates, net 0.4 0.1 -- (2.7) -- (2.2)
Interest income 0.2 1.0 -- -- -- 1.2
Interest expense (9.1) (2.2) (0.3) -- (2.9) (14.5)
Income tax
(expense)
benefit 0.2 (5.2) (2.9) 0.9 0.4 (6.6)
Minority interest
in net income -- (1.1) -- -- -- (1.1)
------ ------ ----- ------ ----- ------
Segment income
(loss) from
continuing
operations (0.1) 11.1 4.7 (1.8) (2.7) 11.2
Loss from
discontinued
operations -- -- (1.1) -- -- (1.1)
------ ------ ----- ------ ----- ------
Segment net
income (loss) $ (0.1) $ 11.1 $ 3.6 $ (1.8) $(2.7) $ 10.1
====== ====== ===== ====== ===== ======
(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," 2001 information has been
reclassified for comparative purposes.
(b) Excludes $2.7 million of losses for S3Networks, LLC that are
included as special items above. The $2.7 million is included in
Equity in income (loss) of affiliates, net.