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Harsco Corporation Reports First Quarter 2018 Results
  • Q1 GAAP Operating Income Increased 28 Percent Compared with the Prior-Year Quarter to $37 Million
     
  • Quarterly Operating Results Exceeded Guidance Due to Strong Performance in Metals & Minerals and Industrial Segments, Along with Lower Corporate Spending
     
  • Q1 Revenues Increased 10 Percent Compared with the Prior-Year Quarter, While Diluted Earnings per Share Doubled to $0.22
     
  • 2018 Full Year GAAP and Adjusted Operating Income Guidance Increased to Between $165 Million to $180 Million; Compared with Prior Range of $150 Million to $170 Million
     
  • $75 Million Share Repurchase Program Approved by Harsco Board of Directors (See Related Press Release)

CAMP HILL, Pa., May 02, 2018 (GLOBE NEWSWIRE) -- Harsco Corporation (NYSE:HSC) today reported first quarter 2018 results.  On a U.S. GAAP ("GAAP") basis, first quarter 2018 diluted earnings per share from continuing operations were $0.22.  This figure compares with first quarter of 2017 GAAP diluted earnings per share from continuing operations of $0.11.

GAAP operating income from continuing operations for the first quarter of 2018 was $37 million, which exceeded the guidance range of $30 million to $35 million previously provided by the Company.

“We are pleased to report strong first quarter results, which exceeded our expectations,” said President and CEO Nick Grasberger.  “Harsco executed well in the quarter and a strengthening global economy has become more apparent in recent months.  This momentum supports a boost to our 2018 outlook and a more meaningful increase in our key performance measures relative to last year.”

“The initiation of a share repurchase program is another indication of our progress.  We have consistently met or exceeded expectations over the past few years and the underlying stability within our businesses has strengthened considerably.  The buyback decision reflects our business confidence as well as our financial flexibility.  Looking ahead, we are focused on executing against our growth priorities.  We are confident these investments will support further earnings growth for Harsco and create additional value for shareholders.”

Harsco Corporation—Selected First Quarter Results

($ in millions, except per share amounts)   Q1 2018   Q1 2017 (1)
Revenues   $ 408     $ 373  
Operating income from continuing operations - GAAP   $ 37     $ 29  
Operating margin from continuing operations - GAAP   9.0 %   7.7 %
Diluted EPS from continuing operations   $ 0.22     $ 0.11  
Return on invested capital (TTM) - excluding unusual items   12.5 %   8.2 %
(1) 2017 figures reflect new pension accounting standard

 
       

Consolidated First Quarter Operating Results

Total revenues were $408 million, an increase of 10 percent compared with the prior-year quarter as a result of higher revenues in the Company's Metals & Minerals and Industrial segments.  The first quarter of 2018 included revenues of approximately $8 million related to the Company's multi-year contracts with SBB, or the federal railway system in Switzerland.

GAAP operating income from continuing operations was $37 million during the first quarter of 2018 compared with GAAP operating income of $29 million in the same quarter of last year.  Operating income in the Metals & Minerals and Industrial segments improved in comparison with the prior-year quarter, while operating income declined as expected in the Rail segment.  Also, Corporate spending decreased relative to the prior-year period, contributing to the year-on-year increase in operating income.

The Company's operating margin increased to 9.0 percent versus an operating margin of 7.7 percent in the first quarter of 2017.

         

First Quarter Business Review

Metals & Minerals

($ in millions)   Q1 2018   Q1 2017 (1)   %Change
Revenues   $ 265     $ 247     7 %
Operating income - GAAP   $ 28     $ 26     8 %
Operating margin - GAAP   10.5 %   10.4 %    
Customer liquid steel tons (millions)   37.5     36.8     2 %
(1) 2017 figures reflect new pension accounting standard            

Revenues increased 7 percent to $265 million, as a result of higher steel output and service levels as well as foreign exchange translation.  Meanwhile, operating income in the first quarter of 2018 totaled $28 million compared with operating income of $26 million in the prior-year period.  The improvement in operating earnings is attributable to the above items, which were partially offset by higher general and administrative costs to support the Company's growth strategy.  Lastly, the segment's operating margin in the first quarter of 2018 was 10.5 percent, or slightly better than the same quarter of 2017.

Industrial

($ in millions)   Q1 2018   Q1 2017 (1)   %Change
Revenues   $ 84     $ 66     27 %
Operating income - GAAP   $ 12     $ 3     nmf  
Operating margin - GAAP   14.9 %   4.4 %    
 (1) 2017 figures reflect new pension accounting standard            
nmf=not meaningful            

Revenues increased 27 percent to $84 million, due to increased demand within each of the Industrial product businesses. Meanwhile, operating income increased to $12 million from $3 million and the segment's operating margin increased to 14.9 percent from 4.4 percent in the comparable quarter last year.  These changes are attributable to improved demand, manufacturing improvements and a more favorable sales mix.

Rail

($ in millions)   Q1 2018   Q1 2017 (1)   %Change
Revenues   $ 60     $ 60     %
Operating income - GAAP   $ 2     $ 6     (69 )%
Operating margin - GAAP   3.3 %   10.4 %    
(1) 2017 figures reflect new pension accounting standard            

Revenues totaled $60 million, essentially unchanged from the prior-year quarter.  The first quarter of 2018 included revenues of approximately $8 million from SBB. Meanwhile, operating income totaled $2 million compared with $6 million in the prior-year quarter.  Lower equipment and contract services contributions, which were anticipated, partially offset by an improved after-market parts mix led to the change in operating income. As a result, the segment's operating margin was 3.3 percent in the first quarter of 2018.

Cash Flow

Net cash used by operating activities totaled $8 million in the first quarter of 2018, compared with $6 million in the prior-year period.  Further, free cash flow was $(35) million in the first quarter of 2018, compared with $(22) million in the prior-year period.  The year-over-year change in free cash flow reflects an increase in capital expenditures, including for growth, and a modest decrease in net cash from operating activities.

2018 Outlook

The Company's 2018 guidance is increased to reflect revised forecasts for the Metals & Minerals and Industrial segments as compared with the guidance provided along with the Company's fourth quarter 2017 results.  For Metals & Minerals, adjusted operating income is expected to increase more than previously anticipated due to higher mill services demand and commodity prices.  As a result, higher customer steel output and commodity prices, new contract ramp-ups, operational savings and improved profitability in certain Applied Products businesses are expected to be only partially offset by exited sites and investments to support growth initiatives for the year.  Meanwhile, the Industrial outlook is improved to reflect better demand for each of its product businesses.  This fact, along with a more favorable product mix and manufacturing savings, are now expected to support a larger year-on-year increase in operating income  compared with prior guidance.

The outlook for the Rail segment and Corporate are mostly unchanged.  In Rail, adjusted operating income is anticipated to be modestly higher compared with 2017, as increased demand for after-market parts and Protran Technology products will be partially offset by a less favorable mix of equipment sales and lower contributions from contracting services.  Also, Corporate spending is expected to be modestly higher than 2017 due to personnel investments and professional fees.

Lastly, note that this outlook and comparisons with the prior year are now updated to reflect the application of the new pension classification standard for both 2017 and 2018.  The related impact to the Company's segment reporting for each of the 2017 quarters is included later in this press release.

Key highlights in the Outlook are included below.

Full Year 2018

  • GAAP and adjusted operating income for the full year is expected to range from $165 million to $180 million; versus $150 million to $170 million previously and compared with 2017 GAAP operating income of $145 million and 2017 adjusted operating income of $150 million.
  • GAAP and adjusted diluted earnings per share from continuing operations for the full year are expected in the range of $1.11 to $1.24; versus $0.97 to $1.14 previously and compared with 2017 GAAP diluted earnings per share of $0.09 and 2017 adjusted diluted earnings per share of $0.74.
  • Free cash flow is expected in the range of $85 million to $100 million, versus $80 million to $100 million previously and compared with $93 million in 2017.  Also, the free cash flow outlook anticipates net capital expenditures of between $125 million and $145 million and growth-oriented capital spending of $45 million to $50 million in 2018.
  • Net interest expense is forecasted to range from $34 million to $36 million; compared with $45 million
    in 2017.
  • The effective tax rate is expected to range from 26 percent to 28 percent.
  • Adjusted return on invested capital is expected to range from 14.0 percent to 15.5 percent; compared with 11.5 percent in 2017.

Q2 2018

  • GAAP and adjusted operating income of $45 million to $50 million; compared with GAAP and adjusted operating income of $43 million in the prior-year quarter.
  • GAAP and adjusted earnings per share from continuing operations of $0.30 to $0.35; compared with GAAP and adjusted earnings per share of $0.22 in the prior-year quarter.

Conference Call

The Company will hold a conference call today at 9:00 a.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 will be available on the Company’s website.

The call can also be accessed by telephone by dialing (800) 611-4920, or (973) 200-3957 for international callers.  Enter Conference ID number 60474063.  Listeners are advised to dial in at least five minutes prior to the call.

Replays will be available via the Harsco website and also by telephone through May 23, 2018 by dialing (800) 585-8367, (855) 859-2056 or (404) 537-3406.

Forward-Looking Statements

The nature of the Company's business and the many countries in which it operates subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties.  In accordance with the "safe harbor" provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein.  Forward-looking statements contained herein could include, among other things, statements about management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, sales, cash flows, and earnings.  Forward-looking statements can be identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "outlook," "plan" or other comparable terms.

Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including general economic conditions; (2) changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs;(3) changes in the performance of equity and bond 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; (4) changes in governmental laws and regulations, including environmental, occupational health and safety, tax and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) the Company's inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates; (7) failure to effectively prevent, detect or recover from breaches in the Company's cybersecurity infrastructure; (8) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (9) disruptions associated with labor disputes and increased operating costs associated with union organization; (10) the seasonal nature of the Company's business; (11) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all; (12) the integration of the Company's strategic acquisitions; (13) the amount and timing of repurchases of the Company's common stock, if any; (14) the outcome of any disputes with customers, contractors and subcontractors; (15) 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; (16) implementation of environmental remediation matters; (17) risk and uncertainty associated with intangible assets; and (18) other risk factors listed from time to time in the Company's SEC reports.  A further discussion of these, along with other potential risk factors, can be found in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2017.  The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict.  Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.  The Company undertakes no duty to update forward-looking statements except as may be required by law.

About Harsco

Harsco Corporation serves key industries that are fundamental to worldwide economic development, including steel and metals production, railways and energy.  Harsco’s common stock is a component of the S&P SmallCap 600 Index and the Russell 2000 Index.  Additional information can be found at www.harsco.com.


HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
    Three Months Ended  
    March 31  
(In thousands, except per share amounts)   2018   2017  
Revenues from continuing operations:          
Service revenues   $ 254,962     $ 240,609    
Product revenues   153,076     131,932    
Total revenues   408,038     372,541    
Costs and expenses from continuing operations:          
Cost of services sold   199,373     189,482    
Cost of products sold   111,980     98,790    
Selling, general and administrative expenses   57,083     53,937    
Research and development expenses   1,239     831    
Other expenses, net   1,822     894    
Total costs and expenses   371,497     343,934    
Operating income from continuing operations   36,541     28,607    
Interest income   498     512    
Interest expense   (9,583 )   (11,653 )  
Defined benefit pension income (expense)   839     (699 )  
Income from continuing operations before income taxes   28,295     16,767    
Income tax expense   (8,266 )   (6,253 )  
Income from continuing operations   20,029     10,514    
Discontinued operations:          
Loss on disposal of discontinued business   (580 )   (588 )  
Income tax benefit related to discontinued business   128     211    
Loss from discontinued operations   (452 )   (377 )  
Net income   19,577     10,137    
Less: Net income attributable to noncontrolling interests   (1,769 )   (1,247 )  
Net income attributable to Harsco Corporation   $ 17,808     $ 8,890    
Amounts attributable to Harsco Corporation common stockholders:
Income from continuing operations, net of tax   $ 18,260     $ 9,267    
Loss from discontinued operations, net of tax   (452 )   (377 )  
Net income attributable to Harsco Corporation common stockholders   $ 17,808     $ 8,890    
Weighted-average shares of common stock outstanding   80,650     80,385    
Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders:
Continuing operations   $ 0.23     $ 0.12    
Discontinued operations   (0.01 )      
Basic earnings per share attributable to Harsco Corporation common stockholders   $ 0.22     $ 0.11   (a)
Diluted weighted-average shares of common stock outstanding   83,544     82,263    
Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders:
Continuing operations   $ 0.22     $ 0.11    
Discontinued operations   (0.01 )      
Diluted earnings per share attributable to Harsco Corporation common stockholders   $ 0.21     $ 0.11    

(a) Does not total due to rounding.


HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)

 
       
 

(In thousands)
  March 31
 2018
  December 31
 2017
ASSETS        
Current assets:        
Cash and cash equivalents   $ 64,780     $ 62,098  
Restricted cash   2,747     4,111  
Trade accounts receivable, net   292,966     288,034  
Other receivables   24,813     20,224  
Inventories   132,352     178,293  
Current portion of contract assets   23,871      
Other current assets   41,227     39,332  
Total current assets   582,756     592,092  
Property, plant and equipment, net   482,837     479,747  
Goodwill   406,706     401,758  
Intangible assets, net   37,756     38,251  
Contract assets   3,566      
Deferred income tax assets   49,900     51,574  
Other assets   19,100     15,263  
Total assets   $ 1,582,621     $ 1,578,685  
LIABILITIES        
Current liabilities:        
Short-term borrowings   $ 5,160     $ 8,621  
Current maturities of long-term debt   10,065     11,208  
Accounts payable   137,254     126,249  
Accrued compensation   35,014     60,451  
Income taxes payable   7,455     5,106  
Insurance liabilities   11,061     11,167  
Current portion of advances on contracts   38,147     117,958  
Other current liabilities   145,501     133,368  
Total current liabilities   389,657     474,128  
Long-term debt   611,695     566,794  
Insurance liabilities   23,017     22,385  
Retirement plan liabilities   248,894     259,367  
Advances on contracts   21,837      
Other liabilities   41,176     40,846  
Total liabilities   1,336,276     1,363,520  
HARSCO CORPORATION STOCKHOLDERS’ EQUITY        
Common stock   141,286     141,110  
Additional paid-in capital   183,310     180,201  
Accumulated other comprehensive loss   (543,217 )   (546,582 )
Retained earnings   1,179,516     1,157,801  
Treasury stock   (762,788 )   (762,079 )
Total Harsco Corporation stockholders’ equity   198,107     170,451  
Noncontrolling interests   48,238     44,714  
Total equity   246,345     215,165  
Total liabilities and equity   $ 1,582,621     $ 1,578,685  


HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
    Three Months Ended
    March 31
(In thousands)   2018   2017
Cash flows from operating activities:        
Net income   $ 19,577     $ 10,137  
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation   31,418     30,207  
Amortization   1,934     2,021  
Deferred income tax expense (benefit)   4,635     (221 )
Dividends from unconsolidated entities       19  
Other, net   1,944     5,131  
Changes in assets and liabilities:        
Accounts receivable   (4,848 )   (27,882 )
Inventories   (11,490 )   (755 )
Contract assets   (5,698 )    
Accounts payable   7,340     (541 )
Accrued interest payable   51     286  
Accrued compensation   (26,131 )   (12,352 )
Advances on contracts   (7,348 )   (4,998 )
Retirement plan liabilities, net   (12,252 )   (8,381 )
Other assets and liabilities   (7,375 )   1,205  
Net cash used by operating activities   (8,243 )   (6,124 )
Cash flows from investing activities:        
Purchases of property, plant and equipment   (26,897 )   (16,989 )
Proceeds from sales of assets   377     1,006  
Net proceeds (payments) from settlement of foreign currency forward exchange contracts   (3,822 )   33  
Net cash used by investing activities   (30,342 )   (15,950 )
Cash flows from financing activities:        
Short-term borrowings, net   (3,659 )   3,655  
Current maturities and long-term debt:        
Additions   46,000     24,000  
Reductions   (2,944 )   (14,345 )
Sale of noncontrolling interests   477      
Stock-based compensation - Employee taxes paid   (709 )   (53 )
Deferred financing costs       (36 )
Net cash provided by financing activities   39,165     13,221  
Effect of exchange rate changes on cash and cash equivalents, including restricted cash   738     1,403  
Net increase (decrease) in cash and cash equivalents, including restricted cash   1,318     (7,450 )
Cash and cash equivalents, including restricted cash, at beginning of period   66,209     71,879  
Cash and cash equivalents, including restricted cash, at end of period   $ 67,527     $ 64,429  


HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)

 
    Three Months Ended   Three Months Ended
    March 31, 2018   March 31, 2017
(In thousands)   Revenues   Operating
Income (Loss)
  Revenues   Operating
Income (Loss)
Harsco Metals & Minerals   $ 264,723     $ 27,735     $ 247,034     $ 25,757  
Harsco Industrial   83,598     12,421     65,885     2,894  
Harsco Rail   59,678     1,952     59,588     6,217  
Corporate   39     (5,567 )   34     (6,261 )
Consolidated Totals   $ 408,038     $ 36,541     $ 372,541     $ 28,607  
                 



HARSCO CORPORATION
RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS, EXCLUDING UNUSUAL ITEMS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited)

 
 
    Twelve Months Ended  
    December 31  
    2017  
Diluted earnings per share from continuing operations as reported   $ 0.09    
Impact of U.S. Tax reform on income tax benefit (expense) (a)   0.59    
Harsco Metals & Minerals Segment bad debt expense (b)   0.06    
Loss on early extinguishment of debt (c)   0.03    
Taxes on above unusual items (d)   (0.02 )  
Adjusted diluted earnings per share from
continuing operations excluding unusual items
  $ 0.74   (e)
  1. The Company recorded a charge as a result of revaluing net deferred tax assets and liabilities as a result of U.S. tax reform ($48.7 million). 
  2. Bad debt expense incurred in the Harsco Metals & Minerals Segment ($4.6 million pre-tax).  
  3. Loss on early extinguishment of debt recorded at Corporate ($2.3 million pre-tax).   
  4. Unusual items are tax effected at the global effective tax rate, before discrete items, in effect at the time the unusual item is recorded except for unusual items from countries where no tax benefit can be realized, in which case a zero percent tax rate is used.  
  5. Does not total due to rounding.

The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual 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.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.


HARSCO CORPORATION
RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS), EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT AFTER RECLASSIFICATION (Unaudited) (a)

 
(In thousands)   Harsco
Metals & Minerals
  Harsco
Industrial
  Harsco 
Rail
  Corporate   Consolidated
Totals
                     
Twelve Months Ended December 31, 2017:                
Operating income (loss) as previously reported   $ 105,257     $ 35,174     $ 32,091     $ (29,723 )   142,799  
Pension reclassification adjustment   (2,895 )   358     863     4,268     2,594  
Operating income (loss), after reclassification   102,362     35,532     32,954     (25,455 )   145,393  
Harsco Metals & Minerals bad debt expense   4,589                 4,589  
Adjusted operating income (loss), excluding unusual items, after reclassification   $ 106,951     $ 35,532     $ 32,954     $ (25,455 )   $ 149,982  

(a)     On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension cost ("NPPC") in the statement of operations.  Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations. 

The Company’s management believes Adjusted operating income (loss) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual 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.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.


HARSCO CORPORATION
RECONCILIATION OF FREE CASH FLOW TO NET CASH USED BY OPERATING ACTIVITIES (Unaudited)

 
       
    Three Months Ended
    March 31
(In thousands)   2018   2017
Net cash used by operating activities   $ (8,243 )   $ (6,124 )
Less capital expenditures   (26,897 )   (16,989 )
Plus capital expenditures for strategic ventures (a)   240     59  
Plus total proceeds from sales of assets (b)   377     1,006  
Free cash flow   $ (34,523 )   $ (22,048 )
  1. Capital expenditures for strategic ventures represent the partner’s share of capital expenditures in certain ventures consolidated in the Company’s financial statements.
  2. Asset sales are a normal part of the business model, primarily for the Harsco Metals & Minerals Segment.

The Company's management believes that free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds for planning and performance evaluation purposes.  It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.


HARSCO CORPORATION
RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited)

 
   
    Twelve Months Ended
    December 31
(In thousands)   2017
Net cash provided by operating activities   $ 176,892  
Less capital expenditures   (98,314 )
Plus capital expenditures for strategic ventures (a)   865  
Plus total proceeds from sales of assets (b)   13,418  
Free cash flow   $ 92,861  
  1. Capital expenditures for strategic ventures represent the partner’s share of capital expenditures in certain ventures consolidated in the Company’s financial statements.
  2. Asset sales are a normal part of the business model, primarily for the Harsco Metals & Minerals Segment. 

The Company's management believes that Free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from (used in) operations less capital expenditures net of asset sales proceeds.  It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.


HARSCO CORPORATION
RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited)

 
    Projected
Twelve Months Ending 
December 31
    2018
(In millions)   Low   High
Net cash provided by operating activities   $ 210     $ 245  
Less capital expenditures   (130 )   (149 )
Plus total proceeds from asset sales and capital expenditures for strategic ventures   5     4  
Free Cash Flow   $ 85     $ 100  

The Company's management believes that free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds for planning and performance evaluation purposes.  It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.


HARSCO CORPORATION
RECONCILIATION OF RETURN ON INVESTED CAPITAL EXCLUDING UNUSUAL ITEMS TO NET INCOME (LOSS) FROM CONTINUING OPERATIONS AS REPORTED (a) (Unaudited)

 
    Trailing Twelve Months for Period Ended March 31
(In thousands)   2018   2017
Net income (loss) from continuing operations   $ 21,163     $ (60,635 )
Unusual items:        
Impact of U.S. tax reform on income tax benefit   48,680      
Harsco Metals & Minerals Segment bad debt expense   4,589      
Loss on early extinguishment of debt   2,265     35,337  
Harsco Rail Segment forward contract loss provision       45,050  
Net loss on dilution and sale of equity investment       43,518  
Expense of deferred financing costs       1,125  
Harsco Metals & Minerals Segment cumulative translation adjustment liquidation       (1,157 )
Taxes on above unusual items (b)   (2,052 )   (11,512 )
Net income from continuing operations, as adjusted   74,645     51,726  
After-tax interest expense (c)   29,995     31,342  
         
Net operating profit after tax as adjusted   $ 104,640     $ 83,068  
         
Average equity   $ 209,938     $ 252,178  
Plus average debt   625,337     759,500  
Average capital   $ 835,275     $ 1,011,678  
         
Return on invested capital excluding unusual items   12.5 %   8.2 %
  1. Return on invested capital excluding unusual items is net income (loss) from continuing operations excluding unusual items, and after-tax interest expense, divided by average capital for the year.  The Company uses a trailing twelve month average for computing average capital.
  2. Unusual items are tax effected at the global effective tax rate, before discrete items, in effect at the time the unusual item is recorded except for unusual items from countries where no tax benefit can be realized, in which case a zero percent tax rate is used.
  3. The Company’s effective tax rate approximated 37% for the trailing twelve months for period ended March 31, 2017 and for the trailing twelve months for period ended March 31, 2018, 37% was used for April 1, 2017 through December 31, 2017 and 23% was used for January 1, 2018 through March 31, 2018, on an adjusted basis, for interest expense.

The Company’s management believes Return on invested capital excluding unusual items, which is a non-U.S. GAAP financial measure, is meaningful in evaluating the efficiency and effectiveness of the capital invested in the Company’s business.  Exclusion of unusual 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.  This measure should be considered in addition to, rather than as a substitute for, net income or other information provided in accordance with U.S. GAAP. 


HARSCO CORPORATION
RECONCILIATION OF RETURN ON INVESTED CAPITAL EXCLUDING UNUSUAL ITEMS TO NET INCOME FROM CONTINUING OPERATIONS AS REPORTED (a) (Unaudited)

 
    Year Ended December 31
(In thousands)   2017
Net income from continuing operations   $ 11,648  
Unusual items:    
Impact of U.S. tax reform on income tax benefit   48,680  
Harsco Metals & Minerals Segment bad debt expense   4,589  
Loss on early extinguishment of debt   2,265  
Taxes on above unusual items (b)   (2,052 )
Net income from continuing operations, as adjusted   65,130  
After-tax interest expense (c)   29,957  
     
Net operating profit after tax as adjusted   $ 95,087  
     
Average equity   $ 189,560  
Plus average debt   638,964  
Average capital   $ 828,524  
     
Return on invested capital excluding unusual items   11.5 %
  1. Return on invested capital excluding unusual items is net income from continuing operations excluding unusual items, and after-tax interest expense, divided by average capital for the year. The Company uses a trailing twelve month average for computing average capital.
  2. Unusual items are tax effected at the global effective tax rate, before discrete items, in effect at the time the unusual item is recorded except for unusual items from countries where no tax benefit can be realized, in which case a zero percent tax rate is used.
  3. The Company’s effective tax rate approximated 37% for the year ended December 31, 2017 on an adjusted basis, for interest expense. 

The Company’s management believes Return on invested capital excluding unusual items, which is a non-U.S. GAAP financial measure, is meaningful in evaluating the efficiency and effectiveness of the capital invested in the Company’s business.  Exclusion of unusual 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.  This measure should be considered in addition to, rather than as a substitute for, net income or other information provided in accordance with U.S. GAAP.  


HARSCO CORPORATION
RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT AFTER RECLASSIFICATION (Unaudited) (a)

 
(In thousands)   Harsco
Metals & Minerals
  Harsco
Industrial
  Harsco 
Rail
  Corporate   Consolidated
Totals
                     
Three Months Ended March 31, 2017:                
Operating income (loss) as previously reported   $ 26,429     $ 2,804     $ 5,986     $ (7,311 )   $ 27,908  
Pension reclassification adjustment   (672 )   90     231     1,050     699  
Operating income (loss), after reclassification   $ 25,757     $ 2,894     $ 6,217     $ (6,261 )   $ 28,607  
                     
Three Months Ended June 30, 2017:                
Operating income (loss) as previously reported   $ 32,177     $ 9,151     $ 7,961     $ (6,815 )   $ 42,474  
Pension reclassification adjustment   (713 )   89     231     1,068     675  
Operating income (loss), after reclassification   $ 31,464     $ 9,240     $ 8,192     $ (5,747 )   $ 43,149  
                     
Three Months Ended September 30, 2017:                
Operating income (loss) as previously reported   $ 24,327     $ 12,864     $ 4,161     $ (7,402 )   $ 33,950  
Pension reclassification adjustment   (714 )   90     230     1,072     678  
Operating income (loss), after reclassification   23,613     12,954     4,391     (6,330 )   34,628  
Harsco Metals & Minerals bad debt expense   4,589                 4,589  
Adjusted operating income (loss), excluding unusual items, after reclassification   $ 28,202     $ 12,954     $ 4,391     $ (6,330 )   $ 39,217  
                     
Three Months Ended December 31, 2017:                
Operating income (loss) as previously reported   $ 22,324     $ 10,355     $ 13,983     $ (8,195 )   $ 38,467  
Pension reclassification adjustment   (796 )   89     171     1,078     542  
Operating income (loss), after reclassification   $ 21,528     $ 10,444     $ 14,154     $ (7,117 )   $ 39,009  

(a)     On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present NPPC in the statement of operations.  Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  Other components of net periodic pension cost ("NPPC") are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations.

The Company’s management believes Adjusted operating income (loss) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual 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.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

Investor Contact    Media Contact
David Martin   Jay Cooney
717.612.5628   717.730.3683
damartin@harsco.com    jcooney@harsco.com 



 

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