HARRISBURG, Pa., April 19, 2001 (PRIMEZONE) -- Worldwide industrial services and products company Harsco Corporation (NYSE:HSC) today reported first quarter results slightly better than the company's updated outlook announced on March 23, 2001. A strong performance from international operations helped offset weaker market conditions in the U.S. economy. Diluted earnings per share were $0.42 before nonrecurring costs and special charges. Revenues reached a record $527 million, an increase of 15 percent over the first quarter of 2000. Adjusting for the effects of negative foreign exchange translation, revenues would have been up approximately 18 percent. Negative foreign exchange translation lowered pre-tax income by approximately $2.2 million, or $0.04 per share.
Income before nonrecurring costs and special charges was $17.0 million, compared with net income of $20.2 million in the first quarter of 2000. Pre-tax net nonrecurring costs and special charges totaled $10.5 million, or $0.17 per share, principally related to the company's exit from its S3Networks equity investment, severance costs for headcount reductions, product line rationalizations, asset write-downs and other reorganization actions. Including these charges, net income for the first quarter of 2001 was $10.1 million, or $0.25 per share.
"Harsco's international businesses performed well, particularly our mill services and scaffolding and access services units. Our U.S. manufacturing businesses experienced weaker demand, as the domestic economic slowdown that began in the latter half of 2000 became more severe," said Harsco Chairman, President and Chief Executive Officer Derek C. Hathaway.
"Uncertainty about the duration of the external factors driving this quarter's results is causing us to be more cautious. The reorganization actions we are implementing will better align Harsco's operations with the current economic and market conditions and strengthen the company's position for the remainder of the year. We will benefit from continued strong performance from our international services businesses and lower domestic interest rates. Exiting in April from our S3Networks equity interest has eliminated future dilution and returned approximately $3.7 million in cash. We anticipate earnings contributions from business units we had previously planned to sell."
First Quarter Business Segment Review
Infrastructure -- Performance was mixed, with the services businesses posting strong results while the manufacturing businesses were weak. Operating income, excluding pre-tax special charges of approximately $3.6 million, increased 34 percent over last year's first quarter, while sales increased 74 percent. Results benefited greatly from the inclusion of the SGB Group, which performed to plan. Patent Construction Systems continued to experience strong demand for rentals of its scaffolding and other access products, but IKG industrial grating and Harsco Track Technologies were adversely affected by slower manufacturing activity in the U.S. and by lower capital spending by domestic railroads. Their performance lowered margins for this segment by 160 basis points to 5.5 percent, before special charges.
Mill Services -- Led by international operations, results exceeded last year's first quarter, before pre-tax special charges of $2.4 million. Noteworthy is the 110 basis point improvement in the segment's operating margins, before special charges, to 11.4 percent from 10.3 percent in last year's first quarter. Approximately 75 percent of the segment's revenues are generated from outside the United States, thereby compensating for the continuing difficulties in the domestic steel industry.
For the quarter, negative foreign exchange translation lowered sales by approximately $12 million and operating income by approximately $2.3 million. Without negative foreign exchange translation, operating margins would have further increased to 11.9 percent. The principal currencies showing weakness against the U.S. dollar were the euro, British pound sterling, Brazilian real, South African rand and the Australian dollar.
Gas and Fluid Control -- Sales decreased by 9 percent from the first quarter of last year due to the steep decline in demand in a weak domestic economy. Operating income, before pre-tax special charges of approximately $0.9 million, decreased 33 percent for the quarter while margins declined to 5.8 percent.
S3Networks and Other -- Nonrecurring costs and special charges for the quarter include approximately $3.6 million which represents approximately $1.2 million in operating losses at S3Networks, a $1.5 million write-down of the company's investment in S3Networks, and approximately $0.9 million in other nonrecurring items.
Financial Position
Harsco continued its strategic objectives for cash optimization during the quarter, realizing $3.0 million from the sale of assets and reducing its capital expenditures by 14 percent below the same period last year, despite the addition of SGB Group operations. Due to the seasonality of cash flows, principally from the Infrastructure and Gas and Fluid Control segments, the company's debt-to-capital ratio increased to 56.8 percent at the end of the first quarter. Net interest expense rose to $13.3 million, compared with $6.3 million in last year's first quarter, due to the SGB Group acquisition in June 2000. The company has undertaken a debt reduction program that includes a permanent reduction in working capital, the sale of underperforming assets and a complete evaluation of its capital expenditure program. These actions are expected to enable the company to reduce its debt levels by the end of 2001.
The company is taking steps to accelerate its positive record for adding shareholder value through the formal implementation of the Stern Stewart & Co. Economic Value Added (EVA(R)) program for both financial measurement and incentive compensation. "Harsco has generated some $320 million in cumulative Economic Value Added in recent years, and we believe this reinforcement will enhance Harsco's ability to generate improving levels of returns on its invested capital," Mr. Hathaway said.
Harsco has scheduled a conference call for 2 p.m. ET this afternoon, April 19th to discuss its first quarter 2001 results and respond to questions from the investment community. The conference call will be broadcast live through the Harsco Corporation Web site at www.harsco.com and through www.streetevents.com. The call will also be available by telephone by dialing 888-328-2940, or 212-346-0304 from outside the United States. Participants are asked to dial in at least five minutes prior to the call. A recording of Harsco's conference call will be available via telephone for five days following the call, by dialing 800-633-8284, or 858-812-6440 from outside the United States. Enter reservation number 18386385. The replay will also be available through the web sites noted above.
Harsco Corporation is a $2 billion worldwide industrial services and products company serving the infrastructure development, steel, railway transportation, gas and energy industries. The company employs more than 20,000 people in 38 countries. Additional information about Harsco can be found at www.harsco.com.
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 CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three Months Ended March 31 (In thousands, except per share amounts) 2001 2000 --------- --------- Revenues: Service sales (a) $ 325,064 $ 231,249 Product sales (a) 201,148 226,205 Other 426 203 --------- --------- Total revenues 526,638 457,657 --------- --------- Costs and expenses: Cost of services sold (a) 237,643 179,094 Cost of products sold (a) 167,972 183,725 Selling, general, and administrative expenses 83,553 53,794 Research and development expenses 585 1,647 Other expense 4,040 374 --------- --------- Total costs and expenses 493,793 418,634 --------- --------- Operating income 32,845 39,023 Equity in income (loss) of affiliates, net (b) (2,238) 150 Interest income 1,222 1,188 Interest expense (14,556) (7,490) --------- --------- Income before income taxes and minority interest 17,273 32,871 Provision for income taxes 6,046 11,505 --------- --------- Income before minority interest 11,227 21,366 Minority interest in net income 1,086 1,164 --------- --------- Net income $ 10,141 $ 20,202 ========= ========= Average shares of common stock outstanding 39,807 40,015 ========= ========= Basic earnings per common share $ .25 $ .50 ========= ========= Diluted average shares of common stock outstanding 39,879 40,085 ========= ========= Diluted earnings per common share $ .25 $ .50 ========= ========= (a) In order to comply with Emerging Issues Task Force (EITF) Issue No. 00-10, all shipping and handling costs have been classified as cost of services sold or as cost of products sold rather than as reductions of sales. The income statement for the three months ended March 31, 2000 has been reclassified to reflect this change. The reclassification has no effect on previously reported operating income or net income for the three months ended March 31, 2000. (b) Equity in income (loss) of affiliates is now separately reported. Previously this amount was included in operating income as other revenues. The amount previously reported as operating income for the three months ended March 31, 2000 was $39,173. Harsco Corporation CONSOLIDATED BALANCE SHEET (Unaudited) March 31 December 31 (In thousands) 2001 2000 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 61,367 $ 56,422 Receivables 429,047 413,654 Inventories 201,499 199,117 Other current assets 53,436 57,222 ----------- ----------- Total current assets 745,349 726,415 ----------- ----------- Property, plant and equipment, net 868,120 896,781 Cost in excess of net assets of businesses acquired, net 355,905 369,199 Other assets 176,023 188,553 =========== =========== Total assets $ 2,145,397 $ 2,180,948 =========== =========== LIABILITIES Current liabilities: Notes payable and current maturities $ 54,128 $ 62,295 Accounts payable 156,353 192,148 Accrued compensation 39,175 46,591 Income taxes 29,167 34,783 Other current liabilities 206,043 200,362 ----------- ----------- Total current liabilities 484,866 536,179 ----------- ----------- Long-term debt 808,753 774,450 Deferred income taxes 90,388 88,480 Other liabilities 104,229 107,660 ----------- ----------- Total liabilities 1,488,236 1,506,769 ----------- ----------- SHAREHOLDERS' EQUITY Common stock and additional paid-in capital 173,048 172,887 Accumulated other comprehensive income (expense) (127,130) (109,377) Retained earnings 1,215,245 1,214,659 Treasury stock (604,002) (603,990) ----------- ----------- Total shareholders' equity 657,161 674,179 =========== =========== Total liabilities and shareholders' equity $ 2,145,397 $ 2,180,948 =========== =========== Harsco Corporation CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Three Months Ended March 31 (In thousands) 2001 2000 -------- -------- Cash flows from operating activities: Net income $ 10,141 $ 20,202 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 38,874 31,883 Amortization 4,327 3,350 Equity in (income) loss of affiliates, net 2,238 (150) Deferred income taxes 5,863 1,859 Other, net 3,896 864 Changes in assets and liabilities, net of acquisitions and dispositions of businesses: Accounts receivable (26,116) (6,901) Inventories (5,962) (6,117) Accounts payable (21,779) (7,887) Net disbursements related to discontinued defense business (186) (227) Other assets and liabilities (8,742) (19,393) -------- -------- Net cash provided by operating activities 2,554 17,483 -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment (33,609) (39,207) Proceeds from sale of property, plant and equipment 3,035 793 Purchase of business, net of cash acquired -- (9,502) Proceeds from sale of business -- 3,743 Other investing activities 9 122 -------- -------- Net cash (used) by investing activities (30,565) (44,051) -------- -------- Cash flows from financing activities: Short-term and long-term debt, net 47,488 35,877 Cash dividends paid on common stock (9,553) (9,421) Common stock issued-options 151 265 Common stock acquired for treasury (50) (3,768) Other financing activities (1,206) (748) -------- -------- Net cash provided by financing activities 36,830 22,205 -------- -------- Effect of exchange rate changes on cash (3,874) (1,055) -------- -------- Net increase (decrease) in cash and cash equivalents 4,945 (5,418) Cash and cash equivalents at beginning of period 56,422 51,266 -------- -------- Cash and cash equivalents at end of period $ 61,367 $ 45,848 ======== ======== Harsco Corporation REVIEW OF OPERATIONS BY SEGMENT (Unaudited) (In millions) Gas Infra- Mill and Fluid Three Months Ended March 31, 2001 Structure Services Control --------- --------- --------- Net sales to unaffiliated customers (a) $ 215.1 $ 183.1 $ 128.0 --------- --------- --------- Operating income (loss) $ 8.2 $ 18.5 $ 6.5 Equity in income (loss) of affiliates, net 0.4 0.1 - Interest income 0.2 1.0 - Interest expense (9.1) (2.2) (0.4) Income tax (expense) benefit 0.2 (5.2) (2.4) Minority interest in net (income) - (1.1) - --------- --------- --------- Segment net income (loss) $ (0.1) $ 11.1 $ 3.7 ========= ========= ========= Gas Infra- Mill and Fluid Three Months Ended March 31, 2000 Structure Services Control --------- --------- --------- Net sales to unaffiliated customers (a) $ 123.9 $ 193.5 $ 140.1 --------- --------- --------- Operating income (loss) $ 8.8 $ 19.9 $ 11.1 Equity in income of affiliates, net (b) - 0.2 - Interest income - 1.1 0.1 Interest expense (1.8) (2.1) (1.0) Income tax (expense) benefit (2.4) (6.7) (3.8) Minority interest in net (income) - (1.2) - --------- --------- --------- Segment net income (loss) $ 4.6 $ 11.2 $ 6.4 ========= ========= ========= S3Networks General Consolidated Three Months Ended March 31, 2001 LLC Corporate Totals --------- --------- --------- Net sales to unaffiliated customers (a) $ - $ - $ 526.2 --------- --------- --------- Operating income (loss) $ - $ (0.4) $ 32.8 Equity in income (loss) of affiliates, net (2.7) - (2.2) Interest income - - 1.2 Interest expense - (2.9) (14.6) Income tax (expense) benefit 0.9 0.5 (6.0) Minority interest in net (income) - - (1.1) --------- --------- --------- Segment net income (loss) $ (1.8) $ (2.8) $ 10.1 ========= ========= ========= S3Networks General Consolidated Three Months Ended March 31, 2000 LLC Corporate Totals --------- --------- --------- Net sales to unaffiliated customers (a) $ - $ - $ 457.5 --------- --------- --------- Operating income (loss) $ - $ (0.8) $ 39.0 Equity in income of affiliates, net (b) - - 0.2 Interest income - - 1.2 Interest expense - (2.6) (7.5) Income tax (expense) benefit - 1.4 (11.5) Minority interest in net (income) - - (1.2) --------- --------- --------- Segment net income (loss) $ - $ (2.0) $ 20.2 ========= ========= ========= (a) In order to comply with Emerging Issues Task Force (EITF) Issue No. 00-10, all shipping and handling costs have been classified as cost of services sold or as cost of products sold rather than as reductions of sales. The income statement for the three months ended March 31, 2000 has been reclassified to reflect this change. The reclassification has no effect on previously reported operating income or net income for the three months ended March 31, 2000. (b) Equity in income (loss) of affiliates is now separately reported. Previously these amounts were included in operating income. Amounts previously reported as operating income for the three months ended March 31, 2000 were $20.1 million for Harsco Mill Services Segment and a consolidated total of $39.2 million. Reported operating income amounts for the other segments are unchanged. Harsco Corporation REVIEW OF OPERATIONS BY SEGMENT - Addendum (Unaudited) (In millions) Gas Infra- Mill and Fluid Three Months Ended March 31, 2001 Structure Services Control --------- --------- --------- Net sales to unaffiliated customers (a) $ 215.1 $ 183.1 $ 128.0 --------- --------- --------- Operating income (loss) before non-recurring items $ 11.8 $ 20.9 $ 7.4 Non-recurring items (3.6) (2.4) (0.9) --------- --------- --------- Operating income (loss) 8.2 18.5 6.5 Equity in income (loss) of affiliates, net 0.4 0.1 - Interest income 0.2 1.0 - Interest expense (9.1) (2.2) (0.4) Income tax (expense) benefit 0.2 (5.2) (2.4) Minority interest in net (income) - (1.1) - --------- --------- --------- Segment net income (loss) $ (0.1) $ 11.1 $ 3.7 ========= ========= ========= Gas Infra- Mill and Fluid Three Months Ended March 31, 2000 Structure Services Control --------- --------- --------- Net sales to unaffiliated customers (a) $ 123.9 $ 193.5 $ 140.1 --------- --------- --------- Operating income (loss) $ 8.8 $ 19.9 $ 11.1 Equity in income of affiliates, net (b) - 0.2 - Interest income - 1.1 0.1 Interest expense (1.8) (2.1) (1.0) Income tax (expense) benefit (2.4) (6.7) (3.8) Minority interest in net (income) - (1.2) - --------- --------- --------- Segment net income (loss) $ 4.6 $ 11.2 $ 6.4 ========= ========= ========= S3Networks General Consolidated Three Months Ended March 31, 2001 LLC Corporate Totals --------- --------- --------- Net sales to unaffiliated customers (a) $ - $ - $ 526.2 --------- --------- --------- Operating income (loss) before non-recurring items $ - $ 0.5 $ 40.6 Non-recurring items (2.7) (0.9) (10.5) --------- --------- --------- Operating income (loss) - (0.4) 32.8(c) Equity in income (loss) of affiliates, net (2.7) - (2.2) Interest income - - 1.2 Interest expense - (2.9) (14.6) Income tax (expense) benefit 0.9 0.5 (6.0) Minority interest in net (income) - - (1.1) --------- --------- --------- Segment net income (loss) $ (1.8) $ (2.8) $ 10.1 ========= ========= ========= S3Networks General Consolidated Three Months Ended March 31, 2000 LLC Corporate Totals --------- --------- --------- Net sales to unaffiliated customers (a) $ - $ - $ 457.5 --------- --------- --------- Operating income (loss) $ - $ (0.8) $ 39.0 Equity in income of affiliates, net (b) - - 0.2 Interest income - - 1.2 Interest expense - (2.6) (7.5) Income tax (expense) benefit - 1.4 (11.5) Minority interest in net (income) - - (1.2) --------- --------- --------- Segment net income (loss) $ - $ (2.0) $ 20.2 ========= ========= ========= (a) In order to comply with Emerging Issues Task Force (EITF) Issue No. 00-10, all shipping and handling costs have been classified as cost of services sold or as cost of products sold rather than as reductions of sales. The income statement for the three months ended March 31, 2000 has been reclassified to reflect this change. The reclassification has no effect on previously reported operating income or net income for the three months ended March 31, 2000. (b) Equity in income (loss) of affiliates is now separately reported. Previously these amounts were included in operating income. Amounts previously reported as operating income for the three months ended March 31, 2000 were $20.1 million for Harsco Mill Services Segment and a consolidated total of $39.2 million. Reported operating income amounts for the other segments are unchanged. (c) Excludes $2.7 million of losses for S3Networks, LLC that are included as non-recurring items above. The $2.7 million is included in Equity in income (loss) of affiliates, net.