Harsco Reports Second Quarter 2003 Results

Harsco Corporation reported second quarter 2003 income from continuing operations of $25.5 million on sales of $536 million. This compares with income from continuing operations of $24.8 million on sales of $510 million in the second quarter of 2002.

For the first six months, income from continuing operations was $37.9 million on sales of $1 billion. This compares with income from continuing operations of $39.8 million on sales of $969 million in the first six months of 2002.

Harsco chairman, president and CEO, Derek C. Hathaway said, "Our performance met analysts' consensus expectations and was within the range of our previously stated guidance. These results were achieved despite the very difficult manufacturing environment and the continued downturn in non-residential construction spending.

"Our strategy for growing the industrial services businesses was again validated by strong performance from our Mill Services Segment. We announced five new mill services contracts during the quarter and also acquired the mill services unit of C. J. Langenfelder & Son, which gives us an expanded presence with two major North American steel producers.

Second Quarter Business Segment Review

Mill Services -- Sales increased 16 percent to $204 million from $175 million in last year's second quarter. Positive foreign currency translation increased sales 10 percent, while organic growth and higher mill production volumes were responsible for 6 percent. Operating income increased to $25.7 million, while operating margins improved to 12.6 percent from 10.2 percent last year. Positive foreign currency translation increased operating income by approximately $2.1 million in this year's second quarter.

Access Services -- Second quarter sales increased by 9 percent to $158 million from $145 million last year. The sales increase was principally due to positive foreign exchange translation. Operating income declined by 4 percent in the quarter to $10.8 million. Operating margins declined to 6.8 percent compared with 7.8 percent in the second quarter of 2002, due primarily to increased pension expense of $1.7 million pre-tax.

The generally weak manufacturing economy continues to negatively affect results of this segment. Decreased demand for composite vessels, high pressure cylinders, and cryogenic tanks more than offset a slight improvement in second quarter results from propane products and the Air-X-Changers business unit. In addition, the abnormally cold and wet spring in the U.S. adversely impacted valve sales to the propane grill markets. The Company continues to focus on reducing costs and improving operating efficiencies, but until the demand for durable goods turns up, this segment's operating results will continue to be pressured.

Other Infrastructure Products and Services -- Second quarter sales declined by 5 percent to $93.7 million from $98.6 million last year. Operating income declined from $11.2 million to $8.6 million, or 23 percent. Operating margins also declined, to 9.2 percent from 11.4 percent last year. The reduced results compared with last year were due largely to the continued poor performance of IKG Industries. Also negatively affecting results in the quarter was increased pension expense of $0.4 million pre-tax. The effect of foreign currency translation was not material.

In the second quarter of 2003, IKG incurred an operating loss of $2.7 million compared with operating income of $1.2 million in the second quarter of 2002. Lower product sales and margins due to the difficult market environment, and $2.1 million pre-tax from reorganization costs and an asset write-down were the primary reasons for the shortfall in performance.

For the first half of the year, net cash provided by operating activities was $90 million compared with $80 million last year. This increase reflects working capital improvements and changes to other assets and liabilities. Capital expenditures increased by $3 million for the year as the Company continues to execute its stated strategy of growing its mill services and railway products and services businesses. The Company expects capital expenditures to continue to increase during the remainder of year. Free cash flow increased by approximately $6 million for the first half of the year. The Company views free cash flow as an important measure of the excess cash available to management to invest in business growth and other strategic initiatives, including debt reduction. As the Company's growth investment strategy gains momentum, it is expected that the free cash flow amount will correspondingly decrease.