Enviri Corp (NVRI) 2002 Q4 法說會逐字稿

Good afternoon. My name is Eunike (ph), and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation Fourth Quarter Release conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, and the number one on your telephone keypad. If you would like to withdraw your question, press star and the number two on your telephone keypad. Also, this teleconference, presentation and accompanying Webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation and all rights are reserved. Harsco Corporation will be recording this teleconference. No other recordings or redistributions of this telephone conference by any other party are permitted without the express written consent of Harsco Corporation. Your participation indicates your agreement.

I would now like to introduce Mr. Derek Hathaway, Chairman, President and CEO of Harsco Corporation. Mr. Hathaway, you may begin your call.

Thank you very much. It's my privilege and pleasure to welcome you all this afternoon to the quarterly conference call. And again, we have the usual colleagues with us today: Ken Julian, Director of Communications; Gene Truett, Investor Relations; Paul Coppock, Senior Counsel to the Corporation and Company Secretary and Chief Administration Officer; and Sal Fazzolari, our Chief Financial Officer.

Now, before we begin, I'm going to ask Paul Coppock if he'll be kind enough to read the Safe Harbor statement, please.

Thank you, Derek. In order to provide you with more useful information, our discussion and our answers to questions will contain certain forward-looking statements which reflect the company's current expectations and goals. All our comments will reflect our current beliefs and projections. Future results could differ materially from our forward-looking statements due to a number of risk factors and uncertainties as more fully described in the Safe Harbor statement of the press release, which we issued earlier today, and in Harsco's reports filed periodically with the SEC. Derek?

Thank you very much. We will follow the usual format today. Sal will make comments and give more details on our earnings release from this morning. Then, we'll have a question-and-answer period, and if appropriate, then I'll make a few closing remarks. So with that said, I'll now ask Sal if he will elaborate on the earnings release from this morning. Thank you, Sal.

Thank you, Derek. Good afternoon, everyone.

As reported this morning, our fourth quarter diluted earnings per share on a GAAP basis were 59 cents, compared with 25 cents last year. Earnings per share before net special items were 55 cents, compared with 63 cents last year.

Before discussing the fourth quarter in more detail, I would like to highlight the considerable accomplishments of 2002 relative to our key financial management goals. Our free cash flow performance - that is, the way we calculated cash from operations plus asset sales less (ph) capital expenditures and dividends was outstanding. We exceeded by $13 million our 2002 goal of generating $150 million in free cash flow. This represents almost a 100-percent growth compared with last year. We delivered $254 million in cash from operations, that's an improvement of $13 million, or five-percent. In addition, we generated $64 million from asset sales, $28 million, or 78-percent more than last year, and greatly surpassing our original stated goal of $50 million.

Capital expenditures declined by $42 million, or 27-percent. Our lower capital spending is the result of a more targeted approach to capital allocation, our EVA and Six Sigma initiatives and notably our successful strategies of redeployment of access equipment around the globe. Overall, we delivered approximately $4 per share in free cash in 2002, nearly double last year's level.

The translated balance sheet reduction in debt was $122 million; however, on a cash flow basis, debt was reduced by approximately $174 million. A lower balance sheet change was due to the appreciation of mainly the euro and the pound Sterling. Since peaking in July 2000, we have reduced our debt by over $250 million, or approximately 29-percent. Our debt-to-capital ratio, excluding the pension adjustment which I will discuss a little later, was 44.5-percent at December 31, 2002. This is a considerable improvement from last year's 52.4-percent. Including the pension adjustment at December 31, 2002, the ratio was 49.8-percent.

Now let's examine in more detail our operating performance for the quarter. Please note that the following comments relate only to continuing operations. They exclude the effect of any net gains and unusual costs, and reflect also our new four-segment reporting structure as was discussed at this morning's press release.

Let me start my operations report with the Mill Services segment. Under our new reporting format, this segment now includes only Heckett MultiServ. Reed Minerals is now part of our Other Infrastructure Products and Services segment.

Our Mill Services segment continues to perform relatively well. Even after adjusting for positive foreign exchange translation, fourth quarter sales in Mill Services still exceeded last year's performance by 5.5-percent. The consistent performance of this segment reflects its global diversity and the positive effects of our Six Sigma EVA initiatives. We continue to reduce our costs, utilize capital more efficiently. As we enter 2003, these initiatives, along with the global breadth of this business, underpin our expectations for continuing solid performance.

While operating margins declined by 40-basis points to 11.3-percent, the decline is due principally to unplanned short-term outages by certain millions and the timing of mill restarts, particularly in the US. The Access Services segment, which includes SGB and Patton Construction Systems, had a difficult fourth quarter. The primary reason for this is the well publicized data, the nonresidential construction activity is at multi-year lows. Operating income in this segment declined 38-percent to $10.5 million, and margins declined 450-basis points. Although sales increased by approximately four-percent, the increase was entirely due to positive foreign exchange translation.

The operating performance of Access Services, particularly equipment rentals, continues to be negatively affected by the prolonged weakness in the nonresidential construction markets. The rental business is the segment's highest margin product line for both the US as well as the international markets. In this difficult operating environment, we continue to focus on cost reduction efforts, asset redeployment and expanding our position in the industrial plant maintenance business, which is less prone to cyclical changes.

Our gas and fluid control segment continues to be negatively affected by depressed demand and pricing pressures across many of its product lines. These conditions caused fourth quarter sales to decline by approximately 15-percent, while operating income was down approximately nine-percent. On a positive note, margins improved by 50-basis points to 6.1-percent.

With the prolonged recessionary environment in this segment, we continue to aggressively reduce costs. These actions should better position the business to weather the storm and take full advantage of any market recovery.

Our Other Infrastructure Products and Services segment includes Harsco Track Technologies, Reed Minerals, IKG Industries and Patterson-Kelley. These are all manufacturing businesses other than the contract services business, Harsco Track Technologies. Operating income in this segment decreased by five-percent compared with last year's fourth quarter, while sales declined by 15-percent. On a positive note, however, margins did improve by 110-basis points. The lower operating results are due entirely to the difficult market conditions in the IKG grading business. The market for grading products is currently at multi-year lows. The other three businesses in this segment performed relatively well in the quarter with each reporting higher operating income in the quarter over the previous year.

I'd like to now turn to the balance sheet, cash flow and other salient points. Fourth quarter cash flow from operations was $90 million. That was down $17 million from last year. This lower fourth quarter performance was expected and was the result of the timing of cash flows between the third and fourth quarters. For the last six months of the year, we generated over $173 million in cash from operations, and that equals last year's performance. I would like to make a further comment on our debt reduction and cash flows. We reduced debt and improved cash flow in a very difficult economic environment. This demonstrates not only our commitment to reducing debt, but more fundamentally, it also demonstrates the quality of our earnings and our free cash flow generation capabilities.

2002 was also our first year under EVA. While faced with a difficult operating environment, we were nonetheless able to achieve certain EVA successes. Capital employed was reduced in our Mill Services, Gas and Fluid Control and Other Infrastructure Products and Services segments for reduction in average capital was about $50 million. Further, each of these three segments recorded a positive improvement in overall EVA. We believe this to be a good start to our EVA program and expect further improvements in 2003.

For 2003, we will continue with our strategic cash optimization initiatives. We expect targeted asset sales of approximately $30 million and strong cash flows from operations. Free cash flows are expected to be in the area of $100 million in 2003 based on the current capital expenditure budget of approximately $135 million. The majority of our free cash flow will be used for targeted investments, particularly in our Mill Services and Railway Maintenance businesses. We believe that these businesses offer the best near-term opportunities to grow sales and income.

I believe it appropriate to spend a bit of time explaining the pension issue that we explained in the October Third Quarter press release as well as today's press release. Many companies, including Harsco, are facing underfunded pension liabilities. As a result of our underfunded pension plan, we recorded in the fourth quarter a minimum liability and a non-cash reduction in equity of $147 million after tax. As we have previously stated, the adverse performance of the financial markets in 2002, particularly in the third quarter, will cause our 2003 pension expense to increase by approximately $20 million at 34 cents per share. We also changed our actuarial assumptions for the pension plans for 2003, and the 34-cent increase in pension expense does take into account the effects of these changes. For example, our discount rate assumption was lowered by 50-basis points for both the UK and the US plants, and the expected rate of return was also reduced from a blended global rate of approximately 8.5-percent to approximately eight-percent, and that's a 50-basis point reduction.

I would like to make one final point on pensions. As a result of pension plan amendments that we introduced in the fourth quarter, a remeasurement of the UK pension plan was made at November 30th, 2002. This remeasurement will result in the respiration to shareholders equity of approximately $20 million net of tax, and on the original $147 million reduction. The $20 million restoration to equity is due to higher pension asset values at November 30th, 2002, compared with asset values at September 30th, 2002, the measurement date. US GAAP requires that this remeasurement restoration be recorded as of March 31, 2003.

Finally, consistent with the previous guidance that we provided in our December analyst conference press release, our first quarter 2003 EPS is expected to be down from the prior year. Based on the additional pension expense of approximately 10 cents per share and the continuing depressed market conditions in our manufacturing and Access Services businesses. Our current outlook for the first quarter of 2003 is in the range of 20 to 24 cents per share. Our outlook for 2003 is for earnings per share of 2.25 to 2.36, which is in the range of the current consensus estimates. This includes the additional 34 cents per share in pension expense as we previously discussed.

That completes my comments. I will now turn the call back over to Derek.

Well, thank you, Sal. We'll now be pleased to take questions from you. Thank you.

At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Aaron Ravenscroft of Janney Montgomery Scott.

Good morning, gentlemen.

Good morning - or good afternoon.

Good afternoon. Have you considered making any cash contributions to your pension plan in 2003?

Aaron, as part of looking at the total pension plans both in the US and the UK, we do look at that periodically, continue to look at that. Right now, the current plan is not to make any additional contributions. We are within all the legal requirements, and we do make ongoing contributions as required by those legal requirements, but we are not planning on any excess contributions at the present time.

OK. And what was your EVA for 2002 for the company as a whole?

For 2002?

Yes.

The EVA - what I can tell you, we have not disclosed that number publicly. What I can tell you is that, overall, the EVA number did go down a little bit, and that was due to the very poor performance of the Access Services group. As I stated earlier, the other three segments did extremely well. They all improved EVA and they also all reduced capital employed. But the Access Services group performance knocked it down into the negative territory, but it was very slight. It was not a material change, I can tell you that.

Lastly, what are your assumptions for the dollar now that it seems that it's weakened pretty significantly versus the euro in recent weeks? What are your assumptions for 2003?

We had - I think the last time we spoke, which was back in December at the - I think we publicly stated that we were forecasting the euro to be almost at parity with the dollar at that time, and the pound to be approximately, I think, around - close to 1.60, if I recall correctly. So, you're absolutely right. Obviously the euro has strengthened considerably, even from that point on. But that was our view at that time.

It needs to be also considered, if you're basing any future adjustments in any model that you have, if you're basing it only on the dollar, then that would not be an appropriate assumption. We operate in a number of currencies, and of course they don't act in concert, they don't act predictably. And so, if you're doing some kind of sensitivity analysis, just be aware of the multi-currency trading that we do. We aren't trading currency, but we do trade, obviously, and deal in different currencies.

Sure. Thank you very much.

Thank you.

Your next question comes from Jeff Hammond of McDonald Investments.

Hi. Good afternoon. Wanted to get some color around the first quarter guidance of 20 to 24. I guess I was surprised, new from the analyst's meeting it was going to be down, but was surprised by the magnitude. So, if you could just give some color around that and maybe some comparisons versus last year, where you're seeing most of the weakness in addition to the pension change.

Thank you, yes. Well, traditionally, it is the slowest quarter in any event. Historically, I think the investment community understands that, simply because much of the work that we do around the world is weather and climate-sensitive, Mill Services operations are outside and we do less in the first quarter because of weather conditions, which have been particularly bad, as you know, with frozen ground and snow, particularly in the United States. Clearly, as well, construction slows down around the globe at this time due to the - particularly in the northern hemisphere, obviously because of winter conditions.

That having been said, it is true to say that we don't expect any upturn at all in our Access Equipment businesses, which is already experiencing a seasonal low. We've taken that into account, and that really, I guess, is the principal downturn. We don't see any revival in our Gas and Fluid Control division, which also is seasonal with certain of our valve production clearly in the build that takes place. We expected seasonal downturn. And the order books in our grading businesses was mentioned in the press release - are at an all-time low. The end of cycle - it's an end of cycle business, and the construction cycle having been depressed for some time reflects that position. So, it's a general softness in a number of areas that lead us to believe that we can expect a pickup.

The good news is that on a global basis, and particularly internationally, we continue to see how our Mill Services business holding up, and one or two of our other business - selected businesses continue to remain stable. Maintenance and Railway business, which you may have read, has been successful in obtaining some rather substantial orders, means that our factories there will be busier this year, and we're looking for an upturn there. So, I hope that does give you some flavor for what's going on.

That's helpful. Couple questions, I guess, around the Access Services. One, you talked in the December meeting about price, and I guess as we're not too far from that meeting, but if you can give us any indication of whether you're seeing any stabilization in terms of price and whether you expect that to, you know, stay the same, worsen, improve?

Also in terms of the underutilized scaffolding, if you could give us an update on how things are going as far as moving that around to different locations? And then, I think you mentioned in the release along those same lines, an improving backlog of projects, wanted to see, you know, how that plays in and whether that's more geared towards the maintenance side of the business or the traditional construction.

Yes. I think that our conversation at the analyst meeting regarding pricing pressures was specifically directed towards the pallet (ph) access business, I guess. And we are having some success there.

I was in the UK last week; in fact, I spent four days just specifically dealing with the issues facing our SGB (ph) business and the plans that we have for this year. And I must confess, I came away somewhat encouraged: A, by the realism that was demonstrated by the management; and B, their plans to do with it. And I can tell you that the pallet (ph) access equipment, with its distribution now in a wider basis in different markets - and also there has been some upward pricing movement, lead me to believe that - just lead me to believe that that is beginning to pick up a little.

Again, be cautious, because these matters don't have a material effect as yet upon the overall Harsco performance, but at least they're moving in the right direction. The major job backlog in our patent construction services business is looking pretty good, and we are going into this new year again a little more encouraged by what we see. I don't know whether that helps you at all, or that's an adequate answer to your question.

No, that's very helpful. Thanks. I will jump back in queue. Thanks.

Thanks.

Your next question comes from Eric Daniels of JPMorgan.

Good afternoon. You gave some commentary on nonresidential construction. I wonder if you can speak to what you're seeing on the industrial maintenance front?

Yes, I believe that on the industrial maintenance front, things are sort of reasonably stable. And it's an area that we are certainly attacking quite vigorously, and we do think that it will be growing and more important part of our activities.

And can you give a sense for sort of the makeup of Access Services, the breakdown between the commercial construction and the industrial maintenance?

Industrial maintenance is about 25 to 30-percent of our business presently.

OK.

And then we have the rental business, and then we have the sale business, as you know. And recently, as we've indicated to you, the sale of equipment actually has been quite good. The real weakness has been and continues to be rental and rental rates. And so, we see continuing reasonable strength in our maintenance businesses. Sales of equipment have, in fact, maintained, and weakness on the rental side.

All right.

As we pointed out, Eric, in the press release, there's what we call equipment rentals or straight rentals - those are the highest margin product line. So, you've just got to keep that in mind.

Right. And the Gas and Fluid Control business, the businesses within that, are any of them seeing any kind of strength right now?

Again, as you know, that's like a consortium of five businesses.

Right.

Our propane business has performed satisfactorily. The valve business, towards - in the second half performed better, and we have ever reason to believe that, in the first quarter of this year, that trend will continue. Our structural composites business on the West Coast, that has continued to perform well. The real problems have come in our air exchangers business, which has gone from being one of the best performers in the portfolio to being, unfortunately, one of the worst performers in the portfolio in the space of about 18 months due to the energy crisis. We are seeing bidding activity pick up, and we are beginning to see a modest increase in the backlog, so we may have a brighter year there this year than last. We'll see.

And finally, our cryogenics business, the bulk tank business, still is very much in the doldrums, capital expenditures by major gas producers is not as buoyant as we would like it, and as I'm sure not as buoyant as they would like it, either. And our carbonated, sort of, beverage units also have disappointed us in recent months. So that's a broad cross-section. It's a mixed bag, but the net result is that the upsides do not compensate adequately for the downsides. And so, it's been a year of - really dissatisfaction in terms of performance of that group from our standpoint. It's been disappointing.

OK. And if I were to go back in time, say a year ago from now, you had certain targets in terms of asset sales, redeploy the cash. Could you speak to sort of how that execution went versus how you thought it might a year ago?

Well, it's done - as Sal was saying earlier, it's done extraordinarily well, really. We greatly exceeded our cash expectations, and if there's one aspect about our performance which I think we're just very, very pleased with is the fact that we did exceed even our internal expectations as far as cash and cash flow are concerned, and that gave us obviously some thought as to how we deploy that. We did make a gesture for our stockholders regarding the dividend as a matter of confidence in our cash flows. We will, I believe, in the next several weeks begin to accelerate one or two capital expenditure programs which should produce some short-term revenue benefits as we put more money into one of our businesses in the United Kingdom which is doing quite well.

We talked about the depressed general rental business here, but a specific area of good results has been our rover cabin business where we actually hire out portable buildings for sites from health care to construction, and that is doing very well. We do have opportunities there, so we expect to put a few million dollars into that in the first quarter to take advantage of the buoyancy that we're in - the buoyant situation we're in. But we're looking for opportunities presently to get some short-term modest improvement in contribution, and I guess that's because of our confidence in our cash flow position. You know, we can pay down debt, we can invest where it's opportune to do, we can pay a dividend, and I guess that's one of the benefits of running what we like to consider to be sort of a balanced corporation.

Eric, as we said in the press release and we said in December as well, we do expect to have in excess of 100 million in free cash this year, and we are looking at that very carefully as to where to invest it. Obviously Mill Services is number one, given, you know, its global profile, so we're very actively looking at projects in that area.

OK. Thank you much.

Your next question comes from Scott Nussbaum of JL Kaplan.

Hello. Wanted to talk to you a little bit about margins and what they're going to look like going forward. Seems you guys have done a pretty good job of raising margins in the absence of revenue growth. And I wanted to get an idea of how much more room you have to do that over the next couple of years.

Well, I guess it's about cost control, and about revenue growth at the end of the day and leveraging as best we can off a reduced cost structure. I have to tell you that, even yesterday, I did issue instructions on further cost cutting and cost containment measures. We are very, very carefully looking at the administration of this organization, we're looking at consolidations of administration and we do anticipate, even in the first quarter, making further administrative cost reductions, simply because although they've promised the check is in the mail for a long time now, we have stood by certain of our structures anticipating an upturn. Regrettably, that hasn't come.

As I say, the check - the checks got lost, I guess, and now we just have to make further adjustments. And we're going to do that in the first quarter. We will be aggressively chasing revenues, and I think that what you will see is margin improvement. I am quite proud of this organization in the way that it has defended its margins with such substantial revenue downturns in certain areas, but I do have to make the judgment as to whether we are just in a long-term circumstance or whether this is developing into a state. And as we can't see presently, I'm afraid, round the corner or beyond the horizon, I have to conclude that, with the present uncertainties that prevail - not only with us, of course, but you in the marketplace and our peer companies in the business community - I'm afraid we just have to continue to take short-term measures to deal with the short-term circumstances. So margins, margins, margins are, of course, vital. Cash is important, and those are the areas that we will continue to try to maintain.

If you look at it on a segment basis, you look at today's press release and taking out the gains in unusual costs, more on an apples to apples basis, for example, Mill Services, it's been hanging around 11.5-percent margins for the last two years, and obviously we think that should continue forward. The Access Services margins in '01 were about 10-percent. They've dropped year-over-year to about seven-percent, so, you know, roughly about 300 basis points. Certainly there's a lot of room for improvement there going forward.

The similar thing with Gas and Fluid, year-over-year margins are down slightly from about 7.1-percent, I believe, to about 6.8-percent, and the best year Gas and Fluid ever had, which I think was about four years ago, they did close to 10-percent margins. So there is some possibility of upturn there as well. And then the other group, other, that's doing very well. It did about nine-percent in '01, it did about 11-percent in '02. If we get any improvement on the grading side of the business, which is, as I mentioned in my comments, that it is in a very depressed state right now, any improvement there should help lift those margins as well. So there is - you know, there's some room there for improvement in the next couple years.

Do you believe that you can go back and achieve the peak margins that you've achieved, say, since '99 as business conditions improve? Or do you believe that they have been competed away, that you may not ever be able to achieve those prior peaks?

It would be soon to say that in almost deflationary times, pricing leverage is wrested from you, just simple supply and demand just changes the whole character. The laws change and the rules change. But we do believe - and we vigorously try to defend our pricing truck structure. At the same time, we need to remain competitive. But we do believe that just even minor upturns in certain areas will produce the results from the leverage principle.

Certainly, and as Sal has said, one of the most easy to assess is our Mill Services business, you know, production, particularly in the domestic economy, although it saw a brief upturn, is softening back to where it was sort of in the middle of last year at about 83-percent capacity utilization. But all the signs are there that we will benefit margin-wise as and when the economy does pick up.

Going back very quickly to one more mechanical question, the $20 million in increased pension expense in '03, do you see that becoming a permanent part of the cost structure, in '04, will that come back down?

It's hard to say because it depends on the financial markets. It depends on interest rates and it depends on the performance of the pension plan. You know, assets. So when we take the snapshot in September, which is our measurement day for the UK plan - in October, which is the measurement day for our US plan - depends on where the asset values are at that point as well as where the interest rates are at that point. And I don't know if you saw our last quarter 10-Q or the ...

I did.

OK. In there, we do provide some sensitivity analysis and just, you know, what happens if there's a 50-basis point change in interest rates, you know, that the pension formula changes by - I think it was about $10 million just by simply a 50-basis point change. Then obviously, you have the asset value issue, and so forth. So those are the key drivers, which, you know, none of us can predict where they're going to be at that point in time.

All right. Thank you.

What was not said but is in all of the information is that the major hit as far as pension is concerned, the vast majority was, of course, in the UK pension scheme and pension funds. And it needs to be emphasized that we have partially mitigated some of those costs, as Sal has iterated, but it bears repetition. By making not such changes as radically alter the structure of our pension funds, but certainly some of the benefits have been reorganized where people have realized that sacrifices needed to be made, and so on the benefit side, we've reduced those, and those have helped us mitigate our pension expense. So, there's been an effort on behalf of the employees of the corporation to recognize, if you like, this burden, and we're pleased with that and proud with the response that we've received.

Great. Thank you very much.

Your next question comes from Jeff Hammond of McDonald Investment.

Hi. Quick follow-up. Derek, on the pricing issue in Access Services, I think you did touch on the powered access. If you could kind of allude to the rental rates which I think at the meeting we discussed as being down. Can you give us an indication there whether that's - you know, you're seeing evidence that that's stabilizing, further weakening or coming back positive?

Generally speaking, they are presently stable. We've not seen any further deterioration since our discussions in December, and in certain demographic or regional areas, they have improved. We have a branch structure throughout the United States, something like 45, 50 branches throughout the United States, and the performance of these branches obviously depends upon the activity that's going on state by state and so on. We've got some branches presently that are performing very strongly because of the activity, the construction activity that's going on. Some are weak, obviously for the opposite reasons, but the blend is that we are - as I've said earlier, we're going into 2003 a little more optimistic than we ended 2002.

OK. Great. And then on the rental business alone, if you could provide us the base business change on a sales - on the top line, and then I guess the corresponding change in operating profits for just the rental business? And then maybe if you could differentiate between North America and SGB, maybe how those might be different?

Jeff, I simply don't have those numbers in front of me.

OK.

I haven't got that kind of detail in front of me.

Jeff, we don't disclose product line. I mean, that's a product line information, and our preference is not to disclose that kind of information. I mean, we've given you the percentage of the total business, that's rental, that's, you know, maintenance and sales and so forth, but, you know, our preference is not to disclose each individual product line.

OK. Thanks.

At this time, I would like to remind everyone in order to ask a question, please press one on your telephone keypad.

Your next question comes from Godfrey Birckhead of SBK-Brooks.

Hi, guys. Sal, you're going to have $100 million in free cash flow, and you've talked about the uses of those. Blatantly absent from your conversation is any thought to share buyback, and could you talk about positives in doing that and negatives and whether there's any chance of that happening in 2003, please?

Godfrey, this is Derek.

Hi, Derek.

How are you doing? Every potential use of surplus cash is considered and is under consideration all the time. That's all I can say to you. We have even only at the last board meeting reauthorized the balance of shares outstanding under previous authorizations for buyback. And so, the company is always prepared to do what it thinks is in the best interest of the company and its stockholders all of the time. That's always been our position, and as you know, from time to time, we buy stock back, from time to time, we increase the dividend, and our capital expenditures in one year might be more than they were in the previous year and so on. We just manage this business on a balanced basis. And we take strategic decisions at the appropriate time.

What's the target this year, Sal, for - thank you, Derek - for debt repayment?

Right now, just to follow what Derek said or repeat what he said, we're looking at all things. Our preference - our preference, I emphasize - would be to invest the money in Mill Services and Railway maintenance projects.

That's number one in terms of use of free cash flow?

Yes, that would be our number one preference.

OK. Number two is?

Pardon?

Number two is?

Number two would be debt reduction.

OK. And then, number three would be share buyback - is that correct?

Well ...

I thought - I thought my answer, actually, was perfectly appropriate.

OK.

We are just open at all times to respond to whatever we believe the situation demands. Or better than that, if we've got a crystal ball here, then we have a strategy arranged to do certain things, which is probably the best way to do it. So, we don't discount or eliminate any possibility ...

OK. Derek, what is the amount of shares outstanding or money authorized at the current time by the board that you could do if you wanted to?

Half a million shares.

OK. Thank you very much.

You're welcome.

Your next question comes from Aaron Ravenscroft of Janney Montgomery Scott.

One last question for Sal. What was your tax rate for '02 excluding the non-recurring special items?

Thirty-one-percent.

OK. Thank you very much.

You're welcome.

There are no questions at this time. Mr. Hathaway, do you have any closing remarks?

Yes, thank you very much. Well, along with most of our sort of industrial peer companies, Harsco, as you gathered from the press release, remains uncertain about the impact of certain political decisions which may be made in the near future; the general economic conditions, particularly as we experience domestically, will have on its 2003 results. As such, the earnings guidance that we have given you does not presently anticipate any recovery in the macroeconomic environment.

As I've said to you, the check has been in the mail for too long now to believe that it's going to arrive, and there therefore, we're posturing this business for a continued recessionary environment, we would call it, in the United States. We do know that we can control our costs. We do know where and when we can invest our free cash flows, and we do know that we will continue to maintain a strong balance sheet, which at the end of the day, is probably the best protection in this kind of environment.

Thus as the press release stated this morning, we will continue and, in fact, in the short term, accelerate aggressive cost reduction efforts, particularly on the administration side, and we have long stated that we have significant organic growth opportunities, particularly as Sal has said, within our Mill Service businesses. We will invest and we are investing immediately in our Track Technologies business. And then our other selected areas, as I've already said, even in our Access Equipment business where we may see some short-term benefit which is what we're looking for.

Now that we have reduced our debt to capital level to a more acceptable level, we will be focusing a greater amount of our free cash flow on these organic growth opportunities, and I do believe that if we get on with that, they will benefit our results in subsequent quarters. Again, the major strength of Harsco, I guess, is its ability to generate significant levels of free cash, and we'll continue to fund the normalized levels of capital expenditure, we'll pay our cash dividend, and as I said, Godfrey, we'll seek the best opportunities to employ the remaining cash flows.

Current macroeconomic conditions notwithstanding, we believe we do have significant growth opportunities and are well prepared to fully benefit from any economic recovery, whenever that does evidence itself. We will and we are determined to maintain our market leadership positions, and we intend to further expand our industrial services businesses internationally, and we're busy doing that, too. You've read our publicity about the contracts that we've received from all over the world, and we continue to be confident that we can continue to build a strong, viable business that participates in many economies. And we believe that these strategies that we're adopting are certainly working out.

So, we would thank you for your attention today. We appreciate your interest, and I will end this conversation with you by inviting you to call us if you want to see us personally, then we're available, and we are only too willing to continue to serve your best interests. Thank you very much again.

This concludes today's Harsco Corporation Fourth Quarter Release conference call. You may now disconnect.