Harsco Corporation Reports Third Quarter 2012 Results Adjusted Operating Income Increases 8 Percent Cost Savings plus Strong Industrial and Rail Segment Results Offset Soft End Markets in Metals and Commercial Construction and Currency Translation Headwinds CAMP HILL, Pa., Nov. 1, 2012 (GLOBE NEWSWIRE) -- Diversified global industrial company Harsco Corporation (NYSE:HSC) today reported third quarter 2012 U.S. GAAP ("GAAP") diluted earnings per share from continuing operations of $0.32, compared with $0.40 in the third quarter of 2011. Excluding special items, adjusted diluted earnings per share from continuing operations were $0.39 in the third quarter of 2012. There were no special items in the prior-year quarter. (See Table 1 for a description of the special items and a reconciliation of GAAP and adjusted results). CEO Comment "Our aggressive cost actions during the past year enabled us to increase operating profit in the quarter and deliver results that exceeded our guidance," said Harsco President and CEO Patrick Decker. "Our team has taken meaningful steps to demonstrate our ability to manage through difficult circumstances and deliver on our commitments. "As we move forward, we remain focused on our core initiatives to drive greater and sustainable value creation. We will maintain a rigorous focus on cost management and operational efficiency." Consolidated Third Quarter Operating Results Total revenues were $757 million in the third quarter of 2012, compared with $856 million the prior-year quarter. During the past year the Company has taken several actions to increase returns and invest capital more effectively. Two of these include exiting unattractive contracts in Metals & Minerals and ceasing operations in certain countries in Infrastructure, which together accounted for $32 million of the year-over-year revenue decline. Foreign currency translation negatively impacted revenues by $41 million in the quarter. The revenue performance also reflects lower volume due to soft end markets in metals and commercial construction. That lower volume was partially offset by mid-single digit growth in the Rail and the Industrial businesses. GAAP operating income from continuing operations was $50 million in the third quarter of 2012, compared with $51 million in the prior-year quarter. Foreign currency translation negatively impacted operating income by $2 million in the quarter. Excluding special items, adjusted operating income from continuing operations increased 8 percent to $55 million. Adjusted operating income margin increased 130 basis points to 7.2 percent in the quarter. This performance primarily reflects successful execution of the Company's cost reduction strategies and strong results in Industrial and Rail. Net interest expense declined 12 percent to $10 million in the third quarter of 2012 from $12 million in the prior-year quarter. This decrease was primarily due to foreign currency translation, as well as lower carrying costs on the Company's revolving credit facility. Income tax expense increased to $14 million in the third quarter of 2012 from $7 million in the third quarter of 2011. The prior-year tax expense was unusually low and was primarily due to one-time benefits. Table 1--Special Items Third Quarter Nine Months 2012 2011 2012 2011 GAAP diluted EPS from $0.32 $0.40 $0.13 $1.02 continuing operations Restructuring charges(a) 0.10 -- 0.84 -- Gains associated with (0.04) -- (0.10) -- exited countries(b) Former CEO separation -- -- 0.04 -- expense(c) Gains on pension -- -- (0.02) -- curtailment(d) One-time Rail benefit (e) -- -- -- (0.07) Adjusted diluted EPS from $0.39 (f) $0.40 $0.89 $0.95 continuing operations (a) Charges resulting from the Company's previously announced restructuring plans in Infrastructure (3Q 2012 $7.7 million pre-tax; 9 Months 2012 $71.7 million pre-tax) and Metals & Minerals (3Q 2012 $0.7 million pre-tax; 9 Months 2012 $1.4 million pre-tax). (b) Non-cash gains related to the closure of certain European operations in Infrastructure (3Q 2012 $4.2 million pre-tax; 9 Months 2012 $10.9 million pre-tax). (c) Separation expense for former CEO (1Q 2012 $4.1 million pre-tax). (d) Pension curtailment gain in Metals & Minerals (1Q 2012 $1.7 million pre-tax). (e) Reduction of estimated costs related to the first phase of Rail's large China order (2Q 2011 $8 million pre-tax). (f) Does not total due to rounding. Consolidated Nine Month Results GAAP diluted earnings per share from continuing operations were $0.13 in the first nine months of 2012, compared with $1.02 in the first nine months of 2011.Excluding special items, adjusted diluted earnings per share from continuing operations were $0.89 in the first nine months of 2012, compared with $0.95 in the prior-year period, as noted above in Table 1. Total revenues were $2.3 billion in the first nine months of 2012, compared with $2.5 billion in the prior-year period.The Company's actions to increase returns and invest capital more effectively by exiting unattractive contracts in Metals & Minerals and ceasing operations in certain countries in Infrastructure accounted for $53 million and $46 million, respectively, of the year-over-year revenue decline.Foreign currency translation negatively impacted revenues by $115 million in the first nine months of 2012.The revenue performance also reflects lower volumes due to soft end markets in metals and commercial construction.That lower volume was partially offset by 20 percent growth in Industrial and 5 percent growth in Rail. GAAP operating income from continuing operations was $72 million in the first nine months of 2012, compared with $144 million in the prior-year period.Foreign currency translation negatively impacted operating income by $8 million in the first nine months of 2012.Excluding special items, adjusted operating income from continuing operations was $137 million in the first nine months of 2012, compared with $136 million in the prior-year period.Adjusted operating income margin increased 60 basis points to 6.0 percent in the first nine months of 2012.This performance primarily reflects the Company's successful execution of its cost reduction strategies and strong results in the Industrial group. Net interest expense decreased to $33 million in the first nine months of 2012 from $35 million in the comparable period of 2011, primarily due to foreign currency translation as well as lower carrying costs on the Company's revolving credit facility. Income tax expense increased to $28 million in the first nine months of 2012 from $25 million in the first nine months of 2011, primarily due to losses from operations in certain jurisdictions where tax benefits could not be recognized. Third Quarter Business Review Harsco Metals & Minerals Revenues were $345 million in the third quarter of 2012, compared with $400 million in the prior-year quarter.Management's decision to exit certain unattractive contracts accounted for $16 million of the year-over-year revenue decline.Foreign currency translation negatively impacted revenues by $27 million in the quarter.The revenue performance also reflects lower volumes due to the softness in the global metals industry.Overall customer steel production declined approximately 3 percent in the quarter compared with the prior-year quarter. Excluding $0.7 million in restructuring charges related to the Company's previously announced actions, Metals & Minerals' adjusted operating income was $27 million in the third quarter of 2012.Operating income was $31 million in the prior-year quarter.Adjusted operating margin increased 20 basis points to 7.9 percent in the quarter.This performance reflects the Company's successful execution of its cost reduction strategies, which more than offset the negative impact of foreign currency translation and lower steel production. Harsco Infrastructure Revenues were $229 million in the third quarter of 2012 compared with $282 million in the prior-year quarter.As part of the previously announced restructuring plan, the Company's decision to cease operations in certain countries reduced revenues by $16 million in the quarter.Foreign currency translation negatively impacted sales by $14 million in the quarter.The sales performance also reflects softness in the global commercial construction markets and lower industrial maintenance services activity in North America and Europe. Excluding $8 million in restructuring charges related to the Company's previously announced actions and a $4 million pre-tax non-cash gain associated with the closure of certain operations in Europe, Infrastructure's adjusted operating loss was $2.5 million in the third quarter, compared with an operating loss of $3.3 million in the prior-year quarter.This performance reflects the Company's successful execution of its cost reduction strategies, which partially offset the revenue decline and negative impact of foreign currency translation. Harsco Rail Revenues grew 5 percent to $91 million in the third quarter of 2012 from $87 million in the prior-year quarter.Operating income increased 20 percent to $14 million in the quarter from $12million in the prior-year quarter.Operating margin increased 190 basis points to 15.2percent in the quarter. Rail's performance was primarily due to the timing and mix of equipment deliveries, particularly in China as part of its large order with the Ministry of Railways. Harsco Industrial Revenues increased 7 percent to $91 million in the third quarter of 2012 from $86 million in the prior-year quarter.Operating income increased 22 percent to $17 million from $14 million in the prior-year quarter.Operating margin increased 220 basis points to 18.3 percent in the quarter. Industrial's third quarter performance primarily reflects a favorable mix for air-cooled heat exchangers and strong demand in the grating business, partially offset by softer demand for industrial boilers. Fourth Quarter Outlook Metals & Minerals revenues and earnings in the fourth quarter of 2012 are expected to be lowerrelative to the fourth quarter of 2011 and the third quarter of 2012.The Company anticipates further reduction of steel production at certain customers driven by slower global economic activity. Infrastructure results are expected to reflect the continued impact from soft end markets mitigated by the cost saving benefits from the Company's prior restructuring actions.This is expected to result in fourth quarter results that will be similar to the third quarter of 2012 excluding restructuring charges. The Rail business hasa large number of equipment deliveries scheduled for customer acceptance late in the quarter.This is expected to result in a strong fourth quarter performance compared with the prior-year quarter. The Industrial business expects results in the fourth quarter of 2012 to be lower than the fourth quarter of 2011 and the third quarter of 2012.This outlook reflects softness in the order trends over the past few months for industrial boilers, as well ascaution on the part of customers in the North America natural gas market. The Company expects its tax rate to approximate 29 percent in the fourth quarter, excluding special items. Based on these aforementioned factors, the Company expects diluted earnings per share from continuing operations to range from $0.28 to $0.33 in the fourth quarter, excluding special items. Liquidity, Capital Resources and Other Matters Net cash provided by operating activities in the first nine months of 2012 was $111 million, compared with $190 million in the prior-year period.Cash from operations included $69 million and $17 million, respectively, of cash payments for restructuring actions in the first nine months of 2012 and 2011.Excluding restructuring payments, cash from operations was $181 million and $207 million, respectively, in the first nine months of 2012 and 2011.Capital expenditures in the first nine months of 2012 were $173million, compared with $241 million for the same period in 2011. At September 30, 2012, the Company's total debt was $969 million, compared with $909 million at December 31, 2011.The debt-to-capital ratio at September 30, 2012 was 44.7 percent, compared with 42.7 percent at December 31, 2011.The net debt-to-capital ratio at September 30, 2012 was 41.6 percent, up from 39.2 percent at December 31, 2011. Conference Call As previously announced, the Company will hold a conference call today at 10:00a.m. Eastern Time 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 Company will refer to a slide presentation that accompanies its formal remarks.The slide presentation is available on the Company's website. The call can also be accessedby telephone by dialing (800)611-4920, or (973) 200-3957 for international callers.Enter Conference ID number 24916119.Listeners are advised to dial in at least five minutes prior to the call. Replays will be available via the Harsco website. Forward-Looking Statements This news release contains forward-looking statements based on management's current expectations, estimates and projections.All statements that address expectations or projections about the future, including statements about the Company's strategy for growth, product development, market position, expected expenditures and financial results are forward-looking statements.Some of the forward-looking statements may be identified by words like "may," "could," "believes," "expects," "anticipates," "plans," "intends," "projects," "indicates," and similar expressions.These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions.Many factors, including those discussed more fully elsewhere in this release and in documents filed with the Securities and Exchange Commission by Harsco, particularly its latest annual report on Form 10-K and quarterly report on Form 10-Q, as well as others, could cause results to differ materially from those stated.These factors include, but are not limited to, changes in the worldwide business environment in which the Company operates, including general economic conditions; changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs; changes in the performance of the equity and debt markets that could affect, among other things, the valuation of the assets in the Company's pension plans and the accounting for pension assets, liabilities and expenses; changes in governmental laws and regulations, including environmental, tax and import tariff standards; market and competitive changes, including pricing pressures, market demand and acceptance for new products, services, and technologies; unforeseen business disruptions in one or more of the manycountries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; the seasonal nature of the Company's business; our ability to successfully enter into new contracts and complete new acquisitions or joint ventures in the timeframe contemplated or at all; the recent global financial and credit crisis, which could result in our customers curtailing development projects, construction, production and capital expenditures, which, in turn, could reduce the demand for our products and services and, accordingly, our sales, margins and profitability; the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability; risk and uncertainty associated with intangible assets; the successful integration of the Company's strategic acquisitions; the amount and timing of repurchases of the Company's common stock, if any; our ability to successfully implement cost-reduction initiatives, including the achievement of expected cost savings in the expected timeframe; and other risk factors listed from time to time in the Company's SEC reports. The Company undertakes no duty to update forward-looking statements. About Harsco Harsco Corporation serves key industries that play a fundamental role in worldwide economic development, including steel and metals production, construction, railways and energy.Harsco's common stock is a component of the S&P MidCap 400 Index and the Russell 1000 Index.Additional information can be found atwww.harsco.com. The Harsco Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=361 HARSCO CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Three Months Ended Nine Months Ended September30 September30 2012 2011 2012 2011 Revenues from continuing operations: Service revenues $571,892 $682,885 $1,769,415 $2,059,928 Product revenues 184,891 172,979 510,278 450,082 Total revenues 756,783 855,864 2,279,693 2,510,010 Costs and expenses from continuing operations: Cost of services sold 453,304 545,008 1,406,727 1,643,202 Cost of products sold 126,683 126,395 351,707 305,833 Selling, general and 121,856 129,006 376,653 407,957 administrative expenses Research and development expenses 2,162 1,577 6,908 4,290 Other expenses 2,383 3,050 65,351 4,431 Total costs and expenses 706,388 805,036 2,207,346 2,365,713 Operating income from continuing 50,395 50,828 72,347 144,297 operations Interest income 1,449 683 3,005 2,022 Interest expense (11,609) (12,230) (36,041) (36,809) Income from continuing operations before income taxes and equity 40,235 39,281 39,311 109,510 income Income tax expense (13,545) (7,078) (28,489) (24,813) Equity in income of unconsolidated 182 194 479 530 entities, net Income from continuing operations 26,872 32,397 11,301 85,227 Discontinued operations: Loss on disposal of discontinued (52) (636) (1,217) (2,708) business Income tax benefit related to 248 229 685 1,018 discontinued business Income (loss) from discontinued 196 (407) (532) (1,690) operations Net income 27,068 31,990 10,769 83,537 Less: Net income attributable to (664) (190) (1,023) (2,579) noncontrolling interests Net income attributable to Harsco $26,404 $31,800 $9,746 $80,958 Corporation Amounts attributable to Harsco Corporation common stockholders: Income from continuing operations, $26,208 $32,207 $10,278 $82,648 net of tax Income (loss) from discontinued 196 (407) (532) (1,690) operations, net of tax Net income attributable to Harsco $26,404 $31,800 $9,746 $80,958 Corporation common stockholders Weighted-average shares of common 80,659 80,767 80,623 80,737 stock outstanding Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders: Continuing operations $0.32 $0.40 $0.13 $1.02 Discontinued operations — (0.01) (0.01) (0.02) Basic earnings per share attributable to Harsco Corporation $0.33(a) $0.39 $0.12 $1.00 common stockholders Diluted weighted-average shares of 80,910 81,037 80,863 80,997 common stock outstanding Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders: Continuing operations $0.32 $0.40 $0.13 $1.02 Discontinued operations — (0.01) (0.01) (0.02) Diluted earnings per share attributable to Harsco Corporation $0.33(a) $0.39 $0.12 $1.00 common stockholders (a) Does not total due to rounding HARSCO CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) September30 December31 2012 2011 ASSETS Current assets: Cash and cash equivalents $113,740 $121,184 Trade accounts receivable, net 619,403 618,475 Other receivables 40,296 44,431 Inventories 262,512 241,934 Other current assets 105,465 133,407 Total current assets 1,141,416 1,159,431 Property, plant and equipment, net 1,245,180 1,274,484 Goodwill 691,378 680,901 Intangible assets, net 81,657 93,501 Other assets 140,300 130,560 Total assets $3,299,931 $3,338,877 LIABILITIES Current liabilities: Short-term borrowings $12,982 $51,414 Current maturities of long-term debt 1,885 3,558 Accounts payable 231,320 252,329 Accrued compensation 95,493 92,603 Income taxes payable 10,812 8,409 Dividends payable 16,520 16,498 Insurance liabilities 21,907 25,075 Advances on contracts 76,375 111,429 Other current liabilities 206,215 220,953 Total current liabilities 673,509 782,268 Long-term debt 953,634 853,800 Deferred income taxes 24,420 27,430 Insurance liabilities 62,676 60,864 Retirement plan liabilities 328,994 343,842 Other liabilities 58,109 50,755 Total liabilities 2,101,342 2,118,959 EQUITY Harsco Corporation stockholders' equity: Common stock 140,080 139,914 Additional paid-in capital 152,943 149,066 Accumulated other comprehensive loss (356,062) (364,191) Retained earnings 1,956,383 1,996,234 Treasury Stock (745,205) (744,644) Total Harsco Corporation stockholders' equity 1,148,139 1,176,379 Noncontrolling interests 50,450 43,539 Total equity 1,198,589 1,219,918 Total liabilities and equity $3,299,931 $3,338,877 HARSCO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended Nine Months Ended September30 September30 2012 2011 2012 2011 Cash flows from operating activities: Net income $27,068 $31,990 $10,769 $83,537 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 61,293 69,699 188,182 207,330 Amortization 4,595 8,655 15,662 25,950 Equity in income of unconsolidated (182) (194) (479) (530) entities, net Dividends or distributions from 154 — 308 160 unconsolidated entities Harsco 2011/2012 Restructuring 2,229 — 21,787 — Program non-cash adjustment Other, net (13,279) 318 (29,263) (3,674) Changes in assets and liabilities, net of acquisitions and dispositions of businesses: Accounts receivable 4,317 10,055 (1,247) (76,972) Inventories 1,552 7,840 (23,298) (6,667) Accounts payable (16,768) (6,232) (24,719) 3,150 Accrued interest payable 5,755 6,246 5,786 6,651 Accrued compensation 8,005 11,721 2,286 13,640 Harsco Infrastructure Segment 2010 (2,004) (5,551) (4,755) (16,697) Restructuring Program accrual Harsco 2011/2012 Restructuring (4,542) — (8,050) — Program accrual Other assets and liabilities (2,571) (11,305) (41,600) (45,771) Net cash provided by operating 75,622 123,242 111,369 190,107 activities Cash flows from investing activities: Purchases of property, plant and (64,925) (73,944) (172,770) (240,820) equipment Proceeds from sales of assets 6,316 3,792 42,889 37,180 Purchases of businesses, net of (517) (1,938) (517) (1,938) cash acquired Other investing activities, net (891) 6,284 457 10,115 Net cash used by investing (60,017) (65,806) (129,941) (195,463) activities Cash flows from financing activities: Short-term borrowings, net (12,936) (28,656) (39,302) 28,941 Current maturities and long-term debt: Additions 29,958 48,498 249,034 215,422 Reductions (27,223) (48,301) (151,399) (210,761) Cash dividends paid on common (16,519) (16,557) (49,548) (49,599) stock Dividends paid to noncontrolling (192) (2,722) (2,264) (3,322) interests Contributions from noncontrolling 112 8,414 8,097 9,074 interests Common stock issued - options — 338 725 1,668 Other financing activities, net (1) (1) (2,709) (1) Net cash provided (used) by (26,801) (38,987) 12,634 (8,578) financing activities Effect of exchange rate changes on 3,567 (7,456) (1,506) (4,016) cash Net increase (decrease) in cash (7,629) 10,993 (7,444) (17,950) and cash equivalents Cash and cash equivalents at 121,369 95,295 121,184 124,238 beginning of period Cash and cash equivalents at end $113,740 $106,288 $113,740 $106,288 of period HARSCO CORPORATION REVIEW OF OPERATIONS BY SEGMENT (Unaudited) Three Months Ended Three Months Ended September30, 2012 September30, 2011 (In thousands) Revenues Operating Revenues Operating Income Income (loss) (loss) Harsco Metals & $344,867 $26,350 $400,478 $30,907 Minerals Harsco Infrastructure 229,287 (6,065) 282,319 (3,296) Harsco Rail 91,423 13,906 87,438 11,636 Harsco Industrial 91,206 16,710 85,629 13,750 Corporate — (506) — (2,169) Consolidated Totals $756,783 $50,395 $855,864 $50,828 Nine Months Ended Nine Months Ended September30, 2012 September30, 2011 (In thousands) Revenues Operating Revenues Operating Income Income (loss) (loss) Harsco Metals & $ 1,069,741 $79,662 $1,216,004 $94,764 Minerals Harsco Infrastructure 701,829 (83,956) 842,220 (25,875) Harsco Rail 239,098 35,272 227,985 42,279 Harsco Industrial 269,025 47,663 223,801 37,468 Corporate — (6,294) — (4,339) Consolidated Totals $ 2,279,693 $72,347 $2,510,010 $144,297 HARSCO CORPORATION REVIEW OF OPERATING INCOME BY SEGMENT EXCLUDING SPECIAL ITEMS (a) - Addendum (Unaudited) Three Months Ended Three Months Ended September30, 2012 September30, 2011 Operating Income (Loss) Operating Income (Loss) 2011/2012 Country Excluding 2011/2012 Country Excluding (In thousands) As Restructuring Exit Special As RestructuringProgram Exit Special Reported Program Gains (b) Items Reported Charge Gains Items Charge (b) Harsco Metals $26,350 $740 $— $27,090 $30,907 $— $— $30,907 & Minerals Harsco (6,065) 7,685 (4,152) (2,532) (3,296) — — (3,296) Infrastructure Harsco Rail 13,906 — — 13,906 11,636 — — 11,636 Harsco 16,710 — — 16,710 13,750 — — 13,750 Industrial Corporate (506) 29 — (477) (2,169) — — (2,169) Consolidated $50,395 $8,454 $(4,152) $54,697 $50,828 $— $— $50,828 Totals Nine Months Ended September30, 2012 Operating Income (Loss) 2011/2012 Country Former CEO Pension Excluding (In thousands) As Restructuring Exit Separation Curtailment Special Reported Program Gains (b) Expense Gains Items Charge Harsco Metals $79,662 $1,447 $— $— $(1,716) $79,393 & Minerals Harsco (83,956) 71,679 (10,906) — — (23,183) Infrastructure Harsco Rail 35,272 67 — — — 35,339 Harsco 47,663 — — — — 47,663 Industrial Corporate (6,294) 370 — 4,135 — (1,789) Consolidated $72,347 $73,563 $ $4,135 $(1,716) $137,423 Totals (10,906) Nine Months Ended September30, 2011 Operating Income (Loss) Reduction of Excluding (In thousands) As Reported Estimated Special Items Costs Harsco Metals & $94,764 $— $94,764 Minerals Harsco Infrastructure (25,875) — (25,875) Harsco Rail 42,279 (7,966) 34,313 Harsco Industrial 37,468 — 37,468 Corporate (4,339) — (4,339) Consolidated Totals $ 144,297 $(7,966) $136,331 (a)The Company's management believes operating income excluding special items is useful to investors because it provides an overall understanding of the Company's historical financial performance and future prospects.Exclusion of special items permits evaluation and comparison of results for the Company's core business operations, and it is on this basis that management internally assesses the Company's performance. (b)Country exit gains (or losses) are non-cash items recognized when the Company has substantially liquidated its investment in a foreign entity.As part of the 2011/2012 Restructuring Program, Harsco Infrastructure exited several countries and recognized gains. (c)Reduction of estimated costs relates to the first phase of Harsco Rail's large order in China with the Ministry of Railways. CONTACT: Investor Contact Jim Jacobson 717.612.5628 firstname.lastname@example.org Media Contact Kenneth D. Julian 717.730.3683 email@example.com Harsco Corporation Company logo
Harsco Corporation Reports Third Quarter 2012 Results
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