Print Page  |  Close Window

News Release

Harsco Corporation Reports Third Quarter 2018 Results
  • Q3 Revenues Increased 16 Percent Compared with the Prior-Year Quarter
     
  • Q3 GAAP Operating Income of $57 Million
     
  • Operating Income Excluding Unusual Items Increased 47 Percent to $58 Million Compared with the Prior-Year Quarter, Exceeding Guidance Due Mainly to Strong Performance in Rail as Well as Lower Corporate Costs
     
  • Diluted Earnings per Share (GAAP and Adjusted) Totaled $0.40, Increased From GAAP Diluted Earnings per Share of $0.16 and Adjusted Diluted Earnings per Share Excluding Unusual Items of $0.20 in the Prior-Year Quarter
     
  • 2018 Full-Year Adjusted Operating Income Guidance Increased to Between $185 Million to $190 Million; Compared with Prior Range of $175 Million to $185 Million

CAMP HILL, Pa., Oct. 31, 2018 (GLOBE NEWSWIRE) -- Harsco Corporation (NYSE: HSC) today reported third quarter 2018 results. On a U.S. GAAP ("GAAP") and adjusted basis, third quarter of 2018 diluted earnings per share from continuing operations were $0.40. This figure compares with third quarter of 2017 GAAP diluted earnings per share from continuing operations of $0.16 and adjusted diluted earnings per share from continuing operations of $0.20, which excluded a Metals & Minerals bad debt expense related to a customer that had entered administration in Australia.

GAAP operating income from continuing operations for the third quarter of 2018 was $57 million. Excluding unusual items, operating income was $58 million, which exceeded the Company's previously provided guidance range of $50 million to $55 million.

“Harsco’s businesses, once again, delivered strong quarterly performance reflecting successful execution on our strategic initiatives in recent years as well as positive economic trends in each of our business units,” said Chairman and CEO Nick Grasberger. “We achieved double-digit top line growth in the third quarter, with even greater improvements in profitability and capital returns. Our backlogs also grew significantly in the quarter.”

“This strong business momentum has again enabled us to raise our guidance for the year. Additionally, our visibility has strengthened into 2019, providing us with confidence in our ability to realize further meaningful improvement in revenues and other key performance metrics. Overall, our organization remains focused on developing market-leading innovations and executing against our other growth priorities as we strive to achieve our long-term targets.”

Harsco Corporation—Selected Third Quarter Results

($ in millions, except per share amounts)   Q3 2018   Q3 2017 (1)
Revenues   $ 445     $ 385  
Operating income from continuing operations - GAAP   $ 57     $ 35  
Operating margin from continuing operations - GAAP   12.8 %   9.0 %
Diluted EPS from continuing operations - GAAP   $ 0.40     $ 0.16  
Return on invested capital (TTM) - excluding unusual items   15.4 %   10.7 %
(1) 2017 figures reflect new pension accounting standard
       

Consolidated Third Quarter Operating Results

Total revenues were $445 million, an increase of 16 percent compared with the prior-year quarter as a result of higher revenues in each of the Company's business segments.

GAAP operating income from continuing operations was $57 million, while operating income excluding unusual items was $58 million for the third quarter of 2018. These figures compare with GAAP and adjusted operating income of $35 million and $39 million, respectively, in the same quarter of last year. Adjusted operating income in each of the Company's operating segments improved in comparison with the prior-year quarter. Also, Corporate spending declined relative to the prior-year period, and therefore contributed to the year-on-year increase in operating income.

The Company's GAAP and adjusted operating margins in the third quarter of 2018 increased to 12.8 percent and 12.9 percent, respectively, versus GAAP and adjusted operating margins of 9.0 percent and 10.2 percent in the third quarter of 2017.

Third Quarter Business Review

Metals & Minerals

($ in millions)   Q3 2018   Q3 2017 (1)   %Change
Revenues   $ 269     $ 255     5 %
Operating income - GAAP   $ 29     $ 24     24 %
Operating margin - GAAP   10.9 %   9.3 %    
(1) 2017 figures reflect new pension accounting standard            

Revenues increased 5 percent to $269 million, mainly as a result of higher service levels, increased applied products sales and the Altek Group acquisition. These positive factors were partially offset by the impact of foreign currency translation, which lowered segment revenues by approximately $10 million relative to the prior-year quarter. The segment's operating income in the third quarter of 2018 totaled $29 million, or $30 million when excluding unusual items in the quarter. These figures compare with GAAP operating income of $24 million and adjusted operating income of $28 million in the prior-year period. The improvement in adjusted operating earnings is attributable to increased services demand and applied products contributions, as well as positive impacts from net contract changes compared with the third quarter of 2017. General and administrative investments (costs) to support the Company's growth strategy offset a portion of these benefits in the quarter. Lastly, the segment's operating margin was 10.9 percent and adjusted operating margin was 11.1 percent in the third quarter of 2018, compared with an operating margin of 9.3 percent and adjusted operating margin of 11.1 percent in the same quarter of 2017.

Industrial

($ in millions)   Q3 2018   Q3 2017 (1)   %Change
Revenues   $ 94     $ 78     20 %
Operating income - GAAP   $ 14     $ 13     8 %
Operating margin - GAAP   14.9 %   16.5 %    
 (1) 2017 figures reflect new pension accounting standard            

Revenues increased 20 percent to $94 million, due to increased demand and higher product prices. Operating income increased to $14 million from $13 million, and note that the prior-year quarter included a $4 million asset-sale gain from monetizing an industrial grating facility in Mexico. After considering this item, the profit improvement was driven by increased underlying customer demand relative to the prior-year quarter. The segment's operating margin was 14.9 percent, compared with 16.5 percent (or 11.7 percent excluding the gain) in the comparable quarter last year.

Rail

($ in millions)   Q3 2018   Q3 2017 (1)   %Change
Revenues   $ 83     $ 51     62 %
Operating income - GAAP   $ 19     $ 4     nm
Operating margin - GAAP   23.0 %   8.6 %    
(1) 2017 figures reflect new pension accounting standard            
nm = not meaningful            

Revenues increased 62 percent to $83 million, as a result of increased demand for rail maintenance equipment and after-market parts. The segment's operating income improved to $19 million from $4 million in the prior-year quarter, with the increase attributable to positive demand trends, shipment timing and a more favorable business mix relative to the comparable quarter. Lastly, the segment's operating margin was 23.0 percent in the third quarter of 2018, compared with 8.6 percent in the same quarter of 2017.

Cash Flow

Net cash provided by operating activities totaled $48 million in the third quarter of 2018, compared with $36 million in the prior-year period. Further, free cash flow was $20 million in the third 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 net capital expenditures, partially offset by an increase in net cash from operating activities.

2018 Outlook

The Company's 2018 guidance is increased to reflect an improved outlook for Rail, as well as lower Corporate spending, as compared with the guidance provided along with the Company's second quarter 2018 results. Rail operating income is expected to increase more than previously anticipated due to improved demand and a more favorable mix of equipment and after-market parts sales. For the year, adjusted operating income in Rail is anticipated to be 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. Corporate spending is also now expected to decline slightly relative to 2017.

The Company's outlook for the Metals & Minerals and Industrial segments are unchanged and the Company anticipates each will realize a meaningful operating income improvement in the fourth quarter of 2018 versus the comparable 2017 quarter. For the year relative to 2017, higher customer steel output and commodity prices, new contract ramp-ups, operational savings and improved profitability in certain applied products businesses in M&M are expected to be only partially offset by exited sites and investments to support M&M growth initiatives. For Industrial, demand growth, a more favorable product mix and manufacturing savings are expected to support a year-on-year increase in operating income compared with 2017.

Key highlights in the Outlook are included below.

Full Year 2018

  • GAAP operating income for the full year is expected to range from $186 million to $191 million; versus $177 million to $187 million previously and compared with 2017 GAAP operating income of $145 million.
  • Adjusted operating income for the full year is expected to range from $185 million to $190 million; versus $175 million to $185 million previously and compared with 2017 adjusted operating income of $150 million.
  • GAAP diluted earnings per share from continuing operations for the full year are expected in the range of $1.35 to $1.40; versus $1.31 to $1.39 previously and compared with 2017 GAAP diluted earnings per share of $0.09.
  • Adjusted diluted earnings per share from continuing operations for the full year are expected in the range of $1.24 to $1.29; versus $1.19 to $1.27 previously and compared with 2017 adjusted diluted earnings per share of $0.74.
  • Free cash flow is expected in the range of $90 million to $100 million, unchanged from prior guidance and compared with $93 million in 2017. The free cash flow outlook anticipates net capital expenditures of between $115 million and $125 million in 2018.
  • Net interest expense is forecasted to range from $36 million to $37 million; compared with $45 million in 2017.
  • The operational effective tax rate is expected to range from 26 percent to 28 percent.
  • Adjusted return on invested capital is expected to range from 14.5 percent to 15.5 percent; compared with 11.5 percent in 2017.

Q4 2018

  • GAAP and adjusted operating income of $39 million to $44 million; compared with GAAP and adjusted operating income of $39 million in the prior-year quarter.
  • GAAP and adjusted earnings per share from continuing operations of $0.26 to $0.31; compared with GAAP earnings per share of $(0.42) and adjusted earnings per share of $0.20 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 60531310. 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 November 14, 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.

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


HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
         
    Three Months Ended   Nine Months Ended  
    September 30   September 30  
(In thousands, except per share amounts)   2018   2017   2018   2017  
Revenues from continuing operations:                  
Service revenues   $ 250,890     $ 246,144     $ 763,815     $ 738,059    
Product revenues   194,585     138,509     521,670     414,033    
Total revenues   445,475     384,653     1,285,485     1,152,092    
Costs and expenses from continuing operations:                  
Cost of services sold   194,459     194,483     589,738     577,200    
Cost of products sold   132,262     95,849     367,218     295,367    
Selling, general and administrative expenses   59,297     59,993     175,307     168,315    
Research and development expenses   1,720     936     4,377     3,096    
Other (income) expenses, net   628     (1,237 )   1,570     1,729    
Total costs and expenses   388,366     350,024     1,138,210     1,045,707    
Operating income from continuing operations   57,109     34,629     147,275     106,385    
Interest income   574     610     1,649     1,615    
Interest expense   (9,665 )   (12,122 )   (29,241 )   (36,180 )  
Defined benefit pension income (expense)   928     (680 )   2,671     (2,054 )  
Loss on early extinguishment of debt   (125 )       (1,159 )      
Income from continuing operations before income taxes   48,821     22,437     121,195     69,766    
Income tax expense   (13,833 )   (8,270 )   (24,043 )   (25,757 )  
Income from continuing operations   34,988     14,167     97,152     44,009    
Discontinued operations:                  
Loss on disposal of discontinued business   (433 )   (578 )   (274 )   (538 )  
Income tax benefit related to discontinued business   96     207     61     193    
Loss from discontinued operations   (337 )   (371 )   (213 )   (345 )  
Net income   34,651     13,796     96,939     43,664    
Less: Net income attributable to noncontrolling interests   (1,804 )   (498 )   (5,795 )   (2,438 )  
Net income attributable to Harsco Corporation   $ 32,847     $ 13,298     $ 91,144     $ 41,226    
Amounts attributable to Harsco Corporation common stockholders:  
Income from continuing operations, net of tax   $ 33,184     $ 13,669     $ 91,357     $ 41,571    
Loss from discontinued operations, net of tax   (337 )   (371 )   (213 )   (345 )  
Net income attributable to Harsco Corporation common stockholders   $ 32,847     $ 13,298     $ 91,144     $ 41,226    
Weighted-average shares of common stock outstanding   80,950     80,637     80,821     80,519    
Basic earnings per common share attributable to Harsco Corporation common stockholders:  
Continuing operations   $ 0.41     $ 0.17     $ 1.13     $ 0.52    
Discontinued operations                  
Basic earnings per share attributable to Harsco Corporation common stockholders   $ 0.41     $ 0.16   (a) $ 1.13     $ 0.51   (a)
Diluted weighted-average shares of common stock outstanding   83,879     83,136     83,690     82,753    
Diluted earnings per common share attributable to Harsco Corporation common stockholders:  
Continuing operations   $ 0.40     $ 0.16     $ 1.09     $ 0.50    
Discontinued operations                  
Diluted earnings per share attributable to Harsco Corporation common stockholders   $ 0.39   (a) $ 0.16     $ 1.09     $ 0.50    

(a) Does not total due to rounding.


HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
       

(In thousands)
  September 30
 2018
  December 31
 2017
ASSETS        
Current assets:        
Cash and cash equivalents   $ 61,736     $ 62,098  
Restricted cash   2,815     4,111  
Trade accounts receivable, net   304,165     288,034  
Other receivables   55,156     20,224  
Inventories   137,768     178,293  
Current portion of contract assets   27,870      
Other current assets   42,068     39,332  
Total current assets   631,578     592,092  
Property, plant and equipment, net   460,498     479,747  
Goodwill   420,351     401,758  
Intangible assets, net   83,598     38,251  
Contract assets   3,566      
Deferred income tax assets   39,824     51,574  
Other assets   21,002     15,263  
Total assets   $ 1,660,417     $ 1,578,685  
LIABILITIES        
Current liabilities:        
Short-term borrowings   $ 7,655     $ 8,621  
Current maturities of long-term debt   7,149     11,208  
Accounts payable   149,216     126,249  
Accrued compensation   48,617     60,451  
Income taxes payable   11,432     5,106  
Insurance liabilities   41,436     11,167  
Current portion of advances on contracts   43,682     117,958  
Other current liabilities   121,887     133,368  
Total current liabilities   431,074     474,128  
Long-term debt   625,440     566,794  
Insurance liabilities   21,761     22,385  
Retirement plan liabilities   213,156     259,367  
Advances on contracts   10,322      
Other liabilities   54,273     40,846  
Total liabilities   1,356,026     1,363,520  
HARSCO CORPORATION STOCKHOLDERS’ EQUITY        
Common stock   141,837     141,110  
Additional paid-in capital   187,930     180,201  
Accumulated other comprehensive loss   (555,291 )   (546,582 )
Retained earnings   1,252,840     1,157,801  
Treasury stock   (765,765 )   (762,079 )
Total Harsco Corporation stockholders’ equity   261,551     170,451  
Noncontrolling interests   42,840     44,714  
Total equity   304,391     215,165  
Total liabilities and equity   $ 1,660,417     $ 1,578,685  


HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
    Three Months Ended   Nine Months Ended
    September 30   September 30
(In thousands)   2018   2017   2018   2017
Cash flows from operating activities:                
Net income   $ 34,651     $ 13,796     $ 96,939     $ 43,664  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation   30,319     31,024     92,324     91,519  
Amortization   3,054     1,981     7,620     5,989  
Deferred income tax expense (benefit)   1,656     (1,415 )   1,996     2,018  
Dividends from unconsolidated entities   88     74     88     93  
Other, net   (552 )   (3,141 )   2,485     2,567  
Changes in assets and liabilities:                
    Accounts receivable   (7,577 )   16,173     (29,022 )   (26,633 )
    Inventories   (7,677 )   (23,816 )   (18,852 )   (30,112 )
    Contract assets   (9,034 )       (10,427 )    
    Accounts payable   10,188     4,786     17,547     9,045  
    Accrued compensation   5,607     5,344     (10,438 )   979  
    Advances on contracts   777     (5,055 )   (12,339 )   (6,534 )
    Retirement plan liabilities, net   (10,413 )   (6,669 )   (28,743 )   (17,890 )
    Other assets and liabilities   (2,772 )   3,044     (14,164 )   8,200  
Net cash provided by operating activities   48,315     36,126     95,014     82,905  
Cash flows from investing activities:                
Purchases of property, plant and equipment   (34,806 )   (23,431 )   (91,302 )   (64,131 )
Purchases of businesses, net of cash acquired           (56,389 )    
Proceeds from sales of assets   5,943     9,212     9,096     10,746  
Net proceeds from settlement of foreign currency forward exchange contracts   6,186     280     3,244     4,450  
Net cash used by investing activities   (22,677 )   (13,939 )   (135,351 )   (48,935 )
Cash flows from financing activities:                
Short-term borrowings, net   2,434     (387 )   (543 )   1,915  
Current maturities and long-term debt:                
Additions   3,300     2,000     128,158     26,000  
Reductions   (31,911 )   (18,533 )   (75,104 )   (65,245 )
Dividends paid to noncontrolling interests   (837 )   (14 )   (5,446 )   (1,783 )
Sale (purchase) of noncontrolling interests       (3,412 )   477     (3,412 )
Stock-based compensation - Employee taxes paid   (71 )   (281 )   (3,685 )   (1,607 )
Deferred financing costs   (183 )       (537 )   (42 )
Other financing activities, net       (2 )       (370 )
Net cash provided (used) by financing activities   (27,268 )   (20,629 )   43,320     (44,544 )
Effect of exchange rate changes on cash and cash equivalents, including restricted cash   (906 )   1,029     (4,641 )   4,058  
Net increase (decrease) in cash and cash equivalents, including restricted cash   (2,536 )   2,587     (1,658 )   (6,516 )
Cash and cash equivalents, including restricted cash, at beginning of period   67,087     62,776     66,209     71,879  
Cash and cash equivalents, including restricted cash, at end of period   $ 64,551     $ 65,363     $ 64,551     $ 65,363  


HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)
    Three Months Ended   Three Months Ended
    September 30, 2018   September 30, 2017
(In thousands)   Revenues   Operating
Income (Loss)
  Revenues   Operating
Income (Loss)
Harsco Metals & Minerals   $ 268,881     $ 29,338     $ 255,163     $ 23,613  
Harsco Industrial   93,912     13,959     78,318     12,954  
Harsco Rail   82,682     19,000     51,134     4,391  
Corporate       (5,188 )   38     (6,329 )
Consolidated Totals   $ 445,475     $ 57,109     $ 384,653     $ 34,629  
                 
    Nine Months Ended   Nine Months Ended
    September 30, 2018   September 30, 2017
(In thousands)   Revenues   Operating
Income (Loss)
  Revenues   Operating
Income (Loss)
Harsco Metals & Minerals   $ 805,924     $ 92,734     $ 761,503     $ 80,834  
Harsco Industrial   269,575     40,550     217,766     25,088  
Harsco Rail   209,912     29,570     172,716     18,800  
Corporate   74     (15,579 )   107     (18,337 )
Consolidated Totals   $ 1,285,485     $ 147,275     $ 1,152,092     $ 106,385  



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)
    Three Months Ended   Nine Months Ended
    September 30   September 30
    2018   2017   2018   2017
Diluted earnings per share from continuing operations as reported   $ 0.40     $ 0.16     $ 1.09     $ 0.50  
Harsco Metals & Minerals adjustment to slag disposal accrual (a)           (0.04 )    
Altek acquisition costs (b)           0.01      
Loss on early extinguishment of debt (c)           0.01      
Harsco Metals & Minerals Segment bad debt expense (d)       0.06         0.06  
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability (e)                
Taxes on above unusual items (f)       (0.02 )       (0.02 )
Deferred tax asset valuation allowance adjustment (g)           (0.10 )    
Adjusted diluted earnings per share from
continuing operations excluding unusual items
  $ 0.40     $ 0.20     $ 0.98   (h) $ 0.54  
  1. Harsco Metals & Minerals adjustment to previously accrued amounts related to the disposal of certain slag material in Latin America (nine months 2018 $3.2 million pre-tax).
  2. Costs associated with the acquisition of Altek Europe Holdings Limited and its affiliated entities ("Altek") recorded in the Harsco Metals & Minerals Segment (nine months 2018 $0.8 million pretax) and at Corporate (nine months 2018 $0.4 million pretax).
  3. Loss on early extinguishment of debt associated with the amending of the Company's existing Senior Secured Credit Facility in order to reduce the interest rate applicable to the Term Loan Facility (nine months 2018 $1.0 million pre-tax).
  4. Bad debt expense incurred in Harsco Metals & Minerals Segment (Q3 and nine months 2017 $4.6 million pre-tax).
  5. Fair value adjustment to contingent consideration liability related to the acquisition of Altek (Q3 and nine months 2018 $0.4 million pre-tax).  The Company adjusts Operating income and Diluted earnings per share from continuing operations to exclude the impact of the change in fair value to the acquisition-related contingent consideration liability for the Altek acquisition because it believes that the adjustment for this item more closely correlates the reported financial measures with the ordinary and ongoing course of the Company's operations.
  6. 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.
  7. Adjustment of certain existing deferred tax asset valuation allowances as a result of the Altek acquisition (nine months 2018 $8.3 million).
  8. 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 DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS EXCLUDING UNUSUAL ITEMS TO DILUTED LOSS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited)
     
    Three Months Ended  
    December 31  
    2017  
Diluted loss per share from continuing operations as reported   $ (0.42 )  
Impact of U.S. tax reform on income tax benefit (expense) (a)   0.59    
Loss on early extinguishment of debt (b)   0.03    
Taxes on above unusual items (c)   (0.01 )  
Adjusted diluted earnings per share from
continuing operations excluding unusual items
  $ 0.20   (d)
  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. Loss on early extinguishment of debt recorded at Corporate ($2.3 million pre-tax).
  3. 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.
  4. 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 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
REVIEW OF OPERATIONS BY SEGMENT EXCLUDING UNUSUAL ITEMS (Unaudited)

(In thousands)
  Harsco
Metals & Minerals
  Harsco
Industrial
  Harsco 
Rail
  Corporate   Consolidated
Totals
                     
Three Months Ended September 30, 2018:                    
Adjusted operating income (loss), excluding unusual items   $ 29,750     $ 13,959     $ 19,000     $ (5,188 )   $ 57,521  
Revenues as reported   $ 268,881     $ 93,912     $ 82,682     $     $ 445,475  
Adjusted operating margin (%) excluding unusual items   11.1 %   14.9 %   23.0 %       12.9 %
                     
Three Months Ended September 30, 2017:                    
Adjusted operating income (loss), excluding unusual items   $ 28,202     $ 12,954     $ 4,391     $ (6,329 )   $ 39,218  
Revenues as reported   $ 255,163     $ 78,318     $ 51,134     $ 38     $ 384,653  
Adjusted operating margin (%) excluding unusual items   11.1 %   16.5 %   8.6 %       10.2 %
                     
Nine Months Ended September 30, 2018:                
Adjusted operating income (loss) excluding unusual items   $ 90,676     $ 40,550     $ 29,570     $ (15,148 )   $ 145,648  
Revenues as reported   $ 805,924     $ 269,575     $ 209,912     $ 74     $ 1,285,485  
Adjusted operating margin (%) excluding unusual items   11.3 %   15.0 %   14.1 %       11.3 %
                     
Nine Months Ended September 30, 2017:                
Adjusted operating income (loss), excluding unusual items   $ 85,423     $ 25,088     $ 18,800     $ (18,337 )   $ 110,974  
Revenues as reported   $ 761,503     $ 217,766     $ 172,716     $ 107     $ 1,152,092  
Adjusted operating margin (%) excluding unusual items   11.2 %   11.5 %   10.9 %       9.6 %
  1. 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 costs ("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 amounts presented reflect the adoption of these changes.

The Company’s management believes Adjusted operating margin (%) 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 (Unaudited)
(In thousands)   Harsco
Metals & Minerals
  Harsco
Industrial
  Harsco 
Rail
  Corporate   Consolidated
Totals
                     
Three Months Ended September 30, 2018:                
Operating income (loss) as reported   $ 29,338     $ 13,959     $ 19,000     $ (5,188 )   $ 57,109  
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability   412                 412  
Adjusted operating income (loss), excluding unusual items   $ 29,750     $ 13,959     $ 19,000     $ (5,188 )   $ 57,521  
Revenues as reported   $ 268,881     $ 93,912     $ 82,682     $     $ 445,475  
                     
Three Months Ended September 30, 2017:                
Operating income (loss) as reported (a)   $ 23,613     $ 12,954     $ 4,391     $ (6,329 )   $ 34,629  
Harsco Metals & Minerals bad debt expense   4,589                 4,589  
Adjusted operating income (loss), excluding unusual items   $ 28,202     $ 12,954     $ 4,391     $ (6,329 )   $ 39,218  
Revenues as reported   $ 255,163     $ 78,318     $ 51,134     $ 38     $ 384,653  
  1. 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 amounts presented reflect the adoption of these changes.

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 ADJUSTED OPERATING INCOME (LOSS) EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
(In thousands)   Harsco
Metals & Minerals
  Harsco
Industrial
  Harsco 
Rail
  Corporate   Consolidated
Totals
                     
Nine Months Ended September 30, 2018:                
Operating income (loss) as reported   $ 92,734     $ 40,550     $ 29,570     $ (15,579 )   $ 147,275  
Harsco Metals & Minerals adjustment to slag disposal accrual   (3,223 )               (3,223 )
Altek acquisition costs   753             431     1,184  
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability   412                 412  
Adjusted operating income (loss), excluding unusual items   $ 90,676     $ 40,550     $ 29,570     $ (15,148 )   $ 145,648  
Revenues as reported   $ 805,924     $ 269,575     $ 209,912     $ 74     $ 1,285,485  
                     
Nine Months Ended September 30, 2017:                
Operating income (loss) as reported (a)   $ 80,834     $ 25,088     $ 18,800     $ (18,337 )   $ 106,385  
Harsco Metals & Minerals bad debt expense   4,589                 $ 4,589  
Adjusted operating income (loss), excluding unusual items   $ 85,423     $ 25,088     $ 18,800     $ (18,337 )   $ 110,974  
Revenues as reported   $ 761,503     $ 217,766     $ 172,716     $ 107     $ 1,152,092  
  1. 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 amounts presented reflect the adoption of these changes.

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 ADJUSTED OPERATING INCOME (LOSS), EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
(In thousands)   Harsco
Metals & Minerals
  Harsco
Industrial
  Harsco 
Rail
  Corporate   Consolidated
Totals
                     
Twelve Months Ended December 31, 2017:                
Operating income (loss) as reported (a)   $ 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   $ 106,951     $ 35,532     $ 32,954     $ (25,455 )   $ 149,982  
  1. 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 amounts presented reflect the adoption of these changes.

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   Nine Months Ended
    September 30   September 30
(In thousands)   2018   2017   2018   2017
Net cash used by operating activities   $ 48,315     $ 36,126     $ 95,014     $ 82,905  
Less capital expenditures   (34,806 )   (23,431 )   (91,302 )   (64,131 )
Plus capital expenditures for strategic ventures (a)   437     36     972     432  
Plus total proceeds from sales of assets (b)   5,943     9,212     9,096     10,746  
Free cash flow   $ 19,889     $ 21,943     $ 13,780     $ 29,952  
  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   $ 205     $ 225  
Less capital expenditures   (125 )   (133 )
Plus total proceeds from asset sales and capital expenditures for strategic ventures   10     8  
Free cash flow   $ 90     $ 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 September 30
(In thousands)   2018   2017
Income from continuing operations   $ 64,791     $ 30,151  
Unusual items:        
Impact of U.S. tax reform on income tax benefit   48,680      
Harsco Metals & Minerals Segment adjustment to slag disposal accrual   (3,223 )    
Loss on early extinguishment of debt   3,299     35,337  
Altek acquisition costs   1,184      
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability   412      
Harsco Rail Segment forward contract loss provision       5,000  
Harsco Metals & Minerals Segment bad debt expense       4,589  
Harsco Metals & Minerals Segment cumulative translation adjustment liquidation       (1,157 )
Taxes on above unusual items (b)   (804 )   (12,615 )
Deferred tax asset valuation allowance adjustment   (8,292 )    
Net income from continuing operations, as adjusted   106,047     61,305  
After-tax interest expense (c)   29,679     30,140  
         
Net operating profit after tax as adjusted   $ 135,726     $ 91,445  
         
Average equity   $ 250,595     $ 194,242  
Plus average debt   630,474     656,437  
Average capital   $ 881,069     $ 850,679  
         
Return on invested capital excluding unusual items   15.4 %   10.7 %
  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 September 30, 2017 and for the trailing twelve months for period ended September 30, 2018, 37% was used for October 1, 2017 through December 31, 2017 and 23% was used for January 1, 2018 through September 30, 2018, on an adjusted basis, for interest expense.  The lower rate for 2018 is due to U.S. Tax reform.

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
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_in_website_careers.jpg

Harsco Corporation