UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K |
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 4, 2016
Harsco Corporation
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
Delaware | 001-03970 | 23-1483991 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
350 Poplar Church Road, Camp Hill, Pennsylvania | 17011 | |||
(Address of principal executive offices) | (Zip Code) | |||
Registrant's telephone number, including area code: 717-763-7064
________________________________________________________________________________
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | ||
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Item 2.02. Results of Operations and Financial Condition.
On May 4, 2016, Harsco Corporation issued a Press Release announcing its earnings for the first quarter ended March 31, 2016. Among other things, the Press Release reports:
• | Diluted loss per share from continuing operations of $0.13 in the first quarter of 2016 compared with diluted earnings per share from continuing operations of $0.20 in the first quarter of 2015; |
• | Operating income from continuing operations of $9.4 million and $38.9 million in the first quarter of 2016 and 2015, respectively; |
• | Operating income in the Harsco Metals & Minerals Segment of $6.9 million and $10.6 million in the first quarter of 2016 and 2015, respectively; |
• | Operating income in the Harsco Industrial Segment of $6.5 million and $17.0 million in the first quarter of 2016 and 2015, respectively; |
• | Operating income in the Harsco Rail Segment of $4.9 million and $21.6 million in the first quarter of 2016 and 2015, respectively; and |
• | Net cash used by operating activities of $3.0 million in the first quarter of 2016 compared with net cash provided by operating activities of $10.5 million in the first quarter of 2015. |
A copy of the Press Release is attached hereto as Exhibit 99.1. This information is being furnished in this report and shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
The following exhibit is furnished as part of the Current Report on Form 8-K:
Exhibit 99.1. Press release dated May 4, 2016.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Harsco Corporation | ||
May 4, 2016 (Date) | /s/ Peter F. Minan Peter F. Minan Senior Vice President and Chief Financial Officer | |
Exhibit Index | ||
99.1 | Press release dated May 4, 2016 | |
Exhibit 99.1
Investor Contact David Martin 717.612.5628 damartin@harsco.com | Media Contact Kenneth Julian 717.730.3683 kjulian@harsco.com |
FOR IMMEDIATE RELEASE
HARSCO CORPORATION REPORTS FIRST QUARTER 2016 RESULTS
• | Q1 Adjusted Operating Income Above Guidance |
• | Maintaining 2016 Adjusted Operating Income and Free Cash Flow Guidance Between $80 Million and $100 Million and $50 Million and $70 Million, Respectively |
• | Net Debt Reduced To $818 Million and Liquidity Remained Approximately $220 Million at Quarter-End |
CAMP HILL, PA (May 4, 2016) . . . Harsco Corporation (NYSE: HSC) today reported first quarter 2016 results. Excluding special items, adjusted diluted earnings per share from continuing operations in the first quarter of 2016 were $0.03. This result compares with diluted earnings per share of $0.20 in the first quarter of 2015. On a U.S. GAAP (“GAAP”) basis, first quarter 2016 diluted loss per share from continuing operations was $0.13; which included Metals & Minerals Separation costs; a charge associated with an underperforming site that was idled and is in process of being exited; and a noncash charge related to the Company's Brand Energy investment. Adjusted operating income for the first quarter of 2016 was $18 million, which was above the guidance range of $6 million to $11 million provided by the Company. Operating income from continuing operations for the first quarter of 2016 was $9 million.
“Each of our businesses performed well this quarter against a challenging macro-environment and I was again pleased that our quarterly results exceeded prior guidance,” said President and CEO Nick Grasberger. “Our Metals & Minerals performance was particularly noteworthy as illustrated by the improvement in segment earnings and margins compared with the prior year. In M&M, Applied Products had a strong quarter and we benefited from better operating results within certain regions, mainly North America and Europe. Meanwhile, Rail was aided by favorable mix and shipment timing in the quarter and Corporate costs were lower than anticipated.”
“2016 is certainly off to a solid start and some market indicators point to an underlying improvement in many of our markets. At this point, however, we are maintaining our outlook for the year to reflect timing impacts in the first quarter and the market uncertainties present in our businesses. In this context, we remain keenly focused on process and operating improvements that will enable us to increase free cash flow and achieve meaningful debt reduction during the year. We remain committed to our long-term strategy which includes rebalancing our business portfolio and realizing the value embedded within our businesses.”
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Harsco Corporation—Selected First Quarter Results
($ in millions, except per share amounts) | Q1 2016 | Q1 2015 | ||||||
Revenues | $ | 353 | $ | 452 | ||||
Operating income from continuing operations - GAAP | $ | 9 | $ | 39 | ||||
Operating margin from continuing operations - GAAP | 2.7 | % | 8.6 | % | ||||
Diluted EPS from continuing operations | $ | (0.13 | ) | $ | 0.20 | |||
Special items per diluted share | $ | 0.16 | $ | — | ||||
Adjusted operating income - excluding special items | $ | 18 | $ | 39 | ||||
Adjusted operating margin - excluding special items | 5.0 | % | 8.6 | % | ||||
Adjusted diluted EPS from continuing operations - excluding special items | $ | 0.03 | $ | 0.20 | ||||
Return on invested capital (TTM) - excluding special items | 5.3 | % | 7.2 | % | ||||
Consolidated First Quarter Operating Results
Total revenues were $353 million, with the decrease mainly attributable to the Company’s Metals & Minerals and Industrial segments, as expected. Foreign currency translation negatively affected first quarter 2016 revenues by approximately $19 million.
Adjusted operating income from continuing operations was $18 million, compared with operating income of $39 million including an $11 million FX gain in the Rail segment in the prior-year quarter. Adjusted operating earnings in Metals & Minerals improved in comparison with the same quarter last year, while earnings declined in the Industrial and Rail segments. As a result, adjusted operating margin declined by 360 basis points versus the prior-year period. Foreign currency translation positively impacted adjusted operating income by approximately $1 million in this year’s quarter (excluding the Rail gain realized in 2015).
During the first quarter and as permitted under its agreement, Harsco elected to not make its first quarter cash payments to its joint venture partner in Brand Energy and determined not to make such payments for the remainder of 2016 to preserve the financial flexibility of the Company. Instead, Harsco will make an in kind transfer of approximately 3 percent of its ownership interest in the joint venture. This resulted in a pre-tax $10 million non-cash charge to net income. Also, the Company’s first quarter 2016 earnings included equity income of approximately $3.2 million ($0.02 per share after tax) from the Brand Energy joint venture, which was negatively impacted by intercompany foreign currency losses and restructuring costs in the period.
First Quarter Business Review
Metals & Minerals
($ in millions) | Q1 2016 | Q1 2015 | %Change | ||||||||
Revenues | $ | 230 | $ | 291 | (21 | )% | |||||
Adjusted operating income | $ | 12 | $ | 11 | 14 | % | |||||
Adjusted operating margin | 5.2 | % | 3.6 | % | |||||||
Customer liquid steel tons (millions) | 33.3 | 40.6 | (18 | )% | |||||||
Revenues decreased 21 percent to $230 million, primarily as a result of exiting certain contracts, reduced customer steel production, foreign exchange translation and lower nickel-related sales. Meanwhile, adjusted operating income increased in comparison with the prior-year as the workforce reductions and other benefits realized under Project Orion, as well as lower operating and administrative costs, were partially offset by site exits, lower customer output and nickel-related sales. As a result, the segment adjusted operating margin improved to 5.2 percent versus 3.6 percent in last year’s first quarter.
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Industrial
($ in millions) | Q1 2016 | Q1 2015 | %Change | ||||||||
Revenues | $ | 62 | $ | 99 | (37 | )% | |||||
Operating income | $ | 6 | $ | 17 | (62 | )% | |||||
Operating margin | 10.5 | % | 17.2 | % | |||||||
Revenues declined 37 percent to $62 million, primarily due to volume changes in the segment’s heat exchanger business resulting from lower capital spending among U.S. energy customers. Operating income declined as reduced demand for heat exchangers and asset sales were partially offset by lower selling and administrative costs. As a result, the segment’s operating margin decreased to 10.5 percent compared with 17.2 percent in the comparable quarter last year.
Rail
($ in millions) | Q1 2016 | Q1 2015 | %Change | ||||||||
Revenues | $ | 62 | $ | 62 | — | % | |||||
Operating income | $ | 5 | $ | 22 | (77 | )% | |||||
Operating margin | 7.9 | % | 35.1 | % | |||||||
Revenues totaled $62 million, essentially unchanged as compared with the prior-year period, as higher equipment volume offset lower after-market parts sales. Operating income decreased as a foreign exchange gain on cash advances of $11 million in the prior-year quarter was not repeated, in addition to lower contributions from after-market parts and a less favorable mix of equipment sales. As a result, segment operating margin was 7.9 percent, compared with 35.1 percent in the prior-year period.
Cash Flow
Free cash flow was $(17) million in the first quarter of 2016, compared with $(14) million in the prior-year period. This cash flow performance reflects lower net cash provided by operating activities, partly offset by reduced capital expenditures compared with last year's quarter.
Financial Position
At the end of the first quarter, Harsco maintained net debt of approximately $818 million, a slight decrease from the sequential quarter after the Company monetized a cross-currency interest rate swap for approximately $17 million. Meanwhile, the Company's net debt to EBITDA ratio was 3.0x, as compared with a maximum leverage covenant of 4.0x under the Company's current Credit Agreement, and its borrowing capacity and available cash remained at approximately $220 million at the end of the quarter. Also subject to the uncertainty and volatility in end markets, the Company is targeting a net leverage ratio of 3.0x to 3.2x at year-end.
2016 Outlook
The Company's expectations for key financial metrics are unchanged for 2016 as noted below. This outlook reflects continued uncertainty within the global steel market. Adjusted operating income in Metals & Minerals is expected to remain stable or decline slightly compared with 2015, as lower steel production, site exits and weaker commodities demand will offset the benefits of cost reductions, operational improvements and site start-ups. In Industrial, business fundamentals remain challenging, and as a result, adjusted operating results are projected to be meaningfully lower as compared with 2015 due to reduced demand from U.S. energy customers. Lastly, Rail earnings after adjusting for the $11 million FX gain in 2015 are expected to be unchanged or decrease slightly as a result of weaker U.S. market demand, sales mix and administrative costs to facilitate international expansion. The Outlook also includes anticipated equity income from the Brand
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Energy joint venture, where impacts from various financial uncertainties such as foreign exchange and income taxes are assumed to be limited in the forecast period.
Full Year 2016
• | Adjusted operating income for the full year is expected to range from $80 million to $100 million; compared with $135 million in 2015. |
• | Free cash flow in the range of $50 million to $70 million; compared with $24 million in 2015. |
• | Net interest expense is forecasted to range from $50 million to $52 million. |
• | Equity income from the Brand Energy joint venture is expected to be $3 million to $6 million. |
• | Adjusted earnings per share for the full year in the range of $0.13 to $0.33; compared with $0.56 per share in 2015. |
• | Adjusted return on invested capital is expected to range from 4.0 percent to 4.5 percent; compared with 6.3 percent in 2015. |
Q2 2016
• | Adjusted operating income of $22 million to $27 million; compared with $36 million in the prior-year quarter. |
• | Adjusted earnings per share of $0.02 to $0.07; compared with earnings per share of $0.08 in the prior-year quarter. |
Conference Call
As previously announced, 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 90218106. Listeners are advised to dial in at least five minutes prior to the call.
Replays will be available via the Harsco website and also by telephone through May 18, 2016 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," "target," "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,
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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 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; (15) the outcome of any disputes with customers, contractors and subcontractors; (16) 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; (17) 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 and the ability to reduce its net debt; (18) the ability to successfully implement the Company's strategic initiatives and portfolio optimization and the impact of such initiatives, such as the Harsco Metals & Minerals Segment's Improvement Plan ("Project Orion"); (19) the amount ultimately realized from the Company's exit from the strategic venture between the Company and Clayton, Dubilier & Rice and the timing of such exit; (20) implementation of environmental remediation matters; (21) risk and uncertainty associated with intangible assets; (22) the impact of a transaction, if any, resulting from the Company's determination to explore strategic options for the separation of the Harsco Metals & Minerals Segment; and (23) 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, 2015. 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.
# # #
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HARSCO CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) | ||||||||
Three Months Ended | ||||||||
March 31 | ||||||||
(In thousands, except per share amounts) | 2016 | 2015 | ||||||
Revenues from continuing operations: | ||||||||
Service revenues | $ | 225,494 | $ | 287,428 | ||||
Product revenues | 127,787 | 164,151 | ||||||
Total revenues | 353,281 | 451,579 | ||||||
Costs and expenses from continuing operations: | ||||||||
Cost of services sold | 189,817 | 245,861 | ||||||
Cost of products sold | 93,244 | 115,221 | ||||||
Selling, general and administrative expenses | 50,784 | 63,902 | ||||||
Research and development expenses | 882 | 919 | ||||||
Other (income) expenses | 9,123 | (13,205 | ) | |||||
Total costs and expenses | 343,850 | 412,698 | ||||||
Operating income from continuing operations | 9,431 | 38,881 | ||||||
Interest income | 535 | 256 | ||||||
Interest expense | (12,363 | ) | (11,884 | ) | ||||
Change in fair value to unit adjustment liability and loss on dilution of equity method investment | (12,217 | ) | (2,245 | ) | ||||
Income (loss) from continuing operations before income taxes and equity income | (14,614 | ) | 25,008 | |||||
Income tax benefit (expense) | 2,166 | (12,855 | ) | |||||
Equity in income of unconsolidated entities, net | 3,175 | 4,083 | ||||||
Income (loss) from continuing operations | (9,273 | ) | 16,236 | |||||
Discontinued operations: | ||||||||
Loss on disposal of discontinued business | (506 | ) | (646 | ) | ||||
Income tax benefit related to discontinued business | 187 | 239 | ||||||
Loss from discontinued operations | (319 | ) | (407 | ) | ||||
Net income (loss) | (9,592 | ) | 15,829 | |||||
Less: Net income attributable to noncontrolling interests | (1,277 | ) | (565 | ) | ||||
Net income (loss) attributable to Harsco Corporation | $ | (10,869 | ) | $ | 15,264 | |||
Amounts attributable to Harsco Corporation common stockholders: | ||||||||
Income (loss) from continuing operations, net of tax | $ | (10,550 | ) | $ | 15,671 | |||
Loss from discontinued operations, net of tax | (319 | ) | (407 | ) | ||||
Net income (loss) attributable to Harsco Corporation common stockholders | $ | (10,869 | ) | $ | 15,264 | |||
Weighted-average shares of common stock outstanding | 80,238 | 80,240 | ||||||
Basic earnings (loss) per common share attributable to Harsco Corporation common stockholders: | ||||||||
Continuing operations | $ | (0.13 | ) | $ | 0.20 | |||
Discontinued operations | — | (0.01 | ) | |||||
Basic earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | (0.14 | ) | (a) | $ | 0.19 | ||
Diluted weighted-average shares of common stock outstanding | 80,238 | 80,352 | ||||||
Diluted earnings (loss) per common share attributable to Harsco Corporation common stockholders: | ||||||||
Continuing operations | $ | (0.13 | ) | $ | 0.20 | |||
Discontinued operations | — | (0.01 | ) | |||||
Diluted earnings (loss) per share attributable to Harsco Corporation common stockholders | $ | (0.14 | ) | (a) | $ | 0.19 | ||
(a) Does not total due to rounding.
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HARSCO CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) | ||||||||
(In thousands) | March 31 2016 | December 31 2015 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 70,405 | $ | 79,756 | ||||
Trade accounts receivable, net | 252,660 | 254,877 | ||||||
Other receivables | 19,458 | 30,395 | ||||||
Inventories | 233,335 | 216,967 | ||||||
Other current assets | 75,537 | 82,527 | ||||||
Total current assets | 651,395 | 664,522 | ||||||
Investments | 230,003 | 252,609 | ||||||
Property, plant and equipment, net | 555,786 | 564,035 | ||||||
Goodwill | 402,659 | 400,367 | ||||||
Intangible assets, net | 50,573 | 53,043 | ||||||
Other assets | 115,116 | 126,621 | ||||||
Total assets | $ | 2,005,532 | $ | 2,061,197 | ||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Short-term borrowings | $ | 61,314 | $ | 30,229 | ||||
Current maturities of long-term debt | 28,238 | 25,084 | ||||||
Accounts payable | 119,616 | 136,018 | ||||||
Accrued compensation | 36,122 | 38,899 | ||||||
Income taxes payable | 4,919 | 4,408 | ||||||
Dividends payable | — | 4,105 | ||||||
Insurance liabilities | 12,181 | 11,420 | ||||||
Advances on contracts | 101,974 | 107,250 | ||||||
Due to unconsolidated affiliate | 7,694 | 7,733 | ||||||
Unit adjustment liability | 5,841 | 22,320 | ||||||
Other current liabilities | 126,552 | 118,657 | ||||||
Total current liabilities | 504,451 | 506,123 | ||||||
Long-term debt | 798,478 | 845,621 | ||||||
Deferred income taxes | 13,825 | 12,095 | ||||||
Insurance liabilities | 29,874 | 30,400 | ||||||
Retirement plan liabilities | 225,340 | 241,972 | ||||||
Due to unconsolidated affiliate | 13,906 | 13,674 | ||||||
Unit adjustment liability | 56,861 | 57,614 | ||||||
Other liabilities | 40,464 | 42,895 | ||||||
Total liabilities | 1,683,199 | 1,750,394 | ||||||
HARSCO CORPORATION STOCKHOLDERS' EQUITY | ||||||||
Common stock | 140,503 | 140,503 | ||||||
Additional paid-in capital | 172,174 | 170,699 | ||||||
Accumulated other comprehensive loss | (496,312 | ) | (515,688 | ) | ||||
Retained earnings | 1,225,486 | 1,236,355 | ||||||
Treasury stock | (760,299 | ) | (760,299 | ) | ||||
Total Harsco Corporation stockholders’ equity | 281,552 | 271,570 | ||||||
Noncontrolling interests | 40,781 | 39,233 | ||||||
Total equity | 322,333 | 310,803 | ||||||
Total liabilities and equity | $ | 2,005,532 | $ | 2,061,197 | ||||
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HARSCO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | ||||||||
Three Months Ended | ||||||||
March 31 | ||||||||
(In thousands) | 2016 | 2015 | ||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (9,592 | ) | $ | 15,829 | |||
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | ||||||||
Depreciation | 33,081 | 36,654 | ||||||
Amortization | 2,964 | 3,237 | ||||||
Change in fair value to the unit adjustment liability and loss on dilution of equity method investment | 12,217 | 2,245 | ||||||
Deferred income tax expense | (567 | ) | 2,629 | |||||
Equity in income of unconsolidated entities, net | (3,175 | ) | (4,083 | ) | ||||
Dividends from unconsolidated entities | 16 | — | ||||||
Other, net | (9,875 | ) | (9,612 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 15,952 | (20,151 | ) | |||||
Inventories | (12,408 | ) | (19,496 | ) | ||||
Accounts payable | (15,851 | ) | 5,775 | |||||
Accrued interest payable | 6,668 | 6,828 | ||||||
Accrued compensation | (3,777 | ) | (9,019 | ) | ||||
Advances on contracts | (8,995 | ) | 8,693 | |||||
Harsco 2011/2012 Restructuring Program accrual | — | (188 | ) | |||||
Other assets and liabilities | (9,633 | ) | (8,868 | ) | ||||
Net cash provided (used) by operating activities | (2,975 | ) | 10,473 | |||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (16,951 | ) | (31,630 | ) | ||||
Proceeds from sales of assets | 2,819 | 6,781 | ||||||
Purchases of businesses, net of cash acquired | (26 | ) | (6,828 | ) | ||||
Payment of unit adjustment liability | — | (5,580 | ) | |||||
Other investing activities, net | 5,427 | 2,360 | ||||||
Net cash used by investing activities | (8,731 | ) | (34,897 | ) | ||||
Cash flows from financing activities: | ||||||||
Short-term borrowings, net | (366 | ) | 4,898 | |||||
Current maturities and long-term debt: | ||||||||
Additions | 29,010 | 52,039 | ||||||
Reductions | (42,921 | ) | (5,147 | ) | ||||
Cash dividends paid on common stock | (4,105 | ) | (16,443 | ) | ||||
Common stock acquired for treasury | — | (12,143 | ) | |||||
Proceeds from cross-currency interest rate swap termination | 16,625 | — | ||||||
Deferred financing costs | (894 | ) | (2,049 | ) | ||||
Net cash provided (used) by financing activities | (2,651 | ) | 21,155 | |||||
Effect of exchange rate changes on cash | 5,006 | 6,975 | ||||||
Net increase (decrease) in cash and cash equivalents | (9,351 | ) | 3,706 | |||||
Cash and cash equivalents at beginning of period | 79,756 | 62,843 | ||||||
Cash and cash equivalents at end of period | $ | 70,405 | $ | 66,549 | ||||
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HARSCO CORPORATION REVIEW OF OPERATIONS BY SEGMENT (Unaudited) | ||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, 2016 | March 31, 2015 | |||||||||||||||
(In thousands) | Revenues | Operating Income (Loss) | Revenues | Operating Income (Loss) | ||||||||||||
Harsco Metals & Minerals | $ | 229,672 | $ | 6,941 | $ | 291,198 | $ | 10,583 | ||||||||
Harsco Industrial | 61,869 | 6,471 | 98,803 | 17,027 | ||||||||||||
Harsco Rail | 61,740 | 4,906 | 61,578 | 21,633 | ||||||||||||
General Corporate | — | (8,887 | ) | — | (10,362 | ) | ||||||||||
Consolidated Totals | $ | 353,281 | $ | 9,431 | $ | 451,579 | $ | 38,881 | ||||||||
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HARSCO CORPORATION RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS EXCLUDING SPECIAL ITEMS TO DILUTED EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited) | ||||||||
Three Months Ended | ||||||||
March 31 | ||||||||
2016 | 2015 | |||||||
Diluted earnings (loss) per share from continuing operations as reported (a) | $ | (0.13 | ) | $ | 0.20 | |||
Net loss on dilution of equity method investment (b) | 0.08 | — | ||||||
Harsco Metals & Minerals Segment site exit charges (c) | 0.05 | — | ||||||
Harsco Metals & Minerals Segment separation costs (d) | 0.03 | — | ||||||
Adjusted diluted earnings per share from continuing operations excluding special items | $ | 0.03 | $ | 0.20 | ||||
(a) | No special items were excluded in the first quarter of 2015. |
(b) | Loss on the dilution of the Company's investment in Brand recorded at Corporate (Q1 2016 $10.3 million pre-tax). |
(c) | Harsco Metals & Minerals Segment charges primarily attributable to site exit costs (Q1 2016 $5.1 million pre-tax). |
(d) | Costs associated with Harsco Metals & Minerals Segment separation recorded at Corporate (Q1 2016 $3.3 million pre-tax). |
The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding special 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 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. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
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HARSCO CORPORATION RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS EXCLUDING SPECIAL ITEMS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited) | |||||
Twelve Months Ended | |||||
December 31 | |||||
2015 | |||||
Diluted earnings per share from continuing operations as reported | $ | 0.09 | |||
Harsco Metals & Minerals Segment contract termination charges, net (a) | 0.17 | ||||
Harsco Metals & Minerals Segment separation costs (b) | 0.09 | ||||
Harsco Metals & Minerals Segment salt cake processing and disposal charges (c) | 0.06 | ||||
Harsco Metals & Minerals Segment site exit and underperforming contract charges, net (d) | 0.05 | ||||
Harsco Metals & Minerals Segment Project Orion charges (e) | 0.05 | ||||
Harsco Metals & Minerals Segment subcontractor settlement charge (f) | 0.04 | ||||
Harsco Metals & Minerals Segment multi-employer pension plan charge (g) | 0.01 | ||||
Harsco Infrastructure Segment loss on disposal (h) | 0.01 | ||||
Adjusted diluted earnings per share from continuing operations excluding special items | $ | 0.56 | (i) | ||
(a) | Harsco Metals & Minerals Segment charges related to a contract terminations (Full year 2015 $13.5 million pre-tax). |
(b) | Costs associated with Harsco Metals & Minerals Segment separation costs recorded as Corporate (Full year 2015 $9.9 million pre-tax). |
(c) | Harsco Metals & Minerals Segment charges incurred in connection with the processing and disposal of salt cakes (Full year 2015 $7.0 million pre-tax). The Company's Bahrain operations are operated under a strategic venture for which its strategic venture partner has a 35% minority interest. Accordingly, the net impact of the charge to the Company's Net income (loss) attributable to Harsco Corporation was $4.6 million. |
(d) | Harsco Metals & Minerals Segment charges primarily attributable to site exit costs and non-cash long lived asset impairment charges associated with strategic actions from Project Orion’s focus on underperforming contracts (Full year 2015 $5.0 million pre-tax). |
(e) | Harsco Metals & Minerals Segment Project Orion restructuring charges (Full year 2015 $5.1 million pre-tax). |
(f) | Harsco Metals & Minerals Segment charges related to a settlement with a subcontractor (Full year 2015 $4.2 million pre-tax). |
(g) | Harsco Metals & Minerals Segment charges related to a multi-employer pension plan (Full year 2015 $1.1 million pre-tax). |
(h) | Loss resulting from the Harsco Infrastructure Transaction, which was consummated in the fourth quarter of 2013 (Full year 2015 $1.0 million pre-tax). |
(i) | Does not total due to rounding. |
The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding special 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 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. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
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HARSCO CORPORATION REVIEW OF OPERATIONS BY SEGMENT EXCLUDING SPECIAL ITEMS (Unaudited) | ||||||||||||||||||||
(In thousands) | Harsco Metals & Minerals | Harsco Industrial | Harsco Rail | Corporate | Consolidated Totals | |||||||||||||||
Three Months Ended March 31, 2016: | ||||||||||||||||||||
Adjusted operating income (loss) excluding special items | $ | 12,041 | $ | 6,471 | $ | 4,906 | $ | (5,600 | ) | $ | 17,818 | |||||||||
Revenues as reported | $ | 229,672 | $ | 61,869 | $ | 61,740 | $ | — | $ | 353,281 | ||||||||||
Adjusted operating margin (%) excluding special items | 5.2 | % | 10.5 | % | 7.9 | % | 5.0 | % | ||||||||||||
Three Months Ended March 31, 2015: | ||||||||||||||||||||
Adjusted operating income (loss) excluding special items | $ | 10,583 | $ | 17,027 | $ | 21,633 | $ | (10,362 | ) | $ | 38,881 | |||||||||
Revenues as reported | $ | 291,198 | $ | 98,803 | $ | 61,578 | $ | — | $ | 451,579 | ||||||||||
Adjusted operating margin (%) excluding special items | 3.6 | % | 17.2 | % | 35.1 | % | 8.6 | % | ||||||||||||
The Company’s management believes Adjusted operating margin (%) excluding special 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 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. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
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HARSCO CORPORATION RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) EXCLUDING SPECIAL 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 March 31, 2016: | ||||||||||||||||||||
Operating income (loss) as reported | $ | 6,941 | $ | 6,471 | $ | 4,906 | $ | (8,887 | ) | $ | 9,431 | |||||||||
Harsco Metals & Minerals Segment site exit charges | 5,100 | — | — | — | 5,100 | |||||||||||||||
Harsco Metals & Minerals Segment separation costs | — | — | — | 3,287 | 3,287 | |||||||||||||||
Adjusted operating income (loss), excluding special items | $ | 12,041 | $ | 6,471 | $ | 4,906 | $ | (5,600 | ) | $ | 17,818 | |||||||||
Revenues as reported | $ | 229,672 | $ | 61,869 | $ | 61,740 | $ | — | $ | 353,281 | ||||||||||
Three Months Ended March 31, 2015: | ||||||||||||||||||||
Operating income (loss) as reported (a) | $ | 10,583 | $ | 17,027 | $ | 21,633 | $ | (10,362 | ) | $ | 38,881 | |||||||||
Revenues as reported | $ | 291,198 | $ | 98,803 | $ | 61,578 | $ | — | $ | 451,579 | ||||||||||
(a) | No special items were excluded in the first quarter of 2015. |
The Company’s management believes Adjusted operating income (loss) excluding special 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 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. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
13
HARSCO CORPORATION RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) EXCLUDING SPECIAL 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, 2015: | |||||||||||||||||||||
Operating income (loss) as reported | $ | 26,289 | $ | 57,020 | $ | 50,896 | $ | (45,669 | ) | $ | 88,536 | ||||||||||
Harsco Metals & Minerals Segment contract termination charges, net | 13,484 | — | — | — | 13,484 | ||||||||||||||||
Harsco Metals & Minerals Segment separation costs | — | — | — | 9,922 | 9,922 | ||||||||||||||||
Harsco Metals & Minerals Segment salt cake processing and disposal charges | 7,000 | — | — | — | 7,000 | ||||||||||||||||
Harsco Metals & Minerals Segment Project Orion charges | 5,070 | — | — | — | 5,070 | ||||||||||||||||
Harsco Metals & Minerals Segment site exit and underperforming contract charges, net | 4,977 | — | — | — | 4,977 | ||||||||||||||||
Harsco Metals & Minerals Segment subcontractor settlement charge | 4,220 | — | — | — | 4,220 | ||||||||||||||||
Harsco Metals & Minerals Segment multi-employer pension plan charge | 1,122 | — | — | — | 1,122 | ||||||||||||||||
Harsco Infrastructure Segment loss on disposal | — | — | — | 1,000 | 1,000 | ||||||||||||||||
Adjusted operating income (loss), excluding special items | $ | 62,162 | $ | 57,020 | $ | 50,896 | $ | (34,747 | ) | $ | 135,331 | ||||||||||
Revenues as reported | $ | 1,106,162 | $ | 357,256 | $ | 259,674 | $ | — | $ | 1,723,092 | |||||||||||
The Company’s management believes Adjusted operating income (loss) excluding special 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 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. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
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HARSCO CORPORATION RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (Unaudited) | ||||||||
Three Months Ended | ||||||||
March 31 | ||||||||
(In thousands) | 2016 | 2015 | ||||||
Net cash provided (used) by operating activities | $ | (2,975 | ) | $ | 10,473 | |||
Less maintenance capital expenditures (a) | (14,532 | ) | (19,005 | ) | ||||
Less growth capital expenditures (b) | (2,419 | ) | (12,625 | ) | ||||
Plus capital expenditures for strategic ventures (c) | 16 | 80 | ||||||
Plus total proceeds from sales of assets (d) | 2,819 | 6,781 | ||||||
Free cash flow | $ | (17,091 | ) | $ | (14,296 | ) | ||
(a) | Maintenance capital expenditures are necessary to sustain the Company’s current revenue streams and include contract renewal. |
(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 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, 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.
15
HARSCO CORPORATION RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited) | ||||
Twelve Months Ended | ||||
December 31 | ||||
(In thousands) | 2015 | |||
Net cash provided by operating activities | $ | 121,507 | ||
Less maintenance capital expenditures (a) | (92,545 | ) | ||
Less growth capital expenditures (b) | (31,007 | ) | ||
Plus capital expenditures for strategic ventures (c) | 439 | |||
Plus total proceeds from sales of assets (d) | 25,966 | |||
Free cash flow | $ | 24,360 | ||
(a) | Maintenance capital expenditures are necessary to sustain the Company’s current revenue streams and include contract renewal. |
(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 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. 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.
16
HARSCO CORPORATION RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited) | ||||||||
Projected Twelve Months Ending December 31 | ||||||||
2016 | ||||||||
(In millions) | Low | High | ||||||
Net cash provided by operating activities | $ | 152 | $ | 160 | ||||
Less capital expenditures (a) | (105 | ) | (95 | ) | ||||
Plus total proceeds from asset sales and capital expenditures for strategic ventures | 3 | 5 | ||||||
Free Cash Flow | $ | 50 | $ | 70 | ||||
(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. |
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. 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.
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HARSCO CORPORATION RECONCILIATION OF RETURN ON INVESTED CAPITAL EXCLUDING SPECIAL ITEMS TO NET LOSS FROM CONTINUING OPERATIONS AS REPORTED (a) (Unaudited) | ||||||||
Trailing Twelve Months for Period Ended March 31 | ||||||||
(In thousands) | 2016 | 2015 | ||||||
Net loss from continuing operations | $ | (18,197 | ) | $ | (13,565 | ) | ||
Special items: | ||||||||
Harsco Metals & Minerals Segment contract termination charges | 13,484 | 11,557 | ||||||
Harsco Metals & Minerals Segment separation costs | 13,209 | — | ||||||
Harsco Metals & Minerals Segment site exit and underperforming contract charges, net | 10,077 | 50,111 | ||||||
Harsco Metals & Minerals Segment salt cake processing and disposal charges | 7,000 | — | ||||||
Net loss on dilution of equity method investment | 10,304 | — | ||||||
Harsco Metals & Minerals Segment Project Orion charges | 5,070 | 11,992 | ||||||
Harsco Metals & Minerals Segment subcontractor settlement charge | 4,220 | — | ||||||
Harsco Metals & Minerals Segment multi-employer pension plan charge | 1,122 | — | ||||||
Harsco Infrastructure Segment loss on disposal | 1,000 | 2,669 | ||||||
Harsco Metals & Minerals Segment Brazilian labor claim reserves | — | 5,204 | ||||||
Strategic transaction review costs | — | 3,531 | ||||||
Harsco Infrastructure transaction costs | — | 753 | ||||||
Harsco Rail Segment grinder asset impairment charge | — | 590 | ||||||
Gains associated with exited Harsco Infrastructure operations retained | — | (2,205 | ) | |||||
Taxes on above special items | (12,021 | ) | (2,575 | ) | ||||
Net income from continuing operations, as adjusted | 35,268 | 68,062 | ||||||
After-tax interest expense (b) | 29,787 | 29,974 | ||||||
Net operating profit after tax as adjusted | $ | 65,055 | $ | 98,036 | ||||
Average equity | $ | 301,520 | $ | 494,522 | ||||
Plus average debt | 915,682 | 866,926 | ||||||
Average capital | $ | 1,217,202 | $ | 1,361,448 | ||||
Return on invested capital excluding special items | 5.3 | % | 7.2 | % | ||||
(a) | Return on invested capital excluding special items is net loss from continuing operations excluding special 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. |
(b) | The Company’s effective tax rate approximated 37% on an adjusted basis for both periods for interest expense. |
The Company’s management believes Return on invested capital excluding special 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 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. 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.
18
HARSCO CORPORATION RECONCILIATION OF RETURN ON INVESTED CAPITAL EXCLUDING SPECIAL ITEMS TO NET INCOME FROM CONTINUING OPERATIONS AS REPORTED (a) (Unaudited) | ||||
Year Ended December 31 | ||||
(In thousands) | 2015 | |||
Net income from continuing operations | $ | 7,312 | ||
Special items: | ||||
Harsco Metals & Minerals Segment contract termination charges, net | 13,484 | |||
Harsco Metals & Minerals Segment separation costs | 9,922 | |||
Harsco Metals & Minerals Segment salt cake processing and disposal charges | 7,000 | |||
Harsco Metals & Minerals Segment Project Orion charges | 5,070 | |||
Harsco Metals & Minerals Segment site exit and underperforming contract charges, net | 4,977 | |||
Harsco Metals & Minerals Segment subcontractor settlement charge | 4,220 | |||
Harsco Metals & Minerals Segment multi-employer pension plan charge | 1,122 | |||
Harsco Infrastructure Segment loss on disposal | 1,000 | |||
Taxes on above special items | (6,198 | ) | ||
Net income from continuing operations, as adjusted | 47,909 | |||
After-tax interest expense (b) | 29,486 | |||
Net operating profit after tax as adjusted | $ | 77,395 | ||
Average equity | $ | 308,182 | ||
Plus average debt | 910,955 | |||
Average capital | $ | 1,219,137 | ||
Return on invested capital excluding special items | 6.3 | % | ||
(a) | Return on invested capital excluding special items is net income from continuing operations excluding special 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. |
(b) | The Company’s effective tax rate approximated 37% on an adjusted basis for interest expense. |
The Company’s management believes Return on invested capital excluding special 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 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. 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.
19