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Harsco Corporation Reports Fourth Quarter and Full-Year 2019 Results

  • Q4 GAAP Operating Income of $20 Million and Adjusted Operating Income of $31 Million; Both Consistent with Market Update Provided in January

  • Full Year GAAP Operating Income was $104 Million; Adjusted Operating Income Totaled $187 Million (Including Industrial in First Half), Translating to an Adjusted Operating Margin of 11 Percent

  • Significant Progress in 2019 on Strategic Business Transformation to Single-Thesis Environmental Solutions Company, Highlighted by Acquisition of Clean Earth, Re-Branding of Harsco Environmental and Sale of Industrial Businesses

  • 2020 Adjusted EBITDA Expected to be Between $280 Million and $310 Million; Compares with $283 Million in 2019 on a Comparable Business (Proforma) Basis

CAMP HILL, Pa., Feb. 21, 2020 (GLOBE NEWSWIRE) -- Harsco Corporation (NYSE: HSC) today reported fourth quarter 2019 results. On a U.S. GAAP ("GAAP") basis, fourth quarter of 2019 diluted earnings per share from continuing operations were $0.03, which included acquisition integration and strategic costs and other unusual items. Adjusted diluted earnings per share from continuing operations in the fourth quarter of 2019 were $0.12.

These figures compare with fourth quarter of 2018 GAAP diluted earnings per share from continuing operations of $0.41 and adjusted diluted earnings per share from continuing operations of $0.21.

“While our results for the fourth quarter were disappointing, 2019 marked a year of significant progress on our key strategic initiatives and our goal to transform Harsco into a single-thesis environmental solutions company,” said Chairman and CEO Nick Grasberger. “We increased investment in Environmental to support growth in our services and product portfolio, while realizing solid margins despite external market pressures. We positioned Rail to grow through product innovation and market penetration, leading to record backlog at year-end. We made significant strides on our transformation with the acquisition of Clean Earth, which has been a steady and strong performer. Also, we sold our Industrial businesses, providing additional financial flexibility and a focus on expanding our presence in higher growth, less cyclical areas. We enter 2020 as a markedly different company than we were last year, well-positioned to drive growth and value creation.”

Mr. Grasberger continued, “The actions we are taking to improve performance in Rail are taking hold, Clean Earth’s momentum is set to continue, and we are cautiously optimistic on key end-markets. As a result, we expect that each of our business segments will deliver improved results in 2020. We are also focused on closing and integrating the ESOL acquisition. ESOL is a business we know well and presents a unique opportunity to accelerate our transformation to a leading, global environmental solutions company. While we made significant strides in 2019, we know we have more work to do. Our priorities for 2020 include improving Rail operations, delivering on our financial targets, strengthening our balance sheet and leveraging our strategic transformation to drive shareholder value.”

Harsco Corporation—Selected Fourth Quarter Results

($ in millions, except per share amounts)

Q4 2019

Q4 2018

Revenues

$

400

$

332

Operating income from continuing operations - GAAP

$

20

$

28

Operating margin from continuing operations - GAAP

5.0

%

8.5

%

Diluted EPS from continuing operations - GAAP

$

0.03

$

0.41

Note: Income statement details above and commentary below reflect that Industrial is reclassified as Discontinued Operations. Also, adjusted operating income details presented throughout this release are adjusted for unusual items and acquisition-related amortization expense.


Consolidated Fourth Quarter Operating Results
Consolidated total revenues from continuing operations were $400 million, an increase of 21 percent compared with the prior-year quarter given the acquisition of Clean Earth in the current year. Foreign currency translation negatively impacted fourth quarter 2019 revenues by approximately $3 million compared with the prior-year period.

GAAP operating income from continuing operations was $20 million and adjusted operating income was $31 million for the fourth quarter of 2019; both figures are consistent with the update provided by the Company in January. Also, these figures compare with GAAP operating income from continuing operations of $28 million and adjusted operating income of $27 million in the same quarter of last year.

Adjusted operating income in Rail declined year-on-year principally due to the previously disclosed operational challenges following the consolidation of Rail's North American manufacturing into a single facility in South Carolina. Environmental's adjusted earnings also decreased modestly relative to the prior-year quarter. The remainder of the change in adjusted operating income compared with the fourth quarter of 2018 is attributable to lower Corporate spending and the inclusion of Clean Earth.

The Company's GAAP and adjusted operating margins in the fourth quarter of 2019 were 5.0 percent and 7.7 percent, respectively.

Harsco Corporation—Selected 2019 Results

($ in millions, except per share amounts)

2019

2018

Revenues

$

1,504

$

1,348

Operating income from continuing operations - GAAP

$

104

$

131

Operating margin from continuing operations - GAAP

6.9

%

9.7

%

Diluted EPS from continuing operations - GAAP

$

0.35

$

1.20

Note: Income statement details above and commentary below reflect that Industrial is reclassified as Discontinued Operations. Also, adjusted operating income details presented throughout this release are adjusted for unusual items and acquisition-related amortization expense.

Consolidated 2019 Operating Results

Consolidated total revenues were $1.5 billion in 2019, compared to $1.3 billion in 2018, with the increase attributable to revenue growth in Rail during the year and the acquisition of Clean Earth. Rail revenues benefited from higher equipment demand from domestic and international customers. Revenues in Environmental decreased modestly compared with 2018 but were unchanged on a constant currency basis. Foreign currency translation negatively impacted 2019 revenues by approximately $41 million compared with 2018.

GAAP operating income from continuing operations was $104 million in 2019, while GAAP operating income from continuing operations in 2018 was $131 million. These figures are $148 million and $132 million, respectively, when excluding unusual items as well as acquisition related amortization in both periods. The improvement in adjusted results is due to the inclusion of Clean Earth.
On a GAAP basis, diluted earnings per share from continuing operations in 2019 was $0.35, including acquisition integration and strategic costs, debt financing expenses and an Environmental bad debt provision, among other unusual items. This figure compares with diluted earnings per share in 2018 of $1.20, including unusual items such as a non-cash adjustment to the Company's deferred tax assets due to the impact of U.S. tax reform and expenses incurred to amend and re-price the Company's credit facilities.

Adjusted diluted earnings per share from continuing operations was $0.90 in 2019 compared with $0.94 in 2018.

Fourth Quarter Business Review

Environmental

($ in millions)

Q4 2019

Q4 2018

%Change

Revenues

$

243

$

262

(7

)%

Operating income - GAAP

$

27

$

28

(4

)%

Operating margin - GAAP

11.3

%

10.8

%

Environmental revenues totaled $243 million in the fourth quarter of 2019, compared with $262 million in the prior-year quarter. This change is attributable to lower services demand from steel customers, decreased sales of certain applied products and foreign currency translation impacts. The segment's operating income and adjusted operating income totaled $27 million and $25 million, respectively, in the fourth quarter of 2019. These figures compare with GAAP operating income of $28 million and adjusted operating income of $27 million in the prior-year period. The change in adjusted operating earnings is attributable to the above factors, partially offset by lower administrative expenses. Environmental's operating margin was 11.3 percent and adjusted operating margin was 10.4 percent in the fourth quarter of 2019.

Clean Earth

($ in millions)

Q4 2019

Q4 2018

%Change

Revenues

$

82

$

67

22%

Operating income - GAAP

$

9

$

1

nmf

Operating margin - GAAP

10.6

%

2.1

%

Note: The 2018 financial information provided above and discussed below for Clean Earth is not incorporated within Harsco's consolidated results and is provided only for comparison purposes.

Clean Earth revenues totaled $82 million, representing an increase of 22 percent compared with the prior-year quarter. The increase can be attributed to strong volume growth, particularly for contaminated and dredged material processing, as well as previously-completed acquisitions. Segment operating income and adjusted operating income in the fourth quarter of 2019 totaled $9 million, and $14 million, respectively. These figures compare favorably with $1 million and $5 million, respectively, in the prior-year period. Higher adjusted earnings were due to the above factors as well as a more favorable mix of revenues and back-end solutions. Clean Earth's operating margin was 10.6 percent and adjusted operating margin was 17.4 percent in the fourth quarter of 2019.

Rail

($ in millions)

Q4 2019

Q4 2018

%Change

Revenues

$

75

$

69

8

%

Operating income - GAAP

$

(3

)

$

8

(142

)%

Operating margin - GAAP

(4.3

)%

11.2

%


Rail revenues totaled $75 million, an increase of 8 percent compared with the fourth quarter of 2018. The segment incurred an operating loss in the fourth quarter of 2019 of $3 million, which compares with operating income of $8 million in the prior-year quarter. These changes are attributable to lower after-market parts and Protran Technology sales and higher manufacturing costs due to operating challenges at Rail's manufacturing facility in South Carolina, as well as lower contract services contributions. These impacts were partially offset by contributions from higher machine sales and lower administrative costs.

Cash Flow

Net cash used by operating activities totaled $50 million in the fourth quarter of 2019, including taxes paid on the gain from the sale of discontinued operations, compared with net cash provided by operating activities of $97 million in the prior-year period. Free cash flow was $28 million (before transaction expenses) in the fourth quarter of 2019, compared with $60 million in the prior-year period. The change in free cash flow compared with the prior-year quarter is attributable to changes in net cash from operating activities, including working capital at Rail due to its operational challenges.

For the full-year, net cash provided by operating activities was nominal and free cash flow was $(32) million in 2019. These figures compare to $192 million and $73 million, respectively, in 2018. The full-year change in free cash flow reflects incremental growth capital spending in Environmental, as well as lower net cash from operating activities.

2020 Outlook

The Company's 2020 guidance anticipates that each of its three business segments will realize earnings improvement during the year. This outlook is supported by strong backlog positions that provide forward visibility in Rail and Clean Earth, anticipated benefits from the Company's key business initiatives, a healthy pipeline of growth opportunities in all segments and stable-to-improving fundamentals in relevant end markets.

Environmental adjusted EBITDA is expected to increase modestly. Higher services demand, benefits of services and product growth initiatives and cost improvement savings are anticipated to be only partially offset by the impacts of exited sites and higher SG&A spending.

Clean Earth adjusted EBITDA is projected to increase due to underlying organic growth and benefits of permit modifications to process additional medical and household waste as well as synergies; partially offset by a less favorable mix of business. Also, Clean Earth's adjusted EBITDA will be impacted by a $5 million allocation of Corporate costs (allocation was zero in H2 2019) and this outlook does not consider the acquisition of Stericycle's ESOL business.

Rail adjusted EBITDA is anticipated to be significantly higher compared with 2019, as a result of increased global demand for equipment and Protran Technology products, higher contracting contributions and manufacturing improvements. These benefits are expected to be only partially offset by a less favorable mix of after-market parts sales and higher R&D and SG&A spending.

Lastly, Corporate spending is expected to range from $26 million to $29 million for the year.

Key summary highlights in the Outlook are included below.

2020 Full Year Outlook

GAAP Operating Income

$124 - $154 million

Adjusted EBITDA

$280 - 310 million

GAAP Diluted Earnings Per Share

$0.63 - 0.91

Adjusted Diluted Earnings Per Share

$0.84 - 1.12

Free Cash Flow Before Growth Capital

$80 - 110m

Free Cash Flow

$10 - 40m

Net Interest Expense

$49 - 51m

Non-Operating Defined Benefit Pension Income

$7m

Effective Tax Rate, Excluding Any Unusual Items

28 - 30%

Q1 2020 Outlook

GAAP Operating Income

$6 - 11m

Adjusted EBITDA

$43 - 48m

GAAP Diluted Earnings Per Share

$(0.05) - (0.01)

Adjusted Diluted Earnings Per Share

$0.01 - 0.04

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 4896039. Listeners are advised to dial in at least five minutes prior to the call.

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 and amounts; (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) potential severe volatility in the capital markets and the impact on the cost to the Company to obtain debt financing; (14) failure to retain key management and employees; (15) the amount and timing of repurchases of the Company's common stock, if any; (16) the outcome of any disputes with customers, contractors and subcontractors; (17) 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; (18) implementation of environmental remediation matters; (19) risk and uncertainty associated with intangible assets; (20) the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement entered into for the ESOL acquisition; and (21) 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, 2018, together with those described in Item 1A, "Risk Factors," of the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2019. 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 is a global market leader providing environmental solutions for industrial and specialty waste streams and innovative technologies for the rail sector. Based in Camp Hill, PA, the 11,000-employee company operates in more than 30 countries. 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

Twelve
Months Ended

December 31

December 31

(In thousands, except per share amounts)

2019

2018

2019

2018

Revenues from continuing operations:

Service revenues

$

297,283

$

241,350

$

1,081,473

$

955,464

Product revenues

102,504

90,412

422,269

392,208

Total revenues

399,787

331,762

1,503,742

1,347,672

Costs and expenses from continuing operations:

Cost of services sold

230,926

191,743

839,156

745,748

Cost of products sold

84,500

60,851

305,134

266,792

Selling, general and administrative expenses

65,866

53,456

252,970

202,713

Research and development expenses

1,614

754

4,824

3,925

Other income, net

(3,030

)

(3,186

)

(2,621

)

(2,201

)

Total costs and expenses

379,876

303,618

1,399,463

1,216,977

Operating income from continuing operations

19,911

28,144

104,279

130,695

Interest income

406

510

1,975

2,155

Interest expense

(12,157

)

(4,640

)

(36,586

)

(21,531

)

Unused debt commitment and amendment fees

(111

)

32

(7,704

)

(1,127

)

Defined benefit pension income (expense)

(1,327

)

780

(5,493

)

3,457

Income from continuing operations before income taxes and equity income

6,722

24,826

56,471

113,649

Income tax benefit (expense) from continuing operations

(2,400

)

11,251

(20,214

)

(5,499

)

Equity income of unconsolidated entities, net

122

384

273

384

Income from continuing operations

4,444

36,461

36,530

108,534

Discontinued operations:

Gain on sale of discontinued businesses

41,155

569,135

Income from discontinued businesses

3,573

11,843

27,531

43,942

Income tax expense related to discontinued businesses

(8,277

)

(230

)

(120,978

)

(7,463

)

Income from discontinued operations, net of tax

36,451

11,613

475,688

36,479

Net income

40,895

48,074

512,218

145,013

Less: Net income attributable to noncontrolling interests

(1,666

)

(2,161

)

(8,299

)

(7,956

)

Net income attributable to Harsco Corporation

$

39,229

$

45,913

$

503,919

$

137,057

Amounts attributable to Harsco Corporation common stockholders:

Income from continuing operations, net of tax

$

2,778

$

34,300

$

28,231

$

100,578

Income from discontinued operations, net of tax

36,451

11,613

475,688

36,479

Net income attributable to Harsco Corporation common stockholders

$

39,229

$

45,913

$

503,919

$

137,057

Weighted-average shares of common stock outstanding

78,642

80,403

79,632

80,716

Basic earnings per common share attributable to Harsco Corporation common stockholders:

Continuing operations

$

0.04

$

0.43

$

0.35

$

1.25

Discontinued operations

0.46

0.14

5.97

0.45

Basic earnings per share attributable to Harsco Corporation common stockholders

$

0.50

$

0.57

$

6.33

(a)

$

1.70

Diluted weighted-average shares of common stock outstanding

80,267

83,311

81,375

83,595

Diluted earnings per common share attributable to Harsco Corporation common stockholders:

Continuing operations

$

0.03

$

0.41

$

0.35

$

1.20

Discontinued operations

0.45

0.14

5.85

0.44

Diluted earnings per share attributable to Harsco Corporation common stockholders

$

0.49

(a)

$

0.55

$

6.19

(a)

$

1.64

(a) Does not total due to rounding.


HARSCO CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

31-Dec

31-Dec

(In thousands)

2019

2018

ASSETS

Current assets:

Cash and cash equivalents

$

57,259

$

64,260

Restricted cash

2,473

2,886

Trade accounts receivable, net

309,990

246,427

Insurance claim receivable

30,000

Other receivables

21,265

23,770

Inventories

156,991

116,185

Current portion of contract assets

31,166

12,130

Current portion of assets held-for-sale

22,093

75,232

Other current assets

51,575

34,144

Total current assets

652,812

605,034

Property, plant and equipment, net

561,786

432,793

Right-of-use assets, net

52,065

Goodwill

738,369

404,713

Intangible assets, net

299,082

69,207

Deferred income tax assets

14,288

48,551

Assets held-for-sale

32,029

55,331

Other assets

17,036

17,238

Total assets

$

2,367,467

$

1,632,867

LIABILITIES

Current liabilities:

Short-term borrowings

$

3,647

$

10,078

Current maturities of long-term debt

2,666

6,489

Accounts payable

176,755

124,984

Accrued compensation

37,992

50,201

Income taxes payable

18,692

2,634

Insurance liabilities

10,140

40,774

Current portion of advances on contracts

53,906

29,407

Current portion of operating lease liabilities

12,544

Current portion of liabilities of assets held-for-sale

11,344

39,410

Other current liabilities

137,208

113,019

Total current liabilities

464,894

416,996

Long-term debt

775,498

585,662

Insurance liabilities

18,515

19,575

Retirement plan liabilities

189,954

213,578

Advances on contracts

6,408

37,675

Operating lease liabilities

36,974

Liabilities of assets held-for-sale

12,152

555

Other liabilities

73,413

45,450

Total liabilities

1,577,808

1,319,491

HARSCO CORPORATION STOCKHOLDERS’ EQUITY

Common stock

143,400

141,842

Additional paid-in capital

200,595

190,597

Accumulated other comprehensive loss

(587,622

)

(567,107

)

Retained earnings

1,824,100

1,298,752

Treasury stock

(838,893

)

(795,821

)

Total Harsco Corporation stockholders’ equity

741,580

268,263

Noncontrolling interests

48,079

45,113

Total equity

789,659

313,376

Total liabilities and equity

$

2,367,467

$

1,632,867

HARSCO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended

Twelve Months Ended

31-Dec

31-Dec

(In thousands)

2019

2018

2019

2018

Cash flows from operating activities:

Net income

$

40,895

$

48,074

$

512,218

$

145,013

Adjustments to reconcile net income to net cash provided (used) by operating activities:

Depreciation

30,122

29,811

119,803

122,135

Amortization

6,651

3,030

18,592

10,650

Loss on early extinguishment of debt

5,314

Deferred income tax expense (benefit)

(4,685

)

(8,518

)

6,815

(6,522

)

Equity in income of unconsolidated entities, net

(122

)

(384

)

(273

)

(384

)

Dividends from unconsolidated entities

125

88

Gain on sale from discontinued business

(41,155

)

(569,135

)

Other, net

(423

)

181

1,764

2,666

Changes in assets and liabilities:

Accounts receivable

8,931

12,141

(3,464

)

(16,881

)

Insurance receivable

195,000

195,000

Inventories

993

4,146

(42,484

)

(14,706

)

Contract assets

(16,526

)

7,115

(21,795

)

(3,312

)

Right-of-use assets

3,960

15,164

Accounts payable

7,792

800

13,407

18,347

Accrued interest payable

7,325

(139

)

14,723

(154

)

Accrued compensation

(2,957

)

9,311

(15,759

)

(1,127

Advances on contracts and other customer advances

12,895

15,396

(4,172

)

3,057

Operating lease liabilities

(3,821

)

(14,740

)

Insurance liability

(195,000

)

(195,000

)

Income taxes payable - gain on sale of discontinued businesses

(90,567

)

12,373

Retirement plan liabilities, net

(5,222

)

(4,578

)

(24,022

)

(33,321

)

Other assets and liabilities

(4,278

)

(19,378

)

(24,617

)

(33,527

)

Net cash provided (used) by operating activities

(50,192

)

97,008

(163

)

192,022

Cash flows from investing activities:

Purchases of property, plant and equipment

(37,902

)

(40,866

)

(184,973

)

(132,168

)

Proceeds from sale of businesses, net of cash acquired

58,729

658,414

Purchase of businesses, net of cash acquired

(623,495

)

(56,389

)

Proceeds from sales of assets

9,462

2,791

17,022

11,887

Expenditures for intangible assets

(65

)

(1,311

)

Purchase of equity method investment

(2,364

)

(2,364

)

Payments for interest rate swap terminations

(2,758

)

Net proceeds from settlement of foreign currency forward exchange contracts

5,820

12,283

7,273

15,527

Net cash provided (used) by investing activities

33,680

(25,792

)

(132,192

)

(161,143

)

Cash flows from financing activities:

Short-term borrowings, net

(3,981

)

2,475

(5,398

)

1,932

Current maturities and long-term debt:

Additions

66,327

700

848,314

128,858

Reductions

(57,004

)

(41,884

)

(661,620

)

(116,988

)

Dividends paid to noncontrolling interests

(1,609

)

(34

)

(4,712

)

(5,480

)

Sale of noncontrolling interests

4,026

477

Stock-based compensation - Employee taxes paid

(32

)

(45

)

(11,234

)

(3,730

)

Common stock acquired for treasury

(6,086

)

(30,011

)

(31,838

)

(30,011

Deferred financing costs

(199

)

(59

)

(11,272

)

(596

)

Other financing activities, net

(532

)

(532

)

Net cash provided (used) by financing activities

(3,116

)

(68,858

)

125,734

(25,538

)

Effect of exchange rate changes on cash and cash equivalents, including restricted cash

1,441

237

(793

)

(4,404

)

Net increase (decrease) in cash and cash equivalents, including restricted cash

(18,187

)

2,595

(7,414

)

937

Cash and cash equivalents, including restricted cash, at beginning of period

77,919

64,551

67,146

66,209

Cash and cash equivalents, including restricted cash, at end of period

$

59,732

$

67,146

$

59,732

$

67,146


HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)

Three Months Ended

Three Months Ended

December 31, 2019 (b)

December 31, 2018 (b)

(In thousands)

Revenues

Operating
Income (Loss)

Revenues

Operating Income (Loss)

Harsco Environmental

$

243,314

$

27,430

$

262,380

$

28,461

Harsco Clean Earth (a)

81,883

8,701

Harsco Rail

74,590

(3,239

)

69,382

7,771

Corporate

(12,981

)

(8,088

)

Consolidated Totals

$

399,787

$

19,911

$

331,762

$

28,144

Twelve Months Ended

Twelve Months Ended

December 31, 2019 (b)

December 31, 2018 (b)

(In thousands)

Revenues

Operating
Income (Loss)

Revenues

Operating Income (Loss)

Harsco Environmental

$

1,034,847

$

112,298

$

1,068,304

$

121,195

Harsco Clean Earth (a)

169,522

20,009

Harsco Rail

299,373

23,708

279,294

37,341

Corporate

(51,736

)

74

(27,841

)

Consolidated Totals

$

1,503,742

$

104,279

$

1,347,672

$

130,695

(a) The Company's acquisition of Clean Earth closed on June 28, 2019.

(b) The operating results of the former Harsco Industrial Segment have been reflected as discontinued operations in the Company's Consolidated Statement of Operations for all periods presented.


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

Three Months Ended

Twelve Months Ended

December 31

December 31

2019

2018

2019

2018

Diluted earnings per share from continuing operations as reported

$

0.03

$

0.41

$

0.35

$

1.20

Corporate strategic costs (a)

0.09

0.31

Harsco Environmental Segment change in fair value to contingent consideration liability (b)

(0.05

)

(0.04

)

(0.10

)

(0.04

)

Harsco Clean Earth Segment change in fair value to contingent consideration liability (c)

0.01

0.01

Harsco Clean Earth Segment severance costs (d)

0.01

0.02

Corporate unused debt commitment and amendment fees (e)

0.09

0.01

Harsco Environmental Segment provision for doubtful accounts (f)

0.08

Harsco Rail Segment improvement initiative costs (g)

0.01

0.06

0.01

Harsco Environmental Segment site exit related (h)

(0.03

)

Harsco Environmental Segment adjustment to slag disposal accrual (i)

(0.04

)

Altek acquisition costs (j)

0.01

Deferred tax asset valuation allowance adjustment (k)

0.03

(0.10

)

Impact of U.S. tax reform on income tax benefit (expense) (l)

(0.18

)

(0.18

)

Taxes on above unusual items (m)

(0.03

)

(0.08

)

(0.01

)

Adjusted diluted earnings per share from continuing operations, including acquisition amortization expense

$

0.06

$

0.19

(n)

$

0.74

$

0.88

(n)

Acquisition amortization expense, net of tax

0.06

0.02

0.16

0.07

Adjusted diluted earnings per share from continuing operations

$

0.12

$

0.21

$

0.90

$

0.94

(n)

(a)

Consultant costs at Corporate associated with supporting and executing the Company's growth strategy (Q4 2019 $7.3 million pre-tax; Full year 2019 $25.2 million pre-tax).

(b)

Fair value adjustment to contingent consideration liability related to the acquisition of Altek (Q4 2019 $4.1 million pre-tax; Full year 2019 $8.5 million pre-tax; Q4 2018 $3.4 million pretax; Full year 2018 $2.9 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 acquisitions 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.

(c)

Fair value adjustment to contingent consideration liability acquired in conjunction with the acquisition of Clean Earth (Q4 and Full year 2019 $0.8 million pre-tax).

(d)

Harsco Clean Earth Segment severance recognized (Q4 2019 $0.6 million pre-tax; Full year 2019 $1.9 million pre-tax).

(e)

Costs at Corporate related to the unused bridge financing commitment and Term Loan B amendment (Full year 2019 $7.4 million pre-tax) and the amendment of the Company's existing Senior Secured Credit Facility in order to reduce the interest rate applicable to the Term Loan Facility (Full year 2018 $1.0 million pre-tax).

(f)

Harsco Environmental Segment provision for doubtful accounts related to a customer in the U.K. entering administration (Full year 2019 $6.2 million pre-tax).

(g)

Costs associated with a productivity improvement initiative in the Harsco Rail Segment (Q4 2019 $0.2 million pre-tax; Full year 2019 $4.8 million pre-tax; Q4 and Full year 2018 $0.6 mill pre-tax).

(h)

Harsco Environmental Segment site exit related (Full year 2019 $2.4 million pre-tax).

(i)

Harsco Environmental Segment adjustment to previously accrued amounts related to the disposal of certain slag material in Latin America (Full year 2018 $3.2 million pre-tax).

(j)

Costs associated with the acquisition of Altek recorded in the Harsco Environmental Segment (Full year 2018 $0.8 million pre-tax) and at Corporate (Full year $0.4 million pre-tax).

(k)

Adjustment of certain existing deferred tax asset valuation allowances as a result of a site exit in a certain jurisdiction in 2019 and the Altek acquisition in 2018 (Full year 2019 $2.8 million; Full year 2018 $8.3 million).

(l)

The Company recorded a benefit as a result of revaluing net deferred tax assets and liabilities as a result of U.S. tax reform (Q4 and Full year 2018 $15.4 million benefit).

(m)

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.

(n)

Does not total due to rounding.


The Company’s management believes Adjusted diluted earnings per share from continuing operations, which is a non-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. Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.

HARSCO CORPORATION
RECONCILIATION OF PROJECTED ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
(Unaudited)

Projected
Three Months
Ending March 31

Projected
Twelve Months Ending
December 31

2020

2020

Low

High

Low

High

Diluted earnings per share from continuing operations

$

(0.05

)

$

(0.01

)

$

0.63

$

0.91

Estimated acquisition amortization expense, net of tax

0.05

0.05

0.21

0.21

Adjusted diluted earnings per share from continuing operations

$

0.01

(a)

$

0.04

$

0.84

$

1.12

(a) Does not total due to rounding.

The Company’s management believes Adjusted diluted earnings per share from continuing operations, which is a non-GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects. Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)

(In thousands)

Harsco
Environmental

Harsco Clean Earth

Harsco
Rail

Corporate

Consolidated Totals

Three Months Ended December 31, 2019:

Operating income (loss) as reported

$

27,430

$

8,701

$

(3,239

)

$

(12,981

)

$

19,911

Corporate strategic costs

7,280

7,280

Harsco Environmental Segment change in fair value to contingent consideration liability

(4,089

)

(4,089

)

Harsco Clean Earth Segment change in fair value to contingent consideration liability

825

825

Harsco Clean Earth Segment severance costs

601

601

Harsco Rail Segment improvement initiative costs

185

185

Adjusted operating income (loss) including acquisition amortization expense

23,341

10,127

(3,054

)

(5,701

)

24,713

Acquisition amortization expense

1,850

4,089

84

6,023

Adjusted operating income (loss)

$

25,191

$

14,216

$

(2,970

)

$

(5,701

)

$

30,736

Revenues as reported

$

243,314

$

81,883

$

74,590

$

399,787

Adjusted operating margin (%)

10.4

%

17.4

%

(4.0

)%

7.7

%

Three Months Ended December 31, 2018:

Operating income (loss) as reported

$

28,461

$

$

7,771

$

(8,088

)

$

28,144

Harsco Environmental Segment change in fair value to contingent consideration liability

(3,351

)

(3,351

)

Harsco Rail Segment improvement initiative costs

640

640

Adjusted operating income (loss) including acquisition amortization expense

25,110

8,411

(8,088

)

25,433

Acquisition amortization expense

1,819

71

1,890

Adjusted operating income (loss)

$

26,929

$

$

8,482

$

(8,088

)

$

27,323

Revenues as reported

$

262,380

$

$

69,382

$

331,762

Adjusted operating margin (%)

10.3

%

12.2

%

8.2

%

The Company’s management believes Adjusted operating income (loss), which is a non-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. Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)

(In thousands)

Harsco
Environmental

Harsco Clean Earth

Harsco
Rail

Corporate

Consolidated Totals

Twelve Months Ended December 31, 2019:

Operating income (loss) as reported

$

112,298

$

20,009

$

23,708

$

(51,736

)

$

104,279

Corporate strategic costs

25,152

25,152

Harsco Environmental Segment change in fair value to contingent consideration liability

(8,505

)

(8,505

)

Harsco Environmental Segment provision for doubtful accounts

6,174

6,174

Harsco Rail Segment improvement initiative costs

4,830

4,830

Harsco Environmental Segment site exit related

(2,427

)

(2,427

)

Harsco Clean Earth Segment severance costs

1,855

1,855

Harsco Clean Earth Segment change in fair value to contingent consideration liability

825

825

Adjusted operating income (loss), including acquisition amortization expense

107,540

22,689

28,538

(26,584

)

132,183

Acquisition amortization expense

7,286

7,923

322

15,531

Adjusted operating income (loss)

$

114,826

$

30,612

$

28,860

$

(26,584

)

$

147,714

Revenues as reported

$

1,034,847

$

169,522

$

299,373

$

$

1,503,742

Adjusted operating margin (%)

11.1

%

18.1

%

9.6

%

9.8

%

Twelve Months Ended December 31, 2018:

Operating income (loss) as reported

$

121,195

$

$

37,341

$

(27,841

)

$

130,695

Harsco Environmental adjustment to slag disposal accrual

(3,223

)

(3,223

)

Harsco Environmental Segment change in fair value to contingent consideration liability

(2,939

)

(2,939

)

Altek acquisition costs

753

431

1,184

Harsco Rail Segment improvement initiative costs

640

640

Adjusted operating income (loss), including acquisition amortization expense

115,786

37,981

(27,410

)

126,357

Acquisition amortization expense

5,553

306

5,859

Adjusted operating income (loss)

$

121,339

$

$

38,287

$

(27,410

)

$

132,216

Revenues as reported

$

1,068,304

$

$

279,294

$

74

$

1,347,672

Adjusted operating margin (%)

11.4

%

13.7

%

9.8

%

The Company’s management believes Adjusted operating income (loss), which is a non-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. Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED OPERATING INCOME INCLUDING HARSCO INDUSTRIAL FOR THE SIX MONTHS ENDED JUNE 30, 2019 TO OPERATING INCOME (LOSS) AS REPORTED (Unaudited)

(In thousands)

Consolidated Totals

Twelve Months Ended December 31, 2019:

Operating income as reported

$

104,279

Corporate strategic costs

25,152

Harsco Environmental Segment change in fair value to contingent consideration liability

(8,505

)

Harsco Environmental Segment provision for doubtful accounts

6,174

Harsco Rail Segment improvement initiative costs

4,830

Harsco Environmental Segment site exit related

(2,427

)

Harsco Clean Earth Segment severance costs

1,855

Harsco Clean Earth Segment change in fair value to contingent consideration liability

825

Adjusted operating income including acquisition amortization expense

132,183

Acquisition amortization expense

15,531

Adjusted operating income

147,714

Discontinued operations - Harsco Industrial before acquisition amortization expense for the six months ended June 30, 2019

39,394

Adjusted operating income including Harsco Industrial for the six months ended June 30, 2019

$

187,108

Revenues as reported

$

1,503,742

Revenues in Harsco Industrial for the six months ended June 30, 2019

234,182

Revenues including Harsco Industrial for the six months ended June 30, 2019

$

1,737,924

Adjusted operating margin (%) including Harsco Industrial for the six months ended June 30, 2019

10.8

%

The Company’s management believes Adjusted operating income (loss) including Harsco Industrial for the six months ended June 30, 2019, which is a non-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. Exclusion of acquisition-related intangible asset amortization expense, the amount of which can vary by the timing, size and nature of the Company’s acquisitions, facilitates more consistent internal comparisons of operating results over time between the Company’s newly acquired and long-held businesses, and comparisons with both acquisitive and non-acquisitive peer companies. It is important to note that such intangible assets contribute to revenue generation and that intangible asset amortization related to past acquisitions will recur in future periods until such intangible assets have been fully amortized. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.

HARSCO CORPORATION
RECONCILIATION OF FREE CASH FLOW BEFORE GROWTH CAPITAL EXPENDITURES TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (Unaudited)

Three Months Ended

Twelve Months Ended

December 31

December 31


(In thousands)

2019

2018

2019

2018

Net cash provided (used) by operating activities

$

(50,192

)

$

97,008

$

(163

)

$

192,022

Less capital expenditures

(37,902

)

(40,866

)

(184,973

)

(132,168

)

Less expenditures for intangible assets

(65

)

(1,311

)

Plus capital expenditures for strategic ventures (a)

1,073

623

5,904

1,595

Plus total proceeds from sales of assets (b)

9,462

2,791

17,022

11,887

Plus transaction-related expenditures (c)

2,559

28,939

Plus taxes paid on sale of business

102,940

102,940

Free cash flow

27,875

59,556

(31,642

)

73,336

Add growth capital expenditures

12,677

11,638

68,867

30,655

Free cash flow before growth capital expenditures

$

40,552

$

71,194

$

37,225

$

103,991

(a)

Capital expenditures for strategic ventures represent the partner’s share of capital expenditures in certain ventures consolidated in the Company’s financial statements.

(b)

Asset sales are a normal part of the business model, primarily for the Harsco Environmental Segment.

(c)

Expenditures directly related to the Company's acquisition and divestiture transactions.

The Company's management believes that Free cash flow before growth capital expenditures, which is a non-GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds and transaction-related expenditures for planning and performance evaluation purposes. The Company’s management also believes that free cash flow before growth capital expenditures, which is a non-GAAP financial measure, is meaningful to investors because management uses this as a key factor in the deployment of capital for strategic planning purposes. It is important to note that free cash flow and free cash flow before growth capital expenditures do 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 these measures. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.

HARSCO CORPORATION
RECONCILIATION OF CASH FLOW BEFORE GROWTH CAPITAL EXPENDITURES TO NET CASH PROVIDED BY OPERATING ACTIVITIES
(Unaudited)

Projected
Twelve Months Ending
December 31

2020

(In millions)

Low

High

Net cash provided by operating activities

$

180

$

220

Less capital expenditures

(176

)

(184

)

Plus total proceeds from asset sales and capital expenditures for strategic ventures

6

4

Free cash flow

10

40

Add growth capital expenditures

70

70

Free cash flow before growth capital expenditures

$

80

$

110

The Company's management believes that Free cash flow before growth capital expenditures, which is a non-GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds and transaction-related expenditures for planning and performance evaluation purposes. The Company’s management also believes that free cash flow before growth capital expenditures, which is a non-GAAP financial measure, is meaningful to investors because management uses this as a key factor in the deployment of capital for strategic planning purposes. It is important to note that free cash flow and free cash flow before growth capital expenditures do 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 these measures. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.

HARSCO CORPORATION
RECONCILIATION OF PROJECTED ADJUSTED EARNINGS BEFORE INTEREST, INCOME TAXES, AND DEPRECIATION AND AMORTIZATION TO PROJECTED NET INCOME FROM CONTINUING OPERATIONS
(Unaudited)

Projected
Three Months
Ending March 31

Projected
Twelve Months
Ending December 31

2020

2020

(In millions)

Low

High

Low

High

Income from continuing operations

$

(3

)

$

$

58

$

81

Add back:

Income tax expense

(1

)

23

32

Net interest

12

13

51

49

Defined benefit pension income

(2

)

(2

)

(8

)

(8

)

Depreciation and amortization

37

37

156

156

ADJUSTED EBITDA

$

43

$

48

$

280

$

310

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA consists of net income from continuing operations adjusted to add back, income tax expense, net interest, defined benefit pension income and depreciation and amortization (excluding amortization of deferred financing costs); and excludes unusual items. The Company‘s management believes Adjusted EBITDA is meaningful to investors because management reviews Adjusted EBITDA in assessing and evaluating performance. However, this measure should be considered in addition to, rather than as substitutes for net income from continuing operations and other information provided in accordance with GAAP. The Company's method of calculating Adjusted EBITDA may differ from methods used by other companies and, as a result, Adjusted EBITDA may not be comparable to other similarly titled measures disclosed by other companies.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED EARNINGS BEFORE INTEREST, INCOME TAXES, AND DEPRECIATION AND AMORTIZATION INCLUDING HARSCO CLEAN EARTH FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND EXCLUDING SPECIAL ITEMS TO NET INCOME FROM CONTINUING OPERATIONS AS REPORTED (a)
(Unaudited)

Twelve Months Ended
December 31

(In thousands)

2019

Income from continuing operations

$

36,530

Add back:

Equity in income of unconsolidated entities, net

(273

)

Income tax expense

20,214

Defined benefit pension expense

5,493

Unused debt commitment and amendment fees

7,704

Interest expense

36,586

Interest income

(1,975

)

Depreciation and amortization

132,594

Unusual items:

Corporate strategic costs

25,152

Harsco Environmental Segment change in fair value to contingent consideration liability

(8,505

)

Harsco Environmental Segment provision for doubtful accounts

6,174

Harsco Rail Segment improvement initiative costs

4,830

Harsco Environmental Segment site exit related

(2,427

)

Harsco Clean Earth Segment severance costs

1,855

Harsco Clean Earth Segment change in fair value to contingent consideration liability

825

Adjusted EBITDA

264,777

Harsco Clean Earth for the six months ended June 30, 2019

18,300

Adjusted EBITDA including Harsco Clean Earth for the six months ended June 30, 2019

$

283,077

Adjusted EBITDA and Adjusted EBITDA including Harsco Clean Earth for the six months ended June 30, 2019 are non-GAAP financial measures. Adjusted EBITDA consists of net income from continuing operations adjusted to add back, income tax expense, net interest, defined benefit pension income and depreciation and amortization (excluding amortization of deferred financing costs); and excludes unusual items. Adjusted EBITDA including Harsco Clean Earth for the six months ended June 30, 2019 consists of Adjusted EBITDA and Clean Earth’s Adjusted EBITDA for the first six months of 2019. The Company‘s management believes Adjusted EBITDA and Adjusted EBITDA including Harsco Clean Earth for the six months ended June 30, 2019 are meaningful to investors because management reviews Adjusted EBITDA in assessing and evaluating performance, and including Clean Earth’s Adjusted EBITDA for the first six months of the year provides investors a view of the business on a full-year basis. However, these measures should be considered in addition to, rather than as substitutes for net income from continuing operations and other information provided in accordance with GAAP. The Company's method of calculating Adjusted EBITDA may differ from methods used by other companies and, as a result, Adjusted EBITDA may not be comparable to other similarly titled measures disclosed by other companies.