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

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

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

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

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

Harsco Corporation—Selected Third Quarter Results

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

Consolidated Third Quarter Operating Results

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

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

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

Third Quarter Business Review

Metals & Minerals

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

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

Industrial

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

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

Rail

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

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

Cash Flow

Net cash provided by operating activities totaled $48 million in the third quarter of 2018, compared with $36 million in the prior-year period. Further, free cash flow was $20 million in the third quarter of 2018, compared with $22 million in the prior-year period. The year-over-year change in free cash flow reflects an increase in net capital expenditures, partially offset by an increase in net cash from operating activities.

2018 Outlook

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

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

Key highlights in the Outlook are included below.

Full Year 2018

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

Q4 2018

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

Conference Call

The Company will hold a conference call today at 9:00 a.m. Eastern Time to discuss its results and respond to questions from the investment community. The conference call will be broadcast live through the Harsco Corporation website at www.harsco.com. The Company will refer to a slide presentation that accompanies its formal remarks. The slide presentation will be available on the Company’s website.

The call can also be accessed by telephone by dialing (800) 611-4920, or (973) 200-3957 for international callers. Enter Conference ID number 60531310. Listeners are advised to dial in at least five minutes prior to the call.

Replays will be available via the Harsco website and also by telephone through November 14, 2018 by dialing (800) 585-8367, (855) 859-2056 or (404) 537-3406.

Forward-Looking Statements

The nature of the Company's business and the many countries in which it operates subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the "safe harbor" provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein. Forward-looking statements contained herein could include, among other things, statements about management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, sales, cash flows, and earnings. Forward-looking statements can be identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "outlook," "plan" or other comparable terms.

Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including general economic conditions; (2) changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs; (3) changes in the performance of equity and bond markets that could affect, among other things, the valuation of the assets in the Company's pension plans and the accounting for pension assets, liabilities and expenses; (4) changes in governmental laws and regulations, including environmental, occupational health and safety, tax and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) the Company's inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates; (7) failure to effectively prevent, detect or recover from breaches in the Company's cybersecurity infrastructure; (8) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (9) disruptions associated with labor disputes and increased operating costs associated with union organization; (10) the seasonal nature of the Company's business; (11) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all; (12) the integration of the Company's strategic acquisitions; (13) the amount and timing of repurchases of the Company's common stock, if any; (14) the outcome of any disputes with customers, contractors and subcontractors; (15) the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability; (16) implementation of environmental remediation matters; (17) risk and uncertainty associated with intangible assets; and (18) other risk factors listed from time to time in the Company's SEC reports.  A further discussion of these, along with other potential risk factors, can be found in Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended  December 31, 2017.  The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict.  Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.  The Company undertakes no duty to update forward-looking statements except as may be required by law.

About Harsco

Harsco Corporation serves key industries that are fundamental to worldwide economic development, including steel and metals production, railways and energy. Harsco’s common stock is a component of the S&P SmallCap 600 Index and the Russell 2000 Index. Additional information can be found at www.harsco.com.

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


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

(a) Does not total due to rounding.


HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
    

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


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


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



HARSCO CORPORATION
RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS EXCLUDING UNUSUAL ITEMS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited)
  Three Months Ended Nine Months Ended
  September 30 September 30
  2018 2017 2018 2017
Diluted earnings per share from continuing operations as reported $0.40  $0.16  $1.09  $0.50 
Harsco Metals & Minerals adjustment to slag disposal accrual (a)     (0.04)  
Altek acquisition costs (b)     0.01   
Loss on early extinguishment of debt (c)     0.01   
Harsco Metals & Minerals Segment bad debt expense (d)   0.06    0.06 
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability (e)        
Taxes on above unusual items (f)   (0.02)   (0.02)
Deferred tax asset valuation allowance adjustment (g)     (0.10)  
Adjusted diluted earnings per share from
continuing operations excluding unusual items
 $0.40  $0.20  $0.98 (h)$0.54 
  1. Harsco Metals & Minerals adjustment to previously accrued amounts related to the disposal of certain slag material in Latin America (nine months 2018 $3.2 million pre-tax).
  2. Costs associated with the acquisition of Altek Europe Holdings Limited and its affiliated entities ("Altek") recorded in the Harsco Metals & Minerals Segment (nine months 2018 $0.8 million pretax) and at Corporate (nine months 2018 $0.4 million pretax).
  3. Loss on early extinguishment of debt associated with the amending of the Company's existing Senior Secured Credit Facility in order to reduce the interest rate applicable to the Term Loan Facility (nine months 2018 $1.0 million pre-tax).
  4. Bad debt expense incurred in Harsco Metals & Minerals Segment (Q3 and nine months 2017 $4.6 million pre-tax).
  5. Fair value adjustment to contingent consideration liability related to the acquisition of Altek (Q3 and nine months 2018 $0.4 million pre-tax).  The Company adjusts Operating income and Diluted earnings per share from continuing operations to exclude the impact of the change in fair value to the acquisition-related contingent consideration liability for the Altek acquisition because it believes that the adjustment for this item more closely correlates the reported financial measures with the ordinary and ongoing course of the Company's operations.
  6. Unusual items are tax effected at the global effective tax rate, before discrete items, in effect at the time the unusual item is recorded except for unusual items from countries where no tax benefit can be realized, in which case a zero percent tax rate is used.
  7. Adjustment of certain existing deferred tax asset valuation allowances as a result of the Altek acquisition (nine months 2018 $8.3 million).
  8. Does not total due to rounding.

The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS EXCLUDING UNUSUAL ITEMS TO DILUTED LOSS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited)
   
  Three Months Ended 
  December 31 
  2017 
Diluted loss per share from continuing operations as reported $(0.42) 
Impact of U.S. tax reform on income tax benefit (expense) (a) 0.59  
Loss on early extinguishment of debt (b) 0.03  
Taxes on above unusual items (c) (0.01) 
Adjusted diluted earnings per share from
continuing operations excluding unusual items
 $0.20 (d)
  1. The Company recorded a charge as a result of revaluing net deferred tax assets and liabilities as a result of U.S. tax reform ($48.7 million).
  2. Loss on early extinguishment of debt recorded at Corporate ($2.3 million pre-tax).
  3. Unusual items are tax effected at the global effective tax rate, before discrete items, in effect at the time the unusual item is recorded except for unusual items from countries where no tax benefit can be realized, in which case a zero percent tax rate is used.
  4. Does not total due to rounding.

The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS, EXCLUDING UNUSUAL ITEMS TO DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS AS REPORTED (Unaudited)
 
  Twelve Months Ended 
  December 31 
  2017 
Diluted earnings per share from continuing operations as reported $0.09  
Impact of U.S. Tax reform on income tax benefit (expense) (a) 0.59  
Harsco Metals & Minerals Segment bad debt expense (b) 0.06  
Loss on early extinguishment of debt (c) 0.03  
Taxes on above unusual items (d) (0.02) 
Adjusted diluted earnings per share from
continuing operations excluding unusual items
 $0.74 (e)
  1. The Company recorded a charge as a result of revaluing net deferred tax assets and liabilities as a result of U.S. tax reform ($48.7 million).
  2. Bad debt expense incurred in the Harsco Metals & Minerals Segment ($4.6 million pre-tax). 
  3. Loss on early extinguishment of debt recorded at Corporate ($2.3 million pre-tax).  
  4. Unusual items are tax effected at the global effective tax rate, before discrete items, in effect at the time the unusual item is recorded except for unusual items from countries where no tax benefit can be realized, in which case a zero percent tax rate is used. 
  5. Does not total due to rounding.

The Company’s management believes Adjusted diluted earnings per share from continuing operations excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT EXCLUDING UNUSUAL ITEMS (Unaudited)

(In thousands)
 Harsco
Metals & Minerals
 Harsco
Industrial
 Harsco 
Rail
 Corporate Consolidated
Totals
           
Three Months Ended September 30, 2018:          
Adjusted operating income (loss), excluding unusual items $29,750  $13,959  $19,000  $(5,188) $57,521 
Revenues as reported $268,881  $93,912  $82,682  $  $445,475 
Adjusted operating margin (%) excluding unusual items 11.1% 14.9% 23.0%   12.9%
           
Three Months Ended September 30, 2017:          
Adjusted operating income (loss), excluding unusual items $28,202  $12,954  $4,391  $(6,329) $39,218 
Revenues as reported $255,163  $78,318  $51,134  $38  $384,653 
Adjusted operating margin (%) excluding unusual items 11.1% 16.5% 8.6%   10.2%
           
Nine Months Ended September 30, 2018:        
Adjusted operating income (loss) excluding unusual items $90,676  $40,550  $29,570  $(15,148) $145,648 
Revenues as reported $805,924  $269,575  $209,912  $74  $1,285,485 
Adjusted operating margin (%) excluding unusual items 11.3% 15.0% 14.1%   11.3%
           
Nine Months Ended September 30, 2017:        
Adjusted operating income (loss), excluding unusual items $85,423  $25,088  $18,800  $(18,337) $110,974 
Revenues as reported $761,503  $217,766  $172,716  $107  $1,152,092 
Adjusted operating margin (%) excluding unusual items 11.2% 11.5% 10.9%   9.6%
  1. On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension costs ("NPPC") in the statement of operations.  Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations.  The amounts presented reflect the adoption of these changes.

The Company’s management believes Adjusted operating margin (%) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
(In thousands) Harsco
Metals & Minerals
 Harsco
Industrial
 Harsco 
Rail
 Corporate Consolidated
Totals
           
Three Months Ended September 30, 2018:        
Operating income (loss) as reported $29,338  $13,959  $19,000  $(5,188) $57,109 
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability 412        412 
Adjusted operating income (loss), excluding unusual items $29,750  $13,959  $19,000  $(5,188) $57,521 
Revenues as reported $268,881  $93,912  $82,682  $  $445,475 
           
Three Months Ended September 30, 2017:        
Operating income (loss) as reported (a) $23,613  $12,954  $4,391  $(6,329) $34,629 
Harsco Metals & Minerals bad debt expense 4,589        4,589 
Adjusted operating income (loss), excluding unusual items $28,202  $12,954  $4,391  $(6,329) $39,218 
Revenues as reported $255,163  $78,318  $51,134  $38  $384,653 
  1. On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension cost ("NPPC") in the statement of operations.  Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations.  The amounts presented reflect the adoption of these changes.

The Company’s management believes Adjusted operating income (loss) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS) EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
(In thousands) Harsco
Metals & Minerals
 Harsco
Industrial
 Harsco 
Rail
 Corporate Consolidated
Totals
           
Nine Months Ended September 30, 2018:        
Operating income (loss) as reported $92,734  $40,550  $29,570  $(15,579) $147,275 
Harsco Metals & Minerals adjustment to slag disposal accrual (3,223)       (3,223)
Altek acquisition costs 753      431  1,184 
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability 412        412 
Adjusted operating income (loss), excluding unusual items $90,676  $40,550  $29,570  $(15,148) $145,648 
Revenues as reported $805,924  $269,575  $209,912  $74  $1,285,485 
           
Nine Months Ended September 30, 2017:        
Operating income (loss) as reported (a) $80,834  $25,088  $18,800  $(18,337) $106,385 
Harsco Metals & Minerals bad debt expense 4,589        $4,589 
Adjusted operating income (loss), excluding unusual items $85,423  $25,088  $18,800  $(18,337) $110,974 
Revenues as reported $761,503  $217,766  $172,716  $107  $1,152,092 
  1. On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension cost ("NPPC ") in the statement of operations.  Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations.  The amounts presented reflect the adoption of these changes.

The Company’s management believes Adjusted operating income (loss) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS), EXCLUDING UNUSUAL ITEMS BY SEGMENT TO OPERATING INCOME (LOSS) AS REPORTED BY SEGMENT (Unaudited)
(In thousands) Harsco
Metals & Minerals
 Harsco
Industrial
 Harsco 
Rail
 Corporate Consolidated
Totals
           
Twelve Months Ended December 31, 2017:        
Operating income (loss) as reported (a) $102,362  $35,532  $32,954  $(25,455) $145,393 
Harsco Metals & Minerals bad debt expense 4,589        4,589 
Adjusted operating income (loss), excluding unusual items $106,951  $35,532  $32,954  $(25,455) $149,982 
  1. On January 1, 2018, the Company adopted changes issued by the Financial Accounting Standards Board related to how employers that sponsor defined benefit pension plans and other postretirement plans present net periodic pension cost ("NPPC") in the statement of operations.  Employers are required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  Other components of NPPC are required to be presented in the statement of operations separately from the service cost component and outside of the subtotal of income from operations.  The amounts presented reflect the adoption of these changes.

The Company’s management believes Adjusted operating income (loss) excluding unusual items, which is a non-U.S. GAAP financial measure, is useful to investors because it provides an overall understanding of the Company’s historical and future prospects.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance.  This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF FREE CASH FLOW TO NET CASH USED BY OPERATING ACTIVITIES (Unaudited)
        
  Three Months Ended Nine Months Ended
  September 30 September 30
(In thousands) 2018 2017 2018 2017
Net cash used by operating activities $48,315  $36,126  $95,014  $82,905 
Less capital expenditures (34,806) (23,431) (91,302) (64,131)
Plus capital expenditures for strategic ventures (a) 437  36  972  432 
Plus total proceeds from sales of assets (b) 5,943  9,212  9,096  10,746 
Free cash flow $19,889  $21,943  $13,780  $29,952 
  1. Capital expenditures for strategic ventures represent the partner’s share of capital expenditures in certain ventures consolidated in the Company’s financial statements.
  2. Asset sales are a normal part of the business model, primarily for the Harsco Metals & Minerals Segment.

The Company's management believes that free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds for planning and performance evaluation purposes.  It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited)
  
  Twelve Months Ended
  December 31
(In thousands) 2017
Net cash provided by operating activities $176,892 
Less capital expenditures (98,314)
Plus capital expenditures for strategic ventures (a) 865 
Plus total proceeds from sales of assets (b) 13,418 
Free cash flow $92,861 
  1. Capital expenditures for strategic ventures represent the partner’s share of capital expenditures in certain ventures consolidated in the Company’s financial statements.
  2. Asset sales are a normal part of the business model, primarily for the Harsco Metals & Minerals Segment.

The Company's management believes that Free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from (used in) operations less capital expenditures net of asset sales proceeds.  It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Unaudited)
  Projected
Twelve Months Ending 
December 31
  2018
(In millions) Low High
Net cash provided by operating activities $205  $225 
Less capital expenditures (125) (133)
Plus total proceeds from asset sales and capital expenditures for strategic ventures 10  8 
Free cash flow $90  $100 

The Company's management believes that free cash flow, which is a non-U.S. GAAP financial measure, is meaningful to investors because management reviews cash flows generated from operations less capital expenditures net of asset sales proceeds for planning and performance evaluation purposes.  It is important to note that free cash flow does not represent the total residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements and settlements of foreign currency forward exchange contracts, are not deducted from the measure. This measure should be considered in addition to, rather than as a substitute for, other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF RETURN ON INVESTED CAPITAL EXCLUDING UNUSUAL ITEMS TO NET INCOME (LOSS) FROM CONTINUING OPERATIONS AS REPORTED (a) (Unaudited)
  Trailing Twelve Months for
Period Ended September 30
(In thousands) 2018 2017
Income from continuing operations $64,791  $30,151 
Unusual items:    
Impact of U.S. tax reform on income tax benefit 48,680   
Harsco Metals & Minerals Segment adjustment to slag disposal accrual (3,223)  
Loss on early extinguishment of debt 3,299  35,337 
Altek acquisition costs 1,184   
Harsco Metals & Minerals Segment change in fair value to contingent consideration liability 412   
Harsco Rail Segment forward contract loss provision   5,000 
Harsco Metals & Minerals Segment bad debt expense   4,589 
Harsco Metals & Minerals Segment cumulative translation adjustment liquidation   (1,157)
Taxes on above unusual items (b) (804) (12,615)
Deferred tax asset valuation allowance adjustment (8,292)  
Net income from continuing operations, as adjusted 106,047  61,305 
After-tax interest expense (c) 29,679  30,140 
     
Net operating profit after tax as adjusted $135,726  $91,445 
     
Average equity $250,595  $194,242 
Plus average debt 630,474  656,437 
Average capital $881,069  $850,679 
     
Return on invested capital excluding unusual items 15.4% 10.7%
  1. Return on invested capital excluding unusual items is net income (loss) from continuing operations excluding unusual items, and after-tax interest expense, divided by average capital for the year. The Company uses a trailing twelve month average for computing average capital.
  2. Unusual items are tax effected at the global effective tax rate, before discrete items, in effect at the time the unusual item is recorded except for unusual items from countries where no tax benefit can be realized, in which case a zero percent tax rate is used.
  3. The Company’s effective tax rate approximated 37% for the trailing twelve months for period ended September 30, 2017 and for the trailing twelve months for period ended September 30, 2018, 37% was used for October 1, 2017 through December 31, 2017 and 23% was used for January 1, 2018 through September 30, 2018, on an adjusted basis, for interest expense.  The lower rate for 2018 is due to U.S. Tax reform.

The Company’s management believes Return on invested capital excluding unusual items, which is a non-U.S. GAAP financial measure, is meaningful in evaluating the efficiency and effectiveness of the capital invested in the Company’s business.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance.  This measure should be considered in addition to, rather than as a substitute for, net income or other information provided in accordance with U.S. GAAP.

HARSCO CORPORATION
RECONCILIATION OF RETURN ON INVESTED CAPITAL EXCLUDING UNUSUAL ITEMS TO NET INCOME FROM CONTINUING OPERATIONS AS REPORTED (a) (Unaudited)
  Year Ended
December 31
(In thousands) 2017
Income from continuing operations $11,648 
Unusual items:  
Impact of U.S. tax reform on income tax benefit 48,680 
Harsco Metals & Minerals Segment bad debt expense 4,589 
Loss on early extinguishment of debt 2,265 
Taxes on above unusual items (b) (2,052)
Net income from continuing operations, as adjusted 65,130 
After-tax interest expense (c) 29,957 
   
Net operating profit after tax as adjusted $95,087 
   
Average equity $189,560 
Plus average debt 638,964 
Average capital $828,524 
   
Return on invested capital excluding unusual items 11.5%
  1. Return on invested capital excluding unusual items is net income from continuing operations excluding unusual items, and after-tax interest expense, divided by average capital for the year. The Company uses a trailing twelve month average for computing average capital.
  2. Unusual items are tax effected at the global effective tax rate, before discrete items, in effect at the time the unusual item is recorded except for unusual items from countries where no tax benefit can be realized, in which case a zero percent tax rate is used.
  3. The Company’s effective tax rate approximated 37% for the year ended December 31, 2017 on an adjusted basis, for interest expense.

The Company’s management believes Return on invested capital excluding unusual items, which is a non-U.S. GAAP financial measure, is meaningful in evaluating the efficiency and effectiveness of the capital invested in the Company’s business.  Exclusion of unusual items permits evaluation and comparison of results for the Company’s core business operations, and it is on this basis that management internally assesses the Company’s performance.  This measure should be considered in addition to, rather than as a substitute for, net income or other information provided in accordance with U.S. GAAP.