UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
January 29, 2004
(Date of earliest event reported)
Harsco Corporation
(Exact name of registrant as specified in its charter)
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DE |
1-3970 |
23-1483991 |
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(State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
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P.O. Box 8888 Camp Hill PA, 17011 |
17001-8888 |
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| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: 717-763-7064
Item 7. Financial Statements and Exhibits.
(c) Exhibit 99.1. Press release dated January 29, 2004
Item 12. Results of Operations and Financial Condition.
On January 29, 2004, Harsco Corporation issued a press release announcing its earnings for the fourth quarter and full year of 2003. A copy of the press release is attached hereto and incorporated by reference herein as Exhibit 99.1.
This information is being furnished and shall not be considered filed for purposes of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
| Exhibit Index | |||
| 99.1 | Press release dated January 29, 2004 | ||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Harsco Corporation
(Registrant) |
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January 29, 2004
(Date) |
/s/ SALVATORE D. FAZZOLARI
Salvatore D. Fazzolari Senior Vice President, Chief Financial Officer & Treasurer |
EXHIBIT 99.1
Harsco's Fourth Quarter 2003 Diluted Earnings Per Share Total $0.62
HARRISBURG, Pa., Jan. 29, 2004 -- Harsco Corporation (NYSE:HSC):
-- Q4 Diluted EPS up 5%, $0.62 vs. $0.59
-- 2003 Sales Reach Record $2.1 Billion
-- Company Posts Record Full-Year Cash Flow from Operations of
$263 Million
-- Debt-to-Capital Ratio Reduced to 44.1% from 49.8%
Worldwide industrial services and products company Harsco Corporation (NYSE:HSC) today reported diluted earnings per share of $0.62 in the fourth quarter of 2003, compared with $0.59 in the fourth quarter of 2002. Income from continuing operations was $25.7 million, compared with $23.9 million last year. Fourth quarter 2003 sales totaled $564 million, up approximately 13 percent from sales of $497 million in the same period last year.
Affecting results in the fourth quarter 2003 were increased pension expense of $4.1 million pre-tax and a total of $2.4 million pre-tax in net severance and other reorganization costs. Positive foreign currency translation increased sales by approximately $40.5 million and pre-tax income by approximately $4.4 million in the quarter.
For the full year 2003, income from continuing operations was $87.0 million, or $2.12 diluted earnings per share, compared with income of $88.4 million, or $2.17 diluted earnings per share in 2002. Including discontinued operations, net income in 2003 was $92.2 million or $2.25 diluted earnings per share, compared with net income of $90.1 million or $2.21 diluted earnings per share in 2002. Income from discontinued operations in 2003 was $5.2 million, compared with $1.7 million in 2002. Sales for the full year 2003 were a record $2.119 billion, an increase of approximately 7 percent from sales of $1.977 billion in 2002.
Affecting results from continuing operations in 2003 were increased pension expense of $17.7 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 half of 2003. Also affecting 2003 full year results from continuing operations was approximately $7.0 million pre-tax in net severance and other reorganization costs. Positive foreign currency translation increased 2003 sales by approximately $126.2 million and pre-tax income by approximately $11.9 million.
Commenting on the Company's results, Harsco Chairman, President and Chief Executive Officer Derek C. Hathaway said, "We are pleased with the results for the fourth quarter. Our balance sheet remains strong, debt levels have been reduced, and we continue to generate high levels of cash flow from operations. We also made additional progress in our strategy for growing our industrial services businesses, with 71 percent of 2003's sales coming from services.
"We paid our 214th consecutive cash dividend in the quarter and announced a dividend increase for the tenth year in a row. Harsco remains committed to delivering long-term value for our shareholders through a combination of cash dividends and increased earnings growth. As we enter 2004, our value-based EVA(r) and Six-Sigma process improvement initiatives along with our growth investment opportunities in Mill Services give us added confidence in achieving our stated goals."
Fourth Quarter Business Segment Review
Mill Services
Fourth quarter 2003 sales increased 24 percent to $227 million from $183 million in the fourth quarter of 2002. Positive foreign currency translation increased sales $25.2 million or 14 percent, while organic growth and the Company's acquisition of the industrial services division of C. J. Langenfelder & Son were responsible for $18.8 million or 10 percent. Operating income for the quarter increased 11.4 percent to $22.8 million from $20.5 million in the same period last year, reflecting positive foreign exchange translation of $3.7 million pre-tax. Operating margins declined to 10.0 percent from 11.2 percent in the fourth quarter of 2002. This year's fourth quarter operating income and margins were unfavorably affected by $1.6 million pre-tax from higher pension costs, while last year's fourth quarter results included income of $2.1 million from the recovery of a bad debt from a customer bankruptcy. Without these items, fourth quarter 2003 operating margins would have been 10.8 percent compared with 10. 0 percent in the fourth quarter of 2002.
The outlook for the Mill Services Segment continues to be encouraging. The estimated future value of the Company's mill services contracts currently totals $3.4 billion. Global steel production is expected to rise in 2004, and bidding activity for new mill services contracts and add-on services is strong. Having achieved a substantial pay-down of its debt, the Company plans to devote a significant amount of its strong cash flow from operations to long-term contract initiatives and acquisitions in the Mill Services Segment.
Access Services
Positive foreign currency translation enabled fourth quarter 2003 sales to remain essentially flat with the comparable period last year, at $159 million. Operating income for the quarter was down 9.5 percent and operating margins declined some 70 basis points to 6.9 percent. Positive foreign currency translation increased sales by $14.3 million and operating income by $1.2 million pre-tax in the quarter. The lower operating income and reduced margins were due primarily to higher pension expense of $1.3 million in this year's fourth quarter, while last year's fourth quarter results included income of $2.2 million from asset sales. Without these items, fourth quarter 2003 operating margins would have been 7.8 percent compared with 6.3 percent in the fourth quarter of 2002.
The Company anticipates gradually improving results for its Access Services Segment in 2004. The outlook for non-residential construction spending appears to be modestly improving and pricing is firming. The Company expects its aggressive cost reduction and Six-Sigma initiatives to further enhance margins, while its asset redeployment strategies should also benefit results in 2004.
Gas and Fluid Control
Sales in the fourth quarter of $94.2 million were 10 percent ahead of last year's fourth quarter. Operating income in the quarter increased 7.9 percent to $6.1 million from $5.7 million last year. Margins of 6.5 percent were approximately ten basis points lower than last year's fourth quarter. Results benefited from strong propane product sales due to the severely cold winter in much of the United States, and slightly better year-over-year performance from the air-cooled heat exchangers business, where orders have gradually picked up due to increased drilling for natural gas. The effect of foreign currency translation was not material for this Segment. Pension expense increased by $0.4 million over last year.
This Segment is expected to remain the Company's most challenging business in 2004, particularly in the first quarter. Much of the improvement anticipated for this Segment is expected to occur well into the second half of the year, as some of this Segment's businesses tend to show growth later in the industrial recovery cycle. The strongest performer in 2004 is again expected to be the propane product line. The valve and cylinder product lines continue to be adversely affected by international competition, pricing pressures and difficult end markets. The cryogenic, composites and air-cooled heat exchangers product lines are expected to improve modestly in 2004, with most of the improvement expected in the second half.
Other Infrastructure Products and Services
Fourth quarter 2003 sales of $83.9 million grew 21 percent from last year's $69.1 million. Operating income grew from $7.3 million in the fourth quarter of 2002 to $10.4 million in the fourth quarter of 2003, or 42 percent. Margins also increased in the fourth quarter, from 10.5 percent in 2002 to 12.3 percent in 2003. The effect of foreign currency translation was not material in the quarter. Pension expense increased $0.6 million over 2002's fourth quarter.
Strong performance from the Company's railway track services and equipment business was the primary driver behind the quarter's improved sales. International sales, orders and bids continue to grow for this business. Good year-over-year performance was also achieved by the three other business units in this Segment, with the IKG industrial grating business moving back into profitability from a loss in 2002.
The 2004 outlook for the railway track services and equipment business remains positive, although significant seasonality is anticipated because a large amount of its order book is expected to be delivered in the final quarter of the year. This reflects the customary 9- to 12-month production time on these made-to-order units, as well as the extended delivery and commissioning periods involved in this unit's increasing international activities. The Company expects the IKG business to be profitable in 2004, compared with a full year loss in 2003, while its Reed Minerals roofing granules and abrasives business and Patterson-Kelley process products and heat transfer business are expected to post another solid year of sales, earnings and margins.
Liquidity and Capital Resources
Net cash provided by operating activities for the full-year 2003 was a record $263 million compared with $254 million in 2002. The 4 percent year-over-year increase was primarily due to improvements in working capital components and the timing of other liabilities. Cash used by investing activities was $145 million, compared with $54 million in the prior year, 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.
Debt reduction in 2003 totaled $26 million. On a cash flow basis, debt was reduced by approximately $86 million, but due to the strengthening of major currencies against the U.S. dollar, particularly the British pound sterling and the euro, the translated balance sheet reduction in debt was $26 million or 4.1 percent. The Company's debt-to-capital ratio declined by 570 basis points in 2003 to 44.1 percent, a notable improvement from 49.8 percent at the end of 2002.
The Company's initiatives to reduce its overall capital employed and increase EVA also produced positive results. The Company as a whole improved EVA in 2003 over 2002, with the largest improvement coming from the Mill Services Segment. Six of the Company's nine operating units generated an improvement in EVA for 2003.
Outlook
As evidenced by the comments made regarding each operating segment, the Company remains positive in its 2004 outlook. The Company enters the year without the difficult headwind of the past two years resulting from significant year-over-year increases in pension expense. In fact, the Company does not expect a material change in pension expense this year compared with last year. The Company does expect, however, to continue to benefit through much of the year from favorable foreign currency translation and from the successful refinancing of its $150 million ten-year notes at a lower interest rate, which it completed in September 2003. With a strong balance sheet and significantly reduced debt position from three years ago, the Company intends to devote a significant portion of its cash flows to long-term organic growth initiatives, principally in its Mill Services Segment, and to selected bolt-on acquisitions that meet the Company's strict EVA-positive criteria.
The Company's view remains that 2004 earnings from continuing operations will be in the range of $2.50 to $2.65 per diluted share. With regard to the first quarter of 2004, the Company expects its earnings to be in the $0.35 to $0.38 range, compared with $0.31 per share in the first quarter of 2003. It is worthy to note that included in 2003's first quarter $0.31 EPS was a one-time gain of $0.07 per share from the termination of a post-retirement benefit plan.
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 abi lity 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 4254389.
About Harsco
Harsco Corporation is a diversified, $2.1 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)
Three Months Ended Twelve Months Ended
(In thousands, except December 31 December 31
per share amounts) 2003 2002 2003 2002
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Revenues from
continuing
operations:
Service sales $395,269 $353,641 $1,493,942 $1,341,867
Product sales 168,700 143,624 624,574 634,865
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Total revenues 563,969 497,265 2,118,516 1,976,732
====================================================================
Costs and expenses
from continuing
operations:
Cost of services sold 292,656 262,915 1,104,873 981,754
Cost of products sold 132,216 111,757 499,500 500,010
Selling, general and
administrative expenses 86,464 75,481 329,983 312,704
Research and development
expenses 946 614 3,313 2,820
Other expense 2,447 572 6,955 3,473
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Total costs and
expenses 514,729 451,339 1,944,624 1,800,761
====================================================================
Operating income from
continuing operations 49,240 45,926 173,892 175,971
Equity in income (loss)
of affiliates, net 50 (65) 321 363
Interest income 644 450 2,202 3,688
Interest expense (9,716) (9,764) (40,513) (43,323)
--------------------------------------------------------------------
Income from continuing
operations before
income taxes and
minority interest 40,218 36,547 135,902 136,699
Income tax expense (12,442) (11,313) (41,708) (42,240)
--------------------------------------------------------------------
Income from continuing
operations before
minority interest 27,776 25,234 94,194 94,459
Minority interest in
net income (2,076) (1,351) (7,195) (6,049)
--------------------------------------------------------------------
Income from continuing
operations 25,700 23,883 86,999 88,410
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Discontinued operations:
Loss from operations of
discontinued business (252) (370) (668) (2,952)
Gain on disposal of
discontinued business 131 667 765 5,606
Income related to
discontinued defense
business -- -- 8,030 --
Income tax benefit
(expense) 44 (107) (2,909) (958)
--------------------------------------------------------------------
Income (loss) from
discontinued operations (77) 190 5,218 1,696
--------------------------------------------------------------------
Net Income $ 25,623 $ 24,073 $ 92,217 $ 90,106
====================================================================
Average shares of
common stock outstanding 40,848 40,525 40,690 40,360
Basic earnings per
common share:
Continuing operations $ .63 $ .59 $ 2.14 $ 2.19
Discontinued operations -- -- .13 .04
--------------------------------------------------------------------
Basic earnings per
common share $ .63 $ .59 $ 2.27 $ 2.23
====================================================================
Diluted average shares
of common stock
outstanding 41,258 40,602 40,973 40,680
Diluted earnings per
common share:
Continuing operations $ .62 $ .59 $ 2.12 $ 2.17
Discontinued operations -- -- .13 .04
--------------------------------------------------------------------
Diluted earnings per
common share $ .62 $ .59 $ 2.25 $ 2.21
====================================================================
Harsco Corporation
CONSOLIDATED BALANCE SHEETS (Unaudited)
December 31 December 31
(In thousands) 2003 2002(a)
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ASSETS
Current assets:
Cash and cash equivalents $ 80,210 $ 70,132
Accounts receivable, net 446,875 388,872
Inventories 190,221 181,712
Other current assets 47,045 61,686
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Total current assets 764,351 702,402
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Property, plant and equipment, net 866,918 804,495
Goodwill, net 407,846 377,220
Other assets 97,483 102,493
Assets held for sale 1,437 12,687
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Total assets $2,138,035 $1,999,297
=====================================================================
LIABILITIES
Current liabilities:
Short-term borrowings $ 14,854 $ 22,362
Current maturities of long-term debt 14,252 11,695
Accounts payable 188,430 166,871
Accrued compensation 46,034 39,456
Income taxes 49,488 43,411
Dividends payable 11,238 10,642
Other current liabilities 175,151 179,413
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Total current liabilities 499,447 473,850
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Long-term debt 584,425 605,613
Deferred income taxes 62,483 62,096
Insurance liabilities 47,897 44,090
Other liabilities 165,897 167,069
Liabilities associated with assets
held for sale 898 2,039
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Total liabilities $1,361,047 $1,354,757
=====================================================================
SHAREHOLDERS' EQUITY
Common stock 84,197 83,793
Additional paid-in capital 120,070 110,639
Accumulated other comprehensive
expense (169,427) (242,978)
Retained earnings 1,345,787 1,296,855
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1,380,627 1,248,309
Treasury stock (603,639) (603,769)
---------------------------------------------------------------------
Total shareholders' equity 776,988 644,540
---------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,138,035 $1,999,297
=====================================================================
(a) As permitted by 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 Twelve Months Ended
December 31 December 31
(In thousands) 2003 2002 2003 2002
---------------------------------------------------------------------
Cash flows from operating
activities:
Net income $ 25,623 $ 24,073 $ 92,217 $ 90,106
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation 43,728 38,068 167,161 153,979
Amortization 512 437 1,774 1,682
Equity in (income)
loss of affiliates,
net (50) 65 (321) (363)
Dividends or
distributions from
affiliates 48 -- 1,383 144
Other, net 1,230 819 (2,678) 8,503
Changes in assets and
liabilities, net of
acquisitions and
dispositions of
businesses:
Accounts receivable 32,426 52,889 (21,211) 30,038
Inventories 1,073 (7,312) (2,078) (13,280)
Accounts payable 11,755 (342) 5,834 (13,055)
Net disbursements
related to
discontinued
defense business (289) (381) (1,328) (1,435)
Other assets and
liabilities (7,682) (18,244) 22,035 (2,566)
---------------------------------------------------------------------
Net cash provided by
operating activities 108,374 90,072 262,788 253,753
---------------------------------------------------------------------
Cash flows from
investing activities:
Purchases of property,
plant and equipment (46,997) (28,208) (143,824) (114,340)
Purchase of businesses,
net of cash acquired (188) (2,896) (23,718) (3,332)
Proceeds from sales
of assets 8,576 8,825 22,794 63,731
Other investing
activities (43) (4) (43) 12
---------------------------------------------------------------------
Net cash used by
investing activities (38,652) (22,283) (144,791) (53,929)
---------------------------------------------------------------------
Cash flows from
financing activities:
Short-term borrowings,
net (5,935) 3,281 (20,013) (16,272)
Current maturities and
long-term debt:
Additions 58,487 33,877 323,366 136,970
Reductions (115,737) (104,491) (389,599) (294,799)
Cash dividends paid on
common stock (10,718) (10,130) (42,688) (40,286)
Common stock
issued-options 1,273 552 8,758 14,011
Other financing
activities (1,165) (1,518) (5,325) (5,104)
---------------------------------------------------------------------
Net cash used by
financing activities (73,795) (78,429) (125,501) (205,480)
---------------------------------------------------------------------
Effect of exchange rate
changes on cash 7,718 4,346 17,582 8,380
Net decrease in cash of
discontinued operations -- -- -- 1
---------------------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents 3,645 (6,294) 10,078 2,725
Cash and cash
equivalents at
beginning of period 76,565 76,426 70,132 67,407
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Cash and cash
equivalents at end
of period $ 80,210 $ 70,132 $ 80,210 $ 70,132
=====================================================================
Harsco Corporation
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)
(In thousands)
Three Months Ended Three Months Ended
December 31, 2003 December 31, 2002
Operating
Income Operating
Sales(a) (loss)(b) Sales(a) Income(b)
---------------------------------------------------------------------
Mill Services
Segment $226,913 $ 22,800 $183,037 $ 20,467
Access Services
Segment 158,992 11,027 159,405 12,181
Gas and Fluid
Control Segment 94,199 6,104 85,679 5,658
Other Infrastructure
Products and
Services 83,865 10,351 69,144 7,294
General Corporate -- (1,042) -- 326
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Consolidated Totals $563,969 $ 49,240 $497,265 $ 45,926
=====================================================================
Twelve Months Ended Twelve Months Ended
December 31, 2003 December 31, 2002
Operating
Income Operating
Sales(a) (loss)(b) Sales(a) Income(b)
---------------------------------------------------------------------
Mill Services
Segment $ 827,521 $ 85,874 $ 696,852 $ 73,540
Access Services
Segment 619,069 37,388 587,852 41,699
Gas and Fluid
Control Segment 335,126 17,013 350,631 22,978
Other Infrastructure
Products and
Services 336,800 34,005 341,397 37,534
General Corporate -- (388) -- 220
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Consolidated Totals $2,118,516 $173,892 $1,976,732 $175,971
=====================================================================
(a) Sales from continuing operations.
(b) Operating income (loss) from continuing operations.
CONTACT: Harsco Corporation
Kenneth Julian
(717) 730-3683
kjulian@harsco.com
Investors
Eugene M. Truett
(717) 975-5677
etruett@harsco.com
www.harsco.com