Enviri Corp (NVRI) 2004 Q4 法說會逐字稿

Good afternoon. My name is Amanda and I will be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation fourth quarter release conference call.

(Operator Instructions)

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, Amanda. Good afternoon, ladies and gentlemen. It’s a pleasure to welcome you again to this conference call which reports the fourth quarter and annual earnings of the Harsco Corporation for the year 2004. I have with me today Ken Julian, who’s our director of corporation communications, Gene Truett, who’s our director of investor relations, Mark Kimmel, who’s our general counsel and corporate secretary, and Sal Fazzolari, who’s our chief financial officer and treasurer.

I’m going to ask Mr. Kimmel now if he’ll read the Safe Harbor statement.

Thank you, Derek, and good afternoon. In our discussion with you today and in our responses to your questions, we will be making certain forward-looking statements. These statements are statements about future events and will likely involve performance, results, operations of the company. While the information that we provide today is based on the best available information, it is possible that future results may differ.

The reason for these differences are many, but we list what we believe the most likely to be in our press release today, and we discuss those along with others in our Forms 10-K and 10-Q, which are filed with the Securities and Exchange Commission. We invite you to review these factors at your convenience.

I would also like to remind you that replays of this call and other related information about the company are available at Harsco’s website – www.harsco.com. And you can access replays of this phone call at that website by following the instruction in this morning’s press release. Derek?

Thank you, Mark. As reported this morning, our fourth quarter diluted earnings per share from continuing operations were a record 84 cents compared with 62 cents last year, a 35% increase year over year. We also achieved record sales of $711 million in the fourth quarter. Our positive quarterly performance was once again led by the Mill Services business. And we continue to believe that the Mill Services business offers the greatest opportunities for growth in 2005, and thus it will continue to be the focal point of our growth strategies as we invest from our discretionary cash flow to grow this business.

Led by the international operations, the access services segment also performed well, as sales, operating income and margins all improved in the quarter. Harsco Track Technologies also contributed to the strong fourth quarter results of our engineered products and services group of companies. Sal Fazzolari will now give you more details on our earnings release and I will then make a few comments on the year. And then, we will take your questions followed, if necessary, by any closing comments. So, I’ll turn the conference call over to Sal Fazzolari.

Thank you, Derek. Good afternoon, everyone. It’s a pleasure to be here with you today. Starting off with our Mill Services group. I’m very pleased to report that sales in the quarter increased by more than 20%. Increase in sales comprises 2 components – organic growth increased sales by $33 million or approximately 14%, and positive foreign currency translation added approximately $14 million or 6%. We are particularly pleased with the level of organic growth. This is the result of strong production volumes at existing sites and the continued success in signing new contracts. As we have said many times before, our Mill Services operations are affected not by the price of steel, but rather by the volume of steel produced.

For the full year, Mill Services sales increased approximately 21%, of which almost 14% was from strong volumes in growth investments that we have made. The remaining 7% was from positive foreign currency translation.

We do expect the positive organic growth momentum to continue in 2005. Foreign currency translations should not be, however, as much of a factor in 2005 as it was in 2004. Mill Services operating income increased 33% in the fourth quarter to over $30 million, and margins improved by 110 basis points to 11.1%. For the year, margins improved 20 basis points to 10.6% and were well within the range that we targeted for 2004. As we stated in our analyst conference presentation in December, we do expect to further improve margins in 2005 and that strategy was clearly articulated during that time.

In our Access Services segment, sales were up 19% to 189 million. Increase of sales in the fourth quarter consisted of $20 million from international growth and $10 million from positive foreign currency translation. Operating income increased approximately 21% to over $13 million, and margins improved by 10 basis points to 7%. For the year, margins improved by 30 basis points to 6.3% and were within the range that we targeted for 2004. We expect margins to further improve in 2005.

Again, as we stated in December at the analyst conference, we are focused on achieving ongoing margin improvement in the access services group with the ultimate target in the area of 10% or better, and that is within the 2006 to 2007 timeframe.

The international access services business has benefited all year from new growth projects, including small targeted acquisitions as well as our asset redeployment strategies.

Moving onto our Engineered Products and Services group, which, just to remind you, includes Harsco Track Technologies, Reed Minerals, IKG Industries, Patterson-Kelley and Air-X-Changers. This group performed relatively well in the fourth quarter and, as expected, Track Technologies results were strong due to record shipments in the quarter. Track Technologies posted record fourth quarter sales of approximately $87 million as compared with about $45 million last year.

Due largely to Track Technologies’ performance, sales for the group, in total, increased by 60% to $154 million while operating income grew by 19% to $14 million. However, margins declined by 320 basis points due to higher LIFO cost of sales expense when compared with last year’s fourth quarter. The increase in cost of sales is due to significant inflation caused by high commodity prices, particularly steel.

The Gas Technologies segment’s performance in the fourth quarter was led by the international cryogenic container business, which performed well, particularly in Asia. In addition, the gas cylinder business posted a strong fourth quarter compared with last year. Overall, for the quarter, sales increased 15%, but operating income declined by 23%. Margins also declined by 190 basis points to 3.8%. Operating results of Gas Technologies were, once again, negatively affected in the fourth quarter, due to an increase in LIFO cost of sales expense when compared with last year’s fourth quarter.

Just like certain units within the engineered products group as we just discussed, significant inflation in commodity prices, particularly steel, caused cost of sales to be higher. We expect these costs to moderate in 2005, which should improve results.

With respect to the company as a whole, fourth quarter sales, income and EPS from continuing operations were all records. Operating income increased by 24% to approximately $61 million. The margins declined slightly by 10 basis points due to the higher commodity costs in the manufacturing business as we just discussed and, to a lesser extent, Sarbanes-Oxley compliance costs.

With respect to taxes, the company lowered its estimated effective income tax rate from continuing operations from 30.7% to 28.6% for the year. The change in the tax rate resulted primarily from a favorable one-time benefit of approximately $1.5 million or 4 cents per share in the fourth quarter, due to the American Jobs Creation Act of 2004. The benefit relates to foreign tax credit relief for certain dividends paid by joint venture entities. The effective tax rate also benefited, to a lesser degree, from various other credits. The company estimates that the effective tax rate from continuing operations in 2005 should be approximately 31%.

With respect to cash flow, fourth quarter cash flow from operations declined by approximately $4 million or about 3% due to higher working capital, particularly accounts receivable. The higher accounts receivable balance is due to strong December sales. Sales were up 30% over last December. For the year, cash flow from operations was another record at over $270 million, up almost $8 million over last year.

I’d like to point out that the cash flow from operation number includes 2 items that essentially offset each other, but nonetheless are noteworthy. With the over $12 million in cash we received from the FET settlement in the fourth quarter, discretionary cash contributions of approximately $11 million were made for the defined benefit pension plans.

I am pleased to report that, for the company as a whole, we continue our EVA improvement performance in the fourth quarter, and for the year we exceeded the EVA improvement target by over 300%. In 2004, 6 of the 9 operating units improved EVA.

Consistent with our growth initiatives for the year, we made a record $204 million in capital investments. This is an increase of $60 million or 42% over 2003. It is significant that approximately 48% or $97 million was spent on growth initiatives. Regarding debt, debt declined by $21 million in the fourth quarter to $626 million. And that’s compared with the third quarter of 2004. For the year, however, debt rose a modest $12 million due to foreign currency translation. On a cash flow basis, however, debt actually declined by $22 million in 2004. And this is despite the receipt of at least $12 million in cash at year end that could not be applied towards debt reduction at that time.

Despite this modest increase in debt levels, our debt-to-capital ratio actually decreased by 350 basis points to 40.6% from 44.1% at December 31, 2003. The 40.6% debt-to-cap ratio is our lowest since the first quarter of 1999. It is also important to examine the net debt-to-capital ratio. Net debt is simply the total debt less cash. The net debt-to-capitalization ratio at the end of the year was 36.8% and that’s down 390 basis points from last year’s 40.7%.

In closing, I would like to make a final comment on returns. For 2004, we improved the estimated annualized return on invested capital by 130 basis points to 9.7%, and the estimated annualized return on equity by 160 basis points to 13.8%. That completes my comments. Derek?

Thank you, Sal. In summary, I think – I hope you’d agree with me that 2004 was a successful year, particularly supported by an excellent fourth quarter all around. Of particular importance to me and our senior management team is the clear evidence that the longer-term strategies of the corporation, which we have emphasized time and time again and which we vigorously continue to pursue are also now manifesting the results that were anticipated by the investments. And our focus, which we’re maintaining, that to me is particularly encouraging. We achieved record sales of $2.5 billion and record diluted earnings per share of $2.73 from continuing operations.

As Sal has said, we achieved record cash flows from operations of north of $270 million. We invested $109 million in growth initiatives with $97 million on growth CapEx, which is a record, and a modest $12 million on acquisitions.

The industrial services businesses sales were 71% total sales in 2004. And Mill Services sales grew by 21%. Mill Services’ estimated future contract backlog increased 11% to now, on a foreign exchange adjusted basis, to some $3.7 billion. That reflects the amount of investment and contract renewals that we’ve been involved in during 2004. And that’s a significant increase year on year. And of course, that portends well for the future of this organization, given that the average life and length of these contracts outstanding is some 7 years; and it underpins, somewhat, the future earnings capability of Harsco.

Engineered Products and Services group backlog increased 24%, primarily due to Track Technologies. And we’re pleased to note that the Gas Technologies backlog increased year on year by some 66%. We go into 2005 in a stronger position than we have, perhaps, for the last 4 years in that business. Export sales increased 28% to around $140 million.

Those then are the vital statistics of the operating performance and where we see the business, as it stand at the moment. And I’d now invite any questions or comments that you may have.

(Operator Instructions)

Your first question comes from James Gentile with Sidoti & Company.

I was wondering if perhaps you could go over the sustainability of the Track Technologies business. I mean, obviously, with deliveries so strong in the fourth quarter, I was wondering if you can perhaps give us insight into the quarterly movement of deliveries in 2005.

I could give you a broad answer to that, and this is that the backlog is very firm. We have –- we’re going to be very busy in 2005. We know what our earnings goals are for that company and we’re presently very confident with what’s building up in terms of our backlog required for delivery and the service contracts that we are now getting more and more involved in, that 2005 will be another strong year.

Okay.

Your next question comes from Bill Fisher with Raymond James.

Good afternoon.

Good afternoon, Bill.

Yes, on the Mill Service side you mentioned you had the 14% organic growth. If you had to guess how that’s broken down between contributions from new contracts versus just general steel production, how do you’d slice that right now?

Probably 50-50, Bill.

And do you see that mix changing more toward the new contracts as you go into ’05?

Yes.

Okay. And then, on the Access side, obviously you did great on the international front. On Patent, are you seeing any signs on the U.S. side, are you seeing any signs of better pricing or some improvement there as you go into ’05?

We are seeing a modest improvement in rental rates, yes. And we do have, as we speak, a record volume of equipment out on site. And so, I think that there is, again, a cause for a little more optimism in the U.S. business than previously. And couple that with some of the improvements that we are continuing to make in the organization of that business and it’s -– the geographical spread and location throughout the United States and elsewhere. Again, we’ve got reason to be optimistic that our 2005 performance will exceed our 2004 performance in that business.

There, we’ve been –- I don’t want to say more than I should, except to say that we’re seeing the quality of earnings there improving and being a little more reliable.

Okay. Thank you.

Your next question comes from Ted Wheeler with Buckingham Research.

Hi. Good afternoon, everyone.

Good afternoon.

A couple questions. On the –- you mentioned LIFO issues with both the Engineered Products and Gas Technologies. Do you ballpark the quantification of those, what they really --

Yes, for the quarter, Ted?

Yes.

Yes, for the quarter, Gas -– I’ll start with Engineered Products. That was about a $5 million change year over year. And in Gas, it was about $3 million year over year change.

Now, assuming –- you’ve got to make a lot of assumptions, but assuming costs are relatively static, wouldn’t these be reversed in ’05?

Not reversed, but if you recall in New York when we talked about this at our conference and we did a little bridge for you, we did factor in 10 cents, as you recall, in lower commodity costs in 2005. And that’s a direct result of moderating inflation due to LIFO accounting.

Okay. So, that’s the impact --

That is what we estimated back in December would be the impact to ’05. Based on what we were projected inflation rates in ’05 versus ’04 in certain commodity prices.

Okay, and just shifting a little bit, but again on margins. If I recall, the third quarter, you had some –- you discussed margin pressures from fuel costs in the Mill Services business. And I assume that those were resolved in the fourth quarter there through, I guess, price adjustments.

Yes, they’re still ongoing.

Okay. Well, I guess that’s my question, then. Because sooner or later, one would expect you could offset fuel with price adjustments. Is that a fair estimate -– expectation?

I guess it depends on whether Exxon want to make $8.4 billion in the quarter.

No, no, can’t you pass this on –- over time, can’t you pass this on to your customers?

Yes, we watch, obviously, fuel is watched very, very carefully and we hope that there will be some kind of moderation, given yesterday and today’s news, and --

Well, but don’t you have the mechanics in your contracts to ultimately --

It’s a small part of the overall picture.

I see. Okay. It seemed bigger, based on the third quarter margin.

Yes.

But, so that’s not a material change for ’05, and we shouldn’t be looking, from the fourth quarter on.

No, I don’t think so.

No.

Okay. And I guess, lastly, on the Track Technologies, as strong as it is, it feels as though it’s sort of the run-out and the delivery on contracts that surged several quarters ago. Would you expect this year to see some new contracts for Track Technologies for revenues beyond this year and well into the next few? I mean, are you actively –- is there an active pipeline of new activity for new contracts at Track Technologies?

Well, there’s plenty going on at Track Technologies in terms of export orders and opportunities and business that we’re writing at the moment. If you recall, if I can take you back a year, we -– 2004 promised much and we knew some of the difficulties that we were facing regarding remodeling our business. There’s a new business model there. And as we move towards using our own product to provide a service rather than to sell the product on to a third party, that business continues to go through quite a radical change. But that change is being managed, we believe, very successfully at the moment; and we do expect growth in that business to continue, both in terms of its revenues and in terms of its earnings and margins.

We, as I’ve said previously, we’ve spent enormous sums of money putting engineers and sales staff around the world, educating the various countries that have been targeted regarding the quality and performance of that equipment and the services that we can offer. And we believe that that money was well spent. What we’re doing now is picking up orders and repeat business and writing service agreements, both domestically, in the United States, and internationally. And 2004 was the beginning.

Yes.

It was in no way the culmination.

So, we should expect, if all goes well, you’d have a higher backlog 12 months from now than you have now.

Yes.

Okay. Great. Terrific. Thank you.

Your next question comes from Mike Clarfeld with Hygrove Partners.

Just a quick question on scaffolding. I guess I’m curious about incremental margins there, and were you surprised that even with stripping out the FX, sales are up substantially, but margins are only up 10 basis points?

We weren’t surprised, but clearly, as far as margins are concerned, as Sal emphasized, margins are of critical importance in that business and we’re focused on doing all we can to improve margins –- overall margins. International operations, as you’ve just observed, did do quite well, but there’s room for improvement there. And certainly, in the domestic United States, our Patent business needs to improve its performance. And we will -– we’re working hard on that. So, yes. Margin’s not high enough. We’re going on to improve margins. That’s the summary there.

Okay. Thanks.

Your next question comes from Jeff Hammond with KeyBanc Capital Markets.

Hi. Good afternoon.

Good afternoon, Jeff.

I want to double back on the LIFO expense issue, and wanted to understand, I guess, when do you see those -– that hit peaking in each of the businesses? And I wanted to better understand why it started to leak in, in the Gas business more in the third quarter and not until the fourth quarter for the Engineered Products business.

Well, it’s been off all year, Jeff. It hasn’t leaked in. It’s been there the whole year. It’s just there’s various drivers of that -– inventory levels and estimated inflation on -– it’s not just steel prices, it’s a whole myriad of inputs that we face. So, there’s a lot of variables here. But the LIFO expense has been there the whole 12 months. Every quarter it’s been in there.

Right, but you had called it out in the third quarter, specifically Gas --

Because it was such a big number in the third quarter –- the year over year, again.

Right. So, I guess, if you can maybe speak to Gas and then separately Engineered Products, based on your analysis, when does that LIFO expense number peak? Is it this quarter or is it first quarter?

No, the way LIFO works, Jeff, is you measure the beginning of year price and the end of year price and your inventory levels at the end and the beginning of the year. That’s how you calculate the overall inflation. And so, in theory, using your words, it peaked at 12-31-‘04.

Okay.

I think, overall, in summary, Jeff, this is the position. At the beginning -- last year, when we prepared our budgets and looked at the guidance that we would give to the marketplace, when we give guidance, we have to take into account all kinds of matters which impact upon our business. We took a view that in the guidance we would give, we needed to be very, very, very sure about consideration of LIFO, given the dramatic increase in commodity prices and how that would impact upon our business.

Now, here’s the bad news. Had we not taken that into account in our guidance, we’d have been short by something like $18 million in the year. I ask you, at least, to anticipate that. In all of the guidance we gave, assumed this LIFO phenomena for the year. I think you’re picking up on, perhaps, and the other question is picking up on some –- on the news is that we did achieve these results, these operating results, having for the first time in our history here, having to cover that very, very large expense.

Our view we’ll be peaking, frankly, is that we don’t think that prices are going to go much higher, and we don’t think that there’s going to be any additional incremental increase of any kind of material substance for next year.

Okay. And then, at the December meeting, you provided some revenue forecast for your businesses for 2004. And I noticed that in the reported results, Mill Services came in some $30 million north of that forecast, some $25 million north on the Access side. And I just wanted to get a sense of what kind of changed in December that the numbers came in so much higher within those 2 businesses. And if there was some sort of acceleration, is that carrying into ’05?

No, it’s the same practice we’ve talked about. It’s foreign exchange rates. It’s strong production volumes and new add-on contracts.

So, but did some contracts just come online in December that weren’t anticipated or, I mean, why did the --

No, Jeff, I mean, our internal forecasts, because of what we know about this business and because of the investments that have take place, as we’ve said to you, our Mill Services business is probably the easiest business that we have to predict revenues, given that mills don’t close or break down or furnaces don’t burn out. And they’re going to produce steel and we’re there to help them, 24 hours a day, 7 days a week, 365 days a year. And therefore, we know, basically, what the revenues -– if we don’t write any more business and nothing unusual happens, we can tell you now what the revenues are going to be in 2005, which we indicated at the December seminar in New York. You were there.

So, predicting revenues -- and we knew what the third quarter would be, given that foreign exchange was about where it was going to be, given -– to answer the previous question -– that fuel costs were going to be where they were -– look like being, and taking into account all of those factors, we weren’t at all surprised. And it’s not December, Jeff, it’s a quarter. It’s a quarter. It isn’t just --

Right. I’m just trying to get down to -- you had a $965 million number in your book.

That, Jeff, that 965 was based on 9 months actual –- I mean, I’m sorry, 10 months actual --

Okay.

Two months forecast. Because we did not have the November numbers at the time we put the charts together. So, you have 2 months. And what we experienced in those 2 months, the foreign exchange rates were much, much higher than we anticipated. If you recall, at the end of the year, the euro and the sterling ended up at, I think it was only 126 for the euro and I think -– they were very high as well as -- and the sterling was way up in the 190s plus.

So, and then, very strong production. So, the combination of those 2 things in those 2 months really was –- accounts for the difference –- the 965 versus the 997. That’s what you’re getting at, right?

Sure. Yes, yes. And then, I guess, last question. The D&A had been running kind of 45-45 -– 44-45, jumped up. Is that new contracts coming online or --

Yes, well, that’s the ramp up in investment. And I think, as you go through 2005, you’re going to see that -– that’s probably –- if you use the fourth quarter, it’s probably a pretty good run rate. That’s about $49 million, if I remember right. So, do the math. It comes out just a little bit under 200 for the year. So, when we think of it as a range of 195, say, to 200, it’s probably a good range for D&A for 2005.

Okay, thanks.

Thank you, Jeff.

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

Hi, fellows.

Hi, Godfrey.

Let me just say something to you, Derek. Generally, I get on here and all the investment bankers are saying, wow, you had a great quarter. And I –- actually (inaudible) and I think you do deserve a word of praise from the people who follow this company. I’ve followed you for about 10 years now and I want to congratulate you guys on turning this company around. I think it’s a well-deserved word on my part. And if there’s no one else who has said that, I would like to.

Well, that’s very gracious of you. Thank you.

And I’m not an investment banker, so I can say that and I have nothing to gain from it. Now, first question is, Sal, we always go over this other income account, which fell from $2.4 million last year to $400,000.

Right. Right.

It was lower than -– what’s the outlook in that account in 2005?

Well, we always factor in a modest amount. And what that is, Godfrey, to be very specific, those are what we call reorganization and exit costs. We’re –- like lease, exit costs, severance costs, those kind of things. We always have some of that going on. And typically, what you see is “a normal run rate” would be at least a couple of million dollars.

Okay. From a modeling point of view, you would put $2 million in there.

Yes, I think that’s a good number. Yes.

Okay. Thank you very much. Now, the second question is, capital expenditures should be what this year?

Well, it should be a couple hundred million. If you recall, what we said in New York, I think we were projecting -- a couple hundred, if I remember right. I think it was 210.

210?

Something like that. Yes.

And I missed the D&A for this year –- what --

It should be just a little bit under 200 million. Say, 198 or something like that.

Okay. All right. Now, the next question is, which parts of the company are not meeting the EVA standards at this point?

Okay. The way we do it, it’s the U.S. active services business. It’s gas and fluid -– Gas Technologies. And one of the smaller businesses that’s really not going to make a big difference one way or the other.

Okay. And what are your assumptions about -– and what are you assumptions about foreign exchange going into 2005?

As you recall, or you may not recall, in December we said that we used September 30 rates, okay? And the September 30 rates were, if I remember again off memory, I think the euro was like 123 and the pound was like 180 something. And what we did is, as a result of that, given the movement in exchange rates, that’s why we upped the guidance here for the year, reflecting the much stronger euro and sterling in 2005.

Right.

So, it would be more of a present view of where the rates are, okay. That’s what that’s based on.

And that’s an important point for any of the listeners to bear in mind.

Now, all these companies are dealing, including yourselves, are dealing with this new way of costing pensions. Can you talk about that, Sal? Have you reached a decision about that? And if so, how much is that going to cost you, additionally, this year.

I’m sorry. I missed the question, Godfrey.

The pension, the change in costing -– excuse me, not pension. Sorry about that. The stock options.

Oh, the stock options? There’s not effect on us because we don’t issue stock options. We --

Okay.

We have not issued stock options for 3 years.

Okay. So, you pass on that. Okay. Thank you very much, guys.

Thank you, Godfrey.

(Operator Instructions) Your next question comes from Yvonne Varano of Jefferies.

Thank you.

Thanks. I just wanted to go back to Mill Services a minute because it sounded from your earlier comments that the improvement in margins was not associated with lower fuel costs. So, I was wondering if you could just give me a better idea of what it was that really drove the quarter-over-quarter improvement?

Yes, basically, it’s the phenomenon of critical mass. You’ve got an administration expense around the world to run these businesses, and that tends –- that does not grow along with the top line. So, volume is important to us. Top line is important to us, and we get an over recovery of the overhead. And that goes –- that improves the margin. And that’s really the goal. As that backlog increases and our equipment and our people that we have are able to improve performance and efficiency in dealing with that increased backlog, that will be the key to the next few -- sort of tenths of a basis point improvement. And that will go on inexorably, I guess.

Okay. And just to better understand because I know, domestically, fourth quarter is usually a little lower in terms of volumes. Were the volumes -– was that driven mostly by that organic growth or was there something specific that happened at one of the mills or one of the regions that drove volumes higher?

It was strong volumes, as Derek indicated, Yvonne. We had a very strong fourth quarter, volume-wise, as well as new contracts kicking in and so forth.

Just to remind you, I mean, we did –- that’s evident in the total number. The guidance we gave was exceeded by about 4 cents, if you add back to that the tax. And I think the tax shouldn’t be discounted.

All of you who have followed us over the years have seen our tax rates come down from 44% to 31%. That’s a strategic matter, which we concentrate very seriously on with some of the tax arrangements that we make with foreign countries around the world where we do business.

And we benefit from that as a strategy. It shouldn’t be dismissed as perhaps a one-time event, as it is sometimes. But these taxes are -– these tax reductions are part of an overall strategy of investing in places that are friendly and warm and give us these incentives. And we continue to renegotiate those. So, tax is an important cost of doing business. And we apply the appropriate time to that. So, 4 cents on top of the original guidance, plus the tax rebate, took us to where we were.

Yvonne, on the margins for Mill Services, one thing you can’t underestimate is the effect of our Six Sigma program. We go through every contract, every site and we’re continuously improving on how we do things; and that’s how we’re able, for example, to compensate and overcome things like higher fuel costs and higher Sarbanes-Oxley costs and so forth. And it’s this ongoing continuous improvement mentality that we have. That, augmented by the focus of EVA where new investments, as they kick in, for the most part, are much stronger performing, results-wise, than some of the, say, the older contracts that we may have had in effect. So, there’s all kind of variables in there.

Okay. And then, I just wanted to be clear. When you’re looking at your commodity costs and factoring into your forecast, you’re keeping them constant at current levels, or you’re assuming a directional change?

There is the fact of inflation every year we have to assume. You’re talking about the LIFO cost?

Well, specifically on steel because it’s been so volatile. I’m really trying to understand your assumption that went into your ’05 forecast. Do you see it’s going to come down from these levels or more of a flat scenario?

Well, we do, on the guidance we gave you, that does assume some level of inflation. Again, I take you back to that reconciliation sheet that we did for you in New York, where you see that we’re expecting to get a 10-cent benefit for the year as the result of lower commodity costs. So, you can do the math and back into the fact that we are, obviously, expecting some inflation during the year. It’s not going to be zero.

Okay. Great. Thanks.

You’re welcome.

At this time, there are no further questions. Are there any closing remarks?

Well, thank you very much. It’s been –- I hope the conference call has been as interesting for you as it has for us. We’re always pleased to take the questions. We know that you are focused upon those things which clearly are important to us. And from that standpoint, we are kind of singing out of the same hymnbook.

We will continue with our strategic cash optimization initiatives in 2005. As we stated recently, we expect record cash flows from operations in 2005, as Sal said, of about $320 million. And this cash flow will be used to fund an increasing level of growth initiative across the board, but specifically where the major opportunities are –- in our Mill Services business.

And as we’ve reiterated in today’s press release, our current outlook for 2005 is for diluted EPS from continuing operations in the range of $3.05 to $3.15. And this represents an increase of approximately 12 to 15% year over year.

Our outlook for the first quarter is in the range of 45 to 49 cents per share from continuing ops, which is an increase of about, if anything, from 10 to 20% compared with last year’s first quarter of 41 cents.

Our confidence in 2005 is supported by the growth momentum in our industrial services businesses, the growing backlogs, our international balance, which lessens our dependence on the U.S. economic cycle, and of course, as Sal, as he oversees this and keeps everybody well disciplined, our strong and growing cash flows.

And I can’t emphasize enough the disciplined financial approach, which is EVA based in everything that we do. So, believe us, we’re not complacent, having just enjoyed a good year. We’re looking for a better year next year and we’ll continue to be as diligent as we possibly can on behalf of our stockholders and those who are interested in us.

So, thank you for your listening in today. We wish you all, obviously, a happy and prosperous New Year, and thank you once again.

This concludes today’s Harsco Corporation fourth quarter release conference call. You may now disconnect.