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) October 31, 2018
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)) | |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. Results of Operations and Financial Condition.
On October 31, 2018, Harsco Corporation (the "Company") issued a Press Release announcing its earnings for the third quarter ended September 30, 2018. 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 exhibits are furnished as part of the Current Report on Form 8-K:
Exhibit 99.1. Earnings press release dated October 31, 2018.
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 | ||
October 31, 2018 (Date) | /s/ Peter F. Minan Peter F. Minan Senior Vice President and Chief Financial Officer | |
Exhibit Index | ||
Earnings press release dated October 31, 2018 | ||
Exhibit 99.1
Investor Contact David Martin 717.612.5628 damartin@harsco.com | Media Contact Jay Cooney 717.730.3683 jcooney@harsco.com |
FOR IMMEDIATE RELEASE
HARSCO CORPORATION REPORTS THIRD QUARTER 2018 RESULTS
• | Q3 Revenues Increased 16 Percent Compared with the Prior-Year Quarter |
• | Q3 GAAP Operating Income of $57 Million |
• | Operating Income Excluding Unusual Items Increased 47 Percent to $58 Million Compared with the Prior-Year Quarter, Exceeding Guidance Due Mainly to Strong Performance in Rail as Well as Lower Corporate Costs |
• | Diluted Earnings per Share (GAAP and Adjusted) Totaled $0.40, Increased From GAAP Diluted Earnings per Share of $0.16 and Adjusted Diluted Earnings per Share Excluding Unusual Items of $0.20 in the Prior-Year Quarter |
• | 2018 Full-Year Adjusted Operating Income Guidance Increased to Between $185 Million to $190 Million; Compared with Prior Range of $175 Million to $185 Million |
CAMP HILL, PA (October 31, 2018) - Harsco Corporation (NYSE: HSC) today reported third quarter 2018 results. On a U.S. GAAP ("GAAP") and adjusted basis, third quarter of 2018 diluted earnings per share from continuing operations were $0.40. This figure compares with third quarter of 2017 GAAP diluted earnings per share from continuing operations of $0.16 and adjusted diluted earnings per share from continuing operations of $0.20, which excluded a Metals & Minerals bad debt expense related to a customer that had entered administration in Australia.
GAAP operating income from continuing operations for the third quarter of 2018 was $57 million. Excluding unusual items, operating income was $58 million, which exceeded the Company's previously provided guidance range of $50 million to $55 million.
“Harsco’s businesses, once again, delivered strong quarterly performance reflecting successful execution on our strategic initiatives in recent years as well as positive economic trends in each of our business units,” said Chairman and CEO Nick Grasberger. “We achieved double-digit top line growth in the third quarter, with even greater improvements in profitability and capital returns. Our backlogs also grew significantly in the quarter.”
“This strong business momentum has again enabled us to raise our guidance for the year. Additionally, our visibility has strengthened into 2019, providing us with confidence in our ability to realize further meaningful improvement in revenues and other key performance metrics. Overall, our organization remains focused on developing market-leading innovations and executing against our other growth priorities as we strive to achieve our long-term targets.”
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Harsco Corporation—Selected Third Quarter Results
($ in millions, except per share amounts) | Q3 2018 | Q3 2017 (1) | ||||||
Revenues | $ | 445 | $ | 385 | ||||
Operating income from continuing operations - GAAP | $ | 57 | $ | 35 | ||||
Operating margin from continuing operations - GAAP | 12.8 | % | 9.0 | % | ||||
Diluted EPS from continuing operations - GAAP | $ | 0.40 | $ | 0.16 | ||||
Return on invested capital (TTM) - excluding unusual items | 15.4 | % | 10.7 | % | ||||
(1) 2017 figures reflect new pension accounting standard | ||||||||
Consolidated Third Quarter Operating Results
Total revenues were $445 million, an increase of 16 percent compared with the prior-year quarter as a result of higher revenues in each of the Company's business segments.
GAAP operating income from continuing operations was $57 million, while operating income excluding unusual items was $58 million for the third quarter of 2018. These figures compare with GAAP and adjusted operating income of $35 million and $39 million, respectively, in the same quarter of last year. Adjusted operating income in each of the Company's operating segments improved in comparison with the prior-year quarter. Also, Corporate spending declined relative to the prior-year period, and therefore contributed to the year-on-year increase in operating income.
The Company's GAAP and adjusted operating margins in the third quarter of 2018 increased to 12.8 percent and 12.9 percent, respectively, versus GAAP and adjusted operating margins of 9.0 percent and 10.2 percent in the third quarter of 2017.
Third Quarter Business Review
Metals & Minerals
($ in millions) | Q3 2018 | Q3 2017 (1) | %Change | ||||||||
Revenues | $ | 269 | $ | 255 | 5 | % | |||||
Operating income - GAAP | $ | 29 | $ | 24 | 24 | % | |||||
Operating margin - GAAP | 10.9 | % | 9.3 | % | |||||||
(1) 2017 figures reflect new pension accounting standard | |||||||||||
Revenues increased 5 percent to $269 million, mainly as a result of higher service levels, increased applied products sales and the Altek Group acquisition. These positive factors were partially offset by the impact of foreign currency translation, which lowered segment revenues by approximately $10 million relative to the prior-year quarter. The segment's operating income in the third quarter of 2018 totaled $29 million, or $30 million when excluding unusual items in the quarter. These figures compare with GAAP operating income of $24 million and adjusted operating income of $28 million in the prior-year period. The improvement in adjusted operating earnings is attributable to increased services demand and applied products contributions, as well as positive impacts from net contract changes compared with the third quarter of 2017. General and administrative investments (costs) to support the Company's growth strategy offset a portion of these benefits in the quarter. Lastly, the segment's operating margin was 10.9 percent and adjusted operating margin was 11.1 percent in the third quarter of 2018, compared with an operating margin of 9.3 percent and adjusted operating margin of 11.1 percent in the same quarter of 2017.
Industrial
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($ in millions) | Q3 2018 | Q3 2017 (1) | %Change | ||||||||
Revenues | $ | 94 | $ | 78 | 20 | % | |||||
Operating income - GAAP | $ | 14 | $ | 13 | 8 | % | |||||
Operating margin - GAAP | 14.9 | % | 16.5 | % | |||||||
(1) 2017 figures reflect new pension accounting standard | |||||||||||
Revenues increased 20 percent to $94 million, due to increased demand and higher product prices. Operating income increased to $14 million from $13 million, and note that the prior-year quarter included a $4 million asset-sale gain from monetizing an industrial grating facility in Mexico. After considering this item, the profit improvement was driven by increased underlying customer demand relative to the prior-year quarter. The segment's operating margin was 14.9 percent, compared with 16.5 percent (or 11.7 percent excluding the gain) in the comparable quarter last year.
Rail
($ in millions) | Q3 2018 | Q3 2017 (1) | %Change | ||||||||
Revenues | $ | 83 | $ | 51 | 62 | % | |||||
Operating income - GAAP | $ | 19 | $ | 4 | nm | ||||||
Operating margin - GAAP | 23.0 | % | 8.6 | % | |||||||
(1) 2017 figures reflect new pension accounting standard | |||||||||||
nm = not meaningful | |||||||||||
Revenues increased 62 percent to $83 million, as a result of increased demand for rail maintenance equipment and after-market parts. The segment's operating income improved to $19 million from $4 million in the prior-year quarter, with the increase attributable to positive demand trends, shipment timing and a more favorable business mix relative to the comparable quarter. Lastly, the segment's operating margin was 23.0 percent in the third quarter of 2018, compared with 8.6 percent in the same quarter of 2017.
Cash Flow
Net cash provided by operating activities totaled $48 million in the third quarter of 2018, compared with $36 million in the prior-year period. Further, free cash flow was $20 million in the third quarter of 2018, compared with $22 million in the prior-year period. The year-over-year change in free cash flow reflects an increase in net capital expenditures, partially offset by an increase in net cash from operating activities.
2018 Outlook
The Company's 2018 guidance is increased to reflect an improved outlook for Rail, as well as lower Corporate spending, as compared with the guidance provided along with the Company's second quarter 2018 results. Rail operating income is expected to increase more than previously anticipated due to improved demand and a more favorable mix of equipment and after-market parts sales. For the year, adjusted operating income in Rail is anticipated to be higher compared with 2017, as increased demand for after-market parts and Protran Technology products will be partially offset by a less favorable mix of equipment sales and lower contributions from contracting services. Corporate spending is also now expected to decline slightly relative to 2017.
The Company's outlook for the Metals & Minerals and Industrial segments are unchanged and the Company anticipates each will realize a meaningful operating income improvement in the fourth quarter of 2018 versus the comparable 2017 quarter. For the year relative to 2017, higher customer steel output and commodity prices, new contract ramp-ups, operational savings and improved profitability in certain applied products businesses in M&M are expected to be only partially offset by exited sites and investments to support M&M growth initiatives. For Industrial, demand growth, a more favorable product mix and manufacturing savings are expected to support a year-on-year increase in operating income compared with 2017.
Key highlights in the Outlook are included below.
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Full Year 2018
• | GAAP operating income for the full year is expected to range from $186 million to $191 million; versus $177 million to $187 million previously and compared with 2017 GAAP operating income of $145 million. |
• | Adjusted operating income for the full year is expected to range from $185 million to $190 million; versus $175 million to $185 million previously and compared with 2017 adjusted operating income of $150 million. |
• | GAAP diluted earnings per share from continuing operations for the full year are expected in the range of $1.35 to $1.40; versus $1.31 to $1.39 previously and compared with 2017 GAAP diluted earnings per share of $0.09. |
• | Adjusted diluted earnings per share from continuing operations for the full year are expected in the range of $1.24 to $1.29; versus $1.19 to $1.27 previously and compared with 2017 adjusted diluted earnings per share of $0.74. |
• | Free cash flow is expected in the range of $90 million to $100 million, unchanged from prior guidance and compared with $93 million in 2017. The free cash flow outlook anticipates net capital expenditures of between $115 million and $125 million in 2018. |
• | Net interest expense is forecasted to range from $36 million to $37 million; compared with $45 million in 2017. |
• | The operational effective tax rate is expected to range from 26 percent to 28 percent. |
• | Adjusted return on invested capital is expected to range from 14.5 percent to 15.5 percent; compared with 11.5 percent in 2017. |
Q4 2018
• | GAAP and adjusted operating income of $39 million to $44 million; compared with GAAP and adjusted operating income of $39 million in the prior-year quarter. |
• | GAAP and adjusted earnings per share from continuing operations of $0.26 to $0.31; compared with GAAP earnings per share of $(0.42) and adjusted earnings per share of $0.20 in the prior-year quarter. |
Conference Call
The Company will hold a conference call today at 9:00 a.m. Eastern Time to discuss its results and respond to questions from the investment community. The conference call will be broadcast live through the Harsco Corporation website at www.harsco.com. The Company will refer to a slide presentation that accompanies its formal remarks. The slide presentation will be available on the Company’s website.
The call can also be accessed by telephone by dialing (800) 611-4920, or (973) 200-3957 for international callers. Enter Conference ID number 60531310. Listeners are advised to dial in at least five minutes prior to the call.
Replays will be available via the Harsco website and also by telephone through November 14, 2018 by dialing (800) 585-8367, (855) 859-2056 or (404) 537-3406.
Forward-Looking Statements
The nature of the Company's business and the many countries in which it operates subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the "safe harbor" provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein. Forward-looking statements contained herein could include, among other things, statements about management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, sales, cash flows, and earnings. Forward-looking statements can be
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identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "outlook," "plan" or other comparable terms.
Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including general economic conditions; (2) changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs;(3) changes in the performance of equity and bond markets that could affect, among other things, the valuation of the assets in the Company's pension plans and the accounting for pension assets, liabilities and expenses; (4) changes in governmental laws and regulations, including environmental, occupational health and safety, tax and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) the Company's inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates; (7) failure to effectively prevent, detect or recover from breaches in the Company's cybersecurity infrastructure; (8) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (9) disruptions associated with labor disputes and increased operating costs associated with union organization; (10) the seasonal nature of the Company's business; (11) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all; (12) the integration of the Company's strategic acquisitions; (13) the amount and timing of repurchases of the Company's common stock, if any; (14) the outcome of any disputes with customers, contractors and subcontractors; (15) the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability; (16) implementation of environmental remediation matters; (17) risk and uncertainty associated with intangible assets; and (18) other risk factors listed from time to time in the Company's SEC reports. A further discussion of these, along with other potential risk factors, can be found in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2017. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements except as may be required by law.
About Harsco
Harsco Corporation serves key industries that are fundamental to worldwide economic development, including steel and metals production, railways and energy. Harsco’s common stock is a component of the S&P SmallCap 600 Index and the Russell 2000 Index. Additional information can be found at www.harsco.com.
# # #
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HARSCO CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30 | September 30 | ||||||||||||||||
(In thousands, except per share amounts) | 2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues from continuing operations: | |||||||||||||||||
Service revenues | $ | 250,890 | $ | 246,144 | $ | 763,815 | $ | 738,059 | |||||||||
Product revenues | 194,585 | 138,509 | 521,670 | 414,033 | |||||||||||||
Total revenues | 445,475 | 384,653 | 1,285,485 | 1,152,092 | |||||||||||||
Costs and expenses from continuing operations: | |||||||||||||||||
Cost of services sold | 194,459 | 194,483 | 589,738 | 577,200 | |||||||||||||
Cost of products sold | 132,262 | 95,849 | 367,218 | 295,367 | |||||||||||||
Selling, general and administrative expenses | 59,297 | 59,993 | 175,307 | 168,315 | |||||||||||||
Research and development expenses | 1,720 | 936 | 4,377 | 3,096 | |||||||||||||
Other (income) expenses, net | 628 | (1,237 | ) | 1,570 | 1,729 | ||||||||||||
Total costs and expenses | 388,366 | 350,024 | 1,138,210 | 1,045,707 | |||||||||||||
Operating income from continuing operations | 57,109 | 34,629 | 147,275 | 106,385 | |||||||||||||
Interest income | 574 | 610 | 1,649 | 1,615 | |||||||||||||
Interest expense | (9,665 | ) | (12,122 | ) | (29,241 | ) | (36,180 | ) | |||||||||
Defined benefit pension income (expense) | 928 | (680 | ) | 2,671 | (2,054 | ) | |||||||||||
Loss on early extinguishment of debt | (125 | ) | — | (1,159 | ) | — | |||||||||||
Income from continuing operations before income taxes | 48,821 | 22,437 | 121,195 | 69,766 | |||||||||||||
Income tax expense | (13,833 | ) | (8,270 | ) | (24,043 | ) | (25,757 | ) | |||||||||
Income from continuing operations | 34,988 | 14,167 | 97,152 | 44,009 | |||||||||||||
Discontinued operations: | |||||||||||||||||
Loss on disposal of discontinued business | (433 | ) | (578 | ) | (274 | ) | (538 | ) | |||||||||
Income tax benefit related to discontinued business | 96 | 207 | 61 | 193 | |||||||||||||
Loss from discontinued operations | (337 | ) | (371 | ) | (213 | ) | (345 | ) | |||||||||
Net income | 34,651 | 13,796 | 96,939 | 43,664 | |||||||||||||
Less: Net income attributable to noncontrolling interests | (1,804 | ) | (498 | ) | (5,795 | ) | (2,438 | ) | |||||||||
Net income attributable to Harsco Corporation | $ | 32,847 | $ | 13,298 | $ | 91,144 | $ | 41,226 | |||||||||
Amounts attributable to Harsco Corporation common stockholders: | |||||||||||||||||
Income from continuing operations, net of tax | $ | 33,184 | $ | 13,669 | $ | 91,357 | $ | 41,571 | |||||||||
Loss from discontinued operations, net of tax | (337 | ) | (371 | ) | (213 | ) | (345 | ) | |||||||||
Net income attributable to Harsco Corporation common stockholders | $ | 32,847 | $ | 13,298 | $ | 91,144 | $ | 41,226 | |||||||||
Weighted-average shares of common stock outstanding | 80,950 | 80,637 | 80,821 | 80,519 | |||||||||||||
Basic earnings per common share attributable to Harsco Corporation common stockholders: | |||||||||||||||||
Continuing operations | $ | 0.41 | $ | 0.17 | $ | 1.13 | $ | 0.52 | |||||||||
Discontinued operations | — | — | — | — | |||||||||||||
Basic earnings per share attributable to Harsco Corporation common stockholders | $ | 0.41 | $ | 0.16 | (a) | $ | 1.13 | $ | 0.51 | (a) | |||||||
Diluted weighted-average shares of common stock outstanding | 83,879 | 83,136 | 83,690 | 82,753 | |||||||||||||
Diluted earnings per common share attributable to Harsco Corporation common stockholders: | |||||||||||||||||
Continuing operations | $ | 0.40 | $ | 0.16 | $ | 1.09 | $ | 0.50 | |||||||||
Discontinued operations | — | — | — | — | |||||||||||||
Diluted earnings per share attributable to Harsco Corporation common stockholders | $ | 0.39 | (a) | $ | 0.16 | $ | 1.09 | $ | 0.50 | ||||||||
(a) Does not total due to rounding.
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HARSCO CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) | ||||||||
(In thousands) | September 30 2018 | December 31 2017 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 61,736 | $ | 62,098 | ||||
Restricted cash | 2,815 | 4,111 | ||||||
Trade accounts receivable, net | 304,165 | 288,034 | ||||||
Other receivables | 55,156 | 20,224 | ||||||
Inventories | 137,768 | 178,293 | ||||||
Current portion of contract assets | 27,870 | — | ||||||
Other current assets | 42,068 | 39,332 | ||||||
Total current assets | 631,578 | 592,092 | ||||||
Property, plant and equipment, net | 460,498 | 479,747 | ||||||
Goodwill | 420,351 | 401,758 | ||||||
Intangible assets, net | 83,598 | 38,251 | ||||||
Contract assets | 3,566 | — | ||||||
Deferred income tax assets | 39,824 | 51,574 | ||||||
Other assets | 21,002 | 15,263 | ||||||
Total assets | $ | 1,660,417 | $ | 1,578,685 | ||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Short-term borrowings | $ | 7,655 | $ | 8,621 | ||||
Current maturities of long-term debt | 7,149 | 11,208 | ||||||
Accounts payable | 149,216 | 126,249 | ||||||
Accrued compensation | 48,617 | 60,451 | ||||||
Income taxes payable | 11,432 | 5,106 | ||||||
Insurance liabilities | 41,436 | 11,167 | ||||||
Current portion of advances on contracts | 43,682 | 117,958 | ||||||
Other current liabilities | 121,887 | 133,368 | ||||||
Total current liabilities | 431,074 | 474,128 | ||||||
Long-term debt | 625,440 | 566,794 | ||||||
Insurance liabilities | 21,761 | 22,385 | ||||||
Retirement plan liabilities | 213,156 | 259,367 | ||||||
Advances on contracts | 10,322 | — | ||||||
Other liabilities | 54,273 | 40,846 | ||||||
Total liabilities | 1,356,026 | 1,363,520 | ||||||
HARSCO CORPORATION STOCKHOLDERS’ EQUITY | ||||||||
Common stock | 141,837 | 141,110 | ||||||
Additional paid-in capital | 187,930 | 180,201 | ||||||
Accumulated other comprehensive loss | (555,291 | ) | (546,582 | ) | ||||
Retained earnings | 1,252,840 | 1,157,801 | ||||||
Treasury stock | (765,765 | ) | (762,079 | ) | ||||
Total Harsco Corporation stockholders’ equity | 261,551 | 170,451 | ||||||
Noncontrolling interests | 42,840 | 44,714 | ||||||
Total equity | 304,391 | 215,165 | ||||||
Total liabilities and equity | $ | 1,660,417 | $ | 1,578,685 | ||||
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HARSCO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 34,651 | $ | 13,796 | $ | 96,939 | $ | 43,664 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 30,319 | 31,024 | 92,324 | 91,519 | ||||||||||||
Amortization | 3,054 | 1,981 | 7,620 | 5,989 | ||||||||||||
Deferred income tax expense (benefit) | 1,656 | (1,415 | ) | 1,996 | 2,018 | |||||||||||
Dividends from unconsolidated entities | 88 | 74 | 88 | 93 | ||||||||||||
Other, net | (552 | ) | (3,141 | ) | 2,485 | 2,567 | ||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | (7,577 | ) | 16,173 | (29,022 | ) | (26,633 | ) | |||||||||
Inventories | (7,677 | ) | (23,816 | ) | (18,852 | ) | (30,112 | ) | ||||||||
Contract assets | (9,034 | ) | — | (10,427 | ) | — | ||||||||||
Accounts payable | 10,188 | 4,786 | 17,547 | 9,045 | ||||||||||||
Accrued compensation | 5,607 | 5,344 | (10,438 | ) | 979 | |||||||||||
Advances on contracts | 777 | (5,055 | ) | (12,339 | ) | (6,534 | ) | |||||||||
Retirement plan liabilities, net | (10,413 | ) | (6,669 | ) | (28,743 | ) | (17,890 | ) | ||||||||
Other assets and liabilities | (2,772 | ) | 3,044 | (14,164 | ) | 8,200 | ||||||||||
Net cash provided by operating activities | 48,315 | 36,126 | 95,014 | 82,905 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property, plant and equipment | (34,806 | ) | (23,431 | ) | (91,302 | ) | (64,131 | ) | ||||||||
Purchases of businesses, net of cash acquired | — | — | (56,389 | ) | — | |||||||||||
Proceeds from sales of assets | 5,943 | 9,212 | 9,096 | 10,746 | ||||||||||||
Net proceeds from settlement of foreign currency forward exchange contracts | 6,186 | 280 | 3,244 | 4,450 | ||||||||||||
Net cash used by investing activities | (22,677 | ) | (13,939 | ) | (135,351 | ) | (48,935 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Short-term borrowings, net | 2,434 | (387 | ) | (543 | ) | 1,915 | ||||||||||
Current maturities and long-term debt: | ||||||||||||||||
Additions | 3,300 | 2,000 | 128,158 | 26,000 | ||||||||||||
Reductions | (31,911 | ) | (18,533 | ) | (75,104 | ) | (65,245 | ) | ||||||||
Dividends paid to noncontrolling interests | (837 | ) | (14 | ) | (5,446 | ) | (1,783 | ) | ||||||||
Sale (purchase) of noncontrolling interests | — | (3,412 | ) | 477 | (3,412 | ) | ||||||||||
Stock-based compensation - Employee taxes paid | (71 | ) | (281 | ) | (3,685 | ) | (1,607 | ) | ||||||||
Deferred financing costs | (183 | ) | — | (537 | ) | (42 | ) | |||||||||
Other financing activities, net | — | (2 | ) | — | (370 | ) | ||||||||||
Net cash provided (used) by financing activities | (27,268 | ) | (20,629 | ) | 43,320 | (44,544 | ) | |||||||||
Effect of exchange rate changes on cash and cash equivalents, including restricted cash | (906 | ) | 1,029 | (4,641 | ) | 4,058 | ||||||||||
Net increase (decrease) in cash and cash equivalents, including restricted cash | (2,536 | ) | 2,587 | (1,658 | ) | (6,516 | ) | |||||||||
Cash and cash equivalents, including restricted cash, at beginning of period | 67,087 | 62,776 | 66,209 | 71,879 | ||||||||||||
Cash and cash equivalents, including restricted cash, at end of period | $ | 64,551 | $ | 65,363 | $ | 64,551 | $ | 65,363 | ||||||||
8
HARSCO CORPORATION REVIEW OF OPERATIONS BY SEGMENT (Unaudited) | ||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
September 30, 2018 | September 30, 2017 | |||||||||||||||
(In thousands) | Revenues | Operating Income (Loss) | Revenues | Operating Income (Loss) | ||||||||||||
Harsco Metals & Minerals | $ | 268,881 | $ | 29,338 | $ | 255,163 | $ | 23,613 | ||||||||
Harsco Industrial | 93,912 | 13,959 | 78,318 | 12,954 | ||||||||||||
Harsco Rail | 82,682 | 19,000 | 51,134 | 4,391 | ||||||||||||
Corporate | — | (5,188 | ) | 38 | (6,329 | ) | ||||||||||
Consolidated Totals | $ | 445,475 | $ | 57,109 | $ | 384,653 | $ | 34,629 | ||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2018 | September 30, 2017 | |||||||||||||||
(In thousands) | Revenues | Operating Income (Loss) | Revenues | Operating Income (Loss) | ||||||||||||
Harsco Metals & Minerals | $ | 805,924 | $ | 92,734 | $ | 761,503 | $ | 80,834 | ||||||||
Harsco Industrial | 269,575 | 40,550 | 217,766 | 25,088 | ||||||||||||
Harsco Rail | 209,912 | 29,570 | 172,716 | 18,800 | ||||||||||||
Corporate | 74 | (15,579 | ) | 107 | (18,337 | ) | ||||||||||
Consolidated Totals | $ | 1,285,485 | $ | 147,275 | $ | 1,152,092 | $ | 106,385 | ||||||||
9
HARSCO CORPORATION RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS EXCLUDING UNUSUAL ITEMS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Diluted earnings per share from continuing operations as reported | $ | 0.40 | $ | 0.16 | $ | 1.09 | $ | 0.50 | ||||||||
Harsco Metals & Minerals adjustment to slag disposal accrual (a) | — | — | (0.04 | ) | — | |||||||||||
Altek acquisition costs (b) | — | — | 0.01 | — | ||||||||||||
Loss on early extinguishment of debt (c) | — | — | 0.01 | — | ||||||||||||
Harsco Metals & Minerals Segment bad debt expense (d) | — | 0.06 | — | 0.06 | ||||||||||||
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability (e) | — | — | — | — | ||||||||||||
Taxes on above unusual items (f) | — | (0.02 | ) | — | (0.02 | ) | ||||||||||
Deferred tax asset valuation allowance adjustment (g) | — | — | (0.10 | ) | — | |||||||||||
Adjusted diluted earnings per share from continuing operations excluding unusual items | $ | 0.40 | $ | 0.20 | $ | 0.98 | (h) | $ | 0.54 | |||||||
(a) | Harsco Metals & Minerals adjustment to previously accrued amounts related to the disposal of certain slag material in Latin America (nine months 2018 $3.2 million pre-tax). |
(b) | Costs associated with the acquisition of Altek Europe Holdings Limited and its affiliated entities ("Altek") recorded in the Harsco Metals & Minerals Segment (nine months 2018 $0.8 million pretax) and at Corporate (nine months 2018 $0.4 million pretax). |
(c) | Loss on early extinguishment of debt associated with the amending of the Company's existing Senior Secured Credit Facility in order to reduce the interest rate applicable to the Term Loan Facility (nine months 2018 $1.0 million pre-tax). |
(d) | Bad debt expense incurred in Harsco Metals & Minerals Segment (Q3 and nine months 2017 $4.6 million pre-tax). |
(e) | Fair value adjustment to contingent consideration liability related to the acquisition of Altek (Q3 and nine months 2018 $0.4 million pre-tax). The Company adjusts Operating income and Diluted earnings per share from continuing operations to exclude the impact of the change in fair value to the acquisition-related contingent consideration liability for the Altek acquisition because it believes that the adjustment for this item more closely correlates the reported financial measures with the ordinary and ongoing course of the Company's operations. |
(f) | 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. |
(g) | Adjustment of certain existing deferred tax asset valuation allowances as a result of the Altek acquisition (nine months 2018 $8.3 million). |
(h) | Does not total due to rounding. |
The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
10
HARSCO CORPORATION RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS EXCLUDING UNUSUAL ITEMS TO DILUTED LOSS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited) | |||||
Three Months Ended | |||||
December 31 | |||||
2017 | |||||
Diluted loss per share from continuing operations as reported | $ | (0.42 | ) | ||
Impact of U.S. tax reform on income tax benefit (expense) (a) | 0.59 | ||||
Loss on early extinguishment of debt (b) | 0.03 | ||||
Taxes on above unusual items (c) | (0.01 | ) | |||
Adjusted diluted earnings per share from continuing operations excluding unusual items | $ | 0.20 | (d) | ||
(a) | The Company recorded a charge as a result of revaluing net deferred tax assets and liabilities as a result of U.S. tax reform ($48.7 million). |
(b) | Loss on early extinguishment of debt recorded at Corporate ($2.3 million pre-tax). |
(c) | 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. |
(d) | Does not total due to rounding. |
The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
11
HARSCO CORPORATION RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS, EXCLUDING UNUSUAL ITEMS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited) | |||||
Twelve Months Ended | |||||
December 31 | |||||
2017 | |||||
Diluted earnings per share from continuing operations as reported | $ | 0.09 | |||
Impact of U.S. Tax reform on income tax benefit (expense) (a) | 0.59 | ||||
Harsco Metals & Minerals Segment bad debt expense (b) | 0.06 | ||||
Loss on early extinguishment of debt (c) | 0.03 | ||||
Taxes on above unusual items (d) | (0.02 | ) | |||
Adjusted diluted earnings per share from continuing operations excluding unusual items | $ | 0.74 | (e) | ||
(a) | The Company recorded a charge as a result of revaluing net deferred tax assets and liabilities as a result of U.S. tax reform ($48.7 million). |
(b) | Bad debt expense incurred in the Harsco Metals & Minerals Segment ($4.6 million pre-tax). |
(c) | Loss on early extinguishment of debt recorded at Corporate ($2.3 million pre-tax). |
(d) | 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. |
(e) | Does not total due to rounding. |
The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
12
HARSCO CORPORATION REVIEW OF OPERATIONS BY SEGMENT EXCLUDING UNUSUAL ITEMS (Unaudited) | ||||||||||||||||||||
(In thousands) | Harsco Metals & Minerals | Harsco Industrial | Harsco Rail | Corporate | Consolidated Totals | |||||||||||||||
Three Months Ended September 30, 2018: | ||||||||||||||||||||
Adjusted operating income (loss), excluding unusual items | $ | 29,750 | $ | 13,959 | $ | 19,000 | $ | (5,188 | ) | $ | 57,521 | |||||||||
Revenues as reported | $ | 268,881 | $ | 93,912 | $ | 82,682 | $ | — | $ | 445,475 | ||||||||||
Adjusted operating margin (%) excluding unusual items | 11.1 | % | 14.9 | % | 23.0 | % | 12.9 | % | ||||||||||||
Three Months Ended September 30, 2017: | ||||||||||||||||||||
Adjusted operating income (loss), excluding unusual items | $ | 28,202 | $ | 12,954 | $ | 4,391 | $ | (6,329 | ) | $ | 39,218 | |||||||||
Revenues as reported | $ | 255,163 | $ | 78,318 | $ | 51,134 | $ | 38 | $ | 384,653 | ||||||||||
Adjusted operating margin (%) excluding unusual items | 11.1 | % | 16.5 | % | 8.6 | % | 10.2 | % | ||||||||||||
Nine Months Ended September 30, 2018: | ||||||||||||||||||||
Adjusted operating income (loss) excluding unusual items | $ | 90,676 | $ | 40,550 | $ | 29,570 | $ | (15,148 | ) | $ | 145,648 | |||||||||
Revenues as reported | $ | 805,924 | $ | 269,575 | $ | 209,912 | $ | 74 | $ | 1,285,485 | ||||||||||
Adjusted operating margin (%) excluding unusual items | 11.3 | % | 15.0 | % | 14.1 | % | 11.3 | % | ||||||||||||
Nine Months Ended September 30, 2017: | ||||||||||||||||||||
Adjusted operating income (loss), excluding unusual items | $ | 85,423 | $ | 25,088 | $ | 18,800 | $ | (18,337 | ) | $ | 110,974 | |||||||||
Revenues as reported | $ | 761,503 | $ | 217,766 | $ | 172,716 | $ | 107 | $ | 1,152,092 | ||||||||||
Adjusted operating margin (%) excluding unusual items | 11.2 | % | 11.5 | % | 10.9 | % | 9.6 | % | ||||||||||||
(a) On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension costs ("NPPC") in the statement of operations. Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations. The amounts presented reflect the adoption of these changes.
The Company’s management believes Adjusted operating margin (%) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
13
HARSCO CORPORATION RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited) | ||||||||||||||||||||
(In thousands) | Harsco Metals & Minerals | Harsco Industrial | Harsco Rail | Corporate | Consolidated Totals | |||||||||||||||
Three Months Ended September 30, 2018: | ||||||||||||||||||||
Operating income (loss) as reported | $ | 29,338 | $ | 13,959 | $ | 19,000 | $ | (5,188 | ) | $ | 57,109 | |||||||||
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability | 412 | — | — | — | 412 | |||||||||||||||
Adjusted operating income (loss), excluding unusual items | $ | 29,750 | $ | 13,959 | $ | 19,000 | $ | (5,188 | ) | $ | 57,521 | |||||||||
Revenues as reported | $ | 268,881 | $ | 93,912 | $ | 82,682 | $ | — | $ | 445,475 | ||||||||||
Three Months Ended September 30, 2017: | ||||||||||||||||||||
Operating income (loss) as reported (a) | $ | 23,613 | $ | 12,954 | $ | 4,391 | $ | (6,329 | ) | $ | 34,629 | |||||||||
Harsco Metals & Minerals bad debt expense | 4,589 | — | — | — | 4,589 | |||||||||||||||
Adjusted operating income (loss), excluding unusual items | $ | 28,202 | $ | 12,954 | $ | 4,391 | $ | (6,329 | ) | $ | 39,218 | |||||||||
Revenues as reported | $ | 255,163 | $ | 78,318 | $ | 51,134 | $ | 38 | $ | 384,653 | ||||||||||
(a) On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension cost ("NPPC") in the statement of operations. Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations. The amounts presented reflect the adoption of these changes.
The Company’s management believes Adjusted operating income (loss) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
14
HARSCO CORPORATION RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited) | |||||||||||||||||||||
(In thousands) | Harsco Metals & Minerals | Harsco Industrial | Harsco Rail | Corporate | Consolidated Totals | ||||||||||||||||
Nine Months Ended September 30, 2018: | |||||||||||||||||||||
Operating income (loss) as reported | $ | 92,734 | $ | 40,550 | $ | 29,570 | $ | (15,579 | ) | $ | 147,275 | ||||||||||
Harsco Metals & Minerals adjustment to slag disposal accrual | (3,223 | ) | — | — | — | (3,223 | ) | ||||||||||||||
Altek acquisition costs | 753 | — | — | 431 | 1,184 | ||||||||||||||||
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability | 412 | — | — | — | 412 | ||||||||||||||||
Adjusted operating income (loss), excluding unusual items | $ | 90,676 | $ | 40,550 | $ | 29,570 | $ | (15,148 | ) | $ | 145,648 | ||||||||||
Revenues as reported | $ | 805,924 | $ | 269,575 | $ | 209,912 | $ | 74 | $ | 1,285,485 | |||||||||||
Nine Months Ended September 30, 2017: | |||||||||||||||||||||
Operating income (loss) as reported (a) | $ | 80,834 | $ | 25,088 | $ | 18,800 | $ | (18,337 | ) | $ | 106,385 | ||||||||||
Harsco Metals & Minerals bad debt expense | 4,589 | — | — | — | $ | 4,589 | |||||||||||||||
Adjusted operating income (loss), excluding unusual items | $ | 85,423 | $ | 25,088 | $ | 18,800 | $ | (18,337 | ) | $ | 110,974 | ||||||||||
Revenues as reported | $ | 761,503 | $ | 217,766 | $ | 172,716 | $ | 107 | $ | 1,152,092 | |||||||||||
(a) On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension cost ("NPPC ") in the statement of operations. Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations. The amounts presented reflect the adoption of these changes.
The Company’s management believes Adjusted operating income (loss) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
15
HARSCO CORPORATION RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS), EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited) | ||||||||||||||||||||
(In thousands) | Harsco Metals & Minerals | Harsco Industrial | Harsco Rail | Corporate | Consolidated Totals | |||||||||||||||
Twelve Months Ended December 31, 2017: | ||||||||||||||||||||
Operating income (loss) as reported (a) | $ | 102,362 | $ | 35,532 | $ | 32,954 | $ | (25,455 | ) | $ | 145,393 | |||||||||
Harsco Metals & Minerals bad debt expense | 4,589 | — | — | — | 4,589 | |||||||||||||||
Adjusted operating income (loss), excluding unusual items | $ | 106,951 | $ | 35,532 | $ | 32,954 | $ | (25,455 | ) | $ | 149,982 | |||||||||
(a) On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension cost ("NPPC") in the statement of operations. Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations. The amounts presented reflect the adoption of these changes.
The Company’s management believes Adjusted operating income (loss) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
16
HARSCO CORPORATION RECONCILIATION OF FREE CASH FLOW TO NET CASH USED BY OPERATING ACTIVITIES (Unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Net cash used by operating activities | $ | 48,315 | $ | 36,126 | $ | 95,014 | $ | 82,905 | ||||||||
Less capital expenditures | (34,806 | ) | (23,431 | ) | (91,302 | ) | (64,131 | ) | ||||||||
Plus capital expenditures for strategic ventures (a) | 437 | 36 | 972 | 432 | ||||||||||||
Plus total proceeds from sales of assets (b) | 5,943 | 9,212 | 9,096 | 10,746 | ||||||||||||
Free cash flow | $ | 19,889 | $ | 21,943 | $ | 13,780 | $ | 29,952 | ||||||||
(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 Metals & Minerals Segment. |
The Company's management believes that free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds for planning and performance evaluation purposes. It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
17
HARSCO CORPORATION RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited) | ||||
Twelve Months Ended | ||||
December 31 | ||||
(In thousands) | 2017 | |||
Net cash provided by operating activities | $ | 176,892 | ||
Less capital expenditures | (98,314 | ) | ||
Plus capital expenditures for strategic ventures (a) | 865 | |||
Plus total proceeds from sales of assets (b) | 13,418 | |||
Free cash flow | $ | 92,861 | ||
(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 Metals & Minerals Segment. |
The Company's management believes that Free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from (used in) operations less capital expenditures net of asset sales proceeds. It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
18
HARSCO CORPORATION RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited) | ||||||||
Projected Twelve Months Ending December 31 | ||||||||
2018 | ||||||||
(In millions) | Low | High | ||||||
Net cash provided by operating activities | $ | 205 | $ | 225 | ||||
Less capital expenditures | (125 | ) | (133 | ) | ||||
Plus total proceeds from asset sales and capital expenditures for strategic ventures | 10 | 8 | ||||||
Free cash flow | $ | 90 | $ | 100 | ||||
The Company's management believes that free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds for planning and performance evaluation purposes. It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.
19
HARSCO CORPORATION RECONCILIATION OF RETURN ON INVESTED CAPITAL EXCLUDING UNUSUAL ITEMS TO NET INCOME (LOSS) FROM CONTINUING OPERATIONS AS REPORTED (a) (Unaudited) | ||||||||
Trailing Twelve Months for Period Ended September 30 | ||||||||
(In thousands) | 2018 | 2017 | ||||||
Income from continuing operations | $ | 64,791 | $ | 30,151 | ||||
Unusual items: | ||||||||
Impact of U.S. tax reform on income tax benefit | 48,680 | — | ||||||
Harsco Metals & Minerals Segment adjustment to slag disposal accrual | (3,223 | ) | — | |||||
Loss on early extinguishment of debt | 3,299 | 35,337 | ||||||
Altek acquisition costs | 1,184 | — | ||||||
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability | 412 | — | ||||||
Harsco Rail Segment forward contract loss provision | — | 5,000 | ||||||
Harsco Metals & Minerals Segment bad debt expense | — | 4,589 | ||||||
Harsco Metals & Minerals Segment cumulative translation adjustment liquidation | — | (1,157 | ) | |||||
Taxes on above unusual items (b) | (804 | ) | (12,615 | ) | ||||
Deferred tax asset valuation allowance adjustment | (8,292 | ) | — | |||||
Net income from continuing operations, as adjusted | 106,047 | 61,305 | ||||||
After-tax interest expense (c) | 29,679 | 30,140 | ||||||
Net operating profit after tax as adjusted | $ | 135,726 | $ | 91,445 | ||||
Average equity | $ | 250,595 | $ | 194,242 | ||||
Plus average debt | 630,474 | 656,437 | ||||||
Average capital | $ | 881,069 | $ | 850,679 | ||||
Return on invested capital excluding unusual items | 15.4 | % | 10.7 | % | ||||
(a) | Return on invested capital excluding unusual items is net income (loss) from continuing operations excluding unusual items, and after-tax interest expense, divided by average capital for the year. The Company uses a trailing twelve month average for computing average capital. |
(b) | 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. |
(c) | The Company’s effective tax rate approximated 37% for the trailing twelve months for period ended September 30, 2017 and for the trailing twelve months for period ended September 30, 2018, 37% was used for October 1, 2017 through December 31, 2017 and 23% was used for January 1, 2018 through September 30, 2018, on an adjusted basis, for interest expense. The lower rate for 2018 is due to U.S. Tax reform. |
The Company’s management believes Return on invested capital excluding unusual items, which is a non-U.S. GAAP financial measure, is meaningful in evaluating the efficiency and effectiveness of the capital invested in the Company’s business. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, net income or other information provided in accordance with U.S. GAAP.
20
HARSCO CORPORATION RECONCILIATION OF RETURN ON INVESTED CAPITAL EXCLUDING UNUSUAL ITEMS TO NET INCOME FROM CONTINUING OPERATIONS AS REPORTED (a) (Unaudited) | ||||
Year Ended December 31 | ||||
(In thousands) | 2017 | |||
Income from continuing operations | $ | 11,648 | ||
Unusual items: | ||||
Impact of U.S. tax reform on income tax benefit | 48,680 | |||
Harsco Metals & Minerals Segment bad debt expense | 4,589 | |||
Loss on early extinguishment of debt | 2,265 | |||
Taxes on above unusual items (b) | (2,052 | ) | ||
Net income from continuing operations, as adjusted | 65,130 | |||
After-tax interest expense (c) | 29,957 | |||
Net operating profit after tax as adjusted | $ | 95,087 | ||
Average equity | $ | 189,560 | ||
Plus average debt | 638,964 | |||
Average capital | $ | 828,524 | ||
Return on invested capital excluding unusual items | 11.5 | % | ||
(a) | Return on invested capital excluding unusual items is net income from continuing operations excluding unusual items, and after-tax interest expense, divided by average capital for the year. The Company uses a trailing twelve month average for computing average capital. |
(b) | 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. |
(c) | The Company’s effective tax rate approximated 37% for the year ended December 31, 2017 on an adjusted basis, for interest expense. |
The Company’s management believes Return on invested capital excluding unusual items, which is a non-U.S. GAAP financial measure, is meaningful in evaluating the efficiency and effectiveness of the capital invested in the Company’s business. Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, net income or other information provided in accordance with U.S. GAAP.
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