Press Release Details

CAMP HILL, Pa., Feb. 20, 2014 (GLOBE NEWSWIRE) -- Harsco Corporation (NYSE:HSC) today reported fourth quarter 2013 results. Excluding special items and results from the Company's Infrastructure segment that was divested during the quarter, adjusted diluted earnings per share from continuing operations in the fourth quarter of 2013 were $0.25 compared with $0.32 in the fourth quarter of 2012. Adjusted operating income, excluding special items, Infrastructure segment results, and corporate costs, was $39 million, in line with the Company's guidance.

On a U.S. GAAP ("GAAP") basis, fourth quarter 2013 diluted loss per share from continuing operations was $0.31, which includes charges related to the Infrastructure transaction as well as charges for certain special items related to operations. This compares with GAAP diluted loss per share of $3.27 in the fourth quarter of 2012, during which a $3.29 per share non-cash goodwill impairment charge was recorded.

"During 2013 we took several important steps that we believe will help position Harsco to achieve long-term growth, enhance profitability and increase shareholder value," said Harsco President and CEO Patrick Decker. "In the fourth quarter our three operating units performed as expected and we achieved growth in both Metals & Minerals and Industrial. During the quarter we also completed the divestiture of our Infrastructure business, which delivered approximately $300 million in net cash proceeds and provides Harsco investors with an ongoing 29 percent equity interest in a stronger, combined business.

"As we outlined at our December Investor Day, Harsco's 2014 agenda is focused on improving returns in Metals & Minerals; adding to our project pipeline in Rail; integrating our recent acquisition in Industrial; and building a leaner operating model. Our 2014 outlook includes double-digit growth in operating income from our three business segments as well as double-digit cash flow from operations. Our entire organization remains focused on achieving our goals and shaping a stronger future for Harsco. We look forward to executing on these objectives throughout 2014 and believe we are building the foundation necessary to achieve sustainable, top quartile returns for our shareholders."

Harsco Corporation—Selected Fourth Quarter Results

(1) Includes approximately $3 million in unallocated corporate costs.

Consolidated Fourth Quarter Operating Results

Total revenues declined to $681 million, as modest revenue increases in the Company's Metals & Minerals and Industrial segments were offset by expected declines in Rail deliveries compared with the strong prior-year quarter. Revenues in the Infrastructure segment also declined due to the timing of the Infrastructure transaction. Foreign currency translation negatively impacted revenues by approximately $6 million in the quarter.

GAAP operating loss from continuing operations was $3 million, compared with a loss of $247 million in the prior-year quarter, which included the previously mentioned goodwill impairment charge. Excluding special items, adjusted operating income from continuing operations declined 30 percent, primarily as a result of lower Rail volumes compared with the prior year period, due to the completion of its large contract with the China Railway Corporation (formerly the China Ministry of Railways). Adjusted operating margin declined 140 basis points.

Harsco Corporation—Selected 2013 Results

Consolidated 2013 Results

GAAP diluted loss per share from continuing operations was $2.80 for the full year 2013, compared with a loss of $3.15 in 2012. Excluding special items, adjusted diluted earnings per share from continuing operations were $0.82 in 2013, compared with $1.19 in 2012.

Total revenues were $2.9 billion in 2013, compared with $3.0 billion in 2012. Revenues declined primarily due to a lower volume of equipment deliveries in Rail following the completion of its multi-year equipment order with China, and the timing of the Infrastructure transaction, which was completed at the end of November 2013. Foreign currency translation negatively impacted revenues by $22 million in 2013. Industrial revenues increased 4 percent, led by favorable volumes in its air-cooled heat exchanger and industrial boiler businesses.

GAAP operating loss from continuing operations was $135 million in 2013, compared with an operating loss from continuing operations of $175 million in 2012.  This performance primarily reflects changes in non-cash charges and transaction costs for the Infrastructure transaction in 2013 and non-repeated charges from 2012 for restructuring and Infrastructure goodwill impairment. Foreign currency translation favorably impacted operating income by $3 million in 2013. 

Fourth Quarter Business Review

Metals & Minerals

Revenues increased five percent to $350 million, primarily as a result of new contracts and volume-related increases in existing contracts. These factors were partially offset by the non-renewal of certain contracts. Foreign currency translation negatively impacted revenues by approximately $3 million in the quarter.

Adjusted operating income declined 6 percent to $17 million from $18 million in the prior-year quarter. Adjusted operating margin decreased to 4.7 percent from last year's adjusted 5.2%. This performance primarily reflected the aforementioned factors and costs related to the Simplification initiative.  

Rail

Revenues declined 38 percent to $70 million, primarily due to the expected lower volume of equipment deliveries and contract services compared with the prior year period, which included the segment's large order from the China Railway Corporation.

Adjusted operating income and operating margin also declined as a result of the lower volume of equipment deliveries and contract services compared with the prior period. Results also included a non-cash asset impairment charge related to certain equipment used in providing contract services. 

Industrial

Revenues increased three percent to $86 million, primarily due to volume increases in the air-cooled heat exchanger and industrial boiler product lines.  Operating income and margin were essentially flat for the quarter compared with the same period last year.

Infrastructure

Results for Infrastructure compared with the same quarter in the prior year were impacted by the timing of the Infrastructure transaction. As a result, revenues declined 25 percent to $176 million.   Adjusted operating loss and operating margins were relatively flat for the quarter compared with the same quarter last year.

Cash Flow

Free cash flow was ($38) million in the fourth quarter of 2013, compared with $6 million in the prior-year period, excluding any proceeds received as part of the Infrastructure transaction. This cash flow performance reflects lower net cash provided by operating activities, partially offset by lower capital expenditures. For the year, free cash flow was ($33) million, compared with ($4) million in 2012.  The Company generated $303 million in cash flow during 2013 related to proceeds received as part of the Infrastructure transaction. 

2014 Outlook

The Company expects 2014 operating income from its three business segments to increase at a low double-digit rate compared with the 2013 level (excluding special items in both periods). Remaining corporate costs previously allocated to the divested Infrastructure segment are expected to largely offset this increase. In addition, the Company is providing the following guidance for 2014:

• Operating income is expected to range from $160 million to $180 million.
• Free cash flow is expected to range from ($15) million to $15 million. Included in this projection is the expectation that capital spending in Metals & Minerals will remain high due to an unusually large number of attractive contract renewals. Cash flow from operations is expected to increase at a double-digit rate versus 2013.
• Interest expense is expected to range from $43 million to $47 million.
• Incremental, non-cash expense of  $10 million related to the accounting for the Company's quarterly payments to its partner in the Brand Energy joint venture (change in the fair value of the Company's unit adjustment liability).
• Tax rate is expected to range from 30% to 32%. 
• Return on invested capital is expected to range from 7.5% to 8.0%.

On or before its next quarterly earnings announcement in May 2014, the Company plans to update its 2014 outlook to include guidance for Earnings per Share, once the projection for equity income from the Brand Energy joint venture is finalized.

Conference Call

As previously announced, the Company will hold a conference call today at 10:00 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 58225976. 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 March 6, 2014 by dialing toll-free to (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 the Private Securities Litigation Reform Act of 1995, 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 the Company's outlook for 2014; management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, revenues, 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," "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, tax and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) 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; (7) the seasonal nature of the Company's business; (8) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the timeframe contemplated, or at all; (9) the integration of the Company's strategic acquisitions; (10) the amount and timing of repurchases of the Company's common stock, if any; (11) the prolonged recovery in global financial and credit markets and economic conditions generally, which could result in the Company's customers curtailing development projects, construction, production and capital expenditures, which, in turn, could reduce the demand for the Company's products and services and, accordingly, the Company's revenues, margins and profitability; (12) the outcome of any disputes with customers; (13) 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; (14) the Company's ability to successfully implement and receive the expected benefits of cost-reduction and restructuring initiatives, including the achievement of expected cost savings in the expected time frame; (15) the ability to successfully implement the Company's strategic initiatives and portfolio optimization and the impact of such initiatives; (16) the ability of the strategic venture between the Company and Clayton, Dubilier & Rice to effectively integrate the Company's Infrastructure business and the Brand Energy & Infrastructure Services business and realize the synergies contemplated by the transaction; (17) the Company's ability to realize cost savings from the divestiture of the Infrastructure business, as well as the transaction being accretive to earnings and improving operating margins and return on capital; (18) risk and uncertainty associated with intangible assets; and (19) 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, 2012. 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 play a fundamental role in worldwide economic development, including steel and metals production, railways and energy. Harsco's common stock is a component of the S&P MidCap 400 Index and the Russell 1000 Index. Additional information can be found at www.harsco.com.

(a)  Does not total due to rounding.

(a) Loss resulting from the Harsco Infrastructure transaction which was announced in Q3 2013 (Q4 2013 $30.0 million pre-tax; 12 months 2013 $271.3 million pre-tax).

(b) Harsco Infrastructure transaction costs recorded as Corporate expenses (Q4 2013 $7.7 million pre-tax; 12 months 2013 $20.1 million pre-tax).

(c) Depreciation expense reduction resulting from classification of Harsco Infrastructure Segment assets as held-for-sale (Q4 2013 $13.9 million pre-tax; 12 months 2013 $17.3 million pre-tax).

(d) Asset impairment charge on rail grinder equipment in the Harsco Rail Segment (Q4 2013 $9.0 million pre-tax).

(e) Bad debt expense incurred in the Harsco Metals & Minerals Segment (Q4 2013 $2.6 million pre-tax).

(f)  Non-cash tax impact of Harsco Infrastructure transaction – undistributed earnings of subsidiaries and deferred tax valuation allowance (Q4 2013 $11.6 million; 12 months 2013 $30.8 million).

(g) Charges resulting from the Harsco 2011/2012 Restructuring Program in the Harsco Infrastructure Segment (Q4 2012 $16.9 million pre-tax; 12 months 2012 $88.6 million pre-tax) and the Harsco Metals & Minerals Segment (Q4 2012 $4.0 million pre-tax;
12 months 2012 $5.5 million pre-tax).

(h) Goodwill impairment charge in the Harsco Infrastructure Segment (Q4 2012 $265.0 million pre-tax).

(i)  Asset impairment charge in the Harsco Metals & Minerals Segment (Q4 2012 $7.6 million pre-tax).

(j)  Non-cash gains related to the closure of certain Harsco Infrastructure Segment European operations (Q2 and Q3 2012 $10.9 million pre-tax).

(k) Separation expense for former CEO recorded as Corporate expenses (Q1 2012 $4.1 million pre-tax).

(l)  Pension curtailment gains in the Harsco Metals & Minerals Segment (Q1 2012 $1.7 million pre-tax).

(m) Does not total due to rounding.

The Company's management believes diluted earnings (loss) per share from continuing operations excluding special items and the Harsco Infrastructure Segment, non-U.S. GAAP financial measures, are useful to investors because they provide an overall understanding of the Company's historical and future prospects. Exclusion of special 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 the Harsco Infrastructure Segment provides a basis for comparison of ongoing operations and prospects since the segment was divested in the fourth quarter of 2013. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

(a)  Does not total due to rounding.

The Company's management believes diluted earnings (loss) per share from continuing operations excluding the Harsco Infrastructure Segment, non-U.S. GAAP financial measures, are useful to investors because they provide an overall understanding of the Company's historical and future prospects. Exclusion of the Harsco Infrastructure Segment provides a basis for comparison of ongoing operations and prospects since the segment was divested in the fourth quarter of 2013. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

The Company's management believes operating margin excluding special items and the Harsco Infrastructure Segment, non-U.S. GAAP financial measures, are useful to investors because they provide an overall understanding of the Company's historical and future prospects. Exclusion of special 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 the Harsco Infrastructure Segment provides a basis for comparison of ongoing operations and prospects since the segment was divested in the fourth quarter of 2013. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

The Company's management believes operating income excluding special items and the Harsco Infrastructure Segment, non-U.S. GAAP financial measures, are useful to investors because they provide an overall understanding of the Company's historical and future prospects. Exclusion of special 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 the Harsco Infrastructure Segment provides a basis for comparison of ongoing operations and prospects since the segment was divested in the fourth quarter of 2013. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

The Company's management believes operating income excluding special items and the Harsco Infrastructure Segment, non-U.S. GAAP financial measures, are useful to investors because they provide an overall understanding of the Company's historical and future prospects. Exclusion of special 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 the Harsco Infrastructure Segment provides a basis for comparison of ongoing operations and prospects since the segment was divested in the fourth quarter of 2013. These measures should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

(a)  Maintenance capital expenditures are necessary to sustain the Company's current revenue streams and include contract renewals. 

(b)  Growth capital expenditures, for which management has discretion as to amount, timing and geographic placement, expand the Company's revenue base and create additional future cash flow. 

(c)  Capital expenditures for strategic ventures represent the partner's share of capital expenditures in certain ventures consolidated in the Company's financial statements.

(d)  Asset sales are a normal part of the business model, primarily for the Harsco Infrastructure and Harsco Metals & Minerals Segments. This line item does not include any proceeds from the Harsco Infrastructure transaction.

The Company's management believes that free cash flow, 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. 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, 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.

(a)  Capital expenditures encompass two primary elements: maintenance capital expenditures, which are necessary to sustain the Company's current revenue streams and include contract renewals; and growth capital expenditures, for which management has discretion as to amount, timing and geographic placement, and which expand the Company's revenue base and create additional future cash flow.

(b)  Asset sales are a normal part of the business model, primarily for the Harsco Metals & Minerals Segment. Capital expenditures for strategic ventures represent the partner's share of capital expenditures in certain ventures consolidated in the Company's financial statements.

The Company's management believes that free cash flow, 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. 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, 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.

(a) Return on invested capital excluding special items and the Harsco Infrastructure Segment is after-tax net income from continuing operations excluding special items, after-tax Harsco Infrastructure Segment results, and interest expense, divided by average capital for the year. The Company uses a trailing five quarter-end average for computing average capital.

(b) On an adjusted basis for the twelve months ended December 31, 2013 and 2012, the Company's effective tax rate was 37% for both periods.

The Company's management believes return on invested capital excluding special items and the Harsco Infrastructure Segment, non-U.S. GAAP financial measures, are meaningful in evaluating the efficiency and effectiveness of the capital invested in the Company's business. Exclusion of special 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 the Harsco Infrastructure Segment provides a basis for comparison of ongoing operations and prospects since the segment was divested in the fourth quarter of 2013.These measures should be considered in addition to, rather than as a substitute for, net income or other information provided in accordance with U.S. GAAP. 

CONTACT: Media Contact
         Kenneth Julian
         717.730.3683
         kjulian@harsco.com